Were Soviet Economists Right to Equate Industrialization with Development - Research Paper Example

Were Soviet Economists Right to Equate Industrialization with Development A Review Were Soviet Economists Right to Equate Industrialization with Development Introduction: This study aims to analyze the analogy between industrialization and development. It predominantly aims to match this analogy with Soviet economists' psychology and seeks to answer, if their thinking in comparing industrialization with development was right to what extent. For many a layman, economic development, which actually means the amount of investments and the amount of capital formation, that leads to savings and investments and capital formation, is just a higher standard of living, better facilities in the form of infrastructure and vehicles, better roads and buildings, more recreation centers. Development is a vast phenomenon that involved more than increasing per capita output. Real development can only be harbingered by eliminating poverty, unemployment and inequality. The theory calls for reviewing structural issues like dualism, population growth, inequality, urbanization, agricultural transformation, education, health, unemployment and many other unanswered issues that must be reviewed on their own merits, and not merely as appendages to an underlying growth thesis. Industrialization on the other hand is a process of social and economic change where human societies are transformed from a pre-industrial (an economy where the amount of capital accumulated is low) to an industrial state. (Industrialization). This social and economic change is closely related to the technological innovation, particularly the development of large-scale energy production. Industrialization may also be related to some kind of philosophical change, or may be to a different attitude in the perception of nature, though if these philosophical changes are caused by industrialization or vice-versa is a subject often debated. Industrialisation has generated its own health problems, like noise, air, water pollution, malnutrition, dangerous machines, impersonal work, isolation, poverty, homelessness, and even substance abuse. Health problems in industrial nations are caused by economic, social, political, and cultural factors also. Industrialisation has become a major medical issue around the world, and hopefully will become less of a problem over the period to come. Psychology of Soviet Economists: Soviet economists were primarily of the opinion that those factors of production that are relatively plentiful have a low marginal productivity and hence a low price as compared with factors that are relatively scarce. Consequently those lines of production or those technical forms of production, which use relatively more of the plentiful factors and economize on the scarce ones, would have the lowest costs. This lead to a drop in labor rates, as a country like Russia had more labor. The strength of the above mentioned factor theory is undoubtedly its strong appeal to common sense, it is apparent common sense to adapt your development plans and methods so as to make the most use of those economic factors that are most plentiful, like labour in this particular case, but there can be a humanitarian argument added to it that to do this will create the maximum employment in conditions where there is a large reserve of unemployed. The immediate objection to it that strikes the mind is that the factor proportion theory, in common with any comparative cost doctrine derived from it, is a static theory, which refers to a particular factor endowment at a given date. It will be inappropriate to derive there from a criterion of development, since we are dealing with dynamic situations, where the factor endowment is subject to change the essence of development for example, is a growing accumulation of capital and hence a change in the capital-labour ratio. ( Dobb Maurice, Was Soviet Method of Industrialization Really Contrary to Economic Principles) The choice between the factors of production depends on the fact of the investement related to each factor. In most of the relevant cases, choice will be between techniques that cost more initially that would obviously mean the more capital intensive and labour saving ones, but yield a higher level of productivity, when in use, and initially cheaper techniques with lower productivity. Now the fact that the former promises a higher level of productivity gives the main reason for supposing that it will to this extent make more available for investment. Now whether it will in fact do so depends, on what happens to consumption when productivity rises, as it would depend on the existing relationship between the higher productivity and the higher initial cost of the more capital intensive machine - after a point the effect of the latter may quite overtake the former. The point to be noted here is that if any rise in productivity involves an almost equivalent rise in consumption, then the investment potential of the economy will not derive any benefits. Similarly there will be no advantage in having the more labour intensive technique, if total consumption remains unaffected by the number employed. Pre-revolutionary Russia lacked what are generally considered to be the institutional prerequisites for capitalist development so, its development prospects were not good. Though economic growth in 50 years before the Revolution was relatively rapid, but by the Revolution the sources of growth had been exhausted. Agriculture reached North American levels of productivity before wheat prices collapsed after 1914. The expansion of the railroads ran its course and there was absolutely no prospect of protected light industry becoming internationally competitive. Moreover, Russian capitalist development had brought very little, if any benefit to the urban and rural working class, just intensifying the class conflicts that erupted in Revolution. The Soviet economy had a massive rural surplus population with little scope for increasing agricultural productivity, other than only through the consolidation of excessively fragmented holdings. The obvious development strategy, as Soviet economists were quite aware, was to transfer the surplus rural population to industrial employment in the cities. The core issue was how to achieve this. Stalin achieved this by a brutal policy of collectivization, forced migration, compulsory requisitions, and very heavy rural taxation. Soviet industrialization not only was based upon forced collectivization, but also on the massive allocation of resources to heavy industry and even the military at the expense, Stalin's critics have argued, of the living standards of population. Simulations of Feldman's classic Soviet growth model can be used to show that an investment strategy focused on heavy industry is quite compatible with rising consumption and an analysis of the best available data can be done, after the disaster of collectivization, living standards indeed rose rapidly. There was a downturn in terms of the failure of the system to adapt to the ending of the labour surplus, but the failure was perhaps not so much that of the system as of the decision-making at the top. A growing proportion of investment resources were wasted by diversion to the military; by expanding energy production instead of economizing on consumption. There were well-documented deficiencies of the Soviet economic system that provided perverse incentives at every level and led to grotesque levels of inefficiency and waste. The astonishing achievements of Soviet workers, whose efforts produced such impressive results despite their bad management and often appalling living and working conditions, were impressive (Clarke Simon, Reviews). Conclusion Though there is a clear differentiation between industrialization and development or economic development, the psychology of Soviet economists to find an analogy between the two concepts and link them was not a very prominent one. Economic development on one hand emphasizes the need for overall development and a rise in standard of living of people of a particular country. Industrialization on the other hand emphasizes on the need for setting up industrial houses and allocating labor to them. So the thinking on part of Soviet economists lead to a misuse of labor and consequently resulted in a drop in prices of the factor. References Clarke Simon, Reviews. History Cooperative. Retrieved Aug 1. 2006 < http://www.historycooperative.org/journals/llt/55/br_27.html > Dobb Maurice, Was Soviet Method of Industrialization Really Contrary to Economic Principles. Revolutionary Democracy, Retrieved Aug 1. 2006 < http://www.revolutionarydemocracy.org/rdv8n1/dobb.htm > Industrialization. Wikipedia. Retrieved Aug 1. 2006 < http://en.wikipedia.org/wiki/Industrialization> Read More