NURKSES VICIOUS CIRCLE OF POVERTY:

The theory expresses the circular relationships that afflict both the demand
and the supply side of the problem of capital formation in economically
backward areas.

According to Ragnar Nurkse a society is poor because it is poor. A society with

low income has both levels of savings and low levels of consumption. The low
level of savings means that low investment, while the low levels of
consumption means not enough market to induce investment-that is, even if
the capital for investment were available.

This low investment in turn means little ability of the society to expand its
productive capacity or transform the quality of the productive forces as a
whole. This finally leads to a continuation of low incomes in the economy and
then circle begins again.

According to Nurkse one of the most important reasons the backward

countries have been prevented from enjoying the stimulating effect on the
manufacturing industry is not the wickedness of foreign capitalists and their
exclusive concern with raw material supplies, but merely the limitation of the
domestic market for manufactures articles.

What is the way out of this circle? The answer, according to Nurkse is to
enlarge the market. Application of capital must be made to a wide range of
different industries. This will lead to the enlargement of market. Nurkse
emphasizes the doctrine of balanced growth. Nurkse (1953), made the
observation that in an underdeveloped economy, characterised by vicious
cycle of poverty the investment programme must be both massive and
balanced for growth to occur. Nurkse was however not optimistic about the
role of foreign aid in developing countries and instead puts emphasis on
domestic savings and the role of the state as an important factor for
balanced growth.

While there is little doubt that Third World Countries, particularly those in
Africa are locked in a vicious cycle of poverty, the historical causes of poverty

are not indicated by Nurkses theory. A realistic way out of this vicious cycle is
also not provided by Nurkses theory. The theory ignores the reality of
underdeveloped countries characterised by dependent economies, which
makes it impossible to create an environment for massive investment and
balanced growth.

It is interesting to note that, though stated in more modern terminology,

much of Nurkses theory is little more than an elaboration of elements
contained in the classical model of development. Adam Smith, Malthus and J.
S. Mill concentrated on how the market might be extended on the possibilities
of increasing productivity by the division of labour and the problem of capital
accumulation. This is more or less similar to Nurkses suggestion of breaking
the vicious cycle of poverty in underdeveloped/ backward countries.

Therefore Nurkses theory, like that of Rostow, only succeeds in indicating the
extent of poverty / backwardness of the underdeveloped countries, it throws
very little on our understanding of the causes of poverty/ backwardness.
Other bourgeois scholars including Schumpeter, also demonstrates this
weakness.

SCHUMPETERS THEORY OF MOTIVE FORCE, PROCESS AND GOAL

Professor J. Schumpeter in his book, Capitalism, Socialism and Democracy

contributes to the development debate in his own way. His theory is based on
three aspects: motive force, process and goal.

In Schumpeters model of development

The generating force is provided by the entrepreneur
The process is innovation and
The goal is the establishment of a position of wealth and power for the
entrepreneur.

According to Schumpeter, the action of creative entrepreneurs will produce

spurts of industrial progress. Even though innovations originated each time in

a particular industry, the monetary effects and other circumstances were

such as to promote each time a wave of new application of capital over a
whole range of industries.

J. Schumpeters theory does not satisfy the case of the less developed
countries and this is obvious.
The entrepreneur in most African countries is not the main driving force.
Innovation is not the most characteristic process and it hardly exists.
Private enrichment is not the dominant goal.

In Tanzania for example we lack the base of true entrepreneurs, since the
business community is dominated by the petty traders such as the marching
gays (Machinga) who cannot be qualified as the entrepreneurs or regarded as
the driving force for economic development. The Petty bourgeois, middle
class and high-class businessmen have tentacles with the outside foreign
investors.

For this reason the process of innovation and technological development

remains outside the development process of most African countries. The goal
for private enrichment for the African has yet to take off as enrichment in
multinational corporations becomes the goal in most African countries.

J. K. GALBRAITH AND THE CONCEPT OF COUNTERVAILING POWER.

Professor J.K.Galbraith is an American economist and a former advisor to

President John Franklin Kennedy. He put forward a theory, which attempts to
provide an interpretation of economic backwardness in the USA and in
backward countries. In his book, American Capitalism: The Concept of
Countervailing Power, maintains that he growth of a monopoly in advanced
countries, particularly in USA has been accompanied by a growth of
Countervailing Power on the opposite side of the market, e.g. Trade Unions,
Retail Chain Stores, Cooperative Societies, Farmers Unions etc. The growth of
monopoly increases the gains from building up the countervailing power and

induces the growth and this provides a new self-regulatory mechanism to the
economy in a world monopoly.

In Proff. Galbraiths terminology, the economic backwardness may be

described as a phenomenon which arises because the process of economic
development has been too rapid and the initial conditions too unfavourable
to give rise to an effective countervailing power to check the foreign
economic domination of the backward peoples.

