The credit for introducing the "LABOURISATION" goes to BMS only. It stressed
that all categories of "employer" and under the various industrial ownership, the
labour of workers must be evaluated in terms of shares and workers raised to the
status of shareholders contributing labour as the share. As a standard bearer of
Bharatiya culture the BMS proclaimed that surplus value of labour is managed
and deployed by employers (accountable to themselves) under capitalistic order:
by state (accountable to party) under communistic order and by workers
(accountable to the nation) under Bharatiya order.
The BMS declared THE ONWARD MARCH OF LABOUR along the following
The Master-Servant relationship
A Better Deal
Participation in ownership
ESOP (Employee Share Ownership Plan)
Workers' share ownership plan constitutes the major form of financial
participation. It is technically called as Employee Share/ Stock Ownership Plan
(ESOP). The scheme gives the opportunity to employees to own shares in their
own company. The concept of ESOP was originally developed in 1967 by Louis
Kelso, San Francisco lawyer and investment banker, and author of books titled
'The Capitalist Manifesto' and 'How to Turn Eighty Million Workers into Capitalists
on Borrowed Money'. His objective was to turn workers into shareholders. Kelso
argued that conventional capitalism is a closed loop financial system the rich get
richer and the poor get poorer. People, he said, get rich not through wages and
salaries but by owning shares in companies. With ESOP workers are able to get
a share in this gain.
Modus Operandi of ESOP
When an employer adopts the ESOP, workers form a trust to buy and hold their
shares. This trust then borrows money from a bank to buy some or all of the
company's shares at fair market value. The trust hands over the money to the
employer in return for shares. For his part, the employer guarantees the
repayment of the borrowed money, and settles it over a period of time by making
contributions to the Trust.
Why should any employer do this? In the USA the most important reason is that
he gets major tax concessions. Contributions to the trust to pay off the loan are
considered by law to be deferred wages. They can be deducted from the
company's income, exactly as wages are, before computing tax. Further changes
in the law in 1984 have made ESOPs even more attractive. Half the interest
earned by banks from loans advanced to buy shares is free of tax. Companies
can deduct as an expense dividends paid on shares held by ESOPs, yet another
advantage to the employer is that ESOP protects his company from takeover by
business rivals. Since shares are not owned directly by workers but indirectly
through the trust, they cannot be sold freely in the stock market.
Because ESOPs are so attractive to employers, workers and banks, the
movement has received an enormous boost in the USA. About 10,000
companies have adopted the plan since 1974. On an average, workers hold
about 20 percent of the shares in ESOP firms. And there are at least a thousand
firms where they hold majority shares.
The ESOP shares are not individual property, which workers can freely sell. The
decision to own the shares is also not an individual decision. The shares are
owned by the trust Loans to buy shares are taken by the trust. And it is through
the trust that the employer makes payments to clear the loan ESOP shares are
thus owned by all workers. Individual workers can sell their rights when they
leave or retire, but the trust usually buys them back.
Arguments in favour of Labourisation
In the first place, it is often considered to be a means of improving motivation and
productivity. It leads to greater commitment, lower absenteeism and labour
turnover, greater investment in firm-specific human capital and reduced intra-firm
conflict. In contrast to individual incentives, financial participation is also likely to
enhance teamwork and a cooperative spirit, thereby facilitating improvements in
Labourisation: Global Experiences
Workers' financial participation in enterprise results is hardly a new idea.
However, it has only recently captured the attention of economists and policy
makers, not only in industrialised countries but also in economies in transition,
particularly in Central and Eastern Europe. Moreover, although financial
participation has been widely discussed at the policy level, little is known about
the application of financial participation schemes in practice.
A clear distinction is made between the experiences of the industrialised
countries and those in Central and Eastern Europe. While companies in the
industrialised countries are actively promoting financial participation schemes as
an efficient and flexible payment system, which can improve motivation and
productivity, in Central Eastern Europe financial participation is mainly linked to
the privatisation process.
