THE ECONOMIC WEEKLY August 6, 1960

EXPANSION OF BASIC UNIT the dilemma of effective govern­ requirements and requests rather than The tendency in local government ment; but whether effective govern­ State programmes, they could per­ has been to increase the size of the ment could also be democratic, and haps first be educated intensively by basic unit of self-government to coin­ fulfil the goal of developing local dedicated public servants and then cide with the area of development initiative, is more doubtful. left to themselves. The efficacy of blocks. Within this area, councils such local autonomous bodies as deve- (panchayat samitis) of local repre­ PROBLEM UNRESOLVED lopment agencies has never, to sentatives and government officials The problem remains unresolved: author's knowledge, been given a fair hold power for both development what is the function of local govern­ trial. work and local administration. Vil­ ments in rural India? If they are to lage administrations are, in effect, be agents of reform and develop­ In the hopes of reconciling the responsible to the councils which are ment along the lines of a national ideals of political democracy and part elected, part nominated, arid programme. larger units managed by economic development at the local part official. As a result, State power the State and responsible to the State level, governments have not recog­ increases to cover all aspects of governments would appear to be the nized their mutual inconsistency, and village administration through out only way of circumventing the in­ therefore this basic cause of disap­ body, although the State acts in con­ conveniences of political dispute. pointing results has not been tho­ sultation with citizen representatives. Thus panchayat samitis are proba­ roughly understood. This would lead At the time of writing, it is impos­ bly the most efficient, if not the most one to believe that decisions leading sible to discover how effective these democratic solution. But if the vil­ to basic reform in the village govern­ experiments had turned out to be. lages are to be primarily local admi­ ments through legislative measures In theory, they would seem to resolve nistrative bodies, inspired by village have, thus far. not been made. Nyasaland and the Federation I S Gulati "AN examination of the effect of This is the conclusion of two Ox­ cial claim that Nyasaland stood to federation on the economic de­ ford economists who undertook to benefit economically from its fede­ velopment of Nyasaland leads to study "the economic effects on Nya­ ration with the two Rhodesias. The three conclusions. In the first place, saland of its federation with the Report on Economic Survey of Nya­ it appears that the pace of economic Rhodesia." The study* and its con­ saland. 1958-59, an official docu­ growth in Nyasaland has. in fact, been clusions are significant for a number ment, claimed that "evidence from somewhat slower since federation than of reasons. In the first place, this all sources points to a considerable in the period before 1953. . , . An independent assessment of the bene­ economic and social development in analysis of the situation, however, fits which Nyasaland actually derives the country in the course of the pre- shows that Federation has had both from political and economic- union sent decade and particularly since stimulating and retarding effects on with the two Rhodesias will be help­ 1953 when Nyasaland became part Nyasaland's development. The in­ ful in the current discussions taking of the Federation." Even on the creased public expenditures have sti­ place in London about the political basis of the data contained in this mulated development while the eco­ future of Nyasaland. Report, the above claim is. to say nomic union of Nyasaland with the the least, ill founded. UNEASY CASE more developed parts of the fede­ Secondly, the conclusions of this ration has worked in the opposite In the accompanying table of eco­ study cast strong doubts on the offi­ direction. That is the second con­ nomic indicators the authors have clusion . . . (In the third place.) association with Southern Rhodesia has benefited Nyasas by keeping open their opportunities for employ merit in Southern Rhodesia . - • (although') in other ways the asso­ ciation with Southern Rhodesia has been unfavourable for Nyasaland's economic development. The stimu­ lus to development arising from in- creased public expenditures has been, until now. solely the consequence of Nyasaland's association with North­ ern Rhodesia/' {Parenthesis ours)

* Nyasaland: The Economics of Federation by Arthur Hazlewood and P D Henderson. Bulletin of the Oxford University Institute of Statistics, February I960. (Basil Blackwell Oxford.) 1225 THE ECONOMIC WEEKLY August 6, 1960

