Employment Relations in the Growing Asian Economies (Routledge Advances in Asia-Pacific Business)

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Employment Relations in the Growing Asian Economies (Routledge Advances in Asia-Pacific Business)

Employment Relations in the Growing Asian Economies This book analyses the role of employment relations in the context

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Employment Relations in the Growing Asian Economies

This book analyses the role of employment relations in the context of economic development in some of the key Asian economies: China, Hong Kong, India, Malaysia, the Philippines, Singapore, South Korea and Taiwan. In recent years, these Asian economies have become increasingly more open and export-driven, and there is strong interest all over the world in the Asian economic ‘miracle’ among practitioners and scholars alike. Although much has been written on this region, few books have concentrated on the human resource aspects of this growth. The authors take the basic premise that the success of these countries has lain in low wages and suppression of workers’ rights, but recognize that as employment relations evolve, enterprises either pull out due to rising wages, or adapt and remain—cases are provided to illustrate both these features. Cases also test the hypothesis that unless a synergy is created between firm-level and state-level human resource policies, economic growth is unlikely to be sustainable. All three editors have a special interest in this region, and have gathered together the most important authors on the subject to undertake the task of providing a useful resource and database of information on this fast-changing part of the world. Anil Verma is Associate Professor in Industrial Relations and Human Resource Management at the Faculty of Management and the Centre for Industrial Relations, University of Toronto. Thomas A.Kochan is Professor of Human Resource Management at the Sloan School of Management, MIT. Russell D.Lansbury is Professor and Head of the Department of Industrial Relations at the University of Sydney, Australia.

Routledge Advances in Asia-Pacific Business 1 Employment Relations in the Growing Asian EconomiesEdited by Anil Verma, Thomas A.Kochan and Russell D.Lansbury 2 The Dynamics of Japanese OrganizationsEdited by Frank-Jurgen Richter

Employment Relations in the Growing Asian Economies Edited by

Anil Verma, Thomas A.Kochan and Russell D.Lansbury

London and New York

First published 1995 by Routledge 11 New Fetter Lane, London EC4P 4EE This edition published in the Taylor & Francis e-Library, 2005. “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.” Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 Reprinted in 1997, 1999 (twice) © 1995 Anil Verma, Thomas A.Kochan and Russell D.Lansbury All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data Employment relations in the Asian economies/edited by Anil Verma, Thomas A.Kochan, and Russell Lansbury. p. cm. Includes bibliographical references and index. ISBN 0-415-12584-7 1. Industrial relations—East Asia. 2. Industrial relations— Asia, Southeastern. 3. Industrial relations—South Asia. I. Verma, Anil, 1949–. II. Kochan, Thomas A. III. Lansbury, Russell D. HD8720.5.E47 1994 331 .095–dc20 94–39920 CIP ISBN 0-203-31208-2× Master e-book ISBN

ISBN 0-415-12584-7 (Print Edition)


List of figures


List of tables


Notes on contributors Preface

x xiii


Employment relations in an era of global markets: a conceptual framework chapter Anil Verma, Thomas A.Kochan and Russell D.Lansbury


Economic development, globalization, and practices in industrial relations and human resource management in Korea Young-bum Park and Michael Byungnam Lee



The development of industrial relations strategy in Singapore Chew Soon Beng and Rosalind Chew



Economic development and the evolution of industrial relations in Taiwan, 1950±1993 Joseph S.Lee



From an industrial to a post-industrial economy: challenges for human resource management in Hong Kong David A.LevinNg Sek-Hong



Economic development strategy, government labour policy and firm-level industrial relations practices in Malaysia Sarosh KuruvillaPonniah Arudsothy



Philippine industrialization and industrial relations Rene E.Ofreneo



Economic liberalization and the transformation of industrial relations policies in India C.S.Venkata Ratnam






The changing face of human resource management in China: opportunities, problems and strategies Anil VermaYan Zhiming and Chen Zhufeng


Lessons from the Asian experience: a summary Anil VermaThomas A.Kochan and Russell D.Lansbury





1.1 Initial framework for organizing the comparative IR/HRM research project 4.1 Age-wage profiles for male blue-collar workers 4.2 Age-wage profiles for male white-collar workers 9.1 HR policy formulation in China 10.1 Economic growth and human resources

5 98 98 285 314


2.1 3.1 4.1 4.2

Korea’s social indicators, 1965–1991 Flexible work arrangements in Singapore Productivity and real wage increases in Taiwan Fatal industrial accident rates and per capita income of selected countries (1981–1990) 4.3 Characteristics of labor relations in Taiwan: manufacturing industries, 1991 4.4 Compliance with fair labor standards law in unionized and nonunionized firms 4.5 Size of establishments in Taiwan, Japan, and the United States 4.6 Average length of service (all industries) 4.7(a) Composition by length of service in Japan, the EC and Taiwan (male blue-collar workers in manufacturing industries) 4.7(b) Composition by length of service in Japan, the EC and Taiwan (male white-collar workers in manufacturing industries) 4.8 White-collar/blue-collar income difference 4A.1 Selected economic indicators for Taiwan’s different periods of economic development 4A.2 Unions and union membership in Taiwan, 1950–1992 4A.3 Labor disputes in Taiwan, 1956–1992 5.1 Distribution of production employees by skill level in Hong Kong’s major manufacturing industries, 1976–1978 5.2 Distribution of Hong Kong’s working population in manufacturing by employment status and sex, 1961 6.1 The Malaysian economy, 1990 6.2 Union recognition claims, 1980–1986 6.3 Labour Minister’s involvement in disputes 6.4 In-house unions 6.5 Unions, strikes and disputes in Malaysia 6.6 Union density 6.7 Percentage of workers with temporary work arrangements by firm size, 1988 6.8 Types of disputes 7.1 Labor force and employment status, 1980–1991 7.2 Sectoral employment shares, 1960–1990

29 68 87 87 90 92 93 94 95 96 99 103 103 104 114 115 142 152 153 154 157 158 161 161 174 182



Number of strikes/lockout notices filed, actual strikes/lockouts, workers involved and man-days lost, Philippines, 1951–1991 7.4 Estimates of dues-paying members of the major labor centers and unaffiliated unions and federations 8.1 Gross domestic product by industry of origin: 1950–1951 to 1990– 1991 (at current prices) 8.2 Labour situation at a glance 8.3 Trends in productivity and growth: manufacturing 8.4 Industrial disputes by public and private sectors, 1981–1989 8.5 Percentage distribution of disputes by (A) causes, (B) duration and (C) results, 1961–1990 8.6 Industrial disputes classified according to affiliation of workers’ unions to central workers’ organization, 1987 8.7 Growth of exports and imports 8.8 Verified membership of federation of trade unions between 1951– 1952 and 1987 9.1 Profile of the four sites 9.2 Human resource policy profile 9.3 Summary of comparisons between state-owned enterprises and joint venture enterprises 10.1 GNP and growth indicators 10.2 Key indicators

185 187 221 221 226 233 234 235 236 237 291 292 297 301 302


Ponniah Arudsothy is currently Professor of Economics at International College, Penang, Malaysia. Professor Arudsothy was previously at Griffiths University in Australia, where he taught courses in international economics and the economics of Asia. Chew Soon Beng, graduate of the former Nanyang University, obtained his Ph.D. in Economics from the University of Western Ontario in Canada. He is currently the Head of the Division of Economics and Statistics in the School of Accountancy and Business and Director of the Asian Commerce and Economic Studies Centre. His published work includes Small Firms in Singapore (Oxford University Press, 1988) and Trade Unionism in Singapore (McGraw-Hill, 1990). Rosalind Chew, graduate of the former University of Singapore, obtained her MA from the University of Western Ontario, Canada and Ph.D. from the National University of Singapore. She is author of, amongst other things, Workers’ Perception of Wage Determination (Times Academic Press, 1990) and The Singapore Worker: A Profile (Oxford University Press, 1991). Thomas A.Kochan is Leaders of Manufacturing Professor and George M.Bunker Professor of Management at the Sloan School of Management, Massachusetts Institute of Technology. He is the President of the International Industrial Relations Association and a member of President Bill Clinton’s Commission on the Future of Labour-Management Relations. Sarosh Kuruvilla is Assistant Professor of Industrial and Labor Relations at the New York State School of Industrial and Labor Relations, Cornell University. He received his Ph.D. in business administration from the University of Iowa. He has had extensive experience in industry in the field of labour relations. Joseph S.Lee is currently Vice President of Chung-Hua Institution for Economic Research, Taipei, Taiwan. His major research interest is manpower and comparative industrial and labour relations. Russell D.Lansbury is Professor and Head of the Department of Industrial Relations at the University of Sydney, Australia. He holds degrees in psychology and political science from the University of Melbourne and a Ph.D.


from the London School of Economics and Political Science. He has acted as a consultant to governments in Australia and the International Labour Organization on industrial relations issues. He is the author and editor of numerous academic articles and books on topics such as industrial democracy and technological change. Michael Byungnam Lee holds a BA in Economics and Mathematics from Sogang University, Korea, a Masters in Labour and Human Resources from the Ohio State University and a Ph.D. in Industrial Relations from the University of Minnesota. Currently, he is the Executive Director of Planning at the LG Academy, Korea. Some of his recent published works include ‘South Korea’ in Industrial Relations Around the World (New York: Walter Degruyter, 1993), ‘The Publishing Performance of Industrial Relations Academics’ in Advances in Industrial and Labor Relations (Volume 6, June 1994) and ‘Bonuses, Unions and Labor Productivity in South Korea’ in the Journal of Labor Research (1995). David A.Levin is Senior Lecturer and Head of the Department of Sociology at The University of Hong Kong where he has taught and researched in the areas of industrial sociology, industrial relations and the sociology of organizations. He is a graduate of the University of Wisconsin and undertook postgraduate studies at the Institute of Labor and Industrial Relations, University of Illinois. Ng Sek-Hong is Reader in the Department of Management Studies at The University of Hong Kong. He is a graduate of the University of Hong Kong and undertook postgraduate studies at the London School of Economics and Political Science. He is the joint editor of a number of books and the author of many articles on industrial relations, labour law, personnel management and organization studies. Rene E.Ofreneo obtained his Ph.D. in Philippine Studies from the University of the Philippines, where he teaches Labour Economics and Human Resources Development. He is a Commissioner in the Tripartite Voluntary Arbitration Advisory Council (TVAAC). He founded and edited the Philippine Labor Review (1976–77) and the Philippine Journal of Labor and Industrial Relations (1978–1992). He has written a number of books on Philippine agriculture, employment, structural adjustments, privatization and labor’s development agenda. Young-bum Park received his Ph.D. in economics from Cornell University in the USA. He currently works as a senior fellow at Korea Labor Institute, a government research institute. C.S.Venkata Ratnam is currently Professor of Human Resources and Labour Relations at the International Management Institute, New Delhi. He is also consultant to the International Labour Organization, the Asian Productivity Organization and several corporations. His published work includes Managing People, The Employers’ Dilemma and Unusual Collective Agreements.


Anil Verma is Associate Professor of Industrial Relations and Human Resource Management at the University of Toronto where he holds a joint appointment at the Faculty of Management and the Centre for Industrial Relations. His primary research interests are in the area of management responses to unionization, participative forms of work organization and the contribution of human resource management policies such as employment stabilization practices and profit/gain sharing to organizational effectiveness and performance. Zhiming Yan obtained his BA in Economics from Huazhong University of Science and Technology and an MBA from the University of Toronto, Canada. He is an Associate Professor at the Huazhong University of Science and Technology in Wuhan, China. His published work includes Investments Economics (co-authored) and research papers in several major Chinese journals.


The economic success of some Asian economies has attracted much attention from researchers and policy makers from all over the world. This book lies within this tradition of inquiry but with the emphasis on the role of human resources and employment relations. The normative slant in the book’s essays is that investment in people is not only important but is in fact vital to sustained economic growth. The World Bank published a number of studies on East Asia in the past two years. Almost all of them single out the role of skill development through education and training as one of the factors present in all the economies that have achieved and sustained rapid economic growth. This is all the more salient when we consider that the path to economic development has differed widely across these countries. Some economies have eschewed state intervention while others have embraced it widely. Some countries have relied heavily on foreign capital while others have generated capital through a high savings and investment rate. Thus, there is no Asian model of development in the general sense but in the specific case of human resources there is a consistent story of high investment in people and skills. The chapters in the book are written by researchers who have first-hand knowledge of the country. We want to thank each of them for their enthusiasm and their contribution to the project. Our group has now evolved into an informal network with an on-going research agenda. The research group first met in Singapore in 1992 to discuss a framework and a plan for research. This meeting was made possible through a grant from the Sloan School of Management, MIT, and the gracious hospitality of the Nanyang Technological University in Singapore. Subsequently, a set of papers were prepared and presented at a conference in Seoul hosted by the Korea Labor Institute in August 1993. These manuscripts have been revised and they now appear in this volume. This book is the result of the first phase of this collaborative effort. The research group last met in June 1994 at a conference in Taipei hosted by the Chung-Hua Institution of Economic Research. The research focus has now moved to the industry level at which many of the hypotheses presented in this volume are being investigated. The industries being investigated include banking,


clothing and textiles, electronics, and steel. The output of this phase of our research will be published in forthcoming volumes. We want to thank Chew Soon Beng, Young-bum Park and Joseph Lee for hosting our conferences. Financial support came from several sources including the host institutions for the conferences, the Sloan School at MIT, and various granting agencies from several countries which supported the field research of our colleagues. Lastly, Sally Close and Gabi Woolgar at Routledge have been wonderfully patient and encouraging throughout the publication stages. Anil Verma Thomas A.Kochan Russell D.Lansbury January 1995

Chapter 1 Employment relations in an era of global markets A conceptual framework chapter Anil Verma, Thomas A.Kochan and Russell D.Lansbury

INTRODUCTION In recent years, the new terms of international competition and technological innovation have radically altered markets and the organization of production in many industries around the world. Markets have become simultaneously globalized and segmented, and new technologies have provided opportunities for individual firms and even entire industries to experiment with alternative business strategies and structures. Together, these developments test or transcend the boundaries of traditional industrial relations and human resource practices, which are collectively referred to as employment relations1 throughout this book. Much of what is required today of firms to compete successfully in international markets—the development of new products or the introduction of new process technologies, the reconfiguration of subcontracting relations or rationalization of internal managerial hierarchies, or simply enhancing the efficiency and quality of workplace operations and relationships—depends upon corresponding shifts in industrial relations and human resource practices. For example, many firms employing new technologies have relied on broadly skilled workers capable of performing a variety of jobs to operate these machines. This, in turn, has blurred the functional and hierarchical distinctions between different kinds of jobs or between labour and management more generally. Similarly, efforts to enhance product performance have led firms to transcend traditional boundaries between engineering, manufacturing and marketing, and establish cross-functional development teams. Once again, these new organizational arrangements have required new skills and greater attention to human resource issues. Both of these examples illustrate a more general trend towards the increasingly strategic role of employment relations within the firm. The new competitive strategies being promoted by firms today build on a variety of industrial relations arrangements and human resource practices which enhance the skill base and flexibility of the workforce and promote greater communication, trust and coordination among the firm’s various stakeholders. Yet this process of reappraisal and the renewed Generality of human resources are neither universal


nor uniform. Although a new approach to employment relations appears to be emerging in most, if not all, industrialized nations the particular forms it has taken, and the extent to which it has been diffused, vary considerably both within nations and across industries and regions, as well as across countries with radically different institutional arrangements and historical traditions. To set the context for the chapters to follow, the first section of this chapter reviews the theoretical background which has informed this research project. The second outlines the evidence from the experience of OECD (Organization for Economic Cooperation and Development) countries. The third section addresses issues of special relevance to IR/HRM (industrial relations/human resource management) in newly industrializing economies (NIEs). The final section outlines the research framework which has been used by the authors of the individual country chapters. THEORETICAL BACKGROUND Much of the prevailing research and theory in comparative industrial relations rests on the work organized around the Ford Foundation interuniversity study on industrial relations practices, published under the auspices of the Wertheim collection at Harvard. This work was heavily influenced by John T.Dunlop’s Industrial Relations Systems (1958), which advanced the notion of industrial relations as a distinct sphere of socio-economic activity, producing rules of the workplace and understandable in terms of national systems. The perspective which emerged in these studies was synthesized by Kerr, Dunlop, Harbison and Myers in Industrialism and Industrial Man (1960). It placed a heavy emphasis upon functionalism or the ability to understand and explain practices by their contribution to economic efficiency and social stability. It embodied a considerable degree of technological determinism, a view that the evolution of industrial relations was being driven by a singular technological dynamic over time. It also reinforced American ethnocentrism, in the sense that the United States was seen as the technological leader and its institutions and practices as the model for efficiency. Patterns in other countries were generally viewed as being derivative of, or deviations from, the United States model. This tendency was reinforced by the fact that many prominent European industrial relations scholars at that time had studied in the United States. The major competing schools of industrial relations research were heavily influenced by Marxian scholarship (cf. Hyman 1975), which had a much more acute sense of class and ideological conflict, often offered a less functional view of the system and a different idea of the system’s historical trajectory, but was even less inclined to recognize and highlight distinctly different national patterns. Both events and scholarship have undermined the perspectives generated by previous approaches. Particularly influential in this regard was the wave of labour protest and unrest which erupted in western Europe in the late 1960s, the growing recognition among European scholars that it could not be adequately


captured within the framework developed by their American colleagues, and the emergence of distinct European strands of non-marxist industrial relations scholarship. More recently, the emergence of Japan, with its distinct labour and employment practices, has further challenged the pre-eminence of the American model and ideas about efficiency, as well as the historical evolution of national practices with which it was associated. Finally, the changes in practice in the 1980s and 1990s have called into question that model even with the United States itself (see Kochan et al. 1986). Much of the new research, however, has been focused upon individual countries, often in the context of particular national debates (see Bamber and Lansbury 1993). It has thus produced a heightened awareness of national peculiarities, without generating a framework through which different national practices could be compared and evaluated. Several genuine international comparisons have, however, focused on pairs of countries. Of these, the most influential and important are Ronald Dore’s (1973) comparison of Britain and Japan, and the comparison of France and Germany by researchers based at LEST (Laboratoire d’Economie et de Sociologie du Travail) in Aix-en-Provence (Maurice, Sellier and Silvestre 1986). Together, these studies suggest differences among countries which are both more profound and more enduring than is consistent with the spirit, if not the letter, of the work of Kerr, Dunlop, Harbison and Myers. More importantly, the framework of US industrial relations theory is obviously inadequate for capturing the differences. In a sense, these studies represent very different approaches. Dore followed the earlier tradition in seeking to establish the relative efficiency of the two systems and predict, on that basis, the historical evolution of practice in other countries. The novelty of his argument was that Japan, not Great Britain and by extension not the US, became the best-practice model. The LEST group, by contrast, presented two completely different but equally effective approaches to industrial relations and traced them to factors rooted so deeply within national culture and history that change seemed to be virtually precluded. Both Dore and the LEST team made efforts to extend their work to other countries, but with no clear results. Dore (1981, 1983) studied a group of developing countries, looking for but failing to find a tendency for late developers to follow the Japanese pattern in determinate fashion. The LEST approach has been extended by various researchers to Japan, Great Britain and Italy in a way which seems to reinforce the lesson that national patterns are peculiar. However, their later work did not really address the question, which seems critical to practical problems posed by the competition among countries and enterprises, about what can be learned from other experiences. Recent comparative studies of Australia and Sweden have reinforced the usefulness of comparisons between matched countries (see Lansbury, Sandkull and Hammarström 1992). One lesson which the LEST studies made clear, and which is also implicit in Dore’s work, is that industrial relations by itself is not a self-contained domain of


activity. It needs to be understood in terms of related activities as well as broader social and cultural structures. These include, at the very least, the system of education and training and of labour market regulation. In the United States, industrial relations policy also generates a quantitatively significant portion of what in other countries is provided by the social security system and hence must be understood in combination with social security. Growing dissatisfaction with traditional frameworks and interpretations has stimulated researchers to re-examine developments within their individual national settings in order to find a better explanation and understanding of the changes under way (see for example: Accornero 1992; Adler and Cole 1993; Edwards and Sisson 1990; Shirai 1983; Streeck 1991; Chaykowski and Verma 1992; Piore and Sabel 1984; Kern and Schumann 1984; Kochan, Katz and McKersie 1986; Lansbury and Macdonald 1992; Osterman 1988; Mathews 1989; Regini 1991). Yet to date, little effort has been made to look across countries to update perspectives on comparative industrial relations and human resource policy questions. For an exception to this statement see the latest work of the Industrial Democracy in Europe Research Group (1981, 1993). This book represents an effort to look at the experiences across a set of newly industrializing societies in order to update and, in the process, reconceptualize our understanding of employment relations. It also draws upon evidence of changes which have occurred within advanced industrial countries in recent years (see Kochan et al. 1995). It is hoped the book will help rekindle comparative analysis of employment practices, broadly defined, to include both traditional fields of industrial relations and human resource management. Understanding the adaptation process The purpose of this book is to develop a better theoretical and empirical understanding of the factors that influence the patterns of adaptation we observe in employment relations in response to these common pressures. To do so we have tried to employ a common analytic framework, displayed in Figure 1.1, to study developments within each country. At the heart of Figure 1.1 lies the set of human resource practices that we have chosen as windows through which to examine changes in employment practices. These are: first, the nature of work organization; second, skill formation; third, compensation systems including both their structure and levels; fourth, employment security and staffing; and finally, corporate governance. Further details concerning these IR/HR practices are included in the Appendix. We see these as being shaped by a combination of the external pressures of adaptation, the competitive strategies and technologies individual firms choose to employ in adjusting to increased international and domestic competition, the role of government and other national and/or industrylevel institutions, and the changing role of the key factors to the employment relationships. Given our industrial relations heritage, we are especially interested in understanding how human resource strategies, practices and professional


Figure 1.1 Initial framework for organizing the comparative IR/HRM research project Source: MIT (1991). We appreciate the inputs of H.Druke and Russell Lansbury to this framework. Note: Within any single country IR/HR practices vary across industries, firms and over time and all the variables in the model may be shaped by different combinations, employer, labour, and government influence.

efforts relate to the overall governance of the firm, to industry-level structures and institutions and to the macro economic and political institution of the country. In turn, we see the patterns of employment relations and these broader institutional arrangements in industrial relations as having a direct and significant effect on how well the employment system performs on the key goals or outcomes of interest to the parties. There is an emerging debate between two ways of interpreting the changes we are observing in practices across different countries. The first interpretation sees change as being driven and the outcomes of these changes as influenced primarily by the strategies that firms, unions and government policy makers adopt in response to changes in markets and technologies. This school of thought sees the enterprise as an increasingly important level of activity and analysis in industrial relations. The second view is that while enterprise-level strategies and actions are important, they can best be understood as being structured and influenced by the national and/or industry-level institutional arrangements and patterns that exist among the key actors—government, business and labour—in society. In reality, we are learning that both of these sets of forces, and,


therefore, both of these perspectives, are important in shaping patterns of transformation and adaptation in employment practices in different countries. Changes in markets and technologies can and are being mediated in their impacts on individual firms and workers through national institutions and policies. Yet even where national institutions have historically been powerful, in advanced industrial economies such as Sweden, Norway, Australia and, to some extent, Germany, the range of micro-level variation in response appears to be increasing. We believe that this micro variation can best be explained by examining the range of choices and strategic responses that the parties take within different countries. Indeed, we believe these choices are critical determinants of the extent to which individual firms can gain competitive advantage through their human resources and affect the conditions of employment of their firms and, in the long run, the standards of living in their society. Thus, we need to keep both the role of national institutions and local variations and strategic choices of the parties at the micro level in mind as we move our work forward. EVIDENCE FROM OECD COUNTRIES From recent studies of changing employment relations in various OECD countries,2 several general patterns and conclusions are emerging (Kochan, Locke and Piore 1995). This chapter summarizes them briefly with the caveat that what follows is just an initial review of the evidence we have available to date. Most OECD countries are experiencing intensified pressures to adapt their traditional practices in response to increased global competition and changing technologies. Thus, a general transformation process seems to be under way around the world that has some common features. Yet, there is considerable variation in the pace of change and the degree to which different industrial relations systems have been able to adapt through minor incremental adjustments as opposed to fundamental transformations in their systems. One common aspect of the adaptation process is stronger emphasis on enterprise industrial relations activities. But more than just a decentralization of the structures of industrial relations is occurring. A search for greater flexibility in how work is organized and labour is deployed and an increase in the communications between management and the workforce seem to be the critical aspects of this drive to decentralize. Those systems that were already generally decentralized and that have institutional arrangements that promote flexibility and communications, such as Japan and perhaps Germany and Italy, seem to have been able to accommodate the need for this form of decentralization through incremental adaptations of their existing systems. By contrast, countries that have traditions of tight job control or Tayloristic forms of job regulation, such as the Anglo-Saxon countries—the UK, Australia, Canada and the US—and were more highly centralized in structure, such as Sweden, have experienced


more fundamental changes or transformations in their industrial relations systems. This finding reinforces for us an appreciation that history matters a great deal. One cannot understand either the pace or the nature of changes occurring in a given country or setting without first understanding the historical context in which these common pressures are occurring. A second common pattern we are observing across these countries is the premium that these changes place on the skills of the workforce. Because the pressures for productivity and quality are intensifying, and because the new technologies require increased analytical and behavioural skills, the ages of less educated and lower-skilled employees are falling relative to those with the education and skills needed. Again, however, the degree of wage inequality that results depends heavily on the institutional structures present in the country that guide wage determination and skill development and on the level of workforce skill that was built up in a given country over prior years. On these dimensions, countries like Germany and Japan have fared well so far relative to other OECD countries. A third common finding is that unions are experiencing major challenges in all countries as the pace of restructuring intensifies and the workforce becomes more diverse, and as the average size of enterprise declines. In an era of rapid organizational and industrial restructuring, the ability to recruit new members or retain existing members when they move across jobs or organizations, or in and out of employed status, becomes crucial for unions. So does the overall ideology towards unions of management and political leaders. Thus, those countries in which unions have a difficult time recruiting or retaining members and/or where the role of unions in society or in specific enterprises meets with the strongest ideological resistance from business and/or government leaders, and those unions most closely tied to job control systems of worker representation, experienced the largest losses in membership and the greatest challenges to shift their basic role and patterns of worker representation in recent years. Not surprisingly, unions in the US and Britain have experienced especially difficult times and steep membership declines since the early 1980s. In the following sections we examine more closely variations in the patterns of adaptation observed in regard to key human resource practice, which are outlined in the appendix, within the OECD countries. Work organization Flexibility in work organization is becoming a key source of competitive advantage within firms across all the advanced industrialized nations we are studying. There has been a great variety of experiments with team work, employee participation in problem solving and productivity improvements, quality circles and use of total quality management. But diffusion of these practices remains uneven. In some countries, such as Japan, Germany, France and Norway, flexible and team-oriented work systems are relatively common


already while in others they represent such fundamental changes in culture and practice that they tend to be adopted slowly and meet with strong resistance from supervisors, managers and, in some cases, from union leaders. Those countries which have a strong tradition of job control, such as the US, Australia, Britain and Canada, have experienced the greatest pressures to transform their work organization arrangements. Within these countries we see the most profound departures from traditional practices in settings. This is particularly the case where a new or ‘greenfield’ plant or worksite is established, or when major technological changes are introduced and employees or their representatives have some voice in that process. In industries such as cars and steel where the influence of international competition has been strongest, and there are visible examples of Japanesemanaged plants or joint ventures, new forms of work organization have been reasonably common. In settings where new union-management partnerships have been created, such as in the Saturn Corporation in the US, there is also considerable work reform. But overall, innovation in work organization practices is only partially diffused across these countries and remains fragile. It is also subject to the serious obstacles of lack of adequate growth in demand to absorb the jobs lost to increases in productivity, lack of strong government support for innovation, adversial labour-management relations, and declining membership, power and security of unions. While the importance of these obstacles varies across the countries, our prediction is that those countries that are able to overcome them are the ones where innovations in work organization are likely to diffuse most widely in the future. In Italy and France, mass production using Taylorist-Fordist principles arrived later than in some other countries, but then spread quite rapidly. In France, the state took a leading role in fostering experiments with worker representation, culminating in the Aurox laws of 1992 to promote the expression of employee views. In Italy, the unions advocated group-based work organization during the 1980s. However, in both countries, employers preferred quality circles to more representative-based reforms, and the state has had relatively little impact on the reform of work organization. During the period of reconstruction after the Second World War in Germany, Taylorist-Fordist forms of production fitted in quite well with the centralized government structure. The trade unions did not oppose rationalization as long as their members received a fair share of the benefits of productivity growth. However, increasing use of computer technologies which have permitted more flexible systems of production, has facilitated the trend towards decentralized forms of organization. Management has also provided greater opportunities for direct employee participation which bypass more traditional channels, such as works councils. There are some parallel developments in Sweden and Norway, even though their systems are not identical. Employers in these two Scandinavian countries have sought to introduce more flexible approaches to work organization,


although the union movement has been sufficiently powerful to influence the pace and direction of change. Legislation requiring union participation in the design of jobs and safeguards for workers’ health and safety have been a feature of both Swedish and Norwegian reforms during the past two decades. In recent times, however, employers have sought to reduce union influence over these matters, especially at the national and industry-wide levels, and have introduced more enterprise-based agreements. Work organization in Japan has been strongly influenced by changes in production systems, based on the extensive use of new technology, within the context of a paternalistic social system, particularly in large-scale organizations. During the past four decades, Japanese industry has introduced continuous improvements in productivity and quality, trained supervisors to play a new role in the workplace, increased the skills of the workforce and used extensive job rotation and workgroup activities to ensure that the organization of work remained flexible and adaptable. Many of the newer forms of work organization developed in Japan are now being emulated by other countries throughout the world. Finally, in Australia there have been extensive industrial relations reforms over the past five years at the national level which have resulted in broader and more flexible forms of work organization. Unions and employers have cooperated in a process of award restructuring, through the Australian Industrial Relations Commission (AIRC), which has reduced the number of job classifications in many industries and provided more distinct career paths for employees, based on skills acquisition. Progress has been faster in some industries, such as metals and engineering, where unions and employer associations have collaborated more closely on reforms. However, the degree of successful implementation of new forms of work organization has varied considerably between industries and enterprises. Nevertheless, there has been significant progress and a decline in demarcation disputes as barriers between craft-based unions have been reduced by union amalgamations and other workplace reforms. Skill formation Education and skill have increased in importance as factors in determining wages for all countries in our study. It is not surprising, therefore, that institutions and practices for skill formation came under intensive debate. The German apprenticeship model has received special attention, as have the Japanese informal systems for on-the-job training and skill development through job rotation and lateral transfers of technical, professional and managerial employees. Some countries, such as France and Australia, have implemented national training taxes to try both to increase the amount of and reduce the crossfirm variation in private-sector investment in training. Other countries, such as Sweden, Norway and the UK, have attempted to strengthen their vocational


education systems. All countries seem to be searching for ways to encourage, if not require, more firms to increase their commitments to training and to allocate more investment dollars to upgrading the skills of technicians and blue-collar production workers. Yet training investments also continue to be uneven in those countries with the most decentralized approaches and systems such as the UK, Canada and the US. This is an area where we are likely to see further innovation in the future, and perhaps greater emphasis on developing stronger joint publicprivate initiatives in order to overcome the inherent market failure problems that hold back individual firms from investing in their employees. The German and Japanese experiences represent contrasting approaches to the issue of skill formation. Vocational training has always been an important element of the German system and has provided a steady supply of skilled workers. In 1987, training regulations for metal workers and electricians were reformed and the number of classifications were significantly reduced in order to foster a broader and more flexible system. Unlike some other countries, Germany has a more regulated approach to skill formation and a greater degree of union involvement in decision making about skills development. Works councils also play a significant role in training issues. Skill formation is regarded as a key issue in facilitating the introduction of technological change and new forms of production. In Japan, which is also regarded as a leading nation in skills development, there is less regulation by government and union involvement. However, employers have traditionally emphasized the importance of continuous on-thejob training as a key element in developing and maintaining Japan’s competitive advantage. Since the oil crisis of the early 1970s, Japanese industry has sought to raise quality while containing costs by using more flexible production and procurement systems based on microelectronics and JIT delivery techniques. Although state-run vocational education has not been developed as much in Japan as in Germany, companies have increased the amount and levels of training within the enterprise. Many maintenance and other technical skills which are the province of skilled tradespersons in other countries have been ‘built into’ the jobs of front-line workers in Japan. Italy represents an interesting case of a system in transition. There has been a long decline in vocational training and few apprenticeships and greater reliance on training within the enterprise, compared with many other European countries. However, vocational education has been upgraded in recent years in order to support greater breadth and flexibility of skills. A national agreement was signed between unions and employers in 1989 on vocational training of joint committees. Although committees have been slow to be developed in some industries, such as construction and textiles, they have been gradually expanding and formal systems of accreditation for skills attainment are being established.


Compensation The world-wide slowdown in economic growth and productivity along with the recessions of the early 1980s, and again in the early 1990s, held back real wage growth in most advanced industrialized countries. Real wages were most stagnant in the US, and grew only moderately in Japan, Germany and several other European countries. Inequality in income also grew generally within most of these countries, again to the greatest extent in the US and to only a modest amount in Germany, Norway and Japan. In the latter, the more centralized wagesetting structures and traditions continues to hold down expansion of wage differentials. However, in Sweden, the historic solidaristic wage policy gave way as employers pressed hard to decentralize bargaining structures. There were some interesting changes in the methods by which compensation was paid and the criteria on which it was based. In the United States, while real wages declined since the early 1980s, there was significant growth in non-wage compensation, such as health insurance. The prevalence of contingent pay3 also increased through the use of profit sharing, employee stock ownership plans and bonuses. There was also a modest trend towards compensation based on skills or competencies attained rather than for specific tasks performed or on the basis of seniority. An increasing proportion of firms also moved their employees from wages to salaries as part of the process of reducing status differentials between blue-collar workers and salaried staffs. Similar trends were observed in the UK where further decentralization of bargaining structures occurred in the late 1980s. Performance-based pay became more widespread in the UK among whitecollar workers as well as blue-collar workers. By contrast, in Canada, contingent pay actually decreased in the 1980s and some unions took a strong stand against it. Although Japan tends to be seen as having widespread seniority-based wage systems, they apply only to a small proportion of the workforce who are located in the larger enterprises. During recent years, ability-based wage systems have been more widely introduced, largely following US practices. For many employees, however, a significant proportion of their annual income is related to the profit of their employing organization. Since the mid-1980s employers have been able to keep nominal wage increases at or below the real GNP, although unions have been seeking greater real wage increases. In many parts of Europe there has been a strong trend towards decentralized forms of wage determination. In Sweden, which formerly had one of the most centralized systems, employers in the metal and engineering industry spearheaded a campaign which led to the abandonment of national wage negotiations by the Swedish Employers Federation. The election of a conservative coalition government in 1991 encouraged employers to resist union pressures to return to the centralized system. However, wage compression in the 1980s also contributed to the breakdown of centralized national negotiations due to tensions between unions representing blue- and white-collar workers.


Employers have recently introduced greater flexibility into the wages system, with greater diversity in methods and means of compensation. Piece rates, which were once widespread in Swedish industry, have been largely replaced by groupbased pay for performance. There has also been growing incidence of non-wage forms of compensation. Job security and staffing patterns One of the strongest propositions guiding industrial relations research is that innovation in work practices and other forms of worker-management cooperation or productivity improvement are most likely to be sustained over time when workers do not fear losing their jobs. Unfortunately, since the early 1980s, demand for change and innovation has been strong, while job security generally declined in nearly all of the countries included in our study. This is a paradox that all parties who seek to promote innovations must face, and one that researchers need to understand better. There has also been an increase in the use of part-time and temporary employees in many countries. This builds on a trend that was first introduced with ‘guest workers’ in Germany and other northern European countries some decades ago. These contingent or flexible employment relationships pose difficult problems for both public policy and unions, since the traditional lines of authority and responsibility for management often get blurred. Furthermore, training and other conditions of employment are more difficult to regulate in these employment settings. In some cases, such as Japan, the role of foreign workers has also become a significant political and social issue. Clearly, a major development in recent years has been the increase in the diversity of the labour force and the types of employment relationships found within different economies. The US is at one extreme in the debate about job security as employers have no obligation, contractual or otherwise, to provide security of employment. This has led unions to seek security through rules governing job classifications and seniority. Given the pattern of union coverage in the US, this has meant that while many older blue-collar workers who are unionized have obtained a degree of job security through agreements on reverse seniority lay-offs, others have not. As unionization has declined and union bargaining power has been weakened, many employers have sought to regain control over those areas. Indeed, by increasing the proportion of part-time, temporary and contract workers, employers have gained greater flexibility over the way in which the workforce is deployed, as they are able to vary the size of the workforce to meet fluctuations in demand. There is a growing discrepancy between the job security and conditions of ‘core’ employees, who have long-term or even permanent contracts of employment, and ‘peripheral’ workers who are casual, part-time or on fixed contracts. Similarly, in the UK, employment has become less secure in the past decade, as economic conditions have deteriorated and union strength has declined. Conservative governments have also reduced the obligations on


employers to provide redundancy payments. Furthermore, employers have used a growing variety of contingent or non-standard forms of employment, and have subcontracted many of their peripheral functions, so that they are likely to have few permanent employees. In Australia, by contrast, unions have been able to use the Termination, Change and Redundancy Decision of the AIRC to have redundancy provisions inserted in federal awards. However, it has proved very difficult for unions to resist retrenchments and redundancies during the 1990s recession, and employers have introduced greater labour flexibility through enterprise bargaining and other means. Most continental European countries have laws which require employers to follow certain processes when redundancies are necessary, in order to afford some protection to employees and give them a period of warning before they lose their jobs. However, during harsh economic times it is difficult to enforce some of these provisions. In France, the whole system of social protection is under severe strain. Firms are now permitted to depart from general provisions of the law providing that the parties give their consent. Employers are increasingly using temporary workers and short-term contracts to reduce their liabilities. In Germany, there is still high employment security for the core labour force, but the government has permitted greater use of temporary and part-time workers who are not covered by the same level of protection. In Sweden, where there is the strongest degree of legal protection against job loss for both permanent and temporary workers, economic and structural problems during the 1990s have led to record levels of unemployment. Until recently, Japan has provided an exceptional case because it has been able to maintain high levels of employment through economic success. However, the concept of life-long employment (which only ever applied to a relatively small proportion of the workforce in large organizations) is in slow decline. Japanese companies have been able to use their subsidiaries to absorb surplus labour and thereby reduce the need for lay-offs, although this practice has become difficult to sustain. Large automobile companies, such as Nissan, began to lay off workers during the recession of 1991–2. It is also difficult at times to distinguish between what is voluntary severance and outright dismissal, due to the practice of elderly workers being ‘patted on the shoulder’. Furthermore, the Japanese have long used subcontractors and temporary workers as a means of providing large-scale employers with a relatively high degree of labour flexibility. Corporate governance The pressures to change workplace practices have intensified debates over the centrality and/or degree of influence of human resource and industrial relations considerations in corporate decision making and in national policies. There continue to be wide variations in the degree to which workers are directly represented in corporate governance through institutions such as works councils or codetermination, and the extent to which worker representatives consult


informally with top executives over labour and human resource issues. The extent to which human resource and/or industrial relations professionals within management represent these concerns in the firm’s strategic decision-making processes is also unclear. While there has been a good deal of debate and some experimentation with new ways to engage human resource issues in the firm’s strategy and governance processes, the general view appears to be that relatively little has changed since the early 1980s. Those countries that have long had strong formal institutional arrangements such as Germany and Norway have continued them and strengthened them in marginal ways. In Germany, the evidence suggests that the role of works councils increased relative to the role of unions, as ‘qualitative’ issues such as the introduction of new technologies, training and work reorganization gained importance. In Japan, informal labour-management consultation continued and perhaps was strengthened somewhat as firms and union representatives sought to cope with the aftermath of the two oil shocks of the 1970s. In the US, the UK and Australia there have been a variety of experiments with greater information sharing and union-management consultation, and a small number of examples where worker representatives have been built into the governance processes. Overall, the level of decision making has become increasingly important in shaping employment practices, but little significant headway has been achieved in strengthening the role of human resources at this level. However, practice in this area varies considerably. Clearly, some firms have elevated human resources to a higher status and influence level, and others have involved worker representatives in selected strategic decisions that affect employees’ interests. But there have not been radical changes or expansions of worker voice or human resource management influence in strategic decisions in any of the countries studied. Germany provides the most enduring and successful institutionalized approach to involving employees, and their unions, in workplace governance and collective bargaining. Since the Second World War there has been a dual system in which unions and employers negotiate wages, while works councils oversee working conditions. This dual representation system, combined with legal regulations, has been very effective in mediating conflicts between employers and employees. A highly centralized union movement has supported technological changes and rationalizations of industry in exchange for a share of the productivity gains. The ‘end of the economic miracle’ in Germany, which has seen rising levels of unemployment and inflation, has imposed considerable strains on the existing system and conflict has increased. Employers have sought to decentralize decisions, which were formerly negotiated with the union, to the plant level where union representation is often at its weakest. Furthermore, a number of companies are promoting direct forms of employee involvement which do not require the participation of the works council. Unionization has also begun to decline as employment growth tends to be in white-collar and service sectors, where unions are least represented.


The Swedish situation has certain parallels with the German. Although Sweden does not have the high degree of institutionalized works councils and other forms of joint decision making, there were major reforms during the 1970s and early 1980s to establish forms of joint consultation and decision making with strong union representation. While unions directly challenged management prerogatives in the 1970s and sought to implement radical plans for wage-earner funds, economic difficulties in the 1980s saw the balance of power shift back to the employers and a decline in cooperation on matters requiring joint consultation. Similar developments have occurred in Norway where many of the innovative experiments in workplace democracy were conducted in the 1970s and 1980s. The Norwegian Work Environment Act provides for extensive employee participation in workplace regulation. However, the late 1980s and 1990s saw a shift of concern away from workplace democracy towards productivity issues and a decline in union influence. Canada has a similar pattern of firm-level governance to the US, where management has the right to make business decisions based on corporate law, regarding hiring and firing employees, investment, plant closures and introduction of technological change. Yet Canadian unions are stronger than their US counterparts and have gained some important roles through occupational health and safety laws, which require joint labour-management committees to administer laws at the workplace level. There has been an increase in the number of joint committees concerned with issues such as technological change and quality improvement in the workplace. Yet most strategic issues remain the sole prerogative of management. Employee involvement programmes are also prevalent in the US, but these tend to be found more often in non-union workplaces. There are some outstanding examples of union-management cooperation, such as NUMMI and Saturn auto assembly plants, but they tend to be exceptions. As in Canada, human resource and industrial relations managers do not appear to have strong influence in determining strategic decisions within corporations. Australia presents an interesting exception to the general trends in that it has had a Federal Labor government since 1983 which has placed considerable emphasis on an Accord with the trade union movement. This has given the Australian Council of Trade Unions (ACTU) unprecedented influence in strategic economic and political decisions. The unions have cooperated with employers and government in the introduction of greater flexibility in the wage determination system through enterprise-based bargaining. However, the unions have remained weakly represented at the workplace level, partly as a result of long years of reliance on the centralized arbitration tribunals. Consequently, there has been little role for unions or employees in the governance of enterprises, even though there is now a growing interest in various forms of consultation. Ironically, the new strategic importance of unions in relation to the national government has coincided with a decline in the rate of unionization, particularly in the private sector. This has been largely due to structural changes in the economy and the recession,


combined with the new enterprise-level focus of bargaining. However, the management of human resources and industrial relations has become a more significant issue within many organizations. The above review covers only a sample of the key trends observed in OECD countries, but it may provide some useful benchmarks to compare with developments reported in the growing Asian economies. RELEVANCE TO THE NEWLY INDUSTRIALIZING ECONOMIES OF ASIA Although many of the pressures and issues highlighted in the OECD countries are relevant to the newly industrializing economies of Asia, several additions and modifications to our analytic approach and focus were needed to capture the key developments in these countries. While a study of the developing countries of Asia is of interest in its own right, we believe that focusing on these countries will contribute in a number of ways to our broader effort to update and strengthen comparative industrial relations and human resource policy research.4 Several countries in this region (Korea, Singapore, Hong Kong and Taiwan) have captured the attention of comparative scholars with the rapid and sustained rates of economic growth they achieved since 1960. It has been suggested that the labour and human resource development policies of these countries figured importantly in achieving this rapid growth. Deyo (1989:33) summarized this argument as follows: Lacking either significant natural resources or agricultural potential, the East Asian states have relied overwhelmingly on the utilisation and effective deployment of labor to spearhead an expansion of manufacturing exports. For this reason, labor peace, competitive labor costs, and during recent years, increased productivity have been essential developmental prerequisites. The crucial importance of labor policy in East Asian industrialisation suggests an important link between the EOI [Export Oriented Investment] development strategy and labor. Thus we need to embed our analysis of contemporary IR/HR developments within a framework that captures the historical paths of economic development and industrial relations policies adopted in each country. Traditional models of economic development and industrial relations emphasized the relationship between labour unions and the state in post-colonial regimes. The argument was that the legacy of colonialism led to a highly politicized role for trade unions (Sharma 1985; Deyo 1989). While some countries, such as India, appear to have retained a strong political role for the labour movement (Venkata Ratnam 1989), by the early 1960s the post-colonial regimes in several other Asian countries evolved into either a corporatist model in which the state coopted labour into a subservient role in national policy or an


authoritarian model in which labour was excluded from any role in national policy making was suppressed at the workplace. Singapore is usually viewed as the prototypical case of the corporatist model, while Korea has been described as the prototypical case of the authoritarian model. Recent developments, however, pose challenges to all these models on both theoretical and normative grounds. At the theoretical level, the ‘pure types’ seem to be breaking down. These macro models appear to miss many of the most important micro-level developments occurring as firms seek to adopt workplace practices designed to upgrade their technological capabilities and improve product quality and as employees seek greater voice and freedom to exercise their democratic rights. Thus, a long-run objective of research should be to search for a more appropriate conceptual model for interpreting the dynamics of economic adjustment, industrial relations and human resource practices and outcomes at both the macro and micro levels of IR/HR activity in these societies. These countries are now facing the challenge of adjusting their economic development, labour and human resource strategies to a new global economic order. Some believe, for example, that the dominant development strategy capitalized on the region’s comparative advantage of low wages. But this advantage is now being lost to lower-wage and less-developed countries. The question is: what is the appropriate mix of industrial relations, human resource and economic policies for adjusting to a higher value-added economy? Are new state policies, company practices, and labour union strategies needed to move to a higher-wage, higher-productivity strategy for further economic development? Some of these countries have been criticized for suppressing free trade unions and holding down worker wages in favour of a strategy of growth first, share later (see Zappala and Lansbury 1990). As pressures for greater democracy and political freedoms grow, so do pressures for liberalization of policies governing worker and trade union rights, collective bargaining and employee voice in enterprise governance. Therefore, another question is: what models of industrial relations and human resource practices can best accommodate the demands for greater democracy and adjustment to a higher value-added economy? The presence of multinational corporations in these economies raises another set of questions. Have these multinationals been transmission belts for innovation in human resource practices and forces for upgrading technology, productivity and labour standards? Are they helping in the transition to a higher value-added economy and industrial relations system? Or have multinationals used Asian countries as low-wage enclaves and are they now moving their investments to other countries as this source of comparative advantage declines? Thus we need to examine the critical links between the paths to industrialization taken by different countries and the nature of industrial relations and human resource practices which prevail within these countries.


RESEARCH METHODOLOGY AND AIMS OF THE BOOK Most prior efforts to understand the evolution of human resource and industrial relations practices have relied upon relatively ad hoc and impressionistic methodologies. Although some of this work has been fruitful in developing hypotheses and rich case-study material, it has provided neither an adequate descriptive base for mapping recent changes in practice nor an analytical base for explaining them. This problem has been especially evident in international and comparative studies which have lacked an analytic framework capable of supporting cross-national comparisons. The research design and methodology used by the contributors to this book attempts to address each of these problems, while at the same time retaining sufficient flexibility to allow the contributors to pursue topics or developments of special interest to them. The basic strategy has been to draw upon data from a limited number of industries and countries and to use a combination of quantitative data and qualitative case studies. The following chapters analyse the role of employment relations in the context of economic development in some of the key Asian economies: Hong Kong, India, Malaysia, Philippines, Singapore, South Korea, Taiwan and, to a lesser extent, China. Since the 1970s these Asian economies have become increasingly open and export-driven. Some of them have registered very high levels of growth since the early 1980s. Others have undertaken economic reforms more recently and are expected to register strong growth trends in the coming decade. There is strong interest all over the world in the Asian economic ‘miracle’ among practitioners and scholars alike. Although much has been written on this region, few books have concentrated on the human resource aspects of this growth. Of those books written on the human resource topic, many have chosen to concentrate on the negative (exploitative) aspect of economic growth in Asia. Some of these examples are discussed below. This book has two main goals. First, it is an attempt to create an information base about developments in Asia which can be a resource to students, researchers and practitioners who are new to this field. This goal is met by a purely descriptive part of each chapter in the book. Second, this book develops a theoretical framework in which the causes and consequences of economic growth as it relates to human resources can be understood. Several hypotheses are proposed and tested concerning the role of human resource policies in facilitating economic growth. In this way, this book examines one of the key questions in this field: does the economic success of these nations lie, first, in their low wages and, second, in their ability to suppress worker rights in a variety of ways? The argument concerning labour exploitation has some merit in explaining the growth in south-east Asia and this phenomenon has been well documented in recent years. The book does not directly challenge this hypothesis but goes beyond it in two constructive directions.


First, it explains the evolution of employment relations and human resource policies beyond the initial stage when foreign capital pours in seeking low wages. In the course of time, wages inevitably rise with economic growth. Some industries leave the country as wages go up. Others adapt and new industries are attracted to the economy provided a suitable infrastructure (physical, institutional, legal) uses human resources as a source of competitive strength. This evolution is well captured by the cases of Singapore, Taiwan, South Korea and, to a lesser extent, Hong Kong. Second, the book focuses on the complementary role of firm-level and statelevel human resource policies in creating a positive environment for economic growth. The cases are used to test the hypothesis that unless a synergy is created between these two levels, economic growth is unlikely to be sustainable. The evidence from the countries including Malaysia, India, China and the Philippines is helpful in testing this hypothesis. Finally, the book seeks to answer three main questions. First, is there a more appropriate conceptual model for understanding the dynamics of economic growth in south-east Asia and the contribution of IR/HR policies to economic and social progress? Second, what is the appropriate mix of IR/HR and economic policies (of the state, the firm and the labour movement) for creating a higher value-added economy? Finally, what role have multinational companies played in introducing IR/HR innovations and in facilitating the transition to a higher value-added economy? Or have they merely taken advantage of low labour-cost areas, moving their investments away as wages rise? This book seeks to make a most contribution to knowledge by exploring these issues and seeking answers to the questions which are raised. NOTES 1 The term employment relations is used interchangeably with industrial relations and human resource management throughout this book. 2 The OECD countries represented in the project are: Australia, Canada, France, Germany, Italy, Japan, Norway, Spain, UK and USA. 3 By contingent pay we refer to compensation that is contingent on some measure of performance which can be measured at the level of the individual, group, plant or the firm. 4 The newly industrialized countries of Asia represented in the project are India, Japan, Hong Kong, South Korea, Singapore, Malaysia, Philippines, Taiwan, Thailand and, to a lesser extent, China.

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Aoki Mashahiko (1988) Information, Incentives and Bargaining in the Japanese Economy, New York: Cambridge University Press. Bamber, Greg J. and Lansbury, Russell D. (eds) (1993) International and Comparative Industrial Relations, London: Routledge. Chaykowski, Richard and Verma, Anil (eds) (1992) Industrial Relations in Canadian Industry, Toronto: Holt, Reinhart & Winston. Deyo, Frederick C. (1989) Beneath the Miracle: Labour Subordination in the New Asian Industrialism, Berkeley: University of California Press. Dore, Ronald P. (1973) British Factory Japanese Factory, Berkeley: University of California Press. —— (1981) Community Development: Comparative Case Studies in India, the Republic of Korea, Mexico and Tanzania, London: Croom Helm. —— (1983) Labour Markets, People, Power, Delhi: Hindustan Publishing Corp. Dunlop, John T. (1958) Industrial Relations Systems, New York: Holt. Edwards, Paul K. and Sisson, Keith (1990) ‘Industrial relations in the U.K.: change in the 1980s’, ESRC Research Briefing, University of Warwick. Ferner, Anthony and Hyman, Richard (eds) (1992) Industrial Relations in Europe, Oxford: Basil Blackwell. Guest, David E. (1983) ‘Human resource management and industrial relations’, Journal of Management Studies 24:503–22. Hyman, Richard (1975) Industrial Relations: A Marxist Introduction, London: Macmillan. Industrial Democracy in Europe Research Group (1981) Industrial Democracy in Europe, Oxford: Oxford University Press. —— (1993) Industrial Democracy in Europe Revisited, Oxford: Oxford University Press. Kern, Horst and Schumann, Michael (1984) Das Ende der Arbeitsteilung?, Frankfurt: Campus Verlag. Kerr, Clark, Dunlop, John T., Harbison, Frederick and Myers, Charles (1960) Industrialism and Industrial Man, Cambridge, MA: Harvard University Press. Kochan, Thomas A., Katz, Harry and McKersie, Robert B. (1986) The Transformation of American Industrial Relations, New York: Basic Books. Kochan, Thomas A., Locke, Richard P. and Piore, Michael J. (eds) (1994) Employment Relations in a Changing World Economy, Cambridge, MA: MIT Press. Lansbury, Russell D. and Macdonald, Duncan (1992) Workplace Industrial Relations, Melbourne: Oxford University Press. Lansbury, Russell D., Sandkull, Bengt and Hammarström, Olle (1992) ‘Industrial relations and productivity: evidence from Sweden and Australia’, Economic and Industrial Democracy 1(13):295–329. Marginson, P., Edwards, P.K., Martin, R., Purcell, J. and Sisson, K. (1988) Beyond the Workplace: Managing Industrial Relations in the Multiestablishment Enterprise, London: Basil Blackwell. Mathews, John (1989) Tools of Change, Sydney: Pluto Press. Maurice, Marc, Sellier, Françoise and Silvestre, Jean-Jacques (1986) The Social Comparative Foundations of Industrial Power, Cambridge, MA: MIT Press. MIT (1991) Working Paper on the Comparative IR/HRM Research Project, Cambridge: MIT. Osterman, Paul (1988) Employment Futures, New York: Oxford University Press. Piore, Michael and Sabel, Charles (1984) The Second Industrial Divide, New York: Basic Books.


Purcell, John (1989) ‘The impact of corporate strategy on human resource management’, in John Storey (ed.) New Perspectives on Human Resource Management, London: Routledge. Regini, Mario (1991) Confini Mobili, Bologna: Il Mulino. Sharma, B. (1985) Aspects of Industrial Relations in ASEAN, Singapore: Institute of Southeast Asian Studies. Shirai, Taishiro (1983) Contemporary Industrial Relations in Japan, Madison, WI: University of Wisconsin Press. Sisson, Keith (1990) ‘Strategy, structure and choice in industrial relations: a comparison of U.S. and U.K. research and its implications’, Working Paper, Industrial Relations Research Unit, University of Warwick. Streeck, Wolfgang (1991) ‘The Federal Republic of Germany’, in John Niland and Oliver Clarke (eds) Agenda for Change, Sydney: Allen & Unwin. Venkata Ratnam, C.S. (1989) The Employers’ Dilemma: A Study of the Council of India Employers and its Constitutes and Their Role in Industrial Relations, Bombay: Solar Foundation. Westney, D.Elanor (1987) Imitation and Innovation: The Transfer of Western Organisational Patterns to Meji Japan, Cambridge, MA: Harvard University Press. Womak, J., Jones, D. and Roos, D. (1990) The Machine That Changed the World, New York: Rawson-Macmillan. Wood, Stephen (1990) ‘Comparing survey and case study interpretations of change in industrial relations’, draft manuscript, London School of Economics. Zappala, John and Lansbury, Russell D. (1991) ‘Industrial relation trends in Korea’, Labour and Industry 4(2):235–57.

APPENDIX: DEFINITIONS AND QUESTIONS CONCERNING KEY EMPLOYMENT RELATIONS PRACTICES Work organization The central questions are whether work is organized in a narrow, tightly circumscribed ‘Tayloristic’ or ‘job control’ fashion with narrow job descriptions, clear lines of demarcation between individual jobs, and separation of execution of work from supervision or conception of how the work is to be done; or is it organized in some broader, more flexible team- or group-based work system? The extent and nature of employee participation or involvement in decision making or problem solving at the workplace are closely related to the debates over the organization of work. Skill formation and development This is a broad topic that relates to the formal and informal process by which employees acquire skills on the job and over the course of their careers. Although our primary focus is on how skills are developed once individuals have


completed their formal education and entered the labour market, the relationships between the formal education system and other institutions and practices for skill development are recognized as important. The primary focus is on the formal and informal training, career progression, and related organizational and institutional practices by which employees acquire skills and learn over the course of their careers. Compensation: levels, forms and structures The central debate over compensation involves whether or not it is becoming more ‘flexible’ or ‘contingent’, i.e. related in some fashion to variations in performance of individuals, groups, individual firms or the larger economy. This may vary all the way from individual incentive or merit pay arrangements, to payment for skills, group incentives, enterprise profit sharing or stock ownership or national-level wage adjustments based on macro-economic performance. The central question about the structure of wages relates to the size and degree of change in the differentials across classes of employees from blue-collar workers to white-collar, managerial and high-level executives to the overall distribution on income in society. Employment security/staffing arrangements The key questions involve the extent to which employment is becoming more or less stable over time. Are long-term attachments to firms increasing or decreasing? Is the ‘contingent’ (part-time, temporary, contract, immigrant, etc.) portion of the labour force growing or declining? How are labour force adjustments made by individual enterprises— lay-offs, severance payments, early retirements, social plans, etc. —and what are the labour market experiences of those who lost jobs due to cyclical or structural changes in the past decade? Corporate governance The central issue is how industrial relations and human resource policies and practices fit into the pattern of corporate governance found in the enterprise? To what extent, and how, are employee interests articulated in the strategy formation and governance processes of the enterprise? What roles, if any, are played by unions, works councils, codetermination, human resource managers, or other processes or institutions in corporate governance? How does the status of IR/HR as a managerial function rank compared to other managerial functions such as finance, research and development, manufacturing and so on?

Chapter 2 Economic development, globalization, and practices in industrial relations and human resource management in Korea Young-bum Park and Michael Byungnam Lee

Korea is experiencing a rapid transformation of its political, social, and economic structure. Industrial relations is one area that has seen great change since 1987. Union membership almost doubled in the last few years. Wage increases have been significant. For example, real wages increased by 71.5 percent in the manufacturing sector from 1987 to 1990. From 1990 to 1993 the Korean economy had been sluggish. Unstable industrial relations and rapidly rising wages were recognized as among the major factors contributing to the poor performance of the Korean economy. Korea has been losing its share of its major international markets to less developed countries (LDCs) including China. Many Korean firms have relocated their production facilities to find cheaper labor. Korea has also been under mounting pressure from industrialized countries to further open up its markets to trade. This chapter aims at analyzing how pressures for changes in the new environment have affected industrial relations and human resources management practices as well as how labor, management, and the government have behaved in the process. The nature of state regulation and the effects of Korea’s political development on labor use are also looked at, along with the consequences on the labor market of Korea’s rapid economic development. The first section reviews the evolution of Korea’s trade union movement until 1987 in the context of the country’s political development. The second section looks at the nature of state regulation on the use of labor in Korea, along with its consequences during the period of rapid economic development. The third section presents recent developments in industrial relations and the labor market. The fourth section analyzes changes in core industrial relations and human resources practices under the new environment. The final section presents new roles for labor, management and the state in Korea. POLITICAL DEVELOPMENTS AND TRADE UNIONS Rather than having played a leading role in the country’s political development, Korea’s trade union movement has been constrained by the country’s political situation.


This section reviews the evolution of the country’s trade union movement until 1987 in the context of its political development since the late nineteenth century, and analyzes the effects of its political development on the direction and characteristics of the trade union movement. In this context, the relationships between labor, management, and the state at the national level, and their influence on industrial relations at the workplace, are examined. Colonial period Korea’s industrialization began in the late nineteenth century when foreign superpowers began to exert control over the peninsula. As a result, foreign, instead of domestic, capital financed its early industrialization. In particular, for most of the first half of the twentieth century, Korea’s industrialization was geared to supporting that of Japan, the dominant foreign superpower in the peninsula from the early twentieth century and the occupying power from 1910. The first union in Korea was organized in 1898 in a port. The number of unions organized had increased to thirty-three by 1920 and to about 400 by the late 1920s. The first national federation of trade unions was Chosun-nodongkonjaehyei, established in 1920. Since then, a few national labor organizations have emerged and disappeared. In 1925, recognizing the potential of the trade union movement as an independent Korean movement, the Japanese government enacted the Law and Order Maintenance Act, which virtually banned union activities at the national level. In 1938, the Japanese government prohibited unions even at workplaces with the onset of the China-Japan war. The direction and characteristics of the country’s trade union movement in its early stages and for most of the period of Japanese rule were influenced by the subservience of Korea’s early industrialization to Japan and its industrialization. Initially, the trade union movement was seen as a means to help Korea achieve independence from Japan, as well as to improve working conditions. In this context, most union activities were prohibited by the Japanese government from the mid-1920s. Second, the leadership of the union movement, in particular at the national level, comprised intellectuals, not workers. This is to some extent related to the first point. In the 1920s, unionists even formed alliances with the right to promote the interests of the Korean people under Japanese rule. Some have argued that this was one of the main reasons why Korea’s union movement in the 1920s failed to obtain strong support from the rank and file (I.Kim 1985), although others argue that intellectuals and the rank and file interacted well to create a successful labor movement. Third, given that Korea was ruled by Japan and most production facilities in the mining and manufacturing sectors were owned by the Japanese, leaders of the union movement showed marked differences as to whose interests—the Korean people’s as a whole or the labor class’s —should be given priority.1 These differences were also, to some extent, caused by the birth of the Soviet


Union, the first communist country in the world, in 1918. The group which favoured priority to the Korean people’s interests remained within the law. The other group, most of whom were communists or socialists, separated from the moderates and undertook illegal (under the rules and regulations set by the Japanese government) union activities in the 1930s. Korean workers’ conditions in this period were very inferior. In the 1930s, 47 percent of Korean employees worked for twelve hours a day, and 28 percent of all factories were operated 365 days a year.2 The wages of Korean workers were about 40 percent of those of the Japanese. As a result, trade unions in this period appeared to be militant. The first strike occurred in 1888 in a foreign-owned goldmine in Chosan, Hamgyoungdo. The number of strikes per year was about six to seven from 1910 to 1917. With the invasion of Japanese capital, it increased to about sixty from 1918 to 1927, then to about 140 from 1928 to 1936. With the onset of the Second World War, the number of strikes decreased to about 100 per year from 1937 to 1944 (Y.Lee 1989). The first general strike, in which quite a few unions were involved, occurred in Wonsan in 1929. Some argue that it was this strike that made the communists realize the limits of legal union activities, and led them to go underground and promote illegal strikes in the 1930s (I.Kim 1985). The union leadership at the national level did not seem to represent workers’ interests at the workplace appropriately, in part due to the fact that the union movement was considered an instrument for achieving the Korean people’s freedom from Japan. This is well reflected in the fact that most strikes at workplaces in this period were staged without national union leadership and without cooperation between individual unions. The 1940s and 1950s: liberation, US military rule, the birth of the Republic of Korea and the Korean War Although Korea was liberated from Japan in 1945 it did not achieve full independence. Instead of Japan, the United States ruled South Korea for three years, while the Soviet Union also occupied North Korea for quite some time. The fact that Korea was divided into two parts has substantially influenced the development of the trade union movement and the relationship between labor and the state in South Korea. Within three months of Korea’s independence from Japan, a national federation, the Chunpyoung, was organized by communists in South Korea. The Chunpyoung spearheaded more than 2,000 labor disputes leading to work stoppages in which more than 600,000 workers were involved in the period until March 1947 when it was declared illegal along with all other communist groups in South Korea by the US military government. But in March 1946 rightist groups in South Korea had also formed a federation of trade unions, the Daehannochong, for the purpose of fighting the communist trade unions. Mainly due to support from the US military government, the Daehan-nochong came to


dominate the Chunpyoung. As of September 1947, the affiliated unions and members of the Daehan-nochong numbered 211 and 3,786 respectively, while those under the Chunpyoung numbered 13 and 2,465 respectively, according to the US military government (I.Kim 1985).3 However, these organizations did not represent workers’ interests at the workplace. Both were activist groups affiliated to political parties. The Chunpyoung was mainly used to support the political activities of the Communist Party in South Korea under the direction of the Soviet Union. The Daehannochong was established to fight the communists and in 1952 even came to belong officially to the ruling Liberal Party in South Korea. With the birth of the Republic of Korea in 1948, the Daehan-nochong established itself as the only national trade union organization in South Korea. However, it put little effort into representing workers’ interests at the workplace. On the contrary, its leaders wasted most of their energy in fighting for the leadership. Since wages and working conditions were very bad, mainly due to the Korean War which lasted from 1950 to 1953, workers demanded better working conditions; there was much room for the expansion of the union movement, even though those in work at all were lucky.4 As a result, another national federation, the Nohyup, was formed in 1959. In 1953, however, with the end of the Korean War, major labor laws including the Labor Union Act (LUA), the Labor Dispute Mediation Act (LDMA), and the Labor Standards Act (LSA) were put into effect. These laws, which reflected the state’s intention to create democratic labor institutions, were, however, basically a replica of Japanese labor laws (J.Kim 1970; C.Kim 1973). Considering the economic and social conditions of Korea, which had just suffered a war, the labor standards that these laws stipulated were too ambitious. Such high standards meant that workers as well as management more or less recognized that the labor laws did not have to be observed (S.Kim 1989). The period of development dictatorship The First Republic was overthrown by student demonstrators in 1960; this was followed by an expansion of the union movement. For example, membership increased by about 40,000 in 1960. However, with the military coup in 1961 all union activities were suspended and unions were reorganized in to a quasiindustrial structure. Under this system, the Federation of Korean Trade Unions (FKTU) was established as the central organization in 1962 by the new power group. Since then it has been recognized as the only authorized national body. In the early 1960s the Third Republic, which originated from the military coup in 1961, pursued ambitious economic development plans and revised the labor laws: union organization and activities were restricted, political activities by labor unions were prohibited. The trade union structure had a strong centralizing tendency. While restricting union autonomy, the labor law revision of 1963 strengthened the protection of individual workers’ welfare (J.Kim 1970). A few


of the premature labor standards in the LSA were enforced and penalties for violations were tightened. The Employment Stability Act (ESA) and the Industrial Accident Compensation and Insurance Act (IACIA) were also put into effect. Since a stable supply of qualified manpower was necessary for industrial development, in 1967 the Vocational Training Act (VTA) was introduced to institute nationwide vocational training centers. Although the 1963 labor law revision was criticized for being unconstitutional, in reality few problems were caused. Employment opportunities were still scarce enough to prompt the state on a few occasions to intervene in the labor relations of individual firms. However, with Korea becoming more industrialized, discontent with poor working conditions became more apparent, reflected in the fact that working days lost due to labor disputes increased from 1824 in 1964 to 65,405 in 1968, then to 163,352 in 1969. In the 1970s, labor laws were revised a few more times, and in 1970 union organization and activities of foreign-owned firms were severely restricted. Following the Law Concerning the Special Measures for Safeguarding National Security (LCSMSNS) in 1971, which paved the way for President Park’s lifetime presidency, the scope of compulsory arbitration was expanded to all industries. With the Yushin Constitution established in 1972, and the 14 January State Emergency Act Concerning Economic Affairs prompted by the first world-wide oil shock in 1973, the country’s legal framework had to be adjusted to the new environment. With a series of revisions, state oppression of labor rights intensified. In real terms as well as in legal terms, the government became directly involved in labor matters through the police and the intelligence agency. Direct and heavy involvement by the state in industrial relations matters in the 1970s was inevitable, for the political regime saw industrial peace as necessary for fast economic growth, accomplished by export promotion, which it envisaged would contribute to political stability and its own legitimacy. Despite the severe restriction of workers’ rights, the labor law revisions in the 1970s included some measures to improve workers’ welfare. In 1975, the coverage of the LSA was expanded from establishments of fifteen or more employees to those with five or more employees. In the same year, the coverage of state-run industrial accident insurance was also expanded. The problem of obtaining workers’ loyalty became more important as Korea’s industrialization proceeded further. While the state pursued a paternalistic worker welfare improvement policy, both it and the authorized union movement represented by the FKTU failed properly to accommodate workers’ concerns for better conditions. Union membership continued to increase from 224,000 in 1963 to 302,000 in 1965, to 473,000 in 1970 and 750,000 in 1975, then 1,088,000 in 1979: this also reflected the growth of Korea’s industrial labor force. Some workers who were disenchanted with the authorized union movement, represented by the FKTU, turned to the radical underground union movement which was led by intellectuals. In the 1960s and 1970s, despite depressed labor rights, about 100 labor disputes occurred each


year. A labor dispute in early 1979 was the catalyst of the political crises in 1979 and 1980 which followed President Park’s assassination. The Fifth Republic The “Spring of Seoul”, which saw as many as 407 labor disputes, ended in May 1980 with a military coup led by General Chun, who became President of the Fifth Republic. With the new political regime, the labor laws were amended and unions were reorganized. Quite a few union leaders were suspended from involvement in union activities. Since the LCSMSNS, which was enacted in 1971, was abolished in 1981, in theory more autonomy was allowed to unions in this period (H. Kim 1989). However, state intervention in collective labor relations in the first half of the 1980s was even stronger than in the 1970s, partly because wage restraint and industrial peace were badly needed (Korea’s economy suffered unprecedented negative growth in 1980, mainly due to the second world-wide oil shock and the political turmoil of 1979) and partly because the union movement was seen as potential opposition to the regime in power. In 1981 the Labor-Management Council Act, which aimed to weaken labor unions and improve labormanagement relations, was also introduced mainly in order for labormanagement councils to take over the function of unions at workplaces. On the other hand, a few measures including the Industrial Safety and Health Act and the Minimum Wage Act were also adopted to improve workers’ welfare. The scope of the Industrial Accident Insurance and Compensation Act was expanded. In this period, with even more depressed labor rights than in the 1970s, union membership decreased from 1,088,000 in 1979 to 948,000 in 1980, then increased to 1,035,890 in 1986. On the other hand, the underground union movement grew very rapidly. Many college students, who equated trade union activities with democratization, came to be employed as factory workers in order to organize unions and lead the union movement as workplaces. These students, who were referred to as “disguised workers”, staged a few strikes in 1984 and 1985. They also played very active roles in the 1987–8 disputes which followed the June 29 Democratization Declaration. STATE REGULATION, LABOR, AND ECONOMIC DEVELOPMENT The performance of the Korean economy during the past twenty years has been well publicized. Its high rate of growth, led by the state, was largely made possible by the stable supply of cheap labor due to repressed labor rights. Because of the nature of Korea’s economic development, the role of the state in the labor market is important in explaining the consequences of national economic growth.


This section looks at the nature of state regulation on the use of labor in Korea along with its consequences during its rapid economic development. In most countries, the state plays a very important role in structuring labor usage. For Korea, with a history of very authoritarian political regimes, state intervention in the labor market has been more extensive than in other developing economies (Choi 1983; Deyo 1987; Fields 1984; Fields and Wan 1989; Rodgers 1991). Through a complex system of labor institutions enacted by state legislation, or by control over such labor organizations as trade unions, or by the establishment of new institutions, the Korean government has heavily regulated the whole process of the labor market and its functions in Korea. In the early stages of industrial development, being a country with few natural resources, Korea’s competitiveness in the international market was accomplished through its abundant and cheap labor. Thus, government labor policies were mainly concerned with ensuring a stable supply of manpower, and with meeting such major macro-economic policy objectives as full employment, strong international competitiveness, and stable prices. All this is generally accepted in development literature. Labor repression was seen as an economic necessity by those in power for it was the only means by which to ensure industrial peace and thereby promote exports, steps which would inevitably help to improve worker welfare and gain the support of the people. The authoritarian political regimes which remained in power during most of Korea’s export-led industrial development period also needed to control labor in order to stabilize their power structures and strengthen their power bases in political terms. Table 2.1 illustrates the social consequences of Korea’s fast economic development. With its high economic performance, Korea has succeeded in absorbing the massive new labor force which has entered the market. Since 1965, employment has grown at 3.4 percent annually. The unemployment rate dropped from 8.2 percent in 1963 to 4.4 percent in 1970, and since then it has stabilized. With the development of Korea’s industrial structure, labor force participation rates have remained stable since the mid-1970s. There are now fewer workers in such relatively low-paying areas as agriculture; the share of the labor force employed in the agriculture/forestry/fishing sector decreased from 50. 4 percent in 1970 to only 16.7 percent in 1991. Real wages, defined as nominal wages deflated by consumer price increases, have grown at an annual rate of 7.5 percent, which exceeds comparable growth in all other industrialized economies, including Table 2.1 Korea’s social indicators, 1965–1991 Population Annual population growth rate (%)
















Fertility rate (%) Income GNP per capita (in constant US$) Gini coefficient Employee compensation to national income (%) Labor Labor force (in thousands) Employment (in thousands) Employees to total employed persons (%) Non-daily employees to total employed (%) Unemployment rate (%) Hours worked per week Employed in agriculture (incl. forestry/fishing) (%) Employed in manufacturing (%) Labor force participation rate both sexes male female

Annual growth rate of (nominal consumer price) wages (%) –






















– 31.8

0.332 39.7

0.392 3 39.8

0.3891 51.6

0.3449 52.6

– 56.3

– 59.74
























































57.0 78.9 37.2

57.6 77.9 39.3

58.3 77.4 40.4

59.0 76.4 42.8

56.6 72.3 41.9

59.5 73.3 46.5

60.6 74.7 47.3













(1971– 90)

(1971–5) (1976– 80) Wage structure

(1981–5) (1986– 90)


University graduate to average Administr ative to average Male to female More than 500 employee s to 10–29 employee s Gini coefficien t of wage income Industrial accidents per 1,000 working hours (%) Lost working days due to industrial accidents per million working days (%) Workers covered by staterun industrial accident insurance (in thousands ) Workers covered by state-






































11.129 14.297

























run industrial accident insurance to total non-farm employee s (%) Employm ent separation rate (%) Length or time in job (years) Unionized employee s (in thousands ) Unionized employee s to total regular employee s (%) Number of disputes (1975–9) Housing Floor space per capita (m2)







































(1980–4) (1985–6)

(1987–9) (1990–1)



Population with water service to total population (%) Housing units to households (%) Housing ownership rate (%) Education

































High school graduates 9.71 15.1 19.7 26.6 36.1 – – and over to total population over age 6 Poverty Livelihood protection 3,851 2,420 1,200 1,829 2,273 2,353 – persons (in thousands) Livelihood protection 13.12 7.9 3.7 4.9 5.6 5.5 – persons to total population (%) Others State-run medical – – 3,20210 9,113 17,878 28,90611 – insurance beneficiaries (in thousands) State-run medical – – 8.86 23.9 43.8 68.9 – insurance beneficiaries to total population (%) Energy consumption per – 0.55 0.66 0.99 1.15 1.55 – capita (10Kcal) Telephone supply per 100 0.8 1.5 3.0 7.1 16.0 27.8 – persons Source: Economic Planning Board, the Republic of Korea, Social Indicators in Korea, 1990. Notes: 1 1966. 2 These figures were estimated by H.Choo (1987). 3 1976. 4 1990. 5 1972. 6 These figures were estimated by F.Park and S.Park (1984). 7 These figures were estimated industrials with the revised industrial compensation accident insurance scheme of 1981. 8 1986. 9 The scope of compensated industrial accidents was expanded in 1981. 10 1974. 11 1988.

Japan, during their high-growth periods. Income distribution has also improved. The Gini coefficient of wage income decreased from 0.402 in 1970, to 0.3687 in 1980, then to 0.2886 in 1990. The wage differentials among different sectors of the labor market have narrowed. As of 1989, 68.2 percent of total non-farm employees were covered by a staterun industrial accident insurance scheme and 68.9 percent of the total population benefited from a state-run medical insurance system. In 1991, the government proposed to expand the scope of the Labor Standards Act to include establishments with one or more employees; this would upgrade the labor standards of Korea substantially. This amendment is still being reviewed by the National Assembly.


As Fields (1990) noted, “This evidence admits of only one interpretation: the workers in these economies benefited from aggregate economic growth in proportion to their original incomes. They were not impoverished by growth.” Some characteristics of Korea’s labor market, which the state is often blamed for, are long working hours and a high incidence of industrial accidents (You 1990). Although working hours in Korea have decreased substantially since the mid-1980s, they are still longer than those of any other country for which relevant data are reported in the ILO Yearbook. According to the ILO (1993), the injury rate in Korea’s manufacturing sector is also higher than in any other developing economy. On the other hand, one consequence of state intervention in the labor market has been that management, labor, and society as a whole have not been able to adjust to changes in industrial relations. Management, protected by the government in labor matters, has not developed a proper perspective on industrial relations and has not recognized the changes that have inevitably occurred during industrialization. The role of management in the industrial relations sector during Korea’s rapid economic growth process was weak and inactive. The involvement of the state in industrial relations left little room for employers to play any role. The Korea Employers’ Federation (KEF) was set up in 1971 but because autonomous collective bargaining was prohibited for nearly another two decades, it did not become an influential institution. In Korea, other organizations such as the Federation of Korean Industries, which helped to build up industries, were more widely recognized. It was only after 1987 that a proper role was given to the KEF. At the establishment level, employers also did not have opportunities to develop their industrial relations skills and experiences. Workers, who were disenchanted with the weak unions which failed to represent their interests adequately, increasingly turned to the radical underground labor unions, as noted in the last section. The implication is that conflicts between labor and management which naturally follow industrialization could not be solved through systems whose rules and procedures were mainly set up by the state. Evidence of this can be seen in the explosive increase of labor disputes after the Democratization Declaration in 1987: 3,749, 1,873 and 1,616 strikes occurred in 1987, 1988 and 1989 respectively. In some sense, since 1987, Korea has been experiencing a backlash from its former repression of labor rights. The trade surplus, which had been increasing since 1986, dropped very substantially in 1989 and turned to a deficit in 1990. In 1991, the trade deficit was US$7.5 billion. Strong union militancy along with rapidly rising wages were recognized as major factors in Korea’s declining exports. Economic success and the promotion of workers’ welfare were used by the regime to support Korea’s authoritarian institutions during the periods of fast economic development. However, fast industrial growth also contributed to strengthening the potential political power of workers, who represent a growing


proportion of Korea’s population following industrial development. Workers have also questioned the distributional aspects of government policies as their education level and income level have improved. Eventually, these trends helped to strengthen labor rights. In other words, the primary aim of state intervention in the labor market, which was to strengthen the power structures of the political regime, was not realized in the long term, while the secondary objective, probably a major instrument for the primary aim of state intervention, the improvement of workers’ welfare, was to a large degree attained. With labor rights guaranteed, would labor market outcomes have been more favorable in Korea?5 The analysis required to answer this question goes beyond the scope of this chapter. However, recent developments in Korea’s industrial relations have brought to light a few interesting speculations on this question. First of all, it is highly possible that, with collective labor rights, those workers who benefit would have been more differentiated from those who do not. One notable feature of the recent wage trend is that wage differentials by establishment size have widened. With more than 6 million workers not even covered by the Labor Standards Act, workers in large establishments have demanded 20–30 percent wage increases every year. Since 1987, the wages of these workers have risen three times. Even with the economic slowdown which is expected to continue in the near future workers in large firms would mostly be protected. Second, trade unions and workers have become very reluctant to develop constructive cooperation with management, partly because they have not been given enough opportunity to understand the competitive nature of business and partly because they have been forced to cooperate against their will for so long. However, when Korea began its industrialization some three decades ago, the situation was similar in that most workers were uneducated and had just migrated from rural areas. With workers of this quality, could the proper exercise of labor rights have been possible and compatible with economic growth? Given the attitudes and behavior of some trade unions during the recent era of expanding trade union activities, it may not have been possible. Third, despite the tumbling export sector, the general performance of the economy has been relatively good, mainly because the expanding domestic sector has taken over the role played by the export sector, once the engine of Korea’s fast economic growth. As Piore (1990) has suggested, the high wages triggered by the union movement have helped to boost aggregate demand, which has sustained Korea’s economic growth in recent years. However, without regaining international competitiveness, economic growth, which mainly depends on the domestic sector, cannot be expected to be sustained in the long term. Economic growth would have been even more difficult in the early stages of Korea’s economic development when the domestic sector was weak and little capital was available.


