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A Multidimensional Interpretation Of Comprehensive Developmental Planning
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A Multidimensional Interpretation Of Comprehensive Developmental Planning
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This dissertation has been microfilmed exactly as received 6 6 -7 0 7 5 KEROS, Fassil Gabre, 1936- A MULTIDIMENSIONAL INTERPRETATION OF COMPREHENSIVE DEVELOPMENTAL PLAN NING. University of Southern California, Ph.D., 1966 Economics, theory University Microfilms, Inc., Ann Arbor, Michigan A MULTIDIMENSIONAL INTERPRETATION OF COMPREHENSIVE DEVELOPMENTAL PLANNING A Dissertation 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 Fassil Gabre Kiros January 1966 UNIVERSITY O F SO U T H E R N CALIFORNIA T H E G R A D U A T E S C H O O L U N IV E R S IT Y PA R K L O S A N G E L E S , C A L IF O R N IA 9 0 0 0 7 This dissertation, written by Fassil Gabre Kiros under the direction of h.j-.s^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 O F P H I L O S O P H Y CT. Dean Date ........... F ebruary 3 ...1966....................... DISSERTATION Q --- '5sl&6£ALi*£JL£jL..J[~ TABLE OF CONTENTS CHAPTER PAGE I. INTRODUCTION .................................. 1 Statement of the Problem . . . . . . 1 Perspective Agreement on the role of government Agreement on the need for developmental planning The heritage of controversy The Purpose of This S t u d y .....................5 Proposal Qualification of the proposal Expository design Limitations of the expository design Significance of This Endeavor................ 11 Definitions ...........................11 Broad Terms of R e f e r e n c e ....................12 Sources for the R e s e a r c h ....................13 A Review of the Literature....................13 Organization ............................... 17 II. QUALITATIVE EXPLORATIONS OF INSTITUTIONAL PROCESSES AND THE ASSUMPTIONS AND IMPLICATIONS OF DEVELOPMENTAL PLANNING....................19 Level of Economic Development and Resource B a s e ......................................... 21 iii CHAPTER PAGE Hagen’s Critique of the Economic Theories of G r o w t h ................ 24 The Theory of the Vicious Circle The Saving barrier The market barrier The Theory of the Demonstration Effect The Theory of the Shortage of Social Overhead Capital The Theory of the Need for a Big Push The Theory of the Problem of Population Pressure A Summary C r i t i q u e .................... 30 Conclusions ........................... 33 Ownership and. Control of the Means of Production 34 The Problem of Coordination of Private and Public Decision-Making . . . . 37 Locus of Economic P o w e r ................. 39 Motivational Systems . . . . . . . 42 The Organization of Economic Power--Centrali zation versus Decentralization . . . 45 Gathering and using>information Communicating orders and managing resources Devising and administering proper incentives Social Processes for Economic Coordination 52 Distribution of Income and Wealth . . . 55 iv CHAPTER - PAGE. III. THE METHODS, TECHNIQUES, AND PROBLEMS OF QUAN TITATIVE ANALYSIS IN DEVELOPMENTAL PLANNING 58 The Problem of the Insufficiency of Data . . 59 Factors Determining the Approach of Devel opmental Planning . . . . . . . . . 62 Procedures-, Methods, and. Techniques . . . . 63 The Use of M o d e l s .......................66 The Method of Successive Approximations . 68 Planning on the Aggregate Level . . . 70 Determination of a target rate of growth A simple aggregate model Main features of aggregate models The technique of linear-programming Planning on the Sector Level................ 86 Determination of Final Demand . . . . 86 Estimation of household consumption Government consumption Demand for Exports Estimation of Intermediate Demand--Main Features . . . . . ................. 98 Determination of Interindustry demand and Production............................100 Current inputs Capital inputs Allocation of investment Import requirements Limitations of the Input-output technique- Investment in Social Overhead Capital . Ill V CHAPTER PAGE Investment in manpower development Planning on the Project Level . . . . 116 Some general aspects and problems ‘ Illustrative example of project evaluation Additional dimensions Concluding observations Main Sources of Financing Investment . . 126 Sources of Financing Government Invest ment ... ................. ... 126 The current surplus Other sources of financing government investment Sources of Financing Private Investment . 130 Problems of Projection.................. 133 IV. THE PROBLEMS OF PHASING AND INTERTEMPORAL COORDINATION ................................ 138 The Bases for Rationality in Dealing with the F u t u r e ............................... 139 The Significance of the Past and. the P r e s e n t ............................... 140 The Indispensability of Theoretical Knowledge................ 142 The Necessity for a Socioeconomic Philosophy................................ 145 General Problems of Intertemporal Coordi nation ................................ 148 Determination of Long-Term Objectives 154 vi CHAPTER PAGE A General Description of the.Economy 155 Determining Potentialities and Broad Lines of Development............... 156 Setting Long-Term Objectives . . . . 157 The Medium-Term Plan .... ..................161 Criteria for Determining the Duration of the Medium-Term P l a n ............... 162 The Short-Term Plan...................... 164 Coordination of the Budget and Short-Term Plan ........................166 Methods of Intertemporal Coordination . . 169 Necessity for Retrospective Analysis . 169 The "Rolling" Plans ................. 171 Conceptual Framework of Intertemporal Coordination ........................ 172 The concept of a hierarchy of Problems Elaboration of the framework V. THE SCOPE AND PROBLEMS OF THE SPATIAL DIMEN SION--SUBNATIONAL AND INTERNATIONAL ASPECTS 179 Regional Planning . . . . . . . . 181 The Necessity for Regional Planning . 182 The Concept of R e g i o n ................. 183 Major Problems of Regional Planning- . 187 The Planning of the metropolitan region The planning of the frontier region The depressed area vii CHAPTER PAGE The development of particular resources Industrial estates A Method for Investment Allocation and Techniques of Analysis ................. 199 Method for Investment Allocation . . . 199 Techniques of Analysis Concluding Note: Relationship Between Regional Plans and. the National Plan . 206 Community Development . . . . . . . 208 Definition............................. 209 Contributions.......................... 210 Increases in production Agricultural output Industrial output Capital formation The Development of people, attitudes and institutions Major Problems of Community Development Programs............................. 214 International Economic Relations and Coordi nation of Development................215 Stabilization of Export Prices . . . 216 Coordination of International Aid with National Planning .................... 220 International Coordination of Development 224 VI. SUMMARY AND CONCLUSIONS................229 CHAPTER PAGE S u m m a r y .................................. 229 Conclusions .................... 238 BIBLIOGRAPHY........................................ 243 LIST OF TABLES TABLE RAGE I. The Relationship Between the Size of the Target Rate of Growth and the Method Used in Deter mining I t ................................... 72 II. Pattern of the Total Population by Sector of Activity and by Zone . . . . . . . 89 III. Average Consumption Per Capita by Major Cate gories of Goods and Services.............. 92 IV. Current Inter-Industry Input-Output Relations 102 V. Current Input-Coefficients .................. 103 VI. Capital Input-Output Relations ............... 105 i VII. Capital Coefficients ......................... 105 VIII. Framework for Governmental Financial Projec tions ............................ 136 IX. Framework for Private Financial Proj'ections 137 X. Alternative and Selected Values of Rate of Population Growth, Capital-Output Ratio, Rate of Growth of Income, and Rate of Savihg in Ethiopia's Long-Term Proj'ections . . . 159 XI. Functional and Economic Classification of Government Expenditures . . . . . . 168 CHAPTER I INTRODUCTION Statement of the Problem Perspective.--We are today living in what may be characterized as the era of general cofisciousness--con- sciousness or the need, for political democracy, social change and economic progress. In particular, the need for accelerated economic development in the less developed countries of the world has been discussed in recent years in political and. academic circles and on national and international platforms alike. Needless to say, political analysts, historians and other students will attempt to explore the forces which have brought about this sudden concern at this particular period of world, history. For the less developed countries of the world, which inevitably come to compare their low standard of living with the high standard, of living of the more devel oped, countries of the world, the challenge of consciousness in the economic sphere has been resolved, in most cases, into a decision to raise their standard of living. The maxim comparaison n'est pas raison has, in this instance, been abrogated by this resolution. One of the greatest problems of our time is how to transform traditional societies into modern societies. Agreement on the role of government.--There is gen eral agreement in both developed and underdeveloped coun tries that the governments of the underdeveloped countries must take it upon themselves to make the needed political, social and economic reforms, to provide the necessary inducements, and to initiate concrete programs of develop ment. Most students of the problem now agree . . . that more vigorous governmental action is necessary to accelerate economic development in the poor coun tries. Since these countries have remained for so long almost stationary, many believe that positive governmental intervention is essential to get these countries off dead, center. Development cannot now be as spontaneous as it was under nineteenth century conditions. Instead it is widely believed that only governmental action may have sufficient power and scope to break through some of the obstacles that have limited the development of poor countries.^- Gerald. M. Meier and Robert E. Baldwin, Economic Development, Theory History, Policy (Wiley, 1957), p. 361. Also: H. H„ Aubrey, "The Role of the State in Economic Development,'1 American Economic Review, Papers and Proceed ings (May 1951); and United Nations, "Common Problems of Methodology and Implementation,1 1 Report of the Conference Agreement on the need for developmental planning.-- The urgency with which the problem is regarded, the neces- 2 sity for structural changes, the inadequacy of the free 3 forces of the market to effect such cha.nges, and "popular enthusiasm”^ have brought about a general predisposition toward, a preference for the adoption of governmental plan ning for accelerated development. It is generally believed that the aspirations of the less developed, countries can more rapidly be attained by adopting an economic, social, political, administrative and technical instrumentality which we term here comprehensive developmental planning. Secretary-General, Conference on the Application of Science and Technology for the Benefit of Less Developed Areas (E/CQNF.39/GR.89-H-,1962), p. 3. 2 Benjamin Higgins, Economic Development, Principles, Problems, and. Policies (Norton, 1951), pp. 636-641. 3 Paul N. Rosentein-Rodan, "The Flaw in the Market Forces,” in Gerald M. MeierTs Leading Issues in Develop ment Economics--Selected Materials and Commentary (Oxford. University Press, 1964), pp. 416-418; S. R. Sen, "Planning Procedure in India," in UN, Conf. on the Appl. of See. and Tech. (E/CONF.39/H/19,1962), p. 1; and. John Kenneth Gal braith, Economic Development in Perspective (Harvard. Uni versity Press, 1962), pp. 35-36. ^W. Arthur Lewis, The Principles of Economic Plan ning (Dennis Dobson Ltd..--Allen and. Unwin Ltd., 1949), p. 128. 4 The heritage of controversy.--Planning was in the recent past a topic of lengthy discussions in Europe and America--discussions which have had their ideological im plications and. etymological aspects, as well as the more relevant one of economic logic.5 There is today little of this sort of discussion in the less developed countries of the world. Comprehensive developmental planning, as we use the term, does not imply the subjugation of all economic func tionaries and. activities in a single hierarchical system. Neither this heroic conception, nor the popular associa tion of planning with an ideology are helpful for an under standing of the nature and. purpose of developmental plan ning in the majority of the less developed, countries. Sometimes, the term comprehensive planning is used, to refer to governmental planning which includes the formu lation of development programs for both the public and the 5Refer, for instance to: John Jewkes, Ordeal by Planning (Macmillan, 1949); Friedrich A. Hayek, The Road to Serfdom (University of Chicago Press, 1944); Ferdynand Zweig, The Planning of Free Societies (Seeker and Warburg, 1942); Barbara Wootton, Freedom Under Planning (University of North Carolina Press, 1945). 6 Galbraith, op. cit., pp. 35-36. 5 private sectors. This is, however, not an entirely satis factory usage, for in a mixed economy, governmental pro grams and policies are bound to affect and influence pri vate economic activity to a greater or lesser degree under all circumstances. Thus, a more analytically oriented explanation is Called for. The Purpose of This Study Proposal.--The purpose of this study is to present an integrated conception and methodology of comprehensive developmental planning conceived as a multi-dimensional process. It is neither the monomorphic conception of an all- embracing hierarchy, nor the fact that governmental plan ning includes planning of the private sector, which pro vides the true explanation of comprehensive developmental planning. The concept of development itself and the heteromorphic nature of the functions of developmental planning provide a more realistic and analytically more plausible basis for an interpretation of developmental planning as a comprehensive process. First, developmental planning, ipso facto implies a process of some degree of comprehensiveness. In order 9 to plan effectively, writes Higgins, development planners ’’ have to understand completely the nature of underdevelop ment and the process of transition to sustained growth. Text-books and popular discourse on the problems of back wardness have disclosed the various characteristics of underdeveloped countries and the obstacles and problems which they are bound to encounter in their attempts to overcome them. It is the essence of development planning ”to see everything that is being done |to overcome these obstacles and problemsJ as part of the total picture.”® The process of developmental planning includes coordination and integration of: 1. Overall targets with sectoral targets, branch targets and even major proj'ects. 2. Productive investments with investments in infrastructure both economic and social. 3. Targets in the public and private sectors in the economy. 4. Production and investments with the means of financing the latter. n Higgins, o£. cit., p. 629. United Nations, Economic Commission for Africa (ECA), ’’ Problems Concerning Development Programming and Policy in African Countries,” (E/CN.14/ESD/01, 1962), p. 1. Also: Jan Tinbergen, The Design of Development (Baltimore: The John Hopkins Press, 1958), p. 11. 7 5. Short term plans with middle term plans and eventually with long term perspective plans composed of several middle term plans. 6.- Elaboration of plans with their implementa tion. ^ Second, it follows that developmental planning can not be limited to economic calculations, but must involve the exploration, evaluation and adjustment of extra-eco nomic aspects, including institutional processes and ’'social, psychological, cultural and political forces working for or against change.”- 1 ’ ® Third, developmental planning necessitates the application, development and adaptation of heterogeneous methods and techniques of analysis. This is because it consists of solving matter-of-fact problems varying in character, scope and complexity. From these considerations emerges the proposal of this presentation, which is a systematic exploration of ^United Nations, ECA, "Comprehensive Economic Plan ning in Africa,” (E/CN.14/CP/12, 1962), p. 1. Refer also to Tinbergen, op. cit., p. 10. _ -^^Kenneth R. Hanseri, "Planning as a Continuing Proc ess,” UN, Conf. on Appl. Sci. and Tech. (E/CONF\39/H/68) p.3. ■^Alak Ghosh, New Horizons in Planning (The World Press Private Ltd., 1956), pp. 69-70. comprehensive developmental planning conceived as a multi dimensional instrumentality. Qualification of the proposal.--No implication is intended here that comprehensive developmental planning is a magic wand designed to overcome all the problems, defi ciencies and constraints facing less developed countries within a short period of time. Such, indeed, would be "within the precincts of pre-rational thought.1 1 3 Developmental planning is a new adventure; and developmental planners are treading a new ground for which the road is yet to be charted. Growing experience with national planning in the less developed countries amply demonstrates that it is a process highly experimental in the state of the art and as regards the circumstances under which it can flourish. But it is also becoming clear that viable national development plans cannot be drawn up solely from exacting scientific calculations of economic and social behavior, following rigorously the disciplines of econometrics and the more precise 13 "Suppose that some 'primitive* man uses . . . a stick., and that stick breaks in his hand. If he tries to remedy the damage by reciting a magic formula--he might for instance murmur Supply and Demand, or Planning and. Control in the expectation that if he repeats this exactly nine times the two fragments will unite again--then he is with in the precincts of pre-rational thought." From J. A. Schumpeter’s Capitalism, Socialism and Democracy (Harper, 1950), p. 123. 9 behavioral sciences. Nor can the planning process spring from a hasty pseudo-scientific "guestimates" used to dress up political dogma and exhortations. Rather, through trial and error, economic and social development planning is evolving slowly and painfully from the experiments at either extreme described above toward a middle ground, where astute blending of scientific techniques and political judgments in a continuing and flexible process is fashioning an increasingly useful instrument for economic and social change.^ Expository design.--For the purpose at hand, an expository scheme which attempts to embrace approximately the essential elements of comprehensive developmental plan ning is employed. This scheme resolves comprehensive de velopmental planning into four broad categories around which it may be explained. These broad categories may be designated as: (1) Qualitative; (2) Quantitative; (3) Tem poral; and (4) Spatial. (Defined below.) , Limitations of the expository design.--It must be emphasized, that it is usually not possible to give a full account of any problem or process in developmental planning by discussing it in the context of any one of the above categories, exclusive of all the others. What is suggested here is that the vital aspects of developmental planning 14 Hansen, o j d . cit. , p. 8. 10 may, more or less conveniently, be discussed within the general framework of one or another of the above cate gories. It may generally* be thought that any broad objective of a development plan will involve all four dimensions. Indeed, even a narrowly defined objective may touch upon 15 all of them. Moreover, the substantive content of the discussion within each dimension reflects the general character of current issues and problems and is not pre determined. or limited by the expository design. The broad, categories of the expository design are, therefore, only intended as an aid for the exploration of comprehensive developmental planning rather than as water tight compartments within which each problem or process will find its unique and permanent niche. This may be illustrated by a slight example. Let us assume that one subordinate objective is "to change the attitudes of cattle-owners in the Sidamo area so that they may fatten their cattle for slaughtering, rather than aim ing at increasing their numbers as a symbol of wealth, so that meat exports may double in 1970.” The scope of this statement of objective is so broad, in fact, that it rests upon the sociopsychological adjustment of Sidamo cattle- owners in Southern Ethiopia, as well as depends on meat consumption trends in the. international market I Significance of This Endeavor In view of the broad scope, complexities, and rami fications of developmental planning, and the experiments being made in planning to meet divergent needs under vary ing circumstances, the systematic inquiry proposed, is believed to be fruitful for an understanding of the essence of this instrumentality. Moreover, the multi-dimensional conception proposed opens a fresh outlook upon which fur ther research may be based so that developmental planning may obtain the firm foundation of a viable discipline. Definitions Qualitative.--By qualitative aspects we shall refer to broad, extra-economic considerations, including social, political, institutional and. organizational processes by and within which economic goals may be realized. Quantitative.--By quantitative aspects we shall refer not only to problems relating to the' gathering and. consolidation of data, but also to the general methods and. techniques employed, in fashioning the whole mosaic of goals and. means, as much as these depend, on the quantification of phenomena.^ Temporal.--By the temporal aspect we shall mean the time horizon within which goals are to be attained, and. the criteria, problems and purposes of phasing and coordi nating the planned development of a country in time per spective . Spatial.--By the spatial aspect we refer to a dimension involving location and distance, and to problems more or less capable of being defined and. explained, in these terms. Broad Terms of Reference This study is made with particular reference to those countries of the world: (a) which reflect to a greater or lesser degree the various characteristics of underdevelopment; (b) which may be described as mixed or "nascent mixed" economies; and (c) which rely on their “I The distinction between Qualitative and Quantita tive policy along similar lines is to be found, in Jan Tinbergen's Economic Policy: Principles and Design (Amsterdam: North-Holland Publishing Company, 1956), pp. 7-8. 13 governments to embark upon serious attempts to accelerate the process of development through planning. Sources for the Research The sources of information for this study are, in descending order of importance: (1) United Nations re ports, reports of its Regional organizations, and reports prepared under their auspices; (2) the development plans of some countries and their experiences in planning; and. (3) the academic literature in the field.. A Review of the Literature The literature relating to developmental planning is extensive. It is found that almost every major work on the problems of underdevelopment has something to say about developmental planning. For this reason, and for the additional reason that the nature and functions of develop- # mental planning are in large measure derived, from the prin ciples and concepts of economic development, it is neces sary to begin by a study of the literature in this field. Well-known works in this connection such as Higgins' Economic Development, Principles, Problems and Policies; Meier and. Baldwin's Economic Development, Theory, History, Policy; and Lewis' The Theory of Economic Growth, ade 14 quately explore the historical, social, political, as well as the theoretical aspects of economic development. More recently, Meier has very conveniently drawn together the mainstream of ideas on economic development in a book of readings entitled, Leading Issues in Development Eco nomics . Most of these works explore the various schools of thought and provide suggestions for further reading on particular aspects and problems, such as capital formation, savings, population, agriculture, et cetera. Works which include case studies, such as Pepelasis, Mears and AdelmanTs Economic Development: Analysis, and Case Studies, and United Nations reports on various coun tries, are helpful for a closer understanding of the fea tures and problems of less developed countries. For a more full acquaintance with the literature on development economics, satisfactory guidance may be ob tained from Arthur Hazlewood's The Economics of "Under developed" Areas, An Annotated Reading List of Books, Articles, and Official Publications. On the literature of planning proper, it is essen tial to distinguish three categories. The first category relates primarily to the broad.problems of economic policy in the developed Western economies. The second category 15 relates to planning in the Soviet "orbit” countries. The third category is concerned with planning in the mixed or "nascent mixed" economies of Africa, Asia, and South Ameri ca. Our interest is with the literature which bears di- i . / rectly upon the latter. The greatest interest in developmental planning as a field of study has been shown by the United Nations and its regional organizations. From time to time, groups of experts have been assigned to investigate certain aspects of developmental planning or planning in a particular set of countries. In an impressive recent United Nations Conference on the Application of Science and Technology for the Benefit of Less Developed Areas, much attention was devoted to developmental planning. For the purpose of this Conference, the participants submitted papers on par ticular aspects of developmental planning or planning in specific countries. A summary of the type of problems discussed has been prepared by the United Nations. The publication, entitled Science and Planning, includes com mentary as well as an appendix which enumerates the titles of the papers contributed by the participants and the reports of the Conference Secretary-General. The regional organizations of the United Nations 16 include the Economic Commission for Asia and the Far East (ECAFE), Economic Commission for Latin America (ECLA), and Economic Commission for Africa (ECA). Outstanding examples of contributions to the literature of developmental plan ning by these agencies are, ECAFE’s Development Programming Techniques Series and ECA’s "Problems Concerning Develop ment Programming and Policy in African Countries" (mimeo) and "Economic Planning in Africa" (mimeo). * For an extensive topical guidance to United Nations « publications, it is advisable to consult the reference catalog entitled United. Nations Publications, 1945-1963. A recent extension of the reference catalog by the same title is now available for 1964. Contributions by individual authors such as Tin bergen’s The Design of Development and Central Planning, S. S. Wagle's Techniques of Planning, and L. J. Walinsky’s The Planning and 'Execution of Economic Development directly bear on methodology, techniques, and problems of develop mental planning. In addition, Sections VIII and IX of Meier's Leading Issues in Development Economics contain a number of contributions on the scope and techniques of developmental planning. It is also instructive to consult case studies, 17 such as Hagen's Planning Economic Development, United Nations' Planning for Economic Development and. Planning for Balanced Social and. Economic Development. These are particularly useful since they provide, a description, analysis and appraisal of the plans of numerous countries. It is not possible, of course, to take note of all the contributions to the literature of developmental plan ning, particularly those which deal with specific aspects. . The text of this presentation will, however, bring to the attention of the reader additional contributions. Organization No lengthy explanation is required regarding the organization of the presentation. Each one of the four subsequent chapters will be devoted to one of the broad analytic categories set forth, and will be entitled respectively as: Chapter II: "Qualitative Explorations of Insti tutional Processes and. the Assump tions and Implications of Develop mental Planning" Chapter III: "The Methods, Techniques and. Problems of Quantitative Analysis in Develop mental Planning" Chapter IV: "Problems of Phasing and Intertemporal Coordination" 18 Chapter V : ’’ The Scope and Problems of the Spatial Dimension: Subnational and Inter national Aspects” The final chapter, Chapter VI, will be entitled "Summary and Conclusions" and will contain a brief review and concluding observations. CHAPTER II QUALITATIVE EXPLORATIONS OF INSTITUTIONAL PROCESSES AND THE ASSUMPTIONS AND IMPLICATIONS OF DEVELOPMENTAL PLANNING The practice of developmental planning has become a vogue in the less developed countries5of the world. Can this practice be carried, on without an understanding of what is meant by economic development? Can it be carried, on in vacuo, without an understanding of its needs, its implications, and. institutional processes? The answer to both these questions is: No, it cannot. The purpose of this chapter is to inquire into the nature and problems of economic and social change, and to explore the ways in Which the planning effort may be brought to fruition. How is it possible to undertake these tasks? * It is proposed, that the most satisfactory guidelines for the pur pose at hand are the set of criteria propounded, by Dr. John E. Elliott (in his book to appear in print, but which 19 20 is now in the stage of a manuscript).1 Dr. Elliott sets forth eight heterogeneous and pervasive instruments of analysis, which provide the basic framework for the dis cussion of this chapter. While it is the intention of Dr. Elliott to apply these criteria to the broader purpose of studying compara tive economic systems, this author has found them just as useful for the present purpose. The use to which they are put here, however, is not to be taken as a measure of either the broader outlook, or the substantive content of the relevant chapter of the book. The criteria are: 1. Level of Economic Development. 2. Resource Base. 3. Ownership and Control of the Means of Produc tion. 4. Locus of Economic Power. 5. Motivational Systems. 6. The Organization of Economic Power--Centraliza- tion versus Decentralization. 7. Social Processes for Economic Coordination. 8. Distribution of Income and Wealth.2 Our discussion in this chapter is straightforward ^John E. Elliott, Capitalism, Marxism, Socialism: Comparative Theories of Economic Systems (Preliminary Copy, Part I, 1964), Chapter II. 2Ibid. and consists of the successive application of these cri teria. For the purpose of convenient discussion, the first two criteria will be combined, in one section. LEVEL OF ECONOMIC DEVELOPMENT AND RESOURCE BASE The common basis for classifying countries with regard to their level of development is the comparison of their per capita income. Some authors have suggested that a per capita income of less than United States $500 sig nifies underdevelopmentOthers have attempted, to dis tinguish between countries which are developed, and under developed by using certain indices of the "level of living.” These indices include: Life expectancy at birth. Infant mortality rate. National average food, supplies in terms of calories at the retail level compared, with estimated, calorie requirements. Proportion of children 5-14 years of age enrolled in schools. Percentage of population literate, above some appropriate age, total and by sex. Proportion of economically active population unemployed.. 1. 2. 3. 4. 5. 6. q Benjamin Higgins, Economic Development, Principles, Problems, and Policies (Norton, 1951), p . 6. 7. Percentage distribution of economically active population, by principal industrial and occupa tional categories. 8. Personal consumption as a percentage of National Income,^ The measurement of the standard of living is, of course, fundamental as it provides basic benchmark data for planners. The basic problem of developmental planning in this regard, however, is not international comparison of standards of living in a static setting, but inter temporal comparison within the same country in a dynamic setting. Moreover, it is necessary to probe beyond the measurement of the standard of living and. seek answers to— more fundamental questions. The more pertinent questions are: To what use have men in the past put their faculties and endowments? What are the basic alternatives open for them in the future? And how rapidly can the alternative(s) accepted as a goal be attained? These questions suggest that developmental planning includes a determination of the past and present production possibility curve (XY), (refer to Figure 1); the discovery 4 M. M. El-Imam, ”The Process of Economic Growth,t f Lectures on Agricultural Planning (UN/FAO, 1963), No. 3, Chapter I, p. 2. 23 of new production possibility curves (e.g., XTY' , X”Y”); and the choice of a development path which will accelerate the rate at which the latter can be attained. Y« Yf Y X' X" X Figure 1. Assuming that the present production possibility is a datum, the two remaining questions facing planners become: How is it possible to discover a potential pro duction possibility? And how is it possible to accelerate the rate at which it can be attained? These questions must find some answers if developmental planning is to be meaningful. Everett E. Hagen, a distinguished economist, and \ e are assuming that for all practical purposes the economy has been stationary up to the present. 24 more recently a student of social change as well, has sought, in the economic theories of growth, for the answer to a question posed in a somewhat similar manner. The result of his search for an answer was to be a powerful critique of these theories. The following is a summary of his critique.^ Hagen’s Critique of the Economic Theories of Growth The important theories of economic growth with which Hagen deals are: the theory of the vicious circle, the theory of the demonstration effect, the theory of the shortage of social overhead capital, the theory of the need for a big push, and the theory of the problem of population pressure. Let us take up each in turn. The Theory of the Vicious Circle This theory consists of two types. One of them argues that the major barrier to economic growth is lack of saving, while the other holds that the insufficiency of the market is the important barrier to economic growth. ^Everett E. Hagen, On the Theory of Social Change, How Economic Growth Begins (The Dorsey Press, Inc., 1962), Chapters II-III. 25 Both have been integrated by Ragnar Nurkse, and may be 7 conceived, of as the barriers of ’’supply” and "demand.”' The saving barrier.