Schultz’s Thesis of Traditional Agriculture

In this article we will discuss about:- 1. Some Misconceptions about Traditional Agriculture 2. Meaning of Traditional Agriculture According to Schultz 3. Characteristics 4. Schultz’s Suggestions for Transforming Traditional Agriculture 5. The Process of Transformation 6. Importance of Acquired Skills in Transformation of Agriculture 7. Critical Reviews of Schultzian Thesis.

Some Misconceptions about Traditional Agriculture:

Before giving his definition of traditional agriculture, Schultz dispel some wrong impressions about what a tradition agriculture implies.

(a) Traditional agriculture has nothing to do with the traditions of a society. According to Schultz agriculture can become traditional in any country, irrespective of the customs and conventions which its people have generally practiced. For example, it is not necessary that only a conservative, superstitions and a whimsical society can have a traditional agriculture. Even a forward looking society can find its agriculture to be traditional in nature.

Schultz feels that most of the factors that influence production i.e. Thrift, attitude to work, industriousness etc. are not affected by the culture traits of a society. These are in-fact economic variable. People do not save for investment simply because the method of production does not give a high return. Again people do not work much because the return to labour is rather low. Accumulation of more capital or use of more labour are thus governed by economic factors and not by the cultural factor.

(b) Traditional agriculture has nothing to do with the institution arrangement in a country. A country with any type of in situation arrangements can find its agriculture being traditional. For instance agriculture in a country can become traditional whether it has large farms or small farms though generally people feel that traditional agriculture is associated with small farm Japan’s agriculture is not traditional even if the farm size is very small.

Similarly, traditional agriculture can be found, both in countries with a high degree of owner cultivation or with a high degree of tenancy, For example, Holland is a country where tenant cultivation predominates, However, its agriculture is not traditional.

Schultz further points out that the technical attributes of the factors of production in an agriculture do not determine the character of agriculture in a country i.e., whether it, is traditional in character or not.

Generally it is felt that if the factors of production are highly productive, its agriculture can be called a modern agriculture and if the factors of production have low technical efficiency, it is called a traditional agriculture, Schultz docs not agree with this assertion.

For him, traditional agriculture has some economic feature and if these features appear in an agriculture even with technically efficient factors it will become traditional in character According to him under certain circumstances, even American Agriculture which at present, is considered to be the most advanced agriculture can become traditional.

Meaning of Traditional Agriculture According to Schultz:

According to Shultz traditional agricultural is all economic concept. It implies a short of an equilibrium: When agriculture of an country reaches such an equilibrium, it will become a traditional agriculture and according to Sehultz, as we have already pointed out, this equilibrium can be reached irrespective of the cultural attributes of the society, its institutional arrangements or the technical efficiency of its factors.

According to Schultz, the critical conditions underlying this type of equilibrium, either historically or in the future are as follow:

(1) The state of arts remains constant

(2) The state of preferences and motives for holding and acquiring sources of income remains constant and

(3) Both of these states remains constant long enough for marginal, preference and motives for acquiring agricultural factors as sources of income to arrive at an equilibrium with the marginal productivity of these sources viewed as an investment in permanent income streams and with net savings approaching zero.

The definition needs some elaboration. Schultz is of the opinion that when technology in agriculture remains unchanged for a long time and when people using various inputs under such a technology have fully known the pros and cons if the use of these inputs have therefore finally decided their preference for various inputs, a time may arrive when in general the marginal productivities of these inputs and their costs have become equal to each other, This is an equilibrium, In such a case, further investment in these inputs will stop. Level of these uses will no longer change.

Further savings (except to keep these inputs at the equilibrium level) was no longer made. This is a State when agriculture will become traditional in character. Agriculture will no longer be progressive, It will be stagnant and will remain so, so long as the art of cultivation and motives preference to hold various factors of production remain unchanged.

It may be noted that Schultz’s definition is unconventional in the sense that according to it, even a very advanced agriculture can become traditional. It is not like Mellor’s definition which considers only a backward and labour intensive agriculture using a crude from of capital, as traditional agriculture, Mellor’s definition is more Pragmatic and is historically sound,

Main Characteristics of Traditional Agriculture as Defined by Schultz:

(A) Allocative Efficiency in Traditional Agricultural:

It is generally felt that resources in a traditional agriculture are not optimally allocated. Heady had conducted a study on resource allocation for six class of formers in India and found that allocation of resources was not perfect. Schultz’s definition does not lead to such a conclusion. On the other hand, it leads one to conclude that resource allocation is perfect in a traditional agriculture.

