Unbalanced growth

Dependence on unbalanced growth

Nature

Economic growth tends to proceed by surges and relapses, by over-investment booms and under-consumption crises. There can be unevenness both in the rate of expansion of the capacity to produce and in the degree of utilization of the productive capacity.

Unbalanced growth cannot be sustained long due to the emergence of bottlenecks. If, for example, the agricultural sector seriously lags behind the industrial sector, development may be interrupted through inflationary pressure or balance of payments disequilibria. Agriculture, on the other hand, unless it is totally export-oriented, cannot grow if the industrial sector is not able to develop sufficiently to create a steady increase in the demand for agricultural products. The heavy industry sector cannot grow irrespective of the wage-goods sector, for this may result in a general deficiency of demand.

Counter-claim

Strictly speaking, only an economy which has an infinitely elastic supply schedule for every commodity and which is perfectly adjustable to changes in the demand pattern can aspire to balanced growth. It seems that disproportions are an essential dynamic element in the development process. These disproportions may take the form of a rapid advance in agricultural productivity which releases manpower and creates favourable conditions for a simultaneous or subsequent industrial upsurge. Within the industrial sector, the growth of heavy industry has a greater dynamic effect than the development of light industry. Hence a disproportion in favour of the former may be natural in certain stages of growth.