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THE PAPER MAKERS OF PULI:

SUBCONTRACI‘ MANUFACTURING IN TAIWAN'S

HAND-MADE PAPER INDUSTRY

Volume I

By

Ross C. Gardner

A DISSERTATION

Submitted to

Michigan State University

in partial fulfillment of the requirements

for the degree of

DOCTOR OF PHILOSOPHY

Department of Anthropology

1 995

ABSTRACT

THE PAPER MAKERS OF PULI:

SUBCONTRACT MANUFACTURING 1N TAIWAN ’S

HAND-MADE PAPER INDUSTRY

By

By Ross C. Gardner

As one of the "four dragons," Taiwan has achieved unprecedented

economic success in the last three decades. Few dispute that this success

would not have occurred were it not for the thousands of small and medium

scale subcontract producers who may account for up to 90 percent of all

manufacturing on the island.

Despite Taiwan's economic development and

the current restructm'ing in the world economy, however, studies of secondary

forms of production such as subcontracting and outwork, often fail to pay

close attention to the organization of production and the markets in specific

industries in which they are involved. Further, small producers are often

characterized in the literature as indiscreet and anachronistic relative to formal,

large-scale capitalist production.

In an attempt to understand how, why and under what conditions small

producers are created, accumulate capital, stagnate, succeed and fail, this

thesis examines one group of small capitalist subcontract manufacturers in

Puli, Taiwan who, since Japanese colonial rule, have produced hand-made

paper for the Asian market.

The research traces how entrepreneurs in this

industry weathered shifts in demand for their product and in the supply and of

raw materials, capital, and labor, and the innumerable cost and price

fluctuations that accompanied those shifts from 1935 to 1989. More

importantly, this research documents the changing nature of social and

economic relationships between factory owners and the market as the former

attempt to secure some control over the latter in the face of an array of barriers

and constraints in the industry.

This study found that, in the 197 Os, an elite group of "center factories"

within the industry formed "upstream" and "downstream" linkages to suppliers

and buyers which gave them control over the access to raw material, capital,

and the finished product market.

Through this form of quasi-vertical

integration, center factories were then able to manipulate subcontract

manufacturers and use them as a buffer against rising wage costs in Taiwan

and unstable and cyclical market demand for paper in Asia.

Cepyn'ght by

Ross Chiffelle Gardner

1995

In Memory of my father

Dr. Robert V. Gardner

ACKNOWLEDGMENTS

Dr. Bernard Gallin, Chair of my Guidance Committee, and Dr. Rita

Gallin, Professor of Sociology, have been my closest academic advisors during

my time at Michigan State. Extraordinarily good scholars, teachers, and

friends, they have spent hours editing numerous drafts of this dissertation. Two

of my other two committee members, Dr. Joseph Spielberg, a teacher who

shares many of my theoretical interests, and Dr. Iwao Ishino, also spent long

hours offering advice on the dissertation. To all of them I offer my deepest

appreciation. I would also like to thank Dr. Paul Strassmann and Dr. Carl

Liedholm, for their insights on economic issues relevant to small-scale

production. Thanks also go to Michael Lipsey in the Department of

Geography, Michigan State University, for his help with the creation of maps

for this study.

I would also like to thank The American Council for Learned Societies

(ACLS) for providing a one year grant to conduct research on Taiwan. Without

their support, Taiwan’ s high cost of living would have made conducting

research there prohibitive.

In Taiwan, I would like to thank the Institute of Ethnology, Academia

Sinica and Dr. Chuang Ying-Chang, then Director of the Institute, for

sponsoring me as aResearch Associate between 1988 and 1991. I would also

like to thank Dr. Yeh Chuen-Rong, also at the Institute, for his help in the final

printing of this dissertation. Finally, I want to thank the paper-makers of Puli

who made my research possible.

To my father I owe my interest in anthropology and a deep appreciation

of what it means to be hypertense. To my mother, I owe an education which

ranged from evening recitations in Latin to learning the fundamentals of sailing

during gale-force winds. To my brother, an artist of great talent and sensitivity,

I owe the many illustrations in this dissertation. Throughout my graduate

career at Michigan State University and dissertation research in Taiwan, I have

been the beneficiary of one woman’s patience and love. Since our marriage,

Shuman has unselfishly encouraged my studies and been my closest friend and

companion despite the numerous hardships over the years. To all of them I

offer my thanks.

vii

TABLE OF CONTENTS

LIST OF TABLES...................................................................................................

LIST OF FIGURES..................................................................................................

NOTE ON ROMANTZATION ....................................................................................

CHAPTER

I. INTRODUCTION ...........................................................................................

A The Problem. .................................................................................

B. Situating Small- Scale Production: A Theoretical Overview............

C. Small- Scale Production and Segmented Production:

Toward a Methodological and Theoretical Framework...................

D. Research Methods, Informant Confidentiality,

and the Research Subjects.............................................................

II. INDUSTRIAL DEVELOPMENT ON TAIWAN ...................................................

A The Japanese Colonial Period: 1895-1945 .....................................

B. The Nationalist Period and Postwar Reconstruction. .....................

C. Small-Scale Indusz in Taiwan.....................................................

III. THE SETTING..........................................................................................

A. Puli Township: Administration and Geography.............................

B. History of Puli. .............................................................................

C. Current Conditions of Puli's Economy and Labor Force................

IV. PAPER MAKING IN PULI IN 1989: AN OVERVIEW OF THE INDUSTRY

AND THE TECHNICAL ORGANIZATION OF PRODUCTION ............................

A. The Hand-Made Paper Industry in Puli in 1989 .............................

B. Doing Business in the Hand-Made Paper Industry.........................

28

33

45

49

56

73

88

89

95

105

121

125

155

viii

V. THE SOCIAL ORGANIZATION OF PRODUCTION IN THE

HAND-MADE PAPER INDUSTRY: I989 ........................................................

178

A Labor Force Conditions and the Nature of Work...........................

B. Entrepreneurs, Their Families, and the Ideology of Family.............

178

196

VI. THE HISTORY OF THE HAND-MADE PAPER INDUSTRY IN PULI ...................

216

A Hand-Made Paper Production to 1945 ...........................................

219

B. Post-War Reconstruction of the Hand-Made Paper Industry:

1945-1969 .....................................................................................

229

C. The Japanese Export Market and the Emergence of

Subcontracting Relationships: 1970 -l979 ....................................

246

D. Readjustments in Subcontracting Relationships and

Industrial Demise: The 1980s.......................................................

282

VII. THE NATURE OF INTER-FIRM RELATIONSHIPS .........................................

310

A Tai P'ing Paper Company: A Center Factory.................................

B .The Subcontractors.......................................................................

C. Ta Pu Paper Factory: A Dependent ...............................................

D. Ch’a Hu Paper Factory: A Job Hopper.........................................

E. T’ung Shuen and Shan Ho Paper Factories:Two Independents......

312

330

334

342

350

V111. CONCLUSIONS .......................................................................................

359

A. Rethinking Small- Scale Capitalist Production.................................

B. Markets and the Hand-Made Paper Industry...................................

C. Kin Afiliation and Family Ideology as Mediator and Metaphor

for Inter-firm Relationships.............................................................

D. The Contradictory Nature of Subcontracting Relationships.............

E. Epilogue.........................................................................................

361

367

379

383

388

BIBLIOGRAPHY ...............................................................................................

390

ix

LIST OF TABLES

Table

2.1

2.2

Manufacturing Enterprises By Size of Work Force: 1930-1936 ........

Distribution of Paid Up Capital of Companies in Taiwan by Type

of Organization and By Nationality of Ownership in 1929 ................

2.3

Taiwan's Unit Labor Costs in USS Relative to Major

Competitors: 1970-1990..................................................................

3.1

Registered Industries In Puli in 1932 ................................................

3.2

Retail \ Wholesale Establishments in Puli in 1927.............................

3.3

Registered Factories By Number of Workers in Puli in 1988 ............

3.4

Labor Force Over the Age of 15 by Industry in Puli Township

52

54

70

101

102

108

in 1989 ............................................................................................

113

3.5

Employees Over Age 15 in Manufacturing by Selected

Occupations in Puli Township in 1989 .............................................

4.1

Active Hand-Made Paper Companies in Puli in 1989 ......................

4.2

Worker distribution Per Company in 1989 .......................................

4.3

Number of Factories Established and in Operation by Period

115

140

141

and in 1989 .....................................................................................

142

4.4

Number of Factory Sites in Operation in 1989 by

Period Established..........................................................................

4.5

Original and Current Investments in Fixed Capital...........................

4.6

Status of 29 Hand-Made Paper Companies in Puli in 1989 ..............

4.7

Comparison Between 4 Center Factories and 8 Subcontractors

in 1989 ...........................................................................................

4.8

Average Estimated Cost Calculations for Hsuan Paper #5 ...............

5.1

Number and Percentage of Workers in Three Hand-made Paper

144

149

165

167

171

Companies by Gender and Type of Work in 1989 ...........................

190

5.2

Age and Number of Years of Employment by Gender in the Paper

5.3

5.4

Industry in 1989 .............................................................................

Family Workers Per Company in 1989 ............................................

191

199

Family Relationships, Organization and Factory Operations

in 1989 ...........................................................................................

202

LIST OF FIGURES

Figure

2.1

The People's Republic of China and Taiwan, ...................................

2.2

Number and Type of Selected Enterprise Units in

Manufacturing in Taiwan: 1961-1976 ..............................................

2.3

Selected Enterprise Units in Manufacturing

in Taiwan: 1981-1991 ......................................................................

2.4

Manufacturing Units by Number of Workers

in Taiwan: 1976-1991 .....................................................................

3.1

Location of Nantou County and Puli Township ................................

3.2

Puli Township ..................................................................................

3.3

3.4

Detail of Puli Township and Ta Ch'eng Village .................................

The Earthen Walls and Four Gates Arormd Puli: 1914 ......................

3.5

Factory Size by Number of Workers in 1988: Puli Township,

46

65

69

78

90

91

94

99

Nantou County, and Taiwan Province..............................................

110

4.1

Monthly Exports by Quantity and Value of

Calligraphy Paper: 1976 ...................................................................

4.2

Floor Plan of a Typical Paper Factory in Puli ...................................

4.3

Technical Division of Labor in the Hand - made Paper Industry........

4.4

Dredger Using a Bamboo Screen to Sift Pulp From a Pulp Vat.........

4.5

Drying Paper on a Steel Drying Table...............................................

132

134

136

138

138

4.6

Location of Selected Hand-Made Paper Factories in

Ta Ch'eng Village: 1989 ....................................................................

151

4.7

Location of Selected Paper Factories Outside of

Ta Ch'eng Village in 1989 .................................................................

152

4.8

A Hand-Made Paper Factory Built "Out" Along the Contours

of Farm Land ...................................................................................

4.9

Capacity Subcontracting with Two-Way Exchange...........................

4.10

Chronology of Subcontracting in Puli ...............................................

6.1

Pounding of Tree Bark Into Pulp .......................................................

6.2

Dredging of Large Paper by a Two-man Team. .................................

153

159

163

221

221

6.3

Map of Ta Ch'eng Village Area and Six of Puli's

First Paper Factories: 1945-1969 .......................................................

232

6.4

Disaggregated Export Sales Ratio (NTS/KG) of Hand-Made Paper

Sold to Japan and Non-Japanese Markets: 1972-1979 ......................

249

6.5

Export Weight and Value of One Type ostuan Paper

Sold to Japan: 1972—1979 ................................................................

250

6.6

Export Value (NT8) of One Type of Hsuan Paper Sold

to Japan and Non-Japanese Markets: 1972-1979 ..............................

251

6.7

Diagram of Raw Material Flows Which Existed

for Most of the 1970s.........................................................................

Center Factory / Subcontractor Market Funnel. ..................................

Export Weight and Value of Hsuan Paper to Japan: 1981-1992 ..........

6.8

6.9

269

280

285

6.10

Export Value of Hsuan Paper to Japanese and

Non-Japanese Markets: 1981-1992 ....................................................

286

7.1

Diagram of Selected Trading and Subcontracting

Relationships of Tai P‘ing Paper Company: 1989 ...............................

326

8.1

Production and Market Pyramid in the Hand-Made paper

Industry in the 1970s .........................................................................

374

xii

A NOTE ON ROMANIZATION

All non-English words and terms are romanized and italicized when they

first appear in the text.

Since my interviews were conducted in Mandarin

Chinese, the majority of Chinese words are romanized using the Wade-Giles

system. While many scholars prefer to use the Pinyin system of romanization,

the Wade Giles system is often more familiar to Chinese and Taiwanese living

on Taiwan. Nevertheless, to help further clarify some more important words

and terms, Chinese characters (i.e., han tzu fig—Z) are included immediately

following the romanized text.

As indicated, most of my interviews were conducted in Mandarin

Chinese. While Minnan (Taiwanese) is the preferred language among many of

my informants, all my informants were "bilingual" and were more than willing

to talk to me in Mandarin. On occasion, however, there were periods when my

informants would teach me terms and phrases in Minnan which they felt were

more poignant or apropos to our conversation.

xiii

CHAPTER I

INTRODUCTION TO THE THESIS

A. The Problem

Since its invention almost 2,000 years ago, hand-made paper has

developed from a luxury item used primarily by China's nobility to a

commodity used in thousands of different applications.

Where a commodity

endures, however, the "fortunes" of workers, craftsmen, factory owners, and

traders who produce and market it rise and fall with changes in local, regional,

and global markets.

This is a story about a group of predominantly small-scale1 industrial

capitalists and their workers in central Taiwan who, for as many as four

decades, made the production of "Chinese style" chung shih chih EPEWEE

hand-made paper the primary productive activity of their lives.

It is about

how an industry composed of fewer than 45 factories and 1,500 workers

weathered shifts in demand for their product and in the supply of raw

materials, capital and labor, and the innumerable costs and price fluctuations

that accompanied those shifts.

More importantly, however, this study

documents the changing nature of social and economic relationships between

factory owners and the market as the former attempt to secure some control

over the latter in the face of an array of barriers and constraints in the industry.

The decision to conduct research on Taiwan's hand-made paper industry

originally grew out of my long-time interest in small-scale production (SSP) in

l

2

general and in subcontracting relationships and markets in particular. An

ambiguous and chaotic concept, subcontracting can be loosely defined as a

subset of relationships between firms in which suppliers carry out the

production of a material, a part, a component part, or sub-assembly according

to specifications set out in advance by another firm, "whether materials are

issued or not and whether the contract is directly with a large manufacturer or

through some intermediary contract with another supplier" (Friedman

19772119 after Holmes 1986:84).

This definition, however, is subject to great variation in the context of

specific industries; for example, subcontracting in the automotive industry

may involve a far different set of relationships than those in the jewelry

industry.

Nevertheless, following Holmes, I refer to the firm offering

subcontracted work as a "center factory" or "parent firm" and a firm

undertaking subcontracted work as "a subcontractor."

Long characterized as transitory or anachronistic relative to the onslaught

of large-scale capitalist production (Braverman 1974), recent studies on

small-scale production in both the industrialized and newly industrialized

world have demonstrated that secondary forms of production and employment

organization such as subcontracting and outwork have persisted and thrived.

"In the context of the current restructuring crisis in the world economy,"

furthermore, small-scale production by way of subcontracting " appears to

have taken on a new significance and to be playing an important role in the

restructuring of certain industrial sectors at both the international and

intranational scale" (Holmes 1986:81; see also Berger and Piore 1980; Sabel

1982; Brusco 1982; Schmitz 1982a; Murray 1983; Cook and Binford 1990).

As one of the "four dragons," Taiwan has achieved unprecedented

economic success.

With an average growth rate in gross national product

3

(GNP) of almost nine percent in the last four decades (after inflation), a per

capita GNP of approximately US$10,000 in 1990, and foreign exchange

reserves of approximately US$80 billion in 1988, Taiwan ranks as one of the

most advanced newly industrialized nations of East Asia (Chan and Clark

1992233).

While a debate continues as to why Taiwan achieved such rapid

success in so short a period, few would dispute the fact that the island's

thousands of small manufacturing enterprises have played a significant role in

the island's development (Ho 1980; Chan and Clark 1992).

In 1991, the

average size of a manufacturing enterprise in Taiwan was about 20 workers.

Further, small firms with under 30 workers constituted almost 90 percent of

all enterprises, employ 34 percent of the work force, and generate almost 20

percent of total annual revenues in manufacturing (Krmg Shang Chi Fu Wu

Yeh Pu Cha Pao Kau 1991).2

The emergence of small-scale producers in Taiwan has not gone

unnoticed by social scientists.

For over 20 years small-scale producers have

been studied to varying degrees primarily in the rural areas of Taiwan and

usually in the context of family, kinship, and community studies (Cohen 1976;

Gates 1979; Ho 1979; Gallin and Gallin 1982; Harrell 1982; Hu 1984;

Greenhalgh 1984; Niehofl 1987; for the mainland see Nee 1985; Lockett 1986;

Rosen 1987; for exceptions see DeGlopper 1972; Tang 1978; Stites 1982).3

Contributing Significantly to the overall rmderstanding of small-scale

producers on Taiwan, this research has fostered a new appreciation for the

connection between individual SSPs and family, kin, and community as well

as the linkages of SSPs to issues of labor, class, ethnicity, gender, and the

state (Gates 1979; Gallin 1984; Arrigo 1985; Greenhalgh 1988).

Despite these contributions, there remains a problem with the study of

small-scale production in contemporary Taiwan.

Drawing from a broad

4

empirical palette, economists, sociologists, and anthropologists often use their

data as a litmus test for their own theoretical agendas and development

models.

Sometimes characterized as "contending paradigms" or East Asian

development models, these views are at times categorized under the rubrics of

modernization theory, dependency theory, statist theory, and cultural models

(Winkler and Greenhalgh 1988; Clark 1989; Berger 1990).

Berger (1990)

lumps the three of these “theories" into what he calls "institutionalist

hypotheses," a term which embraces the political economy debates circulating

about Taiwan.

Generally these views explain Taiwan's economic success in

terms of "the specific economic policies and practices that have nothing to do

with the fact that the people executing them are Chinese" (Berger 199029).

The cultural models or "culturalists," on the other hand, tend to ascribe

Taiwan's development to the uniqueness of the Chinese people and its social

institutions.

Led primarily by Western-trained neoclassicists, modernization theorists

view Taiwan's success as the result of adherence to strict development

policies.

Guided by increased productivity, technological change, sustained

savings and investment, Taiwan's economic development provided the

stability which set in motion social and political change throughout the island

(Rostow 1960; Galenson 1979).

Unconvinced that Western laissez-faire

based development strategies were benefiting developing nations, dependency

and world-systems theorists, in contrast, consider Taiwan to occupy a

" peripheral or semi-peripheral" position in the world economy.

Under this

scenario, "core" capitalist countries manipulate the political, social, and

economic sectors of developing countries such as Taiwan by way of powerful

multinational corporations (MNCs).

The outgrowth of such manipulation is

massive exploitation and extraction of capital from periphery to core

5

(Wallerstein 1974; also see Winkler and Greenhalgh 1988).

Taiwan's continued economic success, however, threw into question the

dependency argument, leading some to re-label the cormtry's success as a case

of " dependent development" (Gold 1986).

While not persuaded that Taiwan

was subsumed by core capitalist countries, other scholars were unwilling to

identify Taiwan as an all out economic success.

Rather, a group known as

the "statists" argued for a reexamination of the primacy of the state and its role

in directing the development of Taiwan.

While there are a number of

contending views within this theory, statists stress that development is highly

susceptible to the political policy of the state which may or may not be

affected by internal or external factors.

Concerned with how the state

manages its political, economic, and social institutions, they argue that Taiwan

may indeed occupy a "dependent" position within the international division of

labor, but that its dependence is mediated to a certain degree by agents of the

state (Amsden 1979; Gold 1986; Winkler 1988; Clark 1989; Chan and Clark

1992; see Deyo 1989; Bello and Rosenfeld 1990 for a more negative picture

of Taiwan’ 3 development).

Finally, the "culturalists" have attempted to draw fiom the "uniqueness"

of Asian culture in general, and Chinese culture in particular, to provide the

"answers" for Taiwan's success. More specifically, they hold that Taiwan's

development has been propelled by a society rooted in Confucian traditions

which stress a strong work ethic, a belief in thrift and diligence, a respect for

education, and a devotion to family, hierarchy, authority, and the like (Harrell

1985; Stites 1985; Berger 1990; Pye 1990; Redding 1990).

While some of these positions are discussed in detail below, the purpose

of this research is neither to reconcile the differences in theory nor to

"discover" the reasons for Taiwan's development.

Rather, my intention is to

6

point out that contemporary research on Taiwan today often draws SSPS into

broad theoretical debates where they do not always belong.

Often

empirically positioned in a theoretical no-man's land, SSPS have been and '

continue to be perceived as occupying distinct positions in Taiwanese society

and economy (see Gates 1979; Gallin 1984).

These positions, furthermore,

are often formed to fit into dialectic or dualistic frameworks (e.g., formal/

informal, capitalist/ pre-capitalist, dependent/ core, subordinate/ dominant,

traditional/ modern, Chinese/ Western).

In contrast, I see small-scale

producers and small-scale production as belonging to a single commodity

economy, fluid and malleable, and containing multiple forms, relations, and

processes whose interaction is guided by multiple, rather than resulting from

one-way causation (Cook and Binford 1990227; see Schmitz 1982b).4

If

categorization is necessary, then, it must serve only as a marker of an

empirical event; otherwise we risk locking these producers into categories

which only become reified in equally rigid theories.

Mired as they are in the prevailing paradigms of their individual academic

disciplines, many scholars fail to appreciate the subtle differences in the

nature of small-scale production and the markets in which they operate

(Gottdiener and Komninos 198924).

Rejecting detailed bottom up studies in

favor of more macro-directed and inspired research, many scholars often

impose abstract theoretical views and assumptions down on small-scale

producers without first understanding the nature of small-scale production and

subcontracting relationships at the micro level. More specifically,

researchers do not give enough attention to the more mundane details of the

structural aspects of the organization of production and markets in specific

industries and how they change over time.

Lack of micro-based

investigations often preclude questions which ask about the historical

7

processes by which small producers emerge and are shaped in individual

industries (see Roseberry 1989; Lazonick 1994).

Further, how does shared

experience over time help form the social and cultural conditions within an

industry in the present (see Polanyi 1957).5

While a theory may tell us

dependency exists in a particular industry, for example, we need to know

precisely how that dependency came about.

It is my contention that, as Taiwan became integrated into the

international division of labor, a growing number of small-scale producers

have become enmeshed in complex subcontracting relationships in hundreds

of different export industries.

The involvement of small-scale producers in

subcontract manufacturing for the global economy points to the growmg need

to study the socio-economic linkages between producers (firms) and the

market. More specifically, most producers involved in subcontracting are

part of a wider commodity economy which operates and functions in a

complex structure of transactions in a market (of which other producers, out

workers, workers, and traders are all a part). As SSPS become involved in

segmented production, furthermore, there is the increased likelihood that the

constraints and barriers that exist external to these enterprises will emerge.

The greater these constraints (many of which are market constraints for capital,

raw materials, labor, and the finished product), the greater the need to direct

research toward the external context.

It is important, therefore, not to

conceptualize the process of production in capitalism

simply in terms of the individual firm and it's presumed

behavioral

proclivities.

Production

is

a

vastly

more

complicated phenomenon which involves both

the single

enterprise and the interactive system or network of socially

divided enterprises.

Each single enterprise, to be sure is an

8

active element of the system, but no one enterprise can

unilaterally control the social conditions of its own existence

(Scott 1988b229).

Rather, according to Scott these firms belong to an industrial complex, which

is simply "a large assemblage of producers tied into an interdependent whole

by means of their external transactional relations" (1988b228).

In brief, I

argue in this thesis that the socio-economic nature and structure of these

relationships are likely to be a crucial determinant of the conditions of

production and the extent to which capital can or cannot be accumulated by

individual firms.

Given the general problems in the existing research on small-scale

producers on Taiwan, my study of Taiwan's hand-made paper industry is

grounded in two assumptions.

First, I assume that the producers who are

engaged in subcontract production can only be understood in the context of

the specific industry and markets where they are formed and operate.

Disparate industrial sectors generally conform to different organizational,

exchange, and productive structures which cannot be easily incorporated into

one general study of small-scale production or one theoretical framework.

Second, I assume that a deep understanding of small-scale producers in a

specific industry can only be achieved through an examination and

clarification of the historical processes by which an industry was created and

formed over time.

These processes, furthermore, give shape to and are

shaped by specific social and cultural traditions (at times a vague but shared

version of reality) which help guide economic action (see Long and

Richardson 1978; Granovetter 1985).

This thesis will identify and clarify the variables which explain why

individual producers can or cannot accumulate capital in the hand-made paper

9

industry.

These key variables become apparent only after a thorough

examination of both the internal and external conditions and relations of

production in the industry.

The internal conditions relate directly to the

operation and function of individual firms (i.e., production process, labor /

management relationships) while the external conditions have to do more with

the way individual firms are linked to other players in the industry (i.e., the

structure and nature of the labor market, market for raw materials, capital, and

finished product market).

Specifically, both the internal and external

dynamic of the firm constantly impact on one another over time.

I believe

this interplay is especially important in understanding the nature of the social

and economic relationships between individual producers and the market

process and why some producers accumulate capital while others do not .

In sum, this thesis will take the form of an empirically grounded,

theoretically informed study which discusses the historical processes involved

in capital accumulation in the hand-made paper industry.6

Only when

proceedingfrom such a position is it possible to gain an understanding of

how, why, and under what conditions producers in the hand-made paper

industry are created able to accumulate capital, stagnate, orfail (see

Schumpeter 1939; 1950; Magnusson 1994).7

10

B. Situating Small-scale Production:

A Theoretical Overview

While this thesis does not operate from any particular theoretical premise,

it does draw on and is informed by a number of empirical and theoretical

materials on small-scale production in general, and small-scale production in

Taiwan in particular.

For heuristic reasons, I group the literature I review

under the headings of small-scale production and the ethnographic record in

East Asia (comprising China, Taiwan, and Japan) and small-scale production

in general theory.

Small-scale production and the ethnographic record in East Asia

The abundant ethnohistorical literature from Taiwan, pre-1949 Mainland

China, and Japan broadly examines the importance of social relationships

among those who have conducted business throughout Asian history.

While

the material on China and Taiwan is most applicable to my research, the

impact of Japanese social traditions and patterns upon Taiwanese business

organization cannot be ignored.

The long period of Japanese occupation in

the first half of this century and the close business relationships between

Taiwanese and Japanese manufacturers since the 1960s have influenced the

manner in which Taiwanese conduct their business today.

Small manufacturing enterprises have been a part of Mainland China's

economic landscape for centuries.

For the most part, these small businesses

were primarily involved in the manufacture of simple and inexpensive labor-

intensive goods (such as household implements, footwear and farming

implements) destined for the domestic market.

With the expansion of the

11

treaty ports beginning in the mid-18005, however, the demand for more

sophisticated and specialized goods increased.

In the northern city of Tianjin,

for example, small metal and iron working workshops originally contracted

with local factories and foreign concessions to fix machinery, produce simple

machine parts, and manufacture iron framing for construction. By the end of

World War 1, many of these shops were able to produce fairly sophisticated

machinery by employing a loose subcontracting arrangement. A primary

firm responsible for the finished product would contract with a number of

smaller specialized workshops to produce components; by segmenting the

production process, no one firm was burdened with the entire cost of

production and risk could be spread among all those concerned (Hershatter

1986292).

Subcontract arrangements were also often employed in pre-Revolutionary

China when the cost and complexity of production of particular goods were

beyond the capability of small and highly specialized handicraftsmen.

In the

city of Ningpo, for example, the production of expensive luxury goods often

necessitated the establishment of a production agreement between a number

of separate workshops, each under the supervision of one master.

Each

master oversaw a specific production process (such as inlay work, wood

carving, and work in precious metals) as well as the selling of the finished

product (Shiba 19772411).

In both Tianjin and Ningpo some of the manufacturing agreements

between workshops were established through specific social and cultural

linkages in the community.

While guild associations were present to some

degree, kin and place name relationships were often the primary basis upon

which apprenticeship, subcontracting, and "putting ou " affiliations were

established.

12

The importance of kin and same place relationships for finding work and

establishing small business networks in pre-Revolutionary China was by no

means confined to the mainland.

Like rural migrants in Tianjin 50 years

previous (Hershatter 1986), in post-1949 Taiwan, the rural unemployed and

rmder-employed first sought off-farm work in the cities (Gallin 1978).

The

majority of the jobless relied upon relatives or fellow villagers already in the

cities to help find jobs and housing.

In Taiwan, many workers later returned

to their native villages to become entrepreneurs once they had accumulated

sufficient capital and skills.

For Taiwan, much of the existing data on small-scale manufacturing and

subcontracting are available primarily through community studies conducted

in the countryside.

These studies focus on the impact of industrialization

upon traditional village and family life and, in particular, on the introduction of

small family-owned shops or factories which symbolized the intrusion of

industrial capitalism into the community (Cohen 1976; Tang 197 8; Gallin and

Gallin 1982; Harrell 1982; Hu 1984; for more recent material on the mainland,

see Lockett 1986; Nee 1985; Rosen 1987 ).

In island-wide surveys

conducted in the late 197 OS, for example, Greenhalgh found that family-

centered personal networks continue to bind individuals together in Taiwan.

According to her research, in Chinese society, "the family emerges as the

primary and most enduring claimant to an individual's loyalty" (Greenhalgh

19842532).

There is a strong preference for economic relationships [to] be

based on prior acquaintance and trust. When one must go

outside the family circle to find a creditor, worker or the like one

goes to the next concentric circle - those with whom one has

some prior social relationship - and then to the surrounding circle

13

- those with whom an acquaintance has a prior relationship

(19842535).

With an "estimated 97 percent of private industrial firms [urban and rural]

in Taiwan organized along family lines" (Greenhalgh 19842535), research

demonstrates the continued significance of social relationships in business

dealings, whereby entrepreneurs depend heavily on family labor, financing,

and contacts when establishing and operating small subcontract factories

(DeGlopper 1972; Gates 1979; Gallin and Gallin 1982; Hu 1984).

While much of the literature on Taiwanese social and economic life has

concentrated upon the small entrepreneur in the rural areas, some

ethnographic studies have focused on large indigenous manufacturers in the

cities.

These investigations have emphasized either the organizational

behavior of Chinese corporate bureaucracy or the interface between family

organization and inheritance practices as they apply to the ownership and

management of large family-owned firms (Mark 1972; Silin 1976; Wong

1985).

Perhaps because these studies have emphasized organization at the

management level, they have paid little attention to the smaller subcontract

firms with which they conduct much of their business.

Subcontracting in Japan

Perhaps nowhere else has subcontracting been as extensively examined as

in Japan.

With more than 60 percent of Japan's small manufacturers

involved in subcontracting (primarily parts production and sub-assembly),

vast networks have been established between manufacturers to ensure the

smooth and efficient operation of the production process.

These networks

are predicated on pre-existing social relationships based on trust (Clark 1979;

Patrick and Rohlen 1987).

In many Japanese firms, fictive kin relationships

14

(oyabun-kobun) serve as the link between small manufacturers and their larger

partners by creating ties which are highly personal and particularistic (Bennett

and Ishino 1963).

Often, for example, owners of large companies help

former employees start their own small companies in hope of " gaining benefits

from the continuing relationship.

That is, 'offspring' companies form part of

the 'parent's' network through which new orders and valuable information are

exchanged..." (Patrick and Rohlen 1987 2345).

Given the close relationship between some Taiwanese and Japanese

businessmen during both the colonial period and the 19805, Taiwanese

manufacturers may have adopted or modified particular elements of the

Japanese manufacturing process as their own. As in Japan, for example,

some large "paren " firms in Taiwan are beginning to recognize the

importance of cultivating long- term social and economic relationships with "a

stable of strong subcontractors as a means of borrowing their strengths

without incurring the fixed costs that doing the same work internally would

entail" (Patrick and Rohlen 1987:349-353).

Aware of the benefits of a close manufacturing relationship between

subcontractors and large producers, as has been the case in Japan, Taiwan's

Ministry of Economics initiated a program in the mid-19803 to organize some

of the island's large and. small factories into a "mutually beneficial" integrated

unit.

Once such units are formed, the ministry plans to lend assistance to

those subcontractors (referred to as satellite factories or wei hsing kung

ch 'ang fatilfiifii ) and parent firms (also known in Chinese as "center

factories" chung hsin kung ch 'ang EPIDIEEQ ) which lack a stable frnancial

structure and have a weak managerial, marketing, and technological base

(Ch’ung Hsin Wei Hsing Kung Ch’ang Chih Tu T'ui Tung Hsiao Tsu, 1986;

see also Hsu 1979; Huang 1986; Chen 1987).

Because the island's small

15

entrepreneurs seek much of their assistance fi'om a close network of relatives

and friends, it is unclear whether the government's attempt to establish

cooperative manufacturing systems will ultimately succeed.

In sum, while the available literature contributes to our understanding of

subcontracting in Taiwan, it overlooks certain issues.

For example, what

impact have Chinese and Japanese social and cultural traditions had upon

subcontract manufacturing in Taiwan?

Does subcontracting easily

accommodate traditional socioeconomic relationships found in China, or does

it necessitate some modification of social behavior to allow the inclusion of

those outside kin-based relationships?

Have particularistic relationships

played a major role in ensuring the persistence of subcontracting or is this

persistence more the result of the economic peculiarities of contemporary

capitalism (as described by Holmes [1986])?

Alternatively, does a balance

exist between social relationships and economic interests which creates a

special business environment that encourages subcontracting to thrive in

Taiwan?

These questions are important for this thesis because they are

inextricably connected to the central issue of capital accumulation.

Following Long and Richardson, I believe the thesis can contribute to an

rmderstanding of the social relations of production with respect to the 'intemal'

relations of production, (such as the pattern of work organization and

associated property relationships) and to the various interpersonal and inter-

group relationships that lie outside or are external to the actual production

process but which are essential to its maintenance. More specifically, "an

analysis of the social relations of production requires an examination of the

differential use and influence of social and cultural resources in the labor

process" and the market which surrounds any industry (19782188 see also

Granovetter 1985).

16

Small-scale production in general theory

The importance of theory with regard to the issue of small-scale

production should be the extent to which it adequately deals with SSP in the

contemporary global economy and whether or not it provides the tools to

account for the presence or absence of capital accumulation.

I have broadly

grouped three theoretical positions below under the headings of modernization,

dependent / subsumption, and accumulation.

The first two positions provide

a theoretical backdrop for the discussion of accumulation , a position which I

believe is suited to the study of SSP in Taiwan.

Modernization theories

Modernization theory identifies small-scale production as either

traditional or non-traditional.

Generally, the boundary between the two is

determined by the degree to which small-scale producers are linked to either

the "informal" sector or to the "formal" sector of the economy.

Informal,

traditional small-scale producers are often characterized as static, labor-

intensive, capital poor, unstable, and non-accumulative.

For the most part

they produce simple goods for the local market.

The primary characteristic

assigned to informal enterprises is their limited connections to the formal

sector of the economy.

If linkages do exist, they are generally seen as

minimal and non-exploitative (Hart 1973; see Geertz 1963 for his "bazaar"

and "firm" conception of third world producers).

Small enterprises in the formal-modem sector, on the other hand, are

commonly thought of as replications of a western form of factory production.

They are characterized as involved with formal sector institutions (i.e., likely

to take loans from banks and to be involved in a production relationship with

17

large-scale enterprises), have higher levels of technology and, capitalization,

sophisticated managerial know-how, and knowledge of markets.

The

general implication is that without these links to the formal sector many of

these small enterprises would fail ( Rostow 1960; Watanabe 1971; Anderson

1982)

Conservative advocates of the modernization thesis generally point to the

fi'ee market as the core concept and argue that the economy is free standing

and self perpetuating (Blim 1992).

Neoclassicists in this group take an

alristorical view of the economy, arguing that interactions between individuals

and firms occur in the marketplace where they meet as equals and that

transactions are made at arms length and are regulated by cost-rational

decision making dictated by the market.

Critics of modernization theory point to at least two problems in this

formulation.

The first centers on the theory's propensity to hold large-scale,

vertically integrated production as the prime indicator of economic

development.

It presumes that the only unit of analysis of capitalist

production processes remains the individual firm and, in particular, its internal

behavior (i.e., production functions, internal scale efficiencies, management!

labor relations).

Certainly the analysis of single producers (i.e., the internal

dynamic of the firm) remains a fimdamental element in studies of production.

Yet, studies of individual producers constitute only one facet in complex

production processes (sometimes referred to as systems or industrial

complexes).

Most small-scale producers are part of a wider commodity

economy, which operates and functions in a structure of external transactions

in the market. When studies focus on only the internal dynamics of the firm,

the unequal relationships of power and dependence which often lie behind

these linkages, and result in subcontracting, franchising, licensing, and trade

credit, are often ignored (Holmes 1986282).

18

The second problem lies in modernization theory's rigidity in the

conceptualization of the "informal-formal sectors" and its disregard for the

possibility of interaction and linkages between the two. As Worsely (1984)

has pointed out, why assume only two sectors? Why not think of these two

sectors as two poles on a continuum?

Indeed, some Marxists argue, that

interconnections between small-scale producers and large scale capital must

be considered, and that the interconnection "must be examined within a mode

of production framework so that the flow of surplus from non-capitalist to

capitalist modes may be fully appreciated" (Long and Richardson 19782177).8

Dependency/ subsumption theories

Dependency theorists trace their theoretical stance to the work of Frank

(1967) and Wallerstein (1974; 1979) among others.

This group sees the

formation of the world economy as a system based on the exploitation of

underdeveloped and late-developing "peripheral" econonries by "core"

capitalist economies.

The dependency or subsumption approach provides

the foundation from which scholars concerned with the status of small-scale

production could launch their attack on the modernization approach.

For

example, a number of scholars (Mellassoux 1972; Godelier 1972; Terray

1972) working within the petty commodity production (PCP) framework

believe that the majority of small-scale producers in the so called informal

sector are completely subordinated to and subsumed by large capital.9

In

contrast to the modemization model which left room for the possibility of

small-scale production crossing from the informal to the formal domain, this

group believes that the cross-over is not only impossible but that large

capitalists are active in maintaining and sometimes creating a group of super

19

exploited small producers (a kind of reserve group of small producers waiting

in the wings of capitalist production).

Particularly concerned with those workers and small entrepreneurs who

do not occupy clear class positions in the production process (Wright 1978),

this group argued that many small-scale producers were no more than

subcontractors, putting-out, or piece workers who had little independence

from the larger more powerful capitalist sector (Murray 1983; Gouvemeur

1983; see Gates 1979 for how the situation applies to Taiwanese SSPS).10

This position is further articulated by Gerry and Birkbeck (1981) who note

that the growth of subcontracting, franchising, and outwork is but "thinly

disguised wage labor enabling large-scale capitalist enterprises to shift both

responsibilities and, as a consequence, production costs onto ostensibly

independent operators" (19812130). Although Portes (1983) declines to use

PCP in his analysis, he echoes the position of Gerry and Birkbeck.

In his

view, any production undertaken by household workers under contract is

indicative of an exploitative relationship between large and small

enterprises.11

According to Gouvemeur, the grth of numerous small manufacturers in

similar industries stimulates competition and, in particular, has a

two-fold effect on rates of profit in that it increases the average

rate of surplus value through a higher rate of exploitation of

workers employed by subcontractors.

Essentially, the large

firm is in a position to impose not only the norms of production,

but also the price, while the small enterprise is obligated to

accept these conditions (Gouvemeur 1983:142).

It is argued that the dependent position of small producers relative to larger

firms impedes the accumulation of capital and advancement from petty

20

commodity production to petty capitalist production (Gerry & Birkbeck 1981;

Chevalier 1983; Portes 1983; Murray 1983; Smith 1984a; 1984b; Rainnie

1985)

Most adherents to the dependency /subsumption school tend to agree that

when production is segmented into various physical locations (as is the case of

subcontracting or putting-out), large firms which furnish contracts to small

firms do not have to contend with the demands of a unified work force - - the

one group which is instrumental in driving up costs in labor intensive

production.

Further, when production is segmented, subcontractors or out

workers are often forced to bid against each other for work from large

producers, and they are thus forced to take more risks during production than

they might otherwise do.

Finally, because small-scale producers are flexible,

they are often forced by large producers to absorb the costs of production

slow-downs or sudden changes in the consumer market.

The common belief of the subsumptionists, then, is that small-scale

producers are a self-exploitative group dependent on large capital for survival

with little or no hope of accumulating capital on their own.

And, although

they acknowledge that small-scale commodity producers may have existed

prior to the advance of capitalism, they insist that with its advent, they were

forced to take work from the primary sector in order to survive (i.e., they were

maintained by capital).

For the most part, however, subsumptionists assert

that the great multitude of small-scale producers are the creation of large

capital in need of a cheap and malleable work force.

In the late 1980s, Portes began to rethink many of the issues related to

small-scale production and state intervention.

Stating that, “history is full of

surprises,” he acknowledged that, due to the changes in the world economy

since the late 19705 and early 19805, the informal economy had to be seen as

21

incorporating both third world and industrialized economies (Castells and

Portes 1989211).12 Moving away from the notion that all small-scale

producers are marginalized or completely subsumed by large capital, Castells

and Portes (1989), and Benton (1989), center their attention more on the

“processes of income-generation” and the degree to which small, “informal”

producers are

or are not regulated by the state (Castells and Portes 1989: 12).

Still, Portes’ adherence to the notion that much of small-scale production is

part of a temporary crisis in capitalism and that “people all over the world

have been mobilized to work and earn a living on the margins of rules and

organizational arrangements that no longer fit into their real condition and

experience,” appears to continue to adhere to a loose duelist argument of

formal -- informal or, more importantly, the regulated -- unregulated

(1989229).

Critics of the subsumptionist/ dependency theory argue that, like

modernization models, it tends to generalize about the relationship between

petty producers and the larger sphere of capitalist producers.

Small-scale

producers ( in most of their variations) are seen as victims of forces exterior to

themselves and the expropriation of surplus value by larger capitalists is

considered a one-way street (i.e., capital accumulation only moves toward the

larger capitalist entity)(Cook and Binford 1990).

In Worsley's (1984)

opinion, most of what is put forth by the subsumptionist/ dependency group

(which he tends to characterize as falling into the marginalist camp) is

reminiscent of the functionalist "culture of poverty" thesis.

It might also

be

argued that the position taken by Portes (1991) tends to perpetuate the only

thing that the PCP framework attempted to avoid in the first place; the broad

generalization of commodity forms into two antagonistic camps.

22

Regimes of accumulation and global capitalism

According to Mandel, "capital by its very nature tolerates no geographical

limits to its expansion" and uneven development, though beginning in the

locus of capitalist production itself, is embedded in a combined international

economic structure (Mandel 1975:41-46, 311).13 The world economy that

capitalism transforms has always consisted of differing social relations of

production, ranging from pre-capitalist and semi-capitalist, to full-blown

capitalist relations of production " linked together by capitalist relations of

exchange" (197521 84-222).

In the late 19705 and early 19805, Mandel's views seemed to be

substantiated when a "new international division of labor" (NUDL) emerged

in the world in which production in the "core" countries was slowly

decomposed and decentralized to "locations where optimal profits were most

likely" (Blim 199224; see Froebel 1978).

While large capital in the form of

multi-national corporations (MNCS) located in the "core" countries, were still

seen as the primary beneficiaries of this process, a small group of countries,

particularly in East Asia, in which export manufacturing had boomed, were

also thought to reap rewards from the NIDL (Blim 199225).

The theoretical work of the French Regulationist School (Aglietta 1979;

Lipietz 1986) -- which offers insights somewhat analogous to the views of

Mandel’s crisis in capitalism (1975), asserted that a technological-institutional

structure of production and accumulation which leads to periods of growth

exists in capitalisnr, which they called "regimes of accumulation" (Lipietz

1989273; Moulaert and Swyngedow 19912240).

Further, this regime is

guided by a ‘form of regulation’ which is composed of institutional structures

which ensure or guide behavior within a regime. A regime of accumulation

can be simply defined as

23

a historically specific production apparatus [in capitalism]

through which the surplus is generated, appropriated, and re

deployed.

The

definition

can

be

further

refined by

decomposing the notion of a regime into an articulation of four

distinctive elements: (a) a set of production techniques, (b) a

characteristic way of organizing production, (0) a distributional

mechanism governing the appropriation and re deployment of the

surplus, (d) a process of aggregate demand driving forward the

evolution of productive capacity (Scott 198 8b:8).

One of the primary arguments of the regulationists is that the regime of

Fordist accumulation which has dominated the later half of the this century is

giving way to an emerging regime of flexible accumulation. More

specifically, Fordist accumulation was and is marked by mass-productive

forms which have traditionally searched for large "internal economies of scale

based on process-flow and assembly-line methods, technical divisions of

labor, and standardization of outputs" (Scott 1988b29, emphasis added).

One

of the primary objectives of Fordist accumulation, furthermore, is to gain ever

increasing control over and subordination of labor through the fragmentation

of work, i.e., de-skilling of labor (Braverman 1979).

With changes taking

place in the global economy, however, a new regime has emerged which

centers on the growing need for flexibility of production processes, labor

markets and, in contrast to Fordist mass production, on external econonries of

scale in the organization of production (Scott 1988b210).

While there are numerous explanations and hypotheses for why many

economies tend toward flexibility,

Scott (1988b) provides some key points

for the rise of flexible accumulation regimes.

These regimes are more likely

to occur when (a) market conditions are uncertain and unstable as a result of

24

fluctuations in demand, competition, or unrelenting product differentiation, (b)

combined production processes have varying optimal scales of operation, and

(c) geographical agglomeration is in place (1988b226-27).1"

Whatever the

case, Hohnes has suggested that the above explanations are often interrelated

and that the importance of elements associated with the technical organization

of production, the market, and labor supply in defining the degree to which

work is segmented (i.e., subcontracted, putting-out, franchised) will vary by

industry, region, and country.

The structure of capital and labor markets and

forms of production organization, furthermore, depend crucially on

historically specific dimensions, suggesting the necessity for a multicausal

explanation (Holmes 1986295).

What is important to note, however, is that the flexibilities (and the

increased productivity and profits that often accompany them) inherent in

flexible accumulation and available to large capital are more readily achieved

through the use of segmented production and related labor market

segmentation than through large-scale production.

Specifically,

subcontracting arrangements have increasingly become one of the critical

links in the organization of production processes in many sectors of the global

economy simply because they increase flexibility.

And, although much of

literature sees subcontracting as functional for large capital, recent research

has indicated that subcontracting can create the possibility for small-scale

accumulation (Hohnes 1986288; Sabel 1982).

To understand the organization of production under regimes of

accumulation, Scott (1988b) insists that the firm must be viewed as a living

social institution composed of two dimensions: an internal unit ofproduction

relations (of which there may be various parts), and interfirm (external)

relations (the organization of production between firms).

The internal unit

25

of production is structured by internal economies of scale while interfirm

relations by economies of scope (Scott 1983: 237; 1988218; Sheard 1983251;

Holmes 1986291; Williamson 1985; 1991).

For the most part, "scale effects"

in production are apparent with reference to the internal technological and

organizational aspects of the firm.

"Scope effects," on the other hand, are

based on the transactional relations between production in dzflerentfirms.

Producers, therefore, try and weigh both scale and scope effects in making

decisions on whether to produce internally or buy on the market. 15

The simplicity of the above model, however, can obscure the actual

complexity of production, particularly with regard to external transactions.

Under certain conditions, such as highly competitive or unstable markets,

producers are under great pressure to extract surplus value from labor, while

also trying to maintain some kind of footing (or control) over the commodities

they are producing.

In many industries, this pressure often drives capitalists

into external transactions (i.e., an increasing social division of labor in

segmented, vertically-disintegrated production such as subcontracting)

whereby internal economies of scale and scope give way to external

econorrries of scale.

By acknowledging this division, we are allowed to "seize production in

general (a confusing assemblage of labor processes, technologies, physical

stocks, and so on) as a coordinated system of internal hierarchies and external

markets" (Scott 1988b224; see also Williamson 1975). More importantly,

there is not always a distinct break between the internal (dynamic) and

external (market) relations, but rather an irregular and often chaotic

continuum extending over a variety of intermediate forms (into

which production

through

subcontracting,

subsidiaries

or

26

afiiliates, joint ventures, partnerships, quasi-vertical integration,

all may fall), and we can see production as a complex but

rationally comprehensible organizational structure rooted in the

polarities of the firm and the market (Scott 1988b224).

Schmitz (1982a) and Sheard (1983) caution, however, that most

intermediate modes in this complex are not always "treated explicitly by

economic theory but may in fact be more typical than the polar modes of

internal organization and free market transactions" (Sheard 1983251).

Essentially, in the intermediate domain, transactional relations are far more

complicated than typically assumed, and are subject to less precise rules

which often include power relations formed around formal and informal

structures ranging from oligopolistic licensing agreements (where raw

materials, semi-finished and finished products, capital, machinery, are bought

and sold) to technology arrangements all of which play havoc with the "free

market" (Scott 1988b225; Holmes 1986288; Sheard 1983).

In contrast to the

static neo-classical view, furthermore, the market must be regarded as a

dynamic social institution which evolves over time.

In this sense, the market

structure is endogenous to the evolution of industries and is a force that acts to

"shape the competitive process rather than being a blind outcome of the same

process" (Magnusson 199426; Dosi et al, 19942204; see also Cantor et al.

1992).16

Despite these complexities, a detailed analysis of both the internal

(entrepreneurship, management) and external socio-economic constraints

(exploitation by larger enterprises and barriers to access to markets for capital

and raw material imposed by large capital or by the state) can reveal a cogent

view of the position of small producers in any given industrial complex

(Schnritz 1982; see also Smith 1984a).

Specifically, such an analysis reveals

the rules or forms of regulation which operate at the intermediate level,

27

thereby highlighting the position of small producers in the production process

and the extent to which they are "independent or simply an extension of the

production networks of large firms" (Schmitz 19822435; see Wright 1978).17

In sum, my approach to the study of small-scale production is grounded

on the ideas outlined above.

I believe that only through such an examination

is it possible to gain an understanding of the conditions under which capital

accumulation may or may not occur in small-scale production.

Simply put,

capital accumulation may or may not occur depending on the nature of

production process, labor, capital, and product markets, and linkages

present.

The social and cultural conditions which emerge as part of these

linkages over time, firrthermore, help shape or regulate the opportunities and

constraints faced by individual producers.

28

C. Small-Scale Production And Segmented Production:

Toward A Methodological And Theoretical Framework

While it is not within the scope of this thesis to provide a thorough

accounting of the flexible accumulation thesis, there are a number of scholars

who share some fundamental ideas with the regulationists (Schmitz 1982;

Sheard 1983; Scott 1988(a)(b); Holmes 1988; Cook and Binford 1990, to

name a few).

Their ideas can be used to shape a new theoretical and

methodological framework designed to bring small-scale producers back into

the of contemporary capitalist production and to reveal how and under what

conditions capital accumulation does or does not occur.

This framework and

my research on the hand-made paper industry, raise three broad questions

which I believe can direct the study of small-scale production in Taiwan in

general and the hand-made paper indusz in particular.

A. My research calls into question the tendency to overly generalize about

small-scale production in Taiwan on the national or global level.

Following

Cook, I believe it more beneficial to start from the assumption that small-scale

producers are part of single commodity economy which often contains

multiple forms, relations, and processes whose interaction is guided by

multiple or at least mutual causation (Schmitz 1982:47; Cook and Binford

1990227; Holmes 1986288; Long and Richardson 197 8).

In contrast to the

subsumptionists, therefore, research on small-scale producers in the hand-

made paper industry should ask: How and to what extent are the routes to

capital accumulation open or blocked by other players in the industry ?

B. As demonstrated with increasing frequency in global markets (of

which the paper industry is a part), the logic of flexible production systems

29

can be viewed as based on a complex segmented production system, hierarchy,

or matrix where most small producers operate at an intermediate position as

subcontractors, outworkers, brokers, traders, andfranchisers (or in

combination).

The involvement of small-scale producers in ever complex

structures of subcontract manufacturing points to the reasons why the linkages

between producers and others in the market have become so important.

Given the connections between producers in the hand-made paper industry to

others in the various markets in which they operate, the organization of

production in (and between) firms can be interpreted as a mobile and

malleable productive form which acts and reacts not only to changes in price

am but also to numerous other conditions (most of which are either

ignored or misunderstood by social scientists).

Specifically, this wider set of

non-economic conditions has to do with the socio-cultural or political

dynamics which permeate the firm at both the internal and external

(interfirm/market) level.

Falling as they do between the extremes of the firm

and market, it is often at the intermediate level of external firm transactions

that decisions cease to be mediated entirely by economic concerns. Two

questions emerge from this assertion.

I.To what extent do cost and price considerations of inputs

(labor, machinery, capital and materials) and of outputs

(finished product) dictate the nature of (external) relationships

between firms? What is the role of market demand, for example,

in influencing these relationships?

2. How is the manner in which small independent producers

pursue capital accumulation influenced by social, cultural, and

political factors

(which may take

the form of power

relationships) which mold and are molded by the markets in

which they operate?

30

C. My research indicates that many producers in the hand-made paper

industry realize that the longer they remain at the lower rungs of the

production hierarchy, the longer they will remain separated from lucrative

contracts in the market.

Given the complexity of interfirm relations, is it

possible to presume that there is a direct relationship between the ability of

producers to accumulate capital and their position in the production matrix

relative to other producers and traders in the market? More Specifically,

can capital accumulation occur most easily when control over the production

process by way of the market (primarily through trading and brokering) is

established?

Furthermore, is the ability to accumulate capital dependent on

how skillfitlly a small producer manipulates his/her relationships in this

matrix?

While many small enterprises usually follow common strategies of capital

accumulation they are, above all else, fluid and flexible, rarely behaving the

same way from one period to the next.

They are in motion at all times,

constantly adjusting their behavior to changes in their particular social,

cultural, political and economic environment.

Suffice it to say, a central part of this thesis is to illuminate understanding

of how and in what manner individuals maneuver themselves (their

businesses) and manipulate others in order to gain as much access to and

control over the market as possible.

The thesis will demonstrate under what

circumstances access to and control over markets in the hand-made paper

industry determine the extent to which sustained capital accumulation can

occur.

In addition, it will show that, in the Taiwanese context, certain social

and cultural norms have helped to lay a framework and provide the

mechanism for such relationships to exist and persist in business.

31

Players in the industry have selected those social and cultural resources

which are appropriate to specific socio-economic contexts within the industry

and help to maintain relationships which are often essential for survival.

Those who succeed in maneuvering in this matrix and gain access to and

control over the production process, therefore, are also often the ones who

best understand these norms and use them in formulating a business strategy.

In pursuit of the agenda and questions outlined above, the thesis will

focus on both the social and economic nature of production at the internal and

external level of the firm in the hand-made paper industry.

Following the

theoretical lead of the accumulationists, it will also focus on three elements or

variables I believe are central to understanding the process of small-scale

production and subcontracting in the hand-made paper industry and the ability

to accumulate capital: (a) the structure and stability of and access to the

market for capital, raw materials, a subcontracted part, or finished product; (b)

the structure and organization of the production and labor process: and (c) the

structure and nature of the labor supply.

These three major variables interact

in determining the extent to which production is "subcontracted" in any

particular industrial sector or region and, in doing so, help give "form to the

structure of the labor market," the structure of production, and the structure of

the market for both inputs and outputs in the hand-made paper industry

(Hohnes 1986:87).18

While the thesis is specifically centered on subcontracting relationships

between firms in the hand-made paper industry, extra attention has been

accorded to the external dimension (inter-firm relations) of the industry.

This

is because my research findings show that the 'structure and stability of

markets' is a key variable in the historical process of the hand-made paper

industry.

Markets are unique with regard to interfirm linkages in that they

32

are one segment of the industry which is subject to the vagaries of exchange

(i.e., are subject to monopoly and oligopoly). More than any other variable,

the market for raw materials, capital, and the finished product are subject to

manipulation and control by players in the production process.

Control over

the access to markets plays a major role in determining the ability of hand-

made paper subcontractors to accumulate capital.

33

D. Research Methods, Informant Confidentiality, and the Research

Subjects

Research on the hand-made paper industry of Puli, Taiwan began in the

spring of 1989 and concluded in the winter of 1990.

I came to study the

paper makers in Puli, for three reasons.

First, a relationship already existed

between an owner of large paper company and my major professor in the

Department of Anthropology at Michigan State University.

Second, the

relatively small size of the industry and the companies within it made for a

manageable research sample.

Finally, the hand-made paper industry had a

long history of complex subcontracting relationships based on a distinct

hierarchy of paper manufacturers.

The analysis followed an ethnographic line of inquiry, incorporating

questionnaires, in-depth interviews, and participant observation.

In a broad

sense, the research examined a community of factories and workers in one

industry who share little in the way of a common village life.

Like many

industries in larger urban areas, these factories draw individuals from

throughout the basin area of Puli Township in central Taiwan. Of the 29

paper companies in operation in 1989, 22 company owners agreed to be

interviewed. Of those owners, 19 provided enough information to fill a three

page questionnaire and answer approximately a half-dozen open- ended

questions.

It is this group which formed my "general sample."

Ten factory owners in this sample were willing to be interviewed over the

period of one year.

That is to say, ten factory owners and their family

members tolerated my repeated visits to their factories and usually found time

to talk with me.

The owners of these ten factories and their families formed

34

my " core research group."

Most members of this group were small

producers who had either a current or past business relationship with one of

the largest "center factories" (Tai P'ing Cotton Paper Company) in Puli.

The

terms "center factory" and subcontractor are explained in Chapter IV.

This

large company, served as the base from which I launched my research in Puli.

While I ofl‘er pseudonyms for the companies in the core research group,

I

rarely refer to them by name in the body of the thesis.

Rather, I discuss five

of these companies in Chapter VH. As a rule, I do not use factory names in

the body of the research to avoid compronrisirrg the confidentiality of the my

research subjects.

Even with the use of pseudonyms, certain incidents which

occurred in Puli or comments made by my informants could easily be traced to

specific people if I used some kind of identifier.

In most cases, therefore, I

use the "an informant told me" style of identification to protect my sources.

While most factory owners were uncomfortable with giving me free reign

in their factories, one owner of a large paper factory allowed me total access

to his operation.

This freedom allowed me to spend many hours in his

factory to talk to workers and supervisors as well as simply watch the day-to-

day work of the factory.

While this thesis primarily focuses on entrepreneurs

and the relationship between factory owners and the market, I include those

data on workers which I believe are of particular importance to the topic. By

the conclusion of my research in 1990, I was able to build close relationships

with several workers within this factory.

They, along with short interviews

conducted with other workers in other factories, provided me with

considerable data on the workers perspective of paper making in the industry.

In many respects, the workers who I interviewed provided me an invaluable

glimpse of their bosses and their families which was not readily available

when tallcing to the bosses themselves.

Finally, historical sources and

35

government data were also consulted when available and interviews were

conducted with local officials, government bureaucrats, and others not directly

involved in the production of paper.

Often, these individuals provided an

outside view of the industry.

15 it possible to operationalize small-scale producers?

Small-scale producers have been categorized and labeled in so many

different ways that it is often impossible to know exactly what group of

producers one is talking about.

This variation provides a good example of

the broad range of ideas associated with small-scale production and is

reflected in the way in which small producers are viewed in disparate

disciplines and paradigms. As an example of what the reader can expect,

Schmitz (1982) has gathered together some examples of terminology.

In no

particular order they are: informal sector, urban traditional sector, circuit

marginal pole, unprotected sector, non-enumerated sector, domestic

workshops, outwork, homework, petty commodity production, non-capitalist

production, petty capitalist production, small-scale industrial production

(Schnritz 1982a2432).

Given the fact that there is a broad range of terminology, it is not

surprising that there is also a lack of consensus on the size of small-scale

producers. Much of the literature generally views small-scale producers as

those who operate with between zero to ten workers.

It is not uncommon,

however, for researchers to define small enterprises as all those which employ

fewer than 40 workers.

I take a decidedly generic position on labeling small-scale producers.

Uncomfortable with locking myself into any rigid category, I generally View a

small producer as employing between one and thirty workers.

Because my

36

research and interests are tied to subcontract manufacturing, I often use the

term small-scale producer (SSP), small-scale enterprise (SSE), small-scale

subcontractor, or segmented production.

Further, most of my research

focused on semi-urban small-scale artisan capitalists, who employ wage labor

and had little or nothing to do with agricultural production.

This is important

to know since much of the anthropological literature deals with small-scale

producers within a rural agricultural / peasant context. My lack of adherence

to a size/ terminological standard is, for me, a kind of silent protest against the

manner in which the social sciences have tried to bifurcate this group with

little regard to the fluidity of small-scale production. As the reader will

discover, I believe one of the keys to understanding small-scale producers is

not so much in how they are defined in terms of size or whether they have

labor power, but rather, more on how small producers fit into the overall

production hierarchy and the nature of their linkages to the market.

Relationship with my research subjects

While my connection to one of Puli's larger paper manufacturers gave me

a base fiom which to start my research, questions remain whether my

association with this company boss (who was a dominant force in the

industry), hindered or helped me establish relationships with other factory

owners in the industry.

Never going into an interview "cold," I always relied on a factory owner

with whom I already had a relationship to introduce me to owners they knew

in the industry.

While this was a particularly long and drawn out process, I

believe I saved valuable time in the long run by simply not "dropping in" on

factory owners without a connection to someone else in the industry.

I thus

never approached a new research subject without them already knowing

something about me.

37

Most factory owners treated me with varying degrees of suspicion during

the first six months of my research (as they would with any outsider).

After

a half year in the field, however, my repeated visits to their factories and my

participation in various social events, appeared to allay some of their

apprehension about me. 19 What may have also helped me gain the trust of

factory owners was my strategy for collecting data. When I first began

interviewing factory owners, I always made sure that an interview would not

take place at an inopportune time; after all, my informants were businessmen

who had particularly busy work schedules.

I also attempted to gauge the

mood of my informant once an interview was started. When it was obvious

that my subject was impatient or uncomfortable with my questions, I quickly

ended the interview.

I found out that if I returned at another (better time),

these same factory owners would often be more accommodating.

Another interview strategy which seemed to work well was that I

reserved the more intimate questions about the owners and their companies

for the last stage of my research.

I also attempted to learn about the industry

by encouraging my informants to talk (gossip) about other factory owners in

the industry.20

Fully aware that discussions about " other" factory owners can

often be less than truthful, I attempted to maintain a degree of damage control

by pursuing the same questions with as many factory owners as possible.

Once I had collected enough information on an individual or a particular

incident, I then reevaluated my data by weighing one " story" against another.

By the time I completed my research, I had made a number of fiiends

among both factory owners and workers in the industry.

I had also gained

the reputation of a somewhat strange American who had a Taiwanese wife,

could hold his drink (my capacity for alcohol was always tested in Puli), liked

38

to chew betel nut, smoked lots of cigarettes, and rode a bicycle "like a

Mormon."

Perhaps not sure how I fit into the scheme of things, I'm sure

many factory owners dismissed me as simply a freak who liked to study small

factories. A number of paper factory owners, however, paid me what might

be taken as both a compliment and a warning toward the end of my research in

Puli. Amazed at how much I learned about their industry and what went on

there, one factory owner -- echoing the thoughts of several said, " You really

do know a lot about this industry." And, perhaps more ominously, "You now

know more about us than some of us ever thought possible."21

Structure of the thesis

Chapter H deals with econonric change on Taiwan beginning with

Japanese Colonial rule to 1989.

Highlighting important periods in the

Taiwanese economy and those policies which directly influenced the

development of manufacturing on the island, the chapter first explores

Taiwan's injection into the Japanese colonial economy.

The chapter then

examines the most important economic events of the Post World War H

period, concluding with a section on the general nature of small-scale

production on the island.

While this chapter does not speak directly to the

hand-made paper industry, it does provide a framework for understanding the

general conditions under which the industry developed from its inception in

1935.

Chapter HI, the setting of the hand-made paper industry, examines the

socio-economic context of Puli Township. As with Chapter 11, Chapter HI

does not touch directly on the paper industry but, instead, provides

background information which will help the reader situate the industry at the

local level.

In this regard, the Chapter explores the history of the region as

39

well geographical, administrative, and economic issues in 1989 and 1990.

Chapters IV and V provide a general overview of the internal and external

dynamics of the hand-made paper industry as it existed when my research

began in 1989.

The two chapters essentially provide a framework which will

serve as a guide for understanding Chapter VI, the history of the industry,

which follows.

Chapter IV focuses on the technical organization of

production and clarifies the nature of paper "the commodity," the product

market, the production process, company ownership, factory location, and the

general structure of subcontracting relationships.

Chapter V, on the other

hand, centers on the social organization of production and focuses on the

work force, the entrepreneurs, and the role of family labor in production.

The chapter also investigates the ideology of family as a mediator of

relationships between factory owners involved in subcontract production.

With Chapters IV and V providing an overview of the industry in 1989,

Chapter VI moves back in history beginning with the development of paper

production in Ancient China.

Divided into four sections, the first section

leads the reader through to the end of Japanese period when the first paper

factory was founded in Puli.

The second section traces the reconstruction

and development of the industry during the Post World War 11 period to 1969.

