Work: Production Systems and the Trajectory of Change: Some Reflections

There is growing disjunction between systems of production and the control of global capital over production. Production is increasingly socialised while its control is centralised. If we look at the contours of production systems, we see growing complexity and a widening of its dimension: the system of production is a global network of units increasingly interlinked with each other. While the flows of material and goods are taking place within this network, global mergers and acquisitions are leading to a greater centralised control over the system. The control of capital over the production system is exercised by controlling technology and information flows within the system. While this centralised control is more visible as a phenomenon, the changes in the underlying structure of the production system needs to be understood in order to see the growing disconnection between the developing system of production and the current nature of its control.

Many people believe that centralisation of control over production necessarily means centralisation of production. The picture they have in their minds is even larger vertical integration of production as we get global giants that control more of the world’s production. I will argue that this picture is false and capital, in its control of production, is becoming even more parasitic. There is a growing disconnection between capital and production: production is becoming de-centralised and spread wide with a large number of third-party, small production units. Large global capital is increasingly divorced from production owning only brand images and providing a flow of funds to move goods but not involved with productive units themselves. Down sizing and re-engineering of companies had precisely these goals. It is not surprising that the 20th century that ends on this note should see the growth of speculative capital transactions of a magnitude that it completely dwarfs transactions in actual goods and services. In today’s world, it is speculative capital that completely rules over capital involved in production.

While the relation between capital and production has changed in this way, the system of production has also undergone a transformation. The characteristic of the production system today is not only its complexity and global reach but also the rapidity of technological obsolescence within the system. Any configuration of the production system – however complex it is – must permit evolution of the system, both quantitatively and structurally. It must not only allow innovation but also re-configuration. The configuration of the system must therefore be robust enough not to degrade frequently and be subject to devastating losses of productive capacity, but also be flexible enough for allowing such changes. As I will argue, the centralising nature of the current globalising paradigm precludes such flexibility and subjects the local and the global economise to cyclic crises.

There is a need to abstract out the domain of technological discourse from that of the economic one. Most of the radical critiques of imperialist globalisation have taken the economy as their point of departure. My choice of different point of departure and the trajectory I take for analysis is not because I feel that these critiques are less powerful, but to suggest that the economic answers sought for a global restructuring must be also aligned to the emerging morphology of the production system. Some of the alternatives that are being advanced suggest that it is possible to return to a far more localised system of production with different levels of technological development. The struggle for a new world would then shift to not how production systems are to be re-structured to meet social needs but to one of life styles. I believe that while defining what are social needs and differentiating them from brand image driven artificial ones are important, the other world we are striving for cannot be a more local and a more static one. In other words, change and innovation are to be built in to any future model of development and not given up as a characteristic of only global capital.

Technological Dependence and Self-reliance in the Age of Globalisation

Some countries today that are integrating into the world economic order clearly are more equal than others. The economic relations between countries reflect the nature of this unequal world. Each country is integrating itself in the global order at different levels. In this integration, control of technology is the key to determining the level at which countries integrate themselves. At the lowest rung are the countries that are bartering their natural resources for manufactured commodities. At the middle level are countries like South Korea, Taiwan, China, Brazil, India, etc., which are able to win some space for themselves and are able to sell manufactured goods; at the top of the heap are advanced countries, who not only sell knowledge intensive goods but also knowledge itself as a commodity.

The global dominance by advanced countries may make it appear that there is no visible way out for third world countries, even relatively developed ones. Particularly when advanced countries are seeking much greater protection of their “right” to monopoly over knowledge through new patent/intellectual property right regimes, the chances of being able to change the terms of integration to the global economy may seem rather bleak. Of course, this scenario has been made bleaker by the collapse of the Soviet Union and the absence of any countervailing global force vis-à-vis the West. And even if there are mutual contradictions between advanced countries/groups such as between the US, Japan, EEC etc. these may be of little help to the third world. When it comes to transfer of technologies in ‘strategic’ industries, they all act essentially in concert.

