Saturday, 28 May 2011

Strikers Hold Back Economic Growth

A small yet powerful group is holding society to ransom. Its continuing strike is damaging the economy as it puts its own interests before those of society and the nation at large.

Sound familiar? Well this does not refer to the trade unionists who took to the streets this week in Poland and were met with widespread criticism in the press. Here I refer to the ongoing 'investment stike' being pursued by private businesses in the country.

In the first quarter of 2011 the combined income of companies in Poland grew by 12% from the comparative period last year. Although costs also increased by 11.6%, profits went up on average by 4.3%, with 61.3% of all firms enjoying growth throughout the year.

Despite these positive results, Polish businesses are still refusing to invest these profits in the wider economy. In the words of an expert from the Polish business association Lewiatan: 'companies are accumulating money instead of investing it.' Therefore although large businesses in Poland enjoy a number of privilleges - paying a low flat-rate of national insurance and business tax - the economy and society at large are not seeing a benefit of their high profit rates.

Yet media and political scorn has been reserved for the trade unionists and not for these 'investment strikers'. This week the Solidarity trade union federation (supported by the OPZZ) organised a series of regional demonstrations of workers employed in state industries. Their slogan was 'Your Politics, Our Poverty' and their demands included raising the minimum wage to half of the average wave; reducing tax on petrol, halting the planned wave of privatisations and raising the salaries of state sector workers.

As an example of the criticism faced by the trade unions we can consider the two simultaeous opinion pieces published in Thursday's Dziennik Gazeta Prawna (DGP) newspaper. These commentaries combined a number of criticisms made against the trade unions.

Firstly Joanna Soldska argues that those working for the state and public sector earn relatively well in Poland. She describes how workers in the private sector are often under more direct economic pressure to compete in the global economy and that their wages and work conditions are severely repressed. She is obviously right to point out how the lowest salaries and worst working conditions are found in the private sector - although many public sector salaries remain very low - however she of course does not refer to the extremely high salaries that some private sector workers earn in Poland. Her supplementing argument is that the profits of state firms belong to us all (sic) and not to the trade unions. The only logical conclusion of Ms Soldksa's line of thought, is that in the name of fairness the salaries and working conditions of state workers should be lowered to those of the most exploited private sector workers.

The accompanying article - written by Paweł Rożyński - accuses the trade unionists of being overly 'politicised'. He expresses horror that the trade unions are in some way connected to political parties and dare to express an opinion on matters such as what should or should not be privatised. However, research has consistently shown that participation in civic and political life in Poland is at an extremely low level. In sociological jargon civil society is considered to be poorly developed and social capital weak. One would have thought, therefore, that when employees decide to voluntarily join a trade union, participate in its activities and put forward their own politicial ideas and demands that this would be welcomed. The fact that this needs to be pointed out in a country where the Solidarity movement arose is a great shame. Furthermore there is nothing unusual in a trade union playing a strong role in politics. Throughout Europe this is the case - with trade unions exerting a political influence on parties as diverse as the British Labour Party or German CDU. We may question the choice of the trade unions' political allies - particularly Solidarity's close connection to PiS - but not their right to make such alliances.

The majority of the rest of Mr Rożyński's text refers to the damage he perceives that the trade unionists' demands would cause. Raising the minimum wage would of course put up the costs for businesses who then would not erm.. invest in the economy. Also increasing the salaries of state sector workers would be unfair as it would further raise the privileges of this group of workers. Of course no mention is made of the high profits currently enjoyed by state industries nor the extremely high salary rises that the management of some of these companies have received (see here).

The one criticism I can partly agree with concerns the trade unions' call for the government to reduce tax on petrol. The problem with this is that it scratches the surface of the more fundamental problem of constructing a fair and efficient tax system in Poland. The basis of such a tax system should be one that is progressive and encourages investment. This would mean introducing a progressive tax for businesses (both on income and national insurance). It is a ludicrous situatation that millions of people who are often forced to become self-employed are paying a similar rate of tax as the largest corporations. This could be combined with tax incentives for those companies that invest in the economy and create new jobs. Secondly, the trade unions should demand reversing the regressive tax reforms introduced by the previous PiS government, and bringing in a more progressive income tax system in its place. These measures could be implemented whilst simultaneously reversing the increases of VAT introduced recently and help to protect low and medium wage earners.

The Polish economy has kept growing despite (and not because of) a fall in private business investment. The twin engines of this growth have been domestic demand and public investment. It is not the trade unionists who are threatening this growth, but those companies who are continuing to horde their profits and enjoying preferential tax rates; whilst demanding that the government cuts its spending and raises taxes that most negatively affect consumer demand.

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