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American Economic Association

Modern Economic Growth: Findings and Reflections


Author(s): Simon Kuznets
Reviewed work(s):
Source: The American Economic Review, Vol. 63, No. 3 (Jun., 1973), pp. 247-258
Published by: American Economic Association
Stable URL: http://www.jstor.org/stable/1914358 .
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Modern Economic Growth: Findings
and Reflections
By SIMON KUZNETS*

I. Definitions cite examples from modern economic


A country's economic growth may be de- growth: steam and electric power and the
fined as a long-term rise in capacity to sup- large-scale plants needed to exploit them
ply increasingly diverse economic goods to are not compatible with family enterprise,
its population, this growing capacity based illiteracy, or slavery all of which pre-
on advancing technology and the institu- vailed in earlier times over much of even
tional and ideological adjustments that it the developed world, and had to be re-
demands. All three components of the defi- placed by more appropriate institutions
nition are important. The sustained rise in and social views. Nor is modern technology
the supply of goods is the result of economic compatible with the rural mode of life, the
growth, by which it is identified. Some large and extended family pattern, and
small countries can provide increasing in- veneration of undisturbed nature.
come to their populations because they The source of technological progress,
happen to possess a resource (minerals, the particular production sectors that it
location, etc.) exploitable by more de- affected most, and the pace at which it and
veloped nations, that yields a large and in- economic growth advanced, differed over
creasing rent. Despite intriguing analytical centuries and among regions of the world;
problems that these few fortunate coun- and so did the institutional and ideological
tries raise, we are interested here only in adjustments in their interplay with the
the nations that derive abundance by using technological changes introduced into and
advanced contemporary technology not diffused through the growing economies.
by selling fortuitous gifts of nature to The major breakthroughs in the advance
others. Advancing technology is the per- of human knowledge, those that consti-
missive source of economic growth, but it is tuted dominant sources of sustained
only a potential, a necessary condition, in growth over long periods and spread to a
itself not sufficient. If technology is to be substantial part of the world, may be
employed efficiently and widely, and, in- termed epochal innovations. And the
deed, if its own progress is to be stimulated changing course of economic history can
by such use, institutional and ideological perhaps be subdivided into economic
adjustments must be made to effect the epochs, each identified by the epochal inno-
proper use of innovations generated by the vation with the distinctive characteristics
advancing stock of human knowledge. To of growth that it generated.' Without con-
* Harvard University. This article is the lecture he sidering the feasibility of identifying and
delivered in Stockholm, Sweden, December 1971, when dating such economic epochs, we may pro-
he received the Nobel Prize in Economic Science. The ceed on the working assumption that
article is copyright ? the Nobel Foundation 1972. It is modern economic growth represents such a
published here with the permission of the Nobel Foun-
dation, and is included in the volume of Les Prix Nobel 1 For a discussion of the economic epoch concept, see
en 1971. Kuznets (1966), pp. 1-16.
247
248 THE AMERICAN ECONOMIC REVIEW JUNE 1973

