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Developmental Planning In The United Arab Republic: An Economic Analysis And Evaluation Of The Egyptian Experience

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Developmental Planning In The United Arab Republic: An Economic Analysis And Evaluation Of The Egyptian Experience

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Content This dissertation has bssn microfilmed exactly as received ® 7-5309 SIDHOM, Samir Yacoub, 1929- DEVELOPMENTAL PLANNING IN THE UNITED ARAB REPUBLIC: AN ECONOMIC ANALYSIS AND EVALUA TION OF THE EGYPTIAN EXPERIENCE. University of Southern California, PtuD., 1966 Economics, general University Microfilms, Inc., Ann Arbor, Michigan DEVELOPMENTAL PLANNING IN THE UNITED ARAB REPUBLIC AN ECONOMIC ANALYSIS AND EVALUATION OF THE EGYPTIAN EXPERIENCE A Dissestation Presented to the Faculty of the Graduate School The University of Southern California In Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy (Economics) by Samir Yacoub Sidhom September 1966 UNIVERSITY O F SO U TH ER N CALIFORNIA THE GRADUATE SCHOOL UNIVER8ITY PARK LOS ANGELES, CALIFORNIA 9 0 0 0 7 This dissertation, written by Samir Yacoub Sidhom under the direction of h..i.?...Dissertation Com mittee, and approved by all its members, has been presented to and accepted by the Graduate School, in partial fulfillment of requirements for the degree of D O C T O R OF P H IL O S O P H Y ..... Dtan IERTATION CO Chairman 0 ACKNOWLEDGEMENTS The writer acknowledges with gratitude his deep appreciation to the members of his Dissertation Committee, Professor John E. Elliott, Chairman of the Committee, Professor Aurelius Morgner, Chairman of the Department of Economics, and Professor Richard W. Gable, of the School of Public Administration, for their invaluable help and guid ance during the writing of this dissertation. To Professor Elliott, I am especially indebted for his constant personal interest and wise advice which he offered me throughout my graduate work as well as during the preparation and writing of this study. I also wish to thank the Egyptian Government, and particularly the Ministry of National Planning for granting me the necessary leave of absence to complete this disser tation. To my wife, Mimi, I am deeply grateful for her continued encouragement, endless patience and understanding, and the inspiration she gave me throughout my graduate work. ii iii Without her, this study would not have been completed. Also, I must thank Maha, my young daughter, for providing me with delightful distraction and further inspiration. Finally, my gratitude goes to all of those, especially my parents, whose patience and encouragement have been with me during my graduate study abroad. TABLE OF CONTENTS PAGE ACKNOWLEDGEMENTS......................................ii LIST OF TABLES........................................... CHAPTER I. INTRODUCTION............................. 1 Objective of the S t u d y ................ 2 Importance of the Study . . . . . . 4 Method, Scope, and Sources of the Study 8 Definitions of Terms and Concepts U s e d ............... 12 Organization of the Remainder of the Study . . . . . . . . . . . 15 II. ELEMENTS OF ECONOMIC PLANNING . . . . 18 Definition of the Concept of Planning . 18 Nature of the Planning Process . . . 22 Determination of Goals Plan Formulation Analysis of Conditions Selection and Adoption of Economic Plans CHAPTER Execution of Economic Plans Types of Developmental Plans . . . . Projects, Programs, and Plans Long-term, Medium-term, and Short term Plans Spaeial Coverage of Plains Partial and Comprehensive Plans Centralised and Decentralized Planning Patterns of National Planning in Practice ............................ Sociocapitalist Economies Soviet-type Economies The Yugoslav Model Underdeveloped Economies The Need for Developmental Planning: Theoretical Arguments ................ 61 General Considerations and Justifications for Developmental Planning Defense of Centralized Comprehensive Planning Critique of Centralized Comprehensive Planning Rebuttal of the Critique of Centralized Comprehensive Planning Requirements of Developmental Planning , 75 v PAGE 37 47 CHAPTER III. vi PAGE THE SOCIOECONOMIC STRUCTURE OF THE UNITED ARAB REPUBLIC.......................80 Historical Background . . . . . . . 80 Mohammed Ali and His Successors The British Occupation The 1952 Revolution The Socioeconomic Structure ............. 87 Level and Stage of Economic Development Level of Economic Development Stage of Economic Development Resource Base Ownership and Control of the Means of Production Locus of Economic Power Organization of Economic Power, Centralization versus Decentralization Motivational System Social Processes for Economic Coordi- nat ion Market or Price System Bureaucratic or Hierarchical System Democracy or Polyarchy Bargaining CHAPTER IV. Wealth and Income Distribution Developmental Problems Economic Problems Demographic Problems Social and Political Problems ORGANIZATIONAL AND PROCEDURAL ASPECTS OP DEVELOPMENTAL PLANNING IN THE UNITED ARAB REPUBLIC...............« . . . The Two Stages of Developmental Planning Partial Planning Agrarian Reform and Agricultural Programs Sectoral Programs and Major Projects National Comprehensive Planning: Types and Nature Prime Objectives of the Plan Nature and Scope of the Plan Why Comprehensive Planning? The Planning Machinery ................ Centralization and Decentralization The Supreme Council for National Plan ning The Ministry of National Planning The Joint Committees vii PAGE 129 139 139 160 viii CHAPTER The Planning and Follow-up Offices Regional Planning Training in Planning The Process of Developmental Planning • Determination of Goals Doubling National Income Equitable Distribution of Wealth and Income Analysis of Conditions and Plan Formulation Procedures and Statistical Techniques Evaluation Plan Execution and Follow-up Plan Execution Follow-up of Plan Execution Evaluation V. SOME BASIC STRATEGIES IN PLANNING ECONOMIC DEVELOPMENT IN THE UNITED ARAB REPUBLIC PART I: TARGETS AND GENERAL STRATEGIES Targets of the Developmental Plan Investment Production and Income Final Consumption PAGE 170 211 . 211 CHAPTER Labor Employment Public ox Pxivate Development . . . . Theoxetical Discussion The Role of Govexnment in Pxomoting Economic Development Advantages and Disadvantages of Public and Pxivate Entexpxises The Case of the United Axab Republic Expansion of the Public Sectox: Reasons and Methods Delineation of the Roles of Public and Pxivate Sectoxs Balanced and Unbalanced Growth . . . . Theoxetical Discussion Conceptual Problems Balanced Growth Strategy Unbalanced Growth Strategy Evaluation of Balanced and Unbalanced Growth Strategies The Case of the United Axab Republic Balanced and Unbalanced Growth Strategies in the Partial Planning Period ix PAGE 227 249 Interpretation of the Balanced Growth in the Pirst Five-Year Plan X CHAPTER VI. Justification of the Adopted Balanced Gxowth Strategy SOME BASIC STRATEGIES IN PLANNING ECONOMIC DEVELOPMENT IN THE UNITED ARAB REPUBLIC PART II: SPECIFIC STRATEGIES . . . . Development of Agriculture or Industrialization .................... Theoretical Discussion Development of Agriculture First: Arguments for and against the Strategy Industrialization First: Arguments for and against the Strategy The Case of the United Arab Republic Policies to Develop the Agricultural Sector The Drive Towards Industrialization Agricultural Development and Industrialization Development of Foreign Trade or Diversification Theoretical Discussion Free Trade Policy for Economic Devel opment : Arguments for and against the Strategy Diversification and Protection: Arguments for and against the Strategy PAGE 268 268 297 xi CHAPTER PAGE The Case of the United Axab Republic Divexsification and Contxol pf Foxeign Txade t Rat ionale Planned Changes in the Pattexn of Expoxts Impoxt Policy and Stxuctuxe Domestic ox Foxeign Finance ............. 312 Theoxetical Discussion Mobilizing Domestic Financial Re sources : Possibilities and Limitations Foxeign Finance for Economic Devel opment : Possibilities and Limita tions The Case of the United Axab Republic Foxeign Finance in the First Five- Year Plan Domestic Saving fox Financing the First Five-Year Plan VII. INDICATORS OF ACHIEVEMENTS 329 Economic Development • . 330 Gross Domestic Production and National Income Rates of Gxowth Evaluation CHAPTER xii PAGE Capital Investment Rates of Growth Evaluation Raising the Standard of Living Per Capita Income Final Consumption Social and Welfare Services Development of Foreign Trade Imports Exports Balances of Trade and Payments Equitable Distribution of Wealth and Income ..................... 371 Redistribution of Agricultural Land Changes in the Structure of Land Ownership Compensations, Exemptions, and Changes in Agricultural Incomes "The Socialist Laws” of 1961 Nationalization Income Tax Progression Wages' Increase CHAPTER xiii PAGE Social Services and Housing Social Services Housing and Rents Evaluation Labor Employment..........................387 Expansion of Labor Employment Labor Productivity Wage Increases Evaluation Divergence Between Actual Development and Planned Targets Unemployment and Underemployment Shortages of Technical and Organiza tional Manpower Labor Mobility Price Stability ................ 395 Price Indices Evaluation Black Market Prices Product Shortages Money Supply Demand-Pull and Cost-Push Inflationary Pressures xiv CHAPTER PAGE Efficiency 403 Efficiency in Resource Allocation Measurements of Efficiency Evaluation Administrative and Managerial Efficiency The Importance of Administrative and Managerial Efficiency Evaluation VIII. SUMMARY AND CONCLUSIONS 421 Summary 421 Conclusions 440 APPENDICES . 447 A 448 B 450 C D BIBLIOGRAPHY 478 484 490 LIST OF TABLES TABLE I. Sectoral Distribution of Planned Invest ments During the Plan Period 1959/1960- 1964/1965............................... II. Planned Gross Value of Domestic Production for 1964/1965 Compared with 1959/1960 . III. Planned Gross Value Added for 1964/1965 Compared with 1959/1960 . . . . . IV. Planned Percentages of Sectoral Gross Income Contribution for 1964/1965 Compared with 1959/1960 . . . . . V. Planned Final Consumption of Goods for 1964/1965 Compared with 1959/1960 . . VI. Planned Number of Civil Working Persons and Their wages in 1964/1965 Compared with 1959/1960 . . . . . ............. VII. Distribution of Planned Investments Among Branches of Industrial Sector During the Plan Period 1959/1960— 1964/1965 . . VIII. Planned Gross Value of Industrial Produc tion and Value Added for 1964/1965 Com pared with 1959/1960 ................ IX. Planned Investments and Their Components for Agriculture, Irrigation, Drainage, and the High Dam during the Plan Period 1959/1960— 1964/1965 ................ X. Planned Value of Exported Goods and Their Percentages to Total Exports in 1964/1965 Compared with 1959/1960................ xv PAGE 214 217 218 220 223 226 286 288 290 308 TABLE PAGE XI. XII. XIII. XIV. XV. XVI. XVII. XVIII. Classification of Planned Imported Goods According to their Uses and to Type of Product and their Percentages to Total Imports for 1964/1965 Compared with 1959/1960 ............................ Distribution of Planned Investments by Foreign and Local Currencies During the Plan Period 1959/1960— 1964/1965 . . . Actual Value of Gross Domestic Production During 1959/1960— 1963/1964 Compared with Planned Targets for 1964/1965 . . . . Development of Actual Value Added During 1959/1960— 1963/1964 Compared with Planned Targets for 1964/1965 . . . . . . Sectoral Distribution of Actual Gross Investments During 1959/1960— 1964/1965 Compared with Total Planned Targets . Distribution of Land Ownership in 1952 and 1964 . . . . .................. General Index Number of Prices in 1951/1952 and 1959/1960— 1963/1964 ............... Percentages of Gross Value Added to Value of Gross Domestic Production . . . . . 310 324 333 334 344 373 396 407 CHAPTER I INTRODUCTION Ever since the beginning of the Revolution in July 1952, the United Arab Republic (Egypt) has been undergoing profound and rapid transformation at all levels. The Government has shouldered the responsibilities of develop ing the country in many directions, economically, socially and politically. The Government has undertaken the execu tion of major projects, launching massive programs for development in an effort to pull the economy out of its stagnant situation and to launch it into sustained growth. In July 1960, the Government adopted the method of compre hensive national planning for economic and social develop ment with the major instrumental objective of doubling national income every ten years and of ensuring an equita ble distribution of wealth and income. In the United Arab Republic, the fundamental institutional changes, the size of the developmental efforts which the Government is under taking, and the complexity of policy measures, necessitates 1 a resort to the method of national comprehensive planning, .whereby the objectives must be clearly and realistically defined, the feasible means that are compatible with the economic structure of the country must be adequately selected, and the alternative courses of action must be determined and systematically coordinated. Objective of the Study The purpose of this study is to investigate and to evaluate critically the approach of the United Arab Repub lic to national planning for economic development. The emphasis is on the later period, that of comprehensive planning (July 1960-June 1965). In presenting a construc tive critical evaluation of the country's experience in developmental planning, this writer hopes to contribute towards better understanding of its developmental efforts and towards higher promotion of its developmental poten tials. Therefore, the study will explore the following) 1. What are the main characteristics of the Egyptian economy prior to and after the Revolution? Were prevailing conditions before the Revolution condu cive to economic development? What were the major developmental problems confronting the country at outset of the Revolution? What are the patterns and types of economic plan ning in the United Arab Republic, and why are they being thus adopted? How is economic developmental planning carried out in its different phases? What are the various organizations responsible for de velopmental planning, what are their functions, roles and relations to each other? What are the techniques used in Plan formulation and execution; and how adequate are these techniques? What are the targets of the first comprehensive developmental plan in the United Arab Republic? What are the basic strategies adopted in planning economic development? (For example, balanced or unbalanced growth; development through private or public sector, et cetera.) How effective and successful is the United Arab Republic approach to developmental planning in attaining the Plan targets? Have the adopted methods been adequate? What are the major problems encountered, and why or why not were the approaches to their solution successful? Are there any 4 possible and more adequate alternatives to be recommended? Importance of the Study In recent years, and particularly after World War II, various nations have exhibited increasing interest in national economic planning. Planning, as a valuable tool in policy-making, is being recognized by an increasing number of countries irrespective of their political, social and economic systems and their stage of economic growth. Particularly in developing countries, developmental plan ning has emerged as a most effective method to be applied for promoting rapid economic development. The experience of the United Arab Republic in the field of planning economic development may be of special interest for countries now starting on their way to devel opment. This experience is worthy of study because it can be considered as one of the most significant attempts of its kind among developing countries. It offers a number of lessons which may prove useful to other developing countries in their developmental planning effort. However, because of the diversity among these countries in their political, social and economic structures, there is no reason to believe that it is possible to transplant the experience of one individual country to another or that successes and failures of a developmental planning experi ence in one country may necessarily be duplicated in an other country. Nevertheless, an experience such as that of the United Arab Republic can provide valuable guide lines for other nations which utilize the knowledge gained by the United Arab Republic about developmental plan formu lation, organization and execution. Also, by recognizing the similaxity of their own problems to those of the United Arab Republic and by discovering what proper solu tions are adopted and how errors are corrected, other nations may gain deeper insight into their own problems and, thus, they stand to benefit from such experiences. In fact, the stagnant condition in which Egypt was enwrapped at the outset of the Revolution, and the prob lems which faced the country at that period, were not en tirely unlike those confronting a large number of under developed countries. Also, like many other developing countries, Egypt had to wait until it gained its full political independence, before it could practice develop mental planning on a national level. It is true that several attempts were made before the Revolution to formu late and to implement public programs for economic develop ment, but because the "basic drive for development had been lacking," these attempts never materialized.1 Since 1952, "Egypt has had the advantages of a stable, albeit revolu tionary government, intent on economic development and social reform, and not much hampered by considerations of internal pressure groups or deliberative assemblies At the time this study is being undertaken, the First Five-Year Plan for Economic and Social Development in the United Arab Republic is about to be terminated and the Second Five-Year Plan will soon be launched. Moreover, major fundamental changes in the institutions of the coun try has already been established to prepare future economic development. Important gains have been achieved through developmental planning. Valuable experiences have, no doubt, been accumulated by various ministries and organi zations and by central planners at the Ministry of National -*Ahmed M. El-Morshidy, "Planning for Economic De velopment in the U.A.R.," United Nations, Planning for Eco nomic Development, Vol. II: Studies of National Planning Experience, Part 1: Private Enterprise and Mixed Economies (A/5533/Rev.l) (New York: United Nations, 1965), p. 165. 2 Salah El-Serafy, "Economic Development by Revolu tion- -The Case of the U.A.R.,” The Middle East Journal, Summer 1963, Vol. XVII, No. 3, p. 217. 7 Planning in formulating and executing the First Five-Year Plan and the annual plans. Such experiences should prove most useful and should be drawn upon in devising and imple menting future developmental plans. It is true that there have been some shortcomings in planning for economic devel opment. However, it should be noted that "no country can boast [of] unqualified success in its planning efforts. The art of planning is still too new for any of its practi tioners to claim perfection or even an approximation to that ideal. At this stage, it is of great importance to evalu ate objectively the developmental planning experience so that successful achievements and shortcomings can be recog nized, problems delienated, and proper solutions adopted. If this can be done objectively, the quality of future planning will be improved. This study hopes to contribute towards these objectives through the analysis and critical evaluation of the planning effort. Such constructive eval uation is of particular importance to the country to fur- 3 Albert Waterston, Planning in Morocco t Organiza tion and Implementation (Baltimore: The Johns Hopkins Press, 1962), p. 2. 8 ther and accelerate economic development. In discussing the need for such criticism, the National Charter^ states the following: Exercising criticism and self-criticism always gives national action an opportunity to correct and adjust itself to its great objectives. . . . Freedom of constructive criticism, and brave self-criticism are necessary guarantees for setting up the national structure on a sound basis.5 Method, Scope and Sources of the Study To evaluate critically the developmental planning experience in the United Arab Republic, this writer will use a descriptive and analytical method, supported by quantitative date whenever possible. This study proceeds along a general pattern which is that of a theoretical discussion followed by its application to the case of the United Arab Republic. 4 The National Charter was submitted by Gamal Abdel Nasser, President of the United Arab Republic, at the In augural Session of the National Congress of the Powers of the People on May 21, 1962, and was unanimously approved by the Congress in its session of June 30, 1962. The Charter draws the general frame of policies for the country and outlines the socialistic transformation. United Arab Republic, The Charter (Cairo: Information Department, n.d.) 5Ibid., p. 81 9 To describe and analyse all aspects of develop mental planning, is, of course a monumental undertaking beyond the scope of this study. Also, the organization and procedures of developmental planning as well as the economic and social structure within which planning is taking place in the United Arab Republic are changing at a rapid pace because of the dynamic environment which has characterised the country since the 1952 Revolution. For these reasons, only the most significant aspects of devel opmental planning and its achievements will be presented and analysed in this study. While developmental planning is a complex process with political, social, and adminis trative, as well as economic ramifications, this writer is concerned particularly, and by necessity exclusively with the economic aspects of developmental planning on the national level. Therefore, only occasional reference will be made to regional planning, and to social, political, and administrative conditions. The emphasis of the study will be on comprehensive planning since July 1960, concentrating particularly on the First Five-Year Plan for Economic and Social Development. Such limiting factors as time, the broadness of scope of the subject tinder study, and scarcity and inade 10 quacy of material and of statistical data about the topic, make it impossible fox the study to be exhaustive. The sources of information used in the preparation of this dissertation consist of books, essays, journal articles, reports, addresses, speeches, and laws in Arabic, English and French. These sources can be categorized as follows: 1. Theoretical studies in the general subjects of economic planning, economic theory and development. This writer has used intensively such studies as those of Professors John E. Elliott, "Economic Systems and National Planning,R. A. Dahl and n C. E. Lindblom, Politics, Economics and Welfare, Tinbergen, Economic Policy: Principles and Design,8 6 John E. Elliott, "Economic Systems and National Planning," (Los Angeles: University of Southern California, 1964), (mimeographed). ^Robert A. Dahl and Charles E. Lindblom, Politics, Economics and Welfare: Planning Resolved into Basic Social Processes (New York: Harper and Row Publishers, First Toxchbook Edit ion, 1963). Q Jan Tinbergen, Economic Policy: Principles and Design (Amsterdam: North-Holland Publishing Company, 1956). B. Higgins, Economic Development: Problems, Princi ples and Policy.^ 2. Studies in the experience and techniques of plan ning in different countries, such as E. E. Hagen’s Planning Economic Development,*~Q United Nation's Planning for Economic Development; A Study by a Group of Experts.11 3. Material relating to the United Arab Republic eco nomic structure, plans, policies and development. The primary source material consists of government publications such as the General Frame of the 5- Year Plan for Economic and Social Development,^ statistical year books, addresses, speeches and ^Benjamin Higgins, Economic Development; Problems, Principles and Policy (New York: W. W. Norton and Co., Inc., 1959). ^^Bverett B. Hagen, Planning Economic Development (Homewood, 111.: Richard D. Irwin Inc., 1963). 11United Nations, Planning for Economic Development: Report of the Secretary-General Transmitting the Study of a Group of Experts (A/5533/Rev.l), (New York: United Na tions, 1963). 12National Planning Commission, General Frame of the 5-Year Plan for Economic and Social Development, July 1960-June 1965 (Cairo: General Organisation for Govern ment Printing Offices, I960). 12 press interviews of the President of the Republic and top Government officials and reports of the various ministers. In addition, economic bulle tins) studies and articles in learned and popular journal) and newspapers published in the United Arab Republic are consulted. Papers, which have been submitted at various international conferences have also been drawn upon. 4. Furthermore, this writer draws upon his own per sonal experience as a member of the technical staff of the United Arab Republic Ministry of National Planning. Definitions of Terms and Concepts Most of the terms and concepts used are defined in the body of this study. However, it might be helpful to define here some of the significant terms and concepts. Planning.--Planning is nan attempt to apply reason and foresight to the ordering of human goals . n3-3 Developmental planning.— Developmental planning is 13 Blliott, op. cit., chap. Ill, p. 1. 13 a specific type of planning having as its major objective accelerating the rate of economic development and whereby the necessary structural changes and policy measures are undertaken accordingly. Economic development.— ”*Economic development' may be defined as a sustained, secular improvement in material well-being, which we may consider to be reflected in an increasing flow of goods and services. The gross value of domestic production.— "It is the value of all goods and services produced by all establish ments and productive units at producers' price. • • The value of production requirements.— "It is the value of raw material, unfinished goods, fuel, spare parts, and maintenance of machinery, equipment, and buildings to maintain the productive capacities."1^ This term is used interchangeably with that of "intermediate goods" in this study. 14Bernard Okun and Richard W. Richardson, Studies in Economic Development, (eds.) (New York: Holt, Rinehart and Winston, 1962), p. 230. l-^National Planning Commission, op. cit., p. 39 16ibid. 14 The value added.— "It is the total returns yielded by the utilization of production requirements, in the form of wages, salaries and returns to ownership namely profits, interests and rents together with the money equivalent of depreciation of owned fixed assets."*7 Statistically, the value added is equivalent to the difference between the gross value of domestic produc tion, and the value of production requirements. This term is used in this study in the same sense used in the General Frame of the 5-Year Plan, as well as in other Egyptian official documents and statements to mean national income. In fact, it is gross national in come, provided that the net income generated from trans action with the outside world is taken into account. Investment.— "Investment is a process of using goods and services in the creation of new productive cap acities and/or the maintenance and renewal of existing ones."*® Final consumption.— "It is the utilization of goods and services from local production and imports to satisfy 17Ibid. *®Ibid., p. 2 1. 15 consumers1 needs and desires."19 Organisation of the Remainder of the Study This study is divided into six additional chapters as follows: Chapter II is devoted to a theoretical discussion of various elements of economic planning with a special emphasis on planning in centrally planned economies and developing economies. Several definitions of the concept of planning are given and the nature of the planning proc ess is outlined. The different types of developmental planning as well as the various types of national planning practiced in different countries are described. The need for and the requirements of developmental planning are also discussed. Chapter III describes and analyses the socioeco nomic structure in the United Arab Republic. A comparison of this structure before and after the 1952 Revolution is given. Major developmental problems confronting the coun try at the outset of the Revolution are also outlined. Chapter IV deals with the organizational and pro- W lb id ., p. 93 16 cedural aspects of developmental planning in the United Azab Republic. The different historical stages of develop mental planning are traced. A description and an evalua tion of the different organs, responsibilities, relation ship and roles are given. Also, the various steps in developmental planning procedures are analysed and eval uated. Chapters V and VI deal with some basic strategies in planning economic development in the United Arab Repub lic. The major targets of the Pirst Five-Year Plan are presented. The various theories concerning different developmental strategies are discussed and the pattern followed in the United Arab Republic is then presented and evaluated. The strategies discussed in the chapters are the following! whether to expand the public sector or the private sector to carry out the developmental efforts, whether to allocate resources in such a manner as to pro ceed along a balanced or unbalanced growth pattern, whether to give investment priority to agriculture or to industry, whether to develop foreign trade or to attempt to diversify and control foreign trade, and whether to rely on foreign or domestic sources of finance. Chapter VII examines and evaluates the achievements 17 of the First Five-Year Plan and the problems encountered in carrying out this plan. Chapter VIII concludes the study with a presenta tion of a summary, and conclusions. CHAPTER II ELEMENTS OP ECONOMIC PLANNING Definition of the Concept of Planning There seems to be no single authoritative defini tion of the concept of economic planning. If one reviewed the definitions given by various writers from different countries, one would compile a very long list of somewhat conflicting concepts none of which could be taken as defi nitive. It is true that in any new scientific field a general agreement on terminology is hard to reach. This is particularly true of economic planning. Authorities on this subject distinguish between planning as a general concept and as a specific one. According to Professor Elliott, planning in its generic sense, is "an attempt to apply reason and foresight to the ordering of human goals."1 Or, in other words, it is "an John E. Elliott, "Economic Systems and National Planning," (Los Angeles: University of Southern California, 1964)f (mimeographed), chapter III, p. 1. 18 attempt at rationally calculated action to achieve a goal.”2 There are three elements involved in this generic concept. The first and most basic element consists of goals, or objectives, or aims to be achieved. The formula tion of these goals, by whoever does the planning, is based upon their conception of ideal reality, of actual reality, and the difference between the two. Secondly, economic planning is an endeavor or a trial, which implies that the outcome is uncertain and thus the effort made may either be a success or a failure. The likelihood of success is due to the third element of economic planning: rational action by men. This use of reason and foresight in eco nomic planning reduces the prospect of the failure of the attempt. An action is said to be rational to the extent that it is correctly designed to maximize net goal satis faction, given the actual reality and the ideal reality.3 If the attempted rational action to achieve a goal or objective is politico-economic, then it is termed "economic ^Robert A. Dahl and Charles B. Lindblom, Politics. Economics and Welfare: Planning Resolved into Basic Social Processes (New York: Harper and Row Publishers, First Torchbook Bdition, 1963), p. 20. 3Ibid., p. 38. planning."* Thus, the concept of economic planning is neutral or applicable to any economic system,^ and can serve what ever purpose is desired,® and, in fact the concept is being applied universally. Hence, the controversies about whether or not to "plan" become irrelevant. "Plan or no plan is no choice at all; the pertinent questions turn on particular techniques: who shall plan, for what purpose, *7 in what conditions, and by what devices." Professor Gunnar Myrdal clearly elucidates this idea by pointing out the tautology contained in the word "economy•" He explains that this word "• . .by itself contains a disposal of available means towards reaching an end or a goal. To add 'planned' to indicate that this coordination of activities has a purpose, does not make sense. • • ."® The term "economic planning" was apparently conceived to differen tiate between the conscious, as opposed to the automotive *Ibid., p. 20. 5Elliott, loc. cit. ^aul Alpert, Economic Development: Objectives and Methods (London: Collier-Macmillan Ltd., 1963), p. 71. 7 Dahl and Lindblom, op. cit.. p. 5. Q Gunnar Myrdal, Beyond the Welfare State (New Haven: Yale University Press, l9&b), p. 3. 21 direction of the economy towards achieving certain goals* This distinction extracts the concept from its generic form and places it in its specific context. In contrast to this generic conception of economic planning, there are those who are concerned with planning form their own, individual and more specific definitions of the term. Then, on the basis of those definitions, economic planning can be implemented in a variety of spe cific patterns, "in particular times, places and circum stances ."9 Many economists have not been able to grasp the difference between the two meanings, and it is due to this misconception that Professor Elliott attributes the con troversy that arose. "To the planners, the term connotes a rational way to solve societyTs problems, to anti-plan ners it implies comprehensive controls and regimenta tion."3- 0 This controversy over economic planning can be summarized by quoting Professor Jacob Viner. The advocates of national planning ask us to choose between, on the one hand, a national econ omy centrally planned and regulated by bureau crats whose benevolence is matched by their omni- scence and wisdom, and on the other hand an anarchic free-enterprise market economy with rigidities, 9Blliott, loc. cit. 10Ibid. 22 constantly falling into and struggling out of deep depressions and complacently tolerating gross in equalities in the distribution of wealth and income. The opponents of central planning ask us to choose between, on the one hand, a perfectly compet itive , completely flexible, smoothly-working free- market economy where prices are always and simul taneously a perfect index of social productivity, of relative scarcity, and of real value, and on the other hand, an authoritarian state where officials with a passion for power arbitrarily make economic decisions without regard to, or knowledge of, the preference of individuals. The truth obviously lies somewhere in between, and neither the perfect market nor the perfect plan operated are within the reach of societies with fallible beings.H Nature of the Planning Process12 In essence, economic planning is an organisational activity which is composed of the following elements: a) Establishing targets (aims) of economic charac ter with the intention to implement them by co ordinated economic and social actions. b) Establishing or choosing means, necessary for the fulfillment of established targets. ^Jacob Viner, "The Influence of National Economic Planning on Commercial Policy,11 International Trade and Economic Development (Glencoe, 111.: Free Press, 1952), pp. 96-122, reprinted in Wayne A. Leeman (ed.), Capitalism, Market Socialism and Central Planning (Boston: Houghton Mifflin Conpany, 1963), pp. 283-284. 12in writing this subsection, the writer draws 23 c) Adjustment of targets and means in order to maximise the Implementation of targets at a given level of disposable means.13 This process of economic planning is generic in that it is applicable to any economic system, at any level of economic activity and organisation. The process re quires, first, the determination of goals; secondly, the formulation of plans; and finally, implementation of these plans to achieve the determined goals. Determination of Goals In any society of any complexity, the goals or aims to be pursued are always multiple. These multiple goals may have any of the following relationships: (1) aims are identical if they coincide; (2) if the attainment of one aim increases the prospect for achieving another aim, then these two goals are said to be harmonious; (3) goals are neutral if the realization of one of them does not affect the achievement of another; (4) if the attainment of one objective interferes with the attainment of another, then heavily upon John E. Elliott’s work, op. cit., particularly Chapter III. 13 Zdzislaw Fedorowicz, ’ ’ System of Economic Planning in a Socialist Economy,” Cairo: Institute of National Plan ning, Memo. No. 505, November 1964, p. 1. 24 the goals conflict; (5) goals are incompatible if the attainment of one aim hampers or precludes the attainment of another. Identical, harmonious, and neutral goals do not create difficult planning problems. Rather, problems arise when the aims are conflicting or incompatible. Thus, a system of priorities and coordination among the goals needs to be established. ^ Beyond this, however, there are other important factors which must be dealt with. It is usually difficult to formulate adequately and express clearly planned objec tives. Imprecision in the determination of some goals may be the result of the difficulty or impossibility of their quantification. Moreover, the choice among various goals is made on the margin. This is particularly the case when the goals chosen are not incompatible with each other. Lastly, it should be noted that there is a mutual depend ence between ends and means, and that the choice of goals will affect the means of implementation.-^ 14W. A. Jdhr and H. W. Singer, The Role of the Economist as Official Advisor. Translated from the German by Jane Degras and Stephen Prowein (London: George Allen and Unwin Ltd., 1955), p. 116. ■^Elliott, op. cit., Chapter III, p. 4. 25 The determination of goals involves two aspects. First, there is the question of who is to decide upon the goals. In any socioeconomic system the aims are chosen by the policy-makers. The choice between alternative aims is based upon the policy-maker’s welfare function. Several elements enter into this function: a) Elements determining individual and spiritual well-being, such as the quantity of goods avail able (food, shelter, et cetera), the efforts to be made, the opportunities for education, the right to take part in decisions. b) Elements determining relations between individuals such as: (1) the degree of freedom left to individuals, (2) the frequency of conflicts, or the degree of social and international peace, and (3) the positive elements in social relations, e.g., the degree of justice or the "social climate., f16 The second aspect in the determination of goals is the choice of what aims are to be pursued. A distinction can be made between prime and instrumental goals. Politi cal, cultural and humane objectives may be regarded as prime or ultimate goals. They are ends in themselves as they are direct sources of satisfaction. Instrumental or **\jan Tinbergen, Economic Policy: Principles and Design (Amsterdam: North-Holland Publishing Company, 1956), p. 11. 26 intermediate goals are valuable largely because of their contribution in realizing the prime goals.^ Among the most important instrumental goals advocated in economic doctrines and in different economic systems now in practice are the following: 1. Efficiency in the allocation of resources. 2. Equitable distribution of wealth and income. 3. Stability in the overall level of employment, income and price. 4. Economic development. Although all of these goals are closely related to individual and social welfare, their relative importance differs from cotintry to country and from time to time within single countries. Clearly, the relative signifi cance of these goals in any one country determines the order of priorities in which they are ranked in that coun try. The economically developed countries seek different goals than do underdeveloped countries. They "have the luxury of choice"*8 of goals, whereas in the underdeveloped *^Dahl and Lindblom, op. cit., p. 26. 18John Kenneth Galbraith, Economic Development (Cambridge, Mass.: Harvard University Press, 1964), p. 62. 27 countries there is a greater necessity to concentrate most of the resources on economic development and the improve ment of the standard of living. Thus, for example, the United States of America is pursuing the implicit goals of keeping the level of unemployment at a minimum, while de veloping their military defense. On the otheS; hand, a country like India finds it necessary to accelerate its rate of economic growth to provide for its population a decent standard of living, and this pursuit is its pre dominant economic concern. Furthermore, these instrumental goals or objec tives can be further subdivided in terms of sub-instru mental objectives. For example, raising the level of national and per capita income, and accelerating indus trialization, may be considered sub-instrumental goals, in so far as they contribute to the achievement of the instru mental goal of economic development. If these sub-instru mental goals are quantified, the term "targets” will be used in this study to designate them. Plan Formulation The second stage of economic planning is the formu lation of the plan. This stage has been designated by 23 Processor Jan Tingergen as the design of economic policy which he considers to "consist of the deliberate manipula tion of a number of means in order to attain certain aims."1^ He divides the process of the "design" into four phases consisting of (1) the determination of the actual and estimation of the future state of affairs, (2 ) finding out whether the prospective state of affairs differs from the most desirable situation, (3) ascertaining the effects of alternative economic policies, and (4) making a deci- 20 sion. The first three phases will be discussed under the heading of "Analysis of Conditions," and the fourth phase will be dealt with tinder sub-title "Selection and Adoption of Plan."21 Analysis of Conditions In order to formulate economic plans on a sound basis, planners need to determine the best measures to be taken in order to achieve the already determined goals. The resort to scientific economic analysis including the techniques of economic measurements, economic forecast and ^Tinbergen, op. cit., p. 6. 2QIbid., p. 10. 21Blliott, op. cit., pp. 5-11. 29 economic analysis contributes greatly to the accomplish ment of this step. Economic measurement.--Economic measurement of the actual condition is necessary to determine the existing gap between the actual and the desirable state of affairs. The monetary standard is usually used to express the relevant economic variables such as output, income, saving, invest ment, and so on. To determine the actual values of these variables, price indices are used to correct the effect of any fluctuations in the value of the purchasing power of money. Clearly, not all variables are measurable in mone tary terms, since there are nnon-marketable11 values such as cooperation and equity. One of the most useful techniques of economic measurement in economic planning, particularly on the national level, is social or national accounting. The latter comprises national income statistics, input-output tables, and flow-of-funds accounts. National income sta tistics provide for the measurement of income or output and are used for making various comparisons. It is possi ble to make structural comparisons by relating aggregate figures to their components, to make time comparisons, by 30 comparing the same items through a time-series, and finally to make space comparison by comparing the performance of various regions or different nations. Input-output tables establish a framework for the measurement of the flow of inputs and outputs among the various sectors of the econ omy. 22 piow-of-funds accounts provide a framework for measuring the flow of income and financial claims among the various sectors of the economy. All of these types of economic measurement are used to assess the past and cur rent performance of the economy from different perspec tives. Economic forecasting.— Economic forecasting is also am essential step in the process of plan formulation. The estimation of future state of affairs is needed to find out any divergence between the expected conditions and de sired goals. Planners must first determine the probable changes in the exogenous data not controlable by them, such as population increase, weather conditions, arnd technolog ical progress, and they must also estimate the effects of 22 ^Hollis B. Chenery and Paul G. Clark, Interindus try Economics (New Yorks John Wiley and Sons, Inc., 1962), p. 13. 31 these changes on the endogenous economic variables, such as output, income and the level of employment. Secondly, planners must then examine the effects of various economic measures upon the gap between the expected conditions and desired goals. Two methods of approach to this examination are possible. Planners may examine the impact of specific economic measures on the economy to determine the extent to which the measures can successfully achieve the goal desired. On the other hand, the planners can determine what measures are possible for achieving set goals, and then they can study the probable effects of these measures to determine which of them will most efficiently lead to the attainment of the desired goals. Both of these approaches necessitate the resort to forecasting and the use of economic models of economic analysis. Economic models.--Scientific economic analysis also makes use of economic models. An economic model is "a sys tem of relations, describing in an approximate way, the adaptation process of an economy. . . . It describes the behavior of the mechanism which the policy-makers have to handle.1,22 Economic models are obviously essential to 23Tinbergen, op. cit., p. 6. 32 economic planners who need to know the probable responses and reactions of the various economic units, of which the economy is composed, to alternative policy measures. By determining, even in an approximate manner, the expected behavior of the economic units in question, planners may judge the possibility of attaining the desired goals through possible alternative economic measures, estimate the costs and gains of such measures, and thus determine the most efficient of these measures. However, it should be borne in mind that however rigorous the scientific economic analysis of conditions, it is limited by various factors. In the first place, the choice of goals are not always pre-determined by impartial scientific analysis. Secondly, social, political and military considerations often transcend economic values in evaluating alternative economic plans. Thirdly, economic analysis by itself is necessary but not sufficient to properly select and execute particular plans. What is needed, besides economic analysis, is the will, the power, the imagination and the understanding of the arts of organ isation, execution and control. 33 Selection and Adoption of Economic Plans The final phase in the process of plan formulation is making a choice of the best economic measures and coord inating these measures in a coherent and consistent pat tern, that is, in coordinated programs of action. Theoretically, economic analysis of conditions may be able to provide the correct economic judgment. But in practice, the means to achieve desired ends are not always chosen solely on the basis of the findings of economic analysis. Since planning is not only a science, but an art as well, it requires "will, courage, intuition, daring, and what the late Joseph Schumpeter called 1 vision1,"^4 the policy-makers, who are generally non-professional economists. Moreover, the adoption of certain kinds of economic plans may result in real or imagined cost or hard ship to some people. Opposition to such measures, however efficient they may be in attaining the desired goals, may thus arise. Hence, the art of planning involves either overcoming this opposition, or finding other economic measures, equally efficient, that would result in reducing the opposition to a minimum. 24 Elliott, op. cit., Chapter III, p. 10. 34 The acceptability and consent of the general public to the selected, economic plan, increases the likelihood of its success.25 The selection and adoption of such plans, must thus take into consideration the ways and means of mobilizing the support of the people. Furthermore, planners may not be positively sure of their economic measurements, forecasts and analysis. Hence planning may proceed by a "trial and error" method, and planners may propose a series of smaller tentative changes in the present state of affairs, rather than any major comprehensive change, as the safest manner of pro ceeding towards the desired situation. Such methods have the advantage of flexibility and reversibility, whereby mistakes in applying economic measures cam be corrected. Finally, the cost of administering the plan and the capacity of administrative personnel to implement them, put a further limitation on the scope, complexity and sophistication of economic plains. National economic plans may be formally adopted by 25United Nations (ON), Planning for Economic Pevel opment; Report of the Secretary General Transmitting the Study of a Group of Bxperts (A/5533/Rev.l) (New York: United Nations, 1963), p. 4. 35 the government after the approval of the legislative authorities. Execution of Economic Plans After the economic plan has been selected and adopted, the final stage in the process is its implementa tion, that is, the execution of its programs. Various requirements must be met to ensure that the plan through out its execution, is carried out so as to conform to its purpose. There must be an alert machinery to follow through during and after the plan has been implemented to ensure that the objectives are achieved. Methods of com municating relevant information among the concerned eco nomic units need to be established to guarantee that the programs are operating smoothly and as designed. Revi sions of policy measures, of programs of actions and of economic plans are sometimes necessary in view of unex pected changes in economic and non-economic conditions. Hence the need arises for establishing methods to over come such problems and difficulties. Enough flexibility must be maintained to allow for such revisions. Methods of social control of the actions and re sponse of all individuals affected by the programs are 36 among the most crucial elements of implementing economic planning. Control has been defined as any "technique by which one person or group influences, in a direct and sig nificant way, the actions of any other person or group."2* * Each economic system has its own combination of different method of control. There are four basic types of control; (1) spon taneous field control refers to the unintentional influence which one person or group may exert on another's social sphere of activity without deliberately seeking to produce a response; (2) manipulated field control refers to the influence exerted deliberately by one person or group on another person or group; (3) command is a technique by which a controller seeks deliberately to affect the re sponses of the controlled by threatening to penalize him for failure to perform the desired ends; and (4) reciproc ity involves the attempt of two or more people to control the fields of one another through command or manipulation of fields, or both.2" 7 Elliott, op. cit.. Chapter III, p. 11. 0 * 7 'Dahl and Lindblom, op. cit.. pp. 99-109. 37 To be effective, control requires a consistency between the controller*s and the subordinate's goals, an adequate and internalized system of rewards and penalties, and appropriate identification of and communication be tween the controller and the subordinate.28 Types of Developmental Plans Any economic system is involved in planning to the extent that it provides for its own particular solution to the four main economic problems: how to allocate scarce resources among competing and multiple desired ends; how to distribute income and wealth among its people; how to avoid economic fluctuations and stabilize income, employ ment and prices; aund how to provide for the growth and development of the economy. Naturally, the order of pri orities given to solution of these problems, as well as the means which are used to achieve selected ends, differ in the various economic systems. Hence, a plan can be labelled as developmental if the priority is given to the goal of achieving growth of the economy and if relevant measures are designed and 28Ibid.. pp. 112-117 38 undertaken in pursuance of this objective, particularly those related to the necessary structural changes con sidered essential for economic growth. The identification of any developmental plan can be made in terms of its coverage of units and levels of development activities, the length of time during which the plan is operative, the extent of the politico-geograph ical area in which the plan is implemented, and in terms of the coverage and magnitude of the plan as a whole. Developmental plans can also be classified in terms of the personnel responsible for their formulation and implemen tation, and the extent to which the plans are centrally organized and processed. Projects, Programs and Plans In terms of units of development activities, a distinction must be made between a project, a program, and a plan. A project is the smallest schematic unit of de velopmental activity, such as the construction of a fac tory, a school, or some similar enterprise. A program is a set of related, integrated, and coordinated projects having the objective of developing a certain activity or area. A plan refers to the aggregate of all development 39 programs in an integrated whole. Incidentally many econ omists use these three terms somewhat interchangeably over looking the distinctions between them, and the advantages of keeping them distinct and using them precisely. Long-term. Medium-term, and Short-term Plans Development plans can also be classified according to periods of time during which they are operative. A distinction is made among long-term, medium-term and short term. The plans that cover a longer period are supposed to provide a more general framework within which the shorter term plans fit in. Long-term plans usually cover a ten-year period. They contain general aggregated tar gets and outline the general directions of the main devel opmental efforts to be pursued in the next decade. Some plans which cover periods longer than ten years, may be called perspective plans. The latter are then conceived of in even more general terms than the long-term plans. Medium-term plans are intended to operate for at least two years but less than ten.2* * The targets and tasks included 29 Everett E. Hagen, Planning Economic Development (Homewood, 111.: Richard D. Irwin Inc., 1963), p. 18. 40 in these plans take a more detailed and concrete form, particularly for the key sectors in the economy. Short- term plans are on an annual basis, which may be further broken down to semi-annual, to quarterly, bi-monthly and monthly periods. Aims and means in these short-terms plains are more precisely expressed and more accurately fore casted. Their importance lies in their operational value. To ensure the continuity of the planning process some countries are considering the utilization of "rolling plans" whereby another year is added in the short-term 30 plan as each plan year is completed. Spacial Coverage of Plans The politico-geographical area covered by develop mental plans is another criterion by which such plans can be identified. Village, city, state, regional and national plans are conceived for these political territories. Plans covering supra-national areas may also be worked out for many nations which have common relations or for common objectives. Plans that cover smaller territories must be consistent within the framework of the larger one. 30UN, Planning for Economic Development . . . , p. 7. 41 Partial and Comprehensive Plans In terms of their magnitude and coverage, develop mental plans can be either partial or comprehensive in nature. Partial plans are those concerned with one of the following aspects: 1. Plans for particular economic sectors within the economy such as agriculture, industry, or social services. Such partial plans consist of an inte grated scheme of projects within each sector and which are designed to achieve certain desired tar gets for the sector. These targets and projects are not necessarily related to the plans carried out in other sectors. 2. Plans for particular economic activities such as investment, saving, consumption, exports, and im ports , on a more or less aggregate level, and. which may not be related to other activities. 3. Plans for either the public or the private sector which may not form an integrated whole. Such partial plans may best be referred to as pro grams, as they may be made to fit larger schemes of more comprehensive nature. Hence the term "program” will be used instead in this study to avoid any terminological 42 confusion. If the partial plans constitute parts of an inte grated and coordinated whole, then these plans form a com prehensive one. A comprehensive plan is one that comprises all economic sectoral programs, programs of various eco nomic activities, and programs for the public and private sectors. A comprehensive plan should at least include the following elements: 1. Objectives and aggregate targets, primarily in in terms of national income and employment. 2. A public investment programme with distribution of development expenditures among major sectors, chiefly for building up the economic and social infrastructure. 3. A projection of private investment among various major sectors. 4. Policy measures (especially in fiscal, financial, foreign trade, foreign exchange and foreign in vestment fields) to stimulate, direct and influ ence private investment. 5. A program coordinated with (4), for financing public and private investment from domestic and foreign sources, including particularly the government budget and the foreign exchange bud get. 6. Sectoral programs containing individual projects. 7. Policies aiming at basic institutional changes, 43 31 including land reform, labour policy, et cetera,'' The comprehensive approach to planning should be distinguished from a compilation of a set of projects since the former approach signifies the following: First, that an attempt is made to relate the various projects towards each other; secondly, that an attempt is made to relate policies for both the public and the private sector to the projects; and finally that an attempt is made to make various projects feed into each other in timing, manpower planning, size and so forth.32 However, it should be noted that the extent of comprehensive planning varies from one country to another, depending on "the stage of development of the economy, the availability of statistical data and the supply of quali fied planners.”33 Also, the degree of detailing a compre 31 United Nations, "A Decade of Development Plan ning and Implementation in the ECAFE Region," Economic Bulletin for Asia and the Far East, Vol. XII, No. 3, December 1961, p. 2. 32 Wolfgang F. Stolper, "Comprehensive Development Planning," Paper prepared for the Economic Commission for Africa Working Party in Addis Abbaba, January 1962, (mimeo graphed), pp. 1, 3-6, 8-13. Printed Gerald M. Meier, Leading Issues in Development Economics (New York: Oxford University Press, 1964), p. 494. 33 UN, "A Decade of Development Planning . . . ," loc. cit. 44 hensive plan differs among countries having different socioeconomic structures. Hence, developmental plans in Western European countries, during their reconstruction period after World War II, were largely in terms of aggre gate magnitudes of'the most significant variables such as national and sectoral production and income, investment, labor force, balance of payment, and so forth. These aggregate plans were used as a basis for choice and use of 34 general policy measures. The other extreme, in terms of plan detailing, is found in economies of the Soviet type. In the U.S.S.R., for example, the central planners at the State Planning Commission are primarily concerned with allocating such aggregates as investment, labor force, output, input among various subunits. They concentrate their directives on key sectors and key commodities ranging from one to two thou sand commodities. However, these subunits, to which these variables have been allocated, issue, in turn, their direc tives to other organization falling under their jurisdic- 34 Hollis B. Chenery, "Development Policies and Programmes," ON, Economic Bulletin for Latin America, Vol. Ill, No. 1, March 1958, p. 57. 45 tion. This process goes on, with more detailing of the plans until the activities of every economic unit are de- 35 termined in full detail. Centralized and Decentralized Planning The extent or lack of centralization in the organ ization of economic activities constitute still another criterion for categorizing economic planning. Competitive price or market planning may be viewed on one end of a con tinuum at the opposite end of which is centralized social ist planning as conceived in theoretically constructed models of pure capitalism and pure socialism respectively. Professor Elliott shows that the essence of com petitive price planning in a pure capitalist economy is the absence of a centralized economic plan, and the decen tralization of economic decision units.3* * In a pure capi talist economy, the establishment of national economic goals is not the responsibility of central planners. The coordination of economic decisions among the atomistic 35 Robert W. Campbell, Soviet Economic Power. Its Organization, Growth, and Challenge (Cambridge, Mass.: The Riverside Press, 1960), pp. 94-95. 3^Blliott, op. cit., Chapter IV, pp. 1-9. 46 units is carried out through the market system where no conscious control is being exerted. The consumer is sov ereign as his economic activities ultimately direct and influence the decisions of firms and resource owners. Max imization of economic gain through equating marginal cost with marginal gains assures the required coordination among the decisions of various economic units, as if "led by an invisible hand." It should be noted that this system is a theoret ical construct; no purely capitalistic economy can be instituted in practice, because the imperfections of a market economy necessitate governmental intervention. On the other end of the continuum is centralized socialist planning. According to Professor Pedorwicz, all economic decisions are concentrated in the highest economic authority, usually in the state planning agency which has the following functions: a) Establishing the national economic plans of pro duction in full detail, setting the programs of every economic unit. The programs establish details of production, productive capacity, tech nology of production, employment, and organiza tions. These programs are given as direct orders for execution. b) Direct distribution of all goods and services among all economic units, including individual 47 37 consumers. This system is also a theoretical construction and is not found in practice either, as it is not possible for the central planning agency to obtain all the information needed for detailed decisions; and, even when it is possi ble to get this information, it is impractical for the QQ planning agency to use it properly. gg Patterns of National Planning xn Practice Because of the increasing recognition that economic planning • . is a technique which all economic policy can use, and often will have to use, to attain its goals with any degree of certainty,”^0 there has been a rising trend, in recent years, towards the adoption of national economic planning in many countries around the world, irrespective of the prevailing socioeconomic and political system. The experience in national economic planning has 37 oo Fedorowicz, op. cit., p. 3. Ibid., p. 4. ^9In writing this section, the writer draws heavily on the UN, Planning Economic Development, op. cit. ^®Carl Landauer, The Theory of National Economic Planning (Berkeley: University of California Press, 1947), p. 157. 48 differed from one country to another in the aims pursued, the means adopted to achieve these ends, and the scope, content and methodology of plan formulation. Nevertheless, several patterns of national planning prevalent in various types of economic systems, can be distinguished. The contemporary world can be roughly and arbi trarily divided into three categories or types of socio economic systems: the sociocapitalist systems including Western Europe and the United States of America; socialist countries of Soviet-type economies, including China and the Eastern European nations, with Yugoslavia being a special sub-type; and the underdeveloped countries including most African, Asian, and Latin American nations. Sociocapitalist Economies The sociocapitalist countries have a developed economy with high per capita income and advanced technol ogy, and they rely heavily upon capital and capitalistic methods of production. Private ownership and control of business enterprise prevails but government ownership and control though limited, is increasing particularly in strategic activities. Economic power is divided among individuals, large organisations, private groups and the 49 government. The organization of economic power is highly decentralized but the recent trend is towards increased centralization. The motivational system is characterized by individual economic gains modified by the goals of large organizations and social goals pursued by the government. Although the prime reliance for the economic coordination of social processes is on the market system, yet bureau cratic, democratic, and bargaining processes are also utilized. The distribution of wealth and income is accom plished by the market-determined contribution to produc tion, and large inequalities in this distribution exist. The goals of the "welfare states" which have emerged in the developed sociocapitalist countries during the last half century are those of economic development, full employment, social security, equality of opportunity, and maintaining a minimum standard of education, health, housing and nutritions. The prime concern of these nations is with maintaining full utilization of productive re sources which are expanding due to population growth and 41 John E. Elliott, lecture notes on "Comparative Economic Philosophies and Planning," course given at the University of Southern California, Los Angeles, Spring 1964. technological progress. The pattern of planning being used by these nations is shaped to their socioeconomic structure by the fact that the main economic decisions are largely made by the private sector. To influence these decisions in the direction of desired national goals, the governments resort to indirect methods which rely heavily on fiscal and monetary policies, as well as increasing public intervention. Systematic coordination of policy measures to regulate the economy is indicative of the type of activity which constitutes eco nomic planning in these countries. This coordination does not usually take the rigid form of a comprehensive plan.^ Where a formal developmental plan is elaborated, it indi cates the most desirable rate of economic growth which is considered to be consistent with equilibrium conditions for maintaining a balance between saving and investment, supply of labor and employment, exports and imports, and public revenue and expenditure. The emphasis of such plan ning is on macroeconomic elements such as national income, investment, consumption, exports and imports, or for out put by major economic sectors. These aggregates are pro- 42Myrdal, op. cit., pp. 62-63. 51 jected for the future and are set as targets, serving as guidelines for government economic policy, but are not binding to the private sector. Soviet-Type Economies In the socialist countries of the Soviet-type econ omies the main goals have been high growth rates of pro- duction, economic independence, maximum expansion of the 43 public sector and the maintenance of a balanced economy. The major economic goal has been the pursuance of rapid economic development through the creation of an economic structure conducive to such an aim. For the achievement of this goal, these socialist countries have all followed more or less the same pattern of planning, with the excep tion of Yugoslavia which has a unique experience in this field. The economies of these countries are centrally planned by the government in a comprehensive form for almost all facets of economic life and for all levels of economic activities. Most targets which are translated into detailed directives are binding on all levels of activities of operating units. A recent trend in these Z. Bor, "Draft relating to chapters 1, 2, 3, and 4," UN, Planning for Economic Development • • ., p.123. 