Economic Development in the Backward Countries

...Taking into account future increases in population, the FAO calculates that total food supplies must be doubled by 1980 and trebled by 2000 to provide a reasonable level of nutrition for the world's population...

...This is true regardless of whatever progress is made in Indian agriculture...

...even these had to be simplified, as there is no space here for substantiation, differentiation, or qualification...

...If, as is often obviously rational, investment capital and human resources (both of which will always be limited, even if the developed countries provide far more assistance than at present) are to a large extent put into fully modern, fairly large-scale industries, the additional labor demand will be small...

...This long-term trend is reason enough for the underdeveloped countries to give prominence to industrialization in their development plans...

...The conclusion that planning must take into account a very rapid increase of the agrarian labor force becomes a more serious challenge in face of the fact that the present labor force is underutilized on a vast scale—a situation that is popularly termed "underemployment...

...Although the policies I have briefly recommended are in the interests of the advanced nations—interests which can only be reinforced by the international tensions created by the continual frustration of the under190 developed countries' efforts to develop—the advanced nations cannot be expected to carry out these policies because of rationality and idealism...

...With the steady increase in the agrarian labor force—which, without rapid economic development, is itself causing increased inequality—an extremely dangerous situation is developing...

...The FAO Freedom from Hunger Campaign has underlined the extremely low productivity of labor and land in the underdeveloped countries...

...The danger is all the greater because this belief serves vested interests (and many wishful thinkers) with an excuse for not facing up to the real and difficult problems involved...

...Nonetheless the difficulties facing such policies are very great...

...If the advanced nations were willing to accept higher price levels than the forecast averages, this would make the problem of stabilizing the prices of underdeveloped countries' traditional exports much easier to solve by commodity agreements...

...A country like India, whose population will double before the turn of the century, cannot in the long run hope to raise the dismally Iow living standard of its masses, or even retain the present one, unless a very much higher proportion of its labor force is employed in industry...

...Underdeveloped countries have far better reasons for joining together than the six West European countries in what they euphemistically call a "Common Market...

...Unfortunately, these spread-effects are again a function of the levels already reached...

...There is a danger that, in their efforts to pursue industrialization, many underdeveloped countries are achieving the same result of building small enclaves within a much bigger economy that remains backward and stagnant...

...In most cases, moreover, it would not involve competing in those sectors where industrialized nations should be eager to expand—the sectors where technology is highly advanced and capital input particularly heavy...

...To press for such a policy is therefore of the utmost importance and urgency...

...There has been much talk about this but little action...

...and I want to emphasize from the start that this article should not be construed as implying that underdeveloped countries must not do their utmost to build up industry as fast as possible.t The need for this is particularly pressing in countries with a high population land ratio...

...Many underdeveloped countries, indeed probably the majority, would not be in an immediate position to make use of such preferences...

...This is another practice which stems from colonial traditions...

...Second, failure to reach this goal implies a world catastrophe whose import is terrifying...

...During the considerable period in which industrialization creates only insignificant new employment, that part of the agricultural labor surplus which takes refuge from agrarian poverty and oppression by moving to the cities will be characterized by the same underutilization of labor as in agriculture: it will go mostly into petty trading and services of various sorts, or will swell the number of odd-job seekers, unemployed, and beggars...

...For all this, and however beneficial the results, the quantitative effects of opening up more favorable export outlets for new industries should not be exaggerated...

...The Population Explosion The fact that for many future decades industrialization will not create much additional net employment in underdeveloped countries, starting from a small industrial base, must now be considered in conjunction with the fact that, over the same period, the labor force in all underdeveloped countries will increase by more than 2 per cent a year, and in some countries by very much more...

...First, that they be prepared to eliminate all purely fiscal duties and taxes on the underdeveloped countries' exports...

...First, most of this increase in food production must take place in the underdeveloped countries, which implies a sharp swing against the present curve of their agrarian development...

...From this point of view industrial development for export and for import-substitution has an advantage in addition to those usually recognized...

...Pressure from the underdeveloped countries themselves is necessary...

