Can Laws Bring About Good Change?

Can Laws Bring About Good Change?

Wednesday, 05 July 2017 12:32 Written by
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Our blog post last week elicited a number of responses and the general view of those who commented was that while the provisions are well intended, they will probably also lead to companies taking actions to avoid the legal burden and that would be detrimental.

new maternity act

One of my XLRI batchmates also made a pertinent point on how the huge majority of women employed in the unorganised sectors and rural economy who really need this support may not benefit as their employers stay out of the reach of such laws and their enforcement.

This discussion gets one to think about whether making laws is all that it takes to bring about change in organisational behaviour.

In the area of Employer-Employee Relations, across the world, we have had a raft of legislation and continue to see new legislation intended to empower the employee which put more welfare responsibilities on the Employer. While the golden age of ‘socialism’ that had its roots in labour oppression is long past, reform to create more equitable workplaces is moving along.

The world today doesn’t see such change through violent political revolutions and by and large parts of the world are democratically governed (I take of course a very wide definition of democracy here). This means that change happens through a recognition of an inequity by parts of the society morphing into an active public debate (fuelled significantly by the power of social and electronic media) eventually winding its way into legislation followed hopefully, by active enforcement.

Most recent employee-oriented workplace changes, equal opportunity, non-discrimination, affirmative action, equal-pay-for-equal-work, contract worker protection etc. have all followed this path.

But what happened to good things happening through that ‘virtuous’ god-force called “free market force”. Wasn’t the free market and competition supposed to take care of ‘imbalances’? After all, inequity is in some ways lack or ‘equilibrium’, the driver of the free market.

In fact, the reality has often been that “free market” forces (read economic logic of profit and shareholder value maximisation) have often run counter to the intent of the legislation. We have come to believe that legislation is a necessary check on the rampaging bull-run of economic logic.

Something doesn’t seem quite right; after all, if we want change to happen quickly and pervasively these two forces should work in tandem and not be opposing each other.

For that to happen, we need to write our laws differently. The intent of the law is not so much the issue but to simply lay it down in a ’thou shalt henceforth do so’ is not enough. The law must be defined to move the levers of economic gains and disincentives rather than only rely on the pain of penal action. The point, in our previous blog post, on creating an equal paternity leave provision is an example of doing so. The state mandated Provident Fund in India is another example. It is voluntary above certain pay levels but mandated for those at the bottom of the worker pay pyramid. It therefore, protects those who may not have the clout to negotiate, the ability to understand their rights or the wisdom to provide for themselves on their own. It gives a ‘fair return’ on the investment and is applicable universally (barring very small employers). It is not surprising therefore that there isn’t much push-back on this important employee rights legislation and calls to repeal it (administrative reforms excluded).

The legislation on worker job security is an example at the other end of the spectrum that has created perverse incentives for not hiring full-time employees or breaking organisation into multiple legal entities with the sole purpose of escaping the provisions of the law.

The state can also move in by subsidising new financial burdens till such time as these provisions become well accepted and universal. After all, costs that apply to all players in the market have a better chance of being seen as ‘fair’ as opposed to those that put some players at a disadvantage. In the context of maternity benefits, this could have been done by the state reimbursing the organisation for the additional maternity leave and the cost of running creches or giving then tax breaks for doing so. In Singapore for instance, when family leave was introduced a few years back, the state reimbursed the companies paying their employees for this leave.

Labour law reform is possibly the most needed and also the most politically contentious area of reform; perhaps that is why it has been put-off by successive governments. It would be so much better if instead of arguing for a complete dismantling of labour laws, this reform focussed on how following the intent of the law could make economic sense.

At EmployWise, we do believe in the free market and power of economic drivers. As a company with an entrepreneurial DNA, we generally believe that governments should leave us alone. But we also realise that in this area, an abundance of supply (okay, maybe not all employable!) and ‘imperfect knowledge’ exists. ‘Workforce mobility though visible in our younger generations in some sectors is still far from levels required for market forces to act. Lack of specialised skills and opportunities for re-skilling are stark realities for the majority. With this backdrop, the law will have to step in for quite a while to both protect and create equity but it is our view that sledgehammer legislation will not work either.

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