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Sharma, B. (2000). Stateness and Changing Contours of Industrial Relations in ASEAN, Research and Practice in Human Resource Management, 8(1), 41-62.

Stateness and Changing Contours of Industrial Relations in ASEAN

Basu Sharma


This paper examines changing contours of industrial relations strategies in ASEAN-5 (Indonesia, Malaysia, Philippines, Singapore, and Thailand). It hypothesizes that the extent of stateness – high vs low – is a key factor in shaping the direction for industrial relations systems, both in times of crisis as well as prosperity. High stateness leads to less disruptive shifts while low stateness to abrupt and often disruptive changes in industrial relations. The ASEAN evidence analyzed in this paper provides evidence in support of this hypothesis.


The ASEAN economies have gone through a cycle of boom and bust in the past three decades. In the 1960s, some members of the ASEAN constituted the world’s prime crisis area. These economies, however, provided evidence of a successful export-oriented industrialization experiment in the world economy in the 1970s. During the 1980s and until the mid-1990s, they were touted as “the engine of the world economy” far into the twenty-first century. This unprecedented economic growth brought some changes in the socio-economic landscape of the ASEAN. Indicators of these changes include the establishment of a democratic government in the Philippines, graduation of Singapore to a newly industrialized country, pronouncement of Malaysia’s professed goal to become a developed country by the year 2020 (also dubbed as vision 20/20), and likely graduation of Indonesia to a semi-industrialized country. But this optimism died out swiftly along with the Asian financial crisis beginning in July 1997. The past two and a half years following this crisis have generated differing opinions on the future of ASEAN economies, ranging from highly negative to mildly positive ones. While popular press has often considered the “Asian miracle” passe, Radelet and Sachs (1997) have viewed the Asian crisis only as a temporary setback. In fact, there are already signs that some of these economies have started to rebound, supporting Radelet and Sachs’ view.

Fluctuation in the economies of the ASEAN has lent itself to reassessment of national industrial relations strategies and responses by industrial relations actors-government, employers, and trade unions. The evolution of trade union rivalry to counter the state-dominated labour movement in Indonesia, reconstitution of the collective bargaining regime in the Philippines, a revamping of public sector industrial relations, particularly the state enterprises in Thailand, the unification of the labour movement in Malaysia and increasingly offensive managerial strategies in industrial relations in most of these countries are some of the results of these responses. While these changes are significant, the resiliency of some of the established practices is also remarkable. For example, the role of the state has remained dominant, though in varying degrees. Industrialization policies still set the stage for industrial relations. Thus, given the flux in ASEAN economies in recent years, a fundamental question of interest is how have strategies and policies in industrial relations changed in times of crisis and recovery in ASEAN and what are the key factors explaining variations in these changes?

My purpose in this paper is to delineate varying experiences and strategies of the actors in industrial relations at the national level in ASEAN countries over the years and seek to explain observed patterns in them to answer the question raised above. The paper is organized into four sections. I present a discussion of the changing role of the state in the context of an interface between forces of economic nationalism and influences of globalization in section one. Section two contains an overview of the ASEAN currency crisis and its impact on labour markets. The cast of characters in industrial relations and their conduct during times of economic crisis and recovery in ASEAN are discussed in section three. Similarities and differences in industrial relations strategies and policy responses are examined and explained in section four. I find that the extent of stateness is one of the key variables for explaining variations in changing contours of industrial relations in ASEAN. The paper, then, concludes with remarks on likely future of industrial relations in ASEAN.

The State in the Crossfire : Economic Nationalism and Globalization

It has become a platitude to say that the role of the state has remained central to economic development and industrial relations in industrializing countries. In fact, the extent of institutional centrality of the state – called the stateness – has proven to be an important conceptual variable for explaining variations in development trajectories of developing countries (Evans, 1997; Netti, 1968). This concept can readily be used to explain variations in industrial relations developments as well.

Industrial relations systems, patterns and strategies are intimately related to the process of industrialization as well as the stage of industrialization of a country (Sharma, 1996; 1991). However, the ideology supporting a particular style of industrialization is important for determining the extent of stateness. Following the mainstream literature, the process of industrialization may be either guided by the ideology of economic liberalism or of economic socialism. Under economic liberalism, markets will dominate economic transactions where the role of the state and other institutions will be minimal. Under economic socialism, state will play a predominant economic role and hence intervention in the market will be considered tolerable, and often even desirable. However, variations in these two ideological strands are possible. In fact, according to Fallows (1995: 445), the Asian model of industrialization is based upon an interaction between government guidance and market competitions. It is more a case of economic nationalism than that of economic liberalism or economic socialism. Hence we need to evoke the concept of nationalism to fully comprehend the role of the state, or the extent of stateness in industrialization and industrial relations.

Nationalism has two main versions-liberal and conservative. The former is rational, benevolent and enlightening, whereas the latter is emotional, often malevolent, and restrictive (Levi, 1997). Even though the liberal version of nationalism has a lot of positive virtues, negativities associated with the conservative version have often overshadowed discussion and analysis of nationalism as a positive force for economic growth and industrialization. Hence scholars of industrial relations and economics have abstained from using nationalism as a behavioural theory. However, as Robinson (1962: 124) has argued, “ the midst of all confusion, there is one solid unchanging lump of ideology that we take so much for granted that is rarely noticed – that is nationalism. The very nature of economics is rooted in nationalism.”

