Short Response: Amsden (2001) Q1 100 Points Using the text box below, answer the following question (1.5-3 paragraphs). Make sure that your answer is brief, clear, and *to the point. Avoid discussing aspects of the readings that are not directly related to the questions. Given her interpretation of the experiences of a set of developing countries, what is Amsden's position regarding the relationship between having prior experience in the production of industrial goods for domestic markets (often achieved through policies to promote the substitution of imports) and subsequent success in expanding industrial exports? According to the author, what are some mechanisms that can explain this relationship? (pp. 171-173) SPECIAL ARTICLE Relations of Production and Modes of Surplus Extraction in India: Part II – ‘Informal’ Industry Amit Basole, Deepankar Basu This paper uses aggregate-level data, as well as case-studies, to trace the evolution of some key structural features of the Indian economy, relating both to the agricultural and the informal industrial sector. These aggregate trends are used to infer (a) the dominant relations of production under which the vast majority of the Indian working people labour, and (b) the predominant ways in which the surplus labour of the direct producers is appropriated by the dominant classes. This is Part II of the paper covering the “informal” industrial sector; Part I, on agriculture, appeared last week. Amit Basole (abasole@gmail.com) and Deepankar Basu (dbasu@ econs.umass.edu) are with the Department of Economics, University of Massachusetts, Amherst, Massachusetts, the United States. Economic & Political Weekly EPW april 9, 2011 vol xlvi no 15 Men make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past. – The Eighteenth Brumaire of Louis Bonaparte, Karl Marx. 2 Industry10 T he classical concerns of economic development relating to the establishment of a capital-intensive (“modern”) industrial sector, whether under State or market control, in societies dominated by labour-intensive industry and non-capitalist modes of production, are still alive today. Witness the numerous sites of conflict between the peasants and the State (acting in the interests of corporate capital) over acquisition of land and other resources in the name of industry. India remains a dual society and a dual economy and the roots of this duality are to be found in the colonial period. The colonial duality between the “modern” and the “traditional” sectors continues today as the divide between the informal sector consisting of peasants, artisans, small producers and retailers, and domestic workers and the formal sector consisting of large capital, foreign and domestic, as well as the State itself. This divide is seen far more prominently in the case of the manufacturing sector where a substantial largescale, capital-intensive component has developed, as compared to agriculture, which remains overwhelmingly small-scale. In terms of employment, the informal economy continues to dominate. Figure 19 (p 64) shows the relative proportions of the formal and informal economies in employment (as of 2008-09, NCEUS 2009) for the three sectors. Across all three sectors a large portion of employment (93% according to NCEUS 2009) is classified as “unorganised” (government of India terminology) or “informal” (academic and general policy usage). These workers work in informal enterprises or are casually employed in formal enterprises. An informal enterprise typically employs less than 10 workers (and in many instances only works with family labour), is not registered with the government and typically does not pay any taxes, nor is required to abide by labour and other laws. Informal employment in formal sector enterprises means that work is not regular, secure, or governed by formal/written contracts, and usually no benefits (health, retirement, other social security) are paid. Total employment in industry is about 45 million (about 18% of the labour force). The share of industrial sector in employment has increased, albeit slowly, since the 1980s (14% to 18%). According to a recent National Sample Survey Organisation (NSSO) survey of the “unorganised manufacturing sector” covering the period 2005-06, 36.44 million of India’s 45 million industrial 63 SPECIAL ARTICLE Figure 19: Share of Formal and Informal Employment in Agriculture, Industry and Services (in %) 100% 100 80% 80 60% 60 Informal 40 40% 20 20% Formal 0%0 Agriculture Agriculture Source: NCEUS (2009). Industry Industry Services Serivces workers are employed in the informal manufacturing sector (Government of India 2008a). Informal manufacturing firms account for 75% of manufacturing employment and 27% of gross value added (GVA) in manufacturing. If mining and construction are included, the contribution in GVA jumps to 40%. The informal manufacturing sector also has an extensive scope, producing food products, beverages, cotton, wool, and silk textiles, wood and paper products, leather and chemical products, metal and plastic