Introduction so socialism and Marxism substituted. The Elements of

IntroductionGerschenkron’sanalysis is conspicuously anti-Marxian. It rejected the English IndustrialRevolution as the normal pattern of industrial development and deprived theoriginal accumulation of capital of its central force in determining subsequentexpansion.

There were no equivalent stages of economic growth in allparticipants. Elements of modernity and backwardness could survive side byside, and did, in a systematic fashion. Apparently disadvantageous initialconditions of access to capital could be overcome through new institutionalarrangements.SummaryGerschenkronexamines the development trajectory of late European industrializers (Germany,France, Russia) in effort to provide lessons for non-European late industrializers.Premised on the view that the “early” English model of economicdevelopment can no longer be replicated.

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Forlate industrializers, industrializes depended on availability of opportunityand removal of institutional obstacles. Success of late industrializersdepended on fast-paced, large scale, multi-sector industrialization usingexisting technology and industrial labor. In order to facilitate this type oflate industrialization, modern banking, the state, and ideology played crucialroles.

Germanand French banks provided long term credit and management intervention thatdrove industrialization in these countries. The state in Russia, because of itshistory of military conflict, led economic development. State-led developmentwent in fits and starts, entailed large upsurges that required governmentoppression, and resulted in stagnation following periods of fast growth. In allcounties, some ideology was required to instill faith that “progress”was desirable, and capitalism was too uninspiring to provide this ideology, sosocialism and Marxism substituted. The Elements of BackwardnessThemain Marxist proposition is that “the industrially more developed countriespresents to the less developed country a picture of the latter’s future”.

Thisarticle argues that industrialization processes can vary, especially withregard to productive and organizational structures of industry that emergedfrom these processes.”Thetypical situation in a backward country prior to the initiation of considerableindustrialization processes may be described as characterized by the tensionbetween the actual state of economic activities in the country and the existingobstacles to industrial development on the one hand, and the great promiseinherent to such a development, on the other.”Borrowedtechnology is one of the primary factors of rapid development.Cheapand abundant labor is said to be conducive to development.

However, what isrequired is industrial labor (stable, reliable, disciplined, not bound toland), which is scarce in backward countries. Backward countries must focus onthe industries where the most modern and efficient techniques are to ensurerapid development. Developing countries will not do this due to inertia (e.

g.Germans in steel industry, their blast furnaces became superior to the Englishones).Industrializationof backwards countries in Europe: Industrial Revolution. IR started in multipleeconomic activities simultaneously (railroads cannot be built unless coal minesare opened up at the same time). “In viewing economic history of Europe in the19th century, the impression is very strong that only when industrialdevelopment could commence on a large scale did the tension between the reindustrializationconditions and the benefits expected from industrialization become sufficientlystrong to overcome the existing obstacles and to liberate the forces that madefor industrial progress”. The tensions must be considerable before industrialdevelopment materializes. The BanksThissection discusses the importance and history of banking and industrializationin Europe.

“A German bank, as the saying went, accompanied an industrialenterprise from the cradle to the grave”. Banks acquired a formidable degree ofascendancy over industrial enterprises.Backwardcountries:Ø  Capitalis scarce and diffusedØ  Distrustof industrial activitiesØ  Greaterpressure for bignessØ  Scarcityof entrepreneurial talentAlthoughGermany started industrializing after England, it managed to catch up due to itsbanking system.   The StateWherecapital is too scarce and diffused for even banking to be established, thegovernment must take the role of redirecting investment as in Russia (despitecorruption etc.).

Although, this leads to stunted development heavily dependenton military requirements of the economy. Government must take certain actions(e.g. emancipation of the peasants).The Gradations of BackwardnessGermany:industries began to set up own banks (scarcity of capital no longer an issue).Equal relationship (rather than master-servant) between industry and banking.

Russia:as industrialization progressed, the role of the state was reduced (“Russianindustry had reached a stage where it could throw away the crutches ofgovernment support …”). Commercial banks were founded (the government hadacted as an industrial bank).Ideologies of Delayed InstitutionsFrance:larger stimulus than the prospect of profits is needed: faith and ideology.”Ricardo is not known to have inspired anyone to change “God Save the King”into “God Save Industry”.Isummarize it here in four hypotheses:1.  Relative backwardness creates a tensionbetween the promise of economic development, as achieved elsewhere, and thecontinuity of stagnation. Such a tension takes political form and motivatesinstitutional innovation, whose product becomes appropriate substitution forthe absent preconditions for growth.

2.  The greater the degree of backwardness, themore intervention is required in the market economy to channel capital andentrepreneurial leadership to nascent industries. Also, the more coercive andcomprehensive were the measures required to reduce domestic consumption andallow national saving.3. Themore backward the economy, the more likely were a series of additionalcharacteristics: an emphasis upon domestic production of producers’ goodsrather than consumers’ goods; the use of capital intensive rather than laborintensive methods of production; emergence of larger scale production units atthe level both of the firm as well as the individual plant; and dependence uponborrowed, advanced technology rather than use of indigenous techniques.4. Themore backward the country, the less likely was the agricultural sector toprovide a growing market to industry, and the more dependent was industry upongrowing productivity and inter-industrial sales, for its expansion.

Suchunbalanced growth was frequently made feasible through state participation.Reaction to Gerschenkron’s ModelThemodel is, of course, not without its limitations and its critics. History, evenof Europe alone, does not in every detail bear easily the weight of such agrand design. In other parts of the world, and in a later time period, largeramendments are frequently required, and sometimes forgotten by currentadvocates.

  Idisagree with Gerschenkron’s Model because:Ø  Atfifty years old, it reads as very outdated in both ideas and methods. Ø  Thereis never an explicit statement of what Gerchenkron means by “backward,” whichis a huge omission because it is a term that he uses over and over again. Ø  Thisfeels somewhat a historically in that it treats the experiences of Europe andRussia as the only ones to be examined.But Backwardnesscan too easily become an alternative, technologically rooted explanation thatdistracts attention from the state and the politics surrounding it, rather thanfocusing upon its opportunities and constraints.

Ultimately, as well, there arethe many developmental failures — rather than only the successes — that now loomlarger and attract attention. Still, the concept of relative backwardness, andGerschenkron’s always insightful and rich elaborations in so many nationalcontexts, represent a brilliant and original approach to economic history thathas been perhaps unequalled in the twentieth century. And more recently, withthe rise of political economy as a field, his work is widely assigned asrequired reading.