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ENGINEERING FOR DEVELOPMENT

(First Draft)

E J Jefferies

March 1969

CONTENTS

PART 1 THE WORLD DEVELOPMENT PROGRAMME

Chapter 1 Introduction
Chapter 2 Closing the Gap
Chapter 3 Resistance to Change
Chapter 4 International Technical Assistance

PART II AN ENGINEERING APPROACH TO A PLAN FOR A COUNTRY

Chapter 5 Outline of the Approach
Chapter 6 Setting the Problem
Chapter 7 Basic, Concepts, Terms and Definitions
Chapter 8 Background Data Available
Chapter 9 The Starting Point for a Case Study
Chapter 10 Preliminary Calculations
Chapter 11 Patterns of Economic Growth
Chapter 12 Development Plan for Year 1
Chapter 13 Development Plan for Year 2
Chapter 14 Development Plan for Year 3
Chapter 15 Review of Changes During the Three Years
Chapter 16 The Control of Development
Chapter 17 Financing the Development

PART III THE IMPLICATIONS OF RAPID GROWTH

Chapter 18 Economic Growth and Technological Changes in Rural Communities
Chapter 19 The Influence of Agriculture on Industrial Development
Chapter 20 The Role of Manufacturing Industry
Chapter 21 The Contribution of Industrial Engineering to a Solution

PART IV DESIGNING FOR BALANCE IN DEVELOPMENT

Chapter 22 The Prediction of New Manufacturing Capacity Requirements by Product Group
Chapter 23 The Productivity of Labour
Chapter 24 The Growth of Productivity
Chapter 25 The Calculation of Appropriate Levels of Productivity in New Plants

CHAPTER 2

CLOSING THE GAP

The intention behind the "Development Decade" of the sixties was that special efforts in fostering economic growth in the developing countries would, in the ten years, begin to close "The Gap" between their standards of living and those in the industrialised countries. We are now approaching the end of the decade, and it is apparent that the Gap is still widening.

The arithmetic of this is quite simple. Both groups of countries are, on the average, achieving per capita growth rates of the same order of magnitude, between 1% and 10% per annum, averaging 2.5%. But these growth rates start from bases differing by an order of magnitude, roughly US $200 per capita Gross Domestic Product in the developing group and US $2000 in the industrial group.

Now, 2.5% of $200 gives an annual additional per capita income of $5.

But 2.5% of $2000 gives $50.

So, the Gap increases by some $45 a year.

Arithmetically, there are only two ways out of this dilemma:

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• To achieve growth rates in the economies of the developing countries at least five times greater. Even this would only stabilise the absolute magnitude of the Gap and slowly reduce it as a ratio.
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• To halt growth in the industrial group until the developing group can catch up.

The second of these would, in practice, be self-defeating since, under present conditions, growth in the developing group of countries is based largely on trade with the industrial group, which in turn depends on the continued prosperity and growth of the industrial group.

This leaves only the first solution as a possibility: to increase absolute growth rates in the developing group of countries by a factor of at least five and preferably ten.

The fundamental problem here appears at first sight to be one of investment. Economic development depends on investment, but the formation of capital for investment is currently much less in the developing group of countries - $20 a head - than in the industrial countries - $400 a head. International "Aid" for development increases the $20 in the developing group by not more than about 10%.

It might be suggested that some arrangement could be worked out to spread the total capital formation equally over investment in both groups; and since there are about twice as many people in the developing group as in the industrial group, this would make available, all round, about $150 a head for investment. This would represent an enormous increase in the flow of international development "Aid", by a factor between 50 and 100, i.e. from about $2 a head to $130. However, under all present systems of rendering aid, it is becoming apparent that the developing group of countries cannot afford even the present level of aid, since one-third of all new aid now goes straight back to its source to pay for aid previously received, and the countries providing aid cannot increase their intake of exports from the aided countries much faster than their own population growth. Such an increase in the flow of aid would break down almost as soon as it started.

So we must - however reluctantly - conclude that greatly increased rates of development will not be achieved through increased investment from foreign sources, but that some form of "bootstrap" operation, or some other type of help from the industrial countries, will have to be devised.

