Free-Market vs Interventionist Models of Employee Relations - Literature review Example

Evaluate the differences between the free-market and interventionist approaches to employee relations. In what ways do policy interventions by government reflects these approaches. The recognition that the free trade system needs to be balanced by a legislative framework came from Tony Blair in a recent World Bank meeting in Prague. The prime minister emphasized the raising of labour and animal welfare standards. He also expressed concerns for employer’s attitude towards worker and environmental health. The fact that around tens of thousands of people from around the world participated in protests against the World Bank and the International Monetary Fund during this meeting suggests that the free market approaches to trade had not been totally fair to workers and their communities (Webster, Allan. & Gilroy, Michael. P.329). The report released on the occasion, titled “Rights of Exchange: Social, Health, Environmental and Trade Objectives on the Global Stage”, is one among the many steps taken by politicians in trying to strike a balance between free and interventionist approaches to trade. Economists believe that there are genuine reasons for the growing antipathy towards globalization and a recession at this juncture could turn free-market pockets of the economy into protectionist ones. (Webster, Allan. & Gilroy, Michael. P.332). “Meanwhile, whether the Blair governments recent policies will appease the disadvantaged is questionable. While Tony Blair warns that rich countries must help developing nations get rid of sweatshop conditions, he welcomes companies like Wal-Mart to the UK, whose contractor in Bangladesh pays teenage seamstresses less than the minimum wage; or McDonalds, whose toy making contractor in Hong Kong was found to employ 400 children as young as 14, or Nike which pays 58 cents per day to its labourers in Indonesia, or Ralph Lauren which pays its Chinese workers 23 cents per hour. There is, and always has been, a huge gap between Mr. Blairs rhetoric and reality”. (The Ecologist, p.12) Changing the ground rules that govern the behaviour of the global market seems politically and financially unpleasant to politicians pre-occupied in short-term electoral results and dependent on corporate funds. But until they do, globalization will continue to be controversial. A 1998 survey involving 500 employees from various small business organizations reveals some telling statistics. It shows that racial minorities like Asians and Africans are less likely to find work in smaller firms. So is the case for women, irrespective of their racial background. Eligible workers between the age group of 25-45 are also less likely to find acceptance, especially in very small firms. There are a higher proportion of the uneducated personnel, many among those having not passed high school. Given the small business sector is only minimally legislated, it could be concluded that the free market setup in which such organizations function is not leading to a healthier society. (Phillips, Estelle M., p.78) Further evidence for the failure of the free markets comes from the fact that the people employed by these firms are from lower socio-economic background, and dependent on external sources of financial assistance. Also, there are fewer managerial and administrative positions and opportunities for growth in such environments. The commonly available jobs are in construction, agriculture and other services, which are basically physical labour and that much more strenuous (Fitzgerald, Niall. P.23). Considering that some of these small business employees are availing of welfare assistance, it makes sense to increase government intervention in areas of minimum wages, equal opportunities and work conditions. (Fitzgerald, Niall., p.28) An important area of corporate life that needs address is the continuing discriminatory practices in the workplace in spite of anti-discrimination legislation and significant changes in the nature of gender relations in the last century. The results published by the Equal Opportunities Commission gives a factual description of the status and trends in this area of corporate affairs. It confirms that while managers projected themselves as professionals and advocated the concept of equal opportunities, there were definite cases of discrimination based on gender. Some measures are required toward ensuring that managers match their practices to policies. This further shows that free market capitalistic approach need not always be fair and just. (Phillips, Estelle M., p.79) Another empirical support for more government intervention in business affairs comes from the trends and fluctuations in fertility rates, which are directly related to household incomes and opportunity costs of children. This is a significant fact given the declining fertility rates in the United Kingdom and their economic implications. “A womans decision to participate in the labour force is positively related to the market wage relative to her reservation wage, which in turn is an increasing function of her husbands income. Aggregating over a population of households, the female labour force participation rate is therefore positively related to womens wages and negatively associated with male incomes. For couples with women in the workforce, fertility is inversely related to the womans wage.” (McNown, Robert, and Cristobal Ridao-Cano, p.522) The following are some of the trends in free market setups: 1.The bigger the corporation, the more likely the employees are to be offered pension and sick pay benefits. This is because they can better exploit the economies of scale inherent in scheme provision.