4 , - * " i z(

OWSTOE Eeonomy Sect ion

The pr inc ipa l r e s u l t s of a recent ORSTOX study of equipment product ion in developing countr ies are discussed in t h e pages which follow. This t e x t i s ava i lab le i n condensed vers ion i n the septenber issue of t h e Frencl-r publication "LC ilonde niplomatique".

Equipment goods Froduction i s the almost exclusive donain of the indus t r i a l countries. Although t h e developing countr ies have increased t h e i r production a t annual rates g rea t e r than 10 % during t h e 1969's, t h e i r share of world product im has leve l led off a t around 5 X. Needless to say t h i s 5 % cozes f r o n i? small number of countr ies (bas ica l ly Argentina, > raz i l , India and 1Iexico). \

Prevai l ing economic theory views t h i s s i t ua t ion as the see- mingly upavoidable consequence of t he i n t e m a t ional d iv is ion of labor which would exclude t h e develoy7ing countr ies from those sectors of pro- duction t h a t involve tno,complex technologies, too heavy f inancial burdens etc... A. recent ORSTO?l(lstudy of Brazil ancl India (2) shows t h a t ehe econo- mic v a l i d i t y of these hynothcses i s not beyond question.

m y i s it importact f o r Third TJorld count r ies t o produce t h e i r o m equipment goods ? There a r e a t l e a s t two major reasons. The f i r s t reason is l inked t o an obvious f a c t : a country can on.ly provide i t s e l f with machinery and t ranspor ta t ion equipment (buildings and public works a r e excluded from che ana lys i s ) by producing it o r by importing it. Eut 40-60 X of the goods imported by the developing countr ies i s equipment. An increase i n thispercentage i s hard to imagine as the percentage of t h e other item iinported i s unl-ikely t o decl ine. The volume of l oca l equi- pment production thus d i r e c t l y determines the amount of dor;lestic investment.

The second reasozz i s clue t o t h e f a c t t h a t expenditure brought about by the absence of loca l productiori i s not l imited t o the commercial balance. The purchase of foreign tectlnology ( l icenses , patents , teclmical ass i s tance services) of ten means t h a t l o c a l engineers areinexperienced i n concei-ving, producing, o r using equipment, Almost a l l the import c r e d i t s a l loca ted t o developin,n countr ies a r e earmarked f o r such eoods. Las t ly , the direct investrmnts of fore ign f i rms i n these cour,tries a re growinglY, devoted t o equipment goods production and more general ly , t o production of g,ods involving the use of complex technologies, which leads again t o tec'hr?.ological problems. Thus the lack of development of equipment pro- duction i n Third Uorld count r ies may be considered t h e major cause of t he f i n a m i a l dependence of these countr ies on t h e i n d u s t r i a l countries.

rF .-'ne accepted theor ies f ind many ways t o j u s t i f y o r explain why t h e Third World docs not produce more equipment goods. The argunents of these theor ies f a l l i n to three major ca tegor ies : 1) the domestic markets i n these count r ies arc_ too l imited 2) it almost always cos ts less t o import equipnent goods than t o produce them loca l ly ; 3) t he e q u i p e n t s necessary f o r constructing a modern economy involve a technology which i s too diverse and too complex f o r an indus t r i a l ly young country t o consider manufacturing t h a .

!Ehe l imited s ize of domestic markets

Are the domestic markets as l imited as i s said ? B i r s t o? a l l : it i s t r u e t h a t when speaking of the msrkcting of e q i p n e n t i n a given country, it i s the domestic market t h a t i s relevant - a t l e a s t i n the present s t a t e of in te rna t iona l r e l a t i o n s : even i n P raz i l o r i n India, equipment exports a r e very undeveloped ;I i t ne in ly cons is t s of simple products (enzines, o f f i c e ma- --__-- chines2-y=res and cables...) and i t s f u t u r e i s risk.y bemuse these i t e n s are ( l ' ) O f f cce de. l~~.Ke'cherche~iScierrtif iqu'e:et-,Technique Uu~re-Mcir;;:24! me . BayardjParis 8e a

(2). Cf. La production. brés i l ienne de biens d 'Gquipement e t l e développement indus- t r i e l du Brési l de 1950 B 1975. Synthesis : 40 p. plus annexes ; Analysis : 2 6 0 ~ . La production indienne de biens dPéq,uipement e t l e développement i n d u s t r i e l de l ' Inde d e m i s 1970. Svnthesis : 30 D. Rnalvsis 150 D.

,' I

bas i ca l ly prodr-ced f o r other developin;: countr ies which w i l l soon want t o produce these simple i t e m s theriiselves.

