Essay: Impacts of global capitalism and internationalisation of economic activity

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  • Impacts of global capitalism and internationalisation of economic activity
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This essay will examine a range of impacts of global capitalism and the increasing internationalisation of economic activity for labour in a comparative perspective looking atChina and India. Globalisation is a popular term that is so often heard, but what does that actually mean? Globalisation generally refers to the process of unification that has taken place in markets consumer tastes, mobile investment capital, and rapid spread of technology (Brewster, 2015). Scholte (2000) noted that a multitude of partial, divergent, and often contradictory claims surrounds the concept of globalisation (Robinson, 2004). Globalisation process can be uneven and affect countries in different ways that is because countries’ economies have their own distinctive economic systems. Yet, the dominant economic system is capitalism, and due to the globalisation process parts of capitalism like the profitability, the market competition and the securing a political and economically suitable labour supply is quickly becoming central to the global social capitalistic system. Capitalist globalisation creates new forms of transnational class alliances across borders and new forms of class cleavages, both globally and within the national class structures(Robinson, 2014). Global capitalism had a big impact on national economic systems as they become linked through trade and the international activities of firms and governments(Morrison, 2011). Even though globalisation has a big influence on the economic trends in countries it does not mean that countries adopting exactly the same capitalist model. Chinese capitalism represents the complexity of understanding the nature of institutions and change (Hammer, 2014 ). China now embraces capitalism as an economic model, but it is still controlled by Communist party and the authority and influence of the state are still powerful. Globalisation opened up doors for foreign investment and MNC’s, and that is affecting China’s employment relation trends. It also had similar outcomes for India’s economic growth. India’s market economy is now closer to a genuine market economy, it also retains the legacy of the strong state. According to Srinivasan (2003), both countries followed similar developmental strategies and those strategies had a big impact on successful economic growth. Both countries are often compared because of their fast development and similarities in nature of that development. It is also true that both countries are completely different and also took different routes for economic development and the changes in economic systems are affecting the local labour market in different ways. It brings both opportunities and disadvantages for trade unions and worker.

Chinese liberalisation started in the 1970s. Reforms focused on reinforcing the market processes without formally having to forego the political ideology of state control. In 1992, the Chinese government introduced labour contracts, performance related pay and social insurance reforms, but one of the most significant reforms for employment relations was introduced 1994. Some could say that the ‘iron rice bowl’ was finally broken, and the Labour Law was enacted and trade unions gained autonomy from the state. The State-Owned Enterprises (SOEs) could not hire anybody on permanent contracts and switch temporary or contract workers to permanent status. Even though now trade unions in China are present for a couple of decades, Chan, Ngai and Chan (2010) points out that workers’ rights of the strike, association and collective bargaining are still absent. (Fisher, 2003). China’s economic model still highly states dependent, but the new economic model has featured an opening up to foreign investors and greater economic freedom for individuals. Before labour reforms in China the government agencies performed the labour allocative and pricing functions; in that sense ‘labour market’ was absent (Knight and Song, 2005). The workers had little to no choice and been highly dependent to the enterprises to which they were allocated. Chinese government adopted strategy known as “seizing the large and letting go of the small”(Liu et al., 2006). China kept big sectors such as banking from privatisation but opened up a free way for liberalisation in other sectors. After the reforms that China implemented the state’s economy grew dramatically and now is the second largest economy in the world. China’s focus on rapid economic growth based on investment and exports, at the expense of wages and consumption, while controlling most aspects of political expression. Extensive regulations and vast bureaucracy exists at the national level and local level with political and economic interests fused together across all levels. (Hammer, 2014)

Zhu (2003) argues that there is evidence that SOEs have gradually adopted more Western style HRM practises over time. However, according to Law et al. (2003), SOEs still operate like government agencies, and most HR practises designed to ensure that decisions are politically correct. Because China is highly focused on providing productions that out-compete other systems, the dormitory labour regime is still highly dominant. Even though it changed due to global capitalism, the dormitory labour regime still represents powerful labour management regime. Ngai and Smith (2007) argues that because this regime mainly available for single workers for short-term employment, it allows continues access to flexible labour it creates difficulties to increase wage standards. Even though labour in China arguably has been given more say, dormitory regime massively weakens labour power. Due to China’s low wage rates and weak labour laws, it attracts a lot of global corporations. Global capitalism significantly increased China’s economic growth, increased employment rates and reduced poverty significantly. It had a major impact on labour and labour rights, but it is still quite undeveloped. Low paid workforce with minimal labour rights and little to non-collective bargaining power is still the reality of Chinese labour regime. Anita Chan (2001) describes China’s workers as being metaphorically, and often literally, ‘under assault’ because of the trends that come from globalisation. Even though China introduced Employee Contract law in 2008 that created a policy that encouraged collective consultation over wages and working conditions, employees are still restricted and cannot form their own trade unions, and strike rights are limited too. The industrial wages of Chinese workers are rising slowly now, but without freedom of collective bargaining, it is unlikely that wages will improve significantly any time soon. The speed of economic growth led China with great demand for educated workforce. One of more positive “side effects” that state supports management development and training is accompanied by more emphasis on training in foreign firms.(Gamble,2003 in hammer 2014)