The argument runs as follows. Art of cultivation remains unchanged (for agriculture to become traditional) and so are the preferences and motives to hold various factors of production, When year after year farmer, under such circumstances, get the same return (under normal condition), they are bound to adjust their investment in various factors in such a way limit the marginal productivity of each factor is finely balanced with its price and this balance will stay so long as the art of cultivation etc. remains unchanged. As Schultz pointed out. “There are comparatively few significant inefficiencies in the allocation of factors of production in traditional agriculture.”

Assumption for the State of Perfect Allocation of Resources:

Schultz made certain assumptions for the equilibrium to prevail in traditional agriculture.

These assumptions are as follows:

(1) These first assumption is about the nature of factors of production. The factors have been used for a long time without any change. If the factors have been changing in their nature, obviously, their returns too will be changing and consequently, long run equilibrium cannot be achieved. (In fact agriculture cannot be considered as traditional if the nature of factors of production goes on changing).

(2) No significant activity like construction of road or digging of a canal is taking place. Such activities will disturb the equilibrium temporarily.

(3) Events like war, partition or recruitment of labour in the army also disturb the equilibrium temporarily. These are the assumed to be absent.

(4) Relative prices of various factors as well as of agricultural products are assumed to be constant.

(5) As the state of arts is assumed to be unchanged, the change in the technology, taking place at any time is ruled out.

(6) There are no indivisibilities.

(7) There is a perfect knowledge about the returns to various factors.

The Poor Hot Efficient Hypothesis:

From the above implication about perfect allocation of resources, as deduced from the definition of traditional agriculture. Schultz moves on to the description of another hypothesis (based upon perfect allocation of resources) which, by now has become quite well known. It is known as the poor but efficient hypothesis. Schultz implies that people in a traditional agriculture are no doubt efficient so far as the allocation of resource is concerned but still they are poor.

According to him, optimum allocation of resources fails to ensure a high income level for the farmers. This is because the returns form the resources themselves are quite low or using Schultz’s terminology we can say that the cost of income stream is rather high. This is the reason, as we shall see later, why Schultz suggests changes in the nature of factors of production in order to transform traditional agriculture.

Implication of the Poor but Efficient Hypothesis:

From the fact that the allocation of resources is perfect in traditional agriculture. Schultz deduced some important conclusions.

These are as follows:

(a) There is no possibility of increasing agriculture production by reallocating the existing resources. The farmers have perfect knowledge about the returns from these resources and are already getting the maximum output from their use. As there is no wasteful utilisation of these resources no additional output can be produced if these resources arc reallocated.

(b) No factor is unemployed in traditional agriculture. The poor but efficient hypothesis also leads to the conclusion that no resources whether capital or labour, are unemployed involuntary, if any factor, say a labourer is without a job he is so only voluntary. If such a factor demanded employment, it can offer itself in the market. The price of the factor will come down to such an extent that it will be finely absorbed in the production process.

(c) The hypothesis leads to the conclusion that even in traditional agriculture, there is no dearth of efficient entrepreneurs.

(d) The hypothesis also implies that farmers in the traditional agriculture, too are quite responsive to price changes. This is because perfect allocation of resources is not possible unless the producer are too sensitive to price changes. This conclusion is very important because generally it is held that farmers in traditional agriculture are totally insulated from the effects of changes in market forces.

Tests of the Hypothesis:

Schultz does not stop only at deducing the conclusion about resource allocation from his definition. He relied upon studies conducted by two social anthropologist to prove his point. The first study was that made by Soltax. He had made a study of a Guatemalan community and had found that resource allocation was perfect in such a community. The other study was by David Hooper who found that resource allocution was perfect in a village (Senapur) in India.

At the same time, Schultz rejected the conclusion arrived at by Heady who studied the resource allocation by sin classes of Indian farmers and had concluded that there were imperfections in the resource allocation in these villages. Schultz rejected Heady’s conclusions with the plea that data used by him was unreliable. It may be noted here that Guatemalan and Indian agriculture are considered traditional by Schultz.

