What is difference between Balanced Growth and Unbalanced Growth?
Balance growth occurs when output and the capital stock grow at the same rate. In development economics, balanced growth refers to the simultaneous, coordinated expansion of several sectors. The economists generally use the Ragnar Nurkse’s balanced growth theory to explain it. The theory hypothesises that the government of any underdeveloped country needs to make large investments in a number of industries simultaneously. This will enlarge the market size, increase productivity, and provide an incentive for the private sector to invest. Nurkse was in favour of attaining balanced growth in both the industrial and agricultural sectors of the economy. He recognised that the expansion and inter-sectoral balance between agriculture and manufacturing is necessary so that each of these sectors provides a market for the products of the other and in turn, supplies the necessary raw materials for the development and growth of the other.
Role of state in balanced growth
Nurkse believed that the subject of who should promote development does not concern economists. It is an administrative problem. The crucial idea was that a large amount of well dispersed investment should be made in the economy, so that the market size expands and leads to higher productivity levels, increasing returns to scale and eventually the development of the country in question
Criticism to Balanced Growth Theory
Ragnar Nurkse’s balanced growth theory too has been criticised on a number of grounds. His main critic was Albert O. Hirschman, the pioneer of the strategy of unbalanced growth.
Hirschman stressed the fact that underdeveloped economies are called underdeveloped because they face a lack of resources, maybe not natural resources, but resources such as skilled labour and technology. Thus, to hypothesise that an underdeveloped nation can undertake large scale investment in many industries of its economy simultaneously is unrealistic due to the paucity of resources. To quote Hirschman, “If a country were ready to apply the doctrine of balanced growth, then it would not be underdeveloped in the first place.”
Unbalanced Growth
The theory of unbalanced growth is the opposite of the doctrine of balanced growth. According to this concept, investment should be made in selected sectors rather than simultaneously in all sectors of the economy.
It is, Hirschman who has propounded the doctrine of unbalanced growth in a systematic manner.
According to Hirschman, investments in strategically selected industries or sectors of the economy will lead to new investment opportunities and so pave the way to further economic development. Development can only take place by unbalancing the economy. This is possible by investing either in social overhead capital (SOC) services or in directly productive activities (DPA). The former create external economies while the latter appropriate external economies.
