A rural non-farm sector in Taiwan

THE RURAL NON-FAIU SECTOR IN TAIWAN by Samuel P.S. Ho Series : Studies in Employment and Rural Development No. 32 Division : Employment and Rural Development Department: Development Economics Development Policy Staff International Bank for Reconstruction and Development The author prepared this background paper in his capacity as consultant to the Bank. The views expressed represent those of the author and not necessarily those of the Bank. This report may not be published nor may it be quoted as representing the views of the Bank and its affiliated organizations. Washington, D.C., September 1976 THE RURAL NON-FARM SECTOR IN TAIWAN Table of Contents Page No. I. INTRODUCTION AND SMMARY . . . . . . . . . . . . . . . . . II. ECONOMIC GROWTH AND THE RURAL NON-FARM SECTOR . . . . . . III. THE DEMAND FOR RURAL NON-FARM LABOR . . . . . . . . . . . 19 IV. RURAL NON-FARM SECTOR AND THE FARM HOUSEHOLD 31 V. THE RURAL NON-FARM SECTOR: SIZE OF ESTABLISHTENT, TECHNO- LOGY AND PRODUCTIVITY . . . . . . . . . . . . . . . * 53 VI. GOVEREMENT POLICIES AND THE DEVELOPMT OF THE RRAL NON- FARM SECTOR . . . . . . . . . . . . . . . . . . . . . 65 LIST OF TABLES Table No. Title Page No. 1 Population and Employment by Location, 1930, 1956, 1966 . . . . . . . . . . . . . . . . . . . . . . . 7 2 Industrial Structure of Employment by Locality . . . . 9 3 Annual Growth Rates of Employment by Locality . . . . 11 h Distribution of Employed Persons by Locality . . . . . 5 Spatial Distribution of Industrial and Commercial Activities, 1971 . . . . . . . . . . . .. . . . . . 18 6 Average Current Expenditures of Record Keeping Farm Households, Taiwan, 1965 . . . . . . . . . . . . 21 7 Breakdown of Consumpticn Expenditure of Farm Households holds by Income Groups, 1966 . . . , . . . . . . . 23 8 Availability of Consumer Durables in Rural Taiwan . . 26 9 Farm Production Exenditure Per Farm Household . . . . 27 10 Number of Farm Household Members Leaving Home for 1mloyment Outside Home District by Origin and Destination, 1968-170 . . . . . . . . . . . . . . 3 - ii - LIST OF TABLES (Continued) Table No. Title Page No. 11 Ectent of Off-Farm Activities, 1960 and 1970 . . . . 36 12 Farm Population by Employment Status, 1960 and 1970 38 13 Common Cropping Patterns in Taiwan . . . . . . . . . 0 1A Farm Household Members with Off-Farm Eoployment by Industry and Employment Status, 1970 . . . . . . . 5 15 Farm Income by Source and Size of Cultivated Area, 1972 . . . . . . . . . . . . . . . . . . . . . . . L8 16 Income of Farm Households in Taiwan by Industrial Origin, 1966, 1968, 197 . . . . . . . . . . . . . 50 17 Production Establishments by Industry, Size, and Location, 1961 . . . . . . . . . . . . . . . . . . 55 18 Manufacturing Establishments by Numbers of Persons Employed and Location, 1961 and 1971 . . . . . . 7 19 Capital Intensity of Manufacturing Establishments by Indu_try and Location, 1961 . . . . . . . . . . 9 20 Size and Capital Intensity of Establishments in Industries with Strong Presence in Rural Taiwan, 1961 and 1971. . . . . . . . . . . . . . . . . . . 60a 21 Comparison of Size, Capital Intensity, and Productivity 62 of Establishments by Sector and Location, 1971. THE RURAL NON-FARM SECTOR IN TAIWAN I. INTRODUCTION AND SUMARY 1. In studies of economic development, the emphasis is often placed on the crucial relationship between agticulture and the non-agricultural sector. In this two-sector framework, the spatial distribution of the two sectors is either not specified, or, more likely, agriculture is identified with the rural countryside and industry with the cities. Economic development is seen primarily as the process by which resources (capital and labor) are moved from the rural-agricultural sector to the urban-industrial sector. One weakness of this approach is the failure to recognize explicitly that rural non-farm activities exist. The strength and growth of the rural non- farm sector, however, are important aspects of economic development, as they have, among other consequences, important income distribution and employment effects. 2. This essay examines the rural non-farm sector in Taiwan, one of the few LDCs that has developed continuously and rapidly in the postwar period. The spatial distribution of Taiwan's employment is first reviewed. In particular the industrial structure of rural employment is compared over time and with that of urban employment. The second section examines the demand for rural non-farm labor. Section three studies the relationship between the farm household and the rural non-farm sector in the 1960s, a period of rapid industrialization and intense population pressure on land. Section four takes a closer look at the rural industrial establishment, its size and capital intensity. Finally, in section five, how postwar government policies may have influenced the growth of the rural non-farm sector is discussed. The main findings are as follows: (i) From 1930 to 1956, urban employment grew significantly faster than rural employment in Taiwan. However, after 1956, while the growth of total rural employment continued to lag behind that of urban employment, the growth of non-agricultural employment in rural areas exceed that of urban Taiwan by a substantial margin. In the postwar period, economic development was accompanied not only by rapid urbanization but also by a dramatic shift in rural employment away from agriculture and towards non- agricultural activities. Indeed, the changes in Taiwan's economic structure in the postwar period reflect, to a significant extent, th3 changes in its rural economic structure. While rural non-farm activity has become increasingly more important in recent years, its size was already considerable in the 1930s. In the early phase of industrialization, from 1930 to the early 1950s, when manufacturing and services developed primarily in cities, the relative importance of the rural non-farm sector (at least in terms of employment) declined. Since the late 1950s, as the pace of industrialization quickened in Taiwan, more industries have moved to the countryside, and the trend towards greater concentration of non- agricultural activities in u.,ban areas has reversed. The recent pattern of industrialization in Taiwan strongly suggests that rapid industrializa- tion and decentralized (or diffused) industrialization can occur simulta- neously, and indeed the strength of Taiwan's economic development, in a large part may be the consequence of diffused industrialization. -2- (ii) Farm and household budget studies in Taiwan show a strong demand by farm households for non-agricultural goods and services, and that the demand grows with rises in agricultural output and income. Of farm house- hold's total current expenditures, about two-thirds were used for off- farm purchases, much of it for non-agricultural goods and services. Furthermore, the data suggest that most of the non-agricultural goods and services purchased, whether used as consumption or as input to farm pro- duction, are highly income elastic. Thus, rising rural output and income is likely to generate significant and growing demands for non-agricultural goods and services, and indirectly for non-farm labor. It is believed that a substantial share of the increase in non-farm employment is likely to be in the rural sector. Besides the demand generated by the farm population, the processing offood and the production of traditional crafts for exports have created additional employment opportunities in rural Taiwan. (iii) In the 1960s,rapid industrialization and growing population pressure on land have made the rural non-farm sector an irmortant source of employment and income for Taiwan's farm households. Because the rural non-farm sector is also labor intensive, its rapid expansion in the postwar period is one reason why unemployment and under- employment are relatively minor problems in Taiwan. Finally, our data show that the rural non-farm sector has not only contributed to Taiwan's rural prosperity, but it has also helped to bring about a greater equity in the distribution of rural income. -3- (iv) Although rural industry received little direct assistance from the government, it benefited indirectly from government policies aimed at accelerating agricultural and industrial growth. The liberalization of control and the promotion of exports in the 1960s brought large, labor intensive manufacturing enterprises to rural Taiwan in search of low cost labor. Agricultural development and land reform stimulated rural demand i aelped promote the growth of small-scale rural enterprises. The appearance of a large number of new industrial and commercial establish- ments in rural areas in the 1960s is strong evidence that rural Taiwan is not short of entrepreneurs. However, for lack of technical know-how, trading services, managerial skills, and capital, rural enterprises may find it more difficult, without public sector support, to expand and operate as medium size firms even though they have survived and succeeded as small businesses. II. ECON14IC GROWTH AND THE BURAL NCN FARH SECTOR 1. In the colonial period (1895-1945), Taiwan was developed as an agricultural appendage to Japan. Although Japanese capitalists developed a modern sugar refining industry and made efforts in the 1930s to quicken the pace of industrialization, Taiwan, at the beginning of World War II, was still basically an agrarian economy with but a small industrial super- structure. 1952 marked Taiwan's economic recovery from a decade of war and political and economic disorder. The two decades following recovery were for Taiwan a period of unprecedented economic growth and change. For the period 1953-73, the annual overall growth rate of the economy was 8.6%. During this period population grew at an average rate of 2.8% per annum. Real per caipita GNP increased at an impressive rate of 5.7% per year, a remarkable performance by any reasonable standard. 2. Vastly differing sectoral growth rates, caused by differences in income elasticities of demand and in the rate of technological change among the industries, resulted in strildng changes in Taiwan's economic structure. Like so many other countries before it, as per capita income increased, Taiwan saw the share of agriculture in its national output decline and that of industry rise. In 1952, less than 10% of Taiwan's real GDP at factor cost originated in manufacturing. However, from 1952 to 1967, it accounted for 27% of the total net increase in GDP, and, from 1967 to 1973, over 60%. By the mid-1960s, manufacturing accounted for over 20% of Taiwan's real GDP, and in 1973 L3%. The share of agriculture in GDP, on the other hand, declined sharply, from 35% of the real GDP in 1952 to only 11% in 1973. Like manufacturing, services that directly support the production of goods (utilities, transport and communication, trade, and financial services) also increased their shares in G0. In 1973, about one-quarter of Taiwan's real GDP came from this sector, compared to 20% in 1952. Finally, the share of housing services, government services, and other services in GDP declined, from about 29% in 1952 to 16% in 1973. 3. Taiwan's changing industrial structure is also reflected in the deployment of its labor force. Not surprisingly, the redeployment of employment in the post World War II period has occurred in a manner very simi:lar to the changes in output structure outlined above. One quarter of the increase in employment between 1940 and 1966 and one-half of the increase between 1966 and 197L were absorbed by the manufacturing sector, raising its share in total employment from less than 8% in 19L0 to 140% in 1966 and 27% in 197h. On the other hand, agricultural labor force, as a share of the total, 'declined from 64% in 19L0 to L3% in 1966 and 31% in 1974. Furthermore, from 1966 to 1974 agricultural employment declined not only relatively but also absolutely, falling from 1,673 to 1,641 thousand. Finally, the various service sectors also made impressive gains in employment, together absorbing over 50% of the total increase in employment between 19L0 and 1966 and about 25% between 1966 and 1974. The service sectors together accounted for about 25% of total employment in 19L0 and 4o% in 197h. 1/ The percentages in this paragraph are based on data from the censuses in 1940, 1956, and 1966 and the quarterly labor force surveys in 1974. For consistency, all percentages are calculated after military personnel living on military bases have been excluded from total employment. 4. How did rural Taiwan, particularly the rural non-farm sector, change in this period of rapid economic development? To provide an answer, we first isolate rural Taiwan statistically. Table 1 distributes Taiwan's 1/ population and employment by cities, towns, and rural areas. The 1930 census identified seven cities in Taiwan with population that ranged from L5 thousand (Hsinchu) to 230 thousand (Taipei, the capital). In total, 620 thousand people resided in these cities, or slightly less than 14% of the total population. The remaining 86% of the population, scattered in villages and small market towns in the countryside, is defined as the 2/ rural population in 1930. By the mid-1950s, natural increases and migra- tion from mainland China and rural Taiwan had swelled the population of these seven cities to over two million, or nearly one-quarter of the total population. At the same time, ,a number of large towns also emerged. In the early 1970s, besides the seven cities, there were nine large prefecture towns. Although a number of these comunities were not designated prefecture towns until the late 1960s or the early 1970s, they are nevertheless grouped in a single category in 1956 and 1966. In 1956, these 9 towns ranged in population from 2h to 73 thousand, and together accounted for about 6% 1/ Commonly, the rural sector is defined as what remains after all towns and cities with populations above a given size (usually set at 20-30,OCO) are excluded. Unfortunately, with the available data, this procedure cannot be employed in Taiwan, and rather broader -- and perhaps more meaningful -- definition is used in the following text. 2/ Included in the rural area are a few towns with population in the range of 20-30,000. We were unable to exclude these towns statistically. In any case, to exclude them from the rural sector may be undesirable as they were very much an integral part of rural life. � V е , . . � , д . ТыЬ]е 1: I'ОРО(ATION AtЭU EFtPLOYHENГ 8У LOCATION, 1930, 1956, I966 � __ 1430 195б _ 1966 Rдte оЕ CrowCb (L) � _^А_��- _„ ППП риrвопд_. pgrcen� 000 реrвопы PeccenC ОПО регыопв Percent 1930-бб 19�0-ЭЬ 1956-66 Populntiun 'Риiмдп й,592.5 100.OU 9,311.J 100.00 1Э,34В.1 1U0.00 3.1 2.8 3.7 7 Ciclea д/ 619.9 13.50 2,105.1 22.61 3,378.0 25.31 4.8 4.В 4.8 9 i'ом�ы UT ) ) 542.9 5.83 958.2 7.1В ) ) 5.9 Аигд1 ) 3,972.6 ) 86,50 6,663.3 71.56 9,012.0 67.51 ) 2.6 ) 2.0 3.1 Liпp 1 oXmen с . .ь Тиlмди 1,790,1 10U.U0 2,б84.0 10U,D0 G,16З.9 10о.0о 2.4 1.б 4.5 ь 7 С1t1ев ы/ 217,7 12,16 579.7 21.60 986.0 23.68 4.Э 3.8 5.S ' 9 тимпв ь7 ) ) 14а.8 5.54 г8о.2 6.73 ) > 6.s , Ruru1 ) 1,572.й ) 87.