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© Mohammad Ali, 2005
GLOBALIZATION AND INDUSTRIAL RELATIONS OF CHINA, INDIA, AND SOUTH
KOREA: AN ARGUMENT FOR DIVERGENCE
MOHAMMAD A. ALI
University of Rhode Island
Driven by technological advances, improved communications, economic liberalization, and increased international competition, globalization has brought in an era of economic, institutional and cultural integration. Under globalization the workplace practices are under a constant state of flux. Academics are not only analyzing the benefits and the deleterious effects of this phenomenon on the employment relations of developed and under-developed nations. They have also stirred up the old controversy regarding the longer-run trajectory of employment relations systems under the pressures of globalization. The debate is on the question that whether the industrial relations systems of countries are converging or diverging. This paper analysis employment relation systems of three Asian countries-China, India, and Korea- and makes a case for diversion in employment relation systems.
Globalization can be defined as a process of rapid economic, cultural, and institutional integration among countries. This unification is driven by the liberalization of trade, investment and capital flow, technological advances, and pressures for assimilation towards international standards. Globalization has reduced barriers between countries, thereby resulting in intensification of economic competition among nations, dissemination of advanced management practices and newer forms of work organization, and in some cases sharing of internationally accepted labor standards. On the other side globalization has evidently contributed to unemployment, increase in contingent labor force and a weakening of labor movements. The biggest question today is regarding the impact of this economic phenomenon on employers, employees and industrial relations of developed and under-developed countries. Supporters of globalization say that free trade and increasing foreign direct investment will increase employment and earnings in advanced and developing countries. Critics argue that globalization, in reality has a deleterious effect on the wages, employment, working conditions of most, though not all developing country workers. These negative effects they believe are resulting from competition of multinationals and selective opening of markets to international trade in favor of industrially advanced countries.
The debate on the impact of globalization is not restricted to the above-mentioned areas. It has also stirred up an old controversy regarding the longer-run trajectory of employment relations systems. John Dunlop in his book “Industrialism and Industrial Man (1960)” took technological development as the main force and said that industrialism has commanding logics of its own and these logics result in advanced industrial societies becoming more alike, despite political and cultural differences, and certainly more alike than any one of them is like a less developed country. Other scholars like Doeringer (1981), Piore (1981) have taken rulemaking processes and regulatory institutions respectively as the main focus and concluded that all countries show tendencies to institutionalize their arrangements of rule making and there is convergence as far as regulatory institutions are concerned. Developing countries under global pressures are trying to stay on the economic map. In order to do so these countries are taking steps to make sure that compared to other developing countries their economic environment provides more incentives to multi-national companies and attracts more foreign direct investment. The argument is that the developing nations, in an attempt to achieve these overall goals are making legal changes and adopting new employment practices which are similar to each
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other and their employment relations are moving towards the same direction. These similarities can range from lay off policies, collective bargaining structures, and legal rights of workers to worker safety legislation. At the workplace level this convergence, according to the scholars, is taking two forms: functional flexibility aimed at increasing the skills of workers and making them multi-task for producing complex goods and services, and numerical flexibility characterized by lack of unionization, increased contingent workers and Taylorist work practices.
On the other hand, Ira Katznelson and Aristide Zolberg in their book “Working-Class
Formation (1986)” took formation of the working class as a major and crucial outcome of industrial development and concluded by their case studies of industrialized countries that there are as many variations as there are cases. They attributed these distinctions to the differences to political and legal backgrounds, and the character of the regime within each of these countries. Derbishire and Katz (1997) coined the phrase ‘converging-divergence’ to describe commonalities in the changes underway in employment relations across countries (Bamber, 2001).
Figure 1
Influencing Variables
- Labor Influence.
- Employer Influence.
- State Influence.
- Industrial Stage.
• Exposure to Globalization
Influencing Variables
- Political History.
- Form of Government.
- Economic System.
Pressures
- Economic Integration.
- Reduced Barriers.
- -Intense Economic
- Competition.
- Advanced means of
- Communication.
- Institutional Integration.
- Technological Advances.
- Influence of International
- Bodies.
Policies
- Privatization.
- Industrial Laws.
- Bargaining Process.
- Conflict Resolution.
- Unions (Recognition & Structure)
Divergence in levels and types
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China also had COEs (owned by responsible collectives), and DPEs (owned by individuals). The government support was for the SOEs, therefore, other types of firms were fewer in number and were less developed (Zhu, 1995). In the traditional system there were two kinds of employees: permanent employees (based on iron rice bowl system i.e. lifelong employment) and temporary employment. Majority of workers were permanent employees with the control of all aspects of their employment under the control of the state labor personnel departments (Zhu, 1995).
