Changing Global Production Structures

1. Changing Global Production Structures Ravi Srivastava

2. Three related changes in the global production structure under discussion: • Tertiarisation (or quaternarisation) of the world economy. • Already dominant in 1970 (52 % of world GDP& 68 % in 2005.. • Between 2005 and 2008 value added has been slower in the service sector than in agriculture and industry. • Blurring of distinction between manufacturing and services. • Increase “disintegration” or “fragmentation” of production and rise of Global Production Networks. • Lead firms in global production networks outsource lower value-added activities. • Consequences changes in the structure of foreign trade and shift in a range of manufacturing and modern services towards the emerging economies. • MNEs are estimated to account for two-thirds of world trade and intra-firm trade. But very few large MNEs are still located in the emerging economies. • Shift in the share of World GDP towards Asia. • Share of Asia in world production grew from 15.5 to 28.5 per cent between 1970 and 2008 at the expense of Europe and North America.

3. Issues raised here: • One of the issues raised in the literature in the context of the current transformation of the global economy is the possibility of economic and social “upgrading” in the emerging economies. i.e. the possibility of the “High Road” versus “Low Road” to capitalism • This issue is mostly discussed in the context of the Global Production Networks. • However, in large economies (specifically India), the nature of capitalist transformation cannot be conflated to GPNs. There is a significant presence of domestic production structures catering to domestic demand. • From the perspective of labour in the emerging economies, one of the significant changes in the global scenario is the extreme limits on labour making a transition to the “high road” due to its overwhelming flexibilisation and informalisation. • These limits are placed by capital, both of the global and domestic variety, and through its influence on state ideologies, • But we argue that social and economic policies can create possibilities of upgrading labour and these possibilities have increased since the current crisis.

4. Conditions of reproduction of labour • Evidence suggests general “downgrading’ of the conditions of labour via greater flexibilisation in all respects, greater informalisation, and stricter conditions of work. • This is true in almost all emerging economies, including India and China. • In these countries, almost the entire sectoral shift from agriculture to non-agriculture – has been in the continued context of informalisation (either shift to the informal sector or to informal employment). • The greater flexibilisation and informalisation of work and labour co-exists with lower share of wages in value added, higher inequalities and premium on certain specific skills. • But there could be fluctuations in the remuneration to wage labour due to changes in the conditions of demand and supply.

5. The impetus to informalisation and new forms of flexibilisationcomes largely from the globalised segments of economy (i.e. the export oriented sectors facing global competition. • Hence issues of a “Race to the Bottom”. • China till the recent past is a clear case in point. • In India, also, in the case of the apparel industry (considered to be a low skill sector) there have been consistent demands from the industry for social downgrading of labour. • Vigorously sustained by a state under the influence of neoliberalism through lack of regulation, suitable urban and migration policy, privatization etc. • The downgrading of labour persists even in the globalised segments which have experienced economic upgrading or which are supposedly at intermediate or high skill levels, although the levels may be less than other sectors.

6. Recent evidence in India in a high growth regime • Overall reduction in the percentage of the non-agricultural wage/salaried workforce receiving any form of social security. • The percentage of wage workers outside agriculture receiving some fell from 32.6 % in 1999-00 to 28.6 % in 2004-5 and further to 26.4 % in 2009-10. • Some increase in social security coverage in larger proprietorship based firms, while the percentage of workers covered declined in both public limited companies and the government sector.

7. Consistent decline in proportion of such workforce with formal job contracts. • In 2004-05, 73.2 % wage employees outside agriculture were without any formal contract. This increased to 77.3 % in 2009-10. • Even among regular wage or salaried workers, 59.2 % such wage employees were without any formal contract. This increased to 63.2 % in 2009-10. • This increase was experienced across the board, across all enterprise types, and across both the unorganized and organized sectors • High incidence of informalisation even in sectors such as ICT, although lower than the average for other sectors. • In 2004-05, 40.1 5 ICT workers without social security, compared to 69 5% for other sectors; • 42 % ICT workers without any formal contract, compared to 74% for workers in other sectors.

8. Possibilities of economic upgrading (taking the “High Route”) • One can argue that lack of social upgrading feeds into the “low road” and that social upgrading can provide an impetus to productivity based growth (NCEUS view and its focus on a “Social Floor”). • Conversely, economic upgrading needed to sustain improvements in working conditions. • Different trajectories across emerging economies. • The GPN literature sketches an upgrading trajectory from simple assembly - to original equipment manufacturing to original design manufacture to original brand manufacture. • In India, limited upgrading co-existing with no upgrading in the rest of the sector and overwhelming dominance of the “low route”. • Larger conditions of global capitalist production are depressing the conditions of reproduction of petty commodity production, both in agriculture and outside it.

9. By way of conclusion • To reiterate: one of the big structural changes in the global production systems is a blocked transition for labour. • Unlike the first and the second industrial divides, flexibility has radically limited the possibility of labour making a transition to a formal status. • Nonetheless, there are relevant differences in the experience of some of the major emerging economies (esp. Brazil, China) which show that there is scope for domestic policy to address issues of economic as well as social upgrading and bring about an improvement in the conditions of the working people. • With the onset of the economic crisis, there has been some delegitimisation of neoliberal orthodoxies and greater focus on the improvement of skills, incomes and social protection at the bottom of the pyramid. • This has somewhat increased the possibility of introduction of policies which can bring about positive change.