Recently, several new comers to the middle income countries category, namely in North Africa, have made it above the $1. 5 poverty line without experiencing an increase in agriculture contribution to GDP or working toward advancing this sector (IFRP). This example is most intriguing since many non-oil exporting countries of North Africa had historically important agriculture sectors (El-Ghonemy, 1993) Just as many of the still low-income group has/had in the near past and hence the former group might be of significant relevancy to lessons needed for the general development of the latter.
Similarly, Latin American countries are experiencing better growth rates lately yet the contribution of agriculture to total GDP is not particularly faring better. Nevertheless, given the large numbers of people engaged in gricultural or related rural activities in low-income countries on the one hand and the structural limitations of developing other sectors providing alternative livelihoods for the majority in such countries, on the other, limit the scope of relevancy of North Africa and Latin America’s confguration of the relationship between agricultural and industrial sectors.
Low-income countries should raise questions evaluating the possibility of attaining economic development without for example burdening state budgets with investments in agriculture in several case studies of low-income countries (sections II below).
Another set of questions is how investment in agriculture might still help achieve necessary socio-economic transformation and development (given positive agricultural-endowments) even though the direct contribution of agriculture sector to GDP might be on the fall generally over time (sections Ill below). Generally, there are pressing qualifications for investment in agriculture in low-income countries still, however a development in such sector would not automatically contribute to a developed industrial and economy generally.
This argument is especially important given the nuances of how there are different roups in the agricultural sector and how only a few groups can benefit from investments in such sector or newly developed linkages created with the industrial one. Why is investment in agriculture important for the economy as a whole despite an increasing irrelevance of a neoclassical emphasis on surplus value and labor transfer from agriculture to industry?
Where debates still continue on whether a developed agricultural sector is a pre- requisite for an industrial take-off, and if so, then how best to extract the surplus from the former for such investments, Mundle (1985) recognizes the now historical bligation on developing countries, including low-income ones, to catch-up fast in manufacturing to sell in competitive int’l markets without necessarily realizing ‘enough’ surplus from the agricultural sector which developed countries seemed to employ earlier.
This is compelling since the technology frontier and hence quality of manufactured products continue to rise by world leaders and competitors while the agricultural sector is either not receiving enough attention from policy makers (Lipton, 1993); plus output and productivity are stagnant and its absolute ontribution to GDP is declining (IISS, 2011; IFPRI on MENA, 2010); also the transfer of surplus is politically not viable anymore in many places (Byres, 2003; Kay, 2002).
So contrary to neoclassical proponents’ blame of inefficient agricultural sectors not extracting enough surplus on government intervention or lack of good governance midst corruption and rents for farmers, the problem is that the rules of the game for industrial catch-up and pressure for integration in international commodity markets requires a discussion beyond an unrealistic high surplus extraction from a stagnant gricultural sector.
Learning through near past experiences, South Korea and Taiwan were successful in achieving a competitive industry, moving up the ladder of quality artefacts mainly by being able to manage and discipline the investment incentives of capitalists (Kay, 2002).
These countries also due to political confgurations were able to suppress small peasants quests for less taxation or However, since then states have been politically constrained in creating similar incentives especially in Latin America and lower-income countries in Africa or even Bangladesh and the learning-rent has been n-going for so long that it became increasingly damaging for the economy as a whole prohibiting a new confguration favouring a new comparative advantage in industry and shifting the revenue and production pressure off the agricultural sector.
Agricultural surplus in the past has been misused when transferred to the industrial sector (Kay, 1989) Just like how capital market finance is still misused now when directed towards the manufacturing process to catch up in many cases (Khan, 2009). In the past and present, there it is a time-consuming process developing an industrial sector to catch-up for global commodity competition. This time-lag between investment and realization of bettering production and tacit learning in industry means that industrialization requires more and cannot depend on agricultural growth/surplus only even when surplus creation processes are successful.
Diao, Hazell, Resnick&Thurlow (2007) explain how surplus creation low-income countries would not allow for timely-transformation and hence a high dependence on agriculture for surplus like in the past is most likely damaging to the overall economy. In sum, given the unequal distribution of political power (and competing political and conomic groups) and capital (Chang, 2003; Khan 2009) the state cannot expect to reach a competitive industry (with low quality production still) smoothly without intervention or with an ignored agricultural sector with no state intervention and expect overall economic growth.
On the other hand, Kay (2002) argues that in the near past good state management on South Korea and Taiwan’s agri-sector was key to a smooth industrialization which required a strong domestic agricultural market for its products unlike a lagging agri sector in a never realized in Latin America. However, he makes the point later (2009) that historically a strong agri-sector prior to industrial take-off was not necessarily a pre-requisite across the board.
He echoes Khan (2012) a successful industry and overall growth in both sectors depends on the capacity of the state of allocating initial endowments for industry (and that its financial sources can vary for example Kay (2009) explains that sources of investment to South Korea – and to a lesser extent Taiwan – were never limited to surplus extraction but also food aid helped and foreign-investment and foreign aid due to eo-political preferences) and disciplining further allocation based on performance later.
Also, given the politico-economic structures, explained above, which might increase the time lag for industrial take-off in low-income countries Just as happened in Latin America (Kay, 2002), letting industrial learning rents depend solely on agricultural sector may cause an adverse over-squeezing for a time long enough to jeopardize dynamism and growth of agriculture as a whole.
The point now is that the agricultural sector can be dynamic – given the state has the capacity to encourage such dynamism – creating its links with industries (especially gro-processing) and should develop and this should not necessarily be motivated by a need for a physical space as reservoir of labor as Wolf eloquently critiques the classical simplistic mechanism (1957).
The agri-sector should grow and develop in such a way that the configuration of labor movement to the industrial sector should be made subject to the industrys capacity to absorb more labor Oust like Kay (2009) describes events in South Korea) whilst the state directs and provides information and services encouraging a growth of the agri-sector complementary to industrial- gricultural dynamism and reservation of strategic food production for domestic markets.
Section III: Even if the agricultural sector today is not as necessary for industrial take-off in (compared to old times) low-income countries, it is still important for development. ove in section II where one reached a balanced view on how the catching-up pedagogy might oblige low-income countries to maintain growth at both sectors simultaneously. Most importantly, since the economic structures of such late comers to industry is exacerbated by heavy industrial competition and a general need to ncrease development (and decrease poverty) an agricultural economy needs to keep vibrant creating dynamic interlinks and intermediate sectors or what Kay (2009) calls “mutually-reinforcing” factors for both sectors to continue growing.
This is especially true when clamping down on agriculture sector (either by policies actively shrinking it or mere neglect through significantly rationing related state budget and intervention) both market dynamism necessary for growing industry (or the economy generally) and sustaining growth are Jeopardized. In other words, a failure to have a growing agriculture sector whilst there is not really eveloped industry would undoubtedly negatively affect long term human development and consequently a factor of production in both agriculture and industry.
If the state does not withstand a strategic support for agriculture sustainability and investment there will a) undermine a significant home market for domestic emerging industries (Martin, 2002), and b) ration food production forcing foreign reserves out for importing food and diverting it from industrial investment (Lipton, 1993; Harrigan, 2012; Bush, 2012).
Rationing food production precisely brings about a problem as severe as food insecurity or Just negative human development ike child stunting (IFRP, 2010) and related problems. l] Such problems are specifically highly adverse for countries which are now subject to developing both sectors together and do not necessarily have a luxury or capability of transferring large consistent amount of surplus from agri-to-industry.