There have been two ways of looking at technology, both of which reflect a deep pessimism with respect to developing technology (or technological self-reliance). To the ideologues of imperialist globalisation, self-reliance is passé and the only hope of acquiring advanced technology is to become junior partners to the MNCs. As the MNCs control the current generation of technology and are creating the next generation ones, the only possible route to advanced technology lies in being a supplicant. The second and apparently a more radical position, accepts that it is not possible today to meet the onslaught of MNCs and therefore the resistance must come from a relatively autarchic and ‘closed’ economy. Obviously, as this closed economy cannot reproduce all the advances made elsewhere, the need then to reject the consumerist life style of the ‘west’: the terrain of struggle is then life styles.

What do we mean by self-reliance? Here, I am focussing narrowly on technological self-reliance. People may think that self-reliance means that we only trade in those items that are not available locally and produce the rest ourselves. This is not what I mean by self-reliance. Technological self-reliance, in my sense, is the opposite of technological dependence: a country that is self-reliant enters the exchange in technology on equal terms. They are able to do it as they can produce some of the new technologies locally while importing other technologies. No country can hope to develop the whole gamut of technologies that are required today. However, if they are only recipients of advances made elsewhere, these countries then enter into dependent technological relationships. However, if they a part of the ongoing international exchange of technology — both as suppliers and recipients of technology — then they have the potential of emerging as equals. The quanta of such transfers are not relevant: the question here is of the symmetrical nature or the asymmetrical nature of this exchange. An asymmetrical set of transfers is a reflection of technological dependence; a symmetrical set of transfers reflects self-reliant economies.

Production of new technology cannot be a one-time occurrence. The systems of production of technology – research and knowledge systems — must be able to reproduce this continuously. Since less developed countries cannot hope to match the scale of required, it might appear that they are forever condemned to backwardness. Reality is not that bleak. The continuous nature of technological change opens out windows of opportunity.

While issues such as consumerism and paths of development are important, I have argued elsewhere that limiting the growth of technology based on such considerations would inevitably lead at some point to the failure of such a closed economy: it is not possible to build this kind of self-reliance and autarchic economies in the world of today. Instead, we need to look at the structure of the production system and its technological underpinnings to work out a strategy of change.

The argument here is not to be mistaken as a technological “fix” to imperialism. The central position advanced is that unless the technological vision and the economic one are aligned and holistic, sustainable change in the global order is not possible.

From Rigid to Flexible Structures: A New Technological Paradigm

Mass production, starting with the industrial revolution to the Fordian paradigm, brought down cost while providing high quality. It achieved this using standardisation of components and goods, economies of scale and quality control. However, it produced rigid production structures, large plants and eliminated or minimised customer choices. As Henry Ford was reported to have said, "You can have any colour as long as it’s black". The end user was willing to sacrifice variety for quality and low cost. Customised goods remained but as expensive goods for an elite and a niche market.

Technologies of the ’50s and early ’60s were relatively mature, i.e., had been developed some time back and were not subject to rapid changes. Principles of steel making, development of turbines etc. changed far slower then than the current technologies, which are being driven by the micro-electronic revolution. If change is not rapid, self-reliance means the ability to increase progressively the indigenous content and reduce the imported one over a period of time. In such a scheme import substitution is the key — once a technology is borrowed, it only needs to generate its inputs domestically in order to achieve self-reliance. This was the path many of the newly liberated countries followed after end of colonial rule.

