The Indian Journal of Industrial Relations

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The Impact of Organizational Size and Alliance Formations on Perceived Organizational Performance
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Globalization Dilemmas
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S R C Vol. 47 No. 3 January 2012
The Indian Journal of Industrial Relations
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A Review of Economic & Social Development
The Indian Journal of Industrial Relations
The Indian Journal of Industrial
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The Indian Journal of Industrial Relations
A Review of Economic & Social Development
VOLUME 47 NUMBER 3 JANUARY 2012
Contents
Articles
Globalization Dilemmas & the Way Out Dani Rodrik 393
Win-Win Human Resource Strategies for
Working-Hours Reduction Fang-Tai Tseng 405
A Game Theoretic Approach to
Conciliation-Adjudication Model Shubhabrata Basu 423
Recruitment & Selection Practices in
Manufacturing Firms in Bangladesh Mir Mohammed Nurul Absar 436
Wage- Productivity Linkages in Indian Industries M. Manonmani 450
Determinants of Foreign Direct Investment:
A Macro Perspective B.K. Lokesha & D.S. Leelavathy 459
Role of Transformational Leaders as Change Agents: Meera Shanker &
Leveraging Effects on Organizational Climate Omer Bin Sayeed 470
Transformational Leadership: The Link between Upasana Aggarwal &
P-O Fit, Psychological Contract & Signature Experiences Keith C D’Souza 485
Authentic Leadership & Work Engagement Kumar Alok & D. Israel 498
Communication Competence of Indian
Engineers in IT & ITeS Sector Reeta Raina & Neerja Pande 511
Innovation Promotion Competencies of
Indian Managers: An Empirical Study Ravindra Jain & Pragya Sharma 527
Appreciative Inquiry: Models & Applications Pavitra Mishra & Jyotsna Bhatnagar 543
VOLUME 47 NUMBER 3 JANUARY 2012
Impact of Organizational Size & Alliance
Formations on Perceived Organizational Performance Ajay K. Jain 559
Book Review
Employee Relations Management
P.N. Singh & Neeraj Kumar Deepa Mishra & MiralPandya 575
Research Handbook of Comparative
Employment Relations
Michael Bary & Adrian Wilkinson Debi S. Saini 577
IJIR announces the release of its back volumes (1965 onwards) in
JSTOR Archive as part of the Arts & Science IX Collection.
To view the journal online please visit:
http://www.jstor.org/action/showPublication?journalCode=indijindurela
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Globalization Dilemmas & the Way Out
Dani Rodrik
The objective of international eco- Key Ideas
nomic arrangements must be to at-
tain the maximum amount of inte- Let me start with some of the broad
gration or the maximum thickness ideas before going on to what I call a
in economic transactions that are fundamental political trilemma of the
consistent with maintaining space world economy. This will allow us to high-
for diversity in national institutions light some of the key tensions, particu-
and the arrangements. The objec- larly those between hyper-globalisation
tive would be to create enough and democracy. The Euro Zone today
policy space to allow rich countries demonstrates my arguments quite well.
to rework their social compacts at
home, poor countries to restructure The first key idea is that there is a
and diversify their economies so that natural limit to how far markets can ex-
they can position themselves better tend themselves and that limit is defined
to benefit from globalisation, and all by the scope of the workable regulations
nations, rich and poor alike, to es- and governance that markets need. This
tablish financial systems and regu- is a corollary to Adam Smith’s famous
latory structures that are more at- dictum that the division of labour is lim-
tuned to their own needs. A better ited by the extent of the market. The
managed globalisation will be a bet- corollary is that the market itself in turn
ter globalisation, argues the paper. is limited by the scope of workable regu-
lations that non-market institutions need
to extend to the same range that the
markets are trying to cover.
Dani Rodrik is Rafiq Hariri Professor of
International Political Economy at John F. Kennedy
School of Government, Harvard University. The first The second idea relates to who or
recipient of the prestigious A. O. Hirschman Award what provides or where do these institu-
of the Social Science Research Council (New York) tions of regulation and governance come
he authored many titles including the best sellers,
from? The main locus of legitimate gov-
Has Globalization Gone Too Far (1997) and The
ernance today still remains the nation
Globalization Paradox (2011). This article is
excerpted from his keynote address at the Bharat state. By legitimate locus I mean the an-
Ram Memorial Seminar held in New Delhi on 16 swer to the following question: at what
December, 2011. level does democratic deliberation rests
The Indian Journal of Industrial Relations, Vol. 47, No. 3, January 2012 393
Dani Rodrik
for the most part? It is mostly at the level what I call hyper-globalisation, which is
of the nation state and therefore, any something that we actually cannot attain
notion of global governance or trans-na- and any set of policies at the national or
tional governance or any kind of mecha- global level that are designed as if that is
nism of international governance or a worthy and feasible goal, is likely to
multi-lateralism that has significant insti- bounce back with unexpected negative
tutions of democratic accountability and consequences.
representativeness is still far off.
