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Shift from Marx to Kuznets pattern
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Q1: Will Asian NIEs be able to sustain thier economic growth and eventually shift from Marx to the Kuznets pattern of economic growth? :1
FAQID:650

: global,

InputDate: 7/15/2006
Reference: Hayami, Yujiro. Development Economics, From the Poverty to the Wealth of Nations, Second Edition, Oxford University Press. p163-165
A: This will be a major concern not only for the 'four tigers' in East Asia, but for all the developing economies as the accomplish initial industrialization and trive towards the advanced stage of development.
Two possible explanations
Two possible explanations advanced hereare: (a) a shift in the regime of industrial technology from visible to invisible technology, and (b) a shift in people's demand from standardized to differentiated products. these together change speed and direction of technological progress.
The shift in the industril technology regime
There should be little doubt that the major factor underlying the shift in the growth patten was acceleration in technological progress as measures by growth in TFP. If the rate of technological progress in Phase II (advanced phase of industrialization) had remained as small as in Phase I (initial stage of industrialization), decreasing return to capital would have been prevailed so that the capital-output ratio continued to increase in Phase II also.
Institutionalization of scientific research and education
What, then, would have underlain the acceleration in technological progress? The answer appears to be what we call 'institutionalization of scientific research and education' - establishement of scientific research and educational system geared towards improvements, in industrial technology - in Phase II.
a shift in people's demand from standardized to differentiated products
Initial stage of industrilization is characterized by labour-saving mechnization, such as introduction of steam engine to drain the water replacing the manual works to drain water by buckets.

Such labour-saving mechanization would have been effective, especially for mass-production of standardized commodities for which demand expand rapidly in the early phase of industrialization, when per capita income had been near subsistance level for majority of people.
Diversified demands less susceptible for mechnization
However, as par capita income rose further and people's basic needs are satisfied, demands tend to shift from standardized to differentiated products which are less susceptible to mechanization.

These two mechanisms will be studied more in detail in the next category.
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Q2: What would have underlain in the acceleration in technological progress? :2
FAQID:652

: global,

InputDate: 7/15/2006
Reference: Hayami, Yujiro. Development Economics, From the Poverty to the Wealth of Nations, Second Edition, Oxford University Press. p164-65
A: The answer appears to be what we call 'institutionalization of scientific and education'. - establishment of scientific research and educational system geared towards improvements, in industrial technology - in PHase II.
Kuznets identified extended application of science to the production process as epocal innovation
This may sound similar to Kuznets's 'epochal innovation' charcterizing his 'modern economic growth'. Kuznets coonsidered modern economic growth since the Industrial Revolution one of the major epochs in human history. In his view each epoch was characterized by its own epocal innovation; e.g. the epoch of 'merchant capitalism' from the mid-fifteenth to mid-eighteenth century, in which overseas trade played a strategic role in the economic growth of the time, was supported by 'improvements in science and technology, bearing upon nabvigation, ships, and weapons and of advances in domestic production and political organization' (Kuznets, 1066;2). Then, 'the epocal innovation that distinguishes the modern economic growth epoch is the extended application of science to problems of economic production' (Kuznets, 1966: 9). Systematic application of science was identified by Kuznets as the factor making technological progress in modern economic growth much faster and steadier than in premodern epochs, when advances in technology had been intermittent and sporadic as they were based on accidental flash of genious as well as trial and error by artisans.
Technological progress became invisible and institutionalized around 1870s
Kuznets considered the systematic application of science the engine of modern economic growth since the time of the Industrial Revolution. However, as elucidated by Rosenberg and Birdzell (1986, ch.8), until about the 1870's, advances in industrial technology in Western Europe and North America had largely originated with artisans in the areas of 'visible' mechanic art such as levers, gears, shafts, and cranks; it was the last quarter of the nineteen century when the frontier of technology geban to move to the invisible world of atoms, molecules, electron flows, and magnetism. In this new technology regime organized research by teams of scientists who received advanced formal education and training became the major source of Western industrial technology.
Higher educational institutions in engineering emerged about late 19th century
For the effective operation of new invisible technologies the calibre of workers had to be changed also, from those who developed the potential for decoding scientific and engineering manuals through formal education. Corresponding to this need, a wide diffusion of primary and secondary education has been paralleled with the establishment of advanced education and research institutions with practical orientation, such as land-grant colleges in the USA and technische Hochschulen in Germany, since about the 1870s (Landes, 1965;1969). Japan quickly followed this pattern with the establishment of an engineering college in 1886 within the newly founded Tokyo Imperial University anda network of technical high schools modelled after the German system in subsequest decades (Japanese Ministry of Education, 1962). There seems to be little doubt that sharply expanded investment in intangible capital, such as education and research in the new 'invisible technology' regime, underlay the much larger contribution of TFP relative to the contribution of tangible capital to product growth in conventional growth accounting for PhaseI than for Phase II.
Reference:
Kuznets, S. 1966. Modern Economic Gropwth: Rate, Structure and Spread (New Haven: Yale University Press).
Landes, D.S. (1965), Technological Change and Development in Western Europe, 1750-1914, in J.K. Habakkuk and M.Pstan (eds.), The Cambridge History of Europe, vol. 6, p.I, The industrial Revolutions and After (Cambridge: CambridgeUnivesity Press)
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Q3: How does the shift in demand affect the shift from Marx to Kuznets pattern? :3
FAQID:653

