Monday, May 23, 2011

Legal Analysis Tool Kit Series: Baselines or Where Should We Start?

Welcome to the second episode of Legal Analysis Tool Kit Series! Our today's discussion will focus on the concept of Baseline or to put it in a simple way: where should we start before we can impose a law or policy? The concept of Baseline is an interesting one because it deals with the fundamental issue of the original position of certain rights or obligations. Let me give you an example:

In Indonesia, we have regulations on minimum wage for workers. Suppose that someone goes to the Constitutional Court and demand that such law should be annulled on the basis that it contravenes his constitutional rights of freedom to work (Article 28 D (2) of the Constitution). The basis of the claim? A company rejects him from a working position because it isn't able to pay him the minimum wage and therefore the company refuses to accept him. This is a hypothetical case since I haven't  done or read any research on the actual relationship of minimum wages and the companies' willingness to recruit new workers. For the sake of this post, let us assume that: (i) there is a big fine for companies who do not follow the minimum wage law, (ii) we are dealing with small and medium enterprises where salary of their workers is a major factor, (iii) the administrative costs for getting an exemption for the minimum wage is too high and taking a long time, and (iv) they tend to reduce their recruitment activities rather than paying new workers with the stipulated minimum wage.

Question 1: Can we say that this minimum wage law contravenes the constitutional right of the unfortunate potential worker?

Question 2: To what extent can the Government actively limits the rights of freedom of contract of its people? Should the Government leave them alone and deal with this issue by themselves, i.e employers are free to pay their workers provided that the parties mutually agree such arrangement?

Question 3: What would be the position of the Government in this case? If the policy brings problem to certain members of the society but also good things to other members of the society (such as the current worker which will enjoy the minimum wage), should the Government revise such policy? On what basis? Can it say that since more people enjoy the benefit of the policy then the policy should be maintained? Is it fair for the unfortunate ones?

The basic problem of all of the questions above is the issue of Baseline, i.e what's the original position of the Government with respect to its citizen rights to obtain work? Should the Government interfere in the first place or not? Dealing with Baseline is difficult since here we are trying to determine the original position of something to which our next actions will be greatly influenced.

Anyway, let us try to answer the above questions:

1. Minimum Wage and Constitutional Rights

Some people will argue that in general, employers' position are stronger than the workers. Thus, the Government should intervene and provide protection to the weaker party. This should be the intention of the Constitution, fairness and equality for all. But will that argument work for our case? A man losing his job opportunity because the company does not want to pay its additional worker with the current minimum salary. Doesn't this fact contradict the original intention of the Constitution to protect the weaker party (if such intention exists)?

However, with this kind of fact, do you think that we have enough basis to say that the constitutional right of the worker has been jeopardized by the existence of such minimum wage policy? Does the fact that he is actually willing to receive lower wages in order to secure a job but the current law does not permit that and therefore he loses his opportunity to get that job can be considered as a violation to his constitutional rights? In this case we need to go to the second question.
2. The Limits of Government's Intervention

To what extent can the government limits private mutual arrangements between the parties? I would say that we are now dealing with a Baseline, i.e. should Government leave us alone in our private arrangements? Or should Government intervene whenever there is a possibility that a weaker party can face unfair treatment?

To answer the above question, I will tell you another case: A man is really in need for money to pay the medical bills for his wife and to get the money he is willing to enter into a contract which he would never enter into if he is not in dire need. Currently, he doesn't have many choices. He has asked for loans from his friends and family members and no one can provide him with the amount. At last, he found a loan shark that is able and willing to provide the loan. The loan shark believes that this man capacity to pay is rather weak and he is out of option, so he imposes an extremely high rate of interest. The man agrees with the condition, and so he receives the money to pay the medical bills.  

If we believe that our basic rule is to always protect the weaker party, should the Government impose a law prohibiting any person to take advantages from this situation or to impose certain conditions that seem unfair in the loan agreement, whereas, as a result of which, the loan must be renegotiated to reduce the interest rate and to give better payment options for the man? Do you agree with this approach?

Now, let us change the case a little bit. The above troubled man has a very beautiful house. He also tries to sell his house to raise some funds, but since the market is busted, no one is willing to take the offer. Suddenly, a person comes and knowing that the man is in dire needs, he offers to buy the house for just 10% of the original price. The actual economic effect of accepting this offer would be similar with receiving the highly interest loan from the loan shark. Eventually, the man chooses this option and sell his house with such terrible price. Question, should the Government forces them to renegotiate the price of the house to find a better and fair price under the rule that we must protect the weaker party? Would you support the Government's act to force these consenting parties to renegotiate the house transaction?

Intriguing isn't it? I would like to know whether your opinion would differ for these 2 cases. To be consistent, the answers for these cases should be the same. Why? Because the economic effects are just the same and both deals are made within an unfair condition, i.e. the man doesn't have many options, is willing to enter into bizarre contracts, the necessity for paying the medical bills is high and he doesn't have much time. But I bet that most of you will say yes for the first case and no for the second case. I would happy to hear other opinion in this matter.

Anyway, the thing that I want to show you here is the fact that it is really difficult to determine the Baseline for    Government intervention. Deciding the case on a case by case basis would most likely costly, and avoiding such cost is one of the reasons for stipulating a general law that could be applicable for any cases. And speaking of that, it's the right time for us to move on to Question 3.

3. The Government Option

For the last question, we understand from the above case that some people will receive benefits from the minimum wage policy (current workers) and some won't (potential workers). If we say that the protection for weaker party is necessary for the sake of fairness and equality, how could we justify the fact that this policy may also hurt the parties that we're supposed to protect?

More interestingly, if in the end the Government chooses to maintain the policy on the basis that more people are being protected, do you think we can still justify this act under the name of equality and fairness? To be honest, this would be another form of implementing cost and benefit analysis in designing public policy, i.e.: if the overall costs are higher than the overall benefits, the Government should not pursue such policy. Some philosophers attack this approach as something that against the concepts of fairness and equality. If we calculate that the costs of protecting minorities are higher than the benefits, why bother making policies that protect them?

I would stop at this point as my main purpose with this article is to conduct a training of thought. In public policy and law designing, there are no easy answers and determining the Baseline would always be something that we have to analyze carefully. Hope this is useful.


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