Honey Moon with MBA 674 - Globalization, New Economy and Ethics
Honey Moon with MBA 674 - Globalization, New Economy and Ethics 21022
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Date Created: 03/29/16
Michael Santoro: China 2020 History and Future of ACFTU in China History of ACFTU in China The traditional role of the ACFTU was to provide services to workers such as hobby centres and sports outings. It did not attempt to represent workers against management or bargain collectively over layoffs, working conditions, and pay. The ACFTU has always been an arm of the state and controlled by the Communist Party. The ACFTU regards itself as a union with Chinese characteristics concerned more with harmonious relations than with confrontation. In 1980, when workers took to the streets to show support for the students occupying Tiananmen Square, the ACFTU sided with the government. Nevertheless, as a result of the reform era, the ACFTU is undergoing some changes. It lost over 30 million members due to layoffs in connection with the restructuring of state-owned enterprises (the dismantling of the iron rice bowl). Consequently, the ACFTU turned to migrant workers in the newly emerging private sector, especially those that worked for foreign companies. At the end of 2006, the ACFTU claimed to have almost 41 million workers as members. Of the most dynamic shifts in ACFTU was the unionization of Wal-Mart. Despite the ACFTU’s seeming success with unionizing Wal-Mart, indigenous, independent labour organizers in the region still view it as an arm of a repressive regime. Han Dongfang (A highly respected labour activist who spent 2 years in jail for hisunionorganizingactivities)termedtheWal-MartACFTUunionan“instantnoodle union that gives people false hope”. According to Michael Santoro, regionalism plays an important factor in determining the independence and effectiveness of the ACFTU in representing workers. He further states that the ACFTU has historically reverted to its traditional role in promoting a harmonious society in areas where workers have significant material differences with employers and where there is a possibility of confrontation and conflict. According to AFL-CIO general counsel Jon Hiatt, the ACFTU has in recent times focused more on the productivity and enforcement of workplace discipline for its workers rather to the detriment of its more constitutional duty to protect workers’ right. This kind of behaviour exemplified by the ACFTU, according to Michael, has let off a bad signal for independent labour rights organizations partnership with the ACFTU in China. The Future of ACFTU Michael posits that close partnership with the ACFTU could undermine the activities of a small but independent labour movement in China. However, he recommends engagement with ACFTU only if the independent associations will help push the ACFTU toward stronger orientation and ultimately greater independence from the government and Communist Party. He observes that independent grassroots organizers and advocates are playing an important role in advancing worker rights, which merit the material and moral support of the internal labour movement. Michael believes that the coming decade will witness the rise of trade unionism as the primary response to the labour rights of migrant workers. He further stipulates that the ACFTU’s evolvement into a true trade union is partly dependent on the independence ofthelegalandpoliticalsystem’saswellastheextent to whichthelegal system promotes greater democracy and human rights. Finally, Michael Santoro decries the uncertainty of the evolvement of the ACFTU into a true independent trade union, and thus recommends a cautious approach by the international labour movement in promoting labour rights of Chinese workers. The cautious approach employed by international labour movement in China, include training sessions and sharing of expertise on questions of health and safety as well as collective bargaining. Michael believes the cautious approach of promoting labour rights to be wholly appropriate for labour unions and to serve as a relevant model for how foreigners should responsibly operate in China. Michael Santoro- China 2020 China’s New Labour Contract Law in China The most important pro-worker initiative is the new Labour Contract Law that went into effect in January 2008. The new Labour Contract Law marks the transition from a labour system in which the government was the sole employer and where a worker’s life could be so crucially affected by the arbitrary whims of an immediate supervisor, to one in which employees- for a moment only in theory- enjoy substantive and procedural workplace rights. However, though Chinese workers face fewer social welfare due to the dismantling of the “iron rice bowl”, many workers’ interests will be recognized as substantive legal rights and guarded by procedural rights. The new Labour Contract Law was passed in June 2007, and it specifies the following; It requires employers to provide written contracts to all long-term workers and that short-term workers be hired as long-term workers with social insurance benefits after their contracts have been renewed twice. It contains severance pay provisions and tightens the conditions that allow a company to fire a worker. It empowers company-based branches of the state-run All China Federation of Trade Unions (ACFTU) to bargain with employers over salaries, bonuses, training, and other benefits and job duties. Michael states that the Labour Contract Law will take may years before achieves its “on paper” potential because of the global economic slowdown and the underdeveloped nature of legal rights and the legal system in China, Michael highlights the following consequences of enforcing the Labour Contract Law; Significant economic effects on China’s manufacturing