Industrialisation and Development: Necessary but Insufficient?

Written by Siyaduma Biniza 1

Despite numerous domestic and foreign interventions to stimulate development most underdeveloped countries, especially post-colonial countries in Latin America and Africa, are still facing developmental problems related to the colonial experience and the integration into the global economy. Some of the developmental problems faced by underdeveloped state include sovereign debt crises, foreign exchange rate crises, high unemployment, de-industrialisation and low economic. Most of these developmental problems have historical pathdependency on the uneven development that resulted from colonisation and the integration of former colonies into the global economy which undermine industrialisation in post-colonial countries. Therefore understanding the role of industrialisation to development is very economically, historically, socially and politically pertinent in order to situate the contemporary context. However, for the most part, the problems of development have been explained using modernisation theory which emphasises the importance of very specific stages for countries to undergo as part of development or modernising their economies. And alternative explanations for the abovementioned development problems emphasise the failure of markets, poor public management and too much state intervention in the economy (Stiglitz, 2002; Brown, 2005; Chipkin & Lipietz, 2012). In sum, these explanations have focused on the internal domestic economic context as a crucial explanation for the developmental problems faced by underdeveloped countries. So the structural and dependency theory approaches represent a major theoretical shift in comparison to previous explanations for the developmental problems facing underdeveloped economies. The structural and dependency theory approaches to development explain the developmental challenges by arguing that post-colonial countries are not just a product of domestic economic factors but that structural factors need to be
1

Siyaduma Biniza is currently an M.Com. in Development Theory and Policy student at the University of the Witwatersrand, holding a B.Com (Hon.) in Development Theory and Policy with Cum Laude and B.Soc.Sci in Politics, Philosophy and Economics from the University of Cape Town.

considered too. Structural theory and dependency theory therefore emphasise the importance of structural conditions and processes which undermine development and perpetuate unequal development (Ake, 1981; Hunt, 1989). Some of the structural conditions that lead to underdevelopment can be the deteriorating terms of trade for underdeveloped countries exports, preferential trade agreements or even the internal characteristics of the domestic economy (Todaro, 1996). In addition to this, both structural and dependency theories assert that economic growth is not the same as development because development requires either domestic or international structural economic transformation which is not a necessary consequence of economic growth. In other words for there to be development there needs to be a transformation the economy from traditional forms of production and exchange into modern forms of production and exchange (Hunt, 1989). Industrialisation is therefore asserted as an important for development because it leads to the kind of transformation that is needed to achieve development because industrialisation embodies precisely the kind of economic transformation needed. Consequently the central question of this paper is whether industrialisation is necessary and sufficient for development. I will therefore provide a critical appraisal of the structural and dependency theory responses to this central question of the necessity of industrialisation for development. Firstly it is important to understand the process that led to the emergence of structural and dependency theory approaches to development. Following World War II there was a change in the commodities that dominated international trade. Prior to the war, international trade was predominantly in the exchange of primary commodities. Following the war industrially produced goods began dominating in international trade. Industrialisation was therefore an important process to economic growth and development in this period. The degree of industrialisation determined the volumes of trade which directly impacted economic growth, and also became a source of economic power that benefitted industrialised countries causing an economic trajectory of uneven development. However, in less industrialised countries this process partly perpetuated enclave economies that

resulted

from colonialism,

i.e.

