industrial relation and employee welfare.. unit 1 that will explain the introductory part of course.. in this student can have understanding of fundamentals of industry and relations between employee and employer. the history is also explained in this how the employer - employee relation has been started and how this topic secured its place in education. in studying of HRM its very important to understand the industry and its principles.

1. UNIT -1
INDUSTRIAL RELATIONS
& EMPLOYEE WELFARE
BY PROF. POOJA PATIDAR
MBA II YR ODD SEM

2. MEANING
• The term industrial relations refer to the relationship between management and labour
or among employees and their organisation that characterise or grow out of employment.
• Two parties of industrial relations i.e. labour and management need to work in a spirit of
cooperation, adjustment and accommodation Dale Yoder has defined it as, “a relationship
between management and employees or among employees and their organisation, that
characteristic and grow out of employment”.
• While trade unions are voluntary organisation of workers or employers formed, to
promote and protect their interest, through collective action.

3. IR CONCEPT:
• The term ‘Industrial Relations’ refers to the collective relationship between
management, employees and government in any industrial or non-industrial
organization. Individual relationships of workers with their management are not
within the scope of industrial relations.
• In Edwin B. Flippo’s view the term’ Industrial relations’ refers to all types of
relations that exist in an industrial enterprise, and they are constituted by
employer and employees. The term denotes all types of intra-group relations
within and inter- group relation between these constituent groups.

4. IMPORTANCE
1. Promotes democracy:
Industrial relations mean using collective bargaining to settle problems faced by workers. This
collective bargaining is usually achieved through mutual cooperation and mutual agreement amongst
all the affected parties i.e., democracy, management, and employee unions. This helps an
organization establish industrial democracy. Therefore, it motivates the workers to contribute their
best to the growth and prosperity of the organization.

5. 2. Economic growth and development:
Industrial relations can improve economic growth and development.
This refers to the economic conditions of workers in the existing state of
industrial management and political government. With the well-known
fact that Good industrial relations lead to increased efficiency and hence
higher productivity and income. It is also imperative to note that this
also results in the economic development of the country.

6. 3. Boosts employee morale
It is important to note that Good industrial relations which
are built-in mutual cooperation and a commonly agreed
approach motivate one to contribute one’s best, result in
higher productivity and hence income, give more job
satisfaction and help improve the morale of the workers
which is an importance of industrial relations in HRM

7. 4. Accountability and optimum use of scarce resources:
Industrial relations which are Good and harmonious create a
sense of belongingness and group-cohesiveness among
workers, and also a congenial environment resulting in less
industrial unrest, grievances, and disputes. This will ensure
optimum use of resources, both human and materials,
eliminating all types of wastage.

8. 5. Avoids conflicts between management and unions:
Industrial relations result in reduced conflicts between unions and
management. This is because industrial relations involve setting up
machinery to solve problems confronted by management and
employees through a mutual agreement that binds both these parties.
This results in avoiding any unfair practices that could lead to major
conflicts between employers and trade unions.

9. 6. It prompts the depiction of sound labor legislation:
Industrial relations necessitate the passing of certain labor laws to protect and
promote the welfare of labor and safeguard the interests of all the parties against
unfair means or practices.
7. Initiates an environment for change:
Good industrial relations help in the improvement of cooperation, teamwork,
performance, and productivity and hence in taking full advantage of modern
inventions, innovations, and other scientific and technological advances. It helps the
workforce to adjust themselves to change easily and quickly.

10. Industrial Relations – Scope
Industrial relations are relation between employee and employer in their day-to-day
work. Hence, it is continuous relationship.
the scope includes:
(a) Relationship among employees, between employees and their superiors or
managers.
(b) Collective relations between trade unions and management. It is called union-
management relations.
(c) Collective relations among trade unions, employers’ associations and government.

11. • Scott, Clothier and Spiegel remarked that industrial
relations has to attain the maximum individual
development, desirable working relationships between
management and employees and effective moulding of
human resources. They have also asserted that either
industrial relations or personnel administration is primarily
concerned with all functions relating man effectively to his
environment.

