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Small Firm Labour Relations

Small firms are praised by the ideologues of the emerging ‘entrepreneurial society’ as having essentially and inherently harmonious labour relations. In this post I present the “enterprise labour market social relations” approach as the best way of demystifying this popular view of modern small firm labour relations by drawing on the great work by Harrod (1987) which the mainstream industrial relations experts have ignored. Power in production is real and is manifested by dominant-subordinate relationships within the productive process. In small nonunionized industrial enterprises, the power relations are direct between employer and employee within a productive enterprise where employment has some structure and stability. Employers’ power is manifested essentially by the power of dismissal, that is, granting or withholding work, which is used as an arbitrary punishment to secure docile labour.

Small units have ‘enterprise labour market social relations’ because power relations occur within a structured productive organization that is the source of wage work and because employers’ power is shaped by a labour market in which individuals are forced to compete to sell their ability to work. This is in contrast to ‘enterprise corporatist social relations’ found at the large enterprises. In the large firms, cooperation of the unionized workers is bought through employment security and organization linked benefits. Employer domination in small enterprises is, of course, restrained by state intervention in terms of labour legislation and policing of enterprises in that connection. These restraints, however, do not amount to a de facto protection enjoyed by the established workers in large corporations. The predicament of the small firm workers can be put this way: as workers of the enterprise labour market they have acquired somewhat structured, regular and wage employment and have therefore left the casual work of the primitive labour market or the dominated peasant life of the peasant-lord social relations. But they have not been able to translate the structured wage employment within an enterprise into the collective power protecting them from arbitrary dismissal, increased hours and pace of work, direct or indirect reduction of wages, and lack of health and safety provisions.

The workers and the employers of the enterprise labour market social relations of production of modern times correspond to the ‘wage slaves’ and ‘capitalists’ of the 19th century about whom Marx and Engels had theorized. At that time the enterprise labour market was a dominant form of social relations, and employers were a class that led the industrialization process. These employers were subject to state intervention in fixing conditions of work. The series of Acts in the United Kingdom in the 19th century, known collectively as the Factory Acts, are among the first examples of state intervention in an industrializing country. They began in 1802 with an Act to regulate excesses meted out to child apprentices in cotton mills, and since that time numerous Acts have produced a complex and detailed labour legislation similar to that on the statute books throughout the world. It may be noted that these Acts were passed long before the development of trade unions and worker based political parties, which at a later date were to be the source and inspiration of so many state legal interventions on behalf of workers. The state intervention incorporating the demands of unions and associated political parties for general regulation of the conditions of work, for example, severely restricted one of the early hallowed rights of employers—the power of dismissal of a worker. In all industrialized countries there are elaborate procedures that employers must follow and many protective industrial tribunals to which individual workers may appeal in the case of ‘wrongful dismissal’. Individual contracts of employment must contain provisions laid down by general legislation for the contractual protection of workers.

The above labour legislation, however, has not meant effective countervailing power for the small firm workers as employers, under ‘enterprise labour market social relations’, often circumvent or ignore the legal provisions. This is now an open secret. Employers also cleverly use ‘paternalism’ as a feudalistic managerial style to exercise authority as if of right and encourage the small firm worker to develop psychological, social, or material debts to the employer and the enterprise, all of which promote a resistance to outside intervention and the formation of countervailing worker organizations. When backed up by minor material concessions, paternalism represents an attempt to create small-unit protective corporatism without the expense usually involved and without the ability, as in larger corporations, to pass on the cost to the consumer. For this reason, paternalism usually rests at the level of style and of psychological relations and does not in the ultimate redress the power in favour of subordinate workers. Employers invariably build upon all these characteristics of the small enterprise to sustain and maintain their power. They select out workers who are likely to be troublemakers and refuse to hire them or, alternatively, dismiss those who ask for their legal rights. To avoid high labour turnover, especially of skilled workers, some employers try to create a core of regular workers who then acquire, on the personal or informal level, a precarious “established or permanent” status. These are the exceptions rather than the rule, and on a world scale high labour turnover in small enterprises is normal.

