Category Archives: economics

by | 23 October 2008 · 9:50 pm

Siassi: A Culture of Maritime Trade in PNG

From Alice Pomponio’s “Seagulls Don’t Fly into the Bush: Cultural Identity and the Negotiations of Development on Mandok Island, Papua New Guinea” in Cultural Identity and Ethnicity in the Pacific, edited by Jocelyn Linnekin and Lin Poyer (U. Hawai‘i Press, 1990), pp. 51-52:

For the Siassi Islanders, trade implies sailing. Knowledge of the sea, winds, and stars is crucial to overseas sailing in the precarious Vitiaz and Dampier straits. In pre-European times men who were renowned sailors and good navigators were therefore highly regarded. Along with maritime knowledge, such a man would also possess the magical incantations to control the weather, wind, and seas, and in some cases, the sorcery by which to control or destroy his rivals. A traditional leader would combine as many elements as possible to expand his wisdom and enhance his renown. However, merely having the talent or the personality to lead is not enough: one must demonstrate that power continually. Before pacification and missionization, demonstrating prowess entailed aggressive overseas trade, navigation and sailing skills, competitive feasting, sorcery, multilingualism, and social networking to establish and maintain trade alliances. Definitions of manhood stressed creative abilities, mental shrewdness, knowledge concerning economic investment/return ratios, and manipulation of social relationships. Finally, all of these displays and trading exploits must be carried out with the aplomb of a “man of wisdom.”

Out of this constant travel and trade emerged a big-man status system oriented not toward the accumulation of land and wealth in a sedentary environment, but toward manipulation and management of others’ products through mobility and trade—that is, the control and redistribution of wealth. I call this kind of system “middleman culture.” Though recognizably Melanesian, it is distinct from the more familiar patterns of entrepreneurship studied to date in Melanesia in three crucial respects: (1) the relative lack of land or utilization of land resources (horticulture and pig husbandry) as a basis for the local economy; (2) the emphasis on trade as a primary, rather than secondary, feature of the subsistence economy, and as a standard for evaluating entrepreneurial talents and achievements; and (3) a social and distributive system that militates against the accumulation of significant amounts of wealth and favors instead the control and manipulation of goods, food, and people.

Siassi big-men are not “men of anger” or warriors. They are craftsmen, clever investors, and men of knowledge. They succeed not by overpowering their adversaries physically, but by outsmarting them—not by production, but by clever manipulation. Through generations of trading they have transformed a landless society of maverick immigrants into a patterned system of seagoing salesmen, trading their own and others’ products for a profit. This profit is then recycled into their own system of exchanges, politics, and prestige.

This sounds rather more benign than the cultures of maritime raiding that have also plagued the coasts and islands of so many parts of the globe, including PNG before the imposition of a pax Germanica in New Guinea and a pax Britannica in Papua.

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by | 20 October 2008 · 5:53 pm

India’s Huge Informal Labor Sector

From India: The Rise of an Asian Giant, by Dietmar Rothermund (Yale U. Press, 2008), pp. 211-213:

The poor in India are a vast reserve army of cheap labour. Organized labour in the ‘formal’ sector of the economy is a comparatively small part of the total labour force. In 2003 the public and private sectors together employed 27 million workers. The private sector is the smaller one with 8.4 million but a greater share of the ‘manufacturing’ category with 4.7 million as against only 1.5 million in the public sector. According to the theory of W. Arthur Lewis, in a ‘dual economy’ (traditional and modern) there is a reserve army of labour in the traditional sector which supplies the modem one with a steady flow of new recruits. But the Indian economy is not a dual one: it consists of two parallel economies. Since the reform of 1991, employment in the formal sector has practically stagnated; there has been only a slight shift from the public to the private sector, the first losing and the latter gaining 1 million employees. These figures would confirm the frequent comments on the phenomenon of jobless growth. But, of course, this refers only to the formal sector; the actual growth takes place in the informal sector. In fact, from 1978 to 2000, the share of the informal sector in the total labour force increased slightly from 91.3 to 92.4 million, although one would have expected a decrease of informal labour in a period of steadily increasing economic growth. The wage differential between the two sectors is enormous. For employees in the public sector, official statistics show an average daily per capita rate of Rs 681. According to the National Sample Survey mentioned earlier, the daily wages for male casual labourers in urban areas are Rs 75 and in rural areas Rs 56; the rates for female labourers are Rs 44 and 36 respectively. The figure for the public sector would, of course, include the high salaries of the Class I officials, but they are a small minority when compared to the legions of humble Class IV officials who do manual work or errands for the higher-ups. Nevertheless, even these humble people are head and shoulders above the casual labourers in the informal sector. Moreover, their jobs are secure and permanent, unlike the ‘informal’ jobs, which are subject to the rule of ‘hire and fire’.

