By Anjum Altaf
It may seem counter-intuitive but if we wish to spur economic growth in Pakistan both government and citizens would have to step in to help labour. This is the surprising conclusion of a study of the local economy carried out by students from the Lahore University of Management Sciences (LUMS) under my supervision.
Initial discussions with representatives of several small cities around Lahore identified violations of labor laws as having a significant impact on both the welfare and productivity of industrial workers. As a result, the interactions between labor laws and economic growth were studied in Sheikhupura, a half-million sized industrial city about 30 miles from Lahore.
Observations of small scale industry, employing the majority of the industrial labor force, revealed desperate, survival level, working conditions at compensations below the minimum wage. Workers had little or no protection from various forms of exploitation and exposure to hazards. There were virtually no mechanisms of redress and no collective bargaining. One outcome of limited incomes was little or no investment in human capital improvement and sustained poverty over generations.
The balance of power among the three key agents – workers, factory owners, and government regulators – was found to be completely one-sided with the latter two holding all the cards and employing a strategy of extensive collusion. This collusion allowed gross violations of all labour laws with various subterfuges and mechanisms, the most egregious being the outsourcing of worker hiring to contractors less subject to the application of laws. This significantly diluted the legal accountability of factory owners.
The situation in the small-scale industry in Sheikhupura could be characterized as a low-level equilibrium trap sustained by a competitive market in which no individual firm by itself could afford to change the terms of engagement with either the workers or the regulators without going out of business. Charitable intentions were not enough to change the plight of workers.
In such a scenario, market forces alone would not prove sufficient to provide a dynamic leading out of the low-level equilibrium trap although escaping the trap would actually be in the long-run interest of both factory owners and workers. The existence of so many people at survival level keeps purchasing power low which negatively impacts the prospects for consumer-driven growth. As a result the development of local industries catering to the demand of the majority of the population is stifled. At the same time there is no incentive or ability to invest in human capital improvements for the future.
The study concluded that only federal action can change market conditions creating a new level playing field forcing all factory owners to equitably comply with higher standards in their own long-term interest. An example of such federal action was witnessed in the American South in the 1960s with the promulgation of the Civil Rights legislation that altered the negative equilibrium resulting from pervasive racial discrimination leading to with win-win outcomes for all stakeholders. Business was forced to act in its long-term interest against its will and contrary to its perceptions of short-term competitive advantage gained by exploiting labour. In retrospect the federal intervention was deemed to be the best thing that happened to American South.
Federal governments in Pakistan have been unable to initiate such legislative action and present trends in South Asia are actually in the opposite direction owing to pressures generated by the forces of globalization to create business-friendly markets.
In such a scenario of weak support, grassroots political mobilization and consumer activism are necessary to advance the cause of labour. In developed countries such initiatives have often succeeded in convincing governments and employers to curb harmful labor practices at home and abroad and they have been lauded for the contribution. Recent public interest litigation in the Punjab on behalf of workers employed in unregistered stone crushing factories and dying of silicosis is a case in point. Such activism illustrates both the need and the possibilities of proactive lobbying on behalf of labour rights in developing countries.
Many innovative policy responses are possible to improve the conditions of labour to spur demand-driven economic growth in Pakistan. In addition to strengthening existing penalties, a new dynamic can be triggered by measures that incentivize companies to voluntarily improve working conditions and standards. A calibrated carrot and stick regime supported by public disclosure and citizen labor boards can yield sustained progress towards greater social justice and workplace democracy.
There are no fundamental reasons that prevent governments from adopting some or all of the measures that could improve the livelihoods of workers. Continued failure to act is contrary to national interest. Governments and citizens committed to economic growth ought not to allow conditions to deteriorate to the point of a demand deficit that can have uncertain outcomes.
Anjum Altaf is the provost at Habib University and was formerly dean of the School of Humanities and Social Sciences at LUMS. This op-ed appeared in Dawn on January 23, 2015 and is reproduced here with the author’s permission. The complete report is available at http://www.theigc.org/wp-content/uploads/2015/01/Altaf-2014-Working-Paper1.pdf