While ’50s and early ’60s were to see generally stable technology regimes and extension of production as the major thrust, this was to radically change in the succeeding decades. The development of microelectronics and cheap computing power was to introduce a new dynamism in almost all production technologies and even the capital goods sector. Apart from the relative speed of change of technologies in the ’70s and ’80s, there was another major development that was taking place globally in the system of production. The post 60′s period was to see an increasing degree of complexity of the system of production and in the product. The ability to incorporate ‘intelligence’ in the product was also to see the development of a whole range of new industrial and consumer products. Earlier, it was relatively simple to estimate a country’s development — it was strongly correlated to the amount of steel and energy being used by a given economy. However, with the growth of the information and service sector in advanced countries, which today is of the order of 60 % of their economy, such co-relations do not work anymore. Further, a study of a cross-section of industrial and consumer products will show that the complexity of today’s products are far more than a similar range of products of the earlier period. Apart from the dynamic nature of technology, it is also the complexity of both the products and the production systems that is the characteristic of the production systems today.

Even though this is still the way the majority of manufacturing is performed today, changes are beginning to take place . In addition to high quality, low cost, and fast delivery, many customers now demand products that exactly fit their needs. We’re moving toward an environment where factories will start combining mass production and customisation into "mass customisation." The customer today wants variety and high quality and wants it at the same cost. With variety, we also see the dwindling visibility of the product and an increased visibility of the brand. However, this is not mass customisation. Mass customisation is the customer expecting his or her exact specification to be produced in the factory and reach him/her in a matter of days. In such a scenario, the global brands will become even more important; the product being unique cannot be advertised independently. The factory taking the order from the customer then has to schedule the production process and meet the delivery target of a few days. This is the direction we are moving today in manufacturing systems (Fig. 1).

With mass customisation, the economies of scale undergo a radical shift. With increasing product differentiation and mass customisation, the conventional arguments in favour of economies of scale no longer hold.

The economies of scale have hitherto worked in favour of larger plant capacities. The prevailing economic theory regards the economy of scale to be self evident, subject only to constraints of capital and technology. However, there are various examples where it has been shown that economies of scale must be offset against the probability of failure; the failure probability of a larger plant – consequently outages and downtime — is more than that of a set of smaller sized plants. Further, the rapidity of technical change and the instabilities of the global market have introduced new factors in considering the scales of production and their economic viability.

Earlier plants – process or manufacturing – were built on the basic economies of scale. Thus, the bigger the plant, less the cost per unit of output, this was the basis of most plant’s design. This resulted in huge plants that took a long time to come on-stream and had very high capital costs. If the technology and market demand held stable in this period, as also the input and output costs, increasing the size of the plant to bring down unit costs was the way to go. However, if any of these factors changed, then the owners could be left with a very large investment that generates low or even negative returns.

In a stable technological regime, technology changes that fundamentally altered costs were rare. However, the changes in 20th century have not only been explosive, the graph continues to climb (Fig. 2). This has altered the fundamental equation between plant size and economies of scale.

The second strike against earlier assumptions of economies of scale stem from volatility of prices in the global market. Further, in an era of global economy, fluctuations of the exchange rates could also have adverse effects. Thus, the cost of oil, one of the major inputs to the chemical/petrochemical industry changes monthly, making all calculations of input and output costs meaningless. Thus, the future paradigm lies, not in large behemoths, but in nimble and agile plants that can change their product mix according to market conditions. The market will also decide what to produce and how much. There is thus a threat to large plants emanating from technological or market instabilities.

Large plants – either manufacturing or process plants – tend to have rigid production structures. They are large fixed structure plants producing only a specific set of goods from a specific set of inputs. In a fixed structure plant the flow of the process is fixed and cannot be changed. This allows the economies of scale to be fully exercised. The economies of scale stem from the proportionate cost of equipment – pressure vessels, tanks, pumps,

compressors, etc. — decreasing for each additional unit of output. This means that the incremental cost of producing an extra unit of output is less than the average cost of the total output produced. This is due to the physical relationships involved – cost of equipment increases linearly (in some sense) with its physical size while the output increases proportionately either to the cube or the square of the size.

Creating Brand Images

Why have brands and brand images become so important in the world? Part of the reason undoubtedly lies in the ability to create an image in the minds of the consumers of which somehow associates the quality of a Michael Jordan with the Nike shoe. If only he has he same shoes, the Air Jordan – he would soar like Michael Jordan his hero in the basketball field.