Eut t h e s i z e of i! market, even domestic market, i s not am in f l ex ib l e given. I n the f i r s t place, thc: €act tha t n country invests 10 or 40 X (Alseria) of i t s grosk domestic product changes considerably the s i ze of i t s domestic market f o r equipxent. It i s t r u e t h a t a country which undertakes t o a l t e r i t s investment rate can only do it very siowly lxcause t h a t implies subs tan t ia l economic and soc ia l chanees. Eut, it i s hpor tant , t o recognize tha t Brazil l i k e India have morle than doubled t h e i r investment rates i n the last quarter of a century.

But, according t o the acce:>ted theories5 a natket 'd l imited s i z e would not drily he due t o the low volune of i n v e s p e n t s i n absoiute value. In f a c t , i t i s said, there i s slot j u s t one maiiket €02 cquipnent goods 9

,but r a the r ' a. grea t machines a d p a r t s of machines which f a l l i n to th.e category of equipcient goods. Each of these sul2markets, a very small par t of a t i g h t overa l l market, would then be too in s ign i f i can t to be in t e re s t ing t o a nanufacturer. This lcind of f igur ing i s too s iaple . As axat te r of f a c t t he investments of an indus t r i a l i z ing country are general ly concentrated i n a small number of pri-ority" sec tors whose ?urchases can oepresent- '40-70 Z of the t o t a l domestic

market €or equipment. It i s these n r i o r i t i e s which craa te a corresponding equipment market. Thus i n India, as i n Brazil , there i s a narket f o r chenica1,mining o r e l e c t r i c a l equipments has pushed the corresponding indus t r ies f o r the p2s t 20 years. Inversely, ne i ther India nor Brazil bave a genuine market f o r t r a c t o r s beacuse ne i ther of these countr ies has r e a l l y encouraged t h e development of mechanized agr icu l ture (while 72 X of India's ac t ive population and 44 % of Braz i l ' s i s employed i n agr icu l ture) .

many sub-markets corresponding t o the thousands of

11

because the indus t r i a l policy i n these two count r ies

In additi.on many i t a s of equj.paent can he regrouped in to categories of technologically similar products which can be groduced by the same manufacturer o r the sane sroup of manufacturers. Exanples of t k s e cate- Zories : heavy bo i l e r s f o r t he food, c h a i c a l , paper, camat, indus t r ies and naval construction ; equipment f o r public 1 ~ 0 r k . s ~ i-nines and agr icu l ture ; in- t e rna l conbustion engines, pu~qps and c o q a e s s o r s etc... One can not , then, ascer.eaib t h z t the ma.rlcet f o r 8 siven Froduct i s too small u n t i l a f t e r haviag examined the mzrket and the p o s s i b i l i t i e s f o r manufacturing - a t the sau? time or a f t e r a c e r t a i n period - of other products i n the same category.

There is, then, no simple; universal c r i t e r io i l which can be used f o r drawing s t r i c t l i m i t s t o t he domestic market f o r equipment goods i n a given country. This cari be confirmed by s t û t i s t i c a l observation. In a l l the count r ies i n the world, and espec ia l ly i n the developins countrj-es, the production of engineering indus t r ies (th.e category in to which the. equipment, appliance and automobile i ndus t r i e s f a l l ) increûses much f a s t e r (€ron 1.1 t o 1.8 tiaes f a s t e r ) t h m the average i n d u s t r i a l production (3) . This i s 128 i>ly because equipnent

(3) cf . f o r exm-ple : L e rôle e t La place des indus t r ies ngcaniques e t Qlec t r iqucs dans les Gconoriies nat j-onales e t dans l'6conormk mondiale. Thitec! hJations, ..... ECE/ ENGE4/3 - New York 1974,

production increases a t t h e saue r a t e as i n d u s t r i a l investment, thus appreciably f a s t e r than indus t r i a l production ; i t i s a l so bcceuse the foregoin4 indus t r i e s supply tbemselvcs with Iilost e q u i p e n t 2nd semi- f h i s h e d products t ha t they use. In any case one nay conclude tha t e q u i p c n t production, w?ien j-t exists, develops a t a self-accelerat ing rat e .

Is it chenDer t o hmor t ?

Is it chec?per f o r a developing country t o import the equipment it needs r a t h e r than produce it loca l ly ? There a r e l i t t l e da ta ava i lab le on t h i s and they are bard t o i n t e rp re t ( 4 ) . Rut t h e comparisons general ly leal to an aff i rmat ive response t o the question, as the domestic production cost is frequent ly 10-60 X higher than the cos t of corresponding import.

