BIG PUSH THEORY BY PROF ROSENTEIN RODAN INTRODUCTION

BIG PUSH THEORY BY PROF. ROSENTEIN RODAN

INTRODUCTION BASIC IDEA : q The theory of Big Push given by Rosenstein Rodan in his pioneer work, “Notes on theory of big push” as a strategy to bring out LDC from the clutches of vicious circle of poverty. q The theory of Big Push is based on balanced growth strategy of development that propagates that the need for simultaneous investment in a large number of industries to cater to complimentary of demand as a solution to push the UDCs to higher trajectories of income. q In other words, The idea behind this theory is that a big push or a lump-sum investment package can be helpful to bring economic development

q q q This idea was originally given by Allyn Young in his famous example of the Shoe Factory which highlights that if a firm is only producing one product i. e. shoes then it is bound to fail. This is because the workers (then consumers) engaged in the factory will not spend their income entirely on the purchase of shoes. This is so because human wants are diverse. So the demand for shoes will be less than the supply of shoes and hence a glut of shoes will be created which will result in the price to fall. Thus the firm will suffer losses. Therefore, Rodan is of the view that specific investment must be made in a number of industries which are technologically and market-wise interdependent to reap the economies of scale.

EXPLANATION OF THEORY Prof. Rodan mentioned three kinds of indivisibilities which are essential to achieve the economic development : 1) 2) 3) INDIVISIBILITY IN PRODUCTION FUNCTION INDIVISIBILITY OF DEMAND INDIVISIBILITY OF SUPPLY OF SAVINGS

Indivisibility of Production Function Production function explains a technological way in which inputs can be transformed into output. This transformation leads to increase in production, economies of scale and externalities. Rodan regards investment in social overhead capital (SOC) rather than in Directly Productive Activities (DPA) vital for this transformation which is lacking in the UDCs. Huge initial amount of investment is necessary in SOC like irrigation system, power, transport, communication etc to pave the way for quick yielding directly productive activities (DPA). Investment in SOC will bring about increasing returns in the production process. However, SOC require a "sizeable initial lump" of investment. So, excess capacity is likely to remain in them for some time. There are other four indivisibilities that characterize SOC—SOC are irreversible in time and, therefore, must precede other directly productive investments.

Second, equipment of SOC has high minimum durability. Lesser durability is not technically possible and is also less efficient. Hence it’s lumpy in nature. Third, development of SOC needs a long gestation period. Last, it is an irreducible minimum industry mix of different kinds of public utilities i. e. investment in one set of infrastructure is not adequate but investment in multiple services or other complimentary inputs for SOC to work effectively. These indivisibilities of supply of social overhead capital are all of the principal obstacles to development in underdeveloped countries and due to these indivisibilities private players are shy in investing in SOC. Hence theory assigns a vital role on the State to play in promoting economic development.

Indivisibility of Demand It refers to small size of the markets in the UDCs that limit scale of production and hence under-exploits the capacity of firms. The theory suggests that investment in a large number of industries that cater to complementary demands will help increase the size of the markets and thus, the industry will be able to reap the advantage of large amount of production at lower levels of cost. It will also ensure adoption of practices like division of labour that save time, tools and promote new inventions. This will make the domestic industries more competitive as compared to their foreign rivals. However, increasing the production capacity of small and cottage scale industries will be a challenge and to make the benefits inclusive to all, the growth of small and cottage industries is also called for. Hence the kind of policy framework adopted by the state to incentivize and encourage these industries becomes important for overall growth of markets.

Indivisibility of Savings The central problem of the third world country in the process of economic growth is that there is dearth of capital in the form of plant, machinery, equipment etc due to the low levels of savings in these economies. Rodan argued that if these countries are able to accelerate their incremental savings ratio, then it could be translated into expansion of large stock of capital. However capital is seen as only a necessary but not a sufficient condition to move to higher trajectory of income. The focal point is how gainfully this stock of capital is employed in productive projects which require exchange of ideas. Therefore exchange of ideas is even more important than provision of capital. Hence, they play an excessive role in the process of economic development.

CRITICAL APPRAISAL q q q Impractical: chronic scarcity of capital in LDC. Neglects investment in the agricultural sector The theory is based on realistic assumptions of indivisibilities faced by the under-developed countries Inflationary: if massive invest. is contemplated in areas of long gestation lag, there may result inflationary pressure. There is no historical overview of the growth process of LDC which support the hypothesis of Big Push.

q q q SOC-highly expensive, has high capital output ratio and a very long gestation period. This makes the task of developing UDC’s more difficult and longer. The theory is silent on the role of trade to ensure additional capital required for initiating higher economic activity. Big push is a kind of ‘prescription’ for launching UDC’s on the path of development. It is not a historical explanation of how development takes place.