Development economics: second Lecture: theories of economic growth, requirement for accelerated growth

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UNITED NATIONS

AFRICAN INSTITUTE FOR ECONOMie DEVELOPMEUT AND PLA.NNING

IDEP/ET/VII/64 2nd lecture D .A K A R

DEVELOPMENT ECONOMICS Dr. Carney

Second Lect uro g Theories of Economie Growth··=-

Requirements for ~cceler~ted Growth

I. Theories of Growth A.. The "Big Push"

Rosenstein-Rod~, P.N. , '''Indus tri =üization of Eastern :tnd Southe<J.stern Europe",

The Economie Journal, 1943

)

14

Notes on the Theory of the "Big Push"

(M.I.T., Center for Internation<J.l Studies, 1957)

~ certain minimum quantity of investment is a necess~ry though not a sufficient condition of .success in getting the development process started in underdeveloped countries. Little bits of investment, a

little here and a little there, will not add up to development or growth bec<J.use of:

(1-}···-Tnd-ivi-sibili tie·s· tn·the ·produë-'tion function resul ting from the

lumpinzss of c.q,pit~l; chiefly ·social overhe~d c~pitq,l, or infrastructure (power, t rmsport, communication, housing, etc.) which ~re the most import~t type of indivisibility (or external economies) without which investment opportunities in other industries cannat materi'1lize.

·· ( 2) Indi visibili ty of Demand: i.e. , investment decisions a:J;'e inter-

dependent and individual investment projects need other complementary investment projects to make them pay (extern~l economies). This is so because while ~ isolated investment project c~not provide the demand for i ts own product, a vrhole range of . oomplementary investment

,,

projects constitute the mutual dem.q,nd for each others output, otherwise they will f:::~.il because of the high market risk to o.q,ch project, tr1,ken indi vidually. (Cf. Say' s Law of M=u kets: "Supply crerttos i ts own Dem;:md", and note that this implies (a) effective total or aggregate demand; (b) integration of indus'iries (Hirschmr1,n's '!linkage") so that leFLkages from the investment multiplier effect are at a minimum; (c) effective circu.,..

lar flow of purchasing power, so that no breA-ks or g<J.ps occur in the total stre~m of spending on both consumption and investment account- in short, proper monet~ry ~nd credit policies, sa that any tendency to

. . ^' ^. . ...

a l~g in purchasing power, if it is not self-sustaining, can be suitably

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.. IDEP/ET/VII/64 Lecture 2 -~ Page

eo.mp~nsate:d; <md ( d) the relcvg,nce of all of these factors to Keyn.ssian theory of cmployment, output and interest.)

.. - - - { 3 r

^I^{ndi vi}^s^{i bi}li ty in the Supply of S'3.vings (i.e., kinks or dis- continui ti es in the. supply

cùrvë - · o f

s_"l-ir.:ng-sf_·: S_"Lvi._ngs of indi vidu'3.ls in underdevelopod countries C'3.n incre"Lsc up to a point on a rising

.. -..

schedule of intercst rqtes, beyond which point ~ further rise in in- torest r::ttos vrill fqil to induce increqsing <tmounts of s::tving for investments of ~ery lq,rge size. This is ::t result of the gener::tlly low lever of incowes and, therefore, of s::wings, the absence of q,n org"Lnized C'3.pitql mqrket "l.nd of C"Lpit"Ll goods industries. \ l"Lrger volume of s"Lvings than cqn be obt "lined loc"Llly for invcstment is, therefore, neccssary to supply the infrastructure "Lnd other cq,pit""Ll- intensive investment , '3.nd can only come from outside.

B. The ¹¹Critic"1l Ninimum Effort" Theory :

Leibenstein, H"l.rvey, Economie B"lckwg,rdness and Economie Growth ... ... . .. . .H(lfi ley-&, ... Sens-.,---N-ew-Yor.k:-; ·1957

.+ ,

^Ch^.⁸^.

