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Some commentators believe that globalisation will lead to a convergence of industrial relations systems across developed market economies. Others think that national differences will persist, or that there will be more complex patterns of convergence and divergence. Explain the reasoning behind these arguments and outline what you think will happen. Discuss your answer with reference to changes in industrial relations that have occurred in at least two countries studied in this unit.
The impact of globalisation on the world economy and its effect on different aspects of social, organisational and political fields appears to be a key focus of research across a variety of academic disciplines over recent years (Giles, 2000; Radice, 2000, Leisink, 1999). The effect of globalisation on Industrial Relations (IR) systems across developed market economies has led to a debate on whether the patterns of IR systems in these economies are converging or diverging, or whether in fact, these patterns may not be so distinct, leading to some IR practices diverging and others converging between countries. A number of approaches have developed to explain these differing views: the globalisation approach, the intuitionalist approach and the interaction approach (Lansbury et.al, 2003). This essay will explore the reasons behind these approaches and the convergence-divergence debate, and provide justifications for the debate with reference to the changes in IR practices in three countries, Germany, a key member of the European Union, and two of the world's largest economies, Japan and the United States of America (USA). Add sentence on what aspects of IR will be studied.
Globalisation can be defined as a "process of increasing global connectivity, integration and interdependence in the economic, social, technological, cultural, political and institutional spheres" (Philips & Eamets, 2007, p.5) and it is a "driving force" in global economic development. The economic aspects are the most visible and important ones, and are associated with increases in cross national trade in goods and services, flows of foreign direct investment and the growth of international financial transactions (Wade, 1996, Philps & Eamets, 2007). A number of academics have claimed that globalisation has given rise to a common set of pressures across all markets, which may impact on IR (Kirsch, 2010), and different sets of institutions will manage these pressures in diverse ways (Bray & Murray, 2000; Hall & Soskice, 2001; Wailes, 2006).It has been argued that if IR systems don't change with the globalising world economy, there is the risk that companies will relocate their production to countries with lower labour costs and less regulated labour markets (Philips & Eamets, 2007). The rise in multi-national corporations (MNC's) and the "off-shoring" of operations to developing countries in recent years are examples of this effect.
A number of approaches have developed to explain whether IR patterns are converging or diverging as a result of globalisation. The globalisation approach to IR supports the convergence debate and argues that the economic changes and interdependence between countries are likely to encourage similar business and strategic approaches of individual companies, and national labour practices and standards in a "race to the bottom" and deregulation of labour practices (Lansbury et.al, 2003; MacDonald, 1997; Hall & Soskice, 2001). For example, if a major motor vehicle manufacturer is able to reduce its production and labour costs through the implementation of more effective technology and systems, if competitors don't follow suit, they will be unable to maintain their place in the global market, thus, convergence of practices are, to some degree, forced.
On the other hand, the institutionalist approach argues that national institutions have a role in mediating and refracting global economic pressures and maintaining cross national differences, based on national and regional circumstances (Lansbury et.al, 2003; Macdonald, 1997), and not just purely economic factors. A number of factors such as the strength of IR actors within the national system, cultural, social and historical forces all impact on how global economic pressures impact IR systems. The effect of globalisation on IR procedures and their outcomes depends on the conditions under which IR take place within a country. As an example, the growing pressure for flexibility in the use of labour is universal, but how this is implemented is constrained by cultural norms, historical circumstances, resources and other internal political dynamics (Thalen & Winjnbergen, 2003). For example, the global trend is towards decentralisation of IR, however the Korean auto industry has become more centralised Lansbury et.al, 2003).Thus, as no two countries or regions are identical in these regards, this may lead to convergence in some aspects, and to a divergence of IR patterns across countries or within companies, as IR institutional arrangements of IR systems vary widely (Ostry, 1997).
The International Labour Organization (ILO), which operates under a tripartite structure of governments, employer organisations and unions, has attempted to promote convergence, through the setting of Conventions and Recommendations which set international labour standards (Mills et.al, 2008), however the lack of monitoring of the implementation of these conventions in the member countries, has meant that convergence has not necessarily eventuated.
The convergence-divergence debate will now be explored through examining some key IR functions and general trends in these areas with reference to three countries chosen. Due to the limited scope of this essay, four key IR functions have been chosen as a focus, which are union membership and density, collective bargaining patterns, employee participation and co-determination as well as the role of Multi-National Corporation's.
