is an economic and social imperative. There is also consensus that developing nations ...... Thanos Catsambas. February 1993. A. Correa. Citizen's Evaluation ...
Public Disclosure Authorized Public Disclosure Authorized
WORKING
PAPERS
Education andEmployment Education andSocialPolicy Departmnent TheWorldBank February1993 WPS1099
Trade Unions and Collective Bargaining
Public Disclosure Authorized Public Disclosure Authorized
1 WRPS
|lPolkyRoh
HarryC. Katz SaroshKuruvilla and LowellTurner
The ability of developingcountries and the new transitional economiesto competein the globalmarketplacewill depend on their ability to transformindustrialrelationspoliciesinvolving trade unions and collective bargaining so that they promote flexibility in the workplaceand encouragethe fornation and effectiveuse of human resources. ThcyRcsrcWoing
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andaU lheintcrstcdindevelopmentiscs Tescpapet distbedby teRescah AdvysSutfcarythcenamcs oftheauthou. tionanduonsarethcauthnown.They eflectdytheuview.andshldbeusedanditedwgly.Ther,din shouldnot bc attuNtd to the Wodd Bank, it Bourd o Dims,
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PolicyResearch
Educationand Employment WPS 1099
This paper - a product of the Education and Social Policy Department - is part of a series of state-ofthe-art studies on employment and labor market issues and reform programs. Copies of this paper are available free from the World Bank, 1818 H Street NW, Washington DC 20433. Please contact ESP, room S6-035, extension 33680 (February 1993, 39 pages). Katz, Kuruvilla, and Turner assert that changing world markets and new technologies are driving industrial restructuring. The ability of developing countries and the new transitional economies to compete in the global marketplace will depend on their ability to transform industrial relations policies involving trade unions and collective bargaining so that they promote flexibility in the workplace and encourage the formation and -ffective use of human resources. History has shown, they say, that there are certain key moments of transition in industrial relations systems. After that time, systems get set and are hard to mcdify. Often these key moments are the result of legislative changes (such as the National Labor Relations Act and the emergence of public sector unions after the burgeoning of public sector legislation ir- mae United States). Sometimes they are the result of key historical or economic junctures (such as the postwar reconstruction in Japan and Germany, and independence movements in the developing world).
Recent pressures for structural change in the developing world present an opportunity for major transitions in industrial relations. Drawing on the Japanese and German experiences, as well as experiences in the developing world, Katz, Kuruvilla, and Turner focus on lessons that can be applied in guiding this transformation. Worker participation in decisionmaking, they contend, is critical for bringing about the essential popular acceptance of changes that will come with industrial restructuring. It is also important to coordinate and integrate industrial relations policy with other social, legal, economic, and educational policies. The education system, for example, should not be overproducing college graduates when there is an undersupply of unskilled and skilled workers.
The PolicyResearchWorkingPaperSeriesdisseminates theftndingsof workunderwayin theBank.Anobjectiveofthe series is to get these findingsout quickly,even if presentationsare less than fully polished.The fndings, interpretations,and conclusionsin these papersdo not necessarilyrepresentofficialBank policy. Producedby the Policy ResearchDisseininatica Center
Trade Unions and Collective Bargaining
HarryC. Katz,SaroshKuruvillaand LowellTurner NewYork State Schoolof Industrialand Labor Relations CornellUniversity
Thispaperis preparedfor the Educationand SocialPolicyDepartmentof the WorldBank. It is part of a seriesof studiesto improvelaborpoliciesfor managingthe socialcostof economicadjustment.
Tableof Contents
Introduction:TheEconomicContext ....................................
1
IndustrialRelationsIssuesin DevelopingCountries........................... TheEconomicContext .3 IndustrialRelationsCharacteristics .5 ThePressureson IndustrialRelations.10
3
BasicPrinciplesof Lawand Institutions.12 TheNeedfor Unions,the Rightto Strike,and Colletive Bargaining. IndependentMediationEntities.14 ProperUnionRoles.15 WorkplaceRepresentation .16
12
WageSettingand BargainingStructure.18 BargainingStructure.18 TheDisadvantages of FragmentedBargainingStructure.19 TheVirtuesof CoordinatedBargaining.19 TheVirtuesof AnnualPayAgreements.20 TheOccupationalScopeof BargainingStructure.21 RecentMovementto MoreDecentralized BargainingStructures.21 WorkplaceIssues ........... RecentRestructuringin IndustrialRelations.23 ContingentCompensation.23 TeamSystems.................. EmployeeInvolvementin DecisionMaking.25 Difficultiesin DiffusingParticipation. EmploymentSecurity.28 TheNewIndustrialRelationsand the ThirdWorld .29
22 24 25
Trairning andWorkForceSkilland CareerDevelopment.30 TheNeedfor GreaterInvestmentin Training.30 TheGermanTrainingSystem.31 TheExtensiveJapaneseOn-the-JobTraining.33 TheMismatchBetweenSocial,Educationaland IndustrialRelations Policiesin DevelopingCountries.33 Conclusions.35 References.......
... ............................................ 37
A. Introductlon: The EconomicContext
We live in an era of industrialrelations reform and transformation. This is true across a wide range of advanced, newAyIndustrializingand developing countries. While thirty years ago it was commonplace among social scientiststo assume that in the long run other countries would converge on variants of the 'most advanced" U.S. model of collective bargaining and industrial relations, this assumption has been swept aside by history. The rise and successof verydifferent models in countries such as Japanand Germanyhasdemonstratedboth a cross-nationaldiversityof stable industrialrelations pattems and new lessons regarding what does and does not work. The purposeof this paper is to draw out, from both more and less successfulrecent cases,somecontemporarylessonsfor industrialrelations reform efforts, especially for developing countries, and for the transitional economies of Central and EasternEurope. The importantstarting point is a recognitionof the impact of changing world marketsand new technologies in driving industrial restructuring and industrial relations transformation. Above all, perhaps, the rapid growth of Japanese economic strength, rooted in part in a successful system of enterpriseunionismand shopfloor teamwork,has put pressureon firms in other countries to reorganize production and work and to seek some kind of unewindustrial relations." Within Europe, not only the advent of Japanesecompetition but the relative success of German industry and industrial relations, along with the more recent 'relaunch"of Europeaneconomic integration,has pressuredBritish, French, Italianand Spanish(among other) firmsto reorganize. Everywhere,intensifiedworld market competition has called into question established relationshipsand ways of doing things, and called forth managerial imperativesto raise productivity and product quality, achieve new flexibility, and cut costs. At the same time,and closely related,the past fifteenyears havewitnesseda rapid spread of new microelectronictechnologies in the workplace. "New production concepts,' often based on the new technology, aim to make more flexible use of labor, both in the products produced and the process. As managersdemand more responsibilityfrom (and sometimesevengive "semi-autonomy"to) individual workers and groups of workers, traditional labor-managementrelationshipsare called into question.
2 So widespreadare these changesIn the modemworkplace,especiallyin advanced societies,that manyhavedeclaredthe era of Fordismat its end. "Post-Fordismahas beenvariously definedandlabeledas flexiblespecialization, flexibleautomation,leanproduction,anddiversifiedquality production,to namea few. Criticshavecalledi neo-Fordismm or management-by.stress," implyinga more sophisticated form of mrnanaerial controloverthe workforce(Parkerand Slaughter1988). But howeverone interpretsthe newdevelopments, thereis generalagreementthat themodemworkplace is undergoingmajorchanges.Partandparcelof thesechangesisa widespread rethinkingof established pattemsof industrialrelations. In some cases,employershavegoneon the offensiveagainstunion influencethat is perceivedto defendrigidiiesin the workplaceand standIn the way of nAcessary work reorganization. In other cases,employershavesoughta newcollaborativerelationshipwith entrenchedunions;and sometimesthesecondstrategyhasfollowedthe first. Unions,for their part,havein somecasesfought againstthe changesand defendedthe traditionalways on whichtheir poweris based. But in other cases,unionshavedemonstrateda willingnessto cooperateIn new ways,both to savejobs and to promotethe human-sidebenefitsof moreflexiblework organization.And in some cases,wherethey havenotbeenexcluded,unionshaveplayeda proactivereformistrole,pushingmanagement towardnew formsof organizationsuchas groupwork.In addition,thestate,throughpublicpolicy,hasoftenplayed an importantrole (throughregulation,deregulation,or other policychanges)in promotingindustrial relationsreform. In the interactionof world mnarket changes,new technologies,and the strategiesof governments,employers,and unions,there is, theretore,considerablefermentationand change in contemporaryindustrialrelationsin advancedsocieties. For differentreasons,althoughnot wholly unrelated,there is also pressurefor changeand in somecasesfull-fledgedtransformationwithinthe newiyindustrialized countries(NlC's),somedevelopingcountries,andthe variouscountriesof Eastem Europeandthe formerSovietUnion. In this periodof uncertainty, trial and error,and change,there is alsoa greatdealof cross-national, intertirm,andinterunioncommunication andexchange.No onewants
3
to reinventthe wheel;less successfulfirms and countriesattemptto leamthe lessonsof the more successful,especiallyJapanandGermany.Sortingoutthepositiveandapplicablelessonshasbecome a majorpreoccupation for managers, andto a lesserextentforgovemments andunions.Theopportunity T ) practiceis one of the to leamand combinelessonsfromvariousversionsof successful(if not 'best
benefitsof Intensecontemporaryprocessesof economicglobalization. Nowhereis this needgreaterthanamongdevelopingcountriesand the emergingand unstabledemocracies of EastemEuropeandtheformerSovietUnion.Wewantto emphasize,however, at the outset:it is not possibleto transplantanothermodel,eitherdiscreteelementsor the modelin its entirety. In everycase,it Is necessaryto build on existingpracticesand institutions,or institutional remnants.Howthe lessonspresentedin this papercanbe adaptedfor specificuse in specificnational settingsIs a matterfor carefulcase-by-case studyand experimentation.
