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ONE

A General View

THE question why social and economic development has recently moved into the forefront of economic discussion—particularly in the United States—may appear to be a recondite and tedious issue in the history of knowledge only tenuously related to the subject matter itself. This is not quite the case. The history of thought reveals also here the thought of history, and an examination of the circumstances that have brought about the present burst of interest in social and economic change may shed valuable light on the nature and significance of the current debate, as well as on the substance of the problem itself.

It will be recalled that a strong interest in economic development is by no means an unprecedented novelty in the realm of political economy. In fact, economic growth was the central theme of classical economics. This much is indicated by the title and contents of Adam Smith’s pathbreaking work, and many a generation of economic thinkers, regardless of the names that they gave their writings, were concerned with analyzing the forces that made for economic progress. Their concern with the conditions necessary for economic development grew out of their keen observation and study of the society in which they lived, and resulted in their firm conviction that the political, social, and economic relations prevailing at the time greatly impeded and retarded the development of productive resources. Whether they referred to the fallacies of the mercantilist foreign trade theory or to the rigidities of the guild system, or whether the issue was related to the functions of the state in economic life or to the role played by the landowning class, the classical economists had no trouble in showing that economic progress was predicated upon the removal of outdated political, social, and economic institutions, upon the creation of conditions of free competition under which individual enterprise and initiative would be given ample opportunity for unhampered performance.

Not that they confined themselves to a critique of the then existing society without making an attempt to provide a positive analysis of the working principles of the rising capitalist order. On the contrary, it was precisely this positive effort that furnished us with much of what we know today about the functioning of the capitalist system. What matters in the present context, however, is that the chief impetus to their prodigious scientific and publicistic endeavors was supplied by the strongly felt necessity to convince the public of the urgency of liberation from feudal and semi-feudal shackles. In this sense, if in no other, it is wholly appropriate to relate the classical school of economics to the rise and development of capitalism, to the triumph of the modern bourgeoisie. In the words of Professor Lionel Robbins:

The System of Economic Freedom was not just a detached recommendation not to interfere: It was an urgent demand that what were thought to be hampering and anti-social impediments should be removed and that the immense potential of free pioneering individual initiative should be released. And, of course, it was in this spirit that in the world of practice its proponents addressed themselves to agitation against the main forms of these impediments: against the privileges of regulated companies and corporations, against the law of apprenticeship, against restriction on movement, against restraints on importation. The sense of a crusade which emerged in the free trade movement is typical of the atmosphere of the general movement for freeing spontaneous enterprise and energies, of which, without doubt, the classical economists were the intellectual spear-head.¹

Yet, as soon as capitalism became fully established, and the bourgeois social and economic order firmly entrenched, this order was “consciously or unconsciously” accepted as history’s “terminal station,” and the discussion of social and economic change all but ceased. Like the Boston lady who, in reply to an inquiry whether she had traveled much, observed that she had no need to travel since she had been fortunate enough to be born right in Boston, the neoclassical economists, in contrast to their classical predecessors, were much less concerned with problems of traveling and much more with the question how best to explore and to furnish the house in which they were born. To be sure, to some of them that house did not appear altogether perfect. They all thought of it, however, as sufficiently comfortable and sufficiently spacious to permit of various improvements. But such improvements—desirable as they may have seemed—were to be undertaken slowly, cautiously, and circumspectly, lest harm be done to the foundations and the pillars of the structure. Merely marginal adjustments were deemed practicable and advisable—nothing drastic, nothing radical could hope for approval on the part of economic science.² Natura non facit saltum suggests clearly that no moving was contemplated; it is certainly not the motto of economic development.

For economic development implies precisely the opposite of what Marshall placed on the title page of his Principles. It implies the crude but crucial fact—often, if not always, overlooked—that economic development has historically always meant a far-reaching transformation of society’s economic, social, and political structure, of the dominant organization of production, distribution, and consumption. Economic development has always been propelled by classes and groups interested in a new economic and social order, has always been opposed and obstructed by those interested in the preservation of the status quo, rooted in and deriving innumerable benefits and habits of thought from the existing fabric of society, the prevailing mores, customs, and institutions. It has always been marked by more or less violent clashes, has proceeded by starts and spurts, suffered setbacks and gained new terrain—it has never been a smooth, harmonious process unfolding placidly over time and space.

However, this historical generalization—probably one of the best established that we have—was quickly lost sight of in bourgeois economics. In fact, having started as advocacy of capitalism, having grown to be its most sophisticated and perhaps most influential rationalization, it had to share the fate of all the other branches of bourgeois thought. As long as reason and the lessons to be learned from history were manifestly on the side of the bourgeoisie in its struggle against the obscurantist ideologies and institutions of feudalism, both reason and history were confidently invoked as the supreme arbiters in the fateful contest. There are no more magnificent witnesses to this grand alliance of the ascending bourgeoisie with reason and historical thinking than the great Encyclopedists of the eighteenth century, than the great realists of the nascent bourgeois literature.

