As revealed from our survey, for Coimbatore I =0, i>0. Hence corresponding expected utility level is ¨U=p(i,e)U(I)−d(e)and ¨U=0 when e=0 (Figure 3.2).
Thus we observe that the optimal effort level for a Coimbatore firm owner, emax>0.
Note 3: If in Coimbatore we have a monotonically decreasing curve starting from (0,0), that would imply that the potential entrepreneur would never start the busi- ness. Further, once the entrepreneurs start searching the market by themselves their initial level of information increases and hence the above curve possibly would shift up over time leading to a higher level of utility.
3.10 Policy Implications and Concluding Remarks
In a globalized world, our general policy regarding any sector should shift from being protectionist to helping the firms to be competitive.19In particular, for the industry sector, use of modern technology becomes utmost important factor for remaining competitive, and the policy initiatives by the state should address this aspect appropriately.
60 M. Rajeev Further, the two different situations relating to the same industry located at two separate locations show how a uniform policy cover may be ineffective. From the current study of small-scale foundry firms at Howrah, we observe that providing any type of subsidy (with the hope of protecting the SSI sector) to these firms will indeed be a waste of resources. This would furnish further incentive to reduce prices and capture the lower end of the market rather than to enhance investment and pro- ductivity. What is lacking in the system is information about new technology and the marketing possibilities for the improved products, and the Foundry Association can play a role in this regard.
Owing to the stricter pollution-related norms, in most developed countries, foundry is no longer considered a profitable industry. Thus, for the developing countries there is a potential market for foundry products, provided the quality is maintained. Only when the foundry firms at Howrah are convinced of these (demand) potentials, will investment come forth. Once a critical level of information is provided and investments are made, a virtuous cycle may start. Coimbatore firms, on the other hand, face an entirely different set of problems and hence require a different kind of assistance. Some of the problems the firms at Coimbatore reported are the frequent change of government regulations that in turn create uncertainty and affect investment adversely. Furthermore, export procedures are complicated.
Reform in these directions may be useful.
Finally, the issue of “who is an entrepreneur” in the Howrah setup also remains ambiguous. We observe that in the Howrah foundry firms, the coordination of different factors of production is actually in the hands of the intermediary. But importantly, this intermediary has no role to play in making an investment deci- sion. However, in the other parts of India there are examples of business ventures (though a few) where such an intermediary network exists and the intermediary and the capitalist operate in a collaborative fashion to make investment decisions. At Howrah, even with such heavy dependence on the intermediary, mistrust between firm owners and intermediaries prevented such collaboration. Perhaps the reason for such a stalemate lies in the fact that the firms in Howrah were caught up in the broader conflict between labor and management that prevailed in the state of West Bengal during much of 1970s and 1980s, and further because the relationship between intermediary and firm owner could not transcend their earlier relationship as employer and employee.
Notes
1Several papers discuss about the role of the small-scale sector in developing nations in gen- eral and in India in particular, e.g. see (Gang, 1995, 1992; Desai and Taneja, 1990; Dhar and Lydall, 1961; Anderson, 1982; Ghosh, 1988; Liedholm and Mead, 1986; Suri, 2002; Narasaiah and Margaret, 1999).
2Source of the information on SSI sector of India provided in this section, is the web-site of the Ministry of Small Scale Industries, Annual Report, various issues.
3 Investing in Labor and Technology 61
3Here we take into consideration only the registered small units. The definition of a small-scale unit as of 21.12.99 is an industrial undertaking in which investment in fixed assets in plant and machinery, whether held on ownership terms or lease or hire, does not exceed Rs 10 million.
4In this connection see Rao (2002).
5Technology for Small-Scale Industries, Small Industries Development Bank SIDBI (2000).
6Often due to Government’s protectionist policies relating to the SSI sector, a small entrepreneur finds it optimal to remain small and this can be counterproductive (Vepa, 1988).
7See alsoTable 3.2for the importance of SSI sector (in terms of number of units) in West Bengal.
8The basis of such assertion has been discussed in the subsequent section.
9The author herself visited the foundries in Howrah and Coimbatore and interacted with the personals. Resource constraints had prevented a large scale survey involving appointed investigators.
10From CODISSIA (Coimbatore District Small-scale Industries Association) Bulletins.
11From CODISSIA (Coimbatore District Small-scale Industries Association) Bulletins.
12For a detailed discussion see Banerjee et al. (2002).
13For national simplicity we have used the same probability. Results hold if one assumes a different probability distribution.
14For proof of these Propositions see Rajeev (2004).
15One can use different notations for profit for Howrah, Coimbatore and intermediary setup. To keep the notations simple, we have not done that.
16For proof of these Propositions see Rajeev (2004).
17As mentioned above, an intermediary is usually an earlier laborer from the industry with a low education Level. Hence his/her information reach is very much limited to the local market.
18Level I might depend on various factors, in particular, on e itself. However, for simplicity, we have assumed it to be fixed.
19Regarding policy issues on rural industries see Naik (2002).
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