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Technological Dualism in Late Industrializers: On Theory, History, and Policy

Published online by Cambridge University Press:  11 May 2010

David Felix
David Felix
Affiliation:
Washington University
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Extract

Underemployment in LDCs has been spreading from its rural habitat to envelop the cities. Demographic growth has been a major cause in many LDCs, but the prevalence of the phenomenon in LDCs experiencing rapid industrial growth since World War II has also focused attention on the sluggish growth of industrial employment and on the industrial technologies employed. Since new technology has been almost entirely of foreign design, a central dispute has been whether declining industrial labor coefficients reflect primarily faults in the selection mechanisms governing the choice of industrial techniques, or whether labor-saving trends inherent in advanced country technology are reducing the feasible range of choice for industrializing LDCs.

Type
Papers Presented at the Thirty-third Annual Meeting of the Economic History Association
Information
The Journal of Economic History , Volume 34 , Issue 1 , March 1974 , pp. 194 - 238
Copyright
Copyright © The Economic History Association 1974

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References

1 Cortes, Mario M., “Technological Absorption and Unemployment: A Comparative Analysis,” Washington University, Unpublished Ph.D. Dissertation, 1973.Google Scholar

2 The original source for the U.S. K/L estimates is Carter, Anne P., Structural Change in the American Economy (Cambridge: Harvard University Press, 1970).CrossRefGoogle Scholar

3 Installed HP per worker was used in most Latin American comparisons for lack of capital figures by industry south of the border. Where alternatives could be compared, U.S.—Chile, the results are fairly close. Melman has found a similarly close relationship between K/L and HP/L at the plant level in his industrial engineering studies. See Melman, Seymour, Decision Making and Productivity (Oxford: Basil Blackwell, 1958), p. 152.Google Scholar

4 Cf. Kenen, Peter B., “Efficiency Differences and Factor Intensities in the CES Function: An Interpretation,” Journal of Political Economy, XXIV (December 1966).Google Scholar

See Cortes, “Absorption,” p. 93. The lowest third in 1958 in descending order were:

6 The 2-digit industry findings are based on comparisons between U.S. 1954 data and Brazil (1960), Chile (1957 and 1967) and Colombia (1968). Of the 19 industries, only tobacco had a consistently higher VA/HP for almost all plant size classes in all three Latin American countries. Chilean chemical products and petroleum and coal products in 1967 were the only other industries with consistently higher VA/HP than U.S. 1954 equivalents, across all plant size classes. Exceptions in a few of the other industries are not consistent either as between plant size or countries. See Cortes, “Absorption,” Tables Dl, D2, D3.

7 Kenen, Peter B., “Nature, Capital and Trade,” Journal of Political Economy, LXXIII (October 1965).Google Scholar

8 Salter, W. E., Productivity and Technical Change (Cambridge: Cambridge University Press, 1960).Google Scholar Note also that HP/L is an unreliable measure of the K/L effects of scale economies along a given envelope curve. Pratten's data (reference later) show that there are usually substantial declines in capital costs per unit with larger plant, but few savings on energy cost per unit of output.

9 E.g., The OECD, Manual of Industrial Project Analysis (Paris: Development Center Studies, 1968).Google Scholar

10 This forms an essential part of Ranis' claim that LDC industry isoquants, adjusted to include older vintage techniques, provide for wide technological choice. Ranis, Gustav, “Industrial Sector Labor Absorption,” Economic Development and Cultural Change, XXI (April 1973).Google Scholar

11 “Increasing Returns and Economic Progress,” Economic Journal, XXXVIII (December 1928).Google Scholar

12 Cf. Kaldor, Nicholas, “The Irrelevance of Equilibrium Economics,” Economic Journal, LXXXII (December 1972).Google Scholar

13 The 0.6 rule, C = X0.6, where C is fixed capital and X is capacity, is only a rough averaging of a variable relationship. Haldi and Whitcomb nave found that for 662 U.S. plants built since 1945 the exponent averages 0.62, but the variance in the exponent ranges from 0.4 to 0.8 for 71 percent of the plants, and the extremes range from below 0.4 to 1.1. “Economies of Scale in Industrial Plants,” Journal of Political Economy, LXXV (August 1967).Google Scholar

14 For a more complete list of relationships generating technical scale economies, see Aubrey Silberston, “Economies of Scale in Theory and Practice,” The Economic Journal, LXXXII, supplement; Special Issue in Honor of E. A. G. Robinson (March 1972). Most of the fist, as Silberston points out, is in Robinson's, E. A. G.Structure of Competitive Industry (Cambridge: Cambridge University Press, 1931).Google Scholar

15 Pratten, C. F., Economies of Scale in Manufacturing Industry, University of Cambridge, Dept. of Applied Economics, Occasional Paper No. 28 (Cambridge University Press, 1971) pp. 265–67.Google Scholar

16 In high speed turbines, for example, the limit relates to the fact that the larger the diameter of the turbine the greater the speed at which turbine blade edges revolve relative to the other revolving parts, and the greater the stress on the blades.

