Nehru's Notes on Myrdal’s Book titled "Economic Theory and Underdeveloped Regions"

By Jawaharlal Nehru

Vast difference [exists] between the economic upper class of nations in world society and the lower class which comprises most countries in Asia and Africa. In comparable head the latter is even much smaller than it was in the richer countries w'hen they started to develop rapidly a century or more ago.

In highly developed countries, all indices point steadily upward momentum of economic development. They are continuous in spite of strong setbacks or even more. Thus industrialised countries are industrialising further. 

In under-developed countries capital formation and investment tend to be smaller even relatively to their lower incomes. Faster population increase is a result of relation between fertility and mortality rate which are both high. This tends to make age distribution of their populations less advantageous. As a consequence, economic development proceeds very slowly. Indeed, many of these countries have during recent decades been even more backward in average income. Tradition of stagnation has entrenched itself in their entire culture. 

Thus (1) there are a few countries which are quite well off and many countries which are extremely poor. (2) Countries in former group are firmly settled in pattern of a continuing economic development, while in latter group progress is slow and there is even danger of losing ground. (3) Therefore, on the whole in recent decades economic inequalities between developed and underdeveloped countries have been increasing.

This trend towards international economic inequality stands out in contrast to what is happening within the rich countries individually. It is thus doubtful whether it can be said that in recent decades there has been economic progress at all for mankind as a whole.

Circular and cumulative causation. Idea of stable equilibrium false. System by itself not moving towards any sort of balance between forces, but is constantly on the move away from such a situation. Normally, a change does not call forth countervailing changes but, instead, supporting changes which move the system in the same direction as the first change much further. Because of such circular causation a social process tends to become cumulative and often gathers speed at an accelerating rate, e.g., negro people in US who live life apart.

Drift towards regional economic inequalities in a country. Effects of poverty on fertility. Other non-economic factors. Regional inequalities are much wider in the poorer countries than in the richer ones and while regional inequalities have been diminishing in richer countries, the tendency has been the opposite in the poorer countries. 

Spread effects, being themselves a function of the level of economic development actually attained, will be stronger in the richer and weaker in the poorer countries. Under laissez fciire, this would tend to make inequalities in the poorer countries bigger and increasing. Because of weakness of State policies, egalitarian policies therefore met with greater difficulties in poorer country although it needs them more. “Poverty becomes its own cause”.

In richer countries, economic progress and rising level of income mean more elbow room for everybody and helps ideals of rational generosity. When people are better off and have greater security they feal freer to give up privileges. Policies thus result in greater equality and democracy becomes more firmly based as it develops.

In poorer countries, opposite trend which is inimical to growth of democracy. On a low level of economic development, competitive forces in the market will by circular causation, constantly be tending to regional inequalities, while the inequalities themselves will be holding back economic development and at the same time weakening the power basis for egalitarian policies.

Traditional role of the State was mainly to serve as a means for supporting cumulative process tending towards inequality. The wealthier regions and social groups use the State as a tool to advance their interests. Feudalism. Land holder. Richer classes in cities. “Oppresser State”.

Growth of national states, reliance upon popular appeal and, therefore, exerting countervailing power against tendency to regional inequality. Development towards social security reforms Progressive taxation. All this tending towards greater equality of opportunity. But this related to rising level of economic development. As level of national productivity increases, reforms provide additional resources.

Main policy goal becomes full employment in an ever more egalitarian society. In highly developed States, general agreement in basic policy issues and conflicts only on minor issues, e.g. Scandinavia.

But the Welfare State is nationalistic and the approach to harmony of interests is narrowly restricted to the nation. 

International inequalities. Capital flight from undeveloped countries. Economic impact of colonialism. Even after freedom from colonialism, economic dependency continues often called “close cultural and economic ties”.

Colonial power inevitably aligning itself with privileged classes in dependent countries and even creating them. Thus interest in preserv ing social and economic status quo. Thus colonialism meant primarily only strengthening of all the forces in the markets which anyhow were working towards internal and international inequalities. Gave extra impetus to circular causation of the cumulative process. So-called "civilizing mission” of colonial power and rationalisation of economic interest.

