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The management of social protection inSri LankaRamanie Samaratunge a & Chris Nyland aa Department of Management , Monash University , Victoria,AustraliaPublished online: 03 Jul 2007.
To cite this article: Ramanie Samaratunge & Chris Nyland (2007) The managementof social protection in Sri Lanka, Journal of Contemporary Asia, 37:3, 346-363, DOI:10.1080/00472330701408676
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The Management of Social Protectionin Sri Lanka
RAMANIE SAMARATUNGE and CHRIS NYLANDDepartment of Management, Monash University, Victoria, Australia
ABSTRACT Examining how, why and when employers will support the extension and deepeningof social welfare, Mares recently argued employers wish both to diffuse social risk and maximisecontrol of employee benefits and insisted that these alternatives require trade-offs. Mares also ar-gued the nature of these trade-offs will be influenced by firm-specific characteristics and incidenceof labour market risk. This article tests her model with enterprise data from a developing country(Sri Lanka). We argue firm characteristics and market risk do influence the risk dispersion-control choices made by capitalists and that the manufacturing employers examined have a clearpreference for control over risk dispersion and hence oppose the retention of a welfare regimebased on a ‘‘unitary pool of risks.’’
KEY WORDS: Globalisation, social protection, social risk, management, Sri Lanka
In the global economic and business literature there exists a growing appreciation ofthe positive role played by social protection regimes in facilitating the capacity ofnations, communities and firms to integrate into the global economy. ‘‘Socialprotection,’’ in this context, means the set of policies, programmes and institutionsgovernments and private sector agents establish to promote efficient and effectivelabour markets, protect individuals from the risks inherent in earning a living, andprovide a safety net that underpins communities when market or planning failureundermines the capacity of people to provide adequately for their needs. Key bodiesassociated with the provision of social protection include state welfare agencies,trade unions and the non-government entities that help provide for the security ofpopulations at less than market cost (Davis, 2001).
Ortiz (2000) argued three influences have been particularly important ingenerating an increased awareness of the link between globalisation and socialprotection. First, ‘‘transition’’ countries found that the comprehensive welfaresystems they maintained formerly are incompatible with their integration intointernational markets and that markets do not spontaneously generate adequatealternatives. Secondly, industrialisation and global integration tend to disintegrate
Correspondence Address: Ramanie Samaratunge, Department of Management, Monash University, PO
Box 11E, Victoria, 3800, Australia. Email: [email protected]
Journal of Contemporary AsiaVol. 37, No. 3, August 2007, pp. 346 – 363
ISSN 0047-2336 Print/1752-7554 Online/07/030346-18 � 2007 Journal of Contemporary Asia
DOI: 10.1080/00472330701408676
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traditional family and community safety nets. Thirdly, the opening of markets hasincreased communities’ vulnerability to the social turmoil that is periodicallyunleashed by the global economy. The 1997-98 Asian financial crisis was particularlyimportant in alerting many multilateral agencies, governments and individuals to thefact that underdeveloped social protection systems expose populations to excessiverisk, increase poverty and social instability, and threaten longer-term investments inskill formation and knowledge accumulation (Asian Development Bank [ADB],2001).
The literature on social protection and globalisation has focused traditionally onOECD nations, with debate centring on whether these states can preserve the welfaresystems they established in the four decades after 1945. The empirical evidencesuggests that thus far these regimes are being sustained (Castles, 2004; Garrett,2001). By contrast, a fifty country study (not including China) of welfare expenditurein developing nations has found the proportion of GDP these countries apportion tosocial security has almost halved over the last two decades (Rudra, 2002). Thisshould be deemed a matter of deep concern as the Asian Development Bank (2001:32) has observed:
Globalization, while increasing the opportunities for growth, will also increasecountry’s vulnerability to external shocks, and the risk of increased unemploy-ment and poverty and likely political instability. Most of the political reactionagainst globalization is a result of the absence of adequate social protectionsystems, which makes implementation of reforms very difficult given thatpopulations may have to pay the costs of reform in the short term.Globalization requires the development of effective social protection systems.The world’s forward looking development agendas give a (sic) social protectiona primary role to sustain growth and well functioning markets.
While the foregoing conclusion has become broadly accepted in literature thatdebates the relationship between market openness and national economicperformance, what remains contentious is which agents should have responsibilityfor managing social protection. Noting that open economies tend to have largegovernments, in order to offset their greater vulnerability to exogenous shocks,Rodrik (1998) argued openness requires that the state become and remain theprimary provider of social protection and warned it is very unwise to expect families,NGOs, etc. to fill this role. By contrast, Lim (2000) insisted the social policy lessonthat governments, firms and scholars should draw from the Asian crisis is that theprovision of social and economic security must not become a state activity. Rather,she asserted, personal and family security are best catered for by the deeperintegration of national economies into the world of global business and byencouraging individuals to insure themselves against associated social risks bystrengthening personal savings, traditional family and village networks, and‘‘entrepreneurial resilience.’’ Completing the span of perspectives, Lee (2000) insistedthe provision of community and personal security is an activity that must be sharedby the state, employees and employers, while in the international business literatureDunning (1997) and Mares (2003) suggested multinational firms can and shouldbecome best practice role models.