52 countries has been towards less centralization in planning whereby the central plan is framed in terms of aggregate indicators, and the detailed directives are reduced in scope and number, thereby giving more autonomy to the enterprises to operate within the general frame of the plan and formulate their own detailed plans. During plan formulation in socialist countries, decisions are made regarding macroeconomic elements such as the pattern of development, the volume and scope of structural changes and the scale of priorities. Conse quently strategies of economic development are decided upon which are considered conducive to the achievement of the main goal of a rapid rate of development, and which are consistent with the above-mentioned macroeconomic elements, without creating imbalances among the sectors. The basic strategy has largely been through giving priority to indus trial investment particularly in such activities as the production of energy and basic metals, machinery, construc tion, and transport. Investment in consumer goods and agriculture has been given less attention. The central planning organs have the major respons ibility for drawing up national economic plans in collabo ration with the planning services of ministries, regional 53 oxgans, enterprises, institutes of scientific research and other bodies. The plans are drawn for long, medium and short terms by the method of successive approximations. According to this method, the national plan is elaborated in several stages, reverting and correcting many times previously calculated indicators both at the centre and in all other units of economic organization, until coordina tion among the various parts of the plan and among various sectors of the economy is achieved. The central planning organ prepares the framework of the plain in quantitative terms which consist of "control” figures, including output targets and available inputs, equipment, materials, and labor. General directives by the higher party organs and higher government authorities are given at the same time that the quantitative general frame of the plan is being worked on. The second phase of plan formulation is the elab oration of detailed plans for all branches of economic activities, and enterprises, and all political units, mak ing use of specific and general balance calculations. Specific balances relate to particular sectors, to re sources, and to financial flows. A system of material balances deals with output and requirements for inter- mediate goods. For the formulation of production plans, the balance of productive capacity is used to determine the capital investment needed over and above existing physical capital. Balances for labor, raw materials, and agricul tural lands give the requirements for targeted production in these sectors. Monetary balances are prepared to equate the purchasing funds of the population with supplies of consumption goods and services. Financial plans are drawn to ensure the conformity between the flows of financial resources and the physical plans, and to check the con sistency of the national plan as a whole. These specific balances are integrated into a system of social accounting composed of balances of the national economy. The aim of these balances is to ensure conformity among the specific partial plans and the national plan, and to verify the consistency among the envisaged structural changes and the comprehensive goals. The overall balances include the balance of production and utilisation of the social prod uct, the balance of production, distribution and final utilisation of national income, the balance of labor re sources, and the balance of fixed capital. From these tools, basic indicators, expressed in control figures, are derived. These control figures, together with prescribed 55 measures for their fulfillment, direct the execution of the plans and other organization. The plans of the enterprises are based on the con trol figures transmitted to them. Their plans are consol idated in the ministries, and the partial plans for region al units and for branches of economic activities are sub mitted to the controlling planning organ. From these partial plans and the financial indicators, the national comprehensive plan is formulated. The national plan con tains only broad targets for economic sectors and activi ties and does not include targets for specific enterprises. The plans assume an obligatory character once they are approved by government authorities and the legislative bodies. The implementation of plans in these socialist countries depends greatly on the direct supervision of higher government authorities. Among the main instruments of plan implementation are the negotiation of inter-enter- prise agreements, to ensure that output is produced and marketed in accordance with economic plans. Systems of material incentives are used to encourage the enterprises to fulfill and overfulfill the targets for output and to induce cost reductions and innovations. In addition, the 56 concerned authorities are able to impose an intricate sys tem of penalties for nonfulfillment of planned targets at any level. Another important instrument of plan implemen tation is the system of prices in which all prices are fixed by the central governmental authorities. Wholesale prices are fixed on the basis of costs of production plus a profit margin, while a turnover tax is levied on con sumer goods and retail prices are fixed to equate their supply and demand. Wage rates are also fixed according to the classification of occupations. The follow-up of the progress of the plan imple mentation is carried out periodically on a comprehensive basis for all plan indicators. This plan verification is carried out by all planning authorities to ensure the attainment of planned objectives and to disclose any im balance in the economy as well as to discover the factors responsible for such imbalance. Accordingly, steps are taken to redress such imbalances. Among the techniques used in this direction is the establishment of material and currency reserves which are used as needed or required for plan fulfillment. The banking system also plays an important role in implementing the plans by keeping a con trol over the finances of enterprises and by keeping a 57 continuous check on theiz activities. The Yugoslav Model A different and distinct method of socialist eco nomic planning has developed in Yugoslavia duzing the 1950's. This method is based upon the decentralization of economic power through the transfer of the management of enterprises to workers' councils and the granting of more autonomy to enterprises and regional political bodies, within certain limits. This system also places heavy re liance on the market mechanism for economic coordination of social processes, within the framework of general, overall government controls and plans. For the achievement of a rapid rate of economic growth, national plans are elaborated which set global proportions in the rate of growth of various sectors, the structure of capital investment, foreign trade, and the balance of payments. These plans are of an aggregative character and do not specify detailed targets for individ ual enterprises. In the process of plan formulation, the analysis of conditions are carried out on macroeconomic and sectoral bases, making use of a set of balance sheets and aggregate models for production, investment, consump tion, employment, income and pzice elasticities. In pre paring the plans the federal planning authorities cooperate closely with republic and other planning boards and other organizations such as industrial chambers, trade unions, banks, business enterprises and research institutes. Alternative choices regarding targets and policies are worked out in a global framework. Once a choice has been made, a final draft of the plan is elaborated also in an aggregative form which is adopted after approval by the government and the parliament. The implementation of developmental plans is carried out through the setting of general legal norms regulating the distribution of enterprise incomes, credit policy, fiscal measures, prices, and foreign trade poli cies. These measures are designed to bring the activities of enterprises in conformity with the national plans. These enterprises are autonomous units, free to decide their own output, sales, prices, and modernization invest ment policies. The policy plans of the republics and com munes also affect the activities of the enterprises, and their plans must conform with the national plans. Invest ments are determined by government authorities and allo cated to various sectors according to the predetermined 59 plans. Within each sector, and among various industries, investment funds are allocated by the banks which adminis ter these funds for the federal, republican and communal authorities. Financing for these investment has come mainly through taxes levied on enterprises. Onderdeveloped Economies In economically underdeveloped countries, the major goal is that of increasing and accelerating the rate of economic growth through national comprehensive planning. The emphasis on economic development may be attributed to the existing low standards of living and the "revolution of rising expectation" which is taking place in these countries. In this writer's opinion, a prime concern in de velopmental planning should be upon instrumental goals, in so far as their realization contributes to the achievement of economic development in these countries, namely the abolition and transformation of the existing social and economic institutions which are obstacles to development. Thus, the pattern of developmental planning is not only affected by the existing socioeconomic structure, but also by the need to adapt this structure, to the requirements 60 of development. Furthermore, this pattern is liable to change with the movement from one stage of economic devel opment to another. The formulation of development plans in developing countries has varied in scope and methods. Some countries have elaborated partial plans consisting of separate pro grams for specific sectors of the economy, such as indus try or agriculture, or programs for the public sector alone. Other countries have comprehensive plans covering all economic sectors and activities by both the public as well as by the private sectors. Furthermore, some coun tries have elaborated formal development plans without providing for the appropriate means to implement them or to follow-up their progress. Some underdeveloped and developing countries have either followed the sociocapitalist or the socialist methods of developmental planning, while others incorpo rated elements of both methods. Professor Gunnar Myrdal is of the opinion that most underdeveloped countries axe defining their goals for state planning in terms of the modem democratic welfare states of the West. While they are attempting to achieve these goals by adopting the 61 Soviet-type techniques for programmatic and comprehensive planning, they are unwilling or unable to enforce its severe discipline and, at the same time, they rely some what on private ownership and control of the means of pro- 44 duction. For those developing countries which have confined their developmental plans to the expression of broad tar- tets such as national income, investment, consumption, exports and imports, plan formulations are based mainly on projecting the rate of growth. The use of such plans are limited to providing general guidelines for governmental measures, particularly for fiscal and monetary policies. The Need for Developmental Planning: Theoretical Arguments Every country needs developmental planning as long as productive resources are scarce in comparison to desired ends. In the developed economies, there is a need for coordinating the country's economic activities to sustain the rate of growth. Greater importance is attached to developmental planning in underdeveloped economies needing 44Myrdal, op. cit., pp. 124-127. 62 to be raised from stagnant economic conditions and to be launched into a state of self-sustained growth. General Considerations and Justifications for Developmental Planning This need for developmental planning is rapidly gaining recognition by most of those who are concerned with the problems confronting developing countries. Thus, in the declaration of the Conference on the Problems of Eco nomic Development held in Cairo, United Arab Republic, July 1962, it was recommended that developing countries should set up and implement "appropriate national development plains, as effective instruments of rapid economic g r o w t h . " ^ Both Western and socialist economists in international institutions, such as the United Nations and the World Bank recommend to developing countries that they adopt such plans. They seem to agree with Dr. Galbraith that "the country which does not have goals, and a program for reaching these goals, is commonly assumed to be going 4 5 Conference on the Problems of Economic Develop ment , papers. (Cairo: General Organisation for Government Printing Office, 1962), p. 354. 63 nowhere.Moreover, according to Professor Albert O. Hirschman, the reasons for which the adoption of develop ment plans has proven so attractive are the following: 1. The plan expresses clearly in a specific form the general strong desire for a better standard of living. 2. Governments in developing countries who adopt such plans gain more popularity. 3. The chance for the country to qualify for for eign assistance increases when it has a development plan. 4. The adoption of the plan facilitates for the government the procurement of additional financial funds from domestic sources through taxation and other meas ures.^ Depending on the economic structure of the country and the prevailing circumstances, the extent of the need for planning, according to Professor Jan Tinbergen, may be considered to be a function of the desirable effects that ^Galbraith, op. cit., p. 66. 47 Albert 0. Hirschman, "Economic Policy in Under developed Countries," Economic Development and Cultural Change (Chicago: University of Chicago Press, 1957), pp. 362-370. Reprinted in B. Okun and R. W. Richardson (eds.), Studies in Economic Development (New York: Holt, Rinehart, and Winston, 1962), p. 471. 64 can be obtained through it. Where there is more urgent need for forecasts, for commitment to certain objectives, and for coordination, the more pronounced is the need for planning. The need for forecasts stems from the "long- lasting production process, . . . the erratic changes in 48 production, . . . and the longevity of products." The importance of sticking to certain objectives increases if there is a feeling of urgency when the divergence between reality and goals is great. Coordination in the instru ments of economic policy is more urgently needed when the number of these instruments is large. Hence, planning is most needed in developing countries as they become aware that they are in a struggle against poverty. The unstable markets of these countries increases their feeling of ten sion which is the result of the realization of existing disparity between present conditions and aims. They have to use a large number of instruments of economic policy, and thus a great need for coordination arises.49 With the increasing awareness of the people in 48 Jan Tinbergen, Central Planning (New Haven: Yale University Press, 1964), p. 42. 49Ibid.. pp. 65-73. 65 developing countries about their economic backwardness} and poverty and with the "revolution of rising expecta tions}" the political leaders feel that rapid and positive actions must be taken to develop their countries' economic strength.50 These actions must be designed in a rational manner by the government which undertakes them. But be cause of the scarcity of resources available for develop mental activities and because of the multiplicity of goals towards which developmental efforts could be conducted} a difficult choice is inposed upon the governments of devel oping nations. The fact that the authorities of these countries show an interest in developmental planning indi cates that they have some awareness of the nature of their countries' economic problems. Yet the mere attempt to engage in such planning will intensify their awareness of these problems} giving the authorities a more specific and realistic understanding of the sources of their countries' problems} of the many goals to be achieved, and the scarc ity of available resources for achieving these goals. Scientific analysis and prediction help detect future bottlenecks that may arise in the process of development 50Hagen, op. cit., p. 17. 6 6 and they aid in finding solutions that avoid waste in the use of resources. Thus, a developing country employing developmental planning has a better chance of accelerating its economic growth.51 Furthermore, Professor Oskar Lange maintains that since spontaneous development is not liable to be forth coming to underdeveloped countries due to historic condi tions, namely feudalism, monopoly capitalism, and imperi alism, developmental planning is necessary, particularly for mobilizing and channelling enough resources for produc tive investment to assure a country's rapid economic development.52 Professor Gunnar Myrdal also points out the need for adopting national, comprehensive plans in developing countries for the following reasons: 1. To be able to allocate efficiently the avail- 51Max F. Millikan, "The Process of Economic Devel opment," Managing Economic Development in Africa, Proceed ings of the M.I.T. Fellows in Africa, Annual Conference, Evian-Les-Bains, France, August 12-24, 1962, Warren H. Hansman (ed.) (Cambridge, Mass.: The M.I.T. Press, 1963), pp. 13-14. 520skar Lange, Economic Development, Planning, and International Co-operation, three lectures delivered at the Central Bank of Egypt, Cairo, 1961 (New York: Monthly Review Press, 1963), pp. 6 , 16, 17. 67 able scarce resources, a matter most crucial to under developed countries where they demonstrate much waste in utilizing their resources. 2. To overcome the rigidities which characterize their economies by foreseeing and overcoming bottlenecks. 3. To ’ ’free the minds of the people and the gov ernments from many popular misconceptions. . . . by knowl edge of the true causal relationships as revealed by na tional planning in real terms. To these purposes , a fourth may also be added, namely, that a comprehensive development plan aids con sistency among different programs, and between the programs 54 and total available resources. Prom what has already been mentioned it seems that it is considered essential for an underdeveloped country to have an overall integrated national plan for economic 53 Gunnar Myrdal, Rich Land and Poor? The Road to World Prosperity (New York* Harper and Brothers, 1957), p. 94. 54United Nations, Measures for the Economic Devel opment of Underdeveloped Countries, Report by a Group of Experts appointed by the Secretary-General of the United Nations (B/1986. ST/ECA/10, May 3, 1951) (New York: United Nations, 1951), p. 65. 6 8 development. Moreover, many economists advocate that it is the responsibility of the governments to initiate and carry out these plans. Professor Galbraith suggests three areas in which state developmental planning is essential for economic de velopment. The state must undertake initiative (1) in high priority fields such as education and transportation, and (2 ) where a major effort is needed for industrialization. If no state action is taken in these areas, it will not be possible for the private sector to carry out the needed projects. (3) The state must undertake to conserve its resources, especially foreign exchange; otherwise its al ready scarce resources will dissipate on luxurious con sumption.^ Defense of Centralized Comprehensive Planning Central comprehensive planning is sometimes advo cated on the grounds that it is necessary: (1) to determine the allocation of the national prod uct for consumption, private investment and public outlay; (2) to enlarge the sector of public enter prise to correct the misallocation of resources arising under the private enterprise system; (3) to 55 Galbraith, op. cit.. p. 68. 69 protect workers against all forms of exploitation; and (4) to provide for economic stability and de velopment at a predetermined rate.5^ The Western advocates of centralized socialism (such as Professors M. Dobb, P. Bar an, and P. Sweezy) pre sent the following arguments to support the contention that centralised comprehensive developmental planning is impera tive, particularly in the early phases of economic develop ment : 1. Since a large developmental effort is needed to move a stagnant economy into self-sustained growth, and since private entrepreneurs are unwilling or unable to undertake such an effort, then it is left for the state to undertake this necessary step in an organized manner through comprehensive planning. 2. To achieve a rapid economic growth, centralized comprehensive planning is more suitable for making deci sions about large required structural changes. 3. To obtain external economies out of the inter dependency said complimsntarity of various investment proj ects, it is more advantageous to decide upon them and to S^Baljet Singh, Economic Planning in India, 1951- 1956 (Bombay: Hind Kitbas Ltd., 1953), p. 8 . coordinate their output centrally. 4. Because of imperfect knowledge and lack of foresight, on the part of private entrepreneurs, some proj ects may never be undertaken unless certainty about their future success is raised, or unless there is a continuity of investment in the entire economy. Central comprehensive planning raises the certainty and assures more continuity. 5. Through ex-ante coordination of the various elements of the central comprehensive developmental plan ning effort, desired goals can be achieved more rapidly and more easily. 6 . Through central comprehensive developmental planning, it is possible to take into account the social costs involved in the use of additional amounts of factors of production, and also the impact of developmental activ ities on the future relative scarcities of these factors.5^ Critique of Centralized Comprehensive Planning On the other hand several economists condemn the method of central comprehensive planning not only for eco- 57 ElliottEconomic Systems • . . Chapter XII, pp. 13-14. 71 nomic development, but also for use in achieving any other economic goal. Professor A. 0. Hirschman is of the opinion that such plans are not helpful on the grounds that they "drown out the sense of direction so important for purpose ful policy-making."5® Moreover, he contends that "the attempt at comprehensive programming usually exacts a high price in terms of articulateness and. persuasiveness, quali ties that are essential for the plan's ability to come to grips with reality."5® Another notable economist, who has greatly con tributed to the theory of economic planning, Professor W. Arthur Lewis, maintains that central planners cannot realistically cope with the economic system because of its complexity, and thus, they are unable to stipulate the effects of their acts. Furthermore, central planners have the tendency to excessive standardization, because it sim plifies their job, but this standardization has an adverse effect on consumers' satisfaction and foreign trade. The necessity of gathering excessive amounts of information 5®Albert 0. Hirschman, The Strategy of Economic De velopment (New Haven: Yale University Press, 3rd. Print ing, Yale Paperbound, 1962), p. 205. 59Ibid. 72 constitutes another major obstacle.6® Most of the arguments against central comprehensive plans point out the impossibility or the impracticability of formulating such plains and of implementing them effi ciently. Thus, Professor Von Mises denies altogether the possibility of economic planning because ’ ’the absence of a free market and of a cost and profit system untampered by the state would preclude any economic criteria to deter mine in an objective way what should or should not be done.’ ’6^ Along the same line of argument, Professor Hayek contends that the method of central comprehensive planning displaces the competitive price system, as "any attempt to control prices or quantities deprives competition of its power of bringing about an effective coordination of in dividual efforts.”62 Professor W. A. Leeman also argues that it is an "exceedingly difficult task to develop a consistent output plan, . . . with its hundreds of thou- 60W. Arthur Lewis, The Principles of Economic Plan ning (London: Dennis Dolson Ltd., 1956), pp. 16-19. 61Myrdal, Rich Land and Poor . . . , p. 92. ^Friedrich A. Hayek, The Road to Serfdom (Chicago: University of Chicago Press, 1944), p. 37. 73 sands of items in different sizes, models, and location."63 Professor Hayek adds that effective implementation of such plans through conscious control becomes impossible because: nobody cam consciously balance all the considera tions bearing on the decisions of so many individ uals, . . . and because all the details of the changes and constantly affecting the conditions of demand and supply of the different commodities cam never be fully known, or quickly enough collected and disseminated, by any one center . . .64 Rebuttal of the Critique of Centralized Comprehensive Planning In answer to the above arguments, Professor Myrdal admits that there are reasons to expect mistakes, and even total failure. "But the alternative to making the heroic attempt is continued acquiscence in economic and cultural stagnation, or regression, which is politically impossible in the world today.He proposes that rational calcula tion for economic planning be carried out in physical or real terms, for if calculations are carried out on the basis of prices, costs, and profits, planning would be distorted.66 it would be irrational to use the price sys- 64Hayek, op. cit., p. 49. 6^Myrdal, Rich Land and Poor . . . , p. 86. 66ibid.. p. 93. 74 tem as a method fox efficient allocation of resources and for coordination in an underdeveloped country as: the price system as a part of a very irrational whole, namely the economy of backward country, can hardly have any claim on rationality. • . . It could ever less form the rational basis for those "economic” and "objective" criteria as, further more, its continuous modification is a necessary part of the state interference which form the operative part of the national plan.®? Supporting this view, Professor Benjamin Higgins argues that the choices confronting underdeveloped coun tries must be made in terms of "bumps" and "jumps" or structural changes rather than marginal adjustments. The market provides very limited guidance in allocating re sources so as to maximize the degree of development. For this reason, developmental planning is necessary.*’* * More over, Professor Baran points out that the problem of the efficient allocation of resources will be facilitated, particularly in the first stages of economic development, by ". . .a choice among few technological alternatives involving large indivisibilities and 'fixed coeffi 67Ibid.. p. 92. 6®Benjamin Higgins, Economic Developmentt Prob lems. Principles and Policies (New York: W. W. Norton and Co., Inc., 1959), pp. 454, 634. 75 cients*."69 Even if this were so, Professor Hayek's argu ment would seem to indicate that, in contrast with the com petitive price system which accomplishes the functions of solving the economic problems through automatic coordina tion, the "method of central direction is incredibly clumsy, primitive and limited in scope. Requirements of Developmental Planning Developmental planning must be designed in a man ner that enables all developmental efforts to yield a maximum rate of economic growth. Hence, the requirements of good developmental planning, according to Professor Galbraith, are the following: 1. A pragmatic choice of instruments for imple menting the plan should be made, utilizing the price sys tem when its effects are more desirable and less costly. 2. The plan must be designed according to the cultural and economic level of the country involved. ®®Paul A. Baran, "National Economic Planning," A Survey of Contemporary Economics, Vol. II, Bernard F. — Haley (ed.) (Homewood, 111.: Richard D. Irwin, Inc., 1952), p. 385. 70 #vHayek, op. cit.. p. 50. 76 3. The plan must pxovide for a sensible strategy fox economic development, giving priority to the more urgent and important needs of the country. Professor Everett E. Hagen contends that a good plan for economic development must include definite pro posals for replacing one government program for another.72 The following elements must also be an integral part of such a plan: 1. It must comprise proposals for capital and cur rent expenditure by the government as well as for adequate measures to induce the private sector to undertake the designed changes in consumption and investment that are necessary for the achievement of the desired development target. In order to establish such a plan on a sound basis, the following steps must be taken. a) Scrutinizing individual projects to reject those which are obviously undesirable and dis advantageous, even when such projects are con sidered by themselves. b) Taking into account the complementarities 71Galbraith, op. cit.. pp. 70-73. 72Hagen, op. cit.. p. 12. 77 among all the planned activities of various govern ment agencies and between those of the public and private sectors. c) Evaluating the relative desirability of all the elements of expected government activities as well as those of private consumption and invest ment ,73 2. It is of utmost importance to consider the technical and economical soundness of each project by it self as well as that of all projects constituting a pro gram, and also all programs included in the development plan. Moreover, each of these developmental activities must be within the capacity of the country to execute. Such capacity depends on the existing, as well as probable expansion and development of necessary material and equip ment, foreign exchange earnings, skilled labour, and ad ministrative and management capabilities. 3. Consistency should be observed when devising a developmental plan in the sense that both the expected pub lic and private demand for goods and services should not exceed the economy's capacity to supply. To prevent any 73Ibid., pp. 11-12 78 xesouxces from being kept idle, it is more advisable to plan fox a maximum program rather than a minimum one. Nevertheless, care must be taken to provide adequate meas ures for counteracting any possible deficiencies in re sources, and to consider the necessary steps to be adopted in order to increase the country's capabilities to carry out such programs. Moreover, courses of action must be laid down to overcome bottlenecks and to mobilise available skilled human resources. 4. Flexibility in a developmental plain is an essential element to permit necessary adjustments required by the occurrence of unexpected events such as a poor har vest or low foreign exchange earnings. Hence, it may be necessary to alter the sectoral targets in the medium-term plans, and also the aurmual plans according to unforeseen success or unfulfillment of yearly plans. 5. The goals of a developmental plan should be set high enough to mobilize the nation's energy and enthusiasm. Nevertheless, such goals may be a deterrent to develop mental effort as they may result in disappointment. 6. To stimulate and regulate the economic activi ties of the private sector, measures for carrying out the developmental plan must be reconciled with the economic 79 institutions of the country.74 7. Furthermore, an adequate machinery should be set up to formulate and implement developmental plans effectively. It is advisable to have a planning agency, attached to the chief executive, which works in close co operation with operating agencies, particularly in formu lating the plans and following up their progress. To assure smoothness in the planning process, the planning authorities must be notified about any implementation dif ficulty or any error committed so that steps may effec- 75 tively be taken at the right time to make corrections. Ideally, national developmental plans must be con ceived on an operational and optimal basis. Non-operational plans do not help the politician and executive administrator in giving the orders for action, and create difficulties in follow-up and re- evaluation mechanisms. Non-optimal plans--which may be Just feasible--by definition reduce the tempo of development and waste some resources.76 74Ibid., pp. 328-335. 7^Charles Prou, Cours sur 1♦dtablissment des pro grammes en economie sous-d^veloppde. Fascicule No. II. Session 1959-1960 (Paris: Centre d'£tudes Des Programmes £conomiques, 1960), Mimeographed, p. 143. 7< *I. H. Abdel-Rahman, "The Requirements for Re gional and Developmental Planning,” being an invited ad dress to the tenth anniversary meeting of the Operations Research of America, Washington, May 9-11, 1962, The Insti tute of National Planning, Memo. No. 182, Cairo, May 7, 1962, p. 19. CHAPTER III THE SOCIOECONOMIC STRUCTURE OF THE UNITED ARAB REPUBLIC Historical Background Egypt occupies the northeast corner of Africa on the Mediterranean Sea. The River Nile, which flows through the land, was the cradle of one of the most ancient civili zations. A significant characteristic of Egyptian society is the homogeneity of its people. They share the same traits, language, and, for the majority of the population, the same religion. For many centuries, Egypt's history may be summed up by a few words: political oppression and economic exploitation. Mohammed Ali and His Successors The history of modern Egypt is usually traced back to the beginning of the nineteenth century, when Mohammed Ali, of Turkish and Albanian descent, came to power. He carried out several industrial proj'ects, built dams, and 80 81 introduced new varieties of cotton, but such schemes were designed to increase his own revenues. He distributed the land among his relatives and followers, and the peasants were reduced to a state of serfdom.1 It was not until 1871 2 that the Egyptian peasant gained the right of property. In their attempt to modernize Egypt by implanting European structure and techniques, Mohammed Ali and his successors opened the door to foreign infiltration. The Europeans, taking advantage of this desire for moderniza tion, and of their own ability to provide capital and skill, which were lacking among the Egyptians, gained tre mendous advantages. In fact, the whole system was corrupt; the rulers and their families, who were "capriciously authoritarian,"3 exploited the treasury and brought about the country's bankruptcy, while government employees ex ploited their offices for their own interest. ^avid S. Landes, Bankers and Pashas; Interna tional Finance and Economic Imperialism in Egypt (Cam bridge: Harvard University Press, 1958), pp. 67-77. Charles P. Issawi, Egypt at Mid-Century (London: RIIA, Oxford University Press, 1954), p. 21. o Landes, op. cit., p. 97 82 The British Occupation During the British occupation, from 1882 to 1922, which according to the National Charter, was prompted by the desire to safeguard the route to India, and the finan cial foreign interests, and to ". . . support the authority of the Kedive against the people,"4 Egypt was turned into an agricultural colony, specializing in cotton. Whatever economic growth occurred in this period was due to expan sion in the agricultural area, and the extension of means of transportation. The decline and disappearance of domestic industries was due to foreign competition and discouragement to Egyptian industry by the British author ities. Nevertheless, foreign investment continued to flow, and by 1914 the Egyptians owned only 8 per cent of L.E.100 million of joint stock companies.^ Moreover, a large foreign debt was accumulated.^ United Arab Republic, The Charter (Cairo: Infor mation Department, n.d.), p. 22. 5The exchange rate was L.B.l = $2.87, and as of May 1962, it was altered to L.B.l = $2.30. "Internal Eco nomic Developments During 1963," National Bank of Egypt, Economic Bulletin, Vol. XVII, No. 2, Cairo, 1964, p. 158. 6Issawi, op. cit., pp. 18-39 83 In 1922, the British protectorate ended, but not its military occupation, and a seemingly constitutional monarchy was established in 1923.^ The 1936 Anglo-Egyptian treaty was signed, giving Egypt complete independence; nevertheless, British troops were to be stationed in vari ous parts of the country for another twenty years. In fact, the British dominated almost all of Egyptfs domestic affairs by maintaining effective control over the govern ment and the King. The 1952 Revolution Increasing dissatisfaction among the people be cause of royal extravagance, government and political corruption, increasing economic and political instability, and delays in reform brought about, in 1952, the July 23rd Revolution, led by the Society of Free Officers. The crown was abolished and Egypt was declared a republic on June 18, 1958. The revolution marked the realization of great hope felt by the people of Egypt since they began in modern times, to think of self-government and to 7 Malcolm H. Kerr, Egypt Under Nasser (New York: Foreign Policy Association, 1963), p. 6. 84 demand that they have the final word in determining their future.® Gamal Abdel Nasser, who has been the principle influence behind the Revolution, was elected President by popular vote. Three new constitutions were adopted in 1956, 1958 and 1964. The British withdrew to the Canal Zone in 1954 and evacuated it in 1956, thus ending seventy- six years of military occupation. When Britain, the United States of America, and the International Bank withdrew their proposals for loans to finance the High Dam at Aswan in 1956, the Suez Canal Company was nationalized and an unsuccessful tripartite aggression was launched against Egypt by France, England, and Israel. A unified state under the name of the United Arab Republic was formed in February 1958 between Egypt and Syria, but Syria withdrew from the union in September 1961. To mobilize popular forces for rapid growth, as well as to realize democracy and safeguard national unity, the 1956 Constitution provided for the organization of all Q Gamal Abdel Nasser, Egypt*s Liberation: The Philosophy of the Revolution (Washington: Public Affairs Press, 1955), p. 30. classes and groups in a National Union. A reorganization of the Union was deemed necessary since some reactionary elements of the Union attempted to raise obstacles in developing socialism in the country. A National Congress of Popular Powers was elected in 1962, and President Nasser presented to it a draft of the National Charter which was unanimously approved and adopted. The Charter crystallizes the ideology of the Revolution, outlines the socialistic transformation to take place during the present decade, and emphasizes the already-laid foundation of the society on a democratic-socialist-cooperative basis. The Arab Socialist Union was formed to protect the principles and objectives of the Revolution, to be a positive power be hind it, to fight against the infiltration of foreign in fluences and reactionary tendencies. Its prime objectives are to bring about a democracy based on a representation of the people and run for the benefit of the people. The Arab Socialist Union comprises seven categories, of the popular forces, including the following: farmers, workers, national capital, professional associations and syndicates, the teaching staffs of universities and higher institutes, students and the feminist sector. According to the 1964 Constitution, these categories are also represented through 8 6 election in the legislative body, or the National Assembly, and one-half of the seats are researved for farmers and workers. The supreme powers of the State have been organized in the following manner: (a) the President of the Republic is the head of the State and presides over the Presidential Council and the National Defense Council. With the approv al of the Presidential Council, he appoints the Ministers and the Deputy Ministers, (b) The Presidential Council approves the general policy of the State, supervises its execution and also supervises the decisions and actions the Executive Council. (c) The Executive Council, which is composed of its President and the Ministers, occupies the high executive and administrative authority of the State. Its main responsibilities are to execute the general policy of the State as approved by the Presidential Council, and to coordinate the activities of all ministries, organiza tions and corporations. The local administration was established in 1960 comprising the Governorate, town and rural councils which were entrusted with economic, social, educational and pub lic utilities affairs. A Ministry of Local Administration 87 was created to recommend general policies to the councils and to supervise the executions of their programs.® The Socioeconomic Structure It is imperative to delineate the socioeconomic structure after the Revolution, as it is within this par ticular structure that developmental planning is undertaken. But it is rather difficult to outline the features of the Egyptian economic system due to the fact that the structure has been much changed and it still is evolving. Neverthe less, certain trends which are taking place can be identi fied. Moreover, contrasting the rather static phases of the economic system before the Revolution with its dynamic structure after the Revolution will offer gainful insight into the working of developmental planning. ^United Arab Republic, The Year Book 1963 (Cairot Information Department, n.d.), pp. 8-25. For the development of local government and its relation to developmental planning in Egypt, see Mohamed Gamal Eldin Nassouhy, "Local Autonomy Under National plan ning, the Egyptian Experience," unpublished Doctoral dis sertation presented to the Faculty of the School of Public Administration, University of Southern California, Los Angeles, California, 1965. 8 8 Professor John B. Elliott has developed eight cri teria by which it is possible to classify and compare dif ferent economic systems, and in terms of which the basic features of the Egyptian socioeconomic system can be ana lyzed. ^ Level and Stage of Economic Development Level of Economic Development By every standard, Egypt before the 1952 Revolution was an underdeveloped country. The concept of underdevel opment is used here synonymously with that of economic pov erty as compared with the more economically rich and advanced countries. The computation of national and per capita income in Egypt before the Revolution should be interpreted with care due to the unreliability and scarcity of statistical data, as well as to the incomparability of estimates because of the change in methods used. Neverthe less, various estimates seem to indicate a very low per capita income of $100 or less per annum. Professor Charles P. Issawi makes the following generalization about the 10John E. Elliott, "Economic Systems and National Planning," Los Angeles: University of Southern California, 1964, Chapter II, (mimeographed). 89 level of economic development in Egypt during the period 1947-1950: Egypt stands well below the median; . • • the per capita income of the Egyptian population is far be low the world's weighted average. . • . (Neverthe less) the Egyptian standard of living, low as it is, is higher than the level of that half of the human race, and more, which inhibits Southern and Eastern Asia, most of Africa, and much of Central America.-*-1 The situation has changed greatly since the Revolu tion. National and per capita incomes are rising and the Egyptian economy can now be considered as developing. The nature and extent of these changes will be further analyzed in later chapters. Stage of Economic Development To identify the stages of economic development, it is possible to make use of various theories of economic stages such as those developed by the German Historical School, by Karl Marx and by Professor W. W. Rostow. Al though these theories have been subject to several criti cisms as to their applicability to any economic system, nevertheless the classification contained therein offers a useful device by which one is enabled to recognize the ^Issawi, op. cit.. pp. 77-79. 90 changes in socioeconomic framework of an economy. According to Friedrich List of the German Histori cal School, the economic stages are classified as follows: (a) the savage stage, (b) the pastoral stage, (c) the agri cultural stage, (d) the agricultural and manufacturing stage, and (e) the agricultural, manufacturing and commer cial stage. Professor Hoselitz observes the close similar ity between the last three stages described by List and the concepts of Professors A. G. B. Fisher and Colin Clark of 12 primary, secondary and tertiary production. Either one of these formulations refer to the pattern of successive growth in proportion, first of the agricultural sector, followed by the industrial sector and, at a later stage, by the service sector. Applying these concepts to the Egyp tian economy, it can be quickly recognized that it had been in the primary, or agricultural stage for thousands of years before the Revolution. The share of agriculture was estimated to have been L.E.269 million or about one-third of national income in 1952 and over 50 per cent of the 1 2 Bertold Frank Hoselitz, e£ al_., Theories of Eco nomic Growth (Glencoe, 111.: Free Press, 1961), pp. 198- 203. 91 labor force were engaged in agricultural activities in 1947.13 Although agriculture continued to be the predomi nant sector, its relative importance with respect to its contribution to national income and to the extent to which it provides labor employment, has been steadily declining since the Revolution, while the relative importance of industry and services has been increasing at an accelerated rate. According to Karl Marx, the historical progression through which an economic system evolves is from feudalism to capitalism into socialism and finally to communism. The economy prior to the Revolution was at a stage where elements of feudalism existed side by side with capital istic elements. Thirteen years after the Revolution, the United Arab Republic reached a transitional stage with a mixed economy comprising both capitalistic and socialistic ^United Arab Republic, Magmouat Al-Bayanat Al- Ihsaieh Al-Assassieh (Basic Statistical Data), Pourth Edi tion (Cairo: Central Statistical Commission, 1962), pp. 239, 242, 243. elements.14 The ultimate objective of the society is to achieve Arab Socialism based on two supports, sufficiency in production and social justice as a mean towards realiz ing social freedom and economic and social progress. According to the National Charter, the inevitability of the socialist solution is due to various factors, namely: "reality, the broad aspirations of the masses and the chang ing nature of the world in the second part of the twentieth century."15 Moreover, Arab Socialism provides for the realization of a true democracy where no one class domi nates. It also provides the opportunity for ending class conflict and for achieving a classless society.1^ It should be noted that Arab Socialism has not been created after foreign theoretical models or other social istic systems found in practice. Thus, we find Arab Socialism does not aim at abolishing private ownership, as in socialist systems of the nations of the Soviet system. 14Gamal Abdel Nasser, President of the United Arab Republic, "Khetab Bl-Ra' is Pi Shebein Rl-Kom, Menofieh, 11 Mars 1965," (Address by the President in Shebein El-Kom, Menofieh, on March 11, 1965), Bl-Talaba El-Arab. No. 31, Cairo, March 13, 1965, p. 3. 15UAR, The Charter, p. 49. 16Ibid., pp. 44, 58. 93 Rather, in certain sectors of the economy, as in agricul ture, the objective has been to turn agricultural workers into owners and to increase their number by expanding the cultivated land. Moreover, the ultimate aim of the society is to achieve Arab Socialism, and this state is not ex pected to proceed further to communism, as predicted by Marx. Finally, it is to be noted that the socialist frame work has been set down only since the passage of the Socialist Laws of July 1961. Professor W. W. Rostow identifies five stages of any country's economic growth: the traditional society, the pre-conditions for take-off, the take-off, the drive 1 * 7 to maturity, and the age of high mass-consumption. ' In terms of his definitions, Egypt, prior to the Revolution, would be placed in the first category, namely, the tradi tional society. Agriculture constituted the major economic activity of the country, and the people used primitive tools and outdated techniques, and thus, the output per worker was declining as a rising population was being 17W. W. Rostow, The Stages of Economic Development x A Non-Communist Manifesto (Cambridge: The Cambridge Uni versity Press, Tenth Printing, 1963), pp. 4-12. 94 absorbed into this sector. (Although there were certain periods when agricultural output did rise, this rise was due to some horizontal expansion of the land through the construction of dams and pumping stations.) The extended family system prevailed especially in the rural areas. Only a very limited amount of vertical mobility was possi ble within the existing hierarchical social structure. Due to the long ages of political oppression, foreign domina tion, and economic exploitation, a pervasive fatalism was one of the main characteristics of the value system. The big landowners and a few monopolizing capitalists dominated the political machinery. Along with the traditional agricultural and cottage industries, with their limited production capacities, there existed a modern manufacturing industry using modern tech nology and a developed banking system. This modern eco nomic sector was largely "conducted for limited economic purposes by colonial or quasicolonial power."18 During the period between the rule of Mohammed Ali and the Revolution in 1952, several nationalist movements arose, in opposition 18Ibid., p. 7. 95 to colonial power and several revolts were attempted during that time. Various armed rebellions against the oppressing 10 feudalism were also attempted by the peasants. Nevertheless, the pre-conditions for the take-off were completely fulfilled by the 1952 Revolution through the establishment of a free "effective centralized national state" carrying out major political, social, and economic changes and by increasing the rate of investment to over 10 per cent of national income. By advocating a better standard of living and demonstrating the possibility of its attainment, the Revolutionary government did much to change the fatalistic attitude of the people and a "great Awakening" started. The take-off into sustained growth has been launched, "where the old blocks and resistances to steady growth are finally overcome."20 In Egypt today, modern technology is being applied in almost every sphere. Largely through the influence of the government, produc tivity in the different economic activities is increasing and expansion of the modern industrial sector is being 19UAR, The Charter, p. 31. 20 Rostow, loc, cit. 96 accomplished. The rates of saving and investment, national income, and income per capita are rising steadily. The latter aspects of this period will be further explored in later chapters. Resource Base Okie of the main criteria by which it is possible to identify an economic system is in terms of its predomi nance on one or more factors of production. It is possible to classify a system according to the extent to which it relies heavily on human resources, on natural resources, on capital resources, or on a mixture of these resources. The Egyptian economic system prior to the Revolu tion relied primarily on a composite of land and labor resources. This is apparent from an estimation of national capital in the period preceding World War II. Out of the total national capital of L.E.1200 million, land consti tuted L.E.660 million, residential houses constituted L.B.170 million, industry and commerce constituted L.E.130 million, and state property constituted L.E.140 mil lion.21 21Issawi, op. cit., p. 84. 97 The land mainly devoted to agriculture, represented more than 50 per cent of the national capital. The last census before the Revolution in 1947 estimates the area of 22 the cultivated land at 5.761.000 feddans, representing only 2.4 per cent of total Egyptian territory; the remain der of the area is desert. The crop area was estimated at 8.289.000 feddans as on most of the land it is possible to raise more than one crop a year. In this respect, it should be noted that while productivity per feddan is very high, output per capita is extremely low. The majority of the population is engaged in agri cultural work. It was estimated that in 1947 out of 19 million, 69 per cent lived in rural areas. Although the rural population had declined to 61.9 per cent by 1960, their number had increased from 13.1 million in 1947 to 16.1 million in 1960.^ Official estimates put the surplus population on land at 5 million, which represents about 22UAR, Magmouat Al-Bayanat Al-Ihsaieh . . . , op c It. i p. 20. One feddan is equivalent to 1.038 acres. 23Ibid. one-third, of the agricultural population.^ The peasants use inefficient outdated techniques and primitive tools which may go as far back as the Pharaonic ages. The use of machinery in agriculture has been very limited due to the abundance and cheapness of labor and to land fragmentation. The main form of physical capital on agricultural land has been dams, canals and irrigation pumping stations. Because Egypt is practically rainless, it depends entirely on the Nile for its water. The various irrigation projects car ried out by the government permitted a better method of irrigation by converting the basin irrigation system to a perennial one, and this made possible reclamation of sev eral thousands feddans of land. Although still heavy reliance continues to be placed on agricultural labor, more private and public capital investment has been devoted to agriculture since the Revolution. Registered agricultural machines rose from 21,668 machines in 1952 to 27,082 in 1959. Public expenditure on agriculture rose from L.E.6 million in 1950/1951 to L.E.33.7 million in 1959/1960. 5 4 Saad M. Gadallah, Land Reform in Relation to Social Development, Egypt (Columbia: University of Missouri Press, 1962), p. 28. 99 An additional 1,778 kilometers of irrigation canals were built during this period.25 But the most important project of all is the building of the High Dam at Aswan. In contrast to the agricultural sector, the indus trial sector was very small in size before the Revolution. Industrial employment accounted for less than 5 per cent of the labor force, (or 10 per cent if the persons engaged in transportation, public utilities and construction work are included). Of the 650,000 persons engaged in industrial establishments in 1952, 250,000 were employed in 3,400 manufacturing establishments having ten or more employees. Some modern machinery was used in these establishments especially in textile manufacturing but an extensive use of cheap labor was rather the rule in other small branches of industry. The remaining 400,000 persons were engaged in shops having less than ten employees each.2^ This other part of the industrial sector seems to include the handi- 25National Bank of Egypt, The Economy of the United Arab Republic During the Nineteen-Fifties (Cairo: National Bank of Egypt, 1963), p. 73. Fredrick Harbison and Ibrahim Abdelkader Ibrahim, Human Resources for Egyptian Enterprise (New York: McGraw- Hill Company, 1958), pp. 21-22. 100 craft shops and the cottage Industries in which one million persons are engaged who rely mainly on manual labor and simple tools.^ Since the first days of the Revolution, a heavy emphasis has been placed on industrializing the country, and the government has taken certain measures to accelerate the process. As a result of these measures, there has been a steady increase in industrial capital investment. Be sides, a great emphasis is being placed on raising the standard of efficiency of both the industrial and agricul tural worker. The occupational structure found among native Egyptians and foreigners provided the latter with an advan tageous economic position in the country in the pre-Revolu- tion period. Thus, in 1937 only 1 per cent of foreigners were engaged in agriculture, 24 per cent were in industry and transportation, 22 per cent in commerce and finance, and 20 per cent in services. But it is estimated that 59 per cent of the Egyptian labor force were engaged in agri culture, 10 per cent in industry and transportation, 6 per 27hco-existence between Big Industry and Handicraft in the CAR,” The Scribe. Vol. VI, No. 4 (Cairo, May 1963), p. 41. 1 0 1 28 cent in commerce and finance, and 5 per cent in services. It should also be noted that Egyptian skilled labor, tech nicians, and entrepreneurs were in short supply during that period. The poor educational system of Egypt, the shortage of vocational training, and the reluctance of foreign firms to employ Egyptians were partly responsible for this situa tion. Several governments had attempted to redress the situation by putting pressure on foreign firms to employ Egyptians and to use the Arabic language in their busi ness. 29 The Egyptianalization, nationalization of foreign concerns after the Revolution, the improved educational standards, the increased availability and training of un skilled laborers have enabled many Egyptians to replace foreigners in the period after the Revolution. The govern ment has been devoting great effort to meet the shortage of highly educated professional manpower and technicians. Ownership and Control of the Means of Production The organization of production can be classified 28 Charles P. Issawi, Egypt: An Economic and Social Analysis (London: Oxford University Press, 1947), p. 163. 29Ibid., p. 164. 1 0 2 according to the pattern of ownership as well as of control of the means of production. It is possible to distinguish the three patterns of productive organizations commonly termed as private, public or cooperative enterprises according to whether public or private or cooperative interests have the legal right tb the property of the enter prise and according to which of these interests manage the operations of the enterprise. Public enterprises are any organizations which are often owned, and managed as well, by a government agency. Private enterprises are those that are not owned or managed by the government. A cooperative enterprise "is a voluntary association of individuals in economic activity for mutual benefit." A mixture of two or more of these forms may be found within an economic sys tem. Before the Revolution, private ownership and con trol of the means of production had prevailed in every branch of economic activity. In the agricultural sector, Egyptian landlords were absentees for the most part, im posing exorbitant rent on the peasants, spending the rent on conspicuous consumption, and carrying out no significant 30Blliott, op. cit.. Chapter II, p. 3 103 improvements in their estates. Their control extended to the political parties, the Parliament, and the government. Though there were a few large Egyptian private industrial ists, most of the large scale industrial, commercial and financial enterprises were owned by foreigners. These in dustries were monopolistic within the Egyptian market because of the inelasticity of demand for their products, which were under heavy tariff protection. Foreign trade, especially in cotton, the banking system, and insurance companies were almost entirely in the hands of for- eigners. There were state enterprises in some fields such as railways, telegraphs, the post office, and in the domain of irrigation and drainage. Apart from these activ ities, however, the public sector was virtually nonexist ent. The cooperatives which existed then were weak, un organized, and usually geared for the financial benefit of a few individuals. The size and scope of the public sector has ex panded significantly since the Revolution, and particularly after the promulgation of the Socialist Laws of July 1961. This expansion has been affected by the sequestration of 31Issawi, Egypt . . . , pp. 91, 112, 121, 149, 150. British, French, and Belgium concerns after 1956 and by nationalization— that is, by transferring the means of production from the sphere of private to public ownership, and by carrying out massive projects by the government. The Charter states that "the public sector belongs to the people as a whole," who are also responsible for control ling all means of production and for distributing the sur- 0 5 plus according to an explicit plan. "The authority of popular councils should have authority over all production centers and over the machinery of local and central ad ministration."^ Hence, the National Assembly and the Arab Socialist Union are responsible for control. Public owner ship and control now covers all the means of transporta tion, the dams, the majority of heavy and medium indus tries, as well as mining, and of foreign trade, the banking system, and all insurance companies. Private capital is employed, within limits, in light industries and domestic and foreign trade, but it is subject to public control so as to prevent monopoly and exploitation. On the enterprise 32UAR, The Charter, pp. 51, 53. 33Ibid., p. 81. level, workers share in ownership and control, since the promulgation of the Socialist Laws in 1961. These laws gave the workers a share of 25 per cent of the company's profit, and required that two representatives of the com pany's workers be elected to the board of directors. By 1963, the board of directors has been increased to nine members instead of seven, of whom two represented workers and two were government officials, and the period of mem- 34 bership was increased to two years instead of one. More over, the workers and farmers now occupy half the seats of the National Assembly which gives them further control over the executive machinery. Private land ownership, limited to 100 feddans per person according to the Agrarian Reform Laws, is being extended to cover the largest number of agricultural workers. Private ownership of buildings is allowed, but rent has been regulated by the government in order to check any attempt to exploit the tenants. More over, public and cooperative housing are increasing with the same objective. •^United Arab Republic, The Revolution in Twelve Years, 1952-1964 (Cairo: Information Department, 1964), pp. 97, 98. ^“*UAR, The Charter, pp. 51, 57, 61, 69. 106 The formation of cooperatives has been encouraged in various economic sectors since the beginning of the Revolution. The beneficiaries of the Agrarian Reform Laws have been required to form cooperative societies. These cooperatives extend loans to farmers and provide them with seeds, fertilizers, cattle, and agricultural machinery. Moreover, the cooperatives undertake the marketing of some of the main crops on behalf of their members. The forma tion of these cooperatives is necessary to consolidate individual land ownership, to help the farmer in all the stages of production, to protect him from usurers and middlemen, and to enable him to use modern machinery and scientific methods to increase his production. There are other cooperatives for consumers, handicrafts and small industries, and housing. The control of cooperative societies is exercised by its members and supervised by general cooperative organ izations established by the State in I960. These organi zations supervise the activities of the cooperatives each in its own economic sphere. They draw up the general pol icy, and advance technical and financial aids for the 107 cooperative societies. Locus of Economic Power Economic systems have also been classified by iden tifying the units responsible for making basic economic decisions, thus giving rise to three types of economies. In an individualistic economy, the individual persons in carrying out their economic functions as households, con sumers, resource owners,and business firms owners, have the economic power to pursue their own goals. In an organiza tional economy, the economic decisions are in the hands of groups such as corporations, unions, cooperatives, and so on, and their decisions are made to attain the grouprs objectives. In the third type, or the governmental econ omy, the establishment of goals and the formulation of courses of action is delegated to governmental bodies. In the pre-Revolution period, the locus of economic power resided largely with the individuals and some organ izations and partly with the government. The individuals in their capacity as consumers were partially sovereign, 36Kamal Hamdy Abul-Kheir, "Nahwo Harkah Ta'awonieh Nazifeh," (Towards an Ethical Cooperative Movement), Sup plement to Al-Ahram Al-Iqtisadi, No. 231, Cairo, April 1, 1965. but the extreme poverty of the masses, especially the peasants, limited the scope and size of their consumption. Production and importation were rather geared to the satis faction of the demands of the wealthy class. The locus of economic power depended on the type of resources which the individual as a resource owner possessed. Unskilled and semi-skilled labor had no power to decide when and where to work, or what work to do. This was due to various fac tors such as social and geographical immobility, overpopu lation and the domination of the employer. Skilled laborers were in a somewhat better position. The owners of capital and land and entrepreneurs had almost complete power to pursue their own objectives, subject to very little governmental control. Only a small number of workers were able to organize themselves in unions. By 1952 only 116,735 workers were registered in 472 unions, and this figure does not include government employees and agricultural workers who were not allowed to form a federa- 37 tion. The powerlessness of such unions was due to the fact that their activities were closely and severely super vised by the government, their financial resources were 37 Harbison and Ibrahim, op. cit., p• 182. 109 meagre, and they were dominated by enterprise owners. The economic weakness of the unions also characterized the co operatives which the consumers, small farmers, and handi craft workers attempted to organize. On the other hand, the industrialists and the big landowners were able to form powerful organizations. In each branch of industry, a chamber of industry was formed and they were grouped in the Federation of Industries representing industrial employers. This Federation had been subsidized by the government and it had prompted the government to adopt a policy of tariff protection since 1930; consequently, it was a very powerful and influential organization. The big landowners were more or less organ ized in different political parties, but, as a class, they dominated both the parliament and the executive branch of the government. Because of their control of the parlia ment , they were able to prevent any improvements for the Egyptian peasants from being legislated.38 Through their influence in the legislature, they had the tax burden shifted from agriculture which was their own concern, to 38 Kerr, loc. cit. i industry.39 The government did not participate directly in economic activities before the Revolution, except in the construction of utilities such as irrigation and railways* Nevertheless, their activity was felt in some directions. Since Egypt has been a "hydraulic society," the power of the state developed by controlling the irrigation system in predominantly agricultural economy.40 Another manifes tation of the economic power of the government could be found in such measures as the adoption of protective tar iffs, the beginning of progressive taxation, the attempts to Egyptianize business, foreign exchange control, price and rent control and rationing, acreage allocation, and the purchase and resale of grain.41 Since the advent of the Revolution, there has been a shift in the locus of economic power towards the govern ment . The sovereignty of the consumer has been recognized 39Issawi, Egypt at Mid-Century . . . , p. 170. 40 Charles P. Issawi, Egypt in Revolution: An Eco nomic Analysis (London: RIIA, Oxford University Press, 1963), p. 50. 41Ibid., p. 51. Ill much more fully. Together with price and rent control, the government has restricted the importation and the manu facturing of luxury goods, and has subsidized the inporta- tion of basic consumption products, as well as increasing their local production. All these measures are designed to provide the population with what they need at the lowest possible price. With the increase in educational opportu nities, and with the destruction of the economic power of feudalism, and the reorganization of economic structure, new work opportunities have been developed for human re sources. The restriction of landownership, the retainment of acreage allocation and the purchase and resale of grains has limited the economic power of the landowners. The government has also made attempts to encourage foreign and domestic private capital investment directed towards those economic activities which were considered vital for eco nomic development, under closer government supervision. Nevertheless, several measures were taken which restricted the economic power of capitalists and corpora tions : certain economic activities were confined only to Egyptians such as the banking and insurance business. The establishment or expansion of certain basic industries re quired government permission. The manner in which corpora- 1 1 2 tlon profits were to be distributed, was decreed by law. Finally, the sequestration of foreign concerns and the partial and total nationalisation of Egyptian private enterprises has led to an increase in the economic power of the public sector. The Revolution also stood by the labor union move ment. All workers, except government employees, were per mitted to form unions. By 1961, those who belonged to unions were estimated to comprise 28 per cent of all indus- 42 trial workers and 11 per cent of commercial workers. The economic power of the unions has increased under gov ernment supervision. The encouragement of the cooperative movement through government financing and organising has also been conducive to the increase in the economic power of cooperatives. Organisation of Economic Power, Centralisation versus Decentralisation The degree of centralisation and concentration of economic power provides still another criterion by which it is possible to distinguish among various economic sys- ^2A1-Ahram, Cairo, December 8, 1961, quoted in a footnote in Issawi, Egypt in Revolution . . . , op. cit. p. 196, 113 terns. It should be noted that this organizational aspect is closely related to the previous criterion of the locus of economic power. The Egyptian economy prior to the Revolution was characterized by decentralization and concentration of economic power. The consumers and resources owners were free within limits, to choose how to use their income and resources. The corporations were almost free in carrying out their economic decisions. Nevertheless, concentration of economic power was apparent in several fields. Wealth in the form of land was concentrated in the hands of a few big landowners and this wealth enabled them to exercise their economic power for their own interest alone. The big corporations, particularly the baulking system and the in surance companies, were largely concentrated in the hands of foreigners, which gave them the opportunity to use their power as they wished with little regard to the best inter ests of the Egyptian economy. Monopolies existed in nearly every branch of industry due to the smallness of the mar ket, the lack of capital, the presence of protective tariff policies, and the encouraging attitude of the government 114 towards amalgamation.4^ The organization of the government itself was characterized by concentration of power in the central government. Egypt's economic structure has changed radically since the Revolution, It contains elements of both cen tralization and decentralization and various degrees of concentration and separation of economic power. The con sumers are free in their choice of the available consumer goods, within the limits of rationing and price fixing, which has existed since World. War II. The choice of eco nomic activities is left to the workers, a choice which has increased in scope due to better more accessible edu cation, social mobility, and expanded job opportunities. The owner of capital and the private entrepreneur are allowed to engage in economic activities within the frame work of the National Plain. In the non-organized business sector the decision-making units are relatively dispersed, and, consequently, there is no centralization or concen tration. The rapid expansion of the public sector since 1956 has necessitated its reorganization. To control the 43Issawi, Egypt at Mid-Century . . . , p. 160. 115 State's interests in various economic activities, the gov ernment established general public organizations. These organizations are somewhat similar to holding companies with highly diversified interests in various economic sec tors. Later, in 1961, thirty-eight general public organi zations were established, each one supervising several companies which belong to one type of economic activities. The Supreme Council of Public Organizations, which is headed by the President and is composed of five vice- presidents, supervises the General Public Organizations.^ Other public authorities which are virtually autonomous, were created to manage one particular type of economic activities such as the Suez Canal and the High Dam. Since 1959-1960, a policy of centralization in planning and decentralization in implementation has been pursued,^ whereby a national comprehensive plan for eco nomic and social development has been adopted. The "plan" is set up in the Ministry of National Planning in collabo- ^"Aham Bl-Tashriat El-Iqtisadieh Khelal Aam 1961,” (The Most Important Economic Legislations During 1961), Nashret Bl-Bank El-Synai'. Vol. Ill, No. 2, Cairo, 1962, pp. 266-269. *^UAR, The Charter, p. 53. 116 ration with other planning units in various ministries and organization, according to directives received from the highest authorities. The general public organizations supervise the activities of the companies affiliated with them and the corporations carry out their activities with in the framework of the Plan. A more recent trend has developed since 1960 towards the decentralization of the government administration, with the subsequent formation of local administrations. The country has been divided into governorates, towns and villages supervised by coun cils. More autonomy is being given to these councils in carrying out their activities so as to encourage their local initiative. Motivational System The motivations which prompt the making of eco nomic decisions is another criterion by which it is pos sible to categorize economic systems. An economy is iden tified to be market-oriented if the profit-seeking motive predominates in the economy. On the other hand if the aspiration of the economy is not concentrated on the pur suit of individual gain through the market, the motiva tional system of such an economy is identified to be non- market-oriented. The economy before the Revolution was market- oriented. The profit motive prompted the producers to seek to maximize their profit through lowering the manu facturing cost or increasing the price of their products as much as possible. The low wage paid for labor, tariff protection, and the narrowness of the market enabled them to gain monopolistic and monoposonistic profits. This trend has changed with the advent of the Revolution, and particularly after the adoption of the National Plan in 1960 and the promulgation of the "Social ist Laws" of 1961. General national objectives have been sought. Six basic principles were adopted by the Revolu tionary government which included the elimination of im perialism, destruction of feudalism, the elimination of monopoly and the domination of capital over the govern ment, establishment of social Justice, the building of a powerful national army and the realization of a sound democratic system.46 The establishment of a socially and economically developing economy on a socialist-cooperative- democratic basis has been the foundation for the new 46Ibid., pp. 6, 7. 118 society* In addition, the individual incentive to work, save, and produce is encouraged through wage and monetary differentials. "Individual initiative must be based on work and risk."47 Social Processes for Economic Coordination The equilibrium of the interrelated social and economic decisions can be achieved through various methods. It is possible to distinguish four main social methods for coordinating the economic activities within a system. In the price system the decisions of millions of individuals are brought into balance through the market with no con scious control. If, on the other hand, the national econ omy activities are coordinated through "budgetary direc tives, administered from below, but formulated from above," then the economic system is termed to be bureaucratic. A democratic system characterises the economy when "means and mechanisms exist, and are used, whereby the preference of large numbers of people are communicated to and exert significant influence upon people who are in a position to make basic policy decisions." The bargaining system is 47Ibid., p. 69 119 one in which policy-makers "mutually or reciprocally con- AQ trol one another. According to the above definitions, it is possible to identify the social processes for coordinating the eco nomic activities in Egypt prior and during the Revolution. r Market or Price System The market system played a dominant part in the economy prior to the Revolution but its importance dimin ished after the Revolution. The market had been character ised by its disequilibrium and heterogeneity among the different sectors of the economy as well as among the geo graphical areas. A national market is practically non existent for most commodities. The market may be divided into metropolitan and non-metropolitan market areas. Because of the higher per capita income and the greater exposure to western cultures and modes of life in the metropolitan market areas, the consumption pattern differs between the two areas.49 The importation of luxury con- 4®Blliott, op. cit.i Chapter II, pp. 9-10. 49Abdel-Asiz El-Shirbini, Some Basic Characteris tics of Egyptian Markets (Cairo: National Institute of Management Development, 1962), pp. 8, 9. 1 2 0 sumption items was curtailed after the Revolution. Ration ing continues in some items such as sugar and oil. The prices of most staples such as food and clothing as well as most of manufactured goods are controlled by the govern ment. Due to the inefficient marketing system,50 the existing monopolistic tendencies and the development of black markets, the wholesale traders have been continuously eliminated since 1961. The distribution of consumer goods to retail traders is undertaken mostly through the consumer cooperatives at fixed prices and profit margins.51 Capital goods are procured through the markets at prices which are also controlled by the government. Competition is encour aged within the framework of comprehensive planning.52 Bureaucratic or Hierarchical System Since the Revolution, the fixing and controlling 50Harper W. Boyd, Jr., et al., Channels of Distri bution for Consumer Goods in UAR (Cairo: National Insti tute of Management Development, 1962), p. 6. 