а4 1,956,б 72.90 2,В97.4 69.58 _) 2.0 ) 1.1 4.0 �/ '1'1ье ыеvеп с1С1еь дrе Тд1ре1, Keelung, Тв1сlы ти, КыоЬыlипg, Тиlпип, 11ain8cbu, дnд СЬiиу1. Ь/ 'Р1зд nlпа Соипв дге РыпсLlди, 8anchung, Т1дп, Тдоуидn, CЬung11, 4'hыughмu, Fengshan, Y1n8Wng, апд 11мд11еп. 1lпмеvет, eowe мдrе not elevated Со tомав unt11 Сiье lдtе 1960в ог едrlу 197Qa. � 1lагсы ипд Sourceыt llnderlying duta ыrе froгu дзв 1940, 1956, дnд 1966 рориlаtlоп селиив. ТЬе рориlлliоп 1п 195Ь дхсlидеы шLlltдry регыоппеl 1iving оп ш111tnry bдеев or ирргокlишСсlу 45р,П00 реирlе тавС of мЬот меге вtдtloneй 1n гигвl игеды. Т1ьив Che groмCh гиСев for сигдl СоСд1 рориlдСlоn (ипд employment) иге ргоЬдЫу e1f$Lt1y ипддгевСlпшСед for 1930-1956 апд ы11gbCIy overaгtiiшдted fpT 1Ч5G�Ьб. 1:шрlоуlиепС FLguroы tor 1956 1лсlиди оиlу thQse стр]оуед 12 уеаrы ог о1дег, ь � � ! , i of the total population. In 1966, slightly over 7% of the total population lived in these to- ms. For 1956 and 1966, rural population is defined as what remains after the population of the seven cities and nine large towns are excluded. 5. From 1930 to 1966, the population in the seven largest cities increased at a rate that was twice that for the other parts of Taiwan, and employment in these cities increased at more than twice the rate. For the decade 1956-66". the fastest growth in urban population (5.9,'0' per year) and in employment (6.5% per year) was in the nine newly emerged towns. Population and employment in cities grew slower than those in towns but expanded at substantially faster rates than those in rural areas. Because of these vastly differing growth rates, the rural shares of population and employment declined; nevertheless, in 1966, they still remained at around 70%. Household registration statistics show that since 1966 the rate of urbanization has accelerated, with population in cities and towns growing at about the same rate (6-5,%'), and by 1973, the population in urban Taiwan 4 (cities and towns) had increased to 38% of total population. 6. Table 2 presents the distribution of employed persons b7 the industry of their principal occupation and by location for 1930, 1956 and 1966. The statistics show Taiwan to be primarily an agrarian society in 1930. Nearly 70,10 of its total labor force and over three -auarters of its rural labor force were engaged in agriculture (here defined to include forestry and fishery). But this Also means that in 1230, about one-quarter of the rural labor force in Taiwan was engaged in non-agricultural activities. Table 2: INDUSTRIAL STRUCTURE OF EPLOYMENT BY LOCALITYa 1930 1956 1966 Seven Seven Nine Seven Nine Taiwan Cities Rural Taiwan Cities Towns Rural Taiwan Cities Towns Rural Total (000 persons) 1,790.1 217.7 1,572.4 2,684.0 579.7 148.8 1,956.6 4,163.9 986.0 131.4 2,897.4 Percent of Total (%) 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100G. 100.00 Agriculture, fishery, forestry floating 68.47 10.01 76.56 55.52 12.26 24.21 70.72 38.19 7.06 13.55 51.18 Mining 1.1 1.3 8 -2 1= i.70 -.8 06.27l 1.87 1.55 1.25 0.36 1.77 Hanufacturingb 6.97 21.41 4.97 1211 2 21.99 7.85 14.43 22.57 23.14 10.82 Food 1.21 3.58 0.88 2.10 2.35 3.23 1.94 1.88 1.87 2.75 1.80 Textile and apparel 1.55 5.05 1.07 2.74 4.33 7.13 1.94 3.41 4.02 6.92 2.87 Production of wood, &talk, bamboo )1.66 3.54 1.41 0.55 0.79 0.81 0.45 0.87 1.47 0.86 0.67) Furniture and fixtures ) 0.65 0.97 1.14 0.52 0.57 0.77 0.78 0.48) Chemical 0.17 0.60 0.11 0.69 1.84 1.21 0.31 0.99 1.77 1.60 0.67 Non-metallic production 0.28 0.64 0.23 0.67 0.98 0.81 0.56 0.71 0.77 0.64 0.69 Metal product 0.56 1.36 1.28 0.27 1.18 2.49 2.17 0.64 Machinery and equipment ) 0.80 3.31 0.45 0.95 2.74 1.48 0.37 0.83 1.92 0.75 0.46 Transport a uipment ) 0.70 1.97 0.74 0.33 1.02 2.09 1.14 0.65 Others 1.30 4.69 0.81 2.49 6.59 4.17 1.15 2.98 5.40 5.53 1.90 Construction . 1.48 3.95 1.14 2.31 4.80 4.77 1.39 2.33 4.32 4.24 1.47 to Utilities 0.15 0.55 0.09 0.57 1.36 1.01 0.31 0.66 1.31 0.96 0.40 Commlerce 8.65 22.69 6.71 7.43 15.25 13.38 4.65 8.03 14.36 12.58 5.44 Trade 8.60 22.42 6.69 6.91 13.8 12.37 4.48 6.94 11.37 11.16 5.03 Bank, insurance, etc. 0.04 0.27 0.02 0.52 1.57 1.01 0.17 1.09 2.99 1.43 0.41 Transport and Conamnication 3.52 11.62 2.41 3.97 9.97 6.39 2.00 3.92 8.40 5.53 2.24 Services 6.11 20.85 4.07 15.70' 29.93 27.57 10.59 25.27 36.75 35.19 20.40 Pulcsriec 1.83 6.98 -.12 5.60c 13.02 10.56 3.01 14.60 20.12 21.60 12.05 Pubicservicec Education d 0.47 1.19 0.37 2.29 3.90 3.63 1.71 2.81 4.33 3.96 2.18 Personal service 1.87 6.38 1.24 5.31 8.37 9.35 4.09 4.88 6.83 5.70 4.13 Otherse 1.94 6.29 1.34 2,51 6.64 4.03 1.77 , 2.9 5.48 3.93 2.04 n.e.c. 3.55 7.53 2.99 M 1.00 0.40 0.62 56t AAk !,AQ 6.21 a Cities, towns, and rural are defined as in Table 1. b Includes those involved in manufacturing, processing, and repairing. c The 1956 figure exclude military personnel living on military bases. d Includes those employed by hotels and reatuaranta. e Includes professionals. f 12 years or older Sources: Underlying data from the 1930, 1956, and 1966 population censusea. - 10 - Furthermore, since sideline activities, which tend to be concentrated in rural areas, are not taken into account, these statistics understate the rural non-farm sector. In the 1930 census, some 274 thousand persons reported their sideline activities, and of these 97% resided in the rural areas. Although agriculture was declared most often as the sideline activity, some 50 thousand rural residents reported manufacturing as their sideline, a number that is only one-third less than the total number of rural residents who declared manufacturing as their principal occupation. 7. From 1930 to 1966, Taiwan's economic center of gravity, as we aoted briefly above, shifted from agriculture towards industry. In this period, rural/town employment increased 2.0% a year (Table 3), substantially below the 4..2% recorded by the seven largest cities. However, when employ- ment is disaggregated by industry, it becomes clear that the slower growth in rural/town employment is largely the result of a very slow growth in agricultural employment. In fact manufacturing employment in rural/towns increased slightly (and in textile and food manufacturing significantly) faster than manufacturing employment in the seven cities. Although selected manufacturing industries made important advances in the 1930s and the early 1950s, rapid industrialization in Taiwan began only in the late 1950s. For this later period, employment can be broken down by cities, towns, and rural areas. From 1956 to 1966, total employment increased at 6.3% a year in towns, 5.3% in cities, and 3.9% in rural areas. However, when total employment is disaggregated by industry and non-agricultural employment is examined separately, manufacturing employment is found to have increased at an annual rate of,7.1% in rural Taiwan, slightly faster than in towns, but substantially faster than the L.7% recorded in cities. Table 3: ANNUAL cROWTH RATES OF EMPLOYMIET BY l,OCALITY 1930-66 1930-56 1956-66 Rural/ Rural/ Total Cities towns Total Cities towns Total Cities Towns Rural Total 2.3 4.2 2.0 1.6 3.8 1.1 4.4 5.3 6.3 3.9 Agriculture, fishery, forestry, hunting 0.7 3.2 0.6 0.8 4.6 0.6 0.7 -0.2 0.3 0.7 Mining 3.3 3.9 , 3.2 3.2 4.1 3.0 3.5 3.6 9.2 3.4 Hanufacturing 4.4 4.3 4.4 3.7 4.2 3.3 6.2 4.7 6.9 7.1 Food 3.7 2.4 4.1 3.7 2.1 4.3 3.3 3.0 4.7 3.2 Textile and apparel 4.5 3.6 5.0 3.7 3.2 4.1 6.6 4.6 6.0 7.9 Production of wood, stalk, bambool 1.9 2.9 1.5 0.3 1.1 0.0 9.0 0.5 6.9 7.7 Furniture and fixtures 1 3.0 3.1 2.6 3.1 Chemical 7.2 7.2 7.2 6.9 8.1 5 5.7 8.0 5.0 9.2 11.5 Non-metallic products 4.9 4.7 5.0 4.9 5.4 4.7 5.0 2.9 4.1 6.0 Metal product ) 11.8 11,4 11.7 12.6 Machinery and equipment ) 6.0 6.1 6.0 5.5 6.1 4.7 3.0 1.7 -0.5 6.1 Transport equipment ) 8.1 5.9 10.7 10.7 Others 4.7 4.6 4.7 4.1 5.1 3.1 6.2 3.3 9.2 9.0 Construction 3.6 4.4 3.1 3.3 4.5 2.5 4.5 4.3 5.2 4.5 Utilities 6.5 6.6 6.4 6.8 7.3 6.5 5.7 4.9 5.9 6.6 Consmerce 2.1 2.9 1.7 1.0 2.2 0.2 5.2 4.7 5.8 5.5 Trade 1.7 2.3 1.4 0.7 1.9 0.0 4.4 3.5 5.3 5.1 Bank, Insurance, etc. 11.2 10.8 12.2 11.0 10.5 12.2 11.8 11-7 9.8 12.7 Transport and tommunication 2,6 3.3 2.1 2.0 3.2 1.0 4.3 3.6 4.9 5.1 Services 6.3 5.8 6.6 5.2 5.2 5.2 9.2 7.4 8.9 10.5 Public serviceal 8.1 7.2 8.7 5.9 6.2 5.6 14.0 9.8 13.5 17.8 Education 7.3 7.8 7.1 7,7 8.3 7.3 6.4 6.4 7.2 6.4 Personal service 5.0 4.4 5.4 5.6 4.8 6.1 3.6 3.3 1.4 4.0 Others 3.5 3.8 3.3 2.5 2.6 2.5 6.1 7.7 6.1 5.3 n.e.c. 3.6 2.4 3.9 -4.7 -4.0 -5.0 25.4 19.1 30.4 27.1 a/ 1956 data exclude military peronnel living on military bases. Hutes and : Because military personnel living on military establishments are excluded in 1956, the growth rates for services, public services, and total employment are underestimated for 1930-56 and overestimated for 1956-66. Cities, towns, and rural are defined in Table 1. The underlying data are from the 1930, 1956 and 1966 population censuses. - 12 - As for the employment in other non-agricultural industries, the growth rates in rural areas are consistently higher than those in cities but - usually slightly lower than those in towns. 8. The aifferent sectoral growth rates have had considerable impact on Taiwan's rural employment strcture', particularly in the post- war period. As recently as 1956, 70% of Taiwan's rural labor force was employed in agriculture, while slightly less than 8% was employed in manufacturing. By 1966, agriculture employed Just 510 (57% if military personnel living on military bases are excluded from the labor force as they are in 1956) of the rural/labor force; manufacturing, 11%; commerce, 5%; and services, 20% (12% if military personnel living on military bases 1/ are excluded). However, over this period, the employment structure of urban Tai-wan remained more or less the same: approximately one quarter of its labor force in manfacturing, another quarter in commerce and transport and cmmunnication, a third in the service sector, and the remaining 15,: scattered in the other industries,. Thus, the dramatic transformation in Taiwan's economic structure in the postwar period was only partly the result of the growing importance and size of cities/towns in Taiwan. Equally if not more important, the change was the result of a significant shift in rural employment towards non-farm activities. 9. Because agriculture in law income countries is so overwhelmingly the dominant activity in rural areas and because non-farm activities tend to be widely dispersed, one tends to overlook or minimize the importance 1/ The percentages in the parenthesis are calculated by assuning that the exclusion of military personnel living on military bases from the labor force would reduce the rural labor force by about 290 thousand. - 13 - of rural non-agricultural activities. Yet, even in a traditional agrarian economy, non-agricultural activities are an important part of rural life. Table 4 distributes Taiwan's employment in the various economic sectors by location for 1930, 1956, and 1966. In 1930, Taiwan was a colonial economy with primarily an agricultural base. By 1956, new industries intoduced in the 1930s (metal products and chemicals) and in the early 1950s (textile) had diversified the economy and given it a small industrial base. In 1966, Taiwan was in the middle of a period of rapid industrilization that began in the late 1950s and continued into the 1970s. The distribution of non-agricultural employment between rural and urban areas in these three years provides interesting insights into how rural non-fam activities changed as the economy developed. 10. In 1930, when 30% of the total labor force was engaged in non- agricultural activities, two-thirds of them were located in rural areas. This heavy concentration of non-agricultural employment in rural Taiwan reflects in part the fact that over 80% of the population at that time lived in rural areas and in part the fact that some of the early manufacturing industries (food, products of wood and bamboo, and non- metallic products) depended on rural areas for raw materials. The data also show that, even though agriculture in 1930 was relatively traditional and not in any way mechanized, it nevertheless generated sufficient demand for tools and implements that half of the 1L,300 people Table 4: DISTRIBUTION OF EMPLOYED PERSONS BY LOCALITY 1930 1956 1966 Taiwan Cities Rural Taiwan Cities Towns Rural Taiwan Cities Towns Rural Total 100.00 12.16 87.84 100.00 21.59 5.54 72.89 100.00 23.68 6.73 69.58 Agriculture, forestry, fishery, hunting 100.00 1.78 98.22 100.00 4.78 2.42 92.81 100.00 4.38 2.38 93.25 Mining 100.00 15.15 84.85 100.00 18.90 0.88 80.22 100.00 19.04 1.55 79.41 Hanufacturing 100.00 37.37 62.63 100.00 42.68 10.06 47.26 100.00 37.02 10.80 52.18 Food 100.00 36.11 63.89 100.00 24.11 8.51 67.38 10000 23.50 9.83 66.67 Textile and apparel 100.00 39.57 60.43 100.00 34.10 14.40 51.50 100.00 27.87 13.65 58.48 Production of wood, stalk, bamboo 100.00 25,84 74.16 100.00 31.29 8.16 60.55 100.00 40.06 6.63 53.31 Furniture and fixtures ) 100.00 32.00 9.71 58.29 100.00 32.07 9.28 58.65 Chemical 100.00 41.94 58.06 100.00 57.53 9.68 32.79 100.00 42.48 10.92 46.60 Non-metallic product 100.00 28.00 72.00 100.00 31.84 6.70 61.46 100.00 25.85 6.12 68.03 Metal product 100.00 52.32 12.58 35.10 100.00 49.90 12.37 37.73 Machinery and equipment 100.00 50.35 49.65 100.00 62.60 8.66 28.74 100.00 54,94 6.10 38.96 Transport equipment 100.00 60.32 5.82 33.86 100.00 48.58 7.55 43.87 Othera 100.00 43.97 56.03 100.00 57.10 9.27 33.63 100.00 42.90 12.50 44.60 Construction 100.00 32.45 67.55 100.00 44.84 11.45 43.71 100.00 43.92 12.27 43.81 £ Utilities 100.00 46.15 53.85 100.00 51.30 9.74 38.96 100.00 47.25 9.89 42.86 Conierce 100.00 31.91 68.15 1 00.00 44.36 9.98 45.66 100.00 42.34 10.56 47.10 Trade 100.00 31.69 68.31 100.00 42.77 9.92 47.30 100.00 38.78 10.83 50.39 Ilank, insurance, etc. 100.00 75.00 25.00 100.00 65.47 10.79 23.74 100.00 65.12 8.83 26.05 Transport and communication 100.00 40.10 59.90 100.00 54.27 8.92 36.81 100.00 50.74 9.50 39.76 Services 100.00 41.50 58.50 100.00 41.16 9.73 49.11 100.00 34.44 9.38 56.17 Public service- 100.00 46.34 53.66 100.00 50.27 10.45 39.28 100.00 32.63 9.97 57.41 Education 100.00 30.95 69.05 100.00 36.81 8.79 54.40 100.00 36.53 9.50 53.98 Personal service 100.00 41.62 58.38 100.00 34.06 9.76 56.18 100.00 33.14 7.88 58.98 Others 100.00 39.37 60.63 100.00 39.85 8.89 51.26 100.00 43.48 8.86 47.67 n.e.c. 100.00 25.83 74.14 100.00 31.35 3.24 65.41 100.00 16.78 5.35 77.87 a/ In 1956, excludes military personnel living on military bases. Notes and Sources: Cities, towns, and rural are defined as in Table 1. Underlying data are from the 1930, 1956, and 1966 population censuses. employed in the metal product, machinery and transport equipment indus- tries were scattered in small establishments in the countryside. The only industry that was based primarily in urban Taiwan was banking and other financial services. 11. From 1930 to 1956, non-agricultural employment increased by 629 thousand, of which 312 thousand were in services, 200 thousand in manufacturing, 90 thousand in commerce and transport and communication, and the remainder in the other non-agricultural activities. About h6% of the increase .in service employment and 41% of that in manufacturing employment were absorbed by the seven largest cities. The cities also absorbed a surprisingly large share of the increase in employment in commerce (89%) and in transport and communication (75%).. Within manu- facturing, the expansion of employment in food, non-metallic products, and 1/ textile industries occurred primarily outside the cities, while the expansion in other manufacturing industries, e.g., chemical, metal 2/ product,and machinery, was primarily an urban phenomenon. As a result of these changes, by 1956, significantly larger shares of the labor force in manufacturing, commerce, and transportation and communication were employed in the cities (Table b). Apparently in this early phase of industrialization, the cities became not only the commercial and financial center but also the center for the more modern industries. Nevertheless, the towns (many were still very small in 1956) and the countryside remained an 1/ 80% of the employment increase in food, 70% of that in textile, and 67% of that in non-metallic product occurred outside the cities. 