GERSCHENKRON’S GREAT SPURT THEORY

Alexander Gerschenkron1, an economic historian, examined the traditional economies of Europeas they attempted to achieve industrialisation. He looked for similar characteristics anddifferences among countries and analysed the process of change in each. Consequently, hedescribed some common stages through which underdeveloped countries must pass on theway to economic development.According to Gerschenkron, all nations were backward once. To move from the traditionallevels of economic backwardness to a modern industrial economy required a sharp break withthe past, or a ‘great spurt’ of industrialisation. Many western countries like the United States,Germany, Great Britain and France experienced changes at roughly the same time and achievedpartial industrialisation during the first half of the 19th century.

SIX GENERALISATIONS

Given a country’s degree of economic backwardness on the eve of its industrialisation, the

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1. The Economic Backwardness in Historical Perspective, 1962.

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course and character of its industrial development tended to change in a number of respects.Gerschenkron summed up these changes into the following six generalisations:

“1. The more backward a country’s economy, the more likely was its industrialisation tostart discontinuously as a sudden great spurt proceeding at a relatively high rate of growth ofmanufacturing output.

2. The more backward a country’s economy, the more pronounced was the stress in itsindustrialisation on bigness of both plant and enterprise.

3. The more backward a country’s economy, the greater was the stress upon producers’ goodsas against consumers’ goods.

4. The more backward a country’s economy, the heavier was the pressure upon the levels ofconsumption of the population.

5. The more backward a country’s economy, the greater was the part played by specialinstitutional factors designed to increase supply of capital to the nascent industries, and inaddition, to provide them with less decentralised and better informed entrepreneurial guidance;the more backward the country, the more pronounced was the coerciveness and comprehen-siveness of these factors.

6. The more backward a country, the less likely was its agriculture to play an active role byoffering to the growing industries the advantages of an expanding industrial market based inturn on the rising productivity of agricultural labour.”According to Gerschenkron, the differences in the levels of economic development amongEuropean countries in the 19th century were sufficiently large so as to arrange them along ascale of increasing degrees of backwardness. By marking off two points on that scale, threegroups of countries could be traced: advanced, moderately backward, and very backward.

COMMON CHARACTERISTICS OF NATIONS

Gerschenkron pointed towards three common characteristics of nations on the threshold ofindustrialisation.First, there is sufficient supply of resources on which to base production. There may be somescarcities and obstacles, but these are not so serious as to obstruct development.Second, there is quite a large number of population which is beginning to understand the potentialbenefits of industrialisation. A substantial group of people are actively trying to seek newopportunities for greater prosperity.Third, there is ‘tension’ between the existing economic institutions and the groups who wantnew and progressive arrangements. The tension is the greatest in nations which start late on thepath of development. This is because the existing economic relations in such countries areextremely backward relative to those of more developed countries.

HOW TO BRING ABOUT THE GREAT SPURT?

Severe tensions between economic backwardness and the urgency of development necessitatesa big spurt of industrial development in many directions. According to Gerschenkron, forindustrialisation the existence of certain “necessary conditions” was not required forindustrialisation, as put forth by Rostow. He based this view on two empirical observations:First, the preconditions for industrialisation that existed in England were either absent in thebackward countries of Europe or existed on a very small scale.Second, a big spurt of industrialisation occurred even in those countries where such preconditionswere not present.

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In support of his contention, he cited the example of Italy: “Before 1880, Italy’s economy remainedvery backward in relation to the advanced industrial economies of Europe. Whatever gaugeone may choose for the purposes of comparison, be it qualitative descriptions of technologicalequipment, organisational efficiency, and labour skills in industrial enterprises, or scatteredquantitative data on relative productivity in certain branches of industry, or the number ofpersons employed in industry, or the density of the country’s railroad network, or the standardsof literacy of its population, the same conclusion will result that the existence of necessarypreconditions for industrialisation was not required.”As pointed out above, Gerschenkron categorised countries into three groups on the basis of thedegree of economic backwardness: advanced, moderately backward, and very backward. For agreat spurt of industrialisation, he noted that advanced nations start their first stage ofdevelopment with the factory (or private firm) in the organisational lead; moderately backwardnations with banks, and extreme backward with governments. But it should not be inferredfrom this that industrialisation is dependent upon the creation of these preconditions. In fact,one precondition can be substituted by another precondition. Further, preconditions can alwaysbe created even during the course of industrialisation.Gerschenkron supported his view by citing the example of England that capital was suppliedto the early factories in England from previously accumulated wealth or from graduallyploughing back of profits. But extremely backward countries which could not have thesepreconditions for industrialisation were compensated by the actions of banks and governments.Gerschenkron pointed to Soviet Russia as an example of extreme backwardness relative to theindustrialised Europe. Soviet Russia began its industrial development late in the 19th centuryas compared with central Europe. The problem of capital accumulation was more difficult inRussia than in Europe. The Russian government played a major role towards this direction incontrast to the role played by banks in the spurt of industrialisation in Europe. Massiveindustrialisation required sacrifices from the people. Incomes had to be used for capitalinvestment rather than for consumption. Small family plots had to be consolidated into largerand more efficient farms. Workers had to move from rural areas into cities near factory jobs.Only the government could do that in Russia.Leaving aside Soviet Russia which developed into a command economy, Gerschenkron gavetwo reasons for the increasing role of the state. According to him, the greater the degree ofbackwardness, the greater the role of the state in the spurt towards industrialisation.First, in an extremely backward country, income being very low, the demand for consumergoods is also very low. This, in turn, limits the derived demand for capital goods. In the absenceof profit motive, the state has to play a major role towards industrialisation.Second, these countries lack in such sources of capital as foreign capital, banks, capital markets,etc. Accordingly, it devolves upon the state to create financial institutions for providing capitalfor industrialisation.Besides, for a great spurt in industrialisation, Gerschenkron emphasised the adoption of capitalintensive techniques. According to him, in an extremely backward country, there would be avery big technological gap between its techniques of production and those of developedcountries. It can, therefore, industrialise by adopting the most advanced capital intensivetechniques of the latter countries for two reasons:First, such techniques help the establishment of import-substitution industries, thereby reducingforeign competition.Second, since backward economies have shortage of skilled labour, they use capital intensive

