Administrative science quarterly 1995 lazerson m


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Administrative science quarterly 1995 lazerson m

  1. 1. A New Phoenix?: Modern Putting-Out in the Modena Knitwear Industry Author(s): Mark Lazerson Source: Administrative Science Quarterly, Vol. 40, No. 1 (Mar., 1995), pp. 34-59 Published by: Sage Publications, Inc. on behalf of the Johnson Graduate School of Management, Cornell University Stable URL: . Accessed: 20/11/2013 11:11 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . . JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact . Sage Publications, Inc. and Johnson Graduate School of Management, Cornell University are collaborating with JSTOR to digitize, preserve and extend access to Administrative Science Quarterly. This content downloaded from on Wed, 20 Nov 2013 11:11:59 AM All use subject to JSTOR Terms and Conditions
  2. 2. A New Phoenix?: ModernPutting-outin the Modena KnitwearIndustry MarkLazerson SUNYat Stony Brook ? 1995 by CornellUniversity. 0001-8392/95/4001-0034/$1.00. Supportforthis researchwas provided bya Jean MonnetFellowshipat the EuropeanUniversityInstituteandbya researchgrantof the O.E.C.D.'sOffice on LocalEmploymentInitiatives.Iam most indebtedto PaoloBignardi,who introducedme to the innerworkingsof the knitwearindustryandgave generouslyof himselfduringmy many visitsto his home andfirm,andto the ModenaNationalConfederationof Artisansandits staff members,who offeredme invaluableassistance.The ModenaCameradel Lavoro,the Modena Associationof SmallEnterprises,the ModenaIndustrialAssociation,and ProfessorsSebastianoBruscoandTiziano Bursiof the Universityof Modenaalso providedcrucialhelp.Inaddition,Iwould liketo thankCharlesPerrow,who first encouragedme to studyputting-out,and MarshallMeyerandthreeanonymous reviewersfortheireditorialand substantivecomments. Drawing on data from the contemporary Italian knitwear industry, this paper examines putting-out, the domestic system of production, and criticisms of it in traditional theories of economic development as inherently backward and organizationally inefficient compared with large-scale production. I describe the historical putting-out system and its context and distinguish it from modern putting-out by contrasting the features of each. The paper shows that a modernized form of putting-out, composed of interlinked microfirms, is compatible with high living standards and organizational efficiency. The success of the system rests on technological and marketing factors, the presence of cohesive family units, cooperative relationships between business and community actors, and an institutional environment supportive of small, family-run firms.' The putting-out, or domestic system of production, symbolizes the transition from traditionalhandicraft production to modern manufacturing (Weber, 1981: 153). Before factories were centralized, merchants put out raw materials to formerly independent craftsmen and to subsistence farmers and their families, who then transformed them into goods either at home or in nearby sheds (Heaton, 1936: 341; Weber, 1981: 118-119). Once all of the separate tasks were completed, merchants or their agents collected the items and sold them. In most cases, the putting-out workers owned their tools, determined the length and intensity of their workday, and had few or no employees. This system of putting-out, which assigned fragmented tasks to workers of different skills paid at differential rates, presaged the modern division of labor and the factory (Landes, 1969, 1986: 595). As a precursor to the industrial revolution, putting-out was expected to disappear once centralized manufacturing processes matured. Marx (1977: 591, 600) accurately foresaw that putting-out would become "an external department of the factory," yet he erred in assuming that increased technological development and state-imposed limits on the length of the workday eventually would make it "go to the wall" (Marx, 1977: 605). According to economic liberals, putting-out suffered from endemic poor workmanship, pervasive theft, and spasmodic coordination; its demise was assured by the supposed superior technology and organization of the modern factory (Landes, 1969: 118; Bythell, 1978). Even today, institutional economists persist in labeling decentralized manufacturing as organizationallyinefficient, a system that both encourages unmonitored workers to shirk and imposes unnecessary expenses or so-called transaction costs, incurred through the movement of goods and services across many firm boundaries (Alchianand Demsetz, 1971; Williamson, 1980). Italso undermines quality control (North, 1981: 168-169). Neo-Marxists, perversely, concur with many of these judgments. Capitalists, they say, abandoned putting-out because it failed to extract sufficient surplus from their workers (Marglin, 1976). Despite these condemnations, modern putting-out has reemerged in some advanced industrialized societies as a 34/AdministrativeScience Quarterly,40 (1995): 34-59 This content downloaded from on Wed, 20 Nov 2013 11:11:59 AM All use subject to JSTOR Terms and Conditions
  3. 3. Modern Putting-out new phoenix of late capitalism. One such place examined here is the Italianknitwear industry, centered in the province of Modena, a richagro-industrialarea of north-centralltaly in the Emilia-Romagna region. In Modena, modern putting-out offers superior organizational properties to large-scale industrialorganization. Putting-out in Modena is directed by knitwear manufacturers, who increasingly concentrate on financing and purchasing raw materials, coordinating production, and designing and selling garments. Although known in the trade as manufacturers, they actually do little manufacturing. Rather, the vast majority rely on external networks of independent, mostly small, artisanal firms to produce the garm-ents. Inwhat follows Iwill show that putting-out today represents an attractive alternative to the centralized factory under certain technological, market, institutional, and social conditions. Interms of technology, the production process allows for spatial and temporal separation among discrete work stations. Similarly,the semifinished goods that must be moved from one putting-out firm to the next do not require special and costly shipping arrangements, as do highly fragile or perishable items. Interms of market constraints, putting-out offers advantages in terms of quick response times when products are highly differentiated and there are rapidchanges in consumer tastes. These factors often reduce the level at which economies of scale are achieved. Institutionaldeterminants in the form of state regulatory policies that offer small enterprises labor-cost and fiscal advantages are also important. Last, traditions of local community cooperation reduce certain transaction costs associated with decentralized production, and extended families permit economies in combining some production and reproduction activities. I refer to the system of putting-out in Modena as modern to distinguish it from historical putting-out, which was broadly characterized by general technological backwardness and labor exploitation. Modena's putting-out system represents the modern rationalityof an advanced industrialeconomy: Its use of technology and the division of labor equals that of the most modern clothing factories. Modena's putting-out is also closely linked with social wealth and plenty. Today, this production system has helped catapult Italyto first place as the world's largest knitwear clothing exporter by value (Zeitlin, 1992; United Nations, 1993: 775-776). My research indicates that in a modern industrialcontext, putting-out offers efficient solutions as defined by market criteria. THE RESEARCHFRAMEWORK To understand the organizational structure of the Modena knitwear industry, I have visited 44 firms, comprising 16 manufacturers and 28 subcontractor-artisans over the last several years. Inthe aggregate, these firms covered every phase of production. I used open-ended questionnaires to interview the firms' principals. On several occasions I passed entire days accompanying knitwear employers during their visits to contractorsandsubcontractors.Ialso interviewed eight homeworkersintheirhomes. Exceptforthree firms 35/ASQ, March1995 This content downloaded from on Wed, 20 Nov 2013 11:11:59 AM All use subject to JSTOR Terms and Conditions
