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Two countries: deep cuts have already been made in one. It was painful, but now the rewards are being enjoyed. In the other, wages rose without seeing a corresponding rise in productivity, and now there is trouble. One side demands cuts, the other threatens to strike. One side feels like it is being treated as an inferior partner. No, this is not Germany and Greece; rather it is what remains of one company formerly called BA and another once called Iberia.

These days, the two are one and they answer to the name of IAG. The boss – former BA man, Willie Walsh – wants to see deep cuts. The disgruntled unions – there are six of them in all – represent the workforce from the Iberia half. The two sides are not even close to an agreement.

Last November, Walsh made one set of proposals for cuts. Negotiations followed. They still haven’t agreed, and yet now reports say that Walsh wants to make even deeper cuts.

There would have been a time when an offer like the one being proposed by IAG would have been dismissed out of hand. Strikes would have pretty much been an immediate response. But this time it really is different. The mind-set is different.

So IAG said it needed to make job cuts and see pretty drastic reductions in wages. Unions protested and a revised offer, entailing slightly fewer jobs cuts in return for an even bigger cut in pay, was put forward.

The details are not pleasant. One can have a good deal of sympathy for workers in the Iberia bit of the company. They are willing to sacrifice some of their pay, but even then they are told that many will lose their jobs. But then again, the Spanish part of IAG is haemorrhaging cash. Something has to change.

BA went through something similar before the merger, of course. You may recall that Willie Walsh agreed to a cut in his pay but then demanded staff did the same. It did not go down well, but the end result was a more efficient company and the BA part of IAG is making good money now.

But in Spain, the workers feel as if they are being treated as second class citizens. They don’t see the Walsh plan as an attempt to save what is left of Iberia; rather they see it as the company being dismantled.

What interests me in this whole affair are the parallels with the macro picture.

Parallel number one is with Greece and Germany. During the 1990s Germany underwent painful austerity, and supply side reforms. Workers were required to work harder, for less money. Now Germany expects Greece to make similar sacrifices. The whole sorry business of Greece and Germany is partly caused because two countries are at different stages in their development. They are so out of sync that solving the problem is nigh on impossible. But there is one difference between the Greece/Germany and BA/Iberia dilemmas.  Greece and Germany could perhaps partly solve their differences by having different currencies.

Parallel number two is zombies. It is a sad day when workers accept pay cuts in return for some job security, but is that really in the long term interests of the macro economy? When Margaret Thatcher was PM, the idea of unions accepting pay cuts seemed inconceivable. The result was that great swathes of UK industry pretty much ceased to exist. Many still lament that, and say Mrs T was responsible for destroying our manufacturing base. On the other hand, in the wake of her reforms the UK did see a turnaround, and was transformed from being the sick man of Europe to something of a powerhouse.

The alternative to Thatcher type devastation may have been pay cuts. Some might say that had unions been more willing to negotiate back in the early 1980s, then today the UK would have a much bigger manufacturing base. Maybe that is right. On the other hand, maybe UK manufacturing would be a zombie sector, made-up of businesses that should have been allowed to fall by the wayside many years before.

Let me finish with a quite different example: the French and British motor manufacturing industries. The British industry is enjoying a renaissance, admittedly from a small base. It suffered creative destruction and now has some of the most admired manufacturing plants in the world. In France, the old way was protected, and I am really not sure that even the French government can afford to throw much more money at its industry.

These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees


Showing 2 comments

  1. Garry Hawkins

    Michael,

    The problem with continual cuts in pay is the affect on the demand side of the economy.

    For sure, it’s desirable to have profitable companies rather than loss making and/or zombified companies.

    However, where companies are ultra profitable – this then becomes problematic. As we’re seeing in the UK and elsewhere: companies are retaining vast amounts of cash on their balance sheets. In most cases it is neither being used for investment or being returned to shareholders (via special or increased dividends or share buybacks).

    There is an awful lot of cash (profit) sitting there on company balance sheets, predominantly deposited in zombifed banks.

    Thus far, the actions of Central Banks (via QE) and the limited government demand and supply side measures – have done little to encourage firms to energise their cash.

    What other measures should be employed?

  2. Competition is clearly not just inter-company and inter-national. (It’s also personal).
    It does seem odd that the struggle for dominatation still goes on between management and workers even now, when our survival is suposed to depend on everybody pulling in the same direction for the common good.

    What we have is a serious failure in communication, everywhere!

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