Note t!.xat these r e s u l t s are not as d isas t rous as it s e e m because the production sca les i n the developins countr ies a r e f requent ly 30-50 t i m e s smaller than those found i n the indus t r i a l countries. In eddi t ion these r e s u l t s a r e verg responsive t o t h e conventions adopted to nakc the comparisons : f o r example, there i s a gree t deal t h e t i s a r b i t r a r y i n chosing a rate of exchange, i n f ix ing the in te rna t iona l p r i ce of a product " ( the in- te rna t iona l prices a re always nuch lower than i ndus t r i a l count i res) , o r i n defining a nomal'' renuneration of cap i t a l , n

u n t i l noT 4 wer? r e l a t i v e t o i nchs t r i e s which mere only some years old, wfi i ld it is genera' y considered tha t an industry does not r e a l l y reach n a t u r i t y u n t i l a f t e r 15 o r 2'1 yera.rs.

the domestic prices within 11

!? IIO~;;~FL~'' deprcciat ion O:E e q u i p x n t etc.. . @inaZIy, nost of the analyses done U:,

The conperisons done r e l a t i v e t o h p o r t s anCl l o c a l production a l so lead t o n p t i u i s t i c conclusions. In the f i r s t place, t he overcost l inked with domestic prcduction i n developin g countr ies i s very low o r even negative f o r w e r a s e sized goods mznufactured on order o r i n m a l l 'lots. This conclu- s ion i s important beaause it imolves a very l a rge range of products ( for example : enzines, t rmsfcrmers , nachine-tools or even t rucks) . Secondly the aformentioned overcost i s very oodest i f one i s s a t i s f i e d with loca l produc- t i on of only one par t of th.e pieces and Fa r t s necessary t o construct t he said equipment and i f one i s willin!; t o i apor t the most complex o r ïtlost cosly par ts . !%ore prec ise ly thesc overcosts increase g rea t ly portion of t h e imported parts approackcs zero. T h i s l eads to t he conclusion t h a t the domestic product im of e q u i p e a t goods may be undertaken a t a reaso- nable cos t ' i f the countr ies involved are not too arzbitious i n t h e i r des i r e of i?lll?ort-substitution. Th i s conclusion can be puslzcd even fur ther . As a rnatter of f a c t , one f inds tha t i?. country only reaches technological matur i ty i n a given sector when i t can produce the equipment it ned.sEroE s t a r t t o f in i sh . I n rl$smy one can say tha t tke overcost $iscussed above represents f o r one p s r t t h e pr ice t h a t a young industry cmst pay f o r i t s technological apprentice ship o

( 4 ) cf. f o r example the tvo s tudies done by the %rid Baï& 2 Automotive indus t r i e s i n developing countries, and llanufacturc o€ heavy electric equiFaent i n developing, countr ies botti publislied i n 1969 as Staff occasional papers nu 8 and 9 by the John ZoDLirrs Press, 'LSaltimore.

1s the r e l a t i v e

_-_--_--u

Nore generally, the choice between domestic production o r Gqor t a t ion goes hack to a3 old i ssue which can be out l ined as follows : raust in te rna t iona l p r i ces guide the production choices of t he developing countr ies ? In other ~70rds, does a country have to give up producing trucks, f o r mauple, bcaause i t can acquire these t rucks more cheaply by importing thmi ? Even fro=. the economic point of view, there i s no obvious answer to t h i s question : depending onthc vzluat ion of t h e fore ign currency saved by loca l production (ac tua l p r i ce o r vdiich takes i n t o account t he r a r i t y of foreign-currency)or depending on the hierarchy introduced f o r the var ious object ives of doraestic produc- t i on , one can e z s i l y p o v e t h a t l oca l production o r inportzt ion, e i t h e r one, i s to. be preferred (5). More fundamentally these methods of economic con- putation a r e only a rath.er laborious way of quantifying choices which a re , i n f a c t , p o l i t i c a l ones, And from t h i s point of view, i t can be simply admitted t h a t a country n ight be ready t o pay t o l ea rn how to produce t rucks o r any other i t e m s it needs. Similar ly a country may decide t h a t t he rela- t i v e in te rna t iona l p r i ces of t rucks an6 te lev is ions , f o r example, a r e not t h e r e l a t i v e pr ices tha t it i s prepared to pay t o bz?ve these goods ava i lab le or t o produce then. Thus t h e success of t h e TSrazilian auto industry is no longer in question now t h a t i t produces a nillion vehic les per year a t a reasonable cost . Rut t hc decision xade in 15.59 t o mmufacture everything needed by t h i s industry, doing awzy with a l l imports of p a r t s o r semi-finished products within f i v e years, vas, a t t h a t t i m e , s c a as an economic aberration. During t h e same period, India undertook t o develop an e n t i r e l y domestic aatomohile industry, intent ionnaly l imi t ing production t o less than 100,000 vehic les per year. The overcost Ind.ians pay. f o r t h i s voluntary l b - i t a t i o n represent a per fec t ly defensible socio-pol i t ical cb.oice.