--Nurkse argued that because income is low in less developed countries, not much saving is possible, which explains the lack of capital, which in turn explains the low productivity, generating low income, and therefore, low saving. Hagen refutes this argument by quoting Lewis, who has written: Least of all can those nations plead poverty as an excuse for not saving in which 40 per cent or so of the National Income is squandered by the top 10 per cent of income receivers, living luxuriously on rents.8 Moreover, argues Hagen, those who have acquainted them selves with traditional societies must have discovered, that even the low-income groups in these societies do save some small fraction of their incomes or spend it for pur poses not at all connected with basic necessities. The saving may be in the form of gold and jewelery; and the Ragnar Nurkse, Problems of Capital Formation in Underdeveloped Countries (Oxford University Press, 1953). O Hagen, op. cit. , p. 39; and W. Arthur Lewis, The Theory of Economic Growth, p. 236 26 spending may be in the form of "contributions to pagodas or temples” and for village festivities. Moreover, continues Hagen, hasn’t Duesenberry argued, that the ratio of income saved by a family depends not on the absolute level of income, but on the spending habits of the group of income distribution to which that family belongs?^ And hasn't Milton Friedman asserted that the ratio of savings to "permanent” income (the "transitory" component removed) is the same whether one is poor or wealthy?"^ These arguments may be challenged, on the basis of the fact that they relate to developed countries and. not to less developed countries. They remain, however, to be disproved by anyone who may wish to prove the contrary situation in less developed, countries. Hagen concludes: If sufficiently motivated, the people of [less developed countries] could and would choose to save enough to finance the investment necessary for rising per capita income.-*--^ Q Hagen, loc. cit.; also, J. S. Duesenberry, Income, Saving and the Theory of Consumer Behavior (Harvard. Univer sity Press, 1949). 10Hagen, loc. cit.; also, M. Friedman, A Theory of the Consumption Function (Princeton University Press, National Bureau of Economic Research, 1957). 11Hagen, op. cit., p. 40. 27 The market barrier.--The theory of the market bar rier holds that because aggregate demand is low, there exists no incentive for investment and no need for the introduction of more efficient production techniques in less developed countries. Thus, poor countries remain poor. This is false, argues Hagen: For while there is little demand for certain products in low-income countries, it is clear beyond question that in every country or colonial area of the world except possibly a handful of the tiniest ones there are many other products commonly used in the area for which the demand provides a market amply adequate for pro ductive units using modern methods.-*-2 The Theory of the Demonstration Effect-*-2 This theory holds that although higher income groups in less developed countries have the capacity to save, they are hindered from doing so because their con tacts with the level of living of the Western countries cause them to spend their incomes on imported luxury goods. The following question is posed to the proponents of the above argument: Is there any evidence, in the days 12Ibid., pp. 42-43. This is one aspect of ,rthe Saving Barrier Theory" advanced by Nurkse. 28 when not much contact was possible between nations, that higher income groups generally saved their incomes any more than at present? Indeed, there is evidence to the con trary. Moreover, and this is a revealing statement: If they were motivated, to strive personally for technological progress, they would, find in Western entrepreneurs a model which might lead, to a quite^ different demonstration effect.^ The Theory of the Shortage of Social Overhead Capital This theory states that economic growth can take place only to the extent that social overhead, capital (such as roads, railroads, dams, et cetera) leads the way. A unitary model of economic growth such as this one can never be satisfactory; however. On closer examination, [this theory] means only that the presence of social overhead, capital will reduce the cost of production in the enterprises it serves. But so will the presence of these industries reduce the cost of production of the services of social overhead, capital. . . . In . this respect, the relationship between social over head. capital and other capital is symmetrical. Neither has a unique property. The special func tion of social overhead capital turns out to be largely an illusion.-1 - 5 14 Hagen, op. cit., p. 42. 15Ibid., p. 46. 29 The Theory of the Need for a Big Push This theory holds that if saving is too low, market so small, and social overhead capital lacking, then, the solution of the problem of growth lies in a massive pro gram of establishing income-generating projects and of creating social overhead capital. This, indeed, may be the solution. But does the theory of the big push assure us that sustained economic growth will take place as a result of a massive investment program? If the answer is yes, then sufficient empirical support is called for to substantiate it from the experiences of already developed countries. "Has growth anywhere started with a big push?n16 The Theory of the Problem of Population Pressure This theory argues that per capita income is low in less developed countries because the rate of increase of population swallows up the rate of increase of income. Hagen holds that there is no evidence that this is true in many low-income countries. And where this may apply, it 16Ibid., p. 47. 30 indicates only that there are no sufficient forces to cause income to rise at a faster rate than population. A Summary Critique The "doctrines of peculiar barriers," as Hagen calls them, generally make the assumption that capital formation is the central problem in economic growth, and that there exists a pool of technological creativity in less developed countries by which growth can be carried forward. Hagen holds that the former is not correct, and the latter is largely an evidence of ethnocentricity on the part of those who take technological creativity for granted.. As Joseph Schumpeter has shown, the central motive force is innovation, and not the continued addition to the economy's stock of quantities of homogeneous machinery and equipment.-1 -^ And Robert Solow has demonstrated that only 13 per cent of the increase in output per man hour in the United States between 1909 and 1943 was due to the increase in capital. The rest, 87 per cent, was due to technologi- IV Ibid., p. 49. J. A. Schumpeter, The Theory of Economic Development (Cambridge: Harvard. University Press, 1949), p. 68. 1 ft cal progress. While capital formation remains important and essen tial, it cannot be used to assert that the secret for the transformation of traditional societies into modern socie ties lies solely or even basically therein. Entry upon economic growth is a result of the accelerating cumulation of scientific and tech nical knowledge.19 This, it may appear, makes economic growth rela tively easy for less developed countries, for the gap between the existing stock of advanced technology and their primitive methods is so broad that all they would have to do is to keep absorbing technology developed else where for many a monsoon to come. This is the blessing of being a "latecomer,” it may be thought. Alas! The simple imitation of technology is not possible. And this for certain very good reasons. First, there exists little of the corresponding literate and skilled labor force to apply the imported -*-®Hagen, loc. cit. Also, Robert M. Solow, "Techni cal Change and the Aggregate Production Function," Review of Economics and Statistics, Vol. XXXIX, 8-57, pp. 312-320 19Ibid. , p. 12. 32 technology. Moreover, the methods employed in the Western countries are significant precisely because they support and are supported by the whole complex of the industrial system. To transplant one method, one would have to transplant too many more methods, which may be impossible or otherwise irrelevant. Secondly,' even adaptation of Western technology may not always be successful. For Western technology employs a ratio of capital to labor so much greater than the methods of less developed, countries. How, then, can capital-intensive technology be adapted to situations where there is already a scarcity of capital and. where a great percentage of the people are unemployed, or underemployed? Finally, and most importantly,' a simple transfer of technology is not possible because: . . . the things one does in a traditional society are not merely means to the end of living, means which one can readily discard in favor of others. They are symbols of one's identity and place in the world. Hence: Technological advance requires doing new things; it requires also the creation of new economic, political, and social organizations and relation- 20 Hagen, op. cit., p. 33. 33 ships, or the adaptation to new functions of old. organizations and relationships.^1 Conclusion What answers are planners to find in the economic theories of growth to the questions posed at the outset; namely: How is it possible to discover potential produc tion possibility for a less developed country? And how is it possible to accelerate the rate at which it can be attained.? No simple answers are to be found. One thing is certain, however. The theories must be understood by planners and related to the particular situations with which they deal. But the main insights to be gained from the above discussion are: 1. No country can be described as having a limited, absolute level of production possibility or as being abso lutely poor in resources, for this would, be tantamount to saying that no new uses can be made of whatever known resources it may have and that no new resources can be discovered. It is not sufficient to rely on contemporary techniques alone. The production possibility may be pushed, out by the creative application of men to the development 21 Ibid. 34 of their resources in their own way. 2. It follows that the continuous and accelerated development of a country is dependent on the degree of creativity and. intellectual labors of men in that country. 3. It follows further that the development of new technology implies new conditions of life. Psychological reorientation of people, social change, and. institutional reforms become, therefore, a sine qua non in developmental planning. Thus, resources, capital, and technology must be regarded, by planners in a dynamic context, more accurately in a long-run context. Regarded, in the short-run, they may obscure the perspective and. the qualitative transforma tion which must constitute the vista of planners. OWNERSHIP AND CONTROL OF THE MEANS OF PRODUCTION It has been made clear at the outset that this study is being made in connection with the less developed countries of the world which may be characterized, as having mixed economies, meaning a combination of public, private and. cooperative ownership and control of the means of 35 production. This does not mean, however, that it is un important to understand the relative importance of the share of the public, private and cooperative ownership and control of the means of production in specific countries. It is indeed important, since the function of planning for development consists of a process of coordination of deci sion-making . Development planners are, of course, in a strategic position to advise their governments as to what is socially beneficial for them to own and control, and what not, but they are not necessarily handicapped in their attempts at coordination of decisions, _if they understand the economic map in this regard, and are, therefore, able to devise "imperative” or "indicative"22 instruments of coordination, applicable to the public sector, and the private or coop erative sectors respectively. Planning is affected pri marily in its approaches rather than in its effectiveness by the public or private ownership of the means of produc tion, given the governmental machinery for planning and. a p p “ These terms are borrowed from R. Olivier, UN, Eco nomic Commission for Africa, "Planning and. Statistical Techniques of Projection," (E/CN.14/ESD/ll, 1961), p. 5. They, may be interpreted, as coordination through bureaucracy or through the market, respectively. 36 p O responsive market system. J This indeed, is the reason why the association of planning only with public ownership and control of the means of production is not acceptable. There can hardly be any general criteria for defin ing the relative role of the public and private sectors. In actuality, ideological predisposition and political ideas count greatly in the decision on the ownership and control of the means of production. After all is said, however, two problems remain for planners to cope with in their attempts to coordinate eco nomic decisions: (1) the problem of optimal division of the task of planning within the public sector (to be re ferred to as the problem of centralization versus decen tralization) ; and. (2) the problem of coordinating private decision-making with public decision-making. The first problem will be discussed under our sixth criterion below. The second will be discussed in the fol lowing paragraphs. 23 Refer for instance to: Carl Landauer, Theory of National Economic Planning (Berkeley: University of Cali fornia Rress, 1949), p. 15. The Problem of Coordination of Private and Public Decision-Making The magnitude and importance of the private sector will vary from country to country. In some countries, the policy of nationalization has whittled down its size while in others the private sector is allowed to expand rela tively freely in industrial, commercial and financial fields. Our concern here is with the broad policies which may be adopted by government in order to effectively har monize private economic activity with the aims of national planning for development, whether the former is extensive or limited in scope. In this connection, it has been pro posed that: (a) the private sector may be made to draw out its own specific plans and to participate in national development planning; (b) the government may announce the national plan ceremoniously and assure all concerned par ties its determination to support all efforts at the realization of the national goals; and (c) the government may devise specific policies aimed at directing private investment to desired areas, and at reinforcing patterns 38 OA which may have been observed, and found, desirable. Private enterprises, especially in the large and strategic industries, need to engage in their own planning of their capacities, manpower requirements, import needs, and so forth. Negotiation between the government authori ties and such enterprises may be arranged, throughout the planning process. In addition, advisory committees con sisting of members representing private industry in general, and all the major private interests, may be created and continuously consulted on all problems affecting them and the economy at large. The "announcement effect'1 of the national plan may also bring about far-reaching results in the attempt to coordinate public planning with private decision-making. If the managers of private enterprises are con vinced that the government is determined to exe cute the programs and actions required of it in the public sector and, hence, that there is a good, chance that the development goals could be achieved, then the plan for the private sector represents not only what is required of private enterprises but also reveals the opportunities for expansion likely to occur in various industries. In effect, it 24 UN Conference on the Application of Science and Technology, "Public Planning and Private Decision-Making in Economic and Social Development," contributed by Gerhard. Colm (E/CONF.39/H/60, 1962), pp. 6-9. 39 becomes a matter of self-interest on the part of entrepreneurs to increase productive capacity in line with the opportunities highlighted in the plan. . . . Success breeds success and the ”an- nouncement effect” can be a continuing one rather than a one time e v e n t . 2 ^ Finally, and more importantly, government has at its disposal any.number of policy instruments which it may put into effect to make possible the realization of the goals set forth in the plan. These may range from fiscal and monetary policies to wage, price and commercial poli cies. More direct measures of policy, such as development bank lending, subsidies, and technical assistance may also be put into effect by the government. The problem of coordination of public and private decision-making is closely related to the question of the "locus of economic power.” Let us, therefore, proceed, with a discussion of the latter. LOCUS OF ECONOMIC POWER Planning is a process of translating goals into realities. Goals may never become realities if no effort is made to muster support for their achievement, for in a pluralistic society not everybody stands to gain from 2^Ibid., p. 7. 40 changes being introduced, at least not in the short run. Consequently, part of the planning function should be to clarify aims, to reconcile means, and to build up general support for them. Some guidelines have been proposed by one author for making the planning function more effective. The first of these proposals is to "identify centers of na tional power within the society." He writes: Governmental programs are carried on the shoul ders of strong men and strong institutions--strong not in the sense of tyrannical power, but strong in the sense of intelligence, energy, and political and private economic influence. The terrain of leadership in any society has an uneven profile. Since central planning involves the most difficult and. complex activity of developing nations, the prime question to be asked before the planning process begins is this: Who are the ablest and most vigorous innovators and administrators in the government service and in the society at large who can be mobilized into a coalition of national power? For, directly or indirectly, these are the energies which must be harnessed to the planning endeavor if it is to succeed. Conversely, these are the energies which can undermine central plan ning if they are not clearly and inextricably in volved in all stages of the planning p r o c e s s . 26 UN Conf. on the Appl. of Sci. and Tech., S. K. Bailey, "The Place and Functioning of A Planning Agency within the Government Organization of Developing Countries" (E/CONF.39/H/82, 1962), p. 4. 41 These "centers of energy and power” discovered., the next important task is to ”gain and institutionalize” their 27 commitment. Support for planning must be sought everywhere how ever . As an integral part of this most difficult polit ical and intellectual problem of priority-setting and program-relating, a massive effort must be made to build administrative, political, and public sup port for central planning, by involving public and private centers of power in the planning process at the earliest possible stage. Plans can rarely be carried out by orders a l o n e . 28 It is clear from these proposals that the role of political leadership is fundamental for the success of planning for development. The discovery and consolida tion of the loci of economic power and mass consent-build ing are supreme political problems in developmental plan ning. These recommendations must not, however, lead, us into accepting a misconception about the nature of develop mental planning. It must be understood that ’'planning is not synonymous with proposing.While proposing is an essential part of planning, no planning which is expected 2^Ibid., p. 4. 28 T, . , _ Ibid., p. 5. 2 9 - , . , . . Ibid., p . 2. 42 to pass beyond the blueprint stage can be considered as synonymous with proposing. The implication of the proposals is this: In a democracy . . . the government does not consider itself as the sole depository of wisdom and it is right that it should expose its inten tions and objectives to the test of public debate and criticism.3® MOTIVATIONAL SYSTEMS The problem of motivation has been an important topic in the controversy of Capitalism versus Socialism. The argument of those who stand for Capitalism is that Socialism would remove that motive power of men, which is pecuniary gain, without any satisfactory substitute for it. The problem of motivation in less developed coun tries, however, appears in a different guise. Let us note : ^ It is an interesting commentary upon human nature (and our attitudes toward it) to note that market-oriented motivations and their social sanc tion, far from being a universal characteristic of 30 UN, ECA, "Problems Concerning Development Program ming and Policy in African Countries," (E/CN.14/ESD/01), (Addis Ababa, 1962), p. 15. 43 all economic systems in history, have, as a general phenomenon, a very restricted, geographical and tem poral application. In the large majority of pre modern and, indeed, in many contemporary societies, the open pursuit of market or money-oriented per sonal gain is (at least for the bulk of the popula tion) either impossible (as, for example, in slave economies) or regarded with distaste. Even in our modern cultures, the impact of market motivations is tempered and supplemented by such extra- or non- market aspirations as power, status, friendship, goodwill, and many others. The psychological predisposition of people in less developed countries in general may be inconsistent with the aim of rapid economic development. We recall, for instance, that one of the questions put against the doc- . trine of the "demonstration effect" was this: Why did the phenomenon operate only on consumption? Why not on some thing else, entrepreneurship for example? And the criti cism directed at those who teach the doctrine of the "in sufficiency of saving" is that they have not understood, the fact that the real problem is the absence of the desire to save. Without the "will to economize," argues Lewis, "men are not likely to get more. . . .1,32 But he goes on to say 31Elliott, op. cit., Chap. II, p. 6 (footnote). 32 Lewis, op. cit., p. 23. 44 that the question of motivation has, in addition to the psychological predisposition of men, its institutional aspect as well. Many of the observed differences in effort are due to institutional defects, and social reformers who wish to promote economic growth are mainly concerned, with seeking to bring about appropriate changes in institutions, whether by propaganda or by law.33 Now it is clear that, in the face of these facts in less developed countries, developmental planning cannot go very far without deliberate and consistent efforts to change human behavior and institutions. No sophisticated, calculations of investment can have any relevance if planners do not include in their programs the social, po litical and legal reforms which are needed. As it has been observed: In most cases, institutional changes required . . . are not real investment activities, but merely re arrangements of resources and. relationships. Hence, they are part of the social policy constituting the political economy of p l a n n i n g . 34 33Ibid. 34 S. S. Wagle, Technique of Planning (Vorat Co., Publishers Pvt. Ltd., 1961), p. 12. 45 THE ORGANIZATION OF ECONOMIC POWER--CENTRALIZATION VERSUS DECENTRALIZATION In planning for development, as in any other kind of planning, the question of centralization versus decen tralization is bound to arise. Here we are concerned about the division of the task of planning within the pub lic sector. It has been proposed that "it is not possible to talk about decentralized planning,"33 To counteract this rather dogmatic statement is another argument that: The programming function must be centralized only in the sense that it must be separated from other functions.36 There may, however, be excesses in both centraliza tion and d ec entralization.3^ Excessive centralization may 35un Conf. on the Appl. of Sci. and Tech., "Some As pects of the Strategy of Development Planning: Centraliza tion versus Decentralization," by Edward S. Mason, (E/CON. 39/H75,1962), p. 1. 36 UN, ECA, "Problems Concerning Development Program ming . . . .," op. cit. , pp. 74-75. 3<7xhe divergence in the two points of view appears to emerge partly from the semantic matter of whether or not the execution or implementation process is to be included in the definition of "Planning.” 46 bring about the following undesirable results: a. Approval at the highest level may be required before even minor actions can be taken. . . . b. There may be uneconomic distribution of supplies. . . . c. There may be excessive prescription at the center. . . . d. There may be excessive adherence to regula tions after changes in circumstances have made them unworkable. . . .38 On the other hand, a great deal of wastage may result from lack of coordination of decentralized activi ties. Let us note the following experiences in this con nections, some of which are rather amusing: a. Dams were built by the Ministry of Public Works in one country to make available water for irrigation at locations where Ministry of Agriculture soil surveys had already shown that the land was not suited to this use. b. Representatives of the Ministry of Agricul ture in another country were promoting the production and use of certified seeds while State Bank representatives were granting credit for purchase of seed, varieties not recommended by the Ministry. 38 UN, Technical Assistance Program, Decentraliza tion for National and. Local Development (ST/TAO/M/19,1962), p. 7. 4% c. The plans of one Ministry to build a new housing estate on.a particular site were well advanced when it was discovered that another ministry's plans to turn the same area into a reservoir were equally advanced. d. Differences in the priorities of agencies can be wasteful. For example, an urgent school repair was accorded low priority by public' works; and vaccination officers arrived, at school on a day when examinations were scheduled.. ^9 Hence, the planning effort may be severely jeopard ized because of excessive centralization or decentraliza tion. This problem is, moreover, strongly dependent on: . . . the relationship between government and the people; the constitutional structure (e.g., the existence of a presidential or parliamentary, or a federal or unitary system); the structure of political parties and their relationship with governmental organs at different levels; the relationship of national legislative constitu encies to field administration and local govern ment areas. . . .40 Thus, within these limitations, planners would have to devise the optimal division of the task of planning in order to make possible effective coordination of activi ties at all levels. Are there, however, any general guidelines to be offered in this respect? Some suggestions are offered by 40Ibid., p. 9. 48 one author which may serve as general criteria for the centralization or decentralization of functions. Edward S. Mason has proposed that there are three broad problems encountered in the attempt at centralizing or decentralizing functions. These problems are: (a) gathering and using information; (b) communicating orders and managing resources; and (c) devising and admin istering proper incentives.^1 Let us consider each in turn. a. Gathering and. Using Information It is argued that the more functions are centralized the more information is required by the central planning organ and thus the more important the function of gathering and using information. While, of course, there is no way to determine just how much centralization is too much centralization with regard to the problem of gathering and using information, it seems that less developed countries which are overenthu- siastic about centralization must consider it closely. For, neither is the information so easily available, nor 41 Mason, op. cit. , pp. 1-3. 49 is there a satisfactory organization to ensure effective vertical communication in these countries. b. Communicating Orders and Managing Resources The fundamental question encountered here, it is argued, is: Is it better to have decisions made by those in close contact with the act of production but rela tively ignorant of various interindustry relations, or is it better for decisions to be made by those who see the interrelationships but are relatively ignorant of the production p r o c e s s e s ? ^ This question, however, implies that the problem is basically a technical one, while it may be fundamentally an institutional one (for example, the constitutional limits of the functions of various government organs). Furthermore, both knowledge of interindustry relations and production processes may be essential in actual situations at•every level of planning. This is true of not only a central planning organ which needs to pay close attention to critical areas, but also of a private firm which must have full knowledge of its market, supply conditions and its growth potential. The manner in which the question has been posed may, therefore, be an oversimplification 42Ibid. , p . 2. so but there is no doubt that the inability to a©quire suffi cient knowledge about the economy is a strong argument against centralization. c. Devising and. Administering Proper Incentives The problem of incentives (or disincentives) has been one of extensive discussion particularly in those countries with a substantial degree of governmental pro- ■ * ductive activity. The degree to which the government can affect per formance is important in determining what activities can be decentralized. The matter of incentives is one which requires particular attention. If it were possible to understand the full range of responses of people to given actions and circumstances, it would indeed be possible to achieve an economic and. more effective coordination and control of functions. It must be noted that in the experiences of coun tries which have embarked upon developmental planning, the problem of centralization’versus decentralization has been encountered in connection with the relationship of the central planning agency, board or commission and the vari 51' 43 ous ministries. The central planning agency ordinarily acts only in an advisory capacity, while executive authority lies in the hands of the various ministries. The important ques tion is how to make possible a close cooperation between them without violating constitutional limitations or abuse thereof. The difficulty of coordination between the central planning agency and the ministries has been reduced by making the Chief Executive as the Chairman of the agency 44 and/or the ministers themselves members thereof. There is no doubt that such arrangements have produced the de sired agreement on fundamental questions of national policy. It develops, however, that the institution of methods rather than mere formal organization may be criti cal in this case. Those with some experience in planning would admit that mere agreement of a minister to the 43 UN, Economic Commission for Africa, "Economic Planning in Africa,” (E/CN.14/ESD/4,1961), pp. 7-21. It may be noted that the central planning function is some times assigned to the Ministry of Finance or any other ministry rather than to a newly created, specialized agen cy. ^Ibid. , pp. 8-9. 52 general objectives of planning is not enough. It is essen tial to institute legal measures as well as uniform methods and timing of reports throughout the system. The author's observation in Ethiopia, where the Emperor himself is the Chairman of the Planning Board and the Cabinet Ministers members thereof, has been that whatever political agree ment may have been reached at the top level was not always helpful to the technical group in the Office of the Plan ning Board. Requests from members of the Planning Office have been ignored by some officials in the Ministries. In this connection, steps have been taken in some African countries including Ethiopia and the United Arab Republic, to establish "planning units” in each Ministry or agency A C as a means of obtaining effective liaison. The question of centralization versus decentraliza tion is a supreme example of the fact that the process of planning is dependent upon and limited, by a variety of institutional conditions and relationships. SOCIAL PROCESSES FOR ECONOMIC COORDINATION Four social processes of coordination have been 4=; Ibid., pp. 16-17. 53 distinguished, these being: (a) the price system; (b) bu- A . f \ reaucracy; (c) democracy; and. (d) bargaining. These four processes are not mutually exclusive. It is held here that developmental planning in the mixed economies of the less developed world, must rely upon all of them under varying conditions and to varying degrees. However, the price system and. bureaucracy are par ticularly important in developmental planning in these countries, as planners would have to rely both on the "invisible” hand of the market and their own "visible" hand, to a great extent. We recall the distinction made between "indicative" and. "imperative" instruments of pol icy. The latter need not be separately treated, here, as it has been implicitly dealt with in the previous sec tion.^ We shall concern ourselves with the former here. Coordination through the market implies that there exists a market with a certain degree of "purity" and "per- 46Elliott, op. cit., Chap. II; R. A. Dahl and Charles E. Lindblom, Politics, Economics and Welfare (Har per, 1953), Part IV, pp. 171-349. 47 A good reference is UN, ECA, "Administration and. Development Policy," by F. J. Tickner, (E/CN. 14/U&P/9,1962). 54 fection." However, the market in the less developed, coun tries can hardly be characterized as such, nor indeed pro duction for exchange known in large parts of these coun tries. Some countries declare the objective of "monetiza- 48 tion of the economy" in their plans, meaning an objective to develop market relations. The question of the psychological disposition of people and the nature of their institutions are relevant considerations here. Non-market motivations and the im portance of hierarchy-in certain traditional societies must be examined in connection with the development of effective social processes for cordination. If reliance on market forces is sought to any great extent: 1. Efforts must be made to increase specialization in production. 2. Existing monopolistic practices must be cur tailed. 3. Imperfections must be removed, that is, informa tion of market conditions must be relatively easy to obtain, and mobility of resources must be facilitated. 4. Capital markets must be introduced and developed. 48 ^°Refer for instance to: UN, ECA, "Comprehensive Economic Planning in Upper Volta," by J. M. Caillard, (E/CN.14/CP/4,1962), p. 3. 53 All these are to be achieved precisely through bureaucracy! Thus, here is an interesting example of the use of one social process of coordination to develop an other on the one hand, and of the role of developmental planning in bringing about institutional changes on the other. DISTRIBUTION OF INCOME AND WEALTH The distribution of income and wealth is generally regarded in the context of a predilection of distributive justice. Any number of countries planning for development make the reduction of the disparities in income and wealth as an important aim.