TOWARDS CREDIBLE GROWTH POLES FOR STRUCTURAL TRANSFORMATION OF THE ECONOMY OF GHANA: OPTIONS AND CHALLENGES

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1 Indian Development Review, Vol. 9, No. 2, (July-December, 2011) : TOWARDS CREDIBLE GROWTH POLES FOR STRUCTURAL TRANSFORMATION OF THE ECONOMY OF GHANA: OPTIONS AND CHALLENGES I. K. Acheampong * ABSTRACT This paper examines the growth pole concept highlighting its theoretical underpinnings in the context of credible growth poles for structural transformation of the economy of Ghana, options and challenges. The write up has concerned itself with discussion on the various issues that border on the growth pole concept and the concept of structural transformation of the economy of Ghana, the strategies of the growth pole concept which include national economic growth, regional economic growth, inter-regional growth and rural development have a trade off, the options and challenges. It is evident from the discussions that irrespective of the type of growth pole strategy that is adopted there will be a trade off. The strategies of the growth pole concept are fraught with major challenges and the choice of the growth pole strategy or strategies that will be selected should take cognizance of these in order to be credible. Therefore, in the application of the concept of growth pole, serious choices will have to be made between efficiency and equality. It is important to create multiple growth poles in backward areas. Consideration must be given for the creation of multiple growth poles in backward areas in line with the leading sector in the growth centre and a more dispersed distribution of investment will be necessary to enhance equity within the decentralized administrative structure. But this must be backed by suitable development plans, provision of human and financial resources in the right amounts and at the right time will be required to ensure credible growth pole strategies of development and on top of it all, the private sector should be dovetailed into the process in the provision of directly productive activities in order to lessen the financial burden on the budget. In order to sustain this, political will be mandatory. INTRODUCTION There are many theories in development economics that assist economic policy to bring about economic growth and development in an economy. These include the classical economic theories of development, the neoclassical theories of * Associate Professor, Department of Economics, University of Cape Coast, Cape Coast, Ghana, (ikacheampong@yahoo.co.uk)

2 228 I. K. ACHEAMPONG economic growth and development and the structuralist theories of economic growth and development. The theories of structural transformation of an economy fall under the structuralist theories of economic development and the theory of growth poles falls in this domain also. The perspective of the structuralist theories is that the orthodox classical and neoclassical economic models are not suitable for less developed countries since the assumptions that underpin them largely do not hold for Less Developed Countries (LDCs). Therefore, certain peculiar aspects of LDCs may prevent certain economic policy actions from being effective even though such a policy will function very well for developed countries. Given the topic, four structural transformation theories that come to the fore are the growth pole concept, Lewis s (1954) dualistic model of the structural transformation of the economy, the unbalanced growth theory and the dependency theory. The Lewis model demonstrates that with the impetus from the modern capitalist sector, the modern sector would be able to transform the traditional subsistence or the primary sector of the economy while the unbalanced growth theory seeks to establish one big project in the economy that will have forward and backward linkages in the economy so that development will be enhanced. Hirschman (1958), a major proponent of the unbalanced growth theory, believes that the creation of strategic imbalances will set up stimuli and pressures that will keep the economy in moving forward. The dependency theory, on the other hand, postulates that economic under development of the LDCs occurs because of the continued exploitation of the periphery by the imperial centre. It is important to underscore the fact that, the growth pole concept has been introduced in the past in Ghana as shown in The Guidelines for the Five Year Development Plan, However, because of the undue emphasis that was placed on sectorial planning, regional planning had not received adequate attention (Benneh, 1976). As a result, there has been a loop-sided type of development in Ghana culminating in regional imbalances and inequalities thus creating regional inequalities between the northern sector and the southern sector of the country and exacerbating rural urban migration. In addition, this has also resulted in creating pockets of poverty stricken areas even in the southern sector. It is therefore important to revisit the growth pole concept and see how it can be best applied to bring about equity oriented development. The paper seeks to answer the following questions in order to come to grips with relevant issues relating to the topic: 1. What are the essential elements of the growth pole concept? 2. What is the structural transformation of the economy? 3. What are the various strategies of the growth pole concept and their challenges for the structural transformation of the economy? 4. What credible growth poles should guide policy? In finding answers to these questions, the paper is outlined as follows: Firstly, the paper will examine the essential elements involved in the growth