...The first is that the advanced industrial countries must now be prepared to accept what I have called a double standard of morality in regard to commercial and financial policies —one which, for once, gives license to the weaker instead of the stronger...

...But no underdeveloped country can industrialize exclusively along these lines...

...If the range of the advanced nations' imports were extended not only to the underdeveloped countries' traditional exports but—within certain quotas—to new industrial goods free of tariffs and import restrictions, this would be welcomed by the underdeveloped countries which are trying to diversify their production and exports...

...Moreover, the high percentage of youth in the underdeveloped countries' populations implies a tremendous momentum toward high birthrates...

...The rational solution would be to give the new experimental agency for agricultural surplus disposal, created by the FAO, the funds to pay such countries for their exports, even if these are in turn given away as aid to other underdeveloped countries...

...The experience of many underdeveloped countries in the colonial era, in which great spurts of industrialization produced strange and isolated enclaves, should be warning enough that these effects are likely to be small...

...It is much easier to construct factories, often with foreign aid in capital and technicians, than to change social and economic agrarian conditions and the attitudes to life and work of millions of povertystricken peasants...

...Autarchic economic development has been forced on the underdeveloped countries by the restricted scale of grants and credits...

...If this issue is relegated, if it is given no more than second "priority," then this type of planning is inviting its own defeat, however successful it is temporarily in constructing a few factories...

...They are not in a position to give away their exports...

...Intellectuals in underdeveloped countries largely pin their hopes on industrialization...

...and other rich countries inevitably tends to destroy their markets...

...As this pressure becomes increasingly vocal, rationality will come to play a part in the policy-making of the advanced nations...

...And the peasants, sunk in apathy, ignorance and superstition which their poverty not only causes but maintains, do not protest because of their very apathy...

...When we reach this point in awareness, we have to face that the main blockage to such an advance is political and institutional...

...Their import restrictions, unlike those of the advanced countries, can never cause the volume of international trade to shrink...

...My own studies lead me to believe that this is an underestimate rather than the contrary...

...If the image of industrialization can be put forward as the essential requirement for what wishful thinking calls the "take-off" to "self-sustaining" growth, then these interests need not concern themselves either with the failure to change economic and social conditions on the land, or with the failure to increase agrarian productivity...

...To the extent that these and other reforms require the investment of capital and foreign exchange, such investment serves industrialization—the construction of factories producing fertilizers and agricultural machinery—as well as any rational and productive development plan...

...Urbanization on any scale in underdeveloped countries unfortunately does not, and cannot, equal industrialization...

...In many underdeveloped countries power is in the hands of reactionaries who have, or believe they have, an interest in preventing those changes in landownership and tenancy that would give the peasants both incentives and possibilities to exert themselves for reaching higher productivity...

...My main conclusion, however, is that industrialization alone is insufficient...

...The Necessary "Double Standard" Up to this point I have considered the issue of underdevelopment as a problem of internal, national policy...

...Even if a policy to spread birth control can have little effect on the size of the labor force for three decades, it has nonetheless immediate and beneficial effects on age distribution and, consequently, on the level of per capita income, savings potential, and labor productivity...

...Without enlarging on this subject, I want here only to stress again the principal conclusions I have drawn from these facts...

...Patterns of world trade are glutinous, rooted as they are in conditions of production that are not changed overnight...

...Always more than half—and in some underdeveloped countries anything up to 80 per cent—of the total population earn their living from the land...

...As the advanced nations are becoming increasingly willing to give aid, this would be both a convenient and cheap way of providing this aid in a form that directly strengthens the underdeveloped countries' economies...

...But much will depend on whether the advanced industrial nations are prepared to reshape their policies in such a way as to facilitate this development...

...It would be of little consequence to the advanced industrial nations, as only a few underdeveloped countries would be in a position to build up new export industries, standardize and raise their production, and develop an efficient marketing organization...

...Similarly in India—a country which not only promoted industrialization but steered it into import-substitution while protecting its traditional manufacturing—a comparison of the census figures for 1950 and 1960 shows that industrialization had hardly any effect on the proportion of the labor force earning its livelihood from agriculture...