Talking about India’s economic reform, we should mention that it began in 1990. It respectively faced less dramatic change in economic structure and labour reforms, because small private sector always existed in India. Capital markets have been liberalised, a takeover code adopted in 1994, governance norms and practises were moving towards improvement. The big changes came after elections in 2014 when Narendra Modi was elected as Prime Minister. Reforms under Modi that were implemented on the national level was: allow more than 50% foreign investment in railways, allow foreign investment in construction projects and open the coal mining sector to foreign/private investment. The regulation implemented by Modi increased GDP growth significantly in India, but there are some reforms that still hasn’t been implemented on the national levels, like the unification of national tax on goods and services and remote state-mandated minimum prices for agricultural goods. India retains strong state position to licence/permit regime b
ut has become more welcome to foreign investors. In contrast with China, India focuses more on societal aspirations and goals. Both countries focus on the growth of the economy and the state rather than focus more on societal aspirations.

The Economist (2008) described India and China as “economic miracles”. Chinese growth, supported by skilled mass labour force and strong infrastructure, India remains very weak in these areas. (Economist 2008) India’s new economic shift included deregulations, deindustrialisation, the rise of services, new reforms of “flexible” work and employment through offshoring (Martin 2007 in James and Vira, 2009). India’s companies have expanded globally and became important players in IT and outsourcing sectors (Morrison, 2011). It is often highlighted that India is slowly moving from cheap labour to high technology sector. However, poor infrastructure in India, social tensions and bureaucracy remain obstacles for potential foreign investors. There is continuous informalization of work in India and the expansion of the informal sector despite the globalisation trends. Sharma (2006) illustrates the dramatic employment shift form permanent to temporary or casual employment, and the systematic transfer of jobs from the unionised category.

The government is under pressure to introduce “hard” labour reforms such as privatisation, amendment to ID Act to relax the regulations governing retrenchment and closure and to liberalise contract labour law. But trade unions have been vocal and have succeeded in stalling these reform measures. Trade Unions in India has significantly better legal protection and rights than China. The Trade Unions Act was introduced in 1926, and it states that all workmen have the right to form a union or refuse to be a member of any union.

Historically the functions of trade unions were limited to collective bargaining for economic consideration, some argue that now trade unions play a major role in employee welfare activities. Trade union and employment rights have been reduced in many countries, that also reached India. This globalisation dynamic of longer working hours and higher labour participation rates has an impact on wages and the employment security. Some argue that reforms in India weaken previously powerful trade unionism and employees bargaining power. Hammer (2014) argues that new model of unionism not only represents a significant alternative in the longstanding debate on political versus enterprise unionism but also constricts established forms of unionism. Dominant managerial objectives in collective bargaining in recent years owing to heightened competition have been to reduce labour costs, increase production or productivity, flexibility in work organisation, increase in work time. (Mumbai, Ratnam, 2003 in http://www.nishithdesai.com/fileadmin/). The trends of flexible work and growth of non-unionised service sector also affected workers in India.

Flexibility for many workers means increased workloads, less predictable work schedules, more unsocial work hours, and greater insecurity as employers demand they work longer and harder to minimise labour costs ( James, Vira, 2010 ).

Globalisation brings both, opportunities and challenges. We can see that global capitalism in both countries significantly increased economic growth, also created a large number of employment vacancies. International MNCs entered the market and created new opportunities for the workforce and the economy. The challenges that countries face due to global capitalism also brought increased number of foreign workforce, informal workers. MNCs takes advantage of lower wage standards and skilled workers in India and China. Flexible work trends enter both countries and it does not necessarily offer more opportunities. For some employees that often mean reduced job security, less bargaining power of labour, lower wages. Although we could say that globalisation made a big impact on China’s labour law development, Trade Unions in China are still party-controlled and unitary with limited worker involvement. Globalisation also brought some improvements in HR practices in Chinese companies, even if the HR practices are still not extensive and fully implemented. Unions in China are focused more on welfare and production issues rather than wage standards and also faces an inability to form their own trade unions. Government aligns with management rather than a worker. Looking in Indias case, globalisation also had a big positive impact on economic growth and development. India becomes a global player in some sectors and now is one of the fastest growing economies in the world. However, it is claimed that the process of globalisation weakens trade unions in India, and affects workers negatively in some specific sectors, like for example call centres. Yet, India still has extensive protective labour laws that provide workers’ rights, including those of strike, association, and collective bargaining.

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