Capitalist Development in India's Informal Economy

Elisabetta Basile

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781135039585
• Edition: 1
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

This book explores the economy and society of Provincial India in the post-Green Revolution period. It argues that the low 'quality' of capital development in India's villages and small towns is the joint outcome of the informal economic organisation, that is strongly biased in favour of capital, and of the complex stratification of the workforce along class and caste lines.

Focusing on the processes of growth induced by the introduction of the high-yield varieties in agriculture, the book demonstrates that a low-road pattern of capitalist development has been emerging in provincial India: firms compete over price and not over efficiency, with a constant pressure to reduce costs, in particular labour costs. The book shows that low-skilled employment prevails and low wages and poor working conditions are widespread.

Based on original empirical research, the book makes a valuable contribution to the debate on varieties of capitalism, in particular of the Global South. It is of interest to academics working in the fields of Development Studies, Political Economy and South Asian Studies.

1 The complexity of capitalist development in Provincial India

This book is about capitalism in India's small towns and villages. This part of the country – which might be referred to as Provincial (or Mofussil) India or simply as rural India – is interesting for a number of reasons. The vast majority of India's population lives and works in this socio-economic space.¹ Moreover, absolute poverty and deprivation reach their peak in numbers here.² Finally, the introduction of the Green Revolution in agriculture has induced a major socio-spatial restructuring in this part of India, exerting a deep impact on the economy and society, which is still largely unexplored.³

This process of change is analysed in this book with a specific focus on the non-farm section of India's provincial economy. The overall aim is the assessment of the ‘quality’ of capitalist development. This aim is pursued at two complementary levels: (i) by pointing out the structures and relations that have been supporting rural non-farm growth since the Green Revolution; and (ii) by exploring the impact of growth on working conditions and living standards.

1 A variety of capitalism

Provincial India markedly differs from Metropolitan India – i.e. from India's metropolises and large towns. Major differences are shown in the endowment of infrastructures, in the structure and organisation of the economy, and in living standards. While lagging well behind Metropolitan India in relation to infrastructures for health, education, transport and communication, Provincial India is also much dependent on agriculture. Despite its decline and its lower rate of growth (in comparison to the other sectors of India's economy), the primary sector continues to be a major source of employment and income in rural areas, and the emergence and growth of rural non-farm activities essentially rely on the human and financial resources extracted from it.⁴ Jointly, the lack of infrastructures and the dependence on agriculture largely account for the low rate of growth of India's provincial economy, for the increasing income and employment gaps with India's metropolises and for the differences in living standards and lifestyles (Pande, 2011).

In comparison to Metropolitan India, Provincial India is often seen as an ‘inferior’ space – marked by ‘slowness’ and by the ‘absence of the new and recent’ (Kumar, 2006: 397) – in which a backward socio-economic organisation seems to prevail. In this space, the transition to capitalism is still ongoing, while non-market institutions and structures – such as family, caste, gender, and ethnicity – regulate economic transactions, showing that market is not the prevailing organising principle – as it occurs in capitalist countries (Basile and Harriss-White, 2010).

In this book, I challenge this view at two levels. First, I argue that the idea of Provincial India as a static economy and society is wrong and misleading. This is largely due to the change induced by the Green Revolution, which has given birth to a new type of socio-economic system. This new socio-economic system strongly differs from the pre-Green Revolution situation for a new pattern of intersectoral relations and a new and complex social structure. Second, I argue that India's provincial economy clearly shows the main traits of capitalism – i.e. the commoditisation of the workforce and capital/labour conflicts – and that the persistence of social regulation should not be taken as a signal of an incomplete capitalist transition. On the contrary, its non-market features are an outcome of the interplay between capitalist production relations and the institutions and structures that India has inherited from her colonial and post-colonial past. They represent a major aspect of India's historical and cultural specificity.

Jointly, the new production organisation and the emerging social structure, together with social regulation, identify a ‘variety’ of capitalism that is specific to Provincial India in the current phase of capitalist development. My aim in this book is to assess how this variety of capitalism is organised and how it works.

2 Economic theory and empirical analysis

The analysis of contemporary capitalism is a difficult task. The ‘purely’ capitalist economy in which all social relations are money relations and individuals are rational and optimising beings is only found in mainstream textbooks. Moreover, despite predictions about institutional and economic convergence, real world economies do not converge toward a unique model.

