RAISING PRODUCTIVITY

RAISING PRODUCTIVITY

Though the process of economic development is essentially a matter of raising human productivity, it cannot go very far without organizational changes. To make even the simplest traditional tasks of producing food, clothing, and shelter more efficient requires the regrouping of human effort in more specialized and more closely co-operating teams. And while the process 'has to begin with the traditional tasks, it soon involves new products and new forms of productive organization based on inter-industry relationships which tend to grow more complex. Underpinning the whole structure in almost all developing countries is the agricultural sector, the oldest and often the most difficult to adapt to the changing needs.

Of all the lessons to be learned from recent development experience, probably the most important is that agricultural adaptation is not an automatic process that can be left to work itself out under the impact of other social and economic changes. The raising of agricultural productivity must be consciously pursued and it is fundamental to the whole development process. The problem of inducing a satisfactory rate of growth in the agricultural sector is not merely a matter of providing for a due allocation of resources. 

It also involves social and institutional questions that are deeply embedded in the fabric of rural life, as well as technical questions, to some of which satisfactory answers are not yet known. For most developing countries, economic progress depends on the movement of workers from the land to productive employment in other occupations. For this process to succeed, not only must complementary factors be available in these other occupations but the agricultural output must be made to expand adequately--that is, to meet the needs of the economy as a whole--with relatively (and perhaps in the longer run, even with absolutely) fewer workers. 

And, in this respect, agriculture occupies a crucial position, not only does it constitute the largest productive sector in most developing countries, so that its performance is a major determinant of over-all rates of growth, but it provides the essential flow of food-stuffs and raw materials and by extension, income, savings and foreign exchange--any lag in, which soon throws the economy, out of balance. It is because of this crucial role in the development process that the recent agricultural performance of developing countries, though good by historical standards, has been less than adequate for contemporary needs and in the light of other changes. In the period 1955-1965 only a small proportion (probably less than a fifth) of developing countries registered a growth in agricultural output of under 2 percent a year, and there were as many with rates above 3.4 percent as there were below that figure. 

This was a better achievement than that of the more advanced countries; yet, because of the low level of nutrition characteristic of so many developing countries, the great acceleration in population growth, the fact that such populous countries as India and Indonesia were in the group with declining per capita food production, the rise in incomes induced by the development process, the rapid growth in the demand for food outside the agricultural sector and the urgent need to enlarge and tap farm savings, it was far below the expanding requirements of a dynamic economy. The change is epitomized in the swing in cereal trades from net exporters of over 14 million tons a year in the recent before the war, the developing countries had become net importers of almost 11 million tons a year in the first half of the 1960s. In many of the developing countries, agriculture has begun to exercise a serious drag on the course of development. 

The movement of workers from cultivation of the soil to other occupations has been commonly designated industrialization, but recent experience in the developing countries has shown that the assumption of a dichotomy between agriculture and industry tends to lead to an undue concentration of policymakers' attention on the latter with its new problems and a neglect of the former where the problems are tacitly assumed to be old and familiar. It is only when the organic relationship between farming and manufacturing is fully recognized that the problems of agricultural adaptation can be approached as part of a coherent development strategy. 

In this context, an industrialization program, far from competing or conflicting with agricultural development, might consist in large measure of projects designed to industrialize agriculture: where parents worked on the land shaping yokes for oxen, gathering manure, carrying water, winnowing grain, weaving storage baskets, children might be expected to serve agriculture from mills and factories, producing tractors, nitrogenous fertilizers, pumps and pipes, meal and flour, cement and silos. In this process, the industrial establishments and their workers constitute the market for the farm products, while the farmers, constitute the market for the output of the factories. 

Due allowance 'being made for exports, there is thus an obvious need for balance between the expansion of industry and the expansion of agriculture. Given this interdependence, a lag in one sector can slow down the whole development process weaknesses in agriculture have been responsible not only for initiating or accentuating inflationary tendencies but also for aggravating the market-based difficulties of many industries. The introduction of new agricultural technology poses its own problems unsuitability of tenure systems and land distribution, imbalances among the various inputs that together permit the new methods to be practiced, lack of credit for more capital-intensive farming, absence of insurance arrangements to persuade conservative, peasants to accept the risks of innovation, inadequacy of storage and marketing facilities, unattractive ratios, of output prices to the cost of inputs. 