Question of world state. Absence of psychological basis in mankind as a whole. Basis of mutual human solidarity lacking. Various inter-national bodies helpful but very little, very much less than the effects in terms of trade, etc.

National State policies in under-developed countries 

An economic policy does not become rational simply because it appeals to national feelings. To build up barriers against the richer world civilisation and values in a policy of defeatism. Solidarity between nations develops naturally only between class and near class. It is not nurtured by condescending patronage or compassion.

Main cause of weakness of international organisations at present is international inequality and more especially the very weak bargaining power of undeveloped countries. Therefore, it is necessary to develop solidarity between under-privileged countries. By joining hands and pooling their bargaining power, they can gain more consideration. There is developing solidarity on political plane. What is necessary is an approach on economic plane also.

No society has ever substantially reformed itself by a movement from above, or by simply voluntary decision of an upper class, bringing from itself social conscience, become equal with the lower classes and give them free entrance to class monopolies. Ideals and social conscience do play a considerable role, but they are weak as self-propelled forces originating reform on a large-scale. 

Road to international integration must be sought through national integration and by poorer countries cooperating as a group.

Many essential elements in the old colonial system were in the nature of bribes to individual and social groups.

In the "oppresser state", before there was effectually functioning political democracy, to make a nuisance of himself was always the ultimate defence of the poor man.

We are rapidly approaching an era where the richer countries are no longer in a position to use their superior military strength for controlling countries with relative less military power and which are under-privileged and dissatisfied. In atomic age, use of force becoming increasingly unpopular. Every time a threat is made and not followed up by action, something of the magic of power is permanently lost.

National economic planning in under-developed countries 

General agreement about necessity of planning by State—an overall integrated national plan. Planning need not create rigidity and though it controls even private enterprise, in fact an upward cumulative process of economic development will provide more opportunity for private enterprise. Common urge for economic development in under-developed countries is something entirely new in history’.

Land reforms have their significance in the national plan not only as a precondition for raising  productivity in agriculture, but primarily as a means of shattering the foundations of the old class structure of stagnating society. Reforms in health and education have also this double purpose.

A poor under-developed country in early stages of its development cannot afford much social security. Even in highly developed countries, in their early stages of economic development, they had had very little social security. This only came when general level of average income per head had risen.

In Soviet Russia, Industrial Revolution delayed by a century. Although very different political and other conditions, in one respect, the pattern of earlier capitalist development followed, that is, levels of real income and consumption of working classes kept exceedingly low to allow for sustained rapid capital formation.

There is no other road to economic development than a compulsory gain in the share of the national income which is withheld from consumption and devoted to investment. This implies utmost austerity. Inherited social stratification shaped by long period of economic stagnation cannot be allowed to continue as this does not foster enterprise savings in investment. The analogy of what once happened in industrial revolution of now advanced countries is a false one. 

Thus, while real democracy necessary in under-developed countries, this makes it more difficult for governments to hold down level of consumption in the degree necessary for rapid development. This basic dilemma leads to tendencies towards dictatorship of Fascist or Communist type, which are supposed to be more dynamic.

Population reproduction rate of crucial importance for national economic planning.

A national plan should be a blue-print of cumulative process of economic development in a country, built on study of the circular causation of all relevant factors both economic as well as non-economic. The plan will involve changes in social system and purposeful State interferences. Thus, the national plan is the determination of a strategy for State interference, aimed at maximising the general economic advance of a country. At the same time, national plan is a strategy for action. Action has to be undertaken even when knowledge or data are lacking.

National plan cannot rationally be made in terms of the costs or profits of individual prices. Object is to give investment such protection from market forces as will permit it to be undertaken even though not remunerative according to private business calculations. Long-term interests of nation have to be seen. The aggregate of new investments and new enterprises should aim at touching off a cumulative process of economic growth. Such cumulative process will include health education, productiveness of labour, etc.

