The Labour Bill and "Economic Rationalism"

First Published: 2000-02-14

The Bahamas since 1992 has made real economic progress that has benefited everyone in one way or another. Yet… as is evident to everyone… many problems remain. One of those is the Government-s intention to regulate the labour market. The proposed Minimum Labour Standards Bill dated January 2000 is controversial and the issues are not simple. It helps, however, to look at the experience of others… particularly a single country and its specific experiences. Such a case is New Zealand.

Economic Rationalism.

In 1984 the country reached a crisis state. With agricultural commodities accounting for 60% of all exports, it lost its favored position in the English market. And there were the oil shocks. But… more importantly… there was the full economic consequences of 100 years of socialism… a marginal income tax rate of 66%, huge subsidies, bloated government payrolls and mandated prices and wage rates. Mr. John Wood, the New Zealand ambassador to the United States, described New Zealand in 1984 as being "as tightly regulated, protected and centralized as any East European country and performed about as well." In 1950, New Zealand had a Gross Domestic Product per capita 26% above the OECD group average and 40 years later it had fallen to 27% below that average.

The country reached a consensus: something drastic had to be done, no significant help would come from abroad, New Zealanders believed they could compete and the sacrifice had to be born by everyone. Under first the Labour Party and then the National Party the country turned to a radical market-orientated program best described as "economic rationalism." Between 1984 and 1996, for instance, government employment shrank 59%, all farm subsidies… whose value once equaled 30% of total output… ended, tariffs were cut two-thirds, the exchange rate was unpegged and banking, foreign exchange, price and wage controls ended.

NZ Labour Relations.

The Journal of Labor Research in a 1996 issue described the New Zealand labour market of 1984 as "a Government-nurtured centralized collectivist and interventionist system." It began with the Industrial Conciliation and Arbitration Act of 1896, the first system of compulsory state arbitration in the world. With this and subsequent legislation the ideological need of the state to regulate and control industrial affairs was satisfied.

And as one would expect trade unions prospered even through the first seven years of Labour Party reform… a period when the reforms were made in agriculture, banking, finance, taxation and government management. During this period unions pushed for worker gains under the compulsory arbitration system. The number of unions peaked in 1985 and the unionized share of the workforce reached 44.7% in 1989.

In 1991 the newly elected National Party passed the Employment Contracts Act and brought labour in line with the reform program. The Act removed government sponsorship of unions, provided for freedom of association, ended compulsory arbitration and established a system of voluntary arbitration of labour disputes outside the Department of Labour.

The unionized share of the work force dropped to 23.4% while the size of the labour force rose 56%… from 892,800 in 1989 to 1.6 million in 1994. The economy that grew at an average annual rate of 0.5% per year for 20 years prior to 1984 increased at 5-6% per annum in the 1990s.

The FNM Labour Bill.

The 2000 Report on the Economic Freedom of the World rates the Bahamas today at 6.7 on a scale of 10 points… virtually the same level as New Zealand before its program of economic rationalism. With this Bill the FNM is introducing the restrictive interventionist labour laws that characterized New Zealand prior to 1984.

  1. The Bill assumes that competitive market forces do not determine wages and working conditions and government intervention is necessary. Where "no adequate machinery exists for the effective regulation of wages and working conditions", the Minister is given unlimited power to set minimum wages; and the Bill sets minimum standards for all major components of compensation because it deems it necessary.
  2. The Bill makes no pretense to be even-handed. For instance, it makes no mention of worker obligations or the basis for summary dismissal.
  3. Two new bureaucracies are created to police private industry with powers to inspect and levy penalties.
  4. The Bill, in effect, makes the Industrial Tribunal the arbiter of all labour/management disputes. It is compulsory insofar as no provision is made in the Bill for an appeal of actions taken by the Tribunal. Equally worrisome is the intention of the Tribunal to get permission to write the first contract in the event that labour and management reach a negotiating impasse.
  5. The government in defending the Bill suggests "Tripartite Solutions" where labour, management and the government collude to set wages and working conditions. This is the fascist socialist alternative that will promote economically irrational rather than rational solutions.

One may argue that New Zealand turned to economic rationalism because of a drastic financial crisis that the Bahamas does not have. And one can observe an IMF urging the Government to develop new taxes and a Government that has not yet restrained the growth in its expenditures.

Perhaps like so many other countries the Bahamas will only take action when it is in the type of crisis faced by New Zealand in 1984. That would be both unfortunate and undesirable.

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