^ There may be conceivable situations in which the aim of rapid development is not wholly con sistent with redistribution of income and. wealth. But there is a fundamental sense in which redistribution of income and. wealth can bring about a more rapid increase in Gross National Product. 40 Refer for instance to: UN, (E/CN.14/SDP/7,1963), ’’ Social Aspects of African Development Planning: Patterns and Trends,” Table X; also, UN (E/2003/Rev.l,St/ECA/ll, 1951), ’’ Land. Reform, Defects of Agrarian Structure as Ob stacles to Economic Development.” 56 Land reform occupies a high place in the plans of CQ many developing countries. The outcome of such an under taking is, however, dependent on the ability of planners to draw out a rational strategy, tempered by the assess ment of social and. political consequences and administra tive limitations. A case for redistribution of income in less devel oped countries was implied earlier when it was pointed out that generally the small upper class minority in these countries obtains the larger share of the GNP which is squandered on luxuries. The question of redistribution, however, may be looked at in a broader sense than the immediate increase of saving or decrease of consumption. A great many people may be found in less developed countries who are unable to do much about realizing their manifest desires for en terprise, for they may not have access to resources. Where there is a will there may be no way. On the other hand, as Lewis has pointed, out, "men will not make effort 5°UN, "Social Aspects of African . . . .," op. cit., Table X. e unless the fruit of that effort is assured to them selves."^-1 - There is, therefore, significant ground, for the argument that redistribution of income and wealth may make for rapid, development. ^Lewis, op. cit. , p. 57. CHAPTER III THE METHODS, TECHNIQUES AND PROBLEMS OF QUANTITATIVE ANALYSIS IN DEVELOPMENTAL PLANNING The last chapter has made it plain that develop mental planning in the less developed, countries cannot be considered, separately from the institutional framework. The necessity in each country of undertaking reforms and. introducing new institutions and economic and social rela tionships can hardly be overemphasized.. It must be understood, however, that changes in social, political, and organizational structures can be brought about only gradually and are bound, to take pro tracted. periods of time. It may not be possible to grasp fully the effects of such changes on the growth of national income. Nevertheless, planners must proceed, with the for mulation of the bases for more concrete economic action while at the same time assessing the consequences of re forms and new institutions. Economic planning of any kind, is based, on economic analysis. Economic analysis is based on theoretical and 58 59 conceptual ideas about the interrelationships of economic phenomena as causes and consequences and on the ability of economists to specify such relationships in a quantitative way. Developmental planning is no exception. It calls for the measurement and quantification of economic phenom ena and necessitates the application of economic laws, concepts, methods, and. techniques of analysis. The pur pose of this chapter is to explore some of these aspects of developmental planning. THE PROBLEM OF *THE INSUFFICIENCY OF DATA Some people associate developmental planning with quantitative analysis so closely, in fact, that they are led to a conclusion of doubt as to whether planning can be successful in the less developed countries before satis factory economic and social data are made available. The establishment of a machinery for the collec tion, standardization and evaluation of vital information is a fundamental step in the attempt to control the eco nomic environment. The more we know about the economy, the more we are able to predict the future and. the more we are able to affect it. The inadequacy of statistics in less developed countries is certainly a handicap for development plan ners, but it should not be used as an excuse for not start C ing developmental planning. There are a sufficient number of development projects which are known to be viable and which could be undertaken immediately even though it may not be possible to measure their full effects in the total economy. There are, moreover, advantages in putting rough estimates and even hunches and. judgments in a quantitative form. First, setting up the "empty economic boxes" is likely to result' in a guidance and. a spur to "fill" them up as rapidly as possible. Second, the magnitudes expressed in quantitative form can always be meaningful since their consistency can be checked, even though they may not be accurate. Third, quantification of economic phenomena makes possible more pointed, and intelligent criticism and dis cussion. Finally, the use of quantitative information makes it possible to take advantage of whatever scrappy statisti cal data may be available, data which may otherwise be 61 left unutilized.^ Thus, developmental planning and statistical devel opment must proceed simultaneously. It is proposed that: . . . at present it is for the planner to adapt his planning techniques to the present state of the statistical apparatus, but in the l.ong run, it is for the statistical apparatus to become adapted, to more elaborate planning techniques.^ The United Nations has made a number of recommenda tions for the collection and consolidation of statistical information in less developed, countries.^ One proposal includes a list of statistical requirements in these coun tries classified according to their abilities to produce annual comprehensive series of national accounts, and the existence of permanent survey organizations.- ^ In the long ^UN, ECA, "Problems Concerning Development Program ming and Policy in African Countries," (E/CN.14/ESD/Ol, 1962), p. 10. 2 UN,ECA, "Relations Between Planning Bodies and. Sta tistics," (E/CN.14/CAS.3/14,1963), p. 3. ^UN, "Principles for a Vital Statistical System," Statistical Papers, Series M, No. 19, 1964; "Statistical Series for the Use of Less Developed. Countries in Pro grammes of Economic and. Social Development," Series M, No. 31,1959; "Handbook for Statistical Organization," Studies in Methods, Series F, No. 6, 1954. ^UN,ECA, "Use of the Revised List of Basic Statis tics for Programming Statistical Development," (E/CN.14/ CAS.3/9,1963). 62. run, of course, the aim of every country should be to develop a fully organized system of collection and consoli dation of statistics. FACTORS DETERMINING THE APPROACH TO DEVELOPMENTAL PLANNING As it was emphasized in Chapter I, developmental planning is still in its experimental stage with regard to its methods and techniques. It is futile at this stage to attempt to find and adopt any "standard" methods and tech niques on the part of a country embarking upon develop- * » mental planning. Economic theory allows a great deal of flexibility and latitude for,experimentation so that developmental planning may be approached in different ways: . . . from different starting points, moving at different levels of abstraction and sophistication and emphasizing different problems and questions. A country about to start planning will have to choose from among these the most suitable one.-5 The choice of methods and techniques depends on a number of considerations, including the economic and. social ^UN, ECA, T , Notes on a Method of Comprehensive Plan ning in Tropical Africa," (E/CN.14/ESD/13,1962), p. 1. 63 structure, objectives and priorities, availability of data, the degree of integration of the economy, the size of the central planning machinery, and the degree of sophistica tion of planners with regard to quantitative analysis. Thus: . . . the "best” way of planning economic policy will to a considerable extent depend on the regime. Planning, in a way, is a set of decisions on economic variables, such as production, prices, and incomes, and in a way a ’’general rehearsal” of real economic life. Therefore, it must have a similar structure to that of the actual e conomy.^ PROCEDURES, METHODS AND TECHNIQUES Before proceeding further with our discussion, it seems appropriate to specify what we mean by the terms, procedures, methods and techniques. By the term procedure we shall mean the step-by- step arrangement and discussion of the important activi ties involved in developmental planning. By the term method we shall refer to the structure and design of the approach to developmental planning. ^Jan Tinbergen, Central Planning (Yale University Press, 1964), p. 87. 64 By the term technique we shall mean a particular scientific reasoning or tool employed for dealing with particular problems within the methodological framework. In this chapter, we shall not be concerned with procedures as defined above. A procedure is generally little more than a simple description of the planning process, abstracting from the consideration of methods and techniques. It aims at defining developmental planning in terms of certain general activities. Here are some illustrative examples of procedures: Example 1 1. Setting goals. 2. Testing alternative means for achieving goals. 3. Selecting the means to be employed. 4. Ensuring implementation and control. Example 2 1. Analyzing the de facto state of the economy and culture. 2. Determining the real potentialities. 3. Setting the basic aims of the plan. 4. Selecting the methods of solving planning problems Example 3 1. Recording and analysis of the existing and past situations. UN, "Economic Development of Underdeveloped Coun tries, Planning for Economic Development," (A/5533), Annex II, p . 9. 65' 2. Projecting situations in the future on the basis of accepted assumptions. 3. Formulating desirable objectives different from the projected situation, according to certain preferences. 4. Proposing a variety of actions, which if taken, realize the desirable objectives. 5. Formulating a selection of actions, which appear to enlightened judgment, to be feasible and optimal in the direction of objectives. 6. Insuring that the accepted plan of action is implemented.8 Any number of comments may be made regarding such procedures. It is to be noted, however, that they suggest - a similar pattern, undoubtedly based on the simple idea that in any rational endeavor thought precedes action and that certain actions precede other actions. The decision as to what actions come first and what next is, however, strongly influenced, by one's own preferences. Our main concern in this chapter will be with the methods and techniques employed in developmental planning. It is held that there are two alternative methods which may be followed in developmental planning.^ One method is Q I.H. Abdel-Rahman, UN,ECA, "Comprehensive Economic Planning in the UAR," (E/CN.14/CP/ll,1962), p. 37. ^Tinbergen, op. cit. , p. 21 and. p. 88; also UN, Conf. on the Appl. of Sci. and Tech. . ."Planning and. Programming: Aggregate, Sectoral, Project, and the Relationships and Priorities Among Sectors," (E/Conf,/39/GR.86(H),1962), pp. 5-6. 66- to construct a comprehensive mathematical model including the whole complex of interrelationships of the economy in order to arrive at a simultaneous solution of all the problems. This method is obviously too ambitious and entails too formidable a task to be applicable in the less developed countries at this stage. It necessitates a great deal of data and implies the presence of an integrated economic system and the specialists to handle the calcula tions involved. The other method* termed variously as the method of successive approximations, planning in stages, trial and error, and decreasing abstraction, breaks down the planning process into stages in a manner analogous to the procedural outlines shown above.The use of models is, however, not excluded by the adoption of this method. The Use of Models Any type of economic reasoning or technique is based implicitly or explicitly on the idea of a model. "^Tinbergen warns that the distinction may not be so clear cut between the two methods, since the solution of certain problems in mathematics sometimes involves trial and error, ibid., p. 23. 67- Models may be employed on different levels for dealing with particular problems. There are two types of models which may be employed in developmental planning: In the first and simpler case, it may be desired, to determine the effects of a particular set of economic measures, for example, of investment in certain sectors. The measures and other data are taken as given, and the model is used to trace their effects throughout the economy. In the second case, a certain set of objectives is specified, such as a given rise in income or employment or a given reduc tion of a balance of payments deficit, and the model is used to determine the most appropriate policy measures to achieve these objectives. Although both types of analysis are valuable for programming pur poses, the second will be given particular attention. In the first place, underdeveloped economies are more likely to think of programming in terms of choice of policy measures; in the second place, the use of models has its greatest advantage over more intuitive methods precisely for this type of anal ysis.-1 -! The method, most frequently adopted, in developmental planning is that or successive approximations, employing partial economic models of one type or another.!^ Our aim in the remaining part of this chapter is, therefore, to 11 "Use of Models in Programming," UN Industrializa tion and Productivity, Bulletin 4, (April, 1961), p. 8. 12 Tinbergen, op. cit., Appendix, Table 13, p. 131. 68 examine this method and to describe some of its techniques, including the partial models applicable when it is adopted. THE METHOD OF SUCCESSIVE APPROXIMATIONS The method of successive approximations is normally conceived, of as proceeding from the global to the more particular phases of the planning process. The planning process is broken down into three levels or stages, namely, Aggregate, Sector, and Project levels. Sometimes a distinction is made between the "pro gramming approach" and the "sectoral approach." The former proceeds by first setting overall targets of macro- economic magnitudes, while the latter begins by setting targets for each sector of the economy. In principle, one set of targets can be derived from the other. The ques tion to some people seems to be, however, whether of not one approach is superior to the other. It has been sug gested that the "programming approach is theoretically superior," but that the amount of information required by this approach constitutes an important limitation. The argument is put as follows: Once it has been determined that the aggregate per capita income could be increased by T per cent in the period covered by a development programme, that this increase would consist of X per cent in crease in consumption and a Y per cent increase in investment, and to be accompanied by a Z per cent increase in imports, then the composition of the increased flow of goods as between agriculture, industry, transport,“power, et cetera, can only be determined by measuring or assuming: a. The income elasticity of demand. . . . b. The input-output relations. . . . c. The cost of production of both raw mate rials and final goods, since the demand of them will depend not only on incomes, but also on prices. - *-3 This may be correct, but it may not be correct to assume that the ’’sectoral approach” requires any lesser information either. For, once the necessity of projecting changes in the overall economy is admitted., the same types of questions are bound to come up even when one begins with the ’’sectoral approach.” Moreover, it is found that a given rate of growth- of per capita income is often the basic target set at the highest level. It then becomes the task of the planners to formulate a plan which aims at attaining the target rate of growth. In any case, the basic considerations are likely to be the rate of growth experienced in the past, a general appraisal of foreseen developments, and available 13UN, EGA (E/CN.14/ESD/01), op. cit., pp. 26-27. and forthcoming resources rather than a detailed analysis of projects in each sector. It is admitted in the end, therefore, that: . . . the relationship between sectoral targets and overall targets is bound to be a mutual one. Devel opment programming essentially consists of a process of mutual adjustment, back and forth, of sectoral and overall targets to each other. This procedure by "trial and error” is typical of development pro gramming; it finds its administrative reflection in a frequent back and forth between those concerned in individual government departments with individual sectors and those concerned with the "picture as a whole. Planning on the Aggregate Level As was mentioned above, a given rate of increase of per capita income for a number of years in the future usually constitutes the basic quantitative objective of a development plan. This rate of increase of per capita •income is then used to derive the other macro-economic targets. We shall illustrate this process below by the use of a simple aggregate model. Determination of a target rate of growth.--Before doing so, however, it may be necessary to show the manner in which the target rate of growth of per capita income - ^Ibid., pp. 28-29. TL may be selected. Two general approaches are proposed, which may be referred to as the "comparative” approach and the "historical" approach. The first approach is to take into consideration the rate of population growth and the level of GNP in the country and in other countries, and £t°J decide on the rate of growth of GNP per capita and thus on the speed with which we want to reduce and difference between the level of economic develop ment of the country in question and that of other developed countries. The other approach is mainly based rather on the economic achievements of the past with special ref erence to available investment funds. The past and the existing local savings as well as the possibili ties of obtaining aid and loans from abroad, are taken into consideration. On the basis of these data, after assessing the capital-output ratio, the rate of growth of GNP and the size of consumption are finally defined.15 The "comparative" approach indicates the rate at which per capita income must grow in order to catch up with other countries, while the "historical" approach determines the rate at which it can grow taking into account the important constraints. It is found that those countries which employ the first approach tend to set high rates of growth, while those which employ the second, approach tend to set low rates of growth (see Table I). UN, EGA, "Comprehensive Economic Planning in Africa," (E/CN.14/CP/12,1962), pp. 5-6. 72. TABLE I THE RELATIONSHIP BETWEEN THE SIZE OF THE TARGET RATE OF GROWTH AND THE METHOD USED IN DETERMINING IT Countries with high rates of growth Countries with low rates of growth Countries employing Guinea the comparative Mali approach Ghana Tunisia U.A.R. Sudan Countries employing Morocco the historical Senegal Nigeria approach Upper Volta (1st plan) Source: UN, EGA, "Comprehensive Economic Planning in Africa," op,'cit., p. 10. 73! Granting that it is the general consciousness of backwardness which brings the urge of rapid economic development, it is important to bear in mind that it may become mere wishful thinking to set high aims which cannot be fully realized given the many constraints of economic development. The following statement has been ventured on this question, however: To the extent that the setting of relatively higher rates of growth has a mobilizing effect on the nation and is backed by the whole government machine, it certainly accelerates the pace of eco nomic development.16 However; the target rate of growth is selected, it becomes the basic datum from which the other macro-economic targets are derived. A simple aggregate model.--The model presented here is one of any number which have been described in the United Nations literature.1^ It was designed, for the pur pose of making long-term projections. It is selected for ^Ibid. , p. 11. l^UN, ECLA, ’’ Problems of Long-Term Economic Projec tions 'Development Programming Techniques Series No. 3, (E/CN.11/629,1963), Chapter II, pp. 7-18. discussion here because of its simplicity and because it incorporates the essential features of a macro-economic model for determining policy measures to achieve given objectives. In a nutshell, the main theme of the aggregate model is as follows: given a certain rate of growth of output, the level of required expenditure on capi tal goods can be estimated on the basis of overall capital output ratio. However, the domestic capacity to produce capital goods is limited and consequently a certain amount of the required equipment has to be imported. Besides the increased, demand for invest ment, the growth of income will result in an in crease in the demand for consumer goods. This will, in part, have to be met by imports either because the domestic capacity is limited, or because the composi tion of the new demand, shifts in favor of non-competi tive imports, e.g., cars. . . , Finally, imports have to be financed either by exports or by capital inflows, but both these factors are assumed to depend, primarily upon conditions lying beyond, the control of government policies. It is assumed in the model that the variables are measured in real terms. Only the calculation of import capacity necessitates the use of prices, but no analysis is made of their effects on the direction of resource allocation. 1 R Ibid. , p. 8. T£ The first relationship specified is the National Income Identity: (1.1) Yg = C + I +G+E — M Yg = Gross National Product C = Private Consumption Expenditures I = Gross Domestic Capital Formation G = Public Consumption Expenditures E— M = Difference between Exports and Imports The Balance of Trade may be further expressed as: (1.2) B = PeE - PmM (1.3) B = B-l + B2 B = Balance of Trade at current prices Pe = Unit Value of Exports Pm = Unit Value of Imports B-^ = Net short-term capital inflow, including Net Income from abroad, net changes in foreign assets and gold. B^ = Net long-term capital inflow and dona tions . The relationship of output and capital stock in the long run may be put as follows: (1.4) Yg = kK K = Capital stock available k = Average productivity of capital 76 Capital stock at one point in time may be approxi mated as follows: (1;5) Kt ~ Ko + (Ii - D±) = Capital stock at time 't* Kq = Capital stock at benchmark year D = Depreciation The following is the familiar functional relation ship between Consumption expenditures and Gross National Product: (1.6) C = b-jYg b^ = Income elasticity of Consumption Export demand is made to depend on exogenous fac tors and government policy: (1.7) E = f(Z;P!) Z = Exogenous factors P]_ = Government policies The next five equations are introduced to determine the import demand function: (1.8) M = Mc + M± Mc = Consumption goods imports = Investment goods imports T£ Gross Investment may also be further disaggregated: (1.9) I = M± + X± X£ = Domestic production of capital goods Similarly: (1.10) C = Mc + Xc Mc = Imports of consumption goods XQ = Domestic production of consumption goods The following relationships are also specified.: (1.11) M± = b2I (1.12) Mc = b3C b2 = Capacity of domestic capital goods industry in relation to demand. bg = Capacity of domestic consumption goods industry (implying substitutability). As was explained earlier, we begin by setting a target rate of growth of National Income. The demand, for private Consumption is determined, by equation (1.6), and through equation (1.12) the demand, for import of Consump tion goods. Equations (1.4) and, (1.5) determine the level of Investment activity corresponding to the specified, tar get of Gross National Product, while equation (1.11) deter mines the demand for imports of capital goods. We thus find the total import demand, equation (1.8). 78 It is important to note now that the supply of for eign resources to finance imports determined by exogenous factors (1.2, 1.3 and 1.7) may not correspond to the demand for imports, equation (1.8). Thus, we arrive directly at what the model is supposed to lead us, the choice of alter native lines of policy which may be followed in order to achieve the target rate of growth. How then can equilibrium be achieved? The policy measures to be selected depend on the time horizon con sidered.. It is proposed that in the short run, equilib- rium may be achieved by drawing down foreign reserves. In the time horizon of a medium-term plan (about * five years duration) the alternatives open are: a. To make the growth of the economy subject to the foreign exchange constraint. b. To decrease b^, equation (1.6) by fiscal policy so that Mc is equated with the difference be tween M and M... c. To change b3, equation (1.12), that is to reduce the import content of total Consumption. d. To increase k, equation (1.4), which implies a shift to less capital-intensive investment areas. Beyond the medium-term period, additional alterna tives are possible: e. To decrease b2» equation (1.11), that is to substitute domestic capital goods production for capital goods imports. 79 f. To decrease b3, equation (1.12), that is to decrease consumption goods imports. g. To increase exports, equation (1.7) by affect ing Z and/or P^. h. To increase B2, that is to attract long-term capital aid. Main features of aggregate models.--The model gust described can be considered as being ,Tforeign~trade cen tered,” because the major constraints on the growth of national income are specified as being the availabilities of foreign exchange and international capital flows. As a result, domestic saving, though the basic source of financing investment, is not made the primary focus of policy. The alternative policy measures outlined above are aimed primarily at the foreign-trade sector. Other models may be "capital centered” or "employ ment centered.,"^ This does not mean that any one of these models totally ignores the constraints specified in another type of model. Indeed., in our foreign-trade centered model, for instance, the purpose of maximizing foreign exchange earnings and capital inflows is to supplement domestic saving. This means that we already have an idea "^”Use of Models in Programming," op. cit., pp. 9- 11. 60 about the size of the latter. Nor can a ' ’ capital-centered1' model ignore foreign trade or employment, although it specifies domestic saving as the major constraint on the growth of income. A modi fied form of the Harrod-Domar model has been employed in countries such as India and Algeria. 20 The structure of such a model may be put as follows (2.2) Y t+2 Yt+1 SY t+1 k _ Y, t+i( Hence: (2.3) Yt+2 = Yt(l+!)2 Therefore: (2.4) Yt = Yo(l4)t Y = income s = saving-income ratio k = marginal capital-out- put ratio This model makes the growth of national income dependent on the rate of saving. Policy can, therefore, 20 Ibid., p. 9. 21 S. S. Wagle, Techniques of Planning (Vorat Co, Publishers Pvt. Ltd., 1961), p. 103. 8L focus more directly on ways of increasing the saving ratio. Such a model also makes it possible to take account of employment. Indeed, the Harrod-Domar model in its origin was concerned about a full-employment rate of growth of national income. Although a Harrod-Domar model principally centers on the capital factor, it can also be used to indi cate the extent to which it would be possible to achieve full employment of labour. The increase in employment which may be expected to result from the investment programme can be estimated by using either a labour-capital or a labour-output ratio. The former method was used in India; the latter in Algeria. It may then be found that significant gaps exist between the resulting direct increase in em ployment and the desired employment targets. In such a case, unless the employment target is aban doned as unachievable, certain other labour-using activities, which are unrelated to the planned investment, may be suggested by the planner to fill the gap.22 An aggregate model may also focus directly on em ployment. In Ceylon, a model was used in which the prime objective was to provide employment for the unem ployed and under-employed labour force, taking into account the anticipated natural increase in labour force by the end of the ten-year plan period. On the basis of the projected labour force and an assumed level of labour productivity, an estimate was made of the national product at the end of the "Use of Models in Programming,” op. cit. , p. 10. 82 period and during the intervening years.23 The important question in all these cases is whether all the constraints should be specified at the outset and then a model constructed and applied to make possible a simultaneous solution, or whether the method of successive approximation should be employed. We have already indi cated that the latter approach is preferred and is widely employed. To recapitulate: Attention is centered first on one situation--that of the assumed key factor'; the other restrictions are then brought into the picture, by trial-and-error procedure, in a second subsequent round of calcula tions.2^ Suppose that in our foreign-trade centered model the target rate of growth of income was arrived at on the basis of the "historical’’ approach, emphasizing saving as the major factor determining it. This means that before the selection of the rate of growth, ways and means are explored which would maximize saving and a set of policies specified for that purpose. If this is so, then the model may^be considered as much capital-centered, as foreign-trade centered. Furthermore, if it were possible to specify a target level of employment which must be satisfied along * 24jr • j Ibzd. 83 with the target rate of growth of income, the analysis may be extended to deal with the employment factor. The technique of linear-programming makes it possi ble to arrive at a solution which satisfies a number of conditions. We shall discuss this technique briefly below. Before doing so, however, it is appropriate to note some of the limitations of the aggregate models. First, while the aim is to derive a set of policy measures to attain a given rate of growth, such conclu sions as are reached are not sufficiently specific to have much operational value. Second, although alternative policy lines are indi cated, no criteria are provided for choice. Third, the indirect effects of a given policy meas ure are totally ignored. Finally, the models often take no account of what actually takes place between the benchmark year and the final year of the plan period.2^ Hence, such models are: . . . less satisfactory than the dynamic models. On the other hand, as I they are] more searching, 95 "Problems of Long-Term Economic Projections," op. cit., p. 18. 84 [they give*j a better idea of the partial balances.^ The technique of linear-programming.--The technique of linear-programming is a natural extension of the input- output technique, which we shall have occasion to discuss in the next section. It is superior to the input-output technique in two ways: 1. While an input-output model does not take account of the technical substitutability of inputs, a linear-programming model makes this possible. For instance, instead of having a fixed, relationship between an input of capital and labor, it becomes possible to show more than one combination of capital and. labor to produce a unit of output. 2. An input-output model does not accommodate boundary conditions, while a linear-programming model can explicitly introduce such conditions. From the point of view of the present discourse, the feature of boundary conditions is of more interest. The technique of linear-programming aims at obtaining the 2 ^ R. Olivier, "Planning and Statistical Techniques of Projection," UN,EGA (E/CN.14/ESD/ll,1961), p. 23. 85 most economical way of achieving a set of specified condi tions. If the aim is the attainment of a given rate of growth of income, it makes it possible to arrive at a solution which requires the minimum amount of investment or foreign exchange. In addition, the following conditions may be imposed.: (a) employment should not fall below a certain level; and (b) the balance of payments deficit should not exceed a given amount. Although this technique has attracted some atten tion as a matter of theoretical interest, the possibility of its application in the less developed countries is gen erally regarded dimly. The main practical obstacle to the use of linear programming models lies in their greater demand for statistical information. . . . it is likely that * the use of linear-programming models for formulating development programmes will not be of wide-spread use in the near future.27 The technique is commonly considered, as potentially more useful in interindustry analysis. It is for this reason that the possibility of technical substitutability of inputs is significant. 27 "Use of Models in Programming,M op. cit., p. 15. 86 Planning on the Sector Level Planning on the aggregate level helps us to deter mine the general pace of development of the, economy. The most important outcome is the determination of the invest ment needs of the economy. Nothing is specified, however, about the distribution of investment and about production. Sector-level planning is, therefore, required to: . . . ascertain the rate and type of development to be pursued by each sector, and to determine what investment and other measures will be required in ' order to attain the objectives for individual ac tivities.28 The main purpose served by sector-level planning in underdeveloped countries is the determination of the structure of demand and production on the basis of which preliminary estimates may be made of the investment needs of each sector. Determination of Final Demand. The major categories of final demand to be con sidered are: (1) demand for various categories of house hold consumption goods and services; (2) government con The discussion of parts of subsequent sections draws upon, UN, ECLA, "Analyses and Projections of Economic Development: I. An Introduction to the Technique of Pro gramming," (E/CN.12/363,1955). 87 sumption demand; and (3) export demand. Estimation of household consumption -Before pro ceeding with a separate discussion of the demand, for food stuffs, manufactured consumer goods, and services, we shall state briefly the major elements of the technique used in estimating consumer demand. A rough estimate of consumption demand may be de rived from expected levels of per capita income. A tech nique based on Engel curves may be used for this purpose. The use of Engel curves makes possible the determination of per capita demand for individual or several commodities considered jointly.** A simple multiplication of per capita demand by total population gives the total demand for the commodities being considered.^ This technique, however, takes no acoount of income distribution and demographic structure. The structure of demand, is affected by both changes in the distribution of income and urbanization. An approach which takes account of changes in income distribution and population structure OQ Jan Tinbergen, "Simple Devices for Development Planning," UN, Conf. on Appl. of Sci. and Tech. . ., (E/Cn. 39/H/l,1962), p. 3. 