Subjection to the rule of ‘hire and fire’ has increased with the growing casualization of informal labour. New forms of contracting labour have developed which permit the employer to shift the onus of hiring and firing casual labour to agents who are told how many workers are needed at any given time. Casualization has particularly affected women workers who were previously not very active in the labour market but have joined it in recent years in increasing numbers. Concerned social scientists have coined the term ‘feminization of poverty’ in order to characterize this phenomenon.

The ‘informal’ proletarians are not protected by any trade unions, which for good reasons concentrate on the organized sector of the economy. Very few of the recognized trade unions can depend on regular fees paid by their members. Accordingly, union leaders must look for other sources of income. They usually squeeze the employers by threatening to stir up trouble. There is no collective bargaining in India: wages are set by officially appointed tribunals and there are also tribunals which try the cases of individual workers who have been made redundant or have not been paid the wages due to them. Therefore most labour leaders are lawyers who spend their time pleading before those tribunals. The informal proletariat has no contact with such tribunals or lawyers.

The usual staff of a workshop in the informal sector consists of the boss and fewer than ten workers. In small firms which operate as subcontractors for manufacturers, the boss may even be an engineering graduate. Capital investment in such workshops is minimal so very often they band together and help each other out. One has a lathe, the other a drilling machine, etc.; if the piece of work requires both, it is carried from one shop to the other. The ignorant observer may think that this cluster of workshops is a slum, but on closer inspection he will be surprised to see the quality and variety of their products. Bigger firms rely on such subcontractors for two reasons: first of all, they can keep the number of workers and the investment in machines limited; and, secondly, if there is a slack in demand they can cut the orders farmed out to the subcontractors. This explains the phenomenon of jobless growth in the organized sector. The huge number of subcontractors who have the reserve army of labour on their doorstep shield the organized sector against risks but can also respond very quickly to increased demand. There is, however, a growing gap between labour productivity in the organized and in the informal sectors. In 1983 labour in the organized sector was about six times more productive than that in the informal one; by 1999 the differential had increased to nine times. This would also account for the wage differentials between the two sectors.

The wages paid by subcontractors, particularly if they work for manufacturers producing cars or machine tools, have to be higher than the wages of casual labourers mentioned above, but they would still be much lower than those in the organized sector. The qualifications of the informal proletariat working for subcontractors range from those of skilled workers to that of untrained people. The skilled workers in workshops would be the ‘creamy layer’ of the informal proletariat and they would be above the poverty line. But the great majority of the reserve army of informal labour are quite poor, something that would be particularly true of the many landless labourers who are at the beck and call of the landowning peasantry. Earlier systems of permanent attachment of such labour to the households of their employers have long since disintegrated because the employer can always find casual labour and does not need to retain labourers in the off-season. Even at times when the harvest or other seasonal operations suddenly require additional labour, there are nowadays migrant labourers who make themselves available for seasonal employment. Workers from Tamil Nadu will show up in the Punjab or elsewhere at a distance of 1,500 kilometres from their home. Here, too, the informal proletariat shows its usefulness as a reserve army of labour. About 43 per cent of India’s rural population are landless. If one deducts from this about 8 per cent for traders, carters, and so on there would still be 35 per cent of labourers who depend on their daily wages.

Of course, ‘casualization’ is hardly limited to India or to informal sectors of large economies. One report last year estimated that 70% of the faculty in American universities now depend on part-time or limited-term contracts. So, to twist the clause that begins this passage: An oversupply of postgraduate degrees provides a vast reserve army of cheap labour for universities.

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by | 11 October 2008 · 10:18 pm

Wordcatcher Tales: Susokman

From Village on the Edge: Changing Times in Papua New Guinea, by Michael French Smith (U. Hawai‘i Press, 2002), pp. 164-165:

In the mid-1990s, Deborah Gewertz and Frederick Errington interviewed dozens of Wewak’s more affluent Papua New Guinean residents, including “lawyers, doctors, nurses, bankers, clergy, teachers, managers, entrepreneurs, shopkeepers, army personnel [and] civil servants,” both male and female. They also mingled with them at Rotary Club events, the Yacht Club, and the Wewak Resort and Country Club where these business and professional people went to socialize and network….

