Economic recession, trade unions and labour relations

By Dafe Otobo   |   05 May 2017   |   4:14 am  

Workers in May Day parade

I should like to thank the Trade Union Congress and the Nigeria Labour Congress, Lagos State Council for inviting me to participate in this Symposium with “Labour Relations in Economic Recession: an Appraisal” as its theme. Given the times and circumstances worldwide and in our country, the choice of topic is immensely sensible and commendable.

Global economic recession
The Economic Recession today is not Nigerian, but global. But being Global does not mean the absence of local contributory factors to our situation. We talk of a global economic Recession today because we have a global economy, not because we have many countries. We have for several centuries had many countries but not the kind of economic and financial crisis we are experiencing today.

We are all over the world experiencing economic recession, not to the same extent or degree to be sure, because we share in or participate in certain global economic and financial institutions, which partly regulate and also comprise economic transactions between countries and between local and foreign or transnational companies. A combination of factors which need not concern us here, including integrated air, land and sea transportation and advances in information technology, led to the expansion of local and regional economies into one global economy. So, what is this global economy?

Global economy
The Global Economy comprises national economies, Regional and Sub-regional economic groupings (e.g. ECOWAS), Regional and sub-regional financial and trade regulating institutions (e.g. African Development Banks- ADB), International trade, financial and development institutions/agencies, Relevant UNO trade and financial agencies, and Transnational/multinational companies. And the structure of the global economy may differentiated along the following lines or classification: a) Long-industrialised economies; b) Newly industrialising economies; c) Raw materials-producing economies; d) Capital-intensive and rich economies, of which only a few of the long-industrialised economies are; and e) Poor capital economies.

International economic system and its dynamics
Simplified considerably, it is how various units, which make up the global system go about investing and trading that is referred to as the so-called International Economic System. Typically, they operate through Stock Exchanges, transnational or multinational companies, and jumping into the foray are the World Bank and the International Monetary Fund, regional and international credit financial institutions and thousands of a variety of fund managers, and insurance companies.

The underlying philosophy or ideology of this international economic system is that of leaving the supply of goods and services and the determination of their prices and other terms to the now-famous “market forces”, demand and supply. The push therefore is for “deregulated markets”, whether of exchange rates, finance and financial derivatives, shares and futures, services, or labour, transactions that should exclude involvement of governments or state authorities.

So, intra-continental and inter-continental business opportunities and interests give birth to multinational or transnational companies, with subsidiaries located in all continents. Multinational companies and other investors compete for global markets and global sources of raw materials, with strategies fashioned to cope with or adapt to local circumstances of national economies.

So, what has all this got to with Economic recession in Nigeria today?
Economic recession or crisis
The concept and notion of Economic Recession or Crisis derive from huge debates about the nature and workings of the private enterprise economic system from the eighteenth century, especially since Karl Marx. An industrialising Europe was dominated by the doctrine of Classical Liberalism. Classical liberalism holds that individual rights are natural, inherent, or inalienable, and exist independently of government. It is a philosophy that upholds the sovereignty of the individual, with private property rights seen as essential to individual liberty.

Applied to economic matters and general social policy by a group of French, Continental and British economists during and since the times of Adam Smith and David Ricardo, it argues for minimum state involvement in the supply or production, pricing and distribution of goods and services. This has since been generally labelled Laissez faire Economics, especially after Adam Smith’s books, The Wealth of Nations and The Theory of Moral Sentiments were published in the eighteenth century and in which, among other things, Adam Smith wrote of an “invisible hand” of the market mechanism, the infallible and most efficient value-allocating role of the forces of demand and supply.

So, what have these got to do with Economic Recession or Crisis?
It did not take long to observe that the capacity of demand and supply to adjust themselves automatically was limited and not as smooth-sailing as supposed, that there were periods of scarcity and that aggregate welfare did not increase as rapidly as claimed. More crucially, like day always following the night, periods of boom or prosperity for businesses were always followed by period of recession or bust.

