TRANSFORMATION OF INDUSTRIAL RELATIONS SYSTEMS
IN CHINA, VIETNAM AND INDONESIA: CONVERGING TO
THE WEST?
MSc International Business and Management
Yuanita Christayanie
S1938789
July 2010
Supervisor: prof. dr.Luchien Karsten
Abstract
This study focuses on the comparative industrial relations of China, Vietnam and Indonesia. It aims to identify the major changes in terms of legislation and basic labor rights since the economic and political reforms and analyzes whether the countries have converged to the western industrial relations systems from literature and empirical case studies. After the transformation, China, Vietnam and Indonesia have adopted some of the western characteristics such as collective bargaining and flexibility but there are still some distinctive features. Furthermore, Marshall’s theory of citizenship explaining the sequential development of rights in the western industrialized countries does not fit the social context of China, Vietnam and Indonesia. In comparison, Indonesia has the most pro-labor industrial relations climate because it has granted the freedom of association. The three countries have moved from the tight grip of corporatism but do not converge to the western model of industrial relations.
Table of Contents
List of Abbreviations ...4
List of Tables and Figures ...5
1.Introduction ...6
2.Methodology & Data ...8
3.Conceptual Framework...11
3.1.The European Model of Industrial Relations ...11
3.2.The U.S Model of Industrial Relations...12
3.3. Convergence in Industrial Relations Models...13
3.4. Flexibility and its relation to Social Citizenship ...14
3.5. Characteristics of Western Industrial Relations Model ...16
4.China, Vietnam, Indonesia: Converging to the West? ...18
4.1 East Asian Industrial Relations Transformations...19
4.1.1.China ...19
4.1.2.Vietnam...24
4.1.3.Indonesia ...26
4.1.4.Patterns of Transformations...28
4.2.Comparison of Current Labor Law and Trade Union’s Roles...29
4.2.1.Freedom of Association and Trade Unions’ Roles ...29
4.2.2.The Right to Strike...29
4.2.3.The Right to Bargain Collectively ...30
4.2.4.ILO’s Involvement in Industrial Relations Systems...31
4.3.Industrial Relations Model and Collective Bargaining ...32
4.4.Flexibility ...35
4.5.Marshall’s Theory of Citizenship ...37
5.Case Studies of Labor Disputes ...41
5.1.Indonesian Case Studies ...41
5.1.1.The IA Company (2003-2007) ...41
5.1.2.The Multinational Company in Indonesia (2007-present)...43
5.2.Chinese Case Studies ...45
5.2.1.The LF Company (2002) ...45
5.2.2.The CE Guangzhou Strike (2008)...47
5.3.Vietnamese Case Studies ...48
5.3.1.The TRF Company (2007)...48
5.3.2.The FT Minimum Wage Strike (2005)...49
5.4.Comparisons and Analysis of Case Studies ...50
5.4.1.Trade Unions’ Roles ...50
5.4.2.Labor Law Enforcement ...51
5.4.3.Government Intervention ...52
5.4.4.Evidence for Divergence...53
6.Conclusion ...55
List of Abbreviations
APINDO Asosiasi Pengusaha Indonesia (Indonesian Employers Association) ACFTU All China Federation of Trade Union
DOLISA Department of Labor Invalids and Social Affairs FDI Foreign Direct Investment
HEPZA Ho Chi Minh City Export Processing and Industrial Zone Authority ILO International Labor Organization
ITUC International Trade Union Confederation
IUF International Union of Food, Agricultural, Hotel, Restaurant,Catering, Tobacco and Allied Workers’ Association
SPSI Serikat Pekerja Seluruh Indonesia (All Indonesian Trade Unions) SB Serikat Buruh (Trade Union)
List of Tables and Figures
Table 1. Labor Legislation Developments in China ...23
Table 2. Labor Legislation Developments in Vietnam ...25
Table 3. Labor Legislation Developments in Indonesia ...27
Table 4. Comparison of Indonesia, China and Vietnam ...32
Figure 1. Pattern of Transformations ...28
1. Introduction
In the recent decades, Asia has become an important force in the global economy. Asian emerging countries, such as China, Indonesia and Vietnam have shown significant economic growth and have become attractive places for investment due to their cheap labor. In Vietnam for instance, fifty percent of its industrial output comes from foreign firms and the private sector (Manyin et al, 2002). There are several implications of having foreign firms operate in these countries in search of low-wage workers, evidence has shown that blue-collar employees in all three countries were exposed to unhealthy and poor working conditions also known as ‘sweatshops’ (e.g. The Nike cases in Vietnam and Indonesia). Rapid economic expansion, bureaucracy, corruption and repressive government often put workers as the disadvantaged party and consequently triggered labor disputes and strikes. Governments were in dilemma between preventing labor exploitation and fostering economic growth. In the recent years following the economic deregulations there is increasing pressure from international organizations such as the ILO to enforce better labor legislations in the region. There are recent developments in each country signaling a better industrial relations climate for wageworkers. Indonesia recently ratified ILO conventions on freedom of association and there are new labor regulations enacted in Vietnam and China.
same challenges to keep attracting foreign investments. Thus the research questions are:
• What are the recent developments in Indonesia, China and Vietnam in terms of industrial relations?
• Have the transformations brought a more pro-labor industrial relations climate for Indonesia, China and Vietnam?
• Have the three countries converged to the western model of industrial relations?
2. Methodology & Data
The methodology for this research involves both literature and case study approaches. The research begins with a conceptual framework and basic proposition built on a literature review of industrial relations changes in each country followed by empirical case studies and ends with a conclusion as a result of examining facts, known as a theory testing approach (Thomas 2004; Yin, 1981).
The research starts with the conceptual framework describing two prominent models of western industrial relations systems, convergence theory and then illustrates the link between industrial relations and citizenship. This framework will be used to analyze convergence within China, Indonesia and Vietnam.
The next part of the paper consists of a review of literature on changes in industrial relations systems in Indonesia, China and Vietnam followed by an analysis of possible convergence towards the western model of industrial relations. The paper compares and contrasts the development of industrial relations in Indonesia, China and Vietnam and also draws a conclusion whether such development leads to convergence to the western industrial relations system. The third part consists of the empirical case studies of different labor disputes in the three countries to illustrate how industrial relations operates in terms of trade unions’ roles, government interventions and labor law enforcement after major changes in the industrial relations systems took place in each country and also seek for evidence of convergence or divergence.
illustrate the implications of the changes of the industrial relations system the cases were chosen from periods after the latest significant development had occurred in each country. For Indonesia, it was the fall of the Suharto presidency in 1998. For Vietnam and China, it was after the countries moved towards a socialist market economy in the mid 1980s. However, I intend to focus on the most recent developments, the enactment of the Labor Code in 1994 in Vietnam and the Labor Law in 1995 in China.
