Thursday, July 28, 2005

How do you educate a striker?

I have a big problem with the SAA and Pick 'n Pay strikes. Mainly because they are affecting me as a taxpayer (SAA - government owned), consumer (SAA and Pick 'n Pay) and citizen (effect on the overall economy).

Economics predicts that these types of strikes will happen. In a downward inflation trend, salary expectations lag the decreases in inflation. This is fundamentally based on the psychology of employees evaluating their pay rise in the context of previous years' raises rather than based on their cost of living.

Economic and agency theory also predict that unions will encourage strikes despite the relatively well-off positions of their members. Without argument, the benefit of unions comes into question. Thus, while an initial offer by an employer may be generous, the union must disagree to justify its role.

The effects of this are felt by consumers and shareholders. Consumers see higher than exepected prices. If the market is competitive and consumers are able to apply pressure, the shareholder has to absorb the effect of higher costs against static revenues. This results in lower profits, which should (all else being equal) result in a decline in share prices.

Consumers are not blind to this. There is a mounting backlash as evidenced by Joe Soap letters to the press.

As a taxpayer I am a shareholder in SAA. How do lower profits affect you and me? Capital costs money. The billions invested in SAA must be funded either through debt or our taxes. Profits must be used to pay interest on this debt and a return on our taxes. No profit equals funds that could have been used to build houses being sucked into SAA.

The unbelieveably greedy SAA strikers saw the first SAA profit in a while as theirs and demanded an increase of almost three times the inflation rate.

A further fly in the ointment is that new CEOs like SAA's, tend to play accounting games to write off everything in sight in their first year and allow them to achieve profits thereafter. SAA might have showed a profit, but I'll bet there is a squeeze coming - the strikers demands will make that worse.

As for Pick 'n Pay - these workers are some of the most well-off in the retail industry. They want an increase of four times inflation! They were offered an increase of two and a half times inflation which they rejected! I hope they lose their jobs. We live in a country with 40% plus unemployment and I know there are people who would do anything for a job.

God knows there are a few executives who get away with murder and get paid hansomely for their efforts. This often forms the strikers' principle complaint. In my world however, my clients require us to hold our price increases to inflation. Our only option to increase profits is to raise performance. And thereby our pay.

Maybe it is time some of the strikers experienced that world.


ChittyChittyBangBang! said...

It is not only the strikers who have to be educated, but the public in general seem to be oblivious of the impact it has on them, our economic stability, South Africa’s image and the potential for foreign investment .
I can see the need for people to strike when their demands are not being met, but as you point out the demands have to be realistic and in context of the economic climate in South Africa. People may think that striking enables them to get what they want, but there will be negative fallout further down the line.
Incidentally, I drove past the SAA Admin offices yesterday and again this morning. The strikers are out in full force… umbrellas, chairs, gazeboes, playing loud music, dancing, having a braai and drinking beer. Perhaps I have biased image of what a strike is all about, but it is hard to sympathise with people when you see this happening. The island opposite the SAA offices are littered with empty booze bottles and all sorts of rubbish. It seems more like a picnic than an actual strike.

It is the question said...

Yeah, thank goodness we have a "No work, no pay" rule otherwise that picnic would last forever