mono-crop

cultures and mono-commodity

economies, which had no industrial or developmental linkages within the economy (Ake, 1981). This led to the rise of structural ideas of explaining the challenges to development and these ideas were later radicalised in the form of dependency theory. In the late 1940s, with Latin America at the centre of their focus, structural economists such as Furtado and Prebisch began understanding economic growth and development as being separate processes. The structural approach to development characterised a significant break from the modernisation and mainstream economic schools of thinking on development. Structural theory emphasises the importance of structural factors to the economic performance of countries; which is in stark opposition to the modernisation school which emphasises specific stages that constitute the process of modernisation which also embodies development (Hunt, 1989). Structural theorists claim that economic growth could be harnessed without any development because structural economic change is what constitutes development. Thus, for the Latin American case Furtado and Prebischs main argument was that Latin Amer ican countries needed import substitution industrialisation to focus on the production of heavy industrial goods instead of consumer goods as a means of structural economic change and development. Before going into the specific policy recommendations it is important to note the role of industrialisation. Industrialisation is integral to development because it characterises structural economic transformation towards modern production. By modern here we mean forms production that use more advanced technologies and maximise the productivity of labour (Hunt, 1989). However, development in this paradigm is not simply a mechanism of ensuring greater output and higher income per capita as what may be the endpoint of mainstream economic analysis. Development here is a source of both increased output, income per capita and economic self-determination. This is because underdeveloped countries development is hindered by structural factors, such as primary commodity production for export in order to import higher value-added industrial goods, which undermines industrialisation and economic self-determination because

underdeveloped countries rely on developed countries for industrialised goods, advancing production techniques and consequently development (Hunt, 1989). So the argument is that underdeveloped countries are stuck in a state of underdevelopment due to structural conditions that undermine development. The most important structural conditions are those of the trade between developed and underdeveloped countries. The central argument is that underdeveloped countries export predominantly low value-add primary commodity exports to developed countries; whilst core country produce higher value-add manufactured goods and export these to peripheral countries. This causes developmental problems for underdeveloped countries because their exports are goods with deteriorating terms of trade, volatile prices and low income elasticity of demand which negatively affected their economic growth and development (Ake, 1981). Deteriorating terms of trade is the situation where the price of underdeveloped countries exports is decreasing relative to the price of its imports which means that the country needs to increase the volume of its exports in order to balance its trade (Todaro, 1996). In addition underdeveloped countries export commodities with volatile prices. This means that the country could face uncertain foreign exchange earnings from its exports which can affect its balance of trade (Todaro, 1996). This could possibly also lead to sovereign debt or currency crisis if the country cannot balance its trade and payments; or if a country has to repeatedly revalue its currency in order to realise its exports. Lastly, there is sufficient empirical evidence showing that there is a lower income elasticity of demand for primary commodities, that predominantly underdeveloped countries have a comparative advantage in (Todaro, 1996). That is to say, as incomes rise in a foreign country, there is diminishingly increased demand for the export commodities from underdeveloped countries which has the same negative impact as the other structural conditions due to diminishing export earnings. Therefore, because industrialisation transforms that economy and underdeveloped countries exports, industrialisation is a means to overcome many development problems. In addition industrialisation also allows underdeveloped countries to break away from structural conditions causing them development problems since the underdeveloped countries would be in a position to export higher value-add

industrial goods which do not have deteriorating terms of trade, volatile prices and low income elasticity of demand. This importance of industrialisation is also a means of self-sufficiency and is related what dependency theorists claim which are stronger than the structural theorists claim. For the dependency theorists development occurs within a historically determined structure of dependence between periphery and core countries. Here the periphery and core countries respectively resemble post-colonial and former metropolis countries, or underdeveloped and developed countries. Dependency theorists claim that there are structural dependencies between peripheral countries and core countries which allow for uneven development in favour of core country (Galtung, 1971). For example, underdeveloped countries export primary commodities and raw minerals to developed countries whilst importing manufactured goods from developed countries. This analysis points to the problem that even post-independence there are structural mechanisms that cause underdevelopment in post-colonial countries through continued dependency on former metropolis countries for manufactured goods. Therefore industrialisation is seen as a way in which periphery countries could gain expertise in the production of higher value-add manufactured goods which would contribute towards economic growth and economic self-determination thereby undermining the dependency relationship and leading to development. However, this does not adequately resolve the problem posed by the dependency theorist because even though there might be development from trade and industrialisation this growth was uneven unless the dependencies are resolved through structural transformation. This points to the different criteria used for development by structural theorists as opposed to dependency theorists. For structural theorists, development is characterised by the modernisation of production and society in general (Hunt, 1989). The state of underdevelopment in post-colonial countries is based on the idea that their economies and societies are dominated by traditional forms of production and organisation. Traditional forms of production are characterised as economies dominated by agricultural and primary commodity production with very primitive technologies and low productivity of labour. On the other hand modern forms of production are