To enhance the external validity of the research I selected cases that represent the general cause of dispute in the country or represents the labor-management relationships in each country preferring cases with higher numbers of workers involved, assuming the trade unions’ roles will be more prominent if they involve large number of employees.
The first case for Indonesia is a labor dispute in a multinational company producing fast moving consumer goods. The dispute centered on the workers’ interests to pursue wage negotiations but has been impeded by the company. Information and data concerning this case was taken from the IUF’s website, the Asia Food Worker’s website, and interviews conducted with the president of the trade union. The second case is about the dispute between the IA Company and its enterprise trade union in 2003 that caused 4 years of continuous strikes. The root of the IA dispute is unfair dismissal, a common cause of labor disputes after the economic crisis hit Indonesia in 1997. IA is a state-owned company that usually set the standard for other firms in Indonesia. Data sources for this case were derived from personal interviews with the former CFO of the company.
3. Conceptual Framework
Previous studies discussing the impact of globalization and changes in Asian industrial relations often mention the ‘western’ industrial relations model as a comparison (e.q. De Silva, 1995; Ali, 2005, Kuruvilla and Erickson, 2002). The term ‘western’ is very broad and differs between most European and Anglo-Saxon countries. This section of the paper intends to clarify the characteristics of the western industrial relations system by explaining two prominent models of western industrial relations, the European and the U.S models and also to illustrate the link between industrial relations and citizenship.
3.1 The European Model of Industrial Relations
Even though there are large variations in terms of industrial relations in Europe, the European social model consists of three main things: good economic performance, high level of social protection and social dialogue (Visser, 2006). Streck (1992) coined the five institutional pillars of the European industrial relations regime: strong trade unions, participation in tripartite social dialogue, a high floor of secured social rights, wage setting based on coordination at an industry level or higher and consultation or codetermination at the firm level. Visser (2006) mentioned that those five pillars remain until today but the social standards and policies depend a lot on the national governments and the national interests of each country. Due et. al (1991) divided European industrial relations into three types. First is the Roman Germanic model in Germany, The Netherlands, Belgium, Italy and Luxembourg where the government plays the central role with extensive legislation concerning industrial relations, including the right to join and be represented by a union. In the Nordic model in Sweden and Denmark there are semi-permanent national agreements between employer associations and workers’ federations but the governments have a minimum role in labor regulations. The last one is the Anglo-Irish model of Ireland, which has limited government interventions in labor relations and the work and employment terms are determined by voluntary agreement between workers and employers (Smith, 2005).
councils, except for Ireland and the UK where unions are still the main channel for consultation and information (Carey, 2004). Work councils aim to facilitate consultation between employers and employees and existed in different forms in the European Union member states. In 1994, The European Union Work Councils Directive was enacted obliging all companies with 1,000 or more workers, and at least 150 employees in each of two or more EU member states to have a European Work Council (EWC). It was reported that EWC has made the communication flow better between workers and employers and developed a corporate culture at the European level (Visser, 2006). Perhaps the most successful example of work councils are found in Germany with its co-determination act, where general labor agreements are made at the national level by higher unions and employer associations and then modifications or adjustments of those agreements are made at the firm or plant level by the management and the work councils.
3.2 The U.S Model of Industrial Relations
example Douglas (2001) mentioned that the country has unusually weak job security protection where it is common to dismiss workers during economic downturns and then hire them again when the economy picks up. The concept of flexibility will be discussed later in the paper.
3.3 Convergence in Industrial Relations Models
The convergence theory originates from Dunlop (1960) stating that despite the political and cultural differences, industrial relations systems in the world are becoming more similar due to industrialism and technological development. Kerr et. al (1960) and Harbison and Myers (1960) also argue that industrialism and the development of technology would drive all countries towards the U.S economic model and political system. Ali (2005) identified technology, economic liberalization and pressure of competition as three major forces leading to convergence in the industrial relations system. Kuruvilla and Erickson (2002) stated that the changes in Western and Asian countries are heading towards flexibility in employment and decentralization of collective bargaining. The effects of globalization also lead scholars to analyze whether it leads towards a more liberal as opposed to a regulated labor market (Ali, 2005), or in other words, heading towards the U.S model of industrial relations.
The theory has faced a lot of opposition; a study by Locke and Thelen (1995) mentioned that because of differences in national-level institutions, countries react to economic pressures in different ways. As quoted by Weiss (2007), Katz (1997) in his research in the telecommunications industry in different countries also found that there are similarities in terms of employment security, work organization and governance but national differences still exist. Arguments concerning converge and divergence in Europe also have been a central debate for scholars due to the integration of the European economy. Smith (2005) in the book Trade Unions in
Europe: Response and Changes mentioned that the older industrialized economies are
multinational firms to operate with centralized management. Multinational companies have the power to relocate their production and trade unions are unable to match this power despite the efforts to create international labor union organizations due to national and cultural differences. This resulted in an increase of work flexibility (Smith, 2005). According to the author, convergence in European industrial relations is visible in terms of similar unions’ responses and declining numbers of union members but the trend towards decentralization of collective bargaining is rejected because there are no similar patterns of bargaining due to differences in national systems (Traxler, 1995). Globalization has indeed affected European Union member states, but it does not affect the form and content of collective bargaining due to variety in national and legal system (Smith, 2005). In terms of regulation, in the European Union and its member states there are detailed legislation concerning employment conditions and workers rights illustrating that the region is still heavily regulated (Carey, 2004). Even though there are still divergences in terms of collective bargaining and role of the state, the European Union has indeed adopted flexibility. According to Bryson and Karsten (2005) during the period of 1985 to 1995 flexibility in the EU has increased by 15%. The Treaty of Lisbon in 2000 also stated that the European Councils aims to improve competitiveness by promoting flexibility and achieving greater social cohesion through the European civil society. While it can be argued that flexibility has become the main characteristic of the overall western industrial relations the concept itself remains broadly defined.
