MOBILIZING RESOURCES FOR DEVELOPMENT

MOBILIZING RESOURCES FOR DEVELOPMENT

The process of economic development is, in essence, a continuous series of structural changes by which human resources are adapted and equipped for a greater degree of specialization of function and effort, agriculture is made more productive, manpower is transferred to non-farm occupations, particularly in industry, and provision is made for the appropriate infrastructure for a more diversified economy. The process is not readily divisible into discrete and separately manageable phases it is a continuum, and lags that cause imbalances at one point soon tend to be reflected in imbalances at other points. Nor is the process in any one country a closed or self-contained system it is subject to an endless barrage of impulses from the rest of the world, not all of which facilitate the requisite changes.

Of all the possible causes for lags and imbalances in the development process, the most common among the developing countries in the post-war period have been deficiencies in investment and in imports. In varying degree, all the transformations which constitute development are contingent upon the amount and suitability of the investment and the availability of supplies of the requisite imports. Thus, viewed from the financing side, the pace and smoothness of economic development depend very largely on the adequacy of domestic savings on the one hand and foreign receipts on the other.

In low-income societies, the difficulty of generating savings is always likely to constitute a constraint on the rate of growth. Most of the developing countries are characterized not only by low average incomes but also, as indicated above, by high rates of population growth which greatly accentuate the problem of increasing per capita savings and hence the amount of capital equipment at the disposal of each person. 

Nor does the skewness of income distribution, found in so many developing countries, serve to raise saving rates in the way it tends to do in higher-income countries paucity of investment opportunities and the rudimentary nature of the local capital market both militate against the beneficial deployment of personal incomes. 

Moreover, the higher-income group in the developing countries is peculiarly vulnerable not only to the so-called "demonstration effect" persuading it to maintain levels of consumption more appropriate to an advanced economy than to an under-developed one but also to the temptation to transmit resources abroad, even in circumvention of official restraints.

Business enterprises, particularly corporate bodies, have shown themselves to be a more promising source of savings in recent years. But their impact is limited partly by the slow growth and spread of this form of organization, partly by the paucity of financial intermediaries capable of channeling such savings to the most productive uses and partly by the fact that many of the major corporate enterprises are foreign-owned,  so that their savings become available to the economy, if at all, only as foreign investment.

Governments have hitherto played a much smaller role in generating savings than might seem consistent with their predominant part as planners and executors of development programmers. The explanation lies partly on the revenue side and partly on the expenditure side  'there are special difficulties in expanding the former and in contracting the latter so that the opportunities for accumulating current surpluses for use in public investment tend to be very circumscribed.

In most developing countries, because of the lowness of income levels, Governments are faced with a relatively narrow tax base. Administrative difficulties tend to constrain it even further, so that, in many cases, it is linked very closely to foreign trade taxes on commodities moving inwards or outwards or on the events of those engaged in growing, mining or trading in such commodities.

Whereas the progressive income tax that is common to more advanced countries tends to make government revenue very responsive to economic growth, in the developing countries tax revenue tends to be not only rather inelastic relative to total production but also extremely vulnerable to changes in world markets.

On the expenditure side, most Governments find themselves in an equally tight situation.  Their responsibilities tend to vary inversely with the state of development so that it is often the poorest that are called upon to take the initiative and provide the most services. It takes an unusually strong administration to refuse the claims and appeals of an aspiring electorate. When the services are obviously in line with the development needs of the economy (as in the case of schools and hospitals, for example), recent experience has shown that it is very easy to enter into commitments (perhaps only implicitly, as in the erection of buildings) which are embarrassingly difficult to fulfill in terms of subsequent current expenditure. 

The very fact that special responsibilities rest on the public sector not only for stimulating and sponsoring development activities but also for implementing many of them tends to swell the general administrative costs of government. Budgetary flexibility and the capacity to generate a current surplus are also affected by the need to service debt, particularly in cases where the proportion of non-revenue-producing infrastructure has accounted for a large proportion of government borrowing and investment.