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Emanating from the discussion surrounding the relationship between marketopenness and human security, a secondary debate has also been generated. Thiscentres on when and under what circumstances employers will support state policiesthat increase worker security. Two important contributions to this literature arethose by Swenson (2002) and Mares (2003). Both challenged the orthodox notionthat employers always adopt a conservative stance when confronting demands forincreases to the depth and coverage of social security. In so doing, both adopt amulti-country, multi-industry approach because the empirical evidence shows thereis marked national and sectoral diversity in the way firms react to social policyproposals. Responding to the common assumption that firms invariably resistprogressive social policy reform Swenson (2002: vii) observed of capitalists:
Projecting on to them a cold disinterest in almost everything except marketaction for their exclusive material gain, this scholarly consensus . . . underesti-mates capitalists’ contributions toward the passage of egalitarian and protectivesocial reform. By attributing the many reforms that take place exclusively toother political forces, it also tends to underestimate the power of capitalists incapitalist society.
In support of this claim, Swenson advanced evidence gathered by comparing thehistory of business involvement in the development of employment and welfareregimes in the USA and Sweden. By contrast, Mares examined the role thatbusiness played in the construction of the French and German welfare regimes.More specifically, she examined the role played by employers in institutionalisingwork-accident insurance and unemployment benefits. In both countries, she noted,the introduction of these measures enjoyed political support from importantsections of the business community. Building on this observation, she identified theconditions under which profit-maximising businesses support the introduction ofsocial policy reforms, her aim being to ‘‘develop a theoretical model specifying thesources of business preferences toward different institutions of social insuranceand the conditions under which profit-maximising firms – facing competition indomestic or international markets – nevertheless support social policies’’ (Mares,2003: 2).
On the basis of the data she drew from the historical evidence, Mares concludedthat the industrial structure of nations greatly influences how capitalists respond tosocial policy initiatives and she sought to explain the nature of the cleavages thattend to emerge amongst capitalists groupings when confronted by proposals toreform welfare policy. Further, she found that firms confronting a high risk ofemployee disability or unemployment tend to favour reforms that spread those risks,while enterprises with a high degree of market control and a skilled workforce tendto seek contributory social insurance in order to increase their influence over theirworkers and bind them to the firm. Robertson (2004: 1339) summarised Mares’findings thus:
Different business and policy-making structures explain why the French andGerman programs diverged. Large German firms, for example, shaped a work-accident program administered by employer-controlled liability associations,
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while smaller French producers influenced a program that provided them a widearray of insurance arrangements (including self-insurance). Each socialinsurance program that took effect generally reflected the unique business-labor coalition that backed it.
Building on these earlier contributions, Zhu and co-workers (Zhu and Nyland, 2004;Zhu et al., 2005) examined how domestic and foreign enterprises in Shanghai haveshaped their labour management policies in response to the market-oriented socialprotection regime currently being developed in China. We extend their exploration inthis article by utilising data gained through interviews in manufacturing firms in SriLanka. More specifically, we seek to determine the validity of the followingpropositions.
1. In an open economy employers will support the extension of state policies thatwill protect workers from the periodic volatility that characterises globalmarkets.
2. If the state chooses not to become a primary supplier of social protection orretreats from this role, individual firms will provide the resources needed toinsure employees against market and other social risks.
3. The character of the workforce and production processes of firms will bereflected in the form and level of security employers are willing to provide theiremployees.
4. The social protection regimes in local and multinational enterprise homecountries will be reflected in the social policy preferences of enterprises.
Globalisation and Social Protection in Sri Lanka
Sri Lanka provides an interesting developing country case for exploring theassociation between globalisation and employer approaches to worker security bothbecause it is the most open economy in South Asia and because for many years thenation embraced a ‘‘welfare first, growth later’’ development model. The latter is agrowth strategy from which Sri Lanka has long been in retreat but remnants ofwhich continue to provide the population with a literacy rate above 80% and a lifeexpectancy above 70 years (World Bank, 2000). A nation’s social protection regimeis often best explained with reference to its historical development and this iscertainly the case with Sri Lanka. Its colonial legacy created a trade-dependenteconomy and a social protection system modelled on Britain’s post-war universalapproach to welfare (Jayasuriya, 2000). An extensive system of food subsidies wasestablished during World War II and, following independence, these subsidies wereexpanded to include free education and health services. Reflecting the anti-imperialist sentiment common at the time of independence, the social protectionsystem was funded by taxes on the commercialised plantation sector. In short, aswith most of the countries of Asia (Gough, 2000), Sri Lanka inherited a socialprotection system that reflected the beliefs and practices of its former colonial rulersbut unlike most of these states it sought to extend welfare and did so by seeking toplace the associated cost on the sector of industry most integrated into theinternational economy.