51,,Supply Minister Warns Profiteers,” Al-Ahram, August 16, 1963, p. 6, translated in Institute of National Planning, Monthly Review of Economic and Social Events in UAR, Vol. II, No. 7, Cairo: August 1963, pp. 61-62. 52UAR, The Charter, p. 69 121 of the prices of most commodities and services has been undertaken by the Ministries and the General Public Organ izations. For the most part, the Ministry of Supply is responsible for the prices of consumption goods, while the Ministry of Industry is responsible for the prices of capi tal goods. The current and capital expenditure of the public organs, whether in the public business sector or the public administrative sector, and whether central or local, are determined in the annual State budget within the framework of the National Plans. Although there seems to be a hierarchical scheme from the lower to the higher organs, a more recent trend is towards the encouragement of local autonomy through the local administration system. Coordination at the different levels is undertaken by various national and local agencies to ensure the attain ment of national goals. Democracy or Polyarchy Democracy existed in name but not in practice in the pre-Revolution period. "The constitution of 1923 had been repeatedly mocked with the fixing of elections, the sale of cabinet offices and the frequent disregard of civil 1 2 2 liberties."53 The parliament never attempted to pass any legislative to improve the conditions of the farmers, nor the workers.5* Feudalism, monopoly and class domination prevailed in this period. Since the advent of the Revolution, emphasis has been placed on achieving social democracy, removing class barriers and establishing a more flexible social structure. "Democracy means, even literally, the domination and sovereignty of the people— the entire people."55 Moreover, the Charter states that democracy in both its political and economic contexts cannot be separated from each other. In order that the right to vote be exercised, a citizen must be given certain guarantees including freedom from exploit ation, equal opportunity to share in national income and wealth, and security.56 The Arab Socialist Union was established, among other reasons, to safeguard these guar antees and to enable the nation to realize a sound democ- 53Kerr, loc. cit. 5*Ibid. ^UAR, The Charter, p. 44. 56Ibid., p. 43. 123 57 racy. Half the seats of the National Assembly are re served for peasants and workers, as they constitute the majority of the population. The Assembly is given author ity over the executive machinery. The development of "col lective leadership" has been deemed necessary to ensure the fulfillment of the goal to establish a democratic society. Cooperatives and trade unions provide "endless sources to the conscious leadership that directly feel the CO reactions and responses of the masses." Thus, a democratic economic system is being rea lized by the people's control over the hierarchy as they both influence decisions concerning the public budget and the size and distribution of incomes, investment and inno vation.^® 57 United Arab Republic, Al-Destour, 25 March, 1964 (The Constitution, March 25, 1964) (Cairo: Information Department, n.d.), Article 49. ^®UAR, The Charter, p. 46. 59Robert A. Dahl and Charles E. Lindblom, Politics, Economics and Welfare: Planning Resolved into Basic Social Processes (New York: Harper and Row Publishers, First Torchbook Edition, 1963), p. 276. Bargaining Collective bargaining has never been fully prac ticed in Egypt, because the government has always regulated the relationship between the employer and the worker, while the workers were not allowed to strike. The trade unions were in a weaker position, and bargaining power was shared between the government and private employers. It was be tween the latter two that bargaining largely took place. The government could enforce its own terms, while private employers could dictate their own regulations to their workers within the prevailing labor legislation, and, at the same time, they were able to obstruct better labor legislation. 60 With the advent of the Revolution, a change in the balance of power occurred whereby the trade unions and the workers gained many advantages. The government amended the labor laws with the objective of ensuring the security of the workers and raising their standard of living. The worker became protected from arbitrary dismissal. All work disputes were required to be settled by arbitration and reconciliation committees. In 1959, a labor code was 60Harbison and Ibrahim, op. eft., pp. 192, 219. 125 issued which included consulting committees to be formed of workers and Working Powers Bureaus, Vocational Training Consulting Committees and Committees on Basic Wages.61 Minimum wages were also fixed by law. Also, a labor minis try was established in 1961 to act as the executive author ity for the application of labor laws and labor insur ance.62 The Socialist Laws of 1961 reduced the working day to seven hours, gave the worker the right to share 25 per cent of the profit of the corporate enterprise as well as the right to vote in the election of two workers-represent- atives to the company's board of directors. Insurance against unemployment and pensions for workers have also been introduced. With the socialist practice in the econ omy, the role of the trade unions has changed so that they are no longer "a mere counterpart of management in the pro duction operation, but become the leading vanguard in A O development." Their functions are to contribute towards increasing efficiency and productivity, to protect labor 61UAR, The Revolution in Twelve Years . . . , p. 94. 62UAR, The Year Book 1963 . . . , p. 172. 63UaR, The Charter, p. 76. 126 64 rights and to raise the living standard of the workers.”’ Wealth and Income Distribution Prior to the Revolution, extreme inequality in wealth distribution was most evident in land ownership. In 1951 the land held by 94.3 per cent of total landowners amounted only to 35.4 per cent while the remaining 64.6 per cent of the land belonged to 5.7 per cent of the owners. Within this distribution of landownership, at the extreme top, 0.4 per cent held 34.3 per cent of the land. A further examination of available statistics on landowner ship distribution shows that on one hand, 2,642,000 owners held an area of 2,122,000 feddans, with an average holding of about one feddan per owner, while on the other hand 1,177,000 feddans were held by 2,000 owners only, with an average holding of 555 feddans per owner.^ Although these figures indicate an obvious maldistribution in landowner ship, they do not, in fact, completely explain the situa tion, for many more millions of people in the rural popu 64Ibid. ^^nited Arab Republic, Statistical Pocket Book of the United Arab Republic 1952-1961 (Cairo: The Administra- tion of Public Mobilisation, 1962), p. 58. 127 lation who owned no land and earned their living either as laborers or by renting small plots of land. In addition to this situation, vast inequality in the distribution of other forms of wealth, also prevailed in the pre-Revolution period. For instance, the available statistics, although inadequate, indicate that before World War II, 10,000 per sons representing one-tenth of bank depositors, had most of the deposits. The sane number of persons owned the total share of capital held in the country, and 18,000 persons owned 58 per cent of the total value of taxed property .66 This pronounced maldistribution of ownership was naturally reflected in a paralleled inequal income distri bution. Owners of more than two hundred feddans, who represented 0.3 per cent of the farmers, received 23 per cent of the gross farm income in 1947. Those who operated less than one feddan, representing 37 per cent of the farmers, received only 4 per cent of the income.67 It has been estimated that 3,611,000 feddans, or 60.7 per cent of 66Issawi, Egypt at Mid-Century . . . , pp. 84, 85. 67Gadallah, op. cit., p. 19. 128 the cultivated land in 1949, were rented at exorbitant rates which were higher thaui the net revenue of the land. This exploitation was due to economic power of estate owners.68 Moreover, various examples may be cited to show that wide gaps in income distribution was also prevalent between the annual earnings of an agricultural laborer of L.B.30, an industrial worker of L.B.70, on one hand, and a cabinet minister of L.B.3,000, and a bank president of L.E.5,000.69 The whole structure of wealth and income distribu tion has changed since the Revolution. Through various government measures, a more equal pattern of distribution now prevails within the socioeconomic system of the coun try. These measures as well as their effects, will be dealt with in later chapters. For the moment, it will suffice to indicate that among the relevant measures were those of Agrarian Reform Laws of 1952 and 1961, the Social ists Laws of July 1961 , implementation of progressive taxation, the expansion of educational facilities to give every citizen an equal opportunity to be educated, and the 68Ibid., p. 15. 69Issawi, Egypt at Mid Century . . . , p. 84. 129 increase in social services. All of these measures were designed to redress the harmful effects of the inequality of income and wealth distribution in all of its various forms. Developmental Problems At the outset of the Revolution, Egypt had been suffering from acute economic, social, and political prob lems which constituted major blocks standing in the path of development. President Nasser described the situation in which the Revolution found itself at that time as fol lows : We needed order, but we found nothing behind us but chaos. We needed unity, but we found nothing but dissention. We needed work, but we found be hind us indolence and sloth. In fact, Egypt, before the Revolution, embraced most of the same problems existing in, and the character istics of, an underdeveloped country. Without distinguish ing between cause and effect, Professor Harvey Leibenstein has compiled a comprehensive list of these characteristics 70 Nasser, Egypt's Liberation, The Philosophy of the Revolution . . . , p. 43. 130 71 which the writer has made use of in this section. Some of these features associated with underdevelopment have already been mentioned while delineating the socioeconomic structure. Nevertheless, it seems appropriate to group the various elements of the major problems together here in this section, in order to get a broad view of the type of conditions that prevailed in Egypt prior to the Revolu tion. Economic Problems Any substantial rise in the rate of growth of national and per capita income was limited by several fac tors : 1. It has already been noted that Egypt had had a predominantly agrarian economy with the bulk of the popu lation depending for their living on agriculture. The economic structure of this sector and its behavior con tributed to low and declining labor productivity. a) An "absolute over-population" had been evi dent in agriculture, as it was possible to withdraw 71 Harvey Leibenstein, Economic Backwardness and Economic Growth (New York: John Wiley and Sons, Inc., Science Editions, 1963), pp. 40-41. I 131 a number of agricultural workers without reducing agricultural output within the existing techniques and organization. The rapid increase in population and the lack of job opportunities outside agricul ture made it necessary for the surplus manpower to be absorbed in this sector and this created both overt and disguised unemployment. 2. Traditional and primitive agricultural tech niques and implements were in use for many centuries; there was only limited use of modern machinery, much land frag mentation, and an inadequate use of fertilizers and insect icides which had contributed to the low productivity of the agricultural labor. 3. As a consequence of the low per capita income, the peasants were underfed in terms of calories and badly fed in terms of quality, as their food was mostly made of 72 cereals with very little protein elements. Moreover, only severely limited health facilities were available in the agrarian areas. Thus, the near minimum subsistence standard of the masses, their unhealthy living conditions, and their poor housing were no doubt among the factors that ^^AR, Magmouat Al-Bayanat Al-Assassieh . . . , p. 233. 132 were the ultimate cause of the poor labor productivity. 4. The unfair land tenure system, the extreme in equality in the distribution of wealth, particularly agri- cultural land, and the practice on the part of the large landowners of renting land to small farmers at very high rates, had further depressing effects. Neither the land owner, nor the tenant was interested in conserving the soil or improving the land. 5. The whole economy had been based on specializa tion in the production and exportation of cotton. As a consequence of this, the Egyptian economy was vulnerable to any fluctuation in world prices and demand for cotton, and particularly the demand of the British textile indus try. 6. Any attempt to develop the economy through industrialization was inhibited by various factors. The per capita income, low as it was, rendered any effective demand for manufactured goods inadequate, and thus entre preneurs were unwilling to take the risk of meeting what demand there was. Moreover, while a very small number of entrepreneurs were available among the native Egyptians, all were interested in obtaining rapid and large profits which was possible only under the existing monopolistic 133 conditions in other branches of economic activities. 7. There was very little saving and capital invest ment, and thus, there was small capital per person. Any of several factors could have been responsible for this smallness. Rich landowners who could save and invest either dissipated their income on conspicuous consumption, especially on imported luxury goods, or they acquired more arable land, or they would transfer their capital abroad. A prosperous middle class was virtually non-existent. Besides, whatever available domestic savings existed were not effectively mobilized through the existing financial institutions, as the banking system depended mainly on their head offices in foreign countries to supply them with funds. Insurance companies and postal saving funds, although they grew rapidly, had only a limited volume of activity. Demographic Problems The most serious problem was, and still is, the population explosion, which represents the greatest deter rent to more rapid economic and social progress. Over the past forty years, while the birth rate has been relatively stable at the rate of 43 to 45 per thousand, the death rate 134 has been steadily declining from 29 to 16 per thousand. The natural rate of growth has increased from 14 to 27 per thousand averaging an increase of 2.4 per cent annually between 1947 and I960.73 This steady rate of population growth is undoubtedly due to the improvements in hygiene, public health, and sanitation. Furthermore, about one-half of the population depends for their living on the other half, as over 42 per cent of total population is below 74 fifteen and 6 per cent are over sixty years of age. Although the major proportion of household expend iture goes for food and other necessities, nevertheless nutrition has been inadequate. The daily calory measures of food intake was estimated at 2,315 in 1952/1953, with 75 heavy dependence on cereals and low protein elements. J I Another demographic problem is that Bgypt was, and still is, densely populated. The population which was estimated at 18.9 million in 1947 lived in an area of 34.8 thousand square kilometers, has increased to 26 mil- 73"Beating Back the Stork,” Arab Observer: The Non-Aligned Weekly, No. 242, Cairo, February 8, 1965, p. 13. 7*UAR, Magmouat Al-Bayanat Al-Assassieh • . . , pp. 34, 35. 75Ibid» p. 233. 135 lion in 1960 living on approximately the same area (35.4 thousand square kilometers) • Thus the population which was of a density of 545 to every square kilometers has increased to a density of 739 per square kilometers. At the same time, rural inhabitants has decreased from 69 per cent of total population in 1947 to 61.9 per cent in 1960 76 due to the immigration from villages to cities. These statistics indicate that a larger part of national income has to be devoted to social overhead capi tal in new residential buildings, schools, hospitals. Moreover, overt and disguised unemployment both in rural and urban areas was among the important problems confront ing development. These were some of the major problems which the Revolution had to overcome in order to launch the economy into a sustained growth and to assure a steady increase in the national income which could offset the rapid growth of population. Social and Political Problems The social and political order of Egypt before the 76Ibid., p. 20. 136 Revolution was inamicable to any effort to develop the country. The big landowners were powerful enough to domi nate the Parliament and the government administration with its corrupt nepotic civil service and thus precluded any possible attempt to improve the lot of the masses. An indigenous middle class that was willing and able to under take venturesome enterprises in the field of industry, finance, and trade was weak in comparison with the foreign groups who dominated these areas. Political instability constituted an added explosive element to the deteriorat ing political-social-economic situation. Moreover, the social services provided by the government were insuffi cient in scope and inefficient in operation. They were designed to appease the frustrated population but contrib uted virtually nothing towards their betterment. Though education had been expanding, illiteracy prevailed, and the educational facilities and programs were of insuffi cient scope and of poor quality. Public health and other social services were quite inadequate. In the countryside, the extended family system prevailed, a system which has long been a deterrent to economic and social development, as it smothers the incen tive to produce more. Moreover, the peasants were often 137 not aware of their poverty. When they were, they either attempted open uprisings which were harshly suppressed, or they felt they could do nothing about it. There was a sense of defeatism and fatalism which spread among the masses all over the cotintry. One of the major tasks that faced the Revolution was to initiate and demonstrate to the masses that their poverty was not due to fate but, rather, to the oppression and exploitation of foreign rulers and nationals. Indeed, the most important task facing the Revolutionary Government was to demonstrate that there is hope for progress if the people cared to make the effort, and that they need not fear that the gain of their effort would be taken away from them as had been done in the past. It is thus apparent that Egypt before the Revolu tion was plagued, like most underdeveloped countries, with "a system not only of vicious circles, but of vicious cir cles within vicious circles, and of interlocking vicious circles."^ The low level of production was prompted by the low level of saving and capital investment, particu 77 Hans W. Singer, "Economic Progress in Underdevel oped Countries," Social Research. Vol. XVI, No. 1, March ly49, pp> 1—11. 138 larly in industxy, and, as a consequence the country was underdeveloped and poor. Moreover, because of limited industrialization in the pre-Revolution period, neither incentive goods nor modern implements were available to farmers and thus subsistence farming and low level of industrialization persisted. The low level of saving was not made available to be mobilized and channelled towards productive investment, as the rich landowners preferred either to purchase more land or to spend their money on luxury consumption or to transfer their capital abroad. The last, and a serious, vicious circle was in the govern mental instability and foreign domination which were not conducive to economic development and which, in turn, con tributed to the instability of the country as a whole.78 78Ibid CHAPTER IV ORGANIZATIONAL AND PROCEDURAL ASPECTS OF DEVELOPMENTAL PLANNING IN THE UNITED ARAB REPUBLIC The T u p Stages of Developmental Planning With the beginning of the Revolution in 1952, two broad social and economic objectives were set forth. First, development of our national economy to open wide vistas which would enable every citizen to hold a share in it. Second, to endeavour to reduce the gaping differences between the people in pursuance of the principle of social justice and to permit stability within the country.1 The developmental efforts carried out by the Revo lutionary government since 1952 can be divided into two historical stages (phases). The first stage involved the formulation and implementation of partial developmental Gamal Abdel Nasser, President of the Republic, "President's Inaugural Address to the General Congress of the National Union for the United Arab Republic," July 9, 1960, Achievements and Future Development Plans (Cairo: The Information Department, 1960), p. 148. 139 140 plans or programs and major individual projects. The second stage, operative since July 1960 is that of setting up a national comprehensive plain for social and economic development• Partial Plainning O Agrarian Reform and Agricultural Programs Objectives of the Agrarian Reform.— Soon after the advent of the Revolution, the first land reform program was launched by passing the Agrarian Reform Law in Septem ber 1952, which was later modified and complemented by several successive pieces of legislation. The factors that prompted the government to initiate this program were the then existing maldistribution of land and the self-inter ested attitude of the big landowners which contributed largely to the underdeveloped state of the economy, as out lined in Chapter III of this study. 2 The information contained in this section concern ing the agrarian reform is based mainly upon the work of Saad M. Gadalla, Land Reform in Relation to Social Develop ment, Egypt (Columbia: University of Missouri Press, 1962), particularly pp. 6-7 and 36-41, and on the United Arab Republic, Pocket Book, 1961 (Cairo: Information De partment, 1961), particularly pp. 145-151. 141 The agrarian reform is intended to achieve the following long-range objectives: (1) to direct every new investment into industrial and commercial activities by fixing a maximum limit for landownershipj (2) to encourage land reclamation by permitting holders of fallow or desert land to own as much as they wish to attempt to reclaim; (3) to create from the peasants a new class of small land owners who are not dependent on their landlords for their livelihoods and political opinions* and (4) to prevent any further fragmentation of the small-size holdings.3 In addition to the above-mentioned objectives, which are largely of an economic nature, and which may be regarded as instrumental means to achieve the ultimate aim of raising the standard of living of the rural population, the Agrarian Reform Laws have other social and political aims. These aims include abolishing feudalism with its political power and exploitation of the peasants by the landowners, and improving the distribution of income in the agricultural sector by regulating the land rent and the wage rates of agricultural workers. Land redistribution.— To achieve the above objec tives, the Agrarian Reform Law set a maximum limit of 200 feddans of agricultural land ownership. This limit was 3Gadalla, op. cit., p. 38. 142 later reduced to 100 feddans in July 1961. Each landowner, possessing land over this maximum limit was required to dispose of the excess land within five years of the enact ment of the Law by either transferring its ownership to his children or to other farmers or graduates of the Agri cultural Institutes. The Government was also empowered to expropriate the land in excess of the maximum limit of ownership. In return for the requisitioned land, the land owners were compensated at a rate equalling seventy times the amount of the land tax plus the value of all fixed installations, mobile equipment, and trees. The compensa tion was paid in the form of Treasury Bonds bearing 3 per cent interest and redeemable within thirty years. The land requisitioned by the Government has been distributed to the peasants at a rate of five feddans for each, on the basis of the principle that the land belongs to its tillers. The distributed land was sold to the peasants at a price based on the compensation rate to the original owner, plus expropriation and distribution charges, and interest rates. This price was to be paid over thirty years by the new owner. Other elements of the Agrarian Reform.— An obliga 143 tory system of agricultural co-operative societies has been established for agrarian reform owners. These co-opera tives organize the cultivation of the land, control crop rotation, undertake marketing of the principle products, and provide the members with seeds, fertilizers, machinery, and loans. To prevent undue subdivision and fragmentation of agricultural land as a result of inheritance practices or through sale, the Law provides that land should not be sub divided in lots less than five feddan each. Should such a situation arise, an agreement should be reached among the parties concerned so that one of them retain the ownership of the land and compensate the others. In addition, the Law provides that agricultural land should only be rented to those who farm the land themselves. The rent of such land should not exceed seven times the land tax. To insure the rights of agricultural laborers, a minimum wage has been fixed every year in each agricultural district, by a committee appointed by the Minister of Agri culture. Moreover, the agricultural workers were allowed to form their own trade unions. To implement the agrarian reform program, the 144 Higher Committee for Agrarian Reform and the Executive Agency were created and were later replaced by the Ministry of Agrarian Reform. The Ministry is responsible for the various operations of the program including land requisi tion, land distribution, land survey, farm management, co operatives, and technical research. Agricultural programs. - -Various agricultural pro grams were also undertaken by the Government with the ob jective of increasing the yield of the land and thus the portion of national income derived from agriculture. Formulating and implementing these programs has been pri marily the responsibility of the Ministry of Agriculture and the Ministry of Public Works. Several programs have been carried out for in creasing the cultivable area through land reclamation and irrigation projects, and increasing the productivity of the land through better seeding, fertilizing, pest control, and the introduction of mechanized techniques in pilot stations. Land reclamation projects aim at converting large areas of the desert into fertile agricultural land. The first projects to be implemented were those of the Libera- 145 tion Province and Wadi Natrun. On the reclaimed land, special attention has been given to the cultivation of citrus fruit and increasing animal productivity. The major multi-purpose project which will largely contribute not only to agricultural expansion but also to the expansion of almost all other sectors of the economy is the High Dam at Aswan. A special Authority was created for the study and the implementation of the project which 4 was later replaced by the Ministry of the High Dam. Sectoral Programs and Major Projects Programming organs.--In order to determine the potentialities, means and requirements for promoting eco nomic development in the country, the Revolutionary Govern ment established the Permanent Council for the Development of National Production, and the Permanent Council for Pub lic Services, as well as other organizations. Development of public services.--To develop and coordinate the activities of public services, the Govern 4 Por the benefits and costs of the High Dam project, see United Arab Republic, Sadd-El Aali Project (Cairo: Sadd-Bl-Aali Construction Authority, 1963), pp. 19-20, and Pocket Book. 1961. op. cit., p. 86. 146 ment established the Supreme Committee for Planning, with sub-committees in each ministry concerned with public serv ices, such as the ministries of education, public health, and communication. These sub-committees, which were called the Five-Year Enterprise Sub-Committees, were to prepare such projects as were considered important, in the various fields of social activity. Later, in 1953, the Supreme Committee for Planning was replaced by the Permanent Coun cil for Public Services. The functions of this Council were to study and propose programs for the development of social services, as well as to follow up the executions of these proposed programs after the approval of the Cabinet. The Council was also responsible for evaluating the level and quality of social services and to recommend to the Cabinet changes and arrangements which would lead to im proved social services.5 Hussein Omar, "A Summary Report on Planning in the United Arab Republic," L* Egypte Contemporaine, IV eme Annee, No. 316, Le Caire, Avril 1964, pp. 10-11, and Egypt, "Ka- noon Rakam 493 Lesanat 1953 Be-Insha' El-Magliss Al-Da'em Lel-Khadamat Al-Aama," (Law No. 493 of 1953 Establishing the Permanent Council for Public Services), National Plan ning Commission, Itar Al-Khetah Al-Aama Lel-Tanmieh Al- Iqtisadieh W* al-Iktimaieh Lel-Sanawat Al-Khams, Youlieh I960— Younieh 1965 (Cairo: Al-Haieh Al-Aama Le-Sheoon Al- Matabe' Al-Amirieh, 1960), p. 357. 147 Programs for economic development.— The Permanent Council for the Development of National Production was established in 1952 to elaborate three-year programs of development for various economic sectors, and to supervise the execution of these programs after the approval of the Cabinet.*’ These programs were to include such projects as would yield maximum production and which could be imple mented with the available physical, human, and financial resources of the country. In addition, the Council under took such studies and analysis in matters that were con sidered urgent, such as the means for making available to the country such material as petroleum, sugar, fertilizers, wheat, and animal products. The Council was authorized to finance its own projects through local and foreign loans in addition to 6This information regarding the Permanent Council for the Development of National Production is derived pri marily from Wahby Ghobrial, "Adwaa' Ala Khetat Bl-Tanmieh Bl-Iktisadieh,” (Highlights on the Plan for Economic Devel opment) Kutub Qawmiyah (Cairo: Bl-Dar Bl-Qawmiyah Lel- Tebaah Wal-Nashr, n.d.) and Bgypt, "Marsoum Bekanoon Rakam 213 Lesanat 1952 Be-Insha' Bl-Magliss Al-Da'em Le-Tanmiet Al-Intag Al-Qawmy,« (Law No. 213 of 1952 Bstablishing the Permanent Council for the Development of National Produc tion) , National Planning Commission, op. cit.. pp. 347-349. 148 the funds appropriated for this purpose in the State Bud get. Moreover, the Council was authorised to set up exper imental factories, either independently, or in cooperation with other organizations. The Council was also authorized to encourage individuals and corporations to undertake profitable projects through providing them with technical assistance and relevant information derived from the Coun cil's own studies. The Council played a significant role in establish ing various major projects for development during the first five years of the Revolution. In addition, the Council provided valuable assistance to various organizations in studying the projects of these organizations. Among the major projects which the Council participated in establish ing were the Iron and Steel Factory, the Fertilizer Plant, the Electrification for the Aswan Dam, and various other enterprises for the production of cables, paper, car tires, jute, and others. These projects were undertaken with the objective of creating an industrial base in Egypt, in creasing the productive capacities of those projects which pertained to the basic heavy industrial branch, and also to satisfy local demand and to save foreign currency. 149 Policy measures to increase saving and invest ment.— In addition to the important part undertaken by the Permanent Council for the Development of Production in the industrial sphere, the Government promulgated, since 1953, various laws designed to induce more investment in indus try. Thus, inported raw material and semi-finished prod ucts were exempted from custom duties. Various tax incen tives were given to corporations that undertook establish ing projects which would contribute to economic development. Moreover, the Government assisted in the establishment of new industries and the operation of existing ones by pro viding technical research, subsidies and loans at reason able rates. At the recommendation of the Permanent Council for the Development of Production, the Government sup ported the Industrial Bank to increase the latter's activ ities in making industrial loans. To mobilize savings, and to encourage individuals to invest their savings in productive enterprises, the Government guaranteed a minimum percentage of profit in newly established projects such as that of the Iron and Steel Factory, and Misr Hotels Corporation. In addition, the Government resorted to borrowing from domestic re- 150 sources to finance the developmental projects.^ The industrial programs.— By 1955, the Government faced one of two alternatives. The first alternative was to wait for the results of the studies undertaken by the National Planning Commission which was then created to study the country's potential for economic and social de velopment and work out a comprehensive plan accordingly. The other alternative was to coordinate the developmental efforts in each sector of the economy through the formula tion of developmental programs for each. Prompted by the desire not to waste valuable time while waiting for a com prehensive plan to be formulated, and while the resources of the country remained partially exploited, the Government chose the second alternative. One of the major outcomes of this decision was the creation of the Ministry of Indus try in 1956 which initiated industrialization programs for the country. The execution of these programs has been en trusted to the General Organization for the Execution of Five-Year Industrial Programs which was created in 1957. The industrialization programs were intended to 7 Wahby Ghobrial, op. cit.. pp. 32-36. 151 develop all branches of the industrial sector in a coordi nated and integrated manner, through the establishment of new projects as well as through raising the productivity of labor and exploiting the existing unused productive capacities. In appraising each project to be included in these programs, the following aspects were taken into account to determine the priorities of the projects: 1. Its contributions to national income. 2. The project's use for domestic financial resources• 3. The project's need for foreign currency. ,4. The amount of profit (as a measure of its productive capacity). 5. The project's contribution in increasing the productive capacity of capital goods. 6. The project's contribution to production and consumption. 7. The extent to which the project contributes to foreign currency savings. 8. The length of time necessary to execute the project. 9. The extent to which the project makes use of i 152 domestic factors of production, and local re sources, particularly unskilled labor. 10. Strategic considerations.® The first Five-Year Industrial Program was prepared in 1957. This program, when fully implemented, was in tended to double the income derived from the industrial sector from 11 per cent to 22 per cent of national income. The Program was to provide employment for more than half a million workers and to save much foreign currency.® During the execution of the Program, new projects were added to it and some of the projects already included in the Program were further expanded since they were considered of impor tance to the economy.10 After three years of putting the Program into execution, the First Five-Year Plain for Eco nomic and Social Development was launched in 1960, and the 8Ibid., pp. 46-47. ®Ahmed Abou Ismail, "Baad Gawaneb Bl-Bony an Bl- Senai* Fi Misr," (Some Aspects of the Structure of Industry in Bgypt), L'Egypte Contemporaine, op. cit., pp. 11-12. ^Aziz Sedky, (former) Minister of Industry, "Report by the Minister of Industry," The United Arab Republic Information Department, Achievements and Future Development Plans, op. cit.. p. 110. 153 remainder of the proposed investments pertaining to the Industrial Program was integrated in the Plan.11 Evaluation.— These partial plans or sectoral pro grams were not fully successful in all cases. In some instances, some of them were not fully implemented, while 12 in other cases, they were replaced by other programs. The reasons for the partial unfulfillment of these programs may be attributed to the weakness and difficulties germane to all partial planning due to the following: It is impossible to prevent the measures taken in the planned sector from affecting the rest of the economy and vice versa, yet it is equally inpossible for the planning agency to undertake any systematic anticipation of these effects because it has in sufficient knowledge of development in the unplanned sector.!3 Moreover, it seems that adequate and scientific studies for the proposed projects and programs were not always carried out. It should be noted that, as in most developing United Arab Republic, Statistical Pocket Book, 1952-1962 (Cairo: Administration of Public Mobilization, 1963), p. 158. ^I. H. Abdel Rahman, , T Comprehensive Planning in the U.A.R.,r ' L1 Egypte Contemporaine, LIV erne Annee, No. 313, Le Caire, Juillet 1963, p. 6. •^Carl Landauer, The Theory of National Economic Planning (Berkeley: University of California Press, 1947), p. 201. 154 nations, data and statistical information were rather scanty, scattered and unreliable. In addition, human physical, financial, and administrative resources might have been inadequate to implement the designed projects and programs. Still another reason for the uncomplete success of these programs might be due to their failure ,v. . .to interest the public as a whole; they did not create a national commitment towards their fulfillment. On the other hand, it should be noted that these sectoral programs were the first attempt to coordinate the developmental efforts on a national level and in a con scientious manner. These programs, no doubt, have been useful in indicating the potentialities of the country for economic development, and in discovering the required re sources for such development. In addition, these programs and projects have prepared the ground for and laid down the foundations of structural changes in the economy as well as contributing much towards the development of the economy. Moreover, the experience gained in sectoral pro gramming has been a valuable asset to the planners in their 14 Abde1-Rahman, loc. cit. 155 later efforts in comprehensive planning. National Comprehensive Planning: Types and Nature The stage of national comprehensive planning in the United Arab Republic started with the formulation of a general frame fox a long-term ten-year plan. The plan is divided into two medium-term five-year periods, the first of which covers the fiscal years from 1960/1961 to 1964/1965; and has 1959/1960 as its base year. Yearly plans are formulated within the general frame of the Five- Year Plans. Prime Objectives of the Plan This National Plan has economic and social develop ment as its prime objective. The President of the Republic put forth these objectives as follows: From the economic point of view the aim of the plan was to double national income. From the social point of view, the aim was to remove exploitation, provide equal opportunities for all citizens and to stimulate the desire of [sic.] progress and advance ment inherent in all citizens. This vital coinci dence of economic and social development is the practical application of our desire to set up a democratic, cooperative, social society.15 15Nasser, op. cit., p. 151. 156 Nature and Scope of the Plan According to the definition given by this writer,16 the Pirst Five-Year Plan cam be considered as being compre hensive in nature as it outlines the path to be taken by the public sector as well as the anticipated activities of the private sector, to achieve the desired objectives. It also covers the activities of all economic sectors, such as agriculture and industry. In addition, the Plan is concerned with various economic activities such as invest ment, saving, consumption, labor employment, and so forth, which are undertaken by both the public and private sec tors. However, the Plan does not include some of the important elements which should be included in a compre hensive plan.17 Among these elements which are not ex plicitly spelled out in the Plan document are the detailed financial program of financing the Plain, auid also the necessary policy measures to implement the Plan. It should also be noted that the Five-Year Plan is not comprehensive to the extent a plan is in a Soviet-type economy, in terms of details included therein. The Plan does not specify 16See Chapter II, p. 42. 17See Chapter II, p. 42. 157 in detail the activities of every economic unit. More emphasis is given to aggregate and sectoral magnitudes, to investment projects, and to major products not exceeding a few hundreds. Also, in both the Five-Year Plan and the yearly plans, no detailed figures are given for the private sector, particularly the non-organized business sector of the non-corporate type. Why Comprehensive Planning? In introducing the General Frame of the First Five- Year Plan for Economic and Social Development, several reasons are given by the Government for adopting the method 18 of comprehensive national planning. The decision of the Government to plain comprehensively for economic and social development was, first of all, based upon the stipulation of the Provisional Constitution which stated, that develop ing the national production and raising the standard of living of the population is an essential element in estab- 18Abdel Latif El-Boghdady, (former) Vice-President and Minister of National Planning, "Introduction,” National Planning Commission, General Frame of the 5-Year Plan for Economic and Social Development, July 1960-June 1965 (Cairot General Organization for Government Printing Of fices, 1960), pp. v-viii. 158 lishing the Socialist-Democratic-Co-operative Society, as is the fulfillment of the hopes of the people for economic development and prosperity. Hence, the Government resorted to comprehensive planning as it " . . . ensures the fastest and most adequate rate of economic growth and social devel opment. "^9 jn so doing, the Government chose a method of planning which was not modelled after any other system, but rather one which was designed to cope with the problems of the country. Secondly, the Government's use of comprehensive planning was based upon the idea that it is a scientific method which helps in determining the economic problems of the country and in finding adequate solutions to them, which helps in achieving better organization of the eco nomic activities, and in mobilizing physical, human, and financial resources, and in making proper use of human knowledge and technical progress. Thirdly, comprehensive planning was chosen because it could be used for social considerations, particularly in reducing inequalities in income and wealth among the citizens. In addition, the National Charter gives the follow 19Ibid., p. vi. 159 ing reasons for adopting central comprehensive planning in the United Arab Republic: . . . the wide gap of underdevelopment which separates the advanced states and those trying to catch up, no longer allows the method of progress to be left to desultory individual efforts motivated by mere selfish profit. These individual efforts are no longer capable of facing the challenge. (The) socialist solution is the only path where all elements participating in the process of produc tion can meet, according to scientific rules, capable of supplying society with all the energies enabling it to rebuild its life on the basis of a carefully studied and comprehensive plan. Efficient socialist planning is the sole method which guarantees the use of all national resources, be they material, natural, or human in a practical, scientific, and humane way aimed at realising the common good of the masses, and ensuring a life of prosperity for them. Efficient socialist planning is the guarantee for the sound exploitation of actually existing re sources, or those which are latent or potential. At the same time, it is a guarantee for the con tinued distribution of fundamental services already now offered. It is a guarantee for extending those services to areas which had fallen victim to negli gence and inefficiency which were the outcome of long deprivation inposed by the selfishness of the ruling classes who looked down upon the struggling people. It follows then that planning must be a scien tifically organised creative process that would meet the challenges of our society. It is not a mere process of working out the possible, it is a process of achieving hope. 160 Organized national action, which is based on scientific planning is the path leading to the de sired future.20 The Planning Machinery Centralization and Decentralization The organization of the developmental planning machinery has been structured by the Government so that plan formulating apparatus is centralized and yet plan implementing apparatus is decentralized. In practice, of course, the central planning organ does not formulate the plan all by itself. As is explained below, although it is the prime responsibility of the Ministry of National Planning to formulate the plans, yet almost all other organizations, whether public or private, at all levels of economic activities, participate and cooperate with the central agency to bring the plans into being. Similarly, the responsibility of executing the plans are dispersed among a multitude of different organizations, although the execution of these plans is to some extent indirectly con trolled from the center. 20United Arab Republic, The Charter (Cairo: Infor mation Department, n.d.), pp. 50-52. 161 Various organs were established by the Government to carry out developmental planning activities* Some of the already existing organs were also reorganized to fit into the general framework of the planning procedure. The organs which participate in the drawing up, execution, and follow-up of execution of the developmental plans, as well as the mechanism of planning, are described below. The Supreme Council for National Planning The President of the Republic presides over the Supreme Council for National Planning which comprises all the ministers. The Council fixes the general economic and social aims of the national developmental plans. It issues general directives, according to which the plains are formu lated. It approves the plans in their final forms, and the general policy measures for their implementation. The Council also follows up the execution of the plans in their PI various stages. The Ministry of National Planning The developmental plans are prepared by the central ^United Arab Republic, Pocket Book, 1P61 (Cairo: Information Department, n.d.), p. 58. 162 planning staff under the Minister of National Planning. The Ministry has originally been established in 1955 under the name of "National Planning Commission," presided by the Prime Minister and composed of a number of Cabinet Minis- 22 ters and their deputies. At a later time both the Perma nent Council for the Development of National Production and the Permanent Council for Public Services were merged 23 into this Commission. The Ministry has been entrusted with drawing up national comprehensive plans for economic 24 and social development. 22United Arab Republic, "Kanoon Rakam 141 Lesanat 1955 Be-Insha* Lagnet El-Takhteet El-Qawmy," (Law No. 141 of 1955 Establishing the National Planning Commission), National Planning Commission, Itar Al-Khetah Al-Aama Lel- Tanmieh Al-Iqtisadieh W1al-Iktimaieh Lel-Sanawat Al-Khams, Youlieh 1960— Younieh 1965, op. cit., p. 361. 23 United Arab Republic, "Karar Ra' is Al-Gamhourieh Al-Arabieh Al-Mottaheda Rakam 263 Lesanat 1957 Be-Idmag Al-Magliss Al-Da'em Le-Tanmiet Al-Intag Al-Qawmy W'al Magliss Al-DaTem Le1-Khadamat Al-Aama Fi Lagnet El-Takhteet El-Qawmy," (Presidential Decree No. 263 of 1957 Merging the Permanent Council for the Development of National Produc tion and the Permanent Council for Public Services in the National Planning Commission), op. cit., p. 368. 24United Arab Republic, "Kanoon Rakam 141 Lesanat 1955 Be-Insha' Lagnet El-Takhteet El-Qawmy," loc. cit., and "Karar Ra'is Al-Gamhourieh Al-Arabieh Al-Mottaheda Rakam 78 Lesanat 1957 Be-Insha* Lagnet El-Takhteet El-Qawmy," (Presidential Decree No. 78 of 1957 Concerning the National Planning Commission), National Planning Commission, Itar Al-Khetah Al-Aama Lel-Tanmieh, op. cit., p. 378. 163 The Ministry of National Planning receives pro posals for developmental projects and programs from all ministries, governorates, and general public organizations, as well as from other public agencies. Statistics and other data needed for planning are also received from various statistical agencies of the country. The develop mental proposals are discussed, analysed, and coordinated by the staff, to fit in a general balanced plan according to the directives set forth by the Supreme National Plan ning Council. It is to be noted that the Ministry has no execu tive responsibilities. The technical study, the execution of the projects of the plans and the realization of their targets are entrusted to other ministries, governorates and public organizations. But the Ministry of Planning also has an important controlling function. Following-up progress of the plans is undertaken by the Ministry of National Planning, so that it cam coordinate regularly the activities among all the sectors of the economy. The in formation concerning this follow-up is received periodic ally (monthly, quarterly, and yearly) from all public agencies. This information enables the Ministry to assess the progress made within the period under consideration, and to evaluate the degree of realization of the targets of the plans. In the light of such assessments, the Ministry submits periodic reports to the Supreme Council for National Planning, suggesting adjustments of the Plan, whenever deemed necessary, or suggesting means, methods, and courses of action which it considers conducive to the realization of the objectives of the plans. The internal organization of the Ministry is as follows: the staff members form a number of units, each of which is assigned a sector of the economy such as agri culture, industry, foreign trade, domestic trade, finance, or social services. In addition, the Ministry includes two research groups and four divisions concerned with corn- 25 prehensive planning. The Joint Committees For the preparation of the First Five-Year Plan, joint committees were set up for consultory work. These committees were formed from the staff members of tne National Planning Commission and outside experts recruited from both the private and public sectors, such as heads of 25 See Appendix A, 1 1 Internal Organization of the Ministry of National Planning." the banks, directors of corporations, and university pro fessors. In 1959, about 500 experts, participating in these consultory committees, were organized into six prin ciple committees, with more than sixty sub-committees. The reports of these committees were submitted to the President and were discussed at the Supreme Council for Planning and the main target of doubling national income within ten years was decided upon at the Council. Accord ingly, the National Planning Commission prepared a de tailed general framework of the Plan based upon proposed projects and programs submitted by the ministries and by public and private organizations. A Ministerial Committee for Planning was established which, together with the Ministerial Committee for Economic Affairs, revised the 26 draft of the general frame of the Plan. The final draft of the Plan was then discussed at the General Congress of the National Onion, and after its approval by the President of the Republic, a law was issued to implement this plan as of July 1960. ^Abdel Latif El Boghdadi, (former) Vice-President and Minister of Planning, Address on the 5-Year Plan for the Economic and Social Development 1960-1965 (Cairo: UAR General Congress of the National Union, July 4, 1960), pp. 12-13. The Planning and Follow-up Offices The preparation of developmental plans entails the combined efforts of all governmental departments. In each ministry, governorate and public agency and enterprise, a Planning and Follow-up Office has been established under the chairmanship of the Minister, or the Governor, or the general director of the public agency.27 The rapporteur of this Office is a senior official assisted by full-time technical staff members drawn from the organization. Representatives from the Ministry of Planning participate in these Offices as consultants. The Planning and Follow- up Offices study the technical and economic aspects of the developmental projects and programs to be executed by their ministries, governorates or public agencies. They also study the projects to be executed by the private sector which are supervised by the ministry concerned. The anal ysis of such projects and programs ranges from the estima- 27 United Arab Republic, "Karar Ra'is Al-Gamhourieh Al-Arabieh Al-Mottaheda Rakam 262 Lesanat 1959 Be-Insha1 Makateb Bl-Takhteet Fi Bl-Wezarat W’al Mo'asassat Al-Aama,M (Presidential Decree No. 262 of 1959 Establishing Planning Offices in Ministries and Public Enterprises), National Planning Commission, Itar Al-Khetah Al-Aama Lel-Tanmieh Al-Iqtisadieh W’al-Iktimaieh Lel-Sanawat' Al-Khams. Youlieh 1960 - Younieh 1965, op. cit., p. 378. 167 tlon of costs and expenditures and the foreign exchange component of costs, to the number of workers required and the quantity of output to be produced from each project, input requirements for such production, or the time sched ule and process of production. In addition, each Office undertakes to follow-up the progress of the projects executed by its ministry, governorate, or public agency and enterprise in order to coordinate continuously the activities of all the units under its supervision. The proposals for the projects and programs, as well as the follow-up information, which is prepared by the afore-mentioned Offices according to unified forms and criteria, are submitted to the Ministry of National Plan ning for study, analysis, and coordination. The results of such studies are reported by the Ministry to the Supreme Council for National Planning for consideration. Regional Planning It should be noted that, until recently, no re gional developmental planning was undertaken. The alloca tion of investment projects in the First Five-Year Plan among various Governorates was carried out by the Ministry 168 of National Planning.28 However, a recent trend since 1962, has been towards less centralisation in plan formula tion. This trend materialised in assigning to the Ministry of Local Administration, which was established two years earlier, the task of coordinating and supervising the exe cution of projects and programs of Governorates, and local councils.29 Such projects and programs axe required to be conceived within the framework of the National Plan for Economic and Social Development• Training in Planning It is of great importance to improve the efficiency and experience of the Planning machinery. The officials who are responsible for setting up, implementing, and following-up the progress of the plans, need to master planning techniques, procedures, methodologies, and ^National Planning Commission, A1 Khetah Al-Aamah Lel-Tanmieh Al-Iqtisadieh W*al Iktemaieht Tawri' Al- Mashrouat Ala Mouhafazat, Youlieh 1960 - Younieh 1965 (The Overall Plan for Economic and Social Development: The Dis tribution of Projects Among the Governorates, July 1960- June 1965) (Cairo: General Organization for Government Printing Offices, 1960). 29United Arab Republic, The Year Book 1963 (Cairo: Information Department, n.d.), pp. 23-25. 169 theories. Besides, they need to communicate among them selves through a "common language." Hence, it was deemed necessary to train the officials, both public and private, who are to assume planning responsibilities in the fields, of economic development, public administration, management, project appraisal, and theories and practices of planning. To get this kind of training, missions are sent abroad to planning agencies and to academic institutions. Moreover, the Institute of National Planning has been established in I960. The Institute's tasks are to study problems con fronting the planning machinery, to undertake research and investigations to improve planning, and to train the offi cials who are engaged in planning. The Institute suffered from a shortage of competent instructors; nevertheless, through the help of foreign experts, the professors of the Egyptian universities, and the planners at the Ministry of National Planning, the Institute was able to train about 500 officials within its first two years.30 30"B1-Tariq Ila Rdad Geel Men El-Mokhatetin," (The Way to Prepare a Generation of Planners) Al-Ahram Al- Iqtisadi. No. 181, Cairo, March 1, 1963, pp. 32-34. The Process of Developmental Planning Determination of Goals Doubling National Income Directives were issued by the President of the Republic to the planners to set up a general frame for a comprehensive plan for economic and social development having as its major target doubling national income in ten years. This target should be regarded as an instrumental one to achieve the prime objective, which is raising the standard of living of the population. Hence, the Charter states t The objective set by the Egyptian people, through the Revolution, to double their national income, at least once every ten years, was not a mere slogan. It was the result of calculating the amount of the force required to face underdevelopment and rush for progress, keeping in mind the increasing rise in populat ion.32 The Charter, thus, defines clearly the maximum necessary period of time during which doubling national 31 National Planning Commission, "Introduction,1 1 General Prame of the 5-Year Plan for Economic and Social Development July 1960-June 1965, op. cit., p. v. ^UAR, The Charter, p. 59. 171 income is to take place. It is, therefore, necessary to take every possible measure to achieve this objective in less than ten years, within the limitation of existing and future availability of human, physical, financial, and administrative resources. Moreover, it is clear from the above quotation that the process of doubling national in come, "at least once every ten years," is intended to be a continuous one. The reason for adopting such an ambi tious objective is prompted by the high rate of population growth, which has lately reached about 2.5 per cent per annum. Hence, national income should rise by a rate much higher than that of population growth, if the standard of living is to be raised. In an address to the National Assembly, the Presi dent stated why and how this ambitious target came to be adopted as follows: In 1959 we declared our intention to double our national income. The national income in 1952 was about L.E.790 million and in 1959 it had reached L.B. 1,285 million. We declared we intended to double this income while taking into consideration the growth of the population. Technicians and planners said that we could increase national income in 20 years. At several meetings of the Council, we said that would not do as after 20 years, our number would increase about 15 million people. If we doubled national income after 20 years, we would not have accomplished anything. All we would 172 have done would be to achieve a slight increase in national income which would provide for the newly born. But we would never raise the standard of living of the present population, nor would we pro vide work for the present unemployed or those to be born later. We must then double national income within ten years. Several days of Cabinet meetings were de voted to this. The planners said that it could be done in 18 yeaxs but not in 10. Still we insisted on 10 years, and they came down to 15. But we main tained that 10 years was the basis on which we should work or else it would be no use. As I said, without action being carried on this basis our population would be made of unemployed, hungry and destitute people. I consider it our duty to execute a plan greater them our capacity, because our aim is to double national income in ten years.33 Professor Ragnar Frisch thinks that setting a tar get of doubling the national income in ten years "is excel lent as a stimulus to effort. It is a whip that will force everybody concerned with development to use his imagination and do his utmost."3^ 33"Text of President Gamal Abdel Nasser’s Address to the UAR National Assembly, Nov. 13, 1964," (Mimeographed from Egyptian Gazette, November 14, 1964), pp. 9, 12. 34Ragnar Frisch, "Planning for the United Arab Re public," Public lecture delivered in February 8, 1964 in the Egyptian Society for Political Economy, Legislation and Statistics, at the invitation of Cairo University, printed in L’Bgypte Contemporaine, LV erne Annee, No. 317, Le Caire, Juillet 1964, p. 7. 173 Equitable Distribution of Wealth and Income An equally important goal has also been adopted, namely that of equity in the distribution of wealth and income. Thus, the Plan Document states that "the President also defined the social aim of increasing the national in come and ensuring its steady growth together with its fair distribution among nationals as raising their welfare and dignity standards."35 This objective is considered to be of a social nature, and for this reason, the Plan is termed "The National Plan for Economic and Social Development." However, the degree of envisaged equity and the measures to be adopted in order to attain this goal are not explicitly indicated in the Plan. Nevertheless, it is possible to deduce from the official statements and publi cations several dimensions of this goal, which is usually discussed under social justice. First, this goal involves eliminating class distinction, reducing existing inequali ties of wealth and income, and distributing the rising national income "... among all the people according to 35National Planning Commission, "Introduction," General Frame of the 5-Year Plan for Economic and Social Development, July 1960-June 1965, loc. cit. 174 the principle of equality of opportunity.”36 Secondly, equality of opportunity is to be achieved through the following measures: 1. Ensuring the right of every individual to ob tain medical care, and expanding medical facilities and health insurance in the country. 2. Ensuring the right of every individual to re ceive adequate education according to his interests and abilities. 3. Ensuring the right of every individual to ob tain a suitable job according to his education, abilities, and interests. 4. To reduce income inequality, a minimum of wages and a maximum of total individual income is to be fixed. 5. Insurance against old age and sickness is to o 7 be provided for. Thirdly, eliminating class distinction does not mean eliminating distinctions among individuals. Differ ences in capabilities, incentives, education, and skills 36UAR, The Charter, pp. 49, 58. 37Ibid., pp. 71-72. 175 contribute to differences among individuals.38 Also, re ducing income inequalities does not signify attaining abso lute equality, whereby every individual would have an exact 30 equal shaxe of national income. This implies that con- tribution to production should be the criterion by which national income is to be distributed. Analysis of Conditions and Plan Formulation Procedures and Statistical Techniques Economic measurements.— In formulating the Five- Year and yearly developmental plans in the United Arab Republic, planners at the Ministry of National Planning 38 Gamal Abdel Nasser, President of the United Arab Republic, "El Nas El-Kamel Le-Monakshet El Ra'is Ma» Bl- Shabab," (The Complete Account of the Discussions Between the President and the Youth), El Talaba Bl-Arab, No. 168, November 27, 1965, p. 9. 3^”Address by President Gamal Abdel Nasser at the Alexandria University Celebration of the Anniversary of the July 23 Revolution, on July 28, 1965 at Alexandria,'' Speeches by President Gamal Abdel Nasser on the Occasion of the Thirteenth Anniversary of the Revolution, July 1965 (Cairo: Information Department, 1965), p. 73. 176 rely heavily on the national economic accounting tech niques.40 In fact, before the stage of comprehensive plan ning, economic accounting, together with very simple eco nomic models, clarified the necessary socioeconomic struc tural changes needed for development, though they were constructed in cruder forms and with limited statistical data. The statistical techniques of Input-Output, National Income Accounts, and Financial-Plows Accounts, served to outline the outcome of alternative policy measures for top policy makers. The stage preceding comprehensive planning was one in which the construction of Input-Output Tables of the Leontief-technique type, and estimates of the National Product were attempted. Such attempts were hampered by the lack of accurate statistical data. As a consequence, 40In writing about the use of national accounts in Plan formulation, this writer draws heavily upon Nasih A. Deif, "Some Uses of Bconomic Accounting in Planning Eco nomic Development of the U.A.R.," Paper presented at the International Association for Research in Income and Wealth, Middle Bast Regional Conference, Istanbul, August 24-29, 1962, Cairo! Institute of National Planning, 1962, (mimeographed)• For the description of the structure of the Na tional accounts, see Appendix B, "The System of the Nation al Accounts and Their Relation to Developmental Planning in the United Arab Republic." 177 an extensive program of data collecting was undertaken by the planners. During the 1956-1959 period, emphasis was placed by the planners upon using economic accounting to find out the existing structural characteristics of the economy. Various accounting designs and models were used for long and medium-term projections and annual National Budgets. A two-year transitional plan frame was constructed which showed the exchange, transfer, and financial transactions of twelve sectors. Later, in 1959-1960, the central planners at the Ministry of National Planning applied economic accounting and associated analytical techniques in connection with the preparation of the General Frame of the First Five-Year Plan for Economic and Social Development, as well as in setting up, and following-up the progress of the annual plans, thereafter. In setting targets for various eco nomic activities, and in choosing the means with which to achieve these targets, the central planners studied the future trends in economic activities as revealed by the analysis of underlying forces governing the patterns and rates of economic growth during the 1945-1954 period. Their analysis depended primarily on a set of aggregative 178 accounts xelating estimates of Gxoss Domestic Product, inputs of commodities, public expenditures, capital foxma- tion, and pxivate consumption. Such analysis sexved to outline the basic stxategies to be adopted in the develop mental plans. Through the use of Input-Output Tables, it was possible fox the planners to identify the effects of changes in the vaxious types of final demand on the stxuc- ture and level of pxoduction. To supplement the Input- Output appxoach fox structural analysis, Accounts fox Groups of Economic Agents were constructed whexeby it was possible to translate the outputs of economic sectors into incomes and savings of gxoups of economic agents. Crossing the classification of agents and transactions involving income, txansfex payments and net financial transactions permitted the planners to determine the economic behavior of each group, particularly regarding their savings and the pattern of uses of these savings. The whole system of economic accounting has proven useful many times in developmental planning. First, they provide specialized agencies with guidelines for invest ment project proposals. Secondly, they serve as basic techniques for checking the consistency of the Five-Year 179 and yearly developmental plans* Economic projections.— Projections of output tar gets for each sector and the availability of capital were first used to determine investment programs and to propose individual projects. The method which was utilized for this purpose was mainly that of determining sectoral pro duction and imports through the projections of aggregates of domestic product, imports, and final demand, through the use of an Input-Output Model. At this stage no import substitution was taken into account, since this aspect was to be determined later after the planners had received project proposals. The projection of final demand was established for each of its main categories, namely, consumer demand, gov ernment consumption, domestic capital formation, and ex ports. Personal consumption was determined through the use of elasticity coefficients derived from the consumption behavior of urban areas with some consideration given to size and regional distribution of household units. The determination of government consumption was based upon an analysis of its purchases during the Plan base year (1959- 1960) and on the expected rate of expansion in its serv 180 ices. Gross investment was established on the basis of output-capital ratios, the commitments of investment proj ects by the public sector, and estimates of replacement requirements. Projections of exports were based mainly on international market studies, by commodity categories. Changes in the pattern of personal consumption, and in investment from housing construction to manufacturing and transportation, were also approximated. Project appraisal.--Developmental project proposals were then received by the Ministry of National Planning from various agencies and enterprises belonging both to the public and private sector stating their input require ments and expected output. These project proposals con tained one or more of the following general aims: 1. Utilizing existing natural resources. 2. Processing raw material. 3. Conservation of resources, otherwise wasted. 4. Introducing better and more suitable technologies of production. 5. Satisfying an existing or latent demand. 6. Setting the basis for future creation of demand. 7. Setting the basis for future production activity. 8. Exploiting geographical, climatogical or histori cal advantages. 9. Employing existing skills in trade, or produc tion.41 Abde1-Rahman, op. cit., p. 17. 181 The criteria by which the projects were appraised were nearly the same as those used in determining the order of priorities of projects for the industrial programs, and which were outlined in the previous section. Real and monetary balances.— The next step was to determine the combination of these projects which, together with the existing capacities, would yield a consistent solution whereby output is equated with all combined ele ments of aggregate demand. At this juncture, Commodity Balances have proven to be useful. This type of economic accounting is similar to a general type of Input-Output 42 Table in which sectors are crossed against products. These balances provide for the determination of the sources and uses of each group of commodities by the various sectors of the economy. The method of iteration is used to construct these commodity-flows tables. At each round of iteration, relevant information, such as the existing production capacities, the possibility of changing input requirements or shifting from foreign to domestic ^National Planning Commission, General Frame of the 5-Year Plan for Economic and Social Development, July 1960-June 1965. op. cit., pp. 53-87• 182 sources of supply, axe taken into consideration, until a logical solution has been reached. Once the real-flows accounts are constructed, it is possible to complete the system of balances in terms of factor and transfer payments, as well as the requirements of finance. Such relationships as income-consumption and saving-assets are used for further cross-checking. Dr. N. A. Deif points out the advantages of pursu ing this procedure which relies on a trial and error approach. First, he notes that this method allows for finding out various alternatives to balance the situation, and thus ascertaining the feasibility of any proposed solu tion. Secondly, this method also provides for checking the various results of using alternative productive capac ities and input requirements. Thirdly, this procedure yields a more rational solution for resource allocation than the use of sophisticated mathematical models, particu larly when there is a lack of correct information about physical magnitudes or where there is an extensive use made of administered prices. The Frisch approach.— Recently in 1963-1964, Professor Ragnar Frisch proposed an approach to the formu lation of a global and optimal plan frame, which was car ried out by several Egyptian collaborators at the Operation Research Center, in the Institute of National Planning. The essence of his technique for such a plan frame is as follows. Professor Prisch suggests that if the country is interested in achieving an increase in its national income, then the planners should not focus their attention only on a year's target. A Five-Year or Ten-Year plan, he points out, has a longer perspective as it would take into account "the highest possible accumulated income creation over all the future years until the effects of the plan period action . . . have tapered off."43 Professor Prisch explicitly indicates that framing a global and optimal plan is am "aid" and a necessary condition for making the right decisions on economic policy by the concerned authorities at top levels.44 Evaluation In evaluating the processes and techniques of plan formulation, this writer considers the following points to be of importance. 