• TABLE OF CONTENTS
HIDE
 Front Cover
 Half Title
 Title Page
 Foreword
 Acknowledgement
 Authors
 Table of Contents
 Status of tropical agriculture...
 The fundamental cause of economic...
 Importance of agriculture in economic...
 Processes and priorities in agricultural...
 Product markets and economic development:...
 Factor markets and economic development:...
 Trade preferences and developing...
 A dynamic linear programming model...
 Strategy for increasing rice production...
 Problems of policy in planning...
 Problems of policy in planning...
 Planning characteristics of low-income...
 Organization for local development...
 Advising on development organization:...
 The role of United States universities...
 Index
 Back Cover






Group Title: Economic development of tropical agriculture: theory, policy, strategy, and organization
Title: Economic development of tropical agriculture
CITATION PAGE IMAGE ZOOMABLE PAGE TEXT
Full Citation
STANDARD VIEW MARC VIEW
Permanent Link: http://ufdc.ufl.edu/UF00053791/00001
 Material Information
Title: Economic development of tropical agriculture theory, policy, strategy, and organization
Physical Description: xvi, 328 p. : illus. ; 24 cm.
Language: English
Creator: McPherson, W. W ( Woodrow Wilson )
University of Florida -- Center for Tropical Agriculture
Publisher: University of Florida Press
Place of Publication: Gainesville
Publication Date: 1968
 Subjects
Subject: Agriculture -- Economic aspects -- Tropics   ( lcsh )
Agriculture -- Developing countries   ( lcsh )
Genre: bibliography   ( marcgt )
conference publication   ( marcgt )
non-fiction   ( marcgt )
 Notes
Bibliography: Includes bibliographies.
Statement of Responsibility: Edited by W. W. McPherson.
General Note: Papers originally presented in a series of seminars at the University of Florida, between Jan. and Nov., 1966 and sponsored by the Center for Tropical Agriculture.
 Record Information
Bibliographic ID: UF00053791
Volume ID: VID00001
Source Institution: Marston Science Library, George A. Smathers Libraries, University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved, Board of Trustees of the University of Florida
Resource Identifier: aleph - 000810952
oclc - 00230916
notis - AEA5695
lccn - 68024368 //r83

Table of Contents
    Front Cover
        Front Cover 1
        Front Cover 2
    Half Title
        Page i
        Page ii
    Title Page
        Page iii
        Page iv
    Foreword
        Page v
        Page vi
    Acknowledgement
        Page vii
        Page viii
    Authors
        Page ix
        Page x
        Page xi
        Page xii
        Page xiii
        Page xiv
    Table of Contents
        Page 15
        Page 16
    Status of tropical agriculture and preview of subsequent chapters: W. W. McPherson
        Page 1
        Page 2
        Page 3
        Page 4
        Page 5
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    The fundamental cause of economic stagnation: John C. H. Fei and Alpha C. Chiang
        Page 23
        Page 24
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        Page 28
        Page 29
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        Page 43
        Page 44
        Page 45
    Importance of agriculture in economic development: Arthur Gaitskell
        Page 46
        Page 47
        Page 48
        Page 49
        Page 50
        Page 51
        Page 52
        Page 53
        Page 54
        Page 55
        Page 56
        Page 57
        Page 58
    Processes and priorities in agricultural development: Earl O. Heady
        Page 59
        Page 60
        Page 61
        Page 62
        Page 63
        Page 64
        Page 65
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        Page 71
        Page 72
        Page 73
        Page 74
        Page 75
        Page 76
        Page 77
    Product markets and economic development: Richard A. King
        Page 78
        Page 79
        Page 80
        Page 81
        Page 82
        Page 83
        Page 84
        Page 85
        Page 86
        Page 87
        Page 88
        Page 89
        Page 90
        Page 91
        Page 92
    Factor markets and economic development: Glenn L. Johnson
        Page 93
        Page 94
        Page 95
        Page 96
        Page 97
        Page 98
        Page 99
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        Page 105
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        Page 111
    Trade preferences and developing countries: Harry G. Johnson
        Page 112
        Page 113
        Page 114
        Page 115
        Page 116
        Page 117
        Page 118
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        Page 131
        Page 132
    A dynamic linear programming model for development planning: Max R. Langham
        Page 133
        Page 134
        Page 135
        Page 136
        Page 137
        Page 138
        Page 139
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    Strategy for increasing rice production in Southeast Asia: Vernon W. Ruttan
        Page 155
        Page 156
        Page 157
        Page 158
        Page 159
        Page 160
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        Page 176
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        Page 178
        Page 179
        Page 180
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    Problems of policy in planning the Indus basin investment in West Pakistan: Arthur Gaitskell
        Page 183
        Page 184
        Page 185
        Page 186
        Page 187
        Page 188
        Page 189
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    Problems of policy in planning agricultural development in Africa south of the Sahara: Arthur Gaitskell
        Page 214
        Page 215
        Page 216
        Page 217
        Page 218
        Page 219
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        Page 234
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        Page 236
        Page 237
        Page 238
        Page 239
    Planning characteristics of low-income agriculture: J. Price Gittinger
        Page 240
        Page 241
        Page 242
        Page 243
        Page 244
        Page 245
        Page 246
        Page 247
        Page 248
        Page 249
        Page 250
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        Page 252
        Page 253
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        Page 256
        Page 257
        Page 258
        Page 259
        Page 260
        Page 261
        Page 262
        Page 263
        Page 264
        Page 265
        Page 266
    Organization for local development in low-income countries: James W. Green
        Page 267
        Page 268
        Page 269
        Page 270
        Page 271
        Page 272
        Page 273
        Page 274
        Page 275
        Page 276
        Page 277
        Page 278
        Page 279
        Page 280
        Page 281
        Page 282
        Page 283
        Page 284
        Page 285
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        Page 288
        Page 289
        Page 290
        Page 291
        Page 292
        Page 293
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        Page 296
        Page 297
        Page 298
        Page 299
        Page 300
        Page 301
        Page 302
    Advising on development organization: James W. Green
        Page 303
        Page 304
        Page 305
        Page 306
        Page 307
        Page 308
        Page 309
        Page 310
        Page 311
        Page 312
        Page 313
        Page 314
    The role of United States universities abroad: Arthur J. Coutu
        Page 315
        Page 316
        Page 317
        Page 318
        Page 319
        Page 320
        Page 321
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        Page 323
        Page 324
    Index
        Page 325
        Page 326
        Page 327
        Page 328
    Back Cover
        Back Cover 1
        Back Cover 2
Full Text
Peter E. Hildebran.4
Agricultural Economics


-'OOI(
-DEVELOPETOFa
^TRO7!j ARTTLTnUuE


Edited by W. W. McPherson








$2.95


Economic Development

of Tropical Agriculture


Theory, Policy, Strategy, and Organization


Edited by
W. W. McPherson

his book represents the breadth and depth of thinking of

a group of internationally recognized experts who have
had substantial experience in tropical development. The
papers which make up the book were presented in a series of
seminars given on the University of Florida campus between
January and November, 1966. Dr. W. W. McPherson, Gradu-
ate Research Professor of Agricultural Economics at the Uni-
versity of Florida, was chairman of the seminar committee,
contributed the lead paper, and served as editor of the result-
ing book.
The volume's contents should be useful to many persons,
not only to the large number of individuals who have an
interest in the economic development of tropical agricul-
ture, but also to those who have an interest in agriculture and
economic development in general.
W. W. McPHERSON is Graduate Research Professor in the
Department of Agricultural Economics at the University of
Florida. He has served as an agricultural economist with the
Bureau of Agricultural Economics of the United States De-
partment of Agriculture, and as an advisor to the Planning
Board of Pakistan with the Ford Foundation-Harvard Univer-
sity Advisory Team. He was Head of Economics and Statistics
Research (1959-61) and Assistant Scientific Director (1961-
62) with the Division of Tropical Research of the United
Fruit Company. Dr. McPherson is a member of the editorial
council of the American Journal of Agricultural Economics,
and he has contributed many articles to various scholarly and
professional publications.


Cover art by Maxine Eisele






PeFter F, 9-1dc'hrand
Agricultural iir'


Economic Development
of Tropical Agriculture













Economic Development
of Tropical Agriculture
Theory, Policy, Strategy, and Organization
Edited by
W. W. McPherson



fp


University of Florida Press Gainesville 1968























A University of Florida Press Book


COPYRIGHT @ 1968 BY THE BOARD OF COMMISSIONERS
OF STATE INSTITUTIONS OF FLORIDA
All rights reserved. No part of this book may be reproduced in any form
without permission in writing from the publisher, except by a reviewer who
wishes to quote brief passages in connection with a review written for in-
clusion in magazines or newspapers.
Library of Congress Catalog Card Number: 68-24368
PRINTED BY THE STORTER PRINTING CO., INC.
GAINESVILLE, FLORIDA
BOUND BY DOBBS BROTHERS LIBRARY BINDING CO., INC.
HIALEAH, FLORIDA












Foreword


he publication of this book, Economic Development of Tropi-
cal Agriculture, inaugurates a series of publications to be
sponsored by the Center for Tropical Agriculture (CTA) of the
University of Florida. Supporting the publication of scholarly work
is considered an integral function of the CTA. The curriculum is
thereby enriched and results in research are disseminated in a wide
and timely manner. This strong academic concern for the tropics
renders technical assistance programs more effective. The series will
reflect the Center's scope of interest in tropical agriculture. It is
hoped that this book and future works will contribute to a better
knowledge of the potentials and limitations of the production of
food and other farm products in the tropics.
This first book represents the breadth and depth of thinking of a
group of internationally recognized experts who have had substan-
tial experience in tropical development. The papers which comprise
the book were presented in a series of seminars given on the Uni-
versity of Florida campus between January and November, 1966.
Dr. W. W. McPherson, Graduate Research Professor of Agricultural
Economics at the University of Florida, was chairman of the semi-
nar committee, contributed the lead paper, and served as editor of
the resulting book.
This volume should be useful to many persons, not only to the
large number of individuals who have an interest in the economic
development of tropical agriculture, but to those who have an in-
terest in agriculture and economic development in general.

E. T. YORK, JR., Provost
Institute of Food and
Agricultural Sciences
HUGH L. POPENOE, Director
International Programs and
Center for Tropical Agriculture













Acknowledgments


he assistance of the seminar program committee, Doctors H. B.
Clark, C. C. Moxley, and Leo Polopolus, and Mr. Antonio
Gayoso, is gratefully acknowledged. The full support of Dr.
E. T. York, Jr., Provost, Institute of Food and Agricultural Sciences
(IFAS); Dr. Hugh L. Popenoe, Director of International Programs
and the Center for Tropical Agriculture, IFAS; and Dr. K. R. Tefer-
tiller, Chairman of the Department of Agricultural Economics of the
University of Florida, is greatly appreciated. To the authors, who
were kind enough to divert their time from very busy schedules in
order to participate in this program, we are deeply grateful. Also,
we express thanks to the Editor of Lloyds Bank Review for kind
permission to reprint Professor Harry G. Johnson's paper (Chapter
7). In addition to the authors whose papers appear in this book,
we offer thanks to Mr. Oscar Collado, Ingeniero Agr6nomo, Head,
Rural Credit Department, National Bank of Costa Rica, and to Dr.
Gustav F. Papanek, Director, Development Advisory Service, Har-
vard University, for participating in the special seminar program.
Financial support, which made this venture possible, was pro-
vided by the Center for Tropical Agriculture, which is financed in
part by funds received from the Ford Foundation.
Editorial revisions of the papers were kept to a minimum, mainly
to matters of format. Each author worked independently of the
others. As might be expected, there are occasional duplications of
ideas as well as differences in ideas among authors. However, no
attempt to reconcile these differences and duplications was made
as they were judged to be "healthy" ones and may well lead to
further fruitful inquiry and discussion.

W. W. McPherson, Editor
University of Florida
April, 1967













Authors


Chiang, Alpha C., Visiting Professor of Economics,
Cornell University
Dr. Chiang received the B.A. degree from St. John's Univer-
sity, China, the M.A. from the University of Colorado, and the
Ph.D. from Columbia University. He has taught at Denison Uni-
versity, the Chinese University of Hong Kong, and Cornell Uni-
versity. He is currently Visiting Professor of Economics, Cornell
University, on leave from the University of Connecticut. In 1963-
64, he was at Yale University as a National Science Foundation
Fellow.

Coutu, Arthur J., Director,
North Carolina State University Mission to Peru
Dr. Coutu was born in Connecticut. He received the B.S. and
M.S. degrees from the University of Connecticut and the Ph.D.
from North Carolina State University. He has been a member of
the North Carolina State faculty since 1952. He was a member of
the North Carolina State University Mission to Peru from Jan-
uary, 1963, to August, 1965, Chief of Party of that Mission from
1964 to mid-1965, and Director since January, 1966.

Fei, John C. H., Professor of Economics,
Cornell University
Dr. Fei was educated at Yenching University, China (B.A.,
1945), the University of Washington (M.A., 1948), and the Mas-
sachusetts Institute of Technology (Ph.D., 1952). He has taught
at M.I.T., Antioch College, the University of Washington, and
Yale University. He is currently Professor of Economics at Cor-
nell University. During 1960-61, he served as research adviser to
the Institute of Development Economics in Karachi, Pakistan. He
is a senior economic adviser to the National Planning Associa-
tion, working on development problems of the Philippines and
Thailand.








x Economic Development of Tropical Agriculture
Gaitskell, Arthur, Member of the Board,
Commonwealth Development Corporation
Mr. Gaitskell was born in England and received his education
at Winchester College and Oxford University. He served with
the Sudan Plantation Syndicate, Gezira Scheme, 1923-52, was
Manager of the Syndicate, 1945-50, Chairman and Managing Di-
rector, Sudan Gezira Board, 1950-52, and Consultant, 1952-53.
He served as a member of the Executive Council of the Sudan
and as Chairman of the Council of Khartoum University. He also
served as a member of the Royal Commission on East Africa and
the Committee of Experts on the Development of Africa of the
Council of Europe. More recently, he was with the World Bank
and the Food and Agriculture Commission in Pakistan. He has
also been a consultant to Mitchell Cotts in Ethiopia, to Kenya
African National Union in Kenya, to the Ford Foundation in Ni-
geria, to the Euphrates Project Authority, to Sir Alexander Gibb
& Partners for the Indus Basin Comprehensive Survey, and with
the Food and Agriculture Organization in Mexico. He has served
as Lecturer at the Economic Development Institute, World Bank,
Washington, D.C.
Gittinger, J. Price, Lecturer, Economic Development Institute,
International Bank for Reconstruction and Development
(World Bank), Washington, D.C.
Dr. Gittinger was born in California and received the B.S. de-
gree from the University of California and the M.S. and Ph.D.
degrees from Iowa State University. He served as Agricultural
Economist with the United States Overseas Mission to Vietnam,
1955-59; Agricultural Economist with the Harvard University
Advisory Group, Plan Organization of Iran, 1960-61; and from
1963 to 1965 he was Visiting Professor, Institute of Agriculture,
Bogor, Indonesia, under the auspices of the Agricultural Devel-
opment Council. He was Associate Director of the Center for De-
velopment Planning, NPA, just before moving to his present posi-
tion where his responsibility includes supervision of the Insti-
tute's Annual Agricultural Projects Course for senior agricultural
administrators from the Bank's member countries.
Green, James W., Chief, Community Development and Local Gov-
ernment Advisor to the Government of Peru and to the United
States AID Mission to Peru
Dr. Green is a native of Virginia. He received the Ph.D. degree
in sociology from the University of North Carolina, and has pur-
sued additional study of economic and social development at the








Authors xi
School of Advanced International Studies, Johns Hopkins Univer-
sity. He served on the faculties of North Carolina State Univer-
sity and Cornell University, and as Specialist in Land Use Plan-
ning for the North Carolina Agricultural Extension Service. From
1954 to 1959 he was initially Associate Chief and later Chief
Community Development (Village Agricultural & Industrial De-
velopment) Adviser to the Government of Pakistan; from 1960 to
1964 he served as Community Development and Local Govern-
ment Adviser to the Government of Southern Rhodesia and Senior
AID Community Development Staff Adviser for the Central Afri-
can Federation. From 1964 to 1967, in addition to the position
held in Peru as listed above, he served during part of 1965 as
Consultant to the United States AID Mission to the Dominican
Republic on local government, community development, co-
operatives, and agricultural extension. Early in 1967 he moved to
Panama for work in community development.
Heady, Earl O., Charles F. Curtiss Distinguished Professor of Agri-
culture, and Executive Director of the Center for Agricultural
and Economic Development, Iowa State University
Dr. Heady was born in Nebraska. He received the B.S. and
M.S. degrees at the University of Nebraska and the Ph.D. at
Iowa State University. He holds honorary degrees from the Uni-
versity of Nebraska, the University of Uppsala, and the Agricul-
tural College of Sweden. He is a Fellow of the American Farm
Economics Association, Econometrics Society, and American Sta-
tistical Association. Dr. Heady has served as Visiting Professor at
Harvard University, North Carolina State University, and the
University of Illinois. He has served extensively as consultant in
Greece, India, and European countries, and is participating in the
development of Agricultural Economics at the University of
Nuevo Leon, Monterrey, Mexico.
Johnson, Glenn L., Professor of Agricultural Economics,
Michigan State University, and Chairman of the Consortium
for the Study of Nigerian Rural Development
Dr. Johnson is a native of Minnesota. He holds the B.S. degree
from the University of Illinois, the M.A. from Michigan State
University, and the Ph.D. from the University of Chicago where
he was a Social Science Research Council Fellow. He also studied
at American and George Washington Universities and Cam-
bridge University. He was on the staff of the Bureau of Agricul-
tural Economics and the faculty of the University of Kentucky
before joining the faculty of Michigan State University. He has








xii Economic Development of Tropical Agriculture
been a Visiting Professor at the University of California and the
University of Manchester, England. He has served with the Nor-
wegian Agricultural Economics Institute, as a member of the
joint economic military evaluation on the United States Overseas
Mission in Thailand, as Director of the Economic Development
Institute, University of Nigeria (1962-64), and as consultant to
the Rockefeller Foundation (University del Valle, Cali, Colom-
bia) with emphasis on agricultural economics and attention to
agricultural development associated with the Foundation's "Con-
quest of Hunger" program. He has been Director of the Nigerian
Consortium since 1965.
Johnson, Harry G., Professor,
London School of Economics
Born in Toronto, Canada, Dr. Johnson received the B.A. de-
gree from the University of Toronto and Cambridge University,
the M.A. degree from the Universities of Toronto, Harvard, Cam-
bridge, and Manchester, and the Ph.D. from Harvard. He has
served as a member of the faculty of St. Francis Xavier Univer-
sity, University of Toronto, Cambridge University, King's College
of Cambridge, Stanford University, University of Indiana, Insti-
tuto Torcuato di Tella in Argentina, the University of Western
Ontario, Manchester University, the University of Chicago, and
the London School of Economics. Other professional posts held
by Professor Johnson include: Lecturer, International Economic
Association, refresher courses for Asian economists: Karachi
(1956), Singapore (1956), Murree (1958), and Poona (1966);
External Examiner, the University of Malaya in Singapore, 1959-
61; Honorary Member, Japan Economic Research Center, since
1966; Member, Foreign Advisory Board, Pakistan Institute of De-
velopment Economics, since 1966. Editorial positions have been
held with the Journal of Political Economy, Review of Economic
Studies, and The Manchester School. He has served as President
of the Canadian Political Science Association, Consultant to the
Board of Governors of the Federal Reserve System, and on num-
erous national and international committees and commissions.
He is a Fellow of the American Academy of Arts and Sciences. In
1966 he moved from the faculty of the University of Chicago to
his present position with the London School of Economics.
King, Richard A., M. G. Mann Professor of Economics,
North Carolina State University
Dr. King was born in Massachusetts. He received the B.S. de-
gree at the University of Connecticut; the M.S. at the University








Authors xiii
of California, Berkeley; and the M.P.A. and Ph.D. at Harvard
University. A year of postdoctoral study was spent as a Fellow in
Political Economy at the University of Chicago. He has served on
the faculties of the University of Connecticut and North Carolina
State University. From February, 1964, to July, 1965, he served
as an Economic Adviser with the North Carolina State Univer-
sity contract in Peru, and since returning to the campus he has
continued active participation in the Peruvian project.
Langham, Max R., Associate Professor of Agricultural
Economics and Economics, University of Florida
Dr. Langham is a native of Illinois. He attended Southern Illi-
nois University and received the B.S., M.S., and Ph.D. degrees
from the University of Illinois. He served on the faculty of Loui-
siana State University before joining the faculty of Agricultural
Economics, University of Florida in 1962. His graduate teaching
and research are in the areas of production economics and econ-
ometrics. For a period in 1966 he was in Costa Rica. He is cur-
rently supervising research on the economic opportunities of live-
stock production in Costa Rica.
McPherson, W. W., Graduate Research Professor,
University of Florida
Dr. McPherson, born in North Carolina, holds the B.S. degree
from North Carolina State University, the M.S. from Louisiana
State University, and the Ph.D. in economics from Harvard Uni-
versity. He has served with the Bureau of Agricultural Econom-
ics, United States Department of Agriculture, and has been on
the faculty of North Carolina State University (1949-59). From
1955 to 1957 he was adviser to the Planning Board of Pakistan
with the Ford Foundation-Harvard University Advisory Team. He
was Head of Economics and Statistics Research (1959-61) and
Assistant Scientific Director (1961-62) with the Division of Trop-
ical Research, United Fruit Co., and worked in Honduras, Guate-
mala, Costa Rica, Panama, the Dominican Republic, Colombia,
Ecuador, and Nicaragua. In the spring of 1963, he served as con-
sultant to AID in Trinidad and Tobago, and in the summer of
1966 he was with the International Research Institute in Brazil.
He joined the University of Florida faculty in 1962.
Ruttan, Vernon W., Professor and Head, Department of
Agricultural Economics, University of Minnesota
Dr. Ruttan was born in Michigan. He attended Michigan State
University in 1942-43 and received the B.S. degree from Yale in








xiv Economic Development of Tropical Agriculture
1948. The M.A. and Ph.D. degrees were received from the Uni-
versity of Chicago. From 1963 to 1965 he was with the Rockefel-
ler Foundation as Agricultural Economist at the International
Rice Research Institute, Laguna, Philippines. He had previously
held positions with the Council of Economic Advisers, Purdue
University, the University of California, and the Tennessee
Valley Authority.