RECENT DEVELOPMENTS IN INDUSTRIAL RELATIONS AND THE LABOR MARKET Following the June 29 Democratization Declaration pushed through by studentled demonstrations, labor laws were amended in 1987 to make the legal framework more suitable to the new environment. This revision of labor laws helped to improve Korea’s industrial relations, because unions were organized more easily and, as a result, more disputes occurred within the legal framework. In 1989, the opposition parties, who had gained control of the National Assembly in the 1988 general election, attempted to push for further amendments to strengthen labor rights, but were defeated by presidential veto. In 1991, the government proposed the amendment of labor laws to weaken the union movement, which it regarded as partly responsible for Korea’s recent economic problems: Korea’s trade deficit was more than US $10 billion in 1991. But because of strong opposition from the union movement including the FKTU, it withdrew its proposal. However, some complaints concerning, for example, the labor rights of public servants were filed in the International Labor Organization (ILO) against the Korean government which was accused of violations of the principle of freedom of association, following Korean membership in 1991. Since mid-1987, the labor movement has expanded. For example, the number of organized establishments increased from 2,725 in July 1987 to 7,883 in December 1989 and total membership increased from 1 million to almost 2 million during the same period. Collective bargaining has become an important method of negotiating on the working conditions of employees. As of December 1992, union membership in Korea amounted to 1,803,000 and the rate of unionization with respect to permanent employees was 19.8 percent. The current trend seems to be toward a stable rate of unionization. The FKTU has been the only central organization legally authorized since the 1960s. However, its official membership figure includes some unions, including members of the Korea Trade Union Congress, and some industrial federations which are not affiliated with it and conduct independent activities from it. The Korea Trade Union Congress, which is known as the Cheonnohyp and is not recognized under the current legal framework, was formed in January 1990 as another national organization. Its membership, which was said to be about 317,000 in January 1992, has been declining since the latter half of 1991 mainly due to the slowdown of the Korean economy. Non-affiliated independent industrial federations such as the Korean Federation of Clerical and Financial Workers’ Union and the Korean Teachers and Educational Workers’ Union also comprise about 170,000 mainly white-collar workers. However, few political or ideological differences remain between the traditional and the new union movements although the traditional union movement represented by the FKTU was politically dominated and manipulated by the authoritarian government of the past.6 Recognition of non-FKTU-affiliated unions has been one of the issues discussed in talks on the current labor law revision.


In Korea, trade unions are usually formed at the enterprise level and, regardless of their occupation, workers at the same establishment all join the same trade union. Because of this in-house trade union structure the influences of the national organizations have to some extent been limited. Most of the unions are more interested in firm-specific issues than economy-wide questions. In some of the unorganized workplaces, a labor and management council plays a union role under the Labor and Management Council Act. This Act stipulates that a labor and management council should be set up and held quarterly in any establishment with fifty or more employees; wages are determined through negotiations between labor and management using this machinery in non-union establishments. A few union activists, religious groups, and professionals have intervened in the collective bargaining process through so-called “third-party intervention activities.” They have advised workers of their rights under the law, and have helped to organize and educate workers in, for example, how to conduct bargaining strategies and tactics. These, however, are gradually being pushed aside as the reality of autonomous, democratic unionism sweeps across Korea’s trade union movement. Employers’ associations are, in general, organized on regional and/or industry levels in Korea. However, these organizations do not have bargaining rights since most bargaining takes place at the enterprise level. The Korea Employers’ Federation (KEF) has been mainly responsible for labor matters since 1971 when it was established independently from the Federation of Korean Industries. As trade unions have recently expanded their activities, the range of issues open to bargaining between labor and management has increased, extending from wages to non-wage issues such as the shortening of working hours, the quality of working life, and even workers’ participation in management policies. Determination of the scope of bargaining has often become a subject of dispute. The labor law does not specify which issues are subject to negotiation between trade unions and management. Those most often at issue are trade union participation in the personnel committee as well as the disciplinary committee of the enterprise. Recently, the government has announced that management prerogatives should not be challenged at the bargaining table and that strikes over these non-bargainable issues should accordingly be considered illegal. Except for a short period following the June 29 Democratization Declaration, the Korean government has tried to influence wage increases in the private sector by introducing a “one-digit-policy” or “total wage system”. However, in this era, even in the public sector, the government’s goal of holding down wage increases is not attained without difficulty, especially now that trade unions are no longer regulated. It now seems that certain public authorities are the only sector that government can impose its wage restraint policy on without difficulty. The impact of the recent labor experiences in Korea is far-reaching. For the workers, wages over the past five years have more than doubled. However, more important than monetary gains is the fact that workers have won greater freedom


to exercise their basic labor rights to organize, to bargain collectively, and to strike. Recent developments in industrial relations also have significant influences on the short-run as well as the long-run economic performance of Korea. Macro-economic management has been more difficult for the government on account of the rapid wage increases. Cost-push inflationary pressures have been more severe as the double-figure increase in wages has continued. Moreover, the rapid rise in wages means changes in the overall comparative advantage of Korean products and implies that the structural adjustment of the national economy may have to progress even more rapidly. In 1989, the trade surplus, which had been increasing since 1986, dropped very substantially and, since 1990, the trade balance has been in deficit. In 1992, the growth rate of GNP was under 5 percent, the lowest figure since 1992. Since 1989, Korea’s industrial relations have been fairly stable but they are likely to change rapidly in the 1990s as the country addresses the economic and social challenges of the decade. Since the mid-1980s, Korea has had nearly full employment despite its economic difficulties. Overall employment has been stable, since the growing service sector has been absorbing labor rather than the manufacturing sector. However, the labor market has begun to adjust to the slowdown of the economy by economizing on human resources. For instance in 1993 most of the big enterprises reduced the number of job openings for new college graduates. Serious labor shortages have still been observed in some sectors such as laborintensive small manufacturing. Guest workers have been proposed to fill the gap. There are a large number of undocumented foreign workers, estimated at at least 100,000. When the Korean government offered an amnesty for undocumented foreign workers in June 1992, 66,126 foreigners reported to the authorities. Many small Korean firms have also relocated their production facilities for cheap labor. A Ministry of Finance survey on Korean firms’ foreign direct investment revealed that in 1992 73.6 percent of cases came from small business, an increase of 30.5 percent compared to 1991. The proportion of small investment—whose amount was not more than US$1 million—also constituted 81.7 percent of all cases; 68.8 percent of the cases were for manufacturing and 72 percent were in the south-east Asian region. This sharp increase in foreign direct investment in south-east Asian countries by Korean small manufacturing business also indicates that some sectors of the Korean economy cannot be sustained by domestic labor alone. INDUSTRIAL RELATIONS AND HUMAN RESOURCES MANAGEMENT PRACTICES IN A CHANGING LABOR ENVIRONMENT This section analyzes changes in core industrial relations and human resources practices such as the compensation scheme, organization of work, skill formation and training, and employment security since the mid-1980s.


Compensation scheme Before 1987, trade unions in Korea did not function properly to represent workers’ interests in wage negotiations. Labor rights were repressed. However, with the expansion of the labor movement since mid-1987, collective bargaining has become an important method of wage negotiation. As of 1990, 17.4 percent of all employees were covered by collective agreements. In addition, according to the Labor-Management Council Act, wages are determined through negotiations between labor and management even in establishments with no union if there are more than forty-nine employees. As of the end of 1990, the number of trade unions reached 7,648, while labor-management councils were set up in 14,762 establishments.7 Wage increases since 1987 have been significant. For example, between 1987 and 1990 nominal (real) wages increased by 75.2 (43) percent and 103.7 (71.5) percent for all industries and in the manufacturing sector, respectively. The rapid expansion of the trade union movement and the country’s high economic performance since the mid-1980s contributed to these rapid wage increases. There is no doubt that this large increase in wages, which is far higher than the productivity increase, has contributed to the declining competitiveness of Korean products. From 1986 to 1990, the real wage in the manufacturing sector, which is defined as the nominal wage divided by the GDP deflator, rose 67.7 percent, while the Korea Productivity Index of that sector increased only 40.6 percent.8 One notable feature of the recent trends is that wage distribution has improved substantially, reflected in a drop in the Gini coefficient of wages from 0.3449 in 1986 to 0.2886 in 1990. The wage gaps between blue-collar and white-collar workers, between male and female workers, and between high school graduates and college graduates have narrowed quickly. For example, the ratio of the average wage of production workers to that of administrative workers increased from 0.31 in 1986 to 0.39 in 1990. On the other hand, the wage gap between workers in large firms and workers in small and medium-sized firms has widened, mainly because the recent expansion in trade union activities has been more vigorous in large firms which, with their greater ability to satisfy wage demands, have yielded to mounting union pressure. Nevertheless, despite the sharp rise in wages, most workers are still not satisfied with the outcome of the wage rounds since 1987 (Sun 1991). One reason is that housing prices and rents have increased so much that Korea’s asset distribution has actually worsened. Another reason is that most production workers, who are middle school or high school graduates, still feel that they are not treated fairly because of the large wage gap between production and nonproduction workers. Even though the gap has shrunk substantially over the last four years, it was estimated in a 1989 study that the lifetime wages of a male high school graduate were still 62.7 percent of those of a male university graduate (Y.Park 1993a).


An individual worker’s wages in Korea are mainly determined by his or her education, age and experience. An analysis of variance (ANOVA) shows that in 1990 the relative importance of factors determining an individual Korean worker’s wages were 27.5 percent for age, 14.3 percent for sex, and 12.2 percent for education (Y.Park 1993a). Education is a primary factor in determining an individual worker’s entry-level wages. A survey conducted by the Korea Labor Institute revealed that in 1988 out of all the factors, only 4.9 percent were related to performance. Nor is individual performance an important consideration in the distribution of annual wage increases and bonuses (Ahn and Ahn 1991; Jeong 1991; Y.Park 1993a).9 Korea’s payment system, which is based on education and seniority, has existed for quite a long time. Park and Park (1984) show that individual Korean workers’ wages were also determined mostly by age, sex, and education as of 1980. With the increased influence of trade unions on wage determination since the mid-1980s, non-performance-related factors in the payment system have been strengthened, because trade unions claim that wages should meet the cost of living and increase by a flat sum. In many workplaces, for blue-collar workers, the system of payment by results or performance has been abolished or its share in the total payment has been minimized following the increase in union activities since the mid-1980s when unions questioned the fairness of evaluation procedures or practices. This implies that employers have lost a major instrument to control workers by not being able to reward hard workers. In Korea, wage negotiation is conducted at the enterprise level annually. However, the central organizations including the FKTU and the KEF recommend what the increases should be. Despite their limited roles, mainly due to Korea’s enterprise-level bargaining structure, their recommended wage increases, in particular the FKTU’s, have been influential in annual wage rounds. Of the surveyed trade unions, 70.3 percent made their first wage demands according to the FKTU’s guidelines (F.Park and Y.Park 1990). The increases recommended by the FKTU and the KEF have differed widely: 21.3 percent in 1988, 15.9 percent in 1989 and 13.5 percent for 1990. These wide divergencies have been identified as an obstacle to peaceful wage negotiations at the enterprise level. Following the June 29 Democratization Declaration, the government, which was deeply involved in wage negotiations in the private sector before June 1987, maintained that wage increases should be determined mainly by autonomous bargaining between labor and management. However, since 1990 the government has returned to its old ways. In 1990 and 1991, a few hundred leading public and private establishments were advised to limit their wage increases to a single figure rate (the so-called “one-digit-policy”). The first target was the public sector organizations and they were forced to keep their wage increases under 10 percent because wage restraint in the public sector has been one of the major tools used to induce wage restraint in the private sector. It appears, however, that the government’s “one-digit-policy” has failed, since the 20.3 percent actual wage increase in 1990 was far above the 9.1 percent increase reported to


government authorities. The actual wage increase in 1991 also turned out to be above the reported figure. For 1992, the government introduced a “total wage system,” to ensure low increases in the annual wage round. If establishments’ reported wage increases did not represent actual increases, some sanctions, including a cut in government industrial financial supports, were imposed on them. In 1992, wages increased by 15.2 percent. Thus, for the government, holding down wage increases has been very difficult since trade unions are no longer regulated. The government has also tried to set up tripartite bodies among labor, management, and government at the national level to help to stabilize wage increases. For example, in 1989, the government proposed to establish a National Wage Council, but it did not materialize because of the FKTU’s opposition. In March 1993, for the first time and with strong support from the government, the FKTU and the KEF reached agreement on the desirable range of wage increases for the 1993 wage round. Despite the enterprise-level bargaining structure, this agreement is expected to influence wage negotiations at workplaces. In 1992, as well as the introduction of the total wage system, the government encouraged the private sector to adopt a profit-sharing system. However, it turned out that quite a few firms used this system to avoid the government wage guideline. This is one of the consequences of government involvement in the private sector’s wage negotiations since 1989. The proportion of allowances in the total wage also has increased as a result of government intervention in wage negotiations: its guideline on the base to be used for wage increases was not clear, so the private sector introduced new kinds of allowances. With the new kinds of allowances, employers have been able to satisfy the unions’ demands while adhering to the government wage guidelines. On the other hand, for some public agencies which are totally dependent on the government financially, government involvement has meant nothing but frustration for both labor and management (Y.Park 1993b). Employment security and job mobility In Korea, workers employed in establishments with five or more employees which are subject to the Labor Security Act (LSA) are protected from dismissal under the law. According to the LSA, an employer shall not dismiss, temporarily lay off, suspend, transfer, reduce the wages of, or take other punitive measures against a worker for unjustifiable reasons. An employer dismissing a worker with justifiable reason must give at least thirty days’ advance notice. When a worker is dismissed without proper reason, he or she may appeal to the Labor Relations Commission in addition to the court. However, for the more than 6 million workers who are not covered by the LSA, there is no legal protection concerning employment security.


According to Yoon, Lee, and Kim (1990) who analyzed 834 collective agreements covering 52.8 percent of all union members in Korea as of the end of 1989, 81.2 percent of these agreements included clauses on reasons for dismissal. Unless a worker is unable to work for mental or physical reasons (under 73.3 percent of the agreements), or commits a criminal offence (52.1 percent), or is given a penalty according to the company’s regulations (48.4 percent), he or she may not be temporarily laid off, demoted, or displaced. Some clauses on dismissal procedures were included in 51.8 percent of the agreements. Lay-offs for business restructuring are also limited in Korea. The courts recognize lay-offs for business restructuring only if there is no other way of solving business problems and fair criteria are used for selecting the workers to be laid off (Yoon, Lee, and Kim 1990:113). The Ministry of Labor guidelines also state that lay-offs for business restructuring are only recognized if the company would otherwise go bankrupt, or if the workers concerned cannot be transferred to other sections of the company because of unavoidable circumstances or because the operation of that particular business has been stopped. With the expansion of union activities since 1987, unions have become more involved in this process through collective agreements (Yoon, Lee, and Kim 1990). It should be noted that the employment stability of Korea workers covered by the LSA has been possible partly due to the good performance of the economy since the country started its development planning in the 1960s. Since its unemployment rate dropped to under 5 percent in the early 1970s, employment opportunities have been good for most workers. This is also one of the reasons why there were no major retrenchment schemes when a number of public enterprises were privatized in the 1970s and 1980s (Y.Park, forthcoming). With this inflexibility in controlling the size of the workforce, which has become even more rigid since the mid-1980s, options open to businesses suffering from shrinking demand include not replacing workers leaving their jobs, reducing new job openings, laying off daily workers who are not protected by the LSA, or contracting out some of the firm’s work. The number of permanent workers in establishments with ten or more employees has been falling since 1991. Since 1991 the number of daily workers has also decreased, reflecting the slowdown in the economy. With rising labor costs, some labor-intensive work has been contracted out to the same workers who did it in the company. This is called the “small president system,” and is a kind of piece rate system.10 Under the system, a worker, knows as the “small president,” hires a few workers; he or she is paid by output and is responsible for personnel matters concerning that work. The firm, which could be considered the big president, is responsible for supplying raw materials and providing the needed equipment and machinery. Thus, the workers are legally employed by the small presidents, not the employers who actually use them (Baik 1992). Another practice, which has emerged with union militancy, is employment of workers by job agencies. These are called dispatched workers. Dispatched workers


perform their work for the firms to which they are sent, but are legally employed by the agencies that hire them. Therefore, the job agencies are responsible for all personnel matters including employment protection. This practice is considered illegal in Korea, but since there are quite a few establishments which use dispatched workers the government is planning to introduce a special law covering them (Jeong and Yoon 1993). Recently, with the economic slowdown, in some establishments laying off workers for business restructuring has become a major issue between labor and management. In some companies, the unions agreed to freeze wages in return for job protection. In some companies, unions broke their ties with the Korea Trade Union Congress (KTCU) because of their members’ fears of being laid off due to recession. On the other hand, despite the good protection of employment, Korean workers are very mobile. For example, in one month in 1990, four out of 100 workers left their jobs in the manufacturing sector. Recently some workers (particularly male production workers with more than three years of tenure) in large establishments have been tending to stay in their jobs longer than they did before 1987 (Uh 1992). This is in part due to expanded union activities, reflecting the “exit-voice effect.” The short period of tenure is also cited as one of the main obstacles for upgrading the skills of production workers in Korea. While workers employed in the formal sector subject to the LSA are well protected, there exist no provisions concerning employment security for workers in the informal sector. Moreover, unions are not organized in most of the workplaces in the informal sector. Some argue that the scope of the LSA should be expanded and/or a special law should be put into effect in order to protect workers employed in the informal sector (S.Kim 1992). Work organization Work organization in Korea has been heavily influenced historically by the Japanese-style factory system and then the military command system that the authoritarian government used for rapid industrialization from the 1960s. While modern management techniques have been coming in from the late 1970s, the centrally controlled paternalistic management style still dominates. Taylorist and Fordist management systems have been practiced in some large assembly-line production facilities, but generally without the adequate supporting subsystems such as thorough job analysis and job evaluation. The labor movement, repressed until 1987 (M.B.Lee 1992:257), did not have a chance to raise its voice on organization-related issues. In fact even since 1987, unions have had to focus on wages and working conditions to alleviate the relative deprivation of their membership, and have not so far been able to make any major impact on the issues related to work organization. In other words, the job control mechanism as in the US is not a stylized fact in Korea. Further, the new production systems based on the flexible


deployment of labor, broad job categories, teamwork, and worker self-regulation of quality control have not been practiced widely by Korean firms. It has been argued that large manufacturing firms in Korea have traditionally organized work units mainly for the convenience of (vertical) monitoring (T.Kim 1992). Large firms in different industries show different patterns of work organization (J.S.Park 1991). For example, the Pohang Steel company integrated and enlarged its existing jobs and increased the number of small team-based work organizations. The lowest level of work team is composed of four to eight members. Three teams with different functions constitute a shift and there are three alternating shifts and one permanent shift per day at each unit of the production process. Unlike Pohang Steel, the Hyundai Motor Company increased the number of simple and repetitive jobs in the assembly line production. In the paint shop, about six to eight workers form the basic work team and three to four work teams constitute one ban. About twenty-five bans constitute one production line and several lines form one business unit. In the case of line work, each line has about 40–70 workers and job rotation is very limited within each basic work team; multiple-skills training is almost non-existent except for the work team leader. Since the 1987 unionization, however, the authority of the team leaders and first-line supervisors has been significantly weakened. Furthermore, the lack of adequate changes in work organization (multi-skilled workforce, decision making at the shop level) and also labor-management antagonism were cited as the major reasons for the failure of the just-in-time system, quality circle, and employee suggestion system (Kim, Lee, and Cho 1992). The Daewoo Shipbuilding Company adopted a low level of automation and maintained collectively organized team-based work. This is mainly because the shipbuilding jobs are organized on a sequenced, intermittent job-shop structure instead of a continuous process. Due to the inherent limitation in shipbuilding technology, skilled employees work as a team in very adverse working conditions with a high level of occupational hazards; thus, group solidarity is relatively high, which has led to several large-scale strikes in recent years. In organizing work, Korean firms have distinguished between production/ technical workers and clerical/administrative workers, and have generally regarded the first group as second-class citizens. This practice stems from the traditional Confucian social order that favored highly educated scholars and technocrats over other occupational groups. Production workers (more than technical employees) suffer from disparate treatment not only within the workplace but also in general society. According to a recent survey of 974 employees and 389 first-line supervisors from thirty-nine manufacturing companies (Kim and Kang 1991), 78.2 percent of production workers reported that compared with clerical/administrative employees they have suffered discriminatory treatment, including worse working conditions, lack of personal respect, limited promotion opportunity, and lower pay. One author observed the


seriousness of the perceptions of distance between these two groups and even called the phenomenon “class cleavage” (J.H.Choi 1991). The issue is not just status difference, but also the different nature of the work performed. The same survey also found that 45.7 percent of assembly-line production employees interviewed reported that their job tasks were “rather simple” and 32.5 percent reported “somewhat complex.” In contrast, 27.5 percent of non-assembly line production workers reported that their job tasks were “rather simple” and 47.2 percent reported “somewhat complex.” The job complexity was positively correlated with job satisfaction. Traditionally and still today, the major qualifications for promotion and career progression are educational attainment and seniority. Further, the promotion ladder is shorter for the production worker than the clerical/administrative employee and it is rare for a production worker to be promoted to a clerical/ administrative position. Over the years, the time lapse required for promotion to the next level up has lengthened, creating congestion at all levels of the hierarchy. Since 1987, especially in manufacturing industry, many firms have suffered from a shortage of production and technical workers. Thus a major challenge facing Korean firms is the development of a better system of work organization to achieve high productivity and international competitiveness. The importance of changes in work organization as a strategic choice is well shown by the comparative studies of Japan and the United States and Europe. By integrating worker participation in every process of technological innovation, Japan achieved a relatively higher level of productivity (OECD 1988). Also during the 1980s, expanded responsibilities were programmed into new job designs necessitated by advances in information tech nologies in the US; this was the result of a conscious managerial strategy to improve efficiency and offer new higher-quality products (Weinstein and Kochan 1992). While no national survey has been conducted in Korea specifically on flexible work organization, this subject seems to be gaining the attention of those involved in industrial relations. According to a recent survey of managers and union representatives of 285 Korean manufacturing firms, among three categories of human resource management practices (compensation and promotion, communication and cooperation, work organization and skills training) work organization and skills training is expected to take on the greatest importance in the near future as a means of maximizing the efficiency of human resources (T.Kim 1993). Since Korean firms rely heavily on the international market, as they adopt technologies which require high levels of skill and move toward emphasizing variety and quality products, flexible work organization will become as important as in the US (Osterman 1993).


Skill formation and development As automation accelerates, Korean manufacturing companies expect the demand for clerical, semi-skilled and non-skilled employees to decrease substantially, while the demand for professional, research, and some technical workers will increase dramatically (Kim and Yang 1991). Employees do not seem to resist plant automation and do not feel their job security has been threatened after it has taken place (Kim and Kang, 1991; Kim and Yang 1991; Kim, Lee, and Cho 1992). It is not clear whether this is because employers have relied more on attrition and freezes on hiring instead of lay-offs or whether the automation process has not reached its full speed. While many workers feel the need for retraining due to automation and technological changes in the production process, the majority of employers do not provide an adequate amount of retraining. Further, compared with American or Japanese employees, Korean workers are more anxious to participate in decision making when work processes change. However, Korean managers are more likely to make decisions unilaterally without worker participation than their American and Japanese counterparts (K.S.Park 1992:178, 204–5). Considering that workers at the production site have the most information about the work process, it is critical for these workers to share information both horizontally and vertically to increase skills formation and productivity. Korean employers need to develop a new human resource system that encourages worker participation in the decision-making process. The extreme value placed on education, emphasized in the Confucian tradition, was instrumental in providing a large pool of semi-skilled workers for laborintensive light industries in the earlier periods of economic growth in the 1960s when the expansion of primary and secondary education was given first priority. In the 1970s, the emphasis shifted to developing vocational and technical skills for the newly emerging heavy and chemical industries. In the early 1980s, government efforts were increasingly directed at improving the quality of technical education at both secondary vocational and college level, to create a labor force with more sophisticated skills. A rapid expansion in enrollments continued at colleges and other higher education institutions. Since the mid-1980s, the proportion of technical high school and junior vocational college graduates has decreased, resulting in a severe shortage of technical labor. During the period 1981–90, the number of general high schools increased from 748 to 1052 and the number of graduates increased from 279,000 to 503,400. On the other hand, the number of technical high schools only increased from 100 to 104 and the number of graduates from 59,000 to 64,500 (Ministry of Education). The government has played a major role in providing not only the formal education but also the technical training needed for economic growth. The most significant government vocational training organization is the Korean Manpower Agency (KMA), which has thirty-seven vocational training centers around the


country. It was established in 1982 and provides vocational training for toolmakers, dye-makers, machinists, and welders who are in frequent demand in industries but are hard to train within a firm. It also gives training in skills needed by the high-tech and strategic export industries. In addition to the KMA, central and local government institutions, private employers, authorized social welfare and non-profit-making organizations also provide vocational training. The changing workforce structure will require vocational training programs to be revised. Due to the decrease in the birth rate and increase in schooling, the 15– 24-year-old labor force cohort is decreasing. In the meantime, the labor force aged over 35 is increasing dramatically. Furthermore, female participation has been steadily increasing, to reach 44.7 percent of the labor force in 1991. It is expected to reach 50.2 percent by the year 2000 (K.S.Park 1992:240). It is well established that in-plant training, which provides a closer link between the type of training and the job performed, gives relatively higher returns to the trainees and results in a more efficient allocation of resources. However, in Korea, the role of the private sector in providing occupational and technical training has actually decreased during the 1980s. While those employers who have more than 150 employees are required to provide a certain level of in-plant vocational training, only about 20 percent of them opted to design and deliver training programs to their own employees. The rest simply chose to pay the levy to the government instead, the current levy being much lower than the actual training costs. Also, because of the government’s rigid administrative directions about in-plant training programs, the levy system has failed to provide any incentive to the employers to design and deliver their own training programs. However, since 1987, the rapid increase in wage level and progressively higher levy rate for large companies resulted in some increase in the level of employee training activities among the companies that hire more than 1000 employees (J.S.Park 1992:8). The practice of job rotation and multi-skills training has not been diffused evenly across different industries. In the auto industry, for example, the Hyundai Motor Company does not practice job rotation or multi-skills training to increase functional flexibility although its overall employee training program has been expanded: (1) it increased its daily number of employee trainees from 502 in 1986 to 1220 in 1991; (2) the annual per employee training time has also increased from 54.6 hours in 1986 to 74.2 hours in 1991; and (3) total training expenses have increased from 0.058 percent to 0.136 percent of total sales revenue. However, in 1990, more than half of training time went on the subject of unstable labor-management relations and only 25 percent was devoted to jobrelated subjects. It is not clear how much job-related training was focused on technical training and how much was devoted to the human relations skills necessary for team work. In 1991, Hyundai opened a new technical school to train its employees in the multi-skills necessary for automation and new assembly technology. However, in 1992 only 15 percent of its 35,000 employees were scheduled to be trained in the new school (Kim, Lee, and Cho 1992).


Some other case studies were conducted in the electronics, machine tool, and electrical industries. In one electronics plant studied, multi-skills training has been practiced quite extensively for several years through on-the-job training (OJT) and job rotation and it has been improved through a systemic approach since 1991. In the machine tool plant, while multi-skills training was introduced in 1981 to emulate Japanese practices, it has not been very successful due to management’s unilateral top-down approach. This plant has revamped the program since 1989 to increase its effectiveness through OJT. In the electrical plant, it takes about three years to become a fully skilled worker. Since 1986 the plant has introduced a new bonus system (10 percent of monthly salary per year) for multi-skilled trainees. Korea has three types of social welfare: Industrial Accident Compensation Insurance, National Healthcare, and the National Pension program. It will have an unemployment insurance program in 1995. Korean employees rely relatively more on various welfare benefits (such as meals, housing, recreation, etc.) that are provided by their employers voluntarily rather than on the legally required social welfare system. In 1989, the employer cost of the legally required employee welfare programs accounted for 3 percent of total labor costs, while non-legally required welfare programs accounted for 5.4 percent of total labor costs or 64.5 percent of total welfare costs (K.S.Yoo 1991:82). Since 1987 especially, labor unions have started to demand various types of non-legally required employee welfare programs, which contributed to the 40 percent increase in such costs between 1988 and 1989. CONCLUDING REMARKS: NEW ROLES FOR LABOR, MANAGEMENT, AND THE STATE The performance of the Korean economy since the 1960s has been remarkable. Many Korean workers have benefited from this aggregate economic growth despite the suppression of labor rights for most of the period. However, workers were not satisfied with the results of economic development and felt deprived under this regime. Korea has been experiencing the backlash from its former repression of labor rights since democratization began in 1987. It is likely that more conflicts will have to be overcome before Korea’s industrial relations can reach an equilibrium where labor, management, and the government play appropriate roles as social partners at the macro level and labor and management cooperate for productivity increases at the workplace. Nevertheless, it is clear that Korea cannot sustain its economic dynamism and stability unless the country can survive its current difficulties in industrial relations and human resources management. If a new system is to be implemented successfully, the state will have a crucial part to play, just as it did in the rapid economic development of the past. The role of the state cannot be disregarded just because it used to repress labor rights. However, the state has not established itself as a leading institution in the new


environment. For example, the government’s policy on new wage-fixing systems appears to be similar to its old wage policy. It has continued to intervene in private sector wage determination while preventing the emergence of strong and responsible leadership by depriving workers of the right to choose their own representatives. Most important of all, the Korean government should complete the process of democratizing its labor market and institutions. Even in the new labor environment, the government has helped to prolong the inter-union conflict which limits the potential for concerted action among labor, management, and the government. With the first civilian head of state for thirty years or so taking office in early 1993, some reforms in government policies were expected. However, no major changes have occurred. In particular, a greater role should be given to management and labor at the enterprise level, allowing them to shape their own industrial relations and human resource policies. In addition, the state must make an effort to increase social welfare benefits, particularly for deprived groups of workers. In Korea, there are more than 2 million people on a state-run livelihood protection program, along with more than 6 million workers who are not covered by the Labor Standards Act. These groups have benefited less than any others from rapid economic development. As Korea’s industrialization continues to progress, more resources will become available for these deprived groups. Nevertheless, a more active role is required by the state as industrial development continues. With democratization and reform now taking place, systems led solely by either labor, management, or the government are no longer effective. It is obvious that a concerted effort should be made by all parties. It is crucial for labor and management to establish a constructive relationship at the workplace in view of the in-house structure of Korean trade unions. This will not be an easy task. Despite the sharp rise in wages, most workers are still not satisfied. With the increased influence of trade unions on wage determination, non-performancerelated factors in the payment system have been strengthened. Workers in the formal sector have good employment security. Even lay-offs for business restructuring are very few in number—which is not to say that dismissal is rarely used for controlling workers. This means that neither workers nor unions have to devote themselves to work. Many Korean firms have relocated their production facilities to foreign countries and some have left the manufacturing sector. Management, workers, and unions in big enterprises, who are supposed to play a leading role for concerted action, are failing to do so. On the contrary, they are blocking the emergence of new industrial relations and human resources practices because, under the current business structure, management and labor in big enterprises are well protected even during economic stagnation. More social pressure should be placed on labor and management in big enterprises to play an appropriate role in the construction of productive relationships at the workplace.


Industrial relations at the workplace are still substantially influenced by the political situation, mainly because Korea’s trade union movement has been constrained by the government for most of its history. Despite an in-house union structure, labor and management struggle at the workplace over political issues which often cannot be settled there. This problem is all the more serious since political activities by unions at the workplace are not led or coordinated by strong central leadership. Korea’s further political developments will help to remedy this problem. NOTES 1 Under Japanese rule, 94 percent of manufacturing capital and 95 percent of mining production were owned by the Japanese (Y.Lee 1989). 2 In 1943, the number of Korean workers in the modern sector was estimated at about 530,000 (Y.Lee 1989). 3 See Cummings (1983) for an extensive analysis of the background, origins, and evolution of the Korean War and its impact on South Korean society. 4 In 1958, the number of employed workers increased to 146,779, about the level of the pre-Korean War period. For example, in 1947, the number of employed workers was 133,979. 5 Development scholars disagree on the consequences of state intervention in the labor market on Korean workers. Neo-classical economists, including Fields (1984) and J.Kim (1989), argue that workers in Korea have benefited from the country’s high economic performance, and as a result labor standards have been improving. Although labor rights were explicitly repressed by the state, Korea’s economic success demonstrates the virtues of indirect government regulation of the labor market. On the other hand, Neo-institutionalists such as Deyo (1987) and Marshall (1988) believe that Korean workers’ incomes would have improved to a greater extent if free association and collective bargaining had been guaranteed during the industrial development process. 6 The movement lines, which were issued by the Korea Trade Union Congress when it was established in 1991, showed virtually no differences from those of the FKTU. However, some rightist groups still doubt the faithfulness of the movement lines issued by the Korea Trade Union Congress. 7 Note that only a few small-sized enterprises may be covered by collective agreements. Only 3 percent of establishments which employ 99 workers or less were unionized and covered by collective negotiations as of the end of 1990. In about 7 percent of them, a Labor Management Council (LMC) was established. This indicates that more than 90 percent of small enterprises were not covered by agreements. 8 The international competitiveness of Korean products over those of NIEs has weakened. The unit labor cost of Korean manufacturing goods increased 8.8 percent and 30.1 percent more than Taiwan’s in 1988 and 1989 respectively. This wage increase along with the high appreciation of the won’s value is one of the main reasons why exports decreased in 1989 in terms of volume, and why Korea’s trade balance went into deficit in 1990.


9 The bonus is set as a certain portion plus very small incentive. 10 This system has existed since the early 1920s in the mining sector. However, only recently was the system introduced in the manufacturing sector.

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Chapter 3 The development of industrial relations strategy in Singapore Chew Soon Beng and Rosalind Chew

THE DEVELOPMENT STRATEGY OF SINGAPORE Singapore is a city state. It does not enjoy the benefit of the resources for development that Hong Kong has access to. Whereas Hong Kong has a hinterland in China and the advantage of an influx of top industrial entrepreneurs who fled the communists in China in 1949, Singapore does not have a readily available hinterland, nor has it benefited as significantly from the exodus of industrial entrepreneurs from communist China. Thus, the initial conditions for economic development in Hong Kong were more favourable than those of Singapore, as most Singaporeans were descendants of traders and merchants. Singapore functions to a significant extent as a factory does. A factory does not own anything. All the inputs for production have to be bought and all the outputs sold. This feature determines the manner in which Singapore competes. At the same time it influences the evolution of the industrial relations system in the republic. The main reason why Singapore operates very much like a factory is that the country is small and its resources are limited. Thus everything that the republic purchases and sells must involve the international market, which means that it is in a highly vulnerable situation within the world economic system. A typical entrepreneur in Singapore purchases many inputs from abroad to manufacture a product which is then sold on the world market. Thus, profitability is significantly affected by the strength of the Singapore dollar. A strong Singapore dollar means that the entrepreneur pays less for raw materials and intermediate inputs in US dollars. It also translates into a higher price for the Singapore product in US dollars. This means that although a strong Singapore dollar improves Singaporean profit margins by reducing production costs, the product is at the same time less competitively priced in the world market as a result. If the Singapore dollar is weaker, the reverse is true. Nevertheless, Singapore aims to maintain a strong Singapore dollar in order to maintain competitiveness in the world markets. Four reasons may be given for this:


1 A strong Singapore dollar boosts investors’ confidence in Singapore as a business centre. 2 A strong Singapore dollar is essential to the development of Singapore as a regional financial centre. 3 Although a strong Singapore dollar causes Singapore’s products to be less competitively priced in the world market, this adverse effect can be mitigated by the simultaneously lower costs of imports of raw materials and intermediate goods. 4 A strong Singapore dollar minimizes imported inflation. Maintaining a strong Singapore dollar means that it is necessary that every possible measure be taken to trim the costs of production in order to mitigate the adverse effects of the strength of the Singapore dollar on the competitiveness of Singapore’s products in the international market. One significant solution is to keep wages, which constitute a dominant part of production costs, in line with productivity growth. To achieve this, the republic adopts a second national policy of ensuring that wage growth does not exceed productivity growth. Pressure on wages to increase on the basis of changes in the cost of living will not be high if the Singapore dollar is strong enough to keep imported inflation down. At the same time, it should also be realized that a leading indicator of development is wage increases. It is obviously not possible to hold wages constant if economic growth is to continue. Since wages must be permitted to rise over time, Singapore’s third national policy for sustaining competitiveness is to search continually for ways to encourage productivity growth. With impressive productivity growth, wages can then be increased substantially.1 The labour market mechanisms operating in Singapore are therefore reinforced by the republic’s macro-economic policies which are to maintain a strong Singapore dollar and to enable wages to increase through productivity growth to ensure continued economic advance. The Singapore economy has been doing well since 1987. However, in view of the high level of uncertainty in the international economic environment in the 1990s, the government set up an Economic Planning Committee to re-examine various policies.2 This Strategic Economic Plan, the economic blueprint for becoming a developed country, warned of a possible economic slowdown in Singapore in either 1992 or 1993. Thus, to ensure that a high level of productivity is maintained, Singapore adopts appropriate macro-economic policies and is constantly vigilant of various forces which can weaken the economy.


THE EVOLUTION OF INDUSTRIAL RELATIONS IN SINGAPORE The nature of the relationship binding the government, workers and employers tends to change over time in any country. In the case of Singapore, the basic structure of the relationship involving the government, labour movement and employers’ association has changed dramatically since the Second World War. The pre-1959 period of industrial relations in Singapore was plagued with industrial strife. The industrial unrest at that time was brought about by the political struggle between the communist-controlled unions and the colonial government. When Singapore gained self-government in 1959, the newly elected People’s Action Party (PAP) government recognized the constraints imposed by the factory-like characteristics of the economy on the policies needed to attract foreign investment. Thus, the first task that the PAP government undertook was to phase out the leftist union and to set up a new union, the National Trades Union Congress (NTUC), which was pro-government and, with the benefit of hindsight, turned out to be pro-growth. The political elements of industrial unrest finally subsided in 1964. To provide industrial peace which is vital to attract foreign investment, a series of labour legislations were introduced to minimize disputes between management and unions. These were: 1 The Trade Union (Amendment) Ordinance, 1959, which gives the Registrar of Trade Unions the power to control the registration of unions. The Registrar is empowered to deregister ‘splinter’ unions to prevent fragmentation and avoid duplication in their functions. This increased the organizational strength of the trade unions. 2 The Industrial Relations Act, 1960, which provides an orderly system of collective bargaining, conciliation and arbitration. 3 The Industrial Relations (Recognition of Trade Union of Employees) Regulations, 1966, which sets out an orderly procedure for recognizing trade unions. 4 The Industrial Relations (Amendment) Act, 1968, which restores some of management’s rights in the hiring, firing and deployment of the workforce. 5 The Employment Act, 1968, which standardizes the minimum terms and conditions of employment to protect the wellbeing of workers and to facilitate collective bargaining. 6 The National Wages Council (NWC), which was set up in 1972 with the following objectives: (a) to help formulate general guidelines on wage policy; (b) to recommend necessary adjustments in the wage structure to meet immediate needs and long-term economic goals; (c) to advise on the structure of the incentive system installed to promote productivity.


These labour laws effectively reduced the collective bargaining power of unions. However, there exists a close relationship between the NTUC and the PAP. Indeed, the leaders of the NTUC are also leaders within the PAP. The PAP was and still is able to convince the NTUC that the unions should aim to achieve full employment for Singapore; with full employment, wages and fringe benefits should continue to rise over time. Due to this close relationship between the PAP and the NTUC, the leaders of the labour movement have been able to recognize the constraints imposed by the factory-like characteristics of the economy on the republic’s economic strategy and to refrain from adopting the policy of increasing wages at the expense of employment. So far, both the PAP and the NTUC have been right. However, seeking full employment as a union strategy creates a problem for the NTUC. Since workers in Singapore do not enjoy a wage premium as union members, this removes a major incentive for joining unions. There is no obvious reason why workers should pay union dues when they can be free riders. Chew (1992) argues that unions are unable to use collective bargaining benefits to entice workers to join as employers are subject to the downward-sloping demand for labour function. He therefore proposes that unions use non-collective bargaining benefits to entice workers to join unions. And to supplement this strategy of using non-collective bargaining benefits to increase union membership, he also recommends the setting up of a union for non-unionized firms.3 The third key participant in the industrial relations system in Singapore is at present most visibly represented by the Singapore National Employers Federation (SNEF). It is understandable that the SNEF is very much conscious of the constraints imposed by factory-like characteristics on growth, which causes productivity to be placed before anything else. The evolution of the relationship of the government, the labour movement and the employers’ association in Singapore over the years may be described in terms of four conventional approaches to industrial relations, namely the Marxist approach, the unitary approach, the pluralist approach and the corporatist incomes policy approach. The first three approaches are well documented in the literature and the incomes policy approach has been developed in the context of the Singapore economy.4 the industrial relations system in Singapore can be said to have undergone a Marxist phase in the 1945–62 period, a period of transition during the 1963–71 period, which developed into the corporatist incomes policy period of 1972–86 and progressed into the pluralist phase from 1986. The Marxist period, 1945±1962 During this period, communists made use of the trade unions as an instrument in the fight against the colonial government. This was a period during which the communists were in conflict with the colonial government in the political arena, while the pro-leftist unions were in conflict with the pro-government unions in


the industrial relations arena. The consequences were massive unemployment, numerous strikes and extensive slowdown in Singapore. The political struggle between the communists and the British was converted into a struggle between the leftists and the moderates within the People’s Action Party (PAP) in 1959, when the PAP was elected into power. The struggle continued until 1963, when the PAP defeated the leftist political party in the general elections, and the pro-PAP union, NTUC, replaced the pro-leftist union, Singapore Amalgamated Trades Unions (SATU), as the sole representative of organized labour in Singapore. Employers during this period were not organized at all. In any case, employers were predictably pro-colonial government and anti-union. Indeed, employers were at that time indifferent to the needs of workers, which contributed to the industrial unrest.5 With industrial relations echoing the Marxist struggle of the proletariat against the capitalists, this can be termed the marxist period of Singapore’s industrial relations. The transition period, 1963±1971 The PAP government worked closely with the NTUC and employers on developing the Singapore economy during this period. At that time, the economy was faced with massive unemployment which resulted largely from the pull-out of the British forces. As foreign investment was the only solution to the unemployment problem, after 1960 the government passed a series of legislative measures with the aim of controlling labour costs. For instance, the Industrial Relations Ordinance of 1960 legislated collective bargaining procedures through compulsory conciliation and arbitration. Strikes and lockouts were prohibited once an industrial dispute was referred to the Industrial Arbitration Court by either party or by the government. The Industrial Relations (Amendment) Act of 1966 gave greater discretion to employers in the deployment of the workforce, and removed decisions on promotions, internal transfers, hiring and dismissals from being subject to negotiation with unions, the Employment Act of 1968 reduced labour costs by limiting the sums payable on bonuses, annual paid leave, retrenchment benefits, retirement benefits and overtime. These legislative measures may be considered a form of informal wage restraint policy imposed by the government. They effectively reduced the bargaining power of the trade union, and had the desired dampening effects on wages. Nevertheless, collective bargaining continued at the plant level, with the government entering the picture only if a deadlock occurred between the two parties. When a breakdown of negotiations occurred, either party involved would refer the industrial dispute to the Ministry of Labour for conciliation, failing which the dispute would be referred to the Industrial Arbitration Court (IAC) for final settlement. The wage criteria upon which the IAC based its decisions are:6


(1) ability to pay; (2) comparability; (3) cost of living; (4) productivity; and (5) the state of the Singapore economy. On the whole, the atmosphere of industrial relations during this period was non-confrontational. There was direct negotiation between trade unions and management, which by this time was much more organized, at the plant level. The Singapore Employers Association, as expected, supported the government’s measures which give management more rights in the control of the workforce. Nevertheless, the Singapore Employers’ Association in the 1960s was not very much involved in giving advice to employers at plant-level negotiations. As the government was taking measures to ensure the inflow of foreign capital and as collective bargaining took place at the plant level, this period may be regarded as one of transition, with the industrial relations system moving increasingly towards corporatism. The corporatist incomes policy period, 1972±1986 The informal wage restraint policy of the 1960s contributed to the creation of an attractive investment climate. This resulted in an inflow of foreign investment to the extent that labour shortages developed in Singapore by 1970, and there were indications of a possible wage explosion. The government, unwilling to allow wages and fringe benefits to rise substantially for fear of retarding industrial growth, attempted to increase the labour supply by encouraging female workers to enter the labour force, and allowing foreign workers to be imported. The labour shortage persisted, none the less. Trade unions were also fighting for high wage increases as non-unionized firms began to offer higher wages to attract workers. Confronted with a tight labour market and an unwillingness for an excessive reliance on foreign workers, the government set up the National Wages Council (NWC) in 1972 to regulate wages in Singapore. Structurally, the NWC is a tripartite body consisting of representatives from organized labour, the employers’ associations (which by this time were fully organized), and the government. Organized labour is represented by the NTUC, while the employers are represented by a number of employers’ associations,7 the most important of which is the Singapore National Employers Federation (SNEF). The operational role of the NWC is to determine a set of annual wage guidelines to be submitted to the government for implementation. When accepted by the government, these wage guidelines form the basis for collective bargaining. The NWC has consistently provided national wage guidelines, and has steered clear of recommending sectoral wage guidelines for the following reasons: 1 As all sectors compete for workers from a common pool, wage guidelines should be set at the national level and not at the sectoral level.


2 Sectoral wage guidelines require much more time and resources to determine. They would also result in some sectors being explicitly labelled as sunrise sectors and others as sunset sectors; this would create an unhealthy industrial relations climate instead of fostering harmonious industrial relations. 3 Sectoral guidelines are useful only if the NWC guidelines are mandatory. Since the NWC guidelines are non-mandatory, different sectors and different firms can implement the NWC guidelines in whatever way they see fit. 4 If the aim of sectoral guidelines is to allow for differences across sectors, then it is not enough to stop at the sectoral level, as there are substantial differences across firms even at this level, for instance between a restaurant in a hotel and a local food outlet. However, it is obviously not feasible to provide wage guidelines for individual firms. Under the NWC, collective bargaining takes place at two levels: (1) at the national level, where the government, the unions and the employers discuss the wage guidelines for the whole economy; (2) at the plant level, where unions and management negotiate the wage increases with or without reference to the guidelines. Disputes on implementing the NWC guidelines are referred by either party to the Ministry of Labour and, failing conciliation, to the IAC, whose decisions are legally binding. In discharging its duties, the IAC closely follows the NWC guidelines which will not be challenged either by the unions or by the management. Nevertheless, the NWC guidelines are not mandatory, and employers and trade unions are free to set their own terms with regard to wage increases through collective bargaining. This system of industrial relations reflects the corporatist incomes policy approach in which all actors support the policy of wage determination for employment maximization and growth. Therefore, 1972–85 can be regarded as the period during which the incomes policy approach of industrial relations was practised in Singapore. In 1985, Singapore experienced a negative GDP growth rate of 1.8 per cent, for the first time since independence. The performance of the Singaporean economy in the first half of 1985 was reasonable, but deteriorated in the second half. Three contributory factors were identified:8 (1) the construction slump; (2) the poor performance of the Malaysian and Indonesian economies; and (3) high labour costs. The last factor adversely affected the manufacturing sector. In fact, the total cost of employing a production worker in 1985 was higher than in Hong Kong and about 68 per cent more than in Taiwan and Korea.9 Furthermore, even the monthly compensation cost of employing professionals in Singapore was high compared to Japan.


The 1985–6 recession caught the NWC by surprise. Despite the fact that it draws its membership from all the important sectors of the economy, the NWC did not foresee the collapse of the construction sector and the poor performance of the Malaysian and Indonesian economies. More importantly, the NWC did not foresee the erosion of Singapore’s wage competitiveness vis-à-vis the other Asian newly industrializing economies (NIEs). The latter was brought about by the following factors which were actually beyond its control: 1 The revaluation of the Singapore dollar against the currencies of the other three Asian NIEs in the early 1980s. The Singapore government, on the recommendation of Dr Goh Keng Swee, decided that the Singapore dollar should be determined by ‘market forces’ and should not be ‘manipulated’. The option of currency devaluation was absent at that time. This holds true even today. 2 High mandatory increases in the employers’ CPF contribution rate,10 which is beyond the NWC’s purview. 3 The tightening of the supply of foreign labour. The significant increase in foreign workers’ levy also increased wage costs to employers. 4 The existing wage system of consolidating annual wage increases into basic wages. With the benefit of hindsight, the NWC, which consists of the representatives of the government, the NTUC and employers’ associations, the SNEF in particular, should have been aware of all these factors and should have taken them into account in its wage recommendations. Indeed, the NWC may have had discussed all these factors behind closed doors; however, only their stand as indicated in the 1985 guidelines is known. As a result, the position on these issues of the council, and of the SNEF in particular, is not obvious. Nevertheless, the government and the NWC realize that steps must be taken to reduce labour costs in order to enhance Singapore’s competitiveness in the world market. Consequently, the government reduced the employers’ CPF contribution from 25 per cent to 10 per cent in 1986, which represented a wage cut of 12 per cent of the total wage bill. The NWC on its part recommended a wage freeze for all workers and appealed to employers to implement the flexible wage system of rewarding workers with one-time payments such as the variable bonus. The opinion of the SNEF was that these measures were long overdue. Implementation of the flexible wage system would have a significant impact on the industrial relations system. Under the flexible wage system, annual wage increases would be quite insignificant, and this would reduce the role of the NWC in the industrial relations system. Moreover, given that the variable bonus should increase with company profitability, macro-economic factors would be less important, which further reduces the significance of the role of the NWC as a wage-fixing institution. With the implementation of the flexible wage system,


the wage guidelines system eventually will be made redundant and perhaps replaced. This spells the end of the corporatist era of industrial relations. The pluralist period, 1987 to the present Singaporeans were accustomed to a wage increase of 8–10 per cent yearly from 1972. The wage freeze together with the 15 per cent reduction in employers’ CPF contribution represented a 20 per cent pay cut across the board. No country has succeeded in instituting so drastic a wage cut without experiencing any social unrest. However, in the case of Singapore, the trade union supported the government’s CPF policy and the NWC’s wage freeze policy.11 Consequently, the painful wage restraint policy was smoothly implemented, and it paid dividends. The rate of GDP growth for Singapore rose from—1.8 per cent in 1985 to 1.2 per cent in 1986, and to 6 per cent in 1987. Thus, by mid-1987,12 the Singapore economy was already on the road to recovery and performing better than in the previous year.13 However, all the parties—the government, the business community and the trade unions— remained quite cautious on the pace of recovery of the economy. As a result, the NWC decided to recommend yet another year of wage restraint for all. At the same time, the NWC continued to urge firms to implement the flexible wage system of rewarding workers with lump-sum bonuses at year-end instead of giving them substantial wage increases which are consolidated into basic wages. The following industrial relations issues developed during this period: 1 Some firms found it difficult to continue to practise wage restraint as they began to experience a labour shortage. However, the NTUC disapproved of firms granting high wage increases to workers.14 The NTUC was of the opinion that the success of the 1987 wage restraint policy rested entirely with the employers, as no worker would reject an offer of a pay increase. The NTUC was not against firms rewarding workers, but felt that firms should attract and reward workers with bonuses rather than pay increases. 2 The government continued to encourage firms to implement the flexible wage system. 3 NTUC officials were displeased with firms which implemented wage restraint for low-income workers, but not for executives.15 They stated that executives should lead the way in wage restraint. 4 In August 1987, the NTUC recommended that the government reward public sector employees with an extra year-end bonus if the economy was to perform better than expected that year.16 Thus, 1987 differed from earlier years when there was consensus among industrial relations participants on issues such as wage increases. In that year, the unions, management and government were not in agreement on many issues, and their disagreements were aired in public, unlike pre- viously when they discussed


and debated among themselves within the NWC and managed to put up a united front on the NWC guidelines. Singapore’s economic performance in 1987 improved over 1986. At the same time, the flexible wage system gained momentum and popularity. As of February 1988, 100,000 workers were covered by flexible wage contracts.17 The government had also decided to implement the flexible wage system for public employees from 1 July 1988.18 By mid-1988, it was quite clear to the government, trade unionists and employers that the economy was on the upswing, and that the labour shortage would be further aggravated in late 1988 and 1989. The government believed that it would be best for firms to implement the flexible wage system and thus encouraged firms to reward workers in the form of one-time bonus payments at the close of the year, rather than in the form of high wage increases. The unions of course wanted substantial pay increases either in the form of wage increases or bonuses. Most of the employers’ associations, on the other hand, hoped to achieve a moderate pay increase. For instance, the Singapore International Chamber of Commerce urged the NWC to consider a 2–3 per cent increase in wages supplemented by a variable pay increase, depending on the performance of the company. With the economy on the upswing, employers indicated a preference for qualitative guidelines, as they were concerned about the rate of wage increases, and quantitative guidelines would have been quite high given the expected tight labour market. The trade unions, on the other hand, preferred wage guidelines which would reflect the tight labour market and reward workers who had sacrificed their wage increases during the past two years. The public sector’s position was thought to be closer to that of the trade unions. The NWC had to take these considerations into account for its wage announcements in July 1988. Basically, the NWC was confronted with two questions: (1) whether to issue a qualitative or quantitative guideline; (2) whether to issue a quantitative guideline on the amount of bonuses awarded by companies implementing the flexible wage system. Since the NWC operates on a basis of consensus, it did not issue a quantitative guideline on the size of either the wage increase or the variable bonus in 1988. Instead, it simply called for a wage increase, and asked employers to reward workers with a variable bonus. Thus the NWC guideline on wages for 1988 was deliberately vague and open to interpretation by the various parties in the industrial relations system. The NTUC’s position was that workers should get a pay increase of 7 per cent in 1988.19 Employers, on the other hand, asserted that market forces should dictate wage increases.20 In July 1988, the SNEF, the major employers’ organization, rejected the NTUC’s call for more pay and argued that firms should stick to the NWC guideline which, according to their interpretation, calls for a moderate wage increase.21


The NTUC rapped employers for their stand on wage increases and accused the SNEF of ‘burying its head in the sand.’22 Later that month the NTUC announced its own wage guideline of a 5–8 per cent pay increase for 1988.23 A day later, another employers’ association, the Singapore Federation of Chambers of Commerce and Industry, announced that ‘each firm should decide its own pay rise’.24 The Singapore Manufacturers’ Association, too, urged its members who were doing well to opt for an extra one-time payment. In August that year, the Ministry of Labour urged firms to adjust wages and bonuses according to the labour market situation.25 Such an open exchange of views on wage increases was unprecedented. Suddenly, however, it seemed that each labour market institution had decided to put up its own wage guideline. The incomes policy effect of the NWC appeared to have totally disappeared. Obviously, Singapore had moved on into a different industrial relations system. The events of 1987 and 1988 indicate that Singapore’s industrial relations system had changed from the corporatist incomes policy approach to the pluralistic approach. This pluralistic approach, which is one adopted by many western countries, is quite acceptable. To Americans, for instance, an open exchange of views on wage increases and wage disputes is part and parcel of a free enterprise system, to which Singapore subscribes. INDUSTRIAL RELATIONS ISSUES IN SINGAPORE Five IR issues which are in the focus of industrial relations in Singapore are work organization, skill formation and development, compensation, stability of employment and corporate governance. Work organization During the 1960s, when unemployment was high and wages were low, work in Singapore was organized in a narrow, tightly circumscribed ‘Tayloristic’ or ‘Job control’ fashion with narrow job descriptions, clear lines of demarcation between individual jobs or separation of execution of work from supervision. Such a form of work organization would not yield job satisfaction but the workers then were too concerned about holding a job to complain about the nature of their work. In any case, the employers at that time were not sensitive to the needs of workers. Singapore’s industrial strategy began to pay dividends in the late 1960s in terms of the creation of job opportunities. By the early 1970s, a labour shortage had developed in Singapore to the extent that the upward pressure on wages became intense. Together with the withdrawal of British expatriates from Singapore, the rapid economic growth had created a vacuum for top executive and managerial manpower. This was quickly filled by local graduates. Not surprisingly, the graduates from the then University of Singapore at that time did


extremely well in that they were able to embark on well-paid careers either with the public sector or the multinational corporations (MNCs). As stated earlier, the government was afraid that economic progress might be retarded by a wage explosion. Consequently, the National Wages Council was established in 1972 to regulate wage expectations. At the same time, the government encouraged married women to work and also permitted foreign labour to work in Singapore. Foreign labour, both unskilled and professional, became one of the important sources of growth for the economy. Generally, productivity growth exceeded wage growth in Singapore in the 1970s. Throughout the 1960s, 1970s and 1980s, as Lim Chong Yah and Associates (1988) point out, Singapore invested heavily in human capital. The demand for tertiary education became very high. Tertiary education is regarded by Singaporeans as a consumption good as well as an investment. The impact of this on the labour market structure in Singapore is that it had come to be rather distorted by the 1990s. This change has come about because while the majority of secondary and upper secondary school leavers aim to pursue their education further at the tertiary level, the supply of managerial jobs in the maturing economy that Singapore has progressed to is levelling off. Against the everincreasing supply of fresh graduates, job prospects do not look too rosy. Many fresh graduates find jobs hard to come by, although demand for experienced professionals has been high. At the same time, the demand for clerical staff has become excessive. In an attempt to adjust to the limited supply of school leavers who do not aspire to tertiary education, the industry is restructuring clerical jobs and making them more broad-based and flexible. For instance, instead of having a job designated for ‘a clerk’, the fashionable title in Singapore today is ‘administrative assistant’. This change is not merely in the title. There is also a change in the nature of the job to include some degree of managerial responsibility in addition to the usual clerical duties. This change is made to prevent the ‘assistant’ from disliking the job for its lack of challenge.26 Consequently, an excess supply of fresh graduates coexists with a shortage of clerks. But school leavers ignore this dichotomy and continue to opt for tertiary education. As a result, those who choose to enter the labour market after completing higher secondary education can afford to be, and have become, extremely choosy. This has caused the labour turnover among clerical staff to become extremely high. Thus, while the Singapore labour market is experiencing extreme shortages of clerical staff, blue-collar workers and experienced professionals, the situation is different in the case of fresh graduates. Many new graduates are understandably frustrated. To compound their job search problems, many vacancies require work experience while relatively few firms are willing to train fresh graduates. Obviously, there is a market failure leading to under-training in the marketplace. (This issue of market failure will be addressed in the context of training.)


More significantly, the shortage of clerks has affected the work organization of professionals. In most firms, professionals are increasingly becoming adept at working without the help of clerical assistance. This has been possible with most professionals being computer-literate nowadays. Successful economic development has also resulted in a liberal foreign labour policy. This has caused the proportion of foreign labour to be more than 10 per cent of total employment. Thus, the percentage of foreign labour is approximately five times the unemployment rate in Singapore which has remained at not more than 2 per cent. Given the over-employment in the economy and a desire not to rely too excessively on foreign labour, a concerted effort has been made to retain married women in the labour force and to entice economically inactive women to join the labour market through the promotion of the flexible work arrangements. A survey of ninety-four firms on flexible work arrangements conducted in 1992 yields the following observations:27 1 Of the firms surveyed, 84 per cent have implemented some form of flexible work arrangement. However, only 46 per cent of the workers are engaged in flexible work arrangements. Of these, 83 per cent are engaged in shiftwork. 2 The most common flexible work arrangements implemented are shift work (37 per cent) and part-time work (4 per cent). 3 Among the firms surveyed, flexible work arrangements are most widely available to: (i) service workers, shop and market sales workers (71 per cent of the workforce); (ii) production craftsmen and related workers (64 per cent); (iii) cleaners, labourers and related workers (59 per cent); (iv) plant and machine operators and assemblers (50 per cent). 4 Flexible work arrangements are least available to: (i) clerical workers (9 per cent); (ii) technicians and associate professionals (29 per cent). 5 The level of training and compensation provided by most companies to employees on permanent part-time, shiftwork and compressed work week is generally the same as for the normal full-timers. Temporary part-timers and those with flexible working hours are generally given less training and compensation. 6 The absenteeism and productivity of employees on flexible work arrangements are generally perceived to be the same as those of normal fulltime workers. Turnover is perceived to be higher for flexible work arrangements other than permanent part-time work. 7 Rotating shiftwork, permanent shiftwork and temporary part-time are found to be the most feasible flexible work arrangements among the firms surveyed (mostly in the manufacturing sector), while home-based work, telework and job sharing are the least feasible work arrangements. 8 The less common flexible work arrangements are as shown in Table 3.1. 9 Flexible work schedules are not problem-free. The main problems of implementing the various work arrangements are as follows:


part-time (permanent) part-time (temporary) shiftwork (permanent) shiftwork (rotating) flexible working hours

– – – – –

compressed work week job sharing telework home-based work

– – – –

scheduling problems difficulty in recruitment supervisory problems high turnover turnover/scheduling problems, absenteeism and turnover lower productivity scheduling problems, higher costs higher costs quality-control problems, higher costs


Table 3.1 Flexible work arrangements in Singapore Work arrangements


Flexible working hours

Cleaners and related workers


Transport and communications Compressed work week Plants and machine operators Commerce Job sharing Clerical workers Commerce Telework Technicians and associated Transport and professionals communications Home-based work Technicians and associated Commerce professionals

Skill formation and development It is generally true that employers are not keen to provide training. The reason is obvious. Employers who bear the cost of training workers will not be able to pay the market wage rate until a year or two later or until such time as they need to recover the cost of investment in the workers trained. At the same time, another firm which does not have to bear the cost of training the worker can afford to pay him or her the market wage rate. Thus, in the absence of a bond, the trained worker can be enticed by other firms. This places the employer who bears the cost of training at the mercy of the trained worker. The result is that, at the macro level in Singapore where labour mobility is not frowned upon as it is in Japan, the level of training which occurs within industries will be less than is socially optimal. Thus, there is a market failure. Singapore is in a continuous process of economic restructuring. It would be relatively easy for firms to adopt new technology in production provided that the skills of the workforce are continually upgraded. However, upgrading skills through the formal educational system alone is not sufficient to meet the needs of restructuring as it only affects the annual inflow into the labour force.


The upgrading of the quality of the existing workforce which has already left the educational system is largely managed through the provision of training by employers at the plant level. However, as pointed out above, the level of training which would be provided is less than socially optimal. It is therefore necessary to find ways to bring this level of training up to the socially optimal level. Singapore has attempted to do this through the Skills Development Fund (SDF), which has been set up with the objective of bringing the provision of training at the plant level up to the socially optimal level. Under this scheme, all firms have to pay a mandatory percentage of their total wage bill to the SDF. This SDF levy serves as a tax on using labour. It is a sunk cost and is incurred whether the firm wants to train workers or not. The SDF makes use of this mandatory payment by firms to subsidize training. All applications to the SDF for training workers below a certain income level must be sponsored by the employers in order to qualify for the subsidy. This is to ensure that the training is relevant to labour market demand. The SDF subsidy provides an incentive for firms to provide training for their workers. With the subsidy, the firm only bears a portion of the training cost and consequently will not lose as much should the trained worker leave the firm. Thus, the operation of the SDF is equivalent to a government subsidy to employers for training workers. This enables the level of training which is provided to be nearer to the social optimum. The amount of subsidy awarded by the SDF ranges from 50 per cent to 90 per cent of the cost of the training programme; it does not subsidize the full cost of any training programme. This is because it is believed that the employer must bear some of the cost in order to prevent the abuse of the system by firms. The SDF has been highly successful. For instance, during 1983–9, the total number of training places initiated by employers with SDF sponsorship was 1, 017,772. About 40 per cent of these training places were for workers earning a monthly income of less than $750,32 per cent for workers with a monthly income of $750–$1,499, and 28 per cent for workers earning a monthly income exceeding $1,500. A total of 76,506 firms took part in the SDF programmes for the same period. About 81 per cent of these had a workforce of fewer than ten persons, 17 per cent had a workforce of 10–99 persons, and 2 per cent had a workforce of 100 persons or more. In the past, SDF had been accused of favouring big firms but the above statistics show that small firms also benefited from the scheme. Despite such an impressive record, the government and the labour movement are still not happy with the level of training. Consequently, in collective bargaining the NTUC has been negotiating for the employer to invest 4 per cent of total remuneration on the training of workers. However, some employers refuse to make such a commitment in the collective agreement. They argue that providing training to workers is a prerogative of management and should not be made an industrial relations issue. The opinion is that while there is a market failure in the industry, a firm can remain competitive by poaching the workers of


other firms instead of providing training for its own workers. Such a firm does not wish to be forced to provide training for its workers. However, if all firms were to rely only on poaching, there would be no trained workers available. At the macro level, for the three years since 1990, only less than 10 per cent of Singapore’s mature workers have attended various forms of training such as those sponsored by SDF and other programmes. This is far from adequate, as workers in their thirties and forties will account for 43 per cent of the local workforce by the year 2000. It is felt that if programmes such as the SDF are not able to persuade firms to train workers, making training an industrial relations issue might do the trick.28 According to a survey on HRM practices in Singapore in 1990,29 81 per cent of companies provide some sort of formal training for their employees, 60 per cent provide a combination of external and internal training, while 20 per cent only send their employees for external training. On the average, the survey reveals that about a quarter of the employees in a company attend some form of formal training each year. Compensation: levels, forms and structures Wages are a very important aspect of the terms and conditions of employment to both employees and employers. They therefore constitute an issue that is covered in every collective agreement. Employees seek to maximize wages and employers to minimize them as they are income to one party but a cost to the other. According to a survey of collective agreements,30 the wage structure of the collective agreements arrived at in Singapore for the period 1972–89 followed the ‘system of rate ranges’. Under this system, occupations are classified into clerical and non-clerical. The salary for each occupational group is specified within the range of a specified minimum and maximum based on merit and seniority. Wage progression in this system is based on annual increments within each scale, with the increments being consolidated into basic salary. Wages therefore increase year by year, up to a maximum in the range. Annual increments are also negotiated in collective bargaining. During 1972– 85, annual increments provided in the collective agreements were effective throughout the duration of the agreement. That is, a $42 increment negotiated in 1977 would apply to 1978 and 1979 as well. However, there was a change with the 1985 recession in Singapore. Twenty-eight collective agreements provided for an annual increment for 1986 but left the annual increments for 1987 and 1988 to be negotiated at a later date. Fourteen of the remaining collective agreements provided for an increment for 1986 and a wage freeze in 1987, leaving the increment for 1988 to be negotiated. This change in the pattern of increment negotiation was due to the depressed outlook of the economy during that period. Another development in the collective agreements of 1986 was the


provision in more than 90 per cent of them for both union and management to enter into active dis-cussion for achieving a more flexible wage payment system for 1987 and 1988.31 In addition, in 1987 two agreements provided for no wage increments in that year and left the increments for 1988 and 1989 to be decided at a later date. In 1988, three collective agreements provided for the increment for 1988 but left those for 1989 and 1990 to be negotiated. In the case of 1987 and 1988, the reason why the increments for the subsequent years were not discussed could be linked to the introduction of the flexible wage system, under which collective agreements would provide for the annual negotiation by the two parties on changes in the amount of increments under the variable bonus system.32 This means that wage negotiations for the subsequent two years would not be decided in advance. The implementation of the flexible wage system resulted in the average wage increase for 1988 and 1989 falling in the range of 2.5 to 5.6 per cent, which is relatively low compared to other years. The magnitude of wage increments has on the average fallen within the range of 5 to 10 per cent for many years, particularly in the late 1970s and early 1980s. However, from 1986, a drop in average increments (less than 5 per cent) can be observed. The probable reason for this, as already explained, is the uncertainty of the economy’s recovery from recession in the case of 1986, and the introduction of the variable bonus system in the case of 1987 to 1989. In fact, a variable bonus system is a relatively fairer system of remuneration. This is because the size of the variable bonus is tied to both the company’s and the individual’s performance. With this system, employees are likely to put in more effort since they stand to gain when the company performs well. This is particularly so for the banking and financial sector because the annual wage supplement has always been the maximum allowable, that is the equivalent of three months. Hence, with the introduction of the variable bonus, employees in this sector would be more concerned with how their company performs as well as being more productive themselves. Thus, the bonus can be used as an adjustment factor during good as well as bad times.33 This is a form of profit sharing which benefits employees as well as employers. In the past, annual increments reinforced the seniority-based system: the longer a person had worked for the company, the more increments would be received, hence the higher his or her income regardless of productivity. Singapore is thus moving into a phase where seniority alone cannot command a higher income. Rather, income is tied to the efficiency and productivity of the workers. According to the 1990 Survey on HRM Practices in Singapore (NPBSIPM 1991), more than three-quarters of companies used some form of incentive schemes to motivate their employees. Individual performance-based incentive pay was found to be the most widely used. The average increase of real monthly earnings of all workers for the period 1980–90 was 6.1 per cent. Within the three occupational groups namely (1) professional, technical, administrative, managerial, executive, etc.; (2) clerical,


sales, service, etc.; and (3) production, transport and other manual workers, there has been a convergence of wages over the ten-year period. The wage differential between occupational groups (1) and (3) was 3.4 in 1980 and declined to 2.7 in 1990. The wage differential between occupational groups (2) and (3) was 1.2 in 1980 and declined to 1.04 in 1990.34 Stability of employment As pointed out earlier, there has been over-employment in Singapore during most of the past two decades. As Chew and Chew (1992) point out, two schemes are important in keeping Singapore competitive. The first is the Skills Development Fund which has been effective in pushing employers to train workers. The other scheme is the Central Provident Fund (CPF) which requires both the employer and the employee to contribute a percentage of the worker’s monthly wages. Workers are allowed to withdraw their CPF monies when they retire at the age of 55. This social security scheme provides an incentive to work as effort is related to wages and therefore to contributions. In Singapore, unemployed workers are not allowed to withdraw their CPF monies unless they are unable to make a living for medical reasons. Thus, the CPF scheme is not the same as an unemployment benefits scheme which is not necessary as there is no shortage of jobs in Singapore. In Singapore’s more than full employment economy, there has been a persistent shortage of workers. However, firms are reluctant to extend the age of retirement as the wages of workers in their early fifties are high under the seniority-based system. A related reason is that foreign labour is also available. Thus, the wage system encourages workers to remain in the same job. However, the switch to the flexible wage system encourages labour turnover. Many firms find that workers resign after receiving the year-end bonus. Consequently, the adopted trend among employers is to give semi and quarterly bonuses to soften the impact of labour turnover on operation. Of course, continuous economic restructuring means that workers do lose jobs due to changes in the demand for various skills and non-competiveness. But workers are paid retrenchment benefits which amount to two to four weeks of wages for each year of service. Due to high labour costs, firms in Singapore are increasingly relying on foreign labour which is cheaper but subject to government approval. The trade union is obviously against employing foreigners as cheap labour. As mentioned earlier, Singapore is promoting flexible work arrangements in order to retain married female workers and attract economically inactive women into the labour market. It is expected that the contingent (part-time, temporary, contract, immigrant, etc.) portion of the labour force will continue to grow.


Corporate governance In Singapore, industrial relations and human resource policies and practices are geared towards enhancing the competitiveness of the enterprise. Take industrial democracy, for example. Management encourages workers to play an essential role in work safety, working environment and quality control circles (QCCs). However, decisions on pricing of products, adoption of technology, deployment of staff and location of plants remain management prerogatives. Traditionally, the personnel department is reactive to the business environment. Increased competition, however, has transformed the personnel department into an HR department which is proactive to the needs of the enterprise. This trend is also catching on in Singapore. According to the NPB-SIPM (1991), the following observations with regard to the human resource practices are noted: 1 HR departments are mostly found in large, foreign-owned manufacturing companies. 2 In one-third of the companies surveyed, the chief executive officer (CEO) is in charge of the organization’s HR functions. This increases the capability of the HR department to be proactive as the CEO and the HR manager is one and the same; it also indicates that the status of HR functions is high. 3 The five most commonly performed HR functions of companies are recruitment and selection, welfare and benefits administration, wage administration, performance appraisal and employee communication. 4 Three-quarters of the companies describe their state of labour-management relations as cooperative. 5 About half of the companies indicate that employee communication meetings and suggestion schemes are the two most popular employee participation programmes. The other employee participation programmes are employee attitude surveys (23 per cent), QCCs (21 per cent), and work restructuring/ job design groups (15 per cent). 6 Two-thirds of the companies with an HR department have implemented labour-management consultative committees such as Work Excellence Committees and Work Councils. CONCLUSION This chapter examines the developments in the industrial relations system in Singapore since the 1950s. The state of industrial relations depends very much on the political economy of the country. Singapore was a British colony until 1959; thus, political struggle for independence in the 1950s was inevitable. This was a period of marxist approach, with collective bargaining used as a political instrument to achieve political objectives. Under such an industrial relations system, the country cannot be competitive in exporting goods and services in the


world market. Consequently, there was massive unemployment and standards of living were low in Singapore even by south-east Asian standards. Since 1959, when the PAP took over the country, the government has been development-oriented. It understood the economy’s similarity to a factory and was able to create the necessary conditions for growth, among which is the elimination of collective bargaining as a political tool. As a result of the close relations between the PAP and the NTUC, the labour movement also has become development-oriented. Thus, during the 1960s, 1970s and early part of the 1980s, industrial relations were conducive to growth. Throughout this period of about twenty-five years, the Singapore government, bearing in mind the factory-like structure of the economy, had implemented strategies which permitted the strengths of the economy to be exploited and offset its weaknesses. This does not mean that economic policy remained stagnant all the time. For instance, the factory-like structure required the government to pursue the economic policy of promoting labour-intensive industries as there was massive unemployment in the early 1960s. Since the early 1970s, the PAP government has again pursued the policy of export promotion, due to the factory-like nature of the economy. In the late 1970s, the government started promoting high value-added industries. And in the late 1980s and the 1990s, the government promoted the flexible wage system. The main reason for changing economic policy was survival based on the economy’s factory-style characteristics. The impact of various economic policies such as employment promotion, export promotion and high-tech promotion on the industrial relations system is the same as all are aimed at exploiting the strengths of the economy. In other words, all these policies aimed to make Singapore more competitive. However, the industrial relations system in Singapore in the late 1990s and beyond may very well depend on the outcome of national elections. If the opposition parties are able to put more of their members into parliament, there is a likelihood that collective bargaining may again be used as a political instrument in the political arena, as it was in the 1950s. Singapore may then have to endure some hardship. It is possible that it is only after experiencing such hardship that voters would decide whether they want the industrial relations system of the 1970s or the American two-party political system with an independent labour movement which is capable of switching sides in national elections. NOTES 1 It should be noted that wages are not the only component of labour costs. Other labour costs include the SDF levy and the foreign worker levy. 2 See ‘Growth forecast revised to 6.5–7 per cent’, The Straits Times, 15 October 1991.


3 About a year after this proposal was made, the NTUC set up a General Branch Union for workers in non-unionized firms. The General Branch Union has been very successful in attracting union members. 4 See Chew and Chew (1989). 5 See Chew (1992) for details. 6 The IAC did not disclose the definition and the weighting of these five criteria. 7 The employers’ associations in 1972 included the Singapore Employers’ Association (SEF), which represented the large foreign enterprises and joint ventures, and the National Employers’ Council (NEC) and the Singapore Manufacturers’ Association (SMA), both of which represented the local businesses. In 1980, the SMA was replaced by the Singapore Federation of Chambers of Commerce and Industry. The SEF and the NEC merged into the Singapore National Employers’ Federation (SNEF) in 1981. Moreover, American, German and Japanese businesses also set up their own business councils. 8 For a detailed discussion on this issue, see Lim Chong Yah and Associates (1988: Chapter 2). 9 See ibid. 10 In Singapore, workers have a compulsory savings scheme entitled the Central Provident Fund (CPF). Workers earning $1,000 a month, for instance, had to contribute 25 per cent of their pay to their own CPF accounts. Employers also had to contribute 25 per cent of their pay to the CPF under the same account. The total cost per worker to the employer was therefore $1,250 per month. Workers are entitled to withdraw their CPF balances upon reaching the age of 55. 11 This was possible because of the general goodwill and trust that the NWC has built up between the three parties, and that are among the most significant contributions of the NWC. 12 It should be noted that the NWC year begins in July and ends in June the following year. 13 The Straits Times, 11 August 1987. 14 The Straits Times, 11 August 1987. 15 The Straits Times, 14 November 1987. 16 The Business Times, 12 August 1987. 17 The Straits Times, 13 February 1988. 18 The Straits Times, 22 April 1988. 19 The Straits Times, 20 June 1988. 20 The Straits Times, 3 June 1988. 21 The Straits Times, 16–17 July 1988. 22 The Straits Times, 19 July 1988. 23 The Straits Times, 29 July 1988. 24 The Straits Times, 30 July 1988. 25 The Straits Times, 12 August 1988. 26 See Rosalind Chew (forthcoming). 27 This study was initiated by the labour movement and is based on ninety-four firms with a combined workforce of 65,209 persons. See Chew et al. (1993). 28 See ‘NTUC to push for training to be part of companies’ CAs’, The Straits Times, 1 October 1993. 29 This was a survey covering 408 firms conducted in 1990 in Singapore on the state of human resource practices in Singapore. See NPB-SIPM (1991).


30 This is based on a survey of 232 collective agreements for the period 1972–89 of the banking and financial sector in Singapore. Of these 232 collective agreements, 172, 32 and 28 belong to banks, finance companies and stockbroking firms, respectively. Both local and foreign banks are included in the study. Data on major issues in collective agreements for the whole of Singapore are yet to be studied. It is expected that the trend of main collective agreements in the financial sector is broadly similar to that of the entire economy. 31 The flexible wage payment system which was proposed in 1986 was meant to replace the seniority-based wage system. Under the latter, workers are entitled to an annual increment which is consolidated into basic wages, and an annual wage supplement equivalent to a minimum of one month’s salary. Under the flexible wage system, workers are entitled to a basic wage, a small annual increment, and a bonus divided into two parts, a one-month bonus, and a variable bonus depending on the firm’s profitability and/or the worker’s productivity. 32 This was introduced in 1986 as a result of the 1985–6 recession in Singapore. 33 Magota and Suzuki (1988:41). 34 See Singapore Yearbook of Labour Statistics (1990).

REFERENCES Chalmers, W.Ellison (1967) Crucial Industrial Relations Issues in Singapore, Singapore: Tien Wah Press. Chan Choon Hian and Foo Check Teck (1988) A Casebook on Industrial Relations and Employment Practices in Singapore, Singapore: Stamford Press. Chew, Rosalind (1993) ‘Excessive labour turnover: the case of the clerical staff in Singapore’, International Journal of Manpower, 14(9):32–40. Chew Soon Beng (1992) Trade Unionism in Singapore, Singapore: McGraw-Hill Book Company. Chew Soon Beng and Chew, Rosalind (1989) ‘Industrial relations in Singapore’, Singapore Economic Review 34 (2). —— (1990) Workers’ Perceptions of Wage Determination in Singapore, CAS Occasional Paper, Singapore: Times Academic Press. Chew Soon Beng et al. (1993) ‘A study of flexible work arrangements in Singapore’, NTUC, 1993. Chua, Michael (1982) ‘Industrial relations in Singapore’, May Day Annual 1982, Singapore. Chuang Peck Meng (1990) ‘Extra, extra…’, Singapore Business 14(6), June. Crouch, C. (1979) The Politics of Industrial Relations, Glasgow: Fontana/ Collins. Dabscheck, B. (1989) ‘A survey of theories of industrial relations’ in J.Barbash and K.Barbash (eds) Theories and Concepts in Comparative Industrial Relations, Columbia, SC: University of South Carolina Press. Department of Statistics (1987) Singapore National Accounts, 1987, Singapore. —— (various years) Singapore Yearbook of Statistics, Singapore. Dunlop, John (1958) Industrial Relations Systems, New York: Holt, Rinehart & Winston. Flanders, A. (ed.) (1971) Collective Bargaining: Selected Readings, Harmondsworth: Penguin Books. Hyman, R. (1975) Industrial Relations: A Marxist Introduction, London: Macmillan.


Industrial Arbitration Court (various years) Annual Report of the President, Singapore. Johnston, T.L. (1985) Introduction to Industrial Relations, Plymouth: Macdonald & Evans. Lee Hsien Loong (1985) ‘Flexible wages: a future scenario’, Productivity Digest, November:8–15. Lim Chong Yah and Associates (1988) Policy Options for the Singapore Economy, Singapore: McGraw-Hill Book Company. Magota, Ryohei and Suzuki, Hiromasa (1988) Getting Your Flexible Wage System Right, Singapore: Educational Publication Bureau. Meade, J.E. (1982) Wage Fixing, London: George Allen & Unwin. Ministry of Labour (1988) ‘55 going 60’, Labour News, 2nd Quarter: 1–4. —— (1989) ‘Wage reform progress report’, May Day Annual 1989, Singapore. —— (various years) Singapore Yearbook of Labour Statistics, Singapore. Ministry of Trade and Industry (1989) Economic Survey of Singapore 1989, Singapore. NPB-SIPM (1991) 1990 Survey on Human Resource Management Practices in Singapore, Singapore: Seng Printing Company. Nithiananthan, B. (1986) ‘Issues in the Industrial Relations Act’, A National Conference on Labour Issues and Human Resources Development, Singapore. Pang Eng Fong (1978) ‘Changing patterns of industrial relations in Singapore’, in Peter Chen and Hans Dieter Evans (eds) Studies in Asean Sociology, Singapore: Elopment Enterprises. Schmitter, P.C. (1974) ‘Still the century of corporatism’, in P.C.Schmitter and G.Lehmbruch (eds) Trends Toward Corporatist Intermediation, Beverly Hills: Sage Publications. See Kay Soh (1983/4) ‘Industrial relations in Singapore’, Industrial Managers Review: 31–5. Straits Times, 5 March 1990. Tan Boon Chiang (1986) ‘The prevention and settlement of labour disputes’, Productivity Digest, January: 100–15.