Income distribution among and within countries has been deteriorating since the first Industrial Revolution (Bourguignon and Morrisson, 2002; Milanovic, 2006, 2010), and globalisation has had a worsening impact on economic inequality (Wade, 2004; Milanovic, 2011). Besides, against any predictions, power structures and institutions inherited from the pre-capitalist past are not being dissolved by capitalism and intertwine with capitalist production relations, giving birth to multiple modes of inequality – class, gender, religion, and ethnicity – which add to economic inequality, and to a variety of socio-economic organisations and patterns of change. As a result, capitalist societies and economies are highly diversified and conflicting (World Bank, 2006), and show a great variety of production structures, socio-economic relations, and patterns of spatial distribution of resources (Hodgson et al, 2001; Hall and Soskice, 2001; Boyer, 2005; Jackson and Deeg, 2006; Baumol et al, 2007).

The co-existence of class and non-class modes of inequality and a notable variety of social relations and structures are also found in India. Income inequality is a major distinguishing feature, but so too are urban/rural inequality and inequalities between genders, and among religious and ethnic groups (Corbridge and Harriss, 2000; Bagchi, 2002; Deaton and Drèze, 2002; Chakrabarti and Cullenberg, 2003; Sen, 2005, 2006; Rani and Unni, 2009). In any context, a multiplicity of relations supports the organisation of economy and society, creating an institutional mosaic (Sen and Drèze, 1997, 2002; Baru, 2000; Bagchi, 2002; Harriss-White, 2003a).

Economic theory is not fit to address the complexity of contemporary capitalism. The evidence of the varieties of capitalism undermines the concepts of uniformity and convergence and, with them, also the interpretative power of mainstream economic theory. Marxism and institutionalism – taken in a broad sense as theoretical approaches rather than specific analytical frameworks – might appear as suitable candidates. Yet, each considered individually, they could not account, simultaneously, for the variety of capitalisms and for the increasing inequalities among individuals and countries. On the one side, Marx's theory contributes to the understanding of capitalism, pointing to the commoditi-sation of labour and capital/labour conflicts as its main traits; yet, the abstract concept of capitalist economy, in which pre-capitalist residuals are cancelled out by the growth of productive forces and individuals share the same pattern of behaviour, cannot explain the variety of socio-economic systems. On the other side, Institutionalism proposes an agency theory that accounts for the influence of country-specific and history-specific institutions on individual behaviour, and therefore also for the emergence of a variety of socio-economic systems; yet, it misses the key role of labour commoditisation and capital/labour conflicts in shaping capitalist development.

In this book I argue that innovative theoretical tools are needed to address growth and change in ‘real world’ economies; and I propose an eclectic combination of Marxist and Institutionalist conceptual categories and propositions, within a single framework, as a guide for empirical analysis. This proposal is intended to be a methodological – rather than a theoretical – contribution to the debate on capitalism. Combining Marxist and Institutionalist propositions to represent the relationships among agents and the interplay between agents and society, the framework does not propose a new view of how real economies and societies are organised and work. Instead, its originality lies in the ways in which the basic concepts and propositions are causally related to explain capitalist growth and change.

3 Purpose and plan of the book

This book explores non-farm capitalism in Provincial India by means of the Marxist/Institutionalist framework with the aim of providing an interpretation of post-Green Revolution change and of assessing the impact of change on the organisation of the economy and on social and class structure. It contributes to the debate on contemporary capitalism in Provincial India at two levels. The first contribution is methodological and is found in the proposal of an eclectic framework as a theoretical support for the analysis of capitalism. The second contribution is in the sphere of applied political economy and directly follows from the methodological contribution: the use of Marxist/Institutional categories makes it possible to assess production relations in Provincial India taking into account all forms of social stratification and the influence of country-specific institutions and structures on individual and social behaviour.

The book is organised in two parts. In the first part (Chapter 2–5), I introduce the Marxist/Institutionalist framework and I employ it to point out the main distinguishing traits of non-farm capitalism in Provincial India and to explore its working. In the second part (Chapter 6–8), I apply the concepts and propositions of the eclectic framework to the analysis of post-Green Revolution change in Arni, a market town in a semi-arid rice-growing district in northern Tamil Nadu (South India), which I take as an example of India's provincial economy. Chapter 9 draws the main conclusions of the analysis in terms of the quality of capitalist development.

