[Image by paradiz o from Pixabay]
The 20th century’s great management thought leader, Peter Drucker, had consulted with CEOs of the largest companies in the world, and with presidents of nations too. He said that, whenever he met any leader, he would always first ask them for their opinions, and not the facts. Because smart people know how to find facts that fit their opinions. Drucker comes to mind these days with the government’s moves to reform India’s labour laws. The government and its advisors seem propelled by an ideology, not by facts on the ground.
The facts on the ground have been revealed by the moving scenes of millions of migrant workers who were abandoned by their employers when the nation-wide lockdown was declared by the Prime Minister. Data about India’s labour regime had been presented by many researchers before, but it was ignored. Images of jobless workers and their homeless families scrambling to reach a home, far away from where they were employed, have starkly revealed now how fragile their contracts were with their employers. The workers were used and discarded.
All Indians with compassion for their fellow citizens must ask, who will benefit if employers are given even more freedom to hire and fire? The problem is not in the laws. It is in the mind-set of those who advocate such reforms. In 2013, the Planning Commission asked Bain and Company to do an objective study of enterprises in India to test the hypothesis that the long-term performance of those companies, in which employees are treated as long-term assets, must be better than companies’ who consider workers as burdens and as costs to be adjusted whenever sales drop. The companies were compared with their peers in the same industries. The hypothesis was validated. Those companies that invested in their workers, and held on to them as assets, did much better, even though they went through the same dips in the business environment as their peers did.
Companies that invested in their workers did much better than their peers, even though they went through the same dips
Around the same time, Maruti, one of India’s most enlightened employers, was shaken by violent industrial unrest. The issue was the treatment of contract workers in the factory, who were not paid the same wages as permanent workers doing the same work, and who did not have the same rights to represent their needs to the management. Because, legally, they were not employees of the company.
The Bain study had revealed that the practice of engaging workers through contractors to work alongside permanent skilled workers had permeated all the best employers in the country. In fact, in many companies they accounted for over 50% of the workforce. The unions complained that this was an unfair labour practice. It reduced the cost of workers no doubt. However, the Bain study had revealed that the companies’ profits would be only marginally reduced if all workers were paid similar wages. Because employee costs constitute less than 20% of companies’ costs and, within employee costs, the share of compensation of CEOs and senior executives was often half of the total. (CEO compensation had risen to over 300 times the salary of a worker in many companies: whereas in the early 1990s, it had been less than 20 times).
While workers within the factories of large employers were not being fairly treated by enlightened employers, conditions of workers outside were worse. Large companies employ very few people. Most of the employment their business generates is outside their factory walls, in tiers of suppliers, down to hundreds of tiny and informal enterprises. Labour laws provide even less protection to these millions of workers outside, whether in payment of their wages, their safety, or their rights of association.
Against this backdrop, unions and employers began a series of dialogues in 2013. They agreed that both sides were interested in the growth of Indian enterprises. They would listen to each other so that they could agree on norms and regulations that would give employers requisite freedom to improve the competitiveness of their enterprises while ensuring fairness for workers.
A truth the dialogue revealed was that the unions were not speaking on behalf of the 4% of India’s fortunate workers in permanent employment in large companies. These unions were asking enlightened employers to consider the conditions of the 96% others—the contract workers within their companies, as well as the masses of workers employed outside. Outsourcing of employment to contractors and outsourcing of production to small firms are strategies for reducing costs. Since India’s social security systems are very weak, masses of workers suffer whenever there is a downturn. The unions appealed to these big businesses to consider all Indian citizens, not only their own employees and shareholders, when they proposed changes in India’s labour law regime.
The unions participating in the dialogue did not sound at all like the unreasonable, and rabid, stereotype they are thought to be. The employers pointed out that all union leaders were not like them. The unions also pointed out that all employers were not as willing to listen to the real concerns of workers as were the few who had ventured into the dialogue with them. Both sides accepted that there was a general break-down of trust between unions and employers; that restoration of wider trust would require leaders on both sides to persuade others in their constituencies to change their beliefs.
