Study on Harmonious Labor-capital Relationship
in China’s Private Enterprises
Si-ping Peng, Yi-yang Lu
Department of technology and information, Nanhai Neusoft Institute of Information, Foshan, China
(pengsp@neusoft.com)
Abstract - This paper theoretically discourse on the
historical evolution and theoretical development of the
labor-capital relationship worldwide. Moreover, based on
deep surveys and studies conducted in several private
enterprises in Foshan, Guangdong province, this paper
explore the present situation of the labor-capital relation in
China. Eventually, several guiding ideology and practical
measures helping to construct harmonious labor-capital
relationship in China’s private enterprises will be presented:
Building Independent and Powerful Labor Union,
Improving the Labor Legal System, Implementing Effective
Labor Arbitration Mechanism, and Adopting Fair Interest
Distribution Mechanism
Keywords - labor-capital relationship, private enterprise,
coordination mechanism
I. INTRODUCTION
Along with the china’s rapid transition toward
industrialization, marketization and modernization, the
environment for labor-capital relationship has shifted
from planned economy to market economy. The new type
of relation has become the foundation for economic
relations and social relations in modern China.
Accordingly, the labor-capital contradiction came on
stage and became intensified. Some unexpected labor
emergency incidents cause insidious threats to China’s
social stability and economic development. How to
properly manage and construct a harmonious labor-capital
relationship has become an unavoidable social reality in
present-day China.
II. LITERATURE REVIEW
A. The historical evolution of labor-capital relationship
of western developed countries
The labor-capital contradiction has been going on
since the capitalist system was found. Conflicts
representing different economic interests reveal different
characters of the labor-capital relation throughout the
development history of western market economy.
1) The labor-capital relationship in the period of freemarket capitalism
From the industrial revolution to the late nineteenth
century, called the period of free-market capitalism, class
conflict was the characteristic manifestation of the laborcapital contradiction. In some business sections, worker
organizations began to emerge, known as the labor union.
These immature unions were severe suppressed through
force and legal actions by employers who represent the
interest of the capitalist class. In that period, rights of
association, strike and demonstration were strictly
prohibited. Therefore, the employer side dominated the
labor-capital relation.
2) The labor-capital relationship in the period of
monopolistic competition capitalism
From the late nineteenth century to early twentieth
century, western economies were under a transition from
free competition to monopoly. During that period, the
labor unions had obtained unprecedented development.
The force balance of labor-capital relation was changed
by workers' continuous movements. Negotiation between
employee and employer became a new way to solve their
differences rather than using strike and suppression.
Europe and North America’ governments had gradually
changed their policies that previously indulged the
employer side, and then adopted more constructive
intervention policy to solve the labor-capital
contradiction. A series of laws, like the Factories Act,
Labor Protection Act, Labor Insurance Act, Labor Union
Act, Mediation and Arbitration of Labor Disputes, came
on stage in succession. Moreover, governmental labor
administrations were beginning to appear.
3) The labor-capital relationship after World War II
After the Second World War, the labor-capital relation
underwent a significant change. With the development of
state
capitalism,
governments
strengthen
the
comprehensive supervision and intervention on labor
relation and labor reproduction. In addition, a set of
standardized legal system, institutionalized legal system
and adjustment mechanism were found. Generally
speaking, the tension of the labor-capital relations had
eased up in that period and moved toward cooperation.
The manner to solve labor-capital contradiction became of
depending on law and regulations.
B. Researches on labor-capital
western countries
relation
theory
in
At the beginning of industrialization, labor theories
include Classical Economics, the theory of Surplus Value,
the theory of Class Struggle, the theory of Industrial
Democracy, the theory of scientific management, the
theory of Rational Bureaucracy, and the theory of
Industrialism, etc. These theories can be grouped into two
categories: Labor-Capital Cooperation theory and LaborCapital Conflict theory.
The Labor-Capital Cooperation theory is based on
Classical Economics. In Classical Economics, Adam
Smith and David Ricardo are the earliest to theoretically
analyze the labor issue. They thought that the whole
social economic should be consistent with the laws of
nature, and people could freely use their own labor and
money in pursuit of their own interests.
However, John Mill was not satisfied with the
opinion about Laws of Nature in a market economy. He
tried to reconcile the interests of employees and
employers by launching the workers association under the
principle of equality. John Mill thought these could help
to build a win-win relationship between employees and
employers rather than putting them into conflicting
positions.