The Management of Social Protection in Sri Lanka 349
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Key reasons why the welfare-first strategy was embraced in the post-war yearsinclude the fact that it enabled governments to ‘‘deprive the left of popular support’’(Athukorala and Jayasuriya, 1994: 7) and moderated social conflict betweencontending ethnic groupings (Jayasuriya, 2000). However, by so doing, universalsocial protection was consolidated as a dominant theme of competitive politics. Theextent of this embeddedness became manifest when a governing party attempt toreduce food subsidies led to its defeat in the 1956 election. This experience remainedalive for many years in the country’s political memory and, as a result, the universalapproach to social protection survived until the 1970s.
The systematic deconstruction of the universal social protection regime began in1977 when the government bowed to domestic capital and the multilateraldevelopment agencies and became the first country in South Asia to embrace theWashington Consensus (Jayasuriya, 2005). The impact of the associated policychanges on the deep-rooted welfare regime was dramatic (see Samaratunge andNyland, 2006). The focus of social policy shifted from redistribution to maintenanceof those in extreme need, while much expenditure formerly apportioned to welfarewas redirected to support business attempts to build the export sector and undertakeinfrastructure projects. This allocation reflected the proposition, popular in theWorld Bank, that export industries and large-scale projects would provide low-income families with employment that could be substituted for welfare subsidies. Inshort, it was assumed the benefits of these projects would ‘‘trickle down’’ andactivate populations to engage in productive activity and reduce the state’s fiscalburden and role in welfare provision. The shift of resources from the poor tobusiness was justified by the ADB (1997: 47), which argued it was necessary becausethe ‘‘generous social welfare programmes of the pre-1977 period . . . maintained thepoor in a low-level equilibrium, reducing the incentives for productivity and growthsavings.’’ Consistent with this view, post-1977 governments sought to limit welfarebenefits to the limited provision of residual safety net services for low-income groupsand severely curtailed social expenditure. Table 1 reveals the consequent changes inwelfare expenditure in Sri Lanka. Even though spending on ‘‘other services’’ hasimproved, this mainly relates to the welfare costs of the internal war that has ragedsince the early 1980s. Along with the curtailment of social expenditures on foodsecurity, education and health, a programme of privatisation was introduced intopublic transportation, health care and education with ‘‘the public-private mix [being]diluted in favour of the private sector’’ (Jayasuriya, 2000: 19).
The dilution of social protection was compounded by a sustained assault on thelabour movement. Conservative governments relaxed a number of labour standardsthat preserved respect for the rights of labour, strengthened legal standards thatgave protection to employers, and helped right-wing unionists undermine thestrength of the left within the trade union movement. These efforts enhanced thecapacity of employers to dominate workplace relations and this process was assistedfurther by the establishment of export processing zones (EPZs) and the subsequentextension of a free trade regime to the whole country. In brief, the EPZs created anew type of workforce – young female workers – whose entry into the formal sectorsignified a new development in workplace relations while broad liberalisationconcomitantly pushed many workers into the informal sector. A 2002 report,commissioned by the International Labour Organisation (ILO), concluded this latter
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sector has tended to increase with globalisation which has induced ‘‘more reversegraduation into the informal sector from the formal sector than the other wayaround’’ (cited in Sunday Observer, 6 January 2002). Consequently, rather thanencouraging the development of the nation’s human resources, in many casesglobalisation pushed a large part of the labour force into insecure, low-payingunorganised industries, where non-formal employment practices dominate and thesecurity formerly provided by the welfare state and unionisation are rare.
Given the emergent appreciation that open economies need to be underpinned bypolicies and programmes that insure populations against exogenous market shocks,we explored elsewhere whether the relevant actors in Sri Lanka are aware of thisneed (Samaratunge and Nyland, 2006). Our analysis was based on interviewsconducted with officials from the international development agencies, public officials,and employer and worker representative bodies. We concluded that conservativepolicy makers and the business community wish to dilute the welfare regime further,but most workers, public officials and politicians believe it is necessary to underpinopenness with a sound social protection regime. By looking at the influence of thesemacro-level changes on enterprises, in this study we explore the associated views of(enterprise) managers within the manufacturing sector.
Method
In the current study we undertook seven case studies, bearing in mind both theadvantages and disadvantages of the single and the multiple case study approach(Yin, 2003; Zikmund, 2003). We embraced this method because it is more suitablefor analysing complex issues of social protection and for contrasting the differentperceptions of managers across selected firms. In total, 16 Chief Executive Officersand/or Human Resource Managers were interviewed in seven selected firms inSri Lanka, utilising both open-ended and structured questions. It should be notedthat the views of trade union representatives are not included as there was no unionpresence in any of the enterprises studied.