3. 4 Flexibility and its relation to Social Citizenship
The concept of flexibility was initially introduced in the 1960s as a solution for
Fordist companies to cope with unforeseeable markets where mass production was no
relations are intended” such as outsourcing and fixed duration contracts without any prospect of permanent employment. On the other hand, the authors defined internal flexibility as making flexible working hours and arrangements with current employees, such as job rotation, flexi time or other forms of alternative work scheduling. On the employee side, flexibility has also been interpreted as a means to balance their work and family responsibilities. More flexible working hours and work arrangements provide workers with more time for family or other roles in their social life. The term ‘flexibility’ should not be associated only with non-permanent employment as it is also a way for employees to gain a work-life balance. At the company level Bryson and Karsten (2005) identified four types of flexibility for achieving efficiency and improving quality. Numerical flexibility relates to types of employment other than permanent contracts such as outsourcing, freelancing and subcontracts. The second type is temporal flexibility such as rostering, compressed workweeks, and shift work. Dismissals, paid and unpaid overtime are examples of ad hoc flexibility. The last one is functional flexibility that focuses on modifying the existing labor marker by horizontal and vertical multi-skilling and teamwork.
Due to differences in institutional systems, different countries have different forms of flexibility in the labor market. Anxo and O’Reilly (2000) found three different forms of flexibility. First is the negotiated flexibility in Germany, Sweden and The Netherlands where there are extensive involvements of the social partners through negotiation and modest statutory working-time regulation. Statutory working time norms and the large role of the government in France exemplify statist flexibility. Last, Britain with its free collective bargaining and absence of legal rights concerning working time regulation is an example of externally constrained voluntarism (Bryson and Karsten, 2005).
citizenship’ have been built as they now have the rights of free movement within the European Union and the rights to vote and run for office both in local and in European parliament elections even if they live in another country (Bleijenbergh, 2005). In the second half of the 1990s, the link between social rights and citizenship in Europe became more prominent, the Comite des Sages is on the side of the unions wanting to grant citizens the right to a minimum level of welfare and the European Parliament also promotes paid parental leave and statutory social security rights for part-time workers. Social citizenship in Europe has come to include more than just granting welfare and education by also providing work-life balance for workers. This has been a joint effort between inter-governmental decision-making and collective bargaining, as the European Trade Union Confederation also wants to improve social rights of members who wish to obtain work-life balance (Bleijenbergh, 2005).
3.5 Characteristics of Western Industrial Relations Models
4. Vietnam, Indonesia and China: Converging to the West?
4.1. East Asian Industrial Relations Transformations
4.1.1 China
Prior to the economic liberalization, China had a planned economy under the communist party. The industrial relations system was characterized by the “iron-rice bowl” system where the government provided protection and welfare for society through state owned enterprises. Workers were granted with lifetime employment and benefits such as housing and pensions. Social and economic entitlements were guaranteed by the state through firms.
Ali (2005) argues that “economic planning was done as if it was one large firm”, workers were supposed to meet the productivity quotas while the employers provided their welfare. Taylor (2000) stated that under communism, the trade union acts as a conveyor belt between the ruling communist party and the workers. The All China Federation of Trade Unions (ACFTU) is the only legal body playing a dual role: ensuring that workers do not pursue individual interests and the union represents the workers’ interests to the party by supervising the managers of the state-owned enterprises. The government always stressed equality, shown by elimination of dissimilarity in labor conditions and minimal differences in working status between workers and managers (Taylor, 2002). As it was assumed that the interests of workers and the state are inseparable the trade unions were used to improve productivity and to organize labor instead of addressing workers’ interests. Ali (2005) argues that the industrial relations system was also characterized by its refutation of independent trade unions and the importance of state enterprises as the welfare provider.
When China moved towards a socialist market economy in the mid 1980s, foreign companies began to enter the region and many state-owned enterprises were being privatized. Even though the concept of ‘privatization’ does not necessarily mean that China is moving towards capitalism but it does mean that workers’ welfare and interests are no longer the priority for the firms.
To keep attracting Foreign Direct Investments (FDI) and to control exploitation of workers in foreign firms, China started to develop its legal system. China did not have laws to regulate labor-management relationships in non state-owned firms before and in 1979 it issued the ‘Provisions of the People of China for Labor-Management in Chinese-Foreign Joint Venture’ and labor contracts were introduced for the first time. From then on there were many regulations and national laws passed by China to accomplish the state’s major goals: integration into the world’s economy (Gallagher, 2005). This has caused detachment from the ‘iron-rice bowl’ system as these foreign enterprises introduced wage-flexibility. It has been argued that blue-collar workers were at a disadvantage after the change of China’s economic stance; SOE began to lay-off workers and created social unrest. Workers no longer enjoyed economic protection and they were now responsible for their own welfare.
In 2001, the Chinese government felt the need to revise the trade union law as China’s economy has become increasingly market-oriented, and the government could no longer directly intervene with labor disputes. The 2001 Trade Union Law stresses that the basic and main function of trade unions is to “uphold and protect the legitimate rights and interests of the workers”, whereas in the previous trade union law trade unions served as organs to protect the workers’ interests, coordinate workers in exercising their democratic rights, and also educate workers. The 2001 Trade Union Law also provides legal guarantees for setting up a union and securing funds for unions. This law also states that organizations or individuals are not allowed to ban unions without authorization. More importantly, there is a chapter on legal liabilities for acts conflicting this law (China Society for Human Rights, 2004).
As mentioned, the right to strike in China appeared to be unclear, the 1957 document in the central committee permitted strikes and it was stipulated in the 1975 and 1987 constitutions but in reality it is still a question whether a legal strike can actually take place as no further legislation was made concerning strikes. However, in 1982 the right to strike was removed because it is viewed as a disruption of enterprise production, whereas the firms belong to the people (Chen, 2007). Even though strikes are illegal, the Chinese workers view it as the only way to put pressure on employers and the government to address their hardships. Lum (2006) stated that social unrest continues to grow in terms of frequency and in greater scope; the PRC has reported that public disturbances nearly doubled from 2003 to 2005. It is very likely that such movements or protests happen due to the lack of channels to address workers’ grievances.
