Push vs Pull: A comparison of Economic Development Strategies

Anand Laishram *

From the point of view of economic development, the world as we know it can be broadly divided into the developed and the developing. Developed countries are fewer in number, whether it’s the OECD Member Countries or World Bank’s list of high-income countries. Developing and underdeveloped countries make up the majority of the world. Rich, properly functioning economies are rarer and poverty is more widespread.

To respond to this disparity, and to help lesser developed countries catch up, numerous organizations & charitable foundations have been established and trillions of dollars have been channelled to these countries as foreign aid. Scores of ambitious and audacious infrastructure projects have been undertaken.

New schools & universities have been built to improve educational outcomes, on the premise that education will lead to higher productivity and economic growth. New roads and bridges have been built in order to improve connectivity and movement of people & goods. New wells have been dug to ensure better access to water.

Such efforts are well lauded and intuitively so. But unfortunately, despite the good intentions, they don’t always deliver the anticipated results. Schools and universities can churn out educated students, but if they don’t have a labour market to participate in, they can’t contribute to the economy and the hoped-for productivity gains don’t materialize.

If roads and bridges break down but the local governments can’t levy enough taxes to repair them, they become liabilities more than assets. Africa is peppered with abandoned water wells that brought much needed water to the people initially, but later became unused due to lack of maintenance, caused by a shortage of financial resources and skilled professionals.

Countries all over the world compete and campaign hard to get the rights to host the Olympics or the football World Cup, with the hope that the economic returns would exceed the massive costs involved. But once the games are over and the euphoria has died down, the stadiums become nothing more than redundant reminders of the enormous spending that didn’t bring all the benefits they were supposed to.

Pushing infrastructure and facilities onto a developing country, based on the premise that they would help generate economic growth, can backfire if the country isn’t at a stage of development that enables it to absorb those facilities and investments.

As addressed by economist Ha Joon Chang in his book, “Kicking Away the Ladder”, poor countries often invest in infrastructure that are present in developed countries, with the goal of igniting their own economic progress. But these investments are made out of sequence and hence they are not sustainable.

This push strategy of economic development, wherein infrastructure and resources are pushed onto developing countries, to facilitate economic growth, therefore may not be the most effective.

A better approach may be the pull strategy, which involves developmental resources and infrastructure being pulled into an economy, in response to the needs of a market, thus ensuring the sustainability of the development process.

In order to serve the market, entrepreneurs, governments and other stakeholders find it necessary to invest in facilities like roads, bridges, ports, schools, power plants etc. This necessity is felt even more in developing countries, which didn’t have these facilities to begin with.

Since those investments are necessary to ensure that the market continues to function and the subsequent financial returns are realized, the stakeholders are incentivized to maintain and upgrade them.

Let’s take the example of the Ford Motor Company. Over a century ago, Henry Ford realized that the masses in America could do with a better means of transportation than horses but the exorbitant costs of the automobiles of that era prevented them from switching over.

Automobiles remained the toys of the rich and functioned more as status symbols than crucial means of transportation. America’s road infrastructure was minimal and fuel stations were only a few. By making investments in numerous cost cutting processes (such as the assembly line), Henry Ford was able to ensure that ordinary folks in America could afford and own a car. And as a result, sales of the Ford Model T took and millions of cars were sold.

But more than that, it also prompted huge investments in highways, fuel stations, railroads etc. in order to serve the needs of the car market. Other car companies emerged. Industries that were involved in supplying raw materials to the automobile companies, prospered enormously. New industries such as tourism, hotels, automobile insurance etc. developed.

Driving schools were opened, to meet the needs of the new car owners. New laws and regulations were formulated to adapt to this new context. People started living in suburbs, away from the congested cities. Even children’s school attendance improved.

Instead of all these resources, investments and reforms being pulled in to serve the automobile market, if they were just pushed onto the American economy, without an underlying market to undergird them, they wouldn’t have been sustainable, as has been the case in many countries around the world.

The renowned business academic, the late great Clayton Christensen addressed this dichotomy between the push and pull strategy, in his last book “The Prosperity Paradox.”

In subsequent articles, we shall look at this topic in greater detail.