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This is a sequence deeply wedded to the neoclassical catechism:
An economy ages in many ways. The most common are tied to the exhaustion of factors such as production-labor, capital and resources. When an economy begins to develop, labor is the abundant resource. Hence, it makes sense to develop labor-intensive industries. When labor surplus is exhausted, it makes sense to develop capital intensive industries. When capital stock is high enough, investment cannot drive growth anymore.

As long as there is ongoing technological development leading to repeated waves of innovation, investment can drive growth. The model above rests heavily on a fixed technological regime to explain growth by moving in the direction of exploiting relatively abundant factors ... without having any explanation for why there would be relatively abundant factors in the first place without technological change.

And of course any functional formalization of the neoclassical catechism cannot encompass a theory of technological innovation in which new technology is being developed, since the neoclassical catechism is based upon reactions to knowledge, and technological innovation requires prior discovery of new knowledge in the face of prior ignorance. After all, without knowing at the outset what there is to be found, it is never neoclassically rational to try to push back the boundaries of ignorance.

This is one of several fundamental flaw in Rostow's Stages of Development model, briefly recapitulated in the quoted section.

Historically, the surplus labor in the economies most successful at industrialization came from a technologically progressive agriculture that freed up labor from agricultural work while increasing incomes in the agrarian sector, making it a more effective market for the output of industry.

The contrasting model of exploitation of cheap labor currently employed in a non-progressive agricultural system more often leads to the "development of underdevelopment" than in the direction of active industrialization ... the difference between Brazil's South and Brazil's Northeast, or between India's Northwest and India's South, or between the US Great Lakes and Midwest and the US Southeast.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Mar 24th, 2010 at 10:41:26 AM EST
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Good points.

So, in effect, the failure to spread increasing productivity in agriculture to deep rural India and China is part of the problem...?

by Metatone (metatone [a|t] gmail (dot) com) on Wed Mar 24th, 2010 at 10:50:12 AM EST
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Quite ... maintaining existing income flows to vested interests has a higher priority than what is needed for agrarian growth.

Of course, those conditions when they happen are not necessarily deliberately planned that way.

Consider the agrarian revolution in Japan under the Shogunate, as a side effect of the system of having the Daimyo live in the capital every second year (to keep an eye on them) pushing them to encourage commercial and cash crop agricultural activity in order to have cash incomes to tax as opposed to the traditional payment of land tax in weight of rice.

Or the system of allowing coffee farmers on the large estates to grow crops alongside the coffee to avoid having to paying them subsistence, which laid the fuondation for much of Sao Paulo's progressive small farm sector.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Mar 24th, 2010 at 05:52:07 PM EST
[ Parent ]
In Japan, the other key point to the flowering of peasant agricultural productivity was the fixed land tax rate for most of the Edo period.  As changing the taxes was too politically difficult for all but the first few shoguns, peasants on the Shogun's land were able to keep most any productivity improvements they made, be they from crop diversification to fertilizer to new rotations.  Over time, this led to

  1. increasing integration of the countryside into national networks of production and distribution, as peasants sold their leftover stuff to wholesale distributors in Osaka and Edo.

  2. a rural consumer revolution, as the money was used to buy stuff, replacing plain material want/crude homemade goods with superior product.

  3. the growth of rural industries, as farm families looked to plug their labor supply into these new market systems through handicraft production in a variety of traditional industries.

All this resulted in Japan having a rather highly developed capitalist economy over much of its territory well before the country was opened to the West.  Already having such an economy made it possible for Japan to adapt to the global markets of the 19th century.
by Zwackus on Fri Mar 26th, 2010 at 02:35:22 AM EST
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