Gerschenkron, whose ideas about the advantages of backwardness have been widely cited, argues that in latecomer countries ‘a branch like iron and steel production does provide a good example of the tendency to introduce most modern innovations’ (Gerschenkron 1962, p. 10). Here, he points to the fact that, at the beginning of the twentieth century, soon after blast furnaces (BFs) in England were technologically surpassed by
German ones, Russia, a more backward latecomer, installed even better furnaces. In this way, Gerschenkron sees the steel industry as a good example of his idea that latecomers commence industrialization using the latest technologies, with plants being made larger in proportion to the degree of backwardness.
Gerschenkron’s view is characterized by his stress on the advantages of backwardness per se as a condition of late industrialization. He argues that for latecomers ‘there exists a “prerequisite” to industrial development which “the” advanced country did not have at its disposal, that is, the existence of the more advanced countries as sources of technical assis- tance, skilled labor, and capital goods’ (Gerschenkron 1962, p. 47).
It is clear from these arguments that Gerschenkron considers that industrialization can begin without having prerequisite conditions for
‘take-offs’ (Rostow 1960) or ‘social capabilities’ (Abramovitz 1986), as he asks ‘in what way and through the use of what devices did back- ward countries substitute for the missing prerequisites?’ (Gerschenkron 1962, pp. 357–8, as discussed in Shin 1996, p. 142). Thus, although Gerschenkron acknowledges the existence of disadvantages of backward- ness, such as technological gaps, competition from goods imported from advanced countries, and social frictions that can occur when introducing new technologies, how these disadvantages and prerequisites can be sub- stituted becomes his major interest.
On the basis of these ideas, Gerschenkron considers that the develop- mental paths of latecomers differ among countries and depend on the degree of backwardness. He argues that the more backward a country is, the more important the size of a plant will be at the firm level, the more relevant the producer goods sector will be at the industry level, and the more prominent the roles of the financial institutions, the government, and industrialization ideology will be at the nation-state level.
Extending his ideas, we reach several conclusions. First, one implica- tion is that latecomers can choose the latest technologies and can skip or accelerate some processes or stages of industrialization. Second, problems associated with technological absorption, and technology capability in general, recede into the background. This is so because that technology is considered to become embodied in material facilities, so that technologi- cal problems tend to be reduced to the problem of facility investment.
Third, the introduction of new technology at the firm or industry level can be supported by institutional responses at the nation-state level, espe- cially with regard to finance and entrepreneurship. The nexus between technological catch-up processes at the firm or industry level and insti- tutional (socioeconomic) catch-up processes at the nation-state level is understood in this way within Gerschenkron’s framework.
The region that Gerschenkron studied was limited to Europe and the period of focus was from the late nineteenth century to the early twenti- eth century, when iron and steel products became increasingly important as commodities in domestic and international markets, not only for civil- ian but also for military usage. In contrast, Hirschman (1968), mainly examining the developmental processes of Latin American countries since the 1930s, argued that Gerschenkron’s ideas did not hold for the late-latecomers’ industrialization.
As is well known, Hirschman (1958) introduced the concept of backward and forward linkage effects among industries. Relying on the study of Chenery and Watanabe (1958), which analyzed the input–out- put tables of advanced countries, Hirschman argues that, although it is an interesting finding that the steel industry scored the highest in link- age effects, ‘the under-developed countries are not so foolish and so exclusively prestige-motivated in attributing prime importance to this industry!’ (Hirschman 1958, p. 108). As is clear, Hirschman was quite negative toward the idea that developing countries should adopt a policy of developing their steel industries.