But when reason and the study of history began revealing the irrationality, the limitations, and the merely transitory nature of the capitalist order, bourgeois ideology as a whole and with it bourgeois economics began abandoning both reason and history. Whether this abandonment assumed the form of a rationalism driven to its own self-destruction and turning into the agnosticism of modern positivism, or whether it appeared frankly in the form of some existentialist philosophy contemptuously rejecting all search for and all reliance upon a rational comprehension of history, the result was that bourgeois thought (and economics as a part of it) turned ever more into a neatly packed kit of assorted ideological gadgets required for the functioning and the preservation of the existing social order.

In its beginnings, economics was a revolutionary intellectual effort to seek out and to establish the working principles of an economic system best able to advance the cause of mankind. In its later days it has turned upon its own past, becoming a mere attempt at an explanation and justification of the status quo—condemning and suppressing at the same time all endeavors to judge the existing economic order by standards of reason, or to comprehend the origins of the prevailing conditions and the developmental potentialities that they contain. As Marx remarked: “The economists explain to us the process of production under given conditions; what they do not explain to us, however, is how these conditions themselves are being produced, i.e., the historical movement that brings them into being.”³

Thus the concern with economic and social change was left to a “heretical” school of economics and social science. Marx and Engels accepted in essence the insistence of the classical economists on capitalism’s giant contribution to economic development. Yet, not wedded to the now dominant capitalist class, and neither “consciously nor unconsciously” compelled to regard capitalism as the “natural” form of society and as the ultimate fulfillment of human aspirations, they were able to perceive the limits and barriers to progress inherent in the capitalist system. Indeed, their approach to the matter was radically different from that of bourgeois economics. While the latter was (and is) interested in economic development only to the extent that it has led to the establishment, and is conducive to the stabilization, of the capitalist order, Marx and Engels considered the capitalist order itself as likely to survive only as long as it did not become a fetter on further economic and social progress. Overcoming the limitations of bourgeois thought, they were able to comprehend the era of capitalism as merely creating the prerequisites for a development of humanity that would lead far beyond the confines of the capitalist order. Once more: the critical efforts of Marx and his followers yielded most important positive results. They destroyed the veil of harmony with which bourgeois economics obscured the view of the capitalist system, and laid bare the conflict-laden, irrational nature of the capitalist order. Much if not all that we know about the complex mechanism responsible for the development (and stagnation) of productive forces, and for the rise and decay of social organizations, is the result of the analytical work undertaken by Marx and by those whom he inspired.

Such might have remained the situation, with economic development relegated to the “underworld” of economic and social thought, were it not for historical processes that in the course of a few decades have drastically changed our entire social, political, and intellectual landscape. Indeed, while the neoclassical economists were, busy with further refinements of static equilibrium analysis and with the elaboration of additional arguments proving the viability and intrinsic harmony of the capitalist system, capitalism itself was going through far-reaching transformations.

Towards the end of the nineteenth century, the first phase of the industrialization of the Western world was nearing its completion. The economic consequence of the thorough exploitation of the then available technology—based primarily on coal and steam—was not merely a tremendous expansion of heavy industry, a vast increase of output, and a revolution in the means of transportation and communication; it was also a momentous change in the structure of the capitalist economies. Concentration and centralization of capital made giant strides, and large-scale enterprise moved into the center of the economic scene, displacing and absorbing the small firm. Shattering the competitive mechanism which regulated, for better or worse, the functioning of the economic system, large-scale enterprise became the basis of monopoly and oligopoly—the characteristic features of modern capitalism. The world of neoclassical economics was rapidly disintegrating. Neither the slow (but steady) growth, nor relatively painless continuous adjustments on the margin were to be expected under conditions of ubiquitous indivisibilities and discontinuities, of increasing returns to scale, and of narrowing investment opportunites. The harmonious movement of capital from the advanced to the less developed countries that was expected to be propelled by the profit motive assumed in reality the form of embittered struggles for investment outlets, markets, and sources of raw materials. Western penetration of backward and colonial areas, that was supposed to spread the blessings of Western civilization into every nook and corner of the globe, spelled in actual fact ruthless oppression and exploitation of the subjugated nations.

The powerful tendencies towards stagnation, imperialist conflagrations, and severe political crises discerned by Marx as early as the middle of the nineteenth century, and later observed and analyzed by Hobson, Lenin, Hilferding, Rosa Luxemburg, and others, expressed themselves so manifestly as to give cause for alarm to all but the most complacent. A frantic armaments race among the Great Powers began absorbing growing parts of their national outputs and became the most important single factor in determining the level of their economic activity. In quick succession the Sino-Japanese War, the Spanish-American War, the Boer War, the bloody suppression of the Boxer Rebellion, the Russo-Japanese War, the Russian Revolution in 1905, the Chinese Revolution in 1911-1912, and finally the First World War ushered in the present epoch in the development of capitalism—the epoch of imperialism, wars, national and social revolutions.⁴

The Marxian theoretic challenge has become eminently practical. The “Indian summer” of stability, prosperity, and confidence in the future of capitalism—following the First World War—lasted less than one decade. The dream of “organized capitalism,” of a “Ford-versus-Marx” solution of all economic and social ills, and of “economic democracy” assuring justice and welfare to all became the shortest-lived utopia on the historical record. The Great Depression with its manifold and protracted repercussions rendered the continuation of the “conspiracy of optimism” about economic growth and social progress under capitalism increasingly difficult to maintain. The time-honored “scientific” and “objective” finding of economics that socialism is impossible was dramatically refuted by the success of the industrialization effort in the USSR.

