Can Portugal take on the unions and build a social pact?

 In News, Social and labour relations, Unions

Portugal’s largest business association CIP says it is prepared to build a social pact but won’t do it with the unions because there is no trust. Instead, it wants to work directly with the workers for a new pact for social and economic prosperity. Its new president Armindo Monteiro addressed the issue at a lunch organised by the International Club of Portugal on Wednesday.

Text: Chris Graeme Photos: ICPT

When Margaret Thatcher took office as Britain’s first woman prime minister in 1979 she rightly understood that Britain was broken and successive governments had unsuccessfully managed industrial decline.

Throughout the 1970s, a round of successive strikes resulted in a three-day week, power cuts, shop floor walkouts, and rubbish piled so high in London’s Leicester Square that the city centre was overrun by rats!

Britain’s unions had called for successive wage hikes to keep up with inflation which, in turn, fuelled even more inflation because the country’s productivity and growth simply didn’t justify it.

Her answer, rightly or wrongly, was to curb the power of the unions as she saw them as an obstacle to growth and prosperity as unemployment hit 3 million and inflation galloped at 13.39%.

Britain also had a problem of large moribund public companies that were neither profitable, competitive, nor even productive in terms of efficiency and quality.

But Portugal, while having seemingly intractable problems with its unions, is different. Most of its public sector companies were already privatised, with TAP, one of its largest companies, set for reprivatisation next year, and with a few exceptions, most of Portugal’s companies are private SMEs.

Portugal has a staggering 900,000 micro companies that employ 9 or less staff. There are just under 40,000 small companies employing 49 staff or under, and just 6,000 medium-sized companies employing up to 250. It is a question of scale. Portugal doesn’t have it and the bosses of its small and medium-size companies don’t have an appetite for the kind of mergers required to gain it. It is a question of pride and trust. Better to be a big fish in a small and stagnant pond, than a smaller fish in a clean, fast-rushing and dynamic river. “It’s too much sand for my cart” as they say here.

Another key difference is that unemployment is low, social security contributions are at a record high, and the government, thanks to good housekeeping, made a modest €2Bn surplus in its budget for this year.

A question of trust

That’s all good then, you would think. Add that to the fact that Portugal’s GDP for 2023 is expected to outstrip all the other EU countries bar 2 this year at 2.6%, even better. Except it’s not, in the long term anyway.

Armindo Monteiro, who leads Portugal’s biggest ‘union for company bosses’, the Industrial Confederation of Portugal (CIP), — a bit of a misnomer since a large number if its members aren’t what you would think of as industrial companies — and has been its president since March 2023, (And vice president since 2010), like Mrs Thatcher also believes that the relationship between enterprise bosses and the unions is broken because there is “no trust”.

Armindo Monteiro put his opinions and vision across to a group of business leaders at a luncheon organised by the International Club of Portugal at the Sheraton Lisboa Hotel and Spa on Wednesday. (October 25)

Of course the similarities between post-War Britain and Portugal today end at opinions on the merits or scourges of the unions. Britain was a huge if declining industrial power house in the 1970s, a long-established democracy with a huge population of 60 million. Portugal, on the other hand, did not have the legacy of an agrarian and industrial revolution. Instead, it endured a 50-year dictatorship, a military revolution, and a decade of chaos informed by extreme left-wing politics.

A social pact

Armindo Monteiro wants a social pact. Portugal has never really had one on paper. But the CIP boss doesn’t want the unions involved because they can’t agree and there’s no trust.

Instead, he wants to work directly with employees and workers. Not sure how that might work? You would have to appoint a shop floor representative in any given company to negotiate with the boss and that already, in itself, creates a mini union, or does it?

And are social pacts even viable or relevant in Portugal today since the problem of the country’s low wages is way more complicated than supposed mean and greedy bosses, and involves a small working population in small companies that lack scale, a low birth rate, a haemorrhaging skills pool whose graduates go abroad in search of better wages and career progression opportunities, and intolerably high taxation.

According to the International Labour Office in Geneva, “social dialogue and tripartism are key governance tools in the promotion of social justice and decent work”. Portugal lacks this in any meaningful way.

It says that social dialogue is based on respect for “freedom of association and the effective recognition of the right to collective bargaining”. Portugal does have this through its unions, but the general public largely distrusts them at worse and dismisses them at best. In any case, it is clear they lack the basic precepts of economics because their calls for wage hikes often over and above 5% are largely unrealistic and don’t reflect Portugal’s economic realty.

Social pacts or national tripartite agreements are key outcomes of social dialogue. They bring together government, employers’ and workers’ organisations to reach agreement in the pursuit of sustainable economic and social policies.

The emphasis here is on the words “dialogue” and “sustainable”, neither of which Portugal scores very high.

On the one hand, Portugal’s companies simply don’t make enough turnover, let alone profit, after taxes to be “sustainable” and support a 5% wage increase medium term under projected growth for the next few years of 1.9%.

On the other hand, Portugal’s falling population, high pension costs and national health requirements will no longer be sustainable within one generation unless GDP, birth and or population rates increase to keep pace.