When we get the balance wrong be-
Third, there are legitimate differ- tween institutions of governance and the
ences across nation states on the shape reach of markets at the global level, we
these governance institutions ought to are going to run either into problems of
take. These differences arise from cul- legitimacy or problems of efficiency.
tural differences. They arise also from When we push for global rules and glo-
the varying needs and preferences of dif- bal harmonisation too far without mecha-
ferent nation states and from the differ- nisms of political accountability we are
ent levels of development in different going to run into problems of inefficiency
countries. and instability. We then push global mar-
kets too far without corresponding rules.
None of these three ideas are par-
ticularly controversial when they are Institutions of Capitalism
taken individually. Yet collectively they
have implications which run counter to a Adam Smith had a key insight in to
lot of current thinking about how to ad- the importance of markets and private
dress globalisation. initiative that market was the most cre-
ative and dynamic engine known to man
and that this market required a very mini-
Global governance is fundamen-
mal state, providing very minimal func-
tally a fool’s errand for good and
tions. That markets required very thin
substantive reasons.
level of governance has survived both in
textbooks as well as in libertarian tradi-
We have to resign ourselves to a tion that is still actually very strong in
world where the governance of the world United States, which views markets as
economy is bound to remain a patchwork, separate and disembodied from politics
no matter how hard we push for global as long as the government simply pro-
governance. Global governance is fun- tects property rights and undertakes na-
damentally a fool’s errand for good and tional defence functions, nothing else is
substantive reasons. The implication is required for markets really to prosper.
that, once we internalise that idea, we
have no other option but to understand In the Twentieth Century, we devel-
that we need to moderate our ambitions oped a much richer conception of the
with regard to economic globalisation or markets. We better understood that the
394 The Indian Journal of Industrial Relations, Vol. 47, No. 3, January 2012
Globalization Dilemmas & the Way Out
markets need to be embedded in a much tion of the welfare state and the industry
more complete, and stricter set of insti- policy was the practical expression of
tutions and that the markets are not self- these ideas.
creating. Anything other than a village
market requires investments in transport Bretton Woods System
and logistics to create a market place
whether electronic, virtual or real. Mar- During the Bretton Woods era when
kets are not necessarily self-regulating this set of ideas came to a fruition, the
either, thus requiring a whole panoply of kind of world economy we had was the
regulatory institutions, from financial one that was based largely on national
regulations to those relating to consumer systems of capitalism and not a global
safety and also competitive behaviour. one. In fact, the Bretton Woods system
Markets are not self-stabilising and made the whole economy work by
therefore need monetary and fiscal in- throwing lots of sand in the wheels of
stitutions to stabilise them over time. Of both international commerce and finance.
course, markets are not self-legitimising On the side of international finance we
and so we need institutions of social had the capital controls. On the side of
safety nets and social insurance. Ulti- international trade we had very thin set
mately we also need a political democ- of rules that kept a lot of global commerce
racy to legitimise the working of markets outside the domain of global or multi-lat-
which goes far beyond the original eral discipline.
Smithian conception of a very thin state.
After the 1980’s, we began to push
for a somewhat different conception.
Ultimately we also need a political
The key idea here was of full-fledged
democracy to legitimise the work-
globalisation or what I call hyper-
ing of markets which goes far be-
globalisation that required elimination of
yond the original Smithian concep-
transaction costs on international trade
tion of a very thin state.
and finance and that went beyond sim-
ply reducing import tariffs or eliminating
In practice, during much of the capital controls at the border. It meant
Twentieth Century and certainly after reforming the domestic regulatory appa-
World War II, the practical realisation of ratus such that the differences across
this conception of embedded markets countries would not in themselves impede
took the form of combining Keynesian global trade and finance. It meant the
ideas about macro-economic manage- agenda under the World Trade
ment and the welfare state, providing Organisation being pushed for regulatory
extensive forms of social insurance and harmonisation in a lot of areas. It also
safety nets in much of the developing meant financial globalisation where ev-
world and elsewhere as well through the erything was done to ensure the free,
extensive industry policies and restruc- unimpeded flow of capital across the
turing of the economies. This combina- borders.
