by Andrea Ruiz-Esquide, with comments from J. Samuel Valenzuela

Labor has become an increasingly forgotten actor in the discussions of democratic transitions, Professor Samuel Valenzuela said to the audience during his lecture at CLAS. With the rapid increase in competitive pressures due to globalization, attention in policymaking circles has shifted to employer demands for greater flexibility in labor relations. The economic success of newly formed or reconstituted democracies has been associated in part with advances in such flexibility in order to enhance productive efficiency. Valenzuela noted, however, that labor movements continue to be important players in national economies and polities, and should not be ignored.

Samuel Valenzuela

Valenzuela argued that here is a conflict between, on the one hand, the political openings generated by democratic transitions and, on the other, the trend toward more flexible and individualized labor relations designed to better synchronize local economies to worldwide competition. The openings lead to an upsurge in union organization and activism, raising worker expectations of being able to strengthen or restore - as the case may be - long standing labor relations institutions and benefits that were ignored, altered, or reduced by the authoritarian regimes. However, employers and many policymakers associate such institutions and benefits with the closed economy model of the past that produced mediocre levels of growth and that has been made obsolete by globalization. As a result, union expectations have been frustrated, and their leaders have been increasingly dissafected with the labor policies of democratic transitions.

Valenzuela focused his analysis on the case of Chile, a nation with a deeply conflictive past and a long history of labor activism. The Pinochet dictatorship that began after the breakdown of Chilean democracy in 1973 put into place a broad ranging set of neoliberal reforms, including new labor relations that maximized management prerogatives and curtailed union and workers' rights. Given the country's strong economic growth since 1985, many analysts have pointed to Chile as a paradigm of the successful application of neoliberal economic policies. This perception has spurred neoliberal reforms elsewhere in Latin America, and after the return to democracy in 1990 it has inhibited Chilean policymakers and legislators from making any deep revisions in the legal and policy frameworks bequeathed by the military regime.

The pre-1973 Chilean labor relations system was described by Valenzuela as one characterized by the existence of unions with a solid presence at the plant level, and considerable participation by the state. It regulated wages and prices, and intervened in labor management disputes. Social policy goals were sometimes reached by placing the burden on firms, but then the latter could pass on the costs to prices given trade protectionism and subsidies. This resulted in relatively inefficient firms and macroeconomic instability. The military regime's policies radically redesigned the system.

The collective bargaining and union organization laws were devised by economist José Piñera in the late 1970s in response to the threat of a boycott on Chilean trade by the AFL-CIO, among other groups, in retaliation for the dictatorship's forced closure of union activities. The new laws withdrew the influence of state labor inspectors over union management relations. Unions were allowed to organize only at the plant level, and to rely for their finances on member dues - thereby losing funding drawn from a cut in the profits of their respective firms. Union affiliation - which was formerly mandatory for all workers once a majority voted in favor of creating a union - was made voluntary. And whatever agreements they reached were made applicable only to their members unless employers decided to extend them to the whole workforce, or individual workers requested their inclusion. Such agreements were to be signed for periods of at least two years, and could not refer to matters other than wages and benefits. The new strictures regarding strikes permitted employers to hire replacement workers, and any strikers that continued their movement for more than sixty days were to be considered to have resigned from their jobs. With the weaker unions and the new rules governing strikes, the labor laws enhanced the influence and operation of the individual labor market in labor relations.

Some important changes to these labor laws were made after the return to democracy with President Patricio Aylwin. For instance, the sixty-day rule concerning strikers was abolished, and legal recognition was given to federal and confederal union organizations as well as to associations of public employees. And yet the basic outlines of the labor relations system remained in place. As a result, unions have not recovered their prior strength. In 2000 only about 11 percent of the Chilean labor force was affiliated to a union, and only 17 percent of all enterprises have one. Only 21 percent of firms have signed at least one collective bargaining agreement in the five years between 1994 and 1999, either with a union or with an ad hoc "negotiating group." During 1999 only 11 percent of all workers and 63 percent of all unionized workers were covered by such an agreement. About a fifth of all collective bargaining instruments were signed during that same year by "negotiating groups." The weakness of unions and collective bargaining is further revealed by the fact that wages were adjusted upwards in equal proportions in firms whose workers were unionized as in those whose workers did not have a union.

Valenzuela emphasized, in addition, the negative consequences of two specific institutions: the severance payment system and day care centers, both employer funded.

Instituted long before the military regime began as a means to promote employment stability and to compensate workers for unemployment, the severance payment system is supposed to provide employees who are fired one month's wages for each year they have worked in the firm. The 1979 revamping of labor laws did not eliminate this system, but capped it at five months, while the Aylwin government increased this cap to eleven months for workers fired due to the "needs of the firm." Valenzuela criticized the system because it generates variable costs imposed on the microeconomic parameters of enterprises, at the same time that they are exposed, unlike what occurred prior to 1973, to a sharp degree of competition in their product markets given the economic opening. This stimulates keen efforts by employers to get around the cost risks that the system engenders. They basically do this by firing employees frequently, sometimes in abuse of the law.

As a result, Chilean firms - even industrial ones that have been in operation for more than ten years - currently make as many dismissals in two years as their total number of salaried employees. The high turnover affects even those hired with so called "indefinite contracts," whose number of dismissals equals their total renewal every five to six years. Moreover, in 1999 only 17 percent of all those who were fired received severance payments. This mechanism therefore has the opposite result from that which it was intended to have, namely, it stimulates employment instability, and it only provides an income to a small minority of unemployed workers. Furthermore, it stimulates business investments only in lines of production requiring low skilled, replaceable labor, and it stronly discourages businesses from spending any resources in worker training programs of any substance.

The day care provisions require employers of more than 19 women to pay for day care needs. Valenzuela indicated that its defects in practice were similar to the severance payment system. In other words, by establishing a potentially variable cost on employers, they make every effort to shun it. The result is that small to medium-sized firms tend to hire only up to 19 women, thereby severely limiting women's access to formal employment. And 40 percent of firms that should pay for day care do not comply with the law.

Valenzuela did not advocate a return to pre-1973 labor relations practices. He agreed that Chile's open economy does require labor flexibility to enable employers to adapt to changing conditions. But Valenzuela argued that Chilean labor institutions inherited from the Pinochet dictatorship did need to be extensively reformed. Labor's voice in firms should be strengthened, Valenzuela said. Collective bargaining should be increased, allowing only unions - and not also "groups" of workers who can be manipulated by employers - the right to engage in it. Worker delegates should also be elected to new labor-management committees at the plant level. Union federations should meet regularly with their employer counterparts to discuss issues other than local level wages and benefits, and national leaders should represent working class interests in discussions over social policies, including minimum wages, as well as measures to retain macroeconomic stability. Moreover, an unemployment compensation system linked to worker training and job relocation should be established, according to Valenzuela, and a one time bonus equal to 11 months of wages should be paid from the unemployment system to salaried employees upon retirement.

Valenzuela concluded by arguing that unemployment insurance and day care centers should be funded by assessing a fixed cost on employers. The administration of these systems should also be removed from the purview firms. More broadly, Valenzuela noted that in the heightened competitive environment produced by globalization it was important for labor to concern itself with measures that decrease business risk. Hence, labor should support policies that retain macro-economic stability, and reiterate its commitment to private enterprises as engines of growth. Better labor relations with a stronger collective worker voice can also help reduce business risk by stimulating a more extensive partnership between firms and their employees to meet the new competitive challenges of the current age, according to Valenzuela. This would permit the Chilean economy to prepare for a new phase of development based on production that embodies greater value-added with more sophisticated technologies, requiring a better qualified and better paid labor force.