Politics and Labour

Few things seem more tantalising to politicians than interfering with the contracts between businesses and their employees. At election time governments tend to flex their coercive muscles so as to appear as the "protector" of the common man.

For example, a lead story in The Tribune of Tuesday, December 4, 2001 reports the Ministry of Labour has advised the Morton Salt Company not to proceed with layoffs until the Minister had the opportunity to review the information and the company had exhausted all alternative remedies.

Sometimes it's cut costs or close doors

Are we to assume that Morton Salt has not exhausted all alternative remedies to their situation? Firing an employee for stealing or other serious breaches of contract presents no difficulty for employers; but when it comes to laying off productive personnel employers face many sleepless nights and exhaust every plausible means to keep workers. Companies lay people off when profits diminish. So to save the company, costs are reduced, and the largest single cost is usually wages to employees.

However, once the decision is taken to lay people off, no matter how painful it is, a company must act decisively and make the necessary cuts to protect the remaining employees from the rancour that exists in these situations. To delay this process while the Minister reflects is foolhardy.

To rub salt into the problem that exists for Morton, the Ministry of Labour has reportedly suggested they should model their separation packages after the BaTelCo and Hotel Corporation fiascos. If government expects the private sector to follow its lead when reducing staff, new companies are less likely to take the risk of opening shop, and established businesses are less likely to expand their current operations.

Someone should remind the Ministry that a private company does not have access to the public purse. When governments in control of companies need money to pay bills, or lay off employees, they simply increase taxes or borrow beyond their capacity to repay; and they can do this without reference to the compensation norms existing in the labour market. In the private sector, companies must find ways to stay afloat by cutting costs or they must shut their doors. Would the Ministry prefer Morton Salt leave altogether?

Contracts are sacred

Most large companies offer their employees contracts or handbooks that fully disclose benefits, responsibilities, severance, probation periods etc. These are provided on an employee's first day at work. The employee can accept them and stay, or reject them and leave. There is no force or coercion by the employer. Furthermore, the relationship between the employee and employer is perceived as mutually beneficial or neither party would sign the dotted line. Therefore, under our Constitution and the rule of law there is no need for government to be involved beyond the conciliation process.

American businessman Roger Koopman, wrote that "somewhere in our history we began to accept, ever so slowly, the notion that government has the right to interfere with the contract of free people." He went on to say that we "would be hard pressed to find any area of existence where Big Brother doesn't close off our options and dictate what kind of contracts we are allowed."

The Institute's position

The Nassau Institute has categorically stated a position against government's management of the labour market, and this case amplifies why. The Ministry of Labour should be no more than an umpire in these circumstances. The Minister should not be attempting to direct Morton Salt on what they should be doing that is a job for the parties to the contract and ultimately the courts to decide if that is necessary.

Dr. Milton Friedman concluded his wonderful treatise on Capitalism and Freedom as follows: As Adam Smith once said, "There is much ruin in a nation". Our basic structure of values and the interwoven network of free institutions will withstand much. I believe that we shall be able to preserve and extend freedom despite the size of the military programs and despite the economic powers already concentrated in Washington. But we shall be able to do so only if we awake to the threat that we face, only if we persuade our fellow men that free institutions offer a surer, if perhaps at times slower, route to the ends they seek than the coercive power of the state. The glimmerings of change are already apparent in the intellectual climate are a hopeful augury.

The Nassau Institute recommends the Ministry of Labour not prejudice its impartiality any further. It should step back and follow the rule of law.

The Nassau Institute (NI)

Formerly The Institute for Economic Freedom