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An analysis of industrial location factors with particular reference to Indonesia. Djwa, Peter Djing Kioe 1960

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AN ANALYSIS OF INDUSTRIAL LOCATION FACTORS WITH PARTICULAR REFERENCE TO INDONESIA by PETER DJING KIOE DJWA 33. A. SC., University of B r i t i s h Columbia, 1958 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION In the Faculty of Commerce and Business Administration We accept this thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA September, 1960 In presenting t h i s t h e s i s i n p a r t i a l f u l f i l m e n t of the requirements f o r an advanced degree at the U n i v e r s i t y of B r i t i s h Columbia, I agree that the L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r reference and study. I f u r t h e r agree that permission f o r extensive copying of t h i s t h e s i s f o r s c h o l a r l y purposes may be granted by the Head of my Department or by h i s r e p r e s e n t a t i v e s . I t i s understood that copying or p u b l i c a t i o n of t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l not be allowed without my w r i t t e n permission. P e t e r D j i n g K i o e Djwa Department of Commerce and Business A d m i n i s t r a t i o n The U n i v e r s i t y of B r i t i s h Columbia, Vancouver 8, Canada. Date September 28, 1960.  ABSTRACT The main purpose of t h i s t h e s i s was t o analyze i n d u s t r i a l l o c a t i o n f a c t o r s and t h e i r i n f l u e n c e on the i n d u s t r i a l development of a p a r t i c u l a r area. The f i r s t h a l f of the t h e s i s contained a review of the l i t e r a t u r e on the l o c a t i o n of i n d u s t r y f o l l o w e d by an a n a l y s i s of some of the b a s i c i n d u s t r i a l l o c a t i o n f a c t o r s which have been i n s t r u m e n t a l i n the l o c a t i o n and develop-ment of American i n d u s t r i e s . I n the second h a l f of the t h e s i s an attempt was made to r e l a t e these f i n d i n g s to the s i t u a t i o n i n Indonesia, and t o evaluate any c o r r e l a t i o n or d i s p a r i t y which may e x i s t . I t was found t h a t i n g e n e r a l the same i n d u s t r i a l l o c a t i o n f a c t o r s would apply i n both cases, but t h a t t h e i r r e l a t i v e importance would v a r y . This c o u l d be e x p l a i n e d p a r t l y by the d i f f e r e n c e i n the form of government of both c o u n t r i e s , and p a r t l y by the d i f f e r e n c e i n the stage of i n d u s t r i a l i z a t i o n . Other f a c t o r s such as the nature of the people was a l s o important. Indonesia's i n d u s t r i a l l o c a t i o n f a c t o r s were then considered w i t h respect to t h e i r p o t e n t i a l i t i e s to a i d i n the i n d u s t r i a l development. I t was found t h a t Indonesia's n a t u r a l r esources could p r o v i d e a b a s i s f o r t h i s development, but t h a t much would s t i l l be r e q u i r e d to tra n s f o r m them i n t o usable r e s o u r c e s . i i i Indonesia lacks many basic f a c i l i t i e s . It has l i t t l e technical and managerial s k i l l and meagre capital, a l l of which l i m i t industrial growth. This situation i s aggravated by the presence of some of the more fundamental economic problems, such as the problem of population, the problem of low income, and also the problem of low productivity. A solution to these problems must be found before Indonesia can begin to develop industrially. TABLE OF CONTENTS CHAPTER PAGE I. INTRODUCTION 1 Statement of the Problem 2 Importance of the Study 3 Scope of the Study 4 Plan of Thesis ?*> 4 I I . LOCATION THEORIES 6 Review of the Literature 6 II I . LOCATION FACTORS 19 Transportation .20 Raw Materials Source .....25 Markets 28 Labor 32 Wage Rates ........32 Productivity. .34 S k i l l 35 Turnover 36 Supply .36 Labor Laws 38 Fuel and Power 39 Taxation. 44 Capital 48 Management 51 Climate 53 V CHAPTER PAGE Attitudes 56 Government 57 Public 58 Labor 59 Interrelationships among Location Factors.... 60 The Changing Importance of Location Factors.. 61 IV. SOME EMPIRICAL STUDIES IN LOCATION 64 Frederic S. Hall 64 National E l e c t r i c Light Association 65 U. S. Department of Commerce 66 McLaughlin and Robock 67 National Industrial Conference Board 69 Business Executives* Research Committee University of Minnesota 70 Texas Engineering Experiment Station 71 John I. G r i f f i n 72 V. A SPECIAL REFERENCE TO INDONESIA 73 Topography 74 Climate 74 Population 76 The Economy 77 Structure 77 Employment Pattern 80 Income 81 Savings and Investment 83 v i CHAPTER PAGE Manufacturing .... 87 Development 87 Factors Affecting the location and Development of Industries 90 Raw Material Oriented Industries 91 Market-Oriented Industries 93 lab or- Oriented Industries 94 location Factors and Industrial Development 95 Energy Sources 97 Coal 97 Crude O i l and Natural Gas 98 Water Power 99 Outlook for Energy Sources Development.... 99 Raw Materials 101 RuDher 102 Tin 105 Bauxite 107 Manganese. 108 Nickel and Copper 108 Iron Ore 108 F e r t i l i z e r Materials ...110 Forest Products 111 Power 113 v i i CHAPTER PAGE Transportation 115 Roadways 116 Railways 117 Water Transport 118 Inland Waterways 118 Interisland and Ocean Shipping 119 Airways 120 Lahor 122 Supply 122 Wage Rates and Productivity 123 S k i l l 124 Lahor Organizations 124 Labor-Management Relations 125 Lahor Legislation 126 Entrepreneurship and Management 128 Markets 130 Capital 132 Problems and Prospects 133 Transportation 135 Raw Materials 135 Markets 136 Lahor 137 Power 137 Taxation 137 Capital and Entrepreneurship.. 138 v i i i CHAPTER PAGE Climate 139 Attitudes 140 Basic Economic Problems 140 The Population Problem 140 The "vicious c i r c l e " Problem 142 The Problem of Balanced Economy 143 The Problem of Capital Formation 144 VI. CONCLUSION 148 BIBLIOGRAPHY 151 APPENDIX A - CONWAY'S PLANT LOCATION FACTORS 160 APPENDIX B - STATISTICAL TABLES 164 i x LIST 03? FIGURES FIGURE PAGE 1. Republic of Indonesia 75 2 • Average Annual Rainfall » 78 3. Population Density 78 4. Indonesia—Petroleum and Mineral Exploitation 96 X LIST OF TABLES TABLE PAGE I. Number of Transmigrants.. 165 I I . Percentage of Value of Principal Export Products to Total Export Value 165 I I I . Rice Production and Imports, 1953-1958 166 IV. Gross National Product and Net National Income 166 V. Per Cent Fluctuations i n National Income 166 VI. Percentage Contribution of the Agricultural and non-Agricultural Sectors to National Income 167 VII. Number of Establishments and Number of Per-sons employed i n the Manufacturing Industry at the end of the year 1957 167 VIII. Mineral Production 168 IX. Petroleum and Earth Gas Production 168 X. Natural Resources of Selected Countries 169 XI. Rubber Production, 1935-1939 Average and 1948-1955 170 XII. Production and Exports of Tin 170 XIII. Production of Lumber, 1950-1958 171 XIV. Capacity and Output of Public E l e c t r i c Power Plants 171 x i TABLE PAGE XV. Power Development Projects 172 XVI • Number of Motor Vehicles 173 XVTI. Number of l o l l i n g Stock 173 XVIII. Minimum Daily Wages i n Various Industries i n Java 174 XIX. Number of Disputes and Employed Workers 174 XX. Work Stoppages and Lock-Outs 175 XXI. Technical, Managerial and Related Workers as Percentages of Total Economically Active Population 175 CHAPTER I INTRODUCTION Industrial growth i n the American continent i s taking place at an amazing rate. America has evolved methods of production and social organization creating a standard of l i v i n g which i s unsurpassed by any other nation in the world. S t i l l , the process of industrialization i s being continued at an ever growing pace. Daring recent years, i n particular, interest i n industrial development has been accelerated. This i s evidenced by the number of agencies which have emerged within the la s t few years to promote industrial develop-ment of their particular area. Much literature has been published with the purpose of attracting new indus-t r i e s into their regions. Prospective employers are increasingly becoming aware of the importance of industrial location factors for the survival of their new enterprises. Ideal plant location has now become extremely important. In striking contrast to development i n the American continent, the majority of people outside i t , especially those i n under-developed areas, are s t i l l l i v i n g on a meagre income. Industrialization has frequently been stressed as the key solution to this problem. Many Indonesians look upon industrialization as a 2 panacea; Yet, few of them r e a l i z e the problems i n v o l v e d and the c o n d i t i o n s which must be s a t i s f i e d before any i n d u s -t r i a l development can take p l a c e . There has been a wide-spread f e e l i n g among the people of Indonesia t h a t indepen-dence would a u t o m a t i c a l l y b r i n g p r o s p e r i t y . They f a i l t o comprehend t h a t the prospects f o r a b e t t e r f u t u r e can only be achieved by working harder and b e t t e r now. Many of them are s t i l l unaware t h a t p r o d u c t i v i t y must be i n c r e a s e d and c a p i t a l accumulated before any marked i n c r e a s e i n the standard of l i v i n g i s p o s s i b l e . I t i s the w r i t e r ' s o p i n i o n t h a t Indonesians, i n g e n e r a l , must l e a r n to depend more on i n d i v i d u a l e f f o r t s . B l i n d r e l i a n c e on the r i c h n e s s of the motherland i s not s u f f i c i e n t . Great emphasis i s too o f t e n p l a c e d on the mere presence of abundant untapped n a t u r a l r e s o u r c e s . A d m i t t e d l y they are important as the b a s i s f o r economic development, but they do not i n themselves ensure i n d u s t r i a l expansion. T h e i r c o n t r i b u t i o n to the development of the country depends not only on economic f e a s i b i l i t y , but a l s o on the n a t i o n ' s a b i l i t y to work. Statement of the Problem. The purpose of t h i s study i s to analyze i n d u s t r i a l l o c a t i o n f a c t o r s and t h e i r i n f l u e n c e on the i n d u s t r i a l development of a p a r t i c u l a r a rea. More s p e c i f i c a l l y , the o b j e c t i v e s of t h i s t h e s i s are: 3 ( 1 ) to analyze the i n d u s t r i a l l o c a t i o n f a c t o r s which have been i n s t r u m e n t a l i n the l o c a t i o n and development of American i n d u s t r i e s , v e r i f i e d by some e m p i r i c a l s t u d i e s done by o t h e r s , (2) to r e l a t e t h i s a n a l y s i s to the Indonesian scene and to d i s c o v e r any c o r r e l a t i o n or d i s p a r i t y which may e x i s t , (3) to analyze and evaluate those l o c a t i o n f a c t o r s i n Indonesia which may promote or l i m i t i n d u s t r i a l development. Importance of the Study. Since the establishment of a State P l a n n i n g Bureau i n Indonesia, an i n c r e a s i n g i n t e r e s t has been shown i n the i n d u s t r i a l development. The F i r s t F i v e Year Economic Development P l a n i s now i n p r o g r e s s . P l a n s f o r a second and perhaps a t h i r d f i v e year development are now being d r a f t e d . I t i s h i g h l y important t h a t the f o u n d a t i o n of these p l a n s should be drawn from a thorough knowledge and understanding of the resources of Indonesia. I n view of the complexity of the problems i n v o l v e d and the l a c k of accurate i n f o r m a t i o n as to Indonesia*a a c t u a l p o t e n t i a l i t i e s , a r e a l i s t i c a p p r a i s a l i s necessary, i n which trends and f i g u r e s are considered i n t r u e per-s p e c t i v e . I t i s the w r i t e r ' s hope t h a t t h i s study, which views the i n d u s t r i a l p o t e n t i a l i t i e s of Indonesia i n terms of i t s 4 location factors, w i l l contribute something to the existing knowledge on the subject. Scope of the Study. An exhaustive analysis of indus-t r i a l location factors would be impractical and unnecessary i n view of the purpose and the limited scope of this study. For this reason, only those industrial location factors which, i n the writer's opinion, are basic and pertinent, are included. There are two main reasons for discussing factors applicable to the American scene. F i r s t of a l l , American data can easily be obtained because of the a v a i l a b i l i t y of extensive literature on the subject. Secondly, i t i s the writer*s desire to discover any correlation or disparity which may exist between the impact of location factors on the industrial development of both the United States and Indonesia. The material for this study has been acquired from available l i t e r a t u r e . Many d i f f i c u l t i e s have been encoun-tered i n gathering data on Indonesia. Where figures are available, they are quite often of an approximate nature. This i s apparent throughout the study. Nevertheless, every effort has been made to keep data up-to-date. Plan of Thesis. This thesis i s divided into six chapters, including an introductory and a concluding chapter. 5 Chapter II contains a review of the literature on location theories. In Chapter III some of the basic location factors are discussed and their influence on the location of American industries analyzed. This chapter concludes with a section indicating the interrelationships which exist among indus-t r i a l location factors and a section showing the changing importance of these factors. Chapter IV contains some of the more important empiri-cal studies on location which have been made i n the United States since the beginning of this century. This i s done i n order to appraise the v a l i d i t y of some of the assumptions and hypotheses made by the earlier location theorists. Chapter V i s devoted entirely to Indonesia. It begins with a survey of the topography, population and economic structure, and the effects of the physical environment and other location factors on the location and development of manufacturing and industries i n Indonesia. The l a t t e r part of the chapter deals with the relationship between Indonesia's industrial location factors and i t s industrial development. Special attention i s given to the factors which may promote or l i m i t this development. In the f i n a l section of this chapter some of the basic economic problems are discussed. The findings of the study are summarized in Chapter VI. CHAPTER I I LOCATION THEORIES Many e a r l y economists have "been concerned w i t h the f a c t o r s which i n f l u e n c e i n d u s t r i a l l o c a t i o n p a t t e r n s . Yet, none of them has evolved a g e n e r a l l y acceptable l o c a t i o n theory which would harmonize w i t h the e x i s t i n g system of economic p r i n c i p l e s . Some economists have concerned them-s e l v e s w i t h l o c a t i o n f a c t o r s a p p l i c a b l e to every s i t u a t i o n , r e g a r d l e s s of economic system. Others have r e s t r i c t e d themselves to a n a l y z i n g f a c t o r s which determine i n d u s t r i a l l o c a t i o n i n a c a p i t a l i s t i c economy. Nev e r t h e l e s s , a l l the w r i t e r s have one t h i n g i n common. They reco g n i z e d the importance of some b a s i c f a c t o r s which a f f e c t the l o c a t i o n of i n d u s t r i e s , REVIEW OP THE LITERATURE One of the e a r l i e s t economists who d e a l t w i t h the problems of i n d u s t r i a l l o c a t i o n was Adam Smith. I n h i s famous "Wealth of N a t i o n s , " he suggests t h a t manufacturing might be i n t r o d u c e d i n t o a country i n one of the two f o l l o w i n g ways: F i r s t l y , i t might develop as an o f f s p r i n g of f o r e i g n t r a d e through i m i t a t i o n of f o r e i g n manufacturing. T h i s type of manufacturing would g e n e r a l l y l o c a t e i t s e l f i n c o a s t a l areas, and only i n r a r e cases i n an i n l a n d town. 7 Secondly, manufacturing might develop as the result of a surplus of production i n the inland regions. This surplus, which could not he exported because of the high transpor-tation cost over land and the lack of navigable rivers, would attract a great number of workers into the area. These workers expected to attain a higher standard of l i v i n g from the a v a i l a b i l i t y of cheap food. As more and more people began to settle i n the area, more and more land would be cultivated and the market would gradually expand. Fin a l l y , by improvements of the method of production the unit value of the product would be raised so that the surplus could eventually be exported. A manufacturing 1 centre i s thus established. Von Thunen was perhaps the f i r s t writer to make a valuable contribution to the location theory. As an agri-c u l t u r i s t he was more concerned with the location of agricultural production. His theory attempts to explain the type of crops that would be most advantageously grown on a particular plot of land. Von Thunen imagines his "Isolated State" as a uniform homogeneous plain with a city i n the centre of i t , supplying the surrounding areas with Adam Smith, An Inquiry into the Nature and Causes  of the Wealth of Nations, v o l . II, third edition, (london: 1 7 8 1 7 7 PP. 113-11'6^ 8 i t s manufactured goods. In exchange for these goods, the city receives foodstuffs and raw materials which are supplied hy farms located i n concentric circ l e s around i t . Those farms producing crops which are heavy or bulky i n relation to their value, and cannot thus be transported easily and profitably, would occupy the inner rings closest to the consuming market, while the outer rings would contain those farms producing crops with rel a t i v e l y low transporta-tion costs. Thus, von Thunen sees a definite pattern of agricultural location developing around the ci t y with type of crops determined by the cost of transportation from the 2 farm to the c i t y . In the isolated state, a l l land i s assumed of equal f e r t i l i t y . Furthermore, unit wage rate and interest on capital are also assumed to be constant and the cost of production i s the same everywhere. Those estates located i n the inner c i r c l e s of cultivation y i e l d a land rent by virtue of their r e l a t i v e l y advantageous position with respect to the central c i t y . Since a l l the crops of one type i s sold i n the cit y at one price, regardless where they come from, land rent would be less the farther the plot of land i s from the c i t y . 3 2 J. H. von Thunen, Der Isolierte Staat i n Beziehung  auf Landwirshaft und Nationalokonomie. as discussed by Melvin L. Greenhut, Plant Location i n Theory and Practise (Chapel H i l l : University of Carolina Press, 1956), pp. 254-255, and pp. 5-6, and Walter Isard, Location and Space  Economy (New York: John Wiley & Sons, Inc., 1956), p. 34. 3Arthur H. Leigh, "von Thunen*s Theory of 9 Von Thunen, i n effect, substitutes land cost for transportation cost u n t i l he obtains the least-cost com-bination and thus the best plant s i t e . ^ The f i r s t author to be concerned with the location of industries was G. Shaffie. He ascribes the greatest importance to natural conditions and to the distribution which make i t possible for the factories to be located away from the market. He contends that the large c i t i e s have an attractive force directly proportional to the square of their size and inversely proportional to the distance between them and the factories. Wilhelm Roscher states that industry has a certain h i s t o r i c a l point of gravity and that the forces of economic history are the natural laws which decide location. He mentions raw materials, labor, and capital as factors influencing location. Which of the three factors i s most determinant depends on i t s influence on the price of the product. For example, an abundance of raw materials i s of Distribution and the advent of Marginal Analysis, w Journal  of P o l i t i c a l Economy. 54: 481-502, December, 1946. ^Greenhut, jojj. c i t . . p. 8. 15 ^G. Pr. Shaffie, Bau und Leben des Socialen Korper. also Gesellshaftliches System der Menslichen Wirtshaft. as discussed by Witold Krzyzanowski, "Review of the Literature of the Location of Industries," Journal of P o l i t i c a l  Economy. 35, A p r i l , 1927, pp. 278-291. 10 g r e a t importance when there i s a great l o s s of weight d u r i n g the process of p r o d u c t i o n . Both Rosher and S h a f f l e were thus p r i m a r i l y con-cerned w i t h d i s c o v e r i n g whether or not there were any n a t u r a l laws or r e g u l a r i t i e s i n the e v o l v i n g l o c a t i o n a l s t r u c t u r e of economics. Edward Ross co n s i d e r s the presence of n a t u r a l d e p o s i t s as the most important f a c t o r i n f l u e n c i n g the l o c a t i o n of c e r t a i n e x t r a c t i v e i n d u s t r i e s . Nearness to sources of raw or a u x i l i a r y m a t e r i a l s i s of s p e c i a l impor-tance f o r those products which are bulky and heavy i n r e l a t i o n to t h e i r v a l u e , when the f i n i s h e d product c o n t a i n s o n l y a s m a l l p a r t of the m a t e r i a l employed, or when t r a n s -p o r t a t i o n cost i s excessive because of the mountainous 7 d i s t r i c t or i n l a n d r e g i o n l o c a t i o n . A l f r e d M a r s h a l l contends t h a t the c h i e f causes which have l e d to the l o c a t i o n of i n d u s t r i e s have been p h y s i c a l c o n d i t i o n s such as the c h a r a c t e r of the c l i m a t e , nature of the s o i l , e x i s t e n c e of mines, and a v a i l a b i l i t y of t r a n s -p o r t a t i o n . 8 Wilhelm Rosher, A n s i c h t e n der V o l k s w i r t s h a f t , as di s c u s s e d by Krzyzanowski, l o c . c i t . ^Edward A. Ross, "The L o c a t i o n of I n d u s t r i e s , " Q u a r t e r l y J o u r n a l of Economics, 10: 247-268, 1895-96. 8 A l f r e d M a r s h a l l , P r i n c i p l e s of Economics, f o u r t h e d i t i o n (London: M a c M i l l a n and Co., l i d . , I b ^ ) , p. 347. 11 He a l s o p o i n t s out the i m m o b i l i t y of the i n d u s t r i e s , "because of the growth of s u b s i d i a r y t r a d e s , the use of h i g h l y s p e c i a l i z e d machinery, and the a v a i l a b i l i t y of q s k i l l e d l a b o r . J The most comprehensive and perhaps the best work on the s u b j e c t of i n d u s t r i a l l o c a t i o n i s t h a t of A l f r e d Weber, 10 f i r s t p u b l i s h e d i n 1909. Weber's attempt to c o n s t r u c t a g e n e r a l theory of l o c a t i o n was g r e a t l y i n f l u e n c e d by the 11 w r i t i n g s of Rosher and S h a f f l e . Weber c l a s s i f i e s l o c a t i o n f a c t o r s i n t o g e n e r a l f a c t o r s , which must be considered f o r every i n d u s t r y , and s p e c i a l f a c t o r s , which are p a r t i c u l a r only to one i n d u s t r y or to a group of i n d u s t r i e s . These f a c t o r s are f u r t h e r c l a s s i f i e d i n t o : (1) r e g i o n a l f a c t o r s , such as t r a n s p o r t a -t i o n and l a b o r c o s t s which a t t r a c t i n d u s t r i e s t o d e f i n i t e r e g i o n s , and (2) agglomerative and deglomerative f o r c e s , which may cause c o n c e n t r a t i o n or d i s p e r s i o n of i n d u s t r i e s . I n d u s t r i e s may be brought together at c e r t a i n p o i n t s by f a c t o r s such as more economical use of machinery or merely ^ I b i d . , p. 350. 10 A l f r e d Weber, Uber den Standort der I n d u s t r i e n , Tubingen, 1909; E n g l i s h t r a n s l a t i o n by C a r l J . F r i e d r i c h , A l f r e d Weber's Theory of the L o c a t i o n of I n d u s t r i e s (Chicago: The U n i v e r s i t y of Chicago P r e s s , 1929). 11 I s a r d , o£. c i t . , p. 28. 12 advantage of being situated where a u x i l i a r y trades are opposing forces, which may cause expenses to increase. The net r e s u l t of these c o n f l i c t i n g f a c t o r s i s the 1 -J e f f e c t i v e agglomeration power. J Weber s i m p l i f i e s h i s theory by reducing h i s reg i o n a l f a c t o r s to only two: cost of transportation and cost of labor. Any p r i c e d i f f e r e n t i a l i n raw materials or power i s treated as a difference i n transportation costs. He then contends that, i f we assume that the basic network of i n d u s t r i a l o r i e n t a t i o n i s determined f i r s t l y by transportation costs, then differences i n labor costs w i l l form the f i r s t d i s t o r t i o n forces, which w i l l a l t e r the basic network. And any agglomerative power w i l l act as the second a l t e r i n g force, tending also to d i s t o r t the transportation network and s h i f t i n g i t to the "points of agglomeration." Weber then points out i n greater d e t a i l that as f a r as the transportation f a c t o r i s concerned, the process of determining l o c a t i o n i s a matter of deciding on a s i t e between the place of consumption and the place of raw material deposits. In t h i s connection he introduces the loca t e d . 12 However, every agglomeration may create 12 P r i e d r i c h , op_. c i t . , pp. 2 0 - 2 1 . 13 Ibid., p. 131 . H I b i d PP. 3 4 - 3 5 . * » 13 r a t h e r too simple r u l e t h a t " a l l i n d u s t r i e s whose m a t e r i a l index i s not g r e a t e r than one and whose l o c a t i o n a l weight, t h e r e f o r e , i s not g r e a t e r than two l i e at the p l a c e of 15 consumption." With r e s p e c t t o the l a b o r cost f a c t o r , Weber's c o n t e n t i o n i s t h a t i n d u s t r y w i l l move from the p o i n t of minimum t r a n s p o r t a t i o n c o s t s to a more f a v o r a b l e l o c a t i o n o n l y i f the expected savings i n the l a b o r cost are l a r g e r than the a d d i t i o n a l c o s t s of t r a n s p o r t a t i o n as a conse-16 quence of the moving. F i n a l l y , Weber's theory of agglomeration d e a l s w i t h l o c a l c o n c e n t r a t i o n of i n d u s t r i e s which a r i s e because p ro-17 d u c t i o n could be performed more economically. l a r g e s c a l e economies, d i v i s i o n of l a b o r , p r o x i m i t y of a u x i l i a r y t r a d e and s e r v i c e s , e t c . , are considered among these f a c t o r s . Andreas P r e d o h l s t a t e s t h a t the problem of l o c a t i o n can be conceived as the problem of combining p a r t i c u l a r groups of means of p r o d u c t i o n : l a n d , l a b o r , and c a p i t a l . He t h e r e f o r e suggests the p r i n c i p l e of s u b s t i t u t i o n . For example, changing a l o c a t i o n means s u b s t i t u t i n g u n i t s of I b i d . , p. 61. Weber's " m a t e r i a l index" i s d e f i n e d as the p r o p o r t i o n of the weight of used l o c a l i z e d m a t e r i a l to the weight of the product. " L o c a t i o n a l weight" i s the t o t a l weight per u n i t of product which has to be moved i n a l o c a t i o n a l f i g u r e . 1 6 I b i d . , p. 103. 1 7 I b i d . , p. 134. H use of l a n d f o r u n i t s of a l l other f a c t o r s of p r o d u c t i o n , or conversely. The r a t i o of these groups of f a c t o r s w i l l he determined hy the p o i n t of i n d i f f e r e n c e or p o i n t of lowest c o s t . However, a change of l o c a t i o n may a l s o mean a s u b s t i t u t i o n of c a p i t a l and l a b o r f o r means of t r a n s p o r -t a t i o n , or con v e r s e l y , the proper r a t i o again being d e t e r -mined by t h e i r p o i n t of lowest c o s t . Furthermore, i f the process of p r o d u c t i o n needs to have raw m a t e r i a l s t r a n s -p o r t e d to i t s l o c a t i o n , a s u b s t i t u t i o n of means of t r a n s -p o r t a t i o n f o r c a r r y i n g f i n i s h e d products f o r those c a r r y i n g raw m a t e r i a l s may take p l a c e . Thus, the l o c a t i o n of each process can be analyzed i n terms of a system of i n d i f f e r e n c e p o i n t s , each p a i r of interchangeable groups being s u b o r d i -18 nated to a l a r g e r group. One of the most outstanding American c o n t r i b u t o r s to l o c a t i o n t h e o r i e s i s Edgar Hoover, who combines Weber's theory w i t h the p a r t i a l e q u i l i b r i u m a n a l y s i s of the g e n e r a l economic theory. I n h i s work as a p p l i e d to the shoe and l e a t h e r i n d u s t r y , Hoover s t a t e s t h a t the theory of l o c a t i o n may take only three t h i n g s f o r granted: (1) d i s t r i b u t i o n of n a t u r a l r e sources, (2) d e s i r e s and t a s t e s of human beings, Andreas P r e d o h l , "The Theory of L o c a t i o n i n i t s r e l a t i o n to General Economics, 1' J o u r n a l of P o l i t i c a l  Economy, 36: 371-389, 1928. 15 and (3 ) economic techniques, i . e . , the ways i n which man i s a b l e t o combine the agents of p r o d u c t i o n so as to make n a t u r a l agents produce consumable u t i l i t i e s . He d i s t i n -g uishes between what he c a l l s q u a l i t y and l o c a l d i f f e r e n -t i a l s of agents of p r o d u c t i o n , meaning t h a t each agent of p r o d u c t i o n may vary l o c a l l y i n p r o d u c t i v i t y and i n p r i c e . I n the case of l a n d , there i s no tendency f o r both q u a l i t y and l o c a l d i f f e r e n t i a l s to be e l i m i n a t e d . I n the case of c a p i t a l , l a b o r , and management, however, co m p e t i t i o n w i l l tend to wipe o f f l o c a l d i f f e r e n t i a l s , thereby l e a v i n g only 19 those based on q u a l i t y . J Hoover's approach to the theory of l o c a t i o n as 20 expounded i n h i s " L o c a t i o n of Economic A c t i v i t y " i s b a s i c a l l y the same as Weber's, although he admits t h a t he has drawn much "enlightenment and i n s p i r a t i o n " from 21 the work of August Losch. Hoover c l a s s i f i e s the cost f a c t o r s i n t o two groups: (1 ) the t r a n s f e r c o s t s , which i n c l u d e procurement and d i s -22 t r i b u t i o n c o s t s , and (2) the p r o c e s s i n g c o s t s . 19 ^Edgar Hoover, J r . , L o c a t i o n Theory and the Shoe  and Leather I n d u s t r i e s (Cambridge: Harvard U n i v e r s i t y P r e s s , 1 9 3 7 ) , pp. 3 - 4 . '20 Edgar Hoover, The L o c a t i o n of Economic A c t i v i t y (New York: McG-raw H i l l Book Company,Tnc., 1946" ) . 2 1 I b i d . , p. v. 2 2 I b i d . , p. 8. 16 Hoover b e l i e v e s t h a t producers have an i n c e n t i v e t o l o c a t e as c l o s e as p o s s i b l e t o t h e i r s u p p l i e r s and 23 markets. However, int e r m e d i a t e p o i n t s have s p e c i a l t r a n s f e r advantages when they are transshipment p o i n t s and the p l a n t draws m a t e r i a l s from s e v e r a l sources or s e l l t o 24 s e v e r a l markets. Producers w i l l a l s o look f o r s i t e s where p r o c e s s i n g c o s t s are minimized. T h i s i m p l i e s t h a t the p r i c e s of the p r o d u c t i o n f a c t o r s w i l l determine the choice between 25 d i f f e r e n t l o c a t i o n s . Hoover's a n a l y s i s d i f f e r s from Weber's i n the sense t h a t he, u n l i k e Weber, consid e r s a l l p o s s i b l e l o c a t i n g f a c t o r s , and not o n l y the g e n e r a l ones which i n f l u e n c e every p l a n t l o c a t i o n , r e g a r d l e s s of economic system. August Losch contends t h a t " i n a f r e e economy, the c o r r e c t l o c a t i o n of the i n d i v i d u a l e n t e r p r i s e l i e s where the most p r o f i t i s g r e a t e s t . " He c r i t i c i z e s Weber f o r t a k i n g gross revenues as constant by assuming a g i v e n demand and p r i c e . I n r e a l i t y , demand not only v a r i e s w i t h p r i c e and the s i z e of the market but a l s o w i t h the chosen s i t e of p r o d u c t i o n . I n f a c t , says 2 3 I b i d . , p. 26. 