Face-to-face relations, working bosses, and paternalism clearly do not, despite publicity to the contrary, create social cohesion within the small enterprise. They are, all the same, of crucial importance for the maintenance of employer dominance because of their role in the development and intensification of two aspects of worker consciousness that have found empirical evidence. The first is a preference for a personalized work relationship and the second, loyalty to the workplace organization. The possibility that social relations in small enterprises may satisfy worker demand for interpersonal work relations is also used to create or reinforce a worker consciousness of loyalty toward the enterprise. Manipulative management actively promotes and encourages the development of such consciousness to offset hostile attitudes for purposes of more effective control.

These factors of consciousness, reinforced and manipulated by managerial practice, often therefore make workers in small enterprises resist the incursions of unions and state. On the other hand, throughout the world, it is found that workers in small enterprises are more difficult to organize into unions both from the psychological and administrative aspects. It is more difficult to collect dues, keep open lines of communication, deal with grievances, and make wage claims among a number of widely scattered enterprises employing between 5 and 50 persons than it is to organize a single plant in a single location with a labour force of thousands. There is also a financial incentive involved. Bringing the workers of a large plant into union membership means that with the result of a single organizing effort the union may suddenly acquire a large increase in its income from membership dues. It also means greater power for the union in an industry if the larger rather than smaller enterprises are organized. Consequently, established unions are reluctant to put the massive administrative and financial effort into organizing small enterprises, and therefore, unions are less prevalent in small enterprises. This absence of worker organizations, in turn, contributes to the ease with which smaller enterprises avoid state regulation because unions and other worker organizations often monitor management’s application of statutory regulations or conditions of work. Moreover, an industry in which there are large numbers of enterprises requires a greater number of government enforcing agents, if there is indeed an intention to attempt to force conformity to labour codes. The result is that many governments are content, either through default or through deliberate policy, to concentrate on the larger, more easily policed enterprises.

The point is that such moves represent attempts to legally institutionalize enterprise labour market social relations within small enterprises. A development of great concern is the resurgence in the numbers of workers covered by enterprise labour market social relations since mid-1970s and from the late 1980s since when neoliberalism sprang up to engulf the entire world. There are at least two fundamental reasons for this. The first is the result of attempts of dominant groups and classes in the industrialized world to undercut the power of established/permanent workers and to avoid state-imposed labour regulations and social security costs through subcontracting and relocation of production. The second is the result of continuing industrialization in much of the Third World based on the labour of the unorganized/unprotected worker in export-oriented industries and in small-scale industries and enterprises. On both counts, the development of production chains with subcontracting relations within industrialized countries and between industrialized and industrializing countries can be appreciated.

In the industrialized countries of Western Europe and North America the historic connection between the power of organized labour and the development of the welfare state has meant that much of welfare legislation has been directed at regulating employers’ power over labour and providing security for employees in face of dismissal, disablement, and retirement. The power of organized labour is thus manifested not only in the growth of direct labour costs to employers, in the form of wages or an increased proportion of national income going to labour, but also in the growth of indirect labour costs. Indirect labour costs would normally include payments for social security, pension funds, profit-sharing schemes, and in some calculations would also include payments for time not worked, such as holidays, rest periods, absenteeism, bonuses, and so on. The direct/indirect calculation does not include capital expenditure employers must make for health and safety measures demanded by unions or state that would further increase the difference between the cost to the enterprise of employment and the wage received by the worker. The indirect labour costs in most industrialized countries amount to between 20 and 40 per cent of total labour cost. Apart from reducing the numbers of workers employed, there is only one way to avoid such indirect labour costs and that is to transfer production toward enterprises that illegally or quasi-legally avoid social security payments, fail to provide the required holidays or rest periods, and avoid other state taxes on employment, in short, transfer production toward the enterprise labour market social relations. This has resulted in the rise of the parallel or underground economy in these countries—equivalent to the urban informal sector in the less developed countries.
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