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Abstract. Can workers' rights and social protections be reconciled with firms' competitiveness and productivity? In contrast to current development policy advice, which emphasizes the "flexibilization" of labour laws, this article contributes to an ongoing debate about styles of inspection by exploring the causal links between different regulatory practices and economic development and compliance outcomes. Findings from subnational comparisons in Brazil challenge established theories about the behaviours of firms and regulatory agencies, and indicate that labour inspectors have been able to promote sustainable compliance (legal and technical solutions linking up workers' rights with firms' performance) by combining punitive and pedagogical inspection practices.
In the past two decades, government regulatory activity has been increasing in regions as diverse as southern Europe, North Africa and Latin America, in a movement that has been recently characterized as a "regulatory renaissance" over the receding waters of neoliberalism (Piore and Schrank, 2006 and 2007). Policy-makers in France, Spain, Morocco, Argentina, Brazil, Chile, the Dominican Republic and other Latin American countries have devoted new resources to the enforcement of their labour and employment laws, in some cases even doubling the size of their labour inspectorates (Piore and Schrank, 2008).
The increase in government regulatory activity has moved the debate between labour rights activists and business beyond considerations of the desirability of government regulation, and one can currently observe a revival of scholarly production about models and styles of inspection and enforcement of regulation. Scholarly attention to variations in the implementation of laws and regulations by street-level inspectorates has increased as researchers have been trying to explain how and why regulatory agencies adopt a more stringent, punitive or a more flexible, educative approach in the performance of their legal mandates.
However, we still know very little about the causal links between these different styles of regulatory practice and the outcomes observed. The exploration of these links is the focus of this article, which reports on the findings of subnational comparative research carried out in Brazil--a country often referred to as a textbook example of the perverse effects of labour regulation on economic development. These findings challenge established theories about firms' compliance with regulation and the behaviour of regulatory agents. Explanations based either on raising the costs of non-compliance (deterrence model) or on providing advice and guidance to firms on how to comply with the law (pedagogical approach) fail to account for the behaviour of inspectors when they bring up positive change in industries that have traditionally operated out of compliance. Rather, I suggest that sustainable compliance solutions--those capable of reconciling workers' rights with firms' performance--result from a combination of both coercive and pedagogical enforcement strategies (e.g. fines and education/assistance). I argue that combined enforcement strategies allow labour inspectors to learn about the obstacles preventing firms from complying with the law and to develop innovative local solutions. These compliance solutions include technological improvements, adaptations of the regulation to local/industry circumstances, and the sorting out of unnecessary, costly and inapplicable bureaucratic requirements from relevant institutions protecting workers and organizing markets.
This article aims to contribute to the ongoing debate by improving our understanding of how different regulatory practices (or styles of inspection) affect economic development and compliance outcomes. First, I review the debate in the literature about variation in styles of inspection and point out the lack of understanding about how inspection styles are causally associated with compliance outcomes. Next, I present the research design and data collection strategies, and describe the variation in the outcomes of labour inspection in Brazil with emphasis on the cases involving forms of sustainable compliance. In the subsequent section, I develop a micro-level analysis of the potential causal links between inspection practices and compliance outcomes based on both cross-case and within-case comparisons (successful versus non-successful cases and process tracing within successful cases). Finally, I conclude by assessing the explanatory power of the argument proposed and present some of the study's policy implications.
Varieties of inspection style: The debate in the literature
Starting in the 1950s, a growing body of studies about regulatory bureaucracies revealed the important distinction between law-on-the-books and law-in-action. The finding of the inevitability of discretion (Davis, 1969; Silbey and Bittner, 1982; Lipsky, 1980; Hawkins, 1992) frustrated the expectations that legal mandates would automatically be translated into policy action and prompted a debate about the need to understand the regulatory process and potential variations in the way laws are implemented by regulatory agencies and their workers. (1) Following this lead, observational studies (such as Bittner, 1967; Van Maanen, 1973; Wilson, 1968) penetrated regulatory bureaucracies and revealed that: (a) more often than not, the day-to-day activities of regulatory agents diverged significantly from the narrowly defined set of conducts prescribed in the law; and (b) the behaviour of these regulatory bureaucracies varied significantly across different organizations as well as across enforcement agents within the same organization.