B. IndustrialRellatonsIssuesIn DeveloDinaCountris Thechangingeconomicenvironment confronting thirdworldcountriesmakesit Imperativf, that theytakeimmediatedecisionsregardingindustrialrestructuring.
The EconomicContext In the 1980s,the U.N.GeneralAssemblyseta targetof 7 percentfor third worldgrowth. Thistargetwas basedon estimationsthata 7 percentgrowthratewasthebareminimumfor developing economiesto providebasicneeds(food,shelter,clothingand education)of theirpopulations.However, the recordafter 1960has beendisappointing,as most developingcountriesplungedinto deep and continuingeconomiccrises(Singh1992). On average,GDPgrowthratesduringthe 1980swerewell below5 percentanda numberof countriesexperienced substantialdeclinesin nationalincome.Although Africaneconomiesgrewat 3.5percentbetween1960-73, therateof growthwas 1.3in 1981,andnegative thereafter.Mexico'sGDPgrewat 7 percentbetween1977-1981, but 1982-1988 saw negativegrowth. Estmates(afterGDPfiguresare adjustedfor termsof tradeand net factorpayments)indicatethat the
4 averageper capita Incomein LatinAmericancountries was lower by 15 percentand for Africancountries lower by 30 percent in 1989, relativeto 1980. Real wages in Africa have declined by about 20 percent and in Mexico, by almost 50 rercent between 1982 and 1987. The inability of third world countries to competein world manufacturinighasalso resultedin deindustrializationin many countries (e.g.,Tanzania, where manufacturingproduction shrank by 25 percent during the 1980s). Theseeconomic pressureshaveforced developingnations into increasedindebtedness, resulting in an increased burden of debt servicing. In the 1980s interest payments for most Latin American and African countries comprised about 30 percentof the national budget, seriously affecting ability to import necessarycapital and technology for production and exports. Sachs (1990) suggests that the collapse of living standards in the third world in the 1980s(he calls the 1980sthe lost decade of economic development) is intimately related to the extemal debt crisis and shows that economic performancehas been disastrousin countriesthat experienceddebt servicedifficulties. In addition, there was in the 1980sa net outflow of capitalfrom the third world, in spite of large transfer paymentsvia aid into the third world. Exceptionsto this bleak scenario are the experiencesof some Asian countries (mainly the newly industrializingcountries),which showedincreasesin GDPgrowth rates and per capita income, and achievedboth ILO and U.N. targets. The three main featuresthat appearto account for the dramatic relativeeconomic success of the Asian nations are: economic structure,economic and industrialization policies, and lower indebtedness (thus insuring relative protection from changes in world interest rates) (Singh 1992). Experts by and large agree that both extemalfactors (world interestrates, terms of trade that discriminateagainst developingcountries) and flawed domestic colicies are important in explaining economic decline, although there is debate regarding the relative impact of both. There is, however, consensus that the central problem for these countries is that & nigh long-term rate of economic growth is an economic and social imperative.There is also consensus that developing nations are not likely to reach target growth rates of 7-8 percent withoutfundamentalchanges in the structureof their economies
5
and economicpolicies. Finally,there is consensusthatthesecountriesneedto improvethe utilization andmanagement of theirhumanresources.F'fectiveIndustrialrelationspracticesareneededto achieve thoseends. Thekeyaimsof an industrialrelationspolicyshouldbeto fosterstableand participatory labor-management relationsso as to facilitateflexibleadaptationsin responseto changingeconomic environments.Industrialrelationscharacteristics canhinderthedevelopment of stableand participatory labor-management relationssystems.
IndustrbalRelatlonsCharacteristics Althoughindustrialrelationssystemsindevelopingcouintries arediverse,theyoftenshare certaincommoncharacteristics that inhibitthe developmentof successfulindustrialrelationspractices. An illustrative(notexhaustive) listof such characteristics includesa centralrolefor the statein economic planningand industrialrelationsregulation,weak and politicalunions,unwieldydispute resolution mechanisms,inappropriate unionandbargainingstructures,thefrequentabsenceof genuinecollective bargaining,and poorlyeducatedworkforces. TheStateand IndustrialRelationsPolicy. Thestateis the majoractor in the industrial relationssystemsof developingcountries,and from a conceptualstandpoint,state policy can be classifiedintotwo primaryapproaches,the "equityapproach"andthe "efficiencyapproach."It mustbe remembered thattherearesubstantialvariationsinthirdworldindustrialrelationspractices,andthatthese approachesare perhapsoversimplifications, butare usedherefor illustrative purposes.Manycountries haveelementsof both approaches. The "equity" approachaccepts the principlesof free collectivebargainingand is characterized by protectionistlaborlegislationand socialwelfarepolicies. Protectivelaborlegislationis extensiveunderthis regime,and impingeson the employer'scost and flexibility.Typically,protective legislationincludes:restrictionon layoffswithsubstantiallayoffcompensation to be paid(e.g.,halfsalary forfirst90 daysin India);govemment-required permissionto closeplants;therequirement to giveunions
6
extensivenotice beforealtering plant operations;unfetteredtrade union rights:wEltfareregulations mandatingtheprovisionof food at subsidizedratesandday carefacilitiesat all Industrialfactories;and benefits. legislationmandatingextensiveemployer-paid a politicalbargainbetweenunions Themotivationfortheequityapproachoftenrepresents but alsoreflects who wereperhapspartnersin thestrugglefor independence, and rulinggovernments, reactionto populistpressures,and the needfor legitimacygainedfrom ILO membership.A partial justificationfor the equity approach is that in the absenceof govemment-runsocial securityand employersmustbear withinlabormovements, programs,andweaknesses compensation unemployment policy,with the cost,andlaborshouldbe protected.Adoptionof an importsubstitutionindustrialization substantialprotectionfor domesticindustriesfom intemationalcompetition,furtherreinforcesthe equity approach.ManyformerBritishcoloniesin AsiaandAfricaexemplifythisapproach.Itis importantto note that the equityapproachis notalwaysequitablewithineachcountry,as thesepoliciesoftenapplyonly to the modemindustrialsector,oftena verysmallpartof developingeconomies. The "efficiency"model, on the other hand, providesentrepreneurswith considerable. freedomoverlaborissues.Althoughlaborwelfarepolicies(workinghours,minimumwages,prohibition of childemployment)are perhapssimilarto the policiesof countriesfollowingthe equitymodel,in the efficiencyapproachtrade unionrightsare restricted.Examplesof theserestrictionsinclude: prevention of unionsfrom politicalactivity;curtailmentof the scopeof collectivebargaining(unionsrestrictedfrom bargainingon promotions,transfers,job assignments, layoffs,hiring,etc.);prohibitionagainststrikes; banningof unionsin certainareasof theeconomy(e.g.,in exportprocessingzones);andnoncompliance Theefficiencymodelappearsprevalent withvariousILOresolutionsregardingthefreedomof association. in countriesthat haveadoptedan export-oriented industrialization policyduringthe 1970s(e.g.,South Korea,Taiwan,Malaysia,Philippines)(Deyo1989). It is importantto notethat countriesoftenfollowboth approachessimultaneously. Many countriesenactprotectionistandwelfare-oriented policiesconsistentwiththeequityapproach,butrestrict trade union rights.Africanexamplesof this dualityincludethe following:govemmentsin Zambiaand
7
BurkinaFasohavearrestedunion 'oaders:the Nigeriangovernmenthas restructuredunionsand the Nigerianlaborcongresswas dissolvedin the 198Ws; wageceilingshave beenimposedin Tanzania, Nigeria,and Kenya;the subjectof bargaininghas beenrstricted In Zambia;and manyother countries haveintroducedstructuralreformsof tradeunionsvia legislation designedto reducetheirinfluence(e.g., Algeria,Egypt,Ethiopia,Nigeria,Tanzaniaand Zambba). Both approacheshave their problems.The equity approachcan be praisedfor its enlightened socialprotectionandadherenceto theprinciplesof freedomof associationenshrinedin ILO conventions.However,it can be criticizedfor is excessive laborprotection,excessivepoliicizationof unions,unfetteredtrade union rights,and impositionof socialcostson the employerthat impingeon competitiveness and adaptabilityto changingenvironments, The efficiencyapproachIs advantageous sinceit oftenappearsto be integratedwith industrialization strategiesnecessaryfor rapideconornicdevelopment.Yet,i; can befaultedfor Utslabor suppression,which,overthe longterm(e.g., SouthKorea)resultsIn conflictand the destabilization of industrialrelations.Whatis important,and whatthird worldcountrieshavenotachieved,is an industrial relationspolicythatbalancesthetwoapproachesandis Integrated withthebroadereconomicandsocial policiesthat are neededto meetdevelopmentobjectives. Unionsand Politics. Thepolitial characterof unionshas beenwelldocumented(e.g., Essenberg1981). In muitipartydemocracies(e.g.,India),politicalpartiesdependon trade unionsfor support, and in single party democracies(many African nations),unions face pressuresto align themselves withthepartystructure.Theweaknessofthirdworldunionsvis-a-visemployersforcesunions to pursuemethodsto gain what they cannot accomplishvia traditionaleconomicand bargaining methods. Thispaperdoesnotarguethattradeunionsshouldnotpursuepoliticalactionto achieve their goals. Rather,we wam againstexcessivelypoliticalunions,and the subordinationof economic objectivesand methodsto politicalobjectivesand methods.Excessivelypoliticalunions inhibit the
