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The Decline of Rural Industry Under Export Expansion: A Comparison among Burma, Philippines, and Thailand, 1870–1938

Published online by Cambridge University Press:  03 February 2011

Stephen A. Resnick
Stephen A. Resnick
Affiliation:
Yale University
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Extract

This paper endeavors to explain the economic and social forces underlying the economic transformation of three Southeast Asian countries from agrarian societies to commercial ones. In particular, a model is used to explore this historic behavior over the period 1870 to 1938 for Burma, the Philippines, and Thailand. It is also suggested that the varying economic consequences of the model were dependent on the respective pre-colonial history and the type of colonial or governmental rule.

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Articles
Information
The Journal of Economic History , Volume 30 , Issue 1 , March 1970 , pp. 51 - 73
Copyright
Copyright © The Economic History Association 1970

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References

1 A formal model of an agrarian economy incorporating the production of food and these Z goods has been formulated by Hymer, Stephen H. and Resnick, Stephen A., “A Model of An Agrarian Economy with Non-Agricultural Activities,” American Economic Review, LIX, No. 4 (Sept. 1969), 493–506Google Scholar. Some of the results of that work will be used in this paper.

2 Although economic life centered on the village, there is ample historical evidence for Burma, Thailand, and the Philippines of some engagement in both short and long distance trade prior to 1870. The magnitude of this trade, however, was not sufficient to essentially alter the type of agrarian society we have described. Although markets existed, they were no doubt underdeveloped in nature.

For a description of Burmese village life, the wide variety of Z goods produced, and the intricate trade among villages and regions, see Furnivall, John S., An Introduction to the Political Economy of Burma (Rangoon: Burma Book Club Ltd., 1931)Google Scholar; Crawfurd, John, Journal of an Embassy from the Governor-General to the Court of Asia in 1827 (London: Henry Colburn, 1829)Google Scholar; Andrus, J. R., Burmese Economic Life, (Stanford: Stanford Univ. Press, 1947)Google Scholar; Wai, U. Tun, Economic Development of Burma (Rangoon: Department of Economics, University of Rangoon, 1961).Google Scholar

For Thailand, see Heide, J. H. van der, “The Economic Development of Thailand During the Last Half Century,” Journal of Siam Society, III, Part II (1906), 74–101Google Scholar; Ingram, James C., Economic Change in Thailand Since 1850 (Stanford: Stanford University Press, 1955)Google Scholar. For Philippines, see Corpuz, Onofre D., The Philippines (Englewood Cliffs: Prentice-Hall Inc., 1965)Google Scholar; Corpuz, O. D., “Notes on Philippine Economic History” in Sicat, G. P. et al., Economics and Development (Quezon City: University of Philippine Press, 1965)Google Scholar; Zaide, Gregorio F., Philippine Political and Cultural History, Volume I, (Manila: Philippine Education Co., 1967)Google Scholar; Costa, H. de la, Readings in Philippine History (Manila: Bookmark, 1965)Google Scholar.

3 It is asumed that Z and F are substitutes in production in the long run. See Hymer and Resnick, “A Model of an Agrarian Economy with Non-Agricultural Activities.”, Of course, even within food production, one, should stress the variety of crops cultivated with varying production processes and different needs for land and labor For example, increased specialization in a basically mono-crop (rice) economy as in Burma and Thailand had different repercussions on the native society as compared to the more diversified Philippine expansion of sugar, copra, and tobacco for export and rice for home consumption.

4 The simplest model thus consists of three goods: one which is produced but not consumed (F); one which is consumed but not produced (M); one which is consumed and produced but not traded (Z).

Obviously, not all of F is exported. The agrarian economy retains a portion of its agricultural output for its own consumption and focus is then on the generation of a marketable surplus. For the rice exporting countries, Thailand exported about 5 percent of total production in 1850 and 50 percent in 1907–09; and from 1907 to 1940, 40 to 50 percent was exported; Burma exported about 62 percent in 1875 and about 58 percent from 1900 to 1940. The Philippines was a net rice importer from 1870 on, although rice imports decreased monitonically from 1902 to 1938. The principal exports of sugar, abaca and coconuts averaged from 50 percent to 70 percent of total production from 1902 to 1938. The model should be modified to incorporate this effect of some F consumed but the qualitative analysis of a change in P on production and consumption would be similar.

