As discussed in chapter 5, given that a large share of output or of the labor force is still in agriculture in many Asian countries, any development program will have to consider the situation in this sector. The traditional literature on structural change argues that the key to the development of agriculture is the transfer of resources, labor particularly, into industry and services. I have argued that insofar as the other sectors of the economy do not absorb fully the surplus labor in agriculture, conditions must be improved in the countryside to achieve full employment of the labor force. The transfer of labor to other sectors requires investment (to lift the capacity constraint discussed in chapter 2) for industrialization. The first issue (investment) is discussed here, while industrialization is discussed in detail in chapters 7, 8, 9, and 10.

Kalecki (1944) distinguished three ways to achieve and maintain full employment: (i) by government spending on public investment (e.g., schools, hospitals, highways) or on subsidies to mass consumption (e.g., family allowances, reduction of indirect taxation, subsidies to keep down the prices of necessities); (ii) by stimulating private investment (e.g., through a reduction in the rate of interest, lowering of income tax, or other measures assisting private investment); and (iii) by redistributing income from higher to lower income classes. Kalecki favored the first and third methods.

A dynamic economy requires increases in the growth rate of the capital stock (i.e., capital accumulation) in the form of, among others, investment in public transportation and in public utilities. These increases can be achieved in two ways. The first one is to increase the productivity with which capital is used.