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Document and Hirschman were all roughly contemporary with Solow's initial statement of growth theory. Page 25 This lack of formality was not because development economists were peculiarly mathematically incapable. Hirschman made a significant contribution to the formal theory of devaluation in the 1940s, while Fleming helped create the still influential Mundell-Fleming model of floating exchange rates. Moreover, the development field itself was at the same time generating mathematical planning models first Harrod-Domar type growth models, then linear programming approaches that were actually quite technically advanced for their time. So why didn't high development theory get expressed in formal models? Almost certainly for one basic reason: the difficulty of reconciling economies of scale with a competitive market structure. The example of the Big Push model discussed earlier in this lecture shows that models in the spirit of high development theory need not be very complicated. They must, however, deal somehow with the problem of market structure. This essentially means making some peculiar assumptions that allow one to exploit the bag of tricks that industrial organization theorists developed for thinking about such issues in the 1970s. In the 1950s, although the technical level of development economists was actually quite high enough to have allowed them to do the same thing, the bag of tricks wasn't there. So development theorists were placed in an awkward bind, with basically sensible ideas that they could not quite express in fully worked-out models. And the drift of the economics profession made the situation worse. In the 1940s and even in the 1950s, it was still possible for an economist to publish a file:///D|/Export2/www.netlibrary.com/nlreader/nlreader.dll@bookid=409&filename=page_25.html [4/18/2007 10:30:03 AM]
Document Page 26 paper that made persuasive points verbally, without tying up all the loose ends. After 1960, however, an attempt to publish a paper like Rosenstein-Rodan's would have immediately gotten a grilling: ''Why not build a smaller factory (for which the market is adequate)? Oh, you're assuming economies of scale? But that means imperfect competition, and nobody knows how to model that, so this paper doesn't make any sense.'' It seems safe to say that such a paper would have been unpublishable any time after 1970, if not earlier. Some development theorists responded by getting as close to a formal model as they could. This is to some extent true of Rosenstein-Rodan, and certainly the case for Fleming (1954), which gets painfully close to being a full model. But others at least professed to see a less formal, less disciplined approach as a virtue. It is in this light that one needs to see Hirschman and Myrdal. These authors are often cited today (by me among others) as forerunners of the recent emphasis in several fields on strategic complementarity. In fact, however, their books marked the end, not the beginning, of high development theory. Myrdal's central thesis was the idea of "circular causation." But the idea of circular causation is essentially already there in Allyn Young (1928), not to mention Rosenstein-Rodan; and Nurkse in 1952 referred repeatedly to the circular nature of the problem of getting growth going in poor countries. So Myrdal was in effect providing a capsulization of an already extensive and familiar set of ideas rather than a new departure. Similarly, Hirschman's idea of linkages was more distinctive for the effectiveness of the term and the policy advice that he derived loosely from it than for its intellectual novelty; in effect Rosenstein-Rodan was already file:///D|/Export2/www.netlibrary.com/nlreader/nlreader.dll@bookid=409&filename=page_26.html [4/18/2007 10:30:04 AM]
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Page 3 and 4: Document Fourth printing, 1998 Firs
Page 5 and 6: Document Preface Page vii This book
Page 7 and 8: Document Page ix limiting nature of
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Page 15 and 16: Document The Big Push Page 8 A good
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