Emerging Consensus on Labour Market Institutions and Implications for Developing Countries: From the Debates in India

Abstract

This paper makes a critical intervention to on-going theoretical and policy debates in the economic analysis of labour market institutions (LMIs) in the context of recent debates in India. It focuses on the internal inconsistency of mainstream economic analyses of LMIs, in particular those based on the new institutional economics (NIE) approach, and what appears to be an emerging policy consensus on LMIs within the World Bank and the International Labour Organization (ILO). The paper draws out the possible ideological parallels in these two developments, despite different intellectual origins and intentions of those engaged in these debates. A corresponding modification in policy debates in India is observed in the shifting perspectives from the Second National Commission on Labour (SNCL) to the National Commission for Enterprises in the Unorganised Sector (NCEUS). The apparent emerging consensus in both the theoretical literature and policy debates reveals the tendency for researchers to focus on labour market outcomes and phenomenal forms of LMIs rather than the structures, processes, agencies and relations that underpin them. While this can be seen as an advancement from the traditional distortionist-institutionalist dichotomy, the tendency of this consensus to explain the persistence of seemingly inefficient institutions within the micro-level choice theoretic framework and its appeal to policy agendas on good governance, social capital, trust and civil society, render it vulnerable to appropriation by the mainstream. The paper argues that the emerging consensus on LMIs is an inadequate framework to inform effective policy propositions, and highlights the scope and opportunity for a political economy alternative.

Keywords:

• political economy
• labour market institution
• trade union
• institutional economics
• governance
• labour market reforms
• Indian economy

Notes

 1 In addition to the problem of defining ‘formal’ and ‘informal’ sectors in general, in India there is a specific definition of ‘organised’ sector given by the Central Statistical Organisation (CSO) in terms of industrial sector classifications, the size of the establishment, usage of power, etc., which further adds to the complexity.

 2 For a more general discussion on the formal vs. information sector debate see Rakowski (1994).

 3 Morris (1955: 304) inferred that “the ways in which the state uses the union as a disciplinary agent vary considerably” between countries and societies with different historical conditions.

 4 See Fine (1998: 145–6) for a critique of the SLM theory, especially focusing on its theoretical content.

 5 See Reich (2008) for an overview of the development in the SLM theory.

 6 It is worth noting, however, that the radical SLM theory continues to prosper in parallel to the orthodox SLM theory which emerged out of the economic imperialism for labour market theory in the mainstream. Nevertheless, one of the characteristics of the SLM theory that made it marginally acceptable to the mainstream was its aversion to engage explicitly with class relations and exploitation. Instead the SLM theory have tended to attribute social inequality to labour market structures explained by exogenous factors such as race and gender. This is significant in understanding the implications of the similar on going convergence we shall discuss below.

 7 Amongst many, for example, see the AFL-CIO (2003)'s review of Aidt and Tzannatos (2002) welcoming that “[a]fter years of bashing unions, the World Bank is acknowledging that union membership can be a boon to workers and to a nation's economy”.

 8 Note the preference for liberal ‘legal rights' over class ‘interests’, which again reflects the particular ‘legal form’ of capitalist social relations in India.

 9 Labour legislation come under the concurrent list (list III) under the Indian constitution, which means both the central and the state governments can enact labour laws. In all there are 47 central labour laws and over 200 state labour laws (Datta and Sil 2007), each with separate inspectorates whose inspections are not synchronised, and each demands maintaining and filling appropriate returns, that are not standardised. Definitions of concepts such as wages vary between legislatures, and case law also differs. It is argued that such arbitrariness in the legal framework as well as the inspection process opens scope for corruption, and hence further transaction costs (Debroy 2004).

10 Advocates of ‘exit policy’ argue that if economic liberalisation enables capital, including foreign investment, to enter and operate freely, the reverse movement of exiting and closing down must also be eased.

11 The 1982 amendment has further extended the application of this provision to firms employing more than 100 workers.

12 The assumption that the elimination of rents and rent-seeking, as well as improving on democratic accountability and transparency, is the precondition for productive LMIs is not only Eurocentric but also does not fit the historical experience, with ‘good governance’ as the outcome rather than the source of growth (Khan 2005).

13 It is debatable how ideologically committed Indian ‘elites’ were, given that political leaders within the Congress Party were far from united in promoting the model of socialist planning as the engine for development in India, as shown by Corbridge and Harriss (2000). It is also unclear why the group of ‘elites’ who promoted the distributional solution was able to exercise control and power to the extent that they could define the mode of industrial relations regardless of labour's choice between strategies, given that the ruling ‘elites’ in the Congress Party did not always enjoy such strong political legitimacy.

14 In the Indian debate, it is popularly held that the success of East Asian economies was related to their labour standards and resulting wage repressions. For example, Nath (2005) cites Singapore as a successful case of a labour standard reform implementing a system of industrial relations that promotes productivity growth and accountability. However, others such as Freeman (1993) argue that labour standards were not a significant factor in growth performances of East Asian countries.

15 See also Lazonick (1979) for the importance of labour process in explaining differential patterns of industrial development in the context of British and US cotton spinning.

Additional information

Notes on contributors

Satoshi Miyamura

This paper is based on the presentation at the IIPPE 2nd International Research Workshop in Political Economy, Procida, Italy, September 2008. I am indebted to Liam Campling, Gavin Capps, Ben Fine, Mushtaq H. Khan, Kristian Lasslett, Jonathan Pattenden, Benjamin Selwyn and the two anonymous referees for their comments at various stages of this work.