Labor law reform in India: insights from tangled legacy of Sidney & Beatrice Webb.

AuthorKaufman, Bruce E.
PositionBy Invitation - Abstract


India posted an impressive growth record after economic liberalization in 1991. A slow-down during the world financial crisis of 2008-2010 was expected but so too was a rebound once the crisis passed. The crisis is now four years over but the growth recovery for India is disappointingly anemic. A number of analysts inside and outside the country conclude growth is obstructed by structural problems. Illustratively, IMF Report (2014:19) concludes, "There is consensus that structural reforms are going to be the lynchpin of an eventual rebound in growth". Five key areas of structural reform are listed: (1) power and natural resources, (2) agriculture, (3) health and education, (4) investment climate, and (5) labor regulation.

The IMF report is tactful and frames these structural problems, not as government failures of the past, but as agenda items for swift legislative action going forward.

Other analysts, however, are far more critical and say these problems have been allowed to fester and worsen because, rather than take liberalization the next step forward, Indian governments of the last decade have reverted to "the old recipe of social spending and industry mandates ... and granting massive new entitlements" associated with "Nehru's turn to Fabian Socialism" in India's post-Independence era (Dalmia, 2014: 1-2). In a similar vein, the press in India is starting to wonder if the economic miracle is returning to the more anemic 'Hindu rate of growth' which Das (2006:2) explains, "had nothing to do with Hinduism and everything to do with the Fabian socialist policies of Prime Minister Jawaharlal Nehru". A well-known America labor law professor, having recently returned from a trip to India, also puts the finger of blame for India's growth problems on failure to jettison the "hopeless forms of Fabian Socialism that Jawaharlal Nehru, India's first prime minister, brought into public life between 1950 and 1990" (Epstein, 2014: 2).

The failed policies associated with Nehru and Fabian Socialism provide a natural segue into the implications for labor law reform of the seminal writings of Sidney and Beatrice Webb, two of the founders of not only Fabian Socialism but also the field of industrial relations (Cole, 1943; Harrison, 2000; Kaufman, 2004).Many observers believe that Indian labor law is increasingly out of date, complex and burdensome and poses a structural impediment to sustained economic growth (VenkataRatnam, 2004; Hill, 2009; Saini, 2009; Krueger, 2013). But, as cited above, a number of analysts also believe that the policies and practices historically associated with the industrial relations field, particularly as it came from Britain and Fabian Socialist writers such as the Webbs, are part of the source of the labor regulation muddle.

This article tries to sort through parts of the Webbs' writings with enduring value as guides for industrial relations and labor law reform and parts of which have been shown incorrect or harmful by historical experience. Analogous to the idea of Freeman & Medoff (1984) that trade unions have two faces--a positive voice face and a negative monopoly face, it is argued that the theory of the Webbs also has two faces, a positive industrial relations face and a negative Fabian Socialism face. The paper briefly identifies and delineates these two faces and then applies them to working-out useful principles for Indian labor law reform. Since much of the existing IR and labor law literature in India is descriptive and empirical, introducing a stronger conceptual element may be helpful for both the endeavors.

American & British Influences

Industrial relations started in the late 19th and early 20th centuries as an Anglo-American project among reform-minded academics broadly linked to a social-institutional approach to economics, albeit with a clear link to Germany and that country's tradition of historical economics and active social policy (Kaufman, 2004). Industrial relations was a response to the growing labor problem and attendant class-conflict in late 19th century industrializing countries and was positioned as a middle-way solution between laissez-faire orthodox economics and revolutionary Marxist-radical economics. These Western ideas on a middle way solution to the labor problem became a uniquely Indian third-way approach when integrated with the Gandhian philosophy of industrial harmony and self-government (Bose, 1956).

