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Big Push PDF
Big Push PDF
Italy Project
C/57-25
Po N. RosensteinRodan
8
NOTES ON THE THEORY OF THE "BIG PUSH"
P. N. Rosenstein-Rodan
Center for International Studies
Massachusetts Institute of Technology
Cambridge, Massachusetts
1. Methodology
plane off the ground. There is a critical ground speed which nwt be
1
passed before the craft can become airborne. . ." Proceeding "bit by
bit" will not add up in its effects to the sum total of the single
equilibrium theory and reverses its famous mtto: "natura non fecit
I
2
which prices do not signal all the information required for an "optiman
required 0 2, 3 The author and maW economists believe that those can be
external economies have the same effect in the theory of growth as tech-
path*
mechanism in such imperfect markets does not provide the signals which
2. Te
which are due to the fact that production functions of different industries
are not linearl and homogeneous. Their true function in the theory of
static equilibrium is to mark a place for a concept Whish will become
This is almost but not quite the same as saying that there are
indivisibilities in the production functions. There can be continuous
though non-linear production functions where for instance ilputs and
outputs are non-linearly linked. The decisive criterion is non-convexity
of production possibility curves. In most cases that is due to indivisibilitieso
In a slave econoMy investment in training slave workers may pay.
In a non-slave economy in which mortgages on workers do not exist, a
trained worker may contract at a higher wage rate with another firm which
did not invest in his training. The supply of training facilities in a
competitive econory will therefore be normally below optimum. The
best way of training workers is probably "on the job." Industrial
workers in towns with many establishments and industries acquire skill
by working, by talking to each other, exchanging experiences and changing
jobs, much more quickly than isolated peasants. This fact alone, apart
from better division of labor, is a source of increasing returns to
the industrial system as a whole and a differential advantage of
industrialization.
5
1) Indivisibility in the production function especially the
indivisibility of supply of Social Overhead Capital (lumpiness
"capital") - discussed under 3.
2) "Indivisibility" of Demand (complementarity of demand)
discussed under 4)
exist the others would not arise. Linear homogeneous production functions
are basic in this sense, but they are completely unrealistic. They
obscure the nature of economic process and the risks involved rather
than to throw light on it, In re4lity there are indivisibilites in the
production function. They create not only non-constant returns but also
room, however, only for one or few firms with the obvious danger of
monopolistic markets.
6
Increasing returns accrue t a irm not only with the growth of
its size but also with the growth of the industry and with the growth
of the industrial system as a I1r (Allyn A. Young), Better speciali..
zation, better use of resources become possible when growth helps to
overcome indivisibilities generating pecuniary external economies. The
range of increasing returns seems to be very wide indeed.
2) Social Overhead Capital is the most important instance of
indivisibility and externalities on the supply side., Its services
are indirectly productive with long gestation periods and delayed
yields. Its most important "products" are investment opportunities
created in other industries. Social Overhead Capital comprises all
those basic industries like power, transport, comumications, etc.
which must precede the more quickly yielding, directly productive
investments and which constitute the framework or "infrastructure"
and the "overhead costs" as it were of the econony as a whole. Its
installations are characterized by a sizeable initial lump and low
variable costs. Since they require a3 reat minimum size, excess
capacity will be unavoidable over the initial period in underdeveloped
countries. Over and above a high minimum quantum of each firm or
The capital-output ratio in the United States has fallen over the
last eighty years from around 4 to around 3:1, while income per head,
wage-rates and the percentage of "heavy industries" was rising. This
is due to technical progress (chafte in production functions),
increasing returns on balance (increasing returns prevailing over
decreasing returns) and to thMi* ing demand for labor-intensive
services characteristic of h, nome economies. It is nyr conviction
that increasing returns p considerable part in it.
invest between 30 and 40 per cent of its total investment into these
channels. Since vision at large is required as well as good foresight
of future development, programming is undoubtedly required in this
supply0
Social Overhead Capital presents in sum four characteristic
indivisibilities:
the way for additional more quickly yielding directly productive inM
vestments, This indivisibility constitutes one of the main obstacles
(which they are not) and if their number grew, the risk of each
8
The lower marginal risk of each investment dose (or project) would
lead to either higher or cheaper credit facilities and would thus
1 See T. M. Wtin.
thousand workers in say one hundred factories (and farms) who between
them will produce the bulk of such (wage) goods on which the newly
employed workers will spend their wages. What was not true in the
case of one single shoe factory will become true for the complementary
system of one hundred factories (and farms). The new producers would
be each other's customers and would verify Say's Law by creating an
the fact that various goods are highly imperfect substitutes for each
other in low income underdeveloped countries. The "South-West" corner
of the indifference line map shows very high degrees of convexity;
demand for most goods will therefore be highly inelastic. The low
elasticities of demand make it much more difficult to fit supplies
required, so that not all the wage goods need be produced in the
developing country, but it does not eliminate it.
Transport costs were sharply reduced during the last 150 years;
international trade was falling during the last hundred years. This
should have led to a growing equalization of factor rewards in the
world econow.
The main burden of explaining why this tendency did not materialize
at all - labor rewards in fact showed the opposite tendency of becoming
are different in various perts of the world. "The laws of nature may
be the same 'everywhere,' but the laws of nature and the eoononically
relevant production functions relating maximum output obtainable from
The growth of international trade during the last 150 years has not
reduced the inequality in this field.
We may conclude that international trade does not eliminate
although it reduces - the "indivisibility" of demand, even if markets
other than the investment market were more or less perfect. In
reality of course markets are imperfect - and those in underdeveloped
countries are probably more imperfect than in the developed ones.
The sero (or very low) price elasticity of supply of savings and
the high income elasticity of savings may be described as a third
"Indivisibility" in the Supply of Savings.
of underdeveloped countries,
income per head among different parts of the world will tend to
diminish. This would be the effect of international trade even without
Congress of Vienna in 1815 and the outbreak of the First World War in
1914, we had a century of peace, order and security which is a period
considerably, while the rest had to run very fast in order to stand
still. Lower wages in underdeveloped countries did not attract enough