The third section examines the dramatic changes in the export market for

hand-made paper and the establishment of small subcontracting companies

between 1970 -1979.

During the 19705, as many as 30 papers companies

were founded, most of which were involved in subcontracting with companies

established prior to the 1969.

The last section in Chapter VI explores the

changes in the nature of the relationship between "center factories" and

subcontractors beginning in the early 19805 to the present.

While the decade

of the 19805 represents one of the most profitable periods for the industry it

40

was also a time when high wage rates and growing overseas competition

helped contribute to the demise of a significant number of paper

subcontractors in Puli.

Chapter VII draws on five paper companies to illustrate how and in what

manner the hand-made paper industry has changed over time.

Centered on

the lives of one center factory owner and four subcontractors, the chapter

explores the nature of changes in the relationships both within firms (labor and

management) and the between firms (center factory owner and subcontractor)

as the society and economy changed around them.

Finally, Chapter VIH concludes with a discussion of the some of the

current problems in the study of small-scale production.

It points to the fact

that both context and change are often ignored by social scientists, and that

overly broad generalizations are made about producers in different industries

who share little in common. My research on the hand-made paper industry,

therefore, is used as a base from which to challenge many of the assumptions

made about small-scale production as it is often depicted in generalized

theory.

41

 

’

The use of the terms small, medium, and large to refer to the scale of enterprises is

often subject to great variation in the literature.

In my view that such designations mean

little when applied to as many sectors of the Taiwanese economy as is generally the case;

an assembly operation of 35 workers in the shoe industry has little in common with an

operation of similar size in the hand-made paper industry.

As I argue later in this study,

researchers have to pay close attention to a myriad of other factors, such as capitalization,

labor process, and access to markets, in order to understand what "size" actually means in

specific industries.

Despite these misgivings, however, I have chosen to follow Schmitz

and very loosely categorize small-scale factories as those with under 30 workers.

Nevertheless, the reader should keep in mind that this range often includes what many

researchers would designate as medium- sized firms (Schnritz 19822432).

2

Also see Kung Yeh T'ung Chi Tiao Ch'a Pao Kao 1991.

Data on manufacturing

enterprises collected by the Ministry of Economic Affairs MOEA) differs from data

collected by the Directorate-General of Budget, Accounting and Statistics (DGBAS).

3

The work by Deglopper (1972), Tang (1978), and Stites (1982) deal with small-scale

producers in more urbanized areas of Taiwan.

‘

Cook's definition of a commodity is a derivative of Hart (1982) whereby a commodity

"is a product of human labor whose use -value can be realized only after it is exchanged to

someone other than its producer.

One follows the single commodity economy concept,

one can "then proceed to address issues of enterprise dynamics, differentiation, and

relations without being able to explain one category of enterprises (e.g., petty or peasant)

in terms of another (e.g., big or capitalist)(Cook and Binfordl990230-31).

5

Here I am also referring to Polanyi’s view that the social may act as a regulatory force

on economic relations within an industry.

Schumpeter (1950) eventually came to see "the study of the historical process as the

means by which one acquired the intellectual capability to study the process of change"

(Lazonick 19942253; also see Polanyi 1957).

7

Some readers might see the connection to Schumpeter's view of competition as

"creative destruction" in the marketplace where firms either adapt to the market and

survive or fail.

8

The mode of production analysis considers the forces and social relations of

production, the connection between co-existing modes, and the action by which surplus

value is created and extracted. A mode of production is conceptualized as containing two

components:" a)the forces of production (material resources, instruments of labor, labor

power and other technologies; and b) relations of production defined as the ownership and

control of the means of production and creation and appropriation of surplus product"

(Long and Richardson 1978: 182).

9

In the early 19705, a group of neo-Marxists (the French School-Meillassoux 1972;

Godelier 1972; and Terray 1972), saw a need for the establishment of a model which

rejected the dualist informal/fonnal view of the economy.

This new view advocated an

analysis which examined the articulation between pre-capitalist (subordinate) and capitalist

(dominant) modes of production.

42

 

1°

"Independence," according to Cook, " requires three conditions: (1) juridical

ownership of the means of production; (2) direct appropriation of the profits of the

enterprise; and (3) control over the decision making process which arises out of production

"(Cook and Binford 1990: 24 after MacEwen 19792107).See Rannie (1985) for a

discussion of the role of the state in promoting small-scale production.

11

As Schnritz points out, however, such analysis has rarely been subjected to detailed

empirical examination (1982: 433).

‘2

A highly controversial term, Portes defines the informal economy as simultaneously

encompassing “flexibility and exploitation, productivity and abuse, aggressive

entrepreneurs and defenseless workers, libertarianism and greediness. (1989211).

Perhaps

more to the point, Portes goes explains that that the informal economy is a “common-sense

notion whose moving social boundaries cannot be captured by a strict definition,” but a

process of income generation “characterized by one central feature: it is unregulated by the

institutions of society” (1989:11-12).

‘3

Long before Mandel, Schumpeter (1950) understood capitalism's fluid and flexible

character with his pronouncements of capitalism's endless creative destruction.

'4

Scott emphasizes that any one of these factors can play a role in flexible

accumulation.

Other factors which are not as applicable to this study include the presence

of segmented labor markets and when external transactional relations are rendered immune

from certain pervasive problems of market failure (Scott 1988:26-27).

Geographical

agglomeration refers to the concentration of many producers in one area.

1’

As originally articulated by Coase (193 7), firms expand or contract according to: (a)

scale or quantity of output and, (b) production of goods (represented by aliquot functions)

which may or may not be internalized within a firm (Scott 1983: 237; 1988218; Holmes

1986291; Sheard 1983251; Williamson 1985).

In the case of "a"(scale), before any good is

produced in any firm, total average costs of production are determined according to

fluctuations in scale. When the quantity of an output is increased leading to a decrease in

the total average cost of production, then econonries of scale are present.

Disecononries

of scale arise when an increase in output is followed by a decrease in the total average cost

of production (Scott 1988:18—23).

In the case of "b"(production of goods), decisions must be made on whether to

produce a particular good or related goods under one roof.

Production may be vertically

integrated (with two or more production processes taking place within one firm), or

vertically disintegrated (with production of related goods taking place in different firms).

Econonries of scope exist when the costs of producing multiple goods within one firm are

less than the cost of purchasing each good on the open market (here vertical integration

will take place). Likewise, disecononries of scope prevail, when costs of producing of

multiple products within a single firm exceeds that of the purchase price of the same

products on the market (here vertical disintegration will take place) (Scott 1988:18-23).

‘6

Cantor et al. (1992) provide a listing of several important characteristics of the market

process derived from the economic literature.

These are "voluntary repeated participation

by decentralized decision makers, a price system, large numbers of anonymous traders,

self-interested motivations, low transaction costs, and private property rights." There are,

however, five requirements which are important to a definition of market process: (a)

43

 

property rights define control over goods and services; (b) desire to exchange; (c)

transaction costs do not exceed perceived gains from completing the exchange; (d) choice

exists over trading partners, trading periods, or both; and, (e) there is trust in the security

of the transaction being completed in an atmosphere of non- coercion (1992:23).

’7

The debate over independence and autonomy of small firms with relationship to large

capital lies, of course, at the heart of the dependency/ disguised wage— labor camp of

theorists discussed above. While this is part of a much larger debate, I will say that

knowing or at least understanding the class position of small-scale entrepreneurs helps to

clarify many of the issues which have to do with exploitation of small capital by large

capital. Further, this issue provides insight into the role of the state in either maintaining or

helping to maintain a class of self -exploiting, petty bourgeoisie for use by large capital.

By maintaining or promoting the myth of small-scale entrepreneurship, large capitalist

institutions, with help from the state, often maintain a ready supply of subcontractors and

pieceworkers who produce products for less money than is possible by large factories.

Because subcontractors often produce the same product as dozens of small producers, they

fiequently find themselves competing against each other, forcing down the selling price of

their product.

Further, by segmenting much of their production into various physical

locations, large manufacturers avoid the problem of hiring and maintaining control over a

large labor force. When workers are concentrated in one location they are provided with

an opportunity to organize unions, thereby driving up the cost of labor (see Gerry and

Birkbeck 1981; Rainnie 1985).

1"

The research conducted by Watanabe (1971), Rubery & Wilkinson (1981), Brusco

and Sable (1981), Sheard (1983), Scott & Storper (1986), and Scott (1988a, 1988b) on

the nature of production and labor in subcontracting are relevant to the research on

Taiwanese subcontractors primarily because: a) there are many industries where there is a

high divisibility of the production cycle (e.g., machinery, electronics, clothes, shoes, and

automobiles), enabling "parent firms" to realize more efficient econonries of scale; b)

"parent firms" can maintain greater flexibility and liquidity by segmenting capital (not

having to invest in specialized machinery bound to specialized tasks) and having the burden

of investment in machinery fall to the subcontractor.

Subcontractors in Taiwan are also

often the first producers to absorb a production slow-down, fiequently acting as a buffer

for risky investments in new products, and c) subcontracting may also offer the opportunity

to parent firms to minimize the cost of variable capital, " since it acts as both a mechanism

ensuring wage discipline and a method for segmenting the labor force" (Holmes 1986292).

Because large firms usually have more powerful labor groups than smaller manufacturers,

they often fear being held hostage to labor demands (i.e. a structured wage package, fiinge

benefits, health insurance) (Brusco and Sable 1981; Murray 1983 see also Friedman 1977).

By employing many smaller subcontractors in the production process, larger enterprises

avoid friction between labor and management in their own firms.

Their subcontractors,

on the other hand, have an ability "to adjust the amount of labor power purchased through

overtime and short—time work, or even through hiring and dismissals (Brusco & Sable

1981 : 102).

‘9

While I told my informants that any information given to me would be held in the

strictest confidentiality, and that the names of factory owners and the factories would be

44

 

changed, I always knew that what really mattered to them would be how I conducted

myself.

2°

By soliciting information about other factory owners in the industry, I was able to

allay the apprehensions many factory owners had about questions having to do with their

own factories.

I also knew, however, that some of my informants deliberately tried to

influence my thinking by exaggerating certain incidents or gossip about other factory

owners.

21

I came to realize that, after a while, many of the factory owners had been talking

about me, but about what, I never knew for sure.

INDUSTRIAL DEVELOPMENT ON TAIWAN

CHAPTER H

Located about 140 kilometers from the coast of Fuchien Province in

southeastern China, Taiwan's political relationship with the mainland has never

been particularly amicable (Figure 2.1). Reluctantly made a part of the Chinese

empire in the late 16005, and gaining provincial status only during the late

Ching dynasty (1644-1911), Taiwan has long enjoyed a reputation on the

mainland as a rough frontier area filled with political and economic refugees,

corruption, and lawlessness. With a population of close to three million in the

late 19th century, Taiwan had been growing steadily since the late 16005 when

migration from the mainland started in earnest. As one of the last frontier areas

in China, Taiwan drew thousands of peasants and seasonal workers from

Fuchien and Kuangtung Province who hoped to gain temporary work in order to

supplement family incomes back home or establish new families on some of the

last "unclaimed" land in the empire.

By the end of the Ching period, the island of Taiwan had a commercial

economy structured primarily around the export of agricultural and forest

products (predominantly rice, sugar, camphor, and tea) to the mainland.

Operating out of the port towns of Taipei, Lukang and Tainan and the treaty

ports of Tansui, Keelung, and Kaohsiung, Taiwan had also established a

number of commercial ties to international markets in the west. These

commercial links helped create considerable wealth for a number of local

45

46

families who owned vast tracts of agricultural land and were heavily involved in

the import-export business.

 

Figure 2.1 The People's Republic of China and Taiwan

One of these families, the Lins, lived in Wu-feng, located south of

Taichrmg City, and situated half way between the Central Mountain Range

which rrms north-south along the island near the western seaboard. The family

dominated much of the commercial activity of central Taiwan and operated one

of the island's largest camphor operations. As both landlords and merchants,

the Lins were best known for their huge rice exports to the mainland. Much of

the camphor was harvested fiom the mormtains in Nantou Cormty just to the

east of Wu-feng, distilled and packaged in Puli Township, and exported through

Lukang (Meskill 19792241). With the profits from the sale of their products, the

family accumulated greater wealth by importing finished goods from the

mainland for sale to the local population.

47

Despite the great wealth commanded by Taiwanese families such as the

Lins, Taiwan's internal political economy remained fairly fragmented and

parochial (Meskill 1979: 252, 254). It was not until the Japanese occupied

Taiwan in 1895 that the island was forced to confront a strong central

bureaucracy and capitalist system. Although Taiwan was "developed" to serve

Japanese imperialism, the Japanese gave the island its first exposure to an

organized state bureaucracy and, eventually, an emerging industrialism. And it

was under Japanese rule, in fact, that many of Taiwan's small-industries got

their start, including hand-made paper production in Puli Township, located in

Nantou County.

Before examining the hand-made paper industry in Puli, however, I

briefly review the economic history of Taiwan. While more detailed accounts

of economic change on the island exist elsewhere in the literature (Gold 1986;

Ranis 1992; Clark 1992), my primary concern here is to trace some of the

changes which affected the status of manufacturing on the island in general,

and small-scale producers in particular. Further, the overview of the

economic changes that took place on Taiwan also includes information

necessary to understand change in the hand-made paper industry in Puli

discussed in Chapter VI.

I begin the chapter with the Japanese period because this is the period in

which the hand-made paper industry in Puli first began. The Japanese

occupation is particularly important to understanding change on Taiwan

because some of the agricultural, industrial, and institutional policies enacted

during their occupation laid the framework for the development of Taiwan

during the post-World War 11 period.

48

I next examine the post-World War H or "Nationalist Period." Briefly

digressing from a discussion of the economy, I first discuss the changing

political situation on Taiwan. Because politics are closely intertwined with

state policy on the economy in Taiwan, it is almost impossible to understand

one without the other. I then move to a discussion of the sweeping agricultural

changes enacted by the government in the 19505 and the subsequent periods of

import and export substitution which lasted until the early 19705.

This discussion is followed by an examination of the actions of the

government to upgrade the industrial base in the 19805 as the Taiwanese

economy matured and labor on the island became less competitive relative to

cheaper labor markets in Asia. Then I discuss the most recent phenomenon in

Taiwan's economic history - - industrial transplants and investment from

Taiwan to Mainland China and Southeast Asia. The movement of low-

technology labor-intensive manufacturing from Taiwan to cheaper labor

markets, is particularly important because of the impact it has had on the

island's small-scale producers.

Finally, in the last section of this chapter, I discuss small-scale

manufacturing on Taiwan. Here I present some preliminary data on why some

small-scale production has remained an important part of the Taiwanese

economy. Still, as the reader will see in subsequent chapters, hand-made paper

manufacturing is one-labor intensive industry which, despite numerous

strategies aimed at keeping the industry viable, is unable to compete with

cheaper labor markets in the rest of Asia than in Taiwan.

p..—I-.--

.E

49

A. THE JAPANESE COLONIAL PERIOD: 1895-1945

Establishing control

With China's defeat at the end of the Sino-Japanese war in 1895, the

Ching government was forced to Sign the Treaty of Shimonoseki which ceded

Taiwan and the Pescadores Islands to a government

lacking any tradition or experience as a colonial power. Japan had

acquired

Taiwan

without

long-range

objectives

of

its

management, and this administrative vacuum was at first filled by

military men untrained for the new colonial tasks and civilian

incompetents and carpet-baggers from the home islands eager for

quick profit (Peattie 1984: 19).

Perhaps because Japan lacked a developed vision of its imperial role, it

took the colonial government over two decades to eradicate resistance to their

rule. While most of the island's inhabitants eventually came under Japanese

control by 1915, isolated uprisings continued until 1930, when a group of

mountain aborigines in Nantou County put up a final stand in what came to be

called the Wu-she incident.

This bloody battle lasted for 43 days and took

hundreds of lives on both sides (Liu 1959258). With the military engaged in

rebel incursions, the central government worked to establish a sophisticated

and highly organized network of police and community " leaders " to carefully

monitor the general population. Through a melding of official Japanese and

localized authority, the population was kept under constant surveillance

through a system of household registers called hu k ‘ou fi Eland tax rolls.

Agricultural transformation

50

As the island came under full military control, the Japanese government

began plans to integrate Taiwan into the emerging Japanese empire. Japanese

policy on Taiwan was fiamed in such a way as to make the island an

"agricultural appendage of Japan, " which shipped raw materials to the

homeland and served as a market for Japanese goods (Ho 19842350). The

government realized, however, that such a policy could not be implemented

without an educated population, an advanced agricultural base, and a basic

infrastructure (Chen 19842273). Toward these ends, colonial bureaucrats

eventually set about creating a self-suflicient colony which, by the 19305, had

attained the highest levels of education, administration, health care, and

economic development ever before seen on the island.

Targeting rice and sugar as the two products to lead Taiwan's

development, Japan began to improve basic infrastructure in order to insert the

Japanese administration into Taiwan's agricultural heartland. Before any

program could be implemented, however, the Japanese authorities had to

unravel the island's complicated three-tier system of land tenancy. By 1904 a

cadastral survey was completed, clarifying land ownership and paving the way

for a new land taxation system and changes in the land tenure system. "With the

clarification of property rights and a more efficient government, the land tax, for

the first time in Taiwan's history was collected efficiently and regularly" (Ho

1973:44).l

With the help of Japanese social scientists, the imperial government also

learned as much as it could about local customs and traditions, all of which

furthered the government's control over the population. With a greater

understanding of the countryside, Japanese agricultural officials and police

5]

moved into the local areas, persuading local farmers to adopt improved seed

varieties, fertilizers, and advanced farming techniques. They also persuaded

them to join the government-controlled Farmers' Associations, an organization

which served as both an agricultural and political extension service.

These "advances" were not without costs to Taiwan's agriculturists. The

Japanese made certain that they (the Japanese) were the primary beneficiaries

of their econonric policies. By the 19205, for example, the bulk of Taiwan's

exports were primary products of which food accounted for more than 80

percent. Over 70 percent of Taiwan's imports, furthermore, were industrial

products, the majority of which were consumer goods, supplied by Japan.2

Cotton textile was imported to clothe the local population, and

fertilizer was imported to meet the production needs of

agriculture.

Machinery and transport equipment were also

imported, the former to equip the food-processing industry and the

latter to develop a transport system to carry the agricultural and

agricultural processed goods to market. The large import of food,

which for a food surplus country may be baffling, was also to

accommodate the needs of the Japanese (Ho 1979230).

Commercial and industrial development under the Japanese

Japan's interest in Taiwan primarily as a food producer did not preclude

the development of some industry on the island (Ho 1978217). Food and timber

products, for example, could be shipped more easily if they were semi-

processed. It also made sense to locally produce some of the equipment and

machinery necessary to build infrastructure, particularly when the primary

ownership of such enterprises was under the control of Japanese bureaucrats

and entrepreneurs. By 1930, food processing accounted for over 64 percent of

all registered factories and 76 percent of all factory production. Of the six

52

largest companies, five were Japanese-owned sugar refineries, which were

granted monopoly control of the industry by the Japanese government. The

average Taiwanese firms, most of which were also involved in food processing,

in contrast, were small employing only ten workers (Taiwan Shen Wen Hsien

Li Wei Yuan Hui 1979:79)(Table 2.1). By 1930 nearly three quarters of the

workers in manufacturing in Taiwan were employed in these small

establishments. Between 1905 and 1940, although agriculture in Taiwan grew

in significance, the proportion of men occupied in agriculture increased by only

26 percent. In contrast, the percentage of men engaged in mining grew by 505

percent, and that in manufacturing by 120 percent.3

Table 2.1. Manufacturing Enterprises by Size of Work Force: 1930-1936

 

Year

total

under5

5-15

16-30

31-50

51-100

100+

 

workers workers workers workers workers workers

1930

6,109

3,261

2,152

1932

6,261

3,596

1,969

1934

6,749

3,837

2,122

1936

7,846

4,740

2,210

380

388

433

520

107

95

138

157

124

115

11

109

85

98

108

110

 

Note: Other statistical data put the total number of enterprises far higher than what is

represented here.

Source: Ho 19782377. Also see Taiwan Chih Kung Yeh. Taiwan Sherr Wen Hsien Li Wei

Yuan Hui Vol 4 1979.

It was not until the mid-19305 that Japan modified its economic goals for

Taiwan. Preparations for war with China forced the colonial government to

recognize the need for Taiwan to diversify its economy. Taiwan's new role in

the empire was to help supply industrial raw materials for Japan's heavy

industries, to become less dependent on Japan for processed goods, and to

53

provide a base from which to launch Japan's military and capitalist expansion

into South China and Southeast Asia (Ho 1978274). To make Taiwan an

industrial appendage of Japan, the colonial government together with Japanese

capitalists expanded their efforts to develop Taiwan. Machinery used to

manufacture fertilizer, textiles, metal products, and chemicals were moved to

the island from Japan. Large gains were recorded in the level of capital

investment and in the value of production in both the metal and chemical

industries (Ho 1978274).

To further encourage Taiwan's development, Japanese entrepreneurs and

corporations were also given access to land, capital, and special tax incentives

to start agricultural and industrial corporations. The data in Table 2.2 show

that, as early as 1929, Japanese "owned and managed nearly all modern

industrial enterprises" and "tlrree-quarters of the capital in Taiwan organized as

joint-stock companies, limited partnerships, or unlimited companies" (Ho

19842374). Taiwanese entrepreneurs, on the other hand,

were prevented by law from forming joint-stock limited liability

companies without at least one Japanese director.

This was a

means of enforcing

the economic

subordination

already

underway. Certain sectors were reserved for the Japanese, and the

Taiwanese had neither the capital nor the managerial experience

to compete in other modern ventures (Gold 198124).

Japanese land policy in Taiwan enabled Japanese firms to become "the

most important landholders in Taiwan," appropriating between 20 to 25 percent

of total cultivated area before World War H (Gold 1986:371-372).

54

Table 2.2. Distribution ofPaid Up Capital of Companies in Taiwan by Type of Organization

and by Nationality of Ownership in 1929

 

 

Type

Total“

Japanese

Taiwanese

Joint stock companies

287.9

78.4

1.8

Manufacturing

Mining

Agriculture

Commerce

Transportation

Fishing

198

17.1

9.4

53.2

5.8

3.4

90.7

71.6

47.2

43.4

55. 1

65.1

8.4

20.1

52.8

52.7

44.5

34.3

Limited partnerships

Unlimited companies

16.6

7.9

68.0

23.6

32.0

76.4

 

Source: Ho 1978: 86

*In million yen

Despite the extractive nature of Japanese imperialism in Taiwan, the

colonial period left a powerful legacy which would last for decades after the end

Of World War H.

First, the colonial state built an island-wide infrastructure

which included extensive rail, road, and telegraph networks that linked much of

the island to the capital in Taipei in the north as well as hydroelectric plants and

elaborate irrigation and flood control systems which upgraded the island's

agriculture and industrial production. Second, by the end of the 19305,

Taiwan's colonial government established an educational system which

produced one of the most literate populations in East Asia. Third, the Japanese

government, big business, and smaller entrepreneurs introduced a modern and

sophisticated commercial and industrial structure which brought modern

banking, trading, and stock exchange systems to the island. "More indirectly,

the base for an integrated economy rather than a disarticulated enclave was laid

by the creation of a geographically-displaced light industry linked to

agriculture" (Chan and Clark 1992277). These developmental measures

55

provided for one of the most enduring features of colonial rule and laid the

framework for further economic development on Taiwan after the war. Already

primed through formal education and practical experience for commercial and

economic activity, many of Taiwan's small-scale entrepreneurs were ready to

start their own operations once the Japanese were gone after 1945 (Pack

1992:82).

56

B. THE NATIONALIST PERIOD AND POSTWAR RECONSTRUCTION

The withdrawal of the Japanese at the end of the Pacific War, left a

political void in Taiwan.

When the Japanese left Taiwan, they left a Chinese population

isolated from the government and administrative process. They

had been isolated because the Japanese did not give administrative

responsibilities to the Chinese; practically all positions of any

political significance in the Japanese colonial government, from

the Governor General down to the headmaster of a village school,

were filled by Japanese (Hsieh 1979261).

The sudden exodus of trained Japanese managers, technicians, and skilled

workers together with the war's destruction left the island's industries,

infrastructure, and economy in ruins. For the first time in more than 50 years,

the local Taiwanese elite envisioned taking part in the rebuilding and

governance of Taiwan. Politics in mainland China, however, would intervene

in Taiwanese life and thwart any hope of independent rule.

The KMT and the political landscape

After the fall of the Ching Dynasty in 1911, a National People's Party,

the Kuo Ming Tang (KMT

Ea), was formed by Dr. Sun Yat-Sen,

ostensibly along the lines of a Lenirrist democracy. Well before the end of

World War 11, however, Sun was dead and the Nationalist government, led by

Chiang Kai-shek, was both financially and morally banlcrupt. Years of

mismanagement, corruption, patronage, nepotism, and an on-again off-again

civil war with the communists, left the party barely able to govern itself, let

alone mainland China. Still, the fiercely anti-Communist Nationalists were

57

considered by the western powers as the only "legitimate" government on the

mainland and Taiwan.

More concerned with eliminating the last vestiges of colonial Japan than

with restoring political and economic power to the local Taiwanese population,

Chiang sent a particularly oppressive military governor to the island. The

Nationalists behaved more like an occupying than a liberation force, creating

tensions on the island which permeated the political and economic lives of the

Taiwanese. These problems, compounded by the fact that between 1945 and

1949 the Nationalist government was preoccupied with a debilitating civil war

on the mainland, left the island with a rudderless and crippled economy (Ho

1 97 8: 105).

As more and more mainlanders trickled into Taiwan between 1945 and

1949, money and machinery trickled out of the island and into the hands of

corrupt Nationalist officials and capitalists on the mainland (Winckler 1981:

50).4 Taiwan was being stripped of its remaining wealth and left with a corrupt,

backward, and incompetent group of outsiders. Life went from bad to worse for

the Taiwanese and many on the island wished for the " good old days" of the

Japanese occupation. Others, however, looked to radical reform as a solution

to the island's problems, and they called for the elimination of corruption and

the return of jobs and property to the local population. The tension between

mainlanders and Taiwanese finally erupted in a bloody rebellion on March 28,

1947 (known as the "228 incident") in which as many as 20,000 Taiwanese lost

their lives (Kerr 19652310).

By 1949, the Nationalists had been routed by communist forces on the

mainland and had no choice but to seek refuge on Taiwan. For the next 40 years

the Nationalists maintained a policy of recovery of the mainland while

58

suppressing any and all political dissension on the island by imposing martial

law (Tien 1992210). Over the years, the KMT also enacted measures to

suppress Taiwanese culture and traditions and to promote Mandarin as the

official language.

Significant political change came to Taiwan only in the mid 19705.

Dependent for so many years on aging mainlanders to fill the party ranks, the

KMT had no choice but to begin a process of "co-optation that recruited many

Taiwanese into the party state's upper and upper-middle echelons. Meanwhile,

the indigenous opposition movement gathered momentum in the mid 19705"

(Tien 199229). By the late 19705, the banned Taiwanese independence

movement became increasingly militant as the KMT increasingly tried to

control their activities.5 While this stratagem temporarily stifled political

dissent, political opposition to the KMT gained strength. By the mid 19805, the

suspension of martial law and increasing influence of local Taiwanese in the

KMT, helped remove barriers to almost everything previously considered

seditious from political journals to a growing number of new social movements

ranging from the ecology movement to women's rights (Tien 199229).

Since then, Taiwan's ongoing democratic transition has been attributed

not only to its great economic success but also to a ruling party willing to

undertake political and economic reforms. These reforms, however, have been

accompanied by an increase in social instability. One needs only to read the

local newspapers to see an appreciable increase in violent and financial crimes,

gangs, labor and street protests, and government corruption. In Tien's words:

Once a society with an extremely low crime rate, Taiwan now has

a police force incapable of protecting its citizens from the threat

and horror of crimes.

Many in Taiwan argue that this is

symptomatic of a transitional

society.

But before social

59

tranquillity can be restored, the fact remains that the current

instability is undermining the business and industrial communities'

willingness to invest in Taiwan (Tien 1992220).

Agricultural change

Ensconced on an island for which they had little prior use, the

Nationalists had two options: "They could continue business as usual, turning

in a gyre until things fell apart. Or they could reform themselves, establish a

new relation with Taiwanese society, and make a united stand against the

communists" (Gold 1986:57). Under pressure from the United States, which

also remained the Nationalist's primary benefactor, Chiang chose the latter. In

a move that would placate the Americans as well as temporarily de-fang what

was left of Taiwan's gentry, the KMT implemented a much needed policy of

land reform.

In 1949 when reform was first enacted, landlords were restricted from

collecting more than 37.5 percent of the total agricultural yield fi'om tenant

farmers. Then, in 1951, some of the land formerly owned by Japanese were

sold to tenants who had claimed it. Finally, in 1953, land owned by landlords

above a set amount was sold to tenants (under the Land-to-the-Tiller-Act ),

resulting in an increase from 33 percent to 57 percent in the number of owner

cultivators (Gold 1986266). In return for these holdings, landlords were

awarded stocks in public enterprises and/or with land bonds. No longer tied to

the land, many landlords left the countryside for the cities and set themselves up

in business.

Having carefully studied the agricultural strategy of the Japanese, once

the landlords were gone the Nationalist government quickly moved into

positions of authority in the countryside. With assistance from the U.S.A.I.D.,

60

the government regenerated the former Japanese-controlled Farmers'

Associations and other state-managed institutions in the rural areas. The KMT

deployed loyal bureaucrats to head this former colonial network and took total

control of the market for seed, fertilizer, farm implements, pesticides, sale of

rice, and even capital. Essentially, the KMT took over the Farmers'

Associations where the Japanese left off (Ho 19782104). Realizing that the

associations facilitated control of the peasantry, the KMT wasted little time in

implementing both an agricultural and political policy in the countryside. The

government also introduced new farming methods and techniques and

distributed information on any other subject it deemed important.

While there were significant gains in agricultural production (between

1953 and 1963 the agricultural growth rate was 4.3 percent), farmers found

themselves increasingly squeezed from two directions.

First, the earlier

successes of the Japanese colonialists in health care and agricultural

productivity laid the foundation for high population growth rates in the post-war

period. With most of the island's farm land already in production, farm families

found themselves with more mouths to feed than land available to feed them.

By 1960, 30 percent of full-time farm families and 69 percent of part-time farm

families cultivated less than 0.5 hectares of land (Ho 19782156).

Since the colonial period the size of the average farm has more

than halved, decreasing from about 2 hectares to less than one

hectare of land. In 1939 about 25 percent of the Taiwanese farms

had less than .5 hectare of land but by 1960 the farms in this

category had climbed to 37 percent (Ho 197 8:156).

As a result, in 1960 that less than 50 percent of all cultivating farm

households in Taiwan were fully engaged in the operation of their farms, "with

many treating farming as more of a sideline occupation" (Ho 19782156). By

61

1964, nonagricultural income comprised approximately 32 percent of total farm

family income and, by 1972, the figure was above 50 percent (Ranis 19792229).

The second problem farmers faced stemmed from the government's iron

grip on agricultural production. The government set prices for all inputs and

outputs in agriculture. They battered rice for fertilizer (a scheme totally in the

government's favor), taxed land, and collected loans. "All amounted to hidden

rice taxes because the government's purchase prices [and other terms] were

considerably lower than implicit market prices" (Amsden 19792357). The

government also controlled much of the non-rice farm production through the

state-owned Taiwan Sugar Corporation, formerly controlled by the Japanese

colonial government and Japanese capitalists, and the Tobacco and Wine

Monopoly Bureau. In each of these sectors, the government monopolies forced

farmers to buy their inputs from the government and sell their output at

artificially low rates. Through the manipulation of agriculture, Taiwan's

greatest economic asset, the central government took complete control of the

countryside and all the surplus emanating from it. This surplus, in tunr, was

transferred from agriculture to industry (Amsden 19792357).

In sum, the Nationalist government achieved more from its agricultural

policies than anyone had thought possible. By reorganizing the relations of

production in agriculture, the state became the new landlord, extracting as much

as possible from a hard working peasantry in the name of development. The

ongoing removal of surplus from farmers' incomes in conjrmction with growing

population pressure squeezed farm families out of farming and into the waiting

arms of an emerging industrial sector desperately in need of workers. In this

way, "agriculture gave industrial capital a labor force, and a surplus" (Amsden

19792363).

62

Import Substitution, state enterprises, and industrial reconstruction in the

19505

In the four years immediately following the end of the World War II,

Taiwan's industries barely managed to stay in business. The island's largest

companies, most of which were former Japanese corporations, immediately

came under state ownership. Constituting virtually the entirety of the most

advanced and modern portion of the economy (e.g., banks, electricity, shipping,

communications, fertilizer, steel, oil, mining, food processing), these new

"public enterprises" were managed by bureaucrats, selected by the state -- and

they were primarily Chinese Mairrlanders (wai shengjen) who had

accompanied Chiang in his exodus to Taiwan (see Evans 1989) . These

govemment-appointed industrialists made certain their enterprises were

" dependent on the state for capital, foreign exchange, equipment, raw materials,

energy, and docile labor"(Gold 1986273). While the state did not block small

business, neither did it encourage their creation or smooth operation. Faced

with economic disaster in 1949 and desperate to rebuild its industrial base,

state industries came under government protection from overseas competition,

allowing many otherwise inefficient companies to survive (Scott 19792316;

Little 19792470). The government also moved to enact an irnport-substitution

policy in manufacturing which emphasized inward-oriented growth through

licensing, import, and foreign exchange controls (Ranis 19792210).

Bolstered in part by U.S.A.I.D. funding to industry and benefiting from

Taiwan's comparative advantage in cheap and abundant labor, manufacturing

production increased at an average rate of 22 percent a year between 1949 and

1954 (Ho 19782187).6 And while much of this increase was due to the

63

"rehabilitation of war-tom industries [industries originally targeted for

development by the Japanese in the late 19305], particularly in food production,

import substitution also exerted considerable influence on the pace of

industrialization" (Ho 19782187). During this period Taiwan gained the ability

to produce chemicals and textiles (much of which was previously imported)

through the establishment of such privately-financed companies as Tainan

Textile Corporation and Y.C. Wang's Formosa Plastics (Gold 1986271; Gold

1989279).

Between 1954 and 1962, however, import substitution policies were not

overly effective and manufacturing grew at an average annual rate of about 11

percent (Ho 19782189; Ranis 19792211). Nevertheless, domestic demand for

items such as food, textiles, synthetic yarn, bicycles, garments, and metal

products (all produced by low technology industries) continued to grow

throughout the 195 05 helping to create many new small-scale labor-intensive

industries.

Emerging agricultural and industrial policies, together with a fledgling

consumer goods sector, helped create the first noticeable changes in

employment (Ho 19782131; Shive 19922 102).

In 1940, approximately 64

percent of the total work force on the island was employed in agriculture while

only 7.7 percent of the population was involved in manufacturing and 8.2

percent in trade.7 Between 1952 and 1960 those employed in agriculture fell

fiom 60 percent to 52 percent while workers involved in industry rose from 18

percent to 25 percent (Galenson 19792387).

64

Export Substitution and industrial expansion in the 19605 and early 19705

By the end of the 19505 and beginning of the 19605, Taiwan's fledging

industries appeared to be relatively secure, with many having earned

considerable profits from protected markets. Armed with a growing reserve of

labor from the countryside (from 1952 to 197 3 employment expanded at an

annual rate of 2.6 percent), the government believed it could only prosper by

"exporting what effectively are labor and capital services" (Galenson

19792321).

A number of reforms were enacted in the early 19605 which aimed to

lessen state control of and reduce possible long-term damage to the economy.

These included: (a) the elimination of restrictions on imports of key materials

necessary for the production of goods for export; (b) liberalization of exchange

rate controls; and (c) devaluation of local currency from New Taiwan Dollar

(NT) $20 to NT$40 to US$1 (Scott 19792329). Recognizing the need to reduce

red tape and to increase capital investment and technical know-how, the

government also moved to encourage foreign investment on Taiwan. It hoped

that by offering a host of incentive packages, such as price controls, liberalized

exchange rates, tax breaks, and the establishment of Export Processing Zones

(EPZS), foreign firms (particularly American) would come to Taiwan to

assemble goods and eventually initiate technology transfers and outsource

parts to local manufacturing firms. The only stipulation was that these firms

export all that they manufactured or assembled and that they meet specific local

content agreements as the years went on (Scott 19792333; Gold 1986280).

Complicated as they were, Taiwan's new export policies were

immediately effective. Between 1963 and 1973 exports of goods and services

rose from 13 percent to 43 percent of GDP and the share of industrial products

in 6:

311m

pert

pert

f00<

text

pen

Fig

No-

8:

F01

and

65

in exports increased from 50 percent to 83 percent (Ranis 19792221). In the

almost the same period (1964-197 3), annual agricultural growth averaged 4.9

percent while annual growth in industrial output reached an average of 19.67

percent (Ho 12321978). Between 1961 and 1970, the proportion of factories in

food production rose by 70 percent. In contrast, the percentage of growth for

textile manufacturing was 300 percent and for fabricated metal production 400

percent (see Figure 2.2).

 

    

352??

if _.:.s

§

vs

'

2:23?

-'

_.

7

"

- ;

1961

1966

I971

I976

Ifood/bev.

Itextiles

E apparel

I leather

Iwood prod Ifumiture

I plastics

non metal

Ill fab.metal I machinery

electrical

Figure 2.2. Number and Type of Selected Enterprise Units in Manufacturing in Taiwan:

1961- 1976

Note: food/bev.= food and beverage products; non metal = non metallic mineral products;

fab. metal = fabricated metal products.

Source: Kung Shang Chi Fu Wu Yeh Pu Ch’a Pao Kau 1991, [The Report on the 1991

Industrial and Commercial Census, Taiwan and Fukien Area].

Foreign investment and the state

Some of the first foreign enterprises to invest in Taiwan were American,

and they were initially located in cities as bonded factories and later in the new

 

_..__.—‘_

66

Export Processing Zones.8 Faced with high labor costs at home, many of these

firms concentrated primarily on the assembly and manufacture of electronics

and chemicals, with many of them preferring to own and operate their factories

outright.9 Initially parts used in production were imported for assembly and

then, gradually, foreign manufacturers began buying locally made parts from

Taiwanese subcontractors. The success of the initial off-shore assemblers

eventually encouraged others to come to Taiwan and, by the end of 1965, about

35 large corporations were operating manufacturing enterprises on the island.

While large American corporations made considerable profits by

exporting goods back to the United States, Japanese corporations adopted a

slightly different investment strategy. The Japanese government, highly

protective of its own markets, initially resisted "part" or "product" procurement

from Taiwan, even from Japanese-owned companies. Rather, many Japanese

investors in Taiwan, most of whom owned small to medium-sized firms, took

local Taiwanese as partners. Many of these investors preferred to sell the

goods they manufactured or assembled to other local Japanese manufacturing

firms or to market what they produced in the United States and Europe (Gold

1986280).lo With labor shortages, high wages, and pollution increasing and

available land decreasing in Japan during the early 19705, the Ministry of

International Trade (MITI) encouraged Japanese producers to invest in low

wage markets overseas. "Labor intensive, technologically simple smaller firms

migrated, so that the home islands could concentrate on high tech, i.e.,

capital-intensive and knowledge intensive, high quality, high value-added

goods" (Gold 1986:81).

The new Taiwanese economic policies were highly profitable for foreign

investors of whatever ilk. ‘1 And, despite the fact that in a very short time

67

Taiwan went fiom the simple assembly of goods to the manufacture of entire

products in firms owned and operated by Taiwanese capitalists usually on a

subcontract basis, most local firms remained faceless producers of inexpensive

consumer goods.12 The marketing of these goods which more often than not

was the most profitable end of a business, remained in the hands of the

thousands of foreign firms which plied the island's markets. " Taiwan became a

repository for industrial sectors no longer viable for the United States or Japan.

It entered the emerging international division of labor at the bottom end of the

product life cycle "(Gold 1986:81).13

Despite Taiwan's status in the expanding global economy, the

government still managed to protect itself from the full exposure to that

economy. Through complicated and often confusing controls over imports

(particularly in finished goods) as well as numerous export controls and

incentives offered to foreign firms, the state " created a kind of dual economy in

which exports, but only exports, could be manufactured under virtually free

trade conditions" (Little 19792475 ). Indeed, Little (1979) and Gold (1986)

point out that the government did not create a laissez-faire economy; rather "the

state retained multiple controls and only granted what seemed like free-market

activities within strict bounds" (Gold 1986:87).

Industrial transformation and the international division of labor: 1975-

1989

The rise in oil prices following the OPEC oil embargo in 1973 and 1974

had "an immediate and profound effect on Taiwan's economy" (Crane

1989232). By 1974, Taiwan was running a trade deficit, inflation was

increasing, and a growing labor shortage and escalating wages helped send

Taiwan into recession (Little 19792501; Gold 1986298). Understandably, the

68

oil shocks sent reverberations throughout the economy, forcing many in Taiwan

to rethink the island's economic situation (Little 19792501). To stimulate the

economy, the government initiated ten major development projects and raised

taxes, interest rates, and prices on oil and electricity. Miraculously these

policies helped pull Taiwan out of recession in only two years, enabling the

island to post one of the highest grth rates ever recorded in 197 6 (Crane

1989233). ‘4

Faced with growing political isolation (the United States recognized

Mainland China in 1979), the second oil shocks in the late 19705, and

increasing wage rates, the government moved to change its position in the

world economy. The KMT created a "flexible multifaceted strategy to reduce

Taiwan's vulnerability to the instability of the global economy, primarily by

vertically integrating and deepening" heavy and capital-intensive industries and

promoting investment in technology, steel, and petrochemicals (Gold

1986: 100).

With basic industries well established in the early 19805, the government

shifted its attention to technology-intensive industries and began funneling

capital and research into high value areas such as electronics,

telecommunications, and machinery. Figure 2.3 shows the increase in the

number of producers of electronics and electrical machinery which helped

boost the number of upstream producers in fabricated metal, and plastics. So

strong was the push to upgrade Taiwan's industries in the 19805, that the

government came to resemble Japan's MITI, allocating millions of dollars to

build Taiwan's first high-tech research and design industrial park in Hsin Chu

City (known as Taiwan's Silicon Valley). The park gave priority to companies

(local and foreign) willing to invest in "strategic industries," e. g., computers,

69

chip fabrication, and other capital intensive ventures (Gold 1986: 103; also see

Shive 1990), a move which the government hoped would result in significant

technology transfers to Taiwan.

 

35000-

30000-

250004

20000‘

150001  

10000‘

 
  

1981

I986

1991

I food/bev.

textiles

apparel

I wood prod I furniture I paper

E3 Chan. prod

I rubber

I plastics

I non metal I fab. metal

madrinery E! electrical I misc.

Figure 2.3. Selected Enterprise Units in Manufacturing in Taiwan: 1981-1991

Note: food/bev.= food and beverage products; fab.metal = fabricated metal products;

misc.=miscellaneous. These figures are generally far higher than data provided by the

Ministry of Economic Affairs (MOEA).

Source: Kung Shang Chi Fu Wu Yeh Pu Ch’a Pao Kau 1991,[Report on the 1991 Industrial

and Commercial Census, Taiwan and Fukien Area] .

By 1986, total exports amounted to about 60 percent of the GDP, of

which electronics took 25 percent of the total share of exports in 1987 (Riedel

19922256; Simon 1992). By the late 19805, exports of these and other high

value-added goods helped boost Taiwan's per capita income to over US$6,000

and a trade surplus of over 21 percent of the gross national product (GNP). A5

increasing numbers of workers were drawn into the manufacturing sector,

employment in agriculture fell and, by 1987, only 15 percent of the labor force

70

was involved in farming. 15 Employment in industry, however, appears to have

stabilized somewhat, reaching an average of about 40 percent of the work force

in 1987 (Yearbook of Manpower Statistics, 1988).16 The data in Table 2.3

shows, furthermore, that changes in employment and economic growth rates

came about despite the appreciation of the Taiwanese dollar in 1986 and one of

the highest unit labor costs (ULC) in Asia. 17

Table 2.3. Taiwan's Unit Labor Cost in USS Relative to Major Competitors: 1970-1990

 

Period

Korea

Taiwan

Hong Kong

Singapore

 

1970-1979

1980-1984

1985-1988

1989

1990

107

108

106

150

145

70

92

100

130

132

137

133

113

109

107

97

124

117

114

I32

 

Note: Unit labor costs (1987:100)

Source: Chowdhury and Iyanatul 19932151

Mainland China and industrial restructuring in Taiwan: the 19905

While the move to upgrade Taiwan's industries and to "phase out" non-

competitive sectors of the economy has pushed, or attempted to move the island

in an entirely new direction in manufacturing, the repercussions of these

policies on the island's vast number of producers in the 19905 is yet to be fully

understood. Having lost much of its comparative advantage in a number of

labor-intensive industries at the bottom end of technology spectrum (e. g.,

simple electronics, shoes, garments, textiles, toys), many of the island's

producers are struggling to hold on to what is left of their industries. Generally,

Taiwanese factory owners often believe they only have two viable options:

eitl

19‘.

[or

(161

for

to:

Kc

set

we

X1]

Ch

in

Ta

71

either leave Taiwan and relocate to cheaper labor markets in Southeast Asia

(particularly in ASEAN nations) and mainland China (Pack 19922110; Riedel

1992) or, remain on Taiwan and make use of the thousands of legal and illegal

low waged foreign "guest workers" to compensate for the increase in wages and

decrease in labor the island is facing. Nevertheless, the wages demanded by

foreign workers in Taiwan are higher than those in Mainland China, continuing

to make "cross strait" production highly desirable.

While trade has existed between mainland China and Taiwan via Hong

Kong since the late-19705, it was not until the mid-19805 that China began

seeking investors from Taiwan. 18 Many small and medium-sized producers

were the first to move their operations to Southern China, particularly to

Xiamen and Shenzen. Because much of the Taiwanese investment in Mainland

China is illegal, many small Taiwanese set up shell companies to disguise their

investments. At this writing, however, it is estimated that at least 12,000

Taiwanese have either relocated their operations or invested in joint ventures,

pumping approximately US$10 to $20 billion into the Chinese economy (Riedel

19922294;Gargan 1994).

Still a thorny issue on Taiwan, some scholars and politicians claim that

the movement of low value-added labor-intensive industries to the Mainland

will enable Taiwan to concentrate on high-tech industries. Others on the island,

however, believe that, because so much investment from Taiwan has entered

the Mainland, the island is becoming increasingly dependent on China for

cheap labor and that the erosion or de-industrialization of manufacturing on the

island is possible (see Chang and Chang 1992). Whatever the case, the

economies of China and Taiwan are rapidly becoming so interdependent that it

72

may already be too late for Taiwan to exert any "independent [political or

economic] action" in the future (Baum 1994256).

Nevertheless, despite the dire predictions that small-scale production on

Taiwan may collapse under the weight of high wages, new (and often labor-

intensive) small-scale industries producing pieces and parts for "high tech"

commodities continue to emerge on the island. Linked primarily to industries

such as the booming information (computers and related electronics) sector (see

Riedel 19922292), these factories have had no choice but to increase their

comparative advantage by improving worker skills and increasing investment in

plant and equipment (19922287).

73

C. SMALL-SCALE INDUSTRY IN TAIWAN

In a comprehensive study of small-scale enterprises (S SE5) in post-war

Taiwan, Ho found that, in the early stages of Taiwan's development, "nearly all

non-agricultural activities take place in the small enterprise sector" (1980: 100).

With the liberalization of the 19605, however, the economy started to change to

an industrial base and SSEs or small factories became "the most important

component of the small-enterprise sector in Taiwan" (Ho 1980: 100).

Although Ho acknowledged the importance of small-scale producers in

the small enterprise sector, he insisted that SSEs on Taiwan would probably be

a brief phenomenon on the Taiwanese economic landscape, and he predicted

that, as Taiwan pursued large export markets in the 19805, the number of small

industries would continue to decline. As markets expand, "the potential

advantages of even relatively rrrinor scale economies make it worthwhile for

large firms to enter these industries and for existing small firms to expan " (Ho

19802102).l9 Further,

Because the importance of the economies of scale differs across

industries, the position of small-scale manufacturing at the

aggregate level is partly deternrined by the composition of the

manufacturing sector. One reason for the decline of the relative

importance of small factories in Taiwan is the rapid grth in

recent years of industries where scale economies are important

(Ho 19802101). 2°

Given the prevailing economic thought prior to the 19805, it is understandable

that Ho could not predict the tenacity of small-scale production in Taiwan.

Nevertheless, Ho did recognize that location, production process, and markets

74

all significantly influence the degree to which small-scale production persists in

developing economies (19802101).21

What, then, accounts for the continuing importance of small-scale

producers in Taiwan in the 19805? How have factory location, production

processes, and labor markets affected small-scale producers on Taiwan? While

these questions are beyond the scope of this thesis, I briefly examine some of

the conditions which appear to favor the continuation of small-scale production

in some sectors in Taiwan.

Spatial distribution of SSP and the changing rural/ urban landscape

Economic data from the 19505 and 19605 indicate that increases in

industrialization were not accompanied by an increased concentration of non-

agricultural employment or small enterprises in Taiwan's major metropolitan

areas (Ho 1979283).22 The data also indicate that in 1961, 41 percent of the

workers in rural areas were employed in rural factories with fewer than ten

persons, rural factories were smaller and more labor-intensive than those in

urban areas, and the majority of those employed in large rural establishments

were located primarily in food, textile, and apparel industries (1979285).” By

1971, as many as 61 percent of the total number of factories on the island were

located in rural areas and, of these factories, 77 percent had fewer than four

workers (1980: 128).24

A decentralized pattern of industrialization, according to Ho, made it

easy for small businesses to develop in rural areas and create employment and

entrepreneurial opportunities for rural households.

Taiwan's industrialization followed a more decentralized pattern

which has allowed it to grow as an organic unit by promoting

75

interaction among its components. In other words, by allowing

rural industry and agriculture to grow in a mutually reinforcing

manner,

decentralized

industrialization

has

created

rural

employment opportunities and enabled greater numbers of

Taiwan's rural population to participate in industry without having

to leave the countryside (Ho 197927 8).”

Since the 19705, however, Taiwan's population has expanded to the

point where the island has one of the highest population densities in the world.

Towns and villages throughout the island have, over the years, grown together,

creating semi-urban or urban environments which blur the distinction between

rural and urban (Liao 19892365, also see Speare 1974). High concentrations of

factories are found in the suburban areas which ring the cities of Taipei,

Taoyuan, Taichung, Chang Hua, Tainan, and Kaohsiung. During my research

in Taipei County (which surrounds Taipei City), for example, I commonly saw

a farm house surrounded by three-story "row" factories otherwise known as

"private industrial areas" (ssu li kungyeh ch 'u IAHI¥IEVG In fact, in 1990,

government statistics showed that 21 percent of all factories in Taiwan were

located in Taipei County and that 80 percent of those factories employed fewer

than 29 workers. When one considers other metropolitan areas in Taiwan,

(such as those noted above), well over 60 percent of factories are probably

located in what are considered urban areas (Kung Yeh Tung Chi Tiao Ch‘a Pau

Kau 1991).

Changes in wage rates

One of the primary reasons Taiwan was an attractive place for labor-

intensive manufacturing was its potentially large labor force and low wage rate

increases of only about four to six percent during the early to mid-19605

(Lundberg 19792298; see Galenson 19792403). As Lundberg notes, there

76

existed no, or very little, active wage push or wage policy as an

independent factor in the inflation process. Without active trade

unions and with relatively elastic supply of labor, at least up to the

19705, the price of labor can be regarded as a passive factor,

adjusting to market conditions, including changes in prices and

productivity (19792295 ).

By 1968, however, the proportion of workers entering the active labor

force declined and money wages grew by 12 percent. Lower unemployment

rates and a tighter labor market in the 19705, "were accompanied by an

increased rate of wage inflation" which grew by more than 30 percent between

1973 and 1975 (Lundberg 1979:296-297); the increase was attributable to

inflationary repercussions from the first oil shocks. Galenson points out that,

furthermore, from 1953 to 1963 and 1964 to 1975, the average annual

percentage rise in wages was lower in the former (4.0%) compared to 5.3

percent in the latter" (19792415).

Increasing wage rates concerned many small manufacturers throughout

Taiwan. For example, many of the-labor intensive factory owners I interviewed

told me that if they had not continually increased the value of their products,

they would have been driven out of business by the rising costs of labor.

Distribution of labor, factory size, and sectoral composition in

manufacturing

While disaggregated data on small-scale manufacturing are generally

inconsistent for the 19505, 19605, and much of the 19705, Ho found that, by the

mid-19605, small-scale producers (under 49 workers) employed approximately

30 percent of the total manufacturing work force (Ho 1980).27

That percentage continued to increase throughout the 19805 when, by 1991, 43

percent of those employed in manufacturing worked in factories with less than

49 workers. The percentage of workers employed in factories with 50 to 100

77

workers, furthermore, remained fairly constant at around 12 between 1976 and

1991 (Kung Shang Chi Fu Wu Yeh Pu Ch‘a Pao Kau 1976, 1986, 1991).

Finally, by the 19805, the number of workers employed in factories with more

than 100 workers generally declined. This decline was most noticeable among

factories employing between 100 and 500 workers, in which the percentage of

workers fell from 28 percent in 1986 to 21.28 percent in 1991 (Kung Shang Chi

Fu Wu Yeh Pu Ch’a Pao Kau 1976;1986;1991)..

The gradual shifts in employment from larger to smaller factories are

mirrored in the increasing number of smaller enterprises in Taiwan. For

example, in 1976, 86 percent of the total registered factories on the island

employed fewer than 29 workers. That percentage dropped to 85 .46 percent in

1986 only to increase to 88.9 percent in 1991. Figure 2.4 also shows that,

between 1976 and 1991, decreases were registered in the number of factories

employing more than 100 workers (Kung Shang Chi Fu Wu Yeh Pu Ch’a Pau

Kau: 1976;1986;1993).

78

 

60000-

50000-

40000-

3ooool

s
e
i
r
o
t
c
a
f

 
 
  

0-4w

5-9w

10-

30-

50-

100-

500

29w

49w

99w

499w

over

E11976 I 1986 I 1991

Figure 2.4. Manufacturing Units by Number of Workers in Taiwan: 1976-1991

Source: Kung Shang Chi Fu Wu Yeh Pu Ch’a Pao Kau: 1976;1986;1993). .

In terms of sectoral distribution, the largest percentage of factories

employing fewer than four workers in 1971 were engaged in animal feed, food,

beverage, tobacco production and in the manufacture of metal and machinery.

Other small industries included those involved in printing, machinery repair,

simple assembly, and the manufacture of clay, furniture, and glass products (Ho

19802111)?" By 1981, however, the census data show a broad distribution of

small factories involved in dozens of industries. Among factories with under 29

workers, for example, those in metal fabrication accounted for 20 percent,

while those in food production took second place with only eight percent of

total manufacturing production (Kung Shang Chi Fu Wu Yeh Pu Ch’a Pao Kau:

1981).29 By 1991, the percentage of factories engaged in metal fabrication

employing fewer than 29 workers remained at about the same level, while those

79

involved in the production of machinery rose to 10 percent, in plastic products

to 8.3 percent, in electrical to 6.5 percent while food fell to 4.7 percent. Finally,

the metal fabrication, machinery, plastics, and electrical industries combined

accormted for about 50 percent of the total number of factory units in operation

in 1991.

While the nature of production has increasingly shifted toward industries

manufacturing high value-added products (much of the metal fabrication,

machinery, plastics, and electrical manufacturing in Taipei county, for example,

is connected to the information industry), the size of these producers remains

fairly small. This is notable given Ho's predication that, as world markets

change and expand, small-scale producers were likely to be the first producers

to vanish while large-scale producers would increase in number.

Capital markets and investment

With little capital circulating in Taiwan and tight monetary controls in the

years following World War H, small enterprises had difficulty securing bank

loans. In the post-war period, for example, the Bank of Taiwan granted more

than 80 percent of business loans to large government enterprises.

Private firms shut out of the banking system, turned to the

unorganized money market and often had to accept short-term

credits to finance long-term investments. Low interest rates in the

banks and price instability also drove savings to the riskier and

highly imperfect money market (Ho 19782243).

In the 19605, institutional lending eased somewhat for large enterprises

as the government reduced deposit and lending rates.30 Concurrently, savings

deposits and interest rates on deposits rose, helping to expand the money

supply. Despite the increase in the real lending capacity of the "officia "

80

financial sector, however, most small enterprises continued to find it difficult to

secure long-term loans.

According to Ho, during the 19605, it became apparent that the banking

system was antiquated and great criticism was leveled at it for being too

conservative and cautious. Banks could neither grant unsecured loans beyond

25 percent of their deposits nor could they extend loans for more than six

months for unsecured loans, and only one year for secured loans (Ho 197 9:245;

see also Lundberg 1979:279-284).

With the capital market undeveloped in the 19605, the inability of

banks to provide long-term loans and capital, especially without

collateral, made it difficult for small investors to raise capital.

Indeed, it forced many borrowers to use short term bank credits to

meet long-term needs. . . .The government owned a majority

interest in most banks, so there was little competition in the

banking sector. With the government so involved in the banking

sector, accusations that banking decisions were made for political

reasons were common and perhaps justified (Ho 19782245).

In fact, Ho believes that the fragmented capital markets in Taiwan

presented the greatest obstacle to small-scale enterprises. His research shows

that the majority of capital and operating funds used by small entrepreneurs

came from accumulated savings, loans from relatives and fiiends, and

sometimes private lenders, even though "informal lending rates" tend to be far

higher than those offered to larger companies by institutional lenders (Ho

1 9802 103).

To introduce flexibility into the banking system and encourage loans to

private enterprises, the government enacted more liberal loan policies in the

mid-19705. Nevertheless, borrowing from financial institutions by small and

medium-scale enterprises accounted for only 9 percent of investments in 1985,

81

while investments from "curb markets" (loans extended by households to SSEs)

and "internals" (investments and refinancing from company revenues by

company owners and stockholders) accounted for most of the remainder (Chiu

19922183). As Chiu points out, however, in contrast to many large-scale

enterprises in Taiwan, most small-scale enterprises are export-oriented.

Company owners and shareholders of SSEs often find it easy and efficient to

redirect earnings from exports back into their enterprises without depositing

these earnings in banks. In my research, I found that the gap between earnings,

deposits, and formal bank loans appears to be widening. That is to say, many

entrepreneurs of SSEs prefer to redirect their earnings away from formal

banking institutions in favor of more " informal" modes of saving and

investnrent. As one entrepreneur told me, " every time a bank is involved in your

business you have to be careful. Once they get their fingers on your money, you

never get back what you put in."

Whatever the case, the avoidance of formal institutions in the financial

matters of SSES continues to be the favored mode of operation. In this respect,

cash from the high " savings rates," for which Taiwan is well known, often finds

its way around formal institutions and into the informal financial sector.

Without such informal sources of financing and investment, it is unlikely that

Taiwan would have the vast number of small-scale producers that it does.

Discussion

How and to what extent will Taiwan's small-scale producers fare in the

19905? There is every indication that many low-skilled, capital-poor, labor-

intensive firms in low technology industries will slowly disappear from

Taiwan's industrial landscape. This is especially the case if Mainland China

82

continues to absorb many of the industries fleeing Taiwan. A number of

questions remain, however. What kind of industries will replace (if at all) these

lost industries? As with many of industries in the west, will Taiwan lose much

of its manufacturing base to cheap labor markets in less developed countries?

Will Taiwan be able to replace its low value-added industries with new high-

tech industries and will small-scale producers give way to large-scale capital-

intensive manufacturers? While these questions are beyond the scope of this

thesis, some of them are relevant to small-scale producers on Taiwan in general

and the hand-made paper industry in particular.

Ho (1979;1980) was too quick to dismiss Taiwan's small-scale

enterprises as a temporary phenomenon. He argued, that mass markets would

eventually favor large-scale producers in Taiwan who are able to take

advantage of economies of scale. While it is true that lower input costs can be

achieved through large-scale mass production of certain commodities, there is

growing evidence that global markets (particularly in the 19805) are

increasingly unpredictable, and often composed of niche markets, and that

individual product runs appear to be shorter with each passing year.

Pack (1992), who did research on Taiwan's industrial change, reasons

that Taiwan's maintenance of high and fairly consistent economic growth-rates

over the years is not due to the success of econorrries of scale (i.e., through

large-scale mass production). Rather, he maintains that the Island's overall

growth in total factor productivity (TFP) since the mid-19605 was due, in part,

to the phenomenal increase in the number of small-scale manufacturers

(1992:105).31

It is beyond the scope of this thesis to thoroughly explain Pack's

theoretical position and research results here. Suffice it to say that Pack asserts

83

that Taiwan's spectacular growth was due to its large number of SSEs which

were far more adaptable and accommodating to global markets than large-scale

producers for three reasons. First they were more flexible with regard to

changing markets and product lines. That is, they were able to adjust more

quickly than large-scale enterprises to changing product markets in goods as

diverse as computer keyboards, personal computers, and even athletic shoes,

and they could easily move toward products which were just developed or

toward those in which relative price had increased (19922105). Second,

Taiwanese SSEs manage employees more efficiently than do large-scale

enterprises; SSE’S avoid complex organizational judgments with regard to

organizing and vertically uniting many workers, setting wage incentives and

unionized activities. Third, there were "important permissive factors that

allowed for rapid change in the industrial structure" such that Taiwan's large

supply of trading firms searched for new product markets appropriate for the

island's smaller manufacturers (19922105). These trading firms enabled

Taiwan's small firms, with little in the way of capital, to gain inexpensive access

to important market information which might otherwise be unavailable to them.

This structure, in turn, helped lower barriers to entry to many industries for

SSEs. More importantly, the " Taiwanese system enabled firms to engage in

subcontracting, thus allowing supplier firms to realize econonries of scope in

the utilization of specialized capital and labor" (19922106; see Chapter I).

Thus, one ofthe key elements to understanding thefirture ofsmall-scale

enterprises in Taiwan is the relationship small producers have to the market

and their ability to attach themselves to marketing and productive networks.

Obviously, proprietary technology will be increasingly difficult to acquire for

industries of any size. Lacking the deep pockets of large firms, most of

84

Taiwan's SSEs will not be able to afford the Research and design (R&D)

expenses, fixed capital requirements, or licensing fees to bring new high

technology products to market. Nevertheless, through subcontracting

arrangements, small producers on Taiwan have always successfully produced

parts and finished products for specific markets, often at the beginning or end of

product cycles. As I have found in the PC-computer industry in Taiwan, for

example, small subcontracting firms often have had to form alliances with other

firms (both large and small) in an effort to combine marketing, technology, and

production capabilities.

The future appears less certain for those small, labor-intensive firms in

Taiwan which fail to form such connections. As I show in the following

chapters, small-scale subcontractors in the hand-made paper industry, who for

years had no direct connection to the finished product market, had found it

increasingly difficult to remain in business in the late 19805 and early 19905.

Unable to compete with cheap labor markets in Southeast Asia and Mainland

China, these "unconnected" producers often realize that their continued survival

on Taiwan depends on their ability to improve their position in the production

hierarchy as well as their capacity to market their products overseas.

According to one entrepreneur in the paper industry, "If we can't move our

operations overseas, come up with a new product, and find new buyers for our

paper, we are through. We just can't make a living on cheap labor anymore."

85

 

1

In the first two decades of Japanese rule, the government also took a national

population census as well as an accounting of the island's other natural resources (e.g.,.

forests. ).

The close connection between the Taiwanese and Japanese economies is indicated

by the fact that between 50 to 70 percent of Taiwan's total export value was in sugarcane

and rice to Japan. Put as succinctly as possible, Ho notes that "Taiwan was an economic

asset to Japan not only because it was a source of food and raw materials, but equally

important, because it was able to Obtain Taiwan's primary products without exchanging an

equivalent value of manufactured goods (1979231).

3

Ho writes, however, that Taiwanese involvement in manufacturing was slightly less

than the above figures would indicate. This was primarily due to the large number of

Japanese males who entered the colony in search of skilled jobs, most of which were in

industry and commerce (Ho 1978: 80).

4

Many mainlanders took government jobs vacated by the Japanese. Thousands of

well educated Taiwanese were again frozen out of the government as had been the case

under Japanese occupation (Gold 1986250).

5

Here I am referring to the Chungli incident and Kaohsiung rally where numerous

Taiwanese protesters were arrested by the KMT.

Comparative advantage refers to the advantage a country possesses when engaged

in international trade when it is able to produce a commodity at an input cost which is lower

than that of another county.

7

Here agriculture also includes fishing and forestry. Industry includes mining,

manufacturing, construction, electricity, gas, water, transport, and communication. These

figures do not include the large proportion of the population employed in manufacturing

(many on a part-time basis) in non-registered factories, small workshop 5, and home shops.

The first EPZ was established in 1966 in Kaohsiung.

9

Some of the first firms in Taiwan, for example, were Singer Sewing Machine

Company, which established a factory in Taiwan in 1963 and General Instrument, which

established a bonded electronics factory in the Taipei suburbs in 1964.

10

1'

The US was at the time beginning to impose tariffs on goods produced in Japan.

Gold (1986283) also traces the path of electronics manufacturing during this period.

Many of the first electronics manufacturers in Taiwan were heavily involved w'nh Japanese

investors in the 19605.