8
developmentof stableunion-management relations.Twounfavorableoutcomesof excessivepolitical unionism,usingIndiaas an example,are cited below. Unlonleadershipin Indiaisa steppingstoneto partyleadership.Aspiringpartyleaders also serve as electedleaders of the local trade unions in firms wherethey are not employed. Consequently,union policiesreflectthe prioritiesof the politicalparty,and are not sensitiveto the economicsituationof the localfirm. It is common,for instance,for politicalpartiesto call nationwide strikesfor politicalreasonsthat havelittleto do witheconomicissues(Ramaswamy 1983). Indianlawallowsmultipleunionsin enterprises. Sinceeachpartyhasits owntradeunion wing,thereare multipleunionsin eachenterprise.Sinceeachunionstrivesto increaseits membership, thereis constantcompetitionfor membershiployalty. Workersin the plantsshifttheir allegiancefrom unionsthat fail to deliverto unionsthat promiseto do so. Giventhis interunionrivalry,stablelabormanagementrelationsdo not develop. For stabilityto develop,a single bargainingagent in each enterpriseis required.Yetlegislativeeffortsin tiis directionhaverepeatedlyfailed,giventhatthis is not in the interestof competingpoliticalpartiesand unions. Multi-unionism (alongwith the constitutional nroceduresthatmandateannualunionelections)thustypicallyrequiresIndianmanagement to negotiate with a differentset of leadersat erch contractrenewal. Giventhis, alongwith the politicalnatureof unions,managements havelittleincentiveto investin developinglongtermrelationships withany single union,and unionleadershavelittle incentiveto pursuelongtermpoliciesthat meetfirms' needs. WeakUnions.A numberof characteristics interactin mostthirdworldindustrialrelations systemsto produceweak unions,which hinderthe establishment of genuineand stable collective bargaining.Thesefactorsinclude:therelativelysmallindustrialsectorthat is usuallyorganized(typicaliv, theunorganized informalandagriculturalsectorsare muchlargerthantheindustrialsector);therelatively uneducatedlaborforcewhichcan be manipulatedby leaderswho havegoalsdifferentfromthoseof the membersand the firm (e.g., the incidenceof nsweetheartcontracts"is estimatedto be 20 percentin India);theexistenceof multi-unionism whichservesto fragmentthelabormovementnationallyandatthe workplacelevel; the absenceof legislationpromotingsingle bargainingagentsinsidefirms and an
9 orderly bargainingstructure; repressivestatepoliciesthat grant decertificationand deregistrationpowers to govemment officials;successful employeropposition to union formation; government persecutionof labor leaders; the absence of a unified employersassociation that could inspire stable industrial level bargaining; and union constitutionsthat mandateunion elections on a yearly basis thus preventingthe developmentof long-term plans by union leaders. Needlessto say this list only highlights some of the problems leading to weak unions. It is relevantto note that union densities in developing countries (calculatedas a percentageof the non agriculturallabor force) ranges from 1 percent (e.g., Upper Volta. Haiti) to about 25 percent (e.g., Argentina),with the mean well under 20 percent (Kurian 1985). Weak unions imply unstable industrial relations as managementsuse their power to restrict unions and are able to push through agreementsthat leaveworkers unsatisfied,leading to shopfloor conflict. Consequently,unions turn to the political resolutionof issues that cannot be s3lved via bargaining. As a result, unions rely moreand more on dispute resolutionmechanisms,particularlysince their weaknessleadsthem to push everygrievanceto a disputa for fear of otherwise losing membership. In this environment,unions cannottake a long-termviewof the labor-managementrelationshipas all their energiesare focused on sh-ortterm issues. Meanwhile,employershavelittle incentiveto deal with weak and therefore,unreliableunions. Thus, there is littledevelopmentof the trust and cooperation necessary for quality production, flexibility, and long term stable labor relations. DisDute Resolution Systems. An effective dispute resolution system encourages the partiesto reach bilateral solutions to disputes, therebyenhancingthe developmentof a stable collective bargaining relationship. Most third world systems, however, have the opposite effect: they produce excessivereliance on third party intervention. Many dispute resolutionprocedureshave been inheritedfrom the colonial occupiers, or have been adapted (often selectively)from successfulmodels in the industrializedworld: often they have been designed primarily to stop interruptions in the production process (Damachi 1986). Although the range of mechanismsvary, a few central characteristicsare common to developing countries.
10
Mostdisputeresolution procedures Imposeiimitationsonstrikes.Ratherthanallowunions to usetheir economicstrength,strikes2re curtailed.For example,workerscannotcontinuetheir strike whilea disputeis underconciliation,mediation,arbitratonor is beingdecidedby a laborcourt. Govemmentofficialsare oftengiventhe powerto Intervenein disputesand suggest solutions,or evenmandates ilutions. Most conciliation,mediation,and arbitrationservicesare carriedout by government departments. Thissubjectstheprocedureto politicalinterference (LansingandKuruvilla1987j.Influential politicalleaders(whomaybe leadersof unions,or haveinfluenceoverkeyministersand secretariesin the laborministriesof thesecountries)can oftenexerciseinfluenceoverconciliatorsand mediators. Theeffectiveness of the procedures suffersfromdelaysaswellasthe lackof adequately trainedofficialsin govemmentdisputeresolutiondepartments. In mostcases,if thedisputeis notsettled throughmediationat the locallevel,it is thentransferred to theregionallevel,andfinallyto thestatelevel of mediation.If it is still not resolved,it Is transferred to the Ministerof Laborin eachstate,or referredto compulsoryarbitration,the labor courtor an industrialtribunal.Resolutionof disputesthus can take monthsor evenyears.Theauthoritygrantedto concilistorsand mediatorsto referdisputesto binding arbitration,laborcourts,or industrialtribunalsintroducesfurtherdelayintothedisputeresolutionprocess. Theweaknessof unionsactuallyencouragestheuseof suchproceduresi.e.,a "narcotic effect".Unionstendto relyon disputeresolutionproceduresin orderto obtainwhattheycannotobtain throughdirectcollectivebargaining.In situationswheremulti-unionism exists,the dependenceis much higher,giventhat unionshaveto constantlyraiseissuesto attract membership, as a resultof union competition.
The Pressureson Industrial Relations In responseto economicpressures,mostdevelopingcountries(andthisappliesequally to the middle incomecountriesof EastemEurope)face pressureto liberalizetheir economies.This liberalization impliesachangein industrialstrategy,froman isolationist import-substitution industrialization
11
(1S) policy with Its attendant protectionist programs (see for example, the current liberalizationin the Indian economy), to a more export-orientedeconomy that is integrated with the world market. This transition Isapparent InAsia wheremanycountries (e.g.,Malaysia,Philippines,Indonesia,Thailand,India) haveshifted or are shifting into more export-orientedstrategies.The transition is less apparent in Africa, where there Is nonetheless evidence of moverrent in this direction. The integration of these exportoriented economies into the world marketplacehas substantialimplications for industrial relations. Export-orienteddevelopmentrequiresindustrialrelationssystemsthat are flexibleandable to adapt to change. For many developing countries, this implies a drastic restructuring of industrial relationspolicies at the national, firm, and work place levels. If third world economiesare to successfully integrate and compete in the world market (and World Bank policy prescriptions push them in this direction),they have to compete with modem production and industrialrelations practices. Th;s implies that late developerscannot just follow the developmentpathsof the advancedcountries with a lag, such as the traditional U.S. based mass production (Fordist) strategy. Instead, developing countries must quickly create more flexible systems. For example, many of the NIC's involved in export oriented industrial relations have had to adopt production techniques similarto those used in the industrialized world in order to compete successfully. The requirementto compete with best practice implies a "quantum leapufor most countries,and underscoresthe urgent needto address industrialrelationsissues. Although the organized sector is very small comparedto the unorganizedand informal sectors of most developing economies, the need for flexible industrialrelations policies is still paramount, given that it is the organized sector that plays a central role in industrialization,exports, and structural adjustment. This is not an easy task, since there are often compelling reasons for the existence of inefficientindustrialrelationscharacteristicsin the third world. In equity based systems,for example,laws limiting employer flexibility (e.g., limiting employer freedom to layoff, retrench or close their industries) exist, in part, because of the absence ef altemative sources of support from the state (such as unemployment insurance policies, social security systems, and labor market and training institutions).