  4. 4. located inadjoiningprovinces,the entireinterviewsample came fromthe provinceof Modena.The National Confederationof Artisans(CNA)assisted me inarranging most of the interviewswith subcontractors.The Industrial Associationof Modena(Confindustria)andthe Associationof SmallEntrepreneurs(API)introducedme to about halfof the manufacturersIinterviewed.Some of the homeworkers were locatedthroughthe ModenaLaborConfederation (CGIL).Otherinterviewswere arrangedthroughpersonal contacts, inwhich Iused a snowballapproach:Each respondentwas asked to introduceme to a new respondent,untilIwas no longeruncoveringnew information(Glaserand Strauss, 1967). By using a varietyof samplingmethods and enlistingthe assistance of different tradeassociations andtradeunions, Ibelieve Ihave eliminatedany likelihoodof respondent-selectionbias. Data fromthe interviewswere supplementedby repeated discussions with industryand unionrepresentatives, principallyfromthe NationalConfederationof Artisans(CNA) andthe ModenaLaborCouncil,andstatisticalinformation obtainedfromgovernment,union,and industrysources. Datagatheredforthe 1991 nationalcensus were computed and providedto me in 1993 by the Officeof Statisticsof the Communedi Modenabecause the officialnationalcensus datawill not be availableuntillate 1995.1 also obtaineddata collected inApril1988 by the Cameradel Lavorodi Modena. Thefirstsection of the paperdefines and differentiates historicaland modernputting-outanddescribes the organizationalcharacteristicsand evolutionof Modena's knitwearindustry.Inthe second andthirdsections Ievaluate the criticismsmade of putting-outinterms of transaction cost analysisand laborexploitationin lightof the Modena experience. Inthe finalsection of the paper,Iconclude by postulatingthe institutional,social, and politicalconditions underwhich an economicallyprogressivemodel of putting-outproductionis most likelyto arise and pointto other places besides Modenawhere similardevelopments exist. THEPUTTING-OUTSYSTEM HistoricalPutting-out Merchant-manufacturersfirstorganizedhistoricalputting-out inthe countryside,whichwas unburdenedby the costly regulationsof urban-basedguildsandwas populatedby subsistence farmersandtheirfamilies,willingto workfor little(Mendels, 1972; Hudson,1986: 261-262). But putting-outwas not a distinctlyruraldevelopment: In England,France,and Germanyit occurredinvillagesand towns, where independentcraftsmenwere forced by competitionto submitto putting-out(Berg,Hudson,and Sonenscher, 1983: 25-28; Aminzade,1986; Kisch,1989). Evenafterfactoryproductionwas well established, putting-outcontinuedto flourishintothe beginningof the twentieth century(Samuel,1977; Bythell,1978; Lazonick, 1990). Historicalputting-outnormallywas patternedon the producersowningtheirtools but not the rawmaterialsthat they transformed,forwhich they were paidpiece rates 36/ASQ, March1995 This content downloaded from on Wed, 20 Nov 2013 11:11:59 AM All use subject to JSTOR Terms and Conditions
  5. 5. Modern Putting-out (Hudson, 1986: 59). Production was normally coextensive with the household unit; so much so that putting-out and domestic production have been used almost always synonymously. The family stood at the center of putting-out production, even if apprentices and hired hands were regularlyemployed, especially by former craftsmen (Bythell, 1978: 14; Sheridan, 1979; Aminzade, 1986). Inthe German Rhineland some putting-out firms employed as many as 20 apprentices (Kisch, 1989: 199). In addition, putting-out often created a ripplingeffect that blurredorganizational roles: Merchants put out to weavers, who then put out to spinners, who in turn put out to carders (Mantoux, 1961: 204). Domestic production also usually included workshops that were attached to the home or located in nearby sheds and barns (Heaton, 1936; Mantoux, 1961). Table 1 summarizes the similarities and differences between historical putting-out systems and putting-out in Modena. Putting-out in Modena Knitwear manufacturing in Modena is mostly the preserve of artisanal firms. Artisanal firms account for 76 percent of all the firms in the knitwear industry and 48 percent of the workforce (data from Comune di Modena, 1993). They are legally recognized as enterprises owned by one or more individualswho possess the means of production and are personally engaged in the firm's productive activities. An artisanal firm engaged in manufacturing may hire no more than 22 in-house employees, including family members who otherwise are not considered employees (Lazerson, 1988). The vast majorityof artisans have few or no employees and rely on the help of family members and relatives, who are liberallydefined by law to encompass the artisan's entire extended family, from first cousins to nieces and nephews. Relatives are legally classified as collaborators rather than employees and are entitled to share firm profits, according to Law number 230-bis of the ItalianCivilCode. Family labor remains a criticalcomponent of the putting-out system in Modena. Putting-out work often remains centered in or next to the home, where 75 percent of knitwear artisans have their laboratori,a term used to distinguish their small workshops from large industrialfactories (ERVET,1983: 22). Putting-out in Modena is also fundamentally different from modern subcontracting, even if it is a subset of it. Both subcontractors and putting-out workers usually own their own tools and workplace and are unsupervised. Neither group deals directly with the final consumer of the goods produced, although many subcontractors do fabricate finished products. By contrast, a putting-out firm does not make a finished product and only constitutes a small link in an external production chain. Putting-out is marked by a division of labor among firms in which each firm only undertakes a few tasks. Circumscribed tasks also correspond to the restricted organizational responsibilities of putting-out firms: They only contribute labor and the requisite machinery to transform the manufacturer's raw materials according to his explicit instructions. In contrast, subcontractors normally purchase their own raw materials and usuallyare responsibleforproductconceptionas well as execution.Thussome manufacturingsubcontractorsnumber 37/ASQ, March1995 This content downloaded from on Wed, 20 Nov 2013 11:11:59 AM All use subject to JSTOR Terms and Conditions
  6. 6. Table1 KeyAttributes of Historicaland Modena Putting-out Systems Historicalputting-out Modena knitwearartisans Historicalattributes Emergedfromcraftproduction. Influencedbytraditionof putting-out. Precedesfactoryproduction. Emergesfromfactoryproduction. Marketattributes Intermediateproducer;no Same relationshipto finalseller. Technologyattributes Productiontasks areseparateand Same discrete. Technologyusuallyinferiorto thatof Technologyequalto or superiorto the factory. thatof the factory. Ownershipattributes Producersown the means of Same production. Producersdeterminelengthand Same intensityof workday. Unfinishedgoods andmaterials Same owned by manufacturer. Paymentbased on piece-rate Same system. Organizationalattributes Decentralizedproduction. Same Productionusuallyco-extensivewith Workshopoften inor nextto householdunit,butvaried. artisan'shome, butalwaysa separatelydemarcatedarea. Usuallyresponsiblefortransporting Same goods to andfrommanufacturer. No directsupervisionor monitoring Same by manufacturer. Followinstructionsof manufacturer. Same Specializeinone orveryfew tasks. Same Rudimentarydivisionof labor. Veryelaboratedivisionof labor. Laborattributes Owneroperated,no managerial Same structure. Dependenton familyandsome Familylaborstillcrucial,butroleof hiredlabor. hiredlaborgreater. Inruralareas,often dependenton Full-timeworkers,manyof whom casualworkers;morespecialized worklonghours. workersintowns andvillages. Inruralareas most workersare Workershave industrial subsistence farmers. backgrounds. Lowpay,no socialprotections. Employeesprotectedby union Unionsandtradeassociations contractandartisansorganizedin banned. tradeassociations.Artisans well-remunerated.Their employees paidaveragewages withfullsocialprotections. State role No governmentalassistance. Policy Extensivemunicipal,regional,and of noninterventionin markets. state regulationthroughtax, social welfare,grant,andplanning mechanisms. among the world's largest and most powerful industrial organizations, such as Robert Bosch, the German manufacturer of automatize electronic components (Lazerson, 1990b). Subcontractors and putting-out firms also occupy different positions in the manufacturing continuum. Customers who rely on subcontractors often need to supplement their own capacityand capabilities;customers who putout work 38/ASQ, March1995 This content downloaded from on Wed, 20 Nov 2013 11:11:59 AM All use subject to JSTOR Terms and Conditions
