“In the private sector, things are quite different.  We can’t print money and our guarantees can only secure funding capable of being serviced and repaid from the agreed future economic prospects of the firm.  In the real economy, we have to make ends meet.  Making ends meet out of a declining earnings base will require some cuts, some compromises, some priorities and some new deals with labour.  As things stand now, it’s the workers versus the shareholders, fighting over the spoils of the firm, abundant or otherwise.  Both sides are arriving at the table with no negotiating space — there simply isn’t enough money for any increases above what the diminishing returns can pay”.

Read the complete article by Mark Barnes  STRAIGHT TALK: Beyond lose-lose wage talks first published by Busniess Day on BDlive today.  See also last Friay’s post: Mining crisis: More flexible labour structure.

Further extracts

If the mines are indeed forced (by virtue of survival economics alone) to cut back in employment, I’m afraid it’s into the queue for social grants for those lucky enough to qualify.  I’m not sure what the step down would be from the minimum wage to the social grant, but I’ll bet it could be the difference between coping, or not, for many families.  In the case of loss-making state-owned enterprises such as South African Airways or the Post Office, the government’s choice, while equally unpalatable, is rather simpler.

Do we continue to support the self-evident and increasingly failing economics of these entities — either by direct funding or implicitly through guarantees — so that they, in turn, can continue to pay those they “employ”, or do we accept that we will end up paying those same people anyway once they’re out of work and collecting social grants?

Hobson’s choice indeed.  Therein lies the myth that governments can “create” jobs as they wish.  Jobs are only created by increased economic demand.  If the government insists on creating jobs where none are required, then it should be prepared to face (and fund) the inevitable job cuts that will surely follow in the firms it has overstaffed.  Supply and demand have an uncanny way of pricing out excess.

. . . . .

Business and labour have to cut a new deal around the economics of the firm.  A deal that goes beyond the blunt instrument of annual wage negotiations.  Economic cycles come and go and we shouldn’t expect the resources sector to remain in the doldrums forever.  As the broader global economy revives, so we should expect the demand for metals and minerals to grow.  If you’re in a company in an industry where you don’t expect that to ever happen, like Kodak was, then get out — the first cut is not the deepest.

But if good times are expected to return, and that future prosperity could be shared, then you may be prepared to live with a little more austerity now.  Clearly, this scenario only holds if the firm is still around, which is only likely if there is a reduction in costs, today.

There are only two ways to achieve this — cut the number in the work force or cut current wages.  I know this may read like an Economics 101 lesson, but we seem to have this senseless fight every year.

So let’s cut a profit-sharing deal with the workers?   They, the workers, will never agree to a cut in wages (now) for a promise of profit share (in the future), I hear you cry.  Well, maybe not all at once, maybe not today — but maybe over time such a deal could work, once its sense is proven in practice.  Often these seemingly impossible deals eventually get done, simply because the alternative is too ghastly to contemplate.  Here, now, in our own back yard, that certainly is the case — the risk of political fallout and social unrest is a price we cannot afford.