Why wages have to be restrained

The refrain — that the unions should have been consulted, that the law demands a wage negotiation process and since the minister appears to have violated these he should be fired — is trite.

In this plantation driven by the rents from the energy sector, there is a shortfall in the country between the foreign exchange earnings, rents, and the demand for foreign exchange for imports.

Further, it is impossible for our private sector to increase exports or replace substantially imports in the short term. Hence aggregate demand for imports in the country has to be reduced.

Since the major demand for imports comes from the middle and lower classes — simply because of their numbers — measures have to be put in place to constrain and not increase this demand.

Increases in wages and salaries simply increase or maintain aggregate demand.

Hence, as the minister indicated, these have to be restrained, even cut to zero. Otherwise we will continue as we did recently with large increases and then have to counter them by devaluations of our currency, which will have other negative effects on the economy.

Still, a devaluation in wiping out the effect of wage and salary increases may also encourage or infuriate the unions/Opposition and can signal the start of a wage/ salary increase spiral and labour unrest.

We are in a recession in which we cannot spend ourselves out of by non-exporting activity.

The immediate option is to dampen economic activity onshore as the recession progresses.

However, the way out is investment (even in the recession) into developing exporting capacity and capability via the creation of a national innovation system.

MARY K KING St Augustine