Transferring Risks, Microproduction, and Subcontracting in the Footwear and Garment Industries of Lima, Peru By Annelou Ypeij Presented by Lisa Snyder

Two related phenomena that characterize the present-day industries in Lima, Peru  The explosive growth of the small-scale and micro sector  The increase in subcontracting by large enterprises  This change can be seen as part of a worldwide process of economic informalization and decentralization of industrial processes

Peruvian Economic History  Two decades of recession and growing poverty (both urban and rural)  Between , the per capita GDP (gross domestic product) dropped 32%  the real urban minimum wages decreased by 90%  The subemployed population increased from 26% to 76%

 In 1993 investments and exports began to expand (due to political stabilization)  Between the Peruvian economy was one of the fastest growing in Latin America  However, the decline of real income has forced households to involve all members in income-generating activities (much of this in the informal sector)

The Informal Sector  In 1984, the informal sector offered almost 600,000 jobs  In 1993, the informal sector had increased and offered almost 1.3 million jobs (by then there were more people working in the informal sector than the formal sector)

What is Subcontracting?  Subcontracting: the partial (or complete) manufacturing of products by enterprise A (the small-scale or microenterprise) with the aim of delivering them to enterprise B, which sells the final products with its own labels attached to them

Forms of Subcontracting  Partial Subcontracting: the subcontracting enterprise assigns part of the production process to a subcontractor (some materials may be provided)  Complete Subcontracting: the subcontracting enterprise assigns the complete manufacturing of a product to a subcontrator and provides only labels and packing material

 Nonequivalent subcontracting: the relationship between two enterprises of a clearly different size (between small-scale and large-scale enterprises)  Equivalent subcontracting: involves enterprises of more or less the same size and is very common among small-scale and microproducers in Lima

Large Enterprises’ Policies on Subcontracting  By subcontracting, large industries substantially economize on labor costs (an employee working in the informal sector earns 50% less than in the modern sector)  In 1985, large companies completely produced 87% of products in its own plants; this number was down to 43% by 1990

 By the end of 1991 management presented a policy that stated production in its own plants would be terminated and replaced by subcontracting  Subcontracting is already so important in the enterprises that without it the survival of the large companies would be at risk  By subcontracting, management transfers risks to the small-scale and micro sector and indirectly generate jobs within that sector

 Subcontracting takes place in situations of both decreasing and increasing production volumes  Number of workers is reduced to hinder trade union actions  The enterprise can more easily meet the demand for middle-class exclusive product  Materials can now be processed by hand (the poor quality makes them ill-suited to mechanical processing)

Subcontracting and Gender  Not a gender neutral process  Strong sexual division of labor in both industries (because of the knowledge each gender “naturally” possesses)  women earned 45% less  “Female tasks” need “female characteristics such as dexterity, speed, precision and patience”

 A growing number of women are establishing communal workshops (limited capital and access to sales markets)  These workshops involve more people than a typical small-scale enterprise, so sometimes management will prefer to work with them  Large-scale enterprises not only benefit from the small-scale/micro sector, but also further benefit from the women within those areas

A Continuum of Production  But subcontracting, large-scale and small- scale enterprises become increasingly interwoven  The dualistic notion of formal and informal sector is too simplistic to explain the relationships  Helps large-scale enterprises use labor as they want, maintain flexibility and reduce costs

Small-Scale and Microproducers and Subordination  The degree of independence of a producer can be measured in terms of: Ownership of machinery and tools Ownership of machinery and tools Control over production and labor processes Control over production and labor processes Direct contract with purchasing/sales markets Direct contract with purchasing/sales markets

 Large enterprises increasingly transfer risks to subcontractors, with management setting the terms of the relationship  “There is always a large number of small- scale producers out there, waiting to take over my job”  Subordination chain has two basic structures: pyramid and diamond-cut  Many producers judge their own situation as very positive (‘informal’ employers can ear, 3x as much as their ‘informal’ employees)

Hired Worker and Chain Subordination  Small-scale and microenterprises have worse working conditions than in the large- scale industry  Agreements are made verbally and working conditions are constantly renegotiated  Often work 12 hours a day, 6 days a week  Space to work is often too small for the number of employees working there

 When workers do attempt to organize, the leaders are bribed and those involved aren’t hired later  Subcontracting adds to the insecurity of the workers and adds to the unfavorableness of their working conditions  Small-scale and micro subcontractors are obliged to plan production on short notice and transfer some of the risks to their workers

 “I really can’t tell you how much I will pay my workers at the end of the week. The producer I work for collects his fee, then I collect mine, and part of that I will pass on to my workers… Calzado Superior is paying very little and that they may pay a month after delivery. I don’t know how much and when the producer is going to pay me. When he pays I will have to share the money with my workers” - Senor Galvez

Female Workers and the Chain of Subordination  Female workers work almost 8 hours per week more and earn 10% less than her male counterparts  The female labor position is even more unstable than the male labor position within the various industries

 Reasons for female labor instability and vulnerability Her work in the formal sector can be done at home for less money Her work in the formal sector can be done at home for less money The position of the female worker is threatened by the wife of the producer The position of the female worker is threatened by the wife of the producer Much sexual intimidation and harassment of females Much sexual intimidation and harassment of females Female workers don’t wish to start their own business (84% of informal sector leaders are male, and only 16% are female) Female workers don’t wish to start their own business (84% of informal sector leaders are male, and only 16% are female)

Conclusions  The footwear and garment industries in Lima are characterized by the explosive growth of the small-scale and micro sector and an increase in subcontracting by medium-sized and large industries  Many jobs are then transferred from the formal sector to the informal sector (leads to worse working conditions and lower and instable pay)

 Women are the first to lose their jobs and the last to get hired, and so these issues are more severe for the females than even for the males in the labor market  Women earn less, have less stable employment and must endure more sexual harassment  “The working conditions of many workers, especially female ones, seem to me to be in a descending spiral” – Annelou Ypeij