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11.952 Small Firms, Local Economic Development and the Informal Economy

11.952 Small Firms, Local Industrialization, and the Informal Economy Fall 1999   MIT 11.952 (H) Professor Meenu Tewari M,W: 2:30-4:00 [First meeting: 9/13] Room 3-405b, mtewari@mit.edu Room 1-242 Office hours: Tue., 3:00-6:00   Course Objectives This seminar examines current debates on industrialization. It focuses on three areas that have been at the forefront of academic research over the last two decades, as an upsurge of new explanations and empirical evidence has challenged our previous understandings of how regions industrialize. The three areas are: small firms, local economic development, and the informal economy. Through intensive discussions, directed readings, and critical analysis of case material, we will review recent shifts in the conceptualization of each of these areas, examine their relationship to the broader social, institutional and economic aspects of industrial growth, such as collective action, the changing role of the state, and the ability of firms and regions to adapt to rapid shifts in their external environments. We will also examine the policy implications of these shifts with regard to employment generation, resource allocation, small firm competitiveness, and the prospects of fostering viable local economic growth. Specific themes reviewed in the course include supply and demand-side approaches to small firm development; clustering and industrial districts; issues of training and skill formation; aspects of work organization and technical change; links between firms of different sizes and the shifting boundaries of the firm; the changing place of small firms (formal and informal) in modern supply chains; small firms and workers as participants in the informal economy, as well as the evolving nature of organizations in the informal sector. The seminar focuses primarily on industrial processes in developing countries, but it draws on comparative material from advanced industrial countries and transition economies to illustrate particular themes, and alternative approaches to the study of small firms and localities. Prerequisite: 11.205 (or equivalent), or permission of instructor.   Course Requirements: The course is designed as a seminar, and high levels of class participation are required. Students will come to class prepared to discuss the assigned readings. Specific assignments include the following: (1) Every two classes students will write a two page note outlining the key themes emerging from the week's reading, especially those that caused them to think in a new or different way about the issue under discussion, or, which surprised or puzzled them. These notes, which will be used to stimulate class discussion and explore ideas for individual research papers, will count for 35% of the final grade. (2) Each student will be responsible for making a short presentation on any one of the sub-topics covered in the course, and leading the discussion for that session. This assignment counts for 30% of the grade. (3) At the end of the semester each student will prepare a 12 page paper on a sub-topic of their choosing, and present it to the class. (Students may also consider developing research proposals instead of a paper as their final assignment). The final paper counts for 35% of the grade.   Assignment Schedule   9/27 - 2 page paper due in class 10/4 - 2 page paper 10/18 - 2 page paper 11/1 - 2 page paper 11/8 - 2 page paper 11/22 - 2 page paper [12/6 - Student presentations] 12/8 - Student presentations 12/13 - Final paper due in my office (3-405b) by 5pm.   11.952 Small Firms, Local Industrialization, and the Informal Economy   Reading List Fall 1999   Meenu Tewari   PART I. Roots of distinctions between large and small capital Week 1 : 9/13, 9/15 Classical Theories and historical formulations Required: Smith, Adam. [1776] 1976. "Of The Division of Labour," "Of the Principle which gives Occasion to the Division of Labour," "The Division of Labour is Limited by the Extent of the Market" In Book I: 'Of the Causes of Improvement in the productive Powers of Labour, and of the Order according to which its Produce is naturally distributed among the different Ranks of the People,' The Wealth of Nations. Edited by Edwin Cannan. Chicago: University of Chicago Press. Pp. 3-21. Rostow, W.W. 1962. "Introduction," and "The Five Stages of Growth: A Summary." In The Stages of Economic Growth. A Non-Communist Manifesto. London: Cambridge University Press. Pp 1-17 (pages. 