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The Strategy Of Economic Development
Great book
Paperback
First published January 1, 1958
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About the author
Albert O. Hirschman
70 books145 followersAlbert Otto Hirschman was an economist and the author of several books on political economy and political ideology. His first major contribution was in the area of development economics. Here he emphasized the need for unbalanced growth. He argued that disequilibria should be encouraged to stimulate growth and help mobilize resources, because developing countries are short of decision making skills. Key to this was encouraging industries with many linkages to other firms.
His later work was in political economy and there he advanced two schemata. The first describes the three basic possible responses to decline in firms or polities (quitting, speaking up, staying quiet) in Exit, Voice, and Loyalty (1970). The second describes the basic arguments made by conservatives (perversity, futility and jeopardy) in The Rhetoric of Reaction (1991).
His later work was in political economy and there he advanced two schemata. The first describes the three basic possible responses to decline in firms or polities (quitting, speaking up, staying quiet) in Exit, Voice, and Loyalty (1970). The second describes the basic arguments made by conservatives (perversity, futility and jeopardy) in The Rhetoric of Reaction (1991).
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Displaying 1 - 2 of 2 reviews
December 27, 2025
If you start writing your essays by working on the body paragraphs first and then crafting the intro and conclusion then you will like the argument Hirschman develops here.
Let's say you are the PM of Armenia and have Hirschman as your chief advisor. The first step you're going to do is to abandon all these big comprehensive national development plans that aim to push development across all sectors. Nikol's gonna hate this but you have to also stop using external loans for broad, low-selectivity spendings (e.g. 300 schools and 500 kindergardens or large-scale road building efforts). Not because infrastructure or education are unimportant, but because starting with them lacks what Hirschman calls a compulsive impulse. Infrastructure built in advance does not force productive decisions bu merely permits them. That is roads and schools wait passively for demand, whereas development, in Hirschman’s view, requires pressures that make inaction too costly and simply impossible. The mistake of the “Big Push” is not ambition, but timing: it assumes that organizational capacity already exists.
Instead, you would deliberately concentrate investment in a small number of strategically chosen activities with strong linkage potential. Lets take an example from the heavy-industry: copper wire and cable manufacturing (building on Armenia’s existing mining base). The state would begin at the last industry stage, essentially focusing on final fabrication and assembly rather than upstream extraction or infrastructure building. Initially, the basic inputs like the machinery, specialized components, and even managerial expertise would be imported, with policy narrowly focused on scaling production and securing export contracts. With time as output expands, bottlenecks would rapidly emerge: unstable electricity supply, shortages of skilled technicians, insufficient domestic input suppliers, or transport delays at border crossings.
In a Hirschmanian framework, these bottlenecks are not failures but signals. Each one reveals where your next investment should go. Power shortages compel investment in generation capacity; skills gaps induce vocational training and technical institutes; reliance on imported inputs creates pressure for domestic supplier firms; transport delays justify targeted logistics upgrades. This is how backward linkages operate. The growing manufacturing sector generates unavoidable demand for inputs and capabilities, pulling new activities into existence and forcing follow-on decisions by both the state and private actors. Infrastructure, skills, and institutions are built not because a plan calls for them, but because production pressures demand them.
This is precisely why starting with infrastructure alone is ineffective. Without an expanding productive sector, roads, ports, and power plants remain permissive rather than compulsory. They enable development in theory but do not induce it in practice. Hirschman’s strategy reverses the sequence: production first, infrastructure second, capacity built through use rather than anticipation. Development thus proceeds through a chain of induced decisions, allowing state capacity and entrepreneurial capability to grow incrementally through problem-solving rather than prior coordination.
What is distinctively Hirschmanian is the view that development is fundamentally a process of decision-making under scarcity, uncertainty, and limited capacity. The central claim of the book is that the main constraint facing developing countries is not a lack of resources, but the organizational, entrepreneurial, and cognitive ability to mobilize latent resources that already exist. ( An argument later developed and empirically illustrated by Yuen Yuen And in How China Escaped the Poverty Trap).
Let's say you are the PM of Armenia and have Hirschman as your chief advisor. The first step you're going to do is to abandon all these big comprehensive national development plans that aim to push development across all sectors. Nikol's gonna hate this but you have to also stop using external loans for broad, low-selectivity spendings (e.g. 300 schools and 500 kindergardens or large-scale road building efforts). Not because infrastructure or education are unimportant, but because starting with them lacks what Hirschman calls a compulsive impulse. Infrastructure built in advance does not force productive decisions bu merely permits them. That is roads and schools wait passively for demand, whereas development, in Hirschman’s view, requires pressures that make inaction too costly and simply impossible. The mistake of the “Big Push” is not ambition, but timing: it assumes that organizational capacity already exists.
Instead, you would deliberately concentrate investment in a small number of strategically chosen activities with strong linkage potential. Lets take an example from the heavy-industry: copper wire and cable manufacturing (building on Armenia’s existing mining base). The state would begin at the last industry stage, essentially focusing on final fabrication and assembly rather than upstream extraction or infrastructure building. Initially, the basic inputs like the machinery, specialized components, and even managerial expertise would be imported, with policy narrowly focused on scaling production and securing export contracts. With time as output expands, bottlenecks would rapidly emerge: unstable electricity supply, shortages of skilled technicians, insufficient domestic input suppliers, or transport delays at border crossings.
In a Hirschmanian framework, these bottlenecks are not failures but signals. Each one reveals where your next investment should go. Power shortages compel investment in generation capacity; skills gaps induce vocational training and technical institutes; reliance on imported inputs creates pressure for domestic supplier firms; transport delays justify targeted logistics upgrades. This is how backward linkages operate. The growing manufacturing sector generates unavoidable demand for inputs and capabilities, pulling new activities into existence and forcing follow-on decisions by both the state and private actors. Infrastructure, skills, and institutions are built not because a plan calls for them, but because production pressures demand them.
This is precisely why starting with infrastructure alone is ineffective. Without an expanding productive sector, roads, ports, and power plants remain permissive rather than compulsory. They enable development in theory but do not induce it in practice. Hirschman’s strategy reverses the sequence: production first, infrastructure second, capacity built through use rather than anticipation. Development thus proceeds through a chain of induced decisions, allowing state capacity and entrepreneurial capability to grow incrementally through problem-solving rather than prior coordination.
What is distinctively Hirschmanian is the view that development is fundamentally a process of decision-making under scarcity, uncertainty, and limited capacity. The central claim of the book is that the main constraint facing developing countries is not a lack of resources, but the organizational, entrepreneurial, and cognitive ability to mobilize latent resources that already exist. ( An argument later developed and empirically illustrated by Yuen Yuen And in How China Escaped the Poverty Trap).
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