Recent Changes
While the industrial relations in China have undergone significant change since the implementation of the “Four modernizations” reform program in 1978, the Chinese party has remained firmly entrenched in power (Chen, 2001). The Chinese economic reform leading to transformation of labor relations has proceeded in two directions. First, newly formed non- public-owned sectors such as joint ventures and private enterprises encompass public owned sector and attack the latter’s privileges (Baek, 2000). These new enterprises have brought in stricter worker discipline, numerical flexibility by bringing in labor contract systems and have distanced themselves from the social burdens of unemployment, over-employment and worker welfare. Second, the internal structures-which would be discussed later in detail- of the state owned enterprises (SOEs), have also undergone considerable change. To achieve the above mentioned goals the Chinese government has pursued three interrelated labor policies: first, it has introduced labor contract systems. The experiment started in 1983 but was made into a law in 1986. The new system introduced the “contract system employees”. The contract must be for at least one year and had provisions covering major topics of probation, job requirements, working conditions, remuneration, discipline and penalties. In addition to this, the old style temporary workers-seasonal industrial workers working under a labor agreement of limited duration- remained intact. In state and collective
owned enterprises there are permanent, temporary and contract workers. In foreign- invested enterprises (FIEs), there is a mix of temporary and contract employees, and in individual owned there are only temporary employees (Zhu, 1995). Second, the wage system has been changed to bring in wage disparities. The idea behind the wage reform is that the performance should be linked with enterprise productivity and individual performance (Zhu, 1995). Third, the government has marketized the social security by transferring the responsibility of social welfare from work units to individuals (Baek, 2000). This policy has disintegrated the work unit based socialist safety net that has guaranteed full and lifetime employment and has brought in insurance systems.
Ideological Issues
The concept of nation-state and nationalism is deeply embedded in the Chinese communist party ideology. It had its roots in the resistance to the occupation of China by the western powers in the mid nineteenth century. Mao Zedong accepted that the world is “divided along ideological fault lines but he believed that it was still a world of nation-states. His aim was that the Chinese nation-state should take its rightful place in this “inter-national” world” (Knight, 2003). The split from Communist Russia and the Cultural Revolution reduced China’s contact with the world and the emphasis was made on self reliance and independence. After Mao’s death in 1978, Deng Xiaoping made it legally possible to introduce economic measures based on capitalist thought to gain rapid economic (Knight, 2003). This “opening to the outside” (duiwai kaifang), or the “open door policy” not only meant western economic policies, but also the opening to western ideas and culture. Even with this major shift in policy the Chinese party leaders still considered that the world consists of nation-states. Since the Asian economic crisis of 1997, and the return of Hong Kong to China, the Chinese leadership has started looking at the world as ‘global’ (Knight, 2003). The new concept is that China needs to engage in the
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process of globalization so as to benefit the Chinese nation-state. Nick Knight in his article “ Imagining globalization: The world and Nation in Chinese Communist Party Ideology ” has described the Chinese Communist party orientation to globalization in five points. First, globalization has developed out of the imperative need of capitalist enterprises to seek the most profitable site of investment. Second, while the term “globalization” might be new, the tendency of capitalism to become global is not. Third, globalization is not driven by technology, but development of requisite technology has led to mobility of capital and expansion. Fourth, globalization leads to homogenization, but this phenomenon would not lead to assimilation as local cultures would counterbalance the erosive effects. Lastly, the nation-state will remain in existence and would exist central to the contest between the forces for and against the neo- liberal economic agenda.
Owing to the recent changes in the Chinese economic system, academics like Harry Williams believe that if socialism is defined as equality and democracy in society, politics and economy then China has ceased to be a socialist state. Whether China is still a socialist state or not is a question for another research paper but the economic changes discussed above and the Chinese view on globalization has initiated a debate in China on the effects and policies related to globalization. Some writers like Nick Knight believe that engagement with global economy will lead China to a capitalist system and would not lead to realization of socialist goals as seen by the communist party. On the other hand, there is also a strand of thought expressed by academics like James Petras (2000), which is also supported by the view of the Chinese communist party as discussed above that neo-capitalism would lead to social cleavages, fragmentations and enhanced control of Western nations and in particular the US, on the Chinese economy. Therefore, the opportunity of globalization should be used to initiate a socialist renewal by a new strategy of development from below, structural adjustment policy where property is re-socialized, rural cooperatives are re-introduced, illicit wealth is confiscated and the policy of selective openings is pursued.
Privatization
Thousands of state owned enterprises (SOE) were sold as stress was put on privatization in the fifteenth session of the Chinese Communist Central Party Committee in 1997, (Taylor, 2002). This policy is seen as an important element in increasing efficiency and achieving ‘market socialism’. In China, privatization can take several forms, but it essentially entails transfer of control (though not always ownership) from public to private interests (Taylor, 2002). Ideologically, privatization is considered as an attempt to increase compliance to reforms by workers and managers aimed at financial self-reliance. Privatization does not, however, mean that the Chinese economic system is becoming more capitalist, but on the other hand, the emphasis is on financial self reliance of the enterprises with political accountability in tact (Taylor, 2002). Numerous bankers and economists consider ‘big bang’ or ‘shock therapy’-whereby state swiftly and indefinitely withdraws from ownership and market forces fill the vacuum- as the only solution to overcome the evils of socialism. However, China’s privatization has occurred with an intact authoritarian system and by adopting a gradualistic and incremental approach. In a study done by Bill Taylor (2002) on seven enterprises in Guangdong and Shanghai, the writer has come to the conclusion that “while in some cases, the state sold significant ownership rights over its enterprises, the picture of privatization is complex than mere share ownership. Ownership and control remain largely aligned, and control is maintained within the firms”. Except for joint ventures where clear identifiable partners are visible and directorships were according to the percentage of shares owned, enterprises mostly had internal cadres and managers as board of directors and these enterprises represented a continuation of existing interests rather than a transformation in the ownership structure. In enterprises owned 100% by the corporate management, there was an agreement that the senior managers will run the enterprise according to a contract and with specific targets set by state agencies. According to the managers of these enterprises the state still exerted direct pressure
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guidelines given by local labor bureaus and government directives are followed. The government bodies check the legality of the contracts but enterprises develop their own practices. The ACFTU is performing a dual role in the arrangement. On the one hand it is defending the rights of employees and on the other it is assigned by the party to promote reform and maintain social stability.
