put into different projects the process of capital formation and development
will start. Thus, the disguised unemployed of agri. sector can be used for
capital formation and economic development.
Limitations of the Model:
(i) According to Nurksey the process of development can be initiated by
utilizing the disguised unemployed. But the critics are of the view that these
unemployed could meet the process of development partially, as development
requires other factors also.
(ii) Nurksey did not mention about the machinery and raw material to utilize the
unemployed. Again, if once the unemployed get the jobs why their parents would
go on supporting them.
(iii) According to Nurksey the peasants of Pakistan and India have plenty of
time. But it is not so rather they go on indulging in construction of their
houses, canal banks, local roads and cutting of trees etc. Therefore, it is
difficult to withdraw them from lands.
In this connection we study (i)
Sociological dualism, (ii) Enclave dualism and (iii) Labor-surplus dual economy
(i) Sociological Dualism:
This model was presented by J.H. Boeke to explain
why the Dutch colonial period failed to induce economic development in
Indonesia. He says that the economic activity in the West and their counterparts
in the East is motivated by economic needs, but the economic activity in the
East is motivated by social needs. Thus he means to say that it is useless to
introduce new ideas, new institutions and new technologies into Eastern
societies. Hence, sociological dualism provided a rationalization for
emphasizing industrial development and ignoring agriculture.
(ii) Enclave or Technical Dualism:
This theory was developed by
Benjamin Higgins and Hla Myint. They tried to explain why in developing
countries, small enclaves of modern society remain surrounded by a sea of
traditional society. These developed enclaves are oriented toward extraction of
primary commodities in mining and on plantation and exportation of these
commodities to developed countries. The modern sector imports labor-saving
technology from abroad. There is little development of traditional sector, only
exploitation of its resources. The implication of this theory _is that unless
the developing countries explicitly focus their development efforts on
traditional sector, broad-based development will not occur. Alt this
necessitates the development of agri. and traditional sector.
(iii) Labor-Surplus Dual Economy Models:
It consist of (a)
Lewis Model, (b)
Tax as a Source of Capital Formation and
In Japan, since the last three decades of 19th century, this has been the
practice to tax agri. sector. As according to Prof. Ohkawa, the land tax in
Japan gives rise to 74% to 86% of govt. revenues. It means that in UDCs there
arc lands and plenty of natural resources which can yield revenues, if they are
taxed. Such taxes may consist of agri. income tax, land tax and agri. export
tax. Regarding agri. taxes it is said that it must also pay the tax as the other
sectors pay. Moreover, alongwith increase in demand for food etc. their prices
are increasing leading to increase the incomes of the farmers, landlords and
govts. are also spending a lot to develop agri. sector. Hence, the farmers
must pay something in return.
Limitations of the
(i) Practically it has been observed that agri. sector in UDCs
is furnished with uncertainty. Because of subsistence farming, augmentation and
sub-division of holdings and existence of natural calamities, the govts. of
developing countries avoid to tax agri. sector. As Lewis says:
"The direct taxes whether
imposed on lands or produce are .reluctantly paid by the farmers. The direct
taxes imposed on the farmers have been furnished with exploitation. The farmers
think that the taxes imposed on them means the feeding of soldiers and the
administrators by the farmers, while they will not get anything in its return".
(ii) It is said that taxing the agri. sector would result in losing the
attraction in agri. sector. As a result, the resources will shift to the other
sectors of the economy. In this way, there will be food shortage in these
(iii) If tax is imposed on agri. exports, there exists the chances of
cultivation of non-export goods instead of export goods. As a result, a country
may lose foreign exchange which is generally short in the UDCs. Consequently,
neither tax nor foreign exchange could be earned.
(iv) The pre-requisite of any govt. to be in office in UDCs is its support by
the fanners, landlords and fculdals. Therefore, in the weak democratic
societies, the govts. try to avoid agri. taxes. This is the reason that agri.
taxation has been successful only in DCs.