Nationalism as an ideology first emerged in Europe and then spread across continents. It has been an instrument for colonial exploitation, political boundary changes, social changes, and economic expansion. Nationalism is also seen by many as a component of a modern society which has helped frame national interest. Thus it has been an ideological force in directing economic policies of many developing countries toward rapid industrialization. Hence economic nationalism may be viewed as a powerful tool for economic freedom just as political nationalism may be with respect to political independence of former colonized countries. As Taira (1991) has succinctly stated, economic nationalism is a combination of political nationalism and economic strategies for industrialization.

While a crucial role for the state in national economic policy formulation and implementation is justified by the theory of economic nationalism, there has been a debate about its sustainability in the current context of globalization. The thrust of this debate is about whether globalization leads to an eclipse in the role of the state or to high stateness. The ideology of economic liberalism predicts eclipse in the role of the state. However, arguments developed from the literature on new economic growth theory as well as from state-global corporations interface predict high stateness (Evans, 1997; Rivera and Romer, 1991). To quote Evans (1997: 74), “While globalization does make it harder for states to exercise economic initiative, it also increases both the potential returns from effective state action and the costs of incompetence.” The high stateness might not be totally against economic liberalism. In fact, even Adam Smith justified a limited role of the state. While he viewed society as “a great, an immense machine” constituted of various parts with self-interest as the motor force, he also argued for state intervention in cases where market mechanism broke down and outworn practices needed to be eliminated (Reisman, 1998; Skinner, 1974). In today’s context, it is only high stateness which can tame the enormous monopoly power of global corporations as well as global institutions such as the International Monetary Fund and the World Bank. In fact, several studies have demonstrated a relationship between relative capacities of state economic bureaucracies and the capacity to regulate foreign direct investment (Henderson, 1999; Koh, 1997). In addition, scholars have noted that the crisis of the state often leads to degeneration of a civil society, often accompanied by rise of an angry public or an interest group (Evans, 1995).

Since high stateness is a source of competitive advantage of nations in a globalized economy, one can argue that the role of the state in industrial relations remains central even in times of economic crises and that its active role is considered essential for recovery. A high stateness can lead to management of industrial relations to contain social unrest whereas a low stateness can lead to social disrnption by interest groups such as trade unions and thereby leading to a more chaotic and politicized pattern of industrial relations. Put differently, the extent of stateness – high vs. low – is a key factor in shaping the direction for industrial relations systems, both in times of crisis as well as prosperity. In what follows, I discuss recent developments in ASEAN to see empirical content of this proposition. Let me begin by briefly summarizing recent trends in the economies and labour markets in order to provide a context for discussion of new developments in industrial relations in ASEAN.

Currency Crisis, Economic Woes, and Labour Markets

The ASEAN economies achieved unprecedented rates of economic growth over a period of almost three decades. Table 1 presents data on annual growth rates of merchandise exports and gross domestic product (GDP) of the ASEAN-5.

Table 1
Annual Growth Rates of Merchandise Exports and Gross Domestic Product (GDP)
Exports GDP Exports GDP Exports GDP Exports GDP Exports GDP
1981 7.1 7.9 8 9.6 7 6.3 -9.3 6.9 -1.1 3.9
1982 -15.4 2.2 1.2 6.9 -1 4.1 2.5 5.9 -12.3 2.9
1983 -5.4 4.2 5.1 8.2 -7.7 7.3 14.3 6.3 -0.3 0.9
1984 11 6 10.9 8.3 16.3 7.1 19.9 7.8 7.7 -6
1985 -10.7 2.5 -5 -1.6 -3.8 3.5 -7.8 -1 -14.1 -4.3
1986 -22.3 4 -0.9 1.8 24.7 4.5 -9.4 1.2 4.6 1.4
1987 19.5 3.6 28.7 8.8 31.7 8.4 31.1 5.2 18.1 4.7
1988 13.4 4.7 38.3 11.1 36.1 11 17.4 7.8 23.7 6.6
1989 17.8 7.5 13.8 9.2 25 12 18.3 8.7 10.6 6.1
1990 16.8 7.4 17.2 8.3 15 10 17.4 9.8 4.7 2.4
1991 7.3 6.4 12.7 7 21 7.5 20.3 8.6 9.1 -1
1992 14 7.2 8.5 6.2 13.7 8.1 18.1 7.8 11.1 0.3
1993 8.3 7.3 17 10.4 13.4 8.7 16.1 8.3 15.8 2.1
1994 9.9 7.5 25.8 10.5 22.7 8.6 23.1 9.2 18.5 4.4
1995 18 8.2 21 8.7 24.8 8.8 26.6 9.5 29.4 4.8
1996 5.8 8 6.4 6.9 -1.9 5.5 7.3 8.6 17.7 5.7
1997 11.2 4.6 -3.1 7.8 3.2 -0.4 7.3 8.6 22.8 5.1
1998 -14 1.5 -8 -6.8 -0.5

Key Indicators of Developing Asian and Pacific Countries (KI) published by the ADB;
International Financial Statistics (IFS), published by the IMF; and
World Debt Tables (WDT), published by the World Bank.
Note: For 1998, estimates only.