products, electrical and transport equipment and repair services of various kinds, including repair of capital equipment. That said employment is certainly concentrated in a few key industries that form the backbone of this sector. The “top three”, food processing, textiles and garments alone account for nearly 50% of informal manufacturing employment. It is common knowledge that large-scale industry has not expanded as expected in India. The share of large industry (factories of >100 workers) in manufacturing employment grew from around 5% in 1900 to 30% in 1980 and thereafter has declined to around 25% (Roy 2000). Apart from well known reasons of low employment elasticity of capital-intensive industry and increasingly unproductive use of surplus in finance and speculation as opposed to accumulation, the new phenomenon that has gained prominence in the post-reform period is the extensive use of informal (casual and subcontracted) employment by formal firms looking for “labour flexibility” (NCEUS 2007). While there has been no shortage of empirical studies on India’s informal sector, many of these have been motivated by a developmentalist or “poverty-centred” view rather than an “exploitationcentred” view. Hence the range and quality of studies analysing production relations and modes of surplus extraction to be found for agriculture does not exist for the rest of the informal sector (for some accounts, see Breman 1996; De Neve 2005; Haynes 1999; Parry et al 1999; Wilkinson-Weber 1997; Varman and Chakrabarti 2006). Marxist accounts of Indian industry have tended to focus on large-scale or “modern” industry, since it was assumed that this sector was the more dynamic one and would grow rapidly to accommodate all industrial employment. More importantly, the “industrial proletariat” has been imagined as consisting of urban workers in large industry. The workers and small producers in the “traditional” or small-scale industry, though numerically strong, occupy an ambiguous position in Marxist theory, similar to the peasantry. The revolutionary experiences of Russia and China had shown that peasants and other small producers could, depending on the specific historical conditions, be antagonistic to or allies of the modern industrial working class, or indeed a 64 revolutionary force in their own right. Many of the issues that have motivated controversies over the role of the peasantry in the socialist revolution are relevant to the analysis of small-scale industrial production as well (see Sanyal and Bhattacharya 2009 for a recent analysis). The present study is motivated by a desire to understand the material conditions confronting the vast majority of the industrial working class. To a first approximation, relations of production in large formal sector firms may be termed “industrial capitalist”. We do not discuss these further. This study limits itself to the informal manufacturing sector. As we will see, relations of production and modes of surplus extraction are more complex here than those which prevail in formal industry. A large body of the self-employed exists alongside wage-labourers. Unpaid domestic workers are crucial. Workers are free to change employers to varying degrees and are “free” of the means of production to varying degrees. Wide and deep putting-out arrangements are the norm. We present macroeconomic data from five rounds of the National Sample Survey (NSS) of the unorganised manufacturing sector from 1984 to the present and we supplement this aggregate data with micro case studies. These data show that the particular type of capitalism found in Indian informal manufacturing is characterised by a large number of very small firms locked in unequal exchange relationships with large industrial capital as well as merchant and finance capital. Broadly speaking, formal rather than real subsumption of labour to capital, and extraction of absolute rather than relative surplus value characterises many firms. Surplus extraction via the “conventional” wage-labour route is compounded by unequal exchange, unpaid domestic labour, labour bondage, contingent or casual labour, and gender and caste hierarchies. Towards the end, we present a framework for the diversity of production relations to be found in this sector. 2.1 Informal Industry: A Production Relations Perspective The Sengupta Commission (NCEUS 2007) has adopted the following definition of the informal sector: The unorganised sector consists of all unincorporated private enterprises owned by individuals or households engaged in the sale and production of goods and services operated on a proprietary or partnership basis and with less than ten total workers (p 2). Thus three major criteria, legal status, participation in the market and firm size (number of workers) are used to define an informal firm or enterprise. While the NSSO criteria differ slightly, number of workers working in the enterprise remains a crucial aspect of any definition. This is a good starting point but as Harriss (1982) comments referring to categories based on firm size or scale (such as number of employees, size of assets, etc). For analytical purposes these categories are quite clearly of very limited value because they mostly rest upon numerically defined classes and may subsume quite different forms of the production process and of relations of production (p 945). 