2/ 61% of the employment increase in the chemical industry and 62% of that in the metal product and machinery industry occurred in the cities. -16- important base for the more traditional manLacturing industries as well as other non-agricultural activities. 12. The pace of industrialization accelerated after 1956. The increase in non-agricultural r;mployment (excluding government employees) from 196 to 1966 was greater by a substantial margin than that in the previous 26 years. But, more interesting, the tendency towards greater concentration of non- agricultural employment in cities that was observed from 1930 to 196 was halted, and indeed the trend reversed. In other words, in this recent period of development, industrialization was more dispersed or decentralized. Of the 275 thousand additional workers hired by the manufacturing sector between 1956 and 1966, 58% was in the rural areas, 12% in towns, and only 30% in the cities. Furthermore. a large share of the newly created employ- ment in commerce, transport and comuanication, and services were also in towns and rural areas. A comparison of the distribution of employment among cities, towns, and rural areas (Table L) is revealing. In both years, towns absorbed about the same share of non-agricultural employment: 10-11% in manufacturing, 11-1 2% in construction, 10% in commerce, 9% in transport and communication, and 10% in most of the service industries. However, the relative positions of cities and rural areas shifted significantly in favor of rural Taiwan, and nowhere is this more noticeable than in manufacturing. In 1956, L3% of the manufacturing labor force was employed in cities and 47% in rural areas; in 1966, the distribution was 37% in cities and 52% in rural areas. Interestingly, this swing in favor of rural areas was caused largely by the growth of the more modern manufacturing industries in rural Taiwan. From 1956 to 1966, manufacturing employment in rural areas -17 - increased by 160 thousand, and more than one-half of the increase was accounted by four industries: textile, metal product, chemical, and transport equipment. 13. The current position of rural non-farm activities in Taiwan is summarized in Table 5, where the 1971 industrial and commercial census data are arranged to show the distribution of industrial and commercial establish- ments, employment, and production (revenue) by,cities, towns, and rural areas. In 1971, there were 279 thousand industrial and commercial establishments in Taiwan, and of these 500 were in rural Taiwan. Of the manufacturing esta- blishments, 5% were in rural areas. Rural industrial and commercial establishments employed over one million workers, or L2% of the total. Of all rural non-farm employment, nearly 90% was absorbed by three sectors: manufacturing (58c), trade (14), and services (17o). Fifty percent of the total manufacturing labor force was located in rural areas, and the share would be higher if workers employed by repair establishments were included in manufacturing. About one-third of the labor force in construction, trade, and other non-agricultural activities was also located in rural areas. Finally, rural establishments accounted for two-thirds of the production in mining and nearly one-half in manufacturing, and of the revenue received by all construction and trade establishments, 20% was earned by rural establishments. Clearly the rural non-farm sector plays a significant role in Taiwan's economy. � , , � 1 i , 1 r� rаьlа 5: sPлTIлL D15T81nUrzoи оя lидиsтlгтАL АNп cOr4iEяclлt лCT1vzTIES, 1971 �.__,______ praductlon (Revonue) � No of E►.taU1lehmonts ЕтрlоутепС (ML11imг NT$) Твlцвn Citlee- 3�'owtietr А� Таlцап Cltleв Тоипв Rura1 Таlцвп C1t1ee Таипв Rura1 ` Тоев1 279,зб9 107,82а зг,аб2 139,479 2,з99,8э5 1,1o0,o9s 279,Э57 1,о2о,зез f MLn1ng 516 65 - 451 61,059 15,620 - 45,4Э9 3,777 1,202 - 2,575 HanuFдctигlп�/ 44,092 14,ЭОВ 5,604 24,1В0 1,186,Эз2 423,7)1 170,854 591,707 2й4,718 92,821 33,967 117,930 ° Ur11it1eв 196 Э2 I3 151 19,477 11,Э62 2,529 5,586 9,1об 2,107 29 7,030 Conetructfon 5,84В 2,ЭВ4 Ь88 2,776 190,462 100,872 21.,856 67,73й (12,726) (9,188) (1,071) (2,467) Trnde I60,797 64,817 19,714 76,266 42й,100 2Э4,598 44,401 140,101 (101,264) (71,969) (7,727) (21,568) oilьеr'?/ ь7,92о 26,222 б,о4з з5,655 518,4о5 эов,в72 з9,717 169,а1ь (бЭ,оез) (49,469) (з,ы2) (1о,0о2) Ав дlгпrе of toCa1 100Х �ООх 100х 100х 100Х 1007. 100х 100х Tllпing 0,2 0.1� - 0.3 2.5 1.4 - 4.5 }1anuEвcturtng 15,8 13.3 17.5 1).3 49.4 Э8.5 61.2 58.0 UСц 1L•1еы 0_1 0.0 0.0 0.1 о.В 1.D 0,9 0.5 , Conatruction 2.1 2.2 2.1 2.0 7,9 4.2 7.8 6.6 , Ттдде 57,6 60.1 61.5 54.7 17,7 21.8 15.9 1Э,7 OQ OChcr 2й.3 24.Э 18.8 25.6 21,б 28,1 14.2 1б.6 ' Ав ahare оЕ Таiцдл р11п1пg 1о0Х 12.6 0.0 87.4 100х 25.6 - 74.4 1007. 31.8 - 68.2 1�ai,ueвcCurl„g 10о7. Э2,5 12.7 54.8 1о0У. зs.7 14.4 49.9 lоох 37.9 13.9 4в.2 ОС1ц сiев 1о0х 16,Э б,б 77.0 100х SВ.Э 13.0 28.7 100х 2Э.0 0.Э 76.7 г,оивСп,аСiоп lоох 40.8 11.8 47.s lоох sз.о 11.s з5.ь (loaz) (72,2) (8.4) (19.4} 'lгваа 1о0х 4о.3 12.з 47.4 100х 5ь.5 1o.s ээ.о (10oz) (71.1) (7.6) (21.Э} иiьег 100х эе,ь 8.9 s2.s lоах s9.ь 7.7 32.в (lоох> (7в.�) (s.7) (1s.9) Тосд1 1007. 38,6 11.5 49.9 100х 45.8 I1.6 42.5 n/ CLt1ee 1ncluda Ta1peL, Keelung, Talchuug, Твlпаn, 1taoЬeing, 1lвlnсЬц, впЛ Chlayt, � I �i/ Тоцгtв include Sanclurog, Рапсhlаи, 11nn, C1wngli, Таоуидn, Changlьиа, Fengвlгan, Pingting, аnЛ 11wa11en, с/ Ехсlидев rердlг eetaUllehmenCe, I д/ IпсlиЛов repelr евtдЬllвhтепСв, hotel впд rescдurдnt, Crпnчpart дпд etocage, Ьдпklпд, lnsurance, rедl евСдl.-е, tгивlпсвв чervlcas, recreation, алЛ регвоидl servicee. 1 Suurco: '1'he 1971 Induetriвl д»Л Соппiетсlдl Сепвивев of Таlидп nnd Fuklen Агвд, КepuUlic of Ch1na. � 1 1 . � . I , � 1 i / г 19 III. THE DEM-AND FOR 7URAL INON-FAFM LABOR 1. The size and structure of rural non-farm employment are deter- mined by numerous factors, of which the most important are: (i) farm households' demand for non-food consumer goods and services, (ii) farmers' demand for material and equipment inputs, the strength of which and the precise inputs demanded depending on the stage of agricultural development and the technology employed in agriculture, (iii) the ixtent to which agricultural processing industries are developed to serve external markets, and (iv) the extent to which non-farm related industries are attracted to rural areas by raw materials or factor inputs, in particular inexpensive rural labor on a seasonal or permanent basis. 2. In Taiwan, the best evidence of the linkages between --Ural non- farm employment and farm households' demand for inputs and consumer goods and services are those contained in the farm and household budget surveys. Three sources of data are available: the periodic surveys of farm income and expenditures conducted since 1952,_ the annual report of record keeping 2/ farm families, and the surveys of fam ly income and expenditure conducted 1/ These are small sample surveys conducted once every five years by the Sino-American Joint Commission on Rural Reconstruction (JCRR) in cooperation with two Taiwanese universities. The results are usually published b7 JCRR. The most recent survey is reported in Chieh-hsin Tseng, The 1972 Taiwan Farm Income Survey, 1974. 2/ Although the farm record keeping program was initiated in 1953, the program was not extended to cover !,13 major farming areas in Taiwan until 1964. Approximately 600 families part-icipate in the program. - 20 - 1/ by the provincial government. Together, the results from these surveys provide us with a fairly comprehensive record of farm household expendi- ture pattern in Taiwan. 3. The income expenditure records kept daily by record keeping farm families probably contain the most detailed information on how Taiwanese farm households use their earnings. However, it is important to note that the average record keeping farm household culti- vates more land (1.27 ha in 1965) and practices multiple cropping more extensively (average multiple cropping index of 202) than does the average Taiwanese farm household (1.02 ha with a cropping index of 183). In other words, record keeping farm households are more affluent. This difference should be kept in mind as we examine their expenditure pattern in 1965 (Table 6). In that year, each farm family on the average paid NT$ L,900 to factors of production (not including the imputed wage of self-supplied labor), contributed NT$ 2,200 to government and various associations in taxes and fees, used NT$ 19,800 worth of seeds, materials, and tools in production, and consumed NT$ 31,800 worth of goods and services. As a share of total current expenditure, consumption accounted for 54% and material and equipment inputs 3L%. More than three-fourths of the materials and equipment inputs and two-thirds of total consumption were purchased from off-farm sources. If main food (7taples), an item largely self-supplied, were excluded, then 86% of total consumption was 1/ The surveys were conducted in alternate years from 1964 to 1970 and annually since then to provide data for national income estimates. Each year, about 3,600 households, or between 1.3 to 1.9% of the population, was selected for the survey on a stratified sampling basis. The results of each survey are broken down by farm and non-farm house- holds. Table 6, AVERAGE CURRENT EXPEN1ITURES OF RECUlti) KEEPING FARM HotUSEHODS, TATWAN, 196 Purchased Total 3urchased Self-Supplied as percent %_ M O o total I. Factor Payments 4 910 8.36 Wages 2,904 4.94 Rent and interest 2,006 3.41 11. Taxes and Fees 2 183 3.72 Production related 1,520 2,59 Household 663 1.13 III, Production Expenses 19,829 33.75 154464 383 77.90 A. Farm Production expenses 19,368 32.97 14,995 4,373 77.42 Seeds 1,184 2.02 670 514 56 59 Fertilizers & other chemicals 6.969 11 86 6,432 537 92.29 Feed, livestock and poultries 8,261 14.06 5,133 3,128 62.14 Animal labor 241 0.41 241 - 100.00 Irrigation 937 1.59 937 - 100.00 Dep. & repair of buildings & equip. 182 0.31 179 3 98.35 Material and tools 1,328 2.26 1,202 126 90.51 Misc. 266 0.45 201 65 75.56 B. Non-fann production expenses 461 0.78 451 40 97.83 IV. Consumption expenses 31.825 54.17 21,532 10,292 67.66 Food 17,066 29.05 8,032 9,034 47.06 Main food 8,947 15.23 1,745 7,202 19.50 Others 8,119 13.82 6,287 1,832 77.44 Drink and tobacco 1,446 2.46 1,436 10 99.31 Clothing and apparel 1,635 2.78 1,635 , - 100.00 Housing 272 0.46 270 2 99.26 House furnishing 986 1,68 986 - 100.00 Fuel, power and water 1.757 2.99 633 1,124 36.03 Education 1,398 2.38 1,398 - 100.00 Recreation 1,707 2.91 1,659 47 97.19 Medical and Public health 1,835 3.12 1,835 - 100.00 Festivity 2,435 4.14 2,380 55 97.74 Transport and coiaunication 256 0.44 256 - 100,00 Others 1,032 1.76 1,012 20 98.06 V. Total Expenditures 58 747 100.00 Source: PDAF, Report of Farm Record-keeping Families in Tatwan, 1965, pp. 81-91 and 116-121. 0~ -22- purchased. Outside of food, the only consumption item primarily self- supplied is fuel and water. The 1965 data also indicate that about one- half of the total current expenditure spent by the average farm household 1/ was for goods and services produced by non-agricultural industries. Although the data do not provide direct evidence of this, one strongly suspects that a large share of the non-agricultural goals and services purchased were supplied by industries located in rural areas. 4. Theoretical considerations suggest that household consumption pattern alters in important ways when income rises, the chief being the decline in the expenditure on food as a share of total outlay predicted by Engle's law. The expected changes in consumption pattern is clearly shown in Table 7 where the results of the 1966 Survey of Family Income and Expenditure are arranged to show the consumption pattern of farm fami- lies broken down by income groups. Farm families with income under NT$ 20,000 (Us$ 500) allocated 64% of its consumption outlays to food and beverages, while those with income above NT$ 50,000 (US$ 1,250) allocated 2/ only 55%. The decline in the share spent on food by higher income families implies that the consumption of non-food goods and services absorbed a larger share of these families' household budgets. Of course, not all 1/ Nearly all non-food consumption items and about two-thirds of the materials and equipment inputs are products of non-farm activities. 2/ That the consumption of non-food goods and services takes a rising share of the farm household budget as income rises is also confirmed by the changes in the consumption pattern of farm households over time. Between 1966 and 1974, a period of rising farm incomve, the Survey of Family Income and Expenditure shows that the share of non-food consump- tion rose from 41% to 47% of the farm household budget. Table 7: BRLAKDOWN OF CONSUMPTION EXPENDITURE OF FARM HOUSEHOLDS BY INCOME GROUPS, 1966 (percent of total) All Farm Under Over Households NT$20,000 NT$20-30,000 NT$30-50,000 NT$50,000 Total Consumption 100.00% 100.00% 100.00% 100.00% 100.00% Food & beverage- 59.31 64.29 61.64 58.61 55.31 Tobacco 3.21 2.89 3.35 3.38 3.07 Clothing, apparel 5.88 5.04 5.72 5.77 6.60 Housing & water b/ 9.13 9.62 8.81 9.19 9.07 Fuel and light 5.25 6.10 5.52 5.48 4.31 Furniture and house furnishing 0.98 0.53 0.83 0.82 1.54 Household operation 1.16 1.37 1.18 1.13 1.04 Personal & medical expenses 5.06 5.67 4.88 5.12 4.85 Transport & comm. 2.17 1.16 1.75 1.99 3.30 Recreation 0.83 0.46 0.59 0.73 1.35 Education 3.21 1.76 3.04 3.29 4 07 Misc.c/ . 3.79 1.16 2.64 4.46 5.48 a/ Includes expenditures on food in restaurant and festivities. b/ Includes imputed rent. c/ Includes expenditures on marriages, births, funerals, etc. Source: PDBAS, Report on the Survey of Family Income & Expenditure in Taiwan, Republic of China, 1966, pp. 164-211. -2)j - categories of non-food goods and services increased their shares in the budget. Sone, such as housing and water, did not change in a consistent fashion; others, such as fuel and light and household operation, declined. But the shares spent on clothing and apparel, furniture and household furnishing, transport and communication, recreation, education, and miscellaneous all increased significantly as we move from low income farm families to high income ones. In other words, for most non-food consumption items, the income elasticities of demand is greater than unity, and in many cases substantially greater. Thus, rising farm income is likely to generate growing demands for non-agricultural goods and services, and indirectly for non-farm labor. 