Despite the fact that collective rights are still not granted, the Chinese government changed the legislation to provide protection for workers as the pressure to comply with international labor standards and worker unrest began to mount up. The recent labor law in 1995 regulates minimum wage, working hours and procedures to settle disputes. Chen (2007) stated after the 1990s, cases going to arbitration commissions and courts have increased, showing increasing awareness of labor rights, and workers won the majority of these cases. However, it is worth noting that legal procedures are costly and not accessible to all employees. The author also states that law enforcement remains relatively weak, especially concerning migrant workers. There are many regulations that are being ignored or manipulated by the employers and workers are not always in a good position to go against management, as they might not possess enough resources or evidence. Lum (2006) argues that since the economic reform took off in the 1990s it has created a large income disparity in the middle class. The privatization or restructuring of SOE led into mass lay-offs and labor abuses have increased in the Special Economic Zone.
The most recent development in China is the enactment of the 2008 Labor Contract Law, giving unions the permission to organize workers at all enterprises and to assist with contract negotiations and establishes collective bargaining mechanisms. The new law also greatly limits the use of term contracts and probationary periods. Failure to comply with the Labor Law Contract will caused administrative fines, payment of double wages and legal responsibility for real damages (China Labor Bulletin Report, 2007; China Law Blog, 2007)
Source: China Labor Bulletin, 2007
Table 1. Labor Legislation Developments in China
Year China Important Developments
1992 Trade Union Law • Unions may represent workers in collective contracts 1995 Labor Law • Collective contract covers pay, working hours, rest,
vacation, health and safety, insurance and welfare • Mechanisms of Labor Dispute Settlement 2001 Revision of Trade
Union Law •
Added chapter of legal liabilities • Protection towards union leaders
• Primary function of unions is to “uphold and protect the legitimate rights and interests of workers”
• Trade unions will negotiate and sign collective contract on behalf of employees through a congress of workers representatives
2008 Labor Contract Law • Trade unions should establish a collective contract mechanism
• Selection of worker representatives should be under the guidance of the next-higher level union
• The union should guide workers in the negotiation and implementation of collective contracts
4.1.2 Vietnam
Since the adoption of the doi-moi (renovation policy) in 1986, Vietnam is one of the fastest growing economies in the world. Similar to China, it has abandoned the planned economy and moved to a socialist market economy in order to participate in the global economy. Foreign enterprises have become the prominent source of employment, employing a quarter of the workforce (Manyin et.al 2002). This movement towards a socialist market economy also has impacted the labor law regime in Vietnam. Since country was in war for decades, many of the regulations and laws were not made by experts and were often neglected. The government strengthened the country’s legal regime by enacting the 1994 Labor Code, which regulates the labor contracts, collective labor agreements, working hours and employment protection. However, the enforcement of this law remained weak, workers and employers are both unaware of the provisions of the Labor Code and there was also a lack of qualified staff in Vietnam’s monitoring agencies (Manyin et.al, 2002).
According to the Vietnamese Labor Code, strikes are legal under certain conditions. It should not take place in vital enterprises such electrical and oil companies and before the strikes take place, the union must go through procedures to settle the dispute through the Labor Reconciliation Council if needed up to the People’s court before industrial actions can take place. However, it was reported that most strikes were ‘spontaneous’ movements and did not follow legal procedures but were tolerated or even supported by the government (Manyin et. al, 2002).
The recent revisions of the Labor Code in 2006 reflects an effort from the Vietnamese Government to redress the weaknesses in enterprise unions by setting up arbitration committees outside of the enterprise to anticipate strikes in nonunionized factories. This new law also does not rely solely on the labor unions at the firms level to arbitrate with management when labor disputes arise. The reason for this revision is a possible lack of independency of enterprise trade unions (Tran, 2007).
Table 2. Labor Legislations Developments in Vietnam
Source: Manyin et. al, 2002 ; Tran, 2007
Year Important Developments
1994 Labor Code • 1st Vietnamese systematic code of labor
standards, labor relations and labor contracts • Legalizes strike
• Requires establishment of trade unions in all enterprises
• Regulates minimum wages
2001 Revision of Labor Code • Maximum overtime of 300 hours/year 2006 Revision of Labor Code
(Strike) •
Setting right-based and interests- based protocol for disputes
4.1.3 Indonesia
From the period of 1965 to 1973, the Indonesian industrial relations system was characterized by hardly any industrial conflicts. It had a corporatist system known as the Pancasila system based on consensus, co-operation and family principles (Manning, 1998; Ford, 1999). The most prominent feature of this system is the bipartite and tripartite mechanism of dispute resolution, in which the government intervened highly and the outcome often favored employers. During this period, strikes were not considered legal procedures and the military was allowed to intervene in industrial actions. The government viewed strikes as a deviation of the Pancasila industrial relations system, where disputes must be resolved by consensus (Ford, 1999). The SPSI (All Indonesian Trade Union) was the only legal union; it acted as a government tool to organize labor, but failed to promote workers’ interests. During Suharto’s administration, Indonesia suppressed independent unions, removed their leaders and tightened the unions’ connection to the leaders of the ruling party. The military also intervened heavily in labor disputes. Avoidance of labor unrest was also illustrated by the enactment of the retrenchment Law no. 12 of 1964, which stated that the Labor Dispute Settlement Committee must approve all cases of employment terminations. The labor peace began to erode when Indonesia deregulated its economy further in the mid 1980s. As export growth took off, many workers moved from the informal to the formal sector to work for the textiles, clothing and footwear industries. Labor disputes arose due to weak law enforcement of labor regulations and non-compliance to minimum wage regulations. For many years, minimum wage was no more than a formality and was often ignored. Blue-collar workers were the disadvantaged groups during the repressive Suharto era, as they have been sacrificed in order to achieve rapid economic growth (Manning, 2008). Indonesia began to receive international pressures to enforce labor standards and it finally enforced minimum wage compliance. The turning point was when Suharto resigned from presidency in 1998 at a time when the Asian economic crisis hit Indonesia.
workers by increasing their minimum wage and severance payment, also regulating the employment of contract workers (Manning, 2008). The law enacted also reflected an attempt to reduce government intervention. Both employer associations and unions have been freed from governmental control, giving more space for bilateral collective bargaining (Ford, 1999). At the same time, Indonesia also enacted law that legalizes outsourcing and specific time contracts signaling that the country has moved from preserving stability to adopting flexibility. However, the government also put certain limitations on the practice because outsourcing is only allowed for ‘non-core’ job positions. Manning (2004) argues that limitations to outsourcing (if fully enforced) can affect employment adversely because the labor intensive industries might not be able to bear with the increased cost of labor. However, in practice there are many violations to the law because there is ambiguity over what qualifies as a ‘non-core business’ job. Minimum efforts to monitor the rights of workers employed under outsourcing contracts by the Ministry of Labor’s officials also worsen the problem (Tjandraningsih and Nugroho, 2009).