However, in the 1970s and 1980s, countries such as South Korea and Taiwan seem to have made ‘foolish’ attempts to introduce state-of-the-art steel production, and these challenges seem to have been successful. Did Hirschman make a misjudgment, and, if so, why?2
A possible answer might lie in the problem of technological gaps, as Shin discusses (1996, p. 140). Hirschman (1968, pp. 91–2) argues that IS industrialization typically begins from ‘the manufacture of finished
2 Lin argues that the introduction of the integrated steelworks in South Korea in the early 1970s was a comparative advantage-following strategy, suggesting that the capital-intensiveness of the industry had become relatively low by then, while Chang insists that it was a choice that defied and challenged its comparative advantage at that time. See the debate between them in Lin (2012, Chap. 2).
consumer goods that were previously imported and then moves on, more or less rapidly and successfully, to the “higher stages” of manufacture, that is, to intermediate goods and machinery, through backward link- age effects’. In Gerschenkron’s framework, the problem of technological gaps is grasped as a disadvantage of backwardness that can be substituted by importing facilities or by recruiting foreign skilled labor. Therefore, issues relating to technological capability buildup in developing coun- tries tend to be put aside. In contrast, as Shin (1996, p. 140) correctly notes, Hirschman recognized and discussed the existence of the thresh- old problem: that technological gaps constitute a serious barrier for late- latecomers to launch industrialization, as substitutes for technological gaps will not be easily found in those countries. Extending this view- point, it can be inferred that Hirschman might be skeptical of the idea of commencing industrialization from the steel industry because of the existence of technological gaps at the threshold level, which would be too wide for late-latecomers to overcome.
It seems, however, that Hirschman was more concerned with linkage effects than with technological gaps, at least in his 1958 book. He argues that industrialization ‘cannot be started everywhere with an iron and steel industry just because this industry maximizes linkages’ and that it ‘is far more useful to look at the structure of underdeveloped countries and to examine how linkage effects normally make their appearance’ (Hirschman 1958, pp. 108–9). What is clear here is that Hirschman believes that the industrial structure in developing countries should be different from that of advanced countries.
Hirschman is correct in pointing out that linkage effects for the steel industry in developing countries would be different from those in advanced countries. Following his logic rigorously, however, linkage effects would differ across countries and across time. As a result, there might be a time for some latecomers when such a policy is more effective than other possible policies, precisely because of linkage effects.
Hirschman basically agrees with Gerschenkron’s view that industri- alization of developing countries cannot be prevented by the lack of prerequisites, such as individual factor inputs. In contrast, Hirschman criticizes Gerschenkron for implicitly adopting the idea that the govern- ment can guide and lead the nation-state to break with backwardness
and realize development, as this assumes that the incapability of the government is a major cause of the persisting backwardness. Criticizing this idea, he insists that the backwardness should be attributed to the
‘insufficient number and speed of developmental decisions’ (Hirschman 1958, p. 46). Calling this realization of developmental decisions an
‘inducement mechanism’, he suggests that investing in a sector with large linkage effects is likely to cause and power this inducement mechanism (Hirschman 1958, pp. 110–1).
In this way, Hirschman seems to consider a latecomer’s industrializa- tion in the context of an inducement mechanism, which is much wider than the threshold problem mainly associated with technological gaps.
Thus, the reason that Hirschman was negative toward a late industrializa- tion strategy starting from the steel industry is that he was skeptical about whether the strategy would induce a sufficient number of sufficiently quick development decisions in the societies of latecomers, which are typi- cally characterized by a lack of interdependence among industries.
Another important point is that technology choice at the industry and firm level, such as adopting an ‘intermediate technology’ or an ‘appropri- ate technology’,3 which does not necessarily upgrade technology toward the technological frontier of the era or accelerate or skip some stages or ladders of technological catch-up, can be accommodated in Hirschman’s framework so long as it would trigger an inducement mechanism.
In short, while Gerschenkron’s approach tends to lead to a focus on the role of the government, institutions, and industrial organizations in substituting disadvantages of backwardness or the lack of prerequisites, Hirschman’s viewpoint sheds light on how to bring forth and develop inducement mechanisms in an underdeveloped society. Therefore, their contrasting views regarding the relationship between the steel industry and industrialization seem to derive more from their differing approaches in the sphere of political economy than from their different understandings of technological problems.
3 These ideas were widely discussed in the 1970s and 1980s, after seminal work by Schumacher (1973). Recently, Marukawa (2016) revisited the ideas and proposed a new concept, ‘catch-down innovations’, which can accommodate not only intermediate and appropriate technologies that are mainly concerned with supply-side conditions, but also technologies that are adopted and devel- oped to serve specific social consumption patterns of developing countries.