2.1.1 Beyond Firm Size The purely statistical aspects of informality should be distinguished from more substantive issues of production and exchange relations, type of labour processes, etc, although naturally the april 9, 2011 vol xlvi no 15 EPW Economic & Political Weekly SPECIAL ARTICLE two interact in a complex way. For example, costs of conforming to government regulations exceeding the gains of concentration and centralisation of capital are often cited as a reason for remaining small or undertaking “horizontal” as opposed to “vertical” expansion, or for employing casual labour. Similarly, firm size profoundly shapes the type of labour process, modes of supervision and control, division of labour in the workshop and so on. Figure 20 offers a schematic look at the various criteria that have been used to describe the dualism in the Indian economy. In this schematic, the formal-informal distinction itself is restricted only to the question of state regulation of economic activity (“registered” versus “unregistered”). The point of the schematic is to draw attention to the more substantive aspects of the formal-informal divide that relate to forms of exploitation (real versus formal subsumption of labour to capital), relations of production (ownership of means of production versus wage labour) and the type of circuit of capital (need versus accumulation). Qualities on the right half of the circle are usually associated with formal sector firms, while those on the left are thought Figure 20: Dualisms Associated with the Formal-Informal Divide Own means of production Registered Accumulation logic “Good jobs” (secure, salaried) Formal subsumption of labour National/international market Small-scale Large scale Local market Real subsumption of labour “Bad jobs” (casual, piece rate, daily wage) Wage labour Need/subsistence logic Unregistered to belong to informal firms. Though needless to say, no single enterprise in either sector may display all the features typically associated with that sector. 2.1.2 Marx on Informal Industry Even though Marx’s writings on primitive accumulation and the transition from peasant to capitalist farming are much more well-known, in fact he had a lot to say about the transition from small-scale and cottage industry to capitalist factory production. In Chapters 14 and 15 of Capital Volume 1, he discusses at length the development of modern industry in England and parts of Germany. The sheer diversity of production relations, including independent commodity production, putting-out, and wage-labour described by Marx, calls to mind contemporary conditions in Indian informal industry. In these pages Marx appears to be concerned about three things. One, what are the specific ways in which workers are exploited in “so-called domestic industry”? Two, how is small-scale and domestic industry transformed when it becomes articulated within a dominant industrial capitalist mode of production? And three, under what conditions do modern large-scale factories emerge from existing decentralised workshops and domestic production? All these questions are pertinent Economic & Political Weekly EPW april 9, 2011 vol xlvi no 15 for us today. For example, Marx notes that “concentration of workers” (i e, large-scale production) become profitable only under “exceptional circumstances” because competition is intense between workers wanting to work at home, and because by putting-out production to the workers’ home the capitalist saves all expenses on workshops, maintenance, etc (Marx 1992: 462-63). Thus, outsourcing to smaller workshops and homes can, under some circumstance, be more convenient, from the capitalist’s point of view, than centralising production in a factory, something we observe repeatedly in the Indian experience, particularly in the neo-liberal period. This home-based artisan who works for capital, though he appears superficially similar to the independent craftsman of yore, is also very different from him. Referring to “domestic industry” Marx observes: That kind of Industry has now been converted into an external department of the factory…Besides the factory worker, the workers engaged in manufacture, and the handicraftsmen, whom it concentrates in large masses at one spot, and directly commands, capital also sets another army in motion, by means of invisible threads: the outworkers in the domestic industries, who live in the large towns as well as being scattered over the countryside (Marx 1992: 590-91, emphasis added). Capital thus organises production in a familiar dual mode: large factories are articulated with smaller workshops dependent upon the factory. Higher rates of exploitation are achieved not via increased productivity of