chapter  2
45 Pages

Labour- intensive industrialization in global history: an interpretation of East Asian experiences

WithKAORU SUGIHARA

This chapter attempts to show that labour-intensive industries played a central role in the global diffusion of industrialization, and to discuss their significance for global history. It suggests a new interpretation of industrialization by placing the improvement of the quality of labour as a vital element of global transformation. The standard understanding of industrialization places technological progress at the centre of discussion. Classical economists discussed the growth of the market, focusing upon the change in production rather than demand or consumption. They also set the framework of economics by identifying land, capital and labour as the three main factors of production. Thus, in the modern theory of economic growth, the role of labour in industrialization has been mainly discussed in the context of how and in what proportions capital and labour were combined to produce industrial goods. There are at least two implicit but fundamental assumptions in these works, which have gone against recognizing the importance of the quality of labour for industrialization. One is the tendency to single out capital, or the establishment of a saving-investment mechanism, as the most important element for the growth of industrial capitalism. When Simon Kuznets designed a theory of economic growth, he understood the importance of labour in essentially the same way as he understood the importance of capital. For him, labour was substantially ‘human capital’ (Kuznets 1955). There the labour theory of value, or more generally the view that capital is embodied labour, was rightly disregarded. Along the way, however, the unique attributes of labour among factors of production (labour is embodied in human beings) have largely disappeared from the analysis of economic growth. The most conspicuous writer that promoted this process was W. W. Rostow. In his scheme, the timing of ‘take off ’ was determined by the rise in the ratio of saving to GDP (Rostow 1960). The second, equally important, assumption that has been shared in the discipline is that labour was abundant, homogenous and disposable at the initial stage of economic development. Labour has been treated as analogous to other factors of production such as capital and land, but, while the law of diminishing returns was recognized with respect to land, the difference in quality amongst available labour has not been thought as vital. Classical economists, Karl Marx and Arthur

Lewis thus tended to disregard the question of the quality of labour as an essential part of their discussion (for example, Adam Smith 1974/1776; Marx 1990/1867; Lewis 1954). One of Kuznets’ main conclusions was his emphasis on the significance of education and advancing knowledge for technical progress (e.g. Denison 1967; Denison and Chung 1976). But it was emphasized in the analysis of total factor productivity, which tended to focus on the industrialized economies, and often within the closed economy framework. This seems to be the case with the more recent theory of endogenous growth too, which more explicitly examines the impact of the increase in human capital on economic growth (for its relevance to development economics, see Meier 2001: 19-20). Even on the rare occasion when the impact of massive human migration from India and China during the nineteenth and the early twentieth centuries on the world economy was explicitly brought into focus, it was treated as abundant, homogenous and disposable labour ‘willing to travel to the ends of the earth to work on plantations for a shilling a day’ (Lewis 1978: 188). The role these workers were given to play in the growth of the world economy was to depress the real wage in the tropics, with the result that the gap in the standard of living between the temperate and tropical zones widened. Thus the prevailing account of the global diffusion of industrialization remains roughly as follows. During the first half of the nineteenth century, Britain became the workshop of the world, while the rest of the world specialized in the export of primary products. Countries in continental Europe and the regions of recent European settlement achieved industrialization by learning new technology and/or by importing capital, labour and machinery with their export earnings. In the New World, the integration of vast natural resources into the international economy served as the engine of economic growth. Labour was scarce and land was abundant, and the difference in factor endowments between the old and the new worlds induced a growth of trade, migration and investment. In the nineteenth and early twentieth centuries, the growth of the Atlantic economy dominated long-distance trade. An implication of this development was that the regions of recent European settlement had a better incentive than Britain to raise labour productivity, using abundant natural resources and employing imported capital. The movement towards the development of laboursaving, capital-intensive and resource-intensive technology was most clearly observed in the United States. The need to save skilled labour led to standardization of industrial production, such as the usage of transferable parts, which in turn facilitated the transfer of technology across industries and the development of mass production and the subsequent ‘de-skilling’ of labour. Industrialization became associated with the exploitation of economies of scale. The American frontier was exhausted around 1890, and by the early 1920s migration from Europe ceased to be encouraged. But American technology continued to lead the world, by raising labour productivity through automation, the introduction of more systematic labour management and mass marketing. Looking back from the twenty-first century, the British Industrial Revolution

only began to show the explosive power of labour-saving technology through the use of coal and steam engines, and merely paved the way for a fuller replacement of skilled labour by capital and technology. Therefore, although the conditions for the Industrial Revolution may have been laid before 1800, the ‘Western path’, with emphasis on capital-intensive and resource-intensive technology, arguably only became fully established as a result of the growth of the Atlantic economy. In the meantime, the world saw an increasing dominance of the West, resulting in a widening gap between the rich West and the poor non-West. The growth of trade between the West and Asia, Africa and Latin America was often accompanied by colonialism, which tended to reinforce inequality, particularly between temperate and tropical zones. By the time Arthur Lewis formulated his theory of ‘Economic Development with Unlimited Supplies of Labour’ in 1954, he took the presence of the world’s reservoir of ‘unlimited supplies of labour’ for granted, and did not find it necessary to discuss how it had been created, particularly in Asia, in the first place. His theme was how these poor countries, most of which had become independent or were on the way to independence at that time, could utilize cheap labour for economic development. Along with the discussion of unfavourable factoral terms of trade disadvantaging the poor tropical countries, Lewis emphasized the need to raise agricultural (labour) productivity as a fundamental solution to global development. It is clear that his model was based on the Western path of economic development, beginning with Britain and spreading to continental Western Europe and the United States. This chapter suggests that there was another route, in many ways a much more dynamic one, to the diffusion of industrialization. This second route brought industrialization, through Britain, and later continental Western Europe and the United States to some extent, to the non-European world, particularly Asia. It took root in Japan first in the form of labour-intensive industrialization, and was followed by a number of other Asian countries, particularly after 1945. Today, the majority of world manufacturing employment is located in developing countries of Asia, especially in China and India, which have their roots in this route (see Table 2.1). Although it escaped Lewis’s attention, I argue that, if we examine the process of diffusion during the last two centuries as a whole, this ‘East Asian path’ has been just as influential as the ‘Western path’ described above. In other words, the first proposition of this chapter is that labour-intensive industrialization constitutes one of the two major routes to the global diffusion of industrialization. The chapter also suggests that improvement in the quality of labour occurred in the process of labour-intensive industrialization, continuously redefining and enlarging the scope of ‘labour-intensive’ industries. Labour-intensive industrialization first occurred where initial conditions and international circumstances were favourable, but, supported by the diffusion of the education system and easier relocation of industries as a result of globalization, it expanded into countries with poorer development options, by incorporating the relatively skilled and educated components of the population into an industrial workforce

at internationally competitive wages. It also deepened its technological and institutional edge, by promoting ‘developmentalism’ under which ‘growth ideology’ was widely shared and a large proportion of surplus was invested for development purposes, and by channelling the best human resources into manufacturing. The second proposition, then, is that this route of industrialization has successfully generated its own logic of training labour, to pursue a distinctive path of economic development in the world economy.