18-58 Optional).   Recommended: Marx, Karl. 1932. "How Capital Revolutionizes the Mode of Production: 'Cooperation,`Division of Labour and Manufacture,' 'Machinery and Modern Industry'" and "What Capital Accumulation Leads to." In Capital, Volume I. New York: The Modern Library. Pp 63-99, 202-205.   Modernization and Industrialization Week 2: 9/20: Dualism and Segmentation: Sectoral distinctions Required Lewis, Arthur. 1963. "Economic Development with Unlimited Supplies of Labour." In: A.N. Agarwala and S.P. Singh (Eds) The Economics of Underdevelopment. New York:Oxford University Press.   9/22 Bifurcated Industrial Policy: varying rationales for promoting small vs. large firms Large Firms as Engines of Growth; Small Firms as Repositories of Employment Chandler, Alfred. 1992. "The Emergence of Managerial Capitalism." The sociology of Economic Life. Edited by M. Granovetter and R. Swedberg. Boulder CO: Westview Press. Pp. 131-158. Anderson, Dennis. 1982. "Small Industry in Developing Countries: A Discussion of Issues." World Development 10 (11):913-933, 940-41 (rest optional). Snodgrass, Donald T. Biggs and Associates (1996). Industrialization and the Small Firm: Patterns and Policies. Cambridge, Mass: Harvard University Press. Chapter 1. Hischman, Albert O. "Unbalanced Growth." (Optional).   Week 3: 9/27 Why the "traditional" Sector Persists: Debates over size, technology and politics Dualism and Labor Market Segmentation Piore, Michael J. 1980. "The Technological Foundation of Dualism and Discontinuity." In Dualism and Discontinuity in Industrial Societies by Suzanne Berger and Michael Piore. Cambridge: Cambridge University Press. Pp. 55-81. Berger, Suzanne. 1980. "The traditional Sector in France and Italy." In Dualism and Discontinuity in Industrial Societies by Suzanne Berger and Michael Piore. Cambridge: Cambridge University Press. Pp. 88-131. Peattie, Lisa. 1980. "Anthropological Perspectives on the Concepts of Dualism, the Informal Sector, and Marginality in Developing Urban Economies." International Regional Science. 5:1-31.   A Resurgence of Interest in Small Firms. Why Change? 9/29 Productive Decentralization and the Industrial Restructuring Debate Tendler, Judith. 1987. "The Remarkable Convergence of Fashion on Small Enterprises and the Informal Sector: What are the Implications for Policy?" Mimeo, MIT. Piore, Michael, and Charles Sabel. 1984. "Mass Production as Destiny and Blind Decision," Corporate Responses to the Crisis," and "Possibilities for Prosperity: International Keynesianism and Flexible Specialization." In The Second Industrial Divide. New York: Basic Books. Chapters 2, 8, 10. Pp. 19-48, 194-220, 251-280. Harrison, Bennett. 1994. "The Small Firms Myth." California Management Review. Spring: 142-158.   Week 4: 10/4 The Blurred Boundaries of the Firm Theories of the firm Coase, R. H. 1937. "The Nature of the Firm." Reprinted in The Nature of the Firm. Edited by Oliver E. Williamson, and S. G. Winter. 1991. New York: Oxford University Press. Transactions costs Williamson, Oliver E. 1981. "The Economics of Organization: The Transaction Cost Approach." American Journal of Sociology 87 (3):548-577. Perrow, Charles. 1981. "Economic Theories of Organization." In Complex Organizations. A Critical Essay. New York: Random House. Pp. 219-257. PART II. The (changing) Role of SMEs in these Debates on Development 1. The Informal Sector as Connected and Productive 10/6 The Early Debate: Marginality Theory, Culturalist, and Anarchist Approaches and its structuralist critique Lewis, Oscar. 1966. "The Culture of Poverty." Scientific American 215 (4): 19-25. International Labor Office. 1972. Employment, Incomes, and Equality: A Strategy for Increasing Productive Employment in Kenya. ILO, Geneva. Pp. 1-8 (51-57, 76-77 optional). Illich, Ivan. 1979. "Are we now going to colonize the informal sector?" In International Development Review 21 (4):9-14. (Anarchist approach) Benton, Lauren. 1985. "Latin American Urban Research - From Culturalism to Structuralism and Beyond." In Comparative Urban Research xi (1-2):7-13. Peattie, Lisa. 1987. "An idea in good currency and how it grew: The informal sector." World Development 15 (7):851-860.   