I D R C – T T I Pa p e r P r e s e n t a t i o n
I D R C - T T I Wo r k s h o p o n R u r a l - U r b a n L i n k a g e s
2 1 st & 2 2 nd A u g u s t 2 0 1 2
IRMA Anand
Impact of Industrialization on Rural Communities -An Overview
P r o f. A n a n d Ve n k a t e s h
Chandan Jain
Rural-Urban Linkage and Dynamics
IDRC-TTI
Institute of Rural Management Anand
Gujarat
Impact of Industrialization on
Rural Communities-An Overview
Anand Venkatesh
Chandan Jain
Defining Rural Industrialization
• Two aspects to rural industrialization
-Promote location of industries in rural
areas
-Promote such type of industries that
have either a backward or forward linkage
with the rural economy such as small
scale industries and village enterprises
Industrialisation and Rural DevelopmentCommonly Held Views
• Embedded in literature of regional economic growth
• Secondary goal of poverty alleviation
• Assumptions: Industrialisation raises per capita income
and reduces poverty
• Subsidisation of expansion of present non-farm firms
and location of new firms causes increase in investment
and income
• Pulls some fraction of region’s poor out of poverty
• Increase in public sector investment in overhead capital
• High transfer payments
• If growth rate increases then these effects could be
dynamic
Employment Effects
• Anderson(1964) hypothesizes that
elasticity of poverty reduction wrt national
economic growth will decline with time.
• This is because subgroups least affected
by national growth would form increasingly
higher proportion of total population.
• Hypothesis could be extrapolated to
poverty stricken rural areas.
• Major way to increase demand for labour is through
capital subsidies to induce investment
• This increases capital labour ratio and hence the
marginal product of labour.
• Two effects of a capital subsidy
- Substitution effect: makes capital relatively cheap wrt
labour. Hence labour is substituted with capital. This
depends on capital labour ratio-constitutes a leakage.
-Expansion Effect: Induces more investment and
increases demand for labour. Depends on elasticity of
demand for labour wrt capital and elasticity of
substitution of new capital for labour. Not a leakage.
• Three distinct labour segments-skilled, semi
skilled & unskilled with different wage rates
• Skilled and semi skilled wages sticky
downwards, lower bound for unskilled wages set
by law-A “social minimum”
• Explicitly unemployed are unskilled.
• However disguised unemployment could also
exist when skilled labour are paid semi skilled
wages and so forth
• Expansion effects could rectify the situation
•
•
•
•
•
•
•
Two Other Leakages (from local perspective):
-Newly employed labour could be from non-poor segments
- In migrants return thereby reducing employment opportunities for local
communities.
Bertrand and Osborne (1959) observe that industries employing semi skilled
or unskilled workers have maximum chance of being successful in poverty
alleviation
Low levels of education and skills require statutory minimum wages
Overall effect is likely to be beneficial but not as far-reaching as might be
expected
Most direct impact would be on lives and incomes of direct employees.
Other income and related effects could be indirect or induced over time
Industry should be matched to the region’s demographic and cultural
characteristics and should be perceived as an asset by community
members.
•
•
•
•
•
Hansen(1969) critiques report of President’s National Advisory
Commission on Rural Poverty
Report assumes that social costs of bringing industry to relatively
poorer regions is less than social costs involved in migration of
workers and increased congestion and unemployment in industrial
areas
Points that it is preferable to have federal programs to improve
quality of human resources in lagging rural areas
Federal subsidies in health & education as well as for relocation and
information programs to facilitate migration to intermediate regions
where growth is rapid but there is no immediate threat of congestion
Observes that there is too much concern for places rather than
people.
Rural Industrialization in China
•
•
Industrialisation used as a policy tool for rural development
Employment should be major objective of development as it is most
powerful means of distributing income to poor.
•
Agricultural liberalization since 1978 paved way for dynamic non
agri sector spearheaded by TVEs
Rural industrial sector benefitted from abandonment of heavy
industries oriented development strategy
Growth due to market oriented reforms over the past 20 years.
Helped by urban light manufacturing industry
Investment in rural infrastructure key to success of TVEs, helped tap
comparative advantage in land and labour endowment.
•
•
•
•
•
Raised rural incomes and reversed century long involuntary growth
of output at diminishing marginal labour productivity in rural areas.
•
Accomplished through enhancing returns to mass education and
rural labour supply.
