A Note on the Post-War Industrialisation of "Backward" Countries and Centralist Planning

Abstract

WHEN an entrepreneur makes a marginal increment of investment, he expects to get a certain product. This product may be no more than a part of the total benefit the increment of investment will actually bring forth; the rest may accrue to other people. Now if an industry (or firm) is expanding, its expansion may bring about a better organisation, understood in the widest sense, of all activities more or less remotely connected with the industry in question. This is the phenomenon of external economies, an instance of the wider concept of a discrepancy between marginal social and marginal private products. If the benefit which the industry does not receive directly cannot affect it in any manner at all, we have what may be called external economies simpliciter. But the external economies may have further repercussions. Economies external to one industry are affected through re-organisation and qualitative changes of other which can take place only when those other industries respond to the initiative on the part of the expanded industry. In other words, these other industries will not remain stationary. New industries may spring up or develop out of old ones, while existing industries may expand. It will be profitable for at least some of the other industries to expand, because they are now getting more from their own investment than they used to. If they do expand, the same conditions that made the original external economies possible can perhaps be expected to produce economies external to the expanding industries. Some of these benefits will probably fall on the industry which made the first step towards expansion. If the various industries are so placed in relation to one another that the expansion of one of them benefits the others, it is not unlikely that the expansion of the others will in turn benefit the former. In so far as we can say that the later external economies are induced by the initial expansion of our industry, some of these benefits should be taken into account by that industry when expansion is considered. In other words, the private marginal product is greater than it may at first sight appear to be the case. Or, to put the statement differently, what may appear to be a direct benefit to other industries may yet be an indirect benefit to the industry in question. But it is important to bear in mind that this is so only when the other industries respond to the initial move. There must be, in other words, a synchronised process of expansion, a continuous extension of the market. Consequently, we are still dealing with a case in which the external factor plays a great part. It seems that the external character of the advantages of expansion has made some people believe in the need of bringing them about by a conscious direction of the whole process. But synchronised development can easily become a cliche. Few would dispute the desirability of a synchronized economic development. Granting this, it is an easy step to demand the planning of synchronisation. Since all 'industries are inter-connected, to plan their synchronised development means to plan all industries, or, in short, to establish an economic order of centralist planning. Professor Allyn Young more than hinted at this argument2 while Dr. RosensteinRodan', in particular, has recently developed it.