The Hindu Business Line : Trade unions: Retaining their relevance

By their own commissions and omissions, trade unions have become unimportant. For a fresh lease of life, they must change tack, by promoting productivity and not seeking free lunches. Instead of wage increases, they must seek better amenities, says P. V. Indiresan.

The trade union movement has been weakened by its own excessive demands.

TRADE unions started as champions of the poor, and of the oppressed. They fought valiant battles, made great sacrifices to secure economic justice for poor, ill-treated workers. Eventually, they succeeded; the workers they organised became prosperous beyond wildest dreams. That phenomenal success itself has been the undoing of the trade union movement, particularly in India. These days, in their place, social activists such as Medha Patkar have become the champions of the poor.

For trade unions, even successes have become pyrrhic. For instance, they did succeed in pressuring the Fifth Pay Commission to order unprecedented pay rises. However, as Mr Swaminatha Aiyar has explained (Times of India, June 8), merely the act of government ordering pay increases will not produce real increases in income; only increased productivity can do so.

Unfortunately, trade unions fought bitterly against increases in productivity. In consequence, the budget deficit went out of control, and the government was forced to reduce the staff through voluntary retirement schemes. Those schemes had, at least, the grace of being voluntary. The government was forced to halt new recruitment too. The resultant loss of employment for millions of new entrants to the job market was far from voluntary.

The trade union story is similar to that of Henry Ford's Model T car. For years, the Model T was the best selling car in the US. After some years, customers became more prosperous, and wanted something better. Though the market changed, Henry Ford would not, and drove his company almost to the verge of bankruptcy by not allowing a model change for almost 20 years. Likewise, although capitalists have changed, trade unions have not. They still cling to the same philosophy and strategy that they first devised to challenge primitive capitalists.

It is a cardinal principle of the trade union movement that all workers must be united, and hence there must be trade union monopoly. In consequence, unlike the case of the competitive market, there is no in-built, internal regulatory mechanism for trade union activity. Hence, trade union demands tend to become excessive, and often acquire the nature of a free lunch. As there cannot be any free lunch in nature, something else has to give. In this case, the movement itself has been weakened by its own excessive demands.

In other words, present day trade unions can be faulted on three grounds. One, they have forgotten their roots, that their prime purpose is to serve the poor only; two, they have not been adaptable; three, they often demand something for nothing in return. Meanwhile, capitalism has modernised so well that free markets have become the latest fashion.

Thus, trade unions have lost three ways: One, the loss of the moral high ground to social activists due to neglect of the poor; two, the loss of the political high ground due to shrinkage in membership, and three, the loss of the intellectual high ground to capitalists due to outdated strategies.

Trade unions have several options. The most idealistic one is to organise only poor workers, not well-to-do ones. That will no doubt shrink trade unions. Such shrinkage is actually a good sign. After all, Karl Marx himself has said that the state will, ultimately, whither away. Implicitly, once workers become prosperous, trade unions too should whither away.

Naturally, this option will not enthuse the unions: Who wants to commit suicide? As a second option, they may organise only the bottom one-fifth, at the most, the bottom one-third of the population, and studiously decline to have anything to do with the top one-fifth or even the top one-third of the economic strata. In that case, they will have something permanent to do; they need not die however prosperous the economy may become. Further, their traditional tactics might continue to work. The trade unions may even hope in this manner to regain some of the ethical aura they used to command in the past. Although this tactic will keep trade unions going, they may not relish the prospect of surrendering their richer clients.

As a third option, trade unions may learn to promote greater productivity. In that case, they should be prepared to embrace all technological advances, and accept any redundancies that result from obsolescence of old skills. Obviously, this move too will not be acceptable to champions of labour. However, if they learn to re-train, and re-locate redundant labour, both those who remain, and those that are not retained, will benefit. Trade unions will then have the strength to face the challenges of the modern world where technology changes rapidly, and skills become obsolete equally rapidly.

Unfortunately, trade unions are not problem solvers; they are best as problem identifiers, even problem creators. That is why they would rather let the most incompetent and corrupt management continue rather than take on themselves management responsibilities — even when their representatives sit on management boards.

Hence, it is unlikely that trade unions will ever find solutions to problems of redundancy.

Any move to modernise the trade union movement should bear these limitations in view: One, trade unions are best at identifying problems, not solving them; two, they have skills in uniting large numbers for the common cause of demanding rectification of the problems so identified; three, they can use those organising skills to force governments and managements to act; four, they will not accept managerial responsibilities; five, they will not find solutions, let alone solve problems on their own.

For a start, trade unions need an `enemy' to survive. Traditionally, capitalists have been the enemy. However, it is difficult to cast a modern firm in the organised sector, which pays handsome wages, offers job security, and excellent career opportunities too, in the role of the villain. The Tatas, the Premjis, the Ambanis, (let alone, the Narayana Murthis) do not fit into the classic mould of the exploiting capitalist. In short, trade unions need now a new kind of sin about which they can rage, and put the Tatas, the Premjis, the Ambanis, and even the Narayana Murthis in the doghouse. Once they are able to do so, the trade unions may once again do roaring business.

Not creating enough jobs is one sin trade unions can justifiably level against organised industry. However, in that case, the culprit is not necessarily the capitalist but the trade unions themselves.

If that appears blasphemous, consider the tautology: Top five per cent wages can be earned by only five per cent of the labour force, and no more. If the objective is to raise employment in the organised sector to, say, 20 per cent of the total, that can happen if, and only if, wages are brought down from the top 5 per cent level to the top 20 per cent level. Hence, organised industry can create more jobs only by paying relatively (relative to others) less, not more. Trade unions may not like the charge, but every time they force higher wages, they destroy jobs.

By demanding excessive wages, trade unions have not only shrunk job growth, they have also reduced the numbers they can organise. In the normal course, trade union membership will shrink where wages rise faster than the growth rate of the economy; the membership can expand only where wage increases are slower than the growth rate of the economy.

This is not a pleasant scenario. Fortunately, the future need not be all that bleak. You may not get a free lunch but you can still get a better lunch with the same ingredients by cooking more skilfully. On that basis, I suggest that trade unions stop asking more wages, which are, in any case, swallowed by inflation almost in their entirety — about 98 per cent, according to my estimate. Instead, they should fight for better amenities the same way their forefathers fought for better working conditions.

As the situation exists today, no amount of wage increase will get anyone more water to drink, clean streets, or comfortable travel, often not even a good shelter. Suppose trade unions demand these amenities and not any more money. Once they get these amenities, real incomes will increase. As an additional bonus, more jobs will be created in generating these amenities — five times larger number when the new workers are paid average wages than when they get the high wages of the organised sector.

With this scheme, it appears as though workers can now have their cake and eat it too. Not quite! There is a catch: Trade unions will have to convince employers that it is worthwhile and profitable to add these amenities.

They will have to persuade their workers too to accept better civic amenities sometime in the future in place of immediate cash payment. They will have to get the government too on their side. It is a moot question who will be most difficult to convince — employers, workers or government officials. However, any trade union that succeeds with all three can expect a new lease of life.

(The author is former Director, IIT, Madras. Response may be sent to indiresan@bol.net.in)

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