11 opportunuty” p r i ce

Technological capac it ie s.

Do t h e developins countr ies have the technological capaci ty su f f i c i en t t o produce the complex c q u i p e n t goods needed to bui ld a modern econoq ? ?Je n u s t f i r s t of 3.11 come t o an agreement as t o what a modern economy is. Spec i f ica l ly , who a r e t h e producers in t h i s ecnnony ? The teclmological l eve l of the equipment dewmcl w i l l g r ea t ly vary according towhether t he en terpr i ses a re small o r l a rge , nat ional of foreign and on how c a p i t a l i s t i c t h e i r methods are . Rut thc econoaic l ibera l i sm i n fo rce i n most of t h e Third Vorld countries geaera l ly tends t o work against small en te rpr i ses and t o favor the nost c a p i t a l i s t i c product inn methods ; t h i s tends t o discourage t h e loca l production of nany ecpiynent goods in favor of imported i t e m s t h a t a r e then considered inbi.spensable. Thus E m z i l impor ts a l a rge quant i ty of machines f o r t he t e x t i l e industry because the country has given a pr ivi leged s t a t u s to t h e production of synth.etic f a b r i c s t o t h e disadvantage of natural f i b e r n a t e r i a l s . Eut synthet ic f a b r i c s a r e produced by fo re ign companies w!&h use imported equipment, Natural f i b e r f a b r i c s are produced by small t r a d i t i o n a l e n t m p r i s e s which, heaause of lack of public support, hzve watcbed t h e i r production dro? over 15 years ; consequently these en terpr i ses no lonser equip themselves .and one can say t h a t t he doInlestic narket for t r a d i t i o n a l looms i s too t i g h t w E i l c t he Ifrazil ian Loom cquipnent has been declared obsolete f o r more than 10 years. Inversely, India has become one of t h e f i r s t world producers of equipmnt f o r t h e texti le irzdustry because, f o r one, an ac t ive policy hias allowed maintenance of a balanced d i s t r ibu t ion (around 59 /50 2.3 between the modern and the t r a d i t i o n a l sectors .

(5) The d iverse r e s u l t s t b a t can be ar r ived a t by t h e d i f f e r e n t nethods of _--_---o--

evaluation (Prou and Chervel, Lit t le and Xirrless, ONUDX., Vorld Rank.. .) show t h i s inde teminat ion well.

But no matter what par t is assigned t o t h e var ious categories of producers in the domestic economyp an indus t r ia l iz ing country can not avoid apprenticeship of a la rge number of complex technologies. Miat i s more, apprenticeship i s not enough, t he country must f a l l in to s t ep with the very rapid in te rna t iona l technological progress : in the extreme case of e l ec t ron ic equipment, product ivi ty ( a t constant pr ices) of cer- ta in goods doubles every 3 years. Certain miters evm think t h a t deve- loping count r ies must becone inventors thenselves o r else s t ay e t e rna l ly behind in te rna t iona l economic growth.

The Indian example shows t h a t these problems are not insurmoun- t ab le provided tha t e f f o r t s are concentrated i n ce r t a in sec tors and t h a t recourse t o foreign technology i s only a means of working toward t h e cons- t ruc t ion of a na t iona l technology. In most of the sec tors t h r e Indians had to c rea t e subs tan t ia l production capac i t ies (mining, e l e c t r i c a l pro- duction, food indus t r ies , machine too l s , e lec t ronics , aviation.. .) t he public a u t h o r i t i e s wmted India t o p a d u a l l y acquire t h e technological mastery t o manufacture the corresponding equipuents, even i f these tmre of foreign conception ; then, the equipments themselves have been l o c a l l y designed, even i f t h e mrrnufacturirig u n i t which they were t o en ter in to was of foreign d e s i p ; Indian engineers a r e s t i l l not inventors, but i n the preceding sectors , they can avoid recourse t o fore ign patents t o i n i t i a t e technologies w!iich a r e new on t h c in te rna t iona l leve l . This process has bad its problems and it took 20 years of cos t ly e f f o r t s t o a r r i v e a t re- s u l t s which may s t i l l seem modest. Eut t h i s example a t l e a s t shows t h a t the technological dependence of Third World countr ies with respect t o in- d u s t r i a l nat ions is not an ina l t e rab le f a c t of in te rna t iona l re la t ions .

