The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Vent for Surplus

  • H. Myint
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_1663

Abstract

Conventionally, international trade theory focuses attention on the pattern of comparative costs existing at a point of time on the basis of the given resources and technology of the trading countries. Adam Smith, writing before the theory of comparative costs became formalized as a cross-section type of analysis, was concerned with the process of interaction between trade and development over a period of time. Thus his writings provide a more promising starting point for the study of the historical process of export expansion and economic development in the underdeveloped countries (Williams 1929; Myint 1958; and Myint 1977).

Conventionally, international trade theory focuses attention on the pattern of comparative costs existing at a point of time on the basis of the given resources and technology of the trading countries. Adam Smith, writing before the theory of comparative costs became formalized as a cross-section type of analysis, was concerned with the process of interaction between trade and development over a period of time. Thus his writings provide a more promising starting point for the study of the historical process of export expansion and economic development in the underdeveloped countries (Williams 1929; Myint 1958; and Myint 1977).

Actually, there were two strands in Adam Smith’s analysis: the first, which may be called the ‘productivity’ theory, emphasized the role in international trade in widening the extent of the market and the scope for division of labour and specialization, thereby raising the productivity of labour by encouraging technical progress and enabling the trading country to enjoy increasing returns by overcoming technical indivisibilities imposed by the narrowness of the home market; the second, which may be called the ‘vent for surplus’ theory, emphasized the role of international trade in providing a wider market outlet or the ‘vent’ for the surplus productive capacity which would have remained underutilized in the absence of international trade.

When applied to the historical experience of the expansion of primary exports from the underdeveloped countries, Smith’s ‘productivity’ theory of trade suggested too optimistic a picture of the rise in labour productivity through specialization and the possibility of reaping increasing returns through export expansion. It is true that the introduction of foreign investment and technology raised labour productivity in the mining and plantation exports. But this was usually of a one-off character and the subsequent expansion of output relied heavily on an abundant supply of unskilled labour at low wages. When the local labour supply was exhausted, the typical reaction was to recruit immigrant foreign labour from countries such as India and China with their vast reservoir of cheap labour, rather than to economize local labour and raise its productivity. This fell short of Adam Smith’s optimistic vision of division of labour, with specialization continually raising labour’s productivity. Smith’s ‘productivity’ theory also did not accord with the typical process of expansion of peasant exports. Here, apart from the improvements in transport and communications and law and order, there was no significant improvement in agricultural techniques and the productivity of resources. Peasant exports simply expanded by bringing more land under cultivation and drawing upon the underemployed labour from the subsistence economy (Myint 1954).

This left unanswered the question of why the primary exports from the underdeveloped countries expanded so rapidly and in a sustained manner when these countries were opened up to multinational trade in the latter half of the 19th century or the early 20th century. Smith’s vent for surplus theory serves to fill this gap. The typical process of expansion of primary exports may be looked upon as a long ‘transition process’ during which the expected tendency to diminishing returns was held in check by drawing upon the underutilized or the surplus natural resources and labour into export production; that is to say, exports expanded approximately under conditions of constant returns during the vent for surplus phase in many peasant export economies of South-East Asia and Africa seems to have continued rather longer than expected, lasting well into the recent postwar decades.

The significance of the vent for surplus theory for the study of the underdeveloped countries may be elaborated as follows. Under normal conditions (i.e. in the absence of short-run economic fluctuations), there is generally a gap in any country between the actual level of production attained and the theoretically attainable level of production with the ‘given’ resources and technology idealized in international trade theory as the production possibility frontier. This gap between the actual and the attainable level of output may be expected to be wider for the underdeveloped countries than for the developed countries, even if both were pursuing similar economic policies. An important reason for this may be traced to the fact that the domestic economic organization of the poorer countries is less well developed. Specifically, it is characterized by a poor internal system of transport and communications, by an incomplete development of the markets, particularly for the factors of production, and by an inadequate development of the administrative and fiscal machinery of the government. According to the vent for surplus theory, a substantial reserve of ‘surplus’ resources is likely to exist in a traditional economy not yet fully opened up to external economic relations, reflecting the underdeveloped nature of the domestic economic framework. In such a setting, international trade would provide a major force for economic development. It would bring about not only ‘direct gains’ from trade in the form of cheaper imports raising the economic welfare of the country, but also important ‘indirect gains’ transforming the organization of the domestic economy: through the extension and development of the exchange economy in the traditional agricultural sector, through the improvements in transport and communications and through a better provision of public services financed by increasing government revenue from the expanding exports (Myint 1958).

