Industrial Planning in a Human Development Framework--Experiences in Asia.

AuthorAcharya, Sarthi


Economic development which deploys workers for the welfare gains of people at large is the most effective form of sustained development. For this, firstly, workers should be adequately accomplished to perform basic beings' and doings' (in Amartya Sen's, 2001 sense), making a case for investing in people. However, that is not all: for sustaining economic growth, there should be large-scale inclusion of people in the development process (Mehrotra, 2016). Human endowments (education, skills, adequate nutrition and health) to improve people's empowerment in addition to the effective engagement of their labor power are central to achieving success.

HD (human development), being a highly flexible paradigm, requires a redefinition for each locale and time period, for its application in development planning. HD requires going beyond investments in health and education, keeping in view that much of Asia was/is labor surplus. It needs making optimal use of people and labor in the growth process. This does not automatically happen; it has to be planned and carefully executed. This paper puts forth a case for HD-based planning with reference to employment creation through industrialization for which human capital--a process where human capital (education, skills, health) --and the modern industrial/ service sectors are brought together into an integrated framework. The paper attempts to:

(a) Analyze how some countries in Asia have forged ahead on the development scale while others have lagged behind on account of the above mentioned two aspects, namely, industrialization and the corresponding jobcreation, and human capital; and

(b) Identify the roots of high achievers' success and low achievers' lack of it in the (implicit or explicit) planning process.

A Conceptual Framework (1)

Economic growth, employment creation, human capital formation (for job creation and human empowerment), and poverty alleviation form the four vertices of a development pyramid. Mainstream economics (typically, which advocates free trade, minimal governmental intervention in markets, etc.), rooted in classical utilitarianism, has had limited success so far in unbundling the intra-household/ entity allocation of resources, and hence is inadequate for developing an understanding of the intricacies concerning the outcomes of a development strategy (Sen, 1985; Nussbaum, 2001; Amsden, 1989; Nell, 1998). Despite this, it had been at the core of much of public policy throughout the 1980s and 1990s and still is; despite it having extremely mixed results in Latin American and Sub-Saharan developing economies. Most East-Asian economies, in contrast, performed very differently through this period, as they adopted policies significantly at variance from mainstream economics (Mehrotra & Acharya 2017; Rodrik, 1997). Therefore, the need for an alternative framework for employment creation and furthering development cannot be underscored more.

In this alternative framework, the existence of two forms of synergies is put forth. One synergy exists between different elements of human capital enhancement (i.e. health, nutrition, family-planning, water and sanitation and basic education); and the other between interventions that form the basis of employment creation, reduction in income-poverty, and improved health and educational status. With these two synergies as foundations, it is proposed to put forth an alternative approach here to integrate economic and social policies.

As a theoretical construct, the notion of dual synergies forms a conceptual framework for understanding a given situation in terms of human development outcomes (2).

This paper argues that the state has a central role in ensuring all the three desirable ends or outcomes: economic growth, employment creation, and improved health and education outcomes. In the contemporary Asian context, they translate into at least three broad propositions. The first relates to land and agrarian reforms for generating much larger marketed surpluses over consumption, release surplus labor from it and diversifying activities therein. The second relates to the need for an industrial policy that would guide investments and promote technologies in areas of maximum private and social returns and jobs. The third relates to increased investments in sectors that help raise human capital and human development.

Some Asian countries have pursued policies that rely on these three pillars and have succeeded in forging ahead; some others have progressed though they have not succeeded to the same extent as the first group; while a third group consists of countries that have faltered and have remained in the low HD/low GDP bracket. It would be useful to examine empirically, the success and failure of countries on the pillars identified in Fig. 1.

The HD paradigm works as effectively within the market framework with strong government intervention, especially in the following areas:

  1. To help different market entities and institutions to mature in the earlier stages;

  2. To monitor the functioning of institutions;

  3. To eliminate distortions in factor prices;

  4. To ensure factor flexibility and mobility;

  5. To help train and re-train workers re currently;

  6. To provide bearings to national entre preneurs in regard to market trends; and

  7. To assist in R&D, in conjunction with the industry.

    Country Experiences

    In Table 1, the first three countries have relatively high GDP per capita and high Human Development Index (HDI), the second five countries have medium GDP and HDI, while in the last five both GDP and HDI are low when seen from a comparative perspective.

    The said synergies and the associated policy instruments as in (1)-(3) above should form the main discussion in this section. However, since agrarian reforms and agricultural growth are discussed extensively elsewhere, this paper restricts itself to industrial policies and the human capital approaches. (4)

    Industrial Policy

    The Washington Consensus states that governments are mainly required to provide a favorable macroeconomic environment (low inflation, devalued currency, labor flexibility, neutral trade regimes, etc.). The rest should be the responsibility of the private sector. This, however, might not hold for most developing countries. There are at least four reasons for this, at least in Asia:

    First: The asymmetry in information availability across different entities is huge, resulting in some having access to information and becoming 'crony-capitalists'.

    Second: The maturity required among national entrepreneurs for advancing industrialization without any assistance is extremely limited.

    Third, the scale of the national industrial houses is small to match with international companies.

    Fourth, the technological prowess and resource availability with the national private sector are very limited.

    There is no developing country that has followed the Washington Consensus path and succeeded on either the economic growth or human development targets (Rodrik, 2003).

    Some country-specific details in select Asian countries are given below:

    Successful Planning Cases

    South Korea: In South Korea in the 1950s (the first phase), import substitution strategies were put in place to promote local entrepreneurship/skills and also save on foreign exchange drain. Industrial policies in the 1960s and 1970s aimed at promoting identified sectors through allocating government resources to them. They developed light industry products, toys, shoes, garments, and the like; each of them labor intensive, and were in conjunction with the comparative advantage stemming from surplus labor at that time. (5) Agrarian reforms and investments in human capital facilitated the process (Park, 1991). The governments were promoting industry through fiscal and monetary instruments in addition to guiding/directing investments and providing attractive loans (World Bank, 2014; Huck-ju Kwon & Koo, 2013; Amsden 1979). Seen from an HD perspective this was 'inclusive' and efficient economic planning.

    The second stage of industrialization began in the 1970s after the comparative advantage in low-skill labor intensive products began to wane. There was a shift towards industries such as steel, petrochemicals, machinery, auto industry, shipbuilding, and electronics (e.g., South Korea's 2nd 5-year plan in late 1960-searly 1970s). The government enacted laws to promote specific industries (Sakong & Koh, 2010). Key policy instruments were: concessional credit, state-financed infrastructure, low taxes, duty-free import of machinery and materials, protective import duties on items that threaten local industries, and permitting monopolies in several industries to achieve scale (Park, 1991). Additionally, effort was made to promote national ownership of capital (Haggard, Lim Y& Kim, 2003). Finally, there was strong emphasis on Research and Development (R&D), with strong private sector partnership. (6)

    Some key elements of South Korea's industrialization:

  8. Policies changed with shifts in markets, factor endowments (labor) and innovations in science and technology. Thus, earlier the (incremental) capital-output ratio (ICOR) was low, but it increased after inclusion of more workers into the mainstream (Table 2).

  9. ...

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