Industrialisation and Development: Necessary but Insufficient? Written by Siyaduma Biniza 1

Despite numerous domestic and foreign interventions to stimulate development

most underdeveloped countries, especially post-colonial countries in Latin America

and Africa, are still facing developmental problems related to the colonial

experience and the integration into the global economy. Some of the

developmental problems faced by underdeveloped state include sovereign debt

crises, foreign exchange rate crises, high unemployment, de-industrialisation and

low economic. Most of these developmental problems have historical path-

dependency on the uneven development that resulted from colonisation and the

integration of former colonies into the global economy which undermine

industrialisation in post-colonial countries. Therefore understanding the role of

industrialisation to development is very economically, historically, socially and

politically pertinent in order to situate the contemporary context.

However, for the most part, the problems of development have been explained

using modernisation theory which emphasises the importance of very specific

stages for countries to undergo as part of development or modernising their

economies. And alternative explanations for the abovementioned development

problems emphasise the failure of markets, poor public management and too much

state intervention in the economy (Stiglitz, 2002; Brown, 2005; Chipkin & Lipietz,

2012). In sum, these explanations have focused on the internal domestic economic

context as a crucial explanation for the developmental problems faced by

underdeveloped countries. So the structural and dependency theory approaches

represent a major theoretical shift in comparison to previous explanations for the

developmental problems facing underdeveloped economies.

The structural and dependency theory approaches to development explain the

developmental challenges by arguing that post-colonial countries are not just a

product of domestic economic factors but that structural factors need to be

1 Siyaduma Biniza is currently an M.Com. in Development Theory and Policy student at the University

of the Witwatersrand, holding a B.Com (Hon.) in Development Theory and Policy with Cum Laude

and B.Soc.Sci in Politics, Philosophy and Economics from the University of Cape Town.

considered too. Structural theory and dependency theory therefore emphasise the

importance of structural conditions and processes which undermine development

and perpetuate unequal development (Ake, 1981; Hunt, 1989). Some of the

structural conditions that lead to underdevelopment can be the deteriorating

terms of trade for underdeveloped countries’ exports, preferential trade

agreements or even the internal characteristics of the domestic economy (Todaro,

1996).

In addition to this, both structural and dependency theories assert that economic

growth is not the same as development because development requires either

domestic or international structural economic transformation which is not a

necessary consequence of economic growth. In other words for there to be

development there needs to be a transformation the economy from traditional

forms of production and exchange into modern forms of production and exchange

(Hunt, 1989). Industrialisation is therefore asserted as an important for

development because it leads to the kind of transformation that is needed to

achieve development because industrialisation embodies precisely the kind of

economic transformation needed. Consequently the central question of this paper

is whether industrialisation is necessary and sufficient for development. I will

therefore provide a critical appraisal of the structural and dependency theory

responses to this central question of the necessity of industrialisation for

development.

Firstly it is important to understand the process that led to the emergence of

structural and dependency theory approaches to development. Following World

War II there was a change in the commodities that dominated international trade.

Prior to the war, international trade was predominantly in the exchange of primary

commodities. Following the war industrially produced goods began dominating in

international trade. Industrialisation was therefore an important process to

economic growth and development in this period. The degree of industrialisation

determined the volumes of trade which directly impacted economic growth, and

also became a source of economic power that benefitted industrialised countries

causing an economic trajectory of uneven development. However, in less

industrialised countries this process partly perpetuated enclave economies that

resulted from colonialism, i.e. mono-crop cultures and mono-commodity

economies, which had no industrial or developmental linkages within the economy

(Ake, 1981). This led to the rise of structural ideas of explaining the challenges to

development and these ideas were later radicalised in the form of dependency

theory.

In the late 1940’s, with Latin America at the centre of their focus, structural

economists such as Furtado and Prebisch began understanding economic growth

and development as being separate processes. The structural approach to

development characterised a significant break from the modernisation and

mainstream economic schools of thinking on development. Structural theory

emphasises the importance of structural factors to the economic performance of

countries; which is in stark opposition to the modernisation school which

emphasises specific stages that constitute the process of modernisation which also

embodies development (Hunt, 1989). Structural theorists claim that economic

growth could be harnessed without any development because structural economic

change is what constitutes development. Thus, for the Latin American case

Furtado and Prebisch’s main argument was that Latin American countries needed

import substitution industrialisation to focus on the production of heavy industrial

goods instead of consumer goods as a means of structural economic change and

development.

