NURKSESVICIOUSCIRCLEOFPOVERTY:

Thetheoryexpressesthecircularrelationshipsthatafflictboththedemandandthesupply
sideoftheproblemofcapitalformationineconomicallybackwardareas.

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 investmentthat 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 thequalityoftheproductiveforcesasawhole.Thisfinallyleadsto
acontinuationoflowincomesintheeconomyandthencirclebeginsagain.

According to Nurkse one of the most important reasons the backward countries have
been prevented from enjoying the stimulating effect onthemanufacturingindustryisnot
the wickedness of foreign capitalists and their exclusive concern with raw material
supplies,butmerelythelimitationofthedomesticmarketformanufacturesarticles.

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 widerangeofdifferentindustries.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 notoptimisticaboutthe
role offoreignaidindeveloping countriesandinsteadputsemphasisondomesticsavings
andtheroleofthestateasanimportantfactorforbalancedgrowth.

While there is little doubt that Third World Countries, particularly those in Africa are
locked in a vicious cycle of poverty, the historical causesofpovertyarenotindicatedby
Nurksestheory.Arealisticway outofthisviciouscycleisalsonotprovidedbyNurkses
theory. The theory ignores the reality of underdeveloped countries characterised by
dependent economies, which makes it impossible to create an environment for massive
investmentandbalancedgrowth.

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/
backwardcountries.

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
scholarsincludingSchumpeter,alsodemonstratesthisweakness.

SCHUMPETERSTHEORYOFMOTIVEFORCE,PROCESSANDGOAL

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:
motiveforce,processandgoal
.

InSchumpetersmodelofdevelopment
Thegeneratingforceisprovidedbytheentrepreneur
Theprocessisinnovationand
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.Eventhoughinnovationsoriginated eachtimeinaparticularindustry,
the monetary effects and other circumstances were such as to promote each timeawave
ofnewapplicationofcapitaloverawholerangeofindustries.

J.Schumpeterstheorydoesnotsatisfythecaseofthelessdevelopedcountriesandthisis
obvious.
TheentrepreneurinmostAfricancountriesisnotthemaindrivingforce.
Innovationisnotthemostcharacteristicprocessandithardlyexists.
Privateenrichmentisnotthedominantgoal.

In Tanzania for example we lack the base of true entrepreneurs, since the business
community isdominatedbythepettytraderssuch asthe
marchinggays(Machinga)who
cannot be qualified as the entrepreneurs or regarded as the driving force for economic
development. The Petty bourgeois, middle class and highclass businessmen have
tentacleswiththeoutsideforeigninvestors.

For this reason the process of innovationand technologicaldevelopmentremainsoutside

the development process of most African countries. The goal for private enrichment for
the Africanhasyetto
takeoff
asenrichmentinmultinationalcorporationsbecomesthe
goalinmostAfricancountries.

J.K.GALBRAITHANDTHECONCEPTOFCOUNTERVAILINGPOWER.

Professor J.K.Galbraith is anAmerican economistandaformeradvisortoPresidentJohn

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 CountervailingPower,maintainsthathegrowth
of a monopoly in advanced countries, particularly in USA has been accompanied by a
growth of Countervailing Power on the opposite sideofthemarket,e.g.TradeUnions,
Retail Chain Stores, Cooperative Societies, Farmers Unions etc. The growth of
monopoly increases the gains from building up thecountervailingpowerandinducesthe
growth and this provides a new selfregulatory 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 ofcountervailing
power are, agriculture,consumergoodsmarket,andlabourmarket.Theseexactlyparallel
in the backward countries with their exportimport monopolies and large scale mining
andplantationbusiness.

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 questionremainshowcanbackwardcountriesgiverise
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 andthedependentnature
3

of African economies? These are questions that lead to the need for an indepth critique
ofbourgeoistheoriesondevelopment.

CRITIQUEOFBOURGEOIS/MODERNISATIONTHEORIES

The bourgeois view of development grows out of the model of competitive market
capitalism. Itisthoughtthatanautomatic,selfregulatedmechanismtomanageeconomic
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 producesthose
goods, which people desire and that maximum output is produced in the most efficient
manner.

Bourgeoistheorieshaveweaknessesthatcanbeassessedfromdifferentoutlooks.

1. 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
impactsoftheinternationaleconomicrelationshipsonthedevelopingcountries.

2. It can be argued that, these theories are both mechanistic and tautological. To think
that by simplyexpandinginvestmenta countrywillbeabletoraiseitsincome,orthat
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
importanttosustainabledevelopment.

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 countriesare
becomingpoorerandpoorerandmoreandmoredependentonthewesternworld?

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
problemofunderdevelopment/absenceofdevelopment.

Recently there has been resurgence of the bourgeois school of thought,ledbytheWorld

Bank and the IMF. The new bourgeois schoolidentifiesandconcentratesonproblemsof
inefficient allocation and utilization of resources rather than lack of productivecapacity,
backward production techniques or investment. This isalsoshowntobetheresultofbad
economic policy framework and subsequently economic mismanagement.Thisschoolof
thought recommends Economic Recovery Programmes (E.R.Ps) and Structural
Adjustment Programmes (SAPs) to stimulate economic efficiency. The reality is that
4

developing countries remain underdeveloped while the power of international financial

institutionsincreasestotheextentofdirectingthedevelopmentprocess.

10.
BourgeoisTheoristsandMarxists/DependencyTheorists:A
Comparativelook.
We canrecognizesomebroadsimilaritiesbetweenRostows analysis andmarks 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.
DifferencesbetweenRostowandMarxistanalysis:
Marxhighlights theproblemsofclassconflicts,exploitationandinherenttresseswithin
the capitalist process. Rostow and other bourgeois theorists ignore these aspects for
instance,Rostow interpretsnethumanbehaviorasan act ofbalancingalternative and
oftenconflictinghumanobjectivesinthefaceofthechoicesmenperceive tobeopento
them.
Rostow avoids the Marxian assertion that the behavior of societies is uniquely
determinedbyeconomicconsiderations.
In general Rostowand other bourgeois theoristsoutlookofdevelopment is thatmany
things are involved in the process of development: markets, resources, infrastructure
organisation, Entrepreneurship and investment involves people, class relations/ class
struggle.
Rostowbelievesthatforthepresently underdevelopednations,theinnermechanicsof
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 mustseekto shift men ofenterprise fromtrade and money lending
to industry. And to these ends patterns of fiscal, momentary, and other policies
(including education policies)must beapplied,similar tothosedevelopedand applied
inthepast.
To Marxists it only by understands the forces of underdevelopment that the
contradictionscanbelocatedandthestrugglelaunchedtoresolvethem.
Rostows theory does not focus on the unique situation of the LCDs and how their
historyandcurrent positioninfluencestheirdevelopment.KarlMarxalso didnotgive
particularattentiontotheAfricansituationi.ewhatkindsofclassstruggleinAfricaetc.
Thereforehistheoryofunderdevelopmentisalsonotcomplete.

STUDYQUESTIONS

1. CriticallydiscussR.Nurkses contention that Africaispoorbecause

it is poor. Can Nurkses prescription help overcome poverty in

countriessuchasTanzania?

2. BrieflymakeacritiqueofRagnarNurksestheory.

3. Using concrete evidence, point out some of the main arguments for

and against a marketbased strategy of development as is being

imposedbytheIMF/WorldBank.