The S raz i l i an example shows inversely t hz t i f a country indi sc r i - rilinately accepts t h e o f f e r s of se rv ices of foreign engineerings, any e f f o r t of nat ional technological research i s automatically reduced t o nothing. This puts t he country i n t o a l a s t i n g s t a t e of dependency. A t t h e end of t h e 195OPs, Brazil engage8 i n an indus t r i a l i za t ion course comparable t o t h a t of India. A t the t h e , the m o count r ies had similar technological experience, Brazil beingporeover , r e l a t i v e l y allea6 i n the sector of equipment goods production. Twenty years later, Brazil has been invaded by fore ign technology d i rec ted bas i ca l ly towards consumption goods and very l i t t l e towards t h e equip- ment indus t r ies , In addi t ion, i n the l a t t e r sec tor the weakness of t h e na t i cna l technological capaci ty has been such t h a t foreign engineering holds sway nonetheless. h r l it i s an':icipated t h a t , even i f a consis tent e f f o r t is undertaken, t he percentagc of na t iona l engineering (6) i n t h i s area w i l l only be ab le to progress from 15 to 36 Z in 10 years.

Thus, t h e questions of teclinological d i f f i c u l t i e s do no t account more than questions of markets o r cos t p r i ces f o r t he existence of f a t a l i t i e s which would keep t h e developing c o w t r i e s f ron producing t h e i r own equipment goods. In f a c t the foregoing remarks suggest t ha t t h e only important question i s t h a t of the ove ra l l w i l l f o r na t iona l independance.

The TN'ill f o r PTat ional lndemndence

-An i ndus t r i a l i z ing country does not wonder whether it i s going to -_----I-_

( 6 ) This i s a question of t he product eagineering of equipment used i n the sector. For more d e t a i l s cf . The t r ans fe r of technology i n the indus t r i a l development of Brazil . General aspects of t h e problem. United Nations E/m. 12/937 - 1*74.

II

produce the equipment goods it needs. This country has production plans and, t o accomplish than, it nay or may not appeal t o foreign countries, not only t o buy equipment or technology but a l s o t o f i n d financing ( for imports, investEent or working c a p i t a l ) o r , moreradically, t o en t rus t the project t o an investor. But the s t rength of indus t r ia l countries - an6 t h e i r companies ac t ive abroad - i s t h a t they can present the pet i t ioning countr ies with a comprehensive and of ten linked proposal which includes equipnent , technology, financing (and perhaps the investor) a l l a t once. It i s tempting f o r t h e pet?-tioning country t o take the whole package i n a S

much as t h i s solut ion generally means a speedier imnec!iate economic growth. But t h i s solut ion i s a l s o the beginning of the cycle of economic dependence : a country which does not produce equipment loses i t s capacity f o r technological research and i s less,. and less able to produce i t s om equipment and techno- logy. It must, then, import more, therefore f ind more foreign exchange, there- f o r e seek out new financing which w i l l be l inked t o new equipment imports o r new d i r e c t investments, etc...

Few developing countrie, have t r i e d t o separate the various aspects of t h e package deal of foreign assis tance. The example of India (or Algeria) shows t h a t the separation i s possible : a country can require on the spot manufacture of a l l o r par t of t h e equipment corresponding t o a project , even i f the technology o r the investor are foreign.. A country can supply an increasing par t of the engincering of projects even i f the equipnent or t h e project& owner are foreign. A country can separate financing and investment by resor t ing mainly t o public foreign loans etc...

A t the other extreme, Brazil i s an ex'mple of a country which equipped i t s e l f mainly by turning t o pr iva te d i r e c t foreign investments. In t h i s case, t h e receiving country obviously does not argue of t h e o f f e r of foreign assistance. In addition one f inds t h a t t h e producing com- panies then tend t o submit t h e domestic econozy t o a grea t number of constraints . Turning t o very capi ta l i s t ic production methods, these companies want to equip themselves abroad and tend t o inpose the standards and rates of in te r - nat ional technical progress. The companies producing equipment give t h e i r mother companies the benefi t of a l a r g e par t of the orders t h a t co3e t h e i r way, they choose the kind. of product they w i l l produce i n the country independently of the country's needs, they f o m l a r g e p a r t s of the donestic market i n confomi ty with t h e i r internat ional s t ra tegy etc. . . Thus an.cquipment industry does e x i s t i n Brazil but t h e dominance of foreign companies has considerably reduced the