12 The lack of resourcesto establishsocial security,for example, also explains why employersare forced to provide extensiveretirement and health benefits. As a result, the establishmentof appropriate industrialrelations requiresa rethinkingof other national policies. A national industrial relations policy is useless if viewed in isolation; it must be linkedto broaderpoliciesregardingeducation,training, socialsecurity,etc. Thisbroader linkagebetween industrial relations and other policies has by and large been ignored by policymakers. Below we examine in detail some of the basic requirementsof any industrial relations system. We start with basic principlesthat should be followed in industrial relations and then discuss some of the problemsthat haveappeared in developing countries conceming these industrialrelations features. C. Basic Principles of Law and InstitutIons Although there are wide variationsin the industrialrelations characteristicsof advanced industrialeconomies,successfulcountriesappear to share certainbasic principlesof law and institutions germane to industrial relations.
The Need for Unlons, the Right to Strike, and Collective Bargaining Modemindustrialrelationsrequiresthat workers be affordedthe basic rightto form unions and those unions should be granted the right to bargain collectivelywith employers and to strike if a negotiated settlementis not reached. The social advantagesgained from the provision of those rights are revealedin the experiencesof industrializedcountries. Theadvantagesinclude the fact that workers are entitled to a say in the determinationof their employmentand working conditions. Not only is such inputjustified on rightsgrounds, but in addition, contemporaryexperienceshowsthat to compete in world marketsrequiresthe active participationand commitmentof the work force in order to meet quality and product performancestandards. Therealso are clear virtues derived from industrialrelationssystems that give the parties involved in the production process direct involvement in the determination of work conditions and
13 employmentterms. Employersand workersand their representativesknowtheir own problemsbest and also can be remarkably adept at devising practical solutions to problems or conflicts. Interferenceby outside parties In the resolution of problems often leads to apparent solutions that prove unworkableor impracticalin the long run. Furthermore, third party interferenceeliminates the constructive learning the parties receive in problem resolutionand identificationas they work through their own problems. Evenif a third party could impose a solution that solves a problem in the short term, this process preventsthe parties from developing the capacity to solve their own problems. Thus a clear advantage to collective bargaining is that it avoids a cycle of dependence on third party interference. Experiencein the industrializedcountriesalso shows that unions, the right to strike, and collectivebargain.ngare more likelyto produceoutcomesthat are acceptableto workers and employers as comparedto solutions that are imposed by govemmentsor other third parties. Not only are employers and workers more likelyto develop solutions that meet their own needs,thesepartiesare also more likely to feel a commitmentto making such solutions work. Imposed employmentterms in contrast are often resented and resisted in part because the parties who must live with these terms had little say in their development. Thus, the process through which employmentterms are set is often as important as the actual terms themself. Collectivebargaininghas the advantageof beinga process that is "owned" by the parties involved. Since collective bargaining is a healthy process, it should be applied widely. This suggeststhat the right to strike should be granted in nearlyall cases. There may arise some instances wherean altemativeto the right to strike is necessary,yet experiencedemonstratesthat the use of strike altematives should be limited. It makes sense, for example, to exempt certain public services, such as police, firefighter,or emergencymedicalcare, from the right to strike. Experiencein North Americashows that in these casesthe availabilityof interestarbitration (wherea third party determinesthe terms of the labor contract if an impasseis reachedin negotiations)can be a successfulaltemativeto the strike (Olson 1988).
14 A country may also benefitby providinga nationalemergencydispute resolution procedureto limitthe rightto strikeon a caseby casebasisIn industriesotherthanthose listedabove. TheUnitedStateshassucha procedureprovidedthroughthe Taft.Hartley amendments to the National LaborRelations Actandtheseprocedureshaveworkedwell(Cullen1968).Yet,suchnationalemergency proceduresshouldbe narrowlyappliedso as to avoidregularInterference into the normalprocessof collectivebargainingfor all the reasonsoutlinedabove. Careshouldbe taken in the constructionof emergencydisputeregulationsto avoidthe excessiveuseor influenceof suchprocedures.
IndependentMediationEntitles A veryconstructiverolecan be playedby independentmediationentitiesin a modem industrialrelationssystem. As recommended above,in nearlyall casesunionsand employersshould be allowedto settlecontracttermsthroughdirectnegotiationsthatallow unionsto engagein strikesif negotiationsreachimpasse. Yet,third partymediationshouldbe availableto helpthe partiesin their negotiations.Theproperroleof mediationisto facilitatecommunication betweenlaborandmanagement and provideadvice. In the UnitedStatessuch mediationcomesthroughthe FederalMediationand ConciliationServicewhilein Britainthe AdvisoryConciliation andArbitrationServicemeetstheseneeds. Mediationshould be accomplishedin a mannerthat preservesthe centralplace of direct collective bargainingbetweenlabor and management. Mediationshould not acquirethe power to impose settlementtermsasthismerelybecomesa vehiclefor thirdpartyinterference in bargaining(Feuille1979). For mediationto servesucha functionthere mustbe a sufficientlywelltrainedcadreof mediatorswhounderstandpracticallaborrelationsissues.Countriesthat haverecentlyexperienced the spreadof democraticpoliticalinstitutionsespeciallyneedto devoteresourcestowardthetrainingof such mediators. Therealso is an extremelyhealthyroleto be playedby grievanceproceduresor labor courtsthat solveproblemsthatariseduringthetermsof contractualagreements.Researchshowsthat grievanceprocedurescanprovideemployeevoiceandtherebyloweremployeetumoveraswellasassist
15 in the Identificationof problemsand informalresolutionof conflicts (Freemanand Medoff 1984). Successfulgrievanceproceduresare designedby the partieswho directly use them and not by govemmentor otherthird parties. InEurope,govemmentadministered laborcourtscommonlyresolveindividual complaints. Laborcourts,likegrievancearbitration,can effectivelysettleproblemsand providepracticalresolution of problemsand avoidlargersocialconflicts.It is possiblefor an industrialrelationssystemto contain bothgrievancearbitrationand laborcourts,yetmostnationalindustrialrelationssystemsemphasize one or the other.
ProperUnlon Robe Theearlierdiscussionhighlightsthe pressingnatureof currentintemationalcompetitive conditions.Thereis clearlymuchfor employersand unionsto focuson conceminghowthework place can produce employmentterms that are sociallyacceptableand productsthat are competitively successful.Thisdoesnot implythatthereis no rolefor unionsto playas polkicalactorsor participants in politicaldebate. It doessuggest,however,that the representation of workerinterestsoftenrequires unionsto focustheirattentionon employmentand workplaceissues. It also is clearthat socity benefitstromthe presenceof politicallyindependentunions that are freefrom dominationand govemmentcontrol. Such dominationeliminatesthe democratic representation of workerwantsandconstructive employer-union interchange.Thedrawbacksfromstate dominationof unionsare manyincludinga violationof workerrights. Furthermore,state dominated unionsor statecontrolledindustrialrelationssystemstendto generateexplosiveperiodicconflict.Such has beenthe casein SouthKoreaand somecountriesin Latinand SouthAmerica(Deyo1989). As representationand bargainingentities,unions shouldnot servefunctionsthat are properlythe don r
of govemmentsocialserviceinstitutions. For example,thereare propersocial
serviceneedsin the areasof socialpensions(e.g.,socialsecurity)andvocationaleducationthat should be regulatedand financedby nationalgovemmentsand/orregionalgovemments.Unionsnot onlyare
16 poor providers of such services, they also become diverted away from the areas wherethey can make more substantialprivate and social contributionsby pursingsocial welfareprovisionactivities. We do not intendto conveythat there is no useful role to be playedby unions in the provisionof any social services. In some countries (e.g., Sweden and Denmark) unions, for example, play a constructive role in the administration of unemployment benefits. And in many countries unions are effectivelyinvolved in vocational education programs. Unions also should not become the vehicle for the direct provision of consumer goods such as housing or food distribution as they did in the former SovietUnion. Not only are unions relatively inefficient as a distribution and pricing system, consumer goods provision through the union or work place also unfairly and inefficientlyties workers to specific firms. These concerns do not mean that unions should be blocked from addressing specific worker health or educational issues. Union administered health and welfare funds have played constructive roles in many countries (e.g., Singapore). The point is that social programs should in general be administered by governments, while private programs should have narrower bounds and focus.
Workplace Representation There are great advantages to an industrial relations framework that includes parallel representationat the workplace through institutions such as works councils. In the most successful examples (as in Germany, the Netherlands and Denmark), basic pay and work standards are set in collective bargaining at an industry level (for an entire industry or group of industries, either regionallyor nationally).
