Gerschenkron Model

ECONOMIC HISTORY Answers Reading I 1. In the case of England, the agricultural sector played a key role in industrialization. This is mainly because, the increase in productivity in the sector led to an increase in the workers income, and this increase made possible for them to save more. The increase in savings led to an increase in investment in the industrial sector. When we are talking about a backward country, the process cannot be imitated.
Backward countries had a traditional agriculture, and there was not an increase of productivity, so the agricultural sector could not finance the imports of capital needed. Also it was much easier to borrow money from institutions than being dependent of the agriculture. 2. Although Rostow thought that countries followed a stage-like pattern of development, Gerschenkron firmly disagreed with this assumption: Rostow implied that all countries repeat the same process of industrialization; this could be seen as a “inescapable law of economic development.
The process of industrialization of the advance countries was not the same as of the backward countries. For example, England did not have any institution to finance its industrialization, in contrast to the late-comers, who had a whole international financing system built. This advantage of backwardness is what the Gerschenkron model is about. Each country had its own process of industrialization and it did not have to follow certain stages. 3. In order to industrialize, backward countries need to import large amounts of capital.

The technology imported will come from the advance countries, and will help the relative backward countries to become advanced. The process of industrialization of these countries will take, in fact, much less time compared to the advanced countries, because the technology imported is far more efficient than those used in first place by the advanced countries when they were in the middle of the process. Since they have access to this new technology that the advanced countries did not have, these countries have an advantage for being backward economies. However, hese advantages do not come naturally to the country, but it is the government that needs to use the advantage in their favor in order to achieve a modern economy in less time. 4. a) Big Spurt: In the text Gerschenkron refers uses the term to describe the moment when the industrialization in a backward country begins, and there is a rapid economic growth. It is closely related to Rostow’s “take-off” but the big spurt focuses on the manufacturing and mining sector b) Missed opportunity: This term it is used to describe the failure of applying the proper substitutions in a given economy in order to obtain a big spurt.
Like the case of Bulgaria when there was a failure to make the proper substitutions and there was not a big spurt. 5. The prerequisites for industrial growth are: a) Abolition of an archaic framework in agricultural organization: In order to increase the productivity of Land and of Labor, so there can be an increase of supply to face the increase of demand (due to the increase of population).
This will increase the worker’s income, allowing them to save more, and therefore invest in the industry sector. b) Creation of a modern elite that seek economic growth: In Europe, the Noble class had no interest in changing their way of life (serfdom), so in order to access industrialization there is a need to create a group of influential entrepreneurs that seek a modern economy that is more productive and efficient. ) Provision of a social over-head capital in physical form: In the backward countries, there is a need of capital in order to industrialize. The government must seek this capital by borrowing it from financial institutions. Getting the capital by themselves was not an option, since there was not enough savings and it would have took much longer than just borrowing the capital.