Whatever combination of such difficulties is encountered--and this has varied from country to country--the common source has been a failure to articulate all relevant policy measures and deal with the development process within a single integrated framework. Where diversification of the economy is underway, the need to increase agricultural output per man is imperative. In the new industries, on the other hand, output per unit of capital employed tends to be a more important consideration. Here, market limitations influence, and sometimes dictate, the choice of technology. 

Where domestic demand is insufficient to sustain even one optimum-sized unit, production must be either partly export-oriented or protected from lower-cost imports, and neither course is without its risks and difficulties. To be successful, an export-oriented industry must be able to compete with producers in larger or higher-income markets or have access to other small markets still importing the product in question. 

Neither alternative has proved to be a ready solution; hence, on the one hand, the widespread concern about obtaining some tariff preference for manufactures seeking entry into the more advanced countries, and on the other hand, the continuing efforts to bring about the integration of contiguous economies and the formation of sub-regional common markets.

Nor is the use of protective measures without its particular dangers to a developing country: unless the protected industry grows at a satisfactory pace, improving its competitive status, it may contribute significantly to a higher domestic cost structure, especially inimical to export activities and, as indicated above, to agriculture and hence to the economy's external balance. There are signs that this is what has been happening in many Latin American countries after a period of intensive import substitution.

In most developing countries, the acceleration of the diversification process depends heavily on the effectiveness of official incentives to private entrepreneurs. In the case of some industries, however-particularly those in which a viable plant involves a large investment--Governments may themselves have to, or choose to, play the entrepreneurial role. This is pre-eminently true of projects that collectively constitute the economy's so-called infrastructure-power, transport, communications, irrigation, schools and hospitals, and other social overheads. 

Because of their cost and scope, such projects have to be scheduled with particular care, bearing in mind not only the demand constraint stemming from the size of the market but also the indivisibility stemming from the size of the plant, and in many cases their interdependence: an irrigation project may be justifiable only in association with a hydro-power plant which in turn may require the justification of suitable industrial users, appropriately linked by transport facilities.

catalytic effect on productivity. Judiciously timed and spaced, such overhead investment can be a major stimulus to growth. Yet, in itself, much of this infrastructure may add little or nothing to the supply of goods and services that determine the level of living. A high capital-output ratio--and recent years have seen many cases of incremental figures twice or even three times as great as the 3 to 4 average that is more typical of the developing countries-may reflect an investment pattern that is quite out of line with the pattern of resource availabilities and the need to absorb as many workers as possible in more productive employment. 

This is one of the reasons why rapid urbanization constitutes so awkward a problem in many developing countries. The concentration of population is, to a degree, a concomitant of industrial development, and the provision of the appropriate infrastructure is an essential part of the process. But if the urban infrastructure runs too far ahead of what is available in the rural areas, it may in itself act as a magnet on the rural population. As an urban community cannot survive without the "overhead" facilities necessary to maintain health, movement, order, and security, a rapid town ward drift can absorb a large volume of investment with little relative advantage to real consumption. In many developing countries, the growth of major cities, with the working-age population well in excess of employment, is less the result of a deliberate policy than a manifestation of a failure to provide for the structural changes that the process of development requires in the agrarian sector. The result is often an unduly wide disparity in income both within these large cities and between the city and the rural areas.

In many ways, these cities epitomize the problem of economic development in a poor country in a shrunken world. They constitute the chief points, of contact with the more developed economies; their peoples have access to all the modern means of communication-indeed contacts may often be closer with the outside world than with the cities' own hinterland--and they aspire to the levels of living characteristic of countries with average per capita income many times greater than that of their own country. Their expenditure patterns exert a disproportionate effect on the composition of domestic production and of imports; they also influence the course of domestic savings. 

It is for these reasons that special significance attaches to the extremely rapid growth of urban population: it has been about double the average rate in recent years. Moreover, the proportion of developing country population living in large cities (of over 500,000 persons), which doubled in the course of the 1950's, is now estimated to be increasing at about 6 percent a year--over twice the overall rate of population growth and three times the corresponding rate in the more advanced countries. In view, of the dearth of capital in most of the developing countries, such an expansion may not signify a comparable rise in productivity. On the contrary, the very effort to keep up with the provision of city overhead may serve to divert capital from more productive deployment in other areas.