Chapter 4 Economic development and the evolution of industrial relations in Taiwan, 1950–1993 Joseph S.Lee

INTRODUCTION In the past forty years Taiwan has performed remarkably well economically. While many factors have contributed to this success, neither development economists nor public policy makers in Taiwan have historically recognized the importance of industrial relations. It was not until the mid-1980s when labor unrest mounted, businesses were interrupted, and many employers relocated their enterprises abroad to avoid these problems that the government began to recognize the importance of the labor-management relations variable as a strategic factor in the economic development process. The government then responded quickly, enacting favorable labor legislation and establishing a cabinet-level agency to deal with the rising tide of labor problems. At the same time, scholars and public administrators in Taiwan also began to search for a new industrial relations model capable of coping with a better-educated workforce and a technology- and knowledge-intensive economy. A plethora of foreign models were proposed. Some scholars suggested that Taiwan should adopt the Japanese model, while others recommended the American model, the European socialist model, or the German codetermination model. The Polish model was suggested by some unionists. However, industrial relations are not like a product that can be imported from abroad. They are a product of the cultural, social, and economic conditions of the local community. Thus, before one can inquire into the future of Taiwan’s industrial relations, one must first understand how these relations evolved into their current condition. What are the characteristics of industrial relations and human resource management in Taiwan? What will future industrial relations and human resource management look like? These issues are investigated in this chapter. However, one cannot discuss the evolution of industrial relations without considering the background of economic development in Taiwan since it is the change in economic conditions that shapes the different forms of an industrial relations system. The process of Taiwan’s economic development can be divided into five periods: (1) post-Second World War reconstruction (1946–52); (2) the first import substitution phase (1953–60); (3) export expansion (1961–72); (4) the


second import substitution phase and export expansion (1973–80); and (5) development of skill-intensive industries (1981 to date) (Yeh 1993). The evolution of industrial relations in Taiwan does not coincide with these five periods, however. Instead, it is more properly divided into three periods: (1) 1946–60, authoritarian industrial relations and repressive government labor policy, coinciding with the first and second periods of economic development; (2) 1961–80, paternalistic industrial relations and inactive government labor policy, coinciding with the third and fourth periods of economic development; and (3) 1981 to the present, the emergence of modern industrial relations and active government labor policy, coinciding with the fifth period of economic development. The evolution of industrial relations during these three periods is discussed below. INDUSTRIAL RELATIONS DURING THE POSTSECOND WORLD WAR RECONSTRUCTION AND THE FIRST IMPORT SUBSTITUTION PERIOD: 1946± 1960 Immediately after the Second World War, Taiwan was very poor and had serious economic problems, including high inflation, high unemployment, poor productive capacity, and a shortage of foreign exchange. To deal with these problems the government rebuilt the country’s infrastructure and developed urgently needed industries such as electricity, fertilizer, and textiles. The government also launched a land reform program, revised the tax system, controlled foreign exchange, and gave the development of import substitution and export industries top priority in its first four-year economic plan. To protect infant import substitution industries the government also raised tariffs by more than 30 percent. At this early stage of development, industrial relations in Taiwan can be characterized as simple and authoritarian. This is because at that time the economy was dominated by agriculture and only a small proportion of the workforce were paid employees of private enterprises. For example, in 1956 only 21 percent of those employed fell into the paid employee category, while 16 percent were government employees, 36 percent were self-employed, and 24 percent were unpaid family workers. It was not until 1980 that paid employees of private enterprises exceeded more than half of the total employed. During this period not only was the labor market small, but the size of the workplace was also small. In 1954, businesses in Taiwan on average employed 4. 9 workers, increasing to 5.4 in 1961. With high unemployment and small workplaces, employers could easily find employees, and generally recruited neighbors, relatives, or people from their home town or home province. This close relationship gave employers absolute authority in management, rendering formal, objective personnel policies irrelevant. In addition, because the


technology used by employees at that time was simple, employee training programs were unnecessary. Trade unions were also tightly controlled by the government. This was not, however, for economic reasons (to keep wages low) as suggested by Deyo (1989), but for reasons of political security. Immediately after the Second World War the labor movement in mainland China was dominated by communists. One method used by the communists to overthrow the Nationalist government on the mainland was by conducting a large number of strikes. Having learned from this painful experience after retreating to Taiwan in 1949, the government at first prohibited any type of trade union organization. Subsequently, it actively organized workers of public enterprises and large-sized private businesses, nominating or appointing ruling party members as union leaders. The purpose was to ensure that communists did not infiltrate the workplace. The government also utilized trade unions to bargain collectively to carry out its land-to-the-tiller program. In 1953, in the course of implementing the program, the government sold four public enterprises to landowners to shift them out of agriculture and into industry. The 20,000 employees affected by this transfer were concerned about job security and employment conditions in the private sector where pay and benefit levels were lower than in public enterprises at that time. To alleviate this concern and assure a smooth transition, the government organized unions in these four enterprises and helped negotiate collective agreements with the new employers. These agreements satisfied employees that they would receive the same level of pay and benefits as they had as public employees (Lee 1988). Trade unions also assisted the government in promoting employee welfare by administering the Employees Welfare Fund program, which was enacted in the 1930s, and to which employers were required to make contributions. The fund and employee welfare programs under this law were required to be administered jointly by a welfare committee comprising both union and management representatives. However, except for very large public enterprises, few employers complied with these regulations (Hsu and Lee 1974). In short, during Taiwan’s early stage of economic development, industrial relations were simple and authoritarian. Trade unions were controlled by the government and did not play an economic role in bargaining for higher wages and additional fringe benefits for members as do their counterparts in western market economies. None the less, they made an important contribution to the welfare of workers by assisting the government in maintaining the political and social stability which is essential for economic development. INDUSTRIAL RELATIONS DURING THE EXPORT EXPANSION PERIOD: 1961±1980 By the 1960s, the government recognized that merely developing import substitution industries would not resolve the high unemployment which came with the rapid increase in population. The government thus switched its policy to


promoting the development of export industries so as to enable Taiwan to tap into the large markets of the industrialized countries. To accomplish this goal the government reformed its tax policy, established export-processing zones, and adopted other measures to make the country a more favorable place for saving and investment. To protect import substitution industries the government raised tariff rates substantially. The export expansion program was highly successful: the real rate of economic growth was 10.2 percent between 1961 and 1972 and 8. 9 percent between 1973 and 1980; unemployment rates dropped from 4 percent to 1.2 percent between 1961 and 1980. The share of paid employees in the private sector also expanded from 25.5 percent in 1964 to 51.9 percent in 1980. As the industrial sector became more developed and the size of workplaces expanded, more employers found it necessary to establish personnel offices and formal personnel policies. A survey conducted by Lee of 151 firms in the manufacturing sector in 1979 found one-fifth of the firms in the sample had a personnel department or full-time staff in charge of personnel matters, less than one-tenth had formal manpower plans, and one-third had given some thought to future manpower needs. As expected, more large-sized firms had personnel departments, work councils, and manpower plans than did smaller-sized firms (Lee 1980). One could summarize industrial relations practices during this period as follows. Recruiting Employers during this period relied heavily on informal channels, i.e. employee referral. More than three-fifths of the firms in Lee’s survey reported using this method to recruit blue-collar workers. Newspaper advertising was the next most popular method, followed by gate applications and posters near other employers’ premises to recruit unskilled and semi-skilled workers. Government and private employment services were the least popular methods for recruiting blue-collar workers. For white-collar workers, formal channels were preferred to informal ones. For middle- and high-ranking management positions, little recruiting activity took place since most of these jobs were filled either by the owners’ family members or by internal promotion. Screening A typical screening method used by employers was to ask applicants to fill out an application form requiring information on age, sex, educational attainment, ethnicity, and work experience. A brief interview afterward was also common (Lee 1980). Without objective tests for employee aptitude and ability, the educational attainment of applicants became the most important indicator. In addition, since employers were reluctant to provide on-the-job training, work experience at related jobs became another important criterion in selecting applicants. Sex discrimination was pervasive in Taiwan during this period;


according to Lee, close to two-thirds of the firms in his survey reserved their professional, managerial, and technical jobs for male workers, and offered only low-paying unskilled jobs to female workers (Lee 1980:187). In the 1950s and 1960s, ethnicity was another important factor in screening workers because Chinese culture stresses family loyalty. In recruiting, employers tended to hire relatives or people from their own villages or districts. Familial intimacy, geographical proximity, and even possessing the same surname carried great weight in business. However, as the size of the labor market continued to expand, such cultural norms were forced to give way to market forces. Thus, while in 1971, 34.6 percent of employers in metropolitan Taipei restricted their job applicants to Taiwanese only, by 1976 this figure had dropped to 13.2 percent. In 1979, Lee found that only 10 percent of employers among the 155 firms in the manufacturing industries had such as ethnicity requirement (Lee 1980:186). Company-sponsored training Company-sponsored training was not popular in the 1970s. Available data show that during the late 1970s, less than one-fifth of employees in the manufacturing industries received any type of company-sponsored training. Most of the programs that did exist were in the textile, electrical machinery, chemical products, food processing, petroleum, and machinery industries. This is because these industries were expanding rapidly and also because their rates of technological change were high. Most trainees in these programs were spinners, weavers, knitters, electrical fitters, machinery fitters, and machinery assemblers. They comprised 70 percent of all program participants. Apprenticeship was not common in Taiwan, as can be shown by the fact that fewer than 10 percent of employees involved in company training programs were apprentices. As a rule, more skilled workers in Taiwan received formal on-the-job training (OJT) than did semi-skilled and unskilled workers, and foreign-owned firms offered more OJT programs than did local firms. OJT programs were not common partly because experienced workers and supervisors had difficulty communicating effectively with trainees since communication skills were not taught in schools, but even more importantly, the high labor turnover rates in Taiwan made it difficult for employers to recover the training costs that they invested in employees (Lee 1980). Lack of job security was also a contributing factor to the scarcity of formal OJT programs in Taiwan because experienced workers could be replaced by junior workers at lower wages. If OJT was uncommon, how did workers learn their production skills? Thus far, no comprehensive data on this topic exist, but a case study of a large steel company, China Steel Corporation (CSC), found that most workers learned their basic production skills through vocational courses taken in school. In general, a worker from Taiwan could acquire basic production skills through the following avenues: (a) vocational courses taken in high schools or vocational schools; (b) participation in school-factory cooperation programs; (c) participation in


government-sponsored short-term vocational training courses; (d) participation in short-term training courses offered by vocational institutes or junior colleges; (e) vocational training courses offered by government training agencies; and (f) vocational courses offered by private training institutes. The case study of CSC revealed that vocational courses offered by various schools were the most important source for their workers in learning basic production skills. More than half of production workers indicated that they learned production skills through vocational courses taken while they were still in school. About one-fifth of CSC workers had participated in vocational courses offered by government agencies or had participated in school factory cooperation programs. In general, in CSC the younger the worker the higher the probability of vocational training having been received in school. For example, 70 percent of workers between 20 and 24 years of age and 56 percent of workers between 25 and 29 years of age had vocational training while they were in high school, while only 16 percent of workers above 36 years of age had received such training. Few older workers took vocational courses while they were in school because it was not until the 1970s that vocational courses were even offered in high schools. Thus, most of them learned production skills on their jobs, with close to half of the workers at CSC having had OJT in their previous jobs (Lee 1987). CSC also offers some of the best in-plant training programs. According to Lee, they were as follows. On-site classroom training CSC had many classrooms for training purposes. During the early 1970s it operated six such classrooms, expanding to eighteen by 1981. Classroom training, including topics such as hydraulic systems, electric circuits, and pneumatic systems, was designed to provide workers with more theory. Instructors for these classes were generally drawn from engineers within the same division as the trainees. Employees assigned to these classes were entitled to overtime pay. Supervised on-the-job training A newly recruited worker was usually assigned to a supervisor who served as an instructor, although sometimes an experienced worker performed this function. The instructor worked as a mentor who showed the new worker different aspects of the machinery and operating procedures. At the beginning of the training period the instructor usually asked the trainee to observe. At a latter stage actual operation was gradually turned over to the trainee.


Foreign training Since CSC bought technology and equipment from foreign countries, it had no facilities to train production workers before their installation at the plant. Therefore, prior to installation, CSC sent 650 production workers to South Korea, the United States, West Germany, and South Africa to receive as much as several months of training and hands-on experience. Such training arrangements were usually made by the vendors. Upon completion of foreign training, the trainees returned home and became the core production workers. In many cases they served as instructors for other new recruits. Informal on-the-job training Workers also learned specific production skills through trial and error on the job, or by observing their co-workers. In the same study, CSC workers were asked how much training they had received in their initial and subsequent jobs, and which avenues they had used to learn the specific skills required by CSC. More than half of production workers had received more than two weeks of formal training on their initial jobs. Comparing the amount of training received among different groups, unskilled workers received longer periods of training on their initial jobs than did skilled and semi-skilled workers (34 percent of unskilled workers had received more than six weeks of training, compared to 26 percent for skilled and semi-skilled). However, skilled workers received longer periods of training on their subsequent jobs at CSC. For example, 14 percent of them received training for eighteen weeks or more on their subsequent jobs, while only 2 percent of unskilled and 8 percent of semi-skilled workers received the same amount of training. Of the training methods used, informal OJT was the most frequent. Almost all production workers reported that they had utilized this approach to learn the required skills for their CSC jobs. Supervised OJT was the second most popular approach for learning skills. More than three-fourths of production workers in each skill level learned their specific production skills for their initial and subsequent jobs through this method. Sixteen percent of skilled workers and 3 percent of semi-skilled and unskilled workers had participated in foreign training. Skilled workers who participated in this type of training were those who were sent to foreign countries while CSC was being constructed. How helpful were these training programs in teaching employees new skills? In general, CSC employees were quite satisfied with company-sponsored training programs, 60 percent of employees expressing satisfaction with them. The satisfaction level was lower among better-educated and younger workers, because some of the subjects had already been studied in school. How useful were these training programs in preparing them for their first job at CSC? All training programs were considered by CSC production workers as very useful. Foreign training was rated by far the most helpful, while supervised


training ranked second. Ninety percent of skilled and unskilled and 80 percent of semi-skilled workers who participated in these training programs considered them useful in preparing them for their first job at CSC. In their opinion such a training had immediate application. Classroom training was considered the third most useful method, about 75 percent of the workers ranked this program. Offsite training was considered by many trainees to be not very useful, but the employees had a different opinion. However, top management argues that it was useful because it provided workers with the right discipline for modern factory jobs. One should not jump to the conclusion that workers from small-sized companies were untrained because OJT was not common in Taiwan. The high level of educational attainment of the workforce provided them with an excellent ability to learn production skills on the job using informal OJT, i.e. watching their experienced coworkers or supervisors, asking questions, and reading operation manuals, trade books, and magazines. When workers have mastered production skills they are often lured away from their job by other employers offering higher wage rates. Inexperienced workers in other companies learned the needed production skills from these newly recruited experienced workers. It is through this process that new and advanced production skills were disseminated quickly to other parts of the economy. Employee welfare One way to observe employee welfare is to investigate the share of welfare expenditures in employers’ total operating costs. Available data show that training expenses consisted of less than 1 percent of total operating costs; merit pay and other incentive payment schemes were more popular, representing 1 to 5 percent of total operating costs, depending on the industry. During this period the government had a restrictive wage policy for workers, and it tried to compensate workers through the implementation of the Employees Welfare Fund Act of 1938. The Act requires employers to contribute a certain percentage of capital, payroll, and the sales of production scraps to the employees’ welfare fund. The fund is administered jointly by the union and management, and provides certain welfare items to employees, e.g. discount stores, dining rooms, scholarships for employees’ children, libraries, bathing facilities, barbershops, recreational facilities, etc. These contributions consisted of less than 5 percent of the employers’ total operating costs. Not many employers complied with the regulations, however; indeed, even in 1991 fewer than one-third of employees were covered by such programs (Council of Labor Affairs 1992). Thus, these programs cannot be considered very important in the welfare of employees.


Adjusting to changing labor market conditions During the early 1970s there was a shortage of young female workers. The most common method used by employers to tackle the labor shortage was to raise wage rates. Close to three-fourths of the firms in Lee’s 1979 study utilized this approach. Since most of the labor shortage occurred among blue-collar workers, such an adjustment had the effect of narrowing white-/blue-collar worker income differentials. For example, in 1969, the ratio of white-/blue-collar income differentials for average monthly wages was 2.2, but it dropped to 1.6 by 1979 (Lee 1980:195). Other common practices were free company transportation, transportation allowances, meal allowances, housing allowances, year-end bonuses, full attendance bonuses, marriage allowances, company-sponsored outings, life insurance, company-sponsored movies, and other free recreational programs. The total value of these allowances could be as much as a worker’s basic monthly wage. For example, in 1976, the basic wage rate for a newly hired worker in the textile and clothing industries was New Taiwan (NT)$2028, while allowances totalled NT$1976 (Lee 1980:196). Government policy Deyo and others have argued that in order to keep a country’s products competitive in the international market, most governments adopt a repressive labor policy to keep wage rates low and prevent labor unrest (Deyo 1989). They cite Singapore, Korea, and Taiwan as examples. However, the government of Taiwan did not adopt a repressive labor policy for the purpose of keeping the wage rate low. Wage rates were determined by labor productivity, not by any institutional factors (Lee 1980; Chang 1983; Wu 1985). In the 1970s promoting trade union membership was a way for the government to promote international relations. This is because the Republic of China on Taiwan lost its seat in the United Nations in 1971 and, as a consequence, many countries severed diplomatic relations with it. Without official diplomatic relations, the government had to make use of civil organizations, associations, and unions to maintain contact with other countries. Thus, the government urged the owners of large-sized companies to form unions and encouraged workers to join. (The rapid rise in union membership in the 1980s was also because of loopholes in the labor insurance law. The law excludes self-employed workers from coverage, but if they enrol in craft unions, these can subscribe to labor insurance on their behalf; in addition, the government pays 40 percent of these members’ insurance premiums since they do not have employers to make the contribution on their behalf. A large number of self-employed workers and their family members took advantage of this loophole and joined craft unions after the late 1970s (Lee 1988). However, the government did maintain a low minimum wage policy in order to avoid high urban unemployment and a dual labor market between urban and


rural areas, a problem which often exists in developing countries. Thus, in 1961 the minimum wage was set at NT$300 per month, 39.7 percent of the average wage rate in the manufacturing industries. It rose to NT$600 per month in 1969. The government did not increase the minimum wage between 1969 and 1977, by which time it had dropped to 12.3 percent of the average wage in the manufacturing sector (San 1990:3). The government was also careful in adjusting the wage rates for employees in the public sector so as not to create upward pressure on wages in the private sector, as has happened in many developing countries. Because of the government’s control of trade unions, the low minimum wage policy, and a careful adjustment of wage rates in the public sector, Taiwan was able to keep institutional factors from influencing wage determination. Available data show that wage rates in Taiwan were determined solely by labor productivity. For example, between 1965 and 1975, Taiwan’s labor productivity increased at a rate of 5.19 percent annually, while the real wage rate increased at 5.91 percent; for the period 1976 to 1986, labor productivity increased at 5.27 percent annually while the real wage rate increased at 5.3 percent annually. In both periods the rates for productivity and wage increases were similar (see Table 4.1). Thus, workers in Taiwan were not exploited by their employers even though there were no strong unions and no favorable protective labor legislation prior to 1984 (Lee 1988:24). On the contrary, real wage rates per worker in Taiwan doubled every ten Table 4.1 Productivity and real wage increases in Taiwan Years

Labor share of income Labor productivity Real wage rate (annual (annual rate of increase, (annual rate of increase, rate of increase, %) %) %)

1952–64 1.32 1965–75 1.86 1976–86 0.73 1952–86 1.32 Source: Wu (1987:13)

11.22 5.19 5.27 5.94

2.72 5.91 7.50 5.30

years, while real wages grew 150 percent in twenty years. Wage rates in Singapore grew less than in Taiwan throughout the entire period of observation. Such a rate of wage increase is the envy of the rest of the world. In short, workers were not rams sacrificed for Taiwan’s rapid economic development in spite of the government’s wage restraint policy and the lack of union protection. Table 4.2 Fatal industrial accident rates and per capita income of selected countries (1981– 1990) Year
















1981 0.31 0.08 0.08 0.02 0.03 0.18 1990 0.19 0.07 0.06 0.02 0.02 0.16 Construction 1981 0.88 0.36 0.29 0.10 0.03 0.51 1990 0.46 0.24 0.25 0.10 0.05 0.21 Per capita income (US dollars) 1990 7,954 20,736 21,016 17,163 11,856 5,652 Source: Council of Labor Affairs (1992) and Council for Economic Planning and Development (1993)

However, one should not conclude that the labor market was working as perfectly as neoclassical theory predicts. There is a clear indication of market failure in the area of occupational safety and health. Lacking union protection and government intervention, workers endured a dangerous work environment. Figures in Table 4.2 show that Taiwan has one of the highest industrial accident rates in the world, much higher than Singapore and slightly higher than Korea. INDUSTRIAL RELATIONS AND HUMAN RESOURCE MANAGEMENT IN THE TECHNOLOGY-INTENSIVE INDUSTRIES EXPANSION PERIOD: 1981 TO DATE After twenty years of rapid development Taiwan has not only entered the group of newly industrializing economies, but is on its way to becoming a mature economy. By the early 1980s it had accumulated a large sum of foreign exchange reserves which put great pressure on its currency to appreciate. In fact, during the latter part of the 1980s Taiwan’s currency appreciated by 30 percent. Rapid expansion of the industrial sector exhausted the supply of land and labor and caused a rapid rise in wage rates (by 80 percent) and a skyrocketing of land prices. The net result is a loss of its comparative advantages in labor-intensive products in the international market. To search for new comparative advantages many businesses from Taiwan relocated their operations to low-wage countries, especially in south-east Asia and mainland China. The government recognized the need to develop capital- and technologyintensive industries to replace labor-intensive industries. Thus far, progress in this direction has been satisfactory. For example, capital- and skill-intensive industries, i.e. chemicals, chemical products, basic metal products, machinery and equipment, electrical and electronic machinery and equipment, and precision instruments, which made up 30.1 percent of total manufacturing products in 1981, rose quickly to 36.2 percent in 1986, and 44.9 percent in 1992. The pace of upgrading of the economy can also be seen from the changing composition of exports. In 1982 labor-intensive products made up 47.2 percent


of total exports. This figure dropped to 39.6 percent by 1992. On the other hand, the share of capital-intensive products rose from 26.9 percent to 29.4 percent during the same period; skill-intensive products increased from 18.3 percent to 28.9 percent; and high-tech products increased from 25.3 percent to 37.4 percent (Lee 1993). As the industrial structure changed, so did employment. Between 1981 and 1992, employment in Taiwan shifted away from manufacturing industries and into service industries. For example, in 1981, 32.2 percent of employed workers in Taiwan were in the manufacturing industries; the figure dropped to 30.2 percent in 1992. The share of employment in the service industries rose from 31 percent to 47.8 percent during the same period. During this period not only did the structure of the economy change quickly, so did industrial relations, human resource management practices, and the government’s labor policies. In general, one can label the characteristics of industrial relations in this period as more complex and more formal, and government policy as more active and more pro-labor. This is because rapid economic growth, full employment, rising educational attainment levels, and a more affluent society all have had a significant impact on Taiwan’s political environment. They caused Taiwan to move toward a more democratic society and loosened the ruling party’s monopoly in the political arena. The ruling party then recognized that it needed to change its attitude toward workers in order to attract votes. As a result, the government amended some labor laws in the 1980s, including the Collective Agreement Law in 1982, the Labor Disputes Law and the Labor Insurance Act in 1988, and the Vocational Training Act in 1983. It also enacted new laws such as the Fair Labor Standards Law (FLSL) in 1984, the Employment Service Act in 1992, and the newly proposed Equal Rights in the Workplace Act in 1993. Since 1983 the government has been adjusting the minimum wage annually and the increases have ranged between 10 and 15 percent. In addition to domestic pressure, the government also received pressure from foreign governments to change its attitude toward labor. For example, the rapid expansion of the trade surplus with the United States in the mid-1980s caused trade friction between the two countries and led to the US government and trade unions putting pressure on Taiwan to improve its working conditions or be subjected to import restrictions (Chiao 1990). In 1987 the government also created a cabinet-level Council of Labor Affairs to enforce the FLSL and to handle the rising number of labor disputes. In addition to the changes in the political arena, recent developments in Taiwan’s economy such as labor shortage, emigration of labor-intensive firms, and the rapid rise in worker educational attainment have all had a profound impact on industrial relations and human resource management. Their effects can be summarized as follows.


Strengthening the role of trade unions The experience of Taiwan shows that a sustained period of high economic growth will lead to political reform, and movement toward democratization will reduce the ruling party’s power to control trade unions. Thus, in recent years unions elect their own leaders rather than accepting those nominated by the ruling party or by employers. A group of unions outside of the Chinese Federation of Labor, which is under the heavy influence of the ruling party, formed their own federation in 1988. The newly elected union leaders are much more militant and assertive than the older generation; they have discovered new and effective Table 4.3 Characteristics of labor relations in Taiwan: manufacturing industries, 1991 Yes 1 2 3

screening promoting lay-offs transfers wage determinatio n retirement year-end bonus work hours and other benefits 4






Is your workplace unionized? Is there a union-management contract in your workplace? Does the contract have any impact on the following policies? recruiting 54 17.0 264 82 25.7 236 92 28.9 226 83 26.1 235 170 53.5 148

1471 318

20.3 21.6

5782 1153

79.7 78.4

82 83.0 74.3 71.1 73.9 46.5




142 233

44.7 73.2

176 85

55.3 26.8












8.7 18.0

5447 5386

91.3 82.0

Is there a works council in your workplace? 5 Were there any labor disputes in your workplace during the following periods? a. Prior to 233 1984 b. 1985–7 518 c. 1988–90 1183 Source: Lee and Wu (1991)


confrontational tactics to fight their employers, especially once martial law was lifted in 1987. Unions can now go on strike if certain procedures are followed. As can be seen from the figures in Table 4 A.3 (p. 117), the number of labor disputes has risen rapidly in recent years. Not only have unions become more independent, but their influence in the workplace has also increased. Table 4.3 shows that 21.6 percent of the firms had union-management contracts which, according to 73 percent of them, had some influence on their decisions on yearend bonuses, 61 percent on work hours and benefits, and more than half on wage determination. The influence of the trade unions is certainly larger than it was at the time of the 1979 survey (Lee and Wu 1991). The source of these influences clearly stems from the FLSL since unions have little impact on other personnel policies, such as recruiting, screening, and promotion which are not covered by the FLSL. In addition to union-management contracts, unions have some influence on employer compliance with the FLSL. For example, a much larger percentage of unionized firms have retirement programs, maternity and miscarriage leave, work councils, and profit-sharing programs, all of which are required by the FLSL (see Table 4.4). As unions become more independent and powerful, employers have started to fight them. They reduce union influence by transferring the leaders to other plants or by discharging them. The Council of Labor Affairs thus far has been unable to stop this type of management action (Wu and Liao 1991). Codifying management's personnel policies The FLSL requires an employer who has more than thirty employees to submit written work rules to the government agency for approval. When approved, a copy must be posted on public bulletin boards. Such a regulation has the effect of forcing employers to codify their personnel policies, making their personnel decisions less arbitrary and capricious than they were in the past. Figures in Table 4.4 reveal that close to two-thirds of the unionized and non-unionized firms in the survey had written work rules for their employees. Limiting management flexibility The FLSL restricts employers’ right to take certain actions regarding personnel. For example, the law stipulates that overtime cannot exceed 36 hours per month for men and 24 hours for women. For all practical


Table 4.4 Compliance with fair labor standards law in unionized and non-unionized firms FLSL regulating Compliance rate items Unionized firms

Non-unionized firms

Estimated impact of unionism on employers’ probabilities of complying with FLSL* Coefficient

Standard error

Work week† 60.0 71.1 0.0699a 0.0309 Overtime 81.2 80.7 −0.1177a 0.0317 premiums† Retirement 71.2 58.4 0.3030a 0.0876 programs Maternity leave 48.3 42.6 0.3130a 0.0824 Miscarriage 39.2 27.9 0.0443 0.0794 leave Work council 57.1 35.8 0.7039a 0.0727 Written work 69.4 61.1 0.0859 0.0858 rules Employment 22.0 12.8 0.1112a 0.0618 conract Profit sharing 35.0 29.6 0.1619b 0.0775 program Source: Lee and Wu (1991) Notes: * a coefficients are statistically significant at the 1 percent level. b coefficients are statistically significant at the 5 percent level. Estimates are obtained from logit analysis by controlling of ownership of businesses, firm size, capital intensity, years of establishment. † For holiday and overtime premiums the coefficients were estimated by ordinary least square (OLS) because the work week was coded in the following way: 5-day work week=5, 5½ day work week=4, variation 5½ day work week (i.e. off on every other Saturday)=3, 6 day work week=2, every other Sunday off=1. The current FLSL regulation is a 6-day work week. For overtime premium: overtime premium is 1 of the regular wage=2, 1½ of the regular wage=1, less than 1 of the regular wage=0. The current FLSL regulation is 1 of regular pay.

purposes, the law restricts overtime to 24 hours per month for all employees because it is impossible for an employer to have men and women work different hours overtime since they work side by side on the same production line or within the same plant. Other restrictions set by the FLSL state that women workers are not allowed to work after 10 p.m. and that for every seven days of work, there must be one day of rest. Such regulations make it almost impossible for management to operate their businesses. For example, how can a woman reporter not work after 10 at night, or a logger in the mountains come down to his home once every seven days, or a worker on a fishing boat come to shore once a week?


Change in the organizational structure Labor shortages, higher wages, and the FLSL have all had a profound impact on industrial relations and the structure of organizations in Taiwan. The many employee benefits stipulated in the FLSL have certainly increased costs and reduced the flexibility of running a business. San has estimated that the law might have raised labor costs for employers by as much as 23 percent (San 1989). Our 1992 survey found that two-fifths of all firms in the sample had their labor costs increased by up to 10 percent due to the implementation of the FLSL, followed by firms with an 11 to 20 percent increase in costs (23 percent), while 2.5 percent of the firms in the sample saw costs increase by more than 30 percent (Lee and Wu 1992a). To cope with these higher labor costs employers adopted many strategies, such as employing lower-wage foreign workers, improving the efficiency of the workforce, introducing automated machinery to substitute for labor, and subcontracting their work. Subcontracting helps employers to avoid overtime and its premiums, pension pay, severance pay, and other restrictions imposed by the FLSL on management’s flexibility. To circumvent the regulations of the FLSL, some employers have changed their previous employer-employee relationship into a business partner relationship by lending their machinery to employees and asking them to work at home (for a detailed analysis of management strategies, see Lee and Wu 1992a). Such a move toward a smaller-sized workplace has a negative effect on worker welfare because wages are lower and working conditions are usually poorer. Table 4.5 Size of establishments in Taiwan, Japan, and the United States Size of Percentage of establishmen establishments t (in persons) Taiwan


Percentage of employed




1–4 74.2 27.5 17.8 5–29 22.1 95.7 29.2 36.0 (1–24) 30–99 2.8 3.5 18.0 21.0 23.9 100+ 0.7 0.8 35.2 25.2 (25–99) 30.5 (100+) 45.6 Sources: Taiwan: Directorate-General, Budget, Accounting and Statistics (DGBAS) (1991); Census of Commerce, Taipei; Japan: Japanese Working Life Profile, The Japan Institute of Labour, 1988; US: Job Training in Small and Large Firms, U.S. Small Business Administration, 1988 (manufacturing sector only)


SUMMARY AND CONCLUSIONS In this section we summarize the characteristics of the economy in Taiwan and their impact on the future of industrial relations and human resource management. In general, the unique characteristics of Taiwan’s economy are as follows. Predominance of small businesses Taiwan’s economy is firmly built on a foundation of small businesses, as figures in Table 4.5 show. In 1991, 96.3 percent of Taiwan’s businesses had fewer than thirty workers, employing close to half of all workers in Taiwan. Industrial relations in small businesses are simple and human resource management less important because these firms lack the economic scale to offer certain employee benefit programs, such as pensions and employee training programs. Fluidity of the workforce Workers in Taiwan are highly mobile. The fluidity of a workforce can be measured by the workers’ length of service. Figures in Table 4.6 show that the average length of service is short for workers in Taiwan. For 20–24-year-old males, the average length of service was 1.6 years in Table 4.6 Average length of service (all industries, in years) Year

Age group






Male 2.8 4.7 7.0 9.3 2.3 3.7 5.6 7.8 2.1 3.4 5.3 7.8 1.7 3.3 5.3 7.5 1.6 3.1 5.0 7.2 Female 1978 2.9 4.9 6.8 8.3 1980 2.5 3.9 5.6 7.6 1985 2.3 3.6 5.1 7.3 1989 2.3 3.5 5.2 6.9 1992 2.1 3.3 4.8 6.2 Source: DGBAS, Report on Manpower Utilization Survey, various years, Taiwan 1978 1980 1985 1989 1992

19.1 17.2 18.9 18.7 19.3 19.9 18.3 20.2 17.8 17.4

1992, much shorter than for workers from other industrialized countries. For instance, only 12.6 percent of Japanese male workers in the manufacturing


industries have fewer than two years of service, and in western industrialized countries the range goes from 15 percent in Luxembourg to 25 percent in France, while it is 29 percent for Taiwanese workers. Of Japanese workers, 37 percent fall into the category of long-service workers, i.e. those who have spent twenty years or more with the same company, as do 9 to 24 percent of workers in western countries. Only 3 percent of Taiwanese workers are in this category. Since a majority of businesses in Taiwan are small in size, a more accurate comparison is with workers in small-sized firms (10–99 employees). As can be seen from Table 4.7(a), Japanese workers are much more stable than those in Taiwan, since only 19 percent of them, compared with 35 percent of Taiwanese workers in small firms, have fewer than two years of service with their present employers. For long-service workers, again, 31 percent of Japanese workers as compared with 9 percent of Taiwanese workers have ten years or more of service. Table 4.7(a) Composition by length of service in Japan, the EC and Taiwan (male bluecollar workers in manufacturing industries) Years of service

0–2 %

2–4 %

5–9 %

10–19 %

20+ %


All companies 6.0




















West Germany 25.3 17.9 22.8 22.2





22.9 28.1 23.6 23.5

19.0 22.0 19.6 18.7

19.6 21.9 20.1 21.2

11.9 8.9 13.9 14.5






(0–4) 34.8 All companies 23.0
















1000+ employees 100–999 employees 10–99 employees EC France Italy Belgium The Netherlan ds Luxembo urg Britain 45.0 Taiwan 500+ employees 100–499 employees




Years of service

0–2 %

2–4 %

5–9 %

10–19 %

20+ %

10–99 34.8 39.6 16.4 7.3 1.9 employees Source: Japan and European countries: Koike (1988:60); Taiwan: DGBAS, Manpower Utilization Survey, Taipei, 1989

The fluid character of the Taiwanese workforce applies equally to white-collar workers. For example, 15 percent of Japanese white-collar workers from companies with 10–99 employees have fewer than two years of service, compared with 23 percent in Taiwan. For workers with more than ten years of service, the comparable figures are 38 percent for Japanese workers compared to 20 percent for workers in Taiwan (see Table 4.7(b)). Thus, both blue- and white-collar workers are more mobile in Taiwan than in other countries. This reduces workers’ desire to join unions because they can move to other workplaces and need not resort to collective action to improve their working conditions. The short tenure of Taiwanese employees also reduces employers’ desire to invest in employee training. Table 4.7(b) Composition by length of service in Japan, the EC and Taiwan (male whitecollar workers in manufacturing industries) Years of service

0−2 %

2−4 %

5−9 %

10−19 %

20+ %


All companies 4.0




















West Germany 12.7 15.3 13.0 11.5





16.8 24.5 18.8 19.5

19.0 21.0 19.8 18.0

26.7 26.2 24.4 27.3

23.1 12.1 24.0 23.6






(0−4) All companies

40.7 21.0

19.8 32.7

(10+) 23.3

38.8 18.5

1000+ employees 100−999 employees 10−99 employees EC France Italy Belgium The Netherlan ds Luxembo urg Britain Taiwan




Years of service

0−2 %

2−4 %

5−9 %

10−19 %

500+ employees 100−499 employees 10−99 employees
















20+ %

Source: Japan and European countries: Koike (1988:60); Taiwan: DGBAS, Manpower Utilization Survey, Taipei, 1989 Note: The term white-collar worker as used here includes professional, technical, clerical, and supervisory employees; sales, services, administrative, and executive employees are excluded from the white-collar definition.

Small businesses are heavily involved in foreign trade Unlike in other countries where large-sized firms predominate in the export sector, in Taiwan it is small businesses which are heavily involved in export. These firms do not have economic rent with which unions can bargain for higher wages and more fringe benefits, since they face keen competition in the international market. Seniority-based wages One of the unique characteristics of Japanese industrial relations is its senioritybased wage system: wage increases are determined by the age and length of service of workers within the company. By contrast, in western countries, workers’ wage rates are much less related to age. As a result, the age-wage profile for blue-collar as well as white-collar workers in Japan is an upwardsloping curve, while it is flat for the western industrialized countries. For example, Figure 4.1 shows that the wage index for German workers peaks at 108 for the 35–39 age group, and for France at 114, while for large Japanese establishments it peaks at 170 for the 50–54 age group. How does this compare to the age-wage profile for Taiwan’s workers? Figure 4.1 shows that the age-wage profile of Taiwanese male blue-collar workers (excluding the mining and agricultural sectors) is very similar to that of Japanese workers, especially in small establishments (10–99 employees). Both curves are upward-sloping, the difference being that the curve for Japanese large establishments rises much faster than does the one for Taiwan. Another difference is that the Japanese age-wage profile drops rapidly after middle age (after the age of 50–54), while in Taiwan it drops at a much slower rate. In short, if the Japanese upward-sloping age-wage profile is characterized as a senioritybased wage system, then the wage system in Taiwan can be characterized in the same way.


Figure 4.1 Age-wage profiles for male blue-collar workers Source: Koike (1988); DGBAS, Manpower Utilization Survey, Taipei, 1989

For white-collar workers, the age-wage profile is also an upward-sloping curve (see Figure 4.2). It rises much faster than it does for blue-collar workers, and reaches its peak at the 45–49 age group. This seniority-based wage system has a negative effect on workers’ desire to join a union because it limits union influence on wage adjustments. Economic superiority of white-collar workers over bluecollar workers In Taiwan, everybody wishes to become a white-collar worker. This is because, in addition to having a better work environment, white-collar workers enjoy higher social prestige and a better economic position than blue-collar workers. Table 4.8 presents the white-/blue-collar income


Figure 4.2 Age-wage profiles for male white-collar workers Source: Koike (1988); DGBAS, Manpower Utilization Survey, Taipei, 1989 Table 4.8 White-collar/blue-collar income difference (blue-collar wages=100) Age

Taiwan Japan

20–24 25–29 30–34 35–39 40–44 45–49 50–54 55–59 Over 60 Total

Male 113 122 145 151 164 165 161 160 183 143 Female

99 105 114 122 132 139 146 144 135 126

German France y



Belgiu m

The Netherl ands

97 119 133 139 142 139 139 139 144 135

90 107 122 122 134 134 134 134 125 123

119 139 169 185 201 210 210 216 259 182

96 116 138 148 151 153 154 157 162 146

92 111 132 146 155 158 161 133 152 146

116 143 167 180 190 192 194 190 199 181



Taiwan Japan

German France y



Belgiu m

20–24 114 110 117 115 111 130 110 25–29 135 119 132 130 126 141 124 30–34 148 137 139 144 156 133 35–39 160 139 142 151 131 173 143 40–44 153 142 140 152 181 151 45–49 165 148 143 155 132 197 150 50–54 147 151 145 155 198 154 55–59 128 138 148 153 134 210 156 Over 60 189 127 149 160 132 246 171 Total 141 126 130 139 122 150 133 Sources: Taiwan, male workers in all industries, except agriculture and mining: DGBAS, Manpower Utilization Survey, Taipei, 1989; Japan (1976) and other European countries (1972) are manufacturing workers only: Koike (1988:290)

The Netherl ands 111 123 140 153 158 167 163 167 142 121

differentials for workers in Taiwan. As one can see, the income differentials are high in Taiwan: using blue-collar workers’ wages as a basis, the white-/bluecollar income differential was 113 for the 20–24 age group, and gradually reached its peak of 165 for the 45–49 age group. Compared with white-/blue-collar income differentials internationally (which is difficult because of differing definitions for white-collar workers), Taiwan has a wider wage differential than other industrialized countries. Among male workers, only France and Italy have wider wage differentials than in Taiwan; Belgium and The Netherlands have similar wage differentials, and the UK, Germany, and Japan all have smaller white-/blue-collar income differentials than does Taiwan. Among female workers, only Italy has higher wage differentials. This economic superiority provides a strong incentive for people to become white-collar workers. With good occupational upward mobility, it is difficult to develop a class consciousness, which is an important factor in motivating workers to form and join unions. In short, during the last forty years Taiwan has enjoyed a high rate of economic growth. As a result, the structure of the economy has changed rapidly, leading to a corresponding change in industrial relations and human resource management practices. The movement towards democracy, spurred by rapid economic development, has caused the government to change its attitude toward workers and trade unions. This has resulted in a series of pro-labor legislative acts and new prolabor government policies. The government’s change in attitude has occurred so quickly that many employers have accused it of engaging in an anti-business movement, a charge it denies.


The favorable government attitude toward labor, a labor shortage, and a bettereducated workforce have all significantly influenced industrial relations and human resource practices in Taiwan in the 1980s. These developments have made workers more independent and made trade unions more militant, particularly for unions in the public enterprises and transportation industries. Employers have responded to these developments by changing their organizational structure, forming smaller units so that they do not fall under government regulation. Employers also offer more employee training programs to upgrade the skill of their workers. Despite these new developments, the unique characteristics of the Taiwan economy, such as the predominance of small businesses and their heavy involvement in international trade, the seniority wage system, and the economic superiority of white-collar workers, have made it difficult for trade unions to make significant inroads into workplaces. If there is any role for trade unions in Taiwan’s future, it will be in the area of employee training and employee benefit coordination among small firms as workers move frequently from firm to firm. The movement toward capital- and skill-intensive industries will make human resource management increasingly important as workers develop more specific skills, require more training, and cost more to retain. Trade unions can also play an important role in the area of occupational safety and health by serving as a watchdog and making sure their employers comply with the safety standards set by the government. REFERENCES Chang, Ching-Hsi (1983) “Changes in manufacturing wages and the competitiveness of the labor market in Taiwan,” in Proceedings of Conference on Taiwan’s Industry Development, Taipei: Academic Sinica. Chiao, Ching-Kae (1990) “Labor law reforms in the Republic of China under the pressure of the United States,” mimeographed, Soochow University. Council of Economic Development and Planning (1988) An Evaluation of ROC’s Labor Problems, Labor Policies, and Labor Legislation: From an Economic Point of View, Taipei: Executive Yuan. —— (1993) Taiwan Statistical Data Book, Taipei: Executive Yuan. Council of Labor Affairs (1989, 1990) Survey of Trade Unions, Taipei: Council of Labor Affairs, Executive Yuan. —— (1990) Labor Laws and Regulations of the Republic of China, June, Taipei. —— (1992) Yearbook of Labor Statistics, Taipei: Executive Yuan. Deyo, Fred C. (ed.) (1989) Beneath the Miracle: Labor Subordination in New Asia Industrialism, Berkeley: University of California Press. Dunlop, John T. (1958) Industrial Relations Systems, New York: Henry & Holt. Faber, Henry (1983) “The determination of union status of workers,” Econometrica 51: 1417–37. Faber, Henry and Saks, Daniel (1980) “Why workers want unions: the role of relative wages and job characteristics,” Journal of Political Economy 88:349–69.


Gee, San (1989) “An evaluation and international comparison of labor laws and regulations which affect labor costs in Taiwan, ROC,” in 1989 Joint Conference on the Industrial Policies of the ROC and ROK, Taipei: Chung-Hua Institution for Economic Research. —— (1990) An Evaluation of Minimum Wage Policies in Taiwan, Modern Economic Studies Series No. 18, Taipei: Chung Hua Institution for Economic Research. Gordon, Michael E. and Long, Larry N. (1981) “Demographic and attitudinal correlates of union joining,” Industrial Relations 20:306–10. Hirsch, Barry T. and Berger, Mark C. (1984) “Union membership determination and industry characteristics,” Southern Economic Journal, January: 665–79. Hsu, Y.C. and Lee, Joseph S. (1974) A Study of Workers’ Welfare in Taiwan, Taipei: Chengchi University. Kleingartner, Archie and Peng, Shara (1991) “Taiwan’s exploration of labour relations in transition,” British Journal of Industrial Relations, September: 427–45. Koike, Kazuo (1988) Understanding Industrial Relations in Modern Japan, London: Macmillan Press. Lee, Joseph S. (1980) “An empirical study of the functioning of the labor market in Taiwan,” Academia Economic Papers 8(1) March: 171–244. —— (1987) “Absorption of steel technologies in Taiwan: a case study of The China Steel Corporation,” in The Role of Labour and Management in Technology Transfer, Proceedings of the 1987 Asian Regional Conference on Industrial Relations, The Japan Institute of Labour. —— (1988) “Stages of economic development and labor relations: the case of the Republic of China,” Proceedings on Conference on Labor and Economic Development, Taipei: Chung-Hua Institution for Economic Research. —— (1993) “Taiwan’s economy and its international role,” Industry of Free China, August: 29–40. —— (1994) “Is there a bona fide labor movement in Taiwan,” Discussion paper No. 9403, Taipei: Chung Hua Institution for Economic Research. Lee, Joseph S. and Wu, Hui-Lin (1991) The Impact of Fair Labor Standards Law on Industrial Development and Employers Labor Market Behavior, Taipei: Chung-Hua Institution for Economic Research. —— (1992)a Impact of Fair Labor Standards on Taiwan’s Industrial Development: A Follow Up Study, Taipei: Chung-Hua Institution for Economic Research. —— (1992b) “Fair labor standards law, overtime work and Taiwan’s labor market,” in June-Ji Shih (ed.) Labor Markets and Labor Relations, Taipei: Academia Sinica. Wu, Hui-Lin (1985) “The determinants of Taiwan’s wages,” Bank of Taiwan Quarterly 36 (1):316–45. Wu, Nai-Te and Liao, Ching-Kuei (1991) “Empire fights back: discharging union officers, labor relations, and class struggle,” Paper presented at the Conference on Labor Market and Labor Relations, Academia Sinica, June 21–22, 1991. Yeh, Wen An (1993) “An analysis of the evolution of industrial developmental policies and their effects on Taiwan,” Industry of Free China, April: 1–17.


APPENDIX 3 Table 4A.1 Selected economic indicators for Taiwan’s different periods of economic development Period

Real rate of economic growth (%)

CPI growth rate (%)

1953–60 7.6 9.7 1961–72 10.2 3.3 1973–80 8.9 12.4 1981–92 7.8 3.3 Source: Lee (1993) Note: CPI: Consumer Price Index

Industrial production growth rate (%)

Fixed investment growth rate (%)

Export growth rate (%)

11.6 17.4 11.4 6.0

11.5 15.9 11.7 7.0

4.4 27.4 26.7 10.1

Table 4A.2 Unions and union membership in Taiwan, 1950–1992 Year

Number of unions

Membership (in 000s)

Membership as a percentage of

84 104 280 284 291 305 324 334 354 359 370 392 488 513 560 674 714 765 838 926 964

2.9 3.8 8.9 8.8 8.8 8.4 8.9 8.9 9.3 8.7 8.6 8.5 10.6 10.5 11.3 12.5 12.8 13.5 14.6 15.4 15.2

labor force none agricultural employment 1950 1955 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978

175 590 683 686 690 712 739 749 768 782 787 807 865 899 952 1070 1195 1255 1371 1461 1543

7.9 7.2 16.1 16.1 16.3 17.8 17.5 16.6 16.7 15.4 14.8 14.7 16.8 16.7 16.9 18.2 18.8 19.9 20.8 21.1 20.6



Number of unions

Membership (in 000s)

Membership as a percentage of

labor force none agricultural employment 1979 1637 1028 15.8 20.4 1980 1659 1074 16.2 20.4 1981 1802 1173 17.3 21.7 1982 1749 1207 17.3 21.8 1983 1938 1304 17.9 22.7 1984 1924 1371 18.3 22.8 1985 2103 1549 20.0 25.3 1986 2260 1724 21.7 26.9 1987 2510 2100 25.7 26.2 1988 3041 2260 27.4 28.2 1989 3315 2419 28.8 33.6 1990 3524 2756 32.7 38.1 1991 3654 2947 34.4 40.0 1992 3657 3058 34.9 40.4 Source: DGBAS, Yearbook of Labour Statistics, Taipei: Executive Yuan

Table 4A.3 Labor disputes in Taiwan, 1956–1992 Year

Causes of labor disputes (cases)











1956 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974

35 30 64 20 7 15 3 6 30 92 92 157 217 262 494

16 16 24 7 5 1 2 3 14 34 11 66 92 82 182

2 4 3 2 – 9 – 1 33 18 44 19 27 29 113

4 – 2 3 – – 1 – 2 8 4 15 18 32 27

2 4 14 3 – – – – 2 6 10 8 21 19 33

– – 2 – – – – – 1 1 5 15 14 15 5

4 1 2 1 – – – – 2 9 5 3 5 8 15

– 1 4 – – – – – 3 2 2 2 16 15 47

1 2 – – – – – – – 13 2 – 1 3 26

6 2 13 4 2 – – – 3 1 9 28 23 2 46



Causes of labor disputes (cases)











1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992

458 371 380 506 503 626 891 1153 921 907 1443 1485 1609 1314 1943 1860 1816 2034

150 89 113 187 110 140 172 171 140 167 345 234 292 250 – – – –

79 52 34 40 59 54 57 402 79 38 93 47 21 28 – – – –

5 7 6 10 6 20 11 6 7 3 – 3 9 23 – – – –

59 49 59 83 84 143 218 242 211 182 226 259 180 164 – – – –

12 2 4 8 7 11 34 13 5 2 22 16 5 21 – – – –

21 13 9 11 6 55 203 173 325 330 565 594 775 409 – – – –

42 60 67 44 66 57 120 93 100 106 84 138 204 163 – – – –

26 18 11 39 22 61 60 37 44 77 97 148 104 179 – – – –

Key: A Total B Discharged with cause C Wrongfully discharged D Wage adjustment E Areas of wages F Wage reduction G Compensation claims H Injury compensation claims I Business disputes J Others Source: Yearbook of Labor Statistics, Taipei, various years

64 81 77 84 143 85 16 16 10 2 11 46 19 77 – – – –

Chapter 5 From an industrial to a post-industrial economy Challenges for human resource management in Hong Kong David A.Levin and Ng Sek-Hong Hong Kong’s transformation from an entrepôt into an industrial economy after the Second World War is a well-known story although its explanation remains contentious. One line of analysis attributes Hong Kong’s successful exportoriented industrialization to the minimal intervention of the British colonial government in the local economy (Friedman and Friedman 1980:54–8; Geiger and Geiger 1975:24–5; Rabushka 1979; Riedel 1974). Policies followed by the colonial government such as maintenance of a free port and free trade practices, convertible currency, low taxation, the absence of an industrial policy, and an unregulated labor market have in this view created an environment in which entrepreneurs and workers have been required to be flexible in adapting to international and domestic market forces in order to survive. This flexibility is taken to be one of the hallmarks of Hong Kong’s competitive advantage. A second approach stresses the opposite, namely the strategic measures taken by the colonial government that enabled entrepreneurs to remain price competitive in international markets (Castells 1992: 48–9; Henderson 1993:211; Schiffer 1991; Wade 1990:331–3). One of these measures was the government’s use of control over land leases to generate income to finance the expansion of “collective consumption.” This constituted a type of wage subsidy and also contributed to the maintenance of social stability. A third group of writers has focused on the positive effects of value orientations in fostering entrepreneurship and a work ethic characterized by selfdiscipline, diligence, and obedience to authority as crucial ingredients of Hong Kong’s economic progress (Redding 1990; Tai 1989; Vogel 1991:92–103; Wong 1988a). These explanations are neither exhaustive nor mutually exclusive. They differ, however, in the relative importance they attach to markets, state policies, and the social order in Hong Kong’s developmental progress. For our purposes, these competing explanations are useful because they provide different vantage-points for analyzing the development of human resource management strategies and practices during the process of Hong Kong’s economic transformation. The market approach directs us to an examination of the actions of private entrepreneurs in structuring their human resource management and labor relations practices in response to the nature of product and labor market environments.


The culturalist approach reminds us that the nature of enterprise human resource management practices can vary according to the ethnicity of enterprise ownership and management. The “statist” approach draws attention to the role of the colonial government in the development and management of Hong Kong’s human resources. In this chapter we shall first describe the actors involved in Hong Kong’s postwar economic transformation between the late 1940s and the 1970s— employers, workers and trade unions, and the colonial government—and their role in the making of human resource management practices. Since the late 1970s, the Hong Kong economy has been undergoing major restructuring in the context of a changing world economy, a new regional division of labor, and a growing labor shortage. The second part of the chapter will focus on some of the ways in which firms have attempted to “modernize” their human resource management practices in a new business and labor market environment. The concluding section argues that while changing environments are pressuring employers and the government to pay more attention to effective use of human resources, various factors continue to hinder the process of change. THE POSTWAR DEVELOPMENT OF HUMAN RESOURCE MANAGEMENT PRACTICES A basic influence on the historical development of personnel management practices in Hong Kong is the character of those involved in the process of private capital accumulation. Prior to the Second World War, Hong Kong was principally a center for entrepôt trade although by the 1930s it was developing a growing manufacturing base, notably in shipbuilding, rubber products, knitting, and printing. Following a period of postwar reconstruction and the UN embargo on trade with China in 1951, Hong Kong entered a new phase of economic transformation with the expansion of an export-oriented manufacturing sector. This was led initially by textiles, including spinning and weaving. In 1950, textiles (cotton spinning, weaving, finishing, and knitting) comprised over 450 establishments employing a total of 25,000 workers or 30 percent of the total workforce in manufacturing at that time (Advisory Committee on Diversification (hereafter abbreviated ADC) 1979:41). Spinning and weaving continued to expand over the next twenty years, employing some 40,600 persons in 1960 and 60,500 persons in 1970 (ACD 1979: 42–3). Shanghainese spinners The cotton spinning industry was essentially transplanted to Hong Kong by Shanghainese industrialists who fled Shanghai in the late 1940s before the communist takeover on the mainland (Wong 1988b:16–41). Twenty of the twenty-one mills established between 1947 and 1959 were of Shanghainese origin (Wong 1988b:14). These were family-owned firms with top management


almost exclusively Shanghainese. Compared to other industries in Hong Kong, the average size of spinning firms was large. In 1977, for example, before restructuring of the industry, there were 570 employees per cotton spinning factory (England and Rear 1981:83). As a consequence of their size and their long history, factory administration tended to be relatively formalized and bureaucratized. The employment practices of the larger spinning firms were shaped in the first instance by experience in Shanghai (England and Rear 1981: 84). In Shanghai, the spinning industrialists had faced the problem of stabilizing their workforce and developed for this purpose such methods as dormitories for workers and training schools to provide skilled workers. These practices were carried over to Hong Kong (as were initially many skilled workers from Shanghai) as the early mills were located in relatively rural parts of Hong Kong and as workers with appropriate skills were lacking. As labor market opportunities for the industry’s workers expanded and labor turnover began to rise, these employers gradually expanded their welfare benefits which became among the most advanced in manufacturing. Many provided free or subsidized meals, free transport to work, free dormitory accommodation for single workers, medical treatment, and a death gratuity. There was a Lunar New Year bonus, a monthly attendance bonus, and a daily cost of living allowance. In the late 1960s, under pressure from trade unions, the industry pioneered a longservice bonus. By the 1970s, the employment system in textiles had become less “organization-oriented” and more market-oriented. A study conducted in 1976 that compared employment practices of two Hong Kong spinning factories with those from four other Asian countries found job and wage structures of the Hong Kong spinning mills to be relatively market-oriented. For example, positions in both the operation job cluster and the machine maintenance job cluster in the ring spinning stage tended to be open to recruitment from the external labor market. The interoccupational pay differentials between machine cleaner-mechanics and sweepers were relatively lower in the Hong Kong factories, as were interpersonal wage differentials between workers doing the same job (Nihei, Levin, and Ohtsu 1982:156–63). This appears to reflect the substantial use of performance-oriented piecerate pay systems. According to a 1980 survey of female production workers in manufacturing, some 46.4 percent in textiles were piecerated compared with about 48.6 percent who reported themselves to be daily rated (Ng and Levin 1981:II, 46). In terms of managerial style, Wong (1988a:117) found that Shanghainese textile industrialists in Hong Kong combined features of both authoritarianism and benevolent paternalism in internal enterprise administration. He describes them as industrial patriarchs “who exercised tight control, shunned the delegation of power, conferred welfare benefits on their employees as favors, acted as moral custodians of their subordinates, opposed protective labor legislation and disapproved of trade union activities.” They also cultivated patron-client


relationships with employees “to cope with problems of loyalty and to contain the centrifugal tendency of subordinates to set up on their own and become rival competitors.” The Cantonese A second group of employers were those of Cantonese origin who formed the bulk of Hong Kong’s industrial entrepreneurs in the burgeoning sectors of wearing apparel, plastics, and electronics. A 1978 survey of 415 small-scale entrepreneurs from five industry groups found that about 70 percent were Cantonese, followed by 18 percent who were Chiu Chow. The vast majority of establishments in manufacturing employed less than 100 persons. In 1961, some 41.0 percent of manufacturing employment was located in establishments with fewer than 100 persons, 35 percent in establishments with 100–499 persons and 22.9 percent in establishments with 500 or more employees. Over the next sixteen years, the share of small-scale industry continued to increase so that by 1977 establishments with fewer than 100 employees accounted for 55.3 percent of manufacturing employment, compared with 28 percent by medium-sized establishments and only 16.7 percent by large establishments (Sit, Wong, and Kiang 1979:26). Relatively few of the founders of these small enterprises had started their careers as minor shareholders or as factory managers. In the 1978 survey of small-scale entrepreneurs it was found that half had started their careers in production as laborers, apprentices, technicians, and foremen while a quarter had engaged in administrative work in industrial enterprises as clerks, secretaries, or bookkeepers. The majority had, after working in one job, founded their own enterprise, typically without any managerial or technical training (Sit, Wong, and Kiang 1979:296). The problems stemming from their lack of technological expertise and managerial know-how were noted in the mid-1960s: Many of them have had no opportunity of undergoing a thorough technical training or of acquiring a comprehensive knowledge of production techniques. In consequence, a somewhat limited and unbalanced view of managerial functions has resulted in deficiencies in accounting, marketing and production techniques and there is considerable room for improvement also in the field of personnel management. Also in many cases insufficient progress has been made in establishing a proper administrative structure between management and the factory floor. (Working Committee on Productivity 1964:4) Many small firms occupied a subcontracting role in the international chains of production, distribution, and marketing, relying for example on import-export houses for marketing of their products (England and Rear 1981:87). The dense system of networking and subcontracting in which these firm were involved


differed, however, from the relatively permanent “relational” type found in Japan. In Hong Kong “few small-medium firms would be tied up with a single contractor for a long period, nor do they cultivate intimate relations as reflected in flows of technical, market and management information and assistance between the contractor and subcontractor” (Sit and Wong 1989:179). Their founding and mortality rates were high, as the phrase “mushroom firm” suggests. Many relied on a core of family workers, with non-family workers “treated as hirelings to be taken on or disposed of as orders fluctuate, although skilled workers on whom the proprietor depends may be given ‘permanent’ status” (England and Rear 1981:87). The styles and methods of workplace governance among Cantonese run factories was different from the Shanghainese. King and Leung (1975) found two patterns of authority relations among the fifteen entrepreneurs they studied from small (less than fifty employees) factories in the industrial area of Kwun Tong: the “economic-rational” type and the “human relations” type, the former more characteristic of entrepreneurs of Shanghainese origin and the latter of Cantonese. The economic-rational type viewed the employment relationship as a purely monetary association and used a disciplinarian approach to controlling workers, with emphasis on worker obedience to rules and disciplining workers face-to-face for mistakes. Affectivity between an owner and his employees was considered to be an “optional and undesirable element.” The human relations type of approach viewed the employment relationship; as more than a purely monetary association with the key features being gaam chihng (affectivity) or chihng mihn (face). In the larger Cantonese firms, the owners tended to concentrate on external relations while delegating shopfloor management to supervisors and technicians. England and Rear (1981:88) describe the situation in these enterprises as follows: Communication between management and workers…is conducted through the foreman or through the subcontractor, who are generally given freedom to recruit and discipline…. The foreman is therefore a key figure in workshop relationships. In many instances, he is…a workgroup leader who has brought “his” group to a particular factory. If he leaves the factory for another many of those he has recruited will leave with him. The dismissal of a foreman may be opposed by his followers and can lead to a dispute and work stoppage. Where a foreman has this authority the manager always consults the workmen through the foreman, who as the leader of the group will express prevailing opinion about output targets, new working methods, or piecework prices. Informal bargaining over piecework prices may take place between the workers and the foreman who acts as a go-between with management.


An ethnographic study carried out in 1980 illustrates some of the flexible labor arrangements in a Cantonese-owned and managed jeans factory with 200 workers. First, with respect to job assignment, new recruits without previous experience would be assigned to existing vacancies in a job group but could request a transfer to other jobs after several weeks if they were unable to work fast enough to switch from a low flat-rate pay scheme to a piecerated one. Second, when a particular work group needed more labor to clear accumulated piles of jeans, the group leader would request previous employees to work part-time in the evenings. Although holding full-time jobs elsewhere, these workers were willing to help out in the factory during peak production periods because of personal relations with the group leader as well as to earn extra money. Third, the more competent sewers would be selected for special training to learn all the jobs in each job group and would be promoted to a monthly paid staff. Future group leaders and assistant leaders could then be recruited from this pool of talent (Chiang 1984: 250–3). Regardless of firm size, piecerate systems of pay became widespread in the major sector of wearing apparel. A 1980 survey that covered 395 women from wearing apparel found 77.2 percent were piecerated (Ng and Levin 1981:II, 46). The non-Chinese employers Two types of non-Chinese employers added to the diversity of employment systems. The first was British employers who established enterprises, many before the Second World War, in gas, electricity, communications, transport, and the dockyards. Some had started as trading companies which developed into conglomerates with holdings in both manufacturing and the tertiary sector. Up to the early 1950s these firms dominated the modern sector of the economy and broadly speaking, shared certain characteristics: Western technology, sheltered product markets (some were monopolies), large workplaces, and professional expatriate managers…although they used labour contractors, apprentices, and employed labour on a permanent or temporary basis, their particular characteristics resulted in them adopting a more formal approach. (England and Rear 1981:73) One example of this more formal approach was in industrial training. While apprenticeship was common in Chinese-run establishments, it tended to be “loosely organized, with little or no technical instruction and no rationalized system of training, so that the apprentice is expected to pick up his skills by watching and imitating” (Szczepanik 1958:69). Even if smaller firms had possessed the resources to invest in training of staff, there was little incentive to do so given the uncertainties of the product market and growing labor mobility


from the late 1950s. Many Chinese employers adopted a “short-term perspective which regards training expenditures as unjustifiable” (England and Rear 1975:39). By contrast, some of the large British enterprises had both the resources and more incentive to organize systematic training programs since required skills were not readily available from the external labor market. From their inception the public utilities and dockyards were large-scale, planned organizations, bringing new technologies to a place where the necessary labor skills could not be bought in from the market but had to be trained, developed and retained. These employment policies were the most profitable ones to pursue in the long term. The companies’ financial resources and stable product markets enabled them to invest in welfare facilities. (England and Rear 1975:316) With resources invested in the training of “core” employees, these employers designed their personnel practices to encourage enterprise commitment among key workers. “They were given permanent status, provided with accommodation when necessary, placed on incremental wage scales and received other benefits” (England and Rear 1981:74). It is among these employers therefore that one finds elements of what Dore (1973) has called an “organization-oriented” employment system. The second important type of non-Chinese employer was located mainly in the electronics industry, which dates from 1959 when Japan decided to export electronic components for radio receivers. This segment of the industry expanded in the 1970s to include other audio equipment items such as cassette tape recorders. Another segment started from the early 1960s when American and Japanese companies set up manufacturing facilities in Hong Kong to assemble discrete components such as core memory component packages, diodes, transistors, and capacitors. A third segment, fad products, developed with the emergence of microelectronics, especially in microprocessors. Small local manufacturers put parts and components together quickly to form fad products, starting with the mass production of electronic calculators and followed by electronic watches and clocks with the wide application of LEDs and LCDs, TV games, personal computers and peripheral units, and telephones (England and Rear 1981:91; Hong Kong Productivity Centre 1984:8–9). In 1981, the industry had 1216 establishments employing 88,921 persons. The total domestic export of electronic products (excluding electronic toys) in that year was HK$15.4 billion, which represented 19.1 percent of total domestic exports of Hong Kong, up from 12.3 percent in 1976 (Hong Kong Productivity Centre 1984:8–9). Firms with foreign investment accounted for 5 percent of the total number of electronics firms but 27 percent of total employment in the industry and 39.1 per cent of direct electronics exports. These figures represent a significant decline, however, from 1970 when foreign-invested firms (mostly


American and Japanese) accounted for 77.8 percent of the total electronics workforce and for 93.4 percent (in 1969) of Hong Kong’s electronics exports (Hong Kong Productivity Centre 1984:103; see also Henderson 1989:84–96). Some establishments involving foreign direct investment employed thousands of workers but between 1968 and 1981 the average number of workers per establishment declined from 280 to 73 (Hong Kong Productivity Centre 1984: 115). The industry developed a reputation for a high degree of flexibility, able to respond quickly to fast-changing consumer requirements, especially in the area of fad products. It was essentially production-oriented, focusing on assembly, with little activity in the areas of research and development work, distribution, or after-sales services. There was very little product engineering/design and what did exist was undertaken mainly by foreign-invested companies (Hong Kong Productivity Centre 1984:28). The American electronics firms have been described as “efficient examples of ‘scientific management’ with careful attention given to budgeting and cost control, and quality and stock control” (England and Rear 1981:91–2). A main source of their labor was young women in the age range 16–25. Most jobs were paid on a flat daily rate rather than by piecerates. A 1980 survey of women in manufacturing found that only 2.3 percent of respondents in electrical and electronics machinery were piecerated compared with 61.1 percent who reported themselves to be daily rated and 35.4 percent monthly rated (Ng and Levin 1981:II, 46). American firms used relatively formalized pay scales but increments depended on performance reviews (England and Rear 1981:92). American-owned electronics factories were also reported to impose tight controls over the labor process to maintain desired production levels and to be strongly opposed to trade unions (Chiang 1984:196; Djao 1975:284). As competition for young female workers intensified in the 1970s and turnover rose, many of these firms expanded the range of benefits they offered to retain workers, including a monthly attendance bonus, free or subsidized transport and meals, free medical treatment, paid maternity leave, and night classes and organized recreational and social activities. According to one account: This is linked to a special striving for good relations with superiors and workmates in the firm, underlined by the increasing use of personnel management staff whose prime function seems to be to iron out interpersonal conflicts and to get a “good company spirit” going, conveying images of Japanese paternalism mixed with American corporate management styles. (Turner et al. 1980:46)


In an effort to control rising wages as the labor market grew tighter in the 1970s, industry representatives began to meet informally to discuss the setting of wage levels (England and Rear 1981:92). Working-class stratification and the trade union movement The major postwar industries had a similar effect on the working-class formation due to the type of employment structure they generated. While the demand for craftsmen and technicians grew as manufacturing expanded, the majority of jobs generated by establishments in clothing, electronics, and plastics and toys were semi-skilled and unskilled, involving short training periods. The bulk of production employees in Hong Kong’s major industries as of the late 1970s were classified as semi-skilled operatives and unskilled workers, as shown in Table 5.1. Table 5.1 Distribution of production employees by skill level in Hong Kong’s major manufacturing industries, 1976–1978 (%) Skill level

Electronics Clothing Textiles Plastic Machine shop and metal working

Technologist 2.5 1.2 1.2 0.2 Technician 6.7 4.8 5.8 5.7 Craftsman 10.1 1.7 15.3 5.4 Semi-skilled 79.4 78.6 59.6 29.5 operative Unskilled 1.2 13.8 16.6 59.2 Total 100.0 100.0 100.0 100.0 Source: Advisory Committee on Diversification (1979:62)

0.6 5.0 31.5 26.8 36.1 100.0

Much of the demand for semi-skilled and unskilled workers was met by the recruitment of young female workers. The 1961 population census recorded 310, 174 women in the working population, of whom about half (154,683) were classified by broad occupational group, as craftswomen, laborers, and production workers. Some 45.7 percent of working women were in manufacturing of whom some 55.9 percent worked in textiles. Over the next two decades, the number of women in manufacturing tripled with the expansion of export-oriented industries so that by 1981 over half the women in the working population were in manufacturing (Levin 1991:188–91). Salaff (1981:22) views this phenomenon as a product of Hong Kong’s “station on the ‘global assembly line’” so that manufacturers, both local and transnational, tend to specialize in production characterized by “repetitive, mass-produced operations” that do not require highly trained workers. She claims that women are recruited for the mass of semi-skilled jobs because they can be paid relatively low wages and because they are perceived to be more suited to these jobs.


Related to the above was another characteristic of industrial establishments, namely their internal labor market segmentation along the lines of skill, pay status, and gender. Beginning from the prewar phase of Hong Kong’s industrialization, Chinese-owned and managed factories typically differentiated workers into three broad status categories: (1) those with “permanent” status who were monthly paid, enjoyed relative employment security, and received fringe benefits such as accommodation and meal allowances; (2) daily paid workers; and (3) piecerated workers. Permanent workers constituted a minority in most industries, were usually male, and included supervisors and skilled workers. Daily paid workers were either male or female. It was a common practice to hire women for piecerated jobs that involved operating machines or doing handwork (Levin 1991:187). This system of stratification was reinstituted in the postwar period as long-term (permanent) workers (cheung-kung), long-term casual workers (cheung-saankung), and casual (temporary) workers (saan-kung). Long-term permanent workers became the relatively “privileged” stratum of the enterprise workforce. Casual workers received fewer fringe benefits, their positions were less secure, and they had less chance of promotion than permanent staff (cf. Ward 1972). The 1961 population census provides some evidence on the extent of this segmentation by employment status and gender. As shown in Table 5.2, about two-thirds of male “in-workers” in manufacturing were classified as monthly rated “permanent” workers, nearly double the Table 5.2 Distribution of Hong Kong’s working population in manufacturing by employment status and sex, 1961 Employment status




In-workers, 172,136 (67%) 48,739 (36%) 220,875 permanent monthly rated In-workers, 29,749 (11.5%) 26,363 (19%) 56,112 permanent, daily rated In-workers, 16,875 (6.5%) 18,761 (14%) 35,636 permanent, piecerated In-workers, casual, 20,744 (8%) 19,741 (14%) 40,485 daily rated In-workers, casual, 17,867 (7%) 22,778 (17%) 40,645 piecerated Totals 257,371 136,382 393,753 Source: Commissioner of Census and Statistical Planning (1962:III, Table 243) Note: Montly rated was defined as salary or wages reckoned by a time period of one lunar month, one calendar month or longer. All monthly rated employees were regarded by the census takers as “permanent” even though they had no written


Employment status Male Female Total contract of service. Daily rated was defined as salary or wages reckoned by the day, week, or other time period less than one lunar month.

proportion (35.7 percent) of females. By contrast, about 31 percent of female workers were classified as having casual status as daily or piecerated workers compared with 15 percent of male workers. About 30 percent of female workers were reported to be piecerated compared with 13.5 percent of male workers. A 1976 representative sample survey of over 900 employees found 60 percent were regular workers with cheung-kung status, another 25 percent were longterm casual workers (cheung-saan-kung) and 16 percent temporary workers (saan-kung) (Turner et al. 1980:47). A 1980 survey of 1,000 female workers in manufacturing found that relatively few had the privileged regular worker status. About 43 percent reported themselves to be piecerated, 40 percent daily rated and only 16.3 percent monthly rated (Ng and Levin 1981:II, 36). Some observers have claimed that regardless of ethnicity or industry, Hong Kong employers are authoritarian (England and Rear 1981:96). This is said to be reflected in their attitudes toward trade unions: Hong Kong employers, whether expatriate or local, whether big or small, have some common attitudes towards trade unions. They are highly suspicious of trade unions—suspicious of their representativeness, their leaders’ integrity and the value of trade unionism. They prefer not to deal with unions if at all possible. When they have to deal with workers collectively they prefer to deal with workers’ representatives rather than union officials. (Yiu 1980:18) Despite these alleged shared attitudes, the nature of worker subordination within factories appears to have varied to some extent. Supervision could be tight or lenient depending on the mode or production, the nature of the payment system, and the orientations of workers and employers to the authority relationship (cf. Djao 1981). It ranged from the more personal controls of small factories to the more technical and impersonal bureaucratic authority characterized by numerous rules and regulations in large enterprises. It is widely accepted that trade unions have had a marginal influence on managerial practices and decision making at the shopfloor level in manufacturing. Yet prior to the Second World War, when Hong Kong was still primarily an entrepôt economy, a relatively militant and strong union movement emerged, peaking in the 1920s. Craft unions burgeoned in the traditional trades, and the major industries that served mainly the local community and the trading sector proved to be congenial to the growth of industrial unions: large firm size, a stable employment relationship, and a skilled and predominantly male labor


force. The fact that most major firms were British-owned and managed also contributed to tensions at the workplace and hence the growth of union organization (Levin and Chiu 1993). After the Second World War, trade unions quickly re-emerged. The Trade Unions and Trade Disputes Ordinance of 1948 made union registration compulsory and by 1951 there were 199 unions of employees, mostly in the private sector.1 Membership boundaries were diverse: there were occupational, industrial, and enterprise unions. The political division within the union movement was formalized in 1949 with the registration under the Societies Ordinance of the pro-China Hong Kong Federation of Trade Unions (FTU) and the pro-Taiwan Hong Kong and Kowloon Trades Union Council (TUC). The early postwar years were characterized by the high levels of industrial conflict mainly over wage levels (including skill differentials) and cost-of-living allowances in the context of an unstable economy recovering from wartime devastation. Some of these disputes were initially resolved through centralized bargaining with major (often British) employers (England and Rear 1981:189– 90). However, this did not lead to institutionalized collective bargaining. One reason seems to be that the FTU unions involved in these conflicts were more concerned about promoting a consciousness of class solidarity than in establishing permanent working relations with employers (Turner et al. 1980:90– 1). The costs of militancy became evident in 1950 when, following a bitter dispute, the Hong Kong Tramways Company withdrew recognition from the FTU-affiliated union and dismissed union activists. After the early 1950s, the FTU began to concentrate more on building up worker support through expanding educational, cultural, and welfare services to members. The TUC adopted a similar strategy (Levin and Chiu 1993:190). The major features of postwar industrial relations were thus taking shape by the early 1950s. The government had set two basic rules of the game. The first was that unions (and employer associations) were required to register, which enabled the government to regulate their objectives and internal administration. The second was that it was left to employers and unions to decide voluntarily how to regulate their relationships. This meant that employers were not legally required either to recognize unions or to negotiate with them. The goals and methods of the FTU and TUC also crystallized about this time. These goals were political, not in the sense of pursuing power and influence in the Hong Kong polity but rather in terms of expressing and mobilizing support for the policies of the People’s Republic of China and Taiwan respectively. As Hong Kong was being transformed to an export-oriented industrial colony in the 1950s and 1960s, the structural features of the union movement hardly changed. The number of unions remained at around 240 for most of this period and declared union membership in 1966–171,623—was more or less comparable with that of the early 1950s. Most unions were small. The FTU became the dominant federation, accounting for some 60 percent of declared union membership in 1966 compared with 23 percent for the TUC and 17 percent for


neutral unions. Neither the FTU nor the TUC managed to make substantial inroads among the growing industrial working class, especially the female segment. Of the 512,000 persons in manufacturing in 1961 (about 43 percent of the total working population), only about 10 percent were union members. The incorporation of Hong Kong from the 1950s into the new international networks of production and exchange appears to have set in motion a process of “structural demobilization” of the working class. The dominance of low-skill, insecure jobs in the light-industry export sectors and the employment of young women who lacked long-term commitment to industrial employment undermined the bases for collective organization and action (Deyo et al. 1987:51). The technology, work organization, and methods of piecework pricing found in these industries tended to reinforce individualist rather than collectivist values and behaviour (Chiang 1984; England and Rear 1975:71; Levin and Chiu 1992:87– 8). Textiles, however, constituted an exception since relatively strong trade unions developed in this sector. The two major unions were, however, politically divided, with one affiliated to the TUC and the other to the FTU. On one occasion in 1956, rivalry between these two unions turned violent when workers with anti-communist sympathies attacked members and the premises of the FTUaffiliated unions and demanded of one spinning industrialist that all left-wing workers be dismissed and that future hiring be subject to approval of the rightwing union. Given the political divisions among unions, a system of “quasi-bargaining” emerged in the industry under which mill management would meet informally with representatives of unions of different persuasions to discuss wages. In the late 1960s, according to one account, the TUC-affiliated Cotton Industry Workers General Union sought industry-wide negotiations with the Hong Kong Spinners’ Association and the Federation of Hong Kong Weavers. The employers’ associations, however, would only accept negotiations with each mill separately. In effect, this meant the principle of collective bargaining at plant level was accepted and between 1969 and 1971 the union reached agreement with twentyfour separate mills over a long-service bonus scheme. A factor motivating employers’ willingness to negotiate was apparently the growing strength of the communist Hong Kong and Kowloon Spinning, Weaving and Dyeing Trade Workers General Union (England and Rear 1981:85). The changing role of the government The proposition has been advanced that Hong Kong is the closest living example of a self-regulating market economy in which the state imposes few restrictions on voluntary market exchange (Friedman and Friedman 1980:55). In this view, entrepreneurs have had a free hand to design their personnel management practices and solve their problems within the constraints set by such factors as


product and labor market conditions, size of enterprise, and technologies of production. Yet this image of a laissez-faire political economy is in some respects misleading. While the government has consciously minimized its intervention in matters concerning trade, the mobility of capital and labor, and business decisions, it has nevertheless promoted services supportive of business activities. More importantly, it has greatly expanded its role in a number of areas —the provision of land for development, general and vocational education, investment in social infrastructure (hospitals, schools, housing, social welfare) — that bear on the maintenance and development of human resources (Castells 1992:48–9; Scott 1989: 152–63). The government has more directly affected employment practices through the 1968 Employment Ordinance (EO) which has been continuously amended and provides a statutory set of employment benefits for workers.2 These include provisions, among other things, for the time, manner, and place of payment of wages, year-end double pay, deductions from wages, protection of female employees from dismissal during maternity leave, provision of rest days, protection against acts of anti-union discrimination, severance payments, longservice payment, sickness allowance, statutory holidays with pay, and annual leave with pay. Hours of work for women and young persons employed in industry are regulated under the Women and Young Persons (Industry) Regulations of 1980, administered under the EO. Regulations concerning industrial safety and health have increased substantially since the Factories and Industrial Undertakings Ordinance was passed in 1955, with most of the changes occurring since the late 1960s. The Employees’ Compensation Ordinance provides compensation for personal injuries and deaths caused by accidents or occupational diseases arising out of and in the course of employment, whether in the private or public sectors. This Ordinance requires all employers to take out insurance policies for their employees to cover compensation in respect of injury or death resulting from accidents arising from employment. Training is another area where government efforts have grown substantially. Under pressure from industrialists in the 1960s, the government reviewed its overall policy in the field of industrial training and in 1965 appointed the Industrial Training Advisory Committee (ITAC), a non-statutory body to replace an existing Standing Committee on Technical Education and Vocational Training, to examine the problems of industrial training (excluding, however, technologists and managerial and supervisory training). Under the auspices of the ITAC, manpower surveys were conducted and job standards and specifications subsequently prepared for a number of industries. The ITAC’s Final Report (1971:1) stressed the need to train sufficient technical personnel if Hong Kong was to remain competitive internationally.


