DYNAMICS OF NATIONAL EMPLOYMENT MODELS: THE UK ...

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DYNAMICS OF NATIONAL EMPLOYMENT MODELS: THE UK NATIONAL REPORT October 2005

Rory Donnelly Damian Grimshaw Jill Rubery Peter Urwin European Work and Employment Research Centre Manchester Business School Booth Street West Manchester M15 6PB

1. Main structural challenges in the context of the Lisbon strategy In 2005 Tony Blair as the new president of the European Union called upon the European Union to engage in a major debate on ‘modernising’ the European social model and implicitly provided the UK as a potential future model for European economic and social development. The UK government is happy to present the UK model as almost an unalloyed success story, combining stable and high growth with high employment rates and high public spending on public services to boost productivity and to reduce child poverty. This virtuous combination is seen as facilitated by flexible labour and product markets, not only in the private but also in the public sector. Against this evidence of apparent economic success significant problems still remain in the UK economy, particularly those of low productivity and skill shortage on the one hand and inequality and social exclusion on the other. The Lisbon strategy requires Europe to strive towards developing comparative advantage in knowledge society or high value-added activities and to achieve the employment goals of a high employment rate coupled with job quality. While the UK has scored highly on growth and employment levels, there are larger question marks over the achievement of comparative advantage in knowledge intensive and high value-added activities and particularly over the job quality objective. Closer inspection of recent trends suggest that the UK has made progress in raising prosperity -- that is GDP per head -- than in productivity per worker or per hour. Between 1998 and 2003 the UK has moved from a position of below OECD and EU average prosperity levels to above average levels. Similarly it has overtaken Germany and Italy in prosperity. However this development has been achieved through raising the employment rate or progress on the productivity front remains "subdued" (DTI 2003a). Indeed there may have been a trade-off between the maximising of employment growth and the inclusion of more marginal workers and the development of strong productivity growth. By 2003 the UK had the highest employment rate in the G-7. However the story on productivity is very different. The UK's position in comparison to other compressor countries has remained roughly unchanged since 1998: the US and France continue to have a substantial lead over the UK on output per worker with Germany a smaller lead and on output per hour measures the US France and Germany are all in advance of the UK, by 20% or more. Moreover UK productivity has been found to be relatively low in most sectors with the overall productivity gap emerging as much in service industries such as retail and distribution as in manufacturing (DTI 2003b). The UK government is concerned to address the issue of productivity and has identified five drivers of productivity levels which include investment, innovation, the skills, enterprise and competitive environment. However, on the investment front the UK continues to suffer from underinvestment relative to its competitor countries and although the UK has begun to close the gap is certainly not moving fast enough to offset the underinvestment that has been identified for the past 30 years, resulting in a lower level of capital available per UK worker than in competitor countries (DTI 2003a). On the innovation front the UK continues to have a reputation for global scientific excellence but this strong science base has failed to attract sufficient foreign investment nor two engage sufficient domestic firms in making use of this resource. It is not only that UK firms are undertaking less R&D than their competitors but that there is a widening gap between the UK and the G-7 R&D leaders. However despite the weak performance in 2

research, the UK continues to be a major player in knowledge economy activities according to the available knowledge economy indicators. The UK’s per share of knowledge intensive output is second only to Germany in the G-7 and has been rising between 1998 and 2000. Similarly the UK share of exports of knowledge intensive industries is the highest among the G-7 countries even if it has been declining slightly between 2001 and 2002. In line with the long-term comparative advantage of the UK it is in the service sector where strong growth in knowledge intensive exports have been recorded. On the skills front the DTI suggests that the UK continues to have a weak skills base particularly in the areas of key basic and intermediate level skills although improvements have been noted particularly in ICT skills. The UK is relying primarily on its expansion of higher education to fill the skills gap. Even on indicators of enterprise the UK only appears as the middle ranking economy, indicating that has yet to develop the entrepreneurial culture and apparently characterises the US. However in the area of product market deregulation the OECD has accorded it the highest place along with Australia (Conway et al. 2003). The level of product market regulation is not however the only indicator of the competitive environment: the DTI suggests that the UK has been strengthening its competitor framework and certainly introducing competition into public procurement. However these trends are also creating new opportunities for the development of oligopoly or monopoly due to the high costs of setting up public private partnerships. On this overview therefore of the drivers of increased productivity, there are relatively few grounds for optimism that the UK is on course to close the productivity gap. The claims made of being on course to lead Europe in meeting the Lisbon targets on employment growth are much stronger but even here the record of the UK is better represented in headcount than in full-time equivalent terms. In particular the employment rate for women is much lower relative to other EU member states when calculated on a full-time equivalent basis. This employment growth has not however been associated with improvements in job quality. The UK continues to have extremely high levels of inequality in its labour market, particularly as measured by wages but also by reference to other factors such as pensions. The gender pay gap is one of the widest in Europe and certainly the widest for female part-time workers (as measured against male full-time workers). The UK also continues to have extremely long hours of work for full full-time workers and has witnessed a steady decline in the opportunities for employee voice. The focus therefore by Blair on modernising the European social model also applies to the UK. In particular there is a need to modernise the treatment of women in the labour market and to provide new ways of generating opportunities for voice and for skill development if employment growth is to be complemented by job quality and productivity. 2. Drivers for change in the national employment models: political and economic organisation 2.1. Changes in political conditions/ roles of major actors 2.1.1 Changing international /national interactions o influence of EU-(political influence, macro policy influence, employment policy and legislation)

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While the acceptance of the Social Charter by the incoming Labour government in 1997 marked a significant change from the approach taken by the Conservative government, the continued UK opposition to further extension of the European social model reduces the practical significance of this change. There has in fact been a continued commitment to deregulation under new Labour, except for the implementation of its manifesto commitments to follow European employment directives, implement a national minimum wage and provide some legal support for trade union recognition (the cost of trade union support for a Labour victory). The UK has also remained relatively immune to pressures from the EU in the area of macroeconomic policy as it has stayed outside the Euro zone; the chancellor has been unwilling to accept criticisms of his macroeconomic policy by Brussels and has insisted on the need for more flexibility for counter-cyclical measures than is built in to the Euro rules. o influence of trade agreements, international political conditions etc. The UK’s political systems has been strongly influenced over recent years by the alliance of Blair with the US administration and the conflict therefore between UK foreign policy and that of many of the major European players. However, this political cleavage has also brought the UK closer to the new member states in Europe and thus the division has not necessarily weakened the UK within the enlarged EU. There are relatively few direct spin-offs from the close political alliance with the US to the economy but eh reform of public services being promoted by new Labour is influenced by US-based consultants (see below) and US service providers. The UK’s already weakened manufacturing base and low level of specialisation in agriculture means that it has been able to take a more free trade stance than many other EU countries in its position on the current round of international trade negotiations. Furthermore it has already gone further than the rest of the EU in opening up its traditional public sector markets to private sector competition and remains a strong supporter of moves towards the opening of service markets in both the rest of Europe and the rest of the world. 2.1.2. Changes in national actorsa) the government and macro economic, industrial, employment and social policy The period since the election of new Labour has witnessed a major change in the macroeconomic situation of the UK, in part related to changes introduced into the management of the economy. The 1980s and early 1990s had been a period of unstable macroeconomic conditions, associated in part with a focus on the control of the money supply and the rejection of any notion of managing the macro economy to smooth out the economic cycle. The exchange rate was also allowed to be volatile except during the short time period when the pound was entered into the European exchange rate mechanism but at too high a level to be sustainable. The instability was also fuelled by the housing market with the late 1980s boom turned into a severe housing market crash by 1989/1990. Changes to financial regulation were also associated with an increase in access to credit as the traditional regulated building 4

societies became banks and increased competition led to an easing of the terms on which credit was available. A number of factors have influenced the evolution of macroeconomic policy and macroeconomic conditions in the UK. An important political factor is the vulnerability that the new Labour government felt with respect to economic management given the reputation for poor economic management under previous Labour administrations, resulting in pressure to devalue the 1960s and pressure from the IMF in the 1970s. To insulate the government against charges of ‘tax-and-spend leading to boom and bust’ the new Labour government established the independence of the Bank of England in setting interest rates within a framework more favourable to smoothing cyclical fluctuations than is the case under the Euro regime. The monetary committee of the Bank of England is charged with targeting a specific inflation rate of two and half percent and is expected to stimulate the economy when the inflation rate falls below that as well as vice versa when inflationary pressure is higher than 2 1/2 percent. Conscious that EU rules for the Euro zone might impinge on opportunities to follow through projects for improving public infrastructure and fighting child poverty, the Chancellor also established his own golden rules on debt financing that allowed for greater fiscal deficits in the downturns of the cycle compared to the upturns than is allowed again under the Euro zone rules (assisted, also, with a degree of subjectivity in how to define the period of the business cycle). The decision not to enter the Euro was effectively made by the Chancellor rather than the Prime Minister and was influenced both by the strong opposition to the Euro in the population at large and the Conservative party but also by memories of the problems of the Conservative government encountered when they entered the ERM. In the early stages of the new Labour government previous Conservative governments spending plans were adhered to, reflecting the extremely cautious approach adopted by new Labour to macroeconomic management at the outset. A major change took place, however, with the three-year spending review from 2000 when new commitments were made to increase public spending particularly in health and education (Peston 2005). In addition to this injection of public spending, consumer demand has been sustained through a credit driven consumer boom linked in turn to the housing boom. Figure 2.1.a indicates both the massive growth in consumer credit particularly since 2000 and the importance of secured credit, largely against housing assets in that expansion.

