Veblen and the Origin of the Catching-Up Hypothesis
James M. Cypher
VEBLEN ON “UNDERDEVELOPMENT” ( ...continuation )

In “The Opportunity of Japan,” Veblen adapts many of the arguments developed in his study of Germany, but at the same time he argues that those vast areas of Africa, and Asia “racially alien to the bearers of western culture” have not acquired “a practicable working arrangement with the occidental system of mechanical efficiency” and have “no effectual comprehension of the logic...of western technological equipment” (Veblen, 1934a: 257). Veblen proceeds to argue that Japan has been positively conditioned by a feudal system similar to that of Western Europe. Given this, it is unfortunate that Veblen did not take up his own evolutionary approach regarding Africa and Asia. Had he done so the historical role of colonial dominance and depredation and the endurance of feudal and semi-feudal social, cultural and economic elements might have led Veblen into a sophisticated analysis of the causes of economic backwardness. Veblen claims that Japan's rapid success in overcoming its anachronistic state had much to do with a racially hybrid population similar to that of Germany. These functional population conditions, he claimed, were absent in Africa and Asia. Yet, he presents no evidence for his effort to differentiate Japan and Germany from Africa and Asia on these grounds.

Veblen's absence of critical, historically-based understanding of the “pronouncedly backward peoples” continues in his essay on the “Control of Economic Penetration” (1934b). Imagining a new world order after WWI, Veblen maintains that “[b]y grace of fortune” a benevolent Trustee or Protectorate status will now befall much of the world's impoverished regions (Veblen, 1934b: 368). His prescription is to submerge national distinctions among vast regions, urging that they become “wards” under the “guardianship” of something analogous perhaps to the League of Nations (Veblen, 1934b: 370). Veblen envisioned a situation where the League, as “the responsible keeper of their fortunes” would rule out heedless exploitation of their natural resources. Foreign investors were to manage on their own, without the ability to exert imperial pressures from their home states. At best, temporary leases would be extended to foreign firms, while the League would orchestrate the nationalization of the necessary infrastructure to a “moderate, retarded” level of “effectual industrial penetration” (Veblen, 1934b: 372, 374).


Based on the foregoing analysis, it is reasonable to attribute to Veblen an early perception of major concepts that would become integral building-blocks in development economics after WWII. Veblen originally ranged over several seminal areas, anticipating the centrality of what would become known as the National Systems of Innovation and Independent Technological Capabilities and Capacities. Veblen's insight into the centrality of technology was neither “capital-centric” nor “deterministic,” as is commonly charged. Rather, Veblen's stress on learning, know-how and the numerous intangible elements relating to human capacities anticipates the crux of the endogenous New Growth Theory that draws-out the significance of research, development and technological spill-over effects.

But, Veblen failed to apply his arguments beyond the two successfully borrowing nations in his analysis of the process of catching-up.8 Given his general astuteness, his sometimes off-hand, sometimes romantic and patronizing observations regarding the “backward” regions of the world were jarringly out of step with his scathing critiques of prevailing orthodoxies. From a “Veblenian” perspective, he suffered all the defects of his virtues because of his (provincial) Eurocentric training and perspective.

His insistence on the efficacy of free trade policy is difficult to fathom given the successful application of List's infant industry industrial policy in Germany's catch-up phase. Nowhere does Veblen take up the issue of the asymmetric competitive forces of British industrialism which, in the absence of countervailing interventionist state policies to incubate industrial capacity, would have left Germany (and the United States) as simple commodity producers. Since Veblen is credited with the creation of the concept of path dependence it is surprising to see the failure of the application of this concept in Imperial Germany where the absence of state intervention in the area of international trade versus the internal market would have locked Germany into an adverse path combining handicraft production with agrarian pursuits (Hodgson, 2003: 128-9).

8 Carter Goodrich's “The Case of the Poor Countries” attempts to extend Veblen's analysis of Germany and Japan to a broad range of developing or formerly colonial regions (Goodrich, 1958: 265-281). The results are suggestive, but largely inconclusive. In the same volume Douglas Dowd extends Veblen's concepts regarding Japan to the developmental debate concerning accelerated industrialization in the USSR from the 1920s to the 1950s (Dowd, 1958: 283-301).