Nafziger Economic Development (4th ed)

learning, a reduction in subsidies for secondary and higher education to highand middle-income students, a modification of job rationing by educational certification, and more flexible wages.

In most LDCs, the supply and demand for high-level personnel could be equalized if wages were adjusted to productivity. For example, in Kenya a primary school teacher is paid one-third as much as a secondary school teacher, and in Cyprus, the primary teacher earns 48 percent of a clerical officer’s salary, whereas one in New Zealand makes 414 percent (Heller and Tait 1983:44–47). Another example is that existing wages in LDC agriculture departments frequently encourage the rare extension worker skilled in analyzing plant or animal diseases or in designing farm machinery to seek an urban desk job. A shift in wage structure will not only spur job shifts among the presently employed, but will also encourage changes in spending for education and training. But even if wages are more closely related to productivity, the long gestation period required for the production of some skills may cause difficulty. Yet the market might still work effectively if government keeps people informed about future trends in the supply and demand for skilled labor.

Vocational and Technical Skills

It is often inefficient to rely heavily on schools to develop vocational skills. Technical skills change rapidly, and vocational and technical schools often find it difficult to keep up. Frequently, these institutions should simply provide generalized training as a basis for subsequent on-the-job training or short courses. On-the-job training balances supply and demand. Firms train people for only those slots already in existence or virtually certain to come into existence. Training processes operating independently of specific job demands are less effective, and the instructors in such situations may have no idea of the needs of the firms where students will ultimately be placed.

Where on-the-job training is not possible, short-term training institutions for people already at work are often superior to vocational or technical schools. A firm’s production may be substantially disrupted if an entrepreneur in a small firm or a key management person in a large firm leaves for long-term training. Thus, it is best perhaps to offer a short course oriented toward those skills that are lacking. The key person’s productivity will improve, and production will not be appreciably impaired.

Another approach may be to use extension agents to teach specific knowledge and skills to an owner, manager, or technician in a firm or farm. The extension agent can visit the enterprise, provide one-on-one instruction at the extension center, or have the client consult with a technical or management expert. I have observed leatherworking, woodworking, and shoemaking experts in Nigeria’s industrial extension centers helping small-scale entrepreneurs, who had capital and management experience, master the mechanical skills and establish the production line essential for their firms to expand.

Should vocational training or extension programs be subsidized? We know that even in the case of small farmers or industrialists, the recipient of such assistance is

348Part Three. Factors of Growth

usually economically better off than average. Subsidies are questionable. However, there may be some economic rationale for subsidies to programs that provide direct entrepreneurial and technical assistance to small productive units. Thus, a small firm may not be able to pay a highly specialized person; however, if this person’s scarce managerial and technical skills are used in 30 or 40 firms a year, the economic cost per firm is likely to be low. Furthermore, given the external economies and the difficulty of billing each firm for the service, there may be merit in not charging for it at all.

Reducing the Brain Drain

The market for persons with scientific, professional, and technical training is an international one. In 1962, U.S. immigration laws were liberalized to admit persons having certain skills. The result is that millions of individuals with professional, scientific, and engineering training migrated to the United States between 1962 and 2003. At the end of the 20th century, one-third of science and engineering Ph.D.-holders in the United States working in industry were born abroad. Among computer scientists in industry, the proportion was half; among engineers it was more than half; and, in mathematics, more than one-third. The foreign-born share of Ph.D.s in academia was less than in industry, but the same fields were affected. Among fulltime faculty, foreign-born individuals with U.S. degrees comprise nearly 40 percent in computer sciences, 35 percent in engineering, and 28 percent in mathematics. In 1999, 16 percent of the Ph.D.s in the federal government were born overseas, and 19 percent of Ph.D.s in state and local government. Among baccalaureate recipients in the United States, 19 percent were born abroad, with field concentrations similar to those for Ph.D.s. [National Science Board Subcommittee on Science & Engineering Indicators (Richard Tapia, Chair) 2002]. The overwhelming majority of these people came from LDCs, especially Asian countries, such as South Korea, India, the Philippines, China, and Taiwan. Other Western countries may have attracted as many skilled immigrants as the United States. However, China’s rapid growth since 1979 has made it a land of opportunity, reversing years of brain drain.

Africa, with widespread economic regress and political instability, also suffers from the loss of skilled emigrants. The World Bank (2000a) estimates that 30,000 African Ph.D.s live outside the continent; over 60 percent of immigrants from Africa to the West have university education; and the continent has lost one-third of its skilled professionals, mostly to DCs, in recent years.

