Economic Backwardness in Historical Perspective Alexander Gerschenkron Economic

Economic Backwardness in Historical Perspective Alexander Gerschenkron

Economic Backwardness in Historical Perspective � Modern historians no longer announce to the world what inevitably will, or should happen � Comprehension of the past changes with the historian’s emphasis, interest, and point of view � ALL decisions in the field of economic policies are essentially decisions with regard to combinations of a number of relevant factors

The Elements of Backwardness � Common Generalization: “The industrially more developed country presents to the less developed country a picture of the latter’s future” › EX: Germany Followed Britain’s example

The Elements of Backwardness (continued) � Industrialization processes showed differences with regard to the speed of development, and the productive and organizational structure › Often were the result of application of institutional instruments for which there was little or no counterpart “spirit”/”ideology” differed among advanced and backward countries � Extent to which the attributes of backwardness varies with the natural industrial potentialities �

The Elements of Backwardness (continued) � Typical situation in a backward country prior to industrialization characterized by tension between actual state of economic activities & obstacles to industrial development AND the promise after the process

The Elements of Backwardness (continued) � Creation of an industrial labor force is a difficult process › EX: Russia Utilization of modern techniques required increases the average size of a plant � Existence of complementarity and indivisibilities in economic processes � › Ex: railroads require coal mines � European economic history shows that only when industrial development could go on in a large scale does the tension between the pre-industrialization conditions and benefits expected become strong enough to overcome existing obstacles

The Banks � Second Empire in France › Napoleon III ended economic stagnation › Policy of reduction of tariff duties and elimination of import prohibitions › Profitable access to basic industrial raw materials � Credit Mobilier › At the beginning, conflict with the ‘old wealth’ in French banking › This “NEW WEALTH” succeeded in making the ‘old wealth’ accept its policies

The Banks (continued) � German (and Austrian) banks have closest possible relations with industrial enterprises › › From establishment to liquidation Development of account credits and Banks acquired power over industrial enterprises Went to entrepreneurial and managerial decisions � England › Industrialization happened without any utilization of banking for long-term processes � Germany had advantages from being late arrival › Developed along lines differently than England › Due to different methods

The State � The German experience cannot be generalized because: › 1. existence of certain backward countries where no comparable features of industrial development can be discovered › 2. existence of countries where the basic elements of backwardness appear in an accentuated from to lead to the use of different institutional instruments of industrialization

The State (continued) � Type 1: › Ex: Denmark Opportunities in the market for the country’s natural resources absence of challenge � Type 2: › Ex: Russia main reason for economic backwardness = presence of serfdom until 1861 emancipation › Economic development of Russia: � 1. state assumed the role to propel economic progress in the country � 2. correlated with military situation � 3. burden often placed on generations of people corresponding with intensified development � 4. oppressed peoples � 5. prolonged stagnation

The State (continued) � Paradoxical Course of Russia › Peter the Great tried to adopt Western techniques, raise output and skills of populations › Serfdom of Russian peasantry = opposite side of Westernization � Emancipation of Russian peasants = prerequisite for industrialization � Focused on large-scale enterprises � Incompetence and corruption of bureaucracy

The State (continued) � Two Halves of the Austrian-Hungarian Monarchy › Austrian part = backward in relation to Germany, but ahead in comparison to Hungarian part › Austrian banks could devote themselves to industrial activities V. S. Hungarian banks inadequate › “the logic of things” �Government subsidies were more and more deflected from textile industries to promotion of heavy industry

The Gradations of Backwardness � Turn of century: change in relationship between German banks and German industry › Industrial enterprises transformed connection with a single bank into a cooperation with several banks › Industrial giants begin to form their own banks � Russia’s Change › Russian industry could begin to work independently but not to the extent of Germany › Commercial banks founded › “Deposit banks” [like England] › Westernized business behavior › Backwardness reduced by state-sponsored industrialization process use of a different instrument of industrialization

Ideologies of Delayed Industrializations � French Industrialization Under Napoleon III › Saint Simonian doctrines corporate state in which the ‘leaders of industry’ would exercise major political functions › Incorporation of socialist ideas › Banks seen as an instrument of organization and development of the economy �Appeal to Credit Mobilier � Orthodox Marxism in Russia in 1890 s › Presented capitalist industrialization as the result of an iron law of historical development

Conclusions Can be drawn from the historical experience of both centuries � 20 th Problem of backward nations aren’t exclusively their own; just as much of the advanced countries’ � 19 th policies toward the backward countries are unlikely to be successful if they ignore the basic peculiarities of economic backwardness � › Only by recognizing existence and strength and by attempting to develop fully the ‘possibilities of things’, can the 19 th century experience be used to avert the threat of today