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Issues in Heavy Industry Development Inasia^ .^^ Issues in Heavy Industry Development inAsia^ .^^. -,^*-J.. -T.. • , ; • ' fr ^' xr - - :-"::A'-A - - I ' •'' • • ^ 1 si •- ' ':x:x X.. AAA... X.:.Ai- Axxx - -Jx • ' " ' '•' ' '• rt..v-.:..-".•'•:) •.?». I.. :• :.x';' X' "ix-- By : Harry T. Oshima Ringkasan Pada awal tahap industrialisasi, pertumbuhan ekonomi hanya mungkin di- maksimumkan meiaiui peningkatan investasi denganpenekananpada sektor konsumsi. Jenis investasi yang ditingkatkan pun iebih condong ke arah in• dustri-industri barang modal ketimbang industri-industri barang konsumsi. Hai ini yang menyebabkan timbulnya keinginan untuk memperkembangkan industri berat pada tahap itu. Pandangan semacam ini dikemukakan oieh ekonom Rusia, G.A. Fei'dman yang modeinya kemudian dicoba diterapkan di India oieh Professor Mahalanobis. Dengan berkembangnya industri-industri barang modal, menurut model ini, suatu negara akan berhasii memproduksi mesin-mesin dan peraiatan industri untuk industri-industri barang konsumsi serta peraiatan dan masukan-masukan lain bagi sektor pertanian — seperti misalnya pupuk-yangdapat meningkatkan PDB, meiaiui peningkatan baik di sektor industri-industri barang konsumsi maupun industri-industri barang modal. Ekonom lain, Albert Hirschman, menambahkan bahwa daiam proses industrialisasi yang utama adaiah menemukan "linkages" dari industri-indus• tri yang ada. Dan ternyata industri-industri semacam besi baja, kertas dan ba- 1 The paper is an extension of the latter portions of a talk I gave at a symposium of the Philippine Society for International Development, July 17, I98I inMakati, entitled "Experience of Other Developing Countries and Its Relevance to Philippine Industrial Development" EKI. Vol. XXXn No.l March 1984 31 han kertas, minyak, industri kimia dan semacamnya itu yang memiiiki linka• ges" yang tinggi Oieh karenanya periu diperkembangkan daiam tahap awai proses industriaiisasi Berdasarkan pemikiran tersebut, artikei ini mencoba meiihat penga- iaman-pengaiaman industriaiisasi di Brasii, India, Korea Seiatan, Jepang dan Taiwan khususnya yang menyangkut industri-industri berat seperti besi baja dan industri petro kimia. Ternyata dari hasil penelitian yang ada, di daerah Asia bukannya pada industri-industri berat tumpuan harapan ne• gara-negara ini di masa depan, meiainkan pada industri-industri manufak- turing, yang secara umum iebih padat karya Oieh karenanya, bukan merupa• kan suatu kesaiahan bila negara-negara Asia meletakkan program pengem• bangan sumberdaya manusia sebagai prioritas daiam program-program pem• bangunan mereka. Hanya periu diingat, jenis-fenis tenaga kerja yang akan di• perkembangkan harus benar-benar sesuai dengan strategi industriaiisasi yang teiah diietakkan. - , . , „ r i L Introduction: The Problem and Its Significance This paper is an attempt to identify issues and to explore hypotheses for a study of heavy industries in Asian industrial development of heavy industries in Brazil, India, South Korea, Japan and Taiwan in June and July (1982). The main focus is on the iron and steel and the petrochemical complexes. (Com• ments will be most welcomed). After describing in this section the nature of the problem and its im• portance, we attempt to define and delineate the characteristics os the so- called heavy industries in the second section. In the third, the postwar record of industrialization in Asia is presented and the performance assessed. In the fourth section industrialization policies pursued in Japan and elsewehere are described and lessons that may be pertinent to Southeast Asia as it moves into the industrial society in the 1980s are considered. With the slowing down in the growth of agriculture for the 1980s but no let-up in the growth of labor force in most of the 1980s, Souttheast Asia will have to turn to indus• trialization to generate jobs. But this is not going to be easy if the world economy slows down in the 1980s and protectionism against labor-intensive manufactures expand particularly for Southeast Asia which must contend with competition from a formidable array of NIC's (Taiwan, Hong Kong, Singapore, South Korea) and a rapidly emerging giant, China, all close-by neighbors. 32 EKI. Vol. XXXn No.l March 1984 It is understandable that countries in Southeast Asia are showing such keen interest in the establishment of heavy industries. Plans have been announced in the Philippines for "11 Big Projects" inclusive of iron and steel, petrochemical complex, aluminum and more copper smelters, all of them heavily capital-and technology-intensive. And similarly ambitious plans have been laid out in Malaysia and Indonesia, some of them already under cons• truction. In this paper, an attempt is made to examine some of the arguments set forth in justification for heavy industries. We begin with the arguments found in the various theories of development. The most influential model of heavy industrialization asserts that in the early stages of industriahzation, secular growth is maximized by increasing the share of investment at the expense of consumption, and raising the share of investment in the capital-goods industries relative to the share of invest• ment in consumer-goods industries. The author is the Soviet economist, G. A. Fei'dman, whose model influenced Professor Mahalanobis to work out a similar model for India.