distinct epoch-growth dating back to the least until the recent decade or two.3 Sec-
late eighteenth century and limited (except ond, the rate of rise in productivity, i.e., of
in significant partial effects) to economi- output per unit of all inputs, is high, even
cally developed countries. These countries, when we include among inputs other fac-
so classified because they have managed to tors in addition to labor, the major produc-
take adequate advantage of the potential tive factor-and here too the rate is a
of modern technology, include most of large multiple of the rate in the past.4
Europe, the overseas offshoots of Western Third, the rate of structural transforma-
Europe, and Japan-barely one quarter of tion of the economy is high. Major aspects
world population.2 This paper will focus on of structural change include the shift away
modern economic growth, but with obvi- from agriculture to nonagricultural pur-
ously needed attention to its worldwide suits and, recently, away from industry to
impact. services; a change in the scale of produc-
Limitations of space prevent the presen- tive units, and a related shift from personal
tation of a documented summary of the enterprise to impersonal organization of
quantitative characteristics commonly ob- economic firms, with a correspondinig
served in the growth of the presently de- change in the occupational status of labor.'
veloped countries, characteristics different
For the non-Communist developed countries, the
from those of economic growth in earlier rates of growth per year over the period of modern eco-
epochs. However, some of them are listed, nomic growth, were almost 2 percent for product per
because they contribute to our under- capita, 1 percent for population, and 3 percent for total
product. These rates-which mean roughly a multipli-
standing of the distinctive problems of cation over a century by five for product per capita, bv
economic life in the world today. While the three for population, and by more than fifteen for total
list is selective and is open to charges of product-were far greater than premodern rates. The
latter can only be conjectured, but reasonable estimates
omission, it includes those observed and for Western Europe over the long period from the early
empirically testable characteristics that Middle Ages to the mid-nineteenth century suggest that
lead back to some basic factors and condi- the modern rate of growth is about ten times as high for
product per capita (see Kuznets (1971), pp. 10-27).
tions, which can only be glimpsed and con- A similar comparison for population, either for Europe
jectured, and forward to some implications or for the area of European settlement (i.e., Europe, the
that have so far eluded measurement. Americas, and Oceania), relating to 1850-1960, as com-
pared with 1000-1850, suggests a multiple of 4 or 5 to 1
(see Kuznets (1966), Tables 2.1 and 2.2, pp. 35 and 38).
II. The Six Characteristics The implied acceleration in the growth rate of total
product is between forty and fifty times.
Six characteristics of modern economic 4 Using the conventional national economic accounts,
growth have emerged in the analysis based we find that the rate of increase in productivity is large
on conventional measures of national prod- enough to account (in the statistical sense) for almost
the entire growth of product per capita. Even with
uct and its components, population, labor adjustments to allow for hidden costs and inputs, growth
force, and the like. First and most obvious in productivity accounts for over half of the growth in
are the high rates of growth of per capita product per capita (see Kuznets (1971), pp. 51-75, par-
ticularly Table 9, p. 74; and Table 11, p. 93).,
product and of population in the developed 5 The ranidity of structural shifts in modern times can
countries-both large multiples of the pre- be easily illustrated by the changes in the distribution
vious rates observable in these countries of the labor force between agriculture (and related in-
dustries) and the nonagricultural production sectors.
and of those in the rest of the world, at In the United States, the share of labor force attached
to the agricultural sector was still 53.5 percent in 1870
2 For a recent classification identifying the non-Com- and declined to less than 7 percent in 1960. In an old
munist developed countries, see United Nations Year- European country like Belgium, the share of agriculture
book, notes to Table 5, p. 156. These classifications vary in the labor force, 51 percent in 1846, dropped to 12.5
from time to time, and differ somewhat from those of percent in 1947 and further to 7.5 percent in 1961 (see
other international agencies. Bairoch et al., Tables D-4 and C-4). Considering that it
VOL. 63 NO. 3 KUZNETS: MODERN ECONOMIC GROWTH 249

Shifts in several other aspects of economic growth and the speed of structural trans-
structure could be added (in the structure formation in the economic, institutional,
of consumption, in the relative shares of and perhaps even in the ideological, frame-
domestic and foreign supplies, etc.). Fourth, work are so much higher than in the past
the closely related and extremely impor- as to represent a revolutionary accelera-
tant structures of society and its ideology tion, and if the various regions of the
have also changed rapidly. Urbanization- world are for the first time in history so
and secularization come easily to mind as closely interrelated as to be one, some new
components of what sociologists term the major growth source, some new epochal
process of modernization. Fifth, the eco innovation, must have generated these
nomically developed countries, by means radically different patterns. And one may
of the increased power of technology, par- argue that this source is the emergence of
ticularly in transport and communication modern science as the basis of advancing
(both peaceful and warlike), have the technology-a breakthrough in the evolu-
propensity to reach out to the rest of the tion of science that produced a potential
world-thus making for one world in the for technology far greater than existed pre-
sense in which this was not true in any pre- viously.
modern epoch.6 Sixth, the spread of mod- Yet modern growth continues many
ern economic growth, despite its worldwide older trends, if in greatly accelerated form.
partial effects, is limited in that the eco- This continuity is important particularly
nomic performance in countries accounting when we find that, except for Japan and
for three-quarters of world population still possibly Russia, all presently developed
falls far short of the minimum levels feasi- countries were well in advance of the rest
ble with the potential of modern tech- of the world before their modern growth
nology.7 and industrialization began, enjoying a
This brief summary of two quantitative comparative advantage produced by pre-
characteristics of modern economic growth modern trends. It is also important be-
that relate to aggregate rates, two that cause it emphasizes that distinction among
relate to structural transformation, and economic epochs is a complicated intellec-
two that relate to international spread, tual choice and that the continuation of
supports our working assumption that past trends and their changing patterns
modern economic growth marks a distinct over time are subjects deserving the closest
economic epoch. If the rates of aggregate attention. Does the acceleration in growth
of product and productivity in many de-
took centuries for the share of the agricultural sector veloped countries in the last two decades
in the labor force to decline to 50 percent in any sizable reflect a major change in the potential
country (i.e., excluding small "city enclaves"), a drop of
30 to 40 percentage points in the course of a single cen- provided by science-oriented technology,
tiury is a strikingly fast structural change. or a major change in the capacity of soci-
6 The outward expansion of developed countries, with
eties to catch up with that potential? Is it
their European origin, goes back to long before modern
economic growth, indeed, back to the Crusades. But the a way of recouping the loss in standing,
much augmented transportation and communication relative to such a leader as the United
power of developed countries in the nineteenth century States, that was incurred during the de-
permitted a much greater and more direct political
dominance over the colonies, the "opening up" of previ- pression of the 1930's and World War II?
ously closed areas (such as Japan), and the "partition" Or, finally, is it merely a reflection of the
of previously undivided areas (such as sub-Saharan temporarily favorable climate of the U.S.
Africa).
7For further discussion see Section IV below, which international policies? Is the expansion
deals with the less developed countries. into space a continuation of the old trend
250 THE AMERICAN ECONOMIC REVIEW JUNE 1973

