growing countries such as South Korea and Malaysia. The share remains at
high (though declining) levels for poorer countries such as Burkina Faso,
Ghana and India.
An impoverished traditional sector is a great advantage to the modern sector
in the Lewis model. Here low wages in subsistence agriculture provide a cheap
labour force available to the modern sector. Bruce Johnston and John Mellor
published a classic paper in 1961 challenging the pessimistic view of agricul-
ture. They accepted the widespread view that a declining share of agriculture
in both output and employment is a necessary characteristic of economic
growth. But they argued that agriculture can make five principal contributions
to economic development. First, growth and urbanization requires a substan-
tial increase in the output of agricultural products to meet the consumption
demands of a growing urban labour force. If food supplies lag demand the
result is likely to be a substantial rise in food prices and when over half of total
expenditure (in a typical poor developing country) is spent on food this is
likely to generate political tension and/or pressure for increased wages. Higher
wages can then reduce industrial profits and slow the cycle of investment and
industrial expansion identified by Lewis. Second,the expansion of agricultural
exports is a crucial means to raise foreign exchange earnings to import the
necessary capital and desired consumer goods. Third, the labour force for
manufacturing must be drawn from agriculture so requires productivity growth
to enable the agrarian labour force to produce more with fewer people. Fourth,
as the dominant sector of a developing country, agriculture is the most impor-
tant source of savings and tax rev enue to fund the public and private investment
required for infrastructure, education and industrial investment. Fifth, rising
incomes of the farm population may be important to stimulate industrial
expansion through higher consumer demand. However there is an inevitable
conflict between agriculture as a source of capital (withdrawing savings to be
invested elsewhere) and agriculture as a source of market demand (leaving
incomes with agricultural households to be spent on consumption).
A good example is the case of 1980s China. While we may associate
economic growth in China with the cheap manufactured goods that fill up the
households of the world,agriculture was crucial to this outcome. Agriculture
contributed to more general economic growth in China in the 1980s and
1990s in terms of those various linkages discussed by Johnson and Mellor.
Despite the collectivization (the takeover of small privately owned farms and
their amalgamation into large state-run farms) of Chinese agriculture in the
mid-1950s, patterns of growth were broadly typical of any developing coun-
try. Between the early 1950s and mid-1990s the share of agriculture in GDP
declined from 50 per cent to 20 per cent, though as late as the early 1980s, 80
per cent of the population still lived in the countryside. Rural reforms
(revolving around a shift from large collectives to small family farms) in the
late 1970s led to growth of agricultural output by nearly 8 per cent per annum
between 1978 and 1985. This boosted farming incomes and had a dramatic
impact on rural consumer demand. Rural assets were then distributed in a
170 Patterns and Determinants of Economic Growth