12. • Thus, the scope of industrial relations seems to be very wide. It
includes the establishment and maintenance of good personnel
relations in the industry, ensuring manpower development,
establishing a closer contact between persons connected with the
industry and that between the management and the workers,
creating a sense of belonging in the minds of management,
creating a mutual affection, responsibility and regard for each
other, stimulating production as well as industrial and economic
development, establishing a good industrial climate and peace and
ultimately maximising social welfare.

14. Factors Affecting Industrial Relations
Industrial relations deals with human behaviour and management of personnel in an
organizational setup. The various factors that influence the relationship between the
administration and the employees in an organization are as follows:
Individual Behaviour
Every person has a different perception, background, skills, knowledge, experience and
achievements which influences an individual’s behaviour. The employees, therefore,
behave differently in different situations, thus impacting the work environment in the
organization.

15. Organizational Structure
The hierarchical structure creates more formal relationships among the
employees belonging to different hierarchical levels in an organization. Also,
the delegation and execution of decision-making power by the superior
influences the industrial relations between the managers and the employees.
Psychological Factors
An employee’s attitude and mentality towards the employer and the given
task; and the employer’s psychology towards the workers can be positive or
negative, which ultimately impacts the employee-employer relationship.

16. Leadership Style
Every manager possesses certain leadership traits and different style to function even in a
formal organization. Through his/her formal or informal ways of generating team spirit and
motivating the employees, he/she impacts the organization’s industrial relations.
Economic and Technical Environment
To cope up with the changes in the economic conditions or technology, organizations need to
restructure the task of the employees including their work duration, conditions and wages;
which leads to a difference in their behaviour, attitude, adapting spirit, etc. towards the
organization and its people.

17. Legal and Political Environment
The legal framework and political circumstances influence the
organization and its industrial relations. It contributes to the
framing of rules, rights, authority, powers, roles and
responsibilities of all the parties of the organization.

18. Approaches to Industrial Relations;
Industrial Relations is perceived differently by a different group of
behavioral practitioners and theorists. Some believed that IR is
related to the Class Conflict while some perceived it in terms of
Mutual Co-operation and still others perceived it in terms of
Competing Interests of various groups. Based on these perceptions,
there are some popular approaches to industrial relations are as
follows:

20. The System Approach
The system approach was developed by J. P. Dunlop of Harvard University in
1958. According to this approach, individuals are part of an ongoing but
independent social system. The behaviour, actions and role of the individuals are
shaped by the cultures of the society. The three elements of the system approach
are input, process and output. Society provides the cue (signal) to the individuals
about how one should act in a situation. The institutions, the value system and
other characteristics of the society influence the process and determine the
outcome or response of the individuals. The basis of this theory is that group
cohesiveness is provided by the common ideology shaped by the societal factors.

21. Unitary:
The unitary approach is based on the strong argument that there is only one
source of authority i.e., the management, which owns and controls the
dynamics of decision making in issues relating to negotiation and
bargaining. Under unitary approach, industrial relations are grounded in
mutual cooperation, individual treatment, team-work, and shared goals.
Work place conflict is seen as a temporary aberration, resulting from poor
management, from employees who do not mix well with the organizational
culture. Unions co-operate with the management and the management’s
right to manage is accepted because there is no ‘we-they’ feeling.

22. Pluralistic:
The pluralistic approach totally departs from the unitary approach and
assumes that the organization is composed of individuals who form distinct
groups with their own set of aims, objectives, leadership styles, and value
propositions.
The organization is multi structured and there will be continued tension due
to conflicts within and between the various sectional groups. In contrast to
the unitary approach, the pluralistic approach considers conflict between
management and employees as rational and inevitable.

