A new phoenix?: modern putting-out in the Modena knitwear industry
The putting-out, or domestic system of production, symbolizes the transition from traditional handicraft 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 organizationally inefficient, 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 (Alchian and Demsetz, 1971; Williamson, 1980). It also 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 new phoenix of late capitalism. One such place examined here is the Italian knitwear industry, centered in the province of Modena, a rich agro-industrial area of north-central Italy in the Emilia-Romagna region. In Modena, modern putting-out offers superior organizational properties to large-scale industrial organization. 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 garments.
In what follows I will show that putting-out today represents an attractive alternative to the centralized factory under certain technological, market, institutional, and social conditions. In terms 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. In terms of market constraints, putting-out offers advantages in terms of quick response times when products are highly differentiated and there are rapid changes in consumer tastes. These factors often reduce the level at which economies of scale are achieved. Institutional determinants 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 rationality of an advanced industrial economy: 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 Italy to 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 industrial context, putting-out offers efficient solutions as defined by market criteria.
THE RESEARCH FRAMEWORK
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. In the 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 contractors and subcontractors. I also interviewed eight homeworkers in their homes. Except for three firms located in adjoining provinces, the entire interview sample came from the province of Modena. The National Confederation of Artisans (CNA) assisted me in arranging most of the interviews with subcontractors. The Industrial Association of Modena (Confindustria) and the Association of Small Entrepreneurs (API) introduced me to about half of the manufacturers I interviewed. Some of the homeworkers were located through the Modena Labor Confederation (CGIL). Other interviews were arranged through personal contacts, in which I used a snowball approach: Each respondent was asked to introduce me to a new respondent, until I was no longer uncovering new information (Glaser and Strauss, 1967). By using a variety of sampling methods and enlisting the assistance of different trade associations and trade unions, I believe I have eliminated any likelihood of respondent-selection bias. Data from the interviews were supplemented by repeated discussions with industry and union representatives, principally from the National Confederation of Artisans (CNA) and the Modena Labor Council, and statistical information obtained from government, union, and industry sources. Data gathered for the 1991 national census were computed and provided to me in 1993 by the Office of Statistics of the Commune di Modena because the official national census data will not be available until late 1995. I also obtained data collected in April 1988 by the Camera del Lavoro di Modena. The first section of the paper defines and differentiates historical and modern putting-out and describes the organizational characteristics and evolution of Modena’s knitwear industry. In the second and third sections I evaluate the criticisms made of putting-out in terms of transaction cost analysis and labor exploitation in light of the Modena experience. In the final section of the paper, I conclude by postulating the institutional, social, and political conditions under which an economically progressive model of putting-out production is most likely to arise and point to other places besides Modena where similar developments exist.
THE PUTTING-OUT SYSTEM
Merchant-manufacturers first organized historical putting-out in the countryside, which was unburdened by the costly regulations of urban-based guilds and was populated by subsistence farmers and their families, willing to work for little (Mendels, 1972; Hudson, 1986: 261-262). But putting-out was not a distinctly rural development: In England, France, and Germany it occurred in villages and towns, where independent craftsmen were forced by competition to submit to putting-out (Berg, Hudson, and Sonenscher, 1983: 25-28; Aminzade, 1986; Kisch, 1989). Even after factory production was well established, putting-out continued to flourish into the beginning of the twentieth century (Samuel, 1977; Bythell, 1978; Lazonick, 1990).
Historical putting-out normally was patterned on the producers owning their tools but not the raw materials that they transformed, for which they were paid piece rates (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 regularly employed, especially by former craftsmen (Bythell, 1978: 14; Sheridan, 1979; Aminzade, 1986). In the German Rhineland some putting-out firms employed as many as 20 apprentices (Kisch, 1989: 199). In addition, putting-out often created a rippling effect that blurred organizational 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 individuals who 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 majority of artisans have few or no employees and rely on the help of family members and relatives, who are liberally defined 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 Italian Civil Code. Family labor remains a critical component 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 industrial factories (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 usually are responsible for product conception as well as execution. Thus some manufacturing subcontractors number [TABULAR DATA FOR TABLE 1 OMITTED] among the world’s largest and most powerful industrial organizations, such as Robert Bosch, the German manufacturer of automative 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 capacity and capabilities; customers who put out work usually do so because, much like the original putting-out merchants, they do little or no manufacturing (Harrison and Kelley, 1992).
