FOR DmaPMCNT STUDIiiS TRTTANDRUM WORKING PAPER NO. 1 89 TID AGRARIAN ...

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CDJTRI: FOR DmaPMCNT STUDIiiS
TRTTANDRUM
WORKING PAPER NO. 1 89
TID AGRARIAN BARRIER M INDUSTRIAL C~~OWTI;'
m m
SUDTPM
+ P.is is a revised version of a paper presented to the seminar on Marx,
Scliu?peter and Keynes on Capitalisn, New Delhi, Jauzry 27th to jOth,
1984. I ~n grateful to Ashok Nw, Shakti Fa&i, Michael Tharakan and
Jiscussants at the seninar for some very useflit suggestions.
Sudipto Mundle
In this paper we attempt to sketch the manner in which agriculture-
industry linkages impwe on the ::evelop.ien% of manufacturin~;i ndustry,
especiall:: with reference to the growth of tie home marlcet, in a tran-
sitional economy. We my tentatively describe our transitional economy
as one where slaterial production is still domiuated by -agriculture but
there is already a substantial nmnuTac'bjri.ng sector and the relative
weights of the two sectors axe shifting in favour of the latter. We
sw
shall something later about the institutional framework of tnis
transitional system, For the mrnent let us merely note that historicaJly~
the .trwition from an- agrarian aconomy to an bdustrial one, industria-
lisation, has imraria3ly been embedded in a larger process called the
development of capitdlisrii. We begin by locating a point of departure
in the r~seivedt heory in sectior. 1. :Test we present a frameworlr for
understandjng the dynznics of a traasi.-tior& c.cononly in section 2.
Finally, some relevant historical ilP~strationsa re presented in section 7.
1. Locadim a Point of Departure
%cently we have seen some renarkable attempts to dwelog a macro
theory for transitional economies along the lines of tile Keynes-Glecki
I/
short period theory of income deternination for mature capitalist eoononie~.
These exercises are not concernecl with the long term dynmics of a transl-
tional economy <anym ore tbxm Keynes was concerned with tne low term
See, for instance, Rakshit (1982).
dynamics of o cature capitalist econovx. It does !lot follow however tha$
there is nothing to be borrowert from Keynes in our a-ttmpt to understmd
s
the dynainic tendencies cf trmsitional econoq. His note on Jevon's
theory of trade cycles ~erlcratedb y zgricult~~rzfllu ctuations, for ins-
tance, offers an exc;llle:~t framework for the it~ialyziuo f b-~sicessc yclen
in a trmsitional eccnoq7.l/ More Lnportant for our present purpose
however is the notion of nggrege-te dnanil itself. As we shall see below,
tine size of the market is one of the key eienents through which the devh
lopment of agriculture determines the g~owtho f inmufacturing industry
in a -trmsitional econoay.
Lf the ds,rzlopneni; of agziculture tietenines the grovrth of !ilanufa-
wi-
cturing jlldus-try, tiler1 xi z.ust ;sic &at governs the development. of
culture. Far an answer to tl1a.t . .estion we shall f i d i.t useful to ckaw 4
S&nnpfc&S notion cf i,u;ov;i-tion md the r::lated notion of entrepro-
neurijl profit. It w i l l be recalled that enteqreileurial profit in
Schuripeter is not .the rebxn on capitd. The entreprenuer, as entre-
prenuer, is not the owner of capital in his scheme. Ewtreprenmial profir
is the cnly notion of a pure s~rplusth at we ca:~l: L;d in Schu~peter. It
is a surplus whicli exists only tem3orarily mtil the at-hers catch up.
.
But it is n%ertheless crucial fsr it is the prospect of this reward lihi64)
activates the itmovative drives cf the entreprenuer.
Perhaps >re ought not to ask for more from Schmpeter for he too, 1-
-
-
P
-
See Keynes (1973) Chapter 22 Notes on the Trade Cycle.
