The main features of India's development policies are matters of common knowledge. The First Five Year Plan placed the emphasis on agriculture. The Second Plan, which came into effect in April 1956, seeks to promote an expansion of small-scale village industries for the production of consumer goods. At the same time it calls for a big increase in steel production and engineering capacity. Before considering these specific programs it is necessary to deal with a subject that dominates the background of economic policy in India.

The Problem op Unemployment

Concern with the problem of unemployment is paramount in current Indian thinking. Professor P. C. Mahalanobis, one of the chief planners, regards this as “the most pressing problem.” A panel of Indian economists speaks of it as “a problem of enormous dimensions.” The urgent need to create more employment opportunities is stressed in nearly all documents relating to the current Plan.

This emphasis may seem surprising, perhaps even incomprehensible, to some economists outside India. What are the facts? There is first a certain amount of open unemployment, mostly in urban centers, which is said to have increased in the years 1952–1955 and is estimated at somewhere between five and ten million persons. India has rightly been proud of her success in expanding production since 1951 without any price inflation, at any rate up to the end of 1955.

Introduction

Carlota Perez (1983, 2002, and with Freeman 1988) has been in the vanguard of a small group of economists and other social scientists who have been arguing that the driving force behind the economic development that has taken place over the last two centuries has been the co-evolution of technologies and institutions. I use the term ‘development’ here rather than ‘growth’ to connote that, under this view, an essential feature of the process has been the rise over time of new technologies, institutions, and industries, and the decline or radical reshaping of others, and to think of the economic progress as simply being able to produce more, and using aggregate statistics like GNP or GNP per worker as an indicator of what has happened, is to miss the heart of the story.

As we know, the latter perspective is a hallmark of the neoclassical economic growth theory that grew up in the 1950s and remains the basic story about economic growth taught in mainline economics departments. From its genesis, neoclassical growth theory has recognized technological advance as a key driving force. However, even its modern versions do not come to grips with the processes by which technology advances, as these have been documented by empirical scholarship, and while a few recent models do incorporate a characterization of ‘creative destruction’, that characterization is not just highly stylized, but, from the point of view of Perez and her colleagues, misses most of the action.

Introduction

W. Arthur Lewis is a canonical figure in economics and can be considered as one of the key thinkers in twentieth-century development thought. His output over more than a half century was voluminous and varied in subject matter. By the time of his Nobel Prize lecture, Lewis had authored ten books and 80 scholarly articles on topics as wide ranging as industrial economics, world trade, development planning, agricultural economics, race and economic development, education, politics, economic integration and economic history (Tignor 2006).

Lewis was a contemporary of Nurske. Both men were among a small group of theorists and analysts working on the problem of economic development in the 1950s. Strangely, there are little or no references to each other's work, even though there are clear areas of contention and synergy. For example, under what became known as the Lewis model of ‘industrialization by invitation’, the modernization of the peripheral economy would tend to favour the interest of foreign firms and the local elite whose tastes and ideologies are aligned to foreign consumption. On the other hand, Nurske's (1952) balanced growth thesis is critical of the view that productivity gains and increased savings can accrue to peripheral economies through external sources, for example, foreign investment. Indeed, Nurske argues that the problem is not just one of production, but of the widening gap between developed and developing countries and the problem of emulation of lifestyle and consumption. What Nurske is outlining is that development is a relational construct; it is always about invidious comparisons and it is always about filling gaps and catching up with the ‘leaders’.

The concept of Unequal Exchange played a large role in the debates on economic development in the quarter century after 1950, and it surfaced in three traditions – Latin American structuralism (Raul Prebisch, Hans W. Singer), Marxism (Arghiri Emmanuel) and Dependency (Andre Gunder Frank, Samir Amin). Yet Unequal Exchange made its first formal appearance in the work of Mihail Manoilescu, the Romanian trade theorist who challenged neoclassical trade theory between the two world wars. His place in the trade debate is often ignored in the postwar discussions of Unequal Exchange.

A man of many parts, Mihail Manoilescu had an international reputation as a theorist of corporatism as well as an economist. Yet it also seems that he wanted to succeed at politics more than at anything else – he was ‘'furiously ambitious’, in the words of the British Ambassador to Romania in 1940, and Manoilescu was a stereotypical Balkan politician in his opportunism. Born in 1891, Manoilescu came from a modest background. His parents were secondary school teachers at Iasi, the capital of Moldavia. Manoilescu studied engineering at the School of Bridge and Highway Construction at Bucharest and led his class every year. There he also became a friend of the future King Carol II. Manoilescu received his engineering degree in 1915, and during the First World War worked in the National Munitions Office. His energy, cleverness and ability to form useful connections allowed him to become Director-General of Industry in 1920 and to organize the first industrial exhibition of Greater Romania in 1921 (Manoliu 1936, 10).

