Ali Globalization

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© Mohammad Ali, 2005

GLOBALIZATION AND INDUSTRIAL RELATIONS OF CHINA, INDIA, AND SOUTH

KOREA: AN ARGUMENT FOR DIVERGENCE

MOHAMMAD A. ALI

University of Rhode Island

Driven by technological advances, improved communications, economic liberalization, andincreased international competition, globalization has brought in an era of economic, institutionaland cultural integration. Under globalization the workplace practices are under a constant state of flux. Academics are not only analyzing the benefits and the deleterious effects of thisphenomenon on the employment relations of developed and under-developed nations. They havealso stirred up the old controversy regarding the longer-run trajectory of employment relationssystems under the pressures of globalization. The debate is on the question that whether theindustrial relations systems of countries are converging or diverging. This paper analysisemployment relation systems of three Asian countries-China, India, and Korea- and makes a casefor diversion in employment relation systems.

Globalization can be defined as a process of rapid economic, cultural, and institutionalintegration among countries. This unification isdriven by the liberalization of trade, investmentand capital flow, technological advances, andpressures for assimilation towards internationalstandards. Globalization has reduced barriersbetween countries, thereby resulting inintensification of economic competition amongnations, dissemination of advanced management

practices and newer forms of work organization,and in some cases sharing of internationallyaccepted labor standards. On the other sideglobalization has evidently contributed tounemployment, increase in contingent laborforce and a weakening of labor movements.

The biggest question today is regarding theimpact of this economic phenomenon onemployers, employees and industrial relations of developed and under-developed countries.Supporters of globalization say that free tradeand increasing foreign direct investment will

increase employment and earnings in advancedand developing countries. Critics argue thatglobalization, in reality has a deleterious effecton the wages, employment, working conditionsof most, though not all developing countryworkers. These negative effects they believe areresulting from competition of multinationals andselective opening of markets to internationaltrade in favor of industrially advanced countries.

The debate on the impact of globalization isnot restricted to the above-mentioned areas. Ithas also stirred up an old controversy regardingthe longer-run trajectory of employmentrelations systems. John Dunlop in his book “Industrialism and Industrial Man (1960)” took technological development as the main force andsaid that industrialism has commanding logics of its own and these logics result in advancedindustrial societies becoming more alike, despite

political and cultural differences, and certainlymore alike than any one of them is like a lessdeveloped country. Other scholars likeDoeringer (1981), Piore (1981) have takenrulemaking processes and regulatory institutionsrespectively as the main focus and concludedthat all countries show tendencies toinstitutionalize their arrangements of rulemaking and there is convergence as far asregulatory institutions are concerned.

Developing countries under global pressuresare trying to stay on the economic map. In order

to do so these countries are taking steps to makesure that compared to other developing countriestheir economic environment provides moreincentives to multi-national companies andattracts more foreign direct investment. Theargument is that the developing nations, in anattempt to achieve these overall goals aremaking legal changes and adopting newemployment practices which are similar to each



Mohammad Ali – Globalization 2

other and their employment relations are movingtowards the same direction. These similaritiescan range from lay off policies, collectivebargaining structures, and legal rights of workersto worker safety legislation. At the workplacelevel this convergence, according to the

scholars, is taking two forms: functionalflexibility aimed at increasing the skills of workers and making them multi-task forproducing complex goods and services, andnumerical flexibility characterized by lack of unionization, increased contingent workers andTaylorist work practices.

On the other hand, Ira Katznelson andAristide Zolberg in their book “Working-Class

Formation (1986)” took formation of theworking class as a major and crucial outcome of industrial development and concluded by theircase studies of industrialized countries that thereare as many variations as there are cases. Theyattributed these distinctions to the differences to

political and legal backgrounds, and thecharacter of the regime within each of thesecountries. Derbishire and Katz (1997) coined thephrase ‘converging-divergence’ to describecommonalities in the changes underway inemployment relations across countries (Bamber,2001).

Figure 1

Influencing Variables

• Labor Influence.

• Employer Influence.

• State Influence.

• Industrial Stage.

• Exposure to Globalization

Influencing Variables

• Political History.

• Form of Government.

• Economic System.

Pressures

• Economic Integration.

• Reduced Barriers.

• -Intense Economic

• Competition.

• Advanced means of

• Communication.

• Institutional Integration.

• Technological Advances.

• Influence of International

• Bodies.

Policies

• Privatization.

• Industrial Laws.

• Bargaining Process.• Conflict Resolution.

• Unions (Recognition &Structure

Divergence in

levels and types



© Mohammad Ali, 2005

They believed that there is little evidence of convergence, in fact there are variations andthey categorized the emerging patterns as lowwage (managerial discretion, hierarchical work patterns, piece-rates, anti-union, and highturnover), HRM (corporate culture, directed

teams, better wages, contingent pay, individualcareers, and union substitution), Japaneseoriented (Standardized procedures, problem-solving teams, high pay linked with seniority,and enterprise unionism), and joint team based(joint decision making, semi-autonomous teams,high pay career development and union andemployee involvement). Finally, theinstitutionalists believe that institutionalinfluences remain important in shapingemployment relations. They see the importanceof the interaction of several factors, including

economic strategies, culture, and the role of thestate, in the debate of convergence anddivergence. They see employment relationssystems as strongly institutionalized withinwider business systems that are, in effect,specific to the particular societies in which theytake shape, making convergence unlikely.

Due to the enormity of the task it was notpossible to discuss the issue of convergence anddivergence at the global level in this paper.Therefore, I will try to answer this question withreference to three countries -China, India and

South Korea- representing three differentpolitical systems in Asia. I will attempt toanalyze what type of policy changes thesecountries are making to attract foreigninvestments and whether these policies areresulting in similar employment relationssystems or not. The choice of these countrieswas made not only because of the fact that theyhave different political traditions, but alsobecause of their high level of exposure toglobalization, and their levels of economic andindustrial development. The argument in my

paper is that pressures of globalization tend tochange the employment relations of countries.These pressures, however, interact withdomestic factors of economic systems, politicalhistories, forms of government, legal histories,industrial stages, exposure to globalization, laborinfluence and state influence in each country anddifferent variations of policies regardingindustrial relations are manifested, leading to

divergence, as shown in figure 1. I will also, inthe discussion of the countries, try to establishhow these changes are affecting the relativeinfluence of the actors of employment relations-state, employer and employees- in thesecountries.

CHINA

China with the largest population in theworld has a labor force of 778.1 million (2003est.). By occupation 50% of the country’s laborforce is in agriculture, 22 % in industry and 28%in services. The share of these sectors in the totalGDP does not commensurate to the percentageof people employed: agriculture contributes14%, industry 52.9% and services 32.3%. It hasan inflation rate of 1.2% and an unemploymentrate of 10.1%.

The arrival of socialism in theunderdeveloped regions, Lenin argued, meantthat Marx’s prediction of the “withering away of the state would be necessarily protracted andthat a “dictatorship of the proletariat” (that is,the communist party) would have to first carryout the unfinished tasks of industrialization as aprecondition for building socialism. Thisargument provided the justification for rejectingsyndicalist arguments about “workers’ control”over factories in favor of the organization of theeconomy under a single party apparatus thatwould manage production and distribution in thename of the proletariat (Chen, 2001).

Based on the above, the Chinese industrialrelations were characterized by: rejection of autonomous forms of workers’ organizations infavor of single, centralized trade unionfederation, importance of the state enterprises(danwei) as the center of productivity anddistribution of basic necessities and services.Although the Chinese Communist Party (CCP)was publicly committed to the welfare of

workers, the party nevertheless opposed anyindependent action by workers and designatedthe All-China Federation of Trade unions(ACFTU) as the official intermediary betweenthe workers and the party-state.

The Chinese economic planning was done asthe whole economic system was one large firm.The economic system was dominated by theSOEs (State owned enterprises), however the




China also had COEs (owned by responsiblecollectives), and DPEs (owned by individuals).The government support was for the SOEs,therefore, other types of firms were fewer innumber and were less developed (Zhu, 1995). Inthe traditional system there were two kinds of

employees: permanent employees (based on ironrice bowl system i.e. lifelong employment) andtemporary employment. Majority of workerswere permanent employees with the control of all aspects of their employment under the controlof the state labor personnel departments (Zhu,1995).

Recent Changes

While the industrial relations in China haveundergone significant change since theimplementation of the “Four modernizations”reform program in 1978, the Chinese party hasremained firmly entrenched in power (Chen,2001). The Chinese economic reform leading totransformation of labor relations has proceededin two directions. First, newly formed non-public-owned sectors such as joint ventures andprivate enterprises encompass public ownedsector and attack the latter’s privileges (Baek,2000). These new enterprises have brought instricter worker discipline, numerical flexibilityby bringing in labor contract systems and havedistanced themselves from the social burdens of unemployment, over-employment and workerwelfare. Second, the internal structures-whichwould be discussed later in detail- of the stateowned enterprises (SOEs), have also undergoneconsiderable change.