2 4 I b i d . , p.46. 2 5 I b i d . , p. 69. p c August Losch, The Economics of L o c a t i o n , t r a n s l a t e d from the second r e v i s e d e d i t i o n by W i l l i a m H. Woglom w i t h the a s s i s t a n c e of Wolfgang P. S t o l p e r (New Haven: Y a l e U n i v e r s i t y P r e s s , 1954). The German t i t l e i s Die raumliche Ordnung der  W i r t s h a f t ; eine Untersuchung uber Standort, W i r t s h a f tsge'biete und i n t e r n a t i o n a l e n Handel (Jena: E i s n e r , 1943). See p. 27. 17 l o s c h , "the optimum l o c a t i o n would s h i f t w i t h each change 27 m p r i c e . " l o s c h r e c o g n i z e s the complexity of determining the p o i n t of maximum p r o f i t . He concludes t h a t the s o l u t i o n can only be obtained by means of t r i a l and e r r o r . I n other words, f o r every p r o s p e c t i v e l o c a t i o n one has t o determine the t o t a l a t t a i n a b l e demand w i t h the a i d of market a n a l y s i s and a l s o the optimum output through cost a n a l y s i s . Losch admits t h a t t h i s method does not exclude the p o s s i b i l i t y t h a t other p o i n t s , which are not considered, may y i e l d a h i g h e r p r o f i t . But at l e a s t , u n l i k e the e a r l i e r w r i t i n g s , h i s has a more r e a l i s t i c ground. Two of the l a t e s t w r i t e r s on i n d u s t r i a l l o c a t i o n are Walter I s a r d and M e l v i n Greenhut. I n h i s " L o c a t i o n and Space Economy," Walter I s a r d attempts to b r i n g the separate l o c a t i o n t h e o r i e s i n t o one 29 g e n e r a l d o c t r i n e . Recognizing the d e f i c i e n c i e s i n the t h e o r i e s as developed by Weber, P r e d o h l , and Losch, I s a r d came up w i t h a mathematical f o r m u l a t i o n of l o c a t i o n theory.^' Greenhut s t a t e s t h a t l o c a t i o n f a c t o r s can be c l a s s i -f i e d i n t o three broad groups: (1) demand, (2) c o s t , and (3) p u r e l y p e r s o n a l c o n s i d e r a t i o n s , each of which i s f u r t h e r 27 I b i d . , pp. 27-28. 28 I b i d . , p. 29. 29 I s a r d , 0£ . c i t . , p.23. 30 I b i d . , pp. 243-250. 18 d i v i d e d i n t o s e v e r a l subgroups. The f i r s t two determinants are i n f l u e n t i a l i n a l l s i t e s e l e c t i o n s , w h i l e the p e r s o n a l c o n s i d e r a t i o n s , which p a r t i a l l y determine the demand f o r goods or i t s cost of p r o d u c t i o n , apparently i n f l u e n c e many 31 s m a l l p l a n t l o c a t i o n s . There are, a c c o r d i n g to Greenhut, three p o s s i b l e choices to e x p l a i n a p l a n t l o c a t i o n : (1) a maximum-profit and maximum-satisfaction theory; (2) a maximum-profit theory which a t t a i n s g e n e r a l i t y by d e f i n i n g p s y c h i c income as a p a r t of maximum p r o f i t ; and (3) a gene r a l maximum-s a t i s f a c t i o n theory which makes e i t h e r maximum p r o f i t s or maximum pecuniary p l u s non-pecuniary r e t u r n s e q u i v a l e n t to 32 maximum s a t i s f a c t i o n s . Greenhut contends t h a t the g e n e r a l maximum-s a t i s f a c t i o n theory i s l o g i c a l l y more c o n s i s t e n t than the maximum-profit theory, as i t does not r e q u i r e c o n s i d e r a t i o n of non-pecuniary s a t i s f a c t i o n s as a s p e c i a l k i n d of monetary reward. However, he says, t h a t the g e n e r a l maximum-satisfac-t i o n theory i s l e s s u s e f u l than the ge n e r a l maximum-profit theory, because the assumption of economic man motivated by pecuniary r e t u r n s must be g i v e n u p . 3 3 J Greenhut, op_. c i t . , p. 279. I b i d . , p, 282, 3 3 I b i d . , p. 283. Says Greenhut: "Thus, w h i l e i t s b a s i c p o s t u l a t e s have g r e a t e r p u b l i c v a l i d i t y , a p o s s i b l e l o s s i n econometric type of r e s e a r c h p o s s i b i l i t i e s may overcompensate the a t t a i n -ment of g e n e r a l i t y . " CHAPTER I I I LOCATION FACTORS There are unquestionably numerous f a c t o r s which may i n f l u e n c e i n d u s t r i a l l o c a t i o n . McKlnley Conway, e d i t o r and p u b l i s h e r of I n d u s t r i a l Development, has pub-l i s h e d a c h e c k l i s t of as many as 700 p l a n t l o c a t i o n i f a c t o r s which may enter i n t o a p l a n t d e c i s i o n . Although i t i s b e l i e v e d t h a t t h i s i s by f a r the most e x t e n s i v e c h e c k l i s t y e t i s s u e d , t h e r e are perhaps many more f a c t o r s s t i l l unconsidered. However, i t would be i m p r a c t i c a l and unnecessary t o analyze each and every item on t h i s l i s t i n view of the purpose and l i m i t e d scope of t h i s study. For t h i s reason, only those i n d u s t r i a l l o c a t i o n f a c t o r s which, i n the w r i t e r ' s o p i n i o n , are b a s i c and p e r t i n e n t , w i l l be t r e a t e d i n t h i s chapter. These f a c t o r s have been con-s i d e r e d most important by the e a r l y l o c a t i o n t h e o r i s t s and have occurred most o f t e n i n e m p i r i c a l s t u d i e s . Some of these e m p i r i c a l s t u d i e s are i n c l u d e d i n Chapter IV. McKinley Conway, J r . , "700 P l a n t L o c a t i o n F a c t o r s , " I n d u s t r i a l Development, 4: 17-20, No. 11, October, 1957. See a l s o Appendix A. 20 TRANSPORTATION I t i s g e n e r a l l y recognized t h a t t r a n s p o r t a t i o n i s one of the most important c o n s i d e r a t i o n s i n determining p l a n t l o c a t i o n . Edward Lynch of the Uni t e d S t a t e s N a t i o n a l Resources P l a n n i n g Board s t a t e s t h a t i t s p e c u l i a r importance as a l o c a t i o n f a c t o r a r i s e s out of the f a c t t h a t l o c a t i o n i s a matter of s p a t i a l c o n s i d e r a t i o n and t r a n s p o r t a t i o n 2 c o s t s are the p r i c e f o r overcoming d i s t a n c e . I f i t i s assumed t h a t manufacturing cos t s and other c o s t s except those of t r a n s p o r t a t i o n are constant and thus the same a t any l o c a t i o n , the choice of l o c a t i o n i s d e t e r -mined by a s c e r t a i n i n g the s i t e w i t h the lowest cost of t r a n s p o r t a t i o n . Prom t h i s s t a n d p o i n t , an i n d u s t r y would then l o c a t e e i t h e r near the market or near the source of m a t e r i a l s or at a p o i n t somewhere i n between. The exact s i t e w i l l depend on the r e l a t i v e cost of t r a n s p o r t i n g raw m a t e r i a l s and f i n i s h e d goods. P r o c e s s i n g w i l l be done near the market i f i t c o s t s l e s s t o t r a n s p o r t the raw m a t e r i a l than the product, and near the source of m a t e r i a l i f the s i t u a t i o n i s r e v e r s e d . Here i t i s assumed t h a t t h e r e i s Edward S. Lynch, " T r a n s p o r t a t i o n , " I n d u s t r i a l  L o c a t i o n and N a t i o n a l Resources (Washington: U.S. N a t i o n a l Resources P l a n n i n g Board, U. S. Government P r i n t i n g O f f i c e , 1943), P. 186. 21 l i t t l e or no weight gain or loss to the product during the manufacturing process. However, when there i s considerable weight loss during the fabrication, such as i s the case with the manufacture of pulp from wood, the locational p u l l towards the source of material w i l l be greater. On the other hand, when a weight gaining process i s involved, such as the manufacture of beverages, the plant tends to be attracted toward the market. The problem of seeking the point of minimum cost of transportation i s not simple for an industry which uses several sources of raw materials and s e l l s i t s finished products to different markets, although the same principles as outlined previously apply. "To the extent that one material or one product involves greater cost of movement than others, i t s source or market w i l l have a correspon-dingly greater influence."^ In this case, however, com-petition among producers may be less direct and the 4 pressure on transport costs somewhat reduced. The problem i s further complicated by other factors. In the f i r s t place, transportation cost w i l l vary according to the medium used. Water transportation i s ordinarily cheaper than by r a i l . A i r transport rates are usually 3 I b i d . , p. 187. 4 ^Glenn E. McLaughlin and Stefan Robock, Why Industry  Moves South (Washington: N.P.A. of the South, 1^9) p. «5. 22 h i g h e s t o f a l l . W h i c h o f t h e m e d i a w i l l he u t i l i z e d d e p e n d s among o t h e r t h i n g s o n t h e s p e e d r e q u i r e d e i t h e r f o r t h e m a t e r i a l s t o r e a c h t h e p l a n t , o r f o r t h e f i n i s h e d p r o d u c t s t o r e a c h t h e i r p l a c e o f d e s t i n a t i o n , i n r e l a t i o n t o t h e c o s t o f t r a n s p o r t a t i o n . Where l a r g e q u a n t i t i e s o f l o w v a l u e m a t e r i a l s h a v e t o he moved a t l o w c o s t s , t h e a v a i l a b i l i t y o f w a t e r t r a n s -p o r t a t i o n may be a n i m p o r t a n t e l e m e n t i n p l a n t l o c a t i o n . The i m p o r t a n c e o f P i t t s b u r g h i n s t e e l m a k i n g i s a t t r i b u t e d l a r g e l y t o w a t e r w a y s . ^ R a i l l i n e s a r e a l s o i m p o r t a n t f o r t h e t r a n s p o r t a -t i o n o f o t h e r h e a v y m a t e r i a l s s u c h a s c o a l , o r e s , e t c . , w h i l e a i r l i n e s a r e h a n d l e r s o f h i g h - g r a d e c o m m o d i t i e s 7 a n d e x p e d i t e d s h i p m e n t s . I n some i n d u s t r i e s s p e e d y t r a n s p o r t a t i o n i s e s s e n t i a l i n o r d e r t o m i n i m i z e i n t e r e s t c h a r g e s on c a p i t a l t i e d up a n d a l s o o n s t o r a g e c o s t s . A s g o o d s i n t r a n s i t f r e q u e n t l y r e p r e s e n t a c o n s i d e r a b l e a b s o r p t i o n o f w o r k i n g c a p i t a l , i t i s c u s t o m a r y t o s e l l z i n c and e l e c t r o l y t i c c o p p e r a t d e l i v e r e d p r i c e s i n c l u d i n g t h e i n t e r e s t c h a r g e s 5 I b i d . , p . 90. M e l v i n G r e e n h u t , P l a n t L o c a t i o n i n T h e o r y a n d  P r a c t i s e ( C h a p e l H i l l s The U n i v e r s i t y o f N o r t h C a r o l i n a P r e s s , 1956) p . 1 1 0 . 7 M c . L a u g h l i n , op_. c i t . , p . 9 0 . 23 on the value of i t while i n transit. Transportation cost i s also dependent on the rate structure. Rates not only vary for different products, hut they also tend to decline as the distance of the haul increases. This makes the total transportation charges lower i f the plant i s located near the source or at the market than anywhere else, since the total cost of two short hauls i s greater than that of a single long haul. Thus, unless processing costs at some other point i s low enough to effect the difference i n transportation cost, manufacture w i l l tend to occur either near the market or q the source of material. 5 As rates are usually higher for finished products than for raw materials, there i s a tendency for manufacturing to 10 he located away from the source and close to the market. Because of the relative immobility of resources, changes i n freight rates do not usually have an immediate effect on industrial location, although i n some cas s i  may cut off some producers altogether. An increase i n transportation costs may, for example, be borne either by the producer, by his suppliers, his customers, or divided among a l l , without changing the location of manufacturing. But with time, changes i n freight rates, i n particular the 8. Lynch, OJD. ext., p. 187» Ibid., p. 188. 10 Ibid., p. 188. 11 Ibid p. 190. 24 d i f f e r e n c e i n r a t e between m a t e r i a l s and f i n i s h e d goods, and changes i n the form of s e r v i c e , may a l t e r the 12 g e o g r a p h i c a l p a t t e r n of i n d u s t r y . Summary T r a n s p o r t a t i o n i s an important determinant of p l a n t l o c a t i o n . T r a n s p o r t a t i o n c o s t s v a r y i n d i f f e r e n t l o c a t i o n s f o r d i f f e r e n t i n d u s t r i e s . The d e t e r m i n a t i o n of the p o i n t of minimum t r a n s p o r t a t i o n c o s t s , c e t e r i s p a r i b u s , i s com-p l i c a t e d by f a c t o r s such as r a t e s t r u c t u r e , m u l t i p l i c i t y of m a t e r i a l s used and markets served, e t c . T r a n s p o r t a t i o n i s c l e a r l y not the sol e determinant of p l a n t l o c a t i o n . P r o d u c t i o n c o s t s and other f a c t r o s , which are assumed constant to a r r i v e at the p o i n t of m i n i -mum t r a n s p o r t a t i o n c o s t s , are not u s u a l l y constant, nor are they the same f o r a l l l o c a t i o n s . Other f a c t o r s , such as w i l l be dis c u s s e d below, must t h e r e f o r e be considered before a d e f i n i t e l o c a t i o n can be a s c e r t a i n e d . RAW MATERIAL SOURCE H i s t o r i c a l l y the p r o x i m i t y to sources of raw m a t e r i a l s has g r e a t l y i n f l u e n c e d the l o c a t i o n of American i n d u s t r y . J Today, however, t e c h n o l o g i c a l advance which 12 McLaughlin, op. c i t . , p. 95. -'Leonard C. Yaseen, P l a n t L o c a t i o n (New York: American Research C o u n c i l , 1956), p. 29. 25 b r i n g s w i t h i t the p o s s i b i l i t y of u t i l i z i n g s y n t h e t i c m a t e r i a l s and r a p i d communication, has g r e a t l y reduced the importance of the source of raw m a t e r i a l s as a l o c a t i o n f a c t o r . Yet, there are c e r t a i n i n d u s t r i e s , mostly of the e x t r a c t i v e type, which s t i l l tend to be l o c a t e d near t h e i r m a t e r i a l sources. T h i s i s mainly because of the i m m o b i l i t y of the l a t t e r . T y p i c a l i n d u s t r i e s are mining, o i l r e f i n i n g , and ore s m e l t i n g . The raw m a t e r i a l , f o l l o w i n g e x t r a c t i o n , becomes mobile and has a l o c a t i n g e f f e c t p r o p o r t i o n a t e to the t r a n s f e r cost and the amount used i n p r o d u c t i o n . ^ I n other words, those i n d u s t r i e s which i n c u r a great r e d u c t i o n i n weight dur i n g the p r o c e s s i n g of i t s raw m a t e r i a l w i l l l o c a t e at or near the source of i t s raw m a t e r i a l . For example, pulp and paper, newsprint, and other paper manu-f a c t u r i n g i n d u s t r i e s tend to be l o c a t e d near the p l a c e where pulpwood i s a v a i l a b l e . Other i n d u s t r i e s u s i n g low-va l u e d , heavy and bulky raw m a t e r i a l s are a l s o l i k e l y to be l o c a t e d i n the p r o x i m i t y of t h e i r raw m a t e r i a l source. Among these are b r i c k manufacturing from common c l a y , the 15 g i n n i n g of c o t t o n , and the sawing of lumber. S i m i l a r l y , the e x t r a c t i o n of sugar from sugar beet i s c a r r i e d out near the f i e l d s because the beet cannot be t r a n s p o r t e d ^ S t e p h e n Helburn, " L o c a t i o n of I n d u s t r y , " J o u r n a l of Land and P u b l i c U t i l i t y Economics, 19: 253-263, August, 1 9 7 J . 15 J R u s s e l l Smith, Ogden P h i l l i p s , and Thomas Smith, I n d u s t r i a l and Commercial Geography, (New York: Henry H o l t and Company, 1955), f o u r t h e d i t i o n , p. 270. 26 16 e c o n o m i c a l l y . 17 McLaughlin and Robock mention p e r i s h a b i l i t y of the raw m a t e r i a l as another f a c t o r which causes c e r t a i n i n d u s t r i e s to l o c a t e near t h e i r raw m a t e r i a l source. Examples of these are the d a i r y and the meat packing i n d u s t r i e s . I n g e n e r a l , the sources of raw m a t e r i a l s have a d e f i n i t e l o c a t i o n a l a t t r a c t i o n f o r those i n d u s t r i e s which are predominantly raw m a t e r i a l u s e r s . The United S t a t e s Bureau of Census d e f i n e s raw m a t e r i a l consuming i n d u s t r i e s as those i n which the expenditures f o r raw m a t e r i a l s are 18 more than h a l f of the t o t a l . E s t a b l i s h m e n ts f a l l i n g under t h i s c l a s s i f i c a t i o n are l i k e l y to f e e l the p u l l toward raw m a t e r i a l sources. The U n i t e d S t a t e s N a t i o n a l Resources P l a n n i n g Board r e p o r t s t h a t f o r manufacturing i n d u s t r i e s the percentage of m a t e r i a l cost to the f i n i s h e d product v a l u e i n 1939 ranged from 3 1 . 5 to 7 7 . 1 per cent. Pood products, tobacco manu-f a c t u r e r s , petroleum products, nonferrous metals and t h e i r p r o d ucts, automobile and automobile equipment belong to those i n d u s t r i e s where the cost of m a t e r i a l i s h i g h l y P o l i t i c a l and Economic P l a n n i n g , Report on the L o c a t i o n of I n d u s t r y (London: PEP, 1 9 3 9 ) , p. 62. 17 'McLaughlin, op_. c i t . , p. 5 2 . 1 ft U. S. N a t i o n a l Resources P l a n n i n g Board, I n d u s t r i a l  L o c a t i o n and N a t i o n a l Resources (Government P r i n t i n g O f f i c e ) , P. 1 3 3 . 27 19 significant. J Thus, these industries tend to have their processing factories near the sources of raw materials. The locational influence of raw materials also depends on the mu l t i p l i c i t y of materials necessary i n the manufacturing process. A strong locational p u l l of a material i n any one area may he counteracted hy an equally strong p u l l of a second material i n another area. In general, the greater the combination of materials required, 20 the less i s the locational influence of any of them. This may result in more emphasis being given to locational factors other than raw material. When other locational factors, such as transportation or labor are considered together with raw material, i t i s the cost of the l a t t e r which demands a major consideration. In this cost i s included the cost to transport the raw material to the processing s i t e . To generalize, the locational influence of materials i s predominant only when the saving i n the cost of raw material due to such location exceeds the saving i n the cost of labor i f a labor orientation i s followed, or exceeds the savings in the transportation cost for the 21 finished product i n case of a market orientation. 1 9 I b i d . , p. 129. 2 0 I b i d . , p. 136. 21 Hermann Schumaker, "location of Industry," Encyclopaedia of the Social Sciences, IS, 585-593 (New York: The MacMillan Company, 1933). 28 Summary Raw m a t e r i a l s source i s d e c l i n i n g i n i t s importance as a l o c a t i o n f a c t o r . I t i s , however, s t i l l the most important c o n s i d e r a -t i o n f o r i n d u s t r i e s of the e x t r a c t i v e type, f o r those p r o -c e s s i n g p e r i s h a b l e m a t e r i a l s , and f o r those i n which the cost of m a t e r i a l s i s a s i g n i f i c a n t p a r t of the t o t a l v a l u e of the product. MARKETS Markets have always been an important f a c t o r i n f l u e n -c i n g the l o c a t i o n of i n d u s t r y . I n f a c t , t h e i r r e l a t i v e importance as a l o c a t i o n f a c t o r has g r e a t l y i n c r e a s e d d u r i n g r e c e n t years owing to the change i n the c h a r a c t e r of i n d u s t r y as a whole and the present n e c e s s i t y of speedy and r e g u l a r 22 d e l i v e r y of goods. Whereas a c t i v i t i e s t i e d to the l o c a t i o n of raw m a t e r i a l s are waning i n r e l a t i v e importance, those c a r r i e d on near the markets are s u r g i n g upward. This i s i n d i c a t e d by a f a l l of employment i n r a w - m a t e r i a l - o r i e n t e d a c t i v i t i e s , and a r a p i d i n c r e a s e i n employment i n the secondary and 2^ t e r t i a r y a c t i v i t i e s . 22 P o l i t i c a l and Economic P l a n n i n g , Report on the L o c a t i o n of I n d u s t r y (London: P o l i t i c a l and Economic Planning,"1939)7?. 72. 23chauncy H a r r i s , "The Market as a F a c t o r i n the L o c a t i o n of I n d u s t r y i n the U n i t e d S t a t e s , " A p p r a i s a l J o u r n a l , January 1956, pp. 57-86. 2 9 Although i r o n and s t e e l i n d u s t r y i s a r a w - m a t e r i a l -p r o c e s s i n g i n d u s t r y , i t has now become more and more market o r i e n t e d . The P a i r l e s s S t e e l Works on the Delaware R i v e r i n New York S t a t e , f o r example, i s l o c a t e d there because of the low cost of water t r a n s p o r t a t i o n and the nearness of 24 the markets. Markets are comprised of u l t i m a t e consumers, indu s -t r i a l consumers, and other o r g a n i z a t i o n s which handle the commodities f o r f u r t h e r d i s t r i b u t i o n . McLaughlin and Robock g i v e th r e e e x p l a n a t i o n s as t o why an i n d u s t r y would want to l o c a t e near the market: ( 1 ) t o minimize t r a n s p o r t c o s t s , (2) t o secure an i n c r e a s e d share i n the b u s i n e s s , and ( 3 ) because the f i n i s h e d products are p e r i s h a b l e . An example of l o c a t i n g near the market to minimize t r a n s p o r t c o s t s i s the l o c a t i o n of a du Pont s u l p h u r i c a c i d p l a n t at Richmond, V i r g i n i a , which i s mainly to p r o v i d e the company w i t h s u l p h u r i c a c i d , the manufacture 25 of which i n v o l v e s a "weight-gaining , ! p r o c e s s . The m i n i m i z i n g of t r a n s p o r t cost i s e s p e c i a l l y c r i t i c a l f o r those i n d u s t r i e s i n which t r a n s p o r t a t i o n charges form a l a r g e percentage of the s e l l i n g p r i c e of the f i n i s h e d product when i t i s t r a n s p o r t e d over a g r e a t d i s t a n c e , such as the cement i n d u s t r y , f o r example. I n d u s t r i e s where ^ I b i d . See a l s o Walter I s a r d , "The Future L o c a t i o n a l P a t t e r n of I r o n and S t e e l P r o d u c t i o n i n the United S t a t e s , " J o u r n a l of P o l i t i c a l Economy, L V I I , A p r i l 1 9 4 9 , pp. 1 1 8 - 1 3 3 . 25 ^McLaughlin, op_. c i t . , p. 3 2 . 3 0 the f i n i s h e d product i s b u l k i e r than the raw m a t e r i a l s a l s o tend to be market-oriented, among these are the manufacture of a g r i c u l t u r a l machinery, p r i n t i n g p r e sses, and l a r g e machine t o o l s . I n order to secure an i n c r e a s e d share i n the business, speedy d e l i v e r y and c l o s e contact w i t h customers are o f t e n e s s e n t i a l . Belonging t o t h i s category are i n d u s t r i e s such 27 as photoengraving, newspaper p u b l i c a t i o n , and a l s o v a r i o u s s e r v i c e and r e p a i r i n d u s t r i e s where customers s p e c i f i c a t i o n s pO must be s a t i s f i e d . M a r k e t - o r i e n t e d i n d u s t r i e s , such as i c e , i c e cream, and beverage i n d u s t r i e s , belong t o those where the p e r i s h -a b i l i t y of the f i n i s h e d product i s of major importance i n pq d e c i d i n g on a l o c a t i o n . The market under c o n s i d e r a t i o n may be l o c a l i z e d to a c e r t a i n extent or spread over a l a r g e area. I n other words, i t may be l o c a l , r e g i o n a l , n a t i o n a l , or even i n t e r -n a t i o n a l i n s c o p e . I n the l a s t three cases a compromise s o l u t i o n to the l o c a t i o n problem may have to be taken. For example, i f the f i n i s h e d goods are s o l d a l l over the country, 2 6 S m i t h , op_. c i t . , p. 269. ^ N a t i o n a l Resources P l a n n i n g Board, o p . c i t . , p. 220. 28 Smith, l o c . c i t . ^ N a t i o n a l Resources P l a n n i n g Board, l o c . c i t . ^°McLaughlin, op_. c i t . , p. 3 1 . 31 i t would not be p o s s i b l e to l o c a t e the p l a n t near a l l i t s markets. Two ways are open. The p l a n t could e i t h e r be l o c a t e d at a p o i n t where the t r a n s p o r t c o s t s f o r i t s p a r t i -c u l a r group of markets are minimized, or i t could go to the p l a c e where the major market i s s i t u a t e d . I n both cases, however, something i s s a c r i f i c e d . I n the f i r s t case, i t might l o s e the ready access f o r s e r v i c e f o r the customers, whereas i n the second case the t r a n s p o r t a t i o n charges are 1^ l i k e l y t o be h i g h e r . Summary The r e l a t i v e importance of markets as a l o c a t i o n f a c t o r has i n c r e a s e d at the cost of the raw m a t e r i a l f a c t o r . The f a c t o r "markets" i s e s p e c i a l l y of prime importance i n a l o c a t i o n d e c i s i o n f o r those i n d u s t r i e s i n which there i s a c o n s i d e r a b l e g a i n of weight d u r i n g the process, f o r those where speedy d e l i v e r y and c l o s e contact w i t h customers i s r e q u i r e d , and f o r those where the f i n i s h e d goods are p e r i s h a b l e . Where f i n i s h e d goods are s o l d t o s e v e r a l markets, a l o c a t i o n near a l l the markets, however d e s i r a b l e , i s t e c h n i -c a l l y not f e a s i b l e . I n t h i s case the entrepreneur would have to be s a t i s f i e d w i t h a compromise s o l u t i o n . P o l i t i c a l and Economic P l a n n i n g , op_. c i t . , p. 73. 32 LABOR Leonard Yaseen, a P l a n t L o c a t i o n expert, contends t h a t the s e l e c t i o n of a general geographic area f o r the l o c a t i o n of a p l a n t i s based on raw m a t e r i a l c o s t s , market a c c e s s i b i l i t y , and economic c o n s i d e r a t i o n s . And t h a t i t i s the l a b o r f a c t o r which i n the f i n a l stage determines the p a r t i c u l a r community. McLaughlin and Robock di s c o v e r e d from t h e i r study t h a t as a l o c a t i o n f a c t o r l a b o r was l e s s important than markets and raw m a t e r i a l s . 3 3 The i n f l u e n c e of l a b o r on i n d u s t r i a l l o c a t i o n may be considered i n terms of ( 1 ) wage r a t e s , (2) p r o d u c t i v i t y , (3) s k i l l , (4) t u r n o v e r , (5) supply, and (6) l a b o r l a w s . ^ Wage Rates There appears to be geographic d i f f e r e n c e s i n wage r a t e s of workers doing the same t a s k . Yaseen s t a t e s t h a t i n the Uni t e d S t a t e s wide v a r i a t i o n s e x i s t i n wage l e v e l between l a r g e c i t i e s and email communities, and t h a t h i g h e s t wages are p a i d on the P a c i f i c Coast. The Un i t e d 32 Yaseen, op. c i t . , p. 50. 'McLaughlin, op_. c i t . , p. 67. "See Greenhut, op_. c i t . , p. 1 2 9 . Yaseen, op_. c i t . , p. 65. 33 34 35 33 S t a t e s N a t i o n a l Resources P l a n n i n g Board suggests t h a t these d i f f e r e n c e s are a r e f l e c t i o n of d i f f e r e n c e s i n cost of l i v i n g , i n other non-monetary advantages, or d i f f e r e n c e s i n b a r g a i n i n g power, each of which i s o f t e n s u f f i c i e n t to r e s t r i c t the m o b i l i t y of l a b o r , thereby b a r r i n g e q u a l i z a t i o n of wage l e v e l s . A low wage r a t e i n any p a r t i c u l a r area does not n e c e s s a r i l y a t t r a c t i n d u s t r y . I n order t h a t t h i s may be so, the r a t i o of the l a b o r cost to the t o t a l cost of the product must be s u f f i c i e n t l y h i g h to o v e r r i d e other l o c a t i o n f a c t o r s . The r a t i o of l a b o r cost to the t o t a l cost of the product may vary between f i f t e e n to e i g h t y - f i v e per cent. I f an i n d u s t r y i s at the e i g h t y - f i v e per cent end of the s c a l e , a l l other c o s t s would have to be cut by o n e - t h i r d 37 to equal a saving i n l a b o r cost of one-seventeenth. I t has been r e p o r t e d t h a t the f i v e i n d u s t r y groups w i t h the hi g h e s t v a l u e s of t h i s r a t i o i n 1937 and 1939 were t r a n s p o r t a t i o n equipment (except automobile), lumber and timber b a s i c products, p r i n t i n g and p u b l i s h i n g and a l l i e d i n d u s t r i e s , machinery (except e l e c t r i c a l ) , and other mis-cellaneous i n d u s t r i e s . A l l these i n d u s t r i e s , except those p. 2 2 1 . •^U. S. N a t i o n a l Resources P l a n n i n g Board, op. c i t . , -^Helburn, op. ext., p. 2 5 7 . 34 i n the lumber and timber group,^ tend to be oriented toward labor. Although industrial location pattern may i n time fr • adjust i t s e l f to geographic labor cost differentials, there are certain factors, such as the sunk cost of a plant, which may prevent the l a t t e r from moving to a better l o c a t i o n . ^ Another factor which might prevent a change of location i s the fear that apparent savings might actually only be tran-sitory, considering the rapid wage increases which have occurred recently i n lowest wage areas. In general, difference in wage rates alone i s not a sufficient measure to cause labor orientation. Other a t t r i -butes of the labor factor, such as s k i l l s , productivity, av a i l a b i l i t y , etc., are often more important considerations in determining a location. Productivity Labor may vary greatly in productivity from region to region and from place to place because of climatic or environmental differences. It may even vary from plant to -^Although the lumber industry has a high labor to total cost ratio, i t i s oriented toward raw material, which forms i t s basic requirement. ^U. S. National Resources Planning Board, op. c i t . , p. 222. 40 Ibid., p. 221. 35 p l a n t as a r e s u l t of d i f f e r e n t a d m i n i s t r a t i v e methods. Industry may, t h e r e f o r e , l o c a t e i n an area where l a h o r i s h i g h l y e f f i c i e n t , although the wage r a t e s may he h i g h e r as compared to another l o w - p r o d u c t i v i t y area. S k i l l I t i s g e n e r a l l y r e c o g n i z e d t h a t the need f o r s p e c i a l s k i l l i s l o s i n g i t s r e l a t i v e importance as a l o c a t i o n f a c t o r . T h i s i s due to r a p i d t e c h n o l o g i c a l changes. Mechanization of processes and, i n r e c e n t y e a r s , automation has made i t p o s s i b l e t o do away w i t h a l l - r o u n d s k i l l e d craftsmen and i n c r e a s e d the demand f o r s k i l l e d and s e m i - s k i l l e d machine o p e r a t o r s . And as the r e p o r t on the l o c a t i o n of I n d u s t r y i n Great B r i t a i n s t a t e s : "the process of replacement of s k i l l e d l a b o u r by machinery has not diminished the demand f o r s k i l l e d l a b o u r so much as changed the nature of demand*.' S u p e r - s k i l l e d men are r e q u i r e d f o r the maintenance of i n t r i c a t e p l a n t s and other s p e c i a l i z e d jobs, such as t o o l -making, e t c . The a v a i l a b i l i t y of these men may have some i n f l u e n c e on i n d u s t r i a l l o c a t i o n . However, i t i s b e l i e v e d t h a t t h e i r l o c a t i o n a l i n f l u e n c e tends to be n e u t r a l i z e d as they are considered the most mobile of a l l c l a s s e s of l a b o r . ^ ^ P o l i t i c a l and Economic P l a n n i n g , op_. c i t . , p. 66. 