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and labour saving techniques. The more backward an economy is, the greater is the degree ofcapital intensity of industrialisation. Thus Gerschenkron considered the introduction of capitalintensive techniques essential for economic development, for historically “borrowed technologywas one of the primary factors assuring a high speed of development in a backward countryentering the stage of industrialisation.”In his study, Gerschenkron measured economic development with the help of index numbers,especially in the case of USSR. He used certain biases that are found in quantity index numberswhen pre-industrialisation weights are used. His study revealed that the series aggregated bypre-industrialisation weights grow much faster than the series aggregated by weights in post-industrialisation. His explanation of a quantity index being biased upwards, in binarycomparison of pre and post-industrialisation weighted with base year prices, has been calledthe Gerschenkron Effect. This upward bias in base year prices weighted series is based on twofacts:(1) During industrialisation, the scarcity relations change such that the production of highlymechanical goods increases relatively more than that of less mechanical goods; and(2) the relative prices of highly mechanical goods decrease.Thus prices and quantities move inversely resulting in an upward bias in the base-year weightedquantity index. The divergence between the base-year weighted quantity index and the currentyear weighted index would be greater, the greater the extent of the opposite movements ofrelative quantities and prices during industrialisation.Finally, Gerschenkron pointed out that the greater spurt in industrialisation could take place iffive pre-requisites were fulfilled.First, either the old framework in agricultural organisation should be abolished or theproductivity of agriculture be increased.Second, an influential modern elite should be created which is interested in economic change inthe economy.Third, there should be provision for material social overhead capital.Fourth, there should be a value system which favours economic change.Fifth, an effective entrepreneurship should be available.

CRITICAL APPRAISAL

Gerschenkron in his ‘great spurt’ theory studied how backward economies of Europe achievedindustrialisation. He looked for similar characteristics and differences among nations based ontheir degrees of economic backwardness, and analysed the process of change in each country.Thus he evolved a model of development which describes the common stages through whichbackward economies must pass on the path to economic development.Gerschenkron’s model is significant from the standpoint of underdeveloped countries becauseit points towards the dangers of lingering backwardness in such countries. His detailed analysisof the USSR economy highlights the importance of the role of the state in bringing about rapidindustrialisation in backward economies. But all his prescriptions do not apply tounderdeveloped countries for the following reasons.First, the experience of many underdeveloped countries has shown that export promotion ismore important than import substitution not only for rapid industrialisation of such economiesbut also to overcome balance of payments problems.Second, Gerschenkron justified the use of capital intensive and labour saving techniques toovercome the shortage of skilled labour. But, according to W.A. Lewis, unskilled labour is only

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a temporary bottleneck in a suplus labour economy which when utilised helps inindustrialisation.Third, the six generalisations laid down by Gerschenkron which characterise the great spurt ofindustrialisation were derived from the economic experience of the Soviet Union. As such all ofthem are not applicable to the currently underdeveloped countries because economic conditionsdiffer much in such countries from that of the Soviet Union of those times.Fourth, the Soviet experience suggests that extreme backwardness might lead inevitably to somesort of dictatorship as the society turns into a command economy, thereby leading to loss ofpersonal freedom. When the Soviet Union itself has chosen a free market economy now andbroken the shackles of dictatorship, no underdeveloped country would be prepared to start onthe path to industrialisation on the lines of the erstwhile Soviet Union.However, this does not mean that Gerschenkron’s analysis has no relevance for the currentlyunderdeveloped economies. Rather, his analysis points out that the development process shouldbe analysed in relation to the degree of economic backwardness of a country on the eve of itsgreat spurt of industrialisation.

GERSCHENKRON VS. ROSTOW

Gerschenkron’s study is especially related to economically backward economies. He examinedthe backward economies of the past in their effort to industrialise. He looked for similarcharacteristics and differences in them and analysed the development process in each. Finally,he evolved a theory of development describing the common stages through which backwardeconomies must pass on the path to economic development.Rostow, on the other hand, presents an analytical and systematic study of the growth processdivided into five stages based on the experiences of developed countries. His analysis is,therefore, not applicable to the currently underdeveloped countries. It is only his “take-off”stage that has some relevance to the underdeveloped countries.The only similarity between Gerschenkron and Rostow is that the ‘great spurt’ of Gerschenkronis closely related to Rostow’s ‘take-off’. “Both elements stress the element of specific discontinuityin economic development. Great spurts are, however, confined to the area of manufacturingand mining whereas take-offs refer to national output.”Despite this, Rostow’s approach to industrialisation is very narrow. According to him, everycountry irrespective of the degree of its economic backwardness, must pass through the samesequence of stages during its process of industrialisation. To Gerschenkron, on the other hand,the process of industrialisation was different in different countries depending on their degreesof backwardness. In this sense, Gerschenkron’s approach is more realistic and has widerapplicability to the present day underdeveloped countries.There is another difference. To Gerschenkron, growth need not trace through the same set ofstages in each country. The big spurt can occur at different levels of development and withdifferent patterns depending upon the level. The more backward the country is, when it startsits development, the more likely it is to rely on governmental support more quickly it can shortcut the slow growth path of the leaders. Gerchenkron finds advantages in backwardness whichpermit the late starter to catch up or at least narrow the distance between it and the pioneers.