Alternative models of development

By Sediono Tjondronegoro

BOGOR (JP): The search for alternative models of development is inseparable from the history of nation-states from the 18th century onwards and the creation social-economic systems known since as liberal democracies.

The predominance of the agrarian structure gradually changed from small into subsequently heavier industries to sustain the former.

The demand for capital led to the creation of a banking system. The exploitation of raw materials, coal mines in particular, fed the growth of energy production, which long preceded the discovery of oil and gas. Even hydroelectric power was developed at a later stage.

Industrialization in the West, originating from Europe, has therefore become the basic development paradigm, transforming from agrarian-based nation-states to industrialized ones. Historical records show clearly that the search for energy sources started with the exploitation of coal mines. Iron ore was the primary raw material before any other metals now used in the industrialization process.

Gold, which has for long been considered a precious metal for its intrinsic value, became the foundation of the banking system. The mercantile system developed into a general banking system based on gold bullion.

Such were the initial conditions that enabled a capitalist system flourish across the continents.

The liberal revolution of the 18th and 19th centuries involved, to various degrees, most of the Western European countries -- countries such as England, Germany and France -- with the other smaller countries following in their footsteps. There was, however, one substantial difference.

The expansion of the Western European nation-states in to other continents, such as Asia and Africa, from the 17th to 19th century, was certainly part of the capitalist industrialization process.

In the colonized territories, agricultural development, expansion of plantations, and the growth of manufacturing industries, in essence, corresponded to the liberal model. The presence of raw material and the exploitation of cheap labor were conditions which allowed the industries of Western Europe to flourish.

This course of events was repeated on the North American continent when the industrialization of the United States and Canada, in the 19th century, profited from the conditions in Latin America.

The American Civil War (1860-1865) attracted thousands of Afro-American workers to the North, but with the rapid economic growth of the United States, many Latin-American workers also migrated to the North. Today, Haitians, Cubans and Mexicans, who are closest to the American border, are still eager to find employment in the U.S. due to higher wages than in their home countries.

The period following World War II witnessed the birth of new nation-states, particularly in the ex-colonial territories of Asia and Africa. Several countries in Latin America and Asia were not colonized. However, they remained economically dependent on Western powers. Japan was one Asian country which became an economic and political equal of the West.

It was in this post World War II era that a differentiation in categories of countries and also of development models emerged. Ideologically, there was a split into the so-called free-world, or liberal democratic countries on one hand, and socialist/communist countries on the other.

An in between category was the welfare-state country, a form that is basically capitalistic, but with enough public intervention which restrained the extreme practices of capitalism. Minimum wages and a variety of social securities were enforced upon private companies in cooperation with trade unions as a third partner.

For a period of almost forty years, the two major development models, often referred to as East-West or capitalist versus socialist, dominated the competition between the two blocks. Because of the cold war situation, in which a stalemate occurred between superpowers, the economic system functioned separately: free enterprise on one side and public enterprise, with heavy state intervention, on the other.

It is difficult to come up with a rationale that led to the relaxation of the stalemate and the total collapse of the Eastern Communist block in Europe. A change of course in the Soviet economy (Perestroika and Glasnost) made other economies in the Soviet satellite states of Eastern Europe crumble.

The five decades after World War II proved to be inadequate to firmly establish a new economic system in Eastern Europe, and in socialist countries on other continents.

In this period we have seen a distinction between developed and developing nations, a distinction which cuts across political ideologies. In other words, there are as many developed countries in the so-called free world hemisphere, as there are in the socialist hemisphere.

Countries like South Korea, Taiwan and Hong Kong have become little dragons because of their successful economic performance.

Similarly, countries like the Czech Republic, Slovakia, Romania and Hungary in Eastern Europe have also been relatively successful in setting up their industries.

The successes registered are often ascribed to a variety of factors, but even in the absence of inadequate raw materials, a more decisive factor seems to be the quality of human resources. The best examples today are Japan and Singapore in Asia, both countries have a minimum command over raw materials, but possess a high potency of qualified human resources.

This has been the difference that seems to have determined the model of development in those countries. Access to and command over technology was given priority in the race towards modernization, against other countries who were generously bestowed with raw materials and resources, but containing less qualified human resources.

Progress in development has been more significant in the former category of countries.

