Theory of Balanced Growth
Case for Balanced Growth
Say's law advocated by old economists tells us that production or supply generates its individual demand. But this law can’t be established in the viewpoint that the production of cloth generates its own demand as the workers employed in the production of cloth will not use up their complete income on the buying of cloth. In the same method making of shoes can’tt generate its own demand. The explanation lies in the diversity of human demands.
But Say's law can be applicable to a little extent to the developing nations. If, in the developing nations, investment is made concurrently in a large number of businesses, revenues of a huge number of employees occupied in these trade will amplify. This will make demand for goods made by one another. In simple terms, if investment is made concurrently in a large number of businesses and production is amplified, and then supply will produce its individual demand.
As per Nurkse, it is the vicious circle working in the developing nations which comes in the way of their financial growth, and consequently, if this vicious circle can be broken down, economic growth will take place. The vicious circle will not recur itself. This vicious circle of poverty, as per Nurkse, can be broken down by a concurrent investment in a big number of businesses.
If Investment is made simultaneously in a large number of industries, it will provide work for a large number of people producing diverse commodities. It will increase their income and they will be in a position to buy for consumption the goods made by one another. This is how supply can create its own demand through the process of balanced growth. The producers become customers of one another's goods and demand is increased, or the size of the market is enlarged. The expansion of one industry helps in the expansion of others and there is all round growth. This is how the difficulty arising from small size of the market is overcome and the obstacle in the way of economic growth cleared.
If the doctrine of balanced growth is to be fully implemented, then investment will have to be made in consumer goods industries, agriculture, capital goods industries and social overhead capital. But when investment is to be made in all such sectors and industries, then, in order to bring about balanced economic growth, large quantities of resources will be required. It is doubtful if the under developed countries have the means to mobilize resources in such large quantities.