4 2 I b i d . 36 Turnover Employers are i n c r e a s i n g l y g i v i n g more a t t e n t i o n t o l a b o r turnover i n a p a r t i c u l a r area when c o n s i d e r i n g new p l a n t l o c a t i o n . I t has become a l o c a t i o n f a c t o r f o r l a b o r -o r i e n t e d i n d u s t r i e s , as i t i s r e f l e c t e d i n l a b o r cost and i s r e l a t e d to l a b o r p r o d u c t i v i t y . Present day employers are v e r y much concerned i n c r e a t i n g a h e a l t h y l a b o r -management r e l a t i o n , not only f o r t h e i r own good, but a l s o because they are becoming more aware of t h e i r r e s p o n s i b i l i t y toward t h e i r employees. Labor turnover i s considered one of the measurable i n d i c a t o r s of labor-management r e l a t i o n s i n a community. Yaseen suggests t h a t a monthly net turnover r a t e i n the average manufacturing establishment should not be more than f i v e per cent, although i n such i n d u s t r i e s as l o g g i n g or s h i p b u i l d i n g t h i s f i g u r e may go up t o as h i g h as eleven to twelve per cent. J The s i z e of the l a b o r f o r c e i n a p a r t i c u l a r area o r community i s the next important l a b o r c o n s i d e r a t i o n which i n f l u e n c e s p l a n t l o c a t i o n . I t i s g e n e r a l l y t r u e t h a t the l a r g e s t l a b o r markets are found i n l a r g e c i t i e s w i t h i t s Yaseen, op_. c i t . , p. 76. 37 c o r r e s p o n d i n g l y h i g h e r wage r a t e s than i n s m a l l towns. However, f o r the l a h o r o r i e n t e d i n d u s t r i e s i t means t h a t the l a r g e r the l a h o r market the e a s i e r i t i s t o s e l e c t a l a h o r f o r c e which w i l l f i l l t h e i r need, d e s p i t e the d i s a d -vantage of having to pay hi g h e r wages. Whereas u n s k i l l e d l a h o r has l i t t l e , h i g h l y s k i l l e d l a b o r has a st r o n g l o c a t i o n a l e f f e c t . I n d u s t r i e s which r e q u i r e s k i l l e d l a b o u r e r s have a v e r y strong i n c e n t i v e to l o c a t e c l o s e to areas of t r a i n e d l a b o r . The j e w e l r y i n d u s t r y of Providence and A t t l e b o r o i n the Un i t e d S t a t e s i s b e l i e v e d t o have s t a r t e d p u r e l y on the b a s i s of l a b o r 44 supply. The importance of l a b o r supply as a l o c a t i o n f a c t o r may be summarized w i t h a statement by McLaughlin and Robock, which says: ....there has been i n c r e a s e d concern about a c h i e v i n g l a b o r savings through l o c a t i o n , where the supply of l a b o r i s adequate t o reduce c o s t l y turnover, t o reduce c o m p e t i t i o n f o r workers which b i d up wages, and t o pr o v i d e some assurance t h a t the p l a n t w i l l be able to secure a s a t i s f a c t o r y p r o p o r t i o n of the more e f f i c i e n t workers, and a l s o where l a b o r r e l a t i o n s are l i k e l y to be comparatively peaceful.4 - 5 A A Helburn, l o c . c i t . ^ M c l a u g h l i n , op_. c i t . , p. 68. 38 Labor laws In the f i n a l stage of industrial location, prospec-tive entrepreneurs i n a particular community w i l l look at the existing labor laws. They w i l l be most interested i n the workmen's compensation laws, unemployment compensation laws, and statutes regulating hours of work, as stringent Aft compensation laws can be costly to them. Summary In short, the location of labor oriented industries i s determined by a balance of the relative importance of wage rates, productivity, s k i l l , turnover, supply of labor, and labor laws, each of which by i t s e l f i s very rarely, i f ever, the deciding consideration. Examples of labor oriented industries are: apparel, machinery (including automotive parts), shoes, and textile m i l l products.^ 7 On the whole, labor i s considered the most compli-cated of a l l the principal locating factors. For example, since the labor force i s distributed geographically accor-ding to the population, which i s the same as the ultimate consumers, what appears to be a labor oriented industry ^Greenhut, OJD. ext., p. 132. 4.7 ^'McLaughlin, 0£. c i t . . p. 75, 39 A.P> may a c t u a l l y "be market o r i e n t e d , and v i c e v e r s a . Further-more, the i n f l u e n c e of l a h o r i s l a r g e l y u n p r e d i c t a b l e as i t i s l i k e l y to be a f f e c t e d by the advent of i n d u s t r y , and AQ as i t s c h a r a c t e r may a l s o change. v The U n i t e d S t a t e s N a t i o n a l Resources P l a n n i n g Board sums up by saying t h a t : ....the disadvantages of l o c a t i n g an i n d u s t r i a l p l a n t away from the sources of l a b o r are so i n t e r m i n g l e d w i t h perhaps even stronger disadvantages w i t h r e s p e c t to the other l o c a t i o n a l f o r c e s , t h a t no accurate e s t i -mate can be made of the independent e f f e c t of l a b o r on l o c a t i o n . 5 0 FUEL AND POWER H i s t o r i c a l l y , the a v a i l a b i l i t y of power resources has been a s i g n i f i c a n t f a c t o r f o r i n d u s t r i a l l o c a t i o n s . For decades p r i o r to the i n v e n t i o n of Watt's steam engine the necessary mechanical energy was d e r i v e d from water power by means of water wheels. Riverbahks were, t h e r e -f o r e , considered the i d e a l s i t e f o r manufacturing. The e a r l y t e x t i l e m i l l s and f a c t o r i e s i n England were a l l l o c a t e d along streams, and up to about 1850 s i x t y per cent of the American f a c t o r i e s were s t i l l dependent on 4- 51 water power. d8 N a t i o n a l Resources P l a n n i n g Board, o p . c i t . , p.221 ^ P o l i t i c a l and Economic P l a n n i n g , o p . c i t . , p. 63. " ^ N a t i o n a l Resources P l a n n i n g Board, o p . c i t . , p.231 51 ' Smith, op_. c i t . , p. 333. 40 There i s no doubt t h a t a l l i n d u s t r i e s r e q u i r e some form of power, whether i t i s manpower, animated or i n a n i -mated power, i n c l u d i n g water or wind power, power d e r i v e d from the burning of wood, c o a l , o i l or gas, or perhaps s o l a r or atomic power i n the not too d i s t a n t f u t u r e . The l o c a t i o n a l a t t r a c t i o n of power depends on the extent to which power i s used i n the p r o d u c t i o n or manu-f a c t u r i n g p r ocess. Por c e r t a i n e l e c t r o p r o c e s s i n d u s t r i e s where energy consumption forms a l a r g e p a r t of the v a l u e of the product, power cost s are d e f i n i t e l y a dominating, although not neces-s a r i l y , the s o l e l o c a t i o n a l c o n s i d e r a t i o n . Among these i n d u s t r i e s are: ca l c i u m ca r b i d e , aluminum, e l e c t r o l y t i c z i n c , magnesium, and e l e c t r o l y t i c soda. The p r o d u c t i o n of aluminum metal by e l e c t r o l y s i s of f u s e d alumina, e s p e c i a l l y , r e q u i r e s cheap h y d r o e l e c t r i c power more than anything e l s e , whereas f o r the p r o d u c t i o n of magnesium, cheap power stands 5 2 about on an equal f o o t i n g w i t h a v a i l a b i l i t y of m a t e r i a l s . Power i s a l s o a l o c a t i n g f a c t o r i n those i n d u s t r i e s u s i n g l a r g e amounts of machinery, such as those f o r c o t t o n and wood t e x t i l e s , k n i t goods, p l a n i n g - m i l l s , r o l l i n g m i l l s , 5-5 wood products, paper and p r i n t i n g , e t c . J 5 2 N a t i o n a l Resources P l a n n i n g Board, o p . c i t . , p . 1 7 7 . 5 1 ^ H e l b u r n , op_. c i t . , p. 256. 41 Low-cost power alone i s , however, not s u f f i c i e n t to c r e a t e an i n d u s t r i a l area w i t h a wide range of d i v e r s i f i c a -t i o n , as there are only a few s p e c i f i c a l l y power o r i e n t e d i n d u s t r i e s . But when cheap power and raw m a t e r i a l s s u i t a b l e f o r e l e c t r o p r o c e s s i n g i n d u s t r i e s occur c o n c u r r e n t l y , a b a s i s 54 may e x i s t f o r i n d u s t r i a l i z a t i o n on a s u b s t a n t i a l s c a l e . The i n f l u e n c e of power as a l o c a t i o n f a c t o r has been a f f e c t e d by recent t e c h n o l o g i c a l advances, which have r e -s u l t e d i n a more e f f i c i e n t u t i l i z a t i o n of f u e l and changes i n the method and cost of t r a n s p o r t a t i o n and t r a n s m i s s i o n . For example, i n 1950 the e l e c t r i c a l s t a t i o n s produced as many k i l o w a t t - h o u r s of e l e c t r i c a l energy out of one pound 55 of c o a l as they had out of seven pounds i n 1900. F u r t h e r -more, w i t h the development of h i g h v o l t a g e t r a n s m i s s i o n , energy i n the form of e l e c t r i c i t y can be t r a n s p o r t e d w i t h v e r y s l i g h t l o s s . These developments have made manufacturing e s t a b l i s h -ments and i n d u s t r i e s i n g e n e r a l l e s s dependent on the p r o x i -m i t y t o power res o u r c e s , and have thus s u b s t a n t i a l l y reduced the importance of power as an i n d u s t r i a l l o c a t i o n f a c t o r . The q u e s t i o n now i s whether the advent of a new source of cheap power, say, atomic power, would a f f e c t p l a n t l o c a t i o n i n the f u t u r e . - ^ N a t i o n a l Resources P l a n n i n g Board, o p . c i t . , p.180. • ^ F r e d e r i c Dewhust, America's Needs and Resources; A New Survey (1955), p. 907. 42 Walter I s a r d contends t h a t , even f o r those indus-t r i e s such as cement, g l a s s , aluminum, and i r o n and s t e e l i n d u s t r i e s , where power requirements are s u b s t a n t i a l , t h e r e i s l i t t l e evidence t h a t atomic power even at a cheap p r i c e 56 would cause much p l a n t r e l o c a t i o n . Furthermore, he adds t h a t " i n the short run at l e a s t , a l l a v a i l a b l e evidence supports the b e l i e f t h a t atomic power w i l l c ost more—and perhaps c o n s i d e r a b l y m ore— 57 than w i l l power from e x i s t e n t energy sources." F u e l as a l o c a t i o n f a c t o r v a r i e s i n importance from i n d u s t r y to i n d u s t r y . I t may be employed e i t h e r as a source of energy or as a b a s i c raw m a t e r i a l , or as both. And i t i s to be noted t h a t as sources of energy f u e l s may be r e a d i l y s u b s t i t u t e d f o r one another over a wide range, i . e . , o i l f o r c o a l , gas f o r o i l , or v i c e v e r s a . On the other hand, when they are used as b a s i c raw m a t e r i a l s , s u b s t i t u t i o n of other f u e l s may be d i f f i c u l t , i f not i m p o s s i b l e . For example, i n the manufacture of coke only bituminous c o a l may be used, and s i m i l a r l y n a t u r a l gas i s used as raw m a t e r i a l t o make i o 59 58 carbon b l a c k . I n the s m e l t i n g of i r o n ore, coke i s used as a re d u c i n g agent and as f u e l as w e l l . ' ^ W a l t e r I s a r d and Vincent Whitney, "Atomic Power and the l o c a t i o n of I n d u s t r y , " Harvard Business Review, 28: 45-54, March, 1950. r>7 eg J ' I b i d . ^ Y a s e e n , op_. c i t . , p. 90. • ^ N a t i o n a l Resources P l a n n i n g Board, op_. c i t . , p. 156. 43 There are f o u r c a t e g o r i e s of i n d u s t r i e s i n which f u e l p l a y s a r o l e w i t h d i f f e r e n t degrees i n the l o c a t i o n a l d e c i s i o n . I n the f i r s t p l a c e , the i n d u s t r i e s i n which f u e l o r i e n t a t i o n i s the dominant f a c t o r are the consumers of f u e l s as raw m a t e r i a l s . I n t h i s group are the coke and carbon black i n d u s t r i e s . I n a second group of i n d u s t r i e s , f u e l has played an important r o l e i n p l a n t l o c a t i o n together w i t h c o n s i d e r a t i o n s f o r the f a c t o r s raw m a t e r i a l s and mar-k e t s . Belonging t o t h i s group are i n d u s t r i e s such as g l a s s , which uses n a t u r a l gas as f u e l , c l a y products, which uses c o a l or gas, metal r e f i n i n g and f a b r i c a t i o n and chemicals, which use c o a l and gas as f u e l . I n a t h i r d group, m a t e r i a l s and markets are the dominant f a c t o r s , but raw m a t e r i a l s are so w i d e l y a v a i l a b l e t h a t f u e l c o s t s a l s o p l a y some r o l e i n l o c a t i o n a l d e c i s i o n s . T h i s group i s represented by the paper, cement, and l i m e i n d u s t r i e s . And f i n a l l y , t h e r e i s a f o u r t h group i n which other f a c t o r s o v e r r i d e the f a c t o r f u e l i n importance, although the i n d u s t r i e s concerned con-sume a great d e a l of f u e l . T y p i c a l examples are manufac-t u r e d i c e , which i s market o r i e n t e d , and nav a l s t o r e s and s a l t , which are m a t e r i a l o r i e n t e d . ^ 0 I b i d . , p. 167. 44 Summary Power has been a major l o c a t i o n f a c t o r i n the p a s t . With the advances i n technology, which b r i n g about more e f f i c i e n t use of f u e l and changes i n the methods and c o s t s of t r a n s p o r t a t i o n and t r a n s m i s s i o n , there i s l e s s need f o r i n d u s t r i e s to l o c a t e c l o s e to t h e i r power r e s o u r c e s . For c e r t a i n e l e c t r o p r o c e s s i n d u s t r i e s and those u s i n g a great number of machinery, power may s t i l l be the dominating l o c a t i o n f a c t o r . F u e l may be u t i l i z e d as a source of energy or as a b a s i c raw m a t e r i a l , or as both. The major f u e l o r i e n t e d i n d u s t r i e s are those which use f u e l as a raw m a t e r i a l . I n o t h e r s f u e l i s considered along w i t h other l o c a t i o n f a c t o r s , such as raw m a t e r i a l s and markets, and i t s i n f l u e n c e on l o c a t i o n may or may not be apparent. TAXATION Taxes are, i n most cases, an important c o n s i d e r a t i o n i n the s e l e c t i o n of a l o c a t i o n f o r new businesses and i n d u s -t r i e s . I t s importance r e l a t i v e t o other l o c a t i o n f a c t o r s v a r i e s among i n d u s t r i e s , but other c o n s i d e r a t i o n s u s u a l l y outweigh p o t e n t i a l savings as a r e s u l t of tax d i f f e r e n t i a l s . In f a c t , only r e l a t i v e l y permanent t a x d i f f e r e n t i a l s w i l l have a p p r e c i a b l e e f f e c t s on the growth of i n d u s t r i a l a c t i -v i t y . Yet, even i n t h i s case, i t does not n e c e s s a r i l y f o l l o w 45 t h a t those communities w i t h the h i g h e s t r a t e of t a x a t i o n w i l l l o s e t h e i r i n d u s t r i e s to other areas, and t h a t those w i t h the lowest r a t e s of t a x a t i o n w i l l he swamped w i t h new i n d u s t r i e s . Unfavorable t a x c o n d i t i o n s may very w e l l be, as i t u s u a l l y i s the case, o f f s e t by other f a v o r a b l e f a c t o r s . Taxes have an e f f e c t on l o c a t i o n so l o n g as they can be evaded. While an e n t e r p r i s e cannot escape the impact of F e d e r a l taxes by a change i n l o c a t i o n , i t can do so w i t h S t a t e (or P r o v i n c i a l ) and l o c a l t a x e s . Therefore, any con-cern w i l l always t r y to l o c a t e where the t a x c l i m a t e i s 61 most f a v o r a b l e . Tax d i f f e r e n t i a l s between s t a t e s are unavoidable, at l e a s t i n the f o r e s e e a b l e f u t u r e . There are, a c c o r d i n g to F l o y d , f o u r b a s i c f a c t o r s — f i s c a l c a p a c i t y , need f o r p u b l i c s e r v i c e s , s e r v i c e standards, and type of t a x s y s t e m — which have caused i n t e r l o c a l t a x d i f f e r e n t i a l s . Depending on i t s f i s c a l c a p a c i t y and the extent of the need f o r p u b l i c s e r v i c e s , a community may l e v y low or heavy i n d u s t r i a l t a x e s . The q u e s t i o n now i s whether these t a x d i f f e r e n t i a l s i n f a c t do t u r n up as a l o c a t i o n a l determinant. B l o o r n ^ came up w i t h a negat i v e answer. I n h i s f\ 1 Stephen Helburn, " l o c a t i o n of I n d u s t r y , " J o u r n a l of l a n d and P u b l i c U t i l i t y Economics, 19: 253-263, August, 194~J. ^ 2 J o e Summers F l o y d , J r . , E f f e c t s of Tax a t i o n on  I n d u s t r i a l l o c a t i o n (Chapel H i l l : The U n i v e r s i t y of C a r o l i n a P r e s s , 1952}, p. 36. ^ C l a r k C. Bloom, State and l o c a l Tax D i f f e r e n t i a l s and  the l o c a t i o n of Manufacturing, S t u d i e s i n Business & Economics, New S e r i e s No. 5~, (Iowa State U n i v e r s i t y , 1956), p. 38. 46 e x t e n s i v e r e s e a r c h i n the t a x s t r u c t u r e of the S t a t e of Iowa, he found t h a t "higher per c a p i t a l e v e l s of s t a t e and l o c a l t a x c o l l e c t i o n s have not "been a s s o c i a t e d w i t h slower r a t e s of growth i n manufacturing employment." Furthermore, Bloom contends t h a t h i g h e r s e r v i c e l e v e l s which g e n e r a l l y accompany h i g h e r t a x l e v e l s , encourage growth r a t h e r than d e c l i n e of manufacturing a c t i v i t y ; and t h a t taxes l e v i e d d i r e c t l y on manufacturers are r e l a t i v e l y l i g h t i n comparison to other f a c t o r s which impinge upon earnings. He then con-cludes by s t a t i n g t h a t f a c t o r s other than taxes are d e t e r -mining i n d u s t r i a l l o c a t i o n . Mabel Walker of the Tax I n s t i t u t e of New J e r s e y agrees w i t h Bloom when she says t h a t "the e f f e c t of the g e n e r a l t a x burden upon i n d u s t r i a l l o c a t i o n has been g r o s s l y exaggerated." I n most cases, other f a c t o r s w i l l more than outweigh t a x c o n s i d e r a t i o n s , but she adds t h a t " i n s i t u a t i o n s where other c o n s i d e r a t i o n s l a r g e l y c a n c e l out, a t a x d i f f e r e n -t i a l may v e r y w e l l be the marginal f a c t o r which w i l l t i p the s c a l e s . " ^ On the other hand, there are people who b e l i e v e t h a t t a x d i f f e r e n t i a l s do i n f l u e n c e the choice of i n d u s t r i a l l o c a t i o n . I n the f i r s t p l a c e , c i t i e s and l o c a l i t i e s i n the Mabel L. Walker, Business E n t e r p r i s e and the C i t y ( P r i n c e t o n , New J e r s e y : Tax I n s t i t u t e , 1957), p. 47. 6 5 I b i d . 47 U n i t e d S t a t e s have always used t a x concessions to induce new i n d u s t r i e s to l o c a t e i n t h e i r areas, although t h i s p r a c t i c e i s g r a d u a l l y d i s a p p e a r i n g . Whereas i n 1938 t h e r e were s i x t e e n s t a t e s i n the U n i t e d S t a t e s which allowed temporary t a x exemption to new e n t e r p r i s e s , there were only seven s t a t e s which d i d so i n 1957. This i s i n t e r -p r e t e d as a r e a l i z a t i o n on the p a r t of the s t a t e s t h a t t a x exemptions are unnecessary. The s t r o n g e s t evidence s u p p o r t i n g taxes as an impor-t a n t l o c a t i o n f a c t o r i s perhaps the D e t r o i t Free P r e s s Survey of 1957 conducted among major manufacturers on the importance of the l e v e l of business taxes i n M i c h i g a n i n manufacturing l o c a t i o n . The Free P r e s s r e p o r t e d t h a t the l e v e l of business t a x a t i o n i n M i c h i g a n has l e d General Motors to l o c a t e p l a n t s i n other s t a t e s , t h a t Ford and C h r y s l e r were c o n s i d e r i n g doing the same i f taxes were i n c r e a s e d , and t h a t Jones and L a u g h l i n S t e e l C o r p o r a t i o n decided t o l o c a t e i t s s i x t e e n m i l l i o n d o l l a r p l a n t i n Ohio, r a t h e r than i n Michigan because of the d i f f e r e n t i a l s between the s t a t e s . ^ 7 A weaker statement i s g i v e n by F l o y d , who concludes h i s study by s t a t i n g t h a t t a x d i f f e r e n t i a l s may i n f l u e n c e 6 6 I b i d . , p. 42. ^ M i s s o u r i State Chamber of Commerce, Why i s M i s s o u r i  f a l l i n g behind other S t a t e s i n Economic Growth? Research" Report No. 3 4 , (.Jefferson CrEy: October 3 1 , 1 9 5 7 ) , p. 1 7 . 48 the s e l e c t i o n of s i t e s f o r c e r t a i n types of manufacturing. Summary There seems to he no agreement as to how important taxes are as an i n d u s t r i a l l o c a t i o n f a c t o r . Some people have expressed t h e i r o p i n i o n t h a t taxes have no i n f l u e n c e on the l o c a t i o n of i n d u s t r i e s . Others f e e l t h a t taxes do have a l o c a t i n g e f f e c t , and t h a t i n many cases h i g h taxes have prevented p r o s p e c t i v e e n t e r p r i s e s from l o c a t i n g i n the areas concerned. I t i s perhaps safe to conclude t h a t taxes are a f a c t o r which must he considered hy companies seeking new l o c a t i o n , and hy the l o c a l i t i e s who wish to a t t r a c t new businesses and i n d u s t r i e s . CAPITAI Although c a p i t a l i s a p r e r e q u i s i t e to the e s t a b l i s h -ment of a company, i t does not n e c e s s a r i l y f o l l o w t h a t the p l a n t or manufacturing concern would be l o c a t e d near the supply of c a p i t a l . An i n d u s t r y would l o g i c a l l y be a t t r a c t e d toward i t s source of raw m a t e r i a l s , power re s o u r c e s , or other l o c a t i o n f a c t o r s , but i t v e r y seldom, i f ever, moves 6 9 toward c a p i t a l . 6 8 P l o y d , op_. c i t . , p. 1 2 3 . 6 9 R u s s e l l Smith, Ogden P h i l l i p s , and Thomas Smith, I n d u s t r i a l and Commercial Geography (New York: Henry H o l t and Company, 1 9 5 5 ) , f o u r t h e d i t i o n , p. 2 7 6 . 49 C a p i t a l p l a y s a more s i g n i f i c a n t r o l e as a l o c a t i o n f a c t o r i n the forming of a new company than i n the expan-s i o n of an e s t a b l i s h e d e n t e r p r i s e , i n the d e c i s i o n s of s m a l l e r companies more so than i n l a r g e r o r g a n i z a t i o n s . I n the f i r s t case, c a p i t a l may be expected to exe r t i t s p r e r o g a t i v e s more f u l l y than a f t e r management has assumed 70 i t s f u l l r e s p o n s i b i l i t y . I n the second case, i t may be assumed t h a t l a r g e o r g a n i z a t i o n s have funds a v a i l a b l e , or can o b t a i n them through the money market by i s s u i n g stocks 71 or bonds. As a broad g e n e r a l i z a t i o n , i t may be s a i d t h a t c a p i t a l has a s p e c i f i c l o c a t i o n a l f o r c e , and i s not a 72 r e g i o n a l determinant. For example, a m u n i c i p a l i t y may o f f e r s u b s t a n t i a l f i n a n c i a l a s s i s t a n c e i n the form of, say, a f r e e b u i l d i n g , to induce a p r o s p e c t i v e entrepreneur to l o c a t e h i s p l a n t t h e r e . This type of f i n a n c i n g i s o f t e n necessary f o r the development of l e s s i n d u s t r i a l i z e d areas, as was p r a c t i c e d i n the s o - c a l l e d depressed areas i n B r i t a i n . The P o l i t i c a l and Economic P l a n n i n g of Great B r i t a i n at t h a t time r e p o r t e d t h a t a v i c i o u s c i r c l e e x i s t e d : A r e g i o n i s depressed because i t needs i n d u s t r i e s to employ i t s workpeople. Because i t i s depressed, i t i s a poor market f o r consumer goods, and t h e r e f o r e ^ N a t i o n a l Resources P l a n n i n g Board, op_. ex t . , p.234. 71 72 ' Greenhut, op_. c i t . , p. 136. I b i d . 50 probably a bad l o c a t i o n f o r a l i g h t i n d u s t r y , f i n a n c e f o r which i s consequently d i f f i c u l t to obtain.73 Large amounts of c a p i t a l are necessary i n p a r t i c u l a r to mass p r o d u c t i o n i n d u s t r i e s , such as i r o n and s t e e l , auto-74 mobiles, and meat packing. Yet, even f o r these i n d u s t r i e s , the q u e s t i o n of a c c e s s i b i l i t y of c a p i t a l i s never considered as an e x c l u s i v e l o c a t i o n f a c t o r , f o r c a p i t a l i s extremely mobile, more so than any of the other f a c t o r s of p r o d u c t i o n , and i t tends to f l o w wherever i t can be p r o f i t a b l e . T h i s m o b i l i t y i s b e l i e v e d to have i n c r e a s e d over the l a s t decades. Perhaps t h i s i s due to the more e f f e c t i v e ways i n which s u r p l u s c a p i t a l i s being i n v e s t e d — " t h e corporate form of bu s i n e s s , the growth of the stock exchanges, adherence to the p r i n c i p l e of l i m i t e d l i a b i l i t y and the development of r a p i d and e f f i c i e n t means of t r a n s p o r t a t i o n and communi-c a t i o n . To the extent t h a t the m o b i l i t y of c a p i t a l i s s t i l l i m p e r f e c t , i t being more r e a d i l y a v a i l a b l e i n one p l a c e than 7ft i n another, c a p i t a l may remain a l o c a t i o n f a c t o r . ^ P o l i t i c a l and Economic P l a n n i n g , op_. c i t . , p. 74. 74-' N a t i o n a l Resources P l a n n i n g Board, op_. c i t . , p. 270. 75 '^Othel D. Turner, I n d u s t r i a l L o c a t i o n F a c t o r s m Wyoming, A F u n c t i o n a l A n a l y s i s , An unpublished doctoral"" d i s s e r t a t i o n , The U n i v e r s i t y of Texas, January, 1958. " ^ N a t i o n a l Resources P l a n n i n g Board, l o c . c i t . 51 Summary C a p i t a l may exert some i n f l u e n c e on the l o c a t i o n of i n d u s t r i e s . However, i t i s ve r y seldom, i f ever, a governing f a c t o r . Even f o r mass-producing i n d u s t r i e s where l a r g e amounts of c a p i t a l are r e q u i r e d , other l o c a t i o n f a c t o r s appear to o v e r r i d e c a p i t a l i n importance. As the m o b i l i t y of c a p i t a l i s i n c r e a s i n g , the s i g n i f i c a n c e of i t as a l o c a t i o n f a c t o r i s d e c l i n i n g . And to the extent t h a t c a p i t a l i s not p e r f e c t l y mobile, i t may have some l o c a t i o n a l e f f e c t . MANAGEMENT The importance of management as a l o c a t i o n f a c t o r depends on the number and type of men r e q u i r e d to f i l l management's p o s i t i o n . I t i s g e n e r a l l y b e l i e v e d t h a t management has become an i n c r e a s i n g l y important f a c t o r to be considered i n every l o c a t i o n d e c i s i o n , e s p e c i a l l y w i t h the r a p i d growth of i n d u s t r i e s and i t s accompanying com-p l e x i t i e s . Some i n d u s t r i e s w i t h complicated processes r e q u i r e a l a r g e number of t e c h n i c a l and exe c u t i v e personnel and i t i s f o r those i n d u s t r i e s t h a t the a v a i l a b i l i t y of management personnel i s a c r i t i c a l f a c t o r i n c o n s i d e r i n g new l o c a t i o n . I n other i n d u s t r i e s , g e n e r a l business a b i l i t y may be 52 considered s u f f i c i e n t f o r the concern to operate e f f e c -t i v e l y ; i n t h i s case, management does not c o n s t i t u t e a s i g n i f i c a n t l o c a t i o n f a c t o r . Although management i s b e l i e v e d to be r e l a t i v e l y mobile, few companies, when c o n s i d e r i n g moving i n t o another town or c i t y , would want to t r a n s f e r t h e i r e n t i r e s t a f f to the new l o c a t i o n and thus to have no l o c a l management 77 r e p r e s e n t a t i v e s . The m o b i l i t y of management personnel depends to a c e r t a i n extent on economic c o n d i t i o n s and the supply and demand s i t u a t i o n . I f executive personnel are e a s i l y a v a i l a b l e because of a l a r g e supply, managers are more w i l l i n g to move than when there i s a great demand f o r 78 t h e i r s e r v i c e s i n the p l a c e where they l i v e . The development of l a r g e c o r p o r a t i o n s which are prepared t o pay the h i g h e s t s a l a r i e s to u n u s u a l l y competent managers has helped to i n c r e a s e the m o b i l i t y of management personnel, There are, however, other f a c t o r s which tend to reduce t h i s m o b i l i t y . Many e x e c u t i v e s and t e c h n i c a l per-sonnel are r e l u c t a n t t o move to other areas because of t h e i r u n w i l l i n g n e s s to sever e s t a b l i s h e d p r o f e s s i o n a l , p e r s o n a l and tra d e r e l a t i o n s h i p s . ^ F a c t o r s such as 77 ''McLaughlin, op_. c i t . , p. 97. 7ft ' Turner, l o c . c i t . ^ N a t i o n a l Resources P l a n n i n g Board, op_. c i t . , p.241 53 c l i m a t e , r e c r e a t i o n a l f a c i l i t i e s and s o c i a l f a c i l i t i e s , i f not considered s u i t a b l e or adequate, may a l s o r e s t r a i n them from moving. I t i s , t h e r e f o r e , not s u r p r i s i n g to o f t e n f i n d management a b i l i t i e s concentrated mainly i n l a r g e i n d u s t r i a l areas. Regional d i f f e r e n c e s i n l o c a l l e a d e r s h i p may vary, although i t would be d i f f i c u l t to measure. They may a r i s e from d i f f e r e n c e s i n types of s k i l l s or i n experience, a l l of which help to account f o r the d i f f e r e n c e s i n the r a t e of growth of i n d u s t r y f o r d i f f e r e n t r e g i o n s . Summary The importance of management as a l o c a t i o n f a c t o r v a r i e s from i n d u s t r y to i n d u s t r y . Although management a b i l i t y i s becoming i n c r e a s i n g l y mobile, there are s t i l l many f o r c e s which tend to work a g a i n s t i t , causing manage-ment a b i l i t y to be l o c a l i z e d . The e f f e c t of management on l o c a t i o n i s d i f f i c u l t t o measure, but i t i s b e l i e v e d t h a t there e x i s t r e g i o n a l d i f f e r e n c e s i n business l e a d e r s h i p which accounts f o r at l e a s t some of the d i f f e r e n c e s i n r e g i o n a l r a t e s of growth. CLIMATE Climate i s probably the most important of a l l the geographic f a c t o r s when c o n s i d e r i n g i n d u s t r i a l l o c a t i o n . E r i e d r i c h L i s t , a German economist, regarded c l i m a t e as 54 the p r i n c i p a l f a c t o r governing the d i s t r i b u t i o n of i n d u s t r y . He contended t h a t the temperate "zone i s the n a t u r a l seat of machine i n d u s t r y , whereas the t r o p i c s are u n s u i t e d t o m a n u f a c t u r i n g . 