Introduction

There is little doubt that over the last three decades, the world economy has witnessed the emergence of a cluster of new technologies – that is, a new broad techno-economic paradigm in the sense of Freeman and Perez (1988) – centred on electronic-based information and communication technologies. Such ICT technologies not only gave rise to new industries but, equally important, deeply transformed incumbent industries (and for that matter, also service activities), their organizational patterns and their drivers of competitive success.

Granted such ‘revolutionary’ features of the emerging ICT-based (and possibly life science-based) technologies in manufacturing and services, what has been their impact upon the vertical and horizontal boundaries of the firms? What is the evidence supporting the view according to which the new techno-economic paradigm is conducive to a progressive fading away of the Chandlerian multidivisional corporation, which was at the centre of the previous techno-economic paradigm, in favour of more specialized, less vertically integrated structures? Is it true that large firms are generally losing their advantage in favour of smaller ones? And more generally, how robust is the evidence, if any, of a ‘vanishing visible hand’ (Langlois, 2003) in favour of a more market-centred organization of economic activities?

In this work we address these issues, drawing both on several pieces of circumstantial evidence and on firm-level statistical data. In fact, if the sources of competitive advantage conditional on firm size had significantly changed, this should reflect also on changes in the size distribution of firms, on their growth profiles and on the degrees of concentration of industries.

The Philippine experience after World War II, relative to that of other countries in East and Southeast Asia, has caught the attention of eminent economists studying growth and development. Lucas (1993), for example, asked why the Philippines was not part of the “economic miracle”–the remarkable East Asian transformation featuring Hong Kong, China; the Republic of Korea; Singapore; and Taipei, China. This section describes and tries to account for performance in growth and poverty reduction in the past several decades and the evolution of the Philippine Government's development policy.

Synopsis of Philippine Growth

Following the Philippines' political independence in 1946, in the 1950s, the country embarked on an industrialization drive. During 1950–2006, the Philippine gross domestic product (GDP), expressed in 1985 prices, expanded 11.2 times—an average growth of 4.4% each year. But the growth rate was never smooth. For instance, the economy contracted in 1984–1985, 1990, and 1998.

Accounting for growth in population—which rose from about 19 million in 1950 to 87 million in 2006, for an average annual growth of about 2.75%—in 1960 the Philippines had a per capita GDP of about $612 expressed in 2000 United States (US) dollars (Table 2.1). By this measure, it was ahead of Indonesia, with a per capita income of $196, and Thailand, with $329. The Philippines trailed Hong Kong, China; the Republic of Korea; Malaysia; Singapore; and Taipei, China. By 1984, Thailand's per capita GDP of $933 had overtaken the Philippines' $908.

The object of this paper is to consider the international implications of national policies aimed at maintaining high and stable levels of employment. It is now widely realized that such policies are not only compatible with, but actually prerequisite to, a large and steady flow of world trade. Substantial progress has been made since the end of the war in setting up the framework for a new international system of monetary and trading relations. The two Bretton Woods institutions are ready to start operations; and a conference just concluded in London has produced a draft charter for an International Trade Organization. This is a good time to inquire how this new system can be operated so as to agree rather than conflict with the domestic objective of stability at full employment.

The search for domestic stability at full employment must nowadays be accepted as a datum. The international monetary system should be—and, I believe, is now—so devised that the balance of international payments can never force a country into a state of deflation or inflation. Foreign trade fluctuations may continually necessitate relative shifts in the structure of prices and production, but should not compel any country to depart from the general norm of domestic stability. On occasion, domestic stability may of course break down; inflation or deflation may occur; but, if so, it will be for autonomous internal reasons, not as a means of bringing a country's external accounts into balance.

Introduction

According to modern growth theory, the accumulation of human capital is an important contributor to economic growth. Numerous cross-country studies extensively explore whether educational attainment can contribute significantly to the generation of overall output in an economy. Although macro studies have produced inconsistent and controversial results (Pritchett 1996), several micro studies that look into the same problem have shown a positive relationship between the education of working individuals and their labor earnings and productivity. To put it differently, the general finding is that individuals with more education tend to have a higher employment rate and greater earnings and to produce more output than those who are less educated. These findings provide a strong rationale for governments and private households to invest substantial portions of their resources in education with the expectation that higher benefits will accrue over time. In this context, education is deemed an investment, equipping individuals with knowledge and skills that improve their employability and productive capacities, thereby leading to higher earnings in the future. The Philippine education system is characterized by high attendance rates, implying that, unlike in other developing countries, social interest in education is widespread in the Philippines. As a result, the average years of schooling of the labor force has increased over time and excellent performance in education by the Filipinos has been widely acknowledged in international circles. Yet, the performance in labor productivity contrasts with the increasing level of education of the country's workers.

