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GERSCHENKRONS GREAT SPURT THEORY
Alexander Gerschenkron1, an economic historian, examined the traditional economies of Europe as they attempted to achieve industrialisation. He looked for similar characteristics and differences among countries and analysed the process of change in each. Consequently, he described some common stages through which underdeveloped countries must pass on the way to economic development. According to Gerschenkron, all nations were backward once. To move from the traditional levels of economic backwardness to a modern industrial economy required a sharp break with the past, or a great spurt of industrialisation. Many western countries like the United States, Germany, Great Britain and France experienced changes at roughly the same time and achieved partial industrialisation during the first half of the 19th century. SIX GENERALISATIONS Given a countrys degree of economic backwardness on the eve of its industrialisation, the
1. The Economic Backwardness in Historical Perspective, 1962.

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course and character of its industrial development tended to change in a number of respects. Gerschenkron summed up these changes into the following six generalisations: 1. The more backward a countrys economy, the more likely was its industrialisation to start discontinuously as a sudden great spurt proceeding at a relatively high rate of growth of manufacturing output. 2. The more backward a countrys economy, the more pronounced was the stress in its industrialisation on bigness of both plant and enterprise. 3. The more backward a countrys economy, the greater was the stress upon producers goods as against consumers goods. 4. The more backward a countrys economy, the heavier was the pressure upon the levels of consumption of the population. 5. The more backward a countrys economy, the greater was the part played by special institutional factors designed to increase supply of capital to the nascent industries, and in addition, to provide them with less decentralised and better informed entrepreneurial guidance; the more backward the country, the more pronounced was the coerciveness and comprehensiveness of these factors. 6. The more backward a country, the less likely was its agriculture to play an active role by offering to the growing industries the advantages of an expanding industrial market based in turn on the rising productivity of agricultural labour. According to Gerschenkron, the differences in the levels of economic development among European countries in the 19th century were sufficiently large so as to arrange them along a scale of increasing degrees of backwardness. By marking off two points on that scale, three groups of countries could be traced: advanced, moderately backward, and very backward. COMMON CHARACTERISTICS OF NATIONS Gerschenkron pointed towards three common characteristics of nations on the threshold of industrialisation. First, there is sufficient supply of resources on which to base production. There may be some scarcities and obstacles, but these are not so serious as to obstruct development. Second, there is quite a large number of population which is beginning to understand the potential benefits of industrialisation. A substantial group of people are actively trying to seek new opportunities for greater prosperity. Third, there is tension between the existing economic institutions and the groups who want new and progressive arrangements. The tension is the greatest in nations which start late on the path of development. This is because the existing economic relations in such countries are extremely backward relative to those of more developed countries. HOW TO BRING ABOUT THE GREAT SPURT? Severe tensions between economic backwardness and the urgency of development necessitates a big spurt of industrial development in many directions. According to Gerschenkron, for industrialisation the existence of certain necessary conditions was not required for industrialisation, as put forth by Rostow. He based this view on two empirical observations: First, the preconditions for industrialisation that existed in England were either absent in the backward countries of Europe or existed on a very small scale. Second, a big spurt of industrialisation occurred even in those countries where such preconditions were not present.

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In support of his contention, he cited the example of Italy: Before 1880, Italys economy remained very backward in relation to the advanced industrial economies of Europe. Whatever gauge one may choose for the purposes of comparison, be it qualitative descriptions of technological equipment, organisational efficiency, and labour skills in industrial enterprises, or scattered quantitative data on relative productivity in certain branches of industry, or the number of persons employed in industry, or the density of the countrys railroad network, or the standards of literacy of its population, the same conclusion will result that the existence of necessary preconditions for industrialisation was not required. As pointed out above, Gerschenkron categorised countries into three groups on the basis of the degree of economic backwardness: advanced, moderately backward, and very backward. For a great spurt of industrialisation, he noted that advanced nations start their first stage of development with the factory (or private firm) in the organisational lead; moderately backward nations with banks, and extreme backward with governments. But it should not be inferred from this that industrialisation is dependent upon the creation of these preconditions. In fact, one precondition can be substituted by another precondition. Further, preconditions can always be created even during the course of industrialisation. Gerschenkron supported his view by citing the example of England that capital was supplied to the early factories in England from previously accumulated wealth or from gradually ploughing back of profits. But extremely backward countries which could not have these preconditions for industrialisation were compensated by the actions of banks and governments. Gerschenkron pointed to Soviet Russia as an example of extreme backwardness relative to the industrialised Europe. Soviet Russia began its industrial development late in the 19th century as compared with central Europe. The problem of capital accumulation was more difficult in Russia than in Europe. The Russian government played a major role towards this direction in contrast to the role played by banks in the spurt of industrialisation in Europe. Massive industrialisation required sacrifices from the people. Incomes had to be used for capital investment rather than for consumption. Small family plots had to be consolidated into larger and more efficient farms. Workers had to move from rural areas into cities near factory jobs. Only the government could do that in Russia. Leaving aside Soviet Russia which developed into a command economy, Gerschenkron gave two reasons for the increasing role of the state. According to him, the greater the degree of backwardness, the greater the role of the state in the spurt towards industrialisation. First, in an extremely backward country, income being very low, the demand for consumer goods is also very low. This, in turn, limits the derived demand for capital goods. In the absence of profit motive, the state has to play a major role towards industrialisation. Second, these countries lack in such sources of capital as foreign capital, banks, capital markets, etc. Accordingly, it devolves upon the state to create financial institutions for providing capital for industrialisation. Besides, for a great spurt in industrialisation, Gerschenkron emphasised the adoption of capital intensive techniques. According to him, in an extremely backward country, there would be a very big technological gap between its techniques of production and those of developed countries. It can, therefore, industrialise by adopting the most advanced capital intensive techniques of the latter countries for two reasons: First, such techniques help the establishment of import-substitution industries, thereby reducing foreign competition. Second, since backward economies have shortage of skilled labour, they use capital intensive