(v) Agri. taxes are against the canon of economy. It is also least practical
for administrative point of view because heavy expenditures will have to be made
to raise such tax. Again, there exist a lot of difficulties to make estimation
regarding production of crops, value of lands and agri. incomes.
(4) Adverse Terms of Trade For Agriculture as a Source of Capital Formation
and Economic Development:
This method was applied in Russia where the terms of trade were kept against
the agri. sector. Under this system the farmers were given the specific quotas
of agri. goods to produce. The official men from Moscow used to up-load such
grains at gun-point. Hence, limited amount of food-stuff remained available for
the local farmers. Again, for the adverse terms of trade, govts. purchase agri.
goods on lower prices. This may also happen that the govts., particularly of the
socialist countries, fix the prices of manufactured goods at a higher level.
This would also result in lowering the prices of agri. goods. In market
economies, the terms of trade against agri. sector are kept adverse with the
(i) The goods purchased by the villagers are taxed.
(ii) Govts. engaged in trading of agri. goods (as in Pakistan CEC and REG purchased
cotton and rice cheaper from fanners and sold them at higher prices in the world
(iii) Such a system of taxes and economic incentives to be imposed that
farmers be given less facilities or producers be given more facilities. This
happened during second five year plan when not only the manufacturers were given
concessions but the prices of wheat, sugar-care, rice and potatoes were kept
low. As a result of this policy, not only the investors were to be encouraged,
but the urban population was also to be protected at the cost of rural growers.
It is told that the concept of adverse terms of trade against agri. sector is
also available in Lewis model when he says that rural population whoso marginal
product is zero in farms be transferred to the modern urban sector and their
parents could go on providing food to these migrants. The govts. can opt for multiple exchange rate system to keep
the terms of trade against agriculture. This also happened in Pakistan when
during the period of 1959 to 1972 the foreign exchange was provided at a lower
rate to the industrial importer, while the agri. exporters got lower rupees
against dollars by the SBP. The purpose behind was to transfer resources to non-agri.
sector. The same like situation was also observed in Japan where the tenants had
to pay 60 to 70% as a rent to this landlords and these landlords invested this
rental income in the industry.
Thus by depressing the procurement prices of agri. goods, by exempting the
industrial sector, by raising the prices of manufactured goods, by imposing
taxes on agri. sector, by increasing the rate of rent on agri. lands or by
making the availability of foreign exchange at higher prices, the terms of trade
can be kept against agri. sector.
(i) The economic experience of Pakistan is before us where the policy to keep
the terms of trade against agri. sector resulted in its backwardness. The
socio-economic position of the farmers could not be improved. Not only the
farmers were given reduced prices for their produce, but they were also deprived
of civic amenities, education, health, transportation, water-supply and
water-sanitation. This resulted in lower wages, unemployment, reduced literacy
and mass diseases in the rural areas. While the people engaged in non-agri.
trade service and manufacturing sector of Lahore, Karachi and Faisalabad earned
higher salaries and profits. The policy of adverse terms of trade for the agri.
sector also promoted inequality in income distribution. This has also encouraged
conspicuous consumption in the country. Such all led to flourish corruption,
looting, dishonesty, robberies, kidnapping, ransom cases, terrorism, hatred,
jealousies, inflation, sectarianism, polarization of the people on the basis of
creed and caste systems, ethnic riots, provincialism and divergences between
have and have-nots.
(ii) The Russian policy of keeping terms of trade against agri. sector is also
before us. This led to create shortages. The people of big cities like Moscow
got the wheat while the people of small cities remained deprived of them. As a
result, we find disintegration of Russia.
(iii) The policy of adverse terms of trade of agri. requires effective
implementation of fixing the procurement quota or fixing the lower support
price. Thus, if govt. fails to acquire specific amount of wheat, rice and other
grains, the terms of trade could not be kept against agri. sector. Here the
farmers will be able to sell in open market at higher prices instead of lower
govt. prices. This is very much observable in countries like Pakistan where due
to population growth and smuggling, the target of official purchase is hardly
met. In certain cases, the market price is higher than the procurement price.