8 ^ The most s i g n i f i c a n t e f f e c t of c l i m a t e on i n d u s t r i a l l o c a t i o n i s perhaps the f a c t t h a t i t has accounted f o r the p resent p o p u l a t i o n d i s t r i b u t i o n . Many people are a t t r a c t e d to p l a c e s w i t h p l e a s a n t weather c o n d i t i o n s , and are w i l l i n g t o work f o r lower wages than they would expect i n areas w i t h unfavorable c l i m a t e . T h i s movement of people to p r e f e r r e d r e g i o n s would create a market area and l a b o r f o r c e , the area of which would r e a d i l y become the centre of manufacturing and i n d u s t r y . The development of Southern C a l i f o r n i a as an 81 i n d u s t r i a l i z e d area i s an example of t h i s e v o l u t i o n . I n a l o c a t i o n study conducted by McLaughlin and Robock i n the t h i r t e e n s t a t e s of the South i t was shown t h a t a t t r a c t i o n of i n d u s t r i e s to the South was p a r t l y due to c l i m a t i c advantages, which were r e l a t e d t o : the o p p o r t u n i t y f o r year-round c o n s t r u c t i o n , the a b i l i t y to use l e s s expen-s i v e c o n s t r u c t i o n m a t e r i a l s , the lower p l a n t o p e r a t i n g and maintenance c o s t s , the lower h e a t i n g c o s t s , and the f a c t t h a t 82 s h i p p i n g and d e l i v e r i e s were not i n t e r r u p t e d by weather. 80 Schumaker, op_. c i t . , p. 588 81 Turner, l o c . c i t . 2 McLaughlin, op_. c i t . , p. 98. 55 The advancement i n technology, p a r t i c u l a r l y i n the f i e l d of h e a t i n g and a i r - c o n d i t i o n i n g , has to some extent reduced the i n f l u e n c e of cl i m a t e on i n d u s t r i a l l o c a t i o n . Whereas the e a r l i e r t e x t i l e m i l l s had to be l o c a t e d i n areas p o s s e s s i n g j u s t the r i g h t humidity necessary f o r the y a r n s p i n n i n g process, today they are f r e e to l o c a t e i n response t o f a c t o r s other than humidity requirement s i n c e the l a t t e r can be mec h a n i c a l l y c o n t r o l l e d . A l s o , the working f o r c e , i n c l u d i n g executive personnel, are now more w i l l i n g t o go to p l a c e s w i t h l e s s f a v o r a b l e c l i m a t i c c o n d i -t i o n s i n order to meet new challenge or t o acquire other n o n - c l i m a t i c advantages. For c e r t a i n i n d u s t r i e s , however, c l i m a t e i s s t i l l the most v i t a l c o n s i d e r a t i o n . Leonard Yaseen r e p o r t s t h a t one of the p r i n c i p a l a i r p l a n e manufacturers i n the Un i t e d S t a t e s i n d e c i d i n g on a new l o c a t i o n , f i n a l l y chose a c i t y i n Tennessee above t h a t i n P e n n s y l v a n i a because of i t s h i g h e r number of sunny days per y e a r . J T h i s i s an example of a c l i m a t i c problem which man cannot y e t c o n t r o l . Whereas on the one hand the e f f e c t of c l i m a t e on i n d u s t r i a l l o c a t i o n has been reduced, i t i s b e l i e v e d t h a t i n the f u t u r e c l i m a t e may again become an important l o c a t i o n f a c t o r . As the standard of l i v i n g r i s e s , people would demand Yaseen, op_. c i t . , p. 124. 56 more and more of the "best of e v e r y t h i n g . With t h i s i n mind, management of the f u t u r e would probably choose l o c a t i o n s more i n l i n e w i t h the wishes of i t s employees f o r c l i m a t i c c o n d i t i o n s . This t r e n d would be f o l l o w e d e s p e c i a l l y by those i n d u s t r i e s which, f o r t h e i r l o c a t i o n , are not o r i e n t e d toward raw m a t e r i a l s source or other non-c l i m a t i c f a c t o r s . Summary Climate has been of major importance i n c r e a t i n g the i n d u s t r i a l i z e d areas i n Southern United S t a t e s . H i s t o r i c a l l y , i t has been the governing l o c a t i o n f a c t o r f o r the e a r l y t e x t i l e m i l l s . However, w i t h the develop-ment of temperature and humidity c o n t r o l devices, unfavor-able c l i m a t i c i n f l u e n c e s have been l a r g e l y e l i m i n a t e d . And only i n very r a r e cases, where weather c o n d i t i o n i s v i t a l to the o p e r a t i o n of the i n d u s t r y , i s c l i m a t e s t i l l of prime importance. Although i t has l a r g e l y been reduced i n importance as a l o c a t i o n f a c t o r , i t i s b e l i e v e d t h a t c l i m a t e may again have an important r o l e to p l a y i n l o c a t i o n a l d e c i s i o n s by f u t u r e management. ATTITUDES The choice of an i n d u s t r i a l l o c a t i o n may, to a c e r t a i n extent, be i n f l u e n c e d by the a t t i t u d e s of p a r t i -c u l a r groups toward i n d u s t r y i n the p r o s p e c t i v e community. 57 Among these groups are the government, the p u b l i c and l a b o r i n g e n e r a l . Government As the impact of Fe d e r a l Government a d m i n i s t r a t i o n and laws on i n d u s t r y i s the same, r e g a r d l e s s of l o c a t i o n , a company seeking a new l o c a t i o n w i l l mainly be i n v o l v e d w i t h s t a t e (or p r o v i n c i a l ) and l o c a l governments. A f a v o r a b l e a t t i t u d e of the s t a t e government toward i n d u s t r y i s considered e s s e n t i a l . McLaughlin and Robock r e p o r t e d i n t h e i r study of i n d u s t r i e s i n the South t h a t some manufacturers i n d i c a t e d t h a t they were l o c a t e d j u s t a cross s t a t e boundaries i n order to f i n d a more f a v o r a b l e environment, and s t i l l serve the same market. The s e l e c -t i o n of a s t a t e or a community i s o f t e n a second step a f t e r the d e t e r m i n a t i o n of an area w i t h i n which major requirements co u l d be s a t i s f i e d . The a t t i t u d e of governments toward i n d u s t r y i s u s u a l l y r e f l e c t e d i n t h e i r laws. Of p a r t i c u l a r importance to i n d u s t r i e s are l a b o r l e g i s l a t i o n and t a x laws. Some t e x t i l e manufacturers i n the South were r e p o r t e d to have l o c a t e d there because of l e s s s t r i n g e n t r e g u l a t i o n w i t h r e s p e c t t o hours of employment f o r women, as compared to the N o r t h . 8 5 8 McLaughlin, op. c i t . , p. 105. 8 5 r b i d . , p. 107. 58 The i n f l u e n c e of t a x p r o v i s i o n s on i n d u s t r i a l l o c a t i o n has been d e a l t w i t h s e p a r a t e l y i n a p r e v i o u s 8fi s e c t i o n of t h i s chapter. With r e s p e c t to l o c a l government, p r o s p e c t i v e companies are not only i n t e r e s t e d i n i t s a t t i t u d e toward i n d u s t r y , hut a l s o i n i t s o p e r a t i n g c o s t s and e f f i c i e n c y , i n c l u d i n g the q u a l i t y of m u n i c i p a l s e r v i c e s of sewage d i s p o s a l , f i r e p r o t e c t i o n , p o l i c e p r o t e c t i o n , highway maintenance, e t c . Another important c o n s i d e r a t i o n i s the w i l l i n g n e s s of the l o c a l government t o cooperate i n extending s e r v i c e s , such as a d d i t i o n a l roads, sewer and water connection, and the l i k e . P u b l i c The a t t i t u d e of the p u b l i c i s considered conducive i f i t f a v o r s i n c r e a s e d i n d u s t r i a l i z a t i o n . Many p r o s p e c t i v e manufacturers are l o o k i n g f o r a community w i t h a c t i v e l o c a l l e a d e r s h i p , not only i n view of t h e i r requirements f o r management perso n n e l , but a l s o t o h e l p them to i n f l u e n c e the a t t i t u d e of the p u b l i c and to overcome the f e a r of the f a t t e r , which sometimes develops over the r e p o r t e d i n t r o -d u c t i o n of a new f a c t o r y . 8 6 S e e supra, pp. 44-48. 87 'McLaughlin, o_£. c i t . , p. 108. 8 8 I b i d . , p. 106. 59 Labor Favorable l a b o r a t t i t u d e s are o f t e n g i v e n more emphasis than a v a i l a b i l i t y or wage r a t e s i n the s e l e c t i o n of a p l a n t l o c a t i o n , e s p e c i a l l y by l a b o r o r i e n t e d i n d u s t r i e s . McLaughlin and Robock sum up the importance of f a v o r -able l a b o r a t t i t u d e s as f o l l o w s : A h i s t o r y of c o o p e r a t i o n on the p a r t of l o c a l l a b o r was taken by p r o s p e c t i v e manufacturers to i n d i c a t e a w i l l i n g n e s s to l e a r n new processes and an o p p o r t u n i t y f o r the management and l a b o r f o r c e of a new p l a n t to achieve f a v o r a b l e r a t e s of p r o d u c t i v i t y , ° 9 Summary In most cases, f a v o r a b l e a t t i t u d e s of l o c a l and s t a t e governments, p u b l i c and l a b o r , i n g e n e r a l , toward i n d u s t r y are considered e s s e n t i a l f o r the s u c c e s s f u l l a u n c h i n g of a new i n d u s t r y . I n connection w i t h the a t t i t u d e of the government, management i s most i n t e r e s t e d i n the e x i s t i n g l a b o r l e g i s -l a t i o n , t a x laws, and other m u n i c i p a l s a n i t a r y and p r o t e c t i v e s e r v i c e s of the p r o s p e c t i v e community. Favorable a t t i t u d e s of l a b o r and the p u b l i c are next i n importance i n the f i n a l s e l e c t i o n of the l o c a t i o n of a new p l a n t . I b i d . , p. 71 60 INTERRELATIONSHIPS AMONG LOCATION FACTORS For c e r t a i n i n d u s t r i e s , e s p e c i a l l y those which are o r i e n t e d toward raw m a t e r i a l s source, markets, or power re s o u r c e s , i t i s c l e a r t h a t one f a c t o r o v e r r i d e s a l l others i n importance. I n each of these cases, which are hut few i n number, there i s v e r y l i t t l e , i f any, freedom of choice of l o c a t i o n . I n most cases, however, s e v e r a l of the l o c a t i o n f a c t o r s as d i s c u s s e d p r e v i o u s l y , t o g e t h e r i n f l u e n c e the f i n a l s e l e c t i o n of a l o c a t i o n w i t h none of the f a c t o r s p l a y i n g an a l l - e x c l u s i v e r o l e . A good example of t h i s i n t e r r e l a t i o n s h i p i s g i v e n by the P o l i t i c a l and Economic P l a n n i n g i n Great B r i t a i n i n i t s Report on the L o c a t i o n of In d u s t r y : The c u t l e r y i n d u s t r y began i n the S h e f f i e l d d i s t r i c t some 400 or 500 years ago. An i r o n i n d u s t r y based on l o c a l coal-measure i r o n s t o n e s , c h a r c o a l s u p p l i e s and water power had e x i s t e d l o n g b e f o r e , but s p e c i a l i z a t i o n i n c u t l e r y was made p o s s i b l e by the e x c e l l e n t g r i n d s t o n e m a t e r i a l p r o v i d e d by the l o c a l m i l l s t o n e g r i t , and i t was encouraged by the advent i n the s i x t e e n t h century of s k i l l e d F l e m i s h s e t t l e r s . S k i l l tended to accumulate i n the d i s t r i c t and the i n d u s t r y has remained h i g h l y l o c a l i z e d t h e r e . The d i s c o v e r y of s t a i n l e s s s t e e l by S h e f f i e l d manufacturers some t w e n t y - f i v e years ago has emphasized the supremacy of the d i s t r i c t i n c u t l e r y manufacture. Here three of the primary f a c t o r s , raw m a t e r i a l s , water power, and s k i l l e d l a b o r , have combined to l o c a t e the c u t l e r y i n d u s t r y i n S h e f f i e l d . P o l i t i c a l and Economic P l a n n i n g , op_. c i t . , p. 86. 61 THE CHANGING IMPORTANCE OF LOCATION FACTORS In our dynamic world e v e r y t h i n g i s bound to change. Thus, the importance of l o c a t i o n f a c t o r s are c o n s t a n t l y changing i n response to s e v e r a l e x t e r n a l f o r c e s . Whereas some l o c a t i o n f a c t o r s such as water power, c l i m a t e , and the l i k e , can be a t t r i b u t e d to n a t u r a l causes, technology w i l l always attempt to conquer them i f they happen to go a g a i n s t human wishes. For example, the p o s s i -b i l i t y of developing energy i n the form of e l e c t r i c i t y has overcome the n e c e s s i t y to l o c a t e p l a n t s along streams to o b t a i n water power; the more e f f i c i e n t t r a n s m i s s i o n of e l e c t r i c i t y has reduced the a t t r a c t i o n of i n d u s t r i e s toward sources of energy, g i v i n g manufacturers more freedom to l o c a t e t h e i r p l a n t s near the markets. Unfavorable c l i m a t i c i n f l u e n c e s have l a r g e l y been e l i m i n a t e d by temperature and hum i d i t y c o n t r o l d e v i c e s . Raw m a t e r i a l s source has d e c l i n e d i n importance as a l o c a t i o n f a c t o r , as the chain of proces-s i n g between raw m a t e r i a l s and f i n a l products has become l o n g e r and l o n g e r , and as the tendency of any p l a n t to use 1 semi-processed m a t e r i a l s continues t o grow. These examples i l l u s t r a t e the e r r a t i c nature of i n d u s t r i a l l o c a t i o n f a c t o r s . I t must be noted, however, t h a t , i n c e r t a i n cases, the l o c a t i o n a l a t t r a c t i o n of some f a c t o r s have not only Benjamin C h i n i t z and Raymond Vernon, "Changing Forces i n I n d u s t r i a l L o c a t i o n , " Harvard Business Review, 38, January-February, 1960, pp. 126-136. 62 changed hut have disappeared altogether. It has often happened that certain industries have remained in the same location although the original reason which has caused them to locate there has long disappeared. For example, the brass-founding near Birmingham was originated there because of the a v a i l a b i l i t y of natural sand which was suitable for moulding. The sand supply later became exhausted but the industry remained there using a r t i f i c i a l l y prepared sand p which could equally well be obtained elsewhere. Changes of events in the l o c a l , national or world scene may create new industrial location factors. In the f i r s t place, the complexity of industrial processes and the necessity of mass production have made water an increasingly important element i n industry. For example, not only i s large amounts of water required for the production of pulp and paper, hides, leather, and so on, but also in other manufacturing a c t i v i t i e s , such as boiler make-up, and for cooling purposes. And in the future, this may mean that certain areas, because of water shortage, are not suitable for locational consideration.^ For the electronics and airc r a f t industry new loca-tion factors may emerge. Dr. Turner introduces "space" as a probable, location factor in the near future in the Southern 2 P o l i t i c a l and Economic Planning, op_. c i t . , p. 57. •^Maurice Fulton, "Plant Location - 1965," Harvard  Business Review, 33: 2, March-April, 1 9 5 5 , pp. 40-50. 63 S t a t e s of the Uni t e d S t a t e s . He contends t h a t new m i s s i l e and e l e c t r o n i c gear p l a n t s w i l l he l o c a t e d i n r e l a t i v e l y i s o l a t e d areas, thereby promoting "space" as an e x c l u s i v e l o c a t i o n f a c t o r o v e r r i d i n g a l l the others.^" Maurice P u l t o n , i n h i s a r t i c l e " P l a n t Location-1965," p r e d i c t s t h a t i n s t e a d of having r a i l r o a d , t r u c k and s h i p as means of t r a n s p o r t a t i o n , management of the f u t u r e w i l l not only have j u s t planes but a l s o r o c k e t p r o p e l l e d v e h i c l e s . Thus, i t may be concluded t h a t , because of the dyna-mic nature of l o c a t i o n f a c t o r s , and the great v a r i e t y of f o r c e s which may i n f l u e n c e them, i t i s extremely d i f f i c u l t , i f not i m p o s s i b l e , to attempt to reduce the theory of l o c a t i o n to a formu l a as has been done by s e v e r a l w r i t e r s . Dr. Turner concludes: In a p p r a i s i n g the i n d u s t r i a l l o c a t i o n p o s s i b i l i t i e s of an area, i t i s important t h a t the p a r t i c u l a r f a c t o r s a f f e c t i n g t h a t area be s t u d i e d and analyzed, r a t h e r than attempting to apply some magic form u l a t h a t i s not a p p l i c a b l e or appropriate.6 Turner, l o c . c i t . P u l t o n , l o c . c i t . Turner, l o c . c i t . CHAPTER IV SOME EMPIRICAL STUDIES IN LOCATION A l l of the l e a d i n g t h e o r i s t s of l o c a t i o n as d i s -cussed i n Chapter I have a r r i v e d at t h e i r t h e o r i e s through l o g i c a l deductions. I n order to appr a i s e the v a l i d i t y of t h e i r assumptions, many e m p i r i c a l s t u d i e s have been c a r r i e d out s i n c e as e a r l y as the beginning of the century. These s t u d i e s which were made e i t h e r through the use of s t a t i s t i c a l d ata or by means of i n t e r v i e w s or q u e s t i o n n a i r e s , were an attempt to d i s c o v e r the reasons f o r p a r t i c u l a r s i t e s e l e c -t i o n s . The r e s u l t s of these s t u d i e s were u s u a l l y r e p o r t e d i n a l i s t of f a c t o r s , i n order of importance, which have i n f l u e n c e d the f i n a l s e l e c t i o n of the l o c a t i o n of the p l a n t s concerned. FREDERICK S. HALL The f i r s t e m p i r i c a l study i n the United S t a t e s was conducted by F r e d e r i c k S. H a l l . He based h i s work on s t a t i s t i c a l data which were obtained from the t w e l f t h census of the U n i t e d S t a t e s i n 1 9 0 0 . H a l l mentions seven f a c t o r s as the c h i e f causes of F r e d e r i c k S. H a l l , "The L o c a l i z a t i o n of I n d u s t r i e s , " X I I Census, "Manufacturing," P a r t I , p. cxc. 65 l o c a t i o n of i n d u s t r i e s : 1. Nearness to raw m a t e r i a l s 2. Nearness to market 3. Nearness to waterpower 4. Favorable c l i m a t e 5. Supply of l a b o r 6. C a p i t a l a v a i l a b l e f o r investment i n manufactures 7. The momentum of an e a r l y s t a r t The f i r s t s i x f a c t o r s determine the gene r a l area w i t h i n which an i n d u s t r y i s economically f e a s i b l e , whereas the exact s i t e w i t h i n t h i s area i s u s u a l l y a matter of chance. The d e c i s i o n i s b e l i e v e d to have been made by some pi o n e e r i n the i n d u s t r y during the e a r l y days of settlement i n the p a r t i c u l a r r e g i o n . NATIONAL ELECTRIC LIGHT ASSOCIATION CIVIC'DEVELOPMENT COMMITTEE A l o c a t i o n study was made by the above committee p based on o r i g i n a l o b s e r v a t i o n and r e s e a r c h . S i x t e e n reasons were l i s t e d f o r the l o c a t i o n of manufacturing es t a b l i s h m e n t s . These were, i n descending order of importance: 1. Markets 2. Labor 3. T r a n s p o r t a t i o n 4. M a t e r i a l s 5. A v a i l a b l e f a c t o r y b u i l d i n g s 6. P e r s o n a l reasons N a t i o n a l E l e c t r i c L i g h t A s s o c i a t i o n C i v i c Develop-ment Committee, and M e t r o p o l i t a n L i f e Insurance Company P o l i c y h o l d e r s S e r v i c e Bureau, I n d u s t r i a l Development i n the U n i t e d S t a t e s and Canada, 1926 and 1927 (New York: M e t r o p o l i t a n L i f e Insurance Company Pr e s s ) No. 10204, n.d. 66 7. Power and F u e l 8. Cheap r e n t 9. Near r e l a t e d i n d u s t r i e s 10. L i v i n g c o n d i t i o n s 11. F i n a n c i a l a i d 12. Taxes 1 3 . Mergers and c o n s o l i d a t i o n s 14. Cheap l a n d 1 5 . Near parent company 16. Banking f a c i l i t i e s UNITED STATES DEPARTMENT OF COMMERCE In 1947 the Un i t e d S t a t e s Department of Commerce p u b l i s h e d a guide f o r e v a l u a t i n g an area's resources f o r i n d u s t r i a l development. I t l i s t e d t h i r t e e n b a s i c l o c a t i o n f a c t o r s which u s u a l l y govern the e v a l u a t i o n of i n d u s t r i a l p l a n t l o c a t i o n . - ^ Included were a l s o c h a r t s which showed the r e l a t i v e importance of each f a c t o r f o r groups of i n d u s t r i e s having 4 s i m i l a r l o c a t i o n requirements. I n order to show the descending order of importance of each of the l o c a t i o n f a c t o r s , the f o l l o w i n g t a b u l a t i o n i s compiled i n d i c a t i n g the number of times each f a c t o r was mentioned as the most important l o c a t i o n a l c o n s i d e r a t i o n f o r a p a r t i c u l a r group of i n d u s t r y . 1. D i s t r i b u t i o n f a c i l i t i e s 66 2. Tax s t r u c t u r e 63 3. T r a n s p o r t a t i o n f a c i l i t i e s 56 •^United S t a t e s Department of Commerce, B a s i c Indus- t r i a l L o c a t i o n F a c t o r s , I n d u s t r i a l S e r i e s No. 74 (Washington, D . C : U. S. Government P r i n t i n g O f f i c e , 1 9 4 7 ) . I b i d . , p. 6-9. 67 4 . S i t e s 5. Labor 6. Market 47 39 32 31 27 27 19 13 4 0 7 . I n d u s t r i a l F u e l 8. L o c a t i o n of p r o d u c t i o n m a t e r i a l 9 . Laws and r e g u l a t i o n s 10. Power 1 1. Water 1 2 . L i v i n g c o n d i t i o n s 1 3 . Climate MCLAUGHLIN AND ROBOCK I n 1949 Dr. McLaughlin and Dr. Robock conducted a study co v e r i n g e i g h t y - e i g h t p l a n t s l o c a t e d i n the t h i r t e e n s t a t e s of the South i n order to f i n d out the f a c t o r s which 5 have i n f l u e n c e d t h e i r recent l o c a t i o n . Among the f a c t o r s which were considered of major importance were i n c l u d e d : (1) market, (2 ) m a t e r i a l s , (3 ) l a b o r , and (4) t r a n s p o r t a t i o n . I n a d d i t i o n to these major f a c t o r s , there were other l o c a t i o n f a c t o r s which were taken i n t o c o n s i d e r a t i o n : (1) c a p i t a l and bank c r e d i t , (2 ) management, (3 ) c l i m a t e , (4) a v a i l a b i l i t y of b u i l d i n g s and s i t e s , (5) l o c a l indus-t r i a l s t r u c t u r e , (6) s i z e of the community, and (7 ) c e n t r a -l i z a t i o n v s . d e c e n t r a l i z a t i o n . As most of the companies i n t e r v i e w e d had t h e i r head-q u a r t e r s i n the North, they depended more or l e s s on c a p i t a l Glenn E. McLaughlin and S t e f a n Robock, Why I n d u s t r y  Moves South, N a t i o n a l P l a n n i n g A s s o c i a t i o n Committee of the South, Report no. 3 (Washington: NPA, 1 9 4 9 ) . 68 from o u t s i d e the South. The a v a i l a b i l i t y of c r e d i t was r a t e d important f o r c e r t a i n p r o c e s s i n g f a c i l i t i e s i n t e r e s t e d i n the problem of f u r n i s h i n g working c a p i t a l to farm pro-ducers.^ Management was only o c c a s i o n a l l y mentioned as a l o c a t i o n f a c t o r . Some concerns i n d i c a t e d t h e i r p r e f e r e n c e f o r communities where they could expect to f i n d management t a l e n t or could a t t r a c t from o u t s i d e t r a i n e d and competent 7 exe c u t i v e p e r s o n n e l . The Southern c l i m a t e was considered f a v o r a b l e because of the p o s s i b i l i t y of year-round c o n s t r u c t i o n , lower p l a n t o p e r a t i n g and maintenance c o s t s , and s h i p p i n g and d e l i v e r i e s o u n i n t e r r u p t e d by weather. The a v a i l a b i l i t y of b u i l d i n g s or s i t e s was found to be of i n f l u e n c e o n l y i n the s e l e c t i o n of a p a r t i c u l a r q l o c a l i t y w i t h i n a s a t i s f a c t o r y zone. D i f f e r e n t views, depending on the type of concern, have been expressed on the q u e s t i o n of l o c a l i n d u s t r i a l s t r u c t u r e . Some f i r m s wished to l o c a t e i n c i t i e s where manufacturing i s w e l l developed; oth e r s p r e f e r r e d a community where they can a t t a i n a prominent p o s i t i o n . Some f i r m s have sought l o c a t i o n where t h e i r i n d u s t r y was alr e a d y present i n order to o b t a i n e x t e r n a l economies, othe r s have 6 I b i d . , p. 96. 7 I b i d . , p. 97. 8 I b i d . , p. 98. 9 I b i d . 69 1 o avoided communities where co m p e t i t i o n could he expected. With regard t o the s i z e of the community p r e f e r r e d , t h e r e was again c o n s i d e r a b l e v a r i a t i o n . Where the prospec-t i v e manufacturer expected to employ a l a r g e number of workers, he would g i v e preference f o r a l a r g e c i t y . How-ever, the authors b e l i e v e d t h a t probably a m a j o r i t y of the concerns p r e f e r r e d to l o c a t e p l a n t s o u t s i d e of a l a r g e 11 m e t r o p o l i t a n area. S e v e r a l concerns i n d i c a t e d t h e i r i n t e r e s t i n s c a t t e r i n g t h e i r p l a n t s over a wide area r a t h e r than 12 developing new f a c i l i t i e s i n an e s t a b l i s h e d area. NATIONAL INDUSTRIAL CONFERENCE BOARD The f a c t o r s a f f e c t i n g p l a n t l o c a t i o n i n the Unit e d S t a t e s d u r i n g the p e r i o d 1946 to 1951 have been assessed by Malcolm Neuhoff i n a r e p o r t f o r the N a t i o n a l I n d u s t r i a l Conference Board. One hundred and t h i r t y - e i g h t companies, which together operated 1446 separate p l a n t s , p r o v i d e d the i n f o r m a t i o n . Although not a l l of the 614 r e p o r t e d expan-s i o n s i n v o l v e d a c o n s i d e r a t i o n of l o c a t i o n , most of them were l o c a t e d a f t e r d e f i n i t i v e s t u d i e s of the economic and 13 s o c i a l f a c t o r s which i n f l u e n c e the choice of p l a n t s i t e s . 1 0 I b i d . , p. 9 9 . 1 1 I b i d . , p .1 0 0 . 1 2 I b i d . , p . 1 0 1 . 1^Malcolm C. Neuhoff, Trends i n I n d u s t r i a l L o c a t i o n , S t u d i e s i n Business P o l i c y , No. 59 ( New York: N a t i o n a l I n d u s t r i a l Conference Board, 1 9 5 2 ) , p. 6. 70 The r e l a t i v e importance of the l o c a t i o n f a c t o r s was found to v a r y g r e a t l y from r e g i o n to region.1'''' On a n a t i o n a l b a s i s the f o l l o w i n g l i s t of f a c t o r s was g i v e n , i n a descending order of frequency: 1. Near e x i s t i n g p l a n t or warehouse 2. Markets 3. Raw m a t e r i a l s 4. Labor supply 5. Water, f u e l , or power 6. T r a n s p o r t a t i o n 7. M i s c e l l a n e o u s Although p r o x i m i t y to e x i s t i n g f a c i l i t i e s was men-t i o n e d more than any other f a c t o r as a c o n s i d e r a t i o n , the r e p o r t noted t h a t other f a c t o r s such as market, raw m a t e r i a l , 15 l a b o r and other c o n d i t i o n s were a l s o considered. BUSINESS EXECUTIVES' RESEARCH COMMITTEE UNIVERSITY OF MINNESOTA I n t h i s study a q u e s t i o n n a i r e was sent out to a sample of 600 f i r m s of the some 5000 manufacturers i n Minnesota w i t h the purpose of a s c e r t a i n i n g the importance and p o s i t i o n of Minnesota w i t h r e s p e c t to twenty-four 16 s p e c i f i c l o c a t i o n f a c t o r s . I h i d . , p. 12. ^ I b i d . , p. 6. 1 f Business E x e c u t i v e s ' Research Committee, I n d u s t r i a l  L o c a t i o n and the Minnesota Economy (Minneapolis, Minn., 1954) pp. 52, 57-59. Quoted i n John I . G r i f f i n , I n d u s t r i a l Loca- t i o n i n the New York Area (New York C i t y : The C i t y C o l l e g e P r e s s , 1955), p.~"2T>0". 71 The 215 manufacturers who responded found t h a t work a t t i t u d e s of i n d i v i d u a l s , f o l l o w e d hy h o u r l y wage r a t e s , a v a i l a b i l i t y of t r u c k t r a n s p o r t s e r v i c e s , nearness to markets, and a v a i l a b i l i t y of r a i l t r a n s p o r t s e r v i c e s were the most important f a c t o r s . Among those considered as disadvantageous were: p e r s o n a l p r o p e r t y taxes, r e a l p r o p e r t y t a x e s , nearness to sources of components, p a r t s of s e r v i c e s 17 and major markets f o r p r o d u c t s . TEXAS ENGINEERING EXPERIMENT STATION As a p a r t of i t s r e s e a r c h program, a study was conducted to f i n d out the f a c t o r s which i n d u s t r i e s look f o r i n s e l e c t i n g a l o c a t i o n . Q u e s t i o n n a i r e s were sent to 18 850 manufacturers, of whom 424 responded. The r e s u l t s showed t h a t , i n order of importance, the f o l l o w i n g were the l o c a t i o n f a c t o r s : 1. Market 9 . Climate 2 . Labor 1 0 . I n d u s t r i a l f u e l 3 . Raw m a t e r i a l s 1 1 . Water 4 . B u i l d i n g 1 2 . I n d u s t r i a l power 5. S i t e 1 3 . F i n a n c i a l h e l p 6 . T r a n s p o r t a t i o n 1 4 . Taxes 7 . D i s t r i b u t i o n 1 5 . Laws and r e g u l a t i o n s 8 . L i v i n g c o n d i t i o n s 1 6 . M i s c e l l a n e o u s I h i d . 18 L. S. P a i n , An E v a l u a t i o n of P l a n t L o c a t i o n F a c t o r s i n Texas, ( C o l l e g e S t a t i o n , Texas, T9~54), p . " T I Quoted i n Sir i f f i n , op_. c i t . , p. 2 0 1 . 72 JOHN I . GRIFFIN I n 1955 John I . G r i f f i n made a study of i n d u s t r i a l l o c a t i o n i n the New York area f o r the C i t y College of New York. A q u e s t i o n n a i r e was sent to a f i f t y per cent systematic sample of the 2582 l a r g e f i r m s i n the f i f t e e n -county New York area. The respondent f i r m s were asked to rank the f a c t o r s i n f l u e n c i n g t h e i r present l o c a t i o n , and i 9 c l a r i f y these f a c t o r s as f a v o r a b l e or u n f a v o r a b l e . v The f i n d i n g s show t h a t the f a c t o r s ranked as the most important f a v o r a b l e ones i n c l u d e d : 1. Access to markets 2. F a c t o r y b u i l d i n g s 3. Room f o r expansion 4. Rent The most important unfavorable f a c t o r s were: 1. M u n i c i p a l taxes 2. Wages 3. Taxes i n g e n e r a l 4. Waste d i s p o s a l 5. Workmen's compensation cos t s 6. P a r k i n g , t r a f f i c c o n d i t i o n s 7. A t t i t u d e of l o c a l government 8. Real e s t a t e t a x . 5 J o h n I . G r i f f i n , I n d u s t r i a l L o c a t i o n i n the New York Area (New York C i t y : The C i t y College P r e s s , 1956) p T T - 2 T ~ CHAPTER V A SPECIAL REFERENCE TO INDONESIA I n the p r e v i o u s two chapters an a n a l y s i s has been g i v e n t o some of the more b a s i c and p e r t i n e n t l o c a -t i o n f a c t o r s , t o g e ther w i t h some e m p i r i c a l s t u d i e s a p p l i -cable to the North American c o n t i n e n t , the U n i t e d S t a t e s i n p a r t i c u l a r . As these f a c t o r s are considered b a s i c to any i n d u s t r i a l l o c a t i o n , they w i l l a l s o apply to some extent to the development of i n d u s t r i e s i n Indonesia. This chapter w i l l attempt to survey and appraise those f a c t o r s which, i n the w r i t e r ' s o p i n i o n , are funda-m e n t a l l y important i n the l o c a t i o n and development of i n d u s t r y i n Indonesia. As an i n t e g r a l p a r t of t h i s t h e s i s and to under-stand more f u l l y the i n t e r a c t i o n between the Indonesian man and the n a t u r a l resources of h i s country, a survey i s i n c l u d e d of p h y s i c a l environment and p o p u l a t i o n , together w i t h the employment p a t t e r n and the s t r u c t u r e of the economy. 74 TOPOGRAPHY i The R e p u b l i c of Indonesia comprises most of the i s l a n d a r c h i p e l a g o which s t r e t c h e s between Southeast A s i a and A u s t r a l i a (see P i g . 