A Response to Katherine Stone

by Alvaro Santos

I would like to thank Kathy Stone for commenting on my Article and agreeing to participate in this symposium. She has sharply characterized the main arguments of my paper and made two very helpful criticisms. Both of these are great prods for future work. Let me respond to each of these suggestions in turn.

Stone is right that I devoted most of my attention analyzing Doing Business’ main agenda, which I called substantive flexibility: increasing employers’ ability to fire, hire, and set working conditions, thereby decreasing employers overall labor costs. But let me clarify that I do not think labor flexibility can be reduced to an argument about labor costs. Indeed, my typology aimed to situate the DB project in the broader spectrum of what labor flexibility may include and to show just how narrow the DB objectives are.

DB claims that more flexibility (for the employer) leads to an adaptable firm. But I argue that this concept of adaptability has little to do with organizational flexibility, related to firms’ ability to respond to market conditions by changing their mode of production and innovating in their business model. One can imagine an employer who enjoys considerable flexibility in the employment relationship, such as a maquiladora plant, and nevertheless operates under a rigid production process of command-and-control, where workers repeatedly deploy a very limited set of skills.

I argued in the paper that overall labor-cost reductions are not necessarily conducive to organizational flexibility. In my visits to firms and factories in Mexico, I observed that it was generally the big, leading firms (which fully participate in the global economy) that had experimented with newer models of business organization like total quality management. They often enjoyed more functional flexibility, as their employees were trained and able to perform multiple tasks. Interestingly, these firms remain in what I called the employee-friendly labor regime, where enforcement rates and labor costs are higher than in the de facto deregulated employer-friendly regime.

As Stone notes, the critique of the Doing Business indicators does not exhaust the response to the broader flexibility agenda, and particularly the one concerning organizational flexibility. I have serious doubts, however, that across-the-board deregulation is the silver bullet in this area either. Scholars have described the environments leading to innovation as a complex mix of competition and coordination. Deregulation may facilitate easier and cheaper deployment of the labor force, but that is hardly a recipe for the type of learning environment, employee involvement, and teamwork collaboration characteristic of innovative vanguard firms.

To clarify, my position on both substantive and organizational flexibility is not a defense of the status quo or current labor regulation per se. There may be many norms worth changing. As I note in the Article, organizational flexibility seems to me a promising terrain in need of further exploration, but it is not one that can be simply equated with either overall reduction in labor costs or employers’ unbridled freedom of contract. Unfortunately, the aggressive deregulatory agenda promoted by Doing Business often does more to obscure than to clarify the range of choices available to developing countries and their potential effects.

Professor Stone’s second suggestion makes clear that it would be helpful to pierce the flexibility rhetoric by talking more concretely about the allocation of risks in the workplace. I welcome this criticism and, indeed, consider my paper and its emphasis on the relational character of flexibility as a first step in that direction.

Flexibility is a wonderful term and one that is intuitively appealing. No worker, no body, would want to argue against flexibility in the abstract. That is one reason why the deregulatory agenda is attractive and can be misleading. We would do well to start talking about risk and security in labor regulation, clarifying who bears the costs of risks and with what results. This would make it possible to disentangle the notion of flexibility from deregulation and allow us to reappropriate the concept of flexibility for other ends.

We do not need to look very far to recognize that, despite its vogue in international institutions, this particularly narrow use of the term flexibility is by no means the only one. There is, for instance, a domestic agenda in the US to make the workplace more flexible, by which advocates mean more family-friendly and capable of accommodating care-giving and personal responsibilities. Here, I have in mind the work of my Georgetown colleague Chai Feldblum and her project called Labor Flexibility 2010.  This is certainly a concept of flexibility that many workers-and employers-would subscribe to. It may entail costs to employers and employees alike, but it is not something that can be achieved by simply resorting to what DB would consider unrestrained freedom of contract. On the contrary, it requires serious compromises, careful deliberation and, very likely, new rules.

I will take Professor Stone’s invitation to develop these points further in my future writings. I’ve noticed that she has a forthcoming book precisely on Globalization and Flexibilization and very much look forward to reading it.


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