Contents


Foreword ......-----------------.. ---------- .------- v
Acknowledgments .------------ ---------------------..vii
Authors ... ....--------------------------- .-----. ix
1. Status of Tropical Agriculture and Preview
of Subsequent Chapters: W. W. McPherson --------- 1
2. The Fundamental Cause of Economic Stagnation:
John C. H. Fei and Alpha C. Chiang ---. --------.......----- 23
3. Importance of Agriculture in Economic Development:
Arthur Gaitskell --...-... ..--------..........------46
4. Processes and Priorities in Agricultural Development:
Earl O. Heady ---...- -------..... ... ----------- 59
5. Product Markets and Economic Development:
Richard A. King _--..-. --....--------...-...... ----- 78
6. Factor Markets and Economic Development:
Glenn L. Johnson ------........... ------ ------ 93
7. Trade Preferences and Developing Countries:
Harry G. Johnson -----------.- ...........112
8. A Dynamic Linear Programming Model for Development
Planning: Max R. Langham ...---------------.-- ______ ... 133
9. Strategy for Increasing Rice Production in Southeast Asia:
Vernon W. Ruttan ..----------------- ----------- 155








xvi Contents
10. Problems of Policy in Planning the Indus Basin Investment
in West Pakistan: Arthur Gaitskell .---.-.-----------183
11. Problems of Policy in Planning Agricultural Development
in Africa South of the Sahara: Arthur Gaitskell ....---- -.... 214
12. Planning Characteristics of Low-Income Agriculture:
J. Price Gittinger __-_...-----_---_.------- .--.... 240
13. Organization for Local Development in Low-Income
Countries: James W. Green __. ___.....----------------.. 267
14. Advising on Development Organization:
James W. Green ...... ....------- -------- .------ 303
15. The Role of United States Universities Abroad:
Arthur J. Coutu _____ ...--.--------------------.. 315
Index .....___.----------------------------.. 325











1


Status of Tropical Agriculture
and Preview of
Subsequent Chapters




W. W. McPherson


countries within the tropical and subtropical zones of the
world are predominantly agricultural and, with few excep-
tions, have per capital incomes below the world average.
Although discussions of theory, policy, strategy, and organization
for development presented in this book have reference and appli-
cation to economic and agricultural development beyond the
boundaries of the tropics, they are of particular interest with
reference to the countries in the tropical and subtropical zones
because of the predominance of agricultural activities and preva-
lence of low incomes.

STATUS OF TROPICAL AGRICULTURE
Income Levels.-Levels of income are presented here, not be-
cause income is believed to be identical with ultimate goals or to
be a perfect measure of the ultimate welfare of individuals or
society, but because we have yet to come up with a more satis-
factory concept with respect to economic growth. An increase in
output (income) possibilities certainly should indicate an increase
in the range of opportunities from which choices may be made.
Moreover, level of income is usually associated in a positive direc-








2 Economic Development of Tropical Agriculture
tion with other "desirable" conditions such as food supply, health,
level-of-living indexes, and life expectancy. As Schumpeter (1947,
2) has stated so succinctly, "I speak of economic growth during
any stated period if the trend values of an index of per capital
total output of goods and services have increased during that
period" (my italics); or Lewis (1955, 9), "The subject matter of
this book is growth of output per head of population. The
definition must, however, relate to goods and services-'economic'
output, in the old fashioned meaning of 'economic'-and not to
some such concept as welfare, satisfaction or happiness.",*
The problems of measuring income or output in agriculture, es-
pecially trend, are particularly difficult. Among the conditions that
give rise to these difficulties are the wide period-to-period varia-
tions that occur as a result of uncontrolled factors such as weather,
the large but often changing share of output in the subsistence
(non-market) sector, and the differences in the share of the farm
segment of the total agricultural sector. There is evidence that
estimates of farm incomes in comparison with non-farm incomes
and incomes in lower-income countries in relation to incomes in
higher-income countries are likely to have a downward bias. For
example, one estimate raises the 1950 per capital figure in Africa,
for comparison with $1,550 in the United States, from $48 to $177-
an increase of more than 350 per cent (Millikan, 1956), but the
difference is still almost beyond comprehension. Thus, differences
in average incomes cannot be interpreted as exact measures of
differences in welfare, but they may provide a "very rough ap-
proximation" to an index of differences in output of economic
goods and services that have been incorporated into the national
accounts.
Even when considered only as "a very rough approximation" to
an index of real differences, the conclusion that average income
levels in tropical countries are generally quite low in relation to
those of much of the rest of the world, appears to be rather
obvious (Table 1.1). For convenience, the data on tropical areas
are presented on the basis of the subregions developed by the
United States Department of Agriculture (USDA) even though
these areas do not, in all cases, meet the necessary criterion with
respect to location. For example, Chile is included in "Other
South America," Saudi Arabia is not included in any one of the
*Notes for this chapter begin on page 20.







TABLE 1.1.-INCOME, POPULATION, AND AGRICULTURAL LAND: UNITED STATES, TROPICAL SUBREGIONS, AND THE WORLD

Population
National income Population
per capital 1959-61 Midpoint Projected annual
Subgion 1960-62 growth rate
Subregion 10-2 Total number World share 1959-61 to 1970
U.S. dollars Million Per Cent Per Cent
United States 2,342 179.9 6.0 1.5
Tropics
Central America
and Caribbean 227 32.3 1.1 2.7
Mexico 281 34.9 1.2 3.1
Brazil 211 70.6 2.3 3.1
Other South America 263 51.5 1.7 2.8
East Africa 86 48.6 1.6 2.3
West Central Africa 81 108.8 3.6 2.1
North Africa 112 84.8 2.8 2.2
India 69 431.7 14.3 2.2
Other South Asia 69 126.4 4.2 2.5
Other East Asia 82 246.2 8.2 2.5
TOTAL TROPICAL 103 1,235.9 41.0 2.5
World b 3,011.5 100.0 1.8
Source: USDA (1964).
a. A list of countries included in each subregion is given at the end of this chapter.
b. Data not available.








4 Economic Development of Tropical Agriculture
subregions shown, Afghanistan and Nepal are included in "Other
South Asia," and South Korea is included in "Other East Asia."
For 1960-62, the estimated average annual national income per
capital amounted to only $103 for the tropical areas, or less than 5
per cent of the United States average. For 1958, the latest year
for which income estimates for most of the countries are available,
countries deemed to be tropical and mostly tropical or subtropical
contained about 56 per cent of the population (excluding ussR,
Eastern Europe, Mainland China, North Korea, North Vietnam,
and Outer Mongolia), but produced only 13 per cent of the in-
come.2 Moreover, among the tropical countries, only three-Vene-
zuela, Puerto Rico, and Trinidad and Tobago-had per capital
incomes above the world average.
Population Growth.-Substantial annual increases in total output
are required merely to maintain constant levels of per capital
income in the tropics. In the less-developed countries, in general,
the crude birth rate around 1960 averaged 40 per thousand in
contrast to 21 per thousand in regions regarded as more developed,
and 34 per thousand for the world as a whole (UN, 1966a, 1).
The combination of high birth rates and the "amazing decline in
death rates" (Davis, 1956) is producing population growth rates
well above the world average. In Costa Rica, for example, the
crude birth rate was 45.3 per thousand in 1948 and 42.7 in 1963,
whereas the death rate dropped from 13.2 to 8.5 during this
period. In El Salvador, in the same years, birth rate increased
from 44.6 to 49.0 and death rate dropped from 16.9 to 10.9 per
thousand (UN, 1965, 98-99).
Evidence of an increasing public recognition of, and concern for,
the problem of population pressure is shown by the fact that a
decade ago only one country, India, had adopted a population
policy in the form of public support for the promotion of family
planning, whereas today, if we include Mainland China, about
five-eighths of the 2.3 billion people in the developing regions live
in countries that have expressed policies favoring family planning
as a means of reducing birth rates (Kirk and Nortman, 1967).3
However, the degree of effectiveness of these policies is yet to be
determined. Among the tropical regions, Western and Eastern
Africa, the Caribbean area, South Asia, Polynesia, and Micronesia
reported increases in annual population growth rate during the
1958-64 period (UN, 1966b, 24).








Status and Preview / McPherson 5
Economic Importance of Agriculture.-An indication of the eco-
nomic importance of the farm sector in regions that include the
tropical areas of the world is given by the report that 70 per cent
of the population of Africa, 64 per cent in Asia (excluding Main-
land China), 56 per cent in Central America, and 45 per cent in
South America, were engaged in agriculture in 1960 (FAO, 1966,
20). A number of countries report levels well above the geographic
averages. For example, in Haiti, Liberia, Ivory Coast, Thailand,
and Cambodia, the levels are over 80 per cent (FAO, 1966, 21).
The much lower figure of 8 per cent in North America in part
reflects the fact that in more highly developed countries a larger
share of the economic activities of the agricultural industry, includ-
ing factor and product processing and marketing as a whole, is
carried on in the non-farm sector. However, part of this difference
also reflects the fact that in the less-developed countries a much
larger share of the labor force is engaged in the production of the
subsistence items.
The predominance of agriculture in tropical economies is
indicated further by the share of the gross domestic product that
originates in that sector. Generally, more than 25 per cent of the
gross domestic product reported in national accounts is generated
in agriculture, and very frequently this figure is 35 per cent or
more. Usually the percentage of gross domestic product attributed
to agriculture is much less than the percentage of the population
reported to be engaged in agriculture (Table 1.2). Although part
of this difference may be due to tendencies to underestimate farm
income, as a result of the large non-market share of the economic
activities in agriculture, a substantial amount of the difference
is undoubtedly a result of lower incomes received by labor in
agriculture in comparison with returns in other economic activi-
ties. It is rather evident, also, that large numbers of agricultural
families probably have not shared well in the benefits of growth
that have occurred in the total economy. Mexico, for example,
reports 18 per cent of the gross domestic product generated in
agriculture (1964) with 54 per cent of the population engaged
in that field (1960).
Another feature of tropical countries is the very high level of
dependence upon agricultural exports for their foreign exchange
earnings. In many instances, especially in the case of the smaller
countries, production for export accounts for the bulk of the com-









6 Economic Development of Tropical Agriculture

mercial agriculture. Generally, with the exception of countries
with important mineral resources (such as Venezuela with its large
oil deposits), tropical agricultural commodities-coffee, cocoa, rub-
ber, bananas, tea, sugar, and palm products-account for 75 per
cent, and often more than 80 per cent, of the total value of
exports.
Food Supplies.-Diets in the tropical areas are characterized by
a high level of carbohydrates. From 70 to 80 per cent of the

TABLE 1.2.-SHARES OF GROSS DOMESTIC PRODUCT ORIGINATING AND POPULA-
TION EMPLOYED, IN AGRICULTURE, SELECTED COUNTRIESa

Agriculture
Per cent of gross Per cent of
Country domestic product population
Bolivia 24 63
Brazil 28 54
Colombia 31 54
Costa Rica 32 49
Ecuador 36 56
El Salvador 32 60
Guatemala 28 68
Honduras 45 67
Jamaica 13 39
Mexico 18 54
Nicaragua 36 60
Cambodia 41 81
Taiwan 27 40
India 47 73
Indonesia 56 68
Pakistan 49 75
Philippines 33 57
Thailand 35 82
Source: FAO (1966, 21) for employment and UN (1966c, 457-465) for in-
comes.
a. Countries for which data are available in a recent year, mostly 1960-1964.

calories usually come from crop products high in carbohydrates
(Table 1.3). The particular staple crops vary among the differ-
ent environments-sorghum and millets in the lower rainfall areas
of Africa; rice in Asia, and to a lesser extent in certain areas of
Africa and Latin America; maize in Mexico, the Central Ameri-
can countries, Bolivia, and a number of areas in Africa; bananas
and plantains throughout the wet areas of the tropics; manioc
(cassava) rather generally in Africa to the south of the dry north-










TABLE 1.3.-AVERAGE NUMBER OF DAILY PER CAPITAL CALORIE STANDARDS AND LEVELS, AND PERCENTAGE OF CALORIES FROM SE-
LECTED FOOD GROUPS IN UNITED STATES AND TROPICAL SUBREGIONS, AVERAGE 1959-61

Calorie Calorie High car- Other Other starchy Fish, meat, eggs,
Subregion" standard level bohydrate Wheat Rice grains crops and milk products

United States 2,650 3,190 40 17.4 0.9 2.5 3.1 30.4
Tropics
Central America
and Caribbean 2,450 2,240 69 8.8 9.4 23.0 12.7 12.4
Mexico 2,450 2,580 70 11.1 1.6 42.2 1.8 11.4
Brazil 2,650 2,710 71 8.6 14.5 11.2 20.9 12.2
Other South America 2,500 2,260 70 16.9 5.9 16.0 15.5 14.5
East Africa 2,450 2,390 83 2.3 8.4 55.9 12.4 6.0
West Central Africa 2,400 2,460 81 1.2 5.7 27.2 45.3 2.6
North Africa 2,350 2,210 73 26.4 3.1 36.2 1.3 9.1
India 2,300 2,060 74 11.3 33.1 19.0 2.6 6.4
Other South Asia 2,300 2,120 79 19.4 47.1 4.9 1.0 7.4
Other East Asia 2,350 2,150 78 1.8 50.1 7.7 12.7 4.8
Source: USDA (1964).
a. A list of countries included in each subregion is given at the end of this chapter.








8 Economic Development of Tropical Agriculture
ern areas, Indonesia, Brazil, and a number of the Central Ameri-
can countries. Sweet potatoes and yams are also important sources
of carbohydrates in a number of countries. Over a period of years
the native farmers have fitted these crops into economic produc-
tion systems consistent with the ecological and economic condi-
tions and the population-land relationships under which rural
people lived.4 The general policy, of course, has been to adjust to
environmental and economic conditions rather than to change
these conditions. The need for developing economical sources of
protein is obvious. Where sufficient additional land is available to
be brought into production, food supplies of the existing kinds for
an increasing population can be produced under existing systems.
However, as land becomes a limiting factor, adjustments in farm-
ing systems are required merely to maintain constant levels of
per capital food supplies. In fact, land is already quite scarce in
the tropical countries of Asia, in which almost 27 per cent of the
world's population lives on a little more than 7 per cent of the
estimated agricultural land; population density is already above
100 persons per 100 acres in India and 154 persons per 100 acres
in "Other East Asia" (USDA, 1964). Central America and the
Caribbean areas, with 61 persons per 100 acres of agricultural
land, are relatively densely populated also. On the other hand, the
tropical countries of South America and Africa are much less
densely populated. On the basis of the USDA regional groupings,
the population per 100 acres varies from 25 in "Other South
America" down to ten in East Africa. These data, of course, can
provide only a very rough index of the level of population pressure
because of differences in the dependence upon types of economic
activity other than farming, the physical, technological, and eco-
nomic factors that affect land productivity, and the inaccuracies
of estimates. However, it appears that land, in its broadest sense
(including climate), is already a serious limitation to production in
the Asian and Caribbean areas. In South America and Africa there
is some time left, but in the absence of checks on population
growth and/or technological change, population pressure can be
expected to reach critical stages by the end of the twentieth cen-
tury, if not before that time.
Recent Growth Trends.-Estimates of total food production show
consistent annual increases in Latin America, Asia, and Africa in
recent years (Table 1.4), yet there is no evidence of any sustained









TABLE 1.4.-INDEX OF PRODUCTION OF FOOD, TOTAL AND PER CAPITAL, SELECTED AREAS (1952/53-1956/57 = 100)

Total food production Food production per capital

Period Latin America Far East" Africa Latin America Far East" Africa

Pre-World-War II average 69 82 69 104 106 98
1948/49-1952/53 average 88 87 89 97 93 99
Year ending in
1954 96 98 98 98 101 101
1955 100 100 101 100 100 101
1956 102 100 100 99 102 98
1957 109 108 106 103 103 101
1958 112 107 103 103 100 96
1959 116 112 107 105 103 97
1960 116 118 110 102 106 97
1961 118 122 116 101 107 99
1962 121 124 114 100 107 95
1963 123 126 119 100 106 97
1964 128 128 121 101 105 96
1965b 130 129 124 101 104 96
Source: FAO (1965, 14-15).
a. Includes: Burma, Ceylon, China (Taiwan), India, Indonesia, Japan, Republic of Korea, Malaya, Pakistan, Philippines, and
Thailand.
b. Preliminary.








10 Economic Development of Tropical Agriculture
growth in food production per capital. The patterns for total agri-
cultural output are very similar to those for food production
(Table 1.5). In view of the difficulties of making accurate esti-
mates of agricultural production and the wide year-to-year varia-
tions in output caused by weather and other uncontrolled factors,
it appears to be unrealistic to attach any significance to short-term
differences of only a few percentage points. However, some sig-
nificance may very well be attached to the difference in indexes
of agricultural production per capital, in the developed countries
in comparison with the less-developed countries5 (Table 1.6),
that appeared between 1960 and 1966. These indexes are con-
sistently higher in the developed countries, and the difference
appears to have widened despite the fact that output was under
restrictive programs in the United States. From the standpoint of
general welfare these differences are especially important because
agriculture accounts for such large shares of the total economies
of the less-developed countries.
One hypothesis is that technology and factor proportions in
agriculture of the tropical countries have been relatively constant.
Consequently, output has tended to grow in proportion to the
increase in labor (or population) as additional land (including
water) has been brought into cultivation. In India, according to
Brown (1965, 25-26), "Grain yields per harvested acre averaged
296 kilograms per acre during 1901-05; 277 kilograms from 1956
to 1960; and 305 kilograms from 1961 to 1963." On the other hand,
Hendrix (1965, 16-21) and the USDA (1965, 19-25) have attributed
a substantial share of the growth rate in crop output, 1948 to
1960-63, to higher crop yields per acre in a number of tropical
countries. It is quite doubtful that the application of additional
labor alone would have produced the higher yields. However, the
share of the higher yields that may have resulted from expansion
of acreage on higher yielding lands has not been determined. For
new inputs other than chemical fertilizers, data are quite scarce;
and, whereas the applications of chemical fertilizers have increased
in recent years, it is believed that most of these increases were
applied to export crops. Although there are exceptions in some
areas, it is quite doubtful that the increases have yet been sufficient
to have noticeable effects upon aggregate production levels of
crops other than those produced for export.
Another interesting point, however, is the fact that each









TABLE 1.5.-INDEX OF AGRICULTURAL OUTPUT, TOTAL AND PER CAPITAL, SELECTED AREAS (1952/53-1956/57 = 100)

Total agricultural output Agricultural output per capital

Period Latin America Far Easta Africa Latin America Far East" Africa

Pre-World-War II average 73 84 67 110 109 95
1948/49-1952/53 average 88 87 88 98 93 97
Year ending in
1954 96 98 98 98 100 100
1955 100 100 101 100 100 101
1956 103 104 101 100 102 99
1957 107 108 106 102 103 101
1958 113 107 105 104 100 97
1959 117 112 109 106 103 99
1960 121 116 112 106 105 99
1961 121 120 118 103 106 101
1962 125 123 115 104 106 96
1963 127 125 122 103 106 99
1964 130 127 125 102 105 99
1965b 129 129 128 99 104 99


Source: FAO (1965, 14-15).
a. Includes: Burma, Ceylon, China (Taiwan), India, Indonesia,
Thailand.
b. Preliminary.


