The Conflict Between “Balanced Growth” and International Specialization

The idea of balanced growth is playing a prominent role in both the theory and policy of economic development. My purpose here is to consider whether this idea is compatible with the principle of international specialization or whether, on the contrary, it means throwing away the benefits which can be obtained through specialization. The dominant practical question in some of the less-developed countries is whether the available means, limited as they are, should be used to promote activities (a) specialized along lines of comparative advantage internationally or (b) diversified so as to provide markets for each other locally. In Western eyes the pursuit of balanced growth is causing only too often a pathetic misdirection of scarce resources. Some of the underdeveloped countries, on the other hand, feel that they cannot rely on an external demand for their primary products, a demand which is usually inelastic with respect to price. Is there any guarantee, they ask, that the overspill of prosperity from the advanced countries, through changes in the volume and terms of trade and possibly, in response thereto, through private foreign investment in primary production for export, will induce a satisfactory rate of development—satisfactory in relation, for instance, to population change? The clash of prescriptions on the policy plane reflects what looks like a deadlock on the theoretical level also.