27 July 2005

The Web

The employers’ union man

Rescinding from the harsh ‘partisan’ label he attributed to the former MCESD chairman Edward Scicluna, the President of the Malta Employers Association, Arthur Muscat says his was only advice for economists not to use “emphatic” terms which risk being used in a partisan manner by third parties.
Muscat does not concur that the economy is passing through a recession but warns that if hard decisions are not taken to restructure the labour market and trim government expenditure the country could be facing serious problems.
The employers’ president argues that it is unsustainable for the cost of living wage increase to apply automatically to all employees and suggests this be awarded to minimum wage earners only.
As for government expenditure, Muscat stops short of calling for lay offs from the public service but insists on a manpower study of all government services so as to identify the sectors which are non-productive, over-manned and inefficient. At the same time the study would be identifying the areas where manpower is needed.
“If this study is conducted, government could then entice the private sector to create the necessary jobs to assume the excess labour,” Muscat says.
And with rumblings of a renewed effort to kick start negotiations on a social pact making the news, Muscat says decisions taken by consensus are the best way forward but it is government that finally has to take a leadership role.

Professor Edward Scicluna in a recent interview with this newspaper gave a bleak outlook of the economy basing his arguments on statistics currently in hand. Yet you used the word ‘partisan’ to describe Prof. Scicluna’s statements. Why?
It would be a pity if economists, and Scicluna is one of the very few who enjoys wide respect, were to be labelled partisan because of the comments they make. The Malta Employers Association has huge respect for Prof. Edward Scicluna and in a country where everything is given a partisan tinge economists have to be careful when they make emphatic statements.
As an Employers’ Association we agree with a large percentage of what Professor Scicluna said. His comments made a lot of sense but it is the way he expressed himself that bothers me. Scicluna said ‘the prime minister is ill-advised’. Possibly there is another economist advising the prime minister and I don’t think somebody is deliberately giving the PM bad advice.
Otherwise Professor Scicluna made a lot of sense. He suggested Government control expenditure by reducing the number of employees with the civil service. This is something MEA has been saying for years. The Professor also said that if Government contained expenditure and could afford to give a tax cut, it should be directed towards providing incentives to the productive sectors rather than individual tax cuts which would fuel consumption. This is something we also agree with.
Scicluna also talked of the difficulty unions faced to convince their members on the need to do sacrifices when government continues to try and paint a positive picture of the economy. While we believe unions can do much more to enable restructuring to take place, the professor is correct in his assessment.
It is important for economists to continue expressing their views. I only intended to give advice; economists should be objective and avoid emphatic statements which risk being used for partisan means. I did not label Scicluna, I have huge respect for him.

Prof. Scicluna said the economy was going through one of its longest recessions since the Second World War, even if it is not the deepest, citing sluggish to negative growth over a series of quarters. Last week you expressed disagreement with this assessment. What is your view?
The MEA is not a supporter of government, we are an independent association and we also express our views. Every economy is judged by a number of indicators that could lead one to different conclusions. And every conclusion could be debated to the contrary. The workings of an economy are not simple; for example government cannot simply reduce the deficit by raising taxes because this will have an impact somewhere else.
If we look at the current economic scenario, we do see huge difficulties, which will become problems if government does not take any measures to mitigate them. We start to worry if the unpopular measures that need to be taken are not taken.
If I were to look at one particular indicator, unemployment, the obvious question arises; do we have rising unemployment?
Unemployment is a contained problem and recent statistics indicate that unemployment has gone down. We do not have rampant unemployment but we do have structural unemployment. There is a sector of people, mostly unskilled, who will find it very difficult to get a job.
If we do not try to train these people and educate them to the requirements of the job market they will remain perpetually unemployed.
There is no alarm on the employment front but there are worrying signs and we need to take the necessary measures.
Take inflation. It is still under three per cent. We don’t have rampant running inflation and these are facts.

Prof. Scicluna’s argument is that in a situation where government has opted for a fixed peg with the Euro upon joining ERM II, for Malta to enjoy a competitive advantage, inflation needs to be lower than that of our competitors in Europe. In most cases we are above average and where we aren’t it is because the economies in those countries are growing substantially. What is your reaction?
Prof. Scicluna was right in pointing out that the European Central Bank afforded us a 15 per cent fluctuation band and offered to supplant our reserves if these weakened. This is a prudent and advantageous facility. But government and the Central Bank of Malta had reasons for deciding differently.
They are best poised to explain the decision but I believe they could have opted for the fixed rate to avoid speculation on the currency. The peg may have removed the temptation for those wanting to speculate on the currency exchange rate.
For every viewpoint floated by an economist, you can rest assured that there is a counter opinion.