The Importance of the Legislative Framework
Some countries have addressed the issues of financial participation in a more
comprehensive manner than others. In France and the United Kingdom, the law
envisages a variety of financial participation schemes, with different tax
incentives, which have recently been extended. This support has attributed to the
growth in the number of financial participation agreements in the two countries. In
the USA a notable slow down in productivity growth after 1973 generated
increased interest in worker participation. A number of tax incentives were,
therefore, introduced mainly for deferred profit sharing and ESOPs
Financial participation in Eastern European countries is closely linked to their
privatisation processes, as illustrated by recent legislative developments and
government statements in favour of share ownership schemes. In all these
countries, the first stage of privatisation is the transformation of state enterprises
into joint stock companies, in which workers' share ownership plays a central
role. Hungary is a typical example, which has implemented various forms of
workers' share ownership. Government encouragement has promoted the rapid
development of ESOPs in the privatisation process.
These schemes are more decentralised in Japan, where financial participation
seems to be part of an overall management policy and is not, therefore,
promoted by legislation or other public measures. It is implemented by the social
partners, viz., employers, employees, unions and the management at the plant
level and is often developed along with participation in decision-making, work
sharing and internal labour mobility.
The Japanese Experience
The development of workers' financial participation depends on a series of social,
cultural and historical factors. This is confirmed by the Japanese experience,
which is characterised by a notable development of ESOPs. In the absence of
direct formal government support, this appears to be principally due to cultural,
industrial relations and other institutional factors. ESOPs have been introduced
by more than 90 percent of the firms listed on Japanese stock markets and by 60
percent of all corporations. The average stock held by each employee through an
ESOP was estimated at US $ 14,000 in 1988.8 In addition to ESOPs, cash
based profit sharing bonuses account for an amount equivalent to about 25
percent of total pay, making Japan the country in which financial participation is
most advanced. 97 percent of firms with 30 or more employees pay bonuses to
their regular staff twice a year In addition, more than 90 percent of Japanese
firms operate a deferred profit sharing scheme.9 The success of ESOPs and
other forms of financial participation in Japan can be understood on the basis of
a number of factors. Unique features of the Japanese Industrial Relations
a) The Lifetime Employment System;
b) The Seniority Wage System,
c) The Enterprise Union; and
d) The Bonus System
The first three characteristics are called the Three Sacred Emblems7 of
Japanese labour policy
Lifetime employment is a unique feature of the working of large Japanese firms.
It accounts for the exceptionally dynamic functioning of a large section of
Japanese industry. The system presupposes that it is the employees that
ultimately make the firm productive, creative and respectable To Japanese
management, guarantee of lifetime employment to its staff is a sacred obligation.
Lifetime employment means employment till the employee attains the age of
retirement which is normally 55 years but it is now being extended to 58 or W
years Top level executives have, however, no mandatory retirement age.
Lifetime employment is not a legal or contractual obligation. And it is open to the
employee to leave the firm, which, however, is rare. There is no legal restriction
on the right of the employer to discharge or dismiss an employee, which is rarely
resorted to. Mainly large firms adopt this system and about 30-35 percent of the
total labour force is covered by this system. But these employees may be
described as Japan's standing industrial army-the backbone of her economy.
Under this system, employment has emotional and moral implications. Not only
the employee but his family also develops an attachment for the firm and the
employee tries to serve the company to the best of his abilities. The tangible
advantages of the system are now well recognised. Lifetime employment
involves lifetime training as well which facilitates innovation and which
strengthens the urge for excellence in work. Lifetime employment is described as
one of the corner stones of the industrial relations system in Japan.
Japanese firms like Sony are introducing lifetime employment in their factories
even in the USA with great success. For instance, the rate of absenteeism in the
Sony factory in America is only 0.1 percent. American workers in Japanese
factories in the USA take interest in their work and make valuable suggestions for
improving productivity and quality. Japanese management is equally effective in
a totally different American Culture.
