Development Processes Seen Through Non-Marginalist Lenses with Considerations of Complementarities

Abstract:

Marginalism has deeply shaped neoclassical concepts and analytical tools that are applied to development economics. With a static notion of efficiency defined for a state of competitive equilibrium, neoclassical economists study development in equilibrium frameworks, regarding underdevelopment as the consequence of market failures. How might one, who is not equipped with marginalist lenses, look at development processes as they unfold in history? Prior to the emergence of marginalism such observations abounded in the works of the so-called “protectionists,” where ever-evolving production complementarities figure prominently, and there were considerations of indivisibility. In the postwar era, this is present in the works of some early development economists, especially Albert Hirschman in his employment of backward and forward production linkages to characterize development processes, which are viewed as unfolding series of disequilibria. Historical sequences of events reflect path-dependence and they feedback on each other to exhibit circular and cumulative causation. One thing leads to another, or some things lead to others and so on, including institutional changes. However, the activation of linkages could encounter obstacles, with “technological strangeness” being one, in which case sequential policy intervention could be warranted. This article briefly considers differences with the neoclassical approach in generating policy recommendations.

Keywords::

• development as disequilibrium processes
• linkages
• production complementarities

JEL Classification Codes::

• B52
• O10

Notes

¹ When one considers a two-input situation where the inputs are not perfectly substitutable for each other, then there is complementarity in a crude sense. But this limited recognition of complementarity does not lend itself to much useful analysis.

² As Hirschman (1958, 69, n.7) puts it, “[d]evelopment itself constantly extends the range of complementarities that are rigidly compelled and necessarily simultaneous: the optional equipment of one period becomes the standard equipment of the next, as a result of social and cultural pressures and needs rather than because of purely technological factors.” It should be added that substitutability is not totally ignored. Indeed, a disruption to an existing pattern of complementarity often has impact on what might be possible, in certain situations, regarding substitutability.

³ The replication of patterns of complementarity can be regarded as the filling-up of cells in the input-output matrix of a less developed country that is continually expanding in dimension and with an increasingly diversified content. The sequence, in which such filling occurs, would vary from country to country. Over time, if development can be sustained, it results in increasing similarities, though not identity, with the evolving matrices in advanced countries.

⁴ I refer to the two main works of List, The Natural System of Political Economy and The National System of Political Economy.

⁵ Needless to say, there are instances when employment could be reduced.

⁶ Should such increase in demand expand the size of the domestic market sufficiently to induce previously imported consumption goods to be produced domestically, then one experiences what Hirschman (1968, 1977) called “consumption linkages.” I consider his production linkage concepts in the next section of the article. Toward the end of that section (including n.11), one finds additional linkage concepts. Together with consumption linkages, these were all attempts by Hirschman to broaden and enrich his analysis.

⁷ Hirschman was cognizant of complementarity on the demand side as well. In fact, he (1958, 68) credited Thorstein Veblen ([1914] 1964, 314) for observing it long ago when he stated that “invention is the mother of necessity.” Hirschman also noted that Homer Barnett (1953, 148-151) had considered something similar, labeling it “entrained want.” Given these references that Hirschman made, it is important to distinguish his approach to demand-side complementarity from that adopted by Paul Rosenstein-Rodan (1943) and Ragnar Nurkse ([1957] 1962).

⁸ Hirschman was very careful when he related linkage concepts to input-output analysis. He (1977, 70-71) clarifies that “input-output analysis is by nature synchronic, whereas linkage effects need time to unfold.” Later, Hirschman ([1986] 1992, 58) cautioned that the connection of the linkage concept with that analysis “sometimes made for too mechanistic a concept of the linkage dynamic.”

⁹ Aside from Hirschman and Myrdal, who both rejected equilibrium economics, there was Nicholas Kaldor. In rejecting marginal analysis, Kaldor (1972, 1245, emphasis original) shrewdly pointed out: “When every change in the use of resources – every reorganization of productive activities – creates the opportunity for a further change which would not have existed otherwise, the notion of an ‘optimum’ allocation of resources – when every particular resource makes as great or greater contribution to output in its actual use as in any alternative use – becomes a meaningless and contradictory notion: the pattern of the use of resources at any one time can be no more than a link in the chain of an unending sequence … The whole view of the economic process as a medium for the ‘allocation of scarce means between alternative uses’ falls apart – except perhaps for the consideration of short-run problems.”

¹⁰ As forms of state support, Hirschman (1968, 5, emphasis added) noted that they are “carried out no longer just by means of protective duties, but through a wide array of credit and fiscal policy devices, through pressures on foreign importing firms to set up manufacturing operations as well as through direct action: the establishment of state-owned industries or, increasingly, of development corporations or banks which are then entrusted with the promotion of specific ventures.”

¹¹ The consideration of fiscal linkages is an instance that shows the ability of the linkage approach to incorporate institutional considerations (see, for instance, Hirschman 1977, 68, 77). Hirschman’s (1977, 73, n. 10) brief consideration of “banking linkages” serves as another example. Generally speaking, there are possibilities of establishing connections between institutional changes that are necessitated by economic structural changes. This is a reminder of the complex dimensions of the concept of complementarity. It is in this regard that the linkage approach has something in common with James Street’s analysis (1987).

¹² For a good reference, see Andrés Rodríguez-Clare (2005).

¹³ Another point of comparison is the issue of “capture” or “government failures.” Neoclassical development economics attaches quite a bit of weight to it to weaken the case for state actions. In the case of Hirschman, there are clear signs in his works of an awareness of such problems. However, he also allowed for the possibility of “learning” and potential institutional adjustments that could alleviate some of the associated problems (see, for instance, Hirschman ([1967] 1995; 1977, 85-87).

Additional information

Notes on contributors

P. Sai-wing Ho

P. Sai-wing Ho is an associate professor in economics at the University of Denver.