of reaching out by the developed countries, his achievement in society. The dynamic
or is it a precursor of a new economic drives of modern economic growth, in the
epoch? These questions are clearly illus- countries that entered the process ahead
trative, but they hint at broader analytical of others, meant a reaching out geographi-
problems suggested by the observation of' cally; and the sequential spread of the
modern economic growth as a distinct process, facilitated by major changes in
epoch. transport and communication, meant a
The six characteristics noted are inter- continuous expansion to the less developed
related, and the interrelations among them areas. At the same time, the difficulty of
are most significant. With the rather stable making the institutional and ideological
ratio of labor force to total population, a transformations needed to convert the new
high rate of increase in per capita product large potential of modern technology into
means a high rate of increase in product economic growth in the relatively short
per worker; and, with average hours of period since the late eighteenth century
work declining, it means still higher growth limited the spread of the system. More-
rates in product per man-hour. Even if we over. obstacles to such transformation
allow for the impressive accumulation of were, and still are being, imposed on the
capital, in its widest sense, the growth rate less developed regions by the policies of the
of productivity is high, and, indeed, mir- developed countries.
rors the great rise in per capita product If the characteristics of modern' eco-
and in per capita pure consumption. Since nomic growth are interrelated, in that one
the latter reflects the realized effects of induces another in a cause and effect se-
advancing technology, rapid changes in quence or' all are concurrent effects of a
production structure are inevitable-given common set of underlying factors, another
the differential impact of technological plausible and significant link should be
innovations on the several production noted. Mass application of technological
sectors, the differing income elasticity of innovations, which constitutes much of the
domestic 'demand for various consumer distinctive substance of modern economic
goods, and the changing comparative ad- growth, is closely connected with the fur-
vantage in foreign trade. As already indi- ther progress of science, in its turn the
cated, advancing technology changes the basis for additional advance in technology.
scale of production plants and the charac- While this topic is still to be studied in
ter of the economic enterprise units. Con- depth, it seems fairly clear that mass-uses
sequently, effective participation in the of technical innovations (many based on
mo'dern economic system by the labor recent scientific discoveries) provide a
force necessitates rapid changes in its loca- positive feedback. Not only do they pro-
tion and structure, in the relations among vide a larger economic surplus for basic
occupational status groups, and even in and applied research with long time leads
the relations between labor force and total and heavy capital demands, but, more
population (the last, however, within nar- specifically, they permit the development
row overall limits). Thus, not only are high of new efficient tools for scientific use and
aggregate growth rates associated with supply new data on the behavior of natural
rapid changes in economic structure, but processes under the stress of modification
the latter are also associated with rapid in economic production. In other words,
changes in other aspects of society-in many production plants in developed
family formation, in urbanization, in countries can be viewed as laboratories for
man's views on his role and the measure of the exploration of natural processes and as
VOL. 63 NO. 3 KUZNETS: MODERN ECONOMIC GROWTH 251