The second salient feature of Japanese industrial relations system is the seniority
wage system. The system guarantees that wages and other benefits increase
steadily from the time of appointment. This is generally restricted to lifetime
The enterprise union system of Japan is found to be very useful in strengthening
the individual worker's ties to his firm. In Japan every enterprise would have its
own independent union. It ensures better mutual understanding between union
official and management.
The Japanese firms pay their employees bonuses twice in a year. The payment
is based on the financial achievements of the firm and not linked with the
productivity of the workers. The system has three great advantages:
a) The workers become aware of the vital importance of the successful
functioning of their firm.
b) The Japanese workers tend to live within their monthly regular earnings
and the bonuses are mostly saved. This is one of the main reasons why
Japanese households save on an average 17 percent to 19 percent of
their annual income,
c) The bonuses represent a form of deferred payment, which enables the
firm to generate additional working capital.
Apart from the congenial and harmonious industrial relations climate, there has
been indirect public support for workers' financial participation in Japan, as a
means of preventing foreign takeovers of Japanese firms.
Attitudes of the Social Partners towards Workers' Financial Participation
Attitude of Employers' Associations
Employers' associations have usually supported enterprise level schemes
introduced on a voluntary basis, with the design of the scheme being left to the
discretion of the enterprise. They oppose any binding arrangement. Employers
usually consider financial participation as an important element of human
resource management for the purposes of improving employee motivation and
commitment. They have argued for the introduction of tax incentives.
There is an impressive wide-ranging body of evidence for a positive association
between workers' financial participation and productivity gains in the
industrialised countries. In their survey of empirical results, Weitzman and Kruse,
in the most comprehensive book on this issue, edited by Blinder find a degree of
consensus, which is most unusual in empirical research. The authors, from their
survey of a wide variety of case studies and attitudinal surveys conclude that
profit sharing schemes have a positive and significant effect on productivity.
Studies on European countries, recently surveyed in the Pepper report, also
concur in pointing to a positive association between financial participation and
productivity. This report led the Commission of the European Communities to
propose its recommendation on financial participation.
In Belgium, France, the United Kingdom and the United States of America it is
found that financial participation schemes tend to have been introduced and
grown particularly in large profitable export oriented enterprises. In Japan it is
found that the probability of a firm introducing financial participation schemes is
higher in companies in which human resources are a more important factor in
their success. The results of a survey carried out among 140 Belgian enterprises
also emphasise the positive effects of financial participation on workers'
motivation. In Italy, a survey carried out on a sample of 179 enterprises suggests
that enterprises with financial participation experienced a substantial (12 percent)
increase in production following the introduction of these schemes. Surveys
undertaken in the United Kingdom show that financial participation has made
employees more profit conscious and increased their sense of commitment to the
company. According to a survey undertaken in the former Czechoslovakia, the
impact of financial participation differs according to the type of enterprise and
category of worker. Workers' share ownership appears to have a much greater
effect on motivation in small firms. Workers in small units can observe and
evaluate the effects of their efforts on the profits of their company. Technicians
and other skilled employees show greater interest in financial participation
schemes and are more prepared to work for lower wages for a certain period in
order to contribute to the future prosperity of their firm.
Workers' Participation in Decision making, a Catalyst
A greater level of concern by workers for the success of their enterprise, as a
direct result of their financial participation, can have the effect of reducing conflict
in the work place, increasing the identification of workers with the enterprise and
lengthening their time horizon. This can be strengthened by measures to
facilitate workers' participation in decision-making. Several examples of the
companies from industrialised countries suggest that worker' financial
participation schemes succeed more often when they are combined with some
kind of workers5 participation in management. Combination of financial
participation and increased employee responsibility has contributed to Japanese
The global experiences of Labourisation suggest that the different forms and
paths taken by financial participation depend largely on national systems of
industrial relations and the attitudes and bargaining powers of the social partners.
