1. Constraints. Induced Innovation.
Miscellaneous on Philosophy, Methodology and Theories
Constraints
Natural Resources
Resource Constraint
Ricardo
Marx
Breaking the Resource Constraint for Industrializing Countries – Science-Based Agriculture
Development through Natural Resources
Environmental Constraint
Theory of Induced Innovation
Marx and New Institutionalism

2. Miscellaneous on Philosophy, Methodology and Theories
Problem of normative judgements
System Theory and System Method
Thomas Kuhn and Revolutions in Science
Example: Marginalist Revolution in Economics
Methodological Wholism x Methodological Reductionism
Example: Model for optimal number of children
Models as simplifications of reality

3. Resource Constraint
Malthus (1798) was the first who pointed out the possibility of the growing relative scarcity of natural resources as a binding constraint on economic growth
The Club of Rome (1972) presented a report “The Limits to Growth”
Population –food crisis
Natural resource exhaustion
Environmental degradation due to overexploitation and waste of natural resources resulting from the exponential growth in economic activities
Prediction for the first two decades of the twenty-first century: industrialization would stop and death rate increases
Now - What is your opinion?

4. Resource Constraint Ricardo (1817) Mechanism Behind - Malthusian
Ricardian Trap
Solution: Trade Liberalization
(Source: Hayami: Development Economics)

5. Resource Constraint Marx
For Stylized Explanation – Ricardo Model Can Be Used
Mechanism Behind: Industrial Reserve Army
(Source: Hayami: Development Economics)

6. Breaking the Resource Constraint for Industrializing Countries - Science-Based Agriculture
Why did real grain prices not rise when closure of open land frontiers in the USA coincided with the acceleration in population growth (around 1920)?
Green revolution in developing countries in the 60ies and 70ies
(Source: Hayami: Development Economics)

7. Development through Natural Resources
The staple theory
A staple means a major primary commodity which plays a leading role in expansion of exports from empty lands
The “Dutch disease”

8. Environmental Constraint
(Source: Hayami: Development Economics)

9. Theory of Induced Innovation - Principles
Theory of Induced Innovation – basic force is the scarcity of resources and the will to have success
Example 1: Transition from the hunting and gathering economy to the agricultural and pastoral economy
Basic force – scarcity of resources =scarcity of food
Accumulation of knowledge – in tangible (physical) and intangible (human) capital
Cattles and seeds and the knowledge how to take care of them
Change of institutions – property rights
First to livestock and standing crops, later extended to land
Success is survival

10. Theory of Induced Innovation - Principles
Theory of Induced Innovation – basic force is the scarcity of resources and the will to have success
Example 2: Transition from the „small firms capitalism“ to „capitalism of corporations“
Basic force – scarcity of resources =scarcity of financial capital
Accumulation of knowledge – in tangible (physical) and intangible (human) capital
Usually succesful firms with „know-how“ go public
Change of institutions – property rights
Protection of small shareholders
Success is economic power (market share, rate of profit etc)

11. Theory of Induced Innnovation – Institutional Innovations
Institutions are public goods. Public goods have two basic properties: non-excludability and non-rivalness – problems of free-riders
The supply of public goods in response to social needs is determined through political process.
Various interest groups take part in this process
For the supply of public goods, someone must organize collective action
Collective action is usually much less organized than a society optimum level is, public goods are usually undersupplied

12. Theory of Induced Innovation - Import of Innovations
A wide gap exists in technology and institutions between developing and developed economies
This gap could be – through transfers – a potential source of rapid economic development for developing economies
Basic problem is to incorporate informal institutions (e.g. cultural traditions) appropriately

13. Theory of Induced Innnovation – Institutional Innovations
Marginal analysis of politicians´ decision making
Marginal revenue: marginal increase in his utility from the strengthening of his power base
Marginal cost: marginal disutility of his time and effort (increase because of the free-riders’ problem increases with the quantity)

14. Marx and New Institutionalism
economic infrastructure and social superstructure
major time lag between increases in production capacity and changes in superstructure (institutions)
core institution is the property right assignment of a key production factor at each stage of economic development
gap between the institution and the production potential is ultimately closed through a violent political revolution

15. Marx and New Institutionalism
Emphasis on changes in relative resource endowments and prices due to population growth and other factors
Institutions are not so inflexible to make a violent revolution inevitable
But, if the cumulative adjustment of institutions by such means as informal agreements and reinterpretation of laws and codes is not sufficient, a violent revolution may occur