Karl Marx and his followers, socialists and communists developed thoroughgoing critique of the capitalist system, propositions which have all come to be known as the Crisis Theory. The Crisis Theory is concerned with explaining the business cycle, recession and crises in capitalism. Karl Marx noted that it is in the nature of the capitalism system to suffer from periodic crises because of its internal contradictions. Prominent among the contradictions or factors identified by Marx are three, which have remained classic and which economists of all ideological hues have come to accept:
a) The tendency of the rate of profit to fall (As more goods and services are supplied because investors increase, prices reduce and profits fall as a result);

b) Under-consumption. If the capitalists/employers win the class struggle to push wages down and labour effort up, raising the rate of surplus value (profits), then a capitalist economy faces regular problems of inadequate consumer demand and thus inadequate aggregate demand (fewer employed hands).

c) Full employment profit squeeze. When capital accumulation increases the demand for labour power, thereby raising wages, if wages of the many more employed rise “too high,” it hurts the rate of profit, causing triggering a recession as labour gets laid off, and declining wages/incomes lead to fall in consumption, which leads to further fall in profits and so on.

In sum, Economic Recession or Crisis is seen as part of the larger crisis of the social order under Capitalism and Liberal Democracy.

Keynesian economics
At the end of World War II when all European economies lay in ruins, reconstruction and rehabilitation could not be based on market forces alone and the activities of entrepreneurs in a situation where capital was very limited and lives disrupted. Helped along by American Marshall Aid Plan, the State assumed a commanding role in rebuilding respective economies and which led to the rise and development of the Welfare State. Keynesian Economics are those prescriptions advocated by John Maynard Keynes and economists of his persuasion, measures designed to assist market forces rather than give them complete freedom as under Laissez Faire Economics.

Keynesian Economics thus attempts a “middle way” between laissez-faire, unadulterated capitalism and state guidance and partial control of economic activity. Here attempts to address economic crises with the policy of having the State/Government act as: i) a temporary super-capitalist and pillar of the underlying private enterprise system with its increasing range of welfare policies; and ii) actively supplying the deficiencies of unaltered markets through bailouts, subsidies, incentives, and other palliatives.

The new system was based on Economic Planning, representing an international consensus on the modification of Laissez Faire Economics, with member-states of the United Nations all adopting Development Plans for varying durations (5, 10,15, etc.). The lesson and wisdom now was that economic development could be planned for, and not merely the accidental or unintended, trickled-down effect of unrestrained market forces.
Liberalism and neo-liberalism

Classical liberalism is a political ideology that developed in the nineteenth century in England, Western Europe, and the Americas. It is committed to the ideal of limited government and liberty of individuals including freedom of religion, speech, press, and assembly, and free markets. In the age of Laissez Faire Economics of that time till the 1940s when USSR, Eastern bloc countries emerged and Keynesian Economics or Welfare Economics became orthodoxy in the Western World, Liberalism remained the dominant socio-economic ideology.

Broadly speaking, Neo-Liberalism seeks to transfer part of the control of the economy from public to the private sector, in the belief that it will produce a more efficient government and improve the economic health of a nation. The concrete policies advocated by neo-liberalism are often taken to be John Williamson’s “Washington Consensus,” a list of policy proposals that appeared to have been adopted by the Washington-based international economic organizations (e.g. International Monetary Fund (IMF) and World Bank). Williamson’s list included ten points:

• Fiscal policy discipline; this is designed to help lower expectations for what the government can do to improve the lives of citizens. For example, the policy decision to maintain a reserve of unemployed as part of an inflation-fighting strategy combined with a public relations campaign that this unemployment is natural and cannot be defeated without huge deficits or inflation.

• Redirection of public spending from subsidies (“especially indiscriminate subsidies”) toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment;

• Tax reform– broadening the tax base by shifting the tax burden to the middle and lower economic groups and adopting moderate marginal tax rates;
• Interest rates that are market-determined and positive (but moderate) in real terms;
Competitive exchange rates;

• Trade liberalization – liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by law and relatively uniform tariffs;

• Liberalization of inward foreign direct investment including commitment to unlimited transfer of earnings across foreign borders;
• Privatization of state enterprises; This occurs not only in the sense of the transfer of companies from the public to the private sector, but also in the conversion of social rights into marketable objects. Health and education, traditionally considered to be citizens’ rights, become economic interests and, in many countries, are integrated into circuits of accumulation. In some cases, remaining public sector agencies and enterprises are encouraged to adopt commercial and corporate management and organizational structures (corporatization). With privatization of the public domain comes extractive fees for use of such resources and an increase in the overhead to the productive economy.