3 TOWARDS CREDIBLE GROWTH POLES FOR STRUCTURAL TRANSFORMATION OF THE 229 pole concept as a strategy of development and other related issues. Secondly, the concept of the structural transformation of the economy will be clarified and linked up with the concept of the growth pole. Thirdly, attempts will be made to explore the other alternatives or options and challenges within the framework of the growth pole concept. THE CONCEPT OF GROWTH POLE According to Mayhew (2004) a growth pole is considered as a point of economic growth. Poles are usually urban locations, benefiting from agglomeration economies, and should interact with surrounding areas spreading prosperity from the core to the periphery. According to Darwent (1969) François Perroux introduced the idea of economic Growth Poles in He and others had written about the concept extensively yet there was no consensus as to what it meant. The intuitive notion of growth poles would identify a growth pole as an industry or perhaps a group of firms within an industry. At the extreme, a growth pole might be a single firm or it might be a group of industries. Perroux, however, defined growth poles in terms of what he called abstract economic space. Perroux conceived of abstract economic space to be of three types: an economic plan, a field of force and a homogeneous aggregate. Perroux denied that abstract economic space could correspond to a geographical area such as a city or region. For Perroux, the aspect of dominance was important for growth poles. A firm or industry A is said to be dominant over B if the flow of goods and services from A to B is a greater proportion of A s output than the flow from B to A is of B s output. A large firm or industry that has a high degree of interaction with others and is dominant in that interaction is said to be propulsive. The process of development of a propulsive firm or industry is called polarization. Perroux and other writers on growth poles try to base the concept on the notions of external economies, agglomeration and linkages. An external economy exits if a change in the output of one firm or one industry affects costs in other firms. External economies of scale may be negative, as in the case of pollutions costs, or they may be positive, as in the case of the development of integrated circuit technology in the electronics industry. Linkage is a concept developed in regional economics. Linkages may be forward or backward. If growth in production in one industry stimulates production in the industries supplying it, then that industry has backward linkages. Hirschman (1958) uses the term polarization to refer to the negative impact of a growth pole on surrounding regions. Trickling down is the term he uses for the positive impact of a growth pole or growth center on adjacent regions. Friedman (1963) has developed a concept that is related but distinct from the ideas of growth poles and growth centers. It is called the matter of the center versus the periphery. Friedman developed this idea in analyzing the relationship of the interior regions of Venezuela to the coastal regions. Others have extended the concept to the relationship of the North Atlantic center of Western Europe and North America to Latin America, Africa and Southeast

4 230 I. K. ACHEAMPONG Asia. Hirschman (1958) has also attempted to conceptualise the growth pole theory as a regional planning strategy. In his book titled The Strategy of Economic Development (Hirschman, 1958:187) advocated an unbalanced growth strategy of development. Like Perroux and Boudeville, Hirschman saw development as a chain of disequlibria. He mentioned Scitovsky s (1954) notion of inter-action, and argued that development is a lengthy process during which interaction of the kind described by Scitovsky takes place not only between two industries, but up and down and across the whole of an economy s input-output matrix (Hirschman, 1958:66). Hirschman argued that the key problem for LDCs economies was a series of interlocking vicious circles where the factors of production and abilities were hidden, scattered and badly utilized (Hirschman, 1958:5), thus they need pressures or tensions to mobilise the largest amount of resources. Therefore, a certain level of polarisation will be expected to stimulate the development at the depressed area. Hirschman, focused on intermediate and basic industries, rather than high industrial complexes, since they would induce greater backward and forward linkage effects. He assumed a simple model for this discussion, and he set the North as the growing region and the South which indicated underdeveloped regions. Within this model, Hirschman expected trickling down and polarization effects: the growth of the North will have a number of direct economic repercussions on the South, some favourable, others adverse (Hirschman, 1958:187). In the long run, the trickle down effects will be expected to prevail more than the polarisation effects, thus reducing the regional disparities. He explained that this trend is inevitable because of agglomeration diseconomies. In his growth pole strategy, state intervention cannot concentrate only on making agglomeration economies, but it should be attached with a supplement policy such as building residential satellite cities around the growth pole, investments in service infrastructure in rural areas, establishment of appropriate transport system in a whole country, etc., thus reducing the tensions or pressures for polarisation. As he noted: if the market forces that express themselves through the trickling down and polarisation effects result in a temporary victory of the latter, deliberate economic policy will come into play to correct the situation (Hirschman, 1958:190). Although he noticed negative aspects of polarisation and agglomeration diseconomies, it seems to be the point that the growth pole strategy appears to be the best strategy with this supplementary state intervention. Lewis (1954) postulated that development had to be brought about by the expansion of the urban-industrial sector which produces more efficiently and more economically with the higher technologies compared to the ruralagricultural sector. For example, in his famous article Economic development with unlimited supplies of labour, Lewis (1954) assumed that there existed two contrasting sectors; a traditional, overpopulated rural subsistence sector where marginal physical productivity of labour was either zero or negative and there existed abundant surplus labour. On the other hand, there existed a highproductivity, modern, urban industrial capitalist sector which enjoyed higher income and technology and where profits were saved and reinvested.