Economic growth has triggered structural transformation, or sectoral shifts in outputs and employment. Three decades of sustained economic growth has also contributed to several other changes in the ASEAN. Paid employment sector has expanded, incomes levels have substantially increased, and incomes distribution situation has improved. This spectacular growth performance, often dubbed as “Asian miracle” was assumed to be the result of outward orientation, high saving rates, and effective government (Furman and Stiglitz, 1998: 11), among other factors. Further, economic growth was accompanied by improved incomes distribution in ASEAN, just like in East and North Asian countries. Thus the Asian pattern of growth differed from those in other regions of the world such as Africa and Latin America, as progress in equitable incomes distribution became the hallmark of economic growth in ASEAN. A consequence of this magnitude of sustained economic growth has been reflected in their per capita incomes. Table 2 presents statistics on population in 1998, per capita incomes in 1996, and current account balance in 1997.

Table 2
Some Basic Statistics for Five ASEAN
(million), 1998
Per Capita GNP
(U.S. $), 1996
Current Account Balance
(U.S. $ million), 1997
Indonesia 206.3 1,080 -5,713
Singapore 3.5 30,550 14,630
Thailand 60.3 2,960 -6,272
Malaysia 21.4 4,370 -5,384
Philippines 72.9 1,160 -4,328

UN Population division, World Population Prospects.
International Financial Statistics, January 1998.

As can be seen from Table 2, variation in per capita incomes across the ASEAN countries is significant, with Singapore at 28 times the per capita incomes of Indonesia. In terms of population size, Indonesia is nearly 59 times larger than Singapore. Also, four of the members of the ASEAN-5 had negative current account balance in 1997. Only Singapore was an exception.

Industrialization policies adopted by the governments were central to the economic success of the ASEAN. The standard industrialization policy path followed by the ASEAN governments in the 1960s and 1970s was to begin with import-substitution and to quickly move to labour-intensive type export-oriented industrialization. The international political economy of the time was conducive to such an industrialization policy as the old international division of labour continued to persist. But the post-World War world economy had significantly changed by the end of 1970s. A new international division of labour had emerged where a few developing countries had become successful in producing a variety of manufactured goods for the world export markets. At the same time, deindustrialization had begun to take place in some of the old industrialized countries, creating room for exports of manufactured goods from developing countries. The rise of Asian newly industrialized countries (NICs) is closely related to this development. Nonetheless, this development in the global economy also allowed for competition among the NICs, and thereby forcing policymakers to come up with plans for industrial targeting and businesses to work on strategies for niche market exploitation. In response, industrialization policies of the ASEAN governments began to change since the beginning of the 1980s. Consequently, Singapore government targeted its policies towards establishing Singapore as a regional centre for information and biotechnology. The emphasis has been on developing ‘Singapore’s potential to service the industrialization of other countries in the Asian region now embarking on similar programmes’ (Rodan, 1993: 223). Malaysian government passed the Export Promotion and Investment Act in 1986, placing more emphasis on exports and technology development. This Act provided for double taxation deduction for research and training and for export promotion (Rasiah, 1995: 76). The Human Resource Development Act of 1992 required firms employing more than 50 workers to pay one percent of wage-bill towards Human Resource Development fund. Policymakers in Indonesia and Thailand also made policy changes along the line of industrial targeting. In the Philippines, “...the Government has persistently used expansionary fiscal and monetary policies to maintain growth whenever there was deterioration in the external environment. This has, moreover, been assisted by the inflow of various types of foreign capital: in the Marcos years, the late 1970s, the culprit was the commercial banks’ relending of OPEC surpluses; in the Aquino years, the late 1980s, it was public capital from IFI’s, plus Japan and the U.S.; and more recently, during the Ramos regime, it has been substantial inflows of DFI from the U.S., Japan and Taiwan.” (Ranis 1997:419).

Industrial structure of the ASEAN economies has been rapidly changing. This change is partly policy-driven, and partly triggered by changes in the global economy. Following the significant currency appreciation and rising labour costs beginning in mid-1980s, non-competitive firms from Japan, South Korea and Taiwan made structural adjustment by either relocating production facilities, or by outsourcing parts and components to low-cost countries. The ASEAN, especially the ASEAN-4 (Indonesia, Malaysia, Philippines, and Thailand) benefited from this adjustment process. As Fukasaku and Hirata (1995: 20) have described, “As a result, the ASEAN countries have had their economies increasingly integrated into international production and distribution networks as emerging suppliers of manufacturing goods (in the case of ASEAN-4), with a leading commercial and financial centre (Singapore).” In recent years, the ASEAN economies have been more closely connected to the global economy either through foreign direct investment, or through commercial subcontracting arrangements than ever before. This intensified external exposure has significantly influenced industrialization policies in ASEAN. The established pattern of export-led economic growth had been challenged. Consequently, member countries of the ASEAN began to search for new growth models in the 1990s (Clark and Kim, 1995).

However, before finding any viable new growth model, the ASEAN economies began to experience an economic shock of unprecedented severity beginning with the devaluation of the Thai baht in July 1997. This had a contagion effect on the currencies of Indonesia, Malaysia, the Philippines, and Singapore (Lee, 1998). The crisis drove economic growth rates of some of the ASEAN economies down to a negative zone. Data on growth of exports and gross domestic products for the years 1997 and 1998 included in Table 1 illustrate this point.

While the sharp contrast in economic growth rates for the periods before and after 1997 tells a lot about the nature of the economic crisis, we need to look at micro level phenomena to understand its deeper manifestations and their consequences. The rapid decline of construction boom, bank failures due to non-performing loans, a reduction in inflows of foreign direct investment, dramatic fluctuations in exchange rate, and a drastic reduction in stock prices are some of the examples. However, the situation has begun to change. Currencies have begun to appreciate, exports are up, and foreign capital inflow has started to resume in some of these ASEAN countries. Recent developments in Malaysia illustrate this. The Mahathir government imposed capital controls in September 1, 1998. The political scene in Malaysia following the Anwar case worsened. These developments had a negative effect on foreign capital inflows. However, the situation began to change for better beginning the end of 1998. The stock market nearly doubled between August 1998 and February 1999. The undervalued currency helped Malaysia to restore its competitiveness. Consequently, exports were up by 11.9% in December 1998. In view of the promising economic performance and a growing confidence in the Malaysian economy, the capital controls were lifted in September 1999.

