Many followers of Keynes (Joan Robinson, for example) cautioned against the
application of demand stimulus policy strategies for 'lesser developed
countries'. The reasoning was based on the distinction between productive
capacity and capacity utilization. Demand stimulus in countries with
underutilized plant and equipment and unemployed workers can lead to the
increased utilization of this already existing productive capacity. This
is very different than the situation in countries that lack capacity
itself, and in which significant portions of the population are (partially)
engaged in subsistence activities.
Nowadays, we would hope the discussion to additionally include issues
related to culture, self-determination, environmental impact, etc. In any
case, it would seem that historical and institutional factors will
influence the impact of any given policy or set of policies, i.e. the same
policy may have quite different results in very different institutional
settings. This point has often been made with regard to the application of
certain economic policies in transitional economies, as well. (The point
has also been made that industrialized nations and the international
organizations they dominate force policies on transitional and developing
economies which they don't themselves follow.)
It does *not* logically follow from this, however, that neoclassical theory
thus applies to lesser developed countries, or that there is no sense in
which the insights of Keynes have anything to contribute to an analysis of
LDCs, especially those relatively more industrialized and/or integrated
into global economy via trade. The distinction between 'expansionary' and
'austerity' approaches to development (as made by Nell, Graziani, and
others), Kaldor's 'polarisation thesis', and many other contributions to
understanding LDCs have some roots in 'Keynes-ian' (in the literal sense,
not as refers to any school) insights.
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Mathew Forstater Department of Economics
Gettysburg College Gettysburg, PA 17325
tel: (717) 337-6668 fax: (717) 337-6251 e-mail: [log in to unmask]
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