Harrod-Domar theory on development

[bailey_187]

The Harrod-Domar theory says that as Third World countries generally have a low level of income, little is saved. As there is little savings, little loans can be given out to capitalists to invest in capital, increasing production.

How useful is this theory? What are the criticisms of it?

I guess it is usueful to Marxist as we can show how the advanced capitalist states did not face this problem as the plunder of the Third World or "Primitive Accumulation" gave it the ability to invest without needing loans/loans were able to be given from money by this plunder. But with no more parts of the world to plunder, the Third World is stuck.

However, it is also useful, as i guess, it was used to justify big loans to the Third World in the guise of this being a way to overcome the problem explaned by Domar and Harrod.

[cyu]

The goal is not to rely on foreign capital investment at all. The purpose of foreign capitalists is to "extract surplus value" out of the poor country. While it may seem great at first that they are coming in with all this money, in the end, they take out far more than they put in. If that's not something you want, then there are basically two ways to avoid it:

1. Take their money anyway and build up your industries. However, only make a show of eventually paying back their loans or allowing them to eventually get a return on their investment. Instead, when you no longer need them, kick them out. This is a somewhat risky path, since capitalists control the militaries of their nations. If you rebel before you are strong enough or have enough allies to defend yourself, they may roll over you and install puppet dictatorships like so many have done before.

In addition, while the "investment" is going on, capitalists are already installing puppet authoritarians in your country, so you have to make sure they never get strong enough, or make sure you are able to overthrow them as well when the time comes.

Many nations have already gone down this path, because they've been duped by promises of investments and by the corruption in their present and past political officials. Not much else you can do in this case, except anti-capitalist revolution.

2. Don't allow capitalists to invest in the first place - at least, not the kind of investment in which they expect a return. While this may not get you a lot of technology very fast, it may also save you from some of the violence involved in option 1. "Investment" would have to be done by leftists in their own economy. Anything your country happens to export, use that as a way to import the technology you need to develop. The goal of your economy should never be to improve its export sector, but rather use the export sector as merely one of many tools to develop the industries for domestic consumption. The goal, obviously, should be to produce more goods for the poor who live in your country, not produce more goods for the rich who live in other countries.

Market economics only works when every spender has relatively equal amounts of money to spend. When some people can spend much more than others, the market system breaks down, and you get a system in which lots of people in poor countries are spending long hours in sweatshops, assembly lines, and poppy fields producing goods that will be consumed by people in wealthier classes, instead of producing goods that will be consumed by people in their own class. The more this happens, the poorer the poor get, because the goods they need to consume become scarcer and scarcer, as others are duped by capitalists into producing for the rich.