In cases of countries well-bestowed with natural richness, but with a majority of unskilled labor, the most obvious development model has been to rely on exports of those resources. Industries thereby stimulated were those related to mining, hydroelectric power, oil and gas exploitation, logging and exports of wood products, agricultural produce, fishery products and so forth. These have been the unprocessed raw materials, characteristic of the extracting industries.

With the rise in population, unemployment could not be solved satisfactorily within a shorter time lapse. Overexploitation of natural resources was the effect, also due to capital investments and insufficient access to technology. As a consequence, encroachments upon the environment were made, and what remained, as a problem, was the noninvolvement of millions of peasants and unskilled laborers.

The thrust was, therefore, to expand the processing line so that more workers could be involved; this has now been known as the extension of the value-added process. In the logging industry, for instance, logs can no longer be exported directly, but have to be processed first. A timber and plywood industry emerges to absorb more workers, and in this way, part of the unemployment is at least eased.

Furthermore, small industries popped up once this value-added process was accepted and implemented. Waste products can further be utilized, for instance, by a handicraft industry or recycled into raw materials for the production of other commodities. Recycling of plastics is one example of the utilization of waste products, there are many more.

Arrears in the race towards modernization have been the result of previous imbalances in development as well as access to technology between developed or industrialized, and developing or nonindustrialized countries. The latter are presently in the process of changing their agrarian structure and moving towards an industrial one.

Despite the negative impacts the world is suffering from as a result of previous and present development models, the trend towards industrialization can no longer be redirected. One major reason is the mere fact that the agricultural sector can no longer absorb a larger population, particularly in developing countries with a modest economic growth rate.

Meanwhile, automation with the use of robots in industrialized countries has increased productivity. However, at the same time, it has reduced employment opportunities at home.

With increasing social security and overhead in those countries, unemployment has occurred in the sense of less work without poverty reduction.

Technical assistance is one form that is meant to transfer knowledge and software technology from developed to developing countries. However, the difference between the two categories of countries will remain as long as the industrial and technology gap is not narrowed.

Efforts to narrow the gap between developed and developing countries have unleashed new potencies -- political as well as economic -- where the collaboration between countries seems to be more urgent than ever.

No doubt, established power centers are not always willing to narrow the gap voluntarily. In order to do this, there are objective factors to move all countries in the same direction of sharing resources and embarking upon an international system of division of labor. In a final analysis, comparative and competitive advantages -- as concepts of a liberal economic growth in nation states -- should no longer exist. That is, in essence, the substance of such warnings as "One World Only," "The Limits To Growth" and so forth.

This is clearly an indication of the fact that we are approaching the limit of our world's natural potencies. Only technology and the command over it can save us from progressive future shortcomings. New products and material have to be invented to feed the growing population, and also to steadily achieve welfare increments for all.

This process should simultaneously be endeavored by preserving our world's natural resources, and also to search for alternative energy sources and new ways of organizing productive activities.

Now that every society, and the ones to emerge, are considered sub-societies of a global community, it becomes an increasingly pressing necessity to also reconcile social, economic and technological discrepancies between developed and developing countries.

Within the limits of this 20th century world's population there is an opportunity to witness the development models. The free enterprise system and the guided economic system have been demonstrated side by side.

Developing countries which followed the former path have, in the 1990s, been more successful economically than the ones which adopted the latter system.

Towards the end of this century, it appears that those two alternatives have been reduced to one, and almost like the 18th century, a liberal economic version has proved to be more dominant.

Political and economic leaders in developing countries are now facing multinational conglomerates full-force. There is almost no alternative that they can offer, since locking oneself from the world market would exclude those doing so. Autarky for any country appears to be a sheer impossibility in the next century.

Environmental awareness and wisdom requires a mental orientation that is no longer confined to individual nation- states, because the world's richness is common property of all nations as a large community.

Greater equity of opportunities for all may not only mean leveling up the welfare line in developing countries, but also, at the same time, somewhat restraining the affluence of developed countries.

Are individual nations prepared to commence that way?

It appears that before development can be redirected and new models of development can be implemented, a consensus among nations has to be reached so that greater equity and a better international division of labor can be created. Gradually, the nations of a comparative advantage will be replaced by an equity for all and a renewed division of labor among nations.

Not until this becomes a common goal will there be a comprehensive alternative development model for our world community.

The writer is a professor at the Bogor Agricultural Institute.