  7. 7. 1 Dataas of December1992, obtained fromthe ModenaCameradei Lavoro (Federationof Labor). Modern Putting-out usuallydo so because, much likethe originalputting-out merchants,they do littleor no manufacturing(Harrisonand Kelley,1992). From homeworkers to artisans. Manufacturershave sharplyincreasedthe amountof putting-outsince the late 1960s. When the nascent knitwearindustryin Modena sproutedaroundCarpiafterthe Second WorldWar,it built on the existingputting-outnetworksthat hadbeen used to producestraw hats, a traditionalindustrythat dates fromthe 1600s butthat hadreachedindustrialdimensions by the turn of the century(Cappelloand Prandi,1973; Cigognettiand Pezzini,1993).Afterthe marketfor straw hats collapsed in the immediatepostwarperiod,manyof the putting-out workersswitched to knitwearproduction,a change that slowly transformedputting-outorganization(Cigognettiand Pezzini,1993). Once, manyworkerswere women whose husbandswere eithersmallfarmers,sharecroppers,or farmhands.Inthe kitchenof theirhomes they workedalone or, dependingon the season, with theirchildrenand husbandfora single manufacturer.Todaysuch women, legallydefinedas homeworkers,numberapproximately1200 andworkprincipallyforartisans,forwhom they perform minorrefinishingtasks.1 Partlybecause of tax and laborlaw reformsthat providehomeworkerswith fairlysimilarbenefits to those of in-houseemployees, employers have less incentiveto hirethem. Accordingly,theirnumbershave declinedprecipitouslyoverthe last decades; some of them have chosen to workdirectlyforartisans,while manyothers have become artisansthemselves (Lazerson,1990a).The numberof unregisteredhomeworkersunrecordedby the Departmentof Laboris difficultto gauge. Most are believed to be pensionerswho seek extraincome off the books. My interviewswith tradeunionrepresentatives,manufacturers, artisans,and illegalhomeworkersindicatethatthe latter have continuedto dwindlesince the 1970s, when a survey conductedby the cityof Modenareportedthatthey had alreadybecome marginalto the industry(Comunedi Modena,1978: 17-27). Some mayarguethatthese homeworkersare the real descendants of historicalputting-outandthattheirdecline confirmsboththe originaljudgmentaboutthe failuresof putting-outandthe inappropriatenessof applyingputting-out terminologyto the Modenaknitwearartisans.The variations in putting-outin Modena,however, are no greaterthan those that existed in historicalputting-out.Inaddition,the marginalizationof homeworkersandthe eliminationof the once-numerousunregisteredartisanscan be attributed principallyto changes in publicregulatorypolicyratherthan to any organizationaldeficiencies. Ifartisans'relianceon hiredhelp increases andthe linkbetween putting-outand the householdeconomy weakens further,however, Imay need to revise my judgmentof the Modenaknitwear industryas a putting-outsystem. Firmsize. Table2 presents dataon the workforcesize of Modenaknitwearfirms.The table shows a sharpdecline in largeintegratedmanufacturingfirmsanda parallelrise in smallspecializedfirmsoverfourdecades. The share of the workforceemployed in largefirms(50 or more persons) 39/ASQ, March1995 This content downloaded from on Wed, 20 Nov 2013 11:11:59 AM All use subject to JSTOR Terms and Conditions
  8. 8. declined from 36 to 14 percent between 1961 and 1991 (ISTAT,1964; data from Comune di Modena, 1993). The workforce includes owners, family members, employees, and homeworkers. Today, fewer than 5 percent of manufacturing firms produce a complete line of garments. The majoritymarket and design garments and organize putting-out production (Comune di Carpi, 1993: 24). A ten-year review of the financial accounts of the largest Modena clothing manufacturers indicates that those firms that decentralized production reaped higher profits than those that did their own manufacturing (Bursi, 1989). Even the authoritative and neoclassically oriented Paris-based Organization for Economic Cooperation and Development (OECD)confirmed that in Italydecentralized firms "proved significantly more profitable than their larger counterparts" (OECD, 1983: 25). Table2 Thirty-yearChange in Distributionof Modena KnitwearFirmsby WorkforceSize* Workforcesize 1 2 3-5 6-9 10-19 20-49 50-250 Total 1991 No of firms 569 541 614 335 257 100 25 2448 As % 23% 22% 25% 13.7% 10.5% 4% 1% 100% No.of staff 569 1082 2286 257 3413 2813 2118 14698 As % 3.9% 7.4% 15.6% 10.5% 23.2% 19% 14.4% 100% 1981 No.of firms 2145 858 634 308 232 78 36 4291 As % 49.9% 19.9% 14.7% 7.1% 5.4% 1.8% .8% 100% No.of staff 2145 1716 2339 2234 2892 2337 3305 16968 As % 12.6% 10.1% 13.7% 13.1% 17% 13.7% 19.4% 100% 1971 No.of firms 548 410 299 112 92 77 52 1590 As % 34.4% 25.7% 18.8% 7% 5.7% 4.8% 3.2% 100% No.of staff 548 820 1085 793 1237 2376 4384 11243 As % 4.9% 7.2% 9.6% 7.5% 11% 21% 38.9% 100% Employmentsize of firm 1 2 3-5 6-10 11-20 21-50 51-264 Total 1961 No.of firms 678 259 196 88 53 27 25 1326 As % 51.1% 19.5% 14.7% 6.6% 3.9% 2% 1.8% 100% No.of staff 678 518 737 678 749 862 2369 6591 As % 10.2% 7.8% 11.1% 10.2% 11.3% 13% 35.9% 100% *Sources:ISTAT,1964: 20-21; 1975: 8-9; 1985: 14-15. Inthe 1961 census the categroy "variousother textiles not otherwise classified"was used insteadof knitwear.Since knitwear constitutesthe onlymeasurabletextileproductioninthe province,thiscategoryis essentiallyidenticalto the knitwearcategoryinlater census reports.Percentagesmayaddto less than100 because of rounding. Table2 shows that Modenaknitwearproductiontoday depends on smallindependentproductionunits,70 percent of which have fewer thanfive workers,includingthe owners. The 1991 census reportedthatthe averagefirm size was six persons, but ifthe 4,325 owners andfamily helpersare excluded,the average numberof employees per firmfallsto 4.2 (datafromComunedi Modena,1993).All but33 of the 2,448 area knitwearfirmsemploying14,698 people, or 5.5 percentof Modena'sworkforce,are composed of single unitsthatare legallyindependent;only one companyhas as manyas three plants(ISTAT,1985b: 4, 16-17). About30 percentof these firmsare manufacturing 40/ASQ, March 1995 This content downloaded from on Wed, 20 Nov 2013 11:11:59 AM All use subject to JSTOR Terms and Conditions
  9. 9. 2 Thereareno reliabledataon the incomes of artisansnorareinterviewsveryuseful forobtainingthis information.My informantsestimatedthatartisanswho employno laboranddo not havelarge investmentsincapitalequipmentearn abouttwice as muchas a production employee,thoughthe differencein hourlyearningsmaybe substantially lower. Modern Putting-out firmsinthatthey marketa finalproduct(datafrom Camera del Lavorodi Modena,1988). Insome cases, firmsthat are formallyindependentmay be linkedtogether through common shareholdingorfamilyrelationships,butthis is infrequent(Lazerson,1988). Workingconditions. These smallfirmsprovideno evidence that putting-outsurviveson low wages. Modena,one of Italy'spoorerprovincesinthe 1950s, has become since the mid-1970s one of its 10 wealthiest (Brusco,1982; Forni, 1987: 37). Carpi,the second largestcity in Modenaandthe epicenterof the knitweartrade,has the area's highest per capitaincome of approximately$26,000, using 1992 exchange rates. Laborcosts inthe knitwearindustryaverage $13 per hourforsemiskilledlabor,about20 percent less than inthe highlypaidmechanicalengineeringsector; but they easily exceed the $9.71 an hourpaidby the large verticallyand horizontallyintegratedAmericantextile manufacturers(WernerAssociates, 1989).2 Since the beginningof the 1980s the unioncontractin Modenahas reducedthe differenceinwage rates between the largestandsmallest firmsto about 10 percent. Fringe benefits-a monthof paidvacation,paidmaternityleave, free medicalcare, and pension and retirement contributions-are also identicalin largeand small establishments. Butindirectwage costs are between 5 and 10 percent lower inthe smallputting-outfirmsbecause employees there are ineligibleforthe generous unemploymentbenefits providedin industrial-sizedfirms. Employeesin putting-outfirmsalso are reimbursedfor lost payfromillness onlyafterthe thirdday, ratherthanthe first day, as in industrialfirms.Highwages, however, are supportedby a tightlabormarketin Modena.In1992 unemploymentwas 4.3 percent,comparedwith a national averageof 11.5 percent. Knitwearfirmsalso must compete forfemale laborwith medical-supplyfirms(Provinciadi Modena,1988: 9). Politically,too, laboris strongerin Modenaand Emilia-Romagnathananywhereelse in Italy. Boththe localand regionalgovernments, ruledby the CommunistPartyand its successors for nearlya half-century,remainhostileto neoliberalderegulation policies. Modenaprovidesno evidence that decentralized productiondisorganizesthe workingclass and incubates sweated labor,as some scholarshave claimed(Murray, 1983; Schmiechen, 1984; Lashand Urry,1987; Castellsand Portes, 1989; Lozano,1989; Wilson, 1991). No reliabledataon artisanalincomes exist, but it is fairto assume that artisanswho consistentlyfailto earnmore than employees willchange jobs. Most owners of the very smallest artisanalfirms(withno employees) Iinterviewed claimedto earnaboutdoublethe average industrialwage; those with employees earnsubstantiallymore. Public policies. Artisanalstatus qualifiesa firmfor subsidizedloans,special dispensationsfromcertainlabor andsocial securitylaws, andothereconomic incentives (Weiss, 1988). Includedamongthe latterare state-subsidized artisanalloansof about$100,000 to acquireplantand equipment.The provinceof Modenaandthe 41/ASQ, March1995 This content downloaded from on Wed, 20 Nov 2013 11:11:59 AM All use subject to JSTOR Terms and Conditions