Different from the above opinions, Karl Marx
stressed that the essence of the labor-capital relation is a
class struggle by illustrating how the labor is
commercialized, how the surplus value is made, and how
the capital is accumulated. He pointed out that the
ultimate way to solve the labor-capital conflict is to
eliminate the system of Wage Labor through the class
struggle and violent revolution to achieve labor
independence [1].
C. Researches on labor-capital relation theory in China
Based on Karl Marx’s theory, Mao Zedong, the
leader of the Chinese Revolution, put forward a principle
of Be Favorable to both Labor and Capital, because Mao
realized that the low productivity is a social reality during
the initial stage of new China. The theory of
Be Favorable to both Labor and Capital can be seen as a
treatment for labor-capital relations. Not only to maintain
the employee' rights but also admit the legitimacy of
obtaining surplus value by the employer [2].
However, in the academic field, the concept of laborcapital relations is only defined within the scope of
private enterprises [3]. After implementing socialist
market economy, Chinese academia believed a significant
change in labor-capital relations was that this relation has
gotten off the character of class struggle. At this stage, the
labor-capital conflicts mainly stems from the interest
differentiation in social transition process [4]. An
important finding is that these two sides are
nonantagonistic and coordinated. Hence, this provides a
possibility of cooperation between labor side and capital
side.
Since the 1990s, more and more researches on laborcapital relations were conducted and turn out diverse
perspectives. Compared with the previous Labor-Capital
Conflict theory or Labor-Capital Consistency theory, the
Labor-Capital Cooperation theory became more popular
in Chinese academic circles.
III. FINDINGS IN PRIVATE ENTERPRISES OF
FOSHAN CITY
Private enterprises in Foshan Guangdong could be
considered typical examples of the Chinese private
economy, so the paper uses employees from Foshan’s
private enterprises as the study targets. The research team
of this paper randomly distributed 500 questionnaires
from August 2011 to September 2011, and then collected
a total of 368 valid questionnaires from employees at all
levels including management, technical staff and frontline
staff.
Within these 368 valid questionnaires, male
employees accounted for 60.63% and the rest for women.
Most of them are low-educated. 36.49% has senior middle
school education while 42.44% has high school education.
According to the Human Capital Theory, people’s
education level and their personal qualities are significant
positive correlated. Therefore, employees’ education level
has a significant impact on labor-capital relations.
A. Employees’ income situation
Generally speaking, employees’ income level is
relatively low and hard to meet employees’ expectation.
Monthly income is categorized into 4 levels, those below
1500 Yuan are 52.72%, those within 1500 to 2499
accounted for 30.72%, those within 2500 to 3499
accounted for 10.84%, and the rest above 3500 only take
5.72%. This survey shows that although the absolute
income has substantial improved in recent years, the
relative income still is low comparing to the Consumer
Price Index, CPI. One thing has to be stressed that the
income increase is mainly through work overtime, and
unreasonable delaying wages and wage deductions is very
common. Therefore, we could say at present, the income
situation in Chinese private enterprises is not satisfactory
and need a further reasonable improvement. Wu Jinglian,
a famous Chinese economist, pointed out that from the
experience around the world, the various social conflicts
are mainly originated from the increasing income gap
during the social transition process from traditional
society to modern society. This paper accepts Wu’s
opinion that the problem of income gap should be given
seriously attention.
B. Employees’ social security situation
Frankly speaking, the labor contracts in Chinese
private enterprises started from scratch and grew
gradually, but it still falls behind the social expectation.
Firstly, only 64.72% employees have labor contracts
while the rest 35.28% hasn’t. Labor contract defines the
rights and obligations for both sides. More importantly,
labor contract is to protect employees’ lawful right when
industrial accidents occur. As a result, the unsatisfied
labor contracts situation could be a huge potential social
problem.
Secondly, in terms of social security, few employees
in private enterprise have this protection. In this survey,
five basic insurances was listed in the questionnaire
including
endowment
insurance,
unemployment
insurance, medical insurance, industrial injury insurance
and maternity insurance. Employees who have all five
insurances only account for 13%. 65% has part of five and
22% has nothing. Such situation is not optimistic because
a sound social security system is a prerequisite for a
harmonious labor-capital relation and for a stable society.