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and labour saving techniques. The more backward an economy is, the greater is the degree of capital intensity of industrialisation. Thus Gerschenkron considered the introduction of capital intensive techniques essential for economic development, for historically borrowed technology was one of the primary factors assuring a high speed of development in a backward country entering the stage of industrialisation. In his study, Gerschenkron measured economic development with the help of index numbers, especially in the case of USSR. He used certain biases that are found in quantity index numbers when pre-industrialisation weights are used. His study revealed that the series aggregated by pre-industrialisation weights grow much faster than the series aggregated by weights in postindustrialisation. His explanation of a quantity index being biased upwards, in binary comparison of pre and post-industrialisation weighted with base year prices, has been called the Gerschenkron Effect. This upward bias in base year prices weighted series is based on two facts: (1) During industrialisation, the scarcity relations change such that the production of highly mechanical goods increases relatively more than that of less mechanical goods; and (2) the relative prices of highly mechanical goods decrease. Thus prices and quantities move inversely resulting in an upward bias in the base-year weighted quantity index. The divergence between the base-year weighted quantity index and the current year weighted index would be greater, the greater the extent of the opposite movements of relative quantities and prices during industrialisation. Finally, Gerschenkron pointed out that the greater spurt in industrialisation could take place if five pre-requisites were fulfilled. First, either the old framework in agricultural organisation should be abolished or the productivity of agriculture be increased. Second, an influential modern elite should be created which is interested in economic change in the economy. Third, there should be provision for material social overhead capital. Fourth, there should be a value system which favours economic change. Fifth, an effective entrepreneurship should be available. CRITICAL APPRAISAL Gerschenkron in his great spurt theory studied how backward economies of Europe achieved industrialisation. He looked for similar characteristics and differences among nations based on their degrees of economic backwardness, and analysed the process of change in each country. Thus he evolved a model of development which describes the common stages through which backward economies must pass on the path to economic development. Gerschenkrons model is significant from the standpoint of underdeveloped countries because it points towards the dangers of lingering backwardness in such countries. His detailed analysis of the USSR economy highlights the importance of the role of the state in bringing about rapid industrialisation in backward economies. But all his prescriptions do not apply to underdeveloped countries for the following reasons. First, the experience of many underdeveloped countries has shown that export promotion is more important than import substitution not only for rapid industrialisation of such economies but also to overcome balance of payments problems. Second, Gerschenkron justified the use of capital intensive and labour saving techniques to overcome the shortage of skilled labour. But, according to W.A. Lewis, unskilled labour is only

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a temporary bottleneck in a suplus labour economy which when utilised helps in industrialisation. Third, the six generalisations laid down by Gerschenkron which characterise the great spurt of industrialisation were derived from the economic experience of the Soviet Union. As such all of them are not applicable to the currently underdeveloped countries because economic conditions differ much in such countries from that of the Soviet Union of those times. Fourth, the Soviet experience suggests that extreme backwardness might lead inevitably to some sort of dictatorship as the society turns into a command economy, thereby leading to loss of personal freedom. When the Soviet Union itself has chosen a free market economy now and broken the shackles of dictatorship, no underdeveloped country would be prepared to start on the path to industrialisation on the lines of the erstwhile Soviet Union. However, this does not mean that Gerschenkrons analysis has no relevance for the currently underdeveloped economies. Rather, his analysis points out that the development process should be analysed in relation to the degree of economic backwardness of a country on the eve of its great spurt of industrialisation. GERSCHENKRON VS. ROSTOW Gerschenkrons study is especially related to economically backward economies. He examined the backward economies of the past in their effort to industrialise. He looked for similar characteristics and differences in them and analysed the development process in each. Finally, he evolved a theory of development describing the common stages through which backward economies must pass on the path to economic development. Rostow, on the other hand, presents an analytical and systematic study of the growth process divided into five stages based on the experiences of developed countries. His analysis is, therefore, not applicable to the currently underdeveloped countries. It is only his take-off stage that has some relevance to the underdeveloped countries. The only similarity between Gerschenkron and Rostow is that the great spurt of Gerschenkron is closely related to Rostows take-off. Both elements stress the element of specific discontinuity in economic development. Great spurts are, however, confined to the area of manufacturing and mining whereas take-offs refer to national output. Despite this, Rostows approach to industrialisation is very narrow. According to him, every country irrespective of the degree of its economic backwardness, must pass through the same sequence of stages during its process of industrialisation. To Gerschenkron, on the other hand, the process of industrialisation was different in different countries depending on their degrees of backwardness. In this sense, Gerschenkrons approach is more realistic and has wider applicability to the present day underdeveloped countries. There is another difference. To Gerschenkron, growth need not trace through the same set of stages in each country. The big spurt can occur at different levels of development and with different patterns depending upon the level. The more backward the country is, when it starts its development, the more likely it is to rely on governmental support more quickly it can short cut the slow growth path of the leaders. Gerchenkron finds advantages in backwardness which permit the late starter to catch up or at least narrow the distance between it and the pioneers.