Underdevelopment and the Virtues of Planning

The structural crisis tendencies of modern capitalism were compounded, according to Dobb, by the systematic tendencies toward structural underinvestment (Dobb 1937: 279) and underdevelopment (Dobb 1951, 1960). The structural underinvestment and underdevelopment tendencies of capitalism become especially problematic and acute in the so-called emerging economies (Dobb 1967: 71-88). In lectures developed at the Delhi School of Economics in India, ‘Dobb discussed some of the central issues of development planning for an economy with unemployed or underutilised labour’ (Sen 1990). Later these lectures were published as Some Aspects of Economic Development (Dobb 1951). Dobb maintained that if ignorance, uncertainty, and risk were too acute, this ‘may so inhibit investment decisions as to arrest growth entirely’ (Dobb 1960: 8). Underinvestment is ‘doubtless more important than we are generally aware since [it is] not brought to our notice as are the results of overinvestment’ (Dobb 1937: 279).

Dobb argued that industrially underdeveloped countries most often need state intervention for the initiation and successful development of a technological ‘take-off (Dobb 1960: 73). This is primarily because, according to Dobb, investment devoted to the capital sector (Marx’s Department I) tends to lag investment in other sectors (e.g. consumption, luxury, etc.) (ibid.: 66). The industrial ‘takeoff fails to materialize because of the persistent problem of disproportionality Most underdeveloped countries that attempt a capitalist path of development ‘are characterized by large reserves of [actual and disguised] unemployed’ (Dobb 1967: 32), disproportionalities, stagnation, and political instability.

In the absence of state intervention, the ‘planless economy ruled by the market individual entrepreneurs (Dobb 1960: 75; italics in original) tends to only provide moderate, or low, levels of industrial development in the capital sector, unless there are ‘short bursts of Schumpeterian optimism on the part of particular entrepreneurs, such as those that engaged’ in the nineteenth-century North American ‘railroad-race’ or there is industrial development ‘promoted by war’ (ibid.: 74; italics in original). In the absence of these atypical ‘bursts’, capitalism tends toward stagnation. Agricultural economies that employ the capitalist model tend to remain industrially underdeveloped (Dobb 1967: 71-89). The ‘[l]ack of the will or the incentive or the means to invest (or some mixture of all three) is apparently the crux of the prevailing stagnation’ (ibid.: 32) in the underdeveloped world attempting to industrialize via the capitalist road.

Let us summarize the two primary Dobbian insights we have developed above. First, Dobb argued that capitalism is contradictory and crisis-ridden. Second, capitalism is a radically unreliable system for industrial development. Notice that Dobb does not argue against markets per se.^[1] Rather it is the institutional role of particular historical agents and a particular historical social entity. More specifically, as explained above, Dobb underscores the contradictory mechanisms involved with capitalist undertaking.^[2] Second, Dobb is concerned with the oligopolization^[3] of the economy and the rise of economic power in manipulating (so-called) market activity^[4] and economic and political outcomes.^[5]

As outlined above, Dobb’s contributions to political economy are massive. So far we have not even begun to address the contributions that he is most renowned for, that is, his research in economic history. His most celebrated work by far is his Studies in the Development of Capitalism (Dobb 1946). Granted, Dobb is not known for doing original historical analysis in his economic histories. Rather, his love for the subject of history was primarily a methodological entry point for theorizing about political economy.

[1] Dobb’s position was that markets for consumption goods were relatively benign and consistent withsocialism. Decentralization is superior in the consumption goods sector. Markets for the resources ofproduction are where planning must take precedence. Dobb begins to develop this position during theearly 1930s in his contributions to the ‘calculation debate’ (Dobb 1933, 1935, 1939b) and elaboratesfurther in the 1960s and 1970s (Dobb 1960: 29-47, 1966a: 39-56, 1969: 121-152, 1970c, d, 1974).Shenk 2013a unfortunately says not once, but twice, that according to Dobb ‘socialism made marketswork’ (ibid.: 56, 89). This is highly misleading. Rather, Dobb’s position was that planning in markets forresources would make society and the economy more stable. The reason for this is that planning woulddecrease the degree of monopolization of social resources, reduce the problems of excess capacity andstagnation, diminish the tendencies toward underproduction and overproduction, and therefore lessenthe likelihood of disproportionalities between the consumption goods sector (Department II) and capitalgoods sector (Department I).
[2] By underscoring the contradictions generated by capitalist undertaking, it may seem that Dobb hasbecome somewhat historically dated, in that financialization has superseded the role of the traditionalcapitalist entrepreneur. Undoubtedly, financialization has increased the importance of finance and financiers as economic agents, and demoted the importance of traditional entrepreneurs. Nonetheless, Dobb’scritique of the role of traditional entrepreneurs, that is, ‘capitalist undertaking’, can be directly applied toa critique of finance. Indeed, contemporary finance has compounded the problems outlined by Dobb. Itshould also be added that according to Dobb ‘the problem of industrialisation is essentially not a financialone, but a problem of economic organisation (Dobb 1951: 37; italics in original).
[3] Dobb’s political economy positions are highly consistent with the monopoly capital theory of Paul Baranand Paul Sweezy (1966) (see Dobb 1966b). The key motifs of the latter are ‘oligopolization’, ‘excesscapacity’, and ‘stagnation’. Dobb was theorizing these same historical tendencies, and the systematiccontradictions these phenomena generate, as early as 1925.
[4] On the manipulation of market activity Dobb was, of course, heavily influenced by Sraffa (1926),Robinson (1933) and Kaldor (1934) at Cambridge; Dobb was further influenced by Harrod (1934) whowas at Oxford (Harrod had spent some time at Cambridge in the early 1920s), and the American-basedeconomists Chamberlin (1933) and Triffin (1940). Nonetheless, Dobb was writing of ‘economic frictions’ and monopoly power as early as 1924 (Dobb 1924 [1955]). Indeed, it can be argued that CESP(Dobb 1925) is a book especially concerning imperfect and monopolistic competition (which Dobb calls‘monopoly advantage’ and ‘effects of monopoly’). The evidence is that Dobb’s work was a major influenceon the development of the theory of imperfect and monopolistic competition.
[5] In this context, two points should be underscored. In Dobb’s historical studies of the rise of capitalism,monopoly power and political manipulation of market outcomes is the primary characteristic. Thus,market corruption is characteristic of the system and not merely a function of temporary ‘economic frictions’ (Dobb 1924 [1955]: 7—15, 1937: 186—222). These so-called frictions are permanent constitutivefeatures of the system. Monopoly-like power alters ‘the nature of the equilibrating forces’ (Dobb 1937:187) and gives rise to tendencies toward disequilibrium (Dobb 1942 [1955]: 178—204), crisis (Dobb1937: 79—126), and at the international level, various forms of market manipulation and ‘imperialism’(Dobb 1937: 223—269). In this sense, Dobb is highly consistent with Polanyi’s (1944) point that a selfregulating market system is an illicit utopia. Dobb anticipates the historical tendencies toward politicalcorruption, or what James Galbraith (2008) has recently dubbed ‘the predator state’.