Underdevelopment and the methodological approach of Adam Smith

After the beginning of the process of decolonization, at the conclusion of the Second World War, several economists began to study systematically the problems of underdeveloped countries. These problems were considered from both the analytical and the practical standpoint – that is, with the purpose of understanding the causes of underdevelopment and of suggesting measures of economic policy intended to promote growth. A number of recommendations emerged from this work – some of which were mutually exclusive, others complementary; some of limited, others of great relevance. Economists advocated measures to promote import substitution (with protection) or to increase exports, particularly of labour-intensive manufactured goods; measures to stimulate an increase in aggregate savings as a prerequisite of investment; the speeding up of investment in human capital and particularly in education; and, more recently, elimination of the obstacles to international trade and to domestic markets for products and labour and privatization of the productive activities carried out by the state through public enterprises.

The latter recommendation has acquired new vigour after the epoch-making failure of central planning, made evident by the breakdown of the Soviet Union. At different period the Soviet Union itself supported certain underdeveloped countries, attempting to introduce in them, if not a proper system of central planning, at least a system of tight regulation of prices and production. Some economists, following Marx, recommended the expropriation of the means of production to introduce a system of central planning.