Plant and firm-level works councils, composed of elected blue and white collar
representatives,enforcethe collectivebargainingagreementsand also engagein ongoing discussionand negotiationof plant-specificissues. Wellfunctioning works councils typically haveformal rights, backed up by national legislation or central collective bargaining, to extensiveinformation regarding company
17 plans, as well as to consultationand in some cases(usuallypersonnel issues)veto rights in management decision making. In Germany,works councilshaveintegratedemployeerepresentativesinto management decision making and provided a flexible instrumentfor restructuringand adaptation. Although works councils have imposed some extemal rigidity on firms (i is more difficult to hire and especiallyto fire), this has been morethan compensatedfor by added intemalflexibility (Streeck1984a). Becausethey are ableto negotiaterelativeemploymentsecurityfor the workforce,works councilsare morewillingto accept internal flexibility of deployment (Katzand Sabel 1985). Works councils also push firms to increase inhouse training and the hiring of apprentices. Although management decision making can be slowed in the legally-established, consensus-building process, managers have important allies in the works councils to smooth implementation once decisions are reached. Works councilors at large plants often take on comanagementfunctions, relieving managementof important personnel responsibilities(Turner 1991). Works councils also provide a voice for white-collaremployeeswho are traditionally underrepresented in industrialrelations systems; and the councils provide some representationfor employeeseven where unions are weak or absent. Where works councils function well, they contribute to a virtuous circle that includes employee voice on important issues, comprehensiverepresentation, labor-managementcooperation (since the works council identifieswith the interests of the firm), high trust based on joint efforts, flexibility in labor deployment, and high productivity and product quality (Streeck 1984a). These plant-level institutions of codetermination make i possible for works councils, unions (often working through the works councils), and managersto build successful"productivityct)alitions." it is importantto emphasize, however, that the virtuous circle is possible not just in isolated cases (as in the U.S. and Britain) but throughout the economy (as in Germany),and only because works councilsare establishedand defined in national legislationand/or a collective bargaining agreement.
18 Theparallelrepresentation affordedbyworkscouncilsIsalsobuttressed,andmademore at the strategiclevel. The i tter includebothcollectivebargainingbetween successful,byarrangements Industrialunionsandemployerassociations anduniontworks, councilparticipation(alsomandatedbylaw in Germany)on companysupervisoryboards.Thepresenceof strongunionsand employment security in Germanyalsohelpto makeworkscouncilssuccessful.Enterpriseunionsat largefirmsfulfillsomeof facilitatinglabor-management the works councilfunctionsin Japan.Theseincludeco-management, cooperation,buildingproductivitycoalitions,receivingextensiveInformationregardingcompanyplans, andgivinga voiceto white-collarconcerns.Enterpriseunionsare alsointegratedto some consultation, extentinto managementdecisionmakingthroughfirm-levelbodiessuch as joint labor-management committees.Butas in theU.S.case,thisformof plant-level representation hasno legalbackingin formal for the majorityof workplaceswhichare non-union. participationrightsand is weakor non-existent
Stmueture D. Waoo Settlnr and Baraalnlna Tworelatedissuesthatareof centralimportancein industrialrelationsin any countryare thestructuresfor wagesettingand bargaining(thelatteris referredto asbargainingstructure).Normally, thereisa closeconnectionbetweenthesemattersas wagesaresetaspartofthe normalbargainingthat occursbetweenemployersand unions.
BargainingStructure A critical choice in the processof collectivebargainingis the degreeto which the bargainingstructureis centralized.Themostextremecaseof centralizedwagesetting(w',ichdoesnot involvecollectivebargaining)occursduringincomespolicieswhena govemmentimposespaystandards thatapplyto allworkersin theeconomy.Wherethereis no govemmentsanctionedincomespolicy,the commonmosticentralizedK bargainingstructureoccurswhena largeemployerassociationnegotiates witha union(orfederationof unions)and setswagesandotheremploymenttermsfor all the unionized employeesin all the firmsthat are membersof this employerassociation.Bargainingin Swedenuntil
19
recentlywas a frequentlycited caseof centralizedbargaininginvolvingthe LO and SAF. Mid-range degreesof centralization in bargainingoccurwherea singlelaborcontractisappliedto allthe unionized workersin all the plantsof a singlecompanyor industry.Themostdecentralized caseis wherewages andothertermsin the laborcontractare setin a contractthat coversonlythe workersin a singleplant (or a subsetof the york forcein a plant).
The D1advantagesof FragmentedBargainingStructures The challengein developingcountriesis to develop wage setting and bargaining structuresthat meet the parties' needsand the pressuresof intemationalcompetitiveforces. For instance,highlyfragmentedbargainingunitsshouldbe avoided.A numberof problemshaveappeared in industrialized countriesin situationswherebargainingunitsweretoo fragmentedand numerous.In Britain,for example,the presenceof multiplecraft and industrialunion bargainingis said to be an impediment to integrstiveproblemsolvingandtheeffectiveintroductionof technological change(Ulman 1968). A large numberof bargainingunits also contributesto inflationarypressuresthrough the promotionof wageimitationand leapfrogging acrossjurisdictions(Flanagan, UlmanandSoskice1983).
The Virtuesof CoordinatedBargaining Onepotentialsolutionto the bargainingunit fragmentation problemis to conductwage bargainingat the levelof industrialsectors.In Germany,for example,bargainingoccurswithin16 major industrialsectors.TheGermanstructurehastheadvantageof inducingunionsto considerbroadworker economicinterests.So for example,becauseunionsin Germanyoftenincludeworkersfroma variety of companiesandindustries,therehas beenlesstradeprotectionistsentimentwithinGermanunionsas theseunionsoftenincludememberswhoselivelihooddependson theexportsuccessof theiremployers. In thisway,particularfirm orindustryinterestsbecomemutedin thebargainingprocess(Streeck1984a). Thecoordinationacrosswork groupsprovidedin the Gerrnanbargainingstructuremesheswith other
20 aspectsof GermanIndustrial relationsto produce was has been called a "coordinatedmarket economy" (Soskice 1990). Another successfulaltemativebargainingstructureIs enterprisebargainingof the sort that occurs in Japan. The advantage of enterprisebargaining is that it is very responsiveto the economic conditions facing particular firms. The potential problem of inflationaryleapfrogging across enterprise unions is dampened in the Japanesesystem through the simultaneousoccurrenceof wage bargaining that occurs in the "Spring Offensive"each year. In the annual offensivethe various enterprise unions communicateextensivelywith one another and often discusswage demandswith their respectiveunion federations. In this process, wage demands are coordinated and take account of macroeconomic circumstances.Japaneseenterprisewage bargainingalso hasthe advantageof often including a sizeable share of pay increasesin the form of annual bonuses that are influencedby the economic per!ormance of the firm. The advantage of linking pay directly to economic performance through this and other altemativetechniques is discussed more extensivelybelow.
The Virtues of Annual Pay Agreements Both the Germanand Japanesewage bargaininghaverevealedrelativelylittle inflationary tendencies. This appears to follow, in part, from the fact that in both countries most wage bargaining occurs on an annual basis, namely, the wage terms of labor contracts extend for only one year. In addition, in thesecountriesthere arevariousprocesseswhich providecoordinationacross wage bargains. Thesecoordinating mechanismsseem to be especiallycriticalin avoidinginflationarypressures (Soskice 1990). In contrast, multi-yearlabor contracts in the United States (and some other countries) reduce the influenceof contemporarymacroeconomicfactors on wage negotiations. In this way, multiyear contracts contribute to wage rigidity,a particularlyworrisomeproblem during economic downtums (Wachter 1976). A countervailingadvantageto multi-yearcontracts comes from the fact that they limit the possibility of costly strikes that might ensue in more frequent bargaining, in effect, by reducing the
21 costs and risks of bargaining. Yet, the inflationarytendencies inherentIn multi-yearcontracts appear to outweigh this virtue.
The Occupational Scope of Bargaining Structure Another importantaspect of bargainingstructureconcerns whichemployeesare included in unionsand other representationstructures. In Japaneseenterprisebargaining,whitecollar employees of the firm, below the executive rank, are included as members of the union. In Germany,whie collar employeesoften presstheir interestthrough their participationin the codeterminationprocesseswhich provide these employees with the right to proportional representationon the works councils and in the election of supervisoryboard members. In addition, white-collaremployeesin Germany belong to the same industrial unions as blue-collar workers. The provision of representationrights to white collar employees is an aspect of bargaining structure worthy of attention. Both the German and Japanese methodsof providing white collar employeeswith representationrights are commendable. An important industrial relationstask confronting developing countries is to avoid representationstructuresthat only include "blue collarnemployees.
