Ashok Mitra- Two Economic Theories

Former West Bengal Finance Minister, the acerbic Ashok Mitra contrasts two economic theories of development- one articulated by Wassily Leontief in the fifties based on the input- output model and another one, now less remembered, that of unbalanced growth laid down by Albert O. Hirschman.

While the Leontief theory led to planned economic growth, the latter is closer to the model popular in India today- Hirschman envisaged that if agricultural growth is stimulated by directing the funds in that area, everything else will work out. The resurrected version of this theory is that if international corporations are allowed to invest in the services sector, it would somehow lead the country towards manufacturing and industrialization.

Hirschman’s theory was biased against the concept of material balancing in the planning of growth. He would pour all available investible funds into the farm and manufacturing sectors; services could take care of themselves... Once you have produced enough of rice and wheat and cotton and sugarcane, once you have produced enough of textiles and footwear and other such essential consumer goods, please do not have a care, transport somehow will become available to reach the products where they are in demand...

...What is taking place is, ironically, a different kind of manifestation of unbalanced development. Hirschman would have frowned on it. The service sectors are getting all the investment funds, industry and agriculture are being banished to a corner. The local authorities are handing over, with alacrity, farm land at throwaway prices to rich foreigners in the honest belief that the good Samaritans from overseas will usher in rapid industrialization. All that the country will actually get in return is at best a string of call centres, at worst rows and rows of massage parlours passing as a health park.

Hirschman’s theory is dead. But a few plucky ones are trying to let it come alive again in an extraordinarily perverse manner.

This interestingly enough, appears in the backdrop of the news that FII investments, despite all the hype and aura surrounding them, are half of the foreign remittances (also see here).

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Economics, India