Hong Kong is required to train not only greater numbers of skilled personnel in established fields of a quality higher than before but also to equip workers with new skills. In these circumstances, co-ordinated planning to meet the needs of industry and the establishment of priorities in a situation of substantial and increasing demand are both essential. While the government continued to pay for institutional training facilities including pre-vocational schools, technical institutes, technical colleges, and polytechnics, industry had to pay for practical training whether this was carried out within an enterprise or a training centre built and equipped for this purpose although in the latter case the Government would grant land free of premium for building training centres. The ITAC also recognized that a more systematic organizational set-up was required to coordinate and plan for training and in 1973 the Hong Kong Training Council was established as a permanent advisory body with inputs from industrialists, educationalists, and the government on training needs (Chiu and Levin 1993:175–7). Despite these efforts, the level of technical education of the labor force was still relatively low by the late 1970s. The proportion of the working population in manufacturing with technical education as technologist/professional, technician, craft worker or other vocational was only 3.9 percent compared with 10.9 percent in the tertiary services (ACD 1979:222–3). In reviewing existing and planned facilities in vocational training and education, the ACD drew attention to problems such as “encouraging school leavers to opt for craft level courses in the [technical] institutes as more higher level subsidized education becomes available” and the need for industry to improve craft-level career prospects in view of a looming shortage of young entrants to the labor market by the mid-1980s. It also expressed concern over whether the proposed expansion in enrollment in technical education courses at the polytechnic and tertiary levels was sufficient to meet demand. In the area of industrial relations, the legislation governing trade unions changed little during the postwar years. Collective bargaining remained voluntary and minimal in scope, there was hardly any industry-wide negotiation machinery and many workers lacked access to effective channels for seeking redress of grievances and claims arising under an existing contract of employment. In the absence of strong unions at the workplace level, individual disputes over the contract of employment and its performance had to be settled either by direct negotiations between the parties or by the intervention of the Labor Relations Service of the Labor Department or not at all. In 1973, the Labor Tribunal Ordinance was enacted to provide an informal, quick, and inexpensive means for resolving claims involving money that arise from a breach of the terms of a contract of employment, or related to a failure to comply with the provisions of the EO.3 Claims are heard in the Labor Tribunal by a Presiding Officer (who is a career judge) sitting alone in an informal


manner. A conscious effort is made to reduce legalism by disallowing barristers or solicitors to appear on behalf of the disputants. The Labor Tribunal has proven to be a popular channel for redress of individual claims as the number of claims filed has increased substantially over the years. The majority of the claims have involved terminal cases (claims raised consequential to and after the termination of the labor contract) such as alleged wrongful dismissal without due notice, or arrears of wages due to the employer’s insolvency or his temporary inability to pay wages. The Labor Tribunal, together with the key role of the Labor Relations Service of the Labor Department in resolving industrial disputes, have contributed to maintenance of industrial relations stability since the disturbances of the late 1960s. INTERNAL LABOR MARKET AND PERSONNEL PRACTICES: CONTINUITY AND CHANGE During the 1970s, changes in the world political economy began to pose new challenges to Hong Kong’s manufacturing sector. Protectionism in the advanced economies and growing competition from lower-cost producers in other developing countries were forcing Hong Kong manufacturers to diversity their product range and trade-up (Sit and Wong 1989:18). Internally, manufacturing industry was facing problems of rising labor costs, a growing labor shortage, and rising land costs.4 The opening of China’s economy after 1979 to external industrial investment, especially in the newly created special economic zones close to Hong Kong, provided an opportunity for Hong Kong manufacturers to transfer their more land- and labor-intensive industrial activities into the Pearl River Delta region. Hong Kong manufacturers have taken advantage of this opportunity so that between 1981 and 1991 the working population in manufacturing fell from 990,365 to 768,121 and by 1993 to less than 600,000. In relative terms, manufacturing’s share of the working population fell from 41.3 percent to 28.2 percent as the tertiary sector expanded rapidly (Census and Statistics Department 1991:54). The shift toward a more knowledge-intensive “post-industrial” economy has changed the human resource requirements and problems facing enterprises. One of these is finding sufficiently qualified and trained employees, a problem exacerbated by the “brain drain” arising from political uncertainties over the future of Hong Kong under Chinese sovereignty (Kwong 1990). Another is controlling labor costs as the rate of inflation in the 1990s began to rise at double-digit figures. Responses of firms in both manufacturing and the tertiary sector to this changing context of human resource management have varied. Work organization The theme of “flexibility” is commonly associated with local businesses and their organization of work. Such a feature is linked with the relative “fluidity” or


low degree of work structuration in a majority of enterprises here which are small and medium-sized firms. That job boundaries are always amorphous and not crystallized in this type of small business has been reflected vividly by Sit and Wong in their 1987 survey of small and medium industries (SMI): As heads of small concerns, SMI (small and medium industries) owners function often as the entrepreneur, the manager, supervisor and chief technician. Work in a small business also demands help from family members as well. Engagement of the spouse is a commonly reported practice, for as a dependable person, the spouse often shares much of the entrepreneur’s responsibilities and worries by filling the positions of manager, supervisor, accountant and office worker. (Sit and Wong 1989:177) The advent of advanced technology is not conspicuous in these smaller workplaces, where numerical control machines are adopted at best on a piecemeal fashion—often as a “stop-gap” measure to expedite the processing of certain key parts or to address bottlenecks in production. Again, Sit and Wong have reflected in their survey findings on this limited aptitude of the small business sector to invest in “low-cost automation” : When asked about their opinion on low cost automation, 2/3 of the sample firms claimed that they had not heard of it, a situation similar to that discovered in the 1978 study. Despite a lapse of almost ten years, the message that low-cost automation could be a useful means to tide them over aggravated labour shortage and wage hike problems had not filtered to SMI firms. (Sit and Wong 1989:170) In order to maintain their operational flexibility, especially in terms of manpower and space, these small and medium-sized industrial firms also show a significant propensity to farm out jobs and production parts to subcontracting shops or labor subcontractors. The rationale is several-fold: “to cope with the seasonal fluctuations that characterize their product markets and production schedules,” and “to reduce some of the uncertainties and friction involved in the exercise of direct labor control and organization by the enterprise” —especially since “small firms are at a disadvantage in competing for labor with larger establishments because of the much less attractive working conditions they can offer” (Sit and Ng 1980:508). The study by Sit and Wong again gave an authoritative approximation on the extent of subcontracting among the SMI firms: 26.6% of the sample firms sold or did business based on subcontracts received from contractor factories…. SMI firms in turn also offered


subcontracts to other factories; 24.5% of the sample firms obtained their material supply of industrial services through such an arrangement. (Sit and Wong 1989:180) In some cases, the “roving” labor subcontractor and his crew who shuttle among several host firms in a “network” behave just like a type of “participative and mobile work group,” which attracts workers who prefer the mobility and flexibility which the small group allows them in a tight labor market. For some Chinese workers, their “aversion to impersonal rules and formalized discipline in a modern factory milieu” may have induced them to join together in such a small, cohesive, and relatively independent work group that functions somewhat as “small collective bargaining units” (Sit and Ng 1980:511). Even in the sector of the modern and large corporate employers, the hiving-off of marginal jobs to subcontractors is also a widespread practice for coping with the seasonal variability of operations at the periphery of the work organization. As observed by Turner and his associates: Some large firms—in garments, electronics and plastics, for instance — themselves employ only sufficient workers to maintain their major production or assembly processes at a reasonably predictable level, and rely largely on sub-contractors (or “putting-out” for subsidiary lines) to meet fluctuations in demand. (Turner et al. 1980:46) However, it appears that since 1990 most large-scale manufacturing enterprises have opted to “fractionalize” their production process and relocate the laborintensive assembly work northwards across the border in a process of spatial restructuring and relocation of the factory which (1) tends to leave the Hong Kong adjunct functioning largely as the administrative, marketing, and distribution head office; and (2) might supersede the previous pattern of local subcontracting outlined above. Apart from the comprehensive survey by Sit and Wong on SMI firms on a territory-wide scale, Hong Kong lacks adequate documentation on the actual terrain of work organization for the average workplace. However, reference to some small-scale studies which explored the impact of computerization may help to elucidate the “informality” with which enterprises in Hong Kong have managed the introduction and assimilation of advanced technology into their work organizations. Thus, one such study, conducted in 1986 under the auspices of an Asian Productivity Organization (APO) sponsorship, observes: The general quiescent orientation of the workforce to computerization and the related process of technological innovation was symptomatic, on the whole, of the relative absence of any systematic, significant shifts in job attitude and satisfaction, perception of work and work organization…. One


of the factors revealed in this study was the amorphous nature of technological advances in a fragmentary, piecemeal fashion. Even for the large-scale modern bureaucracies in the public utilities and tertiary service sector, the management of technological change has been devolved in most cases to lower-level units such as specific divisions or departments. (Kao et al. 1989:142–3) One of the enterprises investigated in this study was Hong Kong’s leading and largest bank, where the process of computerization has affected work organization most conspicuously in terms of the tellers’ jobs and the management and application of information. First, the bank’s tellers have become more customer-oriented in performance of a job which now lays emphasis upon “the individual’s sociability, demeanor, and hospitability in dealing with the clientele.” The changes appear to have stemmed in part from the automation of many of the routine duties that used to be encompassed in the cashier’s job, so that with numerical control now ensuring the monetary precision of deposit transactions, “the teller’s role increasingly concentrates upon enhancing the quality of person-to-person service to bank customers” (Kao et al. 1989:138). Second, the enhanced flow of data under the computer-based information system, by making possible more extensive and speedy communication among departments and locations, has contributed to both centralized control at the head office and devolution to lower-level decisions at the branch offices, which are not required to make upward references before engaging in high-value transactions. Such a corporation-wide network of communication was apparently “a key factor in advancing the effectiveness and capabilities of management in a banking sector growing increasingly competitive” (Kao et al. 1989:138). However, it is in the manufacturing sector that the ambiguities arising from the need to accommodate the imperative for integrated programmed control inherent in automated technology, as in the context of their hitherto loosely structured work organization, are perhaps best exemplified. In this APOsponsored study, a medium-sized family business specializing in pleating work in the garment industry was depicted as having adapted its management of work since introducing automated pleating machines in 1979 in a rather “mixed” syndrome. First, the decision-making loci have remained centered upon the “patriarchical” owner-manager, in spite of the expanded scale of operations due to automation: this span of control was modified under automated pleating when the work group was reduced in size to about six to eight workers led by a section head. This notwithstanding, the style of supervision has remained informal, traditional, and paternalistic in spite of such techno-structural changes. Decision-making—probably typical of old style, small, Chinese family businesses—was still centralized, concentrated in the hands of the patriarch-head (the managing director). The latitude of discretion left to the


shopfloor supervisors is limited since it is imperative for them to consult the managing director on a variety of work-related issues. (Kao et al. 1989:134) Yet, in the second instance, it was necessary for the firm to introduce limited adjustments to liberalize its control structure in recognition of the demands attending the increase in scale, as well as to formalize procedures due to the dictates of new automated technology in the work process. Thus, a hybrid mix of the “old” and the “modern,” of “informal” and “rationalized,” “loose” and “centralized” work patterns and practices resulted, as follows: The more specialised and complex character of automated technology, as well as the onerous might of growing firm size, made it necessary to adopt a more decentralised and consultative arrangement. For instance, the authority to hire and discharge manual workers has devolved down to the level of the production superintendent although decisions relating to the hiring or firing of white-collar office staff still rests with the managing director. Automation was also responsible for a limited measure of rationalisation in the plant’s work procedures…and intensification of technical knowledge and skills, as well as the increased frequency of informal work briefings and meetings on the shopfloor. However…it is probably not economical for the firm to commit to a schematic manpower program apart from intermittent rule-of-thumb estimates and review of skill provisions. (Kao et al. 1989:134) Most Chinese-owned industrial enterprises in Hong Kong probably lack a vigorous, systematic, and coherent strategy for restructuring work and its organization, despite typically embracing technological advances in a series of ad hoc, fragmented, or even disjointed steps. The experiences of the garment factory described above are therefore not unique but are largely echoed by a local printing press also investigated in this APO study. Here, automation has profoundly affected work organization in the press room, as the printing process and technology had changed from the letterpress method to offset printing: noticeably, the manning ratio for each printing press had been reduced from a minimum of three machine tenders in the work group to two; and the bulk of the manpower demanded now comprised these machine tenders or operators at the semi-skilled level. However, fundamental and wholesale restructuring of jobs and work organization in the printing shop was conspicuous for its absence, as technological changes, such as introducing new machines, were just limited to the “hardware considerations of its commissioning and installation, the transfer and training of personnel to operate and service the machinery” (Kao et al. 1989: 125). It appears that the concern for flexibility and adaptability also predominated in this case, where:


Such hardware changes were seldom accompanied by any systematic ancillary exercises in work study, job redesign, or specification of new work procedures. Instead, the customary practice was to communicate instructions on new products, new machines or new work methods through word-of-mouth oral messages—or simply to leave the workmen concerned to feel their way out through osmosis. (Kao et al. 1989:125) Skill formation and development Evidently, the employer’s provision of skill training on an in-house basis has always been viewed as a means of committing staff attachment to the firm, thereby consolidating its internal labor market. Such a strategy is not unknown in Hong Kong, especially among the more bureaucratic large-scale corporate employers in the primary sector. For instance, Turner and his associates make reference to the abilities of such enterprises as the large trading, financial, and commercial institutions, as well as the public services, to conserve their relatively stable internal labor markets by a variety of employee “committal” devices which include, inter alia, employees’ skill upgrading and career advancement: the employee’s knowledge and capacity become increasingly specific with time…in the absence of general apprenticeship and training systems, workers have acquired their skills in particular firms, and these are again often fairly specific to one or two enterprises. Moreover, many larger firms make a practice of internal promotion…which gives the ambitious worker a strong interest in remaining with one employer. (Turner et al. 1980:49) Clues as to how “systematic” in-plant training may differ in industry according to the ownership of capital and the concomitant differences in the employee’s loyalty and the internal labor market have been provided by the comparative study conducted in the late 1970s of an American and a Japanese factory of similar size and in a similar sector (electronic components and watch assembly works) (Nihei et al. 1983). While the American plant emphasized formal training at entry for its assembly-line operatives for the first one to two months of employment, the Japanese factory tended to spread the training experiences over a longer period of two to three months in duration for comparable jobs and taking the form of on-the-job training. Such training seemed to be more rationally designed in the case of the Japanese multinational corporation (MNC), in as much as (1) its workers were permitted to try up to three different jobs if they could not handle the first or second ones during the training period; and (2) it adopted a practice of sending two to three experienced workers, selected on the basis of technical capabilities and potentials, to Japan every year for training


purposes and promoting them to become monthly paid staff afterwards (Nihei et al. 1983:142–3). This different approach in training by the two foreign firms in Hong Kong evidently contributed to notable differences in the level of commitment of their workforce: the workers in the Japanese firm were more likely to prefer present employment to previous jobs, considered it rather difficult to find a comparable job in the local labour market, and intended to stay longer with their firm than workers in the American firm. (Nihei et al. 1983:162) However, the process of skill formation in the local training situation can be more complex and varied than is implied by this notion of “internal labor market” which the larger firms, industrial as well as non-industrial, foreign as well as domestic, attempt to institutionalize. Again, a study of the electronics industry at the beginning of the 1980s presents a picture of considerable diversity in the acquisition of skills by electronics technicians. The technicians’ job market in the electronics and related industries was segmented, as a spectrum of subgroups was identifiable according to their differential training and career advancement modes. There are, for instance, the “long-service” technicians clustered in public sector establishments which typically emphasize formal education as a criterion for admission with formal recruitment procedures. “They are mostly career technicians having transferred in their mid-career from the relatively unstable (private) industrial/maritime sector to the established public organizations in search of the high pay and economic security that such stable employment entails” (Ng 1986: 627). The other group are the “managerial aspirants” who, as relatively young and well-trained technicians having experienced some upward mobility at work, are less tenaciously committed than the former group to their work enterprises. These academically qualified and occupationally ambitious young technicians are attracted to the rapidly developing “utility” and “franchise” corporations by their lucrative promotion opportunities (Ng 1986: 627). However, perhaps the most versatile among all groups are the “committed cosmopolitans” who pursue “a lateral career path that cuts across private firms in the electronics sector.” Typically, these “cosmopolitan” technicians are oriented toward an “occupational” rather than “organizational” career perspective, attempting to “improve their life-chances through the strategy of broadening their skills and making such capabilities readily transferable between different enterprises.” In other words, they are relatively independent of the training resources or “internal labor markets” of specific enterprises for enhancing their labor power (Ng 1986:628). At the lower tier of the skill spectrum are those technical workers who are academically less qualified than the other


three subgroups just mentioned, for example the “key workers” who are largely engaged by industrial plants in the private sector and whose employability probably rests on their “occupational sociability, network knowledge and proven working experience” (Ng 1986:628); and the “self-made technical workers,” who are mainly promoted from skilled or semi-skilled shopfloor positions such as the machinists, the plant repairmen, or assembly-line workers who have acquired some remedial training in related technical courses at the educational institutions (Ng 1986:628). Indeed, there exists such a diversity among local manufacturing firms in their training strategies that a local study commissioned by the International Labour Organization (ILO) in the mid-1980s on technological advances and training was able to identify several strategic factors which affect the orientation and propensity of these industrial firms to innovate and train their workforce (Ng 1987a). Among the key factors are the type of product and market conditions. In Hong Kong, it is more usual for industrial firms to make marginal modifications to their products than spend a great deal of money and effort on research into product design. This is partly because their activities are largely responsive to buyers’ orders and partly due to the diseconomies of heavy investment in human resources training even for larger firms which are about to introduce technologically advanced products. “The implication of such an instrumental responsiveness to product demand is the elasticity or flexibility of the enterprise in coping with the exigencies of changes, variations and adjustments that accompany improvements and advances” (Ng 1987a:112). Innovations adopted are hence typically demand-induced changes which are inevitably responsive and passive, fragmented, short-term, and lacking integration over time and space. Moreover, the export-oriented nature of the market for most manufacturing industries means, first, that “they defy any accurate and detailed forecasting attempts to predict future demand trends” and second, such constraints curtail importantly the incentives of these industrial enterprises, especially where they are small, to commit themselves to such long-term (and perhaps large-scale) investments as on product design and research, plant-wide modernisation and rationalisation of work processes, and human resources development that entail carefully designed training, control and performance appraisal, as well as career planning of the workforce. (Ng 1987a:112–13) Another factor is the size of firm and scale of operation, the ramifications of which are obvious since the small firms can often ill afford “the resources to absorb personnel overheads of the kind undertaken by larger organizations,” including training (Ng 1987a:115; see also Turner et al. 1980:14). Still a more


strategic factor is the state of the firm’s external linkages. For a local plant belonging to a multinational corporation, for instance, the internal transfer between different locations within its organizational umbrella of new technology is itself conducive to technological advances and new skill formation. As this ILO study suggests, The product and productional linkages between sister branches within the same multinational complex not merely facilitate interplant flow of “hardware” information and managerial/technical know-how but also afford a degree of structural complementaries that help shield the individual plants from the exigencies of their local (product and factor) markets. This in turn creates a more stable research milieu within which the subsidiaries can develop and improve on their technological/manpower packages, without being subject to too severe disruptions due to open market fluctuations. (Ng 1987a:117–18) Also instrumental for stimulating manpower and technological development at the micro level is the making of joint agreements with other enterprises on technology and production. The ILO study draws a contrast between, on the one hand, the experience of a tobacco-processing plant where the conclusion of technology agreements on joint ventures with Chinese industry induced it to initiate formalization of its training/ manpower function and, on the other, the practice of farming out to outside subcontractors in a precision instrument shop which “unwittingly adds to the disincentives on the plant against developing its own inventory of technical expertise and skills in some areas of strategic and long-term technological importance” (Ng 1987a:118). In a sense, a state of dualism seems to characterize the Hong Kong situation, varying from a mode of “imperceptible” training in the small or medium-sized plants “which possess meagre capital and human resources to spend on structured training” (Ng 1987:119), to the large-scale bureaucratic enterprises which are able to invest heavily on training outlays “as in setting aside expensive space to serve as training schools/ centres/bays, installing equipment, engaging professional trainers and other specialised personnel, as well as releasing the technical staff from work to attend training” (Ng 1987a:119). Private sector employers have a disincentive to invest their resources in training in that they may lose their trained manpower to other competitors because of the relative freedom to change jobs for Hong Kong employees, especially in a labor-scarce economy. Turner and his associates identified this syndrome as early as the 1980s: “bigger employers became increasingly unwilling to accept the costs of training skilled workers who, in a situation of frequent labor shortage, were subsequently ‘poached’ by other firms” (Turner et al. 1980:31–2). In addition, an offshoot of the labor shortage syndrome of the late 1980s has been the lobbying by the labor movement against the importation of labor into


Hong Kong on the ground that an industrial reserve army of the unemployed and under-employed has been growing steadily because of technological displacement, skill obsolescence and the withering away of some secondary manufacturing activities. In response to this pressure, the government established in 1993 a statutory authority on retraining in order to assist workers with outdated skills to make a mid-career job transfer from the industries and jobs which are in decline. Compensation, employment security and staffing arrangements As described earlier (p. 129), a recognizable example of the Chinese vestiges of “custom and practices” is the division of workers into broad status categories according to the relative permanence of their job tenure, method of payment, and employment status and job commitments. However, the boundary between these three types of employment/wage status has been withering slowly, with the general trend toward decasualization as Hong Kong industrializes. As Turner and his associates document in their territory-wide study: At the time of our 1976 survey, only 60% of workers enjoyed the status of regular (cheung-kung) employees…the majority of manual workers, in fact, were casually-employed, in the case of 23% of the whole labour force as cheung-saan-kung…while another 16% of all employees were saankung, without security and sometimes paid on a daily basis…. However, our 1985 survey showed over 87% of all employees as having the superior cheung-kung status, including two-thirds of all blue-collar workers, while the proportion of wholly casual employees had fallen below 5%. (Turner et al. 1991:26–7) Decasualization, encouraged in part by an official Labour Department policy of promoting the “continuous employment contract” and in part by employers’ responses to the growing desire of a better-educated workforce for more security, has been pursued consciously by enterprises as a strategy for committing their workers to remain in employment and reducing their mobility. Thus Turner and his associates reported in their labor study of the mid-1980s an increase in the proportion of monthly paid employees. Due to this gradual transformation of payment and employment norms, there was also evidence of the significant stabilization of workers’ attachment to particular firms: “In 1976 the proportion of our respondents who had worked less than a year with their current employer was 26; by 1985 this proportion had fallen to 21%” (Turner et al. 1991:27). Yet the legacy of British influences is mirrored in the personnel practices which have evolved in the British-Hong Kong hongs or trading houses which are among the “primary sector” employers offering their workforce permanent and


secure employment. “By their nature these firms employ a high proportion of white-collar workers, technicians, and craftsmen, and approaching 80 percent of their employees overall have cheung-kung status” (England 1989:64). It is in these firms that internal labor markets are most developed, providing an impressive range of welfare benefits including subsidized accommodation and free or subsidized medical treatment. However, what distinguishes their employee policies is not merely the scale of benefits they provide but also the fact that “their policies are generally formal and explicit; contractual rather than personal” (England 1989:64). On the other hand, ample illustrations may also be drawn from existing literature of how the Chinese or Confucian approach to management has allegedly affected employment and pay practices in many Hong Kong firms. Two themes are evident in this connection, which are (1) the paternalistic attitude of the employers or owner-managers who provide their employees with a net of security and welfare benefits on a discretionary (or benevolent) basis rather than on the basis of regulations specifying these provisions as contractual obligations; and (2) the employer’s preference for informality rather than detailed formulation of rules, so that actions and decisions can be left in a relatively fluid and unstructured state, and the firm is adaptable and flexible enough to cope with a range of fluctuations and non-anticipated contingencies. In the context of pay and benefit administration, the combined effects of these two factors have resulted in a myriad of supplementary payments and bonuses whose nature is always not exactly specified but remains amorphous because sustained by employers’ paternalistic trust and good-will. These wage supplements are therefore very fragile in nature, bestowed and withdrawn at the employer’s whim. The subtlety of such a Chinese-fashioned spectrum of welfare contingencies has been vividly portrayed by England as follows: An essential part of this process is that employers retain a very large degree of discretion over the size and form in which pay increases may be granted. Where pressures from workgroups, trade unions, or the going rate itself (whether arrived at through market forces or mutual understandings) appear to threaten profit margins the employer still has considerable room for manoeuvre. Case studies of wage structures within manufacturing plants are few, but evidence suggests a variety of piece-work and bonus schemes whose complexity is compounded by the personal nature of favors bestowed on particular workers by proprietors in return for loyalty or merit. Bonuses can be paid for Chinese New Year, attendance, night-shift working, as long-service incentives, and for introducing new workers…. The extent to which individual firms provide all or any of these varies enormously. The key point, however, is that the manipulation of payment systems and fringe benefits, combined with the imposition or withdrawal of overtime, provides individual employers with the necessary flexibility to maintain profit margins.


(England 1989:155) However, there is an apparent case for these Chinese employers to rationalize and regularize their hodgepodge of wage supplements by consolidating them into a coherent and systematically defined structure of incentives. Hence, wage and benefit reforms have been adopted widely among many of the large-scale Chinese enterprises as they modernize. One notable illustration is the revamping of the retirement and fringe systems recently carried out by businesses in the key transport public utility sector which were once traditional and family-dominated, like the Kowloon Motor Bus (KMB), the China Motor Bus (CMB), and the Yaumatei Ferry Service. Obviously, a major constraint to the systematization of these arrangements is the variability of firm size, since small firms are preponderant in the economy yet lack the resources to develop a regular structure of wage and incentive schemes. Added to this are the paradoxical effects which may be generated by any endeavors to regularize the payment of otherwise “discretionary” or discontinuous benefits at work. The argument, which so far seems inconclusive, is that the incentive effects of extra bonuses will be reduced substantially or even lost if they are placed on a stable basis, as something more or less ipso facto for the recipient (hence appealing less as a differentiated award specifically for the beneficiary). A classic example cited from the Hong Kong experience is a recent amendment to the Employment Ordinance to classify and redesignate the yearend bonus as a regular payment for the “thirteenth month,” either contractually or by virtue of custom and practice. Such regularization has largely nullified the initial incentive effects of the year-end bonus as reward for good performance and a gesture of employers’ appreciation of it. The diversity of practices in Hong Kong, where Chinese and western arrangements meet to produce a variety of hybrid forms, often means that the incentive factor tends to be more conspicuous in some cases and less in others. Variations are not only caused by the ethnic nature of the ownership/management of the firm but are also attributable to their size and location, to whether they are in the public or government-subsidized sector, whether franchized services and industries or in the openly competitive private sector—let alone to an individual’s occupational status, age, and skills/professions, etc. Echoing England’s remarks noted earlier (p. 148), Turner et al. have pointed to the close and intricate linkage which this spectrum and hierarchy of incentives and wage supplements owe to the stratification of the labor market, especially since their apparent complexity tends to obscure reasoned comparisons between alternative job openings in terms of their net advantages (that is, the overall reward and yield for the individual). These writers note: The variety of bonuses and fringe benefits encountered in the Hong Kong labour market, and particularly a wide difference in their use and patterns as between different groups of firms and of employees …was closely


connected with the stratification of the labour force. The latter’s (labour market) allegedly highly competitive nature had to be offset, from the workers’ viewpoint, by such very diverse combinations of pay-rates and secondary benefits or conditions that to estimate the overall reward (or “net advantages”) of otherwise comparable jobs was often difficult. (Turner et al. 1991:28) The longitudinal labor study carried out by this research group over the 1970s and 1980s has permitted some impressions, albeit incomplete and fragmented, to be formed as to the territory-wide shifts in popularity of certain common fringe benefits and wage supplements between 1976 and 1985, the years when the authors conducted their first and second surveys on employee attitudes in Hong Kong. The study indicates, for instance, a fairly sharp decline during this tenyear period in the pro portion of workers on piecerate and incentive production bonuses, from 20 and 16 percent respectively to 9 and 6 percent; whilst the ratios of workers paid an attendance bonus also fell from 31 to 22 percent. The same period also witnessed a sharp rise, conversely, in the proportion of employees customarily paid New Year bonus, from 50 percent in 1976 to 73 percent in 1985. However, the amount and nature of such year-end bonuses seem to have changed substantially over these years. In 1976, 89 percent of the recipients were paid less than two months’ wages extra under this item and in 1985 the percentage rose to 96 percent. But there was a commensurate drop in the number of workers receiving a substantial New Year bonus (five months’ pay or more) as from 7 percent to an insignificant percentage. These variations over time, according to Turner et al., were symptomatic of employers’ endeavors to regularize this (formerly) important incentive payment. While these bonuses have become more widely available to employees as a more or less built-in or integral part of their “normal” wages and earnings for the year, the size of the payments has fallen in order to allow elasticity to relate “closely to the employee’s own effort.” Evidently, the differentials among recipients of this bonus have been levelling. CONCLUSIONS In the context of Hong Kong’s open economy, diverse human resource management practices evolved for a number of reasons: industrial dualism, type of product markets (competitive or sheltered), the nature of technology, work organization and associated labor requirements, and the social origins of owners and management. This diversity was facilitated by the minimalist role of the colonial state in regulating private sector investment and employment relationships during the 1950s and 1960s. It was also facilitated by a trade union movement that had marginal influence on firm-level personnel management practices.5


The high degree of autonomy of employers in constructing their human resource management practices in the context of loosely coupled or weak interinstitutional linkages enabled them to respond flexibly to market forces. On the other hand, the weakness of trade unions, the mobility of labor, and the small size of most enterprises worked against investment in upgrading technology and human resources. As Hong Kong employers began to face new challenges in the 1970s from rising labor costs, new international trade restrictions in textiles and garments, and competition from the other Asian “dragons,” the reliance on traditional human resource management practices was increasingly called into question. The brain drain and the labor shortage of the 1980s presented new problems for employers (Chiu and Levin 1993; Kirkbride and Tang 1990). The decline of the “refugee mentality” and rising levels of education have raised employee expectations. At the same time, the opening of China to foreign investment has permitted Hong Kong manufacturers to relocate some of their lower-cost manufacturing activities to China so that “constraints which confine Hong Kong manufacturers to low value-added subcontracting work have been removed” (Industry Department 1992:3). How prepared are Hong Kong’s entrepreneurs to respond to these new challenges and opportunities? It seems reasonable to expect that a rapidly changing environment will “increasingly push companies towards rationalisation, internal restructuring and a focus on labour productivity, labour usage, and overall organisational efficiency” (Kirkbride and Tang 1990:5). Yet Hong Kong’s firms are not necessarily responding effectively. For one thing, both the personnel management function and systematic human resource development continue to be comparatively underdeveloped. A 1988 survey of 138 Hong Kong organizations with over 200 employees and 223 smaller organizations reports that only 59 percent of the sample had a specialist personnel function (versus 90 percent in the UK) and these were more prevalent in very large foreign-owned companies (Kirkbride and Tang 1990:5). A 1991 survey of organizational development in 146 firms found that companies “rightly identified that the major HRD [human resource development] priorities should include productivity improvement, promotion of employees’ morale, broadening and enhancement of employees’ skills, and development of employees’ ability to cope with technological innovation.” Yet just over a third spent less than 1 percent of the total payroll on HRD and only 31 percent had an independent HRD or training department (Tang 1992:25). Another report concluded that Hong Kong companies spend relatively little effort in management development…some of them do not believe in the importance or benefits of management development. Their primary concerns are with business issues such as market opportunities, product innovations, customer and supplier relationships. They contended that management or management development does not have a significant impact on the bottom line of their business.


(Management Development Centre 1988:2) Upgrading the skills of both new and existing employees will continue to be a key issue for Hong Kong, intensified by economic restructuring and emigration. High labor turnover due to emigration and other factors has been forcing Hong Kong companies to promote junior staff more rapidly than they would like. These junior employees could be encouraged to gain advanced technical and managerial skills through “better access to certain kinds of formal technical and managerial education and training as well as a new commitment to employee career development by industry.” But obstacles to this strategy are acknowledged: “Some fear that newly upgraded employees will be poached… some are small and cannot afford major outlays or employee time off for education and training; and some simply do not put a very high value on employee upgrading. Others fear that upgrading the skills of junior staff will enable them to follow their predecessors overseas” (SRI International 1989:180). The failure to “upskill” the labor force could mean that Hong Kong will “face the possibility of a ‘leveling out’ of development, unable to cross the threshold to higher-order economic activities and living standards” (SRI International 1989: 188). Hong Kong’s transformation from an entrepôt to an industrial colony and more recently to a post-industrial economy is one of the factors pushing the government toward increasing involvement in issues of human resource development. Others include the growing demands on the state from companies and organized labor and the politically driven wave of emigration. Increasingly the government accepts the need for a partnership with the private sector in areas of human resource training and development, in technology transfer and promotion of industrial automation, and in solving the brain drain problem (Chan 1991). Yet the Hong Kong government’s ability to influence human resource development is constrained by two factors. The first is limited resources, especially in view of the huge financial requirements of the new infrastructural projects in the 1990s. The second is the liberalization of the political system and the rise of interest groups representing conflicting constituencies that make the formulation of public policy more difficult. This is evident in the debate over relaxation of restrictions on the importation of foreign labor (Chiu and Levin 1993:183). The specific form of the government’s involvement in human resource development is also controversial. The existing technical training facilities developed by the government, for example, have been criticized as too rigid and centralized (Ng 1987b:176). While it seems sensible to give more incentives to private firms to play a more active role in collaborative training schemes, the dominance of small firms poses a serious challenge to public policies for human resource development. At present, most of them “resist training workers internally beyond a minimum of on-the-job instruction” (SRI International 1989:


189). Poaching, high turnover rates, and limited resources diminish the attraction of on-the-job training, so official grants and subsidies may not be adequate. The development of a viable public-private partnership for training employees is thus likely to become one of the major challenges for human resource development in the 1990s. Unless an effective partnership is formed, there is the danger that Hong Kong’s remaining manufacturers will continue to function as low value-added subcontractors in the global world economy instead of joining the ranks of world-class manufacturers. NOTES 1 The Trade Unions and Trade Disputes Ordinance of 1948 generally followed the UK model but with several variations including the following three requirements: (1) compulsory registration of all trade unions; (2) officers of a trade union must be employed or engaged in the industry or occupation with which the trade union is connected; and (3) prior consent of the Governor of Hong Kong for affiliation with trade unions or other organizations outside Hong Kong. In 1961, this Ordinance was replaced by the Trade Unions Registration Ordinance and the Trade Disputes Ordinance. The former retained provisions relating to trade union registration but added new provisions regarding the definition of, and procedures for, forming trade union federations and for union amalgamations. Restrictions were also added controlling the use of trade union funds, including the requirement that welfare funds be kept separate from general funds. There were relatively minor amendments introduced in 1971 and 1977 and the ordinance was retitled to the present Trade Unions Ordinance. 2 The Employment Ordinance was enacted following riots in 1966 and social disturbances in 1967. Scott (1989:121) claims that “although the unrest in 1966–7 was not solely attributable to poor working conditions and to neglect and exploitation by employers, these were areas in which reforms could be introduced fairly quickly.” 3 It has no authority over disputes of interest (demands for improvements in terms and conditions of employment) or employees’ compensation claims or any claims in tort whether arising from a breach of contract or a breach of a duty at common law. 4 From the late 1940s through the 1950s there was a labor surplus. However, postwar restrictions on cross-border movement combined with rapid industrialization from the 1950s led to the rapid absorption of surplus labor and by the late 1950s employers were beginning to complain about recruitment difficulties. Since the early 1960s the labor market situation can be described—with the exception of the recession of 1974–5—as one of relative labor scarcity (England and Rear 1981:77). There was a massive wave of legal and illegal immigration from mainland China during the period 1977–81 which “had the unintended effect of perpetuating the strategy of developing labour-intensive industries” (Lui and Chiu 1993:68). 5 This does not mean that the working class was irrelevant to the development of employer and government policies. On the contrary, mass social disturbances in the late 1960s forced the government to recognize that for its own political survival it


had to moderate the worst social consequences of an unregulated market economy. These disturbances also had some influence on the diffusion of joint consultation systems in large (often British-owned) enterprises as a countermeasure to the influence of left-wing trade unions. Moreover, the rising labor mobility from the 1960s clearly impacted on the compensation and welfare practices of individual firms.

REFERENCES Advisory Committee on Diversification (1979) Report of the Advisory Committee on Diversification 1979, Hong Kong: Government Printer. Appelbaum, R.P. and J.Henderson (eds) (1992) States and Development in the Asian Pacific Rim, Newbury Park: Sage Publications. Berger, Peter (1986) The Capitalist Revolution: Fifty Propositions about Prosperity, Equality and Liberty, New York: Basic Books. Castells, Manuel (1992) “Four Asian tigers with a dragon head: a comparative analysis of the state, economy and society in the Asian Pacific Rim,” in Richard P.Appelbaum and Jeffrey Henderson (eds) States and Society in the Asian Pacific Rim, Newbury Park: Sage Publications. Census and Statistics Department, Hong Kong (1991) 1991 Preliminary Results, Hong Kong: Government Printer. Chan, John (1991) “The impact of a changing environment on Hong Kong’s human resources policies,” Address delivered to the Hong Kong Institute of Personnel Management 12th Annual Conference, October 9, 1991. Chiang, S.N.C. (1984) “Women and work: case studies of two Hong Kong factories,” M.Phil, thesis, University of Hong Kong. Chiu, Stephen and David A.Levin (1993). “From a labour-surplus to a labour-scarce economy: challenges to human resource management in Hong Kong,” The International Journal of Human Resource Management 4(1), February: 159–89. Commissioner of Census and Statistical Planning (1962) Hong Kong: Report on the Census 1961, Vol. III, Hong Kong: Government Printer. Deyo, Fred C. (1989) Beneath the Miracle: Labor Subordination in the New Asian Industrialism, Berkeley: University of California Press. Deyo, Fred S., Haggard, Stephan and Koo, Hagen (1987). “Labor in the political economy of East Asian industrialization,” Bulletin of Concerned Asian Scholars 19:42–53. Djao, Wei (1975) “Dependent development and social control: labor intensive industrialization in Hong Kong,” Social Praxis 5(3–4):275–93. —— (1981) “‘Traditional Chinese culture’ in the small factory in Hong Kong,” Journal of Contemporary Asia 11:413–25. Dore, Ronald (1973) British Factory-Japanese Factory: The Origins of National Diversity in Industrial Relations, Berkeley: University of California Press. England, Joe (1989) Industrial Relations and Law in Hong Kong, 2nd edn, Hong Kong: Oxford University Press. England, Joe and Rear, John (1975) Chinese Labour under British Rule, Hong Kong: Oxford University Press. —— (1981) Industrial Relations and Law in Hong Kong, Hong Kong: Oxford University Press.


Friedman, Milton and Friedman, Rose (1980) Free to Choose, Harmondsworth: Penguin Books. Geiger, Theordore and Geiger, Frances M. (1975) The Development of Hong Kong and Singapore, London: Macmillan. Henderson, Jeffrey (1989) The Globalization of High Technology Production, London: Routledge. —— (1993) “Against the economic orthodoxy: on the making of the East Asian miracle,” Economy and Society 22(2), May: 200–17. Hong Kong Productivity Centre (1984) Report on the Hong Kong Electronics Industry 1982, Hong Kong: Government Printer. Industrial Training Advisory Committee (1971) Final Report, Hong Kong: Government Printer. Industry Department, Hong Kong Government (1992) Report on Industrial Automation Study, Hong Kong: Government Printer. Kao, Henry S.R., Ng, Sek-hong and Taylor, Donald F. (1989) “Country case studies— Hong Kong,” in Hyung Sup Choi et al. (eds) Hybrid of Man and Technology, Tokyo: Asian Productivity Organization. King, Ambrose Y.C. and Leung, Davy H.K. (1975) The Chinese Touch in Small Industrial Organizations, Hong Kong: Social Research Centre, The Chinese University of Hong Kong. Kirkbride, Paul S. and Tang, S.F.Y. (1990) “Personnel management: challenges and prospects for the 1990’s,” The Hong Kong Manager, March/April: 3–11. Kwong, Paul C.K. (1990) “Emigration and manpower shortage,” in Richard Y.C.Wong and Joseph Y.S.Cheng (eds) The Other Hong Kong Report 1990, Hong Kong: The Chinese University Press. Levin, David A. (1991) “Women and the industrial labor market in Hong Kong: participation and perceptions,” in James G.Scoville (ed.) Status Influences in Third World Labor Markets: Caste, Status and Custom, Berlin: Walter de Gruyter. Levin, David A. and Chiu, Stephen (1992) “Decolonization without independence: political change and trade unionism in Hong Kong,” in International Industrial Relations Association (ed.) Proceedings of 9th World Congress of International Industrial Relations Association (Sydney, August 30–September 3, 1992), Sydney: International Industrial Relations Association. Levin, David A. and Chiu, Stephen (1993) “Dependent capitalism, a colonial state and marginal unions: the case of Hong Kong, in Stephen Frenkel (ed.) Organized Labor in the Asia-Pacific Region, Ithaca: ILR Press. Lui, Tai-lok and Chiu, Stephen (1993) “Industrial restructuring and labour-market adjustment under positive noninterventionism: the case of Hong Kong,” Environment and Planning A 25:63–79. Management Development Centre, Hong Kong (1988) The First Interim Report on a Study of the In-company Management Development Practices of Hong Kong Companies, Hong Kong: Vocational Training Council. Ng, Sek-hong (1986) “Electronics technicians in an industrialising economy: some glimpses on the ‘new middle class’,” The Sociological Review 34(3), August: 611–40. —— (1987a) Technological Advances and Training—A Case Study of Hong Kong, Hong Kong: New City Cultural Service Ltd, Hong Kong, for the International Labour Organization.


—— (1987b) “Training problems and challenges in a newly industrializing economy: the case of Hong Kong,” International Labour Review 126: 467–78. Ng, Sek-hong and Levin, David A. (1981) “Survey of attitudes of women workers towards aspects of their employment,” Vol. 2: Tables, unpublished report. Nihei, Yasumitsu, Levin, David A. and Ohtsu, Makoto (1982) “Industrialization and employment practices in Asia: a comparative study of ten spinning factories in five Asian countries,” Economic Development and Cultural Change 31(1), October: 145–71. Nihei, Yasumitsu, Ohtsu, Makoto and Levin, David A. (1983) “A comparative study of management practices and workers in an American and a Japanese firm in Hong Kong,” in Ng Sek-hong and David A.Levin (eds) Contemporary Issues in Hong Kong Labour Relations, Hong Kong: Centre of Asian Studies, University of Hong Kong. Rabushka, Alvin (1979) Hong Kong: A Study in Economic Freedom, Chicago: University of Chicago Press. Redding, Gordon (1990) The Spirit of Chinese Capitalism, New York: De Gruyter. Riedel, James (1974) The Industrialization of Hong Kong, Tubingen: Mohr. Salaff, Janet (1981) Working Daughters of Hong Kong, Cambridge: Cambridge University Press. Schiffer, Jonathan (1991) “State policy and economic growth: a note on the Hong Kong model,” International Journal of Urban and Regional Research 15(2):180–96. Scott, Ian (1989) Political Change and the Crisis of Legitimacy in Hong Kong, Hong Kong: Oxford University Press. Sit, Victor F.S. and Ng, S.H. (1980) “Ambulatory labour in Hong Kong,” International Labour Review 119(4), July–August: 505–14. Sit, Victor F.S. and Wong, Siu-lun (1989) Small and Medium Industries in an ExportOriented Economy: The Case of Hong Kong, Hong Kong: Centre of Asian Studies, University of Hong Kong. Sit, Victor F.S., Wong, Siu-lun and Kiang, T.S. (1978) Small-scale Industry in a LaissezFaire Economy, Hong Kong: Centre of Asian Studies, University of Hong Kong. SRI International (1989) Building Prosperity: A Five-part Economic Strategy for Hong Kong’s Future, Hong Kong: Hong Kong Economic Survey Ltd. Szczepanik, Edward (1958) The Economic Growth of Hong Kong, Oxford: Oxford University Press. Tai, Hung-chao (ed.) (1989) Confucianism and Economic Development: an Oriental Alternative?, Washington, DC: Washington Institute Press. Tang, S.F.H. (1992) Human Resource Development in Hong Kong: Organizational Survey Report, Hong Kong: Hong Kong Institute of Personnel Management. Turner, H.A. et al. (1980) The Last Colony: But Whose?, Cambridge: Cambridge University Press. Turner, H.A., Fosh, Patricia and Ng Sek-hong (1991) Between Two Societies: Hong Kong Labour in Transition, Hong Kong: Centre of Asian Studies, University of Hong Kong. Vogel, Ezra F. (1991) The Four Little Dragons: The Spread of Industrialization in East Asia, Cambridge: Harvard University Press. Wade, Robert (1990) Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization, Princeton: Princeton University Press.


Ward, Barbara E. (1972) “A small factory in Hong Kong: some aspects of its internal organization,” in W.E.Willmott (ed.) Economic Organization in Chinese Society, Stanford: Stanford University Press. Wong, Siu-lun (1988a) “The applicability of Asian family values to other sociocultural settings,” in Peter L.Berger and Hsin-Huang Michael Hsiao (eds) In Search of an East Asian Development Model, Brunswick, NJ: Transaction Books. —— (1988b) Emigrant Entrepreneurs: Shanghai Industrialists in Hong Kong, Hong Kong: Oxford University Press. —— (1991) “Chinese entrepreneurs and business trust,” in G.Hamilton (ed.) Business Networks and Economic Development, Hong Kong: Centre of Asian Studies, University of Hong Kong. Working Committee on Productivity (1964) Report, Hong Kong: Government Printer. Yiu, Yan-nang (1980) “Trade union policy and the trade union movement in Hong Kong,” M.Soc.Sc. diss., University of Hong Kong.

Chapter 6 Economic development strategy, government labour policy and firm-level industrial relations practices in Malaysia Sarosh Kuruvilla and Ponniah Arudsothy

INTRODUCTION: THE MALAYSIAN ECONOMY TODAY Malaysia is one of the fastest-growing economies in the world and is in many ways, a Third World success story. Twenty years of sustained growth and diversification have reduced the economy’s reliance on primary products like tin and rubber. Malaysia is still the world’s largest exporter of tin, rubber, and palm oil, and a significant producer of oil, natural gas, and timber. More recently it has become one of the largest manufacturers of semiconductors, and a sizeable producer of electronic and electrical products and textiles. Exports account for about 61 per cent of GNP, making the economy very dependent on the external economic climate. Although recessions in 1982 and 1985–6 caused by falling prices in commodities slowed growth, Malaysia has since sustained an economic recovery via its booming export trade in manufacturing, primarily driven by foreign investment. Industry has supplanted agriculture as the major contributor to Gross Domestic Product (GDP), accounting for 42 per cent of GDP, and low-cost labour-intensive manufacturing accounts for about 48 per cent of export earnings. Since 1988, Malaysia’s GDP growth rate (average annual 8.7 per cent) has been among the highest in the world and manufacturing has grown at about 15 per cent annually. National and per capita income are increasing at the rate of 7 per cent annually, and per capita income of about US$2,000 puts Malaysia well above most Third World economies. Foreign investment in Malaysia continues to increase, attracted by favourable investment policies, relatively cheap and docile labour and a well-developed infrastructure (the country has 30,000 km of paved roads, reliable and efficient telecommunications, cheap and abundant electricity, and efficient transportation systems). Notably, the structure of foreign investment is still dominated by lowcost labour-intensive industries, although a small shift to higher-technology production is apparent. Japan is the largest investor, closely followed by Taiwan. Taiwan alone accounts for 25 per cent of the total foreign direct investment and the largest number of projects. Industrial relations in Malaysia have been


recently characterized as becoming highly repressive, with trade unions being weak, excluded by the government from decision making at national levels and having very little influence at the workplace (Frenkel 1993). Table 6.1 provides basic economic statistics. INDUSTRIALIZATION STRATEGIES IN MALAYSIA Malaysia’s industrialization strategy must be understood in the context of the ethnic distribution in the society. Malays form 54 per cent of the population, while Chinese and Indians account for 37 per cent and 16 per cent respectively. Bowie (1991) argues that it was the nature of the communal settlement reached between these three ethnic groups that accounted for the nature of the industrialization policies pursued. The following discussion draws heavily on Bowie’s analysis. Preindependence, the economy was dependent on exports of primary commodities, and tin and rubber production accounted for 85 per cent of export earnings and 48 per cent of GDP. Agriculture, mining, banking and external trade were controlled by foreign interests (mostly British),1 while small-scale industry was controlled by ethnic Chinese and Indians. Ethnic Malays were largely concentrated in the rural agricultural sectors, and owned less than 10 per cent of registered businesses, less than 1.5 per cent of share capital, and paid less than 4 per cent of income tax, despite accounting for 50 per cent of the population. At independence, the industrial strategy was primarily the processing of raw materials for export. Import substitution industrialization (ISI) Market-led ISI The period from 1957 to 1970 witnessed economic policies that focused on the state’s involvement in the development of infrastructure and the rural sector (which accounted for 30 per cent of plan expenditures), while industrialization was left to the private sector. The state facilitated the creation of a favourable climate for foreign investment in import substitution industries, with the enactment of the Pioneer Industries Relief from Income Tax Ordinance, 1958, and the creation of the Table 6.1 The Malaysian economy, 1990 1 2 3

Population Per capita income Civilian employment: agriculture industry

16.92 million $2,000 30.8% 23.1%


services 43.6% Sectoral share of GDP, 1990: manufacturing 41.7% agriculture 19.4% services 38.9% 5 Unemployment 8.1% 6 Unionization rate 10.1 % 7 Exports as percentage of GDP 61% 8 Share of the labour-intensive sector in the production and export of manufactures 1980 29% 1988 51% 9 Contribution of export-processing zones to total exports 1988 33% 10 Contribution of transnational corporations to total exports 1971 28% 1980 54% 1986 58% Sources: Lim and Fong (1991); Ministry of Finance (1991); Kuruvilla (1994)


Malaysian Industrial Development Finance Corporation, which was responsible for providing investment capital and for the development of industrial estates. After the 1968 withdrawal of Singapore from the Federation of Malaya, in order to stimulate industrial growth, the Investment Incentives Act was introduced, targeting foreign investment with a plethora of tax concessions, liberalizing pioneer status conditions, and creating free trade zones. For a detailed description of specific policies, see Spinanger (1986). The decision to leave industrial investment to the private sector was largely a political compromise reached between the parties making up the ruling alliance (Bowie 1991). The UMNO (United Malay National Organization) realized that Chinese and Indian acceptance of its political role was to some extent dependent on the state’s not interfering in private commerce and industry (which they dominated) beyond its regulatory role. Therefore, the UMNO accepted (temporarily) the Chinese and Indian dominance of business and commerce in exchange for their acceptance of its political domination and efforts to increase Malay participation in the rural sector, and transportation, mining, construction and timber industries. World Bank recommendations favouring industrialization under the private sector also influenced this policy (Spinanger 1986; Bowie 1991). This strategy had mixed results. On the one hand, by 1969, the economy was growing at above 5 per cent per annum, manufacturing growth rates were high at


10.2 per cent annually, while private investment increased by 7.3 per cent annually. The fastest-growing industries were textiles, electrical machinery and assembly of motor vehicles. On the other hand, ethnic Malay participation in this economic growth was limited. Malay participation in ownership still remained static at 1.5–2 per cent, while the share of the Chinese and Indians grew somewhat.2 Malay participation in manufacturing employment had increased only marginally, and was much lower in skilled and managerial jobs. It was clear that the market-led approach succeeded in strengthening the economic position of the Chinese and Indians relative to Malays, and this was responsible for the communal violence after the 1969 elections (Bowie 1991; Lim and Fong 1991). The relative economic stagnation of the Malays resulted in Malaysian politics becoming increasingly polarized on ethnic lines during this period (Bowie 1991). New Economic Policy (NEP) and state-led ISI The NEP, promulgated in response to Malay nationalism (Bowie 1991), was designed to increase the ethnic distribution of the workforce in proportion to the ethnic distribution of the population, and to increase bhumiputra (sons of the soil, i.e. Malay) share of corporate ownership from 2.4 per cent in 1970 to 30 per cent by 1990. The strategy emphasized redistribution via growth in output and employment. In operational terms, an employment quota of 30 per cent for Malays was a prerequisite to qualify firms for import protection and tax holidays. Government contracts were reserved for Malay-owned firms, and all firms had to keep aside 30 per cent of shares of Malays. The UMNO was able to convince their Chinese and Indian counterparts in the ruling alliance that empowerment of Malays would not detrimentally affect Chinese and Indian interests, by arguing that economic growth would ‘increase the size of the pie’. To ensure the levels of growth required, the state for the first time became a significant actor in ISI investment. State intervention was justified on the grounds that Malays did not currently possess the wealth or the entrepreneurial ability to start new business. Therefore, state investment in the private sector was to be made on behalf of Malay interests and would ultimately pass to Malay hands. Although these policies resulted in increasing the economic participation of Malays (Malay share of total manufacturing employment increased to 32 per cent, while Malays in managerial positions rose to 17 per cent, and Malay share ownership increased to about 8 per cent (Bowie 1991)), they were still short of Malay nationalist expectations. There were not enough qualified Malays to meet the 30 per cent employment target in each firm, and the policies did not result in the development of Malay entrepreneurship. Industry continued to be dominated by ethnic Chinese, and Bowie (1991) notes an increase in ‘Ali-Baba’-type ventures, with Malay businessmen acting as ‘fronts’ for Chinese capital. Citing the failure of the policies to significantly increase Malay participation, and under pressure from Malay nationalists, the state’s investment in ISI was


intensified by the enactment of the Industrial Coordination Act (ICA), 1976, which gave the Ministry of Trade and Industry the power to issue licences to industry based on compliance with NEP goals. The Bhumiputra Investment Fund was created with state funds for investment in shares on behalf of Malays. The ICA mandated majority Malay share ownership in all joint ventures and foreign projects. This phase also witnessed the enactment of the Petroleum Development Act of 1976, which enabled the government to acquire control over the petroleum and petrochemicals industries without compensation (Bowie 1991; Lim and Fong 1991). The economic implications of state intervention were far-reaching. For the first time since independence, the Malaysian state exerted increasing control over the private sector via both regulation and direct investment in furtherance of NEP goals. Government revenues poured into NEP and ICA policies assuming that private sector investment would continue as before. However, private and foreign investment balked at the NEP and ICA policies, and feared nationalization. Consequently, private sector investment fell from the expected levels of 12–14 per cent to about 3 per cent of GDP in 1976. The shortfall in private sector investment, and the utilization of government fuznds to buy shares (undersubscribed by the Malay business community for which they were reserved) resulted in a major resource crunch that led to increased borrowing from international banks. Foreign debt as a percentage of GNP increased from 8. 45 per cent in 1975 to almost 11 per cent by 1976–7. Transition to export-oriented industrialization (EOI) The resource crunch drove the government to articulate a mixed policy. On the one hand, the government launched a massive campaign to encourage private and foreign investment during the 1977–80 period. Policies emphasized investment incentives, the development of infrastructural facilities, and numerous tax, labour and other incentives (Spinanger (1986) and Lim and Fong (1991) discuss these in greater detail.) Electronics and textile industries were specifically targeted, where foreign companies manufacturing for export were exempted from the ICA policies on Malay share ownership, and labour laws that might discourage foreign investment were relaxed or went unenforced. Unions were excluded from key industries and the export sector. This new phase saw the beginnings of massive foreign investment in the electronics sector by US and Japanese companies. On the other hand, the state also increased its involvement in the development of heavy import substitution industries. The continued failure of state-led NEP and ICA policies to achieve for Malays the economic power commensurate with their population (Malays owned only 12.4 per cent of corporate wealth by 1978, and the target of 30 per cent Malay ownership by 1990 appeared out of reach) led to further pressures from Malay nationalists to increase Malay ownership (Bowie 1991).


In response, the Heavy Industries Policy (HIP) announced by the 1980 Industries Minister Dr Mahathir Mohammed was geared to achieve the twin objectives of accelerating industrial growth and improving the economic position of Malays. Through the Heavy Industries Corporation (HIC) the state now had a leading role in establishing large-scale, capital-intensive import-substituting industries to provide industrial goods and consumer durables for the domestic market and provide a foundation of key industries to support a range of private sector and consumer goods industries. HIM invested in a series of large-scale joint ventures such as the Proton (Malaysian small car project), the Iron and Steel works at Trengannu, plants for cement, motorcycles, aluminium and gas, mostly in operation with Japanese private sector firms with about 30 per cent investment from the government.3 The outpouring of government revenues to sustain the NEP and ICA policies, combined with the recessions of 1982 and 1985, and the draining of revenues by the heavy industrial programme drove Malaysia’s external debt to unprecedented levels (Lim and Fong 1991). By 1986, debt as a percentage of GNP had tripled over 1976 levels, to 30 per cent. Foreign borrowings became the primary source of foreign capital inflow in the first half of the 1980s. The poor performance of the HIM contributed further to the revenue crunch. (By 1987, HIM had reported losses exceeding US$100 million, total state liabilities exceeded US$2.24 billion, and 37 per cent of the public debt was due to government-backed foreign loans.) Given this second ‘resource’ crunch, and under pressure from international financial agencies, Malaysia announced a series of austerity measures. Aside from cutbacks in public spending, these included the privatization of various state-owned public sector industries. In addition, Malay managers in the stateowned heavy industrialization programme were replaced by more ‘professional’ Japanese and private sector managers. Further, to meet its interest payments on foreign debts, the state reemphasized export-oriented industries, simplifying bureaucratic controls, increasing investment allowances and incentives, and reducing corporate and development taxes. Clearly the economic situation of the 1980s showed that the state could not reconcile its heavy industries programme, its NEP and ICA programmes, with rapid industrial growth, and came to be dependent on foreign investment for the growth of its manufacturing sector and exports. As a result, development priorities once again shifted to export-oriented industrialization from a policy of heavy industrialization for an increasingly protected domestic market. Since 1989, favourable external factors, dramatic increases in foreign investment and rising exports of manufactured goods have stimulated economic growth. The description above suggests that during 1977 and then during 1988, it was the shortage of revenues brought about by government’s involvement in NEP, ICA and HIP, and the consequent increases in international debt, that brought about the shift to EOI policies. The shift from a strategy of import substitution to


a more export-oriented economy transformed the Malaysian economy in the following ways: 1 Foreign direct investment in Malaysia has grown dramatically since 1987. In 1989 it exceeded US$1.86 billion, representing a 157 per cent increase over the previous year (investment increased by 127 per cent between 1987 and 1988) and comprising roughly 12 per cent of GDP. In the first half of 1989, foreign enterprises accounted for 80 per cent of the proposed equity investment in the country. Of these investments 85 per cent were in exportoriented industries. 2 The origins of investment have changed substantially over the 1980–90 period. Although the US was the largest investor, its position has been rapidly supplanted by Japan, and then by the newly industrializing countries (NICs) in south-east Asia, which are now the largest investors. The majority of these investors constitute 100 per cent foreign-owned firms. 3 The locus of investment (and particularly investment from the NICs) is primarily in the low-cost, labour-intensive export-oriented manufacturing sector, although recently there has been an increase in the number of small and medium-sized firms from Japan that are oriented towards more highskills-based manufactures. Nearly 85 per cent of approved manufacturing investments for 1988 were committed to export at least half their production, compared to 25 per cent for the 1982–86 period. The three industries receiving the greatest amount of foreign investments are electronics and electrical products, textiles and chemicals, which export 98 per cent of their production. 4 The total manufacturing sector now accounts for 32 per cent of employment, 42 per cent of GDP and 40 per cent of export earnings. Manufacturing exports have grown by an average of 15 per cent annually since 1988, and account for more than half of export earnings. Within this sector, the contribution of low-cost labour-intensive manufactures to production and export earnings increased from 29 per cent in 1980 to 51 per cent in 1988 (Ariff and Hill 1985; Tyers et al. 1987). The contribution of exportprocessing zones (EPZs, which are characterized by labour-intensive production, thus contributing to employment creation but little to government revenues) to total exports exceeded 33 percent in 1988 (Ariff and Hill 1985; Tyers et al. 1987). And the contribution of transnational corporations has increased from 28 per cent of total exports in 1971 to 58 per cent in 1988. 5 The electronics industry has been the centrepiece of the dramatic export performance. The importance of semiconductors to Malaysia’s economy is well known. The semiconductors sector employs 16.7 per cent of the manufacturing workforce (Onn 1989), and exports of semiconductors exceeded M$4 billion or 24.8 per cent of total manufacturing exports in 1989 (Grace 1990). A 1987 United Nations Report (UNCTC 1987) shows


that the majority of foreign (mostly US and Japanese) plants in the electronics industry concentrate on low-skilled assembly and testing, although since 1992, two higher-skills wafer fabrication plants have been established. In sum, although the economic transformation has resulted in impressive growth rates, the EOI strategy has made Malaysia dependent on low-cost labourintensive foreign-dominated manufacturing for export to meet interest payments, and for continued industrial growth. The dependence on this form of EOI has forced the Malaysian economy to continue to enact policies geared towards attracting and retaining foreign capital in its low-cost export sector. As the next sections will indicate, labour relations policy has been substantially affected by this transformation. INDUSTRIAL RELATIONS POLICY IN MALAYSIA Industrial relations policy under Import Substitution Industrialization: restricted pluralism This section briefly describes industrial relations (IR) policy during the import substitution period from the 1950s to 1977. The central pieces of legislation in the industrial relations sphere included the Employment Act of 1955, the Trade Union Ordinance of 1959, and the Industrial Relations Act of 1967. The principle that the government followed was essentially pluralistic, reflecting both the belief that workers required some degree of fair and humane treatment and the belief that economic development goals should take supremacy over unfettered trade union rights (Bot 1988). Although pluralism operated (collective bargaining was the primary form for resolving industrial problems), unions were controlled through the union registration process. Although any seven persons could form a union, the Registrar of Trade Unions had wide discretionary powers in recognizing unions, including the ability to accord registration, to cancel registration if there were two or more unions catering to any sector of the workforce, and to determine the nature of the bargaining unit. The Registrar also had the power to exclude individuals from union activity. Although the principle of one union per occupation within an industry should strengthen the power of the union, Arudsothy (1990) suggests that it has been used primarily to weed out more militant unions. Although unions were allowed to affiliate themselves to apex federations, the Registrar had the power to withhold permission to do so. In general, the principle followed was that permission to affiliate would be granted if the Registrar was convinced that the purpose of affiliation was for relations between workers and not for trade union purposes. Apex bodies such as the MTUC (Malaysian Trade Union Congress) are incorporated as societies. This policy was used selectively to


ensure that the state exercised control over the growth and character of the labour movement. Consistent with the supremacy granted to economic development goals, the scope of collective bargaining in terms of the subjects open to negotiation was restricted. Bargaining regarding management decisions in respect of recruitment, promotions, transfers, job assignments or termination of employment by dismissals or retrenchment was not permitted. In order to encourage foreign investment under the Pioneer Industries Ordinance the state guaranteed that terms and conditions negotiated with unions need not be more favourable than the provisions of the Employment Act of 1955. Strikes were allowed, subject to various restrictions—notice had to be given, a strike ballot had to be taken, the ballot results registered within seven days with the Registrar who had ninety days to check their validity. In addition, strikes were prohibited once the dispute had been referred to arbitration by the Minister of Labour (Industrial Relations Act, 1967). In terms of dispute settlement, conciliation is invariably the first option available to the parties (Khan 1989). However, on the failure of conciliation, the dispute could be referred for binding arbitration to the Industrial Court by the Minister of Labour, either on the basis of a joint application of both parties or on his/her own initiative. The court, in making its award, is required to ‘have regard for the public interest, the financial implications, and the effect of the award on the country, the industry concerned and also to the probable effect on similar industries’ (Ayyadurai 1990). Furthermore, all collective bargaining agreements needed to be taken cognizance of by the Industrial Court, implying that it had the power to refuse to register a collective bargaining agreement if it was not deemed to be in the national interest. Therefore, even under an import substitution industrialization strategy, it can be argued that the Malaysian system of industrial relations in the private sector was closely controlled by the state, the freedom of unions to organize and bargain was severely restricted, and the industrial relations rules and regulations clearly reflected the state’s efforts to contain industrial conflict in the interests of economic development. The prohibition on political strikes and the restrictions on the ability of apex bodies to carry out trade union functions also ensured that the unions would not be a significant opposition to the government. The nature of IR policy reflects a ‘controlled pluralism’ during this period. Despite the considerable powers given to the state in industrial relations matters (Arudsothy and Littler 1992), in terms of administrative practice the state’s intervention was relatively minimal. IR policy under EOI As argued below, the shift in industrial relations policies consequent to adoption of EOI reflected the common strategic interests of the state and the foreign investors. First the dependence on low-cost labour-intensive manufacturing for


export forced the government to enact policies that kept costs low to preserve Malaysia’s competitive advantage of cheap and disciplined labour in order to continue to attract foreign investment.4 Naturally, the manufacturing and export sectors were the target of these policies. Second, the state also increased its involvement in the industrial relations sphere to a considerable extent, moving from controlled pluralism to greater state control. The motivations for increased government control reflected the need to increase the economic efficiency and productivity of state-owned enterprises and to sustain further the EOI strategy. The specific mechanisms through which this shift was accomplished are described below. IR policies in export-oriented industry: cost containment A number of rules and regulations directly affecting the competitive position of Malaysian exports were introduced. First, the Minister of Labour extended the tax and labour exempt policies in case of Pioneer industries and industries in EPZs. Collective bargaining in this sector is circumscribed to the extent that terms and conditions of employment may not be higher than those defined under Part XII of the Employment Ordinance, 1955. As there is no minimum wage legislation in Malaysia (except for certain classes of employees determined regionally), the Employment Act is mainly concerned with rates of pay for overtime, leave and holidays. Second, the government has repeatedly refused to enact comprehensive minimum wage legislation, despite repeated demands by trade unions. Third, in 1988, the definition of wages for the calculation of overtime was changed to reduce costs. Previously, wages for overtime included all allowances and bonuses, but now exclude them (Pi’i and Kumaraguru 1989). In addition, the rates of overtime pay for working on days of rest was reduced from 3 times to twice hourly pay, and for working on holidays reduced from 4.5 to 3.5 times hourly pay. While these reductions may appear reasonable, it is worth note that with the shortage of unskilled and semi-skilled labour in Malaysia (Arensman 1990), these reductions have significant cost implications. Fourth, the government continued its refusal to enact legislation regarding equal pay for equal work (Grace 1990). Although females only form 40 per cent of the manufacturing workforce, they account for more than 78.6 per cent of the workforce in the electronics industry. Arguably, this also explains why the electronics industry has been exempted from the provisions of the Employment Act, 1955 that forbade the employment of women between the hours of 10 p.m. and 5 a.m. Further evidence regarding the need to keep female wages low is the 1988 amendment of the Employment Act, whereby the definition of days for maternity leave was changed to be inclusive of holidays, rather than excluding them (Grace 1990). Fifth, the state continued its exclusionary policy regarding trade unions in the electronics sector. After intense pressure was brought to bear by the International


Labour Organization (ILO), the International Metal Workers Federation and the American Labor Movement (which unsuccessfully petitioned the US government to revoke Malaysia’s Generalized System of Preferences (GSP) status for non-compliance with ILO conventions5), the general ban was lifted in 1988. However, a partial ban continues in the Registrar’s decision that unions in the electronics sector could only operate on an ‘in-house’ basis. This has considerably circumscribed the power of unions to organize.6 Grace (1990) finds that this policy of allowing only in-house unions in this sector was implemented to appease US-based electronics manufacturers who threatened to move production outside the country. Even though in-house unions can now be organized in the electronics sector, recent outcomes in the Harris and Hitachi cases (see Duthie 1990, Arensman 1990, and Barnard 1991 for details) make it abundantly clear that the right to organize unions in electronics exists in theory but not in practice. After the workers in the Harris Solid state subsidiary won official recognition for their union in January 1990, the company shifted most of its operations and workers to a non-union subsidiary. By April 1990, most of the workers had become nonunion, and the Malaysia’s High Court ruled against the workers’ petition that the shift was illegal. Currently, despite the existence of over 140 companies in the electronics sector, only one electronics union exists (the RCAWU). While there has been evidence cited above that foreign manufacturers demanded a policy of cost containment through union avoidance, it must be remembered that this policy coincides with the government’s strategy to maintain the competitive advantage of low-cost exports. Increased government control and involvement in IR Apart from the various ‘cost containment measures’ in the export sector, there has been systematic tightening of labour rules and regulations by the government, both generally and in the manufacturing for export sector particularly. Here the changes reflect an increased ‘activism’ on the part of the government, beginning with the onset of EOI in 1979–80 and continuing after EOI in 1988. Although we place more emphasis on EOI as the primary reason for increased government intervention, another significant factor has been government’s increased role as an employer, given its involvement in NEP, ICA and the heavy industrialization programme. It is a plausible argument that the government’s desire to promote economic efficiency given the poor performance of state-owned industries contributed to its increased involvement in regulating industrial relations. Support for this argument can be seen in the changes in government policy consequent to the Malaysian Airlines strike of 1979. Following the Malaysian Airlines System (MAS) strike of 1979, the Industrial Relations Act was amended to give the Minister of Labour wide-ranging powers in respect of industrial relations issues, beyond the extensive ones already available, including most significantly, the power to declare any industry or


service to be ‘essential’ service, implying that unions could be disallowed in such services. Second, the Minister was given the power to suspend for six months a trade union felt to be acting against the national interest. Although the public sector MAS strike was the prime motivation for this change in legislation, it cannot be overlooked that with increasing government intervention in industry as part of the NEP, ICA and HIP, the state itself became a significant share-holder in the private sector, with a direct interest in labour relations beyond its purely regulatory role. ‘Essential’, therefore, has broad connotations, and could include airlines, food processing, electrical, road transportation or any industry deemed to be in the national interest. The following examples are illustrative of the increased government intervention in the industrial relations sphere. Trade union recognition claims

Consistent with the more activist stance of the government, the Minister of Labour’s involvement in union recognition claims have been increasing. As Table 6.2 indicates, the Minister’s rejection of claims for recognition have increased, with the proportion of manufacturing rejections to total rejections increasing substantially. Under normal circumstances, once unions are registered after meeting the stringent requirements of the Registrar of Trade Unions, they request the employer for recognition. If the employer does not voluntarily recognize them (which they very seldom do, as Table 6.2 shows), the claim is sent to the Director General of Industrial Relations, for investigation; the Minister of Labour then makes a final and binding decision on recognition. At least half of the recognition claims have been in the low-cost labour-intensive manufacturing areas in textiles, and light electricals, and this is where the greatest number of recognition claims have been rejected by the Minister. Our data, however, are available only until 1986. Government intervention in dispute settlement

The activist stance of the government reflects itself in dispute settlement in two ways. First, the Labour Minister has been far more willing to take Table 6.2 Union recognition claims, 1980–1986 All industries Total claims Voluntary recognition Recognition accorded by Minister Rejected by Minister (per cent)








125 54 5

149 74 16

119 59 8

112 38 6

169 51 8

224 3 2

224 37 6

80 (58.4)


– 29 23 15 39 (19.4) (19.3) (13.3) (23.0) (35.7) Within manufacturing


All industries 1980 Total claims Voluntary recognition Accorded by Minister Rejected by Minister (per cent) Manufacturing rejections as a percentage of total rejections Source: Pehie and Shian (1988)





78 55 66 105 44 26 25 30 4 5 5 5 12 13 7 26 (15.3) (23.6) (10.6) (16.7) 41.3 56.5 46.6 66.6



136 172 26 20 1 2 62 98 (45.5) (56.7) 77.5 74.8

the initiative in referring disputes for binding arbitration to the Industrial Court, effectively curtailing the operation of free collective bargaining. The number of instances has increased dramatically, and at a much greater rate than the increase in industrial disputes itself. Second, as Table 6.3 shows, the Minister has in many cases used the power of office in actually effectuating settlements, in some cases convincing either party to modify their demands in the interest of keeping the peace. Since manufacturing accounts for 41 per cent of all disputes (see Table 6.5), it follows that ministerial interference is much greater in this sector. Enterprise or ‘in-house’ union Under the Trade Unions Ordinance, 1959, unions could be organized on an occupation within industry basis, and could affiliate themselves to national unions but could not have national unions represent them for trade union purposes. While this was designed to keep unions small and responsive to the particular conditions of their industries, it was also a system by which the labour movement could be kept fragmented so as not to threaten the government politically (Arudsothy and Littler 1992). Under Dr Mahathir’s ‘look east’ policy,7 the successful example of Japanese enterprise unions was introduced in Malaysian legislation, although in-house unions were in existence even before by means of the Registrar’s decisions. Table 6.4 shows the rapid growth in the number of enterprise unions since the 1980s. In 1985–86, out of twenty-eight Table 6.3 Labour Minister’s involvement in disputes No. of disputes Settled by conciliation Referred to Industrial Court (total)

1981 1982 1983




498 398 89

757 602 107

827 666 113

956 675 158

606 538 60

836 741 54


1981 1982 1983 Referred by joint application 35 32 of the parties Referred by Minister on own 54 28 initiative Settled by Minister 11 8 Per cent (2%) (1%) Source: Compiled by author from Bot (1988)












39 48 (4.6%) (6.34%)

48 121 (5.80%) (12.68%)

Table 6.4 In-house unions Total number of in-house unions Percentage of in-house unions Private sector percentage Public sector: Statutory authority Government service Source: Arudsothy and Littler (1992)






177 49.3 28.2

189 51.2 32.5

199 52.5 36.1

210 51.3 36.7

224 54.5 38.2

94.8 45.8

95.1 47.2

95.1 47.6

95.1 47.2

96.6 46.7

new unions registered, twenty-seven were enterprise unions. In theory, enterprise unions organized on Japanese lines produce more integrative labourmanagement relations since the goals of the enterprise and the unions coalesce. However, it must be remembered that enterprise unions are only one feature of various interrelated policies in Japan that make the system successful. For instance, long-term employment contracts, seniority-based pay systems, firmspecific training systems, and considerable labour-management consultation reinforce the enterprise union system and this interrelationship between various parts of the Japanese industrial relations system accounts for its success. In Malaysia, the concept of enterprise unions alone will not result in the kind of stable and flexible management-labour relationships that the Japanese have and that the Malaysian government seems to want. The other ingredients, notably the acceptance of unions as a partner in the business, are conspicuously absent. There are other contradictions in promoting enterprise unions: for instance, for an enterprise union to be successful, all employees in the enterprise must become members. However, Malaysian law does not permit various classes of employees such as supervisors, secretaries and security personnel to become members of the union. Unions have considerable restrictions on the subject matter of bargaining, and little or no participation in decision making exists. Given this, the criticism that the legislation requiring enterprise unions was enacted to keep the labour movement fragmented is not entirely without merit.


Policy on labour federations The latter criticism is supported by the government’s unwillingness to entertain the building of one major labour federation. Attempts in 1985 at unification of the two major federations, the Malaysian Trade Union Congress and CUEPACS, to form a new United Malaysian Labour Movement failed, as the Registrar of Trade Unions requested numerous changes in the constitution that the unions felt were impossible. Although this reflects the government’s desire to discourage the formation of a national union centre, recent restrictions of trade union rights in the public sector have forced some public sector unions to affiliate with MTUC. Increased disillusionment with the traditional leadership has prompted the promotion of a rival national central organization by the National Union of Newspaper Workers, which is still unrecognized by the government. The government’s interest in keeping the labour movement fragmented is also evidenced by its ‘behind the scenes’ support of a rival labour federation—the Malaysian Labour Organization, sponsored by the Bank Employees Union, which currently has fifteen affiliated unions with 142,000 members (Arudsothy and Littler 1992). The general tightening of labour relations and the limitations regarding unionization and collective bargaining rights noted in the private sector has had some spillover in the public sector as well. Arudsothy (1990) suggests that there has been a progressive exclusion of all sections of the public sector from the provisions of parts of industrial relations legislation. The right to strike in the public sector is largely illusory, given the inapplicability of Parts II–VI of the Industrial Relations Act, and the elaborate rules that effectively circumscribe the right to strike. In effect, there has been in the public sector labour relations sphere, a shift to a more unitary and paternalistic system of industrial relations (Arudsothy and Littler 1992). In sum, it is clear from these examples that state’s role as an employer and its dependence on foreign investment for its manufacturing, particularly in its most important electronics industry, has created a labour relations system that is repressive and government-dominated. The shift from ISI to EOI was the primary catalyst for the tightening of labour relations policies, and the specific cost containment policies were determined by the government in response to pressure from foreign companies on which it became dependent. The involvement of government in industrialization also appears to have been important. The federal government is now involved in industrial relations in many different ways: as a sponsor of IR legislation, as an administrator of such legislation, as the third party in dispute settlement, as an employer in the public sector, and as a stake-holder in various private corporations (Ayyadurai 1990).


INDUSTRIAL RELATIONS AND HUMAN RESOURCES PRACTICES IN MALAYSIAN MANUFACTURING The discussion of IR/HR practices provided below is primarily based on studies of industries in the manufacturing sector, and is intended to highlight the different range of practices in manufacturing. One must keep in mind, however, that it is not based on a comprehensive survey of workplace practices in sectors other than manufacturing or in the public sector. Our discussion here is organized based on five broad categories of workplace issues. Collective bargaining and governance issues The restrictions placed on trade unionism via state policy are reflected in employers’ anti-union stance. Where the production system is based on low-skill assembly work, employer opposition to unions is widespread. Arudsothy and Littler (1992) note that union busting and other anti-union activities increased during the 1980s relative to the 1970s. Indigenous companies appear far more inclined to be anti-union than foreign-owned concerns, although union avoidance appears to be the dominant strategy in export-oriented manufacturing and electronics. Despite the government announcement that unions could be formed in the electronics industry, only one enterprise union has formed successfully. Grace (1990) suggests three reasons for this: first, that workers view enterprise unions with scepticism and mistrust; second, that they fear employer reprisals if they join; and finally, that workers realize that unionization drives in other companies will result in increases in wages and benefits in their own, i.e. in a union substitution effect. Employers use both union suppression and union substitution strategies in dealing with workers. Motorola, for example, increased pay and benefits one month after the government’s announcement regarding unionization in the industry (Grace 1990). Motorola, Matsushita and many other companies have threatened to move operations to Thailand and China if their workers formed a union. Workers who exhibited pro-union sentiment have been routinely transferred to other plants and otherwise intimidated. In June 1990, Hitachi’s Malaysian subsidiary fired 1,003 striking workers after they walked out in protest against the government’s refusal to allow representation of their in-house union by a national electrical workers’ union. After apologies, most of the workers were reinstated, but not those considered activists. Although Hitachi was within the law in this case their unwillingness to reinstate activists clearly implies unwillingness to deal with a union, an attitude shared by many American and Japanese employers. The practices in the more import substitution-oriented industries tend to be different. For instance, after the strike of 1979 in the state-owned Malaysian Airline System, collaborative collective bargaining relationships developed (Ping and Kadir 1987). Joint consultative committees comprising union-management


representatives decide on grievances and quality issues. Seng and Hashim (1987) note that in medium-size Malaysian manufacturing firms, management meets once a month with the area union committee to resolve issues, and the managing director meets with union representatives on a regular basis. In the banking sector, an interrelations committee comprising both union and management representatives meets periodically to resolve grievances and plan operations (Arul et al. 1987). Examples of cooperative labour-management relations are few, however. The primary motivation for collaboration appears to stem from the need to improve productivity, particularly after privatization of state-owned ISI enterprises. Overall, however, it would appear that labour-management relations are conflictual. Although the number of strikes has fallen, the number of disputes (see Table 6.5) shows a steady increase, indicating substantial conflict in the system, mostly in manufacturing (the manufacturing sector accounted for the majority of disputes, comprising 41 per cent of all disputes in 1986). The correlation between the number of strikes and the number of disputes is negative at 0.45 (p500

Short-term specific written contracts Oral Casual Other short-term







52.6 33.7 3.2

55.1 19.4 2.0

29.5 23.2 3.6

20.3 12.6 0.7

10.3 8.6 –

13.1 11.5 3.3

Table 6.8 Types of disputes (percentage) Union sector





Dismissal of workers

259 (35.8) 417 (57.7) 46 (6.3) 722

409 (48.2) 251 (29.5) 188 (22.2) 848

492 (43.8) 480 (42.7) 151 (13.4) 1123

467 (46.6) 383 (38.2) 151 (15.1) 1001

Pay, working conditions, contract terms Other Total

work organization and production that require worker participation in decisions to be successful, job security is an essential ingredient. Employers such as Texas Instruments are beginning to realize this, and the continued labour shortages in the electronics industry will perhaps increase the use of job security in Malaysia. Compensation Traditional forms of wage payment dominate the Malaysian business landscape, although little is known about the differences in wage levels and structures. Since 1983, wage and salary costs as a proportion of total costs have increased by 10.6 per cent per annum, compared to the cost of living which increased by only 4.9 per cent per annum. Seng and Hashim (1987) suggest that labour costs


per employee are rising much faster than labour productivity. However, the industrial masterplan for Malaysia suggests wage increases of only 3 per cent per year and productivity increases of 10 per cent per year to enable it to join the NICs by 2020. Therefore, there is increased debate regarding compensation at both the government and the firm level. The biggest problem appears to be the wage system, which exhibits a number of institutional rigidities such as predetermined automatic annual adjustments, non-adjustable contractual bonuses, and wages linked to seniority (Salih and Young 1989). These rigidities tend to affect employer flexibility. The traditional wage system is based on a fixed scale with annual increments. The scale is negotiated with unions, and is in force for the period of the agreement, which is three years. In addition, other payments such as an annual bonus (irrespective of firm performance) have become the norm. Given these features of compensation system, the search for flexible wage systems, i.e. systems that can be adjusted both upwards and downwards based on the competitiveness of the employer, has become important. At the macro level, the Malaysian Employers Federation is arguing for a ceiling on wage increases, which would be determined in consultation with government and unions. In addition, an ILO study recently suggested that pay be linked to performance. Two general models of flexible pay arrangements exist in the manufacturing industry. The first model is individual performance-based, i.e. linked to performance appraisal of employees. The second model is group-based, and is manifested most often in a profit-sharing bonus plan or a productivity formula plan. At this stage, there is little evidence regarding the extent to which these practices are introduced in the industry. A 1988 survey of manufacturing industry suggests that only about 3 per cent of firms were operating a profitsharing pay system, although experts predict a dramatic increase in this trend (Standing 1992). A third model can be found in the electronics industry, where pay systems are increasingly looking like those in more advanced economies. Under the Fordist production system, workers were paid by a variety of piecerates and production incentives above the daily base rate (Rajah 1988; Grace 1990). New forms of work organization, however, have brought with them new methods of training and wage payment. Increasingly, wages are tied to learning new skills, and Rajah (1988) notes that in many semiconductor companies, a production worker needs to know at least three processes to become a superoperator with a salary reaching almost M$750 a month. (The average wage in the electronics industry is about M $350 per month.) The Malaysian Trade Union Congress has been opposed to flexible wage systems, but given the weakness of trade unions, it is unlikely that they will be able to oppose them successfully. The unions still demand that minimum wage legislation, which currently exists only in certain occupations, be extended to cover the whole economy. There has been considerable international support


from the ILO and American unions for the introduction of a minimum wage in Malaysia. Training There is little evidence regarding the incidence of training in Malaysian manufacturing. Most of the available evidence is from the electronics sector. In Japanese-owned electronics assembly firms, training focuses on the development of job-related skills, delivered primarily through on-the-job training. After three years of training efforts, 70 per cent of the firms surveyed indicated only slight improvement in employee skills. Significant constraints to skill development (Rani et al. 1986) resulted from the language barrier between Japanese management and Malaysian workers, inadequate time devoted to training, and high absenteeism and turnover. This pattern of training was also evident in other Japanese-owned industries outside electronics. An important question here is whether the kind of production system employed really requires highly trained workers, given their low-skill low-cost assembly orientation. In non-Japanese firms also (i.e. US-, German-, Canadian-, Hong Kong- and Malaysian-owned companies), training for operatives focused primarily on the development of skills for the job and was delivered mostly via on-the-job training. Indeed, in both Japanese—and non-Japanese-owned firms, the bulk of the training effort was directed towards the development of technicians, engineers and managers rather than workers. Here again, the major constraints reported were high absenteeism and turnover of factory workers. In summary, there is little available evidence regarding the incidence of employee training or the types of training being carried out in firms. However, with the adoption of new forms of work organization in the electronics industries during the latter half of the 1980s, new methods of training are being introduced. The type of training varied widely, but includes job rotation, and an enhanced emphasis on technical training as production methods become more skillintensive. The impact of these kinds of training programmes on skill development is yet to be seen. Given the labour shortage and the increased demand for skilled labour, there are regional and private sector efforts to upgrade skills. In Penang, which is the locus for higher-skill-oriented production, the local technical university has been granted new funds for giving high-skill training. The multinational companies operating in electronics have also founded the Penang Skills Development Centre. These developments are partly the result of the efforts of Penang’s Chief Minister, Koh Tsu Koon, to attract higher technology investment, efforts which have been largely successful. The higher investment in technology in Penang has been responsible for its higher growth rates (Penang grew at 11 per cent in 1992, compared to 8.5 per cent for the rest of Malaysia). Penang is roughly 20 per cent wealthier in terms of GNP than the rest of Malaysia, and the gap looks likely to grow (The Economist, June 1993).