Harvard’s George J. Borjas indicates that U.S. immigrants, who have usually been educated abroad, do not receive their marginal products as wages, thus importing “free” human capital into the United States (Borjas 1994:1667–1717). Kar-yiu Wong and Chong Kee Yip (1999:699–726) argue that because the engine of economic growth is human capital accumulation and intergenerational externality, the brain drain has an adverse impact on present growth and income distribution, and the welfare of future generations, of nonmigrants.

According to Herbert B. Grubel and Anthony B. Scott’s (1966:268–274) marginal product approach, the developing country does not lose from the emigration of

BOX 10-1.

Abdus Salam, who became famous among particle physicists in 1950, returned to Pakistan soon thereafter but was isolated, doing little more rewarding than manage the college soccer team. In 1954, he reluctantly returned to Britain. In the early 1960s, after his pathbreaking theories won him the Nobel, he persuaded the International Atomic Energy Agency to establish the International Center for Theoretical Physics (ICTP) in Trieste, Italy, where LDC physicists, rejuvenated by month-long conferences featuring lectures, workshops, and seminars by the world’s leading physicists, are provided alternatives to emigration (Economist, “Physics for the Poor” 1989:99–100; and author’s visit to ICTP, July 31–August 4, 1995).

Few other beneficiaries of the brain drain have been able to make the contribution Dr. Salam did to his home country and other LDCs.

highly-skilled people, or brain drain. In a competitive economy, a worker earns an income equivalent to his or her marginal product. Because the emigrant removes both contribution to national product and the income that gives a claim to this share, the income of those remaining behind is not reduced. In fact, the welfare of the people born in the country increases, as the emigrant increases his or her income, partly because the emigrant’s new country has superior complementary factors, such as entrepreneurship, management, capital, and skilled people. Approaching matters from a different angle, the World Bank (Development News, April 3, 2003) says that the advantages of worker remittances to the LDC are greater than the loss from a brain drain.9 Michel Beine, Frederic Docquier, and Hillel Rapoport’s (2003) empirical study of 50 LDCs’ emigrants to the United States finds that the brain drain only has a negative effect on economic growth where emigration of the highly educated is more than 20 percent and the proportion of people with higher education is in excess of 5 percent.

Another approach is that emigration is an “overflow” of high-level persons who would otherwise be underutilized and discontented in their home countries (Baldwin 1970:358–372). For example, it is argued that someone like the European-based Pakistani Nobel physicist Abdus Salam would not have had at home the research and library facilities and intellectual stimulation from colleagues needed for his specialized work in chromodynamics (see Box 10-1).

However there are several reasons to question these two analyses. Criticisms 1–3, following, are of the marginal product model, and Criticism 4 deals with the overflow approach.

1.The marginal product model assumes that individuals pay the full cost of their education. Yet, in most LDCs, the government subsidizes schooling. When educated persons emigrate, the country loses human capital, a cost borne by its taxpayers in the past.

9Other benefits of the brain drain may be a return home after having acquired productive skills and a boost in the incentive to acquire skills by home residents (Faini 2003, who, however, rejects these arguments).

350Part Three. Factors of Growth

2.Many LDC labor markets are not competitive but nearly monopsonistic (one buyer), with only one major employer, the government. In this situation, marginal product is in excess of the wage. Accordingly, the country loses more output than income from emigration.

3.High-level technical, professional, and managerial skills increase the productivity of other production factors, such as capital and unskilled labor. Thus, emigration of high-level personnel reduces the productivity of other factors, and increases the unemployment of unskilled labor (Chaudhuri 2001).

4.The overflow theory probably applies to only a fraction of the skilled people who emigrate. Furthermore, government could reduce overflow by encouraging students and trainees to take programs relevant to the home country, and DCs might provide refresher conferences, seminars, workshops, and training to the LDCs’ highly skilled personnel to reduce their emigration to DCs (see Box 10-1).

All in all, there is reason for LDC concern about the brain drain. They might undertake several policies.

1.Scholarships and training grants can be awarded only within the country, except where needed programs are not available. Students studying abroad should receive scholarships funds only for programs of study relevant to the home country.

2.Many students sent abroad could go to another LDC, such as India, South Africa, or Costa Rica, which offers the needed specialization.

3.Even when the student is sent to a developed country for graduate study, joint degree programs between universities in DCs and LDCs, in which research is done locally under the supervision of a scholar living in the LDC, would improve the chance of that student’s remaining at home.

4.The government can provide temporary salaries to its foreign-educated graduates in their job searches, guarantee employment in the home country, or financially assist recruiters seeking nationals abroad.