To ensure that the rights and interests of workers and staff members are represented by trade unions the traditional method of ‘consultation’ is still in use. The proposals of management or trade unions are referred to lower levels of discussion, and comments and suggestions are reported back to the enterprise trade union. The process has its deficiencies but it has been found that when properly implemented this was a good method to illicit opinion (Clarke, 2004). Wage negotiations are usually conducted separately from the collective contract, although sometimes, minimum wages are specified. In joint ventures the trade unions tend to take a position that is a little more independent of management than in the SOEs. This was primarily because of its role in ensuring that the management adhered to the provisions of the labor laws and regulations (Clarke, 2004). Despite the often gross exploitation of the workers in foreign enterprises, local government and trade unions have kept themselves largely out of them so as not to frighten off foreign investors. The party and the labor administration also do not have any power over them to agree to a contract.
To sum up, it can be said that collective consultation has not introduced a new system for labor negotiations because it has been integrated in the traditional system of consultation. The system is less participatory and the trade unions normally defers to the management’s judgment in the name of interests of the enterprise. No substantive details are incorporated in the collective contracts; at best these contracts remind the employers of their legal obligations and monitoring and implementation of labor legislation in the workplace. The trade unions do not provide an effective channel through which members aspirations or grievances could be expressed. According to the system, the trade
union organizations may not be subject to the routine intervention of the party and state. The social and the institutional structure within which labor relations are regulated have not changed radically and they will not change until the enterprise trade union develops into an organization that, in its structure and practice, disengages from management and represents interests of its members.
Conflict Resolution
According to Seung Wook Baek (2000) in China, beginning in the early 1990s there was a growing incidence of wildcat strikes without any union presence or organization, especially in MNCs. The economic reforms initiated by the government had taken the safety net away from the workers and had put many vulnerable enterprises into bankruptcy and this resulted in a rapid increase in labor disputes. Between 1987 and 1992 collective labor disputes increased six times. In the first half of 1994, 1104 collective petitions and strikes were reported to have occurred (Baek, 2000). One of the responses of the Chinese government was to recognize the need for establishing collective bargaining structures. As the second response, the State Council promulgated the Provisional Regulations on the Settlement of Labor Disputes in State-owned enterprises on July, 1987. This was the first attempt to establish labor disputes through institutional procedures since 1955, when formal procedures to handle labor disputes were abolished and the department of letters and visits ( Xinfang ) was made responsible to handle disputes. The regulations established a three level basis of settling disputes: internal mediation within the enterprise, arbitration at local levels based on tripartite principle and final resolution by People’s Courts. Later on July 6, 1993, the Regulations of the People’s Republic of China on the Settlement of Labor Disputes in Enterprises were introduced. The new regulation inherited the three tier system but was widened to include all enterprises beyond state owned enterprises, and the range of items of labor disputes was also widened (Baek, 2000). Arbitrators and arbitration tribunals were also created. However, the enterprise mediation
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committee was changed from a mandatory to advisory requirement (Baek, 2000). With the institutionalization of mediation and arbitration process the trade unions were given an additional role in the procedure. The chairmen of enterprise trade unions presided as the chair of mediation committees, and the higher level trade unions participated in arbitration committees (Baek, 2000). However, in such situations the unions are more in the role of mediators rather than organizers of workers. The implication of procedures to handle labor disputes is that where the official system to handle labor disputes is observed, collective action is prohibited in principle (Baek, 2000). Due to the union’s lack of organization of workers the other problem is that such mediation and arbitration bodies mostly exist in state- owned enterprises and in the private sector such bodies do not exist.
Industrial Law
Article 35 of the Chinese Constitution states “Citizens of People’s Republic of China enjoy freedom of speech, of press, of assembly, of association, of procession and of demonstration”. The extent of these rights is limited by Article 1 which states “The People’s Republic of China is a socialist state under the people’s democratic dictatorship led by the working class and based on alliance of workers and peasants”. These two articles put together give rise to a complication, workers point to the Article 35, and the state responds with Article 1, to justify arrests and imprisonments on the ground that strikes and other such industrial unrest threatens the existence of worker’s state, and more recently , to the implementation of rule of law (Chen, 2003).