Thirdly, let’s look into the labor union. This survey
shows that only 41.28% employees joined the labor union
because they thought the union can’t play its function
which is to protect the employees’ right. Further finding
in the questionnaire shows that only 7.78% thought the
union is fully functional. 43.94% thought it can play some
sort of function while 48.28% believed it is useless.
Hence, the labor unions in private enterprises can’t play a
proper role to maintain employees’ right resulting in that
employees are unwilling to get help from the unions when
their legitimate rights and interests have been infringed.
C. Staff training
Staff Training is not popular adopted in private
enterprises. This survey shows that only 59.46% ever
received career training. A general situation is that
inadequate resource was put in staff training in Chinese
private enterprises. Lack of training isn’t helpful
especially for those young people who eager to improve
themselves when they come to industrial cities. In the
long-term, low investment in staff training could an
obstacle to employees’
personal development.
Consequentially, such vicious circle could be harmful to
enterprise development and social harmony.
D. Manners for employees to deal with labor-capital
conflict
At present, although the political environment and the
social interest structure become suitable for labor-capital
cooperation, the real situation is not optimistic due to
various factors summarized as follows:
A. Huge strength disparity between the labor and the
capital
Huge strength disparity couldn’t lead to cooperation
between labor and capital. In other word, the strength of
them determines their relation [5]. Therefore, the
precondition of cooperation between labor and capital is
that none of them have dominating strength. If we look
back into the historical evolution of the labor-capital
relations in western countries, we can find out that the
wider of strength disparity, the more intense of laborcapital conflict.
Under the marketization, the interest is independent
and definite for either side of the labor or the capital.
Therefore, conflicts between them are unavoidable when
they pursue their own interest. A distinguishing feature of
labor-capital conflicts in China is that the capital side is
powerful while the labor side is weak and scattered.
Consequently, the capital side usually ignores or even
damages the legitimate rights and interests of the labors.
In other word, the labor side cannot effectively manage to
contend with the capital side in order to safeguard their
legitimate rights and interests. Furthermore, the worse
case is the labor unions cannot effectively represent the
interests of its members.
B. Imbalance of economic interest distribution
This survey shows that the economic reason is the
trigger for labor-capital conflicts. Although employees
eagerly want a wages raise and living conditions
improvement, they prefer to take rational action when
problems happen. 20.68% believe a direct talk with
employers should be helpful, while 8.28% want to get
help from the labor unions or the labor arbitration
committee. A depressed finding is that 48.02% choose to
keep silence and 19.2% choose to resign. These figures
illustrate that at present, individual action is the main
manner for employees to deal with labor-capital conflict,
thus putting employees into a vulnerable situation. Such
situation is far from perfect and there is a long way to
achieve Collective Bargaining, an ideal way for
employees to conquer the labor-capital conflict.
E. Employees’ satisfaction at employers
At the end, this survey shows how the employees think
of their employers. 3.34% mark Excellent, 10.88% mark
Good, 33.82% mark Fair, 39.72% mark Poor, and 11.24%
mark Very Poor. In conclusion, the current labor-capital
relation in China’s private enterprises is not optimistic.
IV. ANALYSIS ON CURRENT LABOR-CAPITAL
RELATIONS
The principals of interest distribution in Chinese
market economy are according to workload or according
to production factor. Due to the contribution from
production factor is difficult to measure and following the
principle of profit maximization, the capital side normally
use the income distribution rights to expand their profit.
The profit increase on capital side will certainly lead to
the wage reduction on labor side. Foreseeably, the conflict
between them is inevitable. The imbalance of economic
interest distribution is the most direct and important
source of their conflicts.
The current situation is that the capital side utmostly
brings down the wage growth and delays paying wage.
Frequent conflicts hereby happen because this distribution
manner has exceeded the limit of the labor. The common
way for labors to respond the unreasonable wages is
resignation, leading to a Chinese social phenomenon of
‘labor shortage’. Another way for labor to respond the
arrears of wages is more noticeable, violent conflicts.
Above analysis shows that the principal of equitable
distribution is grossly trampled by the capital side,
indicating that the Chinese labor-capital relationship is
still at an early stage of development.
C. Immatureness of the labor-capital coordination
mechanism
Although China has 30 years experience of socialist
market economy, the labor-capital coordination
mechanism is still immature. In 1994, the Labor Law has
set principle and norm for Collective Negotiation and
Collective Contract Provisions. In 2001, the Tripartite
Consultation System for labor-capital coordination was
formally established. Ironically, these coordination
mechanisms only are words on paper so far rather than
practical effectiveness.