1). The i s l a n d c h a i n which con-s i s t s of f o u r main i s l a n d s and more than 3000 s m a l l e r i s l a n d s , extends some 3000 m i l e s from east to west, w i t h a width of about 1000 m i l e s . I t s t r a d d l e s the equator between 6° N. to 11° S. and s t r e t c h e s from 95° E. to 141° E. The a c t u a l l a n d area i s 576,000 square m i l e s , of which roughly e i g h t y - f i v e per cent i s occupied by the f o u r p r i n -c i p a l i s l a n d s : Java, Sumatra, Kalimantan, and Sulawesi. The country i s predominantly mountainous w i t h a c e n t r a l range running along the c h a i n of i s l a n d s . Indo-n e s i a ' s mountains comprise the most v o l c a n i c r e g i o n i n the world. The v o l c a n i c ash c a r r i e d down by the r i v e r s e n r i c h e s the p l a i n s . This has been the main f a c t o r a f f e c -t i n g f e r t i l i t y of the s o i l and, i n t u r n , Indonesia's a g r i -c u l t u r a l development. CLIMATE Indonesia i s a t r o p i c a l country. Days and n i g h t s are almost equal i n l e n g t h throughout the y e a r . Due to Formerly the Netherlands East I n d i e s and under oppressive c o l o n i a l r u l e f o r more than 300 y e a r s . I t gained autonomy, f o l l o w i n g 3-g- years of Japanese occupation, through a r e v o l u t i o n under the l e a d e r s h i p of Sukarno and H a t t a , who proclaimed independence on August 1 7 , 1 9 4 5 . 7 5 SOURCE : U.S. DEPARTMENT OF COMMER-CB 76 t h i s uniform d u r a t i o n of sun's r a d i a t i o n , there are only-s l i g h t d i f f e r e n c e s i n seasonal temperatures. The d a i l y -v a r i a t i o n s i n temperature are a l s o s m a l l because of the tempering i n f l u e n c e of the ocean winds. The mean annual temperature at c o a s t a l s e a - l e v e l p o i n t s i s about 7 7 ° to 8 1 ° F, and the absolute maximum temperature about 9 3 ° to 9 7 ° . The average maximum temperature v a r i e s from 8 6 ° to 8 9 ° F, whereas the average minimum may range from 7 0 ° to 7 5 ° F. With an in c r e a s e i n a l t i t u d e the temperature decreases 1 ° about every 300 f e e t . Humidity i s u s u a l l y h i g h , w i t h an annual average of about eighty-two per cent. R a i n f a l l i s g e n e r a l l y heavy, w i t h more than e i g h t y inches a n n u a l l y i n most p a r t s of the country (see F i g . 2 ) . Some mountain areas are drenched w i t h t e n to twelve f e e t of r a i n , w h i l e i n the lowland areas i t may range from seventy to 125 i n c h e s . POPULATION The l a s t p o p u l a t i o n census was taken i n 1930 , which recorded a p o p u l a t i o n of s i x t y - o n e m i l l i o n . The present f i g u r e , as estimated by the C e n t r a l Bureau of S t a t i s t i c s , i s c l o s e to e i g h t y - n i n e m i l l i o n . V i t a l s t a t i s t i c s are s t i l l not s u f f i c i e n t to a l l o w an accurate estimate of the r a t e of growth of p o p u l a t i o n , although a f i g u r e of 1 .5 to 2 per cent f o r the country as a whole i s considered f a i r l y a c c u r a t e . The p o p u l a t i o n d i s t r i b u t i o n i s q u i t e uneven, 77 w i t h some areas belonging to the most densely populated i n the world w h i l e others are under-populated (see P i g . 3 ) . Java and Madura alone have a p o p u l a t i o n of roughly f i f t y -e i g h t m i l l i o n , o r s i x t y - f i v e per cent of the t o t a l ; y e t these i s l a n d s make up only nine per cent of the t o t a l l a n d area. T his g i v e s a d e n s i t y of roughly 1100 persons per square m i l e . The outer i s l a n d s , on the other hand, have an average d e n s i t y of only s i x t y persons per square m i l e . The pressure of p o p u l a t i o n on the resources i n Java i s p a r t i -c u l a r l y severe and seems l i k e l y t o be an i n c r e a s i n g l y s e r i o u s and d i f f i c u l t problem. The only s o l u t i o n i s t r a n s -m i g r a t i o n from the densely populated to the under-populated areas. So f a r , however, the implementation of t h i s p o l i c y has not been s a t i s f a c t o r y due to the l a c k of funds. The number of persons transmigrated i n 1958 s t i l l was below 2 the peak pre-war l e v e l i n 1940. THE ECONOMY S t r u c t u r e The economy of Indonesia i s mainly a g r i c u l t u r a l . Approximately s e v e n t y - f i v e per cent of the t o t a l employment i s i n a g r i c u l t u r e , which i n c l u d e s f o r e s t r y and f i s h i n g . The a c t i v i t i e s i n a g r i c u l t u r e can be d i v i d e d i n t o two groups: s m a l l - s c a l e farming and l a r g e - s c a l e e s t a t e See Appendix B, Table I . A V E R A G E A N N U A L R A I N F A L L more than 80 inches less than 80 inches "^ '^ iiiJjIj!; Area with dry season (less than I1'1' 2 inches of rainfall) during 3 or more months i i i i i i l i i 1 i F I G U R E Z 0- 10 10- 50 50-100 100 - 200 200-300 300 - 500 over 500 SZS 1 P O P U L A T I O N D E N S I T Y per square kilometer (1 Sq.Km. = .39 Sq.Miles) F I G U R E 3 S O U R . C E : A M E R I C A N ! G E O G R A P H I C A L S O C I E T Y 79 a g r i c u l t u r e . The output of the f i r s t group i s p r i m a r i l y f o r domestic consumption, w h i l e most of the e s t a t e produc-t i o n i s meant f o r export. The most important produce of s m a l l - s c a l e farming i s r i c e , the s t a p l e d i e t . Other a g r i c u l t u r a l products i n c l u d e sweet potatoes, cassava, corn, sago, peanuts, soybeans, v e g e t a b l e s and f r u i t s . Farm f i e l d s are g e n e r a l l y v e r y s m a l l , amounting to only two or three acres per farmer on the average. By c o n t r a s t w i t h the farms,the e s t a t e s average 2000 acres i n s i z e , c u l t i v a t i n g some t h i r t y products i n c l u d i n g rubber, tobacco,sugar, palm o i l , hard f i b e r , c o f f e e , t e a , cacao and cinchona. Some t e n per cent of the t o t a l employment i s i n v i l l a g e i n d u s t r y and manufacturing. There are a few & i n d u s t r i e s i n l a r g e r urban areas, such as t e x t i l e and paper m i l l s , soap, rubber, shoe f a c t o r i e s , and breweries. M i n i n g has become i n c r e a s i n g l y important w i t h petroleum and t i n as the main products. Indonesia's trade p a t t e r n r e f l e c t s the e x c e s s i v e dependence on the export of primary products. Rubber and petroleum products account f o r more than seventy per cent of the t o t a l exports and t i n and copra another t e n per cent. Indonesia i s a l s o i n c r e a s i n g l y dependent on the f i r s t two main products to o b t a i n i t s f o r e i g n exchange. Whereas i n 1938 rubber and petroleum products accounted f o r 22.6 and 80 2 3 . 5 per cent, r e s p e c t i v e l y , the corresponding f i g u r e s f o r 1958 were 3 4 . 6 and 37.0 per c e n t . 3 Indonesia i s n e a r l y s e l f - s u f f i c i e n t i n f o o d s t u f f s . Although r i c e p r o d u c t i o n has exceeded pre-war l e v e l s , i t has not kept pace w i t h p o p u l a t i o n growth. Thus, l a r g e amounts of r i c e s t i l l have to he imported a n n u a l l y . ^ Employment P a t t e r n The l a b o r f o r c e as of 1953 was estimated at t h i r t y m i l l i o n , d i v i d e d among the f o l l o w i n g o c c u p a t i o n a l groups: Number ( i n m i l l i o n s ) P r o d u c t i o n of raw m a t e r i a l s 18.2 Ind u s t r y 4.0 T r a n s p o r t a t i o n 0.8 Trade 3.0 P r o f e s s i o n s 0.2 Government S e r v i c e 1.8 Other 2.0 TOTAL 3 0 . 0 As of 1955 the t o t a l l a b o r f o r c e was roughly bet-ween t h i r t y - t w o to t h i r t y - s i x m i l l i o n persons, or about 5 f o r t y to f o r t y - f i v e per cent of the t o t a l p o p u l a t i o n . The a v a i l a b i l i t y of l a b o r i n urban areas toward which farm people tend to migrate, exceeds the demands of 3See Appendix B, Table I I . 4See Appendix B, Table I I I . ^U. S. Department of Commerce, Investment i n Indonesia (Washington: Government P r i n t i n g O f f i c e , 1956), P. 9 7 . 8 1 the present limited industrial base. It i s believed that twenty per cent of the total labor force i s without regular work, although the employment situation has improved since 1 9 5 2 . 6 Income No detailed figures concerning national income of Indonesia are available. Dr. Neumark's calculations showed that the per capita income amounted to eighty dollars in 1951 and ninety dollars in 1 9 5 2 . However, the total national income in 1952 , i f based on the prices of 1 9 3 8 , did not show an appreciable change. Compared to national income figures of other Asian countries, Indonesia stands i n the middle of the l i s t . Por example, Burma (1955) $ 4 4 , India (1954) $ 5 5 , Pakistan (1954) $ 7 0 , Ceylon ( 1955) $126, Philippines ( 1955) $ 1 7 8 . However, compared to those of industrially advanced countries, these figures are minute. Por example, United States ( 1955) $ 1 9 5 0 , Canada ( 1955) $ 1 3 2 0 , United Kingdom ( 1955) $ 8 4 0 . 8 Recent estimates of Indonesia's gross National Product and National Income were made by the State Planning 6 I b i d . ^Quoted in B. H. M. Vlekke, Indonesia i n 1956, P o l i t i c a l and Economic Aspects (The Hague: Netherlands Institute of International Affairs, 1957) p. 6 8 . o Computed from figures given i n Paul Studenski, The Income of Nations (Washington Square: New York University Press, 1 9 5 8 ) , pp. 508-510. 82 Bureau a s s i s t e d by some experts from the U n i t e d Nations and the ICA ( I n t e r n a t i o n a l Cooperation A s s o c i a t i o n ) . T h e i r f i g u r e s show t h a t n a t i o n a l income from 1953 on i s i n c r e a s i n g , r e a c h i n g a peak per cent i n c r e a s e of e i g h t per cent i n 1957. However, the year 1958 showed a sudden drop from Ep. 134.5 m i l l i a r d to Hp. 117.1 compared w i t h the p r e v i o u s year, a Q drop of 12.9 per cent. T h i s sudden f a l l i s b e l i e v e d to have been caused by d i f f i c u l t economic and p o l i t i c a l s i t u a t i o n s i n the country, and p a r t l y a l s o by the r e c e s s i o n s i n c o u n t r i e s of Western Europe and North America which o r d i -10 n a r i l y import goods from Indonesia. There does seem to e x i s t a r e l a t i o n s h i p between the o c c u p a t i o n a l p a t t e r n of a country and the l e v e l of per c a p i t a income. Low per c a p i t a income i s encountered when a l a r g e p r o p o r t i o n of the l a b o r f o r c e i s engaged i n primary p r o d u c t i o n — a g r i c u l t u r e , f i s h i n g , and f o r e s t r y . With the advancement of i n d u s t r i a l i z a t i o n , the employment i n the secondary p r o d u c t i o n — f o r example, manufacturing, construc-t i o n , and p u b l i c works, gas and e l e c t r i c i t y s u p p l y — w i l l i n c r e a s e and n a t i o n a l income w i l l r i s e . Then, as i n the case of i n d u s t r i a l l y advanced c o u n t r i e s , the m a j o r i t y of the l a b o r f o r c e w i l l be employed i n t e r t i a r y p r o d u c t i o n , ^See Appendix B, Tables IV and V. B i r o P erantjang Negara (State P l a n n i n g Bureau), Lappran Pelaksanaan Rent j ana Pembangunan Lima Tahun, 1956-1960"! (Report on the e x e c u t i o n of the F i v e Year Development P l a n ) , p. 110. 83 such as d i s t r i b u t i o n , t r a n s p o r t , and s e r v i c e s , and 11 n a t i o n a l income w i l l again r i s e . T h i s p o i n t of view i s a l s o shared by the Economic 1 Commission f o r A s i a and the Far East of the U n i t e d Nations.' In the case of Indonesia, i t appears t h a t s i n c e 1954 the c o n t r i b u t i o n of the n o n - a g r i c u l t u r a l s e c t o r to n a t i o n a l income i s i n c r e a s i n g , i n d i c a t i n g an in c r e a s e i n employment i n the secondary p r o d u c t i o n . On the other hand, the per-centage c o n t r i b u t i o n made by the a g r i c u l t u r a l s e c t o r shows 1 3 a decreasing t r e n d . This i s i n agreement w i t h the s t a t e -ment made p r e v i o u s l y . Saving and Investment Savings are of three types: p e r s o n a l , b u s i n e s s , and government. The amount of p e r s o n a l savings i n Indonesia i s q u i t e l i m i t e d . People i n ge n e r a l have low income and do not have a s t r o n g t r a d i t i o n of s a v i n g . As one Indonesian economist says: "the d e s i r e t o save i s no n e x i s t e n t i n Indonesia. Not only because the people do not d e s i r e i t , but because there 11 C o l i n C l a r k , C o n d i t i o n s of Economic Progress (London: M a c M i l l a n and Co. L t d . , T 9 ~ 4 0 ; , pp. 152-163. 1 ? See U n i t e d Nations, Economic B u l l e t i n f o r A s i a and the Par Ea s t , v o l . IX, No. 4, P a r t I I , 1958, TabTe"~48, ~ 1 4 o 7 1 3 S e e Appendix B, Table V I . 84 14 i s no money to spare." The r o l e of the stock exchange i n m o b i l i z i n g p r i v a t e savings i s n e g l i g i b l e and savings through l i f e insurance companies are a l s o of minor impor-tance. On the other hand, Post O f f i c e Savings Banks and Cooperative Savings are g a i n i n g i n importance. The t o t a l money saved at the Post O f f i c e Bank i n c r e a s e d from 123 15 m i l l i o n r u p i a h i n 1953 to 375 m i l l i o n r u p i a h s i n 1 9 5 8 . And between 1954 and 1958 c o o p e r a t i v e savings i n c r e a s e d 16 from 148 m i l l i o n r u p i a h s to 908 m i l l i o n r u p i a h s . Measured according to i n t e r n a t i o n a l standards, Indonesia's p e r s o n a l savings are indeed s m a l l . The Depart-ment of Economic a f f a i r s of the U n i t e d Nations estimated t h a t i n under-developed c o u n t r i e s i n A s i a p e r s o n a l savings accounted f o r one per cent of gross n a t i o n a l product or even l e s s . T h i s i s not so s u r p r i s i n g i n view of the f a c t t h a t i n advanced c o u n t r i e s l i k e Canada and the U n i t e d S t a t e s w i t h very h i g h per c a p i t a income, per s o n a l savings range from 17 f o u r to s i x per cent of t h e i r gross n a t i o n a l product. The second source of savings, namely, business savings composed of r e t a i n e d funds and funds to p r o v i d e f o r d e p r e c i a -t i o n , i s a l s o s m a l l . 14. Soeparman Soemahamidjaja, " R e c o n s t r u c t i o n and how to Finance i t i n Indonesia, " The Indonesian Spectator, A p r i l 1 9 5 8 . 1 5Bank Indonesia, Report f o r the year 1 9 5 8 / 1 9 5 9 , p.124, 1 Statistical Pocketbook of Indonesia 1 9 5 9 , p. 2 1 0 . 1 7 'United Nations, Economic B u l l e t i n f o r A s i a and the Par East, v o l . IV, No. 3 , November, 1953, p T T . 85 I n view of the s i g n i f i c a n t r o l e t h a t the government p l a y s i n economic development, i t may he expected t h a t i t i s the most important source of savings. However, i n the case of Indonesia, the government has been spending a l a r g e p a r t of i t s expenditures f o r defense and a d m i n i s t r a -t i o n , and c a p i t a l f o r m a t i o n i s t h e r e f o r e handicapped. In f a c t , budget d e f i c i t spending has been the f i s c a l p o l i c y of the government f o r recent y e a r s . I n l i n e w i t h the s m a l l amount of money saved, investments are a l s o s m a l l . Only a r e l a t i v e l y s m a l l p a r t of the n a t i o n ' s income i s i n v e s t e d . The U n i t e d Nations estimated t h a t annual net investment i s about f i v e per cent of n a t i o n a l income as compared to f i f t e e n per cent or 18 more f o r c o u n t r i e s i n Western Europe and North America. This f i v e per cent f i g u r e i s h a r d l y s u f f i c i e n t to r e p l a c e worn-out c a p i t a l r e s o u r c e s . I n f a c t , the U n i t e d Nations Report s t a t e s t h a t " i n c o u n t r i e s where p o p u l a t i o n i s i n c r e a s i n g by 1-g- per cent per annum or more, annual net investment of f i v e per cent or l e s s of n a t i o n a l income i s not enough to r a i s e the standard of l i v i n g and may not be 19 enough to prevent the standard of l i v i n g from f a l l i n g . " The s m a l l p r i v a t e investment i n Indonesia i s a t t r i b u t e d to s e v e r a l l i m i t i n g f a c t o r s , f o r example, l a c k 18 U n i t e d Nations, "Some F i n a n c i a l Aspects of Develop-ment Programmes i n A s i a n c o u n t r i e s , " Economic B u l l e t i n f o r  A s i a and the Far East, V o l . I l l , No.1-2, January-June, 1952, pp. 1^27 1 9 l b i d . 86 of w e l l - o r g a n i z e d c a p i t a l market, l a c k of i n t e r e s t i n j o i n t stock investment, l a c k of experienced e n t r e p r e n e u r i a l c l a s s , doubt as to the steadiness of domestic demand, f e a r of com-p e t i t i o n from f o r e i g n products, and l a c k of confidence i n p o l i t i c a l and economic s t a b i l i t y . The government has so f a r c o n t r i b u t e d the major p a r t i n the t o t a l investment, although the amount i s f a r below the r e q u i r e d l e v e l . ECAFE experts s t a t e t h a t an investment of f o u r d o l l a r s per person i s necessary i n order to keep up w i t h the i n c r e a s e i n p o p u l a t i o n i n ECAPE c o u n t r i e s . I f i n a d d i t i o n to t h a t r e a l income i s to i n c r e a s e by two per cent a n n u a l l y , an investment of nine d o l l a r s per person would be 20 r e q u i r e d . Por Indonesia t h i s would mean an annual i n v e s t -21 ment i n the order of Rp. 1 0 , 0 0 0 m i l l i o n . The t o t a l i n v e s t -ment f o r the F i r s t F i v e Year P l a n which c a l l e d f o r an amount of Rp. 11,400 m i l l i o n , i s t h e r e f o r e too s m a l l to be expected to p u l l Indonesia beyond the •'hump." Thus, i n order to achieve the r e q u i r e d amount of investment, a ve r y s u b s t a n t i a l c o n t r i b u t i o n from abroad, whether i n the form of loans or f o r e i g n investments, i s r e q u i r e d . 20 U n i t e d Nations, Economic B u l l e t i n f o r A s i a and the  Far East, v o l . V, No. 3 , November, 1 9 5 4 , ppTTCIIT^nTTlTT" 21 A p p l y i n g a conversion r a t e of Rp. 1 1 . 4 to $ 1 . Since October 1959 the o f f i c i a l exchange r a t e i s Rp. 45 to $ 1 . 87 MANUFACTURING The output of manufacturing does not represent a s i g n i f i c a n t p a r t of the n a t i o n a l product of Indonesia. Manufacturing does, however, p l a y an i n c r e a s i n g l y impor-t a n t r o l e i n the economy as a whole. I t i s one s e c t o r which r e q u i r e s r a p i d expansion i f a s t a b l e economic growth i s to be achieved. Development Up to the beginning of the t w e n t i e t h century Indonesia was almost e x c l u s i v e l y an a g r a r i a n country. The sm a l l amount of i n d u s t r y — s u g a r m i l l s , t a p i o c a f l o u r m i l l s , i n d i g o m i l l s — w a s e s t a b l i s h e d t o complement the major business of a g r i c u l t u r e . From the 1 9 2 0 ' s on, however, the c o l o n i a l government's p o l i c y s h i f t e d toward encouraging and a i d i n g i n d u s t r i a l i z a t i o n so t h a t g r a d u a l l y the number of i n d u s t r i e s i n c r e a s e d . The t e x t i l e i n d u s t r y was perhaps the f i r s t to develop and expand. Not only was t h i s development a r e s u l t of pr e s s u r e s to meet the primary consumptive r e q u i r e -ments of the masses, but a l s o because weaving was considered n a t u r a l to the Indonesian farming community who have always used t h e i r spare time f o r weaving f o r l o c a l requirements. The t e x t i l e i n d u s t r y developed r a p i d l y , although i t was s p l i t i n t o numerous sm a l l u n i t s . I t was r e p o r t e d t h a t i n 88 1930 there were i n Java 500 modern handlooms and f o r t y mechanical looms; i n 1941 there were 49,000 modern hand-22 looms and 9800 mechanical looms. Beside the t e x t i l e i n d u s t r y other s m a l l - s c a l e and cottage i n d u s t r i e s began to sprout. Among these were the i n d u s t r i e s of b a t i k , shoe-making, n a t i v e c i g a r e t t e produc-t i o n , b a s k e t r y , p o t t e r y , and hat-making. F a c t o r y e n t e r p r i s e was encouraged towards p r o d u c t i o n which was u n s u i t a b l e f o r s m a l l - s c a l e i n d u s t r y . The most important i n d u s t r i e s belonging to t h i s group were p r i n t i n g , i c e f a c t o r i e s , c i g a r e t t e f a c t o r i e s , dock and stevedore 21 establishments, rubber m i l l s , and r i c e m i l l s . By 1937 Java had 2276 establishments, w h i l e the outer p r o v i n c e s had 1428. Most of the f a c t o r i e s i n Java employed no more than between t e n and 200 persons w i t h only 24 a few employing more than 1000 persons. During the 40's p r e l i m i n a r y i n v e s t i g a t i o n s were conducted as to the f e a s i b i l i t y of manufacturing s t e e l (based on scrap m e t a l ) , aluminum, paper, and chemicals. When the t r a n s f e r of s o v e r e i g n t y took p l a c e i n 1 9 4 9 , 22 G.H.C. Hart, Towards Economic Democracy i n the  Netherlands I n d i e s (The Netherlands and Netherlands I n d i e s C o u n c i l of the I n s t i t u t e of P a c i f i c R e l a t i o n s , 1942), p.96. 2 3 I b i d . , p. 9 7 . 24 Charles Robequain, Malaya, Indonesia, Borneo, and  the P h i l i p p i n e s (London: Longmans, Green and Co., 1 9 5 4 ) , p. 371: 89 Indonesia was l a r g e l y a g r a r i a n w i t h v e r y l i t t l e heavy i n d u s t r y hut w i t h a c o n s i d e r a b l e v a r i e t y of s m a l l - and 25 minimum-scale e n t e r p r i s e s producing l i g h t manufacture. Since independence the government has put emphasis on i n d u s t r i a l i z a t i o n to d i v e r s i f y the economy and reduce dependence on imports f o r foods and manufactured goods. P r i o r i t y has been g i v e n to i n d u s t r i e s u t i l i z i n g l o c a l raw m a t e r i a l s and not r e q u i r i n g much f o r e i g n exchange. Present i n d u s t r i e s are mainly of two types: (1 ) p r o c e s s i n g of primary products f o r export or domestic con-sumption, such as the r e f i n i n g of petroleum, sugar m i l l i n g , and the p r o c e s s i n g of rubber, t e a , coconuts, palm seeds, s i s a l , and kapok; (2) p r o d u c t i o n of consumer goods depen-dent on both domestic and imported raw m a t e r i a l s , which i n c l u d e the manufacture of automobile and b i c y c l e t i r e s and tubes and rubber shoes, r a d i o s , b a t t e r i e s , soaps, margarine, c i g a r e t t e s , and l i g h t b u l b s . A government survey i n d i c a t e d t h a t at the end of 1957 the number of establishments i n the manufacturing 27 i n d u s t r y was 10,861 w i t h a t o t a l employment of 465,203. 2 5 U . S. Department of Commerce, Investment i n Indo- n e s i a (U. S. Government P r i n t i n g O f f i c e , 1956), p . 3 1 . 2 6 I b i d . 2 7 S e e Appendix B, Table V I I . 90 At the present stage, manufacturing i s dominated by the e x i s t e n c e of a great number of sm a l l e s t a b l i s h m e n t s . I n 1955 about e i g h t y per cent of a l l establishments engaged l e s s than twenty workers, and accounted f o r t h i r t y - t h r e e per cent of the t o t a l manufacturing employment. This i s i n s t r i k i n g c o n t r a s t w i t h the U n i t e d States where s i x t y - e i g h t per cent of the t o t a l number of establishments were s m a l l -s c a l e , but accounted f o r only 7 . 5 per cent of manufacturing employment. About f o u r per cent of the t o t a l number of establishments employed more than 200 workers, but c o n t r i -buted about s i x t y per cent of t o t a l manufacturing employ-. 28 ment. FACTORS AFFECTING THE LOCATION AND DEVELOPMENT OF INDUSTRIES The most cogent impulse to i n d u s t r i a l expansion i n Indonesia has been the pressure of p o p u l a t i o n i n Java. The c o l o n i a l a d m i n i s t r a t i o n , t h e r e f o r e , considered Java the obvious centre of i n d u s t r i a l e n t e r p r i s e , w i t h the r e s u l t t h a t manufacturing has been h e a v i l y concentrated on Java. I t was hoped t h a t the widening scope of employment would 29 a f f o r d d i r e c t r e l i e f where the burden was h e a v i e s t . pQ U n i t e d Nations, "Economic Development and P l a n n i n g i n A s i a and the Far East," Economic B u l l e t i n f o r A s i a and  the Far East, v o l . IX, No. 3 , December, 195b 1, p. 9 . 2 % a r t , op_„ c i t . , p. 9 1 . 91 F a c t o r s which were c o n s i d e r e d i n f l u e n t i a l i n the l o c a t i o n of i n d u s t r i e s on Java were: ( 1 ) l a r g e l a b o r supply, ( 2 ) l a r g e market f o r new i n d u s t r i a l p r o d u c t s , ( 3 ) w e l l developed system of t r a n s p o r t a t i o n , i n c l u d i n g highways and r a i l w a y s , ( 4 ) a v a i l a b i l i t y of power, ( 5 ) a v a i l a b i l i t y of p l a n t s t u r n i n g out m a c h i n e - t o o l s and o t h e r implements, ( 6 ) a v a i l a b i l i t y of r e p a i r s h o p s . 3 0 The e s t a b l i s h m e n t of c e r t a i n i n d u s t r i a l e n t e r p r i s e s i n the o u t e r i s l a n d s was done o n l y f o r some s p e c i f i c reason, f o r example, the l o c a l a v a i l a b i l i t y of b u l k y raw m a t e r i a l s , 11 c o u p l e d w i t h low l a b o r i n t e n s i t y . Raw m a t e r i a l - o r i e n t e d i n d u s t r i e s . S i n c e I n d o n e s i a i s s t i l l i n the e a r l y stages of i t s i n d u s t r i a l development, i t may be expected t h a t a s u b s t a n t i a l p o r t i o n of i t s i n d u s -t r i e s i s raw m a t e r i a l - o r i e n t e d . As has been s t a t e d on page 2 5 , those i n d u s t r i e s which i n c u r a g r e a t r e d u c t i o n i n weight d u r i n g the p r o c e s -s i n g of i t s raw m a t e r i a l s w i l l l o c a t e at or near the source o f i t s raw m a t e r i a l . T h i s p r i n c i p l e h o l d s t r u e f o r a number of i n d u s t r i e s i n I n d o n e s i a . F o r example, the weight l o s t i n p r e l i m i n a r y p r o c e s s i n g of paddy amounts to o n e - t h i r d , and i n the e x t r a c t i o n of coconut o i l from copra about t h i r t y - e i g h t p e r cent. I n the case of r e f i n i n g sugar from sugarcane, 3 ° I b i d I b i d . 92 n i n e t y per cent or more of the weight i s l o s t . Tea i s prepared from green l e a v e s w i t h a r e d u c t i o n i n weight i n the process of about s e v e n t y - f i v e per cent. Hence, r i c e m i l l i n g , v e g e t a b l e o i l and sugar e x t r a c t i o n , and t e a drying-are a l l undertaken at or c l o s e to the raw m a t e r i a l source. S i m i l a r l y , lumber p r o c e s s i n g u s u a l l y takes p l a c e near the timber stands, l e a v i n g the bark and sawdust. T i n ore p r o c e s s i n g i n t o concentrates i n v o l v e s a s u b s t a n t i a l weight r e d u c t i o n , and i s t h e r e f o r e c a r r i e d out at the mine. The s m e l t i n g of concentrate i n t o t i n metal does not r e s u l t i n a great l o s s of weight, but the process r e q u i r e s a l a r g e - s c a l e o p e r a t i o n to be e f f i c i e n t , and thus a l s o a l a r g e c a p i t a l investment. For these reasons, a l l the t i n ores are washed at the mine. Some of the concen-t r a t e s are smelted l o c a l l y and the remainder exported to the U n i t e d S t a t e s , the United Kingdom, and the Netherlands (up to A p r i l 1 9 5 8 ) . Another i n d u s t r y which i n v o l v e s a weight r e d u c t i o n process and i s t h e r e f o r e raw m a t e r i a l - o r i e n t e d i s the cement i n d u s t r y . The C e n t r a l Sumatra's Indarung cement p l a n t r e p o r t e d t h a t to produce one t o n of cement i t needs 1.63 tons of raw m a t e r i a l s , c h i e f l y l i m e s t o n e , and 0 . 3 2 tons of f u e l . 3 3 J U n i t e d Nations, "Economic Development and P l a n n i n g i n the Far E a s t , " Economic B u l l e t i n f o r A s i a and the Far E a s t , v o l . IX, No. 3 , December, 1950, p. 3 9 T " 3 3 I b i d . , p. 44. 93 The r e c e n t l y b u i l t cement p l a n t at G r e s i k i n Ea s t e r n Java was a l s o l o c a t e d at the source of i t s raw m a t e r i a l , where the supply of lime and c l a y d e p o s i t s was estimated to l a s t s i x t y y e a r s . 3 ^ The aluminum i n d u s t r y , although of the e x t r a c t i v e type, i s not n e c e s s a r i l y raw m a t e r i a l o r i e n t e d because of 35 i t s l a r g e requirement of power. At the present time a l l b a u x i t e i s produced e n t i r e l y f o r export. But i n the near f u t u r e , an aluminum i n d u s t r y w i l l be e s t a b l i s h e d i n no r t h e r n Sumatra c l o s e to the baux i t e d e p o s i t s as w e l l as to the cheap e l e c t r i c power source at Asahan. M a r k e t - o r i e n t e d i n d u s t r i e s . I t has been p o i n t e d out elsewhere t h a t p r o c e s s i n g w i l l be done'near the market i f i t c o s t s l e s s t o t r a n s p o r t the raw m a t e r i a l than the f i n i s h e d product, and near the source of m a t e r i a l i f the s i t u a t i o n i s re v e r s e d . When a weight g a i n i n g process i s i n v o l v e d , the p u l l toward the market w i l l be s t r o n g e r . 3 ^ A p e r f e c t example of t h i s i s the Coca-Cola p l a n t i n Indonesia. The e x t r a c t i s made i n A t l a n t a , United S t a t e s , and i s then c a r r i e d to the b o t t l i n g p l a n t i n Indonesia, where carbonated water i s added and the product b o t t l e d . Other s o f t drink i n d u s t r i e s and -^"The G r e s i k Cement P l a n t , " The Indonesian Spectator, August 15, 1957. 35 -^See Supra, p. 40. 3 6 S e e Supra, pp. 20-21. 94 and the breweries are a l s o l o c a t e d at the market. The assembly p l a n t of Borgward automobiles i n Surabaja i s l o c a t e d at the market. Unassembled p a r t s are l e s s bulky t o t r a n s p o r t than an assembled automobile. 17 Other p e r i s h a b l e commodities such as bread, i c e , and f o o d s t u f f s i n g e n e r a l are a l s o s o l d at the market. l a b o r - o r i e n t e d i n d u s t r i e s . Indonesia has an abun-dant supply of u n s k i l l e d l a b o r . C e r t a i n i n d u s t r i e s which are l a b o r i n t e n s i v e , or those which can produce i n v a r y i n g p r o p o r t i o n s of c a p i t a l and l a b o r , tend to be l a b o r - o r i e n t e d . Indeed, i t was r e p o r t e d at one time t h a t the manual l a b o r of the s m a l l - s c a l e i n d u s t r y q u i t e o f t e n economically out-s t r i p p e d mechanical i n d u s t r y as the cost of p r o d u c t i o n •3 Q proved to be lower than t h a t of mechanized processes. - 3 T h i s s i t u a t i o n i s , however, not n e c e s s a r i l y t r u e at the present time. The t e x t i l e i n d u s t r y i n Indonesia i s l a b o r - o r i e n t e d , although not f o r reasons as o u t l i n e d above. I t i s con-s i d e r e d i n d i f f e r e n t to the p u l l of raw m a t e r i a l s or market. But s i n c e the l a b o r cost forms a l a r g e p o r t i o n of the t o t a l cost of p r o d u c t i o n , the i n d u s t r y tends to be l o c a t e d where l a b o r supply i s ample and wages are low. 17 J See Supra, p. 26. 3 8 H a r t , op_. c i t . , p. 9 2 . 