In a classic example of the pioneering studies to have documented variations in regulatory style, Wilson (1968) observed the behaviour of patrol officers during the performance of their daily duties in eight communities in the United States (in three different states: New York, Illinois, and California) and found substantial variation in regulatory style. In some police departments, patrol officers were tolerant toward minor violations and emphasized orientation and order maintenance by balancing the application of the law according to the particular characteristics of the offence and groups involved; in other departments, patrol officers exercised their coercion power (punishment) for each and every deviation from the law, guiding their behaviour by general and impersonal rules.
In the decades that followed, scholars in the fields of socio-legal studies, political science and economics extended the inquiry about variations in regulatory style to other organizations, e.g. occupational health and safety (Kelman, 1984), consumer protection (Silbey, 1980-81), environmental agencies (Bardach and Kagan, 1982; Gunningham, Kagan and Thornton, 2006). The variation in approaches to law enforcement observed in these studies was systematized by Reiss (1984) into two generic models of social control: deterrence and compliance.
According to the deterrence model, compliance with regulation is the result of a cost-benefit analysis in which firms give up violating the law when the probability of being caught (surveillance) and the cost of punishment (fines) are higher than the benefits of non-compliance. Thus, under this model, inspectors are expected to find all possible sorts of irregularity and impose the prescribed penalty for each of them when they inspect workplaces (Becker, 1968; Stigler, 1971; Ehrlich, 1972; Tullock, 1974; Reiss, 1984; Polinsky and Shavell, 2000; Weil, 2005).
In turn, the compliance model emerged in the 1980s as a criticism of, and response to, the negative impacts of the first model. Proponents of the compliance model and its variations--Bardach and Kagan, 1982; Ayres and Braithwaite, 1992; Hawkins, 2002; Braithwaite, 2006; Gunningham, Kagan and Thornton, 2006--argue that stringent enforcement practices based on adversarial and punitive relationships between regulators and regulated (deterrence model) lead to "unreasonableness" and create disincentives for compliance. (2) Instead of deploying sanctions, inspectors taking this approach are expected to understand the spirit of the law and seek to attain its objectives by adapting legal requirements to different types of firms, prioritizing persuasion and advice over adversarial and punitive means of law enforcement (Piore and Schrank, 2006). According to Ayres and Braithwaite (1992, p. 19), "the more sanctions can be kept in the background, the more regulation can be transacted through moral suasion, and the more effective regulation will be".
The rediscovery (3) of the compliance model prompted great enthusiasm among students of regulation and regulatory agencies and stimulated a relatively large body of scholarly work on the conditions under which regulatory agencies choose between deterrence or pedagogical enforcement approaches. However, both the deterrence and the compliance models are more normative than descriptive. They offer instruction on what ought to happen rather than describing what does happen on the ground. And, even though a lot of attention has been paid in the past decades to explaining when and why these models are adopted, (4) we currently lack empirical knowledge about the causal links between different regulatory styles and actual compliance outcomes. Previous empirical studies repeatedly described variations in regulatory styles and variations in outcomes without establishing consistent correlations or without identifying the causal links between these two variables. (5) As a consequence, we still have a very limited understanding about what kinds of regulatory practice and behaviour are associated with the promotion of sustainable forms of compliance (i.e. lasting and economically viable).