advantages t h a t the country could otherwise draw from t h i s industry. The i a f l u x of d i r e c t investments and t h e subs t i tu t ion of iqport s fo.llowing these investments have p e m i t t e d substant ia l s m i n g s in foreign exchange and stepped up economic growth. But equipment goods imports have not gone do~h'il, nat ional engineering has remained embryonic, the needs f o r outs ide financing have increased a t a dizzying rate, so much t h a t even before the o i l erisis, t h e hunt f a r foreign exchange had hecome t h e primary goal of the nat ional economic policy.

with the d i f f e r e n t aspects

\&at can be done ?

Can it: be concluded t h a t any developing country tha t wants togcan succeed i n producin!: i t s o m equipment ? The answer can not be t h i s clear cut. But there are many p c s s i b i l i t i e s open t o a country wanting t o develop domestic product ion.

F i r s t , t h e s t a t i s t i c a l observations discussed above nus t be brought t o mind : i n any country, equipment production increases f a s t e r than mean indus t r ia l product ion. Consequently, the appearance ancl develoment of loaa l equipaent production prca$ically autoo s i c a l l y r e s u l t from economic growth and what i s important i s t o give t h i s spontaneous s ta t i s t ic noverr?ent a d i rec t ion .

Nany kinds of equipment can be adapted (even i n i n d u s t r i a l countries) t o shor t seri-es product?'_on and can he produced by s m a l l en t e rp r i se s functioning with l i t t l e cap i t a l . This i s a f i r s t p o s s i b i l i t y f o r developing countries. In addi t ion , it i s probable t h a t spec i f i c s tud ie s would permit an appreciable extension of t h e range of goods t h a t can be produced i n the aforementioned conditions. But t h e indus t r i a l count r ies can not he counted on t o undertake these kinds of s tudies . The only ser ious disadvantase t o production by small en te rp r i se s i s t h a t they general ly can no t assume the research and development explenses necessary i n an sec tor where technologies change rapidly. T h e c r ea t ion of technological i n s t i t u t e s by professional branches o r by groups of products can provide a way of overcoming t h i s handicap.

What can be produced i n developing count r ies ? There i s no abs t r ac t and nomat ive way of answering a question l i k e th i s . But the general ingredient of a response can be suggested, Any indus t r i a l i z ing country can consider producing a l a r g e number of l i g h t goods f o r general use : engines, pumps, general mcchanical products.. . Besides we found above t h a t average s i zed equi-pment produced t o order o r i n f a i r l y shor t series were manufactured a t a reasonable cos t i n countr ies which had undertaken t o produce then. F i n a l l y we.must recal l t he exis tence of technological f ami l i e s of products within t h e general category of equipnent goods and t h e possibi- l i t y of moving within each family, from t h e manufacture of t he s h p l e s t goods t o more complex goods.

But what w i l l h a s i c a l l y determine the type of equipment goods that can be nanufactured domestically are the needs of t he branches favored hy the developrnent policy. \,&ether t h ses branches are public works, e l e c t r i c i t y production, chemistry, t ex t i l e o r food indus t r ies , agr icu l ture , r a i l o r road t ranspor ta t ion , needs w i l l come up which w i l l have p a r t i a l answers. Subsequent growth of t h e nat ional revenue w i l l increase t h e ;;larket s f o r corresponding cquipnent, which t r i l l permit domestic production t o respond more t o t h e need etc.. .

There is , howewer, no a p r i o r i reason k7hy the domestic supply would n a t u r a l l y f;ollow the course of the demand. The increase i n s.Upply assumes a certain amount of programing and, more .~impW~ant . ly , co.herent pl.anping,

By i t s e l f , programming g ives a way of exploit ing the existence of technological product fami l ies and an t i c ipa t ing when t o produce the var ious goods in the family. Besides, t h e various kinds of products belonging t o t h e general category of equipment zoods have a c e r t a i n noolber of charac- t e r i s t ics i n comon : they Ese t h e same seni-finished products (foundry and forge pieces, b a l l hearings, valves, gears.. .) ; they h m c var ious production techniques i n comon (welding, netal stamping, heat treatments ... ) and the re fo re po ten t i a l polyvalence i n research serv ices ; they use the same p a r t s f o r regulat ion and self moni tor ing (pneumatic, k;ydraulic, e l ec t ron ic equipment.. .>. Comprehensive programming provides a way t o prof it from t h i s comunity of i n t e r e s t s , thereby avoiding anarchic recourse t o c o s t l y imports of goods o r technologies (7).

