Employment, Technology and Construction Development

With Case Studies in Asia and China

Sivaguru Ganesan

• Publisher: Routledge
• Year: 2019
• ISBN:
  9781351736121
• Edition: 1
• Topic: Biowissenschaften
• Subtopic: Wissenschaft Allgemein

This title was first published in 2000: An in depth analysis of employment and technology issues in the housing and construction industries of developing countries, in the context of globalization of economies and increased opportunities for advanced technology transfer. Supported by case studies from Asia including the misallocation of resources that led to the Asian crisis of 1997 and the experience of Shanghai in advanced technology transfer. Ganesan advances a number of strategies to achieve higher employment creation, a proper mix of resources and sustained growth.

1 Construction and Employment: Theoretical Issues

1.1 Construction Planning and Macroeconomic Issues

The role of the construction sector needs to be conceived and expanded within the social, political and economic context of a country. For example, the value added by construction in the industrialised countries of North America and Western Europe has varied between 5% and 8% of the Gross Domestic Product (GDP) since 1945. This represents a gross construction expenditure of between 12% and 15% (Drewer, 1990, p.29). On the other hand, construction expenditure in absolute value is much lower in developing countries (DCs). The present analysis takes as its main issue the expansion of the construction sector¹, including housing, new employment creation and income redistribution, in the relevant national context. The construction sector (including the building materials industry) and other related sectors can play an important role, not only in the provision of shelter but also in national economic growth strategy. Furthermore, construction is labour intensive and serves as a vital entry point for preliminary training of labour for advanced industrial activities. Issues related to the use of appropriate technologies and possible strategies for construction development are introduced in this chapter.

Turin (1978) analysed the important role construction could play in the early industrialisation stage of developing countries. New construction output forms a significant share of capital formation in developing countries, typically lying between 45% and 65%. The housing component is about 45% of the output. Construction and its supporting activities make an important contribution to employment in any country. They gain importance as a capital input for development in almost every sector of the national economy, particularly in countries short of foreign exchange for the purchase of machinery and equipment. Indeed, if national output and employment targets are to be achieved, it will often be necessary for the construction sector to grow at a higher rate than the GDP. Even when economic growth is steady over many years, cyclical variations in construction output cannot be entirely avoided. These variations arise directly from differential rates of change in demand and supply for various construction goods, such as office buildings, luxury housing, etc. (Tse et al., 1998).

Large firms in the architecture, engineering and construction industries of all countries undertake strategic planning to obtain competitive advantage in construction. There are potential conflicts among clients, design and construction professionals, and planners, particularly those looking at strategic planning from a national perspective, in the areas of foreign design consultancy, construction plant imports, building materials choice, and labour content in construction. Such conflicts can only be resolved with concrete reference to sectoral goals for construction. Some governmental strategic planners have tried to use the construction industry as a tool for achieving economic development objectives, but their specific local constraints inhibited them. In Colombia, for instance, the construction industry was recognised as an engine of economic growth and rapid development during the 1970's, but this strategy failed because of the lack of supply from local industries, which resulted in higher prices and import bills (Freedman, 1990, p.59). In Sri Lanka, ambitious housing targets in 1977 led to a rise in prices and increases in imported materials, equipment and manpower. By 1980, the foreign exchange content in the cost of construction rose to between 50%-80% and the house-building programme had to be curtailed.

Construction in Developing Countries

Construction output depends on the nature and availability of resources at the disposal of the construction industry, and on the manner in which the industry makes use of these resources. Statistics on construction output normally include expenditure on electrical and mechanical installations, services, and maintenance. Some features appear to be common to the building industries of many developing countries:

• 1) A scarcity of foreign exchange for purchase of machinery, raw materials, etc.
• 2) An abundance of unskilled labour, available at low wages.
• 3) A shortage of certain types of specialised technical and management skills.
• 4) Low industrial productivity in both the building materials and construction industries.
• 5) The underdeveloped state of institutions in the construction sector.
• 6) Resource and management problems among the supporting industries, such as the building materials industry, the transport and distribution industries, and the engineering industries.

The lack of foreign exchange (FX) may act as a constraint on the growth of the industry, either because the technology adopted by the industry is too high in FX content or due to misallocation of available foreign resources. The shortage of FX is the principal constraint to long-term modernisation in countries with an adverse trade balance. However, final products can be designed from a wide choice of traditional and modern materials that could be produced by small-scale units, thus using less of a country's scarce capital and FX resources. A development strategy, if it is to succeed, has to be based on reducing the use of scarce resources and maximising the use of other resources that are available in abundance. In the early stages of development, it may be advantageous to conserve part of the FX available for use in the expansion of the strategic materials, transport, plant and tools industries, which supply crucial inputs to construction. Within the building sector itself, FX resources may have to be reserved either for strategic projects where substitution with local resources is impractical or for those activities that increase productivity and decrease building costs.