This brings in to the second part of the brand business. It is no longer a product that is important. Industrial capitalism resulted in mass manufacture and reduction of costs and improved quality. It achieved this using standardisation of components and goods, economies of scale and quality control. The end user was willing to sacrifice variety for quality and low cost. Customised goods remained but as expensive goods for an elite and a niche market.

As we move towards mass customisation, we also see the dwindling visibility of the product and an increased visibility of the brand. With increasing variety of products today, the brand is already becoming far more important than the product, a trend that will only grow as we enter the regime of mass customisation.

Once the products are sold as brands and the brand image created through television and other media, we have to look at the economics of this phenomenon. When a Michael Jordan is paid more for his endorsements of Nike than the entire workforce in Indonesia that produces these, and a shoe costing $5 is sold for $50-100 in the world market using the power of the Nike brand image, a fundamental shift is taking place within the system. The brand image builds super monopoly profits by ripping off the consumers using media to create consumer demand.

The key issue here is that with brands creating mass consumer goods monopolies, technology, costs and quality become less relevant. In most of the consumer goods market today, the price of the premium branded products are typically 5 to 10 times their cost of production. From coffee to jeans, the producers get only a fraction of the final price of the product. It is not that alternate unbranded products are not there in the market. But the pressure of high voltage media advertisement drives the consumers to branded products creating a market for branded goods that is not governed by either quality or its intrinsic worth. To cap it all, companies owning such global brands do not even need to own the production facilities: production can be comfortably farmed out to smaller players who then depend on the brand owners for their market.

De-scaling Technology and Flexible Automation Systems

With rapid changes in technology and volatile markets, the advantage of economies of scale is offset by higher risks. Therefore, there is a considerable advantage of having flexible manufacturing or flexible batch processing systems, which can change their product mix based on the current market conditions. Instead of building large plants, a flexible production system that may have lower economies of scale but is able to adapt better to new conditions, is a better option. The flexible production systems of this kind require a variable plant structure that can be re-configured depending on the product mix. The re-configuring demands a versatile control and automation systems in order to maintain plant efficiencies and quality. With this, it is possible to de-scale the plants and operate at much lower break-even points as a variety of products can be made from the same basic plant. It is this emerging new paradigm of production that is currently in conflict with the need of capital to impose a centralised control over production.

The automation systems for flexible production systems are already available for the manufacturing sector. However, the costs of such automated CAD/CAM systems are relatively very high and such automation systems are highly capital intensive. Currently, traditional CAD/CAM systems can be introduced in plants with plant capital costs of $10-25 million and above; while such firms are considered medium-scale in the US and Japan, in countries such as India only a few large industries would fall in this category.

Similarly, for the process industry, flexible batch processing or flexible process plants are being thought of, though the process design for the same is more complex. However, here also the cost of the automation systems make it appropriate for plants with capital investments in the range of $25 million and above.

The high cost of automation is accompanied by a rigid notion of what to automate. Arising in the West, as such technologies do currently, it imposes its notion of full automation that stems from removing the labour from production. Not only is labour removed from the production, the process of automation is also engineered remotely with no participation from those running the plant. For example, Nestle has the same production system with identical automation irrespective of its location. It is not surprising that the net result is that displacing labour has been central to the growth of “modern” industry, irrespective of whether the economy is labour shortage or a labour surplus one. While the more traditional industries die out replaced by more technologically advanced ones, industrialisation today is presumed to be low in labour content. For the mass of the people in the world today, there is not even the hope of future development reaching them.

The key to future lies in de-scaling technology and developing a different automation technology paradigm . The automation would intervene selectively to ensure high quality but may not automate the entire process. They can also be developed in a way that allows far more control of the way the plant is automated to the people in the plant including the current workforce. De-scaling the process and making it suitable for a multiple product mix makes such plants economically more viable then one large plant.