(7) On these var ious points, c f . P l an i f i ca t ion e t programation des indus t r i e s transformatrices de mgtaux en fonction de l e u r s p o s s i b l i t é s d'exportation. United Rations, 1372, 72 II B 7.

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c

I

* Few areas of economic pol icy a r e l e f t out i n the construction of an equipment industry : i ndus t r i a l and technological p o l i c i e s , but a l so c r e d i t policy ( the p o s s i b i l i t i e s of c r e d i t offered t o the producers and buyers of l o c a l l y manufactured e q u i p e a t nus t be such t h a t t h e l o c a l production i s not i n a disadvantageous pos i t ion in respect: t o imports), foreign t r ade policy (one can not put too many quantitati tre o r qua l i t a t ive r e s t r i c t i o n s on equipment importation becwse the country heeds anyway a c e r t a i n mount of such imports ; tmt the domestic industry must a l so be protected) pol icy with respect t o foreign iïivestments (TJhat c r i t e r i a t o adopt f o r acceptinr: o r refusing investnents which s e m des i rab le , but which can become a hindrance t o the developen2 of nat ional industry ?) etc. .. In addi t ion these var ious po l i c i e s must not only ex i s t , they must a leo be coherent. This concern, which experience lias shown t o be more tha t j u s t a matter of form, must be d e a l t with Tcithin the framework of a comprehensive planning of t h e nat ional economy.

The S ta t e w i l l general ly play a de temining r o l e i n t h e construc- t i o n of a dornestic equipment industry. Charged with programing and planning t h i s industry, the State will. a l so have t o i n i t i a t e and eventually take t h e charge of the expenses of research and development which a r e beyond t h e f i - nzncial capac i t i e s of the individual en terpr i ses o r groups of en terpr i ses concerned. F ina l ly the S ta te will. general ly be an inportant customer f o r t he domestic industry, and espe.cially f o r heavy equipnent : even i n Brazi l , a country considered t o hzve E l i b e r a l economy, the S ta t e buys around 2 / 3 of the equipment domestically produced.

A l l t h i s does not mean that the developing countr ies can r i g h t now, i f they want t o , rap id ly change the in te rna t iona l d i s t r ibu t ion of equipment goods production. The extreme d ive r s i ty of goods t o be produced9the extent of technological apparenticeship t o be done, t he amount of human and c a p i t a l ressources t o be mobilized a r e such t h a t a coulntry can ,not hope t o become r e l a t i v e l y se l f - suf f ic ien t i n t h i s area f o r several decades.

Besides, one f i n d s t h a t , using India and Brazil a s an example, even when a r?.igh l w e l of self-suff ic iency has been reached, c e r t a i n imports seem d i f f i c u l t t o reduce. It i s surprisinz. , €or instance, t h a t two countr ies as d i f f e r e n t as IEdia and Brazil seem t o have tbe same problems w i t h saxe products : mining, pr?ntingr paper, a d heavy chw-is t ry e a u i p e n t , products of precis ion mechaaics, e l e c t r i c a l 2nd te lecomunicat inn equipment. The matter i s espec ia l ly importantfor the l a s t two items mined beeause they always make up an h p o r t a n t par t of the investments of any indus t r ia l iz ing country.

t he

There i s anot%er kind of item which appears to be d i f f i c u l t f o r developing countr ies t o produce : t b s e a r e iileasuring, control l ing and se l f - monitoring mechanism, inportant pos i t ion i n in te rna t iona i i ndus t r i a l investments (IO % i n 1970 i n the United S ta tes as opposed t o 2 % i n 1956) and t h e i r productionis of ten monopolized by var ious mult inat ional f irms. Hmeover, theses f ims tend more and more t o produce not only these equipments, but a l s o t h e nachines which they a r e nade f o r , This tendency r i s k s making t h a h i r d World more dependent on i t s foreign suppliers.

(8) * T h i s kind of e l p i p e n t occupies an increasingly

Thus i t seems t h a t , even f o r these complex equipment goods, t he developing countr ies must, a t l e a s t i n c e r t a i n sub-sectors, undertake Productinn on t h e i r om. This i s a d i f f i c u l t problem since subs tan t ia l expen- d i t u r e t i o n i n motion : the mult inat ional f iims earmark up t o 20 % of t h e i r sales f o r t h e i r .rese arch and dcvelopment budget. Here again the in i t ia t ion? anf financing of such out lays can hardly be imagined i n a developing country without State intervent ion.

k necessary f o r thc research requixecl t o set t h i s kind of produc-

-_----_-_- (8) cf . fo r exemple : Place e t fonct ion de I ' ingéniér ie dans l e système

indus t r i e l f rancpis I by J. Perr in , IREP, Grenoble, 1973.