• Deregulation – abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudent oversight of financial institutions;

• Legal security for property rights; and,
• Financialization of capital.
The disciples of free movement of capital, now called ‘neo-liberals’, argued that: i) development has been blocked by inflated public sectors, distorting economic controls and overemphasis on capital formation; ii) Governments were part of the problem, not part of the solution; they were inefficient and often corrupt and hence parasitic, not stimulators of growth; iii) The solution was to privatize most of the public sector; iv) reduce the scale and scope of government spending; and v) give up all policies, from exchange rate controls to subsidies and redistributive taxation, that altered any prices that would otherwise be set by the impersonal forces of the market.

To summarise, ‘Market forces’ are now supposed to determine every transaction in the local economy, while the World Trade Organisation (WTO) and similar international rules (which favour the economically more advanced countries) and other tariff and non-tariff obstacles ‘regulate’ international trade. Thus, internally in most countries, xenophobia, ethnic, religious and other social divisions are on the increase, as aspirations remain unfulfilled.

Financial crisis of 2007–2010
As it is now an open secret, but also well documented by the Wikipedia, the Free Encyclopaedia for those of you seeking further details, the financial crisis of 2007–2010 was triggered by a liquidity shortfall in the United States banking system. It resulted in the collapse of large financial institutions, the “bail out” of banks by national governments and downturns in stock markets around the world.

The policy of Deregulation entrenched by President Reagan in 1982 and pushed to its limits by George W. Bush turned “prudent regulation of financial institutions” to near-absence of regulation. The banks and other financial institutions took complete advantage of this and explored all possibilities resulting in over-extension and commitments and bankruptcies. The Obama administration commenced and completed the bail out of several large American banks and large financial institutions, and the automobile-manufacturing companies.

The important point to note is that all of these are consequences of globalisation, the current dominance of neo-liberalism, the latest mutation in private enterprise system.

Impact on the Nigerian economy
In January 2009, the Governor the Central Bank of Nigeria listed the following impacts on that crisis on the Nigerian economy and which remain the same in 2017:
1) Commodity prices collapse (especially oil price); 2) Revenue contraction; 3) Declining capital inflows in the economy; 4) De-accumulation of foreign reserves and pressure on exchange rate; 5) Limited foreign trade finances for banks—credit lines may dry-up for some banks; 6) Capital market downturn, divestment by foreign investors with attendant tightness and possible second round effects on the balance sheet of banks by increasing provisioning for bad debt and decrease in profitability; 7) Counter party risks vis-à-vis external reserves. We should add massive public sector indebtedness also, especially arrears of salaries/wages and pension payouts and inability (or refusal?) to pay salaries.

The impacts of globalisation and the current crisis on the economy and politics are thus multi-faceted, ranging from the
a) impoverishment of a majority of wage-earners, continuing loss of members by way of down-sizing (restructuring, retirements, dismissals, etc.),

b) abandonment of indigenisation schemes, and difficulties facing many companies (especially in the manufacturing sector faced by rising costs and competition from smuggled substitute products and administrative bottle-necks),

c) declining capacity among union leadership due to wastages, attrition, and prevalence of younger and relatively inexperienced hands, the rapid growth in the number of rival non-governmental organisations (NGOs) many of which concentrate on some traditional concerns of the labour movement (civil liberties, human rights, child abuse, gender discrimination, occupational hazards, inequity and corruption, etc.) to deliberate anti-unionism tactics of both private and public employers, especially sub-contracting of operations and labour.

d) The increasing cases of ‘rationalisations’, ‘down-sizing’, mergers/take-overs, bankruptcies, technological changes, privatisation, commercialisation, removal of subsidies, and drastic cut-backs in ‘public expenditure’ have not only led to massive loss of jobs that can be ‘organised’, surviving on wages/salaries has become very difficult – in spite of those attractive remuneration packages for a class of employees in certain industries. As a result, many workers have become part-time workers in orientation, pre-occupied with how to supplement the pay-packet.

Economic recession and labour relations and trade unionism
The impact of the Economic Recession or Crisis on Labour Relations is very obvious: as businesses collapse, jobs are lost. As more persons lose their jobs and thus cannot meet their financial obligations (mortgage, credit card, rent, auto, medical, schools fees, etc.), those intermediary financial institutions (e.g. insurance companies) to which regular payments of premiums are due also go out of business, and more people lose their jobs!