43Prisch, loc. cit. ^Ibid., pp. 6-7. 184 Dissemination of statistical data*— Much of the time of the staff at the Ministry of National Planning is occupied in collecting and compiling a good deal of the statistical material required for developmental planning. Such an effort constitutes a partial waste of time for the planners, since their time can be better spent concentrat ing on planning functions proper and on analysis and evalu ation of statistical data if the data is compiled by another agency and transmitted to the Ministry of National Planning. There are specialised agencies which are now well equipped to handle such an effort, such as the Depart ment of Statistics and Census and the Administration of Public Mobilisation. The forms and the extent of aggrega tion of the required statistics can be agreed upon by the Ministry of National Planning and the statistical agency. Related to this matter on a larger scale is the problem of the coordination of all statistical information. In many instances, an organisation is requested to supply various public agencies and departments, including the Ministry of National Planning, with practically the same information in different forms, each of which is designed to serve a particular purpose for each agency making the request. In this situation, the staff members of such an 185 organization find themselves burdened with the task of supplying overlapping information. The Central Statistical Commission should conduct a survey of all statistics re quested by all government agencies, and should agree with these agencies and other organizations on the method and forms of required statistics, in such a way that reduces any duplication in furnishing the same material to a min imum. An attempt to realize this objective would release part of the scarce technicians in the country to devote themselves to more productive work. Economic Account ing. - -Though the use of Economic Accounting in the analysis of conditions for developmental planning in the United Arab Republic has reached a rather high degree of sophistication, yet, in the writer's opin ion, it is possible to make further improvements along the following lines: 1. Although the available statistical data cover most of the important financial transactions required for the construction of the Financial-Flows Tables, and al though these statistics may be considered as among the most reliable data in the country, yet they cannot be considered as being ideal. For example, the financial transaction of 186 Non-financial Business Sectox and the Household Sector, as well as the classification of these txansactions according to institutional and economic sectoxs, axe lacking. The classification of the public debt and the paid-up capital of companies accoxding to ownexship axe not available eithex. To the best of the writer's knowledge, the Finan- cial-Flows Accounts according to the new system have only been constructed fox the fiscal yeax 1960-61 and fox the period from July 1961 to December 1961. Once these Accounts axe set up fox several successive years, it would be possible to find out a normal pattern of finance fox the whole economy as well as fox each sectox and each eco nomic activity. Hence, it would be possible to project these Accounts which will be most helpful in the formula tion of financial and monetary programs and policies. Moreover, the General Frame of the National Plan fox Eco nomic and Social Development, although comprehensive in nature, lacks a credit program and a detailed financial program. By deriving meaningful coefficients from a set of Financial-Flows Accounts for several years, it would be possible to formulate such credit programs on a sound basis. Furthermore, setting up the Accounts for several 187 years and their projection for future periods would enable a better identification of the best methods to finance the developmental plans, as well as the best means to mobilize and channel the financial resources. More ambitious objectives would be to set up monthly accounts, as well as wealth accounts, to compile more detailed information about financial transactions, and to have larger sectoral breakdown. The structure of the Accounts can be easily adapted to affect these modifi cations. But it should be noted that such objectives can not be realized unless the necessary data are made avail able. Besides, much can be done towards increasing the reliability, and enlarging the scope of the existing data so that the construction, projection and interpretation of the Financial-Plows Accounts and the entire National Accounting System can have a more solid basis. 2. The Input-Output coefficients which were used in the plan formulation, were derived from the 1954 and 1959 Tables only. These Tables portrayed the inter-indus try relationship of an economy in the process of indus trialization. Hence, the coefficients derived from these Tables could not be altogether applicable for a future period during which industrialization gains momentum. 188 More suitable coefficients can be used if the following considerations are taken into account to fit a dynamic economy such as that of the United Arab Republic: a) The coefficients should be derived from a series of Input-Output Tables for a number of years rather than being based on one or two tables. b) Use can be made of Input-Output coefficients of other countries at the same stage of industrial ization, after allowing for the differences in the structure of the economy, the available resources and the skill of labor. c) The proposed projects, their techniques, their input requirements, and potential output should be taken into account in constructing the Tables. Coordination of investment projects.--The First Five-Year Development Plan was essentially based upon a compilation of investment proposals. It seems that not all of these proposals had been adequately studied and carefully scrutinized.*^ Moreover, although there seems 45For example, in a list of projects included in 189 to be some economic cziterla by which the projects incorp orated in the developmental plan were chosen, it is not clear whether all the variables affecting the choice of projects had been quantified, or how these factors had been weighted, or even whether these investment criteria were consistently applied. Coherent projects should be included in the developmental plans only after careful studies to determine the soundness and feasibility of these projects technically, economically, financially, and administra tively. Techniques of project appraisal have been devel oped and are of great help to the planners in their choice of projects. To promote efficiency, the following pro posals may serve the planners in appraising the proposed the Pirst Five-Year Plan and pertaining to the metallurgi cal industries, which shows the stage of implementation of these projects as of the end of the third year of the Plan, remarks are included to the effect that some of these projects are "under study" or "still under way." Federa tion of Industries in the United Arab Republic, Year Book 1964 (Cairo: Socidte Orientale de Publicity, n.d.), pp. 64-65. Similar remarks about the inadequacy of projects appraisal are included in such studies as those of Mohamed Ibrahim Abdel-Ghani, "An Appraisal of the Animal Produc tion Projects of the First Five-Year*s Plan of Agricul tural Development in the UAR," Institute of National Plan ning, Memo No. 499, Cairo, October 1964, p. 43, and that of Mohamed Hass an Fag Bl-Nour, "An Appraisal of the Plant Production in the UAR First Five-Year Plan," Institute of National Planning, Memo, No. 504, Cairo, November 1964, p. 28. 190 projects and their possible incorporation in a development al plant 1. Whenever possible, the use of a single cri terion of cost and benefit should be strictly applied, a principle which contributes to consistency in plan formu lation. 2. The developmental plan should be considered as a whole, and the projects should be determined in rela tion to the plan. 3. If the prevailing prices and rates do not reflect the scarcity of commodities and services, then shadow prices should be used to determine efficiently the 46 composition of the developmental plans and programs. Policy measures.— In the plan document— that is, the General Prame of the Five-Year Plan for Economic and Social Development--no mention is made of any policy meas ures that should be adopted or institutional changes that should be undertaken in order to implement the Plan. According to one authority on the subjects, "it was felt 46Gustav P. Papanek, "Framing a Development Pro gram," International Conciliation, No. 527, March 1960, pp. 337-339. f 191 that any detailing of such policies and measures even if possible at the time of the preparation of the plan, would tie the hands of the management of the economy and might lead, to reactions unfavourable to the development process itself."^ Although flexibility in adapting the policy and institutional measures to fulfill the targets of the plan is indeed a necessary requirement for good develop mental planning, yet the plan document can be more useful in fulfilling its objectives of development if it includes the required measures. The statement of such measures, even in general terms and in broad outlines, can best guide the policy makers and those responsible for imple menting the Plan in their developmental efforts, it can permit the exercise of the required flexibility, and may prevent the occurrence of any contradictory actions in executing the plan. Furthermore, stating the required measures allows every individual to know his duties and obligation towards achievement of the targets of the Plan better. Regarding this point, the Charter states that "every individual should be aware of his defined responsi bilities in the whole plan, and should be fully conscious 47 Abde1-Rahman, op, cit.» p. 12. 192 of the definite rights he will enjoy in the event of the success of the plan."48 Plan Execution and Follow-up Plan Execution The First Five-Year Plan, is essentially an invest ment plan. The Plan has specified every investment project to be executed during 1960/1961— 1964/1965 together with the requirements for these projects in terms of human, physical, and financial resources. The execution of the investment projects and programs, as specified in the Plan document, is the responsibility of the enterprises, the controlling General Public Organization, and various and governmental departments and ministries. It should be noted again that the Ministry of National Planning has no executive power. Its role lies in supervising the execu tion of the Plan is confined to following-up the progress of the execution, reporting to higher authorities and proposing such action as is considered to be conducive to the realization of the desired goals. 48UAR, The Charter, p. 79. 193 Plan execution in the public sector.— Coordinated fiscal, monetary, and all other policies by the Government play the major role in implementing the developmental plans. This is so because the public sector has a large share of 49 investment and productive activities in the economy. By relating the State Budget to the developmental plans, par ticularly the yearly plans, the Budget has become an effec tive tool in the execution of the plan.^ In addition, an exchange budget is prepared annually for allocating foreign exchange among the various sectors and organizations within the general frame of the developmental Plan.^ The new system of local government which was ini tiated after the beginning of the First Five-Year Plan is indicative of the new trend in the United Arab Republic towards more decentralization in plan execution. The gov- ernorates and local councils are made responsible for implementing their investment projects, within the General 49 The share of the public sector in total economic activities will be analysed in Chapter V below. 50See Appendix C, "Development of the State Budget as Part of the Plan." 51See Appendix D, "The Exchange Budget and the Plan in the United Arab Republic." 194 Frame of the Plan, The Ministry of Local Government, supervises the activities of the Governorates, and this should lead to a coordinated effort towards realisation of the targets of the Plan. Great responsibilities in Plan execution are given to the General Public Organizations. This form of organi zation has emerged before the beginning of the First Five- Year Plan as a result of the rapid growth in the public sector which necessitated a reconsideration of the methods of administration and control of the public enterprises. Having as its objective the effective establishment and control of the State's lines of policies for development, the Government considered grouping all of its interests in various economic fields under one controlling body. This consideration materialized in the establishment of the Economic Development Organization in 1957. This Organiza tion, which took the form of a holding company, was author ized to establish fully-owned enterprises in corporate form, and to purchase other corporations with the funds put at its disposal by the Government so as to further the objective of economic development of the country.52 Con 52Mohamed Sidky Soliman, (former) General Manager 195 trol of affiliated companies was affected through repre sentatives of the Organization in the boards of directors of the companies. In addition, if the Organization owned at least 25 per cent of any company’s capital, the appoint ment of the general manager of such a company', or the president of its boards of directors should be approved the President of the Organization, who also could revoke any decision taken by the board of directors of such a company•53 As the public sector grew further, two other simi lar types of organizations were created in 1961, namely Bl-Nasr Organization and Misr Organization which comprised Misr Bank and the Bank's affiliated companies. El Nasr Organization was created to comprise all corporations established by the General Administration for the Execution of the Economic Development Organization, "The Role of the Economic Development Organization in the Economic Growth of the Country,” a lecture given at the Afro-Asian Con ference, Proceedings of the Economic Conference for Afro- Asian Countries, Cairo, December 8-11, 1958 (Cairo: The Centre of the Afro-Asian Organization, 1959), p. 241. ^Mohamed Labid Shokair and Rifaat El-Mahgoub, "E1- Tatawor Al-Iqtisadi,” (The Economic Evolution), Derasat Pil Moktamah Al-Arabi1 2nd. Edition, 1961-1962 (Cairo: Dar El Nahdah Al-Arabiah, n.d.), p. 471. of the Five-Year Industrial Programs. Both of these Organ isations would also own and control all other corporations designated by Presidential Decrees.54 The preference of the State for establishing public organizations having the features of holding companies with diversified interests in various fields of economic activities may be attributed to the State's desire to create healthy competition among the public enterprises working in the same field of activ ity and belonging to different public organizations. In addition, several specialized public organizations were established to concentrate their efforts each on one or smother particular type of economic activity, such as the Petroleum Authority, the Public Organisation for Internal Transportation amd Construction, and the Public Organiza tion for Desert Reclamation.55 In July 1961, the Nationalization Laws radically chamged the structure of the whole economy. The public sector emerged as the locus of economic power, with com plete control over the major part of economic activities. ^Ibid. , pp. 471-472. 55,,A1-Iqtisad Wal Syasah Fi 10 Sanawat" (Economics and Politics in 10 years), Al-Ahram Al-Iqtisadi. No. 166, Cairo, July 15, 1962, pp. 30-33. 197 Thirty-eight organizations were established, each one supervising several companies which belong to one economic activity. The aim of such reorganization of the public sector was to ensure the achievement of the targets of the developmental plans through closer supervision and control of each economic sector, and through the attainment of higher efficiency in performance through specialization. The General Public Organizations are required to coordinate the activities of both the public and private sectors in the part of the economy for which they are responsible, within the general frame of the developmental plans. The private sector is not allowed to execute any project related to economic development, unless such proj ect is compatible with the frame of the plans, falls within its allotted part in the Plan, and is approved by the authorities concerned. The Public Organization is also required to take such measures as are necessary to achieve the Plan's targets and to execute its projects within the specified period of time. Each General Public Organization is particularly responsible for the following: a) Establishment of investment projects at costs to be estimated as specified in the plan. b) Achievement of the objectives of commodity and services production, quantitatively and qualita tively. 198 c) Computation of resources for the use of the most important commodities and services produced, as well as the estimation of their respective pro duction and marketing costs. d) Achievement of export and import targets, provi sion of commodities and services designed for consumption, production, and investment; provi sion of foreign exchange as estimated in the plaa. e) Compiling statistics relating to the number of employed people and their wages and revision of conditions of employment, labour legislations, relations and regulation, as well as training workers, technicians and supervisors, making use of technical experience, research and scientific studies so as to attain optimum productive effi ciency at the least possible cost in respect of investment projects as well as in such current activity as related to the estimates of the plan. f) Execution of State general budget appropriations for their specific purposes and keeping produc tion, capital and allocation accounts for govern ment business organization; computation of rates of expenditure, performance, and costs with respect to elements of activity in government administration budget as an introduction to preparation of a performance budget for it. g) Issue of decisions and regulation, a preparation of studies and recommendations that help to en courage the private sector engaged in the cor responding activity of the public organization as estimated in the plan, whether in respect of production, consumption, investment, employment, import or export. h) Encouragement of saving, avoidance of squander ing of resources and putting an upper limit to consumption, in such ways that would lead to the realization of the estimates of the plan.56 Since "... each minister is responsible for the fulfillment of production targets in their annual stages 56Hussein Omar, op. cit.. pp. 17-18. 199 in the public organization,"87 and since all General Organ izations are supervised by the Supreme Council for Public • 58 Organizations which approves their programs and projects, all General Organizations report periodically to the afore mentioned two agencies, in addition to the Ministry of National Planning about the progress they have achieved in executing their projects of the plan in their assigned sphere of activity. These reports cover both their activ ities, as well as those of the enterprises affiliated to them and the private sector under their supervision. The progress reports are submitted to the Ministry of Planning every three months, as well as annually. Plan execution in the private sector. — Whenever possible, indirect methods of control are applied to achieve desired ends, otherwise, the Government resorts to direct methods when the indirect approach has proven to be ineffective. 57Ibid., p. 16. 58Ibid. 59A. M. B1 Morshidy, "Planning for Economic Devel opment in the United Arab Republic," United Nations, Plan ning for Economic Development, Vol. II, Studies of National Planning in Practice. Part I, Private Enterprise and Mixed Economies (A/5533/Rev.l/Add.l) (New York: United Nations, 1965), pp. 169, 172, 199-200. 200 To encourage active participation and cooperation of the private sector in plan execution, the general public is informed about the goals, projects and efforts needed for carrying out the Plan successfully. Also, private enterprises are encouraged to invest and to increase their production in certain economic activities by offering them subsidies and exempting their investments from business income tax for seven years. Most of capital goods, are exempted from import duties, while goods which are con sidered luxurious, are subject to high import duties. Credit policy is effectively used to control sec toral activities, to further Plan implementation. Commer cial banks may lend needed funds at low interest rates to private enterprises for productive investments within the general frame of the Plan. For example, tightening of credit to the private sector limits traditional investments in luxury apartment houses, and speculative transaction in trade. On the other hand, the construction of low and medium cost houses are encouraged by advancing loans at low interest rates to cooperative societies. The Indus trial Bank extends loans to small industries on easy terms. The Agricultural and Cooperative Credit Bank encourages production and investment activities in the agricultural 201 sector through its liberal credit policy. Price and wage policies are among the various interrelated measures undertaken to ensure fulfillment of Plan objectives. Also, wage rates are controlled by the Government in order to ensure that wages do not unduly rise which is not warranted by a similar rise in labor produc tivity. A wide range of goods are subject to administered prices to prevent unwarranted increase in cost of produc tion and investment that, in turn, may hamper Plan execu tion. Prices for basic consumption goods are kept at low level, while higher prices are set for luxury goods. Fur thermore, rationing according to size of the family is carried out with respect to sugar, oil, and kerosene. How ever, additional quantities may be purchased by individuals at much higher prices than those listed for rationing. In addition to the incentives measures, the level and fields of activities in which capital investments can be undertaken, are regulated by licenses and permits issued by various government agencies. This system is followed in order to ensure that investment pattern of the private sector conforms to the Plan. The system of licenses is also used to regulate entry into business so that unneces sary expansion of certain economic activities cam be halted. 202 In the housing sectox, zoning directives and specific regulations determine the construction of new buildings, as well as the demolition of old ones. In the agricultural sector, which is the largest single private sector, the maximum area of cotton cultivation, and the minimum area of wheat growing are determined by law. Also, land and housing rents are well defined by law. In addition, com modity imports are subject to import licenses and foreign exchange permits. Follow-up of Plan Execution Following-up the progress of the execution of developmental plans in the United Arab Republic is a method of control necessary to ensure the realization of the targets of the plan.**® If the actual progress made deviates from the desired goals, then steps axe taken to redress the situation or to alter the plans accordingly. In order that plan follow-up be fruitful, a minimal ^^The description of the follow-up system of the United Arab Republic First Five-Year Plan is based mainly upon Nazih A. Deif, "The System of Follow-up of the First Five-Year Economic and Social Plan." Paper presented at meetings held at the Federal Institute of Planning in Yugoslavia, April 19-May 1, 1961. Institute of National Planning, Memo. No. 141, Cairo, February 1962. 203 amount of information about plan execution has to be col lected in the shortest possible time, and then analysed and evaluated, so that necessary policy measures can be made according to such assessments. Plan follow-up is undertaken at various levels of economic activities beginning with the individual enter prise and ending with the discussion undertaken by the National Assembly. But the major responsibility of plan follow-up is that of the Ministry of National Planning. At the enterprise level, the board of directors and the general manager are responsible for carrying out their task of directing the enterprise within the limits and the autonomy allowed to them by the General Economic Organisation and the Ministry to which they are affiliated, if the enterprise is a public one. Private enterprises are also under the supervisions of the General Economic Organisation and the ministry concerned with the economic activities of such enterprises. Bach public and private enterprise of the corporate type submits to the General Economic Organisation which has Jurisdiction over it a quarterly and yearly follow-up statement. In this statement, a comparison is made between the results of the various economic activities undertaken 204 by the enterprise and the activities which has been pre viously projected for investment, production and manpower utilisation. The enterprise has to account fox any dis crepancy between the projected and the realised magnitudes, particularly for its investment projects. At the level of the Public Economic Organizations the objective of follow ing up the activities of all its enterprises affiliated to it, is to coordinate these activities in a manner which would contribute towards the realization of the targets specified in the Plain for their particular branch of eco nomic activity. Bach General Economic Organization submits, in turn, its periodic follow-up statements to the Ministry supervising its activities. In addition, each Ministry also receives such statements from the governmental de partments and organizations under its jurisdiction. These statements serve again to coordinate the activities of a particular branch of activities and sector with which the Ministry is concerned in order to realize the targets of the Plan. The staff of the Ministry of National Planning participates in the Planning and Pollow-up Offices in each Ministry for coordinating the sectoral activities. The 205 follow-up reports submitted by the various Ministries and organizations contain such information as is required by the Ministry of Planning and which is considered necessary for following-up Plan execution on a national level and for coordinating the activities of all of the nation's economic sectors. Bach of these statements consists of two parts: the first part constitutes an analysis and evaluation of the situation; the second part is a follow- up questionnaire supplied by the Ministry of National Plan ning. The information called for in these questionnaires is of a descriptive and quantitative nature and coyer such activities as investment projects, production requirements, output, and manpower. The questionnaires may differ in form and content from one type of organization to another and according to the particular economic activities con cerned.61 The information contained in them provides the technical staff of the Ministry of National Planning with the necessary data for following up the progress of the Developmental Plans at various levels, that is at the level of individual investment projects, at the level of Summaries of three different types of these questionnaires are given by A. M. B1 Morshidy, op. cit.. pp. 204-210. each branch of economics activity (for example, agriculture, industry, services) and at the national level. For the whole economy, the central planners work out balancing operations for the commodity and service flows, income and transfer flows and financial flows. A comparison between the actual situation resulting from plan execution and the plan targets is made and the reasons for any divergence between the actual progress and the desired goals is given in periodic reports (quarterly and annually) to the Supreme Council for Planning. Moreover, each Minister sub mits his own follow-up report to the Council. Coordina tion of the whole economy, is accordingly undertaken by the Supremo Council for Planning in light of the assessed situation. The Central Auditing Agency, which was established in 1964 to replace the State Audit Department, also has major responsibilities in following-up the progress of Plan execution. This Agency has been assigned a wide range of financial control over the public sector. The administrative units of the Government whether central or local, are subject to the control of this Agency in the following areas: the control of income and expenditure, and the inspection of receipt and disbursement records, 207 the auditing of commodity stocks, as well as loans and cxedit facilities, and the final accounts of the State Budget. The Agency also examines the records and accounts of the public organizations and authorities, and their auditors' reports. The Agency has also been assigned an important role in controlling the implementation of devel opmental plans. It exercises control over all projects and programs of the plans and follows up their progress, particularly in investment, production, export, employment, consumption and productivity.62 Evaluation Prom the above exposition regarding plan execu tion, it is clear that there is, in the United Arab Repub lic, a multiplicity of agencies and authorities who con trol plan execution. A public enterprise, for example is subject to the control of at least four governmental con trolling agencies and authorities: (1) the General Public Organization to which the enterprise is affiliated; (2) The Ministry concerned with the branch of economic 62nNew Legislation--April/June 1964," National Bank of Egypt, Economic Bulletin, Vol. XVII, No.3, Cairo, 1964, pp. 311-313. 208 activity in which the enterprise is engaged; (3) the Minis try of National Planning; (4) the Central Auditing Agency. In addition, each enterprise is also subject to the con trol of legislative and political bodies such as the National Assembly and the Arab Socialist Union. Such a system of multiple control has its advan tages in so far as the evaluation of plan progress by various organizations will present different points of view, a feature which will permit quicker and surer iden tification of bottlenecks and obstacles confronting devel opmental planning and which may eventually result in sounder objective suggestions for the removal of these obstacles and/or modifications in the plans. Another advantage which arises from such a system is that of avoiding the concentration of controlling power in one or a few agencies. But, on the other hand, a multiple system of control may also be detrimental to effective and full plan execution. The management of an enterprise or a governmental agency, required to report on the progress of its projects and activities to many authorities, in a variety of forms, may find itself entrapped in constant reporting and may not have the time nor the capacity to concentrate fully on supervising the activities of the 209 enterprise. Out of fear of punishment or in order to appear successful in executing its part of the Plan, the management may be tempted to falsify its records. Such problems have been faced by many centrally planned social ist countries particularly the Soviet Union. The President of the United Arab Republic has warned against multiple control and its effects: nWe complicate matters by setting departments of surveillance. In my opinion, these depart ments complicate matters and cause people to stop work ing.”63 To avoid duplication in the control of plan execu tion and to achieve effective control, a review of the functions of the various controlling agencies is needed and if organizational revision appears necessary, it should be done. This writer feels that a rearrangement of these functions may be done along the following lines. The Ministries or the General Public Organizations should con centrate on controlling the various government agencies and enterprises administratively and technically and should leave the financial control to the Central Bank of Egypt. 63”Text of President Gamal Abdel Nasser's Address to the UAR National Assembly, Nov. 14, 1964," op. cit., p. 23. 210 This method has proven to be effective in controlling plan execution in other Socialist countries. In addition, the (former) Premier and Minister of Planning have warned against a serious problem which may arise when those responsible for directing the affairs of the public sector regard themselves as an elite class, ". . . detach themselves from the alliance of the working powers of the people to make themselves an exploiting class. • • , disregard the responsibilities entrusted to them and overlook the fact that "... public sector is but a popular means for realising the people's full control over all means of production."^ Ali Sabry, (former) Premier and Minister of Plan ning, Statement on Government Policy, Addressed to the National Assembly on the 6th of April, 1964 (Cairo: Infor mation Department, n.d.), p. 46. 65I b i d . CHAPTER V SOME BASIC STRATEGIES IN PLANNING ECONOMIC DEVELOPMENT IN THE UNITED ARAB REPUBLIC PART I: TARGETS AND GENERAL STRATEGIES Targets of the Developmental Plan The primary objective of the Developmental Plan in the United Arab Republic is to raise the standard of liv ing. Doubling national income within the Plan period (July 1960-June 1970) is set as the most important target. Other instrumental targets are set for investment, production, consumption, and employment, the achievement of which is designed to attain the prime target. Investments The total value of public and private investments needed to double national income in ten years is estimated in the National Development Plan at L.B.1,576.9 million for the first five-year period (July 1960-June 1965), and at LsBa 1,717 million for the second five-year period (July 211 212 1965-June 1970). However, it should be noted that while the estimation of investments for the first period is based upon the project proposals submitted by the ministries and other organisations, the estimation of investments for the second period is a mere projection based upon the expected trend in development, and is subject to modifica tions.1 Such modifications, no doubt, will affect the estimates of production and employment accordingly for the second five-year period. For the first five-year period, it is estimated that changes in stocks will amount to L.B.120 million, a change which will raise the total value of investments to L.B.l,696.9 million. This figure includes L.B.60.5 million for land, L.E.705.1 million for buildings and construc tions, L.E.672.4 million for equipment and machinery, L.B.120 million for changes in stocks, and L.E.138.9 mil- o lion for means of transportation. It should further be noted that investments in land does not constitute a real ^National Planning Commission, General Frame of the 5-Year Plan for Economic and Social Development, July 1960-June 1965 (Cairo: General Organization for Government Printing Offices, 1960), pp. 15-16. 2I b i d * , p . 25■ 213 investment when considering the national economy as a whole, but it does constitute an investment expenditure for each sector individually. The distribution of these investments among the various sectors of the economy is shown in Table I. An examination of this table reveals that the allocation of investments among sectors favors commodity-producing sec tors to which 57.2 per cent of total investments is allo cated, while only 42.8 per cent is allocated to service- producing sectors. The breakdown of the 57.2 per cent that goes to commodity-producing sectors shows that the indus trial sector (industry and electricity) is given a higher priority over the agricultural sector (agriculture, irri gation, and the High Dam); 34.1 per cent of total invest ments is allocated to the former sector, while only 23.1 per cent is allocated to the latter sector. Among the branches of the service-producing sectors, the share of the "basic development sector" which includes transporta tion, communication and storage, the Sues Canal, housing, and public utilities amounts to 29.3 per cent of total investments, while the "other services sector," which include trade and finance, education, health, social and 214 TABLE I SECTORAL DISTRIBUTION OF PLANNED INVESTMENTS DURING THE PLAN PERIOD 1959/1960— 1964/1965 (at 1959/1960 Prices in Million L.B.) Total Percentage Sectors Investment Investments Distribution Agriculture 225.3 13.3 Irrigation and Drainage 119.4 7.0 The High Dam 47.3 2.8 Industry 439.2 25.9 Electricity 139.5 8.2 Transportation, Communications and Storage 236.8 14.0 The Suez Canal 35.0 2.1 Housing 174.6 10.3 Public Utilities 48.8 2.9 Otther Services 111.0 6.5 Changes in Stock 120.0 7.0 Totals 1,696.9 100.0 Source: National Planning Commission, General Frame of the 5-Year Plan for Economic and Social Develop ment (Cairo: General Organization for Government Printing Offices, 1960), p. 23. 215 xeligious services, security, justice and defence, cultural and recreations services, public administration, and per sonal services, has a share comprising 6.5 per cent of total investments. The remaining 7 per cent of total investments represents changes in stocks. Production and Income The targets for production and income is given in the Plan in terms of the gross value of domestic produc tion which is "the value of all goods and services pro duced by all establishments and productive units at pro ducers* price," and in terms of value added, which is "the total returns yielded by the utilization of production requirements in the process of production, in the form of wages, salaries, and returns to ownership. The target for production is estimated to reach L.B.3,601 million by the end of the first five-year period, and L.E.4,941 million by the end of the second five-year period of the Plan, as compared with L.E.2,525 million in the base year 1959/1960. The target for national income is estimated to rise from L.B.1,282 million in 1959/1960 3I b i d . , p . 39 216 to L.B.1,795 million by 1964/1965, and to L.B.2,564 million by 1965/1970.4 During the first five-year period, the increase in the total value of production is equivalent to 42.6 per cent of the value of production in the base year, while the increase in national income amounts to 40 per cent during the same period. Table II shows the total value of production and the planned increase in each sector of the economy during the first five-year period. This table indicates that the gross value of production in commodity-producing sectors will increase at a much higher rate (49.9 per cent) than the service-producing sectors will (25.2 per cent). This is largely due to the planned increase of 65.8 per cent in production of the industrial sector (industry and electric ity) . The planned increases in gross national income and in income generated by various sectors of the economy during the same period is shown in Table III. The highest rate of increase in value added of the commodity-producing sectors (52.1 per cent) is planned as a result of the sharp increase in the industrial sector (97.8 per cent), while 4I b i d . , p . 1 1 217 TABLE II PLANNED GROSS VALUE OF DOMESTIC PRODUCTION FOR 1964/1965 COMPARED WITH 1959/1960 (at 1959/1960 Prices in Million L.E.) Sectors Gross Value of Produc tion 1959/60 Gross Value of Produc tion 1964/65 Increase in Gross Value of Production Percentage of Increase Agriculture 574 736 162 28.2 Industry 1,094 1,814 720 65.8 Construction 115 122 7 6.1 Totals of Commodity Sectors 1,783 2,672 889 49.9 Transportation and Communications 135 164 29 21.5 Housing 76 88 12 15.8 Public Utilities 11 14 3 27.3 Trade and Finance 163 208 45 27.6 Education 61 79 18 29.5 Health 21 29 8 38.1 Social and Religious Services 7 11 4 57.1 Security, Justice and Defence 91 110 19 20.9 Cultural and Recre ational Services 21 29 8 38.1 Public Administration 45 62 17 37.8 Personal Services 111 135 24 21.6 Totals of Services Sectors 742 929 187 25.2 Grand Totals 2,525 3,601 1,076 42.6 Source: National Planning Commission, General Frame of the 5-Year Plan for Economic and Social Develop ment (Cairo: General Organization for Government Printing Offices, 1960), pp. 40, 43. 218 TABLE III PLANNED GROSS VALUE ADDED FOR 1964/1965 COMPARED WITH 1959/1960 (at 1959/1960 Prices in Million L.E.) Sectors Value Added 1959/ 1960 Value Added 1964/ 1965 Increase in Value Added Percent age of Increase Agriculture 400 512 112 28.0 Industry 273 540 267 97.8 Construction 52 51 — 1 — 1.9 Totals of Commodity Sectors 725 1,103 378 52.1 Transportation and Communications 97 117 20 20.6 Housing 73 84 11 15.1 Public Utilities 7 9 2 28.6 Trade and Finance 127 162 35 27.6 Education 52 67 15 28.8 Health 11 15 4 36.4 Social and Religious Services 4 6 2 50.0 Security, Justice and Defence 51 61 10 19.6 Cultural and Recre ational Services 13 18 5 38.5 Public Administration 33 45 12 36.4 Personal Services 89 108 19 21.3 Totals of Services Sectors 557 692 135 24.2 Grand Totals 1,282 1,795 513 40.0 Source: National Planning Commission, General Prame of the 5-Year Plan for Economic and Social Develop ment (Cairo: General Organisation for Government Printing Offices, 1960), pp. 40, 43. 219 the value added of the service-producing sectors is planned to rise by 24.2 per cent. Gross national income is planned to increase by L.B.513 million, or 40 per ceni, at am aver age annual rate of 8 per cent. As a result of the planned pattern of investment allocation and the different rates of increases in gross production and income generated from it in various sectors of the economy during the first five-year period of the Plain, a change in the structure of the economy regarding the contribution of each sector to gross national income is planned to take place as is shown in Table IV. This table indicates that in the base year 1959/1960 commodity- producing sectors contributed 56.6 per cent to gross value added, of which 31.2 was the share of agriculture, and 43.4 per cent was contributed by the service-producing sectors. By the end of the fifth year of the Plan, the contribution of the commodity-producing sectors should increase to 61.4 per cent, and the share of the service- producing sectors is planned to decrease to 38.6 per cent. The industrial sector is planned to contribute 30.1 per cent, which is a little more than the contribution of the agricultural sector (28.5 per cent). 220 TABLE IV PLANNED PERCENTAGES OP SECTORAL GROSS INCOME CONTRIBUTION FOR 1964/1965 COMPARED WITH 1959/1960 Sectors 1959/60 1964/65 Agriculture 31.2 28.5 Industry 21.3 30.1 Construction 4.1 2.8 Totals of Commodity Sectors 56.6 61.4 Transportation and Communications 7.6 6.5 Housing 5.7 4.7 Public Utilities 0.5 0.5 Trade and Finance 9.9 9.0 Education 4.0 3.7 Health 0.9 0.9 Social and Religious Services 0.3 0.4 Security, Justice and Defence 4.0 3.4 Cultural and Recreational Services 1.0 1.0 Public Administration 2.6 2.5 Personal Services 6.9 6.0 Totals of Services Sectors 43.4 38.6 Grand Totals 100.0 100.0 Source: National Planning Commission, General Frame of the 5-Year Plan for Economic and Social Develop ment (Cairo: General Organization for Government Printing Offices, 1960), p. 42. 221 Final Consumption Targets for final consumption, which is considered to be "the utilisation of goods and services from local production and imports to satisfy consumers' needs and desires,"^ is given in the Five-Tear Plan in terms of final consumers' goods for the final year of the Plan compared with its base year. The final consumers' goods include all kinds of physical products directly used to satisfy the needs of individuals, organisations and the government, as well as goods used for the production of consumers' services, such as transportation, educational and health services, and other services which are directly related to the process of production, including government services for the public. Final consumers' goods are evaluated at market prices which are obtained by adding taxes, trans portation costs,and trade margins to the factor prices of these goods.^ According to the First Five-Year Plan, consumption of goods is planned to rise from L.B.876.4 million in 1959/ 1960 to L.B.l,086.2 million by 1964/1965. This planned increase in consumption of goods of L.B.209.8 million by 5Ibid., p. 93 6Ibid 222 the end of the Plan period, represents an increase of about 24 per cent over the base year level, or an average annual rate of 4.8 per cent. However, when consumption of serv ices is added to that of goods, total consumption rises from L.B.l,032.9 million in the base year to L.E. 1,308.4 million in 1964/1965.^ The total planned increase in con sumption thus amounts to L.B.275.5 million, that is, 26.7 per cent over the base year, which represents an average annual increase at the rate of 5.3 per cent. Such a rate allows for the realization of saving since the target for national income is set for an increase of 40 per cent during the five years of the plan, or at an annual rate averaging 8 per cent, which is much higher than the annual rate of increase in consumption of goods and services. A comparison of the pattern of consumption of goods of the base year with that planned for the fifth year of the Plain is given in Table V and shows that no great chauiges are planned to occur in this pattern. For the fifth year of the plan, the largest part of consumers' expenditure is allocated for food, beverages and tobacco ^Ibid., pp. 216, 221. 223 TABLE V PLANNED FINAL CONSUMPTION OF GOODS FOR 1964/1965 COMPARED WITH 1959/1960 (Values at 1959/1960 Pxlces and in Million L.B. and Ratios as Percentages of Totals) 1959/60 1964/65 Groups of Consumers' Value Per Value Per Goods centage centage Foodstuffs, Beverages and Tobacco 578.2 66.0 703.3 64.7 Clothes, Textiles and Shoes 137.8 15.7 178.8 16.5 Books, Publications and Paper 19.8 2.3 30.6 2.8 Medicine, Soap and Other Chemicals 27.1 3.1 34.7 3.2 Electricity and Fuel 36.3 4.1 51.2 4.7 Household Furniture, Utensils, and Electrical Appliances 37.9 4.3 46.1 4.3 Transport Equipments and Tyres 19.1 2.2 20.3 1.9 Miscellaneous Other Products 20.2 2.3 21.2 1.9 Totals 876.4 100.0 1,086.2 100.0 Source: National Planning Commission, General Frame of the 5-Year Plan for Economic and Social Develop- ment (Cairo: General Organization for Government Printing Offices, I960), p. 94. (64.7 per cent of total consumption) • Consumption of clothes, textiles and shoes comes next (16.5 per cent), and the remaining 18.8 per cent of total consumption are devoted to other consumption items. However, an increase of 54.5 per cent is planned for the consumption of books and publications due to the increase in educational and cultural activities. Consumption of clothes and shoes is planned to increase by 29.8 per cent, and consumption of foodstuffs by 21.7 per cent during the Plan period. Such increases, no doubt, allow for raising the standard of living which is the prime objective of the Development Plan. Labor Employment The target for the total number of working persons --that is, nall persons participating with their effort in the production of goods and services for a pay or with out a pay"— is estimated at 7,001,000 persons for 1964/ 1965 and at 8,936,000 for 1969/1970 as contrasted with 5,975,000 persons engaged in the base year 1959/1960 in various economic and social activities.8 This increase of 8Ibid., pp. 13, 118 225 more than one million persons during the first five years of the Plan, represents a 17 per cent increase in the population of workers over 1959/1960. Table VI shows the distribution of working persons among the various sectors, and their planned total annual wages at the beginning and end of the Plan period. Prom this table, it can be seen that the largest per cent increase in employment is planned to occur in the industrial sector (34 per cent), while the increase in the agricultural sector is only half as great (17 per cent), and the increase in the service-producing sectors is slightly less (14 per cent). However, no structural changes in employment are envisaged during the Plan period. The percentage of distribution of employment among the various sectors, which is estimated to be 54 per cent for the agricultural sector, 12 per cent for the industrial sector, and 34 per cent for the service-producing sector for 1964/1965, hardly differs from the distribution at the beginning of the Plan period. In addition, it should be noted that these estimates are based on the "minimum re quirements for various kinds of employment to make the plan projects materialise," and take into consideration 226 TABLE VI PLANNED NUMBER OP CIVIL WORKING PERSONS* AND THEIR ANNUAL WAGES IN 1964/1965 COMPARBD WITH 1959/1960 (Persons in Thousands and Wages in Million L.E,) Sectors 1959/1960 1964/1965 Persons Em ployed Annual Wages Persons Em ployed Annual Wages Agriculture 3,245 135 3,800 171 Industry 632 91 847 155 Construction 170 34 159 33 Totals of Commodity Sectors 4,047 260 4,806 359 Transportation and Communications 219 40 226 46 Housing 16 1 20 2 Public Utilities 22 4 27 6 Trade and Finance 633 68 730 94 Education 170 51 215 66 Health 55 11 68 14 Social and Religious Services 32 4 41 6 Security and Justice 175 21 186 25 Cultural and Recre- ational Services 25 6 37 10 Public Administration 70 33 92 45 Personal Services 511 43 553 52 Totals of Services Sectors 1,928 282 2,195 366 Grand Totals 5,975 542 7,001 725 *The armed forces are excluded. Source: National Planning Commission, General Frame of the 5-Year Plan for Economic and Social Develop- ment, op, cit., p. 118, 227 the expected increase in the population from 25.4 million in 1959/1960 to 28.4 million in 1964/1965.9 Total annual wages is planned to rise from L.B. 542 million in 1959/1960 to L.B.725 million by 1964/1965. The increase in wages during this period years represents about 34 per cent of their total in the base year. The largest increase in total wages is planned for the indus trial sector (70 per cent), followed by the service-produc ing sector (30 per cent) and by the agricultural sector (27 per cent). As a result, the relative importance of wages realised in the industrial sector increases from 17 per cent in 1959/1960 to 21 per cent in 1964/1965, while it decreases from 25 per cent to 24 per cent in the agri cultural sector, and from 58 per cent to 55 per cent in the service-producing sector during the same period. Public or Private Development Theoretical Discussion The Role of Government in Promoting Economic Development Most economists seem to agree that the governments 9Ibid 228 in developing countries have a dynamic and crucial role to play in economic development. Whatever disagreement exists among economists about this role, centers around the ques tion of which areas of economic activities these govern ments should undertake, and the methods which they should adopt in these undertakings. Many economists debate whether these governments should own and operate new developmental projects, or if it is better for the devel opment effort to be left largely in the hands of private enterprises. Although these issues are often an integral part of the political philosophy of the countries con cerned, they carry economic implications as well. Almost all economists agree that the traditional functions of governments include such activities as main taining law and order, national defence, controlling the money supply, and providing a minimum of health services and education; all of which are of vital importance to the growth of the economy. Others add that the State should invest in social capital and services "which cannot readily be bought or sold and which is deemed so important that it ought to be available to everyone."10 10John Kenneth Galbraith, Economic Development 229 Some economists hold the position that governments of developing countries should not intervene in economic affairs, if a high rate of economic development is ever to be attained. Such is the position taken by Professors P. T. Bauer and B. S. Yamey. They feel the role of the government should be limited to that of "an active pro pulsive agent in economic development in the capacity of savor or entrepreneur, or as controller or director of the economic activities of others."11 They contend that gov ernment actions in the economic sphere can be contradic tory to individual preferences or the preferences of the society as a whole. Hence, they favor private enterprises based on decentralized decision making coordinated through the market, since such a system is more conducive to eco nomic development. This is so, they maintain, since the efficiency of this system "stems largely from two of its features: mobilization of knowledge and provision of in- (Cambridge, Mass.: Harvard University Press, 1964), p. 63. 11P. T. Bauer and B. S. Yamey, The Economics of Underdeveloped Countries (Chicago: The University of Chicago Press, 1957), p. 156. centives."12 The same writers add that the self-correcting mechanism inherent in the private enterprise system, where by the buyers from and sellers to a private enterprise can withdraw their business with it in case their interests are not being served, is lacking in the case of public enterprises. The latter, with its monopolistic position, is less subject to correcting forces, and the public ad ministrators operating such an enterprise are not likely to admit mistakes, or to take quick measures to correct such mistakes. To this argument Professor Benjamin Higgins answers that governmental interference in the mar ket is necessary to launch the economy into economic growth, since "current market choices are a very unreliable guide to development policy."1* Government intervention in the market is needed to raise the percentages saved and invested out of national income so that the financing of a minimum of developmental effort is made possible.15 12Ibid., p. 154. 13Ibid., p. 157. ^^Benjamin Higgins, Economic Development, Problems, Principles, and Policies (New York* W.W. Norton and Com pany, Inc., 1959), pp. 434, 435. *^Ibid., p. 434, also, Oskar Lange, Economic Devel- 231 On the other hand, many economists assign to the governments of underdeveloped countries a larger part in carrying out the required developmental effort needed to launch the economy into sustained growth. Several reasons are given for Justifying this extended role for the gov ernments of underdeveloped countries. The recent rises in nationalism among many develop ing nations can be effectively utilised by their govern ments to get the process of development under way. The appeal by these governments to national loyalty and pride can be a substitute for profit motivation, which is usually weak in these countries, in order to mobilize the required developmental effort.^ Moreover, among the major obstacles confronting underdeveloped countries in their developmental efforts is the fact that they are custom-bound. For centuries, some of these customs have been inamicable to economic develop- opment, Planning, and International Co-operation, Three Lectures delivered at the Central Bank of Egypt, Cairo, 1961 (New Yorkt Monthly Review Press, 1963), p. 13. ^Robert J. Alexander, A Primer of Economic Devel opment (New York: The Macmillan Company, 1962), p. 144. ment. The state has a vital role to play in this respect, since it "is in a position to give sufficiently great shock to the status quo in the custom-dominated nations to 17 overcome traditional inertia." Through various measures, such as actively partici pating in developmental projects and procuring foreign assistance, the state can initiate the process of develop ment . In addition, since entrepreneurial talents are scarce in underdeveloped countries, and since it may take generations to develop on a large scale this type of talent needed for economic development, the only alternative left for these countries is for their governments to assume this vital function. The government "is the only institu tion able to mobilise all factors of production— the labor, the capital equipment, the raw material, the funds neces sary for rapid economic growth."*8 Professors P. T. Bauer and B. S. Yamey dismiss the strategy of expanding the public sectors of underdeveloped countries to shoulder the responsibilities of developing their economies as the only alternative since the private 17Ibid.y p. 143. 18Ibid., pp. 142-143. 233 sector is lacking the entrepreneurial talent to undertake the developmental effort, as being an "inadmissable assump tion. " Their line of reasoning is that "it is not at all clear why government or the public service should be able to muster the talents which, by hypothesis are lacking in the population."^ Professor Albert 0. Hirschman is also of the same opinion: "The fact that private entrepreneurs will be unable or unwilling to do certain jobs does not in 20 itself ensure that government can handle them." Professor Benjamin Higgins argues that a government is in a much better position to judge and decide upon "gestalts" of various investment programs, where the gains of external economies accruing from all the projects in cluded in these programs allows the government to assume the economic risks involved. Such possibilities are not open to the individual entrepreneur who is limited in his vision by the profits and risks associated with single projects. The choice of undertaking the investment proj ects by the public or the private sector is "a matter of 19Bauer and Yamey, op. cit., p. 161. 20 Albert O. Hirschman, The Strategy of Economic Development (New Haven: Yale University Press, 1958, A Yale Paperbound, 3rd Printing, 1962), p. 65. 234 administrative expediency that must be decided separately in each country at each point of time."2' * ' Professor Higgins states that this administrative problem: is not a matter of preference for government decisions or dispersed individual decisions; it is a matter of finding the most efficient way of making decisions in terms of--let us say--aggregate national income be tween year ten and year thirty, for each of several gestalts of investment.22 Advantages and Disadvantages of Public and Private Enterprises Developmental projects to be undertaken by either the public or the private sector has its own economic ad vantages and disadvantages in each case, which, according to one economist include the following: Economic advantages of public enterprises.--Among the economic advantages of public enterprises are the fol lowing : 1. Governments can procure the required capital for developmental projects and obtain the necessary types 21Higgins, op. cit., p. 443. 22Ibid. 23 Murray D. Bryce, Industrial Development, A Guide for Accelerating Economic Growth (New York: McGraw-Hill Book Company, Inc., 1960), pp. 44-61. 2 3 5 of modern equipment which axe considered the most economi cal, whereas private enterprisers may be contented with less than the ideal machinery because of a shortage of capital. 2. Governments can raise capital through foreign or local sources at lower rates of interest than the pri vate businessmen can because of the guarantees of the gov ernment to the lender lowers the risk involved. 3. Public enterprises, when integrated in a developmental plan, can have a greater social and economic advantage over uncontrolled private enterprise. 4. Since the Government is interested in, and responsible for, the success of public enterprises, they can have better access to government services such as roads and railroads connections, imports' licenses, and low interest loans. 5. Profits accruing to public enterprises can be channelled by the government towards investment in other developmental projects and programs. Economic disadvantages of public enterprises.— Some of the economic disadvantages of public enterprises are the following:24 1. The difficulty in clarifying the objectives of public enterprises which, at times, are conflicting, may impair their functioning on an optimal basis. For example, while the government is interested in mobilizing as much as possible of the public enterprises' profits for other developmental project, it may also aim at making the prod ucts of these enterprises available to the consumer at prices lower than production costs. 2. Political and social considerations may influ ence the establishment and operation of public enterprises, and may run contrary to economic considerations. The type of projects chosen, their location, wage policy, pricing, marketing and other operations may be, at times, defended on political and social grounds, but not on any economic basis. For example, political interference in the opera tion of a public enterprise may lead to its overstaffing and leaving less autonomy for its management. 24 It seems that many of the disadvantages of public enterprises can be avoided through the creation of govern ment corporations, which are particular types of public enterprises with more autonomy than other forms. See Hadley Bdwin Smith, "An International Comparison of the Role of Government in the Economic Development of Developed 237 3. Tying the management of public enterprises to the administrative system of the government reduces the efficiency of their operations. This is particularly so when managerial decisions and. actions are centrally con trolled and have to be approved and verified by various governmental agencies. 4. Public enterprises are usually operated by civil servants who, though they may be highly qualified in public administration, usually have no experience in oper ating commercial business activities. ”A commercial ven ture needs men who are enterprising, cost-and-profit con scious, calculating, yet bold and willing to innovate and take risk.”25 Because of their fear of criticism and punishment, as well as of inadequate rewards, the manage ment of these enterprises avoid taking risks or trying new ideas and practices. 5. Public enterprises may find difficulty in recruiting staffs because of the desire of some people not and Emerging Economies, with Particular Reference to Gov ernment Corporations," unpublished Doctoral dissertation presented to the Faculty of the Graduate School, University of Southern California, Los Angeles, August 1963, pp. 194- 218, 235-255. 25Bryce, op. cit., p. 48. 238 to get involved in governmental projects and politics. 6. Public enterprises may have to give in more easily to the demands of organized labor for more employ ment, higher wages, and fringe benefits. Such a situation may eventually result in losses by these enterprises and may require subsidies by the government to enable these enterprises to continue their operations. Economic advantages of private enterprises.— Pri- vate enterprises have various economic advantages, among which are the following: 1. Private enterprises are usually more efficient in the sense of maximizing output out of a given amount of inputs, or minimizing cost for a given amount of outputs. Among the reasons for such efficiency are the clarity, and uniqueness of their economic objective which is to maximize profits. 2. The management of private enterprises are usually handsomely rewarded for the success of these enter prises, a matter which provides incentives for the managers to innovate. 3. Since there is always an increasing demand for more government services in developing countries, estab- 239 lishing and operating public enterprises will put further strain on the states limited budget. If developmental projects are left for private investors, a larger amount of investment will be affected than if such projects are attempted by the government through its limited budget. There is a tendency for private enterprises to expand by reinvesting part of their profits, while the government is reluctant to plow back such profits because of competing ends to which these funds can be put to use. 4. Since private enterprises are interested in expanding their activities, they devote all their effort in satisfying their customers demands according to the latters' preferences by inproving the quality of their products. On the other hand, public enterprises, because they are usually in a monopolistic position, tend to be indifferent to customers' desires. 5. The establishment of private enterprises allows for development of an entrepreneurial class most needed to affect the requirement economic development. Entrepre neurial talent can hardly develop through the civil serv ice. 6. Private enterprises is the type of enterprise which draws foreign capital, and technical and managerial skills to developing countries 240 Economic disadvantages of private enterprise.-- Among the economic disadvantages of private enterprises are the following: 1. Private enterprises tend to become monopolistic wherever they find the opportunity to be so; because of lack of competition, high tariffs, import restrictions, or through the formation of cartels with other producers. Among the ill effects of monopoly are the higher prices which customers are forced to pay for products, the in equitable share of income accruing to monopolists, and the restriction of production. 2. Free entry into profitable branches of economic activities by private firms may result in excess capacity, and in uneconomic use of scarce capital and managerial skills. 3. Some projects undertaken by private enter prisers may not be desirable from the standpoint of social profitability and may not conform with required priorities for economic development. 4. Some private enterprises in developing countries may follow unethical procedures in conducting their busi 241 ness including such practices as tax evasion, anti-labor attitudes and other dishonest practices. 5. The encouragement of private enterprises may lead to concentration of economic power in the hands of few individuals, a state of affairs that may run contrary to the democratic objectives of an underdeveloped country. The Case of the United Arab Republic Expansion of the Public Sector: Reasons and Methods As has already been mentioned, the expansion of the public sector in the United Arab Republic started with the advent of the Revolution particularly since 1956. The general considerations which prompted such an expansion include the following:2^ a) The necessity of the State to undertake such developmental projects which the private sector is unable or unwilling to establish because of the large risk and expenditures involved, and because such projects would not yield large and immediate profits. 26Mohamed Labib Shokair and Rifaat El Mahgoub, "Bl- Tatawor Al-Iqtisadi” (The Economic Evolution), Derasat Fil Moktamah Al-Arabi, 2nd Edition 1961-1962 (Cairo: Dar El Nahada A1 Arabia, n.d.), pp. 460-461. 242 b) The need to control strategic branches of economic activities so that the'State can ensure that the operation of these activities conforms with general eco nomic policy. c) The establishment of a socialistic sector to execute the State’s socialist policy. In addition, "existing enterprises were only of benefit to a small group while the masses were deprived of any benefit, contrary to the principles of social jus tice."2^ The establishment and expansion of the public sec tor has been affected through several methods: (1) the establishment of some major projects, such as, the High Dam at Aswan, and the Iron and Steel Factory; (2) the estab lishment of the General Economic Organization which is authorized to buy partially or totally, the stock of corpo rations, and to establish new corporations as well; and (3) through nationalization. The first two steps have 2^Abde 1 Latif El Boghdadi, (former) Vice President and Minister of Planning, Address on the Five-Year Plan for the Economic and Social Development 1960-1965 (Cairo: UAR General Congress of the National Union, July 4, 1960), pp. 8-9. 243 previously been outlined.28 The reasons that prompted the government to resort to nationalization is given briefly below. The concept of nationalization is given in the Charter. Nationalization is but the transfer of one of the means of production from the sphere of private owner- 2Q ship to that of public ownership." 7 As a rule, national ization is not meant to be a method for punishing private 30 capital. In each case where nationalization has been affected, the owners of nationalized concerns have been compensated either in the form of cash or state bonds. The objectives of the State in this respect are the following: (1) the desire of the State to control effectively the im portant sectors of the economy, such as the industrial and the financial sectors, in order to carry out the required developmental projects conforming to a national plan; (2) the need for abolishing existing monopolies; (3) the elimination of inefficient management and exploitation; 28See Chapter IV. 2^United Arab Republic, The Charter (Cairo: Infor mation Department, n.d.), p. 56. 30Ibid.. p. 57. 244 and (4) the procurement of enough funds for the State to 31 execute its socialistic policy. Delineation of the Roles of Public and Private Sectors The strategy adopted in the United Arab Republic regarding the role of the public and the private sectors in developmental planning has not followed the general out line of the First Five-Year Plan. The Nationalization Laws of July 1961 and subsequent laws had the effect of enlarg ing the public sector beyond what has been anticipated in the First Five-Year Plan. However, the role of each sector has been clearly outlined later in the Charter. Concerning the need for realizing the required public control over the means of production and over income distribution} the Charter states the following: The people's control over all the tools of pro duction does not necessitate the nationalization of all means of production or the abolition of private ownership or the mere touching of the legitimate right of inheritance following thereof. Such con trol can be achieved in two ways: First--The creation of a capable public sector that would lead progress in all domains, and bear the main responsibility of the development plan. Second--The existence of a private sector that, J Shokair and Mahgoub, op. cit., p. 462. 245 without exploitation, participate in the development without the framework of the overall plan--provided that the people's control is exercised over both sec tors.32 In another passage in the Charter, it is stated that "the private sector has its effective role in the development plan. It must be protected to fulfill that part."33 However, in order for this role to be realized, "the private sector is now required to renovate itself and strike a new path of creative effort not dependent, as in the past, on parasitic exploitation."34 The public sector is to shoulder the greater part of the developmental effort. More specifically, the Charter outlines the areas of economic activities for each of the public auid private sectors and the extent of their participation in each fields as follows:33 a) All the infrastructure activities, such as means of transportation and irrigation projects, as well as all public services are exclusively owned and managed by the public sector. 320AR, The Charter, p. 51. 33Ibid.. p. 57. 34Ibid. 35Ibid. . pp. 53-55. 246 b) In the industxial sector, the Charter differ entiates between light and heavy industries regarding the role of each of the public and private sector. The major part of the heavy, medium, and mining industries is assigned to the public sector. Private enterprises are allowed to participate in these economic activities pro vided that they are subject to the control of the public sector. In the light industries there is no limit on the private enterprises' participation, except that they do not form any type of monopoly and that "the public sector must have a role enabling it to guide the industry to the people's interests."3^ c) In the trade sector, both the public and pri vate sectors has a distinct share in foreign and domestic trade. While all importation is assigned to the public sector, only three-fourths of exportation activities is the responsibility of that sector, and the remainder is left to the private sector. By the end of the First Ten- Year Developmental Plan, the public sector has to expand the scope of its activities to the internal trade activ ities in order to prevent monopoly in this field. The 36Ibid., p. 54 247 private sector engaged in this field must avoid exploita- 37 tion by realizing only "reasonable profit.” d) In the financing sector, the whole of the bank ing system falls within the domain of the public sector to avoid "speculation and adventure." The public sector is also in charge of all insurance companies for the purpose of achieving effective mobilization and directing savings. e) In the agricultural sector, private ownership prevails. The Agrarian Reform laws have limited individual ownership to one hundred feddan, which is interpreted by the Charter to be effective regarding each individual fam ily. Hence, each family owning more than that limit has to sell the excess land to the Agricultural Cooperative Societies and to other families by the end of the First Ten-Year Plan. Private ownership of buildings is also permitted and is subject to laws and regulations regarding rent so as to prevent any exploitation: public and cooperative housing is to increase with the same objective. Some economists have expressed their fears that the 37Ibid 33Ibid 248 large expansion of the public sector will adversely affect individual initiative, that it will result in reducing production, that the sector will not be able to establish and operate its enterprises efficiently, and that grave mistakes are liable to occur. The Charter1s answer is as follows: This is not a blow to individual initiative as alleged by the enemies of socialism but rather a guarantee to and expansion of the range of general interest in cases urged by the socialist change effected for the benefit of the people. Nationali zation does not lead to a decrease in production. Experience has proved the ability of the public sector to shoulder the greatest responsibilities with maximum efficiency, whether in the achievement of production targets or in raising of the standard of its quality. Although some mistakes may occur during this great evolution we must recall that the new hands that have assumed the responsibility are in need of training to undertake such responsibility. At any rate it was inevitable that the major national inter ests should be handed over to the people even at the cost of facing temporary difficulties.