A critical argument made by Prof. Scicluna is that government is too concerned with reducing the deficit by raising taxes and introducing new ones. Has government relinquished other options in its urgency to reduce the deficit at all costs?
The pressure on government to reduce the deficit is coming from the fact that it is one of the Maastricht criteria to be able to adopt the Euro. These EU restrictions when applied to individual countries, many times do not make sense. In fact, Prof. Scicluna also pointed out that addressing the deficit by raising more revenue will only precipitate a deflationary process that can get out of hand by dampening growth and contracting the economy. We would be solving the deficit problem by lowering the economy’s overall performance.
As MEA we believe the economy should be kick started to stimulate growth. And it is at this point that government has to be careful what instruments it uses because each and every decision impinges on each other.
The medicine prescribed by Prof. Scicluna concerned government expenditure and the need to trim non-productive outlays.

One of government’s biggest expenditures is on wages. How can it contain this expense?
The MEA has been raising this issue for years. The public sector does not operate on the same criteria as the private sector; it has big management problems. The private sector has to work on efficiency criteria but in the public sector these criteria are nebulous.
Our suggestion is for government to appoint external auditors to conduct a survey of the services government is giving, what services it should be giving, what level of service government can afford and a manpower study to determine whether these services are being delivered with the utmost efficiency.
This would help us identify where the problems are. Nobody doubts that there are excess employees with the public service but there are also people not being used in a productive manner. What is there that militates against this idea?
Government has this ingrained fear of throwing out people because it could create a wider social problem. As MEA we have never said government should make people redundant but if this study is conducted, government could then entice the private sector to create the necessary jobs to assume the excess labour. This is not happening fast enough and in the meantime we have valuable resources being wasted.
Government employs a lot of people who earn a wage for a job that does not exist. They are technically unemployed but instead are seemingly gainfully employed. There is also the social justice aspect to all this.
Employees in the private sector may lose their job any time depending on the evolution of the business they operate in. If the economy is performing well they will then find another job. This is the world we live in but somehow these rules do not apply for those employed with the public sector.

Do you agree with the current campaign conducted by the GWU calling on government to assume responsibility of employees made redundant by failing State-owned enterprises such as Interprint?
We absolutely do not agree with the union on this issue. First of all the GWU is constantly reminding employers to adhere religiously to signed collective agreements. With the same logic, the collective agreement for Interprint employees does not state that if workers lose their job because of redundancies they have to be given alternative employment with government. The collective agreement simply says they are entitled to redundancy payments.
But if one were to extend the issue there are fundamental principles at stake. God forbid government had to give alternative employment guarantees. First of all this would be creating two classes of employees; those in the private sector and those on government’s payroll, who would remain so employed irrespective of what happens.
As far as I know we buried communism 15 years ago. The economy we operate in has its own rules based on efficiency, competitiveness and the shifting of labour where it is needed. If we are to throw the latter principle away we would be inviting gross inefficiencies and a massive recession.

The arguments that the civil service is overmanned have been made for years on end. Is there any hope that the political class will ever take the necessary decisions or will the concern for votes always prevent such decisions being taken?
There aren’t indicators to show that government will start acting in a decisive manner on the issue. Not everything is negative because there is an element of natural wastage which is not being replaced. But government has another problem on its hands because there are public sectors which are overmanned while other sectors are short of employees.
The problem has been coming for a long time and nothing has been done to tackle it in a meaningful way. Simply waiting for the situation to resolve itself by banking on natural wastage is not enough, we have to be proactive.
The biggest problem government faces when undertaking reforms is the rigidity of unions, which many times are not ready to compromise when it comes to employee transfers.
What use is it for government to privatise a public entity and employees are given the choice to either stay on with the privatised company or else be transferred with government.
For example we had the public-private partnership to embellish roundabouts. It worked but at a very high cost. What use was it for government to hive off a public function by entrusting it to the private sector but still retaining a number of employees on its payroll because they did not want to join the private contractor. It is already something for Government to guarantee the conditions of these employees but it should also have the authority to force them to participate in the arrangement.

