THE CHALLENGES OF FIRM-LEVEL ADJUSTMENT, PRODUCTIVITY AND WORKERS WELFARE

UNDER GLOBALIZATION:

CASE STUDIES, INSIGHTS AND POLICY RECOMMENDATIONS

Jorge V. Sibal[1], UP SOLAIR

Globalization is fuelled by technological advancements in communications and transportation (Froebel and Kruye, 1981) that enhance market competition in terms of higher levels of consumer standards for quality, efficiency, speed and cost-effective products and services.But the road traveled by many global enterprises is the transferof their labor intensive operations to the less developed countries where the cost of labor is lower.This trend resulted to intensified contractualization and the race to the bottom wage rates which have been very detrimental to labor, resulting to jobless growth and poverty.

Governments, business enterprises and labor organizations have instituted alternative interventions in order to be competitive through increased labor productivity and workers’ welfare. These new interventions in industrial relations (IR) have focused on transformational methods in enhancing competitiveness and productivity side-by-side with decent work through more participative rather than adversarial employer-labor relationship.

Through the ILO initiatives, many nations have institutionalized labor standards legislations and accords that have impact on labor rights and decent work. High priorities were on policies that focus on meeting “peoples’ needs” that meet the aspirations of men and women for: respect for their rights, cultural identity and autonomy; decent work; and the empowerment of the communities where they live and work. Governments are also challenged to practice good political governance based on the democratic principles of respect for human rights, the rule of law and social equity (World Commission on the Social Dimension of Globalization, 2004).

At the industry level, Vause (2001) proposed that labor organizations may forge agreements (such as voluntary codes of conduct) with employers and government. An example is the “Sullivan Principles” Code of Conduct that opposes apartheid and imposed compliance from foreign companies actively doing business in South Africa.Kuruvilla and Erickson (2000) outlined another path where enterprises can compete on the basis of quality. The focus is on functional form of flexibility that aims to establish a competitive HRD-driven IR system anchored on employee participation and skill formation.In the Philippines, these firm-based adjustment measures introduced by domestic firms were recorded in the 1999 Industrial Relations at the Workplace Survey of the Department of Labor and Employment. Among these interventionsinclude investment in HRD (53.3 per cent) and improvement in quality of products and services (79.8 per cent)[i].

This paper is divided into three parts. Part I discusses the concept and technologies of employer-labor social partnership as an alternative way of coping and growing under globalization. Part II features case studies of firms that have successfully practiced the various mechanisms of employer-labor partnership in the Philippines. Part III draws out summaries from these practices and lists down policy recommendations in order to enhance these emerging trends.

I. Employer-LaborSocial Partnership

In its Social Market Economy Project, members of the Core Group of the Society, Economy and Philippine Development Project of the Angelo King Institute for Economic and Business Studies defined social partnership as a “relationship based on trust” that place under “conditions of relative equality”[ii]. There is shared responsibility and interest by the employers and labor the pursuit of organizational goals.

As social partners, employers and labor are more cooperative and non-confrontational in negotiations and conflict resolution. This arrangement requires constant dialogue, communication and consultation on issues affecting their respective rights and interests. It is a relationship founded on mutual respect, sincere commitment, and a genuine concern for the common good – giving light to humane workplace relations.

Principles of Social Partnership and Social Transformation

Economic and IR development goes hand-in-hand. True economic development should not only lead to high growth but also to a better workplace relations and the empowerment of workers. Bamber and Leggett (2000) confirmed that IR (also referred to as employment relations) is linked with industrialization, transformation and democratization (economic and industrial democracy and employee participation in union and management decisions through work councils, collective bargaining, etc.).

The guiding principles in employer-labor social partnership are industrial democracy and industry productivity. Industrial democracy means social, political and economic equity in the workplace. It means workers, though subordinates of management in the pursuit of organization’s goals, should be treated socially as co-equals. While management performs leadership in the enterprise, workers should be treated as working partners, much in the same manner that the managerial personnel themselves are after all, also a higher level of workers or partners in the enterprise.

Economic equity means equitable sharing of incomes and political equity means more participative processes in decision making. A more participative rulemaking process would usually lead to more equitable income sharing. Industrial democracy should always go hand-in-hand with industry productivity. But there are also situations, especially in the past, when the two did not go hand-in-hand.

At the start of the industrial revolution in Europe (scientific management school of Frederick Taylor), management was focused more in productivity and less in industrial democracy. Management was more Theory X and exploitative to the workers in the name of capital accumulation and industrial expansion. Hence, trade unions were massively organized resulting into work slowdowns and stoppages which ultimately brought down industrial productivity.

The committee system practiced in socialist countries featured maximum political and economic democracy but this resulted to lower productivity and lack of competitiveness. In the long run, the workers themselves suffered because of low productivity and their enterprises lost out in global competition.Likewise, the vibrant bipartite system in the United States of America led to high wages and ideal working conditions for the American workers but to the detriment of their competitive edge in the global market. This has led the Americans to do serious rethinking and alterations in their present IR system.

