Industrialization is a process of transformation of a predominantly non-industrial community into a predominantly industrial community. Among the chief characteristics of a typically non-industrial economy the following are noteworthy. Predominance of agriculture as a way of living, using techniques of a simple and primitive kind, high pressure on the soil resulting in small farming units, even where ownerships are in the hands of large landlords. Where the small peasants own the land, the unit of farming may be still smaller and is normally fragmented.
Agriculture versus Industry
Now the question is: If a community is underdeveloped both, agriculturally and industrially, which is normally the case of underdeveloped countries, which sector should be given priority? This is our first problem. Of course, in a general way, both lines of development will proceed simultaneously acting and reacting on each other. It is quite true, however, that in a sense, development in the one may be a pre-condition for the development in the other. For instance, where the entire working force of a community is fully engaged in the production of primary goods in the agricultural sector, so that any transfer of workers from this to the industrial sector will seriously diminish production, productive efficiency in the former must be increased before labour power will be set free for the latter.
Consumer Goods versus Capital Goods
The second problem concerns priorities in the industrial sector itself. This is a choice between allocation of resources for the production of consumer goods as against capital goods. The one will give higher living standards to the people in the immediate future but at the cost of a lower rate of development. This decision will depend upon various factors influencing the decision-makers, like the pressure of public opinion, ability and willingness of the people to bear sacrifices, urgency of the rate of development in view of political or military considerations, possibilities of external aids, etc.
Small versus Large Production Units
Closely connected with the rate of capital formation, in fact conditioned by it, is a choice between
the establishment of large scale factory industries as against small scale, mainly cottage type of
production units. This particular choice among other things has to be guided by two consideration:
(1) the relative scarcity of capital equipment as against labour power, and (2) the desirability of avoiding the creation of too large a proletariat which was one of the great disadvantages of the Industrial Revolution to Great Britain and elsewhere. In an underdeveloped country like Pakistan capital equipment is scarce due to low saving margins and other institutional factors. On the other hand, there is considerable surplus labour power available in the form of disguised unemployment in the agricultural sector.
Even market forces, if allowed to operate freely, should result in the emergence of organizations which would use a greater proportion of the plentiful factor, i.e. labour as against the scarce factor, i.e. capital. State policy should encourage such a tendency by facilitating the supply of more efficient technique suited for small scale operations, preferably of a family or a cottage type. To the extent that such units could be established, it would also act as a factor against the emergence of the industrial proletariat in the sense of working masses divorced from the ownership of means of production and solely depending upon their labour power. It is not, however, suggested that large scale enterprises are to be Schewed altogether. It is only proposed that every effort is to be made to widen the sector of small scale industrial operation and to confine large units only to those enterprises which would lead to gross wastage of national resources, if run on a small scale. Experience of Japan and Switzerland has shown that a high degree of industrialization can be achieved even through the operation of small units of production provided they are thoroughly rationalized.
Public versus Private Sector
The next decision to be made is regarding the role of the state in the process of industrialization.
This may be decided on the basis of an ideology or on the basis of practical convenience or necessity in a
given situation. Assuming that the state is a democratic state and regards itself the servant, rather than the master, of the people, the leading considerations will be of necessity and convenience. Certain enterprises may be operated by the state either because they are essential but not immediately profitable in the busmess sense, like hydro-electric projects, or because they ought to be state monopolies in the interest of security(e.g. defence industries) or because they ought to be state monopolies in the interest of consumers or of optimum use of national resources (e.g. public utilities). Certain other enterprises may be operated by the state because private enterprise is shy of taking risk even though in the long run they will prove attractive for such enterprise.
Role of the State
In the private sector, however, the state may promote and encourage private enterprise by various methods, e.g. it may arrange for imported essential raw materials and equipment; it may make available land, power, communications, etc., in particular places, it may give essential information regarding sources of materials and markets, it may give tariff protection, subsidies, tax concessions to particular industries and may directly or indirectly provide financial facilities. All these methods are used in Pakistan.
