Prioritise worker welfare: How we can make the post-Covid economy work for everyone

There is a story, probably apocryphal, about a conversation between Henry Ford II, the American carmaker, and Walter Reuther, a workers’ union leader.

It is 1951. Ford and Reuther are walking through Ford’s newest car factory in Cleveland which, compared to its predecessors, requires significantly less manual labour to operate. A few workers stand amidst rows of machines, watching lights blinking, signalling their work status.

Glancing at the machines, Ford asks Reuther, "How are you going to get these machines to pay union dues?"

Reuther, without missing a beat, responds, "How are you going to get them to buy cars?"

Today, it isn’t just unions that are becoming redundant. Older machines, along with the workers that operate them, too are being slowly replaced by newer technologies and AI.

John Maynard Keynes, the legendary British economist who helped shape the global economy following the Great Depression, once predicted that coming technological advancements and increasing productivity would ensure that his grandchildren's generation have only 15-hour work weeks, leaving them with plenty of time to pursue leisure.

History, alas, has not been kind to Keynes. We, his grandchildren’s generation, are certainly much more productive. Yet, whenever I ask my peers how their 15-hour work weeks are going I get dirty looks. Where did Keynes go wrong?

Consider one of the more intriguing explanations by way of example.

Imagine you are the CEO of Funfosys, an IT company with 1,000 employees who work 40-hour weeks. The economic situation is great. One day, you purchase an app that improves employee productivity by 50 percent. Do you tell your employees that it is time to switch to 20-hour work weeks? Or do you lay off 500 of them and continue with 40-hour work weeks?

If you choose the first option, your competitors have an incentive to buy the app, lay off their workers, save costs, undercut you on pricing, and poach your clients.

As the CEO, you likely value your employees. Yet, when faced with such a challenging situation, you will inevitably prioritise your shareholders’ needs to keep your job.

Thus, even when economic conditions are favourable, businesses have perverse incentives to make their workers work more rather than less. In conventional economic thinking at least, it’s more profitable to cut costs and keep people working for as long as they possibly can.

Then, what happens when economic conditions are bad, as they are now in the wake of the coronavirus pandemic?

Between April and August this year, around 21 million salaried Indians lost their jobs either directly or as a result of the deep recession caused in no small part by the pandemic. And this is without counting those forced to accept pay cuts or deferrals, or other prejudicial variations to their employment terms.

While some “sacrifice” is understandable, it’s crucial to ask how much of the pain imposed by businesses on their workers was necessary.

Company conundrum

The fundamental problem is that private companies are strongly incentivised to maximise shareholder value and short-term gains at the expense of their workers. Safeguards and values such as employee welfare are seen as unnecessary costs to be stripped away.

But consistently giving employee welfare the cold shoulder isn’t sustainable. Even billionaire capitalists need consumers who can afford their products. Henry Ford gave his employees high wages simply because he wanted them to buy his cars.

In modern societies, companies are entrusted with providing dignified employment to the common man. If they fail in that role, and people can no longer provide for their families through work, the foundations of our society are at risk of crumbling.

The pandemic has given us a glimpse of the deficiencies in our current socioeconomic system. How do we fix this system, and adjust business incentives in such a way that worker welfare is granted its due importance?

Possible approach

Thomas Piketty, the influential French economist, suggests an approach that has been successful in Germany since the 1940s: the co-management system.

In this system, representatives of the workers mandatorily hold seats on the boards of their companies. It encourages greater employee participation in the running of their companies and balances harmful short-term interests of the employers.

For example, during the 2007-09 financial crisis, despite the demand for German products plummeting overnight, these representatives negotiated to keep jobs in exchange for the employees working fewer hours for lesser pay.

The system thus prevented wide job losses. As the economy recovered, German companies were in a position to ramp up production easily.

The laws providing for this system were passed when unions were politically powerful. Implementing something similar in India, which attempted to stimulate post-Covid growth through the suspension of nearly all labour laws, will be a huge challenge.

Unfortunately, there’s no easy solution that can fix these problems. But it is paramount that we evaluate different alternatives until we no longer, by default, leave the prize wheel at “headcount reduction”.

To the Henry Fords of today who still wonder what all the fuss is about, I ask, “Who is going to buy all your products and services?”

Darren Tony Lobo is a lawyer who works on employee welfare and labour relations issues.