The firms selected were diverse in that: (i) their ownership form varied from local(three firms) to foreign (foreign firms) including two joint ventures; (ii they haddifferent origins – the two joint ventures were initially established as local firms andwere able to gain foreign capital input at a later stage; (iii) they varied in terms of theskill and size of their workforce; (iv) they had an annual turnover that ranged from
Table 1. Social expenditure as a percentage of GDP
1951-55 1961-65 1971-75 1981-85 1991-95
Social expenditure 7.1 10.5 9.9 5.5 9.3- food security 2.4 3.7 4.3 0.2 0.9- education n.a. 4.0 2.9 1.9 2.8- health n.a. 2.0 1.5 1.0 1.5- other social services 0 0.1 0.2 0.1 4.1
Source: Central Bank of Sri Lanka, Annual Reports, various years.
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$US0.1 million to more than $US10 million (note all references to dollars in thisarticle are to US dollars). All selected firms had been established for at least ten yearsand, in order to maintain confidentiality, are coded as L1 to L3 (local firms), and F1to F4 (foreign firms) (Table 2).
The Case Studies
Case Study L1
This enterprise is located in an outer suburb of Colombo. Established in 1994 as aforeign company, its ownership form was changed in 2003 due to acquisition by alocal firm. The company produces intermediate products for the textile industry, thevalue of total capital in 2003 was approximately $4.8 million; the annual turnover is$5-10 million. Eighty percent of annual income is generated in the local market andthe remaining revenue comes from overseas sales. The firm is in the low-mediumhealth and safety industry risk category, its workforce numbers 535, of which malerepresentation is 90% and the average age is 36.0 years. Ninety percent of theworkforce is semi-skilled, with no more than Advanced Level high school and 5%have tertiary qualifications while the remaining 5% are trade/technical diplomaholders. Although not unionised, management believes a limited number of workershave affiliations with leftist political parties.
In L1, the supplementary non-wage benefits provided to skilled employees includeprivate medical insurance, a company car or low interest vehicle loan, internationaland domestic training, and free meals, though no provision is made for retirement orunemployment. By contrast, while unskilled and semi-skilled workers receivebenefits, the scope and magnitude of these entitlements are far less attractive andare limited to subsidised food and transport. The provision of free meals seems toserve two main employer objectives: first, the provision of healthy food increasesemployee productivity. Poor and middle-income families in Sri Lanka commonlyfind it difficult to access nutritious and decent meals and it is widely accepted thisdifficulty affects employees’ work effort directly (Ranatunga, 2003). Secondly,management can significantly influence the behaviour of employees in the workplace. Transport subsidies are provided because of poor public transport services.According to the HR manager:
Even after the partial privatisation of the Sri Lanka Transport Board, transportservice in the country is erratic and often unsafe. The management believesthat transport subsidies the firm provide would greatly increase the morale ofthe employees and hence their productivity. The financial facilities providedby the firm to unskilled and semi skilled workers to buy bicycles and medium-sized motor cycles have significantly increased employees’ attendance andpunctuality.
Overall, the package of non-wage benefits available in this firm is the bestamong the selected local firms. This company is also the largest within the localsample and the former parent country (until 2003) had a good reputation as awelfare provider.
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Table
2.Theprofile
ofselected
firm
s
Case
studynumber
Description
(L1)
(L2)
(L3)
(F1)
(F2)
(F3)
(F4)
Ageoffirm
(years)
915
810
21
15
10
Location
RegionalCentre
OuterSuburb
Colombo
Colombo
Colombo
EPZ
EPZ
Ownership
-local
xx
x-foreign
xx
-JV
xx
Businessactivity
Textiles
Ceramics
Textiles
Tea
processing
Interm
ediate
products
fortextiles
Rubber
products
Packaging
products
Industry
type
Medium
Medium
Low
Low
Medium
Medium
Low
No.ofem
ployees
535
532
95
665
102
2,000
325
Gender
composition(M
:F)
90:10
60:40
18:82
70:30
72:28
60:40
85:15
Averageageof
employees(years)
36
40.2
34.3
43.5
36.6
38.6
38.5
Annualturnover
($USmillion)(2002)
5-10
1-5
1-5
More
than10
0.1-0.5
n.a.
More
than10
Annualprofit($USmillion)(2002)
1-5
Loss
0.5-1
0.5-1
Lessthan0.5
n.a.
0.5-1
Totalcapital($USmillion)(2002)
1-5
5-10
1-5
0.1-0.5
0.5-1
n.a.
1-5
Overseasmarket
(%)
20
68
20
100
90
100
100
Localmarket
(%)
80
32
80
010
00
Source:
Interview
data.
Note:L,localfirm
s;F,foreignfirm
s;JV
,jointventure.
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Case Study L2
This enterprise is located in an outer suburb of Colombo. Established in 1988,the firm produces high quality porcelain products. The capital of the firm in 2002was over $5.5 million and annual turnover was $4.6 million. In 2002, the firmwas running at a loss, but management maintains that this was a temporarysetback. Sixty-eight percent of annual revenue is generated in overseas marketsand the remaining revenue comes from the local market. The firm is in themedium health and safety risk category; its workforce numbers 532, of whichmale representation is 60% and the average age is 40.2 years. Eighty-sevenpercent of the workforce is unskilled with primary and secondary schoolqualifications and 3% of employees are semi-skilled with Advanced Level schoolcertification. Nine percent of the workforce has trade/technical diplomaqualifications. The remaining 1% includes workers with tertiary qualifications.The workers are not unionised.