5. Of particular interest is the very strong demand by farm house- holds for consumer durables, most of which were introduced only in the late 1950s or early 1960s. The 1960 sample agricultural census reported less than 10% of the farm households in Taiwan had electric fans and 23% had radios. By the time of the 1970 agricultural census, over half of the farm household owned radios and two-thirds had electric fans. When ownership of consumer durables is broken down by the size of farm land cultivated, a fairly good proxy for farm income or output, there appears a strong relationship between ownership and size of farm. For instance, in 1960, of those farm households with less than 0.6 ha of land under cultivation, 7% owned electric fan; while 15% of those with more than 1.5 ha 1/10 of land had electric fans. What this evidence suggests is that among farm households there exists a very high income elasticity of demand for consumer 1/ Report on the 1960 Census of Agriculture, Taiwan, Republic of China 10% Sample Census. -25 - durables. Additional evidences are in Table 8, where the status of a wide variety of consumer durables in rural Taiwan are estimated for 1966 and 197L. The rise in some consumer durables in rural Taiwan is startling. In 1961 less than 1% of the farm households owned televisions; by 1974 there were 63 tele- visions for every 100 farm households. Gains of smaller magnitude were observed for refrigerators, electric cookers, and motorcycles. 6. As with consumption, the demand for farm inputs has increased and its composition altered in the process of development. Table 9 summa- rizes the results of five surveys covering the period 1952-72, and it shows that the amount of current inputs used by an average Taiwanese farm house- hold more than doubled. Also interesting is the finding that purchased inputs as a share of total doubled as well. In 1952, one year after both total agricultural output and input surpassed pre-war peaks, less than LO% of the farm inputs used by the average Taiwanese farm household were purchased. In the next two decades, as agricultural development continued and Taiwan industrialized, the share of purchased inputs increased, and in 1972 it stood at over 83,. Several factors contributed to the change. 7. Chemical fertilizers, introduced early in the colonial period, conntinued to gain in popularity in the postwar period, and began to replace farm produced organic fertilizers in the mid-1960s. New agricultural chemicals, introduced in the postwar period, e.g. pesticides and herbicides, gained quick acceptance among farmers and are now extensively used. The 1970 agricultural census found 93% of Taiian's farm households used chemical fertilizers, and 87% used pesticides. The recent growth of the livestock and poultry industry has also increased agriculture's dependence - 26 - Table 8: AVAILABILITY OF CONSUMER DURABLES IN RURAL TAIWAN 1966 a/ 1 974i/ Number per Number per 100 Farm 100 Farm Number Household Number Household T.V. 4,899 0.69 416,176 63.09 Electric fan 340,231 48.23 737,824 111.86 Radio 372,549 52.81 240,582 36.47 Refrigerator 3,357 0.47 169,528 25.70 Electric cooker 48,219 6.83 462,435 70.10 Sewing machine 427,699 60.63 477,444 72.38 Telephone 4,015 0.57 12,269 1.86 Motorcycle 42,871 6.08 276,264 41.88 Bicycle 870,280 123.37. 976,370 148.02 a/ Estimates of durables owned by farmers in Taiwan (in 1974 excludes Taipei'City). Source: PDBAS, Report on the Survey of Family Income and ExDenditure in Taiwan, Republic of China, 1966 and 1974. - 27 - Table 9: FARM PRODUCTION EXPENDITURE PER FARM HOUSEHOLD (NT$ per farm household) Cash Total Outlay in 1952 in Current As Percent Prices Prices of Total 1952 5,139 5,139 39.79% 1957 6,059 9,937 64.02% 1962 6,13 15,296 6.71% 1967 10,491 30,739 76.68 1972 11,827 LO,330 83.22% Notes and Source: The value of family labor is not in- cluded in production expenditure, however wages paid to hired hands are included. The data are from Chieh-hsin Tseng, The 1972 Taiwan Farm Income Survey, 1974, Tables 26 and 53. - 28 - on purchased inputs. Finally, as the rural labor market tightened considerably since the mid-1960s, increasing number of farm households turned to machines to substitute for labor. From a few thousand sets in the early 1960s, the number of power tillers in Taiwan increased to 1/ over 2L thousand in 19727 At the same time, the number of draft animals has declined. Similarly, the number Qf water pumps used on farms rose from about eight thousand sets in 1962 to nearly 66 thousand in 1972. The Traditional dragon wheel pumps are being replaced, and in 1972 their number had declined to below two thousand. A 1972 survey found over 8% of all cash outlays (including factor payments, taxes, production expenses and consumption) of an average Taiwanese farm household was used to purchase 2/ producer durables. Like consumer durables, the ownership of producer 3/ durables tends to increase with the size of land cultivated, a strong indication that the income or output elasticities of demand for producer durables are high, certainly greater than unity. 1/ This and the following statistics in this paragraph are from Taiwan Agricultural Yearbook, various years. 2/ Chieh-hsin Tseng, The 1972 Taiwan Farm Income Survey, 1976, Table 25. 3/ For example, the 1970 agricultural census found that the percentage of farm households that owned water pump to be 3.6% for those cultivat- ing less than 0.5 ha of land, 9.h4 for those cultivating between 0.5 and 1.0 ha of land, 15.6% for those cultivating between 1.0 and 1.5 ha of land, and 23.0% for those cultivating 1.5 ha or more of land. - 29 - 8. In the postwar years, the increased demand by farm households for non-food goods and services and for material and equipment inputs undoubtedly have generated non-farm employment. But what portion of the increased employment was in rural areas is more difficult to say. It is, however, clear that practically all the services as well as many of the non-food consumer goods demanded by farm households were produced in rural establishments. Services are location specific, and goods with relatively high income elasticities, such as furniture, household furnishing, clothing, and apparel, can be efficiently produced in small-medium size establishments. In Taiwan, many of these establishments are located in rural areas. On the other hand, consumer durables, agricultural chemicals, and many of the recently introduced producer durables are likely to be produced in urban factories. Nevertheless, the mixing and packaging of agricultural chemicals as well as the production of small hand tools and implements often, and to a considerable extent in Taiwan, are done in rural establishments. Certainly, the distribution of non-food consumer goods and material and equipment inputs creates rural non-farm employment. Finally, to provide adequate services to the rural owners of consumer and producer durables, additional repair and service establishments are recuired in the rural area. In Taiwan, two other important sources of demand for rural non- farm labor are its well developed food-processing industry and industries 1/ It also has affected the demand for farm labor. Since both labor using and labor saving technological changes were introduced in the postwar period, the net effect is uncertain. For example, power tillers reduced the demand for labor during planting, but at the same time permitted more extensive multiple cropping which, of course, increased as well as smoothed out the demand for farm labor. Other technological changes, such as water pumps and herbicides, clearly reduced the demand for labor while pesticides probably increased the use of labor. It is generally believed that these technological changes, on balance, reduced the demand for farm labor, - 30 - that are dependent on non-farm produced raw materials found in rural areas. In the colonial period, Taiwan was developed as Japan's main source of sugar. Until recently the food processing industry was dominated by sugar refining, and nearly all its production was exported. In the postwar period, the lost of the protected Japanese market and the development of new food-processing industries have lessened the importance of sugar refining. But Taiwan's food processing industry continued to be export-oriented. A substantial portion of Taiwan's sugar is still exported. Of the new indus- tries, canned vegetables and fruits is the most important, and its output is also largely exported. In fact, since the mid-1950s Taiwan has emerged as the world's largest exporter of canned mushrooms and asparagus and one of the world's largest exporters of canned pineapple. To take advantage of the less expensive rural labor and to be close to its raw materials, the food processing industry is usually concentrated in rural areas. Indeed, in 1966, two-thirds of those employed in Taiwan's food processing industry lived in rural areas and another 100 in the newly emerged towns (Table 4). Fina27y it should be noted that a significant nunber of rural workers in Taiwan are engaged in industries such as clay and wood and bamboo products that are located in rural areas to be close to their sources of raw material. In the postwar period, products of these industries, particularly wood and bamboo products, are exported in growing quantities. Undoubtedly, this growth in exports has helped to generate additional rural non-farm emoloyment. - 31 - IV. RURAL NON-FAFM SECTOR AND THE FARM HOUSEHOLD 1. In the postwar period, industrialization and population growth were the two most important forces of change in rural Taiwan. In particular, they had considerable impact on the farm household and its relationship with the rural non-farm sector. In the 1950s, the average annual rate of natural increase in rural Taiwan was 3.4%. In the 196os, the rate of natural increase in rural areas declined, but was still above 2.5% per year. But since nearly all the land that could be cultivat-d economically had already been put to use, the continuous rise in rural population has put considerable pressure on existing resources. One manifestation of this is the decline in farm size. In the last 30 years, the average farm size has more than halved, decreasing from about 2 ha to less than 1 ha of land. in 1939, about 25% of the Taiwanese farms cultivated less than 0.5 ha of land; by 1970 the 1/ percentage of farms in this category had climbed to 44'.- 2. Because both the economy and the farmers themselves were able to adjust to the growing population pressure, it did not develop into a serious problem. Migration to the cities was one and perhaps the most radical adjust- ment the Taiwanese farmers made. Speare examined published statistics as well as samples of household records and found a substantial number of people. 1/ The 1939 figure is from Taiwan Government-General, Report of Basic Agricultural Survey No. 1i, pp. 2-7, and the 1970 figure is from the Report of 1970 Agricultural Census of Taiwan-Fukien District of the Republic of China, Vol. II, Bk. 1, p. 6. - 32 -. in Taiwan moved during the 1960s." In 1968, for example, the major cities received over 245 thousand migrants and small cities and towns received another 236 thousand. However, there were also substantial out flows: 185 thousand from the major cities and over 219 thousand from the small cities and towns. Thus the net migration flows were substantially smaller, but they were still in the direction of towns and cities. Although a sizeable number of rural migrants moved directly to the major cities, Speare's data also show evidence of stepwise migration, i.e. rural migrants moving first to towns and only later to the large cities. Most important from our viewpoint is that Speare's findings suggest that much of the net migration was a shift from agricultural to non-agricultural ireas. For example, he found the rates of net out- migration was highest in areas with high percentage of males employed in agriculture. 3. One of the questions asked each farm household by the 1970 aari- cultural census was whether any of its members left home, in the period 1968-70,for employment elsewhere. Interestingly,about the same percentage (11-12%) of small (less than 0.5 ha of cultivated land), medium (0.5--2 ha), and large (over 2 ha) farms reported members leaving home to take jobs else- 2/ where. However the rate of outflow was quite different by regions. 1/ Alden Speare, "Urbanization and Migration in Taiwan," Economic Develog- ment and Cultural Change, 7. 22, No. 2 (Jan. 1974), 302-19. 2/ If anything, a slightly higher percent of large farms(perhaps reflecting the larger number of people in these households) reported members leaving home for employment elsewhere. - 33 - The share of farm households that reported members leaving home for jobs was 1 .aO% for those farm households located within the limits of the five major cities, 7.66% for those in the "industrial" prefectures (prefectures closest to the two fastest growing urban-industrial centers: Taipei-Keelung and Kaohsiung), and 12.62% in other parts of Taiwan. This difference in the rates of outflow is understandable since there is no need to migrate to take off farm jobs if they are within commuting distance, and in the late 1960s the opportunity for off-farm jobs within conmmting distance was greatest in cities and in the prefectures that were undergoing the most rapid rates of industrialization. L. Table 10 presents the actual number of farm migrants who left home for jobs by origin and destination. From 1968 to 1970, 1/ a total of 152 thousand left to take jobs outside their home districts. Of these, two-thirds went to one of the five major cities and another fifth went to the two "industriall" prefectures. Over 90% of these migrants came from farm households outside the cities and the two "industrialt pre- fectures. Most migrants, after they left home, worked for others. However, a small number, about 4,V of the total, were self-employed, primarily in commercial ventures. Of those employed by others, half were engaged in mining and manufacturing. Other important areas of employment were commerce, government, and education. Finally, a disproportionate number of the 1/ This figure, of course, represents gross rather than net out-migration. Since there must have been some returned flows, net outflow was undoubtedly smaller. The 152 thousand who migrated during 1968-70 represent about 2.4% of the farm population in 1970. Table 10: NUMBER OF FARM HOUSEHOLD MEMBERS LEAVING HOME FOR EMLOYZENT OUTSIDE HOME DISTRICT BY ORIGIN AND DESTINATION, 1968-1970 To 5 I'ajor trial" '"Rural" From ci-ties hsien hsien Total 5 major cities L52 88 191 731 "Industrial" hsien 8,228 1,478 1,500 11,206 . Other hsien 85,653 25,65 28,501 139,809 Total 9L,333 27,221 30,192 151,746 Notes and sources: The five cities are Taipei, Keeling, Taiching, Kaohsing, and Tainan, and the "industrial" hsien (prefecture) consists of Taipei and Kaohsing pre- fectures. Underlying data are from The Report of the 1970 Agricultural Census of Taiwan-Fukien Area, lepublic of Uhana. -35 migrants were drawn from the fairly well educated. About 28% of the migrants had at least some middle school education. It appears that those who left the farms for the cities were also the better qualified for non-agricultural jobs. 5. Besides migration, rural Taiwan adjusted in other ways to the growing pressure of population on land. Since the colonial period, ,Taiwanese farmers have adjusted to population growth by adopting more labor intensive production techniques. The adoption of labor intensive crops, the extension of multiple cropping, and the introduction of other changes in production methods such as intensive weeding and the application of pesticide and fertilizer have increased (and smoothed out the seasonal differences) the requirements for labor per unit of land. For instance, the multiple cropping index increased from 115 in 1911-15 to 1L8 in 1946-50 and 183 in 1966-70. In this manner, agriculture managed to support a substantial share of the increase in rural population. 