17 Two are worth noting. One is that in cubic volume processes, capacity expansion had taken place mainly through green field plant construction. This is primarily because piecemeal addition is more costly in the flow integrated processes, since it requires shutting down existing plants while additions and expansions are hooked on. Post-war demand expanded relatively rapidly for most activities using cubic volume processes, which further encouraged expansion through new plants. Since expansion through time was also associated with technical improvements, some of the respondents apparently had difficulty separating vintage effects from scale effects. The implication is that different plant sizes of the same vintage would yield a shallower sloped envelope. On the other hand, in the engineering and textile industries, where the growth of demand was often slower and the technology more easily permits piecemeal expansion, green field information was relatively sparse. In these cases, Pratten believes, the downward slope of the envelopes was under-estimated, the main reason being that unit capital charges in old plants are based on original cost, which in the post-war period of chronically rising replacement costs led to an underestimation of capital charges on old plant.

18 Minimum efficient scale (m.e.s.), the upper limit of the range, is defined by Pratten as the plant size beyond which doubling output would lower unit costs by less than 5 percent.

19 Pratten, Economies, pp. 318–19. The rapid growth of activities dominated by the square-cube relationships has been, he believes, the major factor behind the aggregate rise of K/L in British manufacturing.

20 Diversification and Integration in American Industry (The National Bureau of Economic Research, Princeton University Press, 1962), p. 7.Google Scholar

21 Pratten, Economies, p. 319.

22 Cyert, R. M. and George, K. D., “Competition, Growth and Efficiency,” Economic Journal, LXXIX (March 1969).Google Scholar

23 His choices of length of run were, however, made with explicit consideration of product differentiation practices. See, for example, the data on autos in Table 4.

24 Pratten, Economies, p. 303.

25 Ibid. p. 304.

26 Freeman, Christopher, “Chemical Process Plant; Innovation and the World Market,” National Institute Economic Review, XLV (August 1968).Google Scholar

27 Pryor, Frederic L., “Size of Production Establishments in Manufacturing,” Economic Journal, LXXXII (June 1972).Google Scholar

28 Landes, David, The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present (Cambridge: Cambridge University Press, 1969).Google Scholar

29 Continuous casting, which eliminates the bloomery stage, might be considered an anti-scale basic innovation. Currently, it is still in the skill-intensive exploratory stage, and beyond 1 million ton plants it is uneconomic at present, though its m.e.s. is likely to move out with maturation.

30 Cf. Hirsch, Seev, “The United States Electronics Industry in International Trade,” National Institute Economic Review (November 1965).Google Scholar Many of Hirsch's references are to mechanization and larger scale, which he evidently assumes increases K/L. Pratten's data on the electronics industry indicate however, that while the industry is scale intensive, it is not particularly K/L intensive.

31 In contrast to the Japanese example, money and real wages in Imperial Germany also rose less than in all her main industrial competitors except France during the expansion. See Phelps-Brown, E. H. and Browne, Margaret H., A Century of Pay: The Course of Pay and Production in France, Germany, Sweden, the United Kingdom, and the United States of America, 1860–1960 (London: Macmillan, 1960).Google Scholar

For a neat demolition of the relative factor price explanation of the U.S. lead in the production of interchangeable gunparts in the mid-nineteenth century, see Rosenberg, Nathan and Ames, Edward, “The Enfield Arsenal in Theory and History,” Economic Journal, LXXVIII (December 1968).Google Scholar A mass market for standardized guns in the U.S. and its absence in England is a major part of Rosenberg and Ames' counterexplanation for the British lag in adopting assembly line gun production.

32 Century, pp. 72–92, 131.

33 Tobin, James, “Inflation and Unemployment,” American Economic Review, LXII (March 1972).Google Scholar

34 Eric Gustafson, W., “Research and Development, New Products and Productivity Change,” American Economic Review, LII (May 1962).Google Scholar

35 This is a major conclusion of the exhaustive review of econometric models of consumer behavior by Brown, A. and Deaton, A., “Models of Consumer Behaviour: A Survey,” Economic Journal, LXXXII (December 1972).Google Scholar

36 Rosenberg, Nathan, “Adam Smith, Consumer Tastes, and Economic Growth,” Journal of Political Economy, LXXVI (May/June 1968).Google Scholar

37 Smith, R. J., “Medium-term Forecasts Reassessed: IV. Domestic Appliances,” National Institute Economic Review (May 1973).Google Scholar