Week 5: 10/11: HOLIDAY - COLUMBUS DAY 10/13 The Labor Market Approach de Oliviera, O and B. Roberts. 1994. "The Many Roles of the Informal Sector in Development: Evidence from Labor Market Research, 1940-1989." In Contrapunto. Edited by C.A. Rakowski. New York: SUNY Press. Pp. 51-74. Cheng, Lu-Lin, and Gary Gereffi. 1994. "The Informal Economy in East Asian Development." In International Journal of Urban and Regional Research 18 (2):194- 219. Chen, Marth, Jennifer Sebstad, and Leslie O' Connel. 1999. "Counting the Invisible Workforce: The Case of Homebased Workers." World Development 27(3):603-610.   Week 6: 10/18: Neo-Liberal Revisionism and the Neo-Marxist Critique Bromley, Ray. 1990. "A New Path to Development? The Significance andImpact of Hernando De Soto's Ideas on Underdevelopment, Production, and Reproduction." Economic Geography 66(3):328-348. (Neo-liberal revisionism) Castells, Manuell, and A. Portes. 1989. "World Underneath: The Origins, Dynamics and Effects of the Informal Economy." In The Informal Economy: Studies in Advanced and Less Developed Countries. Edited by A. Portes et. al. Baltimore: The Johns Hopkins University Press. Pp. 11-37. (The neo-marxist critique)   10/29 Issues of Legality and the Regulatory Approach Benton, Lauren. 1994. "Beyond Legal Pluralism: Towards a New Approach to Law and the Informal Sector." Social and Legal Studies. 3:223-242. Razzaz, Omar. 1994. "Contestation and Mutual Adjustment: The Process of Controlling Land in Yajouz, Jordan." Law and Society Review 28 (1):7-39. Sanyal, Bishwapriya (1996). "Intention and Outcome: Formalization and Its Consequences." Regional Development Dialogue. Special Issue on the Urban Informal Sector. Spring. Peattie, Lisa (1979). "The Organization of the Marginals." Comparative Urban Research 7(2):5-21.   Week 7: 10/25 NO CLASS ­ MAKE UP CLASS WILL BE HELD ON 10/29   10/27 Economic Restructuring and the Informal Economy in Developed and Developing Countries   Required Benton, Lauren. 1989. "Industrial Subcontracting and the Informal Sector: The Politics of Restructuring in the Madrid Electronics Industry." In: The Informal Economy, Studies in Advanced and Less Developed Countries. Edited by Alejandro Portes et. al. Baltimore: Johns Hopkins University Press. Pp. 228-246. (Chapter 12) Portes, Alejandro. 1994. "The Informal Economy and its Paradoxes." In The Handbook of Economic Sociology. Edited by Neil J. Smelser and Richard Swedberg. Princeton: Princeton University Press.   PLUS, ANY ONE OF THE FOLLOWING: Sassen-Koob, Saskia. 1989. "New York City's Informal Economy." In: The Informal Economy, Studies in Advanced and Less Developed Countries. Edited by Alejandro Portes et. al. Baltimore: Johns Hopkins University Press. Pp. 60-77. (Chapter 3) Fernandez-Kelley, Patricia M., and Anna M. Garcia. 1989. "Informalization at the Core: Hispanic Women, Homework, and the Advanced Capitalist State." In: The Informal Economy, Studies in Advanced and Less Developed Countries. Edited by Alejandro Portes et. al. Baltimore: Johns Hopkins University Press. Pp. 247-264. (Chapter 13) Capecchi, Victor. 1989. "The Informal Economy and the Development of Flexible Specialization in Emilia-Romagna." In: The Informal Economy. Edited by Alejandro Portes et. al. Baltimore: Johns Hopkins University Press.   PART III: Small Firms, Industrial Policy, and Local Economic Development 10/29 Industrial Districts and Clustering Sengenberger, Werner, and Frank Pyke. 1992. "Introduction: Industrial Districts and Local Economic Regeneration: Research and Policy Issues." In Industrial Districts and Local Economic Regeneration. Edited by Frank Pyke and Werner Sengenberger. Geneva: International Institute for Labour Studies. Pp. 3-29. Humphrey, John. (ed.) 1995. "Industrial Organization and Manufacturing Competitiveness in Developing Countries." Special Issue of World Development 23 (1). Introduction. Schmitz, Hubert, and Bernard Musyck. 193. "Industrial Districts in Europe--Policy Lessons for Developing Countries?" World Development 22 (6):889-910. (June) Gertler, Meric. 1988. "The limits of flexibility: comments on the Post-Fordist vision of production and its geography." Transactions: Institute of British Geographers 13 (4):419-432.   Week 8: 11/1: Path Dependency: Arguments and Critique. Toward a role for agency and policy Arthur, Brian. 