To achieve the above mentioned goals theChinese government has pursued threeinterrelated labor policies: first, it has introducedlabor contract systems. The experiment startedin 1983 but was made into a law in 1986. Thenew system introduced the “contract systememployees”. The contract must be for at leastone year and had provisions covering majortopics of probation, job requirements, workingconditions, remuneration, discipline andpenalties. In addition to this, the old styletemporary workers-seasonal industrial workersworking under a labor agreement of limitedduration- remained intact. In state and collective

owned enterprises there are permanent,temporary and contract workers. In foreign-invested enterprises (FIEs), there is a mix of temporary and contract employees, and inindividual owned there are only temporaryemployees (Zhu, 1995).

Second, the wage system has been changedto bring in wage disparities. The idea behind thewage reform is that the performance should belinked with enterprise productivity andindividual performance (Zhu, 1995). Third, thegovernment has marketized the social securityby transferring the responsibility of socialwelfare from work units to individuals (Baek,2000). This policy has disintegrated the work unit based socialist safety net that hasguaranteed full and lifetime employment and hasbrought in insurance systems.

Ideological Issues

The concept of nation-state and nationalismis deeply embedded in the Chinese communistparty ideology. It had its roots in the resistanceto the occupation of China by the westernpowers in the mid nineteenth century. MaoZedong accepted that the world is “dividedalong ideological fault lines but he believed thatit was still a world of nation-states. His aim wasthat the Chinese nation-state should take its

rightful place in this “inter-national” world”(Knight, 2003). The split from CommunistRussia and the Cultural Revolution reducedChina’s contact with the world and the emphasiswas made on self reliance and independence.After Mao’s death in 1978, Deng Xiaopingmade it legally possible to introduce economicmeasures based on capitalist thought to gainrapid economic (Knight, 2003). This “opening tothe outside” (duiwai kaifang), or the “open doorpolicy” not only meant western economicpolicies, but also the opening to western ideasand culture. Even with this major shift in policythe Chinese party leaders still considered that theworld consists of nation-states.

Since the Asian economic crisis of 1997,and the return of Hong Kong to China, theChinese leadership has started looking at theworld as ‘global’ (Knight, 2003). The newconcept is that China needs to engage in the



Schmidt Labor Research Center Seminar Research Series 5

process of globalization so as to benefit theChinese nation-state. Nick Knight in his article“ Imagining globalization: The world and Nation

in Chinese Communist Party Ideology” hasdescribed the Chinese Communist partyorientation to globalization in five points. First,

globalization has developed out of theimperative need of capitalist enterprises to seek the most profitable site of investment. Second,while the term “globalization” might be new, thetendency of capitalism to become global is not.Third, globalization is not driven by technology,but development of requisite technology has ledto mobility of capital and expansion. Fourth,globalization leads to homogenization, but thisphenomenon would not lead to assimilation aslocal cultures would counterbalance the erosiveeffects. Lastly, the nation-state will remain in

existence and would exist central to the contestbetween the forces for and against the neo-liberal economic agenda.

Owing to the recent changes in the Chineseeconomic system, academics like HarryWilliams believe that if socialism is defined asequality and democracy in society, politics andeconomy then China has ceased to be a socialiststate. Whether China is still a socialist state ornot is a question for another research paper butthe economic changes discussed above and theChinese view on globalization has initiated a

debate in China on the effects and policiesrelated to globalization. Some writers like Nick Knight believe that engagement with globaleconomy will lead China to a capitalist systemand would not lead to realization of socialistgoals as seen by the communist party. On theother hand, there is also a strand of thoughtexpressed by academics like James Petras(2000), which is also supported by the view of the Chinese communist party as discussed abovethat neo-capitalism would lead to socialcleavages, fragmentations and enhanced control

of Western nations and in particular the US, onthe Chinese economy. Therefore, theopportunity of globalization should be used toinitiate a socialist renewal by a new strategy of development from below, structural adjustmentpolicy where property is re-socialized, ruralcooperatives are re-introduced, illicit wealth isconfiscated and the policy of selective openingsis pursued.

Privatization

Thousands of state owned enterprises (SOE)were sold as stress was put on privatization inthe fifteenth session of the Chinese CommunistCentral Party Committee in 1997, (Taylor,

2002). This policy is seen as an importantelement in increasing efficiency and achieving‘market socialism’. In China, privatization cantake several forms, but it essentially entailstransfer of control (though not alwaysownership) from public to private interests (Taylor, 2002). Ideologically, privatization isconsidered as an attempt to increase complianceto reforms by workers and managers aimed atfinancial self-reliance. Privatization does not,however, mean that the Chinese economicsystem is becoming more capitalist, but on the

other hand, the emphasis is on financial self reliance of the enterprises with politicalaccountability in tact (Taylor, 2002).

Numerous bankers and economists consider‘big bang’ or ‘shock therapy’-whereby stateswiftly and indefinitely withdraws fromownership and market forces fill the vacuum- asthe only solution to overcome the evils of socialism. However, China’s privatization hasoccurred with an intact authoritarian system andby adopting a gradualistic and incrementalapproach. In a study done by Bill Taylor (2002)

on seven enterprises in Guangdong andShanghai, the writer has come to the conclusionthat “while in some cases, the state soldsignificant ownership rights over its enterprises,the picture of privatization is complex than mereshare ownership. Ownership and control remainlargely aligned, and control is maintained withinthe firms”. Except for joint ventures where clearidentifiable partners are visible and directorshipswere according to the percentage of sharesowned, enterprises mostly had internal cadresand managers as board of directors and these

enterprises represented a continuation of existinginterests rather than a transformation in theownership structure. In enterprises owned 100%by the corporate management, there was anagreement that the senior managers will run theenterprise according to a contract and withspecific targets set by state agencies.

According to the managers of theseenterprises the state still exerted direct pressure




in the shape of forced mergers into largerenterprise groups controlled by state authorities.The state also had indirect influence, such asfollowing the government cadre system inreorganizing enterprise’s management.According to Bill Taylor these cases do not

make clear that if there was any privatization atall. But one thing from these cases is clear thatthe state no longer underwrites an enterprise’sfinance. Privatization has given some autonomyto the plant to operate independently from directoutside interference. This independence has ledto policies by managers in which market is nowbeing used as primary criterion by whichorganizational and individual performance ismeasured.

There has been a gradualist reformmovement, in which privatization has very

limited but definite impact on reconstitution of industrial relations. There is increased pressure,discipline and threat of redundancies. There isremoval of state guarantees. Market is now seenas real. Mangers are now freer to take decisions,but they are also responsible of their actions andfinancial decisions to the state. Party is still veryimportant and central to the whole system as“the cadre’s career is still decided largely by theparty, the workers still have a say over theperformance of cadres, and the material andmarket are still largely determined by the state

and other SOEs” (Taylor, 2002).The process of marketization, which puts

emphasis on privatization, also includes reformof the SOEs. These reforms started with a reportin 1997 by the State Commission for EconomicRestructuring. The report envisaged that 15 to20 million surplus workers in the state sectorwould loose jobs by 2000. With the latestreforms the enterprises have made somesignificant gains in autonomy over therecruitment and retention of employees. Theneeds for efficiency and flexibility have been

met by mass lay-offs and this has created theproblem of a large surplus of workers laid-off from the SOEs. To overcome the problem aninternal market has developed within many largeSOEs. Workers are shifted from overmannedcore production units and into new sub-companies set up for the absorption of surplus

labor (Sheehan, 2000). Some SOEs have set uplabor pools for surplus labor where they canundergo retraining and can be absorbed in new jobs, also there is a movement of labor fromsemi-skilled to unskilled service industry jobs.Since 1995 labor law has also made local

governments to find work for the laid-off workers so as not to leave the entire burden onthe SOEs. Although the role of the governmentin determining SOEs levels of employment hasreduced considerably, still the government hassome influence or authority. Enterprises maystill be compelled to employ workers (oftenthose laid off by other enterprises) whom theydo not need or want, or loss making enterprisesmay be merged with more successful onesagainst the latter’s will (Sheehan, 2000).

Collective Bargaining

In a planned economy the reconciliation of interests of the managers and the workers isconducted under an administrative framework and through guarantees from the government.The recent attempts of the Chinese governmentto integration with the world economy haveresulted in growing divergence between theinterests of the managers and workers. Thisdivergence was expressed by an increase inlabor disputes-the number of registered labordisputes went up from 33,000 in 1995 to155,000 in 2001. Owing to this, a newinstitutional framework was introduced thatcentered on: legal and contractual regulations of labor relations, a system of tripartite labordisputes, development of workplace ‘collectiveconsultation’ between trade unions andemployers and most recently a system of tripartite consultation (Clarke, 2004).

