The role of small industry in the process of economic growth 9783111416892, 9783111052588

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THE ROLE OF SMALL I N D U S T R Y I N THE PROCESS OF ECONOMIC GROWTH

CONFLUENCE ÉTATS DES RECHERCHES EN S C I E N C E S SOCIALES

COLLECTION PUBLIÉE PAR LE COMITÉ

INTERNATIONAL

POUR

DES SCIENCES

LA

DOCUMENTATION

SOCIALES

VOL. VII

AVEC LA COLLABORATION DU CONSEIL I N T E R N A T I O N A L DES SCIENCES SOCIALES ET AVEC L'APPUI DE L'UNESCO

CONFLUENCE S U R V E Y S OF R E S E A R C H IN THE SOCIAL S C I E N C E S

A S E R I E S E D I T E D BY T H E

INTERNATIONAL

COMMITTEE

FOR SOCIAL

SCIENCES

DOC U MENTA TI ON

VOL. VII

IN CO-OPERATION WITH THE I N T E R N A T I O N A L SOCIAL SCIENCE COUNCIL AND WITH THE SUPPORT OF UNESCO

THE ROLE OF SMALL INDUSTRY IN THE PROCESS OF ECONOMIC GROWTH

JAPAN

INDIA

by MIYOHEI S H I N O H A R A

UNDER

by DOUGLAS FISHER

THE DIRECTION

OF

B E R T F. H O S E L I T Z Director, Research Center in Economic Development and Cultural Change The University of Chicago

MOUTON THE H A G U E • PARIS 1968

©

1968

MOUTON

&

CO

Subvention Unesco 1965, SS/41/53 No part of this book may be reproduced in any form by print, microfilm or any other means without written permission from the publisher PRINTED IN THE NETHERLANDS

Table of Contents / Table des matières

INTRODUCTION Á LA COLLECTION

XI

INTRODUCTION TO THE SERIES

XIII

by Bert F. Hoselitz

xv

PREFACE,

PART ONE. A Survey of the Japanese Literature on Small Industry, by Miyohei Shinohara

1

FOREWORD

3

.

. "

I. HISTORY, MORPHOLOGY, AND GEOGRAPHICAL DISTRIBUTION OF SMALL INDUSTRY

A. Definition of Small-Medium Enterprises and a Historical Perspective B. Household Industry C. The Morphology of Small-Medium Industry D. Historical Trends of Small-Medium Industry in Quantitative Terms E. Comparisons With Other Countries F. Geographical Distribution of Small Industry G. Historical Patterns of Small Industry Growth in Relation to Capitalist Development II. PRODUCTIVE FACTORS IN SMALL INDUSTRY

A. B. C. D. E. F.

Labor Capital Sources of Financing for Small Plants Technology in Small Plants Leadership in Small Plants: Entrepreneurship and Management Markets and the Demand for Products of Small Industry . . .

8

8 11 14 18 22 25 30 34

34 43 51 57 62 65 VII

TABLE DES MATIÈRES III. INTERRELATIONSHIPS AMONG FIRMS AND THE INDUSTRIAL STRUCTURE

69

A. Interrelationships among Small-Scale Plants 69 B. Interrelations between Small-Scale and Large-Scale Plants . . 72 IV. THE ROLE OF GOVERNMENT IN THE SUPERVISION, SUPPORT, AND REGULATION OF SMALL INDUSTRY

78

A. B. C. D.

78 80 81 82

The Changing Emphasis in Government Policy The Fundamental Law of Small-Medium Enterprises Taxation Problems Industrial Estates

RÉSUMÉ FRANÇAIS

84

BIBLIOGRAPHY

91

A. Bibliography written in Japanese 1. Appendix 1 to the Bibliography 2. Appendix 2 to the Bibliography B. English Bibliography authored by Japanese

91 105 106 Ill

PART TWO. A Survey of the Literature on Small-Sized Industrial Undertakings in India, by Douglas Fisher 115 I. GENERAL INTRODUCTION

A. B. C. D.

General Nature of the Study Role of Small-Sized Industrial Enterprises in India Definition Economic Research

II. THE RATIONALE OF SMALL-SCALE INDUSTRIES

A. A Development Model for Small-Scale Industry B. The Rationale of Small-Scale Industries in India i n . PLANNING FOR SMALL INDUSTRIES IN INDIA

A. B. C. D. E. F.

Introduction - The General Structure of the Plan Industrial Estates Finance for Small Industries Industrial Extension Services Small-Scale Industries and the International Economy . . . . Bottlenecks

117

117 119 124 129 133

133 138 149

149 153 158 162 164 167

IV. AREA AND INDUSTRY STUDIES; HANDICRAFTS AND VILLAGE INDUSTRIES 1 6 9

B. Area and Industry Studies A. Introduction C. Village Industries and Handicrafts VIII

169 169 175

TABLE OF CONTENTS APPENDIX A. A BRIEF SURVEY OF THE BRITISH LITERATURE ON THE SMALL SCALE INDUSTRIAL UNIT

179

A Special Study Other British Results

179 185

APPENDIX B. A DISCUSSION OF SOME RESULTS FOR FRANCE, GERMANY AND JAPAN

189

France Germany Japan

189 190 194

RÉSUMÉ FRANÇAIS

196

BIBLIOGRAPHY

204

AUTHOR INDEX

216

IX

Introduction à la collection

La collection Confluence est un élément du programme bibliographique d'ensemble que le Comité International pour la Documentation des Sciences Sociales a entrepris de mettre en œuvre. Ce Comité, créé en 1950 avec l'aide de l'Unesco, est une organisation internationale non gouvernementale, dont les membres sont des spécialistes des diverses sciences sociales et des techniciens en matière de documentation. Ils travaillent en liaison étroite avec le Conseil International des Sciences Sociales et avec les associations internationales spécialisées en ce domaine. En matière bibliographique, la première tâche assumée par le Comité a été l'établissement de bibliographies internationales annuelles, concernant respectivement la Sociologie, la Science économique, la Science politique et l'Anthropologie sociale et culturelle, régulièrement publiées depuis 1951 (actuellement diffusées par Tavistock Publications, Londres). En outre, le Comité établit ou fait établir des bibliographies occasionnelles, des bibliographies analytiques, des répertoires et index, dont la liste peut être envoyée sur demande. En ce même domaine bibliographique, le Comité s'est donné comme deuxième tâche la préparation d'études évaluatives et critiques. Les volumes de la collection Confluence ont ainsi pour objet de faire connaître l'état actuel des recherches sur des sujets donnés. Certains de ses volumes sont consacrés à des problèmes de caractère interdisciplinaire, intéressant à la fois différentes sciences sociales ou justifiant d'approches multiples. D'autres concernent des méthodes utilisées par plusieurs disciplines. La rédaction de chaque volume est confiée à un spécialiste, qui établit le manuscrit sous sa propre responsabilité, mais en se conformant à des règles de présentation valables pour la collection dans son ensemble, notamment en ce qui concerne les références bibliographiques. Un sous-comité de lecture est, XI

INTRODUCTION À LA COLLECTION

dans chaque cas, appelé à se prononcer sur le manuscrit avant son impression. Le Comité International exprime sa reconnaissance aux personnalités qui ont accepté de constituer le sous-comité auquel a été soumis le manuscrit du présent volume : Dr. S. A . Broadbridge, University of Sheffield Dr. M. O. L. Klein, Unesco Research Center on Social and Economic Development in Southern Asia, Delhi Prof. Goran Ohlin, Centre de Développement, OCDE, Paris.

XII

Introduction to the Series

The series Confluence is a part of the overall bibliographical program undertaken by the International Committee for Social Sciences Documentation. The Committee, formed in 1950 with the support of Unesco, is an international non governmental organization, whose members are social scientists and specialists of documentation problems. They work in close co-operation with the International Social Science Council and the various specialized international associations. As far as bibliography is concerned, the first task undertaken by the Committee has been to prepare annual international bibliographies, for Sociology, Economics, Political Science and Social and Cultural Anthropology, which have been issued regularly since 1951 and are presently published by Tavistock Publications, London. Other publications, such as occasional bibliographies, abstracts services, repertories and indexes are prepared by the Committee or under its auspices; their list will be sent upon application. In the same field of bibliography, the second task of the Committee has been to publish critical surveys. The volumes in the series Confluence are intended to assess the situation of current research on special subjects. Most of these subjects are problems of an interdisciplinary nature, of interest to several social sciences or warranting multiple approaches. Other volumes are devoted to one method used in several disciplines. Each volume is written by an individual scholar, under his own responsibility. However, each author follows common instructions as to the standard form of the report and the bibliographical references. An editorial subcommittee reports on each manuscript before it is printed. The International Committee wishes to thank the scholars who accepted membership in the subcommittee for the present volume: Dr. S. A. Broadbridge, University of Sheffield XIII

INTRODUCTION TO THE SERIES

Dr. M. O. L. Klein, Unesco Research Center on Social and Economic Development in Southern Asia, Delhi Prof. Goran Ohlin, Development Centre, OECD, Paris.

XIV

Preface b y BERT F . HOSELITZ

This volume is an account of literature on small-scale industry in present-day Japan and India. Since Japan has collected accurate industrial statistics for about fifty or sixty years whereas India has not, there is fairly comprehensive data on Japan but unfortunately not on India. The Japanese data, especially for the twenty years before the Second World War, and even more especially since then, provides detailed statistics for an excellent study of the role of factories with either less than thirty employees or less than one hundred employees, whichever size one may wish to assume to be the limit of small-scale industry. As will be clearly seen from the various tables on Japanese industry, the small-scale figures can easily be compared with those for large-scale production, especially for the recent period, as to size of plants, total and individual production, earnings, wages, and benefits. For example, in 1960 small-scale firms with less than thirty employees represented 90.1 % of the total number of firms but had only 34.1 % of the total number of workers in Japan in manufacturing and only 20.1 % of the total output. The production of individual workers in the small-scale factories was only 45 % of that of the regular workers in large plants; the smallscale plant wages were 136 yen per hour whereas the hourly rates were 200 and sometimes 300 yen per hour per worker in the large firms. From this is obvious the relatively low contribution of Japanese firms with less than thirty workers to Japanese industry. The interesting question is, 'Why did they exist?' Why, for example, did firms which paid less wages to employees who worked longer than average horn's (a sixty-hour work week in small plants was still not at all exceptional in Japan) continue as manufacturing industries? While it is true that the number of the smallest ones had decreased over a period of time, over 50 % of the establishments had only xv

PREFACE

one to three employees, the balance having four employees or more. What was the nature of firms with one to three employees? 'A Survey of the Japanese Literature on Small Industry' by Miyohei Shinohara attempts to answer these and other questions and is the first study in the book. Although firms employing only one to three people are very interesting, the survey deals in greater detail with other small firms. The author's intention is to give as accurate and complete a picture as possible of the firms with one hundred or less employees, and the numerical data showingfiguresfor even larger enterprises has been included for comparisons which reveal the advantages of large enterprises over small ones. The author supplies many details about small Japanese firms and describes accurately the impact of these firms on the national system. In the other study in the book, 'A Survey of the Literature on SmallSized Industrial Undertakings in India,' the role of 'small industrial units' in the development process has been, in recent years, a matter of special concern to a large number of politicians and social scientists. In the vast, diverse, and often perplexing literature produced by those interested parties, the problems treated have touched on almost every imaginable facet of what might be termed the 'small industry' problem. The charge is raised not only that the development part of this literature is a poor one, especially when the problems are related to the discipline of economics, but also that most of the studies are not broadly enough based, in an interdisciplinary sense, to enable firm conclusions to be reached. Most emphatically, the central argument is that this economic 'sub-literature,' in avoiding the scrutiny of economists, has developed 'sub-standards' of its own. The approach here is to present some of the theorems of this decidedly one-sided literature, to offer effective counter-arguments within the context of the original theorems, and to offer some stronger theorems, both in support of and in opposition to the policy of 'promoting' small-scale units. While one can find reference to almost every retarded economic system somewhere, the particular combination of a large literature and an enthusiastic public policy directed toward small units makes India a natural source of reference; accordingly, most of the substantive references will be to the Indian experience. Aside from the sheer weight of numbers, the importance of this controversy can be documented with reference to its prominence in recent national development plans; in fact, in some of these documents, small units have even been identified as a 'sector' and have, accordingly, received special attention. It is the central contention that the meager data will not, in effect, xvi

PREFACE

bear the weight of the hypotheses that have been advanced, mostly in favor of an aggressive policy fostering small units, and that much less is both known, and likely to be true, about small units than is commonly suspected. Further, it is demonstrable, for example, by observing the obvious truth that most economic plans have political objectives as well, that one cannot approach the subject from a purely 'economical' viewpoint; accordingly, even though primary attention will be directed, as a matter of necessity, toward the creators of the professional literature, some of the interesting non-economic possibilities will be discussed. There will also be some direct reference to the 'economic' plans themselves. It is impossible to determine the number of enterprises with less than ten employees or find general data regarding them as to type of industry, the number of workers employed, or the production of each worker. The available data does show that some such enterprises are very profitable and others very unprofitable and gives reasons for this in a few cases but there is no general analysis of earnings and losses. In India there is fairly complete information on all firms of large size. Data on small firms for the last ten years is limited to particular cities, to certain aspects of the industry in that city, and generally to a crude comparison of profitabilities. Any attempt to analyze Indian small-scale industry today requires guesswork but in another generation, when most likely there will be better statistics available, it may be possible to make a more accurate report. Fortunately, Mr. Fisher's choices of firms on which to base his statistics are well-selected samples. But it must be admitted that some one else studying the same industries might base his expectations on different samples and come to a quite different conclusion. The 136 works on Indian small-scale industry listed in the bibliography include principally the publications in the field which are considered most dependable. It is, of course, difficult to say to what extent they are dependable because some of the material is of necessity based on assumptions. Mr. Fisher's deductions are also based on assumptions but are preferable because they are far more comprehensive. There is a small appendix on the British, French, and German literature on small-scale industries. This literature shows how difficult it is even in these countries to come to conclusions relating to smallscale industries. In India the identical problem is of course many times magnified. It should be understood that what is presented in the two essays is a comparison of the manner in which the small-scale industry functions by XVII

PREFACE

itself with its own problems and that there is practically no reference to the position of small-scale industry and its relationship to the major firms in the country. In other words, the two essays are completely independent treatments of small-scale industry and not research into the position in the economy that they play in these countries. Both sections of the book have extensive bibliographies. The first includes publications in Japanese and English. Two additional valuable references to the first portion of the book are Seymour Albert Broadbridge, Industrial Dualism in Japan, London, Cass, 1966, 195 p., and James C. Abegglen, The Japanese Factory, Glencoe, 111., Free Press, 1958, 142 p. The second consists of English publications and is divided into classifications of the various fields of small-scale industry studies. The literature is cited often in the text and comprises original and excellent sources. This book was made possible by grants from the International Committee for Social Sciences Documentation in Paris and the Research Center in Economic Development and Cultural Change of the University of Chicago

XVIII

Part one

A SURVEY OF THE JAPANESE LITERATURE ON SMALL INDUSTRY by MIYOHEI S H I N O H A R A

The work of putting this paper into English was supported by the Ford Foundation as part of a project promoting translation of Japanese economic studies. This survey and selected bibliography was originally written as one of the Small Industry Projects guided by Professor Bert F. Hoselitz and sponsored by the International Committee for Social Sciences Documentation. The contents of this survey are essentially within the framework set up by Professor Hoselitz, with some amendments.

Foreword

There is a specific group of Japanese economists devoting themselves almost exclusively to the study of small-medium enterprises, thereby reflecting the abundance of these enterprises in Japan and the importance of their problems. In addition, each year a tremendous quantity of new articles and books is published so that even the economists devoted to this special field cannot find time to cover all the material. In such a situation, there is an urgent need either to compile a bibliography of the most important works in book form, or to produce new books which will summarize the major results achieved to the present. Fortunately, the economists in the field of small-medium enterprises started out as a small and congenial circle, often holding conferences or meetings. They were certainly among the most productive academic groups in Japan, and over a long period of time their joint studies, have been published in volumes. Chushd-kigyo Kenkyu Nijugonen (Twenty-five Years in the Studies of Small-Medium Enterprises), edited by Tokutaro Yamanaka, (182) represents the fruits of this long standing collaboration. This is a record of the long activities of Sangyo-kozo Chushd-kigyo Kenkyu Iinkai (The Committee of Studies on the Industrial Structure and Small-Medium Enterprises) of the Nihon Gakujutsu Shinkokai (The Japan Science Council). In addition to the above we cannot ignore the various series and collections of articles mostly published by the Yuhikaku (e.g., 13,14,31,33,34,143,144, 153, 173, 174, 175, 176, 178, etc.), as well as the monumental series of nine volumes containing small-medium enterprise studies published by the Japan Small Business Institute (5). To my mind, these two major collections, plus the following separate studies, represent the main stream of work on Japan's small-medium enterprises. In one of these, Tokutaro Yamanaka has tried to attack the small-medium enterprise problem both from the point of view of 3

A SURVEY OF THE JAPANESE LITERATURE

the national economy as a whole and from the point of view of the historian and has thus provided an important orientation for the study of the development of small industry in Japan (e.g., 177). Similarly, Takuji Komiyama, Keizo Fujita, Yoshio Kobayashi, and others have taken part in a controversy over the historical evolution of the form of small-medium industry, i.e., its development from the putting-out system, through the subcontracting system, and up to the so-called 'Kigyo-keiretsu' ('vertical interfirm hierarchy') (e.g., 13, 66, 75). There are also many economists who are at present interested in empirical or case studies of the 'Kigyo-keiretsu' in various industries (22, 26,27, 36, 62, 65, 66, 76, 77, 88, 99,154,168, etc.). Genroku Suematsu has worked mainly in the field of small-medium enterprise management studies, particularly emphasizing 'optimum size' considerations (135, 136). Kisou Tasugi and Ichiro Ótsuka have taken a similar approach(l 17,152). There are many who have opposed their views (e.g., 38,40, 53-H, 97). The most elaborate and systematic quantitative studies of small-medium enterprises have been made by Kikutaró Takizawa, utilizing the Census of Manufactures, the Comprehensive Basic Survey of Small-Medium Enterprises, etc., together with his detailed comparisons with the United States (145-151). Many other economists have undertaken case studies, and, particularly, the activities of the Osaka Prefecture Institute of Commerce and Industry should be noted here. The Small Business Research Institute, which has completed the nine volume study, 'Studies of Small-Medium Enterprises' was a temporary agency especially established within the 'Tókei Kenkyükai' (Statistical Research Institute) for accomplishing this particular work. It will contribute to an integrated understanding of Japanese small industry studies, which so far continue to appear in a chaotic manner. While I have no specific comments in view of the active studies being made on small-medium enterprises and the systematic publication of important articles, a few very general observations might be made. 1. Although there are many 'small-medium enterprise economists' in Japan, this is not necessarily beneficial. Since the small-medium enterprise problem is not purely business-economic, but has sociological, historical, and political aspects as well, I feel that what is needed is an economist of broad background who will synthesize all the achievements and present a systematic study, which takes in consideration the analyses made by the other relevant sciences. Even the series of volumes by the Small Business Research Institute has not filled this need in a satisfactory way. 4

FOREWORD

2. A division of labor exists between most small-medium enterprise economists and the economic historians, in that the latter engage primarily in the analysis of pre- and early-Meiji period, and the former of the late Taisho period and there, after. The so-called 'Manufacture' controversy took place mainly among economic historians, and only a minority of the small-medium enterprise economists (e.g., Taikichi Ito and Shinzo Ushio) were interested. 3. Furthermore, there is some separation from labor economists (e.g., Okouchi, Ujihara, Sumiya), as well as from the modern economists. The latter have presented in relatively recent times a quantitative analysis of the dual economy based on studies of capital concentration in large enterprises (e.g., Kenichi Miyazawa and the writer) (94, 129, 130); this was immediately absorbed in the analysis of Kikutaro Takizawa (150, 178). In general, mutual cooperation and use of studies is still insufficient; the removal of these barriers is necessary if we are to realize Tokutaro Yamanaka's desire, the 'comprehensive' rather than 'truncated' approach. 4. There are many case studies on the development of local industries; however, a wide-range analysis or regional economic development still does not exist. Tokutaro Yamanaka and others have presented a detailed analysis of the relation of local industries to the regional structure in one or a few years of the pre-war period (173), but there has been no over-all view of what occurred, from before the war to the present, in the regional economic structure relative to small industries.

With respect to such problems as management, financing, and economic policy, we have an abundance of articles, although it is somewhat difficult to determine which of these are important. However, as far as the mainstream of small-medium enterprise studies are concerned, we can see some systematization emerging from the present uncontrolled flood of articles. The small-medium enterprise economists, particularly those with Marxist leanings, tend to hold the view that the unique character of the Japanese small-medium enterprise problem (or the dual economy) will not easily disappear, even in the next ten to fifteen years (55-11, Chap. 1,55-IV, p. 301 ff.). However during the rapid economic growth which Japan has experienced for some years now, the wage differentials by size of establishment has begun to narrow. It is interesting to speculate on the process by which the peculiarities of the small industry situation will be transformed in the coming years, as Japan catches up with the more advanced countries. As important review articles on small-medium industry studies, I may point out the following two: 5

A SURVEY OF THE JAPANESE LITERATURE

1. Ito Ojiro, Kitahara and Sato's 'Nihon Chiishokigyo-mondaishi (History of Small-Medium Enterprise Problems in Japan), in Keio University, Economics Association, ed., Nihon ni okeru Keizaigaku no Hyakunen (One Hundred Years of Economics in Japan) Vol. 2,1959. 2. T. Ojiro's paper, 'History of the Theories of Small-Medium Enterprises in Japan' (in Japanese) included in Kajinishi, Iwao, Kobayashi and Ito eds. Koza. Chusho-kigyo (Courses: Small-Medium Enterprises) Vol. 1. In Japanese, there are five bibliographies on small-medium enterprises: 1.

2.

3.

4.

5.

Shuzo 'Hompo Chusho-kogyo Mondai Bunken' (Literature on the Small-Medium Industry Problem in Japan). Shakai Seisaku Jiho (The Social Policy Review) 175, April 1935:572-581. 'Saikin no Chusho Sangyo Kankei Bunken Mokuroku' (Recent Bibliography on Small-Medium Industry and Trade) for August 1945-October 1949, included as an Appendix to Yamanaka, Tokutaro, ed. Chusho-kogyo to Keizai Hendo (Small-Medium Industry and Economic Fluctuations). Tokyo, Kunimotoshobo, 1951:304-326. 'Chusho-kigyo ni kansuru Bunken Mokuroku' (Bibliography on the SmallMedium Industry), included as an Appendix to Fujita, Keizo and Ito, Taikichi, ed., Chusho-kogyo no Honshitsu (Essential Nature of Small-Medium Industry), Tokyo, Yuhikaku, 1954, pp. 1-50 from the last page. This covers the period from March 1940 to March 1957. 'Sengo Chusho-kigyo Kankei Bunken Mokuroku' (Postwar Bibliography on Small-Medium Enterprises) Toshimondai (City Problems) 48 (3), March 1957: 124-150. 'Chusho-kigyo Kankei Zasshi Kiji Mokuroku' (Bibliography on the SmallMedium Enterprise Journals), attached to Seikei Gesshi (Monthly Bulletin of Political Economy) published by the Seiji Keizai Kenkyusho (Institute of Political Economy).

INABA,

However, the bibliography presented here is selected from a tremendous amount of books and articles with the specific purpose of extending my own survey on small industry in Japan. Since I have constructed a selected bibliography, there may be a danger that some important books and articles have been omitted. However, I am responsible for any defects contained in this bibliography. This survey and bibliography mostly covers materials before the end of 1963. However, since this survey and bibliography were completed, several important books and articles have been published. Of these the writer would like to mention the following: 6

FOREWORD

Hideichiro. Chuken-kigyo-ron (Studies of the Medium Core Enterprises). Tokyo, Oriental Economist, July 1964. TAKIZAWA, Kifcutaro. Nihon-kogyo no Kozo-bunseki (Structural Analysis of the Japanese Manufacturing Industry). Tokyo, Shinjusha, June 1965. FUJITA, Keizo. Nihon Sangyd-kozo to Chusho-kigyo (Japanese Industrial Structure and Small-Medium Enterprises). Tokyo, Iwanami, January 1965. SAKAI, Yasutaka. Kigyd-keiretsu to Sangyd-kozo (The interfirm Vertical Hierarchy and Industrial Structure). Tokyo, Nihon Hyoronsha, January 1965. CHUSHO-KIGYO CHOSAKAI (Japan Small Business Research Institute). Chushdkigyd Kenkyu, (Studies of Small-Medium Enterprises), Vol. X, Chushd-kigyd no Hattatsu III (Development of Small-Medium Enterprises). Tokyo, Oriental Economist, January 1965. SMALL-MEDIUM ENTERPRISES AGENCY, ed. Chusho-kigyo Hakusho (White Paper on Small-Medium Enterprises). Tokyo, Printing Office of the Ministry of Finance, every year since March 1964. IZUMI, Mitsuyoshi. Chusho-kigyo Koso Hendo no Bunseki (Analyses of the Structural Change of Small-Medium Enterprises). Tokyo, Chuo-Keizai-sha, November 1965. KATO, Seiichi. Chusho-kigyo no Kokusai-hikaku (International Comparison of Small-Medium Enterprises). Tokyo, Oriental Economist, March 1967. TAKEBAYASHI, Shotaro, ed. Chusho-kigyo no Kenkyu (Studies of Small-Medium Enterprises). Tokyo, Mineruba-shobo, February 1968. SUEMATSU, Genroku; TAKIZAWA, Kikutaro, eds. Tekisei-kibo to Chusho-kigyo (Optimum Size and the Small-Medium Enterprises). Tokyo, Yuhikaku, October 1967. [This includes a small bibliography of books and articles written in Japanese and foreign languages on the problem of optimum size.] KOBAYASHI, Yasuo; MATSUMOTO, Tatsuro; M I Z U N O , Takeshi, eds. Chushokigyo no Kozo-Mondai (Employment Problems on Small-Medium Enterprises). Tokyo, Yuhikaku, 1967. ARITA, Tatsuo. Chusho-kigyo Bunseki (Analyses of Small-Medium Enterprises). Tokyo, Nihonhyoron-Shinsha, March 1968. WATANABE, Tsunehiko. "Economic Aspects of Dualism in the Industrial Development of Japan", Economic Development and Cultural Change 13 (3), April 1 9 6 5 : 2 9 3 - 3 1 2 . WATANABE, Tsunehiko. "Kogyoka, Gijutsushinpo, Nijukozo" (Industrialization, Technological Progress and Dual Structure), in: SHINOHARA, Miyohei; FUJINO, Shozaburo, eds. Nihon no Keizai Seisho (Economic Growth of Japan). Tokyo, Nihon-Keizai Shinbunsha, April 1967. OHARA SHAKAI MONDAI KENKYUSHO (Ohara Institute of Social Problems), Chusho-kihyo no Chingin to Rddd-shyo (Wages and Labor Market of SmallMedium Enterprises). Tokyo, Rodojumpo-sha, December 1966.

1. NAKAMURA,

2. 3.

4. 5.

6.

7.

8. 9. 10.

11.

12. 13.

14.

15.

7

I. History, Morphology, and Geographical Distribution of Small Industry

A. DEFINITION OF SMALL-MEDIUM ENTERPRISES AND A HISTORICAL PERSPECTIVE

With respect to the definition of the terms 'small industry' (in Japan the term 'small-medium enterprises' is predominantly used), 'handicraft' or 'artisan shops', and 'household industry,' no definite agreement has existed among Japanese economists, since the definition itself is used only relative to the objectives and the industries the analysts have in mind. In Japan, particularly, where its proportion is especially high, small industry itself is composed of various types of firms. Nevertheless, 'small-medium enterprises' is most commonly used as an aggregate expression, although Ichiro Otsuka used the term 'small industry' even in 1939 and emphasized its 'individual' character as an essential feature (117). However, this is an exception. Therefore it would be of interest, first, to see what definitions have been used for small-medium enterprises in Japan. Before World War II, the upper limit for small-medium factories was 100 employees. For example, H. Arizawa, in his book, Nihon-kogyd Toseiron (On the Controls of Japanese Industry), 1937 (2), classifies manufacturing factories into (a) small factories (5 to 30 manual workers), (b) medium factories (30 to 100 manual workers), (c) large factories (100 to 200 manual workers) and (d) larger factories (over 200 manual workers). In other words, small-medium factories were classified as those with less than 100 workers. However, in the postwar period, the demarcation line has moved from 100 to 300 employees (including salaried workers), with another criterion, 'capital less than 10 million yen,' used alternatively or simultaneously. For example, from August 1951 to April 1958, various laws or regulation concerning small-medium enterprises have been enacted (or revised), but among these 15 acts or regulations, 11 define these industries as having less 8

HISTORY, MORPHOLOGY, AND GEOGRAPHICAL DISTRIBUTION

than 300 employees, and all define them as having less than 10 million yen in capital. However, in the retail and wholesale trades, as well as the service industries, the criteria of 'less than 30 employees' prevails (e.g., 5-H, 8, 112). Although the term 'small-medium enterprises' without any breakdown into subgroups has been used in Japan since around 1910 it was not a practice before 1910 (in other words, in the Meiji period) to use this phrase, but rather 'small industry' and 'indigenous industry.' For instance, Masana Maeda (an official of the Ministry of Agriculture and Commerce) opined in 1892 that there were then two kinds of industries, i.e., 'indigenous' and 'mechanized'. A 'mechanized industry' was mainly one implanted from abroad since the Meiji Restoration, and an 'indigenous industry' consisted of traditional manufacturing enterprises connected with the agricultural sector and producing, for example, products such as cotton, tobacco, rape-seed, tea, silk, woven goods, and pottery. Maeda insisted that a large part of these products could be valuable as exports and in order to cope with imported commodities, it was much more important to promote the indigenous industries and their exports rather than to endeavor to implant mechanized industries (80). As Maeda's indigenous industries consisted of small enterprises as well as household industries, this seemed to leave no room for medium enterprises. In 1917, a publication of the Japan Social Policy Association appeared, Small Industry Problems, in which the views of the late Dr. Teijiro Ueda were included (126). He insisted that the disadvantages of the sweating system should be wiped out, but raised doubts with respect to unrestricted aid to small industry. It was his opinion that, on the one hand, small industry should be replaced by large industry, if the former had none of the prerequisites for survival, but, on the other hand, small industry should be left untouched by the government if it had survival potential. He also argued the benefits of the new middle class against those who spoke of the decline of small industry and the danger of the middle class. Though he expressed a fairly unbiased viewpoint, the level of his study of the small industry question was still immature and did not properly reflect the true nature of the Japanese economy. In the period from the end of the Meiji period to the Great Depression of the 1930's, the concept of the 'small-medium enterprises' made its appearance in addition to the already existing notion of 'small enterprises'. This occurred partly because some of the indigenous small enterprises, as well as some of the implanted ones, underwent a fairly widespread motorization and mecha9

A SURVEY OF THE JAPANESE LITERATURE

nization at the end of the Meiji period. The position of household industries was reduced, and that of medium factories with power looms increased; for instance, from 1905 to 1912, the number of weaving factories (with employees of more than 10) in Aichi Prefecture increased 2.3 times, while that of household industries (with employees of less than 10) decreased by 10 percent. In Fukui Prefecture, the number of weaving factories increased 1.45 times during the same period, while that of household industries decreased by 47 percent. From 1905 to 1914, the number of hand looms used in factories in Fukui Prefecture showed a drastic decline from 7,742 to 1,691, but the number of power looms used in factories increased from zero to 7,057. In household industries, hand looms decreased from about 10,000 to about 1,000 and with power looms increased from zero to 1,249 (13 p. 11 ff., 75 p. 12 ff.). Thus, up to the 1910's not only did small industry undergo technical progress, but also some firms advanced into the classification of medium industry. In other words, rather than the sharp division between indigenous small or household industry, on the one hand, and large implanted industry, on the other, the small industry sphere now included medium enterprises. This is one reason why the term 'small-medium factories' came to be used; however, there is another and a more important reason. After World War I, the Japanese economy entered a long recession period lasting until the Great Depression, and a new problem phrased as 'the exploitation of sub-contracting small-medium factories by monopolistic big corporations,' emerged. The big corporations shifted the deleterious effects of the depression to the subordinated small-medium firms, in the form of reduced payments for sub-contracting. Since not only the small factories but also the medium factories suffered at the hands of big corporations, both were under the influence of a common factor. Thus, the so-called 'small-medium industry problem' was regarded as a serious one; as a consequence it was asserted that medium factories and small and household industries should have been dealt with in an integral way, rather than separately. Moreover, the small-medium industry problem was not a temporary one; it persisted during the war and into the postwar period. Since the small-medium factories confront the big corporations, as a group, the consideration of small factories alone is inadequate from the point of view of their position as a significant link in the whole economic structure. Thus, Tokutaro Yamanaka once stressed the importance of understanding the small-medium enterprise problem, not in a 'truncated way,' but in a 10

HISTORY, MORPHOLOGY, AND GEOGRAPHICAL DISTRIBUTION

'comprehensive way' (14 pp. 1-26). His suggestion is, of course, noteworthy, but at the same time it is also important to recognize that the change in the composition of small-medium enterprises, including household industries, should be kept in mind.

B. HOUSEHOLD INDUSTRY

Household industry* has often been considered as something different from small-medium industry. Recently in Japan, it was very often referred to in terms of 'Reisai-kigyo' (petty business). It is defined in some cases as having less than 10 employees, and in other cases as having less than 20 or 30 employees. Teruhiko Iwatake, the former director of the Small-Medium Enterprises Agency, mentioned the attributes of petty business as follows (46): (a) strong characteristics of an individual enterprise, (b) pre-modern labor-management relationships, (c) inferior labor conditions, (d) subordination in some measure to big enterprise, (e) old-fashioned equipment and techniques, ( f ) pre-modern management of business, (g) inseparability of household and business, and (h) a high dependence on family labor. The first six attributes are also common to the small factory industry, but the last two are purely of a 'petty business' nature. Concerning the definition of 'petty business,' Kikutard Takizawa summarizes various views. Iwatake's view, already mentioned is referred to first, and then the views of Kinji Nakamura, the Kokumin keizai Kenkyu Kyokai (Association for Research of the National Economy), Taikichi Ito, Saburo Maeda, Tokutaro Yamanaka, and Joseph D. Phillips are considered (14, 39, 93, 148). Maeda explains why 'petty business' has recently become a subject of serious consideration, that is, as the definition of small-medium enterprises is enlarged, policy tends to be oriented toward the upper level of medium enterprises, with the result that 'petty business' has been relatively neglected so far (paraphrased from 148). Yamanaka and Takizawa state that, even if the concept 'petty business' or something like it deserves more attention, it should be taken up, either as an important part of small-medium enterprises as a whole, or in an organic way from the viewpoint of the national economy as a whole, not independently (14 p. 30, 148). Yamanaka further stresses the factor of 'the lack, or incompleteness, of economic calculation' in 'petty * In this case, we use this term in the same sense as 'home industry,' 'industrial home work', 'handicrafts', and 'little or petty business'. W e include 'artisan shops' here also.

11

A SURVEY OF THE JAPANESE LITERATURE

business'. He assumes that the potential for development of an enterprise would depend internally upon the rationality of their economic calculation and externally upon the capability of acquiring additional capital. However, medium and small enterprises in general lack those prerequisites or have them in insufficient amounts, so their various economic problems stem from those difficulties. Particularly in 'petty business' or household industry, these characteristics are very much in evidence (180). From this point of view, an extensive survey conducted by the Ministry of International Trade and Industry, Chushokigyo Sogo Kihon Chosa (Comprehensive Basic Survey of Small-Medium Enterprises) gives us important information on the proportion of family workers; corporate or unincorporated forms; separation or non-separation of household and business; and the proportion offirmswith (double entry) bookkeeping, with (bank) borrowing, with welfare facilities, These are analyzed by several economists (e.g., 5-II, 46, 53-IV pp. 251 if., 97,112,151,181). The definition of 'petty business' merely according to the number of employees is too mechanical, and other definitions should also be taken into consideration. Tatsuro Matsumoto in a survey conducted in November 1959 by the Ministry of Labor (53-IV pp. 251flf.)defined a home worker as one who earns payments 'by engaging in the manufacture or proceessing of brought-in materials in his home or in a place of his selection by himself or with his relatives'. In a sense, home workers are de facto laborers, but, since the evolution or development of home work brings about small producers or small 'capital' as well as wage earners, some writers stress the necessity of considering them from the point of view of 'small capital', as well as from that of labor aspects (as in the Home Work Act) (53-IV pp. 256, 175, cf. 84). In the survey, home work is broken down into three groups: 1) home work as a principal occupation, 2) subsidiary home work by household heads, and 3) subsidiary home work by family members. The first group is further divided into two categories: one is the work of the artisan with traditional techniques not fitted to factory production, such as pottery, lacquerware, and woven goods of a high class, and the other is the work of a group forced to engage in it, such as aged persons, the disabled, and widows. The Ministry of Labor mentions the following as examples of traditional products: birchware (Akita Prefecture), lacquerware (Fukushima Prefecture), spectacle frames (Fukui Prefecture), lacquered clogs (Shizuoka Prefecture), Nishijin kimono cloth in standard length, folding fans, dyeing with uncolored spots (Kyoto Prefecture), furnishings (Wakayama Prefecture), files (Hiroshima

12

HISTORY, MORPHOLOGY, AND GEOGRAPHICAL DISTRIBUTION

Prefecture), Hachioji silk and rayon fabrics, pouches, fountain pens, and ever-sharp pencils (Tokyo Prefecture). Excluding some in Tokyo, most of these are produced by artisans. As for the second category in the principal occupation group, the Ministry of Labor mentions the following examples: akebia ware, wicker trunks (Nagano Prefecture), waste and old fibre yarn (Aichi Prefecture), folding fans (Shiga Prefecture), Banshu abacus, vermicelli, willow baskets (Hyogo Prefecture), socks (Nara Prefecture), and hair pencils (Hiroshima Prefecture). However, T. Matsumoto recognizes common characteristics in all of these categories of home work; these are the instability of work, the low level of payments due to the lack of organization, and the existence of excessive profit margins for the middleman. Fewer studies are concerned with household industries. However, there is a survey done by an economist, SusumuTakamiya, on the state of the roofing clay tile industry in Saitama Prefecture in 1952. He assumes this to be a typical example of an household industry; while this analysis was a broad one, it can be summarized as follows. With reference to the scale and the traits of the various factories, four points are enumerated: 1. A primitive so-called 'Daruma Kiln' is used, and most factories are equipped with only one or two kilns. In Saitama Prefecture, among 279 such enterprises, those equipped with one kiln total 39.4 per cent and those with two kilns 37.7 per cent. The number of enterprises with less than 4 employees is 42 per cent of the total and those with less than 10 employees 89 per cent. Moreover, almost all of these units are individual enterprises. 2. Individual enterprises play a dominant role, and family workers amount to onethird of the total employees. In 92 per cent of the enterprises, business and household are inseparable. 3. Among sample enterprises, excluding 28 corporate ones and 26 unexplained, 70 percent are small side-work fanners with averagefieldsof around 3 tan (1 tan = 0.245 acre). 4. The production of roofing clay tiles increased by about four times in this district between 1897 and 1952, but this was merely an increase in numbers; there was very little technological development; in fact, the number of kilns per unit of enterprise in 1897 was about 1.2, while in 1951 it was only about 1.5. Furthermore, about 35 per cent of the present enterprises began their business during the Meiji period. This indicates the traditional or indigenous character of the industry. In addition, Takamiya analyzes the cost structure, rate of profit and optimum size, on the one hand, and the regionality of the market, on the other. In this 13

A SURVEY OF THE JAPANESE LITERATURE

case, there was no development of the putting-out system, and, as there were no sales intermediaries, the market was extremely local. About 51 per cent of the output was sold within Saitama Prefecture, while 28 per cent was marketed in Tokyo, which adjoins Saitama. About 64 per cent of all sales were in cash. Each enterprise attempted to use its own funds, but when necessary depended upon financial institutions ( 2 4 % ) , relatives ( 4 0 % ) , sales intermediaries ( 1 8 % ) , credit sales etc., ( 1 8 % ) ( 1 3 . p. 217FF.). Several case studies were published in 'Chusho-kogyo to RodomondaV (Small-Medium Industry and Labor Problems), edited by Tokutaro Yamanaka ( 1 7 6 ) , including the following: 1. Genroku SUEMATSU. 'Goals and Practice of Rationalization, Socialization, andDemocratizationinHomeWork'; 'A Case of the ChinaWare Industry'. 2 . Keizo FUJITA. 'Seigniorial Special Labor'; 'Peculiarities of Small Industry Labor Force in the Senhoku area of Osaka Prefecture.' 3. Yasuo KOBAYASHI. 'Women Labor in the Petty Weaving Industry and Its Social Legislation Conditions'; 'Hachioji Silk Fabric Industry and the Labor Standard Law.' 4. Shigeru FUJII. 'A Pattern of Household-Supplementing Type Labor in Agriculture on the Banshu Kori-dofu Industry.' 5. Kisou TASUGI. 'Traditional Handicraft and Its Problems'; 'An Analysis of Labor in the Kyoto China Ware Industry.' 6. Tokutaro YAMANAKA. 'Significance and Limitations of the Labor Standard Law for Home Work'; 'Nishijin Weaving Labor and Social Legislation.'

c . THE MORPHOLOGY OF SMALL-MEDIUM INDUSTRY

Among the explanations offered for why the proportion of the small-medium industry in Japan is so conspicuously high, H. Arizawa's view, expressed in his Nihon-kôgyô Tôsei-ron (On the Controls of Japanese Industry), is often referred to. He ascribed the high ratio of small-medium enterprises to the existence of abundant cheap labor and insisted that the causal relationship should not be viewed in the reverse direction. The so-called 'small-medium industry problem' is, therefore, a population problem involving labor and social difficulties, rather than a problem of the industrial sector, in his view (2). The prevalent feeling among 'small-medium industry' economists is in opposition to this, and argues that Arizawa's approach restricts the 'small14

HISTORY, MORPHOLOGY, AND GEOGRAPHICAL DISTRIBUTION

medium industry problem' to a labor problem, or merely to a 'small industry problem,' and neglects the historical peculiarities of the Japanese industrial structure. Here the writings of Takuji Komiyama and Keizo Fujita have attracted special attention (13, 14, 75). Komiyama attempted to break down the types of industrial enterprises which had not yet been established as big industries, by taking into consideration the peculiarities of Japan's industrial development, which may have been different from the classical process of the evolution of'industrial capital' in the United Kingdom as follows: A. Independent types B. Subordinate types 1. Putting-out system (which is controlled by wholesale merchants or 'merchant capital'). a. Old putting-out household industry (production by subcontractors not under the factor system). b. New putting-out factory system (production by sub-contractors performed under the factory system). 2. Subcontracting industry (subcontractors controlled by big industrial corporations or capitalists). On the one hand, Bla is further composed of (1) the peasant industry in the weaving districts like Chichibu, Isezaki, Kiryu and Ashikaga); (2) the artisan industry (as in Nishijin); and (3) subsidiary home work (as in clog thongs manufacture, book-binding, embroidery, patching of matchboxes, and celluloid toys). On the other hand, Bib, the new putting-out factory system, presumes the existence of subcontractors who use machines and motors instead of handwork and the simple cooperation of labor and depend upon regular employed workers rather than family workers. The supervisors are not simply direct workers in this case, for they act as employers or managers. Big business operates as an internal leader of the main production process of the subcontracting industry; consequently the firms are interconnected very closely, for they share the production process technologically. However, in the case of the putting-out system, the control of the subcontractors comes from outside, thus bringing about a pre-capitalistic type of exploitation, according to Komiyama. Therefore, subcontracting is considered to be more developed than the putting-out system. Various dissenting works about this problem have taken Komiyama's formulation as a starting point (15, 16, 66, 71,152,170). Fumio Yamada, for instance, denied Komiyama's assertion to the effect 15

A SURVEY OF THE JAPANESE LITERATURE

that the main difference between the putting-out system and the subcontracting system depends upon the nature of the dominators, i.e., 'merchant capital' or 'industrial capital'. Instead, he classified small-medium industry into, (a) home work, (b) household industry, and (c) subcontracting according to the peculiarities of their production processes (170). K. Fujita, who is often referred to as being critical of Komiyama feels as follows (13): in view of the peculiarities of 'industrial capital' in Japan, the fact that industrial corporations dominate subcontractors, as if they were 'merchant capital', has been historically invariable, whether they are heavy industry or light industry. This is true not only of temporary subcontractors, but also of permanent subcontractors in general. In other words, 'industrial capital' in Japan has aimed, in the stage of monopoly capitalism, at evading the freezing of capital and business risk by taking advantage of the cheap labor of small-medium enterprises through subcontracting. Thus, the domination by industrial corporations of subcontractors through their purchasing departments is still similar to the domination of 'merchant capital'. Therefore, Fujita's formulation is that the most primitive form of domination by 'merchant capital' is the putting-out household industry, which later advances to the higher stage of putting-out 'manufacturer;' but that in a much higher stage, domination by 'merchant capital' will show up in the form of purchasing departments of industrial corporations, as well as wholesale dealers, controlling the subcontracting mechanized enterprises. Consequently, he holds the view that not only the 'subcontracting industry', as defined by Komiyama but also what Komiyama calls the 'new putting-out factory system' should be treated as the 'sub-contracting industry', because there does not exist any essential difference between the purchasing departments of big industrial corporations and the wholesaler capitalists, in that both are 'merchant capital'. Since Fujita seems to have emphasized too strongly the 'merchantcapitalistic' domination, several economists have complained that his views are too inflexible. It is claimed that he neglects important alterations in the types of subordination of medium and small industries, particularly the transition from a pre-capitalistic and commercial character to a capitalistic and industrial character (38, 53-1, 66). A new controversy between K. Fujita and Yoshio Kobayashi rose after the war, succeeding the above debate, with respect to the so-called 'Kigyokeiretsu' (vertical interfirm hierarchy). In the postwar period, particularly 1955-61, the tempo by which new technology from abroad was introduced 16

HISTORY, MORPHOLOGY, AND GEOGRAPHICAL DISTRIBUTION

has been accelerated, as interfinn and international competition intensified. Consequently, in order to bring about a sufficient reduction in costs, big corporations had to increase the productivity not only of their own factories, but also of their affiliated medium and small factories. Thus, an important problem was how to reshuffle the existing subcontracting system in order to adapt it to cope with the new situation. Before the war, the purposes of using the subcontracting system were to avoid the dangers which accompany economic fluctuations, and to utilize cheap labor and big corporations were not seriously concerned with how to reorganize or rationalize the production process of their subordinate enterprises. However, this upgrading has become an urgent problem in more recent times. K. Fujita now stresses that the 'vertical interfirm hierarchy' is a higher stage than subcontracting and is a rather different concept, although the former originated from the latter. In other words, although 'merchant capital' was still important in the prewar subcontracting system, 'industrial capital' has become exceedingly conspicuous in the postwar 'vertical interfirm hierarchy'. On the other hand, Y. Kobayashi asserts that there is no essential difference between the 'permanent sub-contracting system' and the 'vertical interfirm hierarchy' (66). Thus, just as Fujita once tried to oppose Komiyama's distinction between the 'new putting-out factory system' and the 'subcontracting system,' so Kobayashi now is reluctant to distinguish between 'subcontracting' and 'vertical interfirm hierarchy'. Les us summarize the views of these three economists as indicated on the table below: Komiyama

Putting-out household industry

New puttingout factory system

Fujita

Putting-out household industry

Subcontracting system (with 'merchant capital')

Kobayashi

Putting-out household industry

New putting-out factory system

Subcontracting system

Vertical interfirm hierarchy Vertical interfirm hierarchy

We will not go into the further discussions brought about through the 'multiplier effect' of the Fujita-Kobayashi controversy (15,16,38,66,71,122, 123,152,178, pp. 140 ff.). However, these writings suggest to us that historical development is fluid and variable, while the concepts or terms used to explain 17

A SURVEY OF THE JAPANESE LITERATURE

it are rigid or inflexible. From this point of view, it seems to be a matter of analytical convenience whether we should take the 'vertical interfirm hierarchy' as essentially the same as the prewar 'subcontracting system' or not, to be decided by the consequence or efficacy of the analyses themselves. Even Kobayashi, who interprets the 'vertical interfirm hierarchy' as an extrapolation of the prewar 'subcontracting system', will not deny the remarkable difference between the two caused by the unprecedented technological innovations of 1955-61 and the concomitant vertical combinations of big enterprises and their affiliates through closer links in the production process. It seems to us that the controversies reflect the changing forms or composition of medium and small-scale industries accompanying Japan's capitalist development. It is also interesting to note that in the postwar 'vertical interfirm hierarchy', the emphasis is placed on medium factories rather than on small factories, whereas in the prewar 'subcontracting system,' both sizes were important. We should, therefore, notice the shifting emphasis in the composition of the medium and small industry, as the capitalist economy develops, i.e., from household industry to small factory and then to mediumsize industry.