Tardily and reluctantly, economics began taking cognizance of the new situation. Although inspired by the immediate problem of counteracting depression and unemployment, and consequently addressing itself primarily to the issues of the short run, the “New Economics” of John Maynard Keynes carried implications that transcended by far its original scope. In an attempt at clarification of the determinants of short-run changes in the levels of output, employment, and income, Keynesian economics found itself face to face with the entire irrationality, the glaring discrepancy between the productive potentialities and the productive performance characteristic of the capitalist order. At the risk of grossly exaggerating the intellectual performance of Keynes, it might be said that what Hegel accomplished with respect to German classical philosophy, Keynes achieved with regard to neoclassical economics. Operating with the customary tools of conventional theory, remaining well within the confines of “pure economics,” faithfully refraining from considering the socioeconomic process as a whole, the Keynesian analysis advanced to the very limits of bourgeois economic theorizing, and exploded its entire structure. Indeed, it amounted to an “official” admission on the part of the “Holy See” of conventional economics that instability, a strong tendency towards stagnation, chronic underutilization of human and material resources, are inherent in the capitalist system. It implicitly repudiated the zealously guarded “purity” of academic economics by revealing the paramount importance for the comprehension of the economic process of the structure of society, the relations of classes, the distribution of income, the role of the state, and other “exogenous” factors.

Yet this unintentionally undertaken revival of the inquiry into the “nature and causes of the wealth of nations” had nothing in common with the youthful, revolutionary enthusiasm of the early crusade for laissez faire. Although contributing greatly to the understanding of the mechanics of the capitalist economy, the New Economics was unable to rise to a full theoretic grasp of the general crisis of capitalism, and remained merely a supreme effort on the part of bourgeois economic thought to discover a way of saving the capitalist system in spite of the manifest symptoms of its disintegration and decay. Thus the “Keynesian Revolution” has never become associated with a vigorous movement for the abolition of an outlived and destructive social order, for economic development and social progress. Again, not unlike the philosophy of Hegel, in its “Leftist” interpretation, it supplied intellectual ammunition to a reform movement which expected once more to solve the contradictions of capitalism by changing the prevailing distribution of income, and by having a benevolent state provide henceforth for steady economic expansion and increasing standards of living. But the logic of monopoly capitalism proved to be much stronger than ever realized by Keynes and his radical followers. It turned their theoretic accomplishments to purposes quite alien to their intentions. The “Welfare State,” guided by the canons of Keynesian economics and the precepts of “functional finance,” has remained essentially on paper. It was fascist Germany that thus far has made the most extensive use of Keynesian insights in building an economic machine that enabled it to unleash the Second World War.

The war and the years of the postwar boom suspended all Keynesian concern with the excess accumulation of capital, with the shortage of effective demand. The requirements for the reconstruction of war damage in some countries, the satisfaction of postponed demand on the part of businesses and consumers in others, the urge to turn to productive purposes the technological innovations developed during (and frequently in connection with) the war—all combined to create a huge market for the output of capitalist enterprise.

Economists who only unwillingly and only under irresistible pressure of incontrovertible facts had “swallowed” the anti-capitalist implications of the Keynesian doctrine returned with conspicuous alacrity to the customary panegyrics of capitalist harmony. Remaining “close to observable facts,” they cheerfully began to discuss inflation as the main threat to the continuous equilibrium of capitalist economies, and declared once more that oversaving, excess capacity, and depressions were relics of a remote and backward past. Extolling the virtues of the market mechanism, glorifying monopoly and “big business,” economics all but canceled whatever advance was reached as a result of the Keynesian Revolution, and returned to the complacency of the “merry twenties.”

To be sure, this regression will probably be no more than shortlived; it has in fact not even affected the entire profession. Not only behind some recent writings on problems of economic growth, but even behind the more down-to-earth discussions of current business conditions and short-run economic prospects, lurks a gnawing uncertainty about the future of capitalism and a painful awareness that the impediments to economic progress that are inherent in the capitalist system are bound to reappear with renewed force and increased obstinacy as soon as the extraordinary hothouse situation of the postwar period has ceased to exist.

II

But if the lability of the economy of the United States (and of other highly developed capitalist countries) is giving rise to much concern and provides a stimulus to thinking about the basic problems of economic growth and development, the processes unfolding in the world at large cannot fail to lend these meditations the utmost urgency.

