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growth theory

  In the wake of the Second World War, and after the experience of the Marshall Plan in assisting the recovery of war-torn Europe, several economists with direct experience in multilateral institutions and the Marshall Plan turned their attention to the question of economic development in the Third World. Among these pioneers of development thinking were Finnish economist Ragnar Nurkse, Austrian economist Paul Rodentstein-Rodan, German-born and American-naturalized economist Albert Hirschmann, West Indian Nobel Laureate Sir Arthur Lewis, and American economic historian Walt Rostow. Their ideas were far from identical but they formed a loose school of thought — growth theorists — emphasizing a historically informed and practical approach to economic development, and stood at an angle to the neo-classical models of Solow and others. Rostow was something of an odd man out insofar as his simple stage theory of European industrial replication was both less analytical and less historically sophisticated than the others (cf. rostow model).

The growth theorists were framed by three historical dynamics: the legacy of the Keynesian revolution and the experience of international Keynesianism through the European recovery programme; the political agenda of the USA in the wake of 1945 and increasingly during the Cold War which turned on the use of Bretton Woods institutions to foster development and fair dealing as President Truman put it in 1949; and the nationalist developmentalism (cf. nationalism) associated with the last wave of decolonization which also emerged during and after the Second World War. Growth theory in its emphasis on aggregate phenomena and on industrialization bred a predilection for authoritative intervention — in which the state was a necessary actor — which involved planning systems, the application of economic growth models and aid mechanisms.

All of the growth theorists shared some sort of affinity for Keynes. They emphasized aggregate economic processes such as rates of saving and rates of investment (cf. neo-classical economics). Poor economic performance and lack of aggregate demand were related. They also revealed a preference for industrialization as a driving force — indeed they were advocates of what in the 1930s had become import-substituting industrialization — and for short-term state intervention. Markets were means not ends, and like Alexander Gerschenkron (1968 — one of their contemporaries), they realized that late developers required a dirigiste state. However, as growth theorists they presumed that an economy would achieve its best results within a competitive market structure.

Each of the growth theorists is a major intellectual figure in the history of economics but there were important commonalties and points of confluence (if not necessarily agreement) which animated their policy and theory during the 1950s.

There was the concept of hidden developmental potential in the less developed nations. As Gerschenkron had argued, there were \'advantages to backwardness\', and in these advantages lay hidden comparative advantages:

{img src=show_image.php?name=2022.gif } a recognition of market failures and the role of positive externalities in creating virtuous circle effects. Rodenstein-Rodan\'s emphasis on social overhead capital and the role of government was a case in point; {img src=show_image.php?name=2022.gif } the differences and merits of balanced and unbalanced growth and how each was related to the necessity for a \'big push\' to trigger economic growth. Nurkse, like Rodan, emphasized the need for a coordinated increase in the amount of capital utilized in a wide range of industries if industrialization was to be achieved. Hirschmann, while agreeing with Nurkse and others, also argued that unbalanced growth could, through linkage effects, generate innovations created by market responses to shortage and surplus; {img src=show_image.php?name=2022.gif } the potential, as Lewis indicated, for surplus labour as a stimulant to growth in so-called dual economies; and {img src=show_image.php?name=2022.gif } the significance of saving at particular historical moments in order to enter what Rostow called the \'take-off stage\' of industrialization.Growth theory, from the vantage of the neo-liberal revolution of the 1980s, appears as an instance of Keynesian internationalism in which market failures, planning, social capital, and some aspects of classical political economy (class) are put to the service of \'developing\' the poorer nations of the world. All of these growth theorists identified key developmental issues — equilibrium, social overhead capital, planning — which have continued to be objects of debate, and each (perhaps with the exception of Rostow) contributed to both the building of post-war multilateral development institutions and to the idea, which in a way was crushed by the weight of the Cold War, of a sort of liberal developmental internationalism. (MW)

References Gerschenkron, A. 1968: Continuity in history. Cambridge, MA: Harvard University Press. Hirschmann, A. 1958: The strategy of economic development. New Haven: Yale University Press. Lewis, A. 1984: Development economics in the 1950s. In G. Meier and D. Seers, eds, Pioneers in development. Oxford: Oxford University Press. Nurkse, R. 1953: Problems of capital formation in underdeveloped countries. New York: Oxford University Press. Rodenstein-Rodan, P. 1976: The theory of the big push. In G. Meier and D. Seers, eds, Pioneers in development. Oxford: Oxford University Press. Rostow, W. 1960: Stages of economic growth. Cambridge: Cambridge University Press.

Suggested Reading Cypher, J. and Dietz, J. 1997: The process of economic development. London: Routledge. Preston, P. 1996: Development theory. Oxford: Blackwell.



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