From homeworkers to artisans. Manufacturers have sharply increased the amount of putting-out since the late 1960s. When the nascent knitwear industry in Modena sprouted around Carpi after the Second World War, it built on the existing putting-out networks that had been used to produce straw hats, a traditional industry that dates from the 1600s but that had reached industrial dimensions by the turn of the century (Cappello and Prandi, 1973; Cigognetti and Pezzini, 1993). After the market for straw hats collapsed in the immediate postwar period, many of the putting-out workers switched to knitwear production, a change that slowly transformed putting-out organization (Cigognetti and Pezzini, 1993). Once, many workers were women whose husbands were either small farmers, sharecroppers, or farmhands. In the kitchen of their homes they worked alone or, depending on the season, with their children and husband for a single manufacturer. Today such women, legally defined as homeworkers, number approximately 1200 and work principally for artisans, for whom they perform minor refinishing tasks.(1) Partly because of tax and labor law reforms that provide homeworkers with fairly similar benefits to those of in-house employees, employers have less incentive to hire them. Accordingly, their numbers have declined precipitously over the last decades; some of them have chosen to work directly for artisans, while many others have become artisans themselves (Lazerson, 1990a). The number of unregistered homeworkers unrecorded by the Department of Labor is difficult to gauge. Most are believed to be pensioners who seek extra income off the books. My interviews with trade union representatives, manufacturers, artisans, and illegal homeworkers indicate that the latter have continued to dwindle since the 1970s, when a survey conducted by the city of Modena reported that they had already become marginal to the industry (Comune di Modena, 1978: 17-27).
Some may argue that these homeworkers are the real descendants of historical putting-out and that their decline confirms both the original judgment about the failures of putting-out and the inappropriateness of applying putting-out terminology to the Modena knitwear artisans. The variations in putting-out in Modena, however, are no greater than those that existed in historical putting-out. In addition, the marginalization of homeworkers and the elimination of the once-numerous unregistered artisans can be attributed principally to changes in public regulatory policy rather than to any organizational deficiencies. If artisans’ reliance on hired help increases and the link between putting-out and the household economy weakens further, however, I may need to revise my judgment of the Modena knitwear industry as a putting-out system.
Firm size. Table 2 presents data on the workforce size of Modena knitwear firms. The table shows a sharp decline in large integrated manufacturing firms and a parallel rise in small specialized firms over four decades. The share of the workforce employed in large firms (50 or more persons) 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 majority market 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 Italy decentralized firms “proved significantly more profitable than their larger counterparts” (OECD, 1983: 25).[TABULAR DATA FOR TABLE 2 OMITTED]
Table 2 shows that Modena knitwear production today depends on small independent production units, 70 percent of which have fewer than five workers, including the owners. The 1991 census reported that the average firm size was six persons, but if the 4,325 owners and family helpers are excluded, the average number of employees per firm falls to 4.2 (data from Comune di Modena, 1993). All but 33 of the 2,448 area knitwear firms employing 14,698 people, or 5.5 percent of Modena’s workforce, are composed of single units that are legally independent; only one company has as many as three plants (ISTAT, 1985b: 4, 16-17). About 30 percent of these firms are manufacturing firms in that they market a final product (data from Camera del Lavoro di Modena, 1988). In some cases, firms that are formally independent may be linked together through common shareholding or family relationships, but this is infrequent (Lazerson, 1988).
Working conditions. These small firms provide no evidence that putting-out survives on low wages. Modena, one of Italy’s poorer provinces in the 1950s, has become since the mid-1970s one of its 10 wealthiest (Brusco, 1982; Forni, 1987: 37). Carpi, the second largest city in Modena and the epicenter of the knitwear trade, has the area’s highest per capita income of approximately $26,000, using 1992 exchange rates. Labor costs in the knitwear industry average $13 per hour for semiskilled labor, about 20 percent less than in the highly paid mechanical engineering sector; but they easily exceed the $9.71 an hour paid by the large vertically and horizontally integrated American textile manufacturers (Werner Associates, 1989).(2)
Since the beginning of the 1980s the union contract in Modena has reduced the difference in wage rates between the largest and smallest firms to about 10 percent. Fringe benefits – a month of paid vacation, paid maternity leave, free medical care, and pension and retirement contributions – are also identical in large and small establishments. But indirect wage costs are between 5 and 10 percent lower in the small putting-out firms because employees there are ineligible for the generous unemployment benefits provided in industrial-sized firms. Employees in putting-out firms also are reimbursed for lost pay from illness only after the third day, rather than the first day, as in industrial firms. High wages, however, are supported by a tight labor market in Modena. In 1992 unemployment was 4.3 percent, compared with a national average of 11.5 percent. Knitwear firms also must compete for female labor with medical-supply firms (Provincia di Modena, 1988: 9). Politically, too, labor is stronger in Modena and Emilia-Romagna than anywhere else in Italy. Both the local and regional governments, ruled by the Communist Party and its successors for nearly a half-century, remain hostile to neoliberal deregulation policies. Modena provides no evidence that decentralized production disorganizes the working class and incubates sweated labor, as some scholars have claimed (Murray, 1983; Schmiechen, 1984; Lash and Urry, 1987; Castells and Portes, 1989; Lozano, 1989; Wilson, 1991).