Another major threat to expansion of construction programmes in developing countries is construction cost escalation. In the private sector, escalating cost discourages thousands of potential self-help builders from erecting houses for low-income households. Cost escalation has disrupted many large public sector housing development programmes. It is not possible to succeed in large-scale urban and low income housing programmes without effective cost control. The need is, therefore, to adopt an appropriate technology that seeks the optimal use of the resources available and minimises cost.

Labour and Productivity

The relationship between productivity, labour utilisation and growth in construction is an important issue. There is a common belief that growth in labour productivity in construction has slowed. In the case of Hong Kong, the rate of increase in labour productivity is not slower than that of the economy (Chau and Lai, 1994, pp. 183-185), It is difficult to achieve mass production due to the one-off nature of the projects and because construction is spread over numerous locations. However, any concern over low productivity should not be confined to labour alone. Often the capital equipment installed in associated building material industries may be functioning at low capacity, resulting in low productivity of both labour and capital. It is not possible to sustain highly capital-intensive activities or higher labour productivity in the building materials industry (BMI) unless there is also reasonable growth in the construction industry, which absorbs these building materials. Furthermore, the construction sector in many developing countries faces the difficult option of expanding output at lower labour productivity due to a shortage of specific resources. Sen (1968) argued that expanding the capabilities of people should be regarded as a primary goal of a country's development. From this perspective, employment creation is a necessary objective of development planning. Most adults possess some creative capability within traditional systems of production and family-run business. The natural capability for people to be creative favours the developmental approach of transforming and modernising traditional industries, instead of totally transplanting a modern industrial base onto a community (Sen, 1968, p. 18).

The need for expansion of employment opportunities in DCs is paramount. Construction output serves as both capital goods, for expanding national production, and as consumption goods, satisfying the basic social needs of shelter, mobility and leisure (ILO, 1987, p.3). Low income, low investment and low levels of productive employment feed one another in the DCs. Unemployment and underemployment, typically accounting for up to a third of the labour force, is at the root of the worst deprivations in third world societies. Employment restores social status and dignity to an individual. France is today moving to reduce the working week to 35 hours, in the hope (much disputed by other countries) of finding work for hundreds of thousands of the unemployed. The need for employment creation in the DCs is even greater (Streeten, 1984). It can be argued that apart from agriculture and petty trades, new employment creation in traditional construction work is less resource absorbing. A wide variety of technologies are in operation in this sector, so that any new capital assets required are minimal. "Clearly a strong case may be made for giving a boost to construction activity in these countries, in order to create both employment and the additional facilities that are required [,]... if the economy is to grow, construction output will have to expand anyway..." (ILO, 1987, p.59).

Streeten (1981a) correctly pointed out: "models that have been evolved in different historical and physical settings cannot be directly transplanted into entirely different cultures, or can be transplanted only at a cost", and refers to mounting evidence of how combining traditional and modern features can lead to successful developments. He identified at least three pertinent factors. Firstly, the skewed income distribution, at relatively low levels of domestic wealth, denies the country an economic base suitable for rapid modernisation. Secondly, limited foreign resources have a crippling impact on the economy. Thirdly, the institutional capacity necessary for the implementation of measures to modernise must evolve through experience and practice (Streeten, 1981a). Streeten (1967) stated that growth models "must be realistic, relevant and useful". For a model to be useful, the results from its analysis should guide national planners to formulate policies with confidence. In Chapter 5, we have presented a development planning model for the construction sector. Our model focuses on maximising output, a condition easy to determine in a simulated production unit with definite physical boundaries but less so in the real world. A condition of maximising output will correspond to maximising domestic employment in countries with limited foreign resources for advanced technology transfer. A development-planning model will be subject to numerous supply side and demand side constraints. In practice, it is difficult to incorporate all constraints into the model. Thus, supply of buildable land and energy for building materials production, as well as national income related constraints, in particular housing affordability and state subsidies required for low income groups, are all critical issues not included in our model in Chapter 5.