This is not to say that some jobs are not created; but not sufficient to make much difference especially if left to these same companies. Although there has been a corresponding growth in the development of certain skills and jobs accompanying rapid changes in technology, they are yet to be organised by unions and the hawking of recharge cards on the streets is not exactly a decent job.

But, we are not here arguing that no good comes from deregulation! In the Nigeria case, for example, organised labour should encourage some degree of deregulation in sectors of the economy dominated by highly inefficient publicly-owned companies. For example, it is not a question of whether government officials or staff of the NNPC or workers in the refineries should be blamed for the state of the refineries today. All of them are in the public sector, and if they owned any of the refineries as persons or investors, they would not have run them aground or put up with their epileptic performance.

What is to be done?
Deregulation and privatisation
Deregulation and privatisation may be carried out in different degrees; no country has privatised all of its public utilities and service providers merely on account of market forces supposedly being the most efficient way of determining prices and of allocating resources. Even companies in the private sector collapse daily. However, for example, a situation where only a few people control the importation of refined petroleum products (which we should not being doing in the first place as one of the primary producers of crude oil and gas in the world) is not good for consumers or the country – hence a degree of deregulation would prove beneficial in this respect.

Transparency in governance and business
Wage employment is in both public and private sectors of the economy and within companies/organisations, and for meaningful employment (what the ILO refers to as “decent jobs”) to exist, there should be increased concern for transparency in governance and business. For political governance, activities directed at getting all to respect and protect human rights should be increased and encouraged. One way of doing this is for organised labour to network with other non-government organisations, including students’ organisations, in civil society. No government should be allowed to insist on its own definition of ‘human rights’, of ‘democracy’ or reduce elections to declaring the well-connected victors rather than votes determining the results. With a consolidating civilian democracy, the trade unions have to respond proactively and reactively to a more benevolent socio-political situation characterised by positive expectations from the citizenry.

It should also be borne in mind that although a government may have the power to make laws, those laws that do not conform to laid down procedures in their enactment or violate those rights and privileges protected by the Constitution can and should be declared unlawful by the courts. It is to avoid this that some military dictatorships introduce so-called ‘ouster clauses’ that prevent the law courts from even examining such laws. To this extent, a democratic environment is expected to assist the furthering and achievement of the rule of law and the development of a credible judiciary. The worker is first a citizen before being a worker.

As for managing businesses in the public sector, the Essential Services will reinforce their continuing dominant position as the country’s largest foreign exchange earner. One likely implication of this is either greater co-operation between the unions and state authorities, or more acrimonious relationship as governments might over-react to the sensitive position of these parastatals (e.g. NNPC group) in relation to its own interests and pre-occupations. My best guess is that collective bargaining would likely be a mixture of both attempts by governments to impose some terms, and other terms demanded by the unions and workers, depending on the compensation policies of private employers in the industry, social and political issues and nature of leadership on both sides.

The poor shape of the economy – if made much worse by official mismanagement or lack of effective management in and capital flight dominated private sector – shall continue to take its toll in terms of continuing loss of union membership through lay-offs, redundancies, ‘rationalisations’, declining turnovers and profits of firms, reluctance on the part of increasing number of employers to re-negotiate new agreements, declining membership dues, and inability of several unions to meet their financial and other obligations.

It is left to labour to increase its ranks by organising casual and short-term contract workers, in addition to taking legal steps to compel employers to keep terms of agreement, especially the now severely disregarded contract of employment of which employers in the banking and finance sector easily the worst culprits.

Second, a government alive to its responsibilities and the future of the country should meet its obligations and also develop a more credible management of the oil and gas industry. Many jobs are likely to be lost, especially at the bottom of the ladder where a good deal of subcontracting of jobs is going on in the oil and gas industry, and under a cross-posting policy for management staff an increasing number of positions are now being taken over by expatriate staff in virtually all sectors.

Third, government, politicians, bureaucratic elites alive to their responsibilities and the future of the country have no business perpetuating an industrial policy pivoting on importation of raw materials or inputs, a country that is a major world producer of an impressive number of raw materials. It is just common sense: even a slight upswing of exchange rates against the naira threatens investors, managements and wage-earning population, not to mention inflation impoverishing the general population.