Critical Review of Schultz Views about Perfect Allocation of Resources in Traditional Agriculture:

No doubt, Schultz had found supporters for his conclusion about resources allocation in traditional agriculture. John Lossin Buck and Baner and Yamey, for example, have supported his conclusions. Still, his views have not been accepted by many.

The methodology used by David Hopper on whose conclusions Schultz relies has been criticised by Dunn and Nowshirwani. Lip on questions the assumption of profit maximisation for studying resource allocation. On the empirical level, many economists like Desai, Kahlon, Johl and Soni have found that misallocation, of resources exists in Indian agriculture.

As a matter of fact. Schultz’s conclusions are not based upon extensive studies. Decision-making for allocation of resources is a complicated process and it influenced by a multitude of factors. It is very difficult to find a situation in which these factor allow the resource to be used in an optimum manner. Generally resources allocation is imperfect whether agriculture is traditional or nontraditional in character.

(B) The Doctrine of Zero Value Labour:

Yet another conclusion can be derived form the definition of traditional agriculture as given by Schultz. It is that in a traditional agriculture, there is no disguised unemployment or what Schultz calls as zero value labour. We have already pointed out that in traditional agriculture, as per Schultz’s views, no factor of production is involuntarily unemployed.

Schultz specifically uses this implication of Poor but efficient hypothesis to emphasis that there is no unit of labour that is unemployed in traditional agriculture either openly or in a disguised manner.

A labour is disguised unemployed when its marginal productivity is zero. As Schultz takes the plea that every worker, who is willing to work gets wages for his work, his marginal productivity can never be equal to zero or there is no zero value labour in traditional agriculture.

This is a very important conclusion because economists like Nurkse have pointed out that there is disguised unemployment in the agriculture sector and that the disguisedly unemployed labour can be used for capital formation in under developed countries. Schultz tries to negate this assumption of Nurkse and other economists.

In the first instance he describes the reasons which have led some economists to believe that disguised unemployment exists in a traditional agriculture. He is of the view that basically experts from the western countries have unnecessarily created this bogey of disguised unemployment.

The visitors from the West found farmers wasting their time and this led them to profound the concept of disguised unemployment in agriculture. Another group put forth the view that during Great Depression while there was a fall in demand, and there was unemployment. They opined that there should be unemployment everywhere.

As in predominantly agricultural economies no such open unemployment appeared. They declared that unemployment must be disguised. Schultz however points out that the interpretation is wrong. No farms were closed down while factories in the west stopped working.

As farms continued to work, question of unemployment on these farms did not arise. Further, the experts of the western countries had found that there was a surplus labour in the agricultural sector in their own countries which needed to be transferred to the industrial sector.

They presumed that surplus labour was bound to exist even in backward countries and thus they, concluded about the existence of disguised unemployment in such countries (It may be noted here that need for transfer of labour from the agricultural sector to the industrial sector in developed countries is not in fact due to disguised unemployment. It is because of the fact per capita, income of the labour in the agricultural sector is less than the per capita income of the labour in the industrial sector.)

So, Schultz in first instance, points out that due to a wrong interpretation of facts, it came to be held that there is disguised unemployment in traditional agriculture. Schultz also refers to a theoretical argument advanced in favour of the existence of disguised unemployment in agriculture.

It is that factors of production in agriculture have a limited technical substitutability and they become complementary after a point. In such a situation if one factor i.e. capital is in short supply, the other factor i.e. labour cannot be employed.

This argument was advanced by Eckaus. Schultz does not agree with this contention and asserts that even when capital is limited in supply, additional labour always brings forth a positive (above zero) returns. He quote Viner in support of his view.

After trying to prove that assertions about the existence of disguised unemployment in traditional agriculture are based upon some wrong interpretation of facts and also on wrong theoretical grounds, he goes on to prove that there is no disguisedly unemployed labour in traditional agriculture and that each labourer has a positive marginal productivity (of course, it may not be very high.) He gives two examples of construction work in South American countries when labour was withdrawn from the agricultural sector for this purpose. In both these cases, agricultural production fell down. This according to Schultz, showed that marginal productivity of labour was not zero.

