22527: Durban: Sustainable Development and Industrialization (fwd)

[Bob Corbett <corbetre@webster.edu>]

From: Lance Durban <lpdurban@yahoo.com>

I appreciate Arthur's (22418 and 22490) and the late
Marx-Vilaire's (22422) ideas on sustainable development for
Haiti, but I find their prescriptions missing the mark.  Both of
the Arthur posts in particular offer up some nice rosy images of
what we would all like to see, but little more than a bunch of
mumbo-jumbo foreign aid ideas coupled with even more government
intervention to get us there.

They discount private industrialization efforts, referred to as
mere "assembly", and seem to feel that no country has ever made
much progress in this direction.  On the other hand, I would
submit that their proposals, where government does all of the
"heavy lifting", actually has a pretty atrocious track record.
Has extensive government intervention in activities
traditionally left to the private sector in the developped world
actually helped any country develop?  The Civil Society
recommendations in the first Arthur post tells us...

    Haitian community development training centers and the
    base groups that have been catalyzed by the community
    agents trained there are among the most effective in
    the world. There also exists a strong (if small) cadre
    of agronomists, economists, sociologists, human rights
    specialists...etc. etc.

Haitian community development training centers?  Seriously now,
this sounds to me like a prescription for a whole bevy
USAID-financed studies and reports.  Just what we need.

With condolences to Paul Farmer, I favor foreign aid monies
going into only two things:
     (1) Basic K-12 education for the masses
     (2) Visible public works; bricks and mortar projects.
Neither of these involve direct investment in the private sector
(though contractors might get involved on the second).  Both are
development areas that the private sector is traditionally NOT
set up to perform on its own.

I'll leave agricultural policy for another day, but cannot
resist further comment on industrialization, which strikes me as
being only superficially understood by the authors of the Arthur
posts.  The much-berated "assembly sector" is only the first
step in the process of industrialization.  Before I list these
steps, let me emphasize that no one says you have to start with
step one or that you can't skip some steps along the way:

1.  Simple Assembly -
       The customer provides the raw material and any machines
    needed to put the part together.

2.  Simple Assembly Plus -
       The customer provides the raw material but the Haitian
    entity provides the machines and the labor, and is
    therefore able to charge a bit more.

3.  Complete Assembly
        The  customer provides the design and specifies
    suppliers of raw material, but the Haitian entity buys
    the raw material and supplies the machines and equipment.

4.  Simple Manufacture
        The customer provides the design and specifications.
    The Haitian manufacturer supplies machines, and sources
    raw material from wherever it wants.

5.  Complete Manufacture
       The Haitian company designs and builds the product
    from start to finish.

As should be obvious, each subsequent step involves a bit more
complexity than its predecessor, and this means more can be
charged to the customer.  And who is the customer, is it (for
example) a U.S. lingerie company, or is it a mass merchandiser
like Walmarts.  The group #5 company which figures out how to
sell downstream (ie. to Walmarts) will be able to command a
higher price for its product.

In today's world, it is pretty difficult to be a simple
assembler (#1), because customers are just not looking for that
kind of contractor.  Cheap labor alone will not get you into
business.  Company type #2 is more common, but sooner or later,
your cash-strapped customer in the States will ask if you are
able to finance some of the material.  Or, maybe because of the
perceived instability in Haiti, he will refuse to do any
business with you unless you agree to pay for the material (ie.
the Haitian entity then bears the risk of loss of material as
well as the financial burden of providing it).

You have now gotten to #3, and by this time you need to have
some serious money invested.  Haiti's problem is precisely that
there are very few people (Haitian or foreign) interested in
making that investment.  However, this kind of assembly business
is not to be sneezed at.  In electronics, almost all personal
computers are assembled by... contract electronic manufacturers
(CEM's) which are highly technical companies falling into
category #3.  Flextronics, Solectron, Sanmina, and Celestica (to
name but four) are all multi-Billion dollar CEM's who do nothing
but assemble product for the Hewlett-Packard, Apple Computer and
IBM's of the world.

To summarize, industrialization is indeed one proven path to
sustainable development, but that does not mean governments
should be directly investing in this private sector activity.
HOWEVER, governments certainly can encourage and support such
private sector activity by educating their people and providing
the requisite infrastructure (roads, electricity, water,
efficient ports of entry and customs procedures).  It goes
without saying that political stability and social cohesiveness
is also a prerequisite to meaningful industrialization.

Lance Durban