12

Most of Taiwan's manufacturers simply became subcontractors buying what parts

they could not produce from Japanese and American companies. For a number ofyears, for

example, Taiwanese Television manufacturers had to buy picture tubes or tuners from

Japan, leaving for themselves the less profitable job of manufacturing plastic Television

cases or simple parts of the chassis. Only later were some of the manufacturers able to

produce on a O.E.M. (Original Equipment Manufacturing) basis.

86

 

13’

Nevertheless, Taiwan's domestic markets remained more or less protected. With the

bulk of manufactured goods produced by American firms ending up in the US, local

Taiwanese industrialists were able to continue selling high priced and inferior goods to the

local market. Only the Japanese were successful ill penetrating this barrier through their

numerous joint venture and licensing agreements (Gold 1986: 87).

14

In 1974 the government sinnrltaneously increased state investment in public

enterprises in an effort to further stirrrulate the economy (see Chang 19922226).

15

Here agriculture also includes fishing and forestry.

Industry includes mining,

manufacturing, construction, electricity, gas, water, transport, and communication .

16

In the late 19605 and early 19705, employment in agriculture dropped from 51% in

1961 to 31 percent in 1974 while employment in manufacturing rose form 25% to 40% in

the same years (Galenson 19792387-88). Here agriculture also includes fishing and forestry.

Industry includes mining, manufacturing, construction, electricity, gas, water, transport, and

comrnrmication.

17

In 1986 US$1 was equivalent to about NTS38. By 1989, the exchange rate stood

at approximately NT$26.5 to US$1.( Chung Kuo Hai Kuan,

Chu Kou Mau Yi T’rmg Chi Yueh Pau Kau 1986: 1989).

1"

19

20

Direct trade links between Taiwan and the mainland are still banned at this writing.

Ho (1980) compares the small-scale sectors ill both Taiwan and Korea.

Ho goes on to point out that his research found that the most productive category of

factory was fiom 50 to 99 workers and that only a limited number of factories ill the 5 to 49

worker category are "efficient" (1980: 102-103).

21

Ho (1980) wrote that, ill the early stages of development, location and

transportation costs appear to be the areas most sensitive to competition ill small-scale

manufacturing. When location weakens as a source of competitiveness, production

processes become important.

22

From 1956 to 1966, for example, total employment increased at 5.3% a year in

Taipei, 5.6% a year in other metropolitan areas, 5.4% in minor cities, and 3.8% ill the rural

areas.

23

Ho found that, in the "19305, when only 30% of Taiwan's labor force was engaged

in nonagricultural activities, two-thirds of all nonagricultural workers were located in rural

areas. This heavy concentration of nonagricultural employment in rural Taiwan reflects ill

part the fact that over 80% of the population at that time lived in rural areas and in part the

fact that some of the early manufacturing industries (food, products of wood and bamboo,

and non metallic mineral products ) depended on rural areas for raw materials and markets"

(Ho 1979281).

The rural distribution of small-enterprises during the 19605 was due to the Taiwan's

relatively well developed rural infrastructure, a legacy of the Japanese and later

improvements by the KMT.. The reader will remember that the rural areas of Taiwan were

first developed by the Japanese during the colonial period, and then by the KMT thereafter.

87

 

25

Ho also pointed out that, "Taiwan's decentralized pattern of industrialization ill

combination with its relatively well developed transportation system has apparently made it

possible for many of the country's rural household members to shift to nonagricultural

employment without changing their residence"(Ho 1979291; see also Hol980223)

From Ho 1979:77-96 In "Decentralized Industrialization and Rural development: Evidence

fi'om Taiwan Oct. Economic Development and Culture Change_University of Chicago.

26

Factories are strung together in a row-house configuration. From 1990 to 1991, I

conducted research on the PC computer industry, including over 100 small- scale factories

distributed throughout the Taipei County Area.

27

Stites argues that these figures may be greatly understated because they do not

include the vast number ofnon-registered factories or home workshops in Taiwan

( 19822 160).

Many industrial censuses failed to use a consistent factory size during data

gathering until the late 19705

These figures do not include many of the many small rural industries found

throughout Taiwan during this period.

29

The percentages are of total number of manufacturing units in Taiwan for this

period.

30

"The interest rates on secured bank loans fell from over 17 percent in 1961 to 12

percent in 1971" (Ho 1978: 244).

31

See Pack (1992: 73) for a complete explanation of TFP. Essentially Pack rephrases a

hypothesis fi'om Alexander Gerschenkron that latecomers to the development process

would be able to achieve rapid growth because they were be able to take advantage of the

benefits of "relative backwardness. " In other words his hypothesis might read that the "best

practice technology ill developed countries exhibited high total factor productivity (T'FP)

while the actual technology employed ill the LDCs generated lower (TFP)." He points out

that "obtaining command of both the hardware of and 'software' of advanced technology

would enable an LDC to generate rapid growth in TFP as they eliminated the gap between

actual and best practice technologies. In effect, their capital accumulation and additions to

the labor force would have magnified the growth impact." Once the gap was reduced,

however, it would be increasingly difficult to maintain rapid growth...an issue which now

confronts Taiwan (Pack 1992274).

CHAPTER HI

THE SETTING

Having provided an overview of economic change on Taiwan and

discussion of the kinds of industry that have developed since the Japanese

occupation, I now turn to a discussion of Puli Township, the setting for my

research on the hand-made paper industry. Because this chapter is structured to

provide an overview of the setting, I leave the discussion of the hand-made

paper industry until Chapter Four. In addition to having a reputation as the

center of hand-made paper production on Taiwan, Puli has a rich social and

economic history which existed well before the first Chinese immigrants came

to the area in the 16005.

This chapter is designed to situate the hand-made paper industry in the

local socio-economic context. It provides a short historical road map of Puli

which begins with the Ming period, winds its way through the Japanese

occupation and the Nationalist period, and ends in 1990. As the chapter will

demonstrate, Puli is a unique place which does not conform to many of the

stereotypes of the Taiwan "miracle." Furthermore, Puli’s uniqueness helped

define the course of the hand-made paper industry since its beginning during the

Japanese occupation.

88

89

A. PULI TOWNSHIP : ADMINISTRATION AND GEOGRAPHY

Puli Township is located in Nantou County, the geographic center of the

island of Taiwan. Most of Puli is located in a basin on the northern perimeter of

the Shui-Sha-Lien plateau which lies in the center of the Central Taiwan

Mountain Range, approximately 61 km from the city of Taichung to the

northwest (see Figure 3.1 ). The basin is about 40 square km in size, 475 meters

above sea level, and is surrounded by mountains in excess of 2,000 meters.

Cool fresh streams feed two major rivers which enter the basin from the

northeast (the Mei River) and southeast (the Nankang River) (see Figure 3.2).

These two rivers flow near the perimeter of the basin, providing water to a

complex irrigation system of concrete dikes and canals which feed one of the

region's most lucrative cash crops, chiao pai sun fi E E, a water-bound crop

which produces an edible core similar to that of a bamboo shoot. These same

canals also irrigate dozens of other cash crops as well as provide water to a

number of small paper factories in the basin.

    LOCATION OF I’ULI TOWNSHIP IN

TAIWAN STRAITS

NANTOU COUNTY

TAICHUNG CITY

TAICHUNG CITY

 

 

NATOU COUNTY

 

 

 

Figure 3.1. Location of Nantou County and Puli Township

Access to the area is gained by a four-lane highway which winds through

a small gorge at the southwest end of the basin and by a highway to the south

which links the area to the popular tourist area of Sun Moon Lake. A smaller

road from the east links Puli to several mountain communities which are

populated by Taiwanese and aboriginal peoples. These communities serve as

small market towns for mountain farmers and as tourist centers catering to the

thousands of people who come to the area fiom more urbanized areas of the

island. Puli, in turn, supplies the entire region with goods and services.

91

PULI BASIN

. “ I ‘ ' nar RIVER

TO TA‘\\5&1|'r“

WANG

‘ .‘ V

CENTRAL MARKETING

‘;.0

AREA

 

"

9

YUCHIH

Figure 3.2. Puli Township

Puli is one of the few areas on the island where the weather seems to

cooperate and where there is relatively little of the pollution and noise so

commonly found in the large cities in the rest of Taiwan. Summers are cool and

winters are dry. The air still possesses an organic quality and, sometimes, there

is even enough stillness to hear an itinerant soybean milk vendor a block away.

These are all qualities increasingly difficult to find in Taiwan, making Puli a

popular spot for the tourist trade and for those seeking a less hectic way of life.

As with many regional areas in Taiwan, Puli has cultivated an identity for

itself which is routinely repeated in every tourist brochure and on every

sightseeing bus which rolls through the area. Puli, not happy with just one or

two natural resources -- local foods and handicraft specialties -- has come up

with four items which best reflect the local way of life. To all who live in Puli,

92

these are known in English as the "4 W5": women, wine, water, and weather

(although some have difficulty pronouncing such an array of W5). When I first

heard this from a Chinese fiiend of mine, (who sounded as if he had been hired

by the local tourist bureau), I actually thought he was translating for my benefit.

But there is no clever Chinese equivalent; there actually are four W5. I was also

curious about why women were lumped together with what might be

considered commodities, until he politely told me that the local "women are a

natural resource." " You see," he went on, "the women in Puli are considered to

be some of the most beautiful in Taiwan. Many are of both aboriginal and

Chinese ancestry." Whether or not that was also the reason for Puli's thriving

trade in prostitution, I did not have the heart to ask.

The only landlocked county in Taiwan, Nantou is bounded on the north

by Taichung County, on the east by Chang Hua and Yrm Lin counties, and on

the south and east by Chia I, Kaohsiung and Hualien counties. Nantou is the

second largest cormty in Taiwan (4,106 square kilometers), with 83 percent of

its area covered by steep mountains, leaving only 13 percent of its land area for

agriculture (Nantou Hsien T’ung Chi Yao Lan 1989). One of the least

populated areas in Taiwan, Nantou has 534,000 people and a population

density of about 130 per square kilometers.1 County statistics also indicate that

approximately 39 percent of the population is involved in services, 33 percent

in manufacturing, and 27 percent in agriculture and forestry.

Within the county, there are 13 administrative units, of which Puli is the

fifth largest in area and third largest in population. With approximately 85,500

people dispersed among 21,000 households, it is more densely populated than

the rest of Nantou, with almost 526 persons per square kilometers.2 Puli's 458

lin (neighborhoods) and 31 administrative li (villages) cover an area of 162

square kilometers km, with the majority of the population concentrated in or

93

near what was once a walled city in the south-western part of the basin (now

commonly referred to as the central marketing or business district) (see Figure

3 .3 ).

Since the 18005, Puli has expanded far beyond its city walls and gates,

which were originally erected to protect its residents from aboriginal attacks

and roaming criminals. The downtown marketing area has, over the years,

swallowed up 11 li, creating an urban area of 12 square kilometers. Over 55

percent of the township's population is located within this area, generating a

population density of 3,685 people per square kilometers (Shall Ch’eng Ts’ai

Feng 1986).

Traditional one- or two-story housing has given way to narrow

four-story brick and reinforced concrete buildings, many of which have small

shops, workshops, or factories located on the ground floors. There are also a

growing number of apartment buildings being built on farm land at the

perimeter of the city, adding to the growing population density of the area.

To the consternation of many "old timers" in Puli, the region increasingly

resembles other small cities in Taiwan.3 Like any urbanized area, Puli has

acquired its share of expensive restaurants, banquet halls, ka la ok (kareoke)

bars, and, the latest craze, baseball batting practice cages. Almost every night

one can find a night market (composed of itinerant vendors), each of which

provides shopping and entertainment. Many night markets also have the added

feature of what the locals call "steeriippu", a Taiwanese version of the traveling

open air " snake oil" salesmen who complete their pitch with a strip tease act.4

At the perimeter of the downtown area, many of the remaining li are also

quickly losing their identity as separate communities. New buildings are

gradually eating up the farm land which used to separate small villages and

hamlets that formed a ring around the central market district. Sometimes the

only way one can discern one village from the other is by a small community

94

 

 

 

Figure 3.3. Detail ofPuli Township and Ta Ch'eng Village

center or community-based temples (at last cormt there were at least 35 such

temples) that often mark off each area (Chang 19842521). Finally, as one

travels into the outlying areas of the township, small hamlets and communities

are clearly visible. Older horseshoe-shaped mud brick farm compounds (san

ho yuan) can still be found in these farming communities. 5

95

B. HISTORY OF PULI

Puli from prehistory to 1895: Aboriginal decline and Chinese immigration

As the largest and most fertile basin on the Shui-Sha-Lien Plateau, Puli

has been occupied since prehistoric times by a people thought to be originally

from Southeast Asia or Southern China. Known as mountain aborigines to the

local population, these people were divided into two groups: the Atayal (also

known as the Mei) and the Bunun (known as the P ’u from which Puli gets its

name). The Mei lived north of the Mei River while the P’u lived to the south.

Both the P’u and the Mei existed on swidden agriculture, hunting, and gathering

(Liu1958219-21).

Both groups lived in relative peace until the arrival of Chinese pioneers in

Puli in the 16005. Although the Chinese had been migrating to Taiwan from the

mainland for a number of years, the defeat of the Ming Dynasty at the hands of

the Ch’ing (Manchus) in 1660 forced many Chinese to seek refuge on the

island. Puli's relative isolation fiom the rest of Taiwan, furthermore, did not

escape the attention of the many political refugees, outlaws or opportunists

who roamed the island at that time. With the Ch’ing unable to gain a foothold

on Taiwan until 1684, the island quickly gained a reputation as an outlaw

province and Pull became a safe haven for many criminals (Liu 195 82130-145).

The movement of Chinese into Puli did not begin in earnest, however,

until about 17 95 when population pressure and civil unrest along Taiwan's

western coastal plain forced many Chinese inland. The coastal areas had been

rapidly filling up with Chinese, who increasingly came into competition with

lower plains aborigines (another culturally distinct group living on the

Taiwanese lowlands) (Liu 1951).

96

Worried that Ming renegades and outlaws would seek refuge in the

interior of the island and continue to cause trouble, the Ch’ing government

outlawed all settlement by Chinese in the mountain areas. The decree was

loosely enforced, however, and in 1814 a group of Chinese unlawfully moved

into Puli to cultivate land which they "rented" from the aborigines.

Presumably their reasons for wanting to move into Puli were its

great fertility. They appealed to the Chinese government falsely in

the name of the Aborigines of P’u and the Shui she, a settlement of

aborigines living further to the south on the Shui- Sha-Lien Plateau.

Their appeal stated that these aborigines were too poor to make a

living unless the government would allow them to rent their lands

to the Chinese (Hsieh 1979233).

Unable to stop the spread of Chinese into Puli, the Ching government issued a

permit to the Chinese to cultivate land.

Kuo Pai-nien, the leader of this group, took the granting of the permit to

mean total approval of settlement in the basin and encouraged over 1,000

Chinese to come to Puli and form a community. "To the aborigines he (Kuo)

represented himself as a high official of the Chinese government in charge of

this group" (Hsieh 19792 33). Kuo and his men occupied land and built

settlements most likely with watch towers and bamboo hedges for protection, a

move that set the Pu against the Chinese in a confrontation that ultimately

resulted in the massacre of over half the aboriginal population and became

known as the Kuo Pai Nien incident. Despite the fact that Kuo was eventually

imprisoned by the Ching for his terrorism, he succeeded in eliminating any

barriers to Chinese settlement in the basin. By the year 1817, some 10,000

Chinese had illegally invested in land in Puli and had settled in the region.

Threatened with extinction in 1822, the Pu took the risky step of inviting

a group of Plains aborigines to settle in the area and share what territory

97

remained of their settlements. With life increasingly difficult for the plains

aborigines, five tribes took up the invitation and moved into the plain, a period

of migration that started in 1823 and lasted until 1831. By 1847, about 2,000

plains aborigines had settled in the area. What the Pu had not realized,

however, was that the new migrants had been so sinicized that the smaller Pu

population would eventually be absorbed and replaced by a people who had

much more in common with the Chinese they were trying to exclude (Liu

19582161; Hsieh 1979237). By the late 18005, the P’u as a distinctive cultural

group was virtually eliminated.

Puli was by all accounts one of the most promising "frontier" areas in

Taiwan in the 18005. Despite repeated efforts on the part of the Ch’ing

government to keep settlers out of the area, Puli continued to grow. According

to Liu (1951), most of the immigrants were Minnan peoples from Changchou

and Ch’uanchou (in the province, of Fuchien) in southeastern China. People

from Ch’uanchou were considered urbanized and eagerly took up trade with the

aborigines and other Chinese in 1857. Credited with eventually establishing

Puli as a major market town for the entire plateau, the Ch’uanchou people

created the only trading area to which rural Chinese farmers went to conduct

their business (Liu 1958:200-201). Because Puli was so difficult to reach

during the Ch’ing period, the region became relatively self sufficient, producing

its own rice, sweet potatoes, vegetables, and other agricultural products.

Peddlers who came to Puli usually traveled from the port city of Lukang to sell

fish, house wares, salt, and cloth. In return for these goods, the locals traded

mountain products, the majority of which were camphor, herbal medicines,

deer products, leather goods, and timber. Many of these products, in turn, were

sold by some of the large trading houses in Lukang and Taichung area such as

the Lin's of Wu—feng (Meskill 1979) to southeastern port cities in China.

98

With the P’u and Mei (mountain) aborigines effectively eliminated, the

Chinese settlers (most of whom were men) set about learning the language of

the plains aborigines (the group that replaced the mountain groups), adopting

some of their cultural traditions and, eventually, marrying aboriginal women. In

1875 the Chinese government officially removed the prohibition against

Chinese immigration, established an office of aboriginal affairs, and built roads

into the area. A garrison was established in 1878 and an earthen fortification

was built around the town with four gates and a moat (Figure 3.4). The end

result was that, by the 18805, the Chinese dominated the entire basin area,

assimilating the remaining aboriginal peoples into a Chinese culture which, by

this time, was reinforced by an expanding Chinese officialdom. By 1900, "the

number of people who called themselves 'aborigines' gradually declined until

eventually, everyone in Puli, regardless of their cultural background, was

identifying themselves as Chinese" (Hsieh 1979241).

99

 

fififiifix’

Figure 3.4. The Earthen Walls and Four Gates Around Puli: 1914

Source: (Liu 19582226)

Japanese colonialism in Puli

During the ten months which followed the departure of Chinese (after the

signing of the Treaty of Shimonoseki), soldiers from Puli in 1895 and the arrival

of Japanese soldiers in 1896, the basin area was in total anarchy. Chinese

bandits roamed the streets and aborigines from the nearby mountains attacked

Chinese settlers at will (Liu 19512208-209). During this ten-month period, life

became so difficult that local leaders had to beg the Japanese to come into the

area to restore order; leaders asked for help three times before the Japanese

acquiesced. The Japanese soldiers and administrators who eventually came to

100

Puli were so poorly supervised and oppressive, however, that a number of

revolts ensued, resulting in even more bloodshed (Chang 19842128).

As was the case throughout the rest of Taiwan, however, Japan

eventually gained control of almost every aspect of Puli life. Through the

educational system introduced by the Japanese colonial government, most

Taiwanese were taught basic skills so as to better serve the empire. They were

schooled in the Japanese language and taught Japanese customs and traditions

in an attempt to create a loyal and submissive population. Throughout Puli's

small villages, Chinese corporate associations, Farmers' Associations, credit

cooperatives, irrigation committees, police, and all forms of local government

were either eliminated, altered in function, or taken over by Japanese officials

or Taiwanese who demonstrated unwavering loyalty to the empire (Liu

19592210). It was a divide and rule strategy which pitted Taiwanese against

Taiwanese, creating deep divisions in the local community (Chang 19842133).

Of the land that was expropriated by the Japanese in Puli, most came to

be used for sugar cane cultivation (the largest and most profitable export to

Japan) and logging operations in the mountains. In 191 1, a sugar plantation was

established on the northern fringe of Central Puli near the village of Ta Ch'eng

Li AWE (see Figure 3.3) by a Japanese business group. They also built a

small sugar refinery and a narrow-gauge railway to move the sugar cane from

nearby fields. Local farmers who had previously planted rice, were either

ordered or coerced to plant a percentage of their land in sugarcane and to sell it

to the local factory under contract and at fixed prices (Hsieh 1979270).

Surrounded by mountains with massive stands of timber, Puli also became a

valuable location from which to launch logging operations. Japanese

entrepreneurs set about building miles of logging roads and a lumber mill where

timber was partially processed for the Japanese market.

101

Puli eventually began to grow and prosper around these basic industries

(Liu 1951 :37-38 ). The data in Table 3.1 show that as the region produced

increasing amounts of sugar cane, timber, processed wood, mushrooms, tea,

herbal medicines, and other mountain products for export to Japan, the local

population accumulated cash to spend on goods not formd in the area.

Foundries were established to supply metal products for farming and tools for

the lumber industry, while local retail merchants began trading in a range of

imported products which, until then, had often been too expensive for locals to

afi'ord (see Table 3.2).

Table 3.1. Registered Industries in Puli in 1932

 

Industries

number

 

winery

sugar refineries

rice mills

camphor

lumber

brick

ice

oil

1

2

20

18

2

3

1

1

 

Total

48

 

Note: These were businesses which paid tax Most businesses in Puli, however, did not pay

any taxes.

Source: Neng Kao Chun Kuan Nei Kai ng21932. from Wang 1990.

For the first time, Puli was significantly linked to markets at both the local and

international (albeit colonial) level. Some older informants told me that Puli

became something of boom town during the 19305. Some of this legacy is still

preserved in a few back streets in Puli, where one can find forgers working the

102

old foundries and merchants and Chinese herbalist’s trading their wares in

ancient brick and polished wood-beamed shops and apothecaries.

Table 3.2. Retail /Wholesale Establishments ill Puli in 1927

 

establishment

number

 

food

cloth and clothing

firmiture

sundries

medicine

pawn shops

18

6

6

32

7

2

 

Total

7 1

 

Source: Taiwan Shang Kung Ming Lu 1927 fiom Wang 1990

In sum, the effect of Japanese industrial imperialism in Puli was to

introduce an entirely new capitalist structure. While extractive in nature,

Japanese incursions into sugarcane, timber, and other forest products and their

related industries (e. g., steel and metal working) exposed the people of Puli to

new ways of earning an income. As capital found its way back to Puli, the basin

became more than an important market town; it also became a clearing-house

of sorts for the massive amounts of mountain products coming out of the area.

People in Puli learned that a vast number of possibilities existed outside

of agriculture and that, given the chance, these new prospects might make a

lucky entrepreneur wealthy. Many of the men who worked in Japanese

industries also learned about new management techniques, new technologies,

and that Puli had the resources which could be turned into products that people

beyond the basin and quite possibly beyond Taiwan might want to buy. By the

103

time the Japanese left Taiwan in 1945, Puli was more involved with econonries

beyond its mountain confines than at any time in the past.

The Nationalists in Puli

After World War H, and the return to Chinese rule, the Nationalist

government set about replacing vacated Japanese positions in education, the

police, and in city government with mainlanders and local cadres loyal to the

ruling Kuo Min Tang (KMT). Village leaders, Ii chang (formally village

headrnen), were elected to represent Puli's numerous village enclaves and a

township mayor was elected in 1951 to lead them.

During and after land reform (in the early 19505) , one of the most

powerful positions in the township was the Chairman of the local Farmers'

Association (Hsieh 1979265). Initially occupied by a KMT appointee, this

position was soon opened up for elections. Despite the patina of independence,

however, the central government exercised considerable authority and control

over the organization using it to shape the social, economic, and political lives

of the local people.

During the 19505, an Irrigation Association was organized which

oversaw the repair and use of a vast network of irrigation canals which

crisscross the basin. Like the Farmers' Association, this "voluntary" association

was sponsored by the government. While not as important or as powerful as

the Farmers' Association, the Irrigation Association did become the center of

attention during the dry season when farmers struggled to maintain the

numerous water-bome crops for which Puli was famous. Although last in line

for water use, many of Puli's small paper factories tapped into the system,

making the Association more than just the concern of farmers.

104

The private sector was also not immune to the Nationalist government’ 5

onslaught. As in public administration, major Japanese-owned businesses were

taken over by the government. The local sugar plantation, for example, became

part of the government's island-wide sugar monopoly. Just as the Japanese had

stripped majestic mountainsides of their stands of centuries-old timber for the

Japanese market, so too did the KMT.

Nevertheless, Puli's prosperity began to improve with the rest of the

island's economy. With the imposition of land reform, local farmers eventually

began to make money as people in the rest of Taiwan started to buy more

specialty fruits and vegetables, much of which was cultivated in Puli.6 The

number of lumber mills also grew as the harvesting of timber continued in the

mountains. The availability of wood and cheap labor in Puli helped spawn a

wood craft industry which produced Christmas tree ornaments and other small

wood products for the western market. A tourist industry of sorts also emerged

due to Puli's close proximity to Sun Moon Lake (built by the Japanese to

generate hydroelectric power) and the high mountains and hot springs just to the

east. Nevertheless, Puli's economic growth was restricted by the number and

kinds of jobs available.

105

C. CURRENT CONDrrIONs OF PULI's ECONOMY AND LABOR FORCE

One of the reasons Puli is less polluted than the rest of Taiwan is because

it does not have many industries. Relatively isolated from the industrial sprawl

on the rest of the island, Puli has never been a place where entrepreneurs have

particularly wanted to set up a factory. Even the central government's

numerous economic development plans over the last few decades have had little

or no impact on the area.

"Puli is just not a good place for industry," one local entrepreneur told

me. "Many people can still make a lot of money growing cash crops that are in

high demand." Another entrepreneur told me that, despite the advantage of

wages being slightly lower in Puli than elsewhere on the island, factory owners

avoided Puli because of its distance from their customers. With most small

factories in Taiwan involved to some degree with subcontract manufacturing,

parts have to be moved quickly from factory to factory along the production

process, thus taking Puli out of the path of production Last but not least, one

worker told me that, because the environment was one of Puli's selling points,

many types of industries would not be tolerated by the local population7

It is likely that the dearth of industry in Puli is a result of many factors.

While many in the area may hold different opinions about why industry has

never really taken off in the basin, one issue remains clear. What industry there

is in Puli, is often highly labor intensive and capital poor. Although

opportunities abound in the service sector (particularly in the tourist and real

estate industries), the hourly wages paid in these sectors are quite low. Unable

to find solace in Puli's clear skies and clean water, many people have either had

to settle for low paying work or to leave the region to find better paying jobs

106

elsewhere in Taiwan.

Agricultural production

Despite the yearly decrease in the number of people who farm,

agriculture continues to constitute the economic base of Puli. In 1989, 11,500

hectares of land was in direct production, with 7,500 hectares devoted to

agriculture( Nantou Hsien T’ung Chi Yao Lan: 1989). In 1989, the number of

individuals involved in farming was 14,500, a figure which may not include

individuals who work their farms on a part-time basis" I met few individuals

who were full-tirne farmers during my own research. Most had jobs somewhere

in Puli, often taking time off from work to plant or harvest their crops.

Whatever the actual nature of employment in agriculture, rice remains

the "official" primary crop in Puli, yielding almost 5,000 tons per annum on

approximately 1,400 hectares of land. Specialty cash crops make up the rest of

Puli's harvests and include edible sugarcane (cane sold in its unrefined form to

vendors throughout Taiwan), chiao pai sun, tea, mushrooms, bamboo shoots,

pineapple, passion fruit, and mangoes. One crop curiously omitted from most

statistical abstracts is betel nut. This nut is sold island-wide and can fetch a

grower hundreds of thousands of NT$ in a year.9 Unofficial sources claim that

the nut generates more revenue than other agricultural commodity in the basin.

Finally logging, which used to be one the largest industries in the area,

was, in 1989, all but gone. Denuded of old grth forests, the mountains

around Puli now have a stippled appearance as betel nut palms increasingly take

the place of many of the natural trees on hill sides. In contrast to many of the

trees native to the area, however, betel nut palms have a shallow root system

and do not hold the loose sandy soils common to the area. As a result, the

107

mountains which ring the basin are suffering from severe soil erosion and the

silting of river beds often causes flooding at lower elevations.

Manufacturing and Commerce

Since the mid-18005, Puli has had along tradition as the major trading

and marketing district for the Shui-Sha-Lien Plateau and the numerous

mountain communities in the area. Until the early-19805, access to the next

largest trading area located on the Taiwan plain required a long and sometimes

treacherous journey through small gorges and over an unpredictable river road.

In 1989, the new four lane highway now links these other market regions

together greatly reducing transportation time and cost.

Commerce remains one of the strongest sectors of Puli's economy. In

1986 there were some 2,529 registered businesses in Puli. About 64 percent of

these businesses were involved in retailing or wholesaling, while social and

personal services and manufacturing accounted for 14 percent and 15 percent of

the total respectively. 1° While more recent figures on the number of wholesale,

retail, and service establishments are unavailable, the number of persons

involved in commerce continues to grow as the local population increases in

size.11

In contrast to the region's commercial sector, Puli's industrial

development has been limited in scope and slow in coming. Initially built

around the availability of local resources, many of Puli's industries have long

been tied to either agriculture or timber production. The data in Table 3.3

indicate that, as late as 1988, for example, 5 8 percent of Puli's 204 registered

factories were listed as producing either wood or paper products, while the bulk

of the remaining industries were grouped into food or beverage production. 12

108

Table 3.3. Registered Factories By Number of Workers in Puli in 1988

 

Industry

- 5

5-9

10-

20-

30-

40-

50-

100-

200-

300-

400- Total

 

19

29

39

49

99

199

299

399

499

Food

Bev & tab

Apparel

7

1

-

6

3

-

Wood products

15

34

Paper & printing

Chemical materials

Chemical products

Petroleum

Plastics

Non metal

Fabricated Metal

Machinery

Electric

Transportation

Sundries & misc.

6

-

2

-

1

1

1

5

-

3

4

8

-

-

-

2

3

l

3

l

-

11

4

2

-

18

15

-

-

l

-

2

-

-

-

-

5

-

1

l

4

7

l

-

-

-

2

-

-

-

l

-

-

-

2

5

-

-

-

-

-

-

-

-

1

-

-

-

-

-

2

-

-

-

-

-

-

-

-

-

-

-

-

-

4

-

-

-

1

1

-

-

-

-

-

1

1

-

-

1

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

1

-

1

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

1

-

-

-

-

-

-

-

-

-

-

-

-

-

18

9

1

73

48

1

2

1

4

9

2

8

2

4

22

 

Total registered

46

72

47

18

8

2

6

3

2

-

l

204

 

Note: Bev and Tob = Beverage and Tobacco. The data on registered factories is complied

for both the local and central government.

Source: Nantou Hsien Kung Ch’ang Mu Lul988, Nantou Hsien Kung Yeh T’ung Chi Tiao

Ch’a Pao Kao 1988.

The various statistical abstracts which include manufacturing in Puli put

the number of workers in these factories at approximately 4,000 between 1988

and -89. The largest factory in Puli is the govemment-run Taiwan Wine and

Tobacco Monopoly Bureau's shao hsing chiu winery which employed about

600 workers in those years. Other large factories include a Chinese/Japanese

joint venture which employed 200 workers and produced capacitors for light

electronic products. Another 200 workers are employed in a Christmas

decoration factory while an athletic shoe-sock factory and a ceramic/pottery

factory each employed about 70 workers. The industry employing the largest

number of workers, however, is paper and printing while the tobacco and

109

beverage and the wood product industries come in a close second and third

(Nantou Hsien Kung Ch’ang Mu Lu: 1988 and Nantou Hsien Kung Yeh T’ung

Chi Tiao Ch’a Pao Kao: 1988).

These same abstracts also provide information about other aspects of

manufacturing in the basin and how it compares to manufacturing on the rest of

the island. Of the 204 registered factories in Puli, for example, 80 percent had

fewer than 19 workers. Figure 3 .5 shows that the percentage of factories with

fewer than 19 workers in Nantou County and Taiwan Province, on the other

hand, was approximately 65 percent. In Puli, 47 percent of the factories had

under NT$100,000 in registered capital and 73 percent had less than

NT$1,000,000 in annual revenues. In Nantou County, in contrast, 28 percent

of the factories had less than NT$100,000 in registered capital and 49 percent

had less than NT$1,000,000 in annual revenues. The respective percentages

for Taiwan Province were less than 20 percent with less than NT$100,000 in

registered capital, and 44 percent of factories had less than NT$1,000,000 in

annual revenues.

110

 

  
 

   

- 5

5-9

10-

19

20-

29

30-

39

40-

49

50-

99

100-

200-

300-

400-

199

299

399

499

workers

s
e
i
r
o
t
c
a
f

.
g
e
r
l
a
t
o
t

f
o

%

Figure 3.5. Factory Size by Number of Workers in 1988: Puli Township, Nantou County,

and Taiwan Province

Source: Nantou Hsien Kung Ch’ang Mu Lu: 1988

Finally, while much of the official data on Puli's manufacturing sector

reveals a great deal about the nature of production in the basin, this information

is comprised of only registered €336, factories.

In accordance with this

designation (mandated by the central government), only information (such as

number of workers, income, and capital) pertinent to these "registered"

factories is recorded. After calculating the number of workers in Puli’s

registered factories, for example, I formd that there may have been at least

7,000 workers unaccounted for. An examination of the composition of the

work force in Puli below, reveals a clearer picture of the actual nature of

production in the area.

In sum, Puli's manufacturing sector was unique when compared to other

parts of the island. First, compared to manufacturing in the rest of Nantou

111

County and Taiwan as a whole in 1989, the basin’s industries were heavily

reliant on labor-intensive production and light manufacturing, with few or no

links to upstream or downstream producers. Puli's registered factories were

also smaller in numbers of workers per unit, capital, and annual revenues. With

the exception of the electronics firm, no factories resembled high technology or

were engaged in the production of high technology goods. While metal

fabrication, plastics injection, and electronics manufacturing were some of the

fastest growing industries in other areas of the island, they are barely visible in

Puli. Second, many of Puli's industries (e. g., wood-working, in particular)

were, prior to the mid-19805, dependent on forest or agricultural raw materials

gathered from the surrounding mountains. In a similar vein, food and beverage

production were, in part, centered on or dependent on local resources. 13 Third,

wages in local factories were generally lower than wages offered elsewhere on

the rest of the island, forcing many young people to look for work ill nearby

Taichung City or the Taipei metropolitan area to the north.

Puli's labor force

According to Nantou County statistics, 44,514 men and 40,849 women

lived in Puli in 1989. About a third (3 8%) of the population was between 10

and 29 years of age, with those between the ages of 0-9 years making up

approximately 17 percent of the total (Nantou Hsien T’ung Chi Yao Lan

1989).14 In that same year, there were 62,219 individuals over the age of 15,

46,169 of whom were listed as active in the work force; only 123 persons were

reported to be unemployed and looking for work. Of the approximately 16,000

individuals listed as not involved in any economic activity (fei ching chi huo

tung arrange)», 11,244 (70%) were women. Of these women, 7,500 (66%)

112

were listed as housewives, 26 percent as students, and 6 percent as old or

infirmed (Nantou Hsien T’ung Chi Yao Lan 1989).15

Of the 46,169 people active in the work force, 60 percent were male and

40 percent female. Approximately 56 percent of the men had taken jobs as paid

employees (or 33 % of the total work force), while 36 percent were their own

boss or employers. Only 7 .5 percent of the men worked in family businesses as

unpaid family employees (Nantou Hsien T’ung Chi Yao Lan 1989).

For the women of Puli, employment is much different. Roughly 59

percent of women (or 24% of the total work force) work as paid employees in

either government or private organizations. Only 9 percent of working women,

however, are entrepreneurs. This leaves over 30 percent of the remaining

women in non-paid family jobs (Nantou Hsien T’ung Chi Yao Lan 1989).

Again, statistics on occupation reveal real differences about the kinds of

work in which men and women were involved (see Table 3.4). Whereas

agriculture was the largest employer of men (33 % of men and 28 % of

women), manufacturing was the largest employer of women (37% in

comparison to 16% for men). The percentage of men involved in public

administration, social and personal services was 29 percent while the

percentage of women in this sector only totaled 17 percent. The remaining

workers were distributed among the construction, transportation, banking, and

insurance industries (Table 3.4 ).

Table 3.4. Labor Force Over the Age Of 15 by Industry in Puli Township in 1989

113

 

industry

males

females

total

 

agriculture

manufacturing

utilities

construction

commerce

transportation

banking, insurance

9,292

4,637

428

1,679

2,149

1,052

234

5,297

7,057

45

103

2,153

285

3 15

14,589

1 1,694

473

1,782

4,302

1,337

549

social and personal service"

8,095

3,330

11,425

 

total

27,566

18,585

46,151

 

*Includes government positions

Source: Nantou Hsien T’ung Chi Yao Lan 1989

The statistics on employment in Puli point to a population which a large

portion of men appear to have been drawn toward self-employment while

women work as employees. As indicated below, however, as many as 7,500

workers in manufacturing apparently are not listed as employed in registered

factories.

Puli's unseen factories and workers

While the central government maintains records only of registered

factories, local governments will occasionally take a census of unregistered

factories and workshops. In 1989, for example, the Nantou County

Government noted that there were approximately 317 non-registered

"handicraft factories and workshops" in Puli. 1"

The acknowledgment that other forms of manufacturing were present in

the basin helps clarify the inconsistencies in the data on the number of factories

and the local labor force. The statistics on manufacturing compiled by the

central government, for example, indicate that in 1988 only 4,000 people were

114

working in local factories. How was it that only 9 percent of Puli's work force

worked in manufacturing when Cormty statistics put that figure was at least

25% 1989? A comparison of statistics from the central and county governments

reveal other problems with the data on manufacturing. Although there were

only two registered factories in the electronics category, for example, county

statistics indicate that far more workers were involved in that industry than the

statistics from the central government would have suggested (272 compared to

822) (Nantou Hsien T’ung Chi Yao Lan 1989).

The category that is plagued with the most inconsistent figures, however,

is the one designated "sundries and nriscellaneous" (tsa hsiang fig, ). The

data compiled by the central government lists the total number of workers in

this category at only 371 and the total number of registered factories at only 22.

According to the central government this number represents only 9 percent of

the work force in manufacturing and 10 percent of the total factories (i.e., 9 %

of 4,000 workers and 10% of 204 factories). County surveys, however, rank

"sundries and miscellaneous" as the largest employer of labor (38% of 11,694

workers in the manufacturing sector)(see Table 3.5). If the 300-odd

unregistered handicraft factories and workshops (shou kung i TIE )igrrored

by the central government were taken into consideration in the data on

registered factories, this "handicraft sector" would represent the largest sector

in both factory units and employed labor.

Without a doubt, most of the 300 unregistered handicraft factories or

workshops recorded in county statistics were but one portion of a complex

network of pieceworkers, middlemen, and labor brokers who worked out of

small neighborhood shops and offices. These factories manufactured and

packaged small wood, ceramic, or plastic toys, decorations, and Christmas

ornaments (products which often are labeled miscellaneous or sundries) that

115

were sold in American and European markets (see also Puli Hsiang Ch’ing

1985272).

Table 3.5. Employees Over Age 15 ill Manufacturing by Selected Occupations in Puli

Township ill 1989

 

Industry

total workers

men

women

 

food

beverage & tobacco“

wood, bamboo, fur

paper & printing

chemicals

oil/ gas

plastics

non metal

fabricated metals

electrical

other

sub total

542

334

1860

795

28

14

33 l

83

672

822

1748

7229

srmdries and miscellaneous 4-

4,465

342

239

702

404

9

4

180

49

626

403

863

3821

816

200

95

1158

391

19

10

151

34

46

419

885

3408

3,649

 

total

1 1,694

4,637

7,057

 

Note: The data exclude government workers.

"‘ This figure more than likely excludes the Taiwan Wine and Monopoly Bureau work force

since their designation would be government workers.

at- This figure is an approximation of the number of factories which produce small

ornaments and hand-painted gift ware.

Source: Nantou Hsien T’ung Chi Yao Lan 1989

As with many light industries throughout Taiwan, a large proportion of

production is conducted in small workshops or at home on a part-time basis.

Most homeworkers are women (81% of those involved in the sundries and

miscellaneous category) who, when not performing household chores, either do

piece work at home or simply walk down the street to a local workshop where

they employed. 1 found it difficult not to pass several of these shops on my way

to a local paper factory to conduct interviews. Occasionally I would stop to talk

116

to these women while they painted an eye on a wooden nutcracker bound for

the states or glued an arm on a plastic ornament destined for Europe.

During one of these informal interviews, I asked a group of women what

they would call their occupation. One women told me that she was a housewife

because she said, "That's what a census taker told me I was." When I asked

how many hours she worked painting clothing on little wooden figures, she

answered "between 6 and 8 hours a day. IfI work less than that, I can only

make NT$400 a day." While she agreed with my assessment that if she worked

as many as six or eight hours a day, she really was a factory worker, she added,

"that is what I tried to tell the woman from the government census office. But

she said that if I didn't work in a [registered] factory, I wouldn't be counted as a

factory worker." As I continued to talk to these women, I learned that many

women felt they worked to earn supplemental income, despite the fact that

many of them might put in eight hours of piecework a day. They also said they

received no form of insurance, benefits, or bonuses as did workers in a

"legitimate" factory.

My observations of these small factories and their workers made it quite

apparent that there was large work force in Puli unaccounted for in any of the

official documentation on the region. Working from the statistics compiled by

the county government (see Table 3.5), women account for 60 percent (7,057)

of the work force in manufacturing, and 75 percent (3,649) of the work force in

the most labor-intensive and low-paying jobs (woodworking or srmdries and

miscellaneous categories).17

Ifjust half of the 7,500 "non-working

housewives" working as homeworkers or in non-registered factories and

workshops were considered in the census data, 18 the total number of women

workers in manufacturing would rise by 3,750 to a total of 10,807 (or almost

70% of women in manufacturing).

117

Summary

Since the first Chinese settlement in Puli, the area has always been one

step behind social and economic change in the rest of Taiwan. This lack of

development gave Puli a reputation for being unique, countrified and, perhaps,

less sinicized than the rest of Taiwan. The Japanese occupation did much to

change all that. On the front lines of aboriginal lawlessness and Chinese

independence, the Japanese made sure Puli was brought into the folds of the

empire. Not only did the Japanese build roads, schools, and hydroelectric

power plants, they also brought Puli's farmers, craftsmen, and small

entrepreneurs into a capitalist (albeit imperialist) trading system. Under the

Japanese, many people in Puli saw that money could be made in occupations

other than agriculture, particularly if business connections could be established

beyond the Township.

After the Japanese left the basin in 1945, the dream of making money

evaporated for many Taiwanese. Despite the area's low wage rates, its isolation

prevented Puli from industrializing as did the rest of Taiwan. The few jobs

available were in agriculture or in the woodcraft or paper industry. Agricultural

jobs, however, were seasonal while most jobs in the woodcraft industry were

based on piecework. As one older worker reported, there just weren't enough

good paying jobs for men. While he explained that it was all right for women to

take low paying wage and piecework jobs, a man could not afford to feed his

family on the money paid for piece-rate work. Many people have thus left the

basin because it does not have high paying manufacturing jobs.

Despite the lack of high paying jobs in Puli, however, the area was one of

the nicer places on the island to live. Relatively untouched by pollution and

overcrowding, many people said that they would move to Puli or that they

118

would remain in Puli for the sake of their children. As one college-educated

man revealed in explaining why he came to Puli and had taken a blue-collar job,

"I came here because my daughter has cancer. Since the rest of Taiwan is so

crowded and polluted, my wife and I thought this would be the best place for

our daughter to live. "

Since the 19605, the Township's population has grown 71 percent, one

of the highest growth rates for a non-urban area (Shan Ch’eng Ts’ai Fung

1986222). Instead of finding employment in industry, many people found jobs

in the service sector, and the real estate and tourist industries. One man left his

job at a local paper mill because he saw no future in manufacturing in Puli. "If

you want to make money," he said,

you now have to get into some kind of service business for all

these people who are moving here. Maybe ten or fifteen years ago

you could try and start your own paper or wood craft factory. But

wages are now too high to support the kinds of labor-intensive

industries that are usually set up here.

That's why I started my

own mobile video rental business.

While Puli has always been a difficult place to find a good paying job,

there were, nevertheless, some industries which were started in the basin.

Many of these industries were married to the availability of resources and the

nature of the climate in this part of Nantou County. Tracing its origin to the

Japanese occupation, the production of hand-made paper was one of these

industries. In the chapters that follow, I introduce and follow the evolution of

the industry, showing that for at least three decades after World War H, the

hand-made paper industry provided not only scarce jobs but also the

opportunity for workers and entrepreneurs to start their own businesses.

119

 

I

This compares to a island-wide population of over 21,000,000 and a population

density of over 500 people per square kilometers.

The average number of persons per household was 4.03m 1989 Nantou Hsien

T’rmg Chi Yao Lan 1989).

There are two issues which should be emphasized at this point of the thesis. First,

while those who livem Puli ofien refer to the area as hsiang hsia (the countryside), Pulirs

hardly rural. Its large size makes it necessary to consult countywide and central

governmental statistics the two primary sources for general information on the area’s

economy. Unfortunately, some of the statistical material is not altogether clear, nor do the

data always add up in the end. With that said, I have long come to the conchrsion that a

certain amount of leeway must be afforded these official records.

The second point has to do with the format of discussions on Puli's economy. Since

the research is concerned with issues related to manufacturing in the basin, the discussion of

other sectors of the economy will be of secondary importance. Given Puli's large size and

the limitations on the research, it is impossible to provide a more thorough investigation of

other sectors of the economy.

4

After the obligatory spiel about healing teas or mushroom potions, the evening strip

show begins. These strip shows occur ill full view of local market goers, an audience which

is composed of a full cross section of Puli society, including grandmothers and children.

5 '

Increasingly, however, many of these houses are giving way to new rmllti-storied

concrete buildings such as those found in more urbanized areas.

6

These included profitable cash crops such as chiao pai sun, flowers, mushrooms,

tea, fi'uits, vegetables, and sugarcane. Because Puli has a cooler and dryer climate, than the

rest of Taiwan, the area became a unique agricultural region for many products.

7

Although I knew Puli billed itself as having clear water and fresh air, I have seen

enough pollution in the area to know that environmentalists did not have a particularly

powerful voice ill local politics.

8

In 1985, 22,720 people were reported to be ill farming (Nantou Hsien T’ung Chi

Yao Lanl989).

9

Betel nut is a stimulant chewed by thousands of men (and some women) throughout

Taiwan. Unfortunately, its after - effects leave city streets covered in red slime (the chewer

must constantly spit out the juice), and its users with numerous health problems (such as

cancer of the mouth and upper gastrointestinal track).

1°

The data on the total number of commercial enterprises are not very reliable and are

only an approximation because, as is commonly known, many small shopkeepers and

restaurateurs do not register their businesses. The remaining 6% is unaccounted for.

1'

The number of persons engaged in commerce rose by approximately 29% between

1986 and 1989.

'2

Again the various sets of data available are inconsistent and do not appear to agree.

In 1986, the Kung Shang Chi Fu Wu Yeh P’u Ch’a Pao Kao,[The Report on the 1986

Industrial and Commercial Census for the Taiwan-Fuchien Area ]( a central government

report) places the number of manufacturing facilitates at 337. In 1988, the Nantou Hsien

Kung Ch’ang Mu Lu (a county commissioned cataloguing offactories) places the number of

120

 

registered factories at 204. The Ministry of Economic Aflhir's (MOEA) Nantou Hsien Kung

Yeh T’ung Chi Tiao Ch’a Pao Kao [Nantou Cormty Industrial Statistical Census Report in

1988 ( another central government report) places the number at 178 factories for the same

year.

Finally, the 1989 data from the Nantou Hsien T’ung Chi Yao Lan (Nantou County

level industrial survey) puts the number of factories at 200. All these data suggest that the

number of factories in Puli may have decreased since 1986. It is very doubtfirl, however,

that more than 100 factories went out of business between 1986 and 1988.

‘3

M

The large wine factory was located ill Puli because of the purity ofthe area's water.

The ratio of men to women was 108.97 to 100 in 1989 (Nantou Hsien T’ung Chi

Yao Lan [Nantou County Statistical Report 1989])

‘5

Sixty-five percent of the men, ill contrast, were listed as students and 34 percent as

old or infirm

’6

Terms euphemistically used to categorize a sector of the economy felt by many

bureaucrats to be unimportant or an embarrassment.

‘7

Again, one can only speculate as to how many women are pieceworkers ill the

hundreds of small unregistered workshops in Puli

‘8

This was a designation already known to possrhly include pieceworkers.

CHAPTER IV

PAPER-MAKING IN PULI IN 1989:

AN OVERVIEW OF THE INDUSTRY AND THE TECHNICAL

ORGANIZATION OF PRODUCTION

When I first arrived in Puli in the spring of 1989, some of the factory

owners I initially met received me rather tepidly. One of the reasons for this

reception was that some of these men thought I had come to Puli to record the

industry before it completely disappeared. "Paper-making will be gone from

Pull in less than five years," said one factory owner.

After almost sixty years in Puli, paper-making will be gone

because wages are too high in Taiwan and our paper has become

too expensive for most markets. Unless the government does

something to help us, the factories here will either move all their

operations overseas or they will just go bankrupt.

It was true, of course, that some of the large-scale paper makers in Puli

were building factories in Mainland China and Southeast Asia and that they

were planning on moving some, if not all, of their operations out of Taiwan. It

was also clear that time was running out for many of the small paper producers

in Puli who had neither the business contacts to find customers on their own nor

the money to relocate their factories overseas. It was under these less than

optimistic conditions that I began my fieldwork on the hand-made paper

industry.

While there was much that was unique about hand-made paper

production in Puli, there were at least three elements which set it apart from the

multitude of other small industries in Taiwan. First, the history of this industry

121

122

was far more interesting than I had ever imagined. Starting in Puli in 1935

under the Japanese occupation, the industry spans a period of more than 50

years. Gleaned from the life histories and anecdotal recollections of informants

between the ages of 30 and 70, I discovered that this was a close knit

community of producers with a vibrant past. While the recollections of my

informants did not always coincide, the differences among them gave meaning

not only to the contemporary structure of the industry but also to the individuals

who worked within it. How individuals in the industry remember and act on

past events is, of itself I believe, an important part of understanding the entire

industry in both its historic and current context.

Second, in contrast to many of the western oriented export industries

which emerged on Taiwan in the 19605 and 19705 (such as simple electronics,

shoe making, and textile and clothing manufacturing), the hand-made paper

industry was an outgrowth of the East Asian market. That is to say, the hand-

made paper produced in Puli was predominantly a non-westem commodity

conceived, molded, and structured in Asia for Asian markets. The complex

social and economic process which were formed around this industry ill Puli,

therefore, should be considered within the Asian context.

Finally, unlike many earlier studies of rural small-scale producers

(Gallin 1982; Harrell 1982), this industry was fully integrated into the social

and economic environment of a complex semi-urban community of over 80,000

people. While Puli has not experienced many of the changes that have occurred

on the rest of the island, the area constitutes a large and diverse community

which has always maintained extensive social and economic contacts with the

rest of the island. Furthermore, because of Puli's large size and that labor was

drawn to the industry from all over the basin, many of the workers and owners

in the industry did not share a common relationship 0 "community" outside the

123

factory setting which was sometimes found in smaller communities. Thus, the

research reported in this thesis primarily focused on the industry and not the

communities in which they were located (i.e., this study does not resemble an

ethnographic village study in any sense of the term). Above all else, this is a

micro study of paper-making and paper-makers and the social and economic

relationships which emerge from and surround the industry.

Before examining the history of the paper industry, I provide an

introductory overview of the hand-made paper industry as I found it in the

spring of 1989. In Chapter IV, I focus primarily on the technical organization of

production, and include sections on the legal designations of company

ownership, paper as a "commodity," the primary markets where paper was

marketed and sold, the production process, factory location, and factory

investment. I also briefly explain the "business" side of making paper and the

various subcontracting arrangements between firms in the industry. In Chapter

V, I focus on the social organization of production in 1989 and examine the

nature of the labor force, entrepreneurs, and their family members who operate

the paper companies in Puli.

While paper-making may initially appear to be a rather uncomplicated

labor-intensive industry, the business of making paper and the personalities

involved in producing it are extremely complex. Chapters IV and V, therefore,

aim to provide the information readers need in order to understand and

navigate through the details of the history of the industry as it unfolds in Chapter

VI. In essence, Chapters IV and V examine many of the current social and

economic dynamics of the industry within firms (the internal dynamic) as a way

of understanding how these dynamics emerged between companies and the

market over time (the external relationship between firms). Because I consider

the historic process of the industry an important part of understanding the

124

contemporary context, I defer some of my analysis and interpretations of the

data to Chapters VI (the history of the industry), VH (relationships), and the

concluding discussion in Chapter VH.

125

A. THE HAND-MADE PAPER INDUSTRY IN PULI IN 1989

A note on the sample and the definition of the paper companies

As indicated in the introduction to this thesis, my analysis is based on

three sets of data. The first, and most general set of data (the population) deals

withs the 29 hand-made paper companies in Puli. These data were developed in

my preliminary research and collected from government documents on the

hand-made paper industry in 1989 and 1990. The second set of data was

obtained fi'om a sample of 19 of the 29 company owners who agreed to at least

one formal interview. Finally, the third set of data was provided by a sample of

ten owners who agreed to participate in repeated interview sessions over the

course of my research. Because I discuss the industry ill quantitative terms

Chapters IV and V, I usually draw upon data fi'om both government documents

(on all 29 companies) and the sample of 19 company owners who agreed to be

interviewed. Whenever quantitative measures are used, I indicate whether the

data come from the population of 29 factory owners or from the sample of 19.

Much of my qualitative data, on the other hand, come from in depth interviews

with the ten factory owners (a sample I describe below).

Unraveling the complexities of business ownership in Puli has been

fi'ustrating and, sometimes futile. Few company owners were open about such

a sensitive and secretive matter, particularly when company shares or debts

were held by individuals outside an immediate family. Given this situation, I

usually had little choice but to accept whatever a boss said about the ownership

of his enterprise.l When a man said that he owned his business, for example, he

usually meant that he and his immediate family owned the entire company (i.e.,

it was a family-run business). Nevertheless, a small group of family members

126

or fiiends might have retained some shares in his business. In many cases,

when pressed, a factory owner admitted that his wife, his children, a father, a

brother, or a close fiiend held shares ill the company. But, in most cases,

owners were unwilling to disclose what payment (if any) was made to

shareholders.2

Public records identified three primary company designations which

reflected the legal status of Puli's hand-made paper companies. These

designations ranged from the modest title of “factory” or "paper factory" (as in

"Northern Peace Paper Factory") to the more impressive "joint stock limited

company." These titles were conferred on companies when, during

registration, officials were provided with the necessary documents which

indicated fixed assets, number of workers, and whether or not a company had

shareholders.3

In 1989, the most common business title was simply "factory" or "paper

factory" (kung ch ’ang or chih ch ’ang Ififififitfifilfi-fli ). Eighteen of the 29 paper

companies in Puli use this designation in their name (as in Northern Peace Paper

Factory). The second most common designation, "joint stock limited company"

(ku fen yu hsien kung ssu HfilfiEBE/AEJ), was used by five paper companies.

The third designation, "limited company" (yu hsien kung ssu ESE/A3] ) was

used by four companies while only two companies used the title "processing

factory" (chia kung ch ’ang EDIE-i).

As a rule, company owners who used the terms "factory," "paper

factory," or "processing factory" preferred to think of their businesses as small

operations (size, of course, is a relative category) which only manufacture

hand-made paper. When I raised the question as to why so many companies

were titled "factory, " one owner exasperatedly replied:

127

We're just small factories and nothing more. We don't have

shareholders nor do we trade our product overseas like some of

the larger paper companies in Puli. Most of us are no more than

subcontractors for these larger firms, so how can we call ourselves

anything but "kung ch ’ang"?

Indeed, most of the paper companies in Puli were no more than small

subcontract manufacturers of hand-made paper. That is to say, the majority of

their assets were tied up in plant and equipment, they had no "front office" and

no salesmen, accountants, or secretaries. There was usually only one boss who,

with the help of "his" (for all bosses were men) wife, family members (if

available), and a small contingent of workers, produced paper on a day-by-day,

order-by-order basis.

"Limited and joint stock limited" companies, in contrast, denoted a more

complex ownership arrangement than that of a "factory." Generally, those

factories had stock holders and were among some of Puli's largest firms. Four

were "center factories" (see below) and four others were "only casual or part-

time center factories," some of which maintained a "front office." Limited

companies," explained one owner,

are usually more than just a simple subcontracting factory. They

not only make paper, but they sometimes contract out to purchase

paper from smaller firms. Most of these companies also buy raw

materials and sell paper on the open market. Many subcontracting

firms can't do that.

Another category which sometimes defied description was that of

"partnerships" (ho huo {5,52% ).

Ideally, a partnership implied that capital,

profits, and/or company control were " openly" shared by two or more

individuals. According to my informants, in practice, a partnership implied a

128

business relationship in which people involved in the operation of a firm

"cooperate" (ho tso éfi’E ) and occupy more or less equal positions in the firm.

Partnerships played a major role in the formding of many paper

companies in the 19505, 19605, and 19705. The majority of these partnerships

started with the best of intentions, but they often ended in conflict. Of the 29

paper companies in operation in 1989, only two were open partnerships (i.e.,

openly acknowledged as a partnership).

In one case where the owners

volrmteered this information, one said that he was in partnership with his wife's

brother (an affinal connection). In the other case, the four partners were related

through either blood ties or affinal connections.

While the above titles are important indicators of legal status, I generally

use a number of more generic labels to describe the companies in my sample. I

try to avoid categorizing companies in terms of size. Rather, I believe it is more

important to classify companies as social and economic institutions, that is, in

terms of their socio-economic relationship to others in the industry and the

market. For this reason, I often talk about factories (the physical location of

production), centerfactories (companies which lie at the center of production

and marketing relationships in the paper industry), and subcontracting

companies (orfactories) as though they were animate objects (see below for a

more detailed discussion). Because my chief concern is with a small group of

center factories and subcontracting companies, however, most of my discussion

is directed toward these two types.

Paper as a commodity

While little was known about the first hand-made paper company in Puli,

I do know that, just before the company closed its doors at the cessation of

World War H, the plant was producing some of the same basic types of paper

129

made in Puli's paper factories in the post-World War 11 period. Following the

war, Puli's paper factories were turning out dozens of varieties of hand-made

paper much of which was sold in markets in Taiwan and East Asia. These

papers ranged from the inexpensive, low value-added ghost paper (a simulated

paper money burned during religious festivals and frmerals), firecracker paper,

tea bag, cigarette, and hair permanent wave papers, paper board, low grade

document paper, and paper produced for various industrial applications to

more expensive, high value-added calligraphy and art papers.

Many of these low value-added papers (such as cigarette paper,

firecracker, paper document paper, and wave permanent papers) were

competitive with machine-made paper only until the mid to late 19605 when the

cost of producing such papers by hand became too expensive. It was during the

19605, furthermore, that the production of high value-added hand-made

calligraphy and artists' paper became the primary locus of hand-made paper

production. What is important to note about the production of hand-made

calligraphy and artists' paper was that it could not be manufactured by machine

because a traditional artisan hand-made commodity was the only paper

desired by the market. In other words, those who paid the extra money for

hand-made calligraphy paper wanted a "traditional" hand-made product which

was not "uniform" as was machine-made paper.

The hand-made papers discussed in this thesis were primarily

calligraphy and artists' papers. These papers were used by painters,

calligraphers, and paper craftsmen, each of whom used different types of paper

specifically suited to their needs. The paper varied widely in cost, depending

on the type of paper and the markets where they were sold.

Generally,

however, the cheaper papers sold for as little as US$0.40 per sheet while some

of the most expensive could retail for several dollars per sheet. Papers

130

commonly ranged in size fi'om about 2 feet by 3 feet to 4 feet by 8 feet and were

measured in tai ch ’ih.4 Most paper was sold to wholesalers and distributors by

a tan 3% (a more traditional measure of 50 kg.), ream (lin $3 ), while retailers

purchased papers by the ream, or the sheet.

While I will describe a number of different kinds of calligraphy and

artists' paper throughout the thesis, my primary focus is on one of the

commonest calligraphy papesr known as hsuan chih Eitfifi . Hsuan paper was

finely textured, light in weight, and had a slightly yellowish hue (Chung Kuo

Tsao Chih Shih Hua 19852168 ).5 Most hsuan papers were made from a

combination of the inner bark of one kind of long-fibered hemp plant (yen pi E

Bi ), processed conifer wood pulp, rice straw, and bamboo. A number of other

ingredients were added to the bark to help whiten the pulp, regulate pitch

(absorption), or act as dispersants or congealants in the production process.

What sets each variety or grade of paper apart was the quantity and

quality of the different raw materials used in the pulping process (see below)

and the adjustments made by the individual paper-maker, who controlled the

composition of the pulp and the thickness and care given to the manufacture of

each sheet of paper during the production process (there were dozens of

varieties of hsuan papers which were sold as low, medium, and high value -

added papers). 6 It was possible, therefore, to produce a different variety of

paper at almost every stage of production. Given this potential variety, artists,

calligraphers, and craftsmen had great freedom to choose those papers best

suited to their needs and thus, had a great influence on the market for paper.7

The ability of a producer, trader, or distributor to predict and adjust to their

demands was one of the most important elements in maintaining

competitiveness in the market.

The market for hand-made paper

131

A5 I will show in Chapter VI, much of the paper produced in Puli up to

the mid-19605 was low-grade cigarette, document, and ghost paper for the

domestic market. By the mid-19605, the first overseas orders for paper

originated in markets in East Asia, and in Southeast Asia; primarily in Korea,

Hong Kong, and Singapore. In non-Asian markets (i.e., Europe and the United

States), much of the paper was destined for the overseas Chinese who lived

there. By the early 19705, the Japanese began buying higher quality and more

expensive hand-made calligraphy (hsuan) and artists' papers from Taiwan than

what was normally sold to the rest of Asia. By the late 19705, they dominated

the product market, importing the majority of paper exported from Puli.

In 1989, only 10 to 15 percent of all the paper produced in Puli was sold

on the domestic market. The remaining 85 to 90 percent of paper produced was

exported and consisted of approximately 790,000 kilograms of paper with an

export value of NT$204,952,000 (US$7,882,769).8 Out of these exports,

Japanese customers purchased 97 percent of the total export weight and 96

percent of the total export value of paper. 9 While the number of Japanese

customers purchasing paper fluctuated from month to month, my informants

reported that between six to eight buyers were considered large while another

six were considered small. A buyer was considered large if he purchased a

40-foot container of paper per month while those who were designated as small

purchased far less quantity.

Hand-made art and calligraphy paper has always been a seasonal

commodity. Used during a number of Asian festivals in the autumn and winter

seasons (such as the Lunar New Year), exports usually tend to fall off in the

spring and early summer months. As Figure 4.1 shows, for example, the

quantity and value of exports have often been highly unpredictable, varying

132

 

KG

NTS

  
 

_

_

%-

.

,

90,000 -'

80,000 “

70,000 1-

60,000 ~~

3 50,000 -~

40,000 L

30,000

-- 1,400,000

-. 1,200,000

..

0

00

1’ 00’

0

.. 800,000

f3

-» 600,000 2

~~ 400,000

20,000 ‘-
10,000 ,

0

 
 
   

 

 

~~ 200,000

 

0

Figure 4.1. Monthly Exports by Quantity and Value of Calligraphy Paper: 1976

Source: Chung Kuo Hai Kuan 1976

from month to month regardless of the season. " It wasn't uncommon for us to

go without any orders for two months," said one factory owner. "I even

remember when we didn't get any orders for six months in a row. "

Why and how the Japanese came to dominate the product market in this

industry is discussed in Chapter VI. There, I show that, starting in the 1960s,

the instability in demand for hand-made paper together with other changes in

the market had a direct impact on the industry in Puli. Specifically, these

elements set in motion a number of important changes in the way paper was

produced and subcontracted in Puli and marketed in Asia.

The production process

133

The production of hand-made paper in Taiwan had essentially remained

the same for two to three centuries.10 The one major change was the type of

machinery used in the preparation of paper pulp. Small electric motors, pumps,

plastic tubing, and modern boilers helped with the delivery of water and steam

throughout a factory. These changes, however, had done little to eliminate the

hand labor necessary to make and dry each individual sheet of paper (see Figure

4.2).

134

 

 

dredging V‘s

/

wder ‘ es

pip

0mm floor

pqqpress   
   

  

IX

 

-;

'

pulp curtains:

mm.\ /

Figure 4.2 Floor Plan of a Typical Paper Factory in Puli

Note: The "earth god” shrine has become an essential part of paper factories in Puli.

Prevalent in many small business and factories throughout Taiwan, earth gods were once

predominantly found in small shrines along fields in the countryside.

 

 

135

Figure 4.3 shows that production of hand-made paper was divided into a

five stage process: (a) preparation of raw materials; (b) pulp preparation or

"pulping" (also known as beating); (c) "dredging" of paper; (d) drying; and, (e)

sorting/cutting and packaging of paper. Each stage in the process employed a

specific mix of labor and machinery which was often identified with either

traditional-Asian or modem-mechanical production methods. Traditional

Asian methods relied heavily on skilled hand labor and were used extensively

during the dredging and drying stages of production. Modern mechanical

methods (sometimes referred to as western paper-making techniques), on the

other hand, were adopted only since the 1940s and 19508 and were used more

extensively in the preparatory stages of the production process (i.e., preparation

of raw material and in pulping), thereby reducing labor costs and increasing

capacity. Machines were also used intermittently throughout production

whenever possible .