5 If some F is consumed within the economy, then the model is somewhat more complicated (in terms of substitution effects) but, in general, the income effect, because it is weighted by the marketable surplus, becomes more important as specialization increases, and tends, as in the case where all of F is exported, to outweigh the substitution effect. For an algebraic analysis of the two cases, see Hymer and Resnick, “A Model of an Agrarian Economy with Non-Agricultural Activities.”

6 One must be careful in forming welfare judgments on this process. It is true that there are a number of reasons for suggesting that Z goods are likely to be inferior and that, therefore, high responsiveness is to be expected. Historically, the trade in textiles and implements provide classic examples of superior M goods possessing all the attributes of traditional Z goods plus additional ones of color and durability as in cloth and improved techniques as in tools and weapons. Another important example is provided by the substitution of processed food for the arduous task of preparing raw food in the household. However, in some cases, the manufactured good may satisfy fewer attributes than the Z good since, for example, the imported item may sacrifice certain local artistic, religious, or cultural characteristics. The degree of substitutability thus obviously depends on the level of income and cultural patterns. Conversely, this implies that a breakdown of the traditional values of an agrarian society and the creation of wants favoring M goods will tend to increase the marketable surplus.

7 An invaluable source of empirical information was provided by Hlaing, Aye, “Trends of Economic Growth and Income Distribution in Burma,” in Journal of the Burma Research Society, XLVII (June 1964), 89–148Google Scholar. Other sources of data consulted were: Report on the Administration of British Burma (Rangoon: Government Press), various issues; Furnivall, John S., Colonial Policy and Practice (New York: New York University Press, 1956)Google Scholar, especially Chapters III and IV; Wai, U Tun, Economic Development of Burma from 1800 till 1940 (Rangoon: Department of Economics, University of Rangoon, 1961).Google Scholar

8 Between 1872 and 1901, population grew at 2.45 percent per year. The landlabor ratio increased then and output per head was rising. Rice yields declined slightly. During the second period, population grew at 1.3 percent per year and the land-labor ratio fell. Rice yields rose slightly. Compared to the first period, a more intensive use of land was undertaken as the labor-land ratio increased. This was partly due to the exhaustion of easily arable land in Lower Burma (without costly irrigation or drainage investments).

9 The direction of this rice trade shows an interesting change: in 1871–75, only 1.2 percent of rice exports (in tons) went to India, by 1901–05, this had increased to 16 percent, and by 1936–40, it had risen to 53.3 percent. Correspondingly, the rice trade destined for the West declined from a high of 75 percent in 1871–75 to 464 percent in 1901–05, and finally 16 percent in 1936–40. The growth of India as a market for Burmese rice is self-evident from these statistics.

10 If we examine the balance of payments (in current prices), there was an export surplus throughout both periods and this surplus increased both in absolute and relative terms. In the first period, total exports and imports (in current prices) grew at the rates 5.1 percent and 4.6 percent respectively, and in the second, 2.6 percent and 1.5 percent respectively. However, the surplus on current account was 63.4 million rupees in 1901–05. representing 30 percent of total exports and 298 million rupees in 1936–40 representing 58 percent of total exports.

It has been suggested, although the evidence is limited, that increased savings were flowing out of Burma especially to India towards the end of the second period. Also, petroleum and mining grew during the second period and these were effectively worked and controlled by non-Burmese factors and consequently much of the derived income accrued to these foreign factors. For discussion of these points, see Hlaing, “Trends of Economic Growth and Income Distribution in Burma, 1870–1940,” pp. 114–118; and Wai, U Tun, Burma's Currency and Credit (Calcutta: B.N. Bose at Bose Press, 1953)Google Scholar, ch: XI, XIII.

11 For a summary of manufacturing carried on in Burma, see Report on the Administration of British Burma During 1876–77 (Rangoon: Government Press, 1877) p. 10Google Scholar.

12 See various issues of the Census of India, Burma. Report (Rangoon).

13 Hlaing, “Trends of Economic Growth and Income Distribution in Burma, 1876–1940,” pp; 105–106.

Imports of cotton yarns rather than, falling grew at about 1.8 percent per year from 1876–80 to 1936–40; The reason for this is that the industry became localized in Upper Burma where there was no such agricultural expansion as occurred in Lower Burma. An interesting example of a traditional industry that was not completely destroyed by foreign goods was that of the silk weaving industry. Evidently, this industry produced a particular sarong of design and color that catered to the tastes of the wealthier Burmese who could afford it. Otherwise, there was a limited market for this luxury good. See Hlaing, “Trends of Economic Growth,” pp: 104–105:

14 However, as with the example of silk, there did exist a particular demand for home production of salt and this prevented it from being completely destroyed. An important item in the Burmese diet is fish-paste and evidently local salt was better than foreign salt in preparing this food item. Correspondingly, the fish-making industry, although declining as salted and unsalted fish were imported, did not die off due to this particular demand for one of its products. This illustrates the complexity of taste patterns in the agrarian economy. See Hlaing, “Trends of Economic Growth,” pp. 103–104.