Peng(1998) demonstrated positive relationship between lagged agri
output and non agri growth and a weaker positive relationship
between lagged non agri output and agri growth
Most of TVEs owned by local village governments, however over
years, gradual abandonment of strict public ownership and
hardening of financial discipline
Public TVEs were mandated to contribute a small portion of their
profits to agriculture as well as social sectors.
•
•
•
Impact of Chinese Rural
Industrialisation
• Increases income of rural people
• Substantially solved the problem of rural
unemployment
• Checking rural-urban migration
• Enhancing effectiveness of agriculture
• Contributing to social sectors
• Transforming socio-economic environment
of rural china.
Brief Comparison with India (Sanjeev
Kumar)
•
•
•
•
•
•
•
Pattern of industrial development in developing countries has
favoured only small portion of urbanites
Contrary to china, rural non-farm employment has increased only
moderately in India
Rural industrial growth in India literally stagnant
Differences in structure and functioning of local governments, credit
institutions, and rural infrastructure cause of difference in
development patterns
Indian Government’s emphasis on small scale industries different
from TVE approach
In India location of industry does not matter while reorganisation of
rural settlements mostly in favour of rural small towns receive high
priority in China.
Local Govts played a pivotal role in establishment of TVEs in China;
Panchayats not empowered despite policy provisions in India.
Industrialisation as Rural
Development Policy Tool in India
• Parikh and Thornbecke (1998) examined socioeconomic impact of rural industrialisation in two villages
• Use of Social Accounting Matrix and cost benefit
analysis.
• Two villages chosen broadly similar, however, one
situated near factory while other relatively far.
• The village near factory has benefitted from its presence.
• Key effects: Awareness in education, lower exploitation
of labour, rise in salaries, lower income inequality
between household classes.
• Comparatively, rural industrialization shown to be most
effective policy tool as compared to irrigation provision
and two different IRDP alternatives.
Social Impact of Industrialisation
•
•
Need to expand traditional sets of variables
Traditional categories include:
-Demographic
-Economic
-Community Services
-Social Participation
-Attitudinal
• Fails to address concept of “social cost”
• Needs to go beyond “Whats different” to assessing desirability of
outcomes
• Need to accurately capture and faithfully portray evaluations made
by subject population especially the indigenous ones.
Pertinent Questions
• What is the environmental impact of the proposed
action?
• What are the adverse environmental impacts which
cannot be avoided should the project be implemented?
• What are the alternatives to the proposed action?
• Relationship between local short term uses of
environment and enhancement of long term productivity?
• What are the irreversible and irretrievable commitments
of resources which would be involved should the
proposed action be implemented?
Aspects to be Covered in Social
Impact Assessment
•
•
•
•
•
•
•
Crime
Suicide rate and other pathological behaviour
Alcoholism
Drug Abuse
Venereal Diseases and STD
Impact on formal and informal social relationships
Possible increased feeling of isolation and loss of “joy in
living” replaced by fear and suspicion of outsiders and a
need to “fight the world to survive”
• Move from “how much change in a distributed trait” to
the cause and meaning of that trait
Possible Impacts on Local Culture
(Drawn from “Boomtown Literature”)
•
•
•
•
•
•
•
•
Cultural Diversity
Towns less provincial and more isolated
Professionalism and respect for expertise
Specialization and Bureaucratization
Notion that “Bigger is better”
More centralization
“increased profit motive”
Increased reliance on institutions and greater
demands from the same
Summary
•
•
•
•
•
•
•
Movement from agrarian to industrial society is neutral neither from the
economic nor cognitive standpoint
Development projects in rural communities provide a timely and valuable
laboratory to learn how industrial restructuring affects local structures
Underlying tension between free movement of capital on one hand and
community instability and worker welfare on the other
Rural industrialisation can generate employment and prosperity in the area.
However these need not be distributed uniformly across communities
There are costs associated with growth and their distribution is not always
matched with distribution of benefits.
Often community members already disadvantaged receive smaller or even
negative benefits.
May be understood by directing attention to spatial pattern of social, political
and economic inequality and to the mechanisms that generate and sustain
these unevenness.
•
•
•
•
•
•
Need to capture meanings assigned by participants to the changes
they experience or perceive, imagine or anticipate
Communities are going through changes in 4-5 years which
elsewhere took decades
Need to be aware as researchers as well as make community aware
of the possible choices they may have to make as a result of
industrialization
Need to properly identify “winners and losers” on account of the
proposed change
Poverty alleviation should be a primary goal of rural industrialization
and not merely a positive externality
Need to effectively complement and if possible, integrate rural
industrialization and agriculture as is perhaps being done in China