The Effects of Globalization and Economic Restructuring on Philippine Labor Policies and the Responses of the Actors of the Philippine Industrial Relations System
The Effects of Globalization and Economic Restructuring on Philippine Labor Policies and the Responses of the Actors of the Philippine Industrial Relations System[1]
Jorge V. Sibal
Professor
University of the Philippines School of Labor and Industrial Relations
E-mail:
Abstract
The Philippine labor policies and standards are based on international labor standards (ILS). With the present intensification of globalization and the resulting economic restructuring, there are agitations from certain groups that these high labor standards need to be liberalized since the country is experiencing “jobless growth” in the formal industrial sector and the use of capital intensive work processes is being encouraged in the face of very high unemployment and underemployment rates of 10.8% and 17.6% respectively.
This paper argues against the suggestions of liberalizing labor policies and standards which may lead to the race to the bottom lowering of wages, benefits and working conditions among workers in the underdeveloped and developing countries as their comparative advantage and the possible retaliation of developed countries through the imposition of their high labor standards as a trade protectionist device in order to protect the jobs of their local labor force earning high wages and benefits.
The major actors of the Philippine IR system- government, employers, trade unions and civil society groups- have responded to the said imbalance between high labor standards in the face of high unemployment and underemployment rates.
This paper advocates the retention of Philippine labor policies based on international labor standards as the correct path in the attainment of economic growth and development that will result in social equity and decent work.
Globalization Trends in Asia
Globalization was more intense in Asia, particularly East Asia which contributed to the fast growth of the region today.
Globalization in Asia is characterized by the increasing participation of foreign capital, including small and medium scale investors from the NICs (Taiwan, So. Korea, Singapore, Malaysia, China, etc.) in the enterprises of the developing economies including infrastructure and energy development projects which were previously monopolized by the state. These foreign investors favor the less developed countries due to cheap labor costs.
The impact of globalization on employment was favorable to South Korea, Thailand, Singapore and Malaysia. It is not as successful in the Philippines.
Effects of Globalization to Philippine IR Actors
Globalization in the Philippines was accelerated since it joined the WTO and APEC in 1990s. The country was a recipient of several structural adjustment loans from the WB-IMF.
Figure 1. Responses of IR Actors to Globalization
The Gove
The Government
The government adapted the development strategies prescribed by the WB-IMF whose main features are trade and investments liberalization and globalization.
The schematic diagram in Figure 1 illustrates the Four “D” strategies that the Philippine government initiated under former President Fidel Ramos- Deregulation, Democratization, Devolution and Decentralization. Among the typical economic programs of the government include reduction of subsidies to state enterprises, privatization, import liberalization, foreign exchange decontrol and investments liberalization.
Privatization and build-operate-transfer (BOT) projects resulted in the decline of state ownership of big enterprises and infrastructure. This strengthened private business cartels which may disadvantage the workers and consumers.
Globalization was not able to arrest the increasing income inequality among countries and regions of the world. In the Philippines, income inequality among classes and among regions remained (Sibal 2002). As will be explained later, the country failed to develop its agro-industrial base and did not create enough jobs to absorb the unemployed and the new entrants in the labor force. The trickle down effect to the poor did not materialize.
The widening social inequity as a consequence of WTO’s trade liberalization prompted the World Bank to promote “Growth with Social Justice” aligned with Unicef’s “Development with a Human Face”, WHO’s “Health for All”, and UNDP’s emphasis on human development (Tapiola 2002).
The country adopted the 1998 “ILO Declaration on Fundamental Principles and Rights at Work” which became the basis of the International Labor Standards (ILS)[2]. Together with the social justice provision of the 1987 Constitution[3], this has strongly influenced the country’s labor and industrial relations policies.
The Employers
Globalization brought “jobless growth” in the formal industrial sector of the economy since global enterprises invested in capital-intensive tertiary manufacturing processes or outsourced marketing operations to take advantage of the country’s export quotas, local markets, cheap labor, ports, telecommunications, etc.
Local employers were thus exposed to intense competition from global producers and importers of finished goods that included smuggled items. Technological innovation and investments in HRD and new forms of labor flexibility became a must in order to offer better services at competitive prices to consumers. Most of the big enterprises were able to adjust by increasing labor productivity and competitiveness.
Among these measures were:1) increase in capital intensive operations; 2) work flexibility arrangement through various forms of outsourcing, reengineering, right sizing; and 3) investments in HRD, organizational development and human capability building.