For the Second World War and the events that constituted its sequel were a major earthquake that shattered the structure of the capitalist world even more violently than the First World War and the Russian Revolution. Indeed, the First World War led “merely” to the loss of Russia to the capitalist system. The Second World War, however, has been followed not only by the Chinese Revolution, but by a nearly universal awakening of the vast multitudes inhabiting the world’s dependent and colonial areas. Aroused by the staggering irrationality and oppressiveness of their social and economic order, weary of the continuous exploitation by their foreign and domestic masters, the peoples of the underdeveloped countries have begun to manifest a mounting determination to overthrow a social and political system that is perpetuating their squalor, misery, and stagnation.

The momentous movement to do away with the entire edifice of imperialism, to put an end to the backwardness and prostration of the overwhelming majority of the human race, would by itself have created considerable consternation in the ruling class of the United States and other capitalist countries sitting on top of the imperialist pyramid. What has transformed this consternation into a state of near-panic, however, is the historic confluence of the restiveness in the underdeveloped countries with the spectacular advance and expansion of the world’s socialist camp. The military performance of the Soviet Union during the war and the rapid recovery of its war-ravaged economy provided the final proof of the strength and viability of a socialist society. There can no longer remain any doubt that a socioeconomic system based on comprehensive economic planning can function, grow, and withstand the most trying historical tests—without the benefits of private enterprise and without the institution of private property in the means of production. What is more, a large number of dependent countries went through a social revolution after the war, and thus entered the road to rapid economic and social progress. Eastern and Southeastern Europe, and even more importantly China, dropped out of the orbit of world capitalism and became sources of encouragement and inspiration to all other colonial and dependent countries.

As a result of these developments, the issue of economic and social progress not merely returns to the center of the historical stage but relates—as two or three centuries ago—to the very essence of the widening and sharpening struggle between two antagonistic social orders. What has changed is perhaps not so much the nature and the plot of the drama as the leading dramatis personae. If in the seventeenth and eighteenth centuries the struggle for progress was tantamount to the struggle against the outlived institutions of the feudal age, similarly current efforts to bring about conditions indispensable for economic development in advanced and backward capitalist countries alike come continuously into conflict with the economic and political order of capitalism and imperialism. Thus to ruling opinion in the United States (but also in some other parts of the capitalist world), the world-wide drive for economic progress inevitably appears as profoundly subversive of the existing social order and of the prevailing system of international domination—as a revolutionary movement that has to be bribed, blocked, and, if possible, broken, if the capitalist system is at all to be preserved.

It is needless to say that approaching economic development from this standpoint amounts to its repudiation. As far as advanced capitalist countries are concerned, the incompatibility of sustained economic growth with the capitalist system has been brought into sharp relief by some of the recent writings on economic growth. The mere specification of the conditions that need to be fulfilled for output to increase at rates that would be attainable with the available human and material resources—presented in different forms by Domar, Harrod, Colm, and others—shows with utmost clarity that such rates of increase are impossible under capitalism. Indeed, both consumption and private investment are rather narrowly circumscribed by the requirements of profit maximization under conditions of monopoly and oligopoly, and the nature and volume of government spending are no less rigidly determined by the social basis and function of the state in a capitalist society. Consequently neither maximum output, rationally allocated as between investment and consumption, nor some predetermined level of output combined with a lessening of the burden of work, are to be expected in the capitalist system. What appears to be more probable is the continuous re-emergence of the grim dilemma between war-induced bursts of output and depression-induced floods of unemployment.

Yet, although demonstrating, and indeed greatly clarifying, the vicious and portentous nature of this impasse, none of the writers just mentioned has stated what is an inescapable conclusion of their own investigations—that socialist economic planning represents the only rational solution of the problem. To be sure, it may be held that there is no need for explicit statements of what necessarily emerges from the logic of a rigorous argument. However, even self-evident truths must be communicated if they are to be recognized as such by those whom they may otherwise escape. Nothing is perhaps more characteristic of the intellectual atmosphere surrounding the present discussion of economic growth—a discussion in which truisms and trivia abound—than that it is this self-evident truth that is strictly taboo even to the most enlightened writers on the subject.

Matters are still worse when it comes to economic development in underdeveloped countries. There a maze of pretense, hypocrisy, and make-believe confuse the discussion, and a major effort is required to penetrate the smoke screen obscuring the main issue. What is decisive is that economic development in underdeveloped countries is profoundly inimical to the dominant interests in the advanced capitalist countries. Supplying many important raw materials to the industrialized countries, providing their corporations with vast profits and investment outlets, the backward world has always represented the indispensable hinterland of the highly developed capitalist West. Thus the ruling class in the United States (and elsewhere) is bitterly opposed to the industrialization of the so-called “source countries” and to the emergence of integrated processing economies in the colonial and semi-colonial areas. This opposition appears regardless of the nature of the regime in the underdeveloped country that seeks to reduce the foreign grip on its economy and to provide for a measure of independent development. Whether it is a democratically elected government in Venezuela, in Guatemala, or in British Guiana, an indigenous popular movement (as in Kenya, in the Philippines, or in Indo-China), a nationalist administration (as in Iran, Egypt, or Argentina) that undertakes to oppose the foreign domination of its country—all leverages of diplomatic intrigue, economic pressure, and political subversion are set into motion to overthrow the recalcitrant national government and to replace it with politicians who are willing to serve the interests of the capitalist countries.

