Rosenstein Rodan’s theory of Balanced Growth
ROSENSTEIN RODAN’S THEORY OF BALANCED GROWTH
Rosenstein Rodan advocated “big push” theory which emphasizes that a “big push” or a large comprehensive investment is needed in order to overcome the obstacle to development in an underdeveloped economy. The theory states that investing in “bit by bit” or in piecemeal will not enable an economy to successfully be on the development path. Rather preferably a minimum amount of investment is necessary for enabling an economy to successfully be in the development and growth path.
The key factor in Rosenstein Rodan’s theory of development is “indivisibility”. According to him, indivisibility of inputs, outputs or processes lead to increasing returns. He considered social overhead capitals such as power, transport and communication have greater indivisibility feature and are
indirectly productive and have a long gestation period. They cannot be imported rather internally generated. Their installations require a ‘sizable initial lump’ of investment.
The social overhead capital is characterized by four indivisibilities:
(i) it is irreversible in time;
(ii) it has minimum durability;
(iii) it has long gestation period
(iv) it has an irreducible minimum industry mix of different kinds of public utilities.
These indivisibility characteristics of social overhead capital are key to production process. Not only indivisibility of production function or process, Rosenstein-Rodan also advocated for indivisibility in demand and supply of saving in order to keep the market dynamic and vibrant. Big-push investment in various types of industries will create multiple cross-cutting demands for each other industries product. According to Rodan unless there is assurance that the necessary complementary investment will occur, any single investment project may be considered too risky to be undertaken at all. The indivisibility of demand requires setting up of interdependent industries.
The other indivisibility which Rodan stressed is the supply of saving. A high quantum of investment requires a high volume of savings. However, in the underdeveloped economies savings are low because of low income. To reduce the gap between income and expenditure, the rate of saving should be created.
In the words of Rosenstein Rodan, a high minimum quantum of investment requires a high volume of saving, which is difficult of achieve in low income underdeveloped countries. The way out of the vicious circle is to have first an increase in income and to provide mechanisms which assure that savings are higher.
The application of Rosenstein Rodan’s big push theory in under developed countries requires balance in three major sector-balance between social overheads (SOCs) and directly productive activities (DPAs); balance between consumers’ goods industries and producers’ goods industries and oriental and vertical balance within consumer goods sector.
Criticisms of Rosenstein Rodan’s Theory
Some of the criticisms of Rosenstein Rodan’s theory are as follows:
(i) The ‘big push’ theory cannot be effectively adopted in developing countries because of lack of capital, skilled labour and dynamic entrepreneurial abilities
(ii) Maintaining the coordination between different sectors is a big challenge. According to H. Myint, it is very difficult to coordinate the various plans of development in Big Push theory.
(iii) The developing economies are basically agricultural economies. However, the Big Push theory lays emphasis on huge investment in industrial sector, which in a way neglects the agricultural sector.
(iv) The theory gives too much importance to ‘indivisibility’. Too much indivisibility will pose practical problems in the process of globalization which lays stress on flexibility and reforms.
(v) Rosenstein Rodan has given limited importance to role of international trade in development. Jacob Viner pointed out that underdeveloped economies realize greater economies from world trade independently to home investment.