The processing of the fibrous raw materials (tree barks, bamboo, rice and

wheat straw) that made up the bulk of the hand-made paper pulps was the most

tedious, potentially dangerous, and noxious aspect of the production process

and was done by hand. Raw materials (most of which were tree bark shipped to

Taiwanese factories in 100-200 kg bales of dried, rock-hard bark strips) were

broken down and boiled in a large steel cooking vessel (5' x 4' x 5') for

approximately 4-6 hours. The boiled bark was then poured into shallow

concrete vats where it was separated, cleaned (all dirt, discolored, and

hardened material was removed), and bleached (in caustic soda). 11

136

MACHINERY

PROCESS

LABOR

 

PRODUCTION

LIGHT

PREPARATION OF RAW

WAGE LABOR

MATEUALS

I.

1

II.

HEAVY

PREPARATION OF PAPER

PULP/ BEATING

WAGE LABOR

LIGHT

DREDGING

PIECEWORK

1

III.

NONE

1

IV.

DRYING

1

V.

PIECEWORK

LIGHT

SORTING, CUTTING, AND

PACKAGING

WAGE LABOR

Figure 4.3. Technical Division of Labor in the Hand-made Paper Industry

137

After the initial stage of processing, workers made the paper pulp. At

this stage, a machine, called a Hollander beater, was filled with prepared raw

materials (processed tree barks, straws, from the initial processing of raw

materials) and water and beaten (actually cut and macerated by a cutting

device) for a four to six hour period. The final product was a variety of basic

paper pulps which could then be made into sheets of hsuan or mian paper in the

next stage of the production process. These pulps were pumped or poured into

concrete holding tanks within close proximity to the dredgers. 12

The third stage of paper processing was dredging (lau chih or ch ‘ao chih

fifizfififiwfifi). Dredging was the most difficult part of paper production and

required the most skill and strength. I was told by many factory owners that

only the oldest and most experienced workers were allowed to make the highest

quality paper. While most workers competently made low quality paper after

about six months of training, it could take as many as five years or more before

the finest papers could be produced without error.

A description of the process of dredging paper is beyond the scope of this

discussion. Nevertheless, it is important to understand dredging is the most

critical part of the overall production process of paper-making. Dredgers not

only had to maintain a correct mix of pulp in their vats, they also had to evenly

distribute the pulp over a fine bamboo mesh screen and transfer that film of pulp

on to a waiting stack of wet paper (Figure 4.4). This action had to be repeated

between 400 and 1,000 times a day, resulting in 400 to 1,000 sheets of paper

with little or no help from machinery. ‘3

138

 

 

 

 

 

    

  

 

 

 

 

Figure 4.5. Drying Paper On a Steel Drying Table

139

Once a dredger built up a stack of wet paper, it was pressed to remove

excess water and then handed over to the dyers. The paper was peeled sheet by

sheet from the stack and brushed down on long hollow steel drying tables

heated by hot steam generated in a boiler located either in or just outside of the

factory building (see Figure 4.5 ).

After drying, the paper was inspected, tallied (it was at this point when

piecework tabulations were made), out or trimmed with a large mechanical

paper cutter (or, in some cases by hand), and packed in cardboard shipping

boxes. Depending on the paper and production volume, as many as six people

may have been needed to sort, cut, and pack paper. In some of the smaller

operations, however, one person performed this task (often the factory boss).

It is important to understand the structure of production process because

when the production of paper was subcontracted, processed or unprocessed

raw materials were often prepared by one of the large paper companies in Puli

and "sold" to a subcontractor who "dredged and dried" the materials into a

finished product. The finished paper was then "sold back" to the company

which supplied the raw material and sorted, out, packaged, and shipped the

paper overseas.

The paper companies: General description

When I began research on the paper industry in 1989, I found that only

29 paper companies were left in Puli. These 29 companies were operating out

of 3 7 production sites (factories), although slightly more than half were

located in Ta Ch'eng Village. The remaining companies were scattered

throughout the basin area near the end of irrigation systems where they were

unlikely to pollute farm-land. ‘4

140

Table 4.1 shows that, of the 29 active companies in Puli, over four-fifths

(82%) owned or operated only one production site (i.e., factory), while the

remainder owned or operated two or more sites. Further, paper companies with

only one factory site accounted for two-thirds (64%) of the total factory sites

while companies owning or operating over two factory sites, owned or

operated 36 percent of all sites. These data are important because, until the

early 1980s, only one or two companies owned more than one factory site

signaling the gradual consolidation of production in the industry (this issue will

be discussed in Chapter VI).

Table 4.1. Active Hand-Made Paper Companies in Puli inl989

 

no. ofproduction locationsper co.

no. companies

 

companies own and /or operated 1 site

companies with 2 sites

companies with 3 or more sites

24

3

2

 

totals

29

 

The data on labor show that, if Puli's paper factories had been operating

at or near full capacity in 1989, 1,100 workers could have been employed in the

hand-made paper industry. 15 Over the research period, however, most

factories in Puli were operating at approximately 75 percent of capacity and the

number employed at any one time could range between 700 and 900. Factory

owners tended to confirm this figure, reporting that during peak agricultural

periods, fewer than 500 workers made paper at any one time.16

While Chapter V includes a more complete discussion of the labor force,

the data in Table 4.2 show that the two largest paper companies each employed

over 100 workers or about one-quarter of the total work force in the paper

141

industry. Of the eight companies with between 30 and 99 workers, however,

one-half of the total work force was in their employ. This left the remaining 19

companies with under 29 workers (or two-thirds of the total number of

companies) with only one-third of the total work force in the industry. 17

Table 4.2. Worker Distribution Per Company in 1989

 

no. of workers

no. and % of companies”

% of total work force“

 

100-149

50-99

30.49

10-29

1-9

2 (6.9)

6 (20.7)

2 (6.9)

14 (48.3)

5 (17.2)

23

42

7

26

2

 

total

29

 

Note: An approximate figure of 1,080 workers was used in the calculation.

*Does not equal 100 % due to rounding.

Again, the distribution of workers in these companies in 1989 was due, in part,

to the growing consolidation of production and workers since the early 1980s.

During the 19705, as many as 30 subcontracting factories were operating in the

industry and the distribution of workers among firms was far more uniform than

it was 1989. By the mid-to late-1980s, however, the number of workers and

subcontractors in the industry was on the decline, and the larger companies in

Puli had to absorb more factory sites and workers in order to try and keep up

with the growth in demand for paper (see section on subcontracting below).

Industrial epochs in the paper industry

My research on the history of the paper industry in Puli shows that, since

the founding of the first hand-made paper company in 1935, at least 50 paper

142

companies were established over the last 54 years. Nevertheless, with little or

no documentation on the hand-made paper industry, there is no way to

substantiate the number of paper companies which have come and gone during

the last five and a-half decades. My interview data indicate, however, that 25

percent of the paper companies founded since 1935 were in operation for

between one to three years before going out of business.

The number of factories established and in operation between the mid-

19308 and the late 1980s are shown in Table 4.3. The periodization used in the

table corresponds to the four most important periods in the history of the

industry; (a) 1935-1944 (Japanese period), (b) 1945-1969 (Post-war

reconstruction of the paper industry), (c) 1970-1979 (Japanese export market

and the emergence of subcontracting relationships) and, (d) 1980-1989

(Readjustment and industrial demise). While a thorough discussion of these

historic periods is found in Chapter VI, I provide a brief description of these

periods below to situate the industry in a specific historic context.

Table 4.3. Number of Factories Established and in Operation by Period in 1989

 

period when established

no. of companies“

no. of companies which

 

have carried on to 1989

1935-1944

1945-1969

1970-1979

1980-1989

3

14

30

3

0

8

18

3

 

Total

50

29

 

Note: *All figures are approximations. In the course of establishing a business, some

companies went in and out of business as many as two to three times.

143

Interview data indicate that, during the Japanese occupation, three paper

companies came into and went out of business in succession between 1935 and

1944. Between 1945 and 1969, a period of industrial reconstruction in the

industry following the end of World War 11, only 14 companies may have been

founded during this period and about half of them survived until the late 1980s.

The third period, 1970 to 1979, marks a decade of rapid growth in the industry.

During these nine years, informants estimate that about 30 paper companies

were established, although only about 18 of these companies survived until

1989.

Finally, problems in the labor and finished product market, in the mid-

19805, began to act as a brake on the growth of the industry and anticipate its

decline.

While it was diflicult to track the large nmnbers of paper companies (and

changes in company names) in Puli over the years, an analysis offactory sites

provides a tangible mark or indicator of the erratic nature left on the industry

over the years. These were the factory sites (production locations) which were

built by companies over the years and were scattered throughout the basin.

Once constructed, these sites often changed owners and companies several

times. In fact, I discovered that people in Puli would often refer to the same

factory (site) using the different company names they remembered from the

past. That is to say, these old factory sites continued to be referred to in the

"vernacular." As a result, a confusing mix of company names from the past and

present often crept into my conversations with factory owners and workers,

who often made no distinction between a "company" or "factory."

The data in Table 4.4 provide clues to the connection between company

and factory site. While three different paper companies were established

between 1935 and 1945, for example, they operated only one factory site.

While the companies have since vanished, the factory still stands at the same

144

location only now under new ownership. Nevertheless, some old timers in Puli

still refer to factory as "the Japanese factory."

Table 4.4. Number of Factory Sites in Operation in 1989 by Period Established

 

period when established

no. of factory sites

no.of sites still in

 

constructed

operation 1989

193 5- 1944

1945-1969

1970-1979

1980-1989

l

7

30

4

1

7

25

4

 

Total

42

37

 

Between 1945 and 1969 (the post-war period), as many as 14 paper companies

may have been established in the area. Only seven factory sites, however,

appear to have been built during the period. Between 1970 and 1979, the

period of greatest growth in the industry, at least 30 new factory sites were

constructed.

In short, while the number of companies in operation dropped after the

early 1950s, the number of factories still in use remained almost the same. As

the number of paper companies went out of business, the factories they

operated were bought out or absorbed by other companies in the basin. A large

firm's propensity to buy out or take over a paper company (usually because of

debt to another company or bankruptcy) by a larger firm tended to be greatest in

the mid-19805 when few new entrepreneurs came into the industry.

Factory description and capital investment

Many of the older paper makers who worked during the Japanese period

told me that if I ignored the reinforced concrete, plastic piping, electric lights,

145

and wood-fired boilers (used to heat the drying tables and "cook" raw

materials) which exist in many of the contemporary factories in Puli, the

factories of the late 1980s looked much the same as they did in the 1930s.

In 1989, the 37 factories in Puli ranged in size from under 30 ping (or

approximately 1,065 sq. ft) to well over 1,000 ping (1 ping =35.5 feet). Seven

(24%) companies operated factories under 60 ping, 20 (70%) companies had

factories from 100 to 500 ping, while the remaining two (6%) companies had

factories that were over 500 ping. At least half the 37 paper factories in Puli

appeared unkempt and jerry-rigged. Often illuminated by single a florescent

bulbs hanging from wire attached to the ceiling, some factories were so dark

that it took two to three minutes for one's eyes to adjust to the interior when

entering from outdoors. In addition to the poor lighting, electrical wiring which

powered the many water pumps, electric motors, and other equipment was

often haphazardly strung from walls and ceilings. With factory floors ahnost

continuously wet, it was not uncommon to feel a charge of electricity coursing

through ungrounded equipment. Perhaps the greatest hazard, however, came

from wet and slippery concrete and sheet metal flooring which was often

littered with wet paper pulp and other debris.

There were numerous reasons given for the poor condition of these

factories. One disgruntled female office worker in one of the larger companies

bluntly told me that her boss could not care less about his factory as long as it

made money. "Look at the machinery and equipment in this place, it's all 30

years old. That's not because the factory is old. It is because he buys used

equipment instead of new stuff. " She then went on to say that several people

have been seriously injured in the factory over the years. "Our boss would

rather invest his money in the stock-market and land than in his factory."

146

Factory owners who were more than willing to comment on the condition

of a rival's factory, were less accusatory. They did say, however, that investing

in a factory was a waste of money. "Why spend a lot of money on machinery or

fixing up your factory when you could be out of business next week? " Many

factory owners, in fact, told me that investing in afactory or in their workers

was a poor investment. They believed that as long as machinery delivered a

profit, there was no need to change or upgrade equipment, and as long as

workers performed their duties, there was no need to invest in fmther training or

in making a factory safe.

The poor physical condition of factories in Puli and the resistance to

invest in workers or equipment was characteristic of this industry. Time and

again I was reminded by factory owners that investing in a factory (to upgrade

production) was a risky business because capital could not be easily "moved"

(into other investments) if the industry or economy soured. As one owner of a

small company related,

I'd really rather be able to move my money around [as in real estate

or the stock market] rather than have it invested in a factory and

equipment which has little market value. Let's face it, production

is only a way of earning money that should be invested in

something else. I'd really be happier just being able to market and

distribute paper rather than having to contend with the problems of

manufacturing [i.e., machinery and labor].

As most of my older informants pointed out, starting a factory in the

post-World War H years did not require a lot of capital. For example, the most

expensive piece of machinery for factories built between 1945 and 1969 was a

pulp beater. I was told that an initial investment of NT$100,000 (US$4,000-

5,000 in 1990 dollars) would be more than enough to pay for the equipment for

a factory with about ten dredging tubs.

147

For the most part, factory owners who set up their plants prior to 19705

were fairly vague about how much they spent on their operations. When, for

example, I inquired about how much money owners had spent on equipment or

factory buildings, I was told that such expenditures were part of their initial

start-up costs and that they could not remember how much they had spent.

They said that they usually expanded their business when they had a long period

of good business and most additions to plant and equipment were done on a

piecemeal basis over many years. "Nothing just happened," was one reply.

"Our factories slowly took form over time. Most of us didn't just build the

whole factory at once because none of us could pay for anything that had to be

bought all at once." One older paper maker, who had built his factory in the

19505, explained his initial investments this way.

I really didn't have to spend much money on constructing a factory

building because I used part of our old farm house and out

buildings. When I built the tubs for screening, I used wood instead

of the concrete or stainless steel as they use now. I didn't need to

buy a boiler because each drying table was fashioned so you could

light a fire under each one individually.

Still, life was really

difficult back then.

I don't think the young people who started

their factories later on could have done what we did with as little

as we had.

The statistical data available support the relatively low initial capital

investment of most factories in Puli. Nine factory owners (slightly over half of

my informants) said that they spent no more than NT$100,000, while six

owners indicated that they spent less than NT$250,000 when they initially set

up their factories (see Table 4.5). Only two factory owners said that they spent

more than NT$750,000 on their initial investment.18 While the reliability of

these figures is suspect, their meaning is clear; most entrepreneurs wanted me

148

to believe that they started from humble beginnings. Factory owners repeatedly

told me how poor they were when they started their factories and how difficult

the work was.

In 1989 it remained equally as difficult to assess the value of the fixed

assets of Puli's companies. The Nantou County Government's Factory

Catalogue for 1990 , for example, lists 13 of the smaller registered paper

companies in Puli as having only NT$30,000 in fixed assets (Nantou Hsien

Kung Ch’ang Mu Lu: 1990). I was told, however, that low investment figures

were supplied to the government for tax purposes. The data in Table 4.5 show

the results of my own investigation which indicate that, for at least one of the

smaller companies (those with fewer than five dredging tubs) in my sample of

19 companies, the value of fixed investnrents was between NT$100,000 and

NT$250,000. Almost three quarters (71%) of the companies, however, had

between NT$250,000 and NT$1,500,000 in fixed assets. Finally, almost one

quarter (23%) of the sample, had over NT$2,000,000 in investments.

Table 4.5. Original and Current Investments in Fixed Capital

149

 

Investment NT$

initial investment and % *

1990

 

-100,000

100,000-250,000

250,000-500,000

500,000-750,000

750,000-1,000,000

l,000,000-l,500,000

1,500,000-2,000,000

2,000,000NT-5,000,0000

5,000,000

9

6

2

(47%)

(31%)

(10%)

1

1

(5%)

(5%)

1

(4%)

5 (23%)

4 (19%)

5 (23%)

l (4%)

2 (9%)

3 (14%)

 

No. of rgpondents

19

21

 

Note: The figures for "initial" denote initial capital investments in plant and equipment.

Those for 1990 signify current fixed capital investments. The above figures on factory

investments in 1990 were derived from data on the current cost of buying or building new

pieces of equipment in a paper factory.

* All percentages are rounded

In 1989-1990 costs, a man would have to make an initial investment of at

least NT$500,000 to establish a factory operation with five dredging tubs and

five drying tables. Construction of a factory building might cost an added

NT$500,000 (not including the cost of land which would be far higher than the

cost of a building). These costs were partially responsible for the demise of the

industry as one factory owner explained, "Present day costs are one of the many

reasons why no one wants to get into this business." But other factors also

played a role, he revealed, "At least 10 to 15 years ago the business was still

growing and we knew we could always recover our investments, but today with

a dwindling market and competition from overseas it is becoming almost

impossible to recoup investments in equipmen ."

Given the cost of establishing a new factory and the future of the

industry, it is understandable why no new factories have been built in the last

150

eight years. Investments in the industry in 1989 and 1990 were limited to

maintenance and repair, or money spent when an owner thinks he can increase

productivity by investing in a semi-automatic pumping system. A semi-

automated system uses a series of pumps and agitators to automatically

distribute paper pulp to dredgers. Whatever the case, the most expensive single

piece of equipment would be a boiler and a beater for pulp preparation. Screens

used for making paper, however, must be replaced after about six to eight

months, and cost approximately NT$10,000 a piece. Screens, frames and most

of the other equipment could be purchased from merchants in Puli who

specialize in provisioning the hand-made paper industry.

Factory location

Most of the of factories built in Puli during the 1950, 19605, and 1970s

were located near the northern border of Ta Ch'eng Village (11) (which I have

designated as district B), approximately one kilometer north of District A

(Figure 4.6). An area with narrow winding streets and closely packed one-

story brick farm houses, this part of Ta Ch'eng also served as the village center.

Ta Ch'eng was, in fact, the only area in Puli where factory owners were

concentrated in what was a "village" environment. The confined setting forced

many factory owners to build their factories "upward" instead of " outward. "

Mostly small factories of no more than 200 ping per floor, they were

constructed of reinforced concrete and brick with the heavier (screening and

pulping) operations located on the lower floors while the "lighter" parts of the

production line (drying, storage, packing) were located on upper floors.

Factory owners often built a family residence on the upper floors of these

buildings, which could reach four stories in height.

151

 

 

TA CH'ENG LI

IRRIGATION DITCH

«— DISTRICT B

 

5

I

3

-

..

10 CENTRAL

D

O

D

u

.

.

0 0° on ' '

 

O a

o ..

............... _'................‘

non ‘

D O

'

.

a

°° 0 m -

PULI

1

\

.

PRIMARY IRRIGATION DITCH

0 0°C:

_SECONDARY

ROADS

- FACTORIES

     

‘ TEMPLES

DISTRICT A

3505 or JAPANESE FACTORY

AND SHR'NES

NANKANG

.

‘

a

o

I

now

RIVER

I

.

i

;

E

'

_1

D

O

I HOUSING

Um

0

a

re mcuuuc 9 \

a

D

TAO Ml RIVER

TO SUN MOON LAKE

Pl PA CHENG

DRAINAGE DITCH

 

 

 

Figure 4.6. Location of Selected Hand-Made Paper Factories in Ta Ch'eng Village: 1989

Note: All maps show approximate locations of paper factories and do not include all paper

factories in Puli.

While most paper factories were built in the Ta Ch'eng village area, at

least ten factories were constructed elsewhere in the basin (see Figure 4.7). 19

Generally located on large parcels of land, these scattered factories were

frequently over 300 ping in size and tended to extend "outward" along the

ground floor (Figure 4.8). Often less substantial than those built in Ta Ch'eng,

these factories were built with asbestos corrugated roofing supported by a steel

girded superstructure. The walls were often bricked or half bricked to allow

ventilation, leaving the structures with a shed-like appearance.20 Family

 

152

members lived either on upper floors of many of the factories or in living

quarters adjacent to the plant.

 

TO TAICHUNG

\

~x - ‘

 

NANKANG RNE '

Q? ‘

fix

’

 

on0 -

HIGHER

ELEVATIONS  

 

  
   

  

  

FARM LAND

HIGHE R

ELEVATIONS

 

b

I Factories

 

 

Figure 4.7. Location of Selected Paper Factories Outside of Ta

Ch'eng Village in 1989

There were a number of reasons why many of Puli's paper factories came

to be located where they were. When some of the older factories were built

between 1935 and the 1950s, the level of technology available necessitated the

extensive use of water for power, production and the removal of wastes. A

factory thus had to be located near a large and reliable water source (such as a

river). As electricity and electrical equipment became more available and

affordable in the 1960s and 19703, a paper factory could be located anywhere,

 

 
 

153

provided that there was a run-off system which would minimize the dumping of

pollutants back into a irrigation system used by farmers.

 

 

 

Figure 4.8. A Hand-Made Paper Factory Built "Out" Along the Contours of Farm Land

Three additional factors explain the location of factories in Puli. Some of

the first owners established their businesses near the old Japanese plant in the

hope that they would be visible to customers. This was certainly a concern in

the 19403 and 19503 when the paper business was just getting off the ground.

By the 19603 and 19703, however, Puli had already gained a reputation for its

handmade paper products. Why then did so many companies which located in

District B of Ta Ch'eng build their factories so close to each other? The answer

is that, by the 19703, much of the paper was produced by subcontracting.

Many of the new paper companies built in northern Ta Ch'eng wanted to be

close to the large factories in Puli which offered them subcontract work. "In the

154

old days, " reported one informant, "every day you could see paper moving from

factory to factory on push-carts. It was a lot easier to do business when we

were so close to each other."21

155

B. DOING BUSINESS IN THE HAND-MADE PAPER INDUSTRY

The nature of subcontract production

The various subcontracting arrangements in place in the industry in 1989

exemplified the last vestiges of once complex and highly productive

relationships between firms. In the words of one subcontractor,

What you see now [1989] is what is left of what was once a really

big subcontracting system in Puli. This was a busy place when, in

the early 19803, there must have been about 30 subcontractors in

operation. Now there are maybe ten or so of us [subcontractors]

left. Even the way we subcontracted has changed. No longer do

the center factories really dominate the industry the way they did.

Maybe that is why our relationship [between center factory and

subcontractor] has changed and why we are no longer very close.

When subcontracting actually started in this industry remains somewhat

of a mystery. Most informants indicated that subcontracting probably first

emerged in response to the growing demand for paper from overseas buyers and

subsequent production shortfalls in the late 19603 and early 19703. With only

about ten companies in operation at the end of the 19603, Puli's existing

company bosses found themselves unable to supply enough paper to buyers

forcing many to look for new ways to increase production. While many factory

owners did add additional production lines, others remained wary of over-

investing in machinery and equipment because of the seasonality of the market

and the often catastrophic fluctuation in orders. As one factory owner

explained, "I didn't want to invest in a lot of equipment and the workers to

operate that equipment when I wasn't sure if I could consistently employ either

one of them."

156

Between 1970 and 197 9, a new group of younger entrepreneurs started

as many as 30 hand-made paper companies, bringing the total number of paper

companies in operation to about 40 at the end of the decade.22 Smaller in size

than many of the companies that were established in the 19503 and 19603, these

new operators were brought into subcontracting relationships with a few large

companies, dramatically raising production capacity in the industry. Since the

early 19703, the nature of subcontracting arrangements and the relationship

between firms and the market have undergone a number of significant changes,

which are discussed in detail in Chapter VI. Here, I provide a brief explanation

and overview of subcontracting as it appeared in 1989.

As discussed in Chapter I, subcontracting is at best a chaotic concept

which often defies explanation. This confusion transcends international

boundaries to the extent that subcontracting factories in Taiwan were often

referred to with at least three separate terms " satellite" (wei hsing kung ch 'ang

RIEIW) , "(re) -processing" (chia kung DUI) , and "putting out" (wai pao

91E] ) . Whatever the label, subcontracting is used in this thesis as a generic

and inclusive term and, following Holmes (1986), who loosely defines

subcontracting as a subset of interrelationships between firms in which

suppliers carry out the production of a material, part, component part, or

subassembly according to specifications set out in advance by another firm,

" whether materials are issued or not and whether the contract is directly with a

large manufacturer or through some intermediary contract with another

supplier" (1986:84).

In contrast to the production of most other commodities, hand-made

paper could feasibly be broken up into the production of a part, component part,

or sub-assembly. Rather, hand-made paper was very much an artisan

commodity which was made in its entirety within a single factory. In 1989, the

157

subcontracting of paper in Puli occurred when one paper company (parent

firm), referred to as a "centerfactory, " (actually a center "company") received

an order for paper from a customer and passed on the order or portion of the

order to a subcontractor. The term "center factory" is derived from the fact that

these companies were positioned at the center of both market andproduction

transactions in the paper industry. "These center factories not only produce

paper," said one subcontractor, "but they also have the market connections to

sources of raw materials as well as the finished product market that we don't

have" (emphasis added). As both producers of paper and traders or brokers of

paper, center factories effectively controlled most of what was bought and sold

in the industry and in Puli. How, why, and under what conditions these center

factories acquired this control is one of the primary issues discussed in Chapters

VI and VH.

Types of subcontracting arrangements

At least four different types of subcontracting arrangements have been

used at one time or another since the early 19703. The finished product market,

raw material market, labor market, fmancial markets, and production

technology and processes were, in part, responsible for the emergence of these

different arrangements at any given time. But their emergence was also

influenced by the differing nature of the social relationship between center

factory and subcontractor. The four forms of subcontracting arrangements in

the hand-made paper industry which have emerged since the 19703 were: (a)

capacity subcontracting with two -way exchange; (b) capacity subcontracting

without two-way exchange; (c) specialized subcontracting; and (d) supplier

subcontracting. 23

158

Capacity subcontracting with two-way exchange

Also referred to as cyclical or concurrent subcontracting (Holmes 1986),

this was the most common form of subcontracting in the hand-made paper

industry during the 19703. In this system, paper was fabricated by a

subcontractor according to a set of specifications (pulp formulas) that were set

and supplied by the center factory. Depending on market demand, however, a

center factory would occasionally produce a portion of the same order it gave to

a subcontractor.

What differentiates this system from other subcontracting arrangements

was that most, if not all, the raw materials needed to complete a job were

supplied by the center factory in a semi-processed or unprocessed form. As

with most subcontracting arrangements, however, the center factory also

controlled access to the finished product market. Figure 4.9 shows that, when

capacity subcontracting was at its height in the 19703, center factories formed

market barriers between their subcontractors and the market for raw materials

and finished products.

159

suppliers of raw materials

customers

market barrier

\

/

market barrier

   

center factory

Inputs from

center factories:

Outputs to

center factories:

processed or unprocessed

finished paper, uncut, unsorted,

raw materials, specifications,

not packaged

mmd

subcontractors

subcontractors

Inputs not controlled by

center factories: labor, machinery,

utilities, and

minimal raw materials

Figure 4.9. Capacity Subcontracting With Two-Way Exchange

Capacity subcontracting with one-way exchange

This system was identical to the above except that the center factory

supplied few or no raw materials to its subcontractors. This system began to

supplant the two-way exchange system in the early to mid-19803 when

subcontractors gained greater access to their own supplies of raw materials than

they initially had. By 1989, most subcontracting arrangements were of this

form. Despite their access to raw materials, however, few subcontractors were

able to directly secure orders with overseas buyers themselves.

In general, center factories used both forms to produce their low grade

and less profitable papers (one type of paper in this category was hsuan paper

#5). Some of these papers were also near the end of their product cycles when

competition between center factories necessitated cost-cutting. By passing on

orders for papers which were low-cost or near the end of their product cycles to

their subcontractors, center factories often retained greater value from their

workers because they were busy producing a high-grade, more profitable

paper.

160

There were times, however, when business was poor and center

factories had to revert to producing cheap papers themselves. Generally, when

orders for expensive papers were down, center factories simply told their

subcontractors that no orders were available. In this way, center factories

maintained a work force which was productive, despite the fluidity in the

market. Subcontractors in Puli, in contrast, were often left without work. Thus,

they served as a safety valve for center factories when business was lacking.

Specialized and supplier subcontracting

While capacity subcontracting remained the predominant form of

subcontracting well into the 19803, two other types of subcontracting

arrangements began to appear in the early to mid-19803. Often carried on

concurrently with capacity subcontracting, " specialized" and " supplier"

arrangements slowly emerged as subcontractors gained special skills in

producing the specialty papers center factories could not or would not produce.

In "specialized subcontracting," decisions about both the method of

fabrication and the fabrication itself were made by the subcontractor, and center

factories did not produce the paper "in-house". In " supplier subcontracting," on

the other hand, the subcontractor was, in many respects, an independent

supplier with full control over the development, design, and fabrication of a

specialized types of paper. This form least resembled a subcontracting

arrangement because a center factory purchased paper which it could not

produce. In most cases, a customer asked for a specific type of paper from a

center factory and the center factory functioned more as a trader or middle-man.

The specialty papers produced under both specialized and supplier

subcontracting were often high value-added papers formulated to fill a specific

need in the market and carried a high selling price than the more common forms

161

of paper produced under capacity subcontracting arrangements. My research

showed that, in 1989, only three to four subcontractors in my sample of 19

companies supplied (and often intermittently) these kinds of papers to a center

factory.

As described in Chapter VI, most center factories attempted to dominate

the production and market for high value-added specialty papers for themselves

rather than allow these papers to be made by their subcontractors under supplier

or specialized arrangements. The ability of center factories to devote more

resources to research the market and production technologies than could

subcontractors often gave center factories a considerable lead in such

production. Control over the access to overseas markets for hand-made paper

by the four center factories, however, was key to their ability to secure and

maintain their dominance in the production of all forms of paper in Puli.

Nevertheless, those subcontractors who were able to move fi'om capacity

subcontracting (a lower form of subcontracting) to specialized or supplier

subcontracting, were able to accumulate greater profits than those

subcontractors who could not. Both specialized and supplier subcontracting,

furthermore, enabled a company owner to have more control over his product

than a capacity subcontractor and occasionally brought a producer nearer to

overseas buyers in the market than those at the bottom of the subcontracting

matrix.

About half a dozen subcontractors managed to "gra " a Japanese

customer away from a center factory or to arrange to supply a smaller Japanese

buyer (or small domestic buyers) with paper in the early to mid-19803. These

former subcontractors gained considerable independence from the major center

factories in Puli but at substantial risk to themselves. The fact that they were

able to gain access to the market, however, appeared to have given them an

162

" extra lease on life" in an industry which was quickly loosing ground to cheaper

overseas producers. As can be seen in Figure 4.10, there was a relationship

between changes in the market demand for hand-made paper and changes

which occurred in the nature of subcontracting.

163

Markets and production

Stages of Industry

 

k

d . T .

1945

-mar ets centere rn arwan

-

-

.

East and Southeast Asia

4133:8311]: 3:31),“actin3

-access to large portion of market

-only small paper companies

90”“9u‘?d by “3de ”mama
rn Tarper

in operation in Puli.

-production of low priced,

low quality papers. Limited

production of calligraphy

and art papers.

1970

-overseas markets in East and

-emergence of subcontracting

South East Asia slowly give

between carter factories and

way to lucrative markets

subcontractors.

in Japan.

primarily capacity subcontracting

-decreased production of low

-center factories control access to

priced papers and increased

markets for raw materials and

production of high value-

finished product market

added art and calligraphy papers

1980

Japan becomes pnmary'

-access to finished product continues

market for exports of high

to be controlled by center factories,

value- added art and calligraphy

but some subcontractors gradually gain

papers.

access to raw material markets

-Puli

producers continue to

~capacity subcontracting with two-

sell increasingly higher quality

way exchange gives way to one-way

and higher value-added papers

'10W W386 producers 0f paper

in Mainland China and South

East Asia challenge Puli

producers

Japanese customers prrt pressure

on Puli

producers to lower prices

-Puli

center factories invest in

factories in Mainland China and

Southeast Asia

-some subcontractors become independent

producers by selling on domestic market or

by

tealing customer away from center

factory

exchange

  emerges as a secondary (and limited)

-specialized and srrpplier subcontracting

form

1 98.9

Figure 4.10. Chronology of Subcontracting in Puli

164

Factory status in 1989 and the research sample

At the height of subcontracting in the early 19803, approximately three-

quarters (about 32 or 75-80%) of the paper companies in operation were

engaged in subcontracting on a full-time basis. They subcontracted primarily

with the four largest (or primary) center factories which were large enough to

consistently conduct business with two or more subcontractors on a monthly

basis. 2"

By 1989, problems in the industry had reduced the total number of

companies to 29, of which over one-third (11 or 38%) were subcontractors.

The number of center factories, however, remained stable. The data in Table

4.6 show the status of all companies in Puli in 1989. In addition to the four

center factories and eleven subcontractors, another four companies in Puli used

subcontractors on an infrequent basis (i.e., were "casua " center factories) while

five companies functioned independently (i.e., were neither subcontractors nor

center factories). Finally, the remaining five companies had special agreements

with other paper companies in Puli.

165

Table 4.6. Status of 29 Hand-Made Paper Companies in Puli in 1989

 

Company Status

no. factories % total "‘

 

a. large or primary center factories

b. casual or quasi -center factories

c. subcontractors

d. independent companies

e. companies which had special operating agreements

11 companies involved in joint ventures

g. management company

4

4

11

5

2

2

1

13%

13%

38%

17%

7%

7%

 

Total number of companies

29

 

Note: "‘ Does not =100% due to rounding

a. Center factories which used subcontractors on a frequent basis

b. Companies which used subcontractors on infrequent basis or used only one subcontractor

at a time, often infrequently, often not the same subcontractor.

c. Depended on subcontracting on a firll-time basis.

11. These companies usually traded directly with their customers (outside Puli), but may have

occasionally performed subcontract work or bought paper from subcontractors.

e. Two companies entered into special lease/management agreements with other paper

companies in Puli

f Only two companies in Prrli worked closely when buying raw materials and selling finished

paper

g. This was a company which "used" a branch factory of a center factory to make paper for

the center factory (see Chapter VII).

166

As noted above, 19 of the 29 company owners agreed to be interviewed,

while only ten out the 19 agreed to be interviewed on a long-term intensive

basis. The four "casual" or "quasi-" center factory operators (category "b" in

Table 4.6) and two of the independent owners (category "d") refused to be

interviewed in depth. While much of the information I have on these companies

is second-hand, I do know that those labeled "casual" or "quasi-" center

factories were generally smaller (in all respects) than the four "primary" center

factories, used only or one or two subcontractors at a time, and used them

infrequently. "Most of these companies," said one informant, "were formerly

subcontractors until they stole a Japanese customer from one of the larger

center factories in Puli. These bosses were not well liked in the industry and

therefore kept to themselves."

While the discussion which follows is based on material supplied by my

sample of 19 companies, I know the most about the owners fiom the ten

companies with whom I conducted long-term intensive interviews. The status

of the companies in this group can be loosely categorized as one large center

factory, six subcontractors, two "independen " paper companies, and one

company which had a management arrangement with the above center factory.

Most of the small companies in this group, furthermore, had conducted business

with the center factory in this sample at one time or another. Because I believe

that the production relationships in the hand-made in 1989 cannot be

completely understood without first examining the history of the industry,

however, I leave the explanation of exactly what it was to be a " subcontractor, "

"center factory, " or an " independent" company owner until Chapter VI.

167

Center factories and subcontractors: a general comparison

The data in Table 4.7 provide comparative data on the four largest center

factories and eight subcontractors taken from my sample of 19 companies. To

ensure confidentiality, however, I provide only a "range of da " in the table so

that no single company can be clearly identified. The data show that all four

center factories employed between 50 and 150 workers, owned or operated two

or more factories, had "front oflices," maintained a branch (trading) office in

Taipei, and were founded between 1948 and 1965. My estimates suggest that

investments in these companies were well over NT$2,000,000.

Table 4.7. Comparison Between 4 Center Factories and 8 Subcontractors in 1989

 

company type

workers

investment NTS

factory sites

year founded

 

center factories (4)

50-150

2 to 5 million

2 and over

1948-1965

subcontractors (8)

1-45

under 1 million

1

1970-1986

 

Note: Data on number of workers, investments, factory sites, and year founded are all

ranges for each factory. Comparison taken fi'om sample of 19 companies.

Subcontractors in contrast, were smaller, employed fewer workers, operated

fewer sites and were less well capitalized than center factories. None of these

companies had "front offices" with an ofiice staff and few had wage workers.

While every subcontractor claimed that he did not have an export trading

license, I believe many did considering these trading licenses were relatively

easy to obtain in Taiwan. Because the owners of center factories maintain their

dominance in the industry by controlling access to the finished product market,

possession of such a license (by a subcontractor) would only serve to challenge

that control, and abrogate the relationship between subcontractor and center

1 68

factory boss. Thus, a subcontractor who admitted that he had a trading license

might jeopardize his relationship with a center factory.

Anatomy of an order for commonly subcontracted hsuan paper

In general, overseas orders for paper arrived in Puli on a monthly basis.

Most of these orders originated with the about eight major Japanese customers

who controlled most of the wholesale and distribution of paper in Japan. Given

the wide range of paper types produced in Puli, the orders would vary by type,

quality, size, and quantity. On average, market demand for high quality high

priced papers was low while the demand for low quality low priced "common

papers," was high.

The majority of orders from Japan were placed with one of the four

center factories, which together received anywhere between 60 to 80 percent of

the total monthly overseas orders for hand-made paper. I estimate, furthermore,

that the largest of these center factories controlled anywhere between 25 and

30 percent of the overseas market (CETRA 1989). According to informants,

every order was carefully scrutinized by managers and bosses in the center

factories, who then decided whether to produce a paper "in-house" or to

subcontract the order or a portion of the order to one of Puli's smaller factories.

These bosses and managers weighed the possible costs and revenues accruing

from specific orders and, whenever possible, the center factory reserved the

production of high priced papers for "in-house" primarily because profits from

such orders were much higher than profits from producing less expensive

papers. "Usually orders for the low priced papers go to our subcontractors

because they can produce the paper for lower cost," said a supervisor in a center

factory. "But sometimes when there aren't enough orders of the high-quality

169

papers, we produce the cheaper stuff ourselves just to keep our own workers

busy."

In 1989, all company owners said that the high cost of labor in Puli had

long represented the biggest problem for the hand-made paper industry in

Taiwan. Most owners tried to reduce labor costs by avoiding the use of waged

labor or keeping their numbers to a minimum. In their view, waged labor could

not be used as efficiently as the labor of piece-workers (see Chapter V). Center

factory bosses reasoned that, because most subcontracting factories rarely

needed wage or ofiice workers to pack, cut, sort, and ship paper, labor costs in

subcontracting factories could be kept to a minimum. Center factory operators,

on the other hand, usually could not avoid hiring waged and salaried workers

because of their size and the fact that the finished product must be sorted, cut,

packaged, and shipped by them. The direct and indirect labor costs in center

factories, therefore, were generally higher than those in subcontracting

companies. "Scale economies were less important when labor is paid only by

the piece, " said one center factory boss. "So we let our subcontractors produce

the larger orders of low-priced papers. Because we [center factories] have

higher labor costs, we usually produce the more expensive papers ourselves."

This owner of the factory did not say, however, that economics of scale

probably played a role when he purchased raw materials, prepared raw

materials, packed, shipped, or bought insurance. Costs for purchasing raw

materials by subcontractors, therefore, were usually higher than those of larger

firms.

Other informants in Puli, however, told me that the reason subcontractors

would often produce low to medium-quality papers, such as hsuan paper #5, at

low cost was because the center factory bosses constantly played one

subcontractor off against another in an effort to lower the price they had to pay

170

for paper. Subcontractors thus end up bidding against one another which leads

to severe competition and cost cutting on the part of a small factory owner.

"We have lower operating costs," said one subcontractor, "because we are the

ones who have to compete. That means that I [the boss] have to work longer

hours for less profit. The center factories don't have to worry about cost cutting

like we do because they pass their overhead costs on to us." When I asked this

man if the center factories in Puli also had to compete with each other for orders

from Japanese customers, I was told "That situation was different." Indeed, by

the time I finished my research in Puli, at least three subcontractors had told me

that they believed that the four center factories colluded to force their

subcontractors to lower their prices. While I heard such accusations on a

number of occasions, I was never able to corroborate this " charge" in interviews

with owners of center factories.

To determine who bore the costs of producing subcontracted paper and

who received what percentage of profits from production, I pieced together

data on production costs for one common type of hsuan paper (referred to

hereafter as hsuan paper #5). This paper was usually produced and sold by

subcontracting factories in Puli which was then sold by the center factories to

Japanese buyers. While labeled differently by competing factories, all hsuan

paper #5 was essentially composed of the same raw materials and was

manufactured in a similar manner, producing a paper of matching thickness and

quality throughout the industry.25

The data in Table 4.8 provide a general estimate of production costs for

manufacturing one ream of hsuan paper #5 in the summer of 1989.

Subcontracting costs of producing 500 (firll sized) sheets of this paper averaged

out to about NT$2,250 or 80 percent of the total cost. 26 Additional production

costs for indirect labor (e.g., management and offrce workers), cutting,

171

shipping, packing, insurance, and tax, on the other hand, averaged about

NT$500 (or 20% of total costs).27 These costs would most often be borne by a

center factory.

As discussed in detail in Chapters V and VI, center factories continually

pressured subcontractors to reduce the price of their paper (by cutting their

variable costs), a situation made difficult by the labor shortage in the industry

19803 and the fear that center factories might try and "take over" their factories

if they committed too much production to any one company.

Table 4.8. Average Estimated Cost Calculations for Hsuan Paper #5

 

 

Cost

NTS

subtotal NT$ *500 sheets

piece-rate dredger 1 sheet

piece-rate dryer 1 sheet

1.5

1.25

labor insurance (etc., 2 workers)

.1

subtotal piece-rate bill

2.85

1,425

raw materials

utilities

subtotal

1.6

.05

 

 

Assumptions:

1. In 1989, an average worker produced about 500 (1 lin) sheets a day (of common paper)

or about 13,000 sheets a month (26 lin a month). Each worker worked an average of 26

days between 8-10 hours a day.

2. Direct labor costs: piece rates for a dredger (NT$1.5) and a dryer (NT$1.25) per sheet.

3)The product number indicated above has been changed to protect the source.

4)Italics represent costs which were likely to be incurred by a center factory.

I was also able to obtain export invoices for hsuan paper #5 fiom one

center factory. During the month of June, one shipment was made to Japan

 

172

which consisted of 28 separate orders. A total of 7,388 kg of paper were

shipped at a value of US$81,390. The invoice indicated that one of the orders

consisted of 10 lin (reams) of hsuan #5, selling at an average price of NT$7.6

per sheet or NT$3,800 per ream. Assuming that total production costs per sheet

were in the vicinity of NT$5 .5, the profits from this shipment were about

NT$1,050 for 500 sheets or about NT$2.1 per sheet.

During the summer of 1989, at least two subcontractors received

approximately NT$2,7 00 from a center factory to produce one ream of hsuan

paper #5. Ifa subcontractor's average costs were about NT$2,250, he garnered

a profit of about NT$450 or about 40 percent of the total profits for a typical

order. By the end of my research in 1990, however, these same subcontractors

told me that the center factories forced them to lower their prices by NT$300

per ream. Apparently exports to Japan of cheaper paper from Mainland China

forced center factories to cut their prices.

A number of informants (both workers and owners of subcontracting

factories) told me wildly varying stories about how much money the center

factories made on various types of paper made by subcontractors (see Chapter

VI). During the summer of 1989, many subcontractors thought hsuan #5 was

sold to the Japanese for about NT$3,200 per reanr, giving them what they

believed was an acceptable return. "As long as we can make NT$250 on a

ream," said a subcontractor, "then we think it's fair." They also indicated,

however, that their profits were tied to the number of orders which came into

Puli each month. The higher the demand for paper from Japan, the more money

subcontractors could ask from center factory bosses. They also indicated that,

in general, they rarely received orders from center factories for high quality

papers. "Orders for hsuan paper #7 and #10," said one subcontractor, "can

provide at least as much as NT$500 per ream. But we rarely see those jobs

173

anymore." Essentially, if a subcontractor knew what the monthly demand was

for paper was and how much the center factories charged the Japanese for the

paper, he would have more bargaining power when negotiating with a center

factory boss. 2"

Sufi'rce it to say, by the time my research was completed at the end of

1990, most subcontractors reported that they made between five to ten percent

profit on the work they did for the center factories. Since they lacked accurate

information on market demand, costs, and selling price of the paper they

produced, however, they could not pressure the center factories to provide them

with more money for the paper they produced.

Summary

Reserving much of my analysis for Chapters VI, VH, and VIII, Chapter

IV (and Chapter V, to follow) introduces the descriptive material necessary for

gaining an understanding of the contemporary structure of the industry as well

as a offering a vertex, of sorts, for understanding the historical process leading

up to 1989. In general, this Chapter begins the process of demystifying the

industry by laying bare the interplay between the internal and external socio-

economic conditions and relations of production in the hand-made paper

industry (issues discussed in Chapters IV and V) and the nature of key variables

in each (i.e., the production process, labor\management relations, structure and

nature of labor market, raw material market, capital and finished product

market), helps clarify the conditions under which capital can or can not be

accumulated.

While Chapter IV speaks to the technical organization of production in

the industry at both the intenral and external level, it was the nature of the

connection between the product market and inter-firm relationships which

174

deserves special comment here. First, when riding the "hills" in market demand

for hand-made paper provided profits for a producer, it was the "troughs" which

produced the greatest threat to the survival of a firm. Second, subcontracting

emerged as a method of production designed to lessen the impact of the

volatility of demand on center factories. Third, by gaining control over the

access to the product market, center factories were also able to extract profits

from their subcontractors at various points in the production process.

Finally, I should mention the issue of "scale" verses "scope" or "power"

versus "efficiency" with regard to inter-firm transactions and vertical

integration (see Williamson 1985; Scott 1988). Due to the lack of time-series

data on the industry, it is impossible to determine exactly what profits accrued

to whom (i.e., to center factory owners or subcontractors). This might be

disappointing to some readers who desire an answer regarding who " exploited"

whom in this industry. I believe the issue is not so much about whether center

factories were able to make more profits than subcontractors, but rather who

was in a position to directly or indirectly control others in the production

process (whether inter-or intra-firm) and access to markets where profits were

made. Although these and other issues will be discussed in some detail in

Chapter VI, it was control over access to markets in this industry which appears

to have played a central role in determining how the industry came to be

structured as it was and who was or was not able to accumulate capital.

175

 

'

Most company owners were men although, in a legal sense, the owners might have

been women.

2

In Puli, 13 companies were listed as "limited companies" yu hsien kung ssu.

Theoretically, companies nmst have at least seven shareholders to be considered for such a

designation. The remainder of companies were simply listed as factories or processing

factories (kung ch ’ang, chia kung ch ’ang), designations which do not carry the "limited"

status.

3

The criterion used for the title of manufacturing requires a business title, fixed

location, minimum capital of NT$30,000, and using labor or machines to manufacture,

reprocess, and or repair. Amount of capital is based on time of registration. Two years

after a permit is issued, a factory owner must have completed construction of his

manufacturing site. Source: Kung Yeh Hsing Cheng Fa Kuei Hui Pierr 1986.

4

One tai ch ’ih is equal to 1/3 of a meter. Many papers were also sold in smaller and

larger sizes.

5

Hsuan paper was named afier Hsuan Chou, a region in Anhwei Province in Mainland

China where paper has been produced for centuries. Each factory in Puli gave its different

papers names or numbers. These names provided some protection to the paper maker in

case another factory wanted to copy or sell an identical paper to a customer.

6

Throughout the thesis I use "low", "medium", and "high" value - added paper to

describe the relative difference in the cost, price and quality of various hand-made papers

manufactured in Puli at particular points in time.

7

The different properties of hsuan paper produce difl‘erent results when used by

artists. Depending on the individual tastes ofthe painter or calligrapher, hsuan paper can be

manufactured with varying amounts of pitch which regulates absorbency. Made from long

bark fibers, the paper resists tearing and, if manufactured with natural high quality natural

materials, can last centuries without significant discoloration or deterioration.

8

Most export figures for 1989 measure the quantity of hand-made paper by the

kilogram Each variety of p aper might vary in weight per ream from between 2. 5kg to about

5kg a ream. The average weight for some of the most common types of paper, however,

was between 3.0kg and 3.5kg. Of these paper exports, almost 96% ofthe total weight and

83% of the total value was hsuan-type paper. USS at NT$26 to US$1.00 exchange rate.

9

The exact amount and value of paper produced in Puli could not be determined

because neither the government nor any other organization kept track ofpaper produced for

the domestic market. While there were a few hand-made paper producers outside of Puli,

their total production accounted for no more than 5% of total exports.

1°

Only by first understanding the nature of production of a commodity (as

demonstrated in Adam Smith's (1922) description of pin- making), can we then rmderstand

the technical constraints which operate in a given industry which, in turn, has a direct bearing

on the social division of labor in production both within and beyond the firm.

11

Lower back problems and skin lesions often resulted fiom prolonged bending and

contact with water and caustic soda. Burns were also not uncommon from working in close

proximity to the cookers which may hold as rmrch as 500 gallons of boiling bark slurry. The

176

 

end product was a soft yellow-white (in the case ian pi) or white (in the case of shu pi) bark

which closely resemblec cooked bamboo shoots.

12

Despite the fact that the Hollander beater was the most expensive machine in the

repertoire of the paper maker, it did not eliminate the need for hand labor. Rather, its

appetite for raw materials required workers to maintain a regimen of monitoring and

"feeding" the beater.

'3

Most paper makers used a small electric motor to stir paper pulp in their vats. Since

the ealry 1980s, a few factories have introduced a new delivery system which eliminates

much of the mixing of pulp.

1"

When many of the new factories were being built in the 1970s, there was concern

over the increased use of herbicides and fertilizers spread on farmland in the basin. By the

mid- 19703, the irrigation system upon which so many factories depended, became so

polluted that water could no longer be drawn from the canals which ran through the area.

Eventually, most factory owners drove wells and pumped water into their factories, leaving

the canals for waste disposal.

'5

This estimate involved an analysis of the number of pieces of equipment per factory

site, an estimate of the number of workers capable ofproducing a given output per month,

and estimates overall production per month per factory.

'6

While there is great variability in the number of enrployed laborers in the paper

industry from season to season, informal observations of one factory revealed great

variation in the number of hours and days put in by workers. During what was supposed to

be a slow agricultural period (i. e., a time when workers would be available to work more

hours making paper), dredgers and dryers were seen arriving for work each morning

throughout the morning and even afternoon.

17

'8

The data also indicate that no single production site had over 100 workers.

Another factory owner, however, indicated that in one of these cases, the factory

was started in the 1940s as a very small operation. It is thus unlikely that the start up costs

could have been as high as the NT$7 50,000 claimed by the owner.

19

These factories were usually built on family land or on the land of a relative. At least

four factory owners said that they simply built their factories on family land because they

explained rhetorically: "Why pay higher land prices to build a factory in Ta Ch'eng Li when

you have family- owned land and greater space somewhere else in Puli?"

In fact, land

prices in Ta Ch'eng were considerably higher than in the more remote areas of the basin.

2°

As a rule, the factories in Puli also reflected their heritage. The older factories in Puli

were ofien started in family farm compounds (ssu ho yuen). In some ofthese older factories,

pieces of mud brick wall protruded into the factory and incorporated into additions made in

later years. In one such factory old rooms fiom the family farm house were used for storage,

while parts of an old pig pen housed tubs used for screening. In the newest part of the

factory, a two story reinforced concrete building provided space for the drying tables and the

company ofice.

2'

Given the importance of being near another factory for subcontracting, why locate a

factory outside of Ta Ch'eng? As the industry expanded in the mid- to late 1970s, it became

more difficult to find workers fi'om the Ta Ch'eng area willing to make paper. As wage rates

rose in Puli, companies in Ta Ch'eng found themselves competing for a limited number of

177

 

workers, many of whom preferred to work near where they lived. In other areas of Puli,

according to a number of informants, workers who wanted work were available but they

would not go as far as Ta Ch'eng Li.

22

As had been the case between 1945 and 1969, as many as one- quarter of these

companies folded within a short period of time. One factory owner who tried to start his

factory in 1978, for example, found that there were not enough orders to go around and

ended up closing after only six months in business.

23

2‘

The terms are taken fi'om Holmes (1986).

The majority of those companies which bought and sold overseas (either raw

materials and /or finished paper ) had trading licenses.

2’

Each paper type is given a name or number - in part to mask the source

(subcontractor) who produced the paper.

26

My informants, however, indicated that these costs could range fiom a low of

NT$1,700 to as much as NT$2,600.

27

28

Again, these costs could mm between NT$300 and NT$700 per lin.

Most factory owners were fairly candid about the accormting procedures for their

businesses. On a number of occasions, I was told that three or four sets ofbooks were kept,

each of which was created for a particular government agency and even for stock holders.

The one set of books which was an accurate accounting of what went on in the factory was

never shown to outsiders. One owner told me that he made so little money, that his books

always showed a loss.

The inaccuracy of official statistics for capital investment in each factory is illustrated

in the factory catalogues published by the local Hsien government. These figures are sent to

the Ministry of Economic Affairs (MOEA) in Taipei which figures them into their island

wide statistical abstracts. Official records indicate, for example, that 18 paper factories in

Puli have as little as NT$3 0,000 invested in their factories. Whatever the case, one factory

owner did say that the amount of investment could be approximated simply by noting the

number of tubs in each factory and working fiom there. With that in mind, figures given to

me having to do with factory investment are approximately 15% lower than what I was told.

THE SOCIAL ORGANIZATION OF PRODUCTION IN THE HAND-

MADE PAPER INDUSTRY: 1989

CHAPTER V

As indicated at the begining of Chapter IV, Chapters IV and V together

provide information on the paper industry so that the reader can navigate

through the details of the history of the industry. The discussion of the social

organization of production in paper making, which is divided into two parts,

carries on where Chapter IV left off. In the first section, I provide a description

of the labor force and working conditions in the industry while in the second, I

discuss entrepreneurs, family labor, and kin relationships. In the conclusions I

also consider the issue of family ideology as it was played out within and

between firms.

A. LABOR FORCE CONDITIONS AND THE NATURE OF WORK

The primary concerns of company owners in Puli in 1989 with regard to

labor was the seasonality and, therefore, unreliability of the labor force, high

wage rates, and the lack of workers willing to make paper (see below). The

vicissitudes of the work force made owners highly protective of the workers

they had. Fearful that their workers would run to other factories which offered

better piece - rates or benefits, they preferred to keep any information about

their workers to themselves. This secretiveness, together with the seasonal

fluctuation in labor, made the gathering of data on the work force very difficult.

The problems of estimating the number of workers in the industry was

178

179

illustrated by the following excerpt fiom an interview with a fiustrated factory

OWIICI'.

Even though I have 30 workers who are registered as working in

my factory, I never seem to have much in the way of consistent

work fiom them. Just because my workers may not be planting

their fields does not mean they will come in every day, or work

nine or ten hours a day every day of the week. How can I tell you

how many workers I really have when sometimes I don't even

know myself.

Piece and Wage Workers

In addition to being differentiated by their positions in the production

process, workers were divided on the basis of their wages. Each worker in

Puli's hand - made paper industry either received a set hourly wage or received

a piece - rate wage. In contrast to many other manufacturing industries, wage

workers were considered by many factory owners, and by the workers

themselves, to be ancillary to production while piece - rate workers (a term

often associated with a marginal, home - based, or peripheral work force)

formed the core of the labor force in the hand - made paper industry. Wage

workers, furthermore, were found only in those factories large enough to afford

them, while piece - workers were the primary labor force in all factories. A

survey of 27factory sites indicated that, of the 630 production workers in those

factories, about 548 (87%) were involved in piece - rate work while only 82

(13%) workers were involved in wage work.

Wage Workers

180

Hourly wage workers typically prepared raw materials, mixed pulp, and

cut, sorted, and packed paper. They also performed odd jobs throughout a

factory, such as chopping wood and stoking a boiler, cleaning factory

equipment, and performing minor repairs; jobs which were considered

unskilled, onerous, or dangerous. In addition to their difficult working

conditions, their wage rates were some of the lowest in the industry, averaging

between NT$9,500 -NT$13,000 per month for women and NT$15,000 -

NT$18,000 per month for men. The average monthly wages for paper makers

in the entire industry in 1989 was NT$21,537 for men and NT$15,586 for

women (Report on Manpower and Labor Productivity 1989).1

Because of the low wages in the hand-made paper industry, few young

workers (either male or female) were willing to accept hourly wage jobs. Some

old workers, many of whom were retired or on fixed incomes, however, did

take these jobs as a way of supplementing their income. In one of the large

center factories, for example, two mainlanders in their mid-603 operated three

beaters which supplied paper pulp to the dredgers. Their work required the

lifting of several hundred pounds of wet paper pulp per day in a part of the

factory that was especially hot and damp. After working in the factory for five

years, their wages averaged less than NT$18,000 per month. In another part of

the same factory two old women, one of whom was in her late 603, processed

raw tree bark to be used in the pulping process. Their wages were only

NT$9,500 per month, just above the minimum wage in 1990. The working

conditions of both groups of workers were among the worst in the factory.

The number of hourly wage workers employed in paper production was

directly tied to the productive output of individual factories. The larger the

factory, the greater the need for wage workers to perform a number of

181

preparatory processing and frrrishing tasks. As a result, it is estimated that only

ten of the 29 companies which employed more than 30 workers consistently

used waged labor (see Table 4.2 in Chapter IV). In one of the largest factories

in Puli, for example, more than ten wage workers were needed to prepare raw

materials, paper pulp, and sort, cut, and pack paper for shipment.

In many small companies, however, orders were often unstable with long

down - times at the factory. Their owners thus, considered labor hired on an

hourly wage rate as less flexible than workers hired on a piece - rate basis.

Wage workers who came into work expected to be paid whether they worked

or not while those who worked on a piece - rate basis had no such expectations.

For this reason, many small company owners tried to avoid using wage labor.

Rather, they either used their own labor or that of a family member to perform

such tasks. Of the 14 companies which employed between 10 and 29 workers,

wage workers were sometimes hired on a part time basis while the five

companies employing fewer than 10 workers rarely used wage workers.

Piece - rate workers

Dredgers and dryers (illustrated in Figures 4.4 and 4.5) in the paper

industry were paid on a piece - rate basis. As skilled workers, piece - rate (chi

chien kung tzu lu §+I¢Iié$) workers generally received higher salaries and

had greater respect on the production floor than wage workers. Dredgers who

had worked for a number of years in the industry and who produced some of the

finest paper were often venerated and served as role models for some of the

younger workers.

Piece - rate work had been used in the paper industry for as long as

anyone can remember. Most older informants indicated that it probably

emerged in response to two factors peculiar to the industry and the local

182

economy. The hand - made paper industry was what might be termed a bipolar

seasonal industry in that the demand for and supply of labor fluctuated

according to seasonal changes in both the product market and agricultural

production.

A number of older informants in one factory told me that when the

industry first began in Puli, a large number of workers at the factory were also

involved in farming. Because they were unable to leave their fields during

harvest or planting season, factory owners had no choice but to allow their

workers time off to tend their crops. "At one time, the work force used to be

reasonably predictable," said one factory owner. "In the 19503, 19603, and

early 19703 we had a fairly good idea when our workers would be in the fields

and we could plan our production runs."

As Taiwan became more affluent, however, the number of cash crops in

production grew, drawing workers away from factory work at increasingly odd

times of the year. One factory owner complained that several of his workers

were heavily involved in the betel nut business and he thus never knew when

they would appear for work. "Our industry is a seasonal one," said one factory

owner. "But it is getting harder and harder to predict and prepare for each and

every season."

My interviews with 87 pieceworkers in three different companies

showed that approximately 35 workers (41%) were involved in farming crops

which demanded their attention during the year. Aside from betel nut

cultivation, many workers were also involved in planting chiao pai sun, while

other workers were intermittently involved in the harvest of a variety of local

fruits and vegetables in the summer and fall. To the consternation of many

factory owners, any number of workers considered paper-making as almost

sideline work which they did during the slack agricultural seasons. Some cash

183

crops became so lucrative that workers earned far more money in agriculture

than they could making paper. Nevertheless, many workers continued to put in

a minimum number of hours in the factory in order to receive labor benefits and

insurance.2 "Working in the paper factory gives me some extra secruity that I

might not have otherwise have, " explained one worker.

In contrast to factory wage labor, piece - rate workers in the industry

often arranged their own hours, a practice which frustrated owners. It was not

uncommon during my research to walk into a factory and see only a handful of

workers where there had been dozens only a week before. When I asked

factory owners about the absence of their workers, their response would often

be "its planting season," "there is a wedding," "they are at a pai pai " (a religious

gathering or festival), "some are taking time off," or simply, "I don't know. " As

one factory owner put it, "many of our piece - rate workers behave like their

own boss. They come and go as they please. But because so few workers

make paper anymore, I dare not fire them."

With wages increasingly uncompetitive in Puli, many workers found that

they had to supplement their incomes with other outside wage work, farming, or

even small business. One company owner said that, because most of his

workers were paid by the piece, workers would just come into work whenever

they needed money. "Its not as though they were a necessary part in a

production line. " Because workers were often in and out of their factories,

however, owners had a hard time estimating how much paper they could make

from one week to the next.

As shown in Chapter VI, the unpredictability of workers in Puli put

subcontractors at a distinct disadvantage in two ways. First, center factory

owners demanded that they (subcontractors) meet production schedules no

matter what the problem. When they did not meet those schedules, center

184

factory owners would often out future orders. Second, because subcontractors

were never sure how many workers they would have, there was less chance

that customers (other than center factory owners) were unlikely to do business

with them. "Many of the Japanese buyers who nright want to do business with

us, " commented a subcontractor, " are afraid we can't meet delivery of an order

because they know that our workers are unpredictable." Further, the

subcontractor explained that the use of subcontractors softened the labor

shortage for center factory owners because "they can just turn to one of their

subcontractors to fill any gaps in supply. "

Piece - rates

Piece - rate workers who were dredgers earned considerably more

money per week than hourly wage workers. In late 1989, piece - rates for

dredgers ranged from NT$1.3 to NT$3 per sheet, depending on the grade of

paper produced. Dredgers who produced a high - quality paper or very large

paper had to work slowly and were paid a high rate to compensate for their slow

speed but well developed skills; this work was usually done in the center

factories. Dredgers who produced a high grade paper could make on average,

between 300 and 500 sheets a day. Most dredgers in Puli's subcontracting

factories, however, produced a low to medium - grade paper which required

less skill and time to produce than high grade papers. These workers averaged

about NT$1.5 per sheet. Because of these low rates, these workers were

concerned with the amount of paper they could produce a day, and some

dredgers produced as many as 900 to 1,000 sheets per day.

Although piece - rates paid to both men and women who performed

similar work were the same, women tended to produce an average of only 400

to 500 sheets of paper per day. All dredgers, however, had to put in

185

approximately ten hours per day to produce these averages. As a result male

dredgers averaged about NT$900 per day while female dredgers only averaged

NT$7 50 per day. Working a typical 55 hour work-week (5 1/2 days), a male

worker could earn about NT$20,000 per month. If he was able to make 1,000

sheets of paper a day, his wages could increase to over NT$30,000 a month. A

woman dredger, in contrast, earned only about NT$17,000 a month.

While I was denied access to the time cards for piece - rate and hourly

wage workers, my observations revealed that many women tended to arrive at

work slightly later in the morning than did men. Many women also left work

slightly earlier for lunch as well as at the end of the day than did men. When I

asked women why they appeared to spend less time at work than did their male

colleagues one women replied, "Some of us have to make breakfast, lunch, and

dinner. Of course we spend less time at work, we have a second job at home."

Women piece - rate workers who dried paper were paid an average of

NT$1.2 per sheet. They dried approximately 450 sheets of paper per day,

earning about NT$600 in wages. Working on the same ten-hour a day schedule

as the dredgers, women dryers could earn about NT$13,500 per month.

Because paper takes a set amount of time to dry on the heated steel tables,

women were fairly limited in the number of sheets they could dry in a day. Even

particularly fast workers found it difficult to dry over 500 sheets a day.

Piece - rates were calculated for both dredgers and dryers at the time the

finished paper was sorted by a supervisor or boss. A small slip of paper was

attached to each batch of paper (usually a ream) inscribed with the name of the

dredger and dryer and the size and type of paper. As the paper was sorted, it

was also inspected and counted. When atom or otherwise inferior sheet was

encountered, it was marked against either the dredger or dryer and deducted

from their total wages for the day.

186

Workers were told how much paper was counted and how much was

deemed acceptable for shipment sometime during the work week. They were

paid only for paper which was flee from defects. Not infrequently, a worker

would object to the final tally, often blaming an individual who came before or

after him/her in the production process for the problem. A dredger, for

example, might tell his boss or supervisor that the pulp prepared for that day

was not of the proper consistency to dredge a good batch of paper. He might

also blame a dryer for tearing too many sheets, thereby denying him/her of a

higher count. Dryers on the other hand, often complained that a dredger

produced paper which was too thin, thereby rendering the paper impossible to

dry.

