The problem of contractualization

Wrote this piece for the Manila Times today. I think it's hightime for constructive solutions to the contractualization situation in business today. What do you think?

Lean and mean
MANAGING FOR SOCIETY
By Ben Teehankee, DBA

SUSAN (not her real name) works as a crewmember in one of my favorite fast-food places. She has a nice manner about her. She’s quick to smile, attentive and moves with a quick step. I complimented her on this while chatting with her. “How long have you been a regular employee?” I asked. Her expression changed quickly as she explained, with obvious discomfort, that she was on her third five-month contract and isn’t sure if she will ever be made regular. I quizzed her on why she accepted this arrangement and she replied, expectedly, that she couldn’t complain because it’s tough getting jobs nowadays.

Susan is just one among countless Filipinos who do essential jobs in companies who do not give them regular employment status. It’s probably my sheltered academic background, but I’m deeply bothered by the sight of fully capable humans turned into practical serfs by their employment situation. And this form of contractualization is a growing trend in the growth industries such as retailing and food services.

Why do companies do it? Some managers say that they do it to survive. They can’t afford to do otherwise. This is a compelling reason because, after all, even employees benefit from the long-term survival of the firm. A lack of job security seems a reasonable price to pay for the preservation of a troubled company. What makes this reason tough to swallow (putting aside the basic concern that the practice is blatantly against the law) is that even companies who are making a lot of money are moving toward more contractualization of essential jobs—often under elaborate “arms-length” subcontracting arrangements.

Other managers candidly admit to more basic reasons. For one, they feel the need for more flexible hiring arrangements given the unpre­dictability of our increasingly global business and financial markets. How can a company with a high fixed payroll cope with a business downturn? Surely, the managers reason, they must ensure the long-term survival of the firm.

Secondly, managers find it extremely difficult to stay price competitive when they hire regular employees because of mandated minimum wages and benefits. Cheap products from other countries are flooding the liberalized local markets like a tsunami and the reflex reaction is to scale down on payroll costs through contractual employment.

While the business reasoning is understandable, increasingly contingent employment causes real harms to employees. The lack of job security and the resulting loss of representation on their basic rights demean employees and make them docile. The lack of benefits and financial safety nets endanger employee health and, ultimately, their families. The long-term social costs of this trend will be very high as more employees are trapped in jobs without security and personal growth.

I think that managers need to have more social commitment and imagination in approaching the threats of global competitiveness. Hiring selectively, giving job security and developing people to be competent and flexible can unleash much needed creativity for delivering better-value products and services. This will not give the quick bottom-line results that cost minimizing does, but it takes the higher road which is better for people and the country in the long run.

The government should not sit idly by as this trend grows. The people need protection from the ravages of the market place. Government must broker continuing dialogues between labor and management for creative long-term solutions to move us out of the contractualization trap, which threatens to worsen our current social inequality even more.

Does the need to be lean justify being mean? I don’t think so. Susan deserves more. She is a human being and she is a Filipino.