At the macro level, the government of Malaysia has acknowledged the importance of training for the achievement of its ‘Vision 20/20’ plan (see p. 187). However, the specific instruments by which the skills of the workforce can be upgraded remain under discussion. The government’s current bias is towards increasing the effectiveness of existing educational institutions, and expanding the scope for technical training. The above paragraphs on the major trends in the manufacturing industry clearly indicate that reform is beginning in industrial relations and human resources practice in the manufacturing sector. The dissemination of such practices, however, appears to depend more on the business strategies of firms rather than the policy initiatives of the government. Implications for the future of IR/HR policies The impact of two key economic features on the future of Malaysia’s international competitiveness needs to be considered in the context of industrial relations and human resource policies. First, Malaysia’s competitive advantage of low costs is likely to be eroded, given competition from the Philippines, China and Vietnam. The question is whether Malaysia can make appropriate investments in increasing labour force skills through education, training and labour market policies to bring about further industrial development and to attract more high-technology investment. Second, there is the effect of rapid technological change on production methods and work organization in the electronics sector, which, in turn, implies changes in the method of labour utilization. Rapid technological change to more high-cost, high-skill capital-intensive methods of production may induce foreign investors to relocate to their own ‘high-skill, high-cost’ countries or to other competitors (e.g. Singapore) unless Malaysia provides the kind of workforce that they need. The Malaysian government appears to have taken these issues seriously. The New Malaysia Development Plan 1991–95 (MDP) envisages Malaysia becoming an ‘industrialized’ society by 2020 (Kin 1990). The National Development Policy (that replaced the NEP) aims at a restructuring of the economy, diversification of its industrial base, privatization and enhancing human resource development to meet plan goals. In more specific terms, the policies, known as ‘Vision 20/20’, include further industrialization, privatization, upgrading of skills, the development of the service sector, the development of science and technology and education generally, and the creation of a more ethnically integrated population characterized by more equality. This policy would require annual growth rates of about 7 per cent, and is predicted on a successful upgrading of the economy. This plan has important implications for the future of industrial relations and human resources policies, both at the macro and the micro levels. Given that an industrial relations system oriented towards employment stability and workplace


flexibility appears necessary to compete effectively in today’s international markets, the government has a considerable regulatory and legislative role to play to facilitate these ends. Individual firms an enterprises have significant progress to make at the micro level, where elements of new industrial relations and human resources practices can be seen in the bellwether electronics industry. However, much remains to be done to create a stable and flexible industrial relations system that is based on collaborative labour relations and provides employees with job security. Although companies have started investing in broader training and skills upgrading and have introduced team systems and enterprise unions, employee involvement is not likely to increase without job security and good worker representation, both of which are currently absent. These innovations, along with skilled labour shortages, are driving changes in compensation and skill formation practices in their turn. And although joint consultative councils are mandated by legislation to improve labour-management relations, they are ineffective given the restriction placed by legislation on bargaining and the general weakness of trade unions. In areas where unions are stronger, the success of efforts at reform depends crucially on their integration into the decision-making process. The important lesson to be learnt is that such practices will not succeed in isolation: firm-level industrial relations and human resource policies must be mutually reinforcing, i.e. must fit together into a consistent whole. It is this aspect of interrelationships between various IR/HR policies that requires attention. In the private sector, collective bargaining structures tend to be decentralized, with a variety of different forms (Arudsothy and Littler 1992) and little evidence of any consistent pattern. By and large, bargaining power rests with the employers, given the limitations on unions’ right to strike. Collective bargaining agreements are in force for a legally mandated period of three years, thus limiting the ability of firms to respond quickly to changes in the economic environment (Ayyadurai 1990). Government policy must attempt to create the conditions for collective bargaining that provides both worker protection and employer requirements for flexibility. At the macro level, several areas for policy reform exist. In the context of Malaysia’s own vision for its future, skills upgrading and development appear most crucial. In the context of skill development alone, several initiatives seem necessary. These include policies that provide incentives for firms to invest more in training, as well as means of upgrading the quality of the workforce through education. In addition, given that a large part of recent Malaysian development has been financed through foreign investment, the area of technology transfer and developing backward and forward linkages with foreign-owned manufacturing firms is critical to the success of Malaysia. When one examines the role of multinationals, two features emerge. On the one hand, multinationals have clearly contributed to increased employment. However, there has been relatively little development of local skills and even less transfer of technology (Rani et al. 1986). Surveys indicate that foreign


investment in electronics has not resulted in any technological spin-offs for local industries. The bulk of raw materials, as well as machinery and equipment, has been brought from the parent company plants overseas. The percentage of input from local subcontracting companies is very small (less than 20 per cent), characterized by very low-skills products. Most of the export-oriented industries also repatriate a large part of their profits and show minimal linkages with local industries. The most common forms of technology transfer are via assistance from parent companies and training for top management. Non-Japanese firms tend to be more dependent on local equipment suppliers, but this is to a very limited extent. Licensing as a means of technology transfer is very limited, and there are very few cases where research and development are concentrated in Malaysia. Clearly the high cost of research and the need for highly skilled manpower militate against research being based in Malaysia. Nevertheless, it is generally considered that the greatest potential for technology transfer lies in the electronics industry. The policy implications of technology transfer are several. On the one hand, the government can provide a better environment for multinationals to upgrade the quality of their production through incentives for research, development and promoting technical training and technological infrastructure. Providing a more highly skilled workforce will be vitally necessary to keep multinationals in Malaysia. In addition, given that neighbours like Cambodia, Vietnam and Laos offer lower-cost alternatives, Malaysia will have to sell itself as a location for high-skills-based investment. Alternatively, laws on joint ventures should provide for significant Malaysian involvement in production. Another alternative is domestic content provisions, although this might drive low-cost producers out of Malaysia. Providing incentives for foreign companies to invest in greater training and skill formation is a key aspect of government policy that needs to be addressed. The government’s current approach appears to be biased towards providing a higher-skilled workforce. As regards linkages with these export-oriented foreign-owned firms, the role and ability of the informal sector to be a basis such ties ought to be explored in greater detail. Currently, very little is known about the informal sector. Although ‘Vision 20/20’ addresses the need to develop small and medium-scale organizations, little attention has been paid to the informal sector. Apart from these issues, it is important for the government to ensure that various macro-level policies also interact and are mutually reinforcing. Attention must be paid to the interrelationship between industrial relations policies and other national policies such as education, training, skill development, migration, labour market and industrialization. For example, investment in on-the-job training is of limited use unless it is accompanied by national policies with respect to education and training, incentives for companies to train, and labour market policies to redeploy and train surplus workers. These changes are not possible unless state labour policy is substantially reconceptualized. More fundamental changes therefore appear necessary at the macro level.


Finally there is the issue of effective worker representation. The fast pace of development since 1983 has resulted in rising incomes for most Malaysians. However, this was accompanied by significant repression of worker rights in export-oriented industries, and recent restructuring efforts have resulted in an increasing portion of the workforce being dependent on temporary work. In order to achieve a more egalitarian society (one of the key aspects of ‘Vision 20/ 20’), the government needs to articulate policies that effectively address this issue. Increased ability of unions to represent workers effectively may be one step towards the goal of reducing conflict. In addition, union input into major decisions regarding future economic directions may also be relevant, given that they have little or no political influence currently. Introduction of mandated minimum wages may be another step. If the current unequal power relationship continues, it is likely to result in a more polarized society. In this connection, policies that favour one ethnic group over others may also have to be reconceptualized. A note on government-labour relationships is germane here. A significant development in the mid-1980s has been the ‘internationalization’ of the Malaysian issues of freedom of association and the right to collective bargaining which have been raised at annual meetings of the ILO. Repeated attempts by the Malaysian Trade Union Congress to force the government delegation to agree to ratify the ILO conventions have failed. The fact that these questions were repeatedly raised at ILO meetings in Geneva has been a source of embarrassment for the government and has led to a further isolation of the labour leadership in national affairs. This trend has been aggravated by several government ministers expressing criticism of the trade unions for being ‘antigovernment’ or ‘anti-national’ not only for pursuing workers’ interests but also because of some union leaders’ participation in opposition political parties.8 Attempts made by the government to restructure the trade union movement in such a way that enterprise unions will become the basic units were regarded as a significant threat by the labor movement. However, the Ministry of Labour argued that these steps were in conformity with the Prime Minister’s attempt to ‘Japanize’ domestic institutions so as to accelerate economic growth in the East Asian mould. In the ensuing struggle for their respective models of economic development, the MTUC found it expedient to draw international attention to the many restrictions on Malaysian workers’ rights. The MTUC was able to highlight the lack of the freedom or organize in Malaysia’s electronics sector. Although the AFL-CIO was able to use this information to petition Congress to withdraw Malaysia’s access to GSP status, in the acrimonious debate that ensued between MTUC and the government, labour leaders were forced to demonstrate their patriotism by calling on the US administration not to remove Malaysia from the list of countries enjoying preferential trading terms with the US. Since 1993 there has been an attempt by the group of Labour ministers from the Association of South-East Asian Nations (ASEAN) to adopt a more proactive labour policy so as to avoid international embarrassment over violation of human


rights and labour rights. For example, ASEAN Labour Ministers met in Manila prior to the 80th ILO Conference in June 1993 to develop common strategies to thwart moves by labour delegates who were demanding that labour rights violations be discussed. They also requested the ILO directorate to give newly industrializing countries greater flexibility with regard to the management of labour resources and the consequent applicability of ILO conventions. In addition, the government of Malaysia has since then discreetly sought to encourage the formation of alternative national or apex bodies such as the MLO (Malaysian Labour Organization). The MLO, initially sponsored by the National Union of Bank Employees and Newspaperworkers, has tended to adopt a competitive role against the MTUC, both locally and internationally. CONCLUSIONS In sum, it would appear that the ISI strategy was associated with an industrial relations policy that was, in some sense, pluralistic. However, with the shift to EOI, government labour policy became more restrictive and focused on cost containment to facilitate the success of the competitive strategy of low-cost exports and the need to attract foreign investment. There is some evidence that foreign manufacturers did exert some pressure on the Malaysian government to contain costs. The mechanisms by which repressive state policies were enacted included various changes in industrial relations rules and increased government involvement in the industrial relations sphere. Although new trends in industrial relations and human resources practices are apparent, more detailed case studies are necessary to identify the key reasons for these trends. Our general investigation suggests that the motivations for these new practices are several. In the state-owned enterprises, there is a gradual realization that productivity enhancement requires active participation of the workers in some form. In other companies, it is possible that the shift to more employee participation is driven by competition, technological change and the need for increased flexibility. On the other hand, it is also possible that this shift to more human resources management techniques reflects a desire for more sophisticated forms of labour control. All of these reasons might account for this trend. Future research must address these issues more specifically. It is difficult, however, to conclude that these new directions represent the majority of responses by firms, since this chapter does not constitute a comprehensive survey of industrial relations practices. The remarkable, sustained high growth rates of around 8 per cent achieved by the Malaysian economy since the mid-1980s, and the phenomenal growth of foreign investment since then, have required tremendous labour market adjustments. Most notably, this has led to a rapid expansion of training both for middle-level management staff and for low-cost migrant labour. In fact, the labour shortage has resulted in an increasing influx of foreign workers, exceeding 300,000 according to official estimates. While attempts to achieve


ethnic balance in the workforce as part of the NEP have to some extent fallen off in the context of a very tight labour market, the government has yet to work out the distinctive human resources and industrial relations policies needed for the future. These questions have not been addressed in ‘Vision 20/20’, the government’s blueprint for the future. It appears that Malaysia is at a juncture where it is rethinking its economic policies, and moving towards a more high-skill, high-wage, value-added economy. The key challenge is to harmonize different policies at the macro level in order to achieve these ends. Although there are signs of new industrial relations and human resource practices in Malaysian manufacturing, the trend is not widespread. Government policy needs to address these issues in more detail, at this critical moment of transition for its economy and industrial relations system. NOTES An earlier version of this chapter was presented at the International Conference on Industrial Relations in East Asia and Africa, held at Sydney in September 1992, and is to be published in a book edited by Stephen Frenkel and Jeffrey Harrod. Our thanks to Pan Shih-Wei and Lee Byoung-Hoon for research assistance, and to Stephen Frenkel, Jeffrey Harrod, Thomas Kochan and Anil Verma for helpful comments. Errors, if any, are ours. 1 European firms owned 83 per cent of the land under agricultural cultivation, British companies owned 60 per cent of mining, 60–70 per cent of external trade and 75 per cent of the banking sector. 2 The foreigners continued to own 61.5 per cent of corporate assets, although the share of the Chinese and Indians increased to 23.7 per cent relative to the share of Malays which remained constant at 1.5 per cent. 3 There were many doubts about the viability of these big projects, with critics arguing that they would serve to increase budget deficits. Clearly there was some truth in these criticisms, as the Proton project had a capacity of only 40 per cent of the 200,000 units a year deemed necessary for economic viability in the car industry (Bowie 1991). 4 Hourly compensation costs (in US dollars) calculated by Salih and Young (1989) suggest the following: USA 8.32, Singapore 1.58, Hong Kong 1.33, South Korea 1. 19, Malaysia 0.84, Philippines 0.63, Thailand 0.43 and Indonesia 0.35. 5 The AFL-CIO has made two petitions to the US government to revoke Malaysia’s GSP status. The second petition in 1990 was also rejected by the US Trade Department on the grounds that it did not have information that was substantially new over the previous petition. There is basis for the speculation (Grace 1990) that US corporations operating in Malaysia successfully lobbied the government to retain the country’s GSP status. 6 In contrast, workers in the electrical and consumer products industries making televisions and stereos are allowed to affiliate themselves with national unions like


the Electrical Industry Workers Union (EIWU). Support from the national union, with established and experienced union leaders, is crucial for the growth of unions in the electronics sector, which is characterized by unskilled, mostly female labour with little trade union experience. 7 In conjunction with the Heavy Industries Programme, Dr Mahathir articulated his ‘Look East’ policy. The essentials of this policy were to emulate the example of industrial success by Japan and Korea. The policy called for the introduction of Japanese institutions (such as enterprise unions) but also, exhorted Malays to be more disciplined and productive like their East Asian counterparts. See Bowie (1991) or Frenkel (1993) for details. 8 The current Minister for Human Resources Development (formerly the Ministry of Labour) Datuk Lim Ah Lek has failed to adapt to the demands of workers and unions that he be seen publicly to be sorting out the problems of the labour market and inter-union rivalry. Instead, he has adopted a highly bureaucratic style and allowed his officers to handle most of the workers’ grievances at their own pace rather than actively promote their resolution.

REFERENCES Amjad, Rashid and Mohanty, Mritiunjoy (1991) ‘Industrial restructuring and implications for human resource development in ASEAN’, The Asian HRD Planning Network, ILO-UNDP project, working papers. Angebrandt, Ann Marie (1990) ‘Labour top concern for chip executives’, Electronic Business Asia, November. Arensman, R. (1990) ‘Malaysia heads for a labour showdown’, Electronic Business Asia, September: 45–52. Ariff, Mohamed and Hill, Hal (1985) ‘ASEAN manufactured exports: performance and revealed comparative advantage’, ASEAN Economic Bulletin 2(1):33–35. Arudsothy, Ponniah (1991) ‘The state and industrial relations in developing countries: the Malaysian situation’, ASEAN Economic Bulletin 6(3), March. Arudsothy, Ponniah and Littler, Craig (1993) ‘State regulation and fragmentation in Malaysia’, in Steven Frenkel (ed.) Organized Labour in the Asia-Pacific Region: A Comparative Study of Trade Unions in Nine Countries, Ithaca: ILR Press. Arul, Francis, Saidin, Burhanuddin and Abu, Ahmad Murshid (1987) The public bank Berhad’, in Labour Relations and Productivity at the Enterprise Level. Selected Case Studies from Within ASEAN, Bangkok: ILO/UNDP/ ASEAN Programme on Industrial Relations for Development. Ayyadurai, Dunston (1990) ‘Industrial relations in Malaysia: issues and responses’, Malaysian Management Review 25(1):38–50. Barnard, Amii Larkin (1992) ‘Labour law in Malaysia: a capitalist device to exploit Third World workers’, Law and Policy in International Business, 23(2), Spring: 415–40. Bjorkman, M., Lauridsen, L. and Marcussen, H. (1988) ‘Types of industrialization and capital-labour relations in the Third World’, in Roger Southall (ed.) Trade Unions and the New Industrialization of the Third World, London: Zed Books. Bot, Tengku Omar bin Tengku (1988) Voluntary and Compulsory Arbitration of Labour Disputes in Malaysia, Bangkok: ILO.UNDP/ASEAN Programme of Industrial Relations for Development.


Bowie, Alasdair (1991) Crossing the Industrial Divide: State, Society, and the Politics of Economic Transformation in Malaysia, New York: Columbia University Press. Chee, Peng Lim and Lee, Poh Ping (1983) ‘Japanese direct investment in Malaysia, with special reference to Japanese joint ventures’, in Sueo Sekiguchi (ed.) ASEAN-Japan Relations: Investment, Singapore: Institute for South East Asian Studies. Cheong, K.C. and Lim, K.C. (1981) ‘Implications of the transfer of technology and primary-ancillary linkages: a case study of the electronics, and electrical industry in Malaysia’, in H.Osman Rani, K.S.Jomo and Ishak Sari (eds), Development in the Eighties, with Special Emphasis on Malaysia, Special Issue of Journal Ekonomie Malaysia 3/4:119–46. Deyo, Frederick (1989) Beneath the Miracle: Labour Subordination in East Asian Development, Berkeley: University of California Press. Duthie, Steven (1990) ‘Electronics union in Malaysia stifled by merging of firms’, Asian Wall Street Journal Weekly, 1 October 1990. Frenkel, Stephen (1993) Organized Labour in the Asia-Pacific Region: A Comparative Study of Trade Unions in Nine Countries. Ithaca: ILR Press. Grace, Elizabeth (1990) Short Circuiting Labour: Unionizing Electronic Workers in Malaysia, Kuala Lumpur: Insan. Henley, J. (1983) ‘Corporate strategy and employment relations in multinational corporations: some evidence from Kenya and Malaysia, in K.Thurley and S. Wood, (eds) Industrial Relations and Management Strategy, Cambridge: Cambridge University Press. IMF News Release, Geneva, 9 April 1992, no. 9. Katz, Harry, Kuruvilla, Sarosh and Turner, Lowell (1992) Trade unions and collective bargaining’, in Impediments to Competitive Labour Markets: An Overview of Policy and Research Issues, Washington, DC: The World Bank, PHREE. Kerr, Charles, Harbison, John Dunlop and Myers, Charles (1964) Industrialism and Industrial Man, New York: Oxford University Press. Khan, Muinuddin (1989) Labour Administration: Profile on Malaysia, Bangkok: ILO and ARPLA. Kin, Lai Kwok (1990) Speech, released 8.30 GMT, 10 July 1990. Kuruvilla, Sarosh (1994) Industrialization Strategies and Industrialization Policies in Malaysia and the Philippines, Proceedings of the 1994 Annual Meetings of the Industrial Relations Research Association, Boston: IRRA. Lim, Linda Y.C. (1978) ‘Multinational firms, and manufacturing for export in less developed countries: the case of the electronics industry in Singapore and Malaysia’, Unpublished doctoral dissertation, University of Michigan. Lim, Linda Y.C. and Pang Eng Fong (1991) Foreign Direct Investment In Industrialization in Malaysia, Singapore, Taiwan, and Thailand, Development Centre Studies, Paris: OECD. Mills, C.P. (1984) ‘Industrial disputes law in Malaysia’, Kuala Lumpur: Malaysian Law Journal sdn.bhd. Onn, Fong Chan (1989) ‘Wages and labour welfare in the Malaysian electronics industry’, Special Issue on High Tech and Labour, Labour and Society, 14: 81–102. Pehie, Mohd. Mansour bin lop and Shian, Chen Voon (1988) The problem of union recognition in Malaysia’, Bangkok: ILO/UNDP/ASEAN Programme of Industrial Relations for Development.


Pi’i, Asnan bin and Kumaraguru, K. (1989) ‘Labour relations and development in Malaysia: a brief overview’, in Labour Relations and Development, Summary and Working Papers of the Third ASEAN Tripartite Course on Labour Relations and Development, Phuket, Thailand, 14–21 April 1989. Ping, Lian Lai and Kadir, Haji Mustapha Abdul (1987) ‘Malaysian Airlines Systems Berhad in labour relations and productivity at the enterprise level’, Selected Case Studies from Within ASEAN, Bangkok: ILO/UNDP/ASEAN Programme on Industrial Relations for Development. Rajah, Rasiah (1988) ‘Production in transition within the semi-conductor industry and its impact on Penang’, Journal of Malaysian Studies 6(2), June: 85–111. Rani, Osman, H., Woon, Toh Kin and Ali, Anuwar (1986) Technology and Skills in Malaysia, Singapore: Institute of Southeast Asian Studies. Salih, Kamal and Young Mei Ling (1989) ‘Changing conditions of labour in the semiconductor industry in Malaysia’, Special Issue on High Technology and Labour, Labour and Society 14. Seng Tong Kai, and Hashim, Ahmad Nazari (1987) ‘Company M’, in Labour Relations and Productivity at the Enterprise Level. Selected Case Studies from Within ASEAN, Bangkok: ILO/UNDP/ASEAN Programme on Industrial Relations for Development. Sharma Basu (1985) Aspects of Industrial Relations in ASEAN, Singapore: Institute for Asian Studies. Sivagnanam, S. (1988) The administration and enforcement of collective agreements in Malaysia’, Bangkok: ILO/UNDP/ASEAN Programme of Industrial Relations for Development. Spinanger, Dean (1986) Industrialization Policies and Regional Economic Development in Malaysia, Singapore: Oxford University Press. Tyers, Rodney, Phillips, Prue and Findlay, Christopher (1987) ‘ASEAN and China exports of labour intensive manufactures: performance and prospects’, ASEAN Economic Bulletin 3(3), March: 339–66. UNTNC (1987) Transnational Corporations and the Electronics Industries of ASEAN Economies, UNCTC Current Studies, Series A, No. 5, New York: United Nations, United Nations Centre on Transnational Corporations. Yong, Siew Yew (1987) Employment Effects of Multinational Enterprises in Malaysia Working Paper No. 53, Bangkok: Multinational Enterprises Program.

Chapter 7 Philippine industrialization and industrial relations Rene E.Ofreneo

AN OVERVIEW OF THE PHILIPPINE ECONOMY AND LABOR MARKET The Philippines has an open market economy. However, its overall development is highly uneven. Today, agriculture accounts for one-fourth of the gross domestic product but provides jobs for half of the labor force. There is a large urban informal sector, estimated by some economists to contribute as much as 40–50 percent of the gross national product (GNP).1 Compared to the newly industrializing countries of Asia, industry is still relatively underdeveloped, with its share in overall employment fluctuating between 14 and 16 percent. The employment share of manufacturing, the most important industrial sub-sector, is only 9–11 percent of total employment.2 In 1991, the total population stood at 62.8 million. About 28.6 million were classified as belonging to the working age population (15 years old and over). The labor force participation rate was 66.4 percent, resulting in a labor force of 25.6 million, 10.6 percent of whom were unemployed (see Table 7.1). Philippine industrialization: patterns and strategies A combination of foreign debt crisis, political turbulence (e.g. crisis of the Marcos regime, military-led revolt, coups, etc.) and the ensuing failure to maintain and expand basic infrastructure (e.g. communications and transport systems) in the 1980s weakened the economy in general and industry in particular. This coincided with the implementation of the World Bank structural adjustment program (SAP), which made the operations of many domestic enterprises extremely difficult as SAP exposed them to the forces of global competition. Not surprisingly, the


Table 7.1 Labor force and employment status, 1980–1991 Year

Populatio Labor n 15 yrs force old and (’000) over (’000)

Employe d (’000)

Unemplo Labor Employm Unemplo yed force ent rate yment (’000) participat (%) rate (%) ion rate (%)

1980 28,967 17,268 15,900 1368 59.61 1981 29,501 18,202 16,595 1607 61.70 1982 30,414 18,551 16,767 1743 60.99 1983 31,278 19,855 17,791 2064 63.48 1984 32,261 20,416 18,292 2124 63.28 1985 33,889 20,743 18,136 2609 61.21 1986 33,469 21,362 18,836 2527 63.83 1987 34,462 22,563 20,040 2523 65.47 1988 35,478 23,449 21,205 2244 66.09 1989 36,520 24,120 21,908 2212 66.05 1990* 37,636 24,244 22,212 2032 64.32 1991 38,599 25,639 22,902 2737 66.43 Source: National Statistics Office *No April survey for 1990; yearly figures are year averages

92.08 91.17 90.38 89.60 89.60 87.43 88.18 88.82 90.43 90.83 91.62 89.42

7.92 8.83 9.40 10.40 10.40 12.58 11.83 11.18 9.57 9.17 8.38 10.58

decade of the 1980s saw some kind of deindustrialization as domestic industry literally shrank in the mid-1980s.3 Today, the Philippines is the industrial laggard of East Asia. This is ironic considering that the Philippines, compared to its more prosperous neighbors in south east Asia, has a relatively longer history of industrialization, which dates back to the prewar period. However, the pattern of Philippine industrialization has been limited, uneven and segmented. Briefly, the Philippines pursued three types of industrialization: agribased industrialization associated with the prewar free trade policy imposed by the United States on its former colony, import-substituting industrial (ISI) development undertaken by a nascent industrializing elite in the 1950s and 1960s, and an export-oriented industrial (EOI) strategy based on labor-intensive manufacturing, which has been vigorously promoted by government technocrats since the 1970s. Each type of industrialization contributed to a certain level of economic growth for the country. However, the initial burst of growth, limited and unsustained, was followed by a full-blown crisis.


Industrialization under Spain and the United States During the last half-century of Spanish colonial rule, the Philippines was opened to world commerce. This spurred the growth of export agriculture featuring sugar, tobacco, indigo, hemp and coconut as export crops.4 After succeeding Spain, the United States strengthened the orientation of the colonial economy toward the production of cash crops for export through a “freetrade” arrangement between the Philippines and the United States. Thus, the first three decades of American rule saw the steady expansion of the export crop area, which spurred a limited development of agri-based manufacturing (e.g. sugar and coconut processing) and internal commerce. A modicum of economic growth and development was realized in Manila and the regions that participated in the free trade-guided export crop economy. However, the Great Depression which hit the United States in the 1930s showed the extreme vulnerability of an economy dependent on just a few export crops destined to a single market. The decline in agricultural exports by more than 30 percent in the 1931–35 period coincided with labor and peasant unrest,5 which the then President, Manuel L.Quezon of the Philippine Commonwealth government tried to tame through a “Social Justice Program” that drew inspiration from Franklin Roosevelt’s “New Deal Program.” After the Second World War, the reimposition of the “free trade” arrangement between the two countries was a disaster for the Philippines as the latter’s warweary economy failed to generate the export earnings needed to finance the postwar appetite for imported American goods. A serious balance of payments (BOP) crisis ensued despite the release of American war damage payments.6 This crisis coincided with serious labor and peasant unrest, which became part of a bigger politico-economic crisis highlighted by the threat of a communist-led armed rebellion.7 Import-substituting industrialization (ISI) Faced with a severe BOP crisis, Congress enacted on July 15, 1948 Republic Act No. 330 or the Import Control Act, which authorized the President “to establish a system of import control by regulating imports of non-essential and luxury articles, creating an import control board authorizing the issuance of rules and regulations to carry into effect such control.” With the enactment of the law, the President issued in 1949 a series of executive orders restricting the importation of non-essential and luxury goods and prescribing import quotas for a number of commodities.8 Later, the newly established Central Bank was forced to intervene drastically in the economy by supplementing the import controls with foreign exchange control measures. The American-sponsored US Economic Survey Mission or Bell Mission, which was ambivalent on the issue of controls and conscious of their repercussions on the foreign exchange remittances of American companies,


grudgingly accepted the need for controls, citing their role in the economy “as a safety measure.”9 However, in the hands of newly organized Central Bank of the Philippines, the import and foreign exchange controls became a deliberate program for the promotion of import-substituting industries. A nascent group of Filipino industrialists took full advantage of the program to develop “new and necessary industries,” which were generally light import-replacing industries. This group was joined by the American distributors of imported products which were forced to set up Philippine subsidiaries engaged in the packaging or assembly of semiprocessed and semi-knocked down parts of imported products they used to distribute. Because of the ISI strategy, the Philippines registered annual double-digit industrial growth rates in the 1950s. However, the growth rate slackened in the early 1960s and soon it became clear that the economy was once again facing an insurmountable BOP crisis because the ISI industries were all dependent on imported machinery, raw materials, tools, parts, and processes. Under the pressure of the International Monetary Fund (IMF), the agri-mineral-timber exporters and the American Chamber of Commerce, the administration of President Diosdado Macapagal devalued the peso and removed the import and foreign exchange controls through a program of “decontrol”. At the same time, the government tried to placate the ISI industrialists by setting up a system of high tariff protection,10 which, in effect, maintained the import-substituting orientation of industry. Ambivalence in economic directions With the BOP deficits, the government was forced to go to the IMF and to acquiesce to IMF-suggested policies of opening up the economy through peso devaluation and the enactment of measures encouraging foreign investments and export-oriented production. The growing IMF clout in policy making was reinforced by the rise in the bureaucracy of western-trained economists collectively dubbed the technocrats. On the other hand, the political clout of the Filipino industrialists, whose interests were sufficiently represented in the old Congress, media, and certain agencies of the government, prevented any substantial lowering of protection to local industrialists. So what took place in the 1960s was a gradual and piecemeal reorientation of the industrial policy toward export orientation while protection for local industry was provided in tariff and other forms. Ferdinand Marcos, who took over from Macapagal in 1966, continued the decontrol program but maintained the tariff protection program, even if the various official pronouncements stressed export promotion and a liberal economic order. Overall, the decontrol program resulted in a neither-here-nor-there situation. The level of new foreign investments was negligible and there was hardly any perceptible trend in the reorientation of actual industrial production toward the


export market. Robert Baldwin, who did a survey of industry and policy changes in the 1960s, concluded that the “significant liberalization effort that could have established the basis for a new type of export-oriented growth was not achieved and the import-substituting manufacturing sector was left in a relatively stagnant state.”11 In short, some kind of a stalemate in economic directions took place in the 1960s. One consequence of this situation was that the country lost momentum in the economic acceleration as it muddled through the 1960s. In a way, the country’s growth decelerated in the 1960s not because the “easy phase” of import substitution was exhausted nor because the country did not become more outward-looking. The growth process weakened primarily because there was a great deal of confusion on economic directions. Thus, by the late 1960s, the Philippines was once again in the throes of a serious BOP crisis. This forced the administration of President Ferdinand E.Marcos to turn to the IMF, which prescribed another drastic devaluation of the peso through the “floating rate” mechanism, with the peso initially contracting to P6.50 to $1 in 1970. The Board of Investments was established and three investment and export incentives laws were enacted: Republic Act (RA) 5185 or the Investment Incentives Act, which gave various incentives to foreign and domestic investors going into preferred areas such as export-oriented production; RA 5455 or the Foreign Business Regulation Act of 1970, which removed the restrictions on the repatriation of profits and other investment disincentives, and RA 6135 or the Export Incentives Act, which gave additional incentives to export producers. Export-oriented industrialization (EOI) Upon the declaration of martial law in 1972, Marcos elevated the EOI strategy to a central state policy. The abolition of the Philippine Congress and the restrictions on labor and militant groups in society aided the adoption of this policy. Moreover, the World Bank and the IMF helped organize a Consultative Group of Creditor Countries (CGCC), which would help finance EOI-related projects under the CGCC’s program of “development financing.”12 Thus, the Philippines became a beneficiary of a huge amount of loans from multilateral and bilateral development agencies as well as from international commercial banks, which were then awash with petro-dollars. Infrastructures for labor-intensive export-oriented industries such as free trade zones and bonded warehousing manufacturing units for those engaged in re-export manufacturing were developed while all kinds of incentives encouraging investments in EOI undertakings were decreed by the martial-law government. Consequently, the Philippines registered a respectable GNP growth rate of almost 7 percent a year in the 1970s due to a debt-fueled infrastructure development program and the inflow of new EOI investments.


However, by the early 1980s, the economy was on a recessionary trend and was once again facing a severe BOP crisis. The EOI industries, which accounted for less than 5 percent of the total manufacturing output in 197713 and which were dependent on imported raw materials (e.g. the export-oriented electronics assembly work), were not enough to make up for the declining earnings from Philippine primary products (export crops, minerals and timber) and the rising cost of servicing the growing foreign debt. The adoption of the Structural Adjustment Program (SAP) It was against this backdrop that the World Bank came into the picture, toting a new development program dubbed the SAP, which calls for the wholesale liberalization of the economy or the removal of whatever remaining protection ISI industries still enjoyed through the further opening up of the economy to global competition and the promotion of export industries based on the country’s comparative advantage, which is generally seen to lie in cheap labor. After some resistance, the Marcos regime accepted the SAP package sweetened with a $200 million World Bank Structural Adjustment Loan (SAL). The adjustment measures included the downward restructuring of the tariff system and the liberalization of imports; new export-enhancing schemes; restructuring of the investment incentives system to facilitate investment application processing and encourage export ventures; rationalization of certain industries such as textiles, cement, electronics, etc.; financial reforms such as the “flexible” exchange rate for the peso, interest rate deregulation and “unibanking” reforms in the banking industry; fiscal reforms such as better mobilization of domestic resources through tax and non-tax measures; dismantling of government monopolies and privatization of some government corporations; and continuing diversification of energy sources.14 But the timing of the SAP was a disaster. It coincided with the recession in 1980–83 and the depression in 1983–85. Given the antiprotectionist nature of the SAP, it was only natural that the SAP measures would have a negative impact on industries and firms catering to the domestic market. Also, SAP was implemented against the backdrop of negative external economic factors, e.g. a new round of global oil price increases, upsurge in world interest rates and the collapse of prices for the country’s leading minerals (gold and copper) and agricultural (sugar and coconut) exports. SAP was also complemented by the “bitter pills” of austerity—tight monetary restrictions, reduced expenditures, increased taxation, etc. —imposed by the IMF through its stabilization programs for the Philippines.15 Industry went into a tailspin. Despite the suspension of the import liberalization program in late 1983 due to dollar scarcity, manufacturing was plagued by a number of formidable problems: the crisis in the letters of credit (foreign creditors shifted to cash-basis transaction because of the uncertainties over the debt crisis), ever-rising interest rates, increased costs of production, and


drastically reduced market demand. Thus, while the growth rates for the entire economy progressively shrank, the decline of manufacturing was bigger than the other sectors of the economy. The share of manufacturing in overall employment went down from 11 percent in 1980 to 9.7 percent in 1985.16 SAP under Aquino’s presidency The economic crisis eased somewhat with the rise to power of a new government in February 1986. The economy improved with the return of political normalcy via the so-called “people power” revolution, the price recovery in the world market of the country’s major primary export products (gold, copper, sugar and coconut) increased demand for Philippine-sewn garments and Philippine-assembled electronics, and a fall in the price of oil. Also, the IMF, which was harsh on the Marcos regime in its twilight years, was lenient on the Aquino administration, which was allowed to engage in massive pump-priming activities in 1986–88. As to the SAP, the Aquino administration did not only continue it but also deepen and broaden its implementation, especially with regard to the import liberalization program which was reactivated (Marcos suspended the program in late 1983) with the liberalization of 700 items in 1986, dismantling of some government-supported monopolies (associated with certain Marcos cronies) and the implementation of the privatization program. But unlike during the Marcos administration, the implementation of the various SAP measures did not provoke much resistance from the business community (except the import liberalization program) nor did it cause them much anguish. In the first place, the most difficult adjustments had already taken place. As the World Bank put it, “The industry is ‘leaner’ as a result of the deep recession in 1984–85, which enabled only the strongest firms to survive.”17 Development of the labor market The formation of the army of wage workers naturally had to follow the uneven pattern of industrial and economic development in the country. Wage workers first developed in the export crop-oriented undertakings (e.g. sugar plantations, cigar factories, coconut desiccating) and urban commercial enterprises. Under the ISI program in the 1950s, the army of wage workers expanded tremendously. A major consequence of the ISI was the development of a modern industrial sector, along with the various economic and labor institutions that accompany such development. An early World Bank report on the Philippines sums it up as follows:18 The major structural change since the war has been the growth of domestic manufacturing. Organized manufacturing (5 workers and over), which was limited to processing of agricultural products before the war, expanded more than 10% per year during the 1950’s. By 1960, it had become a


significant segment of the economy, accounting for 12.7% of the net domestic product that year. A vigorous entrepreneurial class has emerged and the nucleus of a skilled labor force has been formed. The rise of “non-traditional” export products under the EOI strategy altered the labor market somewhat. Since the thrust of the EOI strategy is to exploit the country’s comparative advantage as an export platform for labor-intensive production, the workers hired in the EOI enterprises are mostly low-paid semiskilled workers, usually women with only elementary or high school education. These women workers, known for their proverbial patience and dexterity, operate the assembly lines in the electronics, toy, part, garment and other “nontraditional” manufacturing enterprises. A number of EOI enterprises are located in the enclave free trade zones such as the Bataan Export Processing Zone (BEPZ), the Mactan Export Processing Zone (MEPZ) in Cebu and the EPZ in Baguio. However, a big number of electronics and garments exporters-manufacturers have located their operations in Metro Manila by taking advantage of the bonded warehousing manufacturing (BWM) facilities set up by the government for those engaged in so-called “reexport manufacturing.” Another feature of the changing industrial landscape was the proliferation of subcontracting arrangements. In the first place, most of the export products such as garments, electronics, automotive parts, toys, etc. are produced under international subcontracting, with the “principals” abroad the ones giving the orders, designing the products to be manufactured locally, providing the raw materials to be used and buying all the produce for international marketing or application. International subcontracting explains why a big number of the EPZ firms are Filipino-owned whereas the idea of the EPZ is to attract foreign investors interested in exports. International subcontracting also explains why the more sophisticated products like cars are not produced as whole products but as parts and components. The Philippines, with its cheap labor and low level of industrialization, can only specialize in cheap labor-based, low-technology types of production.19 Subcontracting can also be multi-layered, meaning that there can be many levels of subcontracting, starting from the international principals. This is best illustrated by the export-oriented garments sector, where two-thirds of the work force are estimated to be domestic outworkers doing jobs under subcontracting arrangements with village agents who, in turn, get their jobs from city or provincial agents of Manila-based exporters-manufacturers.20 Major characteristics of the labor market Despite the changes during the ISI and EOI periods, the labor-absorptive capacity of industry has been very weak. Today, industry employs only 14–15 percent of the labor force, with manufacturing accounting for 9–10 percent. In


the past, agriculture was the main sponge that absorbed excess labor; today, it is the informal sector and the overseas labor market that serve as the catch basins for labor. A closer look at the labor force statistics regularly issued by the National Statistics Office (NSO) shows the following:21 1 Less than half of the employed are wage and salaried workers. Those subsisting on wages account for about 45 percent of the employed; the rest are either self-employed (mostly those in agriculture and services) or unpaid family workers (about 16 percent of the employed). 2 There is evidence of massive and persistent unemployment and underemployment problems: the annual unemployment rate is estimated to average to 10 percent (see Table 7.1). On the other hand, underemployment affects over one-third of the labor force. 3 The industrial backwardness of the country is reflected in the limited share of industry, particularly the manufacturing sub-sector, in employment. In 1960, industry accounted for 12.6 percent of total employment, with manufacturing contributing 12.1 percent (see Table 7.2). In 1970, the picture was virtually the same, with manufacturing staying at 11.9 percent. However, in 1980, there was noticeable decline in the share of manufacturing, employment-wise (10.6 percent). In 1990, it even went down below double digits, to 9.7 percent. It was clear that there was some kind of a deindustrialization process in the first half of the 1980s, a period which saw a recession turn into a depression. Agricultural employment went down to less than 50 percent—from 51.4 percent in 1980 to 45.2 percent in 1990. This was not because industry expanded vigorously, but mainly because the services sector swelled to 44 percent, enlarged no doubt by the expanding informal sector. 4 Limited employment in the formal sector is another telling feature of the economy. For the year 1989, NSO data indicate a total of 357,187 establishments distributed nationwide and employing a total workforce of 3. 2 million. And yet, 268,190 of the firms of 75 percent of the total have an employment size of only 1–4 workers each. Moreover, out of the 3.2 million workers in the establishment survey, 976,000 or 30 percent of the total are employed in firms with less than ten workers each. This means only 2.2 million workers are really organizable into unions since it is impractical to organize workers in establishments with less than ten workers. 5 The rise of three new labor groups—overseas contract workers, women workers, and child workers—has been seen in the last two decades. In the case of the overseas contract workers (OCWs) their number is now estimated to be around 2 million. The Marcos government set up the overseas labor placement program in the early 1970s as a “temporary” program meant to ease the domestic unemployment and underemployment problems while the EOI strategy had not yet fully taken off. The program


has become permanently “temporary” as the government—from Marcos to Ramos—keeps on expanding the Table 7.2 Sectoral employment shares, 1960–1990 (percentage shares) Sect or

196 0

Agr 61 icul .2 ture Ind 12 ustr .6 y Ma 12 nuf .1 act uri ng Ser 26 vic .2 es Source: NSO

196 5

197 0

197 5

198 0

198 5

199 0

56 .7

53 .7

53 .5

51 .4

49 .0

45 .2

11 .3

12 .6

12 .1

11 .6

10 .7

10 .7

10 .9

11 .9

11 .4

10 .6

9. 7

9. 7

31 .5

32 .1

34 .1

36 .5

40 .2

44 .0

infrastructures (through the Philippine Overseas Employment Administration, Overseas Workers Welfare Administration, labor attaché system, etc.) for overseas labor deployment. Through official banking channels, the OCWs are estimated to remit $2 billion a year to their families at home; however, the total remittances are estimated to be $5–7 billion a year.22 The OCWs are the country’s biggest dollar earners and serve as the leading safety valve for the crisis-ridden economy. As to women workers, their emergence as a big contingent of the labor force is due partly to the structural adjustment measures of the last two decades, which favor the establishment of light but labor-intensive industries such as electronics and garments where women workers are preferred. Since 1987, the labor force participation rate of women has gone beyond 50 percent. Women workers dominate in the following work categories: sales, professional/technical, service and clerical jobs. Although they represent only 22.2 percent of the production and transport workers, they constitute the majority of the workers in the export-oriented light manufacturing industries. With regard to child workers, the country has a large number of children who are forced to work at a tender age because of poverty. In 1985, UNICEF estimated that there were 5 million Filipino working children within the 5 to 14 age group, 3.9 million of whom were in the rural areas. On the other


hand, the Bureau of Women and Young Workers estimated their number to be somewhere between 5 and 7 million.23 INDUSTRIAL RELATIONS ACTORS AND THE DEVELOPMENT OF INDUSTRIAL RELATIONS POLICIES Compared to some Asian countries, the Philippines has a well-developed body of laws regulating labor-management relations in the formal sector. This is reflected in the Labor Code, Implementing Rules of the Labor Code and the various decisions of the Supreme Court on varied aspects of labor-management relations.24 The development of this body of laws is essentially a product of history, that is of the dynamics of the relationship among the three industrial relations actors— labor, management and government. The trade unions Brief history The Philippine trade union movement is over nine decades old. In this span of time, the trade union movement had seesawed between economic and political unionism.25 During the prewar period, the movement was dominated by labor leaders like the communist Crisanto Evangelista and nationalist Isabelo de los Reyes, who linked the movement with the struggle for national independence and social emancipation. This tradition was carried on to the postwar period by the leaders of the communist-dominated Congress of Labor Organizations (CLO). In the 1950s, at the height of the Cold War and after the CLO was outlawed, the movement slid towards economism, with the institution of the Americaninspired collective bargaining system aiding the shift in the orientation of trade union struggle. In the 1960s, there was a renewed trend toward political unionism, with prominent labor leaders participating in the broad “anti-US imperialist movement” that developed out of the nationalist crusade of Senator Claro M.Recto. This trend was nipped in 1972 by martial law, which paved the way for the revival of economic unionism and the rise of the government-recognized Trade Union Congress of the Philippines (TUCP). As is well known, President Marcos developed an elaborate control system to tame the trade union movement in the 1970s. Using his martial law powers, Marcos banned strikes and all forms of mass action. Through wage decrees, labor injunctions, controls over the trade union movement and government-calibrated tripartite gatherings, the government succeeded in maintaining relative calm on the labor front.26


Labor militancy in the 1980s The “economistic” martial law years of the 1970s were replaced by the “political” decade of the 1980s. In 1980, the Kilusang Mayo Uno (KMU), consisting of the more radical unions and federations, was established, signalling an open challenge to the hegemony of the pro-government TUCP in the labor movement. The KMU even succeeded in organizing area alliances of workers involving unions belonging to non-KMU federations. One such alliance is the Alyansa ng mga Manggagawa sa Bataan (Bataan Labor Alliance) or AMBA-BALA, which coordinated zone-wide strikes in the Bataan Export Processing Zone, a development which the government said would never happen.27 In late 1983, after the assassination of Aquino and the “explosion” of the foreign debt problem, the labor control system of Marcos started crumbling. Labor unrest deepened and became part of the general political agitation against the Marcos regime. Actual strikes increased by 82 percent from 155 in 1983 to 282 in 1984, and by 32 percent to 371 in 1985 (see Table 7.3). The annual frequency of strike notices filed with the MOLE (Ministry of Labor and Employment) reflected a similar trend: from 705 in 1983, notices increased by 36 percent to 960 in 1984, and by 22 percent to 1175 in 1985. The percentage of strike notices which resulted in actual strikes was higher by roughly 26 percent in 1985 as compared to 12 percent in 1984. Strikes tended to be of longer duration in 1985 than in 1984. The number of workers involved totalled 65,306 in 1984 and 111,265 in 1985. Extent of production disruptions as indicated by man-days lost was 1.9 million in 1984 and 2.45 million in 1985. The rapid rise of the Kuilusang Mayo Uno (KMU) and its brand of radical and militant type of unionism also goaded the moderate labor groups, particularly the TUCP and Federation of Free Workers (FFW), to rethink and define their role in national and local politics. In 1983–85, almost all the labor groups—from the radical KMU and of the World Federation of Trade Unions (WFTU) affiliates to the moderate TUCP and the FFW—were active in the protest movement against Marcos’s authoritarian rule. Waning labor militancy since 1987 The number of strikes and mass actions conducted by various labor groups, particularly those of the more militant labor federations, has been declining since the late 1980s (see Table 7.3). This trend has become more pronounced in the early 1990s. There are several reasons for this. In 1986–7, many unions, especially those belonging to radical centers such as the KMU and the WFTU affiliates, took advantage of the expanded democratic space and the government’s liberalization of the labor relations system to conduct strikes and seek better terms with their respective employers. However, the still


popular Mrs Aquino poured cold water on the strike fever in October 1987, reviving the strict rules on strikes promulgated by President Marcos.28 Table 7.3 Number of strikes/lockout notices filed, actual strikes/lockouts, workers involved and man-days lost, Philippines, 1951–1991 Strike/lockout

Actual strikes


notices filed Total With notice Without notice

Workers involved

Man-days lost (’000)

1951 1952 1953 1954 1955 1956 1957 (Jan.– June) 1958–62 1963 1964 1965 1966 1967 1968 1969 1970 1971

– – – – – – –

28 14 13 53 47 77 29

– – – – – – –

– – – – – – –

4,943 2,293 9,683 18,417 14,574 21,165 8,490

– – – – 591 744 75

– 319 445 527 612 561 569 621 819 979

– 88 101 109 108 88 121 122 104 157

– – – – – – – – – –

– – – – – – – – – –

– 47,520 64,624 55,229 61,496 47,524 46,445 62,803 36,852 62,138

– 455 842 812 756 697 584 1,067 995 1,429





0 13 305 146 295 316 362 784 743 705 960 1,175

0 5 86 33 53 48 62 260 158 155 282 371

0 1 40 23 24 24 31 155 119 113 238 309

0 4 46 10 29 24 31 105 39 42 43 62

0 1,760 70,929 30,183 33,731 16,728 20,902 98,585 53,824 33,638 65,306 111,265

0 4 214 34 156 174 105 796 1,670 395 1,908 2,458

1972 (Jan.– Sept.) 1973–4 1975 (Dec.) 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985


1986 1,613 581 459 122 169,479 3,638 1987 1,715 436 365 71 89,574 1,908 1988 1,428 267 222 45 75,848 1,525 1989 1,518 197 169 28 56,541 955 1990 1,562 183 164 19 68,412 1,345 1991 1,345 182 162 20 55,390 1,140 Source: Bureau of Labor and Employment Statistics, Department of Labor and Employment (DOLE) Notes: Data for 1975–6 exclude reports from DOLE regional offices –No data available

There are also indications that labor militancy per se is not sustainable, especially in a depressed economy characterized by massive unemployment and underemployment. While the militant strikes of the KMU and other radical labor groups attracted popular sympathy in the first half of the 1980s, their strikes in the second half of the 1980s lost their mass appeal. Some firms like Mattel, with its 4000-strong workforce, and Baxter Travenol along the busy Edsa avenue in Metro Manila closed shop permanently as a result of the management refusal to bow to the demands of striking workers. Unions that waged illegal strikes lost their leaders and activists as a result of the tough enforcement of the government’s rules on strikes. Moreover, the government and the business community branded many of the strike-prone militant federations as communistdominated. The further decline of labor militancy in the 1990s can also be ascribed to the disintegration of the USSR and the former Soviet bloc and the current crisis in the international socialist movement, which have caused intense debates on the ideology, strategy and tactics in the ranks of the socialist-oriented labor groups in the Philippines. These debates have developed into actual rifts and have affected the more militant groups in the trade union movement such as the KMU, the WFTU affiliates and the Lakas Manggagawa Labor Center (LMLC). Right now, the biggest and most militant labor center—KMU—is wracked by deep and irreconcilable divisions, with the leadership of the KMU National Capital Region (KMU-NCR), which accounts for more than half of the KMU’s membership, organizing a new labor group called Bukluran ng mga Manggagawa sa Pagbabago (BMP). The KMUNCR move in mid-1993 was followed with the formal secession from the KMU of its two biggest labor federations, the National Federation of Labor (NFL) and the National Association of Free Labor Unions (NAFLU). Before its recent breakup, the KMU was considered as big as the TUCP in terms of membership (see Table 7.4). But all is not calm in the other labor centers. Earlier, the three Philippine affiliates of the WFTU—TUPAS (Trade Unions of the Philippines and Allied Services), NATU (National Association of Trade Unions), and KATIPUNAN (Pambansang Katipunan ng mga Manggagawa) —found themselves orphans in


the ideological world as WFTU disintegrated into a minuscule labor international. All three affiliates also experienced debilitating splits in their ranks due to political and personal differences among the leaders. However, the divisions in the ranks of the left and left-of-center trade union groups should not be an occasion for the TUCP to celebrate. It has Table 7.4 Estimates of dues-paying members of the major labor centers and unaffiliated unions and federations Center/union

Estimated dues-paying members

Trade Union Congress of the Philippines 150,000 Kilusang Mayo Uno 150,000 Federation of Free Workers 80,000 WFTU affiliates 55,000 Lakas Manggagawa Labor Center 50,000 Independent locals and unaffiliated 650,000 federations Source: Jurgette Honculada, ‘The Philippine Labor Movement’, paper prepared for LONorway, c. 1992

failed to recover its predominant role in the trade union movement despite its cozy relations with the various administrations—from the Marcos regime to the Ramos administration. It has also lost some members during the last few years. While the TUCP claims almost fifty labor federations in its roster, only a dozen or so are organizationally and financially viable as labor federations. The TUCP has also been weakened by the end of the Cold War, which led to a reduction of assistance being given to the TUCP by the Asia-American Free Labor Institute (AAFLI), which was organized by the AFL-CIO in the 1960s partly to counter the influence of communist unions in the Asia-Pacific region. On the other hand, the FFW, which has benefited politically from its decision to endorse Fidel Ramos as presidential candidate with the appointment of some of its officers to key government positions, has failed to expand. Like the other groups, it suffered a major split in the second half of the 1980s. Thus, overall, the trade union movement today is highly divided and to a great extent confused about its future and its role in society. There are around 145 competing labor federations, half of which are affiliated with different rival labor “centers,” which include the TUCP, KMU, FFW, LMLC, Pagkakaisa ng Diwa ng Manggagawang Pilipino (PDMP) and the WFTU affiliates. Almost all the labor federations are engaged in general unionism, which means organizing across industries. This explains why union-raiding, or “organizing the already organized,” is an endemic disease in the labor movement. This also explains why a growing number of unions at the enterprise level, disappointed with the intense rívalry among the federations, choose to be “independent” of any federation.


In the meantime, the Ramos administration has been busy coopting the leadership of select labor centers through appointments in various tripartite bodies, including Congress. Limited reach of the labor movement Aside from the multiplicity of unions and the divisions in their ranks, the labor movement is also weakened by the character of the economy, which limits the scope for union organizing. The wage workers constitute less than half of the 26 million labor force. And as pointed out, there are only over 2 million workers organizable into unions because of the limited size of the formal sector and the preponderance of small establishments in the formal sector. Based on the varied but unverified union membership claims, organized labor represents around 10 percent of the labor force. But collective bargaining agreement CBA data indicate that there are less than half a million workers covered by the various CB As in effect in the country in any given year. The (CBA) figure represents barely 2 percent of the labor force and roughly 5 percent of the wage workers.29 However, this figure represents 20 percent of the organizable 2.2 million workers. Thus, even assuming that at any given time there are workers waiting for the results of certification election cases, negotiation outcomes and other related cases, the total of effectively organized workers cannot be more than a million. The government Despite the limited scope of unionism, the government has had to pay special attention to labor relations in the formal sector because it is this sector that occupies the commanding heights of the economy. It is the leader of the economy and any disruptions in its operations such as what happened in the early 1930s, late 1940s, early 1970s and first half of the 1980s have serious political and economic ramifications. Historically, the state policy vis-à-vis unionism and labor has been swinging from repression to toleration or a combination of labor reforms that recognize certain labor rights and demands and labor control measures that regulate labor registration, collective action and industrial disputes. From repression to toleration Before 1930, there were virtually no laws protecting labor.30 On the contrary, the policy was one of outright repression. The Spanish conspiracy law and the US military government’s sedition laws held as illegal and subversive all forms of union activities.31 Thus, in 1902 and 1903, the colonial government did not hesitate to jail the leaders of the radical Union Obrera Democratica (UOD) and disband the


organization. However, after the formation of a more cooperative Union del Trabajo de Filipinas (UTF), the government became more tolerant of unions. This policy of toleration was accentuated with the formation in 1908 of the Bureau of Labor. Although attached to the Department of Interior, the Bureau encouraged the registration of unions. Repression and labor reforms in the 1930s The weakening of the free trade-inspired export crop economy had a dislocating impact on the workers, organized or not. Real wages between 1929 and 1940 declined by more than 50 percent, while unemployment was estimated to have more than doubled from 1.18 million in 1935 to 2.6 million in 1939.32 The crisis helped fuel labor and peasant unrest, which raged throughout the first half of the 1930s. Initially, the government took a hostile attitude toward radical labor groups. When the Partido Komunista ng Pilipinas (PKP) was organized by radical labor leaders, it was immediately outlawed and its leaders arrested. Later, President Manuel L.Quezon took a more accommodating posture by launching his Social Justice Program aimed at improving the situation of both the industrial workers and the peasant masses and providing means for the settlement of industrial and agrarian conflicts. The labor reforms included the enactment of an eight-hour day labor law (Commonwealth Act No. 444), extension of the workers’ compensation program (CA 84 and 210), establishment of the Government Service Insurance System (CA 186), and legal protection to members of “legitimate labor unions” (CA 213). These measures were meant not only “to win the support of labor” but also “to establish at least some degree of government control over the labor movement and to lessen the danger of subversion from its radical wing” through strict registration procedures.33 The most significant labor reform was the introduction of the system of compulsory arbitration through the passage of Commonwealth Act 103, creating the Court of Industrial Relations (CIR). The CIR was detailed to protect labor and promote industrial peace by regulating labor-management and landlordtenant relations. CA 103 was enacted a year after the adoption by the country of the 1935 Constitution which expressly mandated the state to provide compulsory arbitration.34 The adoption of compulsory arbitration was not a product of altruism. It was a “deliberate policy” meant “to check the surging tide of strikes and uprisings by the tenants and laborers, particularly in rice haciendas and sugar plantations in the country.”35 In short, strong government intervention in labor-management and landlord-tenant relations in the settlement of disputes was necessary to stabilize the economy and society.


Repression and labor reforms in the 1950s Two landmark labor legislations were enacted in the early 1950s: the 1951 National Minimum Wage Law and the 1953 Industrial Peace Act or Magna Carta of Labor, which provided a legal framework for the system of free collective bargaining. As in the 1930s, both legislations were part of a package of labor and economic reforms knocked together by the government in response to the economic crisis that hit the country in the second half of the 1940s and the serious social unrest that it engendered. Throughout the second half of the 1940s, the CLO frightened the government and industry leaders with the numerous strikes it launched in both public and private corporations. The wave of strikes greatly alarmed and irritated the then President, Manuel Roxas, who was quoted as saying: “The strikes are creating abroad an unfavorable impression of our country.”36 The government response to the labor unrest initially took the form of military harassment. Then it adopted an iron-fist policy, driving a number of CLO leaders to go underground and join the communist guerrillas. Eventually, the government outlawed the CLO in early 1951. This campaign of repression against the labor militants was complemented in the early 1950s with a program of labor reforms, most of which were inspired by recommendations from the report of the US Economic Survey Mission for the Philippines. The mission recommended, among others, the establishment of minimum wages and the encouragement of collective bargaining in place of reliance on compulsory arbitration or the Court of Industrial Relations.37 RA No. 875 or the Industrial Peace Act of 1953 was patterned after the US “New Deal” National Labor Relations (Wagner) Act of 1935, which was later amended by the Labor-Management Relations (Taft-Hartley) Act of 1947. The twin measures, a reaction to the wave of strikes that swept America during the Great Depression, make collective bargaining between labor and management mandatory. The Taft-Hartley Act outlaws “closed shop” and the “secondary boycott.” It calls for a sixty-day cooling-off period before a union could go on strike.38 The promulgation of RA No. 875 is considered the beginning of the shift of the Philippine trade union movement from political to economic unionism. The adoption of the American-type collective bargaining process fosters economism because labor issues are now localized at the plant level.39 Repression and “developmentalism” in the 1970s Organized labor was effectively silenced during the first few years of martial law. Militant labor and peasant leaders were jailed, while their organizations were outlawed. General Order No. 5, issued on day one of martial law itself, banned all forms of group actions and prohibited workers from exercising their right to strike. An ad hoc National Labor Relations Commission (NLRC) was set up to


strengthen government intervention in dispute settlement through compulsory arbitration. The general policy thrust in dispute settlement was the promotion of free collective bargaining within the framework of the government-run compulsory arbitration system. Later, with the promulgation of the Labor Code, a regular NLRC was institutionalized. The Labor Code also barred membership of any labor organization for purposes of collective bargaining from the following types of workers: supervisory employees, whose unions in the premartial law period provided some intellectual leadership to the labor movement; security guards; employees of all religions, charitable, medical or educational institutions “not operating for profit”; and government employees, including the unionized workers of government-owned-and-controlled corporations (GOCCs), who were all placed under the discipline of the Civil Service Commission.40 At the same time, the Code enshrined tripartism as an official state policy in labor relations, a policy which could not be divorced from the broader political agenda of the martial law government. First, tripartism was seen by the Marcos regime as an instrument to achieve control over the working class through a unified labor center, the TUCP, and the employers through the Employers Confederation of the Philippines (ECOP). Second, tripartism helped blunt foreign and local criticisms of the harshness of martial law as exercises such as the national tripartite conferences on the Labor Code, wages and other topics helped to reinforce the image that the Marcos regime, despite its authoritarian character, still adhered to constitutionalism and the basic democratic principles and institutions of which tripartism was held as a major example. Third, tripartism was used to develop some kind of a national consensus regarding the adoption of a new development strategy—the labor-intensive, export-oriented industrial (EOI) strategy. This development strategy was articulated by a 1974 International Labour Office (ILO) supported economic mission report known as the Ranis Report, which recommended “the mobilization of the rural hinterland and reorientation of industries from import substitution to labor intensive and export oriented production.”41 Thus, it was not surprising that the formation of the TUCP, organization of ECOP and the adoption of the Ranis Report coincided with the launching of the Labor Code and the declaration of tripartism as a state policy. EOI and calibrated wage increases A major feature of industrial relations under martial rule was the great amount of time and effort expended by the government and the two private actors on minimum wage fixing. From 1974 to 1984, minimum wage rates were adjusted nineteen times. But all these increases in the minimum wage rates fell short of inflation rates and the real income of the workers lagged behind the cost of living indices. The Department of Labor and Employment itself documented this phenomenon in its 1984 Annual Report when it wrote that “the rise in inflation rates continues to


surpass increases in minimum wage rates” and that there were “many instances in fact when real wage values actually declined in spite of increases in legislated nominal wage rates.”42 A labor relations law expert contended that the government put in place “institutions of Wage Control, for their object is to control the rise of wages, i.e., to keep them at cheap levels” in support of what he called the “open economy.” He classified the “institutions of wage control” into two groups: (1) those that limit the wages and benefits “workers are entitled to by law,” and (2) those that limit the “wage increases and other benefits that workers could obtain by collective agreements.”43 Included in the first cluster of wage control institutions were the calibrated measures made by the government to control minimum wage increases “by limiting increases of wages both in the public and private sectors to small amounts spread over substantial periods of time,” which overall resulted in a “substantial wage freeze.” The government was able to do this calibration when it assumed the role of a decree maker even in the area of wages, where from time to time, during periods of high inflation, it would decree a minimum wage increase or a cost of living allowance (COLA) but only at a level much lower than the inflation rate. The government, of course, issued many of the wage and COLA decrees after going through the motions of calling for a “tripartite conference” for this purpose. But as one labor scholar put it, the weakness of the labor movement and the lack of unity among the labor leaders “provided opportunities for the employer and government representatives to exploit and achieve consensus and to mitigate the wage increases.”44 The declining real minimum wage trend was compounded by two other problems: (1) there were numerous establishments exempted from the decrees, and (2) compliance with the decrees was low. The decrees exempted not only the small cottage enterprises but also “distressed industries” and “distressed employers.” As to the institution of collective bargaining, this was badly emasculated by the strike ban, the issuance of injunctions to prevent or stop strikes and government takeover of disputes through compulsory arbitration. Collapse of the labor control system in the first half of the 1980s In 1976, on account of the pressure exerted by the Catholic church, Marcos “relaxed” the strike ban by allowing strikes in the so-called “non-essential industries” but only after the workers had complied with stringent legal requirements.45 The “partial” strike ban instituted in 1976 was widely ignored by the various labor groups. With the nominal lifting of martial law in 1981, the government also “lifted” the strike ban but substituted new laws— Batasang Pambansa BP 130 and 227—strictly regulating the conduct of strikes.46 One controversial feature


of these twin laws was the “free ingress or egress” provision, which allows management groups to freely bring products in and out of companies affected by strikes. These laws were likewise widely ignored by striking workers, especially in 1983–85. Alarmed by the growing strength and influence of these radical unions, the Marcos regime detained some of their leaders in 1982—an act which failed to dampen the growth of these unions. After the assassination of Senator Benigno S.Aquino (August 1983) and the explosion of the debt crisis (October 1983), labor activism rose sharply as did the protest movement involving many sectors. Workers’ strikes, marches and rallies in protest against the deteriorating economic situation and the unpopular Marcos regime became a common phenomenon. By early 1986, the labor control system set up by Marcos in 1972–75 was in disarray. Policy responses of the Aquino administration When it assumed power in 1986, the Aquino administration did not have any clear-cut and ready-made formula to tame the labor unrest that confronted it in 1986–87. A review of the major labor relations events under Mrs Aquino’s term reveals three major trends in policy making. 1 Liberalization and expansion of trade union rights

During its first year in office, the Aquino administration adopted a policy of liberalizing the labor relations system and promoting trade union rights. On May 1, 1986, which saw the first “unified” celebration of Labor Day by the rival labor groups, President Corazon C.Aquino promised the following labor reforms:47 a On unionism: minimum government interference in the rights of workers to establish and form organizations of their own choosing; abolition of the oneunion one-industry restructuring policy; removal of the restriction on the right of security guards and employees of the government corporations organized under the Corporation Code to unionize and bargain collectively; reduction of the membership requirement for union registration and petitions for certification election to 20 percent (from 30 percent); and automatic certification election during the freedom period of the CBAs (the last sixty days of the contract) where the majority status of the incumbent union is questioned. b On strikes: reduction of the strike vote requirement to a simple majority; phasing out of the mandatory requirement of a fifteen-day cooling-off period in union-busting cases; and repeal of Letter of Instruction No. 1458 allowing replacement of striking workers who defy return to work orders.


c On wages and employment: removal of the thirteenth-month bonus salary ceiling, in effect entitling all rank-and-file workers regardless of salary to enjoy this benefit; suspension of compulsory contributions to Pag-ibig (a housing loan program); and review of apprenticeable jobs and limitations of apprenticeship to highly technical industries and for a period of only six months. Organized labor, especially the militant unions, hailed these policy pronouncements. Militant unions were also happy in the appointment of Augusto Sanchez, a human rights lawyer, as the new Labor Minister. Sanchez, in turn, tried to reach out to all labor groups, especially the militant ones, by encouraging the formation of the Labor Advisory Consultative Council (LACC), which was expected to unite all the major labor groups and assist the Labor Ministry in the formulation of policies. In keeping with her promise to expand labor rights, Mrs Aquino issued Executive Order III in 1986 and campaigned for the ratification of the 1987 Constitution which has a long list of labor rights. Executive Order No. 111, the Aquino government’s first labor law innovation,48 formally put to rest the idea of promoting only one union in one industry, an idea which thus far had proved unworkable in the country. The Order made the holding of a certification election easier in a non-unionized company by lowering the required support to the petition from 30 to 20 percent of the employees in the bargaining unit; decreed that in case of dismissal of union officers (amounting to union busting and when the union’s existence is threatened), the fifteen-day cooling-off period, which is normally required before a strike may be staged, shall not apply and “the union may take action immediately”; and lowered from “two-thirds” to “majority” the required vote of the union membership to stage a strike. And in relation to strikes, the Order finally said, “The police force shall keep out of the picket line unless actual violence or other criminal acts occur therein.” 2 Labor controls and strengthening of the dispute settlement machinery

The first year of the Aquino administration saw an unprecedented rise in the number of strikes, with 581 recorded strikes in 1986, the highest in the country’s history. The lost days associated with the strikes totalled a mind-boggling 3.6 million man-days (see Table 7.3). Moreover, 21 percent of the actual strikes were without notice, which shows that a large number of workers took advantage of the liberal atmosphere toward unions in 1986. On the other hand, many strike notices matured into actual strikes, which implies the inability of the Department of Labor to conduct conciliation and mediation between parties in a deadlock. The strike fever sowed terror in the business community, which clamored for a reversal of the liberalization process in the labor relations system and the removal of Sanchez, who allegedly made “radical” pronouncements on the exploitative practices of transnational corporations, the necessity of profit sharing and the


sincerity of the left-wing KMU. Sanchez was denounced as a “one-man wrecking crew”49 to investors, particularly foreign investors. Eventually, Sanchez was replaced by Franklin Drilon, ECOP’s former vice president. To counter the growing number of strikes, Drilon helped institute the following: a Enforcing the strike laws: the government tried to enforce restrictive labor laws like BP 130 and 227. On October 20, 1987 after the October 12–16 welgang bayan (general strike) on the wage hike issue which both the TUCP and the LACC supported, President Aquino, addressing a business gathering, called for the dismantling of all “illegal strikes” and ordered “the police and other peace-keeping authorities to give full assistance to the labor department to remove all blockades at the factory gates.”50 b Strengthening the dispute settlement machinery: complementing the government’s efforts to control or regulate strikes were efforts to strengthen the overall machinery for dispute settlement. On January 30, 1987, the National Conciliation and Mediation Board (NCMB) was created. Later, on March 21, 1989, Republic Act 6715 or the New Labor Relations Law51 institutionalized the NCMB. RA 6715 devotes new groups of provisions in the Labor Code solely to the grievance machinery of a unionized firm and the requirement to have voluntary arbitration as the final step in the grievance machinery. RA 6715 also reorganized and expanded the National Labor Relations Commission (NLRC). However, the KMU and other non-TUCP affiliates denounced other features of RA 6715. The Federation of Free Farmers (FFF), in a case it filed with the ILO’s Committee on Freedom of Association, pointed out that the following provisions of the law are subversive of labor’s freedom on association: the requirement that officers be elected directly by individual members, which is a difficult provision for a big national federation with very limited finances; the automatic cancellation of union registration for non-submission of financial reports, which gives the government undue influence over the unions; and the requirement for federations to organize individual members into locals or chapters within sixty days, which is impractical for a federation like FFF which has mixed membership and is operating nationwide.52 Another major criticism is of the broad powers given to the President or the Secretary of Labor to step into a labor dispute in the name of the national interest and resolve it peremptorily and compulsorily. 3 New approaches to industrial relations

In addition to the strengthening of the dispute settlement machinery, several “new” approaches to labor relations were pursued under the Aquino administration: promotion of proactive bipartite programs such as the


establishment of labor-management councils (LMCs) at the plant level, institutionalization of tripartite consultations, and depoliticization of the minimum wage issue. a Promotion of proactive bipartite programs: one major proactive program is the promotion of labor-management councils (LMCs) or joint consultation councils (JCCs), which are very successful in Japan. One government agency, which pioneered in the promotion of LMCs, is the Department of Trade and Industry (DTI), which launched the DTI’s Center for Labor Relations Assistance (DTI-CLARA). Trade and Industry Minister Jose Concepcion set up the Center as a response to the labor unrest in 1986, which frightened a number of foreign and domestic investors.53 b Institutionalization of tripartism: the government has been very active in convening tripartite fora to discuss various industrial peace promotion mechanisms. On May 28, 1986, a National Tripartite Conference approved a proposed Accord on Industrial Harmony, which recognized “the necessity for harmony and cooperation based on equity, justice and mutual respect between and among the social partners to promote and maintain a stable, dynamic and productive industrial relationship.” The Accord reiterated tripartism as a principle and called for respect “to statutory and contractual law, including the rights to self-organization, collective bargaining.”54 On April 10–11, 1987, in another National Tripartite Conference, the three parties agreed on an Accord to Operationalize the Code of Industry Harmony. In the May 1990 National Tripartite Conference, more concrete measures were established to operationalize past agreements on industrial harmony, largely through the creation of a national tripartite consultative body dubbed as the Tripartite Industrial Peace Council (TIPC). Executive Order No. 403 instructed the TIPC to “monitor the full implementation and sectoral compliance with the provisions of the Industrial Peace Accord (IPA).”55 The TIPC now serves as a regular forum for tripartite consultations on wide-ranging issues affecting labor-management relations. c Depoliticization of the wage issue: there were dramatic wage campaigns conducted by the trade unions of both the private and public sectors in 1986, 1987, 1989 and 1990. The wage campaign between April and June 1989 caught the national imagination and put the Aquino leadership on the spot. In this campaign, the divided trade union movement was able to present a solid united front and succeeded in pressing for a hefty P25 minimum wage increase from the government—to the consternation of the National Economic Development Authority (NEDA), which was recommending only a P6 wage increase. All these wage agitations were triggered by the March 1989 “secret” agreement between the Aquino administration and the IMF on a new Letter of Intent and Memorandum on Economic Policy (LOI/MEP), which immediately sent the prices of rice and other commodities soaring in the second quarter.56


However, the law which granted the unprecedented P25 upward adjustment in the statutory daily minimum wage also changed the character of minimum wage fixing by regionalizing it. Labeled the Wage Rationalization Act of 1989, RA 6727 created a National Wage and Productivity Commission (NWPC), whose principal function is “to prescribe rules and guidelines for the determination of appropriate minimum wage and productivity measures at the regional, provincial and industry levels.”57 The regionalization of minimum wage-fixing has, in a way, depoliticized the issue. First, Congress or the national political leaders no longer decide on wage petitions. This has reduced the tendency of national federations to launch national wage campaigns to force the national government to act on their wage petitions. Second, the regionalization process has highlighted the unevenness of economic development throughout the archipelago. Thus, unions in regions devastated by natural disasters or with stagnant economies are not as aggressive in pushing for an upward adjustment of the minimum wage. The employers During the colonial period, labor issues were treated by employers in a personal, arbitrary and free-wheeling manner, a reflection of the still inchoate and undeveloped character of early Philippine capitalist development. With the creation of the CIR in 1936, employers had to pay greater attention to the legal aspects of personnel management and the growing body of laws affecting labormanagement relations, e.g. eight-hour labor law, workers’ compensation, etc. The tremendous expansion of ISI industries in the 1950s saw the need for professional personnel managers, usually with a legal background. In 1956, at the height of the ISI boom, the “pioneers” in the field of professional personnel management organized themselves into the Personnel Management Association of the Philippines (PMAP), for the primary purpose of propagating “the art and science of personnel management.”58 The original members of PMAP came from the big modern corporations with their own management groups, as distinct from the family-owned and family-run closed corporations which tended to treat personnel issues like family matters. The PMAP has been subscribing to the literature produced by its counterpart in the United States. Since the Philippine legal system and labor laws were developed largely under the influence of the United States, IR and personnel managers have been adapting American labor jurisprudence to the Philippine setting. In the 1970s, the government, with its EOI development agenda, saw the need to develop a mechanism for tripartite consultation on labor and industrial relations issues. For this purpose, the government tried to influence the formation of the TUCP and ECOP to represent labor and the employer groups, respectively, in tripartite gatherings. But unlike in the establishment of the TUCP


which involved the unification of quarreling rival labor groups, the government encountered little difficulty in pushing for the organization of ECOP. The following account of the birth of ECOP shows how deeply intertwined were the EOI development agenda, which was reflected in the 1974 Ranis Report, and the corporatist thrusts of the government:59 Its birth was manifested in the great display of unity by employer groups that distinguished themselves in three major events: the evolution of a new Labour Code that later became a law on May 1, 1974; the analysis and detailed review of a Report on the Philippines of an ILO Expert Team better known as the Ranis Report; and the tripartite conference on wages, prices, and incomes policy. That display of unity was coordinated by a council of employers’ organizations composed of the Chamber of Commerce of the Philippines, the Philippine Chamber of Industries and the Personnel Management Association of the Philippines…. The evolution of a strong and unified employers’ organization was encouraged by no less than Labor Minister Blas F.Ople who decided to build the bases for tripartism in this country as an approach to the solution of labour and social policy questions and as a vehicle for bringing about industrial peace. Business IR/HR initiatives and government labor policies in the 1980s Because of the labor unrest of the 1980s, there has been an increased awareness among the management people that there is a need for firms to invest time and resources on ways to reduce IR tension. This heightened awareness is reflected in the proliferation in the second half of the 1980s of IR and HRD consulting firms offering courses and consultancy services on how to improve labor-management relations and secure industrial peace, including the establishment of a “unionfree environment.” This is also reflected in their willingness to participate in various fora on IR issues. IR or HRD departments of the big companies have been setting up their own plant-level LMCs to maintain communication lines with the unions open, and are actively experimenting on various welfare or livelihood projects that will augment workers’ family income. The employers’ group also tried to influence the direction of government labor policies. In 1986, employers were openly incensed at the allegedly anti-business stance of the then Labor Minister, Augusto Sanchez, and petitioned for him to be removed from the cabinet of Mrs Aquino. After the removal of Sanchez in 1987, the business community became very supportive of the government’s labor relations initiatives (see above discussion of government policies), enforcing the strike laws, strengthening the system of dispute settlement and promoting proactive labor relations programs.