I was told by a number of workers that it was not uncommon for a boss to

pit workers against each other in order to obtain the best paper. " That is why

many of us try and blame the boss for denying us our full count of paper before

we blame each other, " said one worker. "Sometimes the boss just doesn't like

what he sees in the paper we produce and, therefore, will lay the blame on

anyone of us. It is very unfair."

My observations toward the end of my research in 1990, revealed that

many bosses found themselves increasingly pressured to come up with a high

quality product while forced to cut labor costs. According to many owners,

Japanese customers were pressuring the industry to improve quality because

the Japanese had all the low quality paper they needed from factories in

Mainland China and Southeast Asia. "A few years ago [ when they had few

competitors] we really didn't have to worry about quality like we do now, "

according to one subcontractor.

187

Now the Japanese are telling the center factory bosses to raise

their quality and lower prices. The center factory bosses then

pressure us to do the same, and then we put pressure on our

workers.

It is much harder on us [subcontractors], however,

because we are stuck with producing much of the lower quality

paper. Because our profit margins are much lower than the center

factory, there is little we can do to cut costs.

The gender division of labor in production

Before the early 19803, men and women who worked in the hand - made

paper industry clearly understood their position in the production process. Men

either made the pulp or dredged paper and women either dried paper or

prepared the raw materials. Men also received more money than women for the

work they did because men's work was considered either strenuous or more

skilled than was women's work. "Women could not dredge paper back then,"

I was told by one old worker.

It was too difficult for women to handle the big bamboo screens

used in dredging and it took them just too long to learn. Men, on

the other hand, could not be expected to dry paper because the

work required the dexterity which only women have. During the

hot summer months, men would also perspire too much and that

would ruin the paper.

When I asked this worker if any women were ever given a chance to learn a task

traditionally defined for men (and vice versa), he replied, "Of course not.

Women would not attempt to take work away from a man, and a man wouldn't

want to do the work of a woman because the pay was too low. "

This startlingly honest answer helped clarify the many changes that had

taken place in this industry since the early 19803. From the industry's inception

in the mid - 19303 until the early 19803, the ratio of women to men in a given

factory was relatively equal. This distribution was dictated by the fact that

188

factory owners tried to have as many dredging tubs as drying tables in order to

keep production flowing as smoothly as possible. Because only men dredged

and only women dried, the ratio of men to women remained fairly constant.

This gender division of labor was justified on the grormds of men's and

women's physical abilities. The differences in women's and men's wage and

piece-rates were rationalized by the "fact" that women "could not learn certain

skills" and that men were the primary bread-winners in families and, therefore,

should be paid a higher wage than women. That reasoning held for almost 45

years when, in the early 19803, the gender division of labor in the industry

shifted. The reason for this shift in balance was rooted in rises in labor costs

and a subsequent shortage of male workers. According to one owner, fewer

men seemed to come into the industry in the early 19803 than earlier. "It wasn't

a sudden change," explained the owner.

All we knew was that there appeared to be fewer men willing to

become paper makers when the older workers retired. This work

is very tiring and it takes a long time to develop the skills to make

paper. Some of the younger people either didn't want to work that

hard, or they said that they could earn the same wage as

construction workers or day laborers.

While some owners began to raise the piece - rates they were willing to

pay in order to attract more men to their factories, others believed that such

bidding wars played into the hands of workers and served only to eat into

profits. In their view, the real solution was to find workers willing to accept an

increasingly uncompetitive piece - rate wage relative to what was offered on the

labor market.

Sometime in the early 19803 then, someone (no one can recall whose

idea it was) came up with a solution to the growmg shortage of male workers.

189

Women would be trained as dredgers and replace the men lost to retirement or

other industries. Suddenly, women were able to do the work of men and could

even be paid the same amormt of money as men.

Although some men initially objected to the changes, a number of

women jumped at the chance to earn more money. In contrast to men who

could move on to high paying jobs in Puli or leave the area to seek better work

elsewhere, most women (particularly married women) were tied to their

families in the basin. Aware that the industry was having problems, such

women believed they could accumulate more income than ever before possible

before the industry vanished altogether. As one woman office worker told me,

women with little education did not have as many opportunities to make as

much money as men. But the wages they got as dredgers were far higher than

the wages they could get anywhere else in Puli.

By the mid - 19803, dredging became a job that women were able to do.

"This is no longer a man's job" said an old male dredger with a little

embarrassment. "We men discovered that our skilled jobs just were not as good

as we all thought." Whatever the case, women became a growing force in the

industry and factory owners had to pay them the same rates as men -- a situation

which did not always sit well with some of the old workers.

Factory owners, desperate for more workers, encouraged as many

women to take these jobs as possible. "The women in Puli," one factory owner

told me,

were really good workers. Much better than the men. They didn't

complain about their wages as much as men did and they generally

worked harder. My male workers always seemed to be taking

breaks, going off to buy betel nut or just not coming in.

In a similar vein, another boss complained that

190

Taiwanese men are lazy. You know why we couldn't find any

workers? They spend their days fishing (in the many small fishing

ponds in Puli), gambling, or just pretending they are [ac pan

(boss). All they do is open up a betel nut stand and say they're a

boss. None of them want to work as workers, they think wage

work is beneath them.

The data in Table 5.1 suggests that, in 1989, the addition of one - third of the

women to the position of dredgers lifted the overall female participation rate in

the industry from one - half to about two - thirds.

Table 5.1. Number and Percentage of Workers in Three Hand-Made Paper Companies by

Gender and Type of Work in 1989

 

 

total no. workers

dredgers and %

dryers and %

men

women

28 (32%)

28 (62%)

«-

59 (67%)

17 (37%)

42(100%)

 

Totals

87

45

42

 

Source: Data collected from 3 factories with a total of 87 workers. The percentage ofmen

to women in a larger sample of 13 factories (390 workers) was slightly higher with

approximately 38% men and 62% women.

Changes in the composition of the labor force become even clearer when

age and number of years employed in the industry are analyzed. The data in

Table 5 .2 show that, as fewer young workers entered the industry, the average

age of workers increased with each passing year. As one office worker

remarked, the only reason so many of these old workers stayed in the industry

as long as they did was because they could not find any other type of work in

Puli. 3

191

Table 5.2. Age and Number of Years of Employment by Gender in the Paper Industry in

1989

 

 

men

women

average age

age range

average years in paper industry

average years at this company

range of years at present company

range ofyears in occyation

42

27-61

10

7.05

1-18

1-37

39

12-60

9.6

6.2

1-18

1-32

 

Source: Data collected from 3 factories with a total of 87 workers.

The search for marginal labor and the degendering of work

The redefinition of jobs as suitable for one gender to another (and fiom

one age group to another) was one last desperate attempt on the part of owners

to fill the vacuum left by men who had retired. Many male workers who were

employable in other wage markets had, for the most part, abandoned the

industry by the late 19803 leaving a shrinking pool of older workers and women

who had few opportunities to earn a wage elsewhere. As pressure mounted to

cut costs, factory owners attempted to squeeze more work from their remaining

workers without raising wages. As a result, the relationship between workers

and factory owners became increasingly contentious over time.

Workers increasingly considered themselves underpaid, overworked,

and frequently abused by owners who refused to invest in their factories. This

became particularly apparent when, in one of the larger factories, I asked a

supervisor about the wages paid to two old women who cleaned and cooked

tree bark. "If this were my factory," replied the supervisor in disgust, "I would

be ashamed to have these old grandmothers doing this kind of work. "

192

The younger workers won't do this because they feel the work is

beneath them and, of course, it only pays minimum wage. These

women have been working here for years, some of them used to be

higher paid piece - workers drying paper. But when they got older

and couldn't keep up the pace, the boss moved them to this job.

The old women have so much loyalty to the owners, that they

won't complain about the rotten wages they get.

Women's response to the crisis in the industry was slightly different from

that of men primarily because they occupied a different position in the labor

market, as the following excerpt from an interview illustrates.

When the paper industry suffers in Puli, it will be the women who

will suffer most. Many women feel that after working for so many

years they will not be able to do any other job later on. Men on the

other hand can get any job they want, they can even become lao

pan. Few female workers on the other hand will be able to find

work that pays as well as the jobs they have now as paper dryers.

Ifthey do get jobs in other industries, they will have to work under

terrible conditions [i.e., wood or toy painting in work-shops and as

home - workers] which are poorly paid and do not provide any

benefits.

The importance of paper making to women was reflected in the changes

in the gender division of labor in the industry since the early 19803. Whereas

men increasingly saw work in the paper industry as a dead - end job, women

saw it as the only decent employment in the area. It was not unusual to find,

therefore, that some factory owners tried to convince all workers (especially

women) to work as hard as possible because they would not have any jobs in a

half dozen or so years. Most of these workers also knew that, given their low

educational and skill levels and the lack of manufacturing jobs in Puli, they

could not command better paying jobs elsewhere.

193

The manipulation of workers in an effort to cut labor costs

Faced with the need to reduce production costs, most owners regarded

labor costs as the one variable cost which could possibly be controlled. In fact,

most owners believed that high labor costs and low productivity were primarily

responsible for the slow death of the hand - paper industry in Taiwan,

particularly in a situation in which they were faced with grong competition

from cheaper labor markets in Southeast Asia and Mainland China.

Owners, therefore, pursued a number of strategies to reduce their labor

costs. In no particular order, theses strategies were: (a) payroll deductions; (b)

reduction or elimination of bonuses; (c) quality and productivity deductions;

and, (d) premature departures.

Payroll deductions were most often used by large paper companies in

which salaries agreed upon by worker and owner were rarely realized (by the

worker) due to a complex monthly wage scheme. At the end of every month, a

sizable amount of a worker's paycheck might be withheld after the company

tallied up certain "company deductions." These deductions were calculated

alongside of governmental deductions (such as income tax and labor insurance)

on a worker‘s monthly pay stub. While such deductions varied from company

to company, they were all difiicult to calculate or to fully understand. Typical

of such deductions were 3 "workers' health fund," "New Year Fund" (a wage

deduction so that the company could buy prizes and gifts for workers during the

company's New Years Dinner [wei ya]), and a "transportation fund." Workers

could not clearly or confidently tell me the purpose of each fund, although most

believed that very little of this money was actually spent for their benefit.

The second strategy, the bonus system, was another form of "deduction"

often used by large paper companies. Theoretically, bonuses were given to

194

workers when a work - group, of which they were a part, met designated

production targets. These targets, however, never seemed to be clearly spelled

out by owners thereby making them a flexible wage item to manipulate. Indeed,

few workers reported that they received a bonus, and the reason given was that

someone in their group did not perform up to expectations.

Quality and productivity deductions were a third strategy used by large

and small companies in Puli. Rather than being grormded on group

performance, however, this deduction was based on individual effort. A

percentage of pieceworkers’ (dredgers and dryers) pay, for example, would be

subtracted when they failed to make paper at a given rate or when the paper

they produced failed to meet a specified quality. Again, workers were never

sure how or according to what criteria these deductions were made and based.

The fourth form of "deduction" owners used to reduce their labor costs

was what I have labeled premature departures. Prior to the end of my research,

three long-time workers in a factory left because of disputes with the owner.

While the disputes seemed minor in nature, they resulted in significant loss of

face for the workers who then felt compelled to leave the company. What

makes these cases stand out was that all three workers would have been eligible

for retirement pay had they remained at the company for another year. Workers

at the factory believed that the disputes were provoked by the boss in the hope

that the workers would quit, thereby negating his obligation to pay retirement

benefits. Although their accusations were unsubstantiated, workers from other

large factories in Puli claimed that such incidents had occurred elsewhere in the

industry as well.

Suffice it to say, most company owners had to devise a number of

strategies in the latter half of the 19803 in order to ensure a continued supply of

inexpensive labor in an industry which has become increasingly uncompetitive

195

at all levels of production. As men started leaving the industry, women and

older workers began taking their jobs. As competition fi'om cheaper labor

markets in Mainland China and Southeast Asia pressured owners to lower

prices and raise quality in 1989, they began to seek additional ways to ensure

the continued viability of the industry. Many of these strategies, however, led

to rising tension between workers and bosses.

As will be shown in Chapter VI, shifts in the nature of the relationship

between workers and bosses were mirrored in the changes in the nature of the

relationship between center factory owners and subcontractors. Pressures

emanating from alterations in the economy (both within and beyond Taiwan),

the finished product market, and the labor market were often played out at

every level of the relations ofproduction. These pressures, furthermore, were

passed down along the chain of market and production relations until they

"landed in the laps" of subcontractors and production line workers at on the

lowest rungs of the industry.

196

B. ENTREPRENEURS, THEIR FAMILIES, AND THE IDEOLOGY 0F KINSHIP

While my research was not originally designed to examine the specific

role of family in the hand - made paper industry, issues of kinship could not be

ignored in such a study. After all, these companies were family - run enterprises

which depended on family members to provide labor, skills, and capital. All of

these inputs, furthermore, contributed to a company's survival or failure.

Nevertheless, the importance of the role of family labor to the creation

and operation of Chinese family firms has been long established (Mark 1972;

Greenhalgh 1984; Wong 1985). I, thus, do not wish to take up or even to debate

the issue in this thesis. Rather, my desire here is only to present an overview

of how entrepreneurs, their families, and their kin contribute to the operation of

Puli's paper companies. More importantly, I want to stress the importance of

family not so much in the way it functions within firms but how family and kin

ideology has come to play a role in the relationship between firms and historical

context under which family labor was or was not used. I believe, for example,

that market barriers erected by center factories in the 19703 created conditions

in the industry wsuch that the family labor of subcontractors could not be

utilized to the fullest.

Company owners 4

Most of the 19 paper company owners in my sample acknowledged that

their average age was much higher than that of other factory owners in Taiwan.

They also pointed out that many of them had started their factories when they

were relatively young men (for all were men). As one factory owner explained,

"this is a fairly old industry for Taiwan and many of us are now in our 503 and

197

603."

In fact, the average age of these owners in 1989 was 51 while their

average age when they started their companies was approximately 34.5

Factory owners in Puli were relatively highly educated considering the

period in which they were born. Of the 19 owners surveyed, six ( 32%) had

graduated from primary school or had some primary school education, four

(21%) had graduated from middle school, and seven (37% ) had graduated or

attended a high school or a vocational high school. One factory owner

graduated from a technical junior college. At least two owners had also

received some additional schooling in Japan.

While thirteen owners received some education under the Japanese

colonial administration, about five claimed they were conversant in Japanese.

Most of these men were about 60 years of age or older and believed their ability

to speak Japanese helped them establish trading relationships with Japanese

buyers and become center factory owners. In fact, the owners who operated the

four largest center factories in Puli knew Japanese. Most owners of

subcontracting companies were younger than center factory owners in 1989,

could not speak Japanese and, therefore, were at a distinct disadvantage in the

market (see Chapter VI). They repeatedly told me that their inability to speak

Japanese on the part of subcontractors, was one reason why they had to deal

with center factory bosses. "What Japanese buyer would deal with an owner

who can't speak Japanese?" A subcontractor rhetorically said.

Family Labor

The role of family labor in the operation of Puli's hand-made paper

companies has not changed dramatically since the formding of the first

Taiwanese owned paper companies in the post-war period. Dming their

formative years, most owners had only a few tubs and tables and, whenever

198

possible, would "man" these stations either themselves or with the help of

family members. "When we first started, hired labor would be used only when

orders were too large to be filled by family labor, " explained one informant.

"We considered ourselves no more than workers. We would work right

alongside family members and any hired labor that we might have had."

Another man, an owner of a small paper factory described the importance of

family labor this way.

Family workers are important to any business. They are important

not just for the physical work that needs to be done, but also for

the management of the company. Family members can also be

trusted and they usually carry out your directions without back

talk.

Sometimes, however, family labor was not available. Wives of owners

might dry paper and prepare pulp for processing when they were not involved

in domestic work, but because many of the new owners were only in their early

to mid- 303, their children were too yormg to make paper. Further, as one

factory owner explained, while children "would help with some of the lighter

tasks, most of the stages of production were so difficult that only an older

teenager could do the wor ."

Moreover, the present situation in 1989 reflected that of the past, in that

few owners wanted their children to follow in their footsteps. Rather, they

often pushed them to pursue an occupation other than paper-making. Wonied

that their children would not pass their school examinations, many owners

made little use of the labor their own children. Only when children did not show

promise in a "better" profession, were they sometimes allowed to pursue

paper-making as a career.

199

The data in Table 5.3 show the number of workers in 19 companies in

1989. The number of family members involved in company operations in Puli

ranged from two (including the owner) to 12, with an average of approximately

3.7 family members per company. The ratio of workers to family members in

companies with 2 family workers was 8.1 factory workers for every 1 family

member.

Table 5.3. Family Workers per Company in 1989

 

a) no. family workers

number of co.

b)total no. of workers.

 

2

3

4

10

12

6

7

4

1

l

98

278

104

70

102

 

Totals

71

19

652

 

Source: Survey of sample of 19 companies.

Note: a) total of 71 family workers. All figures include the factory owner counted as one

family member. b) total of 652 workers (including family members) in 19

companies...7 1/19=3.7 family workers per company.

This ratio changes dramatically, however, when companies are disaggregated

by factory size (by number of workers). The proportion of family workers in

the smallest companies increases to well over half the total work force in each

company.

The data also indicate that in companies employing fewer than 30

workers, family workers often performed jobs as pieceworkers, wage workers,

plant managers, supervisors, and accountants. In the larger firms, (those

employing over 50 workers) however, family members rarely worked on the

factory floor (i.e. as blue -collar workers). Small firms in Puli (most of which

200

were subcontracting firms) thus were disadvantaged in comparison to large

center factories. Owners of large companies could afford to educate and train

their children to be businessmen and women. These better educated family

members would then be sent out to find new customers, technologies, and

products for production. Small company owners, on the other hand, had no

such luxury. Their family members were often needed to perform all sorts of

tasks, most of which did little to expand a company's contact with the outside

world. AS one owner of a small subcontracting firm put it,

My son often has to do menial tasks on the factory floor because I

can't afford to hire wage laborers like the larger factories. Every

time he does such work, someone else's son in a larger factory is

meeting with a customer, finding out about what new kinds of

paper people want to buy, or even learning how to invest his

father's money in the stock market.

Family organization and firm operation

With the exception of one joint family, the owners in my sample lived

either in nuclear or stem families. As might be expected sons were the most

frequent family members to work in their parent's firms. In one company, sons

were fully engaged in the operation of the father's business. 6 In this case, one

son managed production at the family's factory in Puli while the other son was

involved in sales and export operations in Taipei. Despite the physical

separation imposed by the business, the family maintained the joint

arrangement. About two-fifths (42%) of the sample had one son (most of

whom were married) who helped operate an enterprise in cooperation with their

fathers and mothers (see Table 5.4). The involvement of sons in a family paper

business was fairly common in Puli. In contrast to other family members, sons

201

inherit the business and, therefore, were often considered more as partners as

they (the sons) get older. Nevertheless, daughters, did occasionally work in the

family firm. Their labor, however, was often sporadic and was not considered

an important contribution to the labor pool. In many firms, daughters were

more often than not expected to pursue their studies or another occupation, and

were discouraged from spending too much time in the business.

Daughters-in—law or other family members (if available) were also

expected to help in the business, unless they were employed elsewhere. Not

surprisingly, such families lived in stem arrangements, shared cooking and

living quarters, and had a common family economy.7 I was often told that

because of the relatively small size of Puli's companies, only a stem type

arrangement was "convenien " (fangpien ). In this context, convenient came to

mean that there were not enough profits to support a joint family with more than

one married son. Further, I was also told fights and arguments were common

between daughters-in -law, when two married sons and their families worked in

one small business.

202

Table 5.4. Family Relationships, Organization, and Factory Operations in 1989

 

Family relationship in each company"

no co. % of total co.

family type

 

two sons and other family members '1'

one son

husband and wife only

patrilinal cousins

amnes

wife;

1

8

6

2

1

1

5

42

31

10

5

5

ljoirrt

8 stem

6 nuclear

2 stem

1 nuclear

1 nuclear

 

total

19

98%

 

Source: Survey of sample of 19 companies.

Note: Percentages do not = 100 due to sounding

*In all but one case both the husband and wife compose the core of all companies. While the

amount of time a wife spends nmning the company varies from case to case they were,

nonetheless, a critical component in the operation of Puli's factories.

‘1' Family members means members other than married sons.

1 In this case, the husband has turned over the day- to- day running ofthe paper company to

his wife while he operates a new roofing business.

Eight families in my sample took the nuclear form. The owner and his

wife were primarily responsible for the operation of a business in six of these

cases because their children were not yet old enough to help operate a factory,

were involved in other occupations, were students, or were in the army.

Because the paper industry was on the decline in Puli in 1989, most small

factory owners believed that their sons would have no future in the industry and,

therefore, discouraged them from pursuing paper-making as an occupation.

While the children of three additional owners pursued other occupations, these

men had sought out other relatives to run their businesses. Two of these owners

relied on patrilineal cousins to help operate their businesses while the third man

was in partnership with his wife's brother.8

203

While it was clear that small firms in Puli were less likely to be able to

support large extended families and, therefore, were apt to have only one

married son in the business, it was not equally true that all large companies had

extended families and more than one son working in an enterprise. In only one

center factory, did two sons and several family members work for the father. In

another equally large center factory, only one of an owner's four sons worked in

the family frrm. The other sons were physicians, who worked in other parts of

Taiwan.

As noted above, a large and wealthy firm was able to support more

family members and provide what were essentially white- collar positions for

them than was a small and less affluent family. In a large center factory,

furthermore, family members could contribute to the expansion of the firm. Yet

not all large firms (or center factories) necessarily used the labor of family

members within the firm, particularly when other professions or occupations

were open to them. Thus, the success or failure of a firm in the hand-made

paper industry (large or small, subcontracting or center factory) did not seem to

be directly linked to the number of family members working in these firms.

Whether or not this finding is a reflection of the nature of the industry, is a

problem for future research.

Wives

In all but one paper company, husbands and wives form the

labor/management core of the fum. During the establishment of a new

company, the labor of wives and their management skills often played a critical

role in the success or failure of a company. Further, wives and their families

also were an important source of capital for a new firm. Indeed, in

 

 

204

approximately half the cases, a wife or her family had contributed money to the

new ventures.

Nevertheless, husband's rarely acknowledged their wives' contributions

to the family business. In one unusual case, however, an owner adnritted that

he and his wife were partners. With his wife at his side, the man told me that

she had worked hard helping him set up the factory and that she had also

contributed money fiom her private money (in Taiwanese, sai kia) to establish

the business. 9 This was the first time a factory owner openly acknowledged the

importance of his wife in setting up and running a company and also the only

time I heard any man refer to his wife as his partner.

As illustrated in Chapter VH, wives were almost always physically

present in factories managing workers, keeping the company books, and

helping to prepare raw materials. 10 While her husband was out of the factory,

one women jokingly revealed that, "the wives of factory owners are often the

ones who manage what goes on inside the factory while our husbands run

around and play lao pan” . Well versed in company operations, wives were also

recruited during difficult negotiations between company owners (as in the case

of negotiating prices between a center factory and a subcontractor). When

disputes sometimes arose between companies, furthermore, wives were often

rumored to be at the center of the conflict.

The financing of family firms

I have placed the topic of financing and investment in this chapter

primarily because it was more closely associated with the issue of family than

with formal economic institutions such as banking. Following World War H,

the majority of start- up capital was fumished by personal savings, patri-family

members, affmes, rotating credit clubs, and partnerships. “ Most of Puli's

205

paper factories either could not get bank loans or were simply too intimidated

by the system to want to get involved with it. '2

By the mid-19703, subtle changes appear to have taken place in the they

way factory owners sought investments. Of the 13 owners in my sample who

opened their factories in the 19703, all claimed to have first relied on money

from personal savings for investment capital. About three-quarters of these

men also said that they looked to family members for money while a similar

proportion indicated that they also joined rotating credit clubs, while one-third

indicated their affines contributed money to their factories. A number of

entrepreneurs also reported that they waited until they had accumulated enough

savings and skills before opening their own factories. In most cases, "enough

capital" meant that they themselves had been able to put up at least 50 percent

of the required investment. Entrepreneurs who put up any lower percentage, I

was told, would make an entrepreneur vulnerable to other shareholders or

partners who might want to take control of their company once it became

successful.

As the paper industry began to take root and show a profit in the 19703,

some banks opened their doors and expressed a greater willingness to negotiate

loans. Nevertheless, would be entrepreneurs continued to shun such money as

a source of investment capital. According to one small paper company owner,

Local banks were only interested in the larger factories. But for

the smaller ones like ourselves, they seemed to think that we

would go out of business at any time. So the banks would make

demands that we could not meet, like putting up a large collateral.

Another factory owner who needed money in the mid-19803 took a loan

from the local Small and Medium Business Bank, an institution supposedly

206

attuned to the needs of small companies. After he received the loan, however,

the bank seemed to go "crazy."

Almost everyday the bank representative would come to my

factory to check on my business and make sure I had enough

orders. They wouldn't leave me alone. Finally I joined a rotating

credit club and paid off the bank loan as soon as I could. It was

just too ma fan (inconvenient).

Most of the companies which were recipients of bank loans were Puli's

large center factories. In fact, one center factory owner told me that he thought

that after the late 19703, most center factories received the majority of their

financing from local banks. Bank loans remained difficult to obtain for Puli's

small subcontractors, however. For this reason, some subcontractors went to

center factories for loans which they used to purchase anything from raw

materials to the upgrading of a factory. As will be seen in Chapter VI, a number

of subcontractors who took loans from center factory owners went into debt

and eventually lost their factories to their creditors. This was one reason why,

in 1989, so many center factories were operating more than one factory site.

Kin and affinal ties between factory owners

When I began my research I initially hypothesized that kin and aftinal

ties would serve as a conduit through which business between firms in the paper

industry could be conducted (such as that between a center factory and a

subcontractor). After all, this was a small and highly competitive industry

where one might expect owners who were related to cooperate in the purchase

of raw materials, the production process, and perhaps the marketing of finished

products. Furthermore, upon discovering that all of the 19 owners interviewed

207

had some relationship with other owner(s), I expected to find a great deal of

cooperation between owners who were relatives.

The research revealed that out of 19 factory owners, at least two pairs of

brothers (i.e., four owners) owned separate paper companies, as did a father

and son ( two owners). There were also at least four companies where affinal

ties existed between owners. The remaining four owners said that they had

various combinations of uncles, aunts, and nephews in the business.

Finally,

there were at least five other owners who said they believed that they had a

more distant relative who also was involved in paper-making, but they were not

quite sure of the relationship that existed between them.

Nevertheless, as my interviewing progressed, I came to realize that many

factory owners did not consider their relationship (patri-kin or afiinal) with

other factory owners to be particularly important to their businesses. It was not

uncommon, for example, for a respondent to literally wave off my inquiries by

saying, " Oh we [the respondent and another factory owner] are related, but we

rarely do business together," or "Most of our kin relationships were either

distant or not that irnportan ."

There are, of course, a number of important issues relative to kin and

affmal ties which are linked to the issue of inter- and intra- firm relationships in

the paper industry. And, while some of these issues will be discussed in

Chapter VI, a few need to be highlighted here. For example, a number of

entrepreneurs got their start in the 19703 by working for relatives or by fornring

partnerships with relatives in the 19503 and 19603. Unless a man worked for

his father, however, it was unlikely he would gain control or ownership of a

company because ownership was usually reserved for a son. When a man

entered a partnership with relatives, many such arrangements were short lived,

generating hostility between relatives.

 

208

Such hostilities between relatives often lingered for years. When an

entrepreneur struck out on his own following a breakup, he often made it a point

to mention that he did so without help from a relative who was already in the

business. Once a company was established, finthermore, an entrepreneur

rarely gave any significance to the fact that he might have done business with a

relative or that a relative went out of the way to send business or provided him

with more favorable business deals than a non-relative might.

As I was to find out, the paper industry was rife with animosity between

company owners long before any relatives entered the industry in the 19703.

Nevertheless, one owner candidly told me, "even though it was not uncommon

for a factory owner to have a cousin, uncle, or nephew operating or working in

another factory, no factory owner would want to be put in the position of having

deal to cheat [or be perceived to have cheated] a relative."

Notwithstanding, kin relationships between firms were not particularly

important regardless of firm size. While I believe that most company owners

liked the idea of having their relatives actively involved with them in the

industry (like one big family), the realities of a competitive industry precluded

close kin ties which might interfere with conducting business. "It doesn't really

matter if people are related in this business," said a subcontractor. "Even when

it might be beneficial for two relatives in two business to work together, the

situation might change in two months. So many bosses feel it is better to not to

jeopardize their relationship." Indeed, when I asked the subcontractor if he

thought it would be considered "ok" if a center factory boss worked with a

relative who ran a subcontracting factory, he replied this way.

You don't understand. Center factory bosses use subcontractors

to earn much of their profit. How long do you think it would be

209

before a relative operating a subcontracting factory would ask for

his "fair share" from a relative who ran a center factory? If two

people are going to form any kind of alliance in this industry, it

would have to do with whether two or more owners can be fiiends,

can get along, and share equally. You don't necessarily need a

relative to do that.

The ideology of kin relationships between firms

Given the fact that kin or affinal ties were not considered particularly

important to the formation of inter-firm relationships, one might ask if other

social or cultural elements may have acted to hold this industry together. Were

there any key sociocultural resources drawn from Chinese society which might

have contributed to the smooth operation of paper production in Puli? What, for

example, was the importance of "relationship" in general? More specifically,

were the Chinese concepts of kuan-hsi Siffre (personal relationships) and jen-

ch ’ing ATE (human obligation) important to individuals in the hand-made

paper industry?

According to King (1991), one's kuan-hsi or particularistic connection or

personal network is "based on attributes [ldnship, surname, native place,

dialect, schoolrnate, co-worker, religious affiliation] shared by people"

(1991 :69). Kuan- hsi is a relationship in which two or more people have a

commonality or shared identification while jen-ch’irrg, has been popularly

described as human feelings of obligation or interpersonal relationships tied to

reciprocal aid. According to King (1991), Kuan- hsi can be a social or

economic. "In a strict sense jen-ching hardly enters into economic kuan-hsi

since economic exchange is dictated by impersonal market rationality. On the

other hand, in social kuan-hsi -- which is diffuse, rmspecified, and is ruled by

the principal of reciprocity -jen-ching plays a central role" (King 1991 :75).

210

Most Chinese acknowledge that if "you have a problem" or "need something to

get done" you first go through channels (i.e., one's network)(King1991 :71). But

because kuan-hsi can lock an individual "into an intricate relationship of

interdependence with others" which incms heavy "social investmen " (King

1991 :76), the greater a person's kuan-hsi with another the less autonomy and

freedom because he or she may be called upon at anytime to "do a favor."

Workers and company owners often invoked these terms.

Their

meaning, however, tended to differ from King's interpretation of them. 13 As

suggested above and as will be discussed in Chapter VI, kin and non-kin

relationships were used as a medium through which skills, capital, and labor

were pooled to set up factories in the postwar period (1945-1969).

Nevertheless, while kuan-hsi (relationship) was not necessary on the factory

floor (between workers and a boss), jen-ch’ing certainly was. "He [the boss]

does or does not have jen-ch’ing "(mei yu jen ch ’ing $5175ATE ) was an

expression often used by workers to describe their relationship with a boss.

What they meant by this was that a boss had (or lacked) sentiment (jen-ch’ing),

gave face to, or was able to manage his relationship with his workers.

It was

not necessary however, for a boss to have kuan-hsi or to have a kind of

"networ " with his workers.

The use of jen-ch’ing and kuan-hsi became a bit unclear, however,

when relationships moved beyond the factory. In the 19703, a fictive kin

ideology based on traditional notions of kuan-hsi, jen-ch’ing, and the patri-

family emerged between at least one centerfacton owner and his

subcontractors. Within this subcontracting relationship, elements of hierarchy,

obligation, and loyalty were articulated in terms of the large extended family " ta

chia t’ing fiiE." The notion of family was utilized as method of bringing

together what was largely a disparate group of subcontractors (the " children" in

211

the group) into one cohesive, cooperative, and compliant subcontracting unit

under the control of the center factory owner (the "patriarc " of the group).

Traditional notions of the family (the most venerated institution in Chinese

society) were adopted as a blueprint for behavior that required the center

factory owner to provide security and profit for his subcontractors while his

subcontractors were supposed to reciprocate with loyalty and obedience.

By the late 19703 and early 19803, some subcontractors in Puli noticed

that their relationship with a center factory boss was not quite as "familial" as

they were led to believe. Many subcontractors came to see their relationship

with the center factory owner as adversarial rather than cooperative. By the

time I started my research in 1989, terms which used to connote a familial

connection between firms had given way to those which described the

relationship as "exploitative," and "unfair," terminology which essentially

delineated a relationship based on class.

Why, how, and in what manner these ideologies came to be used in the

industry will become clearer in Chapter VI. Here it is sufficient to note that the

use of these ideologies (be they based on notions of kin or class) was closely

tied to specific events in the history of the hand-made paper industry. More

specifically, as changes occurred in the market for finished products and raw

materials, so to did the nature of the relationship between firms.

Summary

As will be demonstrated in Chapters VI and VII, the core of Puli's paper

companies were composed, at the very least, of an entrepreneur and his wife

where they functioned as both managers and workers. While the labor of other

family members was often critical in the formation of a firm in the 19603 and

19703, many bosses often discouraged their children from making paper

212

making a career. Many bosses discouraged their children from pursuing

paper-making because the future of the industry in Puli was not particularly

bright. When a son failed to find better employment opportunities, however, an

entrepreneur would normally take him into the family business. Still, most

companies were small and could not support more than one married son,

forcing the other children to find employment elsewhere. Center factories, on

the other hand, were all large enough to employ more family members than

were subcontracting firms. Only one center factory in my sample, however,

relied on more than one son to help operate the company.

It was the belief of most factory owners in Puli that the more family

members one was able to employ in a company the better. What was most

important, however, was that the employment of family members was often

dependent upon the position of the company in the industry relative to the

market.

In small subcontracting firms with no market connections, a son or

sons had little opportunity work beyond the confines of the factory floor. But in

firms with market connections, sons could be used to expand a firrn’s market

connections. Used in this capacity, sons (or other family members) helped

center factory bosses expand their businesses not in the capacity as "blue collar

labor, " (which was more case among subcontractors), but as "white collar"

managers and salesmen.

In contrast to kin relationships within firms, kin relationships between

firms were far less important. That is to say, most company owners did not " go

out of their way" to do business with a relative. Given the highly competitive

nature of the industry, as well as the level of animosity and the lack of trust

between factory owners, one would think that a kin connection would provide

some common ground for establishing trust and cooperation between firms.

213

The research will reveal, however, that with much of the industry

structured around subcontracting relationships, true kin relationships can

sometimes prove to be more of a burden than asset. Downplaying the

importance of kin relationships, center factory and subcontractor bosses alike

claimed that doing business with relative would not necessarily make a

difference in their business. There was also the intimation that, were problems

to occur between two relatives doing business together which, given the

suspicion and animosity which existed in this industry was not unheard of, then

their social relationship might suffer. If, on the other hand, a business

relationship soured between factory owners who are not related, one would not

have to continue associating with that person as would be the case among

relatives.

 

214

 

1

Unlike hand-made paper, most workers in Taiwan’s “other” paper industry

produced machine made papers and worked as wage workers. Wage workers working in

Puli, could usually earn between NT$94 and NT$102 an hour, excluding overtime.

2

Labor laws stipulate that workers must work a minimum number of hours each

month in order to receive benefits. In some factories, however, the labor shortage is so

severe that some factory owners overlook this minimum just so they won't lose a worker to

another factory.

3

The one difference to this, however, was that there were more women who were

starting to make paper at a young age (12years). The youngest male in the business was 27

years of age.

4

Of the nineteen owners interviewed in 1989, eleven started their companies in the

19703. Out ofthese eleven companies, ten were started by men who had previously worked

as paper makers in another paper factory in Puli. At least 80% of these men, furthermore,

had also worked an average often years in the industry before starting their own operations.

5

This figure indicates the age when owners started their current paper companies.

With as many as 30% of the current factory owners having started their companies as

partnerships prior to opening the companies they operated in 1989, this figure should be

much lower.

6

In some factories, additional sons may have helped out in the factory, but only on a

temporary basis. These were sons who were either waiting to be drafted into the army, were

home fi'om school, or in between jobs.

7

The concept of family economy in this context meant that income fiom a company

was largely controlled by the father, while a son received either a small salary or stipend of

some kind. All family expenses, were paid by the father fiom pooled family income.

8

This is not to say that aflines or cousins were relatives of last resort when it came to

operating a company. In some cases, afiinal relationships especially between brothers-irr-

law were especially close, closer in some cases than the relationship between brothers from

the same natal family.

9

Sai Kia is a Taiwanese term whereas ssufang ch ’ien is a mandarin term. Both these

terms refer to the money a woman receives at the time of her marriage.

10

My observations also revealed that women often appeared to be the worriers in the

business while husbands often project an air of light heartedness and indifference.

11

Commonly used throughout Taiwan, rotating credit chrbs were often established

between fiiends, relatives, and co-workers as a way of quickly raising needed capital. As a

rule the founder of a club was often an individual most in need ofimmediate fimds and would

be the first to receive a loan fiom the group.

Although varying in size, most clubs averaged between 10 and 20 members. The

club would remain in existence for as many months as there were members. Each month, all

but one member must pay in a set amormt ofmoney to the club. During the first month, the

founder, along with group members, decided on how much money each will provide per

month. For the first month, each member gave a set amount (say NT$5,000 ) to the founder

215

 

who may or may not be required to pay interest to each member. During the second month,

group members would meet again and decide which member would receive the money for

that month. This was decided by a secret bid, in which each member submits how much

interest on the loan they were willing to pay. Those who give the highest bid (say 15%) were

often individuals most in need of cash. Once the bid was won, each member then gave the

winner the set amount (NT$5,000 ). During each subsequent month, members did not won

the bid, repeat the process and receive their money. As each month goes by, those who have

already received a loan, pay in the set amount (NT$5,000 plus interest).

12

Unfortunately, however, when pressed for greater details about how much, when,

and by whom investments were made, most respondents generally gave vague answers or

said they could not remember.

13

It is my belief, furthermore, that these terms are often too static to allow for kinds of

variations that occur over time and socio-economic contexts.

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THE PAPER MAKERS OF PULI:

SUBCONTRACT MANUFACTURING IN TAIWAN'S

HAND-MADE PAPER INDUSTRY

Volume H

By

Ross C. Gardner

A DISSERTATION

Submitted to

Michigan State University

in partial fulfillment of the requirements

for the degree of

DOCTOR OF PHILOSOPHY

Department of Anthropology

1995

 

A HISTORY OF THE HAND-MADE PAPER INDUSTRY IN PULI

CHAPTER VI

The history of hand-made paper production in Puli is, for the most part,

based on a compilation of interviews with workers and factory owners involved

in the industry since 1935. These recollections have become, without a doubt,

somewhat distorted with time. What little documentation exists is often

derived from a few "mini-autobiographies" of large factory owners who have

sought to preserve for posterity their often embellished role in the industry.

Needless to say, these selective versions of history ofien omit important and

sometimes disparaging information about certain individuals involved in past

events. Whatever the nature of the data, however, these distortions are

important not always for what they might say about the past, but for what they

can tell us about the current attitudes and behavior of individuals in the industry.

I have generated a generic view of the industry by evaluating the glorification of

the past and the "gossip" of the present against information from informants

who, I believe, have little reason to twist past events.

This chapter is divided into four sections, each of which documents

important periods and events in the industry. While most of these events do not

always seamlessly thread their way from one section to the other, I address

some specific themes throughout the chapter. For example, data on the export

and labor market are included (when possible) near the beginning of each

section so as to provide a "road map" of where the industry was heading during

a particular period. As indicated in the introduction to the thesis, changes in the

216

 

217

market offer a number of important clues which can be used to delineate

change in the rest of the industry. The presence of these guides, furthermore,

helps to form a base from which to examine changes in the nature of production

relationships, particularly the emergence and subsequent dissemination of

subcontracting relationships in the industry. Finally, except for the first two

sections in this chapter, I generally refrain from mentioning specific companies

or individuals. I believe that adding a cast of characters to the dissertation, at

this point, would only serve to confuse and draw the reader away from the other

issues I address. I do return, however, to a discussion of individual players in

the industry in the case study in the chapter which follows.

The first section of this chapter, Section A, begins with a discussion of

the origins and commodification of paper production in Asia and ends with the

establishment of the first hand-made paper company in Puli during the Japanese

occupation. Section B traces the reconstruction and expansion of the industry

from the post-war period to 1969. This section focuses primarily on the actions

of a few determined factory owners who, with considerable foresight, were able

to see the importance of moving beyond the production of paper to the

marketing of their own product. By establishing these important market

connections, a few of Puli's producers were able to bypass middlemen in the

industry and position themselves as key producers, traders, and marketers of

hand-made paper.

This theme is continued in Section C where I show how these market

connections provided a base from which this elite group of factory owners

could erect market barriers in the 197Os. These barriers effectively separated

the growing and lucrative finished product market in Japan and the market for

raw materials from a new group of small factory owners who set up shop during

the 1970s. These new producers, however, were not blocked from becoming

 

  

218

"producers." With their access to the market effectively obstructed by Puli's

elite " center factories," these small producers had no recourse but to become

subcontract manufacturers: a new productive arm for the elite. While the center

factories continued to dominate the industry throughout the 19705 and 19805,

some of their subcontractors eventually made a move toward greater capital

accumulation and autonomy in the 19805.

Section D, therefore, chronicles the social and economic changes which

took place in the industry in the 19805 that allowed subcontractors to

implement specific strategies which brought them into a stronger position in the

production process and the market. While some subcontractors managed, at

least, to temporarily increase their incomes and leverage in the industry vis-a-

vis the center factories, most small producers saw their business begin to

disintegrate toward the end of the decade. In the face of rising labor costs, a

labor shortage, and competition from emergent foreign producers of hand-made

paper, many of Puli's smaller companies went out of business. Only those

companies lucky and shrewd enough to secure a Japanese buyer for themselves,

and/or able to move their operations to cheaper labor markets overseas, would

be able to survive into the 19905.

 

219

A. HAND-MADE PAPER PRODUCTION TO 1945

The commodification of hand-made paper in East Asia

Puli's contemporary hand-made paper industry was an outgrowth of a

long history of both the Chinese and Japanese paper-making traditions. These

traditions have helped shape not only the nature of the production process but

also the nature of the commodity produced and marketed in Taiwan and East

and Southeast Asia. Before discussing the contemporary technical or physical

aspects of paper production in Puli, however, I provide a brief synopsis of the

development and commodification of paper in Asia.

It is generally believed that the invention of paper can be traced to a bark

cloth culture which was widespread in prehistoric China and Southeast Asia.

Bark was one of the few malleable materials readily available to people

throughout this region and it was initially used for clothing. Sometime after

1,500 BC, however, the Chinese began experimenting with iconography and

painting using wood, bark, bone, and pottery as a medium for their creations.

While bone and pottery did not deteriorate as did wood and bark it was,

nevertheless, a difficult material upon which to paint and write.

Perhaps frustrated by the limitations of bark, wood, bone, and pottery

upon which to write an ever expanding and complicated lexicon of images and

crude characters, about 2,000 years ago the first scribes and calligraphers in

ancient China began experimenting with a new form 0 "manufactured" writing

material. These craftsmen created a flexible and fairly smooth writing material

by "floating" a combination of pormded fibrous materials such as silk, flax

(some of which were in the form of rags), bark, and straw in vats of water; the

character for paper chih 8E contains within it the radical for silk. Once

thoroughly mixed and softened, the pulp was then lifted out on bamboo mats

220

and left to dry. While not an ideal writing surface, the paper was at least

somewhat pliant and easily took the inks and dyes already developed for

inscription on bone and pottery .

It is popularly claimed that paper was invented sometime in 105 AD by

Ts'ai Lun gm, a scribe, who lived in Hunan province during the Han Dynasty

(Chung Kuo Tsao Chih Shih Hua 198532). A number of archaeological finds

in Northwest China in the 19705 and 19805, however, turned up paper artifacts

which may actually predate the " invention of paper" by some 200 years. It is

also equally likely that paper may have been produced at a number of different

locations with no one individual responsible for its development (198525).

By the 3rd century AD, Chinese craftsmen had improved upon their

paper pulps by using a number of varieties of processed tree bark to

manufacture paper (among them mulberry bark, one of the primary materials

which is still in use in China, Taiwan, and Japan today) (Figure 6.1)(1985:250).

Craftsmen also refined their manufacturing techniques of dredging (referred to

in Chinese as lao chih ) paper from vats of paper pulp onto flat boards to dry

(Figure 6.2).

 

221

Figure 6.1. Pounding of Tree Bark Into Pulp

Source: Chung Kuo Tsao Chih Shih Hua 1985: 53.

 

Figure 6.2. Dredging of Large Paper by a Two-Man Team

Source: Chung Kuo Tsao Chih Shih Hua 1985: 70.

 

  V'"

—-r-,.'x

222

As each successive dynasty in China strove for immortality through

record keeping, great emphasis was put on the manufacture of new kinds of

paper by the Chinese state. Various types of paper came to be equated with

specific dynastic periods and each was almost always an improvement on the

former. The manufacture of these " dynastic papers " created a governmental

monopoly over the production of fine paper for the first 600 years after its

invention. It was not until the 8th century, in fact, that paper appears to have

become a commodity available to the public and less of a luxury item reserved

only for the nobility. l

Dissemination of paper production

Paper was first introduced into Korea and Japan by China sometime

during the Western Ch’ing Dynasty late in the 3rd century AD.2 By the 8th

century, paper making technology made its way into the Middle East, and was

eventually introduced in Europe during the 12th century.

It was not until the

20th century, however, that paper making all but ceased as a skilled handicraft

in the west when machinery was built to mass produce paper of all grades and

thicknesses.

Despite the great popularity of machine-made paper throughout the

world, hand-made paper remain an important part of the East Asian economy

and culture. Machine made paper had its place in institutional and industrial

markets, but hand-made (or more popularly known in the west as calligraphy or

rice paper) remained the favored material for painters, calligraphers, and

craftsmen.

In the early 19005 in Japan, for example, a sudden upsurge in machine-

made paper production in that country caught the attention of western paper

 

223

producers who had long dominated the Asian market. But they also found that

machine-made paper was not the only thriving paper trade. In an article in the

Far Eastern Review in 1919, a reporter noted that Japan actually had two

distinct paper industries, machine-made paper and traditional Japanese paper.

The former was strictly a capital-intensive, factory-based industry while the

latter was principally a labor-intensive, hand-made household industry

(1919:517). Intrigued by an activity which appeared "primitive" by western

standards, the journal noted that much of hand-made paper production was

confined to a small number of Japanese prefectures, each producing papers

with distinct uses and grades. A large portion of the paper produced in Yamato

Prefecture, for example, was used in the lacquer industry while papers

produced in other areas were exported to China for use as calligraphy paper. 3

While hand-made paper continued to be produced in China well into the

republican period (from 1911 on), numerous economic, social, and political

problems in the region and the war with Japan eventually took a toll on paper

manufacturing on the Mainland. In some areas where the communist party was

in control, a few cooperatives were formed around what were previously

privately owned paper factories. But despite these efforts, severe economic

hardship during and after the war virtually brought the manufacture of quality

hand-made papers to a stop. The paper business would not recover in Mainland

China until well into the 19805. I will return to a discussion of hand-made

papers from Mainland China later in the thesis.

The fact that hand-made paper was manufactured in Japan and exported

to Mainland China in the early 19005, speaks to how quickly a basic commodity

like paper could be caught up in the changing political and economic fortunes of

the region during that period. Long paralyzed by foreign imperialist powers and

their treaty ports, the Chinese found themselves reduced to exporting raw

224

materials while the production of even the simplest commodities (once

indigenous to the region) were left to outsiders.

It is little wonder that, with the Chinese economy on its way to ruin since

the late 18005, Japan had become a major producer and exporter of hand-made

paper in the region in the first half of the 19005. By the time the first hand-made

paper company was founded by Japanese entrepreneurs in colonial Puli in

1935, furthermore, is it safe to say that the paper produced there was very much

a commodity structured on Japanese production methods and geared toward a

colonial market.

Hand-made paper production in Puli during the Japanese period

Prior to the arrival of the Japanese in 1895, most of the hand-made paper

made on Taiwan was not widely sold as a commodity for artists, craftsmen or

calligraphers. Rather, hand-made paper was produced in the absence of more

expensive machine-made papers which would have been imported from Japan

or the west; the hand-made paper was, therefore, for everyday use. Following

the Japanese occupation, however, the colonial government and Japanese

entrepreneurs eventually established a few machine-made paper plants on the

island. While generally of a higher quality than locally made papers, the

Japanese machine-made papers were considerably more expensive than those

produced by hand. Japanese machine-made papers were so expensive and

scarce, for example, that the majority of paper factories in the area of Nantou

Cormty continued to produce inexpensive hand-made papers for everyday use

(e. g., toilet, document, and ghost paper burned during religious rituals) well into

the 19205 . Although there may have been as many as 40 small hand-made

paper factories located in the county at this time, it is not known what

percentage of these factories were Japanese or Taiwanese owned.

225

While the production of hand-made paper in small family-owned

factories was fairly widespread in central Taiwan, a Japanese owned hand-

made paper plant was not established in Puli rmtil 1935. During that year, a

Japanese merchant by the name of Yien-an came to Puli to establish a toilet

paper factory. He was drawn to the area, as were other entrepreneurs who

came to the area from the nearby cities of Taichung, Lukang, and Chang Hua,

by Puli's reputation as a place to make fast money. But Yien-an had probably

also been drawn to the basin because he also heard that Puli had ample supplies

of cheap labor, pure water, and raw materials that could be easily obtained from

lumbering operations in the nearby mountains.4

Yien-an established his factory about 3 kilometers from the center of

town (the main market area) on the southern perimeter of Ta Ch'eng village.

Situated precariously on a small flood plain about 100 meters fi'om the Nankang

River (see Figure 4.6), Yien-an channeled water under his factory along a

sluice-way that was configured to take water from the "tail" section of the

irrigation system which ran next to the factory. This irrigation system

originated at the Mei River to the north-east and ran diagonally on a

southwestem tack through the basin rewriting in Ta Ch'eng Village just north of

the Nankang River. The sluice system served to bring water into the factory for

the manufacture of paper pulp and to remove waste from the site. Despite

Yien-an's clever use of water, he knew little about making paper and even less

about good management. In the end, he was forced to sell the factory after

operating it for one year.

The second owner of the factory was a local Japanese businessman who

ran a laundry in Puli. In contrast to Yien-an, this entrepreneur envisioned

producing more profitable hand-made art and calligraphy paper which could be

sold to wealthy Taiwanese and expatriate Japanese living in Taiwan. After

 

 

226

spending considerable time and effort experimenting with how to make

calligraphy paper, he too failed to successfully organize its production. With

little in the way of profits from the existing toilet paper operation, the business

foundered yet again.

In 1941 the factory was sold to a third Japanese, Mr. Ta, a retired

mid-level tax collector from the southern city of Tainan. Naming the factory

Puli Tsao Chih So fifiifiififfififi, Mr. Ta also believed that calligraphy paper

could be produced at the factory and at a higher profit than that derived from

general purpose papers. The basin area had all the necessary raw materials

(i.e., several varieties of long-fibered tree bark, bamboo pulp, and rice straw),

local water was the proper acidity, and the year-round air temperature and

humidity were well suited to paper making. To ensure his investment, however,

Ta hired two paper technicians from Japan and, in 1943, invested in a Japanese

manufactured pulp beater. The beater was powered by a water wheel

mechanism attached to the sluice-way running underneath the factory. Prior to

the end of World War II, Ta's factory was producing calligraphy paper for the

Taiwanese market and, with over 100 workers, was one of the largest

companies in the basin.

Workers and entrepreneurial aspirations during the Japanese period

Workers who labored as paper makers in the 19305 report that the

Japanese factory was not large and was constructed out of red brick, mud brick,

and bamboo. Inside the factor, lighting was poor and the ground constantly

wet. Primitively equipped, the washing, soaking, and dredging vats were made

of mud brick and wood planking, which always seemed to leak, and the drying

tables were made of thin sheet metal, below which individual wood burning

mud brick ovens were used to heat the metal table top.

 

 

227

Although they remember little about the actual operation of the Japanese

factory, some older laborers vividly recollect the day-to-day drudgery of their

work. "In those days, " according to one older paper maker, "it took us days just

to prepare all the ingredients to make a batch of paper. Our hands would often

bleed after constant handling the wet tree bark, bamboo leaves, and rice straw."

After hours and sometimes days of soaking, most raw materials had to be

pounded by hand with wooden mallets, cleaned, bleached, and cut and mashed

into paper pulp fine enough to be suspended in a tub of water from which the

paper was dredged. "We would be lucky to make 500 sheets of paper in one

week," said a retired worker. " It was long hard work and we had little to show

for our effort at the end of the day. Only after we got the Japanese beater, were

we able to make more paper because we had more time for production."

Most of my older informants indicated that the Japanese bosses treated

them fairly well. The antagonism between Taiwanese and Japanese which was

prevalent at the beginning of the Japanese occupation, seems to either have

diminished by the mid-19305 or simply was not canied onto the factory floor.

Most workers in the factory were young men and women who had spent all

their lives tmder Japanese administration. They could speak Japanese and

many had come to accept Japanese rule as a permanent condition in their lives.

In an interview with a local journalist in 1989, one old worker boasted

that, after starting at the Japanese paper factory at the age of 17 in 1936, he

quicldy learned the ins and outs of paper production and was trusted with the

formulas for paper-making. His Japanese boss soon promoted him to the

position of technician and, by 1943, he was earning more than twice the wage of

local policemen and was "treated like a V.I.P." (shang ping) by the Japanese

owner.5 Apparently he learned so much under the Japanese that, after the war,

 

he went on to establish his own machine-made paper factory in Tainan City to

228

the south.

New possibilities

Despite the fact that only one paper factory was in operation at the end of

the Japanese occupation, its ultimate success demonstrated to many Taiwanese

workers and local entrepreneurs in Puli that forestry or agriculture there was not

only way to earn a living in an industrially barren region.6 Boxed in by

mountains and isolated from industry in the rest of Taiwan, Puli's growing

population found it increasingly difficult to make a living on a finite area of land.

According to an older informant who worked in the Japanese factory, some

workers felt that one day some of them might be able to become their own

bosses and own paper factories. In contrast to sugar refining or logging, paper

production required little in the way of capital, was labor intensive, thus

necessitating no more than three or four workers. It was, by its very nature, an

industry well suited to entrepreneurial activity.

As illustrated by the story above, many workers were exposed not only

to the technical aspects of factory production but also to factory management

and, in a few cases, to some aspects of sales. It was also obvious that one could

make money producing paper, one worker reported. He emphasized, however,

that money could only be made when customers could be found beyond the

basin. As had always been the case in Puli, those entrepreneurs who

understood the importance of markets beyond the basin were often the most

successful. Whatever the case, the entrepreneurial aspirations of local

Taiwanese would have to wait until alter the end of World War H when

economic and political conditions on the island returned to some semblance of

order.

 

229

B. POST -WAR RECONSTRUCTION OF THE HAND-MADE PAPER INDUSTRY:

1945-1969

Following W H, the Japanese paper factory was shut down, putting

over 100 paper-makers out of work. As was the case throughout the island, the

lucrative expatriate Japanese market disappeared and with it the capital to pay

workers and to buy raw materials. Gone too were the Japanese technicians and

managers who helped nm the factory and upon whom the industry was so

dependent. Workers from the old Japanese plant wondered what would happen

to their jobs and the factory, and many hoped that the plant would be turned

over to local control.

Despite the social and economic chaos of the period, the entrepreneurial

aspirations of a number of these workers and local entrepreneurs carried over

alter the war. True, most Taiwanese were left destitute, having neither the time

or money to indulge in writing calligraphy or painting. There seemed little

reason why anyone in Puli would want to invest scarce capital in hand-made

paper, and it made no sense to make paper by hand which could just as easily be

made by machine. Many people in Puli familiar with the paper industry before

the war, however, witnessed the mistakes and successes of the three Japanese

owners of the only paper company in the basin. One old worker told me that by

the end of the Japanese occupation, "we saw that our Japanese owner was

making a lot of money. Those of us who had worked at the factory since the

19305 all knew that we could also make money if we owned our own place."

These hopes began to fade, however, as mainlanders from the KMT began

settling into many of the administrative jobs in Puli once held by Japanese

bureaucrats.

 

230

The workers’ fears were realized when the Nationalist government took

control, essentially nationalizing the paper factory’s property and making it a

branch or afliliatefit shu tan wei WE $111 of a newly formed government

paper monopoly based in Taichung City.7 Having appointed themselves the

new guardians of former Japanese possessions on Taiwan, the government

placed a mainlander in charge of the paper factory, ignoring the wishes of

former workers and local leaders. With no market for calligraphy paper left on

the island, government bureaucrats refitted the factory to produce paper pulp

(for use in making everyday papers) using raw materials from the nearby

mountains.8 For four years the govemment—owned factory made pulp, but

without the personnel who had the management or technical skills, the factory

was not operated profitably. Finally in 1949, the factory was sold at public

auction to the son of a gynecologist who lived in Puli.9

Puli's first Taiwanese-owned paper companies

Angered at the way in which the KMT annexed what many workers and

local townspeople considered "their factory," two unrelated Taiwanese

workers fiom the former Japanese-owned plant formed a partnership with a

local pharmacist to start a second paper company in 1948. The pharmacist

provided the bulk of the start-up capital for the new venture, while the two

factory workers contributed most of the technical know-how. In contrast to the

former Japanese plant, their factory was located over an irrigation canal close to

the center of Puli.

Despite the combination of skills and capital, the company operated at a

loss and, after four years in operation, barely provided an adequate income for

the three partners and their families. Only the pharmacist could fall back on his

pharmacy business for extra income when the paper business started to falter.

 

 

 

231

By 1950, the company could no longer maintain all the partners; and the

pharmacist bought out his two associates and became the sole owner of the

company.10

Despite the buy-out, one of his former partners, Mr. Hsieh, still hoped to

own a factory. But the proceeds he received from the buyout were not enough

to cover the cost of starting a new operation.

Hsieh, thus, had to wait until

1954, when he had saved enough money and formd a new partner willing to put

up additional funds to finance a new paper company. The men then bought a

small section of land that was only a few meters from the old Japanese paper

factory located on the banks of the Nankang River (Figure 6.3).

 

232

 

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Figure 6.3. Map Of Ta Ch'eng Village Area and Six of Puli's First Paper Factories:

1945- 1969

Note: The map is not an approximation of Puli during the period between 1945 and 1969.

It's primary purpose is only to Show the location of some of Puli's earlier paper factories in

the Ta Ch'eng area.

 

 

---t..aJ--

-—-—' "'

233

Why Hsieh decided to set up his factory in this particular place is not

entirely clear. One explanation maintains that Hsieh's new factory could make

use of the same irrigation canal which ran under the old Japanese plant (now

owned by the son of the gynecologist). Another more plausible explanation for

building a factory so close to another factory, however, came from Mr. Hsieh's

son. He speculated that his father wanted to " catch the customers" who came to

visit the larger paper plant next door.11

The factory that Hsieh built was, according to other factory owners in

Puli, a makeshift arrangement. Old pictures from the 19505 show a factory

building constructed of bamboo and thatch, no more than 15 to 20 meters in

length. Apparently, Hsieh had so little capital, he could not afford any

machinery to help prepare the pulp for dredging and he only had about five

dredging tubs made from wooden planks. "It was barely a factory," said an

older informant. " It was so primitive that you would have thought you were

back in ancient China." So flimsy was the structure that, in 1959, when a

typhoon swelled the Nankang River, water obliterated the factory and Hsieh

was out of business yet again.

The stories of the first Taiwanese-owned paper companies in Puli were

often repeated by the older men in the industry to anyone willing to listen.

Many of these stories were heavily garnished either with tales of

entrepreneurial sawy or with sarcasm aimed at the foolish exploits of

"would-be businessmen." With so many companies going in and out of

business between 1945 and 1969, it was not always clear how many factories

were actually started, or by whom. Based on the recollections of my

informants there may have been as many as fourteen companies established

during this period, but only between eight to ten companies were probably still

in operation at the end of the 19605 (see Table 4.3).12

 

234

Partnerships

As touched upon in Chapters IV and V, there was evidence to suggest

that many factory owners used partnerships to make up for shortfalls in family

labor when firms were established in the 19405, 19505, and 19605 (and even

into the 19705). Partnerships also appear to be to have been formed because

most entrepreneurs lacked certain technical skills and the capital to establish

their own firms. In most cases, partnerships were established with someone

fiom outside an immediate kin group. One factory owner told me that when he

first started his factory his oldest son was under ten years of age.

I had to rely on my own labor and the labor of my wife and a few

of her relatives. But the labor of my partner and his wife was

critical. You see, none of us at the time had children old enough to

work

and at the very start of the factory we relied more on our

own unpaid labor than anything else.

Another older worker, who briefly became a boss in the 19605, told me that

many of the men who worked together in the older factories were friends.

When we wanted to start our own company, a partnership became

the most practical way of setting up an enterprise. We all lacked

the necessary capital in those days, so many of us had to draw

funds from a number of different sources

in order to buy

equipment and raw materials. Some of us also sought out partners

who were particularly skilled at making certain kinds of paper or

who knew something about negotiating sales. The most important

thing, however, was that we held equal shares in the enterprise.

In a few cases, "pseudo-partnerships" were formed between affines.

One man reported that when he went to work in his brother-in—law's factory, his

sister's children were not old enough to work. While he was not a partner, he

was treated like one.

235

My brother-in-law treated me like a family member. I also served

as a factory manager, salesman and, above all, a worker. My wife

also worked for my brother-in-law, as did his sister. But when the

eldest son became old enough to help run [manage] the factory, I

knew it was time to leave.

Not surprisingly, few partnerships survived for very long. At least half of

the factories begun as partnerships between 1945 and 1969 failed after a few

years of operation. Many of these companies simply lost money thereby

forcing all partners out of business. In other cases, however, at least one

member held a greater monetary interest in a new enterprise than others, as was

the case with the pharmacist discussed above. According to the son of one poor

partner,

In those days the paper factories were very small [with perhaps

only half a dozen tubs] and they made very little money. When

profits at the factory declined, the poorer partners suffered the

most while the wealthier one often had other sources of income to

help him out. I think this was the case with my father. He needed

money just to feed his family so he had to sell out.

Other individuals in Puli had their own interpretation of what might have

happened to this factory owner almost 40 years ago; a few people thought Mr.

Hsieh was an alcoholic (chiu kuei). Many believed, for example, that most

entrepreneurs just wanted to operate their own business without having to

negotiate and work with someone else. Many owners and workers in the paper

industry felt strongly that most people wanted to be their own boss.

Many of these bosses think of themselves as little emperors and it

gives them face (mien tzu E?) to be able to order people around

and have control over everything. You know, I think it is almost

impossible for two bosses to stay together very long in one small

company; their egos are too big.

 

Echoing this appraisal, an older factory owner reported that,

236

When the business is just starting out everyone works together.

But once the factory makes some money then disputes arise

because no one is sure who really controls what. Taiwanese often

have a hard time working together and working out their

problems.

Whatever the reasons for the failure of these partnerships, one widely

held opinion in the industry that made considerable sense. Whenever a poorer,

less-educated entrepreneur became a partner with a wealthier, better-educated

partner, the former one eventually lost out. One informant said that many of the

paper workers were not well educated and relied on the honesty of their richer

partner to "fix" everything. When I asked him if any contracts or other

agreements were signed in those days, he replied, "Absolutely not. Every

agreement was a verbal one. To ask for a contract of some kind would mean

you didn't trust your partners."

The market for finished paper and the pressure of rising wage rates

The exodus of the Japanese from Taiwan and the difficult economic

conditions faced by most Taiwanese in the post-World War 11 period

completely undermined the market for Puli's high quality calligraphy and art

papers. The post-war paper company owners, therefore, had to come up with

new products which the local market needed and could afford. The demand for

cheap, low quality papers with more practical applications than calligraphy or

art paper forced the first post-war factories to produce large quantities of ghost

paper, firecracker paper, tea bag paper, cigarette paper, hair permanent-wave

papers, paper board, low-grade document paper, and paper used in various

industries. 13

 

 

237

Despite the low profits garnered from producing these papers, their

manufacture easily dovetailed with a capital-poor labor-rich economy in which

such a labor-intensive industry could be temporarily sustained. In the

immediate post-war years machine-made papers remained expensive in

Taiwan. In fact, it is possible that the only reason paper-making survived

during the post-war period was because wages were low throughout Taiwan.

With an abundance of cheap labor in the basin, low quality hand-made paper

could still be made at a profit. "Most of us were living month to month in the

19505 and 19605," said one owner.

If we had the money to invest in machinery, which we didn't, few

would have done so. We all had a hard enough time just paying

for raw materials and meeting our payroll. Had we bad loans on

equipment to repay at the same time, we would have gone

bankrupt.

