Agricultural transformation and its role in economic development
The state of Manipur Economy
- Part 1 -

G Hiamguanglung *

Stalls at 1st State Level Mango Festival 2013 at Laipham Loknung, Kakching in June 2013 :: Pix - Gyanand Naorem

From both historical and contemporary cross-section perspectives, the agricultural transformation seems to evolve through at least four phases that are roughly definable. The process starts when agricultural productivity per worker rises. This increased productivity creates a surplus, which in the second phase can be tapped directly, through taxation and factor flows, or indirectly, through government intervention into the rural-urban terms of trade.

This surplus can be utilized to develop the nonagricultural sector, and this phase has been the focus of most dual economy models of development. For resources to flow out of agriculture, rural factor and product markets must become better integrated with those in the rest of the economy. The progressive integration of the agricultural sector into the macro economy, via improved infrastructure and market-equilibrium linkages, represents a third phase in agricultural development.

When this phase is successful, the fourth phase is barely noticeable; the role of agriculture in industrialized economies is little different from the role of the steel, housing, or insurance sectors. But when the integration is not successfully accomplished and most countries have found it extremely difficult for political reasons. Managing agricultural protection and its impact on world commodity markets thus provides a continuing focus for agricultural policy makers even when the agricultural transformation is "complete".

The four phases in the agricultural transformation call for different policy approaches. In the earliest stage of development, the concern must be for "getting agriculture moving"(Mosher Environment). A significant share of a country's investable resources may well be extracted from agriculture at this stage.

Building a dynamic agriculture requires that some of these resources be devoted to the agricultural sector itself. These resources need to be allocated to public investment in research and infrastructure as well as to favourable price incentives to farmers to adopt new technology as it becomes available.

As these investments in agriculture begin to pay off, the second phase emerges in which the agricultural sector becomes a key contributor to the overall growth process through a combination of factors (Johnston and Mellor Environment).

As the empirical literature on structural patterns of growth emphasizes, there is a substantial disequilibrium between agriculture and industry at this early stage of the development process. Indeed, differences in labour productivity and income between the rural and urban sectors persist, however it is narrowing the gap.

The process of narrowing the gap gives rise to the third environment for agriculture, in which it is integrated into the rest of the economy through the development of more efficient labour and credit markets that link the urban and rural economies. This integration is a component of the contribution process; the improved functioning of factor markets merely speeds the process of extracting labour and capital from those uses in agriculture with low returns for those in industry or services with higher productivity.

As agriculture is integrated into the macro economy, it becomes much more vulnerable to fluctuations in macro prices and level of aggregate activity and trade and much less susceptible to management by traditional instruments for the agricultural sector, such as extension activities and specific programs for commodity development and marketing. This creates the fourth phase in the agricultural transformation, the treatment of agriculture in industrialized economies.

The historical record after the Second World War suggests that many countries saw an opportunity to pursue a "jump strategy" and move directly from the early stages of Mosher environment to the later stages of the Johnston-Mellor environment, thus bypassing the necessity to invest in agricultural development. Now, most under-developed countries wish, consciously or unconsciously, to by-pass this stage just when other structural conditions of development are making a "take off' more difficult than it was when most European countries and the United States were imitating England's.

The behaviour of backward agricultural systems under the new planning context became a topic of much theorizing and debate, but only in the 1960s and 1970s did the empirical record become both long and varied enough to draw reasonably firm conclusions.

It is worth summarizing briefly what the empirical record showed by 1960 when the results of Kuznets' decade-long study of the quantitative aspects of modern economic growth started to be widely available. The historical record began as early as the late eighteenth century in the United Kingdom and 1839 in the United States and as late as 1880 in Japan and 1925 in the USSR.

For all countries for all time periods observed, the share of agriculture in the total labour force declined, sometimes sharply, as in Sweden, the United States, and Japan,etc. The more general tendency of the share in output to decline is clear, but the share of the labour force always declined more rapidly.

The obvious result was that labour productivity in agriculture rose more rapidly than in the economy as a whole when measured over the long periods of time required for sustained economic growth to cause substantial changes in the structure of an economy.

Three clear exceptions to this trend in Kuznets' data are Italy, Japan, and the USSR, all of which are latecomers to the process of sustained growth and are countries in which state intervention into the industrialization process was much more active than in the early developers.

The failure of agricultural productivity per worker to rise as fast as national productivity in these three countries might thus be seen as an early signal that the patterns in the less-developed countries seeking to start down the path of modern economic growth might be significantly different from the historical path followed by the Western countries.

Hayami (1986), shows that the recent productivity record for the rapidly growing East Asian economies confirms a strongly different pattern from that in North America and Western Europe. Even the more slowly growing developing countries (Philippines and India) have a mild reversal of the "traditional" pattern in which growth in labour productivity in agriculture exceeds that of labour productivity in manufacturing.

This "premature" growth in manufacturing productivity (or, alternatively, the neglect of efforts needed to raise agricultural productivity) is especially troubling in historical perspective.

To be continued...