Six Lectures on Economic Growth

Simon Kuznets

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781315443065
• Edition: 1
• Topic: Economics
• Subtopic: Economic History
• Index: Economics

Originally published in 1959, this book contains in straightforward language a general account of the major variables significant for the analysis of economic development. It stresses above all the quantitative aspects of the economic growth of nations, and establishes a series of propositions on growth patterns based on empirical data from the USA & Canada, Europe, Latin America, South Africa and Australasia. In arriving at his conclusions, the author makes use of national income and its components in emerging and developed economies.

Lecture V

THE PROBLEM OF SIZE

WE HAVE DISCUSSED various aspects of the economic growth of nations, treating the latter as equivalent units regardless of size. For the statistical tables in particular unweighted averages of the measures for each country were computed, which means that all countries were given equal weight regardless of the size of their population and national product. A question may legitimately be raised as to whether this approach is justified, since it implies that there is no significant relation between the size of a country and its economic growth.

The question acquires more importance when we recognize the vast differences in size among nations. Even if we omit splinter units whose political independence is more a matter of historical curiosity than of real significance, even if we exclude, as we did, countries whose population was less than a million in recent years, the range is still extremely wide. On the one hand, we have states with a few million inhabitants, like Norway, Sweden, Denmark, Switzerland, and on the other hand, we have giant states like China, India, the U.S.S.R., and the United States, with 170 million or more inhabitants. Not only is the range in the distribution by size wide, but the distribution is skewed. According to data in W. S. and E. J. Woytinsky, World Commerce and Governments (Twentieth Century Fund, 1955; Tables 194 and 196, pp. 564–66), of a total of between 80 and 90 states (excluding such splinters as Monaco, Andorra, Luxembourg, etc.), the four largest account for well over half of the world’s population. At the other extreme, 47 states, each with a population of 10 million or less, account for less than 8 per cent of the world’s population. Can one hope to establish significant general features of modern economic growth by treating Sweden and the United States, Ceylon and India, or Honduras and Brazil as comparable and equivalent units?

My answer to this question, as a first approximation, is in the affirmative. In so far as modern economic growth is a combination of the industrial system, a community of human wants, and an organization of mankind in sovereign states, the modern economic growth of Sweden and the United States should be expected to show many common features: a shift from agriculture toward other sectors in the economy; a shift from family and individual firms toward corporations; similar trends in the capital formation proportions; and so on. In so far as Ceylon and India are both basically agricultural economies, little affected by modern industrialization and with the typically excessive ratios of population to land (under the prevailing patterns of domestic technology), their economic structures and their patterns of growth should also display considerable similarity—regardless of the wide difference in size. If any further proof is needed that size of a country is not the crucial determinant of economic growth as reflected in per capita income (or any other index), a brief reference to the easily available measures will suffice. Among the large nations we have one that is most advanced, the United States (in group I) and two that are among the most underdeveloped, India and China (both in group VII); among the middle-size nations, with a population between twenty and a hundred million, we have highly developed units like the United Kingdom and Germany (the former in group I and the latter in group II), as well as underdeveloped units like Pakistan, Indonesia, and Egypt (all in group VII); among the small nations, with a population of less than 10 million, we have highly developed units like Sweden and Switzerland (both in group I) and those well down the scale like Ceylon, Haiti, and Paraguay.

This does not mean that the size of a nation has no effect on some aspects of economic growth and on some institutional changes and policy problems encountered. It only means that size, in and of itself, is not so crucial that it must be included as a dominant factor in any initial review and discussion of characteristics of modern economic growth. Yet size is of some effect; while its bearing upon economic growth cannot be discussed fully here, partly for lack of time but largely for lack of work on the problem, some of the more obvious lines of connection can be suggested. By discussion in terms of the very small nations or the very large, i.e., by using the extreme values in the range, we can bring out the possible effects of size most sharply. We prefer to consider the small nations—for present purposes, units with less than 10 million population—since there are quite a number of them in the world today. The dividing line is necessarily arbitrary, but it is convenient to have one. The arguments adduced will be more or less potent, as the dividing line is drawn further down or further up the scale of population size.

a) Other conditions being equal, the economic structure of a small nation will be less diversified than that of a larger unit—production will be more concentrated in fewer industrial sectors (defined broadly to include all branches of productive activity). There are several reasons for greater concentration of industrial structure in small nations. First, the latter usually have an appreciably smaller territory than the large, and diversity of natural resources is to a large extent a function of area size. Larger nations with larger areas are likely to have diversity of underground resources, land surface, water bodies, coastlines, and climate. Each smaller nation may have much less varied natural conditions. Second, the minimum scale of a plant, let alone the optimum, for some modern...