The major impact of the crisis was on employment and poverty. It created massive layoffs, resulting in increasing unemployment rates. This pushed marginal incomes groups further down the incomes ladder. Indonesia was the worst hit among the members of the ASEAN. Following the crisis, the Indonesian economy contracted by 14% in 1998 and has been going through a period of stagflation-rising unemployment rates and increasing price levels. The leading sectors of the economy, primarily construction and finance, shrunk by as much as 25 percent. Shrinking employment opportunities have led workers to move back to agriculture and informal sectors (Feridhanusetyawan, 1998). It is estimated that the number of poor will rise from 18 million in 1996 to 40 million by the end of 1999 (Santos and Lim, 1999). This situation is further exacerbated by political uncertainty. It is hoped that the recent democratic election would lead Indonesian economy towards some degree of stability. Thailand was another worse hit. However, recovery seems to be on a fast track.

The story of boom to bust will not be complete without a discussion of labour market developments in ASEAN in the aftermath of the crisis. First, the crisis has contributed to a substantial increase in unemployment rates. Increasing unemployment rates at home have led to repatriation of migrant laborers. The construction industry was one of the key sectors for economic growth in all the ASEAN countries. Foreign workers were the main pillars during the period of construction boom. A significant number of Burmese workers worked in Thailand, Thai workers in Singapore, Brunei and Malaysia, Indonesian workers in Malaysia, Malay workers in Singapore, and Filipino workers in Singapore. These migrant workers used to subsidize economic growth of host nations as their wages were often half of local workers. Employers hardly paid any benefits to these workers. But the crisis forced the migrant workers to return home. This has further worsened employment situation in countries with large inflow of returning workers. Indonesia and Thailand are the primary cases. All told, the crisis has contributed to a significant rise in open unemployment and underemployment and a decline in real earnings. One exception amongst the members of the ASEAN is Singapore. Unemployment is still relatively low, real earnings have not plummeted that much, and more than one in five workers in Singapore is a foreigner. In fact, Singapore has continued its talent hunt, raising its sights to China, India and Malaysia.

State and Industrial Relations Strategies

The currency crisis triggered an economic meltdown. It then rippled into the society in many different ways, and has had a profound effect on industrial relations parties. Did this meltdown lead to dramatic reversals in roles and orientations of unions and employers? Did it trigger a change in pattern of industrial relations? To investigate these questions, I discuss institutional arrangements for industrial relations and their changing contours due to these developments in ASEAN next. In the subsequent section, I will then use the concept of “stateness” to explain variations on these themes across the ASEAN countries.


In Indonesia, the legal framework for industrial relations is built around three main pieces of legislation: the Labour Code (conditions of employment) of 1948, the Collective bargaining Laws of 1954 and 1963, and the Labour Disputes Acts of 1957 and 1964. The first legislation ensures minimum standards of employment protection, the second provides a framework for collective bargaining, and the third outlines mechanisms for resolution of labour management disputes. Various other labour laws have been introduced through government decrees and ministerial regulations, the implementing institution of which is generally the Ministry of Manpower and Transmigration.

In addition to providing the legislative framework for collective bargaining, the state in Indonesia has remained active in industrial relations through two other mechanisms. These are the state-sponsored philosophy of pancasila industrial relations and various tripartite institutions created by the state at the national level. Embedded in the “pancasila” philosophy is a distinctive form of state-capital-labour relations, which emphasizes harmony and cooperation at all levels of labour-management relations (Beeson and Hadiz, 1998). It emphasizes principles of social justice, democracy and unity. It promotes a view that workers and employers are partners in production and the business enterprise, and both have a responsibility to the God, the state, the community, workers and their families, and the work establishment. The underlying objective in establishing the tripartite institutions has been to promote workers participation at the national level through such institutions as the Committee for the Settlement of Labour Disputes, the Wages Council, and the National Productivity Centre.

In 1974, Indonesia introduced a single union system with the All-Trade Union (SPSI) at the top with its thirteen federated sectoral unions. This unitary structure was introduced to promote the principle of unity in the labour movement in line with the “pancasial” philosophy and to do away with the intense trade union rivalry that existed before 1974. This worked fine in the 1970s and the 1980s as long as the Suharto government had a strong hold on the labour movement. However, a gradual decline in the state capacity was accompanied by a rise in the formation and growth of independent trade union federations. The PPBI (Centre for Working Class Struggles) and the SBSI (Indonesia Prosperous Workers Union) are the examples of this development (Rodan, 1997). The Suharto government did not know how to deal with the growth of independent unions. It began to react by taking draconian actions by sending unions leaders to jail and by curtailing workers rights. For example, in May 1993, following a strike in a watch factory near Surabaya, a 25-year old labour activist, Ms. Marsinah, was arrested and imprisoned. She died in army custody. It was widely believed that she was murdered. Similarly, in the aftermath of the Medan strike of 1995, several independent labour activists were imprisoned. Disruptions created by these developments significantly contributed to the eventual overthrow of the Suharto government.