Few Commendable Examples of Labourisation Abroad
The Mondragon Cooperatives
The Mondragon Cooperatives in Spain are famous throughout the world as the
most successful worker owned firms. The Mondragon has over a hundred
cooperatives with 20,000 members, producing refrigerators, washing machines,
computerised machine tools, electronic components and automobile parts. The
uniqueness of Mondragon lies in its ability to combine democratic control with
business efficiency. It ensures continuous employment to its members. 45
percent of the profit is credited to the capital accounts of individual employees,
which can be claimed only on retirement. One of the secrets of Mondragon's
success is that no firm is allowed to grow too big. When the size of the individual
firm is kept small, there is greater scope for interaction and effective participation
by ordinary workers
Omak Wood Products
Omak Wood Products, Washington is a successful employee owned company
under ESOP. The employees have borrowed $ 50 million to pay for the buy out
of business and to provide for working capital. They decided to set aside 10
percent of their wages until the debt is repaid. The company is performing well.
National Steel Corporation
The National Steel Corporation (NSC) of the USA was a sick unit. While buying
shares in NSC the workers entered into an agreement with the company, which
provided for the workers' participation in management. The representatives of the
workers and management of NSC meet monthly once regularly, to share
information in the decision making process. As a result, NSC, once a losing
company has become a producer of cheap and best quality steel products and
prompt supplier in the market. Thus, the employees have saved their own fortune
and also the fortune of the factory.
There was large scale closing down of coalmines owned by government in
England and thousands of miners were retrenched. In the course of privatisation
process, Tower Colliery, a prominent coal mine in England was taken over by its
retrenched workers. 239 workers contributed $ 8000 each out of their
retrenchment compensation and successfully bid reworking the mine again. The
amount contributed by the workers was the lion's share of the total amount
needed. The mine is functioning remarkably well. The colliery has signed a $70
million contract to supply coal for another five years.
Precision Tool Production Ltd.
Videoton, the largest Hungarian electronic telecommunications State enterprise
employing nearly 20,000 employees, was divided into 21 companies in the
privatisation process. Precision Tool Production Ltd. is one among them. Its
employees have contributed nearly 85 percent of the capital, from their savings
and loans. After the transformation of the company, the employees spent their
evenings or weekends working in the factory to meet the demand. Within one
year, the employees not only paid back their loans but also were able to
purchase the land and buildings and machinery, which were still owned by the
International Freight Transport Company
An international freight transport company of Hungary, formed under privatisation
process, struggled to survive. So, the employees decided to start a new
company. They contributed 50 percent of the initial capital and the remaining
amount was contributed by the parent company. The employees participating in
this plan were particularly motivated to preserve their jobs and improve the
performance of the company. Their expectations and hard work were crowned
with success; they were able to broaden their market share in spite of tough
competition and general recession. Within one year, its employees owned 90
percent of the shares.
Chyne Agricultural Cooperative
This agricultural cooperative in Czech Republic has successfully been
transformed into a joint stock company with 49 percent of its assets offered to
employees in the form of shares. This made it possible to preserve the
participatory principles of the cooperatives and motivate the workers.
In the privatisation process, the cooperative Agrokombinat Slusovice was
transformed into a series of small and medium sized firms with workers' share
ownership and profit sharing. It led to improved efficiency and diversification of
the bio technological and microelectronic production to meet the challenge of
international competition. As a result, the firm has managed to attract most of the
highly qualified workers.
Silesian Factory Kable
Silesian Factory Kable is a polish firm. Its decision to sell the shares to the
employees at a 50 percent discount was quite successful, with 76 percent of the
workers taking advantage of this opportunity. According to the management, this
has improved the social climate within the firm as well as industrial relations in
general, despite a slump in the polish electrochemical industry, which used to
absorb Kable's production.
As a conclusion to this section, illustrative data are provided on the scope and
nature of financial participation in three Japanese companies in different sectors.
The company introduced an ESOP in November 1974. In August 1985, 34.8
percent of employees were participating in the plan. The average stake of
participants is JPY 1.2 million. In 1984, the company paid the average employee
JPY 0.517 million (2.65 months' regular pay) as a summer bonus, and another
JPY 0.548 (2.72 months' regular pay) as a year-end bonus.
