Labor Unions, Democratic Change and Development

The example of Japan is often cited as one of the great modern success stories in terms of both its dynamic labor market and high levels of employment, as well as its ability to guarantee employment for life to workers in certain sectors. Why is it then that, in contrast to this experience, labor protection is considered to have an adverse effect on the European economies? The assertion that labor protection hinders economic growth by decreasing workers’ productivity and, to a certain extent, hampers competitiveness, needs to be weighed against the specific case of Japan and other countries. The complexity of this issue in all its dimensions is usually ignored among policymakers in Morocco and in other countries in the region.

In this connection, it is quite unfortunate that the axiom "labor protection kills the right to work" often prevails in regional political circles. Or, in other words, if the labor market is to be dynamic, labor protection must be strictly avoided. This viewpoint is essentially erroneous in the case of Morocco as well as of other comparable middle-income countries, where the nature of the unemployment problem is not a classic one: Moroccans are not unemployed because labor is expensive, which it is not; they are unemployed because of a typical Keynesian case of low demand and insufficient investment. If Morocco enjoyed a more suitable investment climate, a better trained labor force, a healthier administrative and legal environment, an adequate level of infrastructure and fiscal incentives and, finally, a lower (or market-determined) price of raw materials, a truly dynamic investment course would take hold and, as a result, the current limited labor regulations could be maintained without questioning them as impediments to growth.

The negative effects of this misunderstanding become even more harmful when institutions like the World Bank adopt a general position on labor policies, and policymakers follow the Bank’s prescriptions in a limited and distorted way. As was the case when policymakers implemented Bank-sponsored macroeconomic stability policies in the 1980s by selectively focusing on public expenditure reductions in health, education and social services — the price of which was ultimately paid by the poorest and most marginalized in society — the Bank’s current approach and objectives concerning labor protection issues are, regardless of their complexity and nuance, often used by policymakers as a rationale for the pursuit of unrelated purposes.

On the role of trade unions in labor markets, the World Bank is once again ahead of the reality in many countries. In a ground-breaking report on labor’s role in an open economy published two years ago, the Bank recognized for the first time that those who work with trade unions representing workers are partners in the workplace’s collective bargaining process, and that they contribute substantially to improving and reinforcing the productivity and competitiveness of firms.

The reality in the Middle East and North Africa countries is that, unfortunately, far from being in a position to play the functional role described in the Bank’s report, unions are frequently just trying to exist. Even when they are allowed to exist, their authenticity and ability to associate freely is questionable, as they are often controlled by governments, public administrations or political parties. And even if a union exists independently — which is seldom the case — it may not be able to engage in collective bargaining. Collective bargaining is very often relegated to a dialogue between the government’s ministers and unions’ top management which takes place in fancy offices in front of journalists with little or no connection to the reality of the workplace, where there is almost no room for negotiations of any kind. In fact, employees of firms who gather, elect representatives and inform their employers of their desire to discuss work-related issues — such as sanitation, security, transportation, etc. — are usually dismissed. In other words, the right of unions to express themselves freely is not universally recognized, and therefore their ability to achieve collective agreements is practically nonexistent.

Although political in nature, impediments to unionize independently and to conduct collective bargaining leading to collective agreements introduce serious economic distortions which affect the flexibility of the labor market. Moreover, these distortions have a significant negative effect on the quality of management in government and contribute to the perpetuation of a bloated bureaucracy. In this context, in addition to advocating open markets and the free movement of production factors, the World Bank should emphasize the need for independent unions with collective bargaining rights. Again, while this may be a political issue, it is an issue whose direct economic effects the Bank should not disregard.

A final issue which affects policy reforms in general is related to the kinds of strategies that would allow the government to engage in such reforms without encountering major political opposition. What is at the root of political opposition to reforms? The most generalized perception is that, far from reaching all segments of society, policy reforms will tend to favor certain groups over others. For example, in early 1980s, the policy reforms advocated by the Bank and adopted by many countries in the Middle East and North Africa were perceived by many to benefit mostly the economic position of those countries’ conservative elites — which implemented them with the objective of maintaining the political power structure — while workers, on the other hand, experienced a rise in unemployment and witnessed a reduction in expenditures for health, education and social services. This perception of policy reforms as constituting a threat to existing social protection mechanisms — as well as an offensive against labor protection and unions’ rights — led to a climate in which their credibility was severely tarnished. That same climate is now also affecting the new set of reforms aimed at a further opening up of the economy and a greater degree of trade liberalization.

There is no disagreement about the strong link between economic and political change, and about the critical role that unions play in promoting political change and advancing democracy. It is in this context that an authentic Bank-supported "tripartism" consisting of the government, employers and workers’ representatives must be put in place as a "means" to achieve true democratic development — the only type of development which will realize any country’s full economic potential. It is no longer enough to eliminate economic rigidities and remove excessive protectionism to promote growth: Democracy must be seen as fundamental to economic change.

It is also essential to protect the public with so-called "safety nets" to ensure that transition periods do not result in catastrophic losses to large segments of society. While few countries will deny the need for safety nets, many countries, including those in the MENA region, will formulate them not in terms of real needs, but in terms of needs as defined by the government. In this connection, the Latin American countries’ experience with social investment funds (SIF) constitutes a very interesting approach to dealing with these issues and should be widely applied in the MENA countries. Finally, all these efforts have to take account of the importance of providing acceptable tradeoffs between different generations, as necessary sacrifices by the current generation will be better borne if they are perceived to have the potential to significantly benefit the next generation.

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