The outcomes of labour inspection in Brazil: Research, data collection and cases
The aim of this research is to contribute to filling the gap identified in the previous section by drawing from cross-case and within-case comparisons in Brazil. Indeed, sub-national comparisons offer better conditions for the assessment of causal inferences through more controlled experiments (Snyder, 2001); and Brazil offers a favourable environment for investigating the association between different inspection styles and development outcomes for two main reasons. First, since the country's re-democratization in 1985, the Ministry of Labour's inspection service (Secretaria de Inspecao do Trabalho--SIT) and the career of labour inspectors have been subjected to significant reforms, leading to higher organizational capacity and professionalization. (6) Second, more often than not Brazil is cited by mainstream development economists as one of the most heavily regulated labour markets in the world (7) (Botero et al., 2004; World Bank/IFC, 2006; Almeida and Carneiro, 2007) and a textbook example of how extensive labour regulations damage the ability of firms to compete in increasingly globalized markets (Johnson, Kaufmann and Zoido-Lobaton, 1998; Schneider and Enste, 2000; Friedman et al., 2000; Batra, Kaufmann and Stone, 2003; Perry at al., 2007). These two characteristics define Brazil as a critical case for the investigation of how variations in inspection style impact compliance and development outcomes.
The data for this project were collected through in-depth interviewing, observation of inspectors' work routine, as well as archival search. Between December 2006 and September 2007, I conducted a total of 93 interviews averaging two hours each. Approximately half (40) of the interviewees were labour inspectors in two states (Minas Gerais and Bahia) (8) and at the central level in Brasilia. I complemented and cross-checked (triangulation) the stories and data collected from these labour inspectors by interviewing another 53 actors who were involved in specific cases, including firm owners, managers, workers and representatives of business associations, trade unions and government agencies (e.g. National Health and Safety Institute, Attorney General's Office, the armed forces, development banks). As a result of fieldwork, I identified 24 cases in which labour inspectors intervened more or less successfully, and also unsuccessfully, in promoting the reconciliation of labour standards and economic development (table 1). The analysis of these 24 cases indicated three distinct types of outcomes.
The first type of outcome refers to situations in which labour inspectors failed to fulfil their mission as law-enforcers--i.e. their intervention did not bring firms into compliance with the law. For example, two years after Ford started operating its new auto-assembly plant in Camacari (Bahia) in 2001, labour inspectors observed an upsurge of repetitive stress injuries among local workers. But, even though inspectors have been working on this case for more than four years, they have promoted very little change either in the way the factory operates or in the incidence of injuries. Similarly, granite quarrying firms in Papagaio (Minas Gerais) have long been known for environmental damage and occupational diseases caused by dust. Inspectors have been unsuccessful, over the past five years, in promoting compliance with basic items of the labour code among the mainly small firms operating in this area.
The second type of outcome refers to situations in which labour inspectors do succeed in enforcing regulation, but at the expense of firms' productivity or competitiveness. This category of cases illustrates the trade-offs between workers' rights and firms' performance, because compliance typically increases firms' production costs. Therefore, firms find little incentive to remain in compliance over time, except for the continuing threat of sanctions which is unlikely to hold up for very long given the regulators' resource constraints. For example, since the mid-1990s, labour inspectors have been repressing the contracting out by firms of their end-activities (as opposed to administrative activities) to workers' cooperatives, which are considered as an illegal bypass of the labour code's requirements. In Recife, software firms have been arguing that directly hiring all workers--especially software designers who are paid by the products they develop--is not only inefficient but very costly. Accordingly, they resort to workers' cooperatives as a means of both reducing their costs and giving their designers more flexibility (e.g. working hours). By forbidding firms to resort to such cooperatives, labour inspectors have been successful at bringing firms into compliance with the law. However, as some firm-owners mentioned, they only need to wait until the inspector gets off their back in order to revert to the workers' cooperative arrangement. As firm-owners point out, it is cheaper to pay the fines if they are eventually caught by inspectors than to bear the costs of directly hiring all their workers.
Finally, some of the cases in the sample indicated the possibility of a third outcome, which I call sustainable compliance. In these cases, inspectors successfully promote the reconciliation of labour standards with economic development. In other words, inspectors bring firms into compliance with the law by finding legal and/or technical solutions that create positive incentives for firms to improve working conditions and remain in compliance. In the cases that resulted in sustainable compliance, inspectors devised new forms of employment contract and hiring arrangements, as well as technical solutions that made production processes simultaneously safer and more efficient.
In order to provide the empirical evidence supporting the identification of sustainable compliance outcomes, four such cases are described below in greater detail. These four cases capture important variations in terms …