88 may be based on family expenditure surveys. On the basis of these: . . . the elasticities of demand for the different categories of products, at various income-levels and in different population centers--whether urban or rural--may . . . be estimated . . . In this way an estimate can be made of the evolution of demand in relation to income changes over a not-too- lengthy period, for example, five to eight years. Over a longer term, estimates would be less valuable, on account of possible changes in consumers’ tastes and of transformations undergone by certain consumer goods and services, which might give rise to struc tural modifications in demand. . . .30 The future distribution of population between urban and rural areas may be estimated on the basis of censuses or sample surveys. A simple table may be drawn for a benchmark year upon which the projections can be based. (See Table II.) Shifts in population structure affect income dis tribution as a result of wage differentials between town and country. The information on the future distribution of income may thus be improved by projecting population by occupations. The greatest difficulty in projecting the future income distribution arises in the attempt to estimate 30UN, ECLA, (E/CN.12/363,1955), op. cit., p. 29. 39 TABLE II PATTERN OF THE TOTAL POPULATION BY SECTOR OF ACTIVITY AND BY ZONE Sector of Economic Activity Residence Zone Large Towns Other Towns Rural Districts Agriculture Industry Non-Administrative Services Administration Inactive Population Total Population Source: Based, on Table VI, UN, ECA, "Population Projec tions for Planning Purposes," (E/CN.14/ASPP/L.5, 1962), p. 34. 4 - 90 changes of the shares of the various factors of production. The use of a system of national accounts is particularly useful in this connection. The problem requires also knowledge of the distribution policy to be pursued. This is particularly significant since redistribution of income is an important objective in most of the countries planning development. As was indicated, the major categories of household consumption are foodstuffs, manufactured consumer goods, and services. The main characteristic of the demand for foodstuffs is the tendency of the coefficients of elastic ity to decline as per capita income increases. This does not imply, however, that such will occur in the early stages of development. On the contrary, demand, for food stuffs is more likely to go up at first, as the income of a hitherto relatively poor population is increased.. More over, a distinction must be made between raw and. processed, foods. The demand for the latter is bound, to show a gen eral upward, trend. In addition, population growth and redistribution of income actually cause the proportion of expenditures on foodstuffs to go up at first and to fall only in the longer run. A projection of the demand for foodstuffs should 91 not assume that the dietary level of the population re mains the same for the various income groups as development proceeds. Indeed: . . . in countries where the poorest strata of the population are known to be inadequately nourished it is inconceivable that one of the primary aims of economic policy and programming should not be pre cisely that of raising dietary levels.^ A fundamental feature of demand for manufactured goods is that expenditures on these goods grow more than proportionately to the growth of per capita income. The high income-elasticity for these goods, it is suggested, accounts for the more dynamic role of industry in economic development. It may be necessary, however, to make separate estimates of the demand for different types of manufactured goods. Expenditures on services (housing, professional services, entertainment, et cetera,) take a large portion of the consumers' disposable income. Moreover, the amount spent on services tends to rise as per capita income in creases. Given the expenditures on foodstuffs, manufactured consumer goods, and the volume of domestic saving, expend 31UN,ECLA, (E/CN.12/363,1955), op. cit., p. 31. 92 itures on services may be estimated as a residual. It is, however, desirable to make separate estimates of the de mand for the various services identified above at least as a check on this procedure. TABLE III AVERAGE CONSUMPTION PER CAPITA BY MAJOR CATEGORIES OF GOODS AND SERVICES Consumption at per income of Category $100 $200 $300 Food 61.2 108.4 139.1 Clothing 6.2 14.8 22.8 Housing (rent) 5.2 10.9 15.7 Fuel and Light 2.7 6.3 9.5 Furniture 1.6 5.0 9.4 Other 13.1 34.2 55.1 Source: From Table 2.1, UN, Formulating Industrial Devel opment Programmes, Development Programming Series No. 2, ECAJFE, 1961. 93 Government consumption.--We face here a conceptual difficulty in distinguishing between government current expenditures and government investment expenditures. Ex penditures on administration or defense pose no conceptual difficulty as they fall under current expenditures. The difficulty arises when we consider expenditures on educa tion and health. Expenditures on education may be part of a national program to offer opportunity to every one to attain a certain level of education, such as elementary education, or to raise the level of literacy. In view of such a policy, it is sometimes argued that at least part of the expenditures on education should be considered as expenditure on a consumption "service." On the other hand, it may be argued that since a great part of the unemploy ment or underemployment in underdeveloped countries can be attributed to lack of education, skill, and literacy, then expenditures on education can be regarded as investment for the development of human resources. The same sort of question arises with regard to expenditures on health services. It may be a national pol icy to provide every one with a minimum of health services so as to reduce suffering or to stop the spread of communi cable diseases. In this case, it may be reasonable to think of expenditures on health services as current expend itures. On the other hand, if the government establishes a malaria eradication center in a given locality for the purpose of increasing the productivity of labor, it be comes reasonable to think of expenditures on such an under taking as investment. There is, of course, no clear-cut solution to such conceptual questions. However, it is held that the pre ponderance o^ expenditures on education and health can be regarded as investment for at,least two reasons. First, the deficiencies in education and health which exist in underdeveloped countries lead one to conclude that improve ment in these conditions must greatly enhance productivity Secondly, there is no question that certain expenditures on education and health are decidedly investment expendi tures. These would, include expenditures on school build ings, hospitals, and. certain educational and. medical facil ities. However such a dilemma is resolved,, there is still the difficulty of estimating government expenditures. A general technique is to estimate such expenditures on the basis of population growth. More satisfactory estimates may be arrived at by taking account of the needs of the 95 country concerned, national policy, past expenditure pat terns, and situations in other countries. That segment of government expenditures on invest ment can be considered as part of a broad range of invest ment in social overhead capital to be dealt with later. The portion considered as current expenditures may be taken as government consumption. Demand for exports.--On the sectoral level, it is necessary to make estimates of the demand for the major exports of a country. It would seem that this is a rela tively easy task since the major export of an underdevel oped country is often a single primary commodity. However, a** we shall see in Chapter V, the task is much more diffi cult, principally because the violent fluctuation of export prices makes export earnings difficult to predict. Our interest here is in the techniques which may be employed in estimating future demand for exports. The im portant factors which affect the demand for exports are the following: a. The rates of growth of income of importing countries. b. The income elasticities of demand of importing countries for the commodity or commodities being considered. 96 c. The prevailing prices of the commodity or commodities. d. The competition foreseen from identical or substitute p r o d u c t s . 32 In estimating the demand for exports, it is useful to classify importing countries as developed market- oriented, non-market-oriented, and less developed coun tries .33 Such a distinction makes it possible to make a better analysis of export demand. The application of in come elasticities of demand to levels of future income to determine export demand is useful particularly in the case of developed market-oriented economies. It may not be possible to obtain official statements about the rates of growth of income or income elasticities of demand for these countries. Planners would have to rely on more than one source and on their own analysis of situations. . . . in respect to j^non-market-orientedl countries, their long-term plans will have to form the basis for assessing export possibilities. However, both the volume and. pattern of their import will be 32UN,ECLA, (E/CN.12/363,1955), op. cit., p. 23; and also Problems of Long-Term Economic Projections, op. cit. p . 57. 33 Problems of Long-Term . . ., op. cit., p. 57. 97 matters of state policy and generally subject to bilateral arrangements. The position in respect of (^developed market-oriented economiesj , will be dif ferent , in as much as the trends in their output and expenditure patterns may have to be forecast; they are, moreover, countries in which the price- factor will have a large influence on their imports. The advantage in specifying the underdeveloped countries separately is, however, a different one. Irrespective of the degree of planning in each of them, the major increases in their imports are likely to be in the capital and intermediate goods categories; and, therefore, it is in the assess ment of possible exports of such commodities that they will need to be given special attention.34 The estimation of future prices for exports is a difficult task. As was pointed out above, prices of pri mary commodities are volatile on the international market. Recent trends of prices may provide some indication about the future if it is possible to determine the factors which have affected their movements. An important consideration, however, is the future supply situation of the commodities being considered. It is necessary to estimate the amount of identical or substi tute commodities which will reach the international market. This calls for careful study of sources of supply and their anticipated production for export. Prices, however, are dependent more on demand than 34Ibid. 98 supply in this case. It is fluctuations in demand that result in fluctuations in export earnings in underdeveloped countries. Efforts, therefore, should be directed to esti mating demand. It is generally admitted that the estima tion of export demand is subject to a large margin of error. This, however, means only that the figures arrived at are to be taken for what they are, not that the task should not be attempted. Estimation of Intermediate Demand--Main Features So far, we have been concerned only with final de mand for goods and services, which by our definition con sists of household consumption,- government consumption, and exports. Total demand consists of final demand and intermediate demand. It is possible to derive inter mediate demand from final demand. Intermediate products may be classified according to the number of final goods they may be used to produce. Thus, we may have: (a) intermediate products whose demand is a direct function of the demand for a single or a few final products, e.g., pulp, cotton, wool, et cetera; and (b) intermediate products with multiple uses, e.g., metal lurgical products. The estimation of demand for the first group of intermediate products poses no serious problems. Given the technological relationships (e.g., so much pulp per ton of paper) , the demand for pulp may be estimated di rectly from the demand for paper. The estimation of the demand, for the second group of products is, however, a more difficult task. Thus, the estimation of the demand for metallurgical products re quires careful accounting of all the uses to which they are put, including building materials and equipment of all types. From the point of view of developmental planning, the most important types of intermediate services are transportation and energy. The two important factors in the estimation of the demand for transport services are "the location of economic activities and the physical move ment of goods and services throughout the economy. It is found that the factors to be considered, in the case of transport services resemble those to be con sidered in the case of energy services. 35UN,ECLA, (E/CN.12/363,1955), op. cit., p. 36. 100 Both services represent necessary basic materials for economic development; . . . in both, analyses by geographic areas are essential to a complete notion of the problem, with the added circumstance that, in the case of energy sources, their location is an even more important factor in determining the sites of other activities; and finally, both sectors call for heavy investment, within which the proportion of im ports is usually high in countries which have not yet emerged from the initial stages of development.36 The estimation of the intermediate demand for goods and services requires that careful account be made of the consequences of changes in final demand. The input-output technique is often recommended for estimating the demand for intermediate goods and services. The important advan tage of this technique is that it makes it possible to see not only the interrelationship between final demand and intermediate demand, but also makes it possible to determine total production (supply) at the same time. Let us, therefore, demonstrate the manner in which this may be done. Determination of Inter-Industry Demand, and Production The input-output table may divide the economy into numerous production sectors (say, 15-20) and. a few final demand sectors (say, 3-6). For the purpose at hand., we 36Ibid. 101 shall consider a much simpler inter-industry model. First, however, a word of explanation is in order as to the method, to be followed in subsequent analyses. The important point which must be borne in mind is that the subsequent discussion is a logical continuation of the pre ceding discussion. Final demand consists of household consumption, government consumption, and exports. Invest ment is not considered to be a component of final -demand in the present case. The reason for this is partly a methodological one, which will be clear as we proceed with the discussion. For the moment, we state only that this distinction makes it possible to deal with two types of inputs--current inputs, and capital inputs. Current inputs.--Table IV shows that Industry 1 delivers output worth 60 to Industry 1 itself, and 40 to Industry 2. Similarly, Industry 2 delivers output worth 80 to Industry 2 itself, and 30 to Industry 1. When the table is read horizontally, it shows outputs. When it is read vertically, it shows inputs. The inputs of Industry 1 consist of its own output of 60 and 30 of Industry 2's output. The inputs of Industry 2 consist of its own output of 80 and 40 of Industry I’s output. 102 TABLE IV CURRENT INTER-INDUSTRY INPUT-OUTPUT RELATIONS Intermediate Demand Final Demand Total Pro duction Industry 1 Industry 2 Industry 1 60 40 200 300 Industry 2 30 80 90 200 Source: Based on Table 1, UN, Programming Techniques for Economic Development, ECAFE, p. 45. The discus sion of subsequent sections draws from this source, pp. 45-51. The value of the input-output technique is, however, not limited to the fact that it allows the compilation of such data in one table. Its main value is that it permits the calculation of the repercussions of changes in final demand on all sectors of the economy. An increase in the demand, for a product will at once cause a rise in its production and, as a logical 103 result, a greater input demand by this sector. In their turn, the industries supplying the input will ^ require products from other sectors, and so on . . . For this purpose, it is necessary to have a matrix of input-output coefficients. Such coefficients make it possible to calculate the consequences of any change in final demand. How is it possible to obtain the coeffi cients? Ideally, these should be obtained from careful analysis of technological relationships between inputs and outputs. In many cases, however, these coefficients are derived from a table showing inter-industry transactions during a given period, say one year. Table V shows the coefficients derived from the figures in Table IV. TABLE V CURRENT INPUT-COEFFICIENTS Industry 1 Industry 2 Industry 1 0.2 0.2 Industry 2 0.1 0.4 Thus, one unit of output from ♦ Industry 1 requires 37u n,e c a, (E/CN.12/363,1955), o d. cit. , p. 33. an input of 0.2 from Industry 1 itself and 0.1 from Indus try 2. Similarly, one unit of output from Industry 2, requires 0.4 input from Industry 2 itself, and 0.2 input from Industry 1. Such coefficients make it possible to determine total production from final demand. Given final demand (D-^ and D2), total production (T-^ and T2) can be determined as follows: (3.1) T1 = 0.2T1 + 0.2T2 + Dx (3.2) T2 = O.IT-l +0.4T2 + D2 Capital inputs.--We can now proceed with a second ' 4 approximation. The technique for allocating investment among sectors to be discussed below requires knowledge about sectoral capital coefficients. We must know in ad vance how much investment is required per unit increase in production. These coefficients may be obtained by tech nological studies or from input-output relations compiled for a given year. Continuing with our example, we may specify that the supplies of Industry 1 to Industry 2 for the purpose of investment is 6, and to itself, 7; and. the supplies of Industry 2 to Industry 1 for the same purpose is 28, and to itself, 18. (See Table VI.) 105. TABLE VI CAPITAL INPUT-OUTPUT RELATIONS Industry 1 Industry 2 Industry 1 7 6 Industry 2 28 18 Total 35 24 Let us assume now that the capital-output ratio of Industry 1 is 5, and that of Industry 2 is 3. These ratios can now be subdivided into subsectoral capital coefficients on the basis of the ratios of 7:28 and. 6:18. (See Table VII. ) TABLE VII CAPITAL COEFFICIENTS Industry 1 Industry 2 Industry 1 1 0.75 Industry 2 4 2.25 Capital-output ratio 5 3 106 Allocation of investment.--Let us now recall the sectoral outputs in Table IV, i.e., 300 for Industry 1, and 200 for Industry 2, and label them as capacity levels of output. If we deduct household consumption, government consumption, exports, and the current inputs- therefrom, we arrive at the output left for investment. We come now to an important step. This step is the allocation of available investment to the various sectors. For this purpose, a static input-output model is not satis factory. Investment during a given year (say, year 1), increases production capacity, but increased production is realized during a subsequent year (say, year 2). Thus, it is essential to introduce a time dimension at this stage. The manner in which a dynamic input-output model can be applied is described as follows: Assuming that a three-year economic plan is to be drafted, and that we already know from our calcula tions in aggregative models at least the levels of national income, consumption and exports for the coming three years, the first thing to do would be to determine the future levels of sectoral consump tion and exports. Next, we would have to find out the capacity level of each sector’s production. Given this, we can compute the interindustrial current in puts by applying the input coefficients. . . . Subtracting these current inputs and consumption and exports from the capacity level of production and adding the amount of imports related to any of these quantities, we can obtain the amount of each 1. 07 output available for investment. Then, using the inter-sectoral capital coefficients . . . we can cal culate the increase in the capacity of each sector. This increased capacity will determine the capacity level of production in the second year, which is the starting point of similar calculations for the coming y e a r s . 38 An important question to ask at this stage is: Will the rate of increase of production capacity be con sistent with the.; rate of growth of income set on the aggre gate level? The answer is that there is little likelihood that this will be the case. The truth is that production may not exceed consumption and exports to any great extent. Thus, the existing production structure may show what needs to be done in such broad areas as agriculture and. industry. The existing production structure may have to be altered, greatly. New industries may have to be created., and new technologies introduced in each sector. The kind of answer to the question, what indus tries can be established in the country, will have a decisive effect on the level of required capital formation and consequently on the level at which the plan will find its balance.39 Because of these considerations, and because of the fact that in many less developed countries, the bulk of the 38 Programming Techniques for Economic, op. cit., pp. 51-52. --- 39UN,ECA,(E/CN.14/ESD/13), op. cit., p. 24. 3LQ8 investment outlay is taken up by a handful of projects, it is even more important to investigate the consequences of individual projects. Thus, planning on the sector level must be extended to and elaborated by detailed anal ysis on the project level. Import Requirements.--Total supply consists of domestic production and imports. We have assumed thus far that demand, can be met by domestic production. In actual ity, portions of final demand and intermediate demand must be met by imports. After the determination of final demand, we must separate that part of it which can be met by domestic production from that part which must be met by imports. It is considered desirable also to investigate the possibility of import substitution, that is the possibil ity of producing domestically goods which under the exist ing conditions must be imported. The matter of import substitution is related to other national objectives, such as the objectives of diversification of production, "econ omizing” foreign exchange, and increasing employment. It is difficult to derive ^.ny satisfactory general criteria for determining the extent of import substitution. All 109 that can be said is that careful analysis of the feasibil ity of import substitution be made before making final decisions on domestic production targets. In this connection, an important fact to consider is that the capacity of the domestic economy to produce capital goods is limited. Thus, if it were possible to substitute as much consumption goods and intermediate goods for imports by domestic production, this means that the capacity to import capital goods is thereby increased. In general, imports of raw materials depend, on the levels of industrial activities, imports of capital goods depend on the levels of investment in the sectors which require those capital goods to increase capacity. The import of different kinds of commodities, therefore, will depend, upon these various economic activities. It is possible and. preferable to estimate empirically the func tional relations between the levels of economic activities and the. corresponding imports--the imports functions.40 Once total imports are determined., then domestic production may be adjusted accordingly, the latter being equal to total demand less imports. Limitations of the input-output technique. . - - Th e in - put-output technique is subject to some criticisms. First, the assumption is made that there exists a certain degree 40Ibid., p. 51. 110 of interdependence in the economy. This assumption is not entirely acceptable since, as was emphasized in Chapter II, development in the less developed countries consists of structural changes, where originally primary production predominates and where the modern sector depends on im ported capital and intermediate goods to a great extent. Secondly, the input-output technique necessitates the determination of numerous coefficients of production. Since economic development consists of introducing new technology, which means changing the composition of inputs continuously, the application of the input-output tech- nique becomes difficult. Moreover, the calculation of changes in intermediate demand resulting from final.demand, can be extremely complicated. Two types of effects of final demand must be distinguished--direct and indirect effects. Calculation of the indirect effects of an initial demand change is more or less complicated, depending on the number of interrelationships between the industries that exist in an economy. A number of methods of calculations exist, the formal mathemat ical one being called the "inversion of the matrix of technical coefficients.” These calculations yield the same table, this time containing coefficients which indicate the total change, direct and indirect together, in intermediate demand per unit of total Ill 41 of final demand, change . . . Thirdly, it is assumed also that prices do not play a role in the application of the technique. Increases in demand do not affect prices, but simply induce output. In actuality, the initial response to changes in demand is likely to be changes in prices. The input-output technique is frequently employed to show interrelationships at the beginning and/or at the end of the plan period, taking no account of what happens year after year. In this case, it serves a purpose analo gous to that of national accounts. Investment in Social Overhead Capital The input-output table which we employed has ignored other production inputs, primarily labor. It is generally understood that the development of human re sources, transportation systems, and the construction of dams can be justified only on the basis of their contribu tions to long-term development. It is necessary to esti mate the investment in these spheres separately. We have already indicated the basic factors which are considered in determining the demand for transport and 41UN,ECA, (E/CN.14/ESD/13,1962), op. cit., p. 20. H112 energy services above. The question is whether it is satisfactory to consider the entirety of these services as intermediate services, implying that demand for them can be derived from the demand for final goods and services. It may not be satisfactory to do so in all situations, parti cularly where the government considers the clue to economic development as lying in the establishment of social over head capital. We have already dealt with the theoretical matter of whether it is social overhead capital or directly productive activities which should be emphasized first. In practice, governments are guided principally by the princi ple that it is necessary to invest in social overhead, capi tal before increases in directly productive activities can be expected. As development proceeds, however, it is more likely that the need for expansion of energy and transport services will arise from the demand of directly productive activities. Investment in manpower develdpment.--The determina tion of manpower requirements and investment in the devel opment of human resources require particular attention. Following we shall discuss a general method for arriving at investment requirement for manpower development. It must be emphasized that it is necessary to have a substantial amount of information concerning population structure in order to make a satisfactory analysis of supply and demand situations. More specifically, it is necessary to have benchmark data on population structure according to age, sex, occupation, skill, and employment status. Using notations to simplify the description, we may show the benchmark data in the following manner: (4.1) p = a + i p = total population a = potentially active population i = potentially inactive population (4.2) a . ~ + a2 + . . 1, 2, and 3 represent various categories of labor (4.3) i= s + o + f s = school-age inactive o = old-age inactive f = other, including housewives Now, we must estimate the demand for various cate gories of labor by the various sectors of the economy: (4.4) d = dx + d2' + d-3.. . d = total demand for labor d^,d2,d = demand for labor from sectors 1, 2 , and 3. d = demand for labor of category a^ by sector d^ (4.6) d2 = d2 + d2 + d2 al 2 3... (4.7) d3 = d d3 + d3 al 2 3... Thus : (4.S) dx d d3 al al al = or> or< al (4.9) d d d a2 + 2a2 + 3a2 = or>or<a 2 (4.10) d-, dQ dq ^ ' 1a3 + 2a3 + 3a3 = or>or<a3 And: (4.11) d = or> or<|a Suppose that the changes visualized in both demand and supply can be projected for a number of years in the, future on the basis of expected production and future popu lation structures. The investment requirements for the development of manpower to meet excesses of demand over supply can then be estimated on the basis of the costs involved in training a unit of labor of a given category. 115 Suppose in every case the demand for labor exceeds the supply. The total cost may be calculated by multiplying the unit cost in each case by the excess demand. This method is straightforward and flexible. The cost of training a unit of labor is left to be decided on the basis of the choice of what expenditures can be re garded as investment. An important question to raise is the validity of the above assumption that in every case demand exceeds supply. This would seem strange on the surface, for excess supply of labor is a common characteristic of underdevel oped countries. It must be understood, however, that along with the unskilled masses exists shortage of skilled labor of every conceivable category. It is possible, within the framework discussed to consider upgrading un skilled labor to skilled labor. The cost would have to be determined again empirically, depending on the category of skilled labor being considered. It may be found also that the demand for labor under a given situation may be too low. Then it becomes a matter of national policy as to what should be done. If the national policy is to achieve a certain level of employment during the plan period, then investment may have to be 116 increased in certain sectors so that employment may rise. Planning on the Project Level The literature on the problems of development and planning gives a great deal of attention to investment criteria, project evaluation or project appraisal. Proj ect-level planning is necessitated primarily by the belief that the allocation of resources on the basis of private profitability alone may not be consistent with national goals and extra-economic objectives which are usually specified at the outset. The central problem of project- level planning is, therefore, the allocation of available resources to specific uses in such a way that they yield optimal contribution so as to make possible the attainment of national economic and extra-economic goals. Some general aspects and problems.--The question K often arises as to the extent to which the government, in a country with a substantial degree of private enterprise, can be instrumental in accomplishing the optimal alloca tion of scarce resources by directing them to employment * in specific projects. We have already dealt with this problem in a general way in Chapter II. The answer to this question, in the present context, is put as follows: 117 The need for project evaluation and allocation of priorities arises both for those projects carried out by the public sector itself and financed with government funds and those in the private sector which are subject to government permits. It arises also in the case of private projects which require some kind of government assistance, such as tariff protection, tax relief, duty free imports of machinery or raw materials, or foreign exchange allocation. This means that, in practice, especially in develop ing countries, a substantial part if not the vast majority of all projects are within the sphere of government influence.^ It is useful to distinguish between project formu lation and project evaluation. The former may be used to refer to the techno-economic problem, largely delegated, to engineers. The latter is within the sphere of economic analysis and will, therefore, constitute the subject matter of this section. There is, however, no implication here that the engineering aspect precedes the economic aspect, or vice versa. This question need not arise, as both tasks may proceed simultaneously. The compilation and analysis of engineering data is normally justified as a result of reasonable impres sions about the necessity and consequences of given proj ects. Such impressions may result from general considera- AO ^"Evaluation of Projects in Predominantly Private Enterprise Economies," Industrialization and. Productivity, Bulletin No. 5, 1962, p. 7. tions, such as the policy to give priority to the develop ment rof given sectors or to certain objectives (e.g., agriculture, social overhead, capitals, import-substitution, . Art et cetera). J Once potential "candidate” projects have been iden tified, the economic function of evaluation may proceed. The first step is to outline the major economic and extra- economic goals. The economic goals are generally increases in income, employment, and so forth. Extra-economic goals may be improvements in education, health, and so forth. The second step is the analysis of the impact of a given project or projects on these goals. Once this is com pleted, it is followed by the selection of those projects which make the most contribution to the specified goals. Clearly, the major task is the analysis of the impact of projects. No one technique of analysis can be specified as being applicable in every case. The choice of techniques depends on a number of considerations relat- r ing to specific situations. It is useful, however, for expository purposes to specify and discuss a simple problem 43 UN, Manual on Economic Development Projects, (E/CN.12/426/Add.1/Rev.1,TAA/LAT/12/Rev.1,1958), pp. 6-7 . 119 N of project-level planning. Illustrative Example of Project Evaluation 44 Let us assume that the aims are increases in na tional income (A), employment (B), savings (C) and im provement of health (D). A given project (1) contributes to increases or improvement in these aims, designated as aT ’ ^i> c2.j d-i, and a given project (2 ), a2, b2, c2, and d- 2 * Appraisal is made possible by assigning valuations to increases per unit of A, B, C, and D. These per unit increases may be designated as p, q, r, and s, respec tively. Thus the total valuations of Project 1 and Project 2 may be expressed as: Vj = a-jjp + b^q + Cjr + d.^s V2 = a2p + t>2q + c2r + d2s Now it is specified that an increase of $1 million in (A) is considered the same as an increase of 500 in (B), an increase in (C) of $0.2 million, and an increase in (D) of 2 years. This means that from the point of view of 44The major part of this illustration appears in: n UN, ECAFE, "Programming Techniques for Economic Development, Development Programming Series No.l, (E/CN.11/535,1962), pp. 36-43. 