  10. 10. Emilia-Romagnaregionboth have exceptionalrecordsin promotingzoninglaws and planningpoliciesthat have created an abundanceof low-cost workshopssuitablefor small putting-outartisans(Brusco,1982; Lazerson,1988). State supportforsmallfirmsmust be measuredwithinthe context of the muchgreaterlargesse grantedto largeprivate and publicItaliancorporations,likeFIAT,Montedison, Olivetti,and Italsider(Forteet al., 1978; Ranci,1983). This assistance has been highlightedduringthe currentcorruption scandals in Italy,when itwas revealedthatthe country's largestcorporationsreapedhuge windfallprofitsfromstate contractsgrantedin returnfor illegalpoliticalcontributionsto politiciansandtheirparties. The OrganizationalFactors Contributingto Putting-out Putting-outdeclinedslightlyinthe 1960s with the rise of verticallyand horizontallyintegratedcompanies, onlyto gain new impetus inthe early1970s when strong laborunions and new laborlaws began to erode the profitabilityof the largestestablishments,especiallythose with 15 or more employees (Lazerson,1985). Manufacturersreliedmore on the existing putting-outchannelsand encouragedtheir employees to become self-employed(Brusco,1982; Sabel, 1982).Whatis remarkableis that putting-outthen intensified,even afterunionpower ebbed in the late 1970s andwhen the differencebetween the laborcosts of putting-outfirmsandfactorieshadallbutdisappeared. Manufacturershad realizedthatdecentralizedproduction permittedgreaterspecializationandfaster response times. It also avoidedlargeinvestments ina vast arrayof costly machinerythat is difficultto utilizeeffectivelywithina single company,when shortproductionrunsof about500 garmentsdemandconstant machineresettingand retooling (Pioreand Sabel, 1984; Bursi,1989; ZeitlinandTotterdill, 1989).The asymmetriesof knitweartechnology,inwhich some knitweartasks remainhighlylaborintensivewhile others are automated,also limitthe through-putefficiencies of the centralizedfactory,where unfinishedgarmentscan easily pile up,therebyincreasinginventorycosts and delayingdeliveries(Chandler,1977; Mariottiand Cainarca, 1986).When there is great productiondifferentiation, economies of scale become secondaryto economies of timing(Aoki,1990) and,consequently,smallerorganizations and relianceon putting-outcan reduce uncertainty. Thisemphasis on specializationhas resultedina highly decentralizedindustrycharacterizedby an interfirmrather thanan intrafirmdivisionof labor.Itis also an industryin which microfirmshave a conspicuous presence. Ineach of the last fourdecennialindustrialcensuses, large-firm employmenthas registereda monotonicdecline; the very smallest firms,with five persons or fewer, have presented a less consistent performance:29 percentin 1961; 21.7 percentin 1971; 36.4 percentin 1981; and 26.9 percent in 1991. Thereare a numberof factorsthat contributeto both the largenumberof smallfirmsand changes intheirdensity over time, includingtechnology,distribution,publicpolicies, moralcapital,and small-firmeconomics. 42/ASQ, March1995 This content downloaded from on Wed, 20 Nov 2013 11:11:59 AM All use subject to JSTOR Terms and Conditions
  11. 11. Modern Putting-out Technology. When production processes involve multiple tasks that are separate and discrete, maximum economies of scale can be achieved "at the level of one or a very few machines, not whole factories" (Sabel, 1982: 226). Thus, a putting-out firm specializing in a few production tasks and accepting work from several manufacturers can acquire the skills, machinery, and workflow to achieve greater economies of scale than the centralized factory. This explains the many numerical-control computer machines I saw in the very smallest weaving, embroidery, and cutting shops that Ivisited and why both manufacturers and putting-out producers agree that firm size does not determine the technology employed. Distribution factors. The second reason for the abundance of small firms is the fragmented system of Italianretail distribution. Because of state policies and political lobbying that have benefited small family-owned shops while limiting large distribution outlets, there is approximately one retail outlet in Italyfor every 72 inhabitants, four times as many as in France and eight times as many as in Germany (ISTAT, 1985a: 15). These distribution patterns affect manufacturing organization in two important ways. First, because retailers usually demand a line of garments distinct from their nearby competitors, manufacturers are forced to produce a greater variety of garments. This requires shorter production runs that are best handled by the very smallest putting-out producers. Second, because small retailers purchase limited quantities and offer only a small selection, undercapitalized, small manufacturers can supply them without investing the large sums of money needed to produce the vast assortment of models and inventory demanded by large chains and department stores. While small manufacturers with fewer than nine employees are easily served by small putting-out firms, they are nonetheless very competitive outside Italy,exporting one-third of their production, principallyto countries of the European Union and North America (Regione Emilia-Romagna, 1993: 23). Public policies. Ifthe public policies mentioned earlier encourage small firms, others have recently caused a significant drop in the number of the smallest knitwear firms, those with one or two owners and no employees. In Modena an intensified enforcement campaign during the mid-1980s by the INPS (the Italiansocial security administration) closed a number of the very smallest of firms with one or two owners and no employees. According to the INPS, these firms had falsely claimed artisanal status to pay lower social security contributions; in reality they were dependent external workers employed by a single employer. An official of the National Artisans Confederation estimated in a conversation with me that over 60 percent of the decline in the smallest artisan category can be traced to this enforcement campaign. Generally, the INPS defines an artisan as a dependent worker if she works for a single customer, does not have a dedicated workshop area, and does not possess her own machinery (Lazerson, 1990a). The INPS campaign in Modena was supported by the Modena ProvincialArtisanal Commission (CPA),a quasi-public body composed of artisans,tradeunions,and publicofficialsthat 43/ASQ, March1995 This content downloaded from on Wed, 20 Nov 2013 11:11:59 AM All use subject to JSTOR Terms and Conditions
  12. 12. seeks voluntary artisanal compliance with the relevant regulations. In Modena there is an unusual social consensus that artisans should compete in terms of quality and efficiency, not reduced labor standards, tax evasion, or violations of the provincialcollective labor contract (Capecchi, 1989; Brusco and Pezzini, 1990). This contrasts with southern Italy,where the same laws have not been applied and sweat shop abuses exist among putting-out workers (Botta et al., 1976; Messori, 1986; Amin, 1989). Government pressure on marginal artisans intensified further with the passage of the Visentini Law in 1985, an income tax measure to reduce tax evasion that required businesses with sales over $7,500-the overwhelming majority-to file highly detailed tax returns to document all income and record each putting-out transaction. The resulting higher taxes and more costly accounting procedures mandated by this law led to further closures. Moral capital. Ifthose starting a putting-out firm face more difficulties today than some years ago, Modena's environment still offers important inducements to new entrants. One is the presence of what Dei Ottati (1994) called moral capital: the abilityof skilled workers known in the community and work place for both their honesty and diligence to use their reputational resources as collateral for loans of machinery and capital from manufacturers, who in many instances are their former employers. These ex-employees promise to perform putting-out work, either for the lender directly or for someone else who has assured them of sufficient work to begin repaying the debt. Workers rich in moral capital but poor in finance capital thereby gain the opportunity to become self-employed. Moral capital may be seen as a subset of what Coleman (1990) has called social capital, which encompasses mutual expectations of reciprocity and adherence to the norms of civic networks. Putnam (1993: 163-185), in a recent study of Italy,argued that abundant social capital in north-central Italian communities like Modena enhances the efficiency of their markets and expands the amount and availabilityof credit. Although lenders reduce their exposure to default somewhat by taking a security agreement on the machinery they lend it is their reliance on Modena's social capital and the individuals' reputations that induces them to accept risks that institutional lenders routinely refuse. Small-firm external economies. Another factor favoring small firms is simply that their large numbers support a vast market in products and services specialized to meet the needs of microproducers. For example, artisans make cutting tables and carts specially designed for small putting-out firms, and textile representatives sell yarn and fabric in small batches. Organizationally,the artisanal associations in Modena market collective services that sharply reduce the overhead costs for small production units. Storefront offices located throughout the knitwear district offer low-cost accounting, bookkeeping, and payrollservices to artisans, as well as technical and vocational programs. TRANSACTION COSTS AND PUTTING-OUT Paradoxically,the very success of putting-out and its embrace by the largest manufacturers with the power to 44/ASQ, March1995 This content downloaded from on Wed, 20 Nov 2013 11:11:59 AM All use subject to JSTOR Terms and Conditions