* In the prewar decades the U.S.S.R., and in the 1950s, the East European bloc, China, North Korea and (through the Maha• lanobis version) India have adopted the Fei'dman model and have started their industrialization drive with the capital goods industries which in practice translate into heavy and capital-intensive industries. The rationale of the model is that in the early stages of industrialization the establishment ini• tially of capital-goods industries will enable the country to produce machines and industrial materials for the consumer goods industries, and equipment and modern inputs (like chemical fertilizers) for agriculture, thus enabling the GNP to accelerate as productivity rose in the consumer industries and in the capital-goods industries with scale-economies as time went on instead of relying on insufficient foreign exchange to import macliines from foreign countries.* 2 See E. Domai, Essays in the Theory of Economic Growth, Chapter IX, Oxford: 1-57. 3 "In the long run, the rate of industrialization and the growth of the national econo• my would depend on the increasing production .... heavy chemicals and heavy indus• tries in general, which would increase the capacity of capital formation. Our important aim is to make India independent as quickly as possible of foreign import of producer goods so that the accumulation of capital would not be hampered by difficulties in securing supplies of essential goods from other countries." From the Second Five-Year Plan, quoted in A.M. Choki, State Intervention in the Industrialization of Developing Countries: Selected Issues, World Bank Staff Working Paper No. 341, Washington, D.C.,I979. EKI. Vol. XXXII No.l March 1984 33 Another important theory is that of Albert Hirschman in TTie Strategy of Economic Deveiopment, yale University Press: 1958, which for the de• veloping countries in the private enterprise countries was influential in pro• moting the establishment of heavy industries, particularly in Latin America. Many arguments are presented in the book but the heart of the argument is that the growth of developing countries must be induced (or compelled) and the trick to development is to provide as many inducing mechanisms as possible. The most important of such mechanisms is that industries which have the most and strongest linkages (both backward and forward inter- dependecies as in the input-output tables) are the industries to be given top priority in the early stages of industrialization. Hirschman finds the linkage-intensive industries to be iron and steel, nonferrous metals, paper and pulp, petroleum; chemicals and the low linkage industries to be trade, service, fishing, electric power, agriculture, transport, mining, etc.* Finally, the infant industry concept argues that given sufficient time, heavy industries can acquire scale economies, skills and experience, enough capital and so on to catch up and become internationally competitive. Other arguments by the advocates in Southeast Asia are more specific to the present period and conditions: That with increasing protectionism in the developed countries on labor-intensive, light industry exports, developing countries have no alternative but to shift to capital-intensive manufactures, that the newly industriaUzing countries such as Taiwan and South Korea) have achiev• ed rapid growth via heavy industries, and that if developing countries were to wait too long, the costs of construction of these big scale projects will multiply with fuel and other prices rising;and that when the world economy picks up in the near future the present over-capacity in steel, petrochemicals, aluminium, copper and other basic industry will disappear and LDC's will again be at the mercy of the more developed countries. These issues will be examined in the next section. n. The Structure of Heavy Industries: the Growing Complexity of In• dustrial Technology There is a need to clarify the term, heavy industries. In the foregoing section, other terms such as capital-intensive, and capital-goods have been mentioned, and other used by engineers are up-stream and low stream, process and as- 4 N. Kandor's theory focussing on manufacturing as a whole rather than heavy indus• try as such is discussed in the section
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