characterised as economies with advanced technologies of production and high productivity of labour in manufactured consumer goods, manufactured production goods or capital goods (Hunt, 1989). However, the analysis of traditional and modern economic countries is not limited to economics or production. The analysis extends to traditional social forms as well, these are characterised as collective ownership, prescriptive identity and values that are not strictly meritocratic. Meanwhile modern forms of society are characterised by private ownership, asciptive identity and meritocracy - as the saying goes, one must earn their meal through sweat. Therefore industrialisation of post-colonial countries would mean that they can gain expertise in production of higher value-add manufactured goods which would transform their economies and societies to resemble modern characteristics. For structural theorists development is about the transformation of society into modern forms of production and society and this necessitates industrialisation. However, although industrialisation is necessary for economic transformation industrialisation does not necessitate the kind of social transformation espoused as development. If we understand industrialisation as the process of industrial growth, which implies economic transformation in the form of production, output and economic growth potential there is nothing that suggests that this would result imply social transformation. Nevertheless, from the structural theory perspective, one might argue that the economic transformation that results from industrialisation cannot occur without social transformation. However, the process of industrialisation-led economic transformation is different from the process of social transformation because of the different kinds of institutions involved. Industrialisation-led economic transformation primarily involves firms and the state to some degree; whereas the process of social transformation may occur without including of firms or the state. Despite this perhaps the kinds of social transformation are closely related to industrialisation and the kinds of institutions involved may sometimes overlap. Regardless of this, the link or the process of transformation between industrialisation-led economic transformation and social transformation is not clearly defined in the literature. Moreover, the process of social transformation is

over-determined by economic, social and political process which means that even though industrialisation may be necessary it certainly is not sufficient. This exposes a common feature in the discourse on development. The discourse on the state and development has been dominated by a conflation of the separate matters of development, which relates to attainment of human potential, and economic development which relates to production growth and accumulation (Herring, 1999). Consequently many case studies of attempts at development have been classified strictly according to their economic performance due to this conflation. This feature is also present in the structural approach to development because industrialisation, which relates to economic development, is conflated with a more generalised sense of development which includes social aspect. But this conflation is what structural theory tries to avoid by acknowledging the different processes of economic growth and development. However, the theory falls into the conflation trap because of the inadequately explained connection between industrialisation and social transformation. Therefore according to structural theory underdevelopment is based on the idea that economies and societies are dominated by traditional forms of production and organisation. And industrialisation would mean that underdeveloped economies transform their economies into ones that are dominated by modern forms of production. But it is unclear how industrialisation will result in a transformation of traditional social forms into modern social forms. In addition, because the process of transforming traditional social forms into modern social forms, industrialisation is necessary but not sufficient for development according to structural theory analysis. The same applies for dependency theory analysis except through different logical mechanisms. As discussed above the criteria for development according to dependency theory relies on the periphery countries breaking away from the structurally dependent relationships they have with core countries. This requires either domestic or international changes in order to transforms the structural relationship between countries from one of dependency between core and periphery countries. However, because the structural relationship between core and periphery countries can be affected by anything from the terms of trade between countries,

