Capitalism and HR Policies - Term Paper Example

 Capitalism and HR Policies To what extent does the ‘variety of capitalism’ prevailing in a particular economy determine the choice of HR policies by organisations in that economy? Introduction Capitalism is not easy to define since many thinkers and writers have given several different definitions which are more or less suitable depending on the context of the discussion (Dore, et. al. 1999). In terms of the effect of capitalistic government policies on individual companies HR management, we are presented with differing opinions. In spite of the fact that companies are at liberty to describe and enforce their own HR policies as they wish to, it can be seen that the way the economy functions and the variety of capitalism used in the country certainly has an effect on the company’s policies. Hall and David (2001) agree with this idea completely since they place the firm at the centre of economic activity in any society. HR and Business related activities like training and education of labour, bargaining with unions, capital and asset acquisitions, even interactions with other companies are connected with the flavour of capitalism used in the economy. Naturally, firms in the country would tend to move towards a system which has inherent support from the national institutions and the government. Over a long period of time, the business processes and the HR policies would become mirrors to the methods used by the political and social institutions of the country. Variety of Capitalism The history of capitalism itself is quite recent since during the 1960s, the word ‘capitalism’ was not prevalent in academic discussions. In fact, it was used by Russian and Chinese Communists to describe the economies of the western nations. During those times, the Conservatives talked about ‘free enterprise while the liberals used the term ‘mixed’ economy and anyone who put forward the idea that the economics of the society is the fundamental guiding principle of production and government were seen as materialists (Block, 1999). With time, the New Left took the term capitalism and applied it to the economies which stand in America, Canada, a large part of Europe and some parts of Asia. During the 1980s and 1990s, a lot of development took place in economic theory in international terms and economists began to see varieties of capitalism itself. The neo-liberal viewpoint that there is only one system of Capitalism in the world is put in doubt when examples are seen from Germany and Japan. One can see unionists sitting on the corporate boards of German companies and Japanese companies tend to focus more on stakeholders and employees than shareholders and clients (Block, 1999). At the same time, when the term ‘capitalism’ is used, the majority of the time it is used to describe the economic systems present in England or America. There is also evidence presented by Block (1999) to show that America is often the guiding force behind the creation of liberalised free markets as per the pressure it has levied on other smaller economies. These economies will resist this pressure simply because by being in a different variety of capitalism, they gain competitive advantages that make their country more attractive for investors. This is an automatic and natural organisation process which changes depending on the needs of the country (Hall & David, 2001). Broadly, capitalist countries can be said to follow two systems of capitalism. The first one is a liberal market economy (LME) and the second one is a coordinated market economy (CME). LME countries are those which have competitive market arrangements where supply and demand decide the outcomes, processes and HR policies followed at a company. LME companies seek to create shareholder value and returns are judged on a relatively short-term basis. State intervention in companies is rarely seen except in cases of fraud or other illegal practices. Britain, Canada, Australia, Ireland and America itself come in this bracket and can be considered to have LMEs (Aguilera & Dencker, 2004). Germany, Switzerland, Japan and several Scandinavian countries are CMEs, where non-market relationships can take preference over creating value for the shareholders of the company. The stakeholder is often more important as the employee, the supplier or the customer. The dependence of the firm on public financial information or recent earnings reports is reduced and the company has to take a long term view of its objectives. This also means that the HR policies of the company will become reflective of the situation presented by the overall economy (Aguilera & Dencker, 2004). Even small differences in the type of economy will create noticeable changes in HR policies and visible advantages and disadvantages for companies operating in the region. For instance, the case of Germany and Britain is presented in a comparison of retail and fashion clothing industries and there is a marked difference between the industry wide HR policies due to the government’s economic policies. Lane and Probert (2004) say that: “Divergent skill structures are reflected in payment structures. In Britain, wage levels in this industry are among the lowest in manufacturing. The industry in some areas has relied strongly on ethnic minority employees, many of them home workers. In Germany, the much more union-controlled industry had to pay comparatively high wages (Lane & Probert, 2004, Pg. 254).” Connections with HR policies The HR policies prevalent in a given country have to be understood in relation to the capitalist system which is currently in vogue. Heery and Wood (2003) discuss the position of Britain and say that due to the LME, employers will bring in labour from outside markets, reduce the training they give to employees, hinder any attempts of the employees to participate in the business, increase employee commitment by sharing their profits and look for situations where bargaining can be devolved to adjust labour costs with business performance. While this is certainly true for the majority of cases in Britain, it may not be true for individual companies or some sectors of the economy. This is because globalisation has created an environment where the culture of the home country of a multi-national company may be stronger within the company than the culture of a country (Ruth & Dencker, 2004). Despite this, it can be assumed that over a long period of time, the economic forces of the capitalist system where the company is operating will have a greater effect on the HR policies than the capitalist system of the home country (Heery & Wood, 2003). The conflict between the American and