6. A third, and probably the most important, adjustment in the postwar period, was that farm households, in increasing numbers, combined the opera- tion of their farms with part-time or full time employment off their own farms, either on other farms or in non-farm work (the sources of "off-farm" employ- ment are discussed later, paragraph 12 et.seq.). The data in Table 11 give some ideas of the extent that Taiwanese farm households were involved in off- farm activities in the 1960s. Of the 807 thousand farm households in 1960, 52% earned at least some income from off-farm sources (part-time farm house- holds), and only L8% depended on their farms for all their income (full-time farm households). Of.the part-time farm households, 43% (or 23% of all farm households) earned more income from their off-farm activities than from their - 36 - Table 11: EXTENT OF OFF-FAIRM ACTIVITIES, 1960 AND 1970 Farm Household Percent of Total Part time Off-farm Farm Activities Full Sub- as main as main Total Time Total Occupation Occupation 1960 807,600 47.61 52.39 29.85 22.54 1970 915,966 30.2h 69.76 4O.55 29.21 Cultivated farm 819,398 household 31.19 68.81 42.03 26.78 Less than 0.5 ha 386,315 17.05 82.95 35.82 47.13 0.5 0.99 ha 242,748 34.9 65.51 50.25 15.26 1.0 1.99 ha 176,216 L7.15 52.85 45.5L 7.31 2.0 ha + 74,119 56.12 43.88 39.09 4.79 Non-cultivated farm household 36,568 7.32 92.68 5.10 87.58 Notes and Sources: Any household that cultivated 0.02 ha of aand, raised 3 or more hogs, raised one or more cattle (not used as draft animal), raised 100 or more heads of poultry, or sold farm produces worth more than NT$ 4,000 in 1960 (NT$ 6,000 1970) is considered a farm household. The underlying data are from The Report on the 1960 Census of Agriculture, Taiwan, Republic of China and The Report of the 1970 Agricultural Census of Taiwan-Fukien Area, Republic of China. - 37 - farms. Furthermore, the more detailed 1970 data in Table 11 show a clear relationship between part-time farming and farm size, i.e., as farms became smaller, a higher share of them are operated by part-time farm households. This is of course consistent with the fact that the smaller the farm the less it is able by itself to support a farm family of a given size. It is, there- fore, not surprising that with the increasing pressure on land and with in- dustrialization offering a greater number of off-farm economic opportunities in the countryside, the number of farm households with sideline activities steadily increased in the 1960s. Indeed by 1970 only 30% of all farm house- holds belonged in the full-time category, and 29% earned more income from their sideline or off-farm activities than from their farms. In other words, in Taiwan, farming is becoming by necessity a part-time occupation for an increasing number of farm households. 7. Table 12 presents the 1960 and the 1970 farm population broken down by employment status, and they show, perhaps even clearer, the combined effects of population pressure and industrialization on the farm household. Although farm population increased from 1960 to 1970, those employed on farms (part time and full time) actually declined, from 2,270 to 2,227 thousand. Of particular significance is the sharp rise in the number of people from farm households who did not contribute labor to the family farm but worked "full time" in off-farm jobs: 175 thousand in 1960 and 534 thousand in 1970. The 1970 figure represents nearly 9% of the farm population. Not surprisingly, the 1970 data also show that as the size of farm declines, the share of farm population working full time off own- farm rises. Table 12: FARM POPULATION BY EMPLOYMENT STATUS, 1960 AND 1970 (000 persons) Farm Worker 0Others Total Work full Without Popu- Main Time off House- Employ- lation Total Worker __ Helper b/ own-farm Total work ment 2/ 1960 (000 persons) 5,863 2,270 1,384 886 175 3,119 - - (t of total) 100% 38.71 23.60 15.11 2.98 58.30 - - 1970 (000 persons) 6,214 2,227 921 1,306 534 3,454 409 3,045 (percent of total) All farm household 100% 35.83 14.82 21.01 8.58 55-58 6.59 49.00 Gultiva Ling farm house- hold 100% 36.31 1.90 21.111 8.09 55.61 6.66 48.95 Under 0.5 ha 100% 32.63 11.92 17.71 11.14 56.23 7.20 19.03 0.5-0.99 ha 100% 37.10 15.08 22.33 7.1t2 5.18 6.63 48-55 1.0-1.99 ha 100% 39.34 11.76 24.58 5.56 55.10 6.23 18.87 2.0 ha + 100% 0.31 1h.62 25.69 h.16 55.52 5.68 19.84 Non-culLivating farm household 100% 23.00 12.79 10.21 22.08 5h.91 A.66 50.25 a/ Includes managers. F/ Includes both regular and seasonal helpers. c/ Includes those in military service, unemployed, students, disabled and retired. Sources: The Report on the 1960 Census of Agriculture, Taiwan, Republic of China and The Report of the 1970 Agri- cultural Census of Taiwan-Fukien Area, Republic of China. - 39 - 8. Of the family farm workers (those who helped to run the family farm) a substantial and increasing number of them were involved in side- line activities as farm size declined. The 1960 10% sample census of farm households found one-quarter of the family farm workers engaged in sideline (off-farm) activities. In 1970, 31% of all family farm workers allocated at least 30 work-days or more per year to sideline activities. How many more were employed in sideline activities but worked fewer than 30 days is not known. The rise in sideline activities is also confirmed by the fact that the average farmer spent fewer days on farm work in 1970 than in 1960. The distribution of farm workers by days worked on farm shows that in 1960 49% worked fewer than 100 days, 19% worked between 100 and 1L9 days, and 32% worked 150 days or more. In 1970, 54% worked fewer than 100 days, 18% worked between 100 and 149 days, and 28% worked 150 days or more. 7urthermore, the decline in days worked was concentrated primarily among main workers and regular helpers. in 1960, the average farm household allocated 357 man-days of family labor to farm work; by 1970 this had declined to 251 man-days, another consequence of the decline in farm size. 9. Because of the well known seasonal nature of farming, off-farm activities in rural areas are usually concentrated in the slack seasons. In earlier periods this was also undoubtedly the pattern in Taiwan. But the seasonal pattern of sideline activities is now less noticeable". Table 13 summarizes a number of cropping patterns commonly employed 1/ The underlying data used in the paragraph are from The Report on the 1960 Census of Agriculture Taiwan Eepublic of, China (10% Samnule Census) and The Reoorl of the '1970 Agrcultural 'ensus of Tai-an- Fukien Area, Renublic of China. - LO - Table l3: COMMON CROP2ING PATTENS IN TAIWAN Per 4 nt h P F M A m J J A S 0 N D ("Douple Crop" Paddy Field) 1900-20 1st rice croo 2nd rice croo 1920-0 Croo z 1st rice croo 2nd rice crop winter 1950-70 oroo1st rice crop 2nd rice crop Winter sumner 0roo ("Single Crop" Paddy Field) 1900-20 sweet Dotato sweet potato 1920-40 sweet ootato rice 1950-70 potato misc. croo rice sweet (Dry Field) usually usually sweet 1900-20 sweet potato Dotato 1920-40 sweet Rotato peanut 1950-70 oro_ peanut misc. crou oeanut . peanut N sw. potato misc. in Taiwan in various periods in the twentieth century. Because of Taiwan's long growing season, two crops were harvested by some farm households even at the turn of the century. In the colonial period, rural Taiwan adjusted to population growth by bringing into cultivation additional 1/ land and by cultivating existing farm land more intensely. More labor intensive crops, e.g., rice and peanut, replaced less labor intensive ones, and in some farms a third crop was cultivated. The labor input per hectare of cultivated land increased from below 200 days/ha in 1911-15 to 2/ 220 days/ha in 1931-35. By 1940, land that could be economically farmed was already under cultivation. True, in the postwar period, tidal land reclaimed from the sea and marginal upland have been developed into farms, but the area added in this fashion was limited. From 1952 to 1973, cultivated land increased by less than 3%. As a result, the ratio of cultivated land to agricultural (farm household) population declined from an average of 0.27 in 1925-45 to 0.20 in the 1950s and 0.15 in the 1960s. In the face of continued population pressure on land, Taiwan's agriculture adjusted primarily by cultivating existing farm land more intensively. New and more complex cropping patterns and intercropping (the planting of a second crop between rows of the first crop before the latter has been 1/ Cultivated land increased from about 520 thousand ha at the turn of the century to 850 thousand in 1936-0. 2/ T.H. Lee, "Agricultural Diversification and Development," JCRR, mimeo. - l2 - harvested) were introduced and widely adopted. With new crops and irriga- tion, it has become possible in some areas to harvest five or more crops a year. Labor input per hectare of cultivated land averaged nearly 3L0 days per ha in the 1960s. 10. The extension of multiple cropping not only has increased the demand for labor, but, as shown in Table 13, it has also shortened the slack season. Thus, in the case of Taiwan, off-farm activities are no longer used primarily to provide seasonal employment for farmers. In Figure 1, total income and the income from non-agricultural sources earned in 1968 by farm households are plotted by month. While non-agricultural income of farm households does fluctuate from month to month, the monthly changes are surprisingly small. It seems that while off-farm activities are gaining in importance among Taiwan's farm households, they have also become less of a seasonal phenomenon. In other words, members of farm households are apparently working regularly rather than seasonally in off- farm jobs. This is partly the result of changed cropping patterns which has smoothed out the demand for farm labor and partly the result of a growing tendency among many farm household members to work in off-farm jobs on a full time basis. Of course, both of these developments are methods used by Taiwan's farm households to adjust to the pressure of risng population and declining farm size. 11. To learn the sources of off-farm employment, we examine Table 1, where farm household members with off-farm employment are classi- fied by industry and employment status. In 1970, over 1 .2 million farm 1/ household members worked away from their farms Of these, 996 thousand, 1/ This figure does not include those who worked fewer than 30 days in off-farm jobs. 긔 44 or were employed by- others, 13'10 were self-employed, and 6,10 were engaged in home handicrafts. The distribution by industry was: public administration and education, 5.6,%; commerce, 11 .7,10; industry and mining, 26-5,%, agriculture. fishery and f orestrY, 33.0,10; home handi- craft, 5.81, and other activities, 7 It is useful to disaggregate farm household members -with off-farm employment by those who were also engaged in the oDeration of the family farm (family farm workers), and those who were not. Of the 534 thousand -who did not help to run the family farm, nearly all were engaged in non-agricultural employment: 40.L-1"O' in industry and mining, 15.0% in commerce, 8.0% in public administration and education., 6.61,0 in home handicrafts,, 12.1 in agriculture, fishery, and forestry., and 17.9% in other industries. To put this somewhat differently: Of those farm household members-whoworked in industry and mining, com,erce, and the public sector, 63,10 contributed no labor to the operation of their f amil-7 farms. 12. For the family farm workers, sideline activities wera concentrated disp-oportionately in agriculture (including fishery and forestry) and other industries. Together, these two categories accounted for two-thirds of the off-farm .4obs filled by family farm workers. While a good many family fam, workers were e=loyed as farm hands on other people's farms, many of those classified in agriculture were also engaged in non-farm activities, of which, one of the most important is fish culture. Using paddy Vields and building artificial ponds, large number of farmers have converted land to fishDonds and raised fish as a sideline. Fish harvested on farms increased nearly fivefold in the postfar period, rising from 15 thousand m.t. Table 1ii FARM HOUSEHOLD M114BERlS WITH oFFr-FaRM EMPLOYMfENT 13Y INDUSTRY AND EMPLOYMENT STATUS, 1970 DistributdbSe Distributed by Employment Status on Farm Main worker Helper Does not work Total Male Female on farm on farm on farm Total 11233,7U0 810,357 h23,383 280,756 It'9,453 533,531 Thnployed by others J154lS 669,153 327,001 2389 335,64~5 4361620 Puiblic adm. and education 69,156 54s,873 14~,283 4,685 21,620 )12)851 Commerce Itl 758 27,476 111,282 3,314 7,221 31,223 Caericil -work 12,179 7,920 It,259 766 2,206 9,207 Manual -6oor 29,579 19,556 10,023 2),548 5,015 22,016 Tndustry and mining 315,956 207,080 108,876 35,t412 70,776 209,738 Glerical work 8,996 6,980 2,016 5116 1,96[4 65)486 Mnallbr306,960 200,100 106,860 3,896 68,812 203,252 Agriculture, fishery, forestry 370,291 239,961 130,330 136,669 175,oio0 58,582 Clerical work 523 )183 Ito 86 136 301 Manual labor 369,768 239,478 130,290 136,583 174,904 58,281 Othper industries 198,993 139,763 59,230 43,779 60,988 91t,226 Clerical work 15,020 10,387 )t,(133 1,908 )4,089 9,023 Mainual1 labor 183,973 129,376 54,597 1,871 56,899 85',203 SPl1f-effp]Dyed (entrepreneur) 165,608 118,508 007,00 18,010 55,993 61,605 Commerce 102,h3 7,1 30,41i7 24,111 29,673 18,19 Tndustrxy and mining 11, 186 9,1185 1,701 2,281 3,089 5,816 Fishery and forestry 37,057 26,635 1031t22 1 I,1 09 16J614 5,964 Others 110932 10,7 h6o719,617 1,206 Hlome, hiandIlcrafts 71,978 22,696 19,282 8,857 27,815 35,306 (!ourc-e: The Roport of the 1970 Agricultural Census of Tai-Wan-IF`ukien Area, Republic of China. - L66 1/ (nearly the pre-war peak) in 1947 to over 73 thousand in the early 1970s. While sideline activities of family farm workers were concentrated in agri- culture, fishery, and forestry and other industries, it should nevertheless be noted that over 111 thousand family farm workers were also employed in industry and mining. Another 64 thousand were employed in commerce, most (54 thousand) of whom were entrepreneurs (self-employed). 13. Finally, two rather interesting characteristics of he relation- ship between the farm household and the rural non-farm sector need to be noted. The first is that a large number of farm household members had clerical jobs. Of the 996 thousand farm household members who were employed by others in off-farm jobs, 106 thousand held clerical jobs. Apparently, extensive rural education since the mid-1930s has made it possible for many of Taiwan's farm population to up-grade and diversify their skills. The second characteristic is that a surprising large share 2/ (O.5%) of those employed in full time off-farm jobs were women. One reason for the high participation rate of women is that three-quarters of the 35 thousand farm household members engaged in home handicrafts on a full time basis were women. But much more important is the fact that 42 1/ PBAF, Taiwan Agricultural Year-book, various issues. 