Problems of Industrialisation of Eastern and South-Eastern Europe1943

The paper starts with a nice analogy from Alice in Woderland, it is sometimes better to do two things only if done together. He outlines twelve points on how some poorer regions of the world, which are in the title, could industrialize. First, why? Well, in essence there was an excess agrarian population, which if put to work in industry could raise global output. Immigration is unrealistic for the author. It is important to think regionally, as small national markets might be too limited. For this, there are two paths. One is to be self-sufficient, like the Russians who built everything domestically for which everything was financed by internal sacrifice. The second is industrialization that is internationally integrated, financed by foreign capital, and according to the international division of labor. He describes how 19th century style laissez-faire industrialization is no longer a model, and institutional design is required. He explains how private firms will under-invest in training, because of the risk of exit, and that training must be organized socially.

The most important set of arguments is complementarity of different industries. One factory will be of no use, as workers will never spend all their wages in one commodity. However, if there is a lot of different industries working together, then industrialization could collectively create demand, and a market. He says that it will not be difficult to foresee what will previously unemployed people in low standard of living areas spend their wage on. There are Marshallian external economies (Google: cost savings and productivity gains that benefit firms due to the growth of an entire industry in a specific location, rather than from a single firm's growth), but also external to the industry itself. For investors, who only care about private marginal net product, it might not make sense to invest despite high social marginal net product. There is an example of a railway, that itself is not profitable, but has profitable social gains in land value. Industrial planning must include export planning, since we are industrializing with foreign capital, and it must eventually be repaid. The placing of exports has to be foreseen and planned in such a way as to minimise the burden of necessary adjustment of economic resources in the creditor countries. His proposal is that of the Eastern European Industrial Trust (E.E.I.T), co-owed by debtor and creditor countries. The whole industrialization process is planned as one big push.

This paper is very old, it is stark to see people speak of the war, and at least some people had the conception that it would someday end. This paper was very influential apparently as it was the first to exposit this coordination failure that the market cannot handle. Interesting ideas, but very convulated in my opinion. Probably because I am from to-day, and not from yesteryear.