Industrialization in the Development Process

1
Industrialization in the Development Process
2
The Development Stage

• Developing countries characterized by a high
  degree of subsistence production
• Agricultural sector is paramount and important
• While industrialization does not insure
  development it does have some healthy
  implications
• It implies technology application
• It implies raising productivity per worker
• It implies releasing labor for other tasks
• But all sectors must move forward and some
  balance is desirable

3
Industrialization As A Panacea?

• Industrialization is not a panacea or cure all
  but it does carry with it some important
  attributes
• 1. Employment for deepening labor market
• 2. Allows improvement in standard and quality of
  living
• 3. Improves balance of payments
• 4. Provides certain element of national prestige

4
Industrial Sectors

• Primary-that part of the economy that specializes
  in the production of agricultural products and
  the extraction of raw materials. Major
  industries include mining, agriculture, forestry,
  and fishing.
• Secondary manufacturing portion of the economy
  that uses raw materials and intermediate
  products. Industries include motor vehicle
  assembly, textiles, and building and construction
  activities.
• Tertiary sector- the services and commerce
  portion of an economy. Includes both consumer
  (individuals) and producer (firms) services.
  Repair of capital goods (e.g. ships), haircuts,
  medical care, and transport (e.g. taxis and air
  cargoconsumer and producer respectively.
• Quaternary- that portion of a region's economy
  devoted to informational and idea-generating
  activities (e.g., basic research, universities
  and colleges, and news media) and includes the
  production, processing, and consumption of
  information.
• Quinary activities involve high level decision
  making or control functions that manipulate the
  vast resources of private businesses and
  governments.

5
Comparing Industry versus Agriculture

• Farmer has little control over his environment
  pests, drought
• Agricultural production is generally slower and
  product cannot be quality controlled as in
  manufacturing
• Agricultural commodities are susceptible to wide
  price swings in the global market
• Relative inelasticity of demand for agricultural
  products, i.e. if prices fall more purchases are
  not assured
• Technology has had a much greater impact on
  industry than agriculture
• Increased specialization of labor in
  manufacturing results in higher productivity
• Therefore manufacturing offers a stronger base
  for raising the level

6
Nature of Industry in Development

• Heavy industry- large scale production of capital
  goods iron, steel, machine tools, car
  production, ship building
• Location determined by access to and availability
  of raw materials
• Requires well developed transport infrastructure
  and power supply
• Heavy capital investment
• High proportion of relatively skilled workers
• Large scale to achieve economies of scale

7
Nature of Industry in Development

• Light industries- generally refer to consumer
  goods paints, tools, etc
• Relies on semi-processed as opposed to raw
  materials
• Less energy per laborer required
• Less complex machinery and lower capital
  investment operations in simpler buildings
• Scale of operations more suited to small, limited
  markets

8
Progression of Industry as Development Matures

• Processing of low value, locally available
  materials or resources Examples vegetable oil
  and sugar milling, pineapple and fish canning,
  jute and cotton spinning, timber, pulp
• Processing materials previously exported as raw
  to increase earnings from export of finished
  products Example rubber
• Industries which produce goods for agricultural
  sector tools, insecticides, pesticides
• Manufacturing of cheap consumer goods
  cigarettes, soft drinks, sauces, batteries,
  bicycles, food products
• Industries using local skills and traditions
  rattan and textile (batik)

9
Strategies for Industry

• Import Substitution Industry (ISI)- produce
  locally more goods previously imported
• Manufacturing done behind high tariff walls or
  quota policies
• Too often results in production of non-essential
  consumer goods for a limited segment of the urban
  market ignoring rural areas
• Contributes little to a diversified and
  significant export structure since investments
  are absorbed by inefficient production firms
• Usually discouraged in structural adjustment
  programs (SAPs)

10
Structural Adjustment Programs

• Used to describe generically the activities of
  the World Bank and International Monetary Fund in
  packages of policy reform
• Central aims of these programs are to
• Reduce debt that has accumulated
• Introduce policy and institutional change
  necessary to modify structure of economy
• Move from agrarian dominance to industrialization
• Instruments currency devaluation, monetary
  discipline, reduction of pubic spending, trade
  liberalization, privatization of public
  enterprises, wage restraints, subsidy removal,
  institutional reform-especially financial

11
Principal Instruments of Structural Adjustment

• Currency devaluation-encourage trade
• Monetary discipline- interest rate control
• Reduction of public spending- lower expenses on
  grandiose projects
• Price reforms- price commodities to sell and
  reward producers
• Trade liberalization- remove tariff barriers to
  ease flows of trade
• Reduction and/or removal of subsidies- especially
  gasoline
• Privatization of public enterprises- sell SOEs to
  private firms
• Wage restraints- control wage levels
• Institutional reforms- improve credit and
  especially banking sector

12
Cottage and Small Scale IndustriesTextile,
Batik and Handicrafts
13
Cottage and Small Scale Industries

• Often outside scope of modern manufacturing
  organization
• Carried on in rural areas, family and local labor
  which is unskilled- full or part time
• Batik- complex, low productivity per worker
  absence of power-often high import content
  (higher quality cotton)
• But provide a good for export markets
• Provide employment opportunities for largely
  illiterate workforce
• Too often unimaginative design, crude
  workmanship, tend to withdraw into areas where
  few alternative opportunities

14
Strategies for Industry

• Export Oriented Industry (EOI)
• State is producing goods for export and engaged
  in trade as a means of expanding national
  revenues
• Protection is decreased while diversified
  exports, often with subsidies, are promoted
  through an aggressive trade policy
• Increasing demanded under SAPs so manufacturing
  becomes secure

15
Constraints on Industrializing Progress

• Legacy of colonial rule when industry was
  suppressed
• Deficient infrastructure especially transport
• Capital shortage to invest in new opportunities
• Low educational levels
• Lack of entrepreneurial skills
• Limited size of market
• Corruption, weak legal system and lack of
  transparency reduces appeal of foreign investors