Enjoying a competitive advantage after the war because labor was so

cheap and machine-made paper expensive, one older owner commented that

instead of using machines, "we used men to make paper." He went on to point

out, however, that sometime between the early and mid-19605, a growing

number of paper companies in other places in Taiwan began purchasing

machinery to make much of the same paper made in Puli.

It was not long after that, that machine-made paper became much

cheaper in Taiwan, making it difficult to compete only with labor.

What we needed and waited for was the market for hand-made art

and calligraphy paper to return to Taiwan so that we could make

some profit. These papers could not be made by machine so we

wouldn't have to worry about that kind of competition (italics

added .' 14

 

238

By the mid-19605, therefore, increased investment in Taiwan's

machine-made paper industry had the effect of lowering prices for many types

of paper produced by hand in Puli. That is to say, by sharing the same market

for some types of paper, competition from the growing supply of cheap

machine-made papers gradually cut into the market for paper that could be

made either by machine or by hand (particularly with respect to certain types of

industrial papers). ‘5

Unable to isolate themselves from the economic transformation going

on in the rest of the island, factory owners in the hand-made paper industry in

Puli were also gradually forced to give into wage demands which were more in

line with the rest of the island's industrial wage rates. Nevertheless, wages

remained lower in Puli than in more industrialized urban areas. In addition,

because there were few industrial jobs in the basin, a growing number of

workers were forced to leave the area to seek employment in large cities. By

the mid-19605, factory owners in Puli were becoming concerned about the

longevity of the market for the inexpensive types of hand-made paper (given the

increased competition from machine-made papers and rising wages), and

realized that new markets for higher value-added papers had to be found.

Fortunately for the industry, as cheap hand-made papers began to lose

their marketability the market for more profitable hand-made art and

calligraphy papers slowly began to show signs of improvement. While their

recollections remain somewhat vague, factory owners in business during the

19605 indicated that buyers from overseas markets in Hong Kong, Singapore,

and Korea (where there was a strong tradition of using hand-made art and

calligraphy papers) also began to buy paper in greater quantities than in the

19505 and early 19605.16 Puli gained such a good reputation for the production

 

239

of paper overseas that, by the late 19605, more than half of the paper produced

in the basin was manufactured for export.

An early attempt at cooperation

Although low wage rates may have helped many of Puli's paper

companies survive the post-war period, profits were generally low and

competition between owners intense. For the most part, the companies

produced the same inexpensive, low-grade papers, which served to increase

competition. When buyers came to Puli, they could often force down the price

of paper simply by threatening to take their business to a competing company.

With only six or seven paper companies in operation the early 19605,

these competitive pressures most likely contributed to the high turnover-rate of

new paper companies in Puli. Competition during this period also underscored

the vulnerability and powerlessness of producers of hand-made paper in the

market. The insecurity apparently had such a pernicious effect on the industry

that, rather than fall prey to the divide-and-rule strategy of buyers, a few factory

owners began to cooperate.

Several informants remember one notable attempt at cooperation which

occurred during the early 19605. While they remain uncertain whether this was

the first effort at cooperation between company owners, all agree that this case

was the most noteworthy, not because of what went right but because of what

went wrong. What was also significant about this episode was the extent to

which it affected future relationships between factory owners in the industry.

As one informant revealed, "the soured deal had a lasting efi‘ect on future

relationships between the factory owners in Puli. Factory owners came to see

each other as cheaters who could not be trusted." Moreover, be emphasized,

whenever thereafter someone made a suggestion that factory owners cooperate

 

 

240

and work together, everyone would talk about this incident and question who

would actually benefit.

The now infamous midertaking first began when buyers from one of the

industry's largest customers, the govemment-owned Taiwan Power Company,

made their annual trip to Puli with a large order for paper used in transformer

boxes. Apparently, Taiwan Power had a reputation for pitting one factory

against another in order to force down the price of paper. No one was ever

happy with the price offered by the Company, but there seemed to be little that

could be done to fight back.

With the arrival of Taiwan Power's buyers in Puli, one paper company

boss (referred to hereafter as "the third factory owner") proposed that the three

competing paper companies get together and set a non-negotiable price for their

paper. The electric company would have no idea what was going on and, even

if it did, it would still have to buy paper from at least one of the companies.17

Although wary of the proposed deal, the two other producers went along with

the scheme.

The plan began to go awry, however, when a typhoon hit the island. The

storm was so severe and the flooding so extensive that much of the available

raw material used in making the transformer paper was destroyed. To salvage

the deal, two of the paper producers proposed that the three companies should

share the burden and buy new raw materials as a group. 18 Unbeknownst to the

two, however, the third company owner had already begun to negotiate with a

Filipino company to supply his company with the necessary raw material. ‘9

Reluctant to cut into his own profits, the third company owner was unwilling to

divide the cost of the raw material with the other two owners; he could make

more of a profit by selling the materials to his "partners" outright.

 

241

As the dispute over the cost of the raw materials wore on, the two other

factory owners went ahead and offered their pre-arranged bid to the electric

company. The third factory owner, however, cast a lower bid, thereby

undercutting the pre-arranged price. When the lower bid came through, the two

factory owners were furious and accused the third owner of trying to cheat them

out of the deal.

One informant told me that there was most certainly a lack of

communication between owners in the group. The fact that one company was

"secretly" negotiating for the purchase of raw materials, however, did raise

some questions in the industry as to whether the third owner actually had any

intention of cooperating in the first place.

There were, of course, a number of other less calamitous "incidents"

between factory owners throughout the early years of the industry. For

example, I heard stories of machinery sold by one factory owner to another, but

never paid for. And there were dozens of stories about how one owner would

try and steal customers and workers away from another owner or undercut a

competitor's price for paper. These and other similar practices helped to create

an atmosphere of suspicion and mistrust between factory owners which appears

to have lasted to the present day. While I heard that some other attempts were

made over the years to get owners to at least talk to each other, intense rivalries

remained the norm.

The third factory owner's purchase of raw materials directly from an

overseas supplier not only served to generate enmity between factory owners in

Puli but it also marked one of the first attempts by an owner to " go it alone" in

the market. Rather than passively wait for a Taiwanese trading company in

Taipei to secure new supplies of raw materials, this particular owner took the

 

————r n.

242

initiative to bypass the middlemen and establish a business connection with a

supplier beyond Taiwan's borders.

While the move took most other company owners in Puli by surprise,

some factory bosses not only praised the cleverness of the boss who first

thought of making this connection, but also began to rethink their own status

and position in the industry beyond the level of "producer." As the sections that

follow show, there was a growing trend in the mid- to late 19605 among some

of Puli's paper producers to seek access to the market for both raw materials and

finished product.

Development of Trading Relationships and the Removal of the

Middleman

Throughout the 19505 and early 19605, the arduous and sometimes

hazardous trip from Taipei to Puli discouraged many small and medium sized

customers from traveling to the area. Like many small industries throughout

Taiwan, most of Puli's factory owners thus relied on small trading firms in the

cities to provide them with orders. "Why would anyone want to come to Puli

when anyone could sell [our] paper from an office in Taipei?", one factory

owner said rhetorically. Nevertheless, their dependence on outside trading

firms in Taipei never sat well with many of Puli's factory owners. As one older

factory owner reported when the boss of a trading company came to Puli, "we

never really knew what was going on and we never knew how much of a profit

the trading company was making."

As domestic and overseas export markets in Hong Kong, Korea, and

Singapore grew in importance in the mid-19605, some of Puli's paper

companies moved to secure a more direct connection to their customers. How

and in what manner these connections were made helped determine which

 

 

243

paper companies in Puli would eventually grow and prosper in the industry and

which would stagnate and fail.

One of the most successful strategies to forge a connection with buyers

was to establish a small trading oflice in Taipei, thereby cutting out the

middleman. Both domestic and international buyers could go directly to a paper

company's Taipei branch trading office to negotiate a deal. The establishment

of a trading office in the city, however, required capital, a trading license, and a

trustworthy and competent person to do the job. There were, therefore, only a

few paper companies in Puli able to pull together the necessary money and

personnel to do just that.

With the establishment of branch offices in Taipei, the isolation imposed

by Puli's location dissipated. For the first time, a few paper companies were

able to trade their goods in a market which was much larger than anything ever

before experienced. By dealing directly with a customer rather than with a

trader, they were able to determine more accurately what was in demand and

which prices would float on the market.20 Entrance into the market allowed

some of Puli's producers to establish a direct link with customers and enabled

them to build business relationships (sheng i kuan hsi fiféfifiifi ) critical to

doing business in and beyond the confines of Puli and Taiwan.

In addition to these new connections, some factory owners also

researched the market for raw materials and were able to establish relationships

with suppliers of those materials. These connections became even more

important as the availability of raw materials in Puli began to decline and as the

search for raw materials became necessary for the production of newer and

better varieties of paper. Further, these few factory owners learned about other

business opportunities available to them. It was thus not uncommon for them to

branch out into real estate or to invest in other sectors of the economy which

1—

244

were completely unrelated to paper- making. This initial foray into the realm of

sales, marketing, and the procurement of raw materials by some of Puli's

wealthier producers helped them to solidify their position relative to other

smaller producers in Puli by blocking many of Puli's smaller "unconnected"

producers from access to the market.

Consolidating the market and consolidating power

Faced with low profits, rising wage rates, competition, and growing

market barriers, many of the approximately 14 companies failed, forcing a

number of entrepreneurs to try two or even three times before finding success in

the industry. As a result, only about ten paper companies survived into the

19705. Many in the industry liken the 19405, 19505, and 19605 to a kind of

"shake-down" period. Factory owners sized each other up, tested the waters in

terms of cooperative deals (most of which failed), and attempted to gain

advantages over competitors. "These owners were tough", says one younger

company boss who started his own operation in the 19705. "I'm not so sure I

could have survived if I opened my factory during that period."

It is unclear how many paper companies were able to take the propitious

step and set up a trading office in Taipei. The data do suggest, however, that by

the end of the 19605 three to five paper companies had such offices, although an

office might only be a single room rented in the city. Three to four of these

companies, however, were large and well - enough connected to influence the

purchase of raw materials and the sale of finished paper. That is, by the end of

the 19605, only three or four "elite" companies had established a foothold in the

industry and either controlled or potentially controlled a large portion of the

export market for paper in Korea, Hong Kong, and Southeast Asia.

 

 

245

These elites' position in the market at the end of the 19605 helped them

gain unprecedented access to and control over the market for raw materials and

the finished product well into the next decade. Elite companies which were

able to acquire such control were in the position to establish themselves at the

center ofproductive and marketing activities in Puli during the 19705, earning

them the label " center factory" (chung hsin kung ch ‘ang), a term I will use

hereafter.21

 

246

C. THE JAPANESE EXPORT MARKET AND THE EMERGENCE 0F

SUBCONTRACTING RELATIONSHIPS: 1970-1979

The 19705 was a decade when the manufacture of hand-made paper

gradually shifted from production for less profitable markets in the East and

Southeast Asia to that for more profitable art and calligraphy papers for Japan.

This shift created a new set of productive relationships and created the

conditions under which the few centerfactory owners in Puli effectively

manipulated the majority of small producers in the industry through subcontract

manufacturing.

The purpose of this section is to show how changes in the raw material,

product, and labor markets, and in the production process during the 19705

combined to reshape the industry; and to describe how the three or four elite

factory owners who emerged at the end of the 19605 were able to position

themselves as center factories and take advantage of these changes. I argue that

were it not for the dramatic increase in the number of new small factories in

Puli, however, the changes in the way paper was produced, in general, and the

emergence of subcontracting, in particular, would probably never have

occurred.

I begin the section with a discussion of the connection between rising

wage rates in the industry and changes which occurred in the finished product

market for hand-made paper. Following this discussion, I describe the

formation of trading relationships between center factory operators in Puli and

their Japanese customers, discuss the emergence of subcontracting during the

19705, and analyze the nature of business relationships which emerged between

subcontractor and center factory boss. This relationship, furthermore, was

structured on an idealized, fictive kin relationship where center factory

 

247

operators tried to "personalize" and "patemalize" a connection which they

knew to be inherently exploitative.

Changes in the Export Market For Hand-Made Paper and rising wage

rates in the 19705

Marketed as a hand-made, artisan commodity, the industry has had little

choice but to follow a labor-intensive path throughout its long history. Most

paper producers in Puli, long knew that as the industry grew and Taiwan

developed they would have to incrementally raise the value of their paper in

order to stay ahead of ever increasing wage costs.

We saw in the previous section that, prior to the mid-1960s, the cheap

hand-made papers produced in Puli's factories lost market share to machine-

made papers manufactured in Taiwan's new, capital-intensive factories. During

this same period, the domestic and overseas markets for art and calligraphy

papers which could only be made by hand began to grow, providing a

temporary reprieve for producers in Puli.

With the approach of the 19705, the bulk of the calligraphy, art,

document, and backing paper (paper used to "back" or mount calligraphy paper

to a scroll) was going to markets in East and Southeast Asia. While no sales

figures were available for paper made for the domestic market, my informants

indicated that after the 19705, domestic sales of paper ranged from 10-20

percent of total production. 22

Two of the largest markets were Hong Kong and Singapore which

together purchased 93 percent of the total export quantity of hand-made paper

in 1972. These exports, however, accounted for only 80 percent of the total

value of hand-made paper exports. Using a ratio of value (NT$) over quantity

(KG), the paper exported to these markets was rather inexpensive working out

 

248

to an average approximately NT$7 .2 per kilogram.23 One old factory owner

recalled that in the early 19705, " every factory in Puli was making a lot of paper.

But we were making money only because we were producing large quantities of

low value-added paper which was then sold at a relatively low price."24

Wonied about rising wage rates and the lack of profits, Puli's producers

realized that they had to find entry into the wealthiest markets in Asia, Japan,

where there was a large appetite for hand-made paper and consumers willing to

pay more for the product than those countries in the rest of Asia.

While Puli's paper bosses were looking toward Japan and the future,

Japanese hand-made paper producers were growing uneasy about cheap labor

in Taiwan and the future of their own paper industry in Japan. Faced with a

serious wage crisis of their own, a few Japanese buyers came to Taiwan in the

late 19605 in search of cheaper varieties of calligraphy paper which they could

no longer profitably produce. Because there was no way to produce by

machine what could only be made by hand, Japanese trading houses and

wholesalers had no choice but to seek out low-cost labor markets where quality

hand-made paper could be made.

Taiwan fit every condition most Japanese traders sought. It had a

fledgling calligraphy paper industry which produced acceptable papers at a

very low price. Although the quality of most of Puli's "high-grade" papers was

barely acceptable to the Japanese, manufacturers had the potential to improve

their product once buyers passed along the desired specifications; most

Japanese buyers were actually interested in buying various grades and sizes of

hsuan paper. 25 In addition to these advantages, Taiwan was close to Japan, a

former colony and, most importantly, was home to a large number of older

Taiwanese who spoke Japanese.

 

249

Sometime around 1970, a few of Puli's center factories perfected the

production of hsuan papers and a small number of Japanese buyers began to

purchase limited quantities. The benefits of doing business with this new

market were immediately felt throughout the industry. In 1972 when the Hong

Kong and Singapore markets purchased 93 percent of the total quantity of

paper, the Japanese purchased only 1.3 percent. That small purchase, however,

accounted for ahnost 10 percent of the total export value. While production

costs were higher for paper produced for the Japanese, the profits gained were

far greater than those for papers produced for the rest of the Asian market.

Rather than paying an average NT$7.3 per kilogram for paper, the Japanese

paid an average of NT$63 per kilogram (see Figure 6.4).

NT.

 

   

I In Japan

 

to non Japanese market:

Figure 6.4. Disaggregated Export Sales Ratio (NT$/KG) of Hand-Made Paper Sold to

Japanese and Non-Japanese Markets: 1972-1979

Source: Chinese Maritime Customs, Taiwan area. Statistical Department, Inspectorate

General of Customs, Taipei These figures reflect the aggregate value of paper per

kilogram which includes shipping, packaging, and other overhead costs.

 

 

250

Despite the high prices paid by the Japanese, export data for hsuan- type

paper indicate that, after only a short period of initial grth in the early 19705,

there was a gradual decline in exports, ending in a disastrous year in 1977 (see

Figure 6.5). Export data also indicate that, in relation to overall exports,

Japanese buyers purchased paper (primarily hsuan paper) fairly inconsistently

during the decade.

30,000 .-

25°00 ”"

20.000 ..

3:

15,000 ..

10,000 -.

 
+k9

+nt$
 
  

-- 2,500,000

I 2,000,000

,. 1,500,000

g

-. 1,000,000

5.000 -t

‘* 500300

  
 

A.

I

I

‘

0

0

I

I

I

I

1 972

1 973

1 974

1 975

1 976

1977

1978

1 979

Figure 6.5. Export Weight and Value of One Type of Hsuan Paper to Japan: 1972-1979

Source: Chinese Maritime Customs, Taiwan area. Statistical Department, Inspectorate

General of Customs, Taipei.

Disaggregated export data from the 19705 suggest, furthermore, that in

1974, 1977, and 197 8 (in the aftermath of the oil shocks and the fluctuations in

exchange rates), Japanese customers purchased limited quantities of paper

when compared to those sold to other markets in Asia (Figure 6.6).

 

r—i

251

Nevertheless, the Japanese share of export value generally surpassed that of

other overseas buyers in 1975, 1976, 197 8, and 1979.

2,500,000 T

2,000,000 4»

1,500,000 a~

1,”,000 «

 

—I——- to Japan

——O—-— non Japanese markets

 
  

500.000 I"

   

‘

M

I

I

0

I

gr

I

1972

1973

1974

1975

1976

1977

1978

1979

Figure 6.6. Export Value (NT8) of One Type of Hsuan Paper to Japanese and Non-

Japanese Markets: 1972- 1979

Source: Chinese Maritime Customs, Taiwan area. Statistical Department, Inspectorate

General of Customs, Taipei.

The export data indicate that during shortfalls in Japanese orders in 197 7, large

orders were once again solicited from other Asian customers. While these

exports were less profitable than those going to Japan, they apparently were an

important safety net for the industry during the 19705. By 1979, however, the

Japanese export market was well on the way to recovery, and exports to the rest

of Asia took a permanent and distant last place.

While the export data above are not always clear, most factory owners

vividly remember that there were some very bad years during the 19705 and that

 

252

a number of companies were forced out of business. One factory owner

described the period thusly:

Business was pretty good up to 1977, then the Japanese just

stopped buying paper from us. We didn't know what was going

on.

Many of us devoted our time, money, skills, and an ever

greater share of our production to make paper for the Japanese in

the early to mid-19705. But that turned out to be a big mistake.

Once we lost those orders we all understood how vulnerable we

were.

Other factory owners insisted that they were working much harder in 197 7 to

make just a small amount of money. One owner complained, "It was just like

back in the 19605; we produced a lot of cheap paper with no profit. It was

tenible." Despite the fact that, in the 19705, paper continued to be made for the

entire Asian market, company owners continued to refer to the Japanese and

not other Asians as the primary market for their paper. The reason for this bias

may be because profits from Japanese orders were always higher than the

profits from other Asian orders.

The fate of specific paper companies in Puli during the 197 Os is difficult

to ascertain. Neither the export data nor my interviews reveal which factories

were able to obtain the small but lucrative Japanese orders placed during those

bad years. Nevertheless, many factory owners did have an opinion on the issue

of why business was so poor. Most owners, for example, attributed the decline

in exports to the oil shocks or changes in the exchange rate which forced many

overseas buyers to cut back on their orders of paper. Some owners believed,

however, that the Japanese buyers may have conspired to withhold orders to

force Puli's paper companies to "their knees" and lower their prices.26 This

same conspiratorial / collusion theme, however, was also leveled at Puli's large

center factories which controlled access to the Japanese market for most of the

253

decade. Several small owners insisted that the Japanese had not withheld

orders, but, rather that Puli's center factories were responsible for the decline.

Regardless of the cause of the crisis, the 19705 was a tumultuous decade

in the market for hand-made paper. During this period, sales were highly

erratic, not only from year to year but from month to month. Notwithstanding

the fact that the factory owners preferred to do business with Japan, the

Japanese consumer seemed determined to disappoint them by suddenly

dropping out of the market. Despite these problems, the less profitable

multiple markets in Hong Kong, Singapore, and Korea eventually gave way to

the large, highly profitable, but unpredictable, singular market in Japan.

Although the shift to the production of high value- added papers for Japan

helped the industry to keep up with rising wage rates in Taiwan, it also created

a dependence on one market. As discussed below, this one market created

conditions which worked to the advantage of a few of Puli's larger paper firms.

Formation of trading relationships between Puli center factories and

Japanese buyers

We saw above that, during the latter half of the 19605, three to four

better connected "elite" paper companies in Puli had consolidated their

connections to buyers in Hong Kong, Singapore, and Korea. When Japanese

customers first showed an interest in Puli, therefore, they gravitated toward

companies that were already involved in the production and export of paper.

Further, because the owners of these companies were all in their mid- to late

405, they had grown up in the colonial educational system and could speak

Japanese. According to one of these factory owners, " it was not that difficult to

form a close relationship with our customers because most of us could speak

 

 

254

Japanese and we knew about Japanese culture and society. After all, those of

us who were older grew up under their administration." 27

These select few working out of their Taipei branch offices carefully

nurtured their relationship with their customers and jealously guarded them

from their competitors in Puli. One factory owner who was not fortunate

enough to establish such a relationship explained that, when the Japanese

started buying paper, these factory owners did not want to risk losing their

customers by bringing them to Puli.

They were scared that their Japanese customers would find out

about the other factories in Puli and possibly shift their business to

them. For the first few years these owners gave crazy excuses to

the Japanese for not wanting to take them to Puli. They said "Puli

is in the wilderness. There isn't any entertainment. There aren't

any Japanese restaurants." The only thing that was the truth was

that we actually didn't have any Japanese restaurants at the time.

But we had plenty of entertainment. Puli had some of the prettiest

prostitutes in all of Taiwan.

The owners who received the first orders from the Japanese, however,

quicldy learned that their customers were not the easiest people with whom to

deal. They wanted newer and larger varieties of art and calligraphy papers than

those most paper companies were used to manufacturing. The Japanese also

wanted paper of a much higher quality than was sold to other Asian customers

and they placed great importance on delivery schedules. Many of the Japanese

customers, likewise, were hesitant about dealing with smaller paper companies

which might not be able to purchase raw materials on their own, meet delivery

schedules, or provide consistent quality. These and other demands, together

with the fact that many monthly orders were becoming increasingly large, were

yet other reasons why most Japanese customers were drawn toward Puli's

"center factories."

 

255

Toward the end of the 19705, there were probably fewer than a dozen

buyers of hand-made paper in Japan. But six to eight of these buyers, were

large enough to control most of the distribution channels in Japan. What is

important to understand about these buyers, however, was that it was generally

in their best interests to maintain long-term relationships with Puli's center

factories.28 Taiwan was a new and cheap labor market which would probably

be able to supply Japan with good inexpensive paper for some time to come. As

long as the Japanese "partner" delivered orders, and the Taiwanese center

factories delivered cheap paper, both could make a considerable amount of

money.

By the end of the 19705, four center factories appear to have solidified

their control of the export business with Japan. These companies were singled

out by informants as the industry's "biggest center factories," the largest of

which, may have sold paper to anywhere between four to six of Japan's largest

buyers. Most informants also remember that these four were large enough to

"control most of what came into and went out of the industry in Puli. " In

addition, these companies were the only ones large enough to consistently use

subcontractors who provided the bulk of their exports.

Despite the strong position of the top exporters, the data also show that

between two to three "medium" sized companies in Puli may have secured

trading relationships with small to medium Japanese buyers by the end of the

decade; I was told that smaller Japanese buyers sometimes sought out some of

the medium-sized paper companies in Puli to do business. These "other

exporters" in Puli, however, appear to have shipped only limited quantities of

paper, which they primarily produced themselves rather than subcontracting out

the work. Regardless of the number of customers or their size, each exporter

was fiercely competitive and constantly worried about losing a customer to

 

256

another exporter or to one of Puli’s 30 or so smaller paper companies which

serviced these businesses as subcontractors.”

Finally, at least two of the largest center factories in Puli set up overseas

trade offices in Japan in the mid- to late 19705. Although ostensibly established

to assist their buyers in Japan, there is considerable evidence to suggest that

these offices were founded in an attempt to gain a foothold in the Japanese

market. While little is known about these overseas operations, their

establishment does serve as an example of the ongoing effort on the part of

center factories to penetrate markets, in this case the Japanese market. In the

words of one center factory owner, "I learned early on that gaining greater

access to those who bought our paper was often more important than actually

producing paper. After all, that is what we have subcontractors for. "

The emergence of the center factory / subcontractor relationship in the

19705

There is little doubt that, as Puli's producers were gradually drawn into

the Japanese market in the early 19705, capital was invested in the industry.

Nevertheless, three interrelated problems continued to dog the industry. The

first problem centered on the seasonality and general unpredictability of the

market for hand-made paper.30 The erratic behavior of the market was

compounded by paper makers' scramble to secure more and more orders from a

few Japanese customers. One older factory owner reported that after the

Japanese started to buy paper in the early 19705, “it was like the rest of the

[Asian] market just vanished [in the minds of Puli's paper makers] in

importance." Japanese orders were so valuable, he explained, that one small

job might be more profitable than a dozen orders from customers in Hong Kong

or Singapore. In his view, everyone in Puli wanted orders from Japan, even

 

257

though the commitment to that one market involved an increase in their

vulnerability. Indeed, when orders from the Japanese did not materialize, many

plants went idle and some even went bankrupt.

The second problem faced by Puli's producers was that, despite the fickle

nature of the market, the demand for hsuan papers rose for most of the 19705.

Factory owners operating during the late 19605 and early 1970s indicated that,

when they produced paper for the non-Japanese market, they could produce a

lot of low grade paper with fewer workers than it took to produce the Japanese

paper. This was because the paper made for the Japanese, required workers to

slow down the production process in order to maintain quality. This meant that

factory owners needed more workers to handle the orders from Japan. One

owner told me that as the Japanese ordered more paper, they were often

Shorthanded. But when orders came in for cheap papers from the rest of Asia,

they usually had few problems filling an order because they could produce it

that much faster."

The third problem the industry encountered was the ongoing dilemma of

increasing rising labor costs. While profitable orders from Japan temporarily

mitigated these wage increases, the unpredictability of the market apparently

continued to eat into profits made from those orders. As one factory owner said

rhetorically, "How can anyone make money when workers and equipment have

nothing to do?"

How were producers in Puli able to cope with feast or famine market

fluctuations while also struggling with rising wage costs and increased demand

for better paper? One might answer that with about ten factories still in

operation at the end of the 19605, one might think that all that only the simple

expansion of existing factories was needed to increase production. Yet, while

258

such an expansion may have mitigated the gap between supply and demand, it

could not remedy the problem of market fluctuations or rising wages.

Thus the answer to the question posed was found in a new echelon of

entrepreneurs. By the end of the 19605 there were increasing aspirations among

a number of workers in the industry to own their own factories. Whereas most

factory owners believed wages paid to their workers were too high, many

workers in the industry felt that their wages were far too low, and that there was

little possibility of "moving up" in the small, family-run paper companies for

which they worked. It is not surprising, therefore, that most of the

approximately 30 new paper factories founded in the 197 05 (more than twice

the number of factories started in the 19605) were established by former paper

workers.

While those company owners able to make it through the 19605 may

have initially seen these new entrepreneurs as a threat to their businesses, some

of the larger producers in the industry quickly understood that these new

companies could work to their advantage. The new entrepreneurial drive came

at a time when the industry was in need of more producers, not just to meet

growing demand but also to distribute risk, to increase productivity and

flexibility, and to cut labor costs. If Puli's center factories could somehow put

these new factories to work (through subcontracting arrangements), substantial

profits could be made.

Puli's new blue collar bosses

By most accounts, many men who entered the industry as workers in

19505 and 19605 had thought about owning their own paper factory in the

19705. My interviews concerning the question of becoming or not becoming a

boss consisted of discussions with ten men who in the 19705, were

 

259

entrepreneurs. In those interviews, I asked why they thought so many new

paper companies emerged in the 19705 and why so many people apparently

wanted to become a factory boss. While I had varied responses to my

questions, most of my respondents emphasized one point: if a man remained a

worker in this industry, he would neither advance very far nor would his salary

increase sufficiently to allow him to enjoy a comfortable life. One former

worker turned boss explained his feelings about the period this way.

During the 19705, many workers found that when they reached

their 305 they could barely support their families on wages that

they received in the paper factories. They couldn't afford to buy a

house, a car or many of the new consumer goods that were on

display in the local market. I think most of my friends who started

factories in the 19705 did so because that was the only way they

could afford to build a house. To build a house is one of the most

important things for a man with a family.

Before exploring this theme further, however, I discuss a number of reasons

why these workers chose the entrepreneurial path. These reasons I've labeled

mentoring, emulation, low wages, insecurity, challenge, and standard of living.

Mentoring

Some of the men who became factory bosses started their careers in the

paper industry at a very young age and most had a close relationship with their

former bosses. Comments such as, "my boss was like a father to me," and "we

had a family type of relationship" were often used to describe the connection.

One entrepreneur told me that when he first went to work at the age of 15, his

boss, whose own sons were too young to work in their father's factory, treated

him very well: "My boss treated me like his own son. He even fed me at

lunch-time and taught me everything about paper making." He then went on to

260

say that at the age of 18, just before going into the military, he had already

decided to follow in his mentor's footsteps.

Other respondents, however, speculated that the close relationship

between an owner and his younger workers was probably rooted in the nature

of the work force rather than in anything else. Many of these workers were

boys who were young, poor, and impressionable, and as one boss revealed,

they "looked up to their bosses and respected them." Other respondents offered

psychological explanations arguing, as one man did, that "All bosses like to act

like small emperors. They all want face, and face is harder to get from older

workers than the younger ones. "

Emulation

Another worker- tumed- boss indicated that the motivation for becoming

a boss did not necessarily have anything to do with how one was treated as a

worker.

The reason why many of my friends went on to start paper

factories in the 197 05 had nothing to do with their relationship

with their former bosses. Many workers in their twenties start to

think seriously about starting their own companies, believing that

as a boss they would be respected and could control their workers

rather than being ordered around and controlled themselves. Of

course they all hoped that they could become rich as well. But if

they didn't, that was all right. Being a boss, no matter how small

you were, was always better than being a worker and making

money for someone else.

Low wages

Few informants were openly critical of their former boss, but all

complained about the difficult working conditions and low wages. One factory

261

owner told me that, when he was a worker at a factory in the 19605, he and his

co-workers had no choice but to accept the wages they were paid, even though

many felt they were too low.

Because our wages were so low many of us wanted to start our

own factory, but we hesitated because we weren't sure what the

market was like. And, if we failed, what other kinds of work could

we do in Puli? Puli had few if any jobs at the time.

Apparently many workers thought about starting their own paper

factories in the 19605 but dismissed the idea. Many lacked confidence in the

market, believing that it was saturated with cheap hand-made paper and

breaking into the industry would be very difficult. Further, the low profits to be

reaped discouraged others. As one informant explained:

For most of the 19505 and 19605, paper factories in Puli usually

made paper and sold it themselves or through a trading company.

Many of them already had their own customers so it would be

difficult for anyone new to start a business and find customers.

Besides, the existing factories were making so little money, there

was little chance a new factory would do any better. All it would

do was create more competition.

The changes in the overseas markets in the late 19605 and 19705,

however, enabled many to rethink their future as workers in Puli. According to

another informant,

Toward the end of the 19605 and in the early 19705, I saw that my

boss was making more money while he continued to pay me low

wages. It was during that period that I told my wife I would own

my own paper factory one day.

All I needed to do was save

enough money and maybe take in a partner, then I would be able to

do it.

 

262

Insecurity

Other bosses gave less weight to the importance of making money as the

reason for becoming a boss. One man who worked as a manager for his

brother-in-law's paper company said that working for someone else was "not

convenient". "I had parents who were getting old and I decided I wanted to be

able to be around so I could take care of them." While this man chose to

identify his virtues as a filial son to explain his decision, he nevertheless, also

pointed out that his brother-in—law's son was becoming old enough to start

working in the factory.

I knew that when his son came to work in the business, I would

have gotten in the way. My brother-in-law's company was not

large enough to accommodate another person as manager of the

factory. After I talked it over with my wife, we decided to start

our own paper factory. That was 14 years ago.

The Challenge

There were, of course, those workers who became bosses because they

wanted to be businessmen, test their own ideas, and plan and manage their own

enterprise. These were the men who often sat through an interview constantly

thinking of new and different ways to produce, buy, or sell paper. In other

words, they lived to be a boss.

Improved standard of living

For some of the same reasons as noted under "wages," almost ten

interviewees added that, as workers, there was probably little chance of raising

their standard of living as the years went by. One man explained that most of

 

263

them lacked an education which prevented them from getting a better job than

something akin to paper making.

Because there were so few good [manual labor jobs] in Puli, many

people had to go to Taichung or Taipei to work. If we wanted to

stay in Puli, but also wanted a higher income our only recourse

was to become our own boss.

Suffice it to say, many paper workers in the 19605 believed that the

wages they were receiving would not and could not go high enough to provide

for even a modest standard of living. As indicated in their interviews, they saw

becoming their own boss as the surest route to upward mobility. Most of these

workers, however, did not believe that the 19605 was the best time to become

an entrepreneur. During most of the 19605 they were aware that the paper

business was highly competitive and that profits were not high.31 Many

workers, furthermore, may not have accumulated enough capital nor had the

connections and know-how to start their operations during that period.

While there was growing dissatisfaction with the low wages received in

the 19505 and 19605, the opportunity to become one's own boss seems to have

increased around the early 19705. As discussed above, the transformation in

the market created new opportunities for growth in the industry at a time when

many of the existing factory owners in Puli were feeling the pressure of rising

wages. As one factory owner put it, " Just when we thought our existing

overseas markets (i.e., Hong Kong, Singapore, and Southeast Asia) might

provide us with wider profit margins, wages would increase yet again."

Essentially the strategy of squeezing workers' wages to realize higher profits

propelled these workers onto the entrepreneurial path.

 vi

 

The creation of the subcontracting group

264

As the first workers began leaving their jobs to start their own factories in

the early 19705, the response of their bosses was suspicion and anger. Some

bosses were worried that a former worker would set up his own shop, steal his

paper formulas, and produce and sell paper directly to a customer. Other

owners, however, were simply upset that an employee would leave to start a

company that might one day become a competitor.32 Despite the negative

reaction by many bosses to these defections, other rival factory owners began to

offer the new entrepreneurs help by subcontracting work to them.

As subcontracting slowly emerged as a way of doing business in the

early 19705, center factories with market connections and subcontractors

gravitated toward each other, forming small production groups. How or why

these groups formed as they did is difficult to determine because few in Puli

remember many details about the 197 05. What my informants do remember,

however, was that when many of the new paper companies were started in the

19705, most entrepreneurs had no choice but to find a large factory willing to

provide them with orders, raw materials and, when necessary, loans of much

needed cash. One factory owner who started his business in 1974 described the

first year of operating his factory this way.

When I left my brother-in—law's paper factory in 1974 he was

rather angry with me. I knew, of course, that my brother-in-law

would not be willing to help me buy raw materials or find

customers for my own factory. Besides, his factory was not one of

the larger center factories in Puli and he only had limited access to

the market. Because I was short of capital to buy raw materials

during my first few years of operation, I asked one of the large

center factory bosses for a loan. He gave me NT$100,000 and

also sent some of his own workers over to help me set up my

factory. He was really good to me.

 

265

Elaborating on the " good will' shown, the subcontractor added that the

center factory boss told him that he did not have to pay any interest for the loan.

Rather, he continued, "all the center factory boss said was that I would have to

buy all my raw materials from his factory, make the type of paper he wanted,

and sell it back to him until the loan had been repaid." When I asked the

subcontractor who set the price of the raw material and the finished product he

replied, "Of course the center factory boss set the price."

The fi'equent granting of loans by center factories created a creditor

Idebtor relationship which many subcontractors could not afford to break.

"Every time we needed to buy raw materials, we needed a loan," said a

subcontractor. Further, this relationship was cloaked in an ideology of kinship,

creating a unbreakable bond between a center factory and subcontractor in

which the boss of a center factory treated his subcontractors as though they

were part of his "family." The boss from the center factory would often visit a

subcontractor and his family, inquire about how they were doing, participate in

wedding feasts, funerals, and New Year celebrations. One subcontractor

reminisced that in those days, "the boss of the center factory treated us as

though we were one of his workers in his own factory." After a moment's

hesitation, however, he added:

Actually, he treated us better than his own workers. The boss and

his wife acted like parents to us, frequently telling us that we

[subcontractors and center factory] were part of their group

(groopu a Japanese term taken from English word group) or a

large or extended family (ta chia ting). The boss of the center

factory would often tell us that we must all work together and

make sacrifices so that we could beat out the other center factories

in Puli for the orders from Japan. Unlike today, there was very

266

little independence for subcontractors back then. We had to be

part of a group in order to survive.

Throughout my research, many Japanese terms (or English/Japanese

derivations) were used in conversation.

Since most the older factory owners

could speak Japanese, such terms were not uncommon in everyday

conversation. Because of the long period of Japanese rule, one could speculate

that the industrial organization which emerged in Puli was similar to the

oyabun-kobun system (Bennet and Ishino 1963) which had long existed in

Japan. Bennet and Ishino describe such groupings in Japanese society as

"social groupings which have ..... persons of authority [who] assume obligations

and manifest attitudes toward their subordinates much as if they were foster

parents, and conversely subordinates behave dutifully and hold feelings of great

personal loyalty toward their superiors" (1963:40).

Looking back on the 19705, many subcontractors believed that, for most

of the decade, their relationship with center factory bosses was generally good.

Some subcontractors even indicated that they trusted the center factory boss as

if he were a close friend or relative. "Most of us believed that we would be

taken care of if anything happened to us," said an informant.

As new factories were established in the 19705, most coalesced around

the four large center factories in Puli. The size of these groups, however, varied

over the course of the decade, expanding and contracting as new factories came

on-line or went out of business and as the amount and frequency of orders

secured by center factories oscillated. 33

While most subcontractors maintained long-term relationships with their

center factory bosses, disputes would sometimes stimulate a subcontractor to

switch allegiance and service to a competing center factory. Such disputes,

however, were rare and most subcontractors tried to remain with one center

267

factory operator as long as possible. When I inquired of one informant why

there appeared to be fewer disputes between subcontractors and center factory

operators in the 19705 as opposed to the 19805, I was told bluntly, "What could

we complain about back then? We were part of a group, a large family without

which we were helpless. Of course there were fewer disputes." Lacking the

power to oppose the center factory, most subcontractors had little choice but to

cooperate with them. Whether the ideology of family actually helped buffer an

otherwise predatory relationship, will be discussed below.

Into the lion's den

The hand-made paper industry encountered by Puli's newest paper

entrepreneurs in the 19705 was a far different industry than that faced by most

new companies in the 19505 or 19605. During the earlier period, the barriers to

entry were directly linked to the lack of capital, low demand for hand-made

paper and, the non-profitability of the product. More importantly, however,

paper makers during the 19505 and 605 confronted market barriers which lay

beyond the confines of Puli and the production process. Most of the finished

product market was managed and controlled by independent trading firms

operating out of the cities or by large independent buyers such as the Taiwan

Power Company. By the late 19605, however, a few of Puli's "elite" producers

began to gadually push aside these "barriers" and form their own alliances and

relationships directly with domestic and overseas buyers in East and Southeast

Asia. By the early 19705, many independent trading firms lost their leverage

over producers in Puli, leaving three or four center factories in the basin to form

their own trading alliances with buyers from Japan' .34

With access to the product market under their control, center factory

bosses became a new and formidable market barrier standing in the way of any

268

new firm started in the 19705. Newcomers to the industry had little choice but

to deal with one of these center factories to receive an order. But control over

the product market constituted only part of the problem. Most subcontractors

also had to go through the center factories to purchase their raw materials.

Solidif'ying control over the market for raw materials

While many of the center factories were establishing their control over

access to the product market, a few were also in the process of gaining control

over the market for critical raw materials needed to make many of the new types

of paper demanded by the Japanese. Prior to the end of the 19605, many of the

indigenous materials found on Taiwan (such as certain types of long fiber

mulberry bark, bamboo, and rice straw etc.) that were used in the production

process became increasingly difficult to find. This was due, I was told, to

Taiwan's growing population and over-exploitation of its natural resources. In

addition, some of the existing resources, such as rice straw, could no longer be

used because of contamination by herbicides and pesticides. This forced some

of the larger factory owners to seek new sources of raw materials. A few of the

center factories found the suppliers of these materials in Southeast Asia

(particularly in the Philippines and Thailand). Some of these same companies

also discovered that certain chemical compounds produced in Japan, Germany,

and the United States could also be used to enhance the quality of certain types

of hsuan paper. Because many of these materials, whether natural or

chemically derived, were rarely used in other industries or markets, at least two

center factories were able to negotiate " sole agent or licensing agreements"

with overseas suppliers to sell these raw materials in Taiwan.

The consequences of such agreements on the paper industry varied on

the basis of the type of paper produced and the supplier. Companies which

269

controlled access to a specific raw material, for example, also controlled its

sale. When such a company raised the selling price of the material, a competing

center factory was often forced to produce paper which required that material

for a far higher price, ultimately making his paper less competitive on the

market. This strategy often left the company which controlled a given raw

material in full possession of the production of specific types of paper. In such

a situation, rival center factories would attempt to carve out niche markets for

themselves and their subcontractors. Rather than trying to compete directly

with each other, they simply would produce different kinds of specialty paper

(see Figure 6.7).

raw materials for hswen

paper and cotton paper

Canadian corifer pup

used In most paper

chenicals for processing

used In most paper

rice, wheat, bamboo pulp

”“1 in m ”p"

American peanut,

used In most paper

 
1

nolmarket arrier

—.——fi.—_———————_—.—

market barrier erected by center factories

   

I

 
r

V

i

   

 

I subcontractors

subcontractors

subcontractors

  

 

 

  

 

 

Figure 6.7. Diagram of Raw Material Flows Which Existed for Most of the 19705.

Note: Arrows which stop at the level of the center factory indicate restricted access to the

indicated raw material by subcontractors. Arrows which pass through the level of the

center factory indicate that access to the market for these materials was open for the direct

purchase by subcontractors.

270

In the early 197 05 a sole agent agreement was created which had a broad

impact on the industry in general, and on subcontracting companies in

particular. Faced with an acute shortage of a commonly used long fiber bark in

the early 19705, one of Puli's center factories secured an overseas source for the

material by signing on as an sole agent.

According to interviews with a number of subcontractors in operation

during this period, this center factory owner did not withhold the bark from

other paper companies in Puli. Rather he sold the material at various prices to

other center factories and to small subcontractors. While the other rival center

factories had the capital to purchase large quantities of the bark outright,

subcontractors rarely had the capital to purchase raw materials without first

selling paper. Further, center factories almost always stipulated that a

subcontractor would have to first buy the raw material supplied by the center

factory (at a price it set) and then sell the finished paper back to the center

factory. This requirement forced many subcontractors to take “loans” from

center factories in order to buy the needed raw material.

While it was unclear how long the center factory had control over the

bark, the fact that this center factory chose to distribute it instead of monopolize

its use for itself is very important. Quite possibly, it speaks to a business

strategy where the extraction of profit gained from the distribution and sale of

the (heavily marked-up) raw material was seen as more important than

withholding the material altogether and destroying the competition. Perhaps

the center factory boss understood that, in refusing to distribute the bark, other

companies in Puli would eventually secure alternative sources. Whatever the

case, the profits from selling the raw material to other producers in Puli must

have proven to be quite lucrative for the center factory.

 

 

271

The nature of credit and the power of post-dated checks

While the credit offered to subcontractors might take any number of

forms, one of the most common types were checks written to come due

sometime in the future, or postdated checks (PDC) (yuan ch ’1' chih p ’iao E?

,Eflfige). 35 The use of post-dated checks was one of the best indicators of

power and the status of relationships within the hand-made paper industry. The

justification for the use of a PDC varied with the circumstances of the

transaction. The following discussion provides an example of how PDCs were

used by center factories to pay subcontractors for the work to be performed.

A center factory sometimes wrote post-dated checks to subcontractors

for the work they performed. Depending on the nature of the relationship

between subcontractor and center factory, a PDC could be written for 15, 30,

60, or even 90 days. According to one subcontractor, some factory bosses use

PDCs to manipulate their subcontractors. "If a center factory boss pays you

immediately for the work you do, then you know he really likes you." If the

boss paid with a postdated check, however, he might be indicating how

displeased he was with a subcontractor. The longer the time, (i.e., a 15, a 30,

or 60 day check), the greater the displeasure?6

In other circumstances, however, subcontractors equated immediate

payment or short-term post-dated checks as an indication that a center factory

simply needed a subcontractor to complete a job as quickly as possible. One

subcontractor revealed that, when business was good and when there was

greater demand for the work of subcontractors, "I could demand an immediate

cash payment. But when there was less work and less demand for

subcontracted paper, the center factory might write more post-dated checks. "

 

 

272

The use of postdated checks in the industry, therefore, served not only as

a device to extract capital from subcontractors, but it also fimctioned as a

mechanism for measuring the status of relationships in the industry. With the

ability to reward and punish by simply decreasing or increasing the time of

payment, center factories used PDCs to coerce or intimidate subcontractors to

be compliant and loyal. Nevertheless, even post-dated checks were vulnerable

to fluctuations in the market. When demand for paper was high and center

factories had to fill many orders from Japan, there was less likelihood that a

PDC would or could be used to extract extra profits or cooperation from a

subcontractor.

A second way PDCs were used was when a subcontractor would write

checks to a center factory because the subcontractor could not pay for raw

materials or other goods with cash. In this case, a center factory would accept

the PDC fi'om a subcontractor with the stipulation that interest would be added

to the total according to the check’s amount and its length of time. That is to

say, the longer the period of time on the check, the higher the interest rate. As

in the above, however, a center factory boss often used his own discretion when

deciding on the amount of interest attached to the check. The better the

relationship between a center factory boss and a subcontractor, the greater the

likelihood the amount of interest would be smaller.

Finally, this lack of available credit to smaller producers in Puli enabled

center factories to gain partial control over the flow of capital in the industry.

With little chance of securing bank loans, most subcontractors were forced to

use money from personal savings, family members, friends, and rotating credit

clubs to invest in the construction of a factory. Center factories, on the other

hand, appear to have been the primary sources of credit for the purchase of raw

materials. There is evidence to suggest, furthermore, that as some

273

subcontractors became used to receiving credit from center factories they also

borrowed money for the purchase of goods other than raw materials. While

this issue will be discussed in the section to follow, I would submit that, along

with the center factories’ control of raw materials and the finished product

market, their control or at least access to capital provided them with a third

device to both control subcontractors and extract surplus value.

The souring of a relationship

By the late 19705, the relationship between center factories and

subcontractors in Puli became strained. One of the first signs of trouble came

in 1976 and 1977, when the industry began to receive fewer orders from Japan

through the center factories. As noted above, the Japanese bought little paper

in 197 8. Many subcontractors thus found themselves either without work or

having to once again manufacture large quantities of cheap paper for markets in

Southeast Asia.

It appeared to many manufacturers in Puli that the industry had returned

to the period in late 19605 when the average price fetched for a ream of paper

was little more than the cost of materials. While most subcontractors

acknowledged that every company (large and small) suffered in the late 19705,

the subcontractors felt the pinch the most. One owner of a subcontracting

factory vividly recalled a boss of a center factory telling him month after month

that there just were not any orders.

Many of us [subcontractors] were already in debt to the center

factories for the purchase of raw materials or for other loans we

had taken to improve our buildings or buy equipment. So we

became desperate when these orders suddenly stopped. When the

center factory boss told us there were a few small orders coming

274

in, he also told us that we would have to charge less for our work.

We had no choice. Many of the subcontractors started to under-

cut each other's price just so they could get what little work was

available from the center factory.

While this subcontractor attributed the strained relationships to market

forces, others believed the roots of the problem were more sinister. For

example, one owner insisted that many of his fellow subcontractors began

wondering if indeed there was a problem with the market. "Every time I went

by a center factory, all the workers were busy making paper while the rest of us

were sitting idle." In his view, the owners of the center factories had gotten

together and created a story about how the Japanese were not buying paper. "I

think they [owners of the major center factories] all had a meeting and decided

that they would create a crisis. That way the center factories could force all the

subcontractors to compete against each other and force our prices down."

Although I discovered no concrete evidence of collusion between center

factories, fully half of the subcontractors suggested that the bosses of the center

factories had worked together at one time or another against the interests of

their subcontractors.” Many seemed vague, however, as to when these

possible conspiracies took place and what they were about.

While exports of paper were down in the late 19705, a second problem

arose which exacerbated the tension between center factories and

subcontractors.38 Sometime in 197 8, a man operating a small trading firm in

Taipei came to Puli offering to sell tree bark from the Philippines. When he

approached a few of the local subcontractors, they indicated that they didn't

need any bark because they purchased it from their center factory. Like any

good salesman, he asked them how much they paid for their bark. The

subcontractors answered that they paid between NT$6O and NT$8O per chin (l

chin = 1 kilogram). A subcontractor who was a witness to the event recounted

275

that "the trader's eyes popped out of his head," he roared with laughter, and

told them that he bought by the same bark for less than NT$3O per chin.

Apparently sometime in the late 197 05, two Taiwanese traders found a

new source of the critical raw material in the Philippines and Thailand. Many

subcontractors believed that the center factory had probably kept the price of

the bark artificially high, knowing full well that no one in Puli would find out

about the actual market price of the bark. To add insult to injury, when the 100

kilogram bales of the more expensive bark arrived from overseas, the center

factory would remove between 25-35 kilograms per bale, before selling the

bark to their subcontractors.”

After learning the news about the low-priced bark, a number of

subcontractors confronted their center factory boss. In the explanation of the

discrepancy in price, the boss replied that the price of the bark had just gone

down. Then the man who related the story to me added, "the boss said that he

had several thousand pounds of bark in his warehouse that would rot if we didn't

buy it from him. So he asked us to continue buying his bark until it was used

up." As far as can be determined, they did.

The discovery of the mark-up infuriated the subcontractors who, for

years, had heard about " shared sacrifice" from the bosses of the center factories

with whom they did business. " The only people who sacrificed anything were

the subcontractors," asserted one still angry informant.

It was all a lie. All along they were exploiting (li yung $1]% ) us

while saying we all belonged to a big family.

They had no

obligation or feeling that they should help us at all (mei yu jen-

ch ’ing). When does a family member ever treat another family

member like that?" 4°

276

Many subcontractors, however, seemed fatalistic about the incident.

Although they were very angry when they heard, they felt they had no

alternative but to accept the fait accompli. As one man related,

There was nothing we could do! Most of us would still have had

to buy our raw materials from the center factories because we

were too small to purchase the material on our own. Even then,

most center factories required us to buy their raw materials if we

were going to make paper for them. We had no choice. We still

had to rely upon the center factories to provide us with orders.

In a very real sense, the patina of a fictive kinship system was used to

cover the many contradictions inherent in the center factory subcontractor

relationship.41 The ideology of "family, cooperation, duty and obligation" was

used to mollify and assuage a group of dependent producers in an attempt to

maintain the conditions conducive to the continued extraction of excessive

profits. By invoking traditional Chinese sentiments of family and trust, center

factories provide subcontractors with a rationale that allowed them to believe

that there was something good or non-economic about their relationship with a

center factory other than simply making or losing money.

One question which remains, however, is when did the fictive kin

relationship begin to fail to be used as an ideological device to "smooth" center

factory and subcontracting relationships and, if it did, what other ideology was

used in its stead and why? The comment by one subcontractor that center

factories " exploited" subcontractors, for example, is indicative that a "class"

ideology might have begim to replace an ideology of "kin. " Unfortunately, it is

diflicult to determine when these subcontractors first started to believe they

were part of an exploited group in the industry since such terms probably were

not in vogue in Taiwan until the mid- to late- 19805.

277

The form and structure of subcontracting relationships in the 19705: A

conclusion

The beginning of the 19705 marked a period in the history of the hand-

made paper industry when a number of critical economic and social conditions

came together to form its unique industrial structure. It was a period when

rising labor costs in the hand-made paper industry in Japan began to give way to

cheaper labor markets in Taiwan for the production of inexpensive hsuan

papers. With both a viable hand-made paper industry already in place and its

former status as a colony, Taiwan provided one of the best places to do

business for the Japanese in Asia. It was one of the few areas in Asia where

potential suppliers were both amicable to Japanese buyers and able to speak the

language.

Once the shift by the Japanese to Taiwan was underway, a few of Puli's

"elite' factory owners with previous trading experience in East and Southeast

Asia wasted little time in forging new trading relationships with customers from

Japan. These relationships were mutually beneficial in that as long as the

"center factories" ensured the continual flow of inexpensive quality paper to

Japan, Japanese buyers would maintain a long-term relationship without

defecting to other suppliers.

One of the first problems to arise for Puli's emerging center factories,

however, was how to ensure a reliable supply of hand-made paper, given

ever-rising wage costs in Taiwan and the highly seasonal nature of the product

market. Saved once again by circumstances beyond the control of those in the

industry, a new group of entrepreneurs set up shop in Puli as subcontractors.

Motivated by their inability to secure high wages as workers and a desire to

become their own boss, this restless group of paper-makers plunged into the

278

industry in the belief that their lives would become better as bosses of their own

factories.

Far from the independent suppliers who bought and sold paper on the

free market, however, most of these new factory owners were locked into

complicated subcontracting relationships in order to be able to survive. The

relationship between subcontractor and center factory was complicated

because woven into what was supposed or projected to be a cooperative

bilateral relationship was the unilateral control of raw materials, the finished

product and, to large degree, capital by the center factories. Barriers to markets

were erected first through the formation of tight trading relationships between

center factories and their Japanese customers, and then through the use of sole

licensing agreements which gave center factories considerable control over the

supply of many of the raw materials used in the production of paper (otherwise

known as price squeezing). In a few cases, furthermore, there is evidence to

suggest that some center factories made investments in their suppliers which

only served to further solidify their control over the market. And, while only a

small number of center factories were successful at forging both upstream and

downstream connections, they were able to effectively manipulate and control a

large percentage of the paper produced by smaller paper makers in the basin.

Indeed, their control over the access to the market for raw materials and

the finished product market was so pervasive that center factories were able to

herd most of Puli's smaller producers to serve as "capacity" subcontractors (see

Chapter IV). That is, center factories simply adjusted the amount of work sent

out to subcontractors according to fluctuations in the demand for hand-made

paper. When demand was high, center factories brought the total productive

capacity of their subcontractors to bear. When demand was low, center

factories simply cut back on orders issued to subcontractors, while maintaining

279

a full compliment of workers in their own factories. Through capacity

subcontracting, center factories were able to maintain flexibility and

profitability, while decreasing their own vulnerability and risk in an otherwise

unstable market for hand-made paper.

Maintaining flexibility and reducing risk, however, was not the only way

center factories benefited from the subcontracting relationship. They also were

able to garner a profit at different stages in the production process. This they

did first, by setting artificially high prices for raw materials sold to

subcontractors and second, by charging interest on loans extended to pay for

those raw materials through the use of PDCs. Then, able to manipulate both the

distribution and volume oforders to, and prices for, the production of low

value-added hsuan papers (such as hsuan paper #5), center factories took

additional profits after sales to Japanese customers.42 Center factories,

furthermore, were also free to screen the quality of the finished paper

manufactured by subcontractors, thereby enabling them to reject any sheet not

up to their standards.

The center factory -- subcontractor relationship which existed for most of

the 19705 can best be termed as an oligopolistic and oligoponistic control of

markets for inputs and outputs at both ends of the production process. Forming

market connections which resembled a form of vertical integration or quasi-

vertical integration, Puli's most powerful center factories extended their control

over the industry through a loose form of backward and forward market

integration, creating what were essentially locally-imposed market bottlenecks

which funneled goods in and out of the industry through the center factories

(Figure 6. 8).” In contrast to most forms of vertical integration in which a center

factory takes advantage of economies of scale, much of the production of paper

  

280

was performed by subcontractors, thereby benefiting center factories through

economies of scope.

INPUTS

MARKET-

OUTPUTS

\/

 

CENTER FACTORY

 

FUNNEL

SUBCONTRACTOR

" I

SUBOONTRACTOR

SUBCONTRACTOR

Figure 6.8 Center Factory -- Subcontractor Market Funnel

No doubt aware that capacity subcontracting was one of the most

deleterious forms of subcontracting, center factory owners tried to placate their

subcontractors by appealing to traditional norms of "belonging" and "family. "

Positioning themselves as patriarchs of subcontracting groups, the owners of

center factories treated their subordinates as though they were a privileged and

protected group, whose only duty was to give undaunting loyalty to the center

factory boss. 4"

The problems faced by many subcontractors toward the end of the

19705, however, caused many to rethink their relationship with center factory

owners with whom they had done business for so many years. No longer would

anyone really believe that the center factory had anything but its own interests

281

in mind when doing business. The idea that subcontractors and center factories

shared a common goal or sacrifice was, in the words of one subcontractor,

"nothing but nonsense" (fei hua). In the view of most subcontractors, small

producers who believed that a center factory boss cared about them were

probably naive.

For years many of us knew that we [subcontractors] were

probably being used, but what did we expect. Maybe if we were

the bosses of center factories we might have done the same

thing. ....... While many of us probably knew what was going on,

we did not want to talk about it.

If anyone heard us accusing a

boss of a center factory of treating us unfairly, it would be very

easy for them to simply cut us off from raw materials and orders.

Then what would we do?

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282

D. READJUSTMENT IN SUBCONTRACI‘ING RELATIONSHIPS AND

INDUSTRIAL DEMISE: THE 19805

The 19805 was in general a period of consistent grth and stability in

the hand-made paper industry. The Japanese bought more paper than ever

before and continued to so throughout most of the period. By the middle of the

decade, approximately 42 factory sites had been built in Puli and the number of

paper companies registered with the government had reached 40. A near record

650,000 kilograms of calligraphy and art paper was being churned out by the

basin's factories; this figure is estimated to be close to the industry's production

capacity for high grade papers produced in Puli. These favorable conditions,

however, stand in contrast to three problems which were percolated through

the industry during what was probably its last profitable decade.

The first problem centered on the growing rift in the relationship between

subcontractors and center factory bosses. Most subcontractors were no longer

in a cooperative mood, particularly when so much business was pouring in from

Japan. In contrast to the 19705, many subcontractors also believed that their

survival in the industry depended on an aggressive stance and, when possible,

challenging the power and authority of the center factories.

The second problem confronting the industry stemmed from the

continued upward spiral of wages and piece- rates and the growing labor

shortage in the industry. With an increasing number of young people,

particularly men either avoiding or leaving the paper industry for better paying

jobs in the cities, Puli's paper producers found themselves unable to replace

workers lost through retirement.

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283

Finally, growing competition from inexpensive hand-made paper

produced in the low-wage labor markets of Mainland China and Southeast Asia

constituted the third problem to hit the industry. With high wage rates in

Taiwan driving the price of hand-made paper ever upward, Japanese customers

were once again in search of cheap sources of paper. By the end of the 19805

and the beginning of 1990, new overseas factories were successfully exporting

enough paper to Japan to cut into exports from Puli.

While the entrance of new overseas producers into the industry in the

late 19805 appears to resemble the situation of Japanese producers competing

with Taiwan almost two decades earlier, there is one notable difference.

Whereas most Japanese producers did not attempt to move or "transplant" their

own production from Japan to Taiwan in the 19705, at least six paper

companies (four of which were center factories) in Puli did just that toward the

end of 19805. Sensing that growing labor costs in Taiwan would eventually

price much of Puli's paper out of the market, a handful of paper companies

began building factories in the Philippines, Mainland China, and Southeast

Asia. In other words, Puli's "overseas transplants" joined the few indigenous

low-cost paper plants in those regions and began to compete with their own

industry in Taiwan.

As in the previous section, I begin with a short review of the changes in

the export market for Puli’s hand-made paper. I then move to a discussion of

the changes in the relationship between center factory owners and

subcontractors and an analysis of the reasons for these changes. Throughout

the discussion, I continue to explore the nature of subcontracting and strategies

which emerged in the 19805 as subcontractors attempted to cope and adapt to

the changes in their industry.

The

 

The product market for hand-made paper

284

The annual export data for hand-made paper for the 19805 indicate that

its overall export weight and value rose fairly steadily throughout the decade

and peaked around 1989, only to decline thereafter (see Figure 6.9). The data

also indicate that as exports to Japan grew in importance so too did the

production and export of hsuan-type papers, which virtually supplanted all

other hand-made papers. As early as 1984, for example, ahnost 85 percent of

all hand-made paper exported from Taiwan was hsuan paper, and 96 percent of

that was shipped to Japan (Figure 6.10). These percentages compare with data

in 1977 showing that exports of hsuan-type papers to Japan were slightly less

than half of total export value. During 1984, furthermore, production of hsuan

papers shipped to Japan realized an average value-to-weight ratio of NT$216

per kilogram increasing to NT$259 per kilogram in 1988."5

285

700,000 -r

600,000 .

.

500,000 "

400,000 ..

300 000 ..

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Figure 6.9 Export Weight And Value Of Hsuan Paper To Japan: 1981-1992

Source: Chung Kuo Hai Kuan

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286

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Figure 6.10

Export Value Of Hsuan Paper To Japanese And Non-Japanese Markets:

1981-1992

Source: Chung Kuo Hai Kuan

287

On initial inspection, export data from the 19805 indicate that the decade

was a relatively prosperous period for the hand-made paper industry. Indeed,

factory owners (large and small) reported to me that, for the most part, they

made a considerable amount of money in the early 19805. Between 1985 and

1987, however, the export of paper temporarily stagnated creating a degree of

panic among some subcontractors. A number of factories went out of business

during this period, not because business was actually all that bad, but because

some subcontractors were over-extended and in debt to center factories. As

was the case in this industry, monthly orders for paper also remained somewhat

unstable and unpredictable throughout the decade, helping to bankrupt some

factories and create a renewed sense of insecurity in others. "We were either

making a lot of paper all at once or we weren't making any paper at all,"

lamented one factory owner.

By 1988, the insecurity of many subcontractors appears to have

intensified, despite the fact that exports of higher-grade hsuan papers were

expanding. Many subcontractors were told by center factory bosses that

business was going to get worse because paper produced in factories on the

Mainland was being exported to Japan. One center factory owner commented,

Once their quality improves it will be difficult for us to compete

because they [Mainland companies] are paying their workers less

than NT$50 per day while our workers are getting between

NT$7OO and NT$1,000 per day. How can our piece-rate costs

compare to their rates? We just can't compete with them.

A subcontractor, however, summed up the situation a little differently.

Since any of us can remember, we [subcontractors] have been

producing only a few varieties of low- to medium-grade hsuan

papers which we sold to the center factories. Up until the late

288

19805, we all made a lot of paper for them and some of us were

able to squeeze out as much as 25 percent or more in profit. Now

[1990], however, they tell us we have competition from the

Mainland and we have to cut costs. Many of us have seen our

profits shrink to under 5 percent, but there is nothing we can do.

The center factories, on the other hand, keep the orders of the

more profitable higher grade hsuan papers for themselves. The

quality of those papers still can’t be duplicated by the mainland

factories, so the center factory owners don't have to worry about

competing with anyone except themselves.

Export data fi'om 1990 (and thereafter) clearly Show a sharp decline in

the amount of paper exported to Japan. This decline represented what many

producers say was the beginning of the end for most of the small producers in

the industry. "We are in the same position many Japanese companies were in

the late 19605 and early 19705," said one subcontractor.

Back then our wages were as low as those in China today. Now

we know how those factory owners in Japan must have felt. The

only companies that will survive are the center factories which

have begun to move their operations overseas and a few small

companies in Puli [those with fewer than half a dozen workers]

which were lucky enough to create a unique type of high-cost

specialty paper.

Unraveling of the center factory - subcontractor relationship

Still bruised by the realization that center factory bosses did not have

their best interests mind, Puli's subcontractors entered the 19805 with a

modified perception of their place in the industry. Most subcontractors wanted

greater independence and the flexibility to choose the center factories for which

they work, greater role in the determination of prices for their paper and, if

possible, the chance to produce more high value-added and more profitable

papers than the common papers, such as hsuan #5, produced through capacity

289

subcontracting. More than ever before, however, these subcontractors wanted

the chance to move beyond subcontracting and to sell directly to the Japanese.

Most believed that the only way to secure a future for themselves and to

accumulate the greatest profits was to eliminate the center factory owners who

had, for years, been their middleman.

Only temporarily mollified by the increasing number of orders from

Japan in the early 19805, most subcontractors remained frustrated with their

tenuous position relative to the market. Even though smaller producers had the

option to purchase their own raw materials from a few trading companies in

Taipei, many continued to lack the capital to purchase these materials in bulk.

Moreover, even those with the capital often feared to do so, because such a

purchase might jeopardize their relationship with center factory bosses who

continued to control most of the finished product market."6 As a result, most

subcontracting relationships in place in the late 197 05 continued for a few more

years into the 19805.

Sometime during the spring of 1983, however, a number of ongoing

changes in the industry (originally started in 1979-80) began to create serious

cracks in the center factory -- subcontractor relationship." Furthermore, these

changes were generally more favorable for subcontractors in Puli than for

center factories. Perhaps the most important change in the industry was the

consistent increase in demand for hsuan paper from the Japanese market.

