Trade Unions are Good For Business and Industry
It is commonly held that Kerala is a difficult place for business and industry, and one of the main reasons put forward to support this statement is the presence of active trade unions in the State. It should be noted that the ‘presence’ of active trade unions is itself regarded as a negative feature of Kerala. This implies that trade union activity is not well established in many other parts of the country, thereby making those parts more attractive places for business and industry. Kerala, along with West Bengal, with the legacy of Leftist governments dominating the political scene for long periods, witnessed more activism on the trade union front than other places, despite there being other more industrialised regions in the country.
Why should the mere presence of trade union activity be a dampener on business and industry? After all, the right to form trade unions is enshrined in the Constitution, and is regarded as one of the pillars of liberty and freedom. If that is the case, why should the act of workmen in an industrial establishment to form themselves into a trade union be seen as threatening the very existence of the enterprise?
To understand why and how this phenomenon developed, one needs to understand the industrial scenario in India, the regulations governing industry, and the relative bargaining power of management and labour. India has been characterized as an over-regulated industrial environment with poor enforcement of rules and regulations. This provides fertile ground for corruption to thrive. Ambiguous regulations introduced early in the process of industrial development, provided the scope for discretionary bureaucratic controls on industrial activity. Rules and licences for industrial enterprises were not merely regulations that had to be complied with, but ‘permits’ that had to be obtained before the enterprise could commence operations. The power to delay became, therefore, a powerful weapon in the official’s armoury to demand bribes. Such a business ecosystem inevitably led to high operating costs, which therefore required a ‘closed’ economy model keeping imports out for local enterprises to survive.
A parallel development was the stagnation of the huge agrarian sector that employed most of the population of working age. This pushed labour out of rural areas and into urban areas where industry was located, adding to the numbers of job seekers. This huge ‘reserve army’ of employment seekers should have provided an almost limitless supply of labour for the newly-established industries, keeping wages down through the operation of the laws of supply and demand.
The combined impact of the huge supply of labour, the growing but still limited demand for labour, and the high cost business environment in which industries had to operate, was to create a strong set of conditions that worked against the interests of labour. In this context, the presence of trade unions, together with the laws and rules governing the employment of labour in industry, worked in the opposite direction to the forces operating in the economy, pushing wages and other monetary benefits much higher than the national per capita income. This created another privileged section of the economy, ie labour employed in the formal sector of industry who were covered by the statutes and regulations in force.
The trade union movement had a political dimension that could not be escaped, since it was essentially one of the contending parties in a bilateral struggle for power in the industrial arena. Industry was set up by people who could mobilise the capital needed, which mostly meant that they came from the powerful trading interests that dominated the economy during the colonial era, and continued their dominance into the post-Independence period. The trade union movement therefore needed political support if it was to take root, and that was the reason that it struck roots mainly in two States that had strong Left-oriented political parties, ie West Bengal and Kerala.
The political dimension of trade union activity dominated the discourse during the early decades, leading to militant trade union activity that led to the decline and demise of many once-dominant industries and companies. During this period, business and industry grew steadily in regions that did not have a strong political presence of the Left-oriented parties. This simultaneous rise of business and industry in certain parts of the country unhampered by trade union activity, and the decline of once flourishing industries in regions where militant trade union activity was observed, gave rise to the view linking trade unions with the decline of industries.
It is interesting that many companies and industries that grew during this period did actually have trade unions, and many evolved ways of working with the management that ranged from outright collusion to an arms length relationship nevertheless based on a paternalistic policy of tolerating trade union activity.
The pattern of growth of Indian industry during the post-Independence period till the mid-80s was characterized by a small number of large industrial establishments, mostly in the public sector, a larger number of SMEs, mostly in the private sector, and a huge cohort of tiny and small units, most of which functioned in what is today called the ‘informal’ or ‘unorganised’ sector. These terms are employed mostly to signal that these units are not covered by the statutes that govern the working of an industrial unit. With the usual caveat about the unreliability of official statistics, the latest position is that 96 per cent of the industrial establishments, 92 per cent of the employment in the non-agricultural sectors, and around 50 per cent of GDP is accounted for by this huge sector, that is not governed by any statute, and where trade unions do not operate!