This theory, advqnced by fl,q,rvcy Leibenstein, gives ,q, more sys- t eméltic tre1.tment of the "Big Push" theory, emphF.t.sizing th1.t in order to got the economies of the underdeveloped countries off the ground q,nd lead them on to sust'3.ined growth g, certain minimum '3.mount of. investment is necessary. Once this miniriïùin investmen·Ci:~---~-~hie~ed, growth can be maintained out of domestic sq,ving and investment • . The magnitude of the minimum investment rcquired must be such q,s to counter- biil'3.nce the income-reducing effect of popul'3.tion gro1>rth.

Note the simil"Lri ty of the "Big Push" q,nd "Cri tic"ll ~,rinimum Effort"

theories to the q,rgument of "Pump Priming" q,s a mcthod of lifting output in !'l.n cconomy afflicted iÜ th mass unemployment, q,nd the Keynesian criticism of this position to the effect th"Lt whF.t.t is required to bring about a reviv"L_l ü:; not one dose b}lt several sus- tained doses of investment. The Keynesian q,rgument is even more v::tlid for underdeveloped countries without integrF.t.ted industries.

Not just one "big push" but several "big pushes" are required to stq,rt on the rog,d to sustüned growth (Cf. Theory of 'UnbF.t.lF.t.nced Growth).

C. B"llanced Growth

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IDEP/ET/VII/64 Lecture 2 - Page

3

The theory of Balanced Growth, advanced by R~gn~r Nurkse7 may be re.gq,rded 8.:3 a v~.ri::~,tion of Ros enstein-Rodan ¹s theory of the "Big Push".

St1.rting with tho vicious circle of poverty (low incarnes - low s8.Vlngs - low inducement to invest - low inoomes) Nurkse shows that wh~t is needod is a front::~,l ::~,tt1.ck on all si des, "'- wave of c~pi tq,l investment in a number of different industries.

Note: (1) Nurkse does not say where the investment .<tnd the entrepreneur- ship required for this great frontal attack should come from - cértainly not from the underdeveloped economy.

(2) The theory does not conform to historical fact - 'growth has been through unb<üanced investment in a fe1-r. industries on ~ scale suffi oient to m:Lke an impact on thé rest of the oconomy (Cf. the textile and ·engineering industries in Gre::.tt Bri tain during the .Indus trial Revolution).

(3) The theory properly relates to ::1 later st age of the growth process, a st •1ge which is i tself the out come of growth rather th~n .3,

·cause of it, :Lnd not to the initial st.q,ge of growth. It is therefore premature₁ rather th8.n wrong.

(4) The theory is :L misapplic~tion of Keynesian investrnent qnd output ~nalysis, which is moro appropriate to conditions of underemployment in an already industrialized econoro~ with integrated ind~stries, than t o

th~ conditions of an underdeveloped economy without :L wide range of integrated industries.

D. U ~qlanced Growth

Hirschm<=m, '1.. O., The Strate . ment

77.~~~~_.~~~~--~~~~--~~~--

Nelv York,

Hirschm::tn's theory of unb~l8.nced growth, supportod by H~ns Singer,

mqint~ins tlnt wh at is required is not bal "lnced growth, but a strategy of judiciously unb.:üanced growth through investment in judiciously selocted industries possessing both forward and backward linkqge ( .q, kind of verti- cal integrqtion), ~nd thorefore capable of conferring the gre~test degree of tr~ining in various skills on the populqtion within q,short period,

~s well ^8-S likely to hqve the greRtest imp~ct on the entire economy.

This i s very important since l~ck of industrial skills is one of the big drawb~cks of underdeveloped countries. Such judiciously selected industries >·rould encourg,ge investment in e.~rlier and subsequent stages of production.

Hirschman takes his e:x:amples from Latin (\.morio::~,, :=md his theory is

v~lidated by the historical record of industrial growth. His preferences for judiciously selected industries cqpable of producing unbalanced

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4

growth r-1re:

(i) Iron "1nd stael industries9 not for prestige reasons qlone, but becRuso .they possess both b~ckward qnd forward linkage.

(ii) Import displqoing industries involving finRl goods imported in signific':l.nt quqntities, because of their b::1ckward linkage with the production of intermediate and basic industriql materials. Tax conces- sions and protection will be needed here, "l.S well q,s ^"1 ch;mge in the · pattern 'l.nd composition of foroign trade, and in policy with regard to particular imports. (Ci. the economie case for protection).