Schultz also gives an example from India to prove his point. In India, an epidemic called Influenza appeared during 1917-19 and it wiped out about 1/6 of the total population of the country. In 1919, according to Schultz agricultural production fell. This again showed, according to him, that labour makes a positive contribution to agriculture production.

Critical Review of Schultz’s Views about Disguised Unemployment in Traditional Agriculture:

Schultz’s view about no zero value labour in traditional agriculture have been challenged both on theoretical as well as empirical grounds. On the empirical plan, studies by Mazumdar, & Desai, by Mellor and Stevon and by Rosenstein Rodan have shown that disguised unemployment exists in agriculture in the underdeveloped countries.

Schultz’s conclusions about influenza and its effects on agricultural production have been challenged. Sen has, for example, questioned the deletion of some states form being considered by Schultz to show a fall in agricultural production. He has further questioned the logic of using area under cultivation as an index for agricultural production.

He has further pointed out that natural calamities like Influenza affect farms of all types i.e. those using hired labour and those using only, family labour. When hired workers die of an epidemic, production of farms on which disguised unemployment exists.

So Sen feels that fall in production due to influenza should not be taken as a proof that disguised unemployment does not exist in traditional agriculture. In fact, influenza was such a terrible disease that it unsettled the whole nation for quite sometimes and there was every possibility that even labourers with positive marginal productivity failed to attend to the agricultural operations. Fall in production, due to influenza was thus a natural outcome.

The fact that Influenza is not a good example to prove that disguised unemployment does not exist in traditional agriculture has again been brought to light by S. Mehra. According to her after the epidemic subsided in 1919, the agricultural production increased in the first half of the year as compared with the base year of 1917 while it was less in the 2nd half of 1919. If fall in production was due to loss of labour, it should have been so in the first half and not in the 2nd half of 1919. According to her, fall in production was due to some other causes.

Bhagwati and Chakravarti put forth another argument to show that agricultural production can fall even when, there is disguised unemployment, when some labour leaves the agricultural sector. They refer to a situation where both types of farms i.e those using hired labour and those using family labour exist side by side. Disguised unemployment exists on family farms only.

Suppose from a farm with disguised unemployment, a family member leaves. Agricultural production will not suffer. However, share of each of the remaining in member will increase. This rise in the share will also prompt those members of such a family who are already working as hired labourer on some other farms to demand higher wages. Demand for higher wages on farms using hired labour will mean less employment on farms using such labour and therefore there will be a fall in production.

Thus our overall conclusion is that disguised unemployment exists in traditional agriculture that Schultz is not correct in holding the contrary view.

Schultz’s Suggestions for Transforming Traditional Agriculture:

There are three ways of increasing production. These are to:

(1) Make use of un-utilised resources

(2) Optimally reallocate the resources so as to take the production on to the production frontier and

(3) Change the nature of factors namely replace all or some of the old factor by new ones with higher output-input ratios.

Intentionally or otherwise, Schultz’s ruled out the adoption of first two methods meant for increasing agricultural production. For instance, by his very definition of traditional agriculture, he has concluded that there is no factor of production lying unused in traditional agriculture. Land and labour and other capital assets are fully utilized in traditional agriculture.

In the same way he has concluded that resources in agriculture are always perfectly allocated. There is no misallocation of resources and therefore there is no possibility to increase production in a traditional agriculture, by further improving the resource allocation.

So Schultz is left with only one way to increase production in a traditional agriculture i.e. by changing the nature of the factors of production. Before we discuss in detail. Schultz’s scheme of adoption of new factors of production it is necessary to discuss the approach to be followed for such an adoption.

Market Approach V/S Command Approach:

By market approach, Schultz, implies that no factor of production should be imposed on the farmers. The farmers should be left free to decide whether to use a particular factor of production or not. Let them see for themselves the profitability of a given factor and decide about its adoption.

The adoption in other words should be guided by the market forces. The only responsibility of the government in this case should be to ensure that there is an easy availability of the factor of production and there is a good publicity about it and that necessary skills for the use of new inputs are properly developed. By command approach, Schultz means system on which the government supplies a new factor production to the farmers and that direct them to use it irrespective of its profitability.