2/ Women accounted for one-third of all farm household members with off- farm employment. of the 210 thousand farm household members employed full time in industry and minining were also women. Some of the fastest growing industries, e.g. textile, apparel, and electronics, in the 1960s were also those that employed a disproportionate high share of women workers. Apparently many of the recently emerged manufacturing establishments were located in rural areas to tap the large reserve of low cost women workers scattered in the countryside. 1L. Off-farm employment provides important additional income to Taiwan's farm households, and indeed whether or not off-farm employment is available has important welfare implications for the rural sector. Reflecting the trend in off-farm employment described earlier, off-farm income of farm households has grown steadily in importance in the post war years. From 1952 to 1972, the real income of an average farm household doubled, rising from NT$ 12,000 in 1952 to NT$ 25,646 (both in 1952 prices) 2/ in 1972. The rise was made possible partly by rising productivity in agriculture but also partly by a very rapid growth in off-farm income (from both non-agricultural and agricultural off-farm jobs). An average farm household earned 13% of its income from off-farm sources in 1952, 25% in 1962, and 3L% in 1972. Had the average farm household earned the same amount from off-farm sources in 1972 as it did in 1952, its total real income in 1972 would be NT$ 18,611, or 27% less than its actual real income in 1972. Table 15 shows that the share of income from off-farm sources increases as 1/ The ratio of male to female workers in Taiwan's manufacturing sector declined from 2.18 in 1961 to 1.13 in 1971 2/ Chieh-hsin Tseng, op.cit., Table 26. Table 15: FARM INCCME BT SOURCE AND SIZE OF CULTIVATED AREA, 1972 (percent of total) Income Income Total From From off- Income Farm Farm Sources Total 100% 67.01 32.99 Below 0.5 Chia 100% 53.27 46.73 o., .99 Chia 100% 65.34 3h.66 1.0-1.&9 Chia 100% 74.53 25.7 1.5o--1.99 Chia 100% 76.19 23.81 2.00- 2.99 Chia 100% 78.5 21.-5 3.00 Chia + 100% 86.53 13.47 Note: 1 Chia = .96993 hectare. Source: Chieh-hsin Tseng, The 1972 Taiwan Farm Income Survey, Table 30. farm size declines. Thus, the growing importance of off-farm income to farm households is closely related to the decline in the size of the average farm in Taiwan. 15. Table 16 presents the income of farm households by industrial origin and by income size. Upon examination, what strikes one immediately about the data is that they clearly show a decline in the share of income from agriculture (including fishery and forestry) as the farm household's income size rises. For example, farm households with income below NT$ 20,000 (US$ 50o) in 1966 earned 81% of their income from agriculture: while those with income above NT$ 100,000 (US$ 2,000) earned less than 73` of their income from agriculture. It seems, therefore, that one of the key factors determining whether or not a farm household is poor or well-off is whether or not it has access to sources of non-agricultural income. In part, access to non-agricultural income is determined by the endowmient (e.g., skills and capital) of the farm household. However, it is also clearly dependent on whether or not non-agricultural employ- ment opportunities are available in the countryside, i.e., whether indus- trialization is decentralized or confined only to the urban center. 16. Since the early 1960s, industrial growth in Taiwan not only has been rapid but, as indicated by the census data presented earlier, much of it has occurred in rural areas, away from the major cities. Conse- quently, non-agricultural employment opportunities have grown rapidly in rural Taiwan, and -an increasing number of farm households are taking advantage of these opportunities. From 1966 to 197L, the income originat- ing in agriculture as a share of the total income of farm households Table 16: INCOME OF FARM HOUSEHOLDS IN TAIWAN BY INDUSTRIAL ORIGIN, 1966, 1968, 197h (percent of total) 1971 1968 1 9 6 6 All farm Farm Household Income of house- Under N 20,000- NT,$ 30,000- I$ 50,000- Over hold NT$ 20,000 29,999 19,999 99,999 NT$ 100,000 Total 100% 100% 100% 100% 100% 100% 100% 100% Agriculture, forestry, fishery 67.52 72.81 76.90 81.16 80.95 76.00 72.89 72.76 Mining 0.14 0.34 0.91 0.59 1.1.8 1.03 0.69 0.00 Manufacturing 9.6, 5.63 3.3 2.82 2.85 4.16 3.51 3.18 Construction 2.33 1.76 0.85 1.03 0.33 1.59 0.31 0.98 Utilit ies o.1,6 0.30 0.06 0.00 0.21 0.00 0.05 0.00 T'ransport & communication 1.52 0.94 0.90 0.13 0.85 1.27 1.00 0.69 Trade 3.11 2.h 1.99 1.26 1.- 1.94 2.38 3.98 Bk., insurance, real estate 0.h3 0.02 0.26 0.00 0.00 0.18 0.80 0.00 Pub. adm. and defense ) ( 0.94 1.98 0.05 0.53 1.4o 3.96 5.36 ) 3.65 ( Other services ) ( 1.98 1.58 1.18 0.91 2.21 2.10 0.00 Unclassified 11.18 12.81 11.13 11.77 10.9 9.83 12.32 13.06 Notes and Sources: The 1974 data exclude farm households in Taipei Municipality. Since there are very few farm households within its boundary, the exclusion of Taipei in 19714 has negligible effect on the data. The underlying data are from the Report on the Survey of Family Income and Expenditure in Taiwan Republic of China, 1966, 1968 and 1971t. 0 - 51- declired from 77 to 68% (Table 16). The income from manufacturing, construc- tion, and trade accounted for 6% of the farm households income in 1966 but over 150 in 1974. 17. Increased employment oppor'tnities in non-agricultural activi- ties not only helped to raise the income earned by farm households but probably also had the laudable effect of moving the distribution of income among farm households in the direction toward greater equality. The distribution of personal income of farm households for 1966 and 1974 are shown in Figure 2 in the form of two Lorenz curves, and they show a significant shift toward greater equality from 1966 to 197L. Since off- farm employment is a major source of income for those farm households with insufficient land (the poorer farmers), the increase in rural non- agricultural employment opportunity in the 1960s undoubtedly made it possible for a greater number of them to earn income from non-farm sources and thus helped to i-rove their economic position absolutely- and relatively. 10 X 10 TO THE C~iNrIMEYER 46 1510 lu X 2~ 1..M IåAOL IN U,N A. K~UE1~L ~ ES53~R CO. ii'JE V jfl h JI ~ } 0~ i i, i I I dLl ,I i ~ 'III ~iI 1 til I I Ilik' ~ i 111 ~h I I .1 il ~ fl1 I I ~h 1~ i ~ il ~ I 'I ~I hIt 1111 il' I i il il IL u: ULL I i U 1011 V. THE RURAL NON-FARM SECTOR: SIZE OF ESTABLISHMT, TECHNOLOGY AND PRODUCTIVITY 1. Although there have been several industrial and conmercial censuses in the postwar period, none was published in sufficient detail that its data can be re-arranged according to the rural-urban classification used in Table 1. However, the data from two censuses (in 1961 and 1971) have been re-arranged to permit a comparison of the industrial establish- ments in Taiwan's five major cities (urban Taiwan) and those in its most important farm districts (rural Taiwan). The five major cities are Taipei, Keelung, Taichung, Kaohsiung, and Tainan. In 1970, about one- quarter of Taiwan's population and its labor force lived and worked in 1/ 2/ these cities. Farm Taiwan is composed of nine prefectures, and essen- tially covers all central and southern Taiwan except the three major cities (Taichung, Kaohsiung, and Tainan). It does, however, include some 3/ cities excluded from rural Taiwan as defined in Table 1._ In 1970, farm 1/ According to the 1970 sample population census, these five cities had a population of 3.8 million (26.2% of the total population in Taiwan) and an employment of 1.1 million (22.91 of the total). 2/ The nine are I{iaoli, Taichung, Changhwa, Nantou, Munlin, Chiayi, Tainan, Kaohsiung, and Pingtung. The northern prefectures, even though they in- clude important farm districts, are not included in farm Taiwan because urbanization and industrialization have proceeded so rapidly in this part of Taiwan that, in 1970, large sections of it can no longer be con- sidered rural. 3/ However, these smaller cities, unlike the five major cities, probably served and were closely tied to the rural areas, Taiwan contained nearly half of Taiwan s population and 53% of its employ- ment. In 1956, 72% of Farm Taiwan's employment was in agriculture. Thus, its employment structure is almost identical to that of rural Taiwan as defined in Table 1. ::t contains more than two-thirds of Taiwants farm land, 70% of its paddy fields, and produced, by value, 70% of its crops and livestocks. Specifically, in the post war period, farm Taiwan produced more than two-thirds of TaiwanIs rice, over 90% of its sugar canes, and nearly 80% of its sweet potatoes. Thus, even though farm Taiwan includes some communities not normally considered rural, the statistics cited above show that its basic features and its employment struc- ture are similar to those of rural areas. Consequently, we shall use the industrial and commercial statistics from the 9 central and southern pre- 2/ fectures to represent those for rural Taiwan. 2. Because rural population and raw materials are scattered, rural non-farm activities tend to be widely dispersed and take place usually in small family establishments. In Table 17, production establishments in rural Taiwan are classified by size (determined by both the number of workers employed and whether or not power is used) and by industry. In 1961, of the 2L,301 productJin establishments in farm Taiwan, 23,L52, or over 96%, were classified as small. Altogether, there were only 138 large (employed 100 or more workers and used power) rural establishments engaged in produc- tion, and these belonged primarily to four industries: food (55), textile (30), pulp and paper (16), and products of wood and bamboo (11). One L/ PDAF, Taiwan Agricultural Yearbook, various issues. 2/ Hereafter, farm Taiwan and rural Taiwan are used interchangeably to refer to these nine agricultural prefectures. Table 17: PRODUCTION ESTABLISHMENTS BY INDUSTRY, SIZE, AND LOCATION, 1961 To tal Small a/ Medium b/ Large c/ 5 Major Cities (Manufacturing) 1,378 13,407 834 17 Faxn Taiwan (Manufacturing) 2b,301 100% 23,162 100% 711 100% 138 100% Food 7,47h 30.8 7,313 31.2 106 14.9 55 39.9 Beverage 719 3.1 737 3.1 9 1.3 3 2.2 Tobacco hi 0.0 - - - 2.9 Textile 865 3.6 726 3.1 109 15.3 30 21.7 Apparel 1,956 8.0 1,97 8.3 8 1.1 1 0.7 Prod. of Wood, Stalk, Bamboo 1,528 6.3 1,h49 6.2 58 8.2 11 8.0 Furniture & Fixture 1,920 7.9 1,919 8.2 1 0.1 - - Paper, Pulp & Allied Products 385 1.6 3561 1.5 15 2.1 16 11.6 Printing, Bookbinding, etc. 261 1.1 2511 1.1 7 1.0 - - Leather & Leather Products 1211 0.5 123 0.5 1 0.1 - - Rubber Products 216 0.9 19 0.8 19 2.7 3 2.2 Chemical & Allied Products 625 2.6 585 2.5 38 5.3 2 1.h Petroleum & Coal Produots 143 0.6 110 0.6 2 0.3 1 0.7 Non-netallio Products 1,2llt 5.1 982 hs.2 256 36.o 6 1.3 Basic Hetal 28 0.1 18 0.1 8 1.1 2 1.h Metal Products 1,298 5.3 1,277 5.1 20 2.8 1 0.7 Machinery 587 2.Ij 571 2.1 16 2.3 - - Electrical Machinery & Supplies 533 2.2 523 2.2 9 1.3 1 0.7 Transport Equipment 3,027 12.5 3,012 12.8 13 1.8 2 1. Riscellaneous Manufacturing Industries 1,334 5.5 1,317 5.6 16 2.3 - - a/ Employed under 20 persons and used power or/& employed under hO person but used no power. b/ Employed between 20 and 100 persons and used power or/& employed over hO persons but used no power. c/ Employed 100 or more persons and used power. S General ieport 1961 Industry and Cormmerce Census of Taiwan. suspects the large establishments in food, pulp and paper, and products of wood and bamboo were located in rural areas to be close to their raw materials. However, since Taiwan imports its cotton, textile establishments were located in rural Taiwan probably to draw on its large pool of female workers. In 1961, with nearly 7,500 small establishments processing food in farm Taiwan, food also dominated the small-scale rural industries. Other important small-scale rural industries were transport equipment (3,012 establishments engaged in production), apparel (1,9[7), _urniture and fixtures (1,919), products of wood and bamboo (1,h9), and metal products (1,277). 3.- In 1961, establishments with 100 or more workers absorbed one- third of the rural manufacturing employment (Table 18). Of those employed by these large rural establishments, 70% were in the food and textile industries. Establishments with fewer than 10 workers employed 41% of the manufacturing workers in rural Taiwan but less than 30% in the cities. On the other hand, medium (those with 10 to 99 workers) and large establishments absorbed significant higher shares of employment in cities than in rural areas. Indeed, in 1961, were it not for the presence of food and textile industries in rural Taiwan, large rural establishments would not have been a factor in Taiwan's rural non-farm sector. From 1961 to 1971, a period of rapid industrial growth in Taiwan, there was a significant rise in the number of rural establishments with 100 or more Table 18: MANUFACTURING ESTABLTSHIMETS BY NUMBERS OF PERSONS EMPLOYED AND LOCATION, 1961 AND 1971 Total Less than 10 Persons 10-99 Persons 100 + Persons Est. Emp. Est. Emp. Est. hp. Est. Emlp. 5 Major Cities 1971 12,091 a/ 7,438 a/ 4,026 a/ 627 a/ 1961 14,5)O 151,360 12,)180 1t,61Ii 1 ,734 149,141 326 57,575 Farm Taiwan 1971 19,439 a/ 11,771 a/ 4,043 a/ 625 a/ 1961 21,3311 156,865 22,396 6,801 1,798 40,212 140 51,852 Food 7,1196 52,006 7,089 21,390 351 7,222 56 23,39h Textile 866 20,361 662 1,650 17 1,837 30 13,882 Production of Wood, Stalk, Bamboo 1,528 12,070 1,343 4,951 173 3,1b8 12 3,635 Paper, Pulp & Allied Products 387 7,173 334 1,636 38 1,039 15 4,098 Non-Metallic Products 1,2114 17,16 688 3,609 5h9 12,597 7 1,28 Others 12,813 07,801 12,280 31,565 513 11,033 20 5,195 a/ Data not available. Notes and Sources: 1971 data exclude many repair establishments included in the 1961 data. The 1961 data are from General Report 1961 Industry and Commerce Census of Taiwan, and the 1971 data are from The 1971 Industrial & Coaercial Censuses of Taiwan and Fukien Area, Republic of China. * 1/ workers, increasing from 140 to 625. Unfortunately, the 1971 census data do not permit a breakdown of these establishments by industry. L. It is interesting that, in both 1961 and 1971, the percentage of paid workers employed on a long term basis was significantlylower in 2/. rural Taiwan than in cities. In 1961, less than 60% of those worked in rural manufacturing establishments were paid workers employed on a permanent basis, while in cities it was over 761. In 1971, the shares were 71% for rural areas and 86% for cities. Apparently, a large number of rural workers worked only on a part time basis (reflecting the fact that some of them also worked on farms) or were unpaid family members. 