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Figure 2.1.a: Total lending to individuals: secured and unsecured lending

Source: Grant Thornton, Insertion 3. Table 2.1.a further clarifies the importance of the housing boom in this credit expansion as despite an explosion in consumer credit, the ratio of credit to assets has remained totally stable since 2000. Table 2.1.a: Private sector housing assets versus household debt, 1994-2004 Private sector housing Housing debt £bns assets £bns Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04

1092 1088 1196 1301 1505 1719 1968 2116 2568 2869 3306

376 390 410 431 456 494 536 590 674 773 875

Ratio of Private sector housing assets to debt 2.9 2.8 2.9 3.0 3.3 3.5 3.7 3.6 3.8 3.7 3.8

Source: Halifax plc. (2005) Table 3 The reasons for the housing boom remain somewhat unclear as the cost of housing has become misaligned with the level of salaries. However, some of the reasons 6

include the shortage of housing particularly in the southeast, concerns about the stability of the stock market in recent years, the long-term record of housing in ensuring the middle classes have access to wealth (once the decline in prices and the problems of negative equity in the early 1980s were sufficiently far in the past to be effectively forgotten about). For those homeowners experiencing increases in capital gains, the temptation has been to increase expenditure above earnings. As figure 2.1.b shows, the UK dominates the consumer credit card market in Europe (a 55% share of the total number of credit cards in 2003) and the housing boom has not just led to increased indebtedness in the form of mortgages but also to increased credit of all kinds. The UK’s transition to a relatively stable path and of economic growth is therefore based on a massive level of consumer debt and a potentially unsustainable housing boom. Figure 2.1.b: Western Europe credit card market, 2003

One of the driving forces behind the big injection of public expenditure since 2000 was the increasing recognition that the steadily deteriorating state of the public infrastructure was becoming politically unpopular. It is notable that the Conservatives in both the 2001 and the 2005 election have claimed that they would sustain the same level of expenditure in health and education (excluding universities) planned by the Labour party, indicating a cross-party consensus that a return to an effective zero new build and highly constrained levels of investment in maintenance of the infrastructure no longer constituted a politically acceptable policy. However, a potentially equally important driving force has been the opportunity to open up new markets and opportunities for private capital through the rise in public expenditure. The 7

motivations for this expansion of opportunities with private capital are both multiple and somewhat unclear: one media commentator has recently argued that while for the Chancellor the main motivation is related to meeting expectations within the EU and the international community more generally on public-sector debt, for the Prime Minister the involvement of private capital is seen as a necessary part of his commitment to sustain pressure on the public services to deliver a continual revolution in working practices (Toynbee, The Guardian, 02.09.05). The commitment to higher public spending on services is a commitment to front-line services which may involve higher employment levels but not higher levels of pay and which have to be to delivered at increasing levels of productivity on annual basis. In part this approach can be explained by reference to the past -- new Labour is concerned not to be seen as favouring the still strongly organised public-sector workforce. However, some see this as a thinly veiled excuse for expanding profitable opportunities for private sector companies. The result of the opening up of infrastructure projects to private finance, the development of wide ranging public private partnerships to deliver services and an accelerated outsourcing of many low skilled jobs has been to fuel growth not only in public-sector employment but also in private sector employment. Public employment has increased its share of total employment from 21% in 1980 to nearly 26% by 2004. Edmonds and Glynn estimate a rough figure of 550,000 private sector jobs being created as a direct result of increased public spending between 2000 and 2003, concluding in fact that since 2000 growth in UK employment is due to higher public expenditure. In industrial policy the new Labour government has largely followed the approach of the previous 18 years of conservative government, specifically advocating a hands-off approach to industrial policy coupled with further deregulation of product markets. In employment and social policy the new Labour government came into power committed to two objectives- to reduce child poverty and to follow a more active approach to employment policy. The two objectives were connected in as much as child poverty was regarded as related to workless households, particularly lone parents. The ‘make work pay policy’ involved the development of New Deal programmes for the unemployed and the adoption of an extensive in work benefits, with more emphasis on help with childcare particularly for lone parents. The negative impacts on participation for second income earners was not regarded a major priority as it did not lead to workless households and child poverty. While the Labour government planned a reform of social security for the working age population it has found itself somewhat unexpectedly in the midst of a crisis in the UK pension system. The crisis is in two elements: first the long term decline in the relative value of the state pension and second the collapse of the final salary occupational pension schemes; the number of persons belonging to such schemes has fallen by 1 million over 5 years such that only 3.65m out of 22.5 m in the private sector belong to such a scheme compared to 5m out of 5.7m in the public sector (The Telegraph, 13.06.05). b) changes in social partner organizations and influences The main influence that trade unions have had on new Labour policy is in the realisation of the 1997 manifesto commitments to introduce legislation on trade union recognition, to accept the social charter and to introduce a national minimum wage. These policy priorities further signify the ending of the belief among trade unionists 8

that they are able to survive and prosper without state support – one of the fundamental tenants of the notion of the traditional voluntarist approach of UK trade unions. At the workplace level, case study and survey evidence has pointed to a rebalancing of power towards employers with the consequences of increased work pressure, long working hours and greater emphasis on individualised and performance related pay (Beynon et al. 2002, Burchell et al. 2001). However most of these changes appear to have taken place before the end of the 1990s with some evidence of an amelioration or stabilisation of these pressures into the 2000s (Green 2001, White et al. 2004). Many of the changes towards new payment systems, new forms of work organisation and new working time arrangements during the 1990s could be traced to policies to reduce the power of trade unionists over the traditional organisation of work and the wage-effort relationship. Within the public sector these changes are certainly ongoing under the pressure introduced by Blair's commitment to ‘a constant revolution in working practices’. The extent to which these policies are productive in raising productivity as opposed to increasing staff turnover and stress is a matter of debate. o change in representation of groups (manufacturing to services, male to female within social partners) Most of the decline in manufacturing jobs in the UK occurred in the early 1980s: 1.6 million jobs were lost between 1980 and 1984 and a further 1.8 million over the next 20 years to 2004. Manufacturing employment declined from 27% in 1980 to only 13% in 2004. Service sector employment both public and private has been the major growth area to replace the lost manufacturing jobs but employment within the service sector is highly polarised into both low and high paid jobs. Moreover there is a further polarisation by representation, with public sector employees much more strongly organised than private sector, such that trade union organisation is now primarily concentrated in the public sector in the UK. There has been some increased awareness of the need to take into account the interests of both women and the family in public policy: women have continued to increase their participation in both education and employment but only recently has there been a recognition that something needed to be done about the mismatch between employment patterns of women and the support available for families, particularly in the context of the very long working hours in the UK that inhibit sharing of domestic tasks. There are three elements to the change in policy: first the national childcare strategy was launched to increase availability of childcare and provide some assistance with affordability through a child tax credit, although childcare remains extremely expensive in the UK and the targeting of assistance on only formal forms of childcare has limited take up; second there has been a steady expansion in the length and improvement in the pay for maternity leave and there is now some plan to allow some part of paid maternity leave to be transferred to fathers, but for whatever reason the term maternity leave continues to be used instead of parental leave which is only available on unpaid basis; there is now a right for parents of children under six (and likely to be extended to all parents and carers) to request employers to allow them to work flexibly and for any failure to consider this request seriously to be referred to a tribunal. This rather weak right to request flexible hours however seems to be leading to some change in employment policy towards the 9

availability of flexible work options. This interest in work-life balance has emerged in a context where the UK still retains many of the characteristics of a strong male breadwinner society (Lewis 1992) including a high gender pay gap, limited if increasing support for working mothers and dependence of women on their partner’s occupational pensions- although individualised taxation was introduced at an early stage in the UK. The evidence of the extent to which the government is beginning to take into account the interests of women is thus mixed; Scotland and Wales have gone further than the central UK government in introducing gender mainstreaming but there is now a new measure being introduced in the legislation setting up a new equality commission that requires public service providers to promote equal opportunities. o role in shaping wage setting, work organisation, employee voice and employment security The UK industrial relations tradition is associated with voluntarism but by the middle of the 1980s that system had been significantly undermined by the introduction of new industrial relations legislation that had introduced new legal controls on the ability of unions to take action. Perhaps even more importantly government attitudes towards trade unions had undermined the legitimacy of both trade union action and employee voice. Under this new political climate there were limited incentives for any employers to agree voluntarily to recognise trade unions, thereby demonstrating the weakness of a voluntary system in a context of government opposition to any role for collective labour. To some extent the weakness of the collective bargaining system in the UK was exacerbated by earlier trade union strategies to promote single company agreements based on their areas of strength and their subsequent neglect of sector level framework or national agreements. Employers’ associations, traditionally weak in the UK, became even weaker as they lost their role in collective bargaining and the notion of social partnership being introduced from Europe took on even less meaning in the UK context where the coordination of collective bargaining had all but disappeared in the private sector (Brown 1993). Even the ability of unions to influence employment conditions in the public sector has been undermined through privatisation and the development of decentralised bargaining systems, although there have been some moves back towards centralised bargaining under new Labour and also some improved protection provided to contracted out staff. c) New social actors ( MNCs, NGOs etc) There is considerable concern in the press that the opening up of public sector contracts to private sector competition is opening the way for new sources of influence on government, from large multinational corporations concerned to gain a share of these new markets. In addition to direct influence, the increasing use of consultants is seen as a means of paving the way for the influence of multinationals. One consultancy in particular has been a source of concern, the global consultancy firm McKinsey. This secretive organisation has penetrated the centre of UK policy making, with a former partner at McKinsey hired to head Downing Street's policy unit alongside a number of McKinsey-trained people already advising the government including for example Lord Birt, an unpaid advisor charged with "blue skies" thinking. 10

2.1.3. Assessment of changes o typologies of political/ economic models- varieties of liberal/market versus coordinated capitalism

capitalism-

Commonly-identified features of the UK model are the lack of institutions for economic coordination, the dominance of financial constraints and shareholder power, the correspondingly low power of labour - resulting in both flexible employment and low employee voice - and the development of production systems requiring limited skill or training. The literature on national socio-economic models provides a wide range of different typologies or classifications, dependent upon the orientation and research questions posed by the authors. Despite this potential variation in classification there has been a remarkable similarity in the positioning of the UK in the varieties of capitalism literature. Pendleton and Gospel (2005) have identified the tendency of many authors to position the UK alongside the US across a multitude of dimensions, with a distinction being drawn between the US/UK and Germany/Japan: Box 1: Portrait of the UK within typologies of national systems of corporate governance and labour management (Pendleton and Gospel 2005) Financial economics (Franks and Mayer 1997): The UK has a ‘market’/outsider system featuring extensive equity markets in contrast to long-term investment patterns in Germany and Japan through bank lending. Labour has no role in corporate governance in the UK. Legal system (La Porta et al 1998, 1999): Common-law system provides investors with more protection than German civil law. Political economy tradition/varieties of capitalism (Lane 1995; Whitley 1999; Dore 2000; Hall and Soskice 2001): Liberal market economy based on dispersed ownership and financial constraints. Employees rather than shareholders bear the brunt of adjustment to shocks. Labour management literature: Flexible labour markets based on high labour turnover, short average job tenures and contingent pay. Production systems literature: UK oriented towards mass production and limited functional flexibility, low skill equilibrium. Industrial relations systems literature: Absence of formal employee voice mechanisms; voice dependent on voluntary joint consultation or collective bargaining; limited notion of social partnership. Typologies of welfare state systems, such as those provided by Esping-Anderson (1990), classify the UK’s social model as a residual welfare state similar to that in operation in the United States or alternatively as a strong male breadwinner model (Lewis 1992). The characterisation of the UK as a residual welfare state was 11

