2 Dimensions of the Development Gap

Deprivation in developing countries is not simply a matter of low levels ofper capita income. There are many other dimensions to the development gap between rich and poor countries. Developing countries generally experience much higher levels of unemployment, open and disguised than do developed countries.

The levels of education, health and nutrition are often abysmally low, and income distribution tends to be much more in egalitarian. Policy in developing countries is increasingly concerned with these other features of the development gap. The basic reeds approach to development, pioneered by the World Bank, is a reflection of this switch of emphasis from exclusive concern with per capita income to these wider development issues.

Unemployment

The developing countries contain a huge reservoir of surplus labour. For a long time, poor countries, particular since the population explosion, have been characterized by underdevelopment of disguised unemployment in rural areas. What has happened in recent years is that disguised rural unemployment has transferred itself into disguised and open unemployment in the towns.

Unemployment in the urban areas of developing counties ins another dimension of the development problem and an increasingly serious one. The rationale for rural-urban migration will be considered later, but first let us outline some of the facts on employment and unemployment. According to the International Labour Organisation (ILO) in Geneva, 1 billion people in developing countries are either jobless or underemployed, which amounts to one-third of the total working age population.

This represents a colossal challenge, particularly as the workforce is expected to grow on another 1.5 billion by the year 2025. The ILO argues for a renewed commitment by developing countries to the goal of employment creation, and not to treat current employment levels as natural and the inevitable outcome of market forces, as if nothing can be done.

The ILO estimates that at least one billion new jobs need to be created in the next ten years if the proportion of people living in poverty is to be halved by 2015. The World Bank devotes its 1995 World Development Report to the conditions of employment in developing countries, and it painted a sombre picture.

To stop unemployment rising there has to be employment growth of at least 2 per cent per annum, which requires output of at least 4 per cent per annum. Not many countries are able to grow this rapidly. The statistical evidence across countries tends to suggest that rapid employment growth is associate with the implementation of market based policies and openness to trade. In particular employment growth is strongly related to manufacturing export growth, which in turn is closely linked to the skill to land ratio of countries.

All this is very aggregative analysis. The issue still to be addressed is the emergence of increasing urban unemployment. The problem is not so much one of a deficiency of demand for labour in an aggregate demand sense. The causal factors relate to the incentives for labour to migrate from rural to urban areas, and the incapacity of the urban areas to provide employment owing to a lack other necessary factors of production to work with labour particularly capital. As far as migration is concerned, there are both push and pull factors at work.

The push factors have to do with the limited job opportunities in rural areas and a greater willingness and desire to move, fostered by education and improved communities. The pull factors relate to the development of urban industrial activities that offer jobs at a higher real wage than can be earned in rural areas, so that even if a migrant is unemployed for part of the year, he or she may still be better off migrating to the town than working in the rural sector.

If there is no work at all in the rural sector, the migrant loses nothing, except perhaps the security of the extended family system. The rate of growth of job opportunities in the rural sector depends on the rate of growth of demand for the output of the rural sector and the rate at which jobs are being ‘destroyed’ by productivity growth.

As we saw in our previous example if the demand for agricultural output is growing at 1.5 per cent and productivity is growing at 1 per cent, then the growth of labour demand will be 0.5 per cent. But it the labour force is growing at 2 per cent there will be a 1.5 per cent gap between the supply and demand for labour.

If the level of disguised unemployment in the rural sector does not increase, this figure constitutes the potential volume of migrants. If the urban labour force is one quarter of the size of the rural labour force, a 1.5 per cent migration of rural labour would represent a 6 per cent increase in the urban labour force owing to migration.

On average, this is about the extent of the influx from the rural sector into the urban areas of developing countries. On top of this there is the natural increase in the workforce in the urban areas to consider; this is of the order of 2-3 per cent. If job opportunities in the urban areas are increasing at only 5 percent, then 4 per cent of the urban labour force will become unemployed each year, thus raising the amount of urban unemployment year by year, forcing labour into the informal service sector. In that case, unemployment shows up on poverty.

Historically, the process of development has always been associated with, and characterized by, an exodus from the land, continuing over centuries. The uniqueness of the present situations is not the migration itself but its magnitude and speed. And the problem is that the urban sector cannot absorb the numbers involved. For any given technology, the rate of which the urban (industrial) sector can absorb migrants largely depends on the rate of capital formation.

If labour and capital must be combined in fixed proportions, and the rate of capital accumulation is only 5 per cent, then the rate of increase is job opportunities can be only 5 per cent also. Unfortunately, however, the problem is necessarily solved by a faster rate of capital accumulation in the urban sector, because migration is not simply a function of the actual difference in real remuneration between the two sectors, but also of the level of job opportunities in the urban sector. If the rate of job creation increases, this may merely increase the flow of migrants with no reduction in unemployment.

The solution would seem to be to create more job opportunities in the rural sector. This will require, however, not only the redirection of investment but also the extension of education and transport facilities, which in the past few years have themselves become powerful push factors in the migration process.