Japan, Republic of Korea, Malaya, Pakistan, Philippines, and








12 Economic Development of Tropical Agriculture
region has shown a decline in the percentage of the population
engaged in agriculture. Food and Agricultural Organization (FAO)
(1966, 20) data for 1937 and 1960, respectively, show: Central
America, 63 and 56 per cent; South America, 62 and 45 per cent;
Africa, 76 and 70 per cent; and Asia (excluding Mainland China),
73 and 64 per cent. This decline in the share of the population,
of course, does not necessarily mean a reduction in the total num-
ber employed in agriculture. Does this reduction in the share of
the labor force employed on farms mean that more labor is em-
ployed on an increasing share of the agricultural activities carried

TABLE 1.6.-WORLD AGRICULTURAL PRODUCTION, BY SPECIFIED AREAS
(Index numbers 1957-59 = 100)

Total Per capital
Developed Less-developed Developed Less-developed
Year countries' countries countries' countries
1960 106 108 103 103
1961 107 111 103 103
1962 111 112 105 102
1963 113 117 106 103
1964 116 119 108 103
1965 116 120 106 101
1966' 121 123 110 101
Source: USDA (1967, 2).
a. United States, Canada, Europe, UssR, Japan, Republic of South Africa,
Australia, and New Zealand.
b. Latin America, Other Far East, Western Asia, and Other Africa.
c. Preliminary.

on outside the farm sector-such as the supply of commercial in-
puts or the transportation, processing, and marketing of farm
products? Does it mean that labor can be drawn from the agricul-
tural sector without reducing agricultural output per capital Or,
has there been an increase in the productivity of labor? Although
the index of output per capital in Africa has been somewhat above
the pre-World-War-II average, it has been below that average
in Latin America and the Far East (Table 1.5). Are workers being
"pulled" away from farms by increasing opportunities outside agri-
culture, or are they being "pushed" away to unemployment and
the slums of urban centers by declining opportunities in the rural
areas? Much more empirical work needs to be done, but answers








Status and Preview / McPherson 13
to these questions are necessary for the formulation of appropriate
programs and development strategies.
Despite the importance of agriculture as indicated by its share
of total employment, gross domestic product, and export earnings
in tropical countries, its direct share in development assistance
from external sources (and usually domestic sources, as well) has
been relatively small. Agricultural loans of the World Bank (IBRD)
and the International Development Association (IDA) (1963-64,
20), from inception to June 30, 1964, in millions of United States
dollars were as follows:
Total Total all
Area agricultural purposes
Africa 65.4 1036.0
Asia and Near East 282.5 3235.2
Latin America 122.2 2077.7
Total 470.1 6348.9
Total agricultural loans amounted to 7.4 per cent of total loans for
all purposes. In 1962, of the official foreign aid committed for
development projects by the United States, United Kingdom,
France, Federal Republic of Germany, and IBRD-IDA, only 10 per
cent was allocated to food and agriculture (UN, 1964, 242); manu-
facturing and mining received 25 per cent, 20 per cent was com-
mitted to power, 30 per cent to transportation and communication,
10 per cent to social infrastructure, and 5 per cent to other
categories.
Some Other Features of Tropical Agriculture.-The tropical and
subtropical areas of the world are by no means homogeneous with
respect to environmental conditions. Short distances often mean
substantial contrasts in rainfall, topography, and other features.
However, it is of particular importance to note that these areas are
distinguished from the temperate zones by frost-free temperatures
(except at high altitudes), smaller seasonal variations in length
of day, and differences in soils.7 Thus, the "seasons" usually are a
matter of rainfall or cloud cover rather than length of day and
temperature variations. These differences from conditions in tem-
perate zones are particularly significant because they limit the
ability to obtain similar results from similar plants, animals, and
production practices; disease, pest, and weed control are especial-
ly difficult. Systems of farming vary from those considered to be








14 Economic Development of Tropical Agriculture
very primitive, where practices have changed very little over the
centuries, to those that employ quite modern technology. These
different systems may exist in close proximity, but the latter are
usually confined to export production although in some cases they
may also be found in the commercial agriculture near the larger
cities. By far, the most common systems are those in which very
little capital is employed in relation to labor. This, of course, is a
result of the character of the production possibilities and the
relatively low price of labor in relation to capital. In sparsely
populated areas, grazing of livestock or production of crops in a
shifting rotation are common systems. In the latter case, only small
acreages per family are cultivated in any one year, but the long
fallow period means that a large total acreage per family is re-
quired. Acreage per worker is quite low in the rice systems of the
densely populated areas.8 The data on farming systems tend to
support the hypothesis that output in the aggregate is likely to
expand in proportion to labor expansion-fixed proportions of land,
labor, and simple capital-when sufficient land is available. In the
absence of new and improved inputs, farmers are likely to shift
from one crop to another in accordance with production possibili-
ties in response to relative price changes. However, there is little
opportunity to change output in the aggregate in response to
changes in level of prices unless supplies of commercial inputs are
a major part of the system (McPherson, 1965).
In the tropical areas research and development of agriculture
have been limited mainly to export products, at least until after
World War II. High levels of productivity have been achieved in
tropical areas of developed countries, with bananas, cocoa, coffee,
palm oil, and other export crops in tropical countries, and with
food crops in Mexico in recent years. Thus, the higher levels of
productivity in temperate zones may very well be due to differ-
ences in research and development efforts rather than to differ-
ences in endowed resources (McPherson and Johnston, 1967).
The universities of Latin America, established a hundred years or
so before the first ones of the United States, only recently began
to work in research and education oriented toward the problems
of agriculture and rural people.
The lack of effective research, education, and development
organizations is very characteristic of tropical countries. The term
effective is emphasized because in many countries there are








Status and Preview / McPherson 15
numerous organizations. In Brazil, for example, there is no dearth
of planning activities, but implementation is a different matter
(Robock, 1963). The early situation in Pakistan probably is not
very different from circumstances in many other countries. "While
government policies have a clear and definite bias in favor of
development, the administrative system, wedded as it is to the
status quo in its approach, organization and procedures, tends to
pull in a different direction. We are of the view that in the
period immediately ahead the inadequacies of Pakistan's adminis-
trative machinery will operate as the most serious single impedi-
ment to the maximum economical use of the country's financial
and material resources" (Govt. of Pakistan, 1957, 91). A balance
between stability and flexibility of government is essential. A cer-
tain degree of stability is necessary in order to assure foresight
and the long-term investments in infrastructure and technological
development. On the other hand, the government must be suffi-
ciently flexible to accommodate changing conditions and to pro-
mote actions necessary for progress. Traditionally, governments
in tropical countries, with a few exceptions, have tended to be
categorized by rigidity or a high degree of instability.
Finally, product and input markets are often found to be im-
perfect even from a static viewpoint. On the other hand, much
more than improvements in the static sense is needed. Markets
and marketing firms can play a growth-generating role in develop-
ment (McPherson, 1965). Many of the inconsistencies found in
market policies arise from attempts to keep prices low in the
interests of urban consumers, while little or nothing is done to
increase supply.

PREVIEW OF SUBSEQUENT CHAPTERS

The primary purpose of the preceding sections of this introduc-
tory chapter was to summarize some of the main features in the
present status of tropical agriculture as related to economic devel-
opment and agricultural growth. The subsequent chapters deal in
depth with a number of these matters and present ideas with
respect to what might be done about them. This section presents
a very brief preview of the chapters that follow.
There is evidence of extensive existence of persistent population
pressure and relatively static production functions. Fei and Chiang








16 Economic Development of Tropical Agriculture
(Chapter 2), with respect to a theory of stagnation, show that two
characteristics of any economy, namely, "a persistent population
pressure, and the lack of technological progress," constitute a
sufficient condition for stagnation. The importance of agriculture
in terms of employment, contribution to gross domestic product
and to foreign exchange earnings has been emphasized, yet agri-
culture has often received a small share of the development
resources. Gaitskell (Chapter 3) explains the reasons for the "pref-
erence for industry" and then discusses "the case for complemen-
tary development of agriculture and industry" and the problem
of development strategy; conflict between growth rate and the
proportion of the population that shares in the gains is also
discussed.
Heady (Chapter 4) presents the following recipe for develop-
ment: "Lower prices and increase availability of resources, add
certainty and greater quantity to product prices, blend with knowl-
edge and a firm or tenure structure which relates input produc-
tivities appropriately with resource/product price ratios." Heady
also argues for higher priorities for agricultural development,
suggests appropriate guidelines for establishing priorities within
agriculture under different sets of conditions, and emphasizes the
need for checks on birth rates in connection with long-run policies.
Use of "excess agricultural capacity" of more advanced countries
to feed the low-income countries at present population growth
rates could provide only temporary relief. The long-run solution
is to develop the agricultural economies of the low-income coun-
tries.
King (Chapter 5) states that product market development in-
volves planning, implementing, and continuous evaluation and
revision. The simple model of price differences over time, space,
and form is suggested as a very effective analytical tool for evalu-
ating alternative strategies.
Glenn L. Johnson (Chapter 6) draws heavily from direct experi-
ence and observations in Nigeria in his discussion of factor (or
input) markets. A distinction is made between efficiency of oper-
ations within a given market structure and efficiency to be gained
through changes in the market structure. The biggest problem in
the operation of existing markets is deemed to be the governments'
policies, especially the heavy rates of taxation which kept farm
incomes low and distorted investments in agriculture. However,








Status and Preview / McPherson 17
restraints on development appear to fall mainly in the category of
structural problems. Needed structural changes involve the credit
market, land market, labor market, and development of new tech-
nology. With respect to the labor market, "This tendency to over-
pay governmental and business labor has combined with the gov-
ernments' heavy taxation on agricultural export crops to create
what appears to be a premature, mass exodus of labor from
agriculture."
In view of the fact that the export of agricultural commodities
plays such a major part in the economy of the tropical countries,
an analysis of one of the primary current issues is very much in
order. Harry G. Johnson (Chapter 7) discusses the topic of trade
preferences and developing countries, with particular reference to
the proposal for temporary trade preferences in industrial products
to be granted by the advanced countries. The respective contri-
butions that aid and trade can make to the promotion of economic
development are examined, and the case for and against trade
preferences for developing countries as a means of promoting
development, especially industrial exports of the less-developed
countries, is discussed. Johnson argues that preferences might have
a more powerful influence in promoting development than "con-
ventional wisdom" suggests. The conventional evaluation proce-
dure focuses wrongly on averages of the tariff rates applied to
commodities, and fails to consider the really relevant barrier-the
effective rates of protection of "value added" implicit in national
tariff schedules. However, protection policies pursued by the less-
developed countries may be sufficient barriers to their exports to
prevent their deriving much benefit from preferences granted by
the developed countries, unless major changes are made in their
exchange-rate and protective policies.
Langham (Chapter 8) illustrates the use and discusses the po-
tential and limitations of a dynamic linear programming model
for development planning and analysis at the farm level. The very
low growth potential in the absence of technological progress under
present conditions on a Maya Indian reservation in British Hon-
duras is also demonstrated.
Next, we turn to some area-oriented studies. Ruttan (Chapter
9), with regard to rice in Southeast Asia, argues that the yield
increases of the last decade and the yield differences among major
rice-producing areas within Southeast Asia at the present time








18 Economic Development of Tropical Agriculture
reflect primarily differences in the environmental conditions of
the areas (especially soil, season, water, and weather) rather than
differences in variety or cultural practices. Yet, there have been
significant changes in technology over the last decade and a half.
Implications are: lack of development of environmental control of
water (irrigation and drainage) and of crop diseases and pests
have prevented farmers from achieving yield potentials inherent
in existing varieties and will present an equally severe limitation
on future varieties designed to be even more sensitive to effective
environmental control, technical inputs, and management. "Thus,
the same public investment and institutional innovations required
to narrow the gap between typical and potential yields under
present circumstances will represent a necessary condition if intro-
duction of the new varieties is to be reflected in higher aggregate
yields." These inferences indicate that a failure to make adequate
public investment in irrigation and disease and pest control will
severely reduce returns from investment in research and develop-
ment on varietal and cultural practice improvements. Failure to
invest adequately in research and development will limit returns
from investment in irrigation and programs for the control of
diseases and pests. Thus, the strategy should be to move forward
on both fronts in order to reap the rewards of this complementary
relationship.
Gaitskell presents two additional area-oriented studies: one
covering the Indus Basin of West Pakistan (Chapter 10), and the
other dealing with Africa, south of the Sahara (Chapter 11). From
the standpoint of the size of these areas and the range of problems
and possibilities illustrated by them, these regions are of particular
interest to persons interested in the development of tropical agri-
culture. Gaitskell presents a lucid review of these two important
areas in terms of political, social, physical, technical, and economic
problems and possibilities with emphasis on development policies,
strategy, and organization. He offers both a critical review of the
past and positive proposals for the future.
Organizations, particularly in reference to development plan-
ning, are discussed by Gittinger (Chapter 12), who covers dis-
tinctive features of agriculture in low-income countries as related
to problems of development planning and policies. Green (Chap-
ter 13) provides a review of extensive experience with organiza-
tions for local development in Asia, Africa, and Latin America.








Status and Preview / McPherson 19
Particular attention is given to problems of organization at the
local level, to specialist support, and to staff training. It is sug-
gested that organizations at the local level should take account of
social and cultural units, enlist the active participation of local
people, be designed to use most effectively the very scarce tech-
nical competence with non-technical work given to those with less-
technical competence, and deal with the broad set of problems, in-
cluding but not limited to agriculture, faced by rural people.
Green's conclusions (Chapter 14) concerning advising on develop-
ment organization are: "The impracticability of merely copying
organizational forms and functions from any other country should
be obvious. Broad-scale organization analysis in depth is the sine
qua non of the organizational advisor. Capacity to comprehend
multiple aspects of existing 'wholes,' and to construct, if necessary,
new organizations which are functionally integrated with the
whole, or to reconstruct existing forms is the role of the organi-
zational advisor."
Finally, Coutu (Chapter 15) suggests some reasons for greater
United States university involvement abroad. He argues that
United States universities should play a more positive role in
defining their long-run goals and developing their international
dimension, rather than merely servicing programs planned outside
the university, and that continuity and sufficient staffing in depth
are essential. He concludes that the United States university has a
clear responsibility for greater international involvement, but the
history of past experience has not been outstanding. "However,
there are challenging opportunities for innovation and for service
by the United States universities as well as by those in the emerging
nations."
COUNTRIES INCLUDED IN SUBREGIONS
OF TABLES 1.1 AND 1.2
1. Central America and Caribbean: Cuba, Haiti, Guatemala, Dominican
Republic, El Salvador, Honduras, Jamaica, Nicaragua, Costa Rica, Panama,
Trinidad and Tobago, British Honduras, Puerto Rico, Windward Islands,
Leeward Islands, Bahamas, Bermuda, and Virgin Islands.
2. Other South America: Colombia, Peru, Chile, Venezuela, Ecuador,
Bolivia, Paraguay, British Guiana, Surinam, and French Guinea.
3. East Africa: Tanzania, Malami, Zambia, Rhodesia, Kenya, Malagasy
Republic, Uganda, Mozambique, Rwanda, Burundi, Somali, Mauritius, Re-
union, Seychelles, and French Somaliland.
4. West Central Africa: Nigeria, Congo (Leopoldville), Ghana, Angola,
Cameroon, Ivory Coast, Guinea, Sierra Leone, Togo, Liberia, Upper Volta,









20 Economic Development of Tropical Agriculture

Mali, Niger, Senegal, Chad, Dahomey, Central Africa Republic, Congo
(Brazzaville), Portuguese West Africa, Mauritania, Gabon, Gambia, and
Spanish West Africa.
5. North Africa: UAR (Egypt), Ethiopia, Sudan, Morocco, Algeria, Tunisia,
and Libya.
6. Other South Asia: Pakistan, Ceylon, Afghanistan, Nepal, Bhutan, and
Sikkim.
7. Other East Asia: Indonesia, Philippines, Thailand, Burma, Taiwan,
Malaysia, South Korea, South Vietnam, Cambodia, Hong Kong, Laos, Brunei,
Melanesia, Micronesia, Polynesia, and Ryukyu Islands.

NOTES
1. For other views and further discussion of definition and measurement
see Frankel (1952), Hicks (1940), Kuznets (1948), Kuznets (1947), Little
(1949), Nutter (1957), Kuznets (1956), and Usher (1963).
2. Calculated from data in UN (1964).
3. See Kirk and Nortman (1967) for a summary of policies and actions
taken in each of the countries.
4. For further discussion, see McPherson and Johnston (1967). Also, for
further discussion of manioc, in particular, see Jones (1957).
5. The "less-developed" countries are heavily weighted by, but not
limited to, tropical countries.
6. For a recent discussion of "surplus" agricultural labor and economic
development, see Paglin (1965) and references cited in that article.
7. For more detailed discussions, see McPherson and Johnston (1967), also
Bennett (1962).
8. Space does not permit detailed discussion of the major farming systems.
Selected references for further reading include: McPherson and Johnston
(1967), which includes a number of references on technical aspects of
tropical agriculture, McPherson (1965), Nye and Greenland (1960), Du-
mont (1957), Terra (1958, 1959), Jones (1959), Wickizer (1960), Reynders
(1961), Allan (1965), Crist (1964), Johnston (1958), Jones (1965), and
other recent articles on Africa in Food Research Institute Studies, Stanford
University.

LITERATURE CITED
ALLAN, W. 1965. The African husbandman. Barnes and Noble, N.Y.
BENNETT, MERRILL K. 1962. An agroclimatic mapping of Africa. Food Re-
search Institute Studies III(3): 195-216.
BROWN, LESTER R. 1965. Increasing world food output. USDA, ERS, Foreign
Regional Analysis Div., Foreign Agr. Econ. Rep. 25. Washington, D.C.
CRIST, R. E. 1964. Tropical subsistence agriculture in Latin America: some
neglected aspects and implications. Smithsonian Report for 1963 (Smith-
sonian Institution Publication 4586): 503-519.
DAVIS, KINGSLEY. 1956. The amazing decline of mortality in underdeveloped
areas. Am. Econ. Rev. XLVI(2): 305-318.
DUMONT, RENL. 1957. Types of rural economy. Frederick A. Praeger, N.Y.
FAO. 1965. The state of food and agriculture, 1965, review of the second
postwar decade. Food and Agr. Org. of the United Nations, Rome.
- 1966. Production Yearbook, 1965. Vol. 19, Rome.
FRANKEL, S. HERBERT. 1952. 'Psychic' and 'accounting' concepts of income
and welfare. Oxford Econ. Papers (1): 1-17.









Status and Preview / McPherson 21

GovT. OF PAKISTAN. 1957. The first five year plan. National Planning
Board. Govt. of Pakistan Press, Karachi.
HENDRIX, WILLIAM E. 1965. The experience of more rapidly developing
countries, p. 12-24. In Iowa State University Center for Agricultural and
Economic Development, Economic development of agriculture. Iowa State
Univ. Press, Ames.
HICKS, J. R. 1940. The valuation of the social income. Economic (New
Ser.) VII(May): 105-124.
IBRD AND IDA. 1963-64. Annual Report. Washington, D.C.
JOHNSTON, BRUCE F. 1958. The staple food economies of western tropical
Africa. Stanford Univ. Press, Stanford, Calif.
JONES, WILLIAM O. 1957. Manioc: an example of innovation in African
economies. Econ. Dev. and Cultural Change V(2): 97-117.
1959. Manioc in Africa. Stanford Univ. Press, Stanford, Calif.
1965. Environment, technical knowledge and economic development
in tropical Africa. Food Research Institute Studies V(2): 101-116.
KIRK, DUDLEY, and NORTMAN, DOROTHY. 1967. Population policies in
developing countries. Economic Development and Cultural Change 15(2)
part 1: 129-142.
KUZNETS, SIMON. 1947. Measurement of economic growth, p. 10-34. In
Economic growth-a symposium. J. Econ. Hist. Supplement VII.
1948. On the valuation of social income-reflections on Professor
Hicks' article. Economic (New Ser.) XV(Feb.): 1-16; (May): 116-131.
1956. Some conceptual problems of measurement. Econ. Dev. and
Cultural Change V(1): 6-9. Reprinted with omissions, p. 237-241. In
Bernard Okun and Richard W. Richardson [eds.], Studies in economic
development. 1961. Holt, Rinehart and Winston, N.Y.
LEWIS, W. ARTHUR. 1955. The theory of economic growth. Richard D.
Irwin, Inc., Homewood, Ill.
LITTLE, I. M. D. 1949. The valuation of social income. Economic (New
Ser.) XVI(Feb.): 11-26.
MCPHERSON, W. W. 1965. Input markets and economic development, p. 99-
117. In Iowa State University Center for Agricultural and Economic
Development, Economic development of agriculture. Iowa State Univ.
Press, Ames.
MCPHERSON, W. W., and JOHNSTON, BRUCE F. 1967. Distinctive features
of agricultural development in the tropics, p. 184-230. In Herman M.
Southworth and Bruce F. Johnston [eds.], Agricultural development and
economic growth. Cornell Univ. Press, Ithaca, N.Y.
MILLIKAN, MAX F. 1956. Statement, p. 13-29. In Hearings before the
subcommittee on Foreign Economic Policy of the Joint Committee on the
Economic Report, 84th Cong. 1st. Sess., Nov. 9-17, 1955. Washington, D.C.
NUTTER, G. WARREN. 1957. On measuring economic growth. J. Political
Econ. LXV(1): 51-63. Reprinted 1963, p. 25-38. In Theodore Morgan,
George W. Betz, and N. K. Choudhry [eds.], Readings in economic
development. Wadsworth Publishing Co., Belmont, Calif.
NYE, P. H., and GREENLAND, D. J. 1960. The soil under shifting cultivation.
Tech. Communication No. 51, Commonwealth Agric. Bureaux. Farnham
Royal, Bucks, England.
PAGLIN, MORTON. 1965. "Surplus" agricultural labor and development: facts
and theories. Am. Econ. Rev. LV(4): 815-834.
REYNDERS, J. J. 1961. Some remarks about shifting cultivation in Netherlands
New Guinea. Netherlands J. Agr. Sci. 9(1): 36-40.