reinforced by changes that took place in the 1980s that removed any earnings related elements from social security both in unemployment benefits and to a large extent in pensions, where state second-tier earnings-related pensions were effectively replaced by incentives to switch into private and company level pensions as a second-tier. Moreover, the new flat rate benefit levels were increased only in line with inflation and were reduced significantly in relative terms over the decade. However, the UK system remains significantly different from that in the US, both because of its national health system and because of its commitment to continuing support for those without adequate income through means tested benefits, for the sick, disabled or long-term unemployed. Similarly, low state pension levels are supplemented by access to a range of means tested benefits. One of the consequences of the means tested benefits was an increasing rate of workless households as the low paid jobs available to the unemployed were not sufficient to compensate for the loss of a range of means-tested benefits, including rent and mortgage payments (Gregg and Wadsworth 1995). The changing characteristics of the UK with respect to the male breadwinner classification have been partially discussed above; to recap there are mixed trends, with women becoming more integrated into the labour market, receiving more support through childcare and leave and being accorded more independence in taxation but these trends are offset by the high gender pay gap, high levels of short part-time working and the increasing dependency on partners for benefits associated with both in work benefits and with the pension system. o change in power relations between political actors Most of the classifications of the UK within the varieties of capitalisms literature have been produced after 1997, suggesting that the UK remains in a different category to Germany and Japan. However, some recent changes have been identified that are posited to have shifted the UK into a different category or made revision necessary to previous classifications. In the field of financial economics, Pendleton and Gospel (2005) have questioned the continued salience of the classification of the UK as embodying a ‘market’/outsider system. Such a change would be of great significance as Pendleton and Gospel (op. cit.) have described how the ‘market’/outsider model of corporate governance is associated with: labour bearing the costs of economic downturns; a short-term time horizon in labour management; a reluctance to invest in quality production and training; the use of variable pay and stock option inducements for employees; and company or plant-level bargaining. The basis of the argument that the UK has experienced a shift in corporate governance is that institutional shareholders have developed closer relationships with managers and are now more concerned with longterm performance due to increased capital illiquidity and the corresponding reduction in alternative investment opportunities. These developments are posited to have created greater stability in UK corporate ownership, perhaps aiding the development of ‘patient capital’ (Hall and Soskice, 2001). However, this does not appear to be associated with greater stability for the labour force. Pendleton and Gospel themselves identify the tendency for the close relationship with managers to be utilised by shareholders to force radical restructuring policies on a company facing difficulties. Furthermore, the post-1997 period has not seen any new legal requirements for companies to consider wider stakeholder interests. Though there have been changes in capital ownership in the UK (see section 2.2.1 for details) it 12

does not appear that the UK has experienced a step-change such that its positioning should be changed on continua relating to Financial economics, the Legal system, or the Political economy tradition/Varieties of capitalism approach. The focus on shareholder value can be seen to continue as a consequence both of the selling-off of public utilities and assets and the development of shareholder value metrics by the large and growing consultancy firm network in the UK. These influences on domestic capital are reinforced by the dominance of the city in international capital flows and international financial services. If there has not been a ‘re-balancing’ of stakeholder interests in favour of labour in the broad field of finance, changes in labour market regulation and industrial relations since 1997 could be taken as evidence of such a re-balancing. However, although the Labour government introduced the national minimum wage in 1999, the commitment to an otherwise de-regulated labour market remains, with the UK’s flexible labour market being regarded as a source of prosperity and low unemployment (DTI, 2003a). In the field of industrial relations, the Employment Relations Act 1999 established a statutory procedure which enables a trade union to obtain recognition by the employer for collective bargaining purposes where the majority of the relevant workforce want this. The Employment Relations Act was presented as a final settlement in UK industrial relations, with the government ruling out the possibility of repealing the anti-trade union legislation of the Conservative era. The introduction of the national minimum wage and the Employment Relations Act can both be characterised as significant adjustments to the UK model, rather than marking step-changes or transformations. 2.2. Changes in the production model 2.2.1

Change by sector/ownership/governance

o Sectoral distribution of employment There have been significant changes in the sectoral distribution of employment in the UK over the past 25 years. The first major trend to be noted is the decline in Manufacturing jobs and increase in service sector employment. In 1980, jobs in manufacturing comprised 27% of all employment; by 2004 the figure was less than 13%. In contrast, the proportion of service jobs increased from 62% to 81% in the same period1. The decline in manufacturing jobs in recent years, nearly 22% in the UK between 1997 and 2004, has been greater than in France and Germany, where the figures were 5% and 6% respectively over the same period (Edmonds and Glyn, 2005). This change means that while in 1980 manufacturing was the largest source of employment among the main sectors, by 2004 it had been overtaken by three of the main service sectors in Public administration, education & health, Distribution, hotels & restaurants and Banking, finance, insurance, etc. – each with a greater number of employees than found in manufacturing.

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There are debates about the classification of ‘service’ work, with Poynter (2000) arguing that contemporary societies remain essentially industrial societies.

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Table 2.2.a: Employee jobs by Industry: thousands, seasonally adjusted, selected years (first quarter)

Public administration, Education & Health Banking, Finance, Insurance etc Distributions, Hotels & Restaurants Transport, Storage & Communication Other Services Total Services Manufacturing Construction Energy & Water Agriculture, Hunting, Forestry & Fishing Total

1980

1984

1988

1992

1996

2000

2004

5115

5164

5670

5892

5921

6151

6746

2701

2913

3445

3760

4149

4763

5137

4946

4782

5020

5348

5539

6060

6412

1604 921 15286 6703 1417 684

1436 930 15225 5141 1195 566

1394 1028 16556 4921 1212 430

1434 1037 17471 4203 1092 320

1341 1098 18048 4148 923 224

1505 1288 19767 3988 1173 197

1578 1366 21239 3301 1280 177

440 24529

375 22502

342 23462

314 23401

278 23620

312 25438

222 26219

Source: ONS Statbase accessed 12 July 2005 http://www.statistics.gov.uk/statbase/tsdataset.asp?vlnk=341&More=Y A second important area of change has been in public sector employment. In the Public administration, education & health sector employment levels have increased. The data in Table 2.2.a show that the proportion of all employment in this sector has increased from less than 21% in 1980 to nearly 26% by 2004. This expansion began in the late-1980s, but there was a marked increase in recent years. Total employment increased by 1.8m between 1996 and 2000, of which 230,000 extra jobs were in the Public administration, education & health sector (13%). In contrast, in the four years after 2000, employment increased by 781,000, of which 595,000 were in the Public administration, education & health sector (76%). The acceleration in employment growth in the Public administration, education & health sector after 2000 reflects the sharp increases in public expenditure after 1999 (table 2.2b). For Edmonds and Glyn (2005) increased public expenditure since 1999 was the cause of employment growth not only in the public sector, but also in the private sector, where private firms supply the publicly-funded demand for new buildings, drugs and textbooks. Their study estimates that 550,000 private sector jobs were created as a direct result of increased public spending between 2000 and 2003, concluding that since 2000 all net growth in UK employment was due to higher public expenditure (op. cit.).

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Table 2.2.b: Total Expenditure on Services by function in real terms (adjusted to 2003-4 price levels using GDP deflators) £ billions 1987-8 36.3

1991-2 42.3

1996-7 50.9

1998-9 53.1

2000-1 59.3

2002-3 68.2

2003-4 74.9

Education

36.4

40.5

43.4

43.8

48.4

54.9

59.3

Social Protection Total Managed Expenditure

97.9

108.7

133.2

129.1

139.1

149.0

155.0

323.8

342.7

373.9

372.5

397.4

430.1

455.2

Health

Source: HM Treasury (2005) ‘Public Expenditure Statistical Analyses (PESA)’, table 3.3 An important point is that the expansion of employment in the Public administration, education & health sector has been accompanied by increasing private sector involvement in the delivery of publicly purchased services. The expansion of private sector activity was initiated in the 1980s, with the privatisation of national utilities, followed by legislation on Compulsory Competitive Tendering (requiring the outsourcing of (mainly) ancillary public services), policies to extend the range of activities subject to outsourcing (such as IT and the supply of temporary teaching staff) and the launching of new capital-based projects with the private sector (most notably, through the Private Finance Initiative). In each case, the role of the state both as service provider and employer was redrawn, or ‘rolled back’, in favour of extending opportunities to private sector firms in a range of new ‘markets’ ranging from cleaning and catering services within hospitals and schools to the design and delivery of new IT-enabled systems of tax collection and tax assessment. Under consecutive Conservative governments between 1979 and 1997, private provision of public services increased in all areas, but particularly in Personal Social Services (table 2.2.c). Table 2.2.c: The increase in private provision of publicly purchased services (by proportion of expenditure, publicly purchased services)

Education Health Housing Personal Social Services All welfare services

1979/80 % Public % Private provision provision 71 29 79 21 56 44 87 14 81

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1995/96 % Public % Private provision provision 64 36 76 24 40 60 55 45 73

27

Source: Grimshaw and Hebson (2004), previously adapted from Burchardt (1997: appendix). 15

With the change in government in 1997, while the ideological rationale underpinning reform changed, new legislation and policy guidelines speeded up and expanded the process of reform through increasing engagement and partnership with the private sector on a ‘level playing field’. Public-Private Partnerships (PPPs) are described as an ‘innovative hybrid approach’ to public management (IPPR 2001: 38) and are said to replace outmoded alternative models, including the traditional rules-based, hierarchical approach (where resources flow according to management fiat and service delivery is organised through administrative processes) and the ‘new public management’ approach (where the state funds the purchasing bodies and providers compete for the contracts for service delivery)2. Partnerships are said to be distinctive because they are constituted by ‘a risk sharing relationship between the public and private sectors based upon a shared aspiration to bring about a desired public policy outcome’ (IPPR 2001: 40). But, perhaps more typically, partnerships appear to have become a catch-all phrase, covering any arrangement where a public service is delivered in co-operation with the private sector (PSPRU, 1998). As such, it is not clear that PPPs present an alternative, innovative approach that transcends previous approaches to public services management. Nevertheless, despite the apparently neutral language and ideology, the years since 1997 have witnessed a remarkable increase in the role of the private sector in delivering public services, suggesting that the so-called level playing field slopes in the direction of the private sector. In the National Health Service, by 2001 the private sector was providing around £1.1 billion of ancillary services – approximately one third of total NHS spending in this area (HM Treasury 2003). In education, the outsourced marked amounted to some £2.5 billion in 2001 (Burkeman 2001) – with somewhere between £200m and £400m spent on private provision of supply teachers and around 37 percent of school meal services outsourced to the private sector (IPPR 2001: Table 3.6). Outsourcing is even more significant in the area of social services. By 1998-99, private and voluntary providers accounted for just under half of all public spending on personal social services, close to £5 billion. Moreover, in the largest area of social services spending, that of elderly care, two thirds of provision came from outside the public sector (IPPR 2001: Tables 3.8 and 3.9). And across all areas of the public sector, a major driver of PPPs has been the Private Finance Initiative. By April 2003, 563 PFI transactions had been agreed, with a total capital value of £35.5 billion – with £32 billion of the total signed since the election of the Labour government in 1997. Among the larger departments there were 117 PFI projects signed in the NHS, 46 in the Ministry of Defence and 96 in the Department for Education and Skills (HM Treasury 2003: 20-21). o Workplace size and firm ownership Regarding the size of UK workplaces, Table 2.2.d below shows that there has been a decline in the proportion of employees employed in large workplaces. In 1980, 34% of employees were found to work in workplaces with 500 or more employees. By 1990, this proportion had declined to 27%, reflecting the deindustrialisation in the 1980s. In 1998 the proportion was higher at 30%, due in part to the emergence of large private sector services workplaces. 2

For reviews of the traditional approach and ‘new public management’, see Fry (1989) and Lane (2000), respectively.

