Capital Goods in Developing Countries

Abstract

The role of heavy industry has been a subject of considerable controversy, both in practice — see the Indian and Soviet debates² — and in theory. Neo-classical economists distinguish between projects rather than industries: that is to say, their methodology tends to assume that no particular merit (or demerit) may be attached to a project because it is in a particular industry — rather each project is to be evaluated for the effects to be attributed to it. In contrast, Marxist tradition has been to make a sharp distinction between capital goods industry (category I)³ and consumer goods (category II), and much analysis hangs on this distinction. Developments of this distinction — in particular those of Feldman and Mahalanobis respectively provided the justification for the build-up of heavy industry in Russia in the 1920s and 1930s and in India in the 1950s and 1960s.⁴ This essay is concerned to explore these differences in approach, and to suggest other considerations, particularly technological development, which may justify special treatment for capital goods industries in developing countries.

I am very grateful for comments on an earlier draft to Charles Cooper and to Paul Streeten; and for views on developments in Russia and India to discussion with Nigel Harris.