industry; I. Higher administrative costs for firms as a result of the requirement to give written employment contracts to all employees. II. Firms will have less flexibility to hire and fire. III. The Severance provisions in the employment contract will increase operational costs of firms as well as worker benefits. IV. Further costs to business firms in the event that the ACFTU becomes more of an independent trade union as well as bargains actively for its workers at the factory, regional or industry level. Other Temporary or Short-term effects of the passage of the new Labour Contract law Outright evasion of compliance with the new Labour Contract Law through not-so-pleasant and shocking means. An example is Huawei Technologies in the southern province of Guangdong, which called on workers who had been with the company for more than eight years to “voluntarily resign”. Huawei intended to rehire some and sign them to a contract and to pay compensation to the workers they intended not to rehire. Consequently, Huawei’s plan was widely condemned and eventually the ACFTU persuaded the company to withdraw its plans. The moving away of smaller firms further away from the reach of NGOs and government authorities to evade government enforcement of labour laws. Michael justifies the reaction of company owners (ranging from ignorance/avoiding the reality of the enforcement of the labour law to outright attempts to circumvent the labour law), based on two important events; 1. The complexity and diversity of the factories producing for the export sector. 2. The current state of the Chinese political and legal system: - A less independent legal system does little to protect violation of labour rights as well as human rights. Companies Likely to be negatively affected by the Compliance costs Small companies as opposed to Larger companies are most likely affected with complying with the new Labour Contract Law as a result of; i. Perhaps these small companies may not have been paying the minimum wage and other worker benefits and compensation (which in turn could be due to lack of scrutiny by NGO’s and the fact that they appear at the lowest Chinese Pyramid). ii. The lower scale of operations and lower administrative overhead operated by small companies compared to larger companies, would definitely alter and definitely increase their operating cost structure. iii. Lastly, these costs could likely smaller companies to go out of business, which in turn would lead to an increase in unemployment rate and reduction in the output of goods and services produced generally in the Chinese economy, as evidenced by the Gross Domestic Product. Companies Likely to be least affected by the Compliance costs Larger companies, especially famous-brand name companies are likely to be able to cope or absorb the costs of complying with the new Labour Contract Law as a result of the following factors; Higher economies of scale (through large production volumes, specialized employees (human capital) and specialized equipment) and higher competitive advantage enjoyed by larger companies could make them least vulnerable in absorbing the higher costs of compliance. The already existing compliance with the minimum wage, other worker benefits and compensation (due to scrutiny from NGOs and the need to attract more workers) and an existing relatively higher administrative overhead compared to small companies, would give them a lower net compliance cost. Their ability to develop long-term relations with other famous brand names could help them cushion or reduce the costs imposed by the Labour Contract Law. Michael highlights the two factors that determine the actual costs of complying with the new Labour Contract Law as well as the associated increase in labour costs; The actual costs of compliance will depend primarily on; The degree of compliance with legal requirements prior to the passage of the law (the higher the compliance prior to the passage of the Labour Contract Law, the lower the post-compliance costs will be, in complying with the Labour Contract law) The ability of firms to efficiently absorb the administrative costs of compliance He affirms that the result of both factors above have a long-term implication on China’s foreign export sector manufacturing—**Significant consolidation. **Because of the higher costs associated with adapting to the specifications of the law, many smaller firms might be forced to go out of business, while others merge to achieve the economies of scale needed to absorb the higher costs of compliance. According to Michael, although industry consolidation can help provide a buffer or absorption shock to reduce the loss of comparative advantage enjoyed by the Chinese manufacturing industry (in terms of the labour productivity of Chinese workers as well as differences in labour costs), the passage of the new Labour Contract Law has slowed China’s pace of its “race to the bottom”. The “race to the bottom” terminology explains how brand-name companies search the world over to outsource their manufacturing to the cheapest location and how in response developing countries attempt to attract investment capital by competing with each other through ever lower wages and harsh working conditions. In other words, China risks losing some of the brand-name companies to other countries with lower wages. 1More importantly is the changing dynamics in China’s economy & manufacturing industry; rising wages, a consumption-driven economy and a more educated workforce, would further slow China’s pace of its “race to the bottom”. Michael Santoro posits that China’s ability to outweigh the increased labour costs associated with the new law ultimately depends on the productivity of its labour workforce and the relative efficiency of its entire supply chain.
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