Hoya (Precision Engineering)
The company introduced an ESOP in October 1970. In March 1985, 47 percent
of employees were participating in the plan. The average stake of participants is
JPY 2 55 million. In 1974, the company (currently one of the top manufacturers of
optical instruments in the world) introduced a profit sharing plan with the explicit
objective of increasing productivity. Around 40-45 percent of the annual bonus is
linked to profits. The bonus represents 6-7 months' regular pay and is clearly
above the industry average both in terms of cash and months of regular pay.
Unions support the plan, and there is a very thorough Joint Consultation
Committee, which meets once a month and has many ad hoc sub committees.
Quarterly profit reports are provided to the Joint Consultation Committee.
The company introduced an ESOP in August 1969. In 1985, 67.6 percent of all
employees were participating in the plan. The average stake of participants is
JPY 2.36 million. In 1984 the bank paid the average employee JPY 0.915 million
(3.25 months' regular pay) as a summer bonus, and JPY 0.973 million (3.40
months' regular pay) as a year-end bonus.
Labourisation in India
Worker owned firms are not as common in India as in Europe. There have been
several cases, in India, of workers of sick companies forming cooperatives to
save their jobs. Many of these cooperatives have an impressive record of
performance. Kamani Tubes in Bombay, New Central Jute Mills in West Bengal
and Jaipur Metals and Electricals in Rajasthan have all been working
successfully. While there are also some cases of failure, the general experience
is positive. With the right leadership and financial support, workers have shown
that they can take over sinking firms and make them profitable.
Indian achievements regarding employee ownership are small compared to
developments on many European countries referred earlier. A feature of worker
ownership in India is the indifference, and sometimes, even hostility, of the trade
unions. When the firm runs into problems, the natural response of trade unionists
is to demand nationalisation. While this was an effective strategy some years
ago, the government now appears unwilling to take over sick firms. The
government has no clear policy on worker ownership. The CTUOs except BMS
have no faith in it. The indifference of unions and the government is mainly
responsible for the present condition in India.
Labourisation in India - Cases of Success
Kamani Tubes is a worker owned company located in Bombay. Before that, the
Kamanis, a well-known business family owned it. This company, that makes
brass rods and tubes for use in refrigeration and sugar production was
established in 1959. It was a leading firm till the middle of 1970s, controlling 60
percent of the market. By 1985, the trouble started due to misunderstanding
among the members of Kamani family and financial difficulties. Kamani family
abandoned the factory, as the quantum of loss was uncontrollable.
When the owners abandoned, the independent union consisting 600 workers
approached banks, financial institutions and the state government to help revival.
None of them responded positively. The union then formed a cooperative to take
over the firm. Claiming that workers could raise the share capital from their
provident fund, wage arrears and loans, the union filed a civil petition in the
Supreme Court. The court asked the Board for Industrial and Financial
Reconstruction (BIFR) to examine the union's proposal. The BIFR gave a
favourable report, but by now the Kamanis had returned to claim the company. In
spite of the legal hurdles they created, the Supreme Court upheld the workers'
action. By the end of 1988 the shares were transferred to the cooperative In
addition to workers' contribution, the state government sanctioned a sizeable
Since revival, the company has made good progress. Production, wages and
profit have gone up. The worker owned company pays annually around Rs.3
crore as excise duty. ^ Thus reviving the company has been beneficial to the
Cooperative of Slag-Pickers
The Tata Iron and Steel Company in Jamshedpur dumps its slag in low-lying
areas to level the land and reclaim it for use. The slag contains bits of iron, which
can be collected and sold as scrap. At one time, the job was given to contractors
who employed slag pickers at miserable wages.