The 1994 Labor Law formalized theindividual labor contracts. However, legalfoundation for the collective contracts was laiddown in 1992 Trade Union Law. Initially, thestress by the government and the enterprises wason individual contracts but the ACFTU-AllChinese Federation of Trade Unions- led acampaign and was able to secure the approval of the state and the party, which eventually led toan increase in collective contracts. In thesecollective contracts the parties make sure that




guidelines given by local labor bureaus andgovernment directives are followed. Thegovernment bodies check the legality of thecontracts but enterprises develop their ownpractices. The ACFTU is performing a dual rolein the arrangement. On the one hand it is

defending the rights of employees and on theother it is assigned by the party to promotereform and maintain social stability.

To ensure that the rights and interests of workers and staff members are represented bytrade unions the traditional method of ‘consultation’ is still in use. The proposals of management or trade unions are referred tolower levels of discussion, and comments andsuggestions are reported back to the enterprisetrade union. The process has its deficiencies butit has been found that when properly

implemented this was a good method to illicitopinion (Clarke, 2004). Wage negotiations areusually conducted separately from the collectivecontract, although sometimes, minimum wagesare specified. In joint ventures the trade unionstend to take a position that is a little moreindependent of management than in the SOEs.This was primarily because of its role inensuring that the management adhered to theprovisions of the labor laws and regulations(Clarke, 2004). Despite the often grossexploitation of the workers in foreign

enterprises, local government and trade unionshave kept themselves largely out of them so asnot to frighten off foreign investors. The partyand the labor administration also do not haveany power over them to agree to a contract.

To sum up, it can be said that collectiveconsultation has not introduced a new system forlabor negotiations because it has been integratedin the traditional system of consultation. Thesystem is less participatory and the trade unionsnormally defers to the management’s judgmentin the name of interests of the enterprise. No

substantive details are incorporated in thecollective contracts; at best these contractsremind the employers of their legal obligationsand monitoring and implementation of laborlegislation in the workplace. The trade unions donot provide an effective channel through whichmembers aspirations or grievances could beexpressed. According to the system, the trade

union organizations may not be subject to theroutine intervention of the party and state. Thesocial and the institutional structure withinwhich labor relations are regulated have notchanged radically and they will not change untilthe enterprise trade union develops into an

organization that, in its structure and practice,disengages from management and representsinterests of its members.

Conflict Resolution

According to Seung Wook Baek (2000) inChina, beginning in the early 1990s there was agrowing incidence of wildcat strikes without anyunion presence or organization, especially inMNCs. The economic reforms initiated by thegovernment had taken the safety net away fromthe workers and had put many vulnerableenterprises into bankruptcy and this resulted in arapid increase in labor disputes. Between 1987and 1992 collective labor disputes increased sixtimes. In the first half of 1994, 1104 collectivepetitions and strikes were reported to haveoccurred (Baek, 2000). One of the responses of the Chinese government was to recognize theneed for establishing collective bargainingstructures. As the second response, the StateCouncil promulgated the ProvisionalRegulations on the Settlement of Labor Disputesin State-owned enterprises on July, 1987. Thiswas the first attempt to establish labor disputesthrough institutional procedures since 1955,when formal procedures to handle labor disputeswere abolished and the department of letters andvisits ( Xinfang) was made responsible to handledisputes.

The regulations established a three levelbasis of settling disputes: internal mediationwithin the enterprise, arbitration at local levelsbased on tripartite principle and final resolutionby People’s Courts. Later on July 6, 1993, theRegulations of the People’s Republic of Chinaon the Settlement of Labor Disputes inEnterprises were introduced. The new regulationinherited the three tier system but was widenedto include all enterprises beyond state ownedenterprises, and the range of items of labordisputes was also widened (Baek, 2000).Arbitrators and arbitration tribunals were alsocreated. However, the enterprise mediation




committee was changed from a mandatory toadvisory requirement (Baek, 2000). With theinstitutionalization of mediation and arbitrationprocess the trade unions were given anadditional role in the procedure. The chairmenof enterprise trade unions presided as the chair

of mediation committees, and the higher leveltrade unions participated in arbitrationcommittees (Baek, 2000). However, in suchsituations the unions are more in the role of mediators rather than organizers of workers. Theimplication of procedures to handle labordisputes is that where the official system tohandle labor disputes is observed, collectiveaction is prohibited in principle (Baek, 2000).Due to the union’s lack of organization of workers the other problem is that such mediationand arbitration bodies mostly exist in state-

owned enterprises and in the private sector suchbodies do not exist.

Industrial Law

Article 35 of the Chinese Constitution states“Citizens of People’s Republic of China enjoyfreedom of speech, of press, of assembly, of association, of procession and of demonstration”. The extent of these rights islimited by Article 1 which states “The People’sRepublic of China is a socialist state under thepeople’s democratic dictatorship led by theworking class and based on alliance of workersand peasants”. These two articles put togethergive rise to a complication, workers point to theArticle 35, and the state responds with Article 1,to justify arrests and imprisonments on theground that strikes and other such industrialunrest threatens the existence of worker’s state,and more recently , to the implementation of ruleof law (Chen, 2003).

China had no unified labor law until 1January, 1995. Prior to 1995, Model Outline of Intra-Enterprise Discipline Rules (MOIDR) wasprevalent, and as is clear from the title this wasonly aimed at industrial peace and definition of worker’s legal rights. The 1995 law applies to allemploying units, state organs, public institutionsand laborers ‘who form a labor relationship’with the employer. The law however, does notdefine laborer and in practice domestic workers,

senior government officials, civil servants, rurallaborers and sex workers are left outside thescope of the law. The law defines individualcontract as an ‘an agreement that establishesrelationship between a laborer and an employingunit i.e. it is the legal basis of labor relations’. If

the relationship can be established then theemployer is legally bound to fulfill therequirements of the labor law even without acontract. However, the existence of a contractdoes not guarantee compliance with its terms.

Collective contracts present a uniqueproblem. A genuine collective contract is onewhich is between independent organ of workersand the employer, but Article 10 of the TradeUnion Law particularly outlaws freedom of association. Collective contracts are approved bythe labor bureau and if they violate any

regulation they are rendered invalid. The lawdoes not give any further explanation. It alsodoes not have any provisions for changes andcancellation of the collective contract. Althoughthere is a high coverage of the collectivecontracts but high rate of incidents of disputesgives a different picture as to the efficacy of these contracts.

Coming to individual workers, the lawprovides grounds for summary dismissal of probationary employees due to various offences.The concept of labor discipline is not explained.

Employees can be dismissed simply for underinvestigatio for criminal charges. The law alsogives great scope for blacklisting militants andalso provides provisions for mass lay-offs.

Wages for most of China’s employees aredetermined by a mixture of market forces andgovernment intervention (Chen, 2003). Statesimplement a system of minimum wages basedon local conditions, average number of family,lowest expenses needed to live, productivity,labor market and regional differences inemployment. Working hours are limited to 40hours a week. Overtime is limited to three hoursper day. However, there are a number of clausesin the law that allows the management to extendworking hours in ‘special circumstances’.






to a labor court or industrial tribunal for a finaldecision (Kuruvilla, 2002).

In addition to the above policy, the Indianindustrial relations were also tilted more towardsthe workers. In the absence of social securitylegislation the burden of social policy like

retirement, medical care and even child care wasleft on the employers. During this period theeconomic policy emphasized on the growth andlong-term development of heavy industries inthe public sector with largely indigenoustechnology, coupled with the policy of industriallicensing, import controls, and restrictions onforeign ownership that protected public andprivate sector firms from internationalcompetition(Kuruvilla, 2002). Theseprotectionist policies created an atmosphere thatled to increased inefficiency in the firms, over

employment –especially in public sector-inability to introduce efficient and labor savingmethods of production. These problems wereenhanced by the fact that there was a relativelyhigh incidence of labor strikes and alsocompetition among various unions as there wasno sole-bargaining agent legislation. The unionsthemselves were not united and at the same timethere was not much of a spirit of cooperationbetween the employees and the employers.There was diversity not only in unions but alsoin industrial relations laws, each state had the

right to enact its own labor laws. This featureproduced a variety of local colors of unions withvarying orientations to labor relations and for themost part kept the labor movement from becomenational.