Keynes, was not really concerned riith ttie problr$ms of a transitional
ecoiloqy. He did note i;? :ris dirzjssl-,? of' c:ic!.::s tl:La,;cj.Lt he :l;uvest
cycle of LTwons was a S?ecial Q~cii:w ;~.ic.,il .L I +:.'I.+ , do~L-~&beL zskLes:; ~c;->i-
vity LT less induatrialised comtrics like P~~ssni-ka the tim of tile
'
centuryei We also see in his historiczl outliiii?s that the ~liltc?cede:?~t!l;t::
of his period of a?,?.i%~iis., e ., tile 111lii.cired jrtzrs prior tc '1 72.7,
as well as his first Locg live from 1787-1842 arc 30-Lh !ic:nh~ilate; >y
dwelopme~tsi n agriculture.4/ Ihwever tliene is nu ivicisiice th=.t hc
assignad :u~v special si,pcifica,rce to this or thr,"; he ?c-ccp.iseG. -ti:c -2:~-
mics of t~aI~lti01:edce nomies as somethinz r~cp.b-irig .% a~lirxatT~~ ~:~~Jc?:.c.
Certair? it had no ;rlacc is in his theoretical ;:?:n?.ycis.
Finr;Ily, wc shall filiti it uscful to borrow from I%?sx the c~l-~copclf,
surplus. ,Surplus pro?.uctio~:, its a,pprogri.tior, rirlii ?oplcj~.tn.;i;f ox1 .;ilr-
key cleme~ltso f a syotem of sot-zl sro:'?:~o+icn_ 'or Marx. nits no-tor
acquires a sp~cificfo rr;: ullder c~yi-Lalisir,b ut the .:lotor itself i;: mcr;
general .%I?- applies i n different forLqo 'ocyonl ill;, bomd;;,rii~ ~f c-~;,i'.--,-
lism. In a, transition1 2ccco~yP t is tl~ik?s urplus ::xtz:icti3r1 rnschi~7li::i:
of aapiculture which give:: the systen its3 essential .ly~mnic. Wit?: .tile
concspt of agmegate dona~?db orrowec? from KeynesI the concepts of ifi:?o-,
vation and en-trcpr~n~i:a>lr efit Sorrowed fror~iS chuqetcr m.d the cr;::cept
of surplus bol~owedf rai;~M arx we c,m now set up 2. simnlc s t ~ ~ i c t wrjic.ic i:
krill help us un3.ersta:iii tho dyn,mics of a transitiond ecoilc).ay. Tlo~.~sv.sr
we hava not yet fowfi our npccific point of dopastwo.
~ ~~ ~ - ~ ~
See Schurrpetcr (i939) Q~z>terI V Past E 0ti:c.r Flzctuztior:~.
It can be ar,ged that I~L=xcxi &seli i8rovi4ea us sue11 a stating
poixt since, unlilce Scllmpeter, he ms olsarly corice~lad~ .:iLh the qua
tion of the trmsiticr. and zLso s ~ , ii t i?.t cons of ti-1s s u e relatire
halance between agricul-tme and industry with which we begim. ?lius,
tie writes in the Cmdrissc:
'
"In a11 for;ns of ooziety there is one specific ;cincl of proauctisu
which pedorr,irxtes o-~ert ne rest, wliose relations thus assign raik iu:d
L~.fluencet o the others. It is a :;cneral IlluDination which bathes all
.. . .