Transparency in Business financial transactions
The relevant professional associations in Nigeria, especially legal and accounting, have not been of great help in promoting transparency and good corporate governance or practices. Concocted agreement and doctored “audited” accounts translate into loss of jobs, capital flight, misuse of funds, embezzlements and in the end the companies go under or restructure. Perhaps, self-regulation of these professional bodies in the area of corporate governance may not be adequate, pointing in the direction of new oversight tripartite structures whose membership should include all stakeholders, including the trade unions.

The quality of union leadership and union administration
The greatest challenge for organised labour in this dramatically changing socio-economic environment is the quality of union leadership. The trouble here would seem to be more in terms of general orientation and strategic vision, than in formal education (not that this does not need to be beefed up) for, as I have always pointed out, the bulk of those in all Nigerian governments and the National Assembly were/are no better educated than union leaders.

The creation of union bureaucracies, over the last three decades in particular, and the growth of union assets and liabilities (e.g. increasing numbers of union pensioners) have impacted on union administration, strategies and tactics in several ways, all not so beneficial. For our purposes today, however, suffice it to remark that some branch unions and state/zonal branches have struck bargains with managements/employers, a good many not terribly protective of members’ larger interest. I have come across branch unions in service sector of the oil and gas industry striking over disposal of by-products by management – for excluding union executives from participating in such disposals, proceeds, if when allowed to be involved, which do not go into the Union’s coffers in the first place.

On the other side of the coin, some union bureaucracies and leadership have stabilised and institutionalised effective practices and relationship with managements, the textile industry being a good example. But, economic recession and closures have imposed constraints and limits to the overall effectiveness of good strategies and tactics.

Generally speaking, food, beverage and tobacco sector tends to be less negatively impacted upon by Economic Recession or Crisis, except for luxury items, as people tend to re-adjust tastes and concentrate more on food, drink, transportation and shelter because of shrinking budgets. Unions in this sector should be able to promote and protect interests of their members more effectively.

Concluding remarks
Laissez faire economic doctrines are some of the oldest ideas on development, underlying the early formulations advanced by Adam Smith and his contemporaries since late seventeenth century as we observed earlier. But Laissez Faire economic doctrines had to be first modified, and then abandoned in the 1930s for the same reasons as Globalisation would likely to be abandoned sooner than later, namely that an unregulated market or private enterprise system is plagued by alternating incidents of booms and busts or depressions, and despite its acclaimed ‘efficient allocation of resources’, an increase in aggregate welfare is not achieved, let alone guaranteed. Enviable standard of living for the general population has never trickled down in any country where ‘intervention’ through planning by the state did not take place.

Indeed, a critical point in relation to employment is that the period during which the world experienced the birth and growth of mass consumption society and greatest increase in the aggregate standard of living in human history was when extensive economic planning and state intervention occurred from mid-1940s till early 1970s.

Another way of putting it is that since the mid-1970s when Globalisation/Neo-liberalism gained ascendancy, mass poverty has been on the increase worldwide. So, it stands to reason that if people elect governments to improve their economic lot, laissez faire economic policies would certainly not do the trick in the short or middle run. This is why one measure is for the state or government to embark on job-creating ventures, especially construction of physical infrastructure that could inject immediate purchasing power into the system.

Adversarial labour relations tend to feature more during Economic Recession, showing as always that social change, especially adverse economic change, is disorienting as individuals, trade unions and corporate bodies re-strategise and raise questions and doubts about purposes of governance and usefulness of existing socio-political arrangements and practices to their continued survival. Thus practically all governments are on the defensive and their task even more difficult, having to deal with principal political actors, communities, financial institutions, powerful local and foreign corporate bodies and business community in general.

Under Economic Recession, effective union leadership is critical in encouraging both private and public sector employers to create more decent jobs and reduce unemployment, particularly impacting on official socio-economic policies that should take on board deregulation, privatisation, pricing of refined petroleum products, physical infrastructure, monetary and fiscal policies, and industrial policy and so on. The clearest lesson that Economic Recession or Crisis brings home forcefully is that it is never the responsibility of the employer to guarantee adequate standard of living but the way society is managed and ruled. If any employer paid what each and every employee needs to live decently, it would be out of business. Thus, both as citizens and those bearing the brunt of increasing hardships and poverty, workers and their organisations do not seem to have much choice than to critique and oppose official non-beneficial social and economic policies.

• Professor Otobo is of the Faculty of Business Administration, University of Lagos.

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