Union density was about 38% in the formalsector workers. As can be ascertained fromabove, the unions had an influential voice due totheir links with political parties, in fact allpolitical partied had their union wings. Unionswere mostly structured on enterprise, industrial,political or regional lines. Bargaining structure

during this period was industrial or enterprisebased, although there was provision in the lawsfor tripartite structures and works council typeinstitutions but these were not followed inpractice (Kuruvilla, 2002). There was inter-union rivalry and adversarial relationship withthe employers. Although the employers were

protected by the state policies of protectionism,still they faced the problem of high costs andrigid systems of production.

Since 1991

As long as the protectionist policies were inplace the higher cost and the relative lack of flexibility imposed by the industrial relationssystems regulations did not pose a seriousproblem because Indian manufacturers did nothave to compete in the international market.With the coming of globalization, the 40 yearold policy of protectionism proved inadequatefor Indian industry to remain competitive.Therefore, in 1992 the process of liberalizationstarted. The balance of power shifted in thefavor of the employers. Apart from the pressurefrom the international market, internationalbodies like IMF also exerted pressure to changelabor policies in India. Employers pushed forworkforce reduction, given their inability toretrench employees, they introduced policies of voluntary retirement schemes. There has been anincrease in the demand for functional andnumerical flexibility in the workplace by theemployers.

Globalization has also brought in thebeginning of a government-employer coalition.This coalition is quite obvious keeping in view

the enthusiastic support of the government foreconomic liberalization. In Maharashtra forexample for the first time the government hasdeclared several private sector firms as ‘essentialand public utilities’ permitting a ban on strikesin these sectors (Kuruvilla, 2002).

In a study by Hiers and Kuruvilla in 1997,they discuss the changes in the industrialrelations in India and bring out the followingdimensions:

• Collective bargaining in India hasmostly been decentralized, but now in

sectors where it was not so, are alsofacing pressures to followdecentralization.

• Some industries are cutting employmentto a significant extent to cope with thedomestic and foreign competition e.g.pharmaceuticals. On the other hand, in




other industries where the demand foremployment is increasing areexperiencing employment growths.

• In the expansionary economy there is aclear shortage of managers and skilledlabor.

• The number of local and enterprise levelunions has increased and there is asignificant reduction in the influence of the unions.

• Under pressure some unions andfederations are putting up a united fronte.g. banking.

• Another trend is that the employers havestarted to push for internal unions i.e. nooutside affiliation.

• HR policies and forms of work are

emerging that include, especially inmulti-national companies, multi-skills,variable compensation, job rotation etc.These new policies are difficult toimplement in place of old practices asthe institutional set up still needs to bechanged.

• HRM is seen as a key component of business strategy.

• Training and skill development is alsoreceiving attention in a number of industries, especially banking andinformation technology.

Keeping in view the above analysis, it isquite evident that the industrial system right nowis trying to shift from the old system to the new.In the process, it is experiencing tensionbetween the workers who are trying to keep jobsand the employers who are trying to achieveflexibility so as to cope with the domestic andinternational market competition. In essence,these practices have accentuated the diversityexisting in the Indian industrial system

considerably. Some analysts like Bhatacharjee(2001) suggest that there is so much variation inthe Indian industrial relations that it is no longerappropriate to think of one “national” Indianindustrial relations system. However, the shift isnow away from maintaining labor peace andtowards the increase in firm levelcompetitiveness through basically numerical

flexibility as India becomes more integrated intothe world economy (Kuruvilla, 2002).

Actors

The role of the state in the industrial

relations depends on the ideological (socialist,communist, or neo-capitalist persuasion),political (neo-colonial, democratic,dictatorships) and socio economic (protectionistand neo-liberal policies) orientation(Sivananthiran, 1999). In India the role of thestate may be studied over four time periods:colonial period, post colonial period, emergencyera (1975-77), and post liberalization era.During the colonial period under the British theindustrial relations were just another means of keeping the colonies in line, the labor law andthe power of the state was used to maintainpeaceful industrial relations so as to havecontinued production.

In the post colonial era, the Indiangovernment more or less built its labor relationsstructure on the pre-existing colonial law; themain purpose was again to achieve industrialpeace. At the same time, in India there waspolitical support for the Indian unions and therewere laws that protected the rights of the workerbut the main purpose again was that industrialpeace should be maintained. The Indian state

was tolerant of unions and recognized the valueof labor management cooperation in the contextof planned economic development. There wasmore burden on the employers but protectionistpolicies kept the employers complacent. Duringthe emergency rule the rights of the unions wererestricted, but this era did not have a lastingeffect on the industrial relations. In the era of globalization and liberalization, the governmenthas realized that in order to keep Indiacompetitive, policies should be implementedthat result in flexible workplace practices. Theemployers are now facing the pressures of globalcompetition, and they also want to remaincompetitive. For this purpose the stress is nowon more pro- employer policies.

The role of the state has always beenpervasive in Indian industrial relations. Therehave always been detailed laws on collectivebargaining, dispute resolution, employeeparticipation and employment security. There is




also a court system, the independent labor courtsin India are the main mechanism for theimplementation of labor law.

During the independence movement, thepolitical leaders also held leadership positions inmajor trade unions, they led and supported trade

union movements in major industries. After theindependence (1947) many trade union leadersheld important positions in the government.Besides, under Prime Minister Jawaharlal Nehruthe Indian government opted for socialisticideology based on the principles of controlledeconomy. During this period the governmenthad three basic policies: industrializationthrough public sector, creation of democraticinstitutions and protecting the interests of working class. Therefore, during this period andtill liberalization the union membership

increased. The verified membership of the AllIndia Central Trade Union Organizations(CTUOs) –includes a total of 12 central tradeunion organizations- increased from about 2million to over 12 million between 1960-1989(Sivananthiran, 1999). This membership data,however, did not include unions which are notaffiliated to CTUOs.

An important aspect of union influence isunion finances, in India, unlike China, theunions are financially independent. The mainsource of income of trade unions is union dues

from their members, which account for 70% of the total income. The second major source of income is donations, which account for 16% of the income. The rest of the income is from saleproceeds of publications, interests of investments and miscellaneous receipts(Sivananthiran, 1999). One problem faced by theIndian unions in finances is that the dues takenfrom the union members are not huge as thewages are not as high as in industrial countries,and even these minimal dues are difficult tocollect in the absence of any “check-off” system.

The Trade Union Act of 1926, which guidesand protects trade unions, provides that allunions should have a constitution and should begoverned by democratic principles. The purposeof the act was to promote transparency anddemocracy in union structures. In practice,however, legal requirements mandated by the act

are not fully complied with. There are electionsfor union officials but in most of the cases samepeople keep on getting elected. Rank and fileparticipation is not adequate, the generalmembership only comes in the scene when thereis a pending issue regarding wages etc involved.

During normal times the membershipparticipation is very low. One issue related toless membership participation is the lack of professionalism of the union leaders. The leadersand organizers do not make strategies regardingsuccession plans, development of leadership andproper propaganda to involve rank and filemembers. Finally, non-participation of womenin union work is also a sign of the absence of union democracy.

As already discussed, most of the unions areaffiliated with political parties of different

political orientation ranging from socialist toHindu fundamentalist. These political partieshave their issues among themselves and theseissues are also reflected in their union wings.Due to this reason there is very little unity in thetrade unions in India. There have been someattempts to unify the unions, mainly by leftisttrade unions but they have not been sosuccessful. Along with the lack of unity anotherissue that has kept unions from becoming moreinfluential is that they have not really involvedthemselves in social issues. There are few

unions who take up non-bargaining activitieslike population control or adult literacyprograms, but there is no major effort in thisdirection.

With liberalization the greatest fears facedby unions are: privatization, redundancy in thepublic sector and unemployment, flexibility andmulti-skilling leading to inadequate skills inpresent workers, and changing structure of thelabor market making it more profitable for theemployer to employ part-time workers. Theintroduction of National Exit Policy, which

allows industry to rationalize their workforce bypaying previously agreed upon compensation forseparation, is a new cause of concern for theunions. The government has under NationalRenewal Fund policy proposed to close sick units, bring in MNCs, and abolish licensing andrestrictive controls in order to create a free




market economy. Labor unions are generallyopposed to these measures and believe that thesewould adversely affect the unions. In view of theabove there is a clear and urgent need for unionsto reorganize themselves. They should try toachieve unity, better organization, propaganda,

development of leadership and stress onprofessionalism.

