Industrial relation is increasingly becoming very complex and delicate issue in the contemporary industrial society. According to Yanou (2012), government intervention in an industry refers to the engagement of the government in the operations and activities within an industry. This scholar says that there is no way a government may completely refrain from engaging in any given industry within its borders. This scholar says that government acts as the umbrella that covers all the industries within its economy. There is however, a variation as to the level of intervention that exists between a given industry, and the government.
The degree to which a government engages with an industry will depend on a number of factors. One of the main reasons why a government may intervene in an industry is because of the sensitivity of the industry (Edwards, 2003). For instance, health industry will always feel a lot of government presence because of its sensitivity. Similarly, the industry that relates to the security of citizens and the country may feel a lot of government intervention. Other industries may experience very minimal government intervention, especially those dealing with products considered as goods of ostentation.
The industry for exclusive cars may receive very minimal government intervention. This is because of limited public concern.
Government intervention may be broadly categorized into two groups. Government may intervene to encourage growth of an industry. This happens when the government realizes that the industry is weak, but is of great importance to the country. Government will intervene to stimulate its growth. Government may also intervene to discourage growth of an industry. This happens when the government realizes that growth of the industry may have devastating effects to the people. Government may also intervene in order to protect the local firms from threat posed by large International Corporation. This research focuses on government intervention on industries, and how this affects the industries.
The United Arab Emirates’ government has clearly set labor laws to help govern business environment in the country. Federal Labor Laws No. 8. This law defines the relationship between employer and employee on such issues as salaries, gratuity, and termination. It is worth noting that this country is a signatory to the International labor laws.
Government interventions always have a direct impact on an industry. According to Edwards (2003), government as an entity has a massive impact on operational activities of an industry. As was stated above, government intervention may come in two ways. The first way that a government may intervene is to help encourage growth of an industry. Government may also intervene to discourage growth of an industry. The third way in which a government may intervene, and which is the most common, is to regulate the industry and to ensure that there is a fair ground for all the players. The following are some of the ways in which government of Saudi Arabia may intervene in an industry, and the effect of this intervention.
There are some industries that are very important to the government. Saudi Arabia is known globally for its production of oil. However, the country also has the agricultural industry that is very important to the people of this nation. This industry is however, affected by the climatic condition of the Middle East which is always dry for the better part of the year. The government of Saudi Arabia has made deliberate effort to encourage growth of this industry using a number of ways. The government started by lowering tax in this industry. The equipments and other materials used in this industry are charged very minimal taxes. Some are not taxed at all.
This has encouraged many investors to enter this industry. The government has been encouraging modern ways of practicing agriculture. The machines necessary for this industry would be imported from China to Saudi Arabia at reduced prices so that farmers can afford to buy them. The effect of this has been clear to the nation. There has been a massive reduction of importation of food products. The country is able to sustain itself agriculturally (Edwards, 2003). This industry is still growing because the government has maintained its support for this industry. It is also important to mention the support that the government has always given the oil industry. This has seen it prosper, and the country is currently the world’s largest oil producer.
The government may also intervene as a way of discouraging growth of a given industry. The drug industry is probable one of the most profitable industries in the world. However, most governments around the world, including the government of Saudi Arabia, have illegalized this industry (Bean, 2004). To ensure that this illegitimacy is not practiced, the government has tasked the countries security personnel with ensuring that this illegal trade is not practiced in the country. The effect of this is very clear. Players in this industry cannot operate openly, and their movements are impeded (Edwards, 2003). The country has also outlawed such practices as gambling. Such practices are rare in the country.
The government may intervene as a way of regulating operations within the industry. According to Salamon (2000), no firm can operate in a lawless industry. There must be a clearly defined way in which firms within an industry should relate among themselves, and with the government. All the firms in the Kingdom of Saudi Arabia are registered by relevant government departments. Each industry falls under a specific department in the government. As a regulator, the government always comes with policies that all the industry players should observe. The government then ensures that each player within the industry observes the set policies (Yanou, 2012). The government also protects each player within an industry from any aggression from other industry players. The impact of this has been a friendly working environment where every player respects other players, and receives the same from others. This has also helped the firm encourage growth of various industries in this country.
It is clear from the three classifications of government involvement with an industry that the impact will always depend on the interest of the government. Cases where the government is concerned with the growth of the industry, then its activities will directly have positive impact on an industry. Similarly, if their intent is to discourage growth of an industry, then the ultimate impact will impede all the logistics and operational activities, and the ultimate result will be failure of the industry (Edwards, 2003). It is important to note, however, that there are some cases where government officials act in corrupt manner. When there is any form of malpractice from government officials when undertaking their duties, then the impact of government on involvement in an industry would always yield result that is contrary to the expectations (Yanou, 2012). For instance, if the aim was to discourage growth, such actions will encourage growth.