labour but via lowering the price of labour power or by increasing the intensity of work made possible because “the workers’ power of resistance declines with their dispersal”. Further, unlike the direct relationship between the worker and employer in formal industry, in the so-called domestic industries… a whole series of plundering parasites insinuate themselves between the actual employer and the worker he employs (ibid: 591, emphasis added). Both the factors alluded to above remain relevant in Indian informal industry today. The dispersal of the working class or, in some instances, the failure of the working class to aggregate in the first place, results in the breaking of labour’s resistance to exploitation by capital. And the rising importance of middlemen creates channels for surplus extraction via unequal exchange. Thus, in reading Marx on the evolution of modern industry one is often struck by the resonance with Indian manufacturing today: the widespread prevalence of putting-out relations, the preponderance of merchant capital and of formal subsumption of labour. However, there are important differences to be noted as well. First, the transition from small (home and workshop) to large (factory) production would have to occur in the context of dominant transnational capital. Informal manufacturing today is inserted into global commodity chains in a way that did not exist for European domestic industry. Second, the economies of scale achieved via large industry owed an unacknowledged debt to colonial plunder. Similar plunder being attempted in India today is meeting with fierce resistance from the peasantry and the adivasis. Third, due to State policy as well as the logic of global capital accumulation, recent industrial history of India offers evidence not only for a constant or increasing share of informal production 65 SPECIAL ARTICLE Marx’s famous dictum “the country that is more developed industrially only shows, to the less developed, the image of its own future”, has often been read in teleological fashion as asserting that the particular transition from petty commodity production to domestic industry articulated with capitalism (putting-out) to large-scale factories will be repeated wherever capitalism develops. Apart from the obvious fact that the period over which this transition occurs is around 300 years (from the 17th century to the 19th centuries), one important factor that Marx did not incorporate in his analysis is imperialism; later Marxists drew attention to imperialism and the uneven development that characterises the world capitalist system. It has been argued that the incorporation of the Indian economy into the global capitalist system creates conditions for the perpetuation of the informal sector and other low-productivity activities. To this must be added another caveat. Modern largescale industry has, in general, displayed great capital intensity and a corresponding failure to provide employment to a large fraction of society (even in China, the new manufacturing powerhouse, the secondary sector currently employs only 23% of the labour force). The persistence of small-scale production as “employer of last resort” thus raises important questions for the type of industrialisation that should drive the development process. We defer further comments on this issue until the concluding section. 2.3 The Informal Firm: An Analysis of NSSO Data As mentioned earlier, one main cause of anxiety regarding the development of industry in India has been that the formal sector has displayed low employment elasticities. Figure 21 shows that formal manufacturing employment has been stagnant since the 1980s (NCEUS 2009). The share of large industry (usually defined as composed of firms employing more than 100 workers) in manufacturing employment grew from around 5% in 1900 to 30% in 1980 and thereafter has declined to around 25% (Figure 22). In particular, the post-reform period has seen growing “informalisation”. Figure 23 plots the time series of the number of informal manufacturing firms as well as the number of workers. We observe a clear, though modest, decline in informal employment over the decade of the 1980s, from 37 million to 32.5 million, which reverses in the 1990s and is back to the 66 10 8 6 4 ı ı ı 1981-82 1984-85 1987-88 Source: NCEUS (2009: 12). ı ı ı ı 1990-91 1993-94 1996-97 1999-2000 ı ı 2002-03 2004-05 Figure 22: Share of Large-scale Industry in Total Industrial Employment (percentage) 40 30 20 10 0 1911 Source: Roy (2000). 