Contract labour in a Globalised World

If there were an area of employment relationships that is most perverse from the perspective of the emergent idea of human right in the workplace, in most probability the contract workers in the organised sector would fit the bill. The underlying political notion of universality of equality, engraved into the Indian constitution, has been progressively made into legal entitlements in employment relationships through various legislation. Within a same class of employment in an establishment viz. within a factory, equality of treatment and entitlement was accepted and became a basis of both, discourse and struggle. Even the contract labour act is founded on progressive realisation of this universality.

Though, in the last decade the industrialists have been able to retrench massive workforce from the economy. It could do so with ease, in spite of the legal barriers, and without legal reform, because it was one time affair and could be achieved through voluntary retirement scheme and lockouts. But, the contract labour act affects the employment relationship in a continuing manner. So, for big capital, it has become the priority area within the labour law reforms. There is an immense pressure to amend, if not rescind, the Contract Labour Act, in order to make it only a regulatory act for working condition of contract labour or exclude large category of employment in an establishment from the preview of the act. Some State governments have already proposed bills making such amendments.


Reversal of universality of labour rights

Such change is retrogressive in a fundamental sense, for it introduces duality in area where universality is foundational. This reversal is, what makes the trend ominous. But is it transitory? Is contract labour system an archaic feature that is in the process of diminishing? Is it conjectural that industrialization will reduce? Earlier thinking on the subject, and so the framing of labour policies, were based on affirmative assumption to such questions. But the rising trend of contract labour brings that assumption into question. In fact, the potential spread and depth of this reversal can only be evaluated, if the source of this immense pressure for reversal identified and analysed. The contention in this short article is that it is intrinsic to the industrialization strategy put in place by the Multi-National Corporations as a part of structural globalisation taking place under imperialism.

Sub-contracting of production and contract labour has emerged one of the main process /mechanism for restructuring the global production system in a way that the developing countries neither gain in terms of wage share in value added nor in terms of growth in per capita income.


Cost leadership and labour cost reduction

The post war economic expansion saw industrial base developing in ex-colonial countries. From producing for home market the South slowly began exporting. By 1975 the share of South’s share in word-manufactured exports was increasing faster than the South share in world manufacture. This success hit the market share and profitability of the big capital. It began evolving strategies to counter these tendencies. In 1981, Michael Porter suggested three basic strategies. One of them was cost leadership. This was a euphemism for low cost production and required that the management developed measurable continuous labour cost reduction programs that were integral to management system. In the product market that are price sensitive achieving this cost leadership became a prime strategy of big capital. For metropolitan capital, it also became a necessity to avert the real possibility of developing country capital, which had access to cheap labour, becoming a competitive threat in the emerging global market in such products. So it has become imperative for North to guarantee access to cheap third world labour and not allow Southern capital to have exclusive access to this labour. With technological leadership and control of the global market, this is sure way of ensuring its domination. The Washington consensus under Reagan regime unfolded to force open the national economics of South and intensify global market competition. The ground was laid for structural reorganization of production on a global scale.

Though, retrenchment of workers and reducing the contractual obligation has been the major impact of globalisation. It has to be viewed, more as a part of, and a phase in, the re-composition of the workforce in the production at the global level. The main focus, and the second part of this process is the access to cheap labour for low cost production. As these are labour intensive operations there is a pressure for wage rise. To forestall such tendency and insure the production from such risks, the strategy is to install and sustain sub-standard employment relationships that create low capacity for organizing and collective bargaining.


Division of workers into core and periphery

In order to implement this strategy the management gurus provided the concept of the core competency of a firm. This enabled to identify and differentiate the core process and value the small section of workers (but not allowed to bargain) whose skill, knowledge and motivation becomes critical to the flow of production and profitability. The non-core operations are either out-sourced through a sub- contracting system or contract labour is employed where the process cannot be separately located. The capability of the management is in the ability to both retain the workers in the core area and sustain the low-cost operations in the non-core area.