',lie otlier zolo~.ws md 11odi.f ios thei- particularity kiuolig peo2les
-
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%ith a se-Ltled ~.gziculture this settling already a @eat step where
thi:: predo;;inates, as in mtifj~uib<jr id. iLn "che feudal order, even indusq
t~~etkicwrit h its zrgzx..inztio~s ?ii:. t t : ~f o~rni s cf property corresponding
to it, hixs 3 iTi!?::e c:r less iari:;.i:G ?-;.3pe~i3rC :?:>LT.ZC~CII; is either complete-,
1:r de,-endent or1 .it, as %iorsz the tisclinr Rcnao, or, as in the Middle
&;es, imitrttes, vithi:~t lie c-i4;7 i11:ci iis relations, the or;*anisation of
-
the lzild. ID t?!e Pli(.?.L?leh geo, cqital itself airat from pure moqey-
c.:?ital .- 51 the Con; of trz:ii-tio:ml arti~ansto ols etc; has +his landed
.~ ,ro~>rietocrhya r;ctor. In bourgeois society it is the opposite. hqi-
-
c!;l.ture >lore ar~di ~crcb acomes !:lerely z branch c.? hiGust~;, and is eltirely1
r>.v?i:?aotd 1):r calpi t.7-1. 5/
ct
;.:owever it is fair to say, I tiii&,thst P-bx clicl not develop a t!:e0?zr
c.L tlio trznsition in the saxe nfinse in which he dcvelo~edz .t:ieorjr of t!?e
dy'tmics of established capitalismOg By the latter half of the 14th
century &gland had already conlpleted the transition. This was the
socieer in in~hicilN arx live? md the one which hc zmalysed. At the
sme tine he recognised that his theory of the i s of inA ustria1
capitalism had zs i-ts anterior presupposition the ,Czct of transition.
He therefore dealt with the process of transition. h t it w i l l be
noticed tht in Capital he dealt wit11 it after derivklg the General Law
of Capital Accumulation on a clifferefit plale from the theory itself.
Kis discussion of the process of transition is more a descriptive account
of what happened in English history rather than a -tl?ccry of the transi-
2/
tional econony.
We nust tl~ereforeg c 5:rther back in the histcry of economic thought,
beyond Ma.rx, in om search for N- ipproprinte point ~f deparb~re. We must
&o back to Snith and Ricr3r-do. Ehgland towards the end of the 18th century
and at the begiming of the 79th was still a trjlsitional society in our
sense. This was the socie-ty which Sniith md Ricardo saw and it is the
w , i c s of this society which enp-pd then. We shall therefore find it
ussful to take them as our starting poi:li, especially Ilicardo. It is
not surprising, in %he llgllt of what 213s just becn said, that this is pre-
cisely t h p~oi nt of departme which Lewis adopted for developing a model
which still serves -to&y, so%€ thirty years d-ter -the went, a s the staple
fa~eo f nodern developnent theory.
!be geceral prinlsiples of his naterirtl.ist interpretation of history
constitute ofcwsec; a gencr2.l theory of transition. IIo+?ever it w i l l
be svide~itf rail the context tha-t we are here concexled wi-th the question
;of a 7 e q specific tramition.
p
-
1hrx (1971) Yol.1 W.rt VIII 93.x So-Zalled Plhiitive Accumulation.
Cnc major proflen about employing the Xicardim cystem is tlut
his model of distribution in agriculture is highly specific to &-:;lish
agriculture of his own t ~ c s . three class model of capitalist c~gri-
cultura with the silzre of profits being sy~eezedc ver time between a
fiaod (subsistence) real wage of tile labourer and rising differential
rent of the landlord as progressively less productive l23d is bro'q$~t
under cultivation with the mob:th of population.d As Marx had pcbted
out, the Ricardian model is imdequate even in its own But
what is important for us is its inapplicability in the context of conte.
mporary deve1opin.q economies. Lewis modified the model, partitioning
agriculture into capitalist prodaction (plantations), vhich is inclv.ded
in his modern capitalist sector nlow with mafiufacturim industry, and
peasant prodilction iihich co~zstitutest he subs5stence sector. Occasionar
lly Lewis also mentiors rent and i'le landlord. But -there is really
no room fcr this in his -ode1 sizce per capita peasant con.-.mption
equals average (labour) productivity in the subsistcncc ssctor. The
goint is irportant. As we shall see later, the mannw in which 7rodu-
-
ction is orsmi~edi n wiculture is a fund-ament al detem-in-a-nt of thc
Ricardo (1951 ) Especially p.115.
