For a kinder, gentler restructuring

SWOT

There is much in China's reform process for India to learn, but its handling of labour is certainly not one of them

Anybody who thinks China is the Shangri-La of industrialisation should read the cover story of the latest issue of BusinessWeek. Titled "China's Angry Workers", it is an account of the less glamorous "" and less acknowledged "" side of communist China's great capitalist revolution that the world praises so much.

Over the past month, protests have broken out all over the north-east of the country "" the so-called "Rust Belt" of bleak industrial cities where unemployment rages at 25 per cent "" which is carefully hidden away from admiring tourist eyes.

The protesters are workers who have been abruptly laid off from their jobs and are owed hundreds of dollars in back pay and benefits. What is more, the corporations that are laying off their workers are mostly in the notoriously inefficient public sector. Worse, much of the reason for the non-payment of wages and pensions is massive official corruption.

Not surprisingly, the protests are spreading to the countryside which has been silently bearing the burden of the massive lay-offs "" retrenched workers are mostly packed off to their villages "" that lie at the heart of China's grand plan of unrivalled global cost-competitiveness. 

So far, foreign investors (mainly American) have been optimistic principally because of the long arm of the government's all-powerful and time-tested apparatus of state security. Still, it would be no exaggeration to say that this time, China could be sitting on a volcano far bigger than Tiananmen Square.

And with its entry into the World Trade Organisation, it's not just world opinion that will be mobilised against it, but global investment that will flee. As the BusinessWeek article acknowledges, "...time is not on Beijing's side. The government can't afford perpetual welfare payments for the Rust Belt's unemployed and disaffected workers."

Now the point about these Chinese protests is that they provide an example of the consequences of inadequately thought-through industrial restructuring programmes. True, there is much in China's reform process for India to learn, but its handling of labour is certainly not one of them.

It could be argued that, in this respect, India has several safeguards that China doesn't. Well-developed and vociferous labour unions are one of them, and they provide workers with both a bargaining forum and an outlet for orderly (if that is the word) protest. A mandatory one-year no-down-size clause in newly privatised companies is another.

Third, for its sins, the Indian government is not as opaque or authoritarian as China's to be able to cover up large-scale siphoning off of funds meant for severance benefits. All of these, however, cannot be considered durable barriers to future labour and social unrest.

For one, it is now widely recognised, if not openly acknowledged, that the trade union movement in India is a spent force, drowned by the tidal wave of restructuring across industry (and this is true even in West Bengal from which industry fled willful union-induced inefficiency). Witness, for instance, the dramatic down-sizing at India's largest private sector steel manufacturer, Tata Steel, with scarcely a murmur from its once-powerful unions. 

This apart, the other issue is that some 80 per cent of the work-force is, and always has been, outside the purview of organised labour and therefore the union system. Being contract labour, these workers enjoy few benefits and certainly none of the rights of their pampered counterparts in the organised sector.

So if organised labour has to brace itself to swing the pendulum from protection to down-sizing "" a trend that will accelerate once labour laws are relaxed "" think of the plight of informal labour in a country where social security is virtually non-existent. It takes no crystal ball to predict that all this will take its toll on the country's already fragile social fabric and could be as much of deterrent to foreign investment as tardy economic reform.

Indeed, we have a little noticed consequence of mass (but needed) lay-offs in the textile industry in Maharashtra in the 1980s. Once the strike broke, many retrenched workers took their meagre compensation and simply retreated to their villages. If the state has teetered on the edge of communal riots since the early 1990s, a good part of the reason is to do with this deprivation.

This is not to say that the government should not privatise or industry should not down-size. As 50 years of skewed labour laws have shown, there is no economic gain to be had from carrying a redundant work-force. After all, a company that cannot perform cost effectively in a competitive milieu is unlikely to be able to get itself into the virtuous circle of growth and job creation in any case.

The point is that the government has to think of creative and, importantly, cost-effective ways of coping with these impending crises, and industry needs to play a role in this too in the interests of stable reform.

Are there solutions? Retraining and redeployment are obvious ones "" but they're limited in that they'll work so long as they're practical and skill sets match. One engineering company chief cheerfully talked of putting surplus labour in his automobile factory to use in a call centre!

In seminar after seminar, executives and industrialists talk wistfully of China's legendary efficiency and how "controlling labour" is so much easier there. This is undoubtedly the case when "controlling labour" equals washing your hands of them. Labour concerns may now be unfashionably leftist, but unless they are addressed head-on, India will constantly teeter between progress and protest.