China had no unified labor law until 1 January, 1995. Prior to 1995, Model Outline of Intra-Enterprise Discipline Rules (MOIDR) was prevalent, and as is clear from the title this was only aimed at industrial peace and definition of worker’s legal rights. The 1995 law applies to all employing units, state organs, public institutions and laborers ‘who form a labor relationship’ with the employer. The law however, does not define laborer and in practice domestic workers,
senior government officials, civil servants, rural laborers and sex workers are left outside the scope of the law. The law defines individual contract as an ‘an agreement that establishes relationship between a laborer and an employing unit i.e. it is the legal basis of labor relations’. If the relationship can be established then the employer is legally bound to fulfill the requirements of the labor law even without a contract. However, the existence of a contract does not guarantee compliance with its terms. Collective contracts present a unique problem. A genuine collective contract is one which is between independent organ of workers and the employer, but Article 10 of the Trade Union Law particularly outlaws freedom of association. Collective contracts are approved by the labor bureau and if they violate any regulation they are rendered invalid. The law does not give any further explanation. It also does not have any provisions for changes and cancellation of the collective contract. Although there is a high coverage of the collective contracts but high rate of incidents of disputes gives a different picture as to the efficacy of these contracts. Coming to individual workers, the law provides grounds for summary dismissal of probationary employees due to various offences. The concept of labor discipline is not explained. Employees can be dismissed simply for under investigatio for criminal charges. The law also gives great scope for blacklisting militants and also provides provisions for mass lay-offs. Wages for most of China’s employees are determined by a mixture of market forces and government intervention (Chen, 2003). States implement a system of minimum wages based on local conditions, average number of family, lowest expenses needed to live, productivity, labor market and regional differences in employment. Working hours are limited to 40 hours a week. Overtime is limited to three hours per day. However, there are a number of clauses in the law that allows the management to extend working hours in ‘special circumstances’.
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to a labor court or industrial tribunal for a final decision (Kuruvilla, 2002). In addition to the above policy, the Indian industrial relations were also tilted more towards the workers. In the absence of social security legislation the burden of social policy like retirement, medical care and even child care was left on the employers. During this period the economic policy emphasized on the growth and long-term development of heavy industries in the public sector with largely indigenous technology, coupled with the policy of industrial licensing, import controls, and restrictions on foreign ownership that protected public and private sector firms from international competition(Kuruvilla, 2002). These protectionist policies created an atmosphere that led to increased inefficiency in the firms, over employment –especially in public sector- inability to introduce efficient and labor saving methods of production. These problems were enhanced by the fact that there was a relatively high incidence of labor strikes and also competition among various unions as there was no sole-bargaining agent legislation. The unions themselves were not united and at the same time there was not much of a spirit of cooperation between the employees and the employers. There was diversity not only in unions but also in industrial relations laws, each state had the right to enact its own labor laws. This feature produced a variety of local colors of unions with varying orientations to labor relations and for the most part kept the labor movement from become national.
Union density was about 38% in the formal sector workers. As can be ascertained from above, the unions had an influential voice due to their links with political parties, in fact all political partied had their union wings. Unions were mostly structured on enterprise, industrial, political or regional lines. Bargaining structure during this period was industrial or enterprise based, although there was provision in the laws for tripartite structures and works council type institutions but these were not followed in practice (Kuruvilla, 2002). There was inter- union rivalry and adversarial relationship with the employers. Although the employers were
protected by the state policies of protectionism, still they faced the problem of high costs and rigid systems of production.
Since 1991
As long as the protectionist policies were in place the higher cost and the relative lack of flexibility imposed by the industrial relations systems regulations did not pose a serious problem because Indian manufacturers did not have to compete in the international market. With the coming of globalization, the 40 year old policy of protectionism proved inadequate for Indian industry to remain competitive. Therefore, in 1992 the process of liberalization started. The balance of power shifted in the favor of the employers. Apart from the pressure from the international market, international bodies like IMF also exerted pressure to change labor policies in India. Employers pushed for workforce reduction, given their inability to retrench employees, they introduced policies of voluntary retirement schemes. There has been an increase in the demand for functional and numerical flexibility in the workplace by the employers. Globalization has also brought in the beginning of a government-employer coalition. This coalition is quite obvious keeping in view the enthusiastic support of the government for economic liberalization. In Maharashtra for example for the first time the government has declared several private sector firms as ‘essential and public utilities’ permitting a ban on strikes in these sectors (Kuruvilla, 2002). In a study by Hiers and Kuruvilla in 1997, they discuss the changes in the industrial relations in India and bring out the following dimensions:
- Collective bargaining in India has mostly been decentralized, but now in sectors where it was not so, are also facing pressures to follow decentralization.
- Some industries are cutting employment to a significant extent to cope with the domestic and foreign competition e.g. pharmaceuticals. On the other hand, in
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other industries where the demand for employment is increasing are experiencing employment growths.
- In the expansionary economy there is a clear shortage of managers and skilled labor.
- The number of local and enterprise level unions has increased and there is a significant reduction in the influence of the unions.
- Under pressure some unions and federations are putting up a united front e.g. banking.
- Another trend is that the employers have started to push for internal unions i.e. no outside affiliation.
- HR policies and forms of work are emerging that include, especially in multi-national companies, multi-skills, variable compensation, job rotation etc. These new policies are difficult to implement in place of old practices as the institutional set up still needs to be changed.
- HRM is seen as a key component of business strategy.
- Training and skill development is also receiving attention in a number of industries, especially banking and information technology. Keeping in view the above analysis, it is quite evident that the industrial system right now is trying to shift from the old system to the new. In the process, it is experiencing tension between the workers who are trying to keep jobs and the employers who are trying to achieve flexibility so as to cope with the domestic and international market competition. In essence, these practices have accentuated the diversity existing in the Indian industrial system considerably. Some analysts like Bhatacharjee (2001) suggest that there is so much variation in the Indian industrial relations that it is no longer appropriate to think of one “national” Indian industrial relations system. However, the shift is now away from maintaining labor peace and towards the increase in firm level competitiveness through basically numerical
flexibility as India becomes more integrated into the world economy (Kuruvilla, 2002).