5.Eliminating discriminatory policies and barriers to free inquiry might encourage highly educated nationals abroad to return.

Some policies to reduce the brain drain may have negative effects. For example, the insights and creativity garnered from overseas study and travel may have to be sacrificed.

Socialization and Motivation

Socialization is the process whereby personality, attitudes, motivation, and behavior are acquired through child rearing and social interaction. In this process, the group imparts its expectations to the individual concerning food habits, religion, sexual attitudes, worldview, and work attitudes. Do cross-national differences in labor productivity and work commitment result from different socialization processes?

COMMITMENT TO WORK

During the colonial period, many Western government officials, managers, and economists argued that Afro-Asians were not motivated by economic incentives and lacked a commitment to work. Many of these Westerners opposed raising native wages on the grounds that the labor supply curve was backward bending at an early stage. The prevailing view was that Afro-Asians would work less if wages were increased because they had few wants and valued their leisure. If there were some validity to the backward-bending labor supply curve during the early part of this century, it was because of Western colonial policy. Traditionally, many peasants did not sell agricultural products; instead, they farmed for consumption by the family, clan, or village. However, when the colonial government required money taxes, the peasant had either to produce what the European traders would buy or work at least part-time for the colonial government or a foreign firm. Not surprisingly, many worked for money only long enough to pay the enforced tax. Accordingly, if wages per hour were raised, they worked fewer hours and disappeared to their villages sooner.

The supply curve for labor for most individuals, whether in LDCs or DCs, is backward bending at some point. Most people take part of their higher income in leisure. However, despite the backward bending individual curve, the aggregate supply curve of labor is upward sloping (that is, more hours of work are forthcoming at higher wages).10

ATTITUDES TOWARD MANUAL WORK

Gunnar Myrdal (1968, vol. 2:1020–1285), the Swedish economist who won the Nobel prize partly for his detailed inquiry into Asian poverty, argues that a major barrier to high labor productivity is a class system in which the elite are contemptuous of manual work. The implication is that upperand middle-class Westerners, who are more likely to carry their own briefcases, mow their lawns, and repair their automobiles, have different attitudes.

Yet affluent Europeans and North Americans may do more manual work than affluent Asians simply because cheap labor is not readily available to them. In general, unskilled labor is more abundant in LDCs than in DCs. However, Northern Europeans have hired Turkish, Croatian, and Italian “guest workers” to do menial jobs; farmers in the southwestern United States Latinos to do “stoop” work; and American parents foreign nannies for child care. Furthermore, as the minimum wage for cooks, nannies, gardeners, and other servants increases in LDCs, as in Nigeria during the oil boom of the 1970s, elites in LDCs increasingly resort to manual work themselves. Thus, attitudes toward manual work may differ between DCs and LDCs, but these appear to be primarily related to the supply of cheap labor.

10Boeke (1953) presents a theory of sociocultural dualism, which features a clash between indigenous social systems in the East and imported Western social systems. He argues that Indonesia and other Eastern societies have limited wants, contributing to a backward-sloping labor supply curve. Evidence from Higgins (1968:227–241) undermines Boeke’s theory of Eastern “limited wants.”

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CREATIVITY AND SELF–RELIANCE

Psychologists argue that differences in skills and motivations are created by the child’s environment. Cultures vary widely in approaches to child rearing and training. We cannot reject out of hand the possibility that cross-national differences in labor productivity may be affected by attitudes and capabilities derived from different socialization processes.

Some childhood development scholars suggest that the environment in traditional societies, such as exist in most LDCs, produces an authoritarian personality. Children brought up in these societies view the world as consisting of arbitrary forces rather than one that can be rationally manipulated. They are less likely to be independent, self-reliant, creative, imaginative, and reliable than children from societies that encourage reasoning and initiative. These theories are discussed in more detail when we look at entrepreneurship and innovation (see Chapter 12).

Health and Physical Condition

The World Health Organization’s World Health Report (2003:5) states that

Global health is a study in contrasts. While a baby girl born in Japan today can expect to live for about 85 years, a girl born at the same moment in Sierra Leone has a life expectancy of 36 years. The Japanese child will receive vaccinations, adequate nutrition and good schooling. . . . Meanwhile, the girl in Sierra Leone has little chance of receiving immunizations and a high probability of being underweight throughout childhood.

Moreover, the Japanese will receive medications worth about $550 yearly (and more if needed), whereas the Sierra Leonean will receive medicines worth about $3 yearly. According to WHO, this tells much about the world’s growing inequality in investment in health. To meet Millennium Development [health] Goals (Chapter 2) requires attention to health promotion, disease prevention, treatment for acute illness and chronic care, response to new threats from diseases and injuries, and other components of a primary health care system (ibid., pp. 5–6).

