Albert Hirschman: Unbalanced Growth Theory

One of the prominent figures of the European émigrés development theorists, Albert Hirschman is notable for the uniqueness of his intellectual approach. In his Strategy of Economic Development (1958) every aspect of development, including the role of government, pubic policy and institutions at large, depends on the very understanding of the development process as a series of inducements mechanisms rather than an analysis of the obstacles, prerequisites, and missing factors. Those range from natural resources to capital, to entrepreneurial and managerial abilities and then human capital and institutions. But factors, beginning with savings and productive investment, are “as much a result as a cause of development.” (The Strategy of Economic Development, 1958, p.3) Hirschman’s views on development are possibly best illustrated by his insight into the unbalanced nature of the process. The essay examines in particular this question pointing out the differences with the rest of early (and recent) development literature and elaborating on his theory of unbalanced growth. It shows the several points of contact with recent analysis of growth and structural change while at the same time setting up a development approach that is mostly forgotten in the recent development literature. According to Hirschman theorists such as Rosestein-Rodan, Nurkse, Lewis, Scitovsky focused on balanced growth as the tool to break out of the underdevelopment equilibrium and exploit the external economies that are so important in the development process. But balanced growth is not a useful abstraction; iIt is misleading and actually impossible. That is why “the theory fails as a theory of development.” (1958) Economic development is primarily overcoming stagnation via savings and productive investment. The focus on investment, private and public, leads to the notion of development as a disequilibrium process. Development as a chain of disequilibria and the theory of unbalanced growth arise from a critique of balanced growth. It is based on an in depth analysis of investment decisions. The essay will focus in particular on fundamental concepts such as that of induced investment, complementarities and linkages effects. An additional aspect examined in the essay is that of the countries (regions) lagging behind. Growth is unbalanced also spatially and results in a process of uneven development in which the “South” lags behind the growing industrialized “North”. The last part of the essay examines the relationship of Hirshman unbalanced growth theory and the modern theory of structural change and long-term transformation. Pasinetti (1981,1993, 2007) has posed placed structural change at the center of the analysis of growth. His theory of growth and structural change arises from a criticism of steady growth models, and proportional growth in particular, which he argues, is “pseudo dynamics”. Whereas Pasinetti’s structural dynamics is held together by the reference to a growth path maintaining full employment, Transformational Growth (Nell, 1998) addresses the question of the actual pattern of transformation and how it can sustain itself in the long run. In both cases development is the focus of the analysis, although not the developing economies per se. There are nevertheless fundamental similarities and similar questions. Precisely the modern theory of production on which Pasinetti model is based indicates that the questions raised by unbalanced growth are those to be discussed in the more complex and interrelated world economy of the 21st century.