According to many subcontractors, the increase was very apparent because

many center factory bosses anxiously scurried to their subcontractors to fill

orders. In the words of one factory owner,

Center factory owners became desperate to fill their monthly

orders from Japan. With so many center factories wanting us to

make paper, we had an easier time negotiating an increase in price.

290

Afraid that we might run to other center factories which offered

more money for our paper, many center factory bosses agreed to

our demands.

During this period, both the productivity and profits of subcontractors

increased dramatically; given the higher number of orders, subcontractors could

more efficiently employ their work force. With more money in the bank and

access to cheaper raw materials, many subcontractors felt they had more

leverage in their dealings with center factories and they were emboldened to

seek change. As one factory owner revealed, "As subcontractors, we knew that

given the opportunity, we should try and secure a better life for ourselves in the

industry." In sum, changes in the industry in the late 19705 and early 19805

provided some subcontractors with the opportunity to attempt to remake

themselves and to shift their status beyond that of simple subcontractors in the

production Imarket hierarchy for hand-made paper. How and in what manner

these subcontractors chose to exploit this condition is the focus of the

discussion which follows.

Strategies for survival

While all subcontractors longed for profits and security in the industry,

only a finite number of viable options, or what could be called strategies, were

available to them. I begin this section by discussing the three which were the

most frequently chosen by subcontractors in Puli. First, some subcontractors

sought profits and security by gaining access to the market for one's own papers

and severing the center factory -- subcontractor alliance. I label this group "the

independents." Second, others remained within the center factory --

subcontractor relationship believing it was really their only choice. By working

within the existing framework, many subcontractors believed that one’ s

291

position could improve in the subcontracting hierarchy by surreptitiously

probing and testing options while maintaining the status quo. I categorize this

group as the " dependents. " Finally, some subcontractors in the industry had, in

the words of factory owners in Puli, "no logic" because they actually believed

fi'ee competition existed in the industry and that they could move from center

factory to center factory, selling their services to the highest bidder. This group

I label "The job hoppers."

After discussing these three groups and the strategies they chose, I

briefly consider two other strategies subcontractors used to help better position

themselves in the industry. The first has to do with the pressure to automate the

production process while the second is centered on the attempt to stimulate

cooperation between subcontractors.

a) The dependents

Having chosen to "work within the system," the " dependents" did little

to openly challenge the power and authority of the center factory and adopt as

compliant and dependent a manner as possible (see Brusco and Sabel 1981).48

Many subcontractors in Puli told me this was " safest" strategy simply because

it avoided confrontation, thereby allowing center factories and subcontractors

to maintain a good relationship. "Dependents" believed that maintaining a good

relationship with a center factory meant that a subcontractor should not jump

fiom one center factory to another when offered a better price for his paper. In

return for such loyalty, however, a subcontractor hoped and expected that the

center factory boss would send him more business or ofier him a more generous

price for his papers, even when demand for paper was low.

By maintaining an obsequious posture, a subcontractor was usually

permitted a certain amount of leeway in the type of subcontracting arrangement

 

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292

he established with a center factory. Although capacity subcontracting

remained the predominant form throughout the 19805, two other types of

subcontracting arrangements - " specialized and supplier"- began to emerge in

the early part of the decade (see Chapter IV). Often carried on concurrently

with capacity subcontracting, " specialized" and " supplier" subcontracting were

used in a very limited way as some subcontractors gained special skills in

producing unique hsuan or other specialty papers which center factories could

not or would not produce. These specialty papers were formulated to fill a

specific need in the market and carried a higher selling price than the more

common forms of paper produced under capacity subcontracting.

While the demand for papers produced under specialized and supplier

subcontracting was limited, some subcontractors believed that it might be

possible for their own special high value-added paper to "catch on" in the

Japanese market, thereby making them rich. There was, however, a flaw in this

reasoning. How could their paper be sold without a center factory

appropriating too much of the profit or claiming the paper as its own. Many

subcontractors knew a specialty paper would never become a major product

nor would they gain control over their own paper as long as a center factory

controlled access to the market for finished paper.

One subcontractor who was noted for producing his own fine papers told

me that, in 1981, a center factory owner he worked through showed some of his

paper to a Japanese buyer. When the center factory owner returned to Puli,

however, he told the subcontractor that the buyer liked the paper but felt the

price, NT$1,200 a ream, was too high and that the buyer would only purchase

the paper for NT$800. Through a fiiend, the subcontractor later learned that the

customer had actually accepted the NT$1,200 figure, and that the center

factory owner had been cheating him out of an extra NT$400 in profit.

293

Many often described the complicated way in which center factories

camouflaged paper that had been made by subcontractors. For example, center

factories sometimes used a confusing numbering system when they sold paper

to overseas customers. One subcontractor indicated that a center factory

assigned each type of subcontracted paper a specific number. When that center

factory sold the paper to the customer, however, the number was changed so the

customer could not trace the paper to the subcontractor. "The whole idea,"

contended a subcontractor,

is to keep the overseas buyer and the subcontractor as far away

from each other as possible. So when a buyer tells a center factory

owner that he likes a certain type of paper, the customer has no

way of Imowing who makes it and so has to continue to buy from

the center factory.

b) The job hoppers

As the demand for hsuan paper increased in the Japanese market during

the early 19805, most subcontractors were under less pressure to submit to the

heavy demands associated with capacity subcontracting. Recognizing that

center factory bosses would not jeopardize their lucrative Japanese orders,

particularly when demand for paper was at its highest, most subcontractors

attempted to negotiate better terms than they previously had with center

factories bosses. Implicit in these demands was the threat that if an agreement

was not reached, a subcontractor might go to a competing center factory.

During the 19805, however, few subcontractors were willing to endanger their

relationship by actually jumping to another center factory.

There were, however, a few subcontractors who actually acted out on the

implied threat, shifting to a competing factory when they did not receive the

294

price demanded from the center factory owner with whom they had been doing

business. Apparently these subcontractors were sure that market conditions in

the industry would continue to move in their favor. The story about one such

"job hopper," which was told to me by a the son of one owner of a center

factory, illustrates this strategy well.

During most of the 19705, this subcontractor would come to our

factory once a week to pick up his raw materials and deliver the

finished paper to us. He never complained about the price we paid

him for his paper. Then when business became very good in the

early 19805, this subcontractor started to ask for a higher price for

his paper. When we refused to pay him more money he then went

to another center factory and made paper for them. Because our

subcontractor left, my father told his Japanese customer that he

might not be able to deliver the promised order on time. The buyer

then told my father that if he didn't make delivery, he would go to

another center factory and give the business to them. Finally, my

father pleaded for the subcontractor to come back.

The

subcontractor not only got the price he wanted, but he also bought

our raw materials with a post-dated check

and without interest!

He then demanded that we deliver the raw material and pick up the

finished paper ourselves.

My father was so mad.

This

subcontractor had been making paper for us for 10 years.

While it is unclear how many subcontractors took this route or when,

half a dozen subcontractors had gained a reputation for hopping from center

factory to center factory looking for the top price for their paper. Perhaps others

did not chose this strategy because, as a subcontractor explained, it involved a

great deal of risk.

While these subcontractors may have made a little more money in

the short run, they were stupid in the long run. These center

factory bosses remember who was loyal and who wasn't.

All

these subcontractors did was to destroy their own road.

 

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Dozens of other stories related how subcontractors jumped form job to

job looking for the best price. As one subcontractor owner put it,

They were stupid because not only did they ruin their relationship

with the center factories, they didn't even have a plan for the

future. They had to know that once business got worse [since it

always seemed to], the center factories would make them pay for

what they had done. [H were them, I would have at least tried to

grab a Japanese customer before I did any thing like that.

This assessment seems valid because, when I arrived in Puli in 1989,

there were only three subcontractors in Puli who had a reputation as job

hoppers. While most subcontractors found business to be much more difficult

in the late 19805, than in the early 19805, these "job hoppers" had a particularly

difficult time finding work. As one center factory boss related, "now these three

subcontractors are calling us on a weekly basis for work. They aren't arguing

about price like they did before. They know they are fortunate just to have any

work from us. "

c) The independents

There were only two options available to subcontractors who wanted to

be independent from center factories. But, regardless of the option they chose,

subcontractors had to be very careful about how they executed their plans. The

most popular strategy involved the production of paper for the small domestic

market and\ or for the occasional small trader or buyer from Taipei or overseas.

With the domestic market for hand-made paper providing between 10

percent and 15 percent of total revenues in the industry, center factories did not

consider the Taiwan market particularly important. The center factories in Puli

also were unable to effectively control the domestic market for paper because it

was impossible to keep small merchants in Taiwan from buying directly from a

296

small subcontractor in Puli; no effective barrier could be erected between these

merchants and smaller producers in Puli. Further, on occasion, when a small

trader wandered into Puli with a small overseas order for paper, larger center

factories were less likely to interfere with such a transaction. "It was very easy

to figure out what would bother the center factories," said one small

subcontractor turned independent producer.

As long as we sold paper to domestic buyers or to very small

trading companies or small overseas buyers [in small lots] then it

was unlikely that anyone would bother us. The whole idea was

that a subcontractor should not threaten the business of a center

factory and that meant not trying to move into their territory by

taking away a larger customer.

While most subcontractors felt their was some risk involved in this

strategy, most agreed that the safest tactic for a subcontractor who wanted to

become independent was to not sever his connection with a center factory.49

Because most center factory bosses did not consider such a move a threat to

their business interests, they generally did not interfere with smaller companies

which chose such a route. In fact, center factories sometimes continued to

supply raw materials and, on occasion, buy some paper from these factories.

Nevertheless, because the domestic market was so small and orders often

inconsistent, selling locally rarely made anyone rich.

A second and far less popular strategy for subcontractors to gain

independence was to steal a customer (almost always a Japanese customer)

from a center factory. But this was by far the riskiest way to try and secure

one's future in the industry. If a subcontractor succeeded, he might become

very wealthy. But if he failed, he usually was forced to go out of business; no

center factory would ever do business with him because he was considered to

be completely untrustworthy).

297

In addition to the risks involved in stealing customers, the practice posed

several problems for would-be independents. First, customers rarely come to

Puli and when they did, they would be "protected" by the center factories.

Second, a factory owner had to speak Japanese if he was to negotiate a deal

with a buyer. Because many of the entrepreneurs who set up their factories in

the 19705 were too young to have learned Japanese, they either had to learn the

language or hire an interpreter. Third, a subcontractor had to offer an extremely

tempting deal in order to lure a customer away from one of the center factories.

For example, he would have to agree to supply a paper similar to that supplied

by a competitor but at a far lower price. He would also have to convince a

customer that he, the rogue subcontractor, would be capable of providing

quality paper and meeting delivery schedules.

Finally customers understood

that if they moved their business to a competitor in Puli, they might very well

endanger any other business relationships they had in the industry.

The pressure to automate

As the industry had grown and matured during the 19605, many factory

owners sought to increase production and reduce labor costs by investing in

equipment to cook, beat, and cut paper. They bought electric motors to pump

pulp and water and many upgraded their factories by purchasing boilers which

heated their steel-drying tables more efficiently. No one, however, could think

of a way to replace the dredgers and dryers who were at the core of the

production process.

By the mid-19805, increasing migration of workers to other industries

and rising labor costs threatened industry profits. Because there was little

chance customers in Japan would tolerate additional increases in the price of

paper, factory owners were forced to devise new methods to cut costs. The

1115

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story which follows illustrates one subcontractor’ 5 response to the growing

demands for lower prices and to a shrinking labor market in search of higher

piece-rates. Unable to effect change in his status as a subcontractor by shifting

to the production of high value-added papers, he tried to reduce his dependence

on labor through automation.

In 198 8, piece-workers at a small subcontracting factory told their boss

that because he didn't pay as much as the larger factories in Puli, they would

leave if their wages were not raised. When the boss did not meet their demands,

most workers left the factory. Unable to work out an agreement with a center

factory boss to produce a high quality paper and too small to fill orders as an

independent producer, the boss opted for one last, but risky option. Borrowing

money fi'om his wife's relatives, he set out to automate his factory.

As we sat outside his empty factory several months later, he told me that

he had spent a lot of money to automate the pumping and the drying process.

I purchased a used steel drying drum [10 feet in diameter and 5

feet wide] once used to make machine-made paper; I got it from

the boss of the center factory I had subcontracted for. That drum

cost me NT$500,000. But after installing the equipment I realized

that the steel on the outside of the drum was warped and that the

paper came out all wrong and I couldn't use it.

Unable to put the machinery into operation, the subcontractor went out of

business. Following the closing of the factory, rumors circulated among

subcontractors asserting that the center factory boss who sold the drum knew it

was defective. The subcontractor, however, was too embarrassed to ask for his

money back. He also did not want to accuse the center factory boss, a man with

whom he had been doing business for so many years, of cheating him.

One subcontractor who was aware of the situation explained that,

299

So many subcontractors are being squeezed by both the center

factory bosses to cut prices and their workers to increase wages,

that they will do ahnost anything to stay in business.

The

subcontractor should have known that he was taking too big a risk

in trying to automate his operation. In fact, other companies have

tried to automate and the Japanese customers have noticed the

changes in the paper. The Japanese can tell the paper is not

hand-made because it is too uniform. They only want to buy

"hand-made"... otherwise they would have produced the stuff

themselves and with far better equipment than what we would

ever have.

Despite the risks in investing in new equipment, however, some factory

owners attempted to maintain profitability without going to the extreme. In

1990, one subcontractor spent an additional NT$600,000 to partially automate

his operation. He told me that, because he didn't have the money to invest in a

factory overseas, he would have to try upgrading his factory in Puli. Other

subcontractors indicated this subcontractor was throwing good money after

bad. "Maybe he'll be able to produce more paper in the short run," said one

skeptic, "but by the time he pays for all that new equipment he installed, the

industry will be long gone. All he is doing is putting off the inevitable."

The Subcontractor's Association

When the export market failed to improve between 1985 and 1987 , some

subcontractors lost money, while others went bankrupt. It was a time when, as

one subcontractor related, center factory owners remembered the "good

subcontractors" and those who gave them problems. The lull in demand for

paper during this period, together with a resurgence in the clout of the center

factories relative to their subcontractors and the growing labor shortage,

motivated subcontractors to create a new, and secretive, paper association in

was

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1987. Organized and composed only of subcontractors, the group met once a

month to share information on workers, products, piece-rates, and center

factories.

I became aware of this group only when, during an interview with a

subcontractor, another subcontractor dropped by to visit with him. After a

considerable amount of fidgeting and small-talk between the three of us, the

impatient visitor finally handed his fiiend a sheet of paper. After another

awkward moment the man I was interviewing, indicated that I was "OK." and

could be shown what was written on the paper:50 The document in question

was a price list of about two dozen types of hsuan paper sold to the Japanese by

the center factories. ’1 The men said that the figures were estimates of the prices

which they believed the center factories received for the paper subcontractors

produced in Puli. They told me that they hoped that, if the subcontractors

agreed to adhere to a set price for each type of paper sold to the center

factories, they would not only avoid undercutting one another, but they could

force the center factories to buy paper from them at what they believed was a

more equitable price.

Curious to know whether this association was successful, I made further

inquiries when I visited other subcontractors. Surprised at what I knew, a

number played down the association, telling me that their meetings were just an

excuse for everyone to get together and get drunk. "They don' t accomplish

anything in those meetings," said one trusted informant. "I've tried to get

subcontractors to work together, only to find that they eventually go their own

way. " Further, he explained, when subcontractors get together to fight against

the center factories, someone always pulls out. Most of the subcontractors

were afraid that if the center factory bosses found out about what they were

iOICS

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doing, they would be cut out of any future orders. "No one has any bones (ku

tou) [the equivalent of backbone in English] in this industry," he insisted.

On another occasion, this same informant told me that, in 1985, the

owners of both center factories and subcontracting factories had gotten together

during a meeting of the Nantou Paper-Makers Association.52 During this

meeting, the paper-makers raised the problem of the growing labor shortage

and workers jumping from one factory to another in search of better piece-

rates. To remedy the situation, the group agreed that whenever a worker

skipped to another factory, the factory owner on the receiving end would pay

the Paper Association NT$30,000. The logic that underlay the decision was

that such fines would discourage factories from pilfering workers and thus

forestall a piece-rate war which would only serve drive up labor costs for

everyone. According to my informant,

Like so many agreements reached between us, the whole thing fell

through. After the first worker left one factory for another factory,

everyone demanded the new employer pay up. But the owner

refused to pay, saying that the worker came to his factory on his

own. So no one pressed the issue any further.

After telling this story, my informant threw up his hands and bellowed,

No one cooperates in this industry. There's just too much

suspicion and self-interest. So now you understand why even the

subcontractors can't seem to agree on anything and why we are all

about to vanish.

The

302

The 19805: A Summary

Jolted from their once passive position and emboldened by the upswing

in the market during the early 19805, many subcontractors found the courage to

challenge the center factories' authority and control over the finished product

market. Most subcontractors were aware that the longer they remained

segregated from the market, the less chance they had to accumulate high profits

and to obtain long-term secmity in the paper industry. They knew, however,

that the several "roads"( lu E%)available to reach this objective were fraught

with a variety of risks.

Subcontractors who chose to "work within the system" and to improve

their position in the production hierarchy by moving from the position of

capacity subcontracting to supplier-subcontracting were less likely to run much

of a risk than they did with the other strategies discussed. The two most

common problems with this strategy, however, was that demand for expensive,

higher value-added papers was limited, and center factory owners continued to

control the product market. There was also no guarantee that the profits from

higher value-added production would find their way back to the subcontractor.

Regardless of whether a subcontractor was able to obtain orders for higher

valued papers, most informants believed that there was greater stability to

capacity subcontracting and that it brought to the subcontractor more security

than becoming an independent or a job hopper.

A few subcontractors tried to make quick money by jumping fiom center

factory to center factory as they searched for the best price for their papers.

While this strategy might have brought slightly higher profits during periods of

high demand it was, by far, one of the riskier strategies in the long mm. Given

the enormous fluctuations in demand that characterized this industry,

303

subcontractors were in a far more tenuous position when demand declined and

center factory owners were able to "remember who their fiiends were."

There were those subcontractors, on the other hand, who attempted to go

independent and honor the unspoken rule to avoid customers already claimed

by the center factories. In doing so, they were left with only one option: to

negotiate with small domestic buyers and the occasional small customer from

overseas, neither of whom bought much paper or guaranteed consistent orders.

Nevertheless, because a producer had at least some personal access and

connection with the market, it was always possible for him to get lucky and

accumulate enough buyers to keep his operation in business. This route,

however, was considered less lucrative in the short run, although more secure in

the long run.

Finally, " rogue" some subcontractors tried to improve their position by

filching customers from center factories. None of these owners would agree to

be interviewed (they were all highly secretive), perhaps fearing that I might

abscond with their customers, as they had done to others in the past. Despite

my lack of first-hand information on this group, gossip always circulated about

their coups. While most center factory bosses openly vilified these factory

owners, many subcontractors admired their nerve. As the only factory owners

who ever mounted a direct assault on the hegemony of the center factories and

succeeded, they were role models who subcontractors secretly wished they had

the guts to emulate. Nevertheless, the few "rogue" subcontractors who failed

served as reminder of the pitfalls involved such an effort.

In conclusion, subcontractors employed a number of strategies to attain a

better position in the production hierarchy and to position themselves close to

the product market. Throughout their careers , however, most small producers

constantly tested these various strategies or variations thereof, probing for

 

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possible weakness and openings which might pay off in the end. Puli's

subcontractors were constantly evolving and changing in an attempt to keep in

step with the rapid changes in their industry’s labor market both in Taiwan and

in the rest of Asia. They continued to hope that, one day, one of their strategies

would pay off and they would catch the big order or customer which would

propel them beyond the grasp of the center factories and land them in the

product market.

305

 

l

The heart of paper production was in the eastern provinces of Chekiang, Anhwei,

and Shanghai

Paper was not manufactured on a consistent basis imtil after 610 AD.

The article reported that in 1916, the industry employed "about 45,621 families,

inchrding 60,885 males and 84,736 females, with and average daily wage of 24 cents" (Far

Eastern Review 1919:517).

4

Interview with Hung Yi-han, an older worker from the first Japanese factory, about

Yien-an and the early years of the paper industry. A copy of a Short manuscript of this

interview was given to me by one ofthe local factory owners. The article was commissioned

by the owner to essentially "immortalize the owner's contribution to the paper industry in

Puli" ( 1989).

5

G
V
”

Interview with Hung Yi-han

As far as can be determined no Taiwanese factories were in operation at this time.

The new company was called Ta Tu Taiwan Paper (Taiwan Yin Hang Chi K’an ).

In taking over the Japanese paper factories in Central Taiwan, each factory was

given a specific task The paper factory in Puli, seems to have been temporarily converted

for the production of paper pulp for other branch factories in Taichung and Nantou. This

was probably done because of Puli's proximity to raw materials in the nearby mormtains.

Other names attributed to the factory in Puli were Puli Hand-made Paper, another name was

simply The Nantou Paper Factory).

9

Much of the data on the Japanese paper plant came from interview materials with

those who worked in the plant. Although the present owner of the plant refused to talk to

me, I was able to secure an interview with the owner's half- brother who ran another hand-

made paper mill in Miaoli County.

10

Today, the company's owner operates his factory with the help of his 42- year-old

son, while eleven family members are all stockholders in the business. The company has

become one of the largest paper-makers in the area, with approximately 160 workers

making handmade paper. The factory also has a sizable machine-made paper operation

which produces specialty papers. Since the machine-made business of Puli's hand-made

paper factories is not part of this research it will not be discussed to any great length here.

For about three of the paper companies researched, however, machine-made papers

compose a major part of their business.

11

Throughout Taiwan, many businesses tend to locate in specific districts and often in

direct proximity to their competitors. While competition is brought out in the open, specific

manufacturing or commercial districts are believed to attract and concentrate customers.

12

Given the fact that only seven factory sites were actually built and only seven

companies fi'om this period managed to stay in business until the late 19805 puts the faihue

rate at about 2 tol.

‘3

In a sense, this was a partial return to the type of production in existence in many

parts of Taiwan during the early years of the Japanese occupation.

 

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14

During the mid 19605, a few of Puli's paper makers bought machinery to make

paper. This was done, I was told, because a few owners were not sure to what extent the

market for hand-made paper would return to Puli. While only small operations with one or

two small machines, these factories eventually chose not to compete head-on with larger

paper factories in Taiwan, but instead concentrated on the production of a long-fibered

specialty papers with a limited market.

15

In a sense, this was one ofthe first instances where economic development in the rest

of Taiwan's industrial economy (i. e., machine-made paper) was beginning to reap

unforeseen consequences on the labor-intensive nature of hand-made paper production.

16

Most erqrort data for the 19505 and 19605 on hand-made paper is either missing or

not accurate. Most of the information on exports, therefore, come from interviews with

factory owners. Some factory owners remember that exports to other markets in Asia,

though limited, probably began in the early 19605. Other owners, on the other hand,

remember that exports did not amount to much until the late 19605.

17

I was told that this was a special long- fibered paper which could not be made by

machine in Taiwan and would otherwise have to be imported. I have no way of knowing if

this was indeed the case.

18

In the original plan, each paper company would be responsible for buying their own

raw material used in the power company job.

19

My informant speculated that, in the negotiations, this third paper company boss

may have been given exclusive distribution rights (at least for a limited period of time) for

the raw material sold in Taiwan.

20

Instead ofjust selling a half dozen types of paper, for example, they formd that a

customer might also want various other types ofpaper (such as other sizes, colors, textures,

and weights). This was the kind of information that would otherwise have been impossible

to learn working through a middleman.

21

22

I have heard at least two expressions used by factory owners in Puli

The only way I was able to determine paper output in this industry was to compare

export data to an estimate of production capacity in Puli.

23

Export figures were obtained from the Chinese Maritime Customs Ofice, Taiwan

Area. During the early 19705 the customs oflice was not very specific about types ofpaper

shipped abroad, making the search for the correct paper listed under the appropriate CCC

code quite difficult. Eventually, however, I was able to match the appropriate export data to

what was being produced in Puli. This is a simple N'ISI KG ratio which. reflects the

aggregate value of paper per kilogram and includes shipping, packaging, and other

overhead costs. This ratio is not meant as an accurate accounting ofthe true value of paper,

rather it is used only as an indicator of differences in the value of paper shipped to various

markets.

24

Despite his complaints, however, the profits these firctories received for the paper

sold to the rest of Asia were still higher than the very cheap ghost, cigarette, and tea bag

paper made in the 19505 and 19605.

1101

71

307

 

25

At the time, Japanese buyers considered many of the high- grade varieties produced

in Puli to be only of average quality. Nevertheless, it was the market for lower grade papers

which needed to be filled and Taiwan's most expensive papers were far cheaper than any

low- grade papers produced in Japan.

Japanese have always purchased paper from Taiwan in USS. Although there was a

significant drop in the USS- Japanese Yen exchange rate form 1976 to 197 8, the change

should have made Taiwanese paper more affordable.

While many at this time were not sure of the exact number of Japanese customers

who came to Taiwanm the early 19705, most remember there were far fewer than exist

today; in the mid 19805, there were approximately 8 large Japanese customers.

28

There was evidence to suggest that a few of these Japanese companies may have

also invested in a center factory or two.

29

By the mid 19705, virtually every new company was involved in a subcontracting

relationship with a larger "center" factory.

3°

The reader should remember that a portion of the industry's work force was also

involved in agriculture and many workers withdrew fiom the industrial labor force during

certain times of the year.

31

How these workers were able to come to such a conclusion is not entirely clear

since few would have access to the kind of information necessary to make such a

determination about the industry. Since both the industry and the factories in which they

were working were quite small, however, it is plausible that workers knew a considerable

amount about the industry.

32

Among those factory owners I interviewed who started their factories in the 19705,

not one said that they received any help from a former boss oftheirs. Some did say that after

a period of time, a former boss might offer them some subcontract work, but that was all.

33

I was also told that as some subcontractors grew in size, they occasionally

contracted with more than one center factory at a time. By the end of the 19705, the largest

center factory had about 15 subcontractors working for it.

34

There were, however, a few exceptions to this trend. One of the largest trading

firms ofhand-made paper continued to export hand-made paper from Taichung and Taipei

throughout the 19705 and early 19805, even though it had no factory of its own. In 1983,

however, a revolt of sorts occurred among Puli's subcontractors and they refused to sell the

company any more paper. At that time, the trading firm was forced to set up its own

production facility so it could continue to export paper.

35

In other arrangements, loans of cash would be given outright to be repaid at the end

of the month or on an agreed upon repayment date. According to my informants, in ahnost

every case when a loan was extended to pay for raw materials, the subcontractor would have

to sell the finished product to the center factory offering the loan.

36

I also asked my informant ifthis might also reflect the liquidity ofthe center factory.

While he said that this was true for some ofthe smaller factories, he believed that this rarely

reflected the financial conditions of a center factory. In my research of the computer

 

in

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308

 

industry in Taipei, postdated checks often indicate that a company does not have enough

cash in the bank to cover an immediate payment.

37

When the issue of collusion arose in my conversations with subcontractors, I could

not help feeling that some of my informants were: (a) uncomfortable talking about the

subject for fear of possible reprisals; (b) were toying with the issue perhaps hoping that the

idea would somehow take on greater significance; (c) genuinely angry at what had happened

during the late 19705 and really didn't care what might happen. Those subcontractors who

were quite vocal about the collusion issue were either on their way out of business, or were

not heavily involved in subcontracting at alI

38

As with so many stories told to me during my research, this one was related with full

animation and, perhaps, a bit of folklore. Nevertheless, all of these stories were

corroborated by other informants albeit with a few modifications in their recollections.

39

Actually shipped in bales of about 125 -135 kilograms in what might be called a

"baker’s dozen."

40

This was the one ofthe rare times that I heard a factory owner actually use the word

exploitation.

41

See Bennet and Ishino (1963) on the use of fictive kinship systems in industrial

organization.

42

As the 19705 wore on and the Japanese bought more higher- value added hsuan

papers, most center factories attempted to keep such production "in house" because of the

greater profits involved in such production.

43

I use a "form" of vertical integration because most center factories did not actually

own most "suppliers" of raw materials or the wholesalers or distributors of the finished

paper.

44

Once again call attention to Bennett and Ishino's work (1963) on "paternalistic

patterns in economic organization" in Japan. They formd that paternalism in economic

organizations generally suggests a "relationship between the agents in any economic

organization in which the employer acts toward his employees in a manner somewhat

similar of a father toward his children" (1963:224). There is, of course, great variation in

these patterns ranging from benevolence to exploitation.

45

When export value and weight to non-Japanese markets in 1982 and 1991 are

compared to the exports to Japan, the non Japanese exports are extremely small

46

Although the center factories were forced to lower their prices of raw materials in

line with the going market rates, few subcontractors were able to take advantage of the

opportrmity. Eventually in the early 19805, however, many subcontractors eventually

accurrmlated enough capital to purchase their own raw materials in bulk.

47

There remains a considerable amount of disagreement among subcontractors as to

when the break in relationship between center factory owners and subcontractors actually

occurred. A few subcontractors stated that the relationship was in serious trouble by the late

19705. Others claim that no noticeable rift occurred until about 1984 or 1985.

48

In Brusco and Sabel's (1981) excellent study of artisan producers, they describe a

type of small firm in which the demand for their products and services is ultimately

 

309

 

determined by the investment and marketing decisions of the large firms with whom they do

business(l98l: 101).

4

A few subcontractors implied that many of the center factory bosses liked knowing

what was going on in the industry.

50

Because, at the time ofthe interview, I already knew a number ofbosses for almost

one year and was trusted with this information. I felt I had gained a personal victory of sorts

when these men told me about the association.

51

They actually made a copy for me, blocking out the name ofthe organization at the

top.

52

This was a sanctioned industrial association formed in the mid-19605 for the benefit

of paper makers in the area.

 

THE NATURE OF INTER-FIRM RELATIONSHIPS

CHAPTER VII

To illustrate the history of the paper industry offered in Chapter VI, I

present a nuanced picture of the nature of relationships within the industry in

this chapter. This picture is made up of a composite rendering of one center

factory owner and four subcontractors drawn fi'om my sample of 19 paper

companies to protect the anonymity of my informants. Using the center factory

as the focal point of my discussion, I demonstrate the nature of productive

relationships both within and between these five firms. More specifically, I

show how the entrepreneurs who own these firms emerged in the industry and

confronted and adapted to changes in labor and in the material and finished

product markets.

I begin the chapter with an examination of Tai P'ing Cotton Paper

Company, one of industry's oldest and most successfiil center factories. The

story of Tai P'ing is about one man's evolving awareness of the nature of

production, labor, and markets. It is about how, after gaining an understanding

of the importance of product markets, one entrepreneur set about molding a

productive sphere composed of workers and subcontractors who would provide

products for the cheapest price and at minimal risk. It is a story about how,

during the formation of this sphere, he used the guise of "family and group" to

unify workers and subcontractors into a cohesive and productive unit which

would, with a minimmn of dissent, churn out paper in accordance with

fluctuations in demand. Finally, it is a story about how, after the mid- 19805,

310

 

31 1

the center factory owner, workers, and subcontractors came to question the

benevolent nature of this relationship.

Following this discussion, I examine the experiences of four

subcontractors, each of whom has pursued a different strategy to ensure profits

and security in the industry. These four men developed their strategies after

gaining considerable experience in an industry which was not only highly

competitive but was also manipulated by owners of center factories who, since

the early 19705, controlled access to the majority of the Japanese market. In

essence, these four men provide vivid examples of the struggle to adapt and

survive in an industry which they came to accept as finite. Further, I show that

these factory owners did not respond in a static way to the changing

circumstances. Rather, they pursued a variety of strategies (or variations there

of) over time. While I occasionally describe the reputations of some factory

owners as "job hoppers" or "dependent" subcontractors, these labels are

nothing more than heuristic devices. Factory owners were always in pursuit of

a "better way" or a new opportunity to achieve more security and more profits,

and they were rarely wedded to only one pattern of behavior or strategy.

 

‘5‘;

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312

A. TAI P'ING PAPER COMPANY:

A CENTER FACTORY

In 1959, a massive typhoon rumbled through Central Taiwan, wiping out

whole villages and flooding cities. Although normally protected from typhoons

by the surrounding mountains, Puli experienced considerable damage along the

flood plains of the Mei and NanKang Rivers. Among the businesses and homes

blown down along the rivers that day was a rickety bamboo and thatch hand-

made paper factory owned by Mr. Hsieh and his partner.

The flood left Hsieh in serious financial trouble. Unable to rebuild, he

sold what was left of his factory and land for NT$50,000 to Mr. Chang. A 37

year old local entrepreneur, Mr. Chang was educated under the Japanese

colonial system and was fluent in Japanese. After completing vocational

high-school, Chang took a job after World War II as a hydroelectric engineer

with the state-run Taiwan Electric Company in Puli.

In 1990, still vigorous and energetic at the age of 68, Chang told me that,

despite his relatively good job with the power company in the 19505, it was

difficult to accumulate enough savings to buy the things he wanted for his

family. Thus, to supplement his income from the power company, Chang and

his wife bought a small hotel. But, by the late 19505, the hotel had not provided

enough extra income for his family of nine children. Encouraged by his wife

and a fiiend, who worked at one of the local paper companies, Chang decided

to try another line of work. He gave up his government job and the security that

came with it, sold the hotel, and plunged into the paper industry which, at the

time, was not very lucrative. Chang, however, never shied away from risk

 

DEC

that

313

because, as he reported, he had complete confidence in his abilities and knew

that he could make something of the business.

Knowing little about the paper business, Chang brought in two minor

partners to help him set up and run his new enterprise. After only one year,

however, both these men left the company. Although some old informants in

the industry told me that the two men left because the factory made too little

money, Mr. Chang insisted that they left because "they wanted to start their

own businesses." After buying the factory in 1959, Chang spent NT$250,000

of his savings to rebuild the company. He expanded the factory by adding more

dredging tubs and drying tables, rebuilt the factory superstructure with brick

and wood, and bought an electric motor to drive the factory's only pulp beater.

"My original factory was only 40 ping (1400 sq. ft), " Chang reminisced. "We

had nothing back then but we still managed to make money. As we made

money, we reinvested in the factory, buying more tubs. " Chang made money

for four years and for four years added more tubs and tables tmtil he had a total

of 32 tubs and tables and a work force of about 30 people. Chang's wife told

me many times that in the first years of starting their factory, life was very

difficult for them. " Everyone in our family who was old enough to work had to

work. I worked right alongside my husband drying paper. When we started

getting a few more workers, I was able to take more time oftc and look after the

children and help my husband supervise the business."

Removing the middleman

While the market for hand-made paper slowly began its transformation in

the 19605, boss Chang did not sit by idly. As other paper manufacturers did in

Puli, he relied on middlemen from cities in Kaohsiung, Taichung, and Taipei to

 

3 14

sell his paper throughout Taiwan. But, when he used these traders, he lost well

over 50 percent of the selling price on the cigarette, ghost, tea bag and

inexpensive art and craft paper that he produced. In Chang's view, the agents

were the root of the problem because, he explained, Taiwan was just a little

place and it seemed ridiculous that these agents were taking so much profit from

the sale of his paper. Chang lmew that he could make far more money if he

could gain direct access to the market and control over the sales of his own

product. To bypass the middleman, therefore, he rented a small office in Taipei

in the early 19605 and began finding his own buyers. Because his children were

too yormg to help him in his business, Chang relied on his nephew to run the

Taipei ofiice.

The opening of this office was, perhaps, the shrewdest business move

Chang ever made. By selling directly to the final buyer (or eliminating one

level of middlemen), the business world beyond the factory expanded before

him. Chang realized that many manufacturers, such as himself, had long been

excluded from an economy that bought and sold raw materials and finished

products and in which mark-ups on commodities at both ends of the production

process were manipulated by trading firms and distributors, who knew little or

nothing about the manufacture of paper.

Chang worked hard finding buyers for his paper. By negotiating directly

with customers, he gained an understanding of the market for his product. By

the late 19605, he discovered that hand-made paper was no longer profitable

unless it was high value-added, high-quality art and calligraphy (hsuan) paper.

He also learned that machine-made paper would replace the low-grade, low-

quality papers he had been making for much of the decade.

 

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Despite the fact that Chang was not making much money on his hand-

made paper in the early 19605, he persevered. Anticipating the growing need

for machine-made paper, he set up a second paper company, bought some used

machinery, and slowly weaned his production of low-grade paper from the

hand-made production line to the machine-made line.1 As he bought new

machinery and built more dredging tubs, Chang expanded his factory.

In

addition to housing the machinery for the production of machine-made paper,

the new multi-storied reinforced concrete structure included an office and his

family’s apartment, from which Chang was able to oversee operations at the

factory on a twenty-four hour basis.

New overseas markets

By the mid-19605, Chang was already selling some of his papers to

overseas buyers in markets in East and Southeast Asia. As in Taiwan, there

was a demand for cheap calligraphy papers overseas. Although these papers

were not very profitable, Chang nevertheless cultivated his business

relationship with their buyers (many of whom were ethic Chinese who ran

trading firms in Korea, Hong Kong, Singapore, and Indonesia).2

By the time the Japanese market for hand-made calligraphy paper began

to open in the early 19705, Chang was ready and waiting. Of his early contacts

with Japanese buyers even before receiving his first order, Chang explained:

When these customers came to our Taipei ofiice, I made them feel

right at home because I could speak Japanese and I knew about

Japanese culture. Yes, it took time to make a relationship flcuan-

hsz) with them. But the relationship between my family and my

customer's families have become very close over the years.

£30111;

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3 16

As he filled more orders for paper, Chang earned the trust of his Japanese

customers and his relationship with them gradually improved throughout the

19705. They, in turn, rewarded Chang with larger orders of increased value.

"We were like a large family," Chang told me one day. "Our customers in

Japan, our workers here in the factory, and all the subcontractors who did work

for me. We all worked together and we all benefited. "

Between the late 19705 and the late 19805, Chang continued to enlarge

his factory. By 1989, the building was large enough to include an oflice where

ten workers canied on the accounting, secretarial, and management tasks of the

business. The ofiice was laid out in an open office plan (sometimes known as

the Japanese office plan), with managers and supervisors occupying desks

placed at the heads of rows of other desks occupied by lower-ranking workers.

The font door and oflice furniture were situated according to Chinese

geomancy orfeng shui while the company motto, written in calligraphy on the

company's own paper, hung in a large frame on the wall near the front door.3

Every morning office workers and family members who worked at the plant

would line up and recite the motto, which encouraged employees to work hard

and produce the finest product possible. With over 100 piece-rate and wage-

workers, Tai P'ing was the largest hand-made paper "center factory" in Puli.

The Family

Upon completing their education, five of Chang's nine children came to

play an increasingly important role in the daily operations of the family

company. Chang's second daughter, for example, moved to Japan were she

managed the branch trading office for the family business. The youngest

daughter, on the other hand, worked in the family's Taipei office. Regardless of

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3 1 7

their role, however, Chang's daughters had no legal stake in the business, an

arrangement that followed Chinese rules of decent. Nevertheless, Chang

pointed out: "I made sure that all my daughters would be taken care of. Aside

from the large dowry, I also made sure that they all married successful men.

Three of my daughters are married to lawyers."

As with many Taiwanese family fimrs, Chang's two sons would

eventually inherit the business. Born about ten years apart, Chang's younger

son managed the family's Taipei office while the older son oversaw the entire

factory in Puli. The older son, his wife, children, lived with their parents in the

"family home" in Puli. The second son, on the other hand, lived with his wife

and four children in an apartment above the company offices in Taipei. As was

the case with boss Chang's wife, the wives of the two sons in Puli also worked

for the company.

When the factory was first established by boss Chang, his children were

not old enough to help out in the firm and, in fact, have never worked as laborers

in his factory. College educated, they occupied the upper management

positions in the company, although boss Chang made all the major decisions.

By locating his children in strategic areas of his company, Chang was able to

manage both workers and important company information. Chang also

encouraged his children to take frequent trips abroad to find new suppliers,

buyers, and to broaden the marketing and trading operations of the firm. For

example, his sons frequently traveled to find new and cheap labor markets to

make paper (such as the Philippines), new suppliers of tree bark, and buyers of

new high value-added papers that the company had been trying sell.

 

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In the mid-19805, as boss Chang and his wife slowly left the day-to-day

operation of the firm in the hands of their sons and daughters, fiiction increased

between the family and workers and between the family and the company's

subcontractors. While all these problems were not necessarily created by

Chang's children, many workers in the company suggested that they felt

abandoned by boss Chang and his wife. In fact, Mr. and Mrs. Chang both

believed that they had fewer problems with their workers in the 19605 and

19705 when they were in day-to-day contact with them. "Back then, I often

worked alongside our workers drying paper," Mrs. Chang said one day.

I could joke and talk with my workers just like they were my

fiiends. None of our workers talked back to us like they do today.

They also rarely complained about the working conditions or their

wages. Today, however, everything is so complicated. We have

all these labor laws and worker benefits. I can't even understand

them. But I tell you, our younger workers understand many of

these laws and they often use them to threaten us if we don't do

what they want.

Many of the old workers in Tai P'ing agreed with Mrs. Chang's

assessment. Some women remarked that when they were younger, the boss and

his wife seemed closer to them -- more like friends than bosses. As one old

dryer explained:

In the last few years the boss and his wife haven't come onto the

factory floor as much as they used to. They must be too busy

making money. Instead, their children or some other young office

workers or supervisors deal with us, but they seem less interested

in us. These younger people don't ask us how we or our families

are doing like old Mrs. Chang used to. They don't have any feeling

for us anymore ( ta men mei yu jen ch ’ing wet). Instead they just

tell us the paper we make is poor, or that we should work harder.

3 l 9

Prior to the lunar New Year's vacation in 1990, I observed Mrs. Chang

surrounded by some paper workers in the factory. She was pleading with them

not to take an early holiday because the factory still had to finish an order for a

large Japanese customer. Most of the workers were planning on leaving the

factory two days early so that they would have a full two-week vacation; the

workers had already agreed among themselves to take off two days early.

They listened quietly to her pleas but, in the end, none could be convinced to

work the extra two days.

Mrs. Chang, sensing perhaps that I did not completely understand what

was going on, later took me aside and told me what she thought about workers

in Taiwan. In her view, there was no hope for Taiwan's future because people

just didn't want to work hard anymore. She also felt that, because labor was

cheaper and more compliant in the rest of Asia, factories in Taiwan would move

overseas leaving its workers without jobs.

In the Philippines [where the Chang family was in the process of

building a factory to make paper], college educated students

receive wages of only NT$3,000 to 4,000 per month. In Taiwan

high school educated young people can easily earn NT$15,000 to

20,000 per month. In Puli, none of these yormg people want to

work, they just want to go Taipei to get away from their scolding

parents.

Mrs. Chang predicted that, in five years, Taiwan would not have any

manufacturing jobs because workers would be too expensive to hire. "In five

years Taiwan will not be a good place to live, work, or do business.

Everything is changing too quickly and no one cares about anything anymore."

She then looked at me as though I might provide some answers and said

rhetorically, "Don't they know that if they don't work hard now there soon may

320

not be any more jobs in Puli? Ifthey don't work now they won't be able to save

any money for when there is no work. "

Despite the concern Mrs. Chang seemed to have for her workers, the

drive to cut costs at the factory undermined her family's relationship with its

work force. In the late 19805, for example, the company hired two ethnic

Mainlanders in their late 505 to work in the factory. Their jobs were

demanding and involved making paper pulp used by the dredgers in the

factory. "These men were hired because they are cheap, rarely complain, and

they are honest," one supervisor candidly admitted to me. " The boss also feels

that, because they are so old, they won't try and steal the paper pulp formula

and open their own paper factory." As with many of the old male and female

workers in the paper industry in Puli, these two waged workers earned

considerably less money per month than young Taiwanese male workers in the

factory.

In 1990, a dispute arose between these two mainlanders and one family

member when the workers requested two ceiling fans (total cost NT$ 1,300)

near their work stations so they could keep cool during the summer months.

The manager refused the request, suggesting instead that the workers purchase

their own fans and bring them to work with them. As word spread throughout

the factory about the manager's treatment of the two " old men," many workers

openly vented their anger. One of the mainlanders involved in the dispute

remarked that the manager was "nothing but a spoiled child." When, after

several weeks, the manager showed no intention of installing the fans, the

mainlanders left the factory.

meld

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321

Any number of workers were willing to share their opinions about this

incident. One machinist, for example, told me that no one really cared about

the workers at the factory anymore. He had reached this conclusion because:

Our boss does not want to invest in anything in the factory even

when it is only a few hundred NT dollars.

It is often the little

things that a boss does for his workers in a factory which makes

workers happy. But when it comes to spending a little money, it is

like they have to chop off an arm.

Breaking into a wide grin, he then chopped at his arm and asked: "Ever hear the

one - [You want your horse to work for you, but you don't want to have to feed

it hay] Yao ma hao. Yu yao ma pu chih ts 'ao. "

Other workers were equally vocal following the dispute. One young

woman, a worker in the front office, directed her anger toward the owners of the

company. "Ifyou look around this factory, you can see that the boss purchased

nothing but old and used machinery," she related, her lower lip quivering with

anger.

Even though the family has plenty of money they don't want to

invest it in the factory, machinery, or workers. They [the boss's

family] complain that none of the workers care about working

hard. But they don't even care about their own factory so why

should we? All they care about are those who will take the lowest

wage. All they care about is making money out of nothing.

While most of the criticism was directed at managers and bosses at the

company, another worker indicated that he thought the problems at this

company had more to do with the general mentality of being a boss in Taiwan

per se.

"Just look around you, " he directed. "This factory has been operating

for thirty years and it still is a mess. When they buy new machinery it’s used

machinery." Locating the root of the problem with the disinterest company

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owners take in their factories, he continued, "They are too casual [about us]

and are more interested in playing the stock market or trading in real estate."

Many of the problems that emerged between workers and owners over

the years were also attributable to the suspicion and lack of trust in the industry.

As in any business, company owners in Puli closely guarded their secrets. They

went to great lengths to try and prevent any kind of information (e.g., formula

for paper, customers, sales revenues, production costs, piece-rates) from

reaching the ears of anyone who was not a family member or trusted employee.

In small fimrs, it was fairly easy to guard against leaks to other firms; only the

boss or his family members had access to such information. In large firms,

however, large numbers of workers were needed to run an operation, thus

increasing the likelihood that secrets could easily find their way to a competitor.

Another incident at Tai P'ing Paper illustrates how fast leaked

information could spread and how damaging it could be. One day a woman

who was trimming paper cut off more than she should have. When a supervisor

discovered the mistake, he exploded. Yelling at her, he said that she was

wasting paper that sold for over NT$10,000 per ream. News of the outburst

quickly spread throughout the factory, not so much because of the nature of the

behavior, but because of what was learned about the cost of the paper. While

most workers knew that the particular type of paper being cut was expensive

and of high quality, they had no idea that it was being sold for so much money.

"We have been trying to raise our piece-rates for months," explained an

informant. "But the boss has said again and again that he gets very little profit

for his paper and that business is always poor. Now I think we have some

information we can use when we want to bargain with him."

323

My interviews with subcontractors also revealed the importance of such

secrets. When I began to tell one subcontractor about the incident at " another"

factory, he laughed and said he already had heard "the story from someone

else, " and only a few days after it had occurred. The subcontractor, however,

sympathized with the boss at Tai P'ing because he often encountered similar

problems in his own factory. "My workers are always trying to find out how

much I sell my paper for. If they find out I'm getting NT$50 more per lin than

they had estimated, then they demand higher piece-rates." When I asked him if

he knew the price of Tai Ping's expensive paper, he answered,

Unfortunately, the center factories never give me orders for that

kind of expensive paper. Most of the center factories make that

paper themselves. The paper we make for them is almost always

the cheap stuff. But we're always interested in how much money

the center factories sell our paper to the Japanese for. The center

factories are always trying to knock down our prices saying the

Japanese won't pay any more, but I don't believe them.

Suffice it to say, the ever-increasing cost of labor weighed heavily on the

minds of all factory owners. Subcontractors often identified with center factory

owners on the issue of Puli's workers. Perhaps searching for some common

ground with center factory owners, they frequently told me that the real problem

in the industry was uncooperative and greedy workers and that center factory

owners or the market were somehow less responsible for their lack of profits.

While a number of subcontractors blamed many of their problems on

center factory owners, they often failed to identify their key role or the role of

their workers in the center factory -- subcontracting relationship. They were

not able to point out to me that a center factory boss was using their workers to

rormd out the problems of cyclical or unstable demand (i.e., that a

subcontractors workers often had to go idle when there were few orders), or

 

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that they were relegated to producing paper at the end of product cycles when

competition was most acute and cost cutting the most critical (see Berger and

Piori 1980; Sabel 1982). That is to say, subcontractors, never openly

acknowledged the fact that center factory bosses were actually manipulating

the entire work force in the indusz through subcontracting.

Tai P'ing's trading and production empire

Since its founding, Tai P'ing Paper became one of the largest center

factories in Puli. According to boss Chang, during the hay day of

subcontracting in the 19705 and early 19805, (omitting mention of how bad

business was in 197 7 or 1978), Tai P'ing Paper produced less than 30 percent

of its paper "in-house." The remaining production was handled by the

company's 11 to 15 subcontractors, who were located throughout Puli. 4 Chang

claimed that many of these subcontractors also worked for him on an exclusive

basis, churning out orders of paper for both his Asian and Japanese customers.

Although he pointed out that he had far fewer workers in the 19705 than he had

in 1989, Chang insisted that he "didn't need many workers back then because

I had so many subcontractors." With the number of subcontractors in decline

since the mid-19805, however, Chang had to increase his "in house"

production of paper. By 1989, the company produced about 50 to 75 percent

of its monthly exports in its own factory while the remainder was manufactured

by their subcontractors.5

Figure 7 .1 shows Tai P'ing's involvement in trading and production in

1989. As can be seen, moving from left to right, Tai P'ing owned four separate

branch factories, three of which were in Puli while the third was a newly built

factory in the Philippines. Not yet "on line" when I began my research, the

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Philippine factory was projected to employ over 100 paper workers and to

produce the same common papers already made by many of Puli's

subcontractors. Of the remaining branch factories in Puli, Branch Factory

number No.1 was a small factory built in the late-19805 to handle the

production overflow from the company's other factories while the other two

were formerly owned by subcontractors (Branch Factory No.2 and No.3 -- also

known as Ta Pu Paper Factory) who went into debt to Tai P'ing and were taken

over in the mid-19805. As discussed below, Ta Pu Paper Factory, eventually

became a quasi-branch factory which was operated by a subcontractor (see

below).

 

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Paper Company: 1989

Note: Percentages represent approximate monthly distribution of production.

Broken lines represent unknown or possible overseas exports. Shan Ho Paper, Ch’a Hu

Paper, and T’ung Shuen Paper were all subcontractors.

327

The remainder of the Tai P'ing Paper empire extended into the

marketing-trading segments of the industry. After the trading company was set

up in Taipei, boss Chang opened a branch office in Tokyo in the late 19705.

Theoretically, all paper exports passed through the company's Taipei Trading

Branch office and were sold directly to at least four large Japanese customers;

they in turn distributed the paper to an elaborate network of wholesalers and

retailers throughout their country. 6

While information on the family's financial holdings were closely

guarded, some who were close to it indicated that its current worth in real

estate, stock, and other (non-paper investments) probably exceeded their

investments in the paper business. Many people in the industry reported that

Chang foresaw the day when rising wages in Taiwan would put many

companies out of business. Indeed, Chang admitted that

I learned very early on that manufacturing was only part of the

entire industry and that paper making was only one part of making

money. I knew that, to be successful in life, I would have to

extend my understanding of the world and the markets where I

wanted to sell my papers. I also knew that this knowledge would

lead to other ways of making money.

Tai P'ing and its subcontracting relationships

In his conversations with me about changes in his relationship with his

subcontractors, Chang emphasized that, in the past, Tai P'ing's subcontractors

always belonged to one large industrial family (an analogy Chang often used in

conversations with others). There was no question, however, that "this family"

was under his firm control, as the following quotation illustrates.

328

We [he and his wife] attended all sorts of social functions with

them over ten years ago. We treated them like our own workers.

We told them if they take good care of us we'll take good care of

them. When business would decline, for whatever reason, we

would make sure that they at least had some minimum orders to

fill.7

Highly charismatic, Chang could reach out to anyone and make him or

her feel as though they truly belonged to his "fold." When Chang first set up his

subcontracting networks in the 19705, he was able to endear many

subcontractors to himself and his "cause." That cause was "beating" other

center factory owners in Puli and the Japanese. Indeed, some subcontractors

suggested that, in the 19705, they believed in Chang and their sense of common

"purpose."

By the time I arrived in Puli, however, it was obvious that his relationship

with his subcontractors was not as good as it had once been. Despite Chang's

pronouncements, he no longer took a personal interest in his subcontractors.

Because of his drive to find new buyers and markets for his product, Chang

appeared preoccupied with business unrelated to the production of hand-made

paper business in general and his subcontractors, in particular. Instead, the

enthusiasm he seems to have given to cultivating and encouraging his

subcontractors and workers in the past was redirected to the task of finding

those individuals who could find new markets.

As a result, the task of overseeing business relationships and negotiations

with their subcontractors increasingly fall to Chang's wife, daughter-in-law, and

employees. When I asked Mrs. Chang about her relationship with her

subcontractors, she gave me an answer which sounded similar to her comments

about her relationship with her workers.

329

Much has changed in this industry since the 19705 and early

19805. Today we only have about three to five subcontractors

working for us and even then their work is inconsistent. Most of

our subcontractors work for whomever will give them the highest

price for the paper they make. I keep telling them that unless they

start making better paper for a cheaper price, the paper factories in

mainland China and Southeast Asia will put us all out of business.

But they don't listen, all they want is more money. So we give

them work, but we don't even get any loyalty in return.

Even though Mrs. Chang linked the problems in the industry to the

changes occurring in the Asian labor market, she did not spare her criticism of

the subcontractors'. "Our subcontractors have all changed. All these people

want is more money but they don't want to work for it." While critical of the

workers in her own company and in the industry in general, Mrs. Chang omitted

mentioning the fact that many of her subcontractors were also having problems

with their own workers, and that these were problems made worse by her

company. Further, she made no connection between the ‘poor’ attitude of

subcontractors and the fact that they were rarely given the opportunity to

produce profitable papers, or that their workers were often idle.

Indeed,

according to a number of subcontractors, the Chang's seemed to have lost touch

with the day-to-day problems of operating a small business such as meeting a

payroll which increasingly ate away at profits. Suffice it to say, the relationship

between the Chang household and their subcontractors had become

increasingly contentious since about the mid-19805. While fully aware of the

economic changes going on around them, the Changs appear to have given less

attention to how these changes might have affected the business of their

subcontractors.

330

B. THE SUBCONTRACTORS

To understand why Mrs. Chang leveled such charges against her

subcontractors and to gauge the nature of the relationship between Tai P'ing and

their subcontractors, I now turn to four companies: Shan Ho, Ch’a Hu, T'ung

Shuen, and Ta Pu Paper Factories, with which Tai P'ing had close relationships

(see Figure 7.1). These four companies formed the productive appendages, so

to speak, of Tai P'ing's empire. The first company, Ta Pu Paper, produced the

most paper for Tai P'ing. The entire output of this firm, between 300 to 400

reams of paper a month, was all "sold" to Tai P'ing. Ch’a Hu Paper, Tai P'ing's

second largest supplier, produced between 150 to 200 reams of paper month.

This company sold less than 80 reams of paper to Tai P'ing; the remainder was

sold to other center factories in Puli. T'ung Shuen, the third company, averaged

less than 150 reams per month, of which 60 reams went to Tai P'ing. Finally,

Shan Ho Paper, the smallest company, produced between 100 to 150 reams per

month. Less than 10 reams of this paper was sold to Tai P'ing; the remainder

was manufactured for domestic buyers. With the exception of Ta Pu, these

factories also probably produced small amounts of paper for small overseas

buyers (indicated by the dotted lines in Figure 7.1), although they rarely

admitted this.

In Chapters IV and VI, I categorized the subcontractors in Puli according

to the type ofsubcontracting arrangements (e.g., capacity, supplier,

specialized) and the strategies (e.g., dependent, job hopper, independent) they

pursued to ensure the accumulation of profits in 1989. I have also classified

these factories according to status (e. g., center factory, casual center factory,

33 1

subcontractor, independent). While terms such as these identify the differences

between producers at any given moment in time, people did not consider them

immutable. When the opportunity presented itself, for example, some

producers were able to change the nature of subcontracting arrangements, from

"capacity" to "supplier" from one month to the next or even combined the

difi’erent arrangements at the same time. In a similar vein, while a subcontractor

might take a dependent position with one center factory, he might choose to

"job hop" with others. Finally, while an owner of a small firm might appear to

be independent, that is, trade and produce paper outside of subcontracting

arrangements, in fact, he usually maintained minimal subcontracting

arrangements with a center factory. Suffice it to say, subcontractors in Puli

were highly malleable, constantly adjusting their position in the production

process when circumstances allowed.

A dependent factory

I have loosely categorized Tai P'ing's four subcontractors under

headings which mirrored three strategies (dependent, job hopper, and

independent) commonly pursued by subcontractors in Puli. The first, Ta Pu

Paper Factory, was a quasi-branch factory owned by Tai P'ing Paper Company,

yet operated by a man, Mr. Li, who considered himself a subcontractor. Mr.

Li's operation is illustrative of a "dependent" subcontractor, even though his

relationship with Tai P'ing could also be characterized as almost "tenant" in

nature because he was unable to sell his paper to anyone but Tai P’ing Paper.

A job hopper

332

The owner of the second company, Ch’a Hu Paper, was a "job hopper."

Believing he could sell his paper to the highest bidder, the owner of Ch’a Hu

often jumped fiom center factory to center factory trying to find the best price.

Both Ch’a Hu and Ta Pu produced common types of hsuan paper (e.g., hsuan

#5) for Tai P'ing under a capacity subcontracting arrangement.

The independents

In contrast to the owners of Ta Pu and Ch’a Hu, the man who headed the

third company, T'ung Shuen Paper, produced a medium- to high valued-added

paper for various center factories under " supplier or specialized"

subcontracting arrangements. While not actually "independen " of the center

factories, T'ung Shuen was a relatively successful company which had more

autonomy than producers who might be categorized as "dependent. "

Finally, the owner of Shan Ho, the fourth company, produced most of his

paper for the domestic market and could, therefore, be characterized as an

"independen ." Like the owner of T'ung Shuen, the small amount of paper he

produced for center factories was primarily medium- to high value- added paper

produced in a "supplier" or "specialized" arrangement.

The degree of autonomy a subcontractor enjoyed in Puli was tied to the

nature of his subcontracting arrangement with a center factory and, most

importantly, his distance from the finished product market. The relationship

these four subcontractors enjoyed with Tai P'ing represented, in a sense, a

range between dependence and independence structured on the degree to which

Tai P'ing positioned itself between its subcontractors and the market for paper.

Ta Pu Paper represented the least independent company while Shan Ho, the

333

most independent. The brief histories of Ta Pu and Ch’ a Hu, furthermore,

demonstrate the conditions within which many of these firms have changed

over time and the strategies they employed to accumulate capital and ensure

their survival.

334

C. TA PU PAPER FACTORY:

A DEPENDENT

In 1968, Mr. Li left middle school at age 15 and began working in a paper

factory. Having decided in his late teens that he wanted to be his own boss, Li

set about working for a number of paper companies in Puli, including Tai P'ing

Paper. "By working for all those companies," reported Li, "I was able to learn

as much as I could from as many bosses as possible." In the late 19705, Li and

a worker from another company started their own factory, but they went

bankrupt after about one year. Left without any money, Li went to Taipei,

managed to save his earnings, and retumed to Puli after two years. Still wanting

to open a paper plant but short of enough money, Li looked for another way to

get back into the paper business.

In 1982, Mr. Li discovered that a boss of a small paper factory in Puli

was having a difficult time making money and was looking for someone to rent

his factory. Seeing an opportunity to run his own company, Li rented the

factory for ahnost three years and sold his paper to Tai P'ing Paper.

"Boss

Chang and I were close fiiends," Li remarked. "When I was a worker, I spent

a lot of time at their factory and they treated me very well.

In 1985, a dispute with his landlord left Li without a factory in which to

make paper. A seemingly unrelated event, however, was to offer a solution to

his problem. Shortly before Li lost the factory, boss Chang collected on a debt

from one of his other subcontractors; an in-kind payment which consisted of the

man's entire factory. Apparently one of Mr. Chang's long-time subcontractors

began taking loans from Tai P'ing Paper in the early 19805. These loans were

ostensibly made so that the factory owner could pay off his debts on raw

335

materials, and the construction costs and the cost of machinery purchased when

he started in the mid 19705.

Opinions on why this hapless factory owner lost his company ranged

fi'om speculation that he was a drunkard to he was a poor manager, or simply a

victim of a greedy center factory owner (i.e., the boss of Tai P'ing Paper). "He

got into debt to Tai P'ing because boss Chang wanted his factory," insisted one

outspoken subcontractor who went out of business in late 1990. " Instead of

trying to get this fellow to pay his debts on time, Tai P'ing just allowed him to

take on more and more debt until there was no way out for him."

Whatever the nature of the bankruptcy, Mr. Chang was left with a new

factory and Mr. Li was in need of one. In 1985, Li and Chang worked out an

agreement whereby Li took over the operation of the bankrupt factory.

In

exchange for the use of the building, Li agreed to assume responsibility for all

maintenance and repairs made to the factory, to sell all the paper he made to Tai

P'ing, and to take whatever price Mr. Chang offered for the paper.8 Mr. Li, in

turn, hired and paid his own workers and kept whatever profits remained after

selling his paper to Tai P'ing. According to Mr. Li, while this was not an ideal

arrangement, it was probably the closest he could come to owning his own

factory. Further, Li commented that because the factory was in bad shape when

he took over the business, “We had to spend NT$300,000 just to fix up the

place. [But] I had some savings, and my wife's family and a fiiend of mine

contributed some money. "

When I began interviewing Mr. Li in the spring of 1989, he employed

between 40 and 47 workers in his factory; approximately half were dredgers

and half dryers. Li's three children were all under the age of 12 and rarely

helped in the factory. Li did not expect his children to go into the business

 

 

 

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336

because, as he explained, "Working in a factory like this will not provide them

with a future. With the center factories in Puli in control of access to the

Japanese market for paper, there is no way my children will be able to make this

into a business which can support them."

On any number of visits to Li's factory I noticed an old woman running

arormd the factory doing odd jobs such as chopping wood, stoking the large

boiler that heated the drying tables, cleaning the factory floor, and lifting heavy

buckets of pulp and raw materials into the pulp beater. Because I had seen old

women doing some of the roughest and dirtiest jobs in other factories, I

assumed this women had been hired because she would work for low wages.

But when I asked Li about this woman and how much she earned, he gave me a

 

betel nut, grinned, and answered, "Oh, she's my mother. Like my wife, she

doesn't get a wage."

Indeed, Mrs. Li who was 37 years old (he was 36), was as preoccupied in

the business as was her mother-in-law. She helped manage the women

workers, sorted and kept an account of paper produced, and kept track of the

company's books. While Mrs. Li did not work on the factory floor, she

watched over her workers and made sure everything went smoothly. As the

company boss, Mr. Li had overall responsibility for the business and, as is

common among firms employing more than 20 workers, he did not work

alongside his workers on the factory floor. "I supervise my workers and often

make up the paper pulp in the moming when my workers come in to make

paper." On as many as half of the occasions when I went to his factory,

however, Mr. Li was not there. His wife told me that he was often in town

"doing business." What that business was, she would not say.

337

The Lis and Tai P'ing Paper

When I first started my interviews with the Lis, they spoke highly of Mr.

and Mrs. Chang of Tai P'ing Paper. Mrs. Li related that Mrs. Chang telephoned

her and talked to her "about anything at all. Mrs. Chang made me feel as

though I was part of her family." To this Mr. Li added that they were part of Tai

P'ing's "group," and that it was in the best interest of a subcontractor to deal with

only one center factory at a time. "When you are loyal to them," said Mrs. Li,

they will be loyal right back. They will take care of you if business

becomes poor by sending orders your way. If a subcontractor

jumps fiom center factory to center factory looking for the best

price, however, the center factories will start to distrust you and

may not provide you with consistent orders.

By late spring of 1990, business for the paper industry had become worse

than in the previous year. The number of workers in Li's factory was down to

20 and the price they received for the paper they produced for Tai P'ing had

dropped. During one long interview, Li indicated that he thought it seemed

that the two major problems in the industry were the shortage of labor and an

increase in competition from cheap paper from the Mainland.

The boss at Tai P'ing Paper told me that the they would have to cut

the price of paper for which they were paying me by NT$300 a lin.

Mrs. Chang told my wife their Japanese customers were

demanding lower prices or they would buy more paper fi'om the

Mainland. I already receive about NT$100 less for my paper than

their other subcontractors since I don't pay Tai P'ing any money

for rent on the factory.

