China’s IR system

When it comes to industrial relations in Asian countries, China’s IR system is very different to the rest.’ Do you agree? Justify your answer

 

The changing face of global economy and the world markets naturally had an impact on every nation and their social, political, cultural and financial positioning. Industrial relations in many nations witnessed an evolution as well. The concept of labor and labor market either started to shape up or got refined. Europe, Australia, Asia — none were beyond the schema of privatization and changing industrial relations (IR). The objective of this essay is to discuss in favor of the statement that the IR system in China is different from that in other Asian countries. Industrial relations has a long history of evolution in Asia — Asian IR is not the same as it was in the initial days of industrialization. Significant changes started to ensue in the 1990s and every nation had its own way of adapting to this change. China, due to its socio-cultural and political standing, has a very different manifestation of its industrial relations. The essay explores the ‘why’ and ‘how’.

 

What is IR?

The man behind the concept of industrial relations is none other than Karl Marx. It draws from Marx’s theory of capitalism, whereby it was noted that there will always be a conflict of interest between the capital and the labor in a capitalist society. The structure of that society is such that it will impact employment relationships. Naturally, therefore, trade unions will emerge to safeguard interests of the labor from that of the capital. It is in this context that industrial relations become relevant.

Generally speaking, industrial relations or IR is the relationship between management and its workers or employees in a workspace (Bhoganadam & Rao, 2015). IR also comprises the processes via which these relationships are articulated (for example: collective bargaining, worker participation in decision-making, dispute resolution), and conflict management between employers, workers and trade unions, when it arises (Macdonald, 1997). On a macro level, IR encompasses human resource management (HRM) and people management. At a micro level, IR includes employers, employees, trade unions, legislations, governance, etc (Bhoganadam & Rao, 2015).

 

Globalization – Placing IR in Context

The world shed borders and became smaller, as they say, with the phenomenon called globalization. Men had greater reach to men and economies opened up to offer the world a chance to transform the way it did business and managed people. Ali (2005) defines globalization as the assimilation of macro and micro economies of countries, connecting the economical, cultural, social, political, and legal aspects. It allowed free flow of trade and investment among various nations. As a result, privatization and liberalization gained strongholds in national economies, thus bringing industrial relations into more prominence than ever before. The need to relook at the IR systems was felt by many nations in the globalized era.

 

Evolution of Industrial Relations in Asia

Many countries in the world experienced transformations in the very essence of their industrial relations during the 1980s and 90s, a period of instability and economic uncertainty (Kuruvilla & Erickson, 2002). The main drivers for this IR evolution were: integration of world markets and a consequent competitive landscape, decentralization of bargaining, demands for more flexibility in wages, labor employment and workplace dynamics (Kuruvilla & Erickson, 2002).

The changes in IR were first seen in the West during the late 1980s, which then influenced the East-Asian countries to follow suit, owing to the forces of globalization. The global economy has the maximum impact on Asian countries, according to the World Bank (1998) and it has the largest share of FDI from developed industrial nations, as compared to Africa or Latin America. Although the change in IR policies in Asia had some closeness to its Western counterparts, they were fundamentally different due to the social and political situations prevailing in each Asian country.

Six kinds of IR models have been identified by Kuruvilla (1996):

  1. Flexible workplace model (Japan)
  2. State-employer dominated model (Indonesia and Malaysia)
  3. Tripartite model (Singapore)
  4. Pluralist, decentralized, fragmented model (Philippines)
  5. Transitory model (China, South Korea, Taiwan, Vietnam)
  6. Politicized multi-union model (India and South Asia)

Clearly then, there’s a substantial variety in the models of IR systems existing in Asian countries and in that, China (and also Vietnam, to an extent) is one which has been transitioning from a closed economy to an open economy. A transitory economic phase is likely to have its share of uncertainties and idiosyncrasies. Therefore, China is bound to have an IR that differs in many aspects compared to Japan, Malaysia, Singapore or any other Asian country.

IR systems began to be formalized in the West and in Asia after the World War 2; however, the primary goal of IR in those days was to maintain peace and stability in labor relationships. Today, in a globalized economy, the primary goal of IR has become more functional and number-oriented in nature, though in Asia, the intention of maintaining labor peace and preventing conflict through IR rules still prevails in varying degrees. Different Asian countries deployed different IR mechanisms to achieve peace and labor control.

