Wednesday, 9 November 2011

Lessons from History: Government Wages in Cyprus

In 1931 the British colony of Cyprus was facing a debt crisis. The very serious effects of the great depression, made worse by the worst drought the island had seen in 100 years, led to a lack of funds for the government. The government cut all public works spending, and argued that the situation would get better soon.

Politicians from all communities, discussing in the talking shop (bereft of real power) provided by the authorities (known as the Legislative council) were pointing out that the wished for surplus was not going to materialise, since the same wishful thinking occurred in 1929 and 1930; then the government increased taxation, only to see further deficits and the shrinking of the colony's reserve. They suggested instead:
1) a cut in surplus positions in the government (especially high ranking ones) starting by cancelling the newest appointments and or promotions.
2) A reduction to the COLA (Cost Of Living Allowance) increase (ATA was in Cyprus since 1878!) and performance related increase by 2/3 but not for those with income below 120 pounds
3) Reduction of government scales across the board especially of those who were created after 1914, which operated in a higher scale.

Of course in 1931 the demands were a statement of political intent as wall as an attempt to introduce fiscal austerity to the apparatus of government: The above measures would hurt the British working in Cyprus, forcing some of them to leave and thus weakening the British grip on power in Cyprus.

What is interesting to me however is how modern these demand are in regards to the current problems of Cyprus. ATA - our current COLA adjustment to wages is set to go in hiatus, and there have been calls for it to remain for the lowered income civil servants. At the same time the desire of the majority population to see more public works at the expense of an over-privileged government wage sector is facing resistance by the government itself, which like in 1931 , is worried about the repercussions in its ability to govern.

What is depressing is this is taking place not between a clash of nations but through a clash of vested interests: It is clear that the pay scales of some government appointments have to be re-aligned to the conditions of the demand and supply of the labour market - there simply is no reasons to have an 80% premium for government teachers as it starves the education system of new teachers and distorts the signalling of our graduates.

If history is our guide the results are not encouraging: the government refused to listen and managed to rack up a very large deficit, leading to a outside aid, increased taxation implemented by force and violent riots. Our government's inability/unwillingness to accept the need of similar measures is sadly leading us to the same direction.


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