Union membership and density is one area of IR that has shown a pattern of convergence over recent years among a large number of developed market economies, including Germany, Japan and the USA. Trade union density, that is, the ratio of total number of union members in paid employment to total number of wage earners in the country, has been declining steadily (Van Gyes et.al, 2007) In the USA, unionisation levels have always been lower than the global average, and in 1993 and 2005 the density rates were 20.1% and 12.5% respectively and Japan's rates have also been declining steadily from around 35% in the 1970's to 20% in 2002 (Philips & Eamets, 2007; Carley, 2004; Dolvik, 1999). German union membership rates went through a significant increase at the time of unification in 1990, but since this time have followed the trend of slowly declining numbers (Keller, 2004). However, in some countries, such as the Nordic countries, union density remains relatively high as a result of support from employers and governments to join unions, as well as the other benefits that unions administer, for example, unemployment benefits in Sweden (Hammarstrom et.al, 2004). Although there has been convergence among a large number of countries in regards to declining union density, the variation in trends shown in Nordic countries as an example, supports the debate for divergence of IR patterns, despite global pressures (Blanchflower & Freeman, 1992).
The trend towards the consolidation and amalgamation of trade unions to form larger "mega-unions" and union organisations, has been an attempt to oppose the decline in union memberships (Kauppinen & Pochet, 2002; Deery et.al, 2001), through increasing their economies of scale. In Japan, the Japanese Trade Union Confederation (RENGO) is the biggest of the main trade union organisations, organizing approximately 64% of all unionized workers (Carley, 2004).In the USA, although for some time they had only one main national trade union organisation, the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), in 2005 this split into two organisations, and the Change to Win Federation was formed (Philips & Eamets, 2007). In Germany, the DGB is the one dominant peak federation comprised of 8 multi-industry unions, with varying degrees of representation. However, the benefit of these mega-unions for addressing the decline in union membership is still being debated, so whether this pattern continues to show a degree of convergence, or perhaps diverges in the future through break-ups of these mega-unions is yet to be seen.
Despite differences among countries, Unions are, in reality, fighting against the trends of modern society, resulting in the above changes. Trade unions face common challenges such as membership rates, what services to offer their members and how to use their resources cost effectively. In many countries, the public sector and manufacturing industries comprised a significant percentage of trade union members (Deery et.al., 2001). Due to the pressures of globalisation and the structural and economic changes in a number of countries, there has been significant growth in the services sector, where workers are less likely to join trade unions, and declining manufacturing sectors (Philips & Eamets, 2007; Ryan et.al, 2004). The privatisation of a number of public enterprises globally, has also reduced the typical union membership bodies, as traditionally public sector employees have a higher rate of union density than private sector. The change in employment patterns around the world has also placed increased pressure on unions, as the number of people in full-time, permanent employment is decreasing, and the number of self-employed people is increasing, and therefore the pool of potential union members is decreasing (Kauppinen & Pochet, 2002; Deery et.al, 2001; Philips & Eamets, 2007).
The role and pattern of collective bargaining is an essential aspect of industrial relations regimes, and national structures differ very widely in terms of the level and coverage of the bargaining and the content of the bargaining (Carley, 2004; Traxler & Kittel, 2000). Coverage rates of collective bargaining are influenced by the degree of centralization and modes of co-ordination between the bargaining partners and the nature of collective bargaining with countries (Ostry, 1997). Collective relations have weakened in countries such as the USA and Japan, which is linked to the decreasing rates of unionsation discussed above (Eurofound, 2006; Sweeney, 2007).
Decentralised collective bargaining structures, predominantly based on company or branch level agreements, such as those present in both Japan and the USA, result in coverage rates that are similar to the rates of unionisation (Eurofound, 2006). In these countries, and many other Anglo-Saxon countries, sectoral or intersectoral bargaining is very rare. This has not always been the case in the USA, as in the post war era, pattern bargaining and multi-employer agreements were common (Carley, 2004), however the move away from this to the more decentralised model of bargaining provides support for the convergence of IR practices debate. On the other hand, Germany and many other European Union countries demonstrate more centralised collective bargaining practices which are centered around industry or sectoral wide agreements and multi-employer bargaining (Mayer & Schweissheim, no date; Martin & Bamber, 2005). Evidence has shown that bargaining coverage in Germany is declining, and as a result there has been an increase in 'extensions' allowing companies to diverge from collectively agreed standards (Muller, 1998), which indicates signs of a slow move towards decentralization, and thus some convergence to the practices of Japan and USA (EIRO, 2009). However, in Japan, although enterprise bargaining is the norm, bargaining strategies for the annual "Shunto" negotiations are coordinated by employers associations (Carley, 2004), which positions Japan somewhere in the middle of the bargaining practices of USA and Germany, and thus provides backing to the divergence debate. As can be seen from the discussion on collective bargaining, there are patterns of both convergence and divergence in IR systems across countries.