 

IR in Japan

The recession of the 1990s had a deep impact on Japan’s IR system. The turbulent economy threw up questions on Japan’s already existing IR laws of lifetime employment, broad-based training and seniority-based wages. The 1990s also saw a rise in outsourcing or ‘work commissioning’ in Japan, as reveals the Ministry of Labor’s survey (Japan Labor Bulletin, 1998). The main changes seen in Japan’s employment situations were:

  • Reduced hiring
  • Lay-offs (move from lifetime employment)
  • Rise of contractual employment
  • Dual hierarchy elimination in organization structures
  • Pay to seniority became pay to performance
  • Increased wage flexibility and bonus pay
  • Subcontracting
  • Reduced power for trade unions

Thus, Japan’s IR transformed to a more individual-based and flexible-workplace system.

 

IR in Singapore

Singapore adopted an FDI-based, export oriented industrialization approach in the 1960s to allow stable and cheap options (Chiang, 1988). This changed in the 1980s and moved to higher value-added export-based industrialization. IR changes in Singapore were:

  • New unions became enterprise-based
  • Combination of industrial unions and enterprise unions existed
  • Establishment of tripartite IR system
  • Exclusions to bargaining were created in hiring, termination, promotion, transfer and job assignment to avoid conflicts
  • National wages council encouraged differential wage hikes, based on industry condition and company performance
  • Educational restructuring to develop skilled labors
  • Establishment of flexible pay, based on individual productivity

Singapore’s IR, therefore, has workplace flexibility / functional flexibility within the tripartite framework.

 

IR in Malaysia

In Malaysia, stability in IR was associated with stability in its political strength. The unions were restricted from political action. The Industrial Arbitration Court was given the authority to amend collective bargaining contracts if the latter did not meet the interests of the nation. Other changes in Malaysian IR included:

  • Technology-based exports
  • Focus moved from cost savings and union suppressions to skill building
  • More non-unionized worker participation in organizations
  • Encouraging pay-to-performance models

Malaysian IR has many similarities with Singapore’s, with minor differences.

 

IR in South Korea

South Korea’s IR draws a lot from the authoritarian Japanese IR system. The rights of the trade unions were considerably reduced, in an attempt to exercise more labor control by the government in the initial days of IR establishment. Later in the late 80s and early 90s, significant changes to South Korea’s IR constituted:

  • Formation of independent enterprise unions
  • Hegemony of government-controlled union confederation was broken
  • Voice of the unions increased
  • Unions’ bargaining power also increased after the democratization
  • Demands of more workplace flexibility, doing away with lifetime employment contracts
  • Union participation in politics
  • Multiple unions allowed in workplace
  • Creation of Tripartite Commission
  • Establishment of unemployment insurance fund

 

IR in Philippines

Changes to Philippine’s IR system include:

  • Focus on numerical flexibility and workplace
  • Workers appointed on short-term contracts
  • Rise in outsourcing and labor-only subcontracting
  • Reduced voice of trade unions at national and workplace levels
  • Collective bargaining declined in the mid 90s

 

IR in India

Indian economy was governed by the age-old ISI program until 1991, when it finally opened its economy to the global market. This drastic change posed stiff international competition for India and brought about the following changes in the nation’s IR system:

  • Tripartite committee formed to reform India’s IR laws
  • Need for workforce reduction manifested in the introduction of voluntary retirement schemes
  • Company lockouts rose
  • Workers are promoted to higher roles in administration to prevent unionization
  • Employers propagate joint consultation of productivity enhancement
  • Collective bargaining contracts show growth in management rights
  • Establishment of a government-to-business coalition
  • Policies formed to prevent formation of unions

Indian IR has shifted focus from maintaining labor harmony to a firm-level competitiveness.

 

IR in China

China’s IR is very different from all of the above in the fact that it is still not fully shaped; rather, it is undergoing significant transformations. China is in a stage where its industrial relations are getting a finite form (Hvid, 2014). This is because, there was basically no need for IR regulations in China, prior to 1990 as China was predominantly ruled by the Communist Party. This meant that managers and workers jointly worked under the regime of Communism. So there was practically no scope for conflict of interests.

