While many studies examine the relationship between labor repression and economic development, few address the developmental implications of state-labor relations in democratic countries. Yet the rapid spread of democracy through the developing world highlights the need for such an investigation. In this dissertation, I show that in a democratic context, politically affiliated unions respond differently to changing local and global economic conditions than nonaffiliated unions. In particular, I argue that political parties are encompassing organizations that internalize the externalities associated with the protest of their affiliated unions. Thus, unions affiliated to major political parties respond to more competitive markets by restraining union protest and encouraging institutionalized forms of grievance resolution. In contrast, nonaffiliated unions are more likely to use worker frustration to ratchet up militancy against recalcitrant employers and encourage the use of extreme and violent forms of protest. I support these arguments with data gathered during 18 months of field research in four regions of South Asia: Sri Lanka and the Indian states of Maharashtra, Kerala and West Bengal. The findings of the dissertation call into question the conventional wisdom that partisan unions are inimical to economic development.