23. Marxist:
Also known as the ‘Radical Perspective’, the Marxist approach is based on the proposition that the
economic activities of production, manufacturing, and distribution are majorly governed by the
objective of profit.
Marxists, like the pluralists, regard conflict between employers and employees as inevitable.
However, pluralists believe that the conflict is inevitable in all organizations. Marxists see it as a
product of the capitalist society.
Adversarial relations in the workplace are simple one aspect of class conflict. The Marxist approach,
thus, focuses on the type of society in which an organization functions.
Conflict arises not only because of competing interests within the organization, but because of the
division within society between those who won or manage the means of production and those who have
only their labour to offer. Industrial conflict is, thus, seen as being synonymous with political and
social unrest.
The Marxist approach argues that for social change to take place, class conflict is required.

24. Sociological approach
Industry is a social world in miniature. The management goals, workers’
attitudes, perception of change in industry, are all, in turn, decided by broad
social factors like the culture of the institutions, customs, structural changes,
status-symbols, rationality, acceptance or resistance to change, tolerance etc.
Industry is, thus inseparable from the society in which it functions. Through the
main function of an industry is economic, its social consequences are also
important such as urbanization, social mobility, housing and transport problem in
industrial areas, disintegration of family structure, stress and strain, etc.

25. Gandhian Approach
Gandhian approach to industrial relations is based upon the fundamental principle of truth, non-
violence, and non-possession. This approach presumes the peaceful co-existence of capital and labor.
Gandhiji emphasized that if the employers follow the principle of trusteeship then there is no scope of
conflict of interest between labor and management, Gandhiji accepted the worker’s right to strike but
cautioned that they should exercise this right for a just cause and in a peaceful and non-violence
manner and this method should only be resorted when all methods failed in getting employers
response.
Gandhi advocated the following rules to resolve industrial conflicts:
• Workers should seek redressal of reasonable demands through collective action.
• Trade unions should decide to go on strike taking ballot authority from all workers and remain
peaceful and use non-violent methods.
• Workers should avoid strikes to the possible extent.

26. Psychological approach
The problems of IR have their origin in the perceptions of the management,
unions and the workers. The conflicts between labour and management occur
because every group negatively perceives the behaviour of the other i.e. even the
honest intention of the other party so looked at with suspicion. The problem is
further aggravated by various factors like the income, level of education,
communication, values, beliefs, customs, goals of persons and groups, prestige,
power, status, recognition, security etc are host factors both economic and non-
economic which influence perceptions unions and management towards each
other. Industrial peace is a result mainly of proper attitudes and perception of the
two parties.

27. Human relations approach
Human resources are made up of living human beings. They want freedom of speech, of
thought of expression, of movement, etc. When employers treat them as inanimate
objects, encroach on their expectations, throat-cuts, conflicts and tensions arise. In fact
major problems in industrial relations arise out of a tension which is created because of
the employer’s pressures and workers’ reactions, protests and resistance to these
pressures through protective mechanisms in the form of workers’ organization,
associations and trade unions.
Through tension is more direct in work place; gradually it extends to the whole industry
and sometimes affects the entire economy of the country. Therefore, the management
must realize that efforts are made to set right the situation.

29. What Are the Duties of an Industrial Relations Officer?
An industrial relations officer typically works in a human
resources position and manages relations between factory
employees and upper management. These relations officers
do not work outside manufacturing industries. Instead, they
specialize on issues key to manufacturing the business they
represent.

30. Conflict Management
One of the key jobs of the industrial relations office is conflict
management. Conflicts occur when upper management makes
decisions that factory employees find unreasonable, or vice versa (a
possibility in unionized industries). These conflicts can spill over into
widespread legal matters or even strikes and lawsuits. The industrial
relations officer works to meet with both properties, discuss
differences of opinion and create a compromise that solve the problem
for both sides without causing it to escalate.

31. Representation
If a conflict between factory employers and employees does escalate
and enters into legal areas, the industrial relations officer will
represent a side. Which side he represents may depend on the duties
of his job. Some industrial relations officers may represent their
company before an industrial tribunal, if their industry and
government regulations require this.