No reliable data on artisanal incomes exist, but it is fair to assume that artisans who consistently fail to earn more than employees will change jobs. Most owners of the very smallest artisanal firms (with no employees) I interviewed claimed to earn about double the average industrial wage; those with employees earn substantially more.
Public policies. Artisanal status qualifies a firm for subsidized loans, special dispensations from certain labor and social security laws, and other economic incentives (Weiss, 1988). Included among the latter are state-subsidized artisanal loans of about $100,000 to acquire plant and equipment. The province of Modena and the Emilia-Romagna region both have exceptional records in promoting zoning laws and planning policies that have created an abundance of low-cost workshops suitable for small putting-out artisans (Brusco, 1982; Lazerson, 1988).
State support for small firms must be measured within the context of the much greater largesse granted to large private and public Italian corporations, like FIAT, Montedison, Olivetti, and Italsider (Forte et al., 1978; Ranci, 1983). This assistance has been highlighted during the current corruption scandals in Italy, when it was revealed that the country’s largest corporations reaped huge windfall profits from state contracts granted in return for illegal political contributions to politicians and their parties.
The Organizational Factors Contributing to Putting-out
Putting-out declined slightly in the 1960s with the rise of vertically and horizontally integrated companies, only to gain new impetus in the early 1970s when strong labor unions and new labor laws began to erode the profitability of the largest establishments, especially those with 15 or more employees (Lazerson, 1985). Manufacturers relied more on the existing putting-out channels and encouraged their employees to become self-employed (Brusco, 1982; Sabel, 1982). What is remarkable is that putting-out then intensified, even after union power ebbed in the late 1970s and when the difference between the labor costs of putting-out firms and factories had all but disappeared. Manufacturers had realized that decentralized production permitted greater specialization and faster response times. It also avoided large investments in a vast array of costly machinery that is difficult to utilize effectively within a single company, when short production runs of about 500 garments demand constant machine resetting and retooling (Piore and Sabel, 1984; Bursi, 1989; Zeitlin and Totterdill, 1989). The asymmetries of knitwear technology, in which some knitwear tasks remain highly labor intensive while others are automated, also limit the through-put efficiencies of the centralized factory, where unfinished garments can easily pile up, thereby increasing inventory costs and delaying deliveries (Chandler, 1977; Mariotti and Cainarca, 1986). When there is great production differentiation, economies of scale become secondary to economies of timing (Aoki, 1990)and, consequently, smaller organizations and reliance on putting-out can reduce uncertainty.
This emphasis on specialization has resulted in a highly decentralized industry characterized by an interfirm rather than an intrafirm division of labor. It is also an industry in which microfirms have a conspicuous presence. In each of the last four decennial industrial censuses, large-firm employment has registered a monotonic decline; the very smallest firms, with five persons or fewer, have presented a less consistent performance: 29 percent in 1961; 21.7 percent in 1971; 36.4 percent in 1981; and 26.9 percent in 1991. There are a number of factors that contribute to both the large number of small firms and changes in their density over time, including technology, distribution, public policies, moral capital, and small-firm economics.
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 I visited 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 Italian retail 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 Italy for 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, principally to countries of the European Union and North America (Regione Emilia-Romagna, 1993: 23).
Public policies. If the 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 Italian social 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 Provincial Artisanal Commission (CPA), a quasi-public body composed of artisans, trade unions, and public officials that 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 provincial collective 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. If those 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 ability of 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 availability of 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 payroll services 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 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 knitwear production process are necessary. Figure 1 presents a sequential flow chart of knitwear tasks.