(iii) Intermediate products becél.use of both backw:1rd and forward linkage. He points out that enclave export industries h:1ve gre:1t diffi- culty br28.king out of tho enclave situation and producing forward linkage effects within the country thtough processing ~nd manufacture.

' 1 . .-

( N" t c. thqt domostic markets, ospeciqlly regional m:1rkets, could be the answer to such transform1.tj,on._ ___ of export industries in \frican countries, ospocütlly in view of the difficul ti es of competition 1vi th establishëd processing industries abroad. )

Hirschman reproduces in Chapter 6 of his book a t"'.ble of categories of industries and the corresponding degree of backward and forward linkage, which is m0st instructive ^"LS a guide to underdevelopod countries wishing to pursue the p.<>.th of unb:1lanced growth,

• •

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IDEP/ET/VII/64 Lecture 2 - Page 5 Hirschmart₁ A. O. , The Strategy of Economie Development₉ Ch. 6~

Interdependence and Specialization.

~verage Degree of Interdependence of Economie Sectors in Italy1

Japan and the United States

1. "Intermediate Manufacture"

(backward and forward linkage bath higb)

Iron and Steel Non-Ferrous Metals Faper and Products Petroleum Products Goal Products Chernicals Textiles

Rubber Products

Printing and Pubiliisbing

2. "Final ~~anufacture"

(backward linkage high, forward linkage low) Grain mill Products

Leather and Products Lumber and Wood Products A.pparel

Transport Equipment JV'achinery

Non-metallic Kineral Products Processed Foods

Sbipbuilding

r~iscellanecus Industries

Interdepenàence througb

Purcbase~/from Otber Sectors -

(Backward Linkage)

66

61

57 65

63 60 67 51

49

89

66

61 69 60 51 47 61 58 43 3. "Intermediate Primary Production"

(fo~ward linkage bigb, backward linkage low) Metal IHning

Petroleum and Natural Gas Goal Ih ning

~griculture and Forestry Electric Pov<er

Non-metallic Kinerals

4.

"Fin'll Primary Production"

(backward and forward linkage botb lm·r) Fisbing

Transport Services Trade

21

15

23

31

27 17

24 31 19 16

Interdependence tbrougb Sales tB/

Other Sectors - (Forward Linkage)

78 81 78 68

67

69

57

48 46

42

37

"38 12 20

28 30 15 14 20

93

8 97 7

72

59 52

36 26

34

17 a. Ratio of interindustry purcbases to total production (~)

Source

b. Ratio of interindustry sales to total demand

(% )

Cbenery and '.fatanabe₁ "International Comparisons," p. 11.

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II'EP/ET/VII/64 Lecture 2 - Page 6

Noteg 1. Hirschman' s t heory i s to be vievred from the macroeconomie not f rom the mic:r.oeconomio' plane:. and therefote ·----·--·· -

(a) Is inapplicable to miëro.produëtion theory. :mat is true for the ecpnomi às

a

wh~ l e (Le. ₁ unbalanced growth through large capital investment in selected industri8.:3, presU:mably by the state) is not true of th'e indi vl.d.ual entrepreneur who wi l l be mo;re impressed wi tl:l. _the balan- oing of margin"l.l considerations of profit "l.nd loss • .

(b) The state, by im₁)lica.tion, is the agent to undcctai;:e unbalanced.

gr01dh, not the indi vidual entrepreneur.

(c) Unbalanced growth involves sorne wast of resources, but waste cannat be avoided in economie gro~'ith of an entire economy (Cf. obsol es- cence during the Industrial Revolution and since).

2. Underdeveloped countries usually do not find themselves in the happy position of selecting or decicling which industries to encourage on the basis of backward a:1d forward linkage 8-l'ld of maximum con tri but ion to the gro-vrth of the entire economy, Especially vrhen they are industrializ,ing lTi th the aid of private foreign investment₉ they are compelled to accept a.ny type of investment that offers.

E. Unbalanced with Balanced Growth ~

Sei tovsky, Tibor, ;'Gro-v•th - Balanced or Unbalanced?" in A.bTamovi t z et al ₅ The A.lloca,tion of Economie _Resource~

(St anford UniversÜ.yPrëss, 1959) pp. 207 - 217.