D. HISTORICAL TRENDS OF SMALL-MEDIUM INDUSTRY IN QUANTITATIVE TERMS

Almost all of the elementary books on the medium and small industry refer to their proportions as classified by the number of employees or the value added (38, 46, 53, 69, 71, 97, 142, 177, 179). We can single out three fairly detailed studies. The first is the Ministry of Labor's 'The Long-term Trend of Japan's Labor Economy' published in 1957 (118); the second is a joint study by H. Arizawa, S. Aihara, and T. Nakamura, which appeared in the second volume of the Oriental Economist's major series on the medium and small industry (5-II); and the third is Kikutaro Takizawa's article (150 3 (8)). Since the first is used in the second study, as a part of its materials, we should begin with the second. Table 1 is quoted from the second study and is based on the Ministry of Commerce and Industry's Factory Statistics. There have been changes in the survey during the period covered, but this may not bring about serious biases. In Table 1, Arizawa and others observe that there was a change which took place around 1919-1924 in the composition of the small factory industry (in the class of 5-29 employees); in particular, the proportion of the 18

HISTORY, MORPHOLOGY, AND GEOGRAPHICAL

DISTRIBUTION

class with 5-29 employees declined from 35.3 per cent to 23.7 per cent from 1909 to 1924. On the other hand, the number of employees per establishment increased from 26.1 to 41.8 from 1909 to 1919. However, before 1909, there are scattered data which indicate an increasing share for small industry; e.g., the number of weaving workers increased from 67, 475 to 170, 799 in Saitama Prefecture, the number of sericultural and silk-reeling workers from 43,466 to 160,725 in Gumma and Fukushima Prefectures, and the number of tea manufacturing workers from 19,833 to 27,377 in Mie Prefecture from 1883 to 1893. Since these industries are assumed to consist of small enterprises, the absolute increase in total employees at such a rate seems to reflect an increase in the number of small establishments. As the industrial revolution proceeded, the increase in employment in petty enterprises as well as in the putting-out household industry began to slow down around 1900; the trend was intensified in the crisis of 1908-09, as a result of a squeeze by the big firms. It was also accelerated by the use of electric motors or other means of mechanization in small industries. TABLE 1

Proportions of Employees and Establishments by Size of Factories Totals

Proportions by size of factories (%)

Number of Number of Employees establish- employees per esments tablish-

1909 1914 1919 1924 1929 1932 1935

32,228 31,717 43,949 48,394 59,887 67,318 85,174

thousand 842 1,018 1,817 1,977 2,067 1,932 2,631

Establishments 5

10

ment

" 29

99

26.1 32.1 41.8 40.8 34.5 28.7 30.9

85.6 82.6 81.4 82.3 84.3 86.1 85.1

10.6 13.1 10.5 12.7 11.3 10.2 11.0

°" ° v e r 499 500

3.4 3.6 4.3 4.0 3.6 3.1 3.2

0.4 0.7 0.8 1.0 0.8 0.6 0.7

Employees 5

30

" 29

" 99

35.3 30.6 25.4 23.7 26.2 30.0 28.2

Note: Quoted from p. 15 of (5—II). Based on the KöjöTökei-hyö(Factory

21.7 22.1 19.9 17.2 18.7 20.0 19.7

10

°- °ver 499 500

22.5 22.4 23.3 21.8 23.9 24.5 22.3

20.5 24.9 31.4 37.3 31.2 25.5 29.8

Statistics).

From 1914-24 to 1932-35, there seems to have been a reverse tendency, i.e., an increase in the share of small industry. Arizawa and others explain this as follows: in this period, concentration of capital in big corporations and oligopolization had proceeded, and thus in the big corporations there 19

A SURVEY OF THE JAPANESE LITERATURE

was an increasing tendency toward capital intensity. This restricted employment in the big corporations, thereby producing an abundant supply of labor in the sphere of small industry. In other words, the pressure of the abundant supply of labor thus created was responsible for the persistence or even the increase in the number of small enterprises. This view is opposed by Takizawa: although Arizawa and others maintain that the rejection of labor from or the decrease of absorption in big firms was a cause of the increase in small enterprises, actually we see a period in which the proportion of small enterprises increased, just as the absolute number of employees in big enterprises increased. Moreover, Takizawa emphasizes that the development of the subcontracting system in this period was much more important than the labor supply factor in explaining the increase of small enterprises. Takizawa goes on to say that the period should be divided into 1914-19,1919-21,1921-25, 1925-32, and 1932-38, and explains the divisions in terms of an absolute increase or decrease in employees and establishments, as well as their proportionate changes. In relation to postwar business cycles, I have discussed the covariation of employment in upper class establishments and the reverse movements of employment in lower class establishments. The same tendency prevails in the movements of the number of establishments as well as in wage levels by size of factories (132,133). My tentative explanations were as follows: a. In big factories, the 'rinjiko' (temporary workers) increase sharply in an upswing of the business cycle, but tend to be dismissed in a downswing when they are absorbed by the relatively small factories. This may be why, in depressions, the increase in the number of establishemnts and employees in petty enterprises is conspicuous, while in big factories, employement conforms to the actual ups and downs of the business cycles. b. In an upswing, there is a movement from the lower class to the upper class, so a decrease of the increment of employment or establishments occurs in the lower class. However, in a downswing, the reverse may prevail, for those establishments which reduce their size will automatically shift to a lower size of factory. c. With respect to increments of wages in lower class establishments, Takizawa's exposition (given below) may apply in a downswing. The proportion of factories which shift down from the upper size may increase, but since the wages in those factories are relatively higher, the average wages of the lower class of factories will be raised at least statistically (cf. 11). Takizawa's interesting explanation appeared at almost the same time as mine[150,Vol.3,No.8].Inan upswing, big enterprises try to enhance their capitalintensive mass production programs and shift to the smaller subcontracting 20

HISTORY, MORPHOLOGY, AND GEOGRAPHICAL DISTRIBUTION

factories those parts which are labor-intensive and not as important in the production process. This is why the proportion of employment in big establishments does not increase, even in a boom period. On the other hand, in a depression big enterprises will decrease their dependence on subcontracting, so the proportion of employment in the middle size will decrease. But in the lowest size of establishments a different situation will hold true, as already explained. On the shifting proportions of employment and establishments in manufacturing in the postwar period, the available analyses are not so up-to-date as to include the most recent Census of Manufactures, so we quote its results directly in Table 2. This clearly reveals employment proportion increases in the middle scale, but decreases in the lower and the highest scale of plants. TABLE 2

Proportions by Size of Factories in Postwar Period Sizfe of establishment by the number of employees 1-3 4-9 10-19 20-29 30-49 50-99 100-199 200-299 300-499 500-999

over 1000 total

Establishments (%)

}

1951

1955

1960

57.7 22.4 10.9 3.6 2.6 1.5 0.7

56.8 19.8 12.9 4.2 3.1 1.8 0.8 0.2 0.2 0.1 0.1 100.0

51.0 19.9 14.6 5.4 4.2 2.7 1.2 0.4 0.3 0.2 0.1 100.0

0.4 0.1 0.1 100.0

Employees (%) 1951

10.2 11.4 12.1 7.2 8.3 8.7 7.6 }

10.1 6.2 18.2 100.0

1955

1960

1960 -1951

10.0 9.9 13.6 8.5 9.1 9.6 8.2 4.7 5.6 6.2 14.2 100.0

6.9 7.7 11.8 7.7 9.3 11.1 9.8 5.3 6.2 7.4 16.8 100.0

-3.3 -3.7 -0.3 +0.5 + 1.0 +2.4 +2.2 } +1-4 + 1.2 -1.4

Source: The Ministry of International Trade and Industry, Kdgyo Tokei-hyo (Census of Manufactures).

One problem remains with reference to the trend in the proportion for household industry. In this respect, there is an ambiguity in the estimate of the lowest size plants. In Factory Statistics, there were no data on establishments with less than 4 manual workers before 1939. Therefore, employees in plants with less than 4 manual workers were estimated by subtracting the employees in the Factory Statistics from the total occupied population in 21

A SURVEY OF THE JAPANESE

LITERATURE

manufacturing given in the Population Census, after some adjustments were made for differences in definitions. A few estimates (e.g., 75,174,177) contradict one another to some extent, owing to the differences in definitions or estimating procedures. However, if Tadao Ishizaki's estimate is accepted, we obtain the result shown in Table 3 (134 p. 719). As there are definitional changes, from 'less than 4 manual workers' to 'less than 3 employees,' between prewar and postwar data, the figures should not be compared directly. TABLE 3

Proportion of Petty Enterprises in Terms of Employees Proportions ( %) Less than 4 workers

1920 1930 1940

1951 1954 1955

More than 5 workers

2,422,322 1,803,752 2,609,546 1,954,166 2,224,294 4,503,171 Less than More than 3 employees 4 employees 2,172,130 2,539,579 1,986,882

Government Gov.& & municipal Less than More than munic. enterprises 4 workers 5 workers enterprises 212,340 138,328 97,827

4,237,698 4,749,969 4,963,618

50,172 40,452 18,000

54.6% 40.6% 55.5 41.6 31.1 67.5 Less than More than 3 employ- 4 employees ees 33.6 65.6 34.7 64.9 28.5 71.2

4.8% 2.9 1.4

0.8 0.7 0.3

However, the ratio of the Census of Manufacture's employees in the 'more than 4 employees' class to the Census of Population's occupied population in manufacturing increased to 80.1 % in 1960 from 71.2% in 1955, so we can assume that the proportion of the labor force in the 'less than 3 employees' class may have dropped from 28.5% in 1955 to around 20% in 1960. This percentage should not be confused with that of Table 2, which is a computation based only on the Census of Manufactures. The latter would be an underestimate, because there would be omissions even in the Census of Manufactures as far as petty enterprises are concerned. E. COMPARISONS W I T H O T H E R

COUNTRIES

Shigeru Ishikawa has compared the proportion for household industry (less than 20 employees) with the proportion for primary industry in terms of 22

HISTORY, MORPHOLOGY, AND GEOGRAPHICAL DISTRIBUTION

national income statistics among different countries, e.g., the U.S.A., West Germany, Japan, Ceylon, India, the Philippines, etc., and finds a positive correlation between the two (30). As he does not aim for a complete analysis, and it is only a portion of his paper, the international comparison does not cover a very large number of countries. However, it seems to be clear even from his findings, as well as from the historical trend of the household industry proportion just explained, that the position of the smaller unit will be reduced as the economy develops. It is to be regretted that such an analysis has never been done on a large scale in Japan. However, a fairly detailed study has been conducted by Kikutaro Takizawa with respect to a U.S. - Japanese comparison of industrial structures classified by size of establishments (145, 149, 150). A less detailed comparison of the U.S., U.K., West Germany, and Japan on the Census of Manufactures has often been presented in various books or papers (e.g., 41, 42, 97, 162). This work merely shows that the proportion of small industry in terms of employees as well as value added is conspicuously larger in Japan than in other countries. For instance, in 1954, the proportion of those with less than 49 employees was 50.9% in Japan, while it was 16.4% in the United States and 13.8 % in the United Kingdom. Takizawa also presents comparisons by industry. I undertook a rather unusual analysis (132). One generally computes the percentage compositions of various scales of factories with respect to each industry. We computed the percentage of industrial distribution of value added with respect to each scale of factory. In other words, instead of the size distribution of industries, we were interested in the industrial distribution with respect to each scale of factory. For example, given the scale of 4-49 employees or 100-499 employees, the industrial composition in percentage is calculated by each size. Two industries, machinery and food and beverages, are shown in Figure 1. From this, we see that the percentage of industrial composition of the machinery industry is relatively higher in the lower scale of factories, particularly in the scale of 50-99 employees, while in the United States and West Germany it rises as the scale of factories becomes larger. This shows that in Japan a relatively large number of machines are produced in relatively small industries, reflecting a labor-intensive method of production, as well as the production of machines of many kinds in the same factory unit. However, in the United States and West Germany, with curves rising to the right, is reflected the mass production of machines of a few kinds in each plant, with more capital-intensive techniques. Although this is merely an 23

A SURVEY OF THE JAPANESE LITERATURE

example, it suggests something with respect to the direction which small enterprises in each industry will go as the economy develops. Thus, it is clear that the Japanese economy will not follow the same path until a similar industrial structure has been reached. The above kind of comparison throws some light on the goals to which each industry of each size should be oriented; about the same time, Takizawa also published a computation similar to ours (150, Vol. 4, No. 2). Takizawa has extended the analysis of small-medium enterprises in detail between Japan and the United States. Among his various achievements, the following points are worth mentioning: (1) when industries which tend to be of a size making for relatively high efficiency are defined as 'adequate industry,' while industries which tend to be of a size making for relatively low efficiency are defined as 'inadequate industry,' then the proportion of 'adequate industry' in terms of employees is less in Japan than in the United States. (2) Among 'inadequate industry,' big-sized and medium-sized

Fia. 1 Industrial Composition by Sizes of Plants in Two Industries Machinery

Food and Beverages % •O 25 T3

- W. Germany

100499 Scale of factories in terms of employees

24

500999

over 1000

50-

99

100-

499

Scale of factories in terms of employees

500-

999

over

iqoo

HISTORY, MORPHOLOGY, AND GEOGRAPHICAL DISTRIBUTION

industries occupy larger shares in the United States while in Japan smallmedium and petty industries compose the major part. Moreover, in Japan we see enterprises with low efficiency concentrating towards the small-medium size. Together with the other results, such an international comparison with regard to the relationship between composition and efficiency by size of establishments may provide valuable information (150, Vol. 5, No. 3).

F. GEOGRAPHICAL DISTRIBUTION OF SMALL INDUSTRY

It is only in recent times that studies on the history of various industries from the late period of the Tokugawa Shogunate until before World War II have been compiled, particularly from the viewpoint of the development of local industries. The title of the eight-volume series is Nihon-Sangyoshi Taikei (Comprehensive History of Japanese Industries), edited by the Chihoshi Kenkyu-kyogikai (Research Association for Local Histories) (4). This involves a detailed exposition of the history of local industries, broken down into seven districts, and the first volume includes Toshio Furushima's article, 'Shosangyo Hatten no Chiikisei' ('Geographical Development of Industries') on the early Meiji period. This is an outgrowth of Kazuo Yamaguchi's research (172 Chap. 1) on the geographical distribution of industries, based on the Meiji 7-nen Fukenbussan-hyd (Tables of Prefectural Products in 1874). These statistics are probably the first really comprehensive survey, so we cannot but depend on them if we attempt to explore geographical product distribution. This work opened up a new phase of the fragmentary studies so far conducted on early local industrial development. However, regrettably, we still have no detailed comparisons, over a long period of time, of the changing geographical product distribution in the process of industrialization. In the early period we can compile only data for individual output classified by prefectures, but not cross-classified by large, medium, and small enterprises, although in the early period of industrialization the majority were produced by small-factory and household industries. Tokutaro Yamanaka and others have analyzed the regional distribution of the Japanese manufacturing industry in 1930, cross-classified by the size of establishment (174, cf. 103). They broke down the manufacturing establishments into four sizes: 1-4 workers (petty), 5-29 workers (small), 30-99 workers (medium), and over 100 workers (large). They combined the Census of Population and the Factory Statistics of 1930 and estimated the 25

A SURVEY OF THE JAPANESE LITERATURE

number of employees and establishments in the petty household industry as a difference between their data. Yamanaka and his co-authors made a very detailed study of selected industries classified by prefectures, by size of establishment, and also by male and female employees in the total as well as in petty establishments. They chose six types of industries: (1) weaving industries, (2) small-medium industries based on the labor force of big cities, (3) indigenous household industries, (4) rural medium and small industries, (5) small-medium enterprises in the food and beverages industry, and (6) small-medium enterprises in the metal and machinery industries. It is almost impossible to make a short survey of their detailed analyses, but we will try to sketch some of their findings. Silk weaving concentrated in Hokuriku, Ryomo, and Kyoto, of which the first two had some connection with sericultural districts. Cotton weaving, on the other hand, had a regional relation to past cotton-growing districts. The hemp cloth industry was most closely related to agricultural areas. The proportion of household industry in terms of employees was highest in the silk-weaving industry and lowest in the woolen textile industry, which had been concentrated in Aichi Prefecture. Although the proportion of female workers was relatively higher in the weaving industries, the male proportion was very high in the second type of small-medium industries, based on the big city laborforce. Wireless apparatus, electric lamps, bicycles, and hats were made in small-medium factories, as well as in the petty household industry. Celluloid, leather, brushes, medical instruments, umbrellas, gilding, footwear, and furniture, were mostly made in petty household industries. The concentration in big cities, like Osaka and Tokyo, the dominant dependency on male workers, and the high proportion of household industries were common features. However, there were some industries such as hosiery, knitted goods, plaiting, sewing, and embroidery which were concentrated in big cities but had a relatively higher dependency on female labor. These also were household industries. Indigenous household industries produced pottery, lacquerware, folding fans and Japanese umbrellas. Among these, the pottery industry had a relatively higher proportion of big enterprises, but all were predominantly household industries. While the pottery industry had a relatively strong concentration in particular districts, the others exhibited broader regional distribution. The products were mostly produced under the artisan system and were for export. There was another group associated with agricultural districts, also consisting of indigenous industries and mostly producing commodities for 26

HISTORY, MORPHOLOGY, AND GEOGRAPHICAL DISTRIBUTION

export but differing in that it was essentially composed of local industries technically connected with agriculture. Pottery and lacquerware concentrated in the central area of Japan, but the rural small-medium establishments of importance centered in the western part of the country. Bamboo and willow products, mattings ('Tatami-facing,' 'Goza,' 'Hanamushiro,' etc.), straw, straw-work, chipwork, and hemp-palm products belong to this fourth group. Their concentration in particular districts was not so high. They depended predominantly on household industry and on agricultural female labor, except for bamboo products. The fifth group, the small-medium enterprises in the food and beverages industry, were also distributed fairly evenly in various areas. In the 'Miso,' 'Sh5yu' sauce, and vinegar industries, the proportion of medium and big enterprises was quite large, but in the other three— processed marine products, livestock products, and refreshing drinks - the proportion of household industries was dominant. Except for the processed marine products industry, in which the proportion of female workers was large, these industries showed a very high proportion of male workers. Concerning the sixth group, the metal and machinery industries, Yamanaka and the others took up six industries: watch and clock making, electrical appliances, agricultural and construction machineries, machine tools, metal cast steam boilers, and prime movers. Although the agricultural and construction machinery industries relatively were concentrated in petty enterprises, the others except for steam boilers and prime movers, showed a considerably strong polarization between big and small enterprises. On the other hand, a remarkably high percentage of steam boiler and prime mover industries were in big establishments. In these industries, the degree of regional concentration was higher than in other industries already quoted and male workers were predominant. In the sixth volume of 'Chush5-kigyo Kenkyu' (Studies of Small-Medium Enterprises), Masami Takeuchi and Yoritada Mishina presented a very interesting study on the relation of big and small enterprises to the regional economic circular flow, based on a survey of the 'Kinki district' (surrounding Osaka) conducted at the end of 1958 (5-VI pp. 11-36). The results are as follows: 1. When 125 industrial companies, the head offices of which are located in Osaka, are classified into three categories (over 1 billion yen capital, ¥ 100 million - ¥ 1 billion capital, and below ¥ 100 million) - it is clear that in the case of companies with less than ¥ 100 million capital, production and sales are pre27

A SURVEY OF THE JAPANESE LITERATURE

2.

3.

4.

5.

6.

dominantly from 80 to 90 percent performed in Osaka, on the other hand, in the case of corporations with a capital over ¥ 1 billion, production in Osaka is only 33.9 per cent and sales through head offices only 52.1 per cent. When assets are also classified into three categories, a relatively similar result obtains. Particularly interesting is the fact that when the financial investment and financing are mostly restricted to Osaka, it is of companies with a capital less than ¥ 100 million, while that of corporations with a capital of more than ¥ 1 billion extends to other districts. This indicates that the production of their local factories is supported and subordinate factories are under their control through financial investment or financing. Comparatively, the same sample companies are analyzed with respect to their capital stock. In corporations with a capital more than ¥ 1 billion, 55.8 per cent of the stock capital is shared by stockholders in the Kinki district, while in the case of the companies with a capital of less than ¥ 100 million 81 per cent is shared by stockholders in the Kinki district. Similar relations hold true for borrowing as well. Bigger corporations obtain their funds not only from inside Osaka but also extensively from other places, particularly from Tokyo; smaller companies obtain theirs mainly (more than 90 per cent financed fromfinancialinstitutions, etc.) in Osaka. For big factories, Osaka is not the source supplying their raw materials, but merely a place for settling transactions. However, Osaka plays an important role for medium and small enterprises, not only as a place to settle transactions, but also as a source of raw materials. When factory production in each local district is examined, it becomes clear that about 50% of the income produced by the factories accrues to the local area, and about 30% of the circular flow of intermediate products ends up inside the local places, but the rest leaks outside.

These findings are interesting when manufacturing incomes accruing to each prefecture (wages and salaries plus profit), estimated in prefectural income statistics, are compared with the value added by the prefecture as estimated by the Census of Manufactures. In Yamaguchi Prefecture, where the value added per employee is the highest, the rank of income per man was only 17th among prefectures and the income-value added ratio was only 57.5 per cent in 1959. This shows that even though the productivity of manufacturing is very high locally, it often leaks to metropolitan cities like Tokyo or Osaka, with an accompanying suppressing effect on the local income level (130). The extraordinary postwar rate of growth, particularly for 1955-61, may have had an immense influence upon regional economies as well as on smallmedium industries. To explore this, the Osaka Furitsu Shoko-keizai Kenkyusho (Osaka Prefectural Economic Research Institute for Commerce and 28

HISTORY, MORPHOLOGY, AND GEOGRAPHICAL DISTRIBUTION

Industry) and the Aichi-ken Shoko-keizai Kenkyiisho (Aichi Prefectural Economic Research Institute for Commerce and Industry) carried out, in June of 1961, the Chiho-tokusan-kogyo Chosa (Local Special Products survey (5-IX Chap. 4-5). The results of this inquiry indicates that, of 258 localities, 112 show growth tendencies, while 114 appear to be stagnant and 32 declining. Relatively, food and beverages, silks and rayon weaving, sewing and embroidery, wooden ware, chemicals, and miscellaneous are mentioned as growing industries. Cotton and rayon stable weaving, lacquerware, pottery, and bamboo products are recognized as stagnant. 'Japanese paper' is typical of the declining industries. On the whole, those industries located in cities are relatively progressive, while those in rural districts are relatively stagnant. According to the inquiry, a substantial number of local product industries selected their location on the basis of accessibility to raw materials. However, it shows that the recently experienced shortage of labor and raw materials has had a serious influence upon local product industries. Because of the labor shortage, petty enterprises are apt to decline, particularly in the declining industries ('Japanese Paper,' bamboo products, and special products depending on artisan skills). With the increase of raw materials prices in local districts, industries continue to switch from traditional raw materials to newly-emerged ones such as plastic and synthetic textiles. In textiles, woodenwares, metal goods, and others, the adoption of new chemical commodities reduces the locational advantages connected with traditional raw materials. Moreover we see at times the emergence of new production centers for companies with qualitative changes in raw materials. These changes, together with mass production and technical progress, have caused adjustments in grade or quality, thus transforming local products into general products. For instance, cutlery production in Sakai (near Osaka) has switched over to stainless products, making feasible the latter's mass production. In toothbrush production, plastic and nylon were recently adopted as raw materials. In prefectures where rayon has been produced, we see now a transition to other synthetic textiles. In parallel with the transition from primary raw materials to the new fabricated raw materials, there is also a transformation in the form of production in local product industries. The inquiry also reports the strengthened 'vertical interfirm hierarchy' of big producers or commercial corporations, a reduced status for local wholesale merchants ('Toiya'), and a better position for the manufacturers under the influence of these changes. 29

A SURVEY OF THE JAPANESE LITERATURE

The high rate of growth centering on heavy industry for 1955-61 has also changed the regional economy considerably. Strongly influenced by these tendencies, the main industrial areas have extended themselves, on the one hand, along the sea coast, and, on the other, inland. Such a regional diffusion of industry, together with the high rate of growth, has pulled both land and the labor force away from agriculture, thus causing a sharp increase in land prices and wages. Consequently, petty or small enterprises have suffered from the rise of wages and of land prices and also from the diminution of their labor force. In addition, because of rising land prices, an increasing number of farmers are now engaging in non-farm work; this disintegration of farm enterprises becomes more and more remarkable, particularly in the lowest size group. Such is the essence of a detailed analysis of the regional economy, mainly emphasizing small-medium industries (5-IX Chap. 6-7).

G. HISTORICAL PATTERNS OF SMALL INDUSTRY GROWTH IN RELATION TO CAPITALIST DEVELOPMENT

Among the Marxists in Japan, there has been a confrontation between the so-called 'Kozaha' and 'Ronoha' economists, with regard to the interpretation of capitalist development since the Meiji Restoration. At present, it is not so clear as in the prewar period, when a heated controversy arose. According to the 'Kozaha' doctrine, the pressure of semi-seigniorial landownership on agriculture is assumed to have eliminated the possibility of development into large, capitalistic farms. Thus, the wealthy farmers found it more advantageous to be 'parasites' and live on the high-rate farm rents than to invest them in an expansion of the scale of agriculture. The term, 'parasite landlord system' was based on typical 'Kozaha' thinking. The 'parasite' landlord, on the one hand, invested the major part of his rent in other industries, for example, manufacturing or commerce, rather than in agriculture. Japanese capitalist development is thus taken to have advanced by sacrificing large-scale agricultural development. On the other hand, the existence of an extra-ordinarily high rate of rent (say, 70 to 80 per cent of agricultural income) reduced the petty tenant to the subsistence level. In addition, a relic of the seigniorial system in rural villages prevented the tenant's exodus from the farm. In other words, the routes to large-scale farming were blocked in Japanese agriculture. The polarization of the 'para30

HISTORY, MORPHOLOGY, AND GEOGRAPHICAL DISTRIBUTION

site' landlord and the tenants is assumed to have strengthened the rigidity of the semi-seigniorial village structure, rather than to have disintegrated it. Such was the 'Kozaha' interpretation, as developed in Seitaro Yamada's book, Nihonshihonshugi Bunseki (Analysis of Japanese Capitalist Development) (171). The 'Ronoha' group emphasizes the disintegration of the peasant class and their exodus from the farm. While the 'Kozaha' stresses the peculiarity of the Japanese capitalist development, the 'Ronoha' attaches more importance to the common characteristics of the capitalist development in general. The 'Ronoha' presumes that the disintegration of the peasant class had already begun in the time of the Tokugawa, because of the alternateyear residence of the 'Daimyo' in Edo and the concurrent concentration of 'Samurai' in the big commercial cities like Edo and Osaka. The rice paid as taxes to the various 'Han' (feudal class) was sold by the 'kurayashiki' ('Han' agents for rice storage and sales) in the two cities, with a resulting enlargement of the money economy, development of financial institutions, and nationwide development of transporation and commerce. This also influenced the economies of rural villages, extending the sphere of the exchange economy and gradually reducing or disintegrating the feudal state of self-sufficiency. As a result of the financial difficulties of the various 'Han,' higher taxes were levied, and this provided for the emergence of of the usurer and of 'merchant capital'. On the other hand, peasants lost their land and fell into tenancy from the heavy taxation. As the exchange economy was extended, commercial farm produce, like mulberry, cotton, tea, paper mulberry, lacquer, hemp, and indigo increased, and 'rural industry' came into being, paralleling the disintegration of the peasant society (e.g., 51, 52). When confined, so to speak, within the self-sufficient rural economy, household industry tended to be separated from agriculture. Mitsuhaya Kajinishi and others make clear that 'rural industry' in the late Tokugawa period appeared in the form of the 'putting-out' household industry, with the landlord ('merchant capital') as a controller and the poor peasant class as his direct producer. Of course, we cannot deny the emergence of manufacturing in some areas or industries, usually formed by the 'Gono' (wealthy farmer), but this was not the rule, so far as the textile industry, at least, was concerned. The 'putting-out' system was therefore the prevalent form of production in that period, and even the 'manufactures 'operated by the 'Gono' and 'Gosh5' (wealthy merchant) was subjected to seigniorial suppression, sometimes being forced to return to the 'putting-out' system (12, 52). 31

A SURVEY OF THE JAPANESE LITERATURE

Goro Fujita emphasized the existence of two kinds of 'Gono' (wealthy farmers). One was strictly the medieval landlord, while the other functioned also as a merchant capitalist usurer. The former appears to have something in common with the British yeoman, in that he was industrious and was devoted to production. However, he lacked the ability to expand labor productivity by modernizing the mode of production (12). Fujita made a comparison of two typical 'Gono,' taking up the silk reeling industries of Fukushima and Shinshu (present Nagano Prefecture). In Fukushima the silk reelers were the new type of landlords (they were also merchant-usurers), and production followed the putting-out system, governed by merchants of other areas, say, those from Omi. In Shinshu, however, the old type of 'Gono' operated the workshops, also by the putting-out system, but not governed by outsiders. In the former, the disintegration of the peasant class was accelerated by the entry of 'merchant capital' from outside (12, 51, pp. 37-46). We have many studies of the development of local textile and other industries in relation to their form of production, e.g., the putting-out system, 'manufacture,' and technical development; however, we find a heated discussion among economic historians (mostly among Marxists). The 'manufacture' controversy was initiated by Shiso Hattori (19, 20) and has been discussed by other economic historians very extensively, for example, by Takao Tsuchiya, Eiichi Horie, Seizaburo Shinobu, Goro Fujita, Mitsuhaya Kajinishi, Akio Yagi, and Kazu Fukomoto (12,17,24, 51, 82,127,157). This long-term argument mainly centers around the question of dates; for instance such questions as 'until when did the "putting-out" system prevail?' and 'from what time did "manufacture" become predominant in each industry?' Hattori's conclusion with respect to the textile industry, for example, was that although in the early Meiji period it was still generally presumed to be in the stage of a handicraft or household industry, actually 'manufacture' was already prevalent at the end of the Tokugawa Shogunate, and that around the end of the first decade of Meiji (1873-83), the 'manufacture' age had ended and by the Sino-Japanese War of 1894-95 the economy had been transformed into big industry and had undergone industrial revolution. His analyses were based not only on the Nishijin weaving industry in Kyot5, but also on other textile industries (19). Takao Tsuchiya raised empirical objections to these conclusions and asserted that in the age of Tokugawa Shogunate the putting-out household industry was prevalent, while 'manufacture' was a rare case (157). Hattori's view is interesting, in that he attaches 32

HISTORY, MORPHOLOGY, AND GEOGRAPHICAL DISTRIBUTION

much importance to the endogenous development of industry in the preindustrialized stage, instead of emphasizing exogenous factors of 'fromabove' capitalism. However, it may be more reasonable to imagine, in view of the later controversy, that the 'manufacture' age began around the 20th year of Meiji (1883), as Kajinishi asserted (51 p. 267). However, since this controversy raised many conflicting views and is extremely complicated, an extensive survey would be useful. One was conducted by Takamasa Ichikawa in the second volume of Meiji-ishinshi Kenkyu Koza (Courses of Historical Studies of the Meiji Restoration) (28 pp. 46-81). Meiji Shiryo Kenkyu Renrakukai (Study Group on the Meiji Historical Documents), e.d., Kindai Sangyo no Seisei (Formation of Modern Industries,) is also useful, for it compiles several important articles relating to this problem (83). We wish, however, to avoid going more deeply into the controversy and merely point out its nature.

33

II. Productive Factors in Small Industry

A. LABOR

Since the early Meiji Period, the ratio of net labor supply from agriculture to the total increase of employment in the non-agricultural sector has been extremely high. According to Mataji Umemura's estimate, the ratio was 91.8 per cent in 1875-80, 81.7 per cent in 1895-1900, and 72.5 per cent in 1910-15 (164 p. 159, 166). This shows that as far as the Meiji period is concerned, the agricultural sector was predominant as a source of labor supply to the non-agricultural sector. With respect to the migration of the rural labor force, however, we must distinguish between two types: the actual migration of members of a farm family as employed workers, and an increasing degree of non-farm production in the farm household. Umemura estimated that in Yamanashi Prefecture, the proportion of farm households whose main occupation was agriculture but included other business was 33.1 per cent in 1879, with an increase to 63.3 per cent in 1920 (incidentally, in all Prefectures, the ratio was 45.3 per cent in 1920). On the other hand, the proportion of farm households which engaged in side work was 31.6 per cent in 1908, 58.1 per cent in 1941 and 59.1 per cent in 1953 (166). Concerning the rural exodus of farm labor to other sectors, Kazuo Okouchi presented in the prewar period a famous hypothesis, the so-called 'Dekasegi-gata Rodoryoku-ron' or 'Kakei-hojoteki Rodoryoku-ron' (Thesis on the household-supplementing type labor emigration) (108, 111, cf. 169). Okouchi suggested that as petty peasants who had been under feudal serfdom were thrown into the exchange economy after the Meiji Restoration, they had no choice but to send out household members as factory or mine workers in order to supplement their farm incomes. If wage labor in Japan was 34

PRODUCTIVE FACTORS

essentially of the 'household income-supplementing' type, then the wages paid to them would, of necessity, be very low. In the prewar period, the textile industry was large and the females in its labor force very numerous, so we can generally presume that the female workers supplied from rural districts were typically of the 'household income-supplementing' type, receiving low wages. Okouchi points out that in a depression the workers return to the farm, and in prosperity they go out for work in factories. Therefore, farm villages were a pool of disguised unemployment which swelled in depression and decreased in prosperity. His ideas come in part from the stream of the so-called 'Kozaha' Marxists. In this view, the relics of the semi-seigniorial relations in rural villages and government regulations for maintaining the pre-capitalistic landownership prevented the perfect disintegration of the peasant class. Consequently, in his theoretical framework, he must set up a relief valve, the 'household incomesupplementing' a type of labor which goes out in prosperity to other industries and returns in depression, thus maintaining the rigidity of the institutional structure of villages and preventing the exodus of farm peasants. This enables him to hold a kind of 'Kozaha' position and yet to depict the essential mechanism of economic development based on disguised rural unemployment. Although female textile workers were typically 'household incomesupplementing' wage labor, male workers of such a type also have been found in coal mining, northern seas fisheries, and the construction industry, as well as in general factory industries. However, 'household income-supplementing' labor was highly mobile and lacked a permanent attachment to one enterprise, and the employment contract was made between the individual capitalist and laborer, so interfirm or interindustry trade unions could not be set up. Even if it were set up, the trade union had the characteristics of an enterprise union (106, 109, 110, 111). Mikio Sumiya classified the sources of the labor force in the Meiji period in the following: (1) the disintegration of the peasant class and the exodus of farm labor to other industries, (2) the breakdown of the 'Za' and 'Kabunakama' (guilds), and (3) the dissolution of the 'Samurai' (137). There were many studies in relation to the 'Za' or the 'Kabunakama' (90, 91). In Japan, city guilds in the Tokugawa period found their markets mainly in the demand for luxuries or high-quality commodities coming from the feudal rulers, in accordance with the development of feudal cities such as Daimyo castle towns. They were parasites on the feudal lords and therefore could not 35

A SURVEY OF THE JAPANESE LITERATURE

attain a free and wider expansion of the market. When the Tokugawa Shogunate collapsed, they were forced into bankruptcy, in the wake of capitalist development. Such was the fundamental weakness of the Japanese guilds, and they were destined to be reshuffled in the Meiji Restoration. The first group of artisans fell into collapse and destitution, and the second group was reorganized and absorbed into 'manufacture' or factories as skilled laborers. The third newly emerged as a group in accordance with the new mode of production and life. To this group belonged not only the lathe operator and finisher, but also the shoemaker, the tailor, the hat maker, and the printer (137 pp. 26-52). According to Gennosuke Yokoyama, author of a famous book, Nihon no Kasd-Shakai, (The Lower Strata Society in Japan), 1898, there were two kinds of artisans: the 'Ishokunin' (inside artisan) and the 'Deshokunin' (outside artisan) (183). The former were those engaged in the production of lanterns, tobacco pipes, books, lacquerware, gold lacquer, pouches, and footgear, for example, while the latter were the carpenter, plasterer, stone cutter, tile-roofer, and painter. Although 'merchant capital' already had control over the 'Ishokunin' in the Tokugawa period, there was no fundamental change even after the Restoration. The subordinate relations of the 'Ishokunin' were rather intensified by the abrogation of the regulation on guilds in the early Meiji Period, and the 'Ishokunin' were reorganized as 'putting out' home workers by 'merchant capital'. On the other hand, the market for the 'Deshokunin' was enlarged because of the widening scale of construction activity, and the poorer daily-employed artisans became subordinate to the boss-artisans. The latter acted very often as employers and the former emerged as de facto wage laborers. The reorganization of the artisans also deeply influenced the apprenticeship system, and instead of 'living-in' service, 'living-out' service came on the scene (137 pp. 41-47, 183). In the early Meiji period, the 'Samurai,' some 400,000 households (including 1,900,000 persons) were threatened with ruin. They became the third source of the labor supply. There is much evidence that the 'Samurai' were increasingly absorbed as wage-laborers. The above figure is significant when compared with the number of employees in manufacturing and mining in 1883 (793,000 including artisans and workers in household industries) (137 p. 73). A few objections have been raised to Okouchi's doctrine of 'household income-supplementing' wage labor. First, Masumi Tsuda pointed out that although Okouchi had in mind mainly the female textile workers, there had 36

PRODUCTIVE FACTORS

been an increasing heavy industrialization, particularly since the Showa period (from 1926 on), which raised the proportion of male workers probably beyond the scope ofOkouchi's theory (18 pp. 236-266). Second, his hypothesis assumes that rural villages are pools of disguised unemployment, whereas Tetsu Watanabe stated that actually, in the first half of the Meiji period, there was a severe shortage of labor, and competition for the recruitment of workers prevailed among various factories (83 pp. 96-136). Third, Masakichi Namiki asserted that although Okouchi assumed the swelling of the pool of the reserve army in a downswing and the reduction of it in an upswing, what he actually found was that net emigration of the rural labor force for 1920-25, 1925-30,1930-35, and 1935-40 had been almost constant, in spite of the ups and downs of the business cycle (101, 134 pp. 369-406). With respect to the third point, there arose a small controversy among Ryoshin Minami, Akira Ono, myself, and Namiki, which need not concern us here (84). Concerning the second point, it may be that in the early Meiji period there coexisted an over all abundance in the labor force and an extreme lack of regional mobility (166). If we accept this the second criticism would not be so important. The first point is most important, for there would have been a change in the characteristics of the labor market as time elapsed. In this respect, the Keihin-kogyo Chitai Chosa-hokokusho (Report on the Survey of the Tokyo Yokohama Industrial District) conducted for 1951-52 by Kanagawa Prefecture should be noted. This survey was made under the guidance of K. Okouchi, Shojiro Ujihara, and others, and has been recognized as one of the most important sources on the structure of the Japanese labor market (54, 100 Chap. 1, cf. 163). Various interesting results might be considered, but we will restrict ourselves to only a few points. (1) About half of the mining and manufacturing laborers in the Tokyo-Yokohama industrial district have parents who are engaged in agriculture. This is especially so in small scale factories. (2) Among industrial laborers, many are from 'semifarm and semi-manufacturing worker' type households which do not abandon agriculture, butfrom which factory-workers commute. (3) Quite a few laborers of farm origin still continue to have economic relations with their parent's farm households. (4) Once urban workers are dismissed, retired, or taken ill, many of them return to their parent's farm households. (5) Many find employment through relatives or friends (60 to 70 per cent), and even placement of male workers through the employment security office makes up only a little over 20 per cent. This is particularly conspicuous in small factories. (6) The survey suggests that movement of big factory workers is 37

A SURVEY OF THE JAPANESE LITERATURE

very rare; that it is very difficult to move from small factories to big ones, but not the reverse; and yet that among small factories inter-factory mobility of labor is very high (54 pp. 121-147). Another comprehensive survey was conducted by the same authors (in March 1953), on entrance to higher schools and the employment of new graduates from middle schools in Kanagawa Prefecture covering large medium commercial and industrial cities and their adjacent rural villages. According to this survey middle school graduates prefer to go into the manufacturing industry, particularly big factories. Since the demand for labor in big factories is mainly satisfied by the new graduates of the same districts, the local labor force which flows into the Tokyo-Yokohama district is necessarily absorbed by small factories. In this district, starting wages are relatively high, and their coefficient of variation among factories is low, reflecting the acute demand for labor in the area. Therefore, laborers of farm origin in local areas cannot but go into the lowest strata of any occupation (107, cf. 155). Thus, even after the relative share of heavy industry had risen, rural districts were still of importance as a source of labor. However, it is to be expected that the role of agriculture in the supply of labor would diminish in the course of time, particularly during 1955-60, when an extraordinarily rapid expansion occurred. The proportion of laborers whose parents work in agriculture is probably still high, but if we restrict laborers from agricultural backgrounds to only those who changed their occupations, excluding new graduates, then the proportion would not be so high. There would be very few who would have returned to the village in a depression in the postwar period. Rather, they would have changed their jobs from one small factory to another, or to small commercial stores, when they were dismissed, in view of the higher rates of accession to and separation from jobs in smaller establishments. Therefore, it seems necessary to analyze whether or not the new net migration of labor from agriculture has shown a higher amplitude than that from, say, the service industry. If the service industry played a more important role as a cushion for absorbing unemployment than agriculture, then the Okouchi hypothesis of the 'household income supplementing' type of wage labor should be remedied to that extent. However, we lack such an analysis so far. In 1957, a very comprehensive survey was performed with respect to smallmedium industry by the Small-Medium Enterprise Agency and the Ministry of International Trade and Industry. The publication consists of eight 38

PRODUCTIVE FACTORS

volumes and is entitled Chushokigyo Sogo-kihon-chosa Hokokusho (The Report of Comprehensive Basic Survey on Small-Medium Enterprises). In relation to various aspects of labor force composition and wages, the Chusho-kigyd Rodosha-ron (Studies of Workers in Small-Medium Enterprises), edited by the Ohara Institute of Research for Social Problems in 1960, seems to be most comprehensive, bringing the statistical data employed up to date and including the above-mentioned new statistics (112). It analyzes the degree of family worker dependency, composition of employees by sex (in the smaller size, the female proportion is higher), ratio of manual workers to personnel, age composition, employee composition by length of service, composition by education or by amount of experience, proportion of the 'Rinjiko' (temporary employed) and the 'Hiyatoi-rodosha' (daily employed), rate of labor movement (as well as accession and separation), composition by former occupations, and sideworkers proportion in farm households, all of which are studied by size of enterprise. TABLE 4

Size Composition of Manufacturing and Size Differentiab in Wages and Productivity, 1960

Total Less than 3 4- 9 10- 19 20- 29 30- 49 50- 99 100-199 200-299 300-499 500-999 More than 1000

Number of employees

Value of shipment

Value added (more than 4 employees)

100.0 6.9 7.7 11.8 7.7 9.3 11.1 9.8

100.0 1.8 3.2 6.3 4.9 6.8 9.3 10.1

100.0 3.7 6.7 5.1 6.9 9.2 9.7

41.3 45.9 49.0 51.3 54.9 59.5

22.7 31.7 35.2 37.8 42.8 51.1

5.3 6.2 7.4 16.8

6.4 8.2 12.4 30.6

6.1 7.7 11.7 33.2

65.8 70.8 78.5 100.0

60.0 63.8 80.0 100.0

-

Wages per regular worker

-

Value added per regular worker

-

Source: Ministry of International Trade and Industry, Kogyo Tokeihyo (Census of Manufactures), Report by Industries, 1960.

