Labour repression & the Indo-Japanese divergence

Saturday, October 14th, 2017

At the beginning of the 20th century, the Indian and the Japanese textile industries had similar levels of wages and productivity, and both were exporting to global markets:

But by the 1930s, Japan had surpassed the UK to become the world’s dominant exporter of textiles; while the Indian industry withdrew behind the tariff protection of the British Raj. Technology, human capital, and industrial policy were minor determinants of this divergence, or at least they mattered conditional on labour relations.

Indian textile mills were obstructed by militant workers who defended employment levels, resisted productivity-enhancing measures, and demanded high wages relative to effort. But Japanese mills suppressed strikes and busted unions; extracted from workers much greater effort for a given increase in wages; and imposed technical & organisational changes at will. The bargaining position of workers was much weaker in Japan than in India, because Japan had a true “surplus labour” economy with high rates of workers ‘released’ from agriculture into industry. But late colonial India was rather ‘Gerschenkronian’, where employers’ options were more limited by a relatively inelastic supply of labour.

The state also mattered. The British Raj did little to restrain on behalf of Indian capitalists the exercise of monopoly power by Indian workers. Britain had neither the incentive, nor the stomach, nor the legitimacy to do much about it. But a key element of the industrial policy of the pre-war Japanese state was repression of the labour movement, which kept the labour market more competitive than it otherwise would have been.

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