Philippine employers, especially the big enterprises have proven to be very resilient. Local conglomerates, mostly owned by ethnic and Chinese Filipinos, have adjusted, adapted and even expanded as a result of globalization. San Miguel Corporation, United Laboratories, Jollibee Foods and Splash Corporation have expanded operations abroad, particularly in other Asian countries. Most of these enterprises adopted cost reduction and productivity programs in order to survive and grow.
Filipino employers, especially in the small and medium categories in agriculture and in sunset industries were among the losers in the globalization process. The labor-intensive firms were not prepared for liberalization and globalization (ECOP 2004, FTA 2003). Some of these industries are in the garments and apparel, car parts manufacturing, agricultural producers (vegetables, palay, corn, poultry), etc. They have to upgrade their technologies and enhance their productivity. Otherwise, they may be absorbed by others that are growing due to globalization.
Since 1980, the share of manufacturing has continued to decline as shown in Table 1. Agriculture’s contribution to GDP continued to decline from 33.3 percent in 1967 to 20.0 percent in 2000. Although declining, this sector however is a very stable sector since its average annual growth rate is steady from a range of 2 to 4 percent. What increased significantly was the service sector from 36 percent in 1980 to 45.6 percent in 2000. Hence, the Philippine growth pattern was characterized by the increase in services with agricultural and industrial sectors declining[4].
Table 1. Percent Share of Manufacturing, Agriculture and Services to Gross Domestic Product (GDP) (in million pesos)
Agriculture / 33.3% / 27.8% / 23.5% / 22.4% / 20.0%
Industry-
>Manufacturing / 18.3 / 22.5 / 27.6 / 25.6 / 24.8
>Other Industries / 5.2 / 7.1 / 12.9 / 10.0 / 9.6
Services / 43.2 / 42.6 / 36.0 / 42.0 / 45.6
Source of Data: National Statistics Coordination Board, Philippine Statistical Yearbook. Other
industries include mining and quarrying, construction, electricity, gas and water
Labor was absorbed not by industry but by the service sector. As of 2000, more than half of the country’s employed labor force which used to be in agriculture were absorbed by the service sector.
Table 2. Labor Absorption of Agriculture, Manufacturing and Services (in percentage)
Sector
/ 1971 / 1981 / 1991 / 2000Agriculture / 50.4 / 51.4 / 45.2 / 37.0
Manufacturing / 12.0 / 10.5 / 11.0 / 10.3
Services / 37.6 / 38.1 / 43.8 / 52.7
Totals
/ 100.0 / 100.0 / 100.0 / 100.0Reference: Phil. Statistical Yearbook, National Statistics Coordination Board
Over-all, industry failed to absorb an increasing labor force, unlike other developing countries and Asia’s newly industrializing economies. In recent years, industry’s labor productivity declined. The manufacturing to employment ratio over the last two decades has not changed to about 4% (Felipe and Lanzona 2005 citing Balicasan).
The Workers
Workers in developing and underdeveloped countries are made to compete with workers in industrialized countries. Factories in developed countries can easily be transferred elsewhere via international subcontracting. This has weakened the trade union movement in the country. The decision making power in the country’s workplaces is moved away from the shop floor since global companies decide on their subcontracted operations in their corporate headquarters.
Labor cartels in the developed regions, particularly in the US and Europe were also weakened due to the decline in worker unionization and trade union initiated benefits. Trade unions now tend to be less ideological and are more receptive to possible strategic partnership in enterprise building through new industrial relations processes. This may bring about more unity in the international labor movement.
Trade unions were encouraged to engage in non-traditional (sometimes non-collective bargaining) activities such as investments in labor enterprises, renewed political unionism and organizing the informal sector of the economy. This has widened the base of operations of the trade union movement and make the trade unionists more effective leaders of the labor movement. In the Philippines, some trade union-based party-list groups like the Anakpawis and Partido ng mga Manggagawa have been elected as lawmakers in the Philippine Congress.
Trade unions and other labor organizations in the country weakened due to the widespread casualization and sub-contracting of labor. This may be true only in the short-run, since globalization, if it turns around the Philippine economy to an NIC status even in years beyond 2020[5], will mean transforming the vast informal sector of the economy to the formal sector. This will surely mean a massive growth of trade unionism in the Philippines similar to the free trade period of the 1930s.
The responses of trade unions to globalization within the collective bargaining process (or conditional demands) are as follows:
1. Multi-skilling, job rotation, HRD and training
2. Entrepreneurship training and development
3. Employee cooperative formation with management support and assistance- credit, consumers, savings and loan association, marketing, producers, etc.