trade agreements or even the characteristic of the domestic economy, industrialisation is not sufficient to ensure that the dependency is undermined. But from the dependency theory perspective industrialisation may have a direct impact on the output and exports of a country which affects the terms of trade or other factors in way that can undermine the dependency relationship. Again, the dependency between core and periphery countries is over-determined by economic, political and social relations meaning that industrialisation is not sufficient for development. Because, although industrialisation can lead to greater tipping the scales in favour of periphery countries by reducing their dependence on core countries, industrialisation can occur without necessarily undermining the dependency relationship. Therefore industrialisation is integral to development for both structural and dependency theory. However, although industrialisation is necessary, it certainly isnt sufficient to deliver development in the according the criteria of development. This is because for the structural approach, industrialisation may lead to economic development but does not necessitate the kinds of social transformation that are also required as part of development because the necessary social transformation is over-determined by economic, political and social processes which makes industrialisation insufficient. Meanwhile, for dependency theory, industrialisation may lead to partial undermining of the dependency between core and peripheral country but industrialisation does not guarantee a complete break from the dependency and uneven development. Thus industrialisation, there are two more things to consider namely, that either industrialisation should occur in a specific manner which includes political and social processes or industrialisation needs to be understood as encompassing more than just increasingly advanced production techniques and higher productivity of labour. The former of these is what situates the policy proposals offered by structural and dependency theory. From the structural theory approach, underdeveloped countries should pursue import substitution industrialisation focusing on the production of heavy industrial goods instead of consumer goods as a means of structural economic change and development. Whereas from the dependency

theory approach, periphery countries should debunk from international trade relations with core countries and pursue import substitution industrialisation and trade with periphery countries. However, from the structural theory policy recommendations the prospects for development would much higher underdeveloped countries with large domestic economies because the countries would be able to substitute foreign demand with domestic demand without facing problems of low demand which negatively affect economic growth and development. For underdeveloped countries with small domestic economies, import substituting industrialisation would not lead to sustainable economic growth and development if domestic demand is insufficient to incentivise investment and consume the increased output associated with higher productivity of labour from industrialisation. The implication of this is that industrialisation does not necessarily escape the challenges of external demand for the output of underdeveloped countries as this depends on the size of the domestic market. Meanwhile, from the dependency theory policy recommendations, the prospects for development are diminished by the differences between countries. Even though periphery countries may escape the dependency on core countries new dependencies may arise from differences in trade, i.e. comparative advantage, amongst countries or from the different stages of industrialisation between periphery countries. Therefore, although industrialisation is a way to undermine the dependency between core and periphery it may sometimes lead to new dependencies and even create new dependencies between of the different stage and rates of industrialisation between countries. Thus, for both theoretical perspectives, industrialisation is insufficient although it may be a necessary condition for development. Whereas, from the understanding that industrialisation includes more just advancing the means of production, we can appreciate that industrialisation is a continuous and complex process that requires strategic state interventions. Therefore, despite the common static view of industrialisation and development which overlooks the dynamic nature of these processes, industrialisation needs to be understood in a way that can incorporate all economic, political and social

processes. In other words, the narrow dichotomised view the state versus the market in relation to economic growth and development needs to be substituted with a view that can incorporate more complex socioeconomic relationships that affect development. This means that industrialisation is simply a fact about the characteristics of production and labour but that industrialisation is a complex process that involves private firms, the state and civil society. Nevertheless, the kinds of policy recommendation that emerge from the structural and dependency theory are clearly insufficient to ensure sustainable development both economically and socially. In conclusion, the importance of the question interrogating the role of industrialisation to development cannot be further stressed. This key question is not simply associated with the analysis of economic history and political economy of underdevelopment but this question is also central to assessing the postcolonial project and the development agenda as a whole. This question not only important to understanding how we achieve development; but it is also important to understanding the potential or futility of the post-colonial state project and the development agenda in actually achieving development. Moreover, as we may be clear from the foregoing analysis development is not something to be attained but rather a relationship to maintain. This is to say that, in the case of a developed or core country, development relies on maintaining specific historical structural conditions; whereas, in the case of an underdeveloped or peripheral country, developments relies on undermining historical structural conditions and maintaining new beneficial structural conditions. Thus industrialisation is necessary but not sufficient, in and of itself, to lead to development. At best, industrialisation leads to development in a complex manner that requires an understanding beyond just the role of the state or the market in development. And the post-colonial state project is futile without specific structural changes.

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