The resistance of imperialist powers to economic and social development in colonial and dependent territories becomes even more desperate when the popular aspirations to national and social liberation express themselves in a revolutionary movement that, internationally connected and supported, threatens to overthrow the entire economic and social order of capitalism and imperialism. Under such circumstances, the resistance hardens into a counter-revolutionary alliance of all imperialist countries (and their reliable retainers) and assumes the form of a systematic crusade against national and social revolutions.

The requirements of this crusade have molded decisively the attitude toward the development of underdeveloped countries prevailing at the present time in the Western world. As the Prussian Junkers presented the continuation of serfdom on their estates as indispensable for the defense of Christianity against the onslaught of liberal godlessness, so the drive of the Western ruling classes to maintain the economic, social, and political status quo in underdeveloped countries is proclaimed as the defense of democracy and freedom. As the Prussian Junkers’ interest in high tariffs on grains was announced to be dictated solely by their deep concern with the preservation of German food supplies under conditions of war, so the anxiety of dominant Western corporations to safeguard their investments abroad and to remain assured of the accustomed flow of raw materials from the backward world is publicized as patriotic solicitude for the “free world’s” supply of indispensable strategic materials.

The arsenal of “united action” against the independent development of underdeveloped countries comprises an entire gamut of political and ideological stratagems. There are in the first place the widely broadcast statements of Western statesmen that appear to favor economic development in the underdeveloped world. Indeed, much is being made at the present time of the advanced countries’ aid and support for the economic advancement of the backward areas. This advancement is conceived of as a slow, gradual improvement of the living standards of the native populations, and it is expected to lessen popular pressure for industrialization, to weaken the movement for economic and social progress.

However, this scheme of “bribing” the peoples of the underdeveloped countries to refrain from overthrowing the existing system and from entering the road to rapid economic growth is beset by a host of insuperable contradictions. The logic of economic growth is such that a slow and gradual improvement of living standards in little-developed countries is an extremely difficult if not altogether impossible project. Whatever small increases in national output might be attained with the help of such Western investment and charity as may be forthcoming are swamped by the rapid growth of the population, by the corruption of the local governments, by squandering of resources by the underdeveloped countries’ ruling classes, and by profit withdrawals on the part of foreign investors.

For, where far-reaching structural changes in the economy are required if the economic development of a country is to shift into high gear and is to outstrip the growth of population, where technological indivisibilities render growth dependent on large investments and long-run planning, where tradition-bound patterns of thought and work obstruct the introduction of new methods and means of production—then only a sweeping reorganization of society, only an all-out mobilization of all its creative potentialities, can move the economy off dead center. As mentioned before, the mere notions of “development” and “growth” suggest a transition to something that is new from something that is old, that has outlived itself. It can only be achieved through a determined struggle against the conservative, retrograde forces, through a change in the social, political, and economic structure of a backward, stagnant society. Since a social organization, however inadequate, never disappears by itself, since a ruling class, however parasitic, never yields power unless compelled to do so by overwhelming pressure, development and progress can only be attained if all the energies and abilities of a people that was politically, socially, and economically disfranchised under the old system are thrown into battle against the fortresses of the ancien régime.

But the crusade against national and social revolutions conducted at the present time by the Western powers relies upon a mobilization of altogether different social strata. It cements an international entente of precisely those social groups and economic interests that are, and are bound to be, bitterly antagonistic to genuine economic and social progress, and it subordinates considerations of economic development to the purpose of strengthening this alliance. It provides economic and military aid to regimes in underdeveloped countries that are manifestly inimical to economic development, and it maintains in power governments that would have been otherwise swept aside by the popular drive for a more rational and more progressive economic and social order.

It is as part of the same effort to bribe the peoples of the underdeveloped countries while avoiding the appearance of old-fashioned imperialism that political independence has been recently granted to a number of dependent nations and that native politicians have been allowed to rise to high offices. There is hardly any need to stress that such independence and autonomy are little more than sham as long as the countries in question remain economic appendages of the advanced capitalist countries and as long as their governments depend for survival on the pleasure of their foreign patrons.

What is more, the attainment of political independence by colonial peoples yields results under the conditions of imperialism that are frequently quite different from those hoped for by these peoples themselves. Their newly won political independence often precipitates merely a change in their Western masters, with the younger, more enterprising, more resourceful imperialist power seizing the controls that have slipped out of the hands of the old, now weakened imperialist countries. Thus where it is politically no longer possible to operate through the medium of the old-fashioned and compromised colonial administrations and to impose its control merely by means of economic infiltration, American imperialism sponsors (or tolerates) political independence of colonial countries, becoming subsequently the dominant power in the newly “liberated” regions. Both methods of expansion of American influence can be studied in Africa, Southeast Asia, and the Near East.