Japanese varieties of capitalism can also be viewed in terms of the general HR policies followed for selecting salaries of the CEO. The head of the company in America or England will make a lot more money as compared to the CEO of a company in Japan. This is because the position of the CEO in America is thought to be of the person who creates the most value for the company and therefore deserves a very high, if not the highest salary in the company. The Japanese viewpoint gives the CEO a position as a guiding figure for the company and the comparative salary between the two countries is very different (Block, 1999). There is also the danger that such differing HR policies would lead to the problem of wealth inequality and personal greed could lead to the removal of cooperative varieties of capitalism. Considering this rather bleak situation, Block (1999) goes as far as to say predict that, “In the worst case scenario, we will have identified the varieties just in time to preserve them in museums and libraries, but not soon enough to prevent their destruction by the forces of global capitalist integration (Block, 1999, Pg. 229)”. It seems that a benign form of capitalism (which is practiced in the EU) could be better for the greater good than one which considers competition to be the best. The HR policies of America certainly reflect the economic system followed by the American government. For instance, there is not a lot of attention paid to employee training and creating education opportunities for employees. Even tuition reimbursement for employee education is considered a company benefit rather than an investment made by the company. This is because labour in America can be employed at will and the government will only support the unemployed for a short period of time at significantly reduced income levels. Therefore, Both workers and the company are hesitant to invest time and money into job specific education (Hall & David, 2001). On the other hand, when examples like Japan and Germany are given, it can be seen that long term employment with one employer is more certain and unemployment may not be a real risk for a person. In such cases a company would be more willing to provide training to individuals and make them more likely to become specialists in their fields. The employee mobility of the American worker, along with the weak employee maintenance and income guarantee policies create a situation where education for employment in any field is more general than it should be (Hall & David, 2001). In terms of HR policies being supportive of employees, Hall and David (2001) find that CMEs are far more supportive than the LMEs. While employee mobility forms a significant portion of this relationship, it also stems from the fact that LMEs tend to produce hierarchical companies which coordinate their efforts in formal terms (Höpner, 2005). Employees are often given contracts with legal bindings and definitions of their roles for the company. The coordinated market economy depends greatly on non-moderated connections between the company and the employees as exemplified by the case of Japan where the company can be seen as an extended family. In many ways, the HR policies of an LME are shown to not trust the employee. Technically, an American worker may leave one company and join the other to share all the competitive advantages and training he/she has received over time. Anti-trust policies may be in present in liberal economies to prevent the sharing of knowledge between companies and create more competition between the firms (Höpner, 2005). As opposed to this, Germany and several other European countries permit the free sharing of information and innovation between firms (Hall & David, 2001). It can also be expected that the HR policies of a LME would reward employees for being innovative as in the case of American companies. This stems from an American Company’s ability to lay off workers and get other workers to replace them without maintaining employment levels since the economic system is ideal for, “substantial shifts in production lines, the development of entirely new goods, or major changes to the production process (Hall & David, 2001, pp. 38-39)”. It also improves the market for those who wish to create new ventures since the cost of failure is lowered (Höpner, 2005). CMEs do not need to place high value rewards for innovation since they are focused on bringing small innovations to existing products and processes. Their reason behind this is that the training investment, job specific skills, personal autonomy of the workforce, comparatively high job security in coordinated market economies along with a degree of labour control within the overall structure company would make it less likely to go for time or labour saving innovations and therefore have little rewards associated with them (Hall & David, 2001). Conclusion It seems clear that the overall economic influences on a company will have a visible effect on the HR policies maintained by the company. At the same time, the economy alone can not be the defining factor for the HR policies followed at any company since there are several influences which have an even greater effect. For example, the culture of the company, the personalities which are involved, the product they are involved with and the nature of their business. I believe that while the economy will lay down broad principles for HR policies, the actual material of the policy can only be created by careful consideration of the factors mentioned above amongst many others. Word Count: 1,993 Works Cited Aguilera, R. and Dencker, J. 2004, ‘The role of human resource management in cross-border mergers and acquisitions’, International Journal of Human Resource Management, vol. 15, no. 8, pp. 1355-1370. Block, F. 1999, ‘New Thinking About Capitalism’, Dollars & Sense, vol. 12, no. 226, pp. 19-25. Dore, R. Lazonick, W, and O'Sullivan, M. 1999, Varieties of Capitalism in the Twentieth Century. Oxford Review of Economic Policy, vol. 15, no. 4, pp. 102-120. Hall, P. and David, S. 2001, Varieties of capitalism: The Institutional Foundations of Comparative Advantage, Oxford University Press, Oxford. Heery, E. and Wood, S. 2003, ‘Employment Relations and Corporate Governance’, British Journal of Industrial Relations, vol. 41, no. 3, pp. 477-479. Höpner, M. 2005, ‘What connects industrial relations and corporate governance? Explaining Institutional Complementarity’, Socio-Economic Review, vol. 3, no. 2, pp. 351-358. Lane, C. and Probert, J. 2004, ‘Between the Global and the Local: a Comparison of the German and UK Clothing Industry’, Competition & Change, vol. 8, no. 3, pp. 243-266. Read More