January 1999, Vol. 122, No. 1
Crisis of labor in Russia
Book reviews from past issues
Becoming Lean: Inside Stories of U.S. Manufacturers. Edited by Jeffrey K. Liker. Portland, OR, Productivity Press, 1998, 535 pp. $35.In 1985, the International Motor Vehicle Program at the Massachusetts Institute of Technology began research designed to answer a superficially simple question: Why were Japanese companies so good at manufacturing cars? By 1989, in a published best seller, The Machine That Changed the World, they concluded that Japanese manufacturing was so different from American manufacturing that it deserved a different name. The researchers named the Japanese manufacturing system "Lean Manufacturing."
Becoming Lean is designed to assist those who wish to learn about lean manufacturing. The thesis of this book is that the adoption of lean manufacturing techniques will benefit a firm, regardless of the product it produces. In industries as disparate as automotive leather and cedar products, the authors show that the introduction of lean manufacturing techniques has a positive impact on the firm.
In the foreword of Becoming Lean, James Womack (one of the authors of The Machine That Changed the World), describes lean manufacturing. He compares its techniques to the traditional manufacturing model, based on the principles of Henry Ford, which had existed up to this time. This entailed a push schedule in which fluctuations in end-customer demand and problems in upstream production were buffered by a vast bank of finished units forced upon vendors and equally vast buffers of parts at every stage of production upstream from assembly.
Lean manufacturing is described as "lean" because it uses less of everything, compared with mass production: half the human effort in the factory, half the manufacturing space, half the investment in tools, half the engineering hours to develop a new product in half the time. Also, it requires keeping far less than half the needed inventory on site, results in fewer defects, and produces a greater and ever growing variety of products.
At this point, Becoming Lean is in a format of articles and case studies, organized into three sections.
When lean manufacturing techniques were first identified as a cause of Japanese success, many wondered if unique aspects of Japanese society made it difficult to transfer these practices abroad. The first section of this book addresses this question. It begins with an article by Jeffrey Shook, the first American to work at Toyotas Tokyo headquarters.
Shook discusses the entire Toyota production system, detailing each of the various components: Jidoka, where workers have the ability to work on several machines during the course of their day; Heijunka, the Toyota planning system which focuses on achieving consistent levels of production; and the Just-In-Time and Kanban systems which are interlocked systems essential for lean manufacturing.
Just-In-Time, defined as "the right part at the right time in the right amount,"assigns supplier-customer roles throughout the production flow, and is focused on producing only what is needed. As a result, Shook explains, Just-In-Time reduces inventory and makes the production system very transparent, which allows for better production scheduling.
Kanban facilitates Just-In-Time. Kanban is a card that is attached to parts as they move through a factory. The card is removed and sent back to the supplier when the part is used, triggering production of another lot of parts, to which the Kanban card is again attached. Because the supplier does not produce until it is necessary, there is no buildup of large inventories of unneeded parts. When implemented, Just-In-Time and Kanban result in reduced inventory and higher efficiency in a manufacturing system.
In the "Human Resources Aspect of Lean Manufacturing," Shook discusses the bottom-up approach to decision-making and the importance of training workers to find the core cause of a production problem. He emphasizes the need for employers to make workers feel "part of the team." He then looks at implementation issues such as Kaizen workshops, which cover a period of 3 to 5 days of concentrated effort, during which participants analyze and physically change a particular part of the factory (a subassembly line for example) to operate according to principles of lean manufacturing. Shook concludes by stressing the importance of being able to measure progress and with an exhortation for firms to constantly improve their operations.
In the next article, Jennifer Yukiko Orf, who is of Japanese and American descent and has the experience of attending elementary and high school in both Japan and the United States, discusses the Japanese education system. Her article takes the form of "A day in the life " and shows how attitudes and behaviors that are conducive to efficient implementation of lean manufacturing are encouraged and cultivated at a very young age by the Japanese School system.
