Belgian economy : moderation or re-industrialisation ?
With the economic crisis, the automatic wage indexation debate reappears. The latter is complex and mutant, for it cannot be dissociated from the economic context in which our economy is evolving. The indexation - beneficial in some periods and toxic in others - is an issue that will never be stabilized.
In order to comprehend this controversy, we have to recall that indexation responds to a legitimate need to adapt labour contracts to consumer price evolutions. It concerns nothing less than the maintaining of purchasing power, without labourers or workers having to suffer a counterpart loss of their labour input. In our country, characterised by a collective frame of labour relations, indexation is often automatic, i.e. it is mechanically released by parameters that are objectified.
Labour union claims for indexation maintenance are understandable. Indeed, price increases are independent of labour relations.
In these times of monetary creation, it would not be fair to subject workers to the consequences of an expansionist monetary policy decided upon in Frankfurt and destined to facilitate sovereign debt financing of the Southern European countries. Moreover, our economies suffer from internal demand contractions, against which indexation usefully helps fighting. Finally, wage indexations are carried out on a likely under-evaluated basis, while central bank rotary presses are working non-stop, leaving anticipated growing inflation.
What is more, labour unions associate automatic indexation with a social welfare tool. Indeed, parafiscal financing (social security, etc.) is founded on an insurance-related principle, which results in individual contributions proportional to the indexed incomes, i.e. to the workers’ fiscal capacity. This is why, paradoxically and contra-intuitively, labour unions are opposed to levelling out indexations. They believe that this would lead to reducing the social contributions of the workers that are most well-off, whereas the wage indexations of these very same persons exceed the increase of the sums spent on basic necessities.
As a consequence, employers’ organisation claims with respect to an in-depth debate on indexation are perfectly well-founded.
Indeed, automatic indexation harms the competitiveness of the enterprises, which, with this mechanism, see their cost prices increase without being able to reverse them to Belgian or foreign end consumers. This reality is even worse for our economy is evolving in a context of stagflation, i.e. a bad chemistry of inflation and recession.
In this context of stagflation, automatic indexation is even more fateful for the recession contracts economic activities, making it impossible for enterprises to reverse automatic wage indexations to their sale prices. Belgium imports and exports nearly two thirds of its GNP: inflation thus strikes enterprises twice, via imported good price increases and the extreme opposition to international competitiveness in the field of export, which is often too little sophisticated. This indisputably leads to a loss of international competitiveness.
Yet, there is something else: the wage indexation issue is too often mixed up with the productivity gains sharing debate. Productivity measures the added value of labour and capital in the production of goods and services.
Productivity has undeniably increased over the last years thanks to, particularly, information exchange evolutions and technological progresses. It is a matter of knowing to who these revenues are getting back to for they are jointly generated by enterprise capitalisation and employer performances.
Over the last years, it seems that Belgian wage increases have been superior to productivity gains. In other words, the increasing relative added value of the enterprises has been absorbed by growing wage adaptations, whereas it should have been divided between the various company life stakeholders: investors, workers as well as clients and suppliers.
The comparison with the German economy – that we can with difficulty qualify as an industrial failure – is striking. In this country, the social-democratic government of Gerhard Schröder (1998-2005) introduced wage moderations that lead to company productivity gain conservation in order to improve their competitive position. Today, Germany is harvesting the fruits of this political mechanism installed during the years of conjectural growth. However, in Belgium the astonishing increase in labour costs has become a major handicap that cannot longer be compensated by monetary devaluation. Our country is thus suffering quite hardly from what economists call “trade term deterioration”, i.e. from its international purchasing power.
Consequently, there are two debates to be examined jointly: that of the automatic wage indexation and that of productivity gain sharing. These two elements cannot be evaded for a generational problem hides in their blind spot. Indeed, if Belgian labour costs are too high, our productive force will progressively fade away by delocalising enterprises or immigrating workers paid according to German standards. Refusing the indexation debate would thus imply sacrificing our future for the benefit of instant welfare.
In June this year, the National Bank set up a preliminary study with respect to the possibilities of index modifications. Two interesting ideas arose from this rigorous study, i.e. an indexation that would be based on a fixed value (for example 2%) and an indexation that would be levelled out so as to respond to its true social object of low wage protection. It would thus come down to avoiding that high wages are being saved from the indexation, as far as the latter is higher than price increases. To be precise, a 2% indexation of a monthly wage of respectively 2,000 or 7,500 euros would imply 40 and 150 euros, i.e. too little or too much to cover first necessity price adjustments. This possibility was mentioned by the former socialist Governor of the National Bank, Guy Quaden. It should thus be able to gather a consensus.
We’ve got it: wage indexation modulation is crucial, particularly in these times of stagflation. Compensation policies should be structured in between recession and inflationist pressures. Internal consumption support by means of a certain form of indexation is essential. However, not adapting the system, nevertheless recommended by the IMF and the OCDE, would inevitably lead to the erosion of our country’s competitive position, which is already plunging continuously.
From this point of view, imagining that we can reindustrialise our economy with labour costs that are 30% higher than in Germany, our foremost trade partner, would be an act of guilty naivety, even an tremendous lie. There should thus be chosen between competitive industrial politics and wage politics calcification that is becoming an archaism everywhere in the world.
Yet, there is worse: in the following years, interprofessional agreements will be regionalised. The interprofessional agreement of 2012 is probably the last of authentic national scope. From 2014 onwards, regional industrial competition will provoke serious tensions. And, as of 2022, the southern part of the country will have a lot more to lose than the North in case of a status quo in the competitive debate.