While the labour movement became increasingly fragmented and politicized, employers saw an opportunity to take advantage of the weakness of the labour movement in this deteriorating economic environment. Hence they intensified their offensive against labour. For example, in the course of parliamentary approval of a new labour law in September 1997, APINDO, the employers association, lobbied against a Bill that allowed workers to engage in legal strikes and still collect their pay. The same Bill also legalized sympathy strikes, a victory for unions. However, APINDO was against it (Cohen, 1997). Employment relations in Indonesia are predominantly paternalistic. The labour market is characterized by endemic underemployment and very low wage-employment, both of which discourage workers from entering into employment contracts on a collective basis. However, in the absence of a union and collective bargaining, companies employing wore than 25 employees are required to formulate company regulations specifying terms and conditions of employment in writing. Employers have begun to use company regulations more frequently to supplant collective agreements.

The economic crisis has contributed to a reversal of industrial relations systems in Indonesia in a number of ways. First, paid-employment sector has been declining in relative term. In 1998, this sector was at the same level as in 1996, despite a significant rate of growth in the labour force. The organizing base of the labour movement has thus shrunk. Secondly, the crisis has given rise to evolution of a fragmented labour movement with political orientation. As Hadiz (1998: 121) has noted, “There is no single labour organization with the “authority” to “negotiate” on behalf of workers with various old and new political parties.” Thirdly, the crisis has provided employers with an opportunity to increase their offensive against the labour movement and try to reshape industrial relations of a new order to their likings. Above all, the high stateness of pre-crisis period has transformed into low stateness. This has presented a possibility for increasing social tension and industrial conflict. This still continues to be the case in Indonesia.


There is a significant degree of state involvement in industrial relations in Malaysia. This can be observed with respect to trade union registration process, dispute settlement mechanisms, and collective bargaining framework.

Under the Trade Unions Act (initially promulgated in 1959 and amended several times subsequenly), the Registrar of Trade Unions has power to approve or cancel registration of trade unions, to remove certain categories of workers from membership, and to order a union to refrain from recruiting members from specific trades or industries. As to industrial conflict and dispute settlement mechanisms, trade unions have the right to strike provided that a two-thirds majority vote of the members entitled to vote is obtained. The results of the ballots must be filed with the Registrar of Trade Unions, and only seven days after this a lawful strike may be held. Strikes inspired by political purposes or sympathy for other workmen are unlawful. Since the Registrar of Trade Unions is vested with the power to deregister labour unions, unions find it difficult to carry on any organized protest. In addition, the Essential Regulations enacted in May 1965 had empowered the Minister of Human Resources to proscribe any industrial action and to refer any dispute to binding arbitration. The dispute resolution mechanism provides for conciliation as well. And the Minister of Human Resources can intervene in any dispute for the purpose of conciliation and, if appropriate, may refer the case to the Industrial Court for arbitration. High stateness is clearly apparent in this legislative framework for industrial relations in Malaysia.

With the exception of the estate sector where industry-wide agreement is the norm, collective bargaining takes place at the enterprise level (Ayadurai, 1990). There are very few statutory limits on bargainable issues as such. Once a collective agreement is reached, it must be cognized by the Industrial Court. If the Court determines that some provisions in the agreement are against national interest, then it can ask the parties to go back to amend those provisions. However, pioneer industries or others nominated by the Minister of Human Resources cannot provide conditions more favourable than those described in Part XII of the Employment Ordinance of 1955 without the approval of the Minister. Trade unions in pioneer industries are also barred from negotiating over matters such as promotion, transfer, new hiring, and assignment of duties, dismissal, retrenchment and reinstatement. The electronic sector, which employs over 140,000 workers, accounts for about 40 percent of Malaysia’s exports. Since industrial unions are banned in this sector, only in-house unions are permitted.

The Malaysian Trade Union Congress (MTUC) registered with the Registrar of Societies, functions as the voice of Malaysian trade unions at both the national and international level. It also represents workers on tripartite organizations such as the National Labour Advisory Council, runs training programs for trade union leaders, provides assistance to affiliated unions, and conducts a limited amount of research on the labour situation in Malaysia. A rival federation to the MTUC, the Malaysian Labour Organization (MLO), was created in 1989. However, it joined the MTUC after a few years, indicating the move towards a unified labour movement. Private sector employers in Malaysia are represented in the central organization known as the Malaysian Employers Federation (MEF). In addition to advising affiliated members on industrial relations issues and problems, it also represents employers on tripartite bodies such as the National Joint Labour Advisory Council and Wages Council.

The governing elites in Malaysia have considered effective management of industrial relations essential to attract foreign direct investment for rapid industrialization. Indeed, the Prime Minister, Dr. Mahathir, has gone one step further by advocating a “Look East” policy, the extension of which, to the organized labour sector, is an urge for “in-house unions” along the Japanese model (Kuruvilla, 1995; Arudsothy and Litter, 1993). The current economic crisis has not created a situation for the government to radically change industrial relations policies as such. The Mahathir government has stayed firm in its industrialization strategies despite some setbacks. In fact, unlike Indonesia and Thailand, it even refrained from obtaining a loan from the IMF and the World Bank for fear of the likelihood that this would erode the state capacity for management of the economy. In fact, the effect of the crisis has been short-lived in Malaysia.