Recent Movement to More Decentralized Bargaining Structures In recent years in very many industrializedcountries there has been movementtcward more decentralizedformal pay setting and bargainingstructures. In addition, in nearlyall countries there has been a shift toward bargaining structuredecentralizationthrough the elevationin the importanceof, and an increase in the variation of, the outcomes of plant level bargaining. Greater variation appears particularlyin the work rules and work practicesagreed to by union and company officialsat the plant level. Labor and management have turned to more decentralized bargaining as a way to developcontract terms that respond to their needsand economic pressures. As well, moredecentralized
22 bargaining fits well with the shift towards new industrial relations practices such as team systems discussed later In this paper. Thecurrent worldwidemovementtowards decentralizedbargainingstructuresareevident in a few developingcountries as well. During the 1980s,Singapore, Taiwan, Malaysia,Philippinesand South Korea have adopted elementsof the enterpriseunion system.While Singaporehas achieved,like the Japanese,a decentralizedsystem buttressed by some degree of coordination at the macro-level through nationalwage councils, South Koreais moving towards a similararrangement. Mal, ysia permits enterpriseunions, within an industrialunion frameworkthat allows enterpriseunions to respond to their firms unique economic circumstance,but are able to rely on their industrialaffiliatesfor support. These developments, however,are the exceptionrather than the rule in the third world. While it is perhaps early to evaluate the efficacy of these systems, unions still remain waak and fragmentedin SouthKorea, Malaysia,and the Philippines. Furthermore,it is unclearwhetherthe benefits of decentralizationobserved in Germany,Sweden,and other nations will be realized without attendant improvementsin union security and related policiesin developing countries. The direction of structural change in Africa reflects trends in the opposite direction. Restructuringin many African countries (such Algoria, Ethiopia,Egypt, and Nigeria) has produced more centralized monolithic union structures, with the attendant problems. Yet, recent (1991-1992)political instabilityconnectedwith movementstowards more genuineforms of democracymay reversethis trend. By and large, the experienceof the industrialcountries suggeststhat industrial relations outcomes that reflect economic circumstancerequire decentralizedbargainingthat is over the long run supported by strong unions and stable labor-managementrelations.
E. WorkDlace Issues There have been numerous recent changes in work place industrial relations in the advanced economies.
23 Recent Restructuring In Industrial Relatiorn In some countries recent changesamount to a fundamentaltransfotmationin industrial relations. It virtuallyall countries, aspects of this transformationhaveappeared. There are many dimensions to this transformation including a shift in the focus of industrialrelationsactivity away from the collectivebargaining to the *strategic' and *workplaceulevels (Kochan, Katz and McKersie 1986). In contrast to the traditional arms-lengthand formal nature of collectivebargaining,the "newindustrialrelationssystem involvesmore continuousand informalrelations between workers and managers (Windolf 1989). The new system often Includes contingent compensation,team systemsof work organization,enhancedworker and union participationin decision making, and employment security.
Contingent Compensation Contingentcompensationlinks pay directlyto firm or worker performance. The virtue of more contingent compensationcomes from the fact that it provides responsivenessin wages to current economic circumstances. As Weitzman argues, if pay quickly responds to economic conditions, economic systemsare able to lessenthe need for large quantity adjustmentsin employmentand output and thereby become less prone to stagflationand related macro economic problems (Weitzman1984). As discussedearlier,the presenceof annualpayagreementsratherthan multi-yearpay agreementsadds a significantdegree of responsiveness. Yet it appearsthat economiesbenefitfurther from the presence of direct linkages between pay and measuresof firm and/or worker performance. The use of annual bonuses that provide one-third of total wage eamings in Japan provides a virtuous high degree of pay responsivenessto economic conditions. It should be noted that for these bonuses to provide a macro economic stabilization function they must vary with firm performance which does occur in Japan (Hashimoto 1979). Other systems would be well servedto develop mechanismsthat fit within their own fr^,.ework to provide pay responsiveness.
24 Team Systems A second important Innovationof many new work systems is the shift to various forms of shopfloorand office teamwork(Windolf1989). Traditionalassembly-lineorganizationbasedon isolated work stations, it tums out, contains built-in limitationson worker participationand flexibility. Traditional t job assignments limit worker contributions to production improvements,commitmentto 'fragmented
product quality,and capacity for flexible deploymentin the workplace. Japaneseteam organization,by contrast, including cross-training, job rotation, integration of tasks, and regular team meetings, has demonstrateddramatic potential for productivity and product quality gains. At the same time, unions in Germany,especiallyIG Metall, havebeen promoting "group work," both for its production improvementsand as a more humanist ic form of organization(Tumer1991, pp.111-17). The German version places an emphasis on broad work assignments, broadened responsibilityand autonomy for the groups, as well as enhanced skills training and broad upgrading of group members. Although experiencewith teamworkin the U.S. and Britainshows mixedresults,evidence from Japanese plants, from Japanese-runplants in the U.S. such as NUMMI,and from German pilot projects indicates that considerable gains are possible in productivity, quality, and flexibility, with or without newtechnology (MacDuffieand Krafcik 1992;Katz,Kochanand Keefe1987).Gainsare especially likely when new work organization is associated with extensiveskills training, so that workers are able to integratotasks and solve problems that arise, and with cooperative,participatorylabor-management relations. Team or group systems are thus most likely to work well in countries such as Japan and Gerrnany, that already have strong institutional underpinnings for training and for worker/union participation. In other countries,it is necessaryto establishsuch underpinnings,to promote cooperation. participationand training, along with the introductionof moreflexibleteamor group forms of organization. The necessary underpinningscan range from joint labor-managementcommitteesat the plant level to national legislationto promote training and to establish some nationally appropriate version of works councils.
25 Employee Involvement In DecisionMaking A third essential element of innovativework systems and "new industrial relationsuis mechanismsfor employee and union participation. The relative success of Japanese and German industry has brought home the virtues of employee and union participation at various levels of managementdecision making. As changing world markets and new information technologies have increasedthe need for functionalflexibility in the workplace, production requirementscan no longer be met only by armies of semi-skilledworkers following orders. Japaneseand Germanindustrialrelations systems, in differentways, have offered strong mechanismswhereby (i) workers, unions and/or works councils activelycontribute their own ideas to improvingthe production process; (ii) employeeshave a better understandingof the broader production processand are more suited for flexible d .ployment;and (iii) workers, unions and/or works councils receiveadvance information regarding company plans and participate in decision-makingprocesses,and thereby often support company plans and help smooth implementation. In an era in which innovation in both product and process has become increasingly important, institutionalizedparticipation often means that employeesand their representativesbecome allies of management (rather than enemies or obstacles) in necessarywork reorganization. A further push for increasedparticipationcomes from the spread of team systems which provide wider roles for hourly workers as they become involved in production control tasks. Team systems and the administrationof new employmentsecurityare also often associatedwith a broadening of worker and union involvementin strategic businessdecisions. In part this strategic involvementarises as a consequence of the major corporate reorganizationsthat confront the workforce. After watching plants close and work outsourced, workers and unions have sought avenuesto affectthe decisionsthat weigh so heavilyon their future.
Difficulties In DIffusing Participation The U.S., Britainand France,among other countries, haveweak participatorytraditions, with industrial relations systems that do little to encourage either participation or intermalflexibility.
26 Historically,managersact (no one tells me how to run my business"),unionsreact (andoftenfight rearguardactionsagainstinnovation),and workersare supposedto do whatthey are told (but often sabotageinnovationin moreor lesssubtleways). In thesecountries,a majorchallengeis to reform industrialrelationspracticessothatnewparticipationandflexibilityarepossible,in linewiththedemands of contemporaryworld markets. In the face of entrenchedinsttutionsand practices,however,such reformis quitedifficult.Reformis underwayIn allthreecountries,butthepaceis haltingandthefailures are many(Milkman1991). Japanese andGermanfirms,bycontrast,havebeenlucky:firmsin bothcountriesoperate withininstitutional contextsthathavetumedoutto offerparticipation andflexibilityat an historicaljuncture wheresuchattributescontributeto marketsuccess(Katzand Sabel1985;Soskice1990).As American, BritishandFrenchmanagershavenoted,variouskindsof employeeparticipationandfunctionalflexibility havebeenshownto improveproductivity, lowercosts,improveproductquality,andincreasethecapacity of firmsto changeproductofferingsquickly. Casesof successfulreformand innovationwithineachof these countrieshas furtherbroughthomethe lesson(Eatonand Voos 1992). Fromqualitycirclesto shopfloor teamworkto joint labor-management committeesto financialparticipationto increased employmentand incomesecurity,innovationshave been spreadingin unionizedand non-union workplacesalike. Thecrucialdilemmafacingfirms,unionsand policy-makers outsideJapanandGermany is not howto importforeignmodelsbuthow to adaptand reformestablishedinstitutionsand practices to achievethe necessaryparticipationand flexibility. Participationcan be structuredin a numberof differentways,including:workscouncils establishedbylaw,informallyestablished cooperationthroughenterpriseunions;jointlabor-management committeesestablishedthroughcollectivebargaining;and qualitycirclesand suggestionprogramsin unionand non-unionworkplaces. It is importantto note that whereunionsare present,theyneedto be fully aboardand supportiveof the introductionof new work organization.Management strategiesthat dividethe local
27
union to force teamwork on a reluctant workforce are unlikely to work (Turner 1991). Institutional arrangementsthat ensure union participation,at least at some level,can facilitatethe labor-management cooperation necessaryfor the high-trust, innovativemodern workplace. While successful in Germanyand Japan,the patchy track record in the U.S., Britainand France suggests that participation requires either legal backing or substantial protections and encouragement throughout the firm. Workers and unions need institutions with clear rules and protectionsto allowthem to participatein firm decision-makingprocesses:managementneedsthoroughgoing reform from the top of the or-anization to the bottom to instill commitment for employee participation. Both sides need training in participatory processesand trust building to set successful participation in motion. The role of middle managementis especially important in this regard. It is here that employeeparticipation is most often perceivedas threateningto establishedprerogatives,and it is at this level that participation often fails or is sabotaged. Yet middle managershave a crucial role to play in participatory processes and can find their influence within the organization enhanced rather than diminished. They therefore need extra training in the managementof participation, along with special encouragement, protections and clarity about their own (often quite new) roles. Participation is most likely to succeed if it occurs and is reinforcedat all three levels of labor-managementinteraction in the firm: at the strategic level,in r'gotiation and agreement between top managementand union leadership;at the functional level, in collectivebargaining agreementsand contract enforcement;and at the workplace level,in team or group organizationand other meaningful participation programs that havethe full support of the organizationand its management. National labor policy can play an especially important role in encouraging the spread of participation,through efforts ranging from education to specific incentivesto enabling or even mandatinglegislation.