The Idea of Stages

History – it has been said – was created to prevent everything from happening simultaneously. History obviously implies that events happen in a sequence, and stage theories are attempts, based on different criteria, to organize the historical process in sequential stages. In their most general form, stage theories postulate that a key factor in the process of socioeconomic development is the mode of subsistence, i.e., what, how and with which tools a society produces. Stage theories are tools that can be used to study both the qualitative changes in the division of labour over time, and the processes of institutional design and change that accompany these changes. Stage theories point towards areas where the focus of human learning is concentrated at any point in time, and as such, they serve as a basis for a qualitative understanding of processes of techno-economic change and of income inequality. It is to this ancient tradition of organizing history that Carlota Perez has made the most original and path-breaking contribution of the last 100 years. As I see it, understanding the qualitative differences between economic stages – the relationship between technology, social organization, and wealth – is a prerequisite for understanding, designing and implementing appropriate institutions and mechanisms both for the technology policy and for income distribution in a society.

Technological Revolutions and Financial Capital is one of the most important books written on capitalism. Historically and theoretically! How can such a statement be made on Carlota Perez' first and (so far) only book? How can a slim volume of about 180 pages be mentioned together with works such as the 2,350 page Das Kapital by Marx, Schumpeter's 1,400 pages of Business Cycles or Å;kerman's 930 pages of Ekonomisk Teori?

Åkerman? Why mention a scarcely-ever-quoted Swedish economist (1896–1982) together with always-quoted scholars such as Marx and Schumpeter? One reason is that I happen to know that Carlota Perez appreciates his main book (Å;kerman 1944, which was translated into Spanish in 1960) above Schumpeter's work, although she – like most others (except Kindleberger 1978, Goldstein 1988) – commits the sin of not quoting it. But a more important reason is this: There is a close connection between the claim that Perez' work is theoretically important, and the paradoxical fact that most of Åkerman's work entitled ‘Economic Theory’ contains an empirical analysis of the core capitalist countries in the 1820–1940 period.

Åkerman and Perez share the same basic substantive research problem: How can patterns in the development of the core capitalist group of countries since the late eighteenth century be reconstructed in a way that serves the analysis of present economic developments? Å;kerman was a founding member of the Econometric society, but rather than converting to the econometric program of statistical inference (the Cowles commission approach as pioneered by Haavelmo and others), he continued to pursue a ‘low tech’ approach to the analysis of economic time series.

Introduction

The open economies context implies increasing globalization and interdependence between countries and a reconfiguration of industrial powers and, hence, of prevailing international equilibria. The rise of China and India are only two examples of this tendency. At the same time, we are facing the emergence and the consolidation of new technological paradigms, mainly information technology, biotechnology and nanotechnology, which are engendering a radically different meaning and scope of what has been traditionally called ‘industrialization’. The borderline between science and business is continuously redefined, and it is increasingly less sharp. Intangibles and knowledge are more and more relevant, and the reshaping of intellectual property regimes at a global scale amplifies this tendency.

This set of broad reconfigurations of dominant actors, prevailing technological paradigms and new international trade and production rules redefines the opportunities and the constraints for development, which, unfortunately is still a goal to be reached in many regions of the world. Reports on the state of the world abound with figures showing the persistency of poverty, the marginal participation of developing countries to global trade and the poor quality and articulation of production structures in developing economies.

Classical development economists shared the perception that developing economies differ in major structural ways from developed economies, mainly, in their dependence on exporting primary products, and in their technological backwardness (Prebisch 1950, Hirschman 1958, Myrdal 1956, Nurske 1953a, Lewis 1954, among others).

The Philippines has long considered sustained growth of income and employment, along with poverty reduction and improved distribution of income and wealth, as major development goals. In pursuit of these goals, the country embarked on an industrialization drive after gaining political independence more than a half century ago. The drive continues today. The primary strategy involves transforming an economy that still has a large agriculture sector into an industrialized one. Through this strategy, policy makers aim to move individuals, households, and enterprises from low- to high-productivity sectors and activities to trigger and propagate the desired economic and social transformation.

