Termination of Employment Act of 1971: Time to change

By a Special Correspondent
The crucial aspect of development of a country is provision of employment to the population. One could argue that when development comes the employment issue will also be addressed. I believe the other way is true. If we keep on creating employment opportunities, the people who get employed will create a demand for food, shelter, and later for other additional things. This demand will create more production and hence more jobs.Two of Asia’s best brains Lee Kwan and JRJ cannot be wrong. JRJ in 1977 said the country has 3 problems. No1: Employment, No 2: Employment, No 3: Employment. Similarly Lee Kwan created a disciplined workforce and allowed foreign investors to employ them on a hire and fire basis. This made investors flock in to Singapore as the risk they assumed was less, since in the event of the project or the investment going bad, they had the flexibility of disposing all factors of production including labour.

Asians, I believe live by a recipe. To go to school, then to the university, thereafter to a job, then marry, have kids, build a house, etc etc. When the job is not forthcoming the marriage is delayed, and sometime the sweetheart is married off by the parents to a person who has a job. The frustration that sets in makes the person hate the society. The natural tendency is to blame others for one’s faults, and the government is the scapegoat here. The job was not forthcoming and he/she lost the sweetheart because of the ‘system’. This is the kind of youth the terrorist or revolutionary movements are focussing on. It is easy to convince a frustrated unemployed man to take a gun to his hand, than a person who is busy in a job or raising a family. The moment the person has a gun in his hand, he feels more powerful than the one who doesn’t. This is the reason that revolutionary or terrorist movements succeeded in countries that practised socialism or in countries that had high unemployment.

I personally cannot understand why JRJ opted to create a Free Trade Zone that had different labour rules, rather than repealing the Termination of Employment Act of 1971. If he either repealed it or made it not applicable for industries and companies formed after 1977, many jobs would have got created in the whole island, making even separatists movements ineffective.

It is my belief that this Act has done more harm to Sri Lankan than any other. While it is easy to hire people in Sri Lanka it is very difficult to get rid of them if the hired person is unproductive, disruptive or unwanted. This creates a major de-motivation to hiring or investing in Sri Lanka.

Old notion
The termination of Employment Act of 1971 was introduced by a regime that believed the old notion that capitalists exploit labour. The socialist thinking gave more powers to working people than the person who is investing and taking all the risks. Unfortunately in Sri Lanka there is a huge mismatch between the number of people who want to go to the university and the number of vacancies available. This has resulted in the number of persons who enter the job market before obtaining a degree, being fairly large.

This along with the political notion that the government has to provide jobs to graduates and also to non graduates, has puts the country into a dilemma.

Another issue that is a direct result of the Termination of Employment Act 1971 concerns the productivity of people. Many who work in the western or developed world would know that whatever your position is, there is a termination clause attached to it. If the company does not want your services, they can give you about 3 weeks of notice or a cheque in lieu of notice. This makes you want to work hard to keep your job. Thanks to the Termination of Employment Act of 1971, people have become lethargic. They also know that at the smallest excuse they could strike. This Act is perfect if the government can create all the jobs. But let’s say the government gives jobs and make the public sector even bigger than now. How long can they do it?

In Sri Lanka until recently we had a minister (s), overlooking a huge decentralised department, to look after the employed people. However there was no ministry or a minister for unemployed people.

Besides, employing people in Sri Lanka could end one up in jail. No sane employer will sack a good worker. He will pay anything and keep a good worker. But private sector employers cannot continue employing an unproductive worker. If they do, their cost of production will go up. Other employees will also be affected. If they try to get rid of a worker, the Labour Department comes to the latter’s protection.

Investments
In 1977 there were few countries who wanted to attract investments to create employment. After the fall of Soviet empire, a free market is practiced in almost all the countries. So what is the motive for someone to invest in Sri Lanka with its rigid labour laws when so many other countries offer hire/fire capability for investments? Investors invest after assuming so many risks. They have to find markets for their products and compete with other producers. They have to learn how to reduce costs etc. If the venture doesn’t work out they should be able to sell the land, sell the equipment and fire the staff and move on. We need to give flexibility to all factors of production including labour. This was proved by the Juki Machine operators. The people who learned the trade due to the relaxed labour rules in FTZ during 1977, were so much in demand that some employers were offering large salaries and benefits to attract them. (Until the Multi Fiber agreement expired). If a person who has just started to work, even if he loses his job after a short while, he would still have gained sufficient knowledge and experience to make it easier for him to get his next job, rather than if he had been unemployed for 10 years. For these reasons, I believe that the Termination of Employment Act 1971 is responsible for most of the ills of the country. It is responsible for;

(a) Lower level of job creation and frustration among the youth.

(b) Lower level of productivity and lethargy among the work force than the tiger economies.

(c) Lower level of demand due to low levels of employment, which in turn reduce the employment creation.

(d) Further impact on job creation due to the lethargy and low productivity of people (including the number of holidays).

(e) High inflation due to government spending on salaries of state employees and too much money going out to the systems without creating a production or a service. (When the money supply goes up without increasing the production then the inflation goes up).

(f) Insurrections in the country and feeding youth to support or participate in the insurrections due to their frustration.

Immediately after the war is over, the country should create jobs for the youth to develop the country. If the jobs are not created then within 5-6 years there will be a large unemployed workforce.

The current government after the war can put the country on a development footing stating that Sri Lanka has 30 years to catch up. My advice to the President is;

(a) Make the Termination of Employment Act of 1971 only applicable to the people who are employed as of January 1 2009, and to the people who are above 30 years of age. This will create a huge demand for the young population. The law would provide if the person who does not fall in to the category can agree with the employer to be considered to be in the category.

(b) To make creation of employment the priority of the government for next 3 years, and set a target of creating 1 million new jobs.

(c) Explain to the people why, and make labour laws inapplicable to the new recruits. If the new recruits are doing a new job no sane employer will sack them, and they don’t need the labour laws to protect them.

(d) Encourage small, medium, large business people to employ others, giving them the assurance that they could terminate if they are not performing a good job.

(e) Introduce competitions district wise, regional wise, and national wise for employment creation. Award national honours to people who create large number of new jobs.

(f) Give wide publicity in BOI literature and foreign outlets to attract the investors.

As the currently employed people will continue to enjoy the ‘protection’ of the Act they cannot find fault with the government. The government is purely concerned about the unemployed and it is encouraging the people to employ the unemployed.

Benefits
(a) The employers or investors will be able to hire workers without fear, knowing that if the employees are unproductive or are not wanted, they can be terminated.

(b) The people who get employed will work hard to keep their jobs, The result will be higher productivity and more investors coming this way.

(c) As no employer wants to sack a good employee, they will be paid higher and get better benefits.

(d) Even the ones who get terminated will use the experience and exposure gained to get another job, as he/she is better prepared than a person who was unemployed throughout.

Lets hope the advisors to President Mahind Rajapakse would have the courage to make this crucial change to the country, so that people who want unemployment and frustration of youth to continue, for their selfish ends, will not be able to discredit the brave politicians who wants to do good to the country.