The firm’s managers accept that the government has a positive role to play in thearea of social protection but favours further dilution of what is left of Sri Lanka’suniversalistic regime. They also favour trade and investment liberalisation but insistthat the state should help local businesses overcome undesirable competition andvolatility in the global market. Moreover, given the firm’s unfavourable financialposition and increasing import competition, management believes the governmenthas to protect local firms from low cost imports. According to one manager, ‘‘thegovernment should help firms to develop technological capacities that promotecompetitive practices in our industry.’’
The interviewees favoured firm-specific benefit policies that increase performanceof employees and employers and, as with case study L1, benefits provided includesubsidised meals and transportation facilities. Given the limited availability of publicmedical facilities in the area the firm has established a medical centre within thepremises, with a qualified doctor and nurse; unskilled and semi-skilled workers arethe major beneficiaries of this centre. The firm also provides private medical benefits,but these are limited to skilled workers and have been introduced to increase thecapacity of the firm to recruit and retain skilled workers.
Case Study L3
This firm is located in Colombo and produces textile products. Established in 1995,the value of capital in 2003 was approximately $2.5 million; annual turnover isvolatile, being between $1 million and $5 million, with annual profits of $0.1 millionto 0.5 million in 2002. Eighty percent of annual revenue is generated from the localmarket and the remaining revenue comes from overseas sales. The firm is in the lowhealth and safety risk category; its workforce numbers 95 and is predominantlyfemale (84%) and relatively young, with the average age being 34.3 years. Ninety-fivepercent of staff are either unskilled or semi-skilled with primary or secondary schoolcertificates. They are not organised into trade unions.
Arguing in the same line as managers in other local firms, the Managing Directormaintains the prevailing universalistic approach to social protection is notsustainable and holds that the Termination Act, which requires prior permission
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from the government for dismissal of an employee, is a major constraint to theexpansion of the private sector. A staunch defender of the ‘‘Washington Consensus,’’he insisted the government should provide increased incentives to businesses andclaimed this to be the best way to assist the poor as it will induce growth and henceincreased income for all.
Convinced of the great importance of labour market flexibility, the firms’managers insisted that welfare benefits should be firm-specific. However, whatthey thought this might entail if fully implemented was indicated by the fact thatthe firm provides only free meals to its employees. The company’s owners areaware that other firms offer a wider range of benefits but think adopting suchmeasures would be a burden that would undermine enterprise competitiveness,more so given the fact that the type of labour primarily utilised is abundant inSri Lanka. That this would be done if deemed necessary is indicated by the factthat skilled workers (3% of the workforce) are provided with private medicalbenefits, though the value of these benefits is far below that offered by otherfirms.
Case Study F1
This enterprise is located in a western suburb of Colombo. Established as a localbusiness in 1993, its ownership form changed in 1998 due to a partnership withforeign capital from the Middle East. Currently, the firm operates as a joint ventureprocessing tea. The firm’s capital value in 2003 was between $0.1 million and 0.5million, while annual turnover was more than $10 million, producing an annualprofit of $0.5-1 million. Its annual revenue is generated purely from overseasmarkets. The firm is in the low health and safety risk category; its workforcenumbers 665, of which male representation is 70% and the average age is 43.5 years.The firm relies on unskilled casual labour (95%) and only 5% of workers havetertiary qualifications. The workforce is not unionised.
The management believes reforming the existing social protection system is longoverdue and holds that employment creation is the best form of social protection.The Chief Executive Officer (CEO) emphasised that the government should beutilising its resources to develop shipping and insurance facilities for private firmswhere the facilities are far below expectations.
The CEO favours firm-specific social policy arrangements. As with L1 and L2, it isbelieved that the provision of free meals and transportation is critical to workers’commitment and productivity and the firm provides these benefits to all workers. Butthere is a marked difference between casual and permanent employees. Casuals areprovided subsidised transportation, while permanent workers are entitled to lowinterest vehicle loans. Again, casuals have work cover but only the permanentemployees are provided with private medical benefits and those who are highlyskilled are also provided other benefits, including generous life insurance schemes,opportunities for children’s education, low-interest housing loans and training anddevelopment programmes, though there is no provision for retirement benefits. Themanagement justifies generous social security benefits for skilled workers on thegrounds that a number of competitors are doing likewise and the skilled constituteonly 5% of the total workforce.
