Industrialization%20in%20Southeast%20Asian%20Development

1
Industrialization in Southeast Asian Development
2
The Development Stage

• Developing countries characterized by a high
  degree of subsistence production
• Agricultural sector is paramount and important
• While industrialization does not insure
  development it does have some healthy
  implications
• It implies technology application
• It implies raising productivity per worker
• It implies releasing labor for other tasks
• But all sectors must move forward and some
  balance is desirable

3
Industrialization As A Panacea?

• Industrialization is not a panacea or cure all
  but it does carry with it some important
  attributes
• 1. Employment for deepening labor market
• 2. Allows improvement in standard and quality of
  living
• 3. Improves balance of payments
• 4. Provides certain element of national prestige

4
Comparing Industry versus Agriculture

• Farmer has little control over his environment
  pests, drought
• Agricultural production is generally slower and
  product cannot be quality controlled as in
  manufacturing
• Agricultural commodities are susceptible to
  price swings in the global market
• Relative inelasticity of demand for agricultural
  products, i.e. if prices fall more purchases are
  not assured
• Technology has much greater impact on industry
  than agriculture
• Increased specialization of labor in
  manufacturing results in higher productivity
• Thus manufacturing offers a stronger base for
  raising the level

5
Nature of Industry in Development

• Heavy industry- large scale production of capital
  goods iron, steel, machine tools, car
  production, ship building
• Location determined by access to and availability
  of raw materials
• Requires well developed transport infrastructure
  and power supply
• Heavy capital investment
• High proportion of relatively skilled workers
• Large scale to achieve economies of scale

6
Nature of Industry in Development

• Light industries- generally refer to consumer
  goods paints, tools, etc
• Relies on semi-processed as opposed to raw
  materials
• Less energy per laborer required
• Less complex machinery and lower capital
  investment operations in simpler buildings
• Scale of operations more suited to small, limited
  markets

7
Strategies for Industry

• Import Substitution Industry (ISI)- produce
  locally more goods previously imported
• Manufacturing done behind high tariff walls or
  quota policies
• Too often results in production of non-essential
  consumer goods for a limited segment of the urban
  market ignoring rural areas
• Contributes little to a diversified and
  significant export structure since investments
  are absorbed by inefficient production firms
• Usually discouraged in structural adjustment
  programs (SAPs)

8
Structural Adjustment Programs

• Central aims of these programs are to
• Reduce debt that has accumulated
• Introduce policy and institutional change
  necessary to modify structure of economy
• Move from agrarian dominance to industrialization
• Instruments currency devaluation, monetary
  discipline, reduction of pubic spending, trade
  liberalization, privatization of public
  enterprises, wage restraints, subsidy removal,
  institutional reform-especially financial

9
Principal Instruments of Structural Adjustment

• Currency devaluation-encourage trade
• Monetary discipline- interest rate control
• Reduction of public spending- lower expenses on
  grandiose projects
• Price reforms- price commodities to sell and
  reward producers
• Trade liberalization- remove tariff barriers to
  ease flows of trade
• Reduction and/or removal of subsidies- especially
  gasoline
• Privatization of public enterprises- sell SOEs to
  private firms
• Wage restraints- control wage levels
• Institutional reforms- improve credit and
  especially banking sector

10
Cottage and Small Scale Industries Textile,
Batik and Handicrafts
11
Cottage and Small Scale Industries

• Often outside scope of modern manufacturing
  organization
• Carried on in rural areas, family and local
  labor which is unskilled- full or part time
• Batik- complex, low productivity per worker
  absence of power-often high import content
  (higher quality cotton)
• But provide a good for export markets
• Provide employment opportunities for largely
  illiterate workforce
• Too often unimaginative design, crude
  workmanship, tend to withdraw into areas where
  few alternative opportunities

12
Strategies for Industry

• Export Oriented Industry (EOI)
• State is producing goods for export and engaged
  in trade as a means of expanding national
  revenues
• Protection is decreased while diversified
  exports, often with subsidies, are
  promoted through an aggressive trade policy
• Increasing demanded under SAPs so manufacturing
  becomes secure

13
Constraints on Industrializing Progress

• Legacy of colonial rule when industry was
  suppressed
• Deficient infrastructure especially transport
• Capital shortage to invest in new opportunities
• Low educational levels
• Lack of entrepreneurial skills
• Limited size of market
• Corruption, weak legal system and lack of
  transparency reduces appeal of foreign investors