In many countries, social pacts have become an important instrument in dealing with the economic and social challenges of globalisation, economic restructuring and democratisation.

They have also proved to be a powerful tool in helping countries adjust to the economic consequences of financial crises. In Europe, in particular during the 2008-09 crisis, social pacts played a prominent role in helping governments to minimise social unrest and prevent job losses. Portugal had a kind of enforced temporary social pact of sorts after the EU-IMF-ECB led ‘troika’ effectively took over the economic governance of the country and left unions and political parties with little choice but agree.

More consensus and success between bosses, unions, banks and government was reached during the pandemic of 2020 to 2021, but the golden opportunity afforded by Portugal’s Recovery and Resilience Pact (RRP) to help and encourage companies to modernise, reform and consolidate through mergers and acquisitions may have largely been lost since much of the money went to the public sector which employs over 700,000 voters.

In his speech about Portugal’s Social Pact Armindo Monteiro pointed out that social pacts were common in developed countries and it was “strange” that Portugal had never made one.

“Sometimes we like to compare and look with envy at other more developed countries but don’t ask ourselves why this has happened? Many of these social pacts were constructed immediately after World War II, at a time when Europe was in a state of chaos, and built their economic and social prosperity because at that time they knew agreements had to be made on essential questions”, he said.

Belgium – a pioneering example

One of the earliest social pacts was created in 1944 in Belgium – it was concluded in secret under German-occupation on 24 April 1944.

The pact was intended to lay the foundations for a new political compromise between the different groups after the war based on improved labour relations. It is most notable for laying the foundation for the country’s social security legislation adopted by the government of Achille Van Acker in December of that year.

The representatives of the employers and workers recognised that the good functioning of a country’s companies was essential for the prosperity of a country and therefore required loyal cooperation. It is something to which Armindo Monteiro heartily subscribes and thinks lacking in Portugal.

How is it possible, he asks, that in Portugal in 2023 “we don’t recognise this and then we wonder why we are one of the poorest countries in Europe?”

Rather like Margaret Thatcher’s, the CIP boss’s answer boils down to a problem with the unions. “It’s because there is no trust. You can’t build the basic foundations of a social pact without trust. So, why do proposals made by business owners have to immediately be mistrusted?”, he asks.

It is this mistrust, he says, that explains Portugal’s state of development. Another example of a successful social pact that he gives was the New Deal created in the United States under the presidency of Franklin Roosevelt during the Depression in the 1930s after the great crash of 1929 which triggered a run on Wall Street, and collapse of around 200 banks, all made worse by an agricultural crisis and walls of protectionist tariffs.

Its goal was to kick-start the US economy and introduced various social rights, greater tax fairness, and a whole raft of economic polices that drew on and were crystallised by the British economist John Maynard Keynes in his work ‘General Theory of Employment, Interest and Money’, published in late 1936.

More recently, in France in 2020, its social pact was reengineered. On November 26, 2020, French social partners concluded a national inter-professional agreement on telework that provides a framework clarifying the rules and modalities of remote working. The text of the agreement encourages social dialogue at company and sectoral levels.

This was only part of a massive €100 billion investment plan representing the equivalent of one-third of the annual state budget, with €40 billion provided by the European Union in order to support businesses, rethink production models, transform infrastructure and invest in training.

This pact was based on three pillars: economy and competitiveness; social aspects; and the financing of social security, built around ecological sustainability and digital transformation. But the money didn’t all come from the EU or companies. It came from borrowing and reduced taxes. To make France more attractive and encourage industrial firms to set up, these taxes were reduced by €10 billion per year from 1 January 2021. CIP wants a similar plan.

“We want to propose a social pact” Monteiro said, given that Portugal’s State Budget for 2024, which he admitted had some “merit” since it increased family incomes and reduced Portugal’s public debt — which is on target to be reduced to an optimistic 98% of GDP by 2024 – was part of a proposed new agreement on income and competitiveness presented by the Minister of Finance, Fernando Medina on October 10.

Not with the unions

The Portuguese Business Confederation (CIP – Confederação Empresarial de Portugal) says it wants to sign up to the new agreement “if measures that we consider essential are included”.

“The Social Pact that we want to propose is based on a simple idea: let’s build a healthy relationship, based on trust, and try to interpret what is necessary from the workers’ perspective, and try and say what is necessary from the side of the business owners. Let’s make a social pact”, he said.

Of course, it would require a basis for understanding, but Armindo Monteiro says that what unfortunately happened was that the municipal councils were involved in the negotiations and they didn’t go smoothly.

“We are not going to give up on this idea and we continue to think that a social pact in Portugal makes sense, but the interlocutor should not be the unions but society. This pact with Portuguese society is essential to plan social progress in the medium term.”

So, if it is not with the unions, which are the bodies that are supposed to represent the interests of employees who, let’s face it, make up ‘society’, then with who? (Interestingly enough Margaret Thatcher didn’t believe in ‘society’. “There are families and individuals” she said.)