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Case Study F2
This firm is located in Colombo. Established in 1982 as a local firm, itsownership form was changed in 1990 due to a joint-venture partnership with anIndian firm that has equity ownership of 30%. Being in the chemical industry, itproduces paints and a starch that is an intermediate product for the textileindustry. The value of total capital of the firm in 2003 was $0.5-1 million, andannual turnover was between $0.1 million and 0.5 million, with an annual profitof around $50,000 in 2002. Ninety percent of its annual revenue is generated inoverseas markets and the remaining revenue comes from local sales. The firm isin the medium health and safety risk category; its workforce numbers 102employees, of which male representation is 72% and the average age is 36.6years. Fifty-five percent of the workforce is unskilled with primary and secondaryschool qualifications. Thirty-five percent of employees are semi-skilled withAdvanced Level school certification. The remaining 10% include skilled workerswith tertiary and technical qualifications. The workers are not organised intotrade unions.
The management supports the further dilution of the universalistic approach tosocial protection, but stresses the need to protect the poorest and the need for thegovernment to give greater attention to promoting business activities. The CEOpoints out the importance of a good relationship between government and business,and the mutual benefit each can thus gain.
The interviewees also understand the importance of firm-specific benefits thattarget individual employees. The firm prefers to provide a number of benefits rangingfrom safety equipment, cycle loans, death benefits and assistance for children’seducation, but the allocative principles are informal in order to maximise employercontrol. It appeared that the management prefers the Japanese paternalisticapproach in human resource management. Private medical benefits are limited toskilled workers, making a considerable gap in social protection benefits betweenskilled and unskilled employees.
Case Study F3
This enterprise is the largest in the sample and is located in an EPZ. A subsidiary ofan overseas company established in 1988, it produces rubber products and derives itsincome mainly from overseas; the annual turnover and profit were not included as aseparate subsidiary. The firm is in the low-medium health and safety risk category;its workforce numbers 2,000, of which male representation is 60% and the averageage is 38.6 years. Ninety percent of the workforce is semi-skilled with AdvancedLevel school certification and only 5% have tertiary qualifications. The remaining5% of employees are trade/technical diploma holders. Although the workers are notorganised into trade unions, the management believes that a limited number ofworkers have affiliations with leftist political parties.
The management believes that under the present financial situation the countrycannot afford to retain what is left of the universalistic approach to social protection,though the HR manager recognises the importance of protecting the poorest groupin the country. He insisted the existing social protection regime should be reduced
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further after careful consideration of government priorities which, like many of hispeers, he assumes would mean increased resources for capitalist entrepreneurs.
The firm offers a range of benefits that contribute to the security of its employees,including private medical insurance, transportation, free meals and work cover,disability pensions, facilities for children’s education, low interest housing loans andunemployment benefits. This firm provides a relatively generous social protectionpackage compared to all other selected firms, though, as with their peers, skilledworkers are provided with more favourable benefits.
Case Study F4
This enterprise is located in the EPZ in Colombo. It has foreign ownership and wasestablished under the foreign expansion programme initiated by the government in1993. The firm produces packaging products for the manufacturing industry; thevalue of total capital of the firm in 2003 was $1-5 million, with an annual turnover of$1-5 million and annual profit of around $0.5-1 million in 2002. Its revenue isgenerated from the overseas market. The firm is in a low injury risk category; itsworkforce numbers 325, of which male representation is 85% and the average age is38.5 years. Ninety percent of the workforce is unskilled or semi-skilled with primaryor secondary school certification and only 5% have tertiary qualifications. Theremaining 5% of employees are the technical staff. The workers are not organisedinto trade unions.
The management argues the existing universalistic approach to social protectionsystem is obsolete and wishes to see further dilution of the system. Whileappreciating the recent government policies to promote the business environmentin the country, the CEO points out the importance of foreign direct investment to thecountry’s development. Accordingly, he holds that it is necessary to make theenvironment more attractive to foreign investors. The HR manager is in favour offirm-specific social protection programmes and the company provides both privateand contributory benefits. The former include private medical insurance, transporta-tion and free meals. The latter entails disability pension and unemployment benefitswith compulsory payment to the Employee Provident Fund and Employee TrustFund. Skilled and semi-skilled workers are treated differently. While the skilledemployees enjoy generous medical benefits, semi-skilled workers are entitled tolimited medical coverage. Skilled workers are provided with more favourablebenefits in order to retain them in the firm.
Capital and the Distribution of Risk
The managers interviewed, in both local and foreign firms, were adamant that thepost-war universal social protection regime was and remains an unaffordable luxuryfor Sri Lanka. As with our earlier study of politicians, business leaders and workers,the individual case studies support the belief that enthusiasm for a residual approachto welfare has become deeply ingrained amongst Sri Lanka’s employers (seeSamaratunge and Nyland, 2004). Further, our study offers more evidence thatemployers are convinced that social protection residualism is an imperative in acontext of globalisation and in an environment in which neighbouring countries have
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opened their economies and now offer foreign investors cheap labour alternatives.Yet, while wishing to curtail what is left of the universal welfare regime, themanagers interviewed accepted that there is a need to retain a small residual welfaresafety net that can provide limited protection to the very poorest sectors of thecommunity. Supporting this perspective, one HR manager observed:
In the globalising world we are living [in], all organizations, public as well asprivate, should understand new competitive pressures to achieve efficiencysavings. The government can be more successful in accomplishing its aims byworking with other actors to achieve social outcomes rather than trying to doeverything itself. Hence, instead of continuing with the universal approach, thegovernment needs to be selective in social protection.