Health and economic development show a two-way relationship. Development generally improves the health system, whereas better health increases productivity, social cohesion, and economic welfare.11 Life expectancy is probably the best single indicator of national health levels. As indicated in Chapter 8, life expectancy in LDCs increased steadily between the 1930s and 2003, except for retrogression in Africa, largely because of HIV/AIDS, from 1994 to 2003. These increases were more the result of general improvements in living conditions than in medical care. Nevertheless, medical progress has been considerable, especially in controlling communicable diseases. By 1975, plague and smallpox were virtually eliminated.

11Bloom, Canning, and Sevilla (2004:11), using a production function model of growth, find that “a one-year improvement in a population’s life expectancy contributes to an increase of 4% in output.” The finding is positive and statistically significant even when the authors control for worker experience.

Malaria and cholera kill fewer people today than they did in 1950. Following a worldwide vaccination campaign, polio cases fell from 350,000 in 1988 to 700 in 2003, with 99 percent of polio cases in a minority of provinces of India, Nigeria, and Pakistan.12

Poor nutrition and bad health contribute not only to physical suffering and mental anguish but also to low labor productivity. A mother malnourished during pregnancy and inadequate food during infancy and early childhood may lead to disease as well as deficiencies in a child’s physical and mental development. Future productivity is thereby impaired. Furthermore, malnutrition and disease among adults saps their energy, initiative, creativity, and learning ability and reduces their work capacity.

Malnourishment is mostly a problem among the poor. Millions of people in LDCs suffer from malnutrition, not because they do not know what to eat or because the right kind of food is not available, but because they cannot afford it. Some one billion of the world’s people are trapped in a vicious circle of poverty, malnutrition, and low productivity.

Nutrition economists think that the proportion of people in LDCs suffering from malnutrition has fallen since 1960, although Africa and Latin America experienced setbacks in the 1980s (Chapter 7). It is clear, however, that with improved transport and communication and greater awareness of the need for emergency food aid, fewer people starve to death as a result of severe food crises and famines today than in 1960. Yet countries with any lengthy disruption in planting, harvesting, and food distribution – as often happens with internal political conflict, such as in Sudan, Somalia, Angola, Rwanda, and Bosnia in the 1990s – remain vulnerable to starvation.

Obviously, good health and nutrition are intertwined with a country’s economic and social development. Although people are healthier and nutrition has probably not declined in LDCs since the 1960s, progress has been slow – with the result that labor productivity has grown slowly. And overall the physical and mental wellbeing among the poorest segments of LDC population has improved but modestly. Fifteen percent of the LDC population lives at least one hour’s walk or travel away from health services and drugs. In Abidjan, Coteˆ d’Ivoire, the probability of dying between 1 and 4 years of age is 15 times greater in slum areas than in affluent areas where housing and health standards are comparable to DCs (Morawetz 1977:44– 50; Reutlinger 1977:715–24; Reutlinger and Selowsky 1976:8–9; Dwyer and Mayer 1975:74–78; Mahler 1980:66–77; Hendry 1988:8; Schnitzer 2000:228).

12In 1962, just 12 months after Albert Sabin licensed the oral polio vaccine, Cuba undertook a nationwide polio campaign, shortly after eliminating the transmission of the polio virus (WHO 2003:59). Yet, in early 2004, despite assurances from President Olusegun Obasanjo of Nigeria, a cleric and a doctor from Kano state in the north, accusing aid agencies of adulterating the vaccine, led resistance to polio inoculation. This concerned WHO, as seven countries in Africa were reinfected, forcing new immunization campaigns. Moreover, WHO warned that if polio was not eradicated in 2004, it might spread as children in many countries are no longer immunized (World Bank Development News 2004, “Immunization Drive Could Wipe Out Polio by End of 2004,” January 16; and “Polio Spreading in West Africa,” January 24).

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TABLE 10-4. DALYs (Disability-Adjusted Life

Years) Lost per 1,000 Population, 2002

a Includes North Africa, Afghanistan, and Pakistan.

Source: WHO 2003:160–161.

Mortality and Disability

Of the 57 million people who died worldwide in 2002, 17 million deaths were a result of cardiovascular disease (stroke and heart disease) and 7 million from cancer, disproportionately from DCs. Deaths from other diseases, disproportionately from LDCs, include 3.8 million from respiratory infections, 2.8 million from HIV/AIDS, 2.4 million from conditions at birth, 1.8 million from diarrhoeal diseases, 1.6 million from tuberculosis, 1.3 million from measles, 1.2 million from malaria, and 0.4 million from protein-energy malnutrition and iodine, Vitamin A, or iron deficiency (WHO 2003:154–157).