The traditional goal of the labor movement is industrial democracy while that of management is industry productivity. While industrial democracy and industry productivity may be contradictory especially in the past when behavioral sciences were not yet as developed as they are today, the two are actually complementary. This means that with modern IR technologies, a more participative management decision making process would most likely lead to higher productivity mainly due to minimum work slowdowns and stoppages and greater competitiveness and growth in the global economy.

The very adversarial employer-labor relations characterized by a win-loss type of bargaining is already being replaced by the IR system under the new paradigm of social partnership that is less conflictual and allows more worker participation in decision making. Social partnership in decision making prevents antagonistic conflicts between employers and their employees. This prevents outside parties in interfering in their conflict resolution process.

Forms of Social Partnership

Arranged in a fulcrum (Chart 1), the least participative rulemaking process is the unilateral decision making, followed by the consultative method. The most participative of course is the committee system or workers’ self-management and co-determination and work council method. The least participative IR process is usually classified by Douglas Mc Gregor as Theory X and the most participative as Theory Y.

Chart 1: Leadership Styles, IR/HRM Practices, Types of Leaders & Philosophies

J. Gordon

/ Autocratic / Participative /
Democratic
/ Laissez-Faire
IR/HRM Practices / Unilateral Decision Making/Unitary / Consultative, Bi/Tripartite (QCs, TFs, LMCs, CNs, CBAs) / Work Councils, Co-determination, ESOPs / Committee System
PLACES OF PRACTICES / SMEs, developing countries / Japan, USA / Europe, Germany, USA / Socialist countries, state enterprises
TYPES OF LEADERS / Dynastic, aristocrats / Middle class capitalist / Middle class capitalists & socialists / Socialists
PHILOSOPHIES / Mercantilism, Protectionist / Classical liberal / Neo-classical / Socialist Mixed econ.

Social partnership in decision making is classified as follows:

  1. In the unilateral (or unitary) decision making process, management deals with the workers individually and also decides on their wages and benefits unilaterally. This is the most Theory X type of decision making process, also called the paternalistic style of management which usually is applicable in smaller enterprises and in Asian setting. Labor is usually unorganized.
  1. In the consultative decision making process, management consults with the workers before deciding unilaterally. The IR process is applicable in bigger enterprises typically associated with the Japanese-style decision making process. Labor here may be organized into trade unions. The common mechanism utilized here are the labor-management committees (LMCs) and the quality circles (QCs).
  1. In the bipartite or tripartite decision making process, workers are organized into trade unions. Bipartism is basically a two-party collective bargaining system usually conducted in an enterprise or industry level. Tripartism, or three-party collective bargaining process, involves usually the government (or another private actor) as the third party. The government representatives come in as third parties either as arbitrators (or judges) who will decide on the labor management disagreement, conciliators or mediators who try to encourage voluntary settlement among the parties in conflict, or legislators who will enact laws in accordance with the agreement of labor and management. The bipartite and tripartite systems are typical in the American and British IR systems.
  1. In a co-determination type of decision making process, labor and management are equally represented, with full veto powers, in the governing board of a large enterprise which lays down policy decisions in all matters affecting the enterprise. The workers, both unorganized and unionized, elect their representatives in a work council which will in turn nominate their representatives in the governing board and other management structures. The union is usually allocated automatic representation in the governing board. Unlike the bipartite or tripartite process, the scope of powers of the work councils goes beyond issues on wages and conditions of work. This IR process is typical in big enterprises in Western Germany. In the US, the adaptations of this IR process resulted into the Employees’ Stock Option Programs (ESOPs).
  1. In a committee system or self management, workers in an enterprise elect their representatives and leaders to management committees and other operating committees which will manage the enterprise. In the socialist countries where big enterprises are usually state enterprises, the ruling party (usually the communist or socialist party) plays a determining factor in the election of the members of the management committees. This system is also practiced in cooperative enterprises where member-employees can be elected to the governing bodies of the enterprise.

Social partnerships in IR are manifested through the various forms and approaches of employee participation, employee involvement and ownership schemes adopted by firms. In the Philippines, the most common of these forms areLMCs, QCs, joint-consultation meetings, work teams, social compliance committees, CBA-initiated programs on productivity, ESOPs, work councils and such other joint programs or projects between employer and labor on productivity and decent work (Ponce-Pura, 2002). The philosophy in these cooperative approaches is to involve employees in the decision making process on matters that would contribute to continuous improvement and attainment of organizational goals[iii].

Cummings and Worley (2001) defined Total Quality Management (TQM) as a set of long-term initiatives geared towards continuous quality improvement of products and services. Work groups normally identify and establish quality standards that aid in analyzing causes for deviations from the standards, help the group find ways of minimizing standard deviations, and provide the impetus for continuous monitoring of the quality improvement process. Employees are empowered to make decisions for themselves and the organization with regards to process-oriented quality improvements, decentralizing power to individual decision-makers down the organizational ladder.