centers of research on new tools, both of might be called the merit basis of job
which are of immense service to basic and choice, have already been noted as charac-
applied research in science and technology. teristics of modern economic growth. Two
It is no accident that the last two cen- important groups of effects of this rapid
turies were also periods of enormous ac- transformation of economic structure de-
celeration in the contribution to the stock serve explicit reference.
of useful knowledge by basic and applied First, the changes in conditions of life
research-which provided additional stim- suggested by "urbanization" clearly in-
uli to new technological innovations. Thus, volved a variety of costs and returns that
modern economic growth reflects an inter- are not now included in economic measure-
relation that sustains the high rate of ad- ment, and some of which may never be
vance through the feedback from mass susceptible to measurement. Internal mi-
applications to further knowledge. And gration, from the countryside to the cities
unless some obstacles intervene, it pro- (within a country, and often international)
vides a mechanism for self-sustaining tech- represented substantial costs in the pulling
nological advance, to which, given the up of roots and the adjustment to the
wide expanse of the universe (relative to anonymity and higher costs of urban liv-
mankind on this planet), there are no ing. The learning of new skills and the
obvious proximate limits. declining value of previously acquired
skills was clearly a costly process-to both
III. Some Implications8 the individuals and to society. But if such
I turn now to a brief discussion of some costs were omitted from measurement, as
social implications, of some effects of mod- they still are in conventional accounts, so
ern economic growth on conditions of life were some returns. Urban life, with its
of various population groups in the coun- denser population, provided amenities and
tries affected. Many of these effects are of spiritual goods that were not available in
particular interest, because they are not the "dull and brutish" life of the country-
reflected in the current measures of eco- side; and the new skills, once learned, were
nomic growth; and the increasing realiza- often a more adequate basis for a richer
tion of this shortcoming of the measures life than the old. This comment on the
has stimulated lively discussion of the hidden costs and returns involved in the
limits and limitations of economic mea- shift toward urban life may apply to many
surement of economic growth. other costs and returns involved in other
The effects on conditions of life stem shifts imposed by economic growth, for
partly from the major role of technological example, in the character of participation
innovations in modern economic growth, in economic activity, in the social values,
and partly from the rapid shifts in the and in the new pressures on deviant mem-
underlying production structure. To begin bers of society.
with the latter, the major effects of which, The second intriguing aspect of struc-
for example, urbanization, internal migra- tural change is that it represents shifts in
tion, shift to employee status and what the relative shares in the economy of the
I Many of the points touched upon in this section are
specific population groups attached to
discussed in greater detail in Kuznets (1971), particu- particular production sectors. Since eco-
larly in ch. 2, pp. 75-98, which deals with the noncon- nomic engagement represents a dominant
ventional costs of economic growth, and ch. 7, pp. 314- influence in the life of people, the shift in
54, which deals with various interrelations between ag-
gregate change and structural shifts in economic and the share of a specific sector, with its dis-
other aspects of social structure. tinctive characteristics and even mode of
252 THE AMERICAN ECONOMIC REVIEW JUNE 1973

life, affects the population group engaged erate conflicts, since different legal and
in it. Economic growth perforce brings institutional arrangements may have dif-
about a decline in the relative position of ferent effects on the several economic
one group after another of farmers, of groups in society.
small scale producers, of landowners a In that modern economic growth has to
change not easily accepted, and, in fact, as contend with the resolution of incipient
history teaches us, often resisted. The con- conflicts continuously generated by rapid
tinuous disturbance of preexisting relative changes in economic and social structure,
position of the several economic groups is it may be described as a process of con-
pregnant with conflict despite the rises in trolled revolution. The succession of tech-
absolute income or product common to all nological innovations characteristic of
groups. In some cases, these conflicts did modern economic growth and the social
break out into overt civil war, the Civil innovations that provide the needed ad-
War in the United States being a conspicu- justments are major factors affecting eco-
ous example. Other examples, in the early nomic and social structure. But these in-
periods of industrialization among the cur- novations have other effects that deserve
rently developed countries, or, for that explicit mention; and while they are dis-
matter, more recently within some less cussed below in terms of effects of techno-
developed countries, are not lacking. logical innovations, the conclusions apply
Only if such conflicts are resolved with- pari passu to innovations in legal forms, in
out excessive costs, and certainly without institutional structure, and even in ide-
a long-term weakening of the political ology.
fabric of the society, is modern economic A technological innovation, particularly
growth possible. The sovereign state, with one based on a recent major invention,
authority based on loyalty and on a com- represents a venture into the partly un-
munity of feeling-in short, the modern known, something not fully known until
national state-plays a crucial role in the mass spread of the innovation reveals
peacefully resolving such growth-induced the full range of direct and related effects.
conflicts. But this and other services of the An invention is a major one if it provides
national state may be costly in various the basis for extensive applications and
ways, of which intensified nationalism is improvements (for example, the stationary
one and other effects are too familiar to steam engine in the form attributable
mention. The records of many developed mostly to James Watt). Its cumulative
countries reveal examples of resolutions of effects, all new, extend over a long period
growth conflicts, of payments for over- and result in an enormous transformation
coming resistance and obstacles to growth, of economic production and of production
that left burdensome heritages for the fol- relations. But these new effects can hardly
lowing generations (notably in Germany be fully anticipated or properly evaluated
and Japan). Of course, this is not the only in advance (and sometimes not even post
economic function of the state; it can also facto). This is true also of electric power,
stimulate growth and structural change. the internal combustion engine, atomic
And, to mention a closely related service, energy, the application of short rays to
it can referee, select, or discard legal and communication and computation, the in-
institutional innovations that are proposed ventions resulting in such new industrial
in the attempt to organize and channel materials as steel, aluminum, and plastics,
effectively the new production potential- and so on through a long list that marked
ities. This, too, is a matter that may gen- modern economic growth. Even when the
VOL. 63 NO. 3 KUZNETS: MODERN ECONOMIC GROWTH 253

