chapter  3
20 Pages

The industrious revolutions in East and West

WithJAN D E VRIES

In the 1960s the emerging field of development economics which I became exposed to as a graduate student understood its mission to be finding the answer to the ‘big question’ – given that the world is divided into two unequal parts, respectively advanced/modern and backward/pre-modern, what polices can cause the second to become more like the first? The economic descriptors used to distinguish these two worlds and measure the gulf that separated them were various, but the most fundamental measurements focused on agriculture. In advanced countries, the agricultural labour force was small because labour productivity was high. This was the foundation of their urbanized and industrial economies. In the less developed countries, the majority – often an overwhelmingly majority – of the labour force remained in agriculture because labour productivity was low and – therefore – unable to support urban and industrial sectors of any size. The facts were stark and well established. Mid-twentieth century economic data for many poor countries was rudimentary in most respects, but they sufficed to reveal enormous differences in agricultural output per worker. In many poor countries this was coupled with very high rural population densities and small average farm sizes. On the basis of these facts, W. Arthur Lewis achieved great influence with his theory of ‘Economic Development with Unlimited Supplies of Labour’ (1954). The productivity of the marginal agricultural workers in many countries, especially Asian countries, was zero, Lewis argued, so the removal of this redundant labour from the agricultural sector would not actually reduce total farm output. John Fei and Gustav Ranis, in Development of the Labor Surplus Economy (1964), elaborated on Lewis’s insight to propose strategies for industrialization that made use of this ‘hidden’ resource. They reasoned that if the output that had fed a rural population of zero productivity could be transferred to feed that same population in a more productive industrial setting, development could be achieved without an antecedent breakthrough in agricultural productivity. Other economists doubted that development could proceed without first confronting directly the problems of agriculture, but there was broad agreement that

the greatest contrast between the advanced and backward economies was located in their rural societies. That is, the prospect of developing industry in poor countries via technology diffusion seemed much better than the prospect of transforming traditional agriculture in these same countries. The technologies of agriculture in high-productivity countries appeared to be inapplicable in most poor countries, both because of their locations in the agronomicallychallenged tropics and because most such countries have very high densities of rural population. When social and cultural issues are added to this mix, the challenge appeared daunting to most development economists. In this sense, agriculture appeared to be a bigger obstacle to economic modernization than did industry. The significance of the large gap in agricultural productivity observable in the nineteenth century was expressed dramatically by Lewis when he asked in The Evolution of the International Economic Order: why could an agricultural labourer from Scotland migrate to Australia in the 1880s and tend sheep for nine shillings per day, while an Indian or Chinese labourer migrating to Malaysia to produce plantation crops received one shilling per day? (Lewis 1978a). (Many other countries could, of course, substitute for either Australia or Malaysia in this example.) Both Australia and Malaysia exported their products, wool and rubber, respectively, to European markets that were accessible to them on broadly equal terms. The Australian worker’s income, supported by an export economy, sufficed to create a large and varied home market. Australia could evolve, via import substitution, into a modern, diversified economy. The Malaysian worker’s income, also supported by an export economy, offered little more than subsistence. The home market could not grow sufficiently to follow the path to economic modernization via import substitution. The temperate and tropical commodities that entered into international trade in rapidly growing volumes – a process pushed forward by transport, commercial and political developments that greatly reduced international transactions costs – were sold in their ultimate markets at prices that sufficed to elicit the required supplies of labour. Those supply curves shifted to the right as labour, mostly agricultural labour, was drawn from the domestic food producing sectors of Europe, India, China and so on and attracted to the often distant production zones for the internationally traded commodities.1