Wednesday, March 15, 2006

Developing Nations: "Gerschenkron in Historical Perspective"

Taking the State Back Out: Rethinking Alexander Gerschenkron


Alexander Gerschenkron is one of the most celebrated economic historians ever to set foot in the American academy. Gerschenkron, Austrian-trained and Russian-born, found favor not only among economists but also among students of sociology and political science, who admired his theories on relative “backwardness” and his often time infamous rhetoric and fiery speeches. In particular, those interested in the so-called latecomers to development, such as Latin American and East Asian scholars have taken up Gerschenkron as a model to follow. As Paul Gootenberg has argued, late developers should follow the Gerscenkonian model of state-driven industrialization, because of Gerschenkron’s “broad affinities…with [the] statist model of industrialization” (Gootenberg 2001: 31). But Gootenberg and others in the field share a distorted view of the “Gerschenkron model”, particularly with regard to Gerschenkron’s assumptions of or affinities for, the state. As I argue here, Gerschenkron was not enamored with the state or necessarily state-driven industrialization at all. Scholars who claim such have given only a cursory reading to Gerschenkron’s essays on economic development. In this essay I hope to highlight and correct this misreading as well as suggest a more fruitful research agenda for engaging Gerschenkron in the contemporary debate.

Gerschenkron: A (Very) Short Review

Gerschenkron spent most of his career examining the differences between the

early industrializers of Western Europe in contrast to the late industrializers of Eastern Europe and Russia. His analyses employed the “historical perspective” by illuminating the industrialization processes of Europe in the 18th and late 19th centuries. His most famous work, “Economic Backwardness in Historical Perspective,” details the differences in the industrialization processes of Britain, Germany and Russia in particular. Early industrializers like Great Britain could attribute their success to the “original accumulation” of capital by private entrepreneurs, late industrializers like Germany attributed their successes to investment banks, and late “late” industrializers like Russia found success in state-led industrialization practices (Gerschenkron 1962: 13-17). Moreover, “backward” countries are those barren “pre-industrial landscapes” where industrialization is a harder and more complex process compared to their more advanced counterparts (Gerschenkron 1970: 104).

Gerschenkron’s approach highlighted what he saw as a weakness in the mainstream development literature of the day. Both Marxist-laden dependency theory, and W.W. Rostow’s modernization theory were linear approaches that did not take serious enough the domestic intricacies of industrialization. “The only difficulty in [stage theory] is that these beautiful exercises in logic have been defeated by history,” Gerschenkron alleged (Gerschenkron 1970: 101). Marxist approaches were limited in their attempts to explain development because Marxists blamed all of the problems of the backward countries on the advanced when in many ways backward countries developed quite distinctly from advanced ones (Gerschenkron 1962: 6). Rostow and the modernizationists, despite an avowed “non-communist manifesto,” relied too much on the “one path for all” theory. Given Gerschenkron’s historical examples that industrialization occurred in any number of ways, he rejected the notion that certain “prerequisites” were required for development (Gerschenkron 1962: 33).

The State, Misconceptions and Gerschenkron

In short, Gerschenkron used a historical perspective to explain the varieties of industrialization processes that occurred among the early industrializers and the late industrializers. Yet, Gerschenkron’s admirers have focused overwhelmingly on only one aspect of his research: the role of the state with respect to late industrializers. Peter Gourevitch suggested that for both early industrializers and late industrializers Gerschenkron emphasized that state strength and central organization matter fundamentally to economic development (Gourevitch 1978: 885). Ronald Rogowski in his studies on political cleavages highlights Gerschenkron’s seminal contribution to his work on the role of the state among the latecomers to industrialization (Rogowski 1987: 1130). And Paul Gootenberg’s analysis of Gerschenkron’s hijos (or progeny) in Latin America all place emphasis on his supposed ideas of state-building and industrialization as potentially helpful for latecomers in that region of the world (Gootenberg 2001: 36).

