Tag Archives: Industrial Relations

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“Turkish minister warns workers of ‘consequences of illegal strike’”

“Turkish minister warns workers of ‘consequences of illegal strike’”

Turkish industrial relations are quite far from my area of competence, but this kind of threat against labour unions, which intend to strike in protest against police violence regarding Takshim square/Gezi Park.

The information here suggests that the strikes may indeed be illegal in the context of that law, but it is hard to say anything about anything regarding legality, considering what the Turkish government does – see this:

“At a mobile clinic on the square, one medic said: “They promised us that they would not attack our field hospital, but they did anyway, firing six rounds of teargas directly into our tent. “This is against all human rights agreements. A serious crime. Not even in war should medical facilities be attacked. But we will remain here and continue our work.””

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“EU warns of ‘rising conflict’ in industrial relations”

“EU warns of ‘rising conflict’ in industrial relations”

The commission has warned that the economic crisis “poses a serious challenge” to dialogue between workers’ and employers’ representatives and governments.

Non-creative destruction: Stora Enso plans to reduce its personnel by 520 persons in Europe

Here’s a question: if you operate a business in a difficult market, what should you do?
Stora Enso thinks it should reduce its personnel to increase profitability.

Read that again.
How do companies manage to stay ahead of the curve? Yes, cost containment is one part of the equality. But to stay afloat, innovation is needed. Perhaps both process-innovation and product-innovation. Look at Lada – no innovation of either kind, and it fell way behind the curve. Not even the influx of Western capital (investment, innovation, get it?) could help. Or look at Microsoft – it had working processes and a market advantage for its software, but with the advent of smartphones and tablets a new, smaller product was needed. In the time Microsoft worked on Windows Phone, Android and Apple staked out significant claims for their operating systems.
Making paper is  very capital-intensive, but that doesn’t make labour less important. There are at least two reasons why Stora Enso’s decision is a stupid strategy (besides that it is a general strategy of Finnish forest companies by now).

  1. Labour is not simply a cost, as the CEOs of the Finnish paper companies seem to think – employees have intense knowledge about work processes and machinery. Instead of ignoring skills and knowledge, companies could acknowledge the incredible advantage they would have from updating machines instead of reducing the workforce.
  2. Labour is not nearly the biggest cost for the Finnish paper industry. Raw materials, energy and transport are much more significant.

Furthermore, a reduced labour force again increases the pressure on employees to do their duty. The Finnish paper industry does not have a very great record in terms of workers’ well-being, so increases in the workload do not sound like a great development. Even if individual workers may benefit in salary terms from a more diversified job, this is a meagre consolation if one’s health suffers as a result.

 

The markt for paper in Europe is in decline, and there is still over-capacity, which hinders profitability. But European over-capacity is to some extent the fault of the Finnish paper companies themselves, which used European aid to make new investments. These units have often both greater production capacities and newer technology, which makes them more valuable in accounting terms AND relative to competitors (see this post). The core problem for the Finnish paper companies is that the European market is in decline. Finland’s location (with resulting transport costs) and reduced value of raw materials (pine, spruce, birch relative to eucalyptus) do not amend this situation.

 

Reducing its personnel is destruction, not creative destruction which is the process by which the ‘old’ is replaced by the ‘new’. If Stora Enso is serious about improving profitability, it should come up with innovative products, investments which reduce the relative cost of Finnish raw materials for paper production and preferably in this way also increasing its energy self-sufficiency by using more biofuels for its energy needs. If Stora Enso has no such plans but instead continues to reduce its workforce, then it is clear that the company does not have a serious commitment to continue operations in Finland.

 

What should be done?

