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Bisaya T.

Econ 351: History of Development Economics Thought
Professor Sharukh Khan

Perspectives on technology as a contributor to economic growth

Economists are concerned with the identifying the key to the prosperity of
countries. Whilst classical economists such as Adam Smith (1908) attested to the
division of labor and improvements in productivity as being the driving force of economic
growth, developmentalists and neo-marxists theories presented by Rostow (1960) and
Furtado (1964) respectively, embraced technological advancement as being a key
factor in bringing about economic growth. As such, this paper traces the history of
technology in its contribution to economic development by exploring the economic
theories of Adam Smith, Rostow and Furtado.
Throughout his study of why and how nations progressed, Adam Smith
established four central and interrelated propositions, which, in essence, characterize
his classical theory of economic growth. Stating that men are much more likely to
discover easier and readier methods of attaining any object when the whole attention of
their minds is directed towards that single object1, Smith asserts that technology is not
an independent factor that propels a country to achieve significant economic growth.
Instead, he argues that technology is a factor that is endogenously produced by division
of labor. The magnitude in which technology contributed to economic development,
according to Smith, is not substantial. Indeed, contrary to Solows growth model, Smith
asserts that it is the division of labor, not entrepreneurship or technological
advancement that leads to increased productivity and the resultant economic growth.
Whilst Smiths argument that division of labor endogenously produces
technological change is consistent with modern research on the contribution of R&D to
productivity growth, and therefore economic development, it contrasts heavily with
Furtados economic analysis. Furtado states that a change in the orientation of
technological progress is a precondition for development and emphasizes that in a

Smith, p7.

development plan, assimilation, adaptation and creation of new technologies should be

top priority2. He views economic growth in developed countries to comprise mainly of
the accumulation of new scientific knowledge and the advancement of the technological
application of such knowledge. On the other hand, growth in underdeveloped countries,
according to Furtado, entails the assimilation of techniques that are already existent.
With reference to Furtados analysis, the introduction of new combinations of
technology scales up productivity. This, in turn, causes real income to grow and further
leads to increased demand within an economy. The resultant increase in demand
further leads to changes in the composition of demand (i.e. demand becomes more
diversified) and in the structure of production, thereby availing new opportunities for
investment and ultimately causing economic growth.
Nevertheless, Furtado also argues that, in reality, the benefits of introducing
technology can be concentrated within an economy with gains of technological change
being primarily captured by elite capitalists. He reveals that technology in post-colonial
societies creates a modern sector resulting in a dual economy. Using Brazil as a prime
example, he sheds light on how the introduction of technology virtually eliminated craftproduction or low skilled labor. The implication of this wipeout of low skilled labor was
that machines replaced poor people resulting in high unemployment. Alternatively
capitalists gained from an unlimited supply of labor and increased profits due to lower
wage costs.
Similar to Furtados theory, Rostow places technology center stage to achieving
economic growth. In his book, The Stages of Economic Growth, Rostow identifies five
sequential economic steps of modernization, which he argues are linear and lead to an
evolutional higher development. According to Rostow, all societies, in their economic
dimensions, lie within one of his five categories: the traditional society, the transitional
stage, preconditions for takeoff, the drive to maturity, and age of mass high
consumption. In this five-stage model more developed countries are in stages 4 and 5
whereas least developed countries are in one of the three earlier stages with countries
in the traditional society stage being the least developed. The model assumes that
underdeveloped countries will achieve development by moving along the model from an

Furtado, p84-85

earlier to a later stage. This means that economic growth or development will only be
achieved when a country moves from a stationary economic system dominated by
traditional agricultural cultivation, a characteristic of underdeveloped countries, to a
more mechanized economy with modern technology diffusing through a plethora of its
industries. This is mainly because the productivity of labor in the first stage is extremely
low as is the labor-capital ratio. As a country moves along the subsequent stages, it
exhibits increased productivity due to the industrialization of industries and
diversification of factors of production. Higher productivity, he argued, would increase
output and thereby absorb the increased demand of a higher population. The outcome
of increased productivity would yield a virtual cycle according to Rostow; the growth in
agricultural and manufacturing output would lead to higher exports earnings and
generate more income for governments in the form of taxes, which can then be
reinvested in the economy for further growth.
In conclusion, it is evident that although the discourse on the contribution of
technology in achieving economic growth is positive to some degree in the three
schools of thought explored in this essay, technological advancement solely will not
create sustainable economic growth. Whilst Furtado and Rostow have strong linkages
in that they attribute a substantial amount of economic growth to technological
advancement, Adam Smiths analysis of economic growth as being driven primarily
through division of labor still holds true today. Indeed, technological innovation today
comes not from isolated geniuses, but from the application of a substantial amount of
resources to research and development (R&D) and the creation of specialized groups.
But, as with Furtados findings, gains of technology can be concentrated within a
society, especially in developing nations. Hence, a balance between industrialized and
non-industrialized sectors is necessary to avoid a skewed production and consumption
sector within developing countries.


Furtado, C. Development and Underdevelopment. Los Angeles: University

of California Press, 1964. 57-76. Print.

Khan, Shahrukh Rafi. A History of Development Economics Thought: Challenges

and Counter-challenges. New York: Routledge, 2014. 1-56. Print.

Rostow, W. W. The Stages of Economic Growth, a Non-Communist Manifesto.

Cambridge: U, 1960. 17-58. Print

Smith, A. An Inquiry into the Nature and Causes of the Wealth of Nations.
London: George Routledge & Sons, Ltd, 1908. 1-22. Print.