What this incomplete model suggests is that the results obtained should be interpreted with caution. Every constraint left out will have the effect of compounding a particular finding, slowing it down or reversing it altogether. If fed into the same model, lower government subsidies will slow down increases in national housing and construction output; if we include energy used in the traditional systems of production, e.g. the manufacture of clay products, for example, this could potentially cripple growth unless alternate energy supplies or substitute-materials are found. In many DCs, cement uses a good deal of foreign resources even when produced locally: most DCs import at least part of their requirements. If these alternate products are cement-based, then the spectre of increasing demand for FX threatens growth, reducing with it the demand for local labour. However, the single most important result from our model in Chapter 5, that increased labour absorption is essential in the short-term to increase output, will remain unchallenged as the model is tested with new constraints. Whether this result is breached in the long-term or not is discussed in Chapter 5.

Implication for Productivity

What is the implication for productivity in a country choosing a technology that maximises output and employment? When growth of labour used in the construction process is higher than growth of output, average labour productivity will fall. This applies to both gross labour productivity (gross output per worker) and net labour productivity (net output or value added per worker). This model will remain in force only as long as labour intensive operations are economically viable, this being determined primarily by wage levels, the exchange rate, import taxes, and ultimately by trade balances and foreign reserves. It is likely that the growth in labour productivity in construction is lower than that of the overall economy during this stage. However, as construction and the economy expand at a rate higher than growth in the labour force, unemployment in the DCs will fall, reversing the above trend (Chau and Lai, 1994). The modernisation of the building materials industry can be realised only when the construction sector grows at a steady rate, which, in turn, will contribute to a rise in net construction output per worker. These issues are further discussed in Chapters 5 and 15.

A government has great influence on both the demand and supply side of the industry (World Bank, 1984, p.45). This means that construction's interaction with macro-economic factors is important. Of particular interest is the relationship between the overall construction industry and the wild swings one witnesses in investment in the private real estate sector. The latter could account for up to a third of construction expenditure, with the remainder divided almost equally between the non-speculative housing and nonresidential building sectors, and infrastructure investment. Investment into these two non-speculative sectors is dominated by the household sector and the public sector respectively. The World Bank (1984) suggests a counter cyclical credit policy, including suitable subsidies on interest rates, tax, depreciation and investment during periods of low demand for construction, as part of measures to stimulate construction. Targets for construction output and employment should also be integrated within macro-economic planning in the DCs.

1.2 Fundamental Issues in Appropriate Technology

Meaning of Construction Technology

A technology should be considered appropriate for construction if it represents that combination of resources, techniques and procedures most likely to satisfy the social and economic goals of the sector. It is the choice of technology that seeks optimal output and helps to achieve other sectoral goals. The determination of appropriate technology should take into account the following: (a) political, social and economic realities and objectives (Stewart, 1978), the processes of construction being as important as the products (Turin, 1967, pp.271-288); (b) The provision of a sustainable basis for significantly expanding production and services on a national scale; (c) The nature of the disaggregated construction sector, and the impact of each sub-market on the total sector, together with the linkages to labour, raw materials, transport, energy needs, etc. Both formal and informal sectors should be considered (Godfrey, 1986, p. 145); (d) Location, local development needs and the cultural orientation of the people as well as institutional and managerial capacity. Moreover, the determination of appropriate technologies in developing countries may involve the recompilation of innovative technologies from different sources (Chang et al., 1990, pp.49-50).

Steele (1997) discusses Agenda 21, the document of the proceedings of the 1992 Rio Earth Summit that focuses, as one of its ma...

Table of contents

• Cover
• Half Title
• Dedication
• Title
• Copyright
• Contents
• List of Figures
• List of Tables
• Preface
• About the Author
• Acknowledgements
• List of Abbreviations
• 1 Construction and Employment: Theoretical Issues
• 2 1997 Asian Crisis: Implications for Design and Construction
• 3 1997 Crisis: Two Lessons for Hong Kong SAR and China
• 4 Construction in Sri Lanka - A Case Study
• 5 Structure of Employment in Construction
• 6 Policies to Maximise Employment in Housing
• 7 Small Scale Building Material Industries
• 8 Role of Small Contractors in Asia
• 9 Building Materials Industry in Sri Lanka - A Case Study
• 10 Domestic Contractors in Sri Lanka - A Case Study
• 11 Manpower Training
• 12 Construction Sector: Research and Development
• 13 Ten Measures to Maximise Employment in Sri Lanka
• 14 Technology Transfer and Construction in Shanghai
• 15 Concluding Remarks
• Bibliography
• Appendix
• Index