Mar 02, 2010 (LBO) – Businesses can ride out economic downturns easier by having stronger relations with their workers through collective bargaining; an approach used countries like in Germany, an International Labour Organization (ILO) official said.
"Collective bargaining is essential to the survival of business and employment, so it is very important that dialogue is maintained between the employees and employers," Karen Curtis, deputy director of the ILO Standards department said.
"Sri Lankan businesses can benefit and face economic downturns better through collective bargaining with their employees."
Through collective bargaining, employers and trade union can discuss on conditions of employment, working conditions, grievance procedures and rights and responsibilities of trade unions.
Curtiss said the challenging economic environment had has led to a deteriorated labour standards in some parts of the world, and to a fall in productivity.
Through a collective bargaining agreement companies and their workers can jointly take decisions and actions to face a crisis as and when it comes, Curtis said.
"It's very important to maintain a healthy dialogue now due to the economic down," Curtis said.
"Those who have maintained healthy relations with their respective trade unions can make changes faster."
Curtis was speaking at the tripartite workshop on freedom of association in collective bargaining in Sri Lanka, Nepal, the Maldives and Bangladesh held in Colombo.
German companies keep a very good relationship with their workers and communicate frequently on challenges the business might face in future, Curtis said.
Both Germany and Japan had good labour relations and strong export growth in the 1970's when many developed countries had high inflation, strikes, wage hikes and a decline in their industrial sector.
The world went to the so-called 'Great Inflation' period following the Vietnam war as the US printed money and the dollar finally went off the gold standard in 1971 to become a floating currency fuelling an 'oil shock' and commodity boom.
In a landmark study in 2007, Edward Nelson, a US Federal Reserve economist, showed that the good labour relations in German called 'Concerted Action' was made possible by the early stamping out of inflation by the Bundesbank.
Nelson's 'Monetary policy neglect hypothesis' argued that "countries that experienced relatively low inflation, such as Japan and Germany from 1975 onward, did so because their policymakers converted early to a monetary view of inflation."
Bank of Japan which mistakenly cut discount its discount rate to 4.75 following fuelling inflation further, started raising rates from March 1973 eventually raised rates to 9.0 percent by 1974. From 1975 Japanese inflation fell.
Nelson argued rather than mandated wage freezes, control of inflation by the central bank created grounds for peaceful labour relations. Both Germany and Japan has strong exchange rates and low inflation.
In the current economic downturn, Germany, the world's second largest exporter behind China should have been more susceptible to global recessions.
According to ILO statistics, in 2009, German unemployment had only increased by 0.1 percent from 2008.
In the US, Germany's largest export market, the unemployment rate had increased by 2.6 percent during the same period.
"People need to genuinely believe in the system," Tine Staermose, director, ILO Colombo office said. "Belief in the system can't happen overnight."