Analysis of Industrial Relations Law - Research Paper Example

 Analysis of Industrial Relations Law Introduction Countless studies of Britain's post-war performance record have cited industrial relations as a critical source of weakness. Employers, the argument runs, were prevented from organizing production efficiently by the adversarial production politics which allegedly inscribed workplace behaviour and bargaining systems in the three decades after 1945. Indeed, so commonly has this argument been advanced, and so rarely has it been challenged, that it has come to serve as a powerfully seductive conventional wisdom. In the run-up to the 1979 General Election, Mrs Thatcher skilfully harnessed the conventional wisdom to win popular support for new measures to restrict trade unions. Her self-professed aim was to shift the balance of power in industry and restore management prerogative in the workplace. The extent to which her policies succeeded in transforming the character of production politics and industrial performance has been the subject of intense debate. One line of argument suggests that, in contrast to the Donovan reform strategy which failed to deliver significant performance gains in the 1970s, Thatcher's policies appear to have done the trick (Metcalf 1989). The potent combination of rising unemployment, tougher labour laws, privatization, and deregulation allegedly gave birth to 'new' industrial relations practices in the workplace and a corresponding improvement in productivity and competitiveness. The analysis which follows challenges this perspective. It argues that the system of industrial relations and employment regulation which came to dominate key sectors of the economy after 1945 was not conductive to industrial modernization: not, it should be stressed, for the reasons cited by proponents of the conventional wisdom, but because the trade unions and other regulatory mechanisms were too weak to force firms to abandon progressively outmoded business practices. The presence of a relatively cheap, disposable, and malleable labour force inhibited the emergence of high wage, high productivity growth strategies and helped entrench a relatively low wage, low productivity industrial system from which it is now proving difficult to escape. There is also a second sense, which concerns the academic study of industrial relations and its relationship to economics. Much more so than in other European countries and the United States, there has been a sharp demarcation line in Britain between the study of the institutions of job regulation and the study of their economic consequences. This may seem an academic point, but it is not without consequence, for this unwelcome division of academic labour has served to impede theoretical innovation and entrench established ideas, particularly the conventional wisdom. It is relatively uncontroversial to note that in the three decades after 1945 British industrial performance exhibited significant deficiencies as compared to other leading capitalist economies. Relevant performance measures in this context include output and productivity growth rates, the balance of trade, and investment in technology, plant, and people. The evidence of British underperformance is most striking in the case of manufacturing. Comparisons of output and productivity movements across time, sectors, and countries are fraught with measurement problems (Nolan and O'Donnell 1995). Nevertheless, the evidence--whatever its shortcomings-reveals a substantial and enduring shortfall between Britain's record and that of other leading economies. Fig. 5.1 charts the movements in manufacturing output, and exposes a significant and growing gap between Britain and the other countries. For the period shown, domestic output has remained more or less stagnant. In its investigation of the causes of the adverse trend in domestic manufacturing performance, the 1985 House of Lords Select Committee on Overseas Trade highlighted as critical sources of weakness the concentration of investment in low value-added, low research-intensive sectors and a more pervasive problem of underinvestment in manufacturing industry as a whole. But the Report's findings and policy proposals were ignored, chiefly because they were published at a time of growing optimism, within the Government and economics community at large, about the underlying condition and future potential of British industry. The economy had been through a very deep crisis in the early 1980s. Two million jobs and one-fifth of total output in manufacturing had been lost between 1979 and 1981. But by 1985, during Mrs Thatcher's second administration, the economy was apparently showing signs of renewal. Manufacturing output had more or less recovered to its previous peak of 1979. Employment in manufacturing did not recover--indeed it has continued to contract to this day--but there was a significant surge in measured productivity. There was also a very substantial rise in investment, output, and employment in services. The fact that the overwhelming majority of the new jobs in hotel and catering, retail, and the public sector were part-time, poorly paid, and insecure scarcely attracted any comment. Instead the evidence of productivity gains reminiscent of the mid- 1960s, and a seemingly flourishing service sector, was seized upon by Government ministers and a significant number of academic economists to justify their view that Britain was experiencing an economic miracle (Muellbauer 1986). Production organization and efficiency, it was said, had been lifted by Government policies which, directly and indirectly, hastened the collapse of many allegedly inefficient firms and industries. Conversely, with the consolidation of a new structure of power relations and politics in the workplace, surviving firms faced a bright future. With managers firmly 'back in the saddle', companies would be free to take steps to implement 'best practice' and secure international competitive advantage as recessionary conditions faded. By the end of the 1980s, however, the mood was different. Recessionary conditions had returned after a brief interlude, and the legacy