1989. "Competing Technologies, Increasing Returns, and Lock-in by Historical Events." The Economic Journal 99 (March):116-131. Sabel, Charles. 1995. "Intelligible Differences: On Deliberate Strategy and the Exploration of Possibility in Economic Life." Columbia Law School. (Path dependency critique). Pp 1-20. Cases: Kattuman, Paul A. 1998. "The Role of History in the Transition to an Industrial district: The Case of the Indian Bicycle Industry." Decentralized Production in India. Edited by Philippe Cadene and Mark Holmstrom. New Delhi, London: Sage Publications. Tewari, Meenu. 1998 "Intersectoral Linkages and the Role of the State in Shaping the Conditions of Industrial Accumulation: A Study of Ludhiana's Manufacturing Industry." World Development 26(8):1387-1411.   11/3: Embeddedness, and Social Networks Granovetter, Mark. 1985. "Economic Action and Social Structure: The Problem of Embeddedness." American Journal of Sociology Vol. 19:481-510. Grabher, Gernot. 1990. "On the Weakness of Strong Ties. The Ambivalent Role of Inter-Firm Relations in the Decline and Reorganization of the Ruhr." Discussion Paper FS I 90-4, Labour Market and Employment Research, WZB, Berlin. Harriss, John (1997). "'Missing Link' or Analytically Missing?: The Concept of Social Capital." Journal of International Development 9(7):919-937. Kenworthy, Lane. 1997. "Civic engagement, Social Capital, and Economic Cooperation." American Behavioral Scientist 40(5):645-656.   Week 9: 11/8: Production Networks and Local Politics Locke, Richard. 1994. "The Composite Economy: Local Politics and Industrial Change in Contemporary Italy." Alfred P. Sloan School of Management, Working Paper No. 3748-94-BPS. 42 pp. Knorringa, Peter. 1996. "Operationalization of Flexible Specialization. Agra's Footwear Industry." In Economic and Political Weekly. December 28. Pp. L-50-56. Harisson, Bennett. 1994. "The Evolution (and Devolution?) of the Italian Industrial Districts." In: Lean and Mean: The Changing Landscape of Corporate Power in the Age of Flexibility. New York: Basic Books. Chapter 4. Pp 75-105.   PART IV: Small Firms and Regional Competitiveness in the Global Economy 11/10: Small Firms and Their Production networks in the Global Economy - I: I - Small Firms, Globalization, and The Labor Standards Controversy Portes, Alejandro. 1994. "When More can be less: Labor Standards, Development, and the Informal Economy." In: Contrapunto. Edited by C.A. Rakowski. New York: SUNY Press. Pp. 113-130. Piore, Michael. 1990. "Labor Standards and Business Strategies." In Labor Standards and Development in the Global Economy. Edited by Stephen Herzenberg and Jorge F. Perez -Lopez. Washington D.C.: Department of Labor. Pp 35-45. Lee, Eddy. 1997. "Globalizing and Labor Standards: A Review of Issues." Iternational Labor Review 136:172-189. Rodrik, Dani. 1997. "Consequences of Trade for Labor Markets and the Employment Relationship," and "Implications" In: Has Globalization Gone too Far, Washington D.C.: Institute for International Politics. On Child Labor: (Optional) Piore, Michael. 1997. "Central Themes," and "Child Labor," in Research Notes: Empresa Integradora Furniture Industry: Ciudad Hidalgo, Mexico. Mimeo. Pp. 1-3, 8-11 (4-8 optional). Burra, Neera. 1995. "How it all started: Government Policy and the Law," "Where are the Children Working," "Consequences of Child Labour: What can be done." In: Born to Work. Child Labour in India. Delhi: Oxford Univeristy Press. Pp. 1-34, 223-256.   Week 10: 11/15: Small Firms in the Global Economy - II: Supply chains, Market Penetration and Adjustment Gereffi, Gary, Miguel Korzeniewicz and Roberto Korzeniewicz (1994). "Introduction: Global Commodity Chains," In G. Gereffi and. M. Korzieniewicz, eds., Commodity Chains and Global Capitalism. Westport: Praeger. Harris-Pascal, John Humphrey, and C. Dolan. 1998. "Value chain and upgrading: the impact of UK retailers on the fresh fruit and vegetables industry in Africa." Typescript, IDS, Sussex, England. Piore, Michael, Enrique Dussel and Clemente Ruiz Duran (1996). "Adjustments in Mexican Industries to the Opening of the Economy to Trade." MIT and UNAM, mimeo. Tewari, Meenu. 1999. "Successful Adjustment in Indian Industry: The Case of Ludhiana's Woolen Knitwear Cluster." World Development 27(9): 1651-1671.   