Tag: labor union

Categories
Economics

[2388] Nudge, nudge, wink, wink

It is the practice of some labor unions to produce one or several publications annually to inform their members of various activities and developments related to the unions.

As with many things in this world, it costs money to produce these publications. These unions finance the publications through a number of ways. Membership fee is one example. Another is selling advertising space to non-members, especially to the business community. This, however, can be an ethically grey area.

This kind of funding can be ethically iffy if the union members comprise employees of public regulators or law enforcement agencies, like the police, the Fire Department or Customs. This particular interaction between the unionized employees and the business community through the sale of advertising space creates perverse incentive.

It is a potential channel for corruption. It has the ability to affect adversely the traditional relationship between the public and the government.

Everybody deals with some of these regulators and enforcers in one way or another. The police maintain public order. The Fire Department apart from firefighting ensures public adherence to certain codes. City Hall and other local councils enforce even more codes. Many other regulators and enforcers exist out there to match the hundreds or thousands of laws that govern too many things.

Services provided by the enforcers and the regulators are funded by public money. To put it simply, the public pays for the services and these government arms render the services to the public. This is the traditional relationship. It is simple and clean.

This traditional relationship between the two must not be influenced by any other factor, lest the regulators and the enforcers filter their customers for their own benefit.

The sale of advertising space by unions especially to business establishments twists the traditional relationship by creating another channel for the public to interact with the regulators and the enforcers. That new channel runs through the unions to form a special relationship between the space purchasers and sellers, who are part of the government or its agencies.

There are at least three ways this is detrimental to the traditional relationship.

One, the sale and purchase of advertising space can be done by the business community to return a favor previously done or will be done by certain unionized employees. This is downright corruption.

Two, the sellers, who are employees of the government bodies and agencies, will feel indebted to the purchasers. It is a profitable relationship and one always keeps profitable relationship intact.

By doing so, the purchasers will have special relationship with the seller and, implicitly, to the regulators and enforcers. Those particular employees or any member of the union may systematically handle future requests or transgressions by the sellers leniently. This runs contrary to the ideal that prescribes everybody as equal before the law.

Three, even without such favors or the feeling of indebtedness, a mere request by the unions may create consternation among the solicited. A forward-looking person, and especially businesses, upon receiving the advertising request would ask, how would this affect us? For those who conclude that a negative reply would affect the likelihood of approval to future transactions, they might feel compelled to purchase the space from the unions. This can happen even if there is no intention by the union to abuse its influence. In other words, it creates a perception of corruption even though there is no actual corruption.

The way the incentives have been perversely structured inadvertently or otherwise may make it necessary for the relevant authority to look into this particular activity of these particular unions.

Despite all that, this is not to say that there is actual corruption in the system. This may sound like a cop-out but the whole structure is an opportunity for corruption nevertheless.

Individuals are not inherently good or bad, clean or corrupt. Many times, it is the institutions that provide the incentives for corrupt practice to flourish.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

First published in The Malaysian Insider on June 27 2011.

 

Categories
Economics

[2294] Of favoring the fat over the fit

The prime minister has said it so many times. His administration wants to turn Malaysia into a high-income country.  One of several initiatives that the administration believes can help in that direction is the introduction of minimum wage through the establishment of the National Wage Council. In promoting its supposedly market-friendly and market-driven policy, the federal government embarks on central planning without even flinching at the contradiction. For others, they will do more than flinch because as with any effort at central planning, there are side effects. One of them is the creation of an uncompetitive market.

In the free market, some firms have more market power than others do. That is inevitable due to various factors that are only too natural. Some are just larger than others are and they may have better access to resources and may be able make use of it more efficiently than others do, thus allowing them to sustain their prominence in the market.

That, however, does not prevent smaller firms from competing against their larger counterparts in the same industry successfully. There is enough flexibility in the free market to enable smaller firms to succeed. That flexibility creates free competition and that competition in the free market exacts punishment on mistakes made by anybody, even by larger firms. It gives others the opportunity to rise up.

This competitive force may no longer be true if the wage council dictates wages. The focus here is not the minimum wage itself but rather, the mechanism at which the council dictates the wage.

Consider the possible composition of the wage council. For it to be truly representative, it has to have all stakeholders in the labor market represented. This includes firms of all size and industries. There will be representatives from the labor unions and the government as well.