38 The transition to mass production of consumer goods in Britain did not get under way on a substantial scale until around 1880. It began with cheap food items like margarine and canned foods, and before 1900 included ready-made shoes, clothing, and bicycles. Except for bicycles, the products initially were mainly for the working class market. The process of weaning the British middle classes from their aversion to mass produced products picked up steam only after 1900. For useful studies of the transition concentrating on its stimulus to mass marketing in Britain, see Mathias, Peter, Retailing Revolution (London: Longmans, Green & Co. Ltd., 1967)Google Scholar; Jeffreys, James B., Retail Trading in Britain, 1850–1950 (Cambridge: Cambridge University Press, 1954)Google Scholar; Stacey, Nicholas A. H. and Wilson, Aubrey, The Changing Pattern of Distribution (Oxford: Pergamon Press, 1965), 2nd ed.Google Scholar

39 U.N. Economic Commission for Latin America, El Proceso de Industrializaci#x00F3;n en America Latina Anexo Estad#x00ED;stico (Santiago, 1966), pp. 11–14.Google ScholarTurham, David, Employment Problems in Less-Developed Countries (Paris, OECD, 1971).Google Scholar

40 For an informative survey of such trends in India, see Koga, Masanori, “Traditional and Modern Industries in India,” The Developing Economies, The Institute of Asian Economic Affairs, Tokyo, Vol. VI (1968).Google Scholar

41 “The increase in size and cost of the productive unit made essential the smooth and continuous marketing of the goods. Fluctuating and inconsistent demand uncushioned by distributors' stockholding, was incompatible with efficient and low-cost production and therefore the penetration of manufacturers into distribution was an inevitable concomitant of their growth in scale and concentration.

This growth in scale, alongside the successful application of concentration techniques and tendencies, produced in the manufacturing industries a new awareness of their strength and ability to control markets.… The shorter the supply lines the closer the producer is to his market and the greater is his control of product and market.” Stacey and Wilson, Pattern, p. 101.

42 Vernon, Raymond, Sovereignty at Bay: The Multinational Spread of U.S. Enterprises (New York: Basic Books, 1972), Chapter III.Google Scholar

43 In Caves', R. E. review of the literature, the oligopolistic marketing motive shines through as paramount. “International Corporations: The Industrial Economics of Foreign Investment,” Economica (New Series), XXXVIII (February 1971).Google Scholar

44 The rise of intra-firm trade to where it is now over 25 percent of international trade in manufactures is another of the twentieth-century trends that seem to have escaped early detection by main line international trade theory. Some excellent data gathering and analysis of multinational transfer pricing is, however, now being done by LDC economists, notably in India and Latin America.

45 Felix, David, “The Dilemma of Import Substitution,” in Papanek, G. E., ed., Economic Policy: Theory and Practice (Cambridge: Harvard University Press, 1968).Google Scholar

46 Argentina, the LDC with the highest ratio of industrial value added to GDP, with a uniquely rich endowment by LDC standards of literate, skilled labor and technical and scientific personnel, is no exception. Most of the industrial equipment used by large firms is of foreign design (although much of the equipment is now locally produced). Large industrial firms, whether locally or foreign owned, do virtually no R & D beyond that related to trouble-shooting adjustments of equipment, materials, and products of foreign design. The findings are from a detailed 200 firm semi-official survey. See Katz, Jorge M., Importaci#x00F3;n de Tecnolog#x00ED;a, Aprendizaje Local e Industrializaci#x00F3;n Dependiente (Buenos Aires: Institute Torcuato di Telia, 1972).Google Scholar

47 Little, Ian D., Tibor Scitovsky, and Maurice Scott, Industry and Trade in Some Developing Countries: A Comparative Study, OECD Development Center (Oxford University Press, 1970).Google Scholar

48 Cf. Helleiner, Gerald K.“Manufactured Exports from Less-Developed Countries and Multinational Firms,” Economic Journal LXXXIII (March 1973).Google Scholar

49 Supporting evidence for these conjectures is, however, provided by a recent social cost-benefit survey of foreign private investment in Jamaica, Kenya, India, Iran, Colombia, and Malaysia, a mixed group of ISI and open LDCs. See Streeten, P. P. and Lall, S., Evaluation of Methods and Main Findings of the UNCTAD Study of Private Overseas Investment in Selected Less-Developed Countries (Institute of Economics and Statistics, Oxford University, mimeo, 1973).Google Scholar

50 I owe the name and some of the features of the model to a seminar on Brazil given by Albert Fishlow. Since the seminar paper is not available at this writing, Fishlow shouldn't be blamed for any egregious errors in my version.