The Indian Journal of Industrial Relations, Vol. 47, No. 3, January 2012 395
Dani Rodrik
Now the flaw of the system was that space restricts the options too much to
it did not provide sufficiently strong glo- be really compatible with democracy. Of
bal governance mechanisms to support course, there is historically the big tran-
international commerce and finance while sition from the Gold Standard. Great Brit-
at the same time weakening the very ain went off it in 1931. In Britain a lot of
national institutions of governance that political forces then exerted pressure on
previously had ensured that the spread the government to reflate the economy
or the growth of domestic or national while the rules of the Gold Standard re-
markets could provide for the prosperity quired to keep very high interest rates.
for all. The consequence of this was the Ultimately, the domestic political forces
very syndrome associated with the last won and Britain had to get off Gold in
two decades; malfunctioning by both the response essentially to mass politics.
economic as well as the political institu-
tions. One way to put all these ideas on Hyper-Globalization
a historical frame is to highlight the kind
of dilemma that we face today, the po- What I mean by hyper-globalisation
litical trilemma of the world economy. is a global market that is as integrated as
a national market is. It means a world
Talking historically, the period of the economy where national borders are not
Gold Standard of the 19th century or associated with any transaction costs on
roughly the period from1880 until about international trade and finance.
the First World War was a system where
we tried to combine a very open world
It means a world economy where
economy with the system that was in fact
national borders are not associated
a patchwork in terms of governance and
with any transaction costs on inter-
where the basic unit was still individual
national trade and finance.
countries and the nation states. Certainly
national sovereignty reigned supreme but
the manner in which the Gold Standard What does that actually mean for in-
and its rules played out was that individual dividual nation states? It means that na-
countries had very little space within tion states are unable to impose restric-
which to carry out their economic poli- tions at the borders such as import tar-
cies. In fact, there was not even a con- iffs, import restrictions, capital controls.
ception of what domestic economic sov- There is more; nation states must also
ereignty really meant. This was, of course harmonise domestic legal and regulatory
before Keynes. regimes with the global ones to minimise
transaction costs that might arise from
We have learnt from history that this jurisdictional discontinuities like different
kind of a model is fundamentally not com- bank regulations, different consumer
patible with democracy because the nar- safety regulations and so forth. It must
rowing of domestic political and economic also be the case that nation states are
sovereignty or domestic economic policy credibly pre-committing not to deviate
396 The Indian Journal of Industrial Relations, Vol. 47, No. 3, January 2012
Globalization Dilemmas & the Way Out
from those harmonised regimes. Logi- were permanently an integral part of the
cally, therefore, the only manner in which regime because he understood that, for
we can attain hyper-globalisation is by the healthy functioning of domestic eco-
restricting the scope of domestic policy nomic management, countries needed
in this way. certain amount of insulation from the
vagaries of short-term international fi-
Such narrowing of policy space con- nance and trade regime. The GATT re-
flicts with the conventional conceptions gime actually worked out a similar ar-
of democracy. There are less ambitious rangement in trade, given the various
forms of globalisation that may in fact exceptions that were called for in agri-
be compatible with and actually enhance culture, services and even within manu-
democracy. That is precisely the kind of facturing, for textiles and clothing as
globalisation and not hyper-globalisation trade in those areas encroached on the
that we need to push for. domestic social and political bargains.
This was a vision that explicitly kept
Bretton Woods Compromise hyper-globalisation at bay.
Post World War II the Bretton Wood
Bretton Woods regime explicitly
regime picked a very different system.
designed rules that left significant
Taking off from the interpretation of
policy space for individual coun-
Keynes and others as to what had gone
tries.
wrong during the War II period, the
Bretton Woods regime explicitly designed
rules that left significant policy space for After the 1980’s, particularly after
individual countries. This was meant to 1990, we have been pushing for hyper-
open up the space for individual govern- globalisation which has created failures
ments so that they could practice of deep legitimacy where global rules
Keynesian demand management policies. went too far. The key example of this is
They could erect their own social safety the World Trade Organisation which
nets and welfare states and they had economists and trade lawyers think is the
enough economic policy space to conduct greatest construction of the last 30 years.
restructuring policies and industrial poli- Probably it may be the least popular in-
cies and that is what we mean by the ternational organisation if you ask the
Bretton Wood compromise. It explicitly person on the street. Problems of legiti-
left out any attempt at trying to move macy on the one hand and issues of in-
towards hyper-globalisation or achieve adequate regulation on the other were in
economic globalisation beyond a certain fact of those who did not go far enough
level. This was an explicitly incomplete in the area international finance.
globalisation. Keynes famously said in
1945 that capital controls as part of the In principle, we can imagine a third
Britain Woods regime were not meant to alternative to complete the trilemma by
be simply a temporary expedient. They posing the question: why not dispense
The Indian Journal of Industrial Relations, Vol. 47, No. 3, January 2012 397