32. Analysis
Industrial relations officers typically start their jobs in research, and
research continues to be an important part of the job once they are
promoted. The officers must study legal matters (a background in law
is useful), including other industrial disputes and how they were
resolved, along with new regulations and how they may affect the
industry or company decisions.

33. Communication
Industrial officers do not prefer conflict. One of their responsibilities
is to prevent it whenever possible. They often communicate important
business decisions to employees and relay employee communications
back to upper management, acting as a go between. This way, the
officers can help the different parties understand each other and their
sometimes differing motivations.

34. What Role Does Management Play in Industrial Relations?
Industry management is one of two key players in the realm of industrial relations. Industrial
relations describes the relationship between management (often top-level management) and
employee organizations (like unions)
Top-level management
Top-level management must communicate and negotiate with employee organizations to avoid
strikes, law-suits and protests. This level of management interacts with employee organizations
on a large-scale, as opposed to lower tiers of management which mostly rely on human resources
to conduct employee interactions.

35. Low-level management
Low-level (or local) management interacts with employees on an individual basis (often
through a human resources department). All levels of management are involved in
industrial relations, but low-level management has little or no say in big-picture
decisions (employee compensation and benefit alterations).
Managements purpose in industrial relations
In an industrial relations negotiation, management represents the interest of the
company (and shareholders if applicable). Management must work with employees to
develop compensation packages and policies that are acceptable for both parties.

36. Problems for management in industrial relations
When the relationship between management and employees sour, management may be
forced to develop a crisis-management plan. If an employee organization initiates a
large-scale strike or protest, management must act quickly (either give-in to employee
demands or find an alternate solution) to avoid crippling profit losses.
Short History of management's involvement in industrial relations
Historically, management is depicted as a foe of employees and their organizations.
While this stereotype is not entirely true, the media often portrays management as the
"bad guy" of the two organizations (unions are usually cast as the hero of the "little
guy"). This negative media attention (and historical stereotype) can lead to extremely
damaging public relations, which can eventually cripple an entire industry.

37. https://www.yourarticlelibrary.com/industries/industrial-relations-in-india-an-
overview/35426

38. Industrial Unrest in India: Causes and Policy of the
Government
By industrial unrest is meant conflict between employers and
workers in industries.
The industrial labour display their protests in the form of strikes,
gheraos, go slow tactics, demonstrations and so on, whereas the
employers show their might by retrenchment, dismissals, lockouts
etc. Industrial unrest causes industrial recession and decline in
national income.

39. The major factors behind such unrest in recent times are as follows.
(a) The trade union leaders try image-building exercises.
(b) Taking advantage of the political instability the country, the trade union
leaders seek concessions from the government and factory owners.
(c) Rampant trade unionism has led to a deteriorating work culture among
workers.
(d) The New Economic Policy, 1984 empowered the employers to punish workers
by endorsing the methods of lockout.

40. The share of lockouts in total man-days lost is on the increase. Thus, there has been a qualitative
change in the industrial disputes which strongly suggests an unfavourable treatment of the
labourers.
Causes of Industrial Unrest:
1. Wage Related Issues:
The wage levels in different industries vary tremendously. The disparity in wages between skilled
and unskilled labour is large even within an enterprise. This is true in both the organised and the
unorganised sectors. The demand for higher bonus has been a major cause for industrial disputes.
2. Lack of Welfare and Social Security:
Social security measures can be divided into two categories (i) social insurance and (ii) social
assistance. Social insurance schemes are generally financed by the employees, employers and the
State. However, such welfare measures face the following problems: (a) insufficient coverage, (b)
lack of employment insurance, (c) inherent bottlenecks of an exit policy, (d) overlapping schemes,
and (e) lack of facilities vis-a-vis requirement of beneficiaries.

41. 3. Improved Working Conditions:
Demand for lesser working hours, better-safety measures, holidays, leave etc., provoke
trade unions to fight against employers.
4. Wave of Globalisation:
The new policy of liberalisation has opened up the avenue of foreign investment in India
resulting in an intense competition in the economy. The entrepreneurs are often forced to
squeeze wages and push productivity for survival in today’s market-driven economy.
5. New Lifestyles:
The workers are increasingly adopting new urban lifestyles and this is expensive and
requires a larger income for the family. The workers are often drawn into industrial
battle by such compulsions.