The MEA has suggested giving the cost of living wage increase only to minimum wage earners. What is the rationale behind this proposal?
The automatic mechanism dependent on the cost of living index that determines by how much wages should rise is enforceable on all employers. For years, the MEA has clamoured for a revision of the system. We do not agree with automatic wage increases just because the cost of living has gone up.
In the private sector there is the principle of free collective bargaining. In general, every three years we renegotiate collective agreements which also include wage increases based on the companies’ productivity. Then government comes along and forces employers to award a further increase based on the RPI irrespective of the company’s performance.
No government should guarantee wage increases because prices have gone up. This is the position unions adopt but for us it is unrealistic. We propose that cost of living wage increases should be awarded only to minimum wage earners.
There are companies that have long been established which every three years have negotiated new collective agreements that included cost of living adjustments. Furthermore, companies have had to fork out an additional wage increase determined by government. As a result, successful companies today have exorbitant wage bills. The extra wages they have had to endure because of the current mechanism in some cases works out for an extra Lm56 per week for every employee over and above that agreed to in collective agreements.
The danger today is that new companies competing in already established sectors will not be offering such wages and could possibly threaten the established companies
To be fair there have been situations this year where unions have agreed to the award of annual bonuses rather than wage increases in the private sector. It is a welcome change that came about in the aftermath of a failed social pact.

Government legislated to ban public holidays falling on a weekend from being added on to employees’ leave entitlement. Yet, it was criticised for adopting the most complicated of roads when shaving off two days from the statutory leave entitlement or simply removing two public holidays could have had the same net effect with less complications. What is your assessment?
The Public Holidays measure did have a positive impact on industry suffice to say that for a company employing around 500 people the measure means an additional Lm40,000 a year in output.
What bothered the MEA was the opposition by the unions to the implementation of such a measure with threats of legal action and even a referendum. In some cases employers decided not to bother at all with the implementation of the new measure to avoid controversy with the unions.
But we were also critical of government for exposing itself to all sorts of controversy in adopting such a measure. It would have been much better had government opted for a measure that is easier
to implement.

Does the MEA concur with what a leading industrialist said that the first three days of sick leave should not be remunerated?
The MEA does not agree with such a proposal. We believe that sick leave is an important benefit. When an employee is sick, I wouldn’t want him or her at the place of work. Sick leave is a right. The problem arises when sick leave is abused of.
Just like there are employees who take sick leave when they shouldn’t, there are also some doctors who issue sickness certificates with great ease. It is not the notion of sick leave that is wrong but its abuse.
A survey conducted by MEA shows that on average employees in the private sector take five days of sick leave every year. But employees of the civil service somehow take an average of ten sick leave days, double that in the private sector.
It is evident that more control is necessary since I don’t think public sector employees are weaker than their counterparts in private industry.

Gejtu Vella interviewed by this newspaper said that discussions on the social pact should start again but this time decisions should be taken even if there isn’t consensus. Do you agree?
The social pact was not reached because the final packet placed on the discussion table was not accepted by the unions and I stress, the unions, because a distinction was being made between one union and another.
The final packet was acceptable to government and the employer associations. But when government tried to sell the package to the unions it did not manage and it was government that finally declared the social pact dead. At the time there was emphasis on the idea that an agreement should be reached by consensus.
Reaching a social pact by majority vote is a possibility but you don’t even need a vote because government can just consult with the MCESD and then legislate of its own accord.
A social pact backed by a majority vote means that a minority will be opposing its implementation but the alternative is government simply legislating irrespective of the support or lack of it for the proposed measures.
Decisions by consensus are thus very valid. We have no objection to engage in fresh discussions to try and reach a social pact. Whether it’s by consensus or not, we believe government has to take leadership of the discussions.

What is your position on the privatisation of Sea Malta?
We recognise there is the aspect of an essential service that has to be guaranteed. Sea Malta operates certain routes that benefit local industry and this should be safeguarded. There is also the principle that Sea Malta should operate within market conditions rather than being supported by government. It is a very delicate balance but one that must, at all times keep in mind the essential service the company has rendered to industry.

Arthur Muscat was
interviewed by Kurt Sansone

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