95 LOCATION FACTORS AND INDUSTRIAL DEVELOPMENT The r a t e of i n d u s t r i a l growth of a country depends p r i m a r i l y on the e x p l o i t a t i o n and u t i l i z a t i o n of i t s n a t u r a l r e s o u r c e s . The presence of these r e s o u r c e s (see F i g . 4) together w i t h other l o c a t i o n f a c t o r s , although b a s i c f o r any economic development, does not i n i t s e l f 39 guarantee i n d u s t r i a l expansion. J Therefore, the extent of i n d u s t r i a l development i n Indonesia w i l l depend l a r g e l y on the n a t i o n ' s a b i l i t y coupled w i t h the economic f e a s i b i l i t y to tra n s f o r m un-developed n a t u r a l resources i n t o a v a i l a b l e and usable r e s o u r c e s . Whether or not such t r a n s f o r m a t i o n takes p l a c e depends to a gr e a t extent on i n t e r n a l f a c t o r s such as government p o l i c y and p u b l i c a t t i t u d e toward i n d u s t r i a l development, which are r e f l e c t e d i n laws and r e g u l a t i o n s . Economic events i n s i d e the country and o u t s i d e i t w i l l a l s o a f f e c t the r a t e of t h i s t r a n s f o r m a t i o n . In order to appraise the i n d u s t r i a l p o t e n t i a l i t i e s of Indonesia w i t h r e s p e c t to i t s economic development, an a n a l y s i s of i t s i n d u s t r i a l l o c a t i o n f a c t o r s i s e s s e n t i a l . However, i t i s n e i t h e r p o s s i b l e nor necessary to appraise each and every one of these. Only those i n d u s t r i a l l o c a t i o n J O t h e l D. Turner, I n d u s t r i a l L o c a t i o n F a c t o r s i n Wyoming; A F u n c t i o n a l A n a l y s i s , An unpublished doctoral"" d i s s e r t a t i o n , the U n i v e r s i t y of Texas, January, 1958, P. 39. 96 SOURCE: U.S. DEPARTMENT OP COMMERCE F I G U R . E 4 97 factors which are hasic, and those which play a significant role i n the Indonesian economic scene w i l l be taken up. Energy sources Energy sources, which include coal, o i l , natural gas and water power, are the most basic and primary factors for any industrial c i v i l i z a t i o n . Indonesia's position with respect to these sources, i t s a b i l i t y to develop them, and the possible limit i n g factors i n developing them, w i l l be treated i n the following section. Coal. Indonesia's coal deposits are mostly of low and non-coking quality, and their economic usefulness are, therefore, rather limited. The large known reserves are i n South and Central Sumatra, and Eastern Kalimantan. No extensive survey has been undertaken to determine the amount of coal deposits. The most recent estimate placed i t at 2500 mi l l i o n t ons. 4 0 The yearly production, which averaged 822,000 tons 4 1 for the period 1951 to 1958, i s i n -significant i n comparison of close to 2000 million short tons„of total world production. 4 2 Approximately ninety-three per cent of the total ^United Nations, Economic Bulletin for Asia and the  Ear East, v o l . IX, No. 3, December, 1958, p. 40"7 4 - 1 S t a t i s t i c a l Pocketbook of Indonesia 1959, p. 88. AO ^ Erich W. Zimmerman, World Hesources and Industries, (New York: Harper & Brothers, 1951), p. 470. 98 coal produced originates from the government coal mines at Built Asam and Umbilin. The remaining i s accounted for "by-small private companies. Coal production i n 1958 which amounted to 606,000 tons 4" 3 was f i f t e e n per cent less com-pared with the output i n the preceding year. This drop was due to a decline i n domestic demand as the result of increas-ing dieselization of the railways and shipping. Crude o i l and natural gas. Indonesia i s considered to be the largest o i l producer i n the Par East. The resources are, however, small as compared to those i n the Middle East and Latin America. The major o i l producing areas are Sumatra, Kalimantan, and the northeastern part of Java, i n this order of importance. The t o t a l o i l reserves i s estimated between 1.2 to 1.9 b i l l i o n barrels, or roughly . 44 one to two per cent of the world's reserves.^ Crude o i l production by the o i l companies, the majority of which i s foreign owned, amounted to 16 ,110,000 tons i n 1958, indicating an increase of about sixty per cent from 1953. Approximately two-fifths of the t o t a l produc-tion i s exported to countries such as the United States, Australia, and the Philippines. 4 - 3See Appendix B, Table VIII. ^U. S. Department of Commerce, Investment i n Indonesia, op. c i t . , p. 40. 4 5See Appendix B, Table H. 99 The production of natural gas has increased steadily since after World War II, reaching about 2.7 m i l l i o n metric tons i n 1 9 5 8 . 4 * * The natural gas reserves are placed at 4 . 7 over one t r i l l i o n cubic feet. Water Power. A conservatice estimate gives a figure of 2,860,000 kilowatt for Indonesia's water power capacity. 4 8 Compared to potential capacity of other countries, Indonesia, together with Ceylon (550 ,000 kilowatt), the Philippines (2,276 ,000), and the United Kingdom (1,128,000) rank low. The United States heads the l i s t with 109,500,000 kilowatts. On a per capita basis, however, the figure for Burma i s highest at 1 .01 kilowatt, as compared to 0.65 for the United States, and only 0 . 0 3 for Indonesia. Prom the 2,860,000 kilowatt potential capacity of Indonesia's water power, only 1 3 5 , 1 0 0 kilowatt or roughly 4.7 per cent was installed i n 1 9 5 6 . It i s expected that by 1965 another 3 5 9 , 0 0 0 kilowatt w i l l be added. 5 1 Outlook for Energy Sources Development The short-run outlook does not seem too bright. Production cannot be sustained without a favorable demand 4 6See Appendix B, Table IX. 47 ^'World Trade Information Service, Basic Data on the  Economy of Indonesia, Part I, No. 58-84. 4 8See Appendix B, Table X. 4 9 I b i d . 5 0 I b i d . 5 1 See Infra, p. 1 1 5 . 100 for the product. Demand i s the basic force which causes the transformation of untapped natural resources into usable resources. Most of the output of Indonesia's coal industry i s consumed by the railway service and shipping. Due to the increase i n the u t i l i z a t i o n of diesel machines i n these services, domestic demand for coal has declined substantially and so has production. Furthermore, because of the low quality of the coal, only a fraction of the t o t a l output can be exported. Main export destinations i n 1958 were Thailand (15,000 tons), and Hongkong (4,000 tons), and even these export figures formed a decrease of f i f t y -52 three per cent from the previous year. Unless the demand for coal changes favorably, the coal industry i s going to suffer more and more, with the consequence that i t may be forced to cut back i t s produc-tion drastically. At this stage there i s l i t t l e likelihood that the undeveloped coal reserves w i l l emerge as attrac-tive factors for the development of new industries. The outlook for the o i l and gas industries seem favorable. Export of crude o i l i s steadily increasing, and so i s the domestic consumption of o i l derivates,. Investments, although only re l a t i v e l y small, are undertaken by the major foreign o i l companies. Some possible limiting 5 2Bank Indonesia, Report for the Year 1958/1959, p. 214. 101 factors are labor problems, competition from the Middle East, and the high wax content of Indonesian crude As shown previously, Indonesia's water power reserves are quite modest i f compared with those of other countries. However, as the present installed capacity amounts to only a small fraction of the potential, there i s s t i l l ample room for development. Power shortage i s f e l t i n a l l sectors of the economy. Therefore, any additional capacity available, however small, w i l l surely help to relieve the industries from their strained operation. E l e c t r i c power development, especially i f derived from water, requires a large investment of i n i t i a l capital. Por this reason, the planned power development, including that generated by means of fuel, i n the next few years w i l l s t i l l be inadequate to meet the current shortage of e l e c t r i c i t y . Thus, for many years to come, this deficiency of power w i l l remain the most acute limitation for the establishment of new industries. In order to keep pace with the required level of i n d u s t r i a l i -zation, thermal power development w i l l be of increasing importance i n the to t a l generation of power i n Indonesia. HAW MATERIALS Indonesia i s fortunate to be endowed with an abun-dance of raw materials. It has maintained the position of major producer of rubber and t i n . Other important ores and 102 industrial minerals including bauxite, nickel, manganese, phosphate, etc., are among those raw materials which are conducive to the establishment of new industries. The following section w i l l appraise only those raw materials which have become industrial resources, and those which appear to hold promise for development and u t i l i z a t i o n i n the near future. Rubber. Indonesian rubber i s produced i n large estates as well as by small holders. The planted area on rubber estates before World War II was 1 , 5 5 7 , 0 0 0 acres, of which forty per cent were i n Java, f i f t y per cent i n Sumatra, 51 and the rest i n Kalimantan and Eastern Indonesia. Due to heavy losses during the war, the p o l i t i c a l unrest thereafter, and other causes, the total acreage i n 1952 was only about 9 0 0 , 0 0 0 . 5 4 The small holders* rubber areas, which at present account for more than half of the t o t a l rubber output, have increased substantially since the early 1920*s. The total planted area was then estimated at 3 0 0 , 0 0 0 acres, and just before the outbreak of World War II the figure was close 55 to three mi l l i o n acres. 5 3U. S. Department of Commerce, Investment i n Indonesia, op. c i t . , p. 2 2 . 5 4 I b i d . 5 5John Indonesia oh E. Metcalf, The Agricultural Economy of (U. S. GovernmenTTrinting Office, 1 9 5 2 ; , p. 5 7 . 103 The annual rubber production varies i n response to rubber prices i n the world market, reaching a peak of 814,406 tons i n 1951, the highest le v e l ever achieved i n Indonesia.5** In 1958 Indonesia accounted for about t h i r t y -three per cent of the total world production of 1,855,000 57 tons. ' The outlook for the rubber industry i n Indonesia does not seem too promising. Although rubber has become one of the v i t a l raw materials i n any industrial c i v i l i -zation, the trend today i s toward u t i l i z i n g synthetic rubber. Whereas the world's consumption for synthetic rubber increased from 1 , 1 3 3 , 0 0 0 tons i n 1956 to 1 , 2 5 8 , 0 0 0 tons i n 1957, the consumption of natural rubber decreased from 1 , 9 0 3 , 0 0 0 tons i n 1956 to 1,855,000 tons i n 1 9 5 7 . 5 8 Certain types of the synthetic rubber such as MAmeripol-SN" and "Coral Rubber*' i n their usage for heavy duty t i r e s have the same qualities as natural rubber. The exhaustic re-search i n the United States on butyl rubber, and on the discovery of isoprene may form a threat to the position of the natural rubber industry i n the future. 5 6See Appendix B, Table XI. 5 7Bank Indonesia, Report for the Year 1958/1959, p. 180. C O Ibid. In 1958 there was a temporary s h i f t to a more favorable position for natural rubber, due to an i n -crease of purchase by the Soviet Union and Red China. 104 The United States so far has "been the largest con-sumer of natural rubber. The question now i s whether i t w i l l continue to be so i n the future. The President's Materials Policy Commission reported that the consumption of rubber i n the United States w i l l possibly reach 3.3 59 m i l l i o n tons a year by 1975, of which perhaps 2.5 million tons constitutes new rubber. How much of this w i l l be synthetic, and how much natural rubber? The answer w i l l determine the future position of natural rubber. It i s estimated that the capacity of the synthetic plants i n the United States was well over one mi l l i o n tons i n 1955.^ The position of natural rubber i n i t s competition with synthetic rubber can only be strengthened with inten-sive research, not only to improve quality, but also to discover ways and means to reduce the cost of production, so that a more favorable cost and demand relationship may be created. One factor which may boost the natural rubber industry i s an increased domestic demand. Some rubber plantations have i n the past been the dominating factor i n the location of t i r e factories i n Indonesia. New industries which u t i l i z e rubber as raw material, for a 3 : ?The President's Materials Policy Commission, Resources for Freedom, Vol. II (Washington: U. S. Govern-ment Printing Office^, p. 100. ^American Geographical Society, "Outlook for Rubber," Focus, v o l . VI, No. 3, November, 1955. 105 purpose other than to manufacture t i r e s , may he attracted i n the future and thus compensate for the loss of foreign consumption. Tin. Of the mineral production of Indonesia t i n i s next to o i l i n importance. The metal i s produced i n the so-called "tin-islands:" Bangka, B i l l i t o n , and Singkep since 1816, 1851, and 1887, respectively. 6 1 Indonesia i s the world's second t i n producer, and contributes about twenty per cent of the total world's output. However, due to unfavorable world market situation, production has declined continuously since 1954, reaching a low of 23,244 tons i n 1958. 6 2 The quality of Indonesia's t i n ore deposits i s the same as that of those i n other t i n f i e l d s of Southern Asia, although perhaps of lower quality than those originating from the Republic of the Congo. The deposits are of several types, but the a l l u v i a l and i l l u v i a l deposits are the most important. It i s estimated that the a l l u v i a l reserve amounts to one million tons of t i n content, so that there i s no fear that the supply w i l l be exhausted i n the foreseeable f u t u r e . 6 3 The outlook for t i n industry again depends on the future relationship of supply and demand i n the country as fi1 R. W. van Bemmelen, The Geology of Indonesia, v o l . II, (The Hague: Government Printing OfficeV 19T9), p. 93. 6 2See Appendix B, Table XII. 6 3U. S. Department of Commerce, Investment i n Indonesia, op. c i t . , p. 43. 106 well as abroad. Conditions i n the present world market are not favorable to Indonesia's t i n industry. World t i n prices show a downward trend due to a continuous supply of t i n from the Soviet Union to Western Europe since the end of 1957. The International Tin Council i n attempting to face this oversupply, fixed a reduction of t i n export quota by about forty per cent for the six t i n producing member countries, including Indonesia. So far, however, these 64-measures have been unsuccessful. To expect the domestic market for t i n to uphold production seems an impossible proposition, at least i n the near future. In the f i r s t place, new mills are needed to process the concentrates, and this requires a large capital outlay. Secondly, being an under-developed country, Indonesia w i l l not for a while be able to consume a s i g n i f i -cant amount of t i n . The greatest consumer of t i n i s the tin-plate industry which manufactures food containers, and this type of industry i s associated with and found only i n industrially advanced countries. In short, for the next decade at least, Indonesia's t i n industry w i l l be at the mercy of world events, without being i n the position to attract new industries using t i n as raw material. b 4Bank Indonesia, Report for the Year 1958/1959, p. 2 1 3 . 107 Bauxite. The mining i s done on the island of Bintan, one of the Eiau Islands. It started with a pro-duction of 10,000 tons i n 1 9 3 5 , rapidly reaching 275,000 tons i n 1940, or six to seven per cent of the world's production. 6 5 In 1951 the output reached a high level of 642,000 tons, hut has since then declined with great f l u c -tuations depending on the demand. Reserves i n prewar years were estimated at between twenty to th i r t y m i l l i o n tons, or about one-fifth of the then-estimated world supply of high grade bauxite. The present limiting factors to increased develop-ment of this basic ore are the non-existent domestic demand and the fact that as a producer Indonesia i s too far from the major consumers (United States and Western Europe) with the result that freight rates may be too excessive to put her i n a competitive position. Even for i t s present market, namely Japan, Indonesia must compete with Malaya. However, one favorable factor seems to be i n sight. With the establishment of an aluminum industry near the cheap power source at Asahan, the demand for bauxite w i l l definitely be boosted. 6 5van Bemmelen, op_. c i t . , p. 136. 6 6See Appendix B, Table VIII. 6 7U. S. Department of Commerce, Investment i n Indonesia, OJD. c i t . , p. 45. 108 Manganese. The mining of this metal has grown rapidly since the postwar years. Production figures show large fluctuation with a high l e v e l of 108,000 tons i n 1956 and a low of 9,000 i n 1952. The output for 1958 was /-Q 44,000 tons. Figures on the amount of reserves are not available, although large deposits are believed to exist i n Central and West Java and i n some of the outer islands. The future for manganese mining seems uncertain. Present output i s largely exported i n a strong competitive market. Domestic demand i s insignificant because of the lack of steel industries. Nickel and copper. Deposits of these two metals are believed to be of substantial amount. However, they are mined only i n small amounts and since the postwar period, no nickel has been mined. If the world market for nickel w i l l remain favorable as i t i s at the present time, and the price of copper w i l l stay high, a stimulus could be created to expand both mining industries. Iron ore. Whereas a l l the ores and minerals dis-cussed previously have been exploited and thus become usable, Indonesia's iron ore deposits appear to be a long way from commercial exploitation. See Appendix B, Table VIII. 109 The fact that much of the ore i s l a t e r i c , containing nickel and chromium, which can only he removed at high cost, a plus the fact that coking coal i s absent, have hindered con-siderably the exploitation of the ore, and postponed the development of a steel industry i n Indonesia. Because of the distances involved, Indonesia's ore cannot be shipped economically to centres of heavy industry such as Japan and Australia; the ores from the Philippines are closer to Japan and those from Caledonia closer to Australia. J Some sizable iron ore deposits are believed to exist i n Sumatra, Kalimantan, and Sulawesi, whereas the iron sands i n Southwestern Java are considered suitable for small-scale 70 steel production. Several surveys and preliminary explorations i n the possible use of these ores have been carried out before the war, but the conclusions were generally unfavorable. As part of Indonesia's F i r s t Five Year Plan, surveys were resumed i n 1956 by German consulting engineers i n cooperation with the Indonesian State Planning Bureau and the Department of Geology. Their joint report recommended the establishment of steel plants i n two stages. The f i r s t stage w i l l see the development of two steel plants with a 6^van Bemmelen, op_. c i t . , p. 205. 7°U. S. Department of Commerce, Investment i n Indonesia, op_. c i t . , p. 46. 110 capacity each of 30 to 50,000 tons per year and u t i l i z i n g the abundant scrap iron now present and imported pig iron. In the second stage, a large steel plant i s to be erected with a capacity of 250,000 tons a year. This l a t t e r plant i s to be located i n South Sumatra i n order to be close to i t s raw material and coal. However, as the ore deposits i n South Sumatra are estimated to be only 1.5 to 2 million tons, there i s some doubt whether or not i t would be better to center the steel operation i n Kalimantan, where much larger ore deposits are believed to exist. Investigations into this alternative proposal have now been completed and reports are awaited. Construction, either i n Sumatra or i n Kalimantan, i s expected to start i n 1961, the f i r s t year 71 of Indonesia's Second Five Year Development Plan.' F e r t i l i z e r materials. Being a mainly agricultural country, Indonesia i s anxious to establish a f e r t i l i z e r industry i n order to increase the agricultural yields to the utmost. The three basic raw materials for the commer-c i a l f e r t i l i z e r industry are potassium, phosphorus, and nitrogen. One favorable factor i s the reported phosphate deposits i n Java, from which phosphorus i s extracted. How-ever, the estimated reserves figure for Java of one-half ' B i r o Perantjang Negara (State Planning Bureau), op. c i t . , p. 232. 111 m i l l i o n tons of phosphate seems very modest i f compared to those i n the neighboring oceanic islands, placed at eighty-,e 73 72 seven million tons of phosphate rock.' The output of the United States alone i n 1945 amounted to six m i l l i o n tons. The State Planning Bureau reported that f e a s i b i l i t y studies are i n an infant stage, consisting of a more 74 accurate survey of the phosphate deposits. Forest Products. Indonesia possesses extensive areas of commercially exploitable forests. However, large-scale operation i s limited to a few areas located i n the more accessible forests of Sumatra and Kalimantan. Small teakwood forests are also exploited i n Java. At the end of 1958 the tot a l forest land i n Sumatra i s placed at 284,000 square kilometres, Kalimantan 415,000 square k i l o -meters, and Java 29,000 square kilometers. For whole 75 Indonesia the t o t a l amounts to 902,000 square kilometers. Production of rough timber i s increasing moderately. The Forestry Service reported an increase i n output of lumber from 1,200,000 cubic meters i n 1951 to 2,200,000 72 ' van Bemmelen, op_. c i t . , p. 175. ^Zimmermann, op. c i t . , p. 788 . ^ B i r o Perantjang Negara (State Planning Bureau), op. c i t . , p. 231 . ^ S t a t i s t i c a l Pocketbook of Indonesia 1959, p. 74 . 112 cubic meters i n 1958. These figures do not include those produced by the lo c a l population, which i s estimated 77 to be at least one and a half times the above f i g u r e . 1 ' The future for forest exploitation i s very bright. Domestic consumption at the present time i s s t i l l very low. Assuming a t o t a l lumber cut of 5,000,000 cubic meters i n 1958, the per capita consumption i n that year would amount to 0.05 cubic meter. As a comparison: lumber production i n Canada i n 1957 amounted to 7,099,758,000 board f e e t , 7 8 o r 16,566,000 cubic meters, which gives a per capita consump-tion of close to one cubic meter. The forests w i l l provide raw materials for quite a number of industries such as paper, match, leather, rayon cloth, t r i p l e x and wooden box, household appliances and medicinal industries, beside the provision of wood as con-79 struction material. One possible limiting factor to development i s perhaps the lack of capital. Heavy investment would be required to develop the forests on a modern and profitable basis. 7 6See Appendix B, Table XIII. 7 7 B i r o Perantjang Negara (State Planning Bureau), op. c i t . , p. 30. ^Dominion Bureau of St a t i s t i c s , Canadian Forestry Statistics, Revised 1959. 7 9Bank Indonesia, Report for the Year 1958/1959, p.175. 113 POWER Power i s one of the most v i t a l factors for indus-t r i a l development i n Indonesia. Whereas i t i s abundantly available i n industrially advanced countries such as Canada and the United States, there i s an acute shortage of power i n Indonesia. The need for more power i s f e l t everywhere, especially i n the industrial f i e l d , resulting i n a waste of industrial capacity. Therefore, i t i s v i t a l that any sizable economic development must be accompanied by increased power development. The present Indonesian per capita production and consumption of power i s extremely low. With a t o t a l generated e l e c t r i c i t y of 983 m i l l i o n kilowatt-hours i n 1957, and an assumed population of 86 .7 million i n the same year, the per capita production came to 11 kilowatt-hours. Corresponding figures for the same year for certain countries were: India 2.3 kilowatt-hours per capita, OA O p Philippines 4 . 1 , Japan 72 and Canada 5400. The installed capacity of power plants i n Indonesia i n 1957 was 266,000 kilowatt. 8 3 Although this figure i s 8 0See Appendix B, Table XIV. 8 1 Computed from figures given i n Economic Bulletin for Asia and the Far East, v o l . IX, No. 1, June, 195b1. 8 2Derived from E l e c t r i c Power Statistics, v o l . 25, no. 12, December, 1957. 8 3See Appendix B, Table XIV. 114 significantly more than the pre-war installed capacity, i t i s s t i l l considerably lower i f compared to the standards of advanced countries. For example, the province of B r i t i s h Columbia alone, which has perhaps the highest installed capacity per capita of a l l the provinces i n Canada, produced and used about 2,500,000 kilowatts i n 1958, with an estimated need to double every seven to ten years, so that by 1975 the power requirement would amount to 13,700,000 ki l o w a t t s . 8 4 The greatest part of the power development has been on Java, especially West Java. On the outer islands, e l e c t r i c power generation i s confined to a rela t i v e l y few areas. Roughly sixty-two per cent of the power generated i s hydroelectric, thirty per cent i s generated by diesel fuel, and the remainder by steam. This i s i n striking contrast with Canada, where ninety-five per cent of a l l power produced i s generated hydraulically, and with the 85 United States, where the figure i s twenty per cent. Figures on available power resources i n Indonesia are scanty. The most recent estimate places the potential 8fi water power capacity at close to 3,000,000 kilowatts. The problem of power shortage i n Indonesia w i l l be 8 4The Vancouver Sun, E l e c t r i c Power i n B r i t i s h Columbia, A Special Series, June, 1 9 5 9 , p. 57 85 86 ^Dominion Bureau of Stat i s t i c s , Canada 1955, p.130, See Supra, p. 99 . 115 solved i n two stages. The short-run problem of existing power def i c i t s i s met by building a number of new small power plants, and extending the capacity of existing plants. In the second stage, large-scale hydroelectric projects are carried out as part of the F i r s t and Second Five Year Plan. The most important are the Ujat^luhur Project i n West Java and the multi-purpose Asahan Project i n Sumatra, with a planned capacity of 150,000 kilowatts and 800,000 kilowatts respectively. It i s expected that at the end of 1965 increased capacity as installed by the government w i l l amount to 358,950 kilowatts of hydroelectric power, 31,545 kilowatts generated by diesel machines, and 86,400 by means of steam, giving a total increase of 476,895 kilowatts or twice the present capacity. 8^ TRANSPORTATION There i s no question that transportation i s of major importance for such a country as Indonesia with i t s many islands and great distances. Sea transportation, i n particular, i s v i t a l l y important, both from the strategic as well as from the economic point of view. Much i s s t i l l to be done i n the way of bringing up See Appendix B, Table XV 116 the transportation network to a reasonable standard. Not only must new highways and railways be built, but a great portion of the existing road and railway system, which suffered damage and deterioration during World War II, must be restored. Roadways. The total lengths of public roads i n 1958 was 79,000 kilometers, of which 30,000 kilometers was i n Java and Madura, 28,000 i n Sumatra, and the oo remainder i n the outer islands. Traf f i c on the highways has expanded rapidly as can be seen from the increase i n the number of vehicles on the road. The total number of registered motor vehicles reached 233,000 i n 1958 as compared to 68,000 i n 1951, the most marked increases being accounted for by trucks and motorcycles. 8 9 Postwar road construction has been very limited due to lack of funds, and efforts were almost exclusively devoted to the restoration of pre-war roads. Plans for additional roads are mainly for the outer islands, as roads on Java are considered i n reasonably good condition. Long range plans envisage the ultimate lengthwise connection of the main island chain from the most northern t i p of Sumatra 88 ° S t a t i s t i c a l Pocketbook of Indonesia 1959, p. 166. See Appendix B, Table XVI 117 through Java and B a l i to the Sunda I s l a n d s . I n 1958 an amount of e i g h t m i l l i o n d o l l a r s was a l l o c a t e d f o r road c o n s t r u c t i o n i n Sumatra, the e x e c u t i o n of which would he done w i t h the a i d of a t e c h n i c a l con-s t r u c t i o n f i r m from the U n i t e d S t a t e s . In the meantime, under a Russian c r e d i t of s i x m i l l i o n d o l l a r s , heavy road equipment has been purchased and Russian experts would a s s i s t i n the c o n s t r u c t i o n of the 662 k i l o m e t e r s of roads connecting Bandjarmasin, Balikpapan, and Samarinda i n 0,0 Kal imant an. Railways. Only Java has a f a i r l y complete r a i l w a y network. I t i n c l u d e s two t r u n k l i n e s , connecting D j a k a r t a and Surahaja v i a a n o r t h e r n and southern r o u t e , and three l a t e r a l l i n e s t h a t connect the t r u n k l i n e s . F e r r i e s connect the Java r a i l l i n e s w i t h Sumatra and Madura. I n Sumatra there are three major l i n e s s e r v i n g the n o r t h c o a s t , the westcoast, and the southcoast. The t o t a l l e n g t h of t r a c k i n use at the end of 1958 was 6,640 k i l o m e t e r s . No new t r a c k has been added 91 s i n c e 1952. Instead, a l l expenditures s i n c e 1950 went f o r r e p a i r and replacement of the e x i s t i n g roadbed and equipment. Although the number of r o l l i n g stock has Bank Indonesia, Report f o r the Year 1958/1959, p.221. S t a t i s t i c a l Pocketbook of Indonesia 1959, p. 169. 118 increased steadily since after the war, i t i s s t i l l below the pre-war figure. Data on freight carried show a decline since 1955 from 6,800,000 tons to 5,900,000 tons i n 1 9 5 8 , ^believed to have been caused by increased truck competition. Passenger t r a f f i c , on the other hand, has increased continuously. Water Transport Inland waterways. No data are available regarding the volume and scope of Indonesia's river t r a f f i c . Por most areas, including Java, inland waterways are of negli-gible importance. Only i n certain parts of Kalimantan and Sumatra do they play an important role. The reason for this i s perhaps the fact that Java has a well-developed road and railway network, and there i s , therefore, no real need to use the rivers as a means of transportation. Sumatra and Kalimantan, on the other hand, have an inadequate system of transport. The fact that the r i c h petroleum and coal deposits are i n these areas has also helped to develop the inland water transport i n the search for a cheap means of transport to carry the heavy crude o i l and bulky coal. It i s unlikely that i n the future Java's inland 9 2See Appendix B, Table XVII. 9 3 S t a t i s t i c a l Pocketbook of Indonesia 1 9 5 9 , p. 170. 