4. Employees’ stock option program (ESOP)
5. Increased retirement benefits, early retirement provisions, unemployment insurance, pension plans, etc.
6. Negotiated reduction of work hours to prevent lay-offs
7. Salary hike freeze but with provisions for profit sharing and workers’ participation in management upon recovery
8. Cooperativization of work processes, joint ventures with TUs and employees associations (commonweal enterprises) or subcontracting with management assistance and subsidy
9. Other form of labor-management cooperation (LMC) like works’ councils, co-determination and labor-management strategic alliances.
On the other hand, trade union responses to globalization outside the collective bargaining process are as follows:
1. Community organizing in the informal sector
2. Labor enterprises and labor entrepreneurship
3. Political unionism, lobbying and electoral struggles
4. Skills upgrading and retraining of workers
Effects of Globalization to Philippine Labor and IR Policies
A developing country, the Philippines has several sets of labor standards because of its segmented economy and industrial relations system. The country has a shrinking formal sector whose wage and salaried employees (around 52% of the labor force) are covered by legislated labor standards set under the various ILO conventions[6] (Leogardo 2004, Macaraya 2005). In the private sector, the labor standards are mostly stipulated in the Labor Code of the Philippines, the Social Security System, PhilHealth, Pag-ibig Fund and Employees Compensation Commission. In the government sector, the labor standards are governed by the Civil Service Laws and the Government Service Insurance System.
The increasing informal sector where workers are mostly not on a formal labor-management relations (such as unpaid family workers, self-employed or own-account workers, piece rate and other local and overseas contractual workers) are directly or indirectly covered by several laws affecting informal workers. Among these laws include the Barangay Micro-Business Enterprise (BMBE) Law[7], Cooperative Code of the Philippines, Cooperative Development Authority (CDA) Law, Local Government Code, laws governing the Overseas Workers’ Welfare Administration (OWWA) and the Overseas Employment Development Board (OEDB), Comprehensive Agrarian Reform Law (CARL), Agriculture and Fisheries Modernization Act, Magna Carta for Small Farmer, Social Amelioration Program in the Sugar Industry, Small and Medium Enterprises Development Council (SMED), Social Reform and Poverty Alleviation Act, certain provisions of the Labor Code of the Philippines, SSS, PhilHealth, and Employees Compensation Commission Law (Tolentino, Sibal and Macaranas 2001).
Bach Macayara (2005) noted: “The framer of the [Labor] Code at that time simply ignored the fact that in those developed countries, many of their workers already joined their formal sector of the economy; whereas in the Philippines, a large majority of our workers were still with the informal sector. As a consequence, we have a Labor Law that was focused in protecting the smaller segment of the workforce in the formal sector. Nonetheless, we consoled ourselves with the thought that as ‘economic development deepens, most of our workers will eventually end up with the formal sector of our economy’ an assumption that now appeared premature as this was reversed when globalization was introduced”.
Macaraya cited Table 3 below to prove his point:
Table 3- Comparative Sizes of Formal and Informal Sectors, 1999 and 2003[a]
1999 / 2003 / DifferenceNo. of workers / % to total employed / No. of workers / % of total employed
Labor Force / 30,758,000 / 90.19 (9.8)[b] / 34,571,000 / 88.61(11.4)[b] / +3,813,100
Total employed / 27,742,000 / 30,635,000 / +2893,000
Formal sector / 6,013,688 / 21.68 / 5,706,460 / 18.63 / -307,228
Informal sector / 18,069,322 / 65.13 / 20,013,540 / 65.32 / +1,944,218
Wage & salary / 3,932,312 / 14.17 / 4,868,540 / 15.89
Self employed / 8,864,000 / 31.95 / 9,912,000 / 32.35
Domestic helpers / 1,498,000 / 5.40 / 1,486,000 / 4.85
Unpaid workers / 3,775,000 / 13.61 / 3,765,000 / 12.28
Source: Leogardo, V. J. (2004).
[a]Determined through residual methodology, using NSO Labor Force Surveys and Annual Survey of Philippine Business & Industry
[b]Percent unemployed
The workers in the formal sector and covered by the labor standards under the Labor Code for 1999 and 2003 comprise only of 21.68 percent and 18.63 percent, respectively, of the total employed workforce. During the same period, the formal sector workers declined by 307,228 as globalization deepened. The workers in the informal sector which accounted for 65 percent of the employed labor force grew by 1,944,213. These are the workers not covered by the Labor Code.