Even among the small number of registered industrial units covered by relevant statutes and regulations, more than 50 per cent of the total head count is contract or casual labour, who are outside the ambit of trade union activism. That would mean that around 4 per cent of the total non-agricultural employment of the country was covered by the regulations governing working conditions, various benefits and collective bargaining!
Within the organised sector, we have the extraordinary phenomenon of the paraphernalia of industrial regulation effectively covering less than half of the workers employed in any unit, while the majority remain uncovered by any kind of benefits! It is natural to ask why the trade unions are allowing this to continue? The answer is that their relative bargaining power is weak and hence, they prefer not to push for extending the benefits to all workmen employed in a factory, preferring to focus on ensuring that their members get all the benefits due to them. One of the other reasons for this is the multiplicity of trade unions in an industrial establishment, most of which are affiliated to national trade union organisations which, in turn, are affiliated to political parties. A single independent trade union in an industrial enterprise would be in a better position to take on the management to get the contract workers also to enjoy the same rights and benefits.
What is therefore needed for the betterment of working conditions and better industrial relations, and thereby better industrial harmony, is to have non-affiliated trade unions, one to an industrial enterprise. This would ensure that the trade union is focused on the issues within that company, and understand that their members must cooperate with the management in ensuring that the company runs efficiently. The management must accept that the workers have concerns about their working conditions and terms of employment that are legitimate, and an understanding of the processes they carry out that enables them to put forward suggestions and ideas that should be taken into account while formulating policies and taking decisions. Ideally, this should happen spontaneously, but that is extremely unlikely in India, given the legacy of mutual suspicion and mistrust. Therefore, we should do what the Germans have done: enact rules that make it necessary for labour representatives to be inducted on the board of directors of companies.
I started a venture many years ago, and grew it from small size into what is today the largest single-location manufacturing facility for blood collection sets in the world. The factory today employs around 1400 skilled people, and there are four trade unions. The factory is today probably the most successful manufacturing facility for this product anywhere in the world. I have examined other successful industrial manufacturing units in Kerala, and found that, except for a few that are mostly Central Government-run PSUs, and a few in the private sector, many of them do not have trade unions. I am not persuaded that their success is due to the presence or absence of trade unions. I believe their success in globally competitive businesses, is due to the strategies they have adopted, and the good management practices they all seem to embrace. They all score high on the three-point index by which any industrial enterprise will be judged: Quality, Cost, and Delivery. Everything else could be different in the way they are run, their relationship with the local community, the HR practices they follow, the financial management policies they adopt, the marketing strategies they follow, and the compensation policies they adopt.
Why should the management worry about whether the workers are going to form a trade union? The right to form a trade union is after all given by the Constitution of the country. Therefore, forming a trade union is not a criminal act, but something sanctioned by the Constitution. Indeed, this right is ‘guaranteed’ by the Constitution, as an inalienable right of workers. If managements stop worrying about this, they can start to look at ways of building a good working relationship with the trade union. The HR department will then start to work closely with the trade union, seeing them as partners and not as adversaries. The trade union, being of the workers, by the workers, and for the workers, can be relied on to project grievances, explain new policies to workers, monitor the implementation of statutory benefits, keep a watch on worker safety and health, and do all the other functions that would actually assist the job of management. In the case of several Central Government PSUs that have operations in Kerala and other States, we find that the units located in Kerala perform much better than those in other States. The constraints working on the managements of these units are much greater than any operating on the private entrepreneurs in State, yet they continue to deliver outstanding performance. Examples are CSL, HOC, HLL Lifecare and HNL. Local units of other once successful companies like HMT, Instrumentation Ltd. and ITI also strengthen this argument.
In fact, a State like Kerala with a history of active trade unions, can be said to have enabled the building of a healthy industrial and business culture based on compliance with rules and statutes, respect for worker rights, respect for the needs of the local community, and good corporate citizenship in general. This had a feed back effect on the quality of governance as well, with the State government agencies being more ready to intervene in such matters where violations are reported, and where local government agencies too are ready to intervene. This should not be seen as a negative feature of Kerala society, but as a reflection of the way society and the community have changed over the years. It is not an accident that Kerala is today viewed as the best place for migrant workers from any part of India, where they are assured of receiving the same benefits as their local counterparts.