Table 3. Labor Legislation Developments in Indonesia
Year Important Developments
Law no. 22 1957 Labor Dispute
Settlement •
Strikes and lockouts has to be permitted by the Board of Labor Dispute
Law no.12 1964 Termination of
Employment •
Termination has to be permitted by the Labor Dispute Settlement Committee Law No.21 of 2000 Trade Union • Trade union can be formed with at least
10 individuals, no obligations for union registration.
Law no.13 of 2003 Labor Law • Legalization of non-permanent
employment (specific time contracts) & outsourcing
• Strikes are legal, but only to specific types of labor disputes.
• Termination of employment can be done at once if workers commit a crime. Law no 2 of 2004 Industrial
Relations Dispute Settlement
• Layoffs are viewed as ‘industrial disputes’ and should be settled through the industrial court (implying that employers can terminate workers without a permit)
• Disputes will be settled through
mediation, reconciliation, arbitration and the industrial court.
• Industrial court decisions are binding (cases cannot be appealed to the Supreme court except for layoff cases)
4.1.4 Pattern of Transformations
Looking at the literature review of industrial relations transformations in the three East Asian emerging economies, the development of their industrial relations systems can be divided into three stages: the tight corporatist era, the transition period and the development of labor legislation era. As described, the tight corporatist era is characterized by excessive control of the government over industrial relations from the period of 1960s to 1980s. For Indonesia this was the period of Suharto’s administration in 1967 to 1998 where independent unions were suppressed and there were restrictions on the freedom of association and strikes. During this period, job security was almost guaranteed to civil servants and law enforcement was weak. Prior to the economic deregulation, many workers were not formally employed (worked in an informal sector), and the regulations made it difficult to lay-off employees in the formal sector. In China and Vietnam, the lack of freedom of association and the limited rights to strike were not major concerns during the corporatist era because the governments granted social benefits. The transition period for Vietnam began since the launch of the doi-moi reforms in 1986 and for China it began since the economic liberalization in 1978. Since the opening of the economy took a further step, the states began to lose their paternalistic roles but the regulations and the Ministry of Labor officials were not equipped to protect the laborers from exploitation. These have caused the increase of labor disputes and strikes, putting the countries in the international spotlight. In the period of the 1990s and onwards, the governments have gradually enacted stronger regulations concerning labor rights, which can be seen
from the enactment of the 1994 Labor Code in Vietnam, the enactment of the 1995 Labor Law in China and the Law no.13 of 2003 in Indonesia.
4.2 Comparison of Current Labor Law and Regulations and the Trade Union’s Role
In comparing the developments of Labor Law and regulations in the three countries described in the literature review, I am focusing on the freedom of association, the right to strike and the right to bargain collectively, which are the essence of a movement towards the western industrial relations and ‘pro-labor’ legislation.
4.2.1 Freedom of Association and Trade Union’s Role
In terms of freedom of association, Indonesia, China and Vietnam are in different stages. In Indonesia after the political reform in 1998, the freedom of association has been granted enabling independent unions to represent employees’ rights. This development has not occurred in China and Vietnam due to their ideology of communism, which stated that the interest of workers and the ruling party are inseparable. However, the Vietnamese government has shown greater stance towards independent enterprise unions. A study by Chan and Norlund (1998) argues that even though Vietnam and China share the same root of socialism there are signs of divergences concerning their trade unions’ roles. The Vietnamese VGCL seems to have more autonomy compare to its counterparts in China, as they are allowed join international confederations. The VGCL has been involved in drafting the labor law and setting the minimum wage, while the Chinese ACFTU remains a one-way conveyor belt. A comparative study by Manyin et al (2002) also suggests that Vietnamese trade unions are more independent as they are allowed to affiliate with international organizations and the Vietnamese government also recognized occupational based unions.
4.2.2 The Right to Strike
from the Labor Dispute Committee and has to be done by a registered union. Since the regulation for registering unions has been reduced, the right to strike exists in practice compared to merely formally in the past. Similar to Indonesia, Vietnam has also made a development by granting the right to strike under the Labor Code enacted in 1994. However, there are prerequisites to be met before strikes can take place, such as the dispute settlement mechanism through the labor reconciliation council (Manyin et. al 2002). China seems to make fewer developments towards ‘pro-worker’ legislation because it has not granted the right to strike. Manyin et. al (2002) stated that the right to strike in China has been “in a state of legal limbo” because there are no regulations granting it in the labor laws or in the constitution.
4.2.3 The Right to Bargain Collectively
Indonesian Law no. 21 of 1954 stipulated that only a registered trade union could enter collective bargaining with employers but the government made it impossible for independent unions to be registered as a legal union. The SPSI was the only permitted trade union and was heavily influenced by the state both at national and local levels (Quinn, 2003). Thus the essence of collective bargaining was missing even though it existed on paper. The situation changed when the government enacted Law no.21 of 2000 that legalizes the formation of independent unions, federations and confederations. This development by extension also strengthened the right to bargain collectively in Indonesia, which was severely restricted during Suharto’s administration.
only repeated the requirements stated in the Labor Code. The VGCL report in 2000 also stated that only 15 percent of the private firms in Vietnam had signed contracts or labor agreements with their enterprise unions (Manyin et.al, 2002).
4.2.4 The ILO’s Involvement in Industrial Relations Systems
Table 4. Comparison of China, Indonesia, Vietnam
Looking at the comparison of rights in China, Vietnam and Indonesia, it can be observed that Indonesia has made further development in shaping a ‘pro-labor’ industrial relations climate.