22 Economic Development of Tropical Agriculture

ROBOCK, STEFAN H. 1963. Brazil's developing northeast: a study of regional
planning and foreign aid. The Brookings Institution, Washington, D.C.
SCHUMPETER, JOSEPH A. 1947. Theoretical problems, p. 1-9. In Economic
growth-a symposium. J. Econ. Hist. Supplement VII.
TERRA, G. J. A. 1958. Farm systems in Southeast Asia. Netherlands J. Agr.
Sci. 6(3): 157-182.
- 1959. Agriculture in economically underdeveloped countries, especially
in equatorial and subtropical regions. Netherlands J. Agr. Sci. 7(Aug.):
216-231.
UN. 1964. World economic survey, 1963. Part I, trade and development:
trends, needs, and policies. N.Y.
1965. Statistical yearbook, 1964. N.Y.
1966a Demographic yearbook, 1965. N.Y.
1966b. Statistical yearbook, 1965. N.Y.
1966c. Yearbook of national accounts statistics, 1965. N.Y.
USDA. 1964. The world food budget, 1970. For. Agr. Econ. Rep. 19. ERS,
For. Reg. Analysis Div., Washington, D.C.
- 1965. Changes in agriculture in 26 developing nations, 1948 to 1963.
ERS, For. Agr. Econ. Rep. 27. Washington, D.C.
-- 1967. The world agricultural situation, review of 1966 and outlook
for 1967. For. Agr. Econ. Rep. 33. Washington, D.C.
USHER, DAN. 1963. The transport bias in comparisons of national income.
Economic (New Ser.) 30(118): 140-158.
WICKIZER, V. D. 1960. The smallholder in tropical export-crop production.
Stanford Univ., Food Research Institute Studies. I(1): 49-99.

ADDITIONAL REFERENCES
GREEN, L. P., and FAIR, T. J. D. 1962. Development in Africa. Witwatersrand
Univ. Press, Johannesburg, South Africa.
KAMARCK, ANDREW M. 1967. The economics of African development.
Frederick A. Praeger, N.Y.
LEWIS, W. ARTHUR. 1950. Developing colonial agriculture. Tropical Agr.
XXVII(4-6, Apr.-June): 63-73.
MELLOR, JOHN W. 1966. The economics of agricultural development. Cornell
Univ. Press, Ithaca, N.Y.
MOSHER, A. T. 1966. Getting agriculture moving. Frederick A. Praeger,
N.Y. for the Agri. Dev. Council, N.Y.
SCHULTZ, THEODORE W. 1964. Transforming traditional agriculture. Yale
Univ. Press, New Haven, Conn.
WATERSON, ALBERT. 1985. Development planning, lessons of experience.
The Johns Hopkins Press, Baltimore, Md.











2


The Fundamental Cause of
Economic Stagnation




John C. H. Fei
Alpha C. Chiang


I. INTRODUCTION
economic stagnation is one of the most time-honored problems
that has occupied the attention of economists. Almost at the very
inception of the study of economics, students of the subject were
concerned about the eventuality of the economic system coming to
a halt at some point in the future. In recent years, the acute interest
in the problem of economic growth, in both the developed and the
developing nations, reflects a resurgence of the same type of con-
cern about stagnation, despite the fact that the latter-day econom-
ists seem to prefer a positive statement of the problem (promotion
of growth) to a negative one (avoidance of stagnation). This prob-
lem has naturally also come to the forefront of the attention of agri-
cultural economists, as a consequence of rapidly growing popula-
tions and lagging food supplies and agricultural growth in many of
the low-income countries. It is the purpose of this paper to inquire
into the fundamental cause of economic stagnation.
THE MEANING OF STAGNATION
Although the concept of stagnation has had a prominent place in
the history of economics, it has by no means acquired a universally
accepted definition. In the classical theory, for instance, stagnation








24 Economic Development of Tropical Agriculture

refers primarily to the cessation of the process of capital accumula-
tion, although the other key variables in the economy will also cease
to grow as a consequence. However, to a modern economist, the
term stagnation may principally convey the idea of the failure of the
economy to achieve steady increases in its gross national product
(GNP). In fact, a multitude of other interpretations may be assigned
to the term as well, and in view of this, we must first adopt a precise
definition before we can embark upon a rigorous inquiry into the
fundamental cause of economic stagnation.
In this regard, two points may be noted. First, the notion of stag-
nation is relevant mainly in the long run. So, we shall be concerned
with the tendencies that will manifest themselves in the distant
future. Secondly, since the objective of all economic activities is, in
the long run, to raise the consumption standard in the economy, the
concept of stagnation should in the final analysis be defined in terms
of consumption more than anything else. That is, it should be prin-
cipally viewed as a welfare concept. These considerations lead us
directly to this definition: An economy is stagnant if it is incapable
of achieving a sustained and unbounded increase in its per capital
consumption stream through time.
In giving the concept of stagnation a distinctly welfare-oriented
definition, we are by no means running counter to the classical view
of stagnation (with emphasis on capital accumulation) or the more
modern view (with emphasis on GNP); we are simply focusing at-
tention on the ultimate implication of both of these views. For, if an
economy cannot raise its consumption standard at all, or can only
raise it within limits in the long run, it surely does not qualify for
the descriptive label "progressive" or "non-stagnant," regardless of
the situation with respect to capital accumulation and/or the
level of its GNP. Conversely, as long as an economy is capable of
achieving sustained and unbounded increases in the consumption
standard, then, regardless of the status of capital formation and
GNP, it must not be considered stagnant.
A GEOMETRIC INTERPRETATION
The two words sustained and unbounded in the above definition
are of crucial importance; let us amplify on their meaning graphic-
ally. By plotting per capital consumption, C*, against time, t, as in
Figure 2.1a, we may consider the curves A, B, L,, L,, and L, as
exemplary time paths of the long-run per capital consumption stand-








Cause of Stagnation / Fei and Chiang 25

ard. The last three of these, being horizontal straight lines, show no
increases whatever in C* through time. Curve B, on the other hand,
does exhibit a sustained increase in C*; i.e., we find dC*/dt>0
(positive slope) everywhere on the curve. That increase, however,
is not unbounded, because curve B approaches L1 asymptotically.
The only time path in Figure 2.1a showing a sustained as well as
unbounded increase in C* is curve A. On that curve, not only is
dC*/dt positive throughout (hence, sustained), but C* can exceed
any arbitrary number we choose if given sufficient time to grow
(hence, unbounded). Thus, under our definition, a non-stagnant
economy should be characterized by a time path of consumption
standard such as curve A.


Q*=f(K, 1)


I .K* ( = K*)


0 K; K: K \ O t,
FIGURE 2.1c FIGURE 2.1a


1)-0(c*)


FIGURE 2.1d








26 Economic Development of Tropical Agriculture
Note that, according to our definition, the level or magnitude of
the per capital consumption stream is, as such, irrelevant to the no-
tion of stagnation. An economy is to be considered stagnant even if
it can attain, and maintain, a "high" level of C*, such as indicated
by the L1 line. Indeed, it is even possible for a stagnant economy to
achieve a sustained increase in C*, as exemplified by curve B, pro-
vided that C* will converge to some fixed magnitude-for then the
increment in C* will become quantitatively negligible in the long
run. Such a definition is perfectly compatible with the traditional
view of stagnation, which stresses only the long-run inevitability of
the cessation in economic progress.
II. A THEORY OF STAGNATION
The aim of a rigorous theory of economic stagnation is to uncover
the fundamental structural characteristics of an economy which
render a sustained and unbounded C* path impossible. That is, we
must prove an impossibility thorem to the effect that whenever a
particular set of structural characteristics is present in an economy,
then a path such as curve A cannot possibly exist.
In the history of economic thinking, a variety of factors have been
proposed as explanations for the phenomenon of stagnation. The
classical school, for instance, explained stagnation on the strength
of the fixity of land, in combination with the forces of the law of
diminishing returns, a savings behavior based on the classical theory
of distribution, and an endogenous demographic theory linking pop-
ulation growth to the wage rate. In the modern literature on under-
developed countries, one finds as explanations of stagnation of such
countries not only many economic factors, but also a host of cultur-
al, political, and other non-economic forces found in those econ-
omies. From among such explanations, two structural characteristics
can be singled out as being fundamental, in the sense that, together,
they constitute a sufficient condition for stagnation. These two char-
acteristics are: a persistent population pressure and the lack of tech-
nological process.

THE FRAMEWORK
To examine this idea rigorously, let us assume a static production
function Q =f(K, L) of the neoclassical type, with positive mar-
ginal products (fK > 0, fL > 0), diminishing returns (fKK < 0,







Cause of Stagnation / Fei and Chiang


fLL < 0), and constant returns to scale. Let the labor force L
(identified in this paper with the population) be growing at a con-
stant rate A. Since the output Q at any point in time is divided into
consumption C (which determines the per capital consumption
standard C* C/L) and investment I (which determines the rate
of growth of capital I/K), we may write

(1) Q = f(K, L) [production function]
(2) Q C + I [division of total output]
dK/dt __
(3) K [rate of growth of capital]
(3) K K

(4) TL1 dL/dt X [rate of growth of population].
L
Here we have four equations in five variables (Q, K, L, C, I). When
a savings rule is added, the system will become closed;lf as they
stand, however, these four equations constitute a savings-rule-free
system.
Because of the assumption of constant returns to scale, we can
rewrite (1) in the form of Q* = f(K*, 1), where Q* = Q/L is
output per head (average product of labor), and K* -K/L is
capital per head (capital-labor ratio). Moreover, by dividing (2)
throughout by L, we can obtain
Q* = C" + I" = C* + qK K [by (3)].
Hence, the per capital consumption C* can be expressed as
(5) C* = f(K*, 1)- 4KK*.
This equation, central to the present discussion, admits of an easy
graphic interpretation.
In Figure 2.1b where the horizontal axis measures the capital-
labor ratio, K*, the output per head Q* = f(K*, 1) can be repre-
sented by the positively-sloped curve OMR which is concave from
below. For any given constant value of iqK (rate of growth of capi-
tal), the RKK* term in (5) plots as a straight line with slope equal
to iVK,as exemplified by the line ONR. By virtue of (5), the verti-
cal gap between the two curves at any level of K* measures the
consumption per head C*, and when duly transplotted into the ver-
tically aligned Figure 2.1c, such vertical gaps give rise to the in-
fNotes for this chapter begin on page 44.








28 Economic Development of Tropical Agriculture
verse-U-shaped C* curve. Of course, given a lower value ofTlK,
line ONR must shift to a less steep position (such as OR'), and as a
consequence a higher C* curve will result.

THE VON NEUMANN STATES AND THE GOLDEN RULE OF ACCUMULATION
In the special event that the value of %K is exactly equal to the
constant population growth rate A:
(6) 4KX=L=k
the capital-labor ratio K* will remain stationary through time, so
that there will be neither capital deepening nor capital shallowing.
Such a state of affairs is known as a von Neumann state. The reader
will note that, in a von Neumann state, a specific rule of savings is
implied; namely, S ( = I) = AK, for only then will we find q= X.
The constancy of K* characterizes a von Neumann state, but
since K* can remain constant at various levels, there are various
von Neumann states, each associated with a particular constant
value of K*. If the ONR line in Figure 2.1b is assumed to satisfy
(6), i.e., if the slope of ONR is A, then we have constancy in K*,
and each value of K* on the horizontal axis corresponds to a distinct
von Neumann state, and the consumption standard pertaining to
each von Neumann state can be read from the C* curve in Figure
2.1c. If K* is constant at the level of Kt, for example, the con-
sumption standard, also constant in the von Neumann state, will be
the height of the point E2, and the time path of C* will be depicted
by line L. in Figure 2.1a. Similarly, the capital-labor ratio Kf cor-
responds to the time path La.
According to the well-known "golden-rule theorem" (Phelps,
1961 and Robinson, 1962) there exists among all the von Neumann
states one that yields the maximum consumption standard. In Fig-
ure 2.1c, the maximal value of CO is C*, attained when the value
of K* is K ; in terms of Figure 2.1a, the corresponding time path
is line L1. To attain Kt (and hence, CD), the economy must adopt
the so-called golden rule of accumulation, namely, to set the rate of
growth of capital equal to the marginal product of capital:
(7) 1= fK.
The rationale behind this rule can be explained with the help of
Figure 2.1b. To maximize the vertical gap between the Q* and I*
curves, we must find the value of KM such that the slope of the Q*
curve and the slope of the I* curve are identical. This condition is








Cause of Stagnation / Fei and Chiang 29
satisfied at KO where the tangential line PM is parallel to line ONR,
giving MN = C* as the maximum value of C*. Since the slope of Q*
curve measures the marginal product of capital,2 and the slope of
I* curve is qK, the golden rule must indeed take the form of (7).
It is easily verifiable that, under the golden rule, the consumption
standard, CQ must be equal to the marginal product of labor, fL.
For, by Euler's Theorem, we have
Q = fKK+fLL.
Thus, after dividing through by L, we can write
f = Q*-fKK* = Q*-I [by (7) and (3)].
In Figure 2.1b, this means that the golden rule will give us

fr = distance K*M minus distance K*N = C*.
(It may be noted that, since PM is parallel to ON, fL can be graph-
ically represented by the distance OP as well.) Consequently, the
golden rule of accumulation is seen to imply the so-called classical
savings rule, namely, that all the competitive wages be consumed,
whereas all the competitive profits be saved and invested:
(8) C = frL and I( = S) =fKK.
When (8) is satisfied, we have consumption standard C/L = fL, and
growth rate of capital I/K = fKI as shown in (7).
To sum up: (a) when capital and labor are growing at the same
rate, by fulfilling condition (6) which implies a von Neumann
savings rule, a von Neumann state will result, and (b) the particu-
lar von Neumann state which satisfies the golden rule (7)--or,
what amounts to the same thing, the classical savings rule (8)-
yields the maximum per capital consumption standard among all
possible von Neumann states.3 It follows that, in the consumption-
maximizing von Neumann state, both the von Neumann savings
rule and the classical savings rule are satisfied. That is to say, the
two savings rules coincide, and we have '?K= fK = L = A. These
notions are the analytical tools which we shall use to prove our
impossibility theorem.
THE IMPOSSIBILITY THEOREM
The basic theorem we intend to prove is that, regardless of the
savings rule adopted in the economy, economic stagnation is in-
evitable when a persistent population pressure exists along with a








30 Economic Development of Tropical Agriculture
static production function; i.e., the savings-rule-free system repre-
sented by Equations (1) to (4) cannot possibly give rise to a
sustained and unbounded increase in C*.
Let us start by postulating a growth path of C* such as curve A
in Figure 2.1a. This curve is monotonically increasing and un-
bounded, and hence, must contain a point (e.g., point F) such that
all the points on the curve beyond F will lie entirely above line L1.
That is, C*(t)> C* for all t>tF in Figure 2.1a. With reference to
such a point F, we may ask: Is there some constant value which
is consistent with the consumption standard associated with F(C )?
The answer is yes, but such anNKvalue must be less than the popu-
lation growth rate X. This is because if the capital growth rate is
equal to A, so that a von Neumann state obtains, the consumption
standard can at most be C < C*, whereas if the capital growth rate
exceeds A, the I* curve in Figure 2.1b must become steeper than
line ONR, and hence, by narrowing the vertical gap between the Q*
and I* curves, must shift the C* curve downward from the position
shown in Figure 2.1c. On the other hand, if the capital growth rate
is less than A, a less steep I* curve (such as OR') will result, and
the C* curve will shift upward.
Although a sufficiently low level of 'K will make the consumption
standard CO attainable, such a situation will involve a continual
process of capital shallowing, since qK falls short of qL=A in this
case. That is, K* must decrease through time. Indeed, capital shal-
lowing will occur not only at F, but also at all points beyond F.
Now, consider two possible outcomes regarding the value of K*.
First, K* may finally coverage to some positive value K* >0. In that
event, the economy will ultimately grow in the manner of a von
Neumann state; if so, curve A will not be able to rise above the
horizontal line L1 in Figure 2.1a. Secondly, K* may continue to de-
crease all the way to zero. If so, an ever-rising consumption stream
obviously cannot be maintained. Thus, the growth path A is contra-
dicted in either of these two possible cases, proving the following:

Theorem: Under assumptions (1) to (4), all monotonically
increasing time series of C* will be bounded by C*.

It is to be noted that although the proof of the above theorem is
based on the four equations (1) to (4), only (1) and (4) actually
represent behavioral assumptions. Thus, the economic interpretation
of the theorem is that, as long as the technology of production (sub-








Cause of Stagnation / Fei and Chiang 31
ject to diminishing returns and constant returns to scale) remains
static, and as long as population pressure is persistent, the best per
capital consumption stream the economy can hope for in the long
run is the type exemplified by curve B in Figure 2.1a. Under our
definition, such an economy is stagnant.

III. A RECONSIDERATION OF THE
CLASSICAL THEORY OF STAGNATION

From the preceding discussion, it is clear that the twin conditions
of static technology and persistent population growth are sufficient
cause of stagnation. This suggests that, when the above two condi-
tions are present, many other explanatory factors that have been
proposed-be they economic, cultural, social, or political-may be
only incidental, or even redundant. It is also possible that these
other factors may become relevant primarily by operating through
the two factors enumerated in our theorem. To demonstrate the
point in question, let us briefly examine the classical theory of stag-
nation as an illustration.

THE CLASSICAL THEORY
The classical theory, as embodied in the writings of such classic-
ists as Ricardo, McCulloch, and Senior,4 envisages the phenomenon
of stagnation as a consequence principally of the following attrib-
utes of an economy: (a) a production process involving three in-
puts: capital K, labor L, and land N, with emphasis on the fact that
land is fixed; (b) a static technology with diminishing returns; (c)
a rule of savings based on the Ricardian theory of income distribu-
tion and the assumption that all profits are saved and all other in-
comes are consumed; and (d) an endogenous theory of population
growth, in which the population growth rate is an increasing or non-
decreasing function of real wage or consumption per head (Iron
Law of Wages). It is possible to show, however, that the fixity of
land, the particular rule of savings assumed, and the endogenous
theory of population growth are all nonessential as far as causation
of economic stagnation is concerned.

THE ANALYSIS
The fixity-of-land attribute is generally believed to be the most
important bottleneck factor responsible for stagnation. Let us see








32 Economic Development of Tropical Agriculture
what happens when this attribute is deleted from the model. The
classical production function takes the form of

Q=F(K,L,N) withN=N.

When the fixity-of-land assumption (N = N) is relaxed as much as
it can be relaxed, we have the opposite situation of unlimited land.
In that case, since land becomes a free good, the above production
function reduces to the form of (1).
The model which we investigated earlier, Equations (1) to (4),
may now be viewed as a modified version of the classical model in
which: (a) land is free instead of fixed; (b) the population growth
rate is constant rather than a function of the real wage; and (c) the
savings rule is unspecified. Our impossibility theorem then leads
immediately to the conclusion that stagnation is unavoidable even
when the amount of land is infinite. Hence, the classical fixity-of-
land explanation is nonessential. Furthermore, the savings-rule-free
nature of our impossibility theorem clearly implies that the particu-
lar savings rule of the classical model is also irrelevant. Finally,
inasmuch as a constant population growth rate already implies the
impossibility of a sustained and unbounded increase in the con-
sumption standard, the effect of the Iron Law of Wages is merely
to strengthen the force of stagnation by making it more difficult to
increase per capital consumption.5 This means that the Iron Law
of Wages is also a dispensable explanatory factor.

IV. GENERALIZATION TO A
TWO-SECTOR ECONOMY
The impossibility theorem of Section II was proved in the frame-
work of a one-sector economy. In the present section, we shall at-
tempt to show that the impossibility theorem holds even when the
technological horizon is broadened to include differentiated pro-
duction functions in different sectors of the economy. For simplicity,
however, we shall restrict ourselves to a two-sector framework.
A somewhat more general mathematical proof is given in the
Appendix. Here we shall rely mainly on the graphic method.
THE TWO SECTORS
Let there be in the economy a consumer-goods sector and an in-
vestment-goods sector, each with its own production function. In








Cause of Stagnation / Fei and Chiang 33
every time period, given the total amount of capital K and labor L,
the economy must allocate the two inputs between the two sectors
in some way. The allocation may be depicted by means of the
familiar Edgeworth box OABC in Figure 2.2, where OA and OC
are, respectively, the total available L and K. By plotting the iso-
quants for the investment-goods industry (such as io, i,) with origin
at point 0, and the isoquants for the consumer-goods industry (such
as Co, ci) with origin at point B, we can obtain an allocation curve
(contract curve) OPRB. If point P is a typical point on the alloca-
consumer -
C B goods sector


Capital

iM



I
- --- -- - --- - -

investment -
goods sector
0 Labor
N
FIGURE 2.2
tion curve, the slope of the tangential line MN to the isoquants at
P (io and Co) is the factor-price ratio (wage/profit). Similarly, at
point R, the factor-price ratio is equal to the slope of line CR.
At any point in time, the available quantities of K and L in the
economy will specify the dimensions of the Edgeworth box, and the
production functions in the two sectors (as reflected in the two sets
of isoquants) will determine an allocation curve. The choice of a
rule of savings will then fix an "equilibrium point" on the allocation
curve, thereby specifying the output of consumer goods C (hence,
the consumption standard C*) and the output of investment goods
I (hence, the capital available for the next point in time). If popu-
lation, L, is assumed to be growing at a given constant rate A, as in
Section II, then the available labor for the next point in time will








84 Economic Development of Tropical Agriculture
also become known. In this manner, the dimensions of a new
Edgeworth box can be found. Thus, as soon as a definite savings
rule is chosen, the entire growth path of the economy becomes de-
terminate, and that path can be represented by a sequence of
Edgeworth boxes.
It is our objective to prove that, given static production functions
in both sectors and a constant population growth rate, the same
impossibility theorem holds in the present context. That is, regard-
less of the savings rule adopted through time, any monotonically

C B,



Capital








0 Labor A, A, A, A.
FIcuRE 2.3

increasing per capital consumption stream C" will always be bound-
ed by some fixed magnitude. For this proof, we shall again employ
as an analytical device the notion of von Neumann states.

