The first question I want to raise is that of the priority to be given to industry and agriculture in the under-developed countries’ present situation.
It is a fact that intellectuals in under-developed countries largely pin their hopes on industrialization; and I want to emphasize from the start that this article should not be construed as implying that under-developed countries must not do their utmost to build up industry as fast as possible.footnote1
The need for this is particularly pressing in countries with a high population/land ratio. A country like India, whose population will double before the turn of the century, cannot in the long run hope to raise the dismally low living standards of its masses unless a very much higher proportion of its labour force is employed in industry. This is true regardless of whatever progress is made in Indian agriculture. More generally, without the under-developed countries’ progressive industrialization, it will be impossible to prevent the ever-widening income gap between rich and poor countries from continuing to grow as it has done for a century.
This long-term trend is reason enough for the under-developed countries to give prominence to industrialization in their development plans. But even so, a few points need to be made. To begin with, for many future decades, even a much more rapid process of industrialization than that achieved by most under-developed countries will not provide sufficient employment for the under-utilized labour force in these countries. This is so because the additional labour demand created by industrialization is a function not only of the speed of industrial growth but of the low level from which it starts.
If, as is often obviously rational, investment capital and human resources (both of which will always be limited, even if the developed countries provide much more assistance than at present) are to a large extent put into fully modern, fairly large-scale industries, the additional labour demand will be small. Furthermore, when industrialization implies rationalization of earlier, more labour-intensive industries, and when these can no longer compete with the new industries, the net effect on labour-demand may be negative: in this case industrialization releases more labour than it employs. From this point of view industrial development for export and for import-substitution has an advantage in addition to those usually recognized. But no under-developed country can industrialize exclusively along these lines. This implies that in the early stages of industrialization there are always ‘backwash’ effects which decrease, wipe out or even reverse the efforts to create new employment.
In a study of development in the Central Asian Republics of the Soviet Union undertaken by the Secretariat of the Economic Commission for Europe, it was found that, despite heavy industrialization, the labour force employed in manufacturing decreased for more than two decades until the industrial base became so large that its continuingly rapid advance brought about a correspondingly large increase in demand for labour. Similarly, a comparison of the census figures for 1950 and 1960 in India—a country which not only promoted industrialization but steered it into import-substitution while protecting its traditional manufacturing—shows that industrialization had hardly any effect at all on the proportion of the labour force earning its livelihood from agriculture.
The fact that for many future decades industrialization will not create much additional net employment in under-developed countries