When economists first became interested in the poverty of the underdeveloped countries, they concentrated their attention upon the supply side of the problem. What were the barriers in the way of increasing productivity? What were the significant scarcities of economic resources? Of the resources that were available, what distribution between the various products of agriculture and industry would yield the biggest increase of the national product? To the latter question in particular the economists often gave an answer which irritated the rulers of the under-developed countries, since it urged them to concentrate on their agriculture in which abundant labour supplies and climatic conditions gave them a natural advantage. In his characteristically biblical manner, Nkrumah denounced the possibility of association with the Common Market on the grounds that it would have such an effect, keeping Africans as “hewers of wood and drawers of water”. He was not alone in wishing to flatter the departing white man by imitating the monuments of his industrial civilization. Perhaps accelerated by the general inclination of the peoples of under-developed countries to associate status with industrialization, a change came over the economists’ approach to the strategy of economic development. They began to realize that historically it was abnormal for growth to proceed evenly in all sectors of the economy, and sought instead certain characteristic patterns of expansion. There were early pioneers of this work such as the German economist, W. G. Hoffman,footnote1 and Colin Clark.footnote2 It has been substantially and systematically extended by the American H. B. Chenery,footnote3 who has found from comparing some 50 countries that a 1 per cent expansion of income per head is associated with the
Chenery’s data establish pretty consistently the tendency for industrial output to grow faster than output in general. This also appears in the historical statistics, which show the following annual rates of growth of world production (at constant prices) in the three main sectors :footnote4
Some say that the tendency springs from the changing structure of people’s wants as their incomes rise; expenditure on food reaching a maximum and on raw materials being held back by technical advances in processing, so that a rising proportion of income is freed to puff the sales of industry. Chenery himself believes that this is the lesser part of the explanation, and finds a greater significance in the replacement of imported by domestically produced industrial goods, although he does not go on to analyse the causes of this import-substitution. Without understanding exactly why it should be so, scholars may be reluctant to acclaim industry as the universal leader in the growth process; but the significance of any such tendency is not lost on economic planners in under-developed countries which will not wait. For if one sector has a strong tendency to grow more rapidly than others, then the rate of increase of the total national product can be accelerated by raising the proportion which the rapidly-growing sector bears to the total. The laborious
This under-lying logic of industrialization is given special urgency in those over-populated countries where the prevailing growth of numbers on the land threatens actually to diminish agricultural productivity. It has also been strengthened by the recent movement of the terms of trade to the disadvantage of the primary producers, and thus of the under-developed countries which mostly depend heavily upon them. There is a tendency to make too much of this movement. When producers cut their prices, they may be signalling their success in having raised their productivity, as much as proclaiming that they have been robbed. British growth in the first half of the Nineteenth Century, for example, went on together with a deterioration of the terms of trade which, measured in annual rates of change, was somewhat larger than that which the under-developed countries have been experiencing since the end of the Korean boomfootnote5. Not only was it larger in terms of annual rates; for Britain it lasted for 50 years. The rapid and prolonged decline of export prices was the badge of success in the application of machinery to the production of cotton textiles in particular. Similar stories of success no doubt lie behind the fact that between 1953 and 1961 the under-developed countries raised their volume of exports by an average of 4.3 per cent per annum, against which their terms of trade worsened by 0.7 per cent per annum. This is the proper perspective in which to see what nevertheless remains a serious problem. The comparison with British experience over a century ago is not irrelevant, but clarifies the logic of industrialization. For Britain was able to sustain a large deterioration of the terms of trade without difficulty because she was shifting the structure of her production towards manufactures which offered the biggest potentiality for growth, both in terms of what people wanted to buy with growing incomes and in terms of what technical advances were there to be applied.
Undoubtedly there are some under-developed countries in which the possibilities of improvement in agriculture and raw material production are so great, and so greatly superior to any that exist in industry, that priority for the former will be justified notwithstanding anything that may happen to the terms of trade; and this should not be forgotten in a scramble for prestige industries. But the basic fact of the world’s economic development for the 70-odd years that it has been possible to record it is that consistency between the growth of manufacturing on the one hand and primary production on the other is achieved at rates of growth which are substantially larger for the former than for the latter.footnote6 This means that part of the strategy of raising the