ARTS1751 Essay 1

Ashwin Thomas z3282450

Less Developed Countries cannot achieve the level of development of

the Developed Countries unless they undergo a process of
industrialisation. That process requires state intervention. Discuss
No nations have really attempted to industrialise without the state,
industrialisation being a process which seeks to increase the for-profit
manufacturing and services sectors to being economically dominant. The debate
is often about to what extent the state is involved in the process, policy
formation, market direction. The actions of a state or indeed any group, if they
are to be effective, have to be working towards one or many predetermined
goals. We will define the level of development as a non-tangible measure of
holistic, material, emotional, social capabilities and wealth of a society and of the
individuals within it, incorporating health, governance, living standards, security,
justice, emphasising equity in the access of these dimensions across all divisions
and prioritising the marginalised1. The progression towards the unattainable goal
is undertaken by several actors, but this essay is limited to that of the states
focus on the members of the nations they serve. States do have different goals
for their development, and some of these will be discussed and also taken into
consideration with regards to the industrial project, particularly that idea of
dependency.
To reach the level of the rich world is a dynamic process of achieving global
equity. It is outside the scope of this essay to prove whether the rich world is in
fact more developed than the poor world, although the position of many
rich/western countries on the IHDI index (a fairly inadequate proxy measure)
would seem to indicate as much. Given the multidimensionality of development,
it is foolishness to imagine a linear process of catching up, or that replication of
the western model is possible or desirable, especially since if everyone were to
since in the same way as say, USA, then studies indicate that our ecological
footprint would require 5 planets (Global Footprint Network 2010) Similarly, since
development is contingent on several social, technological, economic and
geopolitical factors, both internally and externally all development practitioners
must be wary of any proposed silver bullet solution, as industrialisation (EOI in
particular) has often been claimed to be. The LDCs that attempted
industrialisation in the post WWII period had different reasons to do so. As such it
becomes necessary to view the impacts of industrialisation on development
through two main categories, the immediate effects of industrialisation, and its
onflow effects to the overarching concerns of dependency and sovereignty, and
facilitating the development project over and above mere economic growth. By
our above definitions, industrialisation as the increase of a manufacturing sector
is unrelated to several dimensions of proactive development, such as
establishing governance, health, education or justice. However, it is often
1 See (Sen 1999) for one exploration of this concept. Unfortunately due to the
values of development bodies at the time, much of the data for making a simple
appraisal of this concept is unavailable.

undertaken in concert with other development reforms in order to be able to

raise the capital and human capacity to be able to support said schemes (as in
India (Gupta 1989)) these other schemes are important as they change the
nature and effects of the industrialisation process one area, agriculture and land
reform, shall be discussed in the next section. The historical contribution of
industrialisation itself to mal-development in the forms of gender disparity,
environmental degradation and physical health is of great importance, but
detailed analysis is outside the scope of this essay. 2
Assuming other efforts are being made concurrently to provide health, water and
sanitation services, increasing incomes then add to development if they are
assumed to provide greater access to said services. Several articles using
regression analysis of historical data in modern times find that industrial growth
in developing countries on its own is poverty increasing or at least inequality
increasing eg (Warr 2001), (Timmer 1997), (Thirtle, Lin and Piesse 2003) and the
nature of the results are regionally dependant, reflecting issues examined below
such as land ownership equality. The rural urban divide is found to have an
impact as well as sectoral differences, Datt and Ravallion (1996) show using the
case of India, rural growth reduces poverty everywhere, but urban growth does
not alleviate rural poverty.
However, historically, South Korea and Thailand managed to decrease their
income inequality over the 1950s and 60s (Nanjundan 1986), whereas Latin
Americas inequality increased, Brazil having a Gini coefficient of 57 in 1981
(World Bank 1981). A closer look at policy choice in context with national
situations is necessary for further understanding.
Enabling/Disabling conditions and the how
The literature often uses the categories of Import Substitution Industrialisation
(ISI) and Export Orientated Industrialisation (EOI) to differentiate state-strategy.
Examination of historical experiences, however, suggests that there are multiple
factors at play that significantly altered the outcome of industrialisation
strategies in LDCs. Often, the same countries had tried ISI and EOI at different
times, and some East Asian countries were doing both ISI and EOI at the same
time in different industries (Schmitz 1984, 14). Important factors to consider are
existing inequality of land ownership, and international geopolitics. The state
decisions with respect to these factors particularly in terms of role of agriculture
and the formation of a national identity in is often almost as relevant or more
relevant than the mere decision to industrialise.
South Korea came out of independence from Japanese rule without a strong
landowning class, and with good infrastructure and some industrial knowledge
from the use of the nation as a supplies base during wartime. After the
(arbitrary) division of the Korean peninsula into two parts in 1948, communist
2 For the sake of brevity I have had to conflate claims of effects during
industrialisation and long term effects of industrialised societies. See Stern,
Common, Barbier 1999, Scott 1986, Shiva 1988, for more information