5 TOWARDS CREDIBLE GROWTH POLES FOR STRUCTURAL TRANSFORMATION OF THE 231 Given the interaction between the traditional and modern sectors the structural Transformation of the economy will occur. Since the traditional sector is overpopulated and is characterised by low productivity while the modern sector has a higher wage which was about 30% premium over the traditional sector wage rate, surplus labour in the traditional sector will shift to the modern sector where high productivity and more employment exist. This growth of the modern sector does not stop here, because there will be re-investment of surpluses or profits, which will enable the modern sector to receive more labour from the traditional sector. Since there was an unlimited supply of labour from the traditional sector, capital-saving technology must be chosen for employing more labour. In this cycle, the modern industrial sector will overtake the traditional agricultural sector. Finally, the Lewis model had implied selfsustaining growth of the modern sector which appeared to be the key factor in the development process. This process of development appeared to have some similarities with the growth pole concept. Lewis s model conceived some disparities in an economy, and this model explained that the winner, who has more efficiency in its production with a modern technology, absorbs (or destroys) the loser, who has a relative backwardness. The development has been considered as an expansion of the winner s influence. Thus, the rationale of a derived strategy from this model is to make the winner win, that is i.e., more investment in a growing sector (or region). A related theory to the growth pole concept is the dependency theory. Dependency theory emerged as a challenging theory in development economics during the 1970s. There were two main arguments; one was related to unequal exchange and the other was based upon the concept that the world economy was divided into a core of dominant nations and a periphery of dependent ones. Against this background, Baran (1957) observed that the continued foreign exploitation of underdeveloped countries and their domination by the imperialist powers and argued that economic development in underdeveloped countries was inimical to the dominant interests in the advanced capitalist countries and powerful foreign corporations. In this context, Frank (1967) considered metropolitan-satellite relationships which were similar to Friedman s coreperiphery model, and in these relationships only the metropolitan area received the benefit of growth at the expense of the satellites. Thus such benefits of urban-industrial growth are never spread nor trickle-down to the surrounding backward area. This is due to lack of access to their own surplus as satellites and the same polarisation and exploitative contradiction which the metropolis introduces and maintains. It must be observed that these criticisms of the growth pole strategy are powerful; however they do not imply that the concept of the growth pole must be thrown overboard. The growth pole concept has various aspects and it is not possible to argue about the validity of this complex strategy from only one aspect. Various growth pole strategies can be considered in practice depending on their objectives such as national growth, regional growth, regional equality and rural development among others. In view of these, in a subsequent section, we shall