Let us make a new start. The problem is how to achieve very high economic growth rates starting from a very low base, noting that the absolute growth rates required are no larger than those normal to the industrial group of countries. We can agree that investment (which is, in effect, the deferment of consumption) does not guarantee development unless it is made in those things and in those ways most appropriate to the existing conditions. And, in this case, an increase in consumption of foreign capital goods cannot easily be offset within the developing economy by the deferment of something else which can earn foreign exchange, such as primary products (which are mainly foodstuffs and in any case are not wanted in unlimited quantities by the industrial countries), or manufactured goods (which are not yet being made in exportable quantities or qualities), or services such as banking, shipping and insurance (which developing countries normally do not yet have on an international level).

It can be observed that the build-up of very large capital reserves in the oil-exporting countries, which might have been expected to lead to rapid overall socio-economic development if investment were the limiting factor, has had only marginal effects. The limitation is obviously to be found in the local scarcity of human resource factors.

Going back to fundamentals, what is it that we are really aiming at? Economic development is basically concerned with the increase in economic use of resources; and the basic resource of all countries is their population. All other resources of a country - its minerals, forests and wild animals, soil fertility and rainfall, climate and scenic beauty, strategic situation on a world trade route, and so on - will like dormant until they are operated on by the population. Economic development can therefore be equated with an increase in the economic activity of its population. So the key to our problem probably lies in maximising the rate of development of its human resources.

Let us first see what are the magnitudes of the required developments. In the first arithmetical solution proposed for our dilemma, we suggested that we need an increase in the rate of economic growth by an order of magnitude, e.g. to between 10 and 100% per annum instead of 1% to 10%. Let us say in round figures that we need an initial target of 25% per annum in growth of per capita GDP, assuming starting points at $200 and $2000, to have any prospect of closing the Gap, even over a long period of time. We can plot hypothetical curves of the progress of the two groups of economies over sixty years, as shown in Graph I. In these curves for the two groups of countries, the absolute magnitude of the annual increases in each in per capita GDP at the mid-point of each period during which the level of the developing country doubles, are:

So, in absolute terms, the curve for the developing group represents a continuous increase in the annual magnitude of development (though the percentage increase gradually diminishes) maintained throughout at a level about one-third higher than in the industrial group. The key period in a growth of this type would be the first three years, during which economic activity is to be doubled. This initial three-year period would correspond to W W Rostow’s "Take-Off" point³.

Growth rates of 25% per annum for a complete economy have never been achieved⁴ (though growth rates of 50% to 100% per annum in the first few years of operation of single new activities, e.g. services and factories, are common enough). But growth at a rate of $50 a year in per capita GDP has been achieved. Our typical developing country needs only a modest increase above this figure.

The first three years, and also in a less degree the second doubling period of six years, represents sudden and massive social changes. These can be calculated as follows:

This implies two things to be accomplished during the first three years:

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• Two-thirds of the agricultural workers must learn new techniques sufficient to double their productivity.
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• One-third of the present agricultural workers (i.e. 16% of the total work force) must learn completed new trades and adopt a new way of life.

If these changes are to be accomplished at the same time that outputs are rising rapidly, formal and intensive education (however necessary and desirable) cannot be the key, since people exposed to intensive education cannot at the same time continue producing, even at their former rate. For comparison, some of the industrial countries which have mounted intensive retraining courses for the redeployment of workers displaced by technological change, are currently retraining up to 1% of their work force at a given moment, which may add up to 6% in three years, compared with the 16% we need.

Similarly, the key cannot be the sudden establishment of sufficient large imported factories to more than double the production of manufactured goods, since these take some five years to plan and install.

It seems that the solution must lie in the development of some new and unorthodox method of providing rapid increases in the outputs of agriculture, manufacturing, services and construction industries, transportation and trade, without massive financial investment, and using initially unskilled labour.

This would appear to imply:

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• Seeking out and using every available individual with capacity to innovate.
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• Planning for very rapid obsolescence.
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• Extensive exploitation of every rapidly convertible natural resource and waste product on a short-term basis, without too much regard for long-term efficiency.