Notwithstanding all these difficulties the great majority of developing countries did succeed in raising their savings ratios in the course of the ten years, 1955-1965  about half, indeed, increased the rate by more than 3 percent of their gross domestic product, and one-third by more than 6 percent, and in the aggregate, the rate had risen from about 12 percent of gross domestic product in 1955 to 14 percent in 1965. Despite this improvement, however, in 1963-1965 only about a fifth of the developing countries recorded average savings rates 20 percent of gross domestic product or more approximating those common in the more advanced countries, and these included the major exporters of petroleum. 

A higher proportion of a fourth-of the developing countries still had savings rates of under 10 percent. On a per-capita basis, the range of performance remained very wide--from less than $10 per person in some of the poorer countries of Africa and Asia to over $100 per person in some of the higher-income countries of Latin America.

Exports in favors of goods in more buoyant demand, for, apart from the difficulty of producing new commodities at competitive costs, access to external markets has often been obstructed by trade policies pursued in partner countries, by ignorance of opportunities and conditions in distant foreign markets and by the absence or inadequacy of the various commercial mechanisms through which goods are moved and financed.

Over the ten years 1955-1965, the exports of the developing countries have increased in total by an average of 4 percent a year--the manufactured component (including metals) by 8 percent, fuels by 7 percent, food-stuffs by 3 percent, raw materials by 2 percent.  As with every other variable, the average subsumes a considerable range of performance, from declines in such countries as Brunei, Burma, Cambodia, Colombia, and Singapore, to gains of over 10 percent a year in China (Taiwan), Iran, Israel, Jordan, Liberia, Libya and the Republic of Korea.  

Nor were these differences the result of price changes (the spread of export quantum data was very similar) they reflect chiefly the lag in agriculture at one end of the spectrum and a high mineral-manufactures content at the other.

Most developing countries have found it necessary to augment their own savings by drawing on the savings of the rest of the world. The balance of payments deficit through which this is accomplished, however, is often less a reflection of any official decision to tap external resources than of a failure of the economy to generate the required exports or of the world market to maintain the price level of those exports. With the outstanding exception of those countries with exportable mineral resources-particularly petroleum most developing countries have experienced considerable difficulty in expanding their export earnings at a rate commensurate with their import requirements.

To some extent, this difficulty has had its origin in production problems in the traditional export sector, but more significant in most cases has been the fact that the great majority of the export products of the developing countries especially the traditional agricultural commodities have faced slow-growing markets responsive neither to increases in income nor to reductions in price. This has proved particularly difficult for countries supplying a major proportion of the market for their leading export commodity attempts to increase to any significant degree the volume of their exports of the item in question has tended to reduce its price and hence threaten their receipts. 

Nor has it proved easy for a developing country to change the structure of its By modifying the international division of labor, the process of economic development will itself tend to diffuse the pattern of world trade new trade flows will expand and traditional flows contract. But the growth of trade among the developing countries which is implicit in this transformation has been shown by recent experience to be far from assured and automatic progression. The growth of nationhood in the post-war period has tended to reinforce, at least temporarily, the competitive relationships among developing countries. 

Development objectives and the planning mechanisms for formulating and implementing them have almost inevitably been national in. scope and content, even when the national unit has been too small to sustain a significant degree of industrial diversification. 

Only through deliberate linking of trade arrangements and investment decisions is a viable industrial structure likely to emerge and that implies a degree of the economic integration of small economies that may take a considerable time to achieve.

Even such market-widening integration would not reduce the need of the developing countries concerned for foreign exchange indeed, an acceleration in investment and intra-trade would probably enlarge the requirements that could be met only by imports from the more advanced countries. For at the root of this aspect of the development problem is the structural deficiency of most of the developing countries in respect of capital goods production. While economic integration of the smaller economies may be essential for the establishment of viable capital goods industries, the very effort to build up such industries is likely to increase the demand for imports.

 This phenomenon has been a feature of even the largest of the developing countries, notwithstanding the capacity of such economies to provide a sizable share of the capital goods required for their own development. Indeed, under the impact of the "demonstration effect" in respect of consumer goods and the rapid change in technology in respect of producer goods, a it is these larger countries that have most consistently underestimated their propensity to import. In recent years, their balance of payments has remained most precarious and foreign exchange stringency has exercised a major constraint on their economic growth.