Li was selling his paper to Tai P'ing for NT$2,700 and, Mrs. Chang had told him

that Tai P’ing received only between NT$3,100 and NT$3, 300 per ream from

 

 

338

the Japanese for the paper he made. He calculated that the extra cost of

packaging, shipping, and insurance which was paid by Tai P'ing was probably

about NT$500 per ream. "So you see," he said, "Tai P'ing is only making about

NT$100 or less in profit." But having said this, Mr. Li paused, thought for a

moment, and mused, "That figure can't be right. They must be making much

more profit than that. I guess I must have heard incorrectly (wo t’ing t’so le)."

As it became more difficult for L1 to make a profit, he lamented that, "The

only way I can make more money is to make more paper. But look at my

factory, half my workers are gone. How can I make more money with fewer

workers?" According to Li's wife, many of their workers had gone to another

factory because the boss was paying higher piece-rates. But, she confided, "He

is too embarrassed to say why many of his workers have left him."

He thought many of his workers liked him because he treated them

so well. He never expected so many would leave over the minor

difference in the level of piece-rates. Increasingly, many workers

in the industry are jumping from job to job. Ifworkers don't like a

boss, his paper pulp, or the piece-rates they just leave. Because

there are so few workers in the industry now, they have no

problem getting work. All the factory owners are desperate for

workers.

As I continued interviewing the Lis through the summer and fall of 1990,

I began to question the health of their company and I asked Li if he was wonied

about what might happen to his business. In contrast to his mood in earlier

interviews with him, Li replied "I'm not afraid. I've already prepared

everything" (Wo pu pa, wo i ching chuan pei hau ." Indeed, during the summer,

Li had begun to question whether Tai P'ing would "take care of him" very much

longer. "Tai P'ing has already started their factory in the Philippines, and I'm

sure that they will begin making the paper that I make right now." Then,

 

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changing the subject, Mr. Li showed me a number of ideas he had for making

money. He pointed out that he had friends in Taipei, Hong Kong, and Vietnam

(Li had already made one trip to Vietnam in the spring of 1990) with whom he

could do business. But, taking hold of my arm he cautioned, "Don't tell anyone

in Tai P'ing about this. I know I have some good ideas and if they hear what I'm

doing they might try doing it themselves." When I asked him why he didn't try

selling his ideas to the Japanese he shook his head, as though I still didn't

understand, and said simply, "IfI go anywhere near any Japanese, Tai P'ing

might think I'm trying to steal a customer. Then I'm through."

The Lis relationship with other factory owners in the industry

While Mr. Li and his wife often told me how much they liked the Changs

and how much they made his family feel as if they were a part of their family, Li

did not hesitate to offer negative opinions about other factory owners in the

industry. One particular subcontractor who was a focus of his discussion was

Mr. Kao of Ch’a Hu paper (see below). Mr. Kao was also a subcontractor for

Tai P'ing Paper and, therefore, Li's competitor for orders from the center

factory.

Mr. Kao, according to Mr. Li, had started jumping from center factory to

center factory in the early 19805, looking for the best price for his paper.

Mr. Kao thought that he was a big shot during that time and that

everyone had to give him whatever price he wanted. Now,

however, business is much worse and many of the center factories

remember what he did a few years ago. Now they only

occasionally throw a few orders his way.

Noting that I had an ear for gossip, Mrs. Li eagerly added that Mr. Kao's

wife was probably responsible for many of her husband's problems. Mrs. Kao

 

340

is "tough and makes doing business difficult for her husband. Mrs. Kao always

demands more money from the center factories and pushes her husband to take

more money than they deserve." In Mrs. Li's view, Kao's wife did not really

understand that "the paper business should be handled by the men." When I

asked her if any other wives interfered in their husband's business, she replied

" Oh yes! You know Mrs. Lin [the wife of another factory owner] hated her

husband's business and his workers. Finally she just drove him out of paper-

making. Now they are selling tea in the mountains."

Why Mrs. Li wanted to tell me this information about other factory

owners is not entirely clear. I found the Lis' derisive comments about other

factory owners, however, to be a common occurrence in Puli. In such a small

and competitive industry, gossip about other subcontractors appeared to be a

form of guerrilla warfare designed to gain an upper hand over a competitor and,

perhaps, a way to gain favor with a center factory boss.

It was what the Lis had to say about their relationship with Tai P'ing,

however, which I found most interesting. In contrast to most other

subcontractors in Puli, the Lis were bound to a subcontracting relationship in

which they had no choice but to sell paper to Tai P'ing. More like a "tenant"

subcontractor than an independent entrepreneur, the Li's had to maintain a

" good face" for me when I asked them about their relationship with Tai P'ing.

One out-spoken subcontractor told me that Li had to tell me he felt part

of Tai P'ing's "group or family" because he "had no other choice." In this man's

view, I need only study Ta Pu to understand the nature of the relationship

between center factory owners and subcontractors in the 19705. He contended

that, in the 19705, center factories manipulated subcontractors not only by

controlling access to the finished product market but also by controlling access

 

341

to raw materials and the capital necessary to buy those materials. "Many of us

were in debt to the center factories," he related. " The center factories had the

power to control everything in our lives. And, like Ta Pu, we had no choice but

to be part of 'someone's family whether we liked it or not.”

Was claiming to belong to a center factory's "family" or " group" simply

a pragmatic response to circumstances beyond the control of subcontractors?

This is difficult to gauge since there were many subcontractors who, like Mr. Li,

believed that no matter what the circumstance, a close, outwardly dependent

relationship with a center factory owner was the most logical business strategy

to take in the industry. They, like Li, recognized that, in the absence of overseas

customers, it made little sense to attempt to openly circumvent the power and

 

authority of a center factory. What made more sense was to "give the center

factory boss face" by acknowledging his position in the industry and playing the

role of willing and compliant subcontractor. As with many subcontractors in

Puli, however, Li always had some other business scheme in mind. Aware that

Tai P'ing probably would not "take care of him" in the future, Li had plans for

making money, which I assumed to be outside of Tai P'ing's sphere of control.

As he knew too well, center factory bosses were not very forgiving of

subcontractors who attempted to ply paper in their markets.

342

D. CH’A HU PAPER FACTORY:

A JOB HOPPER

Having apprenticed as a metal worker during the Japanese colonial

period, Mr. Kao's father (whom I refer to as Old Kao), invested his savings in

a small metal-working shop and foundry in Puli in the early 19505. Old Kao

made a considerable amount of money fabricating equipment used to haul

timber out of the mountains which surround the basin. By the late 19505, Old

Kao was looking for another business to invest some of the profits. In 1960, his

wife's brother, who worked at a local paper company, suggested that the two

men go into business together making paper. With Old Kao's money and metal

fabrication skills and his brother-in-law's knowledge of paper making, the two

set up a small paper factory behind Old Kao's metal foundry near the center of

Puli's main market area. Like other paper factories at that time, they started

with only a few tubs and tables staffed by family members and no more than a

handful of workers.

Throughout the 19605, Old Kao struggled to compete with other paper

companies in Puli. When the company failed to make money in the late 19605,

his brother-in-law broke off the partnership. Apparently, he was also

uncomfortable with the fact that Old Kao owned the factory and that it was

located on Old Kao's land. The brother-in-law also knew that one of Old Kao's

two sons might challenge him in the company as they matured into adulthood

and needed jobs. Faced with these prospects, the brother-in-law opted to start

his own paper factory, one that in 1989 produced only machine-made paper.

Following his brother-in-law's departure, Old Kao was undecided about

what to do with his paper business. He had high hopes that his older son, who

 

343

was about to take his college entrance exams, would pursue a professional

career. His younger son, who was less academically inclined, seemed more

interested in the family metal business than in school. If all went well, his sons

would each have a profession and he could phase out his paper company.

Unfortunately, all did not go as planned; the older son failed his college

entrance exams. Faced with the prospect that his two sons might have to work

together in the same metal business, Old Kao decided to maintain the paper

company. After closing his original factory in 1971, he bought property in Ta

Ch'eng Village as close as possible to the center of the paper industry. There he

constructed a new paper factory and a new multi-storied concrete home for his

older son and his son's future family.9 But before could bring his plans to

fi'uition, Old Kao died unexpectedly in the early 19805, leaving his older son in

control of the paper business.

Despite the fact that Old Kao founded his company in the early 19605, it

never developed into a center factory as did some of the other companies

started during that same period. Rather, he either produced and sold paper for

use in the Taiwanese market or he sold paper to other factories in the basin. A

number of workers and factory owners in Puli speculated on why his company

never developed into a center factory. Those who knew Old Kao believed that,

had he not died at such a young age, other companies might now be

subcontracting for Ch’a Hu Paper rather than the other way around. " Old Mr.

Kao was a very competent business man," said one old factory owner. "He

started two completely different companies [metal working and paper making]

and seemed successful at both. But after he died and his 5011 took over the paper

business, the company just went no where."

 

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Notwithstanding his early death, Old Kao appeared to have been

involved in too many other ventures to firlly concentrate on the paper business.

Although Old Kao could have become a center factory owner, he never found

his own customers in the 19605 or 19705. One owner commented that, after

1970, "Old Kao wasn't as aggressive as he could have been. After the other

center factory owners grabbed the Japanese buyers, it was already too late. "

The son as factory boss

When I was first introduced to Kao's son (hereafter referred to as Kao or

Mr. Kao) by a worker from Tai P'ing Paper Company, the son readily agreed to

participate in my research. Mr. Kao was particularly outgoing and had a

reputation among many bosses and workers in the industry as a good person

who loved to socialize. In fact, Kao told me that one of the benefits of being a

boss was that it gave a person time to sit down, drink tea, and talk to his fiiends.

Mr. Kao was 39 in 1989 and lived with his wife, eight-year-old son, and

mother. Every morning Kao got up before 6:00 am. to make the pulp used in

the factory on that day. Like Mr. Li, Kao did not screen paper himself and his

wife, like so many other women in the industry, kept track of the company

books and helped manage the workers.

Kao's factory housed twelve tubs and ten drying tables. If operated at

capacity, the company could employ only about 23 individuals with an output of

approximately 300 reams of paper per month. During my visits to the factory

over the course of the research period, the number of workers fluctuated

between 15 and 20 on any given day. Kao told me that in 198 8, he produced an

average of about 250 to 300 reams a month of common hsuan papers. In 1989,

that average had fallen to between 150 to 200 reams per month, with almost 40

 

345

percent of his output sold to Tai P'ing paper and 40 percent sold to other center

factories. The remaining 20 percent of his output was sold either to the

domestic market or to small overseas buyers. Since 1988, Kao had tried to start

a business relationship with a number of paper retailers in Taipei believing that,

if he could increase his monthly sales to the domestic market by about 35

percent, he could reduce his dependence on the center factories (see Figure

7.1).

Kao had always tried to decrease his dependence on the center factories.

Indeed, soon after he took over the business, he gained a reputation as a "job

hopper." Rather than maintaining a long-term relationship with one center

factory, other factory owners claimed that he sought the best price for his paper

from anyone willing to pay. According to a supervisor at Tai P'ing Paper, when

the demand for paper was high, Kao frequently declined to make paper for Tai

P'ing because they did not offer a high enough price. The supervisor pointed out

that,

Things are much different now [1989]. Business is getting worse

and Kao can't just pick and choose whom he will make paper for.

Just the other day, Mrs. Kao came to our factory and asked if we

had any orders for them. I guess our boss felt sorry for them so she

gave them a small order.

Kao's relationship with center factories

Like other wives in the industry, Mrs. Kao freely aired her opinion about

others in the industry. While rarely professing her close relationship to the

bosses of center factories, she never hesitated to tell me about how difficult

their own and other subcontractors’ lives were because of those center

 

346

factories. She explained that no matter what a subcontractor did, a center

factory found a way to siphon off their profits.

When we all had to buy our raw materials from the center

factories, they charged far more for those materials than what they

cost.

When we didn't have enough money to pay for the

overpriced materials, they would extend us loans with high

interest rates.

It was so easy for us to get into debt. And if we

weren't looking, they would 'eat us up' [take away their factories].

The phrase "to be eaten" was frequently used by subcontractors to

describe what would happen to them if they got too deeply in debt to a center

factory.

In addition, the Kaos introduced me to the concept of maintaining

"broken" or "fragile" relationships. In their view, although the center factories

 

often talked about the importance of a close relationship with their

subcontractors, they actually preferred a kind of broken relationship so that

when business was poor they were not obligated to help their subcontractors.

"This has happened as long as I can remember," explained Mrs. Kao.

The center factories say that if you do more work for us and stay

with us, we will always take care of you. Then, after two or three

months of making paper for a center factory, the center factory

bosses start complaining about quality. Then they cut back on

your orders. In the meantime, you've already told the other center

factories that you can't fill their orders because you are already

obligated to this one center factory. When these center factories

know you are in difficulty then they can demand whatever they

want from you... You become more vulnerable [i.e., receive

lower prices and/or are forced to increase quality].

Expanding on her explanation, Mrs. Kao related an incident that

occurred in 1989. A center factory boss asked her husband to make a lot of

347

paper for him and told her husband that, because the order would last the whole

year, he needed her husband's guarantee that he would do the work.

I warned my husband against taking the job because we had been

cheated before. But the center factory boss's wife pleaded with

my husband to take the work. You know, my husband has a good

heart, so he took the work.

The Kao's committed 75 percent of their production to the one center factory

(not Tai P'ing). Then, less than six months later, the center factory suddenly

sent back 30 percent of the paper made by Ch’a Hu, claiming that the quality

was no good. By the end of 1989, long before the agreement was to expire, the

center factory cut its orders almost completely.

In an attempt to ameliorate the problem, Mrs. Kao telephoned Mrs.

Chang at Tai P'ing Paper to ask if they had any orders for them. Mrs. Chang

was willing to give the Kao's work but only if the quality of the paper improved

and the quantity would be greater than before. But, when Mrs. Chang told Mrs.

Kao the price they were willing to pay for their paper, Mrs. Kao objected.

Mrs. Chang said that we should be able to make enough money as

long as we make more of it [i.e., the low price would be off- set by

increased production]. That old lady wants us to produce good

quality paper at such a low price -- what she really wants is for us

to produce paper for them only. Then we will be held by them,

held by the throat.

On survival

Toward the end of my stay in Puli, Kao, in response to my questioning,

saw no way he could survive in the paper industry after the mid-19905 and

revealed that it was already too late for him to do anything about his situation.

 

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When I asked him why he didn't invest in an overseas' factory like some other

paper companies in Puli, Kao looked at me in disbelief and answered,

I don't have any connections in Southeast Asia or Xiamen

[ Mainland China]. The center factories, furthermore, still have

control over access to the Japanese market. The most important

connection is with a customer. Without that, it doesn't matter

where you make paper.

Barriers to the product market were not the only factors responsible for his

problems, however. In Kao's view, his factory would probably fail one day

because it was too small to lure a Japanese customer away from a center

factory, nor did he know how to speak Japanese. Aware that he had been taking

Japanese lessons during the past few months, I expressed surprise. Pausing for

a moment, he explained, "There is this Japanese trader I know who is coming to

see us in the spring [of 1991]. He knows some paper wholesalers in Japan who

might be interested in buying some paper." When I asked if his meeting might

be risky for him if the center factory owners formd out about it, he explained

that, while in 1985 it would have been risky and that center factory owners

probably would have cut him out of any work, in 1989, the center factories had

cut back on his orders so much there really was not much more that they could

do to him. Moreover, he continued, this Japanese trader was so small, he was

barely noticeable in the market.

The fact that the Kaos gained a reputation for job hopping was probably

due to the fact that they were willing to confront and challenge center factory

bosses. Much less passive and conciliatory toward the center factories than the

Lis, the Kaos believed that center factories should compete for the business of

subcontractors and that they should be held accountable when they don't live up

to an agreement (i.e., they should be required to take an entire order). While

 

349

they did not openly say it, it appeared that the Kaos were frustrated with a

subcontracting system which operated more on concepts of loyalty and

hierarchy than on price signals. By following their "free-market" instincts they

were ostracized by other factory owners and, they believed, often passed over

by center factories who favored subcontractors who were submissive and

"group players."

Positioned outside the normal subcontracting channels, the Kaos'

company resembled a disenfranchised producer wandering the basin for work.

Perhaps because of this, their choice of words and phrases to describe their

relationship with center factories in Puli were peppered with analogies of being

consumed, eaten, dominated, and locked out of the market.

 

350

E. T'UNG SHUEN AND SHAN Ho PAPER FACTORIES:

Two INDEPENDENTS

T'ung Shuen Paper

Established in 1977 by Mr. Chen, T'ung Shuen Paper Company

employed 15 workers in 1989. B055 Chen operated the company with the help

of his wife, eldest son, and daughter-in-law. With an output of about 150 reams

of paper per month, Chen sold 40 percent of his production to Tai P'ing; 50

percent was divided among the other center factories; and the remaining 10

percent sold on the international market.

According to Chen, in the late 19705 and early 19805, he sold most of his

paper to only one or two center factories at a time. "Most of us [subcontractors]

had been upset with the center factory bosses because of the way they

controlled access to raw materials and the product market," Chen explained.

"Then, in the mid-1980 [as with many producers he was not clear on a date],

some of us started selling our paper to whomever [other center factories]

wanted to buy our paper."

Dissatisfied with being relegated to the low-grade paper market, Chen

began experimenting with the production of higher quality paper. By the late

19805, his experiments with different kinds of pulp started to pay off, and he

began to produce a high value-added paper. While he was not specific, Chen

indicated that the bulk of his output was one kind of specialty hsuan paper

which "the center factories could not produce themselves, but the Japanese

wanted to buy. "

According to other subcontractors in Puli, Chen gained a reputation for

producing high quality paper. A procurement (ts 'ai kou 11R9% ) manager at Tai

P'ing paper rated T'ung Shuen's paper as some of the best in Puli. "He produces

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much better paper than Ch’a Hu or Ta Pu. We still haven't been able to make

the paper exactly like Mr. Chen does, so we have to buy it from him." Selling

his paper to the center factories under a " specialized subcontracting"

arrangement, Chen acknowledged,

I was lucky.

I managed to create a special paper which some

artists in Japan want to buy. I came up with my own formula, and

I cut and package the paper myself. The only thing the center

factories do is ship the paper to their customers.

While Chen at first seemed reluctant to reveal how much more money he made

than other subcontractors or what percentage of the final price the center

factories made on his paper, he admitted that, " I really don't know. Sure I

make more money, but sometimes the orders don't come in and I have to make

the same cheap paper everyone else makes."

Shan Ho Paper

Founded in 1974, Shan Ho was operated by Mr. Lin, his wife, son,

daughter-in-law and eight (non-farnily) workers. Having first worked for Tai

P'ing as a subcontractor, Lin started to question the importance of his

relationship with Tai P'ing when the downturn occurred in the industry in the

late 19705. During that period, Tai P'ing did not provide him with any orders

for a number of months and he almost lost his factory through bankruptcy. "By

then I was already worried about how dependent we were on the Japanese and

how unpredictable the demand for paper was," commented Lin. "So I started

thinking of the different ways I could detach myself from subcontracting and try

and build more stability into my business." Lin also indicated that, at the time,

he had a hard time depending on his workers to come to work on time. "I knew

that, because of my small size and problems with labor, I would never be able to

 

352

wrestle a Japanese customer away from a center factory. What Japanese would

want to business with someone who couldn't guarantee delivery because of the

unpredictability of his workers. "

In the late 19705 and early 19805, Lin began making fiiends with a

number of Taiwanese wholesalers and retailers in Taipei, Taichung, and

Kaohsiung. Although the market was small and the price they were willing to

pay for paper was much lower than that paid by the Japanese, Lin found that

domestic buyers were less concerned by on-time deliveries and never ordered

large quantities of paper. Gradually, he began filling small orders for these

buyers while continuing to subcontract.

In the mid-19805, Lin managed to split his production equally between

paper for the domestic market and paper for the center factories. By 1989, he

produced approximately 80 percent of his paper for the domestic market, with

the remaining 20 percent split between paper produced for center factories and

probably for overseas buyers. As with all subcontractors I talked to, he was

extremely reluctant to talk about his customers. When Lin sold paper to the

center factories he tried to sell high value-added paper. "The center factories

really don't want to buy expensive paper from us, " Lin complained, "But many

subcontractors feel its not worth while to make the cheap paper because profits

are so low. "

While Lin's operation remained small over the years, he was far more

optimistic about his future than many larger subcontractors in Puli. This was

probably because he had for a long time carefully analyzed the industry’s

situation. During the early 19805, according to Lin, when demand for paper

was high, many subcontractors made money and expanded their factories. Few

 

353

subcontractors, however, gave much thought to their tenuous position in the

market.

When business is good, the relationship between subcontractors

and center factories is good and everyone is happy. For some

reason, they think that it will always stay that way. But when

business declines, the relationship between producers gets worse

and suddenly all the subcontractors complain that they are not

getting any business. What do they expect when the center

factories control the market?

Lin believed that most subcontractors were short-sighted. No one

wanted to make paper for the domestic market because they could make more

money selling to the Japanese. Because they had not prepared for the decrease

 

in business, they remained dependent on the center factories. "Now that the

Japanese are buying less paper," Lin remarked ruefully, "some of these

subcontractors are trying to sell to the domestic market. But the market is too

small to support them a ."

Despite Lin's independence, he said he liked to "keep in contact" with the

center factories in Puli.

Even though I turn down a lot of work from the center factories, I

occasionally fill a small order. The center factory bosses don't like

it when subcontractors become too independent. They like to

think they are in control. So I try to maintain a relationship with

them.

Aside fi'om his apparent independence, and like others in the industry,

Lin felt the center factory bosses were too powerful to ignore. His movement

into the domain of trade did not always sit well with some of the center factories

with whom he had conducted business in the past. Thus, he attempted to

354

mollify the center factory owners by maintaining some semblance of a

relationship with them.

The owners of both Shan Ho and T'ung Shuen Paper represent

entrepreneurs who had greater success in the industry than did those who

operated companies such as Ch’a Hu and Ta Pu. For T'ung Shuen, success

meant creating and producing a subcontracted paper that center factory

operators were unable to produce themselves and which brought them higher

profits. Nevertheless, unless T'ung Shuen managed to wrestle a customer away

fiom a center factory or develop a new type of high value-added paper before

the center factories learned how to make it, his success might be short lived.

Perhaps aware that he was too small to attract such a customer, Chen remained

 

committed to producing paper for center factories.

As Mr. Lin of Shan Ho paper confided to me one day, "Maybe I don't

make that much profit, and maybe I'm still one of the smaller producers in Puli,

but I'm much more secure than factories twice my size." Having understood

long ago that success in the paper industry could only be measured in terms of

direct access to buyers and not short-term profits, Lin believed he would be in

business long after subcontractors who depended on center factories for work.

Yet, in pursuing his objective, Lin continued to straddle the "independent-

dependent line," by appearing as non-threatening as possible and with no more

ambitious goal than to sell small amounts of paper to a minor market.

Summary

While the preceding discussion provides a glimpse into the business lives

of owners past and present, it also conveys important themes or pattenrs about

the nature of work within companies and the relationships between companies.

 

355

More importantly, these descriptions highlight the interaction between

entrepreneurs and markets over time and how bosses continually attempt to

adapt or adjust to changes which are often beyond their control.

As in any industry, the ability to make a profit is tied to the sustained

demand for a product. In the face of rising wage rates, a labor shortage,

increasing overseas competition, and an unstable demand for a commodity,

profits become more elusive. When confronted with such problems, most

companies operating in a free or open market are left with enough room to

maneuver and can make adjustments in products, production processes,

pricing, and technology.

Ta Pu Paper, the least autonomous company, was entirely dependent on

one center factory because all of its paper had to be sold to Tai P'ing. Ch’a Hu

Paper, on the other hand, sold paper to a number of center factories, yet it

produced only a cheap, low-grade paper commonly made by other factories.

Highly vulnerable to fluctuations in demand, they both prospered when

business was good and suffered when orders were down. In contrast, T'ung

Shuen produced a medium to high value-added paper which could not be made

by a center factory but which had a market in Japan. While its paper was more

profitable than that the paper produced by Ta Pu or Ch’a Hu, the majority of

their paper was sold through the center factories to the Japanese. Finally, Shan

Ho was the only factory in this group which had managed to wean itself from

the center factories. With no more than 10 percent of its production going to the

center factories, Shan Ho was, by far, the most independent.

The relationships illustrated above, however, demonstrate that when the

access to product markets are manipulated by center factories, subcontractors

are left little room to maneuver or make adjustments in order to cope with such

 

356

problems. Rather, through the use of subcontracting, particularly capacity

subcontracting, center factories pass on their own "adjustments" to

subcontractors. Left with the double burden of coping with a center factory's

problems as well as their own, subcontractors quickly found that whatever

profits they made during uptums in the economy were quickly eroded during

downturns.

Further, left with little room to maneuver their enterprises at will,

subcontractors, are reduced to sorting out a fundamental question (or

contradiction) about their relationship with center factories: Why continue in

such an unfair relationship? I believe that, unable to reconcile their position,

yet desperate to remain "factory owners," subcontractors help sustain an

ideology (perpetuated by center factories) which softens the harsh realities

inherent in the relationship. Consequently, they use ideas embedded in

traditional Chinese thought/culture such as self sacrifice, obedience, and

hierarchy, all helping to "numb" their condition and make the relationship

palatable.

When conditions in the industry changed in the 19805, however, some

subcontractors no longer were willing to tolerate their situation and chose to

"fight back." Those who fought either won or lost. Those who lost, had no

need to fall back on the ideology of kinship and family when other more

appropriate ideologies, such as class, were available to convey the nature of the

relationship. Did Mr. Kao believe, for example, that he had little to lose by

characterizing his relationship with the center factories as exploitative rather

than familial? Did Mr. Li and even Mr. Lin, on the other hand, believe it was in

their own interest to continue using the notion of "family" to describe their

relationship with Tai P'ing Paper because more was to be gained maintaining a

 

357

compliant relationship than one which was openly antagonistic? These are

questions which cannot be answered here. They are, however, important

issues which can be raised in future research.

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1

Chang entered into a joint venture with a Japanese partner. This separate company

produced special machine- made papers and was operated as a separate entity. While this

company is also very interesting, I do not discuss it here to avoid complicating the discussion

of hand-made paper production.

2

As with so many of the older factory owners with whom I talked, little was said

about these markets. Rather, most of our conversations centered on the Japanese market

and the tremendous amount of money they made there.

3

Feng sui, literally wind and water, "encompasses a constellation of patterns and

symbols which reflect the notion that human alterations of the landscape do not simply

occupy empty space. Rather, building sites [or offices] are viewed as manifesting certain

properties which influence, even control, the fortunes of those who protrude upon the site"

(from Wei 1992:36 after Knapp 1986:108-109).

4

According to my calculations, the factory employed only 50 workers in the late

19705.

5

By 1989, as much as 90 percent of Tai P'ing's paper was sold to overseas

customers. On average, it shipped 1300 reams of hand-made paper per month.

6

Since the early 19805, however, Tai P'ing has built its own small network of

distributors and wholesalers in Japan. While I tried to obtain information on trading

networks for hand-made paper in Japan, I was often met with resistance from my informants

(most of whom were from inside the company).

7

When I asked Chang what he meant by "taking care of us" he said that his

subcontractors had to promise to complete orders on time, produce good quality paper, and

not to complain about the price he ofi‘ered.

Chang remained the owner of the property and Li had to produce any kind ofpaper

Chang wanted produced.

9

Kao built his factory on land designated for farming. While it was illegal to build a

factory on such land, it was a common practice in Puli Indeed, men often listed their

occupations in the area Hu Kou as farmer in order to purchase farm land.

f” 7'3“

 

CHAPTER VIII

CONCLUSIONS

Working from a theoretically informed and empirically grounded

perspective, this thesis has identified those variables which explain how, why,

and under what conditions individual producers in the hand-made paper

industry were created, were able to accumulate capital, stagnated, or failed.

These variables became apparent only after a thorough examination of both the

internal and external conditions and relations of production since the industry's

 

founding in Puli in 1935. The internal conditions relate directly to the operation

and fimction of individual firms (i.e., the production process, labor /

management relationships) while the external conditions have to do more with

the way individual firms are linked to others in the industry (i.e., the structure

and nature of the labor market, market for raw materials, capital, and finished

product market). Deconstruction of the interplay of these variables over the life

of the industry revealed that the structure and stability of markets was a key

variable in determining success or failure in paper-making. More than any

other variable, markets were unique with regard to external - inter-firm linkages

in that they were subject to the vagaries of exchange (e.g., power relationships

based on oligopoly, oligopsony, and special licensing agreements).

Specifically, the market for raw materials, capital, and the finished product

were susceptible to manipulation and control by a group of elite entrepreneurs

who were the first to establish themselves as producers and marketers in the

paper industry. This control over the access to markets, in turn, played a major

359

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role in determining the ability of “second generation” hand-made paper

subcontractors to accumulate capital.

This chapter is divided into five sections which cover five subjects

relevant to some forms of subcontracting in Taiwan in general and small-scale

production in the hand-made paper industry in particular. In the first section, I

briefly review some of the theoretical positions of the Neoclassicists and

Marxists with regard to small-scale production in capitalist economies and their

overriding emphasis on labor. I argue that with a large portion of manufacturing

centered on segmented production, emphasis should be paid to how inter-firm

relationships are structured in individual industries and how power

relationships are played out. In the second section, I deal directly with my

research findings in the hand-made paper industry and how those findings lend

support to the need to understand small-scale industry at the local level.

Further, I emphasize that an awareness of how production is structured and

transactions executed between firms can reveal how producers attempt to

control access to markets thereby gaining leverage over others in the production

process. Following this section, I turn to the issue of how and why the

traditional Chinese ideology of kinship became an important regulator and

metaphor for inter-firm relationships. Then, I discuss some of the

contradictions inherent in subcontracting. I conclude the chapter with a short

epflogue.

 

361

A. RETHINKING SMALL-SCALE CAPITALIST PRODUCTION

The propensity of both western neoclassical and Marxist scholars to hold

large-scale, vertically integrated production as the prime indicator of economic

development is a trend which has lost favor as more research is conducted on

small-scale enterprises and subcontracting in both developed and developing

industrial economies (Sabel 1982; Hohnes 1986; Blim 1992). On the one hand,

modernization theories, which often take a static neoclassical approach to

small-scale producers (S SP5), have generally concentrated on the internal

 

mechanisms of the individual firm and its cost-rational decision making in the

“free-market.” In general, only Fordist regimes of accumulation were viewed

as "mature industries" because of their "internal economies of scale based on

process flow and assembly line methods, technical divisions of labor, and the

standardization of outputs" (Scott 1988az9; Lipietz 1989).

On the other hand, Marx identified small-scale producers as a pre-

capitalist form of production found during the transition from feudalism to

capitalism in Europe. They were conceived as the temporary rural precursors to

modern capitalism, part of a larger historical process whereby agricultural

production and home industry would eventually give way to a higher order of

production, a revolutionary path to capitalist form of production (Marx

1967a2350-359; 1967b: 334; Dobb 1963: 123). Marx’s understanding of the

development of the capitalist labor process was based on the view that, because

of competition, capitalist employers constantly strive to maximize surplus value

by cutting the costs of production, often by extending the length of the work

day, expanding mechanization, and increasing the division, alienation, and

intensification of labor. Marx further contends that industrial production only

362

really begins when each capitalist enterprise employs a large number of

workers, mechanizes on an extensive scale, and produces relatively large

amounts of commodities (Marx 1967; also see Lenin 1964).1 The

preoccupation with the notion that surpluses could best be realized through the

expansion of centralized employment (capital- intensive production under one

roof), scientific management, and de-skilling ofjobs (see Braverman 1974265),

led to the identification of the direct control over the labor process as the driving

force in the development of monopoly capitalism (Rubery and Wilkinson

1981)

Since Marx’s day, however, the nature of labor has changed. Industrial

complexes have become enmeshed in the global economy and neither Marx nor

the neoclassicists could have understood that large-scale enterprises would be

forced to eventually seek other ways to accumulate capital. While it is beyond

the scope of this thesis to explore all these mechanisms, the efliciencies which

were believed to be inherent in some so-called "mature," large-scale capitalist

organizations have given way to the notion that large concentrations of workers

under one roof can lead to increased conflict between management and labor as

workers (e.g., through unionized action) resist the cheapening of their labor

power or the worsening of their working conditions (Rubery and Wilkinson

1981; Brown 1992). Forced to battle labor within their own enterprises,

large-scale producers run the risk of being held hostage by disgruntled workers.

In addition, the nature of markets has also changed. Much of the stable

demand for standardized products which was long characteristic of mass

markets and was the “cornerstone of mass production,” has increasingly given

way to shrinking, uncertain demand for products (Sabel 19822195; see also

Rubery and Wilkinson 19812122; Malecki 1986; Cantor 1992). The

efficiencies of producing for stable mass markets through mass production

 

363

within firms, therefore, have often surrendered to flexible production processes

between firms and external economies of scale. Capitalists with technological

or market connections, for example, may often leave the production of low

value-added commodities to large numbers of small producers. Competition

thus operates at the level of small-scale production, leaving large capital to vie

for consumer markets and the production of high value-added parts (many of

which are proprietary or critical components), component parts, or finished

commodities.

While it is not necessary to re-hash the various theoretical positions

which try to explain the role of small-scale producers in the global economy, it

is important to briefly reiterate some important points. In generalizing that

 

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small-scale producers and labor are confined to either the formal or informal

sectors as beneficiaries of capitalism or subsumed by it, for example, many

scholars fail to look beyond simple dualities and examine how particular

industrial complexes are structured. Many researchers often do not give

enough attention to the structural details of manufacturing and markets in

specific industries and, therefore, often fail to link the ability of SSPs to

accumulate capital to how production is organized at the external level of the

firm. Rather, small-scale producers should be seen as part of a single

commodity economy, fluid and malleable, and containing multiple forms,

relations, processes whose interaction is guided by multiple, instead of

resulting in one-way causation (Cook and Binford 1990227). Researchers

should also explore the historical processes by which small producers emerge

and how shared experience in the past helps shape social relationships in an

industry in the present.

As this thesis and the work of others (Schmitz 1982; Sabel 1982; Piore

and Sabel 1984; Scott 1988a) have demonstrated, depending on the name of

 

364

specific industries and markets, the “appropriation of surplus value may occur

not only in the labor process, but through other mechanisms” (Littler 1982:28).

These other mechanisms can be found when we take into consideration the

whole “circuit of capita ” (Brown 1992:223). Further, SSPs are not always

"victims" of forces exterior to themselves, nor do all profits necessarily move

toward large capital in the core econonries. In sum, under certain conditions,

such as highly competitive or unstable markets, capitalists are under

considerable pressure to extract surplus value from labor while also trying to

maintain control over the technologies and commodities they are manufacturing

(Moulaert and Swyngedouw 1991). In many industries, this pressure often

drives capitalists into external transactions such as subcontracting.

 

Market access, control, and power: a convergence

The apparent “logic” or “simplicity” of subcontracting relationships

often obscures what, in reality, are highly complex power relationships between

producers and the market. When studying subcontracting relationships within

any industry, therefore, it is imperative to consider two important issues. First,

there is an economic rationale to small-scale production which has to be taken

into consideration. As employed by Scott et al. (1983; 19883), the internal unit

of production is structured by econonries of scale which are based on the

technological and organizational aspects of a firm. Inter-firm relations (the

external), in contrast, are based on economics of scope. Producers of whatever

scale or status weigh both scale and scope efi’ects when making decisions about

how to organize production and whether to produce internally or buy on the

market.

Second, firms involved in subcontracting, however, are not simply

economic automatons which function as distinct and “rationa ” economic units

1‘ 1M

 

365

buying and selling at “arms length” in the free market. Often there is no distinct

disjuncture between the intenral dynamic of the independent firm and its

external market relations. Rather, many firms operate at an intermediate level

(as subsidiaries, affiliates, quasi-subcontractors, subcontractors, workshops,

outworkers, and traders) between the polarities of the independent firm and

fiee market (Schmitz 1982a; Sheard 1983; Scott 1988b). Further, firms which

operate at this intermediate level are often subject to the less precise rules

found in the "free market," and they are formed around a specific historical

backdrop which may include, for example, oligopolistic and oligoponistic

control over access to markets, capital, and technology. When free access to

markets and perfect competition are not present, therefore, relationships

between producers are often structured and mediated by power imbalances.

Because many of these power relationships cannot be overtly exposed for what

they are (i.e., Lmequal and, even, usurious relationships based on coercion and

threat), and because they are not socially palatable, players in an industry may

select and use social and cultural resources which are appropriate to specific

inter-firm contexts in order to help maintain, regulate, and smooth business

relationships (Long and Richardson 1979; Granovetter 1985).

In sum, given that external transactional relations are often highly

complex, do not exist in a "free market" vacuum, and are mediated by imprecise

rules, it is important to identify the location of producers relative to other

producers and traders in the production process and market at any given time.

Only in this way can we gain an understanding of how and in what manner

producers maneuver themselves in an industry and what mechanisms producers

may or may not possess to manipulate and control others (e.g., through the

control of proprietary technologies, markets). I believe that only through such

an approach can we gain an understanding of the conditions under which capital

366

accumulation may or may not occur in small-scale production. As indicated in

Chapter 1, capital accumulation may or may not occur depending on the

nature of the production process, labor, capital, and product markets and

linkages present in specific industries at certain periods in time. The nature of

social and cultural relationships and conditions which emerge as these

linkages evolve over time, furthermore, help shape or regulate the

opportunities and constraints faced by individual producers.

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B. MARKETS AND THE HAND-MADE PAPER INDUSTRY

Throughout the history of the hand-made paper industry in Puli, markets

for labor, raw material, capital, and finished products played a critical role in

determining the direction of the hand-made paper industry and who was or was

not able to accumulate capital. In and of themselves, these variables were not

terribly important. Rather, what was important was how and in what manner

producers in general, and center factories in particular, attempted to manipulate

these markets and make them work to their advantage as the industry changed

over time. Specifically, by gaining control over the access to markets, center

factories were able to exercise considerable power over subcontractors in the

industry. In this section, I briefly review this process and then turn to a

discussion of markets and their importance in the industry.

Labor, early movers, and an emerging pattern of control

As in any labor-intensive industry, the manner in which labor was

organized and used in hand-made paper production was an important variable

in determining capital accumulation. This heavy dependence on labor had,

since the 19605, forced center factory bosses to pursue two strategies. The first

strategy was to continually search for new markets which would purchase high

value-added papers. The second strategy involved the use of subcontract

production.

Since the founding of the industry in Puli, the search for new markets

which would purchase increasingly high value-added papers had been a

perpetual struggle. In the 19305, the industry's Japanese plant sought-out

expatriate Japanese and wealthy and educated Taiwanese to buy paper which

 

368

would bring them high profits. Following World War H, the indusz lost its

market for high value-added paper and, by the 1960s, competition from

machine-made papers and rising wage rates necessitated a shift away from the

production of cheap low value-added papers to high value-added papers. This,

together with the fact that paper producers had been loosing revenue to

middlemen since the 19505, compelled some producers to remove or at least

restrict the ability of independent trading companies on Taiwan fi'om operating

in the hand-made paper industry. This action brought greater profits from the

sales of calligraphy and artists' papers in new markets in Hong Kong, Korea,

and Southeast Asia in the 19605.

By the early 19705, center factory bosses in Puli had managed to secure

small but highly profitable orders for paper from the Japanese market and

establish long-term relationships with customers there. They discovered,

however, there was a major problem that was tied to their new responsibility as

both traders and producers. They inherited the burden of keeping these

overseas buyers happy. This was particularly difficult in the 19705 for two

reasons. First, Japanese buyers pressured producers to maintain quality and

tight delivery schedules in the face of growing but unstable demand for paper in

Japan.

Second, rising wage rates and an unpredictable labor force in the

indusz created problems of maintaining costs and guaranteeing the supply of

paper. If a factory owner invested scarce capital and costly labor in his own

factory in order to remedy these problems, instability in demand and the

subsequent inefficient use of labor and equipment due to factory downtime

might negate any benefits gained by seeming close proximity to the finished

product market. Rather, what was needed was a way to indirectly control

industrial output and extract profits from labor without having to incur the costs

and risks usually associated with such control.

 

369

The emergence of a new group of entrepreneurs in the industry

throughout the 19705, presented a viable alternative to "in-house" mass

production and led to the second strategy employed by the center factories: the

segmentation of production through subcontracting in a way that would insulate

the center factories from market fluctuations. That is to say, center factory

bosses found a new way to: (a) employ small numbers of workers and maintain

managerial control within their own plants; b) keep their workers busy during

periods of low demand; and c) employ their workers in the production of high

value-added papers. Further, by filling the void left by independent trading

houses, center factory owners also placed themselves at the apex of trade and

production, creating market bottlenecks aimed at preventing these new

producers access to Japanese buyers.

Able to insinuate themselves between the product market and their

subcontractors, center factory owners became both producers and middlemen

in the industry. From this position, center factories were able to indirectly

control and administer a large portion of the industry's work force and redirect

problems of labor and tmstable demand onto the shoulders of their

subcontractors. The resulting flexibility gained through the use of

subcontractors served as a important leveling mechanism which smoothed

fluctuations in an industry plagued by uncertain demand for paper. In this way,

most center factories appear to have been able to realize a profit even during the

worst periods in the industry.

As Japanese customers purchased increasingly large amounts of paper

throughout the 19705, the number and size of center factories remained fairly

stable. Through the use of subcontractors, center factories were able to

consistently supply their customers with paper, despite fluctuations in demand.

And, while large Japanese buyers of paper probably could have purchased

 

370

paper directly from subcontractors, many of them were reluctant to do so out of

fear their demands could not be met. For a subcontractor to deal directly with

the Japanese or even entertain such a move, moreover, was a risk most

subcontractors were unwilling to take.

In sum, by controlling access to the market, center factories were able to

gain considerable leverage over the growing number of subcontractors in the

19705 and create a productive/ trade relationship on their terms. The market

barriers erected by center factory owners prevented smaller paper producers

who lacked market connections from trading directly with overseas buyers. As

demonstrated in Chapter VI, center factories controlled the flow of materials,

functioning, as it were, as gatekeepers ofinputs and outputs in the industry (see

model below).

Nevertheless, by the early 19805, subcontractors in Puli were able to gain

some small degree of autonomy. Japan began purchasing paper in greater

quantities and subcontractors were able to secure raw materials at fair market

prices. Some subcontractors, therefore, felt they were secure enough to

redefine their relationship with center factories and to adopt strategies which

had the potential to bring them higher profits and greater security than they had

experienced in the 197 05. For some subcontractors, searching for the best price

for their paper, or "job hopping," seemed to be the best strategy. For others,

becoming "independent" by frrrding one’ s own buyers for paper outside of the

subcontracting relationship was a more logical step. This was accomplished

either by “stealing an overseas buyer from a center factory,” thereby severing

the relationship with a center factory, or gradually finding small domestic

buyers for paper. Finally, there were those subcontractors who chose the

strategy of remaining within the subcontractor center factory relationship, a

 

371

compliant or "dependent" posture which did not challenge the power or

authority of the center factory.

Used as a heuristic device to illustrate how these subcontractors

maneuvered themselves in the industry, these " strategies" were neither constant

nor binding. Rather, subcontractors adopted one or the other as the

socioeconomic context of the industry varied over time. In other words,

subcontractors also did not simply “select” a strategy one day and implement it

the next. A strategy was, if nothing else, the outcome or synthesis of a long-

term relationship between subcontractors and center factories. Well aware that

certain strategies fit particular circumstances, most subcontractors strove to

remain malleable and flexible with respect to their relationships with others in

 

the industry. In essence, the thesis demonstrates that many producers in the

industry aspired to maintainflexibility andfreely move within the production

matrix, pursuing those contacts which provided the greatest profits andfewest

risks.

Manipulating raw material and capital markets as devices for gaining

control and capital accumulation

Cutting out independent traders in downstream markets in the 19603,

was only one strategy employed by center factories in an attempt to gain

additional revenues. By the time subcontracting was under way in the early

1970s, several center factories had already secured connections to "upstream"

suppliers of critical raw materials by signing exclusive licensing agreements

with and /or investing in a supplier's operation. In controlling the access to the

supply of raw materials, center factories were in a position to exercise their

influence and control over virtually every stage of the production process and,

to a lesser extent, the capital market in Puli.

372

Center factories were also able to extract considerable profits from their

subcontractors by requiring them to purchase raw materials at above market

prices whenever an order was passed on from a Japanese customer. With

access to institutional sources of capital severely restricted, furthermore, center

factories also extended credits and loans (by using post dated-checks) to

subcontractors for the purchase of raw materials and, to a lesser extent,

machinery and equipment. Control over access to raw materials and capital,

coupled with control over access to the finished product market, translated into

the ability of center factories to manipulate the price of inputs and outputs in the

industry. Specifically, center factories had considerable leverage in setting the

price of paper including; the price of raw materials sold to subcontractors,

interest rates on loans extended to purchase raw materials (and/or other goods

or equipment), and the type and quantity of paper produced by subcontractors.

All of these factors served to transfer profits from subcontractors into the

cofl'ers of center factories.

Control over product markets: the key to control?

The market funnel model introduced in Chapter VI (Figure 6.8),

describes the way in which center factories formed market connections which

resembled a form of "vertical integration" or "quasi-vertical integration." These

connections extended a center factory's control over subcontractors by creating

what were essentially locally-imposed market bottlenecks which funneled

goods in and out of the industry.

But, in contrast to true vertical integration,

where center factories take advantage of economies of scale, much of the

production of paper was performed by subcontractors, thereby benefiting

center factories through economies of scope.

 

373

In an elaboration of that model, Figure 8.1 points out how control over

access to the finished product market by center factories formed the critical axis

in the relationship between production and markets in the hand-made paper

industry. While this control rarely (if ever) extended into overseas product

markets (i.e., beyond overseas buyers and into the distribution of paper to

wholesalers and retailers), center factories found they could penetrate

"upstream" and gain some control over the access to market for raw materials

and, to some extent, the capital market. Fashioning a kind of “control pyramid”

in the industry, center factories were able to glean profits as inputs passed from

suppliers into the production pyramid and outputs passed out of the production

pyramid into overseas markets. Forming a sphere of control at the points of

exchange, center factories were able to find " other ways of appropriating

surplus value" (Littler 1982: 28). In essence, center factories were able to forgo

the direct control of labor in favor of other mechanisms to earn profits within

the whole circuit of capital (1992:223).

 

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374

product market

 

wholesalers and retailers

uppliers '

~ overseas buyers and distributors

raw material

and capital

market

«y

sphere of control

 

over access to markets:

I

‘ center factories collect

 

h

profits as inputs and outputs

f

enter and leave the circuit

‘ center actory

which surrounds the sphere

 

subcontractors

 

paper producers

Figure 8.1 Production and Market Pyramid in the Hand-Made Paper Industry in the 19705

By the early to mid-19805, the leverage center factories enjoyed over

their subcontractors had diminished. No longer in control of the raw material

market, center factories simply took a percentage of the profits when finished

paper passed fi'om their subcontractors on to the Japanese. Nevertheless, by

maintaining control over access to the product market, center factories were

able to continue to select orders of high value-added paper for themselves and

pass low value-added orders on to their subcontractors. During slumps in

demand for paper, furthermore, center factories were still able to maintain full

productivity in their own plants while their subcontractors often went without

work.

 

375

Capital accumulation and the relationship to product demand

The fact that four major center factories remained in business since their

founding before the 1970s speaks to their success in controlling both access to

markets and their subcontractors in the industry. Of the 30 subcontractors

established after 1970, however, only slightly more than half (18) managed to

stay in business until 1989. Further, only nine of these 18 companies were able

to become either "casual or quasi-center factories" or "independents" while the

other half remained full-time subcontractors (see Chapter IV, Table 4.6).

Despite the industry’s problems toward the end of the 19803, casual-center

factories and independents were making money and were relatively secure.

While the fate of the remaining subcontractors was less certain, those who

were able to produce high value-added paper as "specialized" or "supplier"

subcontractors were also able to accumulate capital. Those companies which

remained involved in "capacity" subcontracting (e. g. , Cha Hu Paper), however,

were projected go bankrupt by the mid-19903.

Whatever the case, many subcontractors managed to make money in the

hand-made paper industry. Some subcontractors remember the early 19703 as

good years while others remember the early 19803, and even 1987 and 1988, as

more profitable periods. Still others reported that even when business was

poor, there were some months when profits were high and money could be

made. Needless to say, most subcontractors indicated that success or failure in

the industry was dependent on timing, luck, the nature of their relationships

with center factory owners, and their skills as businessmen and paper makers.

All these owners, however, believed that their success also hinged on what

was occurring in the market from one month to the next. In the words of one

informant, “If consumers in Japan stopped buying paper for two or even three

months when we expected a lot of business, we could easily go bankrupt.”

 

376

While it is difficult to know the exact circumstances and the status of

companies which went bankrupt, most informants indicated that these

companies were all subcontractors. That is to say, few if any reached the status

of a "casual or quasi-center factory" or became an "independent" before going

out of business. My own observations of factories still in operation in 1989

indicate that the five subcontractors in decline were either operating under

"special agreements" or were involved in "j oint ventures" with center factories.

Functioning as a buifer against fluctuations in the market and a safety

valve for center factory owners, subcontractors were not insulated from

fluctuations in demand. Specifically, when demand was low, the use of

subcontractors was reduced while center factory operators maintained full

 

productivity (and efficiency) in their own factories. With few orders available

to the industry, center factories had considerable leverage over subcontractors

and were able to pressure them to compete for business, thereby ultimately

lowering revenues for subcontractors. If during downturns in the market a

subcontractor was trying to make payments on a piece of machinery or pay off

a debt to center factory for raw materials, he could lose his business. In

addition, if a subcontractors relationship with a center factory was not good,

there was the possibility that a center factory would simply not pass along a

critical order that could save a business.

When demand for paper was high, center factory owners were under

pressure to deliver large orders on-time. Bringing the productive capacity of

their subcontractors to bear, center factories often found themselves under

pressure to offer subcontractors better prices than what they may have

otherwise received when demand was low. With greater leverage to negotiate

higher prices for their paper, many subcontractors were able to make money.

How and in what manner subcontractors used those revenues often spelled

377

success or failure. Some factory owners spent their earnings on expanding their

factories or on a new house, while others were said to have "drunk their profits

away."

While the upgrading of some machinery or expanding a factory's

capacity might have been a good business move in the short run, it often did not

make any difference in the long run. As one subcontractor, who I interviewed

in the midst of his empty factory, related,

When business was good in the early 19803, I thought it would last

forever and I spent all my money expanding my factory to where I

had over 50 workers. Now I only have two workers. I just didn't

understand at the time that it didn't necessarily matter how large a

factory I had. What mattered was having my own customers or at

least producing a paper which no one else could make and for

which their was a market.

This seems to be the important lesson factory owners in the hand-made

paper industry eventually came to learn and understand. The critical element in

sustaining an enterprise in this industry was predicated on building a network of

customers to whom one could directly sell paper. It appears that those factory

owners who understood the importance of this and acted on it before the late

19803 had a chance to survive. All producers understood that the longer they

were denied access to the market and, remained on the lower rungs of the

production hierarchy, the longer they were separated from lucrative contracts in

the market which brought high profits.

The research on the hand-made paper industry demonstrates that both

the individual firms and the markets for which they were formed were dynamic

“social institutions” (Scott 1988) which evolved over time. Further, markets

were endogenous to the evolution of this industry and were an important force

that acted to “shape the competitive process rather than being a blind outcome

 

378

of the same process” (Magnusson 199416 emphasis added). In the final

analysis, gaining control over access to markets was the linchpin or key variable

in the hand-made paper industry because it enabled firms to: (a) obtain a direct

link to buyers and sellers outside of the confines of the industry and Puli; (b)

gain a degree of security and sustainability not otherwise obtainable when a

middleman (who is either a trader or center factory) made decisions about who

got what; (c) secure high profits for their paper since only they (and not a

middleman) profit from the sale of their paper; and, (d) be in a position to gain

additional profit by manipulating others in the production process through

subcontracting. Those firms fortunate enough to attain such control were likely

to be able to accumulate capital, survive, and sometimes thrive in an industry

known for fierce competition and market instability.

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C. KIN AFFILIATIONS AND FAMILY IDEOLOGY AS A MEDIATOR AND

METAPHOR FOR INTER-FIRM RELATIONSHIPS

When I began my investigation of the paper industry, my research plan

called for investigating what role kin relations played both within individual

firms and between firms. My search for "kin connections," as it were, was

driven by past research on Chinese and Taiwanese firms which emphasizes the

role of family in the creation and operation of small companies (Mark 1972;

Greenhalgh 1984; 1988; Wong 1985). While I discuss the role of kin

relationships within family firms elsewhere in the thesis (see Chapter V), I

believe a few comments should be made about the nature of kin ideology

between firms in the hand-made paper industry.

Despite the fact that kin relationships were not thought of as particularly

important or desirable in the hand-made paper industry, the ideology of the

"extended family" was employed as a way of sanctioning the relationship

between center factories and subcontractors in the 19703. The idea of

belonging to a family or kin group was not "just invented," however. Rather,

"the extended family" was adopted from a Chinese and, perhaps, Japanese

social and cultural repertoire as the most logical way of articulating the

relationship between a subcontractor ("the child") and the center factory ("the

patriarch")(see Long and Richardson 1978). Ifwe take this reasoning one step

further, the changing nature of relationships between producers in the paper

industry since the 19503 could be seen in terms of ‘society’ acting as a

regulatory force shaping the behavior of actors within the industry (Polanyi

1944; see Granovetter 1985). Adopted as a model of behavior within what was

essentially a hierarchical relationship of production, center factories were

380

theoretically supposed to provide security and some profit for subcontractors,

while subcontractors were obligated to reciprocate with loyalty and obedience.

Idealized as a relationship bound by a kind of benevolent trust between

companies, there was little or no provision made for the realities of capitalism.

In a business where markets extending far beyond the confines of Puli

ultimately determine who makes profits and when, it was only a matter of time

before subcontractors discovered that center factory bosses did not have their

best interests in mind. While many subcontractors admitted in 1989 that they

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were “used” and “exploited” in the 19703, few would have openly expressed

their feelings about this situation at that time and in those terms. For

subcontractors to describe their relationship with center factories as anything

but symbiotic or at least mutually beneficial, however, would do little to change

the reality of the relationship. Aware that their continued existence in the

industry meant “towing the line” for center factories, most subcontractors had

little choice but to accept their position and hope that they could accumulate

capital when demand for paper was high. With the ideology of family and

kinship shrouded in vague ideas of kuan-hsi (relationship) and jen-ching (social

obligation), subcontractors were provided an acceptable alternative to the

harsh realities of being a subcontractor. Virtually powerless to effect change,

other more “acceptable terms” such as belonging to an “extended family” were

used to describe their position in the production process, a term which, in the

present, was an oxymoron to many subcontractors.

Exactly when or why the ideology of family fell from favor is not

altogether clear. The data suggest that, in the early 19803, at least four factors

converged to change the character of the industry. These four were: (a) the

ability to purchase raw materials at fair market prices; (b) the increased demand

for paper; (c) greater profits which accrued from that demand; and, (d) a

‘
5
—
b
a
f

 

381

simmering resentment and distrust of center factories. All four factors provided

subcontractors not only with greater autonomy and bargaining power with

respect to center factories, but "an excuse" to sever or, at least, thumb their

noses at their "familial relationship."

In a sense, many subcontractors had their first opportunity in the early

19803 to chose and/ or implement a strategy for surviving and making money in

the industry. Some chose with whom to subcontract or even what kind of paper

to subcontract. Others, chose to become independent. Whatever the strategy

or combination of strategies a subcontractor might have pursued, he appeared

to attach less importance to how his relationship with a center factory was

articulated.

While it is difficult to make a direct or specific connection between the

status of markets and the nature of relationships at any given time, I believe that

as economic conditions in the hand-made paper industry changed over time so

too did the nature of relationships between subcontractors and center factory

owners. As the demand for paper fluctuated or as markets opened or closed it

is likely that the way relationships were perceived in the industry also

fluctuated. Ftuther, few individuals would have thought of their relationship to

others as static. Instead, the very survival of the smallest subcontractor and

even the largest center factory depended on a flexible pragmatism and

malleability which allowed for change or at least the possibility of change to

take place. This was a pragmatism which one month might lead a subcontractor

to act like a "dependent" or in the next might result in an attempt to become an

"independent." Time and conditions all played a role in how one "played one’s

hand."

As a final comment, we must guard against an overly functionalist

interpretation which directly links changes in the market to changes in the

382

nature of social relationships between firms. I believe, however, that more

research should be conducted on how and in what manner markets impact on

the formation of relationships between firms in an industry over time and vice

versa. More specifically, my own research on the personal computer industry

in Taipei, Taiwan has lead me to believe that less restrictive product markets

allow for the creation of relationships between producers which is more equal

than that found in the paper industry. Greater access to markets, furthermore,

permits family members greater freedom to explore and exploit connections to

suppliers and buyers upstream and downstream from their family-run

businesses. Whatever the case, before one can adequately understand how kin

or other social connections are formulated and operate in a given industry, it is

 

critical to also understand the productive and market structure between firms

and how it may or may not impact on how social relationships are formed and

played out in an industry.

 

383

D. THE CONTRADICTORY NATURE or SUBCONTRACTING RELATIONSHIPS:

A CAVEAT

The contention that “Fordist” production is vulnerable to conflict

between labor and management (or what Marx would describe as a

contradiction between labor and capital) and fluctuations in cyclical or seasonal

demand, often ignores the many problems inherent in flexible accumulation.

Specifically, the increased productivity and flexibility gained through

subcontracting in some industries can also create a volatile structure of

production which can appear symbiotic and collaborative on the one hand, and

antagonistic and contradictory on the other. That is to say, many of the

problems which exist within large-scale manufacturing do not simply disappear

when production is subcontracted.

During the 19703, for example, the emergence of subcontracting in the

hand-made paper industry was the result of forces operating from two

directions and motivated by completely different circumstances. On the one

hand, workers (i.e., fi'om the "bottom up") were under pressure to become their

own boss because of their low pay and status in the industry. Competitive

pressures imposed by the changing nature of the market and related problems of

cost containment from "the top down, " on the other hand, motivated center

factories to use subcontracting and outwork as a method of maintaining

flexibility, reducing risks, and cutting costs. Coming together as they did, these

two forces created the conditions conducive to subcontracting and a pool of

highly competitive subcontractors, all of whom constantly jockeyed for

position within the industry.

 

384

The attempt by center factories to shift the burden of production on to the

shoulders of subcontractors, however, exposed a number of problems in the

industry which threatened the very existence of the subcontracting system

itself. These problems became particularly acute when demand for paper was

low (as it frequently was) and competition intensified between subcontractors

for business from center factories.

Wary of tying capital to fixed investments, center factories chose to farm

out as much of their production of low value-added paper as possible while

saving the production of high value-added papers for themselves. With little or

no access to the product market, however, subcontractors were forced to

compete with each other for orders doled out by center factories, thereby

 

reducing the price center factories had to pay for paper. Theoretically, by

allowing subcontractors to take the brunt of downturns in the industry, center

factory owners forced subcontractors either to become more efficient producers

or to drop out of the market.

In reality, however, the pressure to maintain profitability forced many

subcontractors who were able to remain in business throughout the 19703 and

19803 to produce increasing quantities of paper, often resulting in a decline in

quality.

Ftu'ther, given their control over access to raw materials, capital, and

the finished product market in the 197 03, there was every indication that center

factories attempted to extract profits at virtually every opportunity. In addition

to taking a percentage of profit off the final selling price of paper manufactured

by their subcontractors and sold to the Japanese, center factories also charged

subcontractors high prices for raw materials and the loans they extended to pay

for those raw materials.

Given that the emergence of subcontracting in this industry enabled

center factory bosses to avoid over-committing and over-exposing their own

385

labor and resources to the market, we might ask why center factories would

endanger the advantages they gained from the relationship by creating

additional burdens for subcontractors and so threaten the very existence of the

subcontracting system? Was this simply a matter of short-sighted greed or

were there other conditions operating at the time? What accounted for this

contradictory behavior which, on the one hand, helped to create the conditions

under which subcontracting in Puli could exist and, on the other, appears to

have been causing its destruction?

I believe that in many inter-firm productive relationships such as

subcontracting in the paper industry, the actors involved in those relationships

often do not behave according to an identifiable “economic logic” simply

because they are not always free to chose from whom they buy and to whom

they sell. Given that behavior toward others in the industry is regulated by

economic, social, cultural, and political forces, at any given moment in time, a

strategy pursued by a firm may make little “economic or business” sense in the

long-run, but may make perfect “social” or “political” sense in the short-run.

As indicated in this thesis and the work of Schmitz (1982), Scase (1982), and

Scott (1988), subcontracting and outwork are often structured on the basis of

power relationships in which some players enjoy an unequal advantage in

markets, technology, capital, or labor.

In the case of the hand-made paper industry in the 19703, center factory

bosses may have understood the role subcontracting played in the industry.

They may have believed that the power they exercised over the market for

inputs and outputs, together with the continued emergence of new

subcontractors, provided them with enough confidence (and a buffer) to extract

as much surplus value from their subcontractors as possible without fear of

destroying the system. It was also possible, on the other hand, that some center

 

386

factories may not have fully understood the importance of maintaining a healthy

or viable subcontracting sector; in addition, it would appear that center factories

were unaware or may never have understood the apparent incongruity, that

capitalizing on the subcontracting sector might destroy the very system which

created their wealth in the industry.

Whatever the case, the owners of center factories understood that the

extraction of profits did not have to be relegated to the domain of labor within

their own operations. They understood that profits could be taken at any

number of points along the production process because of their control over

both the access to upstream and downstream sectors of the industry and the

rules governing the exchange of those inputs and outputs. Suffice it to say, the

importance of subcontractors to center factories may have been in their dual

role as bufl‘ers against downturns in demand and rising wage costs in the

long-run, and a means of accumulating quick profits in the short-run.

By the mid-to late 19803, however, a new set of conditions forced both

subcontractors and center factories to come to terms with the changes in the

industry. With labor less available at home and increasing competition from

cheap labor markets in Mainland China and Southeast Asia, as many

subcontractors went bankrupt, new ones came into the business. On the one

hand, it was during this period that some subcontractors had the opportunity to

select a strategy which might ensure their survival at least into the late 19903.

There were, after all, at least four subcontractors who, by the end of the 19803,

had managed to become casual- center factories while another five were

operating on an independent basis, selling paper to small domestic or overseas

buyers. The impact of the overall decline in the number of subcontractors, on

the other hand, forced center factories to take responsibility for a growing share

of production. Undoubtedly alarmed at how work was shifting from

 

387

subcontracting to their own operations (and all the problems inherent in having

to pay and manage a large expensive labor force), center factory owners made

plans to transfer their production overseas in the late 19803. Once those plans

were laid, it was only a matter of time before the entire industry would "pack

up" and move overseas.

 

388

E. EPILOGUE

The decline of the hand-made paper industry in Puli is just one example

of how industries don't die but rather just " move on. " Markets usually wait for

no one as competition to offer a commodity at the cheapest price drives

capitalists to create a myriad of strategies to maintain profitability. In the end,

however, the pressure to "escape" to cheaper labor markets eventually wins out

and an industry will literally "gut itself" in an attempt to maintain immortality.

For those factory owners and workers in Puli who are unable to follow

their industry to cheaper labor markets, however, their way of life is over.

When I left Taiwan in the spring of 1991 , the subcontractors I had come to

know were already thinking of how they would shift their efforts to the service

industry and take advantage of Puli's proximity to vacation spots in the

mountain resorts that surround the area, while center factory owners were well

on their way to moving their production to factories overseas. Two of these

owners, furthermore, were already making plans to preserve their place in

history by building museums highlighting their "pivotal" role in the hand-made

paper industry. Perhaps this is Puli's fate. Left without industry, Puli may have

to resort to memorializing its by-gone industries as tourist attractions, a strategy

already learned in the once thriving textile mill towns in my hometown in New

England.

 

389

 

’

Lenin dealt with the issue of small-scale producers in a more flexible manner than

Marx Following his research on the Russian peasantry, Lenin discovered that many peasant

handicraft producers appeared involved in capitalist relations of production. Although the

majority of peasants remained active in agricultural production, many were also involved in

simple manufacturing and/or involved in wage work with merchants involve in putting-out

and brokering (Lenin 1964: 373-85 and Cook and Binford 1986, Schmitz 1982:436).

Lenin's findings also indicate that when large families became involved in earning off-farm

income, wage labor was often employed; all of which indicated the beginnings or foundation

for capitalist production.

Essentially, Lenin's research indicated a strong interrelationship between agriculture

and home production. Given the right conditions, however, small- scale production as an

incipient from of capitalism, might displace the former as a primary means ofproduction and

capital accumulation. Cook and Binford (1986) believes that the major contribution of

Lenin's work, should be seen where agricultural production and small- scale production are

mutually exclusive. That there often exist a mix or a interrelationship between agricultural

production and small-scale production which may eventually lead to proletarianization or

embourgeoisement, but rarely stagnation.

Lenin's grasp of subcontracting and outwork is particularly astute. According

Schmitz, Lenin, saw the " petty bourgeoisie theorists who devise policies for the support of

small-scale(subcontracting and putting-out) producers...[as promoting measures] which

would, first, mainly benefit the buyer-up (parent firm); second, help to preserve conditions

ofwork and remuneration far worse than those of the workers directly employed by

Capitalists firms; and, third, retard the development of industry and fully fledged capitalism

(SGhmitz 1982:436).

 

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