THE VON NEUMANN SAVINGS RULE
In the present context, a von Neumann state is defined as a
growth situation characterized by the constancy of K*-the factor-
endowment ratio-for the economy as a whole, i.e., by -'q = qL = A.
Since K and L will grow at the same rate, the sequence of Edge-
worth boxes pertaining to a von Neumann state must share a com-
mon diagonal, as exemplified by the boxes OA1B1C,, OAB2C2,
OA ,B,C,, ... in Figure 2.3.
As before, a von Neumann state implies a specific savings rule,
namely that which enables the economy to maintain the same K* at
a given population growth rate. The observance of the von Neumann
savings rule will fix a particular point on the allocation curve of







Cause of Stagnation / Fei and Chiang 35
each box. This is illustrated in Figure 2.3 by the points P1, Ps, Pa,
and P4, which respectively lie on the allocation curves of the suc-
cessive boxes of the von Neumann state depicted. It should be
noted that the sequence of points P1, P2, ... must lie on the same
straight line OP, and that the lines BPY, B2P, must be parallel.
These facts signify that the input ratio in the investment-goods
sector remains the same in all boxes, and so does the input ratio in
the consumer-goods sector.6 In short, any larger box in a von Neu-
mann state is just a "blow up" of any smaller box. For example,
referring to the first two boxes OA1B1C, and OA2BzC2, the values
of the following ratios are all identical: OA2/OA1 (population mul-
tiple), OC,/OC1 (capital multiple), OP2/OP, (investment-goods
output multiple), and B2P2/B1P1 (consumer-goods output multiple).
It is then clear that, in a von Neumann state, a constant level of C*
is also maintained through time.
In the two-sector model, therefore, each von Neumann state is
(as before) characterized by a fixed K*, leading to a particular
constant value of C*. It will be our next task to show that the
relationship between C* and K* can again be depicted by an in-
verse-U-shaped curve similar to the one in Figure 2.1c; i.e., the
golden-rule theorem of Section II can be generalized to the two-
sector context.
THE CLASSICAL SAVINGS RULE
The golden-rule theorem of Section II specifies that, among all
the von Neumann states, the one which satisfies the classical savings
rule-that all competitive profits be saved and invested-yields the
maximum C*. The choice of that savings rule entails, in the one-
sector model, the search for the capital-labor ratio K* in Figure
2.lb. What does the adoption of the classical savings rule mean in
the two-sector framework?
Since all competitive profits are to be saved (and invested) under
this rule, the total output of investment goods (new capital) must
have the same exchange value as the total competitive profit in-
come in both sectors. Equivalently, the exchange value of the wage
income in the investment-goods sector must be identical with that
of the profit income in the consumer-goods sector. In terms of
Figure 2.2, the fulfillment of the classical savings rule will lead us
to point R on the allocation curve, which has the property that the
tangential line CR passes through the upper-left corner of the box.








36 Economic Development of Tropical Agriculture
To see why this is so, let us take a typical point P on the allocation
curve, for which the tangential line MN (together with the horizon-
tal line UV through point P) delineates two distances labelled X
and Y on the two vertical sides of the box. Since the slope of MN
is the factor-price ratio, the wage income of UP units of labor in the
investment-goods sector has an exchange value of X units of capital.
On the other hand, the profit income of BV units of capital in the
consumer-goods sector has an exchange value of Y units of capital.
To satisfy the classical savings rule, it is necessary that X=Y. This
latter condition is satisfied only by point R, which gives the result
that X'=Y'. This proves our claim. A point such as R may be re-
ferred to as the "classical allocation point."
Given an Edgeworth box and a population growth rate A, the
output of investment goods called for under the classical savings
rule may or may not be equal to that required by the von Neumann
savings rule. If, for example, the output of capital goods required
by the von Neumann savings rule is io units, which is less than ii
units as determined by the classical savings rule at point R, then
the von Neumann allocation point will be at the lower point P.

THE GOLDEN-RULE THEOREM GENERALIZED
To generalize the golden-rule theorem to the two-sector context,
it needs to be demonstrated that, among all the von Neumann
states, the one in which point P (von Neumann allocation point)
and point R (classical allocation point) coincide will yield the high-
est consumption standard.
To begin with, let us prove the existence of a von Neumann state
in which points P and R do coincide, i.e., a von Neumann state in
which the classical savings rule does prevail. In Figure 2.4, let the
isoquant map for investment goods be given. If the size of capital
stock at time t is K, we can fix the point C on the vertical axis as
the upper-left corner of any Edgeworth box we intend to draw.
Now, with a population growth rate A, the von Neumann_savings
rule requires the output of investment goods to be io=AK units;
this will uniquely specify the isoquant labelled io as relevant for the
von Neumann state. It is obvious that we can always construct a
tangential line to isoquant io that passes through the point C. In
Figure 2.4, the point of tangency occurs at P. We are of course not
yet certain that point P will lie on the allocation curve of some
Edgeworth box. However, it is easy to show that it indeed will. By








Cause of Stagnation / Fei and Chiang 37
keeping the capital stock constant at K, while varying the labor
endowment, we can construct an infinite number of boxes with OC
as the common left side, although only two-OABC and OA'B'C-
are actually shown. Inasmuch as the slope of the isoquants of the
consumer-goods sector varies continuously from point to point, it is
clear that, when viewed from a point of origin lying somewhere on
the line CBB', there must be an input ratio in the consumer-goods
sector at which the slope of the consumer-goods isoquants will be

c --------------- B B'








P D

/P'
F /
/ / N/
C0 C o c









O A A'
FIGURE 2.4
equal to the slope of line CP. Let that input ratio be indicated by
the slope of line BP; then we. can take point B as the upper-right
corer of our box. In that case, we shall find the isoquant Co tan-
gential to io at P, and point P must be a point on the allocation
curve of box OABC. If that input ratio had been different, then we
would have obtained another point on the line CBB' as the upper-
right corner of the desired box. The conclusion is that point P must
lie on the allocation curve of some box among the infinite number
of them that we can draw. In the present case of the box OABC,
point P is at once the classical allocation point (its tangential line
CP passes through the upper-left corner of the box) and the von
Neumann allocation point (it lies on the isoquant io==AK). This
completes the existence proof.








38 Economic Development of Tropical Agriculture
It remains to show that the consumption standard of the box
OABC is higher than that of any other box with the same amount
of capital K, such as OA'B'C.' For this purpose, let us:
(a) construct a parallelogram B'BPD, thus defining a point D;
(b) draw a straight line MN through D, parallel to CE;
(c) extend line B'D to intersect CE at point F;
(d) draw the consumer-goods isoquants c' and c" (with origin
at B') passing through points D and F, respectively;
(e) let the io isoquant intersect the allocation curve OB' of box
OA'B'C at point P', thus pinpointing P' as the von Neumann allo-
cation point of box OA'B'C.
Then we may reason as follows: by the parallelogram construc-
tion B'BPD, the c' isoquant is merely a transplant of the Co isoquant
when the origin is shifted from B to B'. Hence, the slope of c' at D
is identical with the slope of co at P. Furthermore, by the assumption
of constant returns to scale, the slope of c" at F is the same as the
slope of c' at D, because-points D and F lie on the same ray emana-
ting from the origin B'. Thus, the isoquant c' is tangential to MN at
D, and c" is tangential to CE at F. Now, the capital-goods isoquant,
io, and the consumer-goods isoquant, c", obviously cannot be tan-
gential to each other, as they are in fact tangential to the same
straight line, CE, at two different points, P and F. The point P'-
the intersection between io and the allocation curve of the box
OA'B'C-must accordingly be located to the northeast of c"; i.e.,
P' must lie on a consumer-goods isoquant with a smaller output than
c". However, in view of the fact that PBC and FB'C are two sim-
ilar triangles, we have BP/CB=B'F/CB'. This means-recalling the
assumption of constant returns to scale-that, in order to maintain
the per capital consumption standard of box OABC, namely co/CB,
the consumer-goods output in box OA'B'C should be set at c" units
(see point F), in which case the per capital consumption standard
will be c"/CB' (=co/CB). Since P' involves a lower consumer-
goods output than point F, however, P' must entail an inferior con-
sumption standard to that of point P. This completes the proof of
the two-sector version of the golden-rule theorem: The von Neu-
mann state in which the classical savings rule prevails, as exempli-
fied by box OABC, is the one with the highest consumption standard
C*.








Cause of Stagnation / Fei and Chiang 39
THE IMPOSSIBILITY THEOREM
The fact that one particular von Neumann state, with a specific
value of K*, is associated with the maximum C* attainable in all
von Neumann states in the two-sector economy means that, when
C* is plotted against K*, we will again obtain an inverse-U-shaped
C* curve similar to the one in Figure 2.1c. Then, by the same argu-
ment employed in Section II, the impossibility theorem there stated
can be shown to apply with equal force to the two-sector model.


V. CONCLUSION

In this chapter, we have presented a theory of economic stagna-
tion in the form of an impossibility theorem. Specifically, it has been
demonstrated that when a static technology subject to the law of
diminishing returns is coupled with a persistent population pres-
sure, economic stagnation is bound to result, in the sense that per
capital consumption standard cannot rise in an unbounded manner.
This theorem was proved first for the case of a one-sector economy,
and then generalized to the two-sector framework. Of course, we
have not given specific consideration to the more complicated case
of an economy with more than two sectors, but it would seem in-
tuitively clear that the same impossibility theorem will remain valid
even then.
Since a static production function and a persistent population
pressure are sufficient cause for economic stagnation, it follows that,
in order to enjoy economic progress, it is necessary to have either a
steady improvement in technology, or population control, or both.
This constitutes the long-run policy implication of our analysis. In
this connection, it should be noted that even a once-and-for-all
change in technology would be incapable of preventing stagnation,
for as soon as such a technological change is completed, the econ-
omy will simply find itself in a new milieu of static technology.
Rather, what is needed is a continual process of technological im-
provement over time, and hence, a continual upward shift of the
production function.
APPENDIX
In this appendix, we shall prove a theorem which is slightly more
general than the golden-rule theorem of Section IV. For a two-








40 Economic Development of Tropical Agriculture
sector economy of the neoclassical type, let the two commodities be
an industrial good (first commodity) and an agricultural good (sec-
ond commodity). If K and L represent capital stock and labor force
for the economy as a whole, the defining property of an Edgeworth
box is:

(Ala) I = ft) (K1, L1) [industrial production function]
(Alb) Q= f(2) (K2, L2) [agricultural production function]
(Alc) K- K1 +K2 [allocation of capital]
(Ald) L _L +L, [allocation of labor]
fL() f(2)
(Ale) f) I [optimum allocation condition],
fVC(1) f (2)
where (Ale) stipulates the equality of the marginal rates of techni-
cal substitution of the two sectors, thereby defining the optimum
allocation curve of the box. We shall assume (Ala) and (Alb) to
satisfy all the conventional properties of the neoclassical production
function.
Let us assume that the agricultural good, f(2), can be used only
for consumption, whereas the industrial good, f(), can be used
either for investment or consumption. By denoting industrial con-
sumer good by Ie and investment good by Ii, we have
(A2) f(1) +II.
It shall be further assumed that the consumption demand for I1 is
proportional to the consumption demand for the agricultural good
f(2), i.e.,

(A3) = yf(2) (y>0).

If y=0, the situation will reduce to the special case where the
industrial good is not consumable-the case investigated in Section
IV above. It is by allowing y to take a non-zero value that the
theorem proved in this appendix is something of a generalization
of the theorem of Section IV. The assumption of complementarity in
consumer preference in (A3) is, of course, not entirely realistic, but
it has the advantage of permitting us to deal with the per capital
consumption of the agricultural good alone, rather than of both
goods, because the maximization of the per capital consumption of
both goods is attained (under the condition of complementarity)







Cause of Stagnation / Fei and Chiang 41
when we maximize the per capital consumption of the agricultural
good alone. In this light, we shall simply define

(A4) C* .
L

Let the rate of growth of population be x. Then the defining pro-
perty of a von Neumann state is that Ii/K=A, or
(A5) II=AK.

Now consider the vector V= (K, L, K1, L1, K2, L,, I, Q, I, Ii),
whose ten elements are the ten variables in the above model, and
another vector pV=((pK, fL, 3li), which is a scalar multiple
of V by the constant P. In view of the homogeneity of all the func-
tions in (Al), (A2), (A3), and (A5), it is obvious that if V is a
solution (i.e., if the variables in V satisfy all these equations) then
/V will also be a solution. Thus, if Vo stands for the vector of vari-
ables at time t=0, then the vector of the time series Voext represents
a von Neumann state which expands at the same rate as the popula-
tion growth rate A. Furthermore, as can be seen from (A4), the
value of C* is constant through time in a von Neumann state.
The mathematical problem of the golden-rule theorem is to find
that particular solution vector V which maximizes C' as defined in
(A4). However, in view of the homogeneity property of the system,
we may set K to be constant (K=K), and maximize C* subject to
the conditions of (Al), (A2), (A3), (A5), and the condition
K=K.8 There are ten variables-the variable C* and the nine vari-
ables in V when constant K is excluded-and nine equations. Thus,
one of the variables, say L, can be viewed as exogenous, the speci-
fication of which would determine the values of every other variable
in the system. For purposes of maximization, we must now focus
our attention on the derivative dC*/dL.
From (A4), we have

dC (2) dK, f (2 dL f(2)
dL L K dL L dL J L2
Hence,

(A6) dC 0 if and only if f) dK2+ f d(2) f(2)
dL < K- dL dL < L








42 Economic Development of Tropical Agriculture
The expressions dK,/dL and dL,/dL can be evaluated as follows.
From (Ala) and (Alb), we have

dl = f(1) dK, + f1) dL, ; dQ = f(2) dK2 + f2) dL,.
1 1 2 2
However, from (A2) and (A5), we see that
dl = dl + dli ; .dli = dK = 0.
Thus, dl = dIe.
Moreover, we know from (A3) that
dIe = ydf(2) ydQ.
Therefore, we have dl = ydQ, or, by using the dl and dQ ex-
pressions derived earlier:

(A7a) f() dK, + f1) dL, K dK2 + f) dL] 0.
1 1 2 2

Next, we can write
(A7b) dK1 = -dK, [by (Alc)]
(A7c) dL1 = dL dL2 [by (Ald')]
(A7d) f() = pf2) ; f() = pf() [by (Ale)],
12 1 2
where
(A7e) p f() / f(2) = ratio of MPPL in the two sectors.
1 2
By substituting (A7b) (A7e) into (A7a), and simplifying, we
obtain

(A8) f(2) K + f(2) dL2 P f(2)
K2 dL 2 dL p + y 2

Finally, the substitution of (A8) into (A6) yields the desired in-
formation that

dCA > pL >
(A9) d 0 f and only if L f(2) f(2)
dL < p + 7 2 <
This mathematical result must now be given an economic inter-
pretation. For this purpose, let P, and P2 be the dollar prices of the
two commodities. Then,
(AlOa) value of investment good = P P P = f(1) P.yf(2)








Cause of Stagnation / Fei and Chiang 43
(AlOb) capitalists' total income = P1KJfO) + PKzff2).
1 2
The equalization of the wage rate (and also of the profit rate)
between the two sectors under competitive conditions implies
(Alla) Pfil = Pf 2) [wage-rate equalization]
12
(Allb) Pfl) Pf(2) [profit-rate equalization],
1 2K
with the result that

(Alc) p 2 [ by (A7e)].

By comparing the value of investment good (AlOa) with capitalists'

total income (AlOb), we see that (AlOa) (AlOb) if and only if:


f() --f(2) > Klf() + pK2fK2) [by (Allc)],
< 1 2
or

f pKf2) + yf(2),
or
f(1) Kf) > p [f(2) L2f(] + yf(2) [Euler's Theorem],

or

Lfl > (p + 7) f(2) pL2f) [Euler's Theorem],
or

pLf)f pLp L (+ ) f(2) [by (A7d)],
or

pLfi (p + y) f(2)
2 <






dCp >
Therefore, Equation (A9) can be interpreted to mean: C 0
dL <








44 Economic Development of Tropical Agriculture

if and only if the value of investment good capitalists' total
income. To maximize C*, it is necessary that dC*/dL = 0; this
means that all the capitalists' income must be saved and invested,
i.e., the classical savings rule must be followed:

pL
(A12) P f2:) f(2).
p + L 2
We then have a total of eleven equations (Al), (A2), (A3), (A4),
(A5), (A7e), and (A12) to determine the values of the eleven
variables-C*, p, and all the variables in V excluding K.
As a final note, it may be pointed out that, for the aggregate one-
sector model of Section II, various authors have proved that if the
classical savings rule is chosen consistently through time, the value
of capital-labor ratio K* will converge to that value of K* which
maximizes C*, i.e., K* (see Fei, 1965). A similar question
arises in the two-sector model as to whether the value of K* will
also converge to such a C*-maximizing value, if the classical sav-
ings rule is consistently observed through time. The answer is in
the affirmative. As Uzawa (1961) has shown, the value of K* will,
in the two-sector model, always converge to some value K*. The
results of this appendix now indicate that Uzawa's K* must indeed
be the K* value as determined by the golden rule of accumulation.



NOTES
1. If, for example the Keynesian savings rule (I= sQ, where s represents
the propensity to consume) is added, the result will be the Solow (1956)
growth model.
2. By the appropriate choice of units, we can let L=1. Then K*=K/L=K,
and the f(K*, 1) curve in Figure 2.1b becomes the total product curve as a
function of capital alone, and therefore, its slope must be the marginal product
of capital.
3. It should be pointed out that, in the case of certain special production
functions (which fulfill the constant returns to scale and diminishing-returns
conditions), the golden-rule theorem may not hold; i.e., there may not exist a
K* which maximizes C*. Given the production function
Q = AKaL-Ia+ BK,
for instance, output per head is
Q* = A(K*)a + BK*,
and the slope of the Q* curve (Fig. 2.1b) is
dQ*
= aA(K)"- + B.
dK*









Cause of Stagnation / Fei and Chiang 45

If the population growth rate A is less than B, then nowhere on the Q* curve
will we be able to find a point (such as M) such that the slope of Q* is equal
to that of the I* curve.
In our analysis below, we shall assume that the golden-rule theorem does
hold.
4. For a succinct synopsis of the theory, see Baumol (1959, 13-21).
5. The Iron Law of Wages can be represented by the -Ir. curve in Figure
2.1d, which shows the population growth rate as a non-decreasing function
of the consumption standard C*. For this type of curve, it is reasonable to
postulate a maximum biological reproduction rate A0 for all sufficiently high
consumption standards. As we did in the proof of our impossibility theorem,
let us postulate a monotonically increasing consumption path such as curve A
in Figure 2.1a. It is clear that, sooner or later (e.g., after point E on curve A),
the maximum population growth rate, xo, will prevail. The constancy of the
population growth rate will then imply that all the arguments in our impos-
sibility theorem become applicable.
6. This fact, which follows from the constant returns to scale assumption,
is well known in the proof of the factor-price equalization theorem in neo-
classical international trade theory.
7. As drawn, the alternative Edgeworth box OA'B'C has a lower capital-
labor ratio than box OABC. It is not difficult to reconstruct the diagram and
to prove the same theorem for the case where OA'B'C involves a higher capital-
labor ratio.
8. This is due to the fact that if V = (Ko, L, ... I,,) is a solution to
(Al), (A2), (A3), and (A5), then (I/K()V is also a solution with the same
value of C*, such that the Ko term in V is replaced by (K/K0)Ko=K. Alter-
natively, the reader may think of this procedure of holding K constant as an
analytical device by which we can let the variations in L alone reflect changes
in K*. This was of course essentially what was done in the analysis of Figure
2.4.
Note that, strictly speaking, the tangency condition in (Ale) need not be
postulated at the open end in this maximization problem, as it can be deduced
from the maximization problem itself. It is included here for the sake of con-
forming to the exposition in the text.


LITERATURE CITED
BAUMOL, W. J. 1959. Economic dynamics. (2d ed.). Macmillan, N.Y.
FEI, JOHN C. H. 1965. Per capital consumption and growth. Quart. J. Econ.
LXXIX(1): 52-72.
PHELPS, EDMUND. 1961. The golden rule of accumulation: a fable for
growthmen. Am. Econ. Rev. LI(4): 638-643.
ROBINSON, JOAN. 1962. A neoclassical theorem. Rev. Econ. Studies XXIX
(3)no. 80: 219-226.
SOLow, ROBERT M. 1956. A contribution to the theory of economic growth.
Quart. J. Econ. LXX(1): 65-94.
UZAWA, HIROFUMI. 1961. On a two-sector model of economic growth. Rev.
Econ. Studies XXIX(1)no. 78: 40-47.











3


Importance of Agriculture

in Economic Development



Arthur Gaitskell


he purpose of this chapter is to consider whether, and if so,

why, agriculture is important as a subject in economic devel-
opment, what significance should be attached to it, and how
it fits in with other aspects of such development.

A PREFERENCE FOR INDUSTRY

The condition of agriculture in many developing countries in-
dicates that, until recently, it has had a very low priority of at-
tention. It has, in fact, been rated unimportant. The derision in
the phrase "country cousin" epitomizes a common human attitude
towards agriculture, and it is desirable first to consider the reasons
for this attitude.
The most obvious reason is that the richest countries in the
world are the industrial countries. A clear relationship exists be-
tween the amount of power installed and the amount of wealth per
head of population. It follows that the road to wealth seems to be
through industry. The very word "developed" implies industrially
developed, while the word "backward" suggests a rural subsistence
economy. In such a context, it would seem that breaking away
from the grip of mere agriculture is the first step towards breaking
away from poverty.