The last article in this section describes an empirical study. Steven F. Rasch, president of the Ann Arbor Consulting Group, studied 249 small suppliers of automotive component (plastics, stampings, and machined) parts. Rasch concludes that the implementation of lean manufacturing at these firms had a positive impact on performance. He states that his conclusion is backed by statistically significant proof; however, he does not present quantitative evidence of this.
In the second part of the book, case studies are presented about specific companies that have utilized lean manufacturing in their factories. The firms differ in size and products, but share similar problems with their manufacturing processes. The firms all demonstrate comparable levels of success in rectifying these problems through the implementation of lean manufacturing techniques.
The third part of the book discusses managing the shift to lean manufacturing. Here, the case studies deal with problems that can be encountered during the implementation of lean manufacturing principles in factories. In one of the case studies, examples are given of companies that have attempted to overhaul their manufacturing operations and have failed.
At the beginning of the book, the editor stated that Becoming Lean would prove that the adoption of lean manufacturing techniques would benefit a firm, regardless of the product the firm produces. This book achieves that goal. Becoming Lean presents information from both industry and academia which shows that the adoption of lean manufacturing techniques is beneficial in a wide variety of cases. The authors of the various case studies and articles are credible and are all experts in their fields. The information is presented in a clear and detailed fashion. Those who wish to either learn about lean manufacturing or implement it in their organization will greatly benefit from reading Becoming Lean.Karthik A. Rao
Managing Tomorrows High-Performance Unions. By Thomas A. Hannigan. Westport, CT, Quorum Books, 1998, 302 pp., bibliography. $59.95.The purpose of this book is to help union leaders and union officials become "more inspiring leaders, better managers, more effective workers representatives in the new American workplace."
Readers will find in this book a lot of handy checklists and chapter summaries. They also will find a lot of charts and two- and three-dimensional matrixes indented to relate a variety of abstract concepts. My guess is that most readers in search of help in dealing with union leadership and administration will use the checklists and chapter summaries and will ignore the charts and matrixes and the frequent mind-numbing management jargon.
Hannigan, with more than 40 years of wide-ranging experience in the electrical workers union, has pulled together a list of important ideas about managing unions. His bibliography shows he has consulted more than 65 relevant publications, including works by management guru Peter Drucker, and John Dunlops 1990 book on Management of Labor Unions. But union leaders should also consult the essential and readable 1994 guide book for union leaders by David Weil of the Harvard Trade Union Program, Turning the Tide: Strategic Planning for Labor Unions. Hannigans book is more comprehensive and more detailedand much more abstract than Weils and Dunlops, which have enlightening case studies to illustrate the points they are making. But the three books are complementary, not conflicting.
First, Hannigan lays out nine basic union functions collective bargaining ("labors primary product"), organizing, jurisdiction, administration, governance, political action, community action, organization building, and international affairs. Then he links these functions "to the four basic management functions of planning, organizing, directing, and controlling in a union environment."
The remainder of the book sets forth ways to improve union strategy, tactics, and operations to perform the nine functions. Various chapters deal with "attributes of excellence," communications, and decisionmaking with risk and probability. "Decisionmaking, since it involves risk, is an inherently ethical issue," says Hannigan, and he concludes: "This is the most important chapter in the book!"
I recommend the chapter summaries in Hannigans book to those who lead and administer local, regional and national union organizationsbut I also recommend selective skipping of the main text of the chapters.Markley Roberts
Global Public Policy: Governing Without Government? By Wolfgang H. Reinicke.Washington, The Brookings Institution Press, 1998, 337 pp. $42.95, cloth; $18.95, paper.Long before U.S. Treasury Secretary Robert Rubin and other top policy-makers from the G-7 nations began talking about a "new architecture" for global financial markets, Wolfgang H. Reinicke, an economist and political scientist specializing in international institutions, was devising a new model for globalization as a whole. The result is this book, written while Reinicke was a senior scholar at The Brookings Institution (he is now with the Corporate Strategy Group at the World Bank and a nonresident senior fellow with Brookings).