Actors
The role of the state in the industrial relations depends on the ideological (socialist, communist, or neo-capitalist persuasion), political (neo-colonial, democratic, dictatorships) and socio economic (protectionist and neo-liberal policies) orientation (Sivananthiran, 1999). In India the role of the state may be studied over four time periods: colonial period, post colonial period, emergency era (1975-77), and post liberalization era. During the colonial period under the British the industrial relations were just another means of keeping the colonies in line, the labor law and the power of the state was used to maintain peaceful industrial relations so as to have continued production. In the post colonial era, the Indian government more or less built its labor relations structure on the pre-existing colonial law; the main purpose was again to achieve industrial peace. At the same time, in India there was political support for the Indian unions and there were laws that protected the rights of the worker but the main purpose again was that industrial peace should be maintained. The Indian state was tolerant of unions and recognized the value of labor management cooperation in the context of planned economic development. There was more burden on the employers but protectionist policies kept the employers complacent. During the emergency rule the rights of the unions were restricted, but this era did not have a lasting effect on the industrial relations. In the era of globalization and liberalization, the government has realized that in order to keep India competitive, policies should be implemented that result in flexible workplace practices. The employers are now facing the pressures of global competition, and they also want to remain competitive. For this purpose the stress is now on more pro- employer policies. The role of the state has always been pervasive in Indian industrial relations. There have always been detailed laws on collective bargaining, dispute resolution, employee participation and employment security. There is
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market economy. Labor unions are generally opposed to these measures and believe that these would adversely affect the unions. In view of the above there is a clear and urgent need for unions to reorganize themselves. They should try to achieve unity, better organization, propaganda, development of leadership and stress on professionalism.
Processes
As we have seen earlier, the main purpose of the Indian state was to maintain industrial peace therefore, the state intervention by means of dispute settlement acts was imperative and important. The Industrial Disputes Act passed in 1947 had its basis in two laws of United Kingdom: The Conciliation Act (1896) and the Industrial Courts Act (1919). The main objectives of the act was to preserve good relations between the workers and employers, investigate and settle industrial disputes, prevent illegal strikes and lock-outs, provide relief to workers in matters of lay-offs and retrenchment and promotion of collective bargaining. The principle techniques of settlement provided in the act were; collective bargaining, mediation and conciliation, investigation, arbitration, and adjudication. All disputes have to go through the process of conciliation, the issue should be trade union related, and requires disputes to be referred by the appropriate government. Adjudicators have the power to create, alter and modify, vary and set aside contracts, and can direct reinstatements in cases of wrongful termination. The awards need to be published and the government has the right to reject or modify the award. Failure to implement the award is an unlawful practice and the party can be prosecuted for the same. Final award can only be challenged by filing a petition to the High Court or the Supreme Court. Although the process and the Industrial Disputes Act are quite comprehensive, the biggest problem with it is the delay. The process itself is so long and tedious that cases are delayed for years and even if they are decided the awards are not often implemented by the employers especially when the litigant is a government or a public sector unit (Ghose, 2003). To overcome the problem of delays, court
costs, procedural formalities and adversarial justice a new approach to dispute resolution has emerged. This system is called the Lok Adalat System, literally translated this would mean ‘Peoples Courts’. The origins of this system are in the age old institutions of village Panchayat (village courts) and Baradary (Community) system. The first experiment of Lok Adalats was done in Kalyan near Bombay in 1978(Ghose, 2003). Chapter VI, of the Legal Services Authority Act addresses the establishment of Lok Adalats, and states that they would be served by retired judges or judicial officers. Cases can come to these courts when the courts decide that there is a chance for conciliation, parties have agreed to approach the Lok Adalat and the court is satisfied that the matter is fit for the forum. The drawbacks of these courts are that they are still sponsored and controlled by authorities, the cases are decided by the same judges who have served in courts and the Adalat can not decide any case without consensus. Therefore, all that is needed to scuttle the process is that either of the parties refuse to agree to conciliation. This new alternate to dispute resolution is basically an attempt to provide one more forum for conciliation but under the control of the authorities, so that the pressure on courts and costs of the process could be reduced. The process of collective bargaining in India is going towards decentralization. This movement is very much consistent with what is happening in other parts of the worlds, especially in European countries and America. The purpose of this decentralization is to give more flexibility to the employer to face the competition from abroad. The unions are not organized at the national level and there is no unity among them anyway to go for a centralized bargaining. Like the process of collective bargaining, the process of wage determination is also controlled by the state. In industries, where the public sector dominates, the government naturally plays a central role in determining wages. In other industries that are dominated by private sector, it chooses to play a major role by establishing wage boards. In all these industries there is little space for collective bargaining (Sivananthiran, 1999). The trend towards flexibility is not only evident from
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collective bargaining, it is also apparent from the changes in work practices. Now more and more firms are introducing new manufacturing technologies. Total quality management, leaner organizations by eliminating middle management and supervisors and more HR practices are becoming the norm in industrial set ups. The predominant effort of the Indian companies is to restructure themselves. Often their focus is primarily on numerical flexibility, although these efforts are accompanied by more dynamic and flexible HR practices that are in tune with a long-term orientation to competitiveness based on higher technology intensive production (Sivananthiran, 1999).