Processes

As we have seen earlier, the main purpose of the Indian state was to maintain industrial peacetherefore, the state intervention by means of dispute settlement acts was imperative andimportant. The Industrial Disputes Act passed in1947 had its basis in two laws of UnitedKingdom: The Conciliation Act (1896) and theIndustrial Courts Act (1919). The mainobjectives of the act was to preserve goodrelations between the workers and employers,investigate and settle industrial disputes, preventillegal strikes and lock-outs, provide relief toworkers in matters of lay-offs and retrenchmentand promotion of collective bargaining. Theprinciple techniques of settlement provided inthe act were; collective bargaining, mediationand conciliation, investigation, arbitration, andadjudication. All disputes have to go through theprocess of conciliation, the issue should be tradeunion related, and requires disputes to bereferred by the appropriate government.Adjudicators have the power to create, alter andmodify, vary and set aside contracts, and candirect reinstatements in cases of wrongfultermination. The awards need to be publishedand the government has the right to reject ormodify the award. Failure to implement theaward is an unlawful practice and the party canbe prosecuted for the same. Final award can onlybe challenged by filing a petition to the HighCourt or the Supreme Court.

Although the process and the IndustrialDisputes Act are quite comprehensive, thebiggest problem with it is the delay. The processitself is so long and tedious that cases aredelayed for years and even if they are decidedthe awards are not often implemented by theemployers especially when the litigant is agovernment or a public sector unit (Ghose,2003). To overcome the problem of delays, court

costs, procedural formalities and adversarial justice a new approach to dispute resolution hasemerged. This system is called the Lok AdalatSystem, literally translated this would mean‘Peoples Courts’. The origins of this system arein the age old institutions of village Panchayat

(village courts) and Baradary (Community)system. The first experiment of Lok Adalats wasdone in Kalyan near Bombay in 1978(Ghose,2003). Chapter VI, of the Legal ServicesAuthority Act addresses the establishment of Lok Adalats, and states that they would beserved by retired judges or judicial officers.Cases can come to these courts when the courtsdecide that there is a chance for conciliation,parties have agreed to approach the Lok Adalatand the court is satisfied that the matter is fit forthe forum. The drawbacks of these courts are

that they are still sponsored and controlled byauthorities, the cases are decided by the same judges who have served in courts and the Adalatcan not decide any case without consensus.Therefore, all that is needed to scuttle theprocess is that either of the parties refuse toagree to conciliation. This new alternate todispute resolution is basically an attempt toprovide one more forum for conciliation butunder the control of the authorities, so that thepressure on courts and costs of the process couldbe reduced.

The process of collective bargaining in Indiais going towards decentralization. Thismovement is very much consistent with what ishappening in other parts of the worlds,especially in European countries and America.The purpose of this decentralization is to givemore flexibility to the employer to face thecompetition from abroad. The unions are notorganized at the national level and there is nounity among them anyway to go for acentralized bargaining. Like the process of collective bargaining, the process of wage

determination is also controlled by the state. Inindustries, where the public sector dominates,the government naturally plays a central role indetermining wages. In other industries that aredominated by private sector, it chooses to play amajor role by establishing wage boards. In allthese industries there is little space for collectivebargaining (Sivananthiran, 1999). The trendtowards flexibility is not only evident from




collective bargaining, it is also apparent from thechanges in work practices. Now more and morefirms are introducing new manufacturingtechnologies. Total quality management, leanerorganizations by eliminating middlemanagement and supervisors and more HR

practices are becoming the norm in industrial setups. The predominant effort of the Indiancompanies is to restructure themselves. Oftentheir focus is primarily on numerical flexibility,although these efforts are accompanied by moredynamic and flexible HR practices that are intune with a long-term orientation tocompetitiveness based on higher technologyintensive production (Sivananthiran, 1999).

To sum up, it can be said that the Indianstate has and is still playing an important role inthe country’s industrial relations. The basic

purpose of the state intervention has been tomaintain industrial peace, but recently with theadvent of globalization the policy is changingtowards a more competitive approach.

KOREA

The Republic of South Korea (hereafterKorea) has a population of 45 million; by thelate 1990’s almost 80 % was urban, an increasefrom only 30% in 1962 (Bamber, 2001). Koreais ethnically homogenous, about half of theSouth Korean population is Buddhist althoughthere is significant Christian presence, all haveinherited Confucian values. In the late 1990’sthe labor force was 20 million with aparticipation rate of 20%, unemployment wasnot much above 2% yet weekly working hoursremained the longest for any country reported bythe ILO. Rapid industrialization through exportoriented manufacturing has resulted in Korea’sper capita gross national product increasing from$87 in 1962 to more than $10,000 in 1997.Korea is the world’s twelfth largest economyand it became a member of the Organization forEconomic Cooperation and Development in1996(Bamber, 2001).

Korea was a 500 year old feudal kingdombefore it was opened to the outside world by theKangwha Treaty of 1876. Under the feudalsystem, Korea was ruled according to theConfucian code of personal, socio and civic

behavior. The society was rigidly stratified intoa class system where workers belonged to thelower classes and wage labor was rare (Bamber,2001). From 1910 to 1945, Korea was under theJapanese colonial administration and industrialrelations were restricted under the Japanese

authority. After WWII there were severalchanges in the Korean industrial relationsregulations, the 1953 legislation regarding tradeunions and labor disputes formally establishedindustrial relations in Korea. During the 1945-1960 period workplace industrial relation inmajor conglomerates known as Chaebols wasmodeled closely on the Japanese system and hasbeen described by various authors as“paternalistic” or “authoritarian” (Kuruvilla,2002). After the liberation in 1945 there was abrief renaissance of unionism but in 1947 the

leftist unions were banned by the AmericanMilitary Government and were replaced byGeneral Federation of Korean Trade Unions(GFKTU). In 1961 unions were obliged toaffiliate to industry federations under agovernment sponsored national center known asFederation of Korean Trade Unions (FKTU). Tosummarize the Korean industrial relation systemin the 15 years after WWII, it can be said thatthe system was set up for the subordination of workers and trade unions to the combinedinstitutionalized interests of a repressive state

and monopolistic capitalism (Kuruvilla, 2002).Under the new martial law in 1981 the

economic development strategy turned towardshigher value added exports. To cope with theneo-economic policy changes were made in thelegal system and Japanese style enterpriseunions were formed. However, the governmentensured its system of political control by forcingall unions to be part of the FKTU. Further, giventhe involvement of both students and churchorganizations, the government prohibited theinvolvement of third parties in unions. While

these actions are clearly politically motivated,they also helped the chaebols to contain or avoidindustrial conflict and continue theirauthoritarian management styles. The KoreanIndustrial relation system during the period of martial law continued to have dispute preventionand dispute avoidance as a primary focus of its




policies as part of the overall goal of maintaining stability. Also the workplace HRpractices were similar to those of Japan whichincluded implicit employment guarantees,seniority based wages, and formalizedrecruitment from good schools as well as

cultural and ideological programs as part of astrategy to weaken independent trade unions andto purport company loyal unionism (Kuruvilla,2002). In the pre 1987 system the union densitywas about 9%, unions were enterprise basedwith compulsory affiliation to FKTU. Collectivebargaining was limited and was largelyenterprise based and there was a general focuson stability and general flexibility.

Korean Industrial Relations after 1987

With the democratization in 1987, theKorean industrial relations underwentconsiderable change. With the liberalization of the labor law, the labor movement started tocome out of the shadows of chaebols and thegovernment. The union density increased (18.6% in 1990) and there was also an increase inindustrial strikes. With the formation of KoreaConfederation of Trade Unions (KCTU)-anindependent union federation- the dominance of FKTU also reduced. Bargaining also increasedwith the increase in union strength.

Korean economy had always been heavilydependent on the Chaebols. In the 1990s the top50 Chaebols accounted for nearly 20% of thegross national product and employment and 40%of sales in manufacturing (Kim, 2003).Therefore, the chaebol response to unionactivism was very important. The chaebolresponse to this new union militancy was amixture of more suppressive polices andprogressive HR practices. The main responsesince the 1980s, however, has been the adoptionof hard line methods e.g. hard bargaining,dismissal of union activists, and blacklisting(Kim, 2003). During this period the labormovement was also divided, unions favoring theFKTU, keeping in view the need for Korea to becompetitive, opted for more moderate methods.On the other hand independent unions did notagree with FKTUs policies and favored KCTU-which continued to be illegal till 1999.

The erosion in competitive position also sawan increase in Korean investment abroad in low-cost areas, particularly in Asia and LatinAmerica (Kuruvilla, 2002). The employers inorder to meet the competition increaseddemands for restructuring and flexibility in the

workplace. The old Japanese style system of lifelong employment was also challenged. Thesedemands were met by some degree of resistanceby the unions but there was some progresstowards functional flexibility and increasingskills as well as restructuring (Kuruvilla, 2002).The Government of Kim Young-Sam respondedto the growing union militancy in 1996 with apredawn clandestine reform of labor legislation,which on the one hand allowed unionparticipation in politics and allowed multipleunions at the workplace by 2002, and on the

other hand avoided recognition of the other peak federations until 2000, and most important,increased the authority of the employer to lay off employees.

