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INVITATION TO A DIALOGUE

The World Bank and the labour theory of value: policies for Bangladesh

Rehman Sobhan, Star Guest Columnist
It was with some astonishment that I read the sector on labour market' competitiveness (pp. 55-67) in the World Bank's Country Economic Memorandum (CEM), prepared for the April, 1992 Aid Consortium meeting. This section puts the onus of weak competitiveness of the Bangladesh economy on low labour productivity and goes on to argue that wage restraint is needed in order to control cost of production, to improve productivity and to provide Incentives "for new investment’. The thrust of the World Bank argument Is that the politicisation and anarchy in the trade union movement is responsible for the declining labour productivity. The Marxian nature of World Bank reasoning Is apparent from their assumption that value added in Industry owes largely to trends in labour productivity. By inference, if labour worked harder, more efficiently and accepted lower wages, productivity would rise and our industry would become more competitive. The validity of this approach to industrial competitiveness is however no more convincing when ft is argued today by the World Bank than It was yesterday, when it was so argued by some Marxist economists.
Value added originates from several other variables than labour. The crisis In the Jute industry today owes, above all, to a collapse in the world market for jute which has led to a fall in production from 590,000 tons in 1980/81, to the lowest level since Liberation. 434.900 tons in 1990/91. This fall is not due to jute mill workers beconjing less efficient or gun battles in Adamjce Jute mils, but is the outcome of a global market phenomenon. If the lAbour force in the jute mills has thus not been retrenched by 25 or 30 per cent which ft has not, then it follows that labour productivity which is measured by dividing figures for the output of jute goods, by the labour force ih the industry, has declined, which it has.
This same situation applies in most other industries, where capacity .utilisation Is low and declining due to market constraints. Thus if the labour force has not been reduced, decline In production and sales leads to a fall in labour pro-■ ducUvity.
Low production or raising production also owes to the quality of the machinery. Thus an emplpyer’s decision and capacity to install modem machinery influences labour productivity.
Finally, the quality of management remains the most important variable influencing labour productivity. Good management, in the first place chooses the right product In relation to its market prospects, the right package of equipment, organises its debt-equity structure to reduce its current liabilities, buys its raw materials to ensure good quality and competitive costs, establishes a system of wages and salaries which gives Incentive to hard, efficient and creative work, organises workers and machines so as to ensure the best production from their inter-action, maintains, good relations with bank managers to ensure ready access to credit aijd has a dynamic marketing network to access all available opportunities and to create new market possibilities. All these and other qualities, apparent to every student of business management, make the critical difference between a productive and profitable enterprise with a high labour pro-ductivity and contented labour force and a low performing enterprise with a turbulent labour force. Any serious minded inquiry Into both industrial performance and labour productivity would thus have to investigate trends in all the variables which influence total factor productivity, governing both capital and labour.
"s s World Ha-', 'r --ir-nX-i* nn the 'phnur market appear
to suffer from an insufficiency of empirical evidence. Their report advances few facts on the determinants of labour productivity. Their observations about rising real wages in industry relate only to public sector wages and tell us nothing about trends in private sector wages. Including the garment industry. which employs over half-a-million people. We thus have little idea as to whether real wages or labor productivity have gone up or down In particular industries and still less about the respective variables Influencing these trends between different industries.
Similarly we lack any real evidence on whether labour unrest has increased or decreased in the last two or five years, what elements of these disputes owe to politically inspired hartals associated with the anti-Ershad movement or originate from actions Initiated by SKOP. Labour Directorate data on trends in labour disputes In recent years, recently presented at a seminar by the former Secretary, Ministry of
Golden handshakes financed by the World Bank are no substitute for dynamism in the economy where alternative job prospects are created in the private and even public sector.
Labour, show rather low levels of labour unrest measured in mandays lost from labour disputes. Nor do we have any indication of whether these closures have significantly impacted on production and profits of an industry.'
I myself, not having any research evidence at hand, would not rule out that some Industries do face problems with their labour force and that apprehensions about labour unrest have inhibited some Investors. But if one aims to build a policy around such labour related factors and develop a hypothesis about the nature of the labour movement and organised trade1 unionism, any policymaker would look for much harder evidence and more analytical rigour, than the casual empiricism about? Idle and indiscipline labour, which seems to be the source of the World Bank's thesis on labour force competitiveness.
Having raised these questions about the weakness in the World Bank’s analysis of labour markets, one should also take
An incompetent government, without an agenda for economic growth, or an alternative programme of employment generation, will find it difficult to fire people, particularly in the secretariat. So it will have to reorganise itself to raise their performance to levels commensurate with their current wages and to calibrate future wage increases to improved organisational measures to raise productivity.
Into account some important issues relating to the labour market which urgently need resolution. These relate to the public sector, the role of trade unions and the unorganised sector.
We may begin by looking at the public sector. Here the principal Issues appears to be one of overmanning, leading to ' low productivity. World Bank data reports that between 1972 and 1983 employment in the public sector increased from 808,000 to 1.22 million, peaking at 1.25 million in 1985, . then falling to 1.12 million in 1990. This fall was largely due to disinvestment of public enterprises, where the labour force, which rose from 411,000 in 1972 to 600,000 in 1985, was cut down to 473,000 in 1990. Secretariat employment rose from 397.000 In 1972 »o 650,000 in 1985. falling
slightly to 646.000 in 1990. The big increment in employment took place between 1977 and 1983, when Secretariat employment rose from 457,000 to 629,000. Overmanning, if it does exist, is thus to be found in the Secretariat where, particularly at the class III and IV levels, the tradition of creating jobs as an instrument of public patronage has persisted through successive regimes. The erstwhile regime attempted, without success, to reduce this overmanning but at least it did not contribute to its growth.
How overmanned are the other public sector institutions? This obviously depends on how well they perform. To the extend that the jute industry has faced a fall by one-third in its production and there has been no commensurate cut In employment in the BJMC, It Is arguable that today the industry is overmanned. If we were to assume there is no scope for the industry recovering to its 1980 production levels then ijs labour force may be deemed excessive. In other public indus-
tries the issue is not so much overmanning as under production. The point at issue is how to raise production and thence, productivity.
What Is one to do with this possible public sector overmanning? Can we fire the 'surplus' workers? If we assume the output of goods and services cannot be Increased then we may have no choice. But where will the new unemployed go in a recession ridden economy, where we have no system of unemployment Insurance? Good economics may thus lead to bad politics.
Golden handshakes financed by the World Bank are no substitute for dynamism in the economy where alternative job prospects are created in the private and even public sector.
The government cannot simply walk away from its responsibility to provide a solution to a problem of its own creation by leaving disemployed workers to fend for themselves In a stagnant Job market. This a recipe for social unrest.
If overmanning is a fact of life, should the government raise wages In these sectors particularly if there is no sign of Improved work performance? The answer would be to reduce employment and pay better wages. This would serve as an Incentive to greater efficiency rather than as an Incentive to corruption because the prevailing level of wages do not guarantee even subsistence needs. But efficiency tn government depends on better governance, improvement in government organisation and management, integrity at senior levels of the administration as well as better wage incentive*.
An incompetent government, without an agenda for eco nomlc growth, or an alternative programme of employment generation, will find It difficult to fire people, particularly tn the wretqrlat. So It will have to reorpaniae Itself to rosr
their performance to levels commensurate with their current wages and to calibrate future wage Increases to Improved organisational measures to raise productivity. This Is easier said than done. Productivity increases in Bangladesh must start at the top where, by their own performance as well as their organisational skill and leadership abilities, senior officials can motivate their subordinates to work more effectively. Similarly in public enterprises or Indeed any enterprise, genuine entrepreneurial drive, integrity In the use of pubic funds, efficient debt servicing and debt recovery, will Inspire higher productivity. For example In financial institutions where massive bad debts have been accumulated employees will, however feeble the health of the organisation, demand their pound of flesh. This will seem small to the unions compared to the much bigger losses incurred due to malfeasance In the lending programmes. Thus a badly managed enterprise as well as a badly run government will perpetuate inefficiency and tension in Its work force.
This finally brings us to the Issue of the majority of the population who work In the informal sector. This lead* to dualism not Just In the labour market but also amongst the entrepreneurial class. Obvious those employed in government or the organised private sector are a lot better off than the millions working in agriculture or as kamlas tn the casual wage market. But then so too are those entrepreneurs who are privileged to have DFI finance, enjoy tariff protection and fiscal concessions, in contrast to the lakhs of small enterprise* in Dalal Kha! and elsewhere,who have to largely survive on their own enterprise, without any goverpment patronage. The privileged labow lite is thus part of a privileged governmental and busiis >8 sector elite. Sensible politics and economics wou d demand that this gap between the formal and informal sc. lor lx bridged because It Is the informal sector which has demonstrated enormous entrepreneurial skill and potential. However this again will need a revolution in the direction of policy, great creativity in institution building and indeed a change in the balance of political Influence to reach this unrecognised constituency.
To merely harp on the Iniquities of a privileged labour aristocracy will not persuade them to mend their ways unless there is a commensurate response In greater efficiency, direction, credit discipline and integrity by the employing classes. All this suggests again the need for a serious dialogue involving government opposition, business labour and professionals to develop a meaningful and non-confrontatlonal pattern of employer-employee relations which can stimulate dc-vclopmcnt.Thls would need to focus on a clear Identification of those industries whose performance Is directly harmed by labour unrest, analysis of the link between enterprise performance and management to labour productivity and unrest, the extent of overmanning In the public sector whether this should lead to retrenchment and/or measure* to raise output, whether wages are indeed excessive, whether higher wage* in the organised sector prejudice maximisation of employment. the link between good government and the motivation of government employees, the Issue of politicisation of unions, measures to reorganise trade unions to make them more serviceable as agents of development rather than confrontation, measures to motivate workers through giving them a stake In the performance of their enterprise, the issue of national level agreements between the government business, and the unions and Industry level wage bargains. All these and many other related Issue* need resolution through a process of nnn-i'onfronlational dialogue.