42. 6. Low-cost Production Alternatives:
The employers often defeat the purpose of trade unions by searching
out low-cost production alternatives in the form of small-scale
subsidiary units in smaller towns where low wages will do.
7. Rising Wages and Low Productivity:
The big companies often close down their units because labour
productivity often fails to keep pace with inflated wages. Such moves
taken often invite industrial tension.

43. Industrial Relations & The Emerging Socio- Economic Scenario
Industrial Relation is the interaction between workers & the management.
Emerging socio-economic means the new trends in IR in the era of GLOBALISATION.
During earlier times means before the advent of New Industrial Policy
* The IR were reactive and on adhoc basis.
* They were rigid and inflexible.

44. But when New Industrial Policy was announced in1991 IR’s too experienced the
change
* New industrial and trade reforms were announced by the government that
improved the relations.
* The best thing was New Industrial Policy altogether generated a new business
environment where in PRIVATE sector was liberated from the clutches of
excessive government control.
* New Economic Policy maintains good Industrial Relations.

45. Developments In IR
* Trade unions.
* Quality of work life improved.
* New context.

46. TRENDS
OLD New
* Aim – Labor and management have
different.
* Aim –Both have shared and common goals.
* Information- Hold information to ones own
chest.
* Information- Open & transparent.
* Mode of operation- Strict rules and
procedures.
* Mode of operation-Realistic plans
* Feeling – Negative. * Feelings- Positive

47. Industrial relations problems in the public sector
Public Enterprise
Company whose shares are available and traded on the stock market
or other over-the-counter market. Subject to more regulation than a
privately owned company, a public enterprise has greater access to
financing. Shareholders own a percentage of the company based on
the amount of stock they own.

48. Wage differentials
It is an area where comparison between the public and private sectors is becoming
common. The policy of settlement of wage structure, equal pay for equal work, wage
differentials due to levels of responsibilities etc are all the issues that concern the
labour in public enterprises.
Industrial relations
Industrial Relations is a developing and dynamic concept and such no more limits
itself merely to the complex relations between the unions and management but also
refers to the general web of relationships normally obtaining between employees – a
web much more complex than the single concept of labour capital conflict.

49. Surplus labour
This problem is the outcome of indiscriminate recruitment on account of
political pressures, reduction of activities, structural changes and improvement
in technology.
Over centralization
Management decisions taken at local shop level are turned down by the higher
authorities. This type of over centralization the local management lose the
prestige and confidence.

50. Multi pricing of unions
The existence of multiple union has brought the evils of inter union
rivalries.
Political and bureaucratic influence
Public enterprises are highly prone to be influenced by political and
bureaucratic set up. Generally political people influenced decision
making process

51. 1. In Pre-Independence India
State intervention in labour/industrial relations had its beginning when the British Government in
India was constrained to protect its commercial interests in this country. An ILO publication observes:
"Far from protecting the interests of labour, the earlier attempts to regulate labour consisted of
enactments such as the Assam Labour Act, the Workmen's Breach of Contract Act, 1859, and the
Employers' and Workmen's (Disputes) Act of 1860. These Acts aimed at protecting the social system
against labour rather than protecting labour against the social system."
The deterioration in working conditions, because of unplanned and haphazard development of
industrial units; unduly low wages and consequent dissatisfaction of the working class; growing
indiscipline of workers; strained relations between labour and management; the formation of ILO; the
emergence of AITUC (All India Trade Union Congress, 1920) and demands for higher wages, improved
conditions of work and living led to serious industrial troubles and created labour problems of large
dimensions. The situation became unmanageable in Bombay and Bengal. Hence, committees were
appointed to look into the matter.