The Crises of 1997 and Recent Changes

The Asian economic crisis that began in1997, led to major changes in Korean industrialrelations. In 1996 the government had alreadyinitiated a new approach to industrial relations,towards more liberal economic policies andagainst the old paternalistic workplace practices.The new bill was strongly opposed by the unionsand was revised after the largest general strike inKorea (Kuruvilla, 2002). However, there weremore changes in the sane direction, due to theIMF bailout of the Korean economy after thecrisis and the accession of Kim Dae-Jung-viewed as more friendly to the labor movementthan his predecessor (Kuruvilla, 2002).

With IMF’s help the Korean economy wasable to have a quick recovery. Foreign currencyreserves increased from $3.9 billion in 1997 to$48.5 billion by the end of 1998, while theexchange rate, also stabilized around 1,204won/US$ (Chang & Chae, 2004). However thisunexpected quick recovery was done at theexpense of a vast majority of population. Thepolicies during the recovery period had led tobankruptcy of the so-called non-competitivefirms, massive growth of unemployment,deterioration of living standards of a huge




percentage of population. The most devastatingimpact was on the working class as there was anincrease in job insecurity, cutting down of wages, downsizing of production scale, majorlayoffs. About a million lost their jobs in thefirst half of 1998 (Chang & Chae, 2004).

The results of the IMF bailout, and comingto power of a relatively moderate leader led tothe 1998 reforms, which brought far reachingchanges in the Korean employment relations.For the first time labor was given participationin national decisions through the creation of theTripartite Commission. The Commission issueda social pact for dealing with the economiccrisis, with several key decisions on industrialrelations (Kuruvilla, 2002). The “FebruaryAgreement” covered corporate, public, andfinancial sectors and the labor market as well

(Chang & Chae, 2004). On the labor’s side thereforms recognized the KCTU, established anunemployment insurance fund coupled with theamount and periods of unemployment benefitsas a part of a social safety net package. It alsoincluded collective bargaining rights for thepublic sector from 1999, gave freedom to laborunions to be active politically, revised labor lawsto permit layoffs, gave employers the right touse temporary labor for periods up to 1 year withobligation to give advance notification of layoffsand various other obligations in case of layoffs.

The leadership of KCTU had to facemassive criticism from its affiliate unions foragreeing to the introduction of flexible measuresat the workplace, particularly the layoffs. Theagreement was voted down by the affiliates, andthe affiliates moved for a general strike. Thelabor movement had already lost its basis of militancy due to the increasing job insecurity, sothe strike was not a success. Also the social netthat was supposed to support the unemployedwas not very effective (Chang & Chae, 2004).

Actors

Korean unions are represented on threelevels. There are local unions based on the plant,an enterprise, a region or an occupation, mostcommonly at the plant or enterprise. Thus allunion members at a particular plant orenterprise, regardless of their occupation, join

the one local union (Bamber, 2001). The localunions make up occupational federations andregional councils, the right to negotiate is vestedin the local unions with regional councils andindustrial federations having only the right toconsult and discuss.

The Korean government only recognized theFKTU after it had dismantled the communistlabor movement in 1949 (Kim, 2003). TheFKTU, as the only labor union since 1960, hasreceived financial support from the governmentand it has remained under government influence.Economic success and substantial wageincreases were used by the government to justifyauthoritarian IR policies. However, “fastindustrial growth, emergence of a middle classpopulation and rising level of educationprovided the political basis for workers” (Kim,

2003). Therefore, in the late 1970s a strong labormovement developed. There was a greatproliferation of strikes in the 70s and 80s. Therewas also a movement towards independentunions that resulted in the formation of KoreaConfederation of Trade Unions (KCTU). TheKCTU was recognized as a union federationafter the largest general strike in Korea in 1997.

Soon after the contentious ‘FebruaryAgreement’, the state started to intervene inindustrial conflicts and declared that structuraladjustments can be a matter of discussion but

cannot be a matter of struggle, therefore, allstrikes related to structural adjustments weretreated as illegal and trade unions leaders wereimprisoned. In the five year period of restructuring after the agreement thegovernment has facilitated marketization of control over labor-creating a large scale reservearmy with job insecurity, competition basedpersonnel management, and capability basedwage systems- it has also removed obstacles inorder to facilitate marketized labor control andensured a smooth operation of the deregulated

labor market (Chang & Chae, 2004).Although the above discussed situation of

labor is quite bleak, there are somedevelopments that can be termed as majorwatershed in Korean labor movement. Thepublic sector, which is 9.28%-70% out of thisare government employees- of the total




workforce, represented a tranquil sector. Whenthe crisis of 1997 took away from public sectoremployees, the well developed welfare systemand permanent employment system, they alsostarted to protest. The largest protest, which wasin fact a unified effort from the five independent

power plant companies, led to a strike and anagreement in April 3rd 2002. In the agreementthe state got what it wanted but the struggleshowed that the public sector can also beorganized and there can be an alliance betweenthe public and private sector as the agreementwas negotiated by KCTU. There have also beenattempts to organize temporary workers.Although there is opposition between thetemporary and permanent workers, but therehave been occasions in which irregular workerswere successfully organized with the

cooperation with regular workers (Chang &Chae, 2004).

The financial crisis and the recognition of KCTU as a legal labor federation led to a sharpdecline in the membership of FKTU. Due to thecompetition from KCTU the older federationhad to change its stance to being moreaggressive, which in itself is a gooddevelopment. Another significant developmentis the trend towards industrial unionism was that“the financial crises and the massive layoffs ledunion leaders to realize inherent limitations of

enterprise unionism” (Kim, 2003). They haverealized that enterprise level unions cannotrespond effectively to national level issues andcrisis. Earlier industrial unions were prohibitedby law, but two revisions of labor law in 1987and 1997 made it lawful and easier to establishindustrial unions. The shift to industrial unionsis decisive and quick. In the two year period1998-2000, almost 20 industrial unions wereformed (Kim, 2003). In the long run, themovement towards industrial unionism isexpected to improve the organizing potential of

Korean labor movement.The state, before 1987 acted as a

‘benevolent dictator. It had an extensive legalsetup to provide protection to the employees butat the same time independent labor movementwas suppressed. Since democratization itsapproach has mostly been a reaction to certaindevelopments, first it was democratization, then

the 1997 crisis and in between there were laborupheavals, which led to hasty and controversialstructural changes. It is still experimenting withpolicies and strategies. One very importantfeature of the Korean industrial relations is thedependence of the country’s economy on the

chaebols. The state cannot ignore them, and nowwith the increase in union organization thechaebols are also becoming more suppressive.The Korean government will at some point haveto decide what role they want to play in theindustrial relations and how they can achievebalance.

Processes

Collective bargaining in Korea is regulatedby the Trade Unions Act. Representatives of aunion or other appropriate groups can negotiatean agreement with the employer or employers’organizations. A union can also entrust thenegotiation to a union federation with which it isaffiliated. The law allows multi employerbargaining to be conducted at enterprise andindustry level. Most bargaining takes place atthe enterprise level, but multi-employer regionaland national wage bargaining is conducted intransport and textile, where there are smallercompanies and fewer employees. Since 1987,collective bargaining has become moreimportant in regulating industrial relations,however, more than 90% of small enterpriseshave no collective arrangements.

Another issue with collective arrangement isthat “since the piece rate was higher than thewage increase through collective bargaining inthe aftermath of the 1997 crisis, workers haveincreasingly accepted the capability based wagesystem” (Chang & Chae, 2004). The result hasbeen that the trade unions have faced a declinein the collective bargaining process as there isless support of it at the floor level. Also“continual reformulation of workplaceorganization also undermines trade uniondelegates’ leadership on the shop floor,replacing it with increasing authority of foremenand team leaders” (Chang & Chae, 2004).

The Labor Management Council Act 1980stipulates that a Labor Management Council(LMC) should be created to meet four times ayear in any establishment employing 50 or more




employees (Bamber, 2001). The councils arerequired to consult with employeerepresentatives on issues related to welfare,education and training and grievance handling.Firms are required to submit the rules of theirLMCs to the Minister of Labor, who has the

authority to dissolve them or order thereselection of the council. These bodies haveremained more symbolic in nature and before1987 they were used to legitimize the power of the enterprise over the workers.

Mechanisms for resolving disputes havelong been formalized in Korea. In 1953, a laborRelations Commission was established toprovide conciliation, mediation and arbitrationof labor disputes. However, disputes in‘essential public enterprises’ require longercooling off periods and compulsory arbitration.

The regulations for ‘major defense industries’ issuch that a legal strike by their employees isvirtually impossible (Bamber, 2001).