and democratic in close proximity, South Korea received help in the form of
financial and military aid from the US (Kay 2002) in order to help stem the pink
tide in the Asia-Pacific, and also from Japan in reparation payments. The lack of
a strong landlord class allowed Gen. Park Chung-hee to easier achieve strong
land-to-the-tiller agricultural reform (Kay 2002), and other measures increasing
the factor productivities of land and labour(Schmitz 1984). Though largely
distributive, much of this reform was exploitative in that it entrenched
dependency of the peasants to the state, as Park and co had a monopoly on
fertiliser and had fixed sales price at or below cost for a large period of time (Kay
2002), directly squeezing the profits of agriculture into sourcing cheap food for
workers and foreign exchange for the Chaebols through tax and import
concessions (Bruton 1998). US Food aid and foreign investment also played a
large role in bankrolling the industrialisation efforts (Kay 2002). Industrialisation
was extremely rapid, and learning on the go was valued highly. Cultivation of a
strong national identity also aided peoples determination to national
development over private wealth or revolution. During both the ISI and the EOI
phases of industrialisation in Korea, market intervention was present in a big
way, with over and undervalued exchange rates, and the aforementioned price
setting of agriculture and tax and import concessions for industry. (Schmitz
1984) Important to note is the existence of differentiated concessions for
different industries, depending on their determined importance at that point in
time (Bruton 1998). The government directly or indirectly controlled more than
two thirds of the economys investible resources (Datta-Chauduri 1981).
Several commentators draw the importance of the link between land-reform or
agricultural growth in the lead up to industrialisation. (eg Kay 2002, Bruton 1998,
Gupta 1989). Self sufficiency in food means that less money is spent on
importing food and more money can be diverted to the other industrialisation
goals like the accumulation of capital goods etc. Those countries with higher
labour productivity in agriculture are able to free up more workers for a
burgeoning industrial sector, provided these jobs are being created. Given that
much of poverty is rural, increasing the output of farms, in combination with
ownership of land, not only directly reduces the incidence of poverty (especially
nutritionally Thirtle, Lin, Piesse 2003), but also provides a market base for
those countries who were attempted ISI the strategy in India (Gupta 1989) and
to South Korea (Kay 2002). Further analysis of data shows that spending of
agricultural development, as opposed to industrial growth, is often both poverty
reducing and inequality reducing (eg Thirtle, Lin and Piesse 2003, (Byerlee, de
Janvry and Sadoulet 2009)3) The latter article finds however that the inequality of
land distribution in Latin America is the major statistical variable stopping the
same conclusion to be drawn in that region, highlighting the parasitic influence
of rent-seeking on true development. As industrialisation in Latin America was
3 Agricultural spending is no silver bullet solution either, see Vandana Shiva
(1988) and P.Sainaith (1996)for elucidation of state failure to prioritise local
context and need and the promotion of agribusiness as mal-development in
India.