-
Y.arx (1971 ) Part VI Transfornation of Surplus Profit into Gro~md
Rent and ME= (1975) P a t 11. Ebpecially chapters XI, XI1 & XIII.
Lewis (1975) p. 419.
dynamic tendencies of a L.za,r..-iti0~::l.li 'colior&. h b i p i t y or. this ipJes-
tion md an indifference to it is one of most seriouo lia:i.tations of
the Lewis nodel.
The second major problen about zlopt~~tgh e Ricardian systea to
mower Lewis's question is that Ricardo's system gives uc a tht?orj of
tile -tendency towf~rdso kgfition whereas Lewis was lookin,? for a inecha-
11iso.1o f gowth. LT a sense therefore Lewis had to invert tke Rici~rdF:~::~
systeiz md 2ut it on its head. Ricardo's syste~!i~s a truely trar~sitio-
iljl system in 0.x scr,se of tho tern. !Be detenin~tionsf low, so to
spe,?lc, fro.?. ngr%ci.;l.ture .lo the re:? of the .?co;!sr;i)r. 11 declining 1nr.d-
mzi:?ld ratio and t!:.,i or!:-scluci:t, ieclinc of lzboT.ut productivity in a,-ricul-
tire forms the p r i x ficver 57. hie l-!rlcl. Balling prohctivity, a rising
s k e o f zcnt anu ti-x risii'rj r e ~ J;~ FLL~ouc_o's) t of fo~rfb:z j-~ngfo od
A-
risillz
pyices md hence aoney wages; 3 aqnaoze on profits and the dm-
licing tendency of the rate of proj:it. T!iis is trie Ricclrdim dynmic.
Thi. Lewis nodel is not LI trru:si-tiord node1 in ?.:?is aensa. Pe&saat
agcic-ilture is physiczlly doi.im.nt, it absorbs the bulk of tine work
fcrcc, but tho iietemimtions already flow in the opposito direction.
T1.e real dymaic of the systmn origina.tes in rnxlern industry.
'I'II~~S, at tile. outset of the Lewis stoq,, we have a clcrsed econony
where ~peaaantc.ggciculhhasa lreaqy hit th.j lower =.a of the, rmch1d
~roductivityc me. '&e low averwe prorluctivity of labour, or l~e-.salt
income (no surplus appropriation is ~.~s:a~~i?ni it.k)e ~uhsisetm s sectl)::
sets the real wage rate in the casi.leiist zector at t,~hicha n 'v;llfigitod'
supply of 1a'L)our is xv~.ila3le. l'ke :c:;3:.2-.t of ia;:>3~,? r.~$c7e:l in <..he
capitalist sector is detem.ined by the proi'i't ~r,axk-isin,: ?do at +he
going wage. The rest cf t!?e labbow force i s z'ucsrbet! in agrj.c:;lc~lre,
a su3stantizl p u t of it 3s redundant labour in the sense thzt i.ts ;:::r-
-
ginal pro&uct i:; cioso to zero or even negative. Chm;?c ic iitrc,i:c.~:,2,$
in this othenqise sta?iic ~;stenb y tile automatic i~vestmr?r:to i' all sa-
virzs ir. the capit.:list sector, savings which hasicallJ, cor,e cut (of 33-
fits. It is this ;~rocl..~ctivzec cu~~uleticwnh icfi gives t.he systm 2k.s ,2,y51j,w
siic. kr; acc~~~llatpirooncc cds labour prociuctivity 2:-o odern rn~~uYactu-.
ring (iilclndiy pianta-tions or ,my other cepitalist en?ie?.-pi:!c.) rises
but the real wage rate reazins pegysi! to the constant avorag,? prcd:~ct of
tke peasa~ts ector. Hence tko ?'lrzre of grofits, a d t herefor? the
rates of savings and invecrk~zent, rj.se. Elis sector grows at .m iizcrea--
sing rate, each round of exyansion wi-tkk:::~&hi;: sone re&udar,t labour fro;?
agricul't~~feo r new empl3plent; in. .odern i~i~ustry.