Whereas formerly redundant labour might have remained underemployed on the family farm, nowadays education and easy transportation provide the incentive and the means to seek alternative employment opportunities. While education and improved communications are desirable in them, and facilitate development, their provision has augmented the flow of migrants from rural to urban areas.

The pull factors behind migration are not hard to identify. The opportunities for work and leisure provided by the industrial, urban environment contrast sharply with the conservatism and stultifying atmosphere of rural village life and naturally act as a magnet for those on low incomes or without work, especially the young.

Given the much higher wages in the urban sector, even the prospect of long spells of unemployment in the towns does not detract from the incentive to migrate. Moreover, the choice is not necessarily between remaining in the rural sector and migrating to the urban sector with the prospect of long periods of employment. The unemployed in the urban sector can often find work, or create work for themselves, on the fringes of the industrial sector — in particular in the formal services sector of the urban economy.

The wages may be low, but some income is better than no income. In other words, unemployment in urban areas may take the form of underemployment, or become disguised, just as in the case of the rural sector, its manifestation being low income. This has led to the notion of an income measure of unemployment, which needs to be added to register unemployment to obtain a true measure of unemployment and the availability of labour supply.

One way of measuring the extent of unemployment disguised in the form of low-productivity/low-income jobs is to take the difference between the actual labour employment at the sub-standard income and the labour that would be required to produce a given level of output of service at an acceptable level of income per head.

Before measurement can take place, of course, the acceptable (standard) level of income has to be defined. It could be that level set as the ‘poverty line,’ below which health and welfare become seriously impaired. The income measure of unemployment would thus be that is, one-half of the existing labour force is disguisedly unemployed in the sense that the level of output is not sufficient for those who currently work to maintain an adequate standard of living.

The above analysis of employment and unemployment trends in developing countries points to a number of policy implications that were also highlighted by the ILO in 1969 when it first sponsored missions to several countries to undertake a detailed diagnosis of the employment problem. Certainly an adequate rate of output growth is required to employ workers entering the labour market for the first time and to absorb the effects of productivity growth, but much more is required.

There is a case for the use of much more labour-intensive techniques of production, and the issue of rural-urban migration needs to be tackled by promoting more employment opportunities outside the urban centres, particularly for young people. Without such measures, unemployment will continue to grow, especially in urban areas.

Education

Another dimension of the development gap is the difference in educational opportunities between rich and poor countries, which manifest itself in much lower primary, secondary and tertiary enrolment rates in developing countries; much higher levels of illiteracy; and lower levels of human capital formation in general. This has a number of adverse consequences for the growth and development process.

Low levels of education and skills make it more difficult to countries to develop new industries and to absorb new technology; it makes people less adaptable and amenable to change; and it impairs the ability to manage and administer enterprises and organizations at all levels.

As the famous American economist John Kenneth Galbraith once said: ‘Literate people will see the need for getting machines. It is not so clear that machines will see the need for literate people. So under some circumstances, at least, popular education will have a priority over farms, factories and other furniture of capital development’ (Galbraith, 1962).

Available literature and statistics show the relative under provision of education facilities and opportunities in many poor countries, and the low rate of literacy in the poorest countries. In the primary and secondary sectors, the percentage sometimes exceeds 100 per cent because the gross enrolment ratio is the ratio of total enrolment, regardless of age, to the population of the age group that official corresponds to that level of education. While primary education is universal in high income countries, one quarter of children in poor countries still receive no primary education.

This amount to 125 million children, a third of whom live in Africa. In 1990, the world’s governments pledged to provide primary education for all by the year 2000, but clearly the commitment has not been met. In 2000, the pledge was renewed (by the so- called ‘Dakar Framework’) to provide universal primary education in poor countries by the year 2015 (the same date as the poverty reduction target): indeed, this is one of the `Millenium Goals.’

The estimates cost is $10 billion a year. This will required a reorientation of priorities in poor countries (e.g. less expenditure on arms and wasteful subsidies), more aid from donor countries, and more help from the World Bank. The World Bank readily admits that, until the recent past, it has neglected educational (and other social) expenditure in its lending policies.

There Is also a huge discrepancy in the provision of secondary education, with only one half of the age group in low-income countries receiving and education beyond the manifests itself in high level of adult illiteracy. A huge gender gap is also evident. in low-income countries, 30 percent of males are illiterate, and almost 50 per cent of females. Among the poor countries, China performs well, but in many of the poorest countries in Africa female illiteracy is way over 50 per cent. The gender gap narrows at higher income levels, but is still evident.

Developing countries neglect educational provision at their peril. Research also shows a strong correlation across countries between levels of human capital formation and growth performance.

In the following unit we present an analysis of the theories of underdevelopment and dependency for the simple reason of wanting to assess how relevant these theories are in explaining the status quo of many developing countries, especially as it relates to the characteristics outlined above. Furthermore, it would be interesting, for the purpose of this course to apply these theories to the apparent lack of human development in the Third World.