Public Sector Governance and Accountability Series: Budgeting and ...

438 Salvatore Schiavo-Campo
going back to the debate of the early days of development economics between
balanced and unbalanced growth. To place the following discussion in context,
let us recapitulate briefly the basic terms of that debate.
Almost 50 years ago, Albert O. Hirschman (1958) made “unbalanced
growth” the central theme of his approach to economic development. He
started from the consideration that the scarcest factor of production in a
developing country is not capital, or natural resources, or technology, or
skilled labor—but the country’s ability to invest. He concluded that a development
strategy needed most of all to economize on the ability to invest,
which could be achieved by focusing public investment on maximizing total
links—both forward and backward—by investing in the intermediate
sectors (those in the middle of the input-output table). The reason is that
public investment in such large projects creates a demand for inputs—and
thus facilitates subsequent decisions to invest in lower-level projects that
produce such inputs—as well as produces inputs for higher-level activities,
thus raising their potential profitability and facilitating decisions to invest in
those activities. Hence, Hirschman advocated sequential and progressive
investments—with public investment in strategic projects (strategic in the
sense of economizing on the economy’s ability to invest) as the initial motor.
This approach contrasted sharply with the “big push” program of acrossthe-board
simultaneous investments advocated by the balanced-growth
strategy of Paul Rosenstein-Rodan (1943) and others in earlier years.
An important aspect of Hirschman’s argument was that the role of
different physical input constraints changes at different stages of development,
with different conditions, and in different countries. Clearly, this viewpoint
is far more relevant for the circumstances of postconflict economies than the
orderly and linear view of the balanced-growth approach that implicitly
takes as constant most of the factors that are by definition variable. The
search for a primum mobile of development is a fruitless one, and the only
realistic approach is to intervene opportunistically and on a timely basis.
Moreover, Hirschman was one of the first development economists to
understand that institutional factors are more important in development
than the availability of the standard physical factors of production. This
insight is particularly applicable to postconflict countries—in the midst of
rapidly changing realities on the ground—than to countries in a “cruisingspeed”
development mode.
However, Hirschman did not take into account (any more than other
development economists did until the late1980s) that the ability to invest, in
the sense of making investment decisions, is very different from the ability
to implement. Good investment decisions are the start, not the end, of good