With respect to wage or productivity differentials by size of manufacturing, Table 4 shows the latest figures computed directly from the Census of Manufactures. The wage differential (in terms of regular plus temporary wages) 39

A SURVEY OF THE JAPANESE LITERATURE

was widened between 1950 and 1957, when wages in industries with 4 to 9 employees decreased to 29.8 %, but since then has been narrowed. However, in the immediate postwar years, when hyper-inflation prevailed and the food shortage was considerable, there was a period when the wage differential decreased. Such a sharp wage differential, together with the size differential in value added per man became conspicuous after the end of World War I (18, 25, 29, 100, 104, 119, 124, 142, 150, 159). Before that, factory statistics indicate that no such remarkable differential existed in Japanese Manufacturing (133 pp. 471-487). Nevertheless, the wages used above are merely wages and salaries divided by the number of workers. Against this, Mikio Sumiya raised the following points. (1) According to the Chingin-kozo Kihon-chosa (Basic Survey of Wage Structure), 1960, conducted by the Ministry of Labor, as Table 5 suggests, the wage differential by size of establishment is large only with the older workers, while it is very small for workers less than 25 years of age. Therefore, the apparent differential in average wages merely conceals the fact that in small-medium enterprises the proportion of young workers with lower wages is higher, while in large enterprises, the proportion of older workers with relatively higher wages is greater. (2) From this point of view, the so-called extraordinary 'by size' wage differential has been overemphasized. The majority of laborers in small-medium enterprises receive wages which are lower than those in large enterprises by only about 20 percent. This is not exceptional even in advanced countries. (3) Although many have emphasized that the 'by size' wage differential started to reduce in 1959, the 'by size' differential in starting wages of new male graduates from middle schools has continued to decrease from 1953 to the present (the ratio in the starting wage of the '15-99 employees' size to 'more than 500 employees' was 67.5 per cent in 1953, but 91.8 per cent in 1960). (4) Although the wage differential in small-medium enterprises (in terms of regular wages) is presumed to have widened until around 1959, this may be due to the shift to an older age composition of the employees in large enterprises and to a younger age composition in small-medium enterprises. Meanwhile, in 1960, the wage differential began to shrink partly because of a countertrend in the age composition of the two sectors (137). Sumiya's point is very interesting, but two criticisms may be raised. (1) Sumiya takes up regular wages only, but special wages (including bonus payments) have a much wider differential, and this may reduce the validity of his point to some extent. For instance, the temporary-wage differential be40

PRODUCTIVE

FACTORS

tween 'more than 500 employees' and '30-99 employees' was in the ratio 100:32.2 in 1953, while the regular-wage differential between the same classes was only 100:64.6. The figure in the Census of Manufactures includes temporary wages. (2) According to the 'Report of Comprehensive Basic Survey on Small-Medium Enterprises,' conducted by the Small-Medium Enterprise Agency, expenses for welfare facilities and wages in kind in large enterprises are more than three times higher than those in the lowest size enterprise. Moreover, in the smaller enterprises, there is an increasing number of firms which have no retirement annuity system (57, pp. 30-40). TABLE 5

Regular Monthly Wage Payments of Male Manual Workers in Manufacturing for Graduates from Primary and Middle Schools Age Size of establishment More than 1,000 employees 100-999 employees 10-99 employees

Less 18-20 20-25 25-30 30-35 35-40 40-50 More Averthan years years years years years years than 50 age 18 year years yen 7,580 11,600 15,362 21,744 28,239 32,498 36,912 26,925 % 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 yen 7,326 10,686 14,572 19,163 23,348 26,312 27,762 23,953 % 96.6 92.0 94.8 88.1 82.6 81.0 75.2 64.9 yen 7,641 10,486 13,862 16,994 18,613 20,545 20,836 18,043 % 101.0 90.3 90.3 78.2 65.8 63.2 56.5 48.8

26,938 100.0 18,987 71.0 15,303 57.2

Source: Ministry of Labor, Chingin-kdzo Kihon-chosa (Basic Survey of Wage Structure), 1960. The ratios were computed by Mikio Sumiya in (138).

Wage differentials by size of establishment may result to some extent from differences in skills between the small and large industry labor force. Differences in skills will, in turn, have some connection with the length of service. For instance, according to the Comprehensive Basic Survey of the Small-Medium Enterprises, 1957 (Small-Medium Enterprise Agency), the proportion of workers whose length of services was more than five years in manufacturing was 24.0% in factories with 1 to 3 employees, 25.8% in factories with 4 to 29 employees, 26.4 % in factories with 30 to 99 employees, 30.2% in factories with 100 to 299 employees, 54.3 % in factories with 300 to 999 employees, and 59.7 % in factories with more than 1.000 employees (112, p. 40). In manufacturing, the proportion of graduates from universities or colleges is 7.0% in factories with more than 1,000 employees, while it is 3.1 % for those with 10 to 29 employees in 1954 (112, p. 45). According to the 41

A SURVEY OF THE JAPANESE LITERATURE

Ginosha Yosei Jittai Chdsa (Survey of the Actual Situation in the Training of Skilled Workers), conducted by the Labor Standard Bureau of the Ministry of Labor, we find that a considerable gap exists between large and small enterprises in the ratios of those who received training, as Table 6 suggests. On the other hand, the unionization rate in 1956 is 88.1% in manufacturing establishments with more than 500 employees, but only 2.9 % in those with less than 29 employees (53-111 p. 85). TABLE 6

The Proportion of Skilled Workers

More than 1,000 employees 500-999 300-499 100-299 50- 99 30- 49 10- 29

Only factory experience

Training as stipulated by law

Intra-firm training

Other

%

%

%

%

60.1 73.5 70.9 81.8 84.7 87.0 89.0

22.6 14.7 12.3 5.2 3.5 2.3 2.7

14.5 7.9 13.5 7.0 6.3 6.0 4.0

2.8 3.8 3.3 5.9 5.4 4.7 4.3

Note: Quoted from (112 p. 46).

However, the following points are generally recognized as also important: (1) the labor market in Japan is divided into the large enterprise market and the small enterprise market; (2) there is insufficient labor mobility between them, because of the existence of strong enterprise unions in the large enterprises; (3) newly employed workers in large firms are primarily under a 'lifetime commitment,' with a steeply rising wage curve as a function of the length of their service; (4) the workers in small enterprises are in a rather unstable condition as a result of the menace of firm bankruptcy and the pressure of overpopulation, and the wage curve is not so steep as in large enterprises; (5) therefore, the average wage levels in the two sectors show a considerable difference (18 pp. 3-46, 129 pp. 102-109). Suchisthebackgroundforthe remarkable wage differential between different scales of firms. Takafusa Nakamura suggested the following hypothesis for the widening of 'by size' wage differentials since the end of World War I: heavy industrialization advanced, so that big firms in heavy industry were 42

PRODUCTIVE FACTORS

obliged to employ skilled workers under the 'life-time commitment' system, rendering their wages proportional to their length of employment in view of the shortage of skilled labor. However, in the period of falling prices, 1920-31, wages in small-medium enterprises, particularly in light industries, showed a strong downward trend, thus bringing about the widening wage gap between large and small enterprises (18 pp. 52-55). Concerning labor management relations and labor unions in smallmedium industry, the unionization ratio is still very low, and labor conditions are extremely bad, even in the postwar period. The paternalism of smallmedium industrialists has so far prevented the formation of unions, and laborers expect small-medium industrialists to be genial, so they do not attempt to change things (37,41,45,112,120).

B. CAPITAL

The explanation of wage differentials mainly from the angle of the labor market has so far prevailed with Japanese labor economists. However, existing wage differentials by scale of enterprise can be approached also from the capital market. They can be ascribed to differentials in the value added per man (productivity) which, in turn, can be based on differentials in capital intensity (capital/labor ratio). Further capital intensity differentials by size of firm may have been due to the concentration of capital in the relatively larger corporations. I suggested this hypothesis in 1959 (128), and Kenichi Miyazawa, in cooperation with members of the Economic Research Institute of the Economic Planning Agency, has developed this 'capital concentration hypothesis' in quantitative terms (60, 92, cf. 151). In a country like Japan, which started industrialization late but has attempted to catch up with the level of advanced countries, it would be inevitable that at one extreme of the economy there might be a big business sector highly modernized by the introduction of top-level techniques of production, and at the other extreme a vast number of medium and small enterprises which have also expanded, but with considerable lags. Moreover, since the potential for a high rate of growth in Japan is tremendous, the labor force has always been abundant while capital has been short. If the big business sector tries to introduce new techniques and to raise the level of investment rapidly, it is quite natural that investment concentrates in this sector of the economy, while in the other there arises a capital shortage. Consequently, 43

A SURVEY OF THE JAPANESE

LITERATURE

the slope of the capital intensity function between big business and smallmedium enterprises would be sharper than in other advanced economies. The affiliation between city banks and big business, the priority allocation of state funds to big business, and the like, have enhanced this tendency. The 'capital concentration hypothesis' thus is a possible explanation of the Japanese dual economy (129; on the controversy surrounding it, 59). Miyazawa and others used statistical data from (1) the National Wealth Survey 1955 (EPA); (2) the Corporate Enterprise Survey, 1957 (Ministry of Finance); and (3) the Comprehensive Basic Survey of the Small-Medium Enterprise, 1957 (Small-Medium Enterprise Agency). As an example, the results of the third study with respect to total manufacturing are shown in Table 7. Assets were standardized in terms of the valuation used for tax purpose. This is not a book value, and not a replacement cost; however, it satisfactorily shows

TABLE 7

Capital Intensity, Capital Coefficient, and Share Distribution of Value Added by Size of Manufacturing Firm Size of firms

employees 1- 9 10- 29 30- 49 50- 99 100-199 200-299 300-499 500-999 1,000 -1,999 2,000 -4,999 5,000 -9,999 10,000 and over Total

Number of firms

300,374 77,644 13,332 8,460 3,146 981 645 441

Value added per man 1,000 yen 186 289 348 420 492 564 696 780

Capital Capital intensity value added ratio

Wages per man

Wages & Salaries Value added

%

1,000 yen 69 78 91 120 166 209 309 408

0.371 0.270 0.261 0.285 0.337 0.371 0.445 0.523

1,000 yen 114 136 146 157 172 187 205 230

34.6 44.5 42.1 38.1 35.7 33.6 29.9 29.6

222

922

589

0.639

259

28.7

135

1,078

687

0.669

301

28.3

46

866

558

0.729

287

37.8

28 405,424

897 516

651 289

0.727 0.560

329 194

37.1 34.4

Source: Recompiled from the original data of the Chiisho-kigyo Sogo Kihon-chosa (Comprehensive Basic Survey of Small-Medium Enterprises), 1957. Quoted from (92, 60 p. 71).

44

PRODUCTIVE FACTORS

the rising trend in capital intensity and capital coefficients as the size of firms increases. The following relationships were obtained: O K — = 746.8 log L L W — = 0.2885 L

1, 150,

K — + 115, L

R = 0.987,

R = 0.976,

O/L is the value-added per man, W/L the wages and salaries per man, and K/L the capital per man. These ratios were computed in accordance with each of the three sets of statistics and also with respect to every industry in manufacturing. The latter result is summarized as follows: (1) capital intensity will increase as the scale of the firm increases in any industry; (2) there are three groups classified according to the 'by size' pattern of capital intensity: (a) food and beverages, textiles, wood and wood products, printing and publishing, rubber products; (b) paper and pulp, chemicals, glass and ceramics, primary metals, metal products, and (c) machinery, electric machinery, transportation equipment, and precision instruments. (3) The curve of the capital coefficient is not so steep in group (a), but is very steep in group (b). In group (c), it is striking to see that the curves of the four industries are almost the same, lying on top of each other. Comparatively, the same relations also hold for capital/sales ratios or capital/value added ratios (60 pp. 33-52). These are particularly valid for the data of the National Wealth Survey, 1955. However, Table 8 shows the results based on the Comprehensive Basic Survey of Small-Medium Enterprises in 1957. Miyazawa makes a theoretical analysis on the basis of Joan Robinson's productivity function, exploring the relation occurring between capital concentration and wage differentials (92). There are not many studies of capital coefficients or intensity by industry and by scale of enterprise in the prewar period. I computed the capital/ sales ratio of various industries based on book values of balance sheets and profit and loss statements for 1921-42, involving various manufacturing industries, as well as electric utilities, electric railroads, and shipping, and tried to explore the process or mechanism of internal capital accumulation (161-11 Chap. 2 III). However, this study is limited to relatively large businesses. There is another study which takes up capital coefficients by scale of 45

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PRODUCTIVE FACTORS

period multi-functional power-driven machines, machines for specific uses, and automatic machines were introduced and became prevalent in various industries. Further, according to the survey, technical progress in small plants was more marked in the producer goods industries rather than in the consumer goods industries, more noticeable in the export industries than those oriented to the domestic market, and more conspicuous in the mechanized industries than in 'manufacture' or handicrafts. Moreover, technical progress tended to proceed more rapidly in the six big cities than in local or rural districts, and in implanted industries rather than in indigenous industries. The analysis goes into details by each industry, but the general causes of technical progress are summarized as follows: 1. Although small-medium firms functioned merely as a cushion to big firms by utilizing cheap labor in the prewar period, suppressing technical progress to some extent, the postwar dissolution of the 'Zaibatsu' and the increasing competition among big firms, together with the urgent necessity to enhance the competitive power of exports, forced the subcontracting small-medium plants to advance their technological level. 2. In the prewar period, the persistent existence of the putting-out system deterred the dissolution of petty handicrafts and stagnated technical progress in small-medium industry. However, its weakened position after the war made it possible for small-medium enterprises to undertake positive capital accumulation and to improve their productive equipment. 3. Labor conditions changed considerably after the war. Agricultural land reform, mechanization in agriculture, and a price stabilization policy for agricultural products played vital roles in removing the cheap labor tag from workers who moved from agriculture. Labor legislation has also contributed to improving labor conditions. 4. The tendency for the income distribution to equalize and the standardization in the quality of commodities between regions has made it feasible to enlarge the number of commodities which are suitable for mass production. This has accelerated mechanization in small-medium industry, particularly in the consumer goods industry. 5. The conversion from munitions to civilian production after the war contributed to the improvement of technology, particularly in the metals and machinery industries. 6. In the prewar period, policies towards small-medium enterprises were not so comprehensive as in the postwar period. The two principal ones were 61

A SURVEY OF THE JAPANESE LITERATURE

an inspection system to avoid poor quality and an association or cooperative system for small-medium firms. From the 1920's on, however, financial measures were introduced in order to save small industry during crises. In the postwar period, various measures were implemented to assist smallmedium enterprises. The Small-Medium Enterprise Agency and a few small business financial institutions were set up. These policy and institutional changes may have contributed to the acceleration of technical progress. We shall refer to this in more detail when we take up the role of government.

E. LEADERSHIP IN SMALL PLANTS: ENTREPRENEURSHIP AND MANAGEMENT

Some economists in Japan have analyzed the basis or reason for the existence of small-medium enterprises as their 'optimum size' (117, 135, 136, 152). Others do not always adhere to this view, but rather recognize the relative character and the historical instability of the concept of 'optimum size' (particularly 39, 53-11, p. 75 ff., 53-111 p. 263 ff., 97 cf. 147). Certain Western economists, such as A. Marshall, E. A. G. Robinson, etc., have developed the 'optimum size' concept as an explanation of the existence of small business, but according to such a view, the existence of small business is supposed to be 'rational,' depending upon the state of their technology, the scope of the market, flexibility of reaction to business cycles, low wages, etc. Takizawa, however, stated that even if most of the small businesses in the United States had a 'rational' existence, small-medium enterprises in Japan should be considered as involving 'irrational' aspects as represented by the vicious cycle of low efficiency, low wages, and instability of management (177 pp. 214 ff.). T. Yamanaka assumes that the excess number of small-medium enterprises represents one of the structural problems in the national economy as a whole (177). Takizawa believes that in order for small industrialists to be more homo economicus, at least two criteria should be satisfied, omitting discussions of religious fetters or semi-seigniorial restraints which curb their freedom to behave rationally. (1) The less a small industrialist's own labor goes into his business, the larger will be the scope for monetary calculation, and the more mature will he become as homo economicus. (2) As 'individual' character decreases and 'corporate' character increases, his economic maturity will be enhanced. Therefore, if Western economists look for a reason for the survival of small business on a 'rational' basis, this presumes a high degree of maturity 62

PRODUCTIVE FACTORS

on the part of the small industrialist as a homo economicus. However, A. Beacham's 'inertia,' I. Steindl's 'gambling attitude of small entrepreneurs,' and P. S. Florence's 'hopefulness in the human breast' are examples which emphasize the 'non-homo economicus' aspects of small business even in Western countries (178 pp. 237-38). Yamanaka, on the other hand, points to the 'resignation of the small industrialist who may believe that small business is not so profitable yet enjoys being an independent leader, rather than a general employee' (178 p. 25). Takizawa insists that although the rationalization and reorganization of small-medium enterprises should be carried out, together with an antimonopoly policy, and a social security system, satisfactory results will not be obtained unless a policy for orienting the small industrialist toward becoming homo economicus is followed. To do that, it will be necessary to pursue policies of education or enlightenment to eliminate the 'worker's color' and wipe out the 'sense of individuality' held by management (178 pp. 244-245). Hiroshi Noguchi analyzes the social origins of the entrepreneur-managers of small-medium enterprises, according to the Tokyo Shoko Kaigisho's (Tokyo Chamber of Commerce and Industry) Survey of Actual Situation of Managers in Small-Medium Enterprises, conducted in 1958 (53-111 pp. 237 ff.). Some of his conclusions are as follows: Of the managerial staff in small enterprises, those who are related to the owners amount to 43 %, while 27.1 % are those who are not relatives but former employees and 23.7% come from outside of the enterprises. The remaining 6.2 % are unknown. These figures indicate that the managerial staff of the small-medium enterprises are still dominated by the families of the owners, but the increase in the percentages of non-family managerial staff seems to be significant. While this shows a tendency for the members of the entrepreneurial staff to increase, it does not deny that inbreeding still exists in small-medium enterprises (53-III pp. 242 ff.). However, running parallel with increasing technological progress and oligopolistic competition among large enterprises since the war, smallmedium enterprises, particularly those under the subcontracting hierarchy, have been obliged to improve their business management in relation to their productive equipment, cost accounting, and sales and production management techniques. As a necessary consequence, even in small enterprises, a separation of ownership and management has gradually developed. Nevertheless, small industrialists who are 'relatives' of the founder of the enterprise occupy about two-thirds of the management positions, with the second 63

A SURVEY OF THE JAPANESE LITERATURE

generation composing 73.1 % and the third generation 18.9% of this share. 1. When analyzed by industry, the proportion of relatives from beyond the third generation is higher in the food industry and lower in the machinery and chemical industries. In the same way, the degree of inbreeding in the staff is higher in the consumption goods industries, like textiles, but is lower, for example, in the chemical industry. In the machinery industry, the proportion of the staff composed of unrelated employees is increasing. In heavy chemicals, the external origin of entrepreneurial control is increasing. 2. Quite naturally, the degree of nepotism decreases as the scale of the enterprise increase. 3. It should be noted that the proportion of engineers on the staff is 25 % in 'independent' small-medium producers, 28% in 'subcontracting' smallmedium producers and 36% in 'sub-contracting and independent' smallmedium producers, the so-called 'Kigyo-keiretsu' (vertical interfirm hierarchy) producers. This indicates that producers, particularly under the vertical production hierarchy, are in urgent need of engineer entrepreneurs in order to cope with rapid developments in technical progress. Genroku Suematsu believes that the essence of small industrialists lies in their 'individualistic' character, perhaps as a 'lord of a small castle', and he classifies their types according to the analysis of John Perry {Human Relations in Small Industry, New York, McGraw Hill 1954, pp. 141-144): (1) the paternalistic type, (2) the one-man type, (3) the worry-wart, and (4) the modern manager. His breakdown of second generation managers is as follows: (1) the heir, (2) the adopted son, (3) the employee, and (4) the 'from outside' manager who also does not always have managerial talent. The adopted son may be talented but may fail to exert his ability because of interference by his wife. The third, who came up from the ranks of the employees, will, in general, lack the 'one-man type' character but may attempt to apply scientific management. However, he may not be able to understand the human ability of his employees. The 'from outside' type is an expert trained as a manager, a former engineer with technical knowledge, an official dispatched from the relevant company, or a man representing the bank or stockholder's interest. He is quite rational in management but often lacks boldness, and the management of a firm in his control sometimes becomes bureaucratic. (135 pp. 282-283, 136 pp. 693-695). Mogi Takatani classifies the small enterprise managers into two types: (1) the artisan-workman-engineer, and (2) the shop-clerk. The former is a producer who is experienced in the productive techniques and includes those 64

PRODUCTIVE FACTORS

who were formerly skilled workers. They are very often found in subcontracting firms in the metal and machinery industries and tend to fail in recessions owing to their biases as technicians. The latter, a merchant-type manager, is often found in textiles, but has defects as a technician. The former bases his actions on hunch and experience as well as on artisanship. The latter inclines towards traditional salesmanship based on good-will and will not be free from broker-type commercialism. Both tend toward traditionalism and lack modern management ability and they are also slow to improve human and labor relations. The development of good labor-management relations tends, therefore, to be unlikely (110-1 pp. 231 if.).

F. MARKETS AND THE DEMAND FOR PRODUCTS OF SMALL INDUSTRY

In Japan, unlike other countries, a large number of small-medium enterprises are under the subcontracting hierarchy, and in some industries they are forced to depend on foreign markets, rather than the domestic market. The words Kató-kyósó (excessive competition) and Genryo-daka no Seihinyasu (higher prices for raw materials and lower prices for finished commodities) can be seen in almost every textbook on small-medium industry. For subcontracting small-medium enterprises, the processing fee always tends to decline very sharply in a recession. For example, the processing fee for fountain pens almost halved in 1957-58 (5-IV p. 161), and that for acetate and nylon weaving plants under subcontract to a big textile corporation declined to almost one-third from January 1957 to April 1958 (128 p. 113). A questionnaire gives us a comparable figure with respect to the muffler processing fee for 1949-58 in the Kiryü district (53-11 p. 190). These phenomena are gradually disappearing, but until very recently they often occurred as a result of the cut-throat competition among small-medium plants and the overwhelming pressures from large enterprises. Small-medium enterprises are flexible in the sense that they can produce various kinds of products in any quantity in response to a customer's demand, thus sustaining their market. However, in this case, they always depend upon cheap labor and cost reduction through mass production is not feasible. Therefore, specialization by small-medium enterprises which devote themselves to the production of standardized commodities or to a smaller number of commodities than before, may bring about to some extent an expansion of their market by reducing costs and promoting a social division of labor 65

A SURVEY OF THE JAPANESE LITERATURE

(53-ni pp. 116 ff.). In this case, they can be independent producers in that they may sell their products not to a particular big enterprise, but to a number of unspecified big enterprises. Actually, however, even this does not guarantee stability for small plant management, for, as in the case of the sewing machine or bicycle industries, purchase prices of parts produced by subcontracting parts makers were always cut down, whether they were dependent or independent. Small-medium assembly makers, for example, must go into the export market, for the big producers with their famous brands as well as with their wide sales networks tend to occupy the domestic market. Thus, many small-medium plants who rush into the export market are obliged to undergo coercive price cuts necessitated by the competition from the big export corporations or wholesale dealers (53-111 p. 117). This excessive competition brings about an aggravation of their payment conditions and a shift of their financial troubles to the subcontractors. In general, orders from large enterprises to subcontractors are understood to be 'at the limit.' i.e., coercive from the viewpoint of small-medium subcontractors. Kinji Nakayama and Mutsumi Watanabe made an analysis of the electric machinery industry in this respect (53-111 p. 123). One of the most interesting aspects in the export composition of postwar Japan lies in the duality of her export markets, i.e., in general, capitalintensive commodities are exported to the underdeveloped countries, and labor-intensive ones to the advanced countries. Among the exports to the advanced countries are included the following commodities: (1) special products, like sea food and silk, (2) products of household industries or small enterprises which do not need a high technical level but must be made by hand, with a high proportion of the wage cost included in total cost, e.g., blouses, gloves, plywood, nails, nuts and bolts, toys, and underwear; and (3) goods the mass production of which is difficult and necessitates a high level of technique but entails a high proportion of labor cost, such as tankers, steel ships, binoculars, radios, and cameras. Although the third group is increasing, the share of the second group is still high. As example of export commodities directed to the underdeveloped countries, we might mention cotton and spun rayon fabrics, chemical fertilizer, iron and steel, heavy electric equipment, and construction machinery, all of which are products of modern industries. But the proportion of machinery exports still is not high. Such a duality of exports is basically the result of the existence of the dual structure in the economy, the co-existence of highly modernized industries, on the one hand, and small industries and agriculture, on the other (55 pp. 66

PRODUCTIVE FACTORS

88 ff.). Chikao Tsukuda's study makes clear that when various industries are separated into eight classes in terms of wage levels, those with relatively lower wages have higher export quotients. At the same time, some of the products from relatively higher wage industries, e.g., iron and steel, shipbuilding, glutamic acid soda, etc., also have high export quotients. Thus his analysis also supports the dual character of Japanese exports (160). There are several studies of small-medium enterprises in the Japanese export industry, such as Zenichi Takitani, ed., Yushutsu Zakka Kogyo-ron (On the Export Industry of Miscellaneous Commodities) (144), and Wagakuni Senikogyo no Yushutsu Shinchoryoku (Export Potentials of Japanese Textile Industry) (143), together with many other scattered works. In the postwar period, the Osaka Furitsu Shoko-Keizai Kenyusho (Osaka Prefectural Institute of Commerce and Industry) has published many studies, e.g., Yushutsu Chusho-kogyo no Keizaikozo, in mimeographed form. The latter was incorporated in a volume published under the same title by the Oriental Economist as one of the series of Chushokigyo Kenkyu (Studies in the SmallMedium Enterprises (5-IV). This includes a most detailed analysis of the historical development of small-medium export industries, their market and production structures, their labor force, and pricing in relation to textiles, iron and steel, food, and miscellaneous commodities. The Chusho-kigyo-cho and Chiho-Chosakikan Zenkoku Kyogikai (Small Medium Enterprise Agency and National Association of Local Research Organizations), ed., Yushutsu Chusho-kogyo no Jittai Chosa, (Surveys of Actual Situations of Small-Medium Export Industries), 1957, is also useful, giving us detailed information on various export industries. The Osaka Prefectural Institute of Commerce and Industry also played an important part in this research (7). The Osaka Prefectural Institute of Commerce and Industry has presented an estimate of the proportion of exports contributed by small-medium firms, using a detailed industry classification for 1952-55 and 1956-58 (114, 115). These results are not based on a completely reliable method of estimate, but in view of the deficiency of the data in this area, they are at present most widely used. The ratio for manufacturing as a whole is somewhat over 50 % contributed by small-medium enterprises (with over 200 employees) in 1955, compared with Yoshihiko Taniguchi's estimate of 47.1 % for 1929-33 (102 p. 77), (5-IV p. 190). Besides these, we have two other estimates: (1) one based on the Chusho-kigyo Sogo Kihon Chosa (Comprehensive Basic Survey of Small-Medium Enterprises) conducted by MITI in 1959; and (2) the Chushokigyo Kinyu-Koko (Small Business Finance Corporation) survey conducted 67

A SURVEY OF THE JAPANESE LITERATURE

in 1958 (10). Masatoshi Yoshino has attempted to reconcile these figures (184). Rising prices for raw materials and falling prices for finished commodities have been common not just in the postwar period. Prewar small-medium cotton weaving plants were beset with a relative price decline of their woven fabrics and a tendency toward relative price increases in imported raw cotton and cotton threads, which were mainly produced by big spinning corporations, particularly after the devaluation of the yen in 1932. This was possible because, on the one hand, small-medium enterprises served as a cushion for shifting disadvantages due to the aggravation of the terms of trade and the higher relative prices of raw materials, and, on the other hand, because the big spinning corporations were in oligopolistic positions with respect to price formation (161-1 p. 308 if., 161-11 p. 319 ff.). The same thing happened in other industries, insofar as the small-medium plants were subcontractors of big enterprises, and the so-called 'small-medium industry problem' became the object of much discussion (177 pp. 158 ff.).

68

III. Interrelationships Among Firms and the Industrial

Structure

A. INTERRELATIONSHIPS AMONG SMALL-SCALE PLANTS

Before going into this problem, it may be of interest to sketch the competition which existed long before the war among different silk weaving districts. Eiichi Horie and Yoshio Kobayashi analyzed the rise and fall of the Kiryu weaving district (in Gumma Prefecture) and the competing advance of the Ishikawa and Fukui weaving districts (5-1 pp. 234-277, 24, 63). Before 1891, Kiryu accounted for more than 80 % of the total production of 'Habutae' (a kind of silk fabric) in Japan, yet its share decreased to a little over 10% around 1900 and further dropped to 1 or 2% in 1903-10. Meanwhile, 'Habutae' production in Ishikawa and Fukui increased at a very rapid rate. The reason for this is easily seen. Although in Kiryu 'manufacture' production as well as factory production and the adoption of corresponding technology and machinery existed from around 1890, 'merchant capital' dominated the 'manufacture' plants. In 1905, factories constituted only 1 % of all weaving establishments, and their weaving looms were 10% of the total. Establishments or households which worked under the putting-out system formed an overwhelming proportion, 87 %. Thus, in Kiryu, development in the Meiji Period was based on petty establishments under the putting-out system and was not oriented to factory production in its real sense. However, in Fukui and Ishikawa, silk weavers started from the beginning as a 'manufacture,' with the most modern equipment available, the 'Battan' and the 'Jacquard' looms, and without any domination from 'merchant capital'. It is also interesting to note that when Kiryu was prosperous the Kiryu 'Habutae' was mainly sold on the domestic market, while the Ishikawa and Fukui 'habutae' had higher export quotients, excluding Kiryu from its zone of competition. 69

A SURVEY OF THE JAPANESE LITERATURE

In view of the instability of small-medium enterprises as a result of suppression by big firms, excessive competition among themselves, and unfavorable pricing practices, it is hardly surprising that they organized into an association 33, 53-11 p. 275 if. 102,178). The 'Kogyo Kumiai' (Manufacturing Association), set up in 1925, was significant in that it excluded merchants, particularly the 'Toiya' (wholesale dealers), and aimed at creating cooperation among small industrialists in order to eliminate small industry troubles, e.g., redundancy, lack of orders, shortage of funds, and inefficiency of distributive systems (1, 35,141). The association was reorganized in 1931, 1933, and 1937. It combined a cooperative system with cartel regulations, but even this state orientation could not overcome the power of wholesale dealers utilizing the putting-out system. On the other hand, the 'K5gyo Kumiai' was effective in providing a measure of control over the economy after its revision in 1937. Its character was further changed by the wartime economy. Kaname Akamatsu made a questionnaire survey in 1935 (1). Among the questions asked were the following: 1. Did the operations of the 'Kogyo Kumiai,' such as joint purchases, joint sales, joint borrowing, various agreements on customers, prices, and production, have any influence upon the relationship between the 'Toiya' and the association? 2. Did the 'Toiya' also join the 'Kogyo Kumiai,' or were any reconciliations arrived at between them? 3. Did the formation of the 'Kogyo Kumiai' contribute to an improvement of employment and wage conditions? 4. What successful results and what difficult problems did the 'Kogyo Kumiai' have? Some of the results obtained were: (1) the 'Kogyo Kumiai' tended to reject local middleman merchants. Although the controlling power of the 'Toiya' decreased in the association, which involved many producers, the 'Toiya' in turn tried to set up the 'Shogyo Kumiai' (Commercial Association) and the 'Yushutsu Kumiai' (Export Association) and to expand their own or those they controlled. This necessarily tended to set up the 'new putting-up factory system,' as Komiyama calls it. (2) However, the 'Kogyo Kumiai' did not involve artisans or laborers in household industry, and its formation did not seem to improve labor conditions much. Since the war, the representative associations for small-medium enterprises have been: (1) the 'Kyodo Kumiai' (Cooperative) system based on the 70

INTERRELATIONSHIPS AMONG FIRMS AND THE INDUSTRIAL STRUCTURE

Chüshó-kigyó-to-Kyódó-Kumiai-hó (Act for the Cooperatives for smallMedium Enterprises, etc.) of 1949, and (2) the 'Shókó Kumiai' (Commercial and Manufacturing Association) system based on the 'Chüshd-kigyó Dantai no Soshiki Ni kansuru Horitsii (Act for the Organization of Small-Medium Enterprises) of 1958, although there have been some changes in the systems and their names. The purpose of the former is cooperation based on mutual help, joint economic activities, and the rationalization of small business management. The 'Commercial and Manufacturing Association' aims to overcome excessive competition among small-medium enterprises and attain stability in their management. The 'Cooperative' is divided into six categories of which two are the Jigyo Kyódó Kumiai' (Business Cooperative), and the 'Kigyo Kumiai' (Enterprise Association). The ratio of participation is estimated at around 40%, and as the Business Cooperative is mainly an association for borrowing and the Enterprise Association a tax-alleviating association, these cooperatives could prove helpful for small enterprisers in providing for their financing and relief of their taxes. However, instead of financing through the cooperatives, small-medium enterprisers gradually have moved to direct borrowing from city banks, and cooperative efforts by small-medium firms have tended to weaken because of the development of the vertical hierarchy with oligopolistic big enterprises at the top. Therefore, despite the number of participants, the majority of these organizations are sometimes viewed as 'Sleeping' associations. Although the 'Shoko Kumiai' (Manufacturing and Commercial Association) aims at securing stability in business and strengthening the basis for the modernization of small-medium enterprises, in actuality it is an agency for the internal adjustment of the burdens shifted from big enterprises. The so-called small-medium firms are defined as enterprises with less than 300 employees (in the commerce and service trade, less than 30) or with capital of less than ¥ 10 million, but there is a big gulf between petty businesses with less than 10 employees and those with more. Even if petty businesses were forced to participate, a new set of troubles might necessarily arise. Thus, any attempt to overcome excessive competition by organizing the 'Shókó Kumiai' would bring about a coercive shutout of little enterprises in order to regulate mutual relationships (53-11 pp. 275 ff.). As Taikichi Ito pointed out, 'when small-medium enterprises are compulsorily organized in the present state, in which they do not understand the purpose and where they do not grow up sufficiently, the organization is apt 71

A SURVEY OF THE JAPANESE LITERATURE

to be swayed by bosses, and in the end the weak petty enterprisers are in danger of being forcibly exiled' (38 p. 150). A nationwide movement for the defense of small-medium enterprises has continued to emerge since the war. In the immediate postwar years, the Nihon Kögyösha Dömei (Alliance of Japanese Industrialists), the Kantö Shökö Saiki Remmi (Alliance for the Recovery of Commerce and Industry in the Kantö District), the Kantö Kigyösha Remmi (Alliance of the Enterprisers in the Kantö District), the Tökyö Chüsho-kögyö-Kumiai (Tokyo SmallMedium Industry Association), and the Nihon Seisan Gassakusha Kyökai (Japan Society for the Production Cooperatives) have appeared. The Zennihon Chüshö-kögyö-Kögyögikai (All Japan Council of the Small-Medium Industry) was formed in 1947, and the Nihon Chüshö-Kigyö Remmi (Japanese SmallMedium Enterprise Alliance) in 1948. In 1955, the Zennihon Kourishö Dantai Remmi (All Japan Alliance of Retail Traders) was organized. In 1956, the Nihon Chüshö-kigyö Seiji Remmei (Japanese Political Alliance of SmallMedium Enterprises) emerged. All these organizations attempted to reduce taxes, promote foreign trade, accelerate subcontract payments, and the like. However, on the whole, it is doubtful whether these bodies have contributed to the strengthening of small-medium enterprises (5-II pp. 296 if.).

B. INTERRELATIONS BETWEEN SMALL-SCALE AND LARGE-SCALE PLANTS

Takafusa Nakamura and Itasu Sakura have presented an interesting study, based on input-output analysis, on the interrelationship between small and large enterprises (5-II pp. 45 ff., 98). They relate the output and input given in the input-output table of 1951 to those of small and large enterprises under certain assumptions and obtain the results shown in Table 12, in which the composition of manufacturing output and input allocated among different sectors is computed in percentages. When looking at the table indicating output allocation, we see that small enterprises provide 55.1 % of their production to the endogenous sector (intermediate product transactions), while large enterprises provide 74.5%. This indicates how close small enterprises are to the final demand, and how remote large enterprises are from it, located as they are in the earlier phases of production. In the composition of output allocation within manufacturing, too, output flows from large to small enterprises are almost three times as much as that from small to large enterprises in the proportions of 26.7 % 72

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INTERRELATIONSHIPS AMONG FIRMS AND THE INDUSTRIAL STRUCTURE

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73

A SURVEY OF THE JAPANESE LITERATURE

vs 9.2%. In the composition of final demand (not indicated in Table 12), consumption expenditure is ¥710 billion, inventory investment ¥195 billion, and fixed investment ¥ 145 billion yen in the case of small enterprises, while they are respectively ¥323 billion, ¥700 billion, and ¥227 billion in the case of large enterprises. In the input structure (Table 12-B), input flow within large enterprises is quite high, 31.9% while that from large to small enterprises is also high, 26.2 %. Nakamura and Sakura provide an analysis of repercussion studies and the comparison of the inter-industry structures of 1951 and 1955, in terms of the relations between large and small enterprises (98). Representing the standpoint of Marxist economists, Shinzo Ushio states that small-medium enterprises are located between semi-seigniorial agriculture, with its retarded capitalist development, and the highly developed summit, 'monopoly capital,' and function as an intermediary for the exploitation of the former by the latter (167). However, according to more orthodox thinking on capital accumulation and its concentration, the survival of small-medium enterprises is an exceptional case, because Marx considered the process of capital concentration as one of squeezing out small enterprises. On this point, Isamu Kitahara and Shuichiro Nakamura have developed the following theory: even in the stage of 'monopoly capitalism,' the strengthening of 'monopoly capital' domination and the concentration of capital result in the survival or expansion of small 'capital'. There are several reasons for this. 1. In the industrial sector, in which big 'capital' overwhelmingly dominates and has a strong price leadership, the portion of output produced by small enterprise would be trivial, and it seems pointless to completely eliminate it by additional investment which will reduce big 'capital's' own rate of profit. 2. When high oligopoly prices are sustained, this makes it possible for even small enterprises with a lower labor productivity to survive or expand. 3. Since 'monopoly capital' exploits high monopoly profit through oligopolistic behavior, subcontracting, and so forth, capital accumulation will be interrupted in the relatively competitive sectors in which small enterprises predominate. In such a sector, small 'capital' will rush in, promoting excessive competition and making possible the persistence of small enterprises. 4. 'Monopoly capital' will try to integrate the distributive process into production, by making use of their sales techniques and advertisement. 74

INTERRELATIONSHIPS AMONG FIRMS AND THE INDUSTRIAL STRUCTURE

This brings about considerable duplications in transportation, storage, and other distributive processes and enlarges the scope of survival for small enterprises, particularly in the commerce and service industries. The resale price system used by 'monoply capital' intensifies this tendency. 5. The upsurge of investment in the stage of 'monopoly capitalism' will possibly produce in the next phase a downswing or stagnation in investment, so 'monopoly capital' will tend to make extensive use of 'small capital'. 6. Structural unemployment or relative overpopulation occurring in a severe depression or in the stage of 'monopoly capitalism' will automatically give rise to petty business (53-11 Chap. 2-3,97 pp. 27 ff.). Kitahara analyzed the competitive and complementary nature of large and small enterprises in the process of capital accumulation and concentration in the postwar period. He divides the area in which small-medium enterprises exist into the following: 1. that in which 'monopoly capital' is competitive with them; 2. that in which the 'vertical interfirm hierarchy' develops under the sway of 'monopoly capital;' and 3. that in which domination by 'monopoly capital' is indirect (53-11 pp. 108 ff.). As examples of the first, he gives the grain-flour and bakery industries. In the former, the cumulative concentration ratio in production of the four largest enterprises increased from 44.8% in 1951 to 58.3% in 1955; the tendency to squeeze out small enterprises can be seen here. In the bakery industry, there have been many petty or small-medium enterprises operating under handicraft techniques but automation or mechanization has become possible with the postwar transformation of the people's dietary habits and increasing demand, as well as with the progress of technology. Large-scale mechanized plants have developed with expanding sales networks. In Suginami-ku, Tokyo, the number of bakery plants decreased sharply from 95 in 1954 to 47in 1959 (53-11 p. 111). Interfirm vertical subcontracting has been strengthened in industries of the second type. Not only with a view toward economizing fixed capital, evading the instability of business fluctuations, and making use of cheap labor, the strengthening of the 'Keiretsuka' (Vertical interfirm hierarchy) has now also become imperative for some of the big enterprises in order to reduce their costs and increase their competitive export power. Consequently, this involves reshuffling and drastic rationalization of the production process 75

A SURVEY OF THE JAPANESE LITERATURE

of subcontracting plants. For instance, in the automobile industry, in order to cope with foreign cars, the low level techniques of subcontracting partsmakers have now become a significant hindrance, so, for example, the introduction of transfer machines, and the adoption of the supermarket system (synchronization of the production process in, say, big 'Toyota' or 'Nissan' plants with deliveries of parts produced by the subcontracting producers), have required the subcontractors to rationalize and modernize their production processes. The 'Keiretsuka' has developed in other areas than the parts assembly industries. It is also seen in industries such as secondary steel products, textiles, and vinyl chloride. In the textile industry, technical progress in subcontracting plants tremendously surpasses that in non-subcontracting plants. In the electrical machinery industry, small-medium enterprises producing a variety of finished commodities were taken into the subcontracting hierarchy in order to sell their products under the brand names of large enterprises, e.g., electric fans, electric cookers and flashlights. The sphere of small-medium enterprises in which 'monopoly capital' domination is indirect covers more or less every other field because, according to Kitahara's definition, exploitation will also take place in the form of monopoly prices for raw materials or intermediate products (53-11 pp. 115 ff.). Analyses of the 'Keiretsuka" have been taken up by various economists. Yoshio Kobayashi, ed., Kigyd-keiretsu no Kenkyu (Studies of Vertical Interfirm Hierarchy), Hitoshi Misonou, Nihon no Dokusen (Monopoly in Japan), and one of the Oriental Economist series, Kodo Seicho-katei niokeru Chushdkigyo no Kozdhenka (Structural Changes of Small-Medium Enterprises in the Recent Process of High Rate of Growth) are representative studies (5-IX, 66, 87, cf. 141). In particular the last book includes the results of a special survey, conducted in 1960-61 by the Osaka Prefectural Institute of Commerce and Industry, of industries such as automobiles, shipbuilding and other transportation equipment, industrial machineries, and light electrical machineries. This is one of the most detailed studies of the hierarchical subcontracting system in recent years. Taking, as an example, the automobile industry, 'Toyota' and 'Nissan' have cooperating organizations, 'Ky5ho-kai' (148 companies) and 'Takara-kai' (98 companies), respectively. In this industry, the 'outside order' ratio is very high, about 70%. Therefore, the value of parts under subcontract plays a decidely significant role in the pricing of 76

INTERRELATIONSHIPS AMONG FIRMS AND THE INDUSTRIAL STRUCTURE

automobiles. In the subcontract hierarchy, we could mention various types of companies. In the case of the 'Kyoho-kai,' it involves (1) the major producers group supplying basic materials or technical parts, (2) the direct affiliates producing basic parts (10 companies), and (3) the subcontractors receiving processing orders or the small parts makers. Setting aside (1), the large enterprises we see within groups (2) and (3) a recent tendency to specialize highly and to mass-produce a smaller number of parts types. Thus, it has gradually become necessary for them to break through the narrow market restricted by the closed subcontracting system. The parts makers have now faced their need to do away with the fetters of the dual economy and to widen their sales of parts to an unspecified number of large enterprises. In the heavy machinery sector, the complementary nature of the hierarchy between small-medium and large enterprises, with the latter at its summit, makes up an organic system. However, in the light machinery sector, we have small-medium enterprises subordinate to large firms, on the one hand, and 'independent' medium firms not belonging to any large enterprise, on the other. The makers of parts for television sets, and radios, include several independent firms of medium size which supply the majority of parts, such as 'Murata Seisakusho,' and 'Mitsumi Denki,' (5-IX p. 124). In the postwar period, there has been a conspicuous decline in the position of 'merchant capital' in response to the increase in the supremacy of 'industrial capital' in the process of heavy industrialization (e.g., 53-11 pp. 173 ff.). Nevertheless, there are still many petty businesses or household industries, particularly in the 'Zakka' (miscellaneous commodities) industry, under the putting-out system. These include the production of chinaware, imitation pearls, umbrellas, artificial flowers, fancy mats, lenses for glasses, toys, gloves, hosiery, and knives, which depend upon the handwork of a lowwage labor force in city slums, household industry, and the side-work of farmer. However, these small enterprises which are dependent upon paying the lowest possible wages will be faced with a threat not only from the increasing labor shortage and the narrowing of wage differentials, but also from the enforcement of minimum wages (53-IV p. 219, 86, 112 p. 170 ff.).

