Informality and Flexible Specialization: Apprenticeships and Knowledge Spillovers in an Indian Silk Weaving Cluster

ABSTRACT This article draws on quantitative and qualitative data from the Banaras (Varanasi) silk weaving cluster in North India to show how informal institutions based on family and community interact with the relations of production to enable flexible specialization while reproducing or accentuating inequality. The family‐based apprenticeship system produces a supply of highly skilled workers but contributes to labour surplus by lowering the costs of entry and making exit difficult. Surplus labour ensures that productivity gains resulting from technical improvements do not accrue to weavers as higher wages. A community of artisans called the naqsheband (designers) produces fabric patterns that are central to the industry's market. Geographical clustering results in quick diffusion of these designs and free imitation is the key to innovation. But this entails hyper‐competition, conservative changes, a culture of secrecy and quickly dissipating monopoly rents. The Banaras case enables us to understand how collective efficiencies as well as inefficiencies are created by the same institutions.