Capital Goods in Developing Countries

The role of heavy industry has been a subject of considerable controversy, both in practice1 — see the Indian and Soviet debates — and in theory. Neo-classical economists distinguish between projects rather than industries. That is to say their methodology tends to assume that no particular merit (or demerit) may be attached to a project because it is in a particular industry — rather each project is to be evaluated for the effects to be attributed to it. In contrast, Marxist tradition has been to make a sharp distinction between capital goods industry (Department I)2 and consumer goods (Department II), and much analysis hangs on this distinction. Developments of this distinction — in particular those of Feldman3 and Mahalanobis respectively — provided the justification for the build-up of heavy industry in Russia in the 1920s anil 1930s and in India in the 1950s and 1960s. This chapter is concerned to explore these differences in approach, and to suggest other considerations, particularly technological development, which may justify special treatment for capital goods industries in developing countries.