77

IV. The Role of Government in the Supervision, Support, and Regulation of Small Industry

A. THE CHANGING EMPHASIS IN GOVERNMENT POLICY

When the so-called 'small-medium industry problem' was first recognized by economists or policy-makers in the 1920's, emphasis was placed on defending small-medium enterprises from the pressures of large enterprises, as well as from general business depression. Therefore, laws for reorganization and specific financial measures played a major part in government policy (e.g., 177 pp. 145 ff.). However, during the war the urgent problem was how to reorganize smallmedium enterprises in order to cope with wartime requirements such as the expansion of munitions production capacity. This aroused discussions on the problems of changes in occupations and unemployment, on the one hand, and of how to use or develop the subcontracting system in order to facilitate the nation's productive capacity, on the other. There are several studies on the first question by T. Yamanaka, ed., Tenshitsugyo Mondai (Problems of Occupational Changes and Unemployment), etc. (173). On the second, the famous Komiyama book, Nihon Chushokogyo Kenkyu (Studies in the Japanese Small-Medium Industry), is said to have provided theoretical support because of his assumption that the subcontracting system, dominated by 'industrial capital,' is more advanced, from the point of view of capitalist development, than the putting-out system, which is controlled by 'merchant capital' (75). Compared with prewar policy inclinations, those of the postwar period are somewhat different. On the one hand, laws, measures, and institutions have been brought to life, whether or not they have played an effective role. On the other hand, there was a consciousness that, in the process of a high rate of growth, the productivity differential of small-medium enterprises had 78

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been widened. The need for strengthening small-medium enterprises in technology, organization, productivity, and financing, had become apparent, not only with the coming structural changes in the dual economy, together with increasing labor shortages but also with the liberalization of foreign trade. As T. Yamanaka pointed out, since small-medium industry has a 'heterogeneous and multifarious structure' within itself and is closely intermingled with the larger enterprises hierarchically through subcontracting and other systems, the problem has come to be dealt with much more widely and extensively. Although he emphasized that before the war small-medium industry involved within it nationwide problems and could not be taken up in a truncated way, it is in the postwar period that the difficulties of smallmedium enterprises have been most broadly recognized. According to him, it should be treated as a problem of'industrial structure policy' (177, p. 152). In 1948, the Chusho-kigyo-cho (Small-Medium Enterprise Agency) was set up with the view of promoting the sound development of small-medium enterprises. Early in the postwar period, emphasis was placed upon financial measures, reorganization, and business diagnosis and guidance (on the business diagnosis system, see 53-111 p. 211 ff.). In the first phase after the war, financial measures were looked upon as important, in view of the 1949 and 1954 depressions, but at the same time the 'Chusho-kigyo Antei-ho' (Act for the Stabilization of Small-Medium Enterprises) was enacted in 1953, for the purpose of bringing about stabilization through the adjustment of output, equipment, and prices, and the 'Chosei-Kumiai' (Adjustment Association) was organized. In 1958, the 'Adjustment Association' was absorbed into the new'Shoko KumiaV (Commercial and Manufacturing Association), but these functioned for the stabilization and rationalization of small-medium enterprises and were important associations, together with the 'Kyodo KumiaV (Cooperatives), for their mutual help and activities. In addition to these, we have the 'Yushutsu KumiaV (Export Association), based on the 'Yushutsunyii Torihiki-ho' (Export-Import Transactions Act) of 1952, for agreement on quality, quantity, prices and designs. There is also the 'Hyakkaten-hd' (Department Store Act) for the protection of small merchants and for the reconciliation of department store activities, and the 'Shitauke-daikin Shiharai Chien to Boshi-ho' (Act for the prevention of the Delay in Subcontract Payments) for small-medium enterprises. We have already referred to financial measures and the establishment of financial institutions for small business, in the discussion on the 'Sources of Finance for Small Plants' (Chapter II, Section C). 79

A SURVEY OF THE JAPANESE LITERATURE B. THE FUNDAMENTAL LAW OF SMALL-MEDIUM ENTERPRISES

A most remarkable event happened in 1961, when the 'Chüshó-kigyd Kihonhó' (Fundamental Law of Small-Medium Enterprises) was passed. This is, so to speak, a constitution for policy orientation toward small-medium enterprises in order to improve interfirm productivity and narrow wage differentials and to cope with changes of the base on which small-medium enterprises depend. It does not stipulate substantial items such as other laws or acts, but it does highlight the orientation of small-medium enterprise policies and the goals and major contents of these policies, for example, while entrusting the actual measures to other acts. This is a short law, consisting of seven chapters and twenty articles. It emphasizes the necessity of enhancing the level of living of small enterprisers, the elimination of disadvantages due to their economic and social restrictions, and the promotion of their ingenuity and spontaneous efforts, in the face of new situations in which the industrial structure undergoes drastic changes. The economy must, it emphasizes, follow a balanced growth pattern by strengthening the competitive power of the nation's industries. It obligates the government to follow the measures, in a synthetic way, of (1) modernization of equipment; (2) promotion of technology and education of engineers; (3) introduction of modern management methods; (4) optimization of size and group action or use; (5) rectification of unfavorable trade conditions or subcontracting practices and prevention of excessive competition; (6) enhancement of exports of or demand for commodities or services which the small-medium enterprises provide; (7) regulation of business activities of other enterprises, so as to secure for small-medium enterprises an appropriate opportunity for their activities; and (8) improvement of labor relations in their enterprises, promotion of employee welfare, and ensurement of the necessary labor force. The law also stipulates the object or scope of smallmedium enterprises, as well as tiny enterprises. Logically, all laws already enacted fall under this law, but the acts or their revisions related to small-medium enterprises which passed in the 1961 Diet totaled ten. Among them, we will discuss a few briefly. 1. The Chüshó-kigyd Kindaika Sokushin-hd (Act for the Promotion of Modernization of Small-Medium Enterprises) - for specific industries in which the swift modernization of small-medium enterprises is needed, synthetic measures can be attempted on the basis of any appropriate modernization plan. 80

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2. The Chusho-kigyo Kindaika Shikin Josei-ho (Act for the Provision of a Small-Medium Enterprise Modernization Fund) - for the modernization of equipment, the joint use of equipment by cooperatives, the group activities of factories, the merger of small-medium enterprises, and the setting up of industrial estimates and super-markets by small merchants; subsidies or loans are provided from the central or local governments. 3. The Chusho-kigyo Toshi Ikusei Kabushikikaisha-hd (Act for the Promotion of the Small-Medium Enterprise Investment Company, Limited) - this aims at promoting investment in small-medium enterprises and increasing the proportion of their capital. It can accept new stocks issued by the enterprises in the important industries and provide guidance on managerial and technical problems. Offices were set up in Tokyo, Osaka, and Nagoya (6).

C. TAXATION PROBLEMS

Concerning taxation for small-medium enterprises, it is difficult to compare private enterprises and corporate ones, for it is not clear to what extent the evasion of taxes by smaller enterprises is greater than that by larger ones. However, if we assume this problem does not exist, then the rate of tax burden will be lower by 20 to 30 % in corporate business than in individual business, according to an estimate by the Japan Productivity Center (102 p. 182). Generally, we can assume that in small enterprises tax evasion is more prevalent than in large enterprises, but the statistics apparently tell us that the present tax structure is wholly favorable for the big corporations. This mainly results from the fact that big corporations always take advantage of the so-called 'Sozei Tokubetsu Sochi' (Special measures for taxation). (1) The voluntary revaluation of real assets was approved in 1950, 1951 and 1953 in order to avoid the possibility of book profits due to hyperinflation and undue taxes on enterprises. Consequently, the larger enterprises revalued up to the limits allowed, while many small-medium enterprises either failed to revalue their assets or left them under-valued even after revaluation. Thus, the revaluation decreased the tax burden of big enterprises, while it may have adversely affected small enterprises. (2) The extraordinary depreciation system aims at stepping up investment and modernization of industrial equipment by encouraging enterprisers to 81

A SURVEY OF THE JAPANESE LITERATURE

carry out advanced depreciation of fixed assets. For example, a 50% increased depreciation is approved for three years with respect to machinery, equipment and ocean-going ships which will contribute to the sound development of the national economy. A 50 %extraordinary depreciation is approved in the initial year for modernization of equipment and mine-prospecting machinery in designated industries. However, enterprises with a capital of ¥ 100 million and over accounted for 92.8 % in terms of value for the year ending January 1955, and here, too, the system proved to be advantageous for capital accumulation by larger enterprises. (3) The various reserves system aims at stabilizing the management bases of enterprises by counting additions to certain reserves as losses, e.g., reserve for bad loans, retirement allowance reserve, price fluctuation reserve, and drought reserve for electricity utilities. In this case, too, only large enterprises have benefited from the system. For instance, enterprises with a capital of ¥ 100 million and over accounted for 85.2 % in terms of cumulative additions to reserves for the year ending January 1955 (21, 53-111 pp. 285 if., 89, 185).

D. INDUSTRIAL ESTATES

Stimulated by the high rate of growth, and in line with experiences in other countries, industrial estates have appeared in various places in Japan with the support of the government. These are expected to encourage the following developments: 1. processing, transportation, storage, and inspection of commodities will be made cooperatively by the use of common facilities; 2. joint purchases or sales will be undertaken; 3. joint dormitory or welfare facilities will be established; 4. an institute for teaching techniques and training management will be set up; 5. the extension of the scale of production unit and the introduction of modern equipment will be carried out; 6. regional development will be added by alleviating the labor shortage; and 7. small-medium enterprises will be freed from the problems of noise, vibration, dust, smoke, sewage, or limitations on factory sites (5-IX pp. 164 if.). Although industrial estates are not so conspicious in the big cities, they are 82

ROLE OF GOVERNMENT IN THE SUPERVISION, SUPPORT, AND REGULATION

coming to be organized in small cities and rural areas, particularly in the metal-machinery industries. As a new large-scale machinery factory develops in the back area of an old industrial district or in a new industrial district and the local diffusion of factories becomes evident, the complementary nature of enterprises necessitates the formation of an industrial estate. One of the Oriental Economist series, 'Kodo-Seicho-katei niokeru Chusho-kigyo no Kozd-henka' (Structural Changes of Small-Medium Enterprises in the Recent Process of the High Rate of Growth), analyzes the industrial estate surrounding the Toyota Automobile Co., Ltd., in the vicinity of Toyota City, the Daihatsu Kogyo Co., in the vicinity of Ikeda City, the Tsubakimoto Chain Co., Ltd., in the vicinity of Moriguchi City, the Toyama Prefecture Machinery Industry Center surrounding the Fujikoshi Instrumental Machinery Co., Ltd., and others. However, many industrial estates have come into being as a result of stimulus funds provided by the government, and not by the spontaneous will of the enterprisers themselves. Therefore, even if some members are willing, the creation of an industrial estate as a whole, with the combination of all elements, is said to be unlikely. Moreover, with the establishment of an industrial estate, the pivotal large enterprise tends to fear the formation of a labor union and an aggravation of labor problems - unexpected calamities - and collective barganing on the subcontract fee. Therefore, it is too early to expect beneficial results from this new development (5-IXpp. 178-180). A detailed case study has been conducted with respect to industrial estates of the Suwa area in Nagano Prefecture, the Kagamihara area in Gifu Prefecture, Toyota City in Aichi Prefecture, and Suzuka City in Mie Prefecture, by the Kokuminkeizai Kenkyu Kyokai (Research Institute of National Economy) (70). There are a few similar studies (e.g., 9).

83

Résumé français

AVANT-PROPOS

Un certain nombre d'économistes japonais se consacrent presqu'exclusivement à l'étude des petites et moyennes entreprises, ce qui en traduit l'importance nationale. La littérature est d'une telle abondance que les spécialistes eux-mêmes ne peuvent la dominer. Une récapitulation s'avère donc indispensable. Elle se trouve facilitée par le fait que les économistes spécialisés ont longtemps travaillé en groupe et que leurs études communes ont été publiées par Tokutarô Yamanaka en volumes [Vingt-cinq années d'études des petites et moyennes entreprises (182)] consignant les activités du Comité d'études, rattaché au Conseil scientifique japonais. Avec les publications parues chez Yuhikaku, la série monumentale éditée par l'Institut du petit commerce japonais (5) et quelques analyses isolées, le courant principal de la recherche se trouve alors réuni. Quelques observations de portée très générale peuvent être faites : 1. Il ne suffit pas qu'il y ait un grand nombre d'économistes spécialisés. Le problème est également sociologique, historique et politique. Le besoin se fait sentir, d'un économiste qui synthétise et systématise l'acquit en tenant compte des analyses faites dans d'autres disciplines. 2. Une division du travail se fait entre la plupart des spécialistes d'économie et d'histoire économique, les premiers analysant surtout le début de l'ère Meiji, les seconds la période Taishô et les années postérieures. 3. Une séparation supplémentaire apparaît au niveau des économistes du travail et des économistes modernes. La coopération demeure insuffisante. 4. S'il est possible de recenser de nombreuses monographies relatives au développement des industries locales, il n'existe pas, par contre, une large analyse du développement économique régional, au moins pour la période remontant jusqu'à l'avant guerre. 84

RÉSUMÉ FRANÇAIS

Il est possible de systématiser les publications concernant des problèmes tels que la direction, le financement, la politique économique. Les économistes à tendances marxistes, tendent à affirmer que le caractère spécifique du problème de la petite et moyenne entreprise au Japon ne disparaîtra pas facilement, même dans les dix ou quinze années à venir. Il est intéressant de faire des suppositions sur le processus par lequel ces particularités seront transformées.

I. HISTOIRE, MORPHOLOGIE ET DISTRIBUTION GÉOGRAPHIQUE DE LA PETITE INDUSTRIE

A. Définition des petites et moyennes entreprises et perspectives historiques L'accord ne se fait pas sur la définition même des termes 'petite industrie'. L'expression 'petites et moyennes entreprises' (P.M.E.) est généralement utilisée au Japon. Avant la seconde guerre mondiale, la limite supérieure des P.M.E. était fixée à 100 employés. Elle s'éleva à 300 employés dans l'après-guerre et un critère supplémentaire fut retenu: un capital inférieur à 10 millions de yens. Ces deux indices sont utilisés alternativement ou simultanément. Pendant l'ère Meiji (avant 1910), on préférait à 'P.M.E.', les expressions 'petite industrie' et 'industrie indigène'. Le concept apparut entre la fin de l'ère Meiji et la grande crise. B. L'industrie familiale On a souvent considéré l'industrie familiale comme différente de l'industrie petite et moyenne. Elle est tantôt définie comme ayant moins de 10 employés, tantôt 20 ou 30. Teruhiko Iwatake en a donné huit caractéristiques (46). C. La morphologie de la petite et moyenne industrie H. Arizawa (2), attribue l'importance de la petite et moyenne industrie au Japon, à l'abondance d'une main d'oeuvre bon marché et insiste sur le fait qu'il ne faut pas inverser le sens de cette relation; il s'agit donc, en fait d'un problème de population. On lui a reproché d'être trop restrictif et de négliger les particularités historiques de la structure industrielle japonaise dont Komiyama (75) fournit un modèle. Les vues de Komiyama ont été discutées par Fumio Yamada (170) et K. Fujita (13). 85

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Après la guerre, surgit une nouvelle controverse entre K. Fujita et Yoshio Kobayashi, au sujet de la 'hiérarchie verticale entre les firmes'. Pour obtenir, en raison de la concurrence, un abaissement de prix de revient, les grandes entreprises ont dû accoître leur propre productivité ainsi que celle des P.M.E. qui leur étaient liées, d'où la nécessité de remanier le système de soustraitance. K. Fujita affirme que cette hiérarchie interfirmes se situe à un autre niveau que la sous-traitance alors que Kobayashi hésite à distinguer les deux phénomènes. D. Les tendances historiques de la petite et moyenne industrie analysées en termes quantitatifs Trois études assez détaillées sont à retenir (5-II, 118, 150 vol. 3 no. 8), Celle de Arizawa, Aihara et Nakamura (5-II) a fourni le tableau no. 1 montrant les changements dans la proportion des employés et des établissements selon la dimension des entreprises. L'auteur a proposé des explications à l'évolution de l'après-guerre (132, 133) qui parurent à la même époque que l'étude de Takizawa (150). Le tableau no. 2 (118) indique l'évolution pendant cette époque. E. Comparaisons avec d'autres pays Il semble, dans le sens des études de Shigeru Ishikawa (30), qui a effectué des analyses comparatives avec d'autres pays, que l'on puisse affirmer que la petite unité tendra à perdre de son importance avec le développement économique. Kikutarô Takizawa a procédé à une étude détaillée comparative du Japon et des États-Unis (145, 149, 150). D'autres analyses comparatives ont été faites avec les États-Unis, le Royaume-Uni et l'Allemagne de l'Ouest (41, 42, 97,132,162). L'auteur (132) a étudié la distribution industrielle selon la taille des entreprises. F. Distribution géographique de la petite industrie En dehors de quelques études récentes (4, 172), on ne possède pas de comparaisons détaillées, sur une longue période, des changements géographiques du processus d'industrialisation. Tokutarô Yamanaka et d'autres auteurs ont analysé (174) la distribution régionale de l'industrie japonaise en 1930 (classée selon la taille des établissements). Masami Takeuchi et Yoritada Mishina ont présenté (5-VI) une intéressante 86

RÉSUMÉ FRANÇAIS

étude de la relation des petites et des grandes entreprises avec le circuit économique régional, étude fondée sur une enquête menée dans la région d'Osaka en 1958 (5-VI, pp. 11-36). Le taux de croissance extraordinaire de l'après-guerre a modifié les économies régionales et les petites et moyennes industries. Une enquête a été menée dans ce sens en juin 1961 (5-IX, chap. 4-5). G. Les 'patrons' historiques de la croissance de la petite industrie et le développement capitaliste Le développement économique depuis la restauration Meiji a été interprété par deux écoles marxistes, 'Kôzaha' et 'Rônôha'. Le courant Kôzaha insiste sur l'existence d'un système de 'propriétaire terrien parasite' qui investissait ailleurs que dans l'agriculture. Le développement capitaliste s'effectua ainsi aux dépens d'un développement agricole à grande échelle et la structure villageoise semi-seigneuriale se renforça. C'est notamment l'interprétation de Seitaro Yamada (171). Le groupe Rônôha met l'accent sur la désintégration de la classe paysanne et l'exode rural, phénomène commencé dès l'époque Tokugawa (51,52). Alors que l'école Kôzaha souligne les particularités du développement capitaliste japonais, Rônôha s'attache plus aux caractéristiques communes du développement capitaliste en général.

II. LES FACTEURS PRODUCTIFS DANS LA PETITE INDUSTRIE

A. La main d'oeuvre L'apport de main d'œuvre d'origine agricole a été prépondérant dans le développement du secteur non agricole, que ce soit sous la forme d'une migration effective de la famille paysanne ou par l'augmentation d'une production non agricole de l'entreprise paysanne. Kazuo Okouchi (108, 111) a formulé l'hypothèse que le village était un centre de chômage camouflé récupérant de la main d'œuvre en période de crise et en fournissant pendant l'expansion. Influencées par l'école Kôzaha les thèses ont été controversées (18, 83, 101, 134). Mikio Sumiya a proposé une classification des sources de main d'œuvre à la période Meiji (137). Une enquête (54) a été menée par Okouchi, Ujihara et d'autres en 1951— 87

A SURVEY OF THE JAPANESE LITERATURE

1952. Elle constitue une des sources les plus importantes de la structure du marché du travail au Japon. Les mêmes auteurs ont étudié en 1953 l'accès aux 'higher schools' et l'emploi des nouveaux diplômés des 'middle-schools' dans la préfecture de Kanagawa (107). Une grande enquête de 1957 publiée en 8 volumes, et l'étude de l'Institut Ohara (112) constituent deux autres sources importantes, dans le domaine des salaires, notamment. B. Le capital L'échelle des salaires examinée surtout sous l'angle du marché du travail peut être aussi envisagée sous celui du marché des capitaux. H est inévitable que, dans un pays comme le Japon, coexistent un secteur hautement modernisé et un grand nombre de P.M.E. où subsistent des retards considérables. La main d'œuvre est abondante par rapport au capital. L'investissement se concentre dans la grande entreprise. Des études nombreuses (59, 74, 92, 129, 151...) ont proposé des explications qui n'ont pas fait l'unanimité. C. Les sources de financement des-petites entreprises On considère généralement que, dans le début de l'industrialisation de la période Meiji, le développement du capitalisme s'est fait par le 'haut' (gouvernement, gros marchands). Kôkichi Asakura a publié une étude détaillée (3) insistant sur les facteurs de financement venant du 'bas' où il souligne l'importance des ressources des propriétaires terriens négociants. Ces problèmes du financement ont donné lieu é d'importantes analyses (56, 57,78,79,92...). D. La technologie dans les petites entreprises La littérature sur ce sujet est réduite. L'ouvrage de Kajinishi (50) envisage l'évolution technologique d'un secteur limité. L'analyse la plus à jour a été publiéé (5-V) sur la base d'une enquête, datant de 1958-59, concernant le progrès technologique dans la petite et moyenne industrie. Elle fournit, par industrie, une information détaillée et résume les causes générales du progrès technique. E. La direction dans les PME On a expliqué l'existence des PME par la notion de 'taille optimale' (117, 135, 136), contestée par des auteurs en relevant le caractère relatif et l'insta88

RÉSUMÉ FRANÇAIS

bilité historique (39,97...). Répondant à des économistes occidentaux, Takizawa a fait remarquer que les PME au Japon comportaient de nombreux aspects irrationnels et T. Yamanaka y voit un des problèmes structuraux de l'économie nationale (177). Hiroshi Noguchi (53-111) a analysé les origines sociales des dirigeants des PME. Si l'on observe toujours une prédominance des propriétaires, l'importance de l'apport non familial tend à augmenter. Genroku Suematsu a classé les petits industriels selon l'analyse de J. Perry (135, 136); Mogi Takatani (110-1) les divise en deux groupes. F. Les marchés et la demande des produits de la petite industrie Au Japon, un grand nombre de PME sont sous-traitantes et dépendent parfois en priorité des marchés extérieurs. Les produits à base de capital sont exportés vers les pays sous-développés alors que ceux qui incorporent beaucoup de main d'oeuvre le sont vers des pays avancés. Cette dualité des exportations est le résultat de la structure de l'économie. Le rôle des PME dans l'exportation a fait l'objet de plusieurs études (144, 5-IV, 11, 135...).

III. LES INTERRELATIONS ENTRE LES FIRMES ET LA STRUCTURE INDUSTRIELLE

A. Les interrelations entre les petites entreprises Les PME ont été conduites à s'organiser pour résister à la concurrence. Une association, la 'Kogyo Kumiai', qui excluait les négociants, fut créée en 1925. Depuis la guerre les PME ont été représentées par deux associations. Différentes institutions se sont consacrées à leur défense mais il est douteux qu'elles aient contribué à les renforcer (5-II). B. Les interrelations entre les petites et les grandes entreprises Une analyse d'input-output a été présentée par Takafusa Nakamura et Itasu Sakura (5-II, 98). Dans une perspective marxiste, Shinzô Ushio affirme que les PME servent d'intermédiaire pour l'exploitation de l'agriculture semiseigneuriale par le capital monopoliste (167). Isamu Kitahara et Shùichirô Nakamura ont développé une autre théorie (59-11, 97). Les besoins de l'exportation renforcent la hiérarchie verticale entre les firmes dans plusieurs secteurs de la production. Ce phénomène a fait l'objet d'analyses diverses (66, 87, 5-IX). 89

A SURVEY OF THE JAPANESE LITERATURE IV. LE RÔLE DU GOUVERNEMENT DANS LE CONTRÔLE, LE SOUTIEN ET LA RÉGULATION DE LA PETITE INDUSTRIE

A. Le changement de la politique gouvernementale Quant on reconnut en 1920 l'existence d'un problème des PME, l'accent fut mis sur la nécessité de les protéger des pressions des grandes entreprises et du marasme commercial. Des lois de réorganisation et des mesures financières jouèrent un rôle essentiel dans la politique gouvernementale (177). Pendant la guerre, le problème urgent fut de réorganiser les PME de façon à ce qu'elles répondent aux besoins de l'économie ce qui souleva des problèmes de mobilité de main d'œuvre et la question de savoir comment utiliser le système de sous-traitance pour faciliter l'effort de production nationale (cf. les études de Yamanaka, 173, et de Komiyama, 75). L'après-guerre vit la nécessité de moderniser les P.M.E. Diverses mesures furent prises (création de l'Agence des PME, en 1948, loi de stabilisation de 1953...). B. La loi fondamentale des PME En 1961 fut adoptée une loi fondamentale pour les PME qui définit les objectifs, les mesures nécessaires et l'orientation générale des lois à venir (6). C. Les problèmes de taxation Si la petite entreprise échappe plus facilement à la taxation la structure de celle-ci est favorable aux grandes corporations qui tire profits de 'mesure spéciales de taxation'. D. Les 'Industrial Estâtes'' Stimulés par le taux élevé de la croissance et dans la ligne d'expériences étrangères, des 'Industrial Estâtes' ont été créés avec le soutien gouvernemental afin de favoriser le développement par des mesures très diverses (5-IX). Une monographie détaillée relative à ce sujet a été consacrée à la zone Suwa dans la Préfecture Nagano (70). Il existe quelques autres études de ce type (9).

90

Bibliography

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Kaname. 'Kögyö-kumiai no Kanai-kögyö ni oyoboseru Eikyö' (Impacts of the Manufacturing Association upon the Household Industry). Shakai Seisaku Jihö (The Social Policy Review) 175, April 1935, incorporated with amendment in Part II, Chapter 5 of his Sangyö Töseiron (Studies of Industrial Control). Tokyo, Chigurashobö, 1937. 2 . ARIZAWA, Hiromi. Nihon-kögyö Töseiron (On the Controls of Japanese Industry). Tokyo, Yühikaku, 1937. 3 . ASAKURA, Kökichi. Meiji Zenki Nihoti Kinyüközöshi (History of the Japanese Financial Structure in the Former Half of the Meiji Period). Tokyo, Iwanamishoten, 1961. 4 . CHIHÖSHI KENKYO KYÖGIKAI (Research Association for Local Histories). Nihon-Sangyöshi Taikei (Comprehensive History of Japanese Industries). Vol. 1-Vol. 8. Tokyo, Tokyo Daigaku Shuppankai (Tokyo University Press), 1959-1961. (Eight volumes consist of introductory analysis, plus analyses of industrial histories of seven districts in Japan, Kantö, Hokkaido, Kinki, etc.) 5. CHÜSHÖ-KIGYÖ CHÖSAKAI (Japan Small Business Research Institute). Chüshökigyö Kenkyü (Studies of Small-Medium Enterprises). Vol. I-IX, Tokyo, Oriental Economist, 1960-62. (On the contents, see Appendix 2). 6. CHÜSHÖ-KIGYÖ-CHÖ (Small-Medium Enterprise Agency). Chüshö-kigyö Kihonhö no Kaisetsu (Explanations of the Fundamental Law of Small-Medium Enterprises). Tokyo, Small-Medium Enterprise Agency, 1964. 7 . CHÜSHÖ-KIGYÖ-CHÖ and CHIHÖ CHÖSAKIKAN ZENKÖKU KYÖGIKAI (SmallMedium Enterprise Agency and National Association of Local Research Organizations), ed. Yushutsu Chüshö-kögyö no Jittai Chösa, (Surveys of Actual Situations of Small-Medium Export Industries). Tokyo, Oriental Ecsnomist, 1957. 8. CHÜSHÖ-KIGYÖ CHÖSA-KYÖKAI (Small Business Research Association). 1. AKAMATSU,

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155. TÖKEI KENKYÜKAI (Institute of Statistical Research). Daigaku Sotsugyösei no Shüshoku nikansuru Keizaiteki Kösatsu (Economic Analysis of Employment of University Graduates). August 25, 1957. 156. TOYOSAKI, Minoru. Nihon Kikai-kögyö no Kisoközö (The Basic Structure of the Japanese Machinery Industry). Tokyo, Nihon-hyöron-sha, 1941. 157. TSUCHIYA, Takao. Nihon Shihonshugishi Honshu (Essays on the History of Japanese Capitalist Development). Tokyo, Ikusei-sha, 1937. 158. TSUCHIYA, Takao, ed. Chihö Ginkö Shoshi (Short History of Local Banks). Tokyo, Zenkoku Chihö Ginkö Kyökai (National Association of Local Banks), 1961. 159. TSUJI, Hideo. Chinginközö (Wage Structure). Tokyo, Römu Gyösei Kenkyüsho (Institute of Labor Administration), 1955. 160. TSUKUDA, Chikao. 'Chingin-suijun to Yushutsu' (Wage Level and Exports) Kikan Keizai Bunseki (Economic Analysis, Quarterly) (Economic Planning Agency, Economic Research Institute) 3,1960. 161. TSURU, Shigeto; OHKAWA, Kazushi, ed. Nihon Keizai no Bunseki (Analysis of the Japanese Economy). Tokyo, Keisöshobö, 2 vols., 1953, 1955. 162. UEDA, Söjirö. 'Nichi-ei Chüshö-kögyö Hikakushöron - Shihonshugi niokeru Chüshö-kögyö Mondai' (A Brief Comparison of Small-Medium Industry between Japan and the United Kingdom, - The Small-Medium Industry Problem in Capitalism). Keizai Hydron (Economic Review) 8 (10), September 1959. 163. UJIHARA, Seijirö. 'Nihon Nöson to Rödö-shijö' (Farm Villages and the Labor Market in Japan), in: Nöson Shakai no Közö, (Structure of Farm Village Society). Nöson Mondai Köza (Lectures on the Farm Village Problems). Tokyo, Kawade-shobö, 1954, Vol. 3. 164. UMEMURA, Mataji. Chingin Koyö Nögyö (Wages, Employment and Agriculture). Tokyo, Taimeidö, 1961. 165. UMEMURA, Mataji. 'Kindaisangyö, Chüshö-kigyö, Nögyö' (Modern Industries, Small-Medium Enterprises, Agriculture) in: Arizawa, Töbata and Nakayama, ed. Keizai Shutaisei Köza (Courses on the Human Factor in Economics). Tokyo, Chuököronsha, 1960, Vol. 2. 166. UMEMURA, Mataji. 'Meiji-nenkan niokeru Jisshitsu Chingin to Rödö no Kyökyü' (Real Wages and Labor Supply in the Meiji Period), Shakaikeizaishigaku (Socio-Economic History) 27 (4), April 1961. 167. USHIO, Shinzö. Chüshö-kigyö-ron (On Small-Medium Enterprises). Tokyo, Mikasa-shobö, 1951. 168. WATANABE, Mutsumi. 'Keiretsuka no Shinten to Shitauke-kanri no Görika' (Development of the Vertical Interfirm Hierarchy and the Rationalization of Subcontracting Management). Keiei Ronshü (Business Management Review) 8, November 1957. 103

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Shinichi. Nihon Nöson-jinkö-ron (Studies in the Farm Population in Japan). Tokyo, Nankösha, 1938. YAMADA, Fumio. Chüshö-kögyö Keizai-ron (Economics of Small-Medium Industry). Tokyo, Yühikaku, 1943. YAMADA, Seitarö. Nihon Shihonshugi Bunseki (Analysis of Japanese Capitalist Development). Tokyo, Iwanami-shoten, 1934. YAMAGUCHI, Kazuo. Meiji Zenki Keizai no Bunseki (Analysis of the Meiji Earlier Economy). Tokyo, Tokyo-Daigaku Shuppan-kai (Tokyo University Press), 1956. YAMANAKA, Tokutarö, ed. Tenshitsugyö Mondai (Problems of Occupational Changes and Unemployment). Tokyo, Yühikaku, 1941. YAMANAKA, Tokutarö, ed. Nihon Sangyöközö no Kenkyü (Studies in the Japanese Industrial Structure). Tokyo, Yühikaku, 1949. YAMANAKA, Tokutarö, ed. Chüshö-kögyö to Rödö Mondai (Small-Medium Industry and Labor Problems). Tokyo, Kunimoto-shobö, 1950. YAMANAKA, Tokutarö, ed. Chüshö-kögyö to Keizai-hendö (Small-Medium Industry and Economic Fluctuations). Tokyo, Kunimoto-shobö, 1951. YAMANAKA, Tokutarö. Chüshö-kögyö no Honshitsu to Tenkai (Essential Nature of Small-Medium Industry and its Historical Development). Tokyo, Yühikaku, 1953. YAMANAKA, Tokutarö, ed. Chüshö-kigyö no Görika Soshikika (Rationalization and Organization of Small-Medium Enterprises). Tokyo, Yühikaku, 1958. YAMANAKA, Tokutarö, ed. Keizai Seichö to Chüshö-kigyö (Economic Growth and Small-Medium Enterprises). Tokyo, Shunjüsha, 1963. YAMANAKA, Tokutarö. 'Chüshö-kigyö to Keizai-Keisan - Nihon no Chüshökigyö no Seikaku no Hitotsuno Saikentö' (Small-Medium Enterprises and Economic Calculation - A Reconsideration of a Character of Japanese Small-Medium Enterprises). Hitotsubashi-ronsö 42 (5), November 1959. YAMANAKA, Tokutarö, TOIKE, Masaji. '"Chüshö-kigyö Sögö Kihon Chösa" yorimita Nihon Shokuryöhin Kögyo' (Japan's Food Industry analyzed by the 'Comprehensive Basic Survey of Small-Medium Enterprises'). ChüshöKigyö Kinyü Köko (The Small Business Finance Corporation) Chösa Jihö (Research Bulletin) 2 (5), May 1960. YAMANAKA, Tokutarö, ed. Chüshö-kigyö Kenkyü Nijügonen (Twenty-Five Years in the Study of Small-Medium Enterprises). Tokyo, Yühikaku, 1963. YOKOYAMA, Gennosuke. Nihon no Kasö-shakai (Lower Social Strata Society in Japan). Tokyo, Iwanami-shoten, 1949, originally published in 1899. YOSHINO, Masatoshi. 'Wagakuni Keizai niokeru Yushutsu Chüshö-kigyö no Chii' (Position of Export Small-Medium Enterprises in our Economy). Chüshö-kigyö Kinyü Köko (Small Business Finance Association) Chösa Jihö (Research Bulletin) 3 (8), October 1961.

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(Taxation Research Council). Tomen Jisshisubeki Zeiseikaisei nikansuru Töshin (Zeiseichösakai Daiichiji Töshin) oyobi sono Shingi no Naiyö to Keika no Setsumei, (The Recommendation for Tax Reform - The First Recommendation of the Taxation Research Council - and the Exposition of the Contents and Process of the Discussions). Tokyo, Taxation Research Council, December 1960.

1 8 5 . ZEISEICHÖSAKAI

Appendix 1 to the Bibliography Mitsuhaya; IWAO, Hirozumi; KOBAYASHI, Yoshio; ITÖ, Taikichi, ed. Köza: Chüshö-kigyö (Courses: Small-Medium Enterprises) Tokyo, Yühikaku, 1960, 4 vols. Vol. I Rekishi to Honshitsu (History and Essential Nature) 1. Introduction by Kajinishi, Mitsuhaya 2. Historical Development of Japanese by Kajinishi, Mitsuhaya; Small-Medium Enterprises Ichikawa, Hirokatsu; Suzuki, Tetsuo and Kikura, Shigeo 3. History of the Theories of Small-Medi- by Ojiro, Taromaru um Enterprises in Japan - Development of the Recognition on the Essential Nature of the Problem 4. Essential Nature of Small-Medium by Itö, Taikichi; Katö, Seiichi Enterprises and Kitada, Yoshiji Vol. II Dokusen Shihon to Chüshö-kigyö ('Monopoly Capital' and SmallMedium Enterprises) 1. Introduction by Kobayashi, Yoshio 2. Structure of 'Monopoly Capitalism' by Nakamura, Shüichirö and Small-Medium Enterprise Problem 3. Small-Medium Enterprises in the Capi- by Kitahara, Susumu tal Accumulation Movement 4. Small-Medium Enterprise Financing by Kurasono, Susumu 5. Putting-out System by Aihara, Toyosaku 6. Subcontracting System by Kurasono, Susumu 7. Vertical Hierarchical Domination by by Kobayashi, Yoshio 'Monopoly Capital' 8. Japan's Small-Medium Enterprise by Misonou, Hitoshi Problem and 'Merchant Capital' 9. Union System and Voluntary Bodies by Kato, Seiichi of Small-Medium Enterprises Vol. Ill Keieimondai (Problems of Business Management)

5 3 . KAJINISHI,

105

A SURVEY OF THE JAPANESE LITERATURE

1. Introduction 2. Modernization of Small-Medium Enterprise Management 3. Development of Production Management in Small-Medium Enterprises 4. Labor Management in Small-Medium Enterprises 5. Sales Problems in Small-Medium Enterprises 6. Characteristics of Financing 7. Accounting in Small-Medium Enterprises 8. Essence of Business Consultant System 9. Fundamental Characteristics of SmallMedium Enterprises Supplement 1. A Criticism against the 'Optimum Size' Theory of SmallMedium Enterprises Supplement 2. Taxes and Management in Small-Medium Enterprises Vol. IV Rödömondai (Labor Problems) 1. Introduction 2. Labor Conditions and Labor Market 3. Labor Movement and Labor Organization 4. Labor Policy 5. Minimum Wage System 6. HomeWork 7. Structure of Japan's Small-Medium Enterprises and the Peculiarities of their Labor Problems - A Comparison with Western Countries

by Iwao, Hirozumi by Iwao, Hirozumi by Miyakawa, Munehiro by Suzuki, Shinichi by Nakayama, Kiqji and Watanabe, Mutsumi by Iwata, Iwao by Shikita, Reiji and Kanda, Tadao by Watanabe, Mutsumi by Noguchi, Hiroshi by Satö, Yoshio and Nakayama, Kinji by Kimizuka, Yoshirö

by Itö, Taikichi by Matsuo, Hitoshi and Mitsuma, Nobukuni by Kawabe, Heihachirö and Nagayama, Takeo by Saguchi, Takashi and Matsuoka, Saburö by Nishimiya, Teruaki and Funabashi, Naomichi by Matsumoto, Tatsurö by Itö, Taikichi

Appendix 2 to the Bibliography 5.

106

CHÜSHÖ-KIGYÖ CHÖSAKAI (Japan Small Business Research Institute). Chüshökigyö Kenkyii (Studies of Small-Medium Enterprises) Tokyo, Oriental Economist, 1960-62, 9 vols.