At present, the contradiction caused by unregulated
distribution manner and the labor disputes are becoming
increasingly prominent putting lots of pressure on the
labor-capital coordination mechanism. This phenomenon
shows the absence of public governance, equitable
distribution and self adjustment in Chinese civil society
[6].
V. SOLUTIONS FOR CONSTRUCTING
HARMONIOUS LABOR-CAPITAL RELATIONSHIP
A. Strengthening the role of labor union
Independent and powerful labor unions are requisite
for coordinating the labor-capital relation [7]. The unions
must represent workers’ interests instead of listening to
any other organization or institution [8]. It is an
organization of workers that have banded together to
achieve common goals such as better working conditions.
It bargains with the employers on behalf of union
members and negotiates labour contracts with employers.
The most common, but by no means only, purpose of
these organizations is maintaining or improving the
conditions of their employment. This may include the
negotiation of wages, work rules, complaint procedures,
rules governing hiring, firing and promotion of workers,
benefits, workplace safety and policies [9]. It also places
an important role in social and political affairs putting
pressure on governments to promulgate laws and
regulations to protect workers’ interests.
B. Improving the labor legal system
The labor and the capital are two opposing interest
groups. When their demands diverge from each other, the
labor laws always are the most powerful and effective
factor to help. The labor laws are the result of historical
evolution of labor-capital relations and also are the
internal cause for some appearance of labor-capital
relations [10]. Although after years of development,
China's labor legislation still lags far behind the reality
needs. There has been nearly 30 years since the China's
Labor Law was published in 1994. Frankly speaking, this
law has played a very important role for protecting the
legitimate rights and interests of workers.
However, because of the incomplete labor laws
system, the incomprehensive law content and the diverse
execution system in different provinces, the efficiency of
China’s labor laws is weak and feeble. A promising sign
is that on January 2008, the implementation of the Labor
Contract Law gives workers a little hope for a future
better protection. In addition, a serious problem is that in
the execution process, some law enforcement agencies
don’t act according to labor laws even they know some
enterprises have violated the workers’ interests.
Therefore, we not only need to improve the labor
legal system, also need to push the labor law enforcement.
C. Adopting fair interest distribution mechanism
In the present stage, unfair interest distribution in
private enterprises has caused severe labor-capital
conflicts, so we should emphasize that a fair interest
distribution mechanism is the foundation for constructing
harmonious
labor-capital
relations.
Employees’
enthusiasm for work is mainly depends on whether their
interests are well protected [11]. Employees’ discontent
caused by unfair interest distribution could led to lowproductivity and further resignation, or even violent
revenge on other parties resulting into social instability.
If the employers could ensure the rights and interests
of workers, such as ensuring proper respect, providing
good working conditions and social security, providing
reasonable wages and so on, can greatly arouse the
enthusiasm of employees. Thereby, the production
efficiency could be improved. That’s a beneficial
economic cycle for both the labor and the capital.
D. Implementing effective labor arbitration mechanism
The tripartite consultation system, consisted of labor
administrative department, labor union and employers’
organization, is the basic pattern and main operating
mechanism for labor arbitration [12]. Moreover, the
collective negotiation and collective contract system
should be regarded as the main approaches for labor
arbitration instead of the direct intervention by the labor
administrative department. Thus, the role of labor
administrative department is to create harmonious
external employment environment [13], to define the
legalistic rights for both sides of labor and capital, to
regularize their behavior toward interest disputes, and to
balance their strength in labor-capital negotiations.
However, although negotiation is practical, this paper
believes that in order to better protect the employees’
interests, the legal procedures and the government direct
intervention are necessary when the negotiations between
them is failed.
VI.CONCLUSION
Labor and Capital are two most important production
elements and behavioral agents in a modern market
economy [14]. Hence, the labor-capital relation is the
most influencing and core relation in a market society. A
harmonious relation could lead to social stability and high
economic growth, vice versa. In Chinese southeast coastal
areas, the private enterprises intensive areas, the laborcapital conflicts take place more frequent than before, and
the situation become worse and worse. Some extreme
behaviors, like the strike and revenge on society, took
place from time to time causing mass fear [15]. Such
disturbing labor-capital relation severely hinders the
construction of the socialistic harmonious society. This
paper concludes that we should actively reflect on the root
behind these social phenomena, and then establish
theoretical basis for constructing a harmonious laborcapital relationship.
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