1921 1931 1961 1971 1981 1991 1984 level by the year 2000.11 There is an even greater decrease in the number of firms through the 1980s, which also reverses in the 1990s though it does not return to the 1984 level. This is consistent with data we present later on an overall increase (albeit small) in the size of the informal firm. The persistence and even proliferation of small-scale and cottage industry on the one hand and continued support for largescale modern industry on the other have resulted in a firm size distribution displaying what Mazumdar and Sarkar (2008) refer to as the “missing middle”. This refers to the low proportion of firms employing more than 50 but less than 1,000 or more workers compared to very small firms (employing less than 9 workers) or very large ones (with more than 1,000 workers. In part the explanation may be found in incentives to reduce small firm size in Figure 23: Number of Informal Firms and Informal Workers 38 38 21 21 20 20 36 36 19 Informal workers (millions) 18 18 34 34 17 16 16 Informal firms (millions) 15 14 14 32 32 Workers workers(million) (million) Surat at the turn of the century probably employed about 5-6,000 weavers in silk and lace. Today, the direct descendant of weaving, the power-loom, provides employment to about half a million. Moradabad brassware engaged 7-8,000 full-time workers in 1924. In the 1990s, an estimate places the town’s metal workers at 1,50,000. Not more than a few thousands were found in the carpets in Mirzapur-Bhadohi area in the interwar period. 3,00,000 is the approximate figure in the 1990s (http://www.indialabourarchives.org/publications/Tirthankar%20 Roy.htm). Figure 21: Total Persons Engaged in Manufacturing Industries (in million) firms (million) (million) Firms but even for an absolute decline of large industry in some sectors and its replacement with smaller workshops or home-based production (the power-loom sector is a particularly well-studied sector where this has occurred). As Roy (1999) notes rather than being annihilated, several types of traditional industries survived with changes into the 20th century, and even grew in size in some cases. 30 30 1984 Source: NSS, several rounds. 1989 1994 2000 2005 order to avoid compliance with labour and other laws. Beyond a certain size, where non-registration is not an option, economies of scale may result in large firm sizes. 2.3.1 Forms and Locations of Informal Labour We now take a closer look at the composition and structure of informal enterprises. Eighty-five per cent of firms in informal manufacturing are own-account enterprises (employing no wageworkers), while 10% are firms employing less than 6 workers, and 5% employed more than 6 but less than 20 workers (Government of India 2008a). Depending on whether and how many april 9, 2011 vol xlvi no 15 EPW Economic & Political Weekly SPECIAL ARTICLE wage-workers are employed in the firm, the NSSO categorises informal firms as follows (category labels are ours): (1) Petty-proprietorship (PP): These are called “Own Account Manufacturing Enterprises” (OAMEs) in the NSSO data. The defining feature is that no wage-workers are employed. Use of family labour is common and many firms are situated on household premises. A typical PP firm has one working owner and one unpaid (mostly family) worker. (2) Marginal capitalist (MC): These are called “Non-Directory Manufacturing Establishments” (NDMEs) in the NSSO data. They have at least one wage-worker but no more than 5 wage and family workers taken together. A typical MC firm has one working owner and two hired workers. (3) Small capitalist (SC): These are called “Directory Manufacturing Establishments” (DMEs) in the NSSO data. These employ more than 5 but less than 20 workers (at which point they should be included in the Annual Survey of Industries). A typical SC firm has one working owner, one unpaid worker and eight hired workers. The rural and urban percentage shares for the above three types of firms for 2005-06 are shown in Figure 24. Petty-proprietorships are by far the most common type in both rural and urban areas, in terms of both number of firms and number of workers (Figure 25). However, relatively more marginal and small capitalist firms are found in urban areas as compared to rural areas. The all-India shares of firms and workers are shown for the past 25 years in Figure 25. It is clear that the overall structure of informal manufacturing, at least as captured by size classes, has remained more Figure 24: Share of Petty Proprietorships, Marginal Capitalist and Small Capitalist Firms in Rural and Urban Areas (2005-06, in %) 100 100% Small capitalist (6-20 workers) 80%80 Marginal capitalist (< 6 workers) Self-employed production units involve the contribution of family members as “helpers”, the dwelling unit itself is used as the site of production, personal assets of family members like bicycles act as assets of the enterprise, durable assets of households act as fixed business investments and household expenditures and production expenditures overlap… The location of production within the household explains how informal production units with such low levels of fixed business investment manage to survive (pp 40-41). 60%60 Petty proprietorship 40%40 20%20 0% 0 Rural Rural Source: Government of India (2008c). Urban 2.3.2 Putting-out Arrangements Urban Figure 25: Relative Shares of Petty Proprietorships, Marginal and Small Capitalist Firms and Relative Share of Workers in Those Firms (in %) SC (6-20 workers) 100 MC (
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