Big Push theory
The Big Push theory,
formulated by Economist Paul Rosenstein Rodan
in 1943, is a development economics theory that emphasizes the necessity of a
coordinated, large-scale investment effort to overcome the constraints of
underdevelopment in an economy. It
argues that a single or small set of investments may not be sufficient to
stimulate economic growth in underdeveloped countries due to structural
constraints and market imperfections. Instead, a “big push” involving
simultaneous investments in various sectors is required to set the economy
on a self-sustaining growth path.
Assumptions of the Big Push
Theory:
1. Closed Economy: The theory assumes that
underdeveloped countries have limited interaction with the global market and
must rely on internal demand.
2. Lump Sum Investment: It presumes that a large amount
of capital is available for the initial big push.
3. Homogeneous Labour: It assumes labour is
interchangeable and mobile across sectors.
4. No Institutional Barriers: The theory often overlooks
political, cultural, or institutional challenges that might hinder
coordination.
Mechanism
of the Big Push:
Rosenstein Rodan highlighted several mechanisms
through which a big push can work:
- 1. Infrastructure Development: Public investment in
infrastructure can reduce costs and stimulate private investment. - infrastructure can reduce costs and stimulate private investment.
2. Industrialization: Simultaneous investments in
various industries can create a chain reaction of demand and supply.
3. Government Role: The state or a central planning
authority is often necessary to coordinate investments and overcome market
failures. This mechanism can be easily understood by the following key features
of the theory :
Key Features of the Big Push
Theory:
1. Indivisibilities in Production:
Economic activities, especially in underdeveloped
countries, often exhibit indivisibilities that require large-scale investments.
For example, infrastructure like roads, power, and communication systems cannot
be developed incrementally; they require significant upfront investment. Many
investments, especially in infrastructure, exhibit indivisibilities, meaning
they cannot be scaled down or implemented incrementally. For instance, a
country cannot build half a road or a partial power grid. These large
investments are crucial for reducing costs and supporting economic activity.
2. Complementarities and
Interdependencies:
Sectors in an economy are interdependent.
Investment in one sector stimulates demand for goods and services in other
sectors. For instance, developing an industrial sector creates demand for
infrastructure and agricultural inputs, which then boost other parts of the
economy. Industries are interconnected, and investments in one sector often
stimulate demand in others. For example, developing a steel industry supports
construction, transportation, and manufacturing. A single investment in
isolation may fail due to insufficient demand, but simultaneous investments
across sectors create a reinforcing cycle of growth.
3. Market Failures and Externalities:
Private investors may not undertake large-scale
investments due to coordination failures and inability to internalize external
benefits. A factory might generate employment and stimulate local businesses,
but these positive externalities do not directly benefit the factory owner. Private
investors may avoid large-scale investments due to the inability to capture the
full benefits of their actions. For instance, a new factory may generate
employment and local business opportunities, but the private investor only
profits from factory operations. These positive externalities justify
government or collective action to address market failures
4. Low Level Equilibrium Trap:
Underdeveloped economies may be stuck in a
low-income equilibrium where there is insufficient demand to justify investment
and insufficient investment to generate demand. The Big Push is necessary to
break this cycle and achieve a higher equilibrium .Underdeveloped economies
often find themselves stuck in a state where low income leads to low demand,
discouraging investment, which in turn perpetuates low income. A “big
push” of coordinated investment is needed to escape this cycle and achieve
higher levels of economic activity.
5. Economies of Scale:
Large-scale production is often more efficient,
leading to reduced costs. However, achieving economies of scale requires a
sufficiently large market, which might not exist without simultaneous
investments in multiple sectors. Large-scale production reduces costs and
increases efficiency. However, achieving economies of scale requires sufficient
market demand, which may not exist in underdeveloped economies without
simultaneous investments in complementary industries
6. Mechanism of the Big Push
The Big Push works by creating a critical mass of
economic activity through simultaneous
investments. This boosts demand, supports infrastructure development, and
facilitates industrial growth. For example, investment in infrastructure (roads,
electricity) reduces costs for businesses, encouraging industrialization.
Industrial growth, in turn, creates jobs, boosts income, and increases demand
for goods and services.
7. Role of the Government
The Big Push theory highlights
the central role of the government or a planning authority in coordinating
investments. Governments can address coordination failures, invest in public
goods, and ensure that private investments complement each other.
Criticisms of the Big Push
Theory:
1. Overemphasis on State
Intervention:
o
Critics
argue that excessive reliance on state planning can lead to inefficiencies and
corruption.
2. Neglect of Microeconomic Factors:
o
The
theory overlooks the role of small-scale, grassroots initiatives in fostering
development.
3. Feasibility Issues:
o
Many
underdeveloped countries lack the financial resources or institutional capacity
to implement a coordinated big push.
4. Globalization Ignored:
o
The
theory assumes a closed economy, which may not align with the realities of
modern globalized markets.
Contemporary Relevance:
The Big Push theory remains relevant for
large-scale development programs like infrastructure projects, industrial
policies, and initiatives to break poverty cycles. Modern applications include
public-private partnerships and global aid initiatives like the Marshall Plan,
which embody the theory’s principles of coordinated investment for sustainable
growth.
While the Big Push theory originated in the
mid-20th century, its principles are still relevant for discussions about
infrastructure development, industrial policy, and strategies to overcome
coordination failures in development economics. The Initiatives by the World
Bank and International Monetary Fund (IMF) echo aspects of this theory,
emphasizing the need for coordinated investments to catalyse growth.