  13. 13. Modern Putting-out rationalize production has eliminated some of the very smallest firms that are unable to assume additional organizational responsibilities. Correspondingly, firms with between 10 and 49 members have grown, although few of these have more than 25 members. To assess these changes, some details of the knitwearproductionprocess are necessary. Figure 1 presents a sequential flow chartof knitweartasks. Figure1. Phases of the knitwear putting-out process. 5: Dyeworks Garmentsmay be 4: Assembly softened, cleaned or dyed 6: ButtonMaking(Optional) Clothcut and sewn into garments Buttonsand buttonholes added 3:ClothEmbroidered(Optional) MANUFACTURER *Buysyarn 7: Pressing & Ironing *Designssmples * > Labelsalso added 2: Pressing&Stitching(Optional) *Designs samples rod Some cloth is pressed and sOrganizes production stitched priorto cutting eFinds customers 8: Inspection& Packaging 1: Weaving | Defectivegarments rejectedor mended Notes: Arrows indicate that semifinished goods are To Customer returned to manufacturer after each task is completed, but goods may be shipped directly to the next producer. Homeworkers may also be used for phases 2, 3, 4, and 8. Manufacturers first purchase the yarn from textile firms, which are principallylocated in distant Biella, in the northern Piedmont region. They then put it out to weavers, who turn it into cloth according to the manufacturers' specifications. The finished cloth is then put out to assemblers, who may then put it out to specialized cutters or cut and sew it into garments themselves. Finally,the garments are put out once more to be pressed, inspected, and packaged. Depending on the exigencies of the final customer and the characteristics of the materials, further refinements may be necessary: sewing and pre-ironingthe cloth priorto its cutting; dying the already-assembled sweater; fulling the garment to soften the fabric and remove excess animal hairs; embroidery; and button making. As Table 3 indicates, many of these tasks-especially the highly capital-intensive weaving and embroidery production phases-are performed by artisans having few or no employees. This extensive interfirmspecialization normally means that the semifinished garments enter and leave the shipping and receiving departments of manufacturers many times before their completion. But as more large manufacturers have put out work, some have sought to reduce their transaction costs by relying on putting-out artisans who can organize several different production functions. According to a survey of 1,400 knitwear putting-out firms in the Carpiarea, 24 percent offer more than a single service (Comune di Carpi, 1993: 36). Most of these firms are ironing establishments 45/ASQ, March 1995 This content downloaded from on Wed, 20 Nov 2013 11:11:59 AM All use subject to JSTOR Terms and Conditions
  14. 14. Table3 Number of Employees and Phases of Productionof KnitwearArtisanalFirmsin Modena* Numberof employees Productionphases None 1 2-3 4-6 7-10 11+ Total Weaving 229 29 32 13 3 4 310 % 73.9% 9.3% 10.3% 4.2% 1% 1.3% 100% Completeassembly 88 17 26 30 31 32 224 % 39.3% 7.6% 11.6% 13.4% 13.8% 14.3% 100% Partialassembly 267 30 33 24 16 4 374 % 71.3% 8% 8.8% 6.4% 4.3% 1.1% 100% Fabriccuttingonly 33 10 2 1 1 0 47 % 70.2% 21.3% 4.3% 2.1% 2.1% 100% Finishing,inspection,packaging 73 7 21 4 5 3 113 % 64.6% 6.2% 18.6% 3.5% 4.4% 2.7% 100% Laundry,pressing,fulling 166 32 31 25 19 9 282 % 59% 11.3% 11% 8.9% 6.7% 3.2% 100% Buttonmaking 37 4 6 5 1 2 55 % 67.3% 7.3% 10.9% 9.1% 1.8% 3.6% 100% Embroidery 70 10 18 11 2 5 116 % 60.3% 8.6% 15.5% 9.4% 1.7% 4.3% 100% *Dataprovidedbythe ModenaCNA,whichrepresentsbetween 50 and60 percentof allknitwearfirmsinModena,as of October1988. Thecategory"employees"includeshomeworkersbutexcludes familyhelp. Percentagesmay not addto 100 because of rounding. that also package and inspect garments. In some cases these new organizational requirements have forced the very smallest putting-out workers out of business, but more frequently the production network has been reorganized so that the smallest artisans work for larger artisans who in turn work for the manufacturers. Inthe Carpistudy 16 percent of putting-out firms put out work to other firms (Comune di Carpi, 1993: 40). Transaction Cost Criticisms of Putting-out The above discussion demonstrates that transaction costs have not dissuaded Modena's manufacturers from decentralizing their operations. Transaction costs are a concern, but they can easily be reduced within the existing structure of putting-out. Williamson (1980, 1985), in a very detailed article on putting-out, has argued that these expenses are so burdensome that centralized factories gain a clear competitive advantage, but his argument rests on data from historical putting-out, in which outworkers unrestrained by factory supervision allegedly thieved, embezzled, and produced shoddy goods. Geographical dispersion of putting-out firms also imposed excessive freight expenses, which were compounded by the absence of a reliable transportation and communication network. In addition to these specific criticisms of putting-out, Williamson (1975) has argued elsewhere that purchases on the market usually cost more because of writing and administering expensive contracts and paying above-market prices, a consequence of inadequate information. Transportation costs. Clearly, historical putting-out had to contend with long distances and poor communication and roads, even if by the nineteenth century putting-out had become rather urbanized (Heaton, 1965: 396-404; Kisch, 1989). If Bythell's (1969: 37-38) study of the English cotton industry concluded that most depots were often fairlyclose 46/ASQ,March1995 This content downloaded from on Wed, 20 Nov 2013 11:11:59 AM All use subject to JSTOR Terms and Conditions
  15. 15. 3 Dataprovidedbythe statisticalofficeof the Cameradel Lavorodi Modena,based on annualstatementsfiledby knitwear manufacturingcorporationsat the Modenacourthouse. Modern Putting-out to the weavers and transporting materials was not unduly burdensome, others reported that transportingwoolen material just 12 miles caused great inconvenience and substantial delays in production(Lipson, 1965: 178). Wadsworth and Mann (1968: 394) and Heaton (1965: 352) all concurred that much time was wasted moving textiles from place to place. Obviously, Modena's infrastructuretoday is very different: The roads are good, as is communication. Shipping distances are usually short: 90 percent of all knitwear firms in the Province of Modena are located within a 25-mile radius of the city of Carpi(Provinciadi Modena, 1987: 49). Nearly all workers live in the same community in which they work, and many still commute by bicycle. This spatial concentration diminishes both transportation costs and the need to furnish artisans with large buffer inventories between shipments. In some cases transportation costs are no greater than they would be inside a centralized factory. For example, in Carpi,where hundreds of workshops sit cheek by jowl, handcarts often move garments and materials from one firm to the next. On the other hand, semifinished garments are now transported far outside the province of Modena, and there is evidence that this trend is growing as the larger manufacturers increasingly take advantage of lower wage costs in southern Italy(Comune di Carpi, 1993: 41-47). Ifwe assume, in the worst case scenario, that manufacturers absorbed all transportation costs, then they would amount to between 0.6 to 3 percent of total expenses, based on estimates that subcontractors' labor costs in the knitwear industry represent approximately 30 percent of a manufacturer's total expenses (Bursi, 1987, 1989).3 Dishonesty in putting-out. Williamson (1980, 1985) said that the problem of dishonesty arose because of the absence of managerial control. Williamson's position is based on historical research conducted by Landes (1969: 56-57) and Lipson (1965: 69), although others have argued that theft losses were more than compensated by the advantages of putting-out (Heaton, 1965: 352; Landes, 1969: 190; Kriedte, 1981; Schlumbohm, 1981; Jones, 1982). What is beyond dispute today in Modena is that theft and embezzlement by putting-out workers are practically unknown. Some very old artisans in my interviews recalled minor acts of embezzlement in the 1950s and 1960s, which they claimed were tacitly approved of by manufacturers in compensation for low pay and, in any case, were easily concealed by poor accounting methods. As one manufacturer reminded me, losses from theft reflect poor organization, not the presence or absence of centralized factories. Most manufacturers control inventories by counting or weighing the cloth; weavers have a margin of between 1 and 2.5 percent for waste and lost material. A few very prestigious firms scientifically test the quality and thickness of the woven cloth, but an even greater number do not even own scales. Most raw materials have declined so much in relative value that it is no longer efficient to monitor them closely. Now, waste cloth that once was sold must be given away or discarded at the owner's expense. Honesty, of course, remains a major concern of manufacturersin Modena,especiallythose who invest 47/ASQ, March1995 This content downloaded from on Wed, 20 Nov 2013 11:11:59 AM All use subject to JSTOR Terms and Conditions