Philippines had a system of compulsory arbitration beginning with the Commonwealth Act No. 103 of 1935. This came to an end in 1953 when the Industrial Peace Act was passed. This legislation not only provided a framework for collective bargaining, but also encouraged it as the dominant mode of industrial relations. Modelled after the Wagner Act of the United States, the Industrial Peace Act is often referred to as the Magna Carta of labour in the Philippines. On September 21, 1972, President Marcos declared martial law. Subsequently, a restructuring of the industrial relations system and labour policy was called for. The government promulgated the Labour Code in May, 1974. The Trade Union Congress of the Philippines (TUCP) and the Employers Confederation of the Philippines were brought to work with the government through government-calibrated tripartite institutions. Under the martial law, strikes and all other forms of mass actions were banned. This was done in the name of promoting a positive investment climate for foreign investors.

Following the Aquino murder in 1983 and the overthrow of Marcos, most of the unions subscribed to a political orientation. The industrial relations systems developed during the Marcos regime (1972-1975) was then dismantled in a fairly short period of time. However, the economy shrunk during this period. Unemployment rate was very high. Social tension increased to a high level. Several labour unions including the Kilusang Mayo Uno (KMU), representing the more radical wing of the labour movement, began to play a key role. The new Philippine constitution of 1986 guaranteed workers basic rights and mandated them as social partners. This led to reinstituting of free collective bargaining system as the main mode of industrial relations. Nonetheless, the labour movement has been divided with union-raiding being endemic (Ofreneo, 1995). This has posed a question as to effectiveness of the collective bargaining system. In addition, since only about ten per cent of the workforce is organized, the reach of collective bargaining is limited in the Philippines.

Conciliation, mediation and arbitration are the dominant modes of dispute settlement. The National Conciliation and Mediation Board, established in 1987, attempts to prevent strikes by settling disputes through mediation and conciliation. Tripartism and collective bargaining are considered the two pillars of industrial democracy. The governments have made substantial efforts to promote the practice of tripartite consultation in order to obtain consensus. Since the labour movement is rife with rivalry and fragmentation, both Aquino and Ramos governments tried to coopt influential labour federations, but with a limited success.

On June 30, 1998, President Ramos handed over the reins of government to Estrada. The new administration was equally eager to coopt the labour movement and maintain industrial peace. Industrial peace is vital for the Philippines to achieve the avowed objective of joining the NIC club by the year 2000. In fact, President Estrada brokered a deal between management and labour of the Philippines Airlines (PAL), the nation’s flag-carrier. The deal included a moratorium on collective bargaining for ten years without any provision on automatic cost-of-living adjustment. The trade-off for this deal was a promise of job security by President Estrada. However, PAL management began laying off employees of the PAL only after a month (Montinola, 1999). Even though workers’ dissatisfaction with the deal has been increasing, the union has very little latitude to undo negative consequences of the deal.

The Philippines has come out of the Asian currency crisis reasonably unscathed. The Ramos government proved quite artful in handling industrial relations issues, either by taming or by coopting the primary actors in the system. The Estrada government appears to be following the same path.


Voluntarism characterized industrial relations before independence in Singapore. However, industrial relations became one of the concerns of the government soon after Singapore achieved self-government in 1959. That trade unions could not simply represent only sectional interest if national development policies were to succeed was the underlying thrust behind legislative changes introduced by the PAP governments throughout the post-independence period (Sharma, 1996). The government enacted the Industrial Relations Ordinance to introduce a system of compulsory arbitration in 1960. The Industrial Arbitration Court was established under the provisions of this Ordinance. Two other institutional developments, which have shaped industrial relations in Singapore, are the enactment of the Industrial Relations Act and the Employment Act in 1968, and the establishment of a tripartite National Wage Council (NWC) in 1972. The Acts of 1968 were designed as incentives to attract foreign investors. The NWC was designed to bring wage increases in line with national productivity growth.

The legislative changes of 1968 forced the union leadership to redefine the role of the labour movement. To chart a new direction, a historic Labour Modernization Seminar was held in 1969. Union leaders agreed to cooperate with the government and management by supporting tripartism and by becoming involved in the campaign for higher national productivity. Employers echoed the same sentiment. In fact, both the National Trade Union Congress (NTUC) and the Singapore National Employers Federation (SNEF) have played the role of social partners throughout the last three decades. Drawing on the standard economic analysis of trade union behaviour, Chew and Chew (1995) have argued that the nature of industrial relations system is determined by the behaviour of trade unions. Trade unions may adopt either a policy of maximizing wages and thus decide to operate in a wage-driven regime, or a policy of maximizing employment and thereby decide to operate in an employment-driven regime. A trade union under the wage-driven regime raises wages to the extent that it leads to a reduction in employment, whereas a trade union under employment driven regime foregoes wages increases if it causes a reduction in employment. Chew and Chew consider the NTUC an example of a trade union under the employment-driven regime. This is correct to a large extent. However, trade unions are unlikely to operate under employment-driven regime independently. Hence one could say that this has happened largely due to high stateness.

The NWC has virtually dictated terms of wage settlements by specifying, in advance, an admissible range beyond which wage levels are not expected to move (Sharma, 1989). The NWC has made several sets of recommendations over the years. In the late 1970s, the industrialization policy of the government was to encourage firms to use skilled labour and to upgrade technology. The NWC recommended wage increases in the order of two digits. This somehow backfired in the 1980s as Singapore lost its competitiveness to new newly industrializing countries. Hence the government reexamined the wage system. Seeing a need for reform, it introduced a flexible wage system in 1986. This was comprised of four components: base salary, an annual wage supplement of one month’s pay, which could be adjusted under exceptional circumstances, a variable bonus based on company performance, and a small service increment of 2%. This helped Singapore to regain its competitiveness. However, the NWC moved from issuing quantitative wage guidelines to qualitative ones beginning in 1987. This provided room for various interpretations of these guidelines by different sectors. Chew and Chew (1996) have interpreted this shift as indicative of a transformation of Singapore’s industrial relations systems from a corporatist type to a pluralist one. Major thrusts of the NWC guidelines during 1995-98 included that total wage increase reflect the economy’s performance and built-in wage increases lag behind productivity growth. The guidelines also emphasized that a greater part of wage increases be provided in the form of variable component.