^ The large role of the public sector is revealed by various indicators. By 1962/1963, the public sector (pub lic enterprises and administration) contributed about 40 per cent of gross national product and about 23 per cent of national income, while Government spending on goods and 39Ibid., p. 57 249 services fox final use amounted to about 35 pex cent of gross national product, investment in the public sectox xepxesented 90 pex cent of total gxoss investment and its saving xepxesented 45 pex cent of gxoss domestic saving.40 Balanced ox Unbalanced Gxowth Theoxetical Discussion Conceptual Problems Among the theories of economic development, the strategy of balanced versus unbalanced gxowth occupies a prominent position. The balanced growth strategy has been associated particularly with Pxofessoxs Ragnar Nuxkse and P. N. Rosenstein-Rodan, while, on the other hand, Professor Albert Hirschman and Mr. Paul Streeten are among the advo cates of the unbalanced growth strategy. In discussing balanced and unbalanced gxowth, a writer gives ". • .a semantic warning: that 'balance' 40 Bent Hansen and Gixgis A. Marzouk, Development and Economic Policy in the UAR (Egypt) (Amsterdam: North- Holland Company, 1965), p. 275. The writers have not ex plained the reasons for the large difference between the contribution of the public sector to gross national product and to national income. However, such a large difference may arise from a large proportion of indirect taxes and of surplus of public enterprises. 250 could mean almost anything. In any field of reference, 41 'balance* is a relative concept • • • " He also warns against another semantic problem that the term "balance" bears a connotation of stability, and hence, is regarded 42 as desirable. Another writer denies the possibility of defining the term "balance": . . . a common definition is that all parts of an economy must grow together in some sense, that no field should get too far ahead of the others or fall too far behind. This balance is hard to define. Does it mean equal percentage growth in output? Or equal increase in resources allocation? Or simply that different fields should grow at what is con sidered a "natural" rate?42 Furthermore, the same writer contends that "in practice, 1 balanced growth' has often been used simply as an argument for allocating resources to sectors and agencies that some one felt were not getting their due."44 It is true that to formulate a definition is, by 41 Robert B. Sutcliffe, "Balanced and Unbalanced Growth," The Quarterly Journal of Economics, Vol. LXXVIII, No. 4, November 1964, p. 621, 42Ibid., p. 622. 4^Gustav F. Papanek, "Framing a Development Pro gram," International Conciliation, No. 527, March 1960, p, 333. 44Ibid., p. 334. 251 no means, an easy matter, but it is not altogether impos sible. To have a balanced growth may be interpreted as having a similarity with the law of economic proportions professed in the Soviet development theory. According to this law, the economy must be regulated in such a way as to achieve a proportionate development in all sectors of the socialist economy and to ensure the utmost and best 45 allocation of the countryfs resources. Some prominent economists have suggested a meaning ful definition of the term. Hence we find, for example, Professor Scitovsky regards balanced growth as being attained when the rate of growth in the production of each sector of the economy permits the satisfaction of the 46 demand of the other growing sectors. Professors Coale and Hoover consider that a balanced growth can be achieved 45Rudolf BiAanifc, "Economic Growth, Development and Planning in Socialist Countries," Bastin Nelson (ed.), Economic Growth: Rationale, Problems, Cases (Austin, Tex.: University of Texas Press, 1960), p. 182. 46Tibor Scitovsky, "Growth— Balanced or Unbalanced?" Moses Abramovits and others, The Allocation of Economic Resources (Stanford: Stanford University Press, 1959), pp. 213-214. 252 through ”... minimizing waste of productive resources that result when one sector of the economy acts for an un necessarily long time as the effective limiting factor (bottleneck) on the growth of other sectors."47 Balanced Growth Strategy The gist of the argument for balanced growth for 48 underdeveloped countries, according to Professor Nurkse, is to spread capital investment in a number of different industries so as to enlarge the size of the market and, hence, induce further investment. These countries are enwrapped in "the vicious circle of poverty" where capital accumulation plays a dominant role on both the supply and demand sides of the market. On the supply side, the low real income is the result of low productivity due to the small amount of capital which, in turn, is due to a low capacity to save as a result of low income. On the demand side the inducement to invest is low as the result of low 47 'A. J. Coale and B. M. Hoover, Population Growth and Bconomic Development in Low-Income Countries: A Case Study of India»s Prospect (Princeton, N.J.: Princeton University Press, 1958), pp. 119. 4®Ragnar Nurkse, Problems of Capital Formation in Underdeveloped Countries (New York: Oxford University Press, 1961), pp. 4-17. 253 purchasing power which is due to low income, which, in turn, is the result of low productivity due to the small ness of capital which in turn is the result of the weak inducement to invest. To break this vicious circle, the market has to be enlarged by increasing the capacity to buy as a result of raising productivity by employing more capital in various industries. Professor Nurkse gives his famous example of the shoe industry to illustrate that con centrating capital investment in a single industry would not provide enough market for its product, and hence, there would not be an inducement to invest in that industry in the first place. He proposes, therefore, that under developed countries need to establish simultaneously inter dependent industries, taking into considerations the elasticities of supply and demand for their products. "The case for 'balanced growth' rest on the need for a 'balanced diet*,"49 Professor Rosenstein-Rodan's ideas on the "big- push" theory may be regarded as am extension of those of Professor Nurkse to the primary and intermediate goods industries. However, there is a similarity between both 4 9 I b i d . , p . 1 1 . 254 Professors Nurkse*s and Rosenstein-Rodan's arguments in so far as they demand that an underdeveloped country should undertake a ’ ’critical minimum effort” to be carried out on a large front, so that such a country overcomes stagnation and starts on the path of sustained growth.^® Professor Nurkse maintains that by investing on a large scale, in various economic activities, it will be possible to obtain higher national income, saving, and consumption (than if investment is on a smaller scale), that in turn will induce further investment. It seems that he does not advocate his principle of balanced growth for all underdeveloped countries, but only for those who do not have the opportunity of an increasing demand for their exports. Hence, he states the following: With an expanding export demand, direct investment would not need to follow a balanced growth pattern but would take the form of direct investment in ex port production, and the complementarities can then be implemented through international trade.51 50Sutcliffe, op. cit., p. 623. slRagnar Nurkse, Equilibrium and Growth in the World Economy: Economic Essays, edited by Gottfried Harbler and Robert M. Stern, Harvard Economic Studies, Vol. CXVIII (Cambridge, Mass.: Harvard University Press, 1961), p. 279. 255 Unbalanced Gxowth Strategy Professor Albert Hirschman and Mr. P. P. Streeten disagree with the views discussed above on the strategy of balanced growth. Mr. Streeten states his opinion against balanced growth theories as follows: The case against balanced growth is twofold: first, in some conditions, lack of balance promotes growth. Secondly, in order to get growth, one may have to sacrifice balance. Unbalance can be a con dition of, and a stimulus to, growth; or it can be the result of removing obstacles of growth. • . . Unbalance stimulates growth which leads to new un balances and further s t i m u l i . Professor Hirschman also disagrees with the views cited above on balanced growth.^ He believes that it is necessary to create an intentionally unbalanced pattern in the process of economic growth by concentrating investment on the strategic sectors which would create a favorable response in the entrepreneurs, who are, in fact, the scarcest of all scarce resources in underdeveloped coun tries, and induce them to undertake further investment. The type of investment needed to create such an effect cam either be in social overhead capital or in strategic indus- 52 Paul Streeten, "Unbalanced Growth," Oxford Bco- nomic Papers. Vol. II, No. 2, June 1959, p. 190. 53 Hirschman, op. cit.. pp. 50-119. 256 tries. Any opportunity to exploit the possibilities of the "backward or forward linkage" effect of investment should be grasped. By concentrating investment in industries which have high forward linkage, such investment will induce further investment in industries producing at later stages in the production process by lowering the cost of their products and increasing the availability of such products. On the other hand, if investment is concentrated in industries which have high backward linkage, it will stimulate investment at earlier stages of production through stimulating the demand for their products. Mr. P. P. Streeten summarizes the strategy of unbalanced growth succintly as follows: Choose projects which (i) while advancing some sectors, concentrate the pressures of imbalance on groups and sectors whose response to challenge is likely to be strongest; (ii) while creating bottle- necks, also break them; (iii) while providing new products and services for industry, agriculture and consumers, also induce new development to take place in other directions, directly and indirectly related to them; (iv) while providing a new product or serv ice, require consequential investments in other lines.54 This strategy of unbalanced growth may eventually 54 Streeten, op. cit., p. 183 257 result in balanced growth in the long run.55 Evaluation of Balanced and Unbalanced Growth Strategies Lipton criticizes both strategies because of M. • • their concentration on inducements and the consequent neg lect of physical scarcities.”5* * J. Marcus Fleming points out that although advanc ing simultaneously in several sectors creates external economies , this strategy may also create diseconomies as a result of the increasing competitive demand for scarce 57 resources. Sutcliffe advances as another objection to the strategy of balanced growth the fact that it is static and is based upon the assumption of a very small existing level of demand. The increase in the level of domestic demand may require that the propensities to save and to 55Hirschman, op. cit., p. 93. 5*>Michael Lipton, "Balanced and Unbalanced Growth in Under-Developed Countries,” The Bconomic Journal, Vol. LXXII, No. 287, September 1962, p. 657. 57Marcus Fleming, "External Economies and the Doc trine of Balanced Growth,” The Economic Journal, June 1955, pp. 241-256, reprinted in Bernard Okun and Richard W. Richardson, Studies in Economic Development (New York: Holt, Rinehart and Winston, 1962), p. 148. 258 inqport be very low, and hence, domestic financing of fur- 58 ther induced investment is thwarted. A flirther objection levied against balanced growth strategy, is that of the impracticability of determining the pattern of demand elasticities which is a crucial ele ment, in Nurkse's version, and which dictates the different ratios at which various sectors are to grow in order to 5Q secure balanced growth. 7 The strategy of unbalanced growth has also been attacked from various fronts. Professor Chenery criticises Hirschman's views on the scarcity of men with decision making ability and rightfully points out that this factor cannot be made to serve as the prime guide to development policy.*’0 Another writer expresses the view that this strategy, based upon continuous disequilibrium of the 58 Sutcliffe, op. cit., p. 627. 59Ibid., p. 628. 60H611is B. Chenery, "Review: The Strategy of Eco nomic Development by Albert O. Hirschman," The American Economic Review, Vol. XLIX, No. 5, December 1959, p. 1063. 259 economyf needs a criterion for evaluation.**'*’ Still another author doubts the general applicability and usefulness of this strategy, since the degree to which it can effectively be used varies with time and place. He levies the follow ing objections.against it: a) The strategy is less applicable when a govern ment determines and carries out development programs, than when development activities are left to a large number of investors. b) An economic loss would result in the short run if projects are chosen because they induce other decisions rather than because they result in maximum output. c) "It is doubtful that there are countries where it would be sensible to 'unbalance* the development pro grams to create artificial pressures and reliefs according to a plan."*^2 The relevant aspects of the strategy, according to the same writer, are the following: a) It is desirable to maximize the number of ^Bdwin P. Reubens, "Review: The Strategy of Eco nomic Development by Albert 0. Hirschman," Political Science Quarterly. Vol. LXXIV, No. 3, September 1959, pp. 462-463. 62Papnek, op. cit.. p. 320. induced decisions. b) Proposals for investment projects that stimu late other proposals are welcomed particularly those proj- ects which encourage efficiency.0-3 It seems that these two approaches to growth have a common denominator which is their rejection of marginal adjustments and their emphasis upon the necessity of a minimal developmental effort though they differ on where 64 and by how much this effort is to be applied. The Case of the United Arab Republic Balanced and Unbalanced Growth Strategies in the Partial Planning Period In the United Arab Republic, in the partial plan ning period, it is difficult to determine, in a definitive or precise manner, whether the country was following an unbalanced or a balanced growth strategy, since elements of both of these strategies could be found during this period. Many major investment projects such as the High Dam at Aswan and the Iron and Steel Factory may be con sidered as instances in which the unbalanced growth strat 63Ibid.. p. 321. 6*Sutcliffe, op. cit., pp. 629-630. 261 egy was adopted. This is so because these projects re sulted in inducing further new investments in other proj ects, such as the fertiliser plant. At the same time, other various programs undertaken by the Government during this period, such as the Agrarian Reform, the industriali sation program, and the educational program, which per tained to nearly every sector of the economy, may be re garded as indicating that the implicit policy of the Government at that time was to have a balanced growth. Interpretation of the Balanced Growth Concept in the First Five-Year Plan According to the General Frame of the First Five- Year Plan, the strategy of balanced growth has been adopted for planning economic development. This concept is clearly explained as follows: Planning is meant to acquire a state of balanced growth in the national economy, in order to ensure that the various rates of growth in the various activities should go hand in hand, lest one should run faster than the others and thus overtaxes them by more than their potentialities or lag behind them and thus hampers their growth. This is be cause the cohesion and integration which charac terise any national economy make it similar to a chain, the strength of which is no more than the strength of its weakest link, no matter how far apart they are from one another. Thus, any excess growth of any sector beyond the needs and require 262 ments of all other sectors only means idle and ill- utilized resources.65 Another statement in the same plan document may be interpreted as revealing planners* determination to adopt the strategy of balanced growth. It was . . . taken into consideration that the share allotted the various sectors of the economy should not enable each of these sectors to grow suid develop independently but in complete harmony with the growth and development of the other sectors.66 The concept of balanced growth as revealed in the above statements corresponds rather closely to that of Professors Coale and Hoover and of Professor Scitovsky previously mentioned. However, an examination of the figures in the plan document revealing the sectoral dis tribution of investments and the expected rates of growth in the gross production and the value added of the various sectors of the economy is more indicative of the actual nature of the adopted strategy. From this document, it is clear that investment has not been concentrated on one or few sectors, at the deprivation of other sectors, nor has one single sector accounted for most of the expected growth 65Bl-Bogdady, in "Introduction,” of General Frame of the 5-Year Plan . . . , pp, vi, vii. 66National Planning Commission, op. cit., p. 1. in the gzoss production during the plan period* Hence, it is safe to conclude that the strategy of "unbalanced growth" is excluded by the Plan in principle. On the other hand, investments have not been distributed equally among the various sectors, nor has the production of various sectors been planned to grow at an equal rate. This does not mean that a balanced growth strategy is not followed by the Plan. In the first place, no advocate of this strategy has ever claimed that such a process results in equal investment or equal increase in the growth rates of » the sectors. In the second place, although the distribu tion of investment during the five-year period of the Plan favors the commodity sectors (agriculture, industry, and construction), all sectors are expected to grow in such a manner that their growth will contribute to the desired increase in national income* In the third place, an exami nation of the plan documents67 also indicates the magnitude of the "big push" which has been launched on a large front 67Ibid. Also, National Planning Commission, Al- Khetah Al-Aama Lei Tanmieh Al-Iqtisadieh W*al Iktemaieht Tawsi* Al-Mashrouat Alai Mouhafasat, Youlyah 1960— Younyah 1965 (The Over-All Plan for Economic and Social Develop ment : The Distribution of Projects Among the Governorates, July 1960--June 1965), (Cairo: General Organisation for Government Printing Offices, I960). 264 in different activities in interdependent projects. In the fourth place, the system of balances in the Plan shows that the growing demand of various sectors are met by the grow ing supply. Thus, adherence of the Plan to the strategy of balanced growth appears unmistakable. Justification of the Adopted Balanced Growth Strategy Yet, one may question whether or not the adoption of the balanced growth strategy is justifiable in the case of the United Arab Republic. On one hand, some writers may argue that, since the country, like any other develop ing country, is suffering from a shortage of resources, whether financial, physical, or human, it is economically more advantageous for the country to concentrate investment in a few industries which have already been developed and where skills and experience have been obtained instead of starting new projects, where it will not be possible to increase the productivity of these industries and to com pete in international markets.68 68 Ahmed Abou Ismail, MBaad Gawaneb B1-Bonyan Bl- Senai’ Pi Misr," (Some Aspects of the Structure of Indus try in Egypt), L»Egypte Contemporaine. IVfeme Annrfe, No. 316 265 However, the adoption of the balanced growth strat egy seems justifiable when one recalls the state of im balance which existed, in the Egyptian economy before the Revolution. The economy had. been lopsided as a result of its major reliance on one sector (agriculture), and parti cularly on one product (cotton). The state of stagnation and underdevelopment characterising the economy during that period may be attributed to this imbalance. In addition, at the time of initiating such new projects as the High Dam at Aswan, the Iron and Steel factory, and the indus trialization programs, no adequate skills were available. But, during the process of establishing and operating these projects and programs, new experiences have been gained, and as such, valuable assets have been added to the country. Such experiences will contribute, no doubt, to the success of further new projects and to the develop ment of the country. However, the justification for starting new proj ects in various sectors of the economy and undertaking new activities in adherence to the balanced growth strategy, should be decided on the following grounds: Le Caire, Avril 1964, p. 47. 266 a) The evaluation of social costs and benefits of the project. This evaluation should be undertaken for a long-range period, since some projects may seem to con stitute an economic loss in short run, or even during the plan period of medium terms, only to turn into profit over a long period of time. b) The inter-relatedness of the projects in ques tion to the program to which they pertain. A project which may be unprofitable by itself may turn out to be profitable when incorporated in a program. Or, even though the proj ect may still be unprofitable after its inclusion in the program, it may be strategic for the success of such a program as a whole. c) The inter-relatedness of various programs constituting the comprehensive plan and the interaction among these programs is another important factor which should be taken into consideration. d) The efficiency and consistency of the Plan as a whole should be the crucial factor for determining the scope of activities involved. This writer uses the term efficiency to refer to the maximum output obtained from the actual and future available resources, and he used the 267 term consistency to mean that the growing demand of various sectors will be met by the growing supply during the plan period. CHAPTER VI SOME BASIC STRATEGIES IN PLANNING ECONOMIC DEVELOPMENT IN THE UNITED ARAB REPUBLIC PART II: SPECIFIC STRATEGIES Development of Agriculture or Industrialization Theoretical Discussion Among the most important issues in planning strat egies of development in underdeveloped countries is the question of whether to give priority to the improvement of the agricultural sector or to industrialise. In fact, the arguments regarding this issue may be looked upon as a part of the more general debate of whether a developing country should advance on all fronts or whether the developmental efforts should be focused on particular strategic sectors of the economy. The advocates of thfs latter strategy base their arguments mainly on the assumption that resources available for development in developing countries are scarce and insufficient to pursue the objective of promoting all sectors of the economy 268 269 simultaneously. Hence, they argue that a system of priori ties needs to be established to direct investments towards those branches of economic activity that can launch the economy into sustained growth. Development of Agriculture First: Arguments for and against the Strategy Those economists who favor advancing the agricul tural sector suggest the following strategy.1 Since agri culture is characterized by a low capital-output ratio, it is only logical to allocate the scarce capital to that sector, and thus an increase in the income of the rural population is immediately ensured. Such an increase in income will result in the expansion of the market of domes tic industries. In addition, as a consequence of increas ing productivity in the agricultural sector, fewer agri cultural laborers will be needed. The surplus labour can then be moved to the industrial sector. "This shift of labour force from agriculture to industry is one of the most potent forces that should be considered as a prerequi- ^Paul Alpert, Economic Development? Objectives and Methods (London: Collier-Macmillan Ltd., 1963), pp. 171- 172. 270 site of economic growth#”2 Moreover, by increasing agri cultural production, exports will expand, additional for eign exchange will be earned, and, as a result, increased saving can be made available for further investment. The next step is to invest in low capital-output industries, such as small consumer goods industries. Investment in infrastructures can then be undertaken. At a later stage complex capital-intensive industries can be established when enough domestic capital has accumulated, when adequate skills and facilities have developed, and when the domes tic market has expanded. Other arguments which stress the vital role of agriculture in promoting economic development maintain that the comparative advantage of underdeveloped countries lies in agricultural production. This is held to be so because of the relative cheapness with which these countries can produce primary products. Hence, specialization in pro ducing these products is the most efficient method to use the available scarce resources to promote economic develop- 2 United Nations, Industrial Growth in Africa, (B/ CN.14/INR/1/Rev.l) (New Yorks United Nations, 1963), p. 20. ment•3 Professors Peter T. Bauer and Basil S. Yamey are among the most ardent advocates of these arguments promot ing the growth of the agricultural sector, in the early stages of development in underdeveloped countries. They contend that such a strategy facilitates the industrializa tion process in later stages. They assert that by expand ing the production of cash crops in an economy previously at a subsistence level, no disruption in techniques and customs in the rural areas need to take place, and hence, less social and political tension is liable to occur. In addition, the people will get used to the working of an exchange economy and, thus, additional entrepreneurial and administrative skills can develop that can be used later in promoting the industrial sector.4 The criticism levied against the above strategy of developing agriculture first, has centered around the con tention that such a strategy will result in slow rate of 3Ibid. 4P. T. Bauer and B. S. Yamey, The Economics of Under-Developed Countries (Chicago: The University of Chicago Press, 1957), p. 236. development} and will discourage further developmental efforts.^ In addition, the policy of increasing the pro duction of primary products to be exported in exchange for industrial products, is self-defeating since the trend of terms of trade between agricultural and industrial products is falling. Hence, the only alternative left for develop ing countries is to industrialize, if economic development is to be achieved. Some economists who advocate promoting agriculture first maintain that criticism raised because of secular deterioration of the term of trade of primary products, is of little substance, since "terms of trade can be favourable or unfavourable only by reference to the index of a base period,"^ and even if such deterioration has been taking place in the past, there is no ground for extrapolating the movement into the future.7 Professor Paul A. Baran criticizes the strategy of promoting agriculture first. He maintains that concen trating investment in large-scale plantations existing in underdeveloped countries can only be detrimental to eco- sAlpert, op. cit.. p. 172. 6Bauer and Yamey, op. cit.. p. 241. 7 Alpert, op. cit.. p. 242. 273 nomic development, since increased mechanization means displacement of workers without an outlet for their re employment. The increased productivity would not accrue to workers, but to landowners and would be dissipated abroad. In discussing subsistence farming, the same writer admits that better seeding, improved techniques, and cheaper credit would raise the real income of the peasants; nevertheless, he contends that such improvements would be at too small a rate and that with population growth, they would not allow any significant rise in real per capita income. Hence, an economic surplus can hardly be realized O to further economic development from this strategy. Industrialization First} Arguments for and against the Strategy Those who favor the strategy of developing the industrial sector first regard industrialization of under developed countries to be synonymous with, and the proper basis for economic development. Professor Stephen Bnke attributes this identification of industrialization with economic development to the fact that it is easier for a Paul A. Baran, The Political Economy of Growth (New York: Mazani and Munsell, Prometheus Edition, 1960), pp. 271-273. 274 developing countries to import industrial equipment and technicians than to convince peasants to adopt new tech niques . ® Among the arguments advanced in support of this strategy is that since resources for development purposes axe limited in these countries, by concentrating invest ments in the industrial sector, where labor productivity is much higher than in agriculture, a rapid rise in per capita income can be attained. The development of the industrial sector offers the only outlet for absorbing the surplus manpower from agriculture where the marginal prod uct of labor is zero. Also "agricultural improvement can not go very far unless there is industrial development to take up the released manpower and to provide a solid tech nical base for the equipment and services essential to a modernized agriculture."^ In addition, industrialization g Stephen Enke, Economics for Development (Engle wood Cliffs, N.J.: Prentice-Hall, Inc., 1963), pp. 124-125. 10Gunnar Myrdal, An International Economy (New York: Harper and Brothers, 1956), p. 226. ^Eugene Staley, The Future of Underdeveloped Coun tries (New York: Harper and Brothers, 1954), p. 304. 275 offers the proper solution for greater stability and more self-sufficiency to those developing countries which suffer from instability of their national income because of their heavy reliance on the export of one or few primary prod ucts • A further argument is that economic development implies that a larger proportion of the working force is employed in non-agricultuzal sectors. This is so since as per capita income increases, a smaller proportion is spent on agricultural products.^ To support their arguments, the advocates of this strategy refer to the more advanced countries where a larger proportion of the population is 14 employed in the industrial sector. Giving industrial development the top priority in a developmental plan has attracted many criticisms. Pro fessors Bauer and Yamey maintain that the higher degree of industrialisation in the economically advanced countries 12 Murray D. Bryce, Industrial Development» A Guide for Accelerating Economic Growth (New Yorkt McGraw-Hill Book Company, Inc., 1960), p. 4. ^^auer and Yamey, op. cit., pp. 237-238. 14Ibid., p. 238. 276 is not the cause but rather the result of development due to the possession of abundant resources, particularly natural resources, accumulated capital, and technical and managerial skills. The same writers contend that the argument concerning surplus agricultural laborers is not conclusive, since it is possible to absorb this surplus labor "more profitably and with less expenditure of capital in the extension of agriculture than in the establishment of new industries."15 Lastly, they contend that the argu ment about spending proportionally less on agricultural products as income increases does not justify a resort to industrialization, since it may be more economical for a country to import industrial products and to specialize in agricultural products for export.16 Professor Paul A. Baran claims that the strategy of giving priority to the development of agricultural or to industrialization is irrelevant in a socialist economy, "since progress is indivisible, with the maintenance of harmony between the two sectors of the society being one of the crucial conditions for rapid and healthy develop 15Ibid., pp. 238-239. 16Ibid. . p. 240. 277 ment.”1^ However, he does not deny the urgency for devel oping the agricultural sector: For, indeed, modernization of agriculture and massive industrialization are as closely connected as Siamese twins. It is the growth of industry that supplies agriculture with the technical wherewithal for its development and with manufactured consumer goods for the rural population, and it is the expan sion of agriculture that provides food for the in creasing industrial labor force, and many raw mate rials for the rising industrial production.18 The Case of the United Arab Republic Policies to Develop the Agricultural Sector In the partial planning period (1952-1959) in the United Arab Republic, the Revolutionary Government recog nized the fact that agriculture was and always had been the backbone of the economy, providing livelihood for the majority to the population. Consequently, much of the developmental activities have been directed towards the improvement and the development of this sector. A developmental strategy has been adopted towards this end which operates in three directions. One of these directions has been the carrying out of the Agrarian Reform 17Baran, op. cit.. p. 274. 18Ibid., p. 275. 278 Law.19 The total area of requisitioned land distributed among the peasants amounted to about half a million feddan, 20 benefited over one million persons. The limitation imposed upon the ownership of land according to this Law resulted in directing the funds which used to be invested in the purchase of agricultural land towards other enter prises , such as in reclamation of new lands or in indus trial projects.21 In addition, among the beneficial effects of the Agrarian Reform Law has been the limitation of rent to seven times the land tax. It has been estimated that this resulted in saving L.E.40 million for the tenants, which in turn contributed to increasing their in- 22 come and raising their standard of living. * The Law has, no doubt, also contributed towards the achievement of another major objective, namely, the reduction of inequal ities in wealth and income distribution. 19 See the first section of Chapter IV. 20 Hassan Baghdadi, "Report by Agrarian Reform Min ister," UAR, Achievements and Future Development Plans, (Cairoi Information Department, 1960), p. 115. 21United Arab Republic, Pocket Book 1961 (Cairoi Information Department, n.d.), p. 148. 22Ibid., p. 147 279 Other developmental efforts in promoting the agri cultural sector have worked toward horizontal expansion, that is, increasing the cultivable land. As a result of the studies and efforts carried, out by the Permanent Coun cil of Production and the Ministries of Public Work, Agri culture, and Agrarian Reform, 18,000 feddans were reclaimed between 1952 and 1959, and the crop area was increased by 23 about one million feddans during the same period. Such a rate of increase in both areas is more than double that prevailing before the Revolution. Finally, developmental activities in the agricul tural sector have been directed towards vertical esqpansion, that is increasing productivity of the land. These efforts took the shape of selecting new and better types of seeds and pedigrees of animal, protecting plants and animal against pests and diseases, disseminating new cultivation methods, and carrying out a new plant rotation system. As a result, the yield per acre of field crops has recorded 23Abdel Latif Bl-Boghdadi, Address on the Five-Year Plan for Economic .and Social Development 1960-1965 (Cairo* U.A.R. General Congress of the National Union, July 4, 1960), p. 31. 280 24 a large increase during this period (1952-1959). The overall effect of these efforts to develop the agricultural sector during this period (1952-1959) was to increase agricultural exports by L.E.13 million, to de crease agricultural imports by L.B.17 million, and to in crease the national income from agriculture by L.E.148 mil lion (from L.E.252 million in 1952 to L.E.400 million in 1959)*25 The Drive Towards Industrialization Meanwhile, as an effort to redress the imbalance in the economy as a result of its heavy reliance on agri culture, and to accelerate the rate of economic develop ment, the State adopted the strategy of developing the industrial sector. Several heavy and light industries were initiated by the Permanent Council for Production Develop ment. The State's policy to encourage the expansion of the industrial sector has taken several forms. The State ^The percentage increase in yield per acre of cotton was 14, wheat increased by 26, barley by 17, rice by 53, maize by 12, and sugar cane by 7. Bl-Boghdadi, op. cit., p. 32. 25Ibid. 281 participated directly in financing industrial projects, guaranteed a minimal profit in certain projects, increased the Industrial Banins funds available for industrial loans, abolished import duties on raw material and capital goods, and encouraged scientific research, and vocational and 26 technical training. The First Industrial Program was formulated and carried out by the Ministry of Industry in 1957. Its tar gets were to raise the contribution of industry to national income from 11 per cent to 22 per cent, to save foreign exchange, and to provide work for half a million per- 27 sons. The industrialization strategy adopted by the Ministry of Industry stressed a balanced development be tween capital goods and consumer goods industries. Total investments needed for this Program amounted L.B.304 mil lion. About L.E.225.9 million was allocated to manufac- 26 Wahby Ghobrial, "Adwaa* Ala Khetat R1-Tan mi eh Rl-Iktisadieh,” (Highlights on the Plan for Economic Devel opment) Kutub Qawmiyah (Cairo I El-Dar Bl-Qawmiyah Lel- Tebaah Wal-Nashr, n.d.), pp. 32-36. 27 Ahmed Abou Ismail, "Baad Gawaneb Bl-Bonyan Bl- Senai* Fi Misr," (Some Aspects of the Structure of Indus try in Egypt), L'Bgypte Contemporaine, IV eme Annee, No. 316, Le Caire, Avril 1964, p. 11. 282 turing industries, which included basic metal, engineering, chemical and construction, food, and spinning and weaving industries. In addition, L.E.18.9 million was allocated to mining industries, L.B.57.5 million to petroleum indus tries, and L.E.1.7 million to vocational and technical 28 training. In a study of the industrial structure of Egypt, it was estimated that the value added in consumer goods industries amounted to four times that in capital goods industries, during the period from 1956 to 1959,29 which points out the continuous importance of consumer goods industries. As a result of the adopted industrialisation pol icy, the value of gross production has increased during the period from 1952 to 1959 by 80 per cent in manufactur ing industries, by 50 per cent in mineral and oil indus tries, by 100 per cent in electric power, by 71 per cent in weaving industries, and by 141 per cent in paper indus tries.^® 28Ibid.. p. 12. 29Ibid.. p. 18. 30Asis Sedky, (former) Minister of Industry, "Re port by the Minister of Industry," in UAR, Achievements and Future Development Plans, op. cit., p. 111. 283 Agricultural Development and Industrialization in the Pirst Five-Year Plan The drive towards industrializing the country has not led to the neglect of agriculture in the First Five- Year Developmental Plan. Thus, the former Vice-President and Minister of Planning states the following about the agricultural sector: When we start detailing the Plan we must pay tribute to that sector which has provided life and prosperity to our fathers and grandfathers through out the years. It is an acknowledgement of the role it has played which has been and will always be fundamental in supporting our economy and contribut ing towards its strength, production and develop ment • • .31 Hence, in planning the developmental strategies, the planners have taken into consideration the fundamental inter-relationship which exists between the expansion of the agricultural sector and the development of the indus trial sector. "Industry cannot survive without agricul tural supplies of raw material and foodstuffs, and other consumer materials demand for which will increase still further as we proceed along the path of industrializa tion."32 31Bl-Boghdadi, op. cit., p. 30. 32Ibid.. p. 31. 284 However, in the First Five-Year Developmental Plan, 34.1 per cent of total investments have been allocated to the industrial sector (industry and electricity), while the share of the agricultural sector (agriculture, irriga tion and drainage, and the High Dam) in total investments amounts to 23.1 per cent.33 The reason for allocating a higher share of investments to the industrial sector is apparently due to at least two reasons. First, this pat tern in investment allocation seems to conform to the strategy of balanced growth adopted in the United Arab Republic. This is so since, as we shall see below, such an investment pattern will, no doubt, result in a larger increase of income derived from the industrial sector than from the agricultural sector, and will contribute towards achieving balance between the two sectors. Secondly, the development of the industrial sector requires a larger volume of investment expenditures than what is needed for the expansion of the agricultural sector. This is due to the fact that industrial projects are more capital inten sive and involve the importation of capital goods, while agricultural projects are usually labor intensive and 33See Table I, p. 214. 285 depends mostly on domestic goods and services. Distribution of investments, production, and in come in the industrial sector.— Of the total investment of L.E.439.2 million allocated to the industrial sector, 80.2 per cent is invested in equipment and machinery, and the remainder is distributed among land, buildings and constructions, and means of transportation.^4 Table VII, shows the pattern of investment distribution in the indus trial sector among its various branches. It can be seen that priority is being given to developing heavy and basic industries; Chemical, oil, metallic, non-metallic, machine and other engineering industries which are allocated L.E.246.7 million comprising 56.2 per cent of total indus trial investments, and L.E.53.0 million or 12.1 per cent, is allocated to mining and petroleum industries. On the other hand, the share of industries of consumptive nature, such as food, beverages, tobacco, spinning, weaving, clothes, and wood, and paper industries, in total indus trial investments amounts only to L.E.102.1 million or ^^National Planning Commission, General Prame of the 5-Year Plan for Economic and Social Development July 1960-June 1965 (Cairo: General Organization for Government Printing Offices, 1960), p. 30. 286 TABLE VII DISTRIBUTION OF PLANNED INVESTMENTS AMONG BRANCHES OF INDUSTRIAL SECTOR DURING THE PLAN PERIOD 1959/1960--1964/1965 (At 1959/1960 Prices and in Million L.B.) Branches of Industrial Sector Total Investments Mining and Petroleum 53.0 Food, Beverages, and Tobacco 31.7 Spinning, Weaving, and Clothes 48.6 Wood and Paper 21.8 Chemical, Oil, Metallic, Non-metallic, Machine, and other Engineering Industries 246.7 Rural Industries 1.9 Vocational Training 5.5 Renewals and Replacements 30.0 Total 439.2 Source: National Planning Commission, General Frame of the 5-Year Plan for Economic and Social Develop ment (Cairo: General Organization for Government Print ing Offices, 1960), p. 29. 287 23.2 per cent. It is clear, therefore, that the strategy adopted for developing the industrial sector is based upon large investments in basic and heavy industries, a strategy which no doubt, establishes a solid base for accelerating the rate of development in the country because it increases the productive capacity of the economy. Another point that stands out clearly in the distribution of investment is that a very small amount of investment is being allocated for the development of rural industries (only L.E.1.9 mil lion) . The effect of such a pattern of investment dis tribution is shown in Table VIII. Not only a rapid in crease in aggregate output and income is expected to be obtained by the end of the Pive-Year Plan, but also the pattern of industrial production and income is expected to change. For example, in 1959/1960 food, beverages, and tobacco industries, accounted for the largest share of the total value added in this sector, or 28.3 per cent, which amounts to a little more than the percentage contribution of chemical, oil, metallic, ndn-metallic and machine indus tries. This pattern will be' greatly changed by 1964/1965 I since food, beverages and tobacco industries will then account for only 18.5 per cent of industrial income, while 288 TABLE VIII PLANNED GROSS VALUE OP INDUSTRIAL PRODUCTION AND VALUE ADDED FOR 1964/1965 COMPARED WITH 1959/1960 (At 1959/1960 Prices and in Million L.E.) Branches of Industrial Sector 1959/1960 <H 0 1 0 « e 3 ® ■d « p g c 3 ® o h o o h g W i d M -H *9 O > 0. +» > < 1964/1965 Vl 0 1 a w v 3 ® g n 3 *0 c 3J 0 H 0 0 H 3 H < H 'H i d g 3 > Ou 4 * > < Electricity 18.3 11.9 35.1 23.6 Manufacturing Industries: Food, Beverages, and Tobacco 486.1 77.3 639.0 99.9 Spinning, Weaving and Clothes 189.2 57.5 286.4 94.1 Wood, Paper and Printing 40.3 18.2 76.6 33.6 Leather and Rubber 14.8 3.6 20.5 5.4 Chemical, Oil, Metallic, Non-metallic, and Machine Products 155.8 70.4 470.6 203.7 Miscellaneous 18.0 12.1 20.0 13.4 Mines and Quarries 22.0 18.5 74.4 61.8 Cotton Ginning and Pressing 149.7 3.9 191.3 4.8 Totals 1,094.2 273.4 1,813.9 540.3 Source: National Planning Commission, General Frame of the 5-Year Plan for Economic and Social Develop ment (Cairo: General Organization for Government Print ing Offices, 1960), p. 45. 289 the largest share will be derived from chemical, oil, metallic, non-metallic, and machine industries which will rise to 37.7 per cent by that time. This sharp rise in the shares of the latter industries is accounted for by a parallel increase in their rates of growth in value added of about three times during the Plan period. The whole group which comprises industries of consumptive nature will still continue to contribute the largest share of indus- 35 trial income (69.1 per cent) by 1964/1965. However, the accelerated growth in basic and heavy industries1 income will eventually catch up with the growth of consumer goods industries. Thus, it seems that a strategy of balanced growth between the two groups of industries is being adopted in the Plan. Distribution of investments in the agricultural sector.— The components of, and the pattern of distribu tion of investments among agriculture, irrigation and the High Dam are shown in Table IX. A perusal of the figures included in this table shows the following: 1. The major part of investment is allocated to 35Ibid., p. 6 290 TABLE IX PLANNED INVESTMENTS AND THEIR COMPONENTS FOR AGRICULTURE, IRRIGATION, DRAINAGE, AND THE HIGH DAM DURING THE PLAN PERIOD 1959/1960— 1964/1965 (At 1959/1960 Prices and in Million L.E.) Branches of Agricultural Sector Totals Land Buildings and Con struction Equipment and Machinery Means of Transporta tion Livestock | | Agriculture A. Vertical Expansion 51.9 1.1 22.2 22.2 5.0 1.4 B. Horizontal Expansion 173.4 106.1 47.3 11.2 8.8 Totals of Agriculture 225.3 1.1 128.3 69.5 16.2 10.2 Irrigation and Drainage 119.4 7.7 98.6 12.8 0.3 The High Dam 47.3 27.5 19.8 Totals of Irriga- t ion, Drainage and the High Dam 166.7 7.7 126.1 32.6 0.3 Grand Totals 392.0 8.8 254.4 102.1 16.5 10.2 Source : National Planning Commission, General Frame of the 5-Year Plan for Economic and. Social Develop- ment (Cairo: General Organization for Government Printing Offices, 1960), pp. 25, 27. 291 the horizontal expansion In agriculture amounting to an investment outlay of L.B.173.4 million, of which 61.2 per cent is to be spent on buildings and construction. These investments should lead to an increase in the area of re claimed land from deserts and lakes of about 885,000 fed- dans, which represents an annual rate of increase of 175.000 feddans, or about eight times the rate of increase during the 1952-1959 period.^ The amount of investment devoted to vertical expansion (increasing productivity) is about L.E.52 million, or about 30 per cent of the amount of investment allotted to horizontal expansion. 2. Special attention is being given to irrigation and drainage and to the High Dam project for which L.B.166.7 million is allocated for investment, or about 42 per cent of the total investment devoted to the agricul tural sector. 3. The larger part of investment in agriculture is devoted to buildings and construction (about 57 per cent), while 30.8 per cent goes to the mechanization of agriculture and only 0.5 per cent is invested in livestock. 4 4 Bl-Boghadadi, op. cit., p. 34. 292 Contribution of agricultural and industrial sec tors to economic growth compared.--When the affects of these investments on both the agricultural and the indus trial sectors regarding the value of gross production, and income (value added) are compared, they show the contribu tion of each sector to the growth of the economy.37 By the end of the First Five-Tear Plan, the total value of gross domestic production in the agricultural sector is planned to increase by L.B.162 million while industrial gross production is planned to increase in value by L.B.720 mil lion. In other words, industrial production will increase at a rate of more than four times that of agricultural production. As a result, a change in the production structure is expected to take place by 1964/1965 whereby industrial production will account for about 50 per cent of gross domestic production. These increases in the value of gross production will lead to a rise in national income derived from the agricultural sector from L.B.400 million to L.B.512 million, or by 28 per cent, while income derived from the industrial sector will rise from L.B.273 million 37See Tables II and III, pp. 217,218. 293 to L.B.540 million, or by 97.8 per cent. These increases are reflected in the changing contributions made by each sector to gross national income* Thus, while in 1959/1960, the largest share of income was derived from agriculture, which contributed 31.2 per cent to national income, the income from industry was only 21.3 per cent. This situa tion will be reversed by the end of the fifth year of the Plan; industry will be contributing 30.1 per cent to national income, and agriculture 28.5 per cent. These changes in the income contribution which, incidently, con form with the features of a growing economy, are apparently affected by various factors: 1. A larger amount of investment is being allo cated to industry (34.1 per cent) than to agriculture (23.1 per cent). 2. Most of the investment in agricultural sector is devoted to the horizontal expansion and to the High Dam (L.B.210.7 million) neither of which is expected to yield immediate output and income during the Plan period. Labor employment and productivity in agriculture and industry.— During the five years of the Plan, the labor force employed in agriculture is estimated to rise from 294 3,245,000 pexsons to 3,800,000 persons.38 In industry, the rise is estimated to be from 632,000 persons to 847,000 persons. Hence, of the new entrants to the labor market, which are estimated to be over one million persons, agri culture absorbs 54.1 per cent, industry 20.8 per cent, and the remainder 25.1 per cent is absorbed by the other sec tors of the economy. Thus, agriculture is expected to maintain its high level of employment. However, it should be noted that the estimated number of persons engaged in agriculture in 1959/1960 and 1964/1965 is 4.22 and 4.66 million respectively while the number necessary for carry ing out agricultural activities is estimated to be 3.25 and 3.80 million for these two years.3® This state of affairs indicates that underemployment is expected to pre vail throughout the Plan period, but at a lower rate. 38See Table VI, p. 226. This information appears in a footnote to Table 49, in National Planning Commission, General Frame of the 5-Year Plan for Economic and Social Development, July 1960- June 1965. op. cit., p. 118. Also, in the same table, the total number of civil labor force for 1959/1960 and 1964/ 1965 is estimated at 7,547,000 and 8,379,000 persons re spectively, while the total number of working persons is estimated at 5,975,000 and 7,001,000 persons for the same two years. These figures reveal that attainment of full employment is not to be expected during the Plan period. 2 9 5 However, in spite of this continuing underemploy ment in agriculture, labor productivity is expected to rise from 123 to 135 in that sector,40 and along with it the average annual wage will rise from L.B.135 in 1959/1960 to L.B.171 in 1964/1965. A much higher rate of increase is contemplated for industry; labor productivity will rise from 432 in 1959/1960 to 638 in 1964/1965 which is appar ently due to the greater use of capital goods in this sec tor. The average annual wage of industrial workers will also rise from L.B.91 to 1959/1960 to L.B.155 in 1964/1965. The state of labor employment in agriculture and industry, as outlined in the Five-Year Plain, calls for a brief comment. First, agriculture is characteristically a labor-intensive activity and is expected to continue to be so, as long as the rate of mechanization and moderniza tion of this sector is proceeding slowly. Secondly, if this rate of mechanization proceeds at a higher rate, this 40 Labor productivity in agriculture is computed by this writer by dividing the gross value added by the num ber of laborers required for this sector. If the number of laborers engaged in this sector is used in the denomi nator instead of the number of required laborers, then labor productivity would be 95 for 1959/1960 and 110 for 1964/1965 which still shows a rise in labor productivity between these two years. 296 will lead to unemployment and more underemployment since the rate at which the surplus agricultural workers can be siphoned off into industry is limited by the extent of expansion of the latter sector and by the available facil ities for training agricultural workers to work in indus try and other sectors of the economy. Thirdly, although the expansion of agriculture necessitates increasing the capacity of other sectors of the economy to absorb surplus agricultural labor, it should be noted that in the early stages of development, the other sectors, particularly industry, can only employ a small number of workers trans ferred from agriculture. This is why industrialization offers a proper solution to this problem in the long run. Most probably, this chronic problem of rural em ployment will be partly solved once the land reclamation projects bear fruit and the country becomes more indus trialized. In the meantime, this writer is of the opinion that rural industries should have received more emphasis. The "cottage industry," similar to that existing in India may prove advantageous in this direction. However, for a longer range developmental strategy, measures should be taken to slow down the accelerated rate of population growth, which lies at the heart of this problem, through 297 bisth control methods and other measures. Development of Foreign Trade or Diversification Theoretical Discussion Free Trade Policy for Economic Development: Arguments for and against the Strategy Some economists hold the view that most under developed countries cannot possibly develop their economies without relying on international trade and adopting a free trade policy. On the other hand, other economists contend that the appropriate developmental strategy for these countries consists of diversifying their local production of goods and protecting such production. The advocates of free trade policy usually refer to the theory of comparative advantage in supporting their views. According to this theory, it is best for each coun try to concentrate its efforts on the production of those commodities which it can produce most cheaply, to export its surpluses, and in exchange to import those commodities which the country can produce only at greater costs. This policy is held to be most beneficial since it will enable such a country to obtain more goods at lower prices than if the country produces a wide variety of goods regardless 298 of whether or not it has a comparative advantage, in an attempt to achieve self-sufficiency.41 A policy that re sults in increasing the availability of goods at low prices contributes to the objective of raising the stand ard of living. This policy would be advantageous to a country when it is possible to re-employ those workers who are displaced as a result of importing the cheap prod ucts.42 The comparative advantage theory has been chal lenged on the basis that it is a static theory which is not applicable to the dynamic mold of developing econ omies.42 In the process of development, traditional methods of production change as a result of applying new technological innovations. Consequently, the comparative advantages of a developing country are bound to change frequently, and these newly adopted technological innova- 41Robert J. Alexander, A Primer of Economic Devel opment (New York: The Macmillan Co., 1962), pp. 31-32. 42 Robert Theobald, The Rich and the Poor: A Study of the Economics of Rising Bxpection (New York: The New American Library of World Literature, Inc., 1963), pp. 121- 122. 4*1 Gunnar Myrdal, Rich Land and Poor: The Road to World Prosperity (New York: Harper and Brothers, Pub lishers, 1957), p. 155. 299 tions may result in giving the country advantages which it did not previously possess.44 In addition, this theory assumes conditions of full employment, an assumption which is not usually valid in the case of developing countries where overt and disguised unemployment prevail, and where natural resources still remain untapped. Furthermore, other arguments of a more practical nature are also offered in reply to the policy of free trade. Among such arguments are the following: The law of Comparative Advantages might make sense for all countries of the world (1) if there were no wars great and small to cut mineral and agri cultural economies off from their markets and from their sources of manufactured goods; (2) if there were no economic depressions originating in indus trial nations and being exported to those countries producing raw materials and foodstuffs; (3) if the demand for and price of allKsommodities moved more or less together, instead of the present situation in which manufactured goods are relatively steady while prices of raw materials and foodstuffs oscil late rapidly. However, as the globe is organised today, with these conditions not existing, the Law of Comparative Advantage works to the benefit of 4 A Alexander, op. cit.t p. 34. 300 the great manufacturing nations and to the detriment of the producers of raw materials and foodstuffs-- the underdeveloped nations.45 Diversification and Protection: Arguments for and against the Strategy Those who advocate the strategy of diversification of domestic production and control of foreign trade argue that international trade has not contributed to the growth of underdeveloped countries. Among the arguments advanced to support this contention is that the terms of trade are shifting continuously against underdeveloped countries, whose economies are largely dependent on exporting primary goods. The ability of underdeveloped countries to import industrial goods is limited by the availability of foreign exchange which is determined by the volume of trade be tween industrialised nations and underdeveloped countries. This volume of trade, in turn, is determined basically by the willingness of industrialised nations to buy raw mate rial from underdeveloped countries, and this willingness depends on the level of economic activity in the indus trialised nations. However, prices of industrial products 45Ibid.. pp. 32-33. 301 tend to xise continuously while those of pximaxy pxoducts are continuously falling. Hence, the most beneficial policy to correct this situation in undexdeveloped coun tries is to industxialize and to give adequate pxotection to their industries. The effect of such a policy would be to import capital goods from industrial countries in place of manufactured goods. The volume of trade would not thus be reduced. Another argument for diversification and protection relies on the contention that the prices of primary goods exports fluctuate more than do industrial products prices. Since most underdeveloped countries specialize in the production of one or a few primary products and since their economies depend on the exportation of these products, then the fluctuation in prices of these products has vio lent repercussions on the level of national income in these countries. Still another argument supporting the view that international trade has retarded the growth of under developed countries refers to backwash and spread effects ^Raoul Prebisch, The Economic Development of Latin America and Some of Its Problems (New York: United Na tions, 1949), pp. 1-3 and 8-9. 302 on the economies of these countries. Underdeveloped coun tries are usually characterized by the dualistic nature of their economies in which a highly productive sector, mainly devoted to producing primary products for exports, exists side by side with a low productive sector which produces for the local market. The productive sector has usually been successful due to foreign capital investment and has been controlled from abroad. However, these for eign investments have strong backwash (unfavorable) effects on the economies of underdeveloped countries since the gains accrue to industrialized countries in the form of transferred profits, a larger volume of employment, and external economies, while underdeveloped countries have not derived such benefits. On the contrary, whatever small-scale industries they have are threatened by cheap inported products if these industries are not protected. In the meantime any countervailing spread effects of ex pansion from advanced countries abroad are weak and are hampered by differences in institutional structures. As a result, international inequalities occur and continue 4 * 47 to persist. One more argument supporting the diversification policy is that underdeveloped countries are liable to ex perience severe foreign exchange problems. The likelihood of this situation to arise stems from the fact that while these countries have a high propensity to import, they are also faced with low price and income elasticities for their agricultural products. Hence, to avoid a serious drain on their foreign exchange balances, they have either to in crease their exports or to reduce their imports and pro duce import-substitutes. These countries usually find that the latter is an easier route to follow than attempt ing to increase exports. Furthermore, importation of capital goods on a large scale to carry out developmental plans necessitates the imposition of import controls in order to avoid inflation and drainage of foreign exchange. In fact, as Professor Benjamin Higgins has rightly re marked, restriction on imports of underdeveloped countries does not lead to a decrease in their total imports but would result in changing its composition, and as the 47 Myrdal, Rich Lands and Poor • • • , pp. 50-60. 304 national income of these countries rise, such restrictions A Q would put a limit on the rise in imports. While some economists would deny the contention of deteriorating terms of trade as an inhibiting factor to economic development, others would point out the diffi culty of measuring these terms of trade since the quality of finished goods is changing while that of primary goods is not.4® Still other economists maintain that this phe nomenon is only true in ’ ’mature underdeveloped countries with no good agricultural land still unoccupied.Fur thermore, falling terms of trade are also attributed to faulty management resulting in less productivity for those products whose prices are falling, rather than to the type of product itself. The argument for diversification as a means for 48Benjamin Higgins, Economic Development? Problems, Principles, and Policies (New York: w. W. Norton and Com pany, Inc., 1959), p. 561. 4®Bnke, op. cit., p. 464. 50Benjamin Higgins, United Nations and U.S. Foreign Economic Policy (Homewood, 111.: Richard D. Irwin, Inc., 1962), p. 38. S1Enke, op. cit., p. 467. stabilizing the economies of developing countries is also 52 contested on the ground that it entails too high a price. Moreover, if such a policy can possibly be followed to the point of self-sufficiency in investment and production, then domestic investment would determine the volume of income and employment. But since some of these invest ments would be risky, and would not be undertaken, the volume of investments will vary, and along with it severe 53 fluctuations in employment and income would occur. An answer to this counter argument would be that since the volume of investment is determined by a comprehensive developmental plain, such fluctuations could be avoided through proper plauining. The Case of the United Arab Republic Diversification auid Control of Foreign Trade in the UaR; Rationale The strategy adopted in the United Arab Republic regarding foreign trade is mainly based on diversification and control. Heavy dependence on the primary product, 52Ibid., p. 464. C O Higgins, Economic Development: Problems . . . , p. 559. cotton, which by 1960 constituted 66.6 per cent of total exports had unhealthy repercussions on the national econ omy as a result of the violent fluctuation in cotton ex port prices and volume. The desire to protect cotton pro ducers against price fluctuation in foreign markets, to protect them from competition from foreign cotton producers, and to mediate the effects of these fluctuation on the national economy, led the Government to control foreign and domestic market operations. Since 1962, the Egyptian Cotton Committee has been authorized to acquire all cotton crops for export and local consumption. The prices of cotton purchased from the producers have been fixed, taking into consideration the international prices of competing cottons.^ Planned Changes in the Pattern of Exports The policy of the State to make the country less dependent on one export crop has been accompanied by a policy of expanding exportation of other agricultural crops and manufactured goods. This policy is reflected in 54 United Arab Republic, The Revolution in Twelve Years 1952-1964 (Cairo: Information Department, n.d.), pp. 63-64. Table X showing the main items of esqaorts in the First Five-Tear Plan. Total exports of goods are planned to increase by 35.8 per cent by the end of the Plan period. As a result of the strategies adopted in the Plan regard ing industrialization and agricultural expansion, and as a result of the efforts to reduce the economy's dependence on one export product, a change in the pattern of goods exported is expected to take place. By 1964/1965, while cotton exports increase by 10.6 per cent, their relative importance decrease from 66.6 per cent of total exports to 54.2 per cent. All other manufactured items are esti mated to increase in absolute value as well as in their relative importance to total exports during the Plan period. This is apparently due to the changing structure of production as a result of implementing the projects of the Plan. Import Policy and Structure The import policy is based primarily upon meeting the deficit in the domestic production of goods through importation in order to balance the commodity sources and 308 TABLE X PLANNED VALUE OP EXPORTED GOODS* AND THEIR PERCENTAGES TO TOTAL EXPORTS IN 1964/1965 COMPARED WITH 1959/1960 (Values at 1959/1960 Prices and in Million L.E.) 1959/1960 1964/1965 Per- Per- Exported Goods Value cent- ages Value cent- ages Cotton 112.4 66.6 124.3 54.2 Yarn and Cotton Textiles 16.7 9.9 27.5 12.0 Agricultural Products and Poodstuffs 14.4 8.5 26.6 11.6 Crude and Refined Oil 5.7 3.4 7.6 3.3 Miscellaneous Manufac tured Products 19.6 11.6 43.3 18.9 Totals 168.8 100.0 229.3 100.0 *Export duties are excluded. Source: National Planning Commission, General Prame of the 5-Year Plan for Economic and Social Develop- ment (Cairoi General Organisation for Government Printing Offices, I960), pp. 82, 85. uses in the country during the Plan period.55 Priority is given to imports of capital goods necessary to carry out the Development Plan, and to intermediate production goods needed for productive activities. Although imports of consumption goods occupy a lower order of priority, never theless essential commodities, such as medicine and grains, are given due consideration. Inports of "unnecessary” commodities are restricted and imports of commodities which 56 are similar to those locally produced are prohibited. Consequently, the structure of inports is expected to undergo some changes which are shown in Table XI. Imports of investment goods, as a per cent of total imports, are estimated to increase by 20 per cent by 1964/1965. On the other hand, imports of consumers' goods are estimated to decline by 11.7 per cent, and those of intermediate pro duction goods by 21.8 per cent; these imports represent 13.8 per cent and 43.1 per cent of total imports respec tively by the fifth year of the Plan. The expected decline in imports of the latter two categories of goods is, no ^^National Planning Commission, op. cit., p. 83. 5^UAR, The Revolution in Twelve Years . • . , p. 34. 310 TABLE XI CLASSIFICATION OF PLANNED IMPORTED GOODS* ACCORDING TO THEIR USES AND TO TYPE OF PRODUCT AND THEIR PERCENTAGES TO TOTAL IMPORTS FOR 1964/1965 COMPARED WITH 1959/1960 (Values at 1959/1960 Prices and in Million L.E.) 1959/1960_______1964/1965 Imported Goods Value Per cent ages Value Per cent ages Uses of Imported Goods Consumers* Goods Intermediate Consump tion Goods Investment Goods 33.4 118.5 77.3 14.6 51.7 33.7 29.5 92.7 92.7 13.8 43.1 43.1 Totals 229.2 100.0 214.9 100.0 Type of Imported Goods Agricultural Raw Material Mineral Raw Material Manufactured Goods 45.4 9.8 174.0 19.8 4.3 75.9 47.9 • • 167.0 22.3 • • 77.7 Totals 229.2 100.0 214.9 100.0 £ Import duties are excluded. Sourcet National Planning Commission, General Frame of the 5-Year Plan for Economic and Social Develop ment (Cairo: General Organization for Government Printing Offices, 1960), pp. 83, 84, 88-90. 311 doubt, the outcome of the expected increase in local pro duction of import substitutes. The effect of the changes on the pattern of demand for imported goods can also be shown in Table XI. Imported agricultural raw materials are expected to increase as a percentage of total imports from 19.8 per cent 1959/1960 to 22.3 per cent in 1964/1965. Mineral raw materials are not expected to be imported by the end of the Plan period because of the increasing production of Egypt's mines. Manufactured goods are expected to decrease in value, but its ratio to total imports increases from 75.9 per cent to 77.7 per cent during the Plan period. However, the end result of the adopted foreign trade strategy and the planned changes in the structure of exports and imports are expected to turn the estimated deficit in the balance of trade of L.E.60.4 million in 1959/1960 into a surplus of L.B.14.4 million by 1964/1965. The value of exports which was L.E. 168.8 million in 1959/ 1960 is expected to reach L.E.229.3 million by 1964/1965, while imports are expected to decrease from L.E.229.2 mil lion to L.B.214.9 million during the same period. 312 Domestic or Foreign Finance Theoretical Discussion To finance the large volume of capital investments needed to launch the economy into sustained growth, an underdeveloped country can either resort to domestic or to foreign resources or to both. Most economists seem to agree that developing countries should finance the major part of their developmental plans and programs from domes tic resources, and that foreign sources should be relied upon only in order to speed up the rate of development. However, preferences are being given to some methods of financing rather than to others. Mobilizing Domestic Financial Resources: Possibilities and Limitations The main source of domestic resources for financing capital formation is domestic saving. However, because of the low level of productivity and real per capita income in underdeveloped countries, the propensity to save is also very low. Moreover, whatever saving is realized usually is not effectively mobilized and channelled towards developmental investment• This condition is attributed to the existing in i 313 equality in income distribution which makes the upper 57 income groups the only potential savers. Their savings are dissipated through wasteful channels such as importing luxury consumption goods, "hoarding of precious metals, hoarding of foreign currency, or bank accounts abroad, real estate speculation, et cetera."^*® These practices are incompatible with developmental activities. Several measures have been suggested for increas ing saving and for its mobilisation. Among the most sig nificant of these suggestions is that of Professor Paul A. Baran. He suggests reorganisation of production and dis tribution of output, and changes in the social structure in order to realise "potential economic surplus." Such reorganisation would recapture (1) the upper income groups' spending on "excess consumption," (2 ) "the output lost to society through the existence of unproductive workers," (3 ) the lost output owing to inefficient organisation in 57W. Arthur Lewis, The Theory of Economic Growth (London: Allen and Unwin, Ltd., 1956), pp. 225-244. ^®United Nation, Methods of Financing Economic De velopment in Under-Developed Countries (49.II.B.4), (New York: United Nations, 1949), p. 117. 314 production, (4) the potential output foregone because of existing unemploymentHe goes on to maintain that "it is only the state that is in a position to mobilize the surplus potentially present in the economic system and to employ it for the expansion of the nation's productive facilities" which can successfully develop its economy.**0 Other suggestions stress the need for adopting particular institutional measures to encourage voluntary domestic saving and channel realized saving into produc tive activities. Among these measures are the following: • • • improvements in the banking, savings and in surance institutions, the creation of specialized credit agencies and banks, the establishment of social security or pension funds, the regulation of corporate and business savings devices, the development and regulation of securities markets, the devising of credit instruments for special pur poses or suited to special preferences of savers and so on. . • • The creation of conditions of general confidence and stability is usually an essential element in inducing institutional saving, and particularly in discouraging nonproductive eg Professor Paul A. Baran defines "potential eco nomic surplus” as "the difference between the output that could be produced in a given natural and technological en vironment with the help of employable productive resources, and what might be regarded as essential consumption." Paul A. Baran, op. cit.t p. 23. 