  16. 16. heavily in fashion. The need to maintain design secrets was even proposed as a reason why historical putting-out was abandoned in favor of factory production two centuries ago (Chapman, 1967: 34). As a solution to this problem, some manufacturers in Modena make samples internallyand only put out work once orders for the season have been procured. This prevents artisans from either intentionally or accidentally revealing design secrets to competitors. But other high-fashion manufacturers trust artisans to protect their designs scrupulously from misappropriation by competitors. Inthe computer industry, putting-out production is sometimes preferred over the centralized factory to assure secrecy and confidentiality, for it reduces the number of persons having access to information (Lozano, 1989: 57-58). Of course, for the many small manufacturers in Modena who invest little in fashion and promiscuously borrow designs from one another, secrecy concerns are irrelevant. Trust. Ifthe straightforward business practices in Modena contrast favorably with the dishonesty prevalent in the English cotton and woolen industry of the eighteenth and nineteenth centuries, it is unlikelythat the explanation lies with production changes and the greater acumen of modern manufacturers. Despite close supervision and costly control systems in modern factories and department stores in the United States, they are often sites of widespread pilferage and inventory "shrinkage" caused by their own employees (Granovetter and Tilly,1988). Inthe English cotton industry, complaints of dishonesty actually intensified as the ability of manufacturers to detect it improved (Bythell, 1978: 125). Heaton (1965: 405-437) made clear that the central problem in historical putting-out was not theft of cloth and yarn by impoverished outworkers per se, but the fraud and deceit that permeated the entire industry. Wadsworth and Mann (1968: 393) emphasized how embezzlement by English outworkers was often a response to the various forms of trickery they suffered at the hands of manufacturers and their agents: unjust fines and deductions from piece-rates; payment in bad money; illegal payment in kind, known as wages in truck; and lengthening the warp and distributing bad material (Landes, 1969: 58-59). Long-term relationships. Inthe Modena knitwear industry, mutual expectations of trust and confidence arise from repeated transactions between artisans and manufacturers; that, not reliance on sophisticated controls, limits deceit. In one large survey, 85 percent of subcontractors reported long-term, stable relationships with their customers (ERVET, 1983: 57). In my own research, over 80 percent of both manufacturers and artisans in business at least ten years said that most transactions are with firms with whom they have contracted for longer than five years. Williamson's (1975) analysis predicts that it is exactly such long-term relationships that produce asset specificity and the resulting exploitation of the weaker party. Asset specificity refers to a firm's investments in human, material, or locational resources that are specific to the needs of another firm. Because firms that possess these particularassets are few in number, Williamson reasoned that it is more likely than not that customers will eventually pay above-market 48/ASQ, March1995 This content downloaded from on Wed, 20 Nov 2013 11:11:59 AM All use subject to JSTOR Terms and Conditions
  17. 17. ModernPutting-out prices for their goods and services. Surprisingly,Williamson (1980) never mentioned asset specificity in his very detailed attack on putting-out production, but he cautioned elsewhere (1975: 27-28) that even in the presence of a large number of sellers and buyers, asset specificity occurs when two highly specialized firms develop intimate knowledge of each other's needs, precisely the behavior in which Modena knitwear manufacturers and artisans continue to engage. Written contracts are also exceedingly rare in the knitwear industry, and even when used, they are written on standard legal forms containing boiler-plate language that is not written by lawyers. For most manufacturers and artisans, a party brandishing a written contract implicitlyconveys a message of distrust and therefore should be avoided. Quality control-a major concern for most Modena manufacturers who produce moderate to expensive garments-is achieved with minimal cost to the manufacturer. Manufacturers either send their agents to inspect the garments in the workshops of the artisans responsible for final packaging or perform the packing and inspection themselves. Because artisans must remedy defects at their own expense, they have a stronger incentive to perform quality work than do most factory employees. All but a few of the manufacturers I interviewed believed artisanal-made garments were as good as if not better than factory-produced ones, and even the dissenters said the differences were negligible. Most manufacturers attributed high quality to long-term cooperation with the same putting-out workers. Price information is readily available in the Modena knitwear districtboth because of the enormous concentration of firms in the same industryand because of the transparentrelationships that exist between many artisans and manufacturers. Even if few garments are exactly comparable in terms of labor time, base prices for tasks such as button making, embroidery, and sewing collars and cuffs are public knowledge. On numerous occasions I heard these prices discussed in cafes, piazzas, and trade association storefronts, a tangible example of how in concentrated industrialareas "the secrets of the industry are in the air" (Becattini, 1990: 42). Although artisanal firms and manufacturers are separate organizations, transparency in their relationships facilitates the flow of information. Manufacturers are free to drop by their artisan suppliers to inspect work in progress. Long-term relationships also lead to less adversarial price bargaining. Price bargaining remains intense in Modena, but among suppliers and manufacturers with long-term relationships it is far from an arm's-length process. Suppliers regularlydocument their costs, even to the point of opening their books to manufacturers with whom they have long-term relationships. In cases of disagreements over price, negotiations center on eliminating or modifying certain production tasks and adjusting production flows and completion dates rather than reducing a supplier's profit. It is widely recognized that prices are incomplete sources of information (Geertz, 1978): Delivery dates, the time and form of payment, the responsibility for transporting the goods, the qualityof the work,andeven compliancewith the tax laws allneed to be negotiated.These ambiguous 49/ASQ, March1995 This content downloaded from on Wed, 20 Nov 2013 11:11:59 AM All use subject to JSTOR Terms and Conditions