The business community openly applauded the get-tough policy against strikes unveiled by President Aquino on October 20, 1987. The community also launched a media campaign against the so-called “recklessness” of militant unions. One of the celebrated strike cases was that of the KMU-led strike at Nestlé Philippines. This strike lasted for several months and the Nestlé management used the media in projecting how irresponsible the union was in resorting to strike in spite of getting wages and benefits higher than the average in the industry and in the country in general. In the end, the strike was ruled “illegal” and twenty union officers were dismissed.60 A review of the publications of ECOP61 shows that the employers’ organization has been very active not only in participating in the various tripartite consultations on labor relations organized by the government but also in convening all kinds of consultation fora on varied labor relations issues. For instance, in 1990, ECOP organized a national symposium on LMCs featuring speakers from the Japanese Employers’ Federation (NIKKEIREN).62 What is interesting is the effort not only of HR and personnel managers to organize such symposia but also of the top management people or the owners of capital themselves to participate in such activities. In the past, there was a tendency on the part of many big corporations to delegate all labor problems and issues to their HR/IR/personnel managers and labor lawyers. Increasingly sophisticated IR/HR managers IR and HR managers today are attuned to the latest developments in their field here and abroad. There is today a new generation of increasingly sophisticated personnel managers (PMs) and IR or HRD managers. Many are well versed in the various facets of IR/HR work through lessons and experiences at home and abroad which they readily share with one another. For instance, if a company wants a “union-free” environment, an IR/HR manager has at his/her disposal various techniques and approaches to achieve it, ranging from the “hard” (harassment of union organizers, establishment of a company union, registration of a fake CBA, etc.) to the “soft” (providing equal or better benefits than what union organizers are asking, bombarding the personnel on the “oneness” of the company and the employees, establishing a labor-management consultative council as a substitute for a union, investing in HRD techniques, etc.). While trade union leaders in the Philippines seem to be obsessed mainly with the legal provisions of Book Five of the Labor Code, which deals with labor relations, IR/HR managers keep on studying and analyzing varied aspects of the labor market. For instance, a growing number of IR/HR managers are now conscious of the fact that they can easily divide the workforce into two: the skilled and professional staff whose loyalty the company wants to develop and who are the object of various training and other HRD investments of the company, and the semi-skilled and unskilled workforce, whose tenure can be kept


casual and whose performance can be controlled through the further segmentation of the work process. IR/HR PRACTICES IN PHILIPPINE MANUFACTURING The following section outlines the changing contours of IR/HR practices in Philippine manufacturing. This is not meant to be exhaustive given the paucity of studies and industry-wide surveys. The idea is to highlight key developments based on a limited number of studies and observations made by the author as an IR student and as an active voluntary arbitrator. There is a long legalistic tradition in labor-management relations in Philippine industry, which some observers claim is one of the causes of adversarial relations between labor and management.63 This is due to the adoption of the system of compulsory arbitration in the 1930s, the implantation of American labor relations laws in the 1950s and the consequent domination of the system by lawyers representing labor and management. This legalism in labor-management relations has been complemented by personnel managers of the more developed enterprises with American-style personnel policy management featuring specific job descriptions for various types of employees, a hierarchical system of work supervision, position-based wage structure and the usual list of do’s and don’ts. This, in brief, has been the situation in the formal sector of the economy since the ISI decade of the 1950s. With the adoption of EOI in the 1970s and the increasing exposure of the country to changing IR/HR practices in the United States and other countries, a number of IR/HR managers in the more developed corporations started introducing changes in IR/HR management in their respective firms. A leading Filipino management consultant pointed out that the big Filipino, Filipino-Chinese, joint venture and foreign-owned corporations in the Philippines are exposed to the best IR/HR practices from different cultural settings due to modern communications and cross-cultural training programs and exercises. For example, the Japanese concepts of total quality management (TQM) and the “5-S” program of keeping things in order have become common practices among the leading Philippine firms, regardless of nationality. Moreover, the adoption of the best IR/HR practices, whenever feasible, is further accentuated by the demands of intense global competition, which forces firms to seek ways of enhancing labor productivity.64 The adoption by ISI and EOI firms of the leading IR/HR practices developed overseas and the way these firms have responded to local labor issues and IR/HR challenges vary depending on a number of factors, which include the following: the ownership of the firm (a closed family-run corporation tends to stick to old ways of doing things), latitude and ability of IR/HR managers to introduce changes in the individual firms (many IR/HR managers have limited power to


initiate IR/HR policies), viability of the industry (weak firms tend to repress or underinvest in labor), etc. Employment and recruitment Given the weaknesses of the labor market (characterized by massive unemployment and underemployment) and the continuing fragmentation of the trade union movement, many employers and IR/HR managers of both ISI and EOI enterprises have discovered that they have access to cheap, malleable and casual labor. One consequence of this is the tendency to maintain some kind of a core-periphery structure of the workforce in the individual firms, which is realized through the division of the employees into two categories: the regular workers and the casual or temporary workers. Sometimes, the regular workforce constitutes only a small core group of professional, confidential and technical staff, while the rest of the rank-and-file are composed of casual workers; often, however, the non-regular temporary workers represent a small percentage of the workforce and serve as a “buffer” during slack production periods. According to a 1990 ILO-DOLE “Philippine Labor Flexibility Survey” (PLFS), involving some 1311 industrial establishments, the use of temporary or casual workers is indeed widespread, with over 50 percent of the enterprises with over 100 workers hiring temporary workers.65 Further, the ILO-DOLE PLFS survey found that EOI enterprises (37.6 percent of total EOI firms) also resort to subcontracting.66 This is quite common among the garment and toy factories. The use of casual or temporary workers, including the practice of job subcontracting, explains the “relatively high turnover rates” for jobs in the formal sector of the Philippine economy.67 There are also variations in the hiring practices of firms. The most common recruitment strategies used by enterprises are word of mouth, use of friends and relatives, gate notices and media advertising. The use of schools, bulletin boards, government placement agencies and private placement agencies is secondary.68 However, the use of private placement agencies is increasing in importance especially in relation to the hiring of casual workers who remain in the payroll of the placement agency in order to avoid the “problem” of regularization, unionism, etc.69 A job applicant usually gets informal tips inside the firm (from friends and relatives) before he/she formally applies for the job, carrying the usual requirements—diploma (high school or college or vocational school), certification of good moral character, etc. In some unionized firms, the unions are able to recommend job applicants and a few are even able to insert a proviso in the CBA that qualified relatives of a union member are given priority in the filling of any vacancy. In industrial zones or towns, workers are generally recruited from the villages adjoining the establishments, for example the Signal Village in Taguig, Rizal, provides most of the manpower requirements of the FTI complex which has a


high concentration of electronics and garment factories because of its proximity to the international airport. Closeness to residence reduces the cost of transport for workers, which can be a major item in a worker’s budget. On the other hand, it becomes imperative for some big industrial enterprises that provide the bulk of the jobs in an area to hire a community relations officer and even a community livelihood development officer in order to develop harmonious relations between the firm and the community. This is true particularly in the case of mining and plantation firms. Finally, a major development in Philippine manufacturing during the last two decades was the rise of semi-skilled women production workers, who are preferred by light labor-intensive EOI industries because of their patience and dexterity. Unionism, collective bargaining and governance The bigger the industrial enterprises are, the greater is the likelihood that they are unionized. The 1990 PLFS survey shows that enterprises with over 250 workers have unionization rates ranging from 78 to 84 percent; enterprises with 51–250 workers, 52–58 percent unionization rates; and enterprises with 50 or fewer workers, 5–18 percent unionization. Industries with high rates of unionization— about 40 percent—include basic metals, food processing, chemicals and electronics.70 The foregoing figures indicate that there is still much room for union organizing and that the number of unions and union members could be doubled. Many Filipino-Chinese capitalists (Filipino citizens of Chinese descent), who, together with indigenous Filipino entrepreneurs, account for the bulk of industrial enterprises, generally resist unionization attempts. A sample survey (JanuaryJune 1991) of strike notices taken by the author from the NCMB shows that the Filipino business groups had almost the same number of notices as the FilipinoChinese for wage increase, a common CBA problem in the Philippines which is probably a reflection of the distressed economic situation of many firms due to the energy crisis, weak domestic demand, etc. However, strike notice data on unfair labor practices (ULPs) indicate that ULP charges on Filipino-Chinese business groups were twice those of the Filipinos. The most common ULP charges were illegal dismissals (usually of union officers and activists), interference leading to union busting, CBA violations, coercion of employees, harassment, etc.71 Since most of the ULP issues are really meant to weaken unions, these data show the Filipino-Chinese business groups as generally antiunion. The Taiwanese, though relatively new as investors in the country, had a fairly high number of strike notices, mostly ULP cases, indicating an anti-union attitude. One union which posted a strike notice even accused the Taiwanese firm of abandoning work in favor of a “run-away shop.”


Four Japanese-dominated firms in the sample had four strike notices. Surprisingly, out of the four cases, three were all on refusal to bargain. It is possible that these firms were all new and that their employers did not take kindly to unionism. Many of the new Japanese firms are still non-unionized and some prefer to have non-unionization status.72 By industry, the 1990 ILO-DOLE PLFS survey identified the textile, chemicals, basic metals and fabricated metals industries as strike-prone. These are essentially ISI industries. In the EOI sector, the electronics and garment industries, which are the two leading export industries, have a high incidence of strikes. The food processing sector, which is partly domestic-oriented and partly export-oriented, is also seen as strike-prone.73 This pattern of strike-proneness is strikingly similar to that in the mid-1980s, which was the height of the Philippine industrial crisis. In those years, many ISI industries, faced by sluggish demand, reduced government protection and higher costs of production, had no alternative but to engage in rigorous cost-cutting exercises, some of which hurt labor, e.g. retrenchments. The electronics and garment industries were also hit by a large number of strikes partly because of the sharp erosion of workers’ wages, and partly because of the lay-offs made by both industries due to a global demand slump in 1984–85.74 Of course, since the mid-1980s a great deal has been done by both the government and the employers to reduce strikes. One major government initiative that enjoyed the support of a number of employers is the promotion of labor-management councils (LMCs) at the enterprise level. There were a number of LMC success stories, with the relationships between the two parties becoming more mature. However, many of the LMCs set up in the second half of the 1980s have become inactive. This is partly due to the ningas-kugon (brush fire) mentality of Filipinos. On the other hand, some unions and federations were critical of LMCs, which they felt were supplanting unionism and collective bargaining.75 As to collective bargaining, there are around 5000 CBAs in the country. It is difficult to assess the quality of these CBAs not only in the absence of any analytical studies but also because of the varied negotiating situations faced by different firms even within the same industry. In some firms, negotiation has become faster and smoother because of better communication between the parties. However, for a majority of the CBAs, the bargaining process in the various industries still tends to be a prolonged legal contest between the parties, with a growing number of cases sliding into deadlock and eventually being decided by the Secretary of Labor (SOLE) who is empowered to take on such cases. The bargaining process is complicated by the restructuring being undertaken by some industries and firms in response to the demand for greater efficiency and competitiveness. For example, bargaining in the highly competitive beverage industry has become an uphill fight for many unions due to the current efforts of big beverage companies to “downsize” or “rightsize” their operations by


spinning off whole departments and branches into separate satellite firms with their own corporate registrations and supposedly “separate” sets of employees. Compensation One striking reality in Philippine labor-relations is the tendency of unions to unite on the issue of minimum wage adjustment through legislation. This is so because the statutory minimum wage, which is barely enough to provide breadwinners decent means to support their family, has become the industry wage standard. Very often, the gap between the CBA wage and the minimum wage is minimal, if not zero, especially in labor-intensive industries such as garments, which is an EOI industry, and textiles, an ISI industry. According to a 1990–91 survey of 6000 non-agricultural establishments done by the Bureau of Labor and Employment Statistics (BLES), national minimum wage compliance is 22.6 percent. In manufacturing, which has the highest rate of unionization, the rate of compliance is much higher at 36.5 percent.76 The difference between the wages and earnings of the unionized and nonunionized is not much. The ILO-DOLE PLFS survey indicates that the gap is 8– 9 percent. The survey also shows that the export orientation of an industry is “not a major determinant of higher earnings.”77 This, of course, is due to the fact that the comparative advantage of EOI industries is seen precisely in the cheapness of labor. By and large, various enterprises in the formal sector use the minimum wage as a reference point in their own wage-fixing exercises, especially in relation to the determination of compensation for unskilled and semi-skilled workers. The financially sound enterprises usually give wage rates just a little higher than the prevailing minimum wage, which was about $5.00 daily in early 1994. The less capable firms usually go a little lower than the minimum wage. In this process of wage determination, productivity becomes a secondary factor to the minimum wage. Because of the importance given by both parties to minimum wage fixing, every minimum wage adjustment—from the Marcos era to the Ramos administration—caused numerous cases of “wage distortions,” that is wages of skilled and middle-level employees were either overtaken by those of the rankand-file or the traditional wage gaps between ranks were eroded. Also, in industries with extensive subcontracting arrangements such as garments, there is a downward pressure on wages of factory workers because of the low piecerate wages received by domestic outworkers. Industries known for high wages as reflected in their CBAs are the banking, drug and communication industries. However, wage negotiations in these industries tend to be excruciatingly protracted. In 1993, the “worst labor problem” occurred in the Hongkong and Shanghai Banking Corporation (HKSBC), which has reportedly the highest compensation rates in the industry. The strike undertaken by the HKSBC union centered on the union’s opposition to the firm’s


job evaluation program (JEP) which sought to reduce the entry wage for new employees to half of the wage of a rank-and-file worker.78 HKSBC took a hardline position on the JEP and replaced all the striking workers. The HKSBC case is seen by labor relations observers as an indication that some employers in the country today are in a “militant mood,” that is militantly taking a strong position vis-à-vis the “high wage” demands of militant unions. Work organization and technology The level of technological development and sophistication in production varies across industries and within industries. Most of the industries that developed under the ISI strategy, are of the assembly and compounding type, dependent as they are on imported semi-processed industrial raw materials and parts. This is best illustrated by the “drug” industry, which is essentially a drug-compounding industry, and the “automotive” industry, which is an auto-assembly industry. Under the EOI strategy, many of the industrial establishments which set up shop are engaged in similar production methods, e.g. assembly work in the electronics industry. The technology is not really sophisticated in the garment industry, stuffed toy industry, furniture, etc. However, through time, some of the industries, both ISI and EOI, have been acquiring sophistication in some areas of production. This is especially true in companies that have undergone a rapid rate of computerization and automation due to the pressure of competition. In turn, such movement toward the higher application of technology means the necessary development of a skilled workforce for these selected enterprises and the formulation of a higher-level HRD program. For instance, while the production of parts and components for export cannot approximate the technology for the entire product such as a car, their production still requires precision and skilled handling. This is the case of manufacturers of auto engines, wire harnesses and motor condensers. Thus, in the case of a major wire harness exporter, Yazaki Torres, the company decided to set up a permanent school for quality circles within the company compound to enable the firm to conduct year-round training in QC productivity improvement for its 5000 or so workers. The idea of a quality circle productivity program is not new in the Philippines. It was introduced way back in the 1970s, a decade which also saw the creation of the National Productivity Commission (NPC). However, as in the promotion of LMCs, the initial enthusiasm of many enterprises over the concept of a quality circle eventually gave way to passivity and indifference. The NPC itself is rarely heard these days. According to a researcher of Japanese enterprises which invested in the Philippines in the 1970s and 1980s, Japanese managers “no longer emphasize quality circle activity” because of the many failures, union noncooperation and lack of interest of rank-and-file workers.79 The introduction of technology can also be divisive and controversial. In the mid-1980s, many unions in the commercial banking industry were restless over


the prospect of redundancies and job losses due to the modernization and computerization of various aspects of their work. Consequently, some unions tried to negotiate for CBA clauses stipulating that the introduction of technology is grievable and that there should be no lay-offs.80 The Labor Code allows the introduction of labor-displacing technology if it will save the company from certain financial disaster.81 This provision is frequently used by various firms during recessionary periods. In general, however, unionized firms have higher rates of innovation than the non-unionized.82 One possible explanation for this is the fact that unions tend to be organized in firms with higher capitalization and are in a position to introduce technical innovations, while non-unionized firms tend to be “low-tech” in character. Training In recent years, there has been a lot of discussion among IR/HR managers and government policy makers on the importance of manpower development and the improvement of competitiveness through HRD programs for the workforce. However, the gap between reality and rhetoric is still huge. In the first place, where there is HRD training or investment, it is concentrated on the core group of secure and better-paid workers. The rank-and-file workers generally get job-induction training, usually through on-the-job orientation. Retraining and upgrading programs for the rankand-file workers are rare, but are more often found in the unionized firms,83 which have higher levels of technical innovation. Assembly work in the leading EOI industries such as electronics and garments requires minimal education. Thus, it is not surprising that in the case of one newly established Japanese electronics firm, about 66 percent of the workers, who are mostly female, only have elementary education.84 It should be pointed out that many manufacturing firms, both ISI and EOI, require not only high school education but even college education because of the high rate of unemployment/under-employment among the college-educated workers. In general, firms are likely to invest some effort in upgrading IR/HR practices if their firms are engaged in capital-intensive and research-intensive undertakings producing relatively more sophisticated products like high-tech industrial pipes or chemical ingredients for the pharmaceutical industry. However, if the investments are in labor-intensive undertakings such as in the garment industry where the idea is to take advantage of cheap labor, then the motivation to make IR/HR investments becomes less. A complicating factor in company-initiated skills training programs for the rank-and-file workers is the overseas labor market. A Japanese manager of a plant producing sophisticated industrial pipes bewailed the tendency of Filipino workers to leave for better-paying overseas jobs once they acquire the special skills developed by the company.85


The government has also been encouraging the use of apprentices and learners to promote employment side by side with manpower development. However, statistics show that the apprentices and learners represent a minuscule 1 percent (24,000 in 1991) of the total non-agricultural workforce, with 54.2 percent of them found in manufacturing.86 Moreover, unions have been complaining that learners and apprentices are being used by some employers as an excuse to hire cheaper labor since the law allows firms to pay them 25 percent less than the minimum wage. INTERACTION BETWEEN INDUSTRIALIZATION AND INDUSTRIAL RELATIONS: A SUMMARY From the foregoing general and historical overview of industrialization and industrial relations at the national and industry levels, one can make the following observations. Weak accumulation The present backwardness of the national industrial structure and the labour market is directly traceable to the uneven and weak process of capital accumulation, which, in turn, is rooted in the narrow and limited character of the industrialization policies and programs pursued by the state. In the prewar period, industrial growth was circumscribed by the limited development agenda of the United States which imposed a one-sided type of “free trade” between the colonial power and the colony. In the postwar period, the politico-economic crisis engendered by free trade forced the state to adopt import and foreign exchange controls, which paved the way for the rapid rise of import-substituting industries (IS) based on light manufacturing and, along with this, the emergence of a nascent Filipino industrializing class. However, the import dependence of the ISI industries led to a chronic trade and payments crisis and shows the limited character of the ISI industries. In the 1960s, a crisis in industrial directions occurred as reflected in the unresolved debate between those advocating continuance of protection for local industry, e.g. ISI industrialists and nationalist economists, and those seeking a more outward-looking policy regime, e.g. the IMF, agro-mineral exporters and Western-educated economists. In the 1970s, the martial law government resolved the debate by officially adopting an export-oriented industrial (EOI) policy and opening up the economy to foreign capital participation and lending assistance from the IMF-World Bank group. In the 1980s, the national politico-economic crisis bared the economy’s weak industrial base, the unsustainability of debtdependent growth and the deep divisions within the ranks of the national élite. The response of the IMF-World Bank group to the economic crisis was the further intensification of the EOI orientation of the economy through the structural adjustment program (SAP).


Balancing role of the state During the various historical periods marked by labor unrest, the government had to come in to mediate the conflicts between labor and capital. This is necessary for the stability of society and the economy. Usually, the government comes up with a dual policy of repressing militant unionism and reforming the system of dispute settlement. In the process, the government had to develop the rules governing the relationships between labor and capital in the formal sector of the economy. Development of protective labor institutions Institutions protective of labor such as the various labor standards, social security and the right to engage in concerted activities and collective bargaining are products of uphill trade union struggles in the past. They are part of the reform packages developed by the government to stabilize the labor relations system. Hence, critics, usually neo-classical economists, who say that such institutions constitute “rigidities” in the labor market that hamper the economic growth process are obviously oblivious not only of the historical origins of these institutions but also of their contribution to maintaining general stability in laborcapital relations, the absence of which can easily subvert any economic growth process. Labor welfarism and economic expansion In the 1950s, when the country adopted a whole package of American-inspired reforms protective of labor such as minimum wage and social security, labor relations were generally stable. This is partly because industrial expansion under ISI was robust. This means labor welfarism can go hand in hand with industrial and employment expansion. The higher wages and other additional labor costs brought about by the operation of the social security system and the promotion of free collective bargaining did not prevent the ISI industries from expanding and hiring more workers. Obviously, an expanding labor force with a relatively high or steady purchasing power is in itself a source of continuous growth for an industry oriented to the domestic market. EOI and labor institutions Despite the supposedly added costs to capital brought about by labor institutions such as unionism, collective bargaining and minimum wages, these same institutions were transformed under martial law into institutions for cheapening labor in the formal sector of the economy in support of the EOI strategy. The Wage Commission, in a 1979 report, unabashedly admitted that the government


was following a policy of “wage restraint” in accordance with the official “development strategy.”87 Thus, it came to pass that the minimum wage of the martial law years became the leader in the downward march of real wages. Industrialization failures and labor militancy Labor militancy did not develop simply because of the highly politicized orientation of labor organizations or their leaderships. Very often, labor militancy is an outcome of failure or lack of progress in industrialization. Labor and social unrest attended the depression that hit the prewar export crop-based economy in the 1930s, the crisis of the free trade arrangement between a wardamaged Philippines and a resurgent industrial United States in the late 1940s, the marked weakening of the ISI in the 1960s, and the obvious failure of the EOI to take off by the early 1980s. The table on strikes (Table 7.3) indicates that the years with the highest number of strikes were also the years when Philippine industrial performance was weak. Weak labor movement and unsustainable labor militancy Despite labor militancy in the 1980s, the trade union movement is generally weak. The character of the economy militates against the formation of a strong labor movement and does not favor prolonged labor militancy. While a dip in the economy or a crisis on the political front may provide a militant labor center or federation an opportunity to raise worker consciousness and mobilize its members, a strike campaign that runs to months and years is simply unsustainable, especially for impoverished workers with limited income sources. Further, the trade union movement is badly divided various reasons. EOI and labor flexibility Two major developments in the economy under the EOI strategy have been the expansion of the informal sector and increased “informalization” of the formal sector, both of which have been contributing to the rise of labor flexibility in industry. This trend is aided by the relative weakness of the trade union movement, which represents only a small segment of the labor force, and the employers’ access to flexible or casual labor due to the twin problems of mass unemployment and underemployment. In the formal sector, industry has been succeeding in propagating “labor flexibility” through the widespread use of various forms of labor casualization, e.g. subcontracting of jobs to small producers and homeworkers, hiring of agency workers who are not on the payroll of the company, and use of casual labor (probationaries, temporaries, apprentices, learners, etc.).88


The spread of job subcontracting during the last two decades is related to the rise of the so-called non-traditional exports such as garments and footwear under the export-oriented industrial policy. In fact, the subcontracting business in the Philippines has both international and national dimensions, that is many of the Philippine exporters, especially those in the free trade zones and BMWUs (bonded warehousing manufacturing units), are subcontractors for foreign buyers/principals and at the same time principals for the local subcontractors. Because of the subcontracting process, regular factory workers in the garment and other export-led light industries are adversely affected in terms of reduced bargaining power. There are cases when shops literally “run away” from workers who have unionized and go on strike.89 Weak absorptive capacity of industry Because of industrialization failures, the labor absorptive capacity of industry has been very weak. Today, industry employs only 14–15 percent of the labor force, with manufacturing accounting for 9–10 percent. In the past, agriculture was the main sponge that absorbed excess labor; today, it is the informal sector and the overseas labor market that serve as the catch basins for labor. Menus of IR/HR practices The 1980s and 1990s are decades of increasing awareness among employers and IR/HR managers of a bewildering array of IR/HR options they can develop in their enterprises. This heightened awareness is brought about by a number of factors, the most important of which are: the prolonged economic crisis and labor militancy in the 1980s, which challenged many IR/HR managers to come up with creative responses to labor issues; the rapid spread and exchange of global IR/HR practices and experiences, which give local IR/HR managers the opportunity to reassess their own situation and analyze possible alternatives to certain established personnel and human resource management policies and procedures; the pressures of global and national competition, which forces them to come up with labor-related profit—and productivity-enhancing programs; and the deeper appreciation by IR/HR managers of the nature of the labor market processes, which allows them to adopt a more flexible approach to hiring and maintaining their workforce. Thus, there are IR/HR managers who can initiate IR/HR practices ranging from those repressive of labor to the pro-active programs aimed at the all-round development of the workforce. Dispute settlement mechanisms The government has made great strides in managing conflicts between labor and capital despite weak economic growth. It is likely that the government will opt to


maintain a combination of approaches in dispute settlement—on one hand, the promotion of bipartite and proactive approaches (collective bargaining, LMCs, grievance machinery cum voluntary arbitration, tripartite consultations), and on the other, the use of state powers to assume and settle cases (compulsory arbitration, assumption of cases, restrictions on strikes). Uneven development of IR/HR practices across and within industries Because of the varying competitive, organizational and technological situations facing both the ISI and EOI enterprises, there will be continuing widespread variations in the IR/HR practices across and within industries just as there will be continuing points of convergence, e.g. use of “buffered labor”, initiation of HRD programs for select employees, etc. CONCLUSIONS As discussed in this chapter, the central problem in the dynamic relationship between industrialization and industrial relations in the Philippines is the weak and unsustained development of the accumulation process under both the ISI and EOI strategies. In particular, the EOI development program of the 1970s, intensified by SAP in the 1980s, has by and large failed to achieve its twin goals of greater industrialization and job creation. Labor unrest and the seemingly chaotic industrial relations situation in the 1980s were to a great extent consequences of such industrial failure. In fact, the Philippine state has done a creative job evolving a combination of IR policies aimed at stabilizing the labor front, although there are widespread complaints among labor leaders on the tendency of the government to take on responsibility for settling strikes and then proceeding at a snail’s pace despite the large number of cases pending in the NLRC. At the enterprise level, employers and IR/HR managers have learned to cope with labor militancy and to adopt all kinds of IR/HR approaches deemed suitable to the requirements of the enterprise. Of course, there is a great deal of variation in IR/HR practices across and within industries due to varying factors such as enterprise viability, technology, ownership, etc. More significantly, many employers and IR/HR managers have been able to utilize flexible labor as a result of a weak labor market and a fragmented labor movement. As to the trade unions, they have over the decades successfully pushed the government to enact laws protective of labor. However, these protective labor institutions and the trade union movement itself are in danger of being weakened, if not further marginalized, if the trade union movement is unable to forge unity and advance a development agenda that takes into consideration the radically changed environment and terrains of trade union struggle. For example, the increasing sophistication of IR/HR managers (see discussion above)


challenges the trade unions to invest more time and resources on programs that will upgrade their skills and technical know-how on subjects as varied as social security and labor market segmentation. It may even be necessary for the trade unions to consider the possibility of forging a “strategic alliance” with management to ensure a firm’s survival in today’s highly competitive world—an idea that may sound blasphemous to traditional militant unionism. Of course, it takes at least two parties to forge such an alliance and the role of employers and IR/HR managers is crucial. As the key decision makers of the enterprise, they are in the position to initiate forward-looking changes based on an enlightened partnership with labor just as they can adopt measures that can further weaken labor’s voice in the enterprise through, for example, the further segmentation of the work process. For example, can employers and IR/HR managers come to an agreement with their counterpart unions on how to promote flexible responses (e.g. flexible work organizations) to the challenges of competition without sacrificing the job, wage and union security of the workers? A strategic alliance between labor and capital, forged through honest and serious dialogue, may, in fact, serve as the key for the Philippines to get its industrial act together as it struggles to transform itself from the industrial laggard and strike capital of East Asia into a newly industrializing country at the turn of the century. NOTES 1 A study by the National Tax Research Center (NTRC) attributed 44 to 50 percent of the GNP in 1984 to the underground economy and 39 to 42 percent from 1980 to 1984. See abstract of the NTRC study in Philippine Conference on the Informal Sector, Pasig: Center for Research and Communication, February 26, 1988, p. 63. 2 For a fuller discussion of the sectoral composition of the labor force, see Rene E.Ofreneo, “Structural adjustment and labour market responses in the Philippines.” in M.Muqtada and A.Hildeman, Labour Markets and Human Resource Planning in Asia: Perspectives and Evidence, Geneva: International Labour Office, 1993, pp. 243–68. 3 Rene E.Ofreneo and Esther P.Habana, Employment Crisis and the World Bank’s Adjustment Program, Quezon City: UP Institute of Industrial Relations, 1987, Chapter 3. 4 Rene E.Ofreneo, Capitalism in Philippine Agriculture, Quezon City: Foundation for Nationalist Studies, 1980, p. 7. 5 Vicente B.Valdepenas Jr and Germelino M.Bautista, The Emergence of the Philippine Economy, Manila: Papyrus Press, 1977, p. 114. 6 Central Bank of the Philippines: 25th Anniversary, Yearbook published on the occasion of the twenty-fifth anniversary of the Central Bank, June 1974. An excellent account of the politics of the immediate postwar period is given in Renato Constantino and Letizia R.Constantino, The Philippines: The Continuing Past, Quezon City: Foundation for Nationalist Studies, 1978, Chapters 7–8. See also


8 9 10 11 12

13 14 15 16 17 18

19 20 21 22

23 24




Hernando J.Abaya, Betrayal in the Philippines, Quezon City: Malaya Books, Inc., 1970. Central Bank of the Philippines, First Annual Report, 1949, Manila: Central Bank, March 1950, pp. 44–8. Daniel Bell et al., Report to the President of the United States by the Economic Survey Mission to the Philippines, Washington, DC, October 9, 1950, p. 4. Diosdado Macapagal, Five-Year Integrated Socio-Economic Program for the Philippines, Manila: Malacanang, January 1992, p. 41. Robert Baldwin, “Philippines,” in Trade Strategies for Economic Development: The Asian Experience, Manila: Asian Development Bank, c. 1975, p. 77. Development financing is spelled out in the plan implementation chapter of the various development plans. See Four-Year Development Plan, FY 1974–77 and Five-Year Development Plan for 1978–82 and 1983–7. World Bank, Industry Development Strategy and Policies in the Philippines, Report No. 2513-PH, II, October 29, 1979, p. 8. Ofreneo and Habana, The Employment Crisis and the World Bank’s Adjustment Program, Chapter 2. For a more extended discussion on SAP and the economic crisis, see Ofreneo and Habana, The Employment Crisis. Ibid., Chapter 3. World Bank, Philippines: Toward sustaining the Economic Recovery, Report No. 7438-PH, World Bank, Washington, January 30, 1989, p. 1. World Bank, Economic Growth in the Philippines, Preliminary Report, January 4, 1962, p. 6, appended to the State of the Nation Message of President Diosdado Macapagal, January 22, 1962. Rene E.Ofreneo, “International subcontracting and Philippine industrial relations,” Philippine Journal of Industrial Relations, V, 1–2, 1983, pp. 31–43. Ibid., p. 37. Ofreneo, “Structural adjustments and labor market responses.” Wigberto E.Tanada, “Let us make the export of labor really temporary,” paper read in the Conference on Human Rights of Migrant Workers: Agenda for NGOs, Manila Pavilion, November 19, 1992. Bureau of Women and Young Workers, Philippines: National Monograph on Child Labor, BWYW, DOLE, September 4, 1987, p. 2. The production of labor law books, with commentaries using Supreme Court decisions, has become some kind of a cottage industry in the Philippines. One of the most comprehensive and user-friendly annotations of the Labor Code of the Philippines is C.A.Azucena, The Philippine Labor Code with Comments and Cases, Vols I and II, Quezon City: National Book Store, 1991. Based on Rene E.Ofreneo, “Struggle of Filipino workers and trade unions for social emancipation and advancement: a historical overview,” in Mario E.Caiman, The Challenges of Labour and Social Development: The Philippine Experience, Manila: ILO, 1993, pp. 111–23. Perfecto V.Fernandez, “Regimentation of labor in an open economy,” Philippine Journal of Industrial Relations, Quezon City: UP Institute of Industrial Relations, IV, 1–2, 1982, pp. 7–17. NASSA, Of Joys and Hopes, of Griefs and Anxieties: Fifteen Years of NASSA Pasay: NASSA, 1981, p. 36.


28 “Laying to rest main concerns of the private sector,” Business Journal, Makati: American Chamber of Commerce, November 1987, p. 6. 29 Bureau of Labor and Employment Statistics, DOLE. 30 Perfecto Fernandez, “Philippine labor law—a survey,” Washington Law Review, XL, 2, June 1965, pp. 234–5. 31 Reynato S.Puno, “The labor movement in the United States and the Philippines: a comparative historical study,” Far Eastern Law Review, Vol. XIX, 1, October 1971. 32 Kenneth K.Kurihara, Labor in the Philippine Economy, Stanford, Calif.: Stanford University Press, 1945, pp. 39, 42–3, 56. Kurihara, however, expressed doubts about the accuracy of the statistical data compiled by the government. Hence, the figures on unemployment should be taken simply as indicators of a worsening economic situation rather than as accurate measurements of manpower idleness. 33 John J.Carroll, “Philippine labor unions,” Philippine Studies, Ateneo de Manila University, IX, 2, April 1961, p. 284. 34 1934 Constitution of the Republic of the Philippines, Article XIV, Section 6. 35 Cicero D.Calderon, From Compulsory Arbitration to Collective Bargaining in the Philippines (reprinted from the International Labor Review). 36 George I.Levinson, The Workers’ Movement in the Philippines, Moscow, 1957, reproduced by Research and Microfilm Publications, Inc., Annapolis, Maryland, pp. 51–2. 37 Bell et al., Report to the President of the United States by the Economic Survey Mission to the Philippines, pp. 95–6. 38 See: Harry A.Millis and Emily Clark Brown, From the Wagner Act to TaftHartley: A Study of National Labor Policy and Labor Relations, Chicago: The University of Chicago Press, 1950; and I.Herbert Rothenberg, Rothenberg on Labor Relations, New York: Dennis & Co. Inc., 1949. 39 Blas F.Ople, “The history and direction of Philippines labor,” The Saturday Mirror Magazine, February 1, 1958. p. 7. 40 Amelita King, “State and labor organizations in the Philippine labor relations,” MA thesis, The Hague: Institute of Social Studies, Chapter 4. 41 For more on the Ranis Report, see Gustav Ranis, Albert Berry, Mark Blaug, John Fei, Mark Leiserson, Lass Lordahl, Mahar Mangahas John Power, Peter Richards, Maurice Scott and Erik Thorbecke, Sharing in Development: A Programme of Employment, Equity and Growth for the Philippines, Geneva, International Labour Office, 1974. 42 Ministry of Labor and Employment, 1984 Annual Report, Manila: Ministry of Labor and Employment, 1984, p. 45. 43 Perfecto Fernandez, “Regimentation of labor in an open economy,” Philippine Journal of Industrial Relations, IV, 1–2, Quezon City: UP Institute of Industrial Relations, 1982, p. 8. 44 Bach Macaraya, Workers’ Participation in Philippine People Power Revolution, Manila: Friedrich Ebert Stiftung, 1988, p. 24. 45 Rene E.Ofreneo, Edgardo Viray, Julie Casel, Alfonso Atienza and Melisa Serrano, “State of the trade union movement,” study conducted for the Friedrich Ebert Stiftung, 1988, pp. 7–8 (unpublished).


46 Rene E.Ofreneo, “Philippine labor and the deepening crisis,” Makati Times Yearbook and Business Directory, Makati, Metro Manila: Makati Times, 1981, p. 131. 47 Amelita King, “From Marcos to Aquino: implications for labor policy and the labor movement,” paper read at the International Conference of the Journal of Contemporary Asia, Sulo Hotel, November 1986. 48 For the complete text of EO 111, see Vicente B.Foz (ed.) The Labor Code, 1993 edition, Quezon City: Philippine Law Gazette, pp. 320–2. 49 See Augusto Sanchez, “Labor and capital,” Business Journal, journal of the American Chamber of Commerce in the Philippines, May 1986, p. 5. 50 “Laying to rest main concerns of the private sector,” Business Journal, November 1987, p. 6. 51 For the full text of RA 6715, see Foz, Labor Code, pp. 384–401. 52 “ILO upholds FFF complaint against Labor Code provisions,” press release of the Federation of Free Farmers, December 5, 1991. 53 Medium-Term Philippine Development Plan 1987–1992, p. 177. 54 “Accord on industrial harmony,” in Industrial Harmony: A Key to Economic Recovery, proceedings of the 2nd national Tripartite Conference on Labor Laws and Policies, April 10–11, 1987, DOLE, pp. 142–3. 55 Sec. 3, Executive Order No. 403, May 30, 1990. 56 Freedom from Debt Coalition, “The memorandum on economic policy,” Philippine Journal of Labor and Industrial Relations XII(1), 1990, 112–15. 57 See text of RA 6727 in Foz, Labor Code, pp. 418–24. 58 Perfecto Sison, Personnel and Human Resource Management, 6th edition, Mandaluyong: PMAP, 1991, pp. 58–61. 59 From ECOP Handbook, cited in Carmelo C.Noriel, Industrial Relations and Development in the Philippines, Bangkok: ILO, September 1979, pp. 43–5. 60 “Labor front,” Business Journal, Makati: American Chamber of Commerce, January 1988, p. 5. 61 ECOP produces two regular publications: Philippine Employer, a quarterly magazine, and ECOP Bulletin, an occasional news bulletin. 62 “Torres to keynote ECOP seminar,” ECOP Bulletin, 6, February 1990. 63 Edgardo J.Angara, “New dimensions in industrial relations,” Philippine Journal of Industrial Relations, V, 1–2, 1983, p. 28. 64 Interview with Dr Victor Lim, chairman of the Base Conversion Development Authority, Makati, Metro Manila, September 1, 1993. 65 James Windell and Guy Standing, External Labour Flexibility in Filipino Industry, Geneva: ILO World Employment Research Programme, 1992, p. 14. 66 Ibid., p. 49. 67 Maragtas S.V.Amante, “Tensions in industrial democracy and human resource management: a case study of Japanese enterprises in the Philippines,” The International Journal of Human Resource Management, 4–1, February 1993, p. 141. 68 WINT-NMYC, “Survey on the hiring, training and promotion practices in the organized sector (a case of Batangas),” NMYC, unpublished, June 1992. 69 Rene E.Ofreneo and Nenita B.Fernando, “Job search and employment/ unemployment flows among young workers,” Japan-DOLE Bilateral-Multilateral Project, January 1994, unpublished, Chapter 4, pp. 78–91.


70 Institute of Labor Studies, “Unions and industrial relations in the Philippines: labour market rigidity or dynamic flexibility?,” ILS-DOLE, November 1993, unpublished, pp. 5–7. 71 Rene E.Ofreneo, “Labour control and comparability: focus on unionism,” Paper presented in the Symposium/Seminar on Human Resources in Japanese Firms in the Philippines: Comparison with Filipino-Chinese and Western-Owned Firms, Nikko Manila Garden Hotel, September 22, 1993, unpublished, pp. 10–13. 72 Maragtas S.V.Amante, “‘We trust local practices’: pay and employment patterns in Japanese firms in the Philippines,” Paper presented in the Symposium/Seminar on Human Resources in Japanese Firms in the Philippines: Comparison with FilipinoChinese and Western-Owned Firms, Hotel Nikko Manila Garden, September 22, 1993, p. 21. 73 Institute of Labor Studies, “Unions and industrial relations in the Philippines,” p. 8. 74 Ofreneo and Habana, The Employment Crisis, Chapter 3. 75 Antonio Asper, “Prospects and problems of LMCs in the Philippines: a labor practitioner’s view,” Philippine Journal of Labor and Industrial Relations, XIV, 1– 2, 1992, pp. 43–8. 76 Bureau of Labor and Employment Statistics (BLES), Survey of Specific Groups of Workers (1990–1991), Manila: BLES-DOLE, 1992, p. 98. 77 Institute of Labor Studies, “Unions and industrial relations in the Philippines,” pp. 19–25. 78 S.A.Samonte, “The peculiar case of HSBC: talking and not listening,” Businessworld, January 26, 1994, pp. 17–18. 79 Maragtas S.V.Avante, “Tensions in industrial democracy and human resource management: a case study of Japanese enterprises in the Philippines,” The International Journal of Human Resource Management, 4–1. February 1993, p. 152. 80 Edgardo D.Viray, “New technology and industrial democracy in banks,” Philippine Journal of Industrial Relations, VII, 1–2, 1985, pp. 106–7. 81 Article 283, Labor Code of the Philippines. 82 Institute of Labor Studies, “Unions and industrial relations in the Philippines,” p. 12. 83 Ibid., pp. 15–16. 84 Amante, “We trust,” p. 5. 85 Rene E.Ofreneo, “Labor-management relations in Filipino-Japanese firms: to Japanize or not to Japanize?,” in M.S.V.Amante, Rene E.Ofreneo and Marie E.Aganon, Japanese Industrial Relations Interface in the Philippines, Quezon City: UP SOLAIR, 1992, p. 52. 86 BLES, Survey of Specific Groups of Workers (1990–1991), p. 66. 87 Wage Commission, Wage-Price-Employment Trend: 1972–1978, Ministry of Labor, January 1979, p. 1. 88 For a fuller discussion of labor flexibility, see Rene E.Ofreneo, “Changes in the workplace”, Intersect, VII, 4–5, Institute of Church and Social Issues, April–May 1993, pp. 3–5. 89 Rene E.Ofreneo, “International subcontracting and Philippine industrial relations,” Philippine Journal of Industrial Relations, V, 1–2, Quezon City: UP Institute of Industrial Relations, 1983, pp. 31–2.


APPENDIX: CHRONOLOGY OF MAJOR POLITICAL, ECONOMIC AND LABOR EVENTS 1898 Spain “ceded” the Philippines to the United States under the Treaty of Paris. 1901 The US “Philippine Commission” reduced duties on goods exchanged between the Philippines and the United States. 1902 Formation of the Union Obrera Democratica (UOD), the first Philippine labor federation. 1903 UOD was outlawed and its facilities confiscated. 1904 Governor-General William Howard Taft cleared the Constitution of the moderate Union del Trabajo de Filipinas (UTF). 1908 Creation of the Bureau of Labor. 1909 The Payne-Aldrich Trade Act of the United States granted a free trade arrangement between the two countries but placed quantitative restrictions on Philippine exports consisting mainly of sugar, abaca, tobacco and copra. 1913 The Underwood-Simmons Tariff Act removed all the quantitative restrictions. Formation of the Congreso Obrero de Filipinos (COF). 1929 The COF split into two factions, with the radical wing organizing the Katipunan ng mga Anak-Pawis (KAP). 1930 Launching of the Partido Komunista ng Pilipinas (PKP). 1930s Crisis of the export crop economy. 1934 A group of nationalistic businessmen advocating self-reliant industrialization founded the National Economic Protectionism Association (NEPA). 1936 President Manuel Quezon of the Philippine Commonwealth government launched his “Social Justice Program,” which included the enactment of the eight-hour labor law and the workmen’s compensation. Commonwealth Act 103 created the Court of Industrial Relations (CIR), which provided for compulsory arbitration services. 1941 Japan invaded the Philippines. 1945 Liberation of the Philippines from Japanese militarism. 1946 United States “granted” the Philippines its political independence. Conversion of the postwar Committee on Labor Organizations into the Congress of Labor Organizations (CLO). 1947 Amendment of the Philippine Constitution to allow “parity” rights to American businessmen. 1948–50 Balance-of-payments crisis; communist-led Huk rebellion; waves of strikes led by the CLO. 1950 US sent an Economic Survey Mission headed by Daniel Bell. Formation of the Federation of Free Workers (FFW), which joined the World Confederation of Labor.


Establishment of the Philippine Chamber of Industry (PCI) as a separate chamber from the prewar Philippine Chamber of Commerce (PCC). 1951 Huk rebellion crushed and CLO outlawed. Republic Act 602 established national minimum wages. Labor Secretary Jose Figueras dominated the labor scene with his own National Confederation of Trade Unions (NACTU). 1953 Enactment of the Industrial Peace Act, also known as the Magna Carta of Labor, through Republic Act 875, which promoted American-style collective bargaining. 1948–53 Issuance of a series of measures instituting import and foreign exchange controls, which discouraged the importation of “non-essential” products and encouraged the development of “new and necessary industries.” 1954 Enactment of the Retail Trade Nationalization Act. 1956 Signing of the Japanese war reparations agreement, which paved the way for the revival of trade between the two countries. Formation of the Personnel Management Association of the Philippines (PMAP). 1958 The National Economic Council adopted a resolution promoting the “Filipino First Policy” of the administration of Carlos P.Garcia. 1962 President-elect Diosdado Macapagal lifted the import and foreign exchange controls through the program of “decontrol”; at the same time, Macapagal put in place a system of high tariff protection. The Philippines availed of its first stand-by stabilization loan from the International Monetary Fund. 1963 Launching of the short-lived Lapiang Manggagawa (Labor Party). 1969 Philippine external debt reached $1.9 billion. Founding of the Communist Party of the Philippines-Mao Tse-tung Thought (CPP-MTT). 1970 The Philippine peso placed on a “floating rate.” Enactment of three business incentives laws: Investment Incentives Act, Foreign Business Regulation Act, and the Export Incentive Act. 1972 President Marcos declared martial law, abolished Congress and banned strikes. Creation of the National Economic Development Authority (NEDA), which pushed for the implementation of a labor-intensive export-led industrial program. Entire country declared a land reform area. 1974 Promulgation of the Labor Code of the Philippines and the establishment of the National Labor Relations Commission. 1975 Formation of the Employers Confederation of the Philippines (ECOP) with the assistance of the unified Philippine Chamber of Commerce and Industry (PCCI). Establishment of the Trade Union Congress of the Philippines (TUCP), which affiliated with the International Confederation of Free Trade Unions (ICFTU) and received assistance from the American-Asian Free Labor Institute (AAFLI).


1979 Foreign debt reached $10 billion. 1980 Adoption of the World Bank-assisted Structural Adjustment Program (SAP). Formation of the Kilusang Mayo UNO (KMU). 1981 Lifting of martial law. 1983 Assassination of returning opposition leader Benigno S.Aquino. Foreign debt ballooned to an unserviceable $24 billion and plunged the economy into depression. 1980–5 Waves of strikes hit the Philippines. 1986 Military-led “People Power Revolt” against the Marcos regime; installation of Mrs Corazon C.Aquino as President. Formation of the Labor Advisory Consultative Council (LACC) composed mainly of non-TUCP federations. Number of strikes hit an all-time high. 1987 Adoption of new Constitution and election of a new Congress. President Aquino adopted a hardline policy against “illegal strikes.” 1989 Enactment of New Labor Relations Law, which institutionalized the National Conciliation and Mediation Board (NCMB). TUCP and KMU/LACC launched a united and successful campaign to adjust minimum wages. Government “regionalized” minimum wage fixing. 1990 Tripartite conference established the Tripartite Industrial Peace Council (TIPC). 1992 Election of Fidel V.Ramos as President. Foreign debt reached $30 billion and the domestic debt swelled to P500 billion ($15 billion±).

Chapter 8 Economic liberalization and the transformation of industrial relations policies in India C.S.Venkata Ratnam

INTRODUCTION: BRIEF OVERVIEW OF THE ECONOMY India had a predominantly agricultural economy till independence in 1947. Even after independence, the first Five-Year Plan (1951–56) laid emphasis on agriculture. During the second Five-Year Plan (1956–61) there was a shift in emphasis towards heavy industrialization that has characterized economic policy ever since. At this early stage of development, India chose the path of central planning which led to a heavy emphasis on the development of public sector at the ‘commanding heights of the economy’. The resultant structural change in the Indian economy can be seen in Table 8.1. The share of agriculture in Gross Domestic Product declined from about 56 per cent in 1950–51 to less than 33 per cent in 1990–91 while the shares of industry (15.2–27.5 per cent) and services (29–40 per cent) sectors improved during the corresponding period. Table 8.2 provides a glimpse into the labour situation in India in 1961–91. It must be said to India’s credit that it produces a wide variety of industrial and consumer goods, and over the years the dependence of the industrial sector on the vagaries of agricultural sector performance was reduced. Nor did India feel the crunch of recession or the wrath of business cycles. Its middle class has grown to a size of over 250 million to create a large consumer market while over 220 million continue to live below the poverty line. The industrialization strategies and industrial policies pursued in India from independence till the mid-1980s aimed at development and a faster growth rate, but emphasized regulation rather than development. To protect the domestic industry from foreign competition and promote self-reliance, import substitution was adopted as a deliberate state policy. But import substitution and export promotion were not viewed as two sides of the same coin. Instead, a plethora of controls led to the erection


Table 8.1 Gross domestic product by industry of origin: 1950–1951 to 1990–1991 (at current prices) Gross domestic product (at factor cost) Rs Crores

Percentage share in total

Agricultur Industrial Services al sector sector sector


Agricultur Industrial Services al sector sector sector

1950–51 5,009 1960–61 6,990 1970–71 17,937 1980–81 46,649 1990–91 153,119 Average for the Period 1950–51 to 1960– 61 1960–61 45.6 to 1970– 71 1970–71 40.3 to 1980– 81 1980–81 33.2 to 1990– 91 1950–51 46.0 to 1975– 76 1975–76 34.1 to 1990– 91 1950–51 36.3 to 1990– 91 Source: CMIE (1992)

2,604 5,107 13,068 44,063 189,337

8,949 15,254 39,708 122,427 472,599

1,336 3,157 8,703 31,715 130,143













55.8 45.8 45.2 38.1 32.4

15.2 20.7 21.9 25.9 27.5

29.0 33.5 32.9 36.0 40.1




Table 8.2 Labour situation at a glance 1


No. of workin g factori es Avera ge emplo










50, 095

81, 078 (P)

149, 268 (P)

176, 303 (P)

184, 404 (P)

188, 630 (P)


5,083 (P)






yment (’000s ) 3 Avera ge emplo yment per factory 4 Avera ge money earnin gs (in Rs) a) factori es (annua l)* b) coal mines (weekl y) 5 Index numbe r of wage rates (Base 1963– 5=100 ) 6 Social securit y schem e covera ge (Subsc ribers in ’000s at the end of March )












48.8 (P)






11, 628












a) emplo yees’p rovide nt fund b) emplo yees’ state insura nce schem e Trade unions a) registe red (in numbe r) b) memb ership of unions submit ting returns (in’00 0s)


a) Numb er of disput es b) no. of worke rs involv ed (in ’000s)












11, 098

12, 930

13, 812

13, 839

14, 298

14, 664









11, 614

22, 484

37, 539 (P)

45, 067

46, 014






Indust rial disput es 1,357








831 (Jan.– June)











c) no. of mandays lost (in ’000s) d) no. of mandays lost per 1, 000 worke rs in manuf acturi ng 9

a) Bomb ay (cotto n mills) b) iron and steel 10

a) freque ncy rate per 1, 000 mandays worke d 11


16, 546

36, 583

29, 240

35, 358

33, 947

30, 440

16, 669




4,336 (P)

3,226 (P)

4,141 (P)

3,753 (P)

1,998 (P)

Absen teeism (in %) 11.9








19.6 (Jan.– June)









14.1 (Jan.– June)

Indust rial injurie s (in factori es) 1,618



2,038 (P)

1,425 (P)

1,544 (P)

Prices: All India


a) 104 190 441 608 719 823 843 917 1,050 consu mer price index numbe r for indust rial worke rs (1960 =100) b) whole sale price index numbe r i) 100 186 502 640 717 776 – – – 1961– 2=100 (e) ii) N.A. 105 277 353.5 396 429 – – – 1970– 1=100 iii) N.A. N.A. 100.0 124 140 152 162.5 177 195 1981– 2=100 Source: CMIE(1992) Notes: P=Provisional; N.A.=Not Available; R=Revised * Figures up to 1975 relate to employees earning less than Rs 400 per month, for the period 1976–1981 to those earning less than Rs 100 per month, and since 1982 to those earning Rs 1,600 per month or less (a) Figures of estimates employment and man-days worked or 1984 have been repeated in 1985

of barriers of entry and exit, treatment of pygmies as giants and the government denying economies of scale to Indian enterprises, placing tariffs and other restrictions on imports and exports, resulting in distortions in pricing of inputs and outputs, and the creation of a sheltered market and protective regime based on political patronage. The end result was the creation of pre-emptive capacities to minimize or avert competition, gross underutilization of capacities, profiteering by trading in licences and quotas (for state-controlled raw materials etc.) rather than relying on actual production and rendering of services, and collusion rather than competition. There is too much government in business and industry and vice versa, which eventually proved detrimental and


counterproductive to the conduct of state affairs as also those of industry and commerce. Lest it be misunderstood: it is not that the economy did not grow. The growth in certain core sectors has indeed been phenomenal. India is among the top producers by virtue of sheer volume of output in rice, wheat, cement, fertilizers, etc. Despite being one of the largest producers of items such as fertilizer, the dependence on foreign technology each time a new plant is set up did not diminish. On the contrary, whatever little gains the country had made in terms of developing indigenous technology were lost in certain core industries. The population growth nullified the economic growth in several areas. Consequently, the per capita availability of many items in agriculture, industry and services declined over the years despite substantial growth in output. Despite a head start in heavy industrialization within the Asia-Pacific region, its rank in the major industrial countries dropped from thirteenth in 1965 to nineteenth in 1990 (CMIE 1993). Its major exports continue to be leather, gems and jewellery and woven cotton fabrics. In 1990 India’s share in world exports was around 0.6 per cent, less than half the figure in 1950. Over-regulation, protection and distortions in the emphasis on self-reliance and import substitution led to neglect of quality, costs, delivery/supply schedules and customer orientation. As one industrialist put it, ‘In India anything and everything can be produced at any cost, quality, quantity and still can be sold for a profit.’ Industrial sickness may be pervasive but the industrialists who contributed to such sickness, wilfully or otherwise, are not usually sick and are permitted to set up new inefficient units with substantial support from public financial institutions with impunity. The result was that India became a highcost, low-performance economy with a lagging industry (where the literate and the élite sections are concentrated) despite significant achievements Table 8.3 Trends in productivity and growth: manufacturing (per cent per annum) 1959–60 to 1979–80 Value added 5.5 Capital stock 8.6 Employment 3.3 Capital-labour 5.1 ratio Total factor −0.5 productivity Labour 2.1 productivity Capital −2.8 productivity Source: Ahluwalia (1992)

1959–60 to 1965–6

1965–6 to 1979–80

1980–1 to 1988–9

9.1 13.4 4.0 9.0

5.0 7.0 3.5 3.3

7.0 7.5 −0.5 8.0











through green (agriculture), white (dairying) and blue (fisheries) revolutions (where the illiterate and indigent sections of the society participate in overwhelming numbers) and in frontier areas of technology such as nuclear, space and genetic engineering. Labour may be cheap, but not necessarily cost of labour. Capital may be scarce, but not its use. Since factor productivity is difficult to calculate because of gaps in the data base, labour productivity is usually measured by dividing output by labour employed. When protective labour laws increased rigidity in labour markets and made labour adjustment costlier and more difficult, employers began to substitute labour with capital and through capital with more advanced technology and equipment. This led to capital intensity, and decline, both in absolute and relative terms, in the number employed in the firms in the organized sector. Since the increased output is divided by the declining numbers employed, it led to a mistaken impression that labour productivity has started moving upwards. However, input shortages and infrastructure breakdowns (power and communications) led to gross underutilization of the investment in capita. Technology became not only capitalintensive but also cost-intensive. Despite capital being scarce, its productivity became a casualty (Table 8.3). By the end of the 1980s, despite the drive for selfsufficiency, the country had amassed a foreign debt of US$85,000 million . It could no longer raise new funds outside and its internal capacity to generate capital surplus remained low. It was clear that the economic policies needed an overhaul. Then the stage was set for wholesale reform. The labour market context of adjustment The changes in industrialization strategies affect the social and labour aspects and influence human resource/industrial relations strategies and policies at both macro and micro levels. The strategies and policies should contend with the contextual aspects of the labour market to ensure that economic and industrial development is in harmony with social and human progress. Therefore, it becomes necessary to take stock of some key contextual factors of the labour market in India to understand the interface between industrialization strategies and industrial relations policies. The major concerns in the political economy of development in India could be listed under: (1) development and democracy; (2) Centre-state relations and unified labour policy; (3) withdrawal of the state; (4) employment scenario; (5) growing unemployment; (6) diversity in the industrial relations system. These aspects are briefly reviewed here under. Democracy and development India is industrialized in one sense and underdeveloped in another. There is a perception, which is not ill-founded, that many of the benefits of industrial and economic development were aimed at or where cornered by the top 20 per cent


(in terms of economic status) of the population and did not reach the other 80 per cent. There is an argument that the modest ‘Hindu growth rate’ (around 3.5 per cent) being only marginally higher than the rate of population growth, the benefit did not trickle down. Had the growth rate been higher (8.5+ per cent), some argue, the benefits would have trickled down in the long run. What happens in the short run due to changed policies remains a gamble. Since structural changes are fraught with political risks in the short run, pendulum policies seem to result in ‘one step forward, two steps back’ measures that only worsen the problem. In a democracy decisions are often based on the lowest common denominator of consensus. Therefore, their intrinsic effectiveness may be reduced considerably by delays and dilution. Yet these features do not and should not undermine the intrinsic merits of democracy over any other political system of governance. India is the world’s second most populous country. It was a colony for centuries before it became independent, but due to mass illiteracy the imperfections in its democracy were exacerbated in the first four decades after independence. It is only in the 1990s that more than 50 per cent of its population became literate and Kerala and one or two north-eastern states have become nearly 100 per cent literate. India is a democratic country wedded to the ideals of justice, liberty and equality enshrined in the preamble to the Constitution. Unlike many Asian countries, India has had, for most of the present century, a strong, though not quite representative enough, trade union movement which was integrated with the political processes of the freedom struggle and nation building. For nearly half a century, Indian development strategy focused on a command economy in the state sector with the private sector playing an important yet secondary role in key sectors of the economy. The transition to a globalized market economy is born out of disaffection with the performance of the state sector rather than being a positive vote of confidence in the private sector. The public perception of the private sector is still fairly negative. Therefore neither the autocratic policies of certain military regimes in developing countries nor the corporatist policies of various industrialized countries in southeast Asia and some western societies can be used as an example in harmonizing the concerns of industrial relations with industrialization strategies. There is no right mix of industrial relations policies which is universally valid at a given stage of development. The balance between industrialization strategies and industrial relations policies has to be struck with reference to the socio-cultural, politicolegal and techno-economic institutional framework of a country. They also need to be aligned to the stages of world development including the nature and degree of global interdependence, leverage of social and other clauses in trade agreements, etc. Centre-state relations and unified labour policy It appeared that the government was capable of articulating and implementing policies—whether right or wrong is a different matter—in spheres including


labour till the late 1960s when the same Congress party was in power at the centre and in most states. But after 1969 or so, non-Congress parties and regional parties have come to power in the states and twice at the centre. Over the years, the states began to ask for greater provincial autonomy over matters including labour which has been on the ‘concurrent’ list since the British days (that is under the simultaneous jurisdiction of both the central and state governments). The problem is confounded by the definition of ‘appropriate government’, particularly in the case of central government undertakings. While the Administrative Ministry in the central government is responsible for the overall performance of such enterprises, labour-management relations came, in several cases, under the jurisdiction of the state government where the enterprise is located. Political differences among the parties in power caused not only infrequent problems for individual enterprises, but also, when major policy issues are discussed at labour Ministers’ conferences, government representatives used to take a stand on the lines of the ideology/position of the ruling party at the centre and/or in the states. Given the diversity of the context, the seriousness of political ferment and the pendulum-like reversals of government policies over the years, one could wonder whether India ever had or will ever have a unified labour policy. Withdrawal of the state In India both labour and management traditionally depended rather heavily on the state in economic, social and labour matters. Tripartite consultations and even bipartite relations are usually more influenced by political considerations and state support. Budgetary deficits and structural changes seemed to weaken the role of the state and portend a diminished role for it in social integration. This creates, as a recent document prepared by the International Institute for Labour Studies (IILS) (1993) warns, ‘problems for political consensus on a system of social organisation based on complementarity and counterveiling power’. In periods of flux such as countries like India and several other developing countries are now facing, the need for state support for new initiatives increases. Given the diminishing possibility for both state support and public resources, the major option would be to focus on cooperative efforts at firm/plant level in an adjust-or-perish spirit. The absence of balance between the other two social partners—labour and management—will lead to new social tensions. Therefore, while the state in India could do with fewer controls, it cannot be a party to significant job losses in an already critical unemployment situation or let more job losses take place without creating mechanisms to mitigate the adverse effects. And, in the absence of social security of the type available in Scandinavian and several other industrialized countries, the problem assumes greater significance.


Employment scenario As of July 1994, India’s population exceeded 904 million. According to the 1991 census, the total workforce was 306.8 million 37.68 per cent of the total population). Over 55 per cent of the workforce is illiterate and another nearly 10 per cent literate without any educational qualifications. Over 90 per cent of the workforce is employed in the unorganized sector and less than 10 per cent (26.75 million) in the organized sector. Formal policies and practices relating to HR/IR are generally absent in the unorganized sector which usually remains outside the purview of legislation, the trade union movement and professional management. The Employers’ Organizations (EOs) have a very limited role to play in the sector. The Central Trade Union Organizations (CTUOs) claim to be concerned about the unorganized sector also, but these are often no more than empty words. In India the organized sector refers to the sector comprising public and private enterprises which are either registered or come under the purview of any of the Acts and/or are maintaining annual accounts and balance sheets. Public enterprises include departmental and non-departmental enterprises in the public sector. In the private organised enterprises are included registered manufacturing, mining and quarrying, gas and water supply, private transport companies, registered schools, colleges and hospitals, and corporate trading activities and services. (Reserve Bank of India 1979) In contrast, the unorganized sector comprises, exclusively, private sector employment which is, if at all, marginally affected or regulated by labour or industrial laws. The unorganized sector enterprises are usually very small (typically employing fewer than ten persons) and are hardly unionized. The wages in this sector are generally considered to be low; and the working conditions harsh, exploitative and maybe largely unsafe. The public sector accounts for over two-thirds (71 per cent) of the employment in the organized sector (19.2 million out of 27.06 million in 1992). Between 1970 and 1990, employment in the public sector in India grew at an annual rate of 2.9 per cent against 0.7 per cent in the private sector (Table 8.2). Though top managerial remuneration is several times higher in the multinational firms and the private sector than in the public sector in India, the average annual gross salary in the public sector enterprises (non-departmental undertakings), at Rs 49,197 in 1991, was one-and-half times higher than in the private sector (CMIE 1994). Growing unemployment Job creation has been a major concern and objective of successive five-year plans. But, over the years, fewer jobs are created per Rs 10 million investment.


In the 1950s a leading economist, Mahalanolis, estimated that Rs 10 million investment in infrastructure would create 11,000 jobs (Mahalanolis, 1953). During 1980–7, 70,000 jobs were added in the organized sector. Capital formation in the public and the private sectors exceeded Rs 700,000 million. Thus, Rs 10 million investment generated just one job on the average in the organized sector through most of the 1980s. The Nhava Seva Port in the public sector employs ten times less manpower and its wage cost as a proportion of total operating expenditure was twelve times less than that of Bombay. The integrated steel mill set up in the public sector at Visakhapatnam generated less than 14,000 jobs for an investment of over Rs 80,000 million. A new joint sector steel mill proposed to be set up in Madhya Pradesh will entail an investment of Rs 400,000 million and provide jobs for 400 persons. Changes in labour legislation during the emergency in 1975 required prior permission from the government for lay-offs, retrenchments and closures. Such legal provisions, court judgements and existing collective agreements between employers and trade unions created rigidities in the labour market. However, over the years, higher adjustment costs seem to have reduced the demand for labour in the firms in the organized sector, irrespective of whether they are owned by the government or by the private sector. A study of employment trends in thirty-four Indian industries, using the Annual Survey of Industries Data for the period 1976 to 1982, pointed to a long-term decline in the demand for labour at around 17.5 per cent (Fallon and Lucas 1991). The study noted significant inter-industry variations. Employment is estimated to have been reduced by more than 5 per cent in twenty-five of the thirty-five industries, and by more than 15 per cent in seven of them. The rate of decline in employment was estimated to be over 33 per cent in textiles. Another study of thirty-four firms in Bombay from 1980 to 1990 estimated an average reduction in employment of 20.5 per cent over the decade (Workers’ Solidarity Centre, 1989). A study of six industries

Plantations and textiles (West Bengal), power (Andhra Pradesh), major ports, engineering (West Bengal and Andhra Pradesh) and chemicals and Pharmaceuticals (Maharashtra) point to a decline in full-time employment and unionization rates during the 1980s (Sarath 1992). The study also pointed to a rise in the incidence of casual and contract employment. The study of chemicals and Pharmaceuticals also pointed to underreporting of employment by private sector firms (to the extent of 57 per cent). The data gathered through field visits revealed that the actual number employed in the firms covered was, on average, 57 per cent more than the number according to the records of the Factories Inspector (presumably to overcome the burden of legal coverage which progressively increases with the number employed). Several studies (Goyal 1984; Ramaswamy 1988; Frensen 1991) also point to a shift in employment from the organized to the unorganized sector through


subcontracting, and the emergence of atypical employment practices where those who work for the organization do not have an employment relationship but a contractual relationship (Mathur 1989). Against this background, the country is desperately searching for a middle way. As Prime Minister P.V.Narasimha Rao observed while addressing the World Economic Forum at Davos, Switzerland, in February 1994: Change has to be accepted as a result of deliberate and objective thinking. At the same time, those who wear the shoe and know where it pinches should have full say in deciding how to mend it. In the new-found enthusiasm for change, governments should not go over-board and plunge large chunks of their people into mass misery; they have no right to do that… each society has to find its own ‘middle way’ suited to its genius and circumstances; and, this should be the approach that accepts change. Clearly, the Indian case—in terms of both the magnitude and complexity of the challenges—calls for a different strategy than elsewhere. Given its strong democratic traditions and vibrant, even if weak and splintered, trade union movement, neither an autocratic approach nor a corporatist approach to industrial relations will work. Striking a balance between the requirements of economic development and social progress has not been an easy task. Therefore the search for the ‘middle way’ has not yet produced a model that could be operationalized on a wider scale, though in certain specific local contexts at firm/ plant level both unions and managements have been able to work out an equilibrium. Diversity in the industrial relations system It is difficult to generalize about the stage of labour-management relations in India. Given its diversity, it is doubtful whether India has a unified industrial relations system. Ramaswamy’s study (1988) points to divergence rather than convergence. There is no dearth of examples of companies where harmonious labour-management relations prevailed for decades. But their number, relatively, is few. There are several types of employers, as Vaid’s study (1974) points out: constitution-bound, paternalistic and exploitative. In exploitative companies, when gheraos and labour unrest took place after the left front government came to power in 1968, owners and managers were put to flight and, on occasion, killed. In some cases, company properties were set on fire. In constitution-bound companies, gheraos and unrest were symbolic gestures not aimed at hurting the persons involved, physically or otherwise. Tables 8.4 to 8.6 present data on industrial disputes, their causes and the unions initiating them. The data are incomplete in the sense that they cover reported disputes only. Statistics on work stoppages and lockouts are contentious. West Bengal government’s annual reports on the labour situation indicate that in


recent years ninety-five of the work stoppages were caused by lockouts. Since the 1980s unions have been resorting more frequently to tactics like work-to-rule, go-slow, etc., so that they do not have to lose wages. Thus covert methods are becoming more popular than overt direct industrial action. Since industries are heterogeneous, the industrial relations scenario and human resource practices seem to vary. For instance, many of the high-tech information technology firms do not have unions at all. The colonial heritage seems to have created an attitude problem in the principal actors which is still the main influence in labour-management relations, which are by and large rooted in adversarialism. Employers in general are still feudalistic, organizational structures reproducing societal stratification; the predominant belief and value system is unitarist, not pluralist. There are exceptions, though. In a sheltered sellers’ market, employers benefit from perpetuating scarcities. Therefore, it is doubtful whether employers in India considered sound labourmanagement relations as a prerequisite for corporate well-being. There is excess capacity in several Indian industries due to preemptive capacity creation strategies directed at eliminating competition. Many employers eventually reached the situation where it seemed better if the workers went on strike so that wages could be withheld. For, if they reported for work when the order book position was poor, employers could not always provide enough productive work. The key problem is lack of trust. Workers consider employers as Paisa chor (they swindle and appropriate surpluses from the enterprise). Balance sheets are generally considered to be excellent pieces of fiction. Employers consider workers as Kam chor (mean, lazy people who shun work). There is a need for communication and transparency in transactions. Table 8.4 Industrial disputes by public and private sectors, 1981–1989 (P) Disputes

Workers involved (in ’000s)

Man-days lost Wages lost (in Value of (in ’000s) Rs) production lost (Rs in Crores)

Publi c

Privat Publi e c

Privat Publi e c

Privat Publi e c

Privat Publi e c

Privat e






10, 066

26, 518

25.86 (582)






10, 360

64, 254

7.60 (690)

20.97 (1, 223) 25.65 (1, 084)

291. 24 (1, 168) 3, 449. 69 (1, 018)

337. 52 (486) 74.48 (615)



Workers involved (in ’000s)

Man-days lost Wages lost (in Value of (in ’000s) Rs) production lost (Rs in Crores)

Publi c

Privat Publi e c

Privat Publi e c

Privat Publi e c

Privat Publi e c

Privat e







42, 406

7.22 (707)

42.83 (982)

31.95 (611)







48, 154

18.02 (475)

49.18 (841)

56.40 (406)







26, 037

4.84 (283)

31.56 (759)

29.06 (217)







30, 176

6.11 (281)

39.20 (837)

40.06 (208)







30, 122

10.26 (355)

43.62 (672)







27, 314

15.46 (445)

46.49 (615)

108. 25 (300) 71.62 (394)







12, 244

14.15 (296)

10.86 (230)

65.04 (266)

398. 12 (919) 471. 66 (766) 345. 46 (708) 783. 52 (758) 531. 43 (619) 622. 62 (540) 218. 43 (201)

Source: CMIE (1992) Notes: Figures in brackets indicate the number of cases to which the information respecting loss in wages and production relates P=Provisional Table 8.5 Percentage distribution of disputes by (A) causes, (B) duration and (C) results, 1961–1990 (P) 1971


1985 (P)

1990 (P)





14.1 14.1

8.4 22.4

7.3 23.1

3.0 16.8









(A) Causes Wages and allowances Bonus Personnel and retrenchment Leave and hours of work Indiscipline/ violence




1985 (P)

1990 (P)

Others 23.4 27.81 29.2 37.4 Total 100.0 100.0 100.0 100.0 Total no. of disputes to 2,723 2,453 1,700 N.A. which % relates (B) Duration A day or less 25.4 22.9 15.6 27.6 Between 1 25.1 21.2 19.8 24.1 and 5 days Between 5 14.8 12.2 14.6 9.8 and 10 days Between 10 15.3 12.0 14.0 11.5 and 20 days Between 20 5.8 8.7 8.1 5.2 and 30 days More than 30 13.6 23.0 27.9 21.4 days Total 100.0 100.0 100.0 100.0 Total no. of disputes to 2,670 2,281 1,542 N.A. which % relates (C) Results* Successful 26.4 28.4 37.1 13.5 Partially 23.4 26.8 28.4 26.7 successful Unsuccessful 34.4 40.5 31.8 58.0 Indefinite 15.8 4.3 2.7 1.6 Total 100.0 100.0 100.0 100.0 Total no. of disputes to 2,512 1,890 1,645 N.A. which % relates Source: CMIE (1992) Notes: *Results are based on the extent to which workers are met. Thus ‘unsuccessful’ means that workers’ demands are not accepted. ‘Indefinite’ means that no final decision was reached at the time of resumption of work. The information relates to those cases for which the relevant information was available. N.A.=Not available; P=Provisional Table 8.6 Industrial disputes classified according to affiliation of workers’ unions to central workers’ organization, 1987 No. of disputes

No. of workers involved No. of man-days lost

Central Union

Number (’000s)

Percentage Number of total (’000s)

Percentage Number of total (’000s)

Percentage of total

All Indian Trade








No. of disputes Central Number Union (’000s) Union Congress (AITUC) Indian 145 National Trade Union Congress (INTUC) Hind 30 Mazdoor Sabha (HMS) United 1 Trade Union Congress (UTUC) Multiple 74 unions Other 224 unions Not 1,202 known or no union involved Total 1,799 Source: CMIE(1992) Note: @=Negligible

No. of workers involved No. of man-days lost

Percentage Number of total (’000s)

Percentage Number of total (’000s)

Percentage of total




































Table 8.7 Growth of exports and imports (per cent per annum)

Exports Total (US $) Nonpetroleum (US$) Manufactu red goods (Rs) Imports

1960–1 to 1969–70

1970–1 to 1979–80

1980–1 to 1989–90

1989–90 to 1990–1

1980–1 to 1985–6

1985–6 to 1989–90




















1960–1 to 1969–70

1970–1 to 1979–80

Total (US 0.5 19.3 $) Non0.7 15.4 petroleum (US$) Petroleum 3.8 41.0 (Rs) Source: Ahluwalia (1992)

1980–1 to 1989–90

1989–90 to 1990–1

1980–1 to 1985–6

1985–6 to 1989–90













Table 8.8 Verified membership of federation of trade unions between 1951–1952 and 1987 (P)

Number (Base 1961– 2=100)

Registered trade unions*

Trade unions submitting returns

Index (in’000s)

Membersh ip


Average % of membershi women p per union members

1951–52 4,623 39.8 2,556 1,996 781 6.6 1961–62 11,614 100.0 7,087 3,977 561 9.3 1971 22,298 194.0 9,029 5,470 606 7.1 1980 (P) 36,507 314.0 4,432 3,727 841 5.9 1985 (P) 45,067 388.0 7,851 6,433 823 9.4 1987 (P) 47,014 405.0 7,529 6,329 841 N.A. Source: CMIE (1992) Notes: P=Provisional and incomplete; N.A.=Not available *=Number of registered trade unions between 1977 and 1984 is provisional and estimated. Registered trade unions cover the workers’ unions and employees’ unions

HISTORICAL EVOLUTION Colonial period (pre-1950) During the colonial period government policy in industrial relations was ‘one of laissez-faire and selective intervention at the most’ (NCL 1969). The Trade Disputes Act, 1929, provided for state intervention in the settlement of disputes. The Act was subsequently amended in 1938, following the recommendations of the Whitley Commission (also referred to as the Royal Commission on Labour) and the experience of the only provincial legislation at the time in the industrially


important Bombay province, called the Bombay Trade Disputes (Conciliation) Act, 1934. The Bombay Trade Disputes Act provided for: (a) compulsory recognition of unions by the employers; (b) the right of workers to get their case represented by a union representative/government officer; (c) certification of standing orders detailing terms and conditions of service; (d) the setting up of an Industrial Court; and (e) prohibition of strikes/lockouts under certain conditions. During the colonial period, much of the industrial activity was agro-based (jute and cotton textiles, tea, etc.) besides some departmental establishments like the railways, communications, etc. In the wake of the report of the Whitley Commission (1931) and special investigations by government-appointed committees into major industries like textiles, government began to consider special measures aimed at securing a modicum of welfare and security for employees. Though the Whitley Commission recommended tripartite consultation, the British government of India did not immediately accept it. In the wake of the Government of India Act of 1935, which placed the subject of labour in the ‘concurrent’ list, thereby empowering provincial governments to enact their own legislation, the employers’ and workers’ representatives became concerned about lack of uniformity in labour legislation and began to press for tripartite consultation. It was only during the Second World War that tripartite consultation on labour was initiated, particularly to meet the exigencies of war and to accelerate production. In 1942, the government invited representatives of employers’ and workers’ organizations to participate in the tripartite Indian Labour Conference (ILC). Simultaneously, a Standing Labour Committee (SLC) was set up as a subcommittee of the tripartite conference. The basic objectives of government in instituting the ILC and the SLC were to (a) promote uniformity in labour legislation; (b) lay down a procedure for the settlement of industrial disputes; and (c) discuss all matters of all-India importance between employers and employees. This basic framework for consultation and bargaining continues to be in operation to this day. Industrial disputes were settled based on examination of the facts by a government-constituted authority or through public hearings based on independent investigations. The scope of legislation was limited and formal machinery for grievance handling was generally absent. The exploitation of labour, declining real earnings and other adverse conditions during the Second World War, the political role of the trade union leadership in the freedom movement which preferred a dependent relationship with the government, and the perceived need to promote industrial harmony for ensuring economic development in consonance with central planning had set the stage for heavy government involvement in regulation and dispute resolution and for a third party role in determining wages and working conditions (wage boards or government-mediated collective bargaining in the central public sector).