60Ibid., p. 223. 315 forms of saving and investment To ensure that savings are used according to devel opmental priorities, direct controls may be necessary to prevent "non-essential" investment. Such direct controls may be employed in regulating investment policies of banks, insurance companies and social insurance funds. Moreover, differential rates of interest may be charged for funds supplied by financial institutions to direct saving towards desirable fields of economic activities. When voluntary saving is not sufficient to finance developmental plans, the governments in underdeveloped countries can resort to methods of "forced savings," through taxation and inflation. Appropriate taxation can be an effective method of increasing the total volume of domestic savings. If taxation'absorbs a part of the re sources which would otherwise have been saved voluntarily, the total volume of domestic savings would not increase. Hence, tax policies should be directed mainly towards reducing consumption. However, raising the necessary funds through taxation is very difficult in underdeveloped coun- Methods of Financing Economic Development • a a , P a 93 a 62Ibid., p. 14. 316 tries. The wealthy classes who are politically influential oppose any increase in taxes to be levied upon the, while the low income of the poor classes which is totally devoted to consumption can hardly bear the burden of any taxes. Unfavorable effects on incentives to work may eventually 63 result from any imposition of taxes. Yet, special tax measures can be taken to induce investment in the desired direction. Examples of such tax inducements include duty free imports of capital equipment and material, and full or partial exemption of taxes on profits which are re- 64 invested for developmental purposes. Forced saving can also be effected through infla tionary methods: government borrowing from the Central Bank and printing of money. This method of financing developmental activities has proven easier than other methods for the governments of underdeveloped countries, since it forces the population to reduce their consumption because of rising prices. In fact some economists main tain that this method is the only possible alternative for Higgins, Economic Development • • . , p. 506. ^^UN, Methods of Financing Economic . . . , p. 134. 317 underdeveloped countries when it is difficult to raise sufficient funds from taxation and from foreign re sources.65 However, this method of financing is subjected to severe criticism because of the fear that it would lead to uncontrollable hyperinflation, social, economic and political instability, and would become self-defeating in the end.66 Imported goods required for developmental activ ities need to be domestically financed by "an export sur plus over the import of goods not related to economic development." This method of financing imports usually necessitates a reduction in consumption and "non-essential" investment and can be achieved by increasing exports of primary products, esqsorts of new commodities, further processing of exported goods, and undertaking services related to foreign trade. However, because of the fluc tuations in prices and volume of foreign trade, financing of imports through this method is not always dependable. 65Alexander, op. cit., p. 95. 66Higgins, Economic Development . . . , pp. 463- 467. 67 ON, Methods of Financing Economic . . . , p. 20. 318 Moreover, difficulties in covertibility of currency, block ing of expoxts proceeds, and when these pxoceeds axe used fox imports of commodities not needed fox developmental purposes, reduce further the usefulness of foreign trade 6Q as a method of finance. It has also been suggested that since seasonal ox disguised unemployment usually prevails in rural areas of underdeveloped countries, it is possible to mobilize sur plus labor in carrying out certain types of projects in cluding simple construction works such as roads and storage buildings. These projects can be carried out with the assistance of the State in the form of provision of some material. It is maintained that such a proposition re quires virtually no financing.^ Foreign Finance for Economic Development: Possibilities and Limitations The arguments in favor of resorting to foreign sources in order to finance economic development centres around the following ideas. Underdeveloped countries do not have the capacity to raise sufficient funds from domes- 68Ibid., pp. 20-21. 69Ibid.. p. 140 3 1 9 tic sources to finance developmental activities of the required magnitude to launch the economy into sustained growth. Any attempt to divert a sizeable part of national income to developmental investments entails lowering the standard of living of the masses; a process which although theoretically possible, involves unbearable hardships in practice because of the existing very low per capita in come. Hence, the only alternative left for these countries is to obtain foreign capital and as some economists advo- 70 cate, at whatever cost or sacrifice. Furthermore, for eign financing of development is particularly crucial in the initial stages of development, before export indus tries have developed, because of the dearth of foreign currency needed to pay for imported foreign capital equip- 71 ment. In addition to the advantage of avoiding painful sacrifices by the population if development activities are domestically financed, acquiring capital from abroad brings along foreign skills, knowledge, and technical inno vations which can be transplanted in underdeveloped coun- 70 Higgins, Economic Development . . • , p. 473. 7V Methods of Financing Economic . . . , p. 26. 320 trie*.72 The resources of foreign finance can take the form of direct private investment, of inter-governmental loans and grants, and loans and grants from international organ izations. Private foreign investments in underdeveloped countries facilitate the transfer of technical and manage rial skill, and they attract more local capital. On the other hand, private foreign investment is usually made in primary export industries which may not be to the best advantage of underdeveloped countries interested in eco- *7o nomic development. However, there is usually opposition in these countries to private foreign investment, an attitude which may be explained in terms of early"exper iences, where "profits derived from operations in underdeveloped coun tries have gone to finance investment in highly developed parts of the world."74 Moreover, where these investments were associated with racial and cultural segregation for- 72 Alexander, op. cit., pp. 105-106. 7^UN, Methods of Financing Economic . • • , p. 96. 74Baran, op. cit., p. 184. 321 75 sign financing may be further opposed. In addition to this resentment, there are other obstacles to foreign pri vate investment such as a fear of discriminatory taxation, compulsory participation with domestic capital, restric tions on ownership of particular natural resources, and fear of nationalization or expropriation without compensa tion. Private foreign lending can no longer be considered as a major source of finance for underdeveloped countries because of unwillingness of lenders to take the risk in a world characterized by an "unsettled state of inter national political and economic affairs. Inter-governmental loans and grants are usually used to finance particular investment projects. However, this type of foreign aid is likely to encounter several difficulties. Among these difficulties are the often conflicting views between the donor and receiving coun tries as to what kind of projects are most advantageous to the recipient country. Other types of difficulties arise 75 Frederic Clairmonte, La Liberalisme Economique Bt Les Pays Sous-Dev^loppes; Etudes Sur L*Evolution D*une Id^e (Paris: Librairie Minard, 1958). p. 275. UN, Methods of Financing Economic • . • , pp. 97-98. when the donor country demands the fulfillment of certain conditions, such as requiring the recipient country to participate in the cost of projects or to carry out certain 77 changes in its economic, social or political structures* Some economists suggest that there should only be one string attached to foreign aid, and that is, the recipient country should have the absorptive capacity to use the aid, that it should undertake maximum developmental effort, and that it should have a workable developmental program.78 Because of the confusion that may arise as a result of conflicting objectives held by the donor and recipient about the use of foreign loans and grants, and because of unpopularity of conditional foreign aid among under developed countries, some economists suggest that bilateral capital assistance be channelled through international agencies.79 Professor Jan Tinbergen even proposes the 77 Alpert, op* cit., pp* 293-294. 78The absorptive capacity is defined as the amount of investment that can be undertaken without raising the incremental capital-output ratio above i (where x can be X the borrowing interest rate). Higgins, United Nations and United States Foreign . • • , pp. 24, 206. 79Ibid., pp. 116-117. 323 establishment of a central international authority among whose functions is to effectively administer foreign aid 80 according to an international plan.0 The Case of the United Arab Republic Foreign Finance in the First Five-Year Plan In the First Five-Year Plan, it is estimated that it will not be possible to finance all of planned invest ments from domestic resources. Heavy reliance is being placed upon foreign financing. Out of the total invest ments of L.B.1696.9 million, the needed foreign currencies are expected to amount to L.B.646.0 million, or 38.1 per cent of total investments. It is also estimated that foreign credit facilities and loans will not exceed 30 per 81 cent of the value of total investments. The pattern of financing investments in all sectors of the national econ omy is shown in Table XII. This table shows that 58 per cent of foreign currencies expected to be available during the Plan period are allocated to the industrial sector 80 Jan Tinbergen, Shaping the World Economy: Sug gestions for an International Economic Policy (New York: The Twentieth Century Fund, 1962), pp. 182-186. 81 B1 Boghdadi, op. cit.. p. 20. 324 TABLE XII DISTRIBUTION OF PLANNED INVESTMENTS BY FOREIGN AND LOCAL CURRENCIES DURING THE PLAN PERIOD 1959/1960— 1964/1965 (At 1959/1960 Prices and in Million L.E.) Sectors Foreign Local Total Agriculture 53.8 171.5 225.3 Irrigation and Drainage 13.1 106.3 119.4 The High Dam 12.0 35.3 47.3 Industry 286.3 152.9 439.2 Electricity 88.7 50.8 139.5 Transportation, Communications and Storage 96.4 140.4 236.8 The Suez Canal 15.8 19.2 35.0 Housing 29.4 145.2 174.6 Public Utilities 17.7 31.1 48.8 Other Services 32.8 78.2 111.0 Totals 646.0 930.9 1,576.9 Changes in Stock 120.0 Grand Total 1,696.9 Source: National Planning Commission, General Frame of the 5-Year Plan for Economic and Social Develop- ment (Cairo: General Organization for Government Printing Offices, I960), p. 24. 325 (industry and electricity). The need of the industrial sector for foreign currencies represents 64.8 per cent of the value of total investments needed for that sector. It can be inferred, therefore, that all other sectors will be depending more heavily on domestic financial resources rather than on foreign resources. Domestic Saving for Financing the First Five-Year Plan Financing planned investments from domestic re sources seems to call for a sharp rise in the proportion of saving out of national income; a rise from 14.8 per cent in 1959/1960 to 23.6 per cent by 1964/1965.82 Saving includes gross production profits and profits retained in 82 These percentages are calculated from the sec tion dealing with the national accounts included in the General Frame of the 5-Year Plan for Economic and Social Development, July 1960-June 1965, op. cit., pp. 204-206. In 1959/1960, domestic saving is estimated at L.B.181 mil lion, and value added is estimated at L.E. 1224.2 million, while in 1964/1965, saving is estimated to reach L.E.391.6 million, and value added is estimated at L.B. 1716.9 mil lion. It should be noted that these figures for the value added differ from those included in Section 2 of the Plan document (p. 43) and which are estimated at L.B.1282 mil lion and L.B.1795 million for the same two years. the business sector (private and public), saving of the household sector, and excess of revenues over current ex penditures of the government administration. In order for these expectations to be fulfilled, adequate measures axe required to be taken to prevent the rise in national in come from being totally consumed. The preoccupation with this problem is emphasised in the Charter as follows: . . . planning in our society is required to find out a solution to the difficult formula. In the solution of that difficult formula lies the material and human success of the national action. How can we increase production? A.t the same time how can we increase the con sumption of goods and services? That, besides the constant increase of saving for the sake of new investments. This difficult formula with its three vital branches require the existence of a highly effi cient organization capable of mobilizing forces of production, raising their material and intellec tual efficiency, and relating them to the produc tion process.83 Clearly, the solution to this "difficult equation" requires that consumption rises at a slower rate than does national income. Moreover, it is not sufficient that saving be realized alone; it must be effectively mobilized and channelled towards desired investments, according to the National Plan as well. 83UaR, The Charter, p. 52. 327 To assure the required growth of private saving, it is necessary not only to impose deterrents to luxury private consumption, but also to restrain domestic produc tion of non-essential consumption goods. Hence, the strat egy of increasing the production of consumer goods which is adopted in the National Plan may come into conflict with the strategy of promoting saving through restrictive meas ures to curb non-essential private consumption. Moreover, non-essential spending in the public sector must also be discouraged so that total national consumption may be kept within the required limits of the Plan. In addition, every conceivable step should be taken to encourage private saving as, for example, through establishing saving banks, offering high rates of interests to saving-depositors, inducing the household sector to purchase government securities issued for developmental projects, appealing to the nationalistic motives of the people, and so on. If all of these proposed measures do not fulfill the objective of increasing saving, then the only alternative left for the State is to resort to the method of forced saving by in creasing taxation and contributions to the insurance and social securities schemes, or even increasing the prices of commodities and services produced by the public sector. This method of forced saving would curb the consumption in the private sector as well as it would increase the funds available to the State which could be used to finance the developmental Plan. CHAPTER VII INDICATORS OP ACHIEVEMENTS In the previous chapters, the writer has examined the various aspects of developmental planning in the United Arab Republic regarding its organisation, administration, and basic strategies. This chapter is devoted to an exami nation and appraisal of the results achieved through such developmental planning efforts, particularly during the First Pive-Year Plan. The writer will analyse and critically evaluate the performance of the national economy, the attainment of goals and targets of the First Pive-Year Plain, and the developmental problems affecting the actual achievements. An investigation of the extent to which the four major economic problems, encountered in any economic system, have been properly solved will also be included in this chapter.1 1Por a description of these major economic problems and their relative importance, see Chapter II. 329 330 The analysis undertaken by the writer will be pri marily in quantitative terms, and will be based mainly upon official statistics, whenever such data are avail able.2 The main topics which will be discussed in this chapter are the following: (1) economic development; (2) equitable distribution of wealth and income; (3) labor employment; (4) price stability; and (5) efficiency. Economic Development This section deals with basic indicators of eco nomic development in the United Arab Republic, including the growth of real gross domestic production and gross national income, capital investment, the rise in the stand ard of living, and the development of foreign trade. 2 Prom among the various available statistical data, the writer used those data which do not seem to contain apparent contradictions, which complement each other in a consistent manner, and which are mostly given in con stant prices of 1959/1960, so that comparisons with the Plan's figures could be undertaken. Gross Domestic Production and National Income Rates of Growth During the partial planning period, real gross national income was estimated at about L.E.972 million in 1952/1953, and at about L.B.1277 million in 1959/1960.3 The increase in national income during the seven years of partial planning is equivalent to 31.4 per cent, or at an average annual rate of 4.5 per cent. During the comprehensive planning period, real gross domestic production (measured at constant prices of 1959/1960) increased from L.E.2547.9 million in 1959/1960, the base year of the First Five-Year Plan, to L.E.3474.1 million in 1964/1965, the last year of the Plan.* The in 3 Bent Hansen and Girgis A. Marzouk, Development and Economic Policy in the UAR (Egypt)(Amsterdam: North-Hblland Publishing Company, 1 9 6 5 ) , Table A.3, p. 320. It should be noted that these national income figures take into account the gains from the terms of trade changes and are estimated at constant prices of 1 9 5 3 / 1 9 5 4 , and hence, the figure for 1 9 5 9 / 1 9 6 0 differs from that given below which is estimated at 1 9 5 9 / 1 9 6 0 prices. *"Nasser Confident of Success of National Effort," Policy Speech by President Gamal Abdel Nasser at the In auguration of the Third Session of the National Assembly on November 25, 1965, The Egyptian Gazette, Cairo, November 26, 1965, p. 4. It should be noted that the official estimates for 332 crease in total output is equivalent to 36.4 per cent, or at an average annual rate of 7.3, a rate which is slower than the planned rate of 8.3. Total value added (real gross national income measured at constant prices of 1959/ 1960) increased from L.E.1285.2 million in 1959/1960 to L.B.1762.2 million in 1959/1960.5 The increase in total value added is equivalent to 37.1 per cent, or at an aver age annual rate of 7.4 per cent, which is less than the planned rate of 8 per cent. The development of real gross production and value added of various economic sectors during the first four years of the Plan, for which annual figures are available, are given in Tables XIII and XIV. A. closer examination of these estimates indicates a wide divergence between achievements and planned targets. The commodity-producing sectors have progressed at slower rates than those antici- pated in the Plan. The lag in growth is particularly gross production, as well as for almost all other variables for the base year 1959/1960, differ from those given in the General Frame of the First Five-Year Plan. However, since the magnitude of the differences between the revised figures and those of the Plan are rather minor, the re vised figures are used in the analysis undertaken in this chapter. SIbid. TABLE XIII ACTUAL VALUE OP GROSS DOMESTIC PRODUCTION DURING 1959/1960— 1963/1964 COMPARED WITH PLANNED TARGETS FOR 1964/1965 (At 1959/1960 Prices acid in Million L.E.) Sectors 1959/ 1960 1960/ 1961 1961/ 1962 1962/ 1963 1963/ 1964 Actual Planna (Planned) of . of Growth Growtl Agriculture 581.6 582.7 564.8 622.9 650.8 736.0 3.0 5.3 Industry 1,105.1 1,174.3 1,226.6 1,351.5 1,441.2 1,814.0 7.6 12.8 Construct ion 102.1 100.5 141.7 165.9 206.3 122.0 25.5 3.9 Totals of Com modity Sectors 1,788.8 1,857.5 1,933.1 2,140.3 2,298.3 2,672.0 7.1 9.9 Transportation and Com munications 135.5 146.5 160.3 172.0 191.0 164.0 10.2 4.2 Housing 76.0 77.5 79.4 81.1 82.3 88.0 2.1 3.2 Public Utilities 11.1 11.3 12.1 12.8 13.2 14.0 4.7 5.2 Finance and Trade 165.3 196.0 192.5 202.9 202.3 208.0 5.6 5.2 Other Services 371.2 396.7 399.8 470.8 504.9 455.0 9.0 4.5 Totals of Services Sectors 759.1 828.0 844.1 939.6 993.7 929.0 7.7 4.5 Grand Totals 2,547.9 2,685.5 2.777.2 3,079.9 3*292.0 3,601.0 7.3 8.3 *Rates of growth axe computed as annual averages of the percentage of increase of the fourth year of the Plan 1963/1964 (for the actual rates of growth), or of the planned targets of the fifth year 1964/1965 (for the planned rates of growth), over the base year 1959/1960. It should be noted that there axe slight differences among the figures for 1959/1960 included in this table and those included in Table II of this study. Sourest Central Agency for Public Mobilisation and Statistics, Statistical Hand- book, United Arab Republic, 1952-1964 (Cairo: Central Agency for Public Mobilization and Statistics, 1965), p. 174. to to TABLE XIV DEVELOPMENT OP ACTUAL VALUE ADDED DURING 1959/1960— 1963/1964 COMPARED WITH PLANNED TARGETS FOR 1964/1965 (At 1959/1960 Prices and in Million L.B.) Sectors Actual Planned 1959/ 1960/ 1961/ 1962/ 1963/ 1964/ Rates Rates 1960 1961 1962 1963 1964 1965 of of „ Agriculture Industry Construction Totals of Com modity Sectors 405.0 266.1 47.1 402.7 297.8 44.2 373.0 326.2 73.6 426.4 347.6 83.5 452.9 388.2 96.0 512.0 540.0 51.0 3.0 11.5 26.0 5.3 20.6 1.7 718.2 744.7 772.8 857.5 937.1 1,103.0 7.6 10.7 Transportation and Communications 92.9 102.2 116.9 127.1 144.0 117.0 13.8 5.2 Housing 73.0 73.8 76.2 77.6 78.7 84.0 2.0 3.0 Public Utilities 6.4 6.8 7.0 7.4 7.6 9.0 4.7 8.1 Finance and Trade 129.2 145.1 151.6 154.0 148.3 162.0 3.7 5.1 Other Services 265.5 290.9 286.6 308.3 332.1 320.0 6.3 4.1 Totals of Services Sectors 567.0 618.8 638.3 674.4 710.7 692.0 6.3 4.4 Grand Totals 1,285.2 1,363.5 1,411.1 1,531.9 1,647.8 1,795.0 7.1 8.0 ♦See footnote to Table XIII. Source: Central Agency for Public Mobilization and Statistics, Statistical Hand book, United Arab Republic, 1952-1964 (Cairo: Central Agency for Public Mobilization and Statistics, 1965), p. 169. u> w ■a 335 noticeable in agriculture and industry. However, the rapid expansion in the construction sector has partly compensated the slower-than-planned rates of growth in agriculture and industry. On the other hand actual growth in the service- producing sectors has been increasing at higher rates than those envisaged in the Plan. Within this category housing and public utilities sectors have been lagging in their growth, but this lag have been countervailed by the accel erated growth of other sectors, particularly transporta tion and communication, and "other services•" Evaluation Overall rates of growth.— If the overall rates of growth in real gross domestic production and national income are taken as valid indicators of achieved economic development, the performance of Egyptian economy should then be considered outstandingly successful. The average annual rates of increase of about 7.3 per cent during the Plain period appears to be spectacular when compared with the rates of growth in Egypt before the Revolution, or with the rates of growth in other developing countries. Between 1929 and 1939 the annual rate of increase in gross domestic 336 production and national income was about 1.5 per cent, while it did not exceed 2.5 per cent in the following decade.^ In other countries, the average rates of growth per annum during the period 1960-1965 have been 2 per cent in Argentina, 5.1 per cent in Brazil, 3.7 per cent in Chile, 4.2 per cent in Burma, 2.3 per cent in India, 5.7 per cent in Pakistan, 4.6 per cent in Nigeria, 2.6 per cent 7 in Uganda, and 3 per cent in Morroco. Compared with the targets set for the fifth year of the Plan, 96.5 per cent of the gross domestic produc tion target, and 98.2 per cent of the gross national income target have actually been realized. Such substantial attainment of planned targets should appear even more praiseworthy when the many shortcomings and difficulties encountered in general, and in the planning process in particular, are considered, and when taking into account the fact that it has been the first experience in compre hensive developmental planning in the country. ^Hansen and Marzouk, op. cit., p. 4. 7Statement by Bl-Sayed Zakaria Mohieddin (Vice- President, Premier, and Minister of Interior) Before the National Assembly, Cairo, December 4, 1965 (Cairo: The National Publication House, n.d.), pp. 27-28. 337 Howevex, the actual ovecall rates of gross domestic production and national income have fallen short of their targets by a small margin. Also, the foregoing analysis reveals deviations between actual achievements and planned targets in every sector of the economy. These deviations may be attributed to several factors and problems. Unrealistic planned targets.— Some of the targets set forth in the First Five-Year Plan may have been ambi tious and beyond the capacity of some sectors to achieve, while other targets may have been underestimated for other sectors• Deficiencies in setting the planned targets may be attributable to inadequate statistical data, or to inaccu rate calculations, or to lack of experience in planning by the planners. But, it should be recalled that production estimates were originally submitted to the Ministry of National Planning by various ministries and other organi zations, and that national and sectoral incomes were calcu lated accordingly.8 It is true that the system of balances National Planning Commission, General Frame of the 5-Year Plan for Rconomic and Social Development. July 1960- June 1965 (Cairot General Organization for Government Printing Offices, 1960), p. 40. 338 (in the national economic accounts) as an integral part of planning techniques, assures to a large extent, the con sistency of the estimates of production and income for all sectors of the economy. Nevertheless, if some of the orig inal statistical data concerning production and income are not accurately estimated, then this inaccuracy is reflected in the estimates of various sectors, as well as for the whole economy. Institutional changes and Plan rigidity.— The institutional changes which have been taking place since July 1961 have, undoubtedly, affected some of the basic assumptions upon which the First Five-Year Plan has orig inally been formulated. Since flexibility in setting up an economic plan is one of the basic requirements for its success, planners should have been in a position to alter the original Plan according to any significant new infor mation they have acquired, and according to changing situations, so that available means wbuld have been adapted to achieve planned targets. However, it has not always been feasible to ”• • • modify the plan continuously in 339 o order to catch up with revolutionary transformation* • • • n Unbalanced growth.— The strategy of balanced growth on which the First Five-Tear Plan was based, has not been followed. Unbalanced growth can be detected when comparing the accelerated rates of growth of total outputs and incomes of the service-producing sectors with the slower rates of the commodity-producing sectors. Among the main reasons for such a deviation from the Plan have been that of allocating resources to service-producing sectors which, otherwise, would have been directed to commodity-producing sectors and particularly to industry. The change which has been taking place in the pattern of resource allocation has been induced by humanitarian and social considerations explained below. Also, the planned strategy of developing the indus trial sector and expanding the agricultural sector simul taneously has not been realised in actuality. The lag in the rates of growth of industry can be explained, at least in part, by the reason mentioned above. Other factors have also affected industrial production and income, and 9 Statement by El-Sayed Zakaria Mohieddin, od. cit.. p. 28. ----- 340 they are included in this whole section. Notwithstanding that great accomplishments have been achieved in the agricultural sector, such as reclaim ing 522,000 feddans,10 agricultural output and income have been growing at a much slower pace than in industry and than that envisaged in the Plan. It is true that pests and climatic conditions which constitute what is termed "circumstances beyond control," have caused a drop in agri cultural production in the second year of the Plan.** This, in turn, has contributed to the reduction in the average annual rate of increase in this sector's produc tion to 3 per cent instead of the planned 5.3 per cent. ^"Address by President Gamal Abdel Nasser at the Great Popular Rally at Gumhuria Square on the Occasion of the Celebrations of the Thirteenth Anniversary of the Revolution, July 22, 1965,” Speeches by President Gamal Abdel Nasser on the Occasion of the Thirteenth Anniversary of the Revolution (Cairo* Information Department, 1965), p. 2 1. **MA1-Nass A1-Kamel Li-Bayan Bl-Kaisouny An Bi- Mi zani eh Al-Gadidah Amam Maglis Bl-0mmah,M (The Complete Statement of Bl-Kaisouny About the New Budget Before the National Assembly)• A Statement about the Draft Budget for 1965/1966 presented by Dr. Abdel Moneim Bl-Kaissouny, Deputy Prime Minister for Financial and Bconomic Affairs before the National Assembly on May 22, 1965, Al-Ahram, Cairo, May 23, 1965, p. 4. 341 However, it seems developmental efforts in expanding the agricultural sector have been less than that indicated in the Plan. This is apparent from a comparison of total actual investments in agriculture of L.B.118.4 million, with that of planned investment of L.E.225.3 million for 12 the five years of the Plan. In addition, the lag in agricultural production and income has also been attributed to its disorganized structure where coordination of activ ities of millions of farmers constitutes a serious prob- 13 lem. Moreover, there was a shortage of financial re sources and technical manpower capable of solving this sector's problems and of introducing better cultivation methods and techniques to the farmers.14 Inadequate coordination and bottlenecks.— Among the causes which may have contributed to the deviation of actual production and income from their targets seems to 13See Table XV of this study. 13"Ali Sabry Yatakalam An Al-Khettah Allati Intahat W'allati S&t&bda1," (Ali Sabry Talks About the Old and the New Plans). A press interview with Ali Sabry (former) Premier and Minister of Planning, written by Ali Hamdi Rl- Gammal, Al-Ahram. Cairo, March 7, 1965, p. 3. 14Ibid. 342 be that of inadequate integration and proper coordination of the production activities of the various sectors of the economy in executing the Plan. Furthermore, some sectors encountered various difficulties and obstacles that ham pered their progress, and affected the growth of other sectors. On the other hand, other sectors, which encoun tered no such difficulties, progressed rapidly.^ Among the major bottlenecks met by some sectors are inadequate transportation, shortage of technical effi cient manpower capable of operating the newly created pro ductive capacities, and inavailability of inported spare parts and intermediary goods because of shortage of foreign exchange. Problems of inefficiency.— Several problems of inefficiency have arisen during the formulation and inple- mentation of the First Five-Year Plain, and have, undoubt edly, affected the end results. A more detailed analysis 15Ibid. 16,,Matha Dar Fi-Nadwet Kharigy Al-Ma’had Al-Quawmy Lel-Idarah Hawl Ihtram Al-Ta'kodat(Graduates of the Man agement Institute Discuss Aspects of Honoring the Con tracts ), Al-Ahram Al-Iqtisadi. Cairo, No. 251, February 1, 1966, pp. 26-27. 343 of some major aspects of efficiency in resource alloca tion, as well as administrative and managerial efficiency is included below in this chapter. Capital Investment Rates of Growth Realized total real gross capital investments dur ing the First Five-Year Plan have increased from L.B.171.4 million in the base year 1959/1960, to L.E.225.6 million in 1960/1961, to L.B.251.1 million in 1961/1962, to L.E.229.6 million in 1962/1963, to L.B.372.4 million in 1963/1964,17 and to L.E.364.3 million in 1964/1965.18 Thus, investments have increased by 112.5 per cent between the base year and the final year of the Plan, at an average annual increase of 22.5 per cent. Although investments have been rapidly growing, their annual rate of increase varied significantly from one year to the other. Compared with the planned targets, Table XV indi cates that 89.2 of total planned investment have actually 17, , A1-Nass Al-Kamel Li-Bayan Bl-Kaissouny . . . ," 0£2_cit., p. 3. 18 See footnote to Table XV for method of derivation of the 1964/1965 investment figures. TABLE XV SECTORAL DISTRIBUTION OF ACTUAL GROSS INVESTMENTS DURING 1959/1960— 1964/1965 COMPARED WITH TOTAL PLANNED TARGETS (At 1959/1960 Prices and in Million L.E.) Sectors Base Tear 1959/ 1960 Fifth Year 1964/ 1965* Actual Total Invest ments 1960/61- 1963/64 Actual Total Invest ments 1960/61- 1964/65 Planned Total Invest ments 1960/61- 1964/65 Percent ages of Realized Invest ments Percentages of Distribution \ Agriculture 16.7 32.5 85.9 118.4 225.3 52.6 7.8 13.3 Irrigation and Drainage 8.6 37.9 100.1 138.0 119.4 115.6 9.1 7.0 The High Dam 4.2 18.6 80.0 98.6 47.3 208.5 6.5 2.8 Industry 49.3 99.9 304.0 403.9 439.2 92.0 26.7 25.9 Electricity 6.2 53.2 59.4 112.6 139.5 80.7 7.4 8.2 Transportation, Commu nication, and Storage 35.8 45.9 224.9 270.8 236.8 114.4 18.0 14.0 The Suez Canal 3.4 20.0 23.4 35.0 66.9 1.6 2.1 Housing 31.1 29.6 131.9 161.5 174.6 92.5 10.7 10.3 Public Utilities 7.5 10.9 39.6 50.5 48.8 103.5 3.3 2.9 Other Services 12.0 32.4 102.9 135.3 111.0 121.9 8.9 6.5 Changes in Stocks — — ~ — 120.0 — — 7.0 Totals 171.4 364.3 1,148.7 1,513.0 1,696.9 89.2 100.0 100.0 The figures of sectoral investments in the fifth year of the Plan are computed by deducting actual total investments during the whole five years of the Plan (as given in President Nasser's Speech), from total realized investments during the first four years of the Plan (as given in Dr. El-Kaissouny's Statement). Source: "The Complete Statement of Rl-Kaissouny before the National Assembly,1 1 in Arabic, Al-Ahxam, Cairo, May 23, 1965, p. 3, and "Nasser Confident of Success of National Effort,1 1 m e Egyptian Gazette, Cairo, Nov. 26, 1965, p. 3, and Table I of this study. w 3 4 5 been implemented. Nevertheless, wide deviations in rea lised investment in each sector can be clearly observed; while 208.5 per cent of planned investments for the High Dam have been carried out, only 52.6 per cent of planned investments for agriculture have been implemented. Conse quently, the distribution of realised investment among the 19 various sectors has deviated from the Plan. Evaluation The large sise of the realised investment pro gram.— The Plan called for a large and ambitious investment program, of which about 90 per cent has been successfully achieved. Although capital formation has been expanding at an accelerated rate, the annual rate of investment growth has not been sustained at a uniformly high rate throughout the Plan period. Nevertheless, an average 19 It should be noted that these comparisons are slightly distorted, because the item "increase in stocks" which is shown separately in the investment program in the Plan, and which amounts to 7 per cent of totals planned investments, is not accounted for in Dr. Abdel Moneim Bl- Kaissouny's Statement, loc. cit. However, it seems reason able to assume that the increase in stocks is distributed among the various sectors, and hence, does not appear as a separate item in the afore-mentioned statement. If so, the conclusions derived from the present analysis is not in validated. 346 annual rate of increase of 22.5 per cent per annum has been adequate enough to realise 98.2 per cent of the national income*s largest by the end of period of the Plan. Relating total gross investment to gross national income during the whole five years of the Plan shows the magnitude of the developmental effort. Average propensity to invest has amounted to 19.6 per cent, and marginal pro pensity to invest has amounted to 40.4 per cent. The public sector, which has been shouldering the responsibility of enlarging the productive capacity of the country since the advent of the Revolution, continued the same policy on a larger scale during the Plan period. Its share of total annual investments has been rising steadily from 82.6 per cent in 1961/1962, to 90.3 per cent in 1962/ 1963, and to 93.7 per cent in 1963/1964.20 Inoptimality of the investment program.--The in vestment program included in the First Five-Year Plain can not claim a high degree of optimality. The writer has already observed several factors which affected the formu- 20, , Bgypt*s Economic Growth 1952-63--An Appraisal," National Bank of Bgypt, Economic Bulletin, Vol. XVII, No. 1, Cairo, 1964, p. 39. lation of the program such as inadequate appraisal and 21 cooxdination of investment proposals* Further comments will be given below when dealing with the efficiency prob lem. However, the actual implementation of the invest ment program shows that the overall incremental capital- output ratio has amounted to 3.2, which is about the same ratio (3.3) implied in the Plan.22 This indicates the realistic assumption on which the investment program, as a whole, was set. Deviation from planned investment allocation.--The lag in full attainment of planned total investment targets and the deviations in sectoral investment allocation may be attributable to several factors including the following: 1. Investible funds, and particularly foreign exchange have been insufficient to finance all of the investment program. Foreign loans which has amounted to 21See Chapter IV. 22 The overall incremental capital-output ratio is computed as a ratio of the value of total gross investments during the five years of the Plan to the increase in value added between the final year of the Plan and its base year. 348 L.B.417 million during the Plan period,23 have partly financed capital formation but have also been used to im port consumer goods. Exports have not been expanding at the same rate as imports, and as a result, shortage in foreign exchange earnings ensued. 2. Coordination among the investment projects within every sector as well as among the various sectors of the economy have been inadequate. Also bottlenecks which have appeared in transportation and communications, and constructions sectors, have obstructed the execution of investment projects in some instances.2^ 3. Shortage of technical and managerial and administrative talents to implement the investment projects at the prescribed scale has adversely affected the program. 4. Special difficulties that may have arisen due to pioneering investment efforts in new areas where expe riences were lacking may have been among the causes of the afore-mentioned deviation. 5. Sectoral investment allocation have not been 23 "Nasser Confident of Success . • . ," op. cit., p. 5. 24 Statement by Bl-Sayed Zakaria Mohieddin. op. cit. p. 46. 349 undertaken according the Plan. Service-producing sectors have absorbed investment funds at the expense of commodity- producing sectors (particularly industry and agriculture). This deviation from the Plan seems to have been prompted by humanitarian and social considerations. The long depriva tion of a large segment of the population of basic services in education, health, and transportation, has been the 25 determining factor in pursuing this line of policy. It should be noted that in the General Frame of the Plan, it was pointed out that devoting more of the coun try's limited resources to services than is compatible with the growth of commodity-producing sectors "... might im pede rather than stimulate economic development."2® Raising the Standard of Living Per Capita Income The main objective of the Plan is to spread "... welfare and prosperity among the people."27 "As a first 25"Ali Sabry Yatakalam An Al-Khettah . . . ," loc. cit. 2®National Planning Commission, op. cit.. p. 10. 27Ibid., p. 13. 350 approximation . . •," real per capita income is the index commonly used to measure individual economic welfare The estimates of the average annual per capita income in the United Arab Republic show that it has been steadily rising from L.B.37*1 in 1952/1953 to L.B.50.2 in 1959/1960,29 and to L.B.58.8 in 1963/1964.30 The rise during the first four years of the Plan period is equiva lent to 17.1 per cent, or to an average of 4.3 per cent per annum, which coincides with the rate implied in the 31 Plan. Hence, it can be concluded that raising the rate of per capita income has been successfully achieved. The fact that the rise in per capita income has 28 Bernard Okun and Richard W. Richardson (eds.), Studies in Rconomic Development (New York: Holt, Rinehart, and Winston, 1962), p. 232. 29 United Arab Republic, Department of Statistics and Census, Ten Years of Revolution; Statistical Atlas, 23 July 1952— 23 July 1962 (Cairo: Socidtcf Orientals de Pub licity, n.d.), Table 10. 30This figure is computed by the Ministry of Na tional Planning, and is included in "National Income Esti mates I960," Central Bank of Egypt, Economic Review. Vol. IV, Nos. 3 and 4, Cairo, 1964, p. 287. 31The Plan's estimates show that the average in come of the average family of five persons would increase from L.B.250 in 1959/1960 to L.B.313 in 1964/1965. Na tional Planning Commission, op. cit.. p. 12. 351 been much less than that of gross national income is ob viously due to the accelerated rate of population growth which has risen from 2.2 per cent per annum in 1959 to 2.5 per cent in I960.32 Pinal Consumption Rates of growth.— Estimates of total final consump tion of goods and services at constant prices of 1959/1960 during the First Five-Year Plan, show an increase from L.E.1088.7 million in the base year 1959/1960 to L.E.1368.4 million in 1963/1964.33 This increase of L.E.279.7 mil lion, which is equivalent to 25.7 per cent, or an average 32United Arab Republic, Statistical Handbook of the United Arab Republic, 1952-1964 (Cairo: Central Agency for Public Mobilization and Statistics, 1965), p. 11. 33"Takrir Lagnet El-Khettah W'el-Mizanieh An Rl- Seyasah Al-Malieh W'al-Iqtisadieh Lel-Mizanieh Al-Gadidah," (Report of the National Assembly's Planning and Budget Committee on the New Budget), in Arabic, Al-Akbar, Cairo, June 20, 1965, p. 11. Estimates for actual consumption for 1964/1965 at constant 1959/1960 prices are not available. Also the breakdown of total final consumption in its major compo nents has not been published. Hence, detailed comparisons with the figures of the Plan cannot be undertaken in the present study. 352 annual rate of 6.4 per cent is much higher than the orig- 34 inally planned rate of increase of 4.0 per cent. As a result, the planned target for the final year of the Plan at L.B.1308.4 million have been surpassed by the end of the fourth year. Consumption per capita may be used as an indicator of improved living standard resulting from the increase in 35 the flow of goods and services to consumers. Average consumption per capita has risen from L.B.42.4 in 1959/1960 to 48.2, as compared with the planned figure of L.E.45.6 36 for 1964/1965. This rise is equivalent to an actual average rate of increase of 3.4 per cent, while the Plain implies an annual rise of 1.5 per cent only. 34The revised figures for the Plan's base year are used to compute the rates of increases in consumption. 35 Okun and Richardson, op. cit., p. 233. 36 Average consumption per capita is computed as a ratio of total value of consumption to the total number of population. The population estimates for 1959/1960 and 1963/1964 are averages of two consecutive calendar years which are given by the Central Agency for Public Mobiliza tion and Statistics, loc. cit. The estimates are: 25.3 million for 1959, 26.0 for 1960, 28.0 million for 1963, and 28.7 million for 1964. The projected estimate for 1964/ 1965 is given at 28.7 million in the Plan, National Plan ning Commission, op. cit., p. 12. 353 Pxevious mention was made by this writes to the inadequacy of nutrition level, whereby per capita calory measures of food intake was estimated at 2,315 in 1952/ 1953, with heavy dependence on cerea.ls and low protein elements.37 By 1961/1962, it has risen to 2,611 calo ries.38 The above analysis indicates clearly a definite and rapid rise in the living standard of the population. The rise in consumption has been at a higher rate for private consumption than for public consumption. Private consump tion has increased from L.E.990.0 million in 1959/1960 in 1959/1960 to L.E.1246.0 million in 1963/1964,39 at an aver age annual rate of 6.5 per cent, while public consumption increased from L.B.98.7 million in 1959/1960 to L.E.122.4 37See Chapter III. 38United Arab Republic, The Revolution in Thirteen Years, 1952-1965 (Cairo: Information Department, 1965), p. 44. 3^MTafassil Mashrou' El-Mizanieh Al-Gadidah," (De tails of the New Draft Budget), a Financial Statement about the Draft Budget for 1965/1966, presented by Dr. Nazih A. Deif, Minister of Treasury, to the National Assembly on May 23, 1965, Al-Ahram, Cairo, May 24, 1965, p. 3. 3 5 4 million in 1963/1964,40 at an average annual rate of 5.9 per cent. Not only the rates of growth in total and per capita consumption have been beyond the Plan's anticipa tions, but also the actual propensities to consume have deviated from those implied in the Plan. Average propens ity to consume have fallen from 84.7 per cent in 1959/1960 to 83.0 per cent in 1963/1964, while the Plan implies a decline to 72.9 per cent by 1964/1965. Also, the marginal propensity to consume during the first four years of the Plan is estimated 77.1 per cent which is significantly higher than that of 43.1 per cent implied in the Plan for the whole five years' period. Evaluation.— The increase in the levels of con sumption not only improves the material well-being of the population, but also contributes to economic development through ameliorating labor productivity when the worker is better fed. However, improved living standards will be thwarted, in the long run, if the rise in consumption is Public consumption is computed as a residual after deducting private consumption from total consump tion. 3 5 5 not accompanied by an adequate increase in domestic saving to finance capital formation needed for economic develop ment. The above analysis indicates the existence of such potential danger. In fact, actual domestic saving out of 41 national income has remained at about 13-15 per cent, and thus, the planned increase to 23.5 per cent by the end 42 of the Plan period has not been realized. Hence, the country has apparently relied more heavily on borrowing from abroad to finance economic development. Furthermore, consumer demand for some necessary commodities has far exceeded local production and the coun try had to resort to imports at an accelerated rate. For example, no wheat was imported in 1954, but by 1964/1965, the sum of L.E.69 million was allocated to import wheat, flour and corn.4^ The opportunity cost is undoubtedly 4^"Bayan El-Sayed Zakaria Mohieddin fi Iftitah Mo' tamar Al-Intag," (Statement of Mr. Zakaria Mohieddin at the Opening Session of the Production Conference), Bernameg Bl-Amal Bl-Tanfizy Lel-Marhala Al-Gadidah, Supplement to Al-Ahram, Cairo, December 15, 1965, p. 19. 42See Chapter VI, for planned increase in saving. 43United Arab Republic, The Year Book 1965 (Cairo; Information Department, 1965), p. 80. 356 high since the sc&xce foreign exchange needed to finance capital formation have been partly absorbed by imported consumer goods, and partly reduced through consuming locally potential exportable commodities. The actual sharp rise in consumption has been attributed to the following factors: (1) the redistribu tion of national income; (2) the large increase in labor employment; (3) the raise in wage rates; (4) the workers* profit sharing scheme; (5) the increase of farmers* income due to the rise in productivity, and the rise in the prices of basic agricultural products, the reduction of prices in antisecticides, and the granting of agricultural loans at no interest; (6) the large increase in public expendi- 44 tures. Moreover, the rise in consumer demand has not always been reflected in price increases. The Government fixes prices of essential commodities below cost and im port prices, and subsidises the producer and the im- 44 **A1-Nass A1 -Kamel Li-Bayan Bl-Kaissouny ..•,'* op. cit., p. 4. 357 porter .45 The cost to the Government for thus reducing the cost of living has increased from L.B.8.9 million in 1959/ 1960 to L.B.36.5 million in 1962/1963.46 It should also be noted that the divergence between planned and realised consumption may be attributable to inaccurate estimation of planned consumption targets. It seems that "planners have relegated consumer demand to a secondary place in their calculations . • ."4^ in fact, consumption estimates in the Plan were based on crude and limited statistical data. At the time of Plan formulation, the results of the first sample survey on family budget 48 have not yet been published. Also, the actual rate of Ali Sabry, (former) Premier and Minister of Plan ning, Statement on Government Policy Addressed to the National Assembly on the 6th of April 1964 (Cairo: Infor mation Department, n.d.), p. 32. 46 United Arab Republic, The Year Book 1965, op. cit., pp. 83-84. 4^P. K. O'Brien, "An Bconomic Appraisal of the Bgyptian Revolution," The Journal of Development Studies, Vol. I, No. 1, London, October 1964, p. 109. 48This sample survey was undertaken by the Depart ment of Statistics and Census in 1958/1959 and covered 6,373 households in urban and rural areas. United Arab Republic, Department of Statistics and Census, Statistical Pocket Year Book, 1952-1962 (Cairo: General Organization for Government Printing Offices, 1963), pp. 102-103. An analysis of the findings of this survey was 358 population growth of 2.5 during the Plan period have ex ceeded the expected rate of 2.3 on which planned consump- 40 tion may have been implicitly based. 7 Furthermore, the planners have not anticipated the July 1961 Laws which have had significant impact on the pattern of income distribu tion. A greater shift in income distribution have been affected towards low income groups who have a relatively high marginal propensity to consume. Consequently total final consumption exceeded the Plan targets. Social and Welfare Services Expansion of social and welfare services and im provements in their quality constitute an essential ele ment in raising the living standard of the population. They also contribute towards achieving another major objec tive in the United Arab Republic, namely that of an equi- undertaken later. See Medany D. Moustapha and Moharam W. Mahmoud, "Analytical Study of the Relationship between Consumption Expenditure on Different Groups of Commodities and Total Annual Consumption for the Household Sector, Urban and Rural Regions," The Institute of National Plan ning, Memo. No. 497, Cairo, October 1964. 49 The expected rate of population growth is com puted from the population estimates given in the Plan at 25.7 million for 1959/1960 and at 28.7 million for 1964/ 1965. National Planning Commission, loc, cit. table distribution of income and wealth. Education,--In all its stages, education is now freely provided for all citizens. As a result of this policy, the number of students enrolled in public schools increased from 1,8 million students in 1952/1953 to about 4 million students in 1963/1964, and 1,413 new schools were built during this period. Also, university students rose from 54,000 in 1953/1954 to 117,000 students in 1963/1964. Furthermore, the number of higher institutes and vocational training centers increased from nine to thirty-seven during the same period.^® These statistics show clearly that the educational policy pursued, has increased the opportunity for raising the living of standard for more individuals through acquir ing whatever level of education they desire. Expansion and improvement in technical educational facilities, is necessary for carrying out developmental efforts. But expansion in education on such a large scale as that under taken in the United Arab Republic, and particularly in such fields as social sciences and humanities where the S0UAR, The Year Book 1965, op. cit., pp. 155-161 360 demand for graduates is far less than the supply, would result in unemployment• However, the commitment of the Government to provide all graduates with equal employment opportunities, resulted in overstaffing of public enter prises and administration. This increase in employment beyond what is needed and beyond what the Plan has called for, would have adverse effects on labor productivity and economic growth. Welfare and health services.--The Government has expanded its welfare services in many directions. It has established over 530 social units. In the rural areas, each of these units provide agricultural training, rural industrial improvement facilities, medical care, medicine free of charge, and citizenship training for about 15,000 persons. Similar units have been set up in the capitals of the governorates, and eighty-five units have been set up to provide such services as nursing children and train ing in home economics for about 2.6 million persons. 5 Ibid., pp. 220-221, and United Arab Republic, Statistical Handbook of the United Arab Republic, 1952- 1964, op. cit., pp. 115-116. 361 Over 600 mother and child welfare centers have been established to provide welfare services for expectant mothers and children including medical treatment, innocu- lation against diseases, free medicine, food and clothes for the low income groups. The health policy pursued by the Government aims at extending health services to rural areas, raising the standard of treatment services, providing medicine and training of doctors and nurses. In 1952/1953, only L.E.6 million were appropriated in the state budget for health services, which was in creased to L.B.14.4 million in 1959/1960, and L.E.44.3 mil- S3 lion in 1964/1965. The number of health units increased from 289 units in 1952/1953 to 1,130 units in 1963/1964. Increasing health services have improved the gen eral health standards and thus contributed to economic United Arab Republic, The Year Book I960, and The Year Book 1963 (Cairo: Information Department, n.d.), p. 491 and p. 181. 53UAR, The Year Book 1960 and The Year Book 1965, op. cit., p. 86 and p. 70. 54UAR, The Revolution in Thirteen Years, 1952-1965, op. cit., p. 111. 362 development through affecting the performance of a more healthy and able manpower. On the other hand, improvement in health conditions has aggravated the population problem through reducing the rate of mortality, while the birth rate increased. Social insurance.--The social insurance schemes cover civil servants and workers in public and private enterprises who are estimated at two million supporting about six million people. The civil servants contributes 10 per cent of their basic wages and salaries and the Treasury contributes 12.5 per cent to a special fund.^ The coverage of the insurance schemes for workers in public and private enterprises have been gradually extended, and by 1964 the schemes covered insurance against old age and death, labor accident, health, and unemploy ment. Presently the contribution of employers is 23 per cent of wage payments, 10 per cent by the workers, and 55uah, The Year Book 1960, op. cit., pp. 475-477, and “Pension--Civiles.--Fonctionnaires et travailleurs de lf6tat et des Organismes publics. Refonte de la legisla tion. Loi n.50 du 28 avril 1963," La Gasette Fiscale. Commerciale et Industrielle, Alexandria, Mars— Avril-Mai 1963, Vol. XV, p. 28. 56 1 per cent by the Treasury* The various social security schemes implemented by the Government, has provided psychological stability to the workers, which in turn should contribute towards increasing their productivity. These schemes have also proven to be effective in mobilizing private and public saving and channelling them into desired investment according to the Development Plan. Development of Foreign Trade In this section the writer will trace the develop ment of foreign trade in relation to economic development 57 and in comparison with the First Five-Year Plan. Imports The total value of imports of goods has increased "El Tashri*," (Legislation), Central Bank of Egypt, Bl-Megallah Bl-Iqtisadieh, Vol. IV, No. 1, Cairo, 1964, p. 90. 57 It should be noted that all figures of actual development of foreign trade are estimated at current mar ket prices, while the planned figures for 1964/1965 are given in the General Frame of the Plan at constant prices of 1959/1960. Hence, any comparison between actual and planned foreign trade estimates is distorted to the extent of actual variations in prices of exports and imports. 364 from L.B.180 million in 1953, to L.B.225.9 million in 1959/ 1960, and to L.B.400.8 million in 1964/1965, thus surpass ing the planned target of L.B.214.9 million for the final year of the Plan.58 The actual increase in imports for the fifth year over the base year of the Plan is equivalent to 77. 4 per cent or at an average annual rate of 15,5 per cent, while the Plan called for a decrease of 4.8 per cent for the whole period, at an average rate of about 1.0 per cent per annum.^ The continuous rising trend of actual development of imports, which has reached a peak of L.E.418.7 million in 1963/1964,60 has not been in conform ity with its planned development. However, relating imports to national income and examining the changes in the structure of imports, indicate heavy reliance of the process of economic development on 58UAR, Statistical Handbook of the United Arab Re public, 1952-1964, op. cit., p. 186j "Bl-Nass Al-Kamel Li-Bayan El-Kaissouny • . . ," loc. cit.j Statement by Bl- Sayed Zakaria Mohieddin, op. cit., p. 41, and Table XI of this study. 5^The percentage of imports' increase is computed using the actual figures for 1959/1960 given in Dr. Abdel Moneim El-Kaissouny1s Statement. 60Statement by Bl-Sayed Zakaria Mohieddin, loc. cit. 365 imposts. The ratio of imports to national income (average propensity to import) has increased from 17.6 per cent in 1959/1960 to 24.4 per cent in 1963/1964,^* which is about twice the ratio implied in the Plain for the final year. During the first four years of the Plan, imports of capital goods for investment has risen by 108 per cent (from L.E.58.3 million in 1959/1960 to L.B.121.2 million in 1963/1964), imports of intermediate goods has risen by 52 per cent (from 101.2 million in 1959/1960 to L.B.153.9 million in 1963/1964) and imports of consumer goods, including foodstuffs, has risen by 117 per cent (from L.B.66.4 million to L.B.143.6 million in 1963/1964).62 Comparing the actual structure of inports in 1963/ 1964 with those in the base year and the final year of the 63 Plan, shows clearly that imports of consumer goods have developed at the expense of importing other items needed for industrialization. Consumer goods which represented Gross national income is estimated at current market price at L.B.1718 million for 1963/1964. "Bl-Nass A1-Kamel Li-Bayan El-Kaissouny . . . ," op. cit.. p. 3. 62Ibid.. p. 4. ^2See Table XI of this study 366 14.6 per cent of total imports in 1959/1960, increased to 34.3 per cent in 1963/1964, while the Plan anticipated a decrease to 13.8 per cent in 1964/1965. On the other hand intermediate goods and investment goods which represented 51.7 and 33.7 per cent respectively of total imports in 1959/1960 decreased to 36.8 per cent and 28.9 per cent in 1963/1964 as compared with planned 43.1 per cent for each category for 1964/1965. This significant increase in con sumer goods1 imports have obviously been required to meet the rapid increase in consumer demand (arising from the rapid population growth and the rise in their purchasing power) which have not been satisfied through domestic pro duction. Exports The value of exports has risen from L.E.142.6 mil lion in 1953, to L.E.189.9 million in 1959/1960, and to L.E.265.2 million in 1964/1965 which is higher than the planned target of L.E.229.3 million for the final year.^ \)AR, Statistical Handbook of the United Arab Re public, 1952-1964, loc cit.; "Bl-Nass A1-Kamel Li-Bayan El-Kaissouny • • • loc. cit.i Statement by El-Sayed Zakaria Mohieddin, loc. cit., and Table X of this study. 367 The actual increase of exports in the fifth year ovez the base year of the Plan is equivalent to 39*7 per cent, or at an average of 7.9 per cent per annum, which is higher than the percentage of annual increase of 4.1 per cent called for in the Plan. Nevertheless, the rate of increase in exports has not kept pace with that of imports. Also, the average propensity to export has decreased from 14.8 per cent in 1959/1960 to 13.9 per cent in 1963/1964.65 Furthermore, there has been heavy fluctuations in exports from year to year due to crop failures and price instability of raw materials. The United Arab Republic is still largely dependent on exporting raw cotton, although the actual tendency in exports have been towards lesser dependence on raw cotton, which conforms to the strategy implied in the Plan. By 1964, cotton exports represented 49.7 per cent of total exports,66 a share which has been even less than AC The average propensity to export is computed using the exports' estimate of L.B.238.2 million given in the Statement by Bl-Sayed Zakaria Mohieddin, loc. cit. 66Federation of Industries in the United Arab Re public, Year Book 1965 (Cairoi Society Orientals de Pub licity, n.d.), Statistical Section, Table VII-2, p. 28. 368 that expected to be achieved by the end of the Plan period (54.2 per cent).^ The decline in the relative importance of cotton is partly due to the increase in its local use for manu facturing yarn and textile for domestic consumption and for exports. However, the crop failure in 1961 has un doubtedly caused drastic reductions in cotton exports in particular and in exports as a whole, in 1961 and 1962, and which have not been adequately compensated by export- 60 ing other items. In addition, the actual increase in consumption has apparently absorbed a part of other domes tic products which could have otherwise been exported. Also, necessary international marketing studies, do not seem to have been undertaken. Such studies are needed to determine the scope of demand for Bgyptian products in potential and existing foreign market. Balance of Trade and of Payments The rise of imports at a rate much higher than ex- ^See Table X of this study. ®®Hansen and Marzouk, op. cit., p. 181. 69 For the development of cotton exports, see Feder ation of Industries in the UAR, loc. cit. 369 ports has resulted in a continuously increasing adverse trade balances The deficit which has been L.B.36 million in 1959/1960 reached L.E.135.6 million in 1964/1965, in stead of being turned into a surplus of L.B.14.4 million according to the Plan. The increase in the actual deficit represents 276.7 per cent. The trend of growing deficits has also been a 70 salient feature of the Egyptian balance of payments. The proceeds from exports has been insufficient to pay for an expanding volume of imports. The Suez Canal dues, which is a major invisible item, although increasing (from L.B.29.3 million in 1956 to L.E.71.1 million in 1962),71 has not greatly reduced the deficit in current transactions. The deficit increased from L.B.15.5 million in 1960/1961 to L.B.75.9 million in 1964/1965.72 This deficit has largely 70Por a comprehensive account of the method of elaboration, structure, and development of the Egyptian balance of payments from 1947 to 1962, see Michael Makram Azer, "Mizan Madfou'at El-Gamhourieh Al-Arabieh Al-Motahe- dah," (The Balance of Payments of the United Arab Repub lic), L*Bgypte Contemporaine, No. 320, Le Caire, Avril, 1965, pp. 57-91. 71 See National Bank of Egypt, Economic Bulletin, Vol. XVIII, No. 3, Cairo, 1965, Tables 4/la, 4/2a, and 4/3a, Statistical Section. 72 Statement by Bl-Sayed Zakara Mohieddin, loc. cit. 370 been financed by inflows of capital remittances, (in par ticular United States counterpart funds related to Public Law 480 as from 1959, and the International Bank for Recon struction and Development* s loan to Sues Canal Authority) which increased from L.B.0.7 million in 1952 to L.E.19.3 million in 1959, and to L.E.187.1 million in 1963, and also by the fall in foreign exchange and gold holdings. The overall deficit has increased from L.E.24.6 million in 1959 to L.E.32.5 million in 1963.74 Foreign borrowing to finance economic development has been a common phenomenon encountered by most develop ing countries in their early stages of development. How ever, the beneficial effects of foreign development loans are limited by the capacity of a developing country to properly service its debts. Excessive foreign borrowing constitutes a heavy burden on the balance of payment, "• . • especially if the country's external markets are tin- stable. 73National Bank of Egypt, op. cit.. Table 4/2c. Statistical Section. 74Ibid., Table 4/la, Statistical Section. 75(jnited Nations, Methods of Financing Economic Development in Under-Developed Countries, (49.II.B.4) (New Yorkt United Nations, 1949), p. 99. 371 Equitable Distribution of Wealth and Income Achieving an equitable distribution in wealth and income is a prime stated social objective in the United Arab Republic.76 The Revolutionary Government has under taken several radical policy measures in order to attain this goal through reducing the large gap in wealth and income distribution which characterised the country before 1952, and through increasing equality of opportunity. Since statistical data about the structure of wealth and income distribution are not available, it is impossible to determine quantitatively and precisely the extent to which the various policy measures taken to achieve this social goal, have been effective. However, there is every indication that inequality in wealth and income distribution has been greatly reduced and that equality of opportunity has been substantially achieved. Redistribution of Agricultural Land The enactment of the first and the second Agrarian 76See Chapter IV, for a delineation of this objec tive. 372 Reform Laws were among the major steps undertaken towards 77 securing a more equal distribution of wealth and income. As already mentioned, the first Agrarian Reform Law of 1952 set a maximum limit of individual landownership at 200 fed- dans which was later reduced in 1961 to 100 feddan. The land in excess of these limits were either sold or dis tributed by the Government to landless peasants. It is estimated that by 1964, 944,453 feddans were taken over by the Government, of which 646,775 feddans were already dis tributed among 263,862 families comprising about 1.3 mil lion persons.78 The rest of the expropriated land which has not yet been distributed consists largely of unculti vated land under reclamation, and of land subject to judi cial disputes.79 Changes in the Structure of Land Ownership In Table XVI, a comparison is made between the dis tribution of land ownership in 1952, before the issuance 77See Chapter IV, for an outline of the Agrarian Reform Laws. 780AR, The Year Book, 1965. op. cit., pp. 141-142. 79Ibid. 373 TABLE XVI DISTRIBUTION OF LAND OWNERSHIP IN 1952 AND 1964 Size Number of Owners Area Owned 000 % 000 % 1952: Less than 5 Feddans 2,642 94.3 2,122 35.4 Over 5 to 10 Fed. 79 2.8 526 8.8 Over 10 to 20 Fed. 47 1.7 638 10.7 Over 20 to 50 Fed. 22 0.8 654 10.9 Over 50 to 100 Fed. 6 0.2 430 7.2 Over 100 to 200 Fed. 3 0.1 437 7.3 Over 200 Fed. 2 0.1 1,177 19.7 Totals 2,801 100.0 5,984 100.0 1964: Less than 5 Feddans 2,965 94.3 3,353 54.8 Over 5 to 10 Fed. 78 2.5 614 10.0 Over 10 to 20 Fed. 61 2.0 527 8.6 Over 20 to 50 Fed. 29 0.9 815 13.3 Over 50 to 100 Fed. 6 0.2 392 6.4 Over 100 Feddans 4 0.1 421 6.9 Totals 3,143 100.0 6,122 100.0 Source: Central Agency for Public Mobilization and Statistics, Statistical Handbook of the Uhited Arab Republict 1952-1964 (Cairo: Central Agency for Public Mobilization and Statistics, 1965), pp. 40, 43. 374 of the ficst Agrarian Reform Law, and in 1964, after the enactment of 1952 and 1961 Laws* This table indicates clearly that a substantial equalization in the distribu tion of landed property has been accomplished. Small owners who held less than five feddans each, representing 94*3 of total landowners, had increased their holdings by about 1.2 million feddans, thus shifting sub stantially their share of total acreage from 35.4 per cent in 1952 to 54.8 per cent in 1964. On the other hand, the two thousand owners who held over 200 feddans, represented only 0.1 per cent of total landowners, and owned 19.7 per cent of the total land in 1952, were allowed to retain only 100 feddans after 1961. However, the large landed estates taken over from the big landowners did not provide land for all landless agricultural workers. Hence, it has been the Government's policy to reclaim new lands and to distribute this land among the landless farmers.80 It is estimated that as a result of undertaking various reclamation projects, and particularly after the High Dam Project is completed, SO ovAli Sabry, Statement on Government Policy, op. cit., p. 12. 375 400,000 families comprising two million persons will be converted from tenants into owners.8 Consequently more equal distribution of land ownership will continue to be achieved. Compensations, Exemptions, and Changes in Agricultural Incomes Compensations paid to landowners for land expro priated were paid in non-negotiable government bonds, redeemable in thirty (later forty) years, bearing interest QO at 3 per cent (later reduced to 1.5 per cent). By 1962/ 1963, the total amount of Agrarian Reform Bonds issued by the Government was L.B.42.5 million.88 It is estimated that these bonds represent about half the total value of the expropriated land, and that the incomes of the previous owners were reduced to about one-sixth of the rent obtained from this land.8* On the other hand, in 1964 all new owners benefit 810AR, The Year Book 1965, op. cit., p. 144. Q9 Hansen and Marzouk, op. cit., p. 91. 83National Bank of Egypt, op. cit.. Table 2/lb, Statistical Section. 84 Hansen and Marzouk, loc. cit. 376 ing from the Agrarian Reform Laws were exempted from three- quarters of the land price. Furthermore, as a result of land redistribution, family yearly income of those benefi ciaries has substantially increased from L.B.27 before acquiring the land to L.B.150 after land acquisition; and as a result, an annual increase of L.B.25 million has accrued to these beneficiaries.8^ Also, due to rents being fixed at seven times the basic land tax, as stipulated by the first Agrarian Reform Law, income per feddan has in- A creased from L.B.9 to L.B.27. It is estimated that those who benefited from the regulation of land rents amount to four million tenants who continued to rent 3.6 million fed- 87 dans, or 60.7 per cent of the total cultivated land. 85,,B1-Nass A1-Kamel Li-Bayan El-Kaissouny . . . ,” loc. cit. 8^Saad M. Gadalla, Land Reform in Relation to So cial Development, Egypt (Columbia: University of Missouri Press, 1962), p. 88. In another study it is estimated that between 1950 and 1960, about 10 per cent of agricultural value added generated in the agricultural sector has been transferred from absent landowners to active owners and tenants, and that the real income of agricultural labor force has in creased by 15-20 per cent during the same period. Hansen and Marzouk, op. cit., pp. 77-78. "The Socialist Lawsn of 1961 The enactment of the Socialist Laws of 1961, has undoubtedly contributed towards the reduction of inequali ties in wealth and income. Nationalisation The nationalization of banks, insurance companies, and other corporate private enterprises has also reduced the top incomes. The previous shareholders were compen- 88 sated in government bonds bearing 4 per cent interest. This interest paid is far below what these owners used to earn as profits. In additions, no individual was allowed to retain in his possession shares exceeding L.E.10,000 in value in 159 corporate enterprises. Any excess shares were taken over by the State in exchange for government bonds bearing also 4 per cent interest.8^ On the other hand, OQ For example, see United Arab Republic, "Loi no. 118 de lfanne£ 1961 concernant la participation de secteur public dans 91 societds et entreprises," Les Lois Social- istes, Une Authentique Promotion Democratique (Le Cairet Administration de 1*information, 1965), p. 15. 89United Arab Republic, "Loi no. 119 de 1961, fix- ant la part des personnes physiques ou morale dans 159 soci^tes," Les Lois Socialistes, ibid., pp. 18-19. 378 sevct&l measures designed, to help small shareholders in nationalised enterprises were undertaken. Among these measures were those authorizing shareholders possessing less than L.B.5,000 in shares to sell up to L.E.1,000 worth to the Central Bank, and to obtain credit up to 40 per cent go of the value of their shares. Income Tax Progression The progression in the general income tax, which is levied on total personal income on top of other specific taxes, has been steeply raised in 1961.^ While income below L.B.1,000 is exempted, a marginal rate of 90 per cent is levied on incomes over L.E.10,000. The marginal rates on incomes between L.E.1,000 and L.E.4,000 increases moderately from 8 per cent but increases sharply for in comes over L.B.4,000. The application of these rates has apparently affected upper income groups considerably. ^°United Arab Republic, "Communique du Ministre Executif de l'dconomie sur les mesures concernant les petits 4pargnants qui ont £te touche' par les lois nos. 117, 118, et 119 de 1961," Les Lois Socialistes, ibid., pp. 39- 40. 91United Arab Republic, "Decret-loi no. 116 de l'annee 1961, impot general sur le revenu," Les Lois So cialistes, ibid., p. 10. Wages * Inczease Maximum and minimum wages and profit-sharing sys tem.