BIBLIOGRAPHY

Vol. I Chüsho-Kogyó no Hattatsu I (Historical Development of SmallMedium Industries) 467 pp. 1. Development of Casting Industry by Ichikawa, Hirokatsu 2. Development of Machinery Industry by Ito, Taikichi - with Particular Reference to the Cotton Spinning and Weaving Machinery3. Development of Cotton Cloth Industry by Fujii, Shigeru - Beginning and Development of 'Banshü' Weaving 3. Supplement: Development of 'Sennan' by Fujii, Shigeru Weaving Industry 4. Development of Silk and Rayon Tex- by Kobayashi, Yoshio tile Industry 5. Development of Pottery Industry by Tasugi, Kisou 6. Development of Lacquer Ware Indus- by Isobe, Kiichi try 6. Supplement: Development of by Isobe, Kiichi 'Aizu' Lacquer ware Vol. II Chüshó-Kigyd no Tokei-teki Bunseki (Statistical Analyses of SmallMedium Enterprises) 462 pp. 1. Economic Development and Small- by Arizawa, Hiromi; Aihara, Medium Enterprises Shigeru and Nakamura, Takafusa 2. Distribution of Small-Medium Enter- by Naito, Masaru prises 3. Production and Management in Small- by Sakisaka, Masao; Nakamura, Medium Enterprises Takafusa; Miwa, Yoshiro and Saishoji, Keiichi 4. Small-Medium Enterprises in Retail, by Miyazaki, Sanshiro; Service and Financial Business Ishikawa, Kunio; and Morita, Minoru 5. Employment and Wages in Smallby Omiya, Goro; Tazawa, Medium Enterprises Junichiro; Inoue, Takeshi and Hirota, Toshiko 6. Financing and Fiscal Support in Small- by Morita, Minoru Medium Enterprises Vol. m Chüshd-kigyó Tókeishü (Statistics on Small-Medium Enterprises) 886 pp. The same authors in Vol. II have participated in compiling the statistical tables according to the same breakdown of Vol. II. 107

A SURVEY OF THE JAPANESE LITERATURE

Vol. IV Yushutsu Chüshö-kögyö no Keizaiközö (Economic Structure of Small-Medium Export Industries) 44 3pp. 1. Introduction by Takeuchi, Masami and others 2. Historical Process of Small-Medium by Ueda, Tatsuzo Export Industry 3. Market Structure of Small-Medium by Akimoto, Ikuo Export Industries 4. Production Structure of Small-Medium by Miyake, Junichiro Export Industries 5. Labor Force Basis of Small-Medium by Miyake, Junichiro Export Industries Supplement : Pricing in Small-Medium by Maekawa, Kyoichi; AkimoExport Industries to, Ikuo; Nakamura, Sei; Nakagome, Takeo; Toyoshima, Tadashi; Matsushima, Emio; and Kunitomi, Takeshi. Vol. V Chusho-kogyo ttiokeru Gijutsu Shimpo no Jittai (Actual Situations of Technological Progress in Small-Medium Industries) 486 pp. 1. Introduction by Ueda, Sojird 2. Pig Iron Casting Industry by Ichikawa, Hirokatsu 3. Alloyed Copper Casting Industry by Yamamoto, Junichi mainly with reference to Osaka Pref. 4. Cutting Tools Industry - mainly with by Yamamoto, Junichi reference to Osaka Pref. 5. Cutlery Industry by Ueda, Söjirö and Nishida, Jirö 6. Silk and Rayon Weaving Machinery by Yamada, Junichi Industry 7. Cotton and Wool Weaving Machineby Nakagome, Takeo ry Industry 8. Automobile Parts Industry with reference to Small or Petty Subcontracting firms 9. Communitions Equipment Industry with reference to Telephone and Telegraph Equipment 10. Cotton and Spun Rayon Fabric Industry - with reference to the 'Sennan' Weaving Industry 11. Towel Industry 12. Wool Weaving Industry 108

by Okumura, Sakae by Morishita, Satoru

by Ueda, Tatsuzö

by Ueda, Tatsuzö by Miyake, Junichiro

BIBLIOGRAPHY

13. Furniture Industry

by Ueda, Sôjirô; Yokoyama, Takamasa; Fujii, Hirokatsu; Hanada, Jingo and Tanimoto, Taniichi Vol. VI Chiiki-keizai to Chûshô-kigyô-shûdan no Kôzô (Regional Economies and the Structure of Small-Medium Enterprise Groups) 452 pp. 1. Regional Economies and the Small- by Takeuchi, Masami and Medium Enterprise Groups Mishina, Yoritada i. Problems and the point of view ii. Relations between big enterprises and small-medium enterprises in the circular flow of Regional economies iii. Structure of production and circulation of small-medium enterprise groups between a big city and its satellite cities. - A case study of 'Fuse' city iv. Structure of small-medium enterprise groups in the vicinity of a big city (Osaka) v. Regional enterprise groups in the machinery industry 2. Structure of Regional Groups of Small-Medium Enterprises in the vicinity of a big city. i. Weaving Industry in'Sennan' by Ueda, Tatsuzô ii. Blankets in 'Izumi Otsu' by Doi, Masazumi iii. Yarn Throwing in'Yao' by Miyake, Junichiro iv. Iron Wire in 'Hiraoka' by Mishina, Yoritada v. Hand Tools in'Hiraoka' by Kimura Gorô vi. Brushes in 'Yao' by Shôya, Kunio and Sugitani, Toshio vii. Bamboo Blinds in 'Tondabayashi' by Kitamura, Isao and 'Kawachinagano' viii. Imitation Pearls in 'Nobutayama' by Kitamura, Isao Vol. VII Chûshô-kôgyô no Hattatsu II (Development of Small-Medium Industries) 480 pp. 1. Development of Machine Tool Indus- by Kobayashi, Yasuo try 2. Development of Small-Medium Wool- by Sakai, Shôzaburô en Textile Industry - A case study of 'Bisei' Weaving district 3. Development of Rubber Industry by Fujii, Shigeru 4. Development of Japanese Paper Indus- by Isobe, Kiichi try 5. Development of 'Sake' Brewing Indus- by Shimbô, Hiroshi try - A Case study of'Nada' breweries 109

A SURVEY OF THE JAPANESE LITERATURE

Vol. VIII Keizai Hatten to Chusho-kigyd (Economic Development and SmallMedium Enterprises) 433 pp. 1. Introduction by Arizawa, Hiromi and Nakamura, Takafusa 2. Inter-industry Relations Between Big by Aihara, Shigeru and Small-Medium Enterprises 3. Business Management of Small-Medi- by Sakisaka, Masao um Enterprises 4. Small-Medium Enterprises and Mar- by Nakamura, Takafusa ket Structure 5. Its Analysis in Relation to the Chang- by Naito, Masaru ing Regional Structure 6. Changes in the Labor Force of Small- by ömiya, Gorö Medium Enterprises - In relation to the wage differential by size Vol. IX Kódo Seichó-katei niokeru Chusho-kigyd no Kozd-henka (Structural Changes of Small-Medium Enterprises in the Recent Process of the High Rate of Growth) 566 pp. 1. Introduction by Takeuchi, Masami 2. Transformation Process of Small- by Mishina, Yoritada Medium Enterprises in Machinery Industry 3. Structural Changes of Automobile by Okumura, Sakae Parts Industry 4. Structural Changes of Local Indige- by Nakagome, Takeo nous Industries a. A questionnaire survey 5. Structural Changes of Local Indige- by Toyoshima, Tadashi nous Industries b. An empirical study (Lacquer ware and Japanese paper) 6. Development of Modern Industry and by Nakagome, Takeo Local Small-Medium Enterprises a. Northern district of Miye Prefecture 7. Development of Modern Industry and by Takeuchi, Masami ; Local Small-Medium Enterprises Yamamoto, Junichi; b. 'Takatsuki'City Tanimoto, Taniichi; Akimoto, Ikuo 8. Actual Situation of Subcontracting by Takagi, Kenjiro Factories in Metal and Machinery Industry in Gumma Prefecture 110

BIBLIOGRAPHY B. ENGLISH BIBLIOGRAPHY AUTHORED BY JAPANESE

186.

187.

AKAMATSU, Kaname; KOIDE, Yasuji. Industrial and Labour Conditions in Japan with Special Reference to Those in Nagoya. Nagoya, The Nagoya Chamber of Commerce and Industry, 54 p. ARAKAWA, Yflkichi. 'Small Wholesalers in the Cotton Textiles Marketing in Japan'. Annals of the School of Business Administrations, Kobe University 1, 1957: 59-93.

(Society for Economic Co-operation in Asia). The Smaller Industry in Japan. Tokyo, Asia Kyökai, 1 9 5 4 , 1 9 5 7 , 1 4 4 p., ill., tabl. ECONOMIC PLANNING BOARD. 'Statistical Analysis of Medium and Small Enterprises in Japan'. Asian Affairs 2 (2), June 1957: 195-217. FUJTTA, Keizo. 'Management Structures of Small and Medium Enterprises'. Asian Affairs 2 ( 2 ) , June 1 9 5 7 : 1 2 3 - 1 4 1 . HOTANI, Rokurö; HAYASHI, Takashi. 'The Evolution of Wage Structure in Japan'. Industrial and Labor Relations Review 15 ( 1 ) , October 1 9 6 1 : 5 2 - 6 6 . ISHIDA, Ryüjirö. 'The Industrialization of Japan: A Geographical Analysis'. Annals of the Hitotsubashi Academy 7 (1), October 1956: 61-80. ISHIKAWA, Shigeru. 'A Comparison of Size Structures in Indian and Japanese Manufacturing Industries'. Hitotsubashi Journal of Economics 2 (2), March 1962: 50-80. JAPAN. Ministry of Labor. 'Medium and Small Enterprises and Vocational Training in Japan'. Asian Affairs 2 (2), June 1957: 183-194. JAPAN SMALL BUSINESS RESEARCH INSTITUTE. Survey of Small Business in Japan. Tokyo, the Institute of Statistical Research, 1963, 50 p. CThis is a summary, although an imperfect one, of Chüshö-kigyö Chösakai (Japan Small Business Research Institute). Chushö-kigyö Kenkyu (Studies of Small Medium Enterprises). Tokyo, Oriental Economist, 1960-62, Vol. I-IX.) KAWAKAMI, Tameji. 'Administration for Development of Smaller Industries in Japan'. Asian Affairs 2 ( 2 ) , June 1 9 5 7 : 1 7 2 - 1 8 2 . MINOGUCHI, Tokijirö, 'Productivity and Wage Problem of Japan s Medium and Small Manufacturing Enterprises'. Asian Affairs 2 (2), June 1957: 142153. OHARA, Keishi, ed. Japanese Trade and Industry in the Meiji-Taishö Era. (Transl. Tamotsu Okata) Tokyo, öbunsha, 1957, 566 p., ill., portr., tabl., Bibliogr. OHKAWA, Kazushi. 'The Differential Employment Structure in Japan'. Annals of the Hitotsubashi Academy 9 (2), April 1 9 5 9 : 2 0 5 - 2 1 7 . OHKAWA, Kazushi; ROSOVSKY, Henry. 'The Indigenous Components in the Modern Japanese Economy'. Economic Development and Cultural Change 9 (3), April 1 9 6 1 : 4 7 6 - 5 0 1 .

1 8 8 . ASIA KYÖKAI

189. 190. 191.

192. 193.

194. 195.

196.

197.

198.

199. 200.

Ill

A SURVEY OF THE JAPANESE LITERATURE

201. ÖKOUCHI, Kazuo. Labor in Modern Japan. Tokyo, Science Council of Japan, 1958,117 p. (Science Council of Japan, Economic Series, 18). 202. SAKURA, Itaru; NAKAMURA, Takafusa. 'Size of Business in Japanese Interindustry Relations 1951-55'. Bulletin of the Oxford University Institute of Economics and Statistics 26 (3), August 1964: 217-288. 203. SATO, Koichi. 'Productivity and Wages in Manufacturing Industry in Postwar Japan'. Bulletin of University of Osaka Prefecture, Ser. D., Sciences of economy, commerce and law (2), February 1958: 113-123. 204. SEKI, Miyosaku. 'Japan's Small Enterprises and Financial Problems'. Asian Affairs 2 (2), June 1957: 154-171. 205. SHINOHARA, Miyohei. 'Inventory Cycles and the Dual Structure'. Hitotsubashi Journal of Economics 2 (2), March 1962: 30-39. 206. SHINOHARA, Miyohei. Growth and Cycles in the Japanese Economy. Tokyo, Kinokuniya 1962, VIII-349 p., fig., tabl. Index (Hitotsubashi university. The institute of economic research. Economic research series, 5). 207. TASUGI, Kisou. 'Problems on Productivity of Japanese Smaller Industry'. Asian Affairs 2 (4), December 1957: 427-441. 208. UEDA, Söjirö. A Short Treatise on the Comparison of Medium and Small Firms in Britain and Japan. Osaka, Osaka-Fu Shökö Kenkyüjo, 1959,30 p. 209. UMEMURA, Mataji. 'An Analysis of Employment Structure in Japan'. Hitotsubashi Journal of Economics 2 (2), March 1962:16-29. 210. UYEDA, Teijirö; SÖDA, Takeo. Small-Scale Industries of Japan - The Rayon Textile Industry. Tokyo, Japanese Council of Institute of Pacific Relations (Nihon Kokusai Kyökai), 1936, 26 p., tables, diagr. (IPR, International Research Series). 211. UYEDA, Teijirö; KOYASU, Hiroshi. Small-Scale Industries of Japan - The Bicycle Industry. Tokyo, Japanese Council of Institute of Pacific Relations (Nihon Kokusai Kyökai), 1936, 26 p. (IPR, International Research Series). 212. UYEDA, Teyirö; KOYASU, Hiroshi. Small-Scale Industries of Japan - The Enamelled Ironware Industry. Tokyo, Japanese Council of Institute of Pacific Relations (Nihon Kokusai Kyökai), 1936, 16 p. (IPR, International Research Series). 213. UYEDA, Teijirö; INOKUCHI, Tosuke. Small-Scale Industries of Japan - The Electric Lamp Industry. Tokyo, Japanese Council of Institute of Pacific Relations (Nihon Kokusai Kyökai), 1936,25 p. (IPR, International Research Series). 214. UYEDA, Teijirö; INOKUCHI, Tosuke. Small-Scale Industries of Japan - The Woolen Industry. Tokyo, Japanese Council of Institute of Pacific Relations (Nihon Kokusai Kyökai), 1936,45 p. (IPR, International Research Series). 215. UYEDA, Teijirö; MINOGUCHI, Tokijirö. Small-Scale Industries of Japan The Cotton Industry, Tokyo, Japanese Council of Institute of Pacific Relations. 112

BIBLIOGRAPHY

(Nihon Kokusai Kyokai), 1936,101 p., cartes, tables, diagr. (IPR, International Research Series). 216. UYEDA, Teijirö; ODABASHI, Teiju. Small-Scale Industries of Japan - The Rubber Goods Industry. Tokyo, Japanese Council of Institute of Pacific Relations (Nihon Kokusai Kyokai), 1936, 55 p. (IPR, International Research Series). 217. UYEDA, Teijirö. The Small Industries of Japan. New York, Japanse Council Institute of Pacific Relations, 1938, XXII-320 p., tables, diagr. 218. YAMANAKA, Tokutarö. 'On Latent Unemployment, An Interpretation as an Economic Problem'. Annals of the Hitotsubashi Academy 6 (2), April 6 (2), April 1956:1-11.

219. YAMANAKA, Tokutarö. 'Prerequisites for Japanese Economy and SmallMedium Industry'. Annals of the Hitotsubashi Academy 7 (2), April 1957: 91114. 220. YAMANAKA, Tokutarö; TAKIZAWA, Kikutarö. 'Japanese "Small-Medium" Business and Optimum Size - A Comparison with U.S. Textile Industries'. Asian Affairs 2 (2), June 1957:103-122. 221. YAMANAKA, Tokutarö.' "Illogicality" in Japanese Small Business - A Comparative Survey of Earnings of Small Manufacturing Plants in Japan, Britain and the United States'. Annals of the Hitotsubashi Academy 10 (2), December 1959: 141-157. 222. YAMANAKA, Tokutarö, ed. Small Business in Japan. Tokyo, The Japan Times, Ltd, 1960, 368 p. This book includes some of the papers quoted in this Part B of the Bibliography. 223. YAMANAKA, Tokutarö. 'The Problems of "Little Business" in the Japanese Manufacturing Industry'. Hitotsubashi Journal of Social Studies 1 (1) August 1960: 1-8. 224. YAMANAKA, Tokutarö. 'The Definition and Range of the Small-Medium Business'. Hitotsubashi Journal of Economics 3 (1), October 1962: 1-9. 225. YAMANAKA, Tokutarö; KOBAYASHI, Yoshio. The History and Structure of Japan's Small and Medium Industries - With Two Specific Surveys. Tokyo, The Science Council of Japan, Division of Economics and Commerce, 1957,89 pp. (Economic Series, 15). 226. YOSHINAGA, Eisuke. 'The Medium and Small Enterprises in Japan and Their Forms of Corporation'. Hitotsubashi Journal of Law and Politics 1 (1), April 1960: 16-29.

113

Part two

A SURVEY OF THE LITERATURE ON SMALL-SIZED INDUSTRIAL U N D E R T A K I N G S IN I N D I A With Special Reference to Similar Literature Dealing with Small Units in Great Britain, France, and Germany by DOUGLAS FISHER

The author wishes to thank Bert F. Hoselitz, the director of the project of which this study is a part, who also provided general assistance and comments, neither of which should implicate him in any of the errors the reader might encounter.

I. General Introduction

A. GENERAL NATURE OF THE STUDY

The Indian literature on the small-scale industrial enterprise affords the social scientist an opportunity to examine questions of both 'academic' and/ or practical interest and, more specifically, to sample a fully-developed literature on an important aspect of planning in an underdeveloped country. The preoccupations of the Indians, to be sure, reflect the special interests and, especially, the special problems which confront them; the special virtue of approaching generalizations concerning the development process by way of this single experiment is that the Indian literature is by far the most comprehensive work originating in or concerning an underdeveloped country. Even so, as will be explained below, other results are introduced when international comparisons are desirable. This paper will consider primarily the questions of concern to economists; that that does not do justice to the problems, many of which require an interdisciplinary approach for a workable solution, should be obvious to anyone who has attempted to form generalizations concerning the role of small units. The justification can be approached along two main lines: that the non-economic literature has, for the most part, not achieved the tight focus and definite results of the economic, and that the economic itself has enough matters of self-contained concern to form the basis of a complete study. While these arguments will not satisfy everybody (45), it must be admitted that non-economic factors often are introduced into the discussion anyway. Only one attempt has been made to survey this Indian literature, and that attempt was not a complete one; this was by the UNESCO (45). Unannotated lists of references can always be found in many of the books listed in this bibliography; in this connection special mention can be made of the article 117

A SURVEY OF THE INDIAN LITERATURE

by H. C. Aubrey (3) which contains a list of pre-planning references, not discussed in the present paper, which begins the discussion after 1955 for the most part. There is an annotated source, describing the literature of the first decade of the Indian plan period; this is by M. Alexander-Frutschi (1). This work also contains references to the British, French, and German literatures, which are discussed in this chapter and in the Appendices of this paper. It is quite natural that this survey follow the course of the actual literature; the plan is as follows. Chapter I presents matters primarily of general interest: the general position of India in the world's small enterprise situation, at various points in time; the complicated, and perhaps unsolved, problems of the definition of small size; and economic research as it relates to the area under study, with special reference to the Indian and to the British efforts. Chapter II makes explicit some of the more general issues which are involved in planning for small units. One part of the chapter inquires into the type of dynamic development model which suggests special emphasis on smallscale units; the ultimate purpose of this discussion is to place this survey firmly in the area of dynamic economics. The second main division of Chapter II considers what is probably the most bitter controversy in the Indian case: the 'rationale' of small enterprises. Chapter III summarizes contributions which are related solely to the Indian situation. Discussed here are the Indian plans and the quantitative records of these plans, wherever it was possible to document them from the literature; special attention is paid to certain problems encountered by the Indians including discussion in one area where there is little explicit Indian work - the foreign exchange consequences of small units. Chapter IV presents some less general results, mostly in an attempt to find additional evidence which might help in the appraisal of some of the hypotheses advanced in the earlier chapters of the survey. This chapter contains materials taken from area and industry studies and offers a section on handicraft and village industries and their problems, insofar as they can be connected to the main line of inquiry. Special mention should be made of the role of the European results in this paper. In addition to the use in Chapter I, a fairly lengthy exposition of the British literature, a summary of a Japanese survey of small units, and some hitherto uncollected empirical results for Germany and France are presented in the Appendix; this unorthodox approach can be explained as follows. In the first place, it should be clear that since adequate data are often not available to the Indian planners, reference has been made to studies from other countries, particularly England and the United States. In the second 118

GENERAL INTRODUCTION

place, certain questions can be answered more readily, without apparent loss of applicability, when international comparisons are made - the question of definition is one obvious example. Finally, some results are included in the British case, in particular, where careful comparison with the Indian case could be justified; it is felt, in these cases, that certain hypotheses are served, even if casually, by such an inclusion. It was deemed a sufficient reason to avoid an 'annotated Bibliography' that such an effort would have been largely redundant. Thus, the references contained in the bibliography, with the exception of a few which appear in a section titled 'other references' at the end of the bibliography, are generally those mentioned directly in the study. It must be emphasized here that the sins of omission cannot be disclaimed and that both newer results, and results which this author was unable to examine might alter any or all of the conclusions attempted; the entire subject, along with most other important questions in development economics, is subject to persistent alteration, and, particularly, to the widening of the disciplinary frontiers. This survey, then, considers a number of fairly loosely related topics in an effort to make clear the nature, success, and aspirations of one of the world's most highly articulated positive policies toward the small industrialist. The fact that this study also studies a sector which, in the Indian case, is responsible for a large share of output and employment is a less compelling, but nonetheless sufficient, reason for a special study. Overlying the entire discussion are the often perplexing, but never trivial, problems of development economics.

B. ROLE OF SMALL-SIZED INDUSTRIAL ENTERPRISES IN INDIA

Although it is not as apparent in the Indian literature on 'small industries' as it could be, the planned role of small units is subordinated to the more general Indian economic goals. The basic objectives of Indian planners have been 'ordered' by W. Malenbaum (38) as: 1. rise in per capita income. 2. rapid industrialization with special emphasis on basic and heavy industries with no emphasis on employment, 3. large expansion of employment opportunities, especially in consumer goods industries, and 4. reduction of inequalities of various sorts. 119

A SURVEY OF THE INDIAN LITERATURE

It should be clear that it is only in the third and possibly the fourth objectives that small units can be considered to have any special claim to preference. Small units, throughout the world, are responsible for a surprisingly large amount of employment, even in economies such as the American which are generally thought to be 'concentrated'. The following table, often quoted in the works of Eugene Staley, generalizes the world situation. As has been TABLE 1

Role of Manufacturing Establishments Having Fewer Than 100 Employees Country

Year

Per cent of all manufacturing establishments

Per cent of all manufacturing employees

Per cent of all manufacturing output

USA West Germany United Kingdom Puerto Rico Australia Japan

1954 1953 1954 1954 1955 1952

91 89 95 91 97 99

26 27 33 41 50 59

23 23 n.a. 38 n.a. 37

Source: [69], p. 5.

mentioned often in connection with these results, the similarity for the various countries is remarkable; on the other hand, as the following summary table makes clear, the Indian economy in 1947 was estimated to have, in the small category, 77.9 per cent of itsfirmsemploying only 8.4 per cent of the workers; this makes it appear as if India is more concentrated (1947) than the advanced countries listed in Table 1. The estimates in Table 2, no doubt, understate the role of small units for various reasons, chief of which must be connected with the statistical sampling employed; conversely, however, there are other observations which suggest that Table 2 is not unreasonable. In this connection, it has often been remarked that the effect of British rule on manufacturing was to expose the smaller sizes to ruthless competition. K. V. Karantha (130) points out that the ratio of workers in industry to the total population fell from 5.5 per cent in 1911 to 4.2 per cent in 1941; the ratio of workers in industry to total workers was reported to be around 3 per cent in 1950 (38), an even stronger suggestion in the same direction. Furthermore, another study, for the year 1954, produced estimates similar to those in Table 2. See Table 3. 120

GENERAL INTRODUCTION TABLE 2

Role of Size in Manufacturing Establishments in India, 1947 Number of Workers per Establishment

Number of Establishments

Per Cent

Number of Wage Earners

Per Cent

Below 21 21- 50 51- 100 101- 250 251- 500 501-1000 1001-2500 2501 plus

1080 1429 1280 408 184 149 209 141

23.3 29.3 25.3 8.3 3.7 3.1 4.2 2.8

31,382 95,372 70,120 104,016 82,465 105,505 361,463 637,241

0.8 3.7 3.9 5.3 5.7 9.1 25.2 46.3

Source: [8]

TABLE 3

Role of Size in Manufacturing Establishments in India, 1954 Number of Workers per Establishment

Per cent of Factories

Per cent of Persons Employed

Below 20 20- 49 50- 99 100- 249 250- 499 500- 999 1000-1999 2000-4999 5000 plus

23.0 36.8 17.5 8.8 3.5 3.2 3.5 3.1 0.6

0.9 4.8 5.0 5.6 5.4 10.3 19.5 33.0 15.5

Source: [44], p. 19.

The similarities between the two independent studies are quite strong; the second set, with 6,637 factories representing 1,714,770 workers, was somewhat larger; nevertheless, seven years later, the per cent of factories in the 'under 100' group was 77.3 and the per cent of workers in this same category was 10.7. P. N. Dhar and H. F. Lydall have produced estimated size groupings for 1956 which make clear the nature of the underestimation in the other results; 121

A SURVEY OF THE INDIAN LITERATURE

even though the figures supplied by these authors are hopelessly general, it is probably not possible to do more than this until better data become available. Other aspects of the role of small enterprises are less difficult to understand although their measurement must also involve wide potential error. Malenbaum, for instance, estimates the role of small units from 1955/56 to 1965/66 where plannedfiguresare utilized for the latter date. (Other similar estimations appear in 40, 42, 111). These results appear as Table 5. TABLE 4

Estimated Size Distribution of Manufacturing Establishments in India, 1956 Number of Persons

Below 5 5- 9 10- 19 20- 49 50- 99 100-249 250-499 500-999 1000 plus Total

Number of Establishments

Total Number Employed (000)

5,000,000 130,000 43,000 18,000 4,660 2,550 840 470 580 5,200,000

10,200 910 600 560 340 380 270 330 1,410 15,000

Source: [30], p. 7.

TABLE 5

The Future for Small-Scale Industries in India, 1955-1966 — National Income by Sectors in Per Cents Sector Agriculture Mining and Manufact. Mining Factory Small est. Trade and Trans. Services Source: [38]

122

1955/6

1958/9

1960/1

1965/6

47.8 16.8 0.9 7.1 8.8 18.8 16.6

47.7 16.2 1.0 7.5 7.7 18.7 17.4

46.5 16.7 1.1 7.9 7.7 19.3 17.5

45.7 19.1 1.1 9.6 8.4 18.2 17.0

GENERAL INTRODUCTION

Small industries in 1948-49 were 10.1 per cent of national income; what has happened in the Second Plan is an arresting of the decline, followed by a planned revival; it is also clear in this table that the hope for the future is contained in the more rapid rise of factory (capital goods) output. This table also makes clear the official position of small industries in the general plan; this must be emphasized because much of the literature implies that a greater role has been planned. The general role of small industrial units in the Indian economy seems to be something like the following. They have suffered a rapid eclipse possibly because of the early emphasis on large capital units; they have enjoyed a revival dating from the period of the Second Plan, when it became apparent, first, that employment and consumer goods goals could be met in this fashion and, second, that they were not an integrated part of the over-all plan. Finally, in the Third Plan, and, very likely, in subsequent plans, they will share less and less of the general increment in over-all developmental expenditures. What happens to small sized units will depend, of course, on the relative contribution of the private sector in this connection. In general, the private contribution to over-all industry investment was 42 per cent in the Second Plan and (planned to be) 43 per cent in the Third Plan (16, p. 537). With reference to the small sector vis-à-vis the other sectors, figures are available for most of the 1950's. They suggest, in Table 6, a rather deficient small sector with respect to investment funds generated; one notices, in fact, a general tendency for public expenditure to replace private expenditures.

TABLE 6

Actual Net Investment in India: 1950/51,1951/52-1955156, 1956/57-1958/59, in Millions of Dollars 1950/51

Agriculture Large Industry (and Mining) Power Small Industry Transpor. and Commun. Soc. Ser. and Misc.

1951/52-1955/56

1956/57-1958/59

Public

Private

Public

Private

Public

Private

126.0

224.5

1186.5

1218.0

925.0

1220.0

21.0 36.5 6.5 94.5 115.5

189.0 10.5 27.5 52.5 178.5

157.5 378.0 21.0 945.0 462.0

1165.5 52.5 157.5 315.0 1144.5

760.0 380.0 135.0 1090.0 810.0

1135.0 65.0 125.0 250.0 945.0

Source: [38],p. 214.

123

A SURVEY OF THE INDIAN LITERATURE C. DEFINITION

Most writers on 'small industries' have felt compelled to offer some definition of their subject; this is a reasonable undertaking which has, however, produced a vast 'sub-literature' of great diversity. There are generally two approaches made to the problem. One of these is to find some unobjectionable quantitative measure, such as employment, employment with power, horse-power, or capital equipment at some convenient valuation. The second is to attempt a functional definition in which small industries are distinguished from large (and often from 'medium') on the basis of suspected or proven characteristics; the latter approach appears most often in the work of the Stanford Research Institute. This section presents an appraisal of these methods of definition in terms of the literature; it will be observed that the references cited are unusually diverse in the national sense - the problem of definition, it can be asserted, claims international attention. Precise Definitions The use of precisely measurable statistics satisfies the more expedient desires of government workers and of those conducting research, both of whom clearly must get on with whatever task is at hand (12,44). Thus, for instance, the present official Indian definition, which has varied over the years (69), is that a small industry is a firm with up to 500,000 Rupees in fixed capital at original cost regardless of employment; if it is an ancillary, it is still small up to 1,000,000 Rupees of capital. In previous definitions, employment was emphasized; the change, no doubt, reflects the Indian preoccupation with the problem of the scarcity of capital, the most pressing general difficulty of an economic nature that they face. J. Jewkes points out, in another context (150), not only that such a definition is highly arbitrary, but also that what appear to be changes in size may merely be changes in the mix of technological factors (i.e., a substitution of capital for labor of a diminishing sense in terms of output would be growth in the Indian case); he also emphasizes the skewness of the distribution obtained from such a definition. There are reasons other than those cited in connection with capital for preferring such a definition as 'employment size' to indicate size of firm. It has been suggested, for instance, that international comparisons are thereby facilitated (34, 145) and that such a measure is easily 'visualized' (145). There are, however, prominent difficulties with such an approach. The first matter is that other economic variables, such as physical size, capital equipment, 124

GENERAL INTRODUCTION

size of supervisory staff and output, for example, which have as much claim on the title 'size' as employment, do not necessarily correspond empirically, producing, as it were, paradoxes of interpretation (147). An example is afforded from the work of M. Allwood, where persons per plant can be compared with horse-power per person and horse-power per motor. TABLE 7

Size of Factories in Hessian Handwerk, 1954 Number of Workers per Establishment

Available Horse-Power per Worker

Horse-Power + Motors (in Numbers)

1 2- 4 5- 9 10- 19 20- 49 50- 99 100-199 200 plus

1.0 1.2 1.0 1.1 1.0 .8 1.2 1.6

2.4 2.6 2.7 3.0 3.0 3.3 4.1 3.8

Source: [158], p. 26.

While lack of correspondence itself is a serious defect in connection with a definition in terms of employment, there are some additional problems. For one thing, units of labor are not as comparable internationally as one might like them to be - Indian workers simply are not German workers in senses which can make casual comparisons obscure. A more technical objection is that the employment distribution is not only very wide, but also highly skewed (so that mean, median, and mode differ as measures of central tendency (145)); one consequence is that the statistical assumption of 'normality' which underlies much of the reported statistical work cannot then be met. There is, of course, the possibility that some simple transformation of the structure might restore the normality; it is possible, for instance, that the structure, employment-wise, is 'log normal'. There have been a number of attempts to patch up the employment criterion by including some other complementary variable with it. S. K. Basu (92) suggests incorporating the number of workers with the 'stage of development' of the country when international comparisons are desired; such a procedure introduces the difficult problem of measuring development in some 125

A SURVEY OF THE INDIAN LITERATURE

way - one has gained little by the introduction of such an approach. Mention might be made here of the classification 'investment per worker' (44, 56) which has been used only sparingly in the literature. As mentioned above, the Indian government once mixed 'power' with employment; P. N. Dhar (117), using this approach in his study of Delhi firms, introduces the following classification: A. Firms with less than 10 workers and no power B. Firms with less than 10 workers and power C. Firms with more than or equal to 10 workers, but less than 20 workers, without power D. Firms with more than or equal to 10 workers, but less than 20, with power and at least 250 Rupees of fixed capital. This three dimensional (workers, power, and capital) classification overcomes some of the conceptual problems, but as Dhar admits, the dispersion in some cases is so great as to call the method in to serious question; nevertheless, in some cases, firm results are obtained. Dhar, as noted, suggests that power is associated with what we mean by size; P. S. Florence (145) presents, by far, the most detailed appraisal of this possibility. He suggests, in fact, that 'horse-power per worker' not only is intuitively satisfying but also possesses the following objective advantages: TABLE 8

Size Classification of German Manufacturing Per Cent of Workers in Joint Stock Companies 90.0-100 80.0-89.9 70.0-79.9 60.0-69.9 50.0-59.9 40.0-49.9 30.0-39.9 20.0-29.9 10.0-19.9 0.0- 9.9 Totals

Horse-power per Worker 0.0-0.49 0.50-0.99 1.0-1.99

1 1 2 3 5 7 13 17 33 70 152

Source: [145], p. 100.

126

3 5 2 7 11 12 19 18 11 7 95

7 5 7 3 12 12 8 6 4 2 66

2.0-3.99

4.0-5.99

6.0-plus

Total

9 2 8 6 5 2 0 2 3 1 38

9 3 1 1 1 0 1 0 1 1 18

9 1 1 1 2 0 0 0 1 0 15

38 17 21 21 36 33 41 43 53 81 384

GENERAL INTRODUCTION

it is comparable internationally; it is not arbitrary; it is not dependent on the price level; and it measures what is meant by capacity of equipment. The preceding table appears in Florence's work, where the entries are the numbers of firms of a total of 384. One should note,first,that the 'degree of incorporation' appears in Column 1 and not the usual 'workers per establishment'; nevertheless, the pattern, which moves from the upper right to the lower left in the table, is convincing. There are difficulties, however; Florence himself suggests that, for instance, some power sources are omitted (such as hand power) and that an exaggeration due to weight of material handled also occurs. One could add that the employment divisor still possesses the difficulties of employment alone, which are mentioned above; at any rate, in practice, there has been little attempt to incorporate power into the definition, except as noted earlier. Other possible 'objective' measures have been proposed, such as the 'market value of shares' (146, 148), which would not, however, be of much use for the Indian case. Functional Definitions

The principal advocate of the functional approach to the problem of definition is Eugene Staley, who has popularized the following list of functions of small industries, with the intention of emphasizing how they might differ from larger sized undertakings (24). Thus, 'small' includes nonfactory types, about which there is no particular ambiguity, and factory types with the following characteristics or functions: 1. Relatively little specialization in management, 2. Close personal contact of top management with production workers, 3. Lack of access to capital, 4. No special bargaining strength in buying and selling, and 5. Often a relatively close integration with the local community. A more complete categorization, in some respects, is that suggested by P. Chatteijee (111) along the following lines: Factory Organization Traditional Lines Modern Lines Non-Factory Establishments Manual Mixed Factory Concerns 127

A SURVEY OF THE INDIAN LITERATURE

Hired Labor Self-Employed Labor Skilled Crafts Manual Mixed Rural Industries a. Local Material Local Labor Local Markets b. Some Local Material Some Procured Labor Mixed Markets c. Resource Utilization (Salvage) d. Farm-Based Concerns where all concerns are small in some predetermined sense. It should be apparent that the two lists are similar in intention, with the first one focussing attention on what might be termed the 'problems of small units,' particularly in items 3 and 4. What both of these approaches do is beg the question of the definition of small units in the following manner. One often wishes to discover whether small units actually have difficulties in obtaining capital and if they suffer disadvantages in bargaining for materials; clearly, if one defines small units as Staley has done, he will find these hypotheses upheld. What cannot be avoided is the measurement of size in some fashion; in this connection, the work of Florence, P. E. Hart and S. J. Prais, and Jewkes, in connection with the British and German data, cannot be ignored. These writings make it clear that the definition which works best, in all likelihood, will be the one which recognizes that the size of plant is a compound of capital and labour which are in it combined as factors of production. (137, p. 50) This clearly does not describe the official Indian definition. In conclusion, in order to make it absolutely clear what this survey is about, i.e., in order to define small industry in a general enough sense to allow it to be surveyed, the following list of types of firms seems general enough to use (55; this is similar to the definition in 27) as indicative of the contents of this paper: 1. Cottage industry for home use 128

GENERAL INTRODUCTION

2. Cottage industry for local market 3. ""Small-scale hand industry for domestic mass market 4. Handicrafts industry for luxury markets at home or abroad 5. *Small-scale hand industry for mass markets abroad 6. * Small-scale powered industry Those types marked with an asterisk will be designated 'small industry' in what follows; those remaining will bear their explicit titles and will figure less prominently in the discussion since the case for smallness, as such, seems to rest mainly on the more 'advanced' types bearing an asterisk.

D. ECONOMIC RESEARCH

The claim is often advanced that the literature on economic development is a poor one, but it is rarely pointed out just why this is so or what might be done about it. Broadly speaking, the failures of the Indian literature on the small industry can be placed in the following categories: 1. The literature is highly repetitious; 2. The literature ignores questions of economic concern in favor of those of taxonomic concern; 3. The use of statistics is barbaric; 4. Value judgments frequently obscure and directly interfere with sound analysis; 5. Area studies which often contain data conform to no general pattern so that comparison is difficult, while general studies lack firm general data. In a similar vein, G.K. Chacko (68) comments that the economic research conducted so far is question posing, fact finding, and fact interpreting, but not directed at basic economic research; the implication is that if the problems which arise are unique, they will not be solved. Chacko suggests that Indian economists are too concerned about the work of others and are especially poor (therefore?) at analysis of their own problems, particularly growth, their central concern. It is fair to note, before continuing the discussion of the points raised in the above paragraph, that continuing efforts are being made, on a broad front, to provide better data. The following institutes, in India, deserve note: The Central Statistical Organization, which conducts the National Sample surveys; the Indian Statistical Institute, which conducts Small Scale Manufacturing Industry surveys; the National Council of Applied Economic 129

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Research, which conducts Techno-economic surveys; and the Central Small Industries Organization, which is responsible for area surveys and 'industry prospect' summaries. It is true, on the other hand, that these groups, which are, indeed, responsible for a very large volume of output, have generated primarily cross-sectional data, and that of a quite limited scope. While it must be admitted that generalizations are extremely difficult if, in fact, warranted in the Indian case, because of the heterogeneity of the social, political and economic structure, it also must be emphasized that the area and product Orientation of the public agencies is unlikely to produce data useful to planners, whatever their uses might be for those interested in the particular industry or region in question. What one can observe in the Indian literature, in fact, is a complete failure to generate firm conclusions about the growth process, partly because of the failure to provide data general enough (in 1959, the Working Group asked, again, for an All-India survey on small industries, a study which is not yet in the works, in all likelihood) and partly because, as mentioned above, Indian economists show no firm propensity to delve into the foundations of their discipline. One is then faced with an anomaly; how can Indian economists, as so many appear to have done, advocate clear policy lines without having first generated a valid test. One suspects that the interaction of value judgments, which are often actually explicit (especially in the case of what might be termed Gandhian writings), with genuine economic inquiries produces this curious definiteness of result. Another important deficiency in economic studies of the Indian situation concerns the use of rudimentary statistical weapons when the data, poor as they are, will support more advanced techniques. Of particular use would be regression techniques, in order to provide significant estimates of the basic parameters involved and to serve as the basis of projections whenever this is deemed to be a vital need. This writer cannot urge too strongly that efforts, official and unofficial, be increased to upgrade the quality of the statistical work done on topics of economic concern in India; this prescription applies both to the collection and processing of data. It is clear that much economic work cannot be separated from the value judgments which all workers are bound to make, if only in their choice of topics. Indian writers are especially guilty in this respect, but matters are much more serious, for here explicit policies are often suggested primarily on grounds which can only have been pre-judged. One can always accept official values, such as that the overall program must be worked out within the 130

GENERAL INTRODUCTION

framework of 'democratic socialism'; but the virtues of such policies as 'cooperation' which are often advanced on purely economic grounds (of a spurious nature) are more difficult to visualize. The Ford Foundation (31, 32), for instance, does not favor such a goal; and it can be asserted here, at the least, that the proponents of cooperation have not demonstrated either its viability or its essentiality for Indian progress. One can be encouraged, at the least, that official action in this direction has been sparse (to be discussed below) in view of the failure of a convincing empirical case to appear. Whether or not economic research should be more socially oriented, as is claimed by UNESCO (45), again touches on matters of professional competence. In plain words, the best that economists can do in their own terms has not been produced, and the UNESCO's alarm appears premature. This is not to say that a mixture of disciplines is not desirable, particularly in an area such as underdevelopment where the vicious circles evidently overlap each other. It can still be cautioned, however, that generalized studies have the very great disadvantage that much needed basic judgments are more difficult to make when research efforts are so dispersed. Perhaps, on the other hand, such questions as 'what should be the role of small industries in India in terms of its goals?' - a question which has not yet received a clear answer can only be supplied in a broader disciplinary context. Nanjudan, Robison, and Staley (69) have written what must be considered the best work on economic research for the Indian case. They offer the following general goals for such research: 1. To identify industries which offer the best prospects for small-scale undertakings, 2. To identify obstacles and needs, 3. To identify industrial possibilities of specific areas, 4. To help in locating industrial extension services, estates, common facilities, and other developmental activities, 5. To help in small industry financing, e.g., by conducting economic investigations, 6. To help in evaluating results of a small industry development program, and, 7. To support and recommend an action program. One meets, in this list, the economist in all his activities; the recommendation that he implement (and advocate) is not without exception, however. Dirlam and Watson (25), for instance, point out that planners must beware of the 131

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dangers of attempting to implement their own designs; the same warning would seem to apply to economists, whose work often requires impartiality in order to be most effective. One can always cite, on the converse side, the experience of the British, for whom high quality (and impartial) work has been done in the official departments. Nanjudan, Robison, and Staley also consider a variety of more specific types of research and offer a large number of practical suggestions on how to utilize to the utmost the scarce amount of qualified economic personnel available. Besides the topics listed in the last paragraph, the International Labour Organization (13) adds a list of items on which further work is necessary. They emphasize more work on the question of labor and capital intensity, an important area of discord in the Indian literature; more work on the possibility of adopting a system of 'shadow prices' since social costs and private costs seem to diverge so much in cases where unemployment is large; and more work on the possible uses of small industries in backward areas to offset seasonality. Of a more specific nature, they suggest more work on design, the basic principles of the management of small firms, education and training for workers and managers, wages and taxes, and the problems of articulation between large scale and small-scale units, an area surprisingly under-represented in the Indian literature.