[I]n order to take part in the life of the urban elite, Papua New Guineans generally have to weaken their ties to their village kin. In villagers’ eyes, attending the university, working for the government, or habitually wearing shoes and socks should not dissolve the bonds of kinship. But the wearers of shoes and socks (the susokman, as they are called in Tok Pisin) find that it is difficult to live up to village definitions of their kinship obligations and simultaneously provide for the basics of urban life—housing, food, business clothing—and take part in urban elite social life, including the professional networking that goes on in restaurants, in clubs, and on the golf course. Gewertz and Errington argue that villagers tend to define success as meeting a wide variety of kinship obligations; but for the urban elite, success means providing an affluent life for one’s immediate family, and that usually means putting strict limits on generosity to more distant kin.

Village kin may see this as lack of generosity, but they are judging by the moral ideals of village society. In terms of those ideals, material wealth is for creating and maintaining social bonds, and wealth gained at the expense of social ties is tainted. But what looks like antisocial greed to the village is necessity and prudence to the urban elite. If they fall on hard times because they have given unstintingly to their village kin, their urban peers will not praise their generosity; they will criticize their moral weakness. To join the elite, then, Papua New Guineans have had to work hard; but they have also needed good luck, and they have had to enter a different world of morality.

When I arrived in Papua New Guinea in 1976 to start linguistic fieldwork, the first thing I did was to throw away the worn-out tennis shoes I had traveled in. All during my student years in Hawai‘i during the 1970s, I rarely wore any footwear but Japanese zori (rubber slippers). When Hawai‘i Loa College required caps and gowns when I graduated in 1973, I went barefoot beneath my gown.

The second whimsical thing I did in PNG, on the taxi ride in from the airport to Port Moresby, was to stop by Koki Market to buy betel nut. (I got some for the taxi driver, too.) It was my first chance to use the Tok Pisin I had studied in grad school to prepare for fieldwork.

I arrived from Australia during Easter holidays and had trouble reaching my contact at UPNG, so I spent the first night at a downtown hotel, where I discovered that the dining room required shoes and socks. That was a new way to distinguish the elites from the hoi polloi in the newly independent nation, since discrimination on the basis of race was now prohibited. That evening I decided to order supper to my room.

Betel chewing was also prohibited inside the hotel, so before dinner I took the makings of several betel quids—areca nuts, betel pepper catkins, and slake-lime powder—outside onto the near-empty holiday streets. A young Papua New Guinea man soon came up to chat and I offered him a chew. It was my second chance to practice Tok Pisin in country, but it ended soon after I figured out what my new acquaintance meant when he asked me, “Masta, yu laik takim kok o nogat?” His native language must have been one in which [t] and [s] are allophones of a single phoneme, which sounds like [s] in front of /i/ (as in Kiribati) but sounds like [t] elsewhere. When I belatedly deciphered his accent and understood his intent, I laughed it off with “Ah, nogat ya!” and turned my unshod feet back toward the haven of the shod and socked.

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by | 7 October 2008 · 8:40 pm

Surprising Correlates of Birth Rates in South India

From India: The Rise of an Asian Giant, by Dietmar Rothermund (Yale U. Press, 2008), p. 181:

The National Population Policy for the year 2000 had once more set a target for the achievement of the replacement level of the Indian population. The replacement level is defined in terms of the Total Fertility Rate (TFR) of 2.1 births per woman in the course of her life and should be reached by 2010. Demographic projections would prefer to assume 2016 as a more realistic date. The average Indian TFR had come down from 6 in 1951 to 3 in 2001. To the great surprise of planners and demographers, several south Indian states have proved to be way ahead of the National Population Policy. Kerala registered a TFR of 1.71 in 2001, and Tamil Nadu was at almost the same level with 1.76, closely followed by Andhra Pradesh at 1.94. Karnataka was still above the replacement level, at 2.24; it was estimated that it would reach that level within a few years. Andhra Pradesh was the greatest surprise of them all: its TFR had dropped from 2.39 in 1997 to 1.94 in 2001. It has a high rate of female illiteracy and there has been no significant economic progress in this state. The major assumption of demographers that female education and economic progress would lead to a lower TFR was therefore contradicted by the experience of Andhra Pradesh. Moreover, the decline in the TFR usually takes time and does not happen in such a dramatic fashion as it did in Andhra Pradesh. Perhaps it was an awareness of future deprivation rather than of economic progress which prompted even illiterate women to resort to birth control. This goes against all normal demographic assumptions, but there was a striking parallel to this development in Andhra Pradesh in East Germany at the time of German reunification. The number of East German births dropped by 40 per cent at that time, which must have been due to apprehension of an uncertain future on the part of young East German women. This shows that perceptions of the future rather than long-term social and economic trends may influence the decisions of women. This is, of course, only one aspect of the rapid spread of birth control. Knowledge of the methods of contraception and the will to adopt them are also of great importance. Demographers who have studied the spread of adoption of contraceptives have noticed a snowball effect. After an initial phase when only a few women practise birth control, the demonstration effect catches on and others follow their example. In a strange reversal of the assumption that female education leads to birth control, it has been found that birth control may foster female education. Among illiterate women who adopted contraception there were many who would send their girls to school. The correlation seems to be significant, but of course it does not necessarily indicate a causal relation.

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by | 4 October 2008 · 3:48 pm

Mistrust All the Way Up in PNG

From Village on the Edge: Changing Times in Papua New Guinea, by Michael French Smith (U. Hawai‘i Press, 2002), pp. 65-66:

Many Papua New Guineans probably were easily convinced that the World Bank was up to no good because they had no faith in their own government, which had sought help from the bank. In fact, many private citizens I spoke with in 1995 distrusted the Papua New Guinea government even more than the World Bank. They mistrusted not just the current government but the government as an institution. The staff of local-level government organizations expressed deep distrust of every level of government above their own, and some village representatives to these local bodies did not trust the staff. People in provincial towns spoke with disdain of the “people in Moresby” the capital, who were “living in a different world” as one activist put it. Activists in rural areas sometimes made the same complaint about those in the provincial towns. As a representative of a rural women’s organization in the East Sepik Province told me, “the bigshots in Wewak” [pop. 25,000!] did not understand what life was like still farther afield.

Such criticisms might sound familiar almost anywhere, but mistrust of government has a special flavor in Papua New Guinea, and this distinctive and pungent mistrust provided fertile ground for the reaction to the bank’s ERP [= Economic Recovery Program] policy prescriptions. In light of conditions in 1995, many Papua New Guineans felt that the government—not just the sitting government, but every government since independence—simply had not proven itself. Many also felt that the elite Papua New Guineans who ran the government treated the citizens of the country unfairly and unequally. Europeans working in Papua New Guinea or reporting on events there often complained of corruption in the higher circles, but they were no more vocal on this issue than rank-and-file Papua New Guineans themselves.

Many Papua New Guineans probably also distrusted the government because they still saw it as a foreign entity. Papua New Guineans had taken the tiller at independence, but the boat itself was built on the European model. The electoral and parliamentary political system was nothing like precolonial political systems, and these differing systems were only awkwardly coordinated.

Above all, the idea that the people of Papua New Guinea were all members of a single nation and that this identity transcended narrower affiliations—with family, kinship group, village, and speakers of the same language—had not taken hold. There had been no prolonged, popular struggle for independence in which disparate groups throughout the country might have forged a sense of unity or acquired a stake in new national institutions. The nation, too, was an unfamiliar concept to many. Indeed, some Papua New Guinea peoples did not regard themselves as having ceded their autonomy and accepted subordination to the greater power of the state. In fact, to some the state appeared positively menacing. In the 1990s, Papua New Guineans caught up in Christian revival movements in parts of the country associated the state with the Antichrist.

Doesn’t sound that different from everywhere else on earth these days.

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by | 4 October 2008 · 12:25 pm

Affirmative Action Dilemmas in India

From India: The Rise of an Asian Giant, by Dietmar Rothermund (Yale U. Press, 2008), pp. 168-170:

Before [V. P.] Singh was toppled, his government had introduced the 27 per cent reservations for the backward castes in August 1990. The Congress government under Prime Minister Narasimha Rao had to live with this new rule and made no attempt to reverse it. It was soon faced with a landmark judgment of the Supreme Court in November 1992, which forced the government to establish a National Backward Classes Commission with quasi-judicial powers to determine the claims of castes for the recognition of their ‘backwardness’. The judgment of the Supreme Court was due to a lawsuit initiated by some members of backward castes. The judges feared that they would be inundated with such suits and realized that they had no criteria by which to determine such cases. Moreover, they felt that litigants who were not at all backward as far as their economic situation was concerned would nevertheless try to obtain the benefits of affirmative action. The judgment of 1992 therefore included an injunction which obliged the government to define the criteria by which the ‘creamy layer’ of the backward castes would be excluded from such benefits.