In modern times planning has been widely accepted as a technique of promoting industrial and general economic development. Leaving aside the overall centralized planning of the communist type, even democratic countries can promote industrialization through the planning technique. The various alternative choices considered above arise as matters of collective policy only when some sort of central plan is envisaged.
Raw Materials
Raw materials may be derived from mines like metal ores, agriculture like food grains and fibres, animals like skins and bones, or forests like wood, resins, etc. Their importance for industrialization is obvious because industrial activity is mainly concerned with the transformation of raw materials into finished goods either for direct consumption or as aids for further production. The industrial potentialities of a country, therefore, to a large extent are conditioned by the availability of raw materials within its borders or from other easily accessible sources. But for her coat and iron mines, it is doubtful whether England would have been the contributor of the industrial revolution to the world. Raw materials not only decide the magnitude but also the variety pattern of an Industrial economy. This, however, is not an absolute principle. Countries have become leaders in the industrial fields and in particular industries without having been gifted by nature in the matter of the essential raw materials, e.g. Britain’s and Japan’s cotton textile industry, America’s rubber industry, most of the industries of Holland, etc.
Pakistan has a variety of agricultural raw materials in the form of food grains, fibres, oil seeds, hides and skins and forest products, on which a large number of industries can be based. Her weakness in this respect lies mainly in the availability of mineral deposits especially metals like iron, lead, copper, zinc, manganese, etc. We have, therefore, to depend on imports both for ferrous and non-ferrous metals, which not only strains our foreign exchange resources but also adds to the cost of industrial production. Lack of iron ore and coking coal is one of our greatest handicaps in establishing a good iron and steel industry.
The deficiency of coal as a source of heat, however, has been considerably made up recently by the
discovery of a vast field of natural gas at Sui in Balochistan. Existing reserves are considered equivalent
to an annual import for a period of 60 years of 1.6 million tons of good coal. The Government of Pakistan
has taken active steps to investigate into further possibilities of discovering minerals in the country. The
Six-Year Development Plan provided for an expenditure of Rs. 10 million for a geological survey. A
number of foreign geologists have visited the country and given their reports.
Power
In earlier stages of economic development power comes from animal or human muscle, wind and
water. Steam power was discovered in the 18th century in England; gas, and electricity in the 19th century. The 20th century has contributed atomic power, which may change the entire balance of power of the world in the near future. In modern industry the most important source of power still remain to be steam, gas and electricity. Steam requires a source of heat while electricity may be produced by heat or by water power. Gas can generate power through its combustion. The main sources of heat are coal, oil and natural gas. The last one, as already mentioned, has been discovered in Pakistan and has to a considerable extent made up for the deficiency of good coking coal.Oil production is being increased. Electric power is being developed as quickly as possible. In 1950 the consumption of electric power per capita in Pakistan was only 2 KWH as against 1776 KWH in USA (1947), 810 in UK(1946),411 KWH in Japan (1947), 14 KWH in India, etc. Hydel power is more important from the point of view of Pakistan.
Finance
Finance is a method of mobilizing real resources by giving command over them from those who
possess them to those who are in a position to put them to productive use. Talking in terms of real
resources, finance represents that part of the production flow of an economy which is used not for
deriving direct satisfactions by the consumers but for strengthening the productive base of the economy.
To avoid confusion we shall talk in monetary terms alone. The excess of production over consumption is
saving and, therefore, the main source of finance is saving of the people of a country. This may, however, be supplemented by foreign loans or grants or direct investment by foreigners. Of course foreign loans with interest have to be paid back ultimately by future savings of the people of the country concerned.
Domestic Finance Analyzing domestic sources of finance further we find that funds may come from:
(a) Voluntary savings of the people done for various motives like insurance against future needs, desire for accumulation, etc.
(b) Compulsory savings induced through taxation on the part of the state or through ‘created money’.