The unions emphasised that they wanted reforms to enable all workers in the country, whether in large enterprises or small ones, to be given dignity at work; to be treated as human beings, not just labour; and for employers to listen to workers, and make their workers partners in their endeavours to build competitive enterprises; to make them part of the solution, and not dismiss them as the problem. The unions complained that the government itself was a bad employer, employing large numbers of workers in ‘flexible’ arrangements, contravening its own laws.
The nation has to find a solution for providing universal social security, the unions and employers agreed, otherwise further flexibility in regulations will increase the precariousness in the lives of hundreds of millions of India’s citizens.
The Overton window (named after Joseph Overton) is the range of policies politically acceptable to the mainstream population at a given time. Slackening of India’s GDP growth, as well as economists’ data that employment was declining, did not wake up the government to the vulnerability of India’s workers. Nor did the appeals of the unions. After many years of demands by a section of economists and business lobbies for making it even easier for large employers to fire their workers, the Overton window seems to have opened a bit to consider the plight of 96% of India’s workers. It is tragic that pictures of millions of workers abandoned by the system were necessary to wake up many more Indians to speak up against the foolhardy scheme of suspending India’s ineffective labour laws.
However, some can never be convinced by facts, as Drucker warned. Some people continue to congratulate state governments for being bold in withdrawing constitutional protections of Indian workers, apparently to attract foreign investors. What other facts will convince them to open their hearts to the plight of millions of Indian citizens?
The fundamental purpose of progress is not to grow the size of economies, but to create well-being for human beings
A faulty paradigm had become ascendant amongst economists around the world since the 1980s. It propagated the view that governments are a problem, and that social welfare weakens economies. It decoupled economies from societies. In this paradigm, humans are only statistics in economists’ calculations; they are tools to grow GDP, and disposable when they can be replaced by more productive (and less emotional) machines. This paradigm strayed away from the fundamental purpose of progress in human civilization—which is not to grow the size of economies, but to create well-being for human beings. And ‘leave no one behind’ as the Sustainable Development Goals (SDGs) aspire for.
In the prevalent paradigm, human beings are the denominator in measures of ‘productivity’. The fewer humans engaged in an economic enterprise, the greater will be its productivity. Therefore, use more capital and less people. However, the purpose of human civilization is to improve human well-being. Therefore, the well-being of humans must be the numerator in the productivity equation: because it is the outcome. And capital must be the denominator—the means. In the new paradigm of economics, productivity must be measured by how frugally capital and natural resources are used in the economy, and in businesses, to provide dignified work to larger numbers of humans. That is the way towards more environmental sustainability and more social harmony too.
Demands from sections of Indian society for the government to withdraw from its responsibilities for India’s most vulnerable citizens, to make it easier for investors to make profits (and to tax them less too), could be the last hurrah of the old paradigm. Data may not convince; but pictures of India’s miserable millions escaping from so-called ‘progress’ in Indian industries and cities, splashed across Indian media, have revealed an inconvenient truth. The time has come for change in the paradigm.
Still curious? Here's why the wholescale suspension of labour laws is fair neither to workers nor to employers. Also listen to experts who work at the grassroots on what will it take workers in the informal sectors and small businesses to survive. And how the present crisis is also an opportunity to shape the new economy—to be more resilient, and inclusive.
Arun Maira on May 19, 2020 5:41 a.m. said
"Dear Mr. Desai,
I am very grateful to you for analysing the problem. The core problem is, which you state clearly--
"Here’s the moot point: is it so difficult for so many governments, labor unions and various associations of employers to come up with one sensible solution in the last 50 years?”
This is the problem that some thoughtful leaders of unions and leaders had converged on, when they asked me to facilitate a dialogue amongst them. They did not want my expertise in ‘industry’ (which they acknowledged I had been engaged with longer than any of them: hands-on for a long time, then as a consultant to industries, and finally as a government planner). They wanted me to do my best as a facilitator of a dialogue amongst stakeholders and not provide them the solution. Because they had enough hands-on experience from both industry and workers side, they said. The problem was that there did not seem to be enough meeting of hearts and minds. Both sides were afflicted with the Drucker syndrome (as was I, and every human being is).
