UNIDO IV: industry at centre stage.

• Position: Excerpts from the fourth general conference of the United Nations Industrial Development Organization

In 1982 growth in world production came to a standstill and world trade fell significantly both in volume and value for the first time since the Second World War.

While no group of countries went unscathed, it was the developing countries that proved the most vulnerable. The crisis of development in the South is all the more poignant when seen against the background of the progress and structural transformation in the two decades ending around 1978. During this period, economic growth and industrialization proceeded rapidly and was financed for the most part from domestic savings. The share of developing countries in world manufacturing value added (MVA) had risen from 8.1 per cent in 1963 to 11 per cent in 1982 at constant (1975) prices.

Today the fruits of this progress are threatened: In some countries, fixed assets such as plant and equipment face physical deterioration due to a lack of foreign exchange for spare parts and replacements. The skills of workers and management are being lost through disuse, emigration or drift into other occupations.

The agreed yardstick for assessing developing countries' progress in industrialization is the Lima target--so called because it was set up at the Second UNIDO General Conference in Lima, Peru in 1975. Extrapolating trends of the early 1970s, it then seemed reasonable to target the developing countries' share of world MVA as reaching 25 per cent in the year 2000. At the time their share was 10 per cent; as noted, by 1982 it had reached only 11 per cent.

The share of manufacturing in the economies of developing countries has in fact grown steadily. Vis-a-vis agriculture and other sectors, manufacturing raised its proportion of gross domestic product (GDP) from 15 per cent in 1963 to 18.1 per cent in 1973 and 19.2 per cent in 1980. This reflects steady progress at the domestic level in structural development. The shares tend to be higher for countries with higher income levels but even the lowest income group of countries increased its manufacturing share of GDP from 12.5 per cent in 1963 to 15.1 per cent in 1980. In contrast agriculture's share fell at a steeper rate over the same period: from 28.4 per cent in 1963 to 19.9 per cent in 1973 and 17.4 per cent in 1980. Even for the lowest income group it went from 47.4 per cent in 1963 to 38 per cent in 1980. Structural transformation has thus laid the groundwork for future progress, UNIDO concludes.

Figures for 1980 (when the share of developing countries in world MVA was already 11 per cent) show that developing countries' share in production at sectoral levels of manufacturing was very uneven. They achieved high scores in traditional industries such as food products, beverages, tobacco and textiles, together with an extremely high share of 41.8 per cent in petroleum refining. They were nevertheless very low in technologically more advanced sectors such as metal products, non-electrical machinery, electrical machinery and transport equipment. These shares have risen scarcely at all since 1975.

Given the importance of these sectors in the overall growth of modern economies, both from the point of view of capital goods and the provision of infrastructure for accelerated social and economic development, the implications for sustained growth and self-sufficiency for the developing countries are serious.

To achieve the Lima target, manufacturing in the developing countries would have to grow more quickly than in the developed countries, as it did for example every year from 1967 to 1976.

Between 1970 and 1975, in fact, the developing countries outperformed the developed in manufacturing growth to such an extent that if that pace were sustained, it would be sufficient to attain the Lima target. However, the developing countries' limited progress after 1975 and their present share of only 11 per cent in total world MVA mean that if they are to achieve the Lima target, the gap must be closed in only 17 instead of 25 years.

What is needed is a restructuring policy that recognizes the growth potential of developing countries and the results and benefits of such growth. Evidence of that potential can be seen in the progress of the group of developing countries which began industrialization in the 1950s and which are now major producers.

Global interdependence means that the world economy is a linked system. Because of that linkage, national Governments are unable to deal with the current economic crisis independently.

One obvious linkage among national economies is through trade. The conventional pattern has been that the South supplies raw materials (such as agricultural products, minerals and oil) to the North; the North, being industrially advanced, in turn supplies finished goods to the South. Even this conventional pattern is one of interdependence. The industries of the North need the raw materials of the South, and the consumers in the South need from the North those manufacturers which they cannot produce themselves.

In reality the situation is a good deal more complicated. The South's advances in industrialization, at least in some developing countries, have meant that interdependence is growing among the developing countries themselves and taking a new shape. Interdependence is also evident in the less sophisticated forms of industrialization--in which developing countries undertake assembly work and re-export finished goods to the North (often through transnational corporations).

One direct result had been developing countries' increased participation in world trade. During the two decades 1960-1980, the share of exports in their GDP increased from 16 to 25 per cent on average. Their imports also increased: in 1980, these countries took as much as two-fifths of the exports of the United States, two-fifths of the external exports of the European Economic Community (EEC) and nearly half of Japan's exports.

Interdependence can also be seen in the annual growth rates in GDP of developed and developing countries as a whole. From 1960 on, the growth rates of North and South have shown very similar behaviour, usually rising and falling together but with the impact being in either case greater in the South. The two growth rates clearly move according to some common characteristic.

Another aspect of North-South interdependence is financial, and the current debt crisis brings it sharply into focus. By mid-1982, the outstanding total debt of developing countries was about $800 billion; total debt service payments were about $244 billion. In the long run, essentially only high growth and exports can enable them to pay back the debt. In this sense, the debt crisis cannot be solved by retrenchment. If all the debtor countries contract their economies, the North's exports will shrink, the growth of both South and North will be retarded and this will add to the existing debt problems rather than help solve them.

Need for Structural Adjustment

Interdependence implies a need for Governments to pursue structural adjustment policies specifically directed towards the new frontiers of world economic growth. Structural rigidites mean that existing industrial capacity is kept beyond the point at which it is efficient and labour cannot move to more productive sectors. In such a situation fiscal and monetary measures of support, brought about by the action of special group interests within an economy, produce inflationary pressures. Structural rigidity is also a basic source of slow-downs in productivity and low efficiency. Without productivity growth, anti-inflationary monetary policies tend to be ineffective and in fact create unemployment and stagnation.

Enhancing North-South trade--making it more equitable by making positive use of increasing interdependence -- appears to be the best option available to both groups. The importance of developing countries in the present structure of global interdependence and, even more significantly, their potential in the future means that renewed efforts for their industrialization can offer significant benefits for the world economy.

The developing countries constitute a huge market, largely untapped because the vast majority of the world's population has consumption levels far below those in the North. The economic sectors of the developing countries also represent a largely unexploited field for investment and application of technology, and their natural and human resources have up to now been largely underutilized. A set of international policies geared towards releasing this tremendous potential would provide considerable opportunities for growth in the world economy.

The least developed countries (LDCs), struggling to overcome the handicap of poor resource endowments, have made little progress in developing their industry. Rapid population growth, adverse terms of trade, low rates of investment and poor performance of the agricultural sector are among the reasons for the slow pace of development of the LDCs.

United Nations efforts to assist the LDCs led to the General Assembly's endorsement of the Substantial New Programme of Action for the Least Developed Countries (SNPA) which was adopted by the UN Conference on the LDCs in 1981. The aim of the SNPA is to transform the economies of the LDCs so that they can achieve self-sustaining growth and provide their people with internationally accepted minimum standards of nutrition, health, transport and communications, housing, education and job opportunities. The multilateral agencies, in particular the World Bank and the regional development banks, were called upon to devote more of their concessional resources to the LDCs, and the developed countries in turn were requested to increase their contributions to the concessional funds of these banks.

Since industry accounted for such a low proportion of GDP of the LDCs--generally less than 9 per cent but in some cases less than 4 per cent--this sector was expected to grow by at least 9 per...