— A maximum limit of L.E.5,000 per year has been set for the total amount received by anyone working for a pub- 92 lie agency, organization, or enterprise. On the other hand, other measures have been taken to raise the income of low income groups. A statutory minimum wage for agricultural as well as for industrial workers have been fixed.^ Also, a share-profit scheme has been introduced in 1961 in corporate enterprises, whereby 25 per cent of their profit is to be distributed among their employees. Of this 25 per cent, 10 per cent is received in cash, 5 per cent is allocated to social services and housing for the workers of the enterprise, and the remaining 10 per cent is set aside in a special ®^United Arab Republic, nDecret-loi no. 115 de l'ann^e 1961, plafond pour les adminstrateursx 5,000 livres," Les Lois Socialistes, ibid., pp. 9-10. 93 A minimum daily wage has been fixed at L.B.0.180 for the agricultural worker, and at L.E.0.250 for the in dustrial worker. Hansen and Marzouk, op. cit., p. 281. 380 04 fond for social services for the benefit of all workers. Also, various fringe benefits accrued to workers, such as paid annual vacations and public holidays, and the reduc tion of weekly working hours from forty-eight to forty-two without reducing their wages. Pattern of wage distribution.— An analysis of the pattern of wage distribution shows that over 50 per cent of total yearly wages are paid by the public sector (L.B.450 million). About 75 per cent of those employed in this sector earn less than L.E.240 per year. On the other hand, those who earn over L.E. 1,000, and occupy high managerial positions, constitute o.l per cent of civil servants and earn 1.2 per cent of total government admin istration's total wages, while they represent 0.3 of total number of workers in public enterprises and earn 1.7 of total wage paid by these enterprises. The highest average yearly income of top administrators in the Government is L.E.2,000, while it is L.E.4,000 for those employed by public enterprises. The proportion between the lowest and ^United Arab Republic, "Decret-loi no. 113 de l'ann^e 1961 sur la repartition des benifices des so- ciet^s,” Les Lois Socialistes, op. cit., pp. 8-9. 381 the highest wage eaxned in Government administration and 95 public enterprises is 1.33. This analysis indicates the existence of some in equality in wage distribution in the public sector, be tween the low and high wage earners, as well as between those engaged in Government administration and public enterprises. Shares of wages and returns to ownership in na tional income.--The general trend towards a more equali- tarian basis for income distribution can be detected from the increasing share of total wages in national income through time. Total wages, which represented 42.8 per cent in 1959/1960 of national income, has risen to 49.9 per cent in 1964/1965, while returns to ownership decreased from 57.2 per cent to 50.1 between the same two years.®** ®^Mahmoud El-Maraghi, "Bl-Mowaz&foon, Besar&ha," (The Employees, Frankly), Rose El Youssef. No. 1963, Cairo, January 24, 1966, pp. 14-16. 96 Returns to ownership are the residuals of total value added after deducting total wages and salaries. They comprise, according to the Plan's definition, "• . .actual or implied interest due to owners of capital, actual or implied rent due to owners of land and buildings, and gross profits resulting from the activities of businessmen and producing organisations." Gross profits include, distrib- 382 Moxeover, a large part of the returns to ownership which used to accrue to private corporate enterprises was channelled to the public sector particularly since the nationalization of 1961. Consequently the percentage of those engaged in private business activities who earn over L.B. 1,000 per annum, and pay income tax have been declining in the last few years, and by 1964, wage earners consti tuted the majority (57 per cent) of the number of those taxpayers.98 uted and retained profits, as well as fixed assets* depre ciation. National Planning Commission, op. cit., p. 101. The estimates for wages are given in the Statement by Zakaria Mohieddin, op. cit., p. 39, and gross national income are given above; see footnote 6. It should be noted that it is not clear whether the wages* figures are estimated at constant or current market prices. Q7 No statistical data are available which would show the changes that took place in the actual distribu tion of returns to ownership between the public and the private sector. The observation mentioned above in the text is based upon an analysis of planned domestic saving in the first and second Annual Plans which shows that **the nationalization of corporate enterprises in July 1961 . . . raised the share of domestic savings over which the State had direct control . . . from 30 per cent to 67 per cent.** P. K. O'Brien, op. cit.. p. 110. ®8Mahmoud Bl-Maraghi, op. cit., p. 14. 383 Social Services and Hbusing Social Services The various policy measures undertaken by the Government to expand and improve social and welfare serv ices have undoubtedly contributed significantly towards attaining the objective of increasing equality of opportu nity for the majority of the population. These services have already been discussed above in the section dealing 00 with raising the living standard. Housing and Rents House rents are fixed by law. Between 1952 and 1965 house rents were reduced several times by 15 to 35 per cent. Such reductions in rents obviously represent an increase in real income for the majority of the population, while reducing the incomes of home owners. Moreover, to make more houses available to low- income groups at low rent, the Government has built 32,000 houses from 1952 to I960. During the first four years of the Plan, 122,560 additional housing units were completed, QO See pp. 358-363 of this chapter. 384 which is about 65 per cent of the units scheduled to be . . 100 built during the whole Plan period. These measures have obviously made it possible for an increasing number of low income groups to obtain decent lodgings at reasonable rents within their earning capaci ties. Evaluation The above various policy measures have undoubtedly contributed greatly towards the successful achievement of the main social objective of equitable distribution of income and wealth through reducing existing inequalities and through providing equal opportunity for all citizens. The unequal distribution of income which characterized the economy before the Revolutions, whereby 50 per cent of the national income accrued to 0.5 per cent of the population has been practically eliminated. Undoubtedly, the Agrarian Reform has been the most 100UAR, The Year Book 1965, op. cit., p. 197. 101Gamal Abdel Nasser, "Khetab Ham Lel-Ra'is Pi Eid El-Sues Bl-Quawmy," (An Important Speech by the President on the Occasion of the Suez National Anniversary), Bl- Talaba El-Arab, No. 185, Cairo, March 26, 1966, p. 5. 385 vital and effective measure which has contributed towards this social goal. This is particularly true since the most predominant form of wealth has been in land. According to the National Charter, equity in wealth and income distribu tion "makes it possible, by eliminating the exploiting class, to dissolve peacefully class distinctions, and to open the gates for democratic exchange . . ,nl02 in addi tion to realizing these social political aims, reducing inequality in land ownership have provided a powerful in centives for the new owners, which has manifested itself in raising the productivity of their land, and consequently their income. On the other hand, fixing the minimum wage and introducing the share-profit system, which should have provided powerful economic incentives for industrial workers to increase their productivity, has apparently not served this purpose. It has been observed that in many firms, the rates of production have actually declined or remained constant. This state of affairs has been attrib uted to the worker's attitude of regarding his share of 102 United Arab Republic, The Charter (Cairo: In formation Department, n.d.), p. 75. 386 profit as being an additional fixed income regardless of 103 his individual contribution to production. If such an attitude continues to persist, it will have harmful effects on the economic growth of the country. In addition, fixing a maximum limit on earnings of those working in the public sector and discrepancies which exist in wage earning in government administration and public enterprises may also act as disincentives to productive efforts. Relating the contribution of each individual to production with his earnings can solve, to a great extent, such incentive prob lems . Providing free social services, which contributes to the fulfillment of the goal of equal opportunity, called for a large volume of investments. As we have already seen, investment in social services exceeded what was en visaged in the First Five-Year Plan, causing a reduction of planned investment in the commodity-producing sectors, and affected the planned rates of growth. Furthermore, providing social services, reducing 103 Mahmoud Abou Zeid, "Arbah El-Aameleen Wa-Tabi'at Al-Marhala Al-Gadidah," (The Workers' Profit and the Nature of the New Stage), Al-Ahram Al-Iqtisadi, No. 250, Cairo, January 5, 1966, p. 65. 387 housing rents, and increasing total wages has resulted in expanding the purchasing power of the population. Conse quently a shift has occurred in effective demand, which has not been met with an adequate increase in supply, and inflationary pressures has ensued. Also, increased saving, of the desired magnitude, needed to finance developmental projects has not materialized during the First Five-Year Plan. Labor Employment Although full labor employment was not envisaged in the First Five-Year Plain, it is considered a "cherished” aim in the Egyptian society. Expansion of Labor Employment The number of employed workers and their wages have been expanding rapidly since the beginning of the Revolu tion, and particularly during the First Five-Year Plan. Total employed workers increased from 5,962,600 in 1959/ 104 Statement by El-Sayed Zakaria Mohieddin. op. cit.. pp. 53-54. 388 1960 to 7,290,000 in 1964/1965.105 Hence, the employment target set forth in the Plan at 7,001,000 has been sur passed. Employment increase during the Plain is equivalent to 22.3 per cent over the base year, or at an average annual rate of increase of 4.5 per cent as compared with 3.4 per cent implied in the Plan's estimates. Labor Productivity The development of average productivity per worker, for the economy as a whole, shows an increase from 215.5 in 1959/1960 to 241.7 in 1964/1965 while the implied planned figures for the final year of the Plain is estimated ^Ibid., p. 54, and "Address by President Gaunal Abdel Nasser at the Great Popular Rally at Gumhuria Square . . . op. cit., p. 21. The figure for 1959/1960 is arrived at by deducting the total number of increase of employed workers during the Plan period, which is given at 1,327,400 workers in Premier Zakaria Mohieddin's Statement, from the number of actual employed workers at the end of the Plan period, which is given at 7,290,000 workers in President Nasser's Address. The figure thus computed for 1959/1960 differs slightly form that given in the General Frame of the Plan at 5,975,000 workers. Statistics about the actual distribution of workers among the various sectors of the economy during the Plan period are not available. Hence, it is impossible to com pare the actual with the planned employment on a sectoral basis. 389 at 256.4.106 The average annual rate of increase in productivity per worker of 2.4 has been progressing at a slower pace than the planned rate of 3.8. This is apparently due to the slower rate at which gross national income has been increasing and to the rapid increase in labor enployed at a rate much higher than those envisaged in the Plan. Wage Increases Total wages increased from L.E.350 million in 1952/1953 to 549.5 million in 1959/1960, and to L.E.878.9 million in 1964/1965, thus exceeding the planned target for the final year of the Plan which was estimated at L.B.725 million.107 The actual increase in total wages which amounts to L.B.329.4 million during the First Five-Year Plan is equivalent to 59.9 per cent or at an average annual rate Average productivity per worker is computed by dividing gross national income (which is equal to gross national product) by the number of employed workers. 107 Statement by Bl-Sayed Zakaria Mohieddin. op. cit., p. 39, "Address by President Gamal Abdel Nasser at the Great Popular Rally at Gumhuria Square . . . ," loc. cit., and Chapter V of this study. 390 of about 12 per cent which is almost twice the rate implied in the Plan. This sharp increase in wages is due to two factors: (1) the rapid increase in employment beyond the planned target; (2) raising the average wage rates by about 18.5 per cent.108 Evaluation Divergence Between Actual Development and Planned Targets The sharp increases in labor employment and wages beyond the planned targets would have been economically justifiable if realized investments, production and income had also surpassed their targets. This has not been the case, as we have already noted in a previous section of this chapter. Also, the average rate of increase in wages has far exceeded that of employment and which has not been reflected in a similar increase in labor productivity. The Government's policy to expand job opportunities seems to be prompted by social considerations. "Every citizen 108,,B1-Nass A1-Kamel Li-Bayan El-Kaissouny . . . ," op. cit.. p. 4. 3 9 1 has the right to work and it is the duty of the State to find a job for every citizen.Hence, restricting the number of employed workers and wages to the Plan's targets were not followed, and social considerations overruled economical ones. In the opinion of the political leaders, "social considerations are far more important than statis tical, technical or economical aspects ."HO Furthermore, reducing the weekly working hours from forty-eight to forty-two without reducing wage earn ings, one year after the beginning of the Plan has un doubtedly upset the assumptions on which the manpower pro gram was set. This can partly explain the divergence between the actual and the planned increases in employment and wages. 109 Statement by El-Sayed Zakaria Mohieddin, op. cit., p. 53. ^^"Ali Sabry You'len Fi Igtima' Bl-Haya' Al- Barlamania Sanantaser Ala Al-Tahadiat Allati Tweagehna fi Tanfeeth Al-Khettah Al-Thania Kama Intasarna Men Kabl," (Al Sabry Declares At a Parliamentary Commission that We Shall Overcome the Challenges that Face the Second Plan as We Did Before), Al-Akbar. Cairo, June 16, 1965, p. 3. Translation by the writer. Unemployment and Underemployment However, in spite of the rapid increase in employ ment, there still exists many cases of unemployment and underemployment, particularly in the agricultural sector.*11 Cheap unskilled manual labor is in plentiful supply and is utilized wastefully. Seasonal unemployment still charac terizes the Egyptian agriculture. It is estimated that the working days of the agricultural worker do not exceed 180 days per year. Nevertheless, some economists main tain that they have found no evidence of permanent dis- 113 guised unemployment in this sector. Shortages of Technical and Organiza tional Manpower Resources On the other hand, in spite of the wide training programs and education undertaken by the Government, there are shortages of skilled labor. This is attributed to ^■^Statistical data about unemployment are not available. IIP AAtf"Bl-Nass A1-Kamel Li-Bayan Bl-Kaissouny • • • ," ogjj^cit., p • 5« 113 Bent Hansen and Mona El Tomy, "The Seasonal Em ployment Profile in Egyptian Agriculture," The Journal of Development Studies. Vol. I, No. 4, London, July 1965, p. 404. 393 inadequate vocational training and to lack of systematic 114 training by Egyptian firms. To implement and operate developmental projects on such a large scale as envisaged in the First Five-Year Plan is largely dependent on the country's capacity to generate high-level manpower and organizational resources. In the United Arab Republic, there is "• . .a critical shortage of industrial entrepreneurs, professional managers^ engineers, and other technically trained personnel. Several factors constitute a burden on the development of needed organizational resources. Among such factors are: the inability of the Egyptian universities to supply needed resources at the required level of skill; the expenses incurred in depending on foreign countries for organizational and technical knowledge and for training of top-level scientists, technicians and managers. On the other hand, there is a large number of highly trained top- level managers and professionals who are capable of pro 114 Frederick Harbison and Ibrahim Abdelkader Ibra him, Human Resources for Egyptian Enterprise (New York: McGraw-Hill Book Company, Inc., 1958), pp. 135-138. 115Ibid., p. 131. 394 viding for the development of needed organizational re sources. Labor Mobility Another trend which has recently been observed in the national economy is that of the decrease in labor mobility from one job to another, as well as from one sec- 117 tor of the economy to another. This is a serious prob lem which can obstruct the optimum utilization of manpower. Bottlenecks are liable to occur in those sectors which are unable to absorb additional manpower, while unemployment and underemployment continues to prevail in other sectors, * particularly in agriculture. A further implication of this problem is that it may deter the siphoning off of agricultural labor into other sectors of the economy, and particularly into industry. This situation, if it arises on a large scale, may diminish the successful achievements of the developmental efforts attained thus far. 116Ibid., pp. 134-135. 117 "Bl-Nass A1-Kamel Li-Bayan Bl-Kaissouny • • • , n loc. cit. 395 Price Stability Price Indices The official price indices, shown in Table XVII indicate that the general price levels of commodities were relatively stable as a whole* While the various general price indices show mild increases between 1951/1952 and 1959/1960, the increases recorded during the first four years of the Plan were even much less. These index numbers also show that it was during the fourth year of the Plan that prices have risen rather sharply compared to the pre vious three years. The general index number of wholesale prices for all materials has increased by 4.3 per cent between the base year of the Plan and its fourth year. The sub-index of the wholesale prices of foodstuffs, largely agricultural products, has increased by 10.2 per cent during the Plan period, while that of industrial materials has decreased by 1.7 per cent. The reason for the mild increase in agricultural products' prices is apparently due to the Government policy of increasing and stabilizing farmers income. The prices of important agricultural products are fixed at levels which cover cost of production and a "fair" 396 TABLE XVII GENERAL INDEX NUMBERS OF PRICES IN 1951/1952 AND 1959/1960-1963-1964 June/August 1939 = 100 Index Numbers 1951/ 1952 1959/ 1960 1960/ 1961 1961/ 1962 1962/ 1963 1963/ 1964 Wholesale Prices of All Materials 372 418 425 421 419 436 Wholesale Prices of Industrial Mate rials 432 460 446 437 441 452 Wholesale Prices of Foodstuffs 325 382 405 406 398 421 Cost of Living 317 304 306 297 299 310 Source: Central Commission for Statistics, Magmouat Al-Bayanat Al-Bhsa'ieh Al-Assassieh (Basic Statis tical Data), in Arabic, Fourth Edition (Cairo: Central Commission for Statistics, 1962), p. 170, and Central Agency for Public Mobilisation and Statistics, Statistical Handbook of the United Arab Republic, 1952-1964 (Cairo: Central Agency for Public Mobilisation and Statistics, 1965), p. 192. 397 profit.118 The cost of living index shows virtually complete stability; only a rise of 2 per cent has been recorded during the first four years of the Plan. This can be ex plained by the Government's control of prices of basic consumer goods. The prices for such items as bread, sugar, kerosene, textiles are maintained at low levels compared with producer or inporter prices. Bvalutaion The moderate increases in prices cannot be referred to as inflation. However, variations in the Egyptian price indices should be interpreted with care since these indices are based upon official and controlled prices only. In addition, the cost-of-livj-ng index does not reflect expend iture patterns of the average household. The weights used in constructing this index were chosen in 1939 on a sub jective basis and relate to middle-class income households in Cairo only.11® Behind the relative price stability as shown by 118 Ibid. H O ’ 'Hansen and Mar souk, op. cit.. footnote to Table 5.18, p. 138. these indices, several symptoms of inflationary pressures seem to appear, particularly during the few last years of the Plan period. In the absence of price control, it is most likely that prices would have risen at a rate much higher than that recorded by the various price indices. Black Market Prices Inflationary pressures are revealed through various tendencies. Higher than official prices are charged for several consumer and non-consumer products on the black market. The press has blamed primarily the private sector for this situation, and attributed the creation and the persistence of the black market to several reasons. Among these reasons are inadequate distribution and price con trol, inefficient system of marketing and transportation, and stock-hoarding and monopolistic practices by private traders.120 120 ”Bl-Souk Al-Sawda',” (The Black Market), Rose B1 Youssef, No. 1917, Cairo, March 8, 1965, pp. 16-18, and Mahmoud Zeidan, nAl-Queta' Al-Khass Mottaham Be-Khalk Bl- Souk Al-Sawda'," (The Private Sector is Accused of Creating the Black Market), Rose R1 Youssef, No• 1944, Cairo, Sep tember 13, 1965, pp. 15-19. Product Shortages Another manifestation of the inflationary pressures existing in the Egyptian economy has been the shortages of products, particularly of some consumer goods which have been experienced especially during the last two years of the Plain period. These shortages have apparently resulted from a shift in demand which has not been offset by an equal shift in supply through domestic production or importation or by raising official prices. The shift in demand has been the natural outcome of population growth, rising national and per capita income, increasing social services, which add to the purchasing power of individuals, a more equal distribution of income, and changing taste due to a rising standard of living and demonstration effect. Fur thermore, product shortages may be attributable to the price policy which aims at fixing prices at low levels and subsidising the consumer, and hence increasing effective demand beyond available supply. Also import restrictions of some products has shifted the demand for substitutable products domestically produced. Vlhere no substitutes are available, the shift in demand is directed towards other products which may cause their shortages. 400 However, some economists are of the opinion that commodity shortages may be indicative of partial disequi- libria rather than of overall excess demand reflecting an inflationary gap which cannot be determined because of 121 inadequate statistics. Money Supply An indicator of monetary stability or inflationary pressures in the economy can be derived by comparing the rate of increase in money supply with the rate of growth in demand for money expressed in terms of real national income.^22 The money supply increased from L.E.389.7 mil lion in 1959 to L.B.616.4 million in 1964.123 This growth in money supply which is equivalent to 58.2 per cent is much higher than the rate at which gross national income has been growing (37 per cent) during the First Five-Year *2^Hansen and Marzouk, op. cit., p. 230. 122Arthur I. Bloomfield, "Monetary Policy in Under developed Countries," C. J. Friedrick and S. B. Harris (eds.), Public Policy, Vol. VII, (Cambridge Mass.: Harvard University Press, 1956), reprinted in Gerald M. Meier (ed.), Leading Issues in Development Economics (New York: Oxford University Press, 1964), p. 190. 123National Bank of Egypt, Economic Bulletin, Vol. XVIII, No. 3, op. cit., Table l/6a, Statistical Section. 401 Plan. It can, therefore, be inferred that an upward pres sure has been exerted on prices which did not materialise in price increases because of price control. Demand-Pull and Cost-Push Inflationary Pressures The inflationary pressure existing in the Egyptian economy is apparently of the demand-pull type more so than of the cost-push type. However the possibility of existing cost-push inflationary pressures is not completely ruled out. An increase in factor prices can be observed, par ticularly in wage rates as a result of such measures as enforcing minimum wage rates, workers' profit-sharing schemes, reduction of weekly working hours, and increasing social insurance contributions. In addition, there has been increases in interest rate and in cost of intermediate consumption goods, particularly those imported goods, due to increases in their world prices and custom duties. Whether or not the increase in costs initiates increase in prices (in the absence of price control) which induces further increases in prices, and so on, depends, in fact, on the relative importance of the cost of each factor to total cost and whether there is a rising trend in the price of that factor. Since wages usually constitute a major 402 part of the cost of the product, and since, as we have already observed, the average annual rate of xncrease in wages has been greater than that of productivity per worker during the First Five-Year Plan (12 per cent in total wages as against 2.4 in labor productivity), it can be tenta tively concluded that this is an important element in the 124 inflationary pressure of the cost-push type. Thus far, the Egyptian Government has been success ful in preventing inflation to appear. Whether or not the various inflationary pressures will eventually materialise in inflationary prices, depends upon the Government’s policy regarding commodity and service price control and determination, and its ability to deal effectively with the various factors which are causing inflationary pres sures . 124This analysis cannot be considered as being conclusive, since more detailed information and investiga tion are needed. However, hardly any study can be found on inflation in Egypt. A recent study has been published but it is limited to production costs in two firms in one sector only, and hence, its conclusion, with which this writer differs, cannot be generalised. See Hansen and Marzouk, op. cit., pp. 229-232. Also see, Sobhy Tadros Koresa, ”B1 Tadakhom W’al-Tanmieh Al-Iqtisadieh,” (Infla tion and Economic Development), Magmou’at Al-Mohadarat Al- Aama Fi Al-Am A1-Garni’ 1962/1963 (Alexandria: Alexandria University Press, 1962), pp. 297-321. 403 Efficiency In the United Arab Republic, achieving the goal of efficiency seems to have occupied a low order of priority in comparison with other national economic and social ob jectives such as economic growth and equitable distribution of wealth and income. Nevertheless, the authorities have been aware of the need to find effective means to raise the level of efficiency in public enterprises and Govern ment administration. Various statements by the political leaders indicate such awareness by pointing out the need to eliminate waste, to economize in resource utilization, and to improve the performance of management and adminis tration. However, economic studies analysing the effi ciency problem in the United Arab Republic can hardly be found, and no systematic approach to deal with this prob lem has been undertaken before or during the First Five- Year Plan.125 The writer devotes this section to analyse and ■■•^Only recently, after the completion of the First Five-Year Plan, that the problem of efficiency was dis cussed in two conferences on production and administration. 404 evaluate briefly two important aspects of efficiency which have had direct effects on the achievements of the First Five-Year Plan. These two aspects are efficiency in re source allocation, and managerial and administrative effi ciency. Bfficiency in Resource Allocation In any economic system resources (natural, human, capital) are scarce in comparison to their uses in satis fying practically unlimited human wants. Hence, the need arises to economize in utilizing these resources in order to realize maximum outputs which closely corresponds to T 2ft the preference of the community. "Economizing is the process of arriving at the most efficient employment of these resources. • • ,"127 ■^^John B. Elliott, "Economic Systems and National Planning" (Los Angeles: University of Southern California, 1964) (Mimeographed), Chapter I, pp. 2-3. The term "'preference of the community' may mean either individual preferences or authorative decision of the Planning Board with regard to the final bill of goods. • • Bela A. Balassa, The Hungarian Experience in Eco nomic Planning: A Theoretical and Empirical Study (New Haven: Yale University Press, 1959), p. 7. 197 Robert A. Dahl and Charles B. Lindblom, Politics, Economics and Welfare: Planning Resolved into Basic Social Processes (New York: Harper and Row Publ., First Torchbook Edition, 1963), p. 40. Measurements of Efficiency To determine whether efficiency in resource allo cation has improved or deteriorated during a certain period involves, among other things, an investigation of the methods of production in each individual enterprise, for each product, and for all outputs, each investment project and program and their optiroialities, and the community's preference function. Such an enormous undertaking is, of course, beyond the scope of this section. In examining this efficiency problem in the United Arab Republic, the writer resorts to another approach, on a macroeconomic basis. Although this method cannot claim to be conclusive, nevertheless, it may be regarded as a crude indicator of efficiency improvement or deteriora tion. A comparison is made between the ratios of value added to value of gross production at the beginning and the end of a certain period. Assuming that the planners' preference, as envisaged in the National Plan, corresponds to the community's preference, an increase in this ratio indicates that less inputs are required per unit of out 406 put.^® This, in turn, implies that a higher level of efficiency has been attained during the period under con sideration. Table XVIII shows the development of efficiency in production as measured by the percentages of value added to value gross production in each economic sector and in the whole economy for the base year (1959/1960) and the fourth year (1963/1964) compared with the planned figures of the final year (1964/1965) of the Plan. This table implies the following: 1. The percentages of planned value added to the value of gross production in the final year of the Plain (1964/1965) show a general trend to decline as compared to the base year for almost all sectors of the economy. 128 This is so, since value added is computed in the General Frame of the Plan, by deducting from the value of gross production, the value of inputs (production re quirements) such as raw materials, fuel, spare parts, and maintenance expenses. National Planning Commission, op. cit., p. 39. A more refined approach to examine productive efficiency would be to compare input-output coefficients during the period under consideration. Because of lack of information about the development of these coefficients during the Plan period, the writer uses the alternative method described above in the text. 407 TABLE XVIII PERCENTAGES OP GROSS VALUE ADDED TO VALUE OP GROSS DOMESTIC PRODUCTION Actual Actual Planned Sectoxs 1959/60 1963/64 1964/65 Agxicultuxe 69.6 69.6 69.6 Industxy 20.5 24.1 29.8 Constxuction 46.1 46.5 41.8 Totals of Commodity Sectoxs 40.1 40.8 41.3 Txanspoxtation and - Communications 68.6 75.4 71.3 Housing 96.1 95.6 95.5 Public Utilities 57.7 57.6 64.3 Pinance and Txade 78.2 73.3 77.9 Othex Services 71.5 65.8 70.3 Totals of Services Sectoxs 74.7 71.5 74.5 Grand Totals 50.4 50.1 49.8 Sources Tables XIII and XIV of this Study. The only exceptions are found in industry, construction, and transportation and communication where efficiency has been expected to rise, while in agriculture no change has been envisaged to take place. This may be regarded as an indicator that the problem of inqproving efficiency in allocating resources for production has not been given due consideration in the Plan. 2. Efficiency has deteriorated for the economy as a whole from 50.4 per cent in 1959/1960 to 50.1 per cent in 1963/1964, but has surpassed what has been planned for 1964/1965 by 0.3 per cent. This decline in efficiency has apparently been affected by the decrease in efficiency in the service-producing sectors from 74.7 per cent in 1959/ 1960 to 71.5 per cent in 1963/1964 which has been partly compensated by an improvement in the commodity-producing sectors from 40.1 per cent to 40.8 between the same two years. 3. In the commodity-producing sector, efficiency in industry has increased from 20.5 per cent in 1959/1960 to 24.1 per cent in 1963/1964 but has not achieved the planned figures of 29.8 per cent for 1964/1965. Efficiency in agricultural remained constant at 69.6 per cent. 4. In the service-producing sectors, efficiency 409 in 1963/1964 has been below its levels in 1959/1960 as well as its planned levels in 1964/1965, except for trans portation and communication. Evaluation Efficiency in resource allocation during the First Five-Year Plan seems to have been impaired by various ele ments. Formulation and implementation of the investment program.— The investment program included in the First Five-Year Plain is a compilation of projects submitted by various agencies and enterprises to the National Planning Commission. As pointed out earlier, no consistent invest ment criteria seems to have been systematically applied in the selection, appraisal, and coordination of these proj- 129 ects. Furthermore, the execution of investment program has deviated from what was envisaged in the Plan, and the projects' execution have not been adequately coordinated. Hence, it appears that the efficiency problem have not been carefully heeded in allocating resources for capital 120 J - *, r See Chapter IV, of this study. formation. This, has apparently affected the other parts of the National Plan, since the whole Plan, although was set up in a consistent framework, was primarily based upon the investment proposals. However, "plans balanced to a nicely may be far from efficient, in the sense that by reallocat ing available factors more output could be targeted in one 130 or more sectors without sacrificing output elsewhere." Optimum project location.--In formulating and implementing the First Five-Year Plan, there is no indica tion that due consideration has been given to the problem of optimum project location to minimise train sport cost and to maximise output in each geographical area. The Plan has not included "'location balances* so that there is an adjustment between the output goals for each area and the supply of productive factors which could easily be made available in that area."131 Actually, there has been continuous concentration 130 John Micael Montias, Central Planning in Poland (New Havent Yale University Press, 1962), p. 10. 131 Alak Gosh, New Horisons in Planning (Calcutta: The World Press Private Ltd., 1956), p. 3. 411 of industries around big cities. Although industries con centrated in an area may have benefited from external economies, yet problems and bottlenecks may have developed as a result of such concentration. Consequently social costs may have been greater than social benefits. Labor productivity.— Since the reduction of weekly working hours from forty-eight to forty-two in 1961, many enterprises have continuously increased their labor employ- 132 ment beyond their capacities to absorb such increases. Another trend has also appeared in public enterprises where the number of absentees among workers, has been increasing, and reached in some cases 30 per cent of total number of workers.133 These trends, have undoubtedly resulted in decreasing labor productivity, increasing production costs, and lowering productive efficiency. Inadequate technical research,— It seems that at the enterprise level, not enough emphasis have been given 133,'Bayan El-Sayed Zakaria Mohieddin fi Iftitah Mo'tamar Al-Intag,M op. cit., p. 26. 1QQ Ahmed Hamroush, "Mazaher Bl-Nashat El-Seyassy W*al-Idary,n (Symptoms of Political and Administrative Activities), Rose El Youssef, No. 1950, Cairo, October 25, 1965, p. 3. 412 to technical research, and to systematic efforts to reduce costs of production, or to increase workers and machines' productivities or to raise quality standards, or to elimi- 134 nate waste in production processes. Efficiency of the price system.— In the United Arab Republic, the bureaucratic method predominates as a social process for economic coordination, particularly 135 since the beginning of the First Five-Year Plan. How ever, the price system also have an important role to play and is closely connected with the efficiency problem. The price system is a mixture of administered prices and market-determined prices. Price control by the Government is more prevalent throughout the economy, and is affected directly through fixing prices or indirectly through fixing profit margins. Some consumer goods such ^These observations are implied in the Statement of the Production Conference. "Bayan Sader Men Mo'tamar Al-Intag," (Statement Issued by the Production Conference), Bernameg Bl-Amal El-Tanfisy Lel-Marhala Al-Gadidah. op. cit., pp. 42-43. 135 For a definition of bureaucratic method, see Chapter II, of this study. Efficiency of the bureaucratic method is analysed below under the heading "Administrative and Managerial Efficiency." 413 as sugar and oil are rationed. In so far as equating supply and demand of domes tically produced commodities is concerned, the price system ham been "far from perfect The occurrence of fre quent shortages in the availability of some commodities in the market have been partly blamed upon the adopted price policy. This policy, having the objective of elim inating monopoly profit by fixing prices at low levels, has created a "shortage economy" characterized by having "no automatic built-in mechanism to prevent shortages ."^7 Furthermore, judging from the various deficiencies which are found in the price system, such as shortages of various commodities, black market prices, nonadherence to profit maximization principle, it is apparent that such a system does not offer an efficient method for resource allocation either to central planners or to producers. An adequate price system should reflect "the social cost (and, in the short run, the scarcity) of the various means of 136 Hansen and Marzouk, op. cit., p. 287. 137Ibid., p. 284. 414 production and the social importance of various prod ucts."138 Administrative and Managerial Efficiency The Importance of Administrative and Managerial Efficiency Where heavy reliance is being placed on bureau cracy as a social process for economic coordination, as in the case of the United Arab Republic, efficient per formance of administrators and managers is vital to the success of developmental planning. "Management is effi cient if it meets its objective with the minimum unsought 139 consequences or cost." Because of "the loose and rather elastic legal basis of the present system, together with the notorious general over-organization, slowness, and incompetence of the Government administration • • .," fear has been ex 138 Oskar Lange, Economic Development, Planning. and International Co-operation, Three lectures delivered at the Central Bank of Egypt, Cairo, 1961 (New York: Monthly Review Press, 1963), p. 25. 139 H. Coonts and C. 0fDonne1, Principles of Manage ment (New York: McGraw-Hill Book Company, 2nd Edition, 1957), p. 67. 415 pressed of "the possible strangling effects of fred tape* and excessive bureaucracy • • ."140 These fears have proven unwarranted in such cases as those of the Suez Canal Authority, Ministries of National Planning, of Industry, 141 and of Agrarian Reform. However, various factors seem to have adversely affected administrative and managerial efficiency, and which, in turn, affected the achievements of the First Five-Year Plan. Evaluation Breach of contracts.— "Along with the growth of the public sector, disruption occurred in the relationship among the various productive units, responsibilities be came less well defined, and losses ensued in some of these units* . • . Breach of contracts was among the important causes which contributed to this state of affairs*"142 140Hansen and Marzouk, op. cit., p. 286. 141 Garven Hudgins, "Egyptian Rule Improves Suez Canal, Revenues," Los Angeles Times, February 6, 1966, Sec tion F, p. 8, and O'Brien, op. cit., p. 107. 142"Bayan El-Sayed Zakaria Mohieddin Fi Iftitah Mo'tamar Al-Intag," op. cit., p. 28. Translation by writer. 416 Breach of contracts has taken several forms including non adherence to contracts1 specifications, delivery dates, quantities, and prices, delays in meeting financial obliga tions to other enterprises and to banks. Inability of some enterprises, particularly public enterprises, to meet their contractual obligations has been attributed to one or more of the following reasons: 1. In some enterprises, managers have been in efficient and incapable to formulate and control proper production, financial and marketing policies. 2. Investment projects which were not included in the National Plan have been carried out for the public sector by private enterprises through banks1 credit facil ities. Since appropriations for such projects were not included in the State budget, financial obligations towards these enterprises and banks remained unsettled. 3. Foreign exchange allocated for some sectors or enterprises has been insufficient to import needed spare parts and raw material for production or investment projects. 4. Statistical data and adequate evaluation of sectoral and enterprises1 productive capacities, supply and demand, and financing have been either lacking or inaccurate. 5. Integration of activities among various sectors and among various enterprises has not been correctly syn chronized. Inaccuracy of achievements reports.--Many incidents have been discovered by various control agencies where falsification of records, and overestimation of achieve ments occurred in the public sector* Submitting inaccurate progress reports to the higher authorities has been attrib uted to the desire to conceal failures for fear of punish ment or to appear successful, and to the unrealistic instructions issued by high officials. Inefficient organization.--Inefficiency of admin istrative organization in the public sector has persisted "Matha Dar Fi Iktima* Kharigy Al-Ma'had Al- Quawmy Lei-Idarah Hawl Ihtram Al-Tafkodat,M op. cit., pp. 26-29. 144Mahmoud El-Maraghi and Mohamed Zeidan, "Tazweer Bl-Mizaneyat," (Falsification of Balance-Sheets), Rose El Youssef, No. 1923, Cairo, April 9, 1965, pp. 14-15, and Mahmoud El-Maraghi, "Al-Massoul Bl-Kabeer W*al-Bayanat Al- Khate'ah,” (The High Officials and the Wrong Information), Rose El Youssef, No. 1955, Cairo, November 29, 1965, p. 17. 418 as a result of overlapping of responsibilities of various units, complications and rigid conformity to bureaucratic procedures, and because no performance standards have yet been set.145 Ambiguity of objectives and centralization.— Re sponsibilities and obligations of each individual organi zation, enterprise and employees has not been adequately defined. Centralization in decision-making has continued to be in the hands of higher authorities.14* * It has also been observed that there exists "fear of exercising dis cretion even when the regulations allow it • • • (and reluctance of) delegation of authority down the hier archy."14^ Moreover, "responsibility to the hierarchy has 145These observations are derived from the recom mendations of the Administration Conference held in Cairo on October 26-28, 1965. "Tawseyat A1-Mo’tamar Al-Aam Lel- Idarah," (Recommendations of the Administration Confer ence), Bernameg Bl-Amal Bl-Tanfizy Lel-Marhala Al-Gadidah. op. cit.. pp. 74-75. 146 Ibid., pp. 80-81. 147 Walter R. Sharp, "Bureaucracy and Politics— Egyptian Model," William J. Siffin (ed.), Towards the Com parative Study of Public Administration (Bloomingtont Indiana University Press, 1957), p. 160. i 419 developed at the expense of the growth of initiative and responsibility to the post itself and the public the gov- 148 ernment official is supposed to serve.” Overstaffing.— The Government administration is "overstaffed,” civil servants are employed beyond the point of real need. The pressure for government jobs was created by the existing educational system which was estab- 149 lished to train civil servants, and by the successive changes in governments before the Revolution.150 Moreover, in spite of the Revolutionary Government’s resolution to implement the decentralization policy, concentration of civil servants in Cairo and other big cities is still noticeable, while the Governorates have been suffering from understaffing. Non-coordination of control authorities.--There have existed numerous control authorities, while their 148Morroe Berger, Bureaucracy and Society in Modern Bgypt (Princeton: Princeton University Press, 1957), p. 166. 149Ibid.. p. 70. 150"State Bnsured Social Justice," The Egyptian Bconomic and Political Review, Vol. VIII, No. 8, Cairo, July-August 1961, p. 7. activities have not been well coordinated, and their re sponsibilities have not been clearly set.1^1 It seems that the control authorities have been concerned primarily with checking procedural accuracy and adherence to regula tions with the objective of inflicting punishment instead of finding means to avoid mistakes and to increase effi ciency of the organisation under control. Pear of control agencies and negative attitudes began to appear in the 150 public sector. ^ ^ ’ ’ Tawseyat A1-Mo’tamar Al-Aam Lel-Idarah,” op. cit.. p. 83. 152Raouf Tawfik, ’ ’ Al-Ha'er W'al-Kha’ef W ’al Motaraded Pi Dwaween Bl-Hekoumah," (The Perplexed, the Hesitant, and the Prightened in Government Administra tion), Sabah R1 Kheir, No. 486, Cairo, April 29, 1965, p. 10. CHAPTER VIII SUMMARY AND CONCLUSIONS Summary Since World. War II, economic planning has been adopted by an increasing number of nations irrespective of their socioeconomic and political systems. In developing countries, planning has emerged as a valuable method in promoting economic development. The study has been concerned with an economic investigation, analysis and critical evaluation of the United Arab Republic's experience in national developmental planning since the beginning of the Revolution in 1952, with particular emphasis on the comprehensive planning period (July 1960-June 1965) • Chapter II was devoted to a theoretical discussion of the various elements of economic planning. The concept of planning was defined and a distinction was drawn between its generic and specific meanings. In its generic form, planning is an attempt to design and apply rational actions 421 422 in order to achieve desired goals. On the other hand, planning takes a variety of specific forms according to its application in particular times, places and circum stances. The process of economic planning consists of determination of goals, formulation of plans, and imple mentation of these plans in order to achieve the desired goals* Among the major economic goals are those of effi cient allocation of resources, equitable distribution of wealth and income, stability in the overall level of em ployment, income, and prices, and economic development. The order of priority in which they are ranked differs from one country to another. Plan formulation requires economic analysis of existing and future conditions, selection and adoption of optimum plans, and finally undertaking various measures to execute these plans and follow-up their prog ress. The patterns of economic planning adopted by various types of economic systems differ in the goals pur sued, the means used to attain these goals, and the scope, content and methodology of plan formulation. These differ ences were outlined in this chapter with respect to socio- 423 capitalist economies, Soviet-type economies, and under developed economies* Some of the major arguments among notable econ omists were discussed regarding the need for centralized comprehensive developmental planning, particularly for underdeveloped countries. Finally, the requirements for developmental planning were stated. Developmental planning must be designed in such a manner, and must include such elements that enable all developmental efforts to yield a maximum rate of growth. In Chapter III a brief account of Egypt's modern history was given. Political oppression and economic ex ploitation characterized the country for a long period until the advent of the Revolution in July 1952. The Egyptian socioeconomic structure has changed radically since the beginning of the Revolution, and it has been evolving ever since at a rapid pace. The writer made use of Professor John B. Elliott's eight criteria to describe, analyze and contrast the country's economic structure before and after the Revolution. After the Revolution, Egypt's level of economic development has changed from an underdeveloped country to a developing one. 424 Its stage of development has changed from agricultural to agricultural and manufacturing stage, from a feudalistic- capitalistic economy to a mixed economy of capitalism and socialism. The take-off into sustained growth has been launched. The economic base has changed from being pre dominantly landistic-laboristic to landistic-laboristic- capitalistic. Private ownership and control prevailed throughout the economy before the Revolution, whereas pub lic ownership and control have expanded since the begin ning of the Revolution, and particularly since July 1961. In the pre-Revolution period, the locus of economic power was in the hands of individuals, some organizations, and the Government, and it shifted largely towards the Govern ment since the advent of the Revolution. Whereas the Egyptian economy was characterized by decentralization and concentration of economic power before the Revolution, it has contained elements of both centralization and decen tralization and various degrees of concentration and sepa ration of economic power since the beginning of the Revo lution. The market-oriented, profit-motivated economy has changed to an economy seeking the attainment of national goals according to national plans. For its social proc- 425 esses for economic coordination, the country has relied basically on the hierarchical system, and less so on the price system* Bmphasis has been placed on realising social democracy, removing class barriers and establishing a more flexible social structure* The extreme inequality which was evident in wealth and income distribution in Bgypt before the Revolution has been greatly reduced since the advent of the Revolution. At the outset of the Revolution, Egypt was beset by various acute economic problems. Bgypt was a predomi nantly agrarian economy using primitive techniques and implements. The agricultural sector was overpopulated, the peasants were underfed, and extreme inequalities existed in land distribution. Specialization in producing and exporting cotton was the basis of the whole economy. Industrialization was inhibited by various factors. Very little saving and capital investment were realized. The most serious problem was the population explosion. In addition, the social and political order of Egypt before the Revolution was inimical to any effort to develop the country. Chapter IV dealt with the organizational and pro- 426 cedural aspects of developmental planning since the begin ning of the Revolution. Two major objectives have been set, namely, developing the national economy and redress ing existing inequalities in wealth and income distribu tion. The developmental efforts carried out to realise these objectives can be divided into two historical stages, partial planning, and comprehensive planning. In the partial planning stage, the first Agrarian Reform was carried out, and other major projects were implemented. The Permanent Council for the Development of National Production was established to elaborate and supervise the execution of agricultural, industrial and transportation programs and projects. Programs for health, education and social services were set up and coordinated by the Permanent Council for Public Services. Although these sectoral programs were effective in initiating structural changes in the economy, they were not always fully successful in realizing their objectives. The stage of national comprehensive planning started with the formulation of a general frame for eco nomic and social development for a ten-year period. The Plan has been divided into two equal periods, the first 427 of which covered the fiscal years from 1960/1961 to 1964/ 1965. In addition, yearly plans have been formulated with in the general frame of the five-year plans. The resort to comprehensive planning was prompted by the desire of the Government to attain a rapid and high rate of economic and social development in a conscientious manner through the application of scientific methods. The Planning machinery has been set up according to the principle of centralization in plan formulation and decentralization in plan execution. The Supreme National Planning Council fixes general planning objectives and policies, approves developmental plans, and follows up their execution in their various stages. The Ministry of National Planning draws up national comprehensive develop mental plains based upon proposals for developmental proj ects and programs received from all ministries, gover- norates, agencies and public and private enterprises. The Ministry also follows up the progress of the Plans and reports to the Supreme Council. Planning and Follow-up Offices are set up in all public agencies and enterprises to study the technical and economic aspects of development projects and programs to be executed by their organiza- 4 2 8 tions after their incorporation in the National Plan. In addition temporary consultory committee comprising experts in every field were set up to assist in formulating the First Five-Year Plan. In formulating the developmental Plans, the Minis try of National Planning has relied heavily for economic measurements and projections on economic accounting. The writer evaluated the various techniques and proposed sev eral improvements, particularly in constructing input- output tables and financial-flows accounts. He also criticized that various policy measures to implement the Plan were not incorporated in it. The First Five-Year Plan was essentially based on proposed investment projects, the execution of which was largely entrusted to public organizations and agencies. The state budget and the exchange budget have been related to the developmental plans, and as such, they have become effective tools in plan execution, particularly in the public sector which has shouldered the greater responsibil ity of Plan execution. The General Public Organizations have been required to coordinate the activities of both the public and private enterprises in the part of the 429 economy for which they arc responsible. The participation of the private sector in plan execution has been encouraged and induced through various direct and indirect methods. Following up the progress of plan execution has been carried out on various levels of economic activities through a system of multiple control. The writer pointed out the advantages and disadvantages of such a system and recommended a review of the functions and coordination of activities of the control authorities. Chapters V and VI were devoted to an analysis and appraisal of some basic strategies which have been adopted in planning economic development in the United Arab Repub lic in the light of theoretical discussions regarding these strategies. To raise the standard of living, a prime economic target has been set at doubling national income within the Plan period July 1960-June 1970. In the First Five-Year Plan, a target for gross national income was set at L.B.2564 million, involving am increase of 40 per cent which was to be derived from a 42.2 per cent increase in gross domestic production. Other instrumental targets were set for such variables as investment, final consump- 430 tion, labor employment, and wages. The adopted strategy regarding the role of the pub lic and private sectors in developmental planning did not adhere to general frame of the First Five-Year Plan, but was later delineated in the National Charter. The public sector has been expanding rapidly, particularly since 1961, through nationalization, implementation of major projects, and establishment of the General Economic Organizations. The enlargement of the public sector has been prompted largely by the inability and unwillingness of the private sector to undertake developmental projects, by the need to control strategic branches of economic activities, and by the desire to establish a socialistic sector to execute the State's socialist policy. With regard to the strategy of balanced growth versus unbalanced growth, the writer could not determine in a definitive manner what the adopted strategy during the partial planning period was, since elements of both these strategies could be found in this period. The bal anced growth strategy was intended to be followed in the General Frame of the First Five-Year Plan. This was re vealed through the examination of the Plan document as 431 indicated by several statements contained therein, as well as by the pattern of investment distribution among various sectors of the economy, the targets of production, the magnitude of the planned "big push" in interdependent proj ects, and the system of balances. During the partial planning period, emphasis was placed upon redressing the imbalance in the economy as a result of its heavy reliance on agriculture. Towards this end, the State initiated an industrial program, partici pated directly in industrial projects, and encouraged the private sector to participate in similar projects. The drive towards industrialization did not lead to the neg lect of agriculture during this period. Developmental strategies were adopted to promote the expansion of this sector vertically through raising land productivity, and horizontally through land reclamation. In addition, one of the most significant efforts in this direction was the initiation of the first Agrarian Reform. The same strategy of developing both agriculture and industry, with continued emphasis on industrialization, continued to be pursued in the First Five-Year Plan. Hence, more investment funds were allocated to industry than to agriculture, resulting 432 in structural changes as analysed by the writer in this section. The strategy adopted regarding foreign trade was mainly based on diversification and control. The State's policy has been that of reducing the heavy dependence on exporting one primary product (cotton) and to expand other agricultural crops and manufactured goods. The import policy has been based primarily upon meeting the deficit in domestic production through importation. Priority has been given to imports of capital and intermediary goods needed for developmental activities, with due considera tion to "essential" consumption commodities. Consequently, the trade deficit was expected to turn into a surplus by the end of the Plan period. Heavy reliance was placed on foreign financing of planned investments during the First Five-Year Plan. The larger share of foreign currencies were allocated to in dustry, while other sectors were to depend largely on domestic financial sources. In Chapter VII, the writer examined and critically evaluated the results achieved through developmental plan ning, with particular emphasis on the attainments of goals of the First Five-Year Plan. The indicators of achieve ments discussed were those related to economic development, equitable distribution of wealth and income, labor employ ment, equitable distribution of wealth and income, labor employment, price stability, and allocational and adminis trative efficiency. The average annual rate of growth in real gross national income was estimated at 4.5 per cent during the partial planning period. During the First Five- Year Plan, the average annual rates of growth in real gross domestic production and national income were estimated at 7.3 per cent and 7.4 per cent. These rates of growth indicate the outstanding successful achievement of devel opmental planning in promoting economic development, par ticularly when compared with the very low rates of growth in Egypt before the Revolution, or when compared with the rates of growth in other developing countries. However, the actual rates of growth have fallen short of their planned targets set forth in the First Five-Year Plan by a small margin, and deviations occurred between actual achievements and planned targets in every sector of the economy, which may be attributable to several factors. Among these factors are the unrealistic targets set forth 434 in the Plan, institutional changes and plain rigidity, non conformity with planned balanced growth strategy, inade quate coordination of production activities, bottlenecks encountered by some sectors, and problems of inefficiency. The First Five-Year Plan called for a large invest ment program, of which 89.6 per cent were actually imple mented. The larger share of these investments were under taken by the Public sector. However, the investment program cannot claim a high degree of optimality. In addition, there was a lag in actual implementation and deviations from the planned targets, due particularly to shortages of foreign exchange, and of technical, managerial and administrative talents, and to inadequate coordination among investment projects. Regarding the main objective of developmental planning to raise the standard of living of the population, the analysis undertaken in this chapter indicated its suc cess as measured by per capita income and consumption and by improvements in social and welfare services. Although the increase in consumption has undoubtedly improved the material well-being of the population, it was not accom panied by an adequate increase in the average propensity 435 to save, as called forth in the Plan. Heavy reliance on foreign borrowing was apparently resorted to, to finance capital investments. Furthermore, consumer demand for some necessary commodities exceeded local production and the rates of imports were consequently accelerated, which in turn, aggravated the balance of payments problem. The expansion and improvement of social welfare services has constituted an essential element in raising the standard of living. Education is now freely provided for all citizens, social and welfare services has expanded in many directions, and social insurance schemes cover civil servants and workers in public and private enter prises. The writer traced the development of foreign trade in relation to economic development and in comparison with the First Five-Year Plan. Imports increased during the First Five-Year Plan at an average annual rate of 15.5 per cent, which was contrary in its direction to the planned decrease of 1.0 per cent per annum. In the process of economic development, heavy reliance has been placed on imports, particularly of capital and intermediary goods. Also, imports of consumer goods have significantly in- 436 creased, to meet the rapid increase in consumer demand due to population growth and to the rise in their purchasing power. The average annual increase in exports during the Plan period was equivalent to 7.9 per cent which was higher than the planned rate of 4.4 per cent. Although raw cotton continued to constitute the major part of Egyptian exports, nevertheless, it declined in relative importance during the Plan period, which was in line with the planned strategy of diversification of exports. This decline was attributed to the increase in domestic consumption and to the crop failure in 1961. Adverse balances of trade and of payments con tinued to persist during the First Five-Year Plan as a result of the rise in imports at a rate higher than that of exports. The planned target of converting the trade deficit into a surplus did not materialize. Invisible revenues, particularly Suez Canal dues, although increas ing, were insufficient to reduce the deficit in the bal ance of current transactions. The deficit was largely financed by inflows of capital remittances. The prime social objective in the United Arab Re- 437 public is to achieve an equitable distribution of wealth and income through reducing existing inequalities and through increasing equality of opportunity. By implement ing the Agrarian Reforms of 1952 and 1961, a substantial equalization in the distribution of landed property has been accomplished, as revealed by the analysis of statis tical data. The enactment of the Socialist Laws of 1961, which included nationalization of private corporations, raising the progression in the general income tax's rates, intro duction of profit-sharing schemes in corporate enterprises, have significantly reduced the inequalities in wealth and income distribution. Wages as a share of national income increased as a result. In addition, to increase equality of opportunity, the Government expanded free social and welfare services, reduced land and house rents, and under took construction of housing units for low-income groups. Although the various measures were successful in achieving a more equitable distribution of wealth and income, their implications for economic development were not altogether favorable in every case. Labor employment and wages expanded during the Plan 438 period beyond the planned targets, which was unwarranted by the actual increase in labor productivity. The diver gence between actual and planned increases in employment and wages could be partly explained by the unwillingness of the Government to restrict labor employment to actual production needs for social considerations. Nevertheless, many cases of unemployment and underemployment still exist particularly in the agricultural sector. Also, in spite of the wide training and educational program undertaken by the Government, there have been shortages of technical and managerial manpower. As to price stability, an analysis of price in dices showed relative stability in prices, which could be attributed to price controls. However, behind this stabil ity, various inflationary pressures have existed. These pressures were revealed by the existence of black market prices, some product shortages, and the growth in money supply at a much higher rate than that of real national income. Both the demand-pu11 and cost-push inflationary pressures seem to have been operative in the Egyptian economy. The final section in this chapter concentrated on 439 & brief analysis and evaluation of two aspects of effi ciency. The first aspect was that of efficiency in re source allocation, which was measured as a percentage of value added to gross value of production. It was found that during the Plan period efficiency, for the economy as a whole, has deteriorated, and that, except for industry, construction, and transportation, efficiency has either remained the same, or has deteriorated. Various elements seem to have caused such a situation, among which were: consideration was not duly given to the efficiency problem in formulating and executing the investment program; opti mum project location was not taken into account; several cases of decreasing labor productivity occurred; and technical research has not been adequately handled. The price system has not offered an efficient method for re source allocation due to several deficiencies such as the existence of shortages of various commodities, black mar ket prices, and nonadherence to profit maximization prin ciple. The second aspect of efficiency analysed in this section was that of administrative and managerial effi ciency. Several factors seem to have adversely affected it, such as breach of contracts, inaccurate achievements 440 reporting, inefficient organization, ambiguity of objec tives and centralization, overstaffing, and non-coordina tion of control authorities. Conclusions The foregoing study attempted to analyze and appraise the experience of the United Arab Republic in developmental planning. This experience, which was traced to the beginning of the Revolution in 1952, is so recent and brief, that any conclusions stemming from its study would necessarily be tentative. Moreover, the fact that institutional structures have been changing at a rapid pace makes the formulation of significant conclusions even more difficult. However, if the analysis and evaluation under taken in this study are correct and valid, they would suggest that various meaningful conclusions can be drawn with some degree of certainty. Partial planning, which was carried out during the first stage of developmental planning, was the first attempt to coordinate developmental activities on a national level and valuable insights were obtained from this experience. Moreover, partial planning was undoubt edly instrumental in changing the economic and social 441 structure through the initiation of the industrialisation program and agrarian reform* However, not all the sectoral programs and projects undertaken during this stage were fully successful, which may be attributable to inadequate studies and to insufficient economic resources* The par tial success of these programs would also indicate the validity of the contention of the weakness germaine to all partial plans due to their lack of coordination and inte gration. The First Five-Year Plan achieved a remarkable success in attaining its general objectives, although the actual performance of individual economic sectors deviated from their planned targets. This success is even more outstanding when one recalls that the Plan was the first attempt at national comprehensive developmental planning, that experiences were lacking in plan formulation and execution, and that various shortcomings and bottlenecks were persistent during the Plan period. Several conclusions can be drawn from the analysis and evaluation undertaken by this writer of the formula tion, adopted strategies, and achievements of the First Five-Year Plan. If the methods of plan formulation are to be 442 improved, it is imperative to appraise consistently invest ment projects according to uniform criteria, and to include in the Plan project location balances and detailed finan cial and credit programs. A periodical revision of the Plan is also needed to ensure that it is adapted to chang ing situations unforeseen by planners. This is an enor mous undertaking, particularly as is known, the economy becomes more complex as it develops. However, this task can be greatly simplified through the use of computers (which are now available at the Ministry of National Plan ning) . Because of its aggregative nature (except for investment projects), the First Plan did not seem to pro vide a valuable and adequate detailed guide to producers. Neither did the price system offer a better guide, because of its various deficiencies. If this is so, subsequent plans need to disaggregate the various variables down to the enterprise level, which, in this case, calls for tighter hierarchical control. The other alternative would be, placing heavier reliance on the price system which necessitates a revision of price controls so that relative prices reflect relative scarcities. This could also result 443 in improving greatly the quality of future plans through raising efficiency in resource allocation* Although the various developmental strategies which were adopted in the First Plan seemed adequate to the Egyptian economy, they were not altogether adhered to, as revealed by the various achievement indicators. Social and humanitarian considerations seem to have been among the main causes for such divergence. This factor resulted in diverting economic resources from commodity-producing sectors to service-producing sectors, and imbalance occurred between these sectors. The same considerations prompted an increase in labor employment and wages beyond the planned targets and beyond real needs and, consequently, productivity was impaired. Such effects need to be re dressed in future plans, and the attitude towards social versus economic considerations need to be revised, in order to accelerate the rapid pace of economic growth, provided, of course, that such an objective continues to be consid ered the basic instrumental goal in achieving a rising standard of living. This does not mean that social con siderations are to be completely ignored; but what is needed is to find an optimum solution whereby a balance 444 can be attained, and whereby the rate of economic growth is not slowed as a result. The Egyptian experience in comprehensive planning during the First Plan indicates that it was significantly successful in accelerating the rate of economic growth, raising the standard of living and attaining a high degree of equitable distribution in income and wealth. Neverthe less, this experience, thus fax, suggests that it was not effective in dealing with some major developmental prob lems such as slowing the rapid population growth, decreas ing the rate of increase in consumption, reducing the balance of payments deficit, curbing inflationary pres sures, providing for an adequate incentives system, and solving the efficiency problem. Proper solutions for these problems need to be sought and incorporated in subsequent plans; otherwise, almost all successful achievements attained thus far may not continue in the future at the same accelerated rates, and there are fears they may even be diminished. The experience of the First Plan suggests also that the high rate of economic growth achieved was largely due to increasing the productive capacity through capital investment. Subsequent plans will, undoubtedly, call for an even larger volume of capital investment, if doubling national income every ten years continues to be a prime target. However, the country cannot possibly continue to rely heavily on foreign borrowing to finance its invest ment without aggravating further the balance of payments problem and without imposing a heavy burden on future generations. Hence, the average and marginal propensities to save must increase, an aim which was not realized during the First Plain. In addition to inducing an increase in voluntary saving, taxes, social insurance contributions, and the price system are among the basic methods that need to be explored and effectively employed towards this end. To conclude, during the short period in the United Arab Republic, developmental planning has proven to be an effective tool in outlining the country's economic poten tialities for growth and designing its future path in a conscientious manner. It has, undoubtedly, been an invalu able method used to pull the economy out of the stagnant condition which prevailed before the Revolution, and to launch the economy into sustained growth. However, the full achievements of the First Five-Year Plan's goals and 446 targets could have, most probably, been possible, had the planned developmental strategies been followed, had the developmental problems, bottlenecks and difficulties been adequately dealt with at the appropriate time, and had the efficiency problem been solved* The main point to be emphasized is that having a developmental plan, by itself, does not automatically mean its success in all its phases. The plan must not only be optimally formulated; it must also be efficiently imple mented. It must create and mobilize the willingness of all segments of the population to attain a better living standard, convince them to endure whatever sacrifices are necessary to achieve this aim, and to induce them to actively participate in developmental efforts. APPENDICES APPENDIX A INTERNAL ORGANIZATION OF THE MINISTRY OR NATIONAL PLANNING The Ministry of National Planning in the United Arab Republic is organized into four divisions, eighteen specialized units and two groups for general research as follows Divisions Documentation, Training and Calculations Programming and Follow-up Income and National Accounts National Economic Structure lf,Al-Tanzeem Al-Aam Le-Aghezet El-Takhteet Fil Dawlah; Rl-Gehaz El-Fanni Lel-Takhteet El-Qawmy,” (The Gen eral Organization of the Planning Machinery in the Nation; The Technical Staff of National Planning), National Plan ning Commission, Itar Al-Khetah Al-Aama Lel-Tanmieh Al- Iqtisadieh W'al-Iktimaieh Lel-Sanawat Al-Khams, Youlieh I960— Younieh 1965 (Cairo: Al-Haieh Al-Aama Le-Sheoon Al- Matabe' Al-Amirieh, 1960), pp. 467-474. Specialised Units Agriculture and Land Reclamation Irrigation, Drainage and the High Dam Industry and Energy Construction and Housing Communication and Transportation Internal Trade External Trade Insurance and Banking The State Budget Population and Manpower Business Organization Social and Welfare Services Organization of Administrative Government Commodities and Services Balances Income and Transfer Payments Balances Input-Output Follow-up of Execution Foreign Aid Study Groups Operational Research Group Economic Research Group APPENDIX B THE SYSTEM OP NATIONAL ACCOUNTS AND THEIR RELATION TO DEVELOPMENTAL PLANNING IN THE UNITED ARAB REPUBLID The accounting structure is more than a set of rules and definitions; it is a frame of reference. It enables the economist to visualise economic events in orderly consequence, and to keep in mind essential relationships so that none is forgotten. It provides no automatic solution to economic prob lems, but helps chart the method of attack. In short, the accounting structure would be useful to economic analysis even if no data were available for the variables of which it is composed.1 In designing these accounts, it has been the policy of the planners at the Ministry of National Planning to develop a system that allows for maximum flexibility where by it becomes possible to make use of the existing statis tical data, to absorb new data when they are made avail able, as well as to use these accounts in different analyt- John P. Powelson, National Income and Flow-of- Funds Analysis (New York: McGraw-Hill Book Company, Inc., 1960), p. 1. 