120 national goals, a project which increases national income by $1 million, another which provides employment for 500 persons, still another which makes it possible for saving to increase by $0.2 million, and finally one which in creases life expectancy by two years, all are valued as contributing equally. Suppose, for example, that the consequences of Projects 1 and 2 are estimated as follows: a^ ~ $1 million a2 = $800,000 bx = 500 persons b2 = 1000 persons c x = $500,000 c2 = $100,000 dq =0 d2 = 0 Thus, the valuations of these projects become: V 1 = 1 + 1 + 2.5 = 4.5 V2 = 0.8 + 2 + 0.5 = 3.3 Now, the costs involved in these projects are speci fied. These are capital investment needs (k) and foreign exchange requirements (f). For Projects 1 and 2, the values are estimated as: k-^ = $2 million, k2 = $1.2 mil lion, and fx - $500,000, f2 = $200,000. We shall now proceed with this illustration by using the following cases: (1) one aim and one scarce factor; (2 ) several aims and one scarce factor; and (3 ) several aims and several scarce factors. 121 In the first case, we have (A) only as the aim and (k) as the scarce factor. We come to a familiar concept, formulated, in reverse in this case, the output-capital ratio: al a2 The yields of the two projects are then arrived at by substituting the symbols with the values assigned to them in our example: al ! a2 0.8 " = = 0.5 T7“ = = 0.67 kl 2 K2 1.2 The proj'ect with the highest yield is selected, then the next highest, et cetera, until scarce factor (k) is all used up. The second case, where we have several aims and one scarce factor, necessitates the use of the total valuations assigned to the aims. The numerators would, thus become Vx or V2. In the present example: ^ = *r = 2-2 S 5 -fit = 2-7s Again selection is made successively beginning from the proj'ect with the highest yield until the scarce factor is exhausted. If it turns out that the total valuations 122 account for a great deal more attainment of certain aims, so that other aims fail to be met, then the values of p, q, r, s, may be changed as needed until all aims are attained. This is another instance of the iterative approach in solving problems. The third case requires that the scarce factors be assigned values which show their relative scarcities. Suppose we specify that the same results can be obtained by either using $1 million capital investment or $500,000 foreign exchange. The cost valuations for Projects 1 and 2 would thus become: Cx =2+1=3 c2 = 1.2 + 0.4 = 1.6 Following the same procedure as in the other cases, we can now arrive at the valuations of Projects 1 and 2 as follows: Xi = lii = i s la = 3.3 _ c-l 3 c 2 T 7 e> ~ 2 *06 Thus our analysis shows that Project 2 is superior in this case and should be selected, first. Additional dimensions."-Our aim has been more to identify the important features of evaluation rather than to follow through the calculations. The most important 123 problems are: assigning relative valuations, estimation of the direct and indirect effects of a project, and dis tribution of projects over time. No specific technique is proposed as to how to arrive at the relative valuations of the aims. . . . these valuations may be assumed to be intui tive estimates of the planner. The imponderable aspects have also to be valued intuitively; but, as already observed, these may be judged afterwards by the "wise men.’^S With regard, to the valuation of scarce factors, it is proposed that accounting or shadow prices may be em ployed. 46 The justification of the* use of accounting prices is the existence of fundamental disequilibria in less developed countries. Market prices, including wages, foreign exchange rates and interest rates, are considered, as incorrect reflections of the real conditions. For instance: Unskilled, labour in an underdeveloped, country is so plentiful that supply surpasses demand. Con comittant ly, the use of an additional unit of it does not deprive the country of much product, and. 45 Programming Techniques . . . .," op. cit., p. 36. Tinbergen, op. cit. , p. 6 . therefore has a smaller value than the wage rate. Capital may well be more valuable to the country than the official interest rates indicate, as is illustrated by the much higher rates for private - loans.47 Equilibrium prices may not be obtained in one stroke. They are obtained by trial and error. Another important problem is the estimation of the f 4 direct and indirect effects of a given project. A project may bring about a certain amount of increase in the pay ments to factors in industries which supply it and in those which process its output. These effects are sometimes called backward and forward effects. The familiar Keynes ian multiplier may find application in this case with reference to both increases in income and employment. Its application in less developed countries can be useful, how ever, only when its assumptions and implications are fully understood and accounted for. When the time dimension is considered, at least two problems are encountered.: the distinction between the construction phase and the operation phase of a proj’ect, and the determination of the time when work on each proj’ect is to begin and to be completed. 47"programming Techniques . . . . ," op. cit. , p. 41. 125 The effects of a project during its construction may be different from its effects during its operation,. The effects on the aims must be estimated during both phases. The distribution of the beginning and completion dates of the construction of projects must be based on some logical time-table. For instance, if we may con ceive of an industrial complex to be developed over a period of time, the construction of projects which will take a long time to complete (e.g., dums) should be started first, then the construction of those projects which will make use of its power may follow. Even when the projects considered, do not include social overhead, capital, intertemporal coordination is possible on the basis of the concept of complementarity of projects. Concluding observations.--Project-level planning may be considered as particularly significant, because it is the last stage of the planning process, the stage when overall and sectoral aims are translated into concrete work programs. This last stage may, however, be not final in the important sense of the method of successive approxima tions. The results of project evaluation may lead to a 126 substantial alteration in aggregate and sectoral objec tives. This is the essence of the method of successive approximations. Changes may be made several times on each level until a consistent plan finally emerges. Planning on the aggregate, sector and project levels may be supplemented by the use of a number of ”tests of feasibility.” These tests aid in checking the overall feasibility of the targets and. in ascertaining that there are no serious shortages or constraints in strategic fac tors during the plan period. The most important of such tests is the test of financial feasibility. Such a test necessitates careful estimation of financial resources flowing from the various sources. The test itself consists of the comparison of financial resources and. uses. The identification of the main sources of financing investment and the problems involved in the analysis and. projection of funds from these sources deserve our attention here. MAIN SOURCES OF FINANCING INVESTMENT Sources of Financing Government Investment The government’s capital expenditures can be financed from four main sources: (1) the current surplus of income over expenditures; (2 ) the profits and. earned depreciation allowances of government 127 enterprises; (3) borrowing, domestic or foreign; and Y4) international aid, bilateral or multilat eral.^ The Current Surplus The surplus of government current revenue over ex penditures constitutes the major source of financing gov ernment investment. From the point of view of develop mental planning, the important problem is the maximization of the current surplus. Two sets of policies are indi cated: those aimed at increasing revenue, and. those aimed at minimizing current expenditures. It is a matter of general recognition that govern ment current expenditures are bound to rise as government assumes an increasing role in economic life and as popula tion increases. The proposal has been advanced, that some sort of ceiling be established beyond, which current expend itures should not be allowed, to rise."^ Given the level of government current expenditures, surplus depends on revenue. The latter is the government1s Problems of Long-Term . . . ., op. cit., p. 70. ^ U N , ECA, "Report of the Meeting of Expert Group on Comprehensive Development Planning,” (E/CN.14/182,1963), p. 17 128 share in national income. The manner in which the govern ment's share in national income can be increased depends on the policy of taxation. It seems that everyone is agreed on the fact that the tax system of underdeveloped countries in general requires reform. Discussions of the question of financing investment through taxation invari ably center around this matter. The following conditions, lacking in many under developed countries, have been recommended as being funda mental for expanding income tax revenue: 1. The first condition is the existence of a pre dominantly money economy. . . . 2. -Another condition that may not be strictly necessary but is very helpful is a high stand ard of literacy among taxpayers. . . . 3. Prevalence of accounting records honestly and reliably maintained is another prosaic but important condition for satisfactory income taxation. . . . 4. A fourth requirement for satisfactory income taxation is a large degree of voluntary com pliance on the part of taxpayers. . . . 5. . . . Until the popular will is stronger and. more united, or until the rich are ready to accept the ability-to-pay principle--whether from altruism or a sense of guilt or fear-- steeply progressive taxes will not be col lected. Honest and efficient administration is needed for any tax, but minimum acceptable standards appear to be higher for income tax than for many other levies.50 There are, of course, many other sources of taxa tion, including property tax, import tax, export tax, excise tax, et cetera. It is not possible to discuss the relative importance of these sources in a general way. It is necessary, however, that all possible sources of taxa tion be tapped if the heavy government investment program is to be met fully. Other Sources of Financing Government Investment Current budgetary saving, though the most important, is not the only source for financing investment. Govern ment enterprises also constitute a source of saving. Profits and depreciation allowances are the important com ponents of saving of government enterprises. While governments have, in general, sought to in crease tax yields from private income, they have often made slower progress in expanding revenue de rived from public enterprises. Owing to the low prices sometimes set for publicly produced goods Walter Heller, ’’ Fiscal Policies of Underdeveloped. Economies,” in B. Okun and R. W. Richardson's (eds.), Studies in Economic Development (Holt, Rinehart, and Win ston, 1961), pp. 467-469. 130 and services, many of these enterprises have not only failed to operate at a profit but have often operated at a less. It should, however, be borne in mind that public enterprises must frequently be undertaken where heavy costs have to be incurred and often have long periods of gestation before the stage of profitable operations are reached.51 Total saving from government sources may not be sufficient to meet the, desired level of investment. If the target level of investment is to be met, the govern ment would have to resort to another source of financing, namely, domestic and foreign borrowing. In less developed countries the main domestic outlets for government securities have generally been provided by the banking system, particularly the central bank, and by various government con trolled organizations. . . the development of addi tional domestic outlets for government securities will present an important problem. The creation or expansion of a system of social insurance, which would invest part of most of its funds in govern ment securities, is one of the possible answers. A rapid expansion of private life insurance would, have a similar effect. The creation of types of government securities that can be sold directly to the domestic public is notoriously difficult in less developed countries, because of the absence of an efficient capital market and a common reluctance to adapt yields on permanent bonds to the level of interest rates prevailing in the country.52 ^ Planning for Economic Development. . . ., op. cit. p. 48. 52 Problems of Long-Term . . . op. cit., pp. 71- 72. 131 Foreign borrowing is part of the general issue of foreign aid, since it is desired, that the terms be such that they are particularly favorable to the borrowing country. We shall deal with some of the issues associated with foreign aid in Chapter V. We note, however, that: In the past, virtually all underdeveloped coun tries have relied, in varying degree, on foreign funds to finance part of their investment expend iture. This pattern is also reflected in recent development plans, which have generally been based on the assumption that foreign as well as domestic saving would be available for the financing of investment programmes in order to accelerate their economic development. The expected contribution of foreign saving has varied widely, but in the majority of countries it has amounted to one-fifth or more of total investment outlays. The availability of needed foreign exchange is of special importance to the financing of plans of the underdeveloped coun tries . Thus, even where overall saving may be ade quate, a lack of foreign exchange for the purchase of essential specific capital goods and. industrial raw materials may prevent or impede the implementa tion of plans in certain crucial sectors of the economy. Success in plan implementation requires not only an appropriate rate of growth of saving, but also of the supply of foreign exchange.53 Sources of Financing Private Investment Private sources may be domestic and foreign. Three domestic sources of financing private investment are dis- 53 Planning for Economic Development . . ., op. cit. p. 50. tinguished. These are: . . . self-financing, direct external (capital mar ket) financing, and indirect external (institutional) financing . . .54 The magnitude of internal or self-financing of investment depends on retained earnings and. depreciation allowances. " It.is necessary to make an analysis of financ ing possibilities from these sources by sectors of activ ity. The level of external financing requirement is the difference between the total investment requirement and the magnitude of internal financing. Two types of external sources of financing are distinguished: direct and indirect. Private enterprises may borrow by selling securities directly to the public or indirectly to financial institutions. The size of direct financing depends on the degree to which the corporate system plays a role as an economic institution. In this connection, the following statement probably holds for many underdeveloped, countries: Corporations account for only a small part of business activities, and. most of them are closely held and. do not raise funds by selling debentures or stock to the general public. There is no organ ized mortgage market. Long-term financial projection 54Problems of Long-Term . . . ., op. cit., p. 72. 133 cannot assume that this state of affairs will con tinue indefinitely,. but an evaluation of how rapidly it will change is extremely difficult. It depends on changes in the financing methods of business, particularly the spread of corporations and the diminution of the present aversion to letting out siders into the business as shareholders; on changes in individuals' saving habits; and on the creation of a mechanism for public distribution of securi ties.-^ The financing of private investment through borrow ing from financial institutions is also dependent upon the degree to which such facilities are available. The estab lishment of such institutions, and the development of an awareness on the part of savers and. investors of their role are of prime significance. At the present time, commercial banks play the most important role in this connection in underdeveloped countries. Private foreign financing of investment has not been as important as it could, have been. The reasons for this unsatisfactory performance are not difficult to explain. During the postwar years many underdeveloped countries lacked political, eco nomic, financial, and social stability and. thus con ditions propitious to private foreign investment were not created. When conditions appeared to have im proved some event usually occurred, in one of the countries which again undermined, the confidence of investors. In the more recent period a number of 55Ibid., pp. 75-76. 134 such events can be listed. The revolution in Cuba and its effect throughout Latin America have led not only to a reluctance of foreign investors toward in creasing investments in Latin America but even to a flight of capital, particularly from Central America. The wholesale nationalization of foreign enterprises in Burma, Indonesia, Egypt, and Ceylon and the changes in the former Belgian Congo and Algeria, made foreign investors once more apprehensive.56 in recent years, some underdeveloped countries have adopted policies bearing upon the withdrawal of profits, exemptions from import taxes, and repatriation of capital in order to attract foreign private investment. There is no doubt that such policies can encourage foreign private investors. Results can be assessed satisfactorily, how ever, only in specific situations and in the long run. Problems of Projections The projection of the financial magnitudes from the various sources is a most difficult task. The difficulty arises basically from the fact that the patterns and sources of finance are dependent on institutional processes yet developing. It Is not possible to assess fully the effect of tax reform, the spread of the corporate system, ^Antonin Basch, Financing Economic Development (Macmillan, 1964), p. 295. 135 and the like. On the international level also, both public and private sources are conditioned to a great extent by extra-economic considerations. Of all sources of financing investment, governmental sources, more particularly the budgetary surplus, are the most predictable and reliable. Other things being equal, therefore, if the proportion of government investment in the total is great, it is reasonable to expect a higher degree of fulfillment of investment targets. To a degree possible, however, the magnitudes from all other sources must be projected on the basis of certain hypotheses and assumptions pertaining to specific situations. A breakdown of the sources of financing investment into the smallest units possible is perhaps the most effec tive way of making reliable projections. Such a detailed, approach makes it possible not only to arrive at meaningful overall figures, but also will show more accurately the areas in which financial constraints are likely to be strong. Tables VIII and IX summarize the general frame work upon which the projections from public and. private sources, respectively, may be based. 136 TABLE VIII FRAMEWORK FOR GOVERNMENTAL FINANCIAL PROJECTIONS Amount 1. Budgetary Saving a. Central Government b. Local Governments 2. Public Enterprises a. Agricultural b. Industrial c. Other 3. Borrowing a. Domestic b. Foreign 157 TABLE IX • FRAMEWORK FOR PRIVATE FINANCIAL PROJECTIONS Sector Amount Investment Required 1. Agriculture a. Internal 1) Retained Earnings 2) Depreciation b . External 1) Direct 2) Indirect c. Foreign 2. Industry a. Internal 1) Retained. Earnings 2) Depreciation b. External 1) Direct 2) Indirect c. Foreign CHAPTER IV THE PROBLEMS OF PHASING AND INTERTEMPORAL COORDINATION The essence of planning of any kind is rationality in dealing with the future. Goals are set for the future and possible ways of meeting these goals and their conse quences are investigated for future action. This funda mental feature of planning is also the source of some of the most basic and pervasive problems associated with it. For, while rationality in dealing with the future is the essence of planning, we are limited in the capacity of foresight to be able to see far enough let alone to exert complete control over the future. For this reason, we are compelled in planning to define a time horizon within which resources and uses can be gauged, the degree of precision of our predictions eval uated, and the state of affairs under which they apply specified. In so doing, we encounter the problems with which this chapter concerns itself, problems which must be resolved in order to clarify and reconcile goals, policies, 138 139 and actions relating to different time horizons. The overall orientation of this chapter is concep tual. This is because this author senses a gap in this respect which has not been satisfactorily explored. It is commonplace to hear that plans of development relate to the long-term (about twenty years in the future), the medium-term (about five years in the future), and the short-term (a single year in the future). However, not many students have gone beyond the admission of the neces sity to distinguish between such time horizons. This chap ter attempts to expose those conceptual and practical dif ficulties which need, to be recognized and explored, more fully. THE BASES FOR RATIONALITY IN DEALING WITH THE FUTURE Planning, it may be thought, consists of the simple idea of setting goals and doing something about attaining them. But suppose we ask these questions: Why are parti cular goals selected? On what are we to base the selection of the things we do to attain them? These questions may often be taken for granted. Yet their answers should provide the clue to the bases of our 140 ability in dealing with the future in a rational way. Clearly, the goals we set for ourselves are not simply pulled out of the air. What is more, if we can claim that our actions are meant to make possible the attainment of our goals, we are suggesting some sort of at least implicit calculation. The Significance of the Past and'the Present Whether we realize it or not, our experiences in the past, and present conditions, have a definite effect on what we aspire for the future. It is not incorrect to say that the past and the present determine the future. This statement may, however, quickly evoke the following question: If the past and. the present are indicative of the future, much less the determinants of the future, are we then to conclude that development is impossible in underdeveloped, countries? But this question assumes that we always act to reinforce the past and the present condi tions. On the contrary, we may reach a state of affairs where we are compelled, to act vigorously against circum stances which characterized, the past situation and. which brought about the present conditions. The past and the present provide not only an 141 explanation of what purposes we seek to achieve in the future and the reasons why, but also, at least in a gen eral way, the manner in which we may be able to achieve them. Thus Kuznets writes: All statements about the future must necessarily employ data on past events: even the wildest fan tasies are not without reference to what has been observed. The very purpose of a statement is to communicate something intelligible; and one can be intelligible only in terms of past experience of others. In that sense, all pronouncements about the future are translations from the past.l As we have noted above, past experience may be un desirable and, therefore, one which arouses the desire to overcome it. Let us, for instance, note the following statement: "Hunger, disease and ignorance lead to rising expectations in underdeveloped countries." In this state ment, past, present and future are rationally linked. The statistical techniques of extrapolation and. projection too are based, on the assumption that past, present and future can logically be connected. Thus, the necessity for an analytic framework is indicated to show the intertemporal S. Kuznets, "Long-Range Economic Projections," Studies in Income and Wealth, National Bureau of Economic Research, Vol. 16, (Princeton University Press, 1954), p. 9. connexions in a more precise manner. The Indispensability of Theoretical Knowledge In developmental plajming, knowledge of the past and present provide us only with general impressions about what we may possibly do in the future. When a country first embarks on developmental planning, the future en visaged may be so different from the past and the present that the process of change in general and the dynamic elements in particular must be introduced, anew. The traditional way of life with its slow tempo of generation has to be changed, to more disciplined approach required for the process of economic devel opment . ^ Still, the past and the present remain the ultimate explarfation of development aims and, therefore, means. Thus, an analytic framework capable of describing the past, the present, and the future is essential in order to be able to link them meaningfully. We need only mention here two general concepts about ^A. M. El Morshidy, ’'Planning for Economic oevelop- ment in the United Arab Republic,” in UN, Planning for Eco nomic Development, Vol.II, Part I, (A/5533/Rev.1/Add.1), p. 166. economic phenomena in order to illustrate the type of theoretical knowledge which makes this possible. These concepts are the cumulation and interrelation of economic phenomena. It is understood that economic phenomena behave in a cumulative fashion whether they are used to explain a downward movement or an upward spiral. "The secret of development planning is to set in motion such forces of cumulation." The principle of cumulation is related to the prin ciple of interrelation of economic phenomena. It is easy enough to see that everything depends on everything else in the economic universe. Economic reasoning, as we have noted in Chapter III, follows the idea of a model, and can be crystallized into such a system on the basis of various hypotheses. It is the interrelationship of economic phe nomena which makes this possible. The vicious circle of poverty can be used to demon strate the concepts of cumulation and interrelation. The 3 H. W. Singer, International Development: Growth and Change (McGraw-Hill, 1964), p. 89 . t 144 interrelation of Income, Saving, and. Investment is depicted in Figure 2. The figure shows that Saving depends on In- Cjome, Income in turn depends on Investment, and Investment on Saving. This means that just as Saving depends on In come, Income also depends on Saving. Low ^ Income Low Investment Low Saving FIGURE 2 This framework provides an analytic and timeless explanation of a state of affairs. If one of the elements, say Investment, changes somehow, it is possible to predict the resulting changes in Income and Saving. Economic theory is generally built on the cumulative and interdependent nature of economic phenomena. Since the main purpose of theory is to aid in the prediction of the future, it constitutes the most important basis for plan ning economic development. 145 The Necessity for a Socioeconomic Philosophy It is found, however, that: . . . the economic condition of a country at any given time is a product of the broader social en vironment , and economic planning has to be viewed as an integral part of a wider process aiming not merely at the development of resources in a narrow technical sense, but at the development of human faculties and the building up of an institutional framework adequate to the needs and aspirations of the people.4 Thus, Johr and Singer write: . . . it should, be emphasized that goals need to be based on a social philosophy. In any philosophical theory of the place of man in the world and in society it must be demonstrated why welfare should, be increased., why everyone should be given the oppor tunity to work and to shape his life as freely as possible, why the family should be preserved and the community enabled, to carry out the functions peculiar to it, why a gust distribution of income should be aimed at. In the absence of a satisfac tory system of social philosophy adjusted to the requirements of economics, the economist who feels called on to tackle the economic policy problems of our time has no choice but to introduce into his calculations the conclusions which such a social philosophy is likely to reach.5 4 Government of India, Planning Commission, First Five-Year Plan (1952),, p. 1. 5 W. A. Johr and H. W. Singer, The Role of the Econ omist as Official Adviser (George Allen and Unwin Ltd. , 1955), pp. 118-119. 146 We find that in almost no case is the quantitative increase of income the sole aim of planning in less devel oped countries. In India, the aim of the creation of a "socialist pattern of society” is the main theme associated with development. More or less the same is true of certain African countries, such as Ghana, Guinea and the U. A. R. Other countries, such as Nigeria, Ethiopia, BrA7,il, Colom bia, et cetera, express strong justification for planning development on the basis of the need to overcome the age- old afflictions of mankind. While the aim of redistribu tion of income and wealth is generally avowed, the govern ments put emphasis on opening up opportunities for individ- * uals and. providing basic services to help increase the productive capacities of their economies. The importance of statements of broad socioeconomic philosophy is twofold: 1. Since it is intended that such ideals must con tinually be realized, they provide a sense of direction which all the tangible and intangible forces in the society may be made to follow. 2. They enable planners to delimit the scope of governmental planning and provide the ultimate frame of reference for the type of policies which may be adopted and the extent to which they may be pursued. The more clearly such aims are articulated, the more ■ 147 useful they become and the more effectively they can be translated into concrete aims of developmental planning. However, the general case in the underdeveloped countries is that of transition from a colonial past and/or leader ship rooted in tradition and no longer acceptable. It is not one characterized, by anything like firmly established sociopolitical institutions. There are forces, even in the more progressive countries, which do not permit, or at least which temper 9 the mood for espousing and realizing the social, political, and economic ideals on the part of the elements in the forefront. The degree of political instability in some of these societies, as evidenced by frequent uprisings, may be sufficient to raise the doubt that any definite, much less final, socioeconomic philosophy exists. As one observer has put it: Let me also restate a truth, long accepted as a truism, namely, that the instability of government ^ which is all too characteristic of many poor coun tries hangs like the sword of Damocles over all effort and capital devoted to economic growth.6 ^Theodore W. Schultz, ’’ The Role of Government in Promoting Economic Growth,” in L. D. White (ed.), The State of Social Sciences (Chicago: University of Chicago Press, 1956), p. 383. 148 « This state of affairs definitely affects the scope and continuity of the planning function. It indicates the necessity for continuous adaptation of the planning proc ess. It need not, however, result in the failure to achieve rapid advances in various spheres. As long as planning is not used primarily as a political instrument intended to appease the masses, the^re is no reason why productive capacity cannot be steadily increased despite shifts in socioeconomic philosophy. GENERAL PROBLEMS OF INTERTEMPORAL COORDINATION In economic analysis, two time horizons are comnpnly distinguished, namely, the short-run and the long-run. The crucial element in this distinction is that, in the short-run, certain phenomena are considered as unchanging because it is assumed that there is not sufficient time for them to change during this period. They may change, of course, at least to some extent, but the assumption still holds since the aim is to simplify the analysis. In the long-run, however, this assumption is not permissi ble since, given sufficient time, everything is liable to change. This method of analysis entails certain difficult 149 problems when applied in economic planning, and more par ticularly in developmental planning. First, not only is the concept of development a long-run concept, but the important policies to be adopted, in less developed coun tries, notably those aiming at or necessitating institu tional and technological alterations, cannot be expected to bring any material returns in the short-run. Thus, the ceteris paribus assumption made for and. suitable to the purpose of short-run analysis (which involves institutional and technological aspects), is not fully acceptable for long-run developmental planning. There are in fact scarcely any objectives, other than in the context of the operation or implementa tion of an accepted plan, which can be'described as being short-term in nature.7 Secondly, even those activities and policies which may be designed to meet particular short-run objectives usually have consequences which extend beyond the time horizon explicitly defined. In this connection, the evolu tion from budgeting to multi-annual planning in Africa 7 Tarlok Singh, "Planning for Economic Development in India," in UN, Planning for Economic Development, Vol. II, Studies in National Planning Experience, Paft 1, Pri vate Enterprise and Mixed Economies vA/5533/Rev.1/Add.1), p. 80. 