Module 5 in AE 12

(Economic Development)

Industrialization and the Third World

The remarkable progress in transportation and communication has exposed the high standard
of living of the industrial countries to the Third World. Through foreign travels, periodicals, and
movies the people of less developed countries have seen the many wonderful and modern
things which have been created by the industrial societies like the United States, France or
Japan. In contrast, many leaders of the Third World countries have realized the big difference in
their still primitive products of development. Thus, their impressions of an industrial economy
have further improved.

Henceforth, there has been a strong clamor among many of the Third World countries of
industrialization. For years, this has been their aspiration. Through industrialization they believe
they can eliminate the problems of poverty, insecurity, and overpopulation. No less than the
great Indian statesman Nehru said that real progress must ultimately depend on
industrialization.

However, industrializing a less developed country is certainly not an easy task. There are great
obstacles along the long path of industrialization. It is not only massive capital, modern
technology, competent management, and skilled labor that are required. Well-developed
agricultural and commercial sectors are also needed. And of course, the most important
requirement for industrialization is the restructuring of values and institutions in society.

Starting the Process of Modern Growth

Industrialization among the developed countries did not pop up overnight. Prior to
industrialization, they experienced changes such as:

■ Economic, social and political institutions were restructured to pave the way towards
industrialization.
■ There was a rapid technological improvement.
■ Factors of production like capital, labor, and entrepreneurial schemes were made to be
more responsive to industrialization.
■ Substantial improvement in transportation and communication and electrification were
undertaken.
■ Social facilities and services were increased.
■ Agriculture and commercial industries became viable.
The English Experience

England during the middle ages had a pastoral economy. Its agriculture was basically primitive.
Europe at that time was mainly under a feudal and manorial system. Economic activities were
centered on inefficient agriculture. Feudal lords were more interested in wars. The Church
despised materialism. The government was weak.

Nevertheless, upon the expansion of trade and commerce in Europe, feudalism was relegated
to the background. Towns and cities grew. The new merchant class became wealthy and
powerful. Such commercial developments were further bolstered by interrelated events like the
discoveries of the New World and new trade routes. The state – and not the Church – became
powerful. It actively participated in trade and commerce.

➢ The first industrial society

England was the first to industrialize its economy. More favorable circumstances made
England to lead in industrial development. It was able to eliminate feudalism, and
established a central government earlier than countries in Continental Europe. There
was a comparative political stability due to geographic positions. England developed a
larger and stronger middle class than other European countries. Mercantilism started in
England, and later on the Industrial Revolution developed in the late 1700s.

Inventions and innovations which were appropriate to local conditions gradually

developed. The development of better techniques of production through machines and
division of labor tremendously increased the rate of production. Under a laissez-faire
environment, capitalism expanded. This stimulated the growth of the factory system.
Thus, England has achieved industrial growth. The benefits of the Industrial Revolution
did not remain in England. Other countries in Europe – and the United States – started
to industrialize their economies.

Approaches to Industrialization

Many less developed countries have good reasons in their crusade for industrialization. As an
exporter of raw materials and one or two agricultural products, there is no good future for them.
There have always been problems in employment and income. Poverty has never left their
peoples since the time of their ancestors up to the present time. Aware of the benefits of
industrialization which the rich countries are now enjoying, the less developed countries have
envisioned industrializing their economies.

However, not a few developing countries have made mistakes in their strategies or approaches
to industrialization. For instance, it is not true that almost any kind of industrialization will help
them attain their objectives. It is likewise wrong to assume that the benefits of industrialization
will automatically flow from investments to industrial projects. Such countries even commit an
error if they give industrial development the top priority in their development programs during
their formative stages.
 ➢ Developing the foundation of industrialization

Most peoples in the less developed countries live and work in the rural areas where
agriculture is the principal source of income. Obviously, improving agriculture and its
institutions is also improving the welfare of the peoples. This means there are more jobs
and incomes in the agriculture sector. As a result, consumption of goods and services
increases and further stimulates investments and production.

With a favorable agricultural development, it would be much easier to promote

industrialization. Agriculture can serve as a strong foundation of industrialization. On the
other hand, a weak and inefficient agricultural base can not possibly maintain the viability
of industrialization. Products of industries have very limited markets, because most of
the people have limited purchasing power. There is therefore a need to develop first the
agricultural sector where most of the people are benefited. In addition, agriculture
provides raw materials, food, labor, and market to industries.

Reasons for Industrialization

1. To increase the national income of the country.

2. To improve the stability of the export earnings.

3. To provide more employment to the unemployed and underemployed.

4. To expand markets of local raw materials.

Big Mistakes in Industrialization

Many of the observations under this topic are based from the book Industrial Development by
Murray Bryce. The author has assisted many developing countries who organized their
development plans.

Maximum benefits can only be acquired if the individual industrial projects are economically
sound, feasible, and appropriate to local conditions. Not a few industrial projects in most
developing countries could not even pass the most basic economic test. Many of these unsound
projects were put up without proper evaluation. Such a mistake was a great waste of scarce
resources.

Industrialization is a gradual and systematic process. It includes a network of interwoven skills

and facilities. Such a system can only perform effectively if there is a progression from the small
to the large, from the simple to the complex. For a less developed country, it becomes
impossible to do too many large and different things in a very short time. For instance,
superhighways provide insignificant economic benefits if most of the farms have no feeder
roads to the markets. Only the very few elites can enjoy the pleasure of travel while riding in
their luxurious imported cars.
Criteria for Sound Industrial Projects

Resources for industrial projects are scarce and expensive in developing countries. The only
cheap ones are labor, and raw materials. Machines have to be imported. Components of
industrial products are also imported, such as chemicals and other inputs. All these require
precious foreign exchange like dollars to buy them.