...These, in particular their import and exchange controls, are in fact less due to their own choice than forced upon them by the harsh necessities of their internal development and deteriorating international trade position...

...Aid in agricultural products from the U.S...

...If anything, they are meant as an argument for starting as Soon as possible and proceeding as fast as 183 possible, the sooner to reach the end of the transitional period—that long period during which industrialization does not significantly serve to create employment and its spread-effects remain minimal...

...But in some part it is caused by fiscal levies which keep down consumption even of such tropical products as coffee whose imports do not compete with domestic production, and by other forms of protection which directly or indirectly are detrimental to these exports...

...I am thus asking for a larger plan—a plan designed to encompass effective agricultural reforms...

...A second conclusion is that the advanced nations must cooperate sympathetically with every attempt of the underdeveloped countries to combine to enlarge their internal base for agricultural and industrial development whether on a regional or world scale...

...I omit these not because their problems are uninteresting or unimportant, but because the vast majority of people in the underdeveloped world have no access to such resources...

...At this point I may be excused for expressing my surprise that these simple facts have not been recognized by economists who constantly refer to industrialization as the means by which the increased labor force in underdeveloped countries can be employed outside agriculture...

...The causes for the deterioration of the underdeveloped countries' trading position are permanent and will continue to dominate the development of international trade, perhaps increasingly so, as the studies made by the secretariats of the regional economic commissions have shown...

...t I also want to make clear that in an article dealing with so vast a subject, my remarks are necessarily limited to a few bare essentials...

...This is particularly necessary in the present conditions of underdevelopment, when everything must be done to prevent industrial development being frustrated and finally aborted...

...The FAO has calculated that close to one-half of the world's population suffers from hunger or crippling malnutrition or both—and this half lives in the underdeveloped countries...

...The FAO has studied the problem, and resolutions for land reform and similar measures are constantly being passed by the Economic and Social Council and the U.N.'s General Assembly...

...the latter is a given quantity for decades ahead, almost entirely independent of what happens to fertility...

...Second, that they lower and finally eliminate the protective trade barriers they have erected which, directly or indirectly, limit demand for imports from the underdeveloped countries...

...Even with such preference, underdeveloped countries would face difficulties in competing with the industrialized nations which already benefit from the internal and external markets they have developed, as well as from their powerful research resources...

...A third conclusion is that the advanced countries must be prepared to give the underdeveloped countries preferential treatment in international trade...

...But in practice little is accomplished in most underdeveloped countries...

...It is a dangerous illusion to believe that there can be any significant economic development in these countries without radically raising the productivity of agricultural labor...

...It should be noted that a decrease in the birthrate, especially a gradual one, will have no effect on the size of the labor force for 15 years, and only a very minor effect for at least three decades...

...while demand for their exports has lagged, their import needs have increased...

...Industrialization is the dynamic force in an underdeveloped country's economy operating by raising the level of technical interest and knowledge, mobility, readiness for experiment and change, enterprise, and rationality even outside industry...

...The advanced countries can have few rational reasons for failing to recognize this necessity, since the underdeveloped countries will always use whatever foreign exchange resources they can acquire to keep their imports as high as possible...

...It must be recognized that the advanced nations may need a transitional period to meet this latter demand—though not in the former—as it implies a shrinkage of domestic production...

...Their productive potentialities may otherwise remain unutilized, particularly when their natural customers are other underdeveloped countries which are short of foreign exchange...

...There must, therefore, be means by which a very great increase in labor input and efficiency can raise yields per acre very substantially...

...in no major underdeveloped country has such a policy as yet been pursued with sufficient effectiveness to bring substantial results...

...181 provide sufficient employment for the underutilized labor force in these countries...

...The tragic experiences in Latin America in the postwar period, its major inflations and its retarded development, are not unrelated to the fact that vested interests have so far blocked most of the major agrarian reforms on which agricultural development—and also industrial development—depends...

...187 Their resulting balance of payments gap has until now been made up by foreign grants and credits which—with the exception of relatively limited direct private investments—have not been on strictly commercial terms...