To sum up, it can be said that the Indian state has and is still playing an important role in the country’s industrial relations. The basic purpose of the state intervention has been to maintain industrial peace, but recently with the advent of globalization the policy is changing towards a more competitive approach.
KOREA The Republic of South Korea (hereafter Korea) has a population of 45 million; by the late 1990’s almost 80 % was urban, an increase from only 30% in 1962 (Bamber, 2001). Korea is ethnically homogenous, about half of the South Korean population is Buddhist although there is significant Christian presence, all have inherited Confucian values. In the late 1990’s the labor force was 20 million with a participation rate of 20%, unemployment was not much above 2% yet weekly working hours remained the longest for any country reported by the ILO. Rapid industrialization through export oriented manufacturing has resulted in Korea’s per capita gross national product increasing from $87 in 1962 to more than $10,000 in 1997. Korea is the world’s twelfth largest economy and it became a member of the Organization for Economic Cooperation and Development in 1996(Bamber, 2001).
Korea was a 500 year old feudal kingdom before it was opened to the outside world by the Kangwha Treaty of 1876. Under the feudal system, Korea was ruled according to the Confucian code of personal, socio and civic
behavior. The society was rigidly stratified into a class system where workers belonged to the lower classes and wage labor was rare (Bamber, 2001). From 1910 to 1945, Korea was under the Japanese colonial administration and industrial relations were restricted under the Japanese authority. After WWII there were several changes in the Korean industrial relations regulations, the 1953 legislation regarding trade unions and labor disputes formally established industrial relations in Korea. During the 1945- 1960 period workplace industrial relation in major conglomerates known as Chaebols was modeled closely on the Japanese system and has been described by various authors as “paternalistic” or “authoritarian” (Kuruvilla, 2002). After the liberation in 1945 there was a brief renaissance of unionism but in 1947 the leftist unions were banned by the American Military Government and were replaced by General Federation of Korean Trade Unions (GFKTU). In 1961 unions were obliged to affiliate to industry federations under a government sponsored national center known as Federation of Korean Trade Unions (FKTU). To summarize the Korean industrial relation system in the 15 years after WWII, it can be said that the system was set up for the subordination of workers and trade unions to the combined institutionalized interests of a repressive state and monopolistic capitalism (Kuruvilla, 2002). Under the new martial law in 1981 the economic development strategy turned towards higher value added exports. To cope with the neo-economic policy changes were made in the legal system and Japanese style enterprise unions were formed. However, the government ensured its system of political control by forcing all unions to be part of the FKTU. Further, given the involvement of both students and church organizations, the government prohibited the involvement of third parties in unions. While these actions are clearly politically motivated, they also helped the chaebols to contain or avoid industrial conflict and continue their authoritarian management styles. The Korean Industrial relation system during the period of martial law continued to have dispute prevention and dispute avoidance as a primary focus of its
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percentage of population. The most devastating impact was on the working class as there was an increase in job insecurity, cutting down of wages, downsizing of production scale, major layoffs. About a million lost their jobs in the first half of 1998 (Chang & Chae, 2004).
The results of the IMF bailout, and coming to power of a relatively moderate leader led to the 1998 reforms, which brought far reaching changes in the Korean employment relations. For the first time labor was given participation in national decisions through the creation of the Tripartite Commission. The Commission issued a social pact for dealing with the economic crisis, with several key decisions on industrial relations (Kuruvilla, 2002). The “February Agreement” covered corporate, public, and financial sectors and the labor market as well (Chang & Chae, 2004). On the labor’s side the reforms recognized the KCTU, established an unemployment insurance fund coupled with the amount and periods of unemployment benefits as a part of a social safety net package. It also included collective bargaining rights for the public sector from 1999, gave freedom to labor unions to be active politically, revised labor laws to permit layoffs, gave employers the right to use temporary labor for periods up to 1 year with obligation to give advance notification of layoffs and various other obligations in case of layoffs.
The leadership of KCTU had to face massive criticism from its affiliate unions for agreeing to the introduction of flexible measures at the workplace, particularly the layoffs. The agreement was voted down by the affiliates, and the affiliates moved for a general strike. The labor movement had already lost its basis of militancy due to the increasing job insecurity, so the strike was not a success. Also the social net that was supposed to support the unemployed was not very effective (Chang & Chae, 2004).