132

II. The Rationale of Small-Scale Industries

A. A DEVELOPMENT MODEL FOR SMALL-SCALE INDUSTRY

Although it is not always apparent from the specialized literature on small industries, plans on their behalf generally are placed within the context of a general economic plan and generally can be found to have an underlying economic model. Thus, for the Indian case, it is readily acknowledged that the general economic model behind the Indian plans is of the HarrodDomar variety (7, 10); the link between the general plan and the specific position of small industries has not, however, been subjected to careful scrutiny. The question to be raised could be phrased as follows: Is there some general development model, of an economic nature, which suggests that a part of economic planning would do well to emphasize small-scale industries? Since the models to be discussed, those produced by Harrod-Domar, W. W. Rostow (19), H. Boeke (5), W. A. Lewis (15), and Gunnar Myrdal (17) are not mutually exclusive, one cannot expect a unique answer; it will be seen, however, that a firm general case for special efforts toward small industries can be made; the reference will be to the Indian case. Neo-Classical Growth Without a doubt the most widely accepted model of the growth process is that known as the Harrod-Domar version of the more general Neo-Classical Growth framework. The model, to put it most simply, emphasizes that the equilibrium growth rate is narrowly defined by the relation between the growth of capital and the growth of output (16). There is little doubt that acceptance of this system forms the basis of the Indian model (16, 65, 78) in which capital is allocated sectorally (to investment goods, factory-produced goods, small-scale industry, and agriculture and services) and the marginal capital-output ratio is a parameter. 133

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In spite of the fact that 'small industry' is labelled a 'sector' in the Indian plan, there is no clear reason why such a sector should be favored. To be sure, more workers are employed in this sector than in the other manufacturing sectors, but such an argument applies even more forcibly to agriculture, which employs more workers than all the other sectors combined. In addition, the Harrod-Domar model lays great stress on 'bottlenecks' and on natural limits between which (it is hoped) an equilibrium path of growth exists; small sized enterprises produce, in the Indian plan, consumer goods, simple tools, and intermediate products, all of which can contribute little toward overcoming the economic bottlenecks. Furthermore, it is not even clear that such units are less capital-intensive than larger units (see Chapter III) which suggests a plan deemphasis in a Harrod-Domar framework. Finally, although often misunderstood, since the rate of saving in the Harrod-Domar model is variable (institutionally), small units might be favored as providing larger savings by touching savers who would otherwise hoard or consume. This question turns on comparative marginal savings rates from the proceeds of social funds invested in either of the two directions; although it cannot be answered in a clear way for the Indian case, it is suspected, as data presented later in this chapter suggests, that such an emphasis will produce lower savings, at least in the short run, than the alternative approach. One can conclude readily that the Harrod-Domar model, if anything, suggests deemphasis on the small sector. This thought appears (Chapter I) to be developing in recent Indian Plans; as a consequence, this form of the Neo-Classical model does not explain the general preference in the literature for smaller units; it will be seen that the other growth models proposed here fare somewhat better in the special sense of establishing a consistent framework. Economic Stages A second model, that of the 'stages of economic growth' in the context of 'leading economic sectors' appears to be less useful for our problem in the version popularized by W. W. Rostow; in this case, strong doubts about the utility of the model further weaken its validity for the purposes of this paper. In brief, Rostow's model suggests that large investment in some key industry (or industries) would 'trigger' a 'take-off' into 'sustained growth'. It has been pointed out that most often this leading sector is the steel industry, and it has been suggested that in the past the level of production of this industry 134

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reached 5 million tons for the 'take-offs' in other countries (20). While refutation often takes the empirical point of view, it also often denies that the model is really testable (16) or emphasizes that it was constructed for 'preplanning' economies (20) where an agricultural revolution could precede development. For India, in addition, G. S. Sahota (20) suggests that the end of 'take-off' is twenty-five years away, at best, because the domestic level of savings is quite far from the amount necessary to support sustained (and independent) growth. It does not seem possible to identify convincing leading sectors in the Indian case; while investment has exceeded the minimum ten per cent of income to qualify the country's growth as 'sustained' in Rostow's terms, it appears that the effort has been widely dispersed; this result is one of the phenomena of systematic planning. In addition, Indian planners do not emphasize sectors in the sense emphasized by Rostow; thus, sectors are identified as capital goods, small-scale, and so forth and appear to have particular 'members' chosen from a list of the feasible rather than from a list of the dynamic; most of the choices, in fact, seem to cut across 'sectors' defined in the Rostow sense. Thus, Rostow's model would suggest little, if any, emphasis on small units. Dual Sectors The notion of 'dualism' in underdeveloped areas, introduced by H. Boeke (5) can be explained primarily along historical lines. Stated generally, dualism is introduced whenever there is an importation of capitalist methods into a pre-capitalist economy (society) (10,16). Thus, for example, one sector (large) becomes technically advanced, and dominated by foreign capital and/or ideas, while the other sector (small) appears 'pre-capitalistic' in the sense that workers and risk-takers do not appear to respond positively to increases in their opportunities; this latter idea is usually thought to imply 'backbending supply curves of effort and risk-taking'. Therefore, says Boeke, Western aggregate methods of development are inappropriate and sectors will have to be dealt with individually if policy is to work; suggested by Boeke is a unique policy toward the small of scale. There is evidence which suggests that the entrepreneurs, at least, in India are profit conscious and eager to progress (2, 10); furthermore, this has been found to be true in several area studies (60, 120). It is also apparent that Indian planners are convinced that 'Western' responses will follow Western stimuli. However, the matter has not been tested sufficiently. 135

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Another form of the model, the 'rigid coefficients' form, described by B. Higgins (10) and G. Meier (16), states that as development occurs in capital intensive sectors - such as metals, which were emphasized in the Indian First Plan - unemployment occurs in the labor-intensive sectors. If these labor-intensive sectors are such as village industries or small-scale industries, special effort on their behalf is suggested to restore the 'balance' to economic growth. This view is, apparently, accepted by some workers in the area; the matter will be pursued under 'rationale,' below. Development with Excess Labor W. A. Lewis, who, similarly to the 'dual economists,' distinguishes two sectors (capitalistic and subsistence), asserts that development must be centered in the capitalistic sector if development is to approach 'take-off' proportions. In his model, workers are drawn from the subsistence sector, where they are unemployed, possibly in some 'disguised' sense, into the capitalistic sector, in order to enable the growth to take place. The model requires that there really exist such unemployment (or underemployment), or production in the laborlosing sectors will fall; this would be serious, for instance, if it were anticipated that workers would be drawn from the agricultural sector, for serious food shortages could curtail the success of the overall development plans (49). It is clear that much of the reason for advocating small-scale units in India is their alleged labor-intensive character (56); it is regularly asserted that labor is so excessive as to be openly 'unemployed'; therefore, one need not even draw off workers, if a 'pool' of unemployed already exists. Furthermore, it is clear that it is intended for the small-scale sector in India to be a technically advanced one; at the same time, this sector is not intended to contribute much toward capital growth but to try to meet the present demand for consumer goods (59). The problem seems to be that the Lewis model is too general and that the Indian situation contains more unemployment than his model envisages; on the whole, the general fit of the model, in this case, is impressive, however. Vicious Circles and Cumulative Growth Myrdal's view of the development process provides, perhaps, the best general case for favoring small-scale industries. Since, as well, his model has received widespread favorable comment on a number of fronts (86), not all of which are 'economic' in nature, it is not difficult to maintain that actual prescription might be described in Myrdalian terms. Myrdal observes that international 136

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inequalities between advanced and underdeveloped countries are widening and maintains that traditional equilibrium theory cannot explain this result. He feels that both the classical static model and the more recent HeckscherOhlin view of the adjustment process are applied in a deductive way to the modern world and fail to explain the widening inequalities just noted because they fail to be true in a number of empirical respects. Thus, the world is not laissez faire and purely competitive and, possibly of more importance, social and political factors unevenly assist development. Myrdal suggests that 'equilibrium' is not 'natural' and that a closer description of reality would be to describe the relative developmental process in terms of the vicious 'circularity' and 'cumulation' of cause-and-effect. A country embedded in relative poverty will be unable to lift itself out because its adjustment processes are weak; a vicious circle between, for example, ignorance, low incomes, low rates of saving and political dishonesty will cause domestic efforts to fail if they arise from the stimulus of the market economy - the exploitation, which was mentioned above, of the Indian market in favor of British industry is a case in which the forces of 'free trade' could not overcome these embedded factors. Hope arises in such a case due to the possibility of cumulative movements: rises in income permit increased expenditures on education which has effects, itself, on income; the process is that of a familiar economic 'multiplier'. There are two ways such a process can be achieved: firstly, one can provide shocks to the vulnerable parts of the economic and social structure such as might occur with an ending of the caste system, and dramatic new social investments; secondly, one can strengthen the spread effects, which transmit the original impulses throughout the economy and are relatively weak in a backward country, by, for instance, creating a class of entrepreneurs or a pool of skilled workers. Here, then, is the place of small industries in Indian policy, for it is clearly desired to have a new class of entrepreneurs in India, and the diffusion of small units is especially suitable in this respect. Similar justification is found in arguments which imply the training of skilled workers. These comments will be borne out more completely in following sections of this chapter as the specific arguments themselves are examined. The general picture is fairly clear. While the overall approach of the Indian planners is cast within the Harrod-Domar framework, emphasis on small sized units is best explained either in terms of a model of absorption of excess unemployment (defensive) or in terms of creating diffusion effects to 137

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strengthen the economic base of the economy (offensive). It will be clear, in the sections which follow, that some such processes as these underlie most, but not all, of the efforts to rationalize the strong emphasis on small size, where their superior efficiency cannot be established.

B. THE RATIONALE OF SMALL-SCALE INDUSTRIES IN INDIA

In the sections which follow, certain aspects of the most controversial part of the Indian literature, that concerning the 'case for small industries,' will be discussed. This part of the literature is not only important in its own right but also relevant to other countries which might wish material on which to base decisions concerning the role of small units. One must keep in mind, however, that a good deal of this part of the literature is highly colored by the personal prejudices of the writers. It must be emphasized, in this latter context, that the entire argument is carried on within a set of economic and socio-political constraints, which not only set important restrictions on the area one can discuss usefully but also help to give the literature its unusual 'question-begging' nature. The principal problem, one can assume, with respect to the structure of industries is that of choosing the right mix of types and sizes of firms in order to attain maximum development potential, consistent with the general political and social facts of life. The concern here, of course, is with the question of size and its constrained solutions. Thus, it is possible that, after all the constraint 'equations' have been satisfied, the only solution is one in which an unusually large emphasis on small units remains. This is an empirical approach to the rationale problem, and it suggests that one must evaluate the force of the constraints in the Indian case to see if the choices made have been dictated in such a fashion. By their nature, the constraints imposed on the Indian planners are inexorable; it is important that they be stated, for much of what follows is intelligible only in the context of their unique objective constraints. In the first place, one must recognize that the pressure of population forces Indian planners to set aside other desirable goals in order to see to it that as good a record as possible is achieved in the area of employment; investment in small units, which are deemed to be relatively labor-using, is often justified in these terms. A second aspect of the population crisis is the strong pressure for 138

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consumer goods; again, the small-scale sector has been selected as the most natural source of such goods. There are other constraints in the Indian case which could be said to have been adopted voluntarily. An example is decentralization in the various phases of economic life, such as geographic dispersion of plants, which can suggest small unit development, and cooperation by economic units, which has justifications which are only partly economic, and the development of ancillaries as desirable adjuncts to large units. In connection with these types of contraints, the name of Gandhi is most frequently mentioned, and writers are often far from dispassionate in their advocacy. The following sections will present material on the latter two factors; the former is treated, in passing, later in the chapter. Cooperation as a Constraint The cooperative movement in India has a long history in which it has advanced to a firm position without explicit government aid. Nevertheless, the most recent Indian plans have stated a general preference for cooperative development and have, on occasion, prescribed favorable treatment for cooperative organizations (84, 88); these have taken the form of lower loan rates, special margins, and protected markets. These devices, which are not adopted to offset alleged difficulties of cooperatives, can be explained only as constraints on the economic planners. In spite of strong efforts on their behalf, cooperatives, which are predominantly of small size, reportedly still have the same difficulties as the other, less favored, small units; thus such units are bothered also by lack of finance, scarcity of raw materials, and poor marketing arrangements (28). There are, of course, economic reasons for preferring cooperatives; the International Labour Organization suggests that through amalgamation of this sort small units can overcome, at the least, bargaining difficulties and provide credit facilities for their members (14); these hopes are also expressed by S. M. Veeraraghavchar (63). Since the Second Plan, specific provisions have been made for cooperatives in the Indian plans; the general position is the following. Cooperatives are chartered by State governments and form a part of the country's Constitutional structure (88), nevertheless, one does not find strong official action in this direction. The official groups responsible for this implementation are the All-India Handloom Board, the All-India Khadi Board, the Small Scale Industries Board, and the All-Industries Handicrafts Board; the result is 139

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perhaps the consequence of their preoccupation with their main problems which are stated in sectoral terms. The overall results for small industrial firms are contained in the following figures: TABLE 9

Industrial Cooperatives in India Year

Number of Cooperatives

1949 1950 1951 1956 1957 1960

3,758 5,305 7,105 15,333 16,746 28,982

Source: [61]

Similar results are reported, less generally, by A. S. K. Iyengar (35) on a State-wide basis. The general picture is that cooperatives are a vigorous part of the small industry plan and exert some pull on the smallness-largeness problem. This effect does not seem unduly large, however. Ancillaries Since it cannot be established that the development of small units as ancillaries would be vital to Indian progress, it must be presumed that such efforts are imposed on the economy in the nature of a constraint. In addition, specific comments indicate that results in other countries (for example, Japan), where ancillaries are important, are cited as suggesting an emphasis (44, 78) in India. The irrelevance of the arguments is overwhelming as is often the case when one attempts to justify a constraint. There are, of course, economic arguments in favor of ancillaries: that they are, for instance, more efficient due to lower overhead costs or that they help eliminate the wastes of competition (28), and that they improve the quality of research and of the product itself (28, 44). It is evident that these are spurious arguments for no evidence on their behalf is given in these respects; furthermore, it must be established in this connection that all of these ends will be better served by ancillaries than by complete large units as well as by independent small units. There is little evidence to suggest that 140

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those responsible for these views recognize the incompleteness of their arguments. Whatever the proper view toward the ancillary as a constraint, it is clear, in practice, that little has been done in the various plans to promote their development (63, 89). The Third Plan takes a strong position (28) but has little to offer; as a constraint suggesting a definite case for small units, the ancillary is not (yet) important in India. Employment Arguments The firmest argument in favor of small-scale units is that, because of their relatively labor-intensive nature, they are especially suitable in an economy where unemployment is widespread. Dhar and Lydall (30), who provide the framework for the remainder of Chapter II, reject the simplest form of this view, which states that an increase of employment will occur (72, 88), because it does not suggest any special case for smallness. Instead, they suggest that, at their root, employment arguments are really capital arguments and that small industries are in favor because they are expected to have lower capital/output ratios (K/Y) than larger units. Thus, except in the case in which employment can be thought of as an identifiable goal, as Singh (123) emphasizes, if the pursuit is output, the capital/labor ratio (K/L) is not a relevant statistic. It is, of course, in the case where employment is a goal in itself. India is a country which, most observers would agree, is especially plagued with problems of unemployment (56); while estimates of the size of this group might be expected to vary, one can take as typical of the estimates those by M. C. Shetty (44) who found 5.3 million openly unemployed, 20 million disguised unemployed, and a net addition to both of 2 million per year. Since this staggering unemployment (which may well be underestimated) is socially and politically undesirable, it is far from unreasonable to consider increased employment as a major constraint (3, 7, 14, 44, 45, 53, 63, 69, 75, 79, 100, 121, 130) on overall economic policy. Whether or not the cause is technological unemployment (and is thus associated with progress in other spheres), the social problem demands attention. All that needs to be demonstrated in such a case (13) is that the incremental capital/labor ratio is lower for small units than for large units as a consequence of government developmental expenditures; it very likely is. Two sorts of data exist in support of such a contention; in the first place one might resort to a priori estimates, as does Farooquee. 141

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Capital, Output, and Labor in Textiles

Modern Mill Power-Loom Automatic Loom Handloom

K/Y

L/K

1.9 1.5 1.1 0.8

1 3 15 25

Source: [53]

One can also refer to actual experiments such as the following by Shetty, for the engineering industry. TABLE 11

Capital, Output, and Labor in Engineering Number of Workers per Establishment

K/Y

Below 20 20-49 50-99 Overall

0.61 0.69 0.84 0.72

K/L (Index Numbers) 100 118 125.0 112.2

Source: [44], p. 37

There is, then, a clear presumption in favor of small industries as labor absorbers; insofar as this is desirable in its own right, such forms will be preferred. There is good reason to believe that this is highly relevant to the Indian case. The question of output per unit of capital cannot, by its nature, be disposed of so easily. Since a rapid rate of growth (in output) per capita is an important general goal, it is clear that if one chooses to emphasize this goal and hence to invest, on the margin, where the capital/output ratio is the smallest, most likely one will wish to invest in small scale undertakings. Thus, Shetty and Farooquee, in the tables mentioned above, also find that the capital/output ratio is higher for larger firms; others support this view (100); the Government of West Bengal (79), for instance, asserts that the ratio is 142

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twice as big for large as for small firms. Similarly, the Third Plan contains estimates, as collected by W. B. Reddaway, as follows: TABLE 1 2

Capital/Output Ratios in the Indian Third Plan Sector

K/Y

Agriculture Mining and Manufacturing Small-Scale Industries and Construction Railways and Communications Rentals Overall

0.9 2.6 1.0 6.5 1.8 2.2

Source: [42], p. 24.

Conversely, it is pointed out that (121) workers in smaller units are often neglectful of tools and machinery, that small units have more un-utilized capacity and, possibly, both workers and owners have lower levels of skill, desire, and accomplishment. Dhar and Lydall (30), along with others (13, 62, 123), collecting the best information so far exhibited, oppose this view. They demonstrate that output per unit of capital is higher in small units, in a number of important cases and offer the following tabulation. TABLE 13

OutputI Capital Ratios in Different Sizes of Factory, 1956 Average Daily Number of Employees Industry Wheat Flour Rice Milling Vegetable Oils Soap Tanning Cotton Textiles Woolen Textiles Bicycles Electric Fans

20-49

50-99

100-249

250-499

.23 .32 .20 .13 .28 .24 .14 .51 .36

.44 .34 .24 .18 .39 .50 .34 .58 .33

.35 .30 .22 .55 .38 .23 .16 .39 .53

.80 (.24) .30 (.09) .55 .41 .34 .51 .41

500 Plus -

(•31) .71 (.32) .63 .51 .49 .30

( ) indicates one factory only; output is annual net value added; capital is net fixed capital at book value plus stocks and cash at end of year. Source: [30], p. 14. 143

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In another case, Dhar and Lydall analyze the effect of working more than one shift, as illustrated in Table 14. T A B L E 14

Comparative Output/ Capital Ratios in Small and Large Factories in India, 1956 Large Factory (Over 50) Product

Fruit and Vegetable Preservation Leather Footwear Cycle Tyres and Tubes Matches Superphosphate Sanitary Wares and Related Products Steel Furniture Containers Bolts and Nuts Sewing Machines PVC Insulated Cables Storage Batteries Radio Sets Refrigerators Bicycles

Small Factory (1 Shift)

Present Shift (1)

Desirable Shift (2)

.25 .33 .46 .29 .28

.30 .52 .61* .87 .45*

.42 .68 .61* 1.10 .45*

.53 .54 .47 .50 .57 .26 .54 .52 .68 .46

.35 .48 .48 .48 .97* .55 .57 .56 .32 .57

.54 .66 .66 .66 .97* .67 .73 .72 .47 .71

* means three shifts in both cases; output is annual gross value added; capital is initial outlay on fixed and working capital including required cash balance. Source: [30], p. 16.

Here, as one might anticipate, the evidence is not entirely clear; but it does suggest that in some industries, the capital/output situation favors larger size. A conflict then can arise because capital/labor considerations, such as the desire to maximize employment per unit of capital invested, might imply small units while capital/output considerations, such as the desire to maximize output per unit of capital invested, might imply larger units. In such cases an implicit trade-off between goods and employment must occur. It is to be hoped that further empirical work will investigate the nature of these possibilities. 144

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Decentralization Dhar and Lydall suggest that a second main set of arguments are related to decentralization: the physical and economic dispersal of economic activity in order to avoid the alleged evils of concentration of business size and of industry or population geographically. There are, it should be emphasized, two separate aims involved here, although it is not always made clear in the literature that this is so. One view is that dispersal of industry (presumably of small-sized units) would lead to the maximum preservation of democratic traditions; such a view was expressed by the Ford team in 1954 and has been repeated by a number of writers (45, 78). What must be in the minds of the adherents of such a philosophy is that the evils of capitalism are a result of the bigness of firms; this is an argument which has little empirical or historical support and few of those in favor of small size would wish to lose the advantages of modern technology. In the Indian literature, the strongest refutations of this position have come from Dhar and Lydall (30) and, especially, Amlan Datta (48) who claims that advancement of decentralization is perpetration of inefficiency in economic areas; as Datta would put it, a welfare objective is being satisfied at the cost of social capital. Decentralization for the purpose of city planning, a practice long accepted as legitimate (11), has also been widely mentioned. In this connection it is important to note that growth up to the present has tended to concentrate around already over-crowed (socially, not economically) urban centers; the view is that an unnecessarily wide gulf between urban and rural areas grows wider (36) and that industry must be taken to the workers (36, 84). Tempering this rather forceful view is the opinion of the Working Group for the Third Plan (89) which, observing that the failure to achieve decentralization is the result primarily of the strong pull of economic factors toward the existing urban centers, suggests that a more gradual approach might work. They suggest locating large-scale units in backward areas, as a kind of 'organic' approach to dispersal. It should be apparent that the disadvantages of decentralizing industry where a wide gap exists between the externalities of urban and rural centers can be immense; it is probably these disadvantages which have caused the official Indian policy to be thwarted. One of the problems is that the model they have applied was worked out in advanced countries; another problem is that the rural work forces available (particularly the supply of entrepreneurs and of skilled or trainable workers) probably have been overestimated. In the 145

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section on 'industrial estates' these matters are pursued further, for estates have been dispersed deliberately in India with, however, poor results wherever economic factors were not already promising; it is thus clear that such plans must be worked within the context of the general economic constraints of the economy. There are other arguments related to decentralization which have been advanced. Thus, for example, Bauer and Yamey suggest that a narrowing of political differences would result from such a policy and that, for example, less graft would result if industry were dispersed. It is also suggested the dispersal is wise for military reasons (53). Further, it is more reasonably suggested that 'filling-in the cracks' in the industrial structure (69) would occur; such a filling-in would be necessary because of the great amount of large-scale development that has occurred already. Another view is that with small sizes, the penalities for errors would be smaller (69) (in each case at any rate) which is, of course, no help if the entire policy is misguided. Of course, an important argument, in a Myrdalian world, is that such industries are easier to spread (4), an argument which is related to the latent resource views discussed below. However, with all of these views, the general impression is that the arguments are unsupported by evidence, are highly subjective in nature, and are not, with the exception of industrial estates, being put into practice in India. Social and Political

Arguments

Dhar and Lydall next suggest that there are a number of social and political arguments, only partly distinguishable from those under 'decentralization' which are important; in this area one cannot expect firm empirical support to be possible. Thus, for example, it has been suggested that a greater diffusion of economic power might occur; Dhar and Lydall have in mind such matters as 'equality of earnings,' the strengthening of democracy, and more personal and rewarding relations between owners and employees. It is also felt that emphasis on small units will build a stronger middle class (69), foster 'selfsufficiency' (39), involve a smaller break with tradition (4), or provide a necessary evolutionary (31) or transitory (45) stage. There are, in addition, Gandhian arguments, such as the one for 'self-sufficiency' just mentioned or ones which emphasize that advance must be built on the village because it is the ultimate political and social unit in India (70). Finally, there is, of course, the 'social security' aspect of small units, advanced by the Karve Committee (84) wherein small income is to be provided for great numbers of people (46). 146

THE RATIONALE OF SMALL-SCALE INDUSTRIE

Evidence, of a sort, exists with respect to the 'equality' argument of the preceding paragraph, although it relies on international comparisons. Dhar and Lydall present the following break-down of wages in four countries for roughly comparable years in which it is suggested that the equality argument is not supported by the data, because the more concentrated a country is, the narrower the size difference in wages.

TABLE 15

Average Wage and Salary Payments Per Employee in Different Sizes of Factories in Four Countries (Index Numbers) Number of Employees Per Factory 4~ 9 ( 5 - 9) 10- 19 ( 10- 24) 20- 49 ( 25- 49) 50- 99 100-199 (100-249) 200-499 (250-499) 500-999 1000 Plus

India (1955)

Japan (1952)

Britain (1949)

U.S.A. (1947)

47 51 55 72* 85* 88 100

39 46 53 60 69 83 96 100

84 83 84 85 86 87 100

73* 79* 84* 86 86* 88* 90 100

* refers to figures in ( ) in Column 1. Source: [30], p. 26.

Their interpretation is only one of several possible, however, for the data do not deal directly with the distribution of income; furthermore, what one wishes to discover is the behavior of the income distribution as the mix of employment is altered. As it stands now, new factories in the smaller sectors in any of the countries cited would create additional demand for workers and tend to narrow the wage differentials. A further warning about the dangers of international comparison is very appropriate here, for it is not clear that Japan fits neatly between India and Britain by all criteria of 'stage of development'; furthermore, the international sample used is very small for such a purpose. Finally, it cannot be assumed that 'degree of concentration' is firmly in evidence in these data; the British results, for instance, might reflect an especially high degree of government regulation in wage contracts. 147

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LITERATURE

Other Arguments Dhar and Lydall feel that the most convincing argument in favor of small units is that otherwise untapped (and latent) resources are reached by such an approach to development. They cite the case of the creation of an entrepreneurial class (also cited in 69), which was mentioned above. There have been other hypotheses advanced in this area, for instance that the supply of savings to the economy would be larger (45, 69), if it is intended to put small units in rural settings; the following figures suggest a contradiction however. TABLE 1 6

Domestic Savings as a Per Cent of National Income in India Source

Rural Households Total Domestic Urban Households

1950-1 to 1952-3

1953-4 to 1955-6

1956-7 to 1958-9

1959-60 to 1960-1

1.9 5.9 2.4

1.8 7.3 4.4

1.9 7.9 4.7

7.2

Source: [54], p. 29.

One can also suspect, and the data are not adequate for more than a suspicion, that the larger the urban area, the higher the savings rate. At any rate, all of these views are variants of the Myrdalian diffusion thesis, which has been found, as well, to offer the best general explanation of the growth process involved. There have been other arguments advanced, generally without empirical support, which are interesting. It is claimed, for instance, that small units are especially suited in some way to provide consumer goods (25,31,72); counter arguments are that such is not justified without first establishing a case for the superior efficiency of the small units (30) and that small units have not survived in advanced countries, but have been transformed to modern types which are not necessarily consumer-oriented (50). B. F. Hoselitz (34), further, has suggested that an alleged 'fiasco' with respect to large units in the early plans has produced a shift in emphasis; a different view is that the tenacity, observed in Chapter I and in the Appendices, of small units in more advanced countries implies a positive policy in India (44). Finally, there is the view that there are savings in marketing costs in some sense (4); this view is generally contradicted by experience unless the product market is especially eager and little selling needs to be done. 148

III. Planning for Small Industries in India

A. INTRODUCTION - THE GENERAL STRUCTURE OF THE PLAN

It is pointed out above that the overall Indian approach to capital spending is in the Harrod-Domar framework; in that connection the official planned capital/output ratios in India are published as (73): First Plan 1.8:1 Second plan 2.3:1 Third Plan 2.6:1 Fourth Plan 3.4:1 Fifth Plan 3.7:1 M. Chand, the source of the above figures asserts that, in fact, in the Second Plan this ratio was 9.5:1, a result which if correct, has received curiously little publicity. If small scale units are significantly less efficient than larger ones, the above result is not surprising since it is known that the unusual emphasis on these units dates from the Indian Second Plan. Probably the most influential single document in this connection is the Report of the Ford Foundation International Planning Perspective Team (31). This report states that 'rationalization' of the industrial structure, which had actually proceeded too slowly to that date, is nevertheless an evolutionary process; the consequence, they feel, is that a positive policy toward small units should be followed; they recommended the establishment of the following: 1. Multipurpose institutes of technology 2. A national school of design 3. A customers' service corporation for output and input of the firms 4. Export promotional offices, especially abroad 149

A SURVEY OF THE INDIAN LITERATURE

5. A number of financial devices to work primarily through the private sector 6. Trade associations 7. Cooperatives, since India is so inclined, which should, however, stand on their own feet 8. A small industries board for the allocation of government purchases 9. A marketing service corporation, operated for profit, to aid the increase in quality of products As will be apparent in later sections of this chapter, many of the recommendations of the Ford Team have been effected; their general view, however, that such projects should be self-sufficient as soon as possible, has not been followed; some of the disasterous results (especially in the area of 'industrial estates') can be asserted to have been caused by the failure to follow this advice. As Dhar and Lydall put it: Either they have private enterprise, with competition, or they have government intervention, which may lead to socialism. The worst of both worlds, from the social point of view, would be government intervention to support the weakest and most inefficient producers. (30, p. 70) The Ford Team, in its return visit in 1963 (32), also were not satisfied with the results in this area. The specific problem of concern here is the definition of the ultimate role of small units in the Indian scheme. If, for instance, such units are to relieve the 'temporary' shortage of consumer goods and the 'temporary' lack of employment opportunities, it can be reasonably suspected that long run plans for their survival will not be adequate, especially when large units get a firm hold on the mass markets (36). In the Indian First Plan, small units and large units shared a 'common production plan' (36, 88), the pressure mentioned above, however, forced a number of positive and negative devices to be employed after the start of the Second Plan Period (the original version of the Second Plan (78) carried little reference to the small sectors). Among the devices which can be considered negative in this connection are: 1. Reservation of spheres of production 2. Limits on the capacity of large-scale industries 3. Excise taxes on the output of large-scale units 4. Rebates and subsidies to small-scale industries These are explained and criticized by M. L. Dantwala (47) (and are discussed 150

PLANNING

in (88)); one can also cite protective tariffs and import restrictions of a quantitative nature as being based on the same 'quasi-developmental' rationale. It is obvious, of course, that such devices will damage, rather than help, the overall output situation, and one may reasonably doubt that they will improve employment in the long run, even in the small sector. The positive devices followed by the Indian government can be detailed as: State Governments Alone Responsible: credit facilities supply of raw materials, power industrial estates stores purchase orders from State Government departments retail emporia production-cum-training centers and vocational training labour laws essentiality certificates for imports up to certain limits Central Government Alone Responsible: industrial extension service (technical side) officers' training (training in business management, technical training of workers, training abroad) stores purchase orders from Central Government departments, export orders machines on hire purchase import license cases above certain limits Both Responsible: common facility workshops development of industrial cooperatives (mainly responsibility of the States) collection of statistics (mainly responsibility of the States) economic surveys (mainly responsibility of the Central Government) The following sections describe how the literature views the efforts of the government in many of these areas. Table 17 presents the actual expenditures made on behalf of the various sectors in the First Plan; it also outlines planned expenditures for these sectors in the Second and Third Plans. While little revision between plans and actual expenditures has occurred in the Second and Third Plans, other than the introduction of spending on industrial estates, in the Second, there was a sudden shift in the First Plan, in which the aim had been for spending Rs. 131.71 Crores on large and medium industries and only Rs. 15 Crores for small. The figures for the Second Plan are those published after the initial proposal which did not favor small industries to the extent indicated in the Table. 151

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LITERATURE TABLE 1 7

Spending in the Indian Planning Structure ( in RS. Crores) Sectors

First Plan (Actual)

Second Plan (Planned)

Third Plan (Planned)

42.60 33.69 4.41 12.23 12.32 2.87 .82

890.00 200.00 55.00 59.50 16.70 38.80 9.00

.96

21.70

2152.00 264.00 84.60 38.00 72.40 20.00 8.60 30.20 10.20

Large and Medium Small Industries Handloom Cloth Khadi Village Industries Handicraft Estates Others

Source: [28]

The organizations responsible for the administration of the plans can be visualized as in the following figure. FIG. 1

The Formal Structure of India's Plans I Ministry of Commerce and Industry

Small Scale Industries Board, 1954 (advisory)

Central Small Industries Organization

State Governments Small Scale Industries Service Institutes (16) Branches (4) Industrial Extension Centers Various Boards and Offices, including All-India Handicraft Board All-India Handloom Board, 1952 Khadi and Village Industries Commission, 1957 Autonomous Corporations: National Small Industries Corporation, Ltd., 1955

152

State Trading Corporation of India, Ltd., 1956

PLANNING

The general nature of these organizations is fairly obvious from their titles; furthermore, many of them are described, in passing, in the ensuing sections; nevertheless, the functions of certain of them, which are not discussed further, can be described here. The National Small Industries Corporation has, among its responsibilities, the following: for small units, it helps arrange details in the purchases of government supplies (either by reservation or on favorable terms), arranges for hire-purchase for machines, sets up emporia and sales depots, runs proto-type production-cumtraining centres, and administers, with uneven success, certain industrial estates. The State Trading Corporation, with a capital of five crores of Rupees, arranges for imports and the promotion of exports (a special concern to small units). The Small Industries Service Institute provides technical assistance and advice to smallscale manufacturers. The reasons these organizations are not discussed below, quite simply, is that there is no important critical literature dealing with their functions. B. INDUSTRIAL ESTATES

The general case for industrial estates (i.e., tracts of land and (possibly) buildings developed by the state, presumably on favorable terms, for industrialists) has been detailed by W. Bredo (102) in one of the series of reports on small industries from Stanford University. The general purposes of such estates are (13, 102): 1. To reduce funds needed by industrializer to initiate an enterprise, (I) 2. To pursue an area plan, such as: decentralization (I) orderly town planning (I) for areas of unemployment (I) 3. To obtain economies which are: external to the firm internal to the firm by permitting larger growth and to channel funds and to collect tax revenues 4. Variously to: increase investment provide modernization promote ancillary development (I) select industry 153

A SURVEY OF THE INDIAN LITERATURE

where the ones marked (I), according to the International Labour Organization, apply to the Indian case directly. Industrial estates, or their equivalent, originated in the Western world more than seventy years ago, and Western models and rationalizations continue to exert an important influence on the forms and purposes of the Indian efforts. In particular, the apparent success of the British efforts, where, however, no specific small industry program is in force (101), can be cited as the most influential factor (102). The reasons why firms might be attracted to the Indian estates appear to differ drastically from those in the above list; suggested are easier access to funds (45) or ability to obtain otherwise scarce (i.e., expensive) raw materials. These incentives are aspects of the 'negative' developmental approach referred to above. The original provision for industrial estates came during the Second Plan period in India and, from the point of view of the Central Government, involved the following expenditures: TABLE 18

Spending on Industrial Estates in India Date

1956-57 1957-58 1958-59 1959-60

Amount (Rs in Lakhs)

Per cent of amount sanctioned

96.45 193.73 218.40 52.47

86.7 109.1 109.7 19.7 (part of year)

Source: [86], pp. 37-38.

The rapid growth of expenditures in this area was part of the sudden overall effort on behalf of small industries which started in the second year of the Second Plan. By March, 1961, of the 120 estates which had been sanctioned 53 were in operation, 33 were under construction or completed but not yet functioning, and 34 were in their preliminary stages (72, 101). The unusual approach in the Indian case is the limitation of space to small-scale industrialists; in addition, special lures are applied, such as special terms for hirepurchase, priorities on equipment and materials, better terms on small loans, extension services, and common facilities (102). P. C. Alexander (101) finds these provisions objectionable; the reason, simply, is that another'negative' form of development is employed. There have been, in the Indian experience, a number of stubborn problems. 154

PLANNING

Some of the centers (101, 102) have failed (e.g., Naini), at least in their original form; in this case poor location, lack of electricity, and the failure of the government to produce the 'raw materials licenses' promised were among the reasons mentioned. With respect to the latter, in contrast, it has been noted that there is evidence which suggests that 'capitalists', who are not interested in manufacturing, as such, have been attracted to industrial estates solely to obtain raw materials licenses which they can sell on the black market (174). Also mentioned has been the underestimated costs of construction and land (30) and the over-lavish common buildings and styles of construction (101). There has also been criticism concerning the 'dispersive' aspects of estates; in this connection it is felt that decisions have been hasty (101) and that there has been a failure to achieve anything like decentralization as the following table suggests. TABLE 1 9

Distance of Some Industrial Estates From Large Towns Estate Okhla Ludhiana Naini Sanatnagar Cuttack Guindy Madurai Pappanamcode Kollakadavu Ettumanoor Olavakkot Ollur

Nearest Town

Distance

1951 Population of town (000)

Delhi Ludhiana Allahabad Hyderabad Cuttack Madras Madurai Trivandrum Alleppey Kottayam Palghat Trichur

7 1.5 7 7

1,380 150 330 1,090 100 1,420 360 180 120 40 70 70

7 3 4.5 6 6 4.5

Source: [30], p.40.

Targets, on the other hand, call for the following distribution of industrial estates by the end of the Third Plan. See Table 20. The locational aspects of industrial estates have been dichotomized by Dhar and Lydall (30) as: i. location as such ii. siting 155

A S U R V E Y OF THE I N D I A N

LITERATURE TABLE 2 0

Targets for Indian Industrial Estates (Third Plan) Number of Estates Type of Community 300 100 80 25

6,000-20,000 pop. 20,000-50,000 50,000-100,000 Over 100,000

Source: [88], p. 71.

More generally, the International Labour Office (12) suggests that site selection must take the following into consideration: i. the region ii. the community iii. the tract Both of these systems are arbitrary arrangements and do not do justice to the difficult questions concerning the flow of materials and products from and to the relevant markets. It is most likely that formal location analysis would suggest that location should be near large towns if one is thinking about the usual prerequisites for success: power supply, services, markets, labor market, and materials supplies (30); these considerations apply primarily to 'small mechanical factories' and not, for instance, to the providing of work for the idle hands of farm workers in the off-season - a purpose of village industries often referred to in the older Indian literature (133). Thus, for example, the early failure at Naini (30) was probably the result of a failure to have an adequate pool of labor (Bredo (102) says it was due to the failure to come up with materials preferences) and the success at Ludhiana was the result of the presence of a large amount of skilled labor. There are other, less controversial, aspects of Indian industrial estates which are of general interest. In early efforts, for instance, a wider dispersion of sizes of plants occurred than was desired; similarly, the firms lured were such as light engineering or chemical which are quite capital-intensive. Industrial estates, as a whole, are felt to be capital-intensive because of the contribution of the goverment toward their construction (30). While the government provides the bulk of the fixed capital on estates, some of the fixed capital and the bulk of the working capital are provided by the owners of the plants established. The net result depends on the mix, of course, but, it can be presumed, consideration of the type of product usually involved 156

PLANNING

suggests that the total private capital is dominated by the contribution of the entrepreneur. The following Table supports this interpretation. TABLE 21

Sources of Capital as Percentages of Total Investment at 8 Indian Industrial Estates Estate

Okhla Baruipur Guindy Sanathnagar Kanpur Jaipur Ludhiana Rajkot

Private Gov. State State Coop. Other Money Other Savings Loans N.S.I.C. Bank of Finan. Banks Finan- Lenders, Source Corp. India cial etc. 51.0 79.6 49.3 62.7 43.5 77.7 92.2 80.0

3.8 7.0 1.8 .3 31.9 1.5 1.2 .5

7.2 3.4 8.0 14.6 7.8

6.7

12.4 .5 17.7 15.3

8.5 3.0

2.3 5.0 7.0

2.2 .9

1.7

4.1 6.4

16.5 9.1 12.1 4.8 .9 9.4 .1 5.7

2.4 .4 2.6

...

7.9 4.4 4.8

Source: [173], p. 43.

Finally, the additions to employment due to industrial estates have been fairly modest, partly because of underutilization (a feature of newness); the goal of the Third Plan, however, is for 100,000 new workers (30) to be employed. One of the principal aims of small-scale policy concerns the special advantage such forms are alleged to have in developing latent enterprise. Dhar and Lydall (30) find, as demonstrated in the following table, that larger units, and 'going' concerns (as, for instance, in Okhla, a successful estate) are more successful - this, in form, suggests that estates are not developing new talent. The hypothesis they imply, to put it simply, is that size (a success factor) is directly associated with previous outside ownership. This is a testable hypothesis, and a simple linear regression was calculated, in which the size of firms, as indicated in Column 1 of Table 22 is compared to the 'ownership' variable, which is presented as Column 2 of the same table. While it is not part of Dhar and Lydall's view that the relation be linear, the result of the correlation, a 'coefficient of determination' (or squared correlation coefficient, indicating the variation of size explained by the equation) of .460, is impressive support. The associated regression coefficient, furthermore, has an F-value of 9.248 which further suggests that the relation is strong. All this is persuasive, but, in fact, their conclusion is not well put, for one notices that 157

A SURVEY OF THE INDIAN LITERATURE TABLE 2 2

Size and Previous Ownership in Some Indian Industrial Estates

Estate

Average Number of Persons Employed per Factory

Number of Firms Previously Owning Outside Factories Divided by Total Number of Firms

46 9 17 21 16 16 16 21 25 26 9 15

.92 .37 .38 .00 .38 .24 .33 .38 .38 .25 .25 .33

Okhla Ludhiana Kanpur Naini Sanatnagar Cuttack Madurai Pappanamcode Kollakodavu Ettumanoor OIlur Olavakkot Source: [30], pp.46,49.

the two 'strongest' cases are listed at the top of the table, an 'eye-catching' but not necessarily careful manner of presentation. In fact, elimination of these two unusual cases, reduces the coefficient of determination to .003 and the accompanying F-statistic to .025. Thus, their hypothesis does not appear to apply to ten of the twelve cases, but only to the two grouped at the top of the table, one of which is run by the National Small Industries Corporation and is located very near Delhi. One sees here a concrete example of an inadequate, and, in this case, misleading, statistical presentation. C. FINANCE FOR SMALL INDUSTRIES

Among the most important issues raised in connection with financial aid to small units are certainly the questions concerning the general case suggesting that such aid is necessary. Thus, for example, small firms are entitled to special aid if they are the victims of a special deficiency in the supply of their funds; whether or not this is the case in India is an important point of controversy. S. K. Basu (92) and a UNESCO Report (45), the latter on the suggestion of the British Radcliffe Report (143), favor large amounts of aid, while Dhar 158

PLANNING

and Lydall (30), suggesting that strict limits be set on this assistance, severely question its basic justification. Rarely, however, is the question of quantity raised; whenever recommendations are made, they are casual and unsupported by empirical work; one can accept them only as the opinions of experts. The suggestion of the preceding paragraph is that there might be an imperfection in the supply side of the capital market. What, however, of the demand side? Here one can assert that there is rare comment on the possibility that the key problem with small industries is the instability of their earnings (as, for instance, measured by the unavailable, but sorely wanted, data on failures vis-à-vis other size categories). In such a case the small number of loans granted by the appropriate firms in the maturity range in which small industries borrow could reflect merely the strength of their demand at market prices. This latter price, perhaps, is relatively high simply because it includes a substantial risk premium to compensate the lender for the higher risk involved. The conclusion one makes and the policy one follows, if the latter is indeed the case is not that which is to be described in the following paragraphs; in particular, such a situation would entail reducing the risks of failure (rather than performing an uneconomic subsidization of loans) but not the setting of special rates (30). There is some difficulty in establishing a general picture for 'sources' of funds in the Indian situation because of the incompleteness of the data. Generally, one finds that banks are an insignificant source of funds (92, 98, 117); the following figures are fairly typical of those observed in the literature; in this case it is regrettable that the category 'others' is not broken down more specifically. TABLE 2 3

Sources of Advances to 153 Engineering Firms in Calcutta, 1953 Sources Moneylenders Commercial Banks Others

Per Cent 50.7 18.9 30.4

Source: [97], p. 5

Borrowed funds are primarily for working capital; in fact, most funds used are usually provided by the entrepreneur himself (13, 44, 98). When outside support does exist, it is from money lenders, at rates considerably closer to market rates than those charged to the fortunate few who can get their funds 159

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LITERATURE

from the government (44, 98). The government, itself, tends to favor already established firms (92), which produce consumer goods (92) and which have first-rate accounting systems, the latter being a factor which again favors more mature enterprises (92). In connection with the supply of funds, the problems facing two special sources, banks and the Government, are given special attention. Banks, for instance, face the risk that proprietors will die (92) and that loans will have to be made, if at all, on poor or no collateral (44, 92) because firms often rent their facilities (92); in addition, straight costs are higher to banks for this type of loan (92), and the natural rate of failures is probably higher (34). The government, for its part, receives poorly documented applications (92), does not possess enough financial and technical specialists to process and evaluate the applications (92), and faces the problem of a poor spread of information among the possible users (92). The result of Government problems in the Indian case has been, up to 1961, the failure to spend all the funds allotted to it, even with the pressing 'demand' at the subsidized rates; Basu (92) makes this charge while the Small-Scale Industries Board (87) says it is untrue; both sources refer to the activities of the State Governments in whom the application of the financial plan is vested. The following table seems to favor Basu's view. TABLE 2 4

Financial Implementation in India, as of 1961 (Thousands of Rupees) State Financial Corporation Bombay Punjab Madhya Pradesh Andhra Pradesh Bihar Assam West Bengal Kerala Rajasthan Orissa Uttar Pradesh Madras

Source: [97]

160

Amount Sanctioned

Difference Between Amount Sanctioned and Amount Advanced

5,312 5,028 1,040 2,770 2,870 1,425 935 4,734 715 305 1,982 825

2,577 2,101 890 826 744 609 545 527 447 305 235 8

PLANNING

In addition, shortage of working capital, which is often mentioned (46,100, 117), causes many firms to work below capacity; and the high failure rate has even been attributed to this factor (117). The evolution of increased government involvement in the financial sphere has been steady in recent years in spite of opposition to some of its tactics. It is pointed out that the First Plan had no financial provisions and that the failure of the Second Plan to emphasize the finance of small-scale industries while doing so for village and larger units created a storm of protest (92). Simultaneously came the publication of the Ford Report (31) and its sweeping recommendations detailed elsewhere in this paper. In the original form, in the Second Plan, the functions of the State Governments were limited to the following (92): 1. the guarantee of loans up to twenty years 2. the underwriting of stock issues 3. the granting of loans and advances up to twenty years, up to 10 per cent of share capital. In practice, as noted, funds have not been spent (even if it could be admitted they were adequate), and some sources have stressed liberalization in various ways. Basu (92) suggests a wide program in this area which includes insurance for banks and other lenders (also suggested by Dhar and Lydall (30)), lending on accounts receivable or field warehouse receipts, cash credit advances, the establishment of small business departments in commercial banks, and broader powers to the government to interfere with firms (they already could appoint directors, insist on fifty per cent backing, appoint inspectors, and enforce accounting procedures (92)), allowing State Financial Corporations to borrow from the State Bank of India, and sponsoring customers for the commercial banks. Other suggestions which have been made include the provision of contacts (30), and, perhaps less sensibly, the permission of loans on hire-purchase whenever the proceeds are used to purchase a machine (30), a curiously uneconomic prescription in the face of widespread excess capacity. There are several matters about which some further disagreement has been expressed. One of these concerns government involvement; the government has often reiterated the Ford view that their role should be minimized. Basu (92), conversely, suggests that the government purchase the equity of firms; Dhar and Lydall (30) (and, presumably, the Ford team (31)) reject this position on the usual 'self-sufficiency' argument; it can be reported that the government has, so far, resisted the temptation to secure implementation in 161

A SURVEY OF THE INDIAN LITERATURE

this fashion. Another controversial problem which is poorly documented by those concerned is the setting of official rates of interest. Very poor information concerning market rates in the area of small-scale undertaking exists, but the highly subsidized rates of the State Corporations (72) have been commented on. These rates are 2\ per cent for cooperatives and 3 per cent for other borrowers; Dhar and Lydall (30) favor no special lending rates to cooperatives and the considerably higher rates of per cent on loans by the State Finance Corporations and J per cent for the (primarily short-term) loans of the State Bank of India. Criticism can be made of both sets of rates neither has been the result of more than casual empiricism and the only support - if it is support - that can be claimed for the Dhar and Lydall view is that their rates may be closer to actual market rates than are the official versions. The setting of rates is only one of the areas where policy variables are set without proper decision making; there are other equally arbitrary guidelines to the Government's Financial policy. Loans, for example, are accepted up to Rs 1000 on signature and up to Rs 5000 on two signatures, while loans over Rs 5000 require that 75 per cent be offered as security; similarly, the maximum loan period suggested by the Central Small Industries Corporation (72) is ten years. These rules, designed to be administratively simple in an environment where the actual processing of loans must be conducted by poorly equipped personnel, can be justified only as rationing devices; no firm economic arguments can or do exist on their behalf. These last statements can summarize the main objectionable features of an otherwise dynamic set of prescriptions; the problem of the inadequate data, of course, must always be kept in mind.