...indeed, they often talk about decreasing the labor force presently employed in agriculture...

...This assumption is on the whole false or, at least, only partly true...

...Countries with populations of hundreds of millions, such as India and Pakistan—both of which have more than two-thirds of their labor force employed in agriculture—are on a suboptimal level of nutrition and are increasingly dependent on American 185 charity to feed themselves...

...In any case, they would not be able to avail themselves of such preferences on any major scale...

...Furthermore, when industrialization implies rationalization of earlier, more labor-intensive industries, or when these can no longer compete with the new industries, the net effect on labor demand may be negative: in this case industrialization releases more labor than it employs...

...Many of the necessary investments in agriculture are, moreover, highly labor-intensive which would mobilize underutilized labor for all sorts of permanent improvements of the land...

...To the extent that this has been due to low income-elasticity of demand and technological change, the trend is irreversible...

...this would come only later when they have achieved a higher degree of success in over-all development...

...But the pressure must be reasoned and accurately directed at all the important issues...

...For those few underdeveloped countries that have reached more advanced forms of planning and have emphasized the need for industrialization, the conclusion of my analysis is, not that they should have chosen otherwise, but that they should direct this emphasis to maximal advantage for agricultural development, which is of paramount importance for the success or failure of their economic development...

...Two things are clear...

...This is so because the additional labor demand, created by industrialization, is a function not only of the speed of industrial growth but of the low level from which it starts...

...But, at the same time, awareness of the facts should encourage serious efforts in other directions...

...This implies that in the early stages of industrialization "backwash" effects decrease, wipe out, or even reverse the efforts to create new employment...

...But, for many future decades, even a much more rapid process of industrialization than that achieved by most underdeveloped countries will not • Mr...

...At this point it is worth noting that there will be no spontaneous 182 decrease in fertility in the underdeveloped countries, but that such a decrease could be brought about only by a policy of governmentsponsored family planning...

...As yet no scientific basis, founded on intensive, localized research and taking into account the climatic conditions in the tropical and subtropical zones of most underdeveloped countries, has been elaborated...

...Even more important is that the problem of raising—rapidly and radically— the productivity of labor and land be squarely faced...

...Similarly, efforts to raise the levels of education, health, and hygiene do not require heavy expenditure of capital or foreign exchange...

...I should add that most of my detailed knowledge is of South Asia...

...Agricultural Development I want to repeat that these remarks are not an argument against industrializing as rapidly as possible...

...It must not be forgotten that the overwhelming bulk of underdeveloped countries' exports is of traditional exports, and that the greater part of these consists of agricultural products which make up about 70 per cent of their total exports...

...And since no one can be against industrialization, this reinforces the arguments of those in positions of influence in the underdeveloped world who often have direct personal interests in industrialization...

...Rational agricultural policy must therefore be directed toward more intensive utilization of an underemployed labor force that is constantly and rapidly increasing...

...This means, in effect, expanding on an international scale 188 the sort of solidarity which the advanced nations now afford to their own lagging regions and industries...

...Two things can be asked of the advanced industrial nations which are themselves in the process of rapid development and therefore should be able to take them in their stride...

...The conclusion is evident: if, for several decades, little or no new employment can be generated by industrialization, while the certainty remains that the labor force will increase by between 2-4 per cent annually, then the greater part of this increase must remain outside industry, mainly in agriculture...

...A further point I wish to stress is the extreme importance of increasing multilateralization—at least to the degree of the FAO's aid in food and other agricultural products to the underdeveloped countries—so that present or potential surplus countries are protected, indeed encouraged, to produce agricultural products for this type of export...

...It is an illusion to believe that any substantial improvement can be made in the underdeveloped countries' 189 international trading position without tackling the problem of defending their markets for traditional exports which, for years and probably decades, will constitute the bulk of what they have to sell...

...Indeed, in the absence of such development plans on a wider front, even the most strenuous attempts to industrialize will most probably not prevent increasing misery, particularly in the poorer countries...