About 18 percent of the world’s deaths (10.5 million) are among children younger than five years old. More than 98 percent of these child deaths were in LDCs. Whereas worldwide child mortality rates fell from 1990 to 2002, Africa’s child death rate in 14 countries increased. Nineteen of the 20 countries with the highest child mortality were in Africa, with the exception being Afghanistan. These child deaths resulted primarily from infectious and parasitic diseases (including HIV/AIDS), conditions at birth, diarrhoeal diseases, and malaria, with malnutrition contributing to virtually all. Girls have a lower child mortality than boys, except in China, India, Pakistan, and Nepal with preferential health care and nutrition for boys. Children from poor households (the bottom income quintile) have a higher risk from dying than those from nonpoor households, with the largest discrepancy in African countries, such as Niger, where the poor child has a 34 percent chance of dying compared to a 21 percent chance for the nonpoor child (ibid., pp. 8–9).

You can measure disease burden by calculating disability-adjusted life years (DALYs), combining years lost through premature death and from living with disability. A DALY is one year lost of a healthy life. Table 10-4 shows that DALYs lost per 1,000 population between the ages of 15 and 60 years is 542 for sub-Saharan Africa (whose health had deteriorated since 1990), 214 for Asia and the Pacific (excluding developed Asia), 132 in the West (combining Western Europe and North America),

and 207 for the world as a whole (a drop from 354 in 1955) (last two figures from WHO 2003:15).

AIDS

Since 1981, when the HIV/AIDS (human immunodeficiency virus/acquired immunodeficiency syndrome) epidemic was first identified, 20 million people have died of AIDS, and most of the 40 million people living with HIV in 2002 were likely to die ten or more years prematurely.13 In 2001, 70 percent (28 million) of the 40 million people in the world with HIV/AIDS lived in sub-Saharan Africa. Seven million lived in Asia, two million in Latin America and the Caribbean, one million in Eastern Europe/Central Asia, and two million elsewhere (Lampley, Wigley, Carr, and Collymore 2002:3, 9–10).14 According to the World Bank (2004f:xxviii), UNAIDS, the global fund to fight AIDS, tuberculosis, and malaria, has been “cash-strapped,” with inadequate DC pledges, 2005–07.15

The AIDS prevalence among adults, aged 15 to 49 years, in the sub-Sahara, was 9 percent (Lampley et al. 2002:3, 9–10). “HIV-positive teachers are estimated at more than 30 percent in parts of Malawi and Uganda, 20 percent in Zambia, and 12 percent in South Africa” (World Bank 2004f:23). AIDS infection rates in Africa are highest among urban high-income, skilled men and their partners (Ainsworth and Over 1994:203–240). Women comprised 58 percent of HIV-positive adults in the sub-Sahara, primarily because they are highly dependent on partners for economic security, and are often powerless to negotiate relationships based on abstinence or condom use. Furthermore, some are coerced into unprotected sex or run the risk of infection by a husband in a society where multiple partners for men are accepted (UNAIDS 2004).

In half the sub-Saharan countries, annual per-capita income growth has declined by 0.5–1.2 percent because of AIDS. The growth slowdown from AIDS results from health care costs, reduced savings, the loss of skilled adults in their prime working years, the reduced productivity of those who work, the cost of caring for orphans, and other costs. All sectors of the economy are affected. The epidemic damages the health system with increasing demands amid a falling number of trained medical providers. Additionally, death from AIDs of an adult affects the next generation, as children withdraw from school to help at home (Lampley et al. 2002:19–22).

More than 20 percent of adults in South Africa, Botswana, Zambia, Zimbabwe, Namibia, Lesotho, and Swaziland (in southern Africa) were HIV-positive in 2001

13HIV kills by weakening the body’s immune system so it can no longer fight infection (Lampley, Wigley, Carr, and Collymore 2002:4).

14In the third world, AIDS is primarily a disease of heterosexual adults, with substantial infection of young children at the time of their birth or from being breastfed. An HIV-infected adult develops AIDS on average in 6 to 10 years (World Bank 1993i:33–34).

15The World Health Organization estimates that only 10 percent of the annual $50–60 billion in health research worldwide goes for these three diseases that afflict 90 percent of the world’s population, largely in LDCs (World Bank 2001i:183).