Tibor Sei tovsky attempts to reconcile the t1w theories of Balanced e.nd Unbalanced Growth by showing that both balancecl and unbalanced grovth proceeded simul taneously during the Indus trial Revolution in :.restern Europe ₉ especially in England9 t in ough dornes tic investmont in a re la- ti vely fe1-r industries of high producti vi ty :md tot~l output (i. e. ₉ unbalanced gro-vrth) and through foreign trade (i.e. , be,le.nced groh'th).

The main points of his discussion are the following

( 1) Historically, unbalanced or concentrated grm·rth came first.

In England, the industrioll revolution consj sted in a t remenùous increase in labour producti vi ty and oost reduction in a l"ela,ti vel3' fm-r i:1.dustries spinning and vreaving of cotton and '\rool len text i les? coa,l mining? iè:'on manufacture and heavy engineering. This concentrated grouth in a feu industries created the problern of "' changed ::md u.-1balanced com:Qosi tion of output •..rhich was sol ved by the time-hononred classical rnetllod of foreisn trade based on -the Ricardian principle of comparative oost advantage,

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Ricardo advoca0~d that each country concentrate its resources into its most efficient industries and use foreign trade to convert the resulting unbalanced pattern of output into a pattern of product availabilities that

is more.balanced in the sense of conforming more closely ta the pattern of

consumers' preferences and producers' needs. In this way Ricardo and the classical economists showed how the unbalq,nced composition of tw;o countries' national products can be mutuFJ..lly offsetting, and how each cFJ..n, by trading with each.other, convert its unb'3.lanced pattern of output into a balanced pattern of product availA-bilities.

that from England's point of view- the point of view of a single cow1try - the. problem ^vlai;> one of how she could use world markets to convert her unb::tl::tnced p.q,ttern of output into a b"tl::tnced pattern of product av<:Liia- bilities without turning the terms of trade agq,inst herself to such an extent

q,s to offset the adv::tntage of unb:J.lq,nced grow·th over balanced grmrth. Some- holv, EnglA-nd managed to solve the problem 1vi th the resul t th"Lt she enjoyed rapid development and great prosperity in the î9th century. It should be further noted that the solution adopted by Britain is possible so long as only one, or q, few countries are industrLüizing q,nd in non-competitive areas of production or, if there are several countries industrializing, provided they follow the principle of specialization in production - as was the case in the 18th and 19th centuries. Tofhere₉ as in today's circumstances, there are severF.Ll countties producing for exchF.Lnge in similar lines, or attempting to industriF.Llize along similar lines, wi th or vri thout benefi t of exchange, the clF.Lssical RicardiF.Ln solution could become self-defeating for the countries in vol ved.)

( 2) The argument for balanced grovrth rests on the interdependance of industries (external economies). This is very importq,nt for underdeveloped countries F.LS it is ^F.L condition usu"tlly abaent, yet is. very necessary for the profi tq,bili ty '1nd success of the indi vidùal :i :ldust-·:y by pro-.:riding effective total demqnd for its output. Equqlly important for such countries ~re the

"l.Void:'lnce of bottlenecks in production, of speci::ü short ages, éthd special excess capacities; and the minimiz<ttion of inflation.'lry prèssures q,nd dangers that the ~void.q,nce of speci'll shortages m~es possible.

( 3) The argument in fg,vour of unbalémced or concentr.ated grovrth is

·

'ln q,rgument in favour of f"ist growth, as in the c"l.se of underdeveloped countries, .since fast · growth, in turn, is 1ike1y

· to

stimulate · technological progress in relq,ted and other fields. For thG fqst expansion of output in one

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IDEP/ET/VII/64

Lecture 2 - Page 8 field, or at one stage, is likely to creq,te bottlenecks or shortages of

specialized resources in relqted or other stqges of prçduction; to elim- inate Ttrhich₉ nevr methods and technological progress mqy be stimulqted.

Thus, for ex01.mple₇ in England during the industrial revolution, Kq,y's invention of the flying shuttle expanded weaving c~pacity q,nd created

~ bottleneck in spinning capacity. This led to the invention of a fq,ster spinning device₇ the spinning jenny which, in turn₇ led to shortage of weq,ving c11paci ty and to Cartvrright 's invention of the power-loom to break this bottleneck.

