Download Industrialization in the Development Process

Industrialization in Southeast Asian
Development
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
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
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
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 much greater impact on industry
than agriculture
Increased specialization of labor in
manufacturing results in higher productivity
Thus manufacturing offers a stronger base for
raising the level
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
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
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)
Structural Adjustment Programs
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
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 subsidiesespecially gasoline
Privatization of public enterprises- sell SOEs to
private firms
Wage restraints- control wage levels
Institutional reforms- improve credit and
especially banking sector
Cottage and Small Scale Industries:
Textile, Batik and Handicrafts
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
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
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