There are different types of industries in Bangladesh, although the productivity growth that comes from industrialization depends on the growth of high-value-adding modern industries, most of the firms in the industrial sector in Bangladesh are small-scale or traditional cottage industries.
These are often firms in the informal sector, which means that these firms are too small to come under the regulatory structures of the state.
Types of Industries in Bangladesh
Cottage industry refers to family-based/owned small-sized production units with small amounts of a capital whose production process is based mostly on local raw materials, inherited artistic skills, and simple indigenous technology.
The large-scale industries that do have to register with government agencies are defined as enterprises that employ persons or more. The small-scale sector includes micro-scale informal sector firms involved in bamboo working, handloom weaving, and metalworking.
At the other and of the scale, the large-scale sector includes jute and textile mills employing several thousands of workers each, and garments industries that can employee several hundreds of workers each.
How do they differ in characteristics?
Productivity: employment and output
The large-scale industries account for only 15% of the total employment in the industrial sector but they produce 80% of the total value produced in the industrial sector. In contrast, the small-scale and cottage industries account for 85% of the total employment in the industrial sector but they only produce 20% of the total value of the output of this sector.
This shows the huge gap in productivity between the large-scale manufacturing sector and the rest. The large-scale and cottage industry the modern sector that uses imported machinery, while the small-scale and cottage industry sector uses very little modern sector that uses imported machinery, while the small-scale and cottage industry sector uses very little modern machinery or much older machinery with local adaptations.
The characteristic of the small-scale and cottage industry sector in that they are much more labor-intensive than the large-scale sector. This means that any amount of capital invested in the large-scale sector will generate far less employment than if the same investment had been made in the small-scale sector.
But at the same time, this investment will produce a lot less value in the small-scale or cottage industry sector than it would if it were invested in the large-scale sector.
Thus, the choice for a developing country is to choose between investing its scarce capital to employ more people at very low wages in the small-scale sector or produce more output by employing fewer people at much higher wages in the large-scale sector.
Wages and output
In the large-scale industrial sector not only are wages higher than in the small-scale sector the total output produced in also higher, so that the social output or gross domestic product (GDP) is higher.
Given that poverty is the most important problem in a poor country, it would appear that the most important priority is to increase the total output of the economy and to try to achieve an equitable distribution through redistributive mechanisms like taxation.
Trying to achieve an equitable distribution by supporting the small-scale or cottage industry sector is only likely to share poverty because although many more people will be employed, they will all be earning very little and the total output of the economy will be rather low.
The large-scale industry sector is also likely to be able to produce exportable products that can earn foreign exchange. This too is very desirable in poor countries because foreign exchange is essential to purchasing new technologies and machines that can further raise productivity in new sectors.
While the products of cottage industries can also be exported in the form of handicrafts, the likely foreign exchange earnings are much smaller because of the low-value products that are typically produced by cottage and handicraft industries.
Finally, large-scale industries are also likely to enjoy faster productivity growth compared to small-scale and cottage industries. Productivity is a measure of the output produced by each worker in that industry, and productivity growth measures the rate of growth of productivity over time.
Productivity grows because of continuous improvements in machinery through new investments, upgrading of machinery, and through new investments, upgrading of machinery, and thorough workers and management learning how to use existing machinery better.
In large-scale industries, the machinery is more sophisticated, to begin with, providing greater scope for improvements in productivity through learning. Moreover, profits in these industries are higher, allowing greater ongoing investments in machinery, and therefore greater ongoing improvements in productivity over time.
As a result, the large-scale industries are likely to enjoy higher productivity growth and not just higher productivity to start with. This is also very important for a growing economy because to make a significant dent in poverty over time, productivity growth has to be ensured.
If so, this provides yet another advantage to large-scale industries over small-scale ones. Since wages in any industry are linked directly to the productivity of workers, large-scale industries can also be expected to generate higher wages for workers initially, as well as higher rates of growth of wages over time compared to small-scale sector employs such large numbers of workers but adds relatively little value to the economy.
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