Industrialization in the Development Industrialization in the Development ProcessProcess

The Development StageThe Development Stage

Developing countries characterized by a high Developing countries characterized by a high degree of subsistence productiondegree of subsistence production

Agricultural sector is paramount and importantAgricultural sector is paramount and important While industrialization does not insure While industrialization does not insure

development it does have some healthy development it does have some healthy implicationsimplications

It implies: technology applicationIt implies: technology application It implies: raising productivity per workerIt implies: raising productivity per worker It implies: releasing labor for other tasksIt implies: releasing labor for other tasks But all sectors must move forward and some But all sectors must move forward and some

balance is desirablebalance is desirable

Industrialization As A Panacea?Industrialization As A Panacea?

Industrialization is not a panacea or cure Industrialization is not a panacea or cure all but it does carry with it some important all but it does carry with it some important attributesattributes

1. Employment for deepening labor market1. Employment for deepening labor market 2. Allows improvement in standard and 2. Allows improvement in standard and

quality of livingquality of living 3. Improves balance of payments3. Improves balance of payments 4. Provides certain element of national 4. Provides certain element of national

prestigeprestige

Industrial SectorsIndustrial Sectors PrimaryPrimary-that part of the economy that specializes in the production of -that part of the economy that specializes in the production of agricultural products and the extraction of raw materials. Major agricultural products and the extraction of raw materials. Major industries include mining, agriculture, forestry, and fishing. industries include mining, agriculture, forestry, and fishing.

SecondarySecondary: manufacturing portion of the economy that uses raw : manufacturing portion of the economy that uses raw materials and intermediate products. Industries include: motor vehicle materials and intermediate products. Industries include: motor vehicle assembly, textiles, and building and construction activities.assembly, textiles, and building and construction activities.

Tertiary sectorTertiary sector- the services and commerce portion of an economy. - the services and commerce portion of an economy. Includes both Includes both consumerconsumer (individuals) and (individuals) and producer producer (firms) services. (firms) services. Repair of capital goods (e.g. ships), haircuts, medical care, and Repair of capital goods (e.g. ships), haircuts, medical care, and transport (e.g. taxis and air cargo—consumer and producer transport (e.g. taxis and air cargo—consumer and producer respectively. respectively.

QuaternaryQuaternary- that portion of a region's economy devoted to - that portion of a region's economy devoted to informational and idea-generating activities (e.g., basic research, informational and idea-generating activities (e.g., basic research, universities and colleges, and news media) and includes the universities and colleges, and news media) and includes the production, processing, and consumption of production, processing, and consumption of informationinformation. .

QuinaryQuinary activities involve high level decision making or activities involve high level decision making or control control functionsfunctions that manipulate the vast resources of private businesses that manipulate the vast resources of private businesses and governments.and governments.

Comparing Industry versus AgricultureComparing Industry versus Agriculture Farmer has little control over his environment: pests, Farmer has little control over his environment: pests,

droughtdrought Agricultural production is generally slower and product Agricultural production is generally slower and product

cannot be quality controlled as in manufacturingcannot be quality controlled as in manufacturing Agricultural commodities are susceptible to wide price Agricultural commodities are susceptible to wide price

swings in the global marketswings in the global market Relative inelasticity of demand for agricultural products, Relative inelasticity of demand for agricultural products,

i.e. if prices fall more purchases are not assuredi.e. if prices fall more purchases are not assured Technology has had a much greater impact on industry Technology has had a much greater impact on industry

than agriculturethan agriculture Increased specialization of labor in manufacturing results Increased specialization of labor in manufacturing results

in higher productivityin higher productivity Therefore manufacturing offers a stronger base for Therefore manufacturing offers a stronger base for

raising the levelraising the level

Nature of Industry in DevelopmentNature of Industry in Development

Heavy industry- large scale production of capital Heavy industry- large scale production of capital goods: iron, steel, machine tools, car production, goods: iron, steel, machine tools, car production, ship buildingship building

Location determined by access to and Location determined by access to and availability of raw materialsavailability of raw materials

Requires well developed transport infrastructure Requires well developed transport infrastructure and power supplyand power supply

Heavy capital investmentHeavy capital investment High proportion of relatively skilled workersHigh proportion of relatively skilled workers Large scale to achieve economies of scale Large scale to achieve economies of scale

Nature of Industry in DevelopmentNature of Industry in Development

Light industries- generally refer to consumer Light industries- generally refer to consumer goods: paints, tools, etcgoods: paints, tools, etc

Relies on semi-processed as opposed to raw Relies on semi-processed as opposed to raw materialsmaterials

Less energy per laborer requiredLess energy per laborer required Less complex machinery and lower capital Less complex machinery and lower capital

investment – operations in simpler buildingsinvestment – operations in simpler buildings Scale of operations more suited to small, limited Scale of operations more suited to small, limited

marketsmarkets

Progression of Industry as Development Progression of Industry as Development MaturesMatures Processing of low value, locally available materials Processing of low value, locally available materials

or resources Examples: vegetable oil and sugar or resources Examples: vegetable oil and sugar milling, pineapple and fish canning, jute and cotton milling, pineapple and fish canning, jute and cotton spinning, timber, pulpspinning, timber, pulp

