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C M U J O U R N A L O F S O C I A L S C I E N C E S A N D H U M A N I T I E S ( 2 0 0 9 ) V o l . 3 ( 3 )

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Changing Labor Relations with Market Reformin China and Lessons from the Western Experience

Hong Lumin1,2* and Zhang Huimei1

1School of Business, Central South University, Changsha 410083, China2School of Human Civilization, Jiangxi University of Finance and Economics, Nanchang 330013, China*Corresponding author. E-mail: [email protected]

The history and evolution of labor relations in Western societies has revealed that only through the cooperation of government, employ-ers, and employees and through the protection of workers’ rights can countries best realize harmonious labor relations, alleviate social conflict, and develop their economies. If there were no cooperation and rights protection, poor labor relations would directly affect the efficient utilization of social resources, political stability, and fairness and justice. In the era of reform and opening-up in China, as government and enterprises ignored the protection of workers’ rights, labor relations became strained and chaotic, with labor disputes becoming more common than ever, leading to a variety of social problems. China must learn from the Western experience to take further measures of cooperation and protection.

Keywords: Labor relations, Adjustment, Cooperation, Protection, Western lessons

Introduction With the Industrial Revolution, production technology changed at an unprecedented pace, promoting great development and social progress in the West. This brought huge profits to employers but at the cost of a comparative deterioration in the living conditions of ordinary work-ers, creating confrontation between employers and employees, which threatened government control and the continuous development of society. Facing this, many western countries made positive adjustments to industrial relations to maintain political stability and promote continued economic development. Since 1979, China’s market reforms have gained momentum, mak-ing it nearly impossible to return to the old, strict, rigid, state-dominated, planned economy. However, the road to market reform has not always been a smooth one. Thirty years of reform has greatly changed China’s

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workforce. It has been enlarged by the addition of vast numbers of rural industrial workers and fragmented by the expansion of private, foreign, and overseas-invested enterprises in cities and coastal development zones. At the same time, with widespread adoption of capitalist labor practices by firms of all ownership types, labor relations in China have been trans-formed over the past 30 years of economic reform (Mary, 2004). The old model of employment relations has become obsolete and is incapable of tackling the labor conflicts raised through the process of market reforms. As the old distribution system has broken down, the gap between the rich and poor has grown, and working-class protests have become widespread, staged by urban laid-off workers from state-owned enterprises (SOEs), employees from many private firms, and rural migrant workers trapped in private production. Labor relations are increasingly complex, acute, and difficult to deal with. Although China has progressed greatly in labor and social security legislation since 1994’s “Labor Law of People’s Republic of China” with additional laws, statutes, and regulations added one by one, preventing and solving labor disputes remains difficult. The Chinese labor relations system faces serious challenges and needs adjustment. To real-ize more harmonious labor relations, China can draw from the Western experience.

DiscussionLabor Relations Adjustments in Western Countries Labor-management struggles and confrontation in early period of capitalism. With the advent of the industrial revolution, Western countries began a period of rapid transformation and development. However, dur-ing this period, employers exploited employees brutally to gain interests, and governments prohibited employees from protesting against employers to consolidate political power. In fact, government and employers shared common interests in keeping labor vulnerable and employers all-powerful. As a result, employers grew increasingly wealthy, with the working class remaining poor and weak, hobbled by poverty, slavery, ignorance, disaster, disease, and death. Yet, hard life aroused workers’ rebellion. Countless labor struggles, including the destruction of machinery and equipment, burning of plants, sabotage and strikes, and protests and demonstrations, broke out. Because these struggles were mostly spontaneous, scattered, and not well-organized or planned, most of them ended in failure. In the early-19th century, the physical condition of labor had declined due to a long period of overexploitation. As a result, the French and German governments were unable to recruit qualified soldiers because of a serious