III

A considerable ideological campaign is being undertaken in order to “sell” to the public this modern, more subtle and less transparent policy of imperialism. As an astute economist recently remarked, “‘development’ as compared with ‘civilization’ … [has become] an intellectual quid pro quo for international domination by a major country.”⁵ And social sciences provide, as usual, the requisite rationalization for the systematic effort of the ruling class of the advanced capitalist countries to prevent, or at least to retard, the political and economic liberation of the colonial and dependent nations. Stimulated by lavish support on the part of various government agencies and private foundations, economists, anthropologists, social psychologists, and other social scientists in the West have been directing an ever-increasing amount of attention to the development of underdeveloped countries.

In the field of economic research, much energy is now given to an attempt to demonstrate that the advanced capitalist countries themselves have reached their present level of development by a process of spontaneous, slow growth—within the framework of the capitalist order and without major shocks and revolutionary upheavals. It is argued that it was, in fact, the relative absence of political disturbance and the continuity and stability of social institutions that provided the “climate” essential for the emergence and prosperity of the capitalist entrepreneur, who in turn is credited with having played a decisive role in promoting economic progress. Accordingly, large resources are being devoted to an extensive campaign of rewriting the history of capitalism. Its purpose is the rehabilitation of the “robber baron” and his glorification as the hero and prime mover of economic and social progress, and its related task is the minimization of the suffering and privations that were associated with the beginning and the growth of capitalist enterprise.

Thus the historically minded members of the economics profession seek to prove that by relying on the forces of the free market and of private initiative economic development was achieved in the past without excessive sacrifices—with the obvious moral that this method still represents the most commendable avenue to economic progress. Little mention, if any, is accorded by these historians to the role that the exploitation of the now underdeveloped countries has played in the evolution of Western capitalism; little attention, if any, is given to the fact that the colonial and dependent countries today have no recourse to such sources of primary accumulation of capital as were available to the now advanced capitalist countries, that economic development in the age of monopoly capitalism and imperialism faces obstacles that have little in common with those encountered two or three hundred years ago, and that what was possible in a certain historical setting is unrealistic in another.

The more theoretically inclined economists follow a different tack. Dwelling on the technical aspects of economic development, they discover a host of insuperable difficulties preventing the formulation of a coherent theory of economic and social change. They list with obvious relish all and sundry matters more or less germane to the problem of economic development about which “we do not know enough,” they stress the lack of unambiguous criteria for a rational allocation of resources under dynamic conditions, they elaborate on the obstacles to industrialization stemming from the character of the labor force in underdeveloped countries, from the scarcity of native managerial talent, from likely balances of payments disequilibria—with the result that all efforts at rapid development appear as adventures on uncharted seas, as gross violations of all accepted economic reasoning.

These endeavors to discredit implicitly or explicitly the drive for rapid development of underdeveloped countries, to present it as the manifestation of a deplorable impatience and irrationality of unenlightened mobs devilishly manipulated by sinister, power-greedy politicians—these are assisted by the neo-Malthusians who explain the backwardness of the backward countries as the inevitable result of their “excessive” population growth, and who therefore denounce all attempts at economic development in these areas as utopian so long as the population increase has not been brought to a halt. However, since a reduction of the population growth—assuming for the sake of argument that such a reduction is necessary—can only be achieved as a result of an all-round development of the backward societies, the neo-Malthusian position renders economic development a hopeless task, made insolvable by the very nature of the human animal.

A similar impact on opinion is exercised by most anthropological and quasi-philosophical writing related to the problem of economic development of underdeveloped countries. Here it has become fashionable to question the “absolute desirability” of economic development, to deride as unscientific its identification with progress, to accuse its protagonists in the West of “ethnocentrism,” of hypostatization of their own culture, and of insufficient respect for the mores and values of more primitive peoples. In keeping with the general relativism and agnosticism of contemporary bourgeois thought, this strand of social science denies the possibility of a rational judgment on the usefulness, let alone urgency, of economic and social change in colonial and dependent areas, and counsels utmost caution in disturbing the continuity of the backward societies. While not explicitly endorsing the “white man’s burden” concept of imperialist domination, this approach comes very close to it by pointing to the “cultural heterogeneity” of backward nations, by stressing the incomparability of value systems, and by suggesting that colonial and dependent peoples may actually “prefer” their present state to economic development and to national and social liberation. Small wonder that such a doctrine provides a poor background for the comprehension of the unprecedented popular movements that are at the present time revolutionizing and rejuvenating the greater part of the human race; small wonder that it supplies aid and comfort not to the peoples in the colonial and dependent countries struggling for freedom but to their masters seeking to preserve the status quo.

This political and ideological setting of the current discussion of economic development explains the highly unsatisfactory nature of what has been accomplished thus far. Robert Lynd’s challenging question, “Knowledge for What?” bears not only on the fruitfulness of an intellectual effort in terms of the ends that it is designed to serve; it also necessarily relates to the conduct and the contents of the effort itself. Thus, motivated by the overriding preoccupation with the requirements of the counter-revolutionary crusade, muzzled by the fear of antagonizing the dominant interests determined to obstruct at all cost economic and social progress in the colonial and dependent countries, research and writing on economic development eschew as much as possible reference to what is in the very center of the problem. They make no reference to the irrationalities of monopoly capitalism and imperialism that block economic development in advanced capitalist countries, and they give no attention to the system of internal and foreign domination that prevents or distorts economic growth in the underdeveloped world. Correspondingly little emphasis is placed on the study of the unique experience in rapid development gathered in the USSR and in other countries of the socialist sector of the world—as if that experience was of interest only to Military Intelligence. And yet there can be no doubt that efforts at economic development could all derive immeasurable profit from fully comprehending the process of economic growth that has taken place in the Soviet Union and in other socialist countries.