of underinvestment--in new technology, plant, and people--was becoming more evident. Numerous studies revealed a serious skills gap in domestic industry, as compared to the leading countries in Europe ( Steedman and Wagner 1987). Other research findings demonstrated, in line with the House of Lords Report, that industry was becomingincreasingly skewed towards the low skill, low value-added end of the technological spectrum ( Porter 1990. Far too many firms, it transpired, had failed to upgrade their products and processes and break with the past practice of importing high value-added intermediate products for assembly and subassembly domestic production. The telling conclusion of one recent study of international productivity comparisons accordingly suggests that the raw figures greatly flatter Britain's relative position by neglecting crucial variations in the quality of produced goods. With mounting evidence of enduring weaknesses in British industry, some commentators who had previously stressed Mrs Thatcher's achievements revised their views. Crafts, for example, roundly condemned her Governments for what he now judged to be their scandalous neglect of training and technology provision. Others accepted that they had previously overstated the gains as new (econometric) evidence revealed that the 1980s had merely reinstated the trends of the 1960s. In a reworking of the productivity statistics, using the method of double deflation accounting, Stoneman and Francis ( 1992) thus found for 1979-89 that the official estimates (based on single deflators) significantly overstated the true position at 51 per cent as compared to their own estimate of 34 per cent. Yet there was to be no recantation on the key policy issue of industrial relations. The Government's record in this respect continued to attract the unqualified support of most economists. Crafts, for example, suggested that the productivity gains of the 1980s may yet prove sustainable 'if the bargaining power of workers over manning levels remain[ed] weak' ( Crafts 1991). Numerous other writers echoed this conclusion, and insisted that Thatcher's success in taming the unions has been her single greatest achievement. Two questions are thus relevant in this context. Why are economists instinctively committed to the principle of management prerogative, and why is unionism automatically connected to problems of economic inefficiency? Strictly speaking, in its most refined forms, economic theory has little or nothing to say about the functions, processes, and prerogatives of management. As any student of the subject would explain, it is the market mechanism which governs the selection and deployment of factor services in production. Managers are mere ciphers, prisoners of underlying market and technological forces. In practice, however, most economists tend to deviate from this highly abstract view, which after all amounts to a denial of one of the most salient institutions of modern capitalism. Relying more on pragmatic judgement than the underlying theory, they would argue that the management hierarchies and authority structures which dominate social relations in modern organizations developed as an efficient response to prevailing deficiencies in the utilization of information, technology, and productive resources. Were this not the case, the argument runs, they would not have survived in the face of competition from superior organizational forms. Unions are treated far less generously. Denigrated as monopoly sellers of labour, they are accused of distorting markets, generating technical inefficiencies in production, and pursuing sectional gains in the political arena at the expense of the common good. The analogy with monopoly producers is misleading. As intermediary organizations, unions do not sell labour services nor do they pursue profitmaximizing objectives, yet such details are ignored in neo-classical theory. What matters, we are told, is that unions interfere with the free play of market forces with necessarily damaging consequences for their members and the social welfare of the community at large. Attempts by unions to lift their members' wages above prevailing competitive rates will prompt employers to substitute alternative inputs (e.g. physical capital) for relatively expensive unionized labour and cut output in order to balance costs with anticipated revenues. Initially confined to unionized establishments, these price and scale effects will be amplified throughout the economy as displaced unionized workers are gradually re-employed at lower wages in relatively labour-intensive, low productivity jobs in non-unionized firms. In aggregate the economy will tend to exhibit significant structural imbalances with too much (physical) capital absorbed by the unionized sector and too much labour power employed within non-union firms. The role and impact of unions in production are less clearly specified, but since Rees's seminal study (Rees 1963) their activities are none the less thought to be damaging to productivity. Starting from a theoretical position which treats production as a technical relationship between inputs and outputs, economists judge attempts by unions to influence the level of work effort and choice of technique as an unwarranted interference with firms' optimizing decisions in the face of given technological and price constraints. Interruptions to production through strikes and other 'hostile' practices (e.g. work to rules and overtime bans) are cited as further evidence of unions' adverse effects. Finally, it is claimed that unions may inflict additional damage by attempting on behalf of their members to influence the character and scope of government economic policy. Neo-classical theory advances a very limited view of the legitimate role of government, effectively restricting it to the tasks of controlling the money supply, safeguarding the law of contract, and limiting the distortions from externalities and natural monopoly. From this standpoint, it follows that if governments extend their activities, for example by pursuing an active industrial policy in response to pressure from unions or other organized