A long term concern

Armindo Monteiro says he’s not worried about the short term and next year. Instead, the worry is long-term. On this he is right.

“We are not worried about the State Budget for 2024, we are worried about the future” he said after the CIP’s turned down proposals from the government and other social partners, including rival business associations, for the 5.1% wage increase for its members’ employees.

Portugal’s government, other major business associations, and the country’s second-largest labour union UGT had struck a deal to raise the wages of 4 million private sector workers by 5.1% in 2023.

The four-year pact, announced after months of negotiations, also included a compounded rise to 20% by 2026, in an attempt to offset the effects of surging annual inflation, which hit a three-decade high of 9.3% in September.

The proposal, based on an updated agreement on income and competitiveness in the State Budget for 2024, foresaw an increase in the national minimum wage to €820 and the suggested invitation that companies increase their wages for their employees by 5%.

The proposed private sector salary increase for 2023 was even higher than the 3.6% average increase the government was willing to award to Portugal’s 733,000 civil servants.

However, CIP did not agree with the agreement and refused to sign it unlike other business associations in Portugal because it says the goal posts were changed.

Instead, he says that those companies who are members of CIP will hold its own negotiations with its members and their employees for a deal in 2024.

Portugal overtaken in Eastern Europe

So, the CIP will not sign up to a 5% benchmark wage hike, even though it has admitted that the increases it negotiates with is members could eventually be even above the benchmark reference. The reason? Companies don’t make enough to support it, Portugal’s GDP and productivity don’t justify it.

“I don’t like to point it out, but it is not pleasant for the president of the largest business association in the country to see Portugal being overtaken by all the other countries in Europe in terms of wealth generation”

Here he is mostly referring to Eastern Europe where the wages are much lower, so of course productivity and GDP can be higher.

And I wouldn’t bank on seeing social pacts having any meaningful success in these right-wing, increasingly populist and undemocratic countries anytime soon.

The experience of Eastern European countries transitioning to Western democracy in the 1990s and beyond was not encouraging in this regard.

In these countries, social pacts are mostly coated with a veneer of ‘illusory’ corporatism neoliberal policies whose content had been decided elsewhere, often outside the country in question.

The decline of social pacting is not limited only to those countries and Portugal, but also Ireland, Italy and Spain, which were negatively affected by the sovereign debt crisis, and seems to be in decline across the board.

Where’s the money coming from?

In Portugal, the CIP says that the increase in the national minimum wage means that companies are saddled with an extra €4.5Bn in costs. “We can’t pretend that companies know where they are going to find these sums. We don’t know how to grow income without growing the economy”, said Armindo Monteiro.

“The question is if there is some structural impediment in our DNA that is stopping us being more prosperous? Is it our only purpose as members of the EU to be net beneficiaries of community funds, to go with cap in hand for Brussels hand-outs?”

Armindo Monteiro says that there is another way — the pact. A commitment on specific objectives whereby company bosses are open to doing their part, and the workers are open to doing their part too.

“We need negotiators who are not union representatives, but workers’ representatives” he said. In other words speak to the monkey rather than the organ grinder.

He might have a point here on his ‘DNA’ perspective. The Romans are said to have opined that the Portuguese (Lusitanian tribes at that time) were ungovernable and incapable of governing themselves.

Because you see, the fact that the different ‘bosses unions’ or enterprise associations couldn’t reach a consensus and build a united front on this speaks volumes. If they can’t sing from one hymn sheet, how can they expect anyone else to?

The problem in Portugal to creating a genuine social pact is that the size of tax cuts needed to make it a reality and allow Portugal’s companies to survive, and for such measures to win over market confidence would be suicidal for any government of a small country which has ploughed most of a €16Bn EU financial aid and regeneration package into the public sector while terminating investment fiscal incentives.

And while Portugal’s business associations and unions don’t speak in one voice, their chance of influencing Portuguese government policy is stifled, in turn limiting their ability to act as the legitimate representatives of their workers and firms at large.

They are increasingly regarded as their ‘own special self-interests’ by growing parts of the public opinion following the rise of centrist, liberal-oriented platforms in the first two decades of the 21st century. One only has to look at election voting figures to see the generalised civic apathy that has set in in Portuguese society to one of passive indifference.
And trying to somehow bypass the unions is not a viable or sensible option. Even though their power too has been declining at a similar rate to that of the business associations in Portugal.

Such a social pact might be useful in helping to blunt the worst effects of neoliberal reforms imposed by the troika a decade ago, but unless the different stakeholders in Portuguese ‘society’ – in this case bosses, unions, company employee representatives, and the government can really sit down and take a hard, honest look at what is wrong with Portugal and agree to fix it, set up a kind of ‘emergency cabinet’; one putting aside ideological differences for the sake of the country, I can’t see it happening.

Perhaps it is in the DNA and that needs to be changed. The question is if the Portuguese are prepared to change? Are they prepared to set aside differences, cooperate and agree? Or was that Roman general right when he said: “There is, in the westernmost part of Iberia, a very odd people: they refuse to govern themselves and they refuse to be governed!”