The investment of the savings, thus achieved, may take place either through private enterprise or through public agencies. It should be noted that voluntary saving is not necessarily invested through the private entrepreneurs. Saved money may be loaned by the people to the government or to the private agencies direct or through the appropriate financial channels. Similarly, money raised by the government through taxes or loans from the public or banking system (inflation) may be put at the disposal of private enterprise through appropriate financial institutions.
The safest method of promoting domestic finance is by the encouragement of voluntary savings through
the establishment of a wide network of saving banks facilities and by offering attractive returns for loans to government, particularly through the institution of small saving schemes. This should be supplemented by a properly designed system of progressive taxation. Inflationary, finance hits the small man the hardest and creates other tensions and instabilities in the economy and hence should be avoided as far as possible.
External Finance
The margin between production and consumption being very small in underdeveloped countries their saving capacity in any case is extremely limited. Under these conditions initial stimulus to industrial development can be given through financial assistance on the part of the more advanced countries of the world. This assistance may take the form of direct participation in industrial development by foreign firms, by foreign loans either on private basis or government to government basis or through some international institution like the World Bank. To some extent help may be available in the form of grants and gifts.
The most effective method is direct investment because along with capital it brings enterprise, technical skill, marketing connections, etc. into the country which may import experience and stimulation beyond the actual enterprise started by the foreigners. Such enterprises, however, are rarely established for industrial purposes unless the rewards are inordinately high and safeguards are given by the government of the host country against nationalization, expropriation and for repatriation, of profits and capital, if necessary. The host country, on the other hand, has to be careful that the foreign investment does not lead to interference in its political sovereignty and that the foreign enterprise does not exploit unduly the irreplaceable material resources and human labour. If adequate guaranties are accepted by both sides this form of foreign help can be very fruitful. As regards loans, private loans are seldom available due to lack of supervision and risks involved for the investor. Government to government loans are more practicable and have been given in recent years particularly by the USA.
Pakistan’s Financial Requirements
At this stage it would be instructive to make a rough estimate of the financial resources required by Pakistan to achieve a reasonable balance between her industrial and non-industrial sectors, and to absorb
its growing population into new avenues of employment. The population of Pakistan is increasing by about 900,000 a year. Since the working population is about one-third of the total population we may assume an annual increase of 300,000 workers needing employment.
If we assume that between 25 to 30% of this are surplus on land, (quite a conservative estimate) we have to shift about 5 million persons from the agricultural to the non-agricultural sectors. If we plan this for a period of 10 years, this will mean providing non-agricultural employment to 500,000 workers a year out of the existing agricultural labour force. If the entire natural increase in the labour force is also to be absorbed in non-agricultural pursuits, the total number of workers to be provided with non-agricultural gainful employment would be 800,000 a year.
Available Financial Resources
Now let us try to estimate the financial resources currently available to the country of the basis of the rate of investment that has been taking place in the immediate past. We have no annual estimates of the investments in industry in Pakistan. The last three years’ average of the development expenditure in the public sector comes to about Rs. 700 million per annum. The total subscribed capital of joint stock companies in Pakistan increased from 338.50 million rupees, a total increase of about 145 million rupees or an average rate of Rs. 72 million a year. If we take only the companies which were engaged wholly or partially in industrial pursuits, their subscribed capital increased from Rs. 266.30 million io Rs. 429.88 million during the same period of two years or at the rate of Rs. 82 million a year.
The Problem of Foreign Exchange
It should be noted that the problem of acquiring foreign exchange is a distinct problem from that of external finance. External loans may not necessarily be given in terms of foreign currency. On the other hand, foreign exchange need not be created only through foreign loans.
A country may have foreign loans in the form of her own currency through the creditor country creating a balance in her own favour in the debtor country by sending more goods and services than receiving back and then lending this surplus to the country in question. Thus, domestic expenditure may be financed through foreign savings; conversely, foreign expenditure may be, and is usually, met from domestic savings. This is done by creating an export-surplus and the foreign exchange thus made available is used for the purchase of foreign goods for purposes of industrial development.
