On Foreign Investments And Exports: Is It the Therapy For Sri Lanka’s Underdevelopment? – III

By Dhanusha Pathirana –December 31, 2013 

Dhanusha Pathirana

Calibration of the Industrial Structure to enable the Absorption of Spatially Immobile Rural Labour Surplus

The structure of labour supply discussed in section II in the context of the Sri Lankan economy was also largely the inner dynamic of the organisation of labour, shared by the three model economies under review; namely Japan, South Korea and Taiwan. The strategy adopted by these economies to absorb the spatially immobile rural labour surplus to manufacturing industry was to expand small scale industries in rural areas through a system of subcontracting with vertical inter-firm linkages making it possible for a smooth transfer of labour from agriculture to industry without a geographical shift in the labour force. This exceptional technique adopted by the East Asian states to transfer rural labour surplus from agriculture to industry solved the problem of sectoral and geographical immobility of rural labour and was achieved without a fall in the output of agriculture (see Ranis and Fei, Japanese Agricultural Development’, 1967). The process was mediated by establishing subcontracting linkages between large-scale firms situated in towns engaged in capital intensive assembly work and SMEs based in rural areas absorbing the labour surplus of agriculture to produce the component parts required by the large-scale enterprises. The production of the component parts in the lights of automotive parts and components, machinery, electrical equipment, computers, computer parts and accessories, metalworking was farmed out to a rural network of small and medium scale industries by the large scale assembly firms situated in the towns.

The central phenomenon to be noted in this regard is that the production of advanced, semi-advanced and simple component parts under the small scale production framework was made possible by the breaking up of the production process of a particular product into multitude of simpler production processes. This is quite the antithetical form of factor organisation in relation to the centralized industrial networks found in advanced Western economies. This means to say that the key organisational feature in East Asian industrial development is that the production of a particular good was divided into multitude of products and into mutually independent production process to simplify the production process. This on one hand allowed the production of advanced parts and components based on the small and medium scale organisation of the production network and on the other hand, enabled the transfer of rural labour surplus that is spatially immobile, from agriculture to industry. This further division of the production process of a particular component part into several production processes hence, enabled the penetration of industrial production into rural areas. It enabled the production to be carried out based on small scale production units, which in turn made it possible to absorb the rural labour surplus that was spatially immobile and geographically dispersed in an uneven manner within the rural limits. The spatial immobility of the rural labour surplus is stemming from the particular nature of labour deployment in East Asia’s predominantly paddy based agriculture, as discussed earlier in section II with respect to Sri Lanka.

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