16

Table 2.2.d: Distribution of all workplaces by size and sector, 1980 to 1998 Proportion of Employees

Column percentages 1980 1984 1990 1998

25-99 employees Private sector manufacturing and extraction Private sector services Public sector

7 14 9

7 15 11

8 18 10

6 18 9

100-499 employees Private sector manufacturing and extraction Private sector services Public sector

13 9 14

10 10 16

12 14 11

9 18 10

500 or more employees Private sector manufacturing and extraction Private sector services Public sector

17 3 14

10 4 17

7 5 15

10 8 12

2,000 2,040

2,000 2,019

2,000 2,061

2,000 1,929

Weighted base Unweighted base

Source: Millward et al (2000) Table 2.2, p. 29 Base: all establishments with 25 or more employees. Survey data produced by the ONS in 1998 showed that 52% of UK employees were employed by domestic UK firms, and 48% by multi-national enterprises (MNEs) (table 2.2.e). UK-owned MNEs employed 19.2% of all employees and foreign-owned MNE employment stood at 28.8%. The concern of Barnes and Martin (2002) is with the discrepancy in productivity between UK domestic firms and MNEs. Drawing on value added data, they identify UK ownership as being associated with low labour productivity, regardless of whether the firm is a MNE or solely a domestic concern: Table 2.2.e: Characteristics of domestic and multinational enterprises in the UK All UK Observations Share of Value Added % Share of Employment % Avg Value Added per Employee £

UK nonMNE 6398 42.8 52

UK MNE 877 21.8 19.2

Total

7275 64.6 71.2

All Foreign 1370 35.4 28.8

29,967

41,465

28,580

40,082

31,789

8645

Source: Barnes and Martin (2002) Table 4, p. 39 based on unweighted sample of 1998 ARD (Annual Respondents Database) and 1998 AFDI (Annual Inquiry into Foreign Direct Investment) 17

OECD data suggests a doubling of the proportion of UK employees in foreigncontrolled service sector employment in the late 1990s (table 2.2.f). Over the past decade, the UK has received greater inflows of FDI than either France or Germany, but very large outflows of FDI make the UK the country with the largest net outflow of FFI in the OECD (table 2.2.g). OECD data are available since 1990 on FDI inflows and outflows. This shows the UK to have had a net outflow of FDI, of varying sizes, since 1991. In this period the UK has been involved in a large proportion of EU FDI, both inflows and outflows, but in 2002 the proportion of EU FDI inflows coming to the UK dipped under 10%, and was only 5.1% in 2003 (table 2.2.h). Table 2.2.f. Share of all employment in affiliates under foreign control, in the manufacturing and services sectors Manufacturing Services

1996 19.15 …

1997 17.77 3.6

1999 20.37 7.4

Source: OECD (2005) Factbook Note: … = no data available Table 2.2.g: Cumulative FDI flows in OECD countries 1995-2004 (USD billion)

UK FRA JAP GER USA

Inflows

Outflows

Net Outflows

534.3 356.0 57.4 375.5 1461.4

938.4 673.0 280.9 429.8 1511.6

404.1 317.0 223.5 54.3 50.2

OECD rank in Net Outflows 1 2 3 8 9

Source: OECD (2005) Trends and Recent Developments in Foreign Direct Investment Table 3, June Table 2.2.h: UK and EU-15 FDI Inflows and Outflows, 1990-2003 US$bns UK FDI Inflows UK FDI Outflows UK Net Outflow EU15 FDI Inflows (UK %) EU15 FDI Outflows (UK %)

1990 30471

1991 14849

1992 15475

1993 14821

1994 9255

1995 19968

1996 24441

1997 33245

1998 74349

1999 87973

2000 118824

2001 52650

2002 27802

2003 14574

17954

16412

17741

26063

32206

43560

34056

61620

122861

201437

233488

58885

35213

55316

-12517

1563

2266

11242

22951

23592

9615

28375

48512

113464

114664

6235

7411

40742

96442

77665

72768

73209

77150

114868

110956

132471

269397

502245

804557

354032

372521

284097

31.6 130316

19.1 106076

21.3 103005

20.2 92854

12.0 120345

17.4 158573

22.0 181835

25.1 223267

27.6 418616

17.5 734393

14.8 939818

14.9 429217

7.5 350058

5.1 318139

13.8

15.5

17.2

28.1

26.8

27.5

18.7

27.6

29.3

27.4

24.8

13.7

10.1

17.4

Source: OECD (2005) Factbook and author’s calculations. 18

o Formal / informal economy Estimates of the magnitude of the informal economy in the UK vary from 1% to 34% of GDP. The most generally accepted figure is 6.8% and it is thought to be growing faster than the formal economy (Small Business Council, 2004, p. 8). The Government figure is just over 1.5%, and the OECD average is 16% (Politics.co.uk, 2004). The three largest types of work that occur in the informal economy are: Home Maintenance and Repair (i.e. Construction) (43% of the informal economy), Routine Housework (28%) and Caring (11%) (Small Business Council, 2004: 9). Drawing on an analysis of local surveys, the Small Business Council (2004) reports that it is the relatively affluent in-work population who participate most in the informal economy. Only a small proportion of the informal economy is comprised of individuals and enterprises that do not operate in the formal economy at all. Three types of informal economy involvement are presented by The Small Business Council (2004: 8): -

-

“The informal work of micro-entrepreneurs, such as those starting-up fledgling business ventures who use the informal economy as a short-term risk-taking strategy to test-out their enterprise and/or establish themselves” (comprising approximately 25% of all informal work). “The informal work of more established small businesses and self-employed people who use this sphere in an on-going and serial manner as a strategy for ‘getting by’” (approximately 50%). “The informal work of ‘favour providers’ who conduct mostly casual one-off tasks as ‘paid favours’ for friends, family and acquaintances” (approximately 25%).

In the construction sector, recent research has highlighted the existence of “forced” migrant labour (UCATT, 2005, Anderson and Rogaly, 2005) and the widespread phenomena of “false” self-employment (Harvey, 2001; 2003). In both cases, construction workers do not have the protection of rights that normally cover formal employees, and this situation has arisen through “employer” initiative. Homeworking has also received some attention in the UK. Though much home-work is formalised and non-manual workers who work mainly at home receive average pay higher than their office-based colleagues (Felstead et al., 2000), case study survey research has found over 40% of home-workers were in receipt of wages lower then the National Minimum Wage that they were entitled to, with pieceworkers faring particularly badly (Heyes and Gray, 2001: 868). Official statistics for Spring 2004 show that there were 272,000 workers and agricultural labourers aged 18 or over who received less than the National Minimum Wage (Milton, 2004). Jordan and Travers (1998) identify a growth in cash transactions since 1979, where workers do not declare earnings to the tax authorities (“moonlighting”) or the benefits authorities (“benefit fraud”). They characterise the new Labour government as aiming to engage more people in the formal labour market through welfare-to-work policies such as the New Deal, and improving incomes of the low paid through the National Minimum Wage and tax credits. They see these policies as incapable of reducing the incidence of informal employment as the influx of new labour market entrants is anticipated to put downward pressure on wages, and instead call for 19

policies to encourage ‘restrained competition’ and advocate a Basic Income scheme to facilitate both flexibility and income security. Jordan and Travers seek not to discourage the type of informal economic activity “through which deprived communities have survived the Thatcher and Major years” (p. 303). Recent government-backed research by the Small Business Council (which reports to the DTI) and the academics Mel Evans and Stephen Syrett (funded by the ODPM) is concerned with bringing informal work into the formal economy, but also argues that some informal work is socially useful, helping the poor to avoid involvement in serious crime and encouraging entrepreneurialism (SBC, 2004, see also BBC News, 2004, Politics.co.uk, 2004 on Evans and Syrett). o Change in governance The traditional (1980s) account of the UK system of corporate governance is one where the short-term interests of shareholders are paramount, to the detriment of workers and long-term investment. Pendleton and Gospel (2005) identify this as the basis for the UK being placed alongside the US as a ‘liberal market economy’ in the ‘varieties of capitalism’ literature (Hall and Soskice, 2001), and for criticisms of UK firms’ neglect of ‘stakeholders’ other than shareholders (Hutton, 1996). Nevertheless, the UK is not a ‘pure’ shareholder model. Froud et al. (2000) argue that shareholder value metrics offered by consultancy firms are not of great help to managers and, moreover, high shareholder returns are simply not possible regardless of the actions or quality of managers in most sectors of the UK economy. That is not to say that the influence of shareholder value consultancy is insignificant, as managers have sought to improve ratios through methods such as divestment and share buybacks that have real effects. Despite this change, Froud et al. (2000) argue that the UK and even the US are not ‘financialized’ economies. The corporatized sector of the UK economy accounts for only 50% of UK GNP, with the personal sector and the government each accounting for 25%. Even with the UK privatisations in the 1980s, the corporate share of GNP has not increased due to the decline in manufacturing (op. cit.: 104-5). A key factor in the accounts of Deakin (2005) and Froud et al. (2000) is that a competitive market for corporate control is highly significant in giving shareholder interests ‘primacy’ or in determining the degree of ‘financialization’. This is important in the UK case due to the small proportion of shares held by banks and by private non-financial companies. In the ‘varieties of capitalism’ and ‘stakeholder’ accounts of UK corporate governance, the pattern of share ownership is held to promote shareholder control of management by market means rather than direct involvement. The significant proportion of shares held by pension private funds (table 2.2.i) is seen to contribute to this tendency, as asset management decisions are devolved to specialist fund managers who compete on the basis of quarterly fund performance3 (Pendleton and Gospel, 2003, pp. 63-64 present and critique this view). In this view, there can be seen to be an absence of ‘patient capital’ (Hall and Soskice, 2001) in that owners have a short-term market relationship with firms, and are outsiders rather than insiders.

3

Blackburn (2002) has argued that the significant role played by pension funds in the UK presents the possibility of greater democratic control of economic activity through a Wage Earner Fund scheme.

20

Table 2.2.i: Ownership of UK shares, 1981-2001, percentage of total equity owned at year end by each investor type (non UK investors excluded)

Total held by major UK institutional investors Insurance companies Pension funds Unit trusts Investment trusts Other non-bank financial institutions

1981 (%) 59.8 21.3 27.7 3.7 n.a. 7.1

1990 (%) 65.5 23.1 35.9 6.9 1.8 0.8

1997 (%) 73.9 30.9 29.1 8.8 2.5 2.6

2001 (%) 73.3 29.4 23.6 2.6 3.2 14.5

Other investors Charities Companies (non financial) Public sector Banks Individuals

2.3 5.3 3.1 0.3 29.3

2.2 3.2 2.3 0.8 23.0

2.5 1.6 0.1 0.1 21.7

1.5 1.5 0.0 1.9 21.7

Source: adapted from Pendleton and Gospel (2005: table 3.1). The absence of a clear legal underpinning of the UK system of corporate governance potentially opens the way for new trajectories. For example, the 2002 Company Law Review Steering committee expressed its support for ‘enlightened’ shareholder value extending company interests to a wide range of stakeholder groups (op. cit.: 12)4. Also, in common with Hawley and Williams’s (2000) analysis of US developments, Pendleton and Gospel (2005) argue that the increasing institutionalisation of share ownership (e.g. pension funds which have holdings in a broad cross-section of FTSE companies) has created strong incentives for shareholders to become actively involved in companies and such shareholders are likely to be concerned with longterm profitability. Table 2.2.f illustrates the increasing institutionalisation of shares ownership: insurance companies, pension funds, unit trusts, investment trusts and other non-bank financial institutions held 60% of shares in 1981 and this increased to 73% by 2001. Pendleton and Gospel (2005) highlight the relationship aspects of corporate governance, emphasising the ability of small coalitions of shareholders to influence management and the reduced ability of institutional shareholders to alter investment portfolios due to increased illiquidity, in part a consequence of share buy-backs (op. cit.: 72). The close relationship resulting from increasingly illiquid holdings can thus be a force for stability. However, should a firm face difficulties the close relationship can enhance the ability of shareholders to force radical restructuring policies on the company (op. cit.). Also stakeholder developments have not been encouraged by government through, for example, reform of company law. Moreover, as Erturk et al. (2004) show, the new narrative of neo-liberalism with a modicum of social responsibility has been well matched to the ‘value-skimming’ behaviour of CEOs in 4

The Review argued for ‘a proper balanced view of the short and long term, the need to sustain effective ongoing relationships with employees, customers, suppliers and others; and the need to maintain the company’s reputation and to consider the impact of its operations on the community and the environment’ (cited in Deakin 2005: 12).

