R u r a l - U r b a n L i n k a g e a n d D y n a m i c s I D R C - T T I I n s t i t u t e o f R u r a l M a n a g e m e n t A n a n d G u j a r a t

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1 I D R C T T I P a 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 21 st & 2 2 nd A u g u s t I R M A A n a n d I m p a c t o f I n d u s t r i a l i z a t i o n o n R u r a l C o m m u n i t i e s - A n O v e r v i e w P r o f. A n a n d V e n k a t e s h C h a n d a n J a i n R u r a l - U r b a n L i n k a g e a n d D y n a m i c s I D R C - T T I I n s t i t u t e o f R u r a l M a n a g e m e n t A n a n d G u j a r a t

2 Impact of Industrialization on Rural Communities-An Overview Anand Venkatesh Chandan Jain

3 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

4 Industrialisation and Rural Development- Commonly 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

5 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.

6 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.

7 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

8 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.

9 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.

10 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.

11 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.

12 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.

13 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.

14 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.

15 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.

16 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?

17 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

18 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

19 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.

20 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