set out the data obtained from the derson point out, "repeatedly taken transactions of the three territories, Report in a form which facilitates for granted that the economic bene­ now forming the Federation did not comparison between periods of equal fits of federation are too obvious for in each case account for more than length before and since the Federa­ detailed argument to be necessary,' 20 per cent of their respective tran­ tion came into being. Only three of whereas the discussion of the above sactions with the rest of the world the nine indicators show a bigger arguments in the context of the Cen­ during 1950-52. The authors are, percentage rise in the post- than in tral African Federation leads them therefore, perfectly justified in say­ the pre-Federation period. to conclude that "the economic case ing that the three territories are less Item (e). balances due to Post for Federation has been greatly over- inter-dependent " than other groups Office Savings Bank depositors, regis­ stated." of countries whose separate existence ters a percentage increase three times INTER-DEPENDENT? and sovereignty are taken for grant­ ed." bigger than in the pre-Federation Let us look into the arguments one period. by one. The extent to which fede­ JOINT PLANNING Item (g), consumption of petrol ration as such has contributed to About the need for joint planning, and oil is a dubious indicator: the creating a wider market is uncertain. theoretically, the argument has its same Report goes to the ridiculous As we shall observe later, whatever force but it may not be realised in extent of giving the data on the use extension of the market has taken practice in spite of federation. The of motor vehicles "as indicators of place has benefited only one of the Economic Report, referred to earlier, general development because of the three territories, and that too the most provides evidence that in respect of widespread use of motor vehicles prosperous one. As regards the crea­ capital expenditure, at any rate, among all sections of the population tion of a more stable and broad there has been a "Mack of integrated except the Africans."' Of the total based economy, "since all three terri­ planning". The Report confesses population of 2.507.000 in 1956, tories export almost entirely primary that "under the present system, in­ Africans numbered 2.580.000 in Nya­ products, and are in this respect vestment may be made in a Federal saland. similar arid complementary, the argu­ ment is robbed of some of its force; service which carries a low priority, As for item the electricitv con­ and the Federal economy as a whole judged in terms of the overall needs sumption, "'the increase since fede- remains exposed to the risk of fluc- of the territory, while higher priori­ ration is exaggerated by the fact that tuations, particularly in view of its ties in territorial services may be supply increased through the com­ dependence on the copper-mining deferred through shortage of funds missioning of generating capacity the industry." and rice versa." The 'system refers installation of which was decided to I he constitutional structure of the upon before federation." On the third argument, the authors Federation. Since the arrangements sum up by saying that it is doubtful The more important indicators between I he federal and territorial whether any degree of economic in­ like "domestic money product. 'Afri­ levels of government regarding the ter-dependence, however great, is a can personal income' and 'exports of division of responsibilities and allo­ serious argument for federation; and crop and animal produce' show a cation of revenues are not based that in the ease of Central Africa, purely on economic considerations, substantial slowing down since the three territories are less interde­ it is, as the authors say. perhaps, Nyasaland joined the Federation. pendent than is often suggested. inevitable in any federation that the Taking the cases of the U K and ECONOMICS OF FEDERATION actual distribution of public expen­ the Republic of Ireland, and of diture deviates from what would be Thirdly, they should serve to cor­ the U S and Canada, in the regarded as rational distribution. rect the widely prevalent impression period 1954-57. the proportion of that it is always to the advantage of U K share in Irish exports was The fifth argument regarding the geographically contiguous areas to 83 per cent and in imports 55 stimulus to foreign capital has been join into some sort of a union, espe­ per cent; the proportion of U S given great prominence by the sup­ cially when they are by themselves share in Canadian exports was 60 porters of the federation. Accord­ small. Such a union may or may per cent and in imports 73 per ing to the authors. "iit is highly pro­ not take the political form of a fede­ cent. As against this, inter-territorial bable that federation has provided ration but it can almost be taken for granted that an economic union is followed, if not preceded, by some sort of close political alignment be­ tween the territories joining the union. The authors of the study under review begin by discussing under five beads the economic argu­ ments which are generally advanced in favour of federation. These are: (a) the widening of the market, (b) the creation of a more stable and broad-based economy. (e) the inter­ dependence of the territorial econo­ mies, (d) the need for joint planning and fe I the stimulus to foreign capi­ tal, It is. as Hazlewood and Hen­

1226 THE ECONOMIC WEEKLY August 6, 19860

