Incentives for Growth and Development

This chapter is concerned with the implications for the real economy of one of the most important examples of sudden and complete monetary and economic integration in economic history. In the best-case scenario, a mature capitalist economy was to rapidly introduce capitalist models of growth and development into an area devoid of the discipline of market forces. The two economies integrated in this manner were so dissimilar that two completely different phases of the Rostow model could be applied. Indeed, even some of the preconditions for economic takeoff did not exist in the East. A comparatively rudimentary, but none the less wide-ranging, development strategy was therefore required. It would have to involve both industrial (re-)development and agricultural reform; notice the useful insights afforded by the Rostow model. Growth theory, on the other hand, does not give a great deal of insight into the actual operation of economic systems. For this reason, it is necessary to briefly consider the typical micro-incentives advocated for the East at the time of integration. They were based on the competitive model, which enjoyed a revival as the micro-foundation of supply-side economics. This model was largely irrelevant to conditions in the East. Initially, trade flows from East to West were also likely to be minimal, thus marginalising the significance of both the Ohlin-Samuelson and Myrdal models.