Social contract for the Asian century?

Asian trade union leaders are pushing for a new social contract in the region. What are the issues? What are the chances?

Asian trade union leaders from UNI Apro, now meeting in Bangkok, are pushing for a new social contract in the region. What are the issues? And how could a new social contract be achieved?

But first of all, what do we mean by a social contract?

When human beings gave up the insecurity of living in a "state of nature", and became members of society, they also gave up some individual freedoms in order to enjoy the security of living in society. Human beings thus became party to the "social contract", an implicit contract between citizens and the government, which provides security to citizens. This social contract between the government and citizens involves a sharing of rights and responsibilities between both sides for issues such as security, opportunity, solidarity, inclusion, empowerment, responsibility, sustainability and rule of law.

But social contracts should not be static. They should evolve in response to international developments like globalization and technological change. They should also evolve as countries transform through economic development -- from rural/agricultural communities to urban/manufacturing societies and then to knowledge-based/service economies.

Asian countries face great challenges regarding social contracts for the 21st century, the Asian Century, as the world economy is undergoing unprecedented changes, and their own economies and societies are experiencing dramatic transformations in the space of a generation or two.

What are the main concerns of Asian trade union leaders?

Asian trade union leaders are concerned about the fracturing and weakness of social contracts in the region. In particular, their main concerns are:

(i) the "informalization" of work through irregular, informal, part-time, casual or contract work arrangements which leave them in a position of insecurity;

(ii) the growing gap between rich and poor, which is a sign of social injustice;

(iii) the inadequacy of labor rights like the "right to organize" by forming trade unions, and the right to "collective bargaining" meaning the right of workers to discuss and negotiate with employers collectively through a trade union; and

(iv) many trade union leaders are also concerned about gender equality, social and political freedoms, democracy and the rule of law.

These concerns are very real. But there can be no question of returning to a past of lifetime employment contracts, and seniority-based salaries, as some trade unions would like to do. Rather, social contracts must be modernized to reflect the world and challenges of today.

What are the main issues?

The issues relating to social contracts vary greatly in Asia, according to countries' different stages of economic development, and their different social and political systems and histories.

Japan, in many ways the most advanced country in Asia, has seen a dramatic increase in informality in its labor market. This reflects employers' need for flexibility and competitiveness in the context of globalization and rapid technological change. Today, some 38% of Japanese workers have irregular working contracts, more than double that of 20 years ago. Korea has also seen a rise in informality. Thus, Japan and Korea have seen a rise in insecurity, or a breaking of the previous social contract in the eyes of trade union leaders.

Many other Asian countries, which are at earlier stages of development, have moderate to high levels of informality in their labor markets. Over the years, with ups and downs in the economic cycle, these countries have often seen some small rises and falls in informality.

But historically, informality has always been the norm in these countries. Until recent times, they were rural and agricultural societies. They are now rapidly becoming urban and manufacturing/service based societies. The traditional social contract in these countries was founded in their villages and families which provided their security. Now workers in these countries are in search of a new social contract in their new urban context. They are especially concerned that there have only been limited improvements in labor market informality as economies have developed. This is often attributed to the excessive power and dominance of multinational enterprises which reportedly treat workers as mere cost centers and commodities.

The growing gap between rich and poor also has diverse manifestations. In Japan, the rise of irregular work is clearly associated with inequality, rising relative poverty, and lower incomes for irregular workers. The rich are getting richer, while the poor are getting poorer. The former social contract based on a fair share of national income is thus fracturing.

In most developing Asian countries, there has also been a dramatic rise in income inequality. But while the rich are getting richer, the poor have not been getting poorer. Incomes of poor people have been rising (and poverty declining), but at a slower rate than the incomes of rich people. Thus, many poor people have a sense of relative social injustice, even though their own incomes have been increasing.

The situation regarding the labor rights (the "right to organize" and the right to "collective bargaining") again varies greatly across countries. In developed countries like Australia, Japan and Korea, workers in principle enjoy labor rights. In developing countries, labor rights can be limited or even denied, especially in non-democratic regimes. But even in the advanced and democratic countries, trade unions can be harassed and broken by companies, and governments and the judiciary do not always protect the legality of workers' rights.

Despite Asia's miraculous economic development and poverty reduction, progress in political and social freedoms, and the rule of law are lagging in the region. Asia arguably has only three mature democracies, being Japan, Korea and Taiwan. Countries like India, the Philippines or Malaysia are described by the Economist Intelligence Unit as fragile democracies, while Singapore is considered to be a "hybrid regime", with a mix of democracy and authoritarianism.