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shortage of labor; “it was really intolerable that hiring workers at a reason-able price had been too difficult” (Marx, 1867). Governments became aware of the need to change this situation. Laws and regulations to protect workers. By the mid-19th cen-tury, to continue to develop society, governments came to believe that it was necessary to reduce working hours, improve wages, and ensure that workers had adequate necessities. Western countries proceeded to pass numerous laws and regulations to reduce working hours and improve working conditions in factories, such as the “United Kingdom Act of Ten Working Hours a Day (1847).” An act of the British Parliament required mine operators to be responsible for production accidents for the first time in 1872. Despite this, the profit maximizing nature of the bourgeoisie had yet to change, although the degree of exploitation had been reduced and workers had a minimum of humanitarian protection, with the right to subsistence guaranteed. The first minimum wage law, New Zealand’s “Industrial Adjustment and Arbitration Law” of 1894, and the first laws on insurance legislation, promulgated by the German Government under Bismarck from 1883 to 1889, including the “Sickness Insurance Law,” “Injury Insurance Law,” and “Old and the Disabled Insurance Act,” further enhanced the level of labor remuneration and the welfare of workers. Employers compromise and governments offer further worker protection. When monopoly capitalism appeared in the late-19th century, with rapid increases in productivity, development of large cities, expansion of the working class, and increasing government protection, the working class became increasingly powerful and trade unions were born. Trade unions allowed the aggregate power of many individual workers to fight against the control and arbitrariness of employers. This forced employers to make a series of concessions, including improving working conditions, strengthening labor protection, and implementing labor insurance. These concessions helped ease labor-management conflicts and led to better-coordinated labor relations. In the first half of the 20th century, after a widespread and severe economic crisis, Western management invited workers to participate in corporate management, and industrial democra-tization movements began in many countries. Industrial democratization gave workers the right to obtain information about their jobs, to consult and advise, and even participate in some decision-making. Employees and employers, to some extent, shared a common interest and formed a community of solidarity. Labor relations reached a state of unprecedented harmony at this time.


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During the same period, governments of various countries took constructive intervention measures and enacted legislation covering Labor Protection, Labor Insurance, Trade Union Law, and Labor Dispute Reso-lution, among others. Corresponding labor administration agencies were also established and labor law became an independent legal sector. The law had recognized the workers’ rights of labor protection, insurance, col-lective action, and litigation. Among those countries enacting legislation, Germany achieved the most outstanding achievements. During 1911-27, Germany had established a comparatively complete legal system on social insurance including illness, injury, retirement, and unemployment through enactment of the “Staff Pension Insurance Act,” “Miner Social Insurance Law,” and “Unemployment Insurance Act.”

Labor-management cooperation after World War II. After World War II, to expand domestic demand and stimulate healthy macroeconomics, Western countries increased the wages of workers. During 1947-78, the annual income of U.S. households increased by 4.82 times, with a net growth of 99.3%, adjusting for inflation (Song and Fan, 1998). During 1951-75, the annual growth rate of manufacturing work-ers’ wages was 6% in Japan (Song and Fan, 1998). The improvement in workers’ lives helped allay past hostility toward government and employers. Multiple win-win situations were created for workers, busi-nesses, and nations. In the 1970s, employers offered the Employee Stock Ownership Plan (ESOP), a mature form of corporate equity. ESOPs boomed in the United States and brought favorable economic and social benefits. Hereafter, Western countries such as Britain, France, and Germany, followed the footsteps of the United States and put ESOPs into practice. Then the monopoly of capital-material was fundamentally broken, and employees acted as business owners, having a sense of responsibility for the company. The boundary between employees and employers was blurred and their relations developed into a state of relative symbiosis. As a result, “confrontation” had been gradually diluted and replaced by “cooperation,” which became the new norm for labor relations.

Recent developments in labor relations. Since the 1980s, corporate social responsibility movements have risen in Western developed countries, requiring enterprises to establish and implement production rules focus-ing on fundamental labor rights, elimination of child labor, prohibition of discrimination, abolition of forced labor, freedom of association and collective bargaining along with addressing working conditions in terms of wages, working hours, occupational safety, social insurance, and employee


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benefits. Employers paid attention to and widely protected employees’ interests. In 1997, the International Labor Organization (ILO) and a variety of human rights and non-governmental organizations (NGO) actively promoted the introduction of SA8000 (a global social responsibil-ity certification for decent working conditions and workplace safety) to respect workers’ basic rights of survival and work. Great importance was attached to the safe workplace, healthcare access, adequate income, and the right to participate in various social and public affairs of workers. In summary, Western governments, employers, and employees made long-term dynamic adjustments to labor relations for their own survival and development, accumulating a wealth of cooperation experience and achievement, forming a better system of labor relations, which helped facilitate the overall rise of Western societies over a long historical period. It also proved that as long as workers’ rights to live and develop were safeguarded, including receiving adequate income (including wages and shares); provided adequate rest, social security, and good working condi-tions; given the freedom to negotiate, advise, and participate in production management voluntarily; and enjoyed the spirit of satisfaction from their jobs, it would foster economic progress and boost social advancement. Labor Relations Affect Social Harmony and Development The adjustment practices of labor relations in Western countries revealed that harmonious labor relations could ease societal conflict, bal-ance the power of various social classes, and safeguard the interests of the members of society. In contrast, sharp tensions in labor relations force governments to face turbulent social environments, make employers lose financial opportunities, and prevent workers from fully reflecting their value. In other words, when the benefits of each side are damaged, social harmony and development will eventually be affected.

