1.2.1 Theory of Balanced Growth
This theory sees the main obstacles to development in the
narrow market and, thus, in the limited market opportunities.
Under these circumstances, only a bundle of complementary
investments realized at the same time has the chance of creating
mutual demand. The theory refers to Say's theorem and requests
investments in such sectors which have a high relation between
supply, purchasing power, and demand as in consumer goods
industry, food production, etc.
The real bottleneck in breaking the narrow market is seen
here in the shortage of capital, and, therefore, all potential
sources have to be mobilized. If capital is available, investments
will be made. However, in order to ensure the balanced growth,
there is a need for investment planning by the governments.
Development is seen here as expansion of market and an increase
of production including agriculture. The possibility of structural
hindrances is not included in the line of thinking, as are
market dependencies. The emphasis is on capital investment,
not on the ways and means of achieving capital formation.
It is assumed that, in a traditional society, there is ability
and willingness for rational investment decisions along the
requirements of the theory. As this will most likely be limited
to small sectors of the society, it is not unlikely that this
approach will lead to super-imposing a modern sector on the
traditional economy, i.e., to economic dualism.