Manufacturers first purchase the yarn from textile firms, which are principally located 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-ironing the cloth prior to 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 interfirm specialization 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 Carpi area, 24 percent offer more than a single service (Comune di Carpi, 1993: 36). Most of these firms are ironing establishments that [TABULAR DATA FOR TABLE 3 OMITTED] 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. In the Carpi study 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 fairly close to the weavers and transporting materials was not unduly burdensome, others reported that transporting woolen 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 infrastructure today 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 (Provincia di 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). If we 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 manufacturers in Modena, especially those who invest 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 internally and 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. In the 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. If the 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 unlikely that 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). In the 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. In the 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 particular assets are few in number, Williamson reasoned that it is more likely than not that customers will eventually pay above-market 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 implicitly conveys 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 district both because of the enormous concentration of firms in the same industry and because of the transparent relationships 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 industrial areas “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 regularly document 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 quality of the work, and even compliance with the tax laws all need to be negotiated. These ambiguous 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 refrain from 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 rural areas (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 rural areas, where controls by government and workers over labor were 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).
Labor flexibility was 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 hiring employees, 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).
As already mentioned, employees in Modena putting-out firms are covered in large measure by the same contract as employees in industrial firms. Labor flexibility, however, remains an important aspect of modern-day putting-out. Because Italian labor 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 regularly substitute 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-working weavers 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 partially subsidize their housing costs with state artisanal construction loans, while achieving the oft-expressed Italian ideal to live within a extended family (Pitkin, 1985).
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. In the 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 proletarianization thesis 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-ribbon merchants monopolized control of the design aspects of production when they introduced the Jacquard loom. Outworkers then became dependent on the perforated cardboard patterns needed to operate the looms. Similarly, Kisch (1989) and Landes (1969) emphasized that the growth of traditional putting-out in Europe paralleled the destruction of the guild system and its craft and apprenticeship traditions.
In Carpi there is no evidence of deskilling or of manufacturers monopolizing the secrets of knitwear production. Skill levels in the Carpi knitwear industry are fairly evenly 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 training ground for skilled labor, since knitwear skills are not firm specific (Solinas, 1982).
In terms 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 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 region in which Modena is located. 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 regularly turned 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).
Putting-out in the Modena knitwear industry has become the dominant mode of production both because of its own internal rationality and 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 limited economies of scale. This opens the way for different forms of decentralized production and an interfirm division of labor. Capital costs, 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. In the 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 Italian knitwear organization tried to decentralize their vertically and horizontally integrated 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 Italian subcontractors (Rawsthorn, 1989).
For Britain’s clothing 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 Italy there 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 Italian putting-out system (Orru, 1991; Orru, Biggart, and Hamilton, 1991).
Orru (1991) argued that the similarities between Italian and 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.
If this paper underscores the key role of the family in the putting-out enterprise, the Italian experience also cautions one from imputing too much importance to cohesive family structure. In southern Italy, where family ties are so strong that Banfield (1958) once targeted them for impeding economic cooperation, disproportionately few artisanal firms have been created during the last 30 years (Weiss, 1984). 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 California demonstrates 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. In Veneto, the region bordering Emilia-Romagna to the northeast, putting-out arrangements have also created great wealth. There, the Catholic Church has operated as the principal mediator of conflict, placing less emphasis on social equality than in Emilia-Romagna, where the left has been historically dominant (Trigilia, 1984). Firm structure 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 principally to nonartisanal industrial establishments that employ an average of 40 to 50 employees internally and 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 horizontally integrated 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 and forms of cooperation necessary to achieve it (Knorringa, 1995). While putting-out in Modena may defy easy replication by policy planners, it inspires confidence that the paths to economic development are less predictable and well-trodden than economists have led us to believe. It also reveals that social aspects too long viewed as unrelated to modern economic organization – extended families, trust, and attachment to community and friends – may actually contain elements that prefigure a reinvigorated social market economy.
1 Data as of December 1992, obtained from the Modena Camera del Lavoro (Federation of Labor).
2 There are no reliable data on the incomes of artisans nor are interviews very useful for obtaining this information. My informants estimated that artisans who employ no labor and do not have large investments in capital equipment earn about twice as much as a production employee, though the difference in hourly earnings may be substantially lower.
3 Data provided by the statistical office of the Camera del Lavoro di Modena, based on annual statements filed by knitwear manufacturing corporations at the Modena courthouse.
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Mark Lazerson [“A New Phoenix?: Modern Putting-out in the Modena Knitwear Industry”] is an assistant professor of sociology at the State University of New York at Stony Brook, Stony Brook, NY 11794 (e-mail: firstname.lastname@example.org). His current research examines subcontracting relations in network organizations and technological innovation in decentralized manufacturing. He holds a J.D. from New York University Law School and a Ph.D. in sociology from the University of Wisconsin, Madison.
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