  18. 18. issues are more easily confronted when the transacting parties have continuing relationships with their suppliers. Reciprocity and cooperative behavior are important elements of these long-term relationships that make firms favor incomplete contracting rather than insist on contractual rights (Macaulay, 1963). Although subcontractors are responsible for any production errors, manufacturers normally refrainfrom charging them for minor mistakes in order to demonstrate their reciprocal good faith. By exploiting short-term changes in market conditions one risks undermining long-term relationships. Manufacturers who pressure subcontractors to lower prices during periods of slack demand risk being severely squeezed themselves during the seasonal rush when deadlines are short and artisans can name their price. LABOR FACTORS IN PUTTING-OUT The flowering of modern putting-out in Modena clearly challenges transaction cost analysis. But does Modena putting-out still depend on labor exploitation? Historical putting-out relied in considerable measure on extremely low wages and casual and unskilled labor furnished by women and children from urban households and subsistence farmers from ruralareas (Bythell, 1978: 165-168; Schmiechen, 1984: 59). According to Landes (1969: 190), putting-out depressed wages and created substantial human misery on the European continent in the nineteenth century. Low wages even allowed putting-out to compete with industrial production until factories achieved qualitative productivity leaps (Landes, 1969: 118-119; Bythell, 1978: 179-180; Sheridan, 1979). Under historical putting-out most merchants and manufacturers were openly hostile to any form of labor regulation; they exploited ruralareas, where controls by government and workers over laborwere weak and undermined the privileges of urban craftsmen (Heaton, 1965: 315; Bythell, 1978: 39, 162; Kisch, 1989: 24-25, 152). While Thompson (1964: 297) attributed the impoverishment of putting-out workers in the beginning of the nineteenth century to state policies that undermined the workers' living standards, solidarity, and organizational cohesiveness, case studies of cutlery production in Solingen, Germany and silk manufacturing in Lyon, France reveal that public regulation stabilized wages under historical putting-out (Boch, 1995; Cottereau, 1995). Laborflexibilitywas also central to putting-out work, for its part-time character made it attractive to both subsistence farmers in the countryside and household labor in urban towns (Bythell, 1969: 60-63). While manufacturers preferred putting-out to hiringemployees, problems arose when outworkers chose to farm or to hunt rather than to work (Thompson, 1967; Landes, 1969: 58-59). Higher piece-rate incentives only enabled outworkers to obtain the little cash they needed from even lower output levels, creating a backward-sloping labor supply curve (Bythell, 1969: 117; Landes, 1969: 59; Marglin, 1976). 50/ASQ,March1995 This content downloaded from on Wed, 20 Nov 2013 11:11:59 AM All use subject to JSTOR Terms and Conditions
  19. 19. Modern Putting-out Family Labor As already mentioned, employees in Modena putting-oit firms are covered in large measure by the same contract as employees in industrialfirms. Laborflexibility, however, remains an important aspect of modern-day putting-out. Because Italianlabor laws severely discourage part-time work, the Modena artisans depend heavily on full-time female employees. These same laws also make overtime work extremely costly, especially to industrial-size firms that rely entirely on paid labor. Artisanal owners and their family members, who account for 29 percent of all knitwear employment and an even greater share of total hours worked, have a strategic advantage here, because they can usually meet the seasonal workflows without paying help overtime wages (data from Comune di Modena, 1993). Artisans regularlysubstitute their own labor for paid labor, working at times on holidays and Sundays (Comune di Modena, 1978: 83). On average, they put in 2,428 hours annually, with the even harder-workingweavers clocking 2,817 hours (ERVET,1983: 34). Of course, integration with the household economy eases this burden somewhat: Grandparents volunteer their labor during busy periods, parents combine work with childrearing,and weavers can go to sleep upstairs while, below, their looms drone through the night. One-third of retired parents live with or near their children in Emilia-Romagna (Barbagli,Capecchi, and Cobalti, 1986: 18), allowing many to volunteer for work in their children's artisanal shops. The common practice among artisans of placing their living and working quarters under the same roof also permits artisans to partiallysubsidize their housing costs with state artisanal construction loans, while achieving the oft-expressed Italianideal to live within a extended family (Pitkin, 1985). Artisanal Autonomy Not only are Modena putting-out workers not an exploited substratum, they enjoy substantial economic autonomy in terms of labor skills, market position, and organizational resources. Inthe Marxist tradition, putting-out workers are lumped with the proletariat(Marx, 1977: 595-599; Aminzade, 1986), but in Wright's (1978) more nuanced analysis, their control over both their working day and their tools accords them a contradictory class location between the bourgeoisie and the proletariat. Marx (1977: 595-599), for example, argued that putting-out or domestic workers were as exploited as factory workers, if not more so. Even today, neo-Marxists view outworkers as among the most oppressed proletarians: Denied labor-law protection, their capacity to organize collectively has been further undermined by their physical dispersion (Rubery and Wilkinson, 1981; Castells and Portes, 1989). The proletarianizationthesis rests on the dubious claim that putting-out erodes skills and increases capitalist control over the labor process. Aminzade (1986), for instance, reported that French silk-ribbonmerchants monopolized control of the design aspects of production when they introduced the Jacquard loom. Outworkers then became dependent on the perforatedcardboardpatternsneeded to operatethe looms. 51/ASQ,March1995 This content downloaded from on Wed, 20 Nov 2013 11:11:59 AM All use subject to JSTOR Terms and Conditions
  20. 20. Similarly, Kisch (1989) and Landes (1969) emphasized that the growth of traditionalputting-out in Europe paralleled the destruction of the guild system and its craft and apprenticeship traditions. In Carpithere is no evidence of deskilling or of manufacturers monopolizing the secrets of knitwear production. Skill levels in the Carpiknitwear industry are fairlyevenly dispersed across artisanal firms and manufacturers, in sharp contrast to the segmented labor market theory of several American economists (Gordon, Edwards, and Reich, 1982). Career mobility studies reveal how skilled workers in the knitwear and clothing industry move from large firms to open artisanal firms (Solinas, 1982). In my own survey, approximately two-thirds of the artisans had at one time been manual workers in the knitwear industry. Manufacturers also depend on artisanal firms as a trainingground for skilled labor, since knitwear skills are not firm specific (Solinas, 1982). Interms of technology, artisanal weavers have long been knowledgeable about making the perforated cardboard patterns still used in today's Jacquard looms. The more advanced computerized looms require electronically encoded memory tapes, but no weavers ever reported to me that their manufacturer-customers imposed onerous conditions on their use. Some weavers pay self-employed computer technicians to encode designs, while others take advantage of cheap public courses on software programs to learn computer-aided design. State loan subsidies and special technology grants to small firms also allow artisans to obtain the same advanced machinery owned by the largest factories. Market Autonomy Market autonomy is normally measured by the extent to which putting-out workers can choose for whom to work and under what conditions. This, of course, requires ownership of the means of production, something that usually characterized historical putting-out (Dobb, 1947: 146-147; Bythell, 1978: 84; Lazonick, 1990: 49). Admittedly, a de jure position of autonomy may conceal a de facto dependent one. Evidence of this is presented by both Aminzade's (1986) study of outworkers in Lyon's silk industry, who were reliant on manufacturers and merchants for credit, and Kisch's (1989: 76, 82, 151) report of proletarianized putting-out workers under the thumb of merchant-manufacturers in the twin Rhineland cities of Elberfeld-Barmen. Several different Modena surveys have indicated that most artisans have multiple customers. The 1984 records of the Artisans' Register show that 84.7 percent of the knitwear artisans within the city of Modena had more than one customer (Commissione Provinciale per L'Artigianato,1987: 47). Another 1988 survey of 12 percent of weavers in the province of Modena revealed that 60 percent had from three to five customers, and 21 percent had six or more (CNA, 1988). Similar results have emerged from a very recent survey of all knitwear firms performing putting-out work in Emilia-Romagna,the regioninwhich Modenais located. 52/ASQ,March1995 This content downloaded from on Wed, 20 Nov 2013 11:11:59 AM All use subject to JSTOR Terms and Conditions
