Economic Backwardness in Historical Perspective

1. Economic Backwardness in Historical Perspective Alexander Gerschenkron

2. Economic Backwardness in Historical Perspective • Modern historians no longer announce to the world what inevitably will, or should happen • Comprehension of the past changes with the historian’s emphasis, interest, and point of view • ALL decisions in the field of economic policies are essentially decisions with regard to combinations of a number of relevant factors

3. The Elements of Backwardness • Common Generalization: “The industrially more developed country presents to the less developed country a picture of the latter’s future” • EX: Germany  Followed Britain’s example

4. The Elements of Backwardness (continued) • Industrialization processes showed differences with regard to the speed of development, and the productive and organizational structure • Often were the result of application of institutional instruments for which there was little or no counterpart • “spirit”/”ideology” differed among advanced and backward countries • Extent to which the attributes of backwardness varies with the natural industrial potentialities

5. The Elements of Backwardness (continued) • Typical situation in a backward country prior to industrialization  characterized by tension between actual state of economic activities & obstacles to industrial development AND the promise after the process

6. The Elements of Backwardness (continued) • Creation of an industrial labor force is a difficult process • EX: Russia • Utilization of modern techniques required increases the average size of a plant • Existence of complementarity and indivisibilities in economic processes • Ex: railroads require coal mines • European economic history shows that only when industrial development could go on in a large scale does the tension between the pre-industrialization conditions and benefits expected become strong enough to overcome existing obstacles

7. The Banks • Second Empire in France • Napoleon III ended economic stagnation • Policy of reduction of tariff duties and elimination of import prohibitions • Profitable access to basic industrial raw materials • Credit Mobilier • At the beginning, conflict with the ‘old wealth’ in French banking • This “NEW WEALTH” succeeded in making the ‘old wealth’ accept its policies

8. The Banks (continued) • German (and Austrian) banks have closest possible relations with industrial enterprises • From establishment to liquidation • Development of account credits and • Banks acquired power over industrial enterprises • Went to entrepreneurial and managerial decisions • England • Industrialization happened without any utilization of banking for long-term processes • Germany had advantages from being late arrival • Developed along lines differently than England • Due to different methods

9. The State • The German experience cannot be generalized because: • 1. existence of certain backward countries where no comparable features of industrial development can be discovered • 2. existence of countries where the basic elements of backwardness appear in an accentuated from to lead to the use of different institutional instruments of industrialization

10. The State (continued) • Type 1: • Ex: Denmark  Opportunities in the market for the country’s natural resources  absence of challenge • Type 2: • Ex: Russia  main reason for economic backwardness = presence of serfdom until 1861 emancipation • Economic development of Russia: • 1. state assumed the role to propel economic progress in the country • 2. correlated with military situation • 3. burden often placed on generations of people corresponding with intensified development • 4. oppressed peoples • 5. prolonged stagnation

11. The State (continued) • Paradoxical Course of Russia • Peter the Great tried to adopt Western techniques, raise output and skills of populations • Serfdom of Russian peasantry = opposite side of Westernization • Emancipation of Russian peasants = prerequisite for industrialization • Focused on large-scale enterprises • Incompetence and corruption of bureaucracy

12. The State (continued) • Two Halves of the Austrian-Hungarian Monarchy • Austrian part = backward in relation to Germany, but ahead in comparison to Hungarian part • Austrian banks could devote themselves to industrial activities V.S. Hungarian banks inadequate • “the logic of things” • Government subsidies were more and more deflected from textile industries to promotion of heavy industry

13. The Gradations of Backwardness • Turn of century: change in relationship between German banks and German industry • Industrial enterprises transformed connection with a single bank into a cooperation with several banks • Industrial giants begin to form their own banks • Russia’s Change • Russian industry could begin to work independently but not to the extent of Germany • Commercial banks founded • “Deposit banks” [like England] • Westernized business behavior • Backwardness reduced by state-sponsored industrialization process  use of a different instrument of industrialization

14. Ideologies of Delayed Industrializations • French Industrialization Under Napoleon III • Saint Simonian doctrines  corporate state in which the ‘leaders of industry’ would exercise major political functions • Incorporation of socialist ideas • Banks seen as an instrument of organization and development of the economy • Appeal to Credit Mobilier • Orthodox Marxism in Russia in 1890s • Presented capitalist industrialization as the result of an iron law of historical development

15. Conclusions • Can be drawn from the historical experience of both centuries • 20th  Problem of backward nations aren’t exclusively their own; just as much of the advanced countries’ • 19th  policies toward the backward countries are unlikely to be successful if they ignore the basic peculiarities of economic backwardness • Only by recognizing existence and strength and by attempting to develop fully the ‘possibilities of things’, can the 19th century experience be used to avert the threat of today