Estimates must concern the really important things, not the largely irrelevant market phenomena. The criteria for national planning are entirely outside the price system. The idea that so-called ‘objective’ criteria for determining how the social process should evolve and that the market itself provides these objective criteria while planning is ‘arbitrary’ contains in a nutshell all the inherited irrational predilections holding back economic theory. In fact, the price system would have to be modified so as to give a favourable expression to the goals of t e national plan. Even in capitalist countries with fully organised economies, such as Switzerland or USA, prices do not depend on free competition only, nter relations will be calculated in real terms and not as they are distorted by prices, costs and profits.

Need for research in under-developed countries. To have any real chance to be successful in economic development, the under-developed countries must give the highest priority to the provision of schools and universities for training scientists and conducting scientific research in all fields.

Most of old economic theory is a rationalisation of the dominant interests in the industrial countries where it was first put forward and later developed, conomic theory in the main has hardly concerned itself with the problems of under-developed countries. Indeed, problems of such countries are usually viewed from the point of view of the national political interest of an advanced country or a group of such countries. This has become worse because of the cold war. Laissez faire attitude will have to be given up completely and all relevant factors, economic or non-economic will have to be kept in view.

Young economists in under-developed countries must shed the hold of old economic thinking and think afresh from a study of their own needs and problems. They will have to go beyond the realm of both out-moded western economics and Marxism. All the under-developed countries are now starting on a line of economic policy which has no close historical precedent in any advanced country.

The equality doctrine remains in an abstract compartment while rest of economic theory developed so as to avoid this doctrine coming in the way. Distinction between production sphere and distribution sphere, utilised in economic analysis for concentrating attention of problems of production, is logically untenable. Because of this, many of our old theories have been defective.

In economic theory from earliest beginnings development was in tradition of enlightened humanitarian rationalisation and never encouraged reactionary belief in aids and different qualities between different groups of people. Nevertheless, these difference and, in particular, difference in productive capacity supported continued existence of economic inequalities and there was fear that large-scale or rapid change towards greater equality would break institutional continuity.

Danger that too rapid and large-scale reform may lead to decrease in production which must be prevented. Thus, the apparent conflict between more equal distribution and higher productivity.

Wholesale equalisation by re-distribution between nations is both impossible and unimportant. Much more important for attaining more equality of opportunity in the world are reforms which concern the ways in which the richer countries with their stronger bargaining powers conduct business with the poorer countries. Aid can only be a very small part of an international programme as it is of a national one.

Our tools of analysis have been moulded within the tradition of old doctrines and predilections. A certain approach to problems, a peculiar manner of looking at things has determined what questions we ask and how we ask them. This inhibits our imagination and comes in the way of a fact-finding research. Economic theory, as it developed, was to some extent a rationalisation of the interests and the aspirations of the....* Where it grew problems of underdeveloped countries were not even considered until in recent years when they were forcefully pressed on the world by the political and spiritual revolts of people living there.

Metaphysics serves a purpose; it meets our needs for rationalisation. The entire discussion between the more radical and the more conservative writers for two centuries turns round the question of what and how much prior institutional change would be necessary to bring society to the natural state of harmony of interest. Even Marx no exception to this.

It is significant that Marx never worked out a system of organised economic policies to be carried out after the Revolution. The notion of economic planning did not play any important role in his thinking.

Assumption of free competition. Such a situation has never existed and the actual trends are to move society ever further away from it.

Prof. Lionel Robbins: “It would be difficult to find a single case where English classical economists actually recommended that Britain should make a sacrifice for the welfare of the rest of the world”. They did not think of mankind but rather the welfare of the British nation and, more particularly, of certain classes in it.

Role of international trade tends to result in increasing equalities. The poorer theorist is, the more he seems to be under the influence of inherited predilections. We need include theories which are more realistic.


Opinions, reviews, essays, feedbacks etc. are invited.

If you wish to get your work published on The Nehru Blog, then send your submissions at

We take utmost care while reproducing texts from various authentic sources for our readers. If you ever find any typographical error, syntax anomaly or other discrepancy, please help us rectify the same. Mail us at:

Previous Post Next Post