Another critical aspect of Industrial Relations is employee participation and co-determination. Employee participation is "the involvement of workers in decision making. Employee participation can take either a representational or direct form" (BNET, 2010). Co-determination is "a practice whereby the employees have a role in the management of a company" (Wikipedia, 2010). The main benefit of employee participation and co-determination is that is aims to reduce the conflict between employees and management, by improving communication channels, and by providing a feeling of a degree of empowerment. In Germany, as well as a vast number of other EU states, and increasingly China and India, employee participation and co-determination is common practice and enforceable by law (Carley, 2004; Philips & Eamuts, 2007). In Germany, Works Councils can be present in companies with more than 5 employees, and consist of a group of elected employees who do not necessarily need to be members of a union, and these Works Councils act as intermediaries between employees and employers, to discuss national agreements and decisions concerning employee status and rights (EIRO, 2009; Keller, 2004; Mayer & Schweisshelm, no date). As well as this, in Germany, companies with over 500 employees must have representation on the supervisory boards, with the proportion of employee representatives varying from one third to one half, with the chairman exerting the final vote (EIRO, 1998).
In contrast, the situation of employee participation and co-determination in the USA and Japan is very different, as there is no legislation to provide for the development of Works Councils or board-level employee representation. In fact, in the USA, the National Labor Relations Act actually prohibits the formation of non-union employee dominated labour organisations that address the terms and conditions of employment, including pay, training, rewards and workloads (Philips & Eamuts, 2007). However, a number of the larger employers encourage some form of employee involvement informally, whether it be through the development of problem solving teams or quality circles (Carley, 2004). In Japan, there is a high level of employee-management cooperation in the form of a permanent structure, despite the fact that there is no legislation regarding employee participation at company levels (Carley, 2004; Philips & Eamuts, 2007). In a large number of Japanese companies, combined employee and management committees consult on issues relating to management, working conditions and welfare programs. In 2004, "37.3% of companies employing more than 30 workers had such consultation structures in place and up to 80.5% of unionized establishments had introduced such systems" (Philips & Eamuts, 2007, p.28). The trend towards increasing levels of employee participation across the examples given, despite the lack of legislation in some countries, suggests a pattern of convergence in this aspect of industrial relations, which may have been contributed to by the rise of MNC's in the process of globalisation, and the transfer of employee participation practices across countries (Singe, 2005).
The rise of Multi-National Corporations (MNC's) and the rise in outsourcing to other countries in recent years have been some of the most significant results of the globalisation process. Many debates have arisen as to whether home countries transfer their IR systems to host countries, thus supporting convergence, or whether MNC subsidiaries adapt their practices to local circumstance and maintain their own IR practices, thus promoting divergence (Muller, 1998; Allan et.al., 2003). A large body of research indicates that the IR practices of MNC's tend to be modified and adapted in the host country (McGraw & Harley, 2003; Muller, 1998; Singe, 2005), thus indicating, that overall, IR practices are diverging. For example, Wal-Mart, a US-owned company entered the German market in 1997 through the acquisition of existing companies, and although Wal-Mart is virtually union free in the USA, it decided to adhere to both the German legislation, which was a requirement, as well as the national customs, such as continuing works councils etc. Wal-Mart, HP and Microsoft have also all avoided the collective bargaining institutions (Singe, 2005). This is just one of the many examples of how the rise of MNC's has supported the divergence debate, by demonstrating that host country subsidiaries of MNC's tend to modify their practices to meet local customs.
The examination of the key IR aspects discussed above have shown that the effects of globalisation have led to the divergence of some IR practices across countries and regions, and the convergence of others. As countries in different world regions differ significantly in terms of their culture, history, society and economy, the IR patterns that are seen as "best practice" in some countries, may not work in other countries, and as such they are modified to fit their particular context (Philips & Eamets, 2007; Mills et.al, 2008). Thus, the impact of globalisation differs between countries, and results in similar issues and pressures for policy makers, yet lead to different IR responses and outcome (Frenkel and Peetz, 1998). I believe that convergence and divergence of Industrial Relations patterns are not mutually exclusive and that the convergence of some practices and divergence of others will continue, particularly with further growth of MNC's and outsourcing of production and services to less developed countries. I believe that there will continue to be divergence in IR practices, as globalisation will have different effects in countries that are heavily dependant on exports to those with large domestic markets, but that there will also continue to be a convergence of IR patterns needed to deal with global trends such as changing employment patterns, migration levels and minimum wage standards. Also, if the ILO is given more power to enforce its conventions, and to assist developing nations with the development of their IR systems, this may lead to further convergence of IR practices across the globe. Globalisation and its effect on Industrial Relations is extremely complex, and needs to account for so many factors, and as such, I do not think it will be possible for there to ever be total convergence or total divergence of IR practices.