Poor labor relations cause large economic losses. If labor relations become strained, for example, through strikes or unemployment, material and human resources are difficult to combine into production. Material resources become devalued and may even be abandoned, while workers lose or do not receive remuneration. Both employers and employees bear huge losses. For example, in 1969, tens of thousands of dockworkers went on strike in the United States for 66 days, the longest dockworker strike in U.S. history. This created an economic loss of about USD two billion (PLA Daily, 1969). When French road workers went on strike in November 2007, the national economy suffered EUR 3-4 billion of losses everyday (Bi, 2007). Virtually everything was affected, including postal


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services, energy production, railways, aviation, publishing, and education among others.

Labor relations issues challenge social equity and justice. In the book The Globalization Trap, Hans and Schumann stated, “What the la-bor issues reflect is not social or economic underdevelopment and wealth insufficiency, but that social wealth and social rights have been unfairly distributed” (Hans and Schumann, 1998). If employees do not possess economic rights (opportunities to participate in trade and production), political freedom (freedoms of speech, assembly, association, and election), and social opportunities (education and healthcare), their survival and de-velopment is restricted, and they cannot equally integrate into society and positively participate in social affairs. If this continues, the gap between the rich and the poor grows, social structure deteriorates, social mobility and integration are hindered, and social isolation intensifies. The Mat-thew Effect, “the rich become richer and the poor become poorer,” will become more obvious and societal fairness and justice will be difficult to achieve (Leon, 2004). In recent years, with the accelerating process of capital globalization, capital’s ability of transnational flow and coercion against policy is growing. To retain or attract capital, governments must often provide preferential policies and correspondingly reduce worker protection. “Strong capital and weak labor” begins to appear, and social injustice becomes more acute. In addition, increasing flexibility of labor leads to an increase in part-time jobs, temporary workers, domestic workers, and other non-standardized employment workers. They lack credible wages and social security, and are more vulnerable to unfair treatment. Labor Relations Transformation and Problems in China As can be seen from the above, the state of labor relations is criti-cal to a society’s development, both positively and negatively. For China, the transformation from a planned to market economy has created many problems in the state of labor relations. China’s economic reform, initiated in 1979, has engendered tre-mendous social, economic, and political changes on local society and a remarkable growth in gross domestic product (GDP) over the past decade, 2000-09. However, socio-economic polarization has also escalated, creating deeper divides among the population. In particular, in more recent years, with the deepening of privatization and commercialization, the position of workers has changed significantly. There are profound trends of the commoditization of labor, the reconfiguration of classes, and the rise of a new labor activism and popular resistance in China.


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Labor relations transformation in China. In 1949, the Chinese Communist Party (CCP) founded the People’s Republic of China (PRC). For the next 29 years, a large portion of Chinese industry was classified as publicly or collectively owned, which represented national strength and national autonomy. A strong moral dimension to state-owned industry existed with industry “owned by the entire people.” Workers, regarded as the core constituency of the socialist regime, were the “masters of the factory” rather than employees. State firms took care of their workers, providing extensive welfare benefits, lifetime employment, and economic stability. Employees viewed their contribution of their own free will to the firms as a patriotic gesture, so low wages and less-than-comfortable working conditions were sacrifices, not for management or profits, but for the nation. In all state firms, the state itself was the only major decision-maker, enforcing and implementing labor policy. State firms had no autonomy to hire workers, fire workers, raise salaries to retain skilled workers, or cut benefits to reduce the social welfare burden. Labor relations involved the state and workers only, not the firm. In keeping with strict state control, the government used administrative measures rather than economic policy and legislation to regulate every aspect of labor relations. The traditional, state-centered, employment relations policy guaranteed that a universal guideline was drawn to fit all workers, regardless of their actual work. Although productivity was seriously hindered, the heavy reliance on the state and generally high welfare systems led to temporary worker satisfac-tion, creating relatively harmonious labor relations. Since 1978, Chinese labor relations have changed radically, concur-rent with the transformation from a planned to market economy. Own-ership change, employment restructuring, and social security were three important institutional changes that occurred in SOEs before 1997 (Pan, 2005). The traditional guarantees of employment, wages, and welfare have been eroded as SOEs have been progressively freed from state control and subjected to increasingly competitive market pressures and as economic growth has seen the rapid expansion of new forms of non-state enterprises in which none of the traditional guarantees exist (Simon and Lee, 2002). Enterprises started to increase the wage differentials, paying top manag-ers benefits that exceeded ten times the monthly wage of a production worker and guaranteeing them housing even as it cut welfare benefits to the vast majority. Ordinary workers’ interests undoubtedly were damaged and greatly reduced by these institutional reforms. The spread between managers and workers grew constantly. Differentiation of the distribution