The debate concerning the ‘creamy layer’ highlighted the problem created by the synonymous use of the terms ‘caste’ and ‘class’. All official statements referred to ‘backward classes’ when they really meant backward castes, the term ‘caste’ being deliberately avoided as it referred to an undesirable aspect of Indian social life. However, caste and class are not at all identical. Many members of the high castes are poor labourers, whereas there are many rich people of low caste origin. Since speaking of a rich class among the members of the backward classes seemed to be incongruous, the term ‘creamy layer’ had to be used.

The National Backward Classes Commission was established by an act of Parliament (Lok Sabha) in 1993. Even before it was constituted, a special commission had reported on the problem of the ‘creamy layer’. It was decided that the children of high government officials or of persons with an annual income above Rs 100,000 would not be entitled to the benefits of affirmative action. In 2004 this limit was raised to Rs 250,000 (approximately US$ 5,000). But whereas the ‘creamy layer’ could be defined in this way, it was much more difficult to fix the basic criteria for defining ‘backwardness’. Of altogether 1,133 applications received from various communities during the period from 1993 to 2003, the commission accepted 682 for inclusion in the list of backward classes and rejected 451. In its report submitted in 2004, the commission admitted that it had to base its decisions on inadequate data and often had to fall back on the census of 1931 as it was the last one which contained information on castes. The commission therefore recommended that future census operations should once more provide data on caste affiliations as it would otherwise be impossible to base affirmative action on reliable social data. It is doubtful whether the Indian government will follow this recommendation concerning census operations in view of the political trouble it might cause. Moreover, once it is known why such questions about caste are asked, interested parties would see to it that the respondents answered them in a suitable manner.

The problem of defining the criteria of ‘backwardness’ came up once more in 2006 when the Congress-led coalition government decided to extend the reservation for OBCs to educational institutions. The reservation of government jobs was controversial enough, but educational reservations cut even deeper as far as the career prospects of students from higher castes were concerned. Due to India’s rapid economic growth, many students look for jobs in the private sector rather than for government posts. But whatever job one wants to get, access to higher education is the necessary precondition. Once more the Supreme Court played a decisive role. It asked the government to specify the criteria for OBC reservations. In addition, doctors launched a nationwide strike against this new policy since they are the only group of educated people whose strike really matters. The government stuck to its policy. The political equation is obvious: there are probably about 400 million OBCs in India and their vote will decide the outcome of the national elections which are due in 2009.

In the absence of census data, the National Sample Survey Organization finally supplied some relevant data in 2006 which were based on a sample survey of 125,000 households. According to this, the proportion of OBCs in the Indian population amounts to 41 per cent whereas the Scheduled Castes account for 20 per cent and the Scheduled Tribes for 8 per cent. As far as household expenditure was concerned, the survey showed that in the rural areas the OBCs attained about the same level as the ‘forward communities’ in this respect, whereas in the urban areas these communities were far ahead of the OBCs. Of the members of urban ‘forward communities’ 52 per cent spent Rs 1,100 per month whereas among the OBCs only 28 per cent reached that level.

The politics of affirmative action has certainly strengthened the solidarity of the Other Backward Castes…. The ‘social federalism’ of a caste-based society is also reflected in the pattern of regional parties whose rise was discussed in an earlier chapter. The notions of hierarchy associated with a caste system have vanished from political life where the manifold patchwork of regionally dominant peasant castes is much more important than notions of hierarchy and hegemony. But one particular element of stratification has survived in spite of all affirmative action: the stigma of ‘untouchability’.