15 “Even agriculturists no longer have paddy for their own consumption husked by the women of the family, but send it to the local mill in quantities as small as fifty gallons to be husked for them.” Wai, U Tun, Economic Development of Burma, p. 81, as quoted from Report of the Burma Provincial Banking Enquiry Committee, 1929–1930 (Rangoon, 1930), I, p. 18Google Scholar.

16 Much of the Indian immigration was temporary in nature and the Indian population never exceeded 7 percent of the total population.

17 The two principal sources for this section were: Ingram, Economic Change in Thailand Since 1850, and Thailand, Department of Commerce and Statistics, Statistical Yearbook of the Kingdom of Siam (Bangkok), various issues.

18 Population grow at 1.7 percent per year over this period. The land-labor ratio was increasing and output per head rising while rice yields declined over the period.

19 Considering the depression period as a whole, rice yields declined.

20 The balance of payments (in current prices) had an export surplus throughout both periods.

21 J H. van der Heide, “The Economic Development of Thailand During the Last Half Century,” and J C. Ingram, Economic Change in Thailand Since 1850.

22 Ingram; Economic Change, ch. 6. Between 1920 and 1941, imports of cotton yarns in metric tons increased from 1,380 to 3,795. Domestic, cotton production also increased during the 1930's. Much of this seemed to have been grown in the Northeast region. The depression of the 1930's probably had some general influence on the survival of the textile industry, but the regional specialization emerges as the most interesting explanation. In fact, one author when referring to Thailand's handicraft industry wrote: “…though some branches of this suffered severely from the competition of imported manufactures after 1855, others have survived surprisingly well, so that in the regions outside the commercialized Central Plain such industry is probably more important than in any other major part of Southeast Asia.” Fisher, Charles A., Southeast Asia (London: Methuen & Co. Ltd., 1964), p. 503Google Scholar.

23 Ingram points out that the terms of trade moved in favor of rice, e.g., the ratio of the rice to sugar price, from about 1870 to 1920. Ingram, Economic Change in Thailand Since 1850, pp. 123–127.

24 See Ingram, Economic Change, pp. 127–132.

25 Data were taken from S. Resnick, Economic Development of the Philippines (in progress).

26 Burma did develop a petroleum industry which became capital intensive under British control. Nonetheless, from the 1870's to the 1920's rice on the average accounted for 67 percent of total export earnings while petroleum only about 7 percent. By 1936, petroleum was 31 percent and rice 38 percent which reflected the influence of the depression years.

27 Organized manufacturing increased its relative share of the non-agricultural sector from only 12.6 percent in 1902 to 22 percent in 1938 which ranked it first in terms of contribution slightly exceeding that of the service sector (21.3 percent) and the commerce sector (19.2 percent). No doubt much of this growth was contributed by the expansion of rice and sugar milling-agrarian induced industries. However, there seemed to have been some import-substitution carried on as the import content of supplies in the organized manufacturing sector (excluding food processing) declined from 79.4 percent in 1902 to 51 percent in 1938. Much of this expansion derived from the growth of the shoe, glass, cement, printed products, non-metallic, and chemical industries. After 1929, there was a small expansion in the textile industry.

28 The balance of payments in current prices showed a persistent surplus on current account from 1872–75 to 1936–38. From 1896 to 1905 there were deficits but this period includes the war years up to 1902. A small average deficit appeared during the period 1911 to 1915. From then on the average export surplus on current account was over 40 million pesos per year.

29 Yields increased over the whole period. Much of this growth, however, occurred during the period 1910 to about 1934. Yields in sugar, for example, rose steadily from 1910 to about 1934 and then showed no growth at all to 1938.

30 One obvious reason for the underestimation is that it is impossible to quantify all the goods produced in the household even if one could impute prices to basically non-traded goods. Another reason is that the estimation was based on an arbitrary 1000 pesos criterion: those industries producing an output greater than 1000 pesos per year were counted as organized manufacturing.