52. The chronological trends in industrial relations are set forth in a tabular form (Table
11.1).
When the Second World War broke out, the Government of India passed the Defence
of India Rules and incorporated in them Section 81A, which banned strikes and
lockouts in any trade with a view to ensure continuous supplies for the requirements
of the war, and provided for compulsory adjudication of industrial disputes.
"The beginning of industrial relations dynamics can be traced back," one author puts
it, "to the inception of the Indian Labour Conference as far back as 1942 by Dr. B.R.
Ambedkar, when the policy of bringing together the three parties, namely, the
government, management and labour, on a common platform as a consultative
tripartite forum for all matters of labour policy and industrial relations was accepted.

54. 2. In Post-Independence India
In free India, this legacy was given statutory recognition when the legal
provisions for regulating industrial relations were embodied in the
Industrial Disputes Act enacted in 1947. This Act provided for:
(i) The establishment of a permanent machinery for the settlement of
disputes in the shape of certain authorities like the Conciliation Officers,
Industrial Tribunals, Labour Courts; and
(ii) Making an award of a Tribunal or any settlement brought about by the
Conciliator binding on the parties and legally enforceable.

55. The Act seeks the prevention and settlement of industrial disputes in all industries through
conciliation, arbitration and adjudication. Apart from setting up machinery for the settlement
of industrial disputes, it seeks to prohibit strikes and lockouts during the pendency of
conciliation and adjudication proceedings. The amendment made in the Act in 1976 places
restraints on the employers' power to "lay off" or retrench a worker, or to impose "closure".
Besides this enactment, two major efforts made were to amend the Trade Unions Act, 1926
once in 1947 and then again in 1950. In 1947, a law was enacted which defined unfair
employer practices and unfair union practices. It provided for the compulsory recognition of
representative unions by employers and for the arbitration of disputes over the certification
of unions as representative unions. "These amendments were a break with the colonial
British tradition, and were influenced by the American National Labour Relations Act
(popularly known as Wagner Act) of 1935.

56. Unfortunately, these amendments to the Trade Unions Act never came into force. The newly
formed INTUC Union did not favour some of the changes. The employers were not
enthusiastic. Some of the unions did not like the exclusion of civil services and other
categories of governmment employees and of supervisory personnel from the scope of the
Act."
In 1950, two Bills were brought by the government - a Labour Relations Bill and a Trade
Unions Bill. They retained the provisions of the 1947 amendments. They also introduced the
principle that "collective bargaining would be compulsory for both employers and unions
under stipulated conditions." The Labour Courts were empowered to certify unions as "sole
bargaining agents." All corrective collective agreements were to provide for "peaceful
settlement without work stoppage of all questions arising out of such agreements by
arbitration or otherwise." However, the draft Bill lapsed with the dissolution of Parliament.

57. EVOLUTION OF INDUSTRIAL SYSTEM
The problem of industrial or labour management did not arise when business
organisations were small. These developed only when elaborate organisational
structures came into being during the late nineteenth century, when gigantic
industrial empires of financial tycoons came into existence, followed by the
technology of mass production in the early twentieth century. Labour management
became an important subject of study only when large aggregations of people came
to work together under one roof in an organisation. We shall briefly review the
historical background of the relations between employer and employees. In order to
understand the issues and problems associated with industrial relations, it is desirable
to study its various evolutionary phases. The various stages through the system
progressed are discussed here..

58. (1) Agrarian Economy Stage
It developed during the Middle Ages and brought about a change in the views on property. In tribal
society, property was common and collective asset of the group, but now it was identified as a
personal asset of the landlord. Thus, there arose a class of propertied individuals along with a class of
propertyless workers. Under this system, the employees were treated as slaves and as the property of
their master who purchased them for a few chips or conquered them in some war against their
opponents. The employee-employer relationship was that of the master-servant/ slave type. The
slaves were required to do all types of manual and other specialised work for their master and in
return were paid no wages but food of the coarsest type, old clothes and a small place to live. They
had to live under the absolute authority of their master till death over-powered him. The levels or
strata of supervision were few. The Government did not wield any power over the employment
relationship. The political organisations that developed from alliances and conquests supported the
authority of the owners. Some masters achieved dominant positions, while others became
subordinates.