IV

In speaking thus far about economic development, I have confined myself to rather broad allusions to this complex term. It is time to buckle down to a somewhat more detailed examination of this process, and it may be convenient to begin by deciding on a definition of economic growth. Not that it is my objective to present here a formula that would exclude any other, nor do I wish to suggest that other definitions might not be superior for other purposes. All I propose to do is to organize my categories in such a way as to be able to approach the subject matter by what appears to me to be a simple and useful method—a method which I plan to explore further in the course of subsequent chapters.

Let economic growth (or development) be defined as increase over time in per capita output of material goods.⁶ It may be permissible in the present context to neglect the difficulty of comparing outputs over time, a difficulty arising whenever the outputs to be compared consist of more than one product, whenever, therefore, changes in output may affect its components unequally, and whenever certain products appear in the output of one period without appearing in the output of the other. This familiar index number problem, disturbing as it is even with regard to slow, gradual growth, becomes particularly vexing when what is considered is more or less rapid economic growth, the outstanding characteristic of which is profound change not only in the magnitude but also in the composition of output. Indeed, intertemporal comparisons threaten to be outright misleading when the periods to be compared are separated by changes in economic and social organization, by big spurts in urbanization, by decreases or increases of the “marketed share” of output, and so forth. Especially troublesome is the services sector, the expansion of which would cause an increase in Gross National Product (as conventionally defined) suggesting thus “economic growth”—although in most countries it would be considered to be a retrograde step rather than one in the direction of economic progress.⁷ Pigou’s famous gentleman marrying his cook and thus reducing national income comes readily to mind. Equally easily can one imagine a tremendous expansion of national income caused by the introduction of compulsory payments to wives for services rendered.

But we shall assume that increases of aggregate output over time can somehow be measured, and shall ask ourselves how such increases come about. They can be the result of one of the following developments (or of a combination of them) : (1) The aggregate resource utilization may expand without changes in organization and/or technology, i.e. previously unutilized resources (manpower, land) may be brought into the productive process. (2) The productivity per unit of resources at work may rise as a result of organizational measures, i.e. by a transfer of workers from less productive or unproductive occupations to more productive pursuits, by a lengthening of the working day, by an improvement in nutrition and strengthening of incentives available to workers, by rationalization of methods of production and more economic utilization of fuel, raw materials, and so forth. (3) Society’s “technical arm” may become stronger, i.e. (a) worn-out or obsolete plant and equipment may be replaced by more efficient facilities, and/or (b) new (technologically improved or unchanged) productive facilities may be added to the previously existing stock.

The first three routes to expansion of output—(1), (2) and (3) (a)—are typically not associated with net investment. Although it is probably impossible to impute to each of these four processes a proper share of the increase of output that has actually taken place, there can be little doubt that the economic application of increasing technical knowledge and net investment in additional productive facilities have been the most important sources of economic growth.

To be sure, in actual fact some net investment may be needed for all of them: previously unused resources may be unusable without some outlays on equipment, soil improvements, and the like; organizational changes may be predicated upon the installation of conveyor belts or similar devices; technological progress yielding improved machinery to be added to or substituted for worn-out equipment may be forthcoming only under conditions of large net investment. “If … technique largely depends on the state of science, science depends far more still on the state and the requirements of technique. If society has a technical need, that helps science forward more than ten universities. The whole of hydrostatics (Torricelli, etc.) was called forth by the necessity for regulating the mountain streams of Italy in the sixteenth and seventeenth centuries. We have only known anything reasonable about electricity since its technical applicability was discovered.”⁸

On the other hand, plowing back amortization allowances—without any net investment—on a higher technological plane may per se support a significant expansion of output. Therefore where the capital intensity of the productive process is already large—in other words, where depreciation allowance constitutes an important part of the cost of the product—there is continuously available a source of capital for financing technological improvements without any need for net investment. While this aggravates the instability of the advanced capitalist economies by increasing the amount of currently generated surplus that has to be disposed of by investment, it also gives the advanced countries a major advantage over the underdeveloped countries where the annual amortization allowances necessarily amount to little.⁹

Net investment in any case can take place only if society’s total output exceeds what is used for its current consumption and for making good the wear and tear on its productive facilities employed during the period in question. The volume and the nature of net investment taking place in a society at any given time depends, therefore, on the size and the mode of utilization of the currently generated economic surplus.