The post-colonial period (1947±1990) Legal framework Labour is a concurrent subject according to the Indian Constitution, which means that both the central and the state governments have jurisdiction to legislate on it. Over 100 legislations govern various aspects that deal with human resources/ industrial relations at enterprise level. Additionally, there is a considerable amount of free interpretation of these laws creating a body of jurisprudence known as ‘judge-made law’. While there is a proliferation of legislation, implementation is weak. The institutional framework for industrial relations includes consultative machinery and conciliation and arbitration machinery. The consultative machinery is present at all the three levels indicated by Kochan et al. (1984) in their strategic choice framework. At the top tier is tripartite consultation provided through the ILC and SLC as discussed above. At the enterprise level, joint management councils and works committees are provided. Some of the committees like the Canteen Committee and the Safety Committee are statutory. There is a lot of effort on paper, through gazette notifications, to promote workers’ participation. While more than half the government enterprises did not pay much heed to such notifications, even in the few enterprises where some machinery for workers’ participation was established in response to governmental directives worker participation became nebulous due to a general lack of genuine commitment and involvement in the concept. Several voluntary arrangements gained currency during the late 1950s due to the personal influence of a Union Minister in charge of both Planning and Labour, G.L.Nanda: these are the Code of Discipline (1958), Model Grievance Procedure (1958), Code of Conduct (1958), Verification of Trade Union Membership (1958), Voluntary Arbitration (1959), Code of Efficiency and Welfare (1959) and Industrial Truce Resolution (1962) in the wake of the IndoChina war. When these voluntary arrangements were discussed in tripartite fora the actors could not disagree, openly, to such lofty ideals. The moral appeal, though compelling, soon waned: in retrospect it appears that the actors agreed to them because they were merely voluntary and non-adherence did not entail any sanctions (Mathur and Seth 1969; Ratnam 1990). The dispute resolution machinery consisted of four levels: bipartite negotiations, conciliation, arbitration and adjudication. Soon after independence, during debates on the dispute resolution machinery some trade unions favoured adjudication more than collective bargaining because they felt that they were relatively weak in relation to employers and adjudication would help restore the balance of power. Conciliation machinery was generally found inadequate because the role of the conciliation officer was merely to arrange meetings between labour and management representatives and share/exchange information. The role, training,


facilities, etc. of the conciliation machinery were not considered commensurate with the requirements. Arbitration has not been popular in India at any time in the past. Largely, this is due to deep-seated adversarialism in labour-management relations, also partly to the absence of institutional arrangements. In the government sector, however, a Board of Arbitration was created by setting up, in 1968, the Joint Consultative Machinery to resolve differences between government as an employer and the general body of employees. In the cement industry, twice in the past, wages were determined through arbitration—an unusual experience in the Indian context. The 1989 round of wage revision, however, ran into rough weather due to trade union dynamics. Adjudication or compulsory arbitration is the last resort of redress in an industrial dispute. Labour courts, industrial tribunals and national tribunals are set up for this purpose depending on the nature, scope and magnitude (local or regional or national import) of the dispute. There are also certain pieces of draconian legislation which were aimed at maintaining essential services (Essential Services Maintenance Act, for instance) under which strikes/lockouts could be banned and industrial relations rights curbed for specified periods. These are often effectively used to curb industrial action in core sectors like transport, energy, banking, etc. These laws continue to this day on the statute book despite constant pleas by the trade unions for their repeal. The major problem in the legal framework is the plethora of legislation and inadequate machinery for implementation. The Trade Union Act, 1926, which aimed at strengthening the union movement, may have contributed to its weakening. It provided for registration, not recognition. De facto, if not de jure, all registered unions, irrespective of whether they are recognized or not and whether majority, minority, broad-based or craft or category unions, have come to enjoy industrial relations rights. Any seven members can register a union. Though some state laws provided for recognition, as in Maharashtra, for example, experience of such legislation indicated that it did not improve matters. The longest ever strike in India—the textile strike of 1982 which continued for over a year and has still not officially been called off—was the result of a fight between two rival trade union leaders, Datta Samant and R.J.Mehta, to gain control. The Industrial Disputes emphasized dispute resolution but there has been little by way of creating an enabling environment. Other laws like the Bonus Act, 1965, were intended to reduce strife on account of bonus disputes; in fact strife on account of bonus disputes increased in the wake of the legislation. Application of most labour laws increases with the progressive increase in the number employed in a firm. The more people a firm employs, the more the laws that apply to it. As we shall discuss later, to get over the limitations of such legislative ‘harrassment’ employers have generally shown a tendency to


substitute labour with capital, under-report numbers employed or resort to subcontracting, employment of casuals, etc. The legal restrictions on introducing new work practices, introduction of new technology and modernization, adjustment of the workforce in line with changing business requirements through lay-offs, retrenchments or closures of business, etc. are some of the most current and contentious issues in the wake of the ongoing economic reforms. Managerial responsibility for decisions on the above has been questioned repeatedly, in the past, before courts of law. Even judicial interpretation on matters of principle, rights and interests has often been unpredictable and subject to judicial activism. Principal actors in the industrial relations system: the weak tripod Dunlop’s (1958) framework recognizes three principal actors in industrial relations: unions, employers and government. An earlier assessment of their roles in Indian industrial relations by Kennedy (1966) characterizes unions as militant, employers as legalistic and government as tender-minded. In recent times even employers were characterized as becoming militant while government continues to be unfocused in its goals. Trade unions The trade union movement in India is over a century old. In the early 1990s, organized labour in India accounted for less than 9 per cent of the population. Membership of the unions submitting returns to the appropriate authority under the Trade Union Act, 1926, was less than 2 per cent of the total labour force in the country as of 1987; 47,014 unions account for a membership of 6,329,000 (Table 8.8). But it is doubtful whether these statistics give the true picture. It is amazing that in a country where mere registration by any seven employees of an enterprise carries de facto recognition, so few unions should go for registration. By some estimates, as a proportion of the workforce in the organized sector, the membership of unions submitting returns under the Trade Unions Act constitutes only 30 per cent. The degree of unionization is considered to be very high at 90 per cent plus in the public sector while in the large-scale private sector establishments it could be well above 60 per cent. However, unionization is much less in small and medium-scale units and virtually non-existent in the informal/ unorganized sector that employs over 90 per cent of the total labour force in the country. Only one out of five registered unions is affiliated to one or other of the ten major trade union federations at the national level. In a meeting with the representatives of all CTUOs held by the Labour Minister on 15 May 1990, it was agreed that CTUOs which had a verified membership of at least 500,000 spread over at least four states and four industries would be considered as CTUOs


for the purpose of representation on various national and international conferences, committees and councils. It was agreed that 31 December 1989 would be the cut-off date for membership verification. This latest verification took over three years due, among other things, to political instability in several states. The report sprang a surprise with Bharatiya Mazdoor Singh, the trade union wing of Rashtriya Swayam Sevek Sangh (one of the radical Hindu outfits)-Bharatiya Janata Party (RSS-BJP) emerging as the largest trade union, pushing the Indian National Trade Union Congress (INTUC), the trade union wing of the central ruling Congress party, into second position. Most other major trade union federations exerted pressure on the Ministry of Labour to keep the report in abeyance and hold further discussions to resolve differences over the conduct of the membership verification process itself. No formal recognition has been accorded so far to any of the CTUOs on the basis of the norms evolved at the meeting. The ten CTUOs which had participated in the general verification on 31 December 1980 continue to have representation on various committees, etc., even in 1994. Some of them have verified membership of less than 500,000 but over 100,000. Incidentally, an earlier attempt at membership verification in 1984 had to be given up when several left-led trade union federations boycotted it. The number of employees covered by collective agreements on wages and working conditions comprise barely 1 per cent of the total labour force in the country. While these numbers by themselves do not seem too large, the effective power of this vocal, predominantly urban minority can be gauged by their concentration in about 30 per cent of the parliamentary constituencies. It is this feature of the organized working class which seems to give them strength disproportionate to their numbers. It must be noted, once again, that interpreting labour statistics in India is a complex task; data can be misleading if not used appropriately, in context with other related information. The footnotes, if any, reveal more than the figures. The incidence of non-reporting of data or nonsubmission of returns is scandalously high even in returns that are statutorily mandated. The trade union ‘movement’ has developed in a hydra-headed fashion with about sixteen government-recognized national and regional federations of trade unions split over ideological and other factional considerations, each putting up exaggerated claims about their alleged membership strength. There is politicized polarization on many issues including the method of selecting the representative union. The World Labour Report (ILO, 1992:64) summarized the trade union situation in the country in the early 1990s: Indian unions are too very fragmented. In many workplaces several trade unions compete for the loyalty of the same body of workers and their rivalry is usually bitter and sometimes violent. It is difficult even to say how many trade unions operate at the national level since many are not affiliated to any all-India federation. The early splits in Indian trade


unionism tended to be on ideological grounds—each linked to a particular political party. Much of the recent fragmentation, however, has centered on personalities and occasionally on caste or regional considerations. Apart from the low membership coverage and fragmentation of the trade unions, several studies point to a decline in membership (Sheth 1991; Sarath 1992), growing alienation between trade unions and members (Sheth 1991; Ramaswamy 1988), particularly due to changing characteristics of the new workforce (Sengupta 1992), and waning influence of national federations over the enterprise unions (Ramaswamy 1988, 1989; Sarath 1992). A new pattern of unionization points to a shift from organizing workers in a region or industry to the emergence of independent unions at the enterprise level whose main concerns are at enterprise level, with no fora to link them with national federations that could secure them a voice at national policy-making levels (Ramaswamy 1989). Violent social movements like that of the Naxalites, struggle for regional autonomy in several states and emotion-charged protests over sensitive issues like Mandal and Mandir (particularly the former) have considerably weakened traditional trade union structures. The effect of the decline of communism in Europe on the Indian trade union movement, which has always had at least one major communist federation cannot be properly assessed at this stage but is certainly significant. Trade unions are hard pressed to live up to the rising expectations of their members who consider union membership as a ‘meal ticket’ (Sheth 1991). It has resulted in a situation in Bombay where The arduous task of organizing a trade union from scratch has suddenly lost its relevance: the easier path to ascendance as a leader is to take over existing organisations. Raiding and poaching rather than laborious organising are the norm. And yet, the fact is that, barring exceptions, the challenger enters not at his own initiative but at the behest of workers. (Ramaswamy 1988:19). The emerging dilemmas of the trade unions in India have been appropriately captured by a veteran trade union leader of mill workers in Maharashtra who became general manager of a large public sector steel mill in West Bengal and a professor at the Tata Institute of Social Sciences: technologies displace jobs and yet enable the workers affected to bargain for higher wages; unions resist closure of sick units but can hardly defend their being worked indefinitely as losing enterprises; unions do not generally like multinationals getting free access into the Indian industrial field but are attracted by the relatively higher emoluments and fringe benefits they offer; they favour the growth of the small industry but do not


like the work of large units being contracted out to ancillary small scale industries. (Tulpule 1992) Employers’ associations The employers’ associations too have limited coverage and problems of disunity. Over the years, the interests of foreign and Indian employers gave birth to two chambers and two employers’ associations in the private sector. There are three employers’ associations in India: the All India Employers Organization (AIOE) founded by the Federation of India Chamber of Commerce and Industry (FICCI) in New Delhi, the Employers’ Federation of India (EFI) founded by the Associated Chamber of Commerce (ASSOCHAM) in Bombay and the Standing Conference of Public Enterprises (SCOPE) in New Delhi which was set up by the central public sector undertakings. These three have formed into a loosely federated umbrella organization called the Council of Indian Employers (CIE) for the purpose of relations with the government and international organizations like the International Labour Organization (ILO). Besides the above three employers’ organizations which are the constituents of the CIE, there is a fourth organization called the All India Manufacturers’ Organization (AIMO) which mainly represents the interests of small and mediumscale enterprises in the private sector. This organization too is accorded representation, separately, by the Ministry of Labour, in various tripartite fora, including the Indian Labour Conference and the International Labour Conference. The membership coverage of employers is rather low, particularly in the private sector. India had 16.9 million non-agricultural enterprises according to the 1980 Economic Census. As of June 1990, over 1.96 million factories were registered in India. But there are only 805 unions or associations of employers with 7,000 members which are usually represented by the above-mentioned four major central organizations of employers (Nath 1993). Of course, employers’ organizations in India are registered not only under the Trade Unions Act, but also under the Societies Act. Nothing prevents them from being registered under the Companies Act also though this is not a popular mode of organizing employers. The individual and association membership of the AIOE was only 144 and 59, and that of the EFI 183 and 31 respectively in 1986. Membership in both the categories is common. The AIOE has a large following in northern India while the EFI has a greater following in western India. Both of them have some presence in the south and east. Employers’ associations in the private sector do not have a substantial following. The SCOPE, with a membership of nearly 95 per cent of central public sector undertakings, is the only body regarded as representative among the employers’ associations but even it does not have a


voice as such due to the delicate relations between its executive committee members and the government, the former being the appointees of the latter. Unions need not worry about solidarity among employers. But employers feel threatened by solidarity among unions, notwithstanding fragmentation within the unions. Employers in India are hardly in a position to consider collective retaliation, as it was conceived in the UK and elsewhere in the first half of this century. In fact, the problem that employers’ associations find hard to grapple with is the interest some of their members (or non-members) take in engineering problems in competing firms in the hope of deriving undue advantages. The earlier differences between the ASSOCHAM and the FICCI, between the Bengal Chamber and other chambers in Calcutta itself, the misgivings about the domination of Bengal Chambers over Bombay Chambers in the interwar period, the FICCI’s tirade against the public sector, the hostility of the AIMO, which represented the interests of small and medium industries, towards FICCI, which is seen as a representative of large business houses, the conflict among handloom, powerloom and mill sectors in textile industry and the like show that employers are not necessarily a homogeneous class (Venkata Ratnam 1989). Government State intervention in industrial relations in India is more direct and pervasive than in most industrialized countries. The role of the state goes well beyond procedural and substantive laws to regulate industrial relations. While during the colonial era the state may have been guided more by the ‘need’ to safeguard the commercial interests of the British rulers, in the post-colonial era, its policy was ‘necessitated by the larger need for regulation of the economy with focus on rapid overall growth’ in the context of planned economic development and the conception of the Welfare State envisaged in the Constitution of India (NCL 1969). The state is the largest employer besides being the regulator and enforcer in India. The resultant role conflict has been only too obvious on several occasions. Several departmental and non-departmental enterprises run by the government themselves violate the provisions of the Contract Labour (Abolition and Regulation) Act. The government had agreed to the concept of a need-based minimum wage in a tripartite forum, but when it came to deciding civil servants’ pay, it said it cannot pay because of its resource position. It can and indeed it had, not infrequently, declared a variety of services as essential to prevent a strike or to force striking workers back to work. The state in India has enormous discretion to intervene in industrial disputes not only when a dispute arises but also when the government official/minister anticipates, justly or otherwise, that there could be a potential dispute. This led, on several occasions, to use of government machinery to influence trade union dynamics and industrial relations processes and outcomes.


The government took on the regulatory role and enacted a series of protective welfare-oriented laws on the eve of and immediately after independence. It still sees its role as one of regulation. However, its contribution in creating an environment conducive to harmonizing industrial growth with harmonious social and employment relations has not yet been significant. The government’s multi-faceted role as employer, regulator, prosecutor and mediator in industrial relations often puts it in a dichotomous position. The legal and regulatory controls of the government are often neutralized by informal arrangements by the government departments and state-owned enterprises, particularly with regard to contract labour, guidelines on pay, etc. The government intervention in labour matters increased the dependence of the private sector on it while in the public sector the government actually dominated industrial relations, granting little autonomy for enterprise management. Political interference led to low accountability. With labour in the concurrent jurisdiction of both the central and state governments, the emergence of regional parties and other newly formed political parties as ruling élites at state level and the mounting differences in centre-state relations began to have their effects on industrial relations as well. The major problem in India today is that none of the three principal actors seems to be representative of the constituencies to which they belong. Atrophied tripartism There are forty-four tripartite committees at the national level. The apex tripartite mechanisms—the Indian Labour Conference (ILC) and the Standing Labour Committee (SLC) —were set up in 1942 with the following objects: to promote uniformity in labour legislation; to lay down a procedure for the settlement of industrial disputes; and to discuss all matters of all-India importance as between employers and employees. These are non-statutory advisory bodies with flexible procedures whose deliberations are variously described as ‘recommendations’, ‘decisions’, ‘conclusions’, etc. A workshop on tripartism in India (ILO-APPOT 1993) observed that these objectives are still valid in the 1990s despite changes in the circumstances and climate of industrial relations and notwithstanding the limited success, if any, in the last fifty years in realizing the avowed objectives. Time and again, during the 1950s and early 1960s, the Union Labour Minister, who also happened to be the ex-officio Chairman of the ILC and the SLC, had gone on record as saying that unanimous recommendations should be accepted by all the parties. But the government itself had more than once given evidence of its ambivalence and ultimate disregard of the unanimous recommendations of the tripartite body. For instance, the 15th ILC (1957) resolved that the minimum wage should be need-based and defined the basis for calculating a need-based minimum wage (NBMW). But towards the end of April 1958, a Secretary to the government of India informed the Chairman of the Second Pay Commission that ‘the


Government desires me to make it clear that the recommendations of the Indian Labour Conference… should be regarded as what they are, namely, the recommendations of the Indian I abour Conference… Government at no time committed themselves to taking executive action to enforce the recommendations.’ In the year 1964 the Union Labour Minister tried to reverse the government stand when he stated that ‘we have got to accept the unanimous recommendations of all tripartite bodies’. But subsequently in 1968 and 1974 Union Ministers made it clear that the tripartite committees’ recommendations are not binding on the government, even if government was a party to the deliberations and the recommendations were unanimous. There are glaring divisions and dissensions within the respective interest groups, be it government (centre-state relations), employers (diverse interests among them) or workers’ trade unions (fragmentation). By the 1970s tripartite meetings became rare and in the 1980s several of the national federations of trade unions boycotted tripartite meetings on several occasions. Between 1942 and June 1993, the ILC met on thirty occasions, though it was supposed to meet annually. Twenty-three of the ILC meetings were held between 1942 and 1968 and the remaining seven in the subsequent twenty-five years. It is therefore not surprising that tripartism atrophied over the years (Mathur and Sheth 1969; Venkata Ratnam 1989). Thus the tripod has become weak over the years with the principal actors losing their representative character. It is hard to sustain decisions taken without mandate or support from the constituencies they are supposed to represent. Hence, often indecision and politicized polarization began to mark tripartite consultations. This was visible at the deliberations during 1988–9 on labour law reform in the Committee headed by G.Ramanujam, President of the Indian National Trade Union Congress. Initially there was agreement on many issues, though eventually they began to move in a hydra-headed fashion, with the leftist unions and employers’ representatives finally appending notes of dissent. Participation/consultation at company and shopfloor levels Since independence, various schemes have been formulated to provide for employee participation/consultation at company and shopfloor level. They include the following. Works Committees, 1947 The Industrial Disputes Act, 1947, provided for limited participation of elected representatives of workers in bipartite works committees in order to promote measures for securing and preserving amity and good relations between employers and workmen. Some committees like the canteen committee and the safety committee are statutory. The functioning of the committee is not, however, satisfactory due to lack of clarity in the scope and the functions of the


committees, conflict between the elected representatives of the Works Committees and trade unions operating in the enterprises. Joint Management Councils (JMC), 1958 The Industrial Policy Resolution, 1956, reiterated that, ‘In a socialist democracy labour is a partner in the common task of development and should participate in it with enthusiasm. There should be joint consultation and workers and technicians should, wherever possible, be associated progressively in management.’ Accordingly, in 1958, the JMCs were introduced. JMCs were supposed to have administrative responsibility for various matters relating to welfare, safety, vocational training, preparation of holiday schedules, etc. They were also to be consulted on matters relating to changes in work practices, amendment/ formulation of standing orders, rationalization, productivity, etc. JMCs did not receive much support from unions or management and the apparent similarity in the scope and functions of JMCs and Works Committees resulted in a multiplicity of bipartite consultative bodies. Employee Director in Nationalized Banks, 1970 Following the nationalization of banks in 1969, the government required all nationalized banks to appoint employee directors to their boards, one representing workers and the other representing officers. The scheme entailed verification of trade union membership, identification of the representative union and appointment of a worker director from a panel of three names proposed to government by the representative union. The tenure of an employee director was to be three years, while the union membership verification process may not occur even once in a decade. In parallel the government also began appointing labour representatives to the boards of several public enterprises; but such labour representatives may not have any direct link with the enterprise in organizing the union at the local level and may have been drawn from among the national leadership or on some other elusive criterion. There is no clarity about the role and functions of worker directors. Amendment to the Constitution and the 1975 Scheme In 1975 the Constitution was amended and Section 43A was inserted in the Directive Principles of the Constitution providing that ‘the State shall take steps by suitable legislation or in any other way to secure the participation of workers in the management of undertakings, establishments or other organisations engaged in any industry’. Accordingly, the Scheme of Workers’ Participation in Management at shopfloor and at plant levels in manufacturing and mining industries employing 500 or more workers was notified in 1975. Shopfloor and


plant-level councils were assigned specific functions relating to production and productivity, management of waste, reduction of absenteeism, safety, maximizing machine and manpower utilization, etc. Scheme of Workers’ Participation in Management, 1977 Another scheme which is broadly similar to the 1975 scheme was introduced in 1977 and extended to commercial and services organizations with 100 or more employees. Both the schemes aroused some enthusiasm initially during the emergency, but withered soon after the lifting of the emergency and change in the government in 1977. In 1978, the new government constituted a special tripartite committee on workers’ participation in management which recommended a three-tier participation at board, plant and shopfloor levels. But the government did not last long enough to pursue the recommendations. The 1983 Scheme In 1983, another new scheme was introduced and made applicable to all central public sector enterprises, except where specifically exempted, and a standing tripartite committee was set up by the Ministry of Labour to facilitate review and corrective measures. Implementation of the scheme was left to the concerned administrative ministries. Barely half the central public sector enterprises introduced the scheme over the next decade. Workers Share in Equity, 1985 The union budget for the year 1985–6 made provision for the offer of stock options to employees up to at least 5 per cent of the total shares. It is hoped that workers’ participation in equity would be a major element in enhancing workers’ participation in management. The 1990 Bill The government’s discontent with the implementation of voluntary efforts resulted in the convening of a national seminar and the subsequent introduction of a bill in the Rajya Sabha in 1990 to introduce workers’ participation at all the three levels—board, plant and shopfloor —through legislation. The Bill is still (October 1993) to be taken up for discussion. The dilemmas concerning mode of representation, scope of the forums, levels of participation, coverage of the schemes, voluntary nature of the schemes, etc. are some of the issues that still remain unresolved. There has been much rhetoric about participation since independence, but in reality it remains elusive to this day. Walker (1975) observed, based on his global survey, that the world over participation is confined largely to tea towels and


toilets. In India one wonders whether it has extended even this far (Venkata Ratnam 1992). The major dilemmas confronting unions and employers with regard to participation include the following. In India, as in several other erstwhile British colonies, there is no dearth of mechanisms for labour-management consultation. But statutory arrangements, by and large, remain dormant or unproductive. The few instances of apparently functional labour-management consultation processes often reflect the nature and style of management, partly motivated by the characteristics of industry and employee profile and partly influenced by the management’s concern to avoid unions or keep union influence under check. Unions naturally become concerned about management strategies aimed at participatory mechanisms that seek to involve individual employees directly, undermining union role/influence. There is a dilemma about the true purpose and role of participation. Is it limited to giving workers and unions a say in management so that they, particularly the unions, can pursue the sectarian interests of their members more vigorously? To what extent would unions accept the responsibility that goes with participation? Employers are sceptical as to whether unions can and would like to accept responsibility. Unions are also generally wary of any scheme of participation that thrusts upon them more responsibility than effective power. Unions generally want participation to start from the board level and percolate down to the shopfloor. Employers want to start the process, gradually, the other way round, beginning with the shopfloor. There are only arguments and hardly any agreement on this. Consultative processes take time and managers are wary of the costs and consequences of delays in decision making even if the need for consultation and cooperation is greater in a rapidly changing environment. Therefore it is apprehended that the main factor that could hinder labour-management consultation could be the rapidly changing environment (also see APO 1991). Add to this the adversarial mode of labour-management relations. With mutual trust glaringly lacking, information sharing is a big problem: balance sheets of corporations not only in India, but throughout South Asia are considered to be excellent works of fiction, not only by the trade unions but also by government officials and even, perhaps, minority share-holders. Consequently, even Scanlontype profit-sharing incentive schemes become non-starters. Trade unions and collective bargaining India has ratified thirty-six ILO conventions, but not those relating to freedom of association and the right to collective bargaining. The Constitution guarantees rights of association. Yet, due to government apprehensions concerning the extension of rights of association to its own employees, the ILO convention on the subject has not been ratified. In the 1990s, however, the government has initiated steps to ratify the ILO Convention on Freedom of Association. In the


wake of preference to adjudicate disputes and in the absence of arrangements for statutory recognition of unions (except in some states) and provisions requiring workers and employers to bargain in good faith, collective bargaining has made little headway. Yet, over the years, despite adversarial relations, unions and managements have found it a better proposition to iron out differences across the table than to take them to a third party. This is leading to a shift in the locus of power, causing inordinate delays and frustration to both the affected parties. Union recognition The central legislation on the subject—the Trade Unions Act, 1926— provides for registration by any seven members, but does not mention recognition. Labour being a concurrent subject, certain states like Maharashtra, Gujarat, Uttar Pradesh and Madhya Pradesh, have separate laws providing for recognition. There have also been certain voluntary codes governing the criteria for union recognition etc. but these are virtually buried for all practical purposes and have become part of industrial relations history. There are two major problems with regard to union recognition: 1 All registered unions in India seem to enjoy industrial relations rights, de facto, if not de jure. This is so even if they happen to be craft, category or castebased unions. Therefore the unions have no particular incentive to crave for recognition by government or employer, particularly for the purpose of representation at the enterprise level. 2 CTUOs are divided on the criteria. The left-led union movement favours secret ballot while the INTUC, affiliated to the ruling Congress (I) party, is opposed to secret ballot, even though, Andhra Pradesh, under Congress rule, introduced secret ballot. This created politicized polarization in resolving the recognition issue. Check-off is not favoured by most unions for fear that employers may exploit the system. Membership verification by government machinery is time-consuming. Also, unions belonging to opposition parties are suspicious that the ruling party may misuse the government machinery to favour unions affiliated to it. Trade union amity is a far cry, even in resolving matters relating to representation at the national and international level in various tripartite fora. A committee of Labour Ministers vetted the Ramanujam Committee findings on the subject. The conclusions of the Committee of Labour Ministers was put up before the apex tripartite forum, the Indian Labour Conference, in September 1992. Subsequently, officials in the Ministry of Labour prepared their views based on which draft bill is prepared suggesting amendments. The following changes were proposed with regard to trade union registration and recognition: (1) 100 workers or 10 per cent of the workers, whichever is the least, to form a union instead of any seven workers; (2) craft, category and caste-based unions


will not be registered; (3) the law will provide for recognition and unrecognized unions will not have industrial relations rights. Reforms on these lines have been debated from late 1960s when the National Commission on Labour produced its monumental work. Since then at least on three occasions the government of the day introduced industrial relations bills aimed at bringing ‘comprehensive reforms’. On each of the three occasions, the government fell before the bills could be taken up for discussion. The present government, too, has been promising the changes since 1991, but has developed cold feet each time the parliamentary session began, fearing the political consequences of labour law changes that unions term ‘anti-labour’. Levels of bargaining Bargaining occurs at the following different levels in different industries. Industry-level bargaining on a countrywide scale is common in core industries which are mainly concentrated in the public sector. These include: coal, steel, banks, insurance, ports, etc. Industry-cum-region-level bargaining is peculiar to industries where the private sector dominates. These include mainly textiles (cotton and jute), plantations, engineering. Bargaining occurs in multi-plant units in two stages. Usually companywide agreements are supplemented with plant-level agreements. While the basic wage rates and some benefits are decided at the company level, certain allowances, incentives, etc. are negotiated at the plant level, taking into account the particular circumstances, needs, etc. In India the role of national federations of trade unions and employers’ organizations is limited in collective bargaining to a small nucleus of industrial associations which have a long tradition of collective bargaining with their counterpart trade unions federations of workers. Among such employers, notable mention may be made of the Ahmedebad Millowners’ Association, Ahmedabad, the Bombay Millowners’ Association, Bombay, the Indian Sugar Mills Association, New Delhi, the Tea Association of India, Calcutta, the Indian Jute Mills Association, Calcutta, the Cement Manufacturers Association, New Delhi, the United Planters Association of South India, Coonoor, the Southern India Millowners’ Association, Coimbatore, the Indian Banks Association, Bombay, and the Indian Ports Association, New Delhi. The Confederation of Indian Industry, which till 1991 represented mainly the engineering industry, had the tradition of negotiating region-cum-industry agreements for member firms who assigned them such responsibility in writing. The role of industry associations in collective bargaining seems to vary depending upon the profile and background of industry and entrepreneurship. In a traditional industry like jute with leadership largely in the hands of traders turned industrialists, the entrepreneurs themselves conduct the negotiations. In juxtaposition, in the engineering industry, professional managers are in charge of negotiations. The variations in the


collective bargaining processes and outcomes in each case merit detailed study and separate analysis. In some industrial centres, both trade unions and employers, particularly in the public sector, have set up coordination committees to adopt a joint/collective strategy to deal with collective bargaining and related matters. This process has started in Bangalore and Hyderabad and spread to other places. Industry-wide coordination is also taking place with the commencement of industry-wide agreements in core sectors like coal, steel and oil which are dominated at present by the public sector. Whether such centralized bargaining will diminish following wake of fresh guidelines (April 1993) from the Department of Public Enterprises asking individual companies to negotiate terms with reference to productivity, internal resources and unit labour costs, remains to be seen. A large section of the public sector managers were quite unprepared to shoulder the responsibility that comes with this new-found freedom and feel they are being thrown to the wolves (i.e. the trade union leaders?). At least this impression was discernible at two conferences on the fifth round of wage negotiations that the author conducted at New Delhi and Calcutta in the second half of 1993. For government employees, joint consultative machinery and a board of arbitration have been constituted. Pay scales for government employees are revised through pay commissions which are usually adopted once every twelve years or so. The significant gap between central government pay systems and industrial pay systems created considerable discontent among public sector employees who felt they were adversely affected, particularly in the wake of some Supreme Court judgements pronouncing the public sector as the state. The collective bargaining scene in India is quite diverse. Some single-plant firms may have unions numbering from zero to over thirty. Some large multiplant engineering and steel companies in the public sector and departmental undertakings like the railways have to cope with a few hundred unions each. Typically, the tendency of each party in negotiation had been to prevent the other from making gains. In the process, bargaining has become coercive rather than collective. In the public sector, pressure for parity in pay and benefits has produced competitive tendencies. In recent years, due to the economic crisis and the need to improve productivity there have been innovative approaches in collective bargaining. In order to save the ailing firms and the threatened jobs, unions and management, particularly the former, have agreed on a variety of concessions including wage and employment cuts, wage freezes, moratoriums on strikes and other trade union actions, changes in work practices, flexible deployment of the workforce, etc. In the process, of course, some unions have been able to commit the employers to regularize the services of those who remained casual labour for several years (Venkata Ratnam 1991). Productivity bargaining, though gaining currency, is yet to make much headway in view of the complexities in the measurement of factor productivity and sharing of gains because of lack of mutual trust and acceptance. Several companies are planning to buy back their incentive schemes with a view to scrapping them because over


the years they have resulted in reducing norms and increasing payments. In many firms the targeted outputs can be achieved in half the time scheduled for the purpose. Despite unemployment, artificial labour shortages and restrictive work practices breed illegal practices with the connivance of management, and help workers increase unjustified earnings. Economic difficulties, structural and other changes are resulting in a shift from national/industry-level to enterprise/plant-level bargaining and from nationallevel leadership to local leadership. This change affects the role and influence of employees, CTUOs more than employers’ because it is the former who generally wielded greater influence in collective bargaining than the latter. Subjects Traditionally wages and working conditions have been the domain of collective bargaining. Over the years, however, anything and everything became bargainable: staffing arrangements, crew sizes and composition, work norms, incentive and overtime payments, job and income security arrangements, technology and other changes, working tools, techniques and practices, staff mobility including transfers and promotions, rewards and punishment, individual grievances, discipline matters, etc. In fact everything from recruitment to retirement and post-retirement benefits have become part and parcel of negotiations. Duration of collective agreements The wage agreements used to be for a period of three years up to the mid-1980s. In the mid-1980s several agreements were for four years, particularly in the public sector. In the 1990s, the government mandated the public sector managements to enter into collective agreements for a period of five years. Trade unions, however, are seeking to resist the move to extend the duration of collective agreements. PERIOD OF STRUCTURAL ADJUSTMENT Special HR/IR issues, June 1991 to 15 August 1994 Liberalization and deregulation In the wake of the New Industrial Policy (June 1991) industrial licensing was abolished in all but eighteen industries which are related to the security, social and environmental concerns of the country. Private sector competition was introduced in the areas hitherto reserved for the public sector, though selectively. Government has also declared that it has no plans for further nationalization.


Majority foreign holding is now allowed in thirty-four groups of industries. The system of capital issues control was abolished, the import-export regime was drastically simplified and rupee convertibility was introduced on trade account. The withdrawal of the budgetary support to public sector firms had a salutary effect. Several firms in coal, steel, etc., which once used to incur heavy losses, toned up their performance so significantly as to earn profits. Certain core industries like steel and cement were decontrolled. The result was that steel exports have picked up and the cement industry which used to be a net importer, became a net exporter. Privatization Privatization per se is part of policy reforms. But deregulation and liberalization apart, the eighth Five-Year Plan (1992–97) assigned a major role for the private sector which is likely to be the engine of future growth in the economy. The list of industries reserved for the public sector was scaled down from twenty-nine to eight. About 20 per cent of the shares of the public enterprises run by the government are being divested and multinational corporations are allowed to acquire a majority stake in investment (prior to June 1991 multinational corporations were allowed only up to a 40 per cent share in their Indian operations), joint ventures between the public and the private sector (including multinationals) are allowed and at least one public sector company became part of a multinational corporation in 1992. Suzuki of Japan increased its share in the equity of the public sector automobile company—Maruti Udyog Limited—from 40 per cent to 51 per cent. For the first time in the history of the automobile industry in India, Suzuki developed and produced a new model of passenger car mainly for export from India. Since the public sector is expected to continue to play an important role in the Indian economy, particularly in infrastructure and other areas of strategic and security concerns, public sector reform remains on top of the economic agenda. Public enterprises are being asked to become ‘model performers’ instead of merely remaining ‘model employers’ with good pay and benefits and absolute job security. For the first time, 50 per cent weighting is given to the profit criterion alone in the new performance contracts called Memoranda of Understanding (MOU) between the Administrative Ministry and the public enterprise (modelled along the French example in this regard). Profit is not only not bad, but is coveted even in the public sector. Foreign direct investment collaborations Between 1951 and 1991, the government of India approved 58,223 foreign collaborations, 3,303 of which included financial collaborations. About 70 per cent of the foreign collaborations were from four countries: UK, USA, former West Germany and Japan. The value of foreign investments approved by the


government of India between 1975 and 1991 was Rs 18,400 million. Of the foreign investment 60 per cent is from the above-mentioned four countries (CMIE 1992). Between August 1991 and April 1993, 2,575 foreign investment proposals involving Rs 72,719 million were approved. In less than two years after economic reforms were introduced, the country could attract four times the investment made in the previous sixteen-year period. Of the proposed investment 45 per cent is in the oil and energy sectors. Of course, it remains to be seen how many of the approved projects actually get off the ground. Power, transportation, water and telecommunications are the major bottlenecks in the infrastructure and will continue to discourage investments. Changes in labour laws, labour standards and collective bargaining Labour law reform is long overdue. After the National Commission on Labour submitted its report in 1969, piecemeal efforts were made to amend the legislation. In the two decades that followed, comprehensive labour reform bills were introduced in Parliament on three occasions. But on each occasion before they could be discussed, the government changed. The bipartite committee headed by G.Ramanujam, President of the Indian National Trade Union Congress, recommended some far-reaching changes in the Trade Unions Act and Industrial Disputes Act in 1990. The Labour Ministers’ Conference and the 29th ILC meeting agreed to consider implementation of at least the unanimous recommendations. The draft bill was ready but its timing is still considered inauspicious by a government with a fragile majority and several other crises. In India, the focus has been generally on subsidizing unprofitable enterprises rather than allowing their liquidation. In 1987, the Board for Industrial and Financial Reconstruction (BIFR) was set up under the Sick Industrial Companies (Special Provisions) Act (SICA), 1985, to revive potentially viable but presently sick industrial companies or to recommend the closure of totally non-viable companies. Though the BIFR became operational in May 1987, it was only in December 1991 that the government chose to bring public enterprises into the purview of the BIFR through an amendment of the SICA. Yet the past performance of the BIFR has revealed its inadequacies to meet the challenge. It cannot intervene until: (a) seven years after a unit is established; and (b) the net worth of an enterprise is negative. Its dilatory procedures and lack of authority despite its quasi-judicial character make it less potent to accomplish the task. Pressure is on the government to amend its approach to the Intellectual Property Rights discussions, the US Super 301 clause, human rights issues, conditions of employment in export promotion zones and abolition of child labour. There is some action on these matters, but a lack of momentum. The Bhopal tragedy has put occupational safety and health issues on top of the


agenda. Environmental issues seem to have a trade-off inasmuch as they create fresh hurdles as old ones are removed. The prevailing mood seems to be that since we cannot do much about the factories already set up, let us take care of the new ones. The barriers to entry for foreign and domestic firms have been eased although exit restrictions still apply. The problem from the employers’ point of view is not with prior notice for lay-offs, retrenchments, lockouts or closures, but with prior permission from the government to implement any of the above managerial decisions. Employers say that permission from the government is generally elusive and Labour Ministers agree that it is politically unwise for any minister to agree to closure or retrenchment. Somehow, though, closures and retrenchments take place. Litigation in such cases could take decades. Employers, particularly multinational companies, want a clear-cut exit policy from the government rather than be forced to beat the system by taking advantage of legal loopholes. The key question here is that while in a civilized society certain kinds of protection for labour are necessary, how can one ensure that it does not become unduly restrictive with unintended dysfunctionalities and counterproductive consequences. Employers in the small sector find it easy to keep their units in limbo, not paying water, electricity and other dues, to press their case for closure. In the large-scale sector, the experience is not totally dismal. Where employers have done their homework well and are clear about what they expect, they are able to have their way. Courts have given companies permission to close. When courts slap verdicts that entail financial commitments that employers ‘really’ consider render the unit unviable, they are able to impress upon the union to agree to less favourable terms for the workers than those awarded by the court or simply to start proceedings for sale or closure. In some states high courts agreed that prior permission for closure is not always necessary. On the collective bargaining front, there is an ascendancy in managerial rights (Venkata Ratnam 1991, 1992). New technologies, structural and other changes seem to have put unions in a much more vulnerable position today than at any time in the past. Labour-management cooperation pacts to save units on the brink of liquidation entailed sacrifices like cuts in salary, freezes in allowances and benefits, voluntary suspension of trade union rights and agreements on modernization, flexibility to increase production and profitability. After nearly two decades of sustained but frustrated efforts to bring about uniformity in the pay structure of non-departmental central public sector undertakings, the Department of Public Enterprise announced a new policy that provides for decentralized bargaining over five-year agreements (as against a fouryear agreement in the mid- and the late 1980s) based on enterprise viability, performance and profitability. The new policy clearly states that additional wage burdens would not qualify for budgetary support and that companies are not allowed to raise prices because of wage rises as they now have the responsibility to keep the unit labour costs in check. With over 40 per cent of the 232 operating


central public sector enterprises already sick, the new circular is received with mixed feelings. The cash-rich profit-making companies are readying themselves to meet the escalated expectations of their employees and unions even as the lossincurring companies facing cash crunch are trying to get around the new policy advocating the parity principle within the public sector as a whole. Though the government, particularly the Department of Public Enterprises, seemingly has pervasive influence and control over the way the central public sector enterprises are run, in reality its guidelines are flouted with impunity and its authority, though not openly questioned, is frequently undermined. The Department of Public Enterprises itself has shrunk since the mid-1980s and there is even a proposal to wind it up. Changes in labour welfare laws etc. The 1990s have put worker welfare centre-stage. The preoccupation since the 1940s was with in-service welfare benefits. Now the focus has shifted to postretirement welfare benefits. The provident fund contribution of employers was raised in all but a few industries from 8.33 to 10 per cent of wage/salary. The existing family welfare benefit scheme is being replaced by a pension fund. The new pension fund scheme has become controversial for the following main reasons: in the previous round of wage negotiations (late 1980s) a common plea was made in most agreements for the introduction of a third retirement benefit, i.e. a pension in addition to a gratuity and provident fund. But the new pension scheme does not create a third benefit but merely replaces the existing benefit with a new one. The return on the investment under the pension scheme is found to be too low and the government has withdrawn the financial contribution it was making to the family benefit scheme while converting it into a pension scheme. In the wake of pressure from trade union federations, the government agreed to restore its earlier share of contribution. Revival of tripartism The structural adjustment reforms were announced in June 1991 without any consultation either with the state governments or with the organizations of employers and workers. The government approached the parties after the decisions concerning the changes in macro-economic policies were made public. The state governments, particularly those ruled by opposition parties, whose cooperation is inevitable for the success of reforms, considered this an affront to them. The organizations of employers and workers considered it as a fait accompli. Neither had any information or data to evaluate the effects of the changes on them. Employers initially welcomed the proposals and later, on careful assessment, began to question the sequencing and pace of reforms which denied them (the employers) a level playing field to compete with multinationals.


The government formed a special tripartite body in September 1991, which has met only three times in the thirty-two months from September 1991 to June 1994. Industrial committees were also formed in seven industries considered to be sick or prone to sickness. Each of the industrial committees met barely twice in over thirty months. Though the unions wanted to discuss the cases of sick companies in the relevant industrial committees before they are referred to the BIFR, the government found it expedient to refer the cases of over forty sick central public sector undertakings direct to BIFR. This has irked the trade unions but they have so far been unable to change the course of economic liberalization. On the whole the industry, trade unions and employers’ groups have reacted favourably to the economic changes, despite reservations among some of them about the potential dangers of suddenly opening up the economy without giving the local companies time to prepare for the competitive battle in an unregulated market economy. The trade unions, however, are vocal in their opposition to the reforms. More importantly trade unions are concerned about the possible drastic reduction of employment in the organized sector which is already thin and the reduction of the public sector, which they themselves find it difficult, in some ways, to defend. Even a leader of the AITUC (All India Trade Union Congress) observed at the 1990 Congress, ‘While extension of private sector in the area where the public sector is chronic defaulter either to meet the demand or to improve its financial performance may be considered, the general line of privatisation is suicidal and must be resisted’ (AITUC 1990). When either labour or management joins hands with the government there is little that the third actor can do. Significantly, some of the chamber’s, industries and associations have started continuous dialogue with unions on a regular basis and there is popular support to continue with such dialogue to facilitate expeditious enterprise restructuring with a ‘human face’. Changes in workplace systems Structural adjustment policies are perceived to result in job losses in the short run whatever the long-run consequences. In the absence of social insurance and unemployment benefits, there is widespread concern about the thin organized sector employment becoming even thinner in terms of employment. The government has constituted a National Renewal Fund (NRF) with contributions through budget allocations, World Bank grants and allocations from public sector disinvestment proceeds. Though the avowed objective of the NRF is to provide for retraining, redeployment and compensation for voluntary separations, so far the fund has been used mainly to finance voluntary separation schemes. Therefore, some trade unions began to describe it as a ‘National Burial Fund’. Several companies are busy preparing plans for workforce reductions to make their operations viable and competitive. Trade unions are asking such companies whether progressive reduction of the workforce constitutes an


essential part of human resource development strategies and whether it should necessarily come from liquidating human resources. The absence of active labour market interventions with concrete proposals for productive job creation, reducing the gap between skills available and skills in demand, an appropriate institutional framework for retraining and redeployment are some of the aspects which have not gained enough attention. The concept of ‘lean, mean, green, clean’ companies is catching up in greenfield sites. Though some have succeeded, old companies are finding it hard to reduce the levels of hierarchy, job classifications, etc., introducing multi-task, multiskilled work systems, and making a significant portion (25 to over 50 per cent in isolated cases) of pay as variable pay depending on the performance of the individual/team and plant/company. Changes in the workplace are taking place only when both labour and management perceive a sense of urgency and when their collective survival is contingent on such change. In more companies than not it is essentially a reactive rather than a proactive response. The common refrain of the trade unions is that managements always cry wolf. This has prevented meaningful dialogue in the early stages of economic reform in many companies. Lack of trust fostered over past decades makes it difficult for unions to believe that the wolf is at the door. Let us consider the recent bonus dispute in south Indian textile mills. Employers argued that conceding the demand would mean compromising the future viability of the mills and an invitation to sickness and closure. When the issue could not be settled bilaterally, the Chief Minister intervened and resolved the issue with one sentence: ‘I cannot agree to a payment which is less than what my predecessor ordered, so pay as much bonus as you paid then.’ The mill owners who initially resisted this in bilateral discussions paid the amounts without a murmur. Those mills have not yet become sick, though the longer-term impact on new investment and modernization remains unclear. New trends in industrial relations The response of employers and trade unions to industrial relations is often driven by the context in which the interface between the two social partners occurs. It is possible to discern at least five distinct scenarios where the balance of power seems to swing in either’s favour, influencing the possible outcomes. Based on this typology it should be possible to read the signals early enough and predict the degree of choice and discretion that parties may have in influencing industrial relations outcomes. Scenario 1 Input costs are rising and output prices declining. Cash flow problems limit opportunities for further investment, modernization and growth. Productivity improvement is imperative to maintain existing levels of profitability. Major


constraints persist in continuing to do more with limited resources over a longer period. The resultant squeeze in employment, wages, benefits, etc., creates a sense of helplessness and causes tensions/conflict in human resources/industrial relations. Such companies are too numerous. Scenario 2 Several companies have, over a period of time, multiplied business turnover and profitability through: (a) setting up parallel production facilities; (b) loan/lease licence arrangements; (c) subcontracting; (d) franchising etc. This rendered production/services in a unit less critical. Newer and alternative forms of production/services became more lucrative for employers. As output/services in a unit become less critical employers seem to develop a sense of independence and force the unions to come to terms with management proposals. Several multinationals (Bata, Hindustan Lever and a host of pharmaceutical companies, for instance) which have conceded whatever unions asked in a cost plus situation are now beginning to take (undue?) advantage of the increased vulnerability of unions in the liberalized environment since the late 1980s. Scenario 3 When companies become bankrupt due to mismanagement etc., employers have to yield to union pressure to give up control and may be forced to accept employee buy-outs by worker cooperatives, for example. In quite a few cases (Kamani Tubes and Central Jute Mills, for instance) workers are able to revive sick units and sustain their profitability with support from professional management. Scenario 4 When economic, structural, technological and other changes make enterprises bankrupt, trade unions are agreeing to several concessions of the following type to revive the unit and save threatened jobs: (a) downsizing, including retrenchment of a section of the workforce; (b) wage and benefit cuts and freezes; (c) freeze cost of living and other allowances; (d) suspension of trade union rights for collective bargaining and industrial action for a certain period; and (e) agreeing to changes in work norms and work practices and greater managerial discretion in maintaining discipline, production and productivity, etc. In almost all the companies—both public and private sector—whose cases are referred to the Board of Industrial and Financial Reconstruction (BIFR) for revival these concessions have become the norm rather than the exception. The latest in the series is the multi-unit public sector firm, Indian Drugs and Pharmaceuticals Limited.


Scenario 5 When neither the trade union nor the employer seems to show adequate concern and sensitivity to workers’ interests, workers are seen to ignore both employers and union and take charge of the situation. They neither prefer a strike nor are they prepared to face a lockout. They simply occupy the plant and run it to keep their jobs and earn their livelihood. The most recent such case is that of the Kanoria Jute Mills in Calcutta. CONCLUSIONS AND IMPLICATIONS FOR POLICY At the time India became an independent nation in 1947, it was one of the few major industrial powers in the whole of Asia. But in the 1990s, it is at the bottom of the newly industrializing countries. India has allowed itself to become marginalized in a world that has become increasingly interdependent. Its share in world exports declined from 1.4 per cent in 1955 to 0.5 per cent in 1990; its share in world imports also declined from 1.3 to 0.7 per cent during the same period. Significantly, however, in the wake of the first phase of reforms during 1984–5, India’s exports and imports picked up substantially (Table 8.7). Certain international developments like the Gulf War, however, precipitated a balance of payments crisis. The competitiveness of India in terms of its human resources is considered to be low. The World Competitiveness Report (IMD and WEF 1990) puts India at the bottom often newly industrializing countries in terms of the competitiveness of its human resources. The World Competitiveness Report examines the competitive advantage of human resources on the basis of skills, motivation, flexibility, age structure and health of the people. The criteria included are: population, employment, unemployment, educational attainment, vocational training, public expenditure on education, management quality, income levels and health factors. According to the 1992 UNDP Report on Human Development India ranked 134 out of a total of 160 countries in terms of the Human Development Index that takes into account three parameters, longevity (life expectancy), knowledge (adult literacy) and standard of living (per capita income). In terms of the Human Freedoms Index, covering forty indicators of freedoms to exercise choices in cultural, social, economic and political affairs, India scored fourteen points and obtained medium freedom ranking (11–30 points) (UNDP 1992). One lesson that India has learnt is that inward-looking country strategies have failed, while outward-looking country strategies have succeeded. Hence the shift from import substitution to export orientation and the concomitant thrust on productivity and quality. The following observations can be made concerning the existing institutional framework of industrial relations in India in light of Kochan et al.’s (1984) threetier strategic choice model.


For the top tier of strategic decision-making a superstructure of tripartite concertation was built, and in the quarter century (1947–72) post-independence such tripartite institutions as the ILC and the SLC served a useful role and provided a major thrust towards voluntarism in the face of preference to adjudication over collective bargaining. However, since the early 1970s tripartite consultations and voluntarism suffered a setback. Political developments since the late 1960 and the subsequent fissures in centre-state relations, the rigid polarization of views on major aspects of industrial relations within and among the actors, particularly unions, and a host of other factors not all of which are clear as yet for want of system analysis have rendered macro-level efforts somewhat unproductive. Major reforms in industrial relations either did not enjoy popular support or suffered from the absence of needed political will or both. The middle tier suggested by Kochan et al. refers to such factors as the employment relationship and personnel policy formulation, collective bargaining, labour legislation and labour administration at enterprise level. Here, too, the scenario is equally infirm. There is a surfeit of legislation along with collective bargaining in a less than congenial environment. Some critics discern a free-for-all, laissez-faire situation with many undercurrents and new equations in industrial relations (Ramaswamy 1988). At the third tier, i.e. the shopfloor level, the strategic choices relate to organization of work, and workplace environment. The last two decades have seen considerable innovation and experimentation at this level (see also De 1984); yet much of it is not sustained in many of the organizations where it was tried or tested. The principal thrust of management here is to gain greater flexibility in the organization, allocation and utilization of human resources. Even here employees and trade unions seem to question the motives and credentials of the moves: flexibility for whom and to what ends? A charitable interpretation of the current industrial relations scene in India would be to call it very complex. A critical view could be that it is chaotic. Whatever it is, the changes in the international economic order and geopolitical environment in the wake of the fall of the Berlin Wall, the transition in the central and east European countries and the end of the Cold War, changes in the macro-economic and social environment, technological and structural changes, changes in worker profile (Sengupta 1992), work organization, work environment, etc., call for fresh perspectives in the parties’ thinking, beliefs, philosophy, and value system concerning human resources at the workplace and elsewhere. The dynamic changes warrant a fresh look at the institutional and legal framework as also at the roles of the principal actors. Changes in industrialization strategies require changes in labour-management policies to obtain the requisite balance between the social and the technical systems to enable organizations to fulfil the purposes for which they were created.


Workplace changes point to a reduction in manufacturing employment, downsizing as right sizing, the ascendancy of employer rights and increasing vulnerability of unions due to technological, economic, structural and other changes. In employment relations the following shifts are discernible. The shift to a market economy being decisive and irreversible at least in the foreseeable future, organizations will need to do more with limited resources to be viable, competitive, productive and profitable. The focus will be on productivity, profitability and quality improvement. The principal concern, both at the macro and micro levels, will have to be to develop adaptive and flexible work organization with a willing and competent workforce. The supportive actions and strategies will result in a shift along the lines indicated in Box 8.1. The agenda for reform should concern itself with the following: 1 Develop a vision for AD 2000 and draw up an action plan that focuses more on changing mind-sets rather than arguing about the content of legal reform. 2 Strike a balance between western (north American and west European) and eastern (China, Japan, south-east and Far East) models of industrial relations with a view to developing the so-called ‘middle path’ that marries the imperatives of globalization and trends towards a market economy with considerations of equity and social justice in the context of widespread under-employment, unemployment and poverty. 3 Consider where protection of the kind a civilized society ought to afford becomes restrictive and counterproductive, and develop dual consideration for economic viability and competitiveness of enterprises, the quality of worklife and a reasonable measure of social protection for workers.

BOX 8.1 From


Employment Narrow jobs Single task/skill Single career Tall pyramidal ladders

Employability Broad-based jobs Multiple tasks/skills Multiple careers Loops and networks with flatter structures Teamwork Value-adding work systems Customized human resource systems

Individual performance Cost plus work systems Standardized human resource systems




Seniority based compensation with cost-ofliving adjustments unlinked to productivity or profitability Limited say and stake for employee

Compensation linked to knowledge, skills and performance Greater say and stake for employee

4 Strengthen the representative character of each of the three social partners and forge strategic alliances among them and also with the community, national and international. 5 Review the institutional framework for industrial relations in the context of the new paradigms and changing dynamics of centre-state relations and the need for less developed states to make more an investor-friendly climate. 6 Recognize and value the guiding principles of freedom of association, right to collective bargaining, access to information, and consultation and communication at all levels. 7 Document experiences of building trust, rapport, two-way communication and information sharing at various levels. 8 Create better jobs, a better environment and a growing and competitive economy. 9 Develop skills and mechanisms for continuous training and retraining to develop a creative, adaptive and willing workforce. 10 Build voice and stake for people, arouse and meet their expectations within the context of the need for creating high-performance work systems. NOTE The author is grateful to Professors Anil Verma (Toronto University), Baldev R. Sharma (Shri Ram Centre for Industrial Relations and Human Resources) and Thomas A.Kochan (MIT Sloan School of Management) for their comments on an earlier draft. However, the usual disclaimers apply. REFERENCES AND SELECT BIBLIOGRAPHY Ahluwalia, I.J. (1992) ‘Redefining the role of the state: India at crossroads’, Paper presented at the Korea Development Institute, Senior Policy Forum on Private Sector-led Development Strategy and the Role of Government in Developing Countries at Seoul, Korea, 15–17 October, New Delhi: Centre for Policy Research, mimeo. All India Trade Union Congress (AITUC) (1990) 34th Session of AITUC: Report, Resolutions and All Documents, Madras: AITUC.


Asian Productivity Organization (APO) (1991) Labour-Management Consultation in Asia, Tokyo: Asian Productivity Organization. CMIE (Centre for Monitoring Indian Economy) (1994) Basic Statistics Relating to the Indian Economy, Bombay: CMIE. Dunlop, J.T. (1958) Industrial Relations System, New York: Holt. Fallen, Peter R. and Lucas, Robert E.B. (1991) ‘The impact of changes in job security regulations in India and Zimbabwe’, The World Bank Economic Review 5(3): 395–413. Frensen, J. (1991) Subcontracting and Inequality: The Case of Hindustan Lever in India, Nijmegen: Third World Centre, Catholic University of Nijmegen. Goyal, S.K. (1984) Small Scale Sector and Big Business, New Delhi: The Corporate Study Group of the Indian Institute of Public Administration. Gupta, S.P. (1989) Planning and Development in India: A Critique, New Delhi: Allied. ILO (1992) The World Labour Report, Geneva: ILO. ILO-APPOT (1993) Report on the Workshop on the Functioning of Tripartite Machinery in India, Bangkok: ILO Asian Pacific Project on Tripartism, mimeo. Indian National Trade Union Congress (INTUC) (1993) 25th INTUC Session Report: May 1988 to April 1993, Cuttack: INTUC. International Institute for Management Development (IMD) and World Economic Forum (WEF) The World Competitiveness Report, 1990, Geneva: IMD and WEF. Johri, C.K. (1992) Industrialism and Industrial Relations in India, New Delhi: Oxford University Press. Kannappan, S. (1993) ‘Industrial relations and employment policy in India’, The Indian Journal of Labour Economics, April–June: 133–42. Kennedy, V.D. (1966) Unions, Employers and Government: Essays on Indian Labour Questions, Bombay: Manaktalas. Kochan, T., Katz, H. and McKersie, R.B. (1987) Transformation of American Industrial Relations, New York: Basic Books. Kochan, Thomas, McKersie, R.B. and Capelli, Peer (1984) ‘Strategic choice and industrial relations theory’, Industrial Relations 23:16–39. Mahalanolis, P.C. (1953) ‘Some observations on the process of growth of national income’, Sankhya 12(4). Mathur, A. (1989) Industrial Restructuring and Union Power: Micro-Economic Dimensions of Economic Restructuring and Industrial Relations in India, New Delhi: ILO-ARTEP. Mathur, K. and Sheth, N.R. (1969) Tripartism in Labour Policy: The Indian Experience, New Delhi: Shri Ram Centre for Industrial Relations. Nath, S. (1993) A Case Study of Tripartism in India, Bangkok: ILO Asian Pacific Project on Tripartism, mimeo. National Commission on Labour (NCL) (Government of India) (1969) Report of the National Commission on Labour, New Delhi: Government of India. Ramaswamy, E.A. (1988) Worker Consciousness and Trade Union Response, New Delhi: Oxford University Press. Reserve Bank of India (1979) Reserve Bank of India Bulletin, July: 449. Sarath, D. (ed.) (1992) Employment and Unionism in Indian Industry, New Delhi: Frederick Ebert Foundation. Sengupta, A.K. (1992) ‘New generation of organised workforce in India: implications for managements and trade unions’, in J.S.Sodhi and S.P.S. Ahluwalia (eds) Industrial


Relations in India: The Coming Decades, New Delhi: Shri Ram Centre for Industrial Relations and Human Resources. Sharma, B.R. (1992) Managerial Unionism: Issues in Perspective, New Delhi: Shri Ram Centre for Industrial Relations and Human Resources. Sheth, N.R. (1991) ‘Some thoughts on our trade unions’, Ahmedabad: Indian Institute of Management, mimeo. Singh, N.K. (1987) Human Resource Development in Indian Public Sector, New Delhi: Standing Conference on Public Sector. Tulpule, B. (1992) ‘New industrial policy, employment and structural adjustment in India’, Indian Worker, August. United Nations Development Programme (UNDP) (1992) Human Development Report, New York: Oxford University Press. Vaid, K.N. (1974) Gheraos, Lock-outs and Labour Unrest in West Bengal, New Delhi: Shri Ram Centre for Industrial Relations. Venkata Ratnam, C.S. (1989) Employers’ Dilemma, Bombay: Employers Federation of India and SOLAR Foundation. —— (1991) Unusual Collective Agreements, New Delhi: Global Business Press. —— (1992) Managing People, New Delhi: Global Business Press. —— (1993) ‘Adjustment through privatisation: a case study of India’, Geneva: ILO Interdepartmental Project on Structural Adjustment, mimeo. Walker, K.F. (1975) ‘Workers’ participation in management: an international perspective’, IILS Bulletin. Workers Solidarity Centre Against Job Losses and Closures (1989) Report of the Workshop on Job Losses and Industrial Closures, Seminar on Social Movements, Human Rights and the Law, 27–30 December 1989, Bombay.

APPENDIX: RECENT TRENDS IN INDUSTRIAL RELATIONS AND HUMAN RESOURCE (IR/HR) POLICIES AND PRACTICES IN INDIA Introduction We are undertaking the Indian section of an international study in IR/HR policies and practices over the past decade. This is part of an informal network of research in Asia initiated by Professors Thomas Kochan (Sloan School of Management, MIT, USA), Russell Lansbury (University of Sydney, Australia) and Anil Verma (University of Toronto, Canada). The study seeks to: 1 explore the extent to which certain key IR/HR policies/practices have changed over the past decade (it is possible that some organizations may not be a decade old; even if they are, the period of changes may not date back ten years; in such cases you may reflect on the situation when your firm was set up (if it was set up in the 1980s) or when major changes occurred; please remember to specify the year);


2 determine the factors which have driven or caused the degree/type of change in these practices; 3 assess the impact of these changes on economic and social outcomes of importance to workers, firms and the national economy in each country. Your firm has been carefully chosen to be a case study, as one of a representative sample of firms in various industries. Attached is a schedule-cum-interview guide which we propose to administer. The firms participating in this survey will receive an abstract of our report. It will provide comparative perspectives into dominant trends in your industry that could help guide future policy and practice. While we expect a key official, preferably the head of personnel/ HR/IR, to be our main respondent for furnishing the information, it is possible that no one person may be in a position to furnish all the relevant information being asked for. In such an event we wish to meet a small team of three to four senior officials who, among themselves, would be able to furnish the information. If necessary, we will make subsequent visits to collect relevant data and information. The following key is used in the accompanying survey instrument: P: O: S: M:

Production workers (non-supervisory) Other workers (non-production, non-supervisory) First-line supervisors Managers

We seek your cooperation in making our effort a success. We will present you a copy of the abstract of the report. Name(s) of researchers General information Name and address of the organization When was it established? Name and address of the primary contact/key respondent to this survey Now What is the ownership structure of the organization (public, private, multinational, etc.) What are its main products/services? Foreign collaborations, if any (please furnish details on a separate sheet, if possible) Technical Financial Other (specify)

Ten years ago


Mix of the above (specify) Size of business Year Assets

Sales Revenue

Net Profit Total cost


1982 1992 Now Ten years ago What is general business strategy of the organization (for example: market niche/specialty product, high volume/low cost, etc.)? What is the general personnel/industrial relations/human resources strategy of the organization? What type of market does the organization operate (for example: monopoly, oligipoly, competitive, etc.)? What is the total number of employees in the organization? Now (December 1992) Ten years ago (December 1982) Male Female Production workers Other nonsupervisory workers First-line supervisors Managers Casual employees Apprentices Part-time employees Contract workers employed by contractors Number of organizational levels in operations/ production Number of levels in the entire organization




Ten years ago


Now (December 1992) Ten years ago (December 1982) Male Female Number of job classifications for production workers Number of job classifications for production workers Number of job classifications for non-supervisory office staff Number of hierarchical levels from first-level supervisor to chief executive/managing director



Personnel/industrial relations/human resources (IR/HR) function How is IR/HR function organized in your organization? (If it is not inconvenient, please attach a sheet showing organization chart that depicts the position of the function as it is today and indicate the changes, if any, during the last ten years.) If your organization has a separate department for IR/HR function, please answer the following two questions (otherwise please skip the next two questions): Now Ten years ago How many employees are assigned to the IR/HR function? How many of the employees in IR/HR function have management responsibility (i.e. are not clerks, secretaries, etc.) Prevalence of select collective-bargaining agreement clauses Please mark ‘x’ in the column if the relevant clause/provision exists in the collective bargaining agreement in your organization.


Category/type Managerial discretion Recruitment policy/procedures Changes in manpower size Placement/personnel deployment Transfers Promotion Reward (job evaluation etc.) Criteria/method of appraisal Grievance Discipline Training/retraining Career planning Employee development Employee safety Overtime Incentive scheme Change of work practices Bonus Profit sharing Who should do what job How to do a job (revising work method) How fast the work can/should be done

Present agreement Ten years ago

How much work should be done in a day Whether contractors can be employed Whether casual labour can be employed Whether part-time labour can be hired Subcontracting/make or buy decisions Others (specify) Technological change Management discretion Joint consultation prior to technological change Technological change after union consent only Arbitration/adjudication of technological change disputes Advance notice Notice to lay off Retraining opportunities/benefits Constitution of joint labour-management committee (specify) Relocation allowance Special allowance (specify) No retrenchment Reduction of workforce through normal attrition


Income guarantee for all employees Income guarantee for displaced persons No reduction in employee strength Redeployment Preference in rehiring Voluntary retirement/separation scheme Extra compensation in case of retrenchment Outplacement assistance Special benefit fund for employees affected by technological change Others (specify) Number of holidays Casual leave Sick leave Annual privilege leave Other leaves (specify) Working-time arrangements Number of working hours per week Overtime quota/limitation Flexible time Subcontracting Now Ten years ago Is subcontracting (mark ‘X’ as appropriate): a subject of managerial discretion? prohibited by union? restricted by union? subject to consultation with union subject to union consent other (specify) Please indicate major jobs done by contractors through subcontracting Now Ten years ago Services (canteen, security, transport, for instance) Functions (bill collection, credit monitoring, customer service, etc.) Components (changes in make/buy decisions, etc.)


Application of management techniques Which, if any, of the following techniques does your company use? (Mark any or all that may apply. Please furnish additional details including policy statements, texts of schemes, and reports/reviews on their functioning, etc.) Now Ten years ago Management by objectives Quality control circles Employee stock ownership plans Profit sharing: for all employees for senior managers only Employee participation/involvement (specify nature)

Employee feedback surveys Customer satisfaction survey Performance appraisal Linking pay/incentives/bonus (strike out whichever is not applicable) with customer satisfaction Managerial succession planning Direct communication with employees Suggestion scheme Labour-Management committees (specify names of committees and their scope on a separate sheet) Productivity measurement (please list the measures commonly used by you) Multi-skilling (briefly describe indicative areas) ISO 9000 Others (specify) Managerial policies Now Ten years ago Which, if any, of the following best describe your managerial policies? (Mark ‘x’ as appropriate. Please rank, if more than one response is applicable.) Substitute labour with capital and technology Achieve numerical flexibility in employment Achieve wage flexibility Increase skill/occupational/geographic mobility (cross out if any aspect is not applicable)


Now Ten years ago Avoid unions, if possible Reduce the sphere of influence of unions through new human resource policies Reduce labour costs by lowering wage rates, etc. Reduce labour costs without lowering wage rates, etc.

Increase wages and benefits to employees, yet cut costs Reduce full-time employment Improve work practices/methods Others (specify) Seniority and related provisions in collective bargaining agreements (CBA) and company policies (CP) Mark (BA or CP) in applicable categories of employment Now P Role of seniority in promotions: sole of primary factor merit-cum-seniority merit alone no provision Role of seniority in transfer: sole or primary factor merit-cum-seniority no provision Role of seniority in lay-off: last in, first out first in, first out no provision Role of seniority in recall from lay-off: sole or primary factor secondary factor no provision

Ten years ago





Recruitment Now

Ten years ago

P O S M P O When you hire new employees, does your recruitment process include (please write in the columns ‘Y’ to denote yes and ‘N’ to denote no): physical tests of skill written test a review of previous work record individual interview group interview or exercise campus recruitment referral to employment agencies



advertisement in native-language newspapers advertisement in English newspapers ability to speak English or another foreign language Skill formation Now

Ten years ago

P O S M P O S Did you find some skills becoming redundant (specify) Did you find any trend towards deskilling in certain jobs (specify jobs and reasons) What new skills became necessary to carry on existing operations To what extent is progression to higher levels in the enterprise dependent on skills required by the individual through formal training on or of the job (put numbers): 1 great extent 2 some extent 3 no influence 4 can’t say The skills required by employees are acquired before they are hired by the enterprise (put numbers):




Ten years ago

P O S M P O S 1 great extent 2 some extent 3 very little 4 can’t say The skills required by employees are acquired after they are hired by the enterprise (put numbers): 1 great extent 2 some extent 3 very little 4 can’t say


Select employment practices Now Ten years ago Are any of the following practices followed in your organization? Common uniform for all employees Common canteen for all employees Common transport for all employees Common company school for all employees Common medical care for all employees Common parking for all employees Work Organization Now P 1 Job definitions are becoming (tick one) Broader Narrow More precisely defined Less precise Output oriented Skill based Others (specify) Can’t say 2 Job demarcations are More

Ten years ago




Ten years ago

P O S M P O S M Less More or less same Changing, but difficult to generalize Can’t say 3 Which of the following have you undertaken (please tick ‘x’ in appropriate columns) Updated job descriptions to make them more relevant Reassessed the job descriptions Validated selection/testing methods Reclassified/regraded certain jobs Modernized the plant Introduced tech change (specify) Reduced the number of levels of hierarchy Implemented planned change strategies (specify purpose and nature of intervention) Conducted personnel/IR audit Others (specify) Now Ten years ago 4 Role of supervisor is Changing with increasing problems between supervisors and workers Strengthened with technological change, competitive pressures, etc. To be reinforced Becoming redundant Changing, warranting decrease in number of supervisors/supervisory body Other (specify) Employee compensation criteria Now

Ten years ago

P O S M P O Individual performance Company performance (i.e. varies with profit, sales, etc.)





Ten years ago

P O S M P O Supervisor’s assessment of employee’s performance on a written format (i.e. formal performance appraisal) Only incentive portion is contingent upon performance of individual/group Only annual bonus portion is contingent upon individual/company’s performance



Not contingent upon performance of either individual or company What other companies in industry/region pay Cost of living index Others (specify) Now

Ten years ago

P O S M P O To what extent are the following characteristic of your employee compensation system/policy: Fixed annual wage supplement/increment Cost of living indexation Periodic upward revisions in pay with every collective agreement What proportion of employee compensation varies with performance (of both individual and company): as % of gross pay (please indicate % in the columns) in a month (or) indicate number of months’ pay in a year in the various columns)



What is the extent of differential in gross pre-tax annual pay (please mention absolute amounts and/or ratios Now Lowest Highest (or Ten years ago Lowest ratio) Highest (or ratio) Lowest-and highest-paid worker Lowest-paid employee and highest-paid


Now Lowest Highest (or Ten years ago Lowest ratio) Highest (or ratio) employee (could be the chief executive) in your organization If the ratio changed, please briefly outline the possible reasons therefor. Unions and union-management relations Are any of the employees in your organization represented by a union? (If ‘yes’, please specify the number of unions and the percentage of employees in the various categories who have been unionized. If ‘No’, please write ‘no’. Now

Ten years ago

No. of unions % covered No. of unions % covered Production workers Non-production, nonsupervisory employees First-line supervisors Professional/managerial employees How would you describe the state of union-management relations in your organization? (You may rank if more than one category is relevant.) Now Ten years ago Confrontational (due to inter-union rivalry) Confrontational (due to mistrust of management) Political (due to politicization of unions) Harmonious Accommodative Harmonious, if accommodative Harmonious, if union demands are agreed Others (specify) Please mention, briefly, the factors responsible for the current and past (ten years) state of relations in your organization, as described by you above, both within and beyond the control of management in your organization in your perception. Please list five critical factors/aspects. Factors responsible for current state of union-management relations:


Factors responsible for state of union-management relations ten years ago (around December 1982 or thereabouts): What, in your opinion, accounts for the changes, if any, over ten years in the union-management relations situation in your region/industry in general and your organization in particular. Please list five critical factors/aspects. Grievance procedure Does your organization have a grievance procedure to resolve employee complaints? Now

Ten years ago

P O S M P O Informal As laid down by legislation As contained in the collective bargaining agreement Complaints settled through negotiations and discussions Grievances resolved by head of the organization Others (specify)



Request for additional data, information and comments 1 May we have copies of the following information/data? 2 An organizational chart for the company as also the unit/plant for which information is collected. Focus on changes, if any, during the last ten years with regard to work organization, quality control, inventory management, maintenance and housekeeping, number of job classifications, simultaneous engineering, delegation and decentralization, work flow chart within manufacturing/operations, etc. 3 Any mission statements, codes of conduct, union recognition agreement, etc. 4 Copies of collective bargaining agreements, preferably covering the period 1983–92, or at least the most recent one. 5 Statement listing chronologically important events in union-management relations since the inception of the plant, particularly during the last ten years. 6 List of labour-management committees, with a brief write-up focusing on history, results, etc. 7 Statement on training policy, training particulars (number, nature and frequency of programmes for employees at various levels; training budgets,


training calendars, training needs assessment, training evaluation methods and procedures and outcomes. 8 Summary details of efforts for adjusting workforce size (including voluntary separations, retraining, redeployment) along with information about the rationale of such changes, involvement of employees/unions, costs of compensation/retraining, etc. and industrial relations outcomes, if any. 9 The employee handbook and other formal policy statements. For which of the following indicators is it possible for us to have (preferably for the period 1983–92 or at least current) data? 1 2 3 4 5 6 7 8 9 10

Absenteeism and sick leave Employee turnover Grievance rates and incidence of other disputes Productivity Quality Delivery/schedule Waste/scrap Use of suggestions and problem solving Accident rates Employee participation/involvement schemes, etc.

(If possible please make available annual data over an extended period of time— 1983–92. Also, please indicate what data can be used in their present form as compared to just being reported in terms of percentage changes (for confidentiality) or being utilized as background information (for greater confidentiality). Finally, note that this is a ‘wish’ list and that these are just general topic areas, which may include one or more measures that you maintain.) Is there anything else you’d like to tell us about the issues raised in this questionnaire and the accompanying background note? (Please use additional sheets to incorporate your comments.)

Chapter 9 The changing face of human resource management in China Opportunities, problems and strategies Anil Verma and Yan Zhiming

INTRODUCTION China began to introduce economic reforms aimed at creating a market economy after the 11th Central Committee meeting of the Communist Party of China in December 1978. China’s economic growth since that year has exceeded all expectations including those of its planners. Real GNP has grown by almost 9 per cent per annum during the period 1982–93. If this pace keeps up for another few years, China will have matched the growth rates of Japan, South Korea and Taiwan during their period of rapid growth. China’s achievements are even more impressive when compared in relative terms. Despite a late start, it has outperformed other large developing economies like India, Brazil and Mexico. Thanks to a large increase in farm output, China is largely self-sufficient in food and rural incomes have risen sharply (according to some estimates threefold in the last eight years (The Economist, 1992)). Exports have risen from $21 billion in 1978 to around $170 billion in 1992. While economists are still arguing about the true significance of these statistics, it is clear that the Chinese economy has set a vigorous pace of growth that is the envy of most nations. One of the most important questions for both Chinese economic planners and for students of economic growth everywhere is whether China would be able to sustain this rate of growth for long. While this question is a complex one which cannot be answered easily, the premise of this chapter is that appropriate human resource policies will play a critical role in this development and in sustaining this rate of growth. The rapidly changing economic context provides a good laboratory for examining the emerging role of human resource policies. The purpose of this chapter is twofold. First, it provides a brief description of how HRM policies are changing in response to economic reforms. Second, it tries to identify the changes that will be needed to sustain growth. It draws on four case studies of Chinese enterprises of which two are state-owned and two are joint ventures with multinational firms. Since it draws on a limited number of cases, the goal of this chapter is to suggest some hypotheses for further examination rather than to offer conclusive findings.


In the next section, we briefly discuss the current economic scene in China. This is followed by a conceptual framework by which we can understand the current evolution of HR policies in China. The fourth section presents an overview of HRM practices as they stood at the end of the 1970s and the changes that have come about since then. We present data from four firm-level case studies in the fifth section. The last section discusses the implications of these findings for theory, research and practice. THE CURRENT ECONOMIC PICTURE The policy of opening up the economy had the fastest and the most direct impact on the sea coast areas. Guangdong and Fujian are the neighbouring provinces of Hong Kong, Macao and Taiwan. The connection among them has become even stronger since the reforms were implemented. Guangdong and Fujian became the bases of processing and production destined for Hong Kong, Macao and Taiwan. Due to the great quantity of foreign investment attracted by the favourable policies, these two provinces are the most developed areas in China now. In recent years neighbouring countries such as Russia, North Korea and Vietnam have also adopted economic reforms which have promoted a hot border trade. So this pull force has made all these economies prosper although the degree of development is not as stable and deep as in Guangdong and Fujian provinces. The central part of China, though having a good technological and economic foundation and also benefiting from the economic reforms, has been slower in economic development. With a weak economic base and remote location, the western part of China is still developing very slowly. So the general picture of the Chinese economy is of a ladder structure of three levels: the sea coast, central China and western China. Of course those three economic areas are tied closely: the sea coast plays the role of leader, the central part plays the role of supporter and the west plays a complementary role. The sea coast specializes in light industry, the central part in heavy industry and agriculture, and western China in animal husbandry and mining. The fast development of the Chinese economy has resulted in the following changes: 1 The main exports from the original agricultural and basic industry goods have gradually turned to technology-oriented light-industry goods. 2 The quality of products has been improved which makes them more competitive in the international market. 3 The commodity-processing enterprises in sea-coast areas are changing into production and market-oriented enterprises. 4 Indirect exports, relying on the middlemen of Hong Kong, are still growing but direct exports are growing at an even faster speed. Some large companies have begun to establish sales offices or subsidiaries abroad.


All of the above indicates that China is increasingly becoming a player in the international market. Its economy is becoming better connected to the world economy and its interdependence with the world economy is increasing. CONCEPTUAL FRAMEWORK In the Chinese economy, collective bargaining between labour and management has not been a major determinant of conditions of work, as it has been in North America and other parts of the world. Rather, the state is the dominant player more than labour or management. This system, a product of the communist central planning system, is not well captured by Dunlop’s (1958) notion of the state acting in some concert with labour and management to determine the rules of the industrial relations system. As Figure 9.1 shows, in the 1949–79 period, the central planning priorities were the main determinants of state-level HR policies and the two together gave shape to firm-or enterprise-level HR policies. For example, all wages in the pre-1979 period and many in the state sector even now are set by central planning authorities. This applied (and still applies in many cases) to a wide range of policies from housing to bonuses to benefits such as medicare and pensions. The main point is that firm-level policies were largely constrained by state-level choices of HR policies. After the economic reforms began in 1979, the government committed itself to making the economy more market-oriented. This changed the context for many firms and their HR policies. Market considerations thus began to replace the central planning objectives as the major influence on HR policies. However, at present the market-driven economy is still far from fully realized. In the interim, a hybrid system exists in which product market conditions have begun to influence state HR policies. Some state HR policies have been changed or are being changed gradually, while others still reflect the old system. At the same time, individual firms, especially the joint-venture companies, have been given some freedom to tune their policies to the demands of the market. Thus, the HR policies of Chinese enterprises today are driven both by product market considerations and by state-level HR policies which are themselves trying to adjust to a market-driven economy. In this sense China’s experience is similar to that of many other countries. State-level policy choices always constrain firm-level choice of HR policies, some to a larger degree than others. The two extremes of this spectrum can be illustrated here in order to frame the evidence presented later in this chapter. On the one hand, the state can be dominant, as was the case in China in the pre-1979 period. On the other hand, the state can be totally withdrawn, leaving firms free to adopt policies of their choice. The case of the US, particularly in the ReaganBush years, is illustrative of the other extreme. In between, there are a number of intermediate positions that best illustrate the policies adopted by Japan, western Europe, Canada and some of the newly


Figure 9.1 HR policy formulation in China

emerging industrial economies. This approach holds that some policies are best made by the state because they set the context for investment and economic growth. Thus, the scope of policy making at the firm level is somewhat more limited but, none the less, more focused. It is highly probable that the development of HR policies in China will fit this pattern over the next few years. The evidence presented later will attempt to identify the growing sphere of firmlevel policy making while pointing out the areas that are likely to remain in the state domain.


THE TRADITIONAL CHINESE ENTERPRISE AND HRM The traditional enterprise in China, the danwei, was conceived of as an important unit of planning in the central planning system. It became the principal unit for allocation of investment capital and for generating employment. Although this is not so different from western economies in principle, in practice the growth and operation of enterprises reflected certain orthodoxies in economic planning. Two practices from the past are helpful in understanding the evolution of HR policies. First, manufacturing enterprises were given priority over service ones, and second, once created, the existing enterprises had natural rights over new ones in allocation of resources. There were two consequences of these policies for human resources. First, the danwei tended to be much larger than its core activities warranted. The core danwei built and ran its own service infrastructure such as schools, hospitals, transportation and housing, to name only the most important. The second development is closely linked to the first. As the infrastructure was inadequate, spouses and children of the employees found it hard to obtain employment nearby (lack of transport, lack of housing) and, consequently, had to be given jobs within the same enterprise. No figures are available but anecdotal evidence points strongly to more than one person from the same family being employed within the same enterprise. Thus, the make-up of the enterprise and its HR policies reflect not only the exigencies of the work itself but also those of the central planning system and its orthodox practices. In the next two sections we review the labour market conditions that have prevailed in the late 1980s and early 1990s at both the level of the economy as well as the level of the firm. Labour market conditions in the economy and the enterprise General employment conditions The general employment conditions are characterized by a large labour supply pool. There is some hidden unemployment as well as under-employment. According to surveys, the effective utilization of time in Chinese industrial enterprises is only 40–60 per cent of working hours. Although the government no longer imposes a quota for employment on each company, the problem created by years of employment quotas will take a long time to sort out. Companies have no right to lay off workers. In the past, even when there were many extra workers, the government encouraged enterprises to absorb them. Even when some companies should go bankrupt, they are permitted to exist due to the concern for employment. Their workers are employed nominally but in fact are unemployed.


This obviously prevents the companies from accurately accounting for labour expenses and from making the most rational managerial decisions. In China, more than 80 per cent of the population is farm-based. It seems there is no possibility of exhausting the countryside industrial reserve labour force which can be used to maintain a low level of labour cost. The government is concerned about city administration and social stability, and ensuring that there are enough employment opportunities for the city labour force. It acts accordingly to regulate movement from the countryside to the city. It might be necessary to regulate such rural to urban migration. However, some problems such as the issue of fairness to rural labourers should not be overlooked. Labour migration Because of the ladder structure of the Chinese economy, there is an imbalance in the development of the various regions, with large differences in income between them. Consequently, great pressure for migration has always existed. To cope with this problem, the government has strictly regulated the movement of people across different regions and from rural to urban areas. This pressure to migrate has increased considerably since the economic reforms started. Although more people are now moving across the country, there is still tight control over their movement. The current migrations fall into the following categories: 1 migrating among areas, e.g. from inland to sea coast and from the countryside to the cities; 2 migrating from different ownership enterprises, e.g. from state-owned to foreign companies or joint-venture enterprises. 3 migrating from different industries, e.g. from manufacturing to service industries such as hotels, travel agencies and entertainment. Such migration has provided a necessary condition for economic growth in the cities and sea-coast areas. To a certain extent, migration is desirable because it can help to slow the growth in salaries, but on the other hand there are many migrants who move on the basis of imperfect information about the labour market. This results in higher costs and difficulties for the city administration, and has adverse effects on social stability. Salary and welfare China has adopted and still supports a low salary and high welfare system. Generally, a worker’s income consists of basic salary, worked-year salary, various subsidies and bonuses. There are many categories and different levels such as engineer, administrator and worker. The salary for each employee is usually determined by education and experience, any production bonus applicable, and a periodic review of performance. Generally the salary will only


be increased; in very few cases is it decreased. There is no direct relationship between the job held and the level of salary. Even when individuals are transferred to another company in a different position, the salary may be the same as before. From the beginning of the reforms, bonus was instituted as a part of workers’ income and the percentage of bonus has increased very fast. Such bonuses are not contingent upon individual or enterprise performance. In fact it is like a salary in another form. There is another type of bonus which is given to workers at the end of each year when a company has performed better than expected. This is sometimes referred to as efficiency bonus. There is yet another type of bonus which is in kind instead of money. It can be in various sorts of goods from toothpaste, shampoo, fruit and vegetables to clothing and electronic appliances, for example. In contrast to the low salaries, the level of welfare is surprisingly high in the Chinese economy. Almost all enterprises have to provide housing for their employees at a low cost, less than 5 per cent of their salary. Enterprises also provide medical coverage for their employees and partly for their children. They even have responsibility for the education and employment of their employees’ children. Many large companies tend to be a small society with their own stores, schools, hospitals and restaurants, among other services. The high levels of welfare impose a heavy financial burden on companies, the close connection between welfare and employment creates unfair hardship on people who are not currently employed, since they have no way to receive such benefits. Differences in welfare levels also cause large migration problems. There are many problems with the Chinese welfare system. If the company is not big enough, its hospital, stores and so on will not have sufficient customers to operate efficiently. On the other hand, big companies with big welfare organizations cannot concentrate on production because the service infrastructure competes for attention and resources. Often companies are trying to become larger just to make their services more efficient. Recruitment Before 1980, the government took full responsibility for providing employment opportunities for all those of working age. The inflexible policy was that the government allocated people waiting for jobs to enterprises or other organizations. This, of course, led to a situation in which there were many more hands than needed and very low economic efficiency since the employment was not based on the work requirements. When the reforms began, the government recognized that unemployment and under-employment existed under the socialist system. The government initiated a new approach combining three methods under the direction and planning of the local government. Employment could be planned through labour department arrangements, collectively organized enterprises or private businesses.


Another problem in the recruitment process is the way in which personnel records are kept and used. Companies build personnel records for each employee in which personal history, performance, rewards and punishment are recorded fully. These records are important bases for the company to grant promotions and determine salary increases and the level of benefits. When a person wishes to transfer to another company, the prospective employer often requires the personnel record from the previous company as a necessary condition of employment. If the previous employer wants to keep the worker, it could effectively block the move by not giving the records to the new company. Of course, there are exceptions to this generalization, e.g. joint-venture companies often do not require such records. Another issue that plagues rational recruitment is nepotism. Many enterprises give priority to hiring their employees’ children and relatives. Since the pressure of unemployment is so great, companies try to keep employees happy and motivated by providing jobs for their children. This is a form of distributable welfare. As the number of workers with relatives inside a company increases, it becomes more difficult to implement discipline and reward policies, to assign jobs and to manage the conflicts among informal groups. In addition, this way of hiring workers cannot ensure the quality of employees. The company has to reject many applicants with better qualifications which may be badly needed. In this way, the overall quality of employees has steadily decreased. Employment security There are three types of workers in Chinese enterprises: fixed or permanent, contracted and casual. The fixed workers came from the old system of publicly owned enterprises. Since fixed workers had become used to the old system, the government decided to keep this category unchanged when it embarked on the reforms. New workers hired after the reforms are contracted workers. When the contractual period is over, workers will be laid off if the contract is not renewed. The casual workers are temporary workers whose employment can be discontinued at any time although they could have been working for many years at the same location. Obviously, the uncertainty of employment borne by three types of workers is different and the risk for casual workers is the highest. The fixed workers still enjoy the ‘iron rice bowl’ advantage which gives them life-long employment security. It is natural that the fixed workers are not willing to do the hard jobs, for which companies have to hire additional contracted and casual workers. In fact, companies often have enough hands to do the jobs but a shortage of those willing to do them. The result is higher labour costs and lower efficiency. Once people join a company, they fully belong to it. Because of the salary and welfare structure, employees are very dependent on the company. The company has absolute rights of assigning and moving workers and, on occasion, even refusing their resignation. Employers can exact a heavy cost on individuals who


want to transfer to another company, if they decide to retain the personnel record and refuse to cooperate with the transfer process. On the other hand, a company has difficulty in dismissing or laying off workers. Although permitted by the government, it is not accepted within the social norms that guide most traditional Chinese enterprises. Training There is a general trend in some companies towards strengthening training and retraining for employees, but many still have not developed a training plan. The old methods under which masters train their apprentices on the job still prevail in most enterprises. In the 1980s, many companies at their own expense sent their employees for further education at universities. This trend is getting weaker because many workers transferred to better companies after acquiring new skills. Most companies like to hire educated employees directly from the universities or other organizations rather than spending money on training them. Moreover, while workers are studying at universities, their positions tend to be filled by others. This often makes them feel that they have missed opportunities for promotion. Functions of the union Chinese worker unions are very different from those in western countries. In the communist system, since labour and capital have the same interest, the role of the union is to support the goals of the enterprise and of the workers at the same time. They do this effectively by acting as a ‘conveyor belt’ between the Communist Party and the people in the enterprise (Hoffman 1981). They communicate socialist goals to the workers and mediate between the management and the workers to help achieve the production target which is itself a socialist goal. In practice, the unions in state-owned enterprises play a welfare role. They are mainly responsible for activities such as: organizing entertainment and sports, taking care of workers’ welfare, helping management to implement operational decisions, coordinating and supervising the relations between management and workers. Unions have functioned as a bridge between workers and management to communicate and coordinate. Now that the ownership patterns of enterprises are changing, it is not clear how unions will function in the future. FOUR CASE STUDIES To try to understand the changing nature of human resource policies at the enterprise level, data were collected on HR policy and practices from four enterprises. Two of these are state-owned while the other two are joint-venture


collaborations with multinational companies like Philips of Holland and Northern Telecom of Canada. This research design was followed with two objectives in mind. First, such a comparison will demonstrate the changing nature of HRM practices in China. It will provide a better understanding of how market considerations are supplanting the system that developed under the central planning system. Second, it will yield insights on how complete the transformation of HR practices has been since the reforms were introduced. Each company is described below in brief. A summary of their characteristics and HR policies is shown in Tables 9.1 and 9.2. The Chang Jiang Energy Company (CJEC) This is an old, formerly private company (founded in 1927) that was nationalized in 1949 and expanded considerably since then. Today, the CJEC group of companies includes more than 200 manufacturing, service and research operations in a very wide range of industrial, commercial and consumer products. The main Wuhan plant manufactures large-scale turbines and electric generators. This plant employs 5,600 people of whom a third are women. Some 20 per cent of the output is exported. This plant is a good example of a state-owned enterprise. Although productivity has risen since the economic reforms were instituted (from Y4,000 per employee in 1980 to Y6,500 per employee in 1992), the plant must improve its efficiency further to be competitive. It has some surplus workers who continue to be paid even though there is no work for them. Some workers have been asked to start small businesses (e.g. retail shops) that sell goods or services and thus generate employment for themselves. The plant has an extensive set of benefit plans. Besides providing housing, health care and transport, the plant offers hot soy milk and steamed rice free to all employees. The plant has very little flexibility in determining wages which are Table 9.1 Profile of the four sites state-owned

Joint ventures





Year started Ownership

1927 100% state

1962 100% state

1988 55% Northern Telecom 45% long Guang Co.

