Why do we need laws and legislations to organise industrial production ?
Explain various principles of labour legislation.
Ans. Laws are needed for optimal formulation and implementation of contracts, however, the success of their venture will depend on a variety of factors such as the history of their co-operation, abilities to trust each other, information sharing and the most important of all the external market conditions. Since the ownership of their inputs defines their final claims on the surplus, the participants also have a conflict of interest that threatens to destabilise their co-operation. Therefore, appropriate legislations and regulations are needed to keep such conflicts under control. Without such rules, production could not be organised on large scales. For example, if there was no law protecting the worker's claim on an agreed wage, many employers would be tempted to default on paying wages after getting the work done, and anticipating that problem workers would stay away from such firms. Therefore, we need laws to assure all participants that their claims will indeed be honoured, almost all the times to ensure that all possibilities of mutual gain should be realised. This argument is called the efficiency argument, as it emphasises on the role of laws to ensure that industrial activities will take place. But there are other views that justify the necessity of laws on grounds of distributive justice and social welfare.
These two strands of views can be seen as complementary. The efficiency view puts forward two main effects through which efficiency works: (a) ex-post effects and (b) ex-ante effects. Ex-post effects refer to the punishment of opportunities as well as behaviour and compensation for damages. Once the damage is done, law takes the punitive role. But ex-ante at the stage of agreeing to cooperate, the law provides incentive to participate in production. The combined effects of the two encourage greater economic activities, but may not necessarily ensure a 'fair' distribution of the created surplus. That is why the social interest argument is also very important. Additional laws and regulations may help each party to secure their fair shares. For instance, sometimes distributive justice supports efficiency: when workers are given a bonus, it is in their interest to try to increase gross profits, which in fact help the workers to increase their income above the basic wage. Similarly, for social justice or gender equality, the government may need to pass legislations-reserving jobs for SC/ST, or promising equal pay for equal work. Likewise, paying below a minimum wage must be declared illegal, if the social objective is to ensure a basic standard of living for all employed workers.
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