31 Two specific Z-activities were rice pounding in the home for daily use and cloth production woven by hand looms. In 1902 over one million women were engaged in manufacturing pursuits in the home, mainly textile production. Almost 70 percent of the total number of women engaged in occupations were in the manufacturing classification and of the total male and female labor force, 32 percent were engaged in manufacturing, second in importance only to agriculture. See U.S. Bureau of the Census, Census of the Philippine Islands taken under the Direction of the Philippine Commission in the Year 1903, Vol. II, Population (Washington; G.P.O. 1905).

32 The demand for food over this period is estimated at slightly more than 4 percent. The terms of trade between agriculture and industry tend to support this balance between the demand and supply of food. The price of food (rice and corn) to manufactured goods is fairly steady from 1902 to 1938, although cyclical swings can be noted.

Considering total net crop output, i.e. food plus export production, in 1938 prices, the growth was 4.1 percent per year during the American colonial period. Labor productivity (net output of all crops divided by labor engaged in crop production) showed an increase from 1902 to 1938 but only a slight expansion from 1918 to 1938. Total land under cultivation increased by 3.3 percent per year from 1902 to 1938 and the land labor ratio rose over the period. The ratio actually increased from 1902 to 1918 and then declined somewhat from 1918 to 1938. The yields of crops increased from about 1902 to 1929 and then showed only a moderate increase to 1938 (influenced by the decline in rice yields especially from 1929 to 1938). Between 1902 and 1938, both the animal labor and capital labor ratio increased in agriculture. There is also evidence that some irrigation improvements were undertaken with government encouragement.

33 See Ingram, Economic Change in Thailand Since 1850, ch. 7 and 8. The Thai government consistently accumulated foreign exchange reserves against notes outstanding. British advisers advocated that the government accumulate ample reserves of foreign currency and bullion and, “from 1902 to 1941 a reserve of nearly 100 percent (often more) was maintained.” Ingram, Economic Change, p. 173. Since most of the import trade was with Britain (averaging about 70 percent of imports) and much of the rice exports went to British colonies, British interests in maintaining a stable financial environment were well protected. However, the opportunity cost of maintaining such large liquid balances for the Thai economy meant that needed investments in infrastructure, such as irrigation, power, and transport, were not carried out because of a lack of government funds.

34 Government expenditures on investment goods averaged only 11 percent of total expenditures from 1892 to 1941. Philippine government investment as a proportion of total expenditures averaged slightly over 25 percent between 1906 and 1938.

35 See Cady, John F., A History of Modern Burma (Ithaca: Cornell Press, 1958)Google Scholar; Harrison, Brian, South-East Asia, 2d ed. (London: Macmillan & Co., Ltd., 1963)Google Scholar, ch. XVI.

36 In the petroleum industry, which was the second most important export industry in Burma after rice, about 90 percent of the unskilled labor force in Lower Burma was Indian. In striking contrast, about 80 percent of the oilfield workers in Upper Burma were Burmans. In various other occupations, a similar regional pattern emerged.

37 The story of the scramble for land and speculation in land in Lower Burma is a fascinating one but the outcome was tragic. The depression of the 1930's brought a wave of foreclosures and led to a landless proletariat in Lower Burma. In 1901–05, 81 percent of the total occupied area was owned by the “cultivating owners;” by 1936–40 about 53 percent was so owned. And of the area owned by “non-cultivating owners,” the percentage of the “absentee owners” rose from 64 percent to 82 percent between these two periods.

38 See Hlaing, “Trends of Economic Growth and Income Distribution in Burma, 1870–1940,” pp. 130–136.

39 Actually, wage labor had begun to replace corvée in the early 1800's (Rama II).

40 Phelan, John L., The Hispanization of the Philippines (Madison: The University of Wisconsin Press, 1967)Google Scholar.

41 Corpuz, O.D., The Bureaucracy in the Philippines (Manila: University of the Philippines, 1957)Google Scholar.

42 Tentative national output estimates exists only for Burma and the Philippines. For the former country, national output grew at 1.9 percent per year between 1901 and 1931 and for the latter, 4.5 percent per year from 1902 to 1938. For similar periods, population grew at 1.1 percent in Burma and 2 percent in the Philippines. Output data were derived from: Hlaing, “Trends of Economic Growth and Income Distribution in Burma,” Appendix A, pp. 138–144 and Resnick, Economic Development of the Philippines, worksheets.

43 Furnivall, Colonial Policy and Practice.