Trade Unions: Time for Businesses to Recognize the Economic Win

T K Arun

There are two aspects of unions and their work that employers in India would do well to focus on. Their role in bridging the wide gap between enterprise-level rationality and economy-wide rationality. On completing Indian society’s stunted modernization, which depresses the quality of workforce.

This is a time when the sales of entry-level cars and low-cost housing are down, while SUVs and posh villas sell briskly. Fast-moving consumer goods companies find they have turned into slow-moving consumer goods companies. This is the right time to appreciate the economic utility of trade unions.

There was a time when it made sense for the capitalists of the world to unite against trade unions. The working class had been cast in the role of ‘grave diggers of capitalism.’ Unions were what converted hapless toilers into an organized class. The party that carried out the Russian Revolution was the Bolshevik (or majority) faction of the Russian Social Democratic Labour Party. It was quite the fashion for all radical movements in the rich world to carry the tag, labour. Hitler’s party was, of course, the National-Socialist German Workers’ Party.

The world has changed. The Russian revolution proved to be little more than a self-destructing instrumentality of that country’s modernization. The Chinese revolution has yielded a thriving capitalist economy, albeit one devoid of democracy. A revolving door at a hotel entrance is noticeably more revolutionary than Britain’s Labour Party or Germany’s Social Democrats.

Unions in the rich world play the role of propping up effective demand in the economy. They ensure that workers are decently paid, are spared the arbitrary whims of management and enjoy, in full, the capitalist contract that the worker is a free agent outside work hours and that the only hierarchy they are subjected to is the functional hierarchy at the workplace, necessary to keep things moving efficiently.

In Japan, unions play a big role in boosting productivity as well. Corporate managements there, in the early years of the post-War recovery, took on board American advice on constantly improving quality far more seriously than American industry did, and used workers and their organisations to crystallise insights from the shopfloor on how to do things better, and translate them into companywide policy.

Modern manufacturing units achieve rejection rates in the low two digits, say 20 parts per million in the case of fasteners. It would probably have to be even lower, say in the case of whatever holds an airplane door plug in place. Such standards are not achieved by those who work under duress, cursing their low pay, work conditions and nasty boss. High quality work comes from workers who enjoy what they do, find self-actualisation at the job.

In some service sectors, such a work environment might be created by enlightened HR practices. In manufacturing, unions give workers the self-assurance and dignity needed to achieve high quality. What kind of a workforce you choose to develop depends on what kind of ambition for quality you have for your output.

There are two aspects of unions and their working that employers in India would do well to focus on.
• One is their role in bridging the wide gap between enterprise level rationality and economy-wide rationality.
• The other is on completing Indian society’s stunted modernisation, which depresses the quality of manpower.

At the enterprise level, workers are a cost. The lower the cost, the more profitable your operation – that is the normal logic. However, one employer’s workers are the market for the output of other employers. If it is rational for one employer to squeeze his workers’ income to the lowest minimum possible, that shrinks their purchasing power, crimping their ability to buy the output of industry in general. If all employers squeeze their employee costs to the minimum, every producer suffers from deficient demand.

This is similar to the tendency for everyone to cut back on consumption during an economic downturn, creating a vicious cycle of recession. At the level of the economy, for demand to pick up, people must consume more, not consume less.

In an economic downturn, the gap between microlevel rationality and macrolevel rationality is bridged by government expenditure, to boost aggregate demand, speed up economic activity and encourage people to spend more. In normal times, the gap between enterprise level rationality of minimising wages and the macroeconomic rationality of boosting demand is bridged by unions, who force employers to increase their workers’ salaries. So long as they stay within the margins of viability, everyone gains.

Workers need income and leisure for the economy in general, including the segments catering to entertainment, ranging from song, dance and movies to sports, books and travel, to thrive.
Unions are a force for modernisation. It was in recognition of this that Gen Douglas MacArthur, as head of the Allied Occupation of Japan, made unions a part of post-War Japan’s industrial and legal infrastructure: he wanted to make sure that the Samurai-militarist culture would never come back.

The caste system is designed to breed excellence in a tiny segment of society, while keeping the vast majority intellectually and culturally stunted. The modern knowledge economy calls for inquisitive, creative minds all around, not just in a few, elite heads. A unionised society would breed modernity, apart from other things.

Capitalists should see unions as something akin to their conscience: your relationship with it might not always be comfortable, but you are better off with it, than without it.

TK Arun is a senior journalist based in Delhi.

The article was first published in The Economic Times as This is the right time for companies to appreciate economic utility of trade unions on January 09, 2024.

Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organization.

Read more at IMPRI:

Truckers’ Revolt: Deciphering the Colonial Residue in Indian Policing

Understanding the Turbulence in West Asia: What happened in 2023 and what lies ahead of 2024?

Acknowledgement: This article was posted by Ritika Sen, a research intern at IMPRI.