a definite stimulus to the inflow of African population." Even this had, therefore, to undertake a de­ foreign capital'" but this is due less gain, as the authors point out, tailed examination, commodity by to factors usually mentioned -i.e. "will have been more than offset commodity, of the items which are "the economic expansion which Fe­ by the effect of the tariff changes generally consumed by the Africans. deration is alleged to have brought which have been introduced as a The rate of duty under the federal about in other ways, and greater con- result of Federation". In any case, tariff on cheap cotton piecegoods fidence in the future political and the gain to Nyasaland in terms of was increased "to a rate equal to economic stability of the area" redistribution of public revenues three times that of the Nyasaland and more to the fact that the copper could have been far greater if it were tariff." that on wearing apparel to revenues no longer accrue to one to federate with the copper-rich nearly 5 times the old rate, that on territory (i.e.. Northern Rhodesia) Northern Rhodesia alone. Actually footwear to over to twice the old alone. such an arrangement would be to the rate, that on hollow are and kitchen Thus, to quote the authors, "most advantage of both the territories. utensils to thrice the old rate and of the standard arguments which have NOT TREATED GENEROUSLY that on hoes from zero to 15 per been put forward are invalid, of As for Federal expenditure on cent. Their examination of the tariff changes leaves the authors in no slight importance, or acceptable only loan account. Nyasaland's propor­ doubt '"that the changes are import­ with serious qualifications". tionate share has all along been ant and largely adverse". Also, higher than its contribution to the some of these changes have been FISCAL BENEFITS Federal current revenue. The former ''highly regressive". After disposing of the general case has ranged between 1 and 0 per cent for federation, the authors set out and the latter between 1 and 2 per TARIFF BENEFICIARY to examine the impact of the post- cent over the period 1051-58. As who has benefited from the Federation, fiscal arrangements on the authors say. "it is probably true above tariff changes? The creation the three territories. particularly that in so far as economic tests were of the customs union with a com- Nyasaland. It appears that the Vya- consistently applied the Nyasaland mon tariff has widened the market saland Government has gained wry share would continue to be the small­ for Southern Rhodesian industry substantially on current account. No est of the three". But "there are in two ways. "First, the removal doubt, the Federation has taken over other standards by which Nyasaland of all tariff barriers between the some revenues and Nyasaland incurs would appear to be treated less gene­ constituent territories of the Fede­ a net loss after allowing for its share rously". And there follows a very ration means, for instance. that of Federal Income Tax receipts. But significant statement. "There can Southern Rhodesian manufactures this loss "is far outweighed by be few if any federations elswhere now enter Nvasaland duty free federal expenditure on behalf of in which a distinctive and conspicu- whereas imports from outside the Nyasaland". The federal expendi­ ously poorer region containing over Federation are subject to duty. Se­ ture on behalf of Nyasaland. during one third of the population, would condly, the rate of duty on some the five years 1951-58. amounted to receive .so small a share of public imports has been raised to give still i 18.5 million whereas the net loss funds . more protection to Federal manu­ in revenue in the same period am­ According to the authors. '"Federal facture." ounted to only £2.0 million. As policy bus done little to disturb An idea of the diversion of de­ the authors hasten lo add, '"the ( Nyasaland s I status as the Ireland mand from imports to Southern gain shown above may be over­ of (Central Africa —poor, scenic and Rhodesian manufactures can be had stated." "One could argue that too with a ready supply of exportable from the sharp decline in imports large a share of apportioned fede­ labour". The experience of Nya­ of the items referred to above. Im­ ral expenditure has been credited saland so far should open the eyes ports of enamel ware and hollo- to Nyasaland: for example, sepa­ of the advocates of federation who ware from Hong Kong declined rate Nyasaland might spend nothing argue that a backward region neces­ from £ 120.000 in 1955 to 10.000 at all on an Air Force, and he no sarily partakes of the prosperity of in 1956. Imports of shirts from worse for this. the relatively advanced region with India declined from £ 125.000 in Also a good deal of Federal expen­ which it federates. 1954 to 4.000 in 1956 and of diture incurred on behalf of Vyasa- TARIFF CHANGES shoes from £ 109.000 in 1951 to land has been for the benefit of A reference was made above to less than I 1.000 ,in 1956. At the Europeans in that territory I for in­ changes in tariffs after the Federa­ same time, the output, of manufac­ stance. Federal expenditure on edu­ tion came into being which have turing industry in Southern Rho­ cation in Nyasaland, which increa­ had an adverse impact on Nyasa­ desia registered an increase of over sed from £43 thousand in 1954-55 land. It is worthwhile going into 10 per cent between. 