( 4) Unb:tlanced groï·rth on the cl"lssiclll principle is out of fashion in the mod8rn world bec11use of political uncertainty₉ balance-of-payments difficul ti es 7 high competition in -vrorld markets, all of which hq,ve rendered dependance on export m<1.rkets very precarious. Furthormore7 we live in 3-n

g,go of ms,ss production vrhich is feasible and profitable only if i t caters to 3- highly stable qnd homogeneous m;1,rket. Y et bq,lqnced growth, in so f8,r as it mq,y involve '1Ut'lrchy or self-sufficiency q,nd independence of foreign

tr"~,de, is excessive and prohibitively expansive.

(5) Thus, eventually9 the argument cornes out in f"lvour of large size, for fast output "lnd growth, and on this basis unbalanced growth can be reconciled wi th b::ü;:t,nced grmv-th by 'lny of the following me"tns ~

(a) Foreign trade, which qllows '1 sm"lll country to convert an unbalanced p'lttern of output into ^'1 b"tlqnced p"lttern of product availabilities in line with consumers' preferences "tnd producers' needs, thus securing the qdvq,nt'=Lges of balance for its unbalanoed economy.

("b) The fortun"lte .... ircumstance of the possession of "" lq,rge geo-

graphic'=Ll expanse of land and diversity of climates "lnd n"ltural resources, which f"lvours l arge ccuntriès such :::LS the U.S.A.. and thè U.S.S.R. ₉ and assures them sorne degree of self-sufficiency and b"tlance, while allowing them plcmty

·of scope for unb'llanced or concentr'1ted growth on ,a region"ll or functional bqsis.

(c) Economie integr"ttion 8-nd formation of large economie areas or m"lrkets ₉ for exqmple in ·,vestern Europe and elsewhere, thereby compounding the benefits of unbalanced growth with those of balqnce.

the relevance of the third solution to A.fric"ln conditions todqy,)

F. Historical 'Iheories of Growth: Karl Marx' s and TrJal t Rostow' s mq,te'rialistic conceptions of history and the evolution of hum~n society.

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IDEP/ET/VII/64 Lec:ture 2 - .Page 9 Marx1 Karl, D!'l.s Capital

· Rostow' iTal t ~fui tin':tn, Thé Stages of Economie Growth ( C3.mbridge University Press, ·1960)

(i) K3.rl M!'l.rx~

Marxian theory emphasizes the evolution of human society through the st3.ges of feud.<a.lism, .bourgeois c!'l.pi talism, soci'l.lism "l.nd communism, the last being the ultimate go,g,l of the evolution of society~ Special attention is paid in the theory to bourgeois C8.pitalism.i then current in 'rfestern Europe in Marx' s ti me.

Marx. shows tlnt capi t"Llism inevi t!'l.bly led to soci::tlism, the half- , w"ly bouse to communism, and th "tt the decline of c'lp:i._ t'llism was 1inked to

such inner contradictions 'lS the accumul'ltion of profit linder monopoly capi teüisrn ::ind the resul ting deficienoy ·of demand, l"1ck of invëstment outlets9 the scr'lmble for coloniq,l markets n.rid the attendant imperi'llistic vrars, overproduction and the business cycle; the re volt n.g:üns t coloni "1lism through the ris e of nqtionalist movements ::ilso would contribute tovnrd seal- ing the doom of capitalism.

Sooi3.lism would rnake its debut through st3.te ownership arid control of the means of production, statG expropri'ltion of private property and privq,te profit, and state direction of economie life~

Communism would be fully r3::tlized with the A.dvent of working class dict::ttorship, the rise of the "new man" under cornmunism living n'lturally the philosophy, "from e'l.ch according to his .;tbili ty ₁ to each according tà his need", 1-nd the eventu':tl ">vi thering awF1y¹¹ of . the State wi th i t·s para- phern"l.li'l of police and arrned forces.