often on the back of dependency theory, the agricultural sector was often viewed
as inferior (the periphery) and not much attention paid to it. Kay (2002) outlines
how agrarian reform was attempted well after industrialisation, rather than
attempting to increase the productivity of the agricultural sector to finance
industrialisation. Rather the project was financed mainly through debt and heavy
taxing of raw materials and agricultural exports.
Much of Latin America achieved independence in the early 1800s, however
unlike South Korea, the land-owning and resource owning classes were not
exogenous and did not magically disappear, but continued to reap rent awards
from agricultural workers (Bruton, 1998). Land reform bills had trouble getting
through parliament (Kay 2002). Instead of reforming the agricultural sector,
many governments sought to reduce poverty by rising wages (Bruton 1998).
Group identity in much of Latin America was often structured by class and
ethnicity (often the same) rather than along national lines which impacted the
national development project as large amounts of foreign exchange was
squandered on luxury consumer imports as opposed to reinvested in
development (Kay 2002). As well as the impacts on state autonomy from within,
continual US interventionism during this period in some Latin American nations
infringed on an ability to make decisions (eg Guatamalas attempt at land
reform).
Latin American states were largely able to intervene in the market though, and
often used an overvalued exchange rate in order to source cheap imports of
capital goods, as well as tariffs and quotas to protect burgeoning industries from
foreign goods, and subsidies or tax incentives to produce goods (Schmitz, 1984).
Similar strategies were used in India (Gupta 1989). Latin American governments
mostly did not differentiate in these measures between industries and so didnt
attempt to send price signals about long term comparative advantage (Schmitz
1984). A major perceived failing of industrialisation in Latin America is that the
price was such that the take-up of capital intensive industrialisation was too high
in a region that had high potential for labour intensive use - in some cases
factories had excess capacity as it was still profitable to do so (Kay 2002).
Comparisons to South Korea in this context indicate that is certainly not true that
state market interventionism or state planning is inherently flawed, nor can it be
said it is inherently useful in the case of achieving successful industrialisation.
As any other group of people, the success of the states role has much to do with
the ability to discern local strengths and the global situation and act accordingly,
in a way that is includes monitoring and changability.
Onflow effect of industrialisation
Now we may start to unpack the analysis of industrialisation on what were longer
term goals for some in the development project, that of removing dependency,
both from a core-periphery/world systems understanding or losing agency in
state policy to outside forces. There is a need to differentiate from
interdependence (Flows of information and people, Ricardo style comparative
advantage). Dependency is important to deal with, as it was believed the

systems entrenching economic dependence were the very things stopping

developing economies catching up to the level of (economic) development of
the colonising world (Frank 1996).
Export concentration was considered a major reason for dependency. Between
1962 and 1980, almost all countries increased diversification across Latin
America, East Asia and Africa, Latin America diversifying the most (Bebczuk and
Berrettoni 2006). Other similar factors important to the traditional understanding
of dependency theory include trading partner concentration combined with an
over-reliance on exports, however deeper analysis is out of the scope of this
essay, suffice to mention that South Korea, Taiwan and Russia at least have had
success in creating goods that are both widely in demand and of superior quality
on the world market, and as such even if their economy was judged to have an
over-reliance on exports, the nature of their diversified, non commodity goods
and trading partners cannot be said to cause dependency in the same way.
However, in a broader understanding of dependency, Hoogvelt (1997)also
considers the history behind technological rents in the 50s and 60s ISI in Latin
America to be dependency entrenching. Heavy reliance on debt financing during
this period and the oil shocks and resource crash in the 70s to 80s (Schmitz
1984) dramatically increased the dependence of several Latin American states
involved in the debt crisis, as structural adjustment plans were reluctantly
agreed to with the IMF. Also, if one is to see core-periphery dependency as a
matter of economies anywhere and not just between ex-colonisers and the excolonised, it is of note that a similar core-periphery network emerges between all
examined countries, although price control is more blunt than declining terms of
trade.
In terms of the role of the state, not many (if any) countries attempted to
industrialise without significant intervention in the form of protection, strategic
direction and enforcement this included those nations construed as both
successes and failures (Schmitz 1984). In light of the history, the states ability
to respond to the domestic and global situation (geopolitical and historical luck)
with a methodology of continual learning rather than categorical doctrine 4.
Policies in other related areas such as agriculture are shown to have comprised
the bulk of the equality engendering and poverty reducing effects generally
attributed to industrialisation (South Korea in particular Kay 2002)
Using the resources that industrialisation bring is not the only way to attempt the
development process. Both Bhutan and FSLN Nicaragua attempted to achieve
their own non-mainstream development ideologies without industrialisation, both
sets of visions were very much state determined and led, and both were in some
way derailed by episodes or threats of interventionism from China and the US
4 A willingness to learn from past mistakes is also important as shown in South
Korea, whereas P. Sainath (1996) in his collection of articles of poverty in India
documents time and time again stories of how top down poor planning that do
not examine their impacts can be devastating to the poor

respectively (Priesner 2004), (Gonzalez 1990). As to whether industrialisation is

the only way to achieve global equity in development, two examples does not a
thesis make, but it is illuminating to reiterate the reality of powerplay blocking
the global development challenge.
It must also be reiterated that under almost all cases of industrialisation studied,
successful or not, one class of people took the brunt of industrialisation for the
sake of another class, and in some cases eventually for the sake of the whole.
This was true even of the Industrial revolution in Europe. (Lindhert and
Williamson 1983). Our focus cannot be limited to the lens of equity between
nations, but also between communities and individuals - ultimately if the
development project is to be of any use it needs to vision humanity as an
integrated whole as well, heading towards an equitable, sustainable, fulfilling
way of life.

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