150 provides a revealing example: a. Many of the larger projects financed in annual budgets are of a multi-annual nature. There is, therefore, an immediate case for viewing the annual budget not as an isolated proposal, but as a link in a chain extending over many budget years. b. Even before economists developed such notions as . . . ’’ national income accounting,” it was clear to officials in the rather obvious circum stances of most African countries that the ac tions of a Government have an effect of shaping the whole course of economic life and develop ment of the countries or territories concerned. The budget, therefore, could not be conceived simply in the same terms as the accounts of an individual Mr. Micawber. c. Officials, especially Finance Ministers, could not but become rapidly aware of the interrela tionship existing between the budgets of dif ferent yeaars; in particular, it was borne in upon responsible officials by (sometimes bitter) experience, that today’s capital expenditure becomes tomorrow’s current expenditure on main taining and running- the installations created. Hence, it became essential to inquire to what extent today's investment would increase the stream of future incomes, how much of that stream would flow back, or should be diverted, back into the budget, and. thus to be available for maintaining and. running new facilities. . . . d.. Current revenue in most African countries is liable to fluctuate widely from year to year in accordance with export prices. The need, to ensure a steadier rate of development than the annual budget would, provide for under such cir cumstances is a reason for adopting a longer than annual perspective.8' SUN, ’ ’ Problems Concerning Development Programming 151 While this experience relates primarily to annual budgets and their multi-annual implications and conse quences, it may be taken to explain the relationship and interdependence of short-term, medium-terpi, and long-term plans as well. Thirdly, while the temporal phasing of the planning process is inescapable, there is the danger that it may lead planners to act as though development proceeds in / discontinuous stages. This may result in underestimation of the consequences of short-run policies as well as in underinvestment in such important areas as education, re search, et cetera. It is the function of developmental planning to make possible a balanced tempo of development in all spheres. At the same time: . . . the current plan . . . must also include provision for the satisfaction of the present wants of a society composed of competing interests and tastes. To effect some political compromise among these competing interests and still preserve the actions and allocations necessary to future objec tives requires the achievement of short-run cate gorical obj'ectives--general magnitudes sufficient to permit a politically satisfactory division among competing groups.9 and Policy In African Countries," (E/CN.14/ESD/01), pp. 2- 4. ^Neil W. Chamberlain, Private and Public Planning (McGraw-Hill, 1965), p. 77. Fourthly, it may be found that short-run objectives and policies sometimes appear to be inconsistent with long run objectives and policies. For instance, while the long run aim of development is to increase consumption, in the short-run, development plans may actually require a de crease in the consumption of at least some sectors of the population. Johr and. Singer recognize five ways in which two or more goals may be connected: 1. Identity: Two aims coincide; for example, stability of the value of money and. the avoid ance of inflation or deflation. 2. Harmony: The attainment of one aim promotes another; for example, a higher level of employ ment increases welfare. 3. Neutrality: The attainment of one aim has no effect on the attainment of another; for exam ple, the care of the incapacitated by social services financed, by taxation does not affect the volume of employment. 4. Antimony: The attainment of one aim prejudices the attainment of another; the protection of domestic agriculture, for example, causes a loss of welfare. 5. Incompatibility: The attainment of one aim means the complete abandonment of another; for example the encouragement of trusts is directly inconsistent with the aim of establishing pure eompetition.10 10Johr and Singer, op. cit.. p. 116. 1S3 Intertemporal coordination of objectives and poli cies assumes greater significance because of the inability to grasp fully the consequences of present aptions on future results or future policies on future objectives. Fifthly, while it is well to recommend that plan ning should proceed in phases of time horizons, no general criteria, other than practical considerations, are speci fied for the purpose of defining such time horizons. Finally, even if it were possible to provide such criteria, it would, not follow that the function of planning t is necessarily simplified. Since both the short-run and the long-run merge together, all policies relating to all objectives and time horizons, must be applied, simulta neously . Here is the nub of the problem of planning. Plan ning is necessarily directed, to the future, but a future of varying distance. For some specific pur poses (education, for example), technical considera tions require commitments of ten or twenty years if a desired result is to be realized. For other spe cific purposes the technical requirements are less, by varying amount of time. Each specific purpose, with its own time requirement, must find its way into the current plan, and actions looking to its realization--at its own distant rate--must begin running now; resources must be allocated to its fulfillment in a phased program, which can be modi fied only within limits if the event is to come off 154 approximately when scheduled.. H Thus : . . . the time stream flows, inescapably mingling present and future, as each partially determines the other. The planner cannot afford to focus Pri marily on one without sufficient regard to the other. Each must be fitted into a pattern, a flow, which, pulled, and. hauled, though it may be by the political process, still preserves some integrated, meaning. DETERMINATION OF LONG-TERM OBJECTIVES The necessity of long-term planning is expressed, as follows: In underdeveloped countries, growth is essentially a long-term matter. . . . No five-year plan can show by itself how the transition to a pattern of self sustained growth is to be effected. The situation planned for the close of such a medium-term plan contains many elements--investment projects still under construction, capacities of investment goods industries, even financial and. institutional arrange- ments--that derive their importance entirely from the possibility they offer of further growth in later periods of time. No efficient choice between possi ble medium-term plans can be made if these further- reaching elements are left to intuitive judgment rather than rational analysis in the framework of a coherent long-term p l a n . 13 1 Chamber lain, op. cit. , p. 77. 12Ibid. , p. 78.. 13 Pieter de Wolff, "Planning for Economic Develop ment in the Netherlands," UN, Planning for Economic Devel opment (A/5533/Rev.1/Add.1), p. 135. y 155 A primary consideration in drawing out a long-term plan is the question of how detailed, it should, be. It is obvious that long-term objectives cannot be firm in that they are based on various assumptions and are subject to any number of unforeseen developments and contingencies. It may not pay to attempt to draw out detailed and per fectly consistent quantitative targets. Another consideration is that the character and. form of long-term objectives show even greater variety than medium-term plans. They may be in the nature of pro jections of the type of macro-economic magnitudes discussed in Chapter III.^ They may deal only with some fundamental problems of long-term nature, such as the development of manpower, proportional development of specified, regions and branches of economic activity (such as agriculture and industry), et cetera. Intertemporal coordination is facilitated if long term plans do not depart greatly in character and form from medium-term plans as much as they differ in detail. Macro- economic projections are, therefore, most appropriate. ^^This approach, it must be understood, is not the same thing as extrapolation mainly based on past trends. Rather, this has a purposive feature since new fundamental assumptions are introduced.. 156 It is useful at this stage to introduce a procedure of planning similar to those with which we dealt briefly in Chapter III. The procedure for arriving at long-term objectives may be as follows: 1. Preparing a general description of the economy. 2. Determining potentialities and broad lines of development. 3. Setting long-term objectives. A General Description of the Economy A logical point for starting the formulation of a development plan is the identification of the main charac teristics of the economy through systematic surveys. We have already dealt with the problem of the insufficiency of data in underdeveloped, countries. Here we only state the purposes of such a description. The purposes are: (1) to show in broad outlines the main features of the. economy; (2) to serve as the basic benchmark of socioeco nomic data on which may be built the general objectives of development; and (3) to bring into focus problems which may require immediate attention. Determining Potentialities and. Broad Lines of Development The purpose of this analysis is to discover the 157 objective factors which will, in the long run, determine the level of economic development - to be achieved, and the nature of the economic activities which will characterize the economy in the future. These factors include' natural resources, possibilities for the application or adaptation of technology, and the rate of population growth. In the long run, it is these objective factors which will deter mine the rate and character of development. Setting Long-Term Objectives The studies concerning the economy in general and its potentialities provide a valuable guide for setting objectives. They make the scaling of priorities possible and bring into focus the important constraints awaiting the development effort. Based on these considerations (and probably on political ideas as well), the government must formulate the objectives to be attained, during the period of a long term plan. These objectives may have qualitative aspects which express the aspirations of the nation, emphasizing the necessity for meeting specific needs and for social, political, and institutional reforms. More particularly, the time horizon of a long-term plan permits the setting 158 of rough quantitative targets. In order to illustrate the manner in which long-term targets may be set ,* let. us briefly examine a recent experience in Ethiopia. Before proceeding with the formulation of the Second Five-Year Plan, currently in progress, estimates were made of a few selected macro-economic magnitudes for twenty years in the future on the basis of studies similar to those described above. * These magnitudes were the rate of growth of national income, population, investment, saving, and foreign financial resources. 4 First, an assumed rate of growth of population was used to determine the annual and total increases of popu lation over a period of twenty years (1961-1980). Then, after three rates of growth of national income were con sidered, one was selected. On the basis of this rate of growth, national income was estimated over the same period.. From the rates of growth of population and national income, the average rate of growth of per capita income was deter mined. The exercise was followed through by introducing two more basic assumptions about the capital-output ratio and the rate of saving. Again both were selected after considering a few alternative values (see Table X). On the 159 TABLE X ALTERNATIVE AND SELECTED VALUES OF RATE OF POPULATION GROWTH, CAPITAL-OUTPUT RATIO, RATE OF GROWTH OF INCOME, AND RATE OF SAVING IN ETHIOPIA * S LONG-TERM PROJECTIONS Population Capital- Rate of Rate Growth Output Growth of Ratio of Saving Income Alternatives H • 00 3.5:1 3% 10% 4:1 4% 12% 5% 14% Selected 1.8% 3.5:1 5% 12% Source: Based on Imperial Ethiopian Government, Office of the Planning Board, Document 2 DP/36, un dated. 160 basis of the capital-output ratio, total investment re quirement over the twenty-year period was estimated. The assumed rate of saving applied over the same period deter mined total domestic financial resources. As may be ex pected., this total fell short of investment requirements. The difference between saving and investment was taken as the to.tal foreign financial resources necessary to meet the target rate of growth. _ As we have said earlier, such exercises do not result in firm quantitative targets. They may be of little value, however, if they are considered in this light at the outset in order to justify haphazard assumptions. If they are not based on serious analyses and enlightened ‘ judgments, they may be seriously misleading. The results may be on one extreme a justification of a lower rate of saving than may be possible or, on the other extreme, an illusion of high hopes which may be simply unattainable. In some instances so-called long-range planning has served as an excuse for present inaction. Dis tant dreaming creates "futuramas” without adequate consideration of the jsath and the time-table to get from here to there. But it is no less true that excessive preoccupation with the short run robs present efforts of their full effectiveness. A "path” is being laid, step by step, but with little consideration of where it is to lead. Long-run planning is needed to give significance to short- 161 run activity, just as the latter is the condition for ever reaching the goals of the former.15 The long-term period must, therefore, be broken down into shorter term phases during which the objectives are to be attained. Such phases permit the drawing out of more firm programs for action, assure the proper scaling of priorities, and promote rational development. THE MEDIUM-TERM PLAN The medium-term plan permits the specification of more.detailed, programs principally because we are better able to show what needs to be done and to assess more meaningfully the consequences of our actions within such a time horizon. Often in each medium-term plan particular emphasis is laid on the meeting of one or more fundamental objec tives, such as increasing agricultural output, investment in infrastructure, reforms, industrialization, et cetera. Whereas in the long-term perspective the major concern is with the selection of reasonable objectives, in the medium- term perspective, the focus is on the preparation of a 1^Chamberlain, op. cit., p. 176. 162 program for action. It is not possible, therefore, to discuss in a general way the content of such a program as it depends on the situation being considered. Where macro-economic long-term projections are mdde, it may be possible to prepare a breakdown of these projections showing the changes in the important magnitudes as development proceeds. This procedure was followed in Ethiopia based on the hypothesis that the rates of growth of income and saving would rise over subsequent medium-term phases. Criteria for Determining the Duration of a Medium-Term Plan A five-year period is the most common span for a medium-term plan. Why is this so? There seems to be little more explanation for it other than the fact that the Russian planners chose it and then others found, it use ful as well. But then also the five-year plan has come to carry with it the connotation of a particular vogue which everyone understands in the broad context of the adoption of a fresh approach to rapid development. Although the five-year plan is the more popular one, the duration of the medium-term plan need not be five years. It may be objectively determined on the basis of some criteria temporal in nature. Such criteria obviously depend in part on the situation in particular countries. 163 Nevertheless, a few guidelines may have general applica tion. Such guidelines may include: a) The length of time required for achieving some reforms and for resulting increases in produc tivity, saving, et cetera. . . . b) The gestation period of social overhead capital. c) The time required for developing certain tech nical and skilled manpower. d) The. time required to overcome certain constraints (financial, for example) disclosed by earlier analysis. e) The time required to erect and put in operation major industrial projects. Considerations such as these can provide the basis for determining the time-span of the medium-term plan. There are, however, still more practical reasons for draw ing out a plan of sufficient detail every five years or so. Thus: . . . the preparation of a detailed plan takes up much of the time and energy of planning officials at all levels. Naturally, underdeveloped countries will also be short of planning staff, and drawing up a detailed plan every five years may be the best use of such scarce resources. In India, the five-year period is selected in order to synchronize the beginning of the plan with an election year. We need not enter into any lengthy discussion of ■^de Wolff, op. cit. , p. 135. 164 the medium-term plan, as it is one phase of development planning which has received extensive coverage in the lit erature. It must be recognized that the period of the medium-term plan is not long enough to bring about any impressive changes. It is only one phase of the long-term development.plan or rather one phase of a series of medium- term and short-term phases. As such, progress can be eval uated not just in terms of the attainment of medium-term objectives, but in terms of long-term gains as well. Thus, intertemporal coordination of successive medium-term plans, which add up to the time horizon of the long-term plan, becomes a basic consideration. Moreover, the medium-term plan is not to be viewed, as being rigid. It ought to be a flexible plan capable of accommodating adjustments as new experiences, developments, and opportunities reveal themselves. THE SHORT-TERM PLAN Once the detailed medium-term plan targets have been specified, all eyes are bound to turn to the budget. However, in the less developed countries, the budget must be based on the development program contemplated d.uring any given year. Thus, it is a sensible idea to draw out 165 an annual plan which in large measure should determine the budgetary allocations by specifying tasks for immediate action. More fully, the annual plan can: (a) specify most precisely what is to be done in a given year; (b) en sure that all efforts are mobilized and all opportunities exploited as they present themselves; and (c) enable plan ners to take more full account of changing conditions, making possible incremental adjustments rather than allow ing a backlog to accumulate which may be too complex for later handling. The last point is particularly significant in less developed countries. There may be any number of factors liable to change within relatively short periods of time. Annual programming is . . . necessitated by changes which occur in the cost of development projects, in knowledge regarding the returns from such projects, and in the availability of development resources. Harvests may be better or worse than expected; world prices may fall or rise; there may be changes in the volume of foreign private investment or intergovern mental aid. It is through the adjustments made in annual programs that the development plan is kept in harmony with changing conditions.17 17Clair Wilcox, "Pakistan,” in E. E. Hagen (ed.) Planning Economic Development•(Homewood, 111.: R. D. Irwin, 1963), p. 66. 166 The detailed, nature of annual plans may necessitate that they be left to decentralized ministerial units. The central planning function would then consist of making an evaluation of departmental annual programs in the light of the medium-term and long-term objectives, intersectoral coordination of activities and coordination of the global annual program with the budget. Coordination of the Budget and, the Short-Term Plan The problem of coordination of annual plans with the budget is one which has attracted, attention in recent years. Traditionally, the budget accounts were framed, to make possible effective administration and control of cur rent financial transactions. The underlying principle was accountability. With the adoption of developmental plan ning, it became necessary to give emphasis to the capital account and to fiscal considerations. The need for budgetary reform has, therefore, been aroused. In Colombia, for instance: One of the most important developments in the administrative organization was the decision that the procedure for the preparation, administration and control of the budget should be adjusted to the programming methods. The basic principle underlying this is that there should be the closest possible cooperation with the bodies responsible for the preparation, execution and supervision of the plans at all stages of the budget process.18 Most of the recommendations made are not intended to replace the traditional budgetary function, but to expand it so as to make more complete information available classified according to functional and economic character istics of government transactions.1^ Table XI . depicts the form of functional and economic classification of government expenditures. Reclassification of budgetary accounts is, however, no guarantee that intimate working liaison between the annual plan and the budget is established. As was indi cated above in the Colombian experience, planners and those responsible for the budget must work closely together. In Ethiopia, this relationship has been made formal by having the Office of the Planning Board, represented, in the impor tant Budget Committee. In India, the work on the annual 18 f,Planning and. Economic and. Social Development in Colombia,” Paper submitted, by Colombia in UN, Planning for Economic Development, op. cit. , p. 37. 1^Refer to J. H. Adler, ”The Budget and Public Ex penditure Policy,” in G. M. Meier's (ed.), Leading Issues in /Development Economics, pp. 500-510; UN,ECA, "Report of the Workshop on Problems of Budget Reclassification and Management in Africa,” 1961; UN, A Manual for Economic and Functional Class, of Gov't. Transactions, 1958. 168 TABLE XI FUNCTIONAL AND ECONOMIC CLASSIFICATION OF GOVERNMENT EXPENDITURES \ ECONOMIC CURRENT CAPITAL ^^CLASSIFICATION EXPENDITURES EXPENDITURES FUNCTIONAL N. CLASSIFICATION^^ 1. General Services 2. Social and Community Services 3. Economic Services 169 plans precedes the preparation of the budget. This helps to ensure that the budgetary allocations are consistent with the requirements of the annual plans. The preparation of annual plans and their coordina tion with the budget and medium-term plans is bound to be difficult. No matter how difficult the problems and. how crude the operations, they can hardly justify that it should, not be attempted at all. METHODS OF INTERTEMPORAL COORDINATION Necessity for Retrospective Analysis Our discussion in the previous sections has been prospective or forward-looking. It must be noted now that once we have embarked, upon developmental planning, retro spective analysis assumes greater significance. With the passing of each year, we are left with new experiences. Thus, .appraisal of the past needs to be a built-in function in the planning process. The critical problem here is that of communication and. reporting of results and experiences in every aspect of development activity. The following description of current experience in the United Arab Republic is quoted at length to show the manner in which effective communica- 170 tion may be achieved. Periodic reports on progress achieved and difficul ties encountered in the execution of the plan are re quired by law and are submitted by the various minis tries, government departments and public organizations and by the public companies supervised by such organi zations. Producing units and enterprises in the pri vate sector are also responsible for reporting on the projects they execute. These reports have to include data on current production, employment, inputs and. investment and other relevant information concerning the implementation of the plan targets. They are sub mitted quarterly to the Ministry of Planning which prepares quarterly reports to the President of the Republic through the Minister of National Planning. The idea of combining of planning and. reporting func tions in the Ministry of Planning derives from the principle that continuous planning is more effective and realistic when it is based on close follow-up and evaluation of the execution of the annual plan. In this way, maladjustments can be corrected, difficul ties foreseen and smoothness of operations maintained. Enterprises and public organizations report on prog ress and difficulties on a project-by-project basis. Ministries report on branches of activities and ->■ ^ecfditASii.. i programmes, including projects and sec toral development in general. The reports prepared by the Planning Ministry inc.lude, in addition, informa tion and analysis pertaining to the overall picture of the economy, including appraisals of aggregate produc tion, income and their distribution, the foreign ex change position and. other economic and financial de velopments.^ Such a system of extensive reporting has not yet been put into effect in many less developed, countries. The necessity for an efficient machinery for reporting can hardly be overemphasized, if satisfactory information is to ^°El-Morshid.y, op. cit. , p. 201. 171 be made available for retrospective analysis and appraisal. a The "Rolling Plans” The need to ensure continuity in planning has brought some interest in what are referred, to as ’'rolling plans.” These are conceived of as medium-term plans of a continuous nature, another year being added to the plan as each plan year is completed. Such a prac tice has been followed by some large enterprises and, in a wider context, it may be feasible to adopt it for national p l a n n i n g .21 The idea of "rolling plans" is theoretically a sound, one: The transition from the one fixed medium-term plan to the next one is often accompanied by rela tive inefficiency. There may be a rush during the last year or even month of the "old” plan to ful fill its targets, and a^t the beginning of the "new" plan executive agencies may take quite some time to adjust themselves to the new targets. A rolling plan could ensure a smoother flow of development activity, which would nearly always be more effi cient .22 It may be safe to say that experience in the appli cation of the idea of "rolling plans" is virtually non- 21 UN, Planning for Economic Development, (A/5533/ Rev.1), p . 7. 22 UN, Planning for Economic Development, (A/5533/ Rev.1/Add.1), pp. 135-136. 172 existent in the underdeveloped countries. This is perhaps because it involves a great deal of analysis at too close time intervals. As we have noted earlier, less developed * countries are not generally favorably disposed toward methods and techniques which involve too much analytic work. In this connection, it has been observed: . . . in a consistent medium-term plan the princi pal magnitudes are closely related, to one another, and extension of the plan by a year involves com prehensive examination and reformulation of basic assumptions and relationships.^^ If, at the same time, annual plans are prepared, the work may become too demanding and. even impossible under the limitations of time and staff. Conceptual Framework of Intertemporal Coordination The concept of a hiearchy of problems. Johr and Singer have pointed out that there is no practical problem which exists in isolation. What exists in the economic universe is a ’’ hierarchy of problems.” Some scholars, especially those who are problem- seekers by nature, on approaching the study of a particular question of economic policy, consider that their first task is to clarify the problems CN, Planning for Economic Development, (A/5533/ Rev.1), p. 7. next above it. But these in their turn are embedded, in more comprehensive problems. Thus the paths which their research must follow get further and further apart; finally everything becomes a problem for them. For instance, a European scholar may be dealing with the question of how the poor circum stances of the mountain farmers of his country can be improved. He first of all discusses its agri cultural policy as a whole; but he cannot discuss this without raising the question of economic policy in general. This leads him on the one hand to the question of the economic system, and on the other hand, to the question of the form taken by the inter national division of labour. But he cannot come to a decision upon these questions either without get ting a clear picture of the structure of society generally. Finally he can say with Socrates: "All I know is, that I know that I know nothing.” This knowledge does credit to our scholar--as it did. to Socrates. But it does not help our mountain far mers . 24 Johr and Singer emphasize that "economic policy p C must act.”^^ One can only act in the present, both in set ting objectives and implementation. This line of thinking is valuable in developing a logical framework of inter temporal coordination. Instead of considering a hierarchy in a static context, we can conceive of a hierarchy in a dynamic setting. 24 Johr and Singer, op. cit., p. 19 25t, - . Ibid. 174 _____L O N G __________ T E R M ____ ______MED IUM ______S H O R T FIGURE 3 Turning to Figure 3, we see how the long-term period can be broken down into medium-terms and short-terms. The short-term may be regarded as the time for action. The attainment of short-term objectives constitutes in part the attainment of medium-term objectives and in part the attain ment of long-term objectives. The problem of intertemporal coordination becomes, therefore, how to clarify and. inte grate present action and its consequences with future objectives. We continue this discussion in the next sec tion. Elaboration of the framework. Let us conceive of the planning process as consisting of: (a) determining objective situations; (b) preparation; (c) execution; and (d) checking. This conception makes it possible to demon strate a process in which the continuity of planning can be ensured. Let us conceive also that three time horizons are d.istinguished--long-term, medium-term, and short-term. Further, it is reasonable to assume that the longer the 175 period covered, the more fundamental the changes that will ensue. Thus, during a period of a long-term plan, the most fundamental aims are to be achieved, and in the periods of the medium-term and short-term, lesser objectives are to be attained, respectively. Let us now turn to Figure 4, which depicts the process of planning in terms of the activities identified above. The starting point is year (0). The important single activity during this year is to make an analysis of existing conditions. The analysis during this benchmark year is particularly significant because the objectives for three time ranges are to be based, on it: the funda mental goals to be realized, at the end of the lgng-term period, the objectives of the first medium-term plan (or according to a procedure discussed above, the objectives of a number of medium-term plans), and the objectives of year (1). At the beginning of year (1), an annual plan is launched: targets are set, means selected, and the plan executed. The execution of the plan is influenced by exogenous factors or unforeseen developments in addition to the policy measures put into effect. The degree of achievement of objectives is checked, or evaluated at the QggEIUL ECOEOKLC PliMTIIO CHART (Stippled frames snow provisional elements) Starting Tear (Tear 0) Kain plan ning divi sions Second Tsar of rl (Tear 2) First Tear of Plan (Tear 1) Tear for vhlch Fundaoental line '(Pinal Tear) Exogenous factors situation in final rear Situation in year 2 Situation in year 1 Exogenous factors Situation at atart Execution#? Execution Check# Check m Means of action in Pinal Tear leans of actionjg%a%%^%; in Tetr 2 Keane of action PR2PARA PREPARATION Fundamental alos (Socio-politi oul targets ■et) Quantitative targets for Final Tear Quantitative targets for Yesr 2 Quantitative targets for Tear 1 ^ Investigation of quantitative targets (provisional fro* 2nd year) , Investigation of means ~pf action (provisional free Rod year) PxecutioaVof projects Comparison of targets (forecaste) and results Changes in targets and mesne of action for the next year (after the 2nd year) FIGURE 4 Source: R, Olivier, "Planning and. Statistical Techniques of Projection,” UN, ECA, (E/CN.14/ESD/11,1961), Appendix, 176 177 end of the year. The situation at the end. of year (1) is the basis for the targets of year (2). The new targets of year (2) require new measures (or different quantitative values of the same measures). -Execution is made possible by putting the new measures into effect while at the same time taking account of exogenous developments. The situation at the end of the period is then compared, with the targets set for the period in order to determine the targets for year (3). The process can continue in the same manner until the time span of the medium-term is gradually covered.. At the end of the final year of the first medium- term period, checking is essential on two levels. First, the targets for that year are checked, against the outcome of the process of execution during that year. Then check ing is necessary of the level of development during the medium-term period or the degree of attainment of the more fundamental aims set for the end of the medium-term period.. The situation at the end of the first medium-term period is compared, with the fundamental objectives of the long-term period.. At this stage, it is possible to recast the long-term aims beyond the period, originally defined, (this being the idea of the ’'rolling plan"). Alterna- 178 tively, it is possible to maintain the same perspective. In the latter case, the aims of the second medium-term period will be set in such a way that they reflect a pro portionate share of what still remains to be done in order to attain the long-term aims. However, experience during the first medium-term period may have shown that the long term aims are overambitious or much less than what could be achieved. Such considerations are taken into account and the necessary adjustments made. During the second medium-term period, annual plans are prepared and executed, in the manner described above. The application of such a framework of coordination may be difficult because of the multiplicity of obj'ectives, measures, and. exogenous factors. The degree of integration which can be achieved may be less than completely satis factory. The framework is, however, basic if any degree of intertemporal coordination is to be attainable. CHAPTER V THE SCOPE AND PROBLEMS OF THE SPATIAL DIMENSION: SUB-NATIONAL AND INTERNATIONAL ASPECTS Economic theorists have generally abstracted from a treatment of the spatial dimension in their analyses. They have been more inclined to be concerned with temporal rather than spatial considerations. Yet who can deny the spatial aspect of economic development: that all economic processes exist in space, as well as over time? Realistically, both time and space must be vital considerations in any theory of economy.! We often come close to spatial considerations when we distinguish, in economic theory, between economic units and when we separate our discussion of a closed economy from that of an open economy. In some of the literature of economic growth too the question of industry versus agriculture verges on the spatial dimension. But since ^Walter Isard, Location and Space-Economy (New York: Technology Press of M.I.T. and John Wiley and Sons, 1956), p. 24; and John Friedmann and William Alonso (eds.), Re- gional Development and. Planning (New York: The M.I.T. Press, 1964), pp. 1-2. 179 180 in all these cases we do not concern ourselves with the question of location or distance per se, spatial considera tions are excluded, from our analyses. Our purpose in this chapter will be to examine the role of spatial dimension in national developmental plan ning. We shall be concerned principally with problems of current interest and practical significance more-or-less definable in the spatial context. The three broad topics I with which we shall deal are: (1) Regional Planning, (2) Community Development, and (3) International Economic Relations and Coordination of Development. Regional planning is a broad, topic, one in fact which has become a discipline unto itself. It includes * among others the questions of the physical location, dis tribution, and agglomeration of economic activities. The first part of this chapter will be devoted, to a discussion of these and related, problems and concepts. Of particular interest in the less developed, coun tries today is the idea of community development. This is j an attempt to bring development to small communities. Because it has occupied an important position in the devel opment plans of so many countries, we shall devote part of this chapter to a discussion of community development. 