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.