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Vulnerability at Work: Legal and Policy issues in the New Economy

Changes in the world of work pose create formidable challenges on their own.  But as countless commentators have observed, a crucial feature of the changed context of work is the growing power of capital, along with a correlative weakening of worker power and trade union influence, in the regulation of economic activity. Corporations, investors and employers are increasingly able to influence the direction of labour and employment policy and the extent of social protection through their ability to ‘vote with their feet'. Exit, or the threat of exit, on the part of investors places downward pressure on labour market and other regulations, chilling policy and regulatory responses to new and emerging forms of worker vulnerability, especially where they have, or are perceived to have, adverse economic implications for investors.

Yet however important the power of capital vis-à-vis states in the global economy, the increasing vulnerability of workers is also a function of a changed set of premises regarding the role of the state in economic activity and social life writ large. To put it simply, the ‘deregulatory' pressure cannot be attributed only to the erosion of sovereign regulatory power due to the rise of capital in the new economy.  It is also the result of a profound challenge to the settled wisdom about the value of labour market regulation and the redistributive state across the industrialized and developing world (Arthurs, 1996). The new focus on regulating labour markets for competitiveness (Collins, 2001) means that many jurisdictions are seeking to promote labour market flexibility for employers as much as, or more than, protection for workers.  This, too, is an important source of declining worker power and increased vulnerability at work.

A. Good governance: The context

This new regulatory logic is intimately linked to the emerging ideal of ‘good governance' in a globally integrated economy. While debates around governance are varied in form and multidisciplinary in scope (Wood, 2003), ‘good governance' refers to a set of best practices in statecraft, regulatory policy and the management of the economy now circulating among political elites and the economic technocracy that are being promoted by, among others, the international economic and financial institutions (Williamson, 1993; World Bank; 2002; IMF, 1997, Rittich, 2002b). Closely related to the ‘Washington consensus' out of which it emerged (Williamson, 1993), an important part of the good governance agenda is the active effort to replace the Keynesian welfare or regulatory state with a more confined, ‘market-friendly' alternative that is securely focused on the goals of enhancing efficiency and growth. This idea of good governance has had considerable purchase not merely in Canada but in the wider Anglo-American world in the last two decades: legal and policy reforms are increasingly put forth in its name, while others, are foreclosed or excluded because they ostensibly conflict with it. Indeed, the regulatory and policy implications of good governance are becoming increasingly detailed, elaborate and prescriptive (World Bank, 2003; World Bank, 2004).  Because the reregulation of labour markets and the restructuring of social welfare policy are central to these governance norms, it seems important to engage the model and its regulatory logic, consider the assumptions, stated and unstated, upon which it rests, and evaluate its implications for vulnerable workers.

Before analyzing the nature of good governance, it is useful to distinguish between two dimensions of globalization that are often conflated: globalization as a set factual or empirical developments and globalization as a regulatory and governance project. Globalization as a ‘fact' refers to the process of ‘time-space' compression that has resulted from a series of innovations in the domains of technology, information processing and transportation, all of which have spurred increased economic integration, the reconfiguration of production, and the widespread transformation of work (Castells, 2000). Globalization in this sense has increased the mobility of capital and generated commensurate weakness and vulnerability for workers who, for both practical and legal reasons, remain less mobile and very largely tied to their communities. However, globalization is also an institutional project.  The direction, speed, extent and intensity of global economic integration has been driven by a series of regulatory and policy decisions at the international, regional, national, provincial and local levels that have more tightly linked national economies, eliminated barriers to trade, investment and capital flows, enhanced property and investor protections, and remade the role of the state in domestic economic activity. The resulting regulatory regimes have been much more favourable to investor than labour (and other) interests (Stiglitz, 2000). Thus, regulatory and institutional priorities, choices and decisions too have tilted the balance of power in favour of employers.

Although this regulatory project is often represented as an unavoidable part of the new economy, globalization as a ‘fact' does not entail globalization as a regulatory project in any particular form. Despite the tendency to invoke global economic integration as a force compelling regulatory change in a particular ‘deregulatory' direction, integration does not compel convergence or harmonization.  There is no single set of institutions and rules required by global economic integration (Rodrik, 1999). Pressures for regulatory harmonization are often overstated (Helliwell, 2002), and it is clear that a variety of factors can restrain, even reverse, any ‘race to the bottom' in respect of rules, standards, and institutions. In any event, there is clearly a domain of choice even under ‘global' pressures. There are important differences in how the current economic transformation is being managed across industrialized states; these regulatory and institutional choices greatly affect the status of workers and the extent of social inequality (Bakker, 1999). There is also no set of institutions that can be unequivocally associated with growth, even in a globalized economy. In any event, the new emphasis on the role of human capital in a ‘knowledge' economy complexifies the policy and regulatory calculus in ways that have yet to be comprehensively analyzed.