One car? a t l e a s t sugsest something wich could open t h e way t o the resolut ion of certain of the foregoing d i f f i c u l t i e s . l i p u n t i l

n OW,' e f f o r t s toward regional cooperation between developing countr ies have bas ica l ly involved specif i c basic indus t r ies ( chmis t ry , steels construction materials, . . ) o r production of consumer goods. Could not t he equipment indus t r ies become a pr ivi leqed domain of regional coo- peration agreements ? Three basic agments can be put f o r t h i n favor of t h i s : f i r s t of a l l , the absence of equipment production in develohing countr ies i s one of the basic causes of t h e i r dependence on the indus t r i a l coun- tries ; secondly, t he d ive r s i ty of the productions t o set up i s such tha t i t lends i t s e l f f a i r l y e a s i l y t o a sa t i s f ac to ry d i s t r i b u t i o n of the pro jec ts considered between t h e d i f f e ren t countr ies partici;)ating i n the agreement ; f i n a l l y the e f f o r t required t o c r e a t e the technological capaci t íes necessary i s such tha t na t iona l spec ia l iza t ions are necessary.

The socio-economic system i n question

The decis ion t o produce one's own equipment goods is, then, a major p o l i t i c a l one which implies mult iple choices : posi t ion with respect t o in te rna t iona l cap i t a l , t he kinds of domestic production t o be fostered, t h e amount of S t a t e intervent ion i n t h e organization of the economy, the anbi t ions of the t e c h o l o g i c a l pol icy etc. . . Hore general ly the development of an equipaent industry i s only possible i f t h e nat ional consuqXion, paoduction, revenue d i s t r ibu t ion , financing etc... models permit it - both Individual ly and as a whole. This sometimes presupposes r ad ica l transforma- t i o n as w a s t h e case i n India. Inversely the socio-economic organization of a country l a rge ly determines the kind of equipment industry su i t ab le f o r t h a t country.

I

In Brazil , l i k e i n Ind.ia, i ndus t r i a l development has been given f i r s t p r ior i ty . Within the indus t r i a l sector , t h e basic i ndus t r i e s and t h e engineering indus t r ies have heen those favored and t h e t r a d i t i o n a l indus- t r ies producing consumer goods hzve been neelected, The new revenues resul- t i ng f r o a the growth have been bas ica l ly d is t r ibu ted among mid - and high- l eve l employees and t o t h e owners of cap i t a l . The indus t r i a l investment has been subsidized (numerous incent ives accorded t o investors, maintaining the relative p r i ces of equipclcnt items under the general l eve l of donestic p r i ces ,poss ib i l i t i e s f o r stepped up depreciat ion of i ndus t r i a l cap i t a l ) . Pinal ly , except f o r soriìe exceptions i n India, t he small businesses have been l e f t on the periphery of i ndus t r i a l growth which has been based on pr ivi leging growth of a l imited number of la rge enterpr ises . A l l these conditions have opened the way t o t h e c ra t ion of a domestic equipment industry ûnd the production i n these two countr ies has taken on a c e r t a i n common pat tern.

This pa t t e rn has d i f f e ren t i a t ed bleaause the two countr ies have gone t h e i r separate wgys an two points : while India practicecl a policy of na t iona l independence and concentrated within engine.ering indus t r ies on producing equipment, B r a z i l accepted massive foreigrr a i d and mainly produced automobiles and e l e c t r i c a l appliances. The two countr ies a l so went t h e i r separate ways whith respect t o the repect ive r o l e s of t h e public and p r iva t e sec tors i n indus t r i a l production. But t h i s divergence does not seem fundamental beaause India 's bui.lding up of an indus t r i a l public sector i s much more in l i n e with the object ive of creat ing a nat ional i ndus t r i a l cap i ta l r a the r than the State's concern t o appropriate t he means of production ( the ro l e of t he public sector i n I n d i a indus t r i a l production i s scarcely

There is then no reason why develop& countr ies can not Froduce t h e i r own e q u i p e n t goods. Acoantry which has t h e economic and p o l i t i c a l w i l l of building up a dooestic industry of equipment goods has a very w i d e range of options open t o it. But t h e construction of t h i s industry w i l l require , o r tirill bring whith it, profond t ransf omat ions i n the in t e rna l socio-economic system.

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