The Role of Technology in the Creation of Rich and Poor Nations: Underdevelopment in a Schumpeterian System

Abstract

Introduction There is a growing awareness of the role of technology in creating economic growth. A large research programme by the OECD — TEP (Technology and Economy) — recently brought this issue, and the underlying evolutionary theory of economic growth, into focus. However, the insights of Schumpeterian or evolutionary economics have so far not been used to study the problems of underdevelopment, only to study the growth problems of the industrialized nations. This paper is, as far as this writer is aware, the first attempt to use Schumpeterian analysis of technological change to explain poverty and underdevelopment. ‘Schumpeterian poverty’ indeed sounds like a contradiction in terms. The aim of this paper is to show that the dynamics of Schumpeterian economics, in addition to explaining the creation of wealth, also implicitly contain the elements of a theory of relative poverty. It attempts to explain the role of technological change in the creation of what is labelled ‘Schumpeterian underdevelopment’. It is argued that the German tradition of economics, of which Schumpeter is a part, has always encompassed the necessary elements of a theory of uneven growth. List, Marx and Schumpeter have all emphasized different aspects of this uneven growth. To all of them, technological change was at the core of their theories. This contrasts sharply with the Anglo-Saxon tradition, where technological change has been neglected. As a consequence of this, particularly since the 1890s, Anglo-Saxon economics has produced theories of growth and trade which imply even growth, a converging distribution of world activity and income (factorprize equalization). The organization of the paper is as follows. The next section contrasts Anglo-Saxon and German economic traditions from the point of view of theories of uneven growth vs theories of even growth. Then the question of the relationship between technological change and underdevelopment is raised, and two key mechanisms which create uneven distribution of the gains from technological change are identified. These are: the consequences of the extremely uneven advance of the ‘technological frontier’; and classical and collusive spreads of technological gains. The next section shows how these mechanisms work to create three cases of ‘Schumpeterian underdevelopment’ in the Caribbean. The following section claims that the aspects of technological change identified earlier may create conflicting interests between the two parts that every individual plays in economic life, that of producer and that of consumer.

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