D. INDUSTRIAL EXTENSION SERVICES

The general case for industrial extension services, which are concerned primarily with the technical aspects of industrial development, has been stated by the International Labour Organization (12). This group asserts that a great deal of the difficulty facing small units is their inadequate preparation to meet modern competition on its own terms; they propose to help them achieve modern technology, to train their workers, to improve their marketing techniques, to provide vital information, and to provide general economic and social studies as useful background material. 162

PLANNING

The Indian model is much like that proposed by the International Labour Organization and has been outlined by the Development Commission for Small-Scale Industries (75), as follows: Functions of the Indian Extension Service: 1. provide consulting engineers 2. keep in touch with latest developments in technology and marketing 3. technical advice and demonstration of modern technical processes 4. prepare model schemes, designs, drawings, and technical bulletins 5. conduct economic investigations 6. advise on management methods, including marketing 7. distribution aid surveys 8. research 9. training classes 10. act as an information center In practice, the Indian scheme has set control of these organizations in the various States; sixty-four centers have been authorized and, as of 1959, sixteen had been constructed, with four branches, covering all of the States in the Indian Union. During the Second Plan, when extension activities were started, the growth in aid dispensed was moderately paced; Table 25 presents a summary of this work, where a stronger feeling for the actual work done is generated by means of the precise details. It is clear that this form of aid is not subject to the objections of the usual 'negative' techniques for small

TABLE 2 5

Operations of the Industrial Extension Service in India

Numbers seeking technical advice Visits outside by technical officers Numbers of parties advised to initiate firms Numbers of other assistance Number of mobile workshops in operation Number of centers visited Number of artisans trained Designs and drawings Model schemes prepared Technical bulletins prepared

1955-56

1958-59

3,601 7,127 385 2,687

18,710 27,657 7,978 18,649 47 1,009 6,800 2,609 164 70

Source: [75], p. 17.

163

A SURVEY OF THE INDIAN LITERATURE

industries because it is directly developmental in an economic sense; much hope for its success is stated in the detailed explanations of the successive Indian plans.

E. SMALL-SCALE INDUSTRIES AND THE INTERNATIONAL ECONOMY

It is well-known that one of the chief problems facing India is the persistent balance of payments deficit, which hampers its development programs in many ways; two related problems arise. In the first place, pressure for production at modern standards involves the importation of vital components (or machines); practically no Indian industry is without some need for foreign-made implements or foreign materials; this is probably a consequence of both the rapidity and the unevenness of economic development in this country. In the second place, the drive to a higher standard of living (in general, a higher level of consumption) cannot be satisfied entirely by domestic production; this creates a further demand for foreign exchange which cannot always be countenanced however high the demand for consumer goods comes in the official scale of preference (and it is said to be fairly high in the Indian case (7)). The overall problem is most easily demonstrated through the following figures: the planning exchange deficits have gone from Rs 318 crores in the First Plan to Rs 2730 crores in the Third Plan (110). This is such a serious state of affairs that, at the least, extreme cutbacks in imports, as happened during the Second Plan, seem likely, from time to time. The problem in its most general form is one either of directly earning the necessary foreign exchange in international markets or of attacking the markets of foreigners in India; there are two routes - import-substitution and import-restriction. In both cases an available alternative is the subsidization of the production either of 'import-substitutes' of of 'exportables'. The questions raised in this section concern the special role of small industries in relation to this pressing problem. It is necessary, of course, to define carefully the industries concerned. Thus, handicrafts, which often appeal to foreign purchasers as luxury items, can offer a fairly large contribution to the exchange situation (31, 88), if only they can be organized in ways to overcome the marketing problems connected with their size. However, one does not find reference to this problem in the literature on small-scale industries; the question raised concerns the contri164

PLANNING

bution of the manufacturer of commonplace modern goods and the answer is not as easily derived. The controversy generated in the 'foreign trade' literature does not deal explicitly with the question of size. Thus, the result of the dispute between S. J. Patel (108) and B. Cohen (105), who argue the effectiveness of Indian 'new industries' in earning exchange, with Patel stressing the Indian weakness, must not be taken literally as suggesting a case against small size. This is particularly so as 'new industries' are often highly concentrated (as, for example, the sewing machine industry). Be that as it may, detailed work on these 'new industries' suggests that their prospects are poor (103). M. Singh (109) suggests that their foreign prospects are not promising and that, in fact, the home market is too tempting for them because of demand factors and the substantial protection afforded since the crisis of 1957. However, since excess capacity does exist, if significant efforts are made, some Asiatic markets could be captured (106); on the other hand, a closer look suggests that this does not apply to the smaller firms in the industries so favored. The problems, detailed well by S. K. Verghese (110), can be listed in relation to size. Problems of small units in foreign trade: 1. Cannot afford an expert staff 2. Inertia to changes in trade conditions 3. Poor accounting methods 4. No market research 5. No offices 6. Problems of quality and packing Similarly, Verghese finds that ninety per cent of those firms which deal in international trade belong to trade association - this is not true of small units, who are also not as 'incorporated' (forty-six per cent) as traders internationally. Thus, suspicion is cast on the ability of small (or 'new') manufactures to compete abroad; this suspicion is reinforced by the input-output study of R. Bharadwaj who finds the export contribution of the small sector negligible. Going even further, M. Singh (109) points out that hopes for these firms are based on expansion in Asian markets. This hope, he feels, is doomed to disappointment, for not only are these markets 'soft' for the goods which India exports (107) but also the 'light machines and consumer goods' exported to Asiatic countries suffer from competition and import restrictions as these countries initiate their own development plans. 165

A SURVEY OF THE INDIAN LITERATURE

The form of policy which should be adopted under such conditions is similarly debated. G. D. A. MacDougall (107) feels that hope exists for the 'new industries' because their prices are competitive, their wages are low, and their costs should decline as expansion occurs. He suggests a policy of reducing the attractiveness of home markets, setting special materials prices to exporters, imposing excise taxes on domestic consumption, and, of course, supplying special access to exchange by firms dealing heavily in foreign markets. These devices are what have been termed 'negative' above; there is, also, of course, a need to calculate elasticities and to conduct careful input/ output studies before recommending any such actions. Whatever the possible position of small units as exporters, general data suggest that the policy of 'import substitution' has been in vogue in India in recent years. The following table illustrates imports on behalf of the various sectors in recent years; it is evident that the capital sector has increased in importance while the consumer has declined. This evidence implies that the known increases in consumer goods are being produced domestically - in effect evidence suggesting 'import substitution'. TABLE 26

Foreign Exchange Uses; Imports, by Types in India Year

1952-53 1953-54 1954-55 1955-56 1956-57 1957-58 1958-59 1959-60 1960-61

Per cent Cap. Goods

Per cent Intermed.

Per cent Consumer

Per cent Unclass.

20.8 21.5 20.5 28.7 29.8 29.9 27.7 29.1 30.5

44.8 51.7 49.6 52.4 54.4 48.5 42.8 46.6 47.0

30.2 21.7 25.2 13.9 9.9 12.6 24.2 20.9 18.7

4.2 5.1 4.5 5.0 5.9 9.0 5.3 3.4 3.8

Source: [110], p. 44

In the literature, there is an important untreated matter which should be acknowledged. Before embarking on programs for 'small industry,' there should be some appraisal of the 'exchange cost' of such a program. It is known that small units, when protected (118, 127) or otherwise subsidized, are often able to compete internally but not internationally; however, the degree to which they use scarce foreign exchange reserves is not known. This 166

PLANNING

answer is not attempted but is a natural extension of the input/output technique already applied to Indian exports.

F. BOTTLENECKS

While shortage of 'finance' generally deserves first place in a list of problems facing small-sized firms throughout the world, it is probable that a great deal of the problem in India is connected with the inability to obtain raw materials, whether it be on account of bargaining difficulties, lack of working capital funds, or the deliberate intention of the government. It is argued in this section that all of these comments are relevant to the Indian case. Obviously certain cases exist in which large firms have the advantage over small in acquisition of materials; while one can justify easily the economies achieved by bulk purchases and longer-term contracts, the ability to hold larger stocks of raw and semi-finished materials might be due to the greater ease large firms have in securing working capital funds. For these reasons, one would expect small firms to be in relative trouble. Nevertheless, a feature of small firms in India, not shared by those in the United Kingdom, the prototype of an advanced economy for this paper, is the difficulty in obtaining materials (and power and transportation facilities). In lieu of general information, it will be pointed out in the next chapter that there are many specific examples of such a difficulty; on the other hand, some authors have seen fit to generalize to some extent about the role of the government in materials shortages (30, 44, 53, 88). The problem, which has several facets can be illustrated by the following figures. TABLE 2 7

Indian Steel: Allocation, Demand, and Deliveries to Small Units (1957 to 1960) Year 1957-58 1958-59 1959-60

Demand

Allocation

Percent

Actual Delivery

209,268 246,798 348,599

52,700 107,950 258,768

25.2 43.3 74.2

42,823 48,014 n.a.

Source: [86], p. 13.

Here it is seen that while allocation is far short of 'demand,' actual deliveries, reflecting another aspect of priorities, lag even further behind; the same 167

A SURVEY OF THE INDIAN LITERATURE

report lists similar problems in the acquisition of copper, zinc, and chemical raw materials. To the extent that the problem of raw materials is dependent on the exchange situation, the matter has been discussed above; to the extent that it is a different problem, with an indication of discrimination against the small firm from the government itself, it is a new problem. Thus, as one source notes, the quotas are increased for the small-scale sector; then the increased quotas are given 'low priority' (88). This is a curious policy device which, in the Indian case, appears fairly widespread; there is, however, no good data on which to ascertain the extent of this bias. There are other bottlenecks in the Indian case about which information is scarce. Lack of power represents a special problem in the sense of a bottleneck; it has been noted, for instance, that small firms pay as much as three times what large firms pay for power (88). Of particular note is the problem of power (electric) in rural areas, where small firms are encouraged to establish themselves, but often find it necessary to purchase power at uncompetitive prices (14). Another case is that of transportation which is not mentioned frequently in connection with small units perhaps because they are closer to their sources and markets (45). The natural result of the unavailability of necessary raw resources, which the reader can take to be the point of this section, is excess capacity. The existence of this is widespread in the small sector (as will be noted in the area survey summary) and presents a paradox of sorts in an economy in which neither employment nor production is growing as fast as desired. In particular, Shetty mentions that in one case of sixteen industries surveyed, five had over seventy per cent of their members with some excess capacity due to shortage of materials (44); on the other hand, the problem is not unique with India; as Appendix A indicates, small British firms share the difficulty.

168

IV. Area and Industry Studies; Handicrafts and Village Industries

A. INTRODUCTION

As yet in the Indian literature on small industries, there has been no official collation of the findings of the large number of area and industry studies. This chapter will summarize some of the principal findings of the more detailed of these studies; the purpose here is to broaden the empirical base of the paper and to reinforce comments made in other sections. With the overall lack of reliable statistical data, such an approach goes part way toward verifying some of the hypotheses mentioned earlier. Cottage and handicraft industries, inextricably mixed into the results cited so far, will be treated in a separate section, insofar as there appear to be uniquely interesting problems connected with them. B. AREA AND INDUSTRY STUDIES

Area and industry studies offer a chance to detail the characteristics of small firms; these characteristics, while varying widely from situation to situation, are often persistent enough to enable some students to use them to describe the subject matter of small-scale units. Small-scale firms generally are quickly formed (117); furthermore, they provide the primary source of income to the owner and are generally the property of the single owner or his family. One study reports that of 326 firms, 282 are single proprietory or family (117); in another, with 788 engineering firms, the proportions shown in Table 28 are observed. Another study, undertaken in Bombay city for approximately the same period reports a very similar ownership pattern (Table 29); this latter study also 169

A SURVEY OF THE INDIAN LITERATURE TABLE 2 8

Ownership in 788 Engineering Firms in India, 1954-55 Type

Per Cent

Proprietor Partner Cooperative

90.35 9.52 .13

Source: [123] TABLE 2 9

Ownership of Small Firms in Bombay in 1954-56 Type

Per Cent

Private Proprietor Joint Family Partnership Cooperative Private Limited

78.5 11.9 8.7 0.5 0.4

Source: [119] TABLE 3 0

Sources of Outside Funds for Small Firms in Bombay in 1954-56 Source Traders Friends and Relatives Money Lenders Others

Per Cent 66.2 21.5 3.8 8.5

Source: [119]

breaks down the sources of outside funds, and it can be seen that middlemen predominate (Table 30). Not only do such small firms appear to employ the capital of the owner, but also their workers seem to be largely family members. The following results from a study of 390,710 small firms in West Bengal illustrate this result. See Table 31. 170

AREA A N D I N D U S T R Y STUDIES TABLE 31

Per Cent of Family Labour to Total Labour in West Bengal Per Establishment, 1954 up to 30.01 50.01 70.01 90.00

Per Cent 30 to 50.00 to 70.00 to 90.00 Plus

Number of Industries 9 16 17 20 20

Number of Establishments 3,039 15,793 106,306 65,871 199,701

Source: [87], p. 67. TABLE 3 2

Work Force in Small Firms in Bombay in 1954-56 Type

Per Cent

Owners Alone Owners Plus Family Owners Plus Outside Employees Owners Plus Family and Outside Employees

12.4 12.9 61.5 13.1

Source: [119] TABLE 3 3

Utilization of Capacity of Small Firms in Bombay in 1954-56 Per Cent Utilized

100 91-99 81-90 71-80 61-70 51-60 41-50 31-40 21-30 11-20 0-10

Per Cent of Firms in Category 15.0 4.0 9.1 13.4 11.7 13.3 13.6 8.8 6.0 3.4 1.7

Source: [119]

171

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It should be noted, however, that 349,000 of the workers worked in plants with three or fewer workers; these were indeed very small-scale units. In this connection, the study of Bombay already cited suggests a somewhat higher proportion of outside help in the more general case. A great deal of controversy centers around the capital structure of the smallscale firm. Thus, one observes that excess capacity is widespread (28, 71,118,120); this state is usually attributed to a lack of either working capital or raw materials. In the particular case of the Bombay study, over fifty per cent of the firms reported utilization in the forty-one to eighty per cent range; in this instance, however, lack of demand was overwhelmingly the most important cause cited (73.3 per cent). While one cannot take a high ratio of fixed to working capital as literally suggesting a deficiency of the latter, many who have studied the problem appear to feel that this conclusion is justified from their data (90, 123,127). It should be emphasized that attempts to verify such conclusions are made in the cases cited; however, it is still very unlikely that these results are reliable - in the broad-based Bombay study, for instance (119), 51.8 per cent of total capital is working capital. Evidently better statistical controls are needed to compensate for the effect of the nature of the industry on the ratio of fixed to working capital. In this connection, B. Singh (123) finds that 79.63 per cent of total capital was fixed for his sample of 788 engineering firms. At any rate the policy of improving access to finance (120) has been emphasized so that working capital and/or raw materials can be acquired. In this connection, special mention should be made of the middleman who, often the only source of funds for the beleaguered entrepreneur (110; Table 29), is frequently singled out as a special sort of evil-doer (117,127); J. T. McCrory (120) denies this view, but it is clear that the wholesalers, for example, are often in a very strong bargaining position because they usually represent the market for the small industrialist (117). The input characteristics of firms, aside from the capital stock, also vary widely. A fairly typical picture is that raw materials costs are a high percentage of total costs (117); furthermore, there are small depreciation and interest charges (117) (although taxes can be high (90)), and a high per cent of non-wage earners with payments mainly of time wages rather than piece wages (109). Facilities are often rented; Singh reports that of the 788 small ongineering firms he studied, 63.33 per cent rent their premises and 33.12 ewn the land and buildings which they use. The same study reports that the power situation is as follows: 172

AREA AND INDUSTRY STUDIES TABLE 3 4

Power in 788 Engineering Firms in India, 1954-55 Type

Per Cent

Manual Diesel Animal Electric

91.38 1.27 .63 6.72

Source: [123]

The use of higher types of power, of course, is associated with larger output per firm; this suggests to P. N. Dhar that power can be included in a useful definition of small industry (117). One matter of special general concern is the question of the supply of entrepreneurs to the small size firm. The spreading of small units through the industrial and geographic structure is thought to help increase the supply of entrepreneurs; this observation aligns itself with the (alleged) Myrdalian nature of the Indian problem. The UNESCO (45) asks that further studies of these problems contain more of the sociological aspects, but the fact is that some of the problems raised by UNESCO in this connection have been considered. For example, UNESCO asks for identification of the classes which come forward as entrepreneurs. Although the behavior of the social class structure is ambiguous in this connection, the general pattern is that skilled workers, whose greatest asset is their own skill, are willing to work long hours to provide the capital in the 'classical manner' (120); in this connection, J. J. Berna (116) reports that the backgrounds of entrepreneurs are very diverse, although former merchants do not seem to predominate. It must be admitted that the studies of McCrory and Berna are only the first attempts to deal with a complicated problem; Berna himself (Postscript in 45) admits not only that disaggregation is necessary, but also that it is likely to produce results which contradict hypothesis in some cases, depending on the nature of the disaggregation. Some of the other questions raised by UNESCO have been considered independently by Berna and McCrory. What, for instance, are the motives of the entrepreneurs? Both agree that the profit motive is dominant; this is encouraging to doubters of the strength of this force in the Indian case. Then, the UNESCO wants to know the character of the relationship between owner 173

A SURVEY OF THE INDIAN LITERATURE

and worker in smaller units; clearly, the answer is that they are personally closer (116). Additionally, Berna finds that the time horizon of the entrepreneur is surprisingly long - the entrepreneur often wishes to build something lasting. Another finding is that class barriers do not seem to be important (116) although a less homogeneous study than Berna's might prove otherwise. On another point, one must search in vain for a truly 'locational' study in the strict sense in which International Trade Theory is considered a branch of the more general 'location economics'. The most frequent locational study approach is to list the resources of the area (121) as the prime consideration for favoring a particular industry in a particular area. More graphic, in this connection, perhaps, is the list of locational factors presented for Rajasthan by Bhandari(28): 1. Mineral based industries 2. Production of minerals 3. Agricultural based industries 4. Agricultural production 5. Other industrial potentials, all based on considerable resources Bhandari further lists factors governing site selection as: 1. Raw materials 2. Transport facilities 3. Power and water supply 4. Proximity of markets 5. Availability of labor 6. Availability of land 7. Industrial atmosphere It should be clear from this mixture of lists, that Bhandari, who appears to have one of the best approaches, does not base his model on sound economic rules; furthermore, the law of comparative advantage is not applied actually in any sense in India, since each State merely tries to outdo the other, if not on the basis of cheaper production, then on the basis of subsidies to a 'basic' (i.e., 'going') industry. There is no effort to determine the cost and demand structures of the various industries and only an informal attempt to see if the industry might have a chance to flourish. The materials orientation of the approach is both naive and dangerous for future development; many of the industries established in this fashion are and will be washed aWay in time. The discussion of policy toward small units in specific cases indicates other 174

AREA AND INDUSTRY STUDIES

unfavorable aspects of the Indian structure. One runs into many explicit statements favoring damage to large enterprises in order to help small ones; reference has already been made to a list of 'negative' factors discussed (favorably) by Bhandari (28). Another way of helping small industries is protecting them from foreign competition; this cannot be done in the Statewide sense just referred to, but, for instance, one study honestly reports that all development measures in many local industries were ineffective until some form of tariff or import quota was established. Thus, in this study, bicycle parts, sewing machines, machine tools industrial fasteners, and nuts and bolts industries received aid from tariffs which were explicitly protective, while diesel engines, automobile parts, pipe fittings and utensil making industries were reported to thrive from the imposition of quantity restrictions on imports (127).

C. VILLAGE INDUSTRIES AND HANDICRAFTS

Both handicrafts and village (or cottage) industries differ from the more modern small-scale industries in a number of important respects. Handicrafts, for instance, are often of an artistic nature and can be carried on in a variety of places and under a variety of conditions. Village industries generally employ little fixed capital of a modern nature and often provide part-time or seasonal work for the (predominantly agricultural) inhabitants of the 600,000 Indian villages (38). Cottage industries (VI) may be distinguished from handicrafts (H) by the following classification (121): 1. Peasant arts and crafts meeting household needs (H) 2. Industries supplying needs of villages (VI) 3. Village and Urban arts and crafts (H) and of more interest, perhaps, 1. Firms which have an enduring place in the economic structure 2. Firms which have to be tolerated in order to escape the rigors of technological unemployment. Concern for handicrafts, particularly of the artistic sort, has been a constant thread in the Indian literature. The All-India Handicrafts Board, established in 1952 (thus pre-dating similar efforts for small-scale industries by three years), had the explicit purpose, in addition to providing employment opportunities and softening the impact of technological unemployment, of reviving interest in arts and crafts in order to 'preserve the national heritage' 175

A S U R V E Y OF T H E I N D I A N L I T E R A T U R E

(135). The efforts of planners on behalf of these establishments has been quite mixed. One feature, for instance, is the provision of exhibitions of the products of handicrafts both domestically and abroad; the following table illustrates what was done in that respect in the 1950's : Exhibitions

Year 1953-54 1954-55 1955-56 1956-57 1957-58 1958-59

TABLE 35 by the Handicrafts Board

Domestic 4 5 2 5 1 14

in India,

Number

1953-59

Foreign 9 5 4 12 15 13

Source: [135], p. 21.

Here one can see that even though progress, as judged by the number of exhibitions, has occurred, it has not been rapid. Special mention should be made of the international effort which dates, approximately, from the time of the exchange crisis in the Second Plan period. The following figures, relating to the implementation of Indian handicrafts plans during the Second Plan, provide one explanation of the slowness mentioned in connection with Table 35 - utilization is running far behind the amounts actually sanctioned. See Table 36. The All-India Handicrafts Board is intended mainly for promotional purposes. Thus, for instance, handicrafts received substantially no financial help from the Centre or from State Governments in either the First or the Second Plans; this matter was emphasized by the Working Group on Handicrafts in 1959 (135) which also suggested that handicrafts (and village industries) should receive the same general aid as small industries. There is, of course, no possible support for such a proposition, and the committee does not really offer any; nevertheless, the special uses of handicrafts for purposes of earning international reserves does, at least, provide a reason for making special efforts. There are other problems faced by handicraft firms. Mentioned by the Working Group have been the antiquated 'apprentice' system and a tenden176

AREA A N D INDUSTRY STUDIES TABLE 3 6

Allocations, Sanctioned Amounts, and Utilization for Handicrafts in the Second Five Year Plan in India (First Three Years) (Rs. in Lakhs, unless otherwise noted) Year

1956-57 1957-58 1958-59 Total

Plan Allocation

Amount Sanctioned

Amount Utilized

Utilization to amount Sanctioned (Per Cent)

57.7 63.4 83.9 205.0

71.9 85.3 66.6 223.8

22.2 42.0 44.5 108.7

30.9 49.2 66.8 48.6

Source: [135], p. 9.

cy to favor 'traditional designs' (135). Other problems these firms have differ only in degree from those faced by village and small-scale industries - mentioned most frequently are poor management, inadequate supply of finance, poor quality of product, and unavailability of raw materials. Cottage industries do not differ fundamentally from small-scale industries except that hopes for their modernization (and hence ultimate survival) cannot be as strong. They are defined in several studies (124, 125) as firms with up to nine workers and up to 6000 Rupees of capital. These types of firms do not generally have the marketing problems so often mentioned as important in other areas, even though it is remarked that the quality of their products is low and that their inventories of finished products are often excessive. Because of their part-time (or seasonal) nature, TABLE 3 7

Sources of Outside Funds for the Cottage Weaving Industry in Old Bombay State Source Moneylenders Traders Banks Relatives Cooperatives Government

Per Cent 44 23 12 12 3 1

Source: [124]

177

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whenever they need funds they must resort to moneylenders more than to the other sources of funds. (They need more capital than handicrafts and can raise less than small industries.) One study, containing an incomplete tabulation, reports the picture shown in Table 37 in Old Bombay State. As with handicrafts, a high per cent of the expenses of cottage industries are for raw materials; in the study providing the figures for Table 37, ninetyfive per cent of costs and seventy per cent of the value of output were for raw materials. Thus, if there are shortages of raw materials, times would be especially difficult for cottage units.

178

APPENDIX A

A Brief Survey of the British Literature on the Small-Scale Industrial Unit

A. INTRODUCTION

Certain natural reasons exist for appending a report on the British literature to that on the Indian. In the first place, the historical ties between the two nations have caused economists from each country to work on problems more particularly relevant to the other; partly within this tradition, India has inherited an intellectual legacy of great significance. In the second place, it is possible, with due warnings, to use results obtained in the British case, where data and methods are generally superior, to help settle problems of interest purely to the Indian case; it is this latter possibility which suggests most strongly the inclusion of this appendix. The first matter of interest in the British literature is that of the definition of the small unit; this discussion has been carried quite far in the British writings and has already been reported above, in the main body of this paper. This appendix will deal, however, with other matters of interest.

B. A SPECIAL STUDY

There is reported, in the Bulletin of the Oxford University Statistical Institute and a few other places, as noted in the bibliography, the important results which were obtained by a team of workers who collected a variety of data from a sample of 876 manufacturing firms. This sample was taken in 1956, in concentrated industrial areas, for the purpose of discovering as much as possible of the peculiar problems (and virtues) of small-scale units. Before a summary of these reports is begun, certain general comments should be made. In the first place, there are some special characteristics of the 179

A SURVEY OF THE INDIAN

LITERATURE

sampling technique, insofar as they have been made explicit, which deserve notice. The sample was taken from only a few large towns of a rather 'untypical' nature and pertains, for the most part, only to a 'within smallness' sample - the size cut-off is at 499 employees so that very large firms are simply not represented. The distribution of the sample is as follows: TABLE 3 8

Size Distribution of 876 Selected Manufacturing Firms in Great Britain Number of Employees per Establishment 10- 19 20- 29 30- 39 40- 49 50- 74 75- 99 100-199 200-499

Per Cent Distribution 17 18 15 10 14 6 13 7

Source: [152]

it is not, however, 'horizontal,' as Lydall claims, because of the unequal class intervals of the distribution. In the second place, it should be noted that the authors of these papers have failed to publish or to indicate the performance (with a few exceptions) of regressions in support of the many obviously linear hypotheses attempted. This is a most important failing, for subsequent workers will find it difficult to perform such tests on the highly summarized tables published; there are, actually, many cases of severe deviation from the hypothesis which make some estimate of the error involved necessary for a better understanding of the meaning of the results. The Radcliffe Committee on the Workings of the British Monetary System opened inquiries into the special financial problems of small scale units (143). Following the view of the Macmillan Committee of the early depression years, they find that the market does not take care of small firms' financial needs (widely known as the 'Macmillan Gap'). The problems, they assert, are that such firms cannot offer security, often do not want outsiders in the firms, and have no organized market to draw on; hence, their own 'accumulated reserves' are the principle source of expansionary capital. The Radcliffe Committee feels that aid to such firms is justified since, viewed organically, 180

A SURVEY OF THE BRITISH LITERATURE

the most dynamic of such firms will need the start in order to become large; they explicitly link the general rate of growth of the economy to the chances of survival of small, but dynamic, firms. This Committee praises the efforts of the Industrial and Commercial Finance Corporation (ICFC), which was established in 1946, for such purposes. It is, in fact, the model for similar Indian ventures reported in earlier sections of this paper. They urge that further aid is necessary, along with expanding the base of the ICFC, and suggest an Industrial Guarantee Corporation and extensive government backing of the exploitation of existing innovations in the small-scale sector. This general picture emphasized by the Radcliffe Committee is certainly borne out by the Oxford study, which was, in all likelihood, an important part of the evidence that the Radcliffe Committee had to draw on. Thus, for instance, shortage of finance had an uneven impact, with respect to growing versus static or declining firms as the following table illustrates. TABLE 3 9

Hindrances to Growth and Reasons for Decline Related to Experience of Growth or Decline (361 Firms) „ c Reasons for G r o w ^ for Decline Shortage of Labour Shortage of Finance Shortage of Space Shortage of Materials Lack of Demand Other Total

Finns Which Had Grown No.

Declined

Stayed Same

Total

%

No.

%

No.

%

No.

40

37

19

29

83

44

142

39

31

29

2

3

21

11

54

15

25

23

1

2

39

21

65

18

8 16 17 107

7 15 16 100

38 17 66

58 26 100

12 64 22 188

6 34 12 100

20 118 56 361

6 32 15 100

-

-

%

Source: [153], p. 96.

Of course, other factors are often very important; one would expect 'lack of demand' to influence declining firms, and the 'shortage of labour' mentioned as important by 40 per cent of the firms is a special condition of the British economy during the period. Since, as J. A. Bates (138) points out, funds 181

A SURVEY OF THE INDIAN

LITERATURE

either are raised internally or, if external, generally come from trade creditors or 'directors.' the view of the RadclifFe Committee on sources seems to have some support. One should note, however, that Bates' carefully documented results seem to contain a very large amount of 'within-sample' variation; nevertheless, the statement that retained earnings dominate the supply of funds is hard to deny; it appears that only firms which were not able to finance internally had to resort to trade creditors and to banks; this conclusion was derived from an inter-industry comparison. There are two pieces of evidence which might be taken as contradiction to these findings. H. F. Lydall (154), for instance, finds that there was no discrimination against small firms in the 'credit squeeze' of July, 1955; this result suggests the opposite of the Radcliffe view in many respects. In another connection, Hart and Prais (148) find that 'giant' firms grow faster than the smaller firms in their sample (which did not include the smallest sizes); this observation contradicts the 'organic' view of the Radcliffe Committee and, possibly, weakens the case for special assistance to small-scale units. General questions of growth are also raised by Lydall (152, 153) and evaluated on the new data. If growth in manufacturing is an organic process, then the typical pattern would be expansion of a firm from small to large

TABLE 4 0

Change in Physical Capacity of Plant Since 1950, Analyzed by Employment Size in 1950 (Percentages) Number of Employees Per Establishment Under 10 10- 19 20- 29 30- 39 40- 49 50- 74 75- 99 100-199 200 Plus Total

Decrease

Increase of: Under 25%

2 3 3 4 4 5 2

Source: [153], p. 100.

182

Same

18 35 36 40 32 32 30 28 37 34

6 27 19 24 37 43 37 40 30 29

2 5 ^ 9 % 50-99% 100-199 % 200% plus

9 9 13 12 15 8 4 12 14 11

6 8 13 11 9 6 17 9 5 9

26 9 10 6 3 5 4 4 9 8

35 12 8 5 3 4 3 7

A SURVEY OF THE BRITISH LITERATURE

size. As Table 40 illustrates, the most dramatic changes in capacity (per cent) belong to the smaller firms ; this supports such a view of the growth process. It is clear, from this table, that the sampled small firms have added to capacity at a faster rate than 'larger' units, in spite of their other difficulties, vis-à-vis the larger sized firms, during the period under study. It appears, on the other hand, that they have also added to their unutilized capacity; the following table, again from H. F. Lydall, shows that the larger firms in the sample have a better (per cent) record of capacity utilization. TABLE 4 1

Percentage of Capacity in Use in 1955 Analysed by Size of Firm (Per Cent of Firms) Number of Employees Per Establishment 10- 19 20- 29 30- 39 40- 49 50- 74 75- 99 100-199 200 Plus Total

Per Cent of Capacity in Use Under 50

50-74

75-99

100

8 7 3 1 1

21 15 21 24 10 13 12 7 16

26 23 32 24 35 37 28 32 29

45 55 44 51 54 50 56 60 51

-

4 2 4

Source: [153], p. 102.

The general impressions of the preceding tables are carried further in the following table, which relates the date of founding of a firm to its size - newer firms are also smaller firms; the evidence suggesting the organic process is quite strong in this case. Conversely, it was also discovered that size was inversely related to the use of innovations in this period; this result could be due to lack of knowledge, inadequate sources of funds, or lack of facilities for implementing, as well as mere 'static' behavior; the general picture is illustrated in the following table. It should be clear, however, that when it is noted that small firms grow faster than large and yet have larger excess capacity, we are not talking about the same firms in both cases; this is made clear in the paper by Lydall (153).The only important qualification to keep in mind is the untypical nature of the data and the failure to include very large firms. 183

A SURVEY OF THE INDIAN LITERATURE

As should be clear to this point, this original study fits well into the framework of dynamic economics adopted for this paper; on the other hand, there are other findings, of less relevance to the dynamic model, which are, nevertheless, interesting. For instance, it was verified that the older the manager of thefirm,the more satisfied he was with the size of his plant (153). Similarly, smallerfirms(which might or might not have been facing more severe compeTABLE 4 2

Date of Foundation of the Business Related to Size of Firm (Per Cent) Number of Employees Per Establishment

Before 1850

18501899

19001918

19191939

19401949

19501954

2 3 9 9 6 9 14 16 8

23 18 18 23 26 21 35 30 24

13 21 14 9 18 11 13 16 15

33 30 31 38 35 43 32 36 34

23 20 20 15 11 13 5

6 7 8 5 4 2 1 2 5

10- 19 20- 29 30- 39 40- 49 50- 74 75- 99 100-199 200 Plus Total

-

15

Source: [153], p. 90. TABLE 4 3

Knowledge and Use of Innovations, Analysed by Size of Firm (Per Cent of Firms) in 1955 Number of Employees Per Establishment

No innovations Since the War

10- 19 20- 29 30- 39 40- 49 50- 74 75- 99 100-199 200 Plus Overall

Source: [153], p. 109.

184

Some Innovations Since the War Used

64 63 63 48 60 68 56 40 59

24 26 28 38 34 30 43 51 32

Not Used 12 11 9 15 6 2 1 9 9

Number of Firms 149 148 123 82 125 53 109 55 855

A SURVEY OF THE BRITISH LITERATURE

tition) were less aware of strong competition than were larger firms (152). Finally, the relation between pricing method ('full-cost' or 'marginal cost') and size of firm is not generally clear - almost all of the firms sampled used full cost techniques, and those which did not used a variety of techniques, not all of which could be termed marginal; thus no 'size' pattern could be expected to develop (153).

C. OTHER BRITISH RESULTS

One of the more interesting discussions in the British case concerns the time pattern of the 'degree of concentration' in British industry. Of course, much of the discussion has been definitional and has been described above; in TABLE 4 4

Establishments with Eleven or More Employees Number of Employees Per Establishment 1924 11- 99 100-499 500-999 1000 Plus Total 1935 11- 99 100-499 500-999 1000 Plus

Employees (Per Cent)

Establishments (Per Cent)

Average Number of Employees

1,676,000 (23 %) 2,284,000 (31 %) 878,000(12%) 2,468,000 (34%)

52,000(79%) 11,100(17%) 1,300 ( 2%) 1,000 ( 2%)

32 206 675 2,468

7,306,000

65,400

1,318,000(26%) 2,014,500 (39%) 718,900 (14%) 1,105,900 (21 %)

37,614(77%) 9,750(20%) 1,047 ( 2%) 533 ( 1 %)

Total: 1949 11- 99 100-499 500-999 1000 Plus

5,157,600

48,944

1,588,327 (22%) 2,421,327 (34%) 971,490(14%) 2,081,018 (30%)

43,514(76%) 11,673 (20%) 1,418(2%) 891 ( 2%)

Total:

7,063,274

58,094

112 35 207 687 2,075 105 37 207 685 2,336 122

Source: [170], p. 644.

185

A SURVEY OF THE INDIAN LITERATURE

this section are summarized the results, over a fairly considerable period of time, for a variety of studies, some of which had other objects than the measurement of concentration. The most general picture is reported in the International Labour Review in 1956. See Table 44. These results certainly suggest an increasing concentration in Britain, and results are mirrored by another general study, between 1935 and 1959 which has slightly more detail as well. TABLE 4 5

The Size Distribution of British Manufacturing: 1935 and 1959 Number of Employees Per Establishment 11- 24 25- 49 50- 99 100-499 500-999 1000 Plus

Per Cent of Firms

Per Cent of Workers

1935

1959

1935

1959

33.7 25.6 17.6 19.9 2.1 1.1

26.7 26.2 20.7 21.6 2.7 2.1

5.4 8.5 11.7 39.0 13.9 21.4

3.3 6.7 10.5 32.2 13.7 33.6

Source: [144], p. 57.

The authors of this study relate the decline of the small unit to the usual factors: small units have difficulty raising new capital, are not favored by the existing tax structure (because they are not incorporated, for one thing), face high initial costs of entry, and must overcome the immediate advantage of existing firms in their respective industries. They find, contrary to the views of the Radcliffe Committee and the Oxford University study referred to above, that most of the growth in new lines seems to come from existing firms. J. Jewkes (150) maintains that the results of these tables are distorted by the use of 1935 which was a year of depression compared to the other years (1924, 1947, and 1959). P. S. Florence, whose works form the backbone of the British literature, provides the firmest support for the notion that concentration has increased. He cites some of the above data and data for other years in his 1948 book (145). See Table 46. As the last column, importantly, indicates, size in the sense of output has universally risen, while 'employment' size has risen somewhat erratically. In discussing Professor Jewkes' refutation, Florence emphasizes, for some 186

A SURVEY OF THE BRITISH LITERATURE TABLE 46

Concentration in British Manufacturing, 1914 to 1937 Per Cent of Employees in Establishments Employing

Date

1914 1919 1921 1923 1925 1927 1929 1931 1933 1935 1937

1-100

101-500

500 Plus

35.0 29.7 35.7 30.0

34.9 31.5 33.5 33.3

30.2 38.8 30.8 36.7

-

-

-

-

30.0 -

31.3 29.4 26.7

32.8 -

34.8 33.0 33.7

-

37.1 -

33.8 37.6 39.6

Index Number of Volume of Production Per Establishment 100 106 114 154 164 173 177 163 171 172 216

Source: [145], p. 124.

Swedish data which it is not relevant to reproduce here, that while 'employees size' has often produced an unclear picture, when 'output,' 'staff,' or 'equipment' is substituted as the 'size' variable, the increase in concentration becomes quite clear. Any one of these dimensions, he asserts, has an equal claim to be considered the true size variable (147). We have returned, it seems, to the conceptual problems of definition. There is, in the British case, a small literature relating size of establishment to the locational aspects of economic theory. Florence (145) verifies, for instance, that 'degree of localisation' (i.e., degree of regional concentration) and 'size of plant' are linearly related. He, further, verifies that the prime explanations for this phenomenon relate to the nature of the product and materials and the dispersion of the product and materials markets; this is a much broader reference than was found in the Indian literature where, generally, only the 'resources' variables were considered important. In many ways the industrial estates developed in Great Britain have served as models for the Indian ventures. The estate at Slough, England, was initiated in 1920 and contained 500 factories spread over 640 acres in 1958 (102). This estate and others, in Gateshead, Glasgow, and Harlow New Town were developed primarily to help overcome local pockets of unemployment, and most of them were established in the depression years of the 1930's. Further187

A SURVEY OF THE INDIAN LITERATURE

more, these estates were not intended to contain only small units; this is unlike the Indian form as described above. Another characteristic of British estates form which is not shared by the Indian is that the former insist that their units be operated on a profitable basis; partly as a consequence, the latter appear to be laid out more systematically (102). The broad similarity is still striking, for the use of industrial estates in either case serves locational aspects of the placement of fresh industry in areas where, presumably, an unemployed labor force exists. There is little else available in the British literature of interest for this study. There are seldom any financial studies, and what can be found seem to relate more to providing advice than to analyzing the problems of finance and size (156). There is a worthwhile management study (141) which, in 1954, described quite realistically the special management problems of small firms. The authors were sympathetic to the special problems of small firms; these problems were brought about, they suggest, because small firms had to aim for quick profits and were limited in size by the limitations of their highly personal management. They were able to suggest ways in which small firms might be able to improve themselves within their constraint pattern; of special importance would be efforts to standardize the product so as to reduce the stock of materials required to be held (in view of the shortage of working capital which small firms universally report), product research and development, and production planning and control. They suggest the use of these devices in spite of the difficulties, for without such steps, no real improvement of the position of small firms can occur.

188

APPENDIX B

A Discussion of Some Results for France, Germany, and Japan

A. FRANCE

Neither French economists nor those of other countries are much interested in what might be termed the 'place and problems' of small-sized units in France. In some respects this is surprising, for the 'demagoguery of the petit' in France has been widely remarked (e.g., 165); then, too, certain aspects of French development, for example the apparent need to decentralize (167) from the Paris region, suggest that an interest in such a problem should exist. The basic available data in the French case have been published in the International Labour Review and appear here as Table 47. It can be observed here that no significant changes occur in these data, with respect to the concentration of French industry from 1921 to 1936, although, of course, it must be emphasized that cyclical adjustments have not been performed. M. Laloire presents some findings for the post World War II years of 1954 and 1958; to these are added some figures for 1950 obtained from H. W. Ehrmann; again, the small unit appears to persist as suggested in Table 48. While, in the present state of information, one can only speculate as to the causes of the persistence shown, there is available one interesting hypothesis. Ehrmann's view, noted above, is that the strength of the small unit has been achieved politically; Hackett and Hackett (166), however, report very little explicit aid to French small firms in the various economic plans. Thus it is possible, if one accepts that the political-economic argument has not been verified, that the causes can be explained in terms of the institutions of the country. This is one case where an inter-disciplinary study might be of special interest. 189

A SURVEY OF T H E I N D I A N L I T E R A T U R E TABLE 4 7

Establishments with 11 or More Employees in France Number of Workers Per Establishment 1921

Employees

(%)

Establishments

11- 50 51- 100 101- 500 501-1000 1001 Plus

839,485 430,169 981,229 300,802 473,316

(28%) (14%) (32%) (10%) (16%)

37,939 6,096 4,985 434 229

11- 50 51- 100 101- 500 501-1000 1001 Plus

810,521 389,108 990,630 329,784 483,261

(27%) (13%) (33%) (11%) (16%)

36,694 5,531 5,004 475 225

(%) Average Number of Employees

(77%) (12%) (10%) ( 1%) ( -

)

(77%) (12%) (10%) ( 1%) ( -

)

22 71 197 693 2,067 22 70 198 694 2,148

Source: [170], p. 642. TABLE 4 8

Number of Enterprises in Various Size Categories in French Industry: 1950, 1954, 1958 Number of Workers Per Establishment 6 - 10

11- 20

21- 50 51-100

Number of Enterprises 1950«

1954**

1958**

41,556 31,267 25,117 8,864

42,895 28,513 25,409 8,581

43,318 29,132 26,581 9,469

Sources: * [165], pp. 499-500. ** [167], p. 256. B. GERMANY

With respect to the role of small units in Germany prior to the Second World War, while little useful qualitative information appears to exist, the general pattern is clear. The following tabulation emphasizes the progressive deterioration of the position of small units from 1882 to 1925. While these figures are not really relevant to this study, they are interesting in that they establish a trend contrary to the more unchanged picture noted for France and contrary to what appears in some later German data.

190

SOME RESULTS FOR FRANCE, GERMANY, A N D JAPAN TABLE 4 9

The Role of Small Units in German Manufacturing Industry, 1895-1933

Date

Average Number of Employees Per Establishment -

Per Cent of Employees in Establishments with Less Than: 200 Employees

Employees

60.4

44.6 40.7 33.9 36.6

26.2

1895 1907 1925 1933

30.0 35.3 30.9

50

Index of Volume of Production Per Establishment 1895=100

100 123 117 128

S o u r c e : [150], p . 2 4 2 .