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of interests redefined the relationship among the state, employers, and employees, and created clearer boundaries around their territories. Dis-tinct from managers having vested interests, workers wanted to resist the commoditization of labor brought by the privatization policy and reject their abandonment by the state. However, no one could stop a powerful historical trend, moreover, worker organizations were under the control of managers in many enterprises. Workers’ claims were incapable of being solved easily. In addition, attempts by the central government to retain some aspects of socialism, including greater employment stability, longer-term employment relations, and active worker organizations did not meet with much success. Workers felt disappointed and angry (Mary, 2004). Labor relations were becoming more strained and chaotic.

Labor relations problems in China. During economic reform, more and more labor disputes arose and labor relations became increas-ingly nervous. From 1994 to 2002, dispute cases settled by labor dispute arbitration committees at all levels in China increased 31 percent per year on average, with 1995 (74.6%) and 1998 (64.7%) recording the highest year-on-year increases. In 2002, collective labor dispute cases accepted by the labor dispute arbitration committees reached 11,000, increasing by 12 percent over the previous year, while the number of workers involved reached 374,000, an increase of 30 percent (CMLSS, 1994-2002). In many cases, when problems could not be solved rationally or workers did not know how to take advantage of legal methods to enforce their own rights, workers engaged in illegal activities such as collective strikes, parades and demonstrations, sit-down protests, traffic disruption, and obstructing the work of government agencies–as well as capturing or killing people in charge of enterprises–in order to gain societal attention and force the authorities to take action to solve the problems that workers encountered. In 2002, in Chengdu city, two or three peasant workers per month asked for their wages by threatening to jump from high buildings (Gao, 2002). On January 16, 2002, at a worksite beside the Guangdong Olympic Gym Center, four peasant workers climbed up two 50-meter high cranes to demand their unpaid wages (Li et al., 2002). In 2006, the China Ministry of Public Security announced that more than 87,000 “mass social disturbances” had occurred in 2005, up 6 percent from 2004 and 50 percent from 2003. More than 3.7 million people were involved in such incidents in 2004, but the Ministry did not provide a comparable figure for 2005. Beyond statistical evidence that suggested the number of labor dispute cases was rising, there were press reports of some worker demonstrations turning violent (Victorien, 2006). At the same time, with


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the increase in foreign and private investment and no workers’ right to organize, conflicts between management and migrant workers in foreign-invested enterprises (FIEs) and private firms also intensified. Labor disputes in FIEs and private firms increased dramatically from 1,370 in 1991 to 6,298 in 1997, and then to 41,058 in 2000 (CLSY, 1991, 1997, 2000). From 1999-2008, the number of the labor disputes in China in-creased nearly six times (Table 1, Figures 1 and 2) (CLSY, 1999-2008). Table 1. Growth in number of labor disputes and yearly growth rate in labor disputes

in China, 1999-2008year 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Number of labor disputes (10,000)

12 13.5 15.5 18.4 22.6 26 31.4 44.7 50 69.3

Yearly growth rate in labor disputes (%)

28.3 12.5 14.4 19.1 22.8 15.2 20.5 9.9 11.9 38.6

Why did the labor disputes frequently break out during the period of economic and political transformation in China? The reasons are vari-ous and complicated, but the main causes may be as follows. First, delay of wage payments, illegal deductions from payments, lower-than-standard wages, harsh working conditions, long work hours, physical violence, work-related injuries, and the lack of compensation were frequently seen in private firms, particularly those employing large numbers of peasant workers. These were infringements of the basic rights of workers. Second, mass layoffs by firms, particularly in SOEs because of the change of ownership from state to private or foreign investors, resulted