Renickes model takes into account what he describes as a "sweeping, radical transformation" in the world from economic interdependence to globalization. He draws a careful distinction between the two. Interdependence, in his analysis, refers only to a quantitative intensification of international commerce, a trend going back to the 1960s. But more recently, much of the world economy has undergone a qualitative change a transformation involving not only an explosive growth in trade and investment but also, more importantly, a vast expansion of corporations across national borders. He cites an important indicator of this development: intra-firm trade across borders in 1994 accounted for about 40 percent of total U.S. trade. "Globalization," he writes, "is for the most part a corporate-level phenomenon." Reinicke does not deplore this corporate expansion. Rather, he sees it as a natural outcome of technological innovation, deregulation, and liberalization of cross border economic activities, which in combination have not only permitted but even compelled companies to adopt global strategies. On the other hand, says Reinicke, corporate expansion across borders globalization has created a split between the worlds economic and its political geography, to the point that governments can no longer fully determine public policy within their own borders. Thus, contrary to economic interdependence which evolved around challenges to a countrys external sovereignty, globalization challenges a governments internal sovereignty.
Reinicke argues that the institutions and principles that have governed the international economy since World War II are no longer adequate because they are based on economic interdependence structures, where the lines of political and economic geography were identical and sovereignty was univocal. Short of an alternative, he argues further, governments often react with approaches based on a notion of national sovereignty that is tied to the continued territorial integrity of the state. He cites two traditional ways that governments try to cope: by intervening defensively to aid domestic business (through protectionism) and by intervening offensively (through aggressive export promotion and subsidies to aid home corporations abroad). Neither is sustainable as countries retaliate.
The appropriate alternative, Reinicke writes, is to "rebundle" the diverging political and economic geographic lines by evolving toward international "networks of governance" that include not just governments and inter-governmental agencies but private-sector organizations such as corporations, consumer groups, foundations, and unions. Instead of global government, which he dismisses as utopian and undesirable (a "top-heavy, imposed construct"), he proposes a global system of "public-private partnerships" that involves delegating to non-state actors some responsibility for writing and enforcing agreed-upon rules and standards internationally. Such partnerships would take advantage of "these [non-government] actors better information, knowledge, and understanding of increasingly complex, technology-driven, and fast-changing public policy issues," and would "generate greater acceptability and legitimacy for [global] public policy."
To illustrate the realistic basis of his proposed architecture, Reinicke devotes long chapters to three case studies covering issues in which global public policy is already gradually being developed in accordance with his model, although in a fragmented way. These three international examples are the supervision of banking and finance, the control of money-laundering, and the management of trade in dual use (military and commercial) technology. In an analysis written before the economic turmoil in Thailand and Indonesia exploded into an international crisis, he hails financial markets as the pioneers in setting global public policy, but adds that they still have far to go, for example, in achieving coordination among competing international institutions with overlapping responsibilities in the same area.
Through public-private partnerships of some kind, global rules are being developed in areas beyond those documented in Reinickes book. A very recent example is the new international convention against bribery, adopted by governments in the framework of the Organization for Economic Cooperation and Development with the advice and blessing of both business and labor groups. Further global rules on worker rights are now being addressed in the International Monetary Fund and other institutions beyond the tripartite (worker-employer-government) framework of the International Labor Organization. It can be logically inferred from Reinickes analysis that social justice issues like international labor standards would also be part of his architecture.
Reinicke recognizes that there are dangers to granting nonstate actors some power, along with government, to formulate and implement global rules. But he sees that as a necessary risk for averting serious chaos as globalization grows. Further, he holds that spreading these responsibilities around could foster the development of a global civil society, countering the "democracy deficit" (as it is called in Europe) that is inherent in letting unelected international bureaucracies assume larger and larger roles under globalization.