Unfortunately, scholars created only a caricature of Gerschenkron to satisfy their own academic devices. The caricature was in no way malicious — in fact I will demonstrate why scholars might understand Gerschenkron in such a way — but it is certainly misleading. First, it is easy to understand why some of these scholars might be attracted to what they consider as Gerschenkron’s state-centered position. Gourevitch’s second-image reversed school argued that domestic politics were vital to understanding the international system. Rogowski’s interests in domestic political cleavages might find Gerschenkron’s analysis on statist industrialization helpful. Gootenberg’s interest in Latin American development — or in some cases underdevelopment — could find potential solace in the idea that states have the ability to break away from the pitfalls of the international economic order.

Second, Gerschenkron suffers from what might be called academic “cherry picking” — highlighting some aspects of his research while minimizing of downplaying other, equally as crucial, aspects. Gerschenkron indeed argued that states mattered in the late “late” industrialization. His most famous case of this was Russia, where industrialization from Peter the Great until the late1800s was dominated by the interests of the state. “Nowhere else was [industrialization],” wrote Gerschenkron of Peter’s Russia, “so strongly dominated by the interests of the state” (Gerschenkron 1970: 72). Similarly, the Russian state of the 1890s assumed the role of main industrializer by financing railroads and large-scale industrialization projects (Gerschenkron 1962: 19). But Gerschenkron was in many ways pessimistic about the state and its influence on industrialization.

One aspect that puts into question Gerschenkron’s supposed statist framework is his view that state industrialization proceeded with great human costs. Peter the Great’s industrial projects continued despite the loss of substantial human lives (Gerschenkron 1970: 76). Industrial Russia in the 19th century gave way to “severe measures” imposed over a “reluctant population” (Gerschenkron 1962: 19). Gerschenkron was bewildered by an overarching and too-powerful “inquisitorial” states that in his words were “horrible” for most of history (Gerschenkron 1970: 104). Scholars have attributed to Gerschenkron a normative disposition in favor of state-driven industrialization, but Gerschenkron merely was describing a historical time period, not recommending a development strategy for future theorists.

Two, Gerschenkron’s own research detailed that not all late, or late “late”, industrializers followed Russia’s path of a strong state-led industrial process. In the case of Austria, state-led industrialization, which at first succeeded under the leadership of Joseph II, greatly faltered during the reign of Metternich. Mercantilist policies became a hindrance, not help, on the industrial processes in that country (Gerschenkron 1970: 89). Another prominent example was the Italian industrial experience, a late “late” industrializer like Russia, but one that followed a very different pattern of development. In Italy, mercantilist policies and government-led industrialization hurt, not helped, their industrial process. The Italian tariff, in particular, limited the economic possibilities of Italy and when the tariff structure was removed, then and only then did Italy’s economy start to develop and grow (Gerschenkron 1962: 80). For Gerschenkron, it was Germany and the investment bank industrialization, and not Russia that Italy modeled itself after.

A third and final point casts some doubt on a “state-centered” Gerschenkron model that can be used to examine development in Latin America or elsewhere. Gerschenkron’s model explicitly is one about European industrialization. As noted earlier, his theory is not “one size fits all” like Rostow or Marx, but one that treats the units of observation — each individual country and their domestic goings-on — as fundamentally important and unique (Gerschenkron 1970: 98). His thoughts on development were shaped by Europe and his propositions a product of the European experience.[1] Had Gerschenkron studied industrialization in say, the United States and Canada, the propositions might have been entirely different.

Gerschenkron and a New Research Agenda

Thus far I have argued that scholars have overwhelming focused on Gerschenkron’s use of the state, often times misreading his views on it and ignoring other aspects of his literature. I propose instead to engage Gerschenkron’s work in two different respects: first, his notions of entrepreneurial spirit and trust, and secondly, his ideas on the role of ideology with regard to development. Doing so will provide a more fruitful research agenda to explore those states and regions still struggling with development and industrialization.