sectional interest groups, economic efficiency may be impaired. Like the treatment of management in orthodox theory, the above propositions about unions should be treated with considerable caution. For they are derived from a model of the economy which is highly abstract, a historical, and preoccupied with static, allocative questions. The method of neo-classical theory construction involves, in the first instance, the elaboration of the allocative and distributive properties of a perfectly competitive economy. Prominent institutional features of actual economies, including firms and unions, are ruthlessly excised. Then, by taking the individual as the basic unit of analysis and assuming away all transactions costs, the theory is able to demonstrate the existence of an equilibrium price vector which allows all mutually beneficial trading opportunities to be fully exploited. Exponents of this approach, of course, readily concede that the model is merely an ideal type, a device to better understand the workings of the real economy. But, in practice, the real economy is judged against the properties of the model rather than the other way round. This can clearly be seen in the case of unions, which are inserted into the analysis as imperfections and then found to be an impediment to the achievement of a Pareto efficient resource allocation. It is then but a short step to the policy conclusion that unions should be rooted out to facilitate a movement towards the first best world of perfect competition. This result, it should be stressed, does not derive from dispassionate empirical investigation, still less an analysis of the dynamic properties of the capitalist economy. What are the sources of economic change, and what role do historically forged collective institutions play in the developmental process? Questions such as these were once central concerns of political economy, but are sidelined by modern analysts. Nor is there any serious attempt to understand the root causes of interest conflicts in production. Evidence that such tensions predated the formation of unions, indeed that they helped spur the growth of worker combinations, is swept aside. Far easier, the cynic might observe, to ascribe to unions the blame for strikes, wages struggle, and associated industrial relations difficulties than to concede that conflicts in production are an intrinsic feature of the wage-labour relationship, a product of the fact that wages are a claim on human capacities and not some pre-specified quantity of performed work. What has academic industrial relations contributed to this debate? To answer this question properly it is necessary to return to the 1960s, which have come to be seen retrospectively as the beginning of the golden age of academic industrial relations. The 1960s brought urgent new pressures for expansion. The conduct of workplace collective bargaining had become a central focus of public policy debate, yet the established social sciences (economics, sociology, and politics) were ill-situated to provide the detailed insights into the distinctive character and consequences of production politics demanded by the policy-makers of the day. The new research agenda was shaped by a developing consensus in government and industry that disorder on the shop-floor was a direct and major cause of Britain's deteriorating industrial performance. These concerns were reflected in the writings of the Oxford School, notably Hugh Clegg, Alan Flanders, and Alan Fox, which had a profound influence on the policy recommendations of the Royal Commission on Trade Unions and Employers' Associations, established under Lord Donovan in 1965 by the then Labour government. Much of the research conducted for the Commission reinforced the prevailing view that there was a direct link between the industrial relations system and industrial performance. The Commission argued that the decaying national and industry-wide system of collective bargaining had allowed disorder and informality to flourish in the workplace. Restrictive practices, unconstitutional and unofficial strikes, degenerate piecework payment systems, and associated wage drift were held to be the most salient manifestations of the problem. In the years that followed researchers in industrial relations failed to construct a research agenda that was sufficiently broad to allow for the generation of major insights into the complex connections between industrial relations and economic development. Thus it was that this critically important terrain of analysis became the province of economics. When the Government in 1979 set about the task of promoting a revival of domestic industry by waging an offensive against trade unions, there was no developed body of theory or empirical evidence to counterbalance the perspective from economics. The result, not immediately obvious but now plainly so, was that academic industrial relations had allowed itself to become marginal to the key debates about the role of unions and workplace industrial relations in the developing underperformance of the British economy. Reference: Crafts N. (1991), "Reversing Relative Economic Decline? The 1980s in Historical Perspective", Oxford Review of Economic Policy, 7/ 3: 81-98. Metcalf D. ( 1989), "Water Notes Dry Up", British Journal of Industrial Relations, 27/1: 1-31. Muellbauer J. ( 1986), "The Assessment: Productivity and Competitiveness in British Manufacturing", Oxford Review of Economic Policy, 2/ 3: 1-25. Nolan P. and O'Donnell K. ( 1995), "Industrial Relations and Productivity", in P. K. Edwards , (ed.), Industrial Relations: Theory and Practice in Britain ( Oxford: Blackwell), 397-433. Porter M. ( 1990), The Competitive Advantage of Nations ( London: Macmillan). Rees A. ( 1963), "The Effects of Unions on Resource Allocation", Journal of Law and Economics, 6/ 2: 69-78. Steedman H., and Wagner K. ( 1987), "A Second Look at Productivity and Skills in Britain and Germany", National Institute Economic Review, 122: 84-95. Stoneman P., and Francis N. ( 1992), "Double Deflation and the Measurement of Productivity in UK Manufacturing 1979-1989" (Warwick Business School Discussion Paper). Read More