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Econ 351: History of Development Economics Thought
Professor Sharukh Khan
Economists are concerned with the identifying the key to the prosperity of
countries. Whilst classical economists such as Adam Smith (1908) attested to the
division of labor and improvements in productivity as being the driving force of economic
growth, developmentalists and neo-marxists theories presented by Rostow (1960) and
Furtado (1964) respectively, embraced technological advancement as being a key
factor in bringing about economic growth. As such, this paper traces the history of
technology in its contribution to economic development by exploring the economic
theories of Adam Smith, Rostow and Furtado.
Throughout his study of why and how nations progressed, Adam Smith
established four central and interrelated propositions, which, in essence, characterize
his classical theory of economic growth. Stating that men are much more likely to
discover easier and readier methods of attaining any object when the whole attention of
their minds is directed towards that single object1, Smith asserts that technology is not
an independent factor that propels a country to achieve significant economic growth.
Instead, he argues that technology is a factor that is endogenously produced by division
of labor. The magnitude in which technology contributed to economic development,
according to Smith, is not substantial. Indeed, contrary to Solows growth model, Smith
asserts that it is the division of labor, not entrepreneurship or technological
advancement that leads to increased productivity and the resultant economic growth.
Whilst Smiths argument that division of labor endogenously produces
technological change is consistent with modern research on the contribution of R&D to
productivity growth, and therefore economic development, it contrasts heavily with
Furtados economic analysis. Furtado states that a change in the orientation of
technological progress is a precondition for development and emphasizes that in a
1
Smith, p7.
1
Furtado, p84-85
2
earlier to a later stage. This means that economic growth or development will only be
achieved when a country moves from a stationary economic system dominated by
traditional agricultural cultivation, a characteristic of underdeveloped countries, to a
more mechanized economy with modern technology diffusing through a plethora of its
industries. This is mainly because the productivity of labor in the first stage is extremely
low as is the labor-capital ratio. As a country moves along the subsequent stages, it
exhibits increased productivity due to the industrialization of industries and
diversification of factors of production. Higher productivity, he argued, would increase
output and thereby absorb the increased demand of a higher population. The outcome
of increased productivity would yield a virtual cycle according to Rostow; the growth in
agricultural and manufacturing output would lead to higher exports earnings and
generate more income for governments in the form of taxes, which can then be
reinvested in the economy for further growth.
In conclusion, it is evident that although the discourse on the contribution of
technology in achieving economic growth is positive to some degree in the three
schools of thought explored in this essay, technological advancement solely will not
create sustainable economic growth. Whilst Furtado and Rostow have strong linkages
in that they attribute a substantial amount of economic growth to technological
advancement, Adam Smiths analysis of economic growth as being driven primarily
through division of labor still holds true today. Indeed, technological innovation today
comes not from isolated geniuses, but from the application of a substantial amount of
resources to research and development (R&D) and the creation of specialized groups.
But, as with Furtados findings, gains of technology can be concentrated within a
society, especially in developing nations. Hence, a balance between industrialized and
non-industrialized sectors is necessary to avoid a skewed production and consumption
sector within developing countries.
References
Smith, A. An Inquiry into the Nature and Causes of the Wealth of Nations.
London: George Routledge & Sons, Ltd, 1908. 1-22. Print.