technological innovation is an adaptation tion is a long and complicated sequence


of a known technique by a follower coun- that cannot be accurately forecast, with an
try, the results may not be fully foresee- initial economic effect that may generate
able, for they represent the combination of responses in other processes. These will, in
something known, the technology, with turn, change the conditions under which
something new, an institutional and ideo- the innovation exercises its effect on hu-
logical framework with which it has not man welfare, and raise further problems of
previously been combined. Needless to adjustment. To illustrate: we can today
say, the element of the uniquely new, of follow easily the sequence from the intro-
exploration into the unknown, was also duction of the passenger car as a mass
prominent in premodern times, since inno- means of transportation, to the growth of
vations in knowledge and technology are the suburbs, to the movement of the more
the prerequisites for any significant growth. affluent from the city centers, to the con-
But the rate of succession of such innova- centration of lower income recipients and
tions was clearly more rapid in modern unemployed immigrants in the slums of
economic growth, and provided the base the inner city core, to the acute urban
for a higher rate of aggregate growth. problems, financial and other, and to the
The effects of such ventures into the trend toward metropolitan consolidation.
new and partly unknown are numerous. But the nature and implications of this
Those of most interest here are the sur- sequence were certainly not apparent in
prises, the unexpected results, which may the 1920's, when passenger cars began
be positive or negative. An invention or their mass service function in the United
innovation may prove far more produc- States.
tive, and induce a far wider mass applica- Indeed, to push this speculative line
tion and many more cumulative improve- further, one can argue that all economic
ments than were dreamed of by the in- growth brings some unexpected results in
ventor and the pioneer group of entrepre- its wake, positive as well as negative, with
neurs. Or the mass application of a major the latter taking on greater importance as
invention may produce unexpected dis- the mass effects of major innovations are
economies of a scale that could hardly be felt and the needs that they are meant to
foreseen in the early phases of its diffusion. satisfy are met. If the argument is valid,
Examples of both positive and negative modern economic growth, with the rapid
surprises abound. Many Schumpeterian succession of innovations and shortening
entrepreneurs failed to grasp, by a wide period of their mass diffusion, must be ac-
margin, the full scope and significance of companied by a relatively high incidence
the innovations that they were promoting of negative effects. Yet one must not forget
and that eventually brought them fame that premodern economic growth had simi-
and fortune. And most of us can point at lar problems, which, with the weaker tech-
the unexpected negative effects of some nology, may have loomed even larger.
technological or social invention that first Even if we disregard the threatening ex-
appeared to be an unlimited blessing. haustion of natural resources, a problem
The significant aspect here is that the that so concerned Classical (and implicitly
surprises cannot be viewed as accidents: even Marxian) economics, and consider
they are inherent in the process of techno- only early urbanization, one major nega-
logical (and social) innovation in that it tive effect was the significant rise in death
contains an element of the unknown. Fur- rates as population moved from the more
thermore, the diffusion of a major innova- salubrious countryside to the infection-
254 THE AMERICAN ECONOMIC REVIEW JUNE 1973

prone denser conditions of unsanitary be especially difficult if it involves ele-


