Reg Rumney reports on the labour market gospel according to the World Bank
A World Bank report on labour warns against the the kind of amendments the union negotiators have proposed on compulsory centralised bargaining in the draft Labour Bill.
Labour is the theme of the 1995 World Development Report: Workers in an Integrating World released this week. One of the principle authors, Arup Banerji, was in Johannesburg this week to mark the release of the report. He would not be drawn to comment on the Bill itself, but did expand on what is in the report.
The report, as could be expected from a World Bank document, accepts as its premise the desirability of market economies in an increasingly integrated world. But it is no union-bashing tract; it notes both the economic pros and cons of unions, and supports the rights of association and collective bargaining.
For instance, it is not against a minimum wage, but it notes minimum wage legislation does not have much effect in developing countries.
To encourage unions to make a positive economic contribution, the report urges competitive markets as a bridle to curb union power. In less competitive environments, the report notes, unions will ally themselves with employers and politicians to try to maintain an unfair advantage.
It remains to be seen whether the National Economic, Development and Labour Council makes possible this sort of “corporatism”.
The report also advocates industrial relations systems where unions and employers absorb the cost of their actions, and don’t pass them on to third parties, such as consumers. In other words, the state should not intervene, by say forcing employers to pay workers even when they are on strike, or allowing parastatals to abuse monopoly power by simply raising prices to compensate for higher wages.
On the other hand, Banerji dismisses the idea that an anti-union authoritarianism is necessary for economic growth. A widely held belief is that the Asian “Little Tigers” achieved high rates of economic growth partly through union suppression.
Banerji notes that countries such as Korea until 1989, Singapore, Malaysia and Indonesia are an aberration. A correlation of data on welfare, wages and employment growth with the degree of democracy in 70 countries shows that — with these exceptions — authoritarian countries had worse outcomes for labour.
“Denial of workers’ rights is not necessary to achieve growth of incomes,” notes the report. Repression is often accompanied by labour regulations and special privileges, and labour market distortions are especially severe in many countries that have suppressed trade unions.
The report notes the positive industrial relations achieved in Europe through centralised bargaining, but adds this is now falling out of favour as Europeans grapple with rising unemployment and inflexible labour markets. More importantly, centralised bargaining needs most workers in a country to be covered by union
“If they are not, as is the case in most countries, national agreements will benefit the unionised sector at the expense of the unorganised and poorer groups in
In South Africa, registered union membership was 23 percent of the workforce in 1993. The Reserve Bank has estimated formal sector unemployment at 46 percent.
Banerji notes that the experience of centralised bargaining was markedly different in the developed as opposed to the developed countries. Even in the developed countries there are two extremes. “In the developed countries the best outcomes are at the firm level or at the national level where there is a social
In developing countries the worst results for workers in general came about through bargaining at a national level. In poor countries centralised bargaining may well reduce potential employment growth in the formal
“Centralised bargaining is successful only in economies with competitive markets.”