Problems of investment for technological advance: the case of Indonesian rubber smallholders

The Indonesian rubber case illustrates major problems of technological advance where perennials are cultivated by small farmers. Despite the availability of new and socially profitable technologies, farmers have not shifted from traditional methods owing to credit and information constraints and to high private time‐preferences. Some form of public assistance by the state is required if this shift is to take place. Possible Indonesian government approaches to encouraging improvement are discussed, and the currently favoured ‘focus’ strategy of capital and management‐intensive development in large co‐ordinated blocks is compared with the ‘dispersal’ strategy of attempting to spread government assistance more widely according to the initiative of individual producers. These and other alternative strategies are conceptualised as points on a ‘meta’ production function envelope, portraying the transition to higher inputs of added capital per hectare. The dispersal strategy employs a less capital‐intensive intermediate technology, which may be adopted more easily by traditional farmers in the first instance. It may then be used as a base for moving up the learning ‘gradient’ to a higher technological level. It is shown that a major constraint on government acceptance of the dispersal strategy is lack of knowledge about its probable rate of diffusion. It is thus argued that further studies should be made of this aspect. The results of such work would then enable policies to be geared more optimally to resource endowments and social goals.