cities. Two points are relevant here. First, ments peculiar to European civilization for
the negative effects of growth have never which substitutes are not easily found.
been viewed as so far outweighing its posi- Second, the increasingly national cast of
tive contribution as to lead to its renuncia- organization in developed countries made
tion-no matter how crude the underlying for policies toward other parts of the world
calculus may have been. Second, one may that, while introducing some modern eco-
assume that once an unexpected negative nomic and social elements, were, in many
result of growth emerges, the potential of areas, clearly inhibiting. These policies
material and social technology is aimed at ranged from the imposition of colonial
its reduction or removal. In many cases status to other limitations on political
these negative results were allowed to ac- freedom, and, as a result, political inde-
cumulate and to become serious techno- pendence and removal of the inferior status
logical or social problems because it was of the native members of the community,
so difficult to foresee them early enough in rather than economic advance, were given
the process to take effective preventive or top priority.
ameliorative action. Even when such ac- Whatever the weight of the several
tion was initiated, there may have been factors in explaining the failure of the less
delay in the effective technological or developed countries to take advantage of
policy solution. Still, one may justifiably the potential of modern economic growth,
argue, in the light of the history of eco- a topic that, in its range from imperialist
nomic growth, in which a succession of exploitation to backwardness of the native
such unexpected negative results has been economic and social framework, lends it-
overcome, that any specific problem so self to passionate and biased polemic, the
generated will be temporary although we factual findings are clear. At present,
shall never be free of them, no matter what about two-thirds or more of world popula-
economic development is attained. tion is in the economically less developed
group. Even more significant is the con-
IV. The Less Developed Countries centration of the population at the low end
Two major groups of factors appear to of the product per capita range. In 1965,
have limited the spread of modern eco- the last year for which we have worldwide
nomic growth. First, as already suggested, comparable product estimates, the per
such growth demands a stable, but flexible, capita GDP (at market prices) of 1.72 bil-
political and social framework, capable of lion out of a world total of 3.27 billion,
accommodating rapid structural change was less than $120, whereas 0.86 billion in
and resolving the conflicts that it gener- economically developed countries had a
ates, while encouraging the growth-pro- per capita product of some $1900. Even
moting groups in society. Such a frame- with this narrow definition of less devel-
work is not easily or rapidly attained, as oped countries, the intermediate group was
evidenced by the long struggles toward it less than 0.7 billiQn, or less than 20 percent
even in some of the presently developed of world population.9 The preponderant
countries in the nineteenth and early twen- I The underlying data are from Everett Hagen and
tieth centuries. Japan is the only nation Oli Hawrylyshyn. These are primarily from United Na-
outside of those rooted in European civi- tions publications, supplemented by some auxiliary
lization that has joined the group of devel- sources (mostly for the Communist countries), and use
conventional conversion rates to U.S. dollars in 1965.
oped countries so far. Emergence of a mod- The estimates for the Communist countries have been
ern framework for economic growth may adjusted to conform to the international GDP concept.
VOL. 63 NO. 3 KUZNETS: MODERN ECONOMIC GROWTH 255

population was thus divided between the of conditions and institutions. To be sure,
very low and the rather high level of per their common failure to exploit the poten-
capita economic performance. Obviously, tial of modern economic growth means
this aspect of modern economic growth several specific common features: a low per
deserves our greatest attention, and the capita product, a large share of agriculture
fact that the quantitative data and our or other extractive industries, a generally
knowledge of the institutional structures of small scale of production. But the specific
the less developed countries are, at the parameters differ widely, and because the
moment, far more limited than our knowl- obstacles to growth may differ critically in
edge of the developed areas, is not reason their substance, they may suggest different
enough for us to ignore it. policy directions.
Several preliminary findings, or rather Second, the growth position of the less
plausible impressions, may be noted. First, developed countries today is significantly
the group of less developed countries, par- different, in many respects, from that of
ticularly if we widen it (as we should) to the presently developed countries on the
include those with a per capita product eve of their entry into modern economic
somewhat larger than $120 (in 1965 prices), growth (with the possible exception of
covers an extremely wide range in size, in Japan, and one cannot be sure even of
the relations between population and nat- that). The less developed areas that ac-
ural resources, in major inherited institu- count for the largest part of the world pop-
tions, and in the past impact upon them lation today are at much lower per capita
of the developed countries (coming as it product levels than were the developed
did at different times and from different countries just before their industrializa-
sources). There is a striking contrast, for tion; and the latter at that time were eco-
example, in terms of population size, be- nomically in advance of the rest of the
tween the giants like Mainland China and world, not at the low end of the per capita
India, on the one hand, and the scores of product range. The very magnitudes, as
tiny states in Africa and Latin America; as well as some of the basic conditions, are
there is between the timing of direct West- quite different: no country that entered
ern impact on Africa and of that on many modern economic growth (except Russia)
countries in Latin America. Furthermore, approached the size of India or China, or
the remarkable institutions by which the even of Pakistan and Indonesia; and no
Sinic and East Indian civilizations pro- currently developed country had to adjust
duced the unified, huge societies that to the very high rates of natural increase
dwarfed in size any that originated in of population that have characterized
Europe until recently, bore little resem- many less developed countries over the
blance to those that structured the Ameri- last two or three decades. Particularly be-
can Indian societies or those that fashioned fore World War I, the older European
the numerous tribal societies of Africa. countries, and to some extent even Japan,
Generalizations about less developed relieved some strains of industrialization
countries must be carefully and critically by substantial emigration of the displaced
scrutinized in the light of this wide variety population to areas with more favorable
opportunities-an avenue closed to the
The develoned countries include most countries with populous less developed countries today.
per capita GDP of $1000 or more and Japan, but exclude Of course, the stock of material and social
those small countries with a high GDP per capita that is
due to exceptional natural endowments (for example, technology that can be tapped by less de-
Netherlands Antilles, Puerto Rico, Kuwait, and Qatar). veloped countries today is enormously
256 THE AMERICAN ECONOMIC REVIEW JUNE 1973