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by | 28 September 2008 · 11:53 am

India’s Infrastructure: Bad News, Good News

From India: The Rise of an Asian Giant, by Dietmar Rothermund (Yale U. Press, 2008), pp. 157-160:

Next to airports, India’s seaports require thoroughgoing modernization. The biggest and most famous of them all, Mumbai, has a notorious reputation for terrible delays and incompetent handling of goods. A few years ago, turnaround time was about eight days, regardless of the size of the vessel; this has improved somewhat but even now about four days are required to load or unload a ship. This is due to deliberate negligence as the port earns more by collecting demurrage charges than by any other means. The trick of this trade is the stranglehold which Port Authority labour has on the loading and unloading of goods. In most other ports around the world, the port authority is merely a landlord, providing berths and cranes, etc. but no labour, with loading and unloading done by labour hired by the shipowner or his agent. The port authority with ‘dedicated’ labour is a British legacy. In British ports it may have made sense to retain a labour force specialized in loading and unloading ships, particularly in the past when most of this work was not mechanized. Nobody would have thought that delay rather than speed would be the result of retaining specialized labour. Making money on demurrage charges is, of course, a flagrant example of being penny-wise and pound-foolish. No shipowner in his right mind would enter a port such as Mumbai unless he absolutely has to because it is his destination. Bulk breaking is taking place elsewhere in efficient ports like Singapore or Colombo. Many a ship with only part of its load to be delivered to India would rather call at those ports than enter an Indian port. Jawaharlal Nehru Port across the bay from the old port of Mumbai is supposed to be somewhat more efficient than the old one, but it is first and foremost a container port under the management of the Indian railways and is thus not a direct competitor of the old port. Although Jawaharlal Nehru Port is India’s largest container port, it handles only about 10 per cent of the freight handled by Hong Kong, the world’s largest port of this kind. The inefficiency of Indian ports is not only delaying imports, it is also harming the export trade. In the old days of ‘export pessimism’ this was ignored, but now when producers in India wish to export some of their production to achieve economies of scale, they may give up such plans as their goods get stuck in the port….

The story of Sunil Bharti Mittal, who is now the biggest private operator in this field, is a good example of the rise of the new type of Indian telecom entrepreneur. He is not related to the famous steel tycoon Lakshmi Niwas Mittal, and his rather unusual family name Bharti is made up. His father, who belonged to a caste of traders, married a woman of a higher caste. This inter-caste marriage was frowned upon at that time and the couple adopted the name Bharti. Sunil started making cycle parts in Ludhiana. In 1983 when many imports were still banned, he hit upon the idea of manufacturing push-button telephones and then launched his Airtel brand of mobile phones in 1995. From making phones it was only one further step to acquiring two mobile phone licences and one fixed net licence. Subsequently Mittal expanded his operations and now provides his services in all 23 mobile telephone circles of India in which field he has overtaken the public sector firm BSNL. In order to raise the capital for this relentless expansion he linked up with foreign investors. In 2001 the American firm Warburg Pincus acquired about 6 per cent of Bharti Televentures; later the Singapore firm SingTel and the British firm Vodafone also acquired shares in Mittal’s company, but they are all minority shareholders. Meanwhile Sunil Mittal dominates the Indian telecom scene and continues to win prizes both in his personal capacity as an exemplary entrepreneur and for his company as the best in its field. He has also pioneered broadband connectivity in various fields and is always a step ahead in adopting new technologies. Mittal had started from scratch as an innovative entrepreneur. As he has stated, he was inspired by Mahatma Gandhi’s words: ‘First they ignore you, then they laugh at you, then they fight you, and then they lose.’

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by | 20 September 2008 · 12:31 pm

India’s Sweatshop Diamonds

From India: The Rise of an Asian Giant, by Dietmar Rothermund (Yale U. Press, 2008), pp. 96-97:

When India had shielded its economy behind tariff walls, its share in world trade had dwindled into insignificance. As mentioned earlier, ‘export pessimism’ was the prevailing mood at that time. It was not easy to change this mood so only new branches of export production could escape it. Nowadays three new types of commodity account for more than half of India’s total exports. Diamond processing was the first and the most unexpected success story of them all. Of course, India had been known as a source of beautiful diamonds in ancient times, but in modern times South Africa has been the leading producer of raw diamonds and the processing is done in Western Europe in places such as Antwerp. Only a few decades ago Jewish merchants controlled almost the entire diamond trade and Jewish artisans participated in the processing of these precious stones. Suddenly a community of Gujarati merchants from Palanpur cut into this trade and made use of cheap and skilled labour available to them in places such as Surat and other towns of Gujarat as well as on the outskirts of Mumbai.