The regional economic crisis affected Singapore in a less severe way than other members of the ASEAN. Nonetheless, the adverse effect was sufficient to justify a revisit to wage policy by the NWC. Hence the NWC met in September and October of 1998 to revise its wage guidelines. The new guidelines recommended a reduction of employers’ share of CPF contribution from 20 per cent to 10 per cent for the years 1999 and 2000, accommodating for about 8 per cent reduction in overall wage costs. It also recommended an increase in variable cost from 20 to 30 per cent (Wan and Ong, 1999). As the Singapore economy has already begun to rebound, new adjustments in the wage system are already underway.

Adjustments in the wage system under various NWC policy regimes have taken place without any disruption in the system of industrial relations in Singapore. Needless to say, this is due to high stateness.


Modern industrial relations in Thailand are still in infancy. The labour movement is fragmented, employers and their associations are weak, and the wage-employment sector is small. However, the government has been promoting industrial peace through creation of appropriate institutional arrangement for negotiation of interests as the moral equivalent of a social contract, and tripartism as the means towards that end.

In Thailand, the Labour Act of 1956 ostensibly promoted collective bargaining, but in reality it fell short of accomplishing that goal as it was inauspiciously revoked in 1958. Only in 1972 did the government attempt to fill the legislative gap by providing a framework for negotiating terms and conditions of employment through the passage of the Labour Protection and Labour Relations Ordinance. It permitted creation of non-political labour organizations, and deliberately encouraged weak and small labour associations formed on an establishment or provincial basis. Thus its scope was quite limited. Triggered by an increasing wave of strikes during 1974, the government decided to amend the labour law regime by promulgating the Labour Relations Act on March 26, 1975.

The Labour Relations Act provided for greater freedom to organize labour unions, labour federations and labour councils and bargain collectively. It protected trade unions against tort and criminal actions, and contained provisions for conciliation and arbitration to resolve disputes. Effectively, the Act attempted to foster a climate conducive to development of a modern industrial relations system in Thailand. Under the Act, trade unions must be registered. The support of at least ten employees is needed to make a registration request to the Registrar of Trade Unions for registration. The Act allows for two types of labour unions, namely company and industrial, and requires that establishment with twenty or more employees have collective agreements on the terms and conditions of employment. Collective bargaining in Thailand is conducted mainly at the company level, as there are no strong national unions to bargain for workers at the industry level. Furthermore, the power of trade unions to bargain effectively is weakened in that unorganized workers have the same rights and privileges as unionized workers. Even unorganized workers comprising not less than 15% of the total employees of an establishment can demand improvements in their employment conditions (Sharma, 1996: 92).

The Labour Relations Act was amended in 1991. It had significant consequences for industrial relations in Thailand as it removed state enterprise workers from the coverage. The government promulgated a new act in 1991 – the State Enterprise Employees Relations Act. Under this Act, unions and strikes were banned in state enterprises. State enterprise employees could form only associations with limited objectives (Hewison and Brown, 1994). A number of successive administrations pledged to pass a new labour law granting pre-1991 rights to state sector employees. Both the Banharn and Chavalit administrations submitted an amended draft bill to parliament. However, it has got nowhere as the focus has shifted toward restructuring financial sector to satisfy IMF demands. In fact, the voice of the labour has been muted. The result of currency crisis in Thailand has been an increasing rate of unemployment, economic dislocation, and social stress (McFarlane, 1999). Any positive development in industrial relations arena are unlikely until such time when the economy sufficiently rebounds to create enough employment to absorb an increasing pool of unemployed and underemployed.

A Cross-Country Comparison

As discussed above, changes in the economic environment have led to changes in the role of industrial relations actors in the ASEAN. High stateness or low stateness has largely influenced how the primary actors, namely the unions and the employers, have responded to economic crisis.

In response to pressures of global competitiveness, employers have demanded more flexibility in production process as well as in employment relations. Governments have generally pursued the thrust of global competitiveness and responded to these demands positively. In addition, some of the governments of the ASEAN have introduced policies and laws repressive of union rights and traditional functions in the pursuit of global competitiveness and rapid industrialization of their countries. For example, the government of Malaysia has been pursuing rather repressive industrial relations policies, and a heavy dependence on foreign direct investment and an ambitious state-led plan to make Malaysia graduate to become a developed country by 2020 have become the underlying reasons behind such a policy. Indicative of this policy is its treatment of workers in the electronic sector, among others. Clamp down on labour leaders of independent unions in Indonesia and outlawing of the public sector unions in Thailand in early 1990s are other examples. In the case of Indonesia, while unions were muted during times of high stateness, the unions became an active force in the reform movement during the time of low stateness.

