II Chapter 3 II
Land, Labour and Agriculture
The Role of Agriculture in Development 87
The Organisation of Agriculture
and Land Reform 89
The Supply Response of Agriculture 90
Transforming Traditional Agriculture 92
The Growth of the Money Economy 92
Finance for Traditional Agriculture 94
The Interdependence of Agriculture and
Industry 95
In the production-function approach to the analy-
sis of the sources of growth, land as a separate
factor of production tends to be assumed away or
subsumed into capital. There are two main
reasons for this. The first is the traditional classical
notion of land as a fixed factor of production,
which in the long run is undoubtedly true. The
second is the practical fact that land without the
application of capital is of little use, justifying the
treatment of land and capital as one factor.
This is not to deny, however, the importance of
land and natural resource endowments as factors
in the growth process. The quality of land can
markedly affect the level of agricultural pro-
ductivity in the early stages of economic develop-
ment, and the importance of agricultural devel-
opment, in turn, can be clearly seen within the
production-function framework. Rising agricul-
tural productivity permits the release of labour
from agriculture to industry, which in turn leads
to increasing returns, rising income per head and
greater capital accumulation. Given the domi-
nance of the agricultural sector in the economic
structure of developing countries, such factors as
the physical attributes of land (topography, fer-
tility, etc.), the land-tenure system, the ratio of
87
A. P. Thirlwall, Growth and Development
© A. P. Thirlwall 1994
Economic Development with Unlimited
Supplies of Labour 96
A Model of the Complementarity between
Agriculture and Industry 100
Rural-Urban Migration and Urban
Unemployment 102
Disguised Unemployment: Types and
Measurement 104
Incentives and the Costs of Labour
Transfers 110
labour to land and the extent of natural resource
endowments are likely to exert a major influence
on the speed of development as determinants of
the pace of agricultural advance and the pace of
industrialisation based on a healthy agricultural
sector or the exploitation of indigenous resources.
Geographical factors, including the nature of the
land, and God-given factors such as weather and
terrain, must be included in any list of reasons
drawn up in answer to such questions as: why
have some countries developed earlier than others,
or why have some countries remained in a tradi-
tional or transitional state longer than others?
This is the concept of geographic determinism,
which can be advanced as a hypothesis of under-
development in its own right.
I The Role of Agriculture
in Development 1
In this section we shall consider land in relation to
agriculture, and discuss in a general way the role
1 For a good, rigorous, theoretical treatment of the role of
agriculture in economic development see Ghatak and lngersent
(1984).
88 Factors in the Development Process
of the agricultural sector in the development pro-
cess. In the course of the discussion we shall elab-
orate on the emergence of an economy from its
traditional subsistence state into Rostow's tran-
sitional stage in which the seeds are sown for
'take-off' into self-sustaining growth. The approach
to be adopted has a common-sense, pragmatic
appeal since land primarily affects the productivity
of agriculture, and second, the development of
agriculture, owing to its initial importance in a
country's economic structure, must play a crucial
role in establishing the framework for indus-
trialisation. The agricultural sector, for instance,
must provide, in large measure, the factor supplies
for industry; it must provide food for an urban
industrial population, and it must contribute to
the market for industrial goods if the demand for
goods is to be sufficient to justify their production
domestically. For the agricultural sector to release
labour, to provide savings, to supply food and to
contribute to the market for industrial goods, it
must generate a steadily rising surplus of produc-
tion in excess of subsistence needs. Since land is
relatively fixed in supply, this requires rising agri-
cultural productivity. The 'grass-roots' school of
economic development, which came into fashion
as a reaction against the emphasis on industrialisa-
tion at any cost, lays stress on policies to raise the
level of productivity in agriculture as the most
crucial development priority and an indispensable
element of a long-run development strategy. Over-
all, agricultural productivity in developing coun-
tries is less than one-tenth of the level in devel-
oped countries, and in many countries output per
head is barely enough to meet subsistence needs.
Some progress has been made in recent years with
particular crops in particular countries, but the
performance of the agricultural sector is still dis-
appointing. In the 1950s and 1960s food produc-
tion per head hardly rose. In the 1970s and 1980s
there was some improvement, but the availability
of food still gives cause for concern, and the lack
of a marketable surplus holds back development
on a wide front.
The quickest and cheapest way to raise pro-
ductivity will depend on the reasons for low
productivity. The reasons will vary from country
to country, but it must be remembered that every-
where peasant subsistence farming is a traditional
way of life and attempts to raise productivity will
alter the way of life. Schultz (1980) remarks per-
ceptively:
Most of the people in the world are poor, so if
we knew the economics of being poor we would
know much of the economics that really mat-
ters. Most of the world's poor people earn their
living from agriculture so if we knew the econ-
omics of agriculture we would know much of
the economics of being poor. People who are rich
find it hard to understand the behaviour of poor
people. Economists are no exception, for they,
too, find it difficult to comprehend the prefer-
ences and scarcity constraints that determine
the choices that poor people make. We all know
that most of the world's people are poor, that
they earn a pittance for their labour, that half
and more of their meagre income is spent on
food, that they reside predominantly in low
income countries and that most of them are
earning their livelihood in agriculture. What
many economists fail to understand is that poor
people are no less concerned about improving
their lot and that of their children than rich
people are.
So what holds productivity back? In some cases
it is an inappropriate labour to land ratio combined
with a lack of appropriate and complementary
inputs; in other cases, it is the structure and organ-
isation of agriculture, and in many cases it is a
combination of both coupled with unfavourable
natural factors. Low productivity may be associ-
ated, for example, with a high population density
and a high ratio of labour to land. In this case,
productivity might be increased substantially with
small applications of capital in the form of drain-
age schemes, fertilisers, etc. On the other hand,
low productivity may be associated with the oppo-
site situation of a high ratio of land to labour, in
which case the solution to low productivity is like-
ly to involve much larger doses of capital for
labour to work with. Most countries in Asia have
high ratios of labour to land, while in Africa the
reverse is true, as was the case in many of'today's