In summary we can say that Koreanindustrial relations are in a period of transition:the independent labor movement has beenrecognized recently. It is still at embryonic stagebut on the other hand it is also militant, hasstarted to organize more efficiently and has beena major source of concern for the government.Labor market has changed its outlook; now thelabor is facing problems of job insecurity,

capability based wage system, more workinghours and the use of more HR practices.Temporary and daily contracted workers haveincreased tremendously, accounting for a total of 52% of the total workforce in 2001 (Chang,2004). There have been attempts to organize thishuge portion of workers but the unions areobviously facing problems in this matter.

The transition to democracy coincided withthe international need for flexibility. This led tothe erosion of competitive advantage in severalsectors, particularly in low cost sectors of textile,shoes and electronics, which has led tomigration of Korean firms to other low costareas in the world. The IMF bailout and theaccession of Kim Dae-Jung have facilitated theemployers push towards more functional andnumerical flexibility. This movement has metconsiderable resistance from the labor

movement and is getting stronger and morevociferous. Industrial unionism is also growing,which has been important in recent labororganization.

DISCUSSION

Changes in organization and workplacepractices are nonstop under globalization.According to Professor Rene Ofreneo, if welook at this phenomenon we can see somedrivers behind it: First, technology, which ischanging how certain products are produced andat the same time altering the size and the qualityof labor that is required to produce thoseproducts. Second, policies of economicliberalization that lead to the opening up of theeconomy, free flow of goods and capital, andintegration with the world economy. It is alsoleading to privatization policies by governments,deregulation of entire sectors, tariff reductionand import liberalization. Third, pressures of competition, businesses have to adjust to theever increasing global and domesticcompetition. The competition is cut throat andcompanies which are not prepared orundercapitalized should either try to upgradethemselves or be destroyed by bigger globaltransnational corporations.

Under the above mentioned pressures wehave seen that the countries which have beendiscussed have taken a number of steps to link them with the world economy. From the caseswe can, however draw certain conclusions: First,in all three cases the initial strategy of the statewas to achieve industrial tranquility. In Chinaindustrial stability was imposed by the state inthe name of the people’s state. In India, first thecolonial law was implemented, which was aimedat keeping colonial workers in line and then laterthrough a dispute resolution system, the stateaimed at keeping the conflict out of the realm of strikes. In South Korea the same goal wasachieved by a coalition between the state and themajor industry conglomerates.

Second, in all three cases major structuralchanges started to happen in the 1980s and 90s.In India and China it happened because of thegovernmental policies of economicliberalization. In Korea it was due to the




beginning of the process of democratization thatled to major industrial relations changes. Third,the changes that have occurred in a couple of decades are basically in the legislativeframeworks and more importantly in thestrategies of the parties. In China there have

been a lot of changes in the structure of the lawgoverning industrial relations. However, inindustrial relations the most powerful andinfluential party is the state and it can beascertained that there has been a change in thestrategy of the party that matters the most. TheChinese state wanted to enter globalization,increase financial viability of the huge stateowned sector, attract more foreign capital andbenefit from the whole process, while remainingat the centre of the power structure. In India, theIndian government has changed its policy since

the liberalization of the economy; the state isnow concentrating more on competition andattracting foreign capital rather than the previousaim of stability. There have not been majorchanges in the legal structure but the strategy of the employer has changed drastically. Earlier theemployers had rigid workplace practices butthey were complacent because of protectionistpolicies of the government. Now, with theincrease of global competition the employerswant flexibility and encouraged by the recentchanges in the state’s stance they have in fact

become more vocal for flexibility. In Koreathere is not much change of strategy as far as thestate and the employers are concerned, but therehave been legal changes and the strategy of theunions has changed. The unions are now moremilitant than ever, they are trying for labormovement unity, industrial unionism andexperimenting with tripartism.

Fourth, the most consistent theme in therecent changes is the need for flexibility. Thisneed is a direct corollary of the globalcompetition. The employers want to be flexible

numerically or functionally or both so that theycan change and adjust to the changing patternsof production. In China, we find that the trend istowards both types of flexibilities. In the foreignowned sector the Chinese government does notinterfere at all, in the state owned sector therehas been a lot of privatization and rationalizationof redundant workers. Due to these steps therehave been a lot of layoffs, as a certain amount of

autonomy has been given to the managers inSOEs. In India there is primarily numericalflexibility, there is an increase in the irregularworker and part time jobs. In Korea, like there isa trend towards both types of flexibility.

The fifth conclusion is actually related to the

previous point. We have argued that the mostsalient constraint in the 1990s has been the needto enhance firm level competitiveness byincreasing numerical and functional flexibility.An alternative explanation is that it is not a shiftin constraints that we are seeing but rather areassertion of the employer control (Frankel,1999). In China, the state has always been at thehelm of affairs, there is a lot of privatization butit is more of control rather than of ownership. Aswe have seen there are direct and indirectpressures the state can put on the firms.

Flexibility in China is just a method of makingthe firms realize that they have to be financiallyviable units or they will cease to exist, and toachieve this, have been given some autonomy indecision making at the firm level. In Korea, thestate-employer partnership still exists. TheKorean state is still strong but it would seem thatin the recent years the state is losing somecontrol over the workers, as in some recentsituations where the workers were able topressurize certain reforms and changes. InKorea, policymakers’ attempts to balance

employer and worker interests in the face of globalization faced major obstacles and attractedwidespread condemnation (Frankel, 1999). Stillstate has been and is facilitating smooth workingof the industrial relations in the favor of thechaebols. The chaebol system has existed since1945 and even with a lot of changes has a lot of importance and power. In India the situation is alittle different the employers did not have totalcontrol before economic liberalization, but nowunder the competitive environment the employeris gaining more control in the name of

flexibility. To sum up we can say that flexibilityin the three cases that we have seen is translatedin the employer having more control over theworkers and unions.

Sixth, in all the three countries discussed,there are weak and fragmented unionmovements. In China, the union movement assuch does not exist, there have been a lot of




strikes over the last couple of decades but thosewere reactions to bad conditions and low wages.Labor unions are not considered in the Chineseparty vocabulary as an important factor inindustrial relations. The party considers-in goodtimes- the unions as training facilities for the

workers and in bad times there is outrightprohibition. In India, the situation is a littledifferent, unions have existed beforeindependence, and many union leaders were alsofighting the British for independence. Afterindependence these leaders became importantfigures in the Indian politics. Therefore, unionshad the support of the political parties, they werefinancially independent and had the legal systembehind them. Even with all of these factors intheir favor the Indian unions were fragmentedand got more fragmented under the pressures of

globalization and competition. Koreanindependent labor movement though started inthe 1970s got recognition by the state in the late1990s with the acceptance of KCTU asindependent union federation by the state. Thelabor movement is still at an embryonic stagetrying to define itself and trying to find itsproper niche in the Korean industrial relations. Itis faced with the daunting task of employermovement towards more suppressive measures,the increasing number of irregular workers andglobal and domestic competition. Seventh, as

discussed above the state still is an importantplayer in the industrial relations of all threecountries. The state as an important actor hasmostly played a role to facilitate the employers.In promoting and reacting to globalization,governments in the three countries havesponsored legislation strengthening workplacemanagerial control and reducing workers’ jobsecurity, although political considerations haverequired that workers’ interests cannot be totallyignored(Frankel, 1999).

From the above discussion it is clear that in

the three cases under discussion there are anumber of similarities, which strengthen the casefor convergence. In most of the analytical work that I have come across on the three countries Ihave observed that as domestic forcesindustrialization and democratization often leadto development of unionism, tripartism and joint

regulations. On the other hand globalization andeconomic liberalization, as international forcestend to have an opposite effect. They lead toemployer and state resistance to unions,flexibility, employer control, job insecurity andworker redundancy. In the interaction between

the two forces it is reasonable to assume thatthere is a tussle between the domestic forces andinternational forces. These domestic forcesinclude a lot of factors including politicalsystems, economic policies, culture, history andinfluence of unions. Even in countries wherestate is all powerful, its strategies are influencedby the domestic considerations aimed atinstitutional legitimacy. The followingdiscussion would now make the case fordivergence in the industrial relations of the threecountries studied.

A CASE FOR DIVERGENCE

While discussing the effects of globalizationthe analytical questions that are frequentlydiscussed by academics include analysis of whether globalization is leading towards liberaleconomic policies as opposed to regulated. Is thecollective bargaining system in the countriesgoing towards decentralization or centralization?And lastly, the most important question as far asindustrial relations are concerned is whether thesystems are going towards functional or

numerical flexibility as opposed to remainingrigid.

