Industrial Capital and Underdevelopment

  • Geoffrey Kay


The collapse of primary commodity prices during the depression of the 1930s brought all the pressures bearing on merchant capital to a head. The savagely reduced prices it was forced to pay producers in a desperate attempt to protect its profits carried the crisis into the underdeveloped world, which responded with nationalist opposition to the whole political and economic order established in the nineteenth century. This marked the beginning of the end for the phase of underdevelopment in which merchant capital had mediated between the capitalist and non-capitalist worlds and productive capital had scarcely strayed from its homelands.


Depression Malaysia Egypt Argentina Nigeria 


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  1. 1.
    See Celso Furtudo, Diagnosis of the Brazilian Crisis (Berkeley and Los Angeles: University of California Press, 1966).Google Scholar
  2. 2.
    W. Baer and M. E. Hervé, ‘Employment and Industrialisation in Developing Countries’, in ed. by Richard Jolly, Emmanuel de Kadt, Hans Singer and Fiona Wilson, Third World Employment (London: Penguin Books, 1973), p. 269.Google Scholar
  3. 4.
    R. B. Sutcliffe, Industry and Underdevelopment (London and Massachusetts: Addison-Wesley Publishing Company, 1971), p. 120.Google Scholar
  4. 7.
    Other explanations have been advanced. Baer and Hervé look for the causes in terms of a scarcity of skilled labour. Unskilled labour, they argue, must be employed alongside skilled labour so that the number of skilled workers will act as a constraint upon overall employment. In the underdeveloped countries it comes into play before the capital constraint, so given the number of workers who can work on the one hand and the amount of capital available on the other, we can deduce the overall capital-output ratio. But the argument is based upon arbitrary assumptions. First, the ratio of skilled to unskilled workers is assumed independent of the choice of technique. Secondly, it is assumed fixed while the capital-output ratio is assumed variable, although no reasons for this are advanced. Thirdly, the shortage of skilled labour, which is essentially a short-term phenomenon, or at worst a medium-term problem, is used to explain a long-term development. Baer and Hervé, in Third World Employment, p. 280. Other economists have argued that factor prices in the underdeveloped countries do not reflect factor efficiencies: the international mobility of capital makes its price too low, while trade unions force wages up too high. Whenever a neo-classical economist believes factor prices are out of line, it is always due to wages being too high! The inadequacy of this approach is its absurd assumption that relative factor prices should reflect relative efficiencies and that international capital mobility and trade unionism are somehow anomalous features of capitalist development. In neo-classical economics when a discrepancy arises between theory and the reality it seeks to explain, it is always the reality that is wrong. See Myint, The Economics of Developing Countries, p. 65 et seq. and Charles P. Kirdleberger, Economic Development, 2nd ed. (New York and London: McGraw-Hill, 1965), p. 255.Google Scholar

Copyright information

© Geoffrey Kay 1975

Authors and Affiliations

  • Geoffrey Kay
    • 1
  1. 1.The City UniversityLondonUK

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