In 1979, the State Government formed a cooperative of slag-pickers, with the
sub-divisional officer as the chairman. The cooperative was given the monopoly
to pick slag. In the very first year the cooperative achieved a turnover of Rs.3
crore. This staggering amount was beyond anybody's expectations. Wages have
gone up substantially. The cooperative has taken up lot of welfare work with its
own funds. It continues to run smoothly.
Cooperatives of Iron Ore Miners
The Open Cast Iron Ore mines of Dalli - Rajhera in Madhya Pradesh also have
successful cooperatives. These mines supply iron ore to the Bhilai Steel Plant.
About 7500 workers organised in seven cooperatives are engaged in this task.
Most of the workers have moved from the nearby Bailadilla mines, which have
been running out of ore. The government has encouraged the formation of
cooperatives to rehabilitate these displaced workers. The cooperatives have
been running successfully in spite of competition from contractors who also
operate in this area. It has generated handsome surpluses for distribution among
members and funding welfare facilities. The best free primary school in the town
is run by this cooperative.
Although the cooperatives have shown that they can operate successfully, there
is not enough support for them from the trade unions. A trade union well known
for its militancy has organised the contract labourers in this area. The members
of the cooperative are also members of this union. Instead of encouraging the
formation of more cooperatives, the union has been demanding that the Bhilai
Steel Plant should take over all the mines in the area, including those managed
Labourisation of New Central Jute Mill: An Outstanding Experiment of
New Central Jute Mill (NCJM) is a large unit having a work force of 8000 at
present. There are 12 unions in the mill but surprisingly all these unions got
together to labourise the sick company. The initiative was taken by BMS. The
company has been running well despite there being a slump in the jute industry.
It has modernised its ^machinery and has diversified its products. It is
concentrating on the manufacture of enhanced quality products, which have a
good market abroad. The success of this venture shows that workers' initiatives
can overcome the problems faced by traditional industries. While other jute mills
are languishing, NCJM has improved its production and the quality of its
products.34 NCJM stands as a model worker owned company and glorifies the
achievements of BMS.
The NCJM was incorporated in 1915. It is a large jute mill situated at Budge-
Budge in South Choubeez Parganas District of West Bengal having 810 Hessian
and 452 sacking looms besides 26 other looms and 189 spinning frames. In 1955
two other jute mills viz., Albion Jute mill and Lothian Jute mill were amalgamated
with the NCJM. In 1974-75 the company set up its own Machinery Manufacturing
Division inside its own premises. The company employed about 9735 persons in
Jute Division and 342 persons in Machinery Manufacturing Division on
permanent basis besides temporary workers. The total number would be about
In September 1982, the company approached Industrial Reconstruction Bank of
India (IRBI) for financial assistance for its modernisation - cum - renovation
scheme at a cost of Rs. 244 lakh. It was agreed that promoters would contribute
Rs. 49 lakh and different financial institutions such as IRBI, INDUSTRIAL
DEVELOPMENT BANK of India (IDBI), Industrial Finance Corporation of India
(IFCI), and Industrial Credit and Investment Corporation of India (ICICI) would
share remaining Rs. 195 lakh. The IRBI disbursed a sum of Rs. 64 lakh against
its commitment of Rs. 95 lakh against first mortgage debentures and personal
guarantee of Shri A. K. Jain (Promoter) but other financial institutions cancelled
their share on one or another plea.
Gradually promoters became indifferent in investing further money in the
company and as a result due to fund constraint and for some other reasons the
company started becoming sick and as such it had to face lock out for four times
during 1982-87. Repeated lockouts, reluctant promoter to inject money and
continued losses of the company made such a sombre situation that almost all
concerns of the mills became hopeless. The suffering of workers increased and
most of them faced starvation.
The workers approached the left front communist led State government several
rimes and requested to nationalise the mill. The government remained a passive
onlooker. There are 12 unions of workers and 2 unions of Head office staff. All
the unions, except BMS, belonging to different political parties tried their best for
re-opening of the mills through their political leaders but the Government at the
centre and the State government of West Bengal expressed their inability to do
anything. The promoters, management and government had no solution.