As far as regulation v. deregulation isconcerned, I believe that the Chinese system isstill very much regulated, there are somechanges and some autonomy at the enterpriselevel, but decision making is still a part of themajor functions of the party structure. Economicpolicies are decided at the highest level as theyhave been since 1949. The liberal economicpolicy in China primarily means attractingforeign investment and providing foreigninvestors with the environment that would makethem stay in China. In Korea, the business wasalready in the hands of private conglomerates,which is still the case; economic policy was amatter to be decided by the state for the mostpart, for the benefit of the chaebols. The systemis more or less still the same except one change




that now the unions have started to assertthemselves and some recent legislative changesnow help them to organize. Due to workerpressure there have been attempts at tripartism.The Indian economy was regulated from thebeginning, but now it has changed to liberal. So

in the three countries China is at one extremewith India at the other and Korea is between thetwo.

Coming to centralized or decentralizedcollective bargaining we can say that in Chinathe concept of individual and collectiveconsultation is new. The system, at the moment,is decentralized with emphasis on enterpriselevel contracts and individual contracts. InKorea collective bargaining has always beendecentralized. In fact there is a recent trendtowards industrial bargaining and tripartite

agreements. India, even though it had strongindividual unions, has always had adecentralized collective bargaining system andthe bargaining structure has remained the same.There is however some industry wide bargaininglike in the banking sector in India. Unlike theindustrialized countries in the west flexibility inthe three countries discussed does not meandecentralization as there was no centralizedbargaining to start with. In fact as seen in theKorean case there is some evidence of centralization.

Coming to the most important question of workplace flexibility, it can be observed that thegeneral movement is towards greater flexibilityin all three countries. But owing to differences inthe structures and systems of the countries,different forms of flexibility dominates in allthree. In India, the movement is towardsnumerical flexibility. For this purpose retirementschemes and ‘Greenfield’ strategies aredominant. There is also union avoidance andincrease in suppressive policies in the country.China is experiencing increased external labor

market flexibility and at the firm level has beenwitnessing increase in both functional andnumerical flexibility ever since deregulation of the economy(Kuruvilla, 2002). In Korea also,there is trend towards both types of flexibility.The biggest effect of strategy for numericalflexibility is that more than 50% of the totalwork force is now composed of irregular

workers. On the other hand, the Koreangovernment had in the past and still is spendingmoney to educate its workers and increase theirskill level.

The difference is not only in the form of flexibility but also in the level of flexibility. In

India, we have the strongest movement towardsworkplace flexibility at the workplace level. Notonly that, HR practices is now considered to bean important element to enhance flexibility andprepare businesses to be able to face globalcompetition. In China, as we have already seen,the flexibility and autonomy that the state hasgiven the SOEs and the newly privatized SOEsis primarily aimed at the strategy that the statewill not now give financial support to theenterprises. In other words the enterprises willhave to be viable economic units in order to

survive. This aim is achieved by giving someautonomy to the managers, but the overallcontrol is in the hands of the state. The situationin the foreign investment companies is different;the state leaves such enterprises with completeautonomy, so as not to scare foreign capital off.In Korean industrial relations the trend towardsgreater flexibility is dominant like India. Theyhave reverted from the Japanese stylepaternalistic system to HR practices. Onedifference between India and Korea is that inKorea the attempts to achieve flexibility by the

employers have met stiffer resistance from theworkers.

The increased impetus for flexibility hasdifferent reasons for different countries. In India,when the planned and protectionist system cameto an end with the liberalization policy, theemployers for the first time faced globalcompetition and realized that their rigidworkplace practices were not adequate to dealwith this situation. Therefore, they campaignedfor more flexibility. In China too, the process of liberalization of the economy in order to

integrate it to the world economic system wasthe primary reason for the demand forflexibility. In Korea however, the process of democratization increased the militancy in thelabor movement and this eroded Koreancompetitive advantage in large industries leadingto the demands of greater flexibility.




What influences the choices for differenttypes of flexibilities? Kuruvilla and Erickson(2002) have come up with four factors thataffect decision making regarding flexibility:First, they believe that in states where there wasgreater emphasis on job security in the past;

there is greater level of numerical flexibility.They also believe that this tendency was evidenteven if the ability to layoff and retrenchemployees was difficult. In this regard they gavethe Indian example, where the employers wouldfind very difficult to lay off employees,therefore the employers came up with voluntaryretirement schemes.

The second influencing factor is the sourceof competitive advantage of the country inquestion. Kuruvilla and Erickson believe thatnumerical flexibility strategies tend to dominate

in countries where the source of competitiveadvantage is low labor costs, as is the case of Indian industrial relations. There will also benumerical flexibility in industries that are laborintensive. In firms and nations that seek tocapitalize on low costs, there is little incentive toinvest in long-term training and continuousupskilling, associated with functional flexibility(Kuruvilla, 2002). The third factor associatedwith the choice of flexibility is the existence of governance institutions that encourage long-terminvestments in technology, research and

development, and HR development (Kuruvilla,2002). In Korea for example the educationsystem has been reformed by the state, there arealso incentives for training and upskilling via taxincentives. In addition the Korean governmenthas funded massive infrastructure projects fortraining necessary for competing in the globaleconomy.

Unions, is the fourth factor, it also plays animportant role in the decision regarding the formand level of flexibility. Kuruvilla, Das, Kwonand Kwon (2002) have assessed decline of the

union growth in Asia. For their analysis they hadtaken the variables of union density, and unioninfluence-bargaining centralization andcoverage. After an exhaustive study of sevenAsian countries including China, India andKorea, they have come to the conclusion thatover all there is a decline in union density

figures in Asia. The data also suggest that ,while Asian labor movements, on average, donot lag behind their Western European or NorthAmerican counterparts in terms of union density,they certainly do so in terms of union influence(Das, 2002). In terms of influence they see two

trends in Asia: one pattern where unioninfluence corresponds somewhat to uniondensity-like in the case of Korea and India- anda second pattern where union density differsdramatically from union influence score-Chinawhere the union density is 61% while coverageis 15%- (Das, 2002). Although, from the aboveanalysis the influence of the unions can betermed as weak, but it is reasonable to expectthat strong unions will push firms and countriesin the direction of functional flexibilitystrategies Kuruvilla, 2002). It is true that

stronger unions in Korea have affected andcontinue to influence, the ability of KoreanChaebol to adopt numerical flexibility strategiesdespite the obvious need of chaebols to cut laborcost.

I believe that to the above four factors givenby Kuruvilla and Erickson three more can beadded: First, is the exposure of not only theindividual countries to globalization but also theexposure of different sectors of the industry inthe same country. In India, there is a cleardistinction between sectors facing competition

due to globalization and sectors that are not, forexample, in computer software industry there isimmense international and domesticcompetition, therefore there is a much strongertrend towards flexibility and the state is alsosupporting these workplace practices. On theother hand agriculture sector that is not exposedto globalization still gets protection, andsubsidies. Korea is the only country of the threediscussed whose industry is actually going outof the country to low cost countries. Second, isthe role played by the state. We have seen that

the state plays a pervasive role in all threecountries, but still there are levels of control.The state power can also overshadow theinfluence of the unions, for example, in Koreathere has been greater resistance to the demandsof flexibility by the unions than China, but thelevel of flexibility achieved in both the states




differs. It is higher in Korea, because the unionsare militant but the state-chaebol coalition isstronger. On the other hand in China, the unionsare controlled by the state but still the trendtowards flexibility is weaker than Korea becausethe state wants to bring in gradual changes and

wants to remain in control of the change process.The third factor is the influence of

international bodies like the InternationalMonetary Fund (IMF) and World TradeOrganization (WTO) and some transnationalcompanies (TNCs). The process of assimilationto the global standards is not an automatic one.It is not just the market forces that are bringingthe changes towards convergence of industrialrelations, but there are also pressures from theworld organizations and TNCs towards liberaleconomy and free trade. At the center of WTO

are giant corporations wishing to extend theirpower. This power is already enormous. It isshocking to learn that 52 of the world’s 100largest financial bodies are not countries buttransnational corporations (Shepherd, 1999). Onthe other hand there is the IMF. We have seen inthe Korean example that when the IMF helpedKorea out of economic troubles in 1997 therestructuring program led to quick recovery butit also increased unemployment, working hoursand reduced the social net. In countries wherethe pressure of these international entities is

great, the likelihood of opting for deregulation,decentralization and flexibility would increase.

CONCLUSION

Globalization is here to stay, it would beridiculous on the part of the nations of the worldto close their eyes to it and wish it away. Anycountry that wants to be on the economic map of the world would have to enter this competitiveenvironment. In order to face the competitionflexibility is imperative; therefore we see in thethree countries that there is a trend towardsflexibility. But we have also seen that the needs,types and levels of flexibility in differentcountries is different based on the factorsdiscussed. There is no doubt that in the short runthere is convergence towards workplaceflexibility owing to the pressures of internationalcompetition, but in the long run in the threecountries that we have discussed the future of

flexibility will depend on the interaction of thekey players in their respective industrial relationsystems.

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