Schultz prefers market approach to command approach, He feels that if a factor of production is voluntarily adopted by the farmer its adoption will be wide spread and with full enthusiasm.

On the other hand forced adoption not only, in many cases, ignores the problems faced by the farmers at the local level, but also at times, spoils the skills and enthusiasm of the farmer, Schultz feels that the situation in a command approach can be compared to an absentee landlordism where the land lord knows nothing about the problems and difficulties of the actual cultivators but insists upon a good harvest.

The Process of Transformation:

In a market approach, ultimately the supply and demand for the factors of production will govern the actual use. So Schultz discusses in detail the factors that influence the supply and demand for such factors. We may in the first instance discuss the problems faced in the supply of new factors and the suggestion that Schultz, makes to overcome these problems.

A. Supply of New Factors:

According to Schultz three important steps are involved in the supply of new factors.

These are:

(1) Research and Development of new factors.

(2) Distribution of inputs to the cultivators and

(3) Extension of new knowledge.

These steps are described in the paragraphs that follow:

(1) Research and Development of New Factors by Suppliers:

Science and Technology, according to Schultz, play a very important role in the transformation of traditional agriculture. As the art of cultivation in a traditional agriculture has been static for long time it may not be possible to develop technologically superior factors of production from within the country.

So what he suggests is that in the first instance, these factors may be imported from some foreign country and then this factor should be subjected to further scientific analysis so that it is finally adapted to the physical environments of the importing country. This will be least costly method of developing a new factor of production.

With regard to the provision of scientific facilities for research, development and adaptation of a new factor of production Schultz raises an important question. It is as to who should provide facilities for such a job: The Government or the Private persons?

According ta Schultz, a private person will hesitate to undertake this research work not only because it is costly but also because its results may appear after a long time and same times may even be totally disappointing.

Secondly, the benefits of a successful research are not gaing to accurue solely to the private person. Other members of the community will also benefit from this research. This may make the private person hesitate to take up the research wark. On the other hand, the concept of benefit or profit is totally different for the government. It is rather very broad when compared with that of a private individual. The Govt. feels benefitted if any member of the society benefits from its actions.

So, Schultz feels that so far as research and development of factors of production suitable for the agriculture of a country are concerned. It should invariably be undertaken by the Govt. of the country concerned or by some non-profit making institution in the country.

(2) The Distribution of New Inputs:

After the new inputs have been developed and technology for their mass scale production has been perfected a question arises: Who should produce and distribute these inputs? Schultz himself answers this question. In the beginning when the new inputs are still untested by the farmers, no private person will take the risk of producing and distributing these inputs. There is a cost of entry into the market and this may be quite high in the beginning.

This cost consists of the following:

(a) the cost of adaptation, though basically, the input has been adapted to the general condition of the country in the state owned laboratories or in the laboratories run by the non-profit making institution, still some modification in the nature of the inputs is required even at the local level. This will involve some expenditure,

(b) cost of providing information to the users about the availability as well as about the nature of the input. In a non-traditional agriculture where the level of literacy is generally high the print media like technical journal etc. can be used to inform the farmers about the new inputs.

However, the print media cannot be very useful in an illiterate society. Here distributors will have to contact the farmers personally or in groups which may be beyond their capacity,

(c) Other costs of entry e.g. opposition of the vested interest. People so far supplying the traditional input are vehemently oppose to the introduction of new inputs. Some expenses will have to be incurred to overcome their opposition.

Due to these difficulties faced by the private agencies in the beginning. Schultz, suggested that initially the job of production and distribution of new inputs should be carried on either by the Government agencies like Food Foundation etc. After sometime when the demand for the new inputs has been generated and has stabilized, the task of distribute n of new inputs can be passed on the private agencies,

(d) Development of extension services. Availability of new input is not sufficient. Necessary skills for its use are also to be developed. This may be done through well-developed extension services. Extension services are essential even when new agricultural practices are to be introduced.

Here Schultz again feels that the cost of extension services is rather high and therefore, such services should be provided by the Government:

Thus, on the whole, Schultz suggests that so far as the supply of new inputs are concerned the Govt. should take over the job of research and development of the new inputs, of their production and distribution and of extension education with regard to them. However, at a later stage the government can offer to the private agencies, the task of production and distribution of new inputs.