Actors
Korean unions are represented on three levels. There are local unions based on the plant, an enterprise, a region or an occupation, most commonly at the plant or enterprise. Thus all union members at a particular plant or enterprise, regardless of their occupation, join
the one local union (Bamber, 2001). The local unions make up occupational federations and regional councils, the right to negotiate is vested in the local unions with regional councils and industrial federations having only the right to consult and discuss. The Korean government only recognized the FKTU after it had dismantled the communist labor movement in 1949 (Kim, 2003). The FKTU, as the only labor union since 1960, has received financial support from the government and it has remained under government influence. Economic success and substantial wage increases were used by the government to justify authoritarian IR policies. However, “fast industrial growth, emergence of a middle class population and rising level of education provided the political basis for workers” (Kim, 2003). Therefore, in the late 1970s a strong labor movement developed. There was a great proliferation of strikes in the 70s and 80s. There was also a movement towards independent unions that resulted in the formation of Korea Confederation of Trade Unions (KCTU). The KCTU was recognized as a union federation after the largest general strike in Korea in 1997. Soon after the contentious ‘February Agreement’, the state started to intervene in industrial conflicts and declared that structural adjustments can be a matter of discussion but cannot be a matter of struggle, therefore, all strikes related to structural adjustments were treated as illegal and trade unions leaders were imprisoned. In the five year period of restructuring after the agreement the government has facilitated marketization of control over labor-creating a large scale reserve army with job insecurity, competition based personnel management, and capability based wage systems- it has also removed obstacles in order to facilitate marketized labor control and ensured a smooth operation of the deregulated labor market (Chang & Chae, 2004). Although the above discussed situation of labor is quite bleak, there are some developments that can be termed as major watershed in Korean labor movement. The public sector, which is 9.28%-70% out of this are government employees- of the total
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workforce, represented a tranquil sector. When the crisis of 1997 took away from public sector employees, the well developed welfare system and permanent employment system, they also started to protest. The largest protest, which was in fact a unified effort from the five independent power plant companies, led to a strike and an agreement in April 3 rd^ 2002. In the agreement the state got what it wanted but the struggle showed that the public sector can also be organized and there can be an alliance between the public and private sector as the agreement was negotiated by KCTU. There have also been attempts to organize temporary workers. Although there is opposition between the temporary and permanent workers, but there have been occasions in which irregular workers were successfully organized with the cooperation with regular workers (Chang & Chae, 2004).
The financial crisis and the recognition of KCTU as a legal labor federation led to a sharp decline in the membership of FKTU. Due to the competition from KCTU the older federation had to change its stance to being more aggressive, which in itself is a good development. Another significant development is the trend towards industrial unionism was that “the financial crises and the massive layoffs led union leaders to realize inherent limitations of enterprise unionism” (Kim, 2003). They have realized that enterprise level unions cannot respond effectively to national level issues and crisis. Earlier industrial unions were prohibited by law, but two revisions of labor law in 1987 and 1997 made it lawful and easier to establish industrial unions. The shift to industrial unions is decisive and quick. In the two year period 1998-2000, almost 20 industrial unions were formed (Kim, 2003). In the long run, the movement towards industrial unionism is expected to improve the organizing potential of Korean labor movement.
The state, before 1987 acted as a ‘benevolent dictator. It had an extensive legal setup to provide protection to the employees but at the same time independent labor movement was suppressed. Since democratization its approach has mostly been a reaction to certain developments, first it was democratization, then
the 1997 crisis and in between there were labor upheavals, which led to hasty and controversial structural changes. It is still experimenting with policies and strategies. One very important feature of the Korean industrial relations is the dependence of the country’s economy on the chaebols. The state cannot ignore them, and now with the increase in union organization the chaebols are also becoming more suppressive. The Korean government will at some point have to decide what role they want to play in the industrial relations and how they can achieve balance.
Processes
Collective bargaining in Korea is regulated by the Trade Unions Act. Representatives of a union or other appropriate groups can negotiate an agreement with the employer or employers’ organizations. A union can also entrust the negotiation to a union federation with which it is affiliated. The law allows multi employer bargaining to be conducted at enterprise and industry level. Most bargaining takes place at the enterprise level, but multi-employer regional and national wage bargaining is conducted in transport and textile, where there are smaller companies and fewer employees. Since 1987, collective bargaining has become more important in regulating industrial relations, however, more than 90% of small enterprises have no collective arrangements. Another issue with collective arrangement is that “since the piece rate was higher than the wage increase through collective bargaining in the aftermath of the 1997 crisis, workers have increasingly accepted the capability based wage system” (Chang & Chae, 2004). The result has been that the trade unions have faced a decline in the collective bargaining process as there is less support of it at the floor level. Also “continual reformulation of workplace organization also undermines trade union delegates’ leadership on the shop floor, replacing it with increasing authority of foremen and team leaders” (Chang & Chae, 2004). The Labor Management Council Act 1980 stipulates that a Labor Management Council (LMC) should be created to meet four times a year in any establishment employing 50 or more
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beginning of the process of democratization that led to major industrial relations changes. Third, the changes that have occurred in a couple of decades are basically in the legislative frameworks and more importantly in the strategies of the parties. In China there have been a lot of changes in the structure of the law governing industrial relations. However, in industrial relations the most powerful and influential party is the state and it can be ascertained that there has been a change in the strategy of the party that matters the most. The Chinese state wanted to enter globalization, increase financial viability of the huge state owned sector, attract more foreign capital and benefit from the whole process, while remaining at the centre of the power structure. In India, the Indian government has changed its policy since the liberalization of the economy; the state is now concentrating more on competition and attracting foreign capital rather than the previous aim of stability. There have not been major changes in the legal structure but the strategy of the employer has changed drastically. Earlier the employers had rigid workplace practices but they were complacent because of protectionist policies of the government. Now, with the increase of global competition the employers want flexibility and encouraged by the recent changes in the state’s stance they have in fact become more vocal for flexibility. In Korea there is not much change of strategy as far as the state and the employers are concerned, but there have been legal changes and the strategy of the unions has changed. The unions are now more militant than ever, they are trying for labor movement unity, industrial unionism and experimenting with tripartism.
