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Globalisation is argued to be a benevolent process for capital or business by strengthening the dominance of market economy, constricting the role of states and expanding the influence of transnational corporations (Held 1999; Stiglitz 2002). It is associated with the rise in the political power of business vis-à-vis other social groups as well as the state through increased concentration of economic power, access to policy makers and threat of capital flight. Evidence suggests that bargaining between business and other social groups has been altered under conditions of globalisation. Scholars have often pointed out increasing policy relevance of “government-business” coalition which incorporates business interests in policy making (Mazumdar 2008).

Further, it is argued that powers and functions of the state are eroding vis- à-vis global actors such as multinational corporations and inter-governmental organisations. The Multi-National Corporations with the multi-nationalisation of production and enormous economic power are in a position where governments are often forced to negotiate on favourable terms (Dunning 1997).

Thus increased economic inter relation between states, global economic and technological changes along with ideational reorientation is increasing the scope of business relative to other social groups within societies. The role of business interests in such transformations are not always exogenous, but as numerous studies have revealed, often instrumental in influencing pro-market policy reform (Chibber 2006). The impact of business in policy transformation

towards neo-liberal reforms is a crucial question and this dissertation attempts to redress the issue through labour reforms.

Notably business here refers specifically to the private sector of the economy which is marked by heterogeneous set of interests based on nature, size and location of the firm. As a category business covers both trade and industry and range from small scale traders, medium sized firms to large industries. Intuitively we can assume that not all businesses are affected in a similar manner by globalisation. Even studies on globalisation such as ‘The Globalisation Report’ suggest employers are poorly organised and fundamentally heterogeneous in their response to liberalisation (International Labour Organisation. 1997).

Theoretically the response of business to liberalisation may vary as businesses that are threatened by liberalisation, namely the import substituting domestic industries may favour protectionism as against the export oriented businesses that support liberalisation (Katzenstein 1976). Interview with businesses during fieldwork also reaffirms such an understanding of variegated response to globalisation. However variations in business attitude towards globalisation although extant should not be interpreted as opposition to globalisation and liberalisation per se.

Globalisation in terms of public policy involves two broad aspects, namely; internal liberalisation and external liberalisation. Internal liberalisation implies deregulations and privatisation of economic activity that augments business importance in economy and policy making. Naturally such a development is supported by business. External liberalisation, however, has evoked mixed response from business and questions of protectionism from international competition for weak industry; economic sovereignty, state promotion of export industry has repeatedly emerged as areas of conflict.

Such differences in opinion with respect to external liberalisation have been reflected in the attitude of business organisations. FICCI, the apex business organisation of indigenous private capital expressed unhappiness with the privileges accorded to MNC’s during the early days of liberalisation. The reaction was natural given that FICCI represents more traditional and national business enterprises that faced greater competition due to trade liberalisation. Comparatively the response of CII and ASSOCHAM towards external economic liberalisation was generally more favourable given the larger representation of MNC’s and export oriented industries (Kochanek 1995).

However variations in business attitude should not be interpreted as opposition to globalisation and liberalisation per se. Business has been in favour of internal liberalisation and increased economic integration. In interviews with business organisations and chambers across the four states, liberalisation was almost universally lauded and concerns raised by business were more about stalled reforms rather than global competition. However, the emphasis in the context has been on internal liberalisation as businesses want greater policy deregulation to enhance business capacity in an integrated global market. They want greater flexibility in the form of exit policy so as to facilitate restructuring, removal of restrictive legislation on urban land and rent control, reform of tax laws, privatisation of the public sector, and improvement of infrastructure to compete in the global economy (Nayar 1998). As such business attitude under conditions of globalisation is towards greater liberalisation and policy deregulation.

2.1 Business and Labour Policy

Business generally favours greater flexibility in competitive market economy. As Martin (2004) points out, firms resist any policies that interfere with their profitability by increasing tax burdens, or raising the wage floor of collective

bargaining, or interfere with managerial control. Labour regulations and trade unions often pose impediments to such profitability and market corrections. Although the necessity of some social regulation is accepted, it is argued that restrictive provisions have a negative effect on growth of business (Fallon 1993; Besley 2004). Increasing integration from trade and deregulation creates competitive pressures on business to reduce cost and increase flexibility. Interview with business associations across the states also corroborate business preference for flexibility in the labour market particularly since regulations affect firms in the formal sector (see chapter 4).