India has to import the raw diamonds; the contribution of its export industry is the value added by expert processing. A breakthrough was provided to this new industry by the creative use of industrial diamonds. Only about a quarter of all diamonds mined are normally fit for jewellery; the rest are passed on to the makers of machine tools for cutting and grinding. Most industrial diamonds are small. Gujarati entrepreneurs knew how to get these tiny stones processed and adopted novel designs of jewellery which sparkled due to the collective effect of many small stones rather than the individual radiance of larger and very expensive diamonds. This created a new market of middle-class consumers who could not afford expensive jewellery. But the Gujarati entrepreneurs also ventured into the market for very precious stones. They even created new brands such as the Nakshatra diamonds endorsed by the Indian actress Aishwarya Rai, a former Miss World.

The buying of diamonds in places like Antwerp is done by the so-called ‘sightholders’, experts entitled to inspect raw diamonds and select them for their respective companies. Earlier these sightholders were a charmed circle of insiders, but the Gujarati merchants gained access to the circle and now almost dominate it. Eleven of twelve diamonds processed in the world are now processed in India. This, of course, means that the fast growth which this Indian industry registered in recent years is bound to level off. The value of Indian exports of precious stones – mostly processed diamonds – has expanded by leaps and bounds. In 1966 the value of these exports was a mere US$ 25 million; by 2004 it amounted to US$ 14 billion.

India’s greatest advantage is the low wage paid for the rather demanding job of diamond processing. The fixture in which the diamond is held during processing is called a dop. With a semi-automatic dop a worker can polish 800 to 1,000 diamonds per day. The wages of Indian workers in this line are about 10 per cent of those earned by their colleagues in Antwerp. This is why more than 800,000 workers are employed in the various workshops in Surat whereas in Antwerp there are only about 30,000 still active in this field. Surat is just one of the Indian centres of diamond processing, though perhaps the largest. The conditions of the workers are generally quite miserable and children are also recruited for this work. Large profits are reaped only by the entrepreneurs, who have now extended the scope of their work to other Asian countries and even to Russia.

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by | 20 September 2008 · 7:05 am

India’s ‘Fraternal Capital’ and Contractor Networks

From India: The Rise of an Asian Giant, by Dietmar Rothermund (Yale U. Press, 2008), pp. 100-101:

Tiruppur, a town near Coimbatore in Tamil Nadu, has emerged as a major centre of knitwear production and Sharad Chari has made a fascinating study of the mode of production in this town. He has described the emergence of ‘fraternal capital’ as a typical form of cooperation among small-scale entrepreneurs in this field. Most of the owners of the small workshops and even a large number of their employees belong to the Gounder caste of peasants who have made a successful transition to industrial production. The Gounder peasants are used to hard work in intensive agriculture where the landholder and his labourers are working together and this style of operations has been transferred to the shop floor where the owner is always present, usually controlling the stitching table where the cloth is converted into garments. Gounders who want to emphasise the special features of their work often make it appear as a kind of ‘work ethic’. Actually it helps them to justify the control of labour in their small-scale industry. They do not strive for economies of scale as these would be diseconomies under the official rules favouring small-scale enterprises. Accordingly, successful entrepreneurs do not invest their capital in expanding their production, but in setting up ‘fraternal’ enterprises run by other members of the Gounder caste, albeit these people are not necessarily related to them in terms of family ties. Total production has thus grown very quickly and whereas earlier only men worked in this industry, more and more women have been recruited in recent years. Most workers are paid by piece rate or they work under various types of contracts rather than receiving regular wages.

When production for export increased, a new elite of export merchants arose from the ranks of these small entrepreneurs. Smart young men in business suits, wearing sunglasses, can be seen chatting with their relatives on the shop floor who provide them with the material which they market in New York or elsewhere. Many of these exporters are assemblers rather than producers. The links of fraternal capital connect all these people and make it difficult for outsiders to penetrate this business. In this way fraternal capital provides horizontal and vertical linkages which are otherwise only found in big corporations. Decentralized supervision – and exploitation – of labour is an asset in this type of business organization. Contracting in and out enables the small entrepreneurs to respond to changing demand. Such an organization helps to defend the class of entrepreneurs against labour unions, which have a strong tradition in this area.

Another interesting example of the control of labour in this region is the putting-out system practised by a producer of rag carpets in the adjacent Erode District. He uses rags from the hosiery industry and gets carpets woven for the big Swedish firm IKEA. Initially it was traditional weavers who got involved in this business, but soon the putting-out system was extended to villages whose supply of labour was of a very different kind. In a Gounder village affected by water scarcity, the peasants took up carpet weaving in order to survive. In another village inhabited by migrant construction workers, the women who had also participated in this work shifted to carpet weaving, which they could do at home. Tapping labour resources of different kinds for export production is a characteristic feature of the informal sector of India’s economy.