TABLE 50

Small Units in German Industry, Handicrafts, Commerce and Transport, 1925 and 1933 Number of Workers Per Establishment

Establishments

1- 3 4- 5 6 - 10 1 1 - 50 51-200 2 0 0 PLUS TOTAL

2,793,122 295,564 184,726 143,152 32,577 9,240 3,458,381

80.0 8.6 5.3 4.1 0.9 0.3

4,209,341 1,288,889 1,365,912 3,031,531 3,033,276 5,642,542 18,571,491

22.7 6.9 7.4 16.3 16.3 30.4

1- 3 4- 5 6 - 10 1 1 - 50 51-200 2 0 0 PLUS Total

2,961,999 292,907 156,655 101,244 22,627 6,377 3,541,809

83.6 8.3 4.4 2.9 0.6 0.2

4,510,350 1,273,667 1,146,069 2,098,979 2,104,766 3,440,756 14,574,587

31.0 8.7 7.9 14.4 14.4 23.6

Per Cent

Workers

Per Cent

1925

1933

Source: [162]

191

A SURVEY OF THE I N D I A N LITERATURE

Other versions of some of these data are available (161, 162); E. Schindler, for instance, taking in handicrafts, commerce and transport firms along with manufacturing industry, also shows a rise in the importance of small units from 1925 to 1933. However, it should be noted about these results that the drop in total employment considered between the two periods is enough to have produced the apparent decrease in concentration; this is a result, then, which is obviously related to the phase of the business cycle. In more recent years, the relative position of small units has not appeared to alter; W. Wernet, whose results are summarized in Table 51, discloses figures, for a fairly broad sample of selected occupations in 1950, which suggest that there has been little change.

TABLE 5 1

Workers in Selected Occupations in German Industry in 1950 Workers Per Establishment

Establishments

12- 4 5- 9 10- 19 20- 49 50- 99 100-199 200-499 500-999 1000 Plus Total

766,480 870,053 229,048 80,923 44,730 15,054 7,148 3,923 1,053 679 2,019,091

Per Cent

Workers

Per Cent

37.9 43.1 11.3 4.0 2.2 0.7 0.4 0.2 0.1 0.1

766,480 2,276,250 1,442,488 1,069,865 1,343,229 1,037,641 980,775 1,184,029 714,447 1,610,141 12,425,345

6.2 18.3 11.6 8.6 10.8 8.4 7.9 9.5 5.7 13.0

Source: [164], p. 646.

Furthermore, examination of data for handicrafts (handwerk) - which appear to be variously defined - suggests some downward trend; nevertheless, as Table 52 makes clear, handwerk in all but the smallest groupings is increasing in strength. A comparison of Tables 51 and 52, with due caution because of the dissimilarities of the data, might suggest that 'small industries' as distinguished from 'handicraft' are becoming relatively more important in Germany. 192

SOME RESULTS F O R F R A N C E , G E R M A N Y A N D J A P A N TABLE 5 2

Size of Industrial Handwerk Undertakings in the Federal Republic of Germany, 1949 and 1956 Number of Workers Per Establishment

1 2- 4 5- 9 10-24 25-49 50-99 100 Plus Total

1949

1956

Difference

Number Per Cent in Thousands

Number Per Cent in Thousands

Number Per Cent in Thousands

315.1 390.2 111.4 36.5 7.0 2.1 0.6 862.9

36.5 45.2 12.9 4.2 0.8 0.3 0.1 100.0

249.7 311.4 124.1 47.6 12.1 4.9 1.9 751.7

33.2 41.5 16.5 6.3 1.6 0.6 0.3 100.0

- 65.4 - 78.8 + 12.7 + 11.1 + 5.1 + 2.8 + 1.3 -111.2

- 20.8 - 20.2 + 11.4 + 30.5 + 73.2 + 126.2 +223.0 - 12.9

Source: [167], p. 255.

Laloire (167), commenting on the persistence of handicrafts, uses terms quite similar to those used in the discussion of Indian handicraft: such units fill local and highly specific demands, have special advantages in the artistic industries and crafts which are enjoying a boom in recent times, and are especially useful as ancillaries to larger firms by providing installation, maintenance, and repair services. TABLE 5 3

Women Employed in Handwerk Groupings, 1939, 1949, and 1956 in Germany Groupings

Building Metal Wood Clothing Food Physical Culture Others Total Handwerk

Number of Women Workers (Thousands) 1939 1949 1956 15.1 37.9 12.0 173.9 154.2 68.4 11.2 472.7

17.0 42.7 12.3 242.9 120.1 77.8 13.5 526.3

26.7 79.3 19.6 186.7 173.1 144.9 22.5 652.7

Per Cent of Total Workers Who Were Women 1939 1949 1956 1.9 8.8 4.4 40.3 33.9 42.1 25.2 18.1

2.0 6.7 3.5 42.4 29.8 42.4 20.5 17.2

2.1 9.9 6.2 45.3 34.9 55.1 26.1 18.0

Source: [159], p. 104. 193

A SURVEY OF THE INDIAN LITERATURE

Special mention should be made of a study, in German, of the participation of women in the German handwerk occupations (159). While the cited data in the study, for the most part, do not go beyond that provided in standard sources (e.g., 160), the study does summarize the picture well, as Table 53 illustrates. Here it can be observed that the absolute and relative position of women in many of these 'groupings,' some of which obviously go beyond handicraft, has increased and that women, overall, have made up a steady eighteen per cent of the handicraft labor force. This result is consistent with others shown above, if, as seems likely, the mix of occupations has altered over the time period covered.

c . JAPAN

Since this volume also contains a critical survey of the Japanese literature by Mihoyei Shinohara, the presentation of data and of extensive comment here would be superfluous. Nevertheless, it is instructive to include an explicit comparison of the two situations; the main purpose is to examine the fruitfulness of carrying the Japanese results and ideas over to the Indian setting. The Japanese literature differs sharply from the Indian in a number of respects. The literature is much more extensive and covers a much broader range than does the Indian; on the other hand, the apparent focus of the Japanese writings is more toward micro-economic problems. There is very little of this interest in India ; there the primary concern is with development and the future of small-scale industrial units. Furthermore, the level of analysis of the Japanese work, in both economic and statistical terms, seems to be both more consistent and higher in quality. Finally, mention should be made of the heavy historical content of the Japanese literature; this is not to say that good data exist for past periods, for they do not, but to affirm that a great deal of interest in the past developmental record exists. Nevertheless, there are some striking similarities between the two countries. Both have a persistent small industrial sector ; both feature a 'dual economy'; and both show increasing concentration of business size. In both countries, the general problems facing small firms are similar; they suffer from raw materials shortages; adverse liquid capital-fixed capital ratios, which are higher for small firms, which have a relative difficulty obtaining working capital funds; and unfavorable capital markets. In the last named case it 194

SOME RESULTS FOR FRANCE, GERMANY, AND JAPAN

appears that interest rates are higher for small units and that small firms must resort to middlemen more often than large firms. There are also some striking dissimilarities between the two. Of most importance, for those who would apply Japanese experience to Indian problems, is that the organization of small units in Japan leans toward the ancillary or subcontracting form, for reasons undoubtedly institutional in nature. But, as was seen above, efforts in India to encourage such subcontracting have not succeeded; this point suggests further that the institutional structure is important in explaining the unusual Japanese result. In a different connection, Japanese small firms do not face the difficulties in the foreign market that obstruct the Indian efforts; in addition, Japan is faced with a labor shortage which is not the case in India, evidently. Finally, the Japanese dual economy has persisted under its own impetus, as it were, while the Indian has persisted, at least in part, because of the deliberate efforts of the government, of which the policy of fostering the growth of small units is only one aspect.

195

Résumé français

I. INTRODUCTION GÉNÉRALE

Nature générale de l'étude Dans le cadre des pays sous-développés, l'Inde a entrepris le travail de recherche le plus important sur les petites industries. L'Unesco a procédé à la seule tentative de recensement de cette littérature (45), mais cette étude n'est pas complète. Cet exposé de la littérature relative aux petites industries tient compte de travaux britanniques et japonais, et de résultats empiriques, jusqu'à présent dispersés, français et allemands. Le rôle des entreprises industrielles de petites dimensions Le rôle des petites entreprises est subordonné aux objectifs généraux de l'économie indienne. La proportion de main d'œuvre employée dans cette catégorie d'entreprises est considérable, même dans les pays industriellement avancés: en Inde, 77,9% des firmes emploient 8,4% des travailleurs ce qui correspondrait à une structure plus concentrée que celle des pays industrialisés. Les petites unités économiques ont subi une éclipse quand l'accent fut mis sur les grandes entreprises et ont connu un renouveau avec le deuxième Plan. Il est vraisemblable que leur part dans le développement général des dépenses de développement tendra à diminuer à partir du troisième Plan. Définition La majorité des auteurs a été amenée à proposer une définition des petites industries. Deux approches sont possibles : on peut chercher à déterminer une mesure quantitative ou bien une définition fonctionnelle, ce dernier cas apparaissant le plus souvent dans les travaux du Stanford Research Institute. 196

RÉSUMÉ FRANÇAIS

Définitions quantitatives. La définition officielle actuelle en Inde détermine la petite industrie en fonction du capital (69). Les définitions antérieures insistaient sur la main d'oeuvre. Selon ses partisans, la référence au capital faciliterait (34, 145), les comparaisons internationales et pourrait plus aisément être 'visualisée'. Elle laisse subsister de nombreuses difficultés (145, 147). P. N. Dhar (117) a proposé une nouvelle classification qui utilise le facteur énergie. Définitions fonctionnelles. Le plus important défenseur de la définition fonctionnelle est Eugène Staley qui a dressé (24) une liste des fonctions de la petite industrie. P. Chatteijee (111) a suggéré une classification à certains égards plus systématique. La recherche économique Les insuffisances de la littérature indienne peuvent être regroupées en cinq thèmes: elle se répète, ignore certains sujets, utilise mal les statistiques, comporte trop fréquemment des jugements de valeur, et elle est trop hétérogène pour autoriser des comparaisons et des généralisations.

II. LE SYSTÈME DES PETITES INDUSTRIES

Un modèle de développement pour la petite industrie Le modèle économique général sur lequel sont fondés les Plans indiens est du type Harrod-Domar. Le lien entre le Plan et la position spécifique des petites industries n'a pas été examiné avec suffisamment d'attention. La question à envisager devrait être formulée ainsi: trouve-t-on un modèle général de développement économique préconisant qu'une partie de la planification mette l'accent sur les petites industries? La croissance néo-classique. Le modèle Harrod-Domar est une version du modèle de croissance néo-classique. Schématiquement, il fait ressortir qu'un taux de croissance en équilibre est étroitement défini par la relation entre la croissance du capital et celle de la production. Le modèle indien prévoit une affectation sectorielle du capital et la petite industrie constitue un secteur. Cette constatation ne justifie par elle-même ni l'action en faveur de ce secteur, ni la préférence marquée par la recherche pour les petites industries. 197

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Les étapes économiques. Le modèle des 'étapes de la croissance économique' de Rostow (19) se fondant sur les secteurs économiques moteurs ne semble pas devoir être très utile. La dualité des secteurs. H. Boeke (5) a introduit la notion de dualisme dans les zones sous-développées. Le phénomène trouve son origine dans l'introduction de méthodes capitalistes dans une économie d'un type pré-capitaliste (10, 16). Le développement et Vexcès de main d'œuvre. Le modèle de W. A. Lewis (15) suppose un transfert de la main d'œuvre du secteur de subsistance (où elle est en fait inemployée), au secteur capitaliste. Il est trop général pour le cadre indien dans lequel le sous-emploi est plus développé que ne le prévoit le modèle. Cercles vicieux et croissance cumulative. La conception qu'a Myrdall (17) du processus de développement fournit, sans doute, le cadre le plus favorable aux industries de petites dimensions. Il constate l'inégalité croissante entre pays industrialisés et sous-développés, suggère que 'l'équilibre n'est pas naturel' et se trouve être la conséquence de cercles vicieux (ignorance faibles revenus insuffisance de l'épargne...). Par contre, des mesures positives peuvent avoir un effet cumulatif. Ainsi, alors que les planificateurs se situent dans la perspective HarrodDomar, l'accent mis sur les petites unités se justifie mieux dans des modèles de résorption du sous-emploi ou de renforcement des bases de l'économie. Le système des petites industries en Inde Le problème se ramène à trouver le meilleur équilibre des types et des dimensions des entreprises qui, en accord avec les réalités politico-sociales, permette d'atteindre un potentiel de développement maximum. Les contraintes imposées aux planificateurs indiens sont inexorables. La pression démographique leur impose de mettre au premier plan le facteur emploi; l'investissement dans les petites unités qui absorbent beaucoup de main d'œuvre est souvent ainsi justifié. Un second aspect de la crise de la population se traduit par une forte pression sur les biens de consommation pour lesquels la petite entreprise constitue une source privilégiée. Des contraintes supplémentaires ont été adoptées volontairement: décentralisation, coopération, entreprises accessoires (ancillaries)... 198

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La coopération en tant que contrainte. Le mouvement coopératif a derrière lui une longue histoire : il est parvenu à une position solide sans aide gouvernementale explicite. Néanmoins, les coopératives bénéficient dans les Plans d'un traitement favorable; elles sont intégrées à la structure constitutionnelle. En dépit de cette situation, elles rencontrent, étant de dimensions réduites pour la plupart, les mêmes difficultés que les petites unités moins privilégiées. Les entreprises accessoires (ancillaries). Puisqu'il ne peut être établi que le développement des petites entreprises comme 'entreprises accessoires' serait vital au progrès, il faut supposer que des efforts dans ce sens sont imposés à l'économie. Sans doute, trouve-t-on des arguments économiques, mais ils ne sont pas convaincants. Quoiqu'il en soit, peu de mesures ont été prises dans les différents Plans (63,89) ; le troisième Plan a adopté une position ferme (28) mais il offre, en définitive, peu de moyens. Les arguments fondés sur V emploi. Le meilleur argument en faveur des petites unités tient au fait qu'elles conviennent tout particulièrement à une économie caractérisée par un sous-emploi massif. Dhar et Lydall (30) suggèrent que ces arguments, apparemment fondés sur l'emploi, le sont en réalité sur le capital: on attend des petites entreprises un rapport production-capital inférieur à celui d'unités plus importances. La décentralisation. La décentralisation a été préconisée comme meilleure garantie des traditions démocratiques (45, 78), les méfaits du capitalisme étant supposés être la conséquence de la taille des entreprises. Cet argument, peu fondé historiquement et empiriquement, a été réfuté par Dhar et Lydall (30) et Amlan Datta (48). La décentralisation a été également évoquée dans le cadre de la planification urbaine (11); elle peut cependant présenter des inconvénients considérables. D'autres arguments ont été avancés, notamment dans le domaine militaire (53). Dans leur ensemble, ils apparaissent très subjectifs. Les arguments socio-politiques. Un certain nombre d'arguments sociopolitiques sont partiellement distincts de la décentralisation. Les petites entreprises créeraient une classe moyenne plus puissante (69), impliqueraient une rupture moindre avec la tradition (4), permettraient une évolution 199

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nécessaire (31) ou une étape de transition (45). On rencontre, en outre, des arguments gandhistes [se suffire à soi-même; affirmation que le progrès doit être centré sur le village, cellule politique et sociale élémentaire de la société indienne (70)]. Arguments divers. Dhar et Lydall estiment que l'argument le plus convainquant en faveur des petites industries tient au fait qu'elles permettent d'atteindre des ressources latentes. On a notamment suggéré qu'elles élargiraient l'assiette de l'épargne (45, 69), et qu'elles sont particulièrement à même de fournir des biens de consommation (25, 31, 72). Ces affirmations soulèvent des objections. III. LA PLANIFICATION DES PETITES INDUSTRIES EN INDE

Introduction: La structure générale du Plan Le document capital est probablement le rapport de la Fondation Ford (31) qui préconisait un certain nombre de mesures en faveur des petites entreprises. On peut affirmer que certains résultats désastreux sont dus à la nonréalisation rapide de ses recommandations. Le problème spécifique se formule ainsi: quel est en dernière analyse le rôle des petites unités dans le schéma indien? Représentent-elles des solutions temporaires? Diverses institutions ont été créées dans le but de promouvoir les petites industries. Les 'Industrial estates, Le cas des 'industrial estâtes', c'est à dire des zones et institutions développées par l'État en faveur des industries, a été examiné en détail pas W. Bredo (102) et a fait l'objet d'analyses critiques (30, 101...). Le financement des petites industries Il est difficile de brosser un tableau global des sources du financement. On constate en général (92, 98, 117) la faible part des banques alors que celle des prêteurs est importante. Le gouvernement, mal informé, n'épuise pas les crédits prévus; l'autofinancement est encore prédominant. Les services d'extension industrielle Le problème des services d'extension industrielle qui concernent avant tout 200

RÉSUMÉ FRANÇAIS

les aspects techniques du développement industriel, a été exposé par l'Organisation internationale du travail (12). La principale difficulté rencontrée par les petites unités tient à leur manque de préparation en face de la concurrence moderne. Il s'agit donc de les y adapter. C'est ainsi que 64 centres ont été prévus. Les petites industries et l'économie internationale Un des problèmes majeurs de l'Inde provient du déficit persistant de la balance des paiements. Les petites entreprises rencontrent de nombreuses difficultés en matière de commerce extérieur. La recherche ne fournit pas de réponses à la question de savoir si ces entreprises sont en mesure d'affronter la compétition internationale. Les goulots d'étranglement Ils se situent d'abord au niveau del'approvisionnement en matières premières. Un second goulot est dû au prix élevé de l'énergie que les petites entreprises paient trois fois plus cher que les grandes. Le transport est un problème moins souvent mentionné, sans doute en raison, dans le cas des petites entreprises, de la proximité des sources et des marchés. Le manque de matières premières enfin provoque paradoxalement une sous-utilisation de la capacité de production.

IV. LES ÉTUDES RÉGIONALES ET INDUSTRIELLES; L'ARTISANAT ET LES INDUSTRIES VILLAGEOISES

Les études par régions et par industries Ces études permettent de détailler les caractéristiques des petites entreprises qui sont en général la propriété d'un individu ou d'une famille (110). Dans le cas des très petites unités, elles se constituent rapidement et sont sousutilisées par manque de capital ou de matières premières (28, 71, 118, 120). Des analyses ont été consacrées aux entrepreneurs (115, 116), leur origine, leurs motivations et leurs relations avec les employés. L'artisanat et les industries villageoises L'artisanat et les industries villageoises diffèrent, sous d'importants aspects, des petites industries d'un type plus moderne. L'artisanat présente souvent un caractère artistique; les industries villageoises emploient généralement peu de 201

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capital fixe moderne et fournissent du travail à temps partiel ou saisonnier aux habitants des 600.000 villages indiens (38). Le 'Ail India Handicrafts Board' a été établi en 1951 dans le double but de fournir des possibilités d'emploi et d'amortir l'effet du sous-emploi technologique, d'une part et de 'préserver l'héritage national', d'autre part. Une politique d'expositions a été poursuivie, notamment à l'étranger, sans résultats spectaculaires. Le groupe de travail sur l'artisanat a suggéré en 1959 (135) de faire bénéficier ce secteur de la même aide que les petites industries. Les industries villageoises ne diffèrent pas fondamentalement des petites industries; leurs possibilités de modernisation semblent cependant devoir être moindres. Elles ont été définies dans plusieurs études (124, 125) comme employant moins de neuf travailleurs et possédant un capital inférieur à 6.000 roupies. Le caractère saisonnier de leurs activités les amène à avoir recours à des prêteurs (44 % des fonds). Une fraction élevée de leurs dépenses est réservée à l'achat de matières premières, ce qui les expose à des difficultés en cas de crise. ANNEXE A. EXPOSÉ SOMMAIRE DE LA LITTÉRATURE ANGLAISE SUR L'ENTREPRISE DE PETITE DIMENSION

Une annexe relative à la littérature anglaise se justifie par les liens historiques qui se sont noués entre les deux nations, et par le fait que les résultats obtenus dans le cadre britannique, où la recherche se situe généralement à un niveau supérieur, permet de mieux saisir le phénomène indien. Le Bulletin of the Oxford University Institute of Statistics (152) présente d'importants résultats, sur les problèmes et les avantages des petites entreprises d'après une enquête portant sur 876 firmes. Le 'Radcliffe Committee on the Workings of the British Monetary Systems' a analysé (143) les problèmes financiers particuliers aux petites entreprises et justifie une aide destinée à assurer le maintien des firmes solides. Un tableau général de la concentration a été présenté dans la Revue internationale du travail en 1956 (170) qui confirme l'ouvrage de Dunning et Thomas (144). L'accroissement de la concentration est démontré par la solide analyse de P. S. Florence (145). Les 'Industrial Estâtes' britanniques ont servi dans l'ensemble de modèle à l'Inde (102). Il convient de retenir enfin une étude consacrée aux problèmes de gestion dans les petites firmes (141). 202

RÉSUMÉ FRANÇAIS ANNEXE B. DISCUSSION DE QUELQUES RÉSULTATS FRANÇAIS, ALLEMANDS ET JAPONAIS

France On trouve peu d'analyses françaises. Des données valables ont été fournies dans la Revue internationale du travail (170). Diverses études ont montré les persistances de la petite entreprise. Une explication complète demanderait une étude interdisciplinaire. Allemagne Le schéma général de l'évolution est clair: détérioration progressive de la part des petites entreprises entre 1882 et 1925, redressement entre 1925 et 1932. En 1950, on constate (164) peu de changements. Laloire (167), observant cette persistance, l'analyse en termes semblables à ceux des études indiennes. Une analyse de la main d'œuvre féminine (199) doit faire l'objet d'une mention particulière. Japon Les écrits japonais diffèrent sous plusieurs aspects de la littérature indienne. Plus approfondis, ils couvrent mieux le sujet. Ils sont plus orientés vers les secteurs micro-économiques, la production indienne s'attachant davantage au développement et à l'avenir des petites industries. La qualité des analyses japonaise est supérieure. Une partie de leurs caractéristiques tient à ce qu'elles mettent plus l'accent sur l'aspect historique des problèmes. Des ressemblances notables existent entre les deux pays: persistance d'un secteur de petite industrie, économie dualiste, concentration grandissante. Les problèmes sont semblables. On observe aussi des différences appréciables. Les petites entreprises japonaises n'affrontent pas les mêmes difficultés dans le cadre de la concurrence internationale. Par ailleurs, le Japon manque de main d'œuvre. En définitive l'économie dualiste japonaise s'est maintenue sur sa propre lancée, alors que l'indienne a dû avoir recours, au moins partiellement, aux efforts délibérés du gouvernement.

203

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C. Industrial Finance in India. New Delhi, Suneja Book Centre, n.d.,

300 p. 95. 96.

97. 98. 99. 100.

M. S. 'The Development Banks'. Indian Economic Journal 8 (3), January 1961: 249-257. PRAIS, S . J. 'The Financial Experience of Giant Companies'. Economic Journal 6 7 ( 2 ) , June 1 9 5 7 : 2 4 9 - 2 6 4 . RAMAKRISHNA, K. T. Finances for Small-Scale Industry in India. Bombay, Asia Publishing House, 1962, 79 p. ROSEN, George. Some Aspects of Industrial Finance in India. London, Asia Publishing House, 1962, 144 p. SIMHA, S. L. N. The Capital Market of India. Bombay, Vora and Company, Ltd., 1960, 300 p. SOCIETY FOR SOCIAL AND ECONOMIC STUDIES. Capital for Medium and SmallScale Industries. New York, Asia Publishing House, 1959, 144 p. JOSHI,

Industrial Estates 101.

P. C. Industrial Estates in India. Bombay, Asia Publishing House, 1963, 103 p. 102. BREDO, William. Industrial Estates: Tool for Industrialization. Glencoe, 111., The Free Press of Glencoe, 1960, 240 p. ALEXANDER,

Foreign Trade Aspects 'India's Exports in 1 9 6 3 - 6 4 : An Analysis for Auguries for the Fourth Plan'. The Asian Economic Review 6 ( 4 ) , August 1 9 6 4 : 4 6 3 - 4 8 5 . BHARADWAJ, Ranganath. Structural Basis of India's Foreign Trade. Bombay: University of Bombay, 1962, 121 p. (Series in Monetary and International Economics, 6.) COHEN, Benjamin. 'A Comment on S. J. Patel's Analysis of Indian Exports'. Indian Economic Journal 11 (1), July-September 1963: 37-46. DATTA, Bhabatosh. Economic Development and Exports. Calcutta, The World Press Private, Ltd., 1962,213 p. MACDOUGALL, G. D . A. 'India's Balance of Payments'. Oxford University Institute of Statistics Bulletin 23 (2), May 1961: 153-178. PATEL, S. J . 'Export Prospects and Economic Growth: India'. Economic Journal 69 (3), September 1959: 490-506. SINGH, Manmohan. India's Export Trends. Oxford, Clarendon Press, 1964, 369 p. VERGHESE, S . K . India's Foreign Trade: Organizational and Financial Aspects. New Delhi, Allied Publishers, 1964, 328 p.

1 0 3 . ANANTARAM, K .

104.

105. 106. 107. 108. 109. 110.

210

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Other Aspects Pareshnath. 'Impediments to Higher Productivity in Small Industries'. Indian Management 3 (6), November-December 1 9 6 4 : 3 8 - 4 3 . CLARK, Lincoln H. A Market Development Program for Small Industry Products. New Delhi, Government of India Press, 1955, 66 p. PANT, Y. P . A Study in Industrial Location. Bombay, New Book Company Private, Ltd., 1957, 226 p. PAUL, Samuel. 'Small-Scale Industries Make Progress Despite Raw Materials Shortages'. Capital (Calcutta) December 20,1962, Supplement: 31-33. RYAN, F. A. Efficiency for Small Manufacturers. New York, Asia Publishing House, 1962, 204 p.

1 1 1 . CHATTERJEE,

112. 113. 114. 115.

Area Studies 116. 117. 118.

119.

120. 121.

122. 123.

James J. Industrial Entrepreneurship in Madras State. New York, Asia Publishing House, 1960, 240 p. D H A R , P. N. Small Scale Industries in Delhi. Bombay, Asia Publishing House, 1958, 277 p. INTERNATIONAL LABOUR OFFICE. India Branch. Small-Scale Engineering Industries in the Punjab. New Delhi, International Labour Office, India Branch, 1961, 81 p. LAKDAWALA, D . T . ; SANDESARA, J . C . Small Industry in a Big City: A Survey in Bombay. Bombay, University of Bombay, 1960, 387 p. M C C R O R Y , James T. Small Industry in a North Indian Town. Delhi, Government of India Press, 1956,145 p. NATIONAL COUNCIL OF APPLIED ECONOMIC RESEARCH. Small-Scale Industries of Mysore. New Delhi, National Council of Applied Economic Research, 1963, 215 p. RAO R. V. 'Cottage Industries and Their Planning in Andhra Pradesh'. Indian Journal of Economics 39 (153), October 1958:191-202. SINGH, Baljit. The Economics of Small-Scale Industries. London, Asia Publishing House, 1961, 144 p. BERNA,

Cottage and Handicraft 1 2 4 . (GOVERNMENT OF) BOMBAY. BUREAU OF ECONOMICS AND STATISTICS.

'The

Cottage Weaving Industry in the Old Bombay State'. Quarterly Bulletin of Economics and Statistics 1 (1), April 1957: 1-52. 1 2 5 . (GOVERNMENT OF) BOMBAY. BUREAU OF ECONOMICS AND STATISTICS.

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126.

127.

128.

129. 130. 131. 132.

133. 134.

Cottage Blacksmith Industry'. Quarterly Bulletin of Economics and Statistics 1 (2), July 1957: 1-42. (GOVERNMENT OF) INDIA. Study of Village Artisans. A Report Prepared by the Planning Commission, Programme Evaluation Organization. New Delhi, Government of India, 1956, 66 p. INTERNATIONAL LABOUR OFFICE. Handloom Weaving Industry in India with Special Reference to Madras. New Delhi, International Labour Office, 1959, 89 p. JOSHI, P. C. 'The Decline of Indigenous Handicrafts in Uttar Pradesh'. The Indian Economic and Social History Review 1 (1), July-September 1963: 2435. KAKADE, R . G. A Socio-Economic Survey of Weaving Communities in Sholapur. Poona, Gokhale Institute of Politics and Economics, 1947, 221 p. KARANTHA, K. V. Prosperity for Villages. Madras, Harsha Printery and Publications, 1950, 77 p. MUKERJI, B. 'Problems of Rural Credit'. Khadi Gramodyog 10 (1), October 1963: 30-36. NATIONAL COUNCIL OF APPLIED ECONOMIC RESEARCH. Survey of the Handloom Industry in Karnataka and Sholapur. Bombay, Asia Publishing House, 1959, 2 7 3 p. ROY, Satyendra, Nath. Cottage Industries in Relation to Bengal's Industrial Progress. Cooch Behar, State Press, 1941, 233 p. SINGH, T. N. 'Programs for Industries in Rural Areas'. Khadi Gramodyog 10 (1), October 1963:27-29.

1 3 5 . WORKING G R O U P ON EVALUATION OF PROGRESS OF HANDICRAFT INDUSTRIES D U R I N G THE SECOND FIVE YEAR PLAN.

Report. New Delhi, Government of

India, September 1959, 157 p. Miscellaneous 136. ISHIKAWA, Shigeru. 'A Comparison of Size Structures in Indian and Japanese Manufacturing Industries'. Hitotsubashi Journal of Economics 2 (2), March 1962: 50-80.

APPENDICES

British Literature 137. BALDAMUS, W. 'Mechanisation, Utilisation, and Size of Plant'. Economic Journal 63 (1), March 1953: 50-69.

212

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138. BATES, James A. "The Finance of Small Business'. Oxford University Institute of Statistics Bulletin 20 (24), May 1958: 153-187. 139. BATES, James A.; STEWART, Michael. 'Small Manufacturing Businesses'. Oxford University Institute of Statistics Bulletin 18 (2), May 1956: 140-178. 140. BELSHAW, H. 'Observations on Industrialization for Higher Incomes'. Economic Journal 57 (227), September 1947: 379-387. 141. BRITISH INSTITUTE OF MANAGEMENT. The Application of Modern

Management

Techniques in the Smaller Enterprise. London, British Institute of Management, 1954, 36 p. 142. BRUCE, Colin; BURCHARDT, F. A.; GIBB, E. B. 'Small Manufacturing Busi-

ness: A Preliminary Report on a Pilot Survey'. Oxford University Institute of Statistics Bulletin 17 (3), August 1955: 242-282. 143. COMMITTEE ON THE WORKING OF THE MONETARY SYSTEM. Report.

144. 145. 146. 147.

London,

Her Majesty's Stationary Office, 1959, 375 p. DUNNING, J. H.; THOMAS, C. J. British Industry. London, Hutchinson and Company, Ltd., 1961, 232 p. FLORENCE, P. Sargant; BALDAMUS, W. Investment, Location, and Size of Plant. Cambridge, Cambridge University Press, 1948, 211 p. FLORENCE, P. Sargant. 'New Measures of the Growth of Firms'. Economic Journal 67 (2), May 1957: 244-248. FLORENCE, P. Sargant. 'The Size of the Factory: A Reply'. Economic Journal 64 (255), S e p t e m b e r 1954: 6 2 5 - 6 2 8 .

148. HART, P. E.; PRAIS, S. J. 'The Analysis of Business Concentration: A Statistical Approach'. Journal of the Royal Statistical Society, Series A (General) 119 (Part 2), 1956: 150-181. 149. HILL, T. P.; KNOWLES, K. G. J. C. 'The Variability of Engineering Earnings'. Oxford University Institute of Statistics Bulletin 18 (2), May 1956: 97139.

150. JEWKES, John. 'The Size of the Factory'. Economic Journal 62 (246), June 1952: 237-252. 151. KEEN, J. F. 'Cost Control in the Small Firm'. British Management Review 14 (2), April 1956: 108-122.

152. LYDALL, H. F. 'Aspects of Competition in Manufacturing Industry'. Oxford University Institute of Statistics Bulletin 20 (4), November 1958: 319-337. 153. LYDALL, H. F. 'The Growth of Manufacturing Firms'. Oxford University Institute of Statistics Bulletin 21 (2), May 1959: 85-112. 154. LYDALL, H. F. 'The Impact of the Credit Squeeze on Small and Medium Sized Manufacturing Firms'. Economic Journal 67 (3), September 1957: 415431. 155. SILBERTSON, Aubrey. 'A Note on Mechanisation and Utilisation'. Economic Journal 63 (4), December 1953: 844-848.

213

A SURVEY OF THE INDIAN LITERATURE

156.

SIMMONDS, Francis. Financial Control for the Small Manufacturer. London, Jordan and Sons, Ltd., 1952,104 p. 157. STEINDL, Joseph. Small and. Big Business. Oxford, Basil Blackwell, 1945, 66 p. (Oxford University Institute of Statistics Monograph. 1.)

German Literature Martin S. The Changing Role of the Handwerk in Germany's Middletown. Mullsjö, Sweden, Marston Hill, 1955,42 p. BRODMEIER, Beate. Die Frau im Handwerk, in Historischer und Moderner Sicht. Münster, Handwerkswissenschaftliches Institut, 1963, 116 p. BUNDESREPUBLIK DEUTSCHLAND. Statistik der Bundesrepublik Deutschland. (Statistisches Bundesamt.) 203 (3), 1949, XX-626 p. NEUHAUS, Georg. Landwirtschaft und Gewerbe in die Deutsche Volkswirtschaft und ihre Wandlungen im Letzten Vierteljahrhundert, Batid II. MünchenGladbach, Volksvereins-verlag, 1913,278 p. SCHINDLER, E. 'Handicrafts in Germany'. International Labour Review 35 (1), January 1937: 53-77. STEIN, Bernhard. Die Europäische Wirtschaftsgemeinschaft und das Deutsche Handwerk. Berlin, Duncker und Humbolt, 1958, 123 p. WERNET, Wilhelm. 'Das Gewerblich-kleinbetriebliche Element im Modernen Industrialismus'. Schmollers Jahrbuch 74 (6), 1954: 1-40.

1 5 8 . ALLWOOD,

159. 160. 161.

162. 163. 164.

French and Other European Literatures 165. 166. 167.

168.

169.

170. 171.

214

Henry W. Organized Business in France. Princeton, N . J., Princeton University Press, 1957,514 p. HACKETT, John; HACKETT, Anne-Marie. Economic Planning in France. Cambridge, Harvard University Press, 1963,418 p. LALOIRE, Marcel. 'Small-Scale Industry in the Modern Economy'. International Labour Review 8 4 ( 4 ) , October 1 9 6 1 : 2 4 6 - 2 6 8 . ORGANIZATION FOR EUROPEAN ECONOMIC COOPERATION. European Productivity Agency. Budgetary Control. (Project no 172). Paris, Organization for European Economic Cooperation, 1959, 65 p. ORGANIZATION FOR EUROPEAN ECONOMIC COOPERATION. Market Research, Methods in Europe. (Project no 261). Paris, Organization for European Economic Cooperation, 1956, 189 p. 'Size of Industrial Establishments'. International Labour Review 73 (6), June 1956: 634-644. WELLISZ, Stanislaw. 'Economic Planning in the Netherlands, France and Italy'. Journal of Political Economy 6 8 ( 3 ) , June 1 9 6 0 : 2 5 2 - 2 8 3 . EHRMANN,

BIBLIOGRAPHY

Other References N. SIVASUBRAMANIAN, S. 'Small Enterprises, Their Contributions to National Income'. Economic Weekly 14, July 1962: 1167-1174. INDIA. Ministry of Commerce and Industry. Pattern of Investment by Sources of Capital of Small Industrial Units in Eight Industrial Estates. New Delhi, Government of India, 1960. KASHYAP, S. P . 'Government Sponsored Industrial Growth, The Jaipur Industrial Estates: A Case Study'. Economic Weekly 16, June 20, 1964: 10211027. LIGGETT, D . R . Small Industry Development Organizations: A World-Wide Directory. Glencoe, 111., The Free Press, 1959, 137 p. RYAN, F. A. Efficiency for Small Manufacturers. Bombay, Asia Publishing House, 1962, 204 p. STEPANEK, G. E. Small Industry Advisory Services. An international study. Glencoe, 111., The Free Press, 1960, XIV + 193 p. WARRIAR, E. K. Small Scale Industry in Siva Kasi and Sattur. New Delhi, Government of India, Planning Commission, 1957, 61 p. WLOSZCOWSKI, S. Small Industry in the Economic Development of Contemporary Countries. Menlo Park, Standford Research Institute, 1 9 6 0 , 6 1 p. (Miscellaneous papers, 5). YADAVPUR UNIVERSITY. Survey of Small Engineering Units. Bombay, Reserve Bank of India, 1964,419 p.

111. DHAR, P.

173.

174.

175.

176. 177.

178. 179.

180.

215

Author Index

AIYER, S . K . , 6 4

CLARK, L . H . , 1 1 2

ALEXANDER, P . C . , 1 0 1

COHEN, B . , 105

ALEXANDER-FRUTSCHI, M . C . , 1

COMMITTEE

ALLWOOD, M . S., 158

ON

THE

WORKING

OF

THE

M O N E T A R Y SYSTEM, 1 4 3

ANANTARAM, K . , 1 0 3 AUBREY, H . C . , 2 , 3

DANTWALA, M . L . , 4 7 DATTA, A . , 4 8 DATTA, B . , 106

BALAKRISHNAN, G . , 9 0 BALDAMUS, W . , 1 3 7 , 1 4 5

D E L H I PRODUCTIVITY C O U N C I L , 7 4

BANERJI, S . , 9 1

DESHPANDE, S . H . , 4 9

BASU, S . K . , 9 2

DEVELOPMENT

BATES, J . A . , 1 3 8 , 1 3 9

COMMISSIONER

FOR

BAUER, P . T . , 4

DEY, S. K . , 2 9

BELSHAW, H . , 1 4 0

DHAR, P . N „ 30, 50, 5 1 , 1 1 7 , 1 7 2

BERI, G . C . , 2 7

DIRECTORATE OF ECONOMICS AND

BERNA, J . J . , 1 1 6

TICS, 7 7

BHANDARI, P . M . , 2 8

DIRLAM, J . B . , 2 5

BHARADWAJ, R . , 1 0 4

DOMAR, E . , 6

BHATT, V . V . , 6 5 , 6 6 , 6 7

DUNNING, J. H . , 144

BOEKE, J . H . , 5 BOMBAY

(GOVERNMENT

OF)

BUREAU

OF

ECONOMICS AND STATISTICS, 1 2 4 , 1 2 5

EHRMANN, H . W . , 165 ERRINGTON, P . S., 5 2

BRAIBANTI, R . , 7 0 BREDO, W . , 1 0 2

FAROOQUEE, Q . H . , 5 3

BRITISH INSTITUTE OF M A N A G E M E N T , 1 4 1

FLORENCE, P . S., 1 4 5 , 1 4 6 , 1 4 7

BRODMEIER, B . , 1 5 9

F O R D FOUNDATION, 31, 3 2

BRUCE, C . , 1 4 2 BUNDESREPUBLIK D E U T S C H L A N D , 1 6 0

GALBRAITH, J . K . , 7

BURCHARDT, F . A . , 1 4 2

GHOSE, B . C . , 8

B U R E A U OF INDUSTRIAL STATISTICS, 7 1

GHOSE, D . N . , 3 3 GIBB, E . B . , 142

CENTRAL

SMALL

INDUSTRIES

ORGANIZA-

GULATI, I . S., 54, 81

TION, 7 2 CHACKO, G . K . , 6 8

HACKETT, A . M . , 166

CHAND, M . , 7 3

HACKETT, J . , 166

CHATTERJEE, P . , 1 1 1

HARROD, R . F . , 9

216

SMALL

SCALE INDUSTRIES, 7 5 , 7 6

STATIS-

AUTHOR INDEX HART, P . E „ 1 4 8 HERMAN, T . , 5 5 HIGOINS, B . , 1 0 HILL, T . P., 149 HOOVER, E . M . , 11 HOSELITZ, B . F . , 3 4 , 5 6 INDIA (GOVERNMENT OF), 1 2 6 INDIA (GOVERNMENT OF) PLANNING COMMISSION, 7 8 INDIA. MINISTRY OF COMMERCE AND I N DUSTRY, 173 INDIAN CHAMBER OF COMMERCE - CALCUTTA, 9 3 INTERNATIONAL LABOUR OFFICE, 12, 13, 118,127 INTERNATIONAL LABOUR ORGANIZATION, 1 4 ISHIKAWA, S . , 1 3 6 IYENGAR, A . S . K . , 3 5 JAIN, P . C . , 9 4 JAIN, R . K . , 5 7 JEWKES, J . , 1 5 0

Josm, M. S., 95 JOSHI, N . C . , 3 6

Josm, P. C., 128 KAKADE, R . G . , 1 2 9 KARANTHA, K . V . , 1 3 0 KASHYAP, S . P . , 1 7 4 KEEN, J . F . , 1 5 1 KNOWLES, K . G . J . C . , 1 4 9 LAKDAWALA, D . T . , 1 1 9 LALOIRE, M . , 1 6 7 LALWANI, K . C . , 8 2 LEWIS, J . P . , 3 7 LEWIS, W . A . , 1 5 LIGGETT, D . R . , 1 7 5 LITTLE, I . M . D . , 8 3 LOKANATHAN, P . S . , 8 8 LYDALL, H . F . , 3 0 , 1 5 2 , 1 5 3 , 1 5 4 MACDOUGALL, G . D . A . , 1 0 7 MCGRORY, J. T . , 120 MALENBAUM, W . , 3 8 MEHTA, M . M . , 3 9 MEHTA, V . L . , 5 8 MEIER, G . M . , 1 6 MUKERJI, B . , 131

MYRDAL, G . , 17 NANJUDAN, S . , 6 9 NASH, M . , 18 NATIONAL COUNCIL OF APPLIED ECONOMIC RESEARCH, 4 0 , 1 2 1 , 1 3 2 NATIONAL SMALL INDUSTRIES CORPORATION, 8 4 NEUHAUS, G . , 1 6 1 ORGANIZATION FOR EUROPEAN COOPERATION, 1 6 8 , 1 6 9

ECONOMIC

PÂLIT, S . K . , 5 9 PANT, Y . P . , 113 PATEL, S . J . , 1 0 8 PAUL, S . , 1 1 4 PLANNING COMMISSION OF THE GOVERNMENT OF INDIA, 8 5 POWER, J . H . , 4 1 PRAIS, S . J . , 9 6 , 1 4 8 RAMAKRISHNA, K . T . , 9 7 RAO, M . V . , 6 0 , 8 8 RAO, R . V . , 8 6 , 1 2 2 REDDAWAY, W . B . , 4 2 ROBISON, E . , 6 9 ROSEN, GEORGE, 9 8 ROSTOW, W . W . , 19 ROY, S . N „ 1 3 3 RYAN, F . A . , 1 1 5 , 1 7 6 SAHOTA, G . S . , 2 0 SANDESARA, J . C . , 1 1 9 SCHINDLER, E . , 1 6 2 SHARMA, T . R . , 4 3 SHETTY, M . C . , 4 4 SLLBERTSON, A . , 1 5 5 SIMHA, S . L . N . , 9 9 SLMMONDS, F . , 1 5 6 SINGH, B . , 1 2 3 SINGH, M . , 1 0 9 SINGH, T . N . , 1 3 4 SINGH CHAUHAN, S . D . , 4 3 SIVAS UB RAMAN IAN, S . , 1 7 2 SMALL SCALE INDUSTRIES BOARD, 8 7 SOCIETY FOR SOCIAL AND ECONOMIC STUDIES, 1 0 0 SPENGLER, J . J . , 7 0 STALEY, E . , 2 2 , 2 3 , 2 4 , 6 9

217

A SURVEY OF THE INDIAN LITERATURE

UNESCO, 4 5 , 4 6

W A R R I A R , E . K . , 178 WATSON, A . M . , 2 5 WEDDELL, K . , 2 6 WELUSZ, S . , 171 WERNET, W . , 1 6 4 (GOVERNMENT OF) WEST BENGAL, 7 9 , 8 0 WLOSZCOWSKI, S . , 1 7 9 WORKING GROUP OF THE THIRD FIVE YEAR PLAN, 8 9 WORKING GROUP ON EVALUATION OF PROGRESS OF HANDICRAFT, 1 3 5

VEERARAGHAVACHAR, S . M . , 6 3 VERGHESE, S . K . , 1 1 0

YADAVPUR UNIVERSITY, 1 8 0 YAMEY, B . S . , 4

STEIN, B . , 163 STEINDL, J . , 157 STEPANEK, G . E . , 177 STEWART, M . , 1 3 9 SWAROOP, B . , 6 1 THAPAR, S . D . , 6 2 THOMAS, C . J . , 1 4 4

218