6 232 I. K. ACHEAMPONG discuss growth pole strategies noting carefully their associated challenges that have implications for the options to consider for selection. In the mean time we consider the concept of structural transformation next. THE CONCEPT OF STRUCTURAL TRANSFORMATION OF THE ECONOMY Economic development refers to sustained increases in real per capita income of a country. Economic development involves a process in which an economy achieves sustained economic growth (expansion of the national output) in addition to structural transformation of the economy. Structural transformation of the economy refers to incremental changes with respect to the nature and degree of industrialisation, the occupational and geographical distribution of the labour force among agriculture, industry and services; the proportion of the country s GDP that is made up of agriculture, industry and services; the degree of foreign trade dependence and openness of the economy, the composition of the country s imports and exports, the degree of mechanisation relative to the degree of labour intensity involved in production (Ezeala-Harrison, 1996:1-19). It is important to note that these processes of structural transformation tend to accompany the successful application of the growth pole concept as might have become evident in the discussion in the previous section. OPTIONS AND CHALLENGES OF GROWTH POLE STRATEGIES This section discusses the various options of growth pole strategies of development and their challenges. The following options and their challenges will be discussed. National Economic Growth A growth pole strategy for national economic growth is a strategy which a country pursues unconsciously in practice. All capital cities have some form of leading sector, not only industries but also tertiary sectors. Such naturally growing capital cities have been located their governmental bodies and most of the authorities, which attract people and firms to settle in the capital. There is no example where another city outside the capital grew first (except for planned capital cities). In the early stage of economic growth, the government tends to invest firstly in its capital city. This rationale can be quite right from an economic point of view, since the capital city has more of the population and potential to bring about a rapid growth, and it is easier to invest in infrastructure in the growing capital city. In addition to investment for the capital city, the industrialised region which has already grown by itself must be attractive for the government to invest in infrastructure or a new project, since this is financially easier and more economical if the government is focusing only on national economic growth. Actually, this case can be observed in most countries at the early stage of development. In this case where the government concentrates its investment only on the growing area, it can be argued that the government has implemented a growth pole policy for national economic growth, whether or not they conceived an idea for growth poles. In order to achieve this

7 TOWARDS CREDIBLE GROWTH POLES FOR STRUCTURAL TRANSFORMATION OF THE 233 objective, the growth pole strategy must involve: investment in the infrastructure in the growing area (housing, hospitals, water supply, transportation within the area, etc.); surrounding the area with some power stations; enabling an adequate supply of food to the growth poles by setting up some regions of agriculture or considering importing agricultural products; transport construction to link the growth poles, and so on. After reaching a peak, however, such strategies will be faced with a physical limitation of city size. This is due to the diseconomies of a large city, such as expensive public services, under-utilised infrastructure, over population, traffic congestion, pollution, etc. Moreover, the growth pole strategies for a purely national economic growth objective will cause new regional problems, such as urban-rural inequality, intra- and inter-regional inequality, a vast immigration to the urban area, and so on. Therefore, an objective of national economic growth should not be a priority of the objectives of growth pole strategies for regional planning, although the national government naturally tends to do it in reality. Regional Economic Growth If a region is to be developed with a regional policy, the targeted region must have a leading sector or a propulsive industry to boost the economic growth in this region. Basically, the strategy to develop the region seems to be similar to the strategy for national economic growth as mentioned above, since the proposed policy is to choose the leading sector to be intensively invested in. It is, however, a critical point as to whether this development has a purely economic objective or contains some egalitarian objectives within the region. If the strategy attempts to pursue egalitarian objectives for the whole population within the region, an investment concentrated on the growth pole will lead to the reverse result. Even with the construction of a transport system linking the growth poles and other hinterlands, it is common that the migration tends to be from rural to urban, rather than producing a spread effect of the population, as a response to the establishment of new transport linked to an urban growth centre. Thus, in order to achieve the intra-regional equality, it is necessary to consider a comprehensive regional planning which concerns the multiple growth poles in the backward areas co-operating well with the leading sector in the growth centre. For instance, if the growth pole has been a highly industrialised urban city, it is possible to set up agricultural centres around the city and link them with transportation, or perhaps recreation centres might be possible to be considered for such hinterlands. It may be possible to argue that an economic growth objective and an egalitarian objective in regional planning can be complementary rather than competitive. However, in most of the cases, these two objectives do not move in the same direction. For an extension of the above example, the regional planning which considers the agricultural development in the lagging areas will be faced with a severe choice between equality and efficiency, when imported agricultural products are relatively cheap in terms of price for that region.