One remarkable thing about Professor Galbraiths argument is that although

he is concerned with the economically most advanced country in the world,
the USA, the sectors of the economy which he regards as being particularly,
in need of countervailing power are, agriculture, consumer goods market, and
labour market. These exactly parallel in the backward countries with their
export-import monopolies and large scale mining and plantation business.

Like other bourgeois theories, Galbraiths theory makes little headway

towards a comprehensive analysis of economic backwardness in the
developing countries and therefore the suggested prescription of
countervailing power is of little relevance in the African context. The
unanswered question remains how can backward countries give rise to this
countervailing power while these countries are economically dependent on
the developed capitalist countries. Even if this power is developed how can it
initiate development that will tackle the problem of underdevelopment and
the dependent nature of African economies? These are questions that lead to
the need for an in-depth critique of bourgeois theories on development.

CRITIQUE OF BOURGEOIS/MODERNISATION THEORIES

The bourgeois view of development grows out of the model of competitive

market capitalism. It is thought that an automatic, self-regulated mechanism
to manage economic affairs naturally emerges in the course of history. These
free choices are expected to overcome scarcity and to result in progress
through the automatic adjustments of free exchange in markets. The forces
of competition ensure that the economy produces those goods, which people
desire and that maximum output is produced in the most efficient manner.

Bourgeois theories have weaknesses that can be assessed from different

outlooks.

Their isolated treatment of the national economy from the rest of the world.
Even where the world economy is considered, this exaggerated the possible
positive impacts of the international economic relationships on the
developing countries.

It can be argued that, these theories are both mechanistic and tautological.
To think that by simply expanding investment a country will be able to raise
its income, or that by raising income the country will raise savings and
consumption is a highly mechanical way of looking at things. We see
increased investment in many developing countries but this has not given
rise to savings, consumption or more important to sustainable development.

Bourgeois theories fail to explain the structure and development of the

capitalist system as a whole and to account for its simultaneous generation of
underdevelopment in some parts and economic development in others. In
other words why are western countries becoming richer and richer while
developing countries particularly African countries are becoming poorer and
poorer and more and more dependent on the western world?

Reasons given by bourgeois theorists are not sufficient to explain the causes
and persistence of underdevelopment in the developing countries. They look
at the symptoms but do not adequately explain the causes the causes of
these symptoms and consequently they are unable to come out with any
meaningful solution to the problem of underdevelopment / absence of
development.

Recently there has been resurgence of the bourgeois school of thought, led
by the World Bank and the IMF. The new bourgeois school identifies and
concentrates on problems of inefficient allocation and utilization of resources
rather than lack of productive capacity, backward production techniques or
investment. This is also shown to be the result of bad economic policy
framework and subsequently economic mismanagement. This school of

thought recommends Economic Recovery Programmes (E.R.Ps) and Structural

Adjustment Programmes (SAPs) to stimulate economic efficiency. The reality
is that developing countries remain underdeveloped while the power of
international financial institutions increases to the extent of directing the
development process.

10. Bourgeois Theorists and Marxists/ Dependency Theorists: A Comparative

look.
We can recognize some broad similarities between Rostows analysis and
marks sequence of social development. Both are attempts to interpret the
evolution of whole societies primitive. Both recognize that economic change
has social, political and cultural consequences.
Differences between Rostow and Marxist analysis:
Marx highlights the problems of class conflicts, exploitation and inherent
tresses within the capitalist process. Rostow and other bourgeois theorists
ignore these aspects for instance, Rostow interprets net human behavior as
an act of balancing alternative and often conflicting human objectives in the
face of the choices men perceive to be open to them.
Rostow avoids the Marxian assertion that the behavior of societies is uniquely
determined by economic considerations.
In general Rostow and other bourgeois theorists outlook of development is
that many things are involved in the process of development: markets,
resources, infrastructure organisation, Entrepreneurship and investment
involves people, class relations/ class struggle.
Rostow believes that for the presently underdeveloped nations, the inner
mechanics of the take off involve problem of capital formation. If their take
off are succeed, the underdeveloped countries must seek ways to tap off in
to the modern sector, raise income above consumption levels hitherto
sterilized by the arrangements controlling agriculture. They must seek to shift
men of enterprise from trade and money lending to industry. And to these
ends patterns of fiscal, momentary, and other policies (including education
policies) must be applied, similar to those developed and applied in the past.
To Marxists it only by understands the forces of underdevelopment that the
contradictions can be located and the struggle launched to resolve them.
Rostows theory does not focus on the unique situation of the LCDs and how

their history and current position influences their development. Karl Marx also
did not give particular attention to the African situation i.e what kinds of class
struggle in Africa etc. Therefore his theory of underdevelopment is also not
complete.

STUDY QUESTIONS

Critically discuss R. Nurkses contention that Africa is poor because it is poor.

Can Nurkses prescription help overcome poverty in countries such as
Tanzania?

Briefly make a critique of Ragnar Nurkses theory.

Using concrete evidence, point out some of the main arguments for and
against a market-based strategy of development as is being imposed by the
IMF/ World Bank.