The Telegraph
Since 1st March, 1999
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- The growth model now is a parody of an old economic theory

Times change, contexts alter, economic controversies, however, have a way of renewing themselves. The phenomenon of global poverty does not abate, but the modalities for tackling the problem undergo what is described as a paradigm shift. One particular instance is the debate over the relative emphasis to be given to industry, agriculture and the services in the total scheme of things. As World War II ended, economists got greatly excited over Wassily Leontief's tour de force, the input output analysis. Leontief drew attention to the potential for removing hitches in the process of economic growth if inter-sector balances were scrupulously maintained at each point of time. In his interlocked system, the output of one sector provides the input of other sectors, and this is true for all sectors in the economy. Given this piece of wisdom, planners could distribute investment over the different sectors in such a manner that, at the margin, the demand for and the supply of each economic activity will match perfectly; the outcome would be most efficient economic planning for the country as a whole. Before he migrated to the United States of America, Leontief had worked for some time with the Soviet Gosplan, and his analysis was enriched by that experience.

In the late Forties and the early Fifties, the economics of Leontief-type material balancing became the rage among economists; the first batch of planners in the recently liberated underdeveloped countries were agog with the rich possibilities of applying it in their investment planning. Hypothesis however has a habit of invoking counter-hypotheses. Within a few years, another economics don from an American university, of central European extraction, Albert O. Hirschman, appeared on the scene with a new theory of economic growth. His was a prescription for unbalanced development. The view he advanced was straightforward. A poor country is short of savings, and therefore of capital funds necessary for growth.

Hirschman's theory was biased against the concept of material balancing in the planning of growth. He would pour all available investible funds into the farm and manufacturing sectors; services could take care of themselves. A trace of grandfatherly wisdom was discernible in the economic discussions he initiated. Once you have produced enough of rice and wheat and cotton and sugarcane, once you have produced enough of textiles and footwear and other such essential consumer goods, please do not have a care, transport somehow will become available to reach the products where they are in demand. The roads may be in a miserable condition, full of potholes, and sometimes almost non-existent, the trains may run only fitfully and rolling stock may be awfully short, communications between two trading points may be skimpy, the ports may be at a primitive stage of development, but these impediments and inconveniences are no matter, once the supply of the basic goods is there and the demand too, the twain are bound to meet. Exportables will somehow manage to reach the ports and be carried to distant shores, maybe by wobbly boats; internal trade will grow, maybe by harnessing a greater number of horse and bullock carts. Housing for workers in the factory sites may lag behind, telephone lines may often be down, but let no sleepless nights be spent over such deficiencies. Once industry and agriculture get booming, the rest of the development process is certain to ensue; perhaps at the end of five years, perhaps after a decade. Unbalanced development, with primacy placed on agriculture and industry ' Hirschman did not have the least doubt ' will lift the economy much faster than if some of the investment funds were diverted to build nice roads, state-of-the-art telecommunications systems or extraordinarily competent modern ports.

As in literary debates, economic controversies too come to an interruptus at some vague point or other. Such too was the fate that overtook the debate over balanced vis-'-vis unbalanced development. One conceivable reason for the death of this particular polemics was the fading away of central economic planning in country after country, following the collapse of the Soviet Union and its associate states. The Leontief co-efficients have still much use in microeconomics, such as operations research exercises for individual firms. But Albert Hirschman is very nearly a forgotten name.

Should it be so though' Is the problem Hirschman sought to draw attention to a non-issue' After all, the vast majority of the member-countries of the United Nations remain abysmally poor, they continue to suffer from lack of development funds. With the shift in global political circumstances, both state initiative at the domestic level and government-to-government aid for improving the lot of impoverished masses in the poor countries have declined. Correspondingly, responsibility for promoting economic growth has passed on in large measure to international finance capital. Private capital from outside, while currently filling the larger part of the picture, has however its own priority. Since foreigners bring in bags of money, they insist on having the greater say in articulating the details of development programmes in these countries: Tycoons from overseas are not particularly interested in balanced or unbalanced models of growth. Their focus is on maximizing the rate of their private return.

Hirschman would have felt most uneasy. These foreigners are much less interested in investing either for agricultural or for manufacturing growth. Their interests centre on wholesale and retail trade, six-or-ten-or-twelve-line speedways, health plazas, hotel complexes, golf courses, and so on. These will cater to global tourism, attracting a large influx of affluent people from all over. The activities generated will have, though, little of employment content, especially for local people.

What is taking place is, ironically, a different kind of manifestation of unbalanced development. Hirschman would have frowned on it. The service sectors are getting all the investment funds, industry and agriculture are being banished to a corner. The local authorities are handing over, with alacrity, farm land at throwaway prices to rich foreigners in the honest belief that the good Samaritans from overseas will usher in rapid industrialization. All that the country will actually get in return is at best a string of call centres, at worst rows and rows of massage parlours passing as a health park.

Hirschman's theory is dead. But a few plucky ones are trying to let it come alive again in an extraordinarily perverse manner. You may remain underdeveloped, unbalanced investment of a purposive sort will nonetheless ensure plenty of casinos and cabaret joints for visiting foreigners and the home-bred filthy rich. One remembers an instance Hirschman once quoted to exemplify the absurdity of turning the concept of unbalanced investment upside down. In a newly-laid township, with few people yet settled in, a boulevard has been built, running for miles on end; practically no traffic moves along it, either during the day or at night, but thousands of parking meters have been installed along both sides of the boulevard. The country suffers from chronic famine, and the rate of illiteracy is 70 per cent.

Where the mind is unhinged, apparently the economics is too.

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