21

the UK and the rapid acceleration of executive pay increases. The latter has been shown to be perfectly consistent, and even a consequence of, new rules that aim to promote transparency (eg. disclosure, formal remuneration committees and involvement of consultancies), but also encourage an upward spiral of pay increases in line with a ‘market rate’ (Ezzamel and Watson 1998). 2.2.2. Impact of change in regulation and public policy o Research and development The traditional picture of R&D activity in the UK is set out in studies of its ‘national system of innovation’ (eg. Nelson and Rosenberg 1993, Walker 1993), which aim to identify ‘the network of institutions in public and private sectors whose activities and interactions initiate, import, modify and diffuse new technologies’ (Freeman 1989, cited in Miozzo and Walsh, 2006). Overall, they paint a picture of the UK as lagging behind other advanced countries technologically with the roots of its problems associated with the last decades of the 19th century. In brief, the UK’s traditional innovation model comprises: a low and relatively stagnant level of R&D spending; limited development of high technology activities (mainly defence spending – with few spin-offs into the civil sector, unlike in the US or France –, pharmaceuticals - around 25% compared to 10% or less in other G5 countries – and US and Japanese foreign investment in electronics); a low world share of patents registered in the US patent and trademark office; publicly funded research undertaken within universities using short-term contracts from government agencies (unlike France (CNRS, INSERM, INRA) or Germany (Max Planck Institute, Fraunhofer Institute) where much publicly funded research is conducted by civil servants with job security); weakly developed science and education institutions (especially for the status of engineering as a profession); market forms of coordination instead of ‘bridging’ institutions (eg. regarding producer-user relations, banks and industry, science and engineering)5; and limited support from shareholding portfolio investors for long-term, risky investment seen as necessary for innovation and learning (Miozzo and Walsh 2006 ch.6, Walker 1993). Trends in the last decade have both reinforced and adapted this traditional model. First, gross R&D spending in the UK fell in almost every year during the 1980s and 1990s (as a share of GDP), in contrast to other G5 countries whose shares generally increased; UK spending fell from 2.39% to 1.83% while in the US, for example, it rose from 2.42% to 2.74% during 1981-1998 (Bloom and Griffith 2001: 339). Comparing the period 1991-1997 with 1997-2003, there was only a marginal rise in R&D spending growth (22% and 25% respectively), lower than GDP growth in both periods (own calculations, ONS data). 2003 data show the UK still lags behind in both public and business R&D spending compared to the US and Germany (table 2.2.j) and has a long way to go to improve its current level of a 1.9% share of GDP to meet the government target of 2.5% by 2014, let alone the more ambitious Lisbon 2010 target of 3% of GDP. 5

The arms-length relations between UK retailers and producers is one reason why the British market is so easily penetrated by foreign producers (Williams 1993: 181).

22

Table 2.2.j. Innovation scoreboard for the G5 countries, 2003 % of 20-29 S&E grads Work pop with tertiary education Public R&D exp Business R&D exp USPTO patent applications (per million population) Early stage venture capital (share of GDP) ICT expenditures (share of GDP)

UK 19.5 29.4 0.65 1.19 77.2

US 10.2 37.2 0.76 2.04 322.5

Japan Germany France -8.0 19.6 33.8 22.3 23.5 0.81 0.73 0.83 2.28 1.76 1.37 265.2 147.4 76.5

EU 11.3 21.5 0.69 1.30 80.1

0.047

0.218

--

0.042

0.035

0.037

8.6

8.2

9.0

6.9

7.4

7.0

Source: adapted from European Commission (2003: annex table B). Secondly, while cutbacks in public R&D spending have occurred in most countries, they were especially pronounced in the UK – from 49% of the total to 24% between 1981 and 1998 (Bloom and Griffith 2001: 341). It is difficult to detect any radical shift in this pattern since the 1997 election of the new Labour government; government spending declined by 44% and 38% during the periods 1991-97 and 1997-2003, respectively (own calculations, ONS data). However, since 2000, the government has made substantial injections in particular areas. For example, despite an overall reduction in spending, there was average annual growth of 13% and 10% in the areas of Research Councils and Higher Education Funding Council expenditures, respectively during 2000-03 (own calculations, ONS data). Most recently, the government has set out a ‘science and innovation investment framework’ for 2004-14, in which it commits to a ‘very substantial investment in the public science base’ (HMT, DTI and DfES, 2004), although this only promises growth ‘at least in line with the trend growth rate of the economy through the ten-year period’ (op. cit.). Thirdly, despite cutbacks in the public science base, business funded and business conducted R&D spending in the UK remained relatively flat during the 1980s and 1990s, in marked contrast to the US and Japan where levels increased by around 50% (as a share of GDP) (Bloom and Griffith 2001: figure 5). This suggests either limited development of governmental tax credit policies, or the loss of footloose R&D to other countries with more generous R&D tax subsidies. In pharmaceuticals, for example, an increasing share of UK firms’ R&D is being carried out abroad (op. cit.). Fourthly, a ‘new’, and relatively unique, feature of the UK’s innovation system is its high and rising share of foreign-funded R&D spending. 1998 data show 22% of UK business R&D funded from abroad compared to 11% in France, 3% in Germany and just 0.4% in Japan (Bloom and Griffith 2001: 345). In pharmaceuticals, for example, the proportion of UK-based R&D funded by foreign firms increased from 18% in 1994 to 34% in 1998 (op. cit.: Figure 11). o Finance International assessments of the variety of legal rules governing finance provide a picture of the relative protection afforded to investors (shareholders and creditors) in different countries - a measure of the degree to which they can exercise their powers 23

against management (eg. La Porta et al. 1998). Studies show that countries with rules that grant investors strong protection tend to witness greater readiness of investors to finance firms (high market capitalization) and dispersed ownership concentration. Common law countries (the UK and its ex-colony countries) give both shareholders and creditors stronger protection than civil (Roman) law countries (both the French and German variants). La Porta et al.’s (1998) extensive study of shareholder rights records an aggregate score of 5 for the UK, equivalent to that for the US, but higher than scores for Japan (4), France (3) and Germany (1) (op. cit.: table 2). In particular, UK shareholders are able to mail a proxy vote for shareholders’ meetings, they can trade shares during the period immediately before and after shareholders’ meetings (shares are ‘blocked’ in France and Germany), relatively low share capital (10%) is required to call an extraordinary shareholders’ meeting (although this is lower in Germany (5%) and Japan (3%)) and shareholders are granted a pre-emptive right to buy new stock (also in France, but not in the US or Germany). Protection is not stronger on all counts; notably, UK shareholders have no rights of proportional representation (that allow minority shareholders to name a proportional number of directors) (op. cit.). UK financial market regulation has developed from this context of shareholder sovereignty and focuses on maintaining liquid capital markets, preventing expropriation by corporate management, and aligning corporate decisions with shareholder interests by improving transparency, disclosure and accountability (Waddington 2004). However, the current focus on ‘shareholder value’ is not strongly enshrined in legal rules (Deakin 2005).6 Rather it is the consequence of a raft of institutional changes and shifts in corporate culture. These include the growing practice of hostile takeover bids (since the early 1980s), the increasing use of accounting metrics (economic value added, return on capital employed, see Littler 2005) and the increasing use of shareholder options to reward corporate executives (Deakin 2005: 14). o Product markets A range of studies using international datasets and macroeconomic models explore the degree to which product market reforms of the 1970s and 1980s are ‘the smoking gun’ (Ebell and Haefke, 2004) that explains divergent Anglo-American and European labour market performance (although for a contrary perspective see Amable and Donatella 2001). Cross-national assessment suggests product market rules (involving entry costs and product market competition) complement the strictness of labour market rules; that is, countries with weak product market regulation (US, UK, Ireland) tend to have weak employment protection legislation, for example, and vice versa as found in the cases of Greece, Italy and France (Boeri et al., 2000). Mirroring this general finding, the evidence suggests the strong decline in collective bargaining and unionisation in the UK (and the US) were a direct result of 1980s product market reforms (Ebell and Haefke, 2004), that competitive product markets were a large 6

Deakin (2005) argues that shareholder primacy is less strongly institutionalised than commonly supposed. While company law assumes directors have a fiduciary responsibility to their shareholders (Wedderburn 1985, cited in Waddington 2004), Deakin finds no evidence of legal support for the claim that shareholders ‘own the company’ (op. cit.: 11-12).

24

cause of the US employment miracle of the 1980s-1990s (Krueger and Pischke, 1997) and by increasing employment contribute to increased GDP per capita (Blanchard and Giavazzi, 2003), that entry barriers for new firms are negatively correlated with employment growth (Fonseca et al., 2001) and that product market reforms have around half the impact on employment rates as labour market reforms. In its report on product market regulation the OECD singles out the UK as the only country with a liberal approach in all three policy areas, namely, state control, barriers to entrepreneurship and barriers to trade and investment (the US has a more restrictive approach in the latter policy area) (Conway et al., 2005). Overall the UK shares first place with Australia in 2003 with the lowest level of product market regulation (op. cit.; see table 2.2.k). The report also identifies a process of convergence during 19982003 towards countries with a liberal approach (a correlation coefficient of -0.83 between the index of regulation and the change in index). Table 2.2.k. The OECD index of product market regulation, selected countries PMR index Australia Denmark France Germany Italy Japan Spain Sweden UK US

1998 1.3 1.5 2.5 1.9 2.8 1.9 2.3 1.8 1.1 1.3

2003 0.9 1.1 1.7 1.4 1.9 1.3 1.6 1.2 0.9 1.0

State control 2003 0.6 1.3 2.7 2.2 3.2 1.5 2.7 1.9 1.7 1.2

Barriers to entrepreneurship 2003 1.1 1.2 1.6 1.6 1.4 1.4 1.6 1.1 0.8 1.2

Barriers to trade & investment 2003 0.9 0.8 1.0 0.6 1.1 0.9 0.7 0.8 0.4 0.7

Source: adapted from Conway et al. (2005: tables 21-24). Regarding the markets for public services (government, health and education), the UK government’s approach – and this has strengthened significantly since 1997 – has been to advocate and support greater competition among public and private sector providers, reflected in the increasing share of public sector expenditures going to the private sector (section 2.1.1) and in repeated government claims, such as, ‘PPPs deliver better quality services by bringing in new investment and improved management’ (DTI, 2000: 8). However, it only belatedly recognised the need to establish a coordinating regulatory function – in response to many widely publicised disasters – aimed to improve the expertise of public sector bodies in managing contracts and to ensure value for money for the taxpayer with improved services.7 It 7

In 1999, a government commissioned report on public private contracting concluded that many features essential for proper contractual relations were lacking on the public sector side. It found there was no co-ordination among different agencies and bodies involved with procurement, no standardised process for managing large, complex or novel procurements, no common data base of information about private sector suppliers, no good common systems for measuring the true costs of procurement transactions and the year on year value added, and insufficient skill and expertise among staff in the government procurement agencies (with a ‘serious situation’ regarding the high turnover of the more qualified staff to the private sector) (Gershon 1999; cited in Grimshaw and Hebson 2003).