Extensive non-academic education in all fields, including the development of unorthodox methods of "learning-by-doing".

The Industrial Engineer’s part of this problem of re-education is not so extensive as that of the Agriculturist. He has to accept and use somewhere around one-third of the agricultural workers leaving agriculture (i.e. one-twelfth of the total work force), since the other two-thirds will go into services - transport and communications, commerce etc. However, his problem will be more intensive since he will be dealing largely with people having no mechanical background, no tradition of regular eight-hour day working, and no experience of life as town dwellers; that is, with that part of the population most affected by social changes and most likely to develop resistances to it.

Luckily for him, the Industrial Engineer is not directly concerned with planning the overall strategy of an economic development of this nature. But he has a key role in the tactics of development of the industrial sector. Many potential causes of social unrest can be minimised by his skillful and appropriate design and location of new industrial enterprises.

A few guidelines may be suggested for points to watch in the overall design of an enterprise:

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• To find out in advance the characteristics of the labour force which the new factory will have to employ: age, sex and tribal structure; literacy; mechanical abilities; acuity of perception; ability to learn by different methods.
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• To design the chain-of-command structure to contain those forms of authority which are likely to be most readily acceptable in the local culture at different levels.
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• To design processes and equipment to be within the physical and mental capacity of the work force to operate and maintain.
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• Where a choice exists, to select product designs and materials which are not too far removed from the past experience of operatives.
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• To build into the staffing structure opportunities for learning by doing and for advancement, so as to exploit the limit of the capabilities of the individual workers.

These, of course, are in addition to another set of considerations posed by the rapid expansion of industry:

A Quick Start:

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• Immediate availability of raw materials and immediate marketability of product, at the projected quality and price levels.

A Cheap Start:

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• Minimum initial scale of operation;
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• Lowest marketable quality of product;
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• Minimum initial investment, especially in foreign exchange.

Rapid Expansion:

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• Planned increases in output and quality.
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• Emphasis on product and market development.
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• Short-term obsolescence.
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• Flexible layout of buildings and production lines.

Plough-Back of Surpluses:

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• Maximum reinvestment out of turnover.

Planned Development of Human Resources:

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• Built-in opportunities for managers, supervisors and operatives to learn by doing; and to "grow with the firm".
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• Controlled initial level of productivity of labour, to match the general economy at the time of entering the market.
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• Controlled growth of productivity as the firm grows, to match the development of the general economy.

As far as the manufacturing and service sectors of industry in developing countries are concerned, there is already one group of undertakings where all of the above criteria are already being applied, maybe unconsciously. This is the group which is perhaps best described as "Modern Small-Scale Mechanised Industry", where "Modern" implies the use of modern financial, commercial and management methods, albeit in elementary forms, as distinct from the methods used in cottage handicraft production; where "Small-Scale" implies that there is a very limited division of entrepreneurship and management functions - essentially a one-man show, or at least one in which a single person can provide all the innovative and driving forces in all departments; and "Mechanised" implies the use of mechanical power sources in excess of the equivalent muscle-power of the labour force.

This is the "Cinderella" sector of a developing economy. It attracts least support from its own government, which, acting as coordinator of foreign "Aid", is preoccupied with relatively large individual projects most of which are concerned with infrastructure or semi-monopoly manufacture. It attracts very little support from foreign investors or credit sources since each undertaking has very small purchasing capacity and credit-worthiness. And its individual undertakings cannot attract direct international "Aid" as at present organised.

One can conclude, therefore, that as far as the industrial sector of a very rapidly developing economy is concerned, there would be a need for some new type of international "Aid", combined with new technical and commercial assistance mechanisms within the government framework. These are already beginning to take shape in the forms of Industrial Development Banks supported by foreign funds and of Small-Scale Industry Service Institutes and Management Development Centres, supported by governments. However, where these exist, there would seem to be a great need to widen their scope and simplify and accelerate their operating procedures, recognising that in this sector the failure rate is bound to be high, as in any country whether developed or not.