lecture two, development

development is not an automatic outcome in any given social formation—it requires specific social/structural preconditions. most of history characterized by stagnation.

the critical shift was in incentive structures, which compelled producers to build in an orientation towards innovation/cost-cutting in their productive activity. until this happened, you don't get economic growth as an everyday component.

in European history, we are asking, what was an essential characteristic?

this week we focused on, first, a shift in agriculture. and second, we asked what this means for latecomers—both in terms of disadvantages, but there are some advantages, also ('liabilities to 'early development'').

Kemp and Crouzet put it quite well – developing countries aren't going to repeat the path of the early developers. nonetheless, they will have to put certain preconditions in place.

the main precondition is the domestic constraint—the constraint that traditional agriculture imposes upon the economy. there are, in fact, two kinds of transitions that are relevant: (1) within agriculture, the transition from traditional to modern agriculture—from pre-capitalist to capitalist agriculture; (2) away from agriculture, even of a capitalist kind, towards industry.

growth, then, becomes coincident with industrialization (development is often synonymous to industrialization).

today, a defense of the notion that industrialization is central.

why should agriculture be a constraint?

you can look at it from the supply side and the demand side.

from the supply side:

1. agriculture as the main occupation of most of the labour-force – it sucks up the labour supply, inhibiting the deployment of labour towards more productive activity. you have to free up labour from agriculture (the enclosures)
2. if agriculture is not dynamic, then the availability of material inputs for the production process will also be dampened. if the primary sector is stagnant, then industrialists face rising costs of inputs.
3. wage-goods—in early stages of development, most of the wage of industrial workers goes on food consumption. if agriculture is stagnant, it means that real wages will be low (because there will be little money freed up for purchasing, .

from the demand side:

1. very few of those involved in agriculture will be interested in buying goods, which will mean that the domestic market is thin (Lenin vs. Narodniks—kicking the peasants off the land will produce a mkt, according to Lenin. so you create a market by changing property relations, not by increasing wages)
2. even if you dispossess peasants and/or force them to be oriented to the market, it remains possible that their labour remains inefficient/not productive. even nonsubsistence but non-dynamic agriculture will mean that the growth of the market will be slow (and there will be slow growth in demand for industrial goods).

this means that it is absolutely essential for there to be a transition, within agriculture, from a traditional system of agriculture to a dynamic one.

now let's discuss the second transition—from agriculture, to industry.

cf. Kaldor—the main point is that no matter how dynamic your agriculture is, it will never be as high as the growth path you'll get if your main economic activity is industry. industry is capable of generating a much higher growth path than the best agricultural sectors.

there are a number of reasons for this:

1. agriculture grows more slowly than industry is that agriculture is constrained by some irreducible natural limitations (Marx makes this point in Vol II: labour time vs. production time, in agriculture versus industry). capital is 'tied' down, and it doesn't like being tied down. thus you will also have less capital coming in.
2. agriculture is less open to scale economies—it doesn't generate 'increasing returns' (when the same amount of inputs generate greater returns), but gets much faster into 'decreasing returns' (when the same amount of inputs generate decreasing returns).
3. agriculture is also subject to more volatility on the world market, in terms of returns to trade, and decreasing terms of trade. this increases the risk aversion of peasants, which means that they will shun market production.

so for an economy to develop, an economy must not only transform agriculture, but transform 'out' of agriculture.

why not remain an agrarian country?

1. it's politically difficult to sustain – people don't want a lower standard of living. economic development is politically something very helpful, for elites.
2. it's a Hobbesian world out there. States are competing, and countries which are more dynamic economically tend to wipe out weaker countries.

England, by the 1720s, is able to construct a very efficient central State, thanks to the settlement of 1688. these revenues help it build a very powerful military machine, and the Navy. England's defeat of France in the mid-1700s (Seven Years' War), and then in the Napoleonic Wars make Europe sit up and take notice. All of Europe, after 1815, starts a process of transforming its economic structure, and building States that can withstand this English behemoth. this is what drives the impetus to 'late development'.

the foregoing is important because it responds to two criticisms:

1. the West has generated a prejudice against small-scale agriculture (Schumacher) – small-scale agriculture is presented as being inefficient, as a drag on economic growth, but in fact family farming actually generates higher returns. the identification of development with industry is a mistake.
2. from post-colonial theory, via Chaterji, the argument is that the drive to industrialize is the result of post-colonial elites internalizing Reason and Science. the implicit argument in this is that the reason the third-world chose to industrialize is because its elites were socialized into accepting this as the desirable/valid form of development.

for either of these to make sense, there has to be an alternative path of development that you can adduce. is there another way to avoid domestic political unrest, or prevent encroachment by other States? Tanzania was the God that failed.