8 234 I. K. ACHEAMPONG Inter-regional Equality Williamson (1965) observes that inter-regional inequality has been a common phenomenon in the process of national economic growth and development. However, it can also be underscored that such inter-regional inequality has been created by the misallocation of investment and resources, sometimes by a growth strategy based on growth pole concepts targeting national economic growth as mentioned earlier on. Theoretically, this issue is the same as that of intra-regional equality which was discussed earlier. For example, if it is assumed that the Northern sector is lagging behind the Southern sector as obtains in Ghana, it is necessary to set up some growth poles in the North which could serve as counter magnets against the Southern growth poles. In this case, again it is necessary to consider the existing economic system in which the previously existing growth poles will be activated. A simple policy such as the establishment of growth poles in the North, or creating links to the South, cannot be a solution, rather it may end up causing a deterioration of the Northern economy (because of the tendency of resource misallocation in a planned economy) or may cause new pressures of out-migration to the South via the new transportation. Again it is an irony that the new growth poles will be in danger of causing new intra-regional inequality within the North. Even if the Northern region develops according to the economic indices, it does not necessarily mean that the whole of the region can develop; rather it tends to end up causing a new intra-regional inequality in the North. It may be possible to consider a highly dispersed distribution of investment as an alternative but this will have implications for the budget and the government may not have a large enough budget given the precarious budgetary position to pursue this kind of policy. Therefore a serious choice between equality and efficiency will have to be made in this regard. Rural Development Rural areas have tended not to be given adequate attention in development strategies in the past; however there is the need to reverse this trend. Stohr and Taylor (1981) discussed the different types of development strategies, and they grouped them into the top down type and the bottom up type: the top down, centre-outward development; the bottom up is periphery-inward development. They concluded that bottom up was especially appropriate for LDCs, where most of the poorer population lived in the periphery areas and migrated to the urban areas, but were still in poverty. In this context, there have been some arguments about the agropolitan development in the rural areas. Friedmann and Douglas (1978) studied the development processes of Asian countries and argued that the traditional top down policy based on the industrialisation paradigm was inappropriate as a guide line to the future because of the problems LDCs have been grappling with such as rising import prices, declining export markets, and deterioration in the terms of trade. Therefore an appropriate development strategy should consider:

9 TOWARDS CREDIBLE GROWTH POLES FOR STRUCTURAL TRANSFORMATION OF THE 235 Limited and specific human needs to replace unlimited generalized wants as the fundamental criterion of successful national development. Agriculture should be regarded as a leading or propulsive sector of the economy. Attaining self-sufficiency in domestic food production should be regarded as a high priority. Existing inequalities in income and living conditions between social classes and between urban and rural classes should be reduced. Facilitative measures should be put in place to increase production of wage goods for domestic consumption. A policy of planned industrial dualism should be adopted whereby smallscale production for the domestic market is protected against competition from large-scale capital intensive enterprise. Besides the agropolitan development, it is possible to establish small market towns in rural areas, since the countryside is inadequately provided with accessible market centres. Moreover, there was the need to consider the establishment of more small-scale industries and less concentrated urban strategies. SUMMARY AND CONCLUSION This paper has discussed the various issues that border on the growth pole concept and the concept of structural transformation, the various strategies of the growth pole concept or options and challenges. It is clear that irrespective of the type of growth pole strategy adopted, there will be a trade off and inequality and poverty will be exacerbated in the depressed areas. The application of the growth pole concept may cause limitation with space due to congestion; it may be confronted with human resources and financial problems, causing new spatial inequality. Therefore, in the application of the concept of growth pole serious choices will have to be made between efficiency and equality. In Ghana decentralization has been considered by many as one of the most important strategies in public sector reform agenda. Government of Ghana considered decentralization as a strategy that will bring development to the people, making decisions at the lowest feasible level. It is also meant to reduce overload and congestion at the centre and speed up operational decision-making and implementation by minimizing bottlenecks associated with overcentralization of powers and functions at just one or two points in the hierarchy of a public service organization or Ministry. Given Ghana s choice of decentralized administrative structure, it is possible to apply the growth pole concept to the economy by creating multiple growth centres for the regions or districts to enhance regional equity and balance. However, as can be inferred from the presentation, the creation of multiple growth poles in backward areas in line with the leading sector in the growth centre, a much more dispersed distribution of investment will be necessary to enhance equity. The establishment of these growth centres will require more