For employers, ‘‘working with other actors’’ appears in this context to mean thatthe government should provide the poor with resources needed to hold off absoluteimpoverishment. However, beyond this meagre ration the state should leave firmsfree to determine who will be provided benefits and what benefits will be provided tothem. Our interviewees were aware that not all workers can be provided this tightallocation, but what is clear is that allocation in all cases is influenced primarily byprofitability. Aware that the attributes of skilled employees provide these workerswith opportunities to relocate to other organisations and that consequently employercontrol over these workers is constrained by the costs of recruiting and/or trainingskilled employees, firms accept the provision of an expanded package of social andeconomic benefits is a necessary investment. One manager lauded his firm’s efforts inproviding benefits to his employees suggesting that, by so doing, his firm wasliberating the worker from state control of their lives. As he explained, firm-specific‘‘benefits open up avenues for both employers and employees to develop a newrelationship changing the culture of dependency between employers and thegovernment.’’ But in putting himself forward as the liberator of his employees, hefailed to acknowledge that the alternative to state provision that he considersdesirable is one in which employees are dependent for their well-being on the firmand thus are subject to the dictates of management.
As shown in Table 3, while all firms favour abolition of what is left of the universalsocial protection regime, there is some diversity across local and foreign firms. Localfirms support gradual reform, while foreign firms tend to insist that reform is alreadylong overdue and should be undertaken immediately. This distinction possiblyreflects the fact that the benefits provided by local firms are small compared to theirforeign counterparts. Consequently, should the state undertake a major withdrawalfrom social security provision, these local firms would be put under greater pressureto fill the consequent deficiency than are their international competitors who alreadyprovide a higher range and scale of benefits.
Overall, managers accept they must differentiate across the workforce whendeciding the package of benefits provided to workers. As Table 4 reveals, there arethree categories of qualifications: managerial and professional (M), trade technician(T), and non-tertiary trained. Managers and professionals are the most highlyqualified and most have degree qualifications. Trade technicians have generallyobtained post-school trade certificates. Non-tertiary trained employees would
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generally have completed GCE (Ordinary Level) or GCE (Advanced Level).Interview data show the percentage of the non-tertiary trained category in theworkforce in foreign firms is relatively high. For instance, nearly 80% of workersemployed by domestic firms are in this category while, in foreign firms located inEPZs, the relevant percentage is as high as 90%.
Skilled employees are provided with a generous social protection packagecompared to their unskilled or semi-skilled counterparts. Managers argued topexecutives need skills, training and international exposure and experience and shouldbe treated more favourably. Moreover, they point out that skilled employees are inshort supply and their willingness to provide a greater package of benefits reflectsthis awareness. This perspective lends support to Mares, who explained that oncemanagers invest in human capital through training and development,
the firm will derive considerable advantages from social policies that protect itsinvestment in the training its employees, either by ‘‘tying’’ the worker to the firm(through private social policies) or by ensuring that social policy benefits‘‘reproduce’’ or ‘‘mirror’’ the wage differentials established within the firm, andthus create additional incentives for workers to invest in these skills (Mares,2001: 196).
Support for her perspective is also provided by the fact that relative size of the firm isanother factor that influences the nature of employers’ benefits contribution. AsMares suggested would be the case, large firms tend to contribute a wider range ofbenefits and are more generous in their contributions because economies of scalemake investment in the associated infrastructure economically rational. Forinstance, the lowest combination between firms and other stakeholders (mainly thegovernment) was 20-80% from L3 (the smallest local firm) and the highest was 45-55% from F3 (the largest foreign firm). It can reasonably be argued, therefore, thatboth size and the ownership are significant factors in determining the preferredcombination of social protection policy between different stakeholders.
Table 3. Commonalities between foreign and local firms at the policy level
Case study number
Type of social policy (L1) (L2) (L3) (F1) (F2) (F3) (F4)
Universalistica # # #Mandatoryb
Employer contributionsc " " "
# - gradual decrease - no change " - gradual increase.- major decrease - major increase.
aEmployers response was to reduce the universalistic social policy package financed by the government to
the lowest level to protect the poorest.bCompulsory payment in the form of Employee Provident Fund and Employee Trust Fund at a flat-rate
which is mandatory. Employers felt the existing rate is relatively high.cManagers support employers’ contributions in social policy but the trend is the higher the skill profile, the
higher the employers’ contribution. Overall, the expenditure on private social policy has been increasing.