( Casey, Bernard., p.233) 2.The workforces in freer pockets of the UK economy are more unionized and are more likely to receive additional benefits. This is so because the unions hold some amount of power in negotiating complex schemes with their employers. Sometimes, the top management give-in to such demands from the unions as a strategy to divert them from addressing more important issues. (Farnham, David, and Lesley Giles., p.15) 3.Free market approach to employee relations results in employers not offering occupational pensions to the non-professional class of workers as that would reduce their turnover and protect investments in training. (Casey, Bernard., p.234) 4.Part-time, young or female employees are less likely to be offered occupational pensions or extra-statutory sick pay as they are seen as less attached to work and as less likely to be interested in deferred benefits. Obviously, the free market approach to employee management is a case of discrimination based on gender and government regulations in these areas are needed for. (Casey, Bernard., p.239) 5.The only positive trend in the free economies in the United Kingdom is the growing coverage of employer-supported social security benefits. However, the coverage for white-collar workers tends to be better than those for blue-collar workers. It is difficult to see how the status quo would be set straight without government intervention. (Farnham, David, and Lesley Giles., p.17)   6.To enjoy full benefits of occupational pension schemes, the worker has to achieve long years of service while the others suffer significant disadvantage. For this reason, employer-provided social security benefits cannot be relied upon as a substitute for adequate state support. (Farnham, David, and Lesley Giles., p.18) The primary reason why the transnationals are attracted to the United Kingdom is the existing structures and institutions that favour the employers over the employed. For example, the US and Japanese-owned companies setting up operations in the UK have invariably “stayed outside employers organizations and multi-employer bargaining in contrast to those locating in other European countries” (Innes, Erik, and Jonathan Morris., p.30). There are also concerns over the transferability of systems. For instance, certain key elements of the Japanese and German systems are not being transferred to the United Kingdom, including union recognition and works councils. Such practices have significantly weakened the trade unions and their legal rights since 1979. This is the culmination of United Kingdom’s industrial relations history and other political economy factors. (Innes, Erik, and Jonathan Morris., p.34) The recently held rally in Glasgow by The Rail, Maritime and Transport Union (RMT) to call for nationalizing the country’s railways is an indicator of how ineffective free market economy and privatization had been in keeping workers satisfied. These rallies are part of the Rail Against Privatisation campaign. Research conducted by think-tank Catalyst point out that the move would save taxpayers 4.5 billion pounds a year. It also found that nearly a million pounds a year is lost as a result of returns to private lenders and investors. (Planning (UK) ) The United Kingdom, with a long tradition of voluntarism in industrial relations, has been quite singular among economically advanced countries in not having, except for a very short period, a legal means whereby employees could seek union recognition. Nor did the union members care seeking for a mechanism. In general, they felt strong enough to do without legal support. Moreover, the unions feared that legal intervention would open the flood gates for intervention in other areas. (Kessler, Sid., p.56) “The Conservative government has instituted varied legislative reforms in the labor market since 1979 with the aim of increasing the resilience of the labor market for the improvement of UKs economic performance. However, such reforms contributed to the massive decline in the labor union memberships. This altered the balance of power within the realms of industrial relations in favor of the business owners and entrepreneurs. Worst, the reforms fostered the commodity mentality among business entrepreneurs which could, in the long run, prove disadvantageous for UKs economic viability.” (Kessler, Sid., p.62) There is a tendency to accuse the trade unions for inhibiting private sector investment that is crucial for UK’s long term economic success. The unions were also being accused of “holding monopolistic power over corporations”, which is utterly untrue. The amount of power that corporations can wield over governments and their policies to achieve their economic bottom-lines can be learnt from the fact that since 1979, numerous statutes were placed to constrain trade union activity. This is a clear case of victims being perceived as the victimizers. The statutes restrict unions from taking strike action and curb their right to enforce a closed shop. (Farnham, David, and Lesley