59. (2) Handicrafts Stage
Handicrafts system developed because of the growth of towns and cities, increase in
trade and commerce and a decline in the power of the feudal lords. This system
introduced an important innovation in the careers of workers, namely, one in which
they could actually move from the rank of workers/employees to those of employers.
The workers/craftsmen owned factors of production, worked with their own tools and
with the help of the members of their family and often worked in their own
homes/workshops, and performed the hand tasks. They sold their products directly to
the customers, there being no middleman. Separate craftsmen existed for separate
works. Some type of specialisation of work was found such as shoe-making,
blacksmithy. carpentry, pottery industry, cloth weaving, etc.

60. Sometimes the master craftsman also undertook to teach his craft to some young men. These artisans
began their careers as apprentices and were bound to work for the master craftsman for specified time
during which they could learn the craft. They got no wages except lodging and boarding facilities from
the master craftsman. These artisans could, when apprentice ships were over, settle as independent
journeymen. The master craftsman and the apprentices worked side by side; and only one or two levels
of supervision were involved. Master craftsmen held highest status because they combined both the
skill and the ownership. Journeymen enjoyed a relatively high status because of their skill and related
mobility and freedom. Apprentices occupied low status, though they were superior to that of the slave
or serf.
The cottage workers of the master craftsman developed a new institution, viz., the crafts guilds. These
regulated economic and employment conditions of the members, regulated the quality of materials
and workmanship, set prices and determined wages. Many of these guilds also provided various
fraternal benefits like death, disability and unemployment benefits to their members. They were akin
to modern crafts union.

61. Cottage or Putting-out Stage
With the development of economic system, and that of the steam and power, some
individuals became employees in the new industrial units, which were brought about
as a result of both technological changes and the expansion of markets and trade.
Other master-craftsmen or travelling traders (or trading capitalist) undertook to buy
raw materials and supply these as well as finances to the craftsmen or who worked in
their homes/workshops. They also hired the craftsmen to process the raw materials,
and collected and sold the fininshed goods. This system was known as the "cottage or
putting-out system." Under this arrangement, the craftsmen worked with the
members of their family, in their own home, and were paid on a piece-work basis for
the work. They delivered their products to the financiers who supplied them with
necessary finance.

62. (4) Factory or the Industrial Capitalism Stage
With the passage of time and gaining of experience, the trader capitalist realised that economies in
production can be achieved from newly perfected machines, so instead of "farming out" production to
numerous small cottage workers, he himself installed machinery, provided -power-tools and equipment
and offered employment in newly built workshops or factories. The cottage workers became factory
hands. In these factories, a large number of people worked under the same roof. This made it possible to
supervise them more closely.
With the invention and manufacturing of power driven machinery in the late eighteenth and early
nineteenth century, the process developed further. In course of time, the factory system came to stand on
a sound footing and human labour was replaced by machines. This gave rise to a system which is known
the world over as the Industrial Revolution. Under this system, women and child labour were employed
often for long hours because machine production simplified operations and reduced skill requirements.
The living and working conditions became deplorable, and housing accommodation inadequate. With
increased production, developed technology and science, decision-making became a more specialised
task and the relation between the workers and the employers became more and more impersonal.

63. By means of the factory system, workers were brought together under one roof, and
strict discipline was maintained during the process of production by the employers.
Since the workers did not own the means of production they were economically
dependent on the employer for their livelihood. The quality and quantity of the
product was guaranteed. The employer owned all the physical means of production.
He also owned goods which were produced. The law of supply and demand
determined the price of labour and decided the level of wages. Once wages were
paid, the responsibility of the employer was over. He did not bother himself about the
workers' conduct or health after working hours or about how they and their families
struggled when no work was available. The human element in the prodcutive process
diappeared as the employer had no personal ties with the workers. The maximisation
of profit was the sole factor which dominated the factory system.