Consider now the interest of each side given an industry. The government wants to turn Malaysia into a high-income nation and believes the introduction of minimum wage can help. The labor unions want higher wage for its members and are strong advocates of minimum wage. The larger firms do not like competition and can afford higher wages. Finally, the smaller firms do not like competition as well but unlike the larger ones, they cannot afford to pay the kind of wages that the larger firms usually can.

One can see that at least one aspect of interest of the government, the labor unions and large firms coincides and then competes directly against the interest of small firms. Given this setup with the wage council, smaller firms are likely to lose out.

What begins as a problem of low wages or wage stagnation — what has been the rationale for the proposed formation of the wage council and the introduction of minimum wage in Malaysia — that is partly caused by unequal bargaining power between employers and employees is transformed into something else. It turns one problem into another.

While it attenuates the difference between employers and employees, the council amplifies the bargaining power differential between firms. The incentive mechanism of the free market is tweaked, or rather mangled, to give more leeway to larger firms to make mistake and less for smaller ones.

To put the implication more starkly, the wage council encourages the creation as well as the continuance of monopolies in the market. It creates an uncompetitive market, on top of the inflexibility created by the minimum wage policy.

What makes this all the more unpalatable to those who actually believe in market-driven policy is that many pre-existing monopolies in Malaysia are government-linked companies while the smaller companies are likely to be privately held. And when the monopolies are not government-owned, many of these monopolies came to being not because they were competitive, but because of past government policies of lemon socialism that privatized profits but socialized losses.

The concern for lemon socialism and privately-owned monopolies aside, the dynamic of the wage council is stacked against privately-held companies in favor of larger as well as government-linked companies. The role of the state in the market increases with the establishment of the wage council.

This is an example of Najib administration’s supposedly market-driven policy.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

First published in The Malaysian Insider on December 28 2010.

Categories
Economics

[2107] Of if you want your bonus, you should lose your job first

CUEPACS, labor union for civil servants in Malaysia, given current environment of large fiscal deficit and economic uncertainty, has the audacity to demand for bonus.[1] The demand is not met, as evident by absence of such bonus in the proposed federal government budget tabled nearly two weeks ago. Today, the Prime Minister rightly admonished — admonished awfully understates the situation since the PM said demand is “morally wrong” — the union in the process.[2]

As a taxpayer staring at the possibility of higher tax in the future, that demand clearly is impossible to meet. The large fiscal deficit due to combination of structural and cyclical factors must be tackled and at the moment, I would probably be grudgingly willing to suffer increased taxes if government spending sees reduction at the same. I however would like to see those who fail to pay their taxes be brought to book first before having to suffer from a tax hike, although that is a different issue that I will not delve farther here.

Returning to my point, granting such bonus will only increase the likelihood of tax increase without a reduction of government size, which is already bloated.

You know what?

If they really want their bonus, I can be amenable to that but only on one condition: a lot of civil servants need to lose their job. This means badly performing civil servants have to go through the door. I will not mind having high quality and productive civil servants, which definitely will mean smaller workforce, being paid good bonus.

The union is a vote bank. That is probably why it has the audacity to do this. In this case, its audacity comes at the expense of taxpayers. That is intolerable.

Money does not grow on tree, mate.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

[1] — KUALA LUMPUR: Cuepacs wants the Government to pay the 1.2 million civil servants a two-month bonus this year.

It hopes the Government will include the bonus in Budget 2010 plus a similar incentive for 400,000 pensioners, said the umbrella body’s president Omar Osman. [Cuepacs seeks bonus of two months for govt staff. The Star. October 18 2009]

[2] — KUALA LUMPUR, Nov 4 — It is morally wrong to ask for bonuses while the country is still struggling to sail out of the economic downturn and people in the private sector are being retrenched, Prime Minister Datuk Seri Najib Razak said today.

”It’s morally wrong to ask for bonus when the economy has not recovered. I keep telling Cuepacs (president Omar Osman) that it cannot be just like a trade union, shout for bonus every time (there is budget) because you want to (remain) popular among your members,” he said. [Najib slams Cuepacs as ”˜immoral’ to demand bonus. Bernama. October 18 2009]