  21. 21. ModernPutting-out There, more than 50 percent of firms had four or more customers; only 16 percent reported a single customer (Regione Emilia-Romagna, 1992: 70). Some artisans I interviewed even disputed defining dependence in terms of the number of customers served. These artisans had from two to three customers and regularlyturned away new business. Their long-term relationships and the specialized skills they offered gave them confidence that their customers would not desert them for a cut-price competitor. Embroiderers and some weavers, for example, were often able to pick and choose for whom to work,and were well-placed to bargain with the largest manufacturers. Even those artisans with limited organizational and productive capacities placed greatest importance on developing transparent and durable relationships with a few manufacturers. Nor did most large and small manufacturers seek dependent artisans. On the contrary, many worried that their artisan-suppliers would become too dependent on them and would risk closure in case of a downturn in orders. Manufacturers, who often described putting-out firms metaphorically as the external lungs of their own companies, sought to avoid such an eventuality by dividing their work among several artisans and referring artisans to new customers. During my interviews I also encountered both artisans obligated to work exclusively for firms that lent them money or machinery to start their businesses and manufacturers who preferred docile subcontractors, but these few cases were exceptions to the rule. As mentioned earlier, a number of artisans use their future labor as collateral for credit or machinery from a manufacturer, but the promise to work exclusively for the creditor normally expires with the repayment of the loan (Dei Ottati, 1994). DISCUSSION Putting-out in the Modena knitwear industry has become the dominant mode of production both because of its own internal rationalityand because of a supportive social environment in which cooperative behavior and entrepreneurial attitudes are deeply embedded (Granovetter, 1985). Transaction costs are not a significant factor in shaping the organizational character of the Modena knitwear industry, and when they arise they are resolved within a decentralized production system characterized by long-term relationships between customers and suppliers. Nor are exploitative labor relations a feature of Modena putting-out: Strong labor organizations, community regulation, self-policing, and wage competition from other industries maintain high labor standards. Actually, the putting-out model offers workers without financial capital unique opportunities for social mobility. Market demand and technological conditions are necessary if not sufficient factors to explain the success of putting-out. Highly seasonal and fashion-sensitive, knitwear demand is volatile; its production allows for few through-put efficiencies and limitedeconomies of scale. Thisopens the 53/ASQ,March1995 This content downloaded from on Wed, 20 Nov 2013 11:11:59 AM All use subject to JSTOR Terms and Conditions
  22. 22. way for different forms of decentralized production and an interfirmdivision of labor. Capitalcosts, despite computerization, remain affordable, and transportation expenses for garments that are light and neither fragile nor perishable are negligible. Clearly,a putting-out scenario for the steel or petrochemical industries would be implausible, and even for standardized men's clothing, such as overcoats or underwear, microfirms are less feasible than for women's fashion wear (Zeitlin, 1992: 21). But technology and market demand alone cannot explain why putting-out has reemerged with such success in Italy and failed to do so, for example, in the United Kingdom, a country with substantially lower labor costs than Italy. Inthe 1980s British clothing manufacturers had to close plants, reduce employment, and increase imports from abroad when faced with changing market conditions (Stopford and Baden-Fuller, 1989; Zeitlin and Totterdill, 1989; Urry, 1990). British manufacturers aware of Italianknitwear organization tried to decentralize their vertically and horizontallyintegrated plants and put out work, but they were thwarted because the disorganized and exploitative character of their own putting-out producers prevented them from offering quality products at affordable prices (Zeitlin, 1985: 20). Under pressure to reduce costs, many British manufacturers turned to Italiansubcontractors (Rawsthorn, 1989). For Britain'sclothing industry, the mere existence of a more efficient form of economic organization that it could emulate did not guarantee effective implementation and survival. But elsewhere there are other examples of highly decentralized production models that are similar to Modena's putting-out system. In Italythere are many, among which are Prato, a world center of woven textiles for clothing, and Castel Goffredo, the European center of women's hosiery production (Lazerson and Uzzi, 1995). Friedman (1988) has written extensively about Japan's Sakaki Township, where hundreds of highly specialized microfirms, many with few or no employees, are at the core of a flourishing machine-tool industry. Most of Taiwan's economy, especially its computer, bicycle, and clothing industries, is based on very small, family-owned-and-operated firms that are engaged in extensive subcontracting operations that appear to mimic aspects of the Italianputting-out system (Orru,1991; Orru, Biggart, and Hamilton, 1991). Orru(1991) argued that the similarities between Italianand Taiwanese organizational forms are far from coincidental: In both countries there are cohesive family structures and a combination of state policies that discourage large business units and favor small ones. In both countries, capital markets until recently have been fairly restricted, although for very different reasons. While this diminishes prospects for large firms, it creates interstices for individuals and firms sufficiently embedded in the community to exchange moral capital for financial capital. Ifthis paper underscores the key role of the family in the putting-out enterprise, the Italianexperience also cautions one from imputing too much importance to cohesive family structure.InsouthernItaly,where familyties are so strong 54/ASQ,March1995 This content downloaded from on Wed, 20 Nov 2013 11:11:59 AM All use subject to JSTOR Terms and Conditions
  23. 23. Modern Putting-out that Banfield (1958) once targeted them for impeding economic cooperation, disproportionately few artisanal firms have been created during the last 30 years (Weiss, 198A4). Putnam (1993), in his comparative study of Italy's unequal regional development, argued that it is centuries of civic engagement in various cooperative endeavors, not family structure, that creates the moral and normative conditions for economic growth. History is important, but it is far from conclusive. For a long time it was argued that Modena's rich endowment of entrepreneurial skills, put to good service in putting-out, was a legacy of its sharecropping past, which taught crucial bookkeeping and accounting skills to many families (Paci, 1980). But a careful study of artisans showed that many came from varied backgrounds (Forni, 1987). Similarly, Saxenian's (1994) study of the Silicon Valley experience in Californiademonstrates that while social networks and trust among economic actors help explain economic growth, they need not derive from a common Renaissance past or even from cohesive family units. In Silicon Valley, a connection to Stanford University appeared to provide sufficient social glue to bond family-less and rootless entrepreneurs in a common endeavor (Saxenian, 1994: 30). Silicon Valley's computer firms bear little resemblance to Modena's egalitarian and relatively low-technology and low-capital putting-out knitwear industry, but in both places, decentralized, intensive, noncontractual subcontracting relationships rest on a community of shared identities and mutual trust (Saxenian, 1994: 4). Since the history, politics, and social and economic structure of each community are vastly different, there will be significant variations among them, both in the organizational structure of their industries and in their patterns of wealth distribution. InVeneto, the region bordering Emilia-Romagna to the northeast, putting-out arrangements have also created great wealth. There, the Catholic Church has operated as the principalmediator of conflict, placing less emphasis on social equality than in Emilia-Romagna,where the left has been historically dominant (Trigilia,1984). Firmstructure in Veneto also exemplifies how a more concentrated form of economic ownership may lead to a different form of putting-out. Benetton, the multinational knitwear producer, which itself began as a putting-out operation less than 40 years ago, overshadows the industry in Veneto (Belussi, 1987, 1992). It, too, puts out nearly all its production locally, but principallyto nonartisanal industrialestablishments that employ an average of 40 to 50 employees internallyand substantial numbers of homeowners externally (Belussi, 1992: 88). At a very distant corner of the globe, Agra, the shoe- manufacturing region of India,demonstrates that the Italian form of putting-out based on an extreme division of labor is not easily reproduced in a developing country. There, putting-out is very limited and rudimentary; most production is conducted in horizontallyintegrated work places and factories (Knorringa,1995). An Italian-style putting-out system could be more efficient, but for the time being the historical burdens of caste and religion impede the networks andforms of cooperationnecessary to achieve it (Knorringa, 55/ASQ,March1995 This content downloaded from on Wed, 20 Nov 2013 11:11:59 AM All use subject to JSTOR Terms and Conditions
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