Complexity , Innovation , and Development
economic stagnation may require different forms of institutional organization . “ In the early industrial development of Japan , for instance , the state was the great innovator and the industrial pioneer on a wide front . Japan ’ s early industrial development seems to have been ‘ planned ’ and carried out in large measure by the state .” 28
Schumpeter provided Nurkse with the vision to articulate a strategy for emerging countries that would entrust development in the hands of entrepreneurs . He was well aware of the debate between planners and anti-planners . His position was pragmatic , believing that “ one cannot realistically treat the problem as … exclusive choice between state action and individual enterprise .” 29 He was primarily concerned with capital formation and saw greater potential for reinvestment in the hands of entrepreneurs . 30
Prior to the release of Nurkse ’ s book , a forceful attack on Schumpeter was unleashed by Henry Wallich , an American central banker , economist , and Yale professor at the Third Meeting of Central Bank Technicians of the American Continent held in Havana , Cuba , in 1952 . Wallich acknowledged that Schumpeter provided “ the most outstanding intellectual performance ” because of the internal coherence in his work , but argued that “ in applying this doctrine to the less developed countries of our day , we find that it does not fit .” 31 Wallich stressed that entrepreneurs as agents of change did not apply to less developed countries because the “ entrepreneur is not the main driving force , innovation is not the most characteristic process , and private enrichment is not the dominant goal .” 32 For Wallich , countries differed in
their national endowment for entrepreneurial qualities , which to some degree accounted for their economic stagnation . 33 He attributed this to this list of “ human traits ”: “ Real estate mindedness , mistrust of industrial ventures , remnants of a feudal past .” 34 His authority was international agency surveys of missions . Although he acknowledged that Schumpeterian development could follow the rise of entrepreneurship , he remained pessimistic about its emergence . 35 This position is in contradiction with Nurkse , who noted that the “ state might withdraw from areas where individual enterprise has learned to stand on its own feet and turn its attention to other fields where its powers are needed to clear the way .” 36
Wallich extended his objection to two other areas . He contended that innovation was not a characteristic feature of less-developed countries . For him , the
28
Ibid ., 15 .
29
Ibid ., 155 .
30
“ Leaving investment to the individual entrepreneur can have the advantage of providing the machinery for saving the increment of income which capital investment creates . If there is any hope for substantial
private saving it lies mainly in the reinvestment of entrepreneurial profits .” Ibid ., 155 .
31
H . C . Wallich , “ Some Notes Towards a Theory of Derived Development ,” in The Economics of Underdevelopment , eds . A . N . Agarwala and S . P . Singh ( London : Oxford University Press , 1958 ), 189 – 204 , at 190 .
32
Ibid ., 190 .
33
See ibid ., 191 .
34
Ibid ., 190 .
35
Ibid ., 190 .
36
Nurkse , Capital Formation in Underdeveloped Countries , 156 . 9