At the outset, both sides agreed that the dialogue must be between workers/unions and employers only to begin with. They are the real stakeholders within the enterprises. When they have found the solutions to make enterprises in India competitive, and fair to both employers/owners and workers, they would jointly ask government for necessary amendments to regulations. Because, when government presides over the negotiations, as it does in the ’tripartite’ negotiations, both sides—employers as well as unions—seem to rely on government to resolve problems between them. Employers who, on one hand, want government to get out of the way to give them freedom to do business, with the other hand, turn to government to, either, protect them from workers and unions, or to tell workers and citizens to trust them.
How can the government be expected to do this, when it is elected by the people to look after the interests of the people? The industry leaders who led the dialogue said that If the government goes too far, in silencing the voices of the people to promote the interests of industry, it can lead to greater mistrust of industry, and could lead to wider social unrest. Many industry leaders recognise this and have been speaking up in the last few days about government violating the rights of workers and citizens by the manner in which it is short-circuiting the dialogue. My views are the same as theirs on this matter about ‘process’.
Last week, a vocal leader of industry views sent an appeal to the PM and others not to listen to unions, who represent a measly 4% of Indian workers, he said. In my piece I said that, in the dialogues, the unions were speaking on behalf of all 100% of India’s workers. The exact numbers of persons the unions represent as per law may be somewhere in between. However, the exact number is not the point. Which is we must have a better process whereby we can come up with a solution for 100% of India’s workers which has eluded India so far.
Rajan, I have many thoughts about why many Indian industries are overall not competitive. They are based on listening very deeply to industry associations in a structured exercise, with 25 industry-led working groups, steered by a steering committee, with President of CII and other industry leaders, to prepare the 12th Five Year Plan. The thoughtful points you have made were considered. As were other stakeholder perspectives regarding labor laws for example—the working group for which was led by Mr. R.C. Bhargava. That plan never got off the ground because the government changed.
We must have a good dialogue to listen to all perspectives, so that all stakeholders can work together to make Indian industry grow much faster and create wider, decent employment.
Best wishes,
Arun Maira"
Rajan Desai on May 19, 2020 1:05 a.m. said
Dear Mr Maira,
I read your article that you’ve written for Founding Fuel with keen interest, as such knowledgeable opinions and the resultant effect on policy moderation by the government does affect me as an entrepreneur to a very large extent. Your first paragraph said it all: “Smart people know how to find facts that fit their opinions.” You have done well to articulate your views strongly. As an entrepreneur, I would like to share the other side of the story.
This ongoing debate is all too familiar. Whether there should be labour reforms or not, whether these reforms will reduce the workforce or open the country for new labor intensive units as Bangladesh has achieved, whether the unions will lose their bargaining power or not, whether job insecurity will force employees to shake off their lethargy and work more sincerely or otherwise….all of this has been debated for a long time. All three parties, employees and their unions, employers and the government have not found an answer or a solution for the last 50 years that will benefit all.
Your concern about the moving scenes of millions of migrants, abandoned by their employers, is a hasty overstretch of imagination. As a former Planning Commission member, you would be well aware that there are four categories of migrants. The first are the self employed: street hawkers, auto and taxi drivers and many similar, form a very large percentage of the migrants within the country. They lost their livelihood because of the stringent lockdown and the blame can only be on the unleashing of the corona virus on us by nature or the Central government for being too harsh. Believe me, no employer had any evil hand in this. They went on their own as without daily income their survival was in danger. The second group are those who work temporarily in farms in the north and south and come from UP, Bihar and Orissa temporarily. These migrants leave as soon as the harvesting is over and wanted to leave at the end of April anyway. Only cancellation of trains added to their misery. Employers had no evil hand in this.
The third group are those that are employed as casual workers on construction sites or are employed as contract labour in industry. This is the most affected group who are dependent on their employers for their survival. It is easy to push them out due to the temporary nature of work. Construction workers were laid off as the corona effect would last at least three months followed by onset of monsoon and the work may not begin till September. The government had no objection to these migrants sleeping 8-10 in a 80-100 sq ft room, but allowed only 33% attendance in the name of social distancing in factories. But we can certainly blame the employers for their plight.