4.3 Industrial Relations Models and Collective Bargaining
Lothian (1986) defines two ideal models of labor organization: the contractual and the corporatist model. In the former, also known as the collective bargaining model, the relations between employers and workers, including wages and working conditions are defined through individual contracts. The law does not regulate working conditions, wage determination or job security terms. The employers and workers can bargain freely without governmental influence. Within this system, the freedom of unionization, the rights to organize and to take industrial action are also granted. One prominent feature of the collective bargaining model is that the government stands apart from the negotiation and the settlement of disputes and promotes the use of arbitration to settle conflicts. The author defines the latter as the corporatist or the regulatory model, where the government is actively regulating every major feature of employment relations. One feature of this system is compulsory unionization, all workers belong to the union whether they choose or not and this union by all means remains a government controlled organization. This model permits collective bargaining only within a framework that includes frequent and invasive governmental
Indonesia China Vietnam
Right to organize Granted Only through ACFTU Only through VGCL
(greater autonomy compared to China)
Right to strike Granted Not Granted Granted
Right to bargain collectively
Granted Granted Granted
Labor Dispute Resolution Mechanism Mediation Conciliation Arbitrate Industrial Court
Firm level mediation Local Arbitration Civil Court litigation
Mediation Arbitration Court ILO conventions
ratified
All 8 ILO conventions Equal Remuneration, Minimum Age
influence; the law determines the working conditions, wage determination and job security terms. It also limits the right to organize for labor and has a tight regulations concerning strike activity. In this system, the law also requires industrial disputes to be settled with the involvement of the government through the Ministry of Labor (Lothian, 1986).
It was clear that China, Vietnam and Indonesia were under the corporatist and centralized model of industrial relations where government interventions were very prominent. While the western countries also diverged in terms of role of the state, most of them have the contractual type of labor relations where genuine collective bargaining is present (Lothian, 1986). Ali (2005) stated that scholars frequently analyze whether globalization is leading towards liberal policies as opposed to being regulated, or in my opinion, whether globalization leads to a declining role of the state.
Uwiyono (2007) also stated that the role of trade unions in Indonesia is more political rather than economic because all work and employment terms are already stated in regulations and trade unionist use their position to change the law instead of bargaining collectively with employers. De Silva (1995) stated that collective bargaining in Asian countries usually occurs at the firm level and seldom has an impact on the national or industry level. Ali (2005) supports the argument by stating that collective consultation in China is decentralized focusing on individual and firm-level contracts. Manyin et al (2002) also illustrate similar conditions for collective bargaining in Vietnam. The authors mentioned that employment terms were set by individual contracts instead of collective bargaining and the content merely copies of what were required by the Labor Code.
Looking at the dispute resolution mechanisms, it seems that the mechanisms are similar within the three countries, from mediation, arbitration to courts. This is new for Indonesia as labor disputes used to be resolved through the Labor Dispute Settlement Committee. Since the enactment of Law no. 2 of 2004, disputes have to be resolved through industrial court signaling less government intervention in the mechanism. In general, all three countries have adopted arbitration procedure but dispute resolution mechanisms are still quite distinctive compare to the western mechanisms where both union and employers are ‘equal’ organizations. De Silva (1995) stated that a heavy hand of government intervention in Asia could be seen in the conciliation stage, which it ‘suggests’ both parties to come into settlement. This indicated that the government has altered the procedure to fit into government’s objectives upon resolving the dispute, whereas in the contractual model of industrial relations labor disputes are settled through arbitration with minimal government intervention.
government and workers were seldom consulted prior to ‘negotiation’ (Chen, 2005). Collective bargaining in Indonesia is also still in the development stage because many companies use collective labor agreements as a way to codify obligations under laws.
4.4 Flexibility
type of job that can be outsourced is also unclear. (Herawati, 2006; Tjandraningsih and Nugroho, 2009). Since the enactment of the regulation both domestic and foreign companies requiring low levels of skill have implemented flexible work-practices and the hiring process often facilitated by third party agencies. It means that workers are fragmented into three different types: permanent, contract and outsourced workers. The premise that flexibility will reduce unemployment is definitely rejected in Indonesia’s case because low-skilled workers face higher job insecurity. Their work contracts are unclear, can be terminated without notice and severance payment and they have no bargaining position. In most cases, labor agency companies will replace outsourced workers with other workers because employment contract can only be renewed for two terms. The assumption that workers would benefit because flexibility allows them to move between jobs and sectors easily is also refuted because the workers do not possess the skills and competence needed to do so (Tjandraningsih and Nugroho, 2009).
In the case of China Ali (2005) argues that there are trends towards numerical and functional flexibility. Since state-owned enterprises have been granted autonomy and are responsible for profit, labor utilization has become an important factor in determining firms’ competitiveness. In empirical studies on Chinese companies Chen (2001) stated that numerical flexibility is usually applied to production or low skilled workers. Firms use short-term contracts, offer less training and differentiate wage rates to these workers in order to cope with the competitive pressure. The excess supply of low-skilled labor made them highly substitutable. On the other hand, functional flexibility is used to retain managerial and technical employees whose skill are rare in China by developing career schemes, giving stock options, offering training etc. The author stated that various forms of labor flexibility applied to workers with different levels of skill and performance is the employers’ strategy to minimize cost in order to cope with the changing market demands.
change jobs and controls on housing and residence that tend to hamper workers’ mobility (Jenkins, 2010). Zhu (2005) also argues that flexibility applied in Vietnamese firms is quite distinctive compared to western countries, numerical flexibility does not appear to be a permanent HR strategy due to the constraints of legislation and the immaturity of the labor market (for example, the third party agency could not supply the firms with qualified workers). In terms of functional flexibility, the author stated that job enlargement and job rotation are not common but temporal flexibility strategy such as overtime and shift work is used in labor-intensive industries. The Vietnamese Labor Code allows companies to make work-time arrangements but requires a minimum number of rest hours and maximum hours of overtime work. Companies often use shift work in addition to overtime work during peak seasons due to the restrictions on maximum overtime (seventeen hours in a month) by dividing regular employees into several shifts. Other forms of flexibility such as flexi-time and job sharing are also not found in the sample firms he studied. Vietnamese cultural values emphasizing on specialization, individual commitment and harmonious working environments also limit the practice of functional flexibility (Zhu, 2005).
It can be seen that the flexibility adopted in China and Indonesia is mainly applied to low-skilled workers in forms of numerical flexibility, while the Vietnamese labor legislation remains rigid and still impede flexibility in the workforce. Contrary to the European experience where there is an increasing trend of flexibility allowing workers to negotiate the hours and place of work in their contracts (Wallace, 2003), literature suggests that the flexibility applied in China and Indonesia put low-skilled workers at a disadvantage.