Giles., p.13) Government intervention in employer-worker relations had not always been in support of the latter. The power and clout that corporations hold had proved stronger than the majority in numbers of the workers. For example, the Employment Act of 1980 restricted picketing by employees to only their place of work, which means any secondary picketing illegal. The act further restricts other forms of industrial action, such as blacking of goods. Following up, the Employment Act of 1982 narrowed the definition of a trade dispute weakening the trade unions further. The act also prevents unions from constructing movements for change like the one in early 70’s by the miners, however reasonable the case may be. In addition, the employers are empowered to sue the trade unions, placing its funds at risk. (Healey, Nigel M., p.291) The 1984 Trade Union Act provided some consolation for the unions by giving them some immunity against lawsuits (under certain conditions). However, the Employment Act of 1988 handed more power in the hands of the employers by virtually putting an end to the concept of “closed shop protests”. It also eliminated all legal immunity for industrial action taken by the union to compel an employer to create or maintain any sort of closed shop practice. The 1990 Employment Act inflicted further damages to the already weakened unions by “making a union legally liable when it takes action against any customer or supplier of the employer with whom it is in dispute”. Finally, the act enables employers to selectively fire workers who take industrial action without union authorization. “The results of this legislative onslaught on the trade union movement have undoubtedly been profound. Although it is difficult to disentangle the effects of the new laws (which have tended to reduce the benefits of union membership to individual workers) from those resulting from structural economic change, the fact remains that between 1979 and 1992, union density fell dramatically from almost 60% to 45%... the decline in union membership has nevertheless played a major part in altering the balance of power in the industrial relations arena, over and above the direct impact of the legislation itself.” (Healey, Nigel M., p.292) The government’s so called reform initiatives had reduced union density and strike rates, although they were projected as measures toward “increasing the flexibility of the labour market and thereby strengthening the underlying performance of the economy”. The rationale behind such harsh laws against the working class was that the latter was making unreasonable claims for wages and protesting the introduction of new technology into production as it threatened their jobs. These claims for creating those tough laws are only superficially true. The underlying issues are quite complex and requires a more rigorous analysis, which the authorities seem unwilling to undertake. On the whole the legislative ‘reform’, had commoditized human beings, supposedly to help the powerful employers to buy and sell labour amongst each other more easily. ((Farnham, David, and Lesley Giles., p.18) Britain compares poorly in the measure of human capital acquisition with other European economies. British firms have now been understaffed for years, affecting their ability to compete internationally and constraining their recruitment process as well. The region also has the lowest number of youth in higher education programmes, compared to the rest of the continent. (Marlow, Sue., p.95) A more accurate explanation for anti-worker legislation is that it has allowed corporations to optimize methods of production, which result in short term increase in productivity as some of the redundancies (including human redundancies) were scrapped. However, there is a price to pay for this short-sightedness, which most corporations don’t seem to understand. (Healey, Nigel M., p.292) Although these government measures have fetched them electoral success, there is no denying the fact that permanent damage had been inflicted upon the workers and their unions, making any significant repeals of the legislation unlikely. One could see the flaw in the Government’s argument that “worker unions cause unemployment by |pricing their members out of jobs”, as the demands of the latter are simply to compensate for the inflation and cost-of-living increases. The state of the internal labour market is also left in shambles. (Farnham, David, and Lesley Giles., p.17) “Far from encouraging firms to see their staff as human resources to be managed and developed, the Governments reforms have reinforced the view that labour is a commodity to be dispassionately bought and sold for short-term profit, a development that bodes ill for the countrys longer term economic vitality.” (Healey, Nigel M., p.290) References: Blake, D. “Two decades of pension reform in the UK”, Employee Relations, Vol. 22 No. 3, 2000, pp. 223-245. # MCB University Press, 0142-5455. Casey, Bernard. (March 1994) "Employers provision of pensions and sick pay: evidence from the 1990 Workplace Industrial Relations Survey." Applied Economics 26.n3 : 229(9).  Cooper, C. “Surviving redundancy: the perceptions of UK managers”, Journal of Managerial Psychology, Vol. 15 No. 5, 2000, pp. 460-476. # MCB University Press, 0268-3946 ... Dickens, L. 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