Before going into the specific policy recommendations it is important to note the

role of industrialisation. Industrialisation is integral to development because it

characterises structural economic transformation towards modern production. By

modern here we mean forms production that use more advanced technologies and

maximise the productivity of labour (Hunt, 1989). However, development in this

paradigm is not simply a mechanism of ensuring greater output and higher income

per capita as what may be the endpoint of mainstream economic analysis.

Development here is a source of both increased output, income per capita and

economic self-determination. This is because underdeveloped countries’

development is hindered by structural factors, such as primary commodity

production for export in order to import higher value-added industrial goods,

which undermines industrialisation and economic self-determination because

underdeveloped countries rely on developed countries for industrialised goods,

advancing production techniques and consequently development (Hunt, 1989).

So the argument is that underdeveloped countries are stuck in a state of

underdevelopment due to structural conditions that undermine development. The

most important structural conditions are those of the trade between developed

and underdeveloped countries. The central argument is that underdeveloped

countries export predominantly low value-add primary commodity exports to

developed countries; whilst core country produce higher value-add manufactured

goods and export these to peripheral countries. This causes developmental

problems for underdeveloped countries because their exports are goods with

deteriorating terms of trade, volatile prices and low income elasticity of demand

which negatively affected their economic growth and development (Ake, 1981).

Deteriorating terms of trade is the situation where the price of underdeveloped

countries exports is decreasing relative to the price of its imports which means

that the country needs to increase the volume of its exports in order to balance its

trade (Todaro, 1996). In addition underdeveloped countries export commodities

with volatile prices. This means that the country could face uncertain foreign

exchange earnings from its exports which can affect its balance of trade (Todaro,

1996). This could possibly also lead to sovereign debt or currency crisis if the

country cannot balance its trade and payments; or if a country has to repeatedly

revalue its currency in order to realise its exports. Lastly, there is sufficient

empirical evidence showing that there is a lower income elasticity of demand for

primary commodities, that predominantly underdeveloped countries have a

comparative advantage in (Todaro, 1996). That is to say, as incomes rise in a

foreign country, there is diminishingly increased demand for the export

commodities from underdeveloped countries which has the same negative impact

as the other structural conditions due to diminishing export earnings.

Therefore, because industrialisation transforms that economy and underdeveloped

countries’ exports, industrialisation is a means to overcome many development

problems. In addition industrialisation also allows underdeveloped countries to

break away from structural conditions causing them development problems since

the underdeveloped countries would be in a position to export higher value-add

industrial goods which do not have deteriorating terms of trade, volatile prices and

low income elasticity of demand. This importance of industrialisation is also a

means of self-sufficiency and is related what dependency theorists’ claim which

are stronger than the structural theorists’ claim.

For the dependency theorists development occurs within a historically determined

structure of dependence between periphery and core countries. Here the

periphery and core countries respectively resemble post-colonial and former

metropolis countries, or underdeveloped and developed countries. Dependency

theorists claim that there are structural dependencies between peripheral

countries and core countries which allow for uneven development in favour of core

country (Galtung, 1971). For example, underdeveloped countries export primary

commodities and raw minerals to developed countries whilst importing

manufactured goods from developed countries. This analysis points to the problem

that even post-independence there are structural mechanisms that cause

underdevelopment in post-colonial countries through continued dependency on

former metropolis countries for manufactured goods. Therefore industrialisation is

seen as a way in which periphery countries could gain expertise in the production

of higher value-add manufactured goods which would contribute towards economic

growth and economic self-determination thereby undermining the dependency

relationship and leading to development. However, this does not adequately

resolve the problem posed by the dependency theorist because even though there

might be development from trade and industrialisation this growth was uneven

unless the dependencies are resolved through structural transformation. This

points to the different criteria used for development by structural theorists as

opposed to dependency theorists.