25

established the Office for Government Commerce in 2000 to disseminate best practice procurement principles across the public sector. Subsequent reforms include efforts to standardise procurement approaches, to reduce contracting costs, to systematise a value-for-money appraisal process and to improve capabilities of public sector client personnel (HM Treasury, 2003). However, problems persist; development of government expertise is slow, the supply base of private sector contractors is highly concentrated (with a handful of multinationals now responsible for the quality of many areas of public services), there is a risk of erosion of workers’ public sector ethos and commercialization clashes with traditional notions of citizenship (Crouch, 2003; Grimshaw and Hebson, 2004). Further reforms aimed to address these issues include statutory provision in April 2003, whereby contractors for local government services must provide new recruits with terms and conditions which are ‘no less favourable’ than those of workers transferred from local government, and the Retention of Employment model, which applies to ancillary services in PFI hospitals, whereby the private sector firm manages the work but the NHS remains the employer. But as Crouch argues, the UK government is wedded to its outsourcing business model: If we follow the logic of commercialisation to its conclusion, one can envisage the emergence of a quite different idea of politics. By distancing itself from service delivery through lengthy contract chains, government could imitate a discovery of the really smart firms of the 1990s: get rid of the core business itself. … How much easier would the work of governments be if they needed to cultivate only their brand and image, and were not directly responsible for the actual quality of their policy products! (Crouch, 2003: 23). 2.2.2

Trends in Industrial Organisation

Following the definitions of UNCTAD (2004, p.148) and Levy (2005, p. 692, n. 1), this section is concerned with two distinct but sometimes simultaneous types of change in the organisation of production. Firstly, delocalisation (or offshoring) involves the performance of particular activities in foreign locations. Secondly, externalisation (or outsourcing) refers to subcontracting activities to independent firms. Activities can be outsourced but not offshored, or vice-versa. o Delocalisation / Offshoring The focus of much research on offshoring focuses on developments in service work. The offshoring of manufacturing production to countries with lower labour costs has been a long-term trend and the application of offshoring in the field of services is something of a novelty. For example, it was exclusively service work that was the focus of the 2004 UNCTAD World Investment Report. Offshoring service work has become technically feasible with developments in information and communication technologies. The UK, like other developed countries, has experienced offshoring in service activities including call-handling (call centres), back-office processing work (Shared Services Centres) and in IT. Where reduced labour costs are seen as the motivation behind firms offshoring these activities, the offshoring of regional headquarters is regarded as an older trend where cheaper labour costs are not the main driver (UNCTAD, 2004, p. 161). It is difficult to calculate the value of offshoring 26

(UNCTAD, 2004, p. 159), but data does exist on the number of export-oriented FDI projects in service activities. Table 2.2.l (below) shows the USA to be the worldleader as the source of such projects (with 1035 projects), but the UK is second in the world (163 projects), with significantly more such projects than other EU countries: Table 2.2.l: Sources of export-oriented FDI projects in services in 2002-3 (number) Call Centres UK GER FRA EU-15 USA JAP World

38 27 16 127 307 14 513

Shared service centres 23 9 43 76 4 138

IT services

Regional Headquarters

Total

47 11 11 99 414 19 632

55 54 24 188 238 47 566

163 101 51 456 1035 84 1849

Source: UNCTAD (2004) Annex table A.IV.1, p. 339 The most high-profile offshoring of processes from the UK has occurred in the movement of call-handling work to India. In the field of call-handling services, Taylor and Bain (2005) identify persistent linguistic and cultural difficulties with service quality in India that have not been overcome through “neo-imperialist – and indeed racist practices” of westernized agent pseudonyms and location masking (p. 278). These difficulties have limited call-handling offshoring to the most standardised processes, and in providing these services managers still face problems in recruitment of workers with adequate language skills. MNEs are keen to move functions from the developed world to reduce costs and create shareholder value, and Indian companies are keen to develop the capacity to deal with non-standard call types, but Taylor and Bain (2005) predict that call-handling work may “in the long run be offshored less readily than other non-customer facing, back-office activities” (p. 279). The UK government has made no move towards protectionism in the face of activities being offshored from the UK. Government statements on offshoring combine assertions that such changes are inevitable, that it reduces costs for the benefit of wider society, and that protectionism is in any case unjustified on moral grounds as it would disadvantage developing nations8 (UNCTAD, 2004, pp. 210-211). The Government has however called for firms to consider the impact on service quality on

8

UNCTAD quote the Prime Minister Tony Blair stating that offshoring is “the way the world is today”. The Trade and Industry Secretary is quoted as saying “however strong the short-term case for protectionism appears to be, the long-term costs are far greater for consumers and jobs. We cannot preach liberalisation to the rest of the world and practise protectionism at home.” Stephen Timms, the Minister for Energy, E-Commerce and Postal Services is quoted as saying “recourse to protectionism is not the right way forward… Closing our markets would also be inconsistent with our aim of helping developing countries out of poverty through trade. Indeed, it would be perverse to do so when countries such as India are growing through the sort of international trade that we in the United Kingdom have encouraged.”

27

consumers of offshoring, and the public sector itself has not offshored service activities. Trade unions have actively campaigned around the issue of offshoring. The Communication Workers Union (CWU), the financial services union UNIFI, and the general union AMICUS combined in 2003 in the ‘Pink Elephant Campign’ against the ‘stampede’ of service jobs from the UK to India. This was largely a media campaign, though the CWU did threaten BT with strike action over moving back-office and call centre jobs to India in 2001 and 2003 (The Register, 2001, BBC News, 2003). Campaign literature predicted that 200,000 UK call centre jobs could be exported over five years, and pointed to the possible consequences for quality of service (CWU, Defending Local Employment: Don’t Say Goodbye to our Jobs!, campaign leaflet). The citing of the issue of service quality by both unions and government is perhaps significant as it is a reflection of the rejection by both social actors of moves to explicit protectionism. Instead unions and government urge firms to consider the effects on consumers, and seek to exploit consumer resistance to offshoring. An important observation concerning offshoring is that the UK has also been the destination of a large number of export-oriented FDI projects. India is the world leader in attracting such FDI (228 projects in 2002-3), but the UK has the second highest number of projects in the world (187), a higher number than China and significantly more than any other EU country: Table 2.2.m: Export-oriented FDI projects in services by destination, 2002-3 (number)

UK GER FRA IRE EU-15 USA JAP INDIA CHINA CAN SING WORLD

Call Centres 43 20 13 29 169 15 11 60 30 56 16 513

Shared service centres 7 1 2 19 38 2 43 4 3 8 139

IT services 73 34 16 14 198 26 16 118 60 14 35 632

Regional Headquarters 64 22 11 15 185 80 8 7 38 25 36 565

Total 187 77 42 77 590 123 35 228 132 98 95 1849

Source: UNCTAD (2004) Table IV.7, p. 162 o Externalisation / Outsourcing Literature is available on the logic of business process outsourcing and the unbundling of organisational functions (see Sako and Tierney (2005) for a review). However, 28

data could not be found on the overall quantity of outsourcing in the UK. Therefore, this section reviews sector trends, namely the IT sector and the public sector. o IT outsourcing The outsourcing of IT functions by UK organisations is widespread and covers a diverse range of sectors including banking, airlines, high-tech manufacturing and the public sector. Table 2.2.k lists the large (over US$1bn) outsourcing contracts agreed around the world in 2003. A key point to note is the high value and large number of IT outsourcing contracts agreed by the public sector. Table 2.2.n. IT outsourcing contracts valued at more than 1 US billion dollars agreed in 2003 Client Sector Public sector

Public sector

Public sector

Public sector Public sector Public sector

Public sector

Public sector

Banking Banking

Organization National Health Service (National care records service) National Health Service (London) National Health Service (National Broadband Network) Inland Revenue Royal Mail Group National Health Service (Northeast England)

National Health Service (Northwest England and Midlands) National Health Service (Eastern England) Nordea BNP Paribas

Computer service firm (partners and sub contractors) BT (Oracle, Sun, LogicaCMG, Mastek)

Contract initial value (in US billion dollars)

Duration

Country

1.1

10

UK

BT (IDX and others TBA)

1.8

10

UK

BT (TBA)

1

7

UK

CGE&Y/FJS (BT) CSC/Xansa (BT)

5.1

10

UK

2.4

10

UK

Accenture/BT

1.9

10

UK

1.7

10

UK

1.6

10

UK

2.8 1.3

10 5

Sweden France

(Microsoft, iSoft and others) CSC/Hedra (iSoft, SCC)

Accenture

IBM IBM

29

Financial services Airline Electric utility Power technologies Automotive Electronics Tire manufacture Consumer products

AXA

IBM

1

6

France

SAS Group BC Hydro

CSC Accenture

1.5 1

9* 10

Sweden Canada

ABB

IBM

1.1

10

Switzerland

Visteon Motorola Michelin

IBM/CGE&Y CSC IBM

2 1.6 1.2

10 10 8

USA USA France

Procter & Gamble

HP

3

10

USA

Note: UK contract values converted to US dollars using conversion rate of 1.77 * 5-year base plus 2-year option plus two 1-year options Source: Miozzo and Grimshaw, (2005, table 1). The IT outsourcing industry is dominated by a small number of large firms. The contribution of outsourcing activities to the total revenue of firms in software and IT services increased from 20% in 1996 to 31% in 2001, as it rose from £2.55bn to £6.92bn over the period (Miozzo and Grimshaw, 2005: 44). The importance to firms of their outsourcing operations is evident in table 2.2.l below. Two firms for whom outsourcing revenue is greater than 85% (EDS and CSC) are in the top five UK software and computer services firms by revenue. Table 2.2.o. Top UK software and computer services firms, 2001

EDS UK IBM UK CSC UK Capita Group Fujitsu Services UK Accenture UK

HQ Outsourcing Rank Total UK Rank Outsourcing revenue (£m) revenue (£m) revenue as % of total revenue 88.0 US 2060 1 2340 1 43.2 US 960 2 2220 2 85.1 US 715 3 840 5 88.8 UK 546 4 615 10 42.8 J 529 5 1235 3 33.3 US 350 6 1050 4