These two dimensions of globalization – transformations in the world of commerce and production and regulatory and institutional reforms – clearly interact. However, attending to the differences between them brings into focus the role of law and policy in creating the new economy. If law plays a constitutive role in the new economy, if legal choices and decisions do not follow as merely ‘technical' dimensions of globalization, the question is how law builds the new economy, the world of work in particular, and how it might either contribute to or mitigate emerging forms of vulnerability for workers.

B. Good governance: The model

'Governance' can be distinguished from ‘governing' or government in the traditional sense in a number of ways. The concept of governance is intended to recognize the wide range of actors and institutions, both domestic and international, that now affect the normative and regulatory context in which economies and societies operate. ‘Good governance' also reflects a particular set of regulatory preoccupations: respect for the rule of law, transparency, accountability, stability and certainty of the regulatory and policy environment (IMF, 1997). Although these preoccupations have their genesis in development literature (World Bank, 1989; World Bank, 1994), they are now thought to be important for countries at all stages of development. Indeed, the concept of good governance is now widely deployed across a variety of different contexts, social, political and economic; for example, it is now common to speak of good governance in respect of corporations.

An important dimension of good governance is the decentering of the state in favour of a greatly increased role for market forces and non-state actors and civil society groups, sometimes referred to as the ‘third sector', in social and economic life. Good governance models explicitly seek to allocate to groups other than the state a much greater role in the generation of norms, the solutions to various forms of ‘market failure', and the provision of services (World Bank, 2002). At the same time, good governance prescriptions remain centrally preoccupied with the state and its role in the economy. Key to the good governance project is the effort to displace the regulatory or protective state in favour of what might be described as the ‘enabling' state. The animating belief is that, aside from institutions that are thought to enhance efficiency, state ‘intervention' in the economy tends to be an impediment rather than an aid to economic growth. For this reason, governance reforms tend to be directed at tasks such as reducing the size of the state, limiting its role and reach within the economy, and redesigning the public sector so that it better conforms to market principles. No longer actively managing the economy or redistributing economic resources to any significant degree, the central role of the state is to secure the background or framework conditions of economic growth by providing the physical and regulatory infrastructure and essential public goods and services that clearly cannot be provided through the market.

Good governance norms involve not only the promotion of a certain style of governance; they also contain a set of ideas about what governance is for. To put it another way, good governance norms are as much substantive as procedural or institutional. Moreover, much of the implementation of good governance is regarded as a managerial or technical task; this is why there can be general or universal governance principles that are the subject of expert advice. As currently conceived, the primary governance objective is to implement the rules and institutions thought necessary to enhance efficiency and competitiveness and ultimately promote growth. Under good governance, ‘efficient' legal regulation is understood as regulation that facilitates capital flows and financial transactions and secures the investments needed for growth. It requires respect for the rule of law and the protection of a set of core legal entitlements, in particular property and contract rights, on the one hand and the absence of ‘arbitrary' or, still worse, corrupt action on the part of the state on the other (Shihata, 1997). In general, regulation beyond these core entitlements, unless compensating for some form of market failure or externality, is presumed to be value-subtracting and undesirable. Even in cases of market failure, action by the state is only indicated where alternatives are unavailable, and where the benefits clearly outweigh the inherent risks of ‘government failure' or capture by private or ‘special' interests (Rittich, 2002b).

As a consequence of profound critiques of the assumptions on which good governance efforts were originally founded, governance debates now reflect increasing attention to the ‘social, structural, and human' dimensions of economic development (Sen, 1999; Wolfensohn, 1999).  There is a growing consensus that attention to issues ranging from health and education to human and workers' rights is not only of independent importance, but closely intertwined with economic growth and political stability as well. This ‘socialization' of economic debates has shifted the discussion squarely into the field of law and policy. In important ways, the central debate now is how economic and social concerns relate to each other; the legal and institutional questions are whether and in what ways social cohesion, inclusion and distributive justice contribute to economic growth and the degree to which they can be accommodated within market-centered legal regimes.

These debates are still in their initial stages. However, it is worth bearing in mind that the presumption in favour of a limited role for the state remains powerful, as does the view that any regulatory initiatives must be compatible with market forces (Gunderson, 2002). And despite a revised consensus in favour of greater attention to social and equity issues, in general, as a legal and policy matter they are still regarded as ‘add ons', things to pursue to the extent that they are compatible with efficient regulation.