Processing materials previously exported as raw to Processing materials previously exported as raw to increase earnings from export of finished products increase earnings from export of finished products Example: rubberExample: rubber

Industries which produce goods for agricultural Industries which produce goods for agricultural sector: tools, insecticides, pesticidessector: tools, insecticides, pesticides

Manufacturing of cheap consumer goods: cigarettes, Manufacturing of cheap consumer goods: cigarettes, soft drinks, sauces, batteries, bicycles, food productssoft drinks, sauces, batteries, bicycles, food products

Industries using local skills and traditions: rattan and Industries using local skills and traditions: rattan and textile (batik)textile (batik)

Strategies for IndustryStrategies for Industry Import Substitution Industry (ISI)- produce locally Import Substitution Industry (ISI)- produce locally

more goods previously importedmore goods previously imported Manufacturing done behind high tariff walls or quota Manufacturing done behind high tariff walls or quota

policiespolicies Too often results in production of non-essential Too often results in production of non-essential

consumer goods for a limited segment of the urban consumer goods for a limited segment of the urban market ignoring rural areasmarket ignoring rural areas

Contributes little to a diversified and significant export Contributes little to a diversified and significant export structure since investments are absorbed by structure since investments are absorbed by inefficient production firmsinefficient production firms

Usually discouraged in structural adjustment Usually discouraged in structural adjustment programs (SAPs)programs (SAPs)

Structural Adjustment ProgramsStructural Adjustment Programs Used to describe generically the activities of the World Used to describe generically the activities of the World

Bank and International Monetary Fund in packages of Bank and International Monetary Fund in packages of policy reformpolicy reform

Central aims of these programs are to:Central aims of these programs are to: Reduce debt that has accumulatedReduce debt that has accumulated Introduce policy and institutional change necessary to Introduce policy and institutional change necessary to

modify structure of economymodify structure of economy Move from agrarian dominance to industrializationMove from agrarian dominance to industrialization Instruments: currency devaluation, monetary discipline, Instruments: currency devaluation, monetary discipline,

reduction of pubic spending, trade liberalization, reduction of pubic spending, trade liberalization, privatization of public enterprises, wage restraints, privatization of public enterprises, wage restraints, subsidy removal, institutional reform-especially financialsubsidy removal, institutional reform-especially financial

Principal Instruments of Structural AdjustmentPrincipal Instruments of Structural Adjustment Currency devaluation-encourage tradeCurrency devaluation-encourage trade Monetary discipline- interest rate controlMonetary discipline- interest rate control Reduction of public spending- lower expenses on Reduction of public spending- lower expenses on

“grandiose” projects“grandiose” projects Price reforms- price commodities to sell and reward Price reforms- price commodities to sell and reward

producersproducers Trade liberalization- remove tariff barriers to ease flows of Trade liberalization- remove tariff barriers to ease flows of

tradetrade Reduction and/or removal of subsidies- especially gasolineReduction and/or removal of subsidies- especially gasoline Privatization of public enterprises- sell SOEs to private Privatization of public enterprises- sell SOEs to private

firmsfirms Wage restraints- control wage levelsWage restraints- control wage levels Institutional reforms- improve credit and especially banking Institutional reforms- improve credit and especially banking

sectorsector

Cottage and Small Scale Industries:Cottage and Small Scale Industries:Textile, Batik and HandicraftsTextile, Batik and Handicrafts

Cottage and Small Scale IndustriesCottage and Small Scale Industries

Often outside scope of modern manufacturing Often outside scope of modern manufacturing organizationorganization

Carried on in rural areas, family and local labor which Carried on in rural areas, family and local labor which is unskilled- full or part timeis unskilled- full or part time

Batik- complex, low productivity per worker absence of Batik- complex, low productivity per worker absence of power-often high import content (higher quality cotton)power-often high import content (higher quality cotton)

But provide a good for export marketsBut provide a good for export markets Provide employment opportunities for largely illiterate Provide employment opportunities for largely illiterate

workforceworkforce Too often unimaginative design, crude workmanship, Too often unimaginative design, crude workmanship,

tend to withdraw into areas where few alternative tend to withdraw into areas where few alternative opportunitiesopportunities

Strategies for IndustryStrategies for Industry

Export Oriented Industry (EOI)Export Oriented Industry (EOI) State is producing goods for export and engaged State is producing goods for export and engaged

in trade as a means of expanding national in trade as a means of expanding national revenuesrevenues

Protection is decreased while diversified exports, Protection is decreased while diversified exports, often with subsidies, are promoted through an often with subsidies, are promoted through an aggressive trade policyaggressive trade policy

Increasing demanded under SAPs so Increasing demanded under SAPs so manufacturing becomes secure manufacturing becomes secure

Constraints on Industrializing ProgressConstraints on Industrializing Progress

Legacy of colonial rule when industry was Legacy of colonial rule when industry was suppressedsuppressed

Deficient infrastructure especially transportDeficient infrastructure especially transport Capital shortage to invest in new opportunitiesCapital shortage to invest in new opportunities Low educational levelsLow educational levels Lack of entrepreneurial skillsLack of entrepreneurial skills Limited size of marketLimited size of market Corruption, weak legal system and lack of Corruption, weak legal system and lack of

transparency reduces appeal of foreign transparency reduces appeal of foreign investorsinvestors