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.