C. Good governance: Assumptions and effects

Good governance is a regulative ideal; no state actually functions according to its norms.

Nonetheless, notions of good governance and the associated ideology of efficient regulation are powerful forces in contemporary regulatory and policy debates; among other things, they help legitimize particular reforms and policies and they help delegitimize others.  Thus, in considering arguments around good governance, it is useful to keep the following caveats in mind.

First, despite the increasing tendency to associate good governance with the adoption, or prioritization, of particular rules, institutions and policies on the part of the state (World Bank, 2004), there is no single set of entitlements that constitutes the ‘free market' (Tarullo, 1985; Rodrik, 1999). Rather, market economies have historically varied, and continue to vary considerably, in their legal and institutional structures.

Second, the contribution of different legal rules and institutions, as well as a wide variety of social and economic policies, to the competitiveness and efficiency of both firms and economies as a whole in a globally integrated economy remains deeply contested (Stiglitz, 2002). Perhaps nowhere is this more so than in the field of labour and employment law. While the neoclassical economic theory that largely informs the governance debates assumes that labour market institutions are likely to be counterproductive, there are forceful accounts, both empirical and theoretical, that describe how labour markets routinely operate in ways that deviate from standard economic models and suggest why it is that labour market regulation of various types might contribute to the efficient, as well as the equitable, operation of both firms and markets (Solow, 1990; Deakin and Wilkinson, 1994).  Parallel observations can be made about a variety of social protection programs and the provision of a range of social goods and services; indeed the arguments for various forms of protection, insurance, goods and services arguably increase as human capital becomes more important.  In short, the connection between rules and institutions and social and economic outcomes is more unstable, contingent and contested than good governance debates suggest.

Third, despite the label, in practice, good governance inevitably means much more than merely competent, technical management of the economy. Whatever their efficiency effects, legal rules and policies inevitably have distributive consequences: determinations about legal entitlements and institutional design directly affect the allocation of resources and power and the distribution of risks among different actors and groups (Klare, 2002). These observations have equal force, whether the state is enforcing the ‘rights' of investors or ‘regulating' labour markets.  Governance models that privilege property and contract rights and discourage regulatory ‘intervention' on behalf of workers are directly relevant to the question of vulnerable work in at least two ways. Because they empower employers and disempower workers in quite concrete and identifiable ways, as compared to other models, they can be expected to produce greater insecurity and income inequality among workers. But because a variety of labour market rules and institutions may in fact promote, rather than impede efficiency, they may be detrimental to growth and the production of good jobs.  Analyzed from this angle, it becomes clear that good governance policies unavoidably involve political and social choices; they may driven by belief as much as fact.

Arguments that the government should not ‘intervene' in the economy tend to be both unpersuasive and unhelpful in resolving the policy and regulatory questions around the new economy in any event. For example, the idea that the state ‘distorts' the market when it regulates the labour market but merely protects private rights when it extends intellectual property rights now seems transparently unpersuasive.  One reason is that it rests on assumptions about the distinction between private rights and regulation and the presence or absence of public power that have long been problematized in law, especially in regard to economic transactions and the sphere of production (Singer, 1988).  The government necessarily and inevitably ‘intervenes' in the economy through its role in determining and enforcing the rules and institutions that govern economic transactions. Hence, the question is not whether it should act, but for what purposes and to whose benefit. Arguments against intervention simply impair the central task: assessing, in as complete a way as possible, the role of law and policy in the production and amelioration of workplace vulnerability and disadvantage in the new economy.

D. Rethinking efficiency

Because the enhancement of efficiency and competitiveness plays such a central role in contemporary good governance arguments, it is crucial to understand what is actually entailed by the promotion of efficiency and to analyze the effects of regulatory and policy changes that are advanced in its name.

