National Inequality and the Catch-Up Period: Some "Growth Alone" Scenarios

By Haynes, Michael; Husan, Rumy | Journal of Economic Issues, September 2000 | Go to article overview

National Inequality and the Catch-Up Period: Some "Growth Alone" Scenarios


Haynes, Michael, Husan, Rumy, Journal of Economic Issues


At the close of the millennium, the unanimity over the major "systemic" alternatives available for economic advancement was, arguably, greater than at any time during the twentieth century. In the wake of the collapse of the Eastern bloc, there appears to be only one route available--that of market capitalism within a globalized world economy--with varying (and declining) degrees of state intervention providing the variation on this theme. [1] The argument for meaningful redistribution has practically vanished from the mainstream economic and political agenda. [2] This short paper reasserts the argument by examining some of the implications of economic convergence, or "catch-up," via what might be described as the "growth-along" scenario (taken to mean, without recourse to state redistributive policies). Catch-up has been a strong aspiration of both post-colonial countries as well as the transition nations of the former Eastern bloc. It is an aspiration that continually manifests itself in the movement (or t he desire to move) of migrants and refugees from the developing to the developed world to escape levels of impoverishment and destitution so prevalent in the former. In view of this, we argue that catch-up is a valid socioeconomic objective to examine and analyze--even if it appears, as we will see, utopian for the foreseeable future.

But it was certainly not a utopian vision in Wal Rostow's [1960] schema of "the stages of growth," which suggested that as developed countries moved into the "high mass consumption" phase, developing countries would be in the "take off" stage, hence registering higher growth rates and catching up in the process on their way to maturity and high mass consumption. Thorstein Veblen [1915], Albert Hirschman [1959], and Alexander Gerschenkron [1962] also assumed the potential of catch-up stemming from backwardness (through the creation of appropriate institutions and state-directed industrialization). However, the orthodox and most influential (both theoretically and policy-wise view at present is the belief in the superior allocative powers of the market mechanisms. This provides the foundation upon which a predominantly market-drive economic regime can enable relatively backward economies to catch-up with the advanced industrial economies. The belief stems from neoclassical growth theory with its usual, though highly restrictive, assumptions of frictionless, perfectly competitive markets [Solow 1956; Swan, 1956]. Specifically, the theory (using the Cobb-Douglas production function) predicts diminishing marginal productivity of capital until productivity growth ceases and there is a constant capital-labor ratio [Fagerburg 1994]. It therefore follows that technologically backward countries, by using increasingly advanced capital-embodied technologies (on the assumption that technical know-how is a freely available public good and augmented by fully mobile capital being sucked into areas where the return is highest), will catch up with the most advanced economies so that, in the long run, there will be international convergence of output per capita, income levels, and growth rates. Ultimately, all economies will catch up with the most advanced. [3]

The implications of this optimistic scenario are clear: liberalized, or in current parlance "globalized," markets are a sine qua non for the achievement of technological advancement of developing countries (especially via foreign direct investment) and are the best route for catching up with all that implies for the eradication of poverty and raising of living standards. This, we can argue, has been the rationale for the prescription of the ubiquitous liberalized economic regime: one that has repeatedly been proffered to reforming governments in the developing world of all political persuasions by various international agencies for more than two decades. Many, for example, have adopted the recommended prescription of the IMF-inspired structural adjustment program. …

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National Inequality and the Catch-Up Period: Some "Growth Alone" Scenarios
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