: global,

InputDate: 7/15/2006
Reference: Hayami, Yujiro. Development Economics, From the Poverty to the Wealth of Nations, Second Edition, Oxford University Press. p165-6
A: In the initial stage of industrialization, when per capita income was near subsistance level for majority of the people, demand for the mass production of standardized commodities expands rapidly. For such type of products, labour-saving mechanization have been effective.
Demands shift from mass produced to differentiated products
However, as per capita income rose further and people's basic needs were satisfied, demands tend to shift from standerdized to differentiated products which are less susceptible to mechanization.
Human ability to disign to individual needs is more important
For example, at a low-income stage the shirts of a standard make at a cheap price may be demanded in a large quantity. For the mass production of such a shirt, the use of large scale automated machinery can be efficient. But at a high-income stage, demands would shift towards fashonable shirts diffrentiated by colour and design. For the economic production of such differentiated commodities each demanded in a small quantity, large-scal mass production facilities are not relevent. Instead, the human ability to developing attractive designs to affluent people in response to capricious changes in fashon becomes critically important.
In the diversified production, wages including human capital rose rapidly
In the new regime the marginal productivity of human ability and knowledge rose sharply relative to that of tangible capital, as typical of information industries today. Correspondingly, the measured wage rates which include return to human capital acquired through education and training in addition to returns to raw labour, rose sharply relative to the rate of return to tangible capital. The consequesnt increase in the wage-rental ratio (w/r) would have exceeded the increase in the capital-labour ratio (K/L) resulting in decreased capital's share (rK/Y).
Labour supply reduction may not have been so influential
It must be true that increase in the labour wage rates in Phase II were also accelerated by deceleration in the gorwth in labour supply owing to both a slow-down in population growth rates, and increased preference for leasure corrensponding to per capita income rise.. Yet, if the product demand structure had remained the same, and human capital had not accumulated so fast in Phase II, the traditional labour-saving and capital-using technical progress of Phase I-type would have continued to advance at a sufficiently rapid speed so that the effect of labour supply reduction could have been counteracted, resulting in no appreciable increase in the wage rate.

Change in the technical progress bias toward intangible-capital-using direction
Thus, the shift from Marx to Kuznets pattern can be explained consistently in terms of both the shift from a visible technology regime to the invisible technology regime and the shift in the product demand structure from standardized to differentiated products. Both shifts together increased the rate of technical progress and also changed the bias in technical progress from the tangible-capital-using to the intangible-capital-using direction.
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