One of the greatest problems of underdeveloped countries is to have a constant flow of foreign goods and services to implement their development programmes. For this, corresponding amounts of foreign exchange resources are necessary. Foreign exchange resources of most underdeveloped countries are subject to wide fluctuations, due to their being exporters of a few raw staples, like raw cotton and raw jute of Pakistan, which are subject to wide changes on the side of demand as against inelastic conditions of supply.
Foreign Equipment
Mere availability of foreign exchange, however, is not enough. It is necessary that stocks of capital
in the form of machinery, machine tools and other industrial essentials are available in adequate quantities and at reasonable prices. In the initial stages, such equipment cannot be produced at home and certain kinds may always have to be imported. After the outbreak of the Korean War in June 1950, the under-developed countries, including Pakistan, were finding it difficult to get adequate supplies of machinery and other equipment for the implementation of their development programmes. The reason was that industrially advanced countries like USA, Great Britain and France were using their industrial power for the production of war goods in fear of the Korean War developing into a World War.
On the other hand, this was the very time when the underdeveloped countries had large accumulated foreign exchange balances due to the boom in their exports and hence were in a position easily to pay for their needed capital goods.The supply position has improved more recently but the foreign exchange resources of the developing countries have deteriorated in the meantime due to a contraction of demand for their staple exports. It is necessary that the advanced countries follow a deliberate policy of arranging
for the production of capital goods needed by the underdeveloped countries so that the implementation of the latter’s programmes are not delayed on this account.
Technical Personnel
While most of the industrially underdeveloped countries possess large labour power due to high
population pressure, persons of the requisite education, training and experience are not available in
adequate numbers. Technical manpower required for industrialization may be grouped into the following
categories:
(a) Well trained planners and administrators who can devise, initiate and supervise development
plans. This is a state liability.
(b) An adequate number of entrepreneurs with sufficient experience and capacity for taking
risks involved in the initiation of development projects in the private sector of economy.
(c) Managers of sufficient calibre to be able to perform the various managerial functions whether employed by government or by private promoters of industry. In some cases (b) and (c) would be combined in the same person.
(d) Technicians of various grades from the foreman downwards possessing skills in the handling of advanced tools in the actual processes of production in factories, etc.
This problem can be met in various ways. Firstly, foreign experts especially at the top level may be
imported either on individual contract basis, or through government agency or through international
organizations. Secondly, people may be sent abroad through state scholarships or under foreign technical
assistance programmes to get the requisite education, training and experience. Thirdly, training
institutions may be established within the country domestically or through foreign help. All these methods are being used in varying degrees in this as well as in some other underdeveloped countries. To get the best advantages, however, it is necessary that persons for foreign training should be selected strictly on merit and should be sent for training according to a well coordinated plan so that their services may be utilized to the best advantage. Similarly, foreign experts should be called for definite projects in which they could contribute something significant to the programmes of development. Such considerations have not always been kept in view in this country.
Conclusion
In conclusion, it may be added that the problems of industrialization of industrially backward communities is of very great magnitude and complexity. Many social, political, economic and psychological resistances have to be overcome. The problem is extremely urgent in the context of world
peace, and also on humanitarian considerations. It is heartening to note that the importance of the issues
involved is being realized not only in the underdeveloped countries themselves but also in the industrially
advanced countries and by the United Nations. There is a consciousness of a common purpose and common interest in a large portion in the world.
Assistance at the international level is being made available to those who need it and is producing fruitful results. The task, however, is so colossal that a much greater concerted effort is needed to lift the major portion of mankind from the depths of poverty and misery which has achieved more or less a chronic character. Time has come when the people of the world should approach economic problems on an all-world basis because poverty in one part of the world can threaten the prosperity of others. The new
cooperative trends in the economic field, particularly since the end of the World War II, are an encouraging sign and would promise a brighter future for humanity only if the political tangles could be harmoniously solved. But that is a big “IF” indeed.
