Slavery Is Over, Be Afraid of Freedom!

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During its spring session, the Georgian parliament will deliberate on proposed amendments to the Labor Code. One of pre-election promises of the new government was “humanizing” labor legislation. Ever since 2006, when Georgia first adopted its own labor law, this has been a subject of public discussion and debate. Many emotional assessments have been made on this issue: politically correct critics have mainly described it as being tailored to employers’ needs alone; the Georgian Trade Unions Confederation has been busy sending complaint after complaint to international organizations; and a large segment of the media and non-governmental organizations still believes that the former government adopted a “slavish” Labor Code which resulted in the “oppression” of workers.

Authors with different opinions have published many good articles in Tabula that have tried to substantiate how a plot between the state and trade unions can be damaging to both employers and employees. The previous issue of Tabula contained a very good article about the planned amendments to the Labor Code, explaining in simple terms and with practical examples what the proposed changes will entail.

Those who know a foreign language and can use a computer can browse the Internet and learn about the results of labor regulation in Europe. A little while ago in France, hundreds of cars were set on fire in protest against the insignificant liberalization of labor legislation. I cannot recall any such vandalism in Georgia, save for the civil war in the early 1990s. Aside from radical leftists, no one denies the adverse effect labor regulation has on economic development. One of the most important indicators in the economic surveys conducted worldwide to evaluate countries is the level of freedom in their labor markets. No one questions the results of those surveys, not even the radical leftists.

World-renowned economists have provided numerous empirically proven economic arguments in favor of freedom in the employer-employee relationship, whilst political philosophers have provided various ethical arguments. I cannot add anything more to these, but I do wish for the planned amendments to the Labor Code of Georgia not to be adopted.

As someone who participated in drafting the existing Labor Code, I would like to recall our history. I hope it will prove interesting for those willing to understand the reality of the situation.

Up until 2006, that is before the current and effective Labor Code was adopted, a Soviet-era labor law was in force. Over the first fifteen years of Georgia’s independence that Soviet labor law was slightly amended – mainly through the deletion of those outdated provisions that were out of step with reality. Among these, for example, were the rules for settling disputes through Burlaw (comrades’) courts and the regulation of the labor of collective farmers. People with good memories must remember that throughout the 1990s, before real discussions started about amending that labor law, very few people, apart from the trade unions, showed any interest towards the labor legislation.

 

Why? Because, the labor legislation was never properly executed back then. The main reason for this was the prevalence of the shadow economy. Employees received their real salaries illegally because employers, keen to avoid paying taxes, declared paying lower wages in the financial statements they presented to tax authorities. High income and social tax rates required a significant outlay from employers and they thus preferred paying bribes to tax inspectors than those taxes levied on real salaries. To put it simply, the labor relationship basically existed outside the legal space. The law was not executed for a very simple reason – employers and employees, by mutual agreement, concealed labor remuneration from the state.

 

During that time, observance of the labor legislation was the responsibility of the labor inspection department, an entity subordinated to the Ministry of Labor, Health Care and Social Protection. However, the political weight of this entity was proportionally tiny compared to that of the tax service. Bribes were paid to the tax service and the labor inspection department was unable to compete with these in its endeavors. I remember once how the head of the labor inspection department boasted about detecting a breach of safety standards when inspecting merry-go-rounds. As merry-go-rounds are normally used by customers, not employees of organizations, back then I was unable to understand why the labor inspection department was concerning itself with the safety of customers. The task of the labor inspection department – and the source of illegal income for the labor inspectors who took small bribes – was the inspection of the labor safety of organizations. I now understand that if the source of your income is “safety standards,” who cares whose safety you are inspecting.

No one, I believe, has questioned the former government’s capacity to take decisions and execute them. Good example of this is provided by the improvements that were made to the tax administration in parallel with the tax cuts which resulted in a manifold increase of state budget revenues.

Just imagine for a second what would have happened had the former government, instead of abolishing the labor inspection department, decided to reform it and appointed a person with such political weight and managerial talents as Vano Merabishvili as its head. Such a head would have carried out anticorruption reforms within this department similar to those that were implemented in other state entities. In that case, with this department working efficiently, it would have been virtually impossible for a business to fulfill all the legal requirements then in place. As a result, labor costs and unemployment would have soared, the labor relationship would have largely remained in the informal sector, the economic growth rate would have slowed down and the budget would have received far less revenue.

What was the impact of the 2006 Labor Code? It put existing practices within the legal space. In other words, it legalized the reality. I am sure that no one back then (save the trade unions) really felt the introduction of the new Labor Code. Because it was not properly executed, the private sector of post-socialist Georgia did not actually experience first-hand the might of the draconian Soviet labor law. Thus, in contrast to the current situation, in 2006 employers and employees did not express their views regarding the new Labor Code simply because they could not understand why they needed to have an opinion about an ordinary law being changed which had been of no concern to them before.

The reality of today is different. The state has become stronger and can significantly influence the labor market. The planned draft amendments to the Labor Code envisage the establishment of many stupid and harmful rules, but the most fundamental change, in my opinion, is the one which imposes the burden of proof on an employer’s managerial decisions, including those concerning firing an employee.

No manager will indicate as grounds for the dismissal of an employee that he/she was, for example, a Jehovah’s Witness, a member of a trade union, Chinese or a homosexual. Nor will any manager write that an employee has been dismissed for coming into the office unwashed, for being lazy or for breaching discipline. The most frequent, if not the only, grounds for the dismissal of employees that employers will indicate will concern the objective needs of the business.

According to the proposed draft amendments to the Labor Code, a third party must be used to resolve any disputes that may arise. This third party can be a court or a tripartite commission – a vague collective body. However, the draft amendments are mute about who, if a dispute is not resolved in favor of the employer, will compensate the damages that may be sustained by the owners of a company who are forced, against their will, to reinstate an employee they had previously dismissed .

In such scenarios, the third party is given the possibility of taking a managerial decision instead of the employer, without being responsible for the outcome of such a decision. It is not difficult to guess the results that irresponsible decisions may bring about.

The antonym of “slavish” is “free.” It is amazing how differently people understand freedom!

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