Efficiency-enhancing reforms may of course represent net gains through the reduction of deadweight costs that are of benefit to no one or that exceed their benefits. However, another possibility is that costs may be shifted rather than simply eliminated in the course of policy and regulatory changes to promote efficiency. Thus, ‘efficient regulation' may only represent a transfer of risk, cost or burden from one party to another, as apparent savings in one place show up elsewhere. For example, changes to job security rules may assist employers in the course of economic restructuring but place additional costs on the affected individuals, households, community or the state.  Even if such changes contribute to growth and efficiency in the aggregate, something that can by no means be assumed, those who lose out may not experience the gains that accrue to the economy or society at large.  In the alternative, reforms may exact hidden costs, costs that while not visible in the current efficiency calculus actually do turn out to affect either the economic performance of some workers or the economy as a whole in the medium to long term. For example, cutbacks to expenditures on health, education and income transfers may have not only obvious adverse effects on the degree of social cohesion and levels of economic equality: they may have long-term effects on the extent and quality of workers' labour force participation. Moreover, cutbacks to welfare may directly increase the amount of vulnerable work that is performed if they compel more people to engage in low-wage work on unfavourable terms (Williams, 2002). Thus, even where there appear to be aggregate gains, it may still be unclear if efficiency-enhancing reforms are desirable if they adversely affect the prospects of large groups of workers, unless there is also a means to ensure that the losses they endure are offset.  For these reasons, claims that particular policy and regulatory initiatives are inherently efficiency-enhancing need to be subject to assessments of their benefits and detriments in particular contexts, assessments that are much more far-reaching than typically occur in good governance prescriptions. We need to assess not only the question of gains, but consider rather 1) who wins and who loses, and 2) whether institutional mechanisms are available to ensure that the losses and benefits can be redistributed.

Labour market institutions and social protection policies are of obvious interests, as one of their major functions is to redistribute resources and power, not only between workers and employers in the labour market but among workers, households, and society at large. Whether they are mandated legislatively or negotiated collectively, workplace rules and standards typically compel greater cross-subsidization among workers than occur under individual contracts of employment; one reason is that all workers contribute to the cost of events that only materialize for some. The same is true with respect to social policies and social protections: they both ensure access to particular goods and services and compel the sharing of risks across the population. Thus, whether costs can be avoided rather than merely shifted and whether and why they are better allocated to one party or institution rather than another should be central to any discussion of the regulation of work.

Despite the arguments on the grounds of efficiency, any general bias against labour market regulations and social protection in general is likely to both intensify the problem of workplace vulnerability and withdraw from consideration crucial tools for relieving it. Moreover, except in the case of ‘win-win' scenarios, governance norms may actually be self-undermining. A range of policies associated with current good governance can affect either the position of workers in general or the position of particular groups of workers, either because they shift risks and costs or because they contain ‘embedded' or submerged social and distributive decisions or biases (Elson and Cagatay, 2001). Monetary policies, for example, may protect against inflation at the expense of employment and growth, imposing disproportionate costs upon workers, small operators and local consumers (Stiglitz, 2002).  Fiscal austerity drives may affect health, education and other ‘social' expenditures, creating increased unpaid work obligations for some women; this may, in turn, both limit such women's capacity to engage in paid work and intensify the degree of poverty in households.

To the extent that fiscal austerity or the privatization of public services affects employment in the public sector, it is also likely to reduce access to better protected and remunerated forms of employment. It is well-known that in such circumstance, not all work simply disappears; it may simply be contracted out and performed at lower levels of compensation and security. Indeed, it is an article of faith in the governance agenda that reliance on private provision should be pursued in the normal course wherever possible. Thus, it may simply transfer risk to workers and redistribute the costs of service provision.  Access to public sector employment can also be disproportionately important for particular groups of workers. Women workers, for example, have historically fared better in public than private sector employment; access to public employment may also be important to racialized groups, immigrant workers, and others who for diverse reasons have difficulty accessing networks to better jobs in the private sector. In short, there can be significant overlap among those who are vulnerable at work and those who experience social disadvantage on a particular ground or axis.

These connections need to be noted in a systematic way: unless some form of compensatory action is taken simultaneously, it should be expected that, whatever their beneficial effects with respect to fiscal objectives, decisions to reduce the amount of public sector employment may exacerbate the problem of vulnerable work.

Finally, is important to remember that legal rules and institutions tend to operate and interact with both formal and informal norms in complex and far-reaching ways. Legal or institutional reforms in one place directed at one problem may generate effects that show up elsewhere. Some of these effects may be positive; as a result, there may be synergies between other objectives and the solutions to workplace vulnerability. However, reforms designed to further goals including enhanced efficiency and competitiveness may increase the incidence of vulnerable work; in the alternative, reforms designed to ameliorate workplace vulnerability may be effectively undermined by countervailing changes elsewhere. Because worker insecurity can be affected, both for better and for worse, by changes in so many areas, addressing it compels a broad, integrated look at policy and regulatory shifts across the economy. Solutions may implicate not only labour and employment law and social protection policy: they may include immigration, tax, health and education policy, family law and corporate law (Philipps, 2003).