119 waterways w i l l ever attain an economic place of importance. Sumatra and Kalimantan which possess navigable rivers up to 600 kilometers and 280 kilometers upstream respectively, may very well u t i l i z e their rivers more intensively, but the shallowness of some of the rivers may remain a limiting factor. Interisland and Ocean Shipping. Interisland and coastal shipping i s of particular importance to Indonesia's economy because of the country's numerous islands and their scattered distribution. Commercial interisland communication was paralyzed when i n December 1957 the Dutch Shipping line KPM (Royal Packet Navigation Company), which operated seventy per cent of Indonesia's shipping, suddenly broke off i t s services. As of 1956 the KPM with i t s f l e e t of ninety-six ships with a t o t a l displacement of 191,000 gross weight tons transported 744,000 passengers and carried close to 3,000,000 tons of cargo. The government-owned PELNI (Indonesian National Shipping Company), operating with forty-six ships with 46,300 gross weight tons, i n the same year transported 48,000 passengers and close to 1,000,000 tons of cargo. 9 4 Beside the KPM and PELNI, many private companies are operating interisland and coastal shipping S t a t i s t i c a l Pocketbook of Indonesia 1 9 5 9 , p. 174 120 services. Their t o t a l capacity i n 1957 was estimated at 60,000 motorized and non-motorized vessels with a total 05 gross weight tonnage of 350 ,000. To restore sea communications i t was estimated that Indonesia i n the next five years would need 220 ships ranging from 230 tons to 10,000 tons each, and nineteen units of industrial enterprises directly connected with ship servicing. This over-all outlay w i l l amount to 226 m i l l i o n dollars. Ocean shipping a c t i v i t i e s have declined since 1955. At that year 16,172 vessels were recorded as entering from foreign ports, with a total net capacity of. thirty-four m i l l i o n cubic meters. In 1957, however, only 3 , 9 2 7 vessels have entered with a net capacity of twenty-eight mi l l i o n 07 cubic meters. It i s to he hoped that from 1959 on the situation w i l l again be normal. Airways. Indonesia i s connected with other coun-t r i e s by i t s national a i r l i n e GIA, Garuda Indonesian Ai r -ways, and by several international a i r l i n e s . The GIA, which maintains international f l i g h t s and extensive inter-island service serving thirty points with an a i r network •"Biro Perantjang Negara (State Planning Bureau), op. c i t . , p. 65. 9 6Bank Indonesia, Report for the Year 1958/1959, p.223. 9 7 S t a t i s t i c a l Pocketbook of Indonesia 1959, p. 173. 121 of 27,000 kilometers experienced a continuous increase i n a i r transport since 1952 up to 1957. In 1958, however, a great setback occurred when foreign experts numbering 296 persons including sixty-five p i l o t s , l e f t Indonesia. The to t a l passengers carried dropped from 477,000 i n 1957 to 275,000 i n 1958, and the total mileage covered declined from 14.5 million kilometers to only 7.6 million k i l o -qg meters. 5 Since August 1958, however, the f l i g h t frequen-cies over a number of routes have been increased, and new a i r services added. Summary Indonesia's transport system has suffered considerably as the result of World War I I , i t s repercussions and the internal p o l i t i c a l and economical d i f f i c u l t i e s i n recent years. Much of the efforts to normalize the country's trans-portation network has been concentrated i n the repair and restoration of existing road and railway systems, and replacement of r o l l i n g stock and marine f l e e t . New road and railway construction and addition to existing equipment i n recent years has been very small i n relation to what was required, lack of funds and technical s k i l l were the main li m i t i n g factors. Bank Indonesia, op,, c i t . , p. 225. 122 For many years to come, industrial development w i l l be hampered considerably because of inadequate transporta-tion f a c i l i t i e s . Under these circumstances, new industries are not encouraged to arise, and the existing ones w i l l have a very d i f f i c u l t time to keep their heads above water. LABOR As has been discussed i n Chapter II, the importance of labor as an industrial location factor depends on the characteristics of wage rates, productivity, s k i l l , supply, labor legislation, etc. The same factors would undoubtedly also emerge as location factors i n Indonesia, although their positions of relative importance may d i f f e r considerably from those known i n Canada or the United States. Supply. Generally speaking, Indonesia has a large supply of labor. Thirty million persons out of a total population of eighty million i n 1953 were estimated to be employed i n the several occupational groups from the pro-qq duction of raw materials to trade and professions. ^ With a denser population Java obviously has the largest labor supply as compared to the other islands. Accurate data on unemployment are not available, but the unemployment situation i s most serious i n Java, and i n the urban areas See supra, p. 80. 123 more serious than i n rural areas. rates and productivity. Wage levels when compared to those i n industrially advanced countries are extremely low. Minimum daily wages i n 1958 ranged from Ep. 5.30 for workers i n agricultural estates to Rp. 14.16 for those working for transport companies. 1 0 0 However, labor productivity i s also extremely low. It i s even 101 believed that i t i s much lower than i n pre-war years, although no data are available either to prove or disprove this contention. The abundance of labor, i t s lack of training, the absence of capital, destruction of f a c i l i t i e s and economic dislocation resulting from World War II, are 102 considered to be factors attributing to low productivity. Wage levels have i n general advanced steadily with no appreciable increase i n productivity, i f any. This situation certainly weakens considerably Indonesia'a com-petitive position i n international trade and creates unfavorable affects i n the monetary situation. On the other hand, the r i s e i n wages i s understandable when viewed i n the l i g h t of mounting cost of l i v i n g . For example, placing the cost of l i v i n g index i n Djakarta i n At an o f f i c i a l exchange rate of Rp. 11.40 to $1. In 1958, the dollar equivalent would be $0.47 and $1.24 per day respectively. See further Appendix B, Table XVIII. 101 U. S. Department of Commerce, op_. c i t . , p. 98. 1 0 2 i b i a . 124 1953 at 100, the index f o r 1958 was 225, an i n c r e a s e of 103 more than 100 per cent. J S k i l l . Although the o v e r - a l l Indonesian l a h o r f o r c e may he ample, s k i l l e d workmen are i n sh o r t supply. A shortage of t e c h n i c i a n s and managers i s a l s o f e l t a t a l l l e v e l s . The s i t u a t i o n i s aggravated hy the l a c k of t r a i n i n g and edu c a t i o n f a c i l i t i e s . As s k i l l s and super-v i s i o n a l a b i l i t y can only be a c q u i r e d through a l o n g t r a i n i n g p e r i o d and experience, the impact of t h i s problem w i l l be f e l t f o r many years t o come. Labor o r g a n i z a t i o n s . During the Dutch a d m i n i s t r a -t i o n the growth of tra d e unionism was tempered, and the few t r a d e unions t h a t e x i s t e d were weakened by i n t e r n a l s t r u g g l e f o r c o n t r o l between the communist members and the muslim n a t i o n a l i s t s . Yet, they succeeded i n c a l l i n g out t h e i r members t o a s t r i k e among government employees i n pawnshops, and other o c c u p a t i o n a l groups. S t r i k e s became such a s e r i o u s t h r e a t t o the Dutch economy t h a t i n 1925 the Dutch government passed a law making s t r i k e 104 a c t i o n i l l e g a l . As soon as the Republic was founded w i t h a pro-v i s i o n a l c o n s t i t u t i o n which r e c o g n i z e d trade unions as a 103 - ' S t a t i s t i c a l Pocketbook of Indonesia, 1959, p. 234. 1 0 4 D o r o t h y Woodman, The Re p u b l i c of Indonesia (London: The Cresset P r e s s , 1955), p 7 3 7 5 / h 125 basic and desirable part of the social structure, the labor movement was markedly accelerated. As of 1954 the Ministry of Labor reported that there were seven national labor federation, about 180 national or regional unions, 105 and more than 1100 l o c a l independent unions. ' Statistics on union membership are not available, but i t may be e s t i -mated to be between five and six m i l l i o n persons. Labor-Management relations. Labor unrest, which includes strikes, work stoppages, and other disputes have occurred f a i r l y frequently. However, a sign of considerable improvement i n the situation seems to be i n sight. Whereas the number of disputes has increased steadily from 2963 i n 1954 to 4131 i n 1957, the figure for 1958 showed a drop of 10fi nineteen per cent to 3350. The strike picture also shows a marked improvement. The number of work stoppages and lock-outs i n 1954 was 319 reaching a peak of 505 i n 1956. 107 In 1958, however, only f i f t y - f i v e strikes were recorded. Demand for higher wages i s generally the principal cause of disputes, followed by problems connected with employment, dismissal, and working conditions. 105 U. S. Department of Commerce, op. ext., p. 101. 1 0 6See Appendix B, Table XIX. 107 w'See Appendix B, Table XX. 126 Labor l e g i s l a t i o n . The most important and earliest piece of labor l e g i s l a t i o n was the Labor Law of 1948, which set standards to be implemented by various ordinances. The principal provisions of the law concern the establishment of a forty-hour work-week, with a maximum of seven hours a day and an obligatory restday once a week. Night work i s limited to six hours per day or thir t y - f i v e hours per week. Workers are entitled to a l l o f f i c i a l holidays and vacations of two weeks annually. Female workers are to be granted two days menstrual leave and three months maternity leave. The basic l e g i s l a t i o n concerning labor disputes i s embodied i n the "Emergency Act of Settlement of Labor Conflicts" or Law No. 16 of 1951. Under this law, a pro-cedure i s established for settling labor disputes by regional boards. If settlement cannot be reached, the dispute was referred to a regional committee for decision. An appeal of the decision could be made to a Central Com-mittee, which would give the binding decision. This Central Committee i s a college with an extraordinary j u d i c i a l status, set up on a legal base and responsibly 1 oft only to law and justice, not to the Minister concerned. u oBank Indonesia, Report for the Year 1958/1959, p. 231 . 127 This law was amended by Law No. 22 of 1957 where the composition of the Central Committee was changed to also include fiv e employer's representatives and fiv e worker's representatives beside those from the government. Another amendment gives the Minister of Labor Affairs the right to annul or postpone the enforcing of Central Com-mittee decisions i f they are considered as "being a risk for the State interests and i n order to maintain public s e c u r i t y . " 1 0 9 There are only few social security laws, of which the Labor Accident Law of 1951 i s perhaps the most signi-ficant. Under this law, the employer i s l i a b l e for medical care and f u l l or p a r t i a l wage payments to workers injured i n the l i n e of duty. In the event of death, the employer must pay burial expenses, and periodic or lump-sum payments to the dependents. Summary The Indonesian labor scene may prove to be most significant i n influencing the establishment of new enter-prises. Among the favorable factors are the large supply and the generally low wage rates. However, these advan-tages tend to be n u l l i f i e d against the deficiency i n s k i l l , 1 0 9 i b i a . 128 education, and managerial and supervisional a b i l i t y , and the extremely low productivity. The Labor organizations, which i n the past have not shown a favorable record of relationship with manage-ment, seem to have shown a more mature understanding and attitude, as indicated by the drastic drop i n the number of work stoppages during the la s t two years. The influence of labor l e g i s l a t i o n i s d i f f i c u l t to appraise since they are s t i l l very limited i n number. ENTREPRENEURSHIP AND MANAGEMENT Entrepreneurs and managers are closely associated with every aspect of production, and their presence i s v i t a l to assure effective combinations of the factors of production. Their place of importance i n industrial development i s much the same i n under-developed countries as i t i s i n industrially advanced countries. The only difference i s that i n advanced countries more emphasis i s given to the quality of entrepreneurs and managers, whereas i n under-developed countries i t i s their a v a i l a b i l i t y which i s the major factor. All' under-developed countries are faced with the shortage i n entrepreneurs and managers i n much the same way. In the case of Indonesia, this shortage i s generally characterized by clearly defined symptoms. There i s a 129 general lack of efficiency i n productive processes, a lack of i n i t i a t i v e and organization i n many industrial operations. Investors prefer investment i n land and conspicuous consumption rather than i n industries, and there i s a lack of dynamicism, which results i n the fore-going of investment opportunities. Compared to countries such as Canada, the United States, and other countries i n Western Europe, the shortage of technicians and managers i s indeed phenomenal. Figures indicating this scarcity are not available for Indonesia. However, data have been published for other Asian countries which might be assumed to apply i n the case of Indonesia. Whereas almost thirty per cent of the tota l economically active population i n the United States belongs to the group of technicians, managers and related workers, the corresponding figure for India i s only 1.9 per cent, for Pakistan 3.3 per cent, for Thailand 9.2 per 110 cent, and for Burma 13.1 per cent. For some time i n the future this problem of scarcity i n technical and managerial a b i l i t y w i l l be experienced. This w i l l most certainly slow down the rate of industrial growth of Indonesia. Technicians and managers cannot be See Appendix B, Table XXI. 130 acquired overnight. Instead, long training and education periods are required, and adequate f a c i l i t i e s to carry them out. MARKETS Despite the fact that Indonesia has a large popu-lation, the scope of the market for goods and services i s limited due to an insufficient real demand for them. This indicates that there are other factors "beside the total figure of the population, which determine the size and behavior of markets. F i r s t of a l l , the level of real income of the population. High real income corresponds to a large market potential and low real income to a small size of the markets. As has been shown, the Indonesian per capita income, although higher than that of certain asian countries, i s s t i l l considerably low i f compared to that of Western European and North American countries. Secondly, the size of the market i s also dependent on the proportion of t o t a l expenditures which i s spent on p a r t i -cular products. A large part of Indonesia's population s t i l l l i v e s on a subsistence l e v e l . Therefore, any increase i n real income w i l l tend to be spent almost exclusively on food. Hence, the market for manufactured goods, which i s associated with industrialization, w i l l remain limited for quite some time. Finally, unlike Canada and the United 131 States, Indonesia lacks the technical and inst i t u t i o n a l f a c i l i t i e s which are essential for the efficient and widespread operation of the markets. This includes f a c i l i t i e s for wholesaling and handling, a network of trading hanks, and other basic f a c i l i t i e s such as trans-port and communications. Apart from those factors just enumerated, there i s another important factor, which tends to l i m i t the size of the market, and which i s unique to Indonesia and perhaps to many other under-developed countries. This i s the problem of segregated markets which are not linked up with each other. Instead, they form subsidiary sub-sistence economies or more or less self-contained village societies, and cannot, therefore, be expected to form part of the general market of the country. The United Nations sums up the impact of this problem as follows: This insulation of a portion of the population...• affects economic growth i n general but i s p a r t i -cularly inimical to the development of secondary industry. It inhibits the flow of labour into occupations requiring industrial s k i l l s ; i t keeps off the market a significant proportion of the country's potential purchasers of industrial products.''' It i s hoped that as economic development gets under United Nations. Processes and Problems of Industrialization i n Under-developed Countries. New York: United Nations Publication, 1 9 5 5 , p. TJT 132 way, real incomes w i l l increase, and markets w i l l expand. However, this expansion i s not l i k e l y to he cumulative, 112 unless productivity continues to increase. CAPITAL The scarcity of capital severely limits indus-t r i a l i z a t i o n i n Indonesia. To a large extent the process of industrialization depends upon the country's a b i l i t y to save and to invest. The progress of industrialization depends, therefore, on the rate hy which savings and investments are increased. As has been pointed out (page 84), the amount of annual savings and investments i n most under-developed countries, including Indonesia, are quite small. Personal savings amount to one per cent or less of gross national product, as compared with four to six per cent i n advanced countries, while annual net invest-ment i s i n the order of five per cent of national income, as compared to at least f i f t e e n per cent for countries i n Western Europe and North America. In view of this fact, the process of industrialization may be defined as the process of increasing the rate of net capital formation 113 from fiv e per cent to about f i f t e e n per cent. United Nations, Economic Bulletin for Asia and the Par East, v o l . IX, No. 3, December 1 9 5 5 , p. 60. 133 In the case of Indonesia, i t was expected that at the end of the f i r s t Five Year Development Plan, the rate of net investment would have increased from five per cent 114-to 7 . 3 per cent. However, i t i s doubtful that, with the numerous d i f f i c u l t i e s encountered during the execution 115 of the Plan, even this low rate was achieved. The present rate of net investment i s certainly far below the level where increased standard of l i v i n g for the masses could be achieved, taking into account the rate of growth of population. Thus, more capital i s required than i s presently available. This requires either the mobiliza-tion of domestic savings, the seeking of foreign loans, or the attraction of foreign capital. The decision as to which to apply i s indeed a v i t a l one. PROBLEMS AND PROSPECTS In the previous sections an attempt was made to survey and appraise Indonesia's economic structure and i t s location factors i n connection with the process of industrial develop-ment. The analysis reveals that Indonesia's economy i s capable of great industrial expansion. With i t s favorable geographical location, i t s f e r t i l e s o i l , and i t s abundant 1 l 4 I b i d . , p. 19 115 See for example Biro Perantjang Negara (State Planning Bureau), op. c i t . , pp. 1 - 1 5 . 134 untapped resources, Indonesia i s potentially an important industrial nation. Yet, up to the present time Indonesia's economy i s s t i l l largely agricultural, and w i l l perhaps remain so for several decades to come. The need for industrialization cannot he denied. It i s needed to reduce excessive dependence on the export of primary products, and, at the same time, to increase national income and raise the over-all standard of l i v i n g . Considering the generally small extent of industrialization today i n relation to the hroad range of natural resources, the scope for industrial expansion i n Indonesia i s s t i l l very large, and the outlook promising. Industrialization i s , however, confronted by a series of obstacles. Among the major limiting factors are lack of capital, lack of basic f a c i l i t i e s , lack of mana-gerial s k i l l , low income and low productivity. Thus, the main problem i s whether or not conditions i n the future w i l l be suf f i c i e n t l y favorable for new domestic industries to develop within the country. To find the answer a further analysis i s necessary of Indo-nesia's present industrial location i n relation to the pos s i b i l i t y of attracting new industries. As a guidance, the l i s t and sequence of location factors as discussed i n Chapter III w i l l be used. 135 Transportation The a v a i l a b i l i t y of an adequate and effective trans-portation network i s far from being realized i n present-day Indonesia. Unless this can be achieved in the not too distant future, any sizable investment for the establishment of new industries cannot be expected. The system of trans-portation i n Java, Madura, and B a l i i s reasonably adequate, but the transportation network i n the outer islands i s definitely inadequate. Road and railroad development i n the outer islands must, therefore, obtain preference i n future plans, since i t i s i n those islands with most of the untapped resources that new industries can be expected to develop. Another important aspect of transportation, which at the present time i s rather neglected, i s the inter-island and coastal shipping. Its further development i s unquestionably v i t a l i n order to achieve an effective and eff i c i e n t distribution of goods among the islands. Raw Materials An abundance of untapped natural resources i s available for development i n Indonesia. However, because of the inadequacy of almost a l l other important location factors such as transportation, markets, capital, managerial s k i l l , etc., the presence of these resources does not have 136 a strong attracting force for the location and development of new industries. The greatest obstacle i s perhaps the fact that such a development requires a larger i n i t i a l capital than the average Indonesian businessman i s w i l l i n g or able to invest. I t i s therefore essential that the government should i n i t i a t e the development of the extractive type of industries. The most promising seems to be the development of an aluminum plant i n Sumatra, and a steel plant i n Kalimantan, which are expected to be i n operation within the next five years. At that time, new small-scale industries may develop which w i l l u t i l i z e aluminum and steel as raw materials. Markets With i t s large population, Indonesia has a large potential market. However, with the low l e v e l of income of the people and inadequate technical and i n s t i t u t i o n a l f a c i l i t i e s , the establishment of new industries w i l l progress slowly. The most rapid development has been experienced by the food industries. This i s understandable considering the fact that, because a large part of the Indonesian population s t i l l l i v e s on a subsistence l e v e l , any increase i n real income tends to be spent entirely on food. The manufacturing of industrial goods w i l l be small because of the ins u f f i c i e n t demand for them. 137 Labor Labor i s one factor which at the present time i s seriously r e s t r i c t i n g industrial growth. The large supply of labor and low wage rates are perhaps conducive to the establishment of new industries. However, these favorable factors tend to be offset by other factors, such as low productivity, and the general lack of s k i l l e d and super-visory personnel. To improve the situation, more training and better educational f a c i l i t i e s must be established. Power Power i s s t i l l one of the most c r i t i c a l location factors i n Indonesia. The acute shortage i s seriously hurting the industrial sector of the economy. With the expected additional installed capacity within the next five years, new industries may be expected to emerge as the result of i t . Since the largest power projects w i l l be undertaken i n Sumatra and West Java, new industries w i l l be attracted to locate within these areas. Taxation There i s a uniform tax system i n Indonesia, adminis-tered by the central government. Por this reason, taxation w i l l perhaps never become a factor of consideration i n the selection of a plant location. However, the generally high 138 taxes on business income w i l l undoubtedly restrain i n i t i a t i v e to the establishment of new enterprises. Capital and Entrepreneurship Owing to the small amounts of domestic savings generated, scarcity of capital i s a serious limit i n g factor i n the development of new industries. In i t s anxiety to create an entrepreneurial class, the government has been extending loans, special credits, import and marketing arrangements, and other preferences to would-be Indonesian businessmen. However, these practices have, i n general, not worked out as anticipated, since i n many cases these " a r t i f i c i a l " entrepreneurs have not sufficient business and managing experience to make use of these privileges. What the government seems to forget i s the fact that there i s i n Indonesia a broad sector of the economy composed of petty traders, shopkeepers, craftsmen, and small-scale i n d u s t r i a l i s t s , whose entrepreneurial poten-t i a l i t i e s cannot be ignored. However, because of the existence of a maze of state control, these people tend to eke out an existence by highly speculative and essen-t i a l l y i l l e g a l ventures. Management The lack of supervisory and managerial s k i l l has led to a general inefficiency i n almost a l l organizations, 139 i n the governmental sector perhaps more so than i n the private industrial sector. During the l a s t few years the Institute for Economic and Social Research of the University of Indonesia has examined government practices i n assisting new industries. Its reports repeatedly underscore the mismanagement of the government administrative apparatus. In the private industrial sector, the situation i s not as serious because many of the more competent managers are more wi l l i n g to work for private companies because of higher salaries paid. The main problem confronting entrepreneurs wanting to i n i t i a t e a new enterprise i s the lack of managerial personnel. This i s i n striking contrast to the situation i n industrially advanced countries, where the problem i s not so much the a v a i l a b i l i t y , but rather the quality of management personnel. Climate The generally hot climate of most areas i n Indonesia i s certainly not conducive to e f f i c i e n t produc-tion. Labor i n the more inland regions, where tempera-tures are much milder, tends to be more productive. "The Government's Program on Industries," Ekonomi  dan Keuangan Indonesia, v o l . 7, 1954, pp. 702-736. Quoted i n J . M. van der Zroef, "Indonesia's Economic Future," Pac i f i c A f f a i r s, v o l . XXXII, No. 1, March, 1959, pp. 46-72. 140 However, most of the commercial a c t i v i t i e s are carried out i n the large coastal c i t i e s , although temperatures i n these areas may sometimes run to an intolerable point. Prospec-tive entrepreneurs generally prefer locations i n coastal c i t i e s above those i n the more inland regions. Attitudes The attitude of the government toward private industries i s often deplorable. On the one hand, the government i s encouraging the development of private enterprises, but at the same time, i t i s favoring i t s own undertakings by special protective measures. This has led to clashes between government agencies and private enterprises i n the same line of economic endeavour. It i s clear that the preceding problems are not singular but rather they are interrelated issues. They are also an integral part of the main economic problems, which w i l l be discussed i n the following section. Basic Economic Problems The Population Problem. As was pointed out, the present transmigration policy does not greatly relieve the pressure of population i n the densely populated areas. It was estimated that i f the present rate of population growth, which i s about 1.5 per cent annually, continues, 141 Java would nave a total population of 116 millions i n the year 2000. However, when 20,000 families could he emigrated annually, the population would only rise to seventy-four m i l l i o n . 1 1 7 Such a large-scale movement of people would seem prohibitive i n view of the enormous cost involved and the d i f f i c u l t i e s of resettlement. Nevertheless, this i s the minimum leve l that i s required to make emigration effective. The population problem has not only created pressures on available resources, but i t has also created a situation where i n agriculture the maximum output per man has been reached, and where i n fact decreasing returns has started to set i n . This has resulted i n a "disguised unemploymentM problem, i . e . , people could be shifted either into industry or into other occupations without causing a drop i n agri-cultural production. This seems to point to rapid indus-t r i a l i z a t i o n as the key solution. However, where indus-t r i a l i z a t i o n has penetrated the economy i n a given area, i t has caused a rapid increase i n population of that area. This has been especially the case i n larger towns and c i t i e s where housing and other hygienic f a c i l i t i e s have not been able to keep pace with this abnormal growth. 'Cited i n J . M. van der Kroef, Indonesia,in the  modern world. (Bandung, Indonesia: Masa Baru, Ltd., 1956), p. 70. 142 These are only some of the aspects connected with the population problem and there are undoubtedly many more. It i s the opinion of the writer that the government must take this problem more seriously than i t has i n the past. Unless industrialization and large-scale transmigration go hand i n hand, the f u l l benefits of industrialization w i l l never be reaped. 118 The "vicious c i r c l e " Problem. Indonesia, l i k e other under-developed countries, i s primarily agricultural. I t has this agricultural economic structure because this structure corresponds to i t s low-productivity and to the attitudes associated herewith. At low levels of productivity a large part of the population produces just a l i t t l e more than enough to feed and clothe i t s e l f . The small portion remaining i s exported i n exchange for basic-need goods. Because of the low l e v e l of real incomes, there i s a low demand for manufactured goods, and thus also for workers i n manufacturing. The problem of small market i s aggravated because of the lack of technical and i n s t i t u -tional f a c i l i t i e s . They, i n turn, are limited i n their growth because of a lack of basic f a c i l i t i e s , of which transportation i s most important. °See Economic Bulletin for Asia and the Par East, v o l . IX, Ho. 3, December, 1958, pp. 4-8. 