Main products

Turbines, generators

Instruments relating to pressure, water purification

Telephone switches SL-1 Meridien systems up to 5, 000 lines

1991 50% Philips (Holland) 50% Wuhan Trust & Wuhan Optical Fibre optics in two grades


state-owned Export as a % of total output Employment (April 1993)

Per cent women

Joint ventures








4,800 permanent 700 contract 100 casual 5,600 total 33%

1,554 permanent 200 contract nil casual 1,754 total 45%

20% (by contract) nil permanent 300 contract nil casual 300 total 50%

330 total 46%

mostly in support services, a few engineers, accountants, etc.

at all levels, at all levels four among top management

nil permanent 330 contract nil casual

mostly among workers, two at managerial levels

Table 9.2 Human resource policy profile State-owned

Joint ventures






Employees’ children; technical school

Employees’ children sent to technical schools

Ads, university, research institute




Visit university every three months; newspaper ads Interviews; onthe-job testing

Work week Overtime premium

6×8=48 hours None; 2× on holidays

6×8=48 hours None; 2× on holidays

46 hours 1.5× to 2×

Seniority consideration in promotions Grievance procedure

Only if all else equal

Only if all else equal

Only if all else equal

Informal; union ‘negotiates’wit h managers

Informal; union ‘negotiates’wit h managers

Informal; management prevails



N.A. (20% paid in HK$)

Compensation Salaries per month

Aptitude and on-the-job tests 5×8=40 hours None for 9−17 hours; 2× for 18+hours Only if all else equal Informal; discuss with unions but management generally prevails Y550


State-owned including all subsidies All salaried Bonus

Wage grades Performance evaluation for merit pay and/ or bonus Employee involvement

Employee representation

Welfare plans: housing, healthcare, transport

Joint ventures





Yes Monthly: based on production End year: based on individual performance 8 Yes

Yes None

Yes 13th month annual bonus

Yes None

8 No

11 No

10 No



None; looking into it

Union; Workers’ Congress meets once a year Yes

Union in a welfare role

Union in a welfare role

Provide subsidies if not the service

Provide subsidies if not the service

None; employee recognition plans Union; Workers’ Congress meets once in two years Yes

guided by central authorities. It is also limited in its ability to sack or lay off workers. Within the plant, however, managers have great flexibility in assigning work. Absenteeism policies are clearly laid out: if a worker is absent more than fifteen days continuously or a total of thirty days in a year, he or she can legally be sacked. In practice, delinquent employees are first counselled by managers as well as the union. If that fails to correct behaviour, the employee is sacked. Occasionally, the union will pursue someone’s case vigorously with the management. Management, for its part, tries to accommodate the union to a large extent. The management is subject to worker control in the long run through the orders of the Workers’ Congress (Helburn and Shearer 1984:9–11). The Workers’ Congress in this plant meets once every two years. Workers elect 800–1,000 delegates to the Congress. The rules and regulations of the company are discussed and approved by the Congress. Between Congresses, there is continuous dialogue between the delegates and management.


It is difficult to assess the financial performance of this plant. Accounting practices in the central planning system vary considerably from generally accepted accounting principles (GAAP) in the west. Moreover, the Wuhan plant belongs to the large CJEC conglomerate. It was not clear to us if there is separate profit accounting for it. Physical productivity could be compared but these data were not made available to us. The Wuhan Gauge and Meter Company (WGMC) This is a newer state-owned company started in 1962 to manufacture pressure instruments. Over the years it has also begun to manufacture equipment used in water purification and purified water itself for consumption. This is a small enterprise by Chinese standards that lacks economies of scale in providing extensive services to its employees. At the same time, it suffers from the rigidities that are common to all state-owned enterprises, large or small. New recruitment is often from among the children of the employees. The plant currently has about 350 surplus workers who have not been laid off. On the other hand, some better-qualified engineers have left for joint-venture plants in southern China. Its salary is low compared to the larger plants. There is a Workers’ Congress that meets every year. There is some emphasis on training which is conducted by the training department staffed by ten full-time employees. The plant is thinking of introducing multi-skilling but has not yet done so. Tong Guang-NorTel Co. (TG-NT) This is a joint venture between Northern Telecom of Canada (55 per cent) and the Tong Guang Co. (45 per cent), a manufacturer of communications equipment in China. This plant which began production in 1988, is largely run by the multinational partner. The chief executive is from Canada and there are five other expatriates at the site in southern China. It manufactures the SL-1 Meridien systems of telephone switches. The plant is small in size (300 employees) but is expected to grow by 50 per cent over the next two years. Although no figures were available, plant productivity and quality are reported to be comparable to Northern Telecom plants in Canada and the US. The plant is hoping to receive its ISO 90001 certification by the end of 1993. It has already won several awards of excellence during 1989–92. Wages were not disclosed to us but it was suggested that they could be 120 to 160 per cent of the local wages. Most work systems such as job rotation, training programmes and job classifications have been adapted directly from the multinational’s home operations. There is a union in the plant but its role remains limited in the same way as in the state-owned enterprises. To the Canadian managers, it is like operating without having to deal with a union on a day-to-day basis.


One problem facing the company in early 1993 was the high turnover rate (15 per cent in 1992) among its employees. The workforce in the plant is young (median age: 25) and well educated (55 per cent have college degrees). Upon investigation, it was found that high turnover is a problem dogging many jointventure enterprises in southern China, a region that has experienced very high growth rates in the last few years. In 1992, the average turnover for all jointventure companies in China was 14 per cent and for the province of Guangdong 18 per cent. Exit interviews showed that 40 per cent of those who left went to other companies for better salaries or jobs. Another 20 per cent left for higher studies, and another 20 per cent left for personal reasons such as marriage or inability to get release from former employers. The remaining 20 per cent were sacked for inadequate performance on the job. Yangtze Optical Fibre and Cable (YOFC) This plant which began production in 1991, is a joint venture between Philips of Holland and two Chinese enterprises, the Wuhan Trust Company and the Wuhan Optical Company. It manufactures optical fibres used in digital communication networks. The technology, licensed from Philips, is a state-of-the-art sophisticated process to make very thin strands of highly purified glass. The diameter for the glass core can be as small as 50 millionths of a metre: it is later coated with resins; the coated strand can be as much as 250 millionths of a meter in diameter. In 1990, such plants were operating in only a handful of countries in the world. The partnership is equal (50-50) between Philips and the host country investors. The first general manager was from Holland but his successor, the present general manager, is Chinese. There are only two people from Holland, the deputy general manager and a senior technician to oversee the technical aspects of production. The intent is to make it a fully Chinese operation. Philips has contracted to export 20 per cent of the production but the Chinese plant is also selling on its own initiative abroad. In 1992, roughly 40 per cent of the fibre production was sold overseas. The plant also makes underground and submarine cables which are mostly sold within the country. The plant was located in Wuhan (capital of Hubei province in central China) partly because a research institute specializing in optical technology could provide some assistance. As it turns out, the research facility has become a source for hiring qualified personnel. The company hires from the local labour market and sends many workers for training to Holland for up to nine months at a time. Job openings are advertised in local papers. Tests, both written and onthe-job, are used in selection. There is some pressure from local politicians to hire relatives but the plant has been able to steer clear of the nepotist employment practices that are common to other enterprises in the area. The plant enjoys strong support from the local government whose powers and influence have increased since the beginning of economic reforms.


All employees are hired on contracts varying from two to four years in length. In a few cases the contracts are six years long. Employees can be sacked for a reason and this has happened in a few cases since the plant started up. In general, absence and lateness are not very problematic. The plant did not report the high levels of turnover that plague the joint-venture companies in southern China. There is no formal programme for employee involvement but management is looking into it. There is a union in accordance with the law whose primary functions are to organize social activities and to improve the general welfare of the workers. One full-time union representative is on the company’s payroll. There is a collective agreement (see Chen 1983 for a description) akin to what are known in North America as the ‘Company Rules’. It operates exclusively on the individual contracts signed by each employee. The union oversees the application of the collective agreement and discusses possible disagreements with the management. Disputes are resolved through discussions whose length and intensity depend upon the gravity of the dispute. In the final analysis, if the dispute is not resolved management prevails. In one incident last year, an employee was found sleeping in the conference room. The (Dutch) general manager discovered him and sacked him to set an example in the plant. This case was taken up by the union which was unsuccessful in persuading either the management to reverse the decision or the local political authorities to put pressure on the management. A local newspaper printed the story but nothing came of it. This incident shows that there are pressures on unions to modify their role from that of welfare agent to one of questioning managerial decisions whenever workers feel aggrieved. It also suggests that the authorities are determined, at least in this phase of China’s economic growth, to let managers have greater control over the workplace. COMPARING THE FOUR ENTERPRISES Table 9.3 summarizes the main comparisons across the four enterprises. Once again, we want to repeat our caution that these generalizations are based on data from a small sample, hence should be taken as indicative rather than confirmatory findings. As Table 9.3 suggests, some of the principal differences across the two sectors lie in their structural characteristics rather than in the human resource practices. For example, state-owned enterprises tend to be older and larger with an extensive service infrastructure. Their technology is older and less intensive and their export orientation is weaker compared to joint-venture enterprises. Some of these differences reflect historical developments which will likely diminish with time. We did not see major differences in the area of HR policy and practices. That is not to say that there were no differences. For example, joint-venture enterprises tended to pay more and spend more on training (possibly due to technology but also because of higher quality standards). A major difference lies


in recruitment, selection and dismissal practices. In the joint ventures, hiring was largely free of nepotistic practices that appear to be widespread and institutionalized in the state-owned enterprises. The joint ventures, all of them greenfield sites, have sought to hire the best after careful screening. Once the hiring decision was made, there did not appear to be major differences in terms of policies and practices. Both sectors seem to enjoy Table 9.3 Summary of comparisons between state-owned enterprises and joint venture enterprises State-owned enterprises Structural characteristics Size Plant Age Service Infrastructure Export orientation Technology Human Resource Policies Recruitment & Selection Firing Compensation Emphasis on training Performance evaluation Promotions Wage Grades/Job Classifications Employment involvement Role of the Union Grievance Procedure Workers’ Congress

Larger Older Larger

Joint venture enterprises

Smaller Newer Smaller

Lower Higher Older, less intensive Newer, more intensive

Nepotistic More constraints Lower Lower

Open, based on qualifications Fewer constraints Higher Higher

No difference Promotions in both groups are based on performance. Seniority enters only if all else is equal. Hence, no difference. These comparisons are not meaningful because managers have great flexibility in assigning work without being questioned in both groups of enterprises. No Difference: absent from both. No Difference: a welfare role. No formal procedure. Management prevails after mutual discussions. Hence, no difference. A major voice for workers which can None influence managerial decisions in the longrun.


managerial flexibility in assigning work, at least in principle. In practice, state enterprises faced greater difficulties in assigning ‘hard’ work to the older permanent employees. These difficulties arose from social customs and norms rather than from a rigid job or wage structure. Thus, the number of job classifications and wage grades that became the target of reform in the west in the 1980s appear to be unimportant differences. Managers have wide powers to ignore seniority-based rights that are ubiquitous in collective agreements in North America. Individual performance was assessed (for merit pay and other purposes) by supervisors in both sectors without any serious objections from the workers or the union. The role of the union was also very similar in both sectors in that their primary role was one of workers welfare in general off-work situations and no presence on the shopfloor. A related practice in both sectors is the absence of a formal grievance procedure. Workers’ Congresses were seen as a major voice for workers in the state enterprises but there were no such requirements on the joint ventures. Lastly, neither sector seemed very keen on employee involvement in any form. One plant (CJEC) has a system of employee recognition whereby one can be nominated employee of the month or year by his or her superiors. The recognition brings some material rewards but mostly acclaim from the plant community. It is important to point out that one area of comparison that we did not explore in our research may be a source of major differences across the two sectors. Anecdotal evidence points to a stronger system of accountability in the jointventure enterprises. Joint ventures have clearly defined accounting practices and profit objectives, often imported from the multinationals’ own practices. The accounting procedures and profit objectives in state enterprises, on the other hand, have been heavily influenced by the socialist goals of a central planning system, although these systems are now changing gradually. If this is true, then a host of control and decision-making processes would be different in the two sectors. CONCLUSIONS The evidence presented in this chapter suggests that with economic reforms, China has begun the process of transforming its enterprises. A major influence on change is the joint-venture company that brings multinationals’ technology and management expertise. The process of change, however, is far from complete. In the interim, we see a hybrid system that contains elements of both the multinational and indigenous work practices. These are the beginnings of a process that will eventually make the HRM systems more accountable and more directly tied into the task of economic performance. At present, the main advantage of joint-venture firms over state enterprises lies in their status as greenfield sites; i.e. they have new technology, they are smaller, and they can recruit better-qualified personnel. The HR policies within


the plant rely on a system of proper training and better accountability. Beyond this, we found no evidence that joint ventures were taking advantage of teambased work systems or greater employee involvement in the production process. None of the plants had any specific procedures to deal with sexual harassment on the job. Looking to the future, there is no doubt that with time the differences between the two sectors will diminish through a normal ageing process, which leads inevitably to a diffusion of innovations from one sector to another. Government policy can also accelerate this process by applying similar standards of output, quality and accountability to state enterprises. Meanwhile, the joint ventures need to remember that their initial advantage of youth will dissipate with time. They need to prepare themselves just as much as the state enterprises for the Chinese economy to become increasingly open in the coming years. Moreover, there is clear evidence that the Chinese economy as a whole and the state sector in particular has become more efficient (Jefferson, et al. 1992; Naughton 1992). They need to invest further in their HRM systems to keep them current by world standards, a level that they have not yet achieved. NOTE 1 ISO 9000 is a quality standard for manufacturing processes established by the International Standards Organization.

REFERENCES Casati, Christine (1991) ‘Satisfying labor laws—and needs’, The China Business Review, July–August: 16–22. Chen, Peter Kar-nin (1983) ‘The practice of industrial relations in China: a new approach to the four modernizations’, Proceedings of the International Industrial Relations Association, Sixth World Congress, Kyoto, Japan, Vol. III, Geneva: IIRA. Dunlop, John T. (1958) Industrial Relations Systems, New York: Holt. Economist, The (1992) ‘When China wakes: a survey of China’, 28 November. Frisbie, John and Brecher, Richard (1992) ‘FIE labor practices’, The China Business Review, September–October: 24–7. Helburn, I.B. and Shearer, John C. (1984) ‘Human resources and industrial relations in China: a time of ferment’, Industrial and Labor Relations Review 38(1), October: 3–15. Hoffman, Charles (1981) ‘People’s Republic of China’, in Albert A.Blum (ed.) International Handbook of Industrial Relations, Westport, CT: Greenwood Press. Jefferson, G., Rawski, T. and Zheng, Y. (1992) ‘Growth, efficiency and convergence in China’s state and collective industry’, Economic Development and Cultural Change. Naughton, B. (1992) ‘Implications of the state monopoly over industry and its relaxation’, Modern China.

Chapter 10 Lessons from the Asian experience A summary Anil Verma, Thomas A.Kochan and Russell D.Lansbury

INTRODUCTION The central premise of this study is that human resource policies play an important role in the economic development process. Among other things, we wanted to understand the precise role that human resource and industrial relations policies may have played in contributing to the rapid growth of many of these economies. Specifically, what is the appropriate mix of policies that allows a less developed economy with low wages and low skills to move to higher wages, higher skill, and higher productivity? The success of many high growth economies in Asia has led to the question of whether there is an ‘Asian’ model of economic growth? We pose the same question in human resource terms: are there specific HR/IR responses that characterize rapid economic growth? In this overview chapter, we first review the overall performance of the economies whose cases have been presented earlier. This is followed by a summary of learnings from our results. The last section discusses the conclusions and implications for business and public policy. AN OVERVIEW1 The eight economies included in our study did not all experience high economic growth over the last twenty years. As Table 10.1 shows, Korea, Singapore, Hongkong and Taiwan were the highest growth economies in our sample followed by Malaysia. Over a similar period, the Philippines, India and China grew more slowly. The Philippine economy, despite its relatively poor performance in the 1980s, continues to have the potential for rapid industrialization. Economic reforms came later to China and to India. Thus, these cases provide us with some information during the transition phase from slow to faster growth. The problems facing each of these countries in the path of industrialization are quite different. Our sample includes two city-states, Hong Kong and Singapore, with very small populations; four medium-sized countries with populations


ranging from 18 to 60 million; and, two very large countries, India and China with close to a billion people each (see Table 10.1). Literacy rates are high in all these countries except for India where it is less than 50 per cent. Hong Kong and Singapore depend more heavily on foreign direct investment for economic growth while Korea and Taiwan depend largely on a high internal savings rate to generate investment capital. China and India have only recently liberalized rules for foreign direct investment. This profile suggests that although the challenge of rapid economic growth unites all these countries, the constraints under which they seek solutions vary a great deal. THE EVIDENCE In Chapter 1, we set out a framework for firm-level responses in the area of human resources and industrial relations. To summarize the findings, we review developments in the following key areas: work organization, training and skill formation, compensation, and corporate governance. Table 10.1 GNP and growth indicators Country

1989 Total GNP (US$ billions)



1989 Real GDP GNP per capita annual growth per capital rate (%) (PPP$)*

Hong Kong 59.2 15180 6.2 5.7 India 287.4 910 1.5 3.2 Malaysia 37.0 5649 4.7 1.9 Philippines 42.8 2269 3.2 −1.8 Singapore 28.1 15108 8.3 5.7 South Korea 186.5 6117 7.3 8.8 Taiwan n/a n/a n/a n/a China 393 2656 4.1 8.2 Source: United Nations Development Programme (1992) *PPP$ is defined as Purchasing Power Parities. It is the use official exchange rates to convert the national currency figures to US dollars to develop an


Table 10.1 Key indicators Country

1991 populati on (million)

1989 % workforc e in agricultu re

1991 unemplo yment rate (%)

1991 literacy rate (%)

Foreign Exports as a % of direct GNP*** investme nt as a % of GDP* 1985– 1987



Hong Kong India Malaysia Philippin es Singapor e South Korea Taiwan* * China








843.60 18.17 62.10

62.6 41.6 41.5

n/a 5.6 9.0

48.2 78.4 89.7

0.2 8.7 3.9

4.9 54.8 17.8

6.2 72.6 18.5
























2.5 n/a 2.2 7.3 20.7 (1990) Source: Asian Development Bank (1991) Notes: * United Nations (1992) ** Council of Economic Planning and Development (1993) *** Exports are in terms of the f.o.b. value. For Hong Kong, the base is the GDP, not the GNP. For the Philippines and Korea, exports given in US dollars were converted into local currency using an average exchange rate for the year

Singapore Singapore more than any other country in our sample illustrates the central role of human capital investment in the economic growth strategy. Through much of the 1960s Singapore attracted foreign investment on the appeal of low-wage labour. Labour-intensive, export-oriented manufacturing industries were sought by the government. Close on the heels of this phase of success, Singapore began to upgrade skills beginning in the early 1970s (Chew and Chew 1995). In 1973 an open door policy for foreign professionals and skilled workers was announced. In 1974 a training scheme jointly funded by the government and the private sector was announced. This was followed in the early 1980s by a ‘high’ wage policy that encouraged expansion into higher value-added service industries such as financial and other specialized services.


The overall strategy of moving up the skill ladder is also evident at the firm level where HR policies and practices are geared towards improved competitiveness. Increased competition has transformed HR to a more proactive role that supports the strategic goals of the enterprise. In one-third of the Singapore multinationals, the CEO is in charge of the company’s HR functions. The status of the HR function is therefore high. In 1960 under conditions of high unemployment and low wages, ‘Tayloristic’ work organization—narrow job descriptions and clear lines of demarcation between individual jobs or separation of execution of work from supervision— was the norm. There was a scarcity of jobs which made workers only too grateful to hold a job. In the 1970s, the growing shortage of labour initiated job redesign. For example, the excessive demand for clerical staff led to a redesign that made the clerical job more broad-based in scope and flexible. Also many professionals with the aid of technology became adept at working without the help of clerical assistance. Surveys reveal that the vast majority of firms have implemented some form of flexible work arrangement. These include increased shift work, part-time work and subcontracted work. Workers are also being encouraged to take part in work safety and quality enhancement programmes. Consistent within the high wage policy, the government has built an excellent educational infrastructure. In terms of training, the Skills Development Fund was set up to ensure investment in training at the plant level. All firms have to pay a mandatory percentage of their total wage bill to the Fund which is then used to subsidize training. In a 1990 survey of HRM practices, 81 per cent of companies indicated some sort of formal training for their employees. The national policy on wages is to keep it in line with productivity growth. During the period 1963–71 the national wage restraint policy was used to ensure that wages did not rise too quickly. Since 1987, a flexible wage system has become popular, under which a variable bonus is tied both to the company’s and the individual’s performance. Seniority alone cannot command higher wages. The full employment economy has led to a persistent shortage of workers. Thus, most workers enjoy a high degree of employment security. The flexible wage system did encourage some labour turnover among workers who resign after receiving the year-end bonus. Due to high labour costs, Singapore is increasing its reliance on foreign labour which is cheaper but subject to government approval. There is increased female employment which has led to flexible work arrangements to retain the married female workforce. The contingent labour force will continue to grow but it is not clear if they would enjoy comparable job security. Korea Korea has witnessed high economic growth and a stable supply of labour due to repressed labour rights. The state heavily regulated the labour market by banning union activities in 1938 and severely repressing labour rights even in the 1970s.


Such repression was seen as a necessity by those in power. To them, these were the only means with which to ensure industrial peace and thereby promote exports and economic growth. Arguably this was to allow the maintenance of good wages to support worker welfare. During the repressive period, management’s role was weak and inactive in the area of industrial relations. The 1987 revisions of labour laws helped improve industrial relations and made collective bargaining an important method for determining working conditions. Under the revised laws, employees have full freedom in exercising basic labour rights to organize. Trade unions are usually formed at enterprise level. Unions have more interest in firm-specific issues than economy-wide issues. Since 1989 industrial relations have become somewhat more stable with near full employment in the labour market. In Korea, work organization has been influenced by the Japanese-style factory system as it was also by the authoritarian military command system in the 1960s. Some large assembly line production facilities have traditional Tayloristic management systems, but without the supporting subsystems such as thorough job analysis and job evaluation. Up to 1987 there was little chance of employee voice at work because of repressive policies, particularly in regard to the labour movement. New production systems (i.e. broad job categories, teamwork, worker selfregulation of quality control and flexible deployment of labour) are not yet heavily practised, but some of the larger firms in different industries (e.g. steel) have shown increased use of small team-based work organization. The challenge for Korea, given the recent shortage of production workers, is to develop better systems of work organizations to achieve high productivity and maintain a stable workforce. The importance of skills training is expected to rise in the future as a tool to increase the efficiency of human resources. Accelerating automation of work processes has decreased demand for clerical, semi-skilled and non-skilled employees, while an increase in the demand for professional, research and technical workers is evident. There is a high interest among workers to participate in decision making and further training, but employers are often less enthusiastic. Since the 1980s there is increased enrolment at colleges and other higher education institutions, but technical high school and junior vocational school enrolment has decreased. The government has established centres for vocational training. Although multi-skilling has not diffused widely across all industries, it has been practised in electronics firms where on-the-job training and job rotation are prevalent. Generally wages are high compared to other developing countries. Before 1987 the state played a major role in wage determination and wage restraints. The government has tried to hold down wage increases, but it has been difficult since 1987 with strengthened trade unions. There have been significant wage increases over the past five years—real wage increased by 43 per cent for all industries and 71.5 per cent for the manufacturing sector.


Education is a primary factor in determining an individual worker’s entry level wages, followed by seniority. Individual worker wages can also be influenced by age and sex. Pay-for-performance has not become very popular. In some blue-collar workplaces performance-based pay systems have been abolished because trade unions claim that wages should meet the cost of living and increase by a flat sum. Korean workers in general enjoy a high degree of employment security. The employer cannot dismiss, give temporary layoff, suspend, transfer, reduce wages, or take punitive measures against workers for unjustifiable reasons. The scope of laying-off workers due to business restructuring is limited in Korea. Lay-offs are permissible only if there is little possibility of overcoming business difficulties (i.e. near bankruptcy) and fair criteria are used for selecting workers. The number of permanent workers in firms has decreased since 1991. With rising labour costs some labour intensive work has been contracted out. There is increased use of dispatched workers from agencies (it is actually illegal), guest workers, and foreign workers. Taiwan From 1946 to 1960, Taiwan had a repressive government labour policy that resulted in an authoritarian system of industrial relations. From 1961 to 1980, this system gradually gave way to more paternalistic industrial relations and an inactive government labour policy. From 1981 to the present time period, a modern industrial relations system and an active government labour policy has begun to emerge. For example, there are now some restrictions on employers’ rights, e.g. overtime cannot exceed 36 hours per month for men and 24 hours per month for women. The movement towards capital intensive industries in recent years has reshaped work tasks. The rapid development of skill intensive industries became evident after 1981. Company-sponsored training programmes were not popular in the 1970s. The few programmes that did exist were in the textile, electric machinery, chemical products, and food and petroleum processing industries. These are the industries where expansions due to technological changes were most evident. As a vehicle for skill formation, apprenticeships are not common in Taiwan. Foreign-owned firms have traditionally offered more on-the-job training programmes than did local firms. The lack of job security and high turnover make it difficult for employers to recover training costs. Overall, there is a high level of educational attainment of the workforce which has provided workers with an excellent ability to learn production skills. Because wages are determined by labour productivity and not by institutional factors, real wages have increased steadily even though there was practically no protective legislation before 1984. In fact real wage rates in Taiwan have doubled every ten years since the 1960s. For these reasons, workers are generally not considered to be exploited by their employers at least as far as wages are


concerned. The government did maintain a low minimum wage policy throughout this period. In order to attract blue-collar workers employers often offered free company transportation, meal allowances, housing allowances, life insurance, company-sponsored outings, movies and recreational programmes. The Taiwanese economy is characterized by high worker mobility. The average length of service for a 20–24-year-old male worker was 1.6 years in 1992. Employment continues to shift from manufacturing to service industries. In general, white-collar workers have more security than blue-collar workers. The Taiwanese economy is firmly built on a foundation of small businesses. Consequently, the industrial relations and human resource management systems are both simple and less formal because firms lack the economic scale to staff these departments with professionals. Recent changes in organizational structure have been in the direction of introducing more flexibility, greater attention to worker efficiency and skill development. The fluidity of the workforce reduces workers’ desire to join unions because they move around different workplaces. Since movement towards democracy began the government has been a strong supporter of worker protection. This policy has resulted in a series of pro-labour legislative acts and policies. Hong Kong The business environment in Hong Kong is characterized by a free port, free trade practices, convertible currency, low taxation, unregulated labour market and no industrial policy. This context creates a need for entrepreneurs and workers to be flexible in adapting to international and domestic market forces. Consequently, a strong work ethic along with self-discipline, diligence, and obedience to authority are crucial ingredients of Hong Kong’s economic progress. The IR/HR management style varies a great deal across industries. For example, the style in Shanghainese textiles combined features of both authoritarianism and benevolent paternalism, but it was mostly an economicrational relationship, i.e. with the emphasis on monetary rewards and incentives. In Cantonese factories the human relations are based on key features of ‘affectivity’ and ‘face’. In American electronic firms Tayloristic scientific management rules apply with more careful attention given to budgeting, cost, quality, and inventory control. In the large banks the process of computerization has affected work organization most conspicuously. Job performance now lays emphasis on ‘individuals sociability, demeanour and hospitability in dealing with clientele’ rather than on monetary transactions and administrative control. The government has expanded its role in skill formation in general by playing a more active role in investment in the educational infrastructure. In 1965 the Industrial Training Advisory Committee stressed the need to train sufficient technical personnel if Hong Kong is to remain competitive internationally. Since then there has been increasing emphasis on education at all levels including


vocational education. The average Hong Kong worker has a high degree of educational attainment which allows him or her to learn skills quickly on the job even though workplace training systems are informal and weak. In industry, apprenticeships are based on learning through watching and imitating rather than on formal curriculum and technical instruction with rationalized training systems. Many Chinese employers adopt a short-term perspective of employment which makes the long-term training expenditure on unjustifiable cost. Large British enterprises use more organized systematic training programmes and invest in ‘core’ employees to encourage enterprise commitment. These firms try to increase employee commitment by offering prospects of skill upgrading and career advancement. To attract and retain valuable employees many companies provide expanded welfare benefits such as free or subsidized meals, free transport to work, free accommodation for single workers, medical treatment and death gratuity. Use of performance-oriented piece rate pay systems is increasing in factories. A 1980 survey of female production workers in manufacturing showed that 46.4 per cent of the workers in textiles were on piecerate compensation compared to 48.6 per cent on daily rate compensation. Hong Kong employers are also known to have a large degree of discretion over bonuses and the increase or decrease of benefits to workers. Only a small proportion of workers in most industries enjoy relative employment security and fringe benefits, namely, those on permanent status. Casual and temporary workers receive fewer fringe benefits and their positions are less secure with little opportunity for promotion. Government policy is promoting ‘continuous employment contracts’ where a better educated workforce can have more security and remain in employment and reduce their mobility. There is evidence of significant stabilization of workers’ attachment to particular firms. A rapidly changing environment is increasingly pushing companies towards rationalization, internal restructuring and a focus on labour productivity, labour usage and overall organizational efficiency. Development of viable publicprivate partnerships for training is likely to be a major challenge. Malaysia Malaysia has received massive foreign investment in the last twenty years, much of it from Japan. The export trade in manufacturing has been booming. The ethnic distribution in Malaysian society, i.e. 54 per cent Malays, 27 per cent Chinese, 16 per cent Indian, has influenced industrialization and human resource development strategies. The workforce is employed primarily in low cost labour intensive manufacturing for exports. Along with industrialization, improving the economic position of Malays has been an important priority. The State has set employment quotas for Malays under the New Economic Policy (NEP). Firms must meet these quotas to qualify


for import protection, tax holidays and direct state investment. Although some progress has been made under this policy, the economic gap for Malays persists. The 1980 Heavy Industries Policy (HIP) was also geared to achieve objectives of accelerating industrial growth and improving the economic position of Malays. Under this policy, the state played a leading role in establishing large scale, capital intensive, import substituting industries to provide industrial goods and consumer durables for the domestic market. Malaysian unions are controlled by the state through the union registration process. Unions can affiliate with each other as long as the purpose of affiliation is for relations between workers and not for trade union purposes. Thus, unlike their Singapore counterparts Malaysian unions are independent but labour laws are so restrictive that their independence does not translate into commensurate power at the bargaining table. Fordist-style management exists in the export-oriented multinationaldominated semi-conductor industry. Production operations are run under an authoritarian management style, with little flexibility or worker autonomy to decide start and stop times. There is a gradual move to more high technology based production and the use of Japanese production methods such as quality circles and just-in-time techniques. Texas Instruments has introduced this new form of production. The use of self-managed teams gives employees more input in decisions on the shop floor. As a result turnover rates have been reduced and employee commitment and loyalty has increased. There is little evidence of training in Malaysian manufacturing in general. It exists primarily in Japanese-owned electronics assembly firms where use of onthe-job training, variations of job rotation and some technical training for production methods is evident. The language barrier between Japanese managers and Malaysian workers is a significant constraint to skill development. Also, training is mostly emphasized for technicians, engineers and managers rather than for workers. There is an obvious need to upgrade skills given recent labour shortages and increased demand for skilled labour from industry. There is relatively higher technological and educational investment in Penang where the government has acknowledged the importance of training. At the plant level, Japanese style enterprise unions have been introduced. The objective has been to develop flexible labour-management relationships and decision making based on joint consultation, long-term employment contracts, and increased employee involvement. While these objectives have been achieved to some extent, this system has also kept the labour movement fragmented, small, and responsive to particular conditions of their industries. Traditional forms of wage payment such as seniority-based pay dominate the Malaysian workplace. At the present time, labour costs are rising much faster than labour productivity. This may be attributed to high rigidity in the wage system: non-adjustable contractual bonuses, pre-determined automatic annual adjustments, fixed scale wage with annual increments, and annual bonuses independent of firm performance. Few flexible pay arrangements exist in the


manufacturing industry, i.e. performance-based or group-based pay. Only 3 per cent of manufacturing firms operate based on a profit sharing performance pay system. In the electronics industry piecerate pay systems can be found. Unions generally oppose these flexible pay systems and demand the introduction of minimum wage legislation for the whole economy. Job security is not well entrenched in Malaysia. The dominant strategy is to downsize the core labour force during economic downturns. Continuous improvement of production technologies have resulted in workforce reductions. Other labour shedding methods include retrenchment, recontracting, contracting out, temporary shutdowns and use of temporary or casual employment. Another tactic is to extend the probationary periods without the promise of permanent employment. Labour shortages in the 1990s has, however, forced many firms in the electronics export industry to retain workers for longer periods. The shortage of unskilled workers is being met by the use of foreign workers who have no legislative protections for the governance of their employment and whose working conditions and wages are much lower than for Malaysian workers. The industrial relations strategy in Malaysia is to focus on cost containment to facilitate the competitive strategy of low cost exports, and on the need to attract foreign investment. Clearly, if better gains are to be made in productivity, increased participation of all the actors in industrial relations and human resource policies are essential. The government has yet to develop HR/IR policies for the long-term. Albeit, a process of re-thinking economic policies, and moving toward a higher skill, higher wage, higher value-added economy is under way. Philippines Since export-oriented industrialization (EOI) in the 1970s, the manufacturing industry has increasingly introduced changes in IR/HR practices. Large Filipino companies, Filipino-Chinese enterprises, joint ventures, and foreign-owned corporations have adopted practices such as quality improvement, process improvement, and employee involvement programmes. The level of technology development and sophistication varies across and within industries. Auto assembly and drug-compounding industry, for example, operate under an import-substitution strategy while electronic assembly operates under an export-oriented strategy. The rapid rate of computerization and automation has caused a shift towards a more skilled workforce. Although quality circles were introduced back in the 1970s, they were not considered successful due to lack of interest among rank-and-file workers. Generally, unionized firms have a higher rate of innovation than non-unionized firms— perhaps because unions tend to organize in firms with higher capitalization whereas non-union firms tend to be more ‘low-tech’ in character. In the Philippines, there is an increased tolerance of unions by both government and management. Significant labour reforms and strong government intervention have created a system of compulsory arbitration, creation of the


labour court to protect labour and promote industrial peace by regulation of labour-management relations. New approaches to labour relations governance include increased use of labour-management councils at the plant-level. These councils have promoted proactive bipartite relations and led to the institutionalization of tripartite consultations and the depoliticization of the minimum wage issue. Unions have done a great job of pushing the government to enact laws protective of labour. The labour movement is generally united on the issue of minimum wage adjustment through legislation. During 1986–1990 wage campaigns by trade unions caught national attention and they succeeded in getting the government to legislate a hefty increase in the minimum wage (from P6 to P25). At the enterprise level, employers and IR/HR managers have learned to cope with labour militancy and to adopt all kinds of IR/HR approaches suitable to their enterprise such as increased utilization of flexible labour. Since the 1960s, growth in domestic manufacturing and a vigorous entrepreneurial class, the development of the export-oriented industry have diversified the labour market. Industrial relations and human resource departments of big companies have been setting up their own plant-level councils to maintain communication lines with their unions. Top management also participates in symposiums and consultations, whereas in the past the tendency was to delegate all labour problems and issues to labour lawyers and HR/IR managers. HR/IR managers’ role is increasingly becoming more complex. Many are now working towards a union-free environment where employee-management consultative councils would substitute unions. Since 1985 there has been a proliferation of consulting firms that specialize in improving labour-management relations. Investment in skills and training is most evident among secure well-paid jobs. Most semi-skilled workers generally get on-the-job training at the time they start work. Retraining and upgrading programmes exist but mostly in unionized firms where there are higher levels of technical innovation and research-intensive undertakings. The government has been encouraging the use of apprenticeships but it has not yet become very widespread. India Structural adjustment policies, introduced in 1991, are perceived to result in job losses in the short run whatever the long-run consequences. In the absence of social insurance and unemployment benefits, there is widespread concern about the fallout from a thin organized sector employment becoming even thinner in terms of employment. Over 90 per cent of the workforce is employed in the unorganized sector and less than 10 per cent (26.75 million) in the organized sector. The five-year development plans have consistently created fewer jobs than expected.


Changes in labour legislation (1975) require prior permission from government for lay-off, retrenchment and closure. The role of the state has weakened, however, over time due to budgetary deficits and structural changes. A major problem in the legal framework is the plethora of legislation and inadequate machinery for implementation. Another key problem is the lack of trust—workers consider employers as paisa chor (swindlers of money and appropriate surpluses from the enterprise) and employers consider workers as kam chor (lazy people who shun work). HR as a strategic element in corporate governance has not been a priority by many companies because the sheltered economy severely limited competition. With the abundance of labour supply, government regulation of employment practices and the weakening of union power, human resource development and investment is not a top concern for business executives. Indian competitiveness in terms of its human resources is considered to be low. The 1992 UNDP Report on Human Development Index (considering life longevity, adult literacy/knowledge, and decent standard of living (per capita income) ranked India 134 out of 160 countries. As jobs change from single task/ narrow skill jobs to more broad-based multiple task/skill jobs, more training will be necessary. These changes will take time, and will continue to be applicable only to a small proportion of the workforce. Over 55 per cent of the workforce is illiterate and nearly another 10 per cent are literate without any educational qualifications. The liberalization of the economy in 1991 has clearly intensified competitive pressures and there is no doubt that there is an increasing emphasis on skill development. However, the challenge remains immense for India given its size. Since independence from Britain in 1947, various schemes for employee participation/consultation at company and shop-floor levels are evident in some companies. Works committees introduced under the Industrial Disputes Act (1947) provided for participation of elected representatives of workers to secure and preserve good relations between employer and workers. Other forums include canteen committees, safety committees, joint management councils (JCM), and a plan to give stock options to employees (1985). Although some old companies are finding it hard to reduce levels of hierarchy and job classifications and to introduce multi-task and multi-skilled work systems, others have succeeded. Changes in workplace practices take place only when both labour and management perceive a sense of urgency for change. These changes are occurring in more of a reactive rather than proactive mode. In the last two decades considerable innovation and experimentation on the shop floor is evident. However, much of it is not sustained in many organizations. The principal thrust of management here is to gain greater flexibility in the organization of work and the allocation and utilization of human resources. Workplace changes point to reduction in manufacturing employment and downsizing and consequently, increasing vulnerability of unions due to technological, economic, and structural changes.


Compensation remains primarily seniority-based with cost of living adjustments based on inflation. Wages are not linked to productivity or profitability. There is practically no publicly provided safety net for workers, hence, employers are responsible in large part for worker welfare. China Like India, China has only recently begun to liberalize its economy. There is an all-out effort to attract investments for export-oriented industries. With the liberalization of imports, there is declining emphasis on import substitution. The state has been the dominant player from 1949 to 1979 when economic reforms were first introduced. But, given its size the challenges for China in terms of developing its human resources remain daunting. State policies are largely influential in the general governance of many companies. Employees and unions continue to have little influence in corporate decisions. The movement to more firm-level flexibility and more joint venture enterprises may bring about innovations which may include more employee involvement programmes. During 1949–79, the central planning priorities of the state and state level HR policies together gave shape to firm/enterprise level HR policies. In this system there has been little employee involvement, and no evidence of team-based work arrangements. Companies generally have absolute rights in assigning and moving workers and on occasion even refusing their resignation. Under the communist system, the union is assigned more of a welfare and education role. They have to communicate socialist goals to the workers. They have a limited capacity to bring forth labour concerns or influence the organization of work. Newer state-owned companies are considering introducing multi-skilling, but most have not yet done so. Also joint venture enterprises which are greenfield sites tend to have higher quality standards, and a stronger system of accountability. These joint venture companies bring in multinational technology and management expertise; this definitely gives them a competitive advantage at least in the short-run. There is a trend in some companies of strengthening their training and retraining for employees, but most companies have not developed a training plan. Old methods still prevail, i.e. apprentices learning on the job. In the 1980s some companies sent their employees for further education at universities at the company’s expense, but more companies prefer to simply hire educated individuals directly from university rather than spend money on training them. Employers often pay for employees children’s education, and it is not unusual to have these children, once they are of working age, work for the same employer. During 1949–1979, all wages were set by the central planning authorities. Firm-level policy-making was largely constrained. In the post-liberalization era, product market considerations demand more flexibility. China still supports a low


salary and high welfare system. Workers’ income consists of a basic salary, worked-year salary, various subsidies (medical care and housing coverage), and bonuses. Companies carry a heavy financial burden for employees. They cover welfare, and are also often required to maintain coverage for surplus employees. Companies do not have the right to lay off workers. Salary is generally determined by education and experience. There is high employment security for permanent positions. Most permanent workers come from the old system of publicly-owned enterprises and they generally expect life-long employment security. Government regulations also restrict the rights of employers to lay off permanent workers; often a company carries a workforce surplus and continues to pay its workers even if there is no work for them. High labour costs and inefficient work practices often are a high financial burden for companies. Since 1979, the state has pushed more employment on the contract system. Casual or contracted workers can have their employment discontinued more easily. This attempt to make it easy for firms to adjust labour may result in greater efficiency but it is also creating a less secure form of employment which is open to abuse. HUMAN RESOURCES AND SUSTAINED ECONOMIC GROWTH This summary of evidence from the chapters can now be used to develop an overview of the economic growth process and its links with policies in the area of human resources. A less developed country begins the process by creating some initial conditions conducive to investment (see Figure 10.1). In human resource terms this may translate into low wages and, possibly, low unionization. This attracts initial investments and businesses can make money by arbitrating these labour market conditions across markets where wages are higher. As investment increases over time, the initial labour market conditions inevitably change. There are pressures on wages to rise as there are also growing demands for unionization and collective bargaining. These may be called secondary conditions of the labour market because they follow the initial spate of investment. The result of secondary conditions developing in the labour market may be to reduce the initial advantage that attracted new investment in the first place. The secondary conditions present the state with a critical juncture in the development process. The state appears to respond in two ways. The first is to undertake a series of measures that would maintain the advantages of the initial conditions. These policies may include wage controls and suppression of unions and collective bargaining. This is presently most evident in Malaysia and Thailand (Frenkel 1993). The second response is to adapt to the secondary conditions, a process in which firm-level responses are as significant as state-level policies. Some of the ways in which adaptation in human resource terms occurs are to link wages to productivity and to upgrade skills by investing in training and


Figure 10.1 Economic growth and human resources

education. In a virtuous cycle, businesses upgrade skills to increase value-added production which makes them more profitable, and hence, they are able to pay higher wages to their workers (Birdsall and Sabot 1995). At the firm level, greater training, more performance-based pay (as opposed to seniority-based pay), flexible work organization, and greater employee involvement in the production process would lead to conditions conducive to greater value-added production. At the state level, incentives for firm-level training, creation of a training fund at the national or sectoral level, and productivity-driven wage policies are some of the ways in which governments have responded to the secondary conditions. It may also include a variety of ways in which the state could provide greater voice. The state may co-opt and include unions in national policy making (Singapore) or provide greater freedom after a period of suppression (Korea and Taiwan) (Frenkel 1993). These adaptations essentially create new factors of competitive advantage leading to further investment and growth. Another important theorem of the adaptation process is that public and private investments in skills must complement each other for sustained growth. In the absence of a public infrastructure for education and a reliable supply of educated workers, businesses will be hesitant in making new investments or in upgrading existing operations. On the other hand, education alone will not guarantee upgrading to higher value-added production. The firm must invest in a variety of on-the-job skills such as problem-solving, interpersonal skills, and functional skills. Thus, the state is not only responsible for investing in a public skill


development infrastructure but also for ensuring that private firms make commensurate investments in training. Although the two responses (shown in Figure 10.1) appear to be alternatives, in practice, a government may choose to follow a bit of both. In the case of Korea, the government pursued both responses for a number of years. In Singapore, the union was not suppressed in the same way but its independence was compromised when it was co-opted into the state policy making process. In Malaysia, unions are independent but the labour laws are restrictive. The pursuit of both responses best illustrates that a simple link between labour suppression and economic growth cannot be drawn. It is not clear if any of these economies would have been as successful if they had only pursued the first response, i.e. labour suppression, without the adaptation response to secondary conditions. Thus, our evidence suggests that the success of these economies can not be explained purely in terms of labour suppression as has been argued by Deyo (1989) and others. Freeman (1993) has also argued that labour suppression alone is an inadequate explanation for the economic success of East Asian economies. Both China and India are experiencing the kind of inflation that comes with increase in investment and high growth rates. China has had to devalue its currency more than once over the past five years to maintain its wage advantage. Otherwise, inflation would make domestic goods more expensive abroad and, consequently, slow down the export-oriented investment that is flowing into the country, Of course, the situation in India and China is not directly comparable to other smaller countries in our sample because both these countries have very large domestic markets of their own. This may reduce the incentive to adapt by moving to higher value-added products. In that case, both China and India may go through an expansionary phase during which lower value-added production will expand to meet unmet domestic demand while the currency is devalued to maintain external competitiveness. We may not, therefore, see the adaptation process evident in Korea, Taiwan, and Singapore for another few years. Yet, the pressures to adapt to a higher value-added, higher skill economy will always be present. India and China will need large capital investment to build the production capacities. Many of these technologies will be imported because neither country is a leader in new technologies. To pay for these capital goods both countries will need to export goods of their own at world prices and quality, a task which will not be easy unless there are consistent investments in human capital. CONCLUSIONS This study was an initial attempt at understanding the role of human resource policies at both micro- and macro-levels in facilitating rapid economic growth. Each of the chapters addresses this central concern within the constraints of available data. The conclusions drawn here will be subject to more rigorous examination in the future as more detailed data, particularly at the micro-level,


become available. With this caveat in mind, we offer two principal conclusions of this study. First, the response of both business and public policy to secondary conditions in the labour market appears to influence the trajectory of economic growth. This is a critical juncture in the developmental history of all the economies in our sample. Some governments respond to rising wages and growing demand for worker voice with suppressive measures whose intent is to reverse the clock to regain the initial sources of competitive advantage such as low wages and ineffective unions. Other governments respond in more measured ways to accommodate the secondary conditions. There is no ‘Asian’ model of these responses because not every country has adopted the same path. But, in all the cases where growth has been sustained, governments try to accommodate secondary changes in the labour market rather than try to regain the initial advantages. Suppression of unions can and has played a limited role in responding to the secondary conditions in the labour markets. But, this approach does not, of its own, guarantee success. Much more important are the choices that governments and businesses make in other areas of policy such as education, training, productivity-linked wages and of course in technology, trade, and investment. Independent unions have been suppressed in Korea for many years under a militaristic regime but during the same period very high levels of investment were made in human capital. Hong Kong with independent unions, has pursued a noninterventionist policy in labour relations. Thus, our study does not support the notion that suppression of unions has been a key factor in the success of these economies. The second conclusion is that successful adaptation to the secondary conditions in the labour market require that corresponding changes are made in both public and business policy. Unless the changes in public policy match those in business policy, the adaptation would be unable to sustain growth. In other words, our study suggests that neither the state nor the business can do it on its own. We conjecture that the need for this partnership may be derived from the very nature of investment in and accumulation of human capital, whose returns are both social and private. Thus, the necessary investment cannot occur if policies at the state and the firm level were not concerted. Singapore, Taiwan, Hong Kong, and Korea have built excellent infrastructures for education and training (Ogawa et al. 1993). Malaysia has embarked on a similar path. China and India have an adequate supply of skilled manpower for now but as growth picks up, they will feel the need to invest larger amounts in a better educational infrastructure that would encourage businesses to do more value-added work in the country.


Implications for policy These conclusions suggest close coordination between state and firm level policies in the area of human resource development. The state must invest in a public infrastructure for all levels of education. It also needs to create a framework for ensuring that private investments in training take place consistently. This can be done in a variety of ways including incentives, a national or sectoral training fund, etc. The main point is that the state can not be neutral to or detached from the issue of whether significant amounts of private investment are taking place on the shop-floor. Firms need to develop strategic plans for its long-term future in the country or the region. Unless these business plans warrant further investment in skill development, it is unlikely that the firm would place much emphasis on training. A short-term orientation for the firm is unlikely to result in investment in training. The World Bank with the aid of a number of research studies, has concluded that even though each country in East Asia has followed its own path to development, three factors have been present in each case of accelerated economic growth: an orientation to markets outside its borders, macroeconomic stability, and investing in people (Leipziger and Thomas 1993; World Bank 1993). Our study reinforces this message that there is no way out of investment in skills if high rates of economic growth are to be achieved and sustained. NOTE 1 In this chapter we will refer to our sample as a group of economic systems rather than countries. This is to avoid the complications from the debate over whether Hong Kong and Taiwan are separate countries or part of China. Our objective is not to enter the political debate but rather to compare different economic systems. The authors wish to thank Ella Patel for helpful research assistance.

REFERENCES Asian Development Bank (1991) Key Indicators of Developing Asian and Pacific Countries, Vol. 22, Philippines. —— (1992) Key Indicators of Developing Asian and Pacific Countries, London: Oxford University Press. Birdsall, Nancy and Sabot, Richard (1995) Virtuous Circles: Human Capital, Growth and Equity in East Asia, Washington, DC: The World Bank. Chew, Soon Beng and Chew, Rosalind (1995) Employment-driven Industrial Relations Regimes: The Singapore Experience, Aldershot, Hants, UK: Avebury. Council of Economic Planning and Development (1993) Taiwan Statistical Data Book, Republic of China. Deyo, Frederick C. (1989) Beneath the Miracle: Labor Subordination in the New Asian Industrialism, Berkeley: University of California Press.


Freeman, Richard B. (1993) ‘Does Suppression of Labor Contribute to Economic Success? Labor Relations and Markets in East Asia’, mimeograph prepared for the World Bank, Washington, DC, August. Frenkel, Steve (ed.) (1993) Organized Labor in the Asia-Pacific Region, Ithaca, NY: ILR Press. Leipziger, Danny M. and Vinod, Thomas (1993) The Lessons of East Asia: An Overview of Country Experience, Washington, DC: The World Bank. Ogawa, N., Jones, G.W. and Williamson, J.G. (eds) (1993) Human Resources in Development along the Asia-Pacific Rim, London: Oxford University Press. United Nations (1992) World Investment Directory 1992: Volume I, Asia and the Pacific, New York. United Nations Development Programme (1992) Human Development Report, New York: Oxford University Press. World Bank (1993) The East Asian Miracle: Economic Growth and Public Policy, London: Oxford University Press.


Note: most entries are listed as sub headings under the major Asian countries — namely China, Hong Kong, India, Korea, Malaysia, Philippines, Singapore and Taiwan Accornero, A. 4 Adler, P.S. 4 Ahluwalia, J.J. 253, 264 Aquino, B.S. 217 Aquino, C.C. 201, 207, 210, 218–22, 224 Arensman, R. 168, 179 Ariff, M. 165 Arudsothy, P. 158–91 Arul, F. 176 Asian Productivity Organization 139–41 Association of South-East Asian Nations 188 Aurox laws (1992) 9 Australia 4, 6; corporate governance 16, 18; Council of Trade Unions 18; Industrial Relations Commission 10; job security and staffing patterns 14–15; skill formation 11; work organization 9, 10 Ayyadurai, D. 167, 174, 185

blue-collar workers 108, 112; compensation 13; corporate governance 16; and Hong Kong 151, 344; and India 274, 287, 349; industrial accident rates, fatal 99; job security and staffing patterns 14; and Malaysia 159; skill formation 11; and Taiwan 113; white collar workers 109, 112; work organization 9 Bush, G. 319 Cambodia 186 Canada: and China 319, 325, 329; compensation 13; corporate governance 17–18; industrial accident rates, fatal 99; and Malaysia 183; skill formation 11; work organization 9 Castells, M. 119, 134 Chae-Seo, Kang 50, 52 Chan, J. 152 Chang, Chingh-Hsi 97 Chaykowski, R. 4 Chen, P.K. 330 Chew, R. 62–86, 339 Chew Soon Beng 62–86, 339 Chiang, S.N.C. 125, 127, 133

Baik, R. 48 Baldwin, R. 198 Bamber, G.J. 3 Barnard, A.L. 169 Belgium 108, 109, 112, 113 Birdsall, N. 352 Bot, T.O. bin T. 166, 172 Bowie, A. 159, 161, 162, 163 Brazil 315 Britain 3, 4; 319


Chiao, Ching Kae 101 China 315–34, 336, 350–1, 356; Changjiang Energy Company 325–8, 333; Communist Party 315, 324; conceptual framework 317–19; danwei 319; economy 316–17; employment security 323–4; enterprise 319–25; generally accepted accounting principles 328; gross national product 315, 338; growth 337, 353; and Hong Kong 120, 131–2, 136–7, 145–6, 148–9, 151, 344; human resource management 316–25, 331, 334, 350, 353; and India 296; indicators 327, 338; joint venture enterprises 332; and Korea 27, 28; labor market conditions 320–5; and Malaysia 159, 161, 162, 175, 184, 345; and Philippines 226, 228–9, 347; recruitment 322–3; research 21, 22; salary 321–2; and Singapore 62; state-owned enterprises 332; Steel Corporation 93–6; and Taiwan 90, 97; Tong Guang-NorTel Co. 326, 327, 329; training 324; unions 324–5; welfare 321–2; Workers’ Congress 328, 333; Wuhan Gauge and Meter Company 326, 327, 328; Yangtze Optical Fibre and Cable 326, 327, 329–31 Chiu, S. 131, 132, 133, 135, 151, 152 Cho, Hyung-Je 50, 52, 54 Choi, Jae-Hyun 51 Choi, Jang-Jip 34 Chun, General 33

Cole, R.E. 4 compensation 12–13, 25; see also under individual countries Concepcion, J. 221 Consultative Group of Creditor Countries 199 corporate governance 15–18, 26; see also under individual countries De 295 Deyo, F.C. 19, 34, 90, 97, 133, 353 Djao, W. 127, 131 DOLE 227, 229, 231 Dore, R. 3, 4, 126 Drilon, F. 220 Druke, H. 6 Dunlop, J.T. 2, 3, 270, 317 Dutchie, S. 169 Edwards, P.K. 4 employment 24–6; see also under individual countries England, J. 121–8 passim, 130, 132, 133, 147–9 Europe 3; and China 319; compensation 13; and India 272, 296; job security and staffing patterns 14, 15; and Korea 51; skill formation 12; and Taiwan 88 European Community see in particular Belgium; Britain; France; Germany; Italy; Luxembourg; Netherlands Evangelista, C. 206 export-oriented industrialization 19; see also under individual countries Fallon, P.R. 258 Fields, G. 34, 38 Ford, H./Fordism 9–10, 49, 176, 182, 345


France 3; blue-collar workers 108, 112; industrial accident rates, fatal 99; job security and staffing patterns 15; skill formation 11; and Taiwan 107, 113; white-collar workers 110, 112; work organization 9 Frankel, S. 159 Freeman, R.B. 353 Friedman, M. 119, 133 Friedman, R. 119, 133 Frenkel, S. 352 Frensen, J. 259 Geiger, F.M. 119 Geiger, T. 119 Germany 3, 6; blue-collar workers 108, 112; corporate governance 16–17; and India 287, 296; job security and staffing patterns 14, 15; and Malaysia 183; Organisation for Economic Cooperation and Development 7, 8; skill formation 11, 12; and Taiwan 88, 95, 113; white-collar workers 110, 112; work organization 9 global markets 1–22, 24–6; adaptation process 5–7; background 2–7; newly industrializing economies 18– 20; Organisation for Economic Cooperation and Development 7–18; research methodology 20–2 Goh Keng Swee, Dr 70 Goyal, S.K. 259 Grace, E. 165, 169, 175, 176, 182 growth 351–4; see also under individual countries Hammarstrom, O. 4 Harbison, F. 2, 3 Hashim, A.N. 176, 181 Helburn, I.B. 328

Henderson, J. 119, 127 Hill, H. 165 Hoffman, C. 324 Holland see Netherlands Hong Kong 119–54, 336, 343–4, 355, 356; Advisory Committee on Diversification 121, 135; Cantonese 122–5; and China 316; compensation 146–50; Cotton Industry Workers General Union 133; employee distribution by skill level 128; Employees’ Compensation Ordinance 134; Employment Ordinance 134, 136, 149, 153; employment security 146–50; government, changing role of 133–6; gross national product 337; growth 337; human resource management 120–36, 151, 343; indicators 327, 337; industrial relations 343; Industrial Training Advisory Committee 134, 135, 343; KowIoon Spinning, Weaving and Dyeing Trade Workers General Union 133; labor market, internal 136–50; Labor Tribunal Ordinance 136; and Malaysia 183; manufacturing sector distribution 130; newly industrializing economies 18; non-Chinese employers 125–8; personnel practices 136–50; Productivity Centre 126–7; research 21, 22; and Shanghai Banking Corporation 231; Shanghainese spinners 121–2; and Singapore 62, 69; skill formation and development 142– 6; small and medium industries 137–9; Societies Ordinance 131; Spinners’ Association 133;


staffing arrangements 146–50; Standing Committee on Technical Education and Vocational Training 134; Trade Disputes Ordinance 153; trade union movement 128–33; Trade Unions Federation 131, 132, 133; Trade Unions Registration Ordinance 153; Trade Unions and Trade Disputes Ordinance 131, 153; Trades Union Council 131, 132, 133; Training Council 135; Weavers Federation 133; Women and Young Persons (Industry) Regulations 134; work organization 137–41; working-class stratification 128–33 HRM see human resource management Hsu, Y.C. 91 human resource management 2, 351–4; adaptation process 5, 6; corporate governance 26; newly industrializing economies 19; research 22; see also under individual countries Hyman, R. 3 import-substitution industrialization see under individual countries India 248–98, 300–15, 336, 348–50, 356; All India Employers Organization 273, 274; All India Manufacturers’ Organization 273, 274; All India Trade Union Congress 291; Associated Chamber of Commerces 273, 274; Bharatity Mazdoor Singh 271; Bharatiya Janata Party 271; Board of Industrial and Financial Reconstruction 287, 290, 293; Bombay Trade Disputes (Conciliation) Act 266; Bonus Act 269; Canteen Committee 267;

Central Trade Union Organizations 257, 270, 271, 281, 285; centre-state relations 255–6; and China 315; Code of Discipline 268; Code of Efficiency and Welfare 268; collective bargaining 281–5, 287–8, 303–4, 307; colonial period (pre 1950) 266–7; Companies Act 274; company policies 307; compensation 310–11; Confederation of Indian Industry 283; Congress party 255; Constitution 267, 275, 278–9; Contract Labour (Abolition and Regulation) Act 275; Council of Indian Employers 273; democracy and development 254–5; Department of Public Enterprise 289; deregulation 285–6; Directive Principles of the Constitution 278; disputes 261, 262, 263; Economic Census 273; economy 248–65; Employee Director in Nationalized Banks (1970) 278; employers’ associations 273–4; Employers’ Federation of India 273, 274; Employers’ Organizations 257; employment practices, select 308–9; employment scenario 256–7; Essential Services Maintenance Act 268–9; exports 264; Federation of India Chamber of Commerce and Industry 273, 274; Five-Year Plan 248, 286; foreign direct investment collaborations 286–7; government 274–6; Government Act of India 266; grievance procedure 313; gross domestic product 248, 249; gross national product 338; growth 253, 338, 353;


historical evolution 266–85; human resource management 257, 285– 7, 300–14, 349, 354; imports 264; indicators 327; Industrial Disputes Act 277, 287, 349; Industrial Policy Resolution 277; industrial relations 257, 259–60, 270– 6, 285–7, 292–4, 300–14; Industrial Truce Resolution 268; Intellectual Property Rights 288; Joint Consultative Machinery 268; joint management councils 277, 349; Labor Conference 266, 267, 273, 276, 277, 282, 287; labor laws 287–8; labor market 250–1, 254–65; labor policy 255–6; labor standards 287–8; labor welfare laws 289–90; legislation 267–9; liberalization 285–6; and Malaysia 159, 161, 162, 345; management techniques 305–6; Memoranda of Understanding 286; Model Grievance Procedure 268; National Commission on Labor 282, 287; National Renewal Fund 291; National Trade Union Congress 271, 277, 281, 287; need-based minimum wage 276; New Industrial Policy 285; 1975 Scheme 278–9; 1983 Scheme 279; 1990 Bill 279–81; personnel function 302–3; policy implications 294–8; post-colonial period (1947–90) 267–9; privatization 286; productivity trends 253; Ramanujam Committee 282; Rashtriya Swayam Sevek Sangh 271; recruitment 307; research 21, 22; Reserve Bank 257; Safety Committee 267; seniority provisions 307;

Sick Industrial Companies (Special Provisions) Act 287; skill formation 308; Societies Act 274; Standing Conference of Public Enterprises 273, 274; Standing Labour Committee 266, 267, 276, 295; state withdrawal 256; structural adjustment 285–94; subcontracting 305; Trade Disputes Act 266; Trade Union Membership, Verification of 268; trade unions 265, 270–3, 281–5, 311– 12; Trade Unions Act 269, 270, 273, 281, 287; tripartism 276–7, 290–1; unemployment 257–9; Voluntary Arbitration 268; Welfare State 275; Whitley Commission (Royal Commission on Labour) 266; work organization 309–10; Workers’ Participation in Management Scheme 278–9; Workers Share in Equity (1985) 279; workplace systems, changes in 291–2; Works Committees (1947) 277; World Bank 291; World Competitiveness Report 294 Indonesia 69 industrial relations 2; adaptation process 5, 6; corporate governance 26; newly industrializing economies 19; research 22; see also under individual countries International Institute for Labour Studies 256 International Labor Conference 273, 287, 295 International Labor Organization: and Hong Kong 144–5; and India 273, 276, 281; and Korea 41; and Malaysia 169, 182, 188;


and Philippines 216, 220, 227, 229; see also DOLE; Ranis Report International Metal Workers Federation 169 International Monetary Fund 198, 199, 201, 222, 234, 235 IR see industrial relations Italy 4; blue-collar workers 108, 112; and Taiwan 113; white-collar workers 109, 112; work organization 9 Japan: blue-collar workers 108, 112; and China 315, 319; compensation 13; corporate governance 16; establishments, size of 106; global markets 3, 4; and Hong Kong 123, 126–7, 142–3; and India 287, 296; job security and staffing patterns 14, 15; and Korea 28, 29, 30, 31, 38, 51, 52; and Malaysia 159, 163, 165, 172–3, 176, 179–80, 183, 345–6; and Philippines 221, 225, 226, 229, 232, 233; and Singapore 69, 77; skill formation 11–12; and Taiwan 107, 108, 110, 113; white-collar workers 110, 112; work organization 9, 10 Jefferson, G. 334 Jeong, In Soo 49 job security 13–15 just-in-time 12 Kadir, H.M.A. 176 Kang, C.-S. 51 Kao, H.S.R. 139–41 Katz, H. 4 Kennedy, V.D. 270 Kern, H. 4 Kerr, C. 2, 3 Khan, M. 167

Kiang, T.S. 123 Kim, Chi-sun 31 Kim, Hwan Suk 51, 52, 54 Kim, Hyung-bae 33 Kim, Hyung-Ki 51, 52 Kim, Ik-jin 29, 30 Kim, Jeong-whan 48 Kim, Jin-Woong 31 Kim, Soo-kon 31, 52 Kim, Sung-whan 49 Kim, Taigi 50, 51 Kin, L.K. 184 King, A.Y.C 124 Kirkbride, P.C.K. 137 Kochan, T.A. 1–22, 24–6, 52, 267, 295, 300, 336–56 Koh Tsu Koon 183 Koike, Kazuo 108, 109, 110, 111 Korea 27–57, 336, 340–2, 355, 356; Chunpyoung 30; colonial period 28–9; Communist Party 30; compensation scheme 44–7; Daehan-nochong 30; Democritization Declaration 33, 39, 40, 42, 46; dictatorship 31–2; economy 33–40, 353, 354; Employers’ Federation 38, 42, 45, 46; employment security 47–9; Employment Stability Act 31; Federation of Clerical and Financial Workers’ Union 41; Federation of Korean Industries 38, 42; Federation of Korean Trade Unions 31, 32, 40, 41, 45, 46; fifth republic 32–3; growth 353, 354; human resource management 44–5, 352, 353; Industrial Accident Compensation and Insurance Act 31, 33; industrial accident rates, fatal 99; industrial relations 40–5; Industrial Safety and Health Act 33; job mobility 47–9; labor 33–40; Labor Dispute Mediation Act 31;


Labor and Management Council Act 33, 42, 44; labor market 40–5; Labor Relations Commission 47; labor roles 55–6; Labor Standards Act 31, 32, 38, 39, 47, 48, 49, 56; Labor Union Act 31; Law Concerning the Special Measures for Safeguarding National Security 32, 33; Law and Order Maintenance Act 28; Liberal Party 30; liberation 30–1; management roles 55–6; Manpower Agency 53; Minimum Wage Act 33; National Wage Council 46; newly industrializing economies 18, 19; Nohyup 30; political developments 28–33; Republic 30–1; and Singapore 69; skill formation and development 52–5; social indicators 35–7; State Emergency Act Concerning Economic Affairs 32; state regulation 33–40; state roles 55–6; and Taiwan 97; Teachers and Educational Workers’ Union 41; Trade Union Congress 41, 49; trade unions 28–33; training, on-the-job 54; United States military rule 30–1; Vocational Training Act 31; War 30–1; work organization 49–52; Yushing Constitution 32; see also North; South Kumaraguru, K. 168 Kuruvilla, S. 158–91 Lansbury, R. 1–22, 24–6, 300, 336–56

Laos 186 Lee, J.S. 88–118 Lee, M.B. 27–57 Lee, Sun 48 Lee, Young-Hee 29, 50, 52, 54 Leipziger, D.M. 356 less developed countries 27 Leung, D.H.K. 124 Levin, D.A. 119–54 Liao, Ching-Kuei 103 Lim Chong Yah and Associates 74 Lim, L.Y.C. 160, 161, 162, 163, 164 Littler, C. 167, 172, 173, 174, 175, 185 Locke, R.P. 4 Lucas, R.E.B. 258 Luxembourg 107, 108, 109 Macao 316 Macapagal, D. 198 Macdonald, D. 4 McKersie, R.B. 4 Mahalanolis, P.C. 257–8 Malaysia 158–91, 336, 345–7; Airline System 170, 176; AMENITY policies 163; Bank Employees Union 174; Bhumiputra Investment Fund 162; collective bargaining 175–6; compensation 181–2; cost containment 168–9; disputes 171–2, 177, 181; economy 158–9, 160, 352, 354; Employers Federation 182; employment 179–81; Employment Act 166, 167, 168–9; Employment Ordinance 168; enterprise/’ in-house’ union 172–3; export-oriented industrialization 163– 74, 189; export-processing zones 164, 168; Federation of Malaya 160; Generalized System of Preferences 169, 188; governance issues 175–6; government control 170–2; gross domestic product 158, 159, 162, 164, 165;


gross national product 158, 163, 164, 183, 337; growth 337; Heavy Industries Corporation 163; Heavy Industries Policy 163, 164, 170, 345; human resource management 175–89, 347, 353, 353; import-substitution industrialization 159–63, 166–7, 174, 176, 179, 189; indicators 327, 337; Industrial Coordination Act 162, 164; Industrial Development Finance Corporation 160; industrial relations 175–89, 347; Industrial Relations Act 166, 167, 170, 174; industrial relations policies 166–74, 184–9; industrialization strategies 159–66; Investment Incentives Act 160; just-in-time 177; Labor Organization 174, 189; labour federations policy 173–4; materials requisition planning 177; National Development Policy 184; National Union of Bank Employers and Newspaperworkers 174, 189; New Development Plan 184; new economic policy 161, 163, 164, 170, 189, 345; Petroleum Development Act 162; Pioneer Industries Ordinance 159, 167, 168; pluralism, restricted 166–7; research 21, 22; and Singapore 69; staffing 179–81; strikes 177; total quality control 177; Trade Union Congress 166, 174, 182, 188, 189; Trade Union Ordinance 166, 172; trade unions 170–1, 177, 178; Trade Unions Registrar 166, 167, 174; training 182–4; United Malay National Organization 161, 162;

United Malaysian Labor Movement 174; Vision 20/20 plan 184, 187; work organization 176–9; World Bank 161 Marcos, F. 194, 198, 199, 200, 201, 204, 206, 207, 210, 211, 216 Marx, K./Marxism 3, 66 Mathews, J. 4 Mathur, K. 268, 277 Maurice, M. 3 Mehta, R.J. 269 Mexico 315 Mohammed, Dr M. 163, 172 Myers, C. 2, 3 Nanda, G.L. 268 Narasimha Rao, P.V. 259 Nath, S. 273 Naughton, B. 334 Netherlands 108, 109, 112, 113, 325, 329– 30, 331 newly industrializing economies 2, 18–20, 69–70, 165, 181 Ng, Sek-hong 119–54 Nihei, Y. 122, 142–3 North America 317, 330, 333; see also Canada; United States North Korea 30, 316 Norway 6; compensation 12; corporate governance 16, 17; skill formation 11; Work Environment Act 17; work organization 9, 10 OECD see Organisation for Economic Cooperation and Development Ofreneo, R.E. 194–247 Ogawa, N. 356 Ohtsu, M. 122 Onn, Fong Chan 165 Ople, B.F. 224 Organisation for Economic Cooperation and Development 2, 7–18; Australia 7;


Britain 7, 8; Canada 7; compensation 12–13; corporate governance 15–18; Italy 7; Japan 7, 8; job security and staffing patterns 13–15; skill formation 11–12; Sweden 7; United States 7, 8; work organization 8–11 Osterman, P. 4, 52 Pang Eng Fong 160, 161, 162, 163, 164 Park, Chung-Hee 32 Park, Fun-koo 45, 46 Park, Jun-Shik 49 Park, Jun-Sung 54 Park, Ki-Sung 52, 53 Park, Se-il 45 Park, Young-bum 27–57 Pehie, M.M. bin lop 171 Philippines 194–247, 336, 347–8; Aquino administration 218–22; Asia-American Free Labor Institute 211; balance of payments 197, 198–9; Bataan Labor Alliance 206–7; Batasang Pambansa 217–18; Bukluran ng mga Manggagawa sa Pagbabago 210; Central Bank 197; child workers 205; Civil Service Commission 215; collective bargaining 212, 218, 228– 32; Commonwealth Act 213, 214; compensation 230–1; corporations, government-owned-andcontrolled 215; cost of living allowance 217; developmentalism 215–16; disputes 219–21, 238; Economic Survey Mission 214; economy 194–205, 235–6, 245–7; employers 223–5;

Employers Confederation 215, 220, 223, 225; employment 204, 227–8; Export Incentives Act 199; export processing zones 202, 203, 207; export-oriented industry 196, 199–200, 202–204, 216–17, 226–33 passim, 235– 9, 347; Foreign Business Regulation Act 199; Free Farmers Federation 220, 221; Free Workers Federation 207, 212; governance 228–30; government 212–22, 224–5; Government Service Insurance System 213; gross national product 194, 199, 338; growth 338; human resource management 224–34, 238, 347, 348; Import Control Act 197; import-substituting industry 196–8, 202–3, 223, 226–7, 229–36, 237–9; indicators 327, 338; Industrial Peace Act 214, 215, 222; industrial relations 205–34, 238, 239, 347, 348; industrialization 194–201, 236, 237; industrialization and industrial relations interaction 234–8; Investment Incentives Act 199; Investments Board 199; job evaluation program 231; joint consultation councils 221; Kilusang Mayo Uno 206, 207, 210, 211, 212, 220, 224; Labor Advisory Consultative Council 219, 220; Labor Code 205, 215, 216, 223, 225, 233; labor controls 217–21; labor events 245–7; labor flexibility 227, 228, 229, 237; labor force and employment status 195; labor institutions 235, 236; labor market 194–205; labor militancy 236–7; labor movement 236;


Labor Organizations Congress 206, 214; labor, organized 219; labor policies, government 224–5; labor practices, unfair 229; labor reforms 213–15; labor welfarism 235–6; labor-management councils 221, 224, 225, 230, 232, 238; Lakas Managgagawa Labor Center 210, 212; and Malaysia 184; National Association of Free Labor Unions 210; National Association of Trade Unions 210–11; National Conciliation and Mediation Board 220, 229; National Economic Development Authority 222; National Federation of Labor 210; National Labor Relations Commission 215, 220, 239; National Minimum Wage Law 214; National Tripartite Conference 221–2; National Wage and Productivity Commission 222, 232; New Labor Relations Law 220; overseas contract workers 204, 205; Partido Komunista ng Pilipinas 213; Personnel Management Association 223; political events 245–7; recruitment 227–8; repression 213–16; Republic Act 199, 220; research 21, 22; Social Justice Program 196, 213; state, balancing role of 235; strikes/lockout notices 208–9; Structural Adjustment Loan 199; Structural Adjustment Program 194, 200–1, 235, 239; technology 231–3; total quality management 226; Trade and Industry Department 221; Trade Union Congress 206, 207, 212, 216, 220, 223;

trade unions 206–12, 218–19; Trade Unions of the Philippines and Allied Services 210; training 233–4; Union del Trabajo de Filipinas 213; Union Obrera Democratica 213; unionism 228–30; Wage Commisssion 236; Wage Control 216–17; wage increases, calibrated 216–17; Wage Rationalization Act 222; women workers 205; work organization 231–3; World Bank 199, 201, 202; see also Structural Adjustment above World Federation of Trade Unions 207, 210, 212 Pi’i, A. bin 168 Ping, L.L. 176 Piore, M.J. 4, 40 Poland 88 policy implications 356 Quezon, M.L. 196, 213 Rabushka, A. 119 Rajah Rasiah 177, 182 Ramanujam, G.R. 277, 287 Ramaswamy, E.A. 259, 272, 295 Ramos, F.V. 204, 211–12 Rani, O.H. 183, 186 Ranis Report 216, 223 Reagan, R. 319 Rear, J. 121, 123–8 passim, 130, 132, 133 Recto, C.M. 206 Redding, G. 119 Regini, M. 4 research methodology 20–2 Reyes, I. de los 206 Riedel, J. 119 Rodgers, G. 34 Roosevelt, F. 196 Roxas, M. 214 Sabel, C. 4 Sabot, R. 353 Salaff, J. 129


Salih, K. 179, 181 Samant, D. 269 San, Professor 98, 105 Sanchez, A. 219–20, 224 Sandull, B. 4 Sarath, D. 258, 272 Schiffer, J. 119 Schumann, M. 4 Scott, I. 134 Sellier, F. 3 Seng Tong Kai 176, 181 Sengupta, A.K. 272, 296 Sharma, B. 19 Shearer, J.C. 328 Sheth, N.R. 268, 272, 277 Shian, C.V. 171 Shirai, T. 4 Silvestre, J.-J. 3 Singapore 62–86, 336, 339–40, 356; Amalgamated Trades Unions 66; Central Provident Fund 70, 71, 81–2; Chambers of Commerce and Industry Federation 73; compensation 79–81; corporate governance 82–3; corporatist incomes policy period 68– 71; development strategy 62–4; Economic Planning Committee 63; economy 352, 354; Employers Association 67; Employment Act 65, 67; employment stability 81–2; gross national product 337; growth 337, 352, 354; human resource management 79, 81, 82–3, 339, 352, 354; indicators 327; industrial accident rates, fatal 99; industrial relations 64–83; Industrial Relations Act 64–5, 67; Industrial Relations Ordinance 67; Industrial Relations (Recognition of Trade Union of Employees) Regulations 64; and Malaysia 160, 345; Manufacturers’ Association 73; Marxist period 66;

National Employers Federation 65, 68, 70, 73; National Trade Unions Congress 64–6, 68, 70–3, 78, 83; National Wages Council 65, 68–74 passim; newly industrializing economies 18, 19; People’s Action Party 64, 65, 66, 83, 84; pluralist period 71–3; quality control circles 82; research 21, 22; skill formation and development 77–9; Skills Development Fund 78–9, 81; and Taiwan 97, 99; Trade Union (Amendment) Ordinance 64; transition period 66–7; work arrangements 77; Work Councils 83; Work Excellence Committees 83; work organization 74–7 Sisson, K. 4 Sit, V.F.S. 123, 136, 137–8, 139 skill formation and development 11–12, 25; see also under individual countries South Africa 95 South Korea 30; and China 315; gross national product 338; indicators 327, 337; research 21, 22; and Taiwan 95 Soviet Union 29, 30, 210, 316 Spain 196–7 Spinanger, D. 160, 161, 163 staffing arrangements 13–15, 25; see also under individual countries Standing 179–80, 182 Streeck, W. 4 Structural Adjustment Program see India; Philippines Sun, Han-seung 45 Sweden 4, 6; compensation 12, 13; corporate governance 17;


skill formation 11; work organization 10 Szczepanik, E. 125 Tai, Hung-chao 119 Taiwan 88–118, 336, 342–3, 356; blue-collar workers 108, 110, 111–14; and China 315, 316; China Steel Corporation 93–6; Chinese Federation of Labor 102; Collective Agreement Law 101; employee welfare 96–7; Employment Service Act 101; Equal Rights in the Workplace Act 101; establishments, size of 106; fair labor standards law 101, 103, 104, 105; government policy 97–9; gross national product 338; growth 338, 352, 353; and Hong Kong 131, 132; human resource management 100–5, 352, 353; income 99; indicators 327; industrial accident rates, fatal 100; industrial relations (1946–60) 89–91; industrial relations (1961–80) 91–9; industrial relations (1981 to present) 100–5; Labor Disputes Law 101; Labor Insurance Act 101; labor market conditions 97; labor relations 102; length of service 107, 108, 109; and Malaysia 159; management flexibility 103, 105; newly industrializing economies 18; organizational structure, change in 105; personnel policies 103; and Philippines 229; productivity 99; recruitment 92; research 21, 22; screening 92; and Singapore 69;

small businesses 106, 109; trade unions 102–3; training 93–6; Vocational Training Act 101; wages 99, 109–11; white-collar workers 109, 111–14; workforce fluidity 106–8 Taylor 139–40 Taylorism 7, 9–10, 49, 74, 340, 343 Thailand 175, 352 Tulpule, B. 273 Turner, H.A. 128, 130, 132, 138, 142, 145– 7, 149–50 Tyers, R. 165 Uh, Soo-bong 49 United Kingdom see Britain United Nations 98, 120, 164, 294 United States 2–3, 4; American Labor Movement 169; and China 319, 329; compensation 12, 13; corporate governance 16, 17–18; Economic Survey Mission/Bell Mission 197; establishments, size of 106; Great Depression 196; and Hong Kong 126–7, 142; and India 287; job security and staffing patterns 14; and Korea 30–1, 49, 51, 52; Labor-Management Relations (TaftHartley) Act 215; and Malaysia 163, 165, 176, 182, 183, 188; ‘New Deal’ National Labor Relations (Wagner) Act 215; and Philippines 196–7, 213, 214–15, 223, 226, 234, 236; skill formation 11; and Taiwan 88, 95; work organization 9 Vaid, K.N. 260 Venkata Ratnam, C.S. 19, 248–98, 300–15 Verma, A. 1–22, 24–6, 300, 315–34, 336– 56


Vietnam 184, 186, 316 Vinod, T. 356 Vogel, E.F. 119 Wade, R. 119 Walker, K.F. 280 Wan, H. 34 Ward, B.E. 129 Weinstein, M. 52 Wong, Siu-lun 119, 121, 122, 123, 136, 137–8, 139 work organization 8–11, 24; see also under individual countries World Bank xiii; India 291; Malaysia 161; Philippines 194, 199, 201, 202, 235; policy implications 356; structural adjustment program 194 Wu, Hui-Lin 97, 102, 103, 104, 105 Wu, Nai, Te 103 Yang, Byung-Moo 52 Yeh, Wen An 89 Yiu, Yan-nang 131 Yoo, Kil-Sang 55 Yoon, Chang-ho 49 Yoon, Seong-cheon 48 You, Jong-il 38 Young, M.L. 179, 181 Zappala, J. 20 Zhiming, Y. 315–34 Zhufeng, C. 315–34