For structural theorists, development is characterised by the modernisation of

production and society in general (Hunt, 1989). The state of underdevelopment in

post-colonial countries is based on the idea that their economies and societies are

dominated by traditional forms of production and organisation. Traditional forms

of production are characterised as economies dominated by agricultural and

primary commodity production with very primitive technologies and low

productivity of labour. On the other hand modern forms of production are

characterised as economies with advanced technologies of production and high

productivity of labour in manufactured consumer goods, manufactured production

goods or capital goods (Hunt, 1989). However, the analysis of traditional and

modern economic countries is not limited to economics or production. The analysis

extends to traditional social forms as well, these are characterised as collective

ownership, prescriptive identity and values that are not strictly meritocratic.

Meanwhile modern forms of society are characterised by private ownership,

asciptive identity and meritocracy - as the saying goes, “one must earn their meal

through sweat”.

Therefore industrialisation of post-colonial countries would mean that they can

gain expertise in production of higher value-add manufactured goods which would

transform their economies and societies to resemble modern characteristics. For

structural theorists development is about the transformation of society into

modern forms of production and society and this necessitates industrialisation.

However, although industrialisation is necessary for economic transformation

industrialisation does not necessitate the kind of social transformation espoused as

development.

If we understand industrialisation as the process of industrial growth, which

implies economic transformation in the form of production, output and economic

growth potential there is nothing that suggests that this would result imply social

transformation. Nevertheless, from the structural theory perspective, one might

argue that the economic transformation that results from industrialisation cannot

occur without social transformation. However, the process of industrialisation-led

economic transformation is different from the process of social transformation

because of the different kinds of institutions involved. Industrialisation-led

economic transformation primarily involves firms and the state to some degree;

whereas the process of social transformation may occur without including of firms

or the state. Despite this perhaps the kinds of social transformation are closely

related to industrialisation and the kinds of institutions involved may sometimes

overlap. Regardless of this, the link or the process of transformation between

industrialisation-led economic transformation and social transformation is not

clearly defined in the literature. Moreover, the process of social transformation is

over-determined by economic, social and political process which means that even

though industrialisation may be necessary it certainly is not sufficient.

This exposes a common feature in the discourse on development. The discourse on

the state and development has been dominated by a conflation of the separate

matters of development, which relates to attainment of human potential, and

economic development which relates to production growth and accumulation

(Herring, 1999). Consequently many case studies of attempts at development have

been classified strictly according to their economic performance due to this

conflation. This feature is also present in the structural approach to development

because industrialisation, which relates to economic development, is conflated

with a more generalised sense of development which includes social aspect. But

this conflation is what structural theory tries to avoid by acknowledging the

different processes of economic growth and development. However, the theory

falls into the conflation trap because of the inadequately explained connection

between industrialisation and social transformation.

Therefore according to structural theory underdevelopment is based on the idea

that economies and societies are dominated by traditional forms of production and

organisation. And industrialisation would mean that underdeveloped economies

transform their economies into ones that are dominated by modern forms of

production. But it is unclear how industrialisation will result in a transformation of

traditional social forms into modern social forms. In addition, because the process

of transforming traditional social forms into modern social forms, industrialisation

is necessary but not sufficient for development according to structural theory

analysis. The same applies for dependency theory analysis except through different

logical mechanisms.

As discussed above the criteria for development according to dependency theory

relies on the periphery countries breaking away from the structurally dependent

relationships they have with core countries. This requires either domestic or

international changes in order to transforms the structural relationship between

countries from one of dependency between core and periphery countries.

However, because the structural relationship between core and periphery

countries can be affected by anything from the terms of trade between countries,

trade agreements or even the characteristic of the domestic economy,

industrialisation is not sufficient to ensure that the dependency is undermined. But

from the dependency theory perspective industrialisation may have a direct impact

on the output and exports of a country which affects the terms of trade or other

factors in way that can undermine the dependency relationship. Again, the

dependency between core and periphery countries is over-determined by

economic, political and social relations meaning that industrialisation is not

sufficient for development. Because, although industrialisation can lead to greater

tipping the scales in favour of periphery countries by reducing their dependence on

core countries, industrialisation can occur without necessarily undermining the

dependency relationship.

