Structural Transformation: Then and Now

by C.R.Yadu and Sahil Mehra

A major theme that dominates the literature on development economics is the narrative of ‘Structural Transformation’, which, based on the experience of developed economies, envisages a gradual ‘modernisation’ of the economy. This process is expected to unfold in a similar way across the economies of global South, where the importance of non-agriculture/high-productivity/capitalist sectors in terms of both contribution to national income and labour employment would increase and that of agriculture/low-productivity/pre-capitalist sectors would fall, ultimately leading to dissolution of this dualist structure of the economy (Lewis, 1954; Kaldor, 1967; Kuznets, 1968). This transformation is expected to bring productivity gains across all sectors, reduce poverty, and lead to high levels of economic prosperity. According to Monga and Yifu Lin (2019), structural transformation is “arguably the single most significant concept and social goal in the global quest for prosperity and world peace.”

However, many of the economies of the global South have not been able to undergo this expected path of structural transformation. For example, in 2019, for sub-Saharan Africa, the average contribution of agriculture to GDP has been around 14% while the proportion of population employed in agriculture is 53%. The GDP contribution and employment figures range from 8% and 27% for East Asian and Pacific economies to 17% and 42% for South Asia respectively (World Development Indicators, 2021).

The dominant narrative, largely propagated by international agencies like the World Bank, still advocates the validity of the process of structural transformation, continues to use this framework to understand the labour and employment transition in the global South, and advocates policies to achieve the same. In contrast, within various critical strands of literature, there is an increasing realization that the nature and pattern of structural transformation that unfolded in the global North might not be replicable in the global South (Dorin, 2017; Scherrer, 2018; Breman, 2019). Building on some of these criticisms, we argue that the possibilities of attainment of a North-style structural transformation remains bleak in the contemporary global South. This is majorly because the socio-economic and political context which facilitated the process of structural transformation of the economies in the global North is no longer available to the global South. The process in the North was, to a large extent, fostered by colonialism which allowed these economies to undertake expropriation and extraction of resources, without much concern for ecological limits, as well as to transfer a proportion of their population to the newly found lands in the temperate regions. Given the significant changes in the structure of capitalism now as compared to the earlier phase, it is worthwhile to investigate the possibilities of the global South experiencing the envisaged path of structural transformation.

In the following sections, we elaborate on why the received wisdom in development economics no longer provides an adequate framework to understand capitalist development in the global South.

Colonial legacy and imperialism

The narrative of structural transformation often does not take into account the historicity of structural conditions, particularly the role of colonialism in the development of capitalism in these countries. The majority of the countries in the global North were able to successfully undertake capital accumulation and subsequent industrialisation because they could establish political control over many of the tropical and subtropical countries (Bagchi, 1972, 1976; Patnaik & Patnaik, 2016). The resource plunder and exploitation of these economies fuelled metropolitan capital accumulation in the colonial centres, while producing immiserisation and de-industrialisation in the colonised territories (Naoroji, 1901 [1876]; Bagchi, 1976; Sen, 1982; Patnaik, 1991). Thus, colonial rule had deeply shaped the structural conditions of the economies of the global South that had a long-lasting impact on them even after their independence (Mitra, 2005 [1977]; Patnaik, 1972).

Though the days of overt colonialism are over, the economies of the global South remain subsumed within the larger power structure of global capitalism under new and different forms of imperialism which continues to facilitate the transfer of surplus to North (Harvey, 2005; Patnaik and Patnaik, 2016; Kvangraven, 2023). The subordinate position of the economies of the global South is reinforced by the processes of financialization and globalization which increased their dependence on the financial institutions of the global North. This puts the economies in the South in a disadvantageous position by exposing their domestic economies to the vagaries of global capitalism (Alami, et al., 2022).

The contemporary phase of industrialisation

The early phase of capitalist development and industrialisation as experienced by economies of the global North was characterized by advancement in technology that assimilated labour, outmigration of population (discussed below), and struggle for democratic political rights, which, on one hand, led to reallocation of labour to more productive sectors, and on the other hand, allowed for the benefits of productivity increase to be accrued to both capital and labour (though not in equal proportions). However, in the current phase, more so during the neoliberal era, there has been a shift in the nature and direction of industrial development, largely characterized by a capital-intensive manufacturing process. This, to a large extent, has contributed to ‘jobless growth’ in the economies of the global South (Storm, 2015; Hanson and Leautier, 2013).[1] Further, as a result, the increase in productivity benefits capital in a much greater proportion as compared to labour, as can be ascertained from the increasing gap between real wages and growth of labour productivity (OECD, 2018; Jain; 2019).

In addition, the economies of the global South have been undergoing ‘pre-mature de-industrialisation’ (Rodrik, 2016), which is a process of de-industrialisation in countries where income levels are still low (Scherrer, 2018). Now, instead of the manufacturing sector, the accumulation process in the economies of the global South is largely driven by growth in the services sector, where the employment generation and absorption capacity is typically more biased towards skilled labour (Ramaswamy and Agrawal, 2012; Nayyar et al., 2021). In addition, advancements in artificial intelligence are changing the way production and distribution is structured, thereby adding another dimension to the non-linear possibilities of future development. The proliferation of the gig economy, and growing informalisation and precarity of the work is symptomatic of a particular kind of structural change that underlies the current process of development.