When in the early 1990s, labor contracts emerged to replace lifetime employment arrangements in China, the labor market was first formed, with its rules of wages and employment and need for IR laws. The labor market in China changed further as more and more people opted to work in privately-owned and joint venture companies, instead of the state-owned enterprises. China also witnessed growth in foreign-company owned companies. Consequently, the urban population increased. Tang Jung et al. (2010) notes that the urban population is now at 46%, as compared to a meager 20% in the 1980s. This growth signals a future growth trend and need for more definite labor laws.

When the Chinese labor market was first formed in the 90s, it naturally had teething issues — disputes and chaos. This prompted the government to formulate a set of three legislations in 2008 (Cooke, 2009):

  1. Labor Promotion Law
  2. Labor Contract Law
  • Labor Arbitration Law

The promotion law involves creation of job opportunities, development of skills through vocational training, regulations around job agencies, etc. The contract law involves the terms of employment (wages, working hours, etc). And the arbitration law takes care of the dispute resolution aspect of labor relations.

Wages are the most dominant reason (45%) behind disputes in the Chinese employer-worker relation, followed by reasons like termination of contract (18%) and long working hours (17%) (Cai & Wang 2012, p. 19). Along with disputes, there is also the issue of high turnover rates in companies that point towards a transition in the Chinese labor market situations and its unstable IR system.

China reacted to the situation and began to reform its industrial relation regulations. Mainly three approaches were adopted (Hvid, 2014):

  • Trade unions
  • Collective consultation at enterprise-level
  • Tripartite consultation at local, regional and national level

As part of the Chinese Communist Party, All-China Federation of Trade Unions (ACFTU) redefined the labor movement rules within a state-ruled ISI policy (O’Leary, 1994). The trade unions played an economic and political role, but more than that, they functioned as “transmission belts” (channel of communication between employer and worker), as Littler and Lockett (1983) call it. This belt or communication channel had a lot of impact on China’s IR goals. Management appointed union representatives at the company level, whereas the Communist party did the same at the local and national level (Hvid, 2014). In China, the trade unions at enterprise level had roles similar to HR departments of companies in developed nations. They needed to act in the interests of many — welfare of the company, welfare of workers and welfare of the state in relation to labor market conditions (Feng Chen, 2003).

Many Chinese enterprises have collective consultation units to manage IR. However, the effectiveness of this approach is limited. China formed its National Tripartite Consultative Committee and asked the provincial governments to form the same. And this approach also, unfortunately, had its limitations as the representation of parties is sketchy and did not work well.

Changes to China’s IR system included:

  • Increased decentralization in the state owned enterprises (SOEs)
  • Increased foreign investment enterprises
  • Increase in foreign-owned joint-venture export firms
  • Growth of special economic zones (SEZs) all over China
  • Flexible IR and HR norms came into China via the foreign associations
  • New Labor Law passed in 1994 to form a new IR structure within the socialist economy, but this legislation is not uniformly practiced all over China (Chiu and Frenkel, 2000)
  • Each enterprise was allowed to have a union that could participate in company’s board meetings, would have a proper office in the company and get 2% of the wage bill. Also, salaries of union representatives were borne by the company.

The purpose of the Chinese IR was to promise wellbeing of the enterprises, as much as that of the workers. It endeavors to check exploitation of labors and to safeguard their basic rights. ACFTU’s mandate to organize each enterprise has only been partially observed, with just 36% of companies reaching that point. China and its IR is slowly adapting, overcoming its challenges in the socio-political context. Funds are limited; as are good intentions of organizers, because they often consider this new set-up as bureaucratic (Chan, 1998).

 

Conclusion

In light of the discussion above, on the different IR system changes in different Asian countries, it becomes apparent that the Chinese IR is poised at a juncture. Though it has shades of resemblance to some of the other Asian country IRs, like that in Japan or Singapore, it is fundamentally different from those. With a strong political backdrop governing most of China’s economic growth and evolution, its IR system is also picking up slowly as it opens up its economy more and more. However, it is still at a mid-point where certain focus shifts in IR have been initiated and some are not. It is hoped that one of the world’s strongest economies by FDI, China, will be able to move from a transitory IR model to a more stable IR system by another decade or two.

 

References

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