1955-56 and tol'|98 thousand in 1058-59, benefits this a little further. Consequent on 1957-58. No doubt, even in Nya­ only the Europeans in that territory), federation, "all restrictions on trade saland, an increase in industrial "while other increases in expenditure between the territories were abolish­ output of about the same order took have been on services, such as police, ed and a common tariff against the place but that was accounted for which may not always be recognised outside world was eventually adopt­ almost entirely by the two raw ma­ by Africans as a benefit." If only ed". The structure of this common terial processing industries, tea and the benefits accruing to Africans "in tariff, which is deliberately protec­ tobacco, which arc ancillary to the a direct and visible win" were to be tive, is so different from that of two main cash crops of the country. taken, the gain "from Federation the old Nyasaland tariff that no Both the size of the crops and the "would come to less than simple, general comparison of rates volume of exports rose during these per annum per head of the of duty is possible." The authors years 1227 August 6, 1960 THE ECONOMIC WEEKLY

It could, therefore, be argued of the population—to the develop­ federation, similar restrictions would that the type of industrial expan­ ing centres benefits the migrants, have been imposed on the entry of sion experienced by Nyasaland took but may further reduce the oppor­ Nyasas. Perhaps. yes. But the place in spite of federation. On the tunities for the development of the argument can be overstated. In the other hand, instances are not want­ backward region itself". first place, the possibility that res­ ing which go to prove the retarding trictions may still be placed on effect of the Federation on the THE ONLY TANGIBLE BENEFIT Nyasas cannot he ruled out. Second­ It is a fact that a large number development of other industries in ly, it should not be forgotten that of Nyasas migrate to Southern Rho­ Nyasaland. remittances received from migrant desia for work. Of the total num­ It could be asked if the Federa­ workers comprise 12 per cent of ber of Nyasas in wage employment tion's detrimental effect on Nyasa- the African money income and only (383,000 in 1956). nearly 53 per land's prospects in manufacturing 4 per cent of the total African in­ cent go outside Nyasaland for jobs could be offset by an increased de­ come (i.e., subsistence as well as ; and of these migrant Nyasas, over mand for her agricultural produce.' inonev income) in Nyasaland, 75 per cent go to Southern Rhodesia. Nyasa agriculture produces com­ As the authors point out. "there modities for which there is a Still one might agree with the can be few countries so dependant world market. An increased mar­ author's conclusion that "the effect on the opportunities open for em­ ket within the Federation will be­ of federation on the status of Nya- ployment outside their borders; and nefit Nyasaland only to the extent sa workers seems to be the one tan­ despite the undoubted social evils that Nyasaland farmers obtain a gible economic advantage which of migration, and the retarding higher return by .serving a nearer Nyasaland has so far gained from effect which it may also have on rather than a more distant market. association with Southern Rhodesia'". Moreover, "it is not as if Nyasa­ economic development in Nyasaland, For the future, however. Nyasalands land"? agriculture enjoys a protected there is no doubt that a marked continuation of Federation mar market within the Federation". reduction in the number of migrant "be neither a necessary nor a Therefore, "it does not seem proba­ workers would greatly worsen eco­ sufficient condition for the conti­ ble that Nyasaland will enjoy any nomic conditions within the terri­ nued free access of Nyasa workers major benefits from federation tory" . In the past two years or so, to urban employment in Southern through an increased market for there has been a surplus of African Rhodesia". Thus, even this last the products of her agriculture". labour in Southern Rhodesia and argument in favour of Nyasaland's the Government has imposed res­ union with Southern Rhodesia, may REGIONAL DISPARITIES PERSIST trictions on the entry of foreign not be valid if the unemployment It is indeed surprising how on workers. It is argued that but for situation in the latter persists. the question of economic integration of a backward with a relatively more advanced economy, it is so easily taken for granted that such an association will automatically accelerate the development of the former. "On the contrary, there is much experience to show that diff­ erences between poor and rich areas within an economic union are main­ tained, or even reinforced, by the play of economic forces'. The ex­ perience of depressed areas in the U K. of Southern Italy and of Southern States in the U S A go to show that great regional differences can persist within an economic union, for very long periods" and the reasons are not difficult to see. "The attractions of the established centre are a commonplace of indus­ trial location theory. In the ab­ sence of deliberate governmental measures, the freer and less costly the transport between a backward and an advanced area, the stronger is the advantage of the advanced area for further development. The more open it is to the products of the- advanced area, the less chance is there of competing industries developing in the backward area. Migration of labour- --normally the most active and productive sectors 1228