A QC is usually composed of small, permanent groups of employees who voluntarily meet to identify and handle organizational problems such as productivity, absenteeism or quality control. Members’ participation in the QC is consultative or advisory in nature[iv]. On the other hand, an LMC is a “voluntary body composed jointly of representatives from workers and management who meet to identify and resolve issues of common interests and concerns” (Gatchalian, 1999). An LMC has evolved into a “high-road” strategy geared towards enhancing quality, increasing productivity, and improving competitiveness (Gatchalian, 2004).

Employee representatives in a work council (either elected by employees or selected by their union) are accorded information, consultation and participative rights on matters affecting employee interest, such as regulation of work hours, fixing of performance related pay rates, or the monitoring of employee productivity, among other work concerns. While coexisting with a union in some cases, work councils formally operate independently of the union and cannot engage in a strike (Addison, 2005).

For unionized firms, collective bargainingandjoint consultationare forms of employee participation schemes. Worker cooperation in the introduction of efficiency-enhancing work practices is often generated through the agency of a union or a collective bargaining agreement.

Self-managed work teams are high-performance work teams composed of “multiskilled employees performing interrelated tasks” responsible for the complete processing or functioning of a product or service(Cummings and Worley, 2001). They are portrayed as a one-stop-shop with each team member expected to learn most if not all of the tasks or jobs under the team’s area of operation.

Reward systems, such as ESOP, profit sharingand perfrmance-based compensation are combined with employee involvement initiatives in order to motivate employees towards higher productivity (Cummings and Worley, 2001). In the case of ESOP, companies promote a sense of ownership by issuing shares of stock to their employees as a form of incentive or positive stimulus to achieve strategic organizational goals (Aganon, 1997). All three reward systems encourage employees to think more like owners and support a culture of cooperation and commitment to corporate policies (Noe, Hollenbeck, Gerhart and Wright, 2000).

Other forms of employee involvement practices range from suggestion schemes, which provide opportunities for employees to propose innovative ideas to their managers in improving organizational effectiveness, to information-sharing schemes such as company journalsandcorporate videos (Parasuraman, 2001). Consultationmeetings and multi-channel communication within the organization encourage employees to share their ideas for continuous work improvement.

Social Partnership in the Philippines

After a long period of political unionism and arbitration in the Philippines, collective bargaining and economic unionism (or the bipartite IR process) was introduced to the Philippines by the Americans through the enactment of the Industrial Peace Act (RA 895) in 1953. This labor legislation was patterned after the US labor relations law (the Wagner Act) and it was drafted with the aid of US labor advisers under the Economic Survey Mission.

1950s also signified the area of mercantilism and economic protectionism in the Philippines. It was said that the Philippines grew at an average annual growth rate of 7-8 per cent, regarded as the second fastest growing nation in Asia, next to Japan.

The idea of encouraging tertiary manufacturing industries through import substitution and protectionism and the institutionalization of a bipartite IR system was to hopefully make the Philippines an industrialized country and in the process empowering the labor force through collective bargaining.

After a couple of decades however, both the protectionist-inspired industrialization strategies and the bi-partite system failed in their respective objectives. The country’s economy lagged behind as Asia was transformed as the fastest growing region in the world. Because industries failed to grow in the Philippines, trade unionism covered only a mere 12 per cent of the total labor force. As globalization deepened, trade unions further declined to 3 per cent. Legalism and the experiences of antagonistic relations with the employers might have contributed to this fast decline.

When the Philippines adopted a protectionist economic policy which Japan also did, the Americans were given parity rights and according to Cesar Virata, 3 out of 4 processing enterprises set-up during the protectionist period in the 1950s were American and other foreign subsidiaries and joint ventures. In contrast to Japan where western technologies were copied, adopted and later innovated, western technologies were merely transferred by US subsidiaries and joint ventures in the Philippines in order to avail of state protection and to achieve a market monopoly or oligopoly status. There were not much innovation and competition, no drive to compete in the export or global market.

Today, we are experiencing another turn of economic growth, this time through a more liberalized, open and competitive economic policies. Foreign investments are coming in not because of parity rights, state protection or a captive local market. Through globalization, the Philippines can develop its competitive edge in HRD, industry productivity and labor empowerment.

New IR processes like the Japanese-inspired consultative management, US TQM and ESOPs, andEurope’s work councils and co-determination system are being adapted in the country. This is in addition to the continuation of the collective bargaining system and tripartism in the Philippines.

LMC as a Form of Social Partnership in the Philippines

Joint labor-management initiatives, according to Ziga (2002) were introduced during the early years of Martial Law under Policy Instruction No. 17 of May 31, 1976, LOI No. 688 of May 1, 1978 and the Batas Pambansa Blg. 130 (Labor Code of the Philippines) in August 21, 1981. Despite government pronouncements, only 28 companies were able to organize operating LMCs as of 1988. Ziga attributed this lackluster response among IR actors to lack of state support and initiative.