England was the first and last country where development takes place without the guiding hand of the State. in all the other cases, the State is critical.

the late industrializers will attempt not to repeat the same patterns that England went through, for two reasons: (1) they won't want to (try to telescope it); (2) they can't (England captures certain markets, and the Continental countries will find niches).

you do, of course, have to put certain preconditions in place. if they're not in place, you won't be able to avail of the correct technologies (peasants won't use threshers, etc.). what are these structural preconditions?

1. the transformation of agriculture
2. you have to be able to create a space for your industrialists to grow, so they can survive the threat of England (protection is critical)
3. there has to be a State-guided provision of public goods—of infrastructure.

the key is the first—how do you transform agriculture? this basically means changing property rights; taking property away from some people and giving it to others. wiping out certain classes of people. the difficulty in Europe was that you had just lived through the biggest cataclysm in modern history (Fr. Rev), you have the birth of the modern Left.

for the States in Europe, the trouble becomes two-fold.

1. capitalists are going to be reluctant to attack feudalism.
2. moreover, few states were bourgeois States; they were dominated by agrarian elites. how are they going to undertake agrarian reforms, the intent of which is to eliminate the agrarian elite?

as a result, Continental elites attempt to do this delicately—slow modernization of agriculture. precisely because of this, their growth path is slow, and very different from England. this is what unleashes the tensions that give you 1848, 1871, etc.

the nineteenth century in Europe makes no sense unless you contextualize it in the political/economic fact of modernizing while avoiding revolution.

- - - -

into the 80s, the consensus about France was that the Fr. Rev strengthened peasant property in land. while that improved the conditions of peasants, in some ways (given the removal of arbitrary events), its effect on the larger French economy was largely negative. the idea was that rural France was largely stagnant for sixty years.

there's been a revisionist account, that says these were actually relatively efficient – in terms of land productivity, it's argued. Vivek suggesting that this is a difficult case to make (food prices were quite high, real wages were low, capital formation was slow), and has to do with the resurgence of neo-classical economics.

on Prussia, the suggestion was that Prussian agriculture grew faster after reforms in 1806, 1811 than it did before—but not as fast as it did in UK or in USA. both because of low wages, and because –while farms were relatively large—they weren't large enough.

the English revolution built an efficient, extractive State – but this wouldn't have made much of a difference, had there not been underlying structural revolution. in fact, England has escaped the Malthusian trap by 1640.

the long-term consequences of the early centralization/organization of English landlords is important to explaining a lot of English history.

the Netherlands is politically weaker – why? it's rate of economic growth is not keeping up with England. and it's not able to get the most political bang out of economic buck, which has to do with its State structure (an effectively centralized State, and a political settlement between the Crown and the landed nobility). the English nobility is much more invested in the English State.

what 1688 does is facilitate State-building (a fiscal-military State). it's less clear how useful it is for accumulation. the Marxist presumption was that 1640 brought in capitalism; that's clearly not true. it's partly true that it facilitates capitalism. it's clear that it's major effect is on the extraction of revenues, which is indispensable to the creation of the British empire.

Perry Anderson's argument is that the reason you get capitalism in W. Europe is the 'availability of a certain legal resource', which is already in place – had it not been in place, you would not have had capitalism (Roman law). because of this, the absolutist State sanctifies private property. (the absolutist State, in short, was a transitional form which facilitated the rise of capitalism).

Why is this bogus? first of all, you don't get capitalism where you have absolutism; there was no absolutism in England; secondly, if they hadn't had the legal apparatus, they would have invented it (you don't have a legal sanction for enclosures).

British railway-building overseas begins in the post-1850 era, mainly.

Am. Civil War not driven by drive to centralize; WWI marks the beginning of American centralization.

there is a limit to how much primary-producers can get from demand from industrial countries, because of Ingel's Law (limit to how much consumers in industrial countries will want, of primary goods)