China could be described as a case of "adaptive authoritarianism", as the government is becoming increasingly responsive to public opinion, as it fears for its own survival. Interestingly, in the World Justice Project's rule of law index, China achieves a very much better score than India for absence of corruption, order and security, and criminal justice, and a similar score for regulatory enforcement and civil justice. And China also has a more favorable ranking in Transparency International's Corruption Perceptions Index than Thailand, India, Philippines and Indonesia. In other words, the quality of governance is not always related to democracy.

Asia also performs poorly on gender issues. The Philippines is Asia’s highest ranking country (8th in the world) in the World Economic Forum's Global Gender Gap Report which examines access to healthcare, access to education, political participation and economic equality. But the advanced countries of Japan and Korea are lowly ranked at 101 and 108 respectively, or around the same level as India (105). Vietnam (66) and China (69) score higher than these democracies.

Social protection -- like social insurance, social assistance, and labor market programs -- is also at the heart of the social contract. Not surprisingly, Japan scores highest in a recently published Asian Development Bank social protection index. But China and Vietnam score much higher than Thailand, Philippines, India and Indonesia. Overall, the ADB finds that, despite steep GDP gains in recent decades, the majority of countries in Asia and the Pacific -- particularly those that have graduated to middle-income status -- have not correspondingly strengthened their systems of social protection.

Forging a new social contract in Asia?

There is a strong case for forging a new social contract in Japan. The informalization of the labor market, the rise in relative poverty and widening gap between rich and poor represent a clear rupture of Japan's traditional social contract. This is having adverse effects on Japan's economy, as well as the society, since informal workers receive less training and find it very difficult to graduate to the formal labor market. It has also contributed to the deflationary tendencies in the economy.

A new social contract in Japan should be based on a comprehensive approach. It should include improving the social insurance coverage of non-regular workers and upgrading training programmes for them, and preventing discrimination against non-regular workers. It should also inlcude reducing effective employment protection for regular workers to order to increase labour market flexibility and human capital. Such reforms would increase equity across different segments of the labour force. A new social contract should also focus on drawing more women into the labour force -- women account for a large share of Japan's irregular workers. This requires removing financial disincentives to work, creating more family-friendly workplaces and increasing the availability of childcare.

In China, the government is trying to adapt the social contract. For the past three decades, this has been based on the broad acceptance and tolerance of Communist Party rule, because the Party has delivered rapid economic growth, poverty reduction, and physical security. But there is now great public discontent with widespread corruption, massive inequality, arbitrary abuses of power, and severe environmental problems. This has motivated the government to make efforts to reduce corruption and promote more inclusive growth and better governance. It is still not clear how successful the government will be in these efforts.

Chinese citizens now have a broad range of freedoms that they did not have before. But large numbers are still pushing to improve the social contract by demanding greater freedoms and rights, notably labor rights, the rights to social services outside their home town (ie, an abolition of the hukou household registration system), democracy and human rights more generally.

In Asia's rapidly developing economies, a national social contact is quite a new notion for recently urbanized populations, and for citizens who are recently connected to social media and now are well informed of social injustice and conditions in the world. Governments and societies must respond to this new situation through a social contract based on less informal and more decent work, less income inequality and social justice, and by recognizing labor rights, and other political and social freedoms. Elites can no remain aloof.

Putting together the pieces

Putting together the pieces of a new or reformed social contract requires all of society working together -- labor, business and government. All have interests, and all must work together to achieve a "win-win" outcome.

Workers are right to demand labor rights, political and social freedoms, and a degree of social justice. But they cannot expect fully secure lifetime employment in today's world of globalization and rapid technological change, which places a premium on flexibility and adaptability. Some degree of insecurity is now part and parcel of life, and should be dealt with through adequate social protection.

It is not clear that many trade unions have accepted this. Indeed, many trade unions now face a challenging agenda in representing the modern world of work, rather than a declining minority of workers, and working towards a social contract that is relevant to the 21st century.

For their part, businesses should practice more enlightened longer-term profit maximization. This means treating workers as assets and human beings -- to be respected, trained, and encouraged to contribute -- rather than treating workers as cost centres who are offered "fast-food" style jobs. Offering workers a reasonable degree of job security results in more productive and innovative workers.

Governments need to orchestrate social harmony between labor and management, and encourage both sides to work towards win-win solutions. Governments also need to take far more seriously issues of a national dimension regarding social contracts. This means fostering human capital development, opportunity, productivity, social harmony and stability. Governments must also implement growth-oriented policies that generate adequate employment, and avoid buildups of public debt which impose burdens on future generations.

The stakes are very high in this major endeavor of forging a new social contract in Asia. If we do not succeed, social unrest could well become the ultimate threat to the future of our societies.