A comparison of exogenous and endogenous approaches to rural development

Introduction

Exogenous approaches to development are characterised by increased profitability by accommodating external market demands. Consequences of this approach are a reduced labour force, therefore a depopulated local area. A reduction in the number of producers due to competition and a reduction of diversification as the remaining producers invest in single lines of production such as dairying or tillage.

Exogenous approaches can also involve industrial investment in rural areas drawing on a labour supply already created from the rural decline described above.

Endogenous approaches however involve a reversal of the above approaches drawing on the internal resources of an area in a sustainable manner for the benefits of the inhabitants of that area. Co-operative enterprises of various kinds are  more suited for this kind of development although conventional businesses of a small or medium type size are also relevant in such capacity building.

Background

Sustainable development has three main components, economic, social and environmental. The economic component ensures that financial benefits endure, the social component enables the existence of conditions to retain people in an area and the environmental component supports methods that do not damage the land.

Farming developed from subsistence farming to a stratified society where it passed through two further production methods of secondary to tertiary production. A disadvantage to farmers in this cycle resulted in a reduction of an increasingly reduced demand for farm produce in comparison to a rising demand for non-farming products.

Lecture Notes in Module 2 of the Diploma Course state;

“A key determinant of agricultural restructuring is technology. Machine technology has been supplemented by new biotechnologies in animal and plant production. Technology according to the NESC report, tends to be selective by scale, with those making the biggest investments in the level of mechanisation per farm tending to be on the larger farms. Direct costs on these larger farms, for such items as fertiliser and seed, were more than five times the average[i]

The uptake of new technologies means that costs are shifted from labour to capital with farms paying interest on loans for new technologies, rather than paying wages to farm workers”[ii]

 

 

Exogenous

There are two aspects of exogenous development in rural areas. The first relates to the rationalisation of farming under the earlier CAP measures as described in the quotation above. The second relates to the introduction of external industrial investment into rural areas initially intended to redress rural decline.

This second stage of production accompanied an exogenous approach to farming as described in both modules 1 and 26 in the lecture notes of this course as;

“The exogenous approach to development, the most dominant model of development, is an outward oriented, top down, centralised approach to decision-making and implementation, focussed primarily on aggregate production and numeric outputs of present economic growth. Professionals and experts are brought in to ascertain and take charge of the situation, and ‘blueprint’ rescue packages are often applied to remedy stagnation and decline. These packages tend to promote the infusion of external investment and capital and the process of industrialisation in order to stimulate economic growth and development through modernisation, job creation, profitability and the generation of wealth.”[iii].

The exogenous approach can lead to the withdrawal of such enterprises when difficulties arise, such as a decrease in profitability or competitive labour conditions elsewhere.

An example of the failure of the exogenous method can be found in Calhoun County, Alabama where in a place called Anniston , a chemical corporation called Monsanto produced a product with methods which released cancer causing agents into the local water table. In typical exogenous fashion the corporation provided considerable employment for local people.

 

Endogenous

Lecture Notes in this module describe the endogenous method as;

“…. Community based and community driven, focussing on the establishment of inclusive and democratic processes and systems that decentralise decision-making and implementation. It values indigenous knowledge and experience and relies on participation to find solutions to local needs from within the local community. Local resources are used as much as possible to meet locally determined objectives. As a result, local economic self reliance is encouraged by the promotion of locally owned and controlled systems of service and production that are supported by local authority policies and programmes that facilitate sustainable livelihoods through job creation and security”

Kaldor is credited with being one of the earlier proponents of endogenous theory;

“However, Nicholas Kaldor was really the first post-war theorist to consider endogenous technical change. In a series of papers, including a famous 1962 one with J.A. Miralees, Kaldor posited the existence of a “technical progress” function. That per capita income was indeed a function of per capita investment. Thus “learning” was regarded as a function of the rate of increase in investment. However, Kaldor held that productivity increases had a concave nature (i.e. increases in labour productivity diminish as the rate of investment increases). This proposition, of course, falls short of Solow’s investment on constant returns.”[iv]

 

Valquez-Barquero describes endogenous development as;

“It was in response to the loss of industrial and policy capacity of the industrialisation model, based on large firms located in large cities, that researchers of endogenous industrialisation put forward a new proposal, They demonstrated that industrialisation in late developed countries, such as those of Southern Europe (for example in the Terza, Italy, in the region of Valencia in Spain and in the Val do Ave in Portugal) was initiated and consolidated thanks to the development of local industrial systems. This historic approach to development is characterised by specific forms of organisation of production, integration of society and institutions into productive processes and response of the territory and its economic actors to the conditions of the new economic, political and institutional environment.

[Refers to industrial/urban context, but still relevant to this more rural focussed study] The production of manufacturing goods-generally industrial products, through the flexible organisation of production and the intense use of labour is a feature of endogenous industrialisation processes. Firms specialise in the production of parts of the productive components that are later assembled to make the final product. The labour force employed in the production process is flexible in the sense that it can perform various tasks and the labour supply can be adapted to the firms demand for labour through home-work and part-time and informal work,

Endogenous industrialisation is also characterised by the fact that integration of the productive system into the local society is achieved through the firms. On the one hand, firms find hey are destined to co-operate with each other because of the way in which specialisation in the local productive system evolved and the fact that their reduced sizes forces them to co-operate in order to maintain the economies of scale necessary to compete. Moreover, local traditions, values and codes, as well as family, social and cultural structure, are driving forces in the dynamics of the industrialisation process. They contribute human and financial resources, facilitate labour and social relations, and encourage the formal and informal exchange of goods and services and diffusion of information and knowledge throughout the network of  firms and local organisations.

Finally, endogenous industrialisation processes are deeply rooted in the territory. They spontaneously emerge in small and medium-sized cities [therefore rural] through the activity of local entrepreneurs. Over time, technical know-how accumulates and they form their own relational systems and consolidate cultural habits that generate economies that justify their survival. An economic and institutional milieu is thus created which provides local firms with resources, services and cooperation networks, all of which leads to improved competitiveness in national and international markets.”[v]

 

 

 

The inherent disadvantages of this method led to the collapse of farming and rural communities resulting in pressures in urban areas, which forced the search for other methods.

Endogenous development can be described as the utilisation of resources within a locality for the sustenance of its inhabitants.

Rural development thinking evolved in recent times through the various CAP measures, which sought to revitalise rural communities through the creation of endogenous measures, which revitalised local economies from within. The reversal of social exclusion, which contributed to rural poverty, was seen as a critical element in this trend. This was dealt with by capacity building, training and social employment measures through social enterprises. Infrastructure measures such as road building are another measure of capacity building necessary to kick-start a local economy

Examples of endogenous enterprises on the ground are where small producers jointly brand their produce. Many co-operatives started in this way and while these enterprises became victims of their own success in that they grew into the monsters they were originally set up to replace as they were forced to rational their resources to maintain growth in an increasingly competitive market, e.g GlanBia. This produced a new generation of small producers who took the form of farmers markets where farmers brought their produce to local areas where they sold directly to the public. The costs of such ventures which were not beset by the overheads of more conventional competitors resulted in increased profits for the producer and revitalised a social atmosphere in which was hitherto a fading memory in rural areas.

Official European Union support for such endogenous development is reflected in a speech delivered by the EU Food Commissioner David Byrne to a group of Small Food Producers in Maynooth in November 2003;

“…. the success of rural economies into the future will not depend on the success of Agriculture or farming on their own.

Greater wealth and consumer interest will fuel demand for all sorts of diversification in rural economies. To meet such demand we must ensure that rural communities are equipped to take advantage of the opportunities of the changing consumer led landscape.

Diversification within, and most significantly beyond, the agricultural sector will become essential for rural economies to compete. If rural economies cannot compete then they will lose out, decline and die.

Therefore policy going forward has to adapt to this new imperative.” [vi]

Examples of endogenous approaches to development are enterprises set up by Leader Companies, Co-operatives,

 

 

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[i] NESC (1992) Op.cit

[ii] Phelan,J. (1996). Module 2. Socio-Economic Aspects of Rural Development , NUI, Dublin.

iiO’Shaughnessy M. Mary Coll,(2005)Diploma in Rural Development, Introduction to Rural Development, Lecture Notes, Module 14,4.3, Cork, NUI, and Module 26, 1.4

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