Petty Capitalists and Globalization: Flexibility, Entrepreneurship, and Economic Development

10. Labor Standard Regulation and the Modernization of Small-Scale Carpet Production in Kathmandu Nepal

10 Labor Standard Regulation and the Modernization of Small-Scale Carpet Production in Kathmandu Nepal Tom O’Neill Introduction Production of Nepalese carpets for a predominantly Western European market received a major setback in 1994, when NDR, [Nord Deutschler Rundfunk] a German television network, ran a documentary entitled “Nepalese Carpets: German Merchants Profit from Child Labor.” The documentary, which revealed that thousands of Nepalese children had been put to work in the carpet factories in the Kathmandu Valley, had a devastating effect on carpet sales to Europe, where consumers rolled up their carpets and “hid them with shame” (USAID 1994). The industry has been in decline ever since, for a complex of reasons such as overproduction , declining quality, and a saturated consumer market as well as the controversy over child labor. In this chapter, I will examine the impact that decline has had for the large petty capitalist sector that grew around carpet exports in the late 1980s and early 1990s. The need to regulate the industry to enforce labor standards, standardize product quality, and discourage supply side overproduction placed new restrictions on small scale capitalism: as one producer told me in 1995, “within two years there won’t be any small carpet factories anymore.” 201 This was a common sentiment in Nepal at the time, and reflects an assumption that as industrial capital progresses smallscale production will eventually disappear. Many Nepalese petty capitalists expected this, and people in government and non-government -regulating bodies shared this view. There was a consensus that modernization would eventually transform the conditions that made petty capitalist production possible, even though the small-scale carpet production sector, consistent with theories of petty commodity production, emerged in response to the extension of Western markets into the production of a “traditional” Tibetan craft. In what follows, I argue that this is not a function of a priori evolutionary development. Recently we have recognized that flexible specialization provides a context for the expansion of petty capitalism as investment and labor costs are reduced by decentralized microproduction (Lash and Urry 1987; Harvey 1989). Jinn-yuh Hsu, in this volume, shows, for example, that the decentralization of Taiwan’s high-technology industry into small, flexible firms is an adaptation to rapid shifts in technology that privileges “economies of scope, rather than economies of scale.” But even though vertical disintegration may characterize regional economies in many newly industrialized countries, in the Nepalese carpet industry petty capitalism is an impediment to a desired modern, vertically integrated industrial sector. Small scale producers are thought to produce too many low quality carpets and jeopardize the international market by employing child labor, thus regulations are formulated that limit their ability to accumulate capital. Since 1994, new industrial standards and international child labor monitoring schemes such as “Rugmark” contribute to negatively transformed conditions for small-scale production, and many petty capitalists and their investments have been sacrificed in the interests of modernization. There is an irony to this. The industry proudly represents its product to the world as a handicraft, and the state categorizes it as a “cottage industry,” yet production is being concentrated in large export companies where Tibetan carpets are mass-produced by a waged proletariat. Meanwhile, the small-scale weaving units that might more properly fit the description of a “cottage industry” are losing ground, and those that remain are becoming increasingly subordinated to exporter capital. I will describe this process in relation to the informality of the petty capitalist sector; however, I will not speak of an informal sector in an effort to avoid both a dichotomization of types of production and the association of that 202 Tom O’Neill term with poverty alleviation and grassroots entrepreneurialism (see e.g., Ypeij 2000; De Soto 1989). Informality, according to Bryan Roberts, is “income earning activities unregulated by the state in contexts where similar activities are so regulated” (1994: 6). By informality here I mean the ability of small-scale carpet producers to shift between subcontracting to relatively autonomous but riskier stock production that is viewed as a threat to the sustainability of carpet exports. In the first section, I examine the position of petty capitalists as self-employed entrepreneurs subordinated to export capital. Modernist theories view petty capitalism as a transitional stage that will be eliminated by the growth of formal wage employment, and this modernist teleology shapes regulatory regimes in Nepal. In the second section I discuss small-scale...