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Table
4.Comparisonbetweenforeignandlocalfirm
s:skillprofile
Typeofskillprofile
Case
studynumber
(L1)
(L2)
(L3)
(F1)
(F2)
(F3)
(F4)
Qualifications
MNM
TM
NM
TM
NM
TM
NM
TM
NM
TM
NM
TM
NM
T
Primary
schoolcertificate
��
��
Secondary
schoolcertificate
��
��
�GCE
(O/L)
��
��
��
GCE
(A/L)
��
��
��
�Technical/tradecertificate
��
��
��
University
degree
��
��
��
Postgraduate
qualifications
��
��
Other
��
��
��
��
�
Source:
Interview
data.
M,Managerial-professionalpositions;NM,Non-m
anagerial/technicalpositions;T,Technicalpositions.
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Table 5 examines managers’ perception on the six specific laws in social policy,namely: medical facilities, unemployment, age care, occupational health and safety,disability insurance and early retirement. First, managers support the idea that medicalfacilities, organisational health and safety (OHS) and disability insurance (to someextent) should be a shared province of both employers and the government. Secondly,almost all firms believe that their role in the provision of unemployment insurance, agecare and early retirement benefits should be restricted. They maintain the view thateven for the government to provide these benefits will be an uphill task in the futurebecause of the increasing international competition and the growing fiscal difficultiesin the country. However, if the government promotes a market-friendly economicenvironment, firms will be able to increase employment opportunities and hence canmake a greater contribution to firm-specific social policy arrangements.
Mares’ claim that employers do not always oppose social protection provision butrather seek to optimise risk dispersion and control in order to maximise profitabilityis supported by our interviews. It is clear the manufacturers interviewed have nosympathy with the notion that a high benefit regime can be a positive aspect of aneffective development and/or management programme when what is being discussedare the unskilled. However, even with these workers our interviewees accepted thatsome risks should be pooled, while convinced that control – that is class power – inthe workplace is primary. Risk containment is recognised as a need even in the caseof the unskilled, we suggest, because employers are aware that driving people todesperation is risky. This is the more so if they are desperate because they have hadtaken from them what they have previously recognised as a right. Employers’willingness to support the provision of non-wage benefits is even clearer in the case ofskilled employees as is their wish to ensure that control of benefit distribution isretained in the hands of the employer. With these workers the wish to control benefitdistribution is informed both by the need to ensure that these employees feeladequately rewarded and hence stay with the firm and in order to ensure that they donot identify with the unskilled and use their market power as a tool to enable them toally with and empower the latter.
Table 5. Sharing risk of social protection: employers/managers perception
Case Study Number
Preferred Mode of Social Protection (L1) (L2) (L3) (F1) (F2) (F3) (F4)
Medical facilitiesa � �* � � � � �UnemploymentAge CareOccupational health and safety (OHS) � � � � � � �Disability insuranceb � � � � � � �Early retirement
Source: Interview data.aProvide private health insurance and assigned doctor/hospital.bIn many cases employees are entitled for a lump sum. In special cases, firms pay the premium for private
disability insurance.
*The firm has its own medical centre.
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Conclusion
In the recent globalisation literature there has been a growing appreciation of therole of social protection. International development agencies now acknowledge thatglobalisation is associated with significant market risks and, therefore, the role ofsocial policy in the globalisation process must be strengthened. There is a growingview that the risk and responsibility for social protection has to be redistributed andshared by the state, employers and employees. This heightened awareness hasgenerated a body of research that has sought to explain how, why and whenemployers will support social policy reforms – an issue that is particularly salient forAsia, given that state welfare distribution has tended to decline with increasingmarket openness.
A particularly significant contribution to the literature is the work of Mares, whodeveloped a model of the relationship between firm-specific variables such as firmsize, skill profile, the incidence of labour market risk and the preferred modes ofsocial policy. She argued that the views of employers regarding the policy trade-offsbetween social risk redistribution and control depend strongly on firm-specificcharacteristics and the incidence of labour market risk. Based on her findings, Maresoffered a set of conclusions with respect to the relationships between those variablesand employers’ preferred mode of social policy.
We utilised Mares’ model with specific data from Sri Lanka related to size, skillprofile, incidence of labour market risk in seven selected firms (four local and threeforeign) in the manufacturing sector and the combinations of characteristics whichcan influence the selection of social policy arrangements and identified how thesefirms respond to firm-specific laws related to different areas of social policydevelopment. The Mares’ framework survived the test, provided by firm-level datafrom face-to-face interviews conducted in Sri Lanka, well. The employers/managersinterviewed (12) in low risk industries are determined that they must controldistribution of benefits and thus maximise control of their employees, but theyaccept that there is a residual role for the state. At the same time, they are resistant tothe notion that they should support retention of the universal social protectionsystem and a substantial ‘‘unitary pool of risk.’’ The findings of this study addtestament to the claim that in Sri Lanka there exists in the capitalist class aninfluential community highly resistant to the country’s deep-rooted universal socialprotection history and culture and whose influence will need to be combated if eventhe remnants of this tradition are to be retained.
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