Further, the vent for surplus theory suggests that the ‘direct gains’ from trade would also be much larger than those envisaged in the conventional theory of multinational trade. In the conventional trade theory, the resources are assumed to be fully employed before a country enters into international trade and export production can be expanded only at the cost of contracting output for the domestic market. The gains from trade are therefore confined to the gains in allocative efficiency obtained by reallocating the given and fully employed resources according to the comparative advantage offered by international trade. In contrast, according to the vent for surplus theory, there is a considerable scope for expanding the exports of an underdeveloped country without contracting output for domestic consumption-by drawing upon the surplus land and labour. Thus the gains from trade would be larger because imports can be obtained with little or no resource cost. This hypothesis is supported by the experiences of the peasant export economies in South-East Asia and Africa. In Burma and Thailand, where rice happened to be both the main food crop and the export crop, rice exports expanded very rapidly for many decades without any contraction in the domestic food supply. If anything, it is possible to argue that the domestic food supplies of these countries were made more secure through the development of a large exportable surplus of rice brought about by the extension of cultivation to unused land. Similarly, African peasant economies such as Ghana, Nigeria or Uganda were able to expand their peasant exports in the prewar decades without any appreciable reduction in their domestic food production. Indeed, in the initial phase of export expansion export crops such as cocoa or cotton were usually interplanted with the food crops, such as yam, on the newly cleared pieces of land so that export production and domestic food production tended to increase together (Myint 1963, chs. 3 and 4).

The vent for surplus phase of peasant export expansion has continued somewhat longer than one would have expected at first sight. This is so because the existence of the ‘unused’ land is not given once for all in a physical sense by the geographical area but depends importantly on the improvements in transport and communications and the growth of the market system (the ‘unused’ labour being replenished by population growth). Thus, it is noteworthy that Thailand, which has been expanding her rice exports on a vent for surplus basis since the early 1900s, still managed to go through a rapid phase of expansion of new peasant exports, such as maize and tapioca in the 1960s and 1970s-mainly through an improvement in internal transport (Myint 1972, chs. 1 and 4). Similarly, in the 1950s and the 1960s, many African countries experienced a rapid expansion of new peasant exports, notably the tropical beverages, by bringing more land under cultivation. In particular, Ivory Coast continued with its rapid expansion of exports during the 1960s and 1970s. It is true that in recent times the expansion of peasant exports from many South-East Asian and African countries has slackened. In some countries, such as the Philippines, this is due to a genuine exhaustion of the supply of exploited land, which seems to have occurred by the end of the 1950s (Hayami and Ruttan 1985, ch. 10). In other countries, particularly those in Africa, the slackening in peasant export production may be attributed not to the end of the vent for surplus phase, but to the very unfavourable prices fixed for the peasant producers by the State Agricultural Marketing Boards (World Bank 1981, ch. 5) and, in some countries, to political instability. Sooner or later, of course, the vent for surplus phase of agricultural expansion will come to an end with the growing population pressure on limited land. But as suggested by the more recent phases of peasant export expansion in countries such as Thailand and the Ivory Coast, the possibility for the vent for surplus mechanism may not as yet be completely exhausted-given the policies of providing adequate incentives to the peasant farmers and political stability.

The vent for surplus theory may be extended on a somewhat different basis to the agricultural surpluses of the advanced countries such as the United States and the EEC countries. The reason for this type of surplus productive capacity is of course not the underdevelopment of the domestic economic organization, but the various farm support programmes induced by powerful political pressure (Hayami and Ruttan 1985, ch. 8). Despite this, however, it is instructive to study the international trade and aid policies of the advanced countries in terms of the vent for surplus theory and the desire to find an international outlet from the existing surplus productive capacity, rather than in terms of adapting their productive capacity to the world market demand.

See Also

Bibliography

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • H. Myint
    • 1
  1. 1.