A look at the Philippines' development performance over the past six decades, however, indicates that the country has not done as impressively as many of its East and Southeast Asian neighbors, such as Malaysia, Thailand, and the four newly industrialized economies—Hong Kong, China; the Republic of Korea; Singapore; and Taipei, China. Philippine economic growth has not only been slower, it has also been interrupted frequently by episodes of macroeconomic instability, financial and fiscal crises, and recessions. In the 1950s and 1960s, the Philippines had one of the highest per capita gross domestic products (GDPs) in the region—higher than the People's Republic of China, Indonesia, and Thailand. But, the country has now fallen behind. As a result, household incomes have not risen significantly, poverty incidence has declined only slowly, and inequality remains high. In 2006, about one in every four families and one in every three Filipinos lived below the official poverty lines.

Introduction

It's only very recently that the field of economics (and policy) has rediscovered development and/or evolutionary economics as an important area of research. According to the pioneering work of Schumpeter, innovation can be seen as a driving force for economic development and growth. Schumpeter's second important (and often neglected) cornerstone is financial capital. The innovator needs financial capital for the new combination of given resources from the outside, made available from the bank system in the form of credit. Schumpeter uses the static equilibrium as a reference point. To move beyond static equilibrium, dynamic skills in the sphere of financial and monetary systems as well as in the realm of public and private goods are necessary. Therefore the credit-drawing bank system and the value-drawing entrepreneur system must be counterparts. In addition, Schumpeter used the term capital– in contrast to the dominant neoclassical opinion – in a balance sheet-oriented sense as ‘financial capital’. Interestingly enough, Ragnar Nurkse, the best known Estonian economist, dedicated his scientific work (e.g., his books, Problems of Capital Formation in Underdeveloped ([1953] 1960) and Countries and Equilibrium and Growth in the World Economy (1962)) to very similar topics by referring to Schumpeter partly.

Introduction

‘Bretton Woods’ is many things. Superficially, it is the New Hampshire resort where the globe's soon-to-be victorious nations agreed in principle to a new postwar order. It is also the ‘Bretton Woods institutions’, which gave rise to the World Bank, the International Monetary Fund and, with some delay, the World Trade Organization. And it is the most ambitious international monetary experiment in human history: the ‘Bretton Woods system.’ Governments of most of the world's main trading nations agreed to guarantee the price of dollars in their local currency. To appreciate this brio, imagine a government agreeing internationally to guarantee the price of any asset: a home, a share, a bond. As one of the foremost monetary law experts at the time commented, ‘The new plans are of a complication entirely unprecedented in the history of international law’ (Nussbaum 1944, 256).

How was this possible? One answer is Ragnar Nurkse. His International Currency Experience: Lessons of the Inter-war Period perfectly supported the case made by Keynes and White for an audacious codification of international finance. Nurkse's book sought to uncover the sources of interwar economic implosion; its villain is the international monetary system. The account is so thorough, so accessible and so compelling that its basic premises were considered axiomatic well into the second half of the twentieth century.

The purpose of this essay is to consider some of the central issues of international monetary policy in the light both of pre-war experience and of the post-war plans concerning foreign exchange and finance. For the facts of recent history and the conclusions to which they point, our principal source is a League of Nations report entitled International Currency Experience: Lessons of the Inter-War Period. For the post-war plans, reference will be made to the agreements adopted at the Bretton Woods Conference.

Our discussion is concerned with relations between independent national currencies. It may be well to state at the outset that the system of relations here envisaged is not of the gold-standard type if that means immutable exchange rates with domestic monetary and economic policies subordinated to the balance of payments. Changes in exchange rates are accepted as a legitimate method of adjustment, and the conditions in which such changes are appropriate will be our first topic (Sections I and II).We shall then comment on “cyclical” fluctuations in the balance of payments for which the method of exchange adjustment is unsuitable (Section III); on the importance of foreign investment for the successful functioning of the international currency mechanism (Section IV); and on the interrelationship of monetary, commercial, and employment policies (Section V). One of our main preoccupations will be to determine the international monetary framework compatible, on the one hand, with the pursuit of national policies for the maintenance of employment and, on the other, with the fullest possible development of international trade.

This work is a reflection of my struggles with my own dualistic perceptions of societal processes as I have experienced them in Sri Lanka. Because of my upbringing and location in a plural society such as Sri Lanka, my responses have comprised concerns and frustrated despair at seeing Sri Lanka sundered by ethnic animosities and intolerance, instead of celebrating the plurality and diversity of culture and language which so richly endow our lives.

This book is about the repatriation of Tamils of Indian origin from Sri Lanka to India. Repatriation was the outcome of the decisions that were made by policymakers from two countries. In the end, it turned into a humanitarian crisis, which resulted in thousands of people being uprooted from a country they had legitimately called their home and in the separation of families who had once lived together.

Repatriation affected Tamils of Indian origin from all walks of life – the traders, the money lenders, the unskilled laborers in urban areas, as well as those who worked as domestic servants or labored on the estates.