The concept of industrial relations and its formalization as a field of teaching and research in universities appeared first in the United States in the late 1910s under the leadership of Richard Ely and John Commons, institutional economists at the University of Wisconsin. The industrial relations term in early American usage was a short-hand for 'relations between employers and employees in industry and, hence, at its beginning industrial relations was conceived broadly as the study of the employment relationship and the labor problems which grow out of it. Illustrative of this broad focus, IR textbooks often used 'labor problems' in the title (e.g., Labor Problems in American Industry, Daughtery, 1933) and featured chapters on personnel management, trade unions, labor law, social insurance, and national labor policy.

In Britain, Sidney and Beatrice Webb are widely regarded as IR founders (Hyman, 1989; Ackers & Wilkinson, 2003). They also founded the London School of Economics (LSE) in 1895. Their seminal contributions, however, were not to launch the IR field itself labor studies was not part of the early LSE curriculum and IR as a constituted field of study did not emerge in Britain until the late 1940s--but to initiate the study of organized labor as a legitimate topic of scholarly inquiry in England. The Webbs' most famous books are History of Trade Unionism (1894) and Industrial Democracy (1897). They also wrote on other labor topics, such as the poor laws and labor conditions of women, but labor law and personnel management were peripheral to their research agenda and remained so in the British IR field until the 1980s.

The subject of industrial relations in Britain started out, therefore, more union-centric than in the USA and also substantially to the left in the political spectrum (Hyman, 1989; Ackers & Wilkinson, 2003; Kaufman, 2014). The Webbs, and their intellectual successor G.D.H. Cole, were proponents of democratic socialism and, from experiences such as World War I and the Great Depression, became increasingly outspoken critics of capitalism. The democratic socialist and leftist Labor Party leaning of British industrial relations continued after World War II, albeit moderated by the Cold War chill of anti-communism, and found expression in the Atlee government's Fabian-inspired program of nationalization of key industries, industrial democracy through widespread industry-level collective bargaining, steeply graduated income and estate taxes, and extensive welfare state social programs (Hinton, 1983). This economic growth model, attractive in theory and appealing to anti-capitalist sentiments widespread at the time, proved debilitating in practice and by the 1970s Britain declined to the unenviable status of 'poor man of Europe.'

As an organized area of teaching and research, the early field of industrial relations in India has in some visible ways more affinity to the American model than the British. For example, the organizing concept of labor problems for the study of industrial relations was widespread in America but not Britain and in India the term found frequent use (e.g., Agarwala, 1947; Mehrotra, 1965). Also, Indian writers followed the American model and included within industrial relations the full range of topics related to labor problems and the employment relationship, albeit with more emphasis on collective than individual relations (Seth, 1966). Giri's textbook is illustrative since it includes separate chapters for personnel management, labor law, social insurance, trade unions, and national labor policy. Also illustrative are early issues of Indian Journal of Industrial Relations which contain articles on all areas of the employment relationship, including labor law and management. By way of contrast, the range of topics in early issues of the British Journal of Industrial Relations is noticeably narrower.

America has one of the least regulated labor markets among advanced industrial countries and yet India has, by most accounts, much the opposite with a highly complex, bureaucratic, and protective regime of labor law (Debroy & Kaushek, 2005; Venkatta Ratnam & Verma, 2010). One has to conclude therefore, that while the American model may have to some perceptible degree influenced the formation of industrial relations in India as an academic field of study, its influence on the regime of IR institutions and labor laws actually put in place in India pales next to the influence of Great Britain (Kennedy, 1965). Not surprisingly, therefore, one of the imports from Britain--most visibly and influentially brought back by India's first Prime Minister--was the democratic socialist economic development model espoused by intellectuals and political leaders associated with the Fabian Society, British Labor Party, and other left-leaning groups (Narayan, 1964; Nanda, 1996).

Nehru spoke often and eloquently on his desire to steer India toward a democratic form of economic planning and market socialism which was positioned between American-style capitalism and Soviet style communism (Akbar, 1990). The exemplars of the period, from which he gained inspiration on his extensive foreign travels throughout Europe in the 1910s-1940s, were countries such as Britain, France and Sweden which moved toward nationalization of core industries, five year economic plans with state directed investment, national labor movements, social welfare states, state bureaucratic regulation of business, steep income, wealth, and estate...

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