Similar features of decentralized production and exploitation of labour can be observed in the garment industry of Ahmadabad, a city once famous for its large composite textile mills, most of which have long since closed down or are ‘sick‘. But in the 1990s hundreds of small workshops producing ready-made garments sprang up. Their production is supplemented by home-based women who stitch garments for entrepreneurs who operate a putting-out system. These women had been used to stitching petticoats and children’s wear; they own very simple sewing machines. When they were required to stitch more complicated garments for export their skills and their machines often proved insufficient for the new tasks. They usually earn piece rates which amount to about 2 to 5 per cent of the value of the articles they produce. With such low wages they can hardly afford to invest in add-ons to their sewing machine for new lines of production. Nevertheless, they somehow managed to get on with their work. This area of Gujarat is also famous for its embroidery, which has been successfully adapted to the requirements of export production, a line of production in which India is ahead of China.

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by | 23 August 2008 · 2:09 am

India’s Rise: Sick Mills vs. Powermills

From India: The Rise of an Asian Giant, by Dietmar Rothermund (Yale U. Press, 2008), pp. 88-89:

In the years of the Great Depression, the Indian textile industry was partially protected under the regime of imperial preference, Production for the home market expanded, but there was hardly any investment in new machinery. Moreover, India had no textile machine industry of its own. During the Second World War, no machinery could be imported, but the mills worked around the clock under the regime of government procurement. By the end of the war, spindles and looms were worn out and mill-owners would have liked to have invested in new machinery. However, foreign exchange was scarce as India had no immediate access to its reserves accumulated in the Bank of England. At this stage something happened which had terrible consequences for the future of the Indian textile industry. Mahatma Gandhi had compelled the Indian government to abolish the food-grain controls introduced during the war. Prices fell after the controls had been abolished – as Gandhi had predicted. His followers then tried to apply the same rule to cotton texiles, which had also been subjected to controls. The mill-owners warned the government that they would not be able to cope with the rising demand with their decrepit looms. Nevertheless, the controls were abolished and prices rose. Controls were then re-imposed in August 1948. At the same time positive discrimination in favour of the products of handloom weavers was introduced. These weavers were dear to Gandhi as he regarded them as the paragon of the type of cottage industry which he preferred to the mills. The well-meaning protectors of the handloom weavers did not notice that these weavers had to a large extent been replaced by powerloom weavers, whose rise will be described below. The mills were now prevented from modernizing their equipment and expanding their production. They were turned into living fossils. The mill-owners continued production half-heartedly. There seemed no longer to be any future for this industry. Some mills were closed down as early as the 1950s and 1960s. To make matters worse, a prolonged strike of textile labour in Mumbai in the 1980s sounded the death knell for the industry in this metropolis.

It was quite natural that textile labour should be frustrated under these conditions, but resorting to a strike in an industry which was already doomed proved to be counterproductive. The workers turned to Dr Datta Samant, an independent labour leader who had organized a very succesful strike for the workers of the Premier automobile factory in Mumbai. This strike ended with a substantial increase in wages, which were tied to a productivity index. Samant was a medical doctor who knew nothing about economics and thought that his recipe would work in the textile industry just as it had done in the automobile industry. He was a charismatic leader and inspired the workers to continue their strike, which started in 1982, for eighteen months. (His life ended tragically when he was openly gunned down by gangsters in 1997.) The result of the strike which he had led was perverse: the workers shifted to the powerlooms in order to earn a living and the mill-owners procured cloth from these power looms and marketed it. By the time the strike ended the powerlooms had taken over most of the production and the mills were ‘sick’.

The phenomenon of a ‘sick mill’ can only be understood in the Indian context. Elsewhere a sick mill would go bankrupt and close down. In India, however, where there are no unemployment benefits, laid-off workers are politically dangerous and therefore the government will nurse sick mills to keep them alive even if they cease to produce anything. The mill-owners soon learned to make a profit out of being sick. The Reserve Bank of India sanctioned favourable loans for such sick mills. Clever manipulators could siphon off enough money from such loans and use it for other purposes. The production of mill-made cloth declined steeply under such conditions, from about 3.4 to 2 billion metres in the decade of the 1980s. In the same period the production of powerlooms increased from 5 to 11.4 billion metres.

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