181 International economic relations are basic to the development of less developed countries. In the final part of this chapter, we shall deal with some of the out standing problems of international economic relations as they affect the process of planned national development. REGIONAL PLANNING It is perhaps best to distinguish between ’'regional1' planning and "physical" planning. Both are concerned with planning within a given spatial framework. Regional plan ning may include physical planning. However, physical planning does not concern itself with some aspects of regional planning which may abstract from physical phenom ena within a given regional framework. Although we employ the term regional planning in our discussion, we shall not abstract entirely from physi cal considerations, except"in the brief section on invest ment- allocation and techniques of analysis. And at any rate: In studying the spatial structure of economic development, both physical and. activity patterns must be considered as two aspects of the same reality. The first refers to the arrangement in space of human settlements, productive facilities, transport routes, land uses, and the like. Activity 182 patterns consist of the flows of capital, labor, commodities, and communications which link the physical elements in space. While the former have a direct significance for calculating investment requirements, the latter are chiefly responsible for energizing the development process itself.^ The Necessity for Regional Planning The use of the term region may suggest to some people a division of the national economy into separate and self-contained economic entities. Far from creating I separate economic entities, regional planning is the only way to ensure the integrated development of a country. Let us consider for a moment the concept of the "dual economy.” This is the well-known term used to refer to the historical development of primarily colonial areas where a modern monetary economy has come to exist along side a backward subsistence economy. It is obvious that such a situation has developed primarily because there was no intention to bring development to all the regions of the countries concerned..3 How then is it possible to have 2 Friedmann and Alonso, op. cit., p. 9. 3UN, ECA, "Physical Planning Considerations in Africa," (E/CN.14/HOUPA/8,1963), pp. 2-4. 183 the entire economy developed, when little attention is paid to major parts of it? Because there was no scope for regional planning, the result could, hardly be expected to be an integrated development. Thus, the basic justification for regional planning is the need, to develop the various parts of a country by the more full utilization of their varied resources. Re gional planning is necessitated also because of: (a) the fact that urban and rural, as well as industrial and agri cultural, areas pose special problems to be dealt with in particular ways; and (b) the desire to counteract the "backwash” effects (defined below) which are associated with the dynamics of development. The Concept of Region The first problem in regional planning is to specify what is meant by a region. The most satisfactory defini tion of the concept of region is that offered by the geog raphers. A Committee of the Association of American Geog raphers organized for this very purpose: ". . . came to see the region as a device for selecting and studying areal groupings of the complex phenomena found on the earth. Any seg ment or portion of the earth surface is a region • if it is homogeneous in terms of such an areal 184 grouping. Its homogeneity is determined by criteria formulated for the purpose of sorting from the whole range of earth phenomena the items required to ex press or illuminate a particular grouping, areally cohesive. So defined, a region is not an object, either self-determined or nature-given. It is an intellectual concept, an entity for the purposes of thought, created by the selection of certain fea tures that are relevant to an areal interest or problem and by the disregard, of all features that are considered to be irrelevant.”4 (underlining supplied) If this definition of region is accepted, then it is left to individual countries to decide just what spatial expanse, configuration or feature they may wish to refer to by it. Theri are specific considerations which may \ serve as guidelines in delimiting the region. These are the idea of linkages and the idea of sectors.5 A region may be conceived of as one characterized by strongly linked factors. The strength or weakness of linkages may be evaluated by the application of the cri teria of homogeneity and complementarity. An area may have physical, biological or societal ^M. E. Garnsey, ”The Dimensions of Regional Science” (quoted by), Regional Science Association, Papers and Pro ceedings, Vol. II, (1956), p. 28. 5Ibid., p. 30. The discussion of subsequent para graphs draws from the same source. 185 features of a particular sort which are immediately dis cernible. Obvious examples of this are the desert region, mountain region, fertile region, developed region, back ward region, et ..cetera. Linkages may also be established by following through the sequence of supply of raw material, production of final goods, and distribution. Obviously, this sequence may often be diffused over a wide area. It must be remem bered that the main interest is in establishing strong linkages. It is, therefore, generally possible to isolate certain regions by the application of the criterion of complementarity. It must always be borne in mind that the strength or weakness of the linkages identified are not absolutes, but are determined primarily by the purpose of the analysis. The idea of sectors, as an aid in delimiting the region, is based on the concept of ’'slicing," proposed by j Walter Isard. ’’ Slicing’1 may be made in terms of industrial com plexes as sectors. Examples of such complexes are iron and. steel, fuel and power, petro-chemical, et cetera, whose internal and external relationships determine their loca- tion§. This type of differentiation is basic to industrial 186 complex analysis as we shall see below. A given resource of a strategic nature may also make possible "slicing" of sectors for particular purposes. Thus, the waters of a river may be a strategic resource and the sectors using it in a given territory, such as households, manufacturing industries and agriculture, may be considered to fall in that region. The concept of region as defined above is a useful concept. Although economic considerations are basic, the delimitation of a region is bound to reflect non-economic considerations as well. Historical boundaries and current associations of people with areas are among the political factors to which planning and administrative requirements must adjust themselves. The distribution of political power on an area basis, as in a federal state, may even preclude the establishment of regions. . . . Reconciliation of the criteria of planning, ad ministration and self-government has not proved easy in developed countries. In working out their own adjustments, developing countries may need to consider which one or two of these three uses of the region is of greatest importance at present and in the near future.6 °UN, Technical Assistance Programme, Decentraliza tion for National and Local Development (New York, 1962), pp. 19-20; also, E. E. Hagen (ed.), Planning Economic De velopment (Homewood, 111.: R. D. Irwin, 1963), p. 226; UN, Science and Technology for Development, Science and Planning Vol. II, (1963), p. 19. 187 Moreover, the size of each country and the diversity of its economic landscape may be important considerations in the delimitation of its regions. Still, ”. . . the region acquires a concrete form and character only with respect to a given problem. Major Problems of Regional Planning It is clear that regional planning can accommodate any number and. type of planning situations. It would be an endless and ^questionable process to try to even identify them. In order to make our discussion manageable, and intelligible too, we have to formulate the planning problem in a different way. The problems of regional planning may be viewed as falling into two categories, namely those of the ’’ center," ’’ heartland.,” or ’’ core,” and. those of the ’’ periphery” or ’’ hinterland.” This dichotomy is, of course, based on widely-held views about the contrast between the way of life in urban and rural areas. For our purposes, it seems more appropriate to see 7 Walter Isard, "Regional Science, The Concept of Region and. Regional Structure,” Regional Science Associa tion, Papers and Proceedings, Vol. II, (1956), p. 26. 188 the problems of regional planning in the context of a sort of a continuum in space rather than as pertaining to one or another of contrasting categories. The following classification of development areas suggests such a con- t inuum: 1. Metropolitan regions.--Sometimes called ’’ core regions" or "growth pioles," they are large urban centers of industry, commerce, and administra tion that, together with their immediate region of influence, possess high potentialities for further economic expansion. 2. Development axes.--These are elongated corridors along principal transport routes linking two or more metropolitan regions. Their prospects for development may be roughly proportional to the size of the centers they link and inversely proportional to some function of the distance separating them. 3. Frontier regions.--New technologies, population pressures, or new national objectives sometimes suggest the occupation of virgin territory. Frontiers contiguous to the older developed regions may expand more or less spontaneously along a broad front, often springing from urban settlements. Noncontiguous frontiers are usually associated with large-scale resource development, and take the form of relatively isolated enclaves, frequently having an urban focus, but at a con siderable distance from existing metropolitan regions. 4. Depressed, regions.--The remainder of the effec tively settled, parts of the nation tend to con sist of areas of declining or stagnant economy. They offer only modest development prospects, and provide most of the workers and a good. 189 portion of the capital to the major growth regions.8 It is suggested that the development of axes re gions largely depends on the development of the metropoli tan Regions. Similarly, it is suggested that the frontier regions generally provide the impetus for the growth of depressed regions. Hence, the regional planning problem, for our purpose at least, can be narrowed down to two broad regions: the metropolitan region and the frontier region. Let us take up each in turn. The Planning of the Metropolitan Region The city, conceived of as a way of organizing eco nomic life, presents a type of planning problem which is basic in all countries, except perhaps the smallest. Care ful planning of the metropolitan region is necessitated, not just because urbanization is an inevitable concomitant of development, but because, it generally becomes the focal point where the vital economic activities tend to agglom erate and which radiates development to its axes. For instance: Friedmann and Alonso, op. cit., pp. 3-4. 190 The vitality of economic life in the Tennessee Valley will come more and more to depend upon the efficiency of its city regions in their collecting, processing, and distributing functions. Regional development therefore comes to mean essentially the development of its metropolitan resources.9 What are the main characteristics of the metropoli tan region? To begin with, it has one or more cores, or con trol centers. Second, it provides a complete and year-round, habitat for man, a place for work and residence and the pursuit of leisure. Third, it generally includes areas in which some forms of intensive agriculture will be carried on chiefly to supply the region. Fourth, it represents a suitable unit area (location matrix) with respect to, which investment decisions will be made. Plan ning for this new form of human settlement must be related to its several cores and proceed outward from these centers to a line where densities of interaction fall below a certain threshold level. At this invisible boundary, one metropolitan region may run into another (megalopolis) or yield to a rural periphery which is not yet fully integrated with any metropolitan center. In the past, the haphazard growth of cities has resulted, not only in unconducive environment for habita tion, but also in higher production costs than would have John Friedmann, , !The Spatial Structure of Economic Development in the Tennessee Valley," the University of Chicago, Program of Education and. Research in Planning, Re search Paper No. 1, (March 1955), p. 132. ■^Friedmann, "Regional Planning as a Field of Study," in Friedmann and. Alonso, op. c i t. , p. 66. 191 been possible if they were planned. These discouraging facts about past urbanization are to be contrasted with a view which is finding increasing acceptance among experts. This view holds that wise urban planning is a basic tool for effecting economic development. Such planning can be used within limits to set aside adequate acreage for continuing growth within an industrial district, thereby to achieve important localization economies for the industries of this district. Such planning can set aside areas for residential purposes in ways which will not excessively drain capital resources through requiring unnecessarily extensive transpor tation facilities, sewage systems, and other public utilities. Such planning can locate commercial activities in good relation to terminal facilities, ports, warehouses, etc. And such planning can even be coupled with rural and village planning activi ties to encourage people to control the impulse to migrate to urbanizing areas when migration is not economically warranted. In effect, then such urban planning works to eliminate unnecessary waste of capital--a point which cannot be overemphasized in the light of the critical need of regions for in dustrial plant and equipment, educational and. health facilities, etc. In addition, sound urban planning has one other positive feature. It is becoming widely recognized that for many industries a high level of public ur ban services (and associated business and profes sional services) and an efficient urban plan are important location factors--important because they can significantly lower costs of production and distribution, and raise the level of productivity of various enterprises. In this way, far-sighted urban planning can provide major stimulus to economic growth and. increases in welfare.11 "^Walter Isard and J. H. Cumberland., Regional Eco nomic Planning, Techniques of Analysis, OEEC, 1961, pp. 24- 25. 192 Three of the most fundamental aspects of planning the city region are: the organization of transportation * 1 p services, space resources, and. community resources. Transportation has been properly called the "nerv- ous-system, ! of the city region. An efficient transporta tion system provides the primary locational advantage for manufacturing industry, commerce and related activities. An efficient transportation system is one which shortens the distance and time factors involved between the various centers of the city region, and one which facilitates the flow of traffic within its axes in all directions. It is also one which makes possible the optimal location of industries, functional integration, and good coordination between the various media. The proper organization of space resources must take account of the location, physical qualities and im provements in the land. The destruction of economic values (e.g., inefficiency of land use), aesthetic values (e.g., unsightly structural sprawls) and social values (e.g., con gestion, smog, et cetera) may result from lack of planning 12 Friedmann, "Regional Planning and the Spatial Structure of Development," Friedmann and Alonso, op. cit., pp. 132-139. 193 of the metropolitan region. Planning for space is thus a development function of the first order. For one of the most valuable of metropolitan resources is the different kinds of space that are available for business and population expansion.13 The metropolis thrives principally on the concen tration of the most progressive and. energetic elements of the population of a country--intellectuals, entrepreneurs, administrators, et cetera. It is important, therefore, that the dynamism of this vital core be enhanced by the full utilization of its community resources. It is correct to say that the city represents the cultural center of the emerging modern society. Its social integration is, there fore, vital to its economic integration and expansion. The Planning of the Frontier Region The development of the frontier region may be based on the large-scale utilization of particular natural re sources. A frontier may also be created, by a specific government policy for the location of a certain industrial complex or as a potential center of agglomeration of eco nomic activities. In both cases, the frontier may serve ^3Ibid., p. 135. something of a nodal center for the development of a pe riphery or depressed area. Let us, therefore, begin our discussion by expanding upon our earlier comments on the dynamic processes which may work either for or against a depressed area. The depressed area.--As we have noted, earlier, it is a characteristic feature of many less developed, coun tries that a highly developed, urban and industrial money economy coexists with a traditional, backward, rural sub sistence economy. It is argued that the developed part of the country serves as a growing point, since its dyna mism tends to overflow and have ’ ’spread" or "trickling" effects on the backward areas.^ The necessity for plan ning arises, however, because these effects may be counter acted and weakened by the contrary forces of "polarization or "backwash" effects. According to Myrdal: If things were left to market forces unhampered by any policy interferences, industrial production, 14 Gunnar Myrdal, Rich Lands and Poor (Harper, 1957) pp. 27-32; Albert 0. Hirschman, The Strategy of Economic Deve1opment (Yale University Press, 1961), pp. 187-190. 195 commerce, banking, insurance, shipping and, indeed, almost all of those economic activities which in a developing economy tend to give a bigger than aver age return--and, in addition, science, art, litera ture, education and higher^culture generally--would cluster in certain localities and regions, leaving the rest of the country more or less in a backwater. Thus the task of planning in this situation consists of influencing deliberately the "spread" or "backwash" effects, generally aiming at strengthening the former and weakening the latter. The most important way in which this can be done is through the allocation of investment to desired regions. A good, example is that of Northeast Brazil, a back ward region to which a great deal of effort is being directed by the Brazilian government. The backwardness of the Northeast is attributed partly to "backwash" effects. The problem of the North-east has been aggravated in the past two decades by measures taken for the industrialization of the south-central region of Brazil. When the relative prices of manufactured products went up as a result of the protection granted an expanding national industry, the poorer region, traditionally a source of supply of raw materials, was subject to substantial income drain age. The contribution of the North-east to the financing of industrialization was, comparatively speaking, very high one, even though that indus trialization took place outside the region. . . . 15Myrd,al, op. cit. , p. 26. 196 Awareness of the existence of an internal process of ’’ colonization,” growing in extent, has aroused reactions which have tended to ripen into the formu lation of a policy specifically aimed, at the devel opment of the r e g i o n . Having thus outlined the potential forces making for or against the development of depressed areas, let us now proceed with a discussion of two types of frontier regions: the frontier for the development of particular resources, and. industrial estates. — The development of particular resources.--The par ticular resources to be developed will, of course, vary from country to country and from region to region within a country. It is, however, the development of river basins which has preoccupied many less developed, countries. This is undoubtedly in some part due to the influence of the great success of the Tennessee Valley Authority in the United States. Sometimes, the backbone of the development of the ■^Celso Furtado, ’’ The Experience of National and. Regional Planning in Brazil,” UN, Planning for Economic Development, p. 15. (A/5533/Rev.1/Add.1, 1963) 1 7 X/TVA as a Symbol of Resource Development in Many Countries, Knoxville: TVA Technical Library, 1952. 197 whole economy may lie in the effective utilization of the waters of a major river. A supreme example of this is Egypt. The Nile is the mainstay of Egypt, not only be cause of the power which it provides, but also because of the way in which it has enabled that country to turn the deserts along its banks into acres of agricultural land.. We need, not dwell on this aspect of regional plan ning here. All we wish to emphasize is that such a fron tier region especially when there is evidence of a great potential for further development, not only may become an important supplier for other regions, but also may play an important role in radiating development forces to its periphery. Any major project is bound, to attract labor from adjacent areas and. to increase the demand for local produce, so that it almost always provides some scope for the development of the periphery, providing that appro priate policies are adopted to weaken "backwash" effects and to strengthen "spread.” effects. Industrial estates.--The idea of industrial estates, already well-established, iri the United States and. the United Kingdom, is being applied, in some less developed countries. Its purpose is to develop industrial centers 198 in selected localities. In some countries, such as India, the aim is the development of small industry. In others, as in Mexico, the aim is to divert industry away from already industrialized centers to rural areas. Industries may be attracted to specific locations through the adoption of certain measures offering advan- ^ tages to private investors. In some case, the government takes a direct hand in establishing industries around which private industry may develop. The form of industrial estates and the services provided vary. An•industrial estate can be the centre of an "industrial city” or an "area of industrial devel opment," or a modest cluster of small industries and handicrafts in rural locality. It may be a landscaped "park" or a utilitarian "tract." It may be zoned, for heavy or light industries, or both, or reserved for certain specific industries or ancil lary enterprises working as subcontractors for large concerns. . . . It may provide a variety of serv ices affording economy and convenience to the indus trial occupants--canteens, dispensaries, banks, building maintenance--and services to raise their productivity, improve the quality of their products and. lower their costs of production.^-8 A policy for the development of industrial estates IQ UN, Establishment of Industrial Estates in Under developed Countries (ST/ECA/66,1961), p. 33. 199 has at least three important advantages: 1. It is a way of spreading development. 2. It makes possible the rational location of indus tries . 3. It reduces the pressure of overpopulation in a few industrial cities. It may be noted that industrial estates cannot be started, in every part of the country. The sites must offer particular locational advantages in terms of development objectives. It may be ventured, however, that the scope for such enterprises is probably still broad in less developed countries. A METHOD FOR INVESTMENT ALLOCATION AND TECHNIQUES OF ANALYSIS Method for Investment Allocation The development of all regions will depend upon the proper allocation of investment. A simple method for arriving at a regional investment program has been proposed by Jan Tinbergen.19 According to this method the problem is the alloca- 19 Jan Tinbergen, "Simple Devices for Development Planning," contribution to UN Conference on the Applica tion of Science and Technology for the Benefit of Less De veloped Areas (E/CONF.39/H/l,1962), pp. 7-8. 200 tion of investment to the various regions in accordance with economic and extra-economic aims. The extra-economic aims may mean that investment must be made in certain regions even if other regions may be more justifiable economically. Central to the method, is the distinction between "shiftable" and "non-shiftable" proj'ects. Projects of the former type can be located in all regions without any loss of contribution to aims. Proj'ects of the latter type can be located, in one or a few regions. Projects are numbered according to the region or regions in which they can be carried out. Then the selec tion of projects follows. But the selection is not made in terms of a project’s contribution to national aims, as shown in our discussion of project-level planning (Chapter III) . Rather, the procedure is first to select those projects carrying the number of the region most in need of development. This selection is carried on starting from the project carrying the number of the region and offering the highest contribution to regional aims, then the project with the second highest contribution carrying the same number, et cetera. This is continued until the 201 first region, the poorest region, is brought up approxi mately to a level of the next poorest region. And. when this is accomplished, selection is made from projects carrying the numbers of both regions. When both have been lifted to the level of the third poorest, selection is made from projects carrying the numbers of the three, and. so forth. The process is completed when the available invest ment fund is exhausted.. This method implies, however, that the basic aim is to equalize the levels of development in all regions. Even if it were: . . . it is important to recognize that natural resources are not evenly distributed, among the regions Df a nation. Access to major markets (including foreign^ is necessarily unequal, if for no other reason than the great variety in topography among regions. Inherited '’ know-how” and. labor skills are also unequally distributed., though such inequal ity is more subject to change. As a consequence, a policy of Mpure equalization” is necessarily a poor policy, although a policy toward greater equaliza tion can be and is likely to, be valid. Moreover, if the aim from the outset is to raise the level of development of the poorest regions to that of the richest, it follows that the other regions including Isard and. Cumberland, op. cit. , p. 23. 202 the latter would have to be relatively stagnant at least for some time, since the gap between the two extremes being too wide, most of the investment funds that can be mustered by a less developed country may be exhausted at the bottom. If a method similar to the one proposed above is adopted, it would, have to be supplemented by a reevalua tion of the results obtained in terms of broad, national aims. The following criteria may serve for this purpose: The first of these is the objective of national integration. Accordingly, it is held that one of the fundamental purposes of economic development is the creation of -a national economic space arti culated by an interdependent system of cities, areal functional specialization, and national mar kets. A second, criterion demands that efficiency considerations be taken into account in the loca tion of new activities. . . . Third., reqiorial in vestment allocation should, be guided by the cri terion of maximizing opportunities for the future growth of the national economy. For it is clear that subnational areas cannot themselves make progress if the nation as a whole should, stagnate. . . Finally, a certain interregional balance in levels of living must be maintained, at least sufficient to preserve political stability in support of the drive to national growth.21 Techniques of analysis.--It is not entirely possible p "I ' ‘- ‘ -Friedmann and Alonso, op. cit. , p. 5. 203 to specify tools of analysis having general applicability since, as we have noted earlier, the purposes and problems of planning vary from region to region. However, such general techniques as regional social accounts, comparative cost analysis, industrial complex analysis and input-output techniques deserve some mention.22 Social accounts serve the same purpose on the regional level as on the national level. Economic statis tics in the form of income, investment, saving, employ ment , et cetera may be prepared to correspond to the national accounts, in which case interregional comparison and the consolidation of regional accounts into national accounts is possible. Even when the regional accounts are prepared to reflect specific regional situations, they still serve as a useful framework for analysis. Comparative cost analysis, based on a given dis tribution of raw materials and markets, aims at determining the lowest cost of producing and supplying a given product. A series of comparative cost analyses may be made before deciding on the location of a particular industry. pn ^Isard. and Cumberland., op. cit. , pp. 426-427. 204 The most direct way to pursue a comparative cost study for an industry would, be to secure enough information to calculate the total production costs the industry would incur in each of the regions to be compared. The region or regions with the lowest production costs (including transport cost) would, be the most desirable location, in an economic sense. Since the difference in total cost from region to region is the important magnitude, it becomes clear with further reflection that the regional compara tive cost study need consider only the production and transport cost elements which actually differ from region to region. The components of produc tion and transport cost that do not vary regionally in amount may be ignored.; they give rise to no regional advantage or disadvantage.22 We have hinted in passing at industrial complex analysis earlier. An industrial complex is defined as: . . . a set of activities occurring at a given loca tion and belonging to a group (subsystem) of activ ities which are subject to important production, marketing or other interrelations.2^ Thus, industrial complexes are of different types. One type of industrial complex concerns the successive stages of production--from raw material to the final prod uct. For instance: The location pattern of steel ingot production cannot be ascertained, without a knowledge of the 23 Walter Isard., Methods of Regional Analysis: An Introduction to Regional Science (Technology Press of M.I.T. and. John Wiley and. Sons, 1960), p. 2^5. 24Ibid., p. 377. 205 location of pig iron production. But the location pattern for pig iron production cannot be established unless the location of its market, that is, the pro duction of ingot steel, is known. Furthermore, these activities are also influenced by the location of ore and coal deposits as well as steel-rolling and finishing operations and the markets for fabri cated steel products. Hence, . . . an adequate regional analysis must consider the whole combina tion of activities in their various interrelations.2- ^ Other types of interrelationships may involve the production of two or more commodities from a single raw material, or complementarity in use. An illustrative case of the application of indus trial complex analysis often cited is the case of Puerto Rico in connection with the petro-chemical industry. In this case, industrial complex analyses based on a number of petro-chemical processes resulted, in an economically viable industry, where any single process, save one, would have been an uneconomic undertaking.26 Regional and interregional input-output models may find, application in some cases. Their application depends, however, on a broad, definition of regions and. on the degree OC Ibid., p. 377; also S. S. Wagle, "Locational In dustrial Matrix in Economic Planning," Indian Economic Journal, Vol. VI (July,1958), pp. 103-110. Q Isard, op. cit., pp. 378-383; Isard and Cumber land*, Regional Economic Planning, p. 427. 206 of interdependence of production centers. It is not cer tain that in many cases interdependence can be satisfac torily established. Moreover, the difficulties encoun tered in the use of input-output systems which were pointed out in Chapter III present themselves in this case as well.^ Concluding Note: Relationships Between Regional Plans and the National Plan The total investment made in all regions is the total outlay of the nation for any given period. The investment program is the decisive element for the devel opment of the regions and also the important link between the national and regional plans. It is possible for some inconsistencies and con flicts to result between national goals and regional goals, however.28 First, because of the variety of goals which are likely to be set for each region, the pattern may be such For an expert’s discussion of this and linear-pro- gramming techniques refer to Isard, op. cit., Chaps. 8-10. 28 Charles L. Leven, ’ ’ Establishing Goals for Regional Economic Development,” in Friedmann and Alonso, op. cit., pp. 595-597. 207 that a consistent ordering of these goals may not be p'os- sible on the national level. Even if maximum output were the only aim, immobilities of capital, difficulties in assigning relocation costs of population (between the regions concerned) in accordance with the gains therefrom, and in estimating interregional external economies or diseconomies may make for the divergence of evaluations on the national and regional levels. Second, even though each region may develop its own manpower through the appropriation of funds, there may be no way for it to stop emigration of its trained man power. In this case, the national aims may be fully met in terms of total output, but not necessarily of the re gions having a great deal of emigration. It is, therefore, a reasonable idea to finance educational and. training pro grams on a national basis. Finally, wasteful competition may result if regions are left to follow their own strategies of development. Unless effective interregional coordination is made by a national authority, regional and. national goals may not be met fully. Such inconsistencies and conflicts may be avoided, or at least reduced by planning regional development on the 208 pQ ' national and regional levels. ^ On the national level, the main objective would be to draw out broad strategies. The responsibility for drawing out detailed and integrated plans would, be left to the regions themselves. Regional planning units would receive guidance from the broad, strat egy. In the same manner, the national planning unit can attempt to coordinate goals interregionally. This process may be viewed, as another version of the method of succes sive approximations where constant readjustment may be made on the national and regional levels. COMMUNITY DEVELOPMENT Many less developed countries have adopted, programs of community development, so many in fact that it too is becoming a specialized, field of study. What does commu nity development consist of? What are its contributions? What are some of the common problems associated with it? These are the questions which we wish to examine in the following paragraphs. 