The core process both in production and business is identified using value chain analysis, which identify the main sources of profit in various steps to supply a product and services. In a globalising world, multiple processes of labour and production are linked on a global level to produce finished commodities. The MNC’s use this tool to analyze such global commodity chain and focus their investment and control over processes that are most profitable. As a result, the power is unevenly distributed over this chain and profit is maximized by capital that dominates and controls the core business process.

Global business also requires rapid product innovation and co-ordination between the market and the production process, both to service markets with different variants of products and minimize the inventory cost on a global scale. This led to adoption of the lean production systems, first introduced by Toyota, under which a precision planned stream of inputs of specified quality and quantity are provided to the production systems of the commodity chain with objective of near zero idle time.


Emergence of new organizational form: business network

The twin objectives of the lean production system and low cost production led to re- examination of the concept of firm. The earlier concept of internalization of economic activity within the firm was inadequate in the new environment of global market and technological development that rapidly reduced the transportation and transaction time and cost. As a result, de–internalization of economic activities occur when firm specific advantages are outweighed by its costs. This led to the vertical disintegration of the old firms and emergence of inter-firm network to provide the planned stream of inputs to the production process. These inter-firms relationships began to stabilize with a collective long-term orientation as a business network of set of companies, which interact and co-operate with each other within a commodity chain.

A new organizational form had to be innovated to deal with the new tasks of global production process. Rugman and D’cruz (1997) have conceptualized such business networks as a form of organisational for MNC’s, labeled as a flagship model. The two key features of such a system, the presence of a flagship firm that creates the network and strategically controls the network; and the existence of firms that have established key relationship with that flag ship firm. The other firms are dependent on the flagship firm and so a relationship of strategic asymmetry develops.  Inevitably as the global reorganization takes shape along this line of business networks, the MNC’s position themselves as the flagship firm. From such apposition, the MNC’s limit the scope of operation of the dependent firms, determines their course of action and internal processes, and directs their capital investment program.


Business network links segmented labour process

As the MNC’s drive the low cost production programme through the business network a core / periphery workers division takes place at each firm level and leads to expansion of contract labour system. So the rapid growth of sub-contract and labour contract system is an integral part of the developing global production system. It is a network of production process that links the various segmented labour process, formal with informal. As a result, the MNC’s gain the access to cheap labour and the capacity to implement the strategy of low cost production under its’ control.


Low cost production leads to national income loss

So the reorganization of global production takes place with low cost production on the basis of low wage expanding in the South. Under this division of labour, though labour shifts from agriculture to industry, the country does not enter a trajectory of autonomous growth. The industrial growth in the South, which is predominantly a result of expansion of sub-contracted production and contract labour system, does lead to increase in employment but not to significant increase in wages above poverty level. Even the surplus is not retained in national economy as it transferred through the commodity chain to the flagship MNC’s. Arrighi, Silver and Brewer(2003) have analysed data from 1960 to 1999 to conclusive show that narrowing of the industrial gap between North and South has not led to significant narrowing of income gap between them. In fact, they argue,” industrial convergence (due primarily to Northern de- industrialisation and secondarily to Southern industrialization) has been a key mechanism in reproduction of the North South income divide.” So the normal economic development that is associated with the industrialization, the rising share of industrial employment leading to increase in per capita income is subverted under imperialism.

The argument put forward is that flexibility to market demand requires flexibility in employment, what has been termed as functional flexibility. In contrast, we have argued that the basic objective is cost reduction through lower labour cost. As rapid absorption of labour by industrialization has a tendency to push the wage level. And if, such industrialization is taking place in the developing countries then the benefit will accrue to the Southern economy. This is against the interest of imperialism. From its’ viewpoint only low cost industrialization is permissible in the South. So a mechanism has to be put in place to control and manage this employment relationship. Sub-contracted production and contract labour build such a regime of employment with inbuilt dampening mechanism that minimizes the economic gain in terms of per capita rise in income and labour share in added value.

Both international labour and Southern countries are the losers in this new regime of employment. Even then, the limited view of Southern capital blinds them from seeing the national interest. As for the international labour movement, it has to return from the portals of judiciary to the terrain of struggle and hard collective bargaining to confront this new regime of employment.


20th October 2004