The division of labour is limited by the rate of growth of the market: the Taiwan machine tool industry in the 1970s

In 1974 I visited Taiwan to make a study of its machine tool industry (Amsden, 1977). Late in 1981 I returned to visit the same factories I had visited seven years earlier. In the interim, Taiwan was transformed from an amateurish supplier of machine tools to Southeast Asia into the fourth largest exporter of machine tools to the United States (Cremeans and Dalton, 1982). This paper analyses the remarkable changes which occurred in the machine tool industry in this short period. The object is to study the process of capital accumulation in one industry in a newly-industrialising country in order to gain a better understanding of the nature of the process generally. Between 1970 and 1980, machine tool production in Taiwan rose by more than eleven times (see Table 1). One way to begin to understand the process of capital accumulation is to ask how such an extraordinarily rapid increase in demand alters the nature of production. This is the focus adopted in what follows. Most historians acknowledge a phenomenon of cumulative causation in economic development or decline. Economies which begin to grow rapidly tend to grow even more rapidly, but once growth falters there ensues a self-reinforcing downward spiral. Most economists, however, recognise only one part of this cumulative process: that which runs from technological progress (typically taken as exogenous) to increases in productivity to increases in output. What tends to be ignored is that part which runs from increases in output to increases in productivity, with technological change, broadly defined, sandwiched in between. It is this which is examined below.