20 UN, ECA, "Physical Planning Considerations in Africa," op. cit. , pp. 14-25. 209 Definition The -following definition of community development has been advanced by the United Nation^: f t 1. The term "community development" has come „ into international usage to connote the processes by which the efforts of the people themselves are united with those of governmental authorities to improve the economic, social and cultural conditions of communities, to integrate these communities into the life of the nation, and to enable them to con tribute fully to national progress. 2. This complex process then made up of two essential elements: the participation of the peo ple themselves in efforts to improve their level of living with as much reliance as possible on their own initiative; and the provision of technical and other services in ways which encourage initiative, self-help and mutual help and. make these more effec tive. It is expressed in programmes designed to achieve a wide variety of specific improvement's .30 Community development programs are nation-wide, long-term programs covering a wide range of aims and means. Earlier programmes sometimes stressed mass edu cation, or else general social welfare, to the ex clusion of most other aspects. Community develop ment now tends--though the programmes indeed, differ greatly--to be more rounded. The spread of knowl edge, for example, is still seen to be basic; hence, technical training, and education and. information 30 UN, Community Development and. Economic Develop ment , Part I, A Study of the Contribution of Rural Commu nity Development Programmes to National Economic Develop ment in Asia and the Far East (E/CN.11/540,I960), p. 1. The discussion of this section relies mainly on this source. 210 to widen men’s horizons, are given an important place. In fact, "fundamental education” and equally agricultural (and, where possible, other) "extension” and also co-operative societies in various forms have been drawn in as necessary com ponents of the community development complex.^ Contributions It is held that community development programs contribute to the increase of production in agriculture and industry, to capital formation,and to the development of people's outlook and institutions. Increases in Production Agricultural output.--The services provided by the government are often directed strongly toward, raising agricultural output. Technical advice on the use of fer tilizers, improved seeds, improved implements, and. plant protection is generally provided. The contribution of community development to agricultural has, however, not been impressive. . . . the evidence available on the contribution of community development to expansion of agricultural production to date, is that there has been some contribution but not, in most places, a particularly 31Ibid. , p. 2. 211 large one. In relation to what appears possible and in relation to what some observers expected, it has been rather small. In India and those other countries where the food pr 'duction situation is sometimes discussed in "crisis1 1 terms, the community development contribution toward alleviating that situation has occasioned some impatience. Industrial output.--The contribution of community development to industrial output is expected to be basic ally indirectly, through the increase in agricultural output. Since agricultural output has increased only slightly, the increase in industrial output may also be expected to be small. Where a policy to encourage cottage and. small-scale industry is adopted, community development programs do contribute to the expansion of production. However, the situation with regard to industrial output has not been impressive so far, although there is hope for t future results. Capital Formation A certain amount of capital formatibn in the form of infrastructure, such as roads, water wells and schools has resulted from community development programs. In 32Ibid.. , pp. 33-34. 212 situations where facilities for borrowing are available, farmers have made use of such facilities to a certain extent and, by adding their own funds and labor, have been able to create some capital. However, some community needs such as electrification and irrigation can be met only through action on the regional level. This means that the possibility of capital formation of the social overhead type is limited in community development programs. r Little directly productive capital has resulted from community development programs. This is true both in industry and. in agriculture. It is believed that such capital formation will come about when sufficient incen tive has been engendered through land, reform, expansion of markets and. the provision for long- and. medium-term credit facilities. Community development programs offer opportunities for the employment of heretofore unused, manpower. Imagina tive and vigorous programs can certainly result in cheaper capital formation by enlarging these opportunities. The Development of Attitudes and Institutions The most fundamental contributions of community development programs are in the development of people’s attitudes and institutions. Improvement of health, sanitation and nutrition are bound to uplift the spirit of the people of the community. It is entirely possible to attribute some of the increases in productivity to these factors, as well as, of course, o to education and technical training. These programs also aim at developing positive attitudes toward, work and saving, at inspiring initiative, leadership and self-reliance. It is a fact, however, that sometimes lack of incentives principally because of in equitable distribution of land, or the gains from it, makes this task difficult. We have to repeat once more that men everywhere are bound to react to any proposal for cooperative action by asking: "What is in it for me?". The introduction of new institutions, such as co operatives and other voluntary organizations, and increas ing participation in local government can bring about desirable changes in the outlook of people. Emphasis must be put, however, on concrete achievements in the eyes of the community at large and. of individuals. 214 Major Problems of Community Development Programs^ The major difficulties faced in community develop ment programs are organizational in nature. Particular undertakings within themselves depend on the organiza tional abilities of those who are responsible for them. More important, however, is coordination between the activ ities of all the ministries or agencies which have ini tiated programs. Unless coordination on the top level is ensured, the teams on the field from the various minis tries, such as the ministry of education and the ministry of health, may not be capable of making it possible on the working level. This has led in some cases (e.g., Ethiopia) to the creation of a single ministry of commu nity development, the responsibility of which is to guide and coordinate all programs. It must be emphasized that community development programs take up a great deal of national scarce re sources, notably trained, manpower and equipment. For this Refer also to: A. I. Othman, "Community Develop ment,” in Agricultural Planning Studies, No. 3, FAO, 1963, pp. 219-223; and Decentralization for National and. Local Development, op. cit., pp. 33-37. 215 reason, they must not be viewed, separately from all other programs. They must be viewed, as the lowest level of a hiearchy of planning problems within a country, which include the national and regional levdls. It may be concluded that well-coordinated efforts on the community level by devoted, groups of men and. women can achieve a great deal, which is infinitely more meaning ful to the village people than super-highways connecting metropoli miles apart or nearby get airports. Even where such impressive manifestations of modernization are in tended to serve adjacent communities, it is still only through the type of programs offered, by community develop ment that they can learn to take advantage of them. INTERNATIONAL ECONOMIC RELATIONS AND COORDINATION OF DEVELOPMENT Countries which have embarked, upon developmental planning have long realized that their success is strongly dependent upon international economic relations. It Is hardly necessary to elaborate upon this state of affairs. Nor is this entirely a unique phenomenon. Trade in the nineteenth century was not simply a 216 device for the optimum allocation of a given stock of resources. It was that too, but it was more than that. It was above all "an engine of g r o w t h . "^4 * The important and pressing issue is how to ensure the stability and coordination of international economic relations, so that developmental plans are not drawn out all in the dark about what the future may bring in this sphere. This issue is far too broad, as indeed all other topics in developmental planning, for us to attempt to discuss it in its various dimensions. However, from the point of view of developmental planning, the following aspects are of particular importance: (1) Stabilization of Export Prices; (2) Coordination of International Aid. with National Planning; and. (3) International Coordina tion of Development. Stabilization of Export Prices Every country needs to gauge its developmental plan according to the growth of its export earnings. The gains from trade, as far as they involve the less developed J,Ragnar Nurkse, "Patterns of Trade and. Develop ment," in Gerald M. Meier's Leading Issues in Development Economics (Oxford University Press, 1964), p. 358. Also, Meier’s International Trade and Development (Harper, 1963), pp. 151-191. 217 countries, are not to be viewed in a static context. If we were to estimate the contribution of inter national trade to economic development, especially of the underdeveloped countries, solely by the static gains from trade in any given year on the usual assumption of given production capabilities . . . we would indeed grossly underrate the importance of t r a d e .35 The gains from trade must be viewed, in a dynamic context, for international trade is a process in which less developed, countries expect to find a mechanism of development. First, trade provides material means (capital goods, machinery and raw and. semi-finished mate rials) indispensable for economic development. Secondly, even more important, trade is the means and vehicle for the dissemination of technological knowledge, the transmission of ideas, for the impor tation of know-how, skills, managerial talents and entrepreneurship. Thirdly, trade is also the vehi cle for the international movement of capital espe cially from the developed to the underdeveloped, countries. Fourthly, free international trade is the best antimonopoly policy and. the best guarantee for the maintenance of a healthy degree of free competition.36 It has been suggested, that the national income of 33Gottfried. Haberler, "Dynamic Benefits of Trade," in G. M. Meier's Leading Issues . . ., p. 355. or Haberler, op. cit♦, p. 355; also refer to A. K. Cairncross, "Contributions of Trade to Development,” in Meier's, op. cit. , pp. 363-364. 218 a country which is an exporter of primary commodities is limited, by its inability to finance the necessary imports rather than by manpower or productivity. Investment in such a country is limited by the inability to import capi tal goods rather than by the rate of saving, and consump tion by the capacity to import consumer goods than by the level of national income. As crucial as international trade is to less de veloped countries, it has been demonstrated that the mar ket forces have continuously worked against them. The slogan ’’trade, not aid.” has been coined by the spokesmen of these countries in response to this state of affairs. The case of ’’trade, not aid” rests mainly on four pillars. First, it is argued that exports of under developed. countries are excessively concentrated, in one or a few commodities and that commercial poli cies of advanced, countries should, be designed to help underdeveloped countries diversify their ex ports. Second, it is contended that there is a long- run tendency for the terms of trade to turn against producers of raw materials and foodstuffs, a ten dency which in effect diminishes the resources available for development of underdeveloped, coun tries. Third, it is pointed out that markets for major exports of underdeveloped, countries are ex tremely unstable and that development programs are 37Boris C. Swerling, "Special Problems of Primary- Exporting Countries,” in Meier's, op. cit., p. 387. 219 continuously jeopardized by the instability and uncertainty of foreign exchange earnings. Fourth, it is contended that long-run trends in patterns of consumption lead to a deteriorating balance of trade for underdeveloped countries.38 One of these ’’ pillars'* of the case of "trade, not aid.,” is of particular importance and urgency. This is the instability of export prices. Development plans cannot be based simply on the expectation that exports will rise to a certain level. They may well rise in terms of quantities, but there is no guarantee that the total value of exports will increase. And. if it does not increase, some development programs may, have to be scrapped, or at least postponed. Recently, international conferences have been arranged to discuss this problem and. attempts have been made to call for action on the part of the developed, countries. Unless some sort of long-run policies of price stabilization are brought to bear, there is no assurance that developmental planning can be fully successful. This is truly an international problem. No one small country can by itself hope to wield, sufficient bar- OQ -^Benjamin Higgins, United. Nations and. U. 5. Foreign Economic Policy (M*I.T., 1962), p. 34. 220 gaining power to bring about changes in its favor, The possible solutions through bilateral purchase agreements, establishment of buffer stocks and. quota arrangements all involve international cooperation.^ Internally, each country must seek to bring into effect policies which aim at minimizing the adverse ef fects of price declines in the international market. In addition to the promotion of exports of primary goods, policies of import substitution and diversification of exports may be adopted, in order to "economize1 1 or earn additional foreign exchange.^0 We cannot examine these matters in depth here. All we wish to stress is that, without some degree of stabili- « zation of export earnings, investment programs may not be fully realized, nor even rationally selected. Coordination of International Aid, with National Planning Economic assistance to less developed countries on ^Henry C. Wallich, ’'Techniques of Stabilization,” in Meier's, op. cit., pp. 393-399; also H. W. Singer, International Development: Growth and. Change (McGraw-Hill, 1964), pp. 173-182. 40 Merer, op. crt., p. 376. 221 the part of the developed countries is so commonplace to day that it is becoming an institution in its own right. We refer here only to public loans provided, at particularly favorable terms and to outright gifts of different types. Foreign aid. has grown from about $2 billion a year in the mid-fifties to about $5-1/2 billion in 1964, growing at a rate of about 15 per cent a year. It amounts now to about 20 per cent of the total export earnings of the less developed, countries. And. it is equivalent to only about .3 per cent of the national incomes of the developed coun tries, which means that there is a great potential for growth yet.'^ The remarkable feature of the growth of inter national aid is its steadiness, characterized by none of the major setbacks which affect export earnings. As a matter of fact, in the last five or six years the flow of resources to the underdeveloped, countries by the medium of public aid. has been a more dependable element in the flow of foreign exchange and resources to them than export earnings, service payments, flow of private capital, or any other balance-of-payments item.42 41 . Singer, op. cit. , p ., 32. 42 . Ibid.. 222 When we consider individual countries, however, the situation may be somewhat different. What is true of all countries considered as a group may not be true for indi vidual countries. First of all, it is not at all certain- that there has been an equitable distribution of aid among the recip ient countries. The distribution of public aid among the various underdeveloped countries is extremely uneven, not to say haphazard. It seems to reflect past history, historical accident, and practical bargaining strength rather than any recognizable economic principle. No wonder then, that in spite of its quite impressive aggregate, the total effect of public aid is widely felt to be- disappointingly difficult to define.43 Moreover, even with those countries which have received a greater share of international aid, its growth may not always be steady. Coordination is called, for on at least two levels.^ First, if economic aid is to be of maximum benefit, it should be more than an erratic gesture by donor countries. ^ Ibid.. , p. 35. Science and Planning, op. cit. , pp. 45-47. 223 Insofar as capital goods imported from abroad are needed for economic development, a rational program ming must be able to count on their availability at a planned time and not when the foreign exchange happens to be at hand.^5 Thus, it is necessary for commitments to be made ahead, of time so that they are included in the development outlays of the country concerned. There will most likely be little difficulty once contractual agreements have been entered. There has recently beerj a controversy over whether there should be a bilateral or multilateral system of channelling international a i d . . 4 ^ Those which espouse the latter are likely to support their view by the need for an equitable distribution and coordination of aid. On another level, the multiplicity of the sources of aid and the diversity of their character necessitates that systematic accounting and channelling to meet speci fied development objectives be assured by some high office in the planning machinery. Most likely, the channelling 45 Gunnar Myrdal, An International Economy (Harper, 1956), p. 242; also UN, Measures for the Economic Develop ment of Underdeveloped. Countries (E/1986,ST/ECA/10,1951), p. 74. 46 Higgins, op. cit., pp. 105-175. 224' of aid through one or a few international organizations could, minimize the necessity for the preoccupation of each country with such a coordination. It could, not eliminate it, however. International Coordination of Development Coordination of development must be made with both developed and. less developed countries. Developed, countries are also developing countries. It would be a blunder to ignore the new horizons continu ously being explored through advances in scientific know how by the developed countries. One of the factors prob ably contributing to the deterioration of the terms of trade is the fact that the development process in indus trialized. countries consists in great measure of the introduction of new technology resulting in decreasing input per unit of output of raw materials. Thus, long-term planning in particular must focus on technological changes as well as patterns and. trends of world, demand not just for raw materials, but also for industrial goods.47 Of more immediate importance, however, is the co- \ 47 Science and Planning, op. cit. , Chapter 3. 225 operation between less developed countries themselves, particularly those which lie adjacent to each other or which share common problems of development. Trade and transport have been developed among the advanced countries, between them and individual underdeveloped countries, but not among those coun tries themselves. Governments and businesses in underdeveloped countries are conditioned and trained, to negotiate and cooperate with their opposite part ners in advanced, countries but not with governments and businesses in other underdeveloped countries.48 It is proposed, that economic ties in the form of free trade agreements will result in the following: (a) Stimulating the establishment and. expansion of manufacturing industries on a more rational . basis, (b) increasing the gains from trade, and (c) providing benefits from intensified, competi tion .49 With regard, to the first point, it is argued as follows: To reach an efficient scale of output, a modern manufacturing plant may have to produce a larger output than the low level of home demand in a sin gle underdeveloped, country can absorb. By pooling markets through the removal of internal trade bar riers, a free-trade union might thus provide a sufficiently wide export market to make economies of scale realizable. Within a union, secondary 48 Myrdal, op. cit., p. 261. 49 Meier, op. cit. , p. 409. 226 industry can become more efficient as specializa tion occurs in the member country that acquires a comparative advantage. At the same time, the other constituent countries may now replace the imported, manufactures from outside the union and thereby be able to spend, a higher proportion of their foreign exchange on outside imports that are essential but cannot be produced efficiently within the union. A more rational pattern of production and trade within the region may therefore be an important result in integration,^ We are warned, however, that these benefits can be attained only if it is actually possible to organize a strong and. cohesive union. More often than not less developed countries are preoccupied in nation-building rather than vigorously seeking such economic union among themselves. On the other hand, the expectation of the realization of such ideas is not without some foundation. In this regard, we cannot pass without mentioning the role of the United Nations regional organizations, including the Economic Commissions for Asia and the Far East, for Latin America and. for Africa. These organiza- 5QIbid. ^Refer for instance to: UN, ECA, ’’ Background. Paper on the Establishment of an African Common Market,” (E/CN.14 STC/20,1963); also Toward a Dynamic Development Policy for Latin America (1963), pp. 89-101, Jan Tinbergen, Shaping the World Economy (Twentieth Century'Fund, 1962). 227 tions are in a strategic position to make considered, judgments as to the benefits of close economic ties between the less developed countries, their interest generally being in the overall development of the areas for which they are responsible. These agencies have also established institutes for developmental planning in all three regions. The insti tutes offer courses in planning to government officials from member countries for short periods of time. There is, therefore, some scope for coordination of develop mental planning, not only through close contacts between planners, but also through the inculcation of a broader outlook, and an approach to developmental planning which takes more full account of the advantages to be gained from integration. We are tempted to quote the following enumeration of these advantages at the risk of being partly repetitious: In the first place, for many smaller countries, existing markets are simply too small. . . . Secondly, many essential development projects may be practicable only if carried out regionally. . . . Thirdly, if the export promotion and import substi tution plans of the countries in a given region are not coordinated, with each other, they may be in consistent as to produce worse results than would, the total absence of a plan. Fourthly, the promo- 228 tion of interregional trade may help developing countries to overcome the balance-of-payment diffi culties inseparable from rapid growth. Fifthly, some of the necessary services and institutions will be uneconomic if established on a purely national basis. . . .^2 The last point deserves an additional comment, par ticularly with regard to collaboration in research. We have emphasized elsewhere that less developed countries must use existing technology not as an end in itself, but as something to build, upon. Through cooperation in re search, these countries can reduce the cost to any of them while at the same time obtaining the total benefit resulting from it. In the long run, such close associa tion is bound to result in a more rational exploitation of resources and coordinated development. Science m i d . Planning, op. cit. , p. 41. CHAPTER VI SUMMARY AND CONCLUSIONS The broad dimensions of comprehensive developmental planning have been explored in terms of their outstanding features, issues and problems. In the first part of this chapter, the essential elements elaborated upon within each dimension will be summarized. In the second part, some concluding observations will be made both in prospect and retrospect. SUMMARY The purpose of this study has been to present an integrated conception and. methodology of comprehensive developmental planning conceived as a multidimensional process. The central element which characterizes this conception is that it derives from the very nature of the development process and the concept, practice, and require ments of developmental planning. The following is a brief summary of the main facets of each dimension elaborated in the four preceding chap- 229 230 ters. Chapter II 1. In this chapter, it was established that devel opment is a complex, dynamic and. long-term process. It is not possible, therefore, to supply a simple formula of development. If any formula is to be proposed, it is that of building an internal mechanism for technological change, necessitating both rapid, capital formation and the altera tion of traditional socioeconomic structure. Thus, reforms of an extraeconomic nature constitute a sine qua non; in developmental planning. 2. A basic and. most discussed issue is the problem of coordination of public and. private economic decision making in a mixed economy. It is common knowledge that private enterprises often draw out their own plans. The government may bring about closer coordination by encour aging their participation in national planning as well, In addition, it is generally expected that governments have at their disposal instruments of policy which enable them to channel private economic activity to desired areas. 3. However, it is often the case that there exist 231 a number of centers of economic power within each country. * The success of developmental planning depends to a great extent on the degree to which such centers of power are made to cooperate and to support the planning effort. It takes the conviction of leadership and. political skill to bring about concerted, backing of developmental planning on the part of the loci of economic power. The suggestion of the need, for political persuasion should, not, however, lead, to the misconception that planning is something like proposing. * 4. The "will to economize" is often absent in the sociopsychological disposition of traditional societies. A new motivational system may have to be developed, to over come traditional attitudes through social reform as well as through the introduction of new institutions and educa tion. 5. The question of centralization versus decen tralization is an important facet of the dimension of institutional processes. Tradition, expertise of public administration and .the constitutional distribution of polit ical power, have a great deal to do with how this question is to be resolved.. It is possible, however, for an optimal 232 division of the function of planning to be made by the careful study of the problems of gathering and. using infor mation, communication and incentives. 6. Bureaucracy as a social process is implicit in developmental planning in mixed economies. The price sys tem as a social process of coordination is often not effec tive because the existing motivational system may not be strongly market oriented and because market institutions are yet emerging. 7. An important obstacle to development is often the maldistribution of wealth in the underdeveloped, coun tries . There is a tendency to justify redistribution in terms of social justice. It is generally found, also that there are economic justifications for redistribution of income and. wealth in these countries. Chapter III 1. The basic assumption of the methodology of developmental planning and the tools of analysis is the availability of statistical information. Satisfactory statistical information is generally not available in underdeveloped countries. Developmental planning has to 233 proceed, however, even as the system for the collection and consolidation of statistics is being developed. 2. The method of developmental planning generally employed is the one referred, to as the method of successive approximations. This method, consists of planning on the aggregate, sector, and. project levels. 3. The important outcome of aggregate-level plan ning is the determination of the general pace of develop ment of the economy, the estimation of investment require ments, and. the assessment of alternative ways in which they are to be met. 4. Sector-level planning makes it possible to determine the structure of demand, and production on the basis of which a preliminary distribution of investment may be made. 5. Project-level planning consists of evaluating specific projects in the various sectors in order to ensure that they contribute fully to national goals. 6. The techniques of analysis employed on each level make it possible to derive consistent targets. The 234 essence of the method of successive approximations is, how ever, not internal consistency alone on each level, but consistency of targets and means on all levels. The method is iterative, consisting of constant adjustments and cor rections on all levels until the inconsistencies are re moved. In addition, the feasibility of the targets may be ascertained, by an analysis of strategic factors including financial resources. Chapter IV 1. The basic feature of planning of any kind is rationality in dealing with the future. 2. In developmental planning, rationality is pos sible because the selection of goals and the means by which they are to be met are not made iji vacuo. Past and present conditions provide a foundation for future aims. More importantly, economic theory, and the understanding of the process of growth make it possible to predict future devel opments based on given hypotheses and assumptions. Fur thermore, the existence of a socioeconomic philosophy means that planners are provided with a general frame of refer ence and a sense of direction. 235 3. The temporal aspect presents two fundamental problems: phasing and intertemporal coordination. 4. The problem of phasing refers to the temporal breakdown of the planning process into meaningful time horizons, such as the long-term, the medium-term, and the short-term. Phasing makes it possible for objectives and means, and resources and uses to be gauged and evaluated against a given time horizon. 5. Intertemporal coordination aims at ensuring the consistency and continuity of the planning process. This is a fundamental problem, because phasing is only a way of thinking for development planners. In actuality, development is a dynamic and continuous process. Chapter V 1. The spatial dimension includes both physical considerations and special problems the scope of which may be subnational and international. 2. The first general issue in the spatial dimension is regional planning. The necessity for regional planning is justified, on the basis of the desirability to develop the resources of all_the regions of a country, the fact 236 that urban and rural, industrial and agricultural areas present special planning problems, and the need to influ ence the dynamic forces of development which may often operate to impoverish certain areas. 3. Through a process of simple reasoning, the problem of regional planning is reduced to the planning.of the metropolitan region and the frontier region. This is not the same thing as the dichotomy of "center and periph ery,” though it is based on it. The metropolitan region is not limited to its core, but extends to the vast areas of its axes. The frontier region may center around, the development and use of particular natural resources and. may, by design, provide the momentum for the development of adjacent backward regions. 4. Regional planning requires the rational alloca tion of resources between the regions of a country. A method for the allocation of investment, such as the one proposed, by Tinbergen is needed. Supplemented by analytic techniques, and. any considerations relevant to particular situations, such a method, can be adopted, and applied. 5. The second special problem discussed, within the 237 spatial dimension is community development. Community development programs have grown out of the belief that the development of small rural communities necessitates special efforts and particular approaches. 6. The essential feature of community development is the encouragement of self-help on the part of the people of the ..small community in cooperation with government representatives. * 7. This segment of the population of underdeveloped countries constitutes the majority. It is expected, there fore, that community development will result in increases in production, capital formation as well as the development of the outlook of people and. institutions. 8. International economic relations also have a direct bearing on national developmental planning. The discussion in this regard is limited to the problem of stabilization of trade, coordination of international assistance and international coordination of development. 9. The problem of stabilization of trade is urgent, because the wide fluctuations of export earnings make it difficult to draw out a rational development plan. 238 10, Since international aid is today an accepted, means for accelerating development in the less developed countries, the need for rational distribution and schedul ing of its flow according to the requirements of develop ment plans is becoming more apparent. 11. International coordination of development between the less developed countries is desirable and can lead to the rational development of world resources while at the same time reducing the obstacles of development within each country. Development, however, is not a phe nomenon limited to these countries. It is essential that the underdeveloped countries demonstrate full interest and. cooperation in the pursuit of advanced scientific knowledge along with the developed, countries of the world. CONCLUSIONS Developmental planning conceived, in its various dimensions can hardly be regarded as being less than com prehensive. It is neither a compendium of policy pro nouncements, nor a few mathematical models, nor a list of projects alone which makes a development plan. To conceive of developmental planning as the sole function of an agency 239 of the government under the fashionable name of "planning board" is to lose sight of its pervasive character. