It is dubious whether any good will come of the strikes today by various public sector unions, called in response to the Lebanese cabinet’s intransigence and delay tactics in passing the new salary scale law.
On the one hand, if the unions get what they are asking for, the government will be even more broke, and in all likelihood, inflation will rise and threaten our already weak economy with recession and deeper unemployment. On the other hand, with the country’s rising prices and falling real wages, the unions have a point. It is also against the basic principle of equity in government that those employed in the private sector should get a pay adjustment earlier this year (even if some are still waiting for it), while those in the public sector are put at a disadvantage.
For far too long successive governments have gotten away with the socioeconomic equivalent of kicking the can down the road. Every time there has been a reasonable demand to improve workers’ purchasing power, government has skipped investment and reform initiatives that would create sustainable economic growth for the only shortsighted policy instrument it seems to know how to use: raising wages. Then the unions proclaim victory, only to repeat the cycle a few years later. The road en route to financial ruin is running out, however.
Prime Minister Mikati (who we should not forget is a businessman first and a politician second) knows full well that government cannot fund the increase, estimated to cost as much as $2 billion a year, according to the Economic Committees, the largest umbrella association of private sector committees. This would add significantly to the public stock of debt at a time when government needs increase flexibility to halt a slide into recession.
As is habit, the government will look for financing from Lebanon’s commercial banks, whose profit growth of late has been falling and deposits shrinking, leaving them with little appetite for new public lending. The banks, however, know all too well that their main obligator, the sovereign, has few options for who to turn to.
In this environment, for the banks to accept to lend government more they will likely need the increased incentive of higher interest rates (though the central bank does tend to step in and make bond purchases when the market rate becomes exorbitant). All this entails, again, kicking the can down the road with a foot that grows ever more sore.
This is likely why Mikati is proposing to pay the increases in installments, something that theoretically could stem some immediate inflation. That strategy could also lower the interest rates charged on the first tranche and does constitute a well-thought out stall tactic. But anyone who has done business in Lebanon knows that once the first check is paid, the next one has strings attached, or just simply never arrives. That is why the unions and those behind them are wary of Mikati’s plan.
If we are to speed ourselves ever faster toward the financial cliff, however, we might as well get something out of it — instead of simply attempting to placate public sector workers through piecemeal pay raises, the government should also demand better performance from its institutions.
To start with, instead of shutting the doors at 2pm (and 11am on Fridays), the public sector offices need to finally make the transition to regular business hours to fulfill their mandate of providing the public with accessible services. And while vacancies are rife within the public sector, those contract workers who insist on becoming permanent employees should only be able to do so once new, more efficient, organizational structures are implemented. That would make more sense than paying contractors to fill jobs that were intended to serve a public administration in the 1960s.
While it is undeniable that living or supporting a family on the current salary of the average public sector worker is an incredible challenge, the government is only shooting the country’s future in the foot in its policy of short-term appeasement of the union’s demands. Thoughtful, long-term policy initiatives and investments in infrastructure and institutional reform are the only way to avoid this same situation replaying itself in several years, when we are deeper in the debt hole and the prospect of digging ourselves out has grown even more distant.
Sami Halabi is a Masters of Public Policy candidate at the University of Edinburgh and former managing editor of Executive