Both, as we shall see later, are essentially determined by the degree to which society’s productive resources have been developed, and by the social structure within which the productive process unfolds. The understanding of the factors responsible for the size and the mode of utilization of the economic surplus is one of the foremost tasks of a theory of economic development. It is not even approached in the realm of “pure” economics. We have to look for it in the political economy of growth.

¹ Lionel Robbins, The Theory of Economic Policy in English Classical Political Economy (London, 1952), p. 19. It is strange, therefore, to read on the next page of Professor Robbins’ book: “… I find it hard to understand how anyone who has given serious attention to the actual works of these men … can question their integrity and their transparent devotion to the general good.… It has become fashionable to dismiss them and their ideas not on grounds of logic and assumptions, but on the grounds of alleged class interest. On this view the classical economists are the spokesmen of business, and consciously or unconsciously the apologists of the dominant class.” (Italics added.) Yet “consciously or unconsciously” is precisely the issue. No serious writer to my knowledge has asserted that the classical economists-at least the great and important ones-were consciously servile scribes of a dominant or rising bourgeoisclass. In that case they would have hardly been worth the paper they were printed on, let alone the paper they are being constantly reprinted on. The crux of the matter is that they were—probably most unconsciously—the spokesmen of a rising bourgeoisie whose interests they objectively served. Professor Robbins himself has clearly seen the distinction between subjective awareness of interests and their objective contents in his The Economic Basis of Class Conflict (London, 1939) (p. 4). In general it may well be said that for the appraisal of a group’s or an individual’s role in the historical process, subjective motivations (conscious or unconscious) are much less important than objective performances. In case of doubt, it is always useful to ask in all such matters: cui bono? The answer may not always be conclusive—it is never irrelevant.

² Thus it is by no means fortuitous that the marginal utility theory, the static character of which is one of its outstanding features, has become the heart of neoclassical economics.

³ Marx, The Poverty of Philosophy (Stuttgart-Berlin, 1921), p. 86.

⁴ “The record of the main European wars … is shown by the following index series (combining size of the fighting force, number of casualties, number of countries involved, and proportion of combatants to total population) : Century: 12th 13th 14th 15th 16th 17th 18th 19th 20th Index : 18 24 60 100 180 500 370 120 3080 For details see Pitirim Sorokin, Social and Cultural Dynamics, Vol. 3, 1937, and Quincy Wright, A Study of War, Vol. 1, Chap. 9 and Appendixes, 1942”; cited in Harold D. Lasswell, World Politics Faces Economics (New York and London, 1945), p. 7.

⁵ H. G. Johnson, Economic Journal (June 1955), p. 303.

⁶ Colin Clark suggests a different definition: “Economic progress can be defined simply as an improvement in economic welfare. Economic welfare, following Pigou, can be defined in the first instance as an abundance of all those goods and services which are customarily exchanged for money. Leisure is an element in economic welfare, and more precisely we can define economic progress as the attaining of an increasing output of those goods and services for a minimum expenditure of effort, and of other scarce resources, both natural and artificial.” The Conditions of Economic Progress (London, 1940), p. 1. This definition appears to me unsatisfactory for a number of reasons: (1) the identification of economic growth with increase in welfare leaves out of account a considerable share of total output that bears no relation to welfare, however the latter may be conceived: currently produced investment goods, armaments, net exports, and the like belong in this group. (2) Regarding an increase of output of “all these goods and services which are customarily exchanged for money” as identical with “improvement in economic welfare” is untenable. Economic welfare may be greatly improved by an increased supply of goods and services that are customarily not exchanged for money (schools, hospitals, roads, or bridges) while on the other hand a great number of goods and services that are customarily exchanged for money make no contribution whatever to human welfare (patent medicines and beauty parlors, narcotics, and items of conspicuous display, etc.) (3) Economic welfare can be improved without any increase of output—by a change in its structure and distribution. (4) While it is obviously desirable to secure any given output with a minimum of input, even an inefficiently secured increase in output might still constitute economic growth. It would seem to be preferable, therefore, to consider economic growth as an increase in output of goods regardless of whether they make a contribution to welfare, to the available stock of producers’ goods, or to armaments—leaving to a related but nevertheless separate examination the factors determining the composition of this output and the purposes to which it is put.

⁷ This was noted in the United Nations’ Economic Survey of Europe Since the War (1953): “In the eastern European countries services not directly connected with the production and transport of goods are not regarded as productive and their value is thus excluded from national income. For a poor country which is trying to develop its industry and to reduce the underemployment common in service trades, the Marxist definition of national income has some obvious advantages over the more inclusive concept suited to wealthy industrialized economies and now commonly adopted in under-developed countries.” (p. 25.)

⁸ F. Engels, Letter to H. Starkenburg, in Marx and Engels, Selected Works (Moscow, 1949–1950), Vol. II, p. 457. On the interesting relation between economic development on one hand and the progress of science and technology on the other, cf. B. Hessen, The Social and Economic Roots of Newton’s Principia (Sydney, 1946), as well as J. D. Bernal, Science in History (London, 1954).

⁹ Cf. Marx, Theories of Surplus Value (London, 1951), pp. 354 ff., where this point is stressed.