Backwardness

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The backwardness model is a theory of economic growth created by Alexander Gerschenkron. The model postulates that the more backward an economy is at the outset of economic development, the more likely certain conditions are to occur.

The more backward the economy:

• The more likely intervention by special institutions will be necessary to properly channel physical capital and human capital to industries. Special institutions include banks, as in the moderately-backward Germany, or the state, as in the severely-backward Russia.

• The greater the emphasis on the production of producer goods than consumer goods.

• The greater the emphasis on capital-intensive production rather than labor-intensive production.

• The greater the scale of production and enterprise.

• The greater the reliance on borrowed rather than indigenous technologies.

• The smaller the role of the agricultural sector as a market for new industries.

• The greater the reliance on productivity growth.

Gerschenkron adamantly refused to define how backwardness could be measured, but alluded to its existence along a northwest-to-southeast axis in Europe during its history, with the United Kingdom at one extreme, being the least backward country at the outset of its economic development, and the Balkan countries and Russia at the other extreme, being the most backward country at the outset of its economic development, and Germany lying somewhere between the two.

Thorstein Veblen's 1915 Imperial Germany and the Industrial Revolution is an extended essay comparing the United Kingdom and Germany, and concluding that the slowing of growth in Britain, and the rapid advances in the latter, were due to the "penalty of taking the lead." British industry worked out, in a context of small competing firms, the best ways to produce efficiently. Germany's backwardness gave it an advantage in that the best practice could be adopted in large scale firms.

The backwardness model is often contrasted with the Rostovian take-off model developed by W.W. Rostow, which presents a more linear and structuralist model of economic growth, planning it out in defined stages. The two models are not mutually exclusive, however, and many countries appear to follow both models rather adequately.