28 Employment Security There appears to be a direct link between participation, employment security and workforceflexibilitywithin the firm. To the extent that workers participatein decision-makingprocesses, they become more flexible in what they are both able and willing to do in production processes. And to the extent that they have employment security,employees are often willing to go along with even the most radical shopfloor innovations. The generationof employmentcommitmentto company goals requiresthat employees face the prospect of continued employmentwith their firms. This is particularlyimportant in light of the spread of team systemsand the developmentof more firm specificskills. In the presenceof these skills, employees become less attractive to the extemal labor market (Osterman 1988; Marsden 1990). If employees do not then receive more security from the firm, they may well be reluctant to acquire more extensiveskills and training, or participatein the sort of shop floor decision making that is so crucial to the maintenanceof competitive and high quality products. Employment security can come in a variety of forms. In Germany, there has been a longstandingand successfulrequirementthat if firms seekto reduce the size of their workforcethey must first negotiate social plans with their work council. These social plans then outline the compensation received by redundant workers and establishguidelines conceming which workers are to be laid off and create other adjustment strategies. As a result, the Germansystem also has shown relatively less use of layoffsas an adjustment strategy in the face of output declines. The "intemal flexibility' provided in the Germansystemthrough broad jobs and flexiblework ruleshas createdthe possibilityof more intemal adjustment rather than recourse to extensiveextemal adjustments through layoffs (Sengenburgerand K6hIer 1987). In Japan, there is heavy use of the "lifetimeemployment principle". A relatively high percentageof employees spend long careers,often their whole career, with one firm (Cole 1979). The key is that employeesare broadly trained and work rules are relativelyflexible. This makes it possible for firms to make intemal adjustments to respond to reductions in product demand. These intemal
29 adjustments Include moving workers across parts of the enterprise, or in some cases even "loaning' workers to other firms. The use of intemal movementsis, of course, not without its limits. In Japan, lifetime employmentis afforded to 'permanent' employeesbut is not providedto utemporary'employees. In the Germansystemas well, the use of foreign workers (particularlyIn the 1960sand 1970s)on limitedterm employmentcontracts also helped facilitatethe less frequent layoff of native Germanworkers (Streeck 1984a). Other forms of employmentsecurity, rangingfrom explicit employmentguaranteesto retraining and income support exist in a number of countries(e.g., Italy,Belgium,Netherlands),and in manycases, the negotiation of such policies is linked to introducLionof more flexible work rules. The argument here is that labor and managementshould try to find mechanismsthat fit with their respectiveinstitutionsto makeuse of intemalflexibilityas an altemativeto externalemployment adjustments. At the same time, it is unreasonableto believethat all extemal employment adjustments can or should be avoided. The elimination of the possibilityof layoffscan (and in some countries has) produced enormous inefficienciesand rigidities. Govemments should also play a role in providing inter-firm and career mobility, particulariyduring periods of slack economic growth and in regions or industries that confront abrupt employmentdeclines. In Sweden,for example,there is a long history of successful'active labor market policies' that have provided such assistanceand mobility to workers (Meidnerand Anderson 1973).
The New Industrial Relations and the Third World Thereis little evidenceof the emergenceof the 'new' industrialrelationssystemdiscussed above in the third world. However, we can see changes in this direction in the newly industrializing countries of Asia. For example, Singapore has gradually moved to a system of considerable worker involvementboth in national as well as firm level economic decisions. Enterprise unions have been adopted in many Asian countries as discussed earlier. Furthermore,broad based training practicesare
30 slowly taking root in Singapore, Malaysia,Thailandand SouthKorea, although much of the diffusionof these practicesis due to the predom-nanceof Japanesemultinationalsoperating in these countries. Legislativeframeworksaupporting worker participationin managementdecisionsthrough works councils and joint labor-managementcommittees do exist in many developing countries, (e.g., India, AnglophoneAfrica). And in FrancophoneAfrica, unions have recently been provided with seats in legislativerule making bodies in parliament(e.g., Benin, Senegal). Nevertheless,genuine participation has not taken root given the absence of supporting policies and structures. Despite the legal encouragement for employeeparticipation,and the willingnessof unions to participate,the problems of weak and fragmented unions, employer resistance,uneven implementationof existing labor legislation, poorly educated workforces, and most importantly, the absence of stable and cooperative labormanagementrelations, inhibit the developmentof genuine participation.
F. Tralning and Work Force Skill and Career Development New workplace systems in the 1990sand beyond, basedon attributes discussedabove such as shopfloor and office teamwork,employeeparticipation,and careerdevelopmentin intemal labor markets, cannot succeed without broadly skilled workers capable of continual leaming (MacDuffieand Kochan, 1991).
The Need for Greater Investment In Training The economic environmenthas put a premium on industry's ability to produce goods using batch rather than traditional mass production techniques, and to make changes in product-mix more rapidly. This has generated new demands on industry's training procedures. More flexible manufacturingprocessesoften entail the introductionof sophisticatedelectronicallydirected machinery (such as programmable machine tools) and automated storage and retrievalsystems. These systems can be most effectively operated by a workforce well informed of fairly advanced mathematics and statistics. The use of team systems fits into this network of new production techniques as the
31
organizationalvehiclethroughwhichworkes takeon the responsibilities to monitorand oftendiret qualitycontroland productionprocesses. The training needsgeneratedby now productionand control systemsgo beyond traditonalrequirements.Notonlymustthe worKforce havequantitative analyticskills,it mustbe skilled in the use of computerand other electronictechnologies. Furthermore,team systemsrequire communication andgroupskillsto facilitatetheoperationandcoordinationofteamtasks.Factorystudies showincreasingpercentages of skilledworkers,manyof themnewlycross-trained(inadditionalskills), accompaniedby decliningpercentagasof the traditionalsemi-skilled(see,for example,Milkmanand Pullman1991). Eventhe latterrequirenewtrainingin organizational skills(forteamwork,participation, job rotation)and/ormoresubstantive skillsdevelopment for themonitoringof expensive microelectronicrun machinery(Kemand Schumann1984). Trainingand retrainingprogramshavethereforetakenon addedimportancethroughout theIndustrialized world. Thisistruebothbecauseof therapidpaceof technological changeitself,which meansthatemployeesneedfrequentretraining,andbecauseof thenatureof newworkorganization and technologies.Theproblemfor firmsandgovemmentsis howto build up the necessarypool of skilled workers,how to build up the abilitiesand flexibilityof the less skilled,and how to developreliable structuresand incentivesfor continualtrainingand retraining. Unioninvolvement in thepromotionandoperatonoftrainingprogramscanbe a valuable assetin successfulupskillingprograms.At the firmlevel,suchinvolvement can encouragecooperative labor-management relationsandformpartandparcelof thebuildingof a *productivitycoalition"(Streeck 1984b)that includesmanagement, unionand workforce.Localunionsand/orworkscouncilsare often wellplacedto helprun trainingprogramsin a waythatappearsfairand winsthetrust of the worktorce.
The GermanTraining System TheGermancasealsoillustratestheconstructive rolethatunionscan playin therunning of a successfulnationalsystemof vocationaleducation- as partof a productiviycoalitionat the macro
32
level.EstAblished and supportedbycomprehensive nationallegislation,andfundedboth bygovernment andemployers,Germany'svocationaleducationsystemoffersthree-yearapprenticeships acrossa broad rangeof occupations:blue and whie collar,manufacturing and service,from bakersto machiniststo telecommunications technicians to hairstyliststo pre-schoolteachersto equipmentprogrammers. At the national,regionaland locallevels,the vocationaleducationsystemis tripartite:employers,unionsand govemmentallplayan activerolein establishing and updatingoccupational groupingsandensuringthat trainingprogramskeepup with employerand workforceneeds. Becauseunionsarebroadlyintegratedinto vocationaleducation,theyare committedto promotinga highlyskilledworkforce. Thiscommitmentextendsfrom the nationaland regionallevels, whereunionshelp set recruitmenttargetsbasedon projectedskill needs,to the plantand firm levels, whereworkscouncilspressmanagement to hiremoreapprentices.TheBritish/American imageof craft unionsthat restrictentryto the skilledtrades(to maintainstatusand payievelsfor thealreadyskilled)is contradictedby theGermanpictureof unionsthatactivelypromotewidespread skillstraining.In partthis isdueto the industrialunionstructureof representation; equallyimportantIsthetop-to-bottomintegration of unionsIntothe runningof the vocationaleducationsystem. Employershavestrongincentivesto participatein apprenticeship hiring. Thein-school trainingthatapprenticesreceiveis govemmentfunded;andapprenticewages,paidby employers,are low. Theemployerthus provideson-the-jobtrainingand in returngetsinexpensive and oftenenergetic andflexibleyounglabor. In addiion, the employergetsa multi-yearperiodin whichto workwith and observethe youngemployeeasa potentialpermanent,skilledhire. Foremployersasa group(andfirms participateIn the tripartitegovemingbodiesthroughemployerassociations),the nationalsystemof apprenticetrainingand vocationaleducationassuresa steadyflow of skillson the labormarket. Thenationwide,tripartite,comprehensive systemof vocationaleducationhasoftenbeen cied as a majorfactoraccountingfor Germany'sindustrialsuccess.A highlyskilledlaborforceis clearly a centralcomponentof thevirtuouscirclethathaspushedGermanfirmsupmarketInto"diversifiedquality producUon'(Sorgeand Streeck1988).
33
The ExtensiveJapaneseOn-the-jobTralning In contrastto theGermansystem,theJapaneserelyrelativelylittleon formalapprentices and yet accomplishextensivetraininginsidefirms. TheJapaneseproductionsystemincludesjobs that are relativelybroadlydefinedand workersareoftenrotatedacrossjobs throughouttheircareers.These productiontechniquesarefacilitatedbytheextensiveamountsof on-the-jobtrainingreceivedby workers. In addition,skill acquisitionand work placeflexibilityare assistedby the high levelsand qualityof educationprovidedIn the Japaneseprimaryand secondaryschools. Theprovisionof extensiveon-the-jobtrainingin Japanis linkedto otherfeaturesof the Japaneseindustrialrelationssystem. Thelongtenureof workersin firmsprovidesstrongincentivesto both workersand firmsfor investmentsin trainingby guaranteeing retumsto traininginvestments.In addition,theheavyrelianceon seniority-based paymakesjob rotationeasyandtherebyfacilitates training acrosstasks(Cole1979). First line supervisorsin Japan commonlycarefullyplanworkrs' trainingand career progression.Someof thisplanningandheavyfirst linesupervisorinvolvement takesplaceas partof the performance and associatedmeritpaythatcovers bluecollar workersin Japanesefirms(Koike1988). Thus,extensiveinvestmentsin trainingdo not occur accidently,but ratherare linkedcloselyto other practicescommonto Japanesefirms (particularly, the largefirms). In this way,the Japanesesystem illustratesthe linksthat existacrossvariouspartsof an industrialrelationssystem.Developingcountries mustevolvetheirown methodsof employeeeducation,boththroughtheeducationsystemandthrough trainingin industry.
G. The MlsmatchBetwen Social, Educationaland IndustrialRelatlonsPollees In DeveloDingCountries Theprevioussectionshaveshownthat successfulcountrieshavemanagedto achieve an integrationof industrialrelationspolicieswith socialand educationalpoliciesin waysthat enhance workforceskill developmentand facilitatecooperativelabormanagement relations.
34 Developingcountriesunfortunately,exhlbitslittleintegrationacross policies.Fundamental mismatchesexist.For example, lacking appropriate education and labor market policies, Malaysiahas a labor surplus at the professional level and a labor shortage at the skilled, semiskilled,and unskilled levels. The Philippineshas a labor surplus at the unskilled level and a shortage at all levels of skilled personnel, primarily due to emigration. This skill shortage ensures the continuance of low cost labor intensive production systems. Weak unions, and the absence of policies and structures that promote cooperativeindustrialrelations further ensure the continuanceof low cost, low skill production. The absence of unemploymentInsurance,social security,and skill developmentvia the educationsystemforces employersin manythird world countriesto take on costs which in other nations are handled by the government, thereby inhibiting the competitive position of employers wishing to compete in the world mark.t. Aithough many countries have apprenticeship programs and Industrial training systemsmodeled after Britain and Germany,the quality of training is below standardfor various reasons,most notablybecause of a lack of resources. Developingnations need to restructureeducation, labor market, and Industrialrelations policies to compete effectively. Thereare movementstowards the ntegrationof educational and labor market policies in certain countries. Most of the NIC's (Korea, Singapore,Malaysia),for example,are making strides in both upskilling their workforces and ensuring that the education systems meet their industrial strategy needs. South Korea, having accomplishedthis link, is now working on other necessarysocial policies such as the establishment of a social security system, although Korea has not yet articulated an appropriate industril relations policy. Singapore has achievedeffective links between Industrialization,social, educationand industrialrelationspoliciesand providesan Interestinglesson.Havinginvestedsubstantiallyin education, Slngapore was faced with continuing low labor cost labor intensiveinvestmentby foreign investors. In order to attract more high technology based Investmentthat would result In upskilling, Singaporeused its wage policy. Wages were increased by 12 percent for three years, successfullydriving out the low cost producers.
35
Theseare,unfortunately, isolatedexamples Inthethirdworld.Someof theseinnovations aregraduallytakingrootin moreadvanceddevelopingcountrles,buteventhere,not in asystematicway. Althoughresourcesarea criticalconstraint,developingcountriesmustmakeeffortsto integratevarious economic,social,educational,labormarket,andindustrialrelationspoliciesin waysthatwillenhancethe abiliy to competein the intemationaleconomy.
H. Concluslons Theeconomicpressuresfacingthethird worldsuggestthe needfor the restructuring of their economiesand industrialrelationssystems.But changein industrialrelationssystemscannotbe accomplishedovernight. Historyhas shownthatthereare certainkeymomentsof transitionin industrialrelations systems,afterwhichtheyget set and are hardto modify. Oftenthesekeymomentsare as a resultof legislativechanges(e.g.,the establishment of the NationalLaborRelationsAct and the emergenceof publicsectorunionsafterthe burgeoningof publicsectorlegislationin theUnitedStates).Otherfactors are also importantin facilitatingindustrialrelationssystemchange,such as importanthistoricalor economicjunctures(e.g.,the postwar reconstruction in GermanyandJapanweresignificantmoments of Industrialrelationstransition). In the developingworld,previouskey momentsof nationaltransitionhavebeen the independencemovementsin the late 1940s(India,Pakistan),1950s(Malaysia,Singapore,and many Africancountries)and the early1960s.Transitionsin industrlalrelationshavealso occurredin the NIC's due to shiftsof industrialstrategy:for example,the shiftto an exportorientedindustrialization strategy froman importsubstitutionstrategyhas resultedin far reachingand fundamental changesin industrial relationsIn Malaysia,Philippines,SouthKorea,and Singapore. Therecentpressuresfor structuralchangein the developingworldpresentyet another opportunityfor majortransitionsin industrialrelatlons. A key questionis whethercountrieswill take advantageof this opportunity.
36
AnotherimportantissueIsthe needto recognizethatvariousindustrialrelationspolicies and proceduresfit togetherand reinforceoneanother(i.e.,the systemicnatureof Industrialrelations). For example,changesin pay systemshaveimplicationsfor work organization.Work organization meanwhilehas strongImplicationsfor employeeparticipationandskill development.Thechoicethen is not just to emulateelementsof Industrialrelationspolicyfrom the experienceof the Industrialized countriesandmakeincremental adjustments, butratherto strivefor the reconstruction of entiresystems so variousnewpoliclesfittogetherin waysthat reflecttheuniqueinstitutional background,politics,and historyof eachcountry.Therefore,we arenot suggestingthat Germanyand Japanarethe bestmodels for the thirdworidand EasternEurope. However,we useGermanandJapaneseexamplesto highlight successfullinkagesbetweenindustrialrelationspolicies. Thispaperemphasizes thegoalsofan industrialrelationssystemandthesystemicnature of Industrialrelations. Most Importantlywe emphasizethe necessityof coordinatingand integrating industrialrelationspolicy with other economic,social, educational,and legal policies. Developing countriesmustdeveloptheir own uniqueinstitutionalmechanisms to achievethesegoals.Perhapsthe pointsmadein thispaperwillserveasa guideto the principles. WhileIt is clearthat manyoftenfar reachingchangesare necessaryto bringaboutthe alignmentof industrialrelationssystemswith currenteconomicpressures,the processthroughwhich changeoccursalsois important.Foronething,theprocessof changehasto be managedso asprovide for the active participationof the parties. Participationcan help to achievethe necessarypopular acceptanceof changes.Experience hasconsistentlyshownthatthetop downintroductionof Industrial relationschange(whetherit Is policyat the nationallevelor systemsat the companylevel)failswithout popularacceptanceof the needfor changeand parUcipation in thechangeeffort. For manydeveloping countries,the changesrequiredin industrialrelationsinvolvea "quantumleap",implyinga longgestation period(our viewsare basedon the establishment of stableand flexiblelabormanagement relationsin thelongterm).Therefore,changeeffortsshouldhaveclearlongrun goalsbut mustalsoaddressissues 3 may be appropriate. of transitonin the shortterm. A stage-wise approachto systemsof ^bestpractice
37
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