Structural and demographic features

The contemporary nature of capitalism and industrialisation also needs to be seen in the context of various domestic structural and demographic challenges that confront the economies of the global South. The population growth rates confronting the developing nations today both in Asia and Sub-Saharan Africa are much higher than what were experienced by economies like Europe and Japan at the time of their industrialisation, who, thus, ‘had proportionately fewer people to absorb’ to the non-farm sector (Kitching, 2001, p. 150-151). While the early industrializers were able to manage the absorption of their labour into modern industry partly due to emigration of a significant proportion of their population, such options of emigration are not that readily available to the global South (Patnaik, 1995; Scherrer, 2018).[2]

The issues of high population growth and low labour absorption capacity of the formal manufacturing sector in the global South has meant that labour moving out of agriculture is able to find employment only in low-productivity and low-value generating informal manufacturing and services sectors, like petty production and trading.[3] In much of the literature, domestic structural features and conditions perpetuating the continued persistence of informal economy is largely seen as a symptom of a ‘stunted’ process of structural transformation, where the assumption is that it will wither away with economic growth (Ranis and Stewart, 1999; Bardhan, 2009). However, some recent strands of literature have argued that, rather, the continued existence of ‘traditional’ agriculture and non-agricultural informal segments might be a consequence of a particular kind and nature of capitalist transformation these countries are undergoing (Sanyal, 2007; Bhattachrya, 2017; Bhaduri, 2017; Bhattacharya and Kesar, 2018). The larger structural dynamics underlying the process of development in these economies raises questions on the unraveling of the process of structural transformation along the expected lines.

Changing role of the State

The dominant narrative of structural transformation often evades the role played by the State in affecting the direction and quality of structural transformation in an economy (Chang, 1994; Lin, 2014; Storm, 2015; Djurfeldt, 2018). In fact, this has been observed not only in the case of most of the successful economies (Yifu Lin and Monga, 2010), but also in the case of various late industrializers like East Asian ‘miracle’ economies, especially South Korea and Taiwan. Though in dominant discourse, the success of the miracle economies is largely attributed to rapid adoption of technologies, investment in rural infrastructure, limited taxation, and well-functioning markets (World Bank, 1993), it has been argued that without the directional thrust and vision provided by the State policies and planning conducive to industrialisation, private sector entrepreneurship may not have proceeded smoothly (Stiglitz, 1996; Kay, 2009; Storm, 2015; Djurfeldt, 2018).

However, areas of State intervention which fostered capitalist development in the North have become conspicuously absent with the rise of neoliberalism. The economies in the global South have to strictly adhere to constraints imposed by international institutions in terms of fiscal consolidation, which strongly limits its ability to intervene in the market. Moreover, the idea of development planning and State activism has increasingly been categorized as an impedance to the process of successful reallocation of labour to the productive sectors. At the same time, there has been continuous assaults on labour rights and pressure on the governments to push for labour flexibilization. According to Breman et. al. (2019), the thoroughly informalized workforce in much of the global South are no longer embedded within the rights of citizenship and seem to have wasted their value as a commodity.

The ecological limits

A major issue that largely remains disregarded is the limitations imposed by ecology on capitalist expansion. The rise in production and productivity comes by exploiting nature and its resources which are finite. Historically, the process of industrialisation in the global North expanded through various resource control regimes without much concern for ecological damage, or putting the burden of such unbridled exploitation on future. Moore (2015) argues that whenever capitalism went into a crisis of expansion, it saved itself by finding ‘spatial fixes’. Even currently, North continues its unfettered exploitation of resources across the globe and mass consumption of goods and energy resources without any cognizance of ecological limits.

Ecological degradation and the looming threat of climate change pose a new set of challenges to various production activities, particularly in agriculture, which, in turn, limits the ability of economies in the South to expand production and productivity. Dorin (2017) projects that even in 2050, the farm labour productivity of Asia would be 245 times lesser than that of North America. It is argued that global capitalism as an ecological regime ‘has reached, or will soon reach its limits’, and the chances of saving it by finding spatial fixes are no longer available (Moore, 2015). The possibility of the global South ‘converging’ with the North in terms of capitalist expansion is ‘a systematic impossibility and an ecological dead end’ (Moyo et al, 2012).

Towards a new paradigm

In this short essay, we argue that there is a need to re-examine the narrative of structural transformation as a universal phenomenon which is expected to unfold in a linear way across time and space. The received wisdom in development economics largely neglects the political and historical roots of capitalist development, and remains rather incomprehensive in its understanding of the contemporary nature of transformation taking place in the South due its fixation of gaze from a North-centric lens. Analyzing the particular nature of the processes of development specific to the South brings its own set of challenges that need to be understood in their own subjective context. The way forward is to break away from the North-centric notions of progress and change, and reverse the gaze, to formulate a framework that reflects on the structural conditions and the realities of the global South from their vantage point.


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[1] For example, in India, while the overall employment elasticity was around 0.792 between 1977-78 and 1982-83, it was only 0.009 between 2004-05 and 2011-12 (Basu and Das, 2016), in spite of the Indian economy experiencing peak rates of growth during the latter period.

[2] For example, after 1815, around 70 million Europeans had migrated to new found temperate lands (Stalker, 1994, p. 16). Between 1844 and 1858, annual emigration from the UK was around 1.1 percent of the population, and during the peak period of migration, annual migration from the country was around 1.8 percent of the population (Patnaik, 1995).

[3] In India, the informal sector, which employs more than 80% of the total working population and produces 60% of the national income (Kannan & Papola, 2007; CSE, 2018).

C.R.Yadu is Assistant Professor, School of Economics at RV University, Bengaluru, India.

Sahil Mehra is Assistant Professor, School of Economics at RV University, Bengaluru, India

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