One of the reasons that such de-scaling has not proceeded far enough is due to the fact that quality automation is integral to such process industries and has, under current conditions, a high cost. It is the control of automation technologies that makes de-scaling of technology and plants further difficult. Cheap automation technologies is the key to de-scaling processes and allowing the survival of large parts of the traditional industry in various countries to reach modern production standards without sacrificing labour. The use of such selective automation and the availability of cheap automation tools would make it possible for a range of industries to be automated which otherwise would be rendered obsolete or non-competitive.

From the above, it may be seen that there are other paradigms of development than the current top driven one. A system of production based on de-scaled technology, different kinds of automation with different kinds of structures are all possible today. Instead, the control of capital over the production process demands and uniformity of plant structure irrespective of its location or state of development and this is not inherent either in the structure of production or in the nature of automation. It is the centralising nature of capital that is imposing a barrier to the “natural” growth of technology and the production system.

Nature of the Production System: From Vertical Integration to Networked Structure

If the centralisation of capital is not accompanied by a centralisation of production, what is happening to the system of production itself? Capital was always deeply concerned with centralising control over production. The giant vertically integrated monopolies that came up in the 20th century had not only economies of scale driving it but also the need of capital to physically control production. Multi-national companies had always the problem with losing control of its various subsidiaries, as once out of sight, it was difficult to mind as well.

With de-scaling technology becoming the new paradigm, de-centralisation of production was an inevitable result. The question then for capital was how to retain control under conditions of such de-centralised production.

The development of information technology and global communications created conditions by which it was possible to have de-centralised production yet exercise control by controlling the data flows within the system. Controlling technology flows within the system and controlling the market could then reinforce this control. If we look at the structure of MNCs today, this is the path they are traversing.

For those who follow the current jargon of the industry, centralising of data is known as Enterprise-wide Resource Planning (ERP). ERP imposes on all the units in the system uniform data structures and allows the management to control every facet of its operations by strict control of its data. Thus information flow within the system is tightly centralised, even when the production is decentralised.

The second element of control is exercised by controlling technology flows within the system. This has again two aspects: one is the importance of Intellectual Property Rights regime in maintaining such control over technology. The other is the development of technology that can then be given to either partners or loosely held companies. As technological obsolescence would demand a quick turn over of technology, control over the production of technology would again reinforce the centralisation of control. Lastly, the control of the market through creation of brand image also ensures the control of the productive units without even owning them.

The ability to maintain control of production without actually owning them (or even if owning them, the possibility of dispersing them to low wage and low cost economies) is producing a different architecture of production. The architecture is increasingly a networked architecture of a particular kind.

Those who deal with networks know that in the last few years, remarkable insights have been achieved in understanding such networks. It is also clear that most self-sustaining systems are naturally organised as such networks. These networks are neither random nor tightly coupled. Most of the connections are local with local clustering and only a few connections between such local networks make the entire network interconnected. If we plot the connections between each of the productive units, it is self-evident that the network architecture is the structure of production today. Downsizing — breaking of large vertically integrated production units — has led to replacing such units by loosely coupled smaller production units spread across the globe.

The consequence of such a structure is enormous. It allows us then to look at what are the emerging properties of such networks and what will put it in a state of crisis. If such a network is rigidly centralised, the possibility of the system evolving or re-configuring is not going to happen. Instead, change in the system is difficult with the system of production remaining static over time. Any systemic crisis then causes the breaking down of the system itself.

If we then look at the current trajectory of development that lies within the global system of production that is developing, we will see that the future lies in advanced production systems, selectively automated, networked together to meet local and global needs. They can be controlled locally and evolve by changing the nature of their linkages as they themselves develop. A co-operative planning and production framework would allow for plurality of production forms and technologies instead of one shoe fit all variety of corporate globalisation.

With the divorce of capital from production, the increasingly parasitic nature of capital and its centralisation stands out as the cause of the current crisis in the world system. A global network of production that is free of both is not only necessary but also an imperative for providing a sustained environment for development.

Prabir Purkayastha,
All India Peoples Science Network

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