(ii) Tt[. ';f. Rostow~

Rostow's thesis is that in the process of economie development societies pass through five distinctive b'lsic stq,ges:

( 1) The tradi tion1-l society which, oper::üing wi thin limi ted production functions, is subject to "t ceiling on the level of g,ttünn.ble output por head. This is followed by the establishment of

( 2.) The Pre-Candi tians for T8.ke-of_f, a period of trA.nsi ti on when tho traditional society is trA.nsformed to .enable jt to exploit the fruits of modern science and break through conditions of diminishing returns by the usG of scientific techniques which open.up avenues to cumulative grov<th, (This period is A.lso ch11,racterized py ç_oloni"il wars.)

(3) The T"tke-off into sustainGd growth. H this stagE! (nthe

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IDEP/ET/VII/64 Lecture 2 - Page 10 grë-;,.,t >vatershed in the life of modern societies¹¹⁾ old blacks and resis-

tances to ste8.dy growth !'ire overcome and growth-:·1;le-c-ome-s the normal condition of society. --·Tn~-es"sëiùii:ïT-rëëiüirë~~ë;J.-ts for the take-off are:

( '1) a ri se in the rate of productive investment from

5 %

o,r less to over

1 0%

of national income.1

(b) the development of one or more substant.i'1l manufr:wturing sectors (Cf. Hirscbm'1n's judiciously selected strategie industries for unbalanced gr01-rth), and

(c) the existence or quick emergence of a~ pQlitical.1 social ~nd

institutional frarnework which exploits the irrpulses to exp.ansion in the modern sector.

Regional wars of aggression characterize the transition between the late pre-conditions and e"l.rly t.q,ke-off period. These are followed by wars for the bal8.nce of power between groups of countries at different stages of industrial g::-o1Ttb.9 e. g, 1 the struggles for Eurasian baL:mce of po1-rer between the more indus tri 3.lized countries ( Gerrnany 1 Rus si <t and Japan) and the more bq,ckward countries (E8.Stèrn Europe and China) on the Eurasi!'l.n landm'1ss. lt the present time

(19 60 ,

the date of Rosto; 's book) the underdeveloped world bas arri ved at the stage of region8.l 1trars of 8-ggression which, however, because of the existence of nuclear weapons, could touch off nucleq,r >var on 8. globq,l sc "ile wi th the possibili ty of wiping off org8.nized life on earth. fmd because the possession·of nuclear v;reapons is now become diffused, effective dis8.rmament is in the interest of the two rnaj.or nucle"tr powers, the U, S. A.. and the U. S. S, R.

( 4) The Drive to Maturi ty, 1-rhich is cornpleted when m'1turi ty is q,chieved. A.t this stage,

nThe m.q,ke-up of the econorny ch.'lnges unceasingly ₁ as technique improves, new industries accelerq,te, older industries level off. The econorny finds its pl:1ce in the internntion8.l acon-

orny~ goods formerly imported t,;r_?. :P.roduce.d at horne; . new import

requirernents develop, and new export cornrnodities to m~tch

them .

•.• Sorne sixty yG"lrs after take-off begins (s1.y₁ forty years after the end of take~off), what may be called maturity is

generally "ltt"lined .. , ·thG stage in-Which àù economy demonstr"l.tes the c"l.p8.city to·move beyond the original industries which pow- ered its take-off 8-nd to absorb 8-nd to apply efficiently over

a

very wide range of its rosources - if not the whole range . the most advanced frui t.s of ( then) modern technology."

(5) High mass consum:ption, the stage

11

o • , vrbere' in ti me ¹ thG le::1ding SeCtOrS Shif-t -tG-Wards dur.q,ble consumers ' goods and services; a phase from vrhich .\meric:ms

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· ·'. ·· IDEP/ST/VII/64 Lecture 2 - Page ll are beginning to emerge; whose not unequi vocal joys \festern

Europe '.3-nd Japan are now· beginning energetically to probe;

• and with which Soviet society is eng~ged in an uneasy flir-

t~tion. ¹¹

Rostow' s ,the.sis provides

(a) 'ln .::m~lytic.::tl frqmework for the study of the whole course of humA.n history '3-nd economie development everyvrhere, similar to K3.rl Marx's

(b) '3-n .q,nalysis of the essentials of -vwrld coriflicts, past "Lnd present ;

(c) q policy prescription pointing the way to "Lotion t o end the cold >var, remove the thre~t of m"l.ss destruction qnd of spiri twü stqgn,q,- tion in the West, .q,nd to promote the economie development of the underdeveloped world.