51 In Brazil the industrialists, landowners, conservative politicians, and nationalistic military, who helped bring about the 1964 coup (with some assistance from the U.S.), have been shunted aside by a smaller in-group of military and economic technicians for whom export-oriented industrialization by policies highly favorable to multi-national subsidiaries is the overriding priority.

52 Fishlow estimates that only a third of the increase in Brazilian income inequality since 1964 can be accounted for by scarcities of skilled and professional labor; the rest is the effect of policy changes.

53 A. Rupert Hall, “Scientific Method and the Progress of Techniques,” Cambridge Economic History of Europe, Vol. IV. The most direct cognitive input was from chemical taxonomy: the detailed classifying of properties of various materials. As regards synthesis, chemical theory of the period was still working its way out of the phlogiston phase.

54 Mathias, Peter, “British Industrialization: Unique or Not?” in L'Industrialisation en Europe au XIXe Si#x00E8;cle, Colloques Internationaux du Centre National de la Recherche Scientifique (Lyon: Octooer 1970).Google Scholar

55 On steam power, Landes writes, “Once the principle of the separate condenser was established, subsequent advances owed little or nothing to theory. On the contrary, an entire branch of physics, thermodynamics, developed in part as a result of empirical observations of engineering methods and performance. Nor is it an accident that this theoretical work was begun in France, where a school like the Polytechnique devoted its efforts explicitly to the reduction of technique to mathematical generalization. All of which did not prevent England from continuing to lead the world in engineering practice and invention.” Landes, Prometheus, p. 104.

56 The obviousness is indicated by the fact that List was strongly influenced by Hamilton's Report on Manufactures, and Hamilton, in turn, according to the evidence of his King's College class notes, found most of his ideas in Malachy Postlethwaite's Universal Dictionary of Commerce, a mid-eighteenth century compendium of conventional mercantilist wisdom.

57 The importance of general literacy for this period remains one of the more controversial points. Lennart Jorberg's judgment for nineteenth-century Sweden is that there is “no proof that formal general education was a prerequisite or a main cause of Swedish industrial development. The educational effect of apprenticeship and promotion to skilled grades in ordinary economic life was probably more far reaching than sums of money spent on educational institutions.” See “The Diffusion of Technology and Economic Development: Scattered Remarks from Swedish Economic History,” presented at the Conference on the Diffusion of Technology and Economic Development, Bellagio, Italy (mimeo, April 1973).

58 See “Made in Germany,” an alarmist series of turn-of-the-century press articles by Williams, E. E., recently reissued with a valuable introductory essay by Austen Albu in the Society and the Victorians Series (Brighton: Harvester Press Ltd., 1973).Google Scholar

59 “Technological Diffusion in Latin America,’ presented at the Conference on Technological Diffusion and Economic Development, Bellagio, Italy (April 1973). On Brazil, see Leff, Nathaniel H., “Economic Retardation in Nineteenth Century Brazil,” Economic History Review, 2nd Series, XXV (August 1972).Google Scholar

60 The case has been put forth in greatest detail by Gustav Ranis. See, in particular, Ranis, G. and Fei, John, “Innovation, Capital Accumulation and Economic Growth,” American Economic Review LIII (June 1963) and Gustav Ranis, “Industrial Sector Labor Absorption.”Google Scholar

61 Tsurumi, Yoshi, Japanese Efforts to Master Manufacturing Technologies, ICH 14G45 (Boston, Mass., Intercollegiate Case Clearing House, 1970) p. 30.Google Scholar

62 Rosovsky, Henry and Ohkawa, Kazushi, “The Indigenous Component in the Modern Japanese Economy,” Economic Development and Cultural Change IX (April 1961).Google Scholar

63 Watanabe, Tsunehiko, “Industrialization, Technological Progress, and Dual Structure,” in Klein, Lawrence and Ohkawa, Kazushi, eds. Economic Growth: The Japanese Experience since the Meiji Era (Homewood, III.: Richard D. Irwin Inc., 1968) p. 113.Google Scholar

64 The delay in building up a passenger car industry until after World War II, and its explosive rate of growth subsequently, is a recent illustration of this continuing Japanese pattern.

65 Kazushi Ohkawa and Henry Rosovsky, “Post-war Japanese Growth in Historic Perspective: A Second Look,” in Klein and Ohkawa, Growth, pp. 29–40.

66 Watanabe, ”Industrialization,” pp. 124–27.

67 For the events leading to the reluctant signing by the Japanese of the “Unequal Treaties,” see Beasley, W. G., The Meiji Restoration (Palo Alto: Stanford University Press, 1973), Chapters 2–4.Google Scholar

68 Sermons along such lines were read to the resisting Japanese officials by foreign diplomats, while the press commentary in the home countries expressed similar moral arguments less respectfully. For choice examples, see Beasley, Restoration.