Therefore industrialisation is integral to development for both structural and

dependency theory. However, although industrialisation is necessary, it certainly

isn’t sufficient to deliver development in the according the criteria of

development. This is because for the structural approach, industrialisation may

lead to economic development but does not necessitate the kinds of social

transformation that are also required as part of development because the

necessary social transformation is over-determined by economic, political and

social processes which makes industrialisation insufficient. Meanwhile, for

dependency theory, industrialisation may lead to partial undermining of the

dependency between core and peripheral country but industrialisation does not

guarantee a complete break from the dependency and uneven development. Thus

industrialisation, there are two more things to consider namely, that either

industrialisation should occur in a specific manner which includes political and

social processes or industrialisation needs to be understood as encompassing more

than just increasingly advanced production techniques and higher productivity of

labour.

The former of these is what situates the policy proposals offered by structural and

dependency theory. From the structural theory approach, underdeveloped

countries should pursue import substitution industrialisation focusing on the

production of heavy industrial goods instead of consumer goods as a means of

structural economic change and development. Whereas from the dependency

theory approach, periphery countries should debunk from international trade

relations with core countries and pursue import substitution industrialisation and

trade with periphery countries.

However, from the structural theory policy recommendations the prospects for

development would much higher underdeveloped countries with large domestic

economies because the countries would be able to substitute foreign demand with

domestic demand without facing problems of low demand which negatively affect

economic growth and development. For underdeveloped countries with small

domestic economies, import substituting industrialisation would not lead to

sustainable economic growth and development if domestic demand is insufficient

to incentivise investment and consume the increased output associated with higher

productivity of labour from industrialisation. The implication of this is that

industrialisation does not necessarily escape the challenges of external demand for

the output of underdeveloped countries as this depends on the size of the

domestic market.

Meanwhile, from the dependency theory policy recommendations, the prospects

for development are diminished by the differences between countries. Even

though periphery countries may escape the dependency on core countries new

dependencies may arise from differences in trade, i.e. comparative advantage,

amongst countries or from the different stages of industrialisation between

periphery countries. Therefore, although industrialisation is a way to undermine

the dependency between core and periphery it may sometimes lead to new

dependencies and even create new dependencies between of the different stage

and rates of industrialisation between countries. Thus, for both theoretical

perspectives, industrialisation is insufficient although it may be a necessary

condition for development.

Whereas, from the understanding that industrialisation includes more just

advancing the means of production, we can appreciate that industrialisation is a

continuous and complex process that requires strategic state interventions.

Therefore, despite the common static view of industrialisation and development

which overlooks the dynamic nature of these processes, industrialisation needs to

be understood in a way that can incorporate all economic, political and social

processes. In other words, the narrow dichotomised view the state versus the

market in relation to economic growth and development needs to be substituted

with a view that can incorporate more complex socioeconomic relationships that

affect development. This means that industrialisation is simply a fact about the

characteristics of production and labour but that industrialisation is a complex

process that involves private firms, the state and civil society. Nevertheless, the

kinds of policy recommendation that emerge from the structural and dependency

theory are clearly insufficient to ensure sustainable development both

economically and socially.

In conclusion, the importance of the question interrogating the role of

industrialisation to development cannot be further stressed. This key question is

not simply associated with the analysis of economic history and political economy

of underdevelopment – but this question is also central to assessing the post-

colonial project and the development agenda as a whole. This question not only

important to understanding how we achieve development; but it is also important

to understanding the potential or futility of the post-colonial state project and the

development agenda in actually achieving development. Moreover, as we may be

clear from the foregoing analysis development is not something to be attained but

rather a relationship to maintain. This is to say that, in the case of a developed or

core country, development relies on maintaining specific historical structural

conditions; whereas, in the case of an underdeveloped or peripheral country,

developments relies on undermining historical structural conditions and

maintaining new beneficial structural conditions. Thus industrialisation is

necessary but not sufficient, in and of itself, to lead to development. At best,

industrialisation leads to development in a complex manner that requires an

understanding beyond just the role of the state or the market in development. And

the post-colonial state project is futile without specific structural changes.

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