There has been an argument in support of and against government involvements in the industry. According to Yanou (2012), government involvement in the industry has direct effect on industries. It is therefore, uncommon to realize that some people will support government involvement in the industry while others will oppose. Those in support and those against have valid reasons for their point.
A number of scholars have come up with different theories in support of government involvement in the industry. There are a number of reasons that have been given in support for the government involvement in the industry. Some of the reasons that have been given are as follows.
Saudi Arabia is one of the fastest developing middle economies in the world. This economy is developed by both the private and public sector. According to Edwards (2003), the private sector cannot develop without a direct government support and goodwill. This scholar notes that there is a general negative impression that government involvement means government interference. Those who oppose government involvement in an industry, according to this scholar, believe that government will only get involved to impede development of others as others get favored. This scholar says that United Arab Emirates reached its current position because of direct government involvement (Edwards, 2003). Without this, an industry may experience a lot of challenges that may limit its possibilities to succeed. The following are some of the supportive arguments for the need to involve government in an industry.
The first reason is to create equity within an industry. For an industry to be competitive there is need to have a fair playing ground. As Kelly (1999) states, in every industry, there will always be the industry leaders and the minor industry members. All the players in an industry, whether an industry leader or a minor player, have a role to play to ensure that there is prosperity within the industry. It is therefore important to ensure that all the members are given a fair playing ground. None should get unfair ground above others in their normal operations in the industry. Government comes in as the authority that presides over the operations of the industry (Yanou, 2012). The role of the government will be to ensure that all the players in the industry practice fairness. There are firms that may be tempted to frustrate minor players in the industry. Such practice may force small players out of the industry. This may create a monopoly in the market. This may result is a situation where the industry is dictated by a few individuals. They may decide to monopolize most of the operations in the industry.
Government’s presence in the industry is very important when the industry deals in products that are considered basic for survival. It is very dangerous for the government to let private sector to dictate operations in an industry which deals in food and other basic products (Blanpain & Baker, 2010). Government will be intervening to help regulate price of the products to be affordable to all the Saudi nationals. Government’s presence will also be needed in order to ensure that such products are of the right quality and quantity. There are some industry players who have the habit of offering products of low quality to the unsuspecting customers. Presence of the government helps in ensuring that such malpractices are eliminated from the industry. This not only protects the public from substandard products, but also creates a level ground for all the players. When a player delivers substandard products to the market while others are delivering standard products, it gains unfair advantage against other firms (Edwards, 2003). This may help such unscrupulous firms develop a competitive advantage in the market. This is a competitive advantage that may not last long. The entire industry will therefore be negatively affected by this.
Government intervention is also important in stimulating growth within an industry. Yanou (2012) says that when government intervenes in an industry through stimulus packages, then the industry will experience growth. The intervention can also come in the form of reduction of taxes. This presence will help ensure that all the players feel safe conducting their activities within the industry.
There has been an equal force that opposes government intervention in an industry. There are cases when government has openly shown bias in its decision concerning operations within a given industry (Bean, 2004). This is especially when government has a firm operating in the industry. Government’s interventions in such cases have been in favor of the governmental institutions. Many of the players in the private sector have complained of high handedness of government officials in the operations of firms in the private sector. These players have complained that government presence in the private sector retards growth of the industry. Salamon (2000) says that although government may come as a regulator, this presence should be very minimal and clearly defined. This helps in eliminated instances where these regulations appear to be applied in double standards.
According to Kelly (1999), private sector has capacity to grow when there is limited government involvement. This scholar says that the country has experienced massive growth in the private sector. There are some firms that were performing dismally when they were under the control of the government. However, this changed following their privatization. When a firm is privatized, it opens opportunity for the firm to operate without any form of interference from the government. Bean (2004) says that the private sector needs to let to operate without any form of government interventions, unless the intervention is meant to level the ground for the industry players. This scholar notes that although the government did a good job in making the banking industry free from government interference, the country went through tough times trying to harmonize this industry following the departure of foreign institutions (Blanpain & Baker, 2010). Protecting local firms may be a good idea of developing local firms. However, this strategy does not result into improvement of an industry.