The biggest problem is the fourth group. These are migrants who have lived for many years, near the workplace, are permanent employees with all the benefits and most employers did pay them the March salary. They were also assured their April salary even if the factories did not call them everyday due to 33% attendance condition by the government. But a large section of these employees have still left. Their sudden departure has created a massive shortage in the factories that aim to try working at full capacity soon. Tens of thousands of trucks and container trailers are lying idle as the drivers have run away, causing severe suffocation in goods movement for domestic consumption and export/import. These drivers are desperately required by transport operators and their salaries were paid and assured. They left because of the fear psychosis brought on by coronavirus and persistent telephone calls from their scared families back home. The employers here also had no evil hand in their departure and those moving scenes on television.
My humble request would be to not search for facts that dramatize the opinion. There are 6.4 crore EPF registered employees and another 1.6 Crore employees who earn above Rs 15,000 and therefore do not pay EPF, but are permanent employees, eligible for all benefits. These 8 crore employees in permanent employment form approx. 30% of the third and fourth group and not a measly 4% mentioned in your article. However, we must be extremely concerned about the well being of the remaining 70% too.
We have discussed and debated in various forums what kind of labor reforms we should have. We have also again and again discussed the lack of a social security platform which can support employees who have been fired.
Here’s the moot point: is it so difficult for so many governments, labor unions and various associations of employers to come up with one sensible solution in the last 50 years? We have regretted for years the opportunities we lost to Bangladesh, Vietnam and Cambodia, in developing labor intensive industries. That’s because these industries have the potential to generate massive additional employment. But we have done nothing to resolve this imbroglio. Each of the three stakeholders have maintained a cozy relationship by trying to do nothing. The government because any unpleasant reforms could be at the cost of vote bank. The unions don’t want to lose their control on a smaller segment of the employee population. And employers prefer not to do anything because competition is not good for them and they can still manage through contract labor and avail the same advantage.
We like to call India a developing country or a less developed country, but in fact we are more an HRRC – Human Resource Rich Country. A country of 1.35 bn. And each one must get either farm income or a permanent, respectful job. And in case a job is temporarily lost, then a transitory social security. We must also have policies that do not force an employer to look for a high cost automation as the current policies have converted manufacturing labor cost from a variable cost to a fixed cost. The uncertainty surrounding the continuity of orders is a reality that confronts every employer going through business cycles. Unless manufacturing labor cost is treated as a variable cost, the annual cost planning will simply go for a toss.
May I suggest a solution to this problem. Let us make an earnest beginning so that we have a solution that satisfies all.
All the permanent employees earning less than Rs 15000 are under EPF and pay 12% as employee contribution + 12% is the employer contribution. Whether the cumulative 24% is the right figure or it should be 20% or 30% cumulative will remain debatable. But we can start as under.
1. Employee and employer pay 10% + 10% contribution to EPF as of now.
2. Those industries or trade with a turnover of less than Rs 200 crore pay 2% + 2% cess as contribution to the National Social Security Fund (NSSF). (This will keep the contribution from employee and MSME at the current level of 12% each and no additional burden on either)
3. Those having a turnover between Rs 200 crore and Rs 1000 crore – genuine medium scale enterprises, pay cess @2%
(employee) + 3% (employer) to NSSF.
4. Those having a turnover of more than Rs 1000 Crore which are genuine large or mega companies pay a cess of 2% (Employee) + 4% (employer) to NSSF.
5. Those employees who earn more than Rs 15000 and are not covered under EPF will still pay the cess as prescribed above in each category. They also could get fired someday and therefore must contribute.
Though the contributions will start with immediate effect, nobody will be eligible for social security till the beginning of third year as the collection in the first two year will be kept as reserve fund in case suddenly the outflow is more than the inflow. Simultaneously, the wilful firing can only begin from third year. The large industries and trade may have no objection to paying either 1% or 2% of the salary cost extra, if they are able to turn the wage cost into variable cost. The Scandinavian countries charge as high as 60% income tax but assure many benefits for life and the population is happy to comply. How the social security benefit will be disbursed could be left to the HR experts to decide.
This is just one suggestion. I am sure there could be many more intelligent ones. But let us move in the right direction without any delay. I agree that sudden reforms are not advisable as a gung-ho reaction to the crisis. But doing nothing will have a higher degree of damage to employees’ well being.
Yours Truly,
Rajan Desai