5. The evidence from Taiwan strongly suggests that the rural non- farm sector is comparatively labor intensive, and is therefore an important source of employment. The most detailed data on the capital intensity of rural industries are those for manufacturing called from the 1961 industrial census. Table 19 presents two common measures of capital intensity, fixed asset per person employed and hp in operation per person employed, broken down by two-digit manufacturing industries and by the location of these industries in 1961. Surprisingly, at the aggregate level, both measure- ments of capital intensity suggest that in 1961 manufacturing was more 1/ The 1971 census data also reported a dramatic drop in small (those with fewer than 10 workers) establishments. This drop, however, is misleading since the 1971 data exclude repair establishments from the manufacturing sector, a practice not followed in 1961. If repair establishments were included, the number of small manufacturing establisments in Taiwan would have increased from 46,536 in 1961 to 49,070 in 1971. 2/ The underlying data on which this paragraph is based are from the 1961 and 1971 censuses of industry and commerce. Tab3e 19: CAPITAL INTENSITY OF MANUFACTURING ESTABLISIDENTS B INDUSTRY AND LOCATION, 1961 1p in eration per Fixed Asset per Person Employed Person Employed SMjor h"" 5 Ma or Farm Taiwan Cit es Taiwan Taiwan Citi es Taiwan (000 NT$/person (hp/person) Manufacturing (including food) h8.35 45.13 19.95 1.911 1.80 2.18 (excluding food) 41.81 h5.69 26.22 1.75 1.811 1.50 Food 7.75 39.28 97.80 2.67 1.33 3.55 Beverage 75.80 98.19 31.18 1.46 1.90 1.07 Tobacco Products 8h.19 103.15 18.211 0.53 0,1 0.77 Textile 111.18 70.19 33.9h 1.27 2.28 1.00 Apparel 1h.7 16.62 11.59 0.06 0.01 0.02 Prod. pf Wood, Stalk, Bamboo 31.91 41 .56 30.16 1 .5 1.28 1.63 Furniture & Fixture 11.10 18.95 11.62 0.07 0.10 0.05 Paper, Pulp & Allied Products 6h.14 32.1 70.54 5.17 2.91 5.07 Printing, Bookbinding, etc. 21.88 25.38 13.12 0.28 0.27 0.16 Leather & Leather Products 3.20 31.19 20.15 1 .01 0.59 0.112 Rubber Products 28.86 26.15 10.01 1.88 1.60 0.92 ' Chemical & Chemical Products 92.52 76.78 36.21 3.26 3.67 1.69 Petroleum & Coal Products 1011.01 93.85 29.51 5.16 8.59 0.h6 Non-metallic Products 38.69 61.19 13.75 2.21 3.71 0.96 Basic Metal 52.76 511.211 27.45 5.96 5.40 4.o19 Metal Product 25.6h 30.65 12.86 1.35 1.68 0.98 Machinery 21.42 2.70 17.6 1.00 1.33 0.51 Electrical Machinery & Supplies 26.15 2.60 11.-18 0.78 0.50 0.35 Transport Euipment 12.23 12.74 1.96 1.16 1.35 0.25 Miscellaneous Manufacturing Industries 25.hi 35.32 16.02 1.91 2.72 1.35 Souras Underlying data from General Report 1961 Industry and Commerce Census of Taiwan. - 60 - capital intensive in rural areas than in cities. However, in that year, food processing dominated rural manufacturing, and sugar refining, a very capital intensive process, dominated the food industry. When food is excluded from rural industry, a very different picture emerged. Fixed asset per person employed for manufacturing establishments (excluding food) in cities averaged NT$ h5.13 thousand per person but only 26.22 in rural areas. In effect, the exclusion of food reduced the average fixed asset person employed in Taiwan's rural manufacturing industry by one-half, from NT$ 49.9 thousand per person to 26.22. A similar large decline is observed in hp in operation per person employed. 6. When manufacturing is disaggregated by two-digit industries and the capital intensity of each is examined, only in two, food and paper and pulp, was the capital intensity higher in rural than in urban Taiwan. In both instances, the unexpected result was due to the presence in rural areas of a very small number of unusually large establishments (particularly sugar refiner&ies and pulp and paper mills), and the characteristics of 1/ these few large establishments overwhelmed those of the smaller ones. Except for these two explainable anomalies, in all other industries, the rural establishments were significantly less capital intensive than those in cities, in many cases the fixed asset per person employed in rural areas was half that in urban Taiwan. 7. The lower capital intensity of the rural non-farm sector reflects in part the fact that establishments in every industry are on 1/ For example, in 1961, 95% of the food process establishments in rural Taiwan employed fewer than 10 workers (Table 18). Table 2D: SIZE AND CAPITAL TNTENSITY OF EST4bLISHMENTS IN TINDUSTRIES WIT STRONG PRESENCE IN RURAL TAIWAN. 1961 AND 1971 1 9 6 1 1 9 7 1 Fixed Asset per Fixed Asset per Average Size Employed Person Up per Employed Person Average Size Employed Person IL per Employed Person Persons Relative to 000 NT$ Relative to lip per Relative to Persons Relative to 000 NT$ Relative to lip per Relative to per Est,j Mfg. Avaraqe per Person Mfg. Average Person Mfg. Average per Eat. Mfg. Average per Pernon Hfg. Average Person Mg. Average Rice buoking, cleaning 3.14 0.37 44.27 0.92 1.89 0.97 2.59 0.10 86.45 0.90 2.08 0.87 Canning 119.73 14.02 18.18 0.37 0.30 0.15 170.07 6.24 35.68 0.37 0.50 0.21 fiac. food manufacturing 4.23 0.49 23.94 0.50 0.99 0.51 6.85 0.25 76.39 0.79 1.52 0.64 Knitting milla 25.73 3.01 19.54 0.40 0.33 0.17 170.43 6.25 35.47 0.36 0.48 0.20 Wearing apparel 6.81 0.80 15.15 0.31 0.10 0.05 ( 82.05 3.01 33.57 0.35 0.35 0.15 Wearing apparul accesoriea ) ( 31.96 1.17 31.13 0.32 0.47 0.20 Tailoring 2.40 0.28 14.07 0.29 0.01 0.01 2.66 0.10 61.06 0.64 4f Prod. of wood and bamboo 6.54 0.77 23.83 0.49 1.00 0.52 13.35 0.49 31.11 0.32 0.89 0.37 Chemical fertilizer 751.00 87.94 239.09 4.94 0.32 0.16 167.45 6.14 431.91 4.49 15.50 6.49 Ag. Insecticide a/ s/ / a/ a/ a/ 27.55 1.01 95.28 0.99 1.91 0.80 Pottexy and related prod. 12.55 1.47 13.77 0.28 0.33 0.17 25.95 0.95 44.96 0.47 0.78 0.33 Stictucal clay prod. 18.79 2.20 17.65 0.37 0.69 0.36 22.32 0.82 38.21 0.40 1.35 0.56 Hand tools 3.68 0.43 14.53 0.30 0.36 0,19 a/ a/ a/ a/ / Agricultural implements and mach. 6.65 0.78 59.00 1.22 0.91 0.47 a/ a/ // a/ Repair of metal appliance (1icluding ag. tools and much.) a/ / / a/ a/a 2.63 0.10 46.42 0.48 a? / Mfg. and repait of motorcycle and bicycle b/ 2.18 0.26 15.55 0.32 0.88 0.45 2.31 0.08 55.15 0.57 / a/ Mfg. repair of alue. transportation equipmunt 4.57 0.54 14.80 0.31 0.47 0.24 a/ a/ / // a? 11ata not available, b/ In 1971, only the repair of motorcycle and bicycle. In 1961, relatively few motorcycles were manufactured in Taiwan, so that the statistics reflect primarily the repair of motorcycle and bicycle. Note and Souce: Relative to manufacturing average in the ratio of industry average to the average for the manufacturing sector as a whole. The underlying data for this table are from General eporLrt1961 Induotry and Commerce Cenaus of Taiwan and iie 1971 Industrial & Connercial Cenounes of Taiwan and Fukien Area, Republic of China. - 61 - the average smaller and less capital intensive in rural areas, but in part it is also a reflection of the fact that rural areas seem to attract labor intensive industries. From the more detailed employment data gathered by the population censuses, we identified a sizeable number of specific manufacturing industries that are commonly found in rural Taiwan. The average size and capital intensity of these industries for 1961 and 1971 are presented in Table 20. While in a-few of these industries, e.g., chemical fertilizer, the average establishment was larger and more capital intensive than the average manufacturing establishment, most how- ever were significantly smaller and more labor intensive. Even in the few industries, e.g., canning, knitting, pottery, and structural clay products, where establishments tend to be larger than average, the capital intensity was low, indeed substantially below the average for manufacturing as a whole. Moreover, from 1961 to 1971, though the capital intensity (as measured by hp/person or fixed asset/person) of these industries increased 1/ absolutely they remained quite labor intensive relative to manufacturing as a whole; indeed, in many instances they became relatively more labor intensive. 8. Table 21 compares the size, capital intensity, and productivity of rural and urban establishments. The data are for 1971. Rural establish- ments, on the average, were significantly smaller than urban establishments 1/ Since assets are not valued in constant prices, the increase in fixed assets per employed person is not very meaningful. - 62 - Table 21 to be inserted - 63 - in all the non-farm sectors. With rapid industrialization in the 1960s, the importance of food processing in general and sugar refining in particular had greatly diminished in rural Taiwan. Reflecting this change, in 1971, manufacturing, even when the food industry is included, was substantially less capital intensive in rural than in urban Taiwan. In sectors other-than manufacturing, rural establishments were also found to be generally less capital intensive. This is the case regardless which of the three measures of capital intensity (fixed asset/person, hp/person, or wage share) is used. The one exception was utilities. Because most of the electric generation was done in rural areas, hp/person was about 4 times higher in rural than in urban Taiwan. 9. Because of the higher capital-labor ratios in urban establish- ments, labor productivities for the non-agricultural industries were sub- stantially higher in urban than in rural Taiwan. On the other hand, the average output-capital ratios for the rural non-farm establishments do not differ greatly from their urban counterparts. Indeed, in some sectors, e.g., services and construction, it was substantially higher in rural areas. Apparently, in Taiwan, the rural non-farm sector used its capital as, if not more, efficiently as the urban industrial sector. 10. To summarize, rural non-farm activities in Taiwan are conducted primarily by small establishments using relatively labor intensive technology. The vast majority of these establishments are engaged in trade, manufacturing, and personal services and serve primarily the rural sector. The few large -6h - rural establishments that existed in 1961 were in the food processing and textile industries, and were probably attracted to rural Taiwan to be close to their raw materials and labor supply. By 1971, the number of large establishments had greatly increased. Although the 1971 industrial and commercial census does not permit a breakdown of the large rural establishments by industry, it is believed that, in 1971, many more of them were in industries other than food processing and textile. In other words, rapid industrialization had brought about a diversification in Taiwan's large scale rura7 industries. However, despite the presence of a greater number of large rural establishments in 1971, industrial and commercial activities in rural Taiwan were still conducted primarily by the relatively small establishments. 1/ One piece of indirect evidence is that rural manufacturing employment in industries such as chemical, metal product, and transport equipment grew much more rapidly than that in food processing and textile. -65 VI. GOVER'ENT POLICIES AND TIE DEVELOMEMT OF TEE RURAL NON-FARM SECTOR 1. Although Taiwan's rural non-farm sector developed largely by its own efforts, it did benefit indirectly from the favorable economic climate created by government policies. The industrialization strategy pursued by the Taiwan government has been discussed in great detail elsewhere. Suff,ice it to say that, like most developing countries, Taiwan began its postwar industrialization with an import substitution strategy, accompanied by its usual package of policies--exchange and import controls, low interest rates with credit rationing, and direct controls. For a while, the strategy appeared to be effective. But its positive effects were soon overwhelmed by other consequences, e.g. relative price distortions, excess capacity, and sluggish exports. Reacting to this, the government in 1958 began to 2/ slowly liberalize controls, a process that continued into the 1960s. At the same time the government encouraged industrial investment through 1/ For examele, see M.H. Bsing, J.H. Power, and G.P. Sicat, Taiwan and the Philippines Industrialization and Trade Policies (London: Oxford University Press, 1970), Ken C.Y. Lin, Industrialization in Taiwan 1946-72 (New York: Praeger, 1973), and Bela Balassa, "Industrial Policies in Taiwan and Korea," Weltwirtschaftliches Archiv, Band 195, Heft 1, 1971. 2/ One of the most significant developments in this period was the adoption, after protracted dialogue among policy-makers, of the 19-point economic reform program by the Executive Yuan in January 1960. This program committed the government to, among other things, encourage savings and investments, remove controls and hidden subsidies, strengthen tax administration, improve its budget system, develop money and capital markets, establish a unitary foreign exchange rate, liberalize trade control, and promote the development of trade. 66 - tax holidays and tax benefits and formulated policies to promote 2/ industrialization through export. 2. Although these new industrial policies were not formulated specifically to promote rural industry, they nevertheless indirectly facilitated the growth of the rural non-farm sector. The relaxation of control and the switch from an "inward-looking" to an "outward-loo1ingIt development strategy brought about a remarkable surge in export and industrial growth in the 1960s. From 1962 to the early 1970s, export volume increased at more than 25% per annum. BHelped by the export boom, industrial growth accelerated. From 1963 to 1973, mamifacturing production increased at an average rate of over 20% a year. This boom undoubtedly penetrated the countryside and stimulated the growth of rural industry. 1/ The most important of these are contained in the Statute for Encourage- ment of Investment promulgated in 1960 and amended in 196 and 1970. To entice more saving in the private sector and to influence the asset choice of individual savers toward holdings of debt instruments, the statute excludes from taxable income capital gains on securities held for more than one year and interests earned on fixed term savings deposits of more than two years. However, the main thrust of the statute is aimed not at individual savers but at industrial enter- prises. Among the important incentives given-to entepfises are: (1) a five-year income tax holiday to qualified newly established enterprises and enterprises that expanded capacity by 30%; (2) rein- vested profits, up to 25% of total income, are exempt from income tax, and (3) the exemption of customs duty on machineries and equipment imported by large enterprises in selected industries if the machine- ries are for use in an expansion plan approved by the government and not produced domestically. 