B. Demand for New Factors:

Supply of new factors is of no use if the farmers do not demand them. Schultz, therefore analyses the factors which should be kept in view while trying to ensure that a demand is generated for the inputs.

In the first instance, Schultz tries to dispel a few misconceptions about the attitude of the farmers in a traditional agriculture towards the new, inputs. He points out that it is wrong to assume that a farmer in traditional agriculture is conservative and non-progressive and as such will refuse to adopt the new inputs.

According to him, whether he is a farmer in traditional agriculture or a non-traditional one, he always goes by the economic motive. In this case, the economic motive is governed by profitability of the new inputs over a long period. If the new inputs profitable the farmer will accept it and substitute it for an old input.

Profitability of a factor, according to Schuitz depends upon two factor. These are (a) the prospective yield and (b) the supply price of the new input. We describe these two factors in the paragraphs that follow.

(a) The Prospective Yield:

Schultz uses this concept to bring the future yield of the input into the picture. The inputs are totally new and how their yield behaves in the future is uncertain. The farmers are ignorant about the fluctuations in its future yield, but somehow or other this factor is to be considered by the farmers while deciding to accept the new input. Schultz feels that if the present yield of the input is extremely high farmers are likely to accept the input even if they discount the future yield at a high rate.

(b) Supply Price of the New Input:

For estimating the profitability of the new inputs, the farmers has to consider other factor also. It is the supply price of the new input. The farmer will discount the yield from the inputs over its life span and then compare it with its supply price.

If discounted value of the prospective yield is more than its supply price the farmers will consider it profitable to accept the input. So Schultz suggests that whereas the prospective yield from the input should be quite high its supply price should be quite low.

He in-fact suggests that in the initial stages, it may be desirable to subsidise the new inputs so that they appear profitable. In the same vein, he suggests that if the tenurial arrangements are good, acceptance of new-inputs will be easy.

For example, if a tenant shares the gross produce but bears will the costs himself, he will be more hesitant to accept the new input as compared with the situation when besides sharing the output He also share the costs on the same grounds he advocates peasant proprietorship as an arrangements conducive to transformation of traditional agriculture.

Importance of Acquired Skills in Transformation of Agriculture:

Supply of new inputs is essential for transformation of agriculture. However additional knowledge and skill is also needed to use them. True, in some cases, special training may not be needed to use these inputs. However, if the new inputs are technically, far superior to the old input imparting of special knowledge to the farmers becomes very important.

Schultz considers three methods which can be used for imparting such a knowledge. These are (1) trial and error method (2) on the job training through demonstration, short term courses etc. and (3) Schooling, Schultz out of these three methods commends the third method i.e. schooling, the maximum.

According to him, the other two methods are slow and limited in effects. He feels that general education at the school level will equip the farmers with capabilities to handle all types of inputs involving technical intricacies. He considers this as an investment in human capital and quotes the examples of Israel and Japan to prove that schooling has contributed a lot to the Increase in agriculture production in these countries.

Critical Reviews of Schultzian Thesis:

We have already critically examined the definition of traditional agriculture as given by Schultz and also its implications namely the poor but efficient hypothesis (perfect allocation of resources) and the non-existence of disguised unemployment in a traditional agriculture.

Some of his other assertions also suffer from infirmities. For example, his too much emphasis on market approach is not correct. In a situation of shortages, too much emphasis on freedom to buy and sell can lead to an allocation of resources which may not be optimum from the social point of view.

Social interests are likely to be sacrificed in favour of private interests if a total market approach is followed. Further his suggestion -that only use of modern inputs will transform the traditional agriculture is inaccurate. Traditional inputs like conservation of soil, irrigation etc. cannot be discarded in any agricultural economy.

Further, Schultz has totally ignored the differences in factor endowment of different poor economies. These differences do effect the pace at which the new inputs can be used.

Difference in the availability of infrastructure in administrative efficiency in the degree of commercialisation, in the extent of monetisation etc. do matter so far as the pace of adoption of new inputs is concerned. However, despite these infirmities, one must accept his basic suggestion that transformation of traditional agriculture cannot take place unless new production with improved output-input ratios are adopted.