A good industrial project for developing countries should be able to meet the following criteria:

■ Economically sound and feasible or it should be waste of scarce capital, skills and time;
■ Stresses labor-intensive industries in order to reduce the wide-spread unemployment,
underemployment, and disguised unemployment;
■ Its benefits seep down to the level of the masses;
■ Easily makes profit for the investors and the national economy;
■ There is a ready market, either at home or abroad, for the goods it intends to produce;
and
■ It fits into the economic development program of the country.

Problems of Industrialization

Countries which became industrialized after England had attained such an economy were luckier. They
used the machines and technology developed by the Industrial Revolution. British investments flowed in
Continental Europe. Their attitudes, values and institutions were favorable to industrial development.
Max Weber, in his Protestant Ethics claimed that the thrift and industry of the Protestants were the
cause of progress in Europe. He proved the direct correlation between the growth of capitalism and the
Protestant religion. Likewise, the presence of colonies provided an advantage to the industrial pursuits of
the colonizers. Such colonies became the suppliers of raw materials and the labor and buyers of
industrial products. Most of these countries are now the less developed nations.

For the less developed countries to industrialize their economies at this time is extremely difficult. In
addition to changing their values and institutions and controlling their population explosion, they need
massive capital to vigorously push their bid for industrialization. Leaders of the Third World countries
have complained that foreign loans are too small to be able to fund their development programs. They
also criticized the high interest rates of international financial institutions. Many economic nationalists
have alleged that foreign loans and bids are only for agricultural or rural development – not for industrial
development. They claimed further that international financial institutions are owned by the industrial
countries, and even concluded that such institutions are tools of the multinational corporations.

Another problem is the very keen competition in the world market for industrialized products. The highly
industrialized nations like the United States, Japan, England, France and Germany have a great
comparative advantage. Products of the factories of the newly industrializing countries face a very slim
chance in the world market. Such predicament is further aggravated by discriminatory trade practices of
the industrial countries. Despite the WTO, they impose quotas, tariffs, and similar trade barriers against
products coming from less developed regions. They cannot immediately retaliate because their
economies are heavily dependent on the rich countries.
 ➢ Encourage foreign investments

A most likely alternative for a less developed country is to encourage foreign investments.
Singapore became prosperous because of foreign investments. This also happens in Hong Kong.
However, in the experiences of the many less developed countries, foreign investments have
only improved the economic conditions of the multinational corporations and their local
representatives.

The few countries which have achieved prosperity through foreign investments dictate the rules
of the game. It is up to the investor to accept them or not. If not, then they have to find another
country which is willing to be exploited. Under such an arrangement, only the top government
officials and other local business elite are benefited. The masses remain poor and deceived.

South Asian Clamor for Industrialization

The desire for industrialization persists among South Asian nations. Their leaders believe that it is the key
to economic development – and a solution to the eradication of poverty. The political leaders and their
economic planners of said region equate the high standard of living of developed countries with
industrialization.

Professor Gunnar Myrdal stated that the clamor of an industrial economy among the South Asian
intellectual elite has been influenced by several factors such as:

■ The Industrial Revolution that paved the way for the industrialization of Western countries.
■ The rapid industrialization of the Soviet Union through central planning.
■ The decline in the demand for raw materials and other agricultural products in the world market.
■ The fast population growth and an increasing rate of unemployment.
■ The high standard of living being enjoyed by citizens of the industrial countries.

Barriers to Industrialization

South Asian leaders have been aware of the economic success of highly developed countries due to their
industrial economies. Hence, the aspiration for industrialization has not been forgotten.

It is noted that not a few conditions in many South Asian countries have not been favorable to
industrialization. For instance, there has been inefficient public administration. Colonial economy is
widespread. Negative attitude towards work persists. There is conservatism in business enterprises.
Wealth and income distribution is still unjust. Nepotism is very strong in both government and private
sectors. Instead, there should be a new spirit of nationalism, efficiency, punctuality, labor mobility,
discipline, and entrepreneurial propensity.
In his ten-year survey of South Asian conditions, Myrdal gave his observations on the region’s dream of
industrialization:

■ There is an unskilled labor force and a small inexperienced managerial resource.

■ Rapid industrialization will not generate sufficient employment. It may be even negative if
modern industry will compete with traditional labor-intensive manufacturing.
■ There is adequate logistic support such as power, transport and communication facilities. Also,
not all raw materials for industrialization are locally available.
■ Existing social, economic, cultural, and political institutions are not favorable to development.
■ Attitudes and values are likewise not suitable for industrialization.

The Social Cost of Industrialization

Industrialization spawns more investments, employment, production and income. In the process, more
buildings, factories, and machines are being created in response to an increasing demand for goods and
services. Likewise, industrialization serves as a magnet to people in the rural areas. They go to the cities
to look for jobs or for business reasons. This increases faster the urban population. Hence, housing,
health, education, transportation, communication, and other social facilities and services have to be
expanded to serve the growing human needs.

➢ The poor are exploited

The emergency of social problems in an industrializing society was also obvious during the
Industrial revolution in England. The introduction of machines ushered in the growth of the
factory system and the eventual collapse of the flannel weaving industry in factories. The
captains of industry exploited them in their desire to acquire more profits. Since there was no
government intervention in economic activities, the capitalists abused the poor factory workers
even more. They worked like slaves, including women and children. And so, England became
industrialized at the expense of the workers.