Government of Saudi Arabia highly encouraged foreign investors into its local banking industry immediately after gaining independence. This was because the country was emerging as one of the leading exporters of oil, but the banking industry was very weak. It could hardly support the economy. Trading was becoming an issue, especially to foreign investors who were interested in oil that was in the country. In order to stimulate economic growth, government realized that it would be advisable to develop this industry (Biagi & Blanpain, 2003). Several foreign firms therefore, moved into the economy in order to tap from the existing market in the country. Large financial institutions such as the Citibank and HSBC moved into this economy. By late 1960s to late 1970s, the economy was basically dependant on foreign banking institution. King Khalid bin Abdul Aziz was concerned. He instituted a commission to look into the issue and recommend on the steps that the government should take to reduce dependency on the foreign investors (Edwards, 2003). The commission presented its report to the King, recommending that all the foreign banking institutions operation in the country should have local ownership
King Khalid bin Abdul Aziz therefore, issued a royal decree in January 1980, demanding all foreign owned financial institutions to restructure their ownership to include at least 60 percent of the locals. This was a condition that all foreign banks had to follow within six months of the decree (Blanpain & Baker, 2010). This concern was mainly coming because the foreign firms had managed to successfully suffocate all local firms in this industry. The foreign firms had to restructure their ownership, and sell part of their shares to individual Saudi nationals, or local Saudi firms whose owners are Saudi nationals. These foreign firms had to obey the decree (Blanpain & Baker, 2010). The decree forced Citibank, HSBC among other large financial institutions that were operating in this country to look for ways in which they could engage the locals in their ownership.
This direct government intervention saw the birth of a number of locally owned financial institutions in this country. Citibank changed its name to Saudi American Bank to reflect on the presence of local investor (Yanou, 2012). Citibank had to give out sixty percent of its shares to the locals, only retaining 40 percent. HSBC was also forced to sell out its shares to the locals. Government felt more comfortable having the locals controlling the industry. Because of the constant government presence in this industry, other foreign investors were discouraged from investing in this country. Citibank which had operated in this country for over thirty-eight years felt that it could no longer withstand government’s presence in this industry. Subsequently, it bowed out of the country in 2003, prompting the change of name of Saudi American Bank to Samba Financial Group (Bean, 2004). There were many other locally owned banks that were started during this period and have prospered to capture markets beyond the Kingdom of Saudi Arabia.
This was a case of direct government involvement in an industry with policies that were expected to encourage local investment in the industry.
According to Edwards (2003), there are some industries that are very sensitive, and therefore, should not be left to operate without any form of government intervention. Government had to intervene and bring some sense of order in this industry. This scholar says that the banking industry is one of the most important industries in a country’s economy. Governments always use the banking sector to control such undesirable conditions in the economy such as inflation. The industry should therefore, operate under close government supervision (Edwards, 2003). The Saudi government’s involvement in this industry can be considered as a success. The country’s banking sector is one of the strongest in the region currently. Some of the firms that were started purely because of the King’s decree such as Samba Financial Group are currently some of the largest financial institutions in the region. This proves beyond any reasonable doubt, that government’s presence in an industry can be very beneficial.
The Emirati government has been keen on its labor laws. There has been a complaint from various embassies in this country that this country was not putting enough effort to regulate the labor sector of this country. The United Arab Emirates and the neighboring Saudi Arabia have the highest immigrant in the region that come looking for jobs (Joseph, 2004). It is unfortunate however, that the two countries have no proper labor laws to govern existence of these foreigners, and their terms of operations while in this country. It is upon this complains that the Emirati government decided to change some of the labor laws to ensure that there is some form of sanity in the industry (Joseph, 2004).
This law strips the powers of the sponsors on their clients they bring to this country. Previously, the sponsors had the power to confiscate passport of the immigrants they brought to this country, and determine the percentage of the immigrant’s salary that they are willing to earn. This power does no longer exist as it has been taken over from them. Foreign workers in this country have the right to retain their own passports or other documents (“Talks under way,” 2013, p. 12). The new law also says that a foreign worker has the liberty to change the employer upon completion of six months with the first employer. The relationship between the sponsor and the client will only exist within the six months, and the maximum fee that the sponsor can earn may not exceed 30% of the net earnings of the worker (Bean, 2004). This has massively boosted their morale.
References
Joseph, J. (2004). Industrial relations: Towards a theory of negotiated connectedness. New Delhi: Sage Publications.
Edwards, P. (2003). Industrial Relations: Theory and Practice. Oxford: Blackwell Publishers.
Bean, R. (2004). Comparative industrial relations: An introduction to cross-national perspectives. London: Thomson Learning.
Blanpain, R., & Baker, J. (2010). Comparative labor law and industrial relations in industrialized market economies. Alphen: Kluwer Law International.
Biagi, M., & Blanpain, R. (2003). Changing industrial relations and modernization of labor law: Liber amicorum in honor of professor Marco Biagi. The Hague: Kluwer Law International.
Kelly, D. (1999). Researching industrial relations. Leichardt: Federation Press.
Salamon, M. (2000). Industrial relations: Theory and practice. Harlow: Financial Times Prentice Hall.
Yanou, M. A. (2012). Labour law: Principles & practice in Cameroon. Mankon: Langaa Research & Publishing CIG.
Talks under way to set up Arab Court for Human Rights. (2013, February 27). Khaleej Times, p. 12