Importance of Agriculture / Gaitskell 47
This inclination to emphasize industry is also connected with a
feeling that industrialized countries have, in the past, tended to
use underdeveloped countries as sources of raw material and as
markets for the sale of their manufactures; they have grown rich
in the process, while the underdeveloped countries have remained
poor. This pattern of development is criticized for having broken
up the cohesion and diversity of occupation in the village life of
the poorer countries while the benefit of change-the stimulation of
forward links providing jobs in a new diversity of occupations-
has all occurred in the richer countries. Psychologically, resentment
at just being "hewers of wood and drawers of water" for other
people's benefit has been a powerful spur to develop one's own
industries.
This sense of being at the wrong end of the terms of trade was
powerfully accentuated before World War II, and is frequently so
again today, by the very low prices obtainable for agricultural
primary products and often by the great difficulty of being able to
sell them at all. In such circumstances, again, industrialization
seems to be the only means of liberation from poverty.
In countries subject to political colonialism before independence,
and indeed to economic "colonialism" even when independent,
the pattern of development was usually one in which such econom-
ic development as there was, whether agricultural in the sense
of plantations or by extraction of minerals, by industry, or by
import and export trade, was largely one of private investment for
profit by expatriate capitalists. Local inhabitants tended simply to
continue a traditional subsistence way of life in a separate sphere
and only entered the market economy as labor. Often, the colonial
power pursued a policy of encouraging the preservation of the
local people's way of life according to traditional law and custom,
particularly in regard to land. This was done partly to protect
them from exploitation, partly from convenience and cheapness of
administration through traditional channels, and partly from some
distrust of modern influences on them. Only since World War II
and, to a great extent, since independence, has the concept of
actively developing the country come to the forefront of state
policy as opposed to leaving this to the vagaries of expatriate
private enterprise profit.
It is also apparent that, quite apart from colonialism, tradi-
tional values persist and frequently form impediments to economic








48 Economic Development of Tropical Agriculture
growth. Not everybody gives this top priority in their lives. Many
find greater happiness in, or put greater value on, leisure, status
and caste, religious precepts, or the traditional methods of their
ancestors. Such people, no doubt, are thorns in the flesh of "de-
velopers."
Nevertheless, since World War II, pressures inclining to the
gospel of economic growth have impinged on developing countries
from many directions, and most of these are promoters of indus-
trialization. It is in the agricultural sector that the resisters and
traditionalists live. One great stimulus to industry immediately
resulting from the war was the need to replace shortages. Import
substitution started in necessity. The war also widened horizons,
but mainly towards values only obtainable in urban conditions,
increasing thereby the country-cousin image of rural life. Thou-
sands for the first time saw what the world was like beyond their
village and beyond their country. The comparison created the dis-
turbing needle of rising expectations, later sharpened by literacy,
radio, journalism, and travel.
The galloping race to independence left new political leaders
with the task of meeting these expectations, and external contacts
tended to confirm their own inclinations that the solution lay in
industrialization. Russian communism continuously gave it priority
and urged developing countries to follow their example as the
only way to escape exploitation by Western capitalism; but indus-
trial promotion was equally powerfully abetted by Western world
salesmen. Apart from sales of machinery, industrialists in developed
countries could still see profit for themselves by setting up indus-
tries in underdeveloped countries, and they had the organization
and capital to do so. No such external organization or such interest
arose in the case of agriculture, except for plantations, and the
local attitude to these was increasingly hostile. Industrial promo-
tion has also been abetted from within by the fact that enterpris-
ing individuals from the local community have frequently seen
much better opportunities for personal enrichment by investment
of their capital in a protected industry rather than in the agri-
cultural field.
Finally, decision-makers in developing countries have usually
come from the educated elite, which has inclined to make them
urban oriented. For politicians, the risk of subversion seems
much closer in urban crowds, and cheap food for the citizen and








Importance of Agriculture / Gaitskell 49
the industrial worker has often seemed more immediately impor-
tant than raising farmers' incomes. The risk of an inflationary wage
spiral has tended to support this viewpoint.
There are also other reasons which push people into a preference
for industry. In a general way, industry has a much greater appeal
than agriculture to a developing country. Industry suggests the
modern world, and people are more willing to learn new skills in
it. Ready-made machinery can be imported and erected and, sub-
ject to learning how to use it, the thing works. Nothing has to be
discovered. By contrast, agriculture is old, and most people think
they already know all about it. It suggests drudgery and poverty,
and to alter this state of affairs usually does involve local discovery.
It also involves changing the traditions of the poorest, most con-
servative, and illiterate elements in the country, not by bringing
them into a new environment like a factory, but by persuading
them to alter their real sheet anchor, i.e., the way they use their
land. Paying wages to employees who can be dismissed if unsatis-
factory and getting more from the sale of the products than is
paid out in wages seems a much easier operation than persuading
farmers, who cannot be dismissed, to learn how to pay themselves
more wages. Organization of industry seems largely a matter of
the management making a plan and the machines and the labor
following it. In indigenous agriculture every little farmer is his own
manager, and getting them organized at all is a major problem.
All this suggests that pursuing industry is a much tidier, easier
process. Turnover of capital in industry is more rapid than in agri-
culture, so it can stand high interest rates more easily and thereby
attract finance. There seems to be less uncertainty about industry,
and there is a uniformity in an industrial process, whatever the
locality, which helps to predict profitability. By contrast, agricul-
ture involves enormous variations from crop to crop and country to
country, and this is accentuated by the fact that anything organ-
ized about agriculture is anyway liable to be upset by climatic ef-
fects beyond human control.
Finally, if one looks at the developed world today from a de-
veloping country's viewpoint, one sees that the majority are em-
ployed in industry, commerce, and services and that only a small
minority are actually engaged in farming. Industry seems the ob-
vious target for which to aim. Indeed, one sees a great deal of
progress, not merely in industry, but also in agricultural produc-








50 Economic Development of Tropical Agriculture
tion in developed countries. One notes, however, that the technolog-
ical success in agriculture has been closely linked with subsidies
made possible by surpluses derived from industry. In developing
countries no such surpluses exist. It is very easy to conclude,
therefore, that the only way to stimulate the development of
agriculture is to develop industries first.
I have set out all these arguments which favor a preference for
industry in order to bring out one of the facts of life which
confronts agricultural development today in poor countries; name-
ly, that there exists an underground bias towards interest in in-
dustry and urban life. It is a bias which is extraordinarily difficult
to shift, for many of the above arguments are quite valid.

COMPLEMENTARITY BETWEEN AGRICULTURE AND INDUSTRY

In spite of all the above arguments, there has recently been a
swing-over in many developing countries (and let us realize that
this phrase includes regions in apparently developed continents
like Europe, for example, Spain, Italy, and Greece) to complemen-
tary growth of agriculture and industry, and, in places, a swing-
over to priority for agriculture because of previous neglect. There
appear to be various reasons for this change, among which the
following are prominent.
One basic cause is that today a central purpose for encouraging
development at all is the existence of widespread undernourish-
ment and poverty. This is a comparatively new reason since
hitherto the main spur to development has simply been private
profit. However, in today's world undernourishment is a very
powerful reason. The East/West conflict, the raison d'dtre of inter-
national and bilateral aid agencies, and local political leadership
all generate an urge to raise the standard of living. Whereas a
generation ago an attitude of indifference prevailed towards ma-
terially backward areas and few countries felt it obligatory or
desirable to worry about their neighbors, today a sense of moral
obligation, ideological conflict, fear of an unbalanced world, and a
need for markets for the products of richer countries combine to
make the raising of everyone's standard of living a common world
objective. Within many developing countries perspective planning
for a minimum income is a conscious, if illusive, target.
The chief centers of undernourishment and poverty in develop-








Importance of Agriculture / Gaitskell 51
ing countries are, however, the rural areas. This is where most of
the population still live and where rapidly increasing population
exerts its greatest pressure, making their standards lower. If the
way of life of the majority is to be improved, it is essential that
agriculture be improved.
In this connection I listened recently to Professor Arthur Lewis,
who raised a very vital question, especially for Western world
policy. "Is the emphasis on growth rate alone right?" he asked.
"Should there not also be attention to the misery rate, even if the
growth rate is slower?" He quoted India as having the highest
percentage of misery per thousand people in the world in spite of
a high rate of industrial development. He mentioned Jamaica,
which has had a fantastic increase in gross national product in the
last ten years, but which still has a 14 per cent rate of unemploy-
ment and great misery. One might add the case of Mexico, often
described as a model to follow for dynamic growth in recent years,
but where 50 per cent of the population is still in rural areas,
hungry and poor and underemployed. One could apply the warn-
ing to Pakistan, now fashionably quoted as a prototype for Asia in
rapid growth, but where 50 per cent of the population lives on small
subsistence holdings on only 9 per cent of the land.
The point is that the imbalance is not only between rich and
poor countries, but between rich and poor and urban and rural
sectors, within developing countries. It is precisely on the inequal-
ity in this imbalance that the communist faith imparts its greatest
propaganda and with great validity. If misery is to be overcome,
more must be done to improve conditions in rural areas. A major
reason for land reform is that far too many have no sense of citizen-
ship and a great sense of contrast in wealth. The political risk
has to be weighed, or it may destroy the growth. We in the West-
ern world often project our own experience and ideology and
advocate growth through the dynamism of private enterprise. Do
we forget sometimes that in developing countries conditions are
far more difficult, that there is far less time for the spontaneous
acquisition of skills, far greater population pressure, far less scope
to invade other countries by force, and far less tolerance of in-
equality than was available in these respects in our history of
growth? In advocating growth in our pattern are we paying
anywhere near enough attention to the "left-outs"?
The problem of the "left-outs" hits many developing countries








52 Economic Development of Tropical Agriculture
in the phenomenon of urban drift. Those countries which have
started development from a mineral and industrial nexus have
frequently found that this results in a lopsided economy which
puts a considerable strain on local society. This particularly affects
young people. Education, radio, and newspapers all depict a softer,
more fashionable life in towns. The young people who go beyond
the standard 8 years of schooling drift to towns for administrative,
commercial, or factory jobs which simply do not exist. The result-
ant overcrowding, slum conditions, and disappointment at unem-
ployment lead to delinquency and discontent and to high social
costs in housing and police. These circumstances also form a serious
threat of subversion to ruling political regimes. The discontent is
often equally felt in the countryside where those who remain not
only suffer economically from the departure of the young, but
feel themselves a despised and neglected element not sharing in
the national progress around them.
The rural discontent is often accentuated by the price ratio
between agricultural and industrial products. Import substitution
and industrialization behind tariffs, although it has developed skills
and an urban sector, has frequently meant high cost manufactures
and low agricultural prices. Moreover, the poverty in the country-
side, when the majority still live there or in urban slums, affords
a very narrow home market. This in turn leads to under-utilized
capacity and higher cost industry, making competition in inter-
national trade harder. Thus, derelict agriculture is coming to be
recognized as a major constraint on industrial growth.
The need for concurrent prosperous agriculture is also becoming
increasingly evident as more and more countries are finding that
it is impossible to solve the employment situation by industriali-
zation alone. Modern industry is capital intensive, seldom labor
intensive, and can only deal in tens of thousands, whereas the
problem of raising the standard of living runs into hundreds of
thousands. Let me illustrate this from recent studies of job oppor-
tunities in East Africa. In Tanzania, the 1964-69 Development
Plan postulates a 7 per cent growth rate in industry, thereby
providing an estimated 116,000 new jobs in the period. However,
the estimated number of new entrants seeking jobs is 1,150,000.
In a single year for a typical age group of 250,000 youngsters, of
whom 47 per cent get no schooling, only 23,000 jobs will be avail-
able in organized employment. The rest must live off the land.








Importance of Agriculture / Gaitskell 53
Analogous figures are available for Kenya. There the estimated
annual number of those who complete the 8-year standard school
program is 150,000; 15,000 of these can find places in secondary
schools, and the rest must compete for 35,000 paid jobs arising per
annum in the economy. The remaining 100,000 must find self-
employment; the only place is on the land. If these are representa-
tive figures for Africa, what can be the position in overcrowded
countries in Asia?
The problem of job opportunity raises an awkward dilemma in
regard to education, so demanded by developing countries and so
popular as aid from the developed world. Of course, literacy and
skills are essential to growth, and education should provide them.
However, what kind of education and for how many, at what peri-
od in a country's development may be as important to growth as a
general conviction that education is good. The Food and Agricul-
ture Organization of the United Nations in its African Survey
pointed out bluntly that most current curricula educated children
to leave the land where, as the above statistics suggest, most of
them must find self-employment. Recently I heard Professor Ar-
thur Lewis suggest that, for many developing countries, about 3
per cent of persons entering secondary schools would provide the
country's need for skilled personnel. To exceed this figure might
provide literacy, but might not be a wise investment. In other
words, over a certain level, expenditure on education might simply
become consumption. The expenditure might have been better
directed to investment for growth in the real backward sector-ag-
riculture. These are awkward, challenging ideas, but it may well be
that some of the most significant aid currently being provided in
the world is that arising from the Freedom from Hunger Cam-
paign in its attempts to create agricultural schools and farm insti-
tutes. Education to obtain a better income from farming may
help more people to jobs at a certain stage of development than
any other investment.
You may feel that some of these arguments are still theoretical
and have not yet led to much practical change in the attitude to-
wards agriculture. Let us turn to a very practical subject which
certainly does keep the need for improved agriculture in the
forefront. I refer to the problem of foreign exchange earnings.
Such earnings are, of course, essential to buy the basic imports
necessary to growth and particularly to industrialization. Exploita-








54 Economic Development of Tropical Agriculture
tions of minerals, oil, copper, tin, bauxite, gold, diamonds, and so
on probably provide the quickest answer and in time may develop
around them processing and supply industries. A great many coun-
tries, however, are not blessed with these assets and are dependent
on ecologically suitable crops, whether raw or processed, as major
foreign exchange earners. Admittedly, the market is very compet-
itive and is overloaded by synthetics and by production in de-
veloped countries of more universally grown crops. However, those
countries which, for this reason, have neglected their agricultural
export opportunities and put all their money into industrialization
-for instance the Argentine-have not escaped the problem of how
to sell the products of their high cost industries. Other countries
have found that their traditional primary agricultural exports need
expansion, not neglect, and there can be little doubt that the
resulting need for market outlets is a compelling reason for trading
with the communist world. There seems little doubt, also, that if
we really want to help developing countries, or indeed prevent
their collapse, we must ease the tariffs and quotas which impede
their sales of primary products and expand this trade. The converse
view, that they can get by on industrialization alone, has not been
vindicated.
Perhaps the most pressing practical problem which is bringing
agriculture to the forefront is the plain need for food. The increase
in the population as a whole, the increase in the numbers who no
longer grow their own food because they have joined the urban
and industrial sectors, and the increasingly sophisticated type of
food which higher incomes and better nutrition demand, are all
placing more and more strain on many developing countries. Un-
less their own agriculture can supply these needs, the countries must
import or run a serious risk of inflation and possibly famine. Thus,
the situation is not only that agricultural exports are desirable to
earn more foreign exchange, but that agricultural improvement is
essential to stop an increasing drain on foreign exchange. In this
sense also, apart from the fact that derelict agriculture provides no
internal market, it begins to strangle industrial development. The
classic current example is again India, where in 1966 no less than
11 million tons of food had to be imported merely to keep people
alive. Admittedly, Public Law 480 supplies have eased this situa-
tion in many lands, but these supplies are far from inexhaustible
and are, in the long run, an unreliable solution. Some might even








Importance of Agriculture / Gaitskell 55
consider it a dangerous solution on the grounds that the donation
of food is conducive to sloth in improving agriculture locally.
Even in Europe, in Spain, the question of food imports is one of
the foremost problems of the economy today. In 1965, Spain had
to spend 570 million dollars of foreign exchange on this drain out of
the 1,000 million dollars which she earned from a phenomenal
figure of 14 million tourists, a catastrophic waste of resources
needed for other purposes. It is significant also that even in Russia,
for all its emphasis on growth by industrialization, the main burden
of Secretary Brezhnev's 1965 report to the Central Committee of
the Soviet Union was on urgent measures for the further develop-
ment of agriculture, measures which largely consisted of doubling
the price of many agricultural products and decentralizing the
authority for production.
I have called this section the case for complementary develop-
ment of agriculture and industry. I hope that in stating the above
arguments, I have not given the impression that I think industry
is unimportant. This is not what the arguments suggest to me.
What they do suggest is that if agriculture is neglected, the
chances of progress are very heavily restricted, and grave social,
political, and economic tensions may occur. They also suggest that
the optimum pattern is not haphazard investment in industry
according to the whims, ideological or otherwise, of individual
politicians and competing salesmen, but rather a deliberate com-
plementary advance of agriculture and industry, with agriculture
supplying the food and many raw materials for local processing
industries and industry supplying the inputs for modernizing agri-
culture plus the consumer goods to liven up the rural areas. I
heard Walt Rostow once say that all businessmen ought to regard
the rural areas as potential customers. Laissez-faire policies alone
will not accomplish this. Rostow went on to say that the revolu-
tionary public-private partnership in the rural life of the U.S.A.
was the partnership between the knowledge imparted to the farm-
er by the Agricultural County Agent and the stimulus to effort
imparted by the mail-order catalogue. I believe that it is this
public-private partnership that we need in our strategy for growth
in developing countries, adding, if you like, the incentive of
higher and more reliable agricultural prices practiced so long in
the West and recently in Russia, and adding, if you like, deliberate
decentralization of industry to rural areas as in Israel and Japan.








56 Economic Development of Tropical Agriculture
You may feel that a complementary advance of agriculture and
industry is too cozy a concept to work in practice. Yet, because of
the imbalance created by haphazard industrialization in the past,
this in fact is what countries like Spain and Italy are trying to
implement in their national plans through a series of regional
development poles.
You may rightly say that people in developing countries are
suspicious of advisers who point out the importance of agriculture,
fearing an implication of the old "hewers of wood and drawers of
water" position. It is difficult today for such people to believe that
development in the Western world itself started with agriculture.
In England, it was the wool trade which first created a society of
diversified skills and preceded industrialization. In Japan, it was the
silk trade, and in the United States, Canada, and Australia the
basis of progress began in agriculture. We need to get away from
the belief that attention to agriculture implies subservience and
backwardness and into an understanding well-phrased recently by
Sir Ronald Prain, Chairman of Rhodesian Selection Trust. I have
chosen this statement particularly because it comes from an indus-
trial magnate in the great copper belt in Zambia. He said that
improved agriculture offers the best prospect of a major contribu-
tion to employment. Behind the farmer stands an army of ancillary
trades and professions: road and rail transport, fertilizers, textiles,
food processing, stock feed, starch, paper, canning, power, timber,
tobacco, cement, steel, leather, and all the services stimulated by
them.
Are Prain, Rostow, and Lewis all talking nonsense? Which do
you think in its ramifications is the biggest industry and the biggest
employer of labor in the most developed country in the world? No,
it is not petrochemicals, steel, or space rockets. It is agriculture.
Agriculture in the United States in all its ramifications is a science,
a business, a profession, and an industry. In 1962, of 65 million
people employed in the United States, 25 million produced for
and serviced farmers, 9 million processed and distributed farm
products, and 250,000 scientists directly served agriculture. The
career demand generated by agriculture was for 15,000 graduates
per annum-2,000 on the actual farms and ranches and 13,000 in
research, extension, conservation, and commercial operations. Forty
per cent of all jobs in the United States were in 500 distinct
occupations relying on agriculture (FAO, 1962).








Importance of Agriculture / Gaitskell 57
A PLEA FOR URGENCY

In this chapter I have tried to express the importance of agri-
culture in economic development from two opposite poles. From
the proton pole, or end of the road picture just described, I have
sought to illustrate what an enormous contribution the ramifications
of investment in improved agriculture have made in developed
countries and, correspondingly, could make in developing coun-
tries. From the neutron pole, and I understand that this is the
boiling, explosive element in science, I have suggested some of the
dangers we face if we do not pursue agricultural development:
the backwardness of the rural sector in most developing countries,
the constraint that this implies on progress, and the tensions likely
to arise.
I would like to add one point more: the formidable nature of
the task confronting us. Statisticians tell us that the world popula-
tion is likely to double in the next 35 years, from 3,000 million to
6,000 million. Merely to feed this increase at present low nutrition
standards will be quite a problem. To turn them into consumers
with purchasing power and a decent standard of living will be a
gigantic task.
I expect, like myself, you find that the bigger the statistics, the
more difficult they are to grasp. To make them more realistic, let me
break them down in two examples. The estimated additional popu-
lation in India alone between now and 1985, say 20 years, is about
equivalent to the present population of the whole United States.
The United States currently uses 80 pounds of fertilizer per capital.
Asia uses 3 pounds. To raise this figure to 30 pounds, merely to
keep people decently alive, means increasing the usage tenfold in
20 years. Karl Olsen, longtime in the Food and Agriculture Organi-
zation of the United Nations, speaking at a conference on this very
subject at the Massachusetts Institute of Technology in 1964, under-
lined the difficulty of getting people to realize the urgency of the
need to improve agriculture in developing countries. He likened
mankind to people drifting in a canoe downriver to the brink of a
great waterfall, mesmerized by the sound of it getting clearer
every year, but doing little to avert the disaster ahead of them.
Have any of these arguments persuaded you of the urgency
for action about agriculture? I doubt it, and this for an additional
reason that puts people off the subject. I would like to express this








58 Economic Development of Tropical Agriculture
in the form of a story I once heard from the United States
economist Alvyn Maine. "There was once a man," he said, "who
sold himself to the devil in order to get rich. The pact was an
unusually simple one. The devil undertook to supply him annually
with 100 million dollars on condition that he spend the whole lot
in a single year. If he failed he would die on the 31st of December.
Joyfully he embarked on a life of wine, women, and song, but
they made but a small dent in his bank balance. He went in for
risky investments, but they turned out successful and merely added
to his pile. In despair, as Christmas drew near, he consulted his
friend, the Governor of a developing country, and explained his
approaching predicament. To his intense relief the Governor had a
solution. 'Give it to me,' he said, 'to spend on agricultural develop-
ment and I'll get rid of the whole lot in a week.'"
The story well illustrates the attitude of most treasury officials,
bankers, and all the hierarchy of money to investment in agricul-
ture in the underdeveloped world. Their fears are right. It is risky.
The rate of return, especially from the vast numbers of small
holders who comprise the world's most difficult development task,
is uncertain. Curiously enough, we seldom check the rate of return
from our investments in defense or education. The money goes and
we assume it is worthwhile. Have we reached the stage when
the improvement of agriculture in the developing world is rapidly
becoming a problem of defense for all mankind?
This is not a plea for excusing a blind eye on the economics of
integrating rural areas in development. However, it is a plea for
realizing that this is our greatest task, because in it we are dealing
with two-thirds of the world's population whose condition is stead-
ily deteriorating. It is also a claim that this task is the most
exciting, demanding, creative, urgent, and baffling challenge facing
our generation.

