Unbalanced growth

Unbalanced growth is a natural path of economic development. Situations that countries are in at any one point in time reflect their previous investment decisions and development. Accordingly, at any point in time desirable investment programs that are not in themselves balanced investment packages may still advance welfare. Unbalanced investment can complement or correct existing imbalances. Once such an investment is made, a new imbalance is likely to appear, requiring further compensating investments. Therefore, growth need not take place in a balanced way. Supporters of the unbalanced growth doctrine include Albert O. Hirschman, Hans Singer, Paul Streeten and Marcus Fleming.

The theory is generally associated with Hirschman. He presented a complete theoretical formulation of the strategy. Underdeveloped countries display common characteristics: low levels of GNI per capita and slow GNI per capita growth, large income inequalities and widespread poverty, low levels of productivity, great dependence on agriculture, a backward industrial structure, a high proportion of consumption and low savings, high rates of population growth and dependency burdens, high unemployment and underemployment, technological backwardness and dualism{existence of both traditional and modern sectors}. In a less-developed country, these characteristics lead to scarce resources or inadequate infrastructure to exploit these resources. With a lack of investors and entrepreneurs, cash flows cannot be directed into various sectors that influence balanced economic growth.

Hirschman contends that deliberate unbalancing of the economy according to the strategy is the best method of development and if the economy is to be kept moving ahead, the task of development policy is to maintain tension, disproportions and disequilibrium. Balanced growth should not be the goal but rather the maintenance of existing imbalances, which can be seen from profit and losses. Therefore, the sequence that leads away from equilibrium is precisely an ideal pattern for development. Unequal development of various sectors often generates conditions for rapid development. More-developed industries provide undeveloped industries an incentive to grow. Hence, development of underdeveloped countries should be based on this strategy.

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