Fourth, the most consistent theme in the recent changes is the need for flexibility. This need is a direct corollary of the global competition. The employers want to be flexible numerically or functionally or both so that they can change and adjust to the changing patterns of production. In China, we find that the trend is towards both types of flexibilities. In the foreign owned sector the Chinese government does not interfere at all, in the state owned sector there has been a lot of privatization and rationalization of redundant workers. Due to these steps there have been a lot of layoffs, as a certain amount of
autonomy has been given to the managers in SOEs. In India there is primarily numerical flexibility, there is an increase in the irregular worker and part time jobs. In Korea, like there is a trend towards both types of flexibility. The fifth conclusion is actually related to the previous point. We have argued that the most salient constraint in the 1990s has been the need to enhance firm level competitiveness by increasing numerical and functional flexibility. An alternative explanation is that it is not a shift in constraints that we are seeing but rather a reassertion of the employer control (Frankel, 1999). In China, the state has always been at the helm of affairs, there is a lot of privatization but it is more of control rather than of ownership. As we have seen there are direct and indirect pressures the state can put on the firms. Flexibility in China is just a method of making the firms realize that they have to be financially viable units or they will cease to exist, and to achieve this, have been given some autonomy in decision making at the firm level. In Korea, the state-employer partnership still exists. The Korean state is still strong but it would seem that in the recent years the state is losing some control over the workers, as in some recent situations where the workers were able to pressurize certain reforms and changes. In Korea, policymakers’ attempts to balance employer and worker interests in the face of globalization faced major obstacles and attracted widespread condemnation (Frankel, 1999). Still state has been and is facilitating smooth working of the industrial relations in the favor of the chaebols. The chaebol system has existed since 1945 and even with a lot of changes has a lot of importance and power. In India the situation is a little different the employers did not have total control before economic liberalization, but now under the competitive environment the employer is gaining more control in the name of flexibility. To sum up we can say that flexibility in the three cases that we have seen is translated in the employer having more control over the workers and unions. Sixth, in all the three countries discussed, there are weak and fragmented union movements. In China, the union movement as such does not exist, there have been a lot of
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strikes over the last couple of decades but those were reactions to bad conditions and low wages. Labor unions are not considered in the Chinese party vocabulary as an important factor in industrial relations. The party considers-in good times- the unions as training facilities for the workers and in bad times there is outright prohibition. In India, the situation is a little different, unions have existed before independence, and many union leaders were also fighting the British for independence. After independence these leaders became important figures in the Indian politics. Therefore, unions had the support of the political parties, they were financially independent and had the legal system behind them. Even with all of these factors in their favor the Indian unions were fragmented and got more fragmented under the pressures of globalization and competition. Korean independent labor movement though started in the 1970s got recognition by the state in the late 1990s with the acceptance of KCTU as independent union federation by the state. The labor movement is still at an embryonic stage trying to define itself and trying to find its proper niche in the Korean industrial relations. It is faced with the daunting task of employer movement towards more suppressive measures, the increasing number of irregular workers and global and domestic competition. Seventh, as discussed above the state still is an important player in the industrial relations of all three countries. The state as an important actor has mostly played a role to facilitate the employers. In promoting and reacting to globalization, governments in the three countries have sponsored legislation strengthening workplace managerial control and reducing workers’ job security, although political considerations have required that workers’ interests cannot be totally ignored(Frankel, 1999).
From the above discussion it is clear that in the three cases under discussion there are a number of similarities, which strengthen the case for convergence. In most of the analytical work that I have come across on the three countries I have observed that as domestic forces industrialization and democratization often lead to development of unionism, tripartism and joint
regulations. On the other hand globalization and economic liberalization, as international forces tend to have an opposite effect. They lead to employer and state resistance to unions, flexibility, employer control, job insecurity and worker redundancy. In the interaction between the two forces it is reasonable to assume that there is a tussle between the domestic forces and international forces. These domestic forces include a lot of factors including political systems, economic policies, culture, history and influence of unions. Even in countries where state is all powerful, its strategies are influenced by the domestic considerations aimed at institutional legitimacy. The following discussion would now make the case for divergence in the industrial relations of the three countries studied.
A CASE FOR DIVERGENCE While discussing the effects of globalization the analytical questions that are frequently discussed by academics include analysis of whether globalization is leading towards liberal economic policies as opposed to regulated. Is the collective bargaining system in the countries going towards decentralization or centralization? And lastly, the most important question as far as industrial relations are concerned is whether the systems are going towards functional or numerical flexibility as opposed to remaining rigid. As far as regulation v. deregulation is concerned, I believe that the Chinese system is still very much regulated, there are some changes and some autonomy at the enterprise level, but decision making is still a part of the major functions of the party structure. Economic policies are decided at the highest level as they have been since 1949. The liberal economic policy in China primarily means attracting foreign investment and providing foreign investors with the environment that would make them stay in China. In Korea, the business was already in the hands of private conglomerates, which is still the case; economic policy was a matter to be decided by the state for the most part, for the benefit of the chaebols. The system is more or less still the same except one change