In the context of India, the adoption of market led development strategy has increasingly led to structural pressures for labour market flexibility. India like other most transitional economies has a small industrial sector with overwhelming dependence on agricultural and service sector. As a labour surplus and capital scarce economy, the state is under pressure to provide incentives to capital for investment. Such a developmental model is reinforced by the proliferation of trade and investment regimes leading to the creation of certain global norms based on liberal market model. This is reflected in the repeated concerns of governments as well as business organisations about institutional impediments in attracting investments and encouraging economic growth. As such theoretically it can be assumed that a large private sector will significantly increase the pressures for labour market flexibility due to political-economic reasons.

However the capacity of business to influence public policies as an interest group may not be conditioned by economic considerations alone. Political economic theory suggests that in democracies power of any interest group is significantly determined by wider dynamics such as countervailing interests in society, linkages to government and so on. In fact, an important weakness of varieties of capitalism literature, that explains reform variation through economic

coordination among business, is its lack of emphasis on the state and political actors. Even literature on welfare state that ascribe lack of reforms and prevalence of welfare measures to the political-institutional dynamics (Pierson 2001) fail in this regard. Although path dependency and institutional inertia can potentially explain the continuation of specific labour market regimes, it is essential to decipher the conditions that enable specific political economic interests such as business to overcome institutional legacies or vice versa.

Labour policy and outcomes are not merely determined by size of private sector or employer coordination but also by factors such as strength of labour, interaction between social economic interests and wider political process. Hence, it is necessary to evaluate the role of business as a socio-political actor in a wider political matrix especially in India characterised by historical weakness of interest groups and legacy of state presence in economic policy making.

2.2 Business and politics: determining public policies

As an interest group with specific economic interests business seek to influence government policies. Under conditions of globalisation business as an interest enjoys increased autonomy and leverage as the locus of policy making has increasingly shifted from national state to the market.

Approaching the issue of business influence on policy making Godbole (2004) has distinguished certain broad ideological-political perspectives. The dominant leftist view considers that politics under capitalism is dominated by business and interconnected elite of financiers and directors. An important theoretical derivative that in effect challenges the idea of a conscious ruling class has been structural dependence of the state on capital. The dependence of governments on the performance of the voluntary market transactions of business for growth and employment create the necessary conditions for business inducement in liberal

democracies. The privileges of business firms are not challenged, because restrictive government policies decrease investment, employment, government receipts, and economic growth (Lindblom 1977).

Contradicting the structural predominance of business over policy, the Class Organisation hypothesis considers business as an important part of society with varying relevance over time reflected through state-market dynamics. The class organisation hypothesis finds business influence on politics as dependent upon the resources at the disposal of business. According to Lucas (1997) the shift in the understanding of developmental role for business can be accounted for through resources at the disposal of business. He argues that previous development strategies emphasised the importance of interventionist state capable of dominating social groups, including business as it was assumed that business classes were weak and rent seeking. However contemporary trends privilege the role of the private sector as economic liberalisation and international competition has shifted the balance of power between business and government.

According topartisan electoral view the relevance of business is a function of political-ideological dynamics manifested through party in power. Parties draw their support from different socio-economic groups and the power of such groups fluctuates with the fortunes of their allied parties. It has been witnessed that power of business or capital is much restricted under left party while it is greater under administration of right (Alvarez 1991; Garrett 1998a). The composition of government in terms of ideological orientation and socio-economic basis have implications for macroeconomic policies such as level of unemployment, labour market rules, inflation, income distributions, growth strategies, and growth rates.

Finally, Political Institutions argument suggests that government policies and institutions have implications for relative power and influence of interest groups over politics. As pointed out in Quinn and Shapiro (2004) institutions of

government have a significant degree of autonomy and policies that are at odds with prevailing objectives are unlikely to be pursued.

Since the objective of this chapter is to determine the role of business interests in labour reforms, implicitly it is recognised that policy is not structurally determined by capital. Further, in the sub-national context any impact of political institutions in policy can be argued to be similar.