P6licy Prescription

. ( i) Tovnrds the Underdeveloped '-Jorld :

(A.) Massive economie A.id to ùnderdeveloped countries by the devcloped ones both on humqnitarian grounds and for political re'.3-sons, nqmely, to "Lcceler"ite their development· p.q,st the politJc-!fllJ''d8J:iger-ous st.':l.ges of trq,nsi ti on, chiefly the st'3.ge of vr"l.rs of regional aggression.

(b) Governments of underdeveloped countries should be encour- 3.g.:;d to undert,q,ke comprehensive development pl8.nning and to step up investment expenditure. This will not only promote their development but would 'llso serve to infuse into the people of the L'lest a new· sense of purpose and thus help thGm A.vert the thre,q,t of spiritu"l.l stagn"l.tion resulting from boredom with the fruits of high m'3.ss consumption.

(ii) Towards the Soviet Union ~

~ policy of persuation of the Soviet Union by the U.S.A-. tow3.rds effective disarmament so <:1.s to release resources for r"Lising the standA.rd of living of the Soviet people, especiA.lly by the production of consumer durables. (~ti-Marxist prop-"l.g.::tnda desigried to shift the Soviets from the course they believe prescribed by Marxist-Lcminist doctrine. Rostow·' s frankly é'l.nti-Mar.xist thesis é'l.ims to set up a riv"il goal to th~t of communism prbpounded by Marx, stating in effect th:=tt the ul timA.te goq,l in the evolution of hum.q,n society is not communism but high m':l.ss consumption.) Note: 1. Rostow specifically attempts to refute Marx's theory of economie growth through the stages feudalism- bourgeois capitalism - socialism - communism. In this regard,

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IDEP/ET/VII/64 Lecture 2 - Page 12

. (a) His thesis is as rigid and dogmatic as Marx' s in categorizing

specifie stages in .the evolution of human society~ and just as material- istic in its conception of history.

(b) His specifie objective indicates 8. degree of bias underlying his thesis, rather than scientific objectivity, and he ends with a prescription designed to change thG course of Soviet policy from the Marxist goal of communism to the Rostovian goal of high mass consumption.

2. The prescription for massive injections of foreign investment into underdeveloped countries and comprehensive development planning by the.ir governments ignore :

(a) considerations of absorptive capacity,

(b) availability of markets for the output of investment industries, (c) the possible implications of comprehensive development planning by governments in regard to regimentation and restriction of the field for indi vi dual initiative and enterprise; ·

II. General Evaluation of Growth Theories :

1. Th€re is no one theory of growth and development but several which, together, constitute a body of doctrines emphasizing the various requirements for accelerated growth.

2. All the theories considered emphasize the necessity for massive injections of investment capital into the underdevelopod countries from outside sources, namely, the industrialized countries.

3.

They all imply a high degree of state involvement in the pro- motion of investment and grovrth wi thin the underdeveloped oountries.

4.

They are basically Keynesian in their analytic8.l structure, conferring on the state a more active role in investment than thFLt of mere rescue operations whioh Keynes prescribed for FLlready industrialized countries experiencing mass unomployment.

5·

^Thêy^fail ^to^gîvo âdequatê ^consideratⁱôn ^tô ^the ^vitalⁱ^ssueôf

the availabili ty of foreign cs,pi tal investment .s,nd the rel q,teci question of its optimum pattern of allocation among the underdeveloped countries under conditions of capital scarcity.

. .

(13)

• ^III. Empirical Evidence of "Take-off¹¹ and the "Big Push"

IDEP/ET/VII/64 Lecture 2 - Page 13

( .1.) Which Hrican countries have reached the stage of ¹¹Ta.ke-off¹¹ into sust:üned growth, judging by the 1 O% plus ratio of investment to

Nation~l Income ?

(b) Did they obt.:Lin a "Big Push" from external investment, judging from the proportion of extermü in total gross private domestic investment ?

Further References :

Higgins, Benjamin, Economie Development (Norton,

1959)

Part IV