Wednesday, 27 December 2006

Belgian corporatism on the move

It isn't that funny at all to be an employer in Belgium. As the Organisation for Economic Co-operation and Development (OECD) pointed out in a special report in March 2006, the Belgian labour costs are the highest of all OECD member states. It's therefore interesting to look at the wage negotiations between the ten main "social partners" (representatives of both employers' organisations as trade unions) which took place Thursday last week.

These interprofessional talks are organised each two years, and try to reach an agreement between the social partners on social issues such as pensions, innovation and R&D-investments. But the core issue of these talks remains how much wages in (privately-owned) companies may increase over the next two years. In the early automn of this year, the Central Council for Trade and Industry - which is more or less a socio-economic thinktank - suggested the social partners should wages increase by only 5.5% for the period 2007-2008 in order to stay competitive with the outside world. Last Thursday, however, the social partners agreed on a basic-wage rate of only 5%. So, is there sufficient reason for Belgian industry to uncork the champagne bottle?

Unfortunately the answer is no. The Flemish Network of Enterprises (Vlaams Netwerk van Ondernemingen or VOKA in Dutch) - which isn't an official social partner, however - made serious objections to this basic-wage rate which is too high in VOKA's opinion. According to VOKA it will not be the ordinary employee who will benefit from this wage rate, but the Belgian government. VOKA calculated that a 5%-wage raise will cost Belgian industry almost €8 billion. However, the employees will only get €2.8 billion. The remaining €5.2 billion will flow to the Treasury, because of the high contributions for the expensive social security system that have to be paid.

The agreement that has been reached isn't a good thing at all, since Belgian companies lost almost 20% of the market share in international trade since 1999. Raising wages by almost 5% over the next two years could be fatal to our companies. And nobody can guarantee that wages will raise by 'barely' 5%, since Belgium has got also another unique feature in its social negotiation model: automatic wage indexation. Due to this malicious system, wages are automatically raised when consumer prices are too high. Even when there is a basic-wage rate - in this case 5% - it could very well be exceeded. It's one of the main causes of the high labour costs in Belgium. Together with the Grand Duchy of Luxembourg, Belgium is the only country in Europe where this system is maintained.

At last, there is one other unique - but perverted - thing in the Belgian social negotiation model, namely the fact that these are interprofessional talks. This means that the social partners hardly take any account of the fact that there are many industrial sectors. It could be possible that the food industry is very competitive, while the textile industry is losing ground on the international market. In that case, it would be more rational to restrain a raise of wages in the textile sector, and to be more generous in the food industry. But due to the interprofessional negotiations, this is almost impossible. And nor does this interprofessional negotiation model take any notice of the big differences between the Flemish (with more employment in the privately-owned sector and a rather big development of the service market) and Walloon (with a high rate of unemployment (18.4%) , more employment in the public sector and an economic focus on old industries) economy. It would be a good thing if this were the last gathering of the Belgian social partners.

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