Source: Miozzo and Grimshaw (2005, table 2). o Public sector outsourcing The trend towards ‘marketisation’ of UK economic activity since 1979 has involved the outright privatisation of state companies (e.g. Rolls Royce, Rover Group) and public utilities (e.g. gas, electricity), the outsourcing of (mainly manual) central and local government activities to private firms (such as refuse collection from local government under Compulsory Competitive Tendering, and hospital cleaning), and in recent years a growing trend towards public-private partnerships in the delivery of public services (through the creation of Joint Venture companies for example). As the private sector role in the provision of ‘core’ public services has increased, more complex institutional forms have emerged. Where in the 1980s and 1990s there was a 30

clear dichotomy between nationalised and privatised organisations, and out-sourced and in-house activities, current developments toward ‘marketisation’ involve a blurring of the boundaries between public and private sectors. Regarding outsourcing, there is a great deal of literature in the UK from the 1990s concerning the effects of outsourcing and competitive tendering processes on those employed in the provision of public services. Where local government services have been out-sourced, the worsening of the position of labour has generally not taken the form of crude reductions of the wages of staff transferred to the private sector. Most contractors have retained nationally agreed pay increases (Colling, 1999, p. 145) and the cost reductions have come through various means such as reductions in sick pay, holiday pay, bonus schemes and overtime. There have also been moves by private contractors to employ new staff on inferior terms and conditions, and, according to a 1986 Treasury Report, to use part-time staff to reduce national insurance costs (cited by Cutler and Waine, 1994, p. 96). Temporary contracts have become more prevalent, particularly in contracted services where the workforce is predominantly female (Escott and Whitfield, 1995). While outsourced workers have borne the brunt of reductions to non-wage benefits, there is case study evidence that both they and those remaining in direct employment have experienced greater work intensity (McIntosh and Broderick,1996), illustrating that changes in employment result not only from outsourcing but also from the process of competitive tendering itself. As shown in table 2.2.k above, the public sector has been a very important source of contracts for IT outsourcing firms. This has been driven by a perceived lack of IT expertise within the public sector, and the Government’s electronic service delivery agenda, which encourages public bodies to make services available in a way that matches (assumedly better) commercial sector levels and methods of ‘customer service’ (see for example, Cabinet Office, 1999). This has led to greater private sector involvement in white-collar public service provision. o Internalisation A potential driver toward maintaining or re-locating an activity within an organisation is the need for innovation and creativity in a ‘knowledge society’. While the need for knowledge and skills of firms involved in emerging industries and technologies may lead to their developing a network form of organisation, in mature industries firms may be able to draw the necessary abilities from the internal labour force (Rubery, 2005 forthcoming, p. 273). Where firms do not have an internal career structure, it has been seen to contribute to problems in developing and retaining managerial staff (Beynon et al, 2002). While outsourcing rather than internalisation of activities can be seen as the dominant trend in UK organisations, it must not be seen as a panacea. There can be seen to be an inherent trade-off or contradiction between the needs of organisations for skills and knowledge through external recruitment and external organisations, and the need to retain skilled staff within the organisation. 2.2.4 Changes in HR practices An important change, which is an indicator of the more active management of employees, has been the increase in the number of employee relations specialists within workplaces. In 1980, 75% of employee relations managers were generalists, 31

but by 1998 this responsibility was held by either specialists or line managers in most workplaces: Table 2.2.p: Job titles of workplace employees relations managers, 1990 to 1998 1980 15 10 75 0 1,830 1,868

Employee relations specialists Line managers Generalists Other Weighted base Unweighted base

Column percentages 1984 1990 16 17 14 28 64 51 6 3 1,779 1,664 1,794 1,697

1998 23 28 46 3 1,821 1,740

Source: Millward et al (2000), Table 3.1, p. 52. Based on survey evidence, White et al (2004) have identified considerable change in organisations’ employment policies and practices since the turn of the century. Table 2.2.q below shows the proportions of organisations which report increases and decreases in the use of certain employment practices, demonstrating a considerable overall increase over just a three year period. Table 2.2.q: Selected changes in people practices, 2000-02 Training to cover other jobs Variety of work that staff are expected to do Amount of job rotation Team-working Individual performance assessment Group-based assessment Proportion of managerial/professional staff Number of management grades Number of employee grades Outsourcing of activities previously done inhouse Introduction of teleworking Encouraging some staff to work at home Harmonisation of conditions of employment Use of agency staff Outside contractors in place of own employees Temporary employees Casual workers Freelance (self-employed) workers

Increased 50% 48% 30% 28% 39% 21% 28% 24% 21%

Decreased 2% 2% 1% 2% 1% 3% 13% 10% 7%

24% 11% 11% 26% 32% 18% 14% 6% 5%

n.a. n.a. n.a. 3% 25% n.a. 10% 6% 3%

Source: White et al, 2004, p. 21 Note: Row percentages weighted by employment. The response ‘no change’ is not shown. n.a. = not applicable/not asked.

32

a) Work organisation Amongst the practices that have been increasingly adopted in recent years is teamworking. The term ‘team-working’ can be applied to a wide range of forms of work organisation, from sociotechnical teams that offer genuine worker autonomy, to teams under lean production that are associated with greater work intensification and little worker autonomy (Hampson et al, 1994, Murikami, 1997). In the 1998 Workplace Employee Relations Survey (WERS) 65% of workplaces were found to organise most employees from the largest occupational group in teams. In their analysis of the WERS results, Cully et al (1999) report that 35% of all workplaces allowed team members to jointly decide how work is performed, and could therefore be categorised as ‘semi-autonomous’, but only 3% could be labelled ‘fully autonomous’. In these workplaces the teams met all four criteria of autonomy: team members worked together, had responsibility for a specific product or service, jointly decided how work is done and appointed their own team leaders. Cully et al report that WERS shows that it is amongst workplaces where the core group are professionals that autonomous team-working is most common. In these workplaces 53% had semi-autonomous teams and 4% fully autonomous teams. In contrast the proportions for Craft and related workplaces were 21% and 2%, and for workplaces with a core of Plant and machine operatives the proportions were 13% and 5%. b) Occupation and job design In Marsden’s (1999, 2004) categorisation of societal work organisation, two key variables are posited. First there is a distinction between a production approach, where complementarities are sought between tasks in the production systems, and a training approach, where complementarities are sought in worker skills. Second there is a distinction between task-centred rules and function-centred rules, a similar contrast to that between high and low trust systems (summarised by Rubery, 2005, p. 35). Marsden argues that the UK combines the training approach and the taskcentred approach such that the ‘Job territory’ / ‘tools of trade’ rule applies. Table 2.2.r: Job demands and enforcement criteria

The focus of Task-centred enforcement criteria

Function-centred

Job demands identified by: Production approach Training approach ‘Work post’ rule ‘Job territory’ / ‘tools of trade’ rule (common in (common in craft bureaucratic work organisation) organisation) US, FR UK ‘Competence rank’ ‘Qualification’ rule rule (common in Japanese (common in skilled work systems) work in Germany JAP DE

Source: Marsden (2004) p. 663 and (1999) p. 118 33

Regarding job design, Marsden views UK industrial firms as prioritising skills and training over the demands of production technology. This is seen as due to the dominance of craft skills, such that established skills are prioritised in job design for less-skilled occupations and occupations that utilise new technology (1999, pp. 119120). In case study research across seven sectors, Beynon et al. (2002) found many jobs to involve “increasing amounts of responsibility and increasing numbers of discrete tasks” (p. 268). Whereas such additional responsibilities have been described as involving ‘up-skilling’ (Gallie et al, 1998), Beynon et al. (op. cit.) identify greater responsibilities at the lower end of the job ladder as often being experienced by employees as added pressures. The ‘unbundling’ of job content observed by Beynon et al allows the employer to separate out labour tasks requiring different capabilities, such that average labour costs are reduced by allocating more expensive labour only to those tasks where it is necessary. This observed change in job design is identified by Beynon et al. (op. cit., pp. 250-252) as marking the application of the ‘Babbage principle’. c) Contract type, pay and reward practices, employment security Regarding contracted hours, the data shown in table 2.2.s below indicates stability in the proportion of women employees who are employed on a part-time basis, with between 43.0 and 44.2% of female employees being on part-time contracts through the period 1992-2004. For men however there has been an increase in part-time employment, from a low of 5.1% in 1996 to nearly 10% in 2004. The proportion of male employees who are employed on a part-time basis remains low however compared to women. Regarding self-employment, the table does not indicate a major change in the incidence of self-employment, and there continue to be around three times more men than women in self-employment.

34

Table 2.2.s: Full-time and Part-time Employment and Self-Employment, 19922004 All persons

Employees Full-time Employees Part-time Employees (% of all employees) Self-employed

1992 21634 16651 5083 (23.5) 3447

1996 22155 16548 5607 (25.3) 3475

2000 23922 17884 6038 (25.2) 3260

2004 24526 18137 6389 (26.0) 3628

Men

Employees Full-time Employees Part-time Employees (% of male employees) Self-employed

11286 10650 636 (5.6) 2550

11409 10551 585 (5.1) 2560

12432 11402 1029 (8.3) 2354

12569 11355 1213 (9.7) 2665

Women

Employees Full-time Employees Part-time Employees (% of female employees) Self-employed

10348 5901 4447 (43.0)

10746 5997 4750 (44.2)

11491 6482 5009 (43.6)

11957 6782 5176 (43.3)

897

915

906

963

Source: ONS (2005), data is for March-May. Trade union density fell from 50% in 1980 to 30% in 1997. In 1980, 70% of British workers had their basic terms and conditions of employment (including pay) determined by collective agreements. By 1997, this figure had fallen to 36% (Burchell et al, 1999, p. 65), and by 2004 only 22% of workplaces with over 25 employees set pay using any form of collective bargaining (Kersley et al., 2005). Data from WIRS shows the decline in the coverage of collective bargaining in both the public and private sectors: Table 2.2.t: Proportion of workplaces where collective bargaining is the main type of pay determination, 1984-1998 Column percentages 1984 1990 1998 36 29 14

