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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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