2/ Numerous export incentives were introduced, mostly to redress the existing biases against exports. Among the more important reforms and new programs introduced are: (1) the multiple exchange rate system was eliminated and the NT$ devaluated, (2) a tax incentive that permitted the rebate of custom duties paid on raw material imports used in the manufacturing of handicraft exports, first introduced in the early 1950s, was expanded to all exports with the remission broadened to include, besides custom duties, commodity tax, defense surtax, harbor dues, salt tax, and slaughter tax, and (3) export processing zones were established. - 67 - 3, Most important, by reducing distortions in relative prices and by making industrialists more conscious of factor endowment, these government policies encouraged Taiwan to industrialize in a manner more consis- tent with its comparative advantage, i.e., along a labor-intensive expansion path. They also made it easier for Taiwanese goods to penetrate the world market. Indeed, export items that grew most rapidly in the 1960s, e.g., textile and apparel, electrical supplies,-metal products, and wood products were produced by some of Taiwan's most labor intensive industries. They were also among the fastest growing industries and the ones with the highest export shares. The emphasis on export and on labor intensive industries worked to the advantage of the rural sector, the major source of Taiwan's labor. Labor intensive industries, such as food canning, textile and apparel, and wood products, to be near sources of labor and raw mate- rial, have always been located in large numbers in rural areas. Government policies that made it easier and more profitable to export encouraged these industries to expand, and of course, much of the expansion took place in rural areas. It is interesting to note that from 1956 to 1966 two- thirds of the increase in manufacturing employment in textile, apparel, and 2/ wood products (including furniture) were absorbed by rural establishments.2 1/ In 1969, according to the CIECD input-output table, Taiwan exported 39% of its textile and apparel output, 50% of its wood products, 37` of its electrical supplies, and 25% of its metal and metal products. Together, textile, apparel, and wood products accounted for 38% of Taiwan's total export by value in 1968 and hL% in 1972. 2/ Based on the 1956 and 1966 population censuses. - 68 - Other labor-intensive industries, wishing to expand, undoubtedly also turned to the rural areas. The number of large (those with 100 or more workers) manufacturing establishments in the nine central and southern rural prefecturesincreased from 1LO in 1961 to 625 in 1971, and this growth owed much to the rapid expansion of Taiwants labor intensive and export-oriented manufacturing sector. L. The growth of the rural non-farm sector, in particular the growth in the number of large rural industrial establishments, probably would not have occurred so rapidly in the 1960s if rural Taiwan did not have the minimum infrastructure required to support industrialization. Rural electrification began early in Taiwan, and in the 1960s nearly every 1/ village had electricity. Because of the rugged mountain chain that runs from the northeastern corner of Taiwan to its southern tip, farms and rural population are concentrated in western Taiwan, an area with a particularly well developed transport system. For military and economic reasons, the colonial government constructed railroads with enthusiasm almost immediately after it assumed control of Taiwan at the end of the nineteenth century. By 1908, the two most important harbors, Keelung in the north and Kaonsiung in the south, were connected by rail, and this north-south trunk line runs directly through western Taiwan, where nearly all of Taiwan's rural popu- lation are located. Besides railways, considerable attention was also given to road construction. Thus, Taiwan enjoyed an adequate transportation 1/ Seventy percent of Taiwan's farm households had 6lectric light in 1960, and over 90% in 1970. - 69 - system throughout most of its modern period of economic transition. In the postwar period, Taiwan, an island that is 380 Ikn long and iO km wide at the broadest point, was served by about 3 thousand km of railroads, 1/ 2,600 km of highways, and over 13 thousand km of feeder roads. From our viewpoint, the importance of these statistics is that rural Taiwan, unlike rural areas in many LDCs, has been closely tied to the rest of the economy by a fairly efficient and low cost transport syste,i. In the colonial period, this transport system helped to commercialize Taiwan's agriculture, and in the 1960s, it facilitated the expansion and modernization of the rural non- farm sector. Certainly, large establishments are unlikely to emerge in rural areas if finished goods and raw materials cannot easily be transported to and from the market. 5. The tax and export incentives created to accelerate industrial growth in the late 190s and early 1960s had their greatest impact on the large and export oriented firms. The smaller (those that employed fewer than 50 workers) establishments seldom profited directly from these government measures. The one notable exception is the handicraft sector which received product development and marketing services from the govern- ment sponsored Taiwan Handicraft Productivity and Trade Center. The impor- tance of the small scale enterprise sector and the need to promote its develop- ment are beginning to be recognized. In 1966, the government established 1/ Prefectural and rural roads are considered feeder roads. In 1972, 7,700 Im of Taiwan's highways and feeder roads were paved. - 70 - the Small Business Comittee to provide financial and technical assistance on an experimental basis to enterprises that employed fewer than 100 workers or with assets below US$ 125 thousand and produce goods with favorable export possibilities. However, on the whole, small-scale enterprises that produce primarily for the domestic market, and the vast majority of rural industrial enterprises belong to this category, have received little attention from the government. 6. Because they helped to bring prosperity to rural Taiwan, government agricultural and land policies probably were more responsible for the growth of small-scale rural industry than its industrial policies. Between 19L9 and 1953, the government implemented a land reform program that brought about an extensive redistribution of rural wealth. The land reform placed a ceiling on rent, sold government land to tenants at below market prices, and 1/ redistributed private land with only partial compensation. In total, one-quarter of Taiwan's farmland changed hands, and the percent of farm households that owned no land declined from 401 before the land reform to 17/ in 1955. in brief, Taiwan's land reform substantially improved the ease and security of tenant's access to future income as well as increasing the size of that income. Although land was not distributed to them at zero cost, the reform did give tenants the opportunity to purchase 1/ For more information on the land reform, see Hui-sun Tang, Land Reform in Free China (Taipei: JCRR, 1954) and Cheng Chen, Land Reform in Taiwan (Taipei: China Pu'blishing Co., 1961). - 71 - land at low prices and very easy terms. Furthermore, the adoption of long-term written leases and rent control gave those tenants unable to purchase land a secure access to a source of income, which became more lucrative each year as land productivity increased. Therefore, the net effect of land reform was to significantly improve, both abso- lutely and relatively, the income position of the largest group of farmers, the tenant-cultivators. 7. Besides land reform, the government also made considerable efforts, particularly in the 1950s, to develop agriculture. This is not the place to discuss Taiwants agricultural policy. Suffice it to say that the government's efforts to develop agriculture fell into two broad categories: the repair and improvement of infrastructure created in the colonial period but destroyed by the war, and the introduction and supply of current inputs, new crops, and new techniques that are compatible with Taiwan's small and intensively worked farms. 8. With the help of these government efforts, Taiwan's crop production increased at an average annual rate of 11.7% from 19L6 to 1/ 1952 and 4..6% from 1953 to 1968. Rising output and productivity in- creased the income from farming, and land reform ensured a more equitable distribution of the growing agricultural income. In turn, egalitarian 1/ After 1968, the rate of growth in crop output declined, averaging only 0.3% a year from 1969 to 1973. Two factors contributed to the slow- down in the decline in crop area and the decline in farm labor input. In turn, both are related to the rapid rate of industrialization in Taiwan since the late 1960s. - 72 - growth in agriculture has stimulated the rural demand for goods and services, particularly non-farm goods and services, which an earlier section has shown to be highly demand elastics many of these goods and services demanded by farm households were produced or provided by small rural establishments. 9. In 1971, establishments that have operated for 5 years or less acccunted for more than one half of all industrial afid commercial establish- ments in rural Taiwan, and most were small family businesses. That so many family enterprises emerged in the recent boom suggests that entrepreneurship is not lacking in rural Taiwan. It is well known that family enterprise, because of its small size and simple organization, is relatively easy to manage, even by untrained entrepreneurs. On the whole, the family enterprise in Taiwan has been remarkably resilient and an excellent training ground for entrepreneurial, managerial, and technical skills. However, the small scale family business is not without its problems. A very high percentage of the business failures in Taiwan comes from these enterprises, and they usually find it extremely difficult to grow beyond their initial sizes and thus may become a bottleneck in industrial development. 1/ A 1965 survey reported that two-thirds of the firms that failed had initial capital less than USt 1,250, and 85% had initial capital less than US$ 12,500. See M.M. Meeng, "Some Aspects of Financing Small- and Medium-Sized Industries in Taiwan," Industry of Free China, Vol. 27, No. 5 (May 1967). - 73 - 10. Most family enterprises start on a shoe string, and the lack of self provided capital is one important contributory factor to the financial weakness that plagues most of them. Furthermore, because of the antiquated Chinese banking law and the generally conservative banking practices favored by bankers, Taiwan's banks are primarily interested in providing short-term (less than one year) loans even though a majority of the deposits in banks are fixed-term and saving deposits of long maturity. Consequently, the common practice in Taiwan is to finance long-term irvestments with short-term credits. This practice, of course, reduces the firm's liquidity, and a common complaint voiced by Taiwanese businessman is the lack of working capital. The problem is even more severe for small rural enterprises because banks, to avoid the high cost of processing small loans are reluctant to give them even short- term credits. Smaller firms are forced to seek credit in the more expen- 1/ sive and very imperfectly unorganized money market. The inability to obtain capital of course makes it more difficult for small rural enterprises to begin operation or to expand. 11. Surveys of small scale industries in Taiwan suggest that, besides 2/ the problem of credit, they share three other problems: lack of technical knowledge, lack of managerial skills, and limited specialization. Further- more, as the scale of operation increases, these problems become increasingly 1/ One common debt instrument used in the postdated checks. For an interesting discussion of this practice, see Robert C. Effros, "The Problem of Postdated Checks in the Republic of China," DMF Staff Papers, Vol. 18, No. 1 (March 1971). 2/ For example, see Metal Industries Development Centre, "A Report on Small Hardware industry in Taiwan," Industry of Free China, 7o1. 27, No, 2, (Feb. 1967). -7L: more serious; in other words, they are likely to hamper the expansion of small enterprises. The equipment in many small industrial enterprises is old, in poor condition, and often not best suited for the operation it performs. In many cases, a slight change or modification in the' equipment would substantially improve its productivity. However, for lack of know-how, the changes are usually not made. While the absence of modern managerial skills may not be important when the enterprise is small, it becomes a serious shortcoming when the enterprise grows in size in terms of employment and output. Once the enterprise employs, say, more than 40 workers, it becomes increasingly difficult to plan, organize, and control its operation without a system. Since most family enterprises are reluctant to give authority to non-family members who are better trained in managerial techniques, they often stagnate after a period of initial growth. The surveys also suggest that small enter- prises do not give marketing a high priority, and often produce a large variety of low quality products rather than specializing in a few well made ones. 3ubcontracting, which would permit greater specialization by small enterprises, is not as yet widely practiced in Taiwan. Poor quality is particularly harmful as it limits exports and often forces domestic consumers to turn to imports. 12. Government assistance to strengthen the small rural enterprises may pay off handsomely in terms of more equitable and perhaps also higher rates of industrial growth. However, given the large number and small size of rural establishments, direct assistance at the establishment level is likely to be impractical. But there are other ways to help small enterprises. For example, the governent can help adapt advanced f. technology and business practices to local conditions and disseminate the more useful and successful ones to small enterprises. The emphasis should be on product improvement, choice of production methods, processes and equipment, and managerial techniques, and research and development should be done with the small enterprise in mind. Methods used in agri- cultural extension might be employed in the dissemination of information and skills: e.g., demonstration of new techniques in-government operated or selected private establishments, the formation of small discussion groups to serve as a channel for information flow, and the creation of extension teams to serve each prefecture. Taiwan is fortunate in that it has had several decades of experience in rural extension, and existing institutions, once a rural industry section is added, can probably be used to do much of the extension work. 13. It might also be helpful for government to sponsor, and perhaps help finance, trade associations to perform vital functions for member enterprises such as market research, collective marketing of output, collective purchase of raw materials and equipment, and the training of personnel. In other words, these associations would perform some of the trading, procurement and other collective functions that small enterprises find difficult to do because of their size. 14. Finally, the government need to consider ways to ease the shortage of long-term credit that most small enterprises complain about. Modernizing the banking law and improving banking practices would help. -76- Currently, the Small Business Committee offers several kinds of financial assistance to small enterprises, from helping them to arrange 1/ bank loans to joining banks to provide credits to deserving enterprises. However, its operation is limited and not specifically directed towards rural industry. One suspects that in order to reach the rural non-farm sector other channels need to be 3xplored. Perhaps the rural credit cooperatives that have served agriculture so well in-the past can be expanded and used to provide long-term credits to the industrial and commercial enterprises in rural Taiwan. 1/ 0.C. Chao, "Scheme of Assistance to Small Industry," Industry of Free China, V. 26, No. . (October 1966).