451 ical models.2 The accounts have been designed so that they can record all important economic transactions and present their inter-relationships thus yielding significant aggre gates which will help the planners in determining the aims 3 and means of economic policy for the country. The system of accounts is built around the National Income Accounts supplemented by two related techniques, namely, Input-Output Tables and Financial Flows Tables. A brief description of the system in the United Arab Re public is given below. National Income Accounts The objectives of the National Income Accounts are to provide for the measurement of national income and the national product, as well as income and transfer payments to the factors of production. These accounts also identify 2Nasih A. Deif, "Some Uses of Economic Accounting in Planning Economic Development of the U.A.R." Paper pre sented at the International Association for Research in Income and Wealth, Middle Bast Regional Conference, Istan bul, 24th-29th August, 1962. (Institute of National Plan ning, Cairo, 1962) (Mimeographed.), p. 27. 3 National Planning Commission, General Frame of the 5-Year Plan for Economic and Social Development, July 1960-June 1965 (Cairo: General Organisation for Government Printing Offices, 1960), p. 182. 452 such aggregates as saving, investment, consumption, and transactions with the rest of the world. The analysis of these accounts makes it possible to trace the development of each economic sector in terms of the income it generates and the changes in the components of its sources and uses. Such analysis allows for the prediction of anticipated magnitudes and thus serves as a basis for formulating national plains, as well as for following-up their progress. The framework of the National Income Economic Accounts is based upon recording the economic transactions of the sectors of the economy in a number of accounts. Classification of the Sectors A sector can be defined as being "a group of in dividuals or institutions whose transactions are accounted for together."^ A functional breakdown of economic activ ity is used for classifying the economic groups into four main sectors which acre further subdivided into sub-sectors according to their organizational and legal forms as fol lows} 4R. Ruggles and N. Ruggles, National Income Ac counts and Income Analysis (New Yorkt McGraw-Hill Book Co., Inc•, 1956), p• 27• 1. The Business Sector The Business Sector consists of all economic units the transactions of which are essentially "related to pro duction or investment leading to an increase in the pro ductive powers in the future."5 This sector is subdivided into two groups. a) Government Business Enterprises: These enterprises include all establishments which are owned and controlled by the Government, and are organ' ized similarly to business enterprises to operate in various fields of economic activities, such as The General Organization for Railways, The Agrarian Reform General Organization, and The General Organization for Petroleum Affairs. b) Private Business Enterprises: These enterprises consist of two groups. (1) The Organized Business Group: This group consists of all corporations which are cov ered by the Law No. 26 for the year 1954.7 This National Planning Commission, op. cit., p. 183. 6Ibid., p. 185. 7Ibid. 454 Law is concerned with the organization of joint- stock companies. The limited partnership (by share), and the limited liabilities companies are included in the group. (2) The Non-Organized Business Group: This group comprises all other companies which are not subject to the afore-mentioned Law No. 26. This group includes general partnership and limited liabilities partnership enterprises. 2. The Government Administration Sector The following organizations are included in this sector: The public organizations and the various govern ment departments that undertakes to furnish collec tive services to the society, either of the classi cal type connected with the sovereign authority such as security and justice, or, of the type the government provides for the benefit of the people and not for profit.8 3. The Household Sector The Household Sector comprises all individuals "aiming by their activities at the satisfaction of their 8Ibid., p. 183. 4 55 living needs."9 It should be noted that individual enter prises are also included in this sector instead of includ ing then in the non-organised business sector, as it has not been possible to separate the individuals in their capacity as consumers and the individuals in their capacity as producers, due to lack of adequate statistical data. Non-profit organizations, such as charitable societies, trade unions, as well as foreign and international organi zations operating in the United Arab Republic, and all cooperative societies are included in this sector. 4. The Rest-of-the-World Sector This sector is composed of "all individuals, organ izations and establishments that exist beyond the national boundaries and have business contacts with the local sec tors through either commercial or financial exchanges."10 The Structure of the Accounts The transactions recorded in the national income accounts are classified according to the basic economic activity which they are related to; namely, production, consumption, and investment. 10Ibid., p. 184. 456 The Production Account is designated for recording transactions related to production! whether that produc tion is channelled to the market or is used up by the pro ducing unit. This account shows gross income of the busi ness sector recording the value added, collected interests and production subsidies, on the one hand, and wages and salaries, paid interests, social compensations, and indirect taxes on the other. No production account is made for the other sectors. The Appropriation Accounts are established for all domestic sectors. For the Business Sector, this account shows how the income generated from productive activities is used. The account for the government administration records all current revenues and expenditures. In the account for the Household Sector, all current resources obtained by the sector are recorded as well as the use of these resources for final consumption, savings, and payment of taxes. The Capital Accounts are also constructed for all domestic sectors. In this account two major types of transactions are recorded. First there are those trans actions related to capital formation, whether they consti tute changes in fixed assets or in stocks of commodities. 457 The second type of transactions ace those of lending and borrowing resulting in changes in the debt-credit position of the sector. All economic transactions of the outside world with the United Arab Republic are confined to one account.^* Closely related to, and based upon the National Income Accounts are the National Budgets and the Bconomic Tables. National Budgets are constructed yearly including one for the base year of the rive-Year Plan. They are projections of the National Income Accounts for these years within the general frame of the Plan. These Na tional Budgets are used in following-up the progress of the plans, and, hence, they may be considered as tools of plan implementation and control. Two main Bconomic Tables are the outgrowths of the estimates of National Income Accounts and the National Budgets. The first table is that of Revenues and Expendi tures of the Main Sectors which shows these transactions classified in terms of commodity, income and transfers, and net lending or borrowing. The second table, the Summary Bconomic Table gives in a comprehensive manner, 13-Ibid.. pp. 206-208. 458 a summary of the total transactions, recorded in the National Income Accounts and the National Budget, and shows the nature and type of transactions performed by the four 12 main economic sectors. These two Tables show the inter relationships among the sectors and constitutes an impor tant technique of balances in monetary terms. Commodity Balances and Input-Output Tables The Ministry of National Planning prepares for the plan years a general type of Input-Output Tables in which sectors are crossed against products. These tables are 13 called Commodity Balances. They show for each commodity, on the one hand the available resources from local produc tion and inports, and on the other, the uses to which they are put; final consumption, commodity production require ments (intermediate consumption), investment, increases in stocks, and exports. The total of available resources is balanced against their uses by each main commodity sec tor, namely, agriculture, industry and electricity, as well as by commodity groups. The products of the agricul- 12Ibid., p. 208. 13Ibid., Section 3, pp. 53-87. 4 5 9 tura.1 sector include forty-two commodities, while indus trial products are classified into one hundred and twenty- seven commodities. It should be noted that the item "increase in stocks1 * is treated as a residual, while con structing the tables, due to a lack of statistical data about the inventories at the beginning and end of each year for which the tables are made. The commodity resources uses are evaluated at fac tor cost and at market prices. For the factor cost eval uation, the value of the elements of resources and uses are shown, excluding indirect taxes and including govern ment subsidies. Imports are evaluated C.I.F. while exports are based upon F.O.B. Trade stargins which include trans portation costs are added to final consumption items, while costs of research, planning, management of investments and costs of construction and fitting of machines are added to investment items. The estimates at market price are obtained by adding commodity taxes. For the commodity producing sectors, tables are constructed to show the flow of intermediate commodities among them whereby these commodities are evaluated at users* costs. These costs are estimated at market price, including commodity taxes as well as trade and transports- tion margins. The estimates in the Commodity Balances cover both the public and private sectors. For each year, including the base year and the last year of the Five-Year Plan, the Ministry of National Planning depends on the estimates of local production of projects of the plan, as given by the various ministries and other organisations. The Ministry of National Planning has used the data available from the Commodity Balances, as well as those from the Income and Transfer Balances in constructing 14 Input-Output Tables for the Years 1954 and 1959. Though the required statistical data were not always available or accurate, an investigation of the main elements of the inter-industry relationships was carried out to reach a reasonable approximation of these transactions in practice. Particular attention was given to the value added, to *For the description of Input-Output tables and their uses in economic planning in the United Arab Repub lic, this writer has drawn heavily on Gamal B. Eleish, "Uses of Input-Output Model in Development Planning in Underdeveloped Countries," Paper presented at the Inter national Association for Research in Income and Wealth, Middle Bast Regional Conference, Istanbul 24th-29th August, 1962. (Institute of National Planning, Cairo, 1962) (Mimeographed) 461 gross production} to foreign trade, and to the elements of final demand of each sector. Emphasis was placed on the strategic inputs which have high coefficients, such as fertilisers in the agricultural sector. To construct the Input-Output Tables, the Commodity Balances proved useful in providing the necessary informa tion concerning the distribution of the output of any one of the various productive sectors, as well as the sectors of final demand, which made up the rows of the table. At the same time, the construction of the columns of the tables proceeded using the results of a sample survey of the structure of the sectors involving the examination of the production accounts of some 600 concerns. Other neces sary information was also collected by the Ministry of National Planning, which permitted the construction of the Input-Output Tables. The tables constructed for 1954 and 1959 were of the order of ”83 x 83M and "33 x 33" successively. In both tables, the final demand has been divided into six sectors; household consumption, public consumption, private invest ment, public investment, exports, and stocks. The evalua tion of various elements are at producers' prices, except 462 for exports which are evaluated at F.O.B. prices and im ports at C.I.F. prices. The tables distinguish between the flows of domestic production, and those of imports, and hence, an interflow matrix is set up for each. The import matrix has been particularly valuable in studying the effects of import substitution policy, in addition to calculating the need for foreign currency for investment programs. The Input-Output Tables provide the planners with a valuable tool in determining the production targets for the various productive sectors to satisfy the direct and indirect requirements from every sector created by the projected final demand. Thus, it is possible to discover potential bottlenecks and excess capacities which may result from adopting a certain strategy for development. Moreover, by tracing the recorded transactions, Input-Out put Tables give the planners a better and more adequate understanding of the interdependence of the various sec tors of the economy, and hence, provide the planners with a systematic method for structural analysis. Through such analysis, it is possible to determine the degree of inter dependency among individual industries, and the weight of 463 the different sectors on the rest of the economy. In addition, Input-Out put Tables provide the plan ners with a useful tool for sectoral analysis. A separate table is constructed for each sector which is considered to be of particular importance, such as,-agriculture or industry. A study for such a particular sector is con ducted by disaggregating the information contained in the row and column of that sector in the Input-Output Table. By disaggregating the row of the sector into various com modities (where such information is available), it is pos sible to calculate the needs of the different sectors of the economy for each of these commodities. On the other hand, by disaggregating the information contained in the column of the sector, which shows the inputs going into the production of a particular commodity, it is possible to calculate the effects of changes in the production of this commodity. Such analysis for the industrial sector, was carried out by the Institute of National Planning. The Ministry of National Planning has also used Input-Output analysis to calculate coefficients which show the direct and indirect requirements from imports, labor to, and the income generated from twenty-five different 464 categories of investments* Such calculations have proved valuable to the planners and policy makers in testing the consistency of various investment programs and economic policies. Input-Output Tables are also used in preparing the National Budgets. This is carried out by calculating a set of coefficients showing the direct and indirect require ments of inports, value added, and household income as a percentage of final demand. By projecting the changes in the elements of final demand for the year for which the National Budget is prepared, and by using the afore-men tioned coefficients, it is possible to trace the effects of the change in final demand on imports and incomes. Financial-Flows Accounts15 Development of the System The Financial-Flows Accounts are a comprehensive This section relies heavily on two previous studies done by this writer, Samir Y. Sidhom, and Ali A. Labib, "Structure and Development of the Financial Flows System in the U.A.R.," (in Arabic), Memo (Institute of National Planning, Cairo, 1962), and Samir Y. Sidhom, "Fi nancial Flow-of-Funds System in the U.A«R.,n a Research paper submitted to the Graduate Program in Economic Devel opment, Dept, of Economics, Vanderbilt University, Nash ville, Tennessee, 1963. 465 logical framework designed to provide for the measurement of available funds in each .sector of the economy, tracing the channels of credit flows, and indicating the changes in the financial assets and liabilities of each sector that took place within a certain period of time. Further more, it is possible, through the analysis of these Accounts, ". • .to trace the effect of different monetary and credit policies upon the general functioning of the economy Prior to 1958, no attempt was made in the United Arab Republic to establish any framework for a comprehen sive study of financial transactions, on a national level, along the Flow-of-Funds System. The first attempt was carried out by the Financial Unit at the Ministry of National Planning for the years 1957 and 1958. A system designed to trace the financial flows in the economy, was initiated by Dr. Charles Prou, Secretary General of the Institute of Economic Programs, Paris. The structure of these Financial-Flows Accounts was based upon the French System of this period and adapted to the economic structure 16Ruggles and Ruggles, op. cit., p. 203. of the United Arab Republic. The classification of the sectors, in these Accounts, followed the same method as those of National Income Accounts. Those unite which performed an important role in the financial activities (the Financial Inter mediaries) were separately grouped, while in the National Income Accounts, they were not identified, but were treated as a part of the business sector. Hence, the sectors were classified as follows in the Financial Flow tables: A. The Economic Sectors: 1. The Private Non-financial Business Sector. 2. The Government Non-finaneial Business Sector. 3. The Government Administration Sector. 4. The Household Sector. 5. The Rest-of-the-World Sector. B. The Financial Intermediaries: 1. The Treasury. 2. The Banking System. 3. The Saving and Provident Funds. 4. The Social Insurance Organization. 5. The Postal Savings Fund. 6. The Economic Development Organisation. 467 In the Financial-Flows Tables, these sectors in columns were crossed with the financial and other economic transactions listed in rows within a framework of five interrelated tables. Table 1 recorded the financial trans- actions flowing from the Economic Sectors to the Financial Intermediaries. Table 2 recorded the financial flows that took place among the Economic Sectors. Table 3 recorded the financial flows that took place among the Financial Intermediaries. Table 4 recorded the financial flows from the Financial Institutions to the Economic Sectors. Table 5 recorded the saving and investment of all the sectors. The Financial-Flows Accounts which were constructed for 1957 provided for verifying the consistency of the National Income Accounts, since the statistical financial data were more abundant and more reliable. The writer had the opportunity to participate in the construction of these accounts for the year 1957. Later, when he went to Paris fox study, he became acquainted with a new system, which was then adopted in France.17 On 17 This writer is indebted, in this regard to Mr. S. Barthelemy of the Economic and Financial Studies Service at the Ministry of Finance and Economic Affairs, Paris. 468 the basis of these newer principles, the writer developed a new system which fitted the structure and financial activities in the United Arab Republic. The structure of the Main Table is similar to one adopted in Prance, but the method and structure of the separate sectoral Financial* Plows Tables are different. Moreover, the writer dis covered a means by which the Financial-Flows Accounts could be reconciled with those of National Income. Concerning this problem, the French have admitted the following: Adjustment with non-financial operations de scribed by the economic accounting system cannot be made in a rigorous way because of the defective ness of the methods used in drawing up financial accounts due to the aggregate character of available informat ion.18 The writer constructed the Financial-Flows Accounts for 1960/1961 and for July 1961 to January 1962 for finan cial reports on the follow-up of the progress of the implementation of the first year and the first half of the second year of the National Plan. These Accounts, which lfl S. Barthelemy, nLes Tableaux d'Operations Finan- fifere dans la comptabilitd Nationale Francaise," Etudes de Comptabilit^ Nationals. No. 2, Minist&re des Finances et des Affaires Economiques (Paris: Impremerie Nationale, 1961), pp. 28-29. Translation of the quotation is by this writer. 469 axe a type of financial balances puxpoxt to pxovide the planners with answers to the following questions: 1. How are the capital formations financed in the whole national economy and with respect to each sector? What is the role of domestic saving in financing invest ment, and to what degree and by what means does the economy resort to borrowing from abroad in order to cover the def icit? 2. Which sector of the economy has need for finance because of insufficient self-financing, and which sector is able to finance other sectors? What are the magnitudes of these needs or capacities to finance? 3. What are the main channels of financial flows among the different sectors; net lending and net borrowing leading to net indebtedness of the sectors, and in what form, of what magnitude, and of what relative importance are they? 4. What are the available financial sources fox the various sectors; from where are they derived, and how does each sector make use of them? 5. What is the role of the Financial Intermedia ries in financing capital formation in the whole economy? Which amongst them is the most active and effective in 470 collecting funds and in financing other sectors? What is the form and the magnitude of the funds channelled through the Financial Intermediaries and what is their relative importance? In addition, the Financial-Flows Accounts, through reconciliation with other balances of Economic Accounts, allow for the testing and verification of some aspects of these latter balances. The statistical data required for the construction of these accounts are derived mainly from the follow-up statements of the Financial Institutions. The latter are requested to supply the Ministry of National Planning with detailed information such as the distribution of their assets and liabilities, paid-up capital and deposits according to institutional sectors. In addition, credit facilities and deposits information are required to be distributed according to types and to branches of economic activities. The compilation and checking of the Banking System data is the responsibility of the Control of Banks Department of the Central.Bank. The Insurance Department is also responsible for checking the statements of the insurance companies, and submitting am aggregate statement for all these compamies. All these statements follow uni- 471 fled classifications and definitions set by the Financial Unit of the Ministry of National Planning together with the Financial Intermediaries. Moreover, data compiled by other governmental agencies, such as data about the public debt and the companies' paid-up capital are also used. In addition, the capital accounts of the four main sectors, which form a part of the National Income Accounts are also utilized. The Frame of the Accounts The new system of the Financial-Flows Accounts mentioned above is characterized by its classification of the transactions, the structure of its tables, and its link with the National Income Accounts. Classification of the Sectors In principle, the definitions and classification of the sectors are consistent with those of National Income Accounts, but with a more elaborate breakdown, whenever available statistical data allows. The Financial Inter mediaries, which are not separately identified in the National Income Accounts, are treated separately in the Financial-Flows Accounts. A functional breakdown of economic activities is 472 used to identify the main sectors, which are further sub divided into sub-sectors and groups according to their organizational and legal forms as followst 1. Non-Financial Business Sector a) Government Business Enterprises b) The Organized Business Sub-Sector c) The Non-Organized Business Sub-Sector 2. The Government Sector a) Government Administration b) Local Government c) Treasury 3. The Household and Non-Profit Organization Sector a) Household (1) Individuals (2) Non-Profit Organizations (3) Foreign Organizations b) Cooperative Societies 4. The Rest-of-the-World Sector 5. The Financial Intermediaries a) Government Pension Fund Organization b) Social Insurance Funds c) Insurance Companies d) Postal Savings Funds e) Banking System f) General Economic Organizations Classification of the Financial Transactions The financial transactions are recorded in the 473 National Income Accounts as a net balance for each of the four main sectors. The Financial-Flows Accounts distin guishes among the various types of financial transactions. Unlike the Flow-of-Funds Accounts of the United States of America, the United Arab Republic's Financial-Flows Accounts do not record current transactions, that is cur rent receipts accruing during a period of time as a source of funds, and current expenditures as a use of funds, since these latter transactions are recorded in detail in the National Income Accounts of the United Arab Republic. On the other hand, the Financial-Flows accounts are concerned with financial instruments, or in other words, with finan cial assets and liabilities. "A financial asset is a claim against some other person or institution for the perform ance of an obligation in the future."^® The financial claims are classified according to three criteria: the financial function of the claim, its degree of liquidity, and the personality of its debtor. < • ? o The financial transaction groupings used in the accounts is given below: 19 Powelson, op. cit.. p. 217. 474 A. Currency A-2.c. Treasury Currency A-4. Gold A-5.4. Bank Notes B« Deposits at B-5«d. Postal Savings Funds B-5.e. Banking System C. Securities issued by C-l.b. Non-Financial Organized Business Sub- Sector C-l.c. Non-Financial Non-Organized Business Sub-Sector C-2.c. Treasury C-3.b. Cooperative Societies C-4« Rest-of-the-World C-5«c. Insurance Companies C-5.e. Banking System C-5.f. General Economic Organizations D. Loans and Advances to D-l.a. Government Business Enterprises D-l.b. Non-Financial Organized Business Sub- Sector D-l.c. Non-Financial Non-Organized Business Sub-Sector D-2.a. Government Administrations D-2.b« Local Governments D-2.c. Treasury D-3.a. Household D-3.b. Cooperative Societies D-4. Rest-of-the-World D-5.c« Insurance Companies D-5.f. General Economic Organizations B« Bills Discounted for E-l.b» Non-Financial Organized Business Sub- Sector 475 E-l.c. Non-Financial Non-Organized Business Sub-Sector B-3.a. Household B-3.b. Cooperative Societies F. Debitors and Other Debit Accounts of F-l. Non-Financial Business Sector F-2. Government Sector F-3. Household and Non-Profit Organizations Sector F-4. Rest-of-the-World Sector F-5. Financial Intermediaries Whenever details of the above transactions are available and of value to the analysis, they are recorded in separate supplementary tables. Thus, for example, total deposits are recorded in the Main Tables, while their classification according to types of deposits, current and demand deposits, as well as according to the main branches of economic activities of the depositors, including agri culture, industry, trade, and services, are given in sepa rate supplementary tables. Method of Accounting The financial flows are measured in terms of changes in assets and liabilities between the beginning and end of the period under consideration. The net changes are recorded in the Accounts on the same sides as the stocks of the balance sheets, and preceded by a plus or a 476 minus sign* This method of measurement identifies only the net result of financial flows but not the ” • * • gross flows of acquisitions and sales and extensions of credit ocs and repayments. A cross-classification of the transacting sectors and the financial transactions is arranged in the form of a matrix in order that the identification of ’who-owes- what-to-whom,' is made possible. The recording is carried out on the basic principle of double-entry system. Structure of the Accounts The organizational structure of the Accounts con sists basically of placing the various items of the dif ferential balance sheets of each and sub-sector side by side. Each table is divided into two parts: the upper part of the tables, the financial transactions as pre viously classified, are recorded. The lower part of the tables deals with the non-financial transactions and serves as a link between the Financial-Flows Accounts and the National Income Accounts. This lower part can be looked 20 United States Board of Governors of the Federal Reserve System, Flow of Funds in the United States. 1939- 1952 (Washington, O.C.: Board of the Federal Reserve Sys tem, 1955), p. 12. 477 upon as a record of the capital operations of a sector, which indicates saving, investment, capital transfers and the balance of financial transactions. The latter balance should be equal to the figure representing the sector's need for or the capacity of finance resulting from the financial transactions which are recorded in the upper parts of the tables. For the economy as a whole, when the accounts are all taken together, saving must equal investment, capital transfer paid out must equal capital transfers received, and net borrowing (or need for finance) must equal net lending (or capacity to finance). But it should be noted that domestic saving need not equal domestic investment; the difference, if a deficit, is covered by net borrowing from Rest-of-the-World. APPENDIX C DEVELOPMENT OP THE STATE BUDGET AS PART OF THE PLAN1 The financial policies and administration of devel opmental plans are a basic element in their execution and control. This is particularly so in the United Arab Repub lic since the public sector accounts for the larger portion of developmental activities in the national economy. More over, the activities of the public as well as the private sectors are influenced by all of the Governments deci sions and actions which have financial implications. Any change in the role and functions of the Government involves a corresponding change in the size of the State Budget as well as in the structure of receipts and expenditures. This information regarding the development of the State Budget is largely derived from Atef Bl-Sayed, nLe Budget d'Etat de la R.A.U., Development et Classification,” Paper presented at the International Association for Re search in Income and Wealth, Middle East Regional Confer ence, Istanbul August 24-29, 1962, Institute of National Planning, Cairo, 1962 (mimeographed), and from Mohamed Mohamed El-Sayed El-Ghazar, "Falsafet Mizaniat Al-Barameg W*al Adaa," (The Philosophy of Program and Performance Budget), Egyptian Political Science Review, No. 50, Cairo, May 1965, pp. 15-48. 478 479 Before the Revolution, the Government had a negligible role to play in the economic life of the country; it was limited to carrying out some public services, particularly those of maintaining peace and order* From time to time, some projects, mainly for irrigation, were carried out by the Government, the expenses of which were covered by taxes. The method of Budgeting was simply and primarily that of estimating and recording receipts and expenditures which were considered sufficient for their needs. The state budget was of an executive type. It was divided according to administrative agencies; Ministries, departments, and administrations. The expenditures were classified into three main categories; salaries and wages, current expend itures, and new works. On the other hand, the classifica tion of revenues was made according to their sources, not according to their nature. Lists of budgetary proposals were prepared by all agencies of the government. These proposals were compiled by the Budget Bureau located in the Ministry of Finance, with no adequate scrutiny. Budget padding and bargaining at the Cabinet level was a known feature of the financial administration of this period. The execution of the budget 480 was slow, involving multiple checking, and had, at its prime objective, the prevention of illegality, stealing, and fraud. Control was exercised by the Central Accounting Agency. Bach government agency kept such accounts as was deemed necessary for its own purposes, and submitted annual reports to the Central Accounting Agency. The accounting system was complicated and was intended primarily to pre vent any misuse of funds. Many years would lapse before any auditing of accounts or any verifying and checking of the annual reports was done. With the advent of the Revolution in 1952, a new role for the government as an activator and initiator of economic and social development was envisaged. The State Budget, as it was before 1952, was inadequate to serve the Government in such a role. Its classifications lacked the clarity necessary for carrying out developmental programs. A new classification system was conceived by dividing the State Budget into an ordinary budget, with the same tradi tional items found in earlier budgets, and an Extraordinary budget reserved for developmental projects and programs. The projects were grouped according to the government agency concerned with their execution. Two main drawbacks 481 weakened the State Budget during this first post-Revolution period. On the one hand, there was a lack of harmony be tween the projects and programs established by the Perma nent Council of National Production. On the other hand, the cost estimations for these projects and programs were not always precise, but this might have been mainly due to the lack of statistics and insufficient technical studies. Budgetary and accounting procedures continued to be, more or less, the same as they were before the Revolution. The establishment of the Developmental Plan in 1960, called for a corresponding adjustment in budgeting methods to make budgeting an effective device in the exe cution of the Five-Year Plan and the annual plans. The State Budget needed to become a comprehensive statement in order for it to reflect developmental planning priori ties, and plan allocation of resources, as well as to facilitate the coordination of all developmental efforts to achieve planned targets. In addition, since the State Budget has been expressed largely in accounting terms, its classifications needed to be modified in such a manner so that the classifications corresponded to those in the Plans. Hence, a new classification of the Public Budget has been introduced and the Budget has been divided into two parts; the Service Budget, which comprises agencies of the Government performing public services of the tradi tional type, and the Production Budget, which comprises the public agencies and enterprises performing economic activities. This classification is of an economic-func tional character. For every public agency or enterprise, the transaction is classified according to the purpose for which the expenditure is allocated, or, in other words, according to the function such a transaction is supposed to perform, such as education, transport, and so on. Bach of these functions are further subdivided in economic categories including current expenditures on goods and services, capital investment, transfer payments, and bor rowing or lending. Such a system provides for the precise determination of the responsibilities for carrying out particular functions among the various agencies of the pub- 2 lie sector, at various levels. The public agencies prepare their budgetary pro posals according to unified classifications and definitions o United Nations, A Handbook of Public Administra tion, Current concepts and Practice with Special Reference to Developing Countries, (ST/TAO/M/16) (New York: United Nations, 1961), p. 81. 483 included in questionnaires. The questionnaire forms have been prepared through the collaboration of the Ministry of National Planning and the Budget Bureau. These proposals, after being prepared by the various units of the agencies of the public sector, are sent to the Budget Bureau, the Ministry of National Planning, and the Planning and Follow- up Offices. Combined committees formed from the represent atives of the above-mentioned agencies discuss these pro posals and determine their relevance to the annual and the Five-Year Plan. Bach representative then submits his report to the Ministry concerned. Once an agreement is reached in the Cabinet as to which budget proposals cor respond to the Plans, the Public Budget is submitted to the Supreme Council for National Planning and the National Assembly for further discussion, approval and adoption. APPENDIX D THE EXCHANGE BUDGET AND THE PLAN IN THE UNITED ARAB REPUBLIC1 An exchange budget may be defined as an estimate or projection of the expected receipts and expenditure of o foreign exchange during a certain future period. The establishment of such a budget is crucial in planning eco nomic development as developing countries are confronted by foreign exchange shortages. The uses of the foreign exchange budget are out lined below: 1. Exchange budgets serve as a device for allo cating scare foreign exchange among various uses. Priori- ^The information regarding the exchange budget in the United Arab Republic is derived mainly from Ibrahim Hassan El-Assawy, nThe Development of the U.A.R.*s Foreign Exchange Policy/' (in Arabic), Institute of National Plan ning, Memo No. 452, Cairo, January 1964. 2 A. A. Mattera, "Foreign Exchange Budgets in Latin America," International Monetary Fund, Staff Papers, Vol. IV, No. 2, February 195$, p. 288. 485 ties are usually assigned to government expenditure and importation of capital goods and materials needed for development plans. 2. They help as instruments of exchange and com mercial policy. 3. They enable the formulation of an exchange reserve policy whereby it is possible to determine the volume of surplus or deficit. 4. Where deficit is anticipated, and when reserves are not sufficient to cover such a deficit, it is possible to identify the extent of external finance. 5. It is possible to formulate budgets for short or long periods. The longer-period budget makes it pos sible to determine the country's capacity to service the debt.^ With the formulation of the first five-year indus trial program in Egypt, the first exchange budget was also prepared in 1957 covering a short period of three months. This budget took into account commodity exports and im ports only. The duration of later budgets was increased to six and then to nine months. Since I960, a yearly foreign 3Ibid., pp. 288-309 486 budget has been prepared which also covers invisible items and financial obligations. The preparation of the exchange budget begins first with an estimate of the exchange proceeds from commodity exports on the basis of historical statistical data, the development plans, and any potential changes in the situa tion. Then the invisible items, which include shipping, Suez Canal dues, transit trade, interest, dividends and other revenues accruing to the United Arab Republic are estimated. These estimates are derived from the average proceeds in the past and they are set so as to allow for possible changes in the future. Adding the estimates of the proceeds from commodity exports and from invisibles gives a figure for total esq^ort proceeds. Similar esti mates are also prepared for the payment of invisibles which includes any financial obligation to other countries during the budget period. By substracting the payments for in visibles from the total export proceeds, the expected net export proceeds that can be used to finance importation is thus determined. Where the expected net export proceed is insufficient, foreign loans are sought. Within the exchange budget, the allocation of for- 487 eign exchange is made according to a set of priorities* Essential consumption goods, government payments, and in termediate goods rank foremost in the order of priorities* The volume of imported investment goods which have been determined in the development plans, are then financed by the remainder of the exchange proceeds and available loans and credit facilities. It has been observed that the estimates of the exchange budget by various ministries and organisation do not conform to the relevant figures in the development plan frame. Moreover, there is a tendency among these organizations to overestimate the foreign exchange claims. Thus, the Ministry of Economy, which is responsible for formulating the foreign exchange budget bases its estimates on available information about supply and demand conditions while attempting to reduce the foreign exchange claims as far as possible. Moreover, the availability of foreign exchange, which is ^ffected in turn by the country’s seasonal pattern ) of expenditure and receipts, influence the appropriation of foreign exchange expenditures. Effective control of the exchange budget is hindered by the lack of such infor mat ion as the time when quotas are used, changes in the balances of foreign loans and credit facilities. Setting a time schedule for the usage of exchange expenditure would reduce the pressure of demand for foreign exchange during some months of the year. Apparently, setting aside a re serve of foreign exchange within the framework of the ex change budget tends to reduce the risk of unforeseen emergencies that may obstruct the execution of development plans. This waiter thinks that such reserves should be minimum as theijr opportunity cost would be undoubtedly very high. These reserves, if they have been used to import capital goods, would increase the country's productive capacity and they would increase employment as well. It has also been noted that some sectors manage to use more than their quotas of foreign exchange. This is attributed to the lack of efficient allocation of the sec tor's quotas to its enterprises. Moreover, each sector is permitted to redistribute its quotas among various uses. No doubt, such procedures hamper the efficient implementa tion of exchange budget and control. But the writer does not agree with the suggestion that allocating foreign ex change to each enterprise and each unit will solve the 489 problem. This practice does not seem altogether plausible to this writer as it would deprive the exchange budget of any flexibility, and it would induce more centralization of economic decision making in this direction, which seem to run counter to the recent trend of decentralization. It has also been suggested that the proper machinery for collecting and analysing data and for disseminating the relevant information be set up. Flexibility and periodic revisions of the exchange budget are necessary to ensure prompt adaptation of plans to changing conditions. It is the opinion of this writer that, in order that such sugges- i tions be carried out efficiently, and so that the exchange budget can be integrated with the development plans, the Ministry of National Planning together with the Ministry of Economy should establish a set of priorities and statis tical techniques of forecasting which should be applied consistently by the various other ministries and organiza tions. Close cooperation and coordination among the min istries, exchange controllers, import and export-control agencies, customs authorities and banks is necessary in order to achieve a better formulation and implementation of foreign exchange budgets. BIBLIOGRAPHY BIBLIOGRAPHY A. 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Bconomic Policy: Principles and Design. Am sterdam: North-Holland Publishing Company, 1956. ________ • Shaping the World Economy: Suggestions for an International Bconomic Policy. New York: The Twentieth Century Fund, 1962. Viner, Jacob. "The Influence of National Bconomic Planning on Commercial Policy," International Trade and Eco nomic Development. Glencoe, 111.: Free Press, 1952, pp. 96-122. Reprinted in Wayne A. Leeman, (ed.). Capitalism, Market Socialism and Central Planning. Boston: Houghton Mifflin Company, 1963. Waterston, Albert. Planning in Morocco: Organisation and Implementation. Baltimore: The Johns Hopkins Press, 1962. 498 B. PUBLICATIONS OP THE GOVERNMENT, LEARNED SOCIETIES, AND OTHER ORGANIZATIONS Abdel-Ghani, Mohamed Ibrahim. "An Appraisal of the Animal Production Projects of the First Five-Year Plan of Agricultural Development in the U.A.R." Institute of National Planning, Memo.No. 479, Cairo, October 1964. Abde 1-Rahman, I. H. "The Requirements for Regional and Developmental Planning." Being an invited address to the tenth anniversary meeting of the Operations Research of America, Washington, May 9-11, 1962. Institute of National Planning, Memo. No. 182, Cairo, May 7, 1962. "Address by President Gamal Abdel Nasser at the Alexandria University Celebration of the Anniversary of the July 23 Revolution, on July 28, 1965 at Alexan dria." Speeches by President Gamal Abdel Nasser on the Occasion of the Thirteenth Anniversary of the Revolution, July 1965. Cairo: Information Department, 1965. "Address by President Gamal Abdel Nasser at the Great Popular Rally at Gumhuria Square on the Occasion of the Celebration of the Thirteenth Anniversary of the Revolution, July 22, 1965." Speeches by President Gamal Abdel Nasser on the Occasion of the Thirteenth Anniversary of the Revolution. Cairo: Information Department, 1965. "Al-Tanzeem Al-Aam Le-Aghezet Bl-Takhteet Fil Dawlah; El- Ghaz Bl-Fanni Lel-Takhteet El-Qaway," (The General Organization of the Planning Machinery in the Na tion; The Technical Staff of National Planning.) National Planning Commission, Itar Al-Khetah Al- Aama Lel-Tanmieh Al-Iqtisadieh W'al-Iktimaieh Lel- Sanaaat Al-Khams, Youlieh 196Q--Younieh 1965. Cairo: Al-Haieh Al-Aama Le-Sheoon Al-Matabe' Al- Amirieh, 1960. 499 Baghdadi, Hassan. "Report by Agrarian Reform Minister." United Arab Republic, Achievements and Future De- velopment Plans. Cairo} Information Department, 1960. Bor, M. Z. "Draft Relating to Chapters 1, 2, 3, and 4," Annex II. United Nations, Planning for Bconomic Development. Report of the Secretary-General, transmitting the study of a Group of Experts. A/5533/Rev.1. New York: United Nations, 1963. Chenery, Hollis B. ''Development Policies and Programmes," United Nations, Economic Bulletin for Latin America, Vol. Ill, No. 1, (March 1958). Conference on the Problems of Economic Development? Papers. Cairo: General Organization for Government Print ing Office, 1962. Deif, Nazih A. "The System of Follow-up of the First Five- Year Economic and Social Plan." Paper presented at meeting held at the Federal Institute of Plan ning in Yugoslavia, April 19-May 1, 1961. Insti tute of National Planning, Memo. No. 141, Cairo, February, 1962. Egypt. "Kanoon Rakam 493 Lesanat 1953 Be-Insha* El-Magliss Al-Da'em Lel-Khadamat Al-Aama," (Law No. 493 of 1953 Establishing the Permanent Council for Public Services). National Planning Commission, Itar Al-Khetah Al-Aama Lel-Tanmieh Al-Iqtisadieh Wfal- Iktimaieh Lel-Sanawat Al-Khams, Youlieh 1960-- Younieh 1965. Cairo: Al-Haieh Al-Aama Le-Sheoon Al-Matabe» A1-Amirieh, I960. ________ • "Marsoum Bekanoon Rakam 213 Lesanat 1952 Be- Insha' El-Magliss Al-Da'em Le-Tanmiet Al-Intag Al- Qawmy," (Law Nc. 213 of 1952 Establishing the Per manent Council for the Development of National Production). National Planning Commission, Itar Al-Khetah Al-Aama Lel-Tanmieh Al-Iqtisadieh W'al Iktimaieh Lel-Sanawat Al-Khams, Youlieh 1960— Younieh 1965. Cairo: Al-Haieh Al-Aama Le-Sheoon Al-Matabe' Al-Amirieh, I960. 500 El-Assawy, Ibrahim Hassan. r , The Development of the U.A.R.'s Foreign Exchange Policy," (in Arabic). Institute of National Planning, Memo. No. 452, Cairo, January 1964. El-Boghdadi, Abdel Latif Mahmoud. (former) Vice-President and Minister of Planning. Address on the Five-Year Plan for the Bconomic and Social Development 1960- 1965. Cairo: U.A.R. General Congress of the National Union, July 4, I960. . "Introduction.” National Planning Commission, General Frame of the 5-Year Plan for Economic and Social Development, July 1960-June 1965. Cairo: General Organization for Government Printing Offices, 1960. Bl-Morshidy, A. M. "Planning for Economic Development in the United Arab Republic." United Nations, Plan ning for Economic Development, Vol. II, Studies of National Planning in Practice, Part I, Private Enterprise and Mixed Economies. A/5533/Rev.1/Add.1. New York: United Nations, 1965. Rl-Nour, Mohamed Hassan Fag. "An Appraisal of the Plant Production in the U.A.R. First Five-Year Plan." Institute of National Planning, Memo. No. 504., Cairo, November 1964. Federation of Industries in the United Arab Republic. Year Book, 1964. Cairo: Societe Orientale de Pub licity, no date. ________ • Year Book, 1965. Cairo: Soci£t£ Orientale de Publicity, no date. Fedorowicz, Zdzislaw. "System of Economic Planning in a Socialist Economy." Institute of National Plan ning, Memo. No. 505, Cairo, November 1964. Moustapha, Medany and Mahmoud, Moharam W. "Analytical Study of the Relationship Between Consumption Ex penditure on Different Groups of Commodities and Total Annual Consumption for the Household Sector, 501 Urban and Rural Regions." Institute of National Planning, Memo. No. 497, Cairo, October 1964. Nasser, Gamal Abdel. President of the United Arab Repub lic. "President's Inaugural Address to the General Congress of the National Union for the United Arab Republic, July 9, 1960." Achievements and Future Development Plans. Cairo: The Information Depart ment, 1960. National Planning Commission. A1 Khetah Al-Aama Lei Tan- mieh Al-Iqtisadieh W'al Iktemaieht Tawri'Al- Mashrouat Alai Mouhafazat, Youlieh 1960--Younieh 1965, (The Overall Plan for Bconomic and Social Development: The Distribution of Projects Among the Governorates, July 1960--June 1965). Cairo: General Organization for Government Printing Offices, 1960. ________ . General Frame of the 5-Year Plain for Bconomic and Social Development July 1960-June 1965. Cairo: General Organization for Government Printing Offices, I960. Prebisch, Raoul. The Bconomic Development of Latin America and Some of Its Problems. New York: United Nations, 1949. Sabry, Ali. (former) Premier and Minister of Planning. Statement on Government Policy, Addressed to the National Assembly on the 6th of April, 1964. Cairo: Information Department, no date. Sedky, Aziz, (former) Minister of Industry. "Report by the Minister of Industry." United Arab Republic, Achievements and Future Development Plans. Cairo: Information Department, 1960. Sidhom, Samir Y. and Labib, Ali. "Structure and Develop ment of the Financial Flows System in the U.A.R." Institute of National Planning, Memo, (in Arabic), Cairo, 1962. 502 Soliuan, Mohamed Sidky. (former) General Manager of the Economic Development Organization. "The Role of the Economic Development Organization in the Bco nomic Growth of the Country." Lecture given at the Afro-Asian Conference, Proceedings of the Bconomic Conference for Afro-Asian Countries, Cairo, December 8-11, 1958. Cairo: The Centre of the Afro-Asian Organization, 1959. Statement by Bl-Sayed Zakaria Mohieddin Before the National Assembly, Cairo, December 4, 1965. (Vice-President Premier, and Minister of Interior) Cairo: The National Publication House, no date. United Arab Republic. A1-Pestour, 25 March, 1964. (The Constitution, March 25, 1964) Cairo: Information Department, no date. ________ . "Communique du Ministre Executif de 1r economie sur les Mesures Concemant les petits epargnants qui ont dtd touche par les Lois Nos. 117, 118, et 119 de 1961," Les Lois Socialistes, Une Authentique Promotion Democratique. Le Caire; Administration <fe 1*information, 1965. ________ . "Decret-loi No. 113 de l'ann^e 1961 sur la repartition des benifices des soci£t£s," Les Lois Socialistes, Une Authentique Promotion Pemocratique Le Caire: Administration de l1information, 1965. ________ • "Decret-loi No. 115 de l’annee 1961, plafond pour les Administrateurs: 5,000 livres," Les Lois Socialistes, Une Authentique Promotion Pemocratique Le Caire: Administration de 1'information, 1965. . "Decret-Loi No. 116 de l'annde 1961, impot gen eral sur le revenu," Les Lois Socialistes, Une Authentique Promotion Pemocratique. Le Caire: Administration de 1*information, 1965. ________ • Department of Statistics and Census. Statisti cal Pocket Year Book 1952-1962. Cairo: General Organization for Government Printing Offices, 1963. 503 United Arab Republic. Ten Years of Revolution; Statistical Atlas. 23 July 1952— 23 July 1962. Cairo: Soci4t6 Orientale de Publicity, no date. . "Kanoon Rakam 141 Lesanat 1955 Be-Insha' Lagnet El-Takhteet El-Qawmy," (Law No* 141 of 1955 Estab lishing the National Planning Commission), Nation al Planning Commission* Itar Al-Khetah Al-Aama Lel-Tanmieh Al-Iqtisadieh W'al-Iktimaieh Lel- Sanawat Al-Khams, Youlieh I960— Younieh 1965* Cairo: Al-Haieh Al-Aama Le-Sheoon Al-Matabe' Al-Amirieh, 1960. ________ . "Karar Ra'is Al-Gamhourieh Al-Arabieh Al- Mottaheda Rakam 263 Lesanat 1957 Be-Idmag Al- Magliss Al-Da'em Le-Tanmiet Al-Intag Al-Qawmy W'al Magliss Al-Da'em Lel-Khadamat Al-Aama Pi Lagnet El-Takhteet El-Qawmy," (Presidential Decree No* 263 of 1957 Merging the Permanent Council for the Development of National Production and the Perma nent Council for Public Services in the National Planning Commission)* Itar Al-Khetah Al-Aama Lel- Tanmieh Al-Iqtisadieh W'al-Iktimaieh Lel-Sanawat Al-Khams, Youlieh 1960— Younieh 1965. Cairo: Al- Haieh Al-Aama Le-Sheoon Al-Matabe' Al-Amirieh, 1960. _. "Karar Ra'is Al-Gamhourieh Al-Arabieh Al- Mottaheda Rakam 78 Lesanat 1957 Be-Insha' Lagnet El-Takhteet El-Qawmy," (Presidential Decree No. 78 of 1957 Concerning the National Planning Commis sion), National Planning Commission* Itar Al- Khetah Al-Aama Lel-Tanmieh Al-Iqtisadieh W'al- Iktimaieh Lel-Sanawat Al-Khams, Youleih 1960— Younieh 1965* Cairo: Al-Haieh Al-Aama Le-Sheoon Al-Matabe' Al-Amirieh, I960. _• "Karar Ra'is al-Gamhourieh Al-Arabieh Al- Mottaheda Rakam 262 Lesanat 1959 Be-Insha' Makateb El-Takhteet Pi El-Wezarat W'al Mo'asassat Al-Aama," (Presidential Decree No. 262 of 1959 Establishing Planning Offices in Ministries and Public Enter prises), National Planning Commission. Itar Al- Khetah Al-Aama Lel-Tanmieh Al-Iqtisadieh W'al-Ikti- 504 maieh Lel-Sanawat Al-Khams, Youlieh 1960--Younieh 1965* Cairo: Al-Haieh Al-Aama Le-Sheoon Al- Matabe' Al-Amirieh, I960. United Arab Republic. "Loi No. 118 de l'annde 1961 Con- cernant la participation du secteur public dans 91 soci^t^s et entreprises," Les Lois Socialistes. Une Authentique Promotion Pemocratique. Le Caire: Administration de 1*information, 1965. ________ . "Loi No. 119 de 1961 fixant la part des personnes physiques ou morale dans 159 soci^tds," Les Lois Socialistes» Une Authentique Promotion Pemocratique Le Caire: Administration de 1'information, 1965. ________ . Magmouat Al-Bayanat Al-Ihaaieh Al-Assassieh, (Basic Statistical Data). Fourth edition. Cairo: Central Statistical Commission, 1962. ________ . Pocket Book, 1961. Cairo: Information Depart ment, no date. . Sadd-Bl-Aali Project. Cairo: Sadd-El-Aali Construction Authority, 1963. ________ . Statistical Handbook of the United Arab Repub lic, 1953-1964. Cairo: Central Agency for Public Mobilization and Statistics, 1965. ________ • Statistical Pocket Book of the United Arab Re public 1952-1961. Cairo: The Administration of Public Mobilization, 1962. ________ • Statistical Pocket Book, 1952-1962. Cairo: The Administration of Public Mobilization, 1963. ________ • The Charter. Cairo: Information Department, no date. ________ • The Revolution in Twelve Years 1952-1964. Cairo: Information Department, no date. ________ . The Revolution in Thirteen Years, 1952-1965. Cairo: Information Department, 1965. 505 United Arab Republic. The Year Book, 1960, Cairo: In formation Department, no date. . The Year Book, 1963. Cairo: Information De partment , no date. ________ . The Year Book, 1965. Cairo: Information De partment, 1965. United Nations. "A Decade of Development Planning and Implementation in the ECAFR Region,M Economic Bulletin for Asia and the Far East, Vol. XII, No. 3 (December 1961). ________ • A Handbook of Public Administration, Current Concepts and Practice with Special Reference to Developing Countries. ST/TAD/M/16. New York: United Nations, 1961. ________ • Industrial Growth in Africa. E/CN.14/INR/1/ Rev.l. New York: United Nations, 1963. ________ • Measures for the Economic Development of Under developed Countries. Report by a Group of Experts appointed by the Secretary-General of the United Nations. E/1986. ST/ECA/10. New York: United Nations, 1951. ________ • Methods of Financing Economic Development in Under-Developed Countries, (49.II.B.4). New York: United Nations, 1949. ________ • Planning for Economic Development: Report of the Secretary General Transmitting the Study of a Group of Experts. A/5533/Rev.l. New York: United Nations, 1963. United States Board of Governors of the Federal Reserve System. Flow of Funds in the United States, 1939- 1953. Washington, D.C.: Board of the Federal Reserve System, 1955. 506 C. PERIODICALS Abdel Rahman, I. H. "Comprehensive Planning in the U.A.R." L*Egypte Contemporaine, IV Arne Annee, No. 313. Le Caire: Juillet 1963. Abou Zeid, Mahmoud. "Arabah El-Aameleen Wa-Tabia't Al- Marhalah Al-Gudidah," (The Workers* Profits and the Nature of the New Stage), Al-Ahram Al-Iqtisadi, No. 250, Cairo, January 5, 1966, pp. 64-65. Abul-Kheir, Kamal Hamdy. "Nahwo Harkah Ta'awonieh Nazifeh" (Towards an Ethical Cooperative Movement), Supple ment to Al-Ahram Al-Iqtisadi, No. 23i, April 1, 1965. "Aham El-Tashriat El-Eqtisadieh Khelal Aam 1961," (The Most Important Economic Legislations During 1961), Nashret Bl-Bank Bl-Synai*, Vol. Ill, No. 2, Cairo, 1962, pp. 266-289. "Al-Iqtisad Wal Syasah Pi 10 Sanawat," (Economics and Politics in 10 years), Al-Ahram Al-Iqtisadi, No. 166, Cairo, July 15, 1962, pp. 30-33, 37. Azer, Michael Makram. "Mizan Madfouat El-Gamhourieh Al- Arabieh Al-Motahedah," (The Balance of Payments of the United Arab Republic), L*Egypte Contemporaine, No. 320, Le Caire: Avril, 1965, pp. 59-91. "Bayan Bl-Sayed Zakaria Mohiedin Fi Iftitah Mo'tamar Al- Intag," (Statement of Mr. Zakaria Mohieddin at the Opening Session of the Production Conference), Bemameg Bl-Amal El-Tanfizy Lel-Marhala Algadidah, Supplement to Al-Ahram Al-Iqtisadi. Cairo, December 15, 1965, pp. 15-30. "Bayan Sader Men Mo'tamar Al-Intag," (Statement Issued by the Production Conference), Bemameg Bl-Amal El- Tanfizy Lel-Marhala Algadidah, Supplement to Al- Iqtisadi, Cairo, December 15, 1965, pp. 31-59. 507 "Beating Back the Stork," Arab Observer: The Non-Aligned Weekly, No. 242, Cairo, February 8, 1965, pp.12-16. Chenery, Hollis B. "Review: The Strategy of Economic De velopment by Albert O. Hirschman," The American Economic Review, Vol. XLIX, No. 5, December 1959, pp. 1063-1065. "Co-existence Between Big Industry and Handicraft in the U.A.R.," The Scribe, Vol. VI, No. 4, Cairo, May 1963, pp. 41-44. "Egypt1s Economic Growth 1952-1963--An Appraisal," National Bank of Egypt, Economic Bulletin, Vol. XVII, No. 1, Cairo, 1964, pp. 20-50. El-Ghazar, Mohamed Mohamed El-Sayed. "Falsafet Mizaniat Al-Barameg W*al Adaa," (The Philosophy of Program and Performance Budget), Egyptian Political Science Review. No. 50, Cairo, May 1965, pp. 15-43. El-Maraghi, Mahmoud. "Al-Massoul El-Khabeer W*al-Bayanat Al-Khate'ah," (The Responsible Officials and the Wrong Information), Rose El Youssef, No. 1955, Cairo, November 29, 1965, p. 17. ________ . "El Mowazafoon, Besaraha," (The Employees, Frankly), Rose El Youssef, No. 1963, Cairo, January 24, 1966, pp. 14-17. ________ , and Zeidan, Mohamed. "Tazweer A1-Mizanyat," (Falsification of Balance-Sheets), Rose El Youssef, No. 1923, Cairo, April 19, 1965, pp. 14-15. El-Serafy, Salah. "Economic Development by Revolution— The Case of the U.A.R.," The Middle East Journal, Vol. XVII, No. 3, Summer 1963, pp. 215-230. "El-Souk Al-Sawdaf," (The Black Market), Rose El Youssef. No. 1917, Cairo, March 8, 1965, pp. 16-18. "El-Tariq Ila Edad Geel Men El-Mokhatetin," (The Way to Prepare a Generation of Planners), Al-Ahram Al- Iqtisadi . No. 181, Cairo, March 1, 1963, pp. 32- 34. 508 "Bl-Tashii*," (Legislation), Central Bank of Egypt, Bl- Megallah Bl-Iqtisadleh, Vol. IV, No. 1, Cairo, 1964, pp. 84-92. Frisch, Ragnax. "Planning for the United Arab Republic,” Public Lecture delivered on February 8, 1964 in the Egyptian Society for Political Economy, Legis lation and Statistics, at the invitation of Cairo University, printed in L*Bgypte Contemporaine, LV erne Annee, No. 317, Le Cairex Juillet 1964, pp. 5-17. Ghobrial, Wahby. nAdwaa1 Ala Khetat El-Tanmieh El-Iktisad- ieh," (Highlights on the Plan for Economic develop ment), Kutub Qawmiyah. Cairo: El-Dar El-Qawmiyah Lel-Tebaah Wal-Nashr (Neither date nor number appear on this publication), pp. 9-138. Hansen, Bent and Bl-Tomy, Mona. "The Seasonal Employment Profile in Egyptian Agriculture," The Journal of Development Studies, Vol. I, No. 4. London, July 1965, pp. 399-409. Hamroush, Ahmed. "Mazaher El-Nashat El-Seyassy W'al- Idary," (Aspects of Political and Administrative Activities), Rose El Youssef, No. 1950, Cairo, October 25, 1965, pp. 3-5. "Internal Economic Developments During 1963," National Bank of Egypt, Economic Bulletin, Vol. XVII, No. 2, Cairo, 1964, pp. 151-162. Ismail, Ahmed Abou. "Baad Gawaneb El-Bonyan El-Senai' Fi Misr," (Some Aspects of the Structure of Industry in Egypt), L*Egypte Contemporaine, IV feme Ann6e, No. 316, Le Caire: Avril 1964, pp. 5-52. Lipton, Michael. "Balanced and Unbalanced Growth in Under- Developed Countries,” The Economic Journal. Vol. LXXII, No. 287, September 1962, pp. 641-657. "Matha Dar Fi-Nadwet Kharigy Al-MaThad Al-Quawmy Lel- Idarah Hawl Ihtram Al-Ta'kodat," (Graduates of Management Institute Discuss Aspects of Honoring 509 the Contracts)| Al-Ahram Al-Iqtisadi, No. 251, Cairo, February 1, 1966, pp. 26-29. Mattera, A. A. "Foreign Exchange Budgets in Latin America” International Monetary Fund, Staff Papers, Vol. IV, No. 2, February 1955, pp. 288-309. National Bank of Egypt, Economic Bulletin, Vol. XVIII, No. 3, Cairo, 1965. "National Income Estimates 1960," Central Bank of Egypt, Economic Review, Vol. IV, Nos. 3 and 4, Cairo, 1964, pp. 278-287. "New Legislation— April/June 1964," National Bank of Egypt, Economic Bulletin, Vol. XVII, No. 3, Cairo, 1964, pp. 310-317. O'Brien, P. K. "An Economic Appraisal of the Egyptian Revolution," The Journal of Economic Development, Vol. I, No. 1, London, October 1964, pp. 93-113. Omar, Hussein. "A Summary Report on Planning in the United Arab Republic," L'Egypte Contemporaine, IV &me Annee, No. 316, Le Caire, Avril 1964, pp. 5- 24. Papanek, Gustav F. "Framing a Development Program," International Conciliation, No. 527, March 1960, pp. 307-372. "Pension-Civiles.— Fonctionnaires et travailleurs de l1 6tat et des Organismes publics. Refonte de la legislation. Loi no. 50 du 28 avril 1963," La Gazette Fiscale, Commerciale et Industrielle. Alexandrie, Mars-Avril-Mai 1963, Vol. XV, pp. 26- 39. Reubens, Edwin P. "Review: The Strategy of Economic De velopment by Albert O. Hirschman," Political Science Quarterly. Vol. LXXIV, No. 3, September 1959, pp. 461-463. 510 Singer, Hans W. "Economic Progress in Underdeveloped Coun tries," Social Research, Vol. XVI, No. 1, March 1949, pp. 1-11. "State Ensured Social Justice," The Egyptian Economic and Political Review, Vol. VIII, No. 8, Cairo, July- August 1961, pp. 7-9. Streeten, Paul. "Unbalanced Growth," Oxford Economic Papers, Vol. II, No. 2, June 1959, pp. 167-190. "Supply Minister Warns Profiteers," Al-Ahram, August 16, 1963. Translated from Arabic in Institute of National Planning, Monthly Review of Economic and Social Events in U.A.R., Vol. II, No. 7, Cairo, August 1963, pp. 61-62. Sutcliffe, Robert B. "Balanced and Unbalanced Growth," The Quarterly Journal of Economics, Vol.LXXVIII, No. 4, November 1964, pp. 621-640. Tawfik, Raouf. "Al-Ha»er W»al-Rha»ef W'al Motaraded fi Dwameen Al-Hekoumah," (The Perplexed, the Hesi tant, and the Frightened in Government Adminis tration), Sabah El-Kheir, No. 486, Cairo, April 29, 1965, pp. 7-11, 43. "Tawseyat Al-Mo*tamar Al-Aam Lel-Idarah," (Recommendations of the Administration Conference), Bemameg Bl-Amal El-Tanfizy Lel-Marhala Algadidah, Supplement to Al-Ahram Al-Iqtisadi, Cairo, December 15, 1965, pp. 72-86. Zeidan, Mahmoud. "Al-Quta» Al-Khass Mottaham Be’Khalk El- Souk Al-Sawda»," (The Private Sector is Accused of Creating the Black Market), Rose El Youssef. No. 1944, Cairo, September 13, 1965, pp. 14-19. D. NEWSPAPERS "Ali Sabry Yatakalam An Al-Khettah Allati Intahat W'alati Satabda'," (Ali Sabry Talks About the Old and the New Plans), a press interview with Ali Sabry, 511 (former) Premier and Ministex of Planning, written by Ali Hamdi B1-Gamma1 in Al-Ahram, Caixo, Maxch 7, 1965, p. 3. "Ali Sabry You* len Fi Igtima' Bl-Haya' Al-Barlamanieh Sanantasex Ala Al-Tahadiat, Allati Twagehna Fi Tanfeeth Al-Khettah Al-Tanmieh Kama Intasaxna Men Kabl (Ali Sabxy Declaxes at a Parliamentary Meet ing that We Shall Overcome the Challenges which Face the Second Plan as We Did Before), Al-Akbar, Caixo, June 16, 1965, p. 3. "Al-Nass A1-Kamel Li-Bayan El-Kaissouny An Bl-Mizanieh Al- Gadidah Amam Magliss Al-Ommah," (The Complete Statement of Al-Kaissouny about the New Budget Before the National Assembly). A Statement about the Draft Budget fox 1965/1966 presented by Dr. Abdel Moneim El-Kaissouny, Deputy Prime Minister for Financial and Economic Affairs before the National Assembly on May 22, 1965. Al-Ahram, Cairo, May 23, 1965, pp. 3, 4. Hudgins, Garven. "Egyptian Rule Improves Suez Canal, Revenues," Los Angeles Times, February 6, 1960, Section F, p. 8. "Nasser Confident of Success of National Effort," Policy Speech by President Gamal Abdel Nasser at the Inauguration of the Third Session of the National Assembly, The Egyptian Gazette, Cairo, November 26, 1965, p. 4. Nasser, Gamal Abdel. President of the United Arab Repub lic. "El Nas El-Kamel Le-Monkashet El Ra*is Ma* El-Shabal?" (The Complete Account of the Discus sions Between the President and the Youth), El Talaba El-Arab, No. 168, Cairo, November 27, 1965, p. 9. "Khetab El-Ra'is Fi Shebein El-Korn, Menfieh, 11 Mars 1965," (Address by the President in Shebein El-Kom, Menofieh, on March 11, 1965), El-Talaba Bl-Arab, No. 31, Cairo, March 13, 1965, pp. 3-4. 5 1 2 Nasser, Gamal Abdel. President of the United Arab Repub lic. "Khetab Ham Lei Ra'is Fi Bid El Sues El Qawmy," (An Important Speech by the President on the Sues National Anniversary), Bl-Talabah El-Arab, No. 185, March 26, 1966, p. 5. (Cairo) "Tafassil Mashrou' El-Mizanieh Al-Gadidah," (Details of the New Draft Budget), a Financial Statement about the Draft Budget for 1965/1966 presented by Dr. Nasih Deif, Minister of Treasury, td the National Assem bly. Al-Ahram, Cairo, May 24, 1965, p. 3. "Takrir Lagnet El-Khettah W'el-Misanieh An El-Seysah Al- Malieh W'al-Iqtisadieh Lel-Misanieh Al-Gadidah," (Report of the National Assembly1s Planning and Budget Committee about the New Budget), Al-Akbar, Cairo, June 20, 1965, p. 11. D. UNPUBLISHED MATERIAL Deif, Nasih A. "Some Uses of Economic Accounting in Plan ning Economic Development of the U.A.R.," Paper presented at the International Association for Research in Income and Wealth, Middle Bast Regional Conference, Istanbul, August 24-29, 1962. Insti tute of National Planning, Cairo, 1962. (Mimeo graphed) Eleish, Gamal E. "Uses of Input-Output Model in Develop ment Planning in Underdeveloped Countries." Paper presented at the International Association for Research in Income and Wealth, Middle Bast Regional Conference, Istanbul, August 24-29, 1962. Insti tute of National Planning, Cairo, 1962. (Mimeo graphed) Elliott, John E. "Economic Systems and National Planning," Los Angeles: University of Southern California, 1964. (Mimeographed) Lecture notes on "Comparative Economic Philoso phies and Planning." Course given at the Univer 513 sity of Southern California, Los Angeles, Spring 1964. Bl-Sayed, Atef. "Le Budget d'&tat de la R.A.U., Develop ment et Classification." Paper presented at the International Association for Research in Income and Wealth, Middle Bast Regional Conference, Istan bul, August 24-29, 1962. Institute of National Planning, Cairo, 1962. (Mimeographed) Nassouhy, Mohamed Gamal Eldin*. "Local Autonomy Under National Planning, the Egyptian Experience." Un published Doctoral dissertation presented to the Faculty of the School of Public Administration, the University of Southern California, Los Angeles 1965. Prou, Charles. "Cours sur l'dtablissement des programmes en dconomie sous-d£velopp4e. " Fascicule No. II, Session 1959-1960. Paris: Centre d'£tudes Des Programmes &conomiques, I960. (Mimeographed) Sidhom, Samir Y. "The Financial Flow-of-Funds System in the U.A.R." Research paper presented to the Graduate Program in Economic Development, Depart ment of Economics, Vanderbilt University, Nash ville, Tennessee, 1963. Smith, Hadley Edwin. "An International Comparison of the Role of Government in the Economic Development of Developed and Emerging Economies, with Particular Reference to Government Corporations." Unpub lished Doctoral dissertation presented to the Faculty of the Graduate School, the University of Southern California, Los Angeles, 1963. "Text of President Gamal Abdel Nasser's Address to the U.A.R. National Assembly, November 13th, 1964." Mimeographed from the Egyptian Gazette. November 14, 1964.

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The Development Of Western-Style Economic Planning: Theory And Practice

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Creator Sidhom, Samir Yacoub (author)

Core Title Developmental Planning In The United Arab Republic: An Economic Analysis And Evaluation Of The Egyptian Experience

Degree Doctor of Philosophy

Degree Program Economics

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag economics, general,OAI-PMH Harvest

Language English

Contributor Digitized by ProQuest (provenance)

Advisor Elliott, John E. (committee chair), Graves, Richard W. (committee member), Morgner, Aurelius (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c18-118465

Unique identifier UC11360250

Identifier 6705309.pdf (filename),usctheses-c18-118465 (legacy record id)

Legacy Identifier 6705309.pdf

Dmrecord 118465

Document Type Dissertation

Rights Sidhom, Samir Yacoub

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus, Los Angeles, California 90089, USA