The myth about organised labour

Bad for business

The labour dispute at the University of Guyana has brought to mind the debate of whether or not union activity and collective bargaining help or hurt the economy. There is a view that labour institutions and progressive legislation are bad for business. This debate has been around for some time but gained prominence in the 1990s in both academic and policymaking circles as financial institutions tried to grapple with economic reforms in many crisis-riddled countries. The negative view about labour emerged as a cornerstone of the management of the international monetary system where the International Monetary Fund (IMF), for example, felt that domestic economic disequilibrium was caused by rigidities in resource markets. This bias was often found where the public sector occupied a large share of the product and labour markets. A return to a September 2007 article for the World Bank by Richard Freeman reminds us that the debate on this issue was not fully settled, even though it threw up three points of view about the impact that labour institutions have on economic change and development. This article reflects on the major points of the Freeman contribution to the subject to indicate labour demands through collective bargaining is a very valid and useful way of allocating labour resources in a domestic economy. Because of some of the issues discussed in the article, this writer must remind readers that he was a member of staff of the University of Guyana (UG).

Interference

Freeman observed in his piece that one point of view was that labour institutions distorted economic performance. This was consistent with the Harris-Todaro two-sector model which argued that unemployment was caused by institutionally imposed high urban wages. The model argued too that high wages attracted rural workers to the urban areas where they became unemployed, since the rate of migration tended to exceed the rate of job creation. Freeman also observed that markets became distorted because labour unions interfered with the free operation of the labour market, thereby reducing opportunities for existing employees and migrant workers. This viewpoint was better understood by considering a labour market in which wages were in equilibrium. At that point, any increase in wages through collective bargaining leads companies with unionized employees to cut employment in order to meet the higher labour costs. An important contention here was that the higher the elasticity of demand for labour, the greater would be the distortion in resource allocation.

Efficient bargaining

The second theory about labour institutions and the labour market which the Freeman article identified was that labour institutions served as mechanisms for efficient bargaining.   Unlike the distortionist view, this perspective contained a more positive view of unions and collective bargaining. Collective bargaining was thought to help allocate resources efficiently. Those economists who support this point of view also argued that unionized workers did not have a negative effect on production and productivity. While they conceded that unionized workers could affect adversely the way in which labour was distributed among industries, they were convinced that unionized workers did not affect production adversely.

The third point of view suggested that labour institutions did not have any harmful effects on efficiency and productivity. They were seen as important sources and conduits of information which lead to collaborative behaviour. This harmony between labour and capital that was generated from collective bargaining leads to increases in productivity. This perspective recognized the value of labour. However, when the dispersion of pay was high for non-competitive reasons, collective bargaining was seen as a good way of bringing wages closer to the market clearing level.

Cannot be correct

All three points of view cannot be correct all the time, especially where labour and capital recognize their importance to each other. Further, there should be no subscription to the view that in a contractual relationship one party should have the upper hand. This is the premise of the distortionists who believe workers should not be unionized and that employers should be free to pay workers what they feel. There was a time when the international financial institutions held fast to the distortionist view of labour and felt that resources could only be allocated efficiently by diminishing the value of labour institutions and collective bargaining. This is a view that has penetrated the economic policy of the Guyana government as could be seen in its treatment of labour disputes between workers and their employers.

Two unsettled issues in this regard come to mind. One is the Rusal matter where the Ministry of Labour has failed to play an active role in resolving the dispute between workers and the company. This matter has remained inconclusive for the past five years. The other matter of interest is the demand by workers of the University of Guyana for better working conditions. In 2012, the workers agreed to terms of resumption after taking strike action but the Ministry of Labour never fulfilled its responsibility in ensuring that those talks between the workers and the administration of the university were resumed. These two failures show clearly the lack of interest by this government in developing and protecting the human resources of this country.

Devalue labour

One consequence of the systematic attempt by the government in Guyana to devalue labour and to weaken the labour movement has been the continual loss of human resources from the country. Workers feel that their services are undervalued and there is no concerted effort by the government to aid them to secure better working conditions. This tendency also has adversely affected the education and health services to Guyanese, two vital sectors of the economy. The elimination of jobs or the suppression of wages of workers from these two so-called non-productive sectors miss a fundamental concept of human development, that of equity and opportunity as described by the World Bank in its Social Protection and Labour (SPL) strategy. The notion that all labour could be crowded into the private sector and very little left in the public sector sharply reduced overall economic efficiency and led to income inequality and sharp increases in poverty.

Shift in policy

This is a development that was recognized by the international financial institutions later on. This shift in policy is seen in the creation of the SPL strategy of the World Bank. The SPL is designed for individuals and families. However, this strategy which targets the vulnerable has a critical component in which usefulness is often overlooked, and that is the role it could play to ensure inclusive growth and social stability. The element of inclusive growth applies not only to the unemployed. It also applies to the employed who are earning incomes that prevent them from living a comfortable life. Labour is the only economic resource that workers have. For labour to be of value, workers must have knowledge and skills. The separation of the intellectual input from the manual input is recognized in the bargaining by the two unions of UG. The university plays a major role in helping workers to develop their knowledge and skill sets. Those who perform that task and those who support them should be amply compensated for doing so.   All employers, whether in the private or public sector, have a responsibility to ensure that employees are able to take care of more than their basic needs. In the case of the university, the working conditions must reflect that recognition.

The World Bank has recognized the importance of human resource development and has been willing and able to change its perspective on organized labour and its impact on labour markets. This writer has observed in a previous article that the World Bank has found that labour market regulations and policies which support collective bargaining do not discourage private investment and were not an obstacle to job creation. This finding is consistent with the research findings of Richard Freeman where labour policies and collective bargaining were thought to have positive effects on labour markets. These perspectives lend credence to the joint positions taken by the two unions at UG in demanding higher wages and better working conditions.

All workers

Another important element of the SPL is its recognition of the need to create opportunity for people. This objective, the World Bank observed, comes from building human capital with emphasis on “workers’ skills and productivity.” This is part of the labour market programme of the SPL. While the World Bank is forced to limit its focus on the poor and vulnerable because of its mandate, the concept of opportunity applies to all workers. They have the right to have equal access to opportunity since they are expected to take care of themselves and family where that was necessary. This is what the staff at UG is trying to do. It is trying to create opportunities for both staff and students that would benefit all. Knowledge is regarded as the ultimate public good. Knowledge imparted to students redounds to the benefit of the entire society where that knowledge is employed. All of society is able to benefit from public knowledge without necessarily contributing to the cost of producing that knowledge.

Terrible working conditions

Those at UG who have been creating that knowledge have been doing so under terrible working conditions. They feel left out of the opportunity to work in a safe and healthy environment and of the opportunity to take care of their families. Their demands are consistent with the desire to have that opportunity and to have organized labour continue making a positive contribution to national development.