4.5 Marshall’s Theory of Citizenship
Using the experience of British Industrialism, Marshall (1950) defined citizenship as a status enjoyed by an individual as a member of society, and it has three main elements: civil, political and social rights.
of political power…by social element I meant the whole range from the right to a modicum of economic welfare and security to the right to share to the full in the social heritage and to live the life of a civilized being according to the standards prevailing in the society” (Marshall 1950, pp. 10-11)
Based on the definition above, civil rights are defined as individual rights institutionalized by court. Political rights are the rights to participate in the exercise of political power and social rights are the rights to enjoy an appropriate standard of living, embodied in welfare and educations systems and these rights developed sequentially in the eighteenth, nineteenth and twentieth century. As quoted by Chen (2007), Tilly (1998) argues that civil rights were the basis for political rights and together they acted as tools to attain social rights. Concerning the development of labor rights or industrial citizenship, Marshall stated:
“One of the main achievements of political power in the nineteenth century was to clear the way for the growth of trade unionism by enabling the workers to use their civil rights collectively. This was an anomaly, because hitherto it was political rights that were used for collective action through parliament and local councils, whereas civil rights were intensely individual, and had therefore to be harmonised with the individualism of early capitalism. Trade unionism created a sort of secondary industrial citizenship, which naturally became imbued with the spirit appropriate to an institution of citizenship. Collective civil rights could be used, not merely for bargaining in the true sense of the term, but for the assertion of basic rights ... [yet in the early twentieth century society had]... fully endorsed collective bargaining as a normal and peaceful market operation, while recognising in principle the right of the citizen to a minimum standard of living, which was precisely what the trade unions believed, and with good reason, that they were trying to win for their members with the weapon of the bargain” (Marshall 1950, pp. 40)
social and economic status. Therefore, collective rights or industrial citizenship is defined as a “condition where workers have the right to form and join unions and to engage in actions such as strikes in pursuit of higher wages and better conditions of employment” (Bagguley, 2001). It was clear from Marshall’s definition that industrial citizenship was born out of civil rights and that they were used to gain social rights. Based on Marshall’s theory of citizenship, I am going to explore the labor rights developments of Indonesia, China and Vietnam to see if the sequential developments of rights possess the same pattern as that of the West.
Chen (2007) stated that the sequential development of rights, from civil, political and socials rights that built industrial citizenship in the West couldn’t be used to explain the development of rights in China. He argues that the “institutionalization of collective rights in the West was the basis for the development of institutions of industrial relations and welfare regimes that ensure workers social rights and it rises as a response of the working class to employers.” During the pre-reform era in China, the government gave economic entitlements or ‘social rights’ to the workers, but the civil, political and collective rights were restricted. When the state decreased its paternalistic role, it granted the workers with more individual rights but still fell short in allowing freedom of association or collective rights. In short, the social economic entitlements in this era were ‘given’ by the government, not as a result of workers movement. The government created trade unions, but the essence of collective rights is still missing. Thus, it can be concluded that while civil, political and collective rights in western industrialized nations are the solid base to gain social rights, social and individual rights in China are not related to collective rights (Chen, 2007).
5. Case Studies of Labor Disputes
From the pattern of transformations it can be seen that the major changes in China, Vietnam and Indonesia occurred within the period of 1980s-1990s. This section will go through case studies of labor disputes after the period to illustrate and to compare the industrial relations system in each country in terms of trade unions’ roles, government intervention and law enforcement. It will also seek for evidence of divergence or convergence in their industrial relations systems. The selection of these cases is based on the major cause of labor dispute in the respective countries and the number of workers involved for comparative perspective.
5.1. Indonesian Case Studies
5.1.1 The IA Company (2003-2007)
On July 11th, 2003 one of Indonesian state-owned companies, IA declared a lock out. The plant was closed and guarded by elite Air Force personnel. The CEO enacted a decree stating that the company was closed but it would continue to pay the salary without meal or transportation allowance for 6 months. Within 2 weeks after the lockout, management called back about 3000 employees to continue working (Tempo News, July 2003). This decision added tensions between the union and management and within the union itself, as they questioned the basis for selecting those 3000 employees. They declared the lock out illegal because management did not consult with the trade union and the board of commissioner as required by law. Company’s CEO claimed the action did not constitute a “closing down, lay off, or lockout” but it was a six-month suspension. According to him, the decision was taken because the company had serious financial problems and could not afford operational costs of 9600 employees, while the union recognized company’s performance failure is on the account of bad management decisions. (World Socialist, July 2003).
would consider that they agreed to be laid off (Sulaksono, December 2009). About 3900 employees refused to join this process, because if they participated the company’s decision to the lay-off would be justified. The union reacted by filing a lawsuit against the decision made in the meeting of shareholders on August 19th and the 11th of July decree (Tempo News, February 2004).
The CEO then revoked the 11th of July decree and replaced it with two new decrees: the company would file for permission to dismiss workers to Labor Dispute Settlement Committee for the 3900 employees who refused to join the selection process, and it would conduct a temporary suspension for the 2600 employees awaiting for the selection result (Sulaksono, 2009). Up until January 2004, the bilateral and tripartite mechanism between management, the union and the Ministry of Manpower reached a dead end. The Labor Dispute Settlement committee requested another bilateral meeting and only 718 employees agreed to the lay off. A week later, the committee approved the company decision for the lay-offs (Tempo News, February 2004). The end result is that the company would only employ 3040 employees, and that meant lay-offs for about 6600 employees. The union kept pursuing legal procedures to deem lay-offs and lockout procedure illegal, they appealed against the approval of the committee and it finally won the case in a regional court (Tempo News February 2004). However, the CEO stated that lay-off would still take place, as the company was no longer in a position to offer employment. He also stated that the top decisions of corporation laid in the shareholder meetings, and no ‘third party’ can overrule those decisions (Sulaksono, December 2009; Minardi, December 2009). In March 2004, the company appealed the decision at the higher court (province level) and finally won the case (Tempo News, March 2004).
