Unbalanced Growth and income Distribution

 The
idea that the growth process could be initiated with balanced capital
investments in several sectors at the same time was strongly criticized by,
among others, Alert Hirschman (Hirschman 1958). He claimed that, on the
contrary, there was a need to maintain and accentuate imbalances and
disequilibria is backward economies, because there were other barriers to
growth than the limited market and the lack of capital investments. Hirschman
emphasized, with inspiration from Schumpeter, that the developing countries
greatest problem was rather the lack of entrepreneurship and management
capacity. Hirschman stressed his point by saying that if a country were ready
to apply the doctrine of unbalanced growth, then it would not be underdeveloped
in the first place’.

Rather
than strive for a balanced approach where the resources would be thinly spread
over several sectors and managed badly, the developing countries should
according to Hirschman, aim at selected key sectors which had many links
backwards and forwards in the economy, and therefore could pull other parts of
the economy along with it.

The
debate between the followers of the two above-mentioned models of growth
continued up through the 1950s and 1960s. Today, however, the focus of
attention has shifted from the original dichotomy to considerations concerning
the circumstances in which one or the other approach appears to be the more
appropriate.

Evaluated
retrospectively, it is interesting to note that both models of growth operated
with imbalances with regard to income distribution. It was well known as early
as the 1950s that the income distribution in developing countries was generally
extremely unequal, but this was not a subject that preoccupied this period’s
growth theorists. 

Nurkse was worried that the rich would use their savings
mainly on imported luxury goods, but it did not lead him to recommend, as in
the case of Myrdall, redistribution in favour of the poor, because Nurkse did
not believe that the poor had the necessary ability or opportunity to save. in
this regard he was in line with the predominant conception of this early period
that increased savings had to come from the rich in the backward countries. 

In
terms of strategy, therefore, it was deemed legitimate to concentrate on income
growth for the rich, who would then increase their savings and thereby create
continued growth. After a while this growth, it was implicitly claimed, would
trickle down to the poor in such a way that in the end everybody would be better
off.

Simon
Kuznets was one of the few who stated in more explicit terms his opinion on
this subject . He claimed that economic growth under average circumstances
would lead to increased inequality in the beginning, but that this tendency
would flatten out and to some extent turn to steadily increasing equality in
income distribution. More specifically, Kuznets came to the conclusion that the
incomes of the poorest 40 percent of the population would normally grow more
slowly than the average until income per person reached a range of US$700 to
US$900. Beyond this range, the incomes of poorer groups would tend to grow
faster than the average.

Several development
researchers have tried, since Kuznets stated his provocative hypotheses, either
to substantiate it with further data or to reject it. The Indian economists
V.M. Dandekar and N. Rath have undertaken particular thoroubh studies of the
problem (Dandaker and RAth, 1971). They concluded, based on evidence from
India, that a higher rate of growth was better than a lower rate of growth for
all social groups, rich as well as poor — with the exception of the poorest ten
per cent, who did not get any benefit at all from the economic growth in the
various states of India.