...These efforts, in most underdeveloped countries, have bordered on the feeble, even when considered exclusively from the point of view of productivity, in their potential effectiveness of relieving the peasantry of its apathy and traditional irrationality...

...We must note in passing that this is a necessity which for various reasons none of the now highly developed countries faces or ever faced during their development...

...About this there is general agreement...

...Only then will new and effective policies be formulated to end the underdeveloped countries' struggle for development...

...Within these countries the masses of the undernourished are peasants...

...Food production in South Asia as a whole has, in recent decades, swung from surplus to deficit...

...I had to exclude from my analysis those small areas of the world where underdeveloped countries have oil and other resources, for which the demand is rapidly rising because of the advanced nations' development...

...The facts I have pointed to, and the conclusions I have reached, move me, in any discussion about priorities in these terms, to give first priority to agriculture...

...Even in countries who have enlightened national leaders, the landlords, money-lenders and other middlemen frequently use their power locally to subvert legislative reforms...

...If they are not to lose every chance of developing, the underdeveloped countries cannot afford to relinquish their protectionist and autarchic policies...

...In a study of development in the Central Asian Republic of the Soviet Union, undertaken by the Secretariat of the Economic Commission for Europe, it was found that, despite heavy industrialization, the labor force employed in manufacturing decreased for more than - two decades until the industrial base became so large that its continued rapid advance brought about a correspondingly large increase in demand for labor...

...Superficial Planning It is in this light that we can see the danger of considering industrialization as a cure-all for the problems of underdevelopment...

...In the long run it would bring about an acceleration of an international division of labor that would be of advantage even to the advanced countries...

...Myrdal originally presented this paper before the Italian Society for International Organizations...

...As their trading balance worsens and their planning improves, we can expect this trend to develop still further...

...Again, I am surprised that this obvious conclusion is so seldom stressed, 184 Land Reform In a short article I cannot examine the implications of this conclusion for agricultural planning, except to point out that successful agricultural development requires an entirely new technology in the underdeveloped countries...

...Since the First World War, the underdeveloped countries' trading position has steadily worsened...

...These countries, and the rest of humanity with them, cannot afford to fail in the task of achieving a more intensive use of a rapidly increasing underemployed agrarian labor force...

...The main cause of the underdeveloped countries' worsening international trade position lies in a falling-off in the growth of demand for their traditional exports, and in particular for agricultural products...

...First, the necessary institutional reforms are costly neither in scarce capital resources nor in foreign exchange...

...The immediate cause of poverty, and thus of underdevelopment, in these countries, is the extremely low productivity of labor in agriculture...

...This viewpoint is essential, for the destiny of these countries will be determined principally by their own efforts of consolidating themselves as effective political units prepared to bring about the radical social and economic changes necessary for development...

...Given the two facts of an increase in the labor force—which we can safely predict will continue to the end of this century—and of an unchanging, if not actually decreasing demand for labor caused by industrialization, we cannot avoid coming to an important policy conclusion: any realistic agricultural policy must reckon on a tremendous increase in the agricultural labor force...

...More generally, without the underdeveloped countries' progressive industrialization, it will be impossible to prevent the ever-widening income gap between rich and poor countries from continuing to grow as it has done for a century...

...There is, however, one ray of hope: the present productivity of land in the underdeveloped countries is exceedingly low...

...Agriculture is by far the largest sector in the economies of all underdeveloped countries...

...This mode of thought is encouraged by the tendency to superficial planning which can be observed in the prejudiced and careless reasoning about priorities...

...But this- mode of reasoning assumes that 186 there is a choice in which the answers are mutually exclusive...

...In the long run, such structural adjustments for the use of their own labor force and productive capacity would accord with their rational interests, since it is not generally to their advantage to tie up resources in these sectors of production...

...But it is beside the point to relate, as is only too often done, the problem of population increase to the problem of "finding employment" for the increasing labor force...

...their struggle to industrialize has focused on import substitution and on applying ever stricter exchange and import controls in order to preserve their scarce foreign exchange resources for essential consumption and development...

...The reluctance among many agricultural experts to press the issue, and their tendency to evade it by taking refuge in technological questions is equally dangerous...