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The Time Has Come


September 30, 2004
Copyright © 2004 CARIBBEAN BUSINESS. All Rights Reserved.

The time has come for labor, management, and the government to sit down and negotiate a new set of rules to modernize Puerto Rico’s workplace.

For decades, the island’s economic development–i.e., job creation–has relied on the availability of low-cost labor and tax exemptions to attract investment. As the cost of labor, including expensive fringe benefits, became higher and higher, companies operating in Puerto Rico became more and more dependent on tax exemptions to remain competitive vis-à-vis other jurisdictions. But the era of tax exemption is quickly coming to an end, making it imperative that we find ways to make it possible to continue doing business here.

Mind you, this isn’t an issue concerning exclusively stateside or foreign companies doing business in Puerto Rico. In fact, local companies, most of which don’t have the benefit of tax exemptions or other government incentives, are the ones most affected by increasing labor costs.

The world economy has changed. Other jurisdictions have become much more competitive than Puerto Rico in terms of business climate, including lower labor costs, and are running away with the lion’s share of new investment worldwide.

In Puerto Rico, labor unions continue to complain that cost-cutting measures by businesses are hurting workers, while the private sector tries to explain that the high cost of doing business on the island is scaring off outside investment and making it more difficult for local businesses.

And then you have the government, which employs more than one-fourth of the employed labor force, including the vast majority of the unionized labor on the island. But for political reasons, it is incapable and unwilling to face up to those unions in an effort to keep labor costs under control.

The ongoing dispute between the Puerto Rico Aqueduct & Sewer Authority and its main union, the Authentic Independent Union, over employees’ medical coverage and other issues in their collective bargaining agreement is the exception that proves the rule. In general, contrary to business owners in the private sector, agency heads are political appointees who are only incidentally in charge of their agency. Many of them are career bureaucrats with no idea of cost controls, efficiency, productivity, and how to maintain a bottom line. And what do they care? It isn’t their money that’s at stake when an over-bloated bureaucracy continues to demand higher and higher labor benefits.

The era of recalcitrant labor unions facing off against recalcitrant business management is a thing of the past. More and more, what we see in the States and in other industrialized nations is a different environment altogether, where labor and management are working closer together than ever, collectively looking for solutions to keep their company, their jurisdiction, or their country competitive in the global economy. In fact, even formerly socialist economies have had to wake up to the competitive reality of a global economy.

An example is the U.S. airline industry. It had already been facing financial difficulties because operational costs, including labor costs, were spiraling out of control in the face of declining revenue. Then came 9/11. In the aftermath, the airline industry had to do some serious introspection to figure out how to survive. Labor unions came to the table and very sensibly, recognizing their jobs were on the line, agreed to adjustments that in other circumstances could have been considered a capitulation to the demands of management. The same has happened in the auto industry.

The point is that the traditional adversarial approach to labor issues has given way to a new climate where management and labor sit down and dialogue about how to keep the enterprise economically viable in an ever more competitive global economy.

Not so in Puerto Rico, yet. Here, the discourse of labor’s leadership is still an antiquated rehash of the class warfare of the ’60s and ’70s where management–whether in government or the private sector–is accused of sitting on a pile of money that they just don’t want to share with the workers. Bah!

Unless we sit down soon to talk with open minds about a new labor consensus, Puerto Rico’s economic competitiveness will continue to erode until one day, we will wake up and realize the rest of the world has left us behind. It’s already happening.

This Caribbean Business article appears courtesy of Casiano Communications.
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