pseudoerasmus

There used to be more research and debate on the negative effects of labour resistance on early industrialisation, but that topic has been crowded out by the intense focus on inequality of recent years. There now prevails a quiet presumption that labour movements have made only positive and large contributions to the historical rise in living standards.

So I illustrate the relevance of labour relations to early industrisalisation through the contrasting fortunes of India’s and Japan’s cotton textile industries in the interwar period, with some glimpses of Lancashire, the USA, interwar Shanghai, etc.

TL;DR version: At the beginning of the 20th century, the Indian and the Japanese textile industries had similar levels of wages and productivity, and both were exporting to global markets. But by the 1930s, Japan had surpassed the UK to become the world’s dominant exporter of textiles; while the Indian industry withdrew behind the tariff protection of the British Raj. Technology, human capital, and industrial policy were minor determinants of this divergence, or at least they mattered conditional on labour relations.

Indian textile mills were obstructed by militant workers who defended employment levels, resisted productivity-enhancing measures, and demanded high wages relative to effort. But Japanese mills suppressed strikes and busted unions; extracted from workers much greater effort for a given increase in wages; and imposed technical & organisational changes at will. The bargaining position of workers was much weaker in Japan than in India, because Japan had a true “surplus labour” economy with a large number of workers ‘released’ from agriculture into industry. But late colonial India was rather ‘Gerschenkronian’, where employers’ options were more limited by a relatively inelastic supply of labour.

The state also mattered. The British Raj did little to restrain on behalf of Indian capitalists the exercise of monopoly power by Indian workers. Britain had neither the incentive, nor the stomach, nor the legitimacy to do much about it. But a key element of the industrial policy of the pre-war Japanese state was repression of the labour movement.

Addendum 25 Oct 2020: Let me clarify several things about this post.

1. By “labour repression” I do NOT mean the coercion of workers or the suppression of their wage levels.
2. Furthermore, I do NOT argue it’s bad to improve working conditions for workers, such as safety regulations or limits on the length of the work day, etc.
3. Nor am I saying unions are bad! I’ve written before that unions in Germany are great.
4. My argument is fundamentally historical: in early industrialisation, in the transition from an agrarian to an industrial society, workers were usually Luddite, i.e., resistant to factory discipline, increased work effort, and productivity-enhancing measures in general.
5. My overall point is that societies which overcame worker resistance had an advantage over those which could not.
6. Therefore, this post does not have any relevance for today’s developed countries. It’s mainly about labour-intensive manufacturing in historical industrialisation.
7. Does it have relevance for developing countries today? It really depends on what exactly are the labour-friendly or labour-repressive policies in question.

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