In the light of the bickering between the social partners about the cost of living allowance (COLA) for 2010, the Prime Minister exhorted the social partners to renew their attempts, begun in 2004, to sign a social pact.
A pact is an agreement and parties tend to enter into an agreement for their own reasons and their own interests expecting that, either in the present or in the foreseeable future, benefits - in whatever way - would accrue to their own interests. In a social pact, these interests usually involve longer-term considerations about the functioning of the economy and the financial viability of the firms operating in the labour market.
The recent policy adopted by the Ministry of Finance to give financial aid (amount not revealed) to ailing industries facing difficulties to cope with the exigencies of the economic situation had the support of trade unions and employers. During the recovery period, employees in these firms had to go on a four-day week, with an agreement with unions that the fifth day would be devoted to training. This in itself was a social pact in which each of the three parties - the government, employers and trade unions - achieved relative benefits in the sense that jobs were saved to the satisfaction of the three parties.
Another relevant example of a multiple-party agreement was the memorandum of agreement in November 2004, signed jointly by four unions representing the various categories of Air Malta employees and the management of this company. This agreement, including a moratorium on wage increase for three years, signed under the brokerage of the present President of Malta, can be defined as a social pact at company level.
Very often, a social pact stems from the government's aim of achieving an optimal mix of fiscal, monetary and income policies. As the achievement of this aim becomes harder at times of an economic crisis, characterised by a decline in exports, inflationary trends, low consumption levels and a higher element of risk in employment, some austerity measures have to be taken. The involvement of the social partners in the political decision-making process through a social pact gives these measures a higher level of legitimacy.
What the government may expect to achieve from a social pact is for trade unions to waive their mobilisation capacity and, at the same time, infuse a new rationality into their members by communicating the government's goals (such as wage moderation) to their members and thereby legitimise government policy.
Whatever else is on the agenda of a social pact, wage moderation is typically the key item. Overall, the trend of real wage growth in Malta has been modest and similar to that of most European countries, even though it has very often registered higher inflation. However, the latest Central Bank of Malta Quarterly Reports state that, in the last quarter of 2008 and the first of 2009, the rise being registered in Malta's unit labour cost has been more pronounced than those of the euro area as a whole. The compensation per employee is outweighing labour productivity. In view of this, employers have been expecting the government to be more empathic to their requests to share the burden of the wage increase induced by COLA to be announced in the budget for 2010.
Naturally, the policy interests of the employers do not meet those of the trade unions. The trade unions have also to pursue a policy in line with the demands of their members. These interests are bound to include the maintenance of the purchasing power of their pay packet. The contingencies to this effect, created on the insistences of the trade unions, is part of their strategy of ensuring that the balance of power between capital and labour established in the post-war era is maintained whatever the imperatives of the new economic order of the globalised economy might be.
Presumably, the document compiled by a leading Maltese economist being discussed by the social partner at the Malta Council for Economic and Social Development is contextualised within these issues. If this document can lead to partial reconciliation of interests and encourage consensus on economic reform it could be the prelude to a social pact. What must be stressed is that, at this stage, no measure be taken that could hijack this initiative at consensus building. The government's announcement in the budget for 2005 that no vacation leave would be given in lieu for public holidays falling on weekends exacerbated the then prevalent lack of consensus between trade union and the government. Whatever the rationale of the government might have been and in spite of the support of the employers, the manner in which this measure was presented was not tactful.
The social pact is a voluntary act involving the three key social actors in the economic-political scenario. The script must be written in such a way that the actors can find the ideal cues to perform their part in the best interests of their constituents. It is not an easy task. But others have tried and succeeded and in countries such as Ireland, Sweden, Denmark and the Netherlands it has become institutionalised.