10 236 I. K. ACHEAMPONG investments and as such more financial resources will be required from the national budget annually to execute these plans but the private sector should also be dovetailed into the process to minimize the financial burden on government. The government should concern itself largely with the provision of social overheard capital while the private sector should be encouraged to provide investments for the provision of directly productive activities. At this juncture it can be inferred from the presentation that the strategies of the growth pole concept are fraught with major challenges and the choice of the growth pole strategy or strategies that will be chosen should take cognizance of these to be credible. Consideration must be given for the creation of multiple growth poles within the decentralised administrative structure but this must be backed by suitable development plans, provision of human and financial resources in the right amounts and at the right time will be required to ensure credible growth pole strategies of development and on top of it all,the private sector should be dovetailed into the process in the provision of directly productive activities in order to lessen the financial burden on the budget. Finally in order to sustain the process a strong political will and leadership will be required. References Alonso, W. (1975), Alternative Approaches, Oxford: Pergamon Press. Baran, P. (1957), The Political Economy of Growth, New York, Monthly Review, Cambridge, Mass. Harvard University Press. Benneh, G. K. (1976), Regional Development Planning as a Unifying Approach, Proceedings of International Seminar on Socio-Economic Problems of Rural Development, 5 th -10 th January,1976, Centre for Development Studies, University of Cape Coast. Darwent, D. F. (1969), Growth Poles and Growth Centres in Regional Planning: A Developing Countries, Chichester: John Wiley. Ezeala-Harrison, F. (1996), Economic Development: Theory and Policy Applications, Praeger, London. Frank, A. G. (1967), Capitalism and Underdevelopment in Latin America, New York, Monthly Review Press. Friedman, J. and Douglas, M. (1978), Agropolitan Development: Towards a New Strategy for Regional Planning in Asia, in F. C. Lo and K. Salih (eds.), Growth Pole Strategy and Regional Development Policy: Asian Experience and Alternative Approaches. Oxford: Pergamon Press. Friedman, J. (1963), Regional Economic Policy for Developing Areas, Papers and Proceedings of the Regional Science Association, 11, p Hirschman, A. O. (1958), The Strategy of Economic Development. New Haven. Conn.: Yale University Press. Johnson, E. A. J. (1970), The Organisation of Space in Developing Countries. Cambridge, Mass. Harvard University Press. Lewis, W. A. (1954), Economic Development With Unlimited Supplies of Labour, Manchester School of Economics and Social Sciences, 22, Mayhew, S. (2004), A Dictionary of Geography, Goggle, Answers.Com

11 TOWARDS CREDIBLE GROWTH POLES FOR STRUCTURAL TRANSFORMATION OF THE 237 Ministry of Local Government & Rural Development (2002), Decentralization in Ghana: Implementation Status and Proposed Future Directions (Accra: Ministry of Local Government and Rural Development), March Myrdal, G. (1957), Economic Theory and Underdeveloped Regions. London: Duckworth. Perroux, F. (1950), Economic Space: Theory and Application, Quarterly Journal of Economics, 64: , reprinted in J. Friedmann and W. Alonso (1964) Regional Development and Planning: a Reader. Cambridge, Mass.: MIT Press, 21-36, Policy. London: Menthuen Press. Republic of Ghana (1975), Guidelines for the Five Year Development Plan , Ghana Publishing Corporation, Accra. Republic of Ghana (2003), Ghana Poverty Reduction Strategy : An Agenda for Growth and Prosperity, Ghana Publishing Corporation, Accra. Stohr, W. B. (1981), Development from Below: The Bottom-up and Periphery-inward Development Paradigm. in W. B. Stohr and D. R. F. Taylor (eds.) (1981) Development from Above or Below? The Dialecticism of Regional Planning in Developing Countries, Chichester: John Wiley. Williamson, J. G. (1965), Regional Inequality and the Process of National Development: A Description of the Patterns, Economic Development and Change, 13, 3-45.