Shifting the Burden of Adjustment to workers 

According to data published by Statistics Mauritius, September 2016 saw an increase of 0.7% in the prices of food and non-alcoholic beverages….

In particular, prices of rice, fish, fruits, meat and sugar increased by 9.1%, 3.8%, 5.3%, 1.4% and 17.0%, respectively. Amongst others, doctors’ fees increased by 4.4%, higher than prices of goods of ordinary consumption such as clothing (+1.6%) and footwear (+1.5%).

Any keen observer of price trends of common consumption goods in Mauritius knows that prices are “sticky upwards”; in other words, they rarely ever go down once they have climbed up to a certain level.

There are also continuous subtle increases introduced by service providers such as telecoms companies which, backed by a battery of daily publicity, conceal the real costs they impose on users of telephony and internet connectivity of all sorts. Observed increasing non-interest incomes of banks, for example, hides the fact that defenceless consumers of financial services – the general public – are made to pay up, ever increasing fees and commissions of all sorts to their bankers. This more subtle or qualitative category of price increase may actually not be captured by mining solely objective price data as it is done when computing changes in the Consumer Price Index (CPI), an average of ups and downs over an extended period.

Thus, changes in the overall Consumer Price Index, which are usually employed to examine the quantum of annual wage compensation, may not give a comprehensive picture of workers’ effective loss of purchasing power during a given period. Nevertheless, annual changes in the CPI represent a least bad approximation of the actual loss of purchasing power sustained by workers due to practically continuously escalating prices.

Importers and retailers who hike up prices almost continuously explain that they have to compensate themselves for loss of exchange value of the rupee. The public assumes that there would have taken place a depreciation of the rupee to explain the almost regular hikes in prices of common consumption items. This is not always true. But the fact is that, seeing those primary price increases, others, such as service providers, follow suit in turn, so that the ordinary consumer/worker keeps facing the price wall from different fronts.

On the other hand, as an exporting economy, we are exposed to dynamic exchange rate changes on global markets due to various – including geopolitical – forces operating on outside markets. We are forced to keep pace with this by letting the rupee go down from time to time in order not to be buffeted by other countries’ practices to devalue their currencies as a competitive tool to promote their own exports at our expense. This is how, after a long chain of devaluations, the rupee’s exchange rate has fallen from Rs 5.55 per US dollar in 1967, when the Bank of Mauritius started operations, to Rs 37 to the dollar today.

While it is legitimate to fight it up to keep our exports going, we know quite well that the exchange rate is not the sole factor determining the competitiveness of our exports on foreign markets. For example, the efficiency with which our export enterprises are run is an important consideration on the extent to which we are able to grow our exports.

Worker productivity also depends on the state of renewal and modernisation of the capital stock used in production. If owners don’t renew/improve the capital stock – including human capital — to cope with external competition, there’s not much workers alone can do to improve productivity. Improving the product range is equally important to raise our external competitiveness, building up on existing lines of production. So is the extent of our market outreach which gives the enterprise flexibility to go to other markets if some existing ones don’t work out that well.

Another very important factor determining enterprise efficiency is how earnings are distributed among its different classes of employees. If most of enterprise earnings goes to compensate the higher cadres who cannot and will not take a pay cut –behaving like rentiers — when the going is not good enough on external markets, then the tendency is to shift it down the line to the more numerous vulnerable lower-paid workers. Or, simply seek a devaluation of the currency – which imposes an across the board negative effect on all consumers of the country by way of generalised loss of purchasing power.

Latest data show that our export performance is not currently brilliant. That might be used to trigger another round of currency devaluation, let alone denying workers lower down the line an adjustment to help them head off erosion of their purchasing power due to on-going inflation. It is easier to push the burden of adjustment on to them down the line, even if that arouses the type of popular anger which has kept ousting governments from power from time to time.

The real issue is not whether workers should be compensated or not. Actually, regular compensation has helped vent out pent-up anger against people’s helplessness against a system of almost continuous upward manipulation of prices by those higher-up. Regular wage compensation has acted like a social pact to preserve the critical social peace. The real issue is – short of giving in to artificial currency devaluation having had no real effect on improving enterprise efficiency – how to gear up our export enterprises for them to face successfully an international condition becoming increasingly unpredictable?

Not much mind has been applied or work actually done to enable us cope with this crucial chapter. We have remained at the bottom of the scale where available cheap/quality labour in Bangladesh or Madagascar can poach away our export activity without much stress. We need to raise our productivity level high enough so as not to be stressed up by this type of factory mobility across countries. As that kind of strategic shift did not take place, the burden is sought to be quietly shifted away by denying worker compensation.

A long term solution is needed in which workers will be better empowered. It is the blatant lack of consideration for the agonising situation of masses of workers by the Establishment in so-called “free market” systems that has raised revolt against the existing world order. It would be dangerous to follow this route.

M.K.

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