Global Public Policy has no blueprint. Its paradigm of democratic governance, Reinicke points out, needs much further work to "find new avenues, institutions, and instruments that reach beyond the current political geography of the nation-state." Exploring that territory is especially complex because the end of the 20th century is characterized by "a coexistence of interdependence and a globalization that cuts across both countries and industrial sectors."
Reinickes book is not an easy read, but it deserves careful study by anyone who suspects that the present world architecture needs updating and that the incumbent chief architects may not have all the answers.
Crisis of labor in Russia
Structural Adjustment Without Mass Unemployment? Lessons from Russia. Edited by Simon Clarke. Northampton, MA, Edward Elgar Publishing, 1998, 355 pp.
The question mark that punctuates the books title, however, signifies that the issue remains open: Has Russia, in the midst of structural adjustment of its property and financial relations, and of the work organization of some of its productive plant, truly avoided mass unemployment? The books authors do not offer uniform answers.
Reading Simon Clarkes long essay, the restructuring policy advocated, and often imposed by the international financial institutions as condition for their aid, has always spelled substantial unemployment. It would be engendered by the closure of large, inefficient and out-moded enterprises, usually state-owned, and would lessen wage pressures. Labor market flexibility was the goal: it would encourage the private investment which, in turn, would make the given economy more competitive. According to the chief economist of the World Bank, quoted by Clarke, "Slack in the labor market will tend to reduce pressures for wage growth in the economy, and a low wage is a major factor motivating the creation of jobs in the private sector."
Clarke and other contributors to the book contend that the restructuring model envisioned by the World Bank or the International Monetary Fund has not been valid for Russian conditions. Clarke characterizes that model as based upon "the pauperization and demoralization of the population through a spell of unemployment to prepare them for employment in the private sector." He and the others provide ample evidence concerning the pauperization of much of Russias working people pauperization which cannot, however, be attributed to the advice of those institutions. Unemployment was an increasingly serious problem in the Soviet Union well before its demise. According to Nicolas Spulber, writing in his Restructuring the Soviet Union, Soviet authorities believed in the 1980s that there would be 16 million unemployed persons by the year 2000. They thought that these persons should orient themselves to do-it-yourself work, as in construction, subsidiary farming that is, essentially produce for their own subsistence. Thus, they admitted implicitly that the Soviet economy had become unable to provide an adequate number of productive jobs. The roots of today pauperization in Russia "between one-quarter and one-third of the population live below the poverty line, which is defined as the physiological subsistence minimum in a crisis situation," writes Clarke lie deep in the Soviet economy.
Indicative of the "flexibility" of the Russian labor market are declining wages and the high labor turnover to which they contribute. In mid-1997, the real wage averaged little more than one-half of the 1985 level, and 43 percent of the 1990 level. Moreover, many workers cannot count on being paid on time. The Russian Labor Flexibility Survey, designed by Guy Standing (director of the Labor Market Policies Branch of the International Labour Organization), shows that in 1996 one-third of the firms surveyed had been delaying payment regularly in the past year, involving two-thirds of their wage bill. Others had delayed payment a number of times during the year. Moreover, large numbers of workers lost part of their pay because of "administrative" leave or short-time work. Administrative leave in effect is layoff; the enterprise seeks to avoid outright dismissal so as not to have to render severance pay (as labor law stipulates). The chances of recall are considered quite low in most situations.
The low reported unemployment rate in Russia is severely questioned by Guy Standing. He writes, "Unemployment actually has been high, and in part has been concealed in the most cruel way possible." He argues, first, that the "very substantial" and continuous employment cuts, which have been made since the 1980s, contradict the low reported rate. Moreover, the labor force participation rate has dropped in the face of increases in the working-age population; at least part of this drop is likely to represent unemployed persons "discouraged" from looking for work.