LITERATURE CITED
FAO. 1962. Increasing food production through education, research and
extension. FAO Basic Study No. 9, published for the Freedom from Hunger
Campaign. Rome.











4


Processes and Priorities

in Agricultural Development




Earl O. Heady


To join the search for the mysteries explaining the economic
development of agriculture has become rather fashionable in
recent years. Why these mysteries exist is itself a mystery. I
would argue that the process need not be shrouded in mystery.
The knowledge is already at hand, theoretically and practically, in
explaining the development of agriculture. The variables which are
important to the process are rather obvious, and those which
should be manipulated, aside from other restraining forces, are
intuitively evident.
I am referring to the variables relating to the endogenous process
per se of the structure and economic growth of agriculture. What
is less obvious is how to overcome the political, cultural, intellec-
tual, and similar restraints, largely exogenous to the agricultural
development process, which prevent "getting on with the job"
where it has great marginal urgency and productivity. The voids
in agricultural development are to be overcome by explaining
and diverting these outside conditions which prevent changing
price relatives, supplying knowledge, capital, and other resources,
and by improving the tenure and other economic environment
within which agriculture functions.
Theoretically, we already have the framework or models for
specifying the variables which result in economic development of








60 Economic Development of Tropical Agriculture
agriculture. Highly consistent with the framework, we also have
ample evidence that the framework, model, or system functions
at various levels of farmer education and intellect. Of course, we
have to add a structure which accounts for the distributed lag
with which farmers and cultivators react or adjust to improved
conditions in factor supplies, factor and commodity prices, knowl-
edge, and changes in the cost and profit structure of the firm.
It is too much to expect, as some almost do, that agriculture
should react instantaneously to changes in the variables and en-
vironment which may be consistent with the theory of develop-
ment, or that it should simply improve the food supply because
officials wish it would do so. There are no examples of "an over-
night transformation" of agriculture. Even in the United States,
sometimes taken as the hallmark of agricultural development, ad-
justment to the variables and structure conducive to economic
development has been in a distributed lag fashion. It took a good
twenty-five years for the industry to accomplish mechanization
after tractors and complementary equipment of an efficient nature
were developed. It took almost fifty years, after the creation of
the facilities and a moderate increase in the supply of knowledge,
for United States agriculture to step up to a high level of scientific
orientation. This process will be distributed over another twenty
years before existing knowledge is fully exploited. The process of
mechanization in Japan was somewhat shorter. However, there
exist in all countries conditions which contribute to a lagged re-
action to manipulation of growth variables. Most typically, the
restrained reaction stems from resources which are fixed or have
highly inelastic supplies to agriculture. As a result of their low
reservation prices to farming, they remain in use rather than being
replaced by new capital technology or migrating to other economic
sectors. New technology replaces them only when the supply con-
ditions surrounding them are altered or their productive life and
services are depleted.
As mentioned previously, no new theory is required to explain
the conditions which will cause the firms of agriculture to use
more and different resources and to increase supply of products.
The theory is already at hand, and practical examples of attain-
ment abound. Sum the actions of firms, if enough of them are
encouraged to react, and economic development is accomplished
for the agricultural sector. The economic development of agricul-








Processes & Priorities / Heady 61
ture is nothing more than the use of more capital resources, in
substituting one form of capital for another or for land or labor,
and in increasing output. These changes in resource demand and
product supply are encouraged only if the prices of resources and
products are favorable, the supply quantity of resources (usually
reflected through supply prices) is conducive, the revenue and
cost structure (the economic expression of tenure conditions) of
its farm firms are appropriate, and the degree of certainty or the
planning horizon promises a sufficient payoff on durable invest-
ment. Increase the support prices for United States farmers and
they increase resource commitment and output; supply knowledge
and attain satisfactory price relationships for Japanese farmers
and they use more fertilizer and invest in tractors; provide a
favorable price outlook and Greek cultivators convert from cereals
to long-term investments in citrus groves; provide an adequate
investment horizon and degree of certainty and Polish cultivators
invest in orchards and buildings in the midst of a socialized econ-
omy; provide packing facilities with a market and Ethiopians
sell off cows which they have long "hoarded"; provide a supply of
resources and adequate price incentives and selected villages of
Indian cultivators move towards Japanese farming technology. At
every point over the world where sufficient time series data are
available, computation of supply functions shows farmers to be
responsive to prices of factors and products. The mysteries of
agricultural development are small indeed. More mysterious and
complex are the "outside" policy, planning, political, and cultural
processes which provide restraints to appropriate changes in the
"growth variables" or policies which relate to agriculture.

THE UNITED STATES AS AN EXAMPLE MODEL

If one wanted to find the most efficient model or plan for the
development of agriculture, he would look to the United States.
The structure of American agriculture is partly and importantly a
function of the state of economic development and should not be
entirely used as the model for other agriculture. The foremost
stage of economic development of the United States economy
results in resource prices which favor the substitution of capital
for both land and labor. Hence, mechanical technology is favored
over labor technology and scale economies specify fewer but larger








62 Economic Development of Tropical Agriculture
farms. Yet the instruments employed by the public to draw forth
the development of the industry are those highly consistent both
with theory for specifying economic development and with the
manipulations needed in any agriculture to attain development.
Although the United States is not noted for planning, the long
stretch of public policies for American agriculture represents the
most consistent and successful set of plans implemented over the
entire world-including those socialist countries where the crux of
life is government plans. United States planning for development
has often been unwitting, the public not always knowing that the
instruments being used were those highly adapted to the progress
of agriculture. In this bundle of instruments, the following policies,
all conducive to a flow of resources into agriculture and a greater
output of farm products, were emphasized. At first, the supply of
resources was kept large and resource prices were kept low. Up
to the point spatially feasible, additional land was acquired and
distributed to farmers at zero or low prices. Farmers responded to
this supply-price incentive, and labor and land resources were
continually brought into the agricultural transformation process.
Once against the spatial restraint of land supply, the nation turned
in other directions for increasing resource supplies and lowering
their real prices. Public development of research and educational
facilities extended the knowledge resource and encouraged more
of it to be used along with the capital technologies which comple-
ment it. Creation of public facilities to increase the supply and
lower the price of capital and credit greatly encouraged the use
of this resource. The lowering of prices through subsidization of
the cost of irrigation, fertilizer and lime, and similar specific capital
items, under the Bureau of Reclamation and the Soil Conservation
Programs of the Federal Government, caused some spurt in the
use of these inputs or technologies and helped to increase output.
Outstanding among other instruments have been programs to raise
the levels and increase the stability of farm product prices. Rather
than dampen trends towards a growing output, these price meas-
ures have been just as important as those on the resource side
in encouraging farmers to use more resources and new capital
technologies. Added to these instruments of prices and resource
supplies were tenure systems which were not ideal, but were
generally conducive to a firm set of cost and return relationships
providing profit motivation. Of course, the rate of development








Processes & Priorities / Heady 63
of agriculture has not been consistent over the United States in the
last half of this century, but has generally varied in proportion to
incentives provided through resource and capital prices, knowledge
availability, tenure restraints or farm cost/return structures, and
product prices.
So here is the recipe, if some must still seek it. Lower prices
and increase availability of resources, add certainty and greater
quantity to product prices, blend with knowledge and a firm or
tenure structure which relates input productivities appropriately
with resource/product price ratios. This mixture can be brought
to a developmental boil in a container of commercial farming, if
not successfully in a purely subsistence environment which is out-
side the market economy. It will have a delayed or lagged matu-
rity, depending upon the dosage of the above variables and the
extent to which a very few specific cultural factors exist. These
factors include (1) creating a new "state of mind" for cultivators
who have previously been oriented to production best guarantee-
ing food for subsistence in the year ahead, and who must now look
to expansion towards the market, and (2) acquainting families
with the mysteries of managing credit and capital in order to
convert them from subsistence operations.
This recipe has been tested and proven successful over many
parts of the world; so much so that it is doubtful that anyone
will ever come up with a better one. Hence, the creation of the
conditions implied above is one of the priorities for bringing
economic development to agriculture. There is no mystery to the
process. If a mystery exists, it is to explain those exogenous con-
ditions which prevent governments and planning agencies, which
wish agricultural development, from manipulating the above instru-
ments and going forward with the recipe.
Agriculture has failed to respond as hoped or expected in many
countries, but the reasons are often obvious. Too frequently agricul-
tural development has not been given an appropriate priority.
The leap to a modern industrial economy, including steel mills
and an international airline operated at a deficit, has been given
precedence over farm improvement. Just as frequently, a price
structure has not been provided which is conducive to the use of
new and more capital resources such as fertilizer, insecticides, and
improved seed varieties. Input prices have been kept too high and
output prices have been kept too low. Capital has not been moved








64 Economic Development of Tropical Agriculture
into the hands of subsistence farmers to convert them to a market
economy. Input prices have been too high because the planning
of industrial development has given insufficient attention to inputs
such as fertilizer for agriculture, and the importance of an industry
scale and prices which favor their use in agriculture have been
overlooked. Frequently, the absolute supply and the facilities to
move and store inputs are lacking.
Industrial inputs for agriculture also have been discouraged
through trade policy which has excluded imports at low prices to
favor national industrial development or to preserve foreign ex-
change for industrial development. Output prices have been too
low for a number of reasons. One has been the emphasis on low
prices for the consumer. Although this may be needed, a better
policy would be producer prices which favor growth in output,
but subsidize consumers at lower prices-somewhat along the lines
of British price policy. The acceptance of foreign loans or aid
funds tied to the import of cheap farm commodities has acted in a
similar manner to dampen prices and lower the payoff from inter-
nal agricultural development in many countries. United States sur-
pluses shipped under various labels have served in a similar man-
ner, although frequently these surpluses have been needed as "an
ace in the hole" to bridge bad weather and other short-run dis-
asters. In a few notable cases, export taxes, which serve as a
major source of government revenue, deprive the farmer of the
portion of the world market price he would otherwise receive.
Ethiopia, where the bulk of exports is represented by farm com-
modities, is an example.
The argument is not against adequate and cheap food for con-
sumers; it is against inadequate prices and low-grade incentives
for farmers. It is not against industrialization; it is against an in-
adequate supply of industrial inputs representing modern tech-
nology and a high payoff. It is against systems that fail to incor-
porate the generation and supplying of knowledge with the ex-
tension of other inputs. For development of tardy agriculture, the
inputs necessary in the mix typically are complementary. It is
rather futile, as many countries have done, to establish an exten-
sion education machine when there is no new or adapted research
knowledge to go with it. It is unproductive to supply credit when
fertilizer, insecticides, and improved seeds are not physically avail-
able; or to supply fertilizer when adapted crop varieties are lack-








Processes & Priorities / Heady 65
ing. It takes no new theories, or mysterious explanations of the
agricultural development process, to know that at some level these
resources are technical complements and any one as a limitational
input restrains the productivity of others.
In these respects, the United States needs to invert its policy and
aids to many developing countries, just as the developing coun-
tries also need to invert the aids which they accept from the
United States and other countries. The supply price of resources
is so low in the United States that its agriculture burdens the nation
with output. A much greater portion of these resources, including
both physical materials and the persons containing the "know-how"
to generate and to communicate knowledge, should be diverted to
other countries. The result could be higher supply prices for these
resources in the United States and lower prices elsewhere. While
United States agricultural policy balances the market mechanism
in the direction of higher commodity prices and output at home
and lower commodity prices and output abroad, the shift to export
subsidized or low-cost resources would be in the opposite direction
for inputs, and it would have the opposite effects of United States
farm products exported under subsidy. In general, less-developed
countries need to turn more in the direction of the input sectors
and knowledge supplies which are so highly advanced and low
in costs in Western countries. It is certainly necessary for this to
have priority over "home development of industry" for numerous
countries over the next decade.
There is, of course, a relation between the development of
non-farm sectors, which fabricate farm inputs at low prices, and
the economic progress of agriculture. The supply price of these
inputs can be low only if the structure of agriculture provides a
sufficiently large market for capital items. At the outset in many
countries, the small market for capital inputs can be supplied
initially at lower prices from foreign sources. Development of local
industrial sources on a sufficient scale then can come at a later
time when agricultural advancement in technology and in capitali-
zation merits such development.

PRIORITIES IN THE AGRICULTURAL SECTOR

Mention of development and relative resource prices also sug-
gests some other priorities in the economic development of agri-








66 Economic Development of Tropical Agriculture
culture. Situations can be outlined which help specify when agri-
culture should be given priority over industry in development
and vice versa. Let us examine some cases.
Case I.-Farm output is low, diets are miserable, hunger pre-
vails, both agricultural and industrial sectors are characterized
by labor unemployment or underemployment, and export possi-
bilities are unfavorable for farm products. Priority needs to be
given to the development of agriculture, but not to all facets of it.
Crop biology should be given precedence. The capital items re-
quired are improved seeds, fertilizer, insecticides, and irrigation
where it is uncostly and has a high short-run payoff. These capital
inputs serve as substitutes for land. Emphasis should not be given
to mechanization and labor substitutes. Criteria for investment
might almost correspond to staples with lowest demand elasticities,
as these are weighted with resources committed to them. Little
priority would be given to investment in types of livestock or
other products which are characterized as the consumption items
of high-income elasticities and high-income consumers. A good
many nations fit this category, particularly those nations which
face another decade or two of increases in farm labor and popula-
tion because industrialization cannot be rapid enough to keep
pace with the birth rate. More countries would fall in this category
if the world food crisis ever moved to the intensity now being
projected by numerous people.
Case II.-Food supplies are adequate for the basic items of diet;
agricultural labor is highly underemployed. Labor migration to
other countries may even exist. Here, no priority should be given
to any aspect of agricultural development, except as the marginal
productivity of investment in farming stands at a level with that
of non-farm sectors and export potentials exist. Otherwise, priority
should be given to industrial development to create employment
for absorbing the unemployed of both farms and towns. Examples
of this category may include regions such as Southern Italy.
Case III.-Food supplies are adequate, a high level of employ-
ment exists in non-agricultural sectors, underemployment abounds,
and incomes are relatively low in agriculture. Industrial develop-
ment should be further emphasized to expand non-farm employ-
ment opportunities for migrants from farms. However, some spe-
cial emphasis can be given to certain aspects of the development
of agriculture. These include mechanization to replace labor as








Processes & Priorities / Heady 67
factor prices are drawn into a favorable ratio, and production of
livestock and other products which are consistent with high income
elasticities of demand and high level consumer incomes. A most
important investment may also be in mobility of human resources
in agriculture. There are many examples of countries which fit into
this category in various degrees in Southern Europe, Eastern Eu-
rope, and a majority of the countries in Western Europe. Even
included here are broad reaches of American farming.
Additional Remarks.-Other categories could be presented, but
the number given is sufficient to indicate that there is no universal
rule or condition which can specify all priorities for industrial
development over agriculture or vice versa. In a very few cases, no
priorities should exist for agriculture. In others, the urgency is to
employ resources and exports which further the output of food
from basic plant food sources or export crops. At other stages of
development, the urgency steps up to livestock and mechaniza-
tion. The important thing is to "get at" the development of agri-
culture. There are few, if any, good examples of a nation having
invested too much in agricultural development relative to indus-
trialization. True, there have been large mistakes in agricultural
investment: extension services without research knowledge to com-
municate, fertilizer plants without distribution and storage facili-
ties, machines without spare parts, mechanization in countries
where relative factor prices specify labor technology, and unfeasible
irrigation projects. However, as a whole, overinvestment in sensible
agricultural development is hard to find. The danger and fact is
more in the opposite direction. True, what is needed is balanced
development. If we have sufficient knowledge of the production
and supply functions of major economic sectors, of resource de-
mand functions peculiar to each industry, of consumer demand
and welfare functions, we can build up a system which gives an
empirical specification of balanced development. However, in the
absence of these functions, details, and facts, the possibility of
error certainly is in the direction of underinvestment in agricul-
tural development relative to industrial development. Perhaps the
United States provides the single clear-cut example of overinvest-
ment or policy formulation drawing forth too much agricultural
development. Countries on the other side of the food supply pinch
would prefer this type of error to their own type of underinvest-
ment and insufficient policies for agriculture.








68 Economic Development of Tropical Agriculture
Research Priorities.-In the realm of knowledge generation, re-
search in the less-developed countries should emphasize the ap-
plied, except where fundamental knowledge is lacking for con-
ditions unique to the country. Fundamental knowledge is the
least-cost import and requires only a good set of journals and
translators. On the other hand, good applied research, which adapts
modern technologies to the conditions of the country, is too often
lacking. This distortion between fundamental and applied re-
search not infrequently stems from the returning graduate student
who finds greater status in speaking to his colleagues abroad
through the scientific journals than in developing applied tech-
nologies for his country.
In the realm of knowledge priorities, we have already mentioned
that distorted investment occurs when elaborate extension or ad-
visory services are established in the absence of knowledge to
extend. Again, "balance" is required in the investment of these
two activities. And, at low stages of development, the public or
governmental agency must give priority to research. This is true
because the major inputs of agriculture are land and labor. Capital
represents too small a proportion of the total to provide an ade-
quate market for capital inputs. Hence, research of the private
sector on behalf of agriculture is minimal. At high stages of
development, as the major input becomes capital items from non-
farm sources, industry turns heavily to agricultural research as a
means of further expanding the demand for new farm technolo-
gies. These new technologies are chemicals in the form of fertili-
zers, improved seeds, steel in the form of machines, pest and
disease control materials, and other inputs. At this stage, the public
sector can lower its priorities for agricultural research, since the
momentum will be carried forward by the private sector.
At low levels of development, following our earlier categoriza-
tion, priority should be given to crop biology. Farm engineering
must be emphasized at a later stage of economic development
where labor/capital price ratios specify mechanization. Similarly,
improvement of the livestock sector through research would gen-
erally receive the high priority label only at higher stages of
development when per capital income levels are higher.
Farm Scale Priorities.-Structural changes of agriculture, as ex-
pressed in the scale of farms, also should be a function of econom-
ic growth. The massive units of Eastern Europe are consistent








Processes & Priorities / Heady 69
neither with the stage of economic development in those countries
nor with the structure of resource prices in the underdeveloped
countries. Large-scale units should have no particular priority at
low stages of economic development. There may be management
scale economies as there are fewer and larger farms to which
knowledge can be communicated. Aside from this, however, econ-
omy of scale is, in a sense, a function of economic development
and relative factor prices. At low stages of development when
capital is in short supply and has a high price relative to labor,
the optimum resource mix in farming is one which calls for a
large amount of the labor resource in relation to capital. Under
labor technology, scale or cost economies do not extend far over
the land area. Major cost economies in the use of modest capital
items are largely exhausted as soon as relatively full employment
is reached for the bullock team, horse, or camel which provides
the power. High stages of development, where capital prices are
low relative to labor prices, call for a resource mix which is
made up largely of capital. Scale economies then extend much
further, and larger farms are in order. In this sense, the economic
development of farming, starting from low stages, does not call
for structural reorganization which amalgamates farms into large
individual units for the possibility of high levels of mechanization.
Commercial versus Subsistence Farms.-In establishing priorities
for the development of agriculture, several other facets of the
industry and its environment must be given consideration. If we
wished most rapid development and could neglect welfare, we
would concentrate effort on commercial farmers who participate
in the market and leave aside those who operate as subsistence
family units. In some countries, of course, the majority of farmers
are in the latter category, and the only hope for massive improve-
ment is to convert them to participation in economic activity
through the market. Their scale of operations must be extended so
that they produce beyond family requirements. Their product must
enter the market so that they are influenced by price and related
variables. A generation may be required before many "traditional
subsistence farmers" are converted to the "market state of mind,"
but their sons may react much more rapidly.
In almost the same context, the supplies of the consumer goods
which trickle out to remote villages often need to be changed
materially. If the goods are not there, or if their distribution prices








70 Economic Development of Tropical Agriculture
are too high, the incentive for farm commercialization is much less.
Typically, modern consumer goods sell at extremely high prices in
the village as compared to the city.
If growth in the food supply were to take precedent over all
else, other emphases could be established. Governments could
develop their own farm operations and put them on a commercial
basis. Then farms should be able to operate at a profit; otherwise
the price and other variables are inconsistent with economic de-
velopment of farming in general. These farms also could serve as
an "inductive or empirical example" for the rank and file of culti-
vators. Persons with little education tend to act on the basis of
inductive or quantitative evidence rather than on the basis of
deductive or theoretical evidence. Similarly, the government might
"hire" a large "sample" of farmers to follow prescribed farm plans
and improved technology. If the development posed really has a
payoff, it should allow a surplus to increase the income of the
cultivator plus the salary of a managerial supervisor who leads a
group of farms. If the development suggested will not cover these
two returns or costs, it undoubtedly has too low a payoff to be
considered in a developing country, or has input and output
prices which are at inappropriate levels. Finally, for a rapid spurt
in output, the possibility of giving franchises to experienced for-
eign farmers could be considered where land supply does not
provide a prohibiting restraint. Given a franchise of five, ten, or
whatever number of years is necessary to provide a sufficient
payoff under an appropriate set of prices, food supply could be
increased while the "know-how" of farming is brought to the
midst of the country's cultivators. A good example of the latter
possibility is in Ethiopia where Dutch farmers have developed
highly efficient sugar operations. Although the technology used
may not be adapted to large numbers of the country's farmers,
the operations have been successful in rapidly increasing the out-
put of one commodity. Other countries have sufficient land to
borrow the technique. A franchise with short-run termination can
prevent all concerns and complexities of colonialism.