11/17: Small Firms in the Global Economy - II: Inter-Firm Relations, Global Competition and Collective Action (Medium sized intermediaries as anchors of local industrial growth). Schmitz, Hubert. 1999. "Global Competition and Local Cooperation: Success and Failure in the Sinos Valley, Brazil." World Development 27(9):1627-1650. Kennedy, Lorraine. 1999. "Cooperating for Survival: Tannery Pollution and Joint Action in the Palar Valley." World Development 27(9):1673-1692. Damiani, Octavio. 1999. "The Management of Government Sponsored Irrigation Investments." In: Beyond Market Failures: Irrigation, The State, and Non-traditional Agriculture in Northeast Brazil. Ph.D. dissertation, Department of Urban Studies and Planning, MIT. Pp. 64-93. ("Conclusions" pp. 203-224 optional).   Week 11: 11/22 Small firms and regional competitiveness: links with larger actors, and diffusions of technology and organizational change Dohnert, Sylvia. 1998. Collective Services, Large firms, and Clustering: Pulling together the Threads of the Cearenese and Pernambucan Garment Industries." Massachusetts Institute of Technology. Typescript. Mody, Askoka Mody et. al. 1992. "Keeping Pace with Change: Organizational and Technological Imperatives.î World Development 20(12):1797-1816 Amsden, Alice. 1991. "Big Business and Urban Congestion in Taiwan: The Origins of Small Enterprises and Regionally Decentralized Industry (Respectively)." World Development 19 (9): 1121-1135.   11/24: Policies to support small firms: Providing Technical Assistance, Marketing, and Non-Financial Business Development Services Semlinger, Klaus. 1995. "Public Support for Small Firm Networking in Baden- Wuerttemberg." In Europe's Next Step: Organizational Innovation, Competition, and Employment. Edited by L. Andreason et. al. London: Frank Cass. Levy, Brian, et. al. 1994. "Technical and Marketing Support Systems for Successful Small and Medium-Size Enterprises in Four Countries." Policy Research Working Paper 1400, The World Bank, Washington D.C.   Demand-Side Strategies: Procurement Tendler, Judith. 1997. "Small Firms and Large Buyers: Demand-Driven Public Procurement." In Good Government in the Tropics. Baltimore: Johns Hopkins University Press. Chapter 5. Pp. 102-134 Perez-Aleman, Paola. 1992. "Small Industry and State Policy in Nicaragua: Lessons from the Sandinista Experience." Unpublished Doctoral Paper, Department of Urban Studies and Planning, MIT. June. 41 pp.   Week 12: 11/29: Skill Formation, and Training: its Impact on Firm Competitiveness, Worker Wages and Upward Mobility Osterman, Paul, and Rosemary Batt. 1993. "Employer-Centered Training for International Competitiveness: Lessons from State Programs." Journal of Policy Analysis and Management 12 (3):456-477. Tewari, Meenu. 1996. "Access to technical knowledge--the path of vocational training." In: "When the Marginal Becomes Mainstream. Lessons from a Half-Century of Dynamic Small-Firm Growth in Ludhiana, India." Ph.D. Dissertation, Department of Urban Studies and Planning, MIT. Pp. 151-173. Bailey, Thomas R, and Annette D. Bernhardt. 1997. "In Search of the High Road in a Low-Wage Industry." Politics and Society 25(2): 179-201.   12/1: Reconceptualizing public sector and private sector relationships Humphrey, John. 1995. ìIndustrial Reorganization in Developing Countries: From Models to Trajectories.î World Development 23(1):149-162 Tendler, Judith. 1997. "Civil Servants and Civil Society, Governments Central and Local." In Good Government in the Tropics. Baltimore: Johns Hopkins University Press. Chapter 6. Pp 135-166. Portes, Alejandro, Manuell Castells, and Lauren Benton. 1989. "Conclusion: The Policy Implications of Informality." In The Informal Economy: Studies in Advanced and Less Developed Countries. Baltimore: Johns Hopkins University Press. Pp. 298-311. Skocpol, Theda. 1991. "Targeting within Universalism: Politically Viable Policies to Combat Poverty in the United States." In The Urban Underclass. Edited by Christopher Jencks and Paul E. Peterson. Washington D.C.: The Brookings Institute. Sabel, Charles (1993). "Learning by Monitoring: The Institutions of Economic Development," in N. Smelser an R. Swedberg, eds., The Handbook of Economic Sociology. Princeton: Princeton University Press. Week 13: 12/6: Student Presentations 12/8: Student Presentations and Wrap Up

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