Second, the decline in employment had exceeded by far the reported rise in registered unemployment. There are many reasons for nonregistration (which data drawing on the unemployment registry ignore). There is a lack of sufficient number of employment offices as well as of staff, often long distances must be traveled, and there are long queues in which to stand; thus there is low expectation that ones registry will be accepted. Tatyana Chetvernina, who contributes an extensive critique of the Russian unemployment compensation system, reports that, while benefits by law should equal 60 percent of an unemployed workers wage, it averages but 23 percent in many regions. The low benefit further discourages registration. She charges that "[O]fficials have been at their most inventive in looking for new methods of further reducing" the unemployment rate. They are thus able to reduce benefit payments, thus saving funds. In addition, labor ministry officials as well as business leaders believe that benefits encourage dependency and "parasitism."
Continuing the argument that reported unemployment is substantially understated, Standing writes, third, that the unemployment statistics exclude persons who have reached retirement age (55 for women, 59 for men), even when looking for work to supplement their meager pensions. (Pensions are often less than what is needed for survival.)And finally, as noted, workers laid off because of slack work or redundancy are also not included in the unemployment count.
Standing estimates that well over one-fourth of all employed workers in Russia are "surplus," or redundant. Managers of no fewer than two-fifths and often of more than one-half of all industry establishments surveyed in 1996 said they could do with fewer workers producing the same output and under the same technological conditions. He estimated the average of redundant workers so defined at around 10 percent.
In addition to low wages making it possible for firms to keep workers on their payroll, there are pressures by local communities not to discharge workers lest they become a financial burden on them. According to some of the books contributors, there also remains an ideological legacy from the Soviet past which makes for some reluctance to disemploy workers; the enterprise is often still referred to as the "labor collective." Some of the authors aver that "all state enterprises have pursued a positive strategy of preserving the labor collective," although essentially this means the preservation of productive capacity of the enterprise, which "is not inconsistent with. . . large-scale reductions in employment if these do not compromise" such productive capacity.
The enterprise often still remains the core of a network of social services. It provides health care, rest houses, kindergartens, retirement assistance, canteen subsidies, meal benefits, transportation subsidies, training possibilities, and loans. Standing offers pertinent data, which cannot be detailed here. He also documents growing polarity in the provision of benefits between enterprises paying average or above-average wages and salaries, and those paying less, in which benefits are eroding. Divestiture of those services has been urged by foreign advisers and the Russian government but there have been no buyers, and municipalities have lacked the funds to take them over.
It would seem then that the Russian enterprise remains the core social institution that it was during the Soviet era, "a very meaningful reality in peoples lives. . . Thus the problem of employment is not that of redeploying people as individuals so much as that of transforming and redirecting the labor collectives."
Such transformation, however, is severely hindered by the very fact that labor costs are low, reducing management incentives to install labor-saving, modernized equipment and to reorganize production accordingly; by low capacity utilization (little more than 50 percent in most regions surveyed); by lack of financing and difficulty of obtaining credit; and by slim prospect of rising demand.
Yet, Standings findings are not altogether in accord with those
of his colleagues. Basing himself on the Russian Labor Flexibility Survey, forms of
property have been changing rapidly (although governance appears often to have remained
with the "nonmenkla-tura" of the Soviet era or its appointees). Only about 15
percent of all firms are still state-owned; close to one-half of
all firms are open-stock companies, the remainder being private or closed-stock firms, partially under employee or worker governance. Purely private and state-owned companies reported the lowest levels of capacity utilization. But Standing also reports a relatively high number of enterprises having renewed or changed product or introduced new technology and work organization.
Russias fundamental economic problem is termed "Keynesian" by some contributors, consisting, they hold, in declining demand and investment. That points to the role of government as chief agent of an industrial and economic recovery strategy. Be it noted that, just as Soviet researchers intensively studied the Mercantilism of the 17th and 18th century to help plan the autarchic Soviet economy that began in the 1920s, so currently the New Deal is being scrutinized as a possible model for a recovery strategy. It is often forgotten, however, that mass unemployment plagued the New Deal until rearmament began during the two years prior to the United States entry into World War II.
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