In reaction to this news item (‘the Confederation of Finnish Industries demands that all possible flexibility is taken into use’) – the point is that this confederation wants to do everything allowed by the framework agreement to increase competitiveness and (labour) productivity.
First, the quest for increased productivity is usually a codeword for redundancies or other reorganizations to reduce personnel or use it flexibly. The point is to save on personnel costs. Why? Labour productivity is Total Production/Personnel (or Personnel Hours, sometimes). Which means that labour productivity increases if you decrease personnel and somehow get the employees to do the same production with less people. Therefore, unfortunately, this call for flexibility and increased productivity usually goes hand in hand with increased pressure on employees, stress, absenteeism etc. The report of the Occupational Health Institute on the Finnish paper industry is instructive in this respect.
Still, the employers are paying the wages of the employees, and if the Finnish industry is going under, then it doesn’t bode well for employees either. Like I pointed out in this post and this post, there are two issues that are worrying for the Finnish (export) industry: an increase of Real Unit Labor Costs in comparison to Germany and a worsening trade balance (although the latter is possibly a result of the former in combination with weakening demand in Germany and elsewhere). Also the apparently increasing inflation in Finland is a fairly bad sign (at least regarding exports).
So, as far as I can see, for the good of the Finnish economy and its employees, something has to be done.  Like I said in the previous posts, it seems that domestic demand is holding up fairly well for now, although apparently consumer confidence is currently extremely low if not zero. But the more important issue is the condition of the export industry, since this is where Finland, like all small open economies, earns its money.

In my opinion, there are two border conditions for a new central agreement. First, wages are extremely sticky downwards, which is an empirically well-established element of Keynesian macro–economics (see e.g. this post by Paul Krugman on recent research). Note that this refers mainly to nominal wage rigidity. As the Finnish experience of the 1990s crisis has shown, wages may be sticky but a so-called ‘zero line’ is nonetheless (temporarily) effective in cutting real wages, at least if inflation estimates are more or less correct. Second, for Finland there is no use trying to compete in manufacturing with lower-wage countries. Finnish unit labour costs are simply relatively high, for a multitude of reasons, and simply trying to cut wages is not enough. Furthermore, Finland is where it is, so that there is always the extra burden of transport costs.

Here, I don’t want to discuss the potential of leaving the euro, because the only condition for when that is rational is when Finnish inflation is so high, that the negative effects on the exchange rate from leaving the euro are compensated by this. But since this is akin to throwing Finland’s financial credibility (AAA status etc) away, this is a completely insane idea. Only if Finland could credibly devalue against whatever currency Germany uses, without endangering the national economy, this might make sense but is extremely risky. If anything, currently Finland’s and Germany’s membership in the euro most likely represses their potential exchange rate against dollar and yen.

So, given these restraints, what can be done? Finnish companies in the export sectors can only compete on superior quality and the best service there is. These things do not reduce unit labour costs, but they make the price difference worth it. As for improving labour productivity, squeezing more work in less time is a kind of old-fashioned method. Re-organizing production processes, so that employees’ individual input can increase might be more effective and the trust endowed on employees might also reduce absenteeism and make for better well-being at work.

The truth is of course that Finland is a kind of post-national country when it comes to the value chains of the products Finnish companies sell. Pekka Yli-Anttila of ETLA had this presentation at some point, in promotion of a very good study of the value-added in the Finnish economy. The main point that he stressed, was that Finland shouldn’t be doing is the actual production of goods (like phones) – that should be done in lower-wage countries. For the Finnish economy this would leave design, R&D, sales, maintenance and branding.

To my idea, this very realistic scenario raises some very hard questions about the current system of industrial relations, the Finnish welfare-system and programs for re-schooling. If the ideas of Yli-Anttila are to be taken seriously, this would necessitate a great change away from the dominance of SAK and TEAM (as openers for collective agreement negotiations) and a very broad policy to move employees away from manufacturing to other sectors (or to other jobs within manufacturing that do not involve ‘making’ stuff).

In fact, the required changes do to some extent tie in with labour market shortages in some sectors, due to changing demographics. But simply said, I do not believe current politicians (of any party) have either the vision or the courage to promote the (admittedly radical) policies that are needed to keep Finland’s social, environmental and economic welfare intact. Now is the time – not to cut wages to keep manufacturing alive a bit longer,but to ensure that employees can get out before it is too late (I am not suggesting ALL manufacturing should disappear from Finland, I only suggest that a realistic view should be taken to industries in difficulties on the world market).

Farewell to the Communist Strike Hypothesis

For a long time, I have worked on an article on strikes in Finland with senior researcher Tapio Bergholm of SAK and the University of Helsinki, and our work has now been published in a digital book. The book is called Strikes and social conflicts – Towards a global history and is published by the  International Association Strikes and Social Conflict. Our contributrion can be found from page 401 to page 413.