News, November 2003). The case did not end there, the company ended up only paying the severance on the basis of salary received in 1991, instead of the latest salary scheme the employees had (Detik News, January 2005). The union started to strike again in the Ministry of Manpower, House of Representative and filed another lawsuit against the CEO, due to failure of compliance to what was decided by the Labor Dispute Settlement Committee. The court decided 2 months imprisonment for the CEO, he appealed at the province level but still proven guilty (Detik News, January 2005). During this period, union organized strikes at the Ministry of state owned enterprises wanting the CEO to be prosecuted. The CEO’s lawyers went to the Supreme Court but since the imprisonment was under a year, cassation of this case was not possible. However, the same court declared the CEO not guilty 2 years later but emphasized that IA was still obliged to pay the severance payment as required by law (Harian Sinar Bangsa, June 2007). The union kept striking in various places in Indonesia’s capital city, because the company kept delaying the payment. As a response of this growing militancy, the Ministry of State Owned Enterprises and management promised to settle the debt (Sulaksono, December 2009). Up until 2007, the company still owed the remaining pension and severance payment, and the union went for yet another legal process: declaring bankruptcy of the company. In September 2007, the court declared bankruptcy to IA, but the decision was annulled in the Supreme Court. In the end, the growing strike and the courts decision to declare bankruptcy of the company caught the attention of the Indonesian Vice President and he finally instructed the company and Ministry of State-Owned Enterprises to pay the remaining severance (Indosiar, October 2007). After 4 years of struggle and countless strikes, the employees finally received the full severance payment.
5.1.2 The Multinational Company in Indonesia (2007-present)
procedures were done by December 7th, 2008. The union sent management a proposal for collective labor agreement for the year 2008-2009, but still received no response (IUF document, 2008).
Later in that month, management had a meeting with 9 union members and they formed a new union called the Labor Communication Forum (FKB). The members of SB was forced and intimidated to resigned from the SB and join the new union. The SB’s officials argue that they had proof showing that the FKB is a union ‘formed’ by management. On December 14th, 2007, the SB sent the management an open letter to stop ‘breaking up’ the trade union as it was against Law no. 21 of 2000. Management responded by asking the union to submit the draft of the collective labor agreement and asked the provincial labor office to do another verification of the legitimacy of the SB. This time the registration number of the union was revoked. In order to sustain the union, they held an emergency assembly on December 30th, but the day
According to the SB, the company has clearly violated the ILO conventions and the Law no. 13 of 2003 concerning freedom of association and collective bargaining. In order to preserve their rights, the union has gained contact and support from the company’s employees around the globe and the international organizations, such as the International Union of Food, Agricultural, Hotel, Restaurant, Catering, Tobacco and Allied Workers’ Association (IUF). The president of the IUF has sent a letter about this case to the Head of National Contact Point of the company’s country of origin, stressing that the company has violated OECD guidelines on respecting employees right to be represented by a trade union, providing information for meaningful negotiation on conditions of employments, and promote a co-operation between employers and employees (The OECD guidelines require the subsidiaries of transnational companies to fully adhere to international labor and human right standards). The trade union’s president also stated that the help from international organization has put pressure on the company. They are it now willing to negotiate on wage scales but still trying to force the employees to join the management backed union. Although no workers were fired due to this case, the trade union’s president mentioned that some of the union’s members were transferred to other factories and were threatened with lay-offs. Up until this writing took place, the SB is still going on campaign against the management through media and continues to negotiate with management.
5.2. Chinese Case Studies
5.2.1 The LF Company (2002)
corruption and collusion between managers and government on a bankruptcy deal designed to enrich them at the expense of the workers. Those workers who were laid off couldn’t get their retirement benefits. These workers were supposed to receive monthly stipends, social insurance guarantee from the government, compensation and relocation payment, housing subsidies and medical reimbursement. All of these benefits including wages were not paid. By March 2002, lower level managers and machine operators were owed two years of wages, and former senior workers and technicians were owed seven months of wages, despite a pledge from the city government to cover at least 50 percent of unpaid wages by the end of 2001. The workers argue that this liquidation process was illegal, because according to the Chinese Bankruptcy and Enterprise Law, all debts must be settled prior to liquidation (UNHCR, 2002).
As a result, many dissatisfied workers formed an independent union, which was prohibited by the government. This was because several attempts to gain support from the ACFTU were not successful. One of the central demands of the workers was the investigation of malpractice and misappropriates use of funds that in their point of view led to the bankruptcy of the company. Union representatives wrote letter to the President and Communist Party Secretary, Jiang Zemin, and sent delegations to the local and national government departments asking for an appropriate investigation of the financial mismanagement at their factory but the letter remained unanswered. At this point, the independent union decided to intensify the public campaign, they posted flyers explaining the suffering of the workers and the leader’s speech were broadcasted in the media. They immediately gained support from other troubled state owned enterprises, and on March 2002, about 10,000 workers marched to the court demanding to talk with the chief judge about corruption in the city and also demanding the resignation of the mayor, who claimed that the city government could guarantee monthly payments for living expenses and the same mayor who helped engineer the company’s bankruptcy plan. It was reported that the LF workers were well organized, they insisted to take only lawful actions while striking and they also had representatives to negotiate with the government (Leung, 2008).
independent union. 30,000 workers demonstrated in the city and rallied at the city government building demanding them to be released. In response, more demonstrators were arrested. The workers held off their demonstrations for two months because they were told that the case would be resolved more easily that way and the leaders would be released if they did so. It turned out to be empty promises as the leaders were put on trial. The workers responded by filing a lawsuit charging the company, the local government and the police for unlawful arrest and wrongful termination of employment but the prosecutor’s offices rejected it because it was not specific enough (Leung, 2008).
With the detainment of their top-tier leaders, independent union began to fall apart under the pressure of police officers and their solidarity was destroyed. In order to stop the protests the government used some tactics: yield some economic demands while destroying the independent union. Nearly all-outstanding medical expenses and half of the salaries were paid. The factory manager was finally arrested for corruption (Leung, 2008). The final outcome of this case is that the authorities were successful in destroying the movement and the independent union using suppression, and although some of the workers’ economic demands were met, the union leaders were imprisoned for years.
International pressure to comply with the conventions of the ILO, such as the freedom of association and collective bargaining, has not been successful. In one of the ILO conferences, the Chinese government stated that those leaders were detained because they had broken the Chinese Law by carrying-out car burning and not because he had organized a workers’ campaign. The government also stated that the workers had created sabotage and activities of terrorism; while during an interview with the local government officials, there were no car-burning incidents reported (Leung, 2008).
5.2.2 The CE Guangzhou Strike (2008)