The nilccl~a~iswno ui? chmye once the eniire redmdcnt 1~30-jirn z+.~i-
culture hzs: i;em v!i ii'ldz%lm 222 the aconcri$- has r::ove!i bc,yor.d. -lili- ilor.?:?.ii ::; .
L?-/
Fl&rc is m ab?ious L!zt cmcizl f l s w in +;he reasoni:?g hem. L zero
cr r ~ ~ ; ~ tr:iii:v-c[c:i:in z~l p2o311c't of labour rver a rmge do2s not "ir!;lj. a const-
ant zvcra:!c irod~cto vez tile ;-;we range. Any d5ninutisn in M~cilrw o;ll&
ir. f?ct k;:pI.y :L rls;- 3: avcrzce pr-xluctivity, even if n a ~ g. .i. dy1 -chcti-
vity ?~.:!t:?.lias t 01- bt?l~.,:z ero. P;e ,=verag;e ~;rochctc isin;: r.;rtr ,?iy *ibi--
1,12ti2.: .1 of &Tor, Z>.!-;..I:..;:': ;-->om i:: tfli;p.c &s&qt sector is ob~i~il~lf:'yc.t d
.;or ?;:-.i. e:-:tliz,; Let.:is :?. ..- ck?j;is~. hie ma>- still ri.liz>ililate the rr.ec:~~:im:
3y ril::ori;;iip: to ~;~>i.lc'zl-- ;zrc.nrb;i, ll -Il.e s~bsisteflc*s nator c?r caxsin~
. ;. . :., . irrr,~c +.s:. -.. ..I;,. , -~- e!.?~c-ic ..::;.s ta:-t eve^, thov.i:i: pozszxt productivily is
ri.sx;;.?, <)!; ., 6.-A ,.,. C<Ab..:~ ,;?..~ ~:fcl l~~:ri'ci.itio:z~:iC su-qlus appnolriation
I!-t?i-? s1 i;::iii-tcjic.; o,::c.!;c.; C-c ?;r. h., hpyu,?It into ths s$cq a-,d tliis is no
lon;er t!:;5 Lu.n.iz !~oii~.lF. e;y; ,.. .a ::cccz.t. il.cvir.i< of otl~orc riticisms of the
1,r:xi.s :!lr~~lels e i~,eL :z"~,( .. 5 ..
8
the mechanim d&t cease wor1d.n~b efore this point is reached. The
most inportant of these special cases is the one w!~ere food is exclu-
sively produced in the subsistence sectcr, such <.hat labour transfer
If
across sectors can only occur alcng with the tra-~sfer of food.
growth of the capitalist sector genecates 011 excess demaEd for I'ood,
...
this nay shift the terns of trade in favour bf agricultirre such that
a constant agricultural product wwe converts to progressively figher
industrial product wage rates. This would cut into the shae of
profits in the capitdist sector force down the rates of saving
nnd investment, thus terninatiw the Lewis process. The close affk2ity
of this case with the Ricardian theory of sta~maticnsw i l l be evident
t;o the reader. The food link is also central to our own story.
The rain model, taken don; with its specla3 cases, yields on
elegarrt cQ~amic. But the trouble with it, is that in doesn't work, or
.atleast hasn't works& in recent history. As Levis himself put it not
so long ago r
"It (-the model) predicts quite well for nineteenth century Europe,
on whose cqerience it was based, 5ut when applied to one hurlclred LDCs
over the past quarter cen- itx performance i s spotty'.
C l ~ a r l yth ere was some essential part of the story in 19th century
-&-o-p- e, or the story in Japan, which the model se-eus to have missed.
Ohiously the same situticn could also arise because of population
growth.
lz/
Lewis (1979).