Unity in and fragmentation of labour movements as well as the extent of representation functions accorded to central federations are, to some extent, the results of high vs. low stateness as well. The NTUC has remained the fundamental institution of voice for workers in Singapore. The government has accorded an expanded political representation function to it. Indicative of this is its participation in various tripartite institutions and its close link to the governing political party, the People’s Action Party. In fact, there has been a state commitment to ensure trade union participation in economic governance at the national level in Singapore. At the same time, high stateness remained intact in Singapore during the period of economic crises as well as recovery. Hence it was able to revamp wage policy through the NWC without any opposition. However, Indonesia happened to be at the other extreme. Before the on-set of the economic crisis, the government had accorded a limited role to the FSPSI, the official trade union federation in Indonesia. Due to low stateness and a chaotic political situation, there was disempowering of FSPSI. It is clear from the fact that industrial sector-based unions withdrew their support to it in the wake of the so-called “reformasi” movement. A number of new unions with new objectives have appeared in Indonesia at the same time. While these two cases are at two opposite poles, the Philippines and Thai cases are in between. Endemic union rivalry has become a result of the stateness being neither too high nor too low in these countries. There was trade union rivalry in Malaysia with the existence of the Malaysian Trade Union Congress and the Malaysian Labour Organization as rival trade union federations in the private sector. However, the Malaysian Labour Organization joined the MTUC at the prodding of the government. Again, high-stateness has become a factor here.

Trade unions have been caught in a crossfire between maintaining their traditional role and dealing with new demands of employers and governments. Functions and orientations of trade unions have also been changing. Of course, the bargaining function is considered necessary by trade unions in ASEAN. However, unions have begun to realize that they need to redefine their roles. For example, the Indonesian labour movement has taken a more political orientation in the aftermath of the currency crisis and worsening economic environment. In fact, this happened due to evaporation of state capacity in the final years of Suharto regime. In Thailand, increased labour influence in national policy-making was a major phenomenon in the 1980s and was a growing phenomenon again after the collapse of interim military rule in 1992 (Deyo, 1997). However, this began to wane beginning with the near-collapse of the Thai economy in 1997. Diminishing state capacities have led to these disruptive changes in these two countries. However, few fundamental shifts have taken place in industrial relations due to the recent economic crises in Malaysia, the Philippines, and Singapore. For example, The NTUC has continued with its pro-productivity bias in its functioning. Hence it accepted the new wage guidelines recommended by the NWC in 1998.

Employers’ strategies in industrial relations vary depending on economic environment and socio-political climate. They tend to adopt more offensive strategies in times of crisis and more defensive ones in times of prosperity. In fact, the ASEAN cases provide empirical evidence to this statement. APINDO’s opposition to the parliamentary approval of the new labour law in Indonesia, employers’ opposition for industry union in the electronic sector in Malaysia, and the handling of the labour conflict by the PAL in the Philippines adequately demonstrate that employers’ offensive against unions has increased during times of econo crisis in the ASEAN. However, the ability of a government to enforce social compact, if any, influences the nature of employers’ strategies in industrial relations. This probably explains why employers in Singapore have not adopted offensive strategies even in times of economic crisis.

The ASEAN countries are diverse in terms of political structure, historical circumstances, physical size, social norms and economic structure. However, they are broadly similar in terms of the policy thrust of the governments with respect to industrialization of their countries. Elsewhere (Sharma 1996a, 1996b), I have used an argument based on the role of the state in the industrialization process to explain the evolution of industrial relations. The contention is that different stages of industrialization generate different patterns of industrial relations as the extent of emphasis on capital accumulation varies according to the stage of industrialization. I believe, this argument still holds. Even in times of crisis, stateness appears to be a key factor in shaping of the direction of industrial relations systems. High stateness has led to a less disruptive pattern of change, whereas low stateness has led to a more disruptive pattern of change. Singapore is the example of the former and Indonesia of the latter. Put differently, variations in patterns of responses of primary industrial relations actors appear to be related to the level of stateness-high vs. low.

Concluding Remarks

Responses to similar economic crises in the ASEAN-5 have varied due to differences in state capacities, or the degree of stateness. The state’s developmental capacities in Singapore, Malaysia and the Philippines, to a lesser extent, remained relatively effective during the crisis. Efficient state agencies and modern bureaucracies enhanced state capacities and ensured the quality of governance there. On the other hand, the limited nature of the state’s capacity was associated with the onset of crises and its course in the cases of Thailand and Indonesia. (Henderson, 1999: 361). In this paper, I have discussed influences on industrial relations in ASEAN-5 of state capacities during periods of crisis and recovery in recent times. As the discussion has demonstrated, stateness has become a factor in defining trade unions and employers’ functions as selective representational interest groups and their effectiveness.

Since high stateness is a source of global competitiveness, the logic of economic nationalism leads the state to play a dominant role in managing national economies and industrial relations in ASEAN. However, there are variations in state capacities. And high stateness vs. low stateness makes a difference with respect to patterns of strategy shifts in industrial relations. That has been the case in ASEAN.

According to Olson (1982), major transformations in economies and institutions are the results of major shocks. The currency crisis was a shock nearly of that magnitude, especially in Indonesia and Thailand. This has triggered the onset of major economic restructuring and a shift in the balance of power between the state and the market. It is likely that industrial relations strategies will change in a discernible way in these two countries in particular and in ASEAN in general. Needless to say, degree of stateness will continue to become a significant determinant of this change.

* correspondence concerning this paper should be addressed to: Basu Sharma, Faculty of Administration, University of New Brunswick, Fredericton, N.B., Canada E3B 5A3. Tel: (506) 453-4872, Fax: (506) 453-3561. E-mail:


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