Entrepreneurial spirit and trust are two common themes that creep into Gerschenkron’s work. In his analysis of Italy and Germany, entrepreneurial guidance was critical in the industrial push in both those states (Gerschenkron 1970: 88). In Germany private investors like the Rothschild’s helped to finance large-scale industrial projects as a credit mobilier to finance railroadization and industrialization” (Gerschenkron 1962: 13). For Gerschenkron, the investment bank “was a creative innovation, perhaps the greatest organizational innovation in the economic history of the century” (Gerschenkron 1970: 102). Among late “late” industrializers, it may be argued, the investment bank did not exist because capital was scarce, and indeed Gerschenkron agreed. But also this entrepreneurial guidance could not persist because trust was incredibly low regarding the investment banks and the barons of industry. Russian citizens were unwilling to invest in large capital projects because of this, and therefore the Russian state acted as a “substitute” for the investment bank during this period (Gerschenkron 1962: 18). Coincidentally, Russian industrialization increased at a more even pace as trust in banking and business practices grew.

The role of ideology is also overlooked among scholars utilizing Gerschenkron. In the introduction to “Economic Backwardness…” he considered ‘ideology’ crucial in separating the advanced countries from the backward ones. Ideology is used in a very general sense for Gerschenkron and he never clarified exactly what ideology was, whether that is a general mood or spirit (Gerschenkron 1962: 7). But what one can gather is that industrialization was not just a top-down process, but required the incorporation of an “industrial ideology” espoused by both the government and its citizens. Industrialism only was possible when the “mountains of routine and prejudice,” were removed, and despair was replaced by hope (Gerschenkron 1962: 24).

Why might engaging Gerschenkron’s notions of entrepreneurial spirit and ideology be helpful in studying the development possibilities of Latin America, Africa, East Asia or other late developers? Precisely because the field has largely ignored such avenues for research.[2] Early modernization theory established social prerequisites for development such as education and tolerance, but rarely touched on economic actors like entrepreneurs (Lipset 1959: 79). Dependency theory emphasized the international system yet downplayed domestic politics significantly (Cardoso and Falleto 1979: 17). And versions of bringing the “state back in” have highlighted institutional arrangements but ignored factors like ideology altogether (See Skocpol 1979). Some scholars, like Hernando de Soto, have started taking more seriously the entrepreneurial spirit in his work on black market economies and the ways states can actually hinder developing nations. But this is just s first step in the right direction (See de Soto 1989).


This essay hoped to dispel some commonplace views held by scholars on the

work of Alexander Gerschenkron, in particular his supposed views on state-driven industrialization among the backward countries. While he acknowledges that state-led industrialization mattered in the cases of Russia and Hungary, among other late “late” industrializers like Italy and Austria, the state actually hindered the economic development of those states. Also, Gerschenkron certainly had no normative preference for statist approaches, given his own concern for the “human costs” of state industrialization. Lastly, Gerschenkron’s analysis was specifically European, not taking into account how the state might interact in say Latin America or elsewhere. Instead of a statist preference, I examined the role of entrepreneurs, trust and ideology in development and suggest this might be a more fruitful research agenda, in many ways because scholars rarely notice how these things intersect in economic development. Hopefully the development literature will move in this direction.

[1] As he noted: “Except for a brief allusion, the question as to what extent European historical experience can be used for elucidating the current problems of underdeveloped countries must…remain outside the scope of this paper” (Gerschenkron 1962: 52).

[2] Gerschenkron’s essay “Attitudes, Entrepreneurship and Development” provides an insight into what a research agenda such as this might look like. In the early 1950s, scholars like Joseph Schumpeter supervised entire institutes dedicated to determining the importance of the entrepreneur in economic development. But eventually this type of research lost favor among academics and has not received any serious attention in fifty years.

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