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Eric Bloch Column

Inadequate income better than nothing
By Eric Bloch

THE Tripartite Negotiating Forum (TNF) was created to facilitate constructive and productive dialogue between government, the private sector and labour on issues of common concern with a view to arrivi

ng at agreements between those parties which would effectively address those concerns.  

Over a period of about three years, the TNF has functioned on a “start, stop, start, stop” basis where innumerable meetings have been held between the negotiating partners, but no meaningful agreements have been reached.

Almost all of the deliberations have been focused upon concluding a prices and incomes stabilisation protocol (otherwise known as a social contract), perceived to be an important and conducive element of attaining a substantive economic recovery. 

However, despite the very extensive, if intermittent, negotiations within the TNF, a social contract has not been concluded and, at different stages, each of the negotiating parties has blamed one or other of the participants for frustrating attainment of an accord.

Although a social contract is not a magical cure-all for Zimbabwe’s very many and intensive economic ills, it would create an enabling environment for economic transformation, and would contribute in a substantial manner to achieving that transformation. In essence, a social contract is one wherein all the contracting parties agree that there be an almost absolute freeze on prices, wages, governmental service charges and taxes.

Commerce and industry would not, during the continuance of the social contract, increase prices for goods and services. While that price freeze continues, salaries and wages would remain fixed and unchanged, as would all charges and taxes by government, parastatals and local authorities.

The only exception to the standstill in prices, wages and charges would be that they would increase to the extent that factors external of Zimbabwe necessitate increases, such as when there is an escalation in fuel costs as a result of an international rise in crude oil prices, or when exchange rate movements cause increases in landed costs of imports. In such instances, prices would be permitted to increase appropriately, with correspondingly commensurate increases in wages and in governmental and parastatal charges.

Save for such permissible adjustment to prices, wages and charges, all would be frozen for an agreed period of time. Such a social contract would not bring about an instantaneous economic metamorphosis, but would be greatly facilitative of change. That is because, although there are many causes of inflation, one of the greatest is inflation itself.  

When collective bargaining negotiations on wage increases are entered into, the labour negotiators generally consider that the minimum of wage increases must be to the extent that, since the preceding wage increase, purchasing power of workers has been eroded by inflation.  And, when the wages are increased, be it to the extent of compensating for prior inflation, or to a greater extent, the employers necessarily have to increase prices to recover the additional wages, thereby fuelling yet further inflation. 

In like manner, most landlords regularly adjust rentals to the extent, at the least, of inflation sustained since the previous rent review, and in consequence the tenants of industrial or commercial properties increase prices in order to fund the increased rentals, while the increases also have inflationary impacts upon the tenants of residential properties.

And all other inflationary impacts upon commerce and industry have similar repercussive effects.  Be they cost increases in respect of electricity, transport, telecommunication, bank charges or any of the myriad of other expenditure components of business, those increases must be passed on to customers, whomsoever they may be, and ultimately become constituents of the inflation burden upon consumers.

The unavoidable need of producers, distributors and all others within the economic chain to pass on cost escalations is a very major fuellant of inflation and repeats itself endlessly, resulting in a continuous inflation spiral.

This can only be effectively halted by a social contract, as evidenced in Germany in 1924 (when inflation soared upwards at such a horrific pace that employers resorted to paying salaries and wages twice daily, so as to enable employees to spend their earnings before their buying power diminished further).

A social contract was a key element of Roosevelt’s 1933 “New Deal” to end the Great Depression, which he successfully achieved. And social contracts enabled the economic recoveries of the countries that constituted the former Soviet Union in the early 1990s, Israel in the late 1970s, of Bolivia in 1981, and more recently of Mexico and Argentina, among very many others.

Inflation is not the only one of Zimbabwe’s disastrous economic circumstances, but it is a very major one and, to some extent, is a contributant to many of the other very negative circumstances.  Inflation is a significant factor in Zimbabwe’s diminishing export market competitiveness, and therefore a trigger of diminished productivity in the manufacturing sector, resulting in increasing unemployment.  

The reducing extent of exports results in intensifying foreign currency shortages, further worsening the economy and contributing to the markedly declining infrastructure of energy generation, rail and air services, roads, telecommunications, health services, and much else.  And the continuing hyperinflation is a major influencing factor driving Zimbabwe’s pronounced  “brain drain”, which has seen more of Zimbabwe’s skilled living and working in the diaspora than in Zimbabwe.  These are but a few of the economic ailments which are caused, or worsened, by inflation.

Therefore, if a social contract were to be reached in the TNF, it would be a strong plank in a platform for economic recovery. It would ensure that instead of NEDPP standing for National Extreme Destitution and Poverty Programme, it could be the National Economic Development Priority Programme, which it claims to be, but cannot possibly be until, among many other prerequisites, inflation is set upon a path of genuine containment, instead of being only governmental wishful thinking and self-delusion. 

It would create an environment wherein other economic   remedial measures could then be pursued with conviction and intent, including reformation of land reform, belated compliance with Bilateral Investment Promotion and Protection Agreements, restoration of justice, law and order and respect for human rights, and consequential re-establishment of constructive and harmonious international relationships, resulting in investment, trade development support.

For these to be pursued, there needs to be a genuine will for change and recognition of faults, so that those faults can be addressed, but such will can be dramatically reinforced by the enabling environment created by a social contract.

Regrettably, however, once again the TNF has been in deadlock. The most recent “deal-breaker” has been the demand by labour that the social contract must be preceded by an increase in minimum wages to a level equating with the poverty datum line (PDL), and those wages must be maintained at whatsoever the PDL may be at any time.  

Private sector enterprise accepted this demand, in principle, but wished it to be qualified by a limitation, being the extent of ability to pay.  This has been unacceptable to labour, which is unfortunate and unrealistic in the extreme.

None can credibly argue that it is unreasonable for labour to wish to earn at, or above, the PDL, and one must be sympathetic to labour for the immense hardships imposed by the present economic environment.

However, the labour negotiators overlook that, in the average family which exists on or below the PDL, there are normally at least two income earners, albeit that one may be in the informal sector, and earning less that the other. But, therefore, if the principal income earner earns, say, 65% of PDL, the income of the other income earner is likely to raise the combined income to, or above the PDL. 

More importantly, the labour negotiators are evidencing a gross disregard for the fact that if wages are at levels beyond the employer’s ability to pay, and if it is mandatory that they are paid at such levels, then the failure of the employer’s business is assured, the employees become unemployed, and then have no income. An inadequate income is better than no income, and the labour negotiators need to recognise that. 

In addition, as inflation declines as a result of a social contract, and as the economy progressively recovers, so the lot of the workers will improve. Resisting the very necessary qualifications sought by private enterprise prevents conclusion of a social contract, inhibits economic recovery, worsens the plight of labour and is therefore against the best interests of the workers.

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