larger than that available in the nineteenth dominate in many less developed coun-
and even early twentieth centuries. But it tries. These comments should not be inter-
is precisely this combination of greater preted as denying the value of many trans-
backwardness and seemingly greater back- ferable parts of modern technology; they
log of technology that makes for the sig- are merely intended to stress the possible
nificant differences between the growth shortage of material and social tools spe-
position of the less developed countries cifically fitted to the different needs of the
today and that of the developed countries less developed countries.
when they were entering the modern eco- If the observations just made are valid,
nomic growth process. several implications for the growth prob-
Finally, it may well be that, despite the lems of the less developed countries follow.
tremendous accumulation of material and I hesitate to formulate them explicitly,
social technology, the stock of innovations since the data and the stock of knowledge
most suitable to the needs of the less devel- on which the observations rest are limited.
oped countries is not too abundant. Even But at least one implication is sufficiently
if one were to argue that progress in basic intriguing, and seems to be illuminating of
science may not be closely tied to the tech- many recent events in the field, to warrant
nological needs of the country of origin a brief note. It is that a substantial eco-
(and even that may be disputed), unques- nomic advance in the less developed coun-
tionably the applied advances, the inven- tries may require modifications in the
tions and tools, are a response to the spe- available stock of material technology, and
cific needs of the country within which probably even greater innovations in polit-
they originate. This was certainly true of ical and social structure. It will not be a
several major inventions associated with matter of merely borrowing existing tools,
the Industrial Revolution in England, and material and social; or of directly applying
illustrations abound of necessity as the past patterns of growth, merely allowing
mother of invention. To the extent that for the difference in parameters.
this is true, and that the conditions of pro- The innovational requirements are likely
duction in the developed countries differed to be particularly great in the social and
greatly from those in the populous less political structures. The rather violent
developed countries today, the material changes in these structures that occurred
technology evolved in the developed coun- in those countries that have forged ahead
tries may not supply the needed innova- with highly forced industrialization under
tions. Nor is the social technology that Communist auspices, the pioneer entry
evolved in the developed countries likely going back over forty years (beginning
to provide models of institutions or ar- with the first Five-Year Plan in the USSR),
rangements suitable to the diverse institu- are conspicuous illustrations of the kind of
tional and population-size backgrounds of social invention and innovation that may
many less developed countries. Thus, mod- be involved. And the variants even of
ern technology with its emphasis on labor- Communist organization, let alone those of
saving inventions may not be suited to democracy and of non-Communist author-
countries with a plethora of labor but a itarianism, are familiar. It would be an
scarcity of other factors, such as land and oversimplification to argue that these in-
water; and modern institutions, with their novations in the social and political struc-
emphasis on personal responsibility and tures were made primarily in response to
pursuit of economic interest, may not be the strain between economic backwardness
suited to the more traditional life patterns and the potential of modern economic
of the agricultural communities that pre- growth; or to claim that they were inexor-
VOL. 63 NO. 3 KUZNETS: MODERN ECONOMIC GROWTH 257