The Marxist-Institutionalist framework

The Marxist-Institutionalist framework – which is introduced in Chapter 2 – is eclectic in many senses. On the Marxist side, it is built on Marx's analysis of capitalism integrated and amended of dogmatism and determinism by the contributions of Critical Marxism. The ‘contamination’ of Classical Marxism with Critical Marxism produces a theoretical approach which may account for the ‘unpredicted’ (by Marx) developments of capitalism in the twentieth century, and in particular for the persistence of capitalism and the weakness of its working class. On the Institutionalist side, it relies on Evolutionary Institutional-ism, i.e. the branch of institutionalism that, building on Thorstein Veblen's agency theory, rejects the concept of maximising rationality as unrealistic and inadequate, focusing instead on the influence on individual behaviour of institutions – broadly defined as formal and informal rules originated in social intercourse.

The combination of the Marxist political economy and Evolutionary Institutionalism shows several advantages for the empirical research on contemporary capitalism: for its Marxist origin and strength, the eclectic framework explains the class origin of inequality and conflicts; for its Evolutionary/Institutionalist hypotheses on human behaviour, it explains the variety of organisational forms and social relations, and their historical specificity and path dependence.

Conceptualising capitalism in Provincial India

I employ the concepts and propositions of the Marxist/Institutionalist framework for an original analysis of non-farm capitalism in Provincial India. My aim is to point out the traits that distinguish it from other varieties of capitalist organisation. Consistent with the Marxist/Institutionalist framework, I explore the organisation of the economy in Chapter 3, and then, in Chapter 4 and 5, I turn to social stratifications and to the institutional framework for socio-economic interaction.

The first step is the definition of the non-farm economy of Provincial India and of its boundaries. This analysis relies on the official information provided by the National Sample Survey Organisation (also known as the National Sample Survey Office). Then, I propose a critical review – through Marxist/Institutional-ist lenses – of the literature on India's provincial economy in order to unveil the socio-economic relations that account for its growth and change. The review intends to enlighten class structure, institutional structure and social regulation, and the interplay of economic structure with institutional/ideological superstructure.

In Chapter 3 I show that India's provincial economy is a diversified and informal economic system in which petty production prevails, non-farm activities are increasingly informalised and socially regulated, and the quality of employment is poor. I also show that, while diversification is endemic as a ‘distress resort’ in agrarian crises, the emergence of new non-farm activities largely depends on the availability of local resources and on the delocalisation of industrial and service activities to peripheral areas, and that this process is enhanced by the increasing informalisation of the non-farm economy: supplying cheap labour and inputs to decentralising firms, the emergence of informal non-farm activities provides flexibility to production organisation and facilitates the access to rural resources, bolting them into the global circuits of capital.

The use of Marxist/Institutionalist categories makes possible an innovative analysis of the working of capitalism in Provincial India. The diversified and informal economy of Provincial India is shown to be institutionally and spatially embedded. Institutional embeddedness originates from social regulation and is revealed by the multiple forms of social stratification and the widespread heterogeneity of employment arrangements. Spatial embeddedness descends from – and is perpetuated by – the use of resources largely drawn from agriculture. While the quantity of physical and human resources and their localisation circumscribe the scope of provincial (non-farm) economy, the institutional framework shapes the actual pattern of its capitalist development by influencing the quality of the available resources and regulating the access to them and their use.

In Chapter 4, I focus on the intertwining between capitalist production relations with the power relations and social structures that the country has inherited from her colonial and post-colonial past. By means of the Marxist/Institutionalist analysis of the literature I show that two antagonist classes inhabit Provincial India: capitalists and subaltern workers. These classes differ from the classes of the ‘purely capitalist economy’: while they represent the interests of capital and labour – as it occurs in any capitalist country – the behaviour of their members and their intercourse might take contradictory aspects, being shaped by the institutions and ideologies rooted in India's culture and history.

India's culture and history also account for the segmentation of classes: each class of Provincial India's economy is made of segments, which while sharing economic and political interests and social aspirations, differ for their trajectories of class formation. This implies that, for the construction of class identities and class-consciousness, the homogeneity of political and economic interests and aspirations matters more than it does the homogeneity of the trajectories of class formation and also the homogeneity in the location in production relations.

I analyse the interplay between economic structure and the ideological/institutional framework in Chapter 5. I focus on India's civil society, which is taken as the sphere in which particularistic interests are expressed and represented. My assumption is that the organisation of civil society reveals the working – and also the intertwining – of class and non-class interests and power relations.

Caste is chosen as a privileged key to explore India's civil society. By means of a Marxist/Institutionalist review of literature, I show that caste has not dissolved with capitalism, undergoing instead a cumulative ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• List of illustrations
• Acknowledgments
• 1 The complexity of capitalist development in Provincial India
• Part I Analysing non-farm capitalism in Provincial India
• Part II A Marxist/Institutionalist analysis of capitalism in Arni
• Notes
• References
• Index