Figure 1. Number of labor disputes in China, 1999-2008


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in worker grievances on forced relocation; unpaid pensions and wages; and a lack of standard community services, bankruptcy compensation, or employee settlement. Third, as consumer prices rapidly increased, many retired workers requested increased pensions to improve their living condi-tions. These incidents usually occurred in SOEs of long history. Currently, China labor relations are more diversified and complicated than that which occurred during the process of labor relations adjustment in Western society. The unique circumstances lie in government, enter-prises, and the trade unions. Government: During the last 30 years, the Chinese government has focused the most on policies to develop the economy, with GDP growth becoming the main criterion of performance appraisal rather than a more comprehensive approach. For a long time, some regional governments set GDP as the only goal to pursue, even openly abandoning the enforcement of labor laws and ignoring worker’s rights to lure investors, which directly infringed upon the interests of workers. Enterprises: Because lower costs may have provided a competitive advantage internationally, many enterprises exploited workers, including delaying wages or paying low wages, requiring overtime work, and creating wretched working environments. For some foreign investors, the allure of China was not only its inexpensive and inexhaustible supply of labor but also the lack of independent labor movements that made production in the investors’ home countries increasingly expensive (Mary, 2004). Trade Unions: Since labor relations in China are not autonomous but rely heavily on government interference, the trade union system is dominated by the state and its role is very limited. The trade unions cannot play an independent role to coordinate labor disputes. Why did some conflicts in collective disputes develop into group events? One of the

Figure 2. Yearly growth rate (%) in labor disputes in China, 1999-2008


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most important reasons was the lack of, or failure to establish or exercise, effective adjustment systems like collective agreements in the trade unions. On the enterprise level, management manipulates union organizations in some enterprises and a high proportion of high-level managers sit on union committees. The status of organizations is quite low in the private sector. Although the All-China Federation of Trade Unions tries to strengthen the power of the workplace union for its members, enterprise-level unions still play a modest role. In fact, they are unable to truly represent workers’ interests. The majority of people may accept the thought that trade unions first must fulfill their obligation to the party-state, to the enterprises, and to the workers in descending order. Following the recent international financial crisis, many export-oriented small and medium enterprises in China have seen their market share shrink, and face the risk of bankruptcy and downsizing, so pay adjustments and redundancy quickly mounted. In such circumstances, trade unions face the challenge and test of protecting workers’ rights and interests, participating in labor negotiations, relieving labor conflicts, and promoting industrial harmony. Trade unions should consider the unex-pected international financial crisis as an important opportunity for fixing imbalances in Chinese labor relations. Unions need to participate actively in helping to formulate and adjust the “rules of the game” for labor rela-tions; supervise the implementation of the current labor relations rules in enterprises in order to safeguard the basic rights of workers; discuss the reasons for business difficulties with managers; initiate suggestions; allow enterprises to truly feel that unions and businesses go through thick and thin together; listen to the interests and appeals of employees attentively; understand the present situation and existing problems of workers; and educate and guide workers to devote themselves to enterprise develop-ment.

Conclusion and Recommendations Since disharmony in labor relations is an increasingly prominent source of social conflict and one of the most serious social problems in China, and since China lacks full labor protection policies and mechanisms to deal with the results of rapid market reform, more adjustments need to be adopted. China can learn from Western society and consider the context of economy and politics to adjust labor relations. The experiences and lessons from Western labor relations adjust-ment show the primary importance of protecting and preserving workers’


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rights of survival and development. It has been proven that labor relations satisfaction is positively related to salary, appraisal, security, and working conditions (Lv and Li, 2005). Consequently, China should start with affording better treatment to workers, including increasing remuneration to improve their material capital; strengthening skill training to enhance their human capital; and improving the social security system and strengthening labor law enforcement and supervision to improve labor relations. The Chinese government currently is struggling to establish and adjust modern labor protection legislation as a guideline for labor and management. This series of new labor laws includes the individual labor contract, a market-based wage system, the trade union and collective bar-gaining system, a labor inspection system, and labor dispute settlement system. Perhaps, a pluralistic model of the labor policy and institutions that proved positive in developed countries may be appropriate to suit the needs of Chinese society. Moreover, government can actively learn from developed countries to permit employees to carry out various activities such as publications, conferences, petitions, parades, and demonstrations to understand their legitimate demands. Government should provide the necessary institutional arrangements to help workers construct a real workers’ participation system through which they have a voice. During the process of marketization and internationalization, enter-prises can enhance market competitiveness by virtue of improving labor relations within the enterprises. To fulfill corporate social responsibility, the aims to develop productivity and to protect workers’ interests should be equivalently reiterated. Workers are the most important and closest stakeholders for enterprises. Only by being respected and fairly treated will workers throw themselves into work actively, and thus productivity and efficiency will increase and businesses will ultimately benefit. Finally, trade unions in China should shift in status from an administrative arm of the state and its dependent agencies to become the true representative and defender of workers’ benefits. In order to realize this, trade unions must rebuild its organizational system and take full advantage of the tool of collective bargaining to achieve workers’ rights on unity, collective bargaining, and democratic participation. As China moves ahead toward a new frontier, in order to achieve harmonious labor relations to build a harmonious society, a serious effort to adjust labor relations should begin.


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