Private sector services Public sector

94

71

63

Source: Millward et al (2000) Tables 6.3 and 6.4, p. 191 and p. 194. Regarding job security, survey data on employees’ own assessments of the likelihood of their losing their jobs indicates a marginal increase in insecurity between 1986 and 1997, but within that period those in professional occupations went from being the most secure group to the most insecure (Burchell et al, 1999, pp. 17-21). Paradoxically, through an analysis focused on the category of long-term employment (that is those employed in the same job for ten years or more) Doogan (2001) has shown a trend that suggests greater employee security in the 1990s. In 1992, 29% of 35

employees were in long-term employment, by 1999 this figure reached 33%. For Doogan, increased worker insecurity is not a consequence of the transformation of jobs and labour market restructuring. Rather, uncertainty is ‘manufactured’ by government in an attempt to increase productivity and competitiveness through policies that introduce market pressures on employees in the public sector, weaken social protection, and open the national economy up to international competition (p. 439). d) Control and performance management / work intensification Work intensity is difficult to measure without reference to working time, labour productivity or proxies such as industrial injury rates. However, Green (2001) has collated the case study evidence produced since 1980 based on respondents’ recall judgements, finding a consistent result that the 1980s was a period of work intensification. Green goes on to draw on survey evidence which allows comparison of responses to the same questions in 1992 and 1997 finding growing work intensity in the 1990s. Work intensification is found to have been particularly prevalent in manufacturing during the 1980s and in the public sector in the 1990s. The trend towards greater work intensity can be seen to have begun with private sector manual workers in the 1980s, but has now reached even white-collar workers in the public sector. 2.2.5. Approach to skill/human development o Recruitment and training policy It is in the area of training policy where the UK has excelled at matching the flexible and short-term character of its economy with a dizzying and frequent change in institutional policy. Despite new reforms since the election of the Labour government - some suggestive of progressive change in the area of vocational training - the central characteristic of renewal and change and an aversion to accumulating experience through slowly evolving institutions has remained. Moreover, common to both Conservative and Labour governments has been the politically attractive goal of encouraging education in order to rid themselves of welfare commitments; as Crouch et al. (1999: 5) observe, the voting public is more likely to exempt education from their general suspicion of public spending. During the post-war period, the UK had apprenticeships in many manufacturing sectors organized through associations of employers. Interventions to improve their adequacy during the 1960s and 1970s (eg. a state levy) were finally abandoned under the Thatcher government from 1979 with the shift to a new model of what Crouch et al. call ‘state encouragement of voluntary, non-corporatist participation by firms in initial VET arrangements’ (1999: 127). The 1980s saw the Youth Training Scheme that focused on the low skilled and unemployed with the goal of reducing the price of labour and giving firms the opportunity to screen young people prior to making a job offer, while doing little to improve skill generation (except for the very basic skill levels). By 1990 some 63% of Britain’s workforce had no vocational qualifications, compared to 26% of the German workforce (Prais and Beadle, 1991). 36

The government introduced the NVQ (National Vocational Qualification) in 1986. This was designed for people in low skilled work and establishes competences in a particular job rather than for a range of jobs (largely taken by youth who are not academically qualified to take the ‘A’ level examination at 18). There are five levels, ranging from 1 (basic) to 5 (professional), although levels 1-3 are most commonly incorporated as part of a firm’s training provision. There is very little prescription in the form or amount of training required for NVQs (competences can be provided wholly on the job, or involve further education colleges and private sector providers), resulting in too strong a focus on discrete tasks and problems of variation of standards across employers (Senker, 1996). Also, local Training and Enterprise Councils established in the 1980s awarded contracts to provide courses for accreditation, with a bias towards the least cost provider which facilitated growth of new training firms over further education colleges with their more costly unionised, permanent staff (Crouch et al., 1999); even the OECD criticised the system for its ‘excessive competition between training providers and intermediary bodies which can be costly’ (cited in Keep and Rainbird, 2003: 401). A step-change in policy came in 1993 with the introduction of the Modern Apprenticeship (and the Accelerated Modern Apprenticeship in 1996), signalling a potential revival of vocational training. However, Gospel’s assessment at the end of the 1990s was pessimistic, arguing the government still needed to address problems of market failure and missing institutional links: pressure for more transferable skills was undermined by fears of poaching and the absence of cost-sharing in transferable skills; and coordinating mechanisms were weak due to the limited role of employers’ associations and, particularly, trade unions (1998: 451-3). In fact, the real change in qualifications among the British workforce was at the high end; in 1999 49% of those in employment held academic qualifications and just 31% had vocational qualifications; a massive change from 1979 when the figures were 29% and 26%, respectively (Keep 2000). Faced with problems of vocational training, the Labour government made key reforms – although described by Keep and Rainbird merely as ‘a rejigging of the institutional landscape’ (2003: 403). It replaced the Training and Enterprise Councils with a Learning and Skills Council and 47 Local Learning and Skills Councils with responsibility for funding all post-16 education and training and a budget of more than £5.5 billion. Also, the Sector Skills Councils initiative was launched in 2001 and there are now 22 across the country. They are led by employers to identify the skills needed in each sector to improve productivity and they lead the design of Apprenticeships in each sector. Part of their remit is to solve the collective action problem (as identified by Gospel above) to bring employers together to agree priorities for skills. For example, employers in the film industry have agreed a collective training levy to fund technician training and the construction industry has established a ‘license to operate’ through its Sector Skills agency (HM Government 2005: 13). o Lifelong learning policy The story of lifelong learning in the UK during the 1990s-2000s is one of strong rhetoric, apparently well-intentioned government policy initiatives and a disinterested class of employers. The UK Labour government counts itself as being fully signed up 37

to the widely touted principles of a learning society, namely to encourage individuals to reach a high level of education, to pressure firms to improve their knowledge base and shift out of low cost competition and for the government to increase spending on education to improve the quality of school and university facilities. Its position is illustrated in the recent 5-year plan for the economy in which it emphasises its support for the employability model: Alongside the new economic model, the knowledge economy requires a new social model. People’s sense of security can no longer come from a ‘job for life’. Instead it will come from ‘employability for life’. This too requires active government and modern trade unions, enabling people constantly to update their skills, take up new jobs and create new businesses of their own. In the modern world, skills – not welfare benefits – are the best insurance against unemployment and poverty (DTI 2004: 10). But strong government rhetoric veils problems of employer participation. Several studies – some commissioned by government – suggest that despite much talk of lifelong learning and the learning organization during the 1990s (eg. Jones and Hendry, 1992), interest among employers quickly peaked and declined (Scarbrough et al., 1998), with very few identifying themselves as aspiring to such goals (Metcalf et al., 1994) and patchy and inequitable provision of training provision (Tamkin and Hillage, 1999). Part of the problem was a realisation among employers that overeducated workers would become dissatisfied with menial jobs and have unrealistic expectations about career progression (Metcalf et al., 1994). The policy response, Keep (2000) argues, has been to gradually shift emphasis towards more action and investment expected from the state (schooling and higher education) and the individual. There is plainly a major discontinuity between the policy rhetoric of an employer-led training system and skills revolution and reality, at least as it applies to many of those at the bottom of the labour market. … Less and less is actually being expected of employers (op. cit.: 6-7). In keeping with this position, a Skills White Paper released in March 2005 (HM Government, 2005) outlines what appear at first sight to be a range of relatively innovative policies, including: a new National Employer Training Programme which will identify the training needs of firms through a network of brokers and establish the right, and funding, for every adult who does not have NVQ level 2 skills to acquire them (from Spring 2007); a commitment to provide Level 2 training to people out of work; a new network of 12 employer-led Skills Academies which will provide a centre of excellence in key sectors (following the model of the Fashion Retail Academy set up by the Arcadia retail group); and an increase in the number of trade union learning representatives (from 8,000 to 22,000) with funding for a Union Academy providing skills to trade unions. For some popular commentators this latest raft of initiatives represents a sea change in Britain’s approach to VET: Britain is on the verge of establishing a comprehensive system of lifelong learning that will transform its skill base and the lives of ordinary people (Will Hutton, The Observer, 01/05/05). 38

Others, however, are more wary. The origins of the White Paper lie in the recommendations of the Skills Task Force. Unable to agree on the principles of imposing statutory obligation on employers to train, the STF recommended public funding and individual responsibility with, in Keep’s view, ‘relatively little actually required from employers’ (2000: 9). The problem is that, without a requirement among employers to train they will be unlikely to want to challenge the institutional constraints (imposed in particular by shareholders) that impede investment in transferable skills, and will also be unlikely to raise their expectations of skills required by their own workers. Data from WERS 1998 serves as a cautionary warning of the limited role of skill as perceived by employers in UK workplaces. Table y shows that across all workplaces 50% of employers believed just 25% or less of their non managerial workforce could be said to be skilled. In wholesale and retail, 40% of employers believed none of the non management workforce were skilled, and in financial services this figure was 57% - both sectors with a high share of female workers. Table 2.2.u: Proportion of skilled employees among the non managerial workforce at the workplace, by sector

4 2

% of workplaces with 1-25% skilled employees 40 8

% of workplaces with 26-50% skilled employees 20 21

% of workplaces with >50% skilled employees 37 68

19 40

12 38

14 10

54 12

21

61

9

8

33

42

9

15

57 12

23 18

13 23

7 47

27

31

13

29

0 22 17

2 33 36

42 23 16

55 22 31

19

31

20

30

% of workplaces with no skilled employees Manufacturing Electricity, gas and water Construction Wholesale and retail Hotels and restaurants Transport and communications Financial services Other business services Public administration Education Health Other community services All workplaces

Source: adapted from Cully et al. (1999: table 3.4). While it is too early to evaluate the policy initiatives of the last two years, prior to this, several observers of the UK’s training system still cast doubt on its ability to escape from the long-term low skill equilibrium. Crouch et al. (1999) identified a lack of policy levers to encourage employers to introduce innovative demand-side shifts 39

(in work organization, product market strategy, etc.), and Keep finds fault with the pressures from financial markets: In a world where you can only manage what you can measure (and quantify a return on), investment in non-task specific training for lower status employees is not normally going to be a major priority (op. cit.: 12). 2.2.6. Changes in time dimensions of production model o Trends in UK working hours Official statistics for 2001 show that UK full-time workers work the longest hours in the European Union, with men working 3.5 hours per week more than in the second ranked country Greece, and women working 0.8 hours longer than in second ranked Sweden (White et al, 2003. pp. 175-176). Over a 100 year period, average working hours declined in the UK in a series of sporadic discrete jumps. Survey evidence shows a turning point in 1981, since when average hours have remained stable, with no further decrease or increase (Peters, 2001, p. 58). There was little change in average hours through the 1990s (White et al, 2003, p. 191). Despite stability in this headline figure, there have been significant changes in working time practices in recent decades and in the distribution of people working a range of different hours. Based on detailed and extensive case study research, Rubery et al (2005b) argue that “something significant is happening in relation to the time dimension of work in the UK that cannot be fully captured by statistics on the quantity of working time” (no p. number). Rubery et al (2005a) cite the report by Supiot (2001) which identifies the emergence of two main types of post-Fordist working time principles. These are: (i) (ii)

a move toward a results-based employment relationship, where the employee’s responsibility is to complete set tasks rather than to work for a set period of time, and a move to fragmented-time systems, where the employment relationship remains time-based but employees are not retained for regular standard hours.

Results-based employment is most prevalent in higher grade jobs, and involves employees working longer hours through obligation due to their assuming responsible autonomy, and incentives including performance-related pay, promotion prospects and job insecurity. Kodz et al (2003) have presented data showing that two-thirds of managerial and professional employees who work more than 48 hours a week do work for periods of unpaid overtime. ONS data suggests that the proportion of employees working long hours (over 45 hours a week) increased through the earlymid 1990s as the proportion working ‘standard’ hours (31-45) declined. This trend has reversed since the late 1990s.

40

Table 2.2.v: Usual weekly hours (percentage of all employees) 1992 1994 1996 1998 2000 2002 2004 2005