PRIORITIES IN MEETING WORLD FOOD NEEDS

The food crisis being so widely discussed poses the possibility
that both developed and underdeveloped countries will have to








Processes & Priorities / Heady 71
place greater priority on food production. Some popular discussions
suggest that this priority should be established for the developed
countries, with food then shipped to the underdeveloped countries.
Since highly misleading policy could arise from these popular
demands and the broad humanitarian desire to prevent hunger
and starvation, we need to examine this complex set of possibilities
in terms of priorities which are realistic and logical.
It is obvious, of course, that the world must face up to this
pending food crisis. At current compound rates of growth, world
population is projected to double in less than thirty-five years.
World population took 1,500 years to double from the advent of
the Christian era to the year 1600. It took three more centuries,
from 1600 to 1900, for world population to triple to 1.5 billion
persons. However, at current rates of increase, it will double again
in thirty-five years; in Central and South America it will double in
twenty-five years. Obviously, this rate of growth cannot go forward
unabated. Even if food could be supplied, standing space would
soon expire, a point which seems to have escaped those who ex-
tend the conventional wisdom that the solution to the world's
pending food crisis is simply that of increasing food output.
A worsening of the food position prevails mainly in the under-
developed countries. Food production has moved ahead much more
rapidly than population and food demand in highly developed
countries. Accordingly, the import-export pattern in food has been
reversed between highly developed and underdeveloped coun-
tries. Prior to World War II, there was one general trade pattern:
Western Europe was the only importing region, and the rest of
the world exported to it. There were six grain-exporting areas:
North America, about 5 million tons; Latin America, about 9
million tons; Eastern Europe, 5 million tons; and small quantities
for Asia, Africa, and Oceania (New Zealand and Australia). West-
ern Europe has maintained its position as an importer; it buys
about the same amount of grain now as it did in the immediate
prewar period to meet greater population needs. However, mam-
moth changes have taken place in trade among other world
regions. Only North America and Oceania remain as major ex-
porters. Asia and Africa have become net importers, along with
Latin America and Eastern Europe. Prior to World War II, the
net annual flow of grains from the less-developed regions was about
11 million tons. Now, annual shipments of grain from developed







72 Economic Development of Tropical Agriculture
countries to less-developed countries are close to 25 million tons.
Given current rates and projections of population growth, and
without alternative solutions, the world's food situation could de-
teriorate materially in another dozen years. Then, should not the
United States plow up the land idled under various programs,
develop more irrigated land, and put it to crops to ship to the
countries with deficit diets and rapidly growing populations? Will
not the mushrooming world population cause food to be high
priced and in short quantity even in the United States? Without
a deep study of the situation, the answer to these questions would
appear to be an unconditional "yes." The answer to the world's
population and food crisis is more complex than this, however.
Even to produce surplus food and give it away throughout the
world is not an easy task. Although the world food situation will
help lessen the problem of surplus capacity in the United States,
our agricultural capacity is not the answer to the world's pending
food and population problem. Universally, people and societies
abhor suffering through hunger and malnutrition. All possible effi-
cient steps should be taken to eliminate these problems on a
world-wide basis. However, it also is possible to use rash policies
which discourage development of food production and bring later
misery to populations.
In advanced countries, population growth, if it is a problem,
is one of the distant future. Knowledge and technology have been
able to hold birth rates in check and to boost the rate of increase
in food output to levels exceeding population growth. Investments
in capital processes and technical knowledge may give emergence
to large food supplies from non-agricultural resources before farm
resources place a restraint on output and raise the real price of
food within these countries. The pressing short-run problem, a span
of the next three decades, is in the less-developed countries. The
majority, but not all, of these countries are only recently inde-
pendent entities able to determine their own national policies.
The balancing of growth in population or demand and supply of
food is one of the major problems that most of them must solve
in the next decade or so. The posed world crisis, before population
growth rates thrust sharply above food growth rates, is perhaps
three decades away. However, for individual countries in the
above category, it is only a decade or so away. The balancing of
food needs or demand and food supply involves appropriate in-








Processes & Priorities / Heady 73
vestment in farm technological improvement and in population
management.
Actually, the problem is not one of balance. Food output and
consumption will be balanced in three decades even if it means
twice as many people subsisting on a miserable 2,000 calories per
day. The basic problem is more nearly one of management of food
supplies and populations in a manner that will balance them at
levels of adequate diets and human welfare. Investments of both
types are required; that in knowledge and technology of birth
control is no less important, and certainly would pay a much
higher return on investment in the long-run balancing process,
than investment in expanded food supply.
How do the agriculture of highly developed countries fit into
this complex? Cannot the abundance of food and the potential of
greater output in these countries be channeled to the food-deficit
countries, thus warding off the crisis and even helping to lift the
level of human well-being? This would be a simple solution, if it
were possible. It would also satisfy the sincere humanitarian in-
terests and intentions of the many individuals, groups, organiza-
tions, and nations. However, it is unrealistic as the major answer
to the world's pending food crisis.
To be certain; the agricultural resources of the United States
and other developed nations have an important and significant
role in this complex of food and population. It is not, however,
in providing the increment of food required for an uncontrolled
increase in the world's population over the next half century. It is
obvious that world population cannot go forward forever un-
checked. Present rates of increases would soon absorb all of the
untapped food-producing potential of both developed and under-
developed countries. Then, when the final restraints of food produc-
tion were reached, there would be even greater masses of people
to starve or to live in hunger and misery. Human disutility and
suffering would be multiplied, and the negative effect could well
be greater than if excess food stocks were withheld as a check
against population growth. Ethical questions even arise as to wheth-
er societies should provide more and improved health and medi-
cal services which decrease mortality rates, without parallel in-
vestments and intensity of effort to increase food supply for the
greater number of persons who are thus present to consume.
Blind increases in production in developed countries, to be con-








74 Economic Development of Tropical Agriculture
verted to food handouts for less-developed nations, do not provide
the solution to the world's population problem. To an extent, they
can even discourage the endogenous improvement of agriculture
and growth of food supplies in less-developed countries as they
lower world prices and those for local cultivators. Thrown into the
market without price safeguards, they can lower the profitability
of improvement by cultivators and farmers in countries where
population is large and food production is small. They can lessen
the urgency and lower the intensity of motivation of internal
improvement in food output by less-developed countries. In the
last decade, food aid from the United States has diverted too
much of the appropriate attention and investment from the more
fundamental long-run problems of birth control and population
management and from basic agricultural knowledge and improve-
ment in developing countries.
As mentioned previously, to produce farm products in developed
countries and to send them as gifts or handouts is not the long-
run answer to the world population and food problems. This
approach would only postpone the "day of reckoning" by ten or
fifteen years. First, on the side of food supply, the developed
countries do not have a large enough land area to meet an un-
limited increase in food needs resulting from an increase in future
world population. It is more important, in terms of available land
area and unexploited production potential, that agriculture of the
less-advanced world regions be developed for these purposes. This
approach not only provides a greater food production base, but
also gives the developing countries greater certainty of food sup-
plies under the ever unpredictable tides of world politics, and
greater freedom in selecting their own destiny. Even apart from
political considerations, food production should be developed in
both the short-run and long-run where it is most economical and
where it returns the greatest payoff on investment. In the short-
run, the payoff often will be greater in countries, such as the
United States, with highly developed agriculture and underutilized
capacity. This is true because of the educational and organizational
restraints involved in short-term adjustment of the agricultural
structure in most less-developed countries. However, over the long-
run, the payoff is almost certain to be greater in improvement
of agriculture in developing countries with favorable resource
endowments and tardy technological developments. These coun-








Processes & Priorities / Heady 75
tries are using resources or inputs at such low levels that their
marginal response should be much greater than in developed na-
tions where resource combinations more nearly approach the op-
timum systems. Of course, for some developed nations with a
clear long-run comparative advantage in food production, and in
some less-developed countries with clear advantages in industry
over agriculture, further developments should follow these lines
with trade catalyzed by appropriate international, commercial,
fiscal, and investment policies.
It is high time that a proper priority be given to progress of
agriculture in developing countries where resources are favorable
and populations are pressing. They must commit greater invest-
ment to the complex of resources needed to provide an enlarged
and economic supply of food products. They must develop realis-
tic plans which recognize the hard facts before them. This is true
even if the goal and need were only one of lifting diets for current
populations to humanitarian levels. Too many countries, as history
is beginning to reveal, have minimized agricultural investment in
attempting to leap-frog into advanced industrialization.
However, investments, even in agricultural development, will
not ward off a pending long-run world food crisis stemming from
population growth. Only investments in knowledge and technology
of birth control can do so. This investment is basic if calamity is
to be averted. Not only is it the sole long-run solution to the prob-
lem of population relative to food supply, but it will return much
more on the investment than will agricultural development in
bringing population and food requirements into a realistic and
humanitarian balance with future food supply. It, too, is an in-
vestment which does not have immediate payoff. Effective popu-
lation control programs lag considerably in effectiveness and
will provide the appropriate payoff only after sufficient time and
effort have been devoted to bringing knowledge to less literate
parents, to overcoming fears and superstitions, and to providing
birth control technology with certainty and an economic cost level.
Excess production capacity of the United States and other
developed countries can be used effectively to meet short-run
emergency problems in world food supplies. As mentioned pre-
viously, the payoff in the short-run from investment in more seed,
fertilizer, and tractors, and fuel for these purposes, will be quicker
and greater in developed countries where farmers already have








76 Economic Development of Tropical Agriculture
the "know-how" and only need to have their abilities unleashed.
The short-run return is much lower in countries where this environ-
ment of knowledge and effective decision acts with a lag of up to
ten years or more. Even then, the emphasis should be on stocks
to meet weather emergencies and similar calamities, and on helping
to lift a few countries out of the "squeeze" in which they now
find themselves. The major efforts should be directed toward the
urgent matter of "getting the show under way" in the less-devel-
oped countries. Food aid from the United States perhaps should
be used only where recipient countries agree to invest appropri-
ately both in development of their own agriculture and in birth
control.
Here is exactly where the agricultural resources of the United
States can make their large and basic contribution to the world
food problem. There is greater opportunity and necessity for fur-
nishing the resources which serve as ingredients in getting develop-
ment under way than there is for producing food to ship as gifts
to less-developed countries. These resources may include fertilizer,
seeds, insecticides, and similar inputs, or the plants and other
resources to produce these inputs. In some cases they include
investment funds, although international aids have caused this
restraint to fall in importance relative to the resources mentioned
below. More important than these classes of resources are those
intellectual resources of research, education, management, and
organization which can uncover adapted knowledge and get new
technical capital adopted in developing countries. This category
is one in which the United States has excelled. It is hard to find
planning and policy which has been more appropriate in promot-
ing agricultural development. This nation increased the supply and
lowered the prices of resources. Simultaneously, it bolstered com-
modity prices against input prices and sometimes subsidized the
cost of inputs; both price forces encouraged the use of inputs,
extension of output, and development of agriculture. These and
related steps, including the provision of capital and the organiza-
tion of a system to channel advanced technical knowledge to
producers, are the effective economic elements of agricultural de-
velopment anywhere in the world. It is this set of tools, if they
can be effectively transplanted, which will serve most in aiding
the development of agriculture in less-developed countries. Part
of this mix is necessarily that of managerial and organizational








Processes & Priorities / Heady 77
ability to implement successfully action programs and knowledge.
Organizational and management experience and ability are per-
haps even more scarce as resources than is capital in typical less-
developed countries.
These intellectual resources, rather than food, are the large
contributions which can be made from the experiences and capa-
bilities of our agriculture. We have growing opportunity to divert
some of our public resources accordingly since, as pointed out
previously, the stage of economic development is causing private
industry to assume more of the responsibility of research and
knowledge communication to agriculture.
It is essential that underdeveloped countries develop their own
agriculture if they are to meet their food needs in the next ten to
fifteen years. It is imperative that they develop population control
if they are to meet their food problem of the next quarter century.
Our food can help meet the emergency in the first case, but it
can have little bearing on the second.











5


Product Markets

and Economic Development




Richard A. King

relatively little attention has been paid to the role of product

markets in the economic development process. There can be
no doubt that inefficiency in the marketing of agricultural
products is characteristic of many developing areas of the world.
The cause for concern about this inefficiency is suggested by the
basic premise on which this paper rests. The premise has been
clearly stated by Earl Heady (1966, 3) when he writes that, "At
every point over the world where sufficient data are available it
has been found that farmers respond to changing farm product
prices and farm input prices." Farm product prices are transmitted
by, and reflect the efficiency of, the marketing system.
How do farmers respond to prices and income? Heady (1966, 2)
argues that: "No new scientific breakthroughs are required to ex-
plain the conditions which will cause farmers to use more and
different resources and to increase farm productivity. Increasing
the productivity of agriculture means using more capital; it means
substituting one form of capital for another or for land or labor;
it means increasing total farm output. These changes are encouraged
only if certain conditions exist: the prices of the productive resources
and of farm products, and the farmer's tenure situation must be
favorable-and the farmer must be promised sufficient payoff from
a long-run investment in his enterprise." This set of conditions is
entirely reasonable.








Product Markets / King 79
Why is it desirable that farmers respond to price and income
incentives? The answer must be phrased in terms of the desire to
reach some more or less well-defined goal. Three possible goals
might be considered. First would be a nutritional goal. Clearly,
there is need to improve the poor diets that presently exist in
many tropical regions of the world. A second possibility is a price
stability goal. Some of the political unrest in the world stems from
the instability of food prices and, in particular, from the rapid
increase which has occurred in the prices of basic foodstuffs. A
third possibility is a growth goal. There may be a desire to release
resources now used in agriculture in order to increase the output
of non-farm goods and services. Thus, any one of these three goals
would be sufficient to justify investigating how product markets
may encourage or discourage the desired response on the part of
growers.
Inefficiencies in product markets interfere with the achievement
of such goals. There are two types of inefficiencies: one is in the
production of marketing services and the other is in the pricing
system. For example, wholesale food marketing facilities that have
been used for decades in Lima, Peru, are unsatisfactory from a
health standpoint. They are inefficient because of the large amount
of labor that is required to move products for sale into the market
and out again; this arises from the necessity of using wheeled hand
carts for moving products from incoming trucks to sales stalls.
These procedures are inefficient because of the excessive spoilage
of products that occurs during the marketing process, not to men-
tion the tremendous time delays involved.
The second type of economic inefficiency occurs in the pricing
system. One may observe frozen beef being flown into the city of
Arequipa, Peru, from Argentina while live cattle are being shipped
from Arequipa to Lima for slaughter and sale. This type of cross
haul is typical of areas where the pricing system does not effective-
ly allocate food supplies.
We assume, then, that product markets through the transmission
of relative product prices do play an important role in farmers'
response in terms of output. However, what kinds of changes in
product markets are called for in order to stimulate the desired
output of farm products and to entice into the market economy
many producers who are now outside commercial agriculture-
and indeed outside the money economy-in many nations of the







80 Economic Development of Tropical Agriculture
world? This chapter is concerned with some possible answers to
this question.

MEANING OF DEVELOPMENT AND GROWTH

Do we have models which explain how producers respond to
various schemes that might be designed to achieve the goals that
have been established? Much of the literature which deals with
economic development is quite general and of relatively little help
in charting a course for rapid agricultural development. A hypo-
thetical conversation between a county agent and a Florida orange
grove operator will illustrate this point. After spending the morn-
ing studying the operations of the grove our county agent has the
following suggestions: "Joe, you should get rid of some of the
underemployed labor you have on the place. You need to invest
more capital, and your use of purchased inputs is far too low.
What you need is more non-farm inputs. You should also get that
input quality up. I believe if you apply more indigenous innova-
tions you would find your earnings would increase substantially.
But the thing that would be of most help is to get yourself a good
education."
Now this conversation may seem a little far-fetched, but it is
not too different from the type of recommendations we find in
much of the literature. Although the recommendations are basically
sound, one must admit that they are not especially helpful in their
present form. The problem of how to translate such general con-
cepts into specific development decisions is largely untouched.
A variety of growth models has been developed in recent years.
Although many growth models were designed primarily to deal
with problems of growth or stagnation in the advanced countries,
they have been applied in much of the planning for underdeveloped
countries. Hirschman (1958, 30) makes the following comment
on such attempts: "Now, there is no harm in making these com-
putations if all they are expected to yield is an approximate idea
of the amount of capital that is likely to be used in the course
of the growth process; But if one thinks that the functional relation-
ships assumed in the model are a meaningful description of the
development process, a point may be reached at which the model
becomes a hindrance rather than a help in the understanding of
the reality of underdeveloped countries."








Product Markets / King 81
The relationship between growth models and the development
process is not clear-cut. The confusion which exists in the literature
is illustrated by Bruton (1965, iii) when he writes: "Terms such
as low income, nongrowing, and underdeveloped may be used
interchangeably to refer essentially to an economy the past history
of which suggests that there are forces at work that prevent
growth from occurring."
Some authors have concentrated on the characteristics of the
economy under discussion. For example, Hirschman (1958, 29) dis-
tinguishes between economics of growth and economics of develop-
ment in terms of the answer to the question: Is the economy devel-
oped or underdeveloped? For economically advanced economies he
uses the term economics of growth. For underdeveloped countries
he uses the term economics of development. For him, economics of
growth is the analysis of the growth process of advanced industrial
countries, whereas economics of development is the analysis of the
growth process of underdeveloped countries.
An alternative distinction between development and growth is
made by Maurice By6 (1962, 110) in "The Role of Capital in
Economic Development": "The growth of a quantity is its increase.
Growth of national per capital income is increase of national per
capital income. The growth of an economy is generally charac-
terized by growth of net national income per capital. Any economic
system, for example a national economy, may experience growth
either while its structure remains unaltered or while its structure
changes. The development of an economy is its growth in con-
ditions of changing structure. An economy is fully developed
when its structure is such that per capital productivity is as high
as it can be with given national and world resources and given
technical knowledge. In the contrary case we speak of an under-
developed economy."
This terminology still leaves something to be desired. In order
to identify a developing nation, it is necessary to know whether
or not the economic structure is changing, however defined.
Furthermore, before classifying an economy as underdeveloped,
one must investigate whether or not with given resources and
technical knowledge higher per capital productivity would be pos-
sible. With a literal application of this criterion, the group of
developed countries would constitute a null set. Leibenstein (1966)
supports this conjecture.








82 Economic Development of Tropical Agriculture
A third alternative, which has more appeal to me, draws the
distinction between economics of growth and economics of devel-
opment in terms of the type of statements we wish to make.
Economics of growth is concerned with "if-then" statements, where-
as economics of development deals with the evaluation of "either-
or" choices. A simple growth model would be one which describes
the functional relationship between certain independent variables
and a selected dependent variable such as per capital income or
rates of change in per capital income. Development models, on
the other hand, must be formulated in such a way as to deal with
the problem of selecting the best among alternative strategies.
A strategy has been defined as any of the courses of action
open to a participant in a conflict situation (Dorfman et al., 1958,
433). Game theory is defined as the attempt to determine optimal
strategies explicitly (Dorfman et al., 1958, 445). The choice of a
strategy depends upon the payoff from alternative courses of
action. For example, using this terminology we might define the
payoff to development strategies in terms of level of economic
activity or in terms of rate of growth.
To summarize, we may regard economics of development as the
evaluation of alternative strategies. This evaluation can be carried
out only where the alternatives are clearly specified and where the
payoff associated with each is well defined. These strategies have
as their goal the modification either of the level of economic
activity or the rate of economic growth or both. Although theories
of growth may provide some insights into general relationships
among the variables associated with growing economies, as a whole
they are quite unsuited to specific decision-making situations ex-
perienced by individual firms, regional development groups, or
national planners.

ANALYTICAL MODEL

Among the models which are available for evaluating alternative
strategies for product market development, we find that the per-
fect market in space, time, and form is a useful framework. By
using this model it is possible to study the existing situation and to
plan specific development proposals. This perfect market model
can be described briefly as follows. Prices in different geographic
areas of a country will differ by not more than the cost of transfer




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