143 Thus, the low level of productivity and the non-industrialized structure of employment form a low e q u i l i -brium l e v e l . Added to this the continued increase i n population and the likelihood of decreasing returns i n agriculture, a "vicious c i r c l e " i s thereby created. The essential condition to breaking this trap i s increased productivity. For Indonesia, with about seventy-five per cent of the population engaged i n agriculture, this means an increase i n agricultural productivity. And this can be done. Rice cultivation i s a good example. The y i e l d per acre i s about 1200 to 1500 pounds i n 1955 as compared to 3500 pounds i n Japan. J In this case, f e r t i l i z e r s and other mechanical aids w i l l be of great help, but what i s needed most i s hard work. The Problem of Balanced Economy. At the present time, Indonesia's economy i s s t i l l dependent on a re l a -t i v e l y small number of export goods, which are highly sensitive to price fluctuations i n the world market. Por this reason, i t i s v i t a l that Indonesia should aim for a balanced economic growth, i . e . , a well balanced develop-ment of the production of foodstuffs and agricultural exports and of industrialization. A balanced programme •'Institute of International Finance, The Economic  Position of Indonesia. I.I.P. Bulletin, New York, 1955. 144 of industrialization i s also needed to deal with other factors which l i m i t the desired rate of industrial expan-sion. This includes the shortage i n management, s k i l l e d lahor, and the improvement of "basic u t i l i t i e s such as power and transport. With Indonesia's great variety of available resources, this kind of development program can certainly be carried out. However, a balanced development program would require large capital investment, which cannot be easily obtained i n Indonesia today. Un t i l large amounts of capital can be mobilized, Indonesia may well remain an agricultural country. The Problem of Capital Formation. Closely related to the problem of balanced economic growth i s that of capital formation. Industrial development cannot be sus-tained unless Indonesia has adequate capital. Such capital can be acquired i n three ways. One way i s by means of domestic savings. However, the total amount from the three sources, namely, personal, business, and government, are very small indeed. There i s no evidence as yet that domestic savings w i l l improve considerably i n the near future. With a low l e v e l of income, the propensity to save i s equally low. A second way to obtain capital i s by seeking foreign loans. This policy, however, cannot go on indefinitely. Foreign loans have come i n continuously since the postwar period, although data are not available to show the exact amount. However, i t was reported that 145 interest payments i n 1959 on foreign and internal long-term loans amounted to 190 million rupiahs, while the to t a l instalment payment for the same year amounted to 1 PO 272 million rupiahs. Present economic conditions certainly do not allow these figures to be increased. Extensive foreign loans without a corresponding increase i n industrial productivity w i l l certainly result i n economic and monetary collapse. The third and more r e a l i s t i c way to acquire capital at the present time i s through foreign investment. The rate of industrial progress i s not at a l l adequate to improve the standard of l i v i n g markedly without an inflow of capital from abroad. Unfortunately, there i s no clear consensus among Indonesian leaders of such necessity. There are, among them, those who do not realize that foreign enterprises are indispensable for the economy. In so far they do not realize i t , they are w i l l i n g to accept the prosperity decline resulting from this attitude. This opposition would seem to originate from the revolu-tionary period, when anything foreign was considered undesirable. This group would perhaps change their attitude i f i t were better informed of the position and function of foreign capital i n the present-day economy of Times of Indonesia, August 30, 1958. Quoted i n J. M. van der Kroef, "Indonesia's Economic Future," Pacific  A f f a i r s , v o l . XXII, No. 1, March, 1959, pp. 46-72. 146 Indonesia. On the further extreme, there are, of course, the communist leaders, who would denounce outrightly any inflow of foreign investment without providing any explanation. One needs only to he r e a l i s t i c i n order to he of the opinion that foreign know-how and business experience must be employed i n the present economic development of Indonesia. This process must be continued u n t i l a s u f f i -cient number of people have been developed with sufficient training and knowledge to perform these functions, and, i f necessary, u n t i l adequate domestic capital can be generated to buy out the foreign interests. The present p o l i t i c a l and economic situation are far from being favorable for foreign capital to come i n . A b i l l concerning private foreign investments was passed in 1958. I t i s rather unfortunate that the wording of the b i l l leaves too much to the matter of interpretation, beside the fact that i t s nature i s ambivalent. Whereas i t recognizes the necessity of foreign capital for Indonesia's economic development, i t requires rather complicated and d i f f i c u l t conditions which foreign capital must f u l f i l l . Foreign capital i s allowed to operate i n the f i e l d s of production except for the following enterprises: (a) railways, (b) telecommunications, (c) National shipping and aviation, (d) generation of elec t r i c power, (e) i r r i -147 gation and water supply, (f) manufacture of arms and ammunition, (g) generation of atomic energy, (h) mining of v i t a l minerals. Enterprises usually undertaken by Indo-nesian nationals are also closed to foreign capi t a l . The kinds of enterprises belonging to this category are to be determined by the Foreign Investment Council, composed of several cabinet ministers. Yet, no clear l i n e of respon-s i b i l i t y has been defined between this council and other government agencies concerned with economic development. However, the Council i s entrusted with very broad powers. For example, i t determines the number of foreign personnel that may be employed i n each foreign enterprise, stipulates the training and employment of Indonesian nationals, and supervises i t s implementation. Other obstacles which are often mentioned by potential foreign investors are: the r i s k of confiscation or expropriation, discriminatory law enforcement, r e s t r i c -tion on remittance of profits and repatriation of capital, inadequacy of basic f a c i l i t i e s , etc. CHAPTER VI CONCLUSION The industrial development which has taken place i n the United States as well as i n Indonesia upholds several of the concepts of industrial location as exposed i n the location theories hy Roscher, Ross, Weber, and others. In the f i r s t place, nearly a l l the economists recog-nized the importance of certain location factors which they considered as fundamental i n the location of industries. Secondly, each of these writers placed his emphasis on d i f -ferent location factors. Por example, Roscher mentioned raw materials, labor, and capital; Weber considered trans-portation as a major factor; others such as Ross regarded the presence of natural deposits as most significant. A l l these points were clearly v e r i f i e d by the result of the empirical studies, conducted i n the United States, some of which are included i n Chapter IV. In the Indonesian scene the importance of some basic factors such as raw materials, labor, and market i s also recognized and demonstrated i n Chapter V, although no actual empirical studies have ever been made. Some of the basic hypotheses such as that of Ross and Roscher, which stress the importance of raw materials 149 source when there i s a great loss of weight during the production process, Weber's rule of "material index," explains to a large extent the establishment of certain industries i n the United States as well as i n Indonesia. In analyzing the relative importance of the location factors i n relation to industrial development, i t was found that these factors do not occupy the same position of impor-tance i n Indonesia as they do i n the United States. This may be explained partly by the difference i n form of govern-ment, partly by the difference i n the stage of i n d u s t r i a l i -zation, and partly by certain other factors. 3?or example, whereas taxation has become increasingly important i n the location of American industries, i t would perhaps never become a factor i n the case of Indonesia because of the less autonomous position of Indonesian provinces and therefore uniform tax policy. Power has been a factor i n the location of the early American industries, but i t has ceased to be of major importance today because of the abundant supply. On the other hand, Indonesia i s s t i l l struggling with an acute power shortage, so that i t s a v a i l a b i l i t y w i l l remain of prime importance i n the location of industries there. Other examples could be cited, but this i s a sufficient indication of the difference i n relative importance of the location factors i n the United States and i n Indonesia. The special reference to Indonesia has been of great 150 value i n evaluating the potentialities of Indonesia as an industrial nation. With i t s abundance of natural resources, including raw materials, fuel sources, and undeveloped water power, Indonesia may become an important economic power i n the future. However, this promise s t i l l l i e s far i n the future. The survey on the present industrial location factors indicates a general lack i n the factors of produc-tion, and i n the basic u t i l i t i e s and f a c i l i t i e s . This problem i s associated with the low stage of industrialization which i s experienced by Indonesia at the present time. There are, however, other more basic economic problems, which require immediate attention, i f a rapid and adequate rate of industrial growth i s to be achieved. Among these are the population problem, the problem of "vicious c i r c l e , " the problem of balanced economic growth, and l a s t but not least, the problem of capital formation. Many of these problems can perhaps be solved easily, others may require a great deal of planning and thinking. Yet, no problem i s insolvable. I t may be more than d i f f i c u l t , but i t can be done; i t i s a matter of "never say die." 151 BIBLIOGRAPHY 152 SELECT BIBLIOGRAPHY A. BOOKS Conn, Edwin J . Industry i n the P a c i f i c Northwest and the  L o c a t i o n Theory, NewTorkT King's Crown P r e s s 7 ^ 9 5 T 7 Daggett, S t u a r t . P r i n c i p l e s of I n l a n d T r a n s p o r t a t i o n . New York: Harper & B r o t h e r s , 1941, Chapter XXI, "Theories of L o c a t i o n . " Dewhust, F r e d e r i c . America's Needs and Resources: A New  Survey, 1 9 5 5 . ~ F l o r e n c e , P h i l i p Sargent. The technique of I n d u s t r i a l  L o c a t i o n . London, 1 9 4 3 . F l o y d , Joe Summers. E f f e c t s of Tax a t i o n on I n d u s t r i a l  L o c a t i o n . Chapel H i l l : U n i v e r s i t y ofHorth C a r o l i n a P r e s s , 1952. Greenhut, M e l v i n L. P l a n t L o c a t i o n i n Theory and P r a c t i s e . Chapel H i l l : The U n i v e r s i t y of North C a r o l i n a Press, 1 9 5 6 . G r i f f i n , J . I . I n d u s t r i a l L o c a t i o n i n the New York Areas. New York: C i t y C o l l e g e P r e s s , 19T6. Hoover, Edgar M. L o c a t i o n Theory and the Shoe and Leather I n d u s t r i e s . Cambridge: Harvard U n i v e r s i t y P r e s s , 1937. Hoover, Edgar M. The L o c a t i o n of Economic A c t i v i t y . New York: McGraw-HUT Book Company, Inc., 194b". I s a r d , Walter. L o c a t i o n and Space Economy. New York: John Wiley & Sons, I n c . , 1956. Lefeber, L o u i s . A l l o c a t i o n i n Space: P r o d u c t i o n , t r a n s p o r t , and i n d u s t r i a l l o c a t i o n . Amsterdam: North H o l l a n d P u b l i s h i n g Company, 1958. Losch, August. . The Economics of L o c a t i o n . New Haven: Ya l e U n i v e r s i t y P r e s s , 1 9 5 T 7 M a r s h a l l , A l f r e d . P r i n c i p l e s of Economics. Fourth e d i t i o n . London: M a c M i l l a n and company, L t d . , 1898. 153 McLaughlin, G. E. and S t e f a n Robock. Why I n d u s t r y Moves  South. N a t i o n a l P l a n n i n g A s s o c i a t i o n CommitteV~aJ the South, 1949. O h l i n , B e r t i l . I n t e r r e g i o n a l and I n t e r n a t i o n a l Trade. Cambridge: Harvard UniverslTiy P r e s s , 1 9 3 8 . S e l f , P e t e r . The P l a n n i n g of I n d u s t r i a l L o c a t i o n . 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McManmon, George M. A Survey of the L i t e r a t u r e on Indus- t r i a l L o c a t i o n . Business Research Center, Syracuse U n i v e r s i t y , Syracuse, N. Y., May, 1959. 155 C. PERIODICALS Bates, Pord. "The Power-Cost Factor i n Industry Location," E l e c t r i c a l World, 92:456, 1928. Berliner, J. J. "Analysis of Factors affecting Plant Location," Industrial Management. 74: 39-41, 1927. Chinitz, Benjamin, and Raymond Vernon. "Changing Forces in Industrial Location: What new factors relative to transport costs, labor a v a i l a b i l i t y , and wage levels should a company consider?" Harvard Business Review, 38: 126-36, January-February, I 9 6 0 . Colburn, H. S. "Labor considerations i n Plant Location," Manufacturing Industries, 13:261-364, 1927. Conway, H. MacKinley, Jr. "700 Plant Location Factors," Industrial Development. 4: 17-20, No. 11, October 1957. Fish, S. "Selecting Your New Plant Location," Management  Review, January 1954, pp. 14-15. Fulton, Maurice. "Plant Location - 1965," Harvard Business  Review, 33:2, March-April, 1955, pp. 40^507 H i l l , Colin J. "Some Aspects of Industrial Location," Journal of Industrial Economics, August 1954, pp.184-192. Garwood, John D. "Taxes and Industrial Location," National  Tax Journal. 5: 365-369, December 1952. Greenhut, Melvin L. "A General Theory of Plant Location," Metroeconomics. 7: 59-72, 1955. Harris, Chauncy D. "The Market as a factor i n the location of industry i n the United States," Appraisal Journal, January, 1956, pp. 57-86. Helbum, Stephen. "Location of Industry," Journal of Land  and Public U t i l i t y Economics, 19: 253-263, AugusT; 1943. Hoover, and G. E. McLaughlin. "Strategic Factors i n Plant Location," Harvard Business Review, 20: 133-140, Winter, 1942. Iowa. State University. State and Local tax differentials and the location of manufacturing. Iowa City, March 1956. 156 Isard, Walter. 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C , 1951. Hart, G. H. C. Towards economic democracy i n the Nether- l a n d s I n d i e s " The Netherlands and the Netherlands I n d i e s C o u n c i l of the I n s t i t u t e of P a c i f i c R e l a t i o n s , 1942. H i g g i n s , Benjamin Howard. Indonesia's Economic S t a b i l i - z a t i o n and Development. New York: I n s t i t u t e of P a c i f i c R e l a t i o n s , 1957. H i g g i n s , Benjamin Howard. "Western E n t e r p r i s e and the Economic Development of Southeast A s i a : A Review A r t i c l e , " P a c i f i c A f f a i r s , v o l . XXXI, No. 1, March, 1958. I n s t i t u t e of I n t e r n a t i o n a l Finance. The economic p o s i t i o n  of I n d o n e s i a . New York, August 30, 1955. Zees, B. Indonesia i n 1956. P o l i t i c a l A s p e c t s . A r e p o r t prepared under tEe d i r e c t i o n of B.H.M. Vlekke. The Hague: Netherlands I n s t i t u t e of I n t e r n a t i o n a l A f f a i r s , 1957. K e y f i t z , Nathan, and Widjojo N i t i s a s t r o . S o al Penduduk dan  Pembangunan Indonesia, T j e t a k a n Kedua. D j a k a r t a : ' T. Pembangunan, 1959. P a n i k k a r , K. M. The A f r o - A s i a n S t a t e s and t h e i r Problems. London: George A l l e n & Unwin L t d . , 1959. R e p u b l i c of Indonesia, M i n i s t r y of In f o r m a t i o n . B a s i c I n f o r m a t i o n on Indonesia. D j a k a r t a : P e r t j e t a k a n Negara, vm: Robequain, C h a r l e s . Malaya, Indonesia, Borneo, and the  P h i l i p p i n e s • London: Longmans, Green and Co•, 1954. St a l e y , Eugene. The Future of Underdeveloped C o u n t r i e s . New York: Harper & B r o t h e r s , 1954-. Studenski, P a u l . The Income of Nat i o n s . Washington Square: New York U n i v e r s i t y P r e s s , 1958. 159 Thayer, P h i l i p W. N a t i o n a l i s m and Progress i n Free A s i a . B a l t i m o r e : John Hopkins P r e s s , 1956. The Indonesian Spectator, Biweekly magazine on Indonesian A f f a i r s , D j a k a r t a , Indonesia. United N a t i o n s , Department of Economic A f f a i r s . Development  o f M i n e r a l Resources i n A s i a and the Far East" Bangkok: U n i t e d Nations P u b l i c a t i o n , 19"57. U n i t e d N a t i o n s , Department of Economic and S o c i a l A f f a i r s , P rocesses and Problems of I n d u s t r i a l i z a t i o n i n Under- developed" C o u n t r i e s . New York: U n i t e d Nations P u b l i -c a t i o n s , 1955. Un i t e d N a t i o n s , ECAFE S e c r e t a r i a t . Economic B u l l e t i n f o r A s i a and the Far E a s t . P u b l i s h e d monthly. Uni t e d N a t i o n s , ECAFE S e c r e t a r i a t . Economic Survey of A s i a  and the Far E a s t . P u b l i s h e d monthly J U. S. Department of Commerce. Investment i n Indonesia. Washington, D.C.: U. S. Government P r i n t i n g O f f i c e , 1 9 5 6 . U. S. Department of A g r i c u l t u r e . The A g r i c u l t u r a l Economy of Indonesia, by John E. M e t c a l f . Washington, D. C , J u l y , 1 9 5 2 . ( A g r i c u l t u r e monograph No. 1 5 ) . U. S. Department of Commerce. F a c t o r s L i m i t i n g U. S. I n v e s t -ment Abroad. P a r t I , Survey of f a c t o r s i n F o r e i g n Coun-t r i e s " Washington, D.C: U. S. Government P r i n t i n g O f f i c e , n.d. U. S. P r e s i d e n t ' s M a t e r i a l s P o l i c y Commission. Resources  f o r Freedom. F i v e volumes. Washington, D.C: U. S. Government P r i n t i n g O f f i c e , 1 9 5 3 ) . Van der K r o e f , Justus M. Indonesia i n the Modern World. Bandung: Masa Baru L t d . , 1954-56. Van der K r o e f , Justus M. "Indonesia's economic f u t u r e , " P a c i f i c A f f a i r s , 3 2 : 46-72 , March, 1 9 5 9 . Woodman, Dorothy. The R e p u b l i c of Indonesia. London: Cresset P r e s s , 1 9 5 5 . World Trade I n f o r m a t i o n S e r v i c e . B a s i c Data on the Economy of Indon e s i a . P a r t I , No. 58 - 8 T 7 160 A P P E N D I X A 161 APPENDIX A The following l i s t represents Conway's 700 Plant Location Factors, which are divided into ten major headings. Each of these major headings has many sub-headings, as shown. Under each of these sub-headings there i s a l i s t of sub-subheads, which are not included i n this appendix. PLANT LOCATION FACTORS 1. Markets Market Trends Retail Sales Income Competition Industrial Markets Regional Comparisons Areas Consumer Characteristics Population 2. Labor Commuting Faptors Employee Performance i n Area Relocation Testing Techniques Labor Legislation Union Activity Personnel Policies Unemployment • ' « . Labor Potential S c i e n t i f i c Manpower Vocational Training Labor Force Inventory Labor Surveys or Registration Interview Other Employees Sources of Data Unavailable Personnel 162 3. Materials and Services Major Raw Materials Routine Supplies General Services Technical Services 4. Transportation Location Economies Rail Transportation—General Rail Service at each site Motor Transportation Water Transportation Commercial Air Service Private Aircraft F a c i l i t i e s Mail, Parcel Post, and Express Communications Special Services 5. Government and Legislation Government Administration i n Area State Legislation State Taxes Local Taxes Total Tax B i l l Future Taxes Industrial Dispersal 6. Financing Analyze Requirements Sources of Funds Credit Standing Terms of Loans Special Inducements 7. Water and Waste Disposal Basic Water Sources Municipal Water Systems Ground Water—Wells Surface Water—Streams and Lakes Chemical Analysis Drainage Stream Pollution—Waste Disposal Sewage Disposal Systems Garbage and Trash Disposal 163 8. Power and Fuel Select Basic Energy Source Check each u t i l i t y or supplier E l e c t r i c Power Coal, O i l , Possil Fuels Gas 9. Community Characteristics Overall Community Planning Planning and Zoning Industrial Zoning Air Pollution Weather—General Weather—Specific Check-points Housing Civic Organizations P o l i t i c a l Atmosphere Law Enforcement Social Attitudes Business Meeting F a c i l i t i e s Health and Medical Programs Schools Churches Cultural and Recreational F a c i l i t i e s Spectator Sports News Media Representation i n Congress Streets Fire Protection Amenities and Intangibles Existing Industries 10. Individual Sites General Requirements Types of Sites Intangible Considerations Survey Methods Legal Check-Points Maps Soi l Characteristics for Foundation Cost of Land A P P E N D I X B STATISTICAL TABLES 165 TABLE I NUMBER OF TRANSMIGRANTS, 1938-1958 Year Number of Persons 1938 33,399 1939 44,694 1940 52,208 1951 2,864 1952 17,507 1953 39,427 1954 30,192 1955 21,389 1956 24,350 1957 23,230 1958 26,419 Source: C e n t r a l Bureau of S t a t i s t i c s TABLE I I PERCENTAGE OP VALUE OP PRINCIPAL EXPORT PRODUCTS TO TOTAL EXPORT VALUE 1938 1956 1957 1958 Rubber 22.6 39.0 36.6 34.6 Petroleum & Petroleum products 23.5 27.6 31.7 37.0 T i n and t i n ore 4.8 6.9 5.8 4.8 Copra 5.6 4.2 4.2 2.2 Tea 8.2 3.2 3.1 3.3 Coffee 2.0 3.2 3.1 2.4 Manufactured sugar 6.5 1.9 1.8 1.0 Tobacco i n l e a v e s 5.6 3.1 3.5 3.9 Palm o i l 2.4 3.0 2.7 3.1 Pepper 1.2 1.0 0.9 0.7 Hard cordage f i b r e s 1.3 0.7 0.5 0.5 Tapioca products 0.1 0.1 0.1 Kapok f i b r e s 0.°9 0.3 0.1 0.1 Cinchona bark 1.2 — 0.1 0.1 Other products 12.9 5.8 5.8 6.2 Source: C e n t r a l Bureau of S t a t i s t i c s 166 TABLE I I I RICE PRODUCTION AND IMPORTS, 1953-1958 (1000 tons) Year P r o d u c t i o n Imports 1953 7,031 371.5 1954 7,530 261.0 1955 7,216 127.8 1956 7,309 763.2 1957 7,443 563.4 1958 7,613 681.8 Source: C e n t r a l Bureau of S t a t i s t i c s TABLE IV GROSS NATIONAL PRODUCT AND NET NATIONAL INCOME (Based on 1955 p r i c e s , i n Rp. m i l l i a r d ) 1953 1954 1955 1956 1957 1958 G.N.P. at market p r i c e s 121 .0 128.5 127 .9 134.5 144 .7 126.8 Net N a t i o n a l Income 109.1 116 .7 118 .9 124 .5 134.5 117.1 Source: State P l a n n i n g Bureau TABLE V PER CENT FLUCTUATIONS IN NATIONAL INCOME Year Amount of change i n Rp. m i l l i a r d Per Cent 1953 + 6.8 + 6.6 1954 + 7.6 + 7.0 1955 + 2.2 + 1.9 1956 + 5.6 + 4.7 1957 + 10.0 + 8.0 1958 - 17.4 - 12.9 Source: State P l a n n i n g Bureau 167 TABLE VI PERCENTAGE CONTRIBUTION OP THE AGRICULTURAL AND NON-AGRICULTURAL SECTORS TO NATIONAL INCOME 1954-1958 Sector 1954 1955 1956 1957 1958 Agriculture Non-Agriculture 58.0 42.0 56.0 4 4 . 0 5 5 . 0 4 5 . 0 5 2 . 6 4 7 . 4 56.0 4 4 . 0 Source: State Planning Bureau NOTE: The deviation i n 1958 was due to a drop i n industrial production caused hy lack of imported raw materials. TABLE VII NUMBER OP ESTABLISHMENTS AND NUMBER OP PERSONS EMPLOYED IN THE MANUFACTURING INDUSTRY AT THE END OF THE YEAR 1957 M « , - « ^ T « ^ , n + - „ - i * « Number of Number Manor group of Industries Establishments of Persons Food manufacturing industries, except beverage industries 22,222 53, 987 Beverage industries 320 7, 213 Tobacco manufactures 635 91, 593 Manufacturing of textiles 755 72, 319 Manufacturing of wearing apparel 2,432 45, 467 and made-up te x t i l e goods Wood manufactures 378 12, 254 Furniture and fixtures industries 378 8, 561 Manufacturing of paper and paper products 64 3 , 594 Printing industries 521 24, 990 Manufacturing of leather and leather products 409 11, 964 Manufacture of rubber products 356 21, 519 Manufacture of chemicals and chemical products 532 3 1 , 165 Manufacture of nonmetallic mineral products 360 18, 157 Manufacture of metal products 385 15, 619 Manufacturing and repairing of 928 machinery, except e l e c t r i c a l 162 7, Manufacturing and repair of e l e c t r i c a l machinery, apparatus, etc. 34 3 , 119 Manufacturing of transport equipment 440 2 0 , 673 Miscellaneous manufacturing 478 15. 081 TOTAL 10,861 465 ,203 Source: Central Bureau of Statistics 168 TABLE VIII MINERAL PRODUCTION (In metric tons) Y e a r T i O r e Q G o a l B a u x i t e ¥ a n ^ e s e 1938 1939 1940 27,735 38,342 44,033 1,456,647 1,780,632 2,009,422 245,354 230,668 275,221 9,687 12,074 11,569 1951 1952 1953 1954 1955 1956 1957 1958 31,482 35,564 34,363 36,435 33,901 30,536 28,166 23,572 867,716 968,939 897,331 899,864 813,667 828,239 717,287 603,432 642,316 343,754 149,552 173,239 263,675 303,300 241,467 343,904 8,918 21,997 20,238 39,064 107,827 53,831 44,370 Source: Central Bureau of Statistics, Bureau of Mines, Ministry of Industry. TABLE IX PETROLEUM AND EARTH GAS PRODUCTION (In metric tons) Year Crude Petroleum Earth gas 1938 1939 1940 1951 1952 1953 1954 1955 1956 1957 1958 7,398,144 7,948,694 7,938,993 8,092 8,523 10,225 10,775 11,730 12,730 15,468 16,109 ,717 ,395 ,321 ,223 ,342 ,160 ,437 ,614 1,227,594 1,263,254 1,308,800 1,013,497 1,379,186 1,762,707 2,041,418 2,461,892 2,638,570 2,798,480 2,693,218 Source: Central Bureau of Statistics TABLE X NATURAL RESOURCES OP SELECTED COUNTRIES COUNTRY' POPULATION IN 1956 (xlOOO) COAL RESERVES (Million tons) WATER jPOWER IRON OH* i PER CAPITA BASIS Potential capacity (thou-sand kw) Existing capacity (thou-sand kw^  M i l l i o n Tons Coal Reserves (Tons) WATER.POWER Iron Ore Tons Potential capacity (kw) Existing capacity (kw) BURMA 19,856 265 20,000 6.9 2 13, 1.01 __ 0.1 CEYLON 8,929 51 550 31.3 4 6 0.06 — 0.4 INDIA 387,350 67,702 35,000 1,061.4 21,000 175 0.09 — 54.2 INDONESIA 84,000 2,500 2,860 135.1 12 30 0.03 — 0.1 JAPAN 90,000 20,948 22,534 9,602.0 64 233 0.25 0.11 0.7 PAKISTAN 83,603 168 10,400 62.7 60 2 0.12 — 0.7 PHILIPPINES 22,265 42 2,267 159.4 30 2 0.07 — 1.3 PRANCE 43,648 8,700 — 2,720.0 6,560 199 0.06 150.3 UNITED KINGDOM 51,208 173,900 1,128 431.0 3,760 3,396 0.02 0.01 73.4 UNITED STATES 168,174 1,723,000 109,500 23,100.0 6,900 10,245 0.65 0.14 41.0 Source: United Nations VO 170 TABLE XI RUBBER PRODUCTION, 1935-*39 AVERAGE AND 1948-'55 Period Estate Production small-holder Total 1935-39 average 186,850 167,513 354,363 1948 1949 1950 1951 1952 1953 1954 1955 101,743 169,145 175,127 222,534 294,468 304,215 282,526 261,345 330,606 263,851 521,345 591,872 456,026 390,335 456,144 472,441 432,349 432,996 696,472 814,406 750,494 694,550 738,670 733,786 Source: Rubber (U. S. S t a t i s t i c a l Bulletin Department of Commerce) TABLE XII • PRODUCTION AND EXPORTS OF TIN (long tons) Year Production of t i n i n concentrates Exports Tin i n cone. Tin metal 1938 29,728 13,699 7,207 1953 1954 1955 1956 1957 1958 33,822 35,861 33,368 30,053 27,723 23,244 32,732 33,940 31,768 31,159 27,375 18,346 224 994 196 716 84 . • • Source: International Tin Council S t a t i s t i c a l Bulletin (Bank Indonesia Report) 171 TABLE X I I I PRODUCTION OP LUMBER, 1950-1958 ( I n 1000 cubic meters) Year P r o d u c t i o n 1950 1,195 1951 1,241 1952 1,667 1953 1,554 1954 1,605 1955 1,702 1,738 1956 1957 1,749 1958 2,206 Source: C e n t r a l Bureau of S t a t i s t i c s TABLE XIV CAPACITY AND OUTPUT OP PUBLIC ELECTRIC POWER PLANTS Generators Capacity e i e c t r i e i t v Year Hydro Thermo Hydro Thermo t-npStS Number Number f g g g r ™ * 1938 1939 1940 108 115 115 272 272 285 173,021 178,625 180,816 314,200 347,700 380,500 1953 1954 1955 1956 1957 121 125 131 133 128 46 45 53 59 61 286 306 331 345 363 106,832 98,361 102,887 111,854 133,274 108,871 126,030 129 ,920 130,699 135,488 718,513 795,672 863,433 894,427 983,349 Source: C e n t r a l Bureau of S t a t i s t i c s 172 TABLE XV POWER DEVELOPMENT PROJECTS Territory and Place Expected Completion Year Capacity to be Installed (kw) Type West Java 1. Djatiluhur 2. Tjikalong 3. Karet 4. Parakan 5. Gambir 1963 1959 1958 1958 1962 150,000 12,000 12,000 7,500 10,400 Hydro Hydro Diesel Hydro Steam Central Java 1. Semarang 2. Timo 3. Tegal 4. Jogjakarta 1962 1962 1959 1959 25,000 12,000 1,000 3,000 Steam Hydro Diesel Diesel East Java 1. Surabaja 2. Golang 3. Ngebel 4. Patjitan 1962 1959 1961 1960 50,000 2,700 2,250 200 Steam Hydro Hydro Diesel At jeh 1. Kutaradja 1959 400 Diesel North Sumatra 1• Asahan 2. Eastern Sumatra 3. Tapanuli 1965 1959 1959 150,000 6,000 1,000 Hydro Diesel Diesel Central & West Sumatra 2,200 1. Bukittinggi 1959 Diesel Riau 1. Pakan Baru 1959 600 Diesel South Sumatra 1. Tes 2. Tandjung Karang 1959 1959 18,000 1,000 Hydro Diesel Sunda Islands 1. Combined 1958-1960 1,825 Diesel Maluku 1. Ambon 1958 750 Diesel Sulawesi 1. Tonsea Lama 2. Pare-pare 1959 1959 4,500 550 Hydro Diesel Kalimantan 1. Balikpapan 1959 1,000 Diesel Source: Central Bureau of Stat i s t i c s 173 TABLE XVI NUMBER OP MOTOR VEHICLES, 1951 & 1958 Type 1 951 1958 Passenger cars 31 ,046 73,533 Buses 7 ,643 9,090 Trucks 21 ,649 44,843 Motorcycles 7 ,663 105,101 TOTAL 68 ,001 232,567 Source: Indonesian Motor Club (Central Bureau of Statistics) TABLE XVII NUMBER OP ROLLING STOCK At end of year Locomotives Carriages Wagons 1937 1938 1939 1951 1952 1953 1954 1955 1956 1957 1958 1,277 1,273 1,263 940 1,004 1,045 1,063 1,065 1,066 1,093 1,125 3,615 3,600 3,553 2,627 2,741 2,813 3,024 3,041 3,033 3,085 3,136 27,150 27,247 27,201 22,083 23,560 23,282 23,925 23,127 23,169 23,386 22,988 Source: Central Bureau of Stati s t i c s 174 TABLE XVIII MINIMUM DAILY WAGES IN VARIOUS INDUSTRIES IN JAVA (in Rp.) 1956 Beginning of 1957 1958 Estate Agriculture 4.25- •4.80 4 .25- 4.80 5 . 3 0 -Pood & "beverages 4.00- •4.50 4 .00- 5.00 7.75 Mining 6.70 8.00 .... Tobacco industry- 4.50 4.50- 5.00 8.60 Sugar & rice factories 4.50-•6.25 5 . 0 0 - 6.50 8.35-12.58 Chemical industry- 4.50-•6.00 4.50- 6.00 6 .25- 8.00 Leather industry ..« ... • 9.75 Furniture industry 3.50-4.50 4 . 0 0 - 6.00 12.00 Textile industry 4.00- •5.00 4 . 0 0 - 5.75 11.80 Transport Companies .. < * • ... • 14.16 Metallurgic industry 5.50-6.25 5.75- 6.50 12.71 Ship building ... .... Coconut-oil industry 7.00 7 . 0 0 - 10.00 8.50 Ice factories 4.50-•6.75 6 .25- 7.75 9.50 Source: Labor Control Service (Bank Indonesia Report) TABLE XLX NUMBER OF DISPUTES AND EMPLOYED WORKERS Year Number of disputes Number of employed workers (x1000) 1954 1955 1956 1957 1958 2,963 3,697 3,896 4,131 3,350 2,304.7 3,488.7 3,111.9 5,057.5 2,975.9 Source: Ministry of Labour (Central Bureau of Statistics) 175 TABLE XX WORK STOPPAGES AND LOCK-OUTS Year Number of stoppages and lock-outs Number of workers involved Total working hours lost 1952 1953 1954 1955 1956 1957 1958 349 280 319 469 505 151 55 132,963 419,580 157,582 2 3 8 , 8 7 2 340,203 62,024 13,578 878,911 4,812,090 2,385,730 4,097,803 6,968,931 863,257 98,060 Source: Ministry of Labour (Bank Indonesia Report) TABLE XXI TECHNICAL, MANAGERIAL AND RELATED WORKERS AS PER-CENTAGES OP TOTAL ECONOMICALLY ACTIVE POPULATION Country and year Professional, technical and related workers Managerial, administrative, c l e r i c a l and related workers Total Burma, 1953 3.6 9.5 13.1 India, 1951 1.6 0.3 1.9 Japan, 1950 4.6 10.5 15.1 Pakistan, 1951 1.0 2.3 3.3 Thailand, 1947 1.0 8.2 9.2 U. K., 1951 6.1 12.5 18.7 U. S., 1950 7.9 20.7 28.6 Source: United Nations 

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