able effects of antecedent history. But to the discussion reflects a wide collective
whatever the struggle for political and effort, however individual some of my
social organization is a response, once it interpretations may be.
has been resolved, the results shape sig- The most distinctive feature of modern
nificantly the conditions under which eco- economic growth is the combination of a
nomic growth can occur. It seems highly high rate of aggregate growth with dis-
probable that a long period of experimen- rupting effects and new "problems." The
tation and struggle toward a viable politi- high rate of growth is sustained by the
cal framework compatible with adequate interplay between mass applications of
economic growth lies ahead for most less technological innovations based on addi-
developed countries of today; and this tions to the stock of knowledge and further
process will become more intensive and additions to that stock. The disrupting
acute as the perceived gap widens between effects are those imposed by the rapid rate
what has been attained and what is attain- of change in economic and social structure.
able with modern economic growth. While The problems are the unexpected and un-
an economist can argue that some aspects foreseeable results of the spread of inno-
of growth must be present because they are vations (with emphasis on the new and
indispensable components (i.e., industriali- unknown indicated by that term). Added
zation, large scale of production, etc.), to this is the range of problems raised by
even their parameters are bound to be the slow spread of economic growth to the
variable; and many specific characteristics less developed countries, all of which have
will be so dependent upon the outcome of a long history, separate and relatively iso-
the social and political innovations that lated from the areas within which modern
extrapolation from the past is extremely economic growth originated. Thus, con-
hazardous. current with the remarkable positive
achievements of modern economic growth
V. Concluding Comments are unexpected negative results even
The aim of the discussion was to sketch within the developed countries; while the
the major characteristics of modern eco- less developed countries are struggling in
nomic growth, and to note some of the the attempt to use the large potential of
implications that the empirical study of modern technology in order to assume an
economic growth of nations suggests. This adequate role in the one and interdepen-
study goes back to the beginning of our dent world (from which they cannot with-
discipline, as indicated by the title of draw even if they wished to do so).
Adam Smith's founding treatise, Wealth of We have stressed the probleim aspects of
Nations, which could as well have been modern economic growth because they
called the Economic Growth of Nations. indicate the directions of further research
But the quantitative base and interest in in the field. These aspects, the "surprises"
economic growth have widened greatly in and the implicit explanatory "puzzles,"
the last three to four decades, and the ac are problems not only in the sense of de-
cumulated results of past study of eco- partures from the desirable (that may call
nomic history and of past economic analy- for policy amelioration) but also in the
sis could be combined with the richer stock sense that our quantitative data and par-
of quantitative data to advance the em- ticularly our analytical hypotheses do not
pirical study of the process. The sketch provide us with a full view and explana-
above draws upon the results of many and tion. As already noted, the conventional
widely varied studies in many countries, measures of national product and its com-
most of them economically developed; and ponents do not reflect many costs of ad-
258 THE AMERICAN ECONOMIC REVIEW JUNE 197.

justment in the economic and social struc- countries than that for the developed
tures to the channeling of major techno- countries-a parallel to the smaller relative
logical innovations; and, indeed, also omit supply of material capital. Yet in recent
some positive returns. The earlier theory years there has been'rapid accumulation
that underlies these measures defined the of data for many less developed areas,
productive factors in a relatively narrow other than those that, like Mainland
way, and left the rise in productivity as an China, view data as information useful to
unexplained gap, as a measure of our ignor- their enemies (external or internal) and are
ance. This shortcoming of the theory in therefore either not revealed by govern-
confrontation with the new findings, has ment or possibly not even collected. The
led to a lively discussion in the field in re- lag has been in the analysis of these data
cent years, and to attempts to expand the by economists and other social science
national accounting framework to encom- scholars, because of the scarcity of such
pass the so far hidden but clearly impor- scholars who cannot be spared for research
tant costs, for example, in education as within the less developed countries them-
capital investment, in the shift to urban selves and because of the natural preoccu-
life, or in the pollution and other negative pation of economists in the developed
results of mass production. These efforts countries with the problems of their own
will also uncover some so far unmeasured countries. One may hope, but with limited
positive returns-in the way of greater expectations, that the task of refining
health and longevity, greater mobility, analysis and measurement in the devel-
more leisure, less income inequality, and oped countries will not be pursued to the
the like. The related efforts to include the exclusion or neglect of badly needed stud-
additions to knowledge in the framework ies of the less developed countries, studies
of economic analysis, the greater attention that would deal with the quantitative
to the uses of time and to the household as bases and institutional conditions of their
the focus of economic decision not only on performance,'in addition to those concen-
consumption but also on investment, are trating on what appear to be their major
steps in the same direction. It seems fairly bottlenecks and the seemingly optimal
clear that a number of analytical and mea- policy prescriptions.
surement problems remain in the theory
and in the evaluation of economic growth
in the developed countries themselves; and REFERENCES
that one may look forward to major P. Bairoch et al., The Working Population
changes in some aspects of the analysis, in and Its Structure, International Historical
national economic accounting, and in the Statistics, vol. I, Brussels 1968.
stock of empirical findings, which will oc- E. E. Hagen and 0. Hawrylyshyn, "Analysis
cupy economists in the developed countries of World Income and Growth, 1955-1965,"
Econ. Develop. Cult. Change, Oct. 1969,
in the years ahead.
18, Part II, 1-96.
For the less developed countries the S. Kuznets, Economic Growth of Nations:
tasks of economic research are somewhat Total Output and Production Structure,
different: the great need is for a wider sup- Cambridge, Mass. 1971.
ply of tested data, which means essentially Modern Economic Growth: Rate,
data that have been scrutinized in the pro- Structure, and Spread, New Haven 1966.
cess of use for economic analysis. As al- United Nations, Yearbook of National Ac-
ready noted, the stock of data and of eco- counts Statistics, 1969, vol. II, International
nomic analysis is far poorer for these Tables, New York 1970.

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