Question

In mid-twentieth-century economic historiography, Alexander Gerschenkron posited that late-industrializing economies did not replicate the sequential stages of development observed in pioneer industrial nations such as Great Britain. Instead, according to Gerschenkron, severe "relative backwardness" compelled latecomers to introduce institutional substitutions—most notably state-directed investment banking—to rapidly mobilize capital where indigenous private merchant accumulation was lacking. Yet recent analyses of late-nineteenth-century industrial expansion in the eastern peripheries of the Austro-Hungarian Empire complicate this paradigm. In these agrarian provinces, the imperial state did indeed establish centralized financial vehicles to subsidize large-scale metallurgy and railway infrastructure, operating on the premise that concentrated fixed capital was the sole impediment to modernization. However, these state-backed initiatives overlooked the pervasive role of informal, localized credit networks that sustained small-scale agricultural processing. Because the central authorities' fiscal policies prioritized heavy industry through preferential credit terms, private depositors withdrew funds from local informal networks to pursue state-guaranteed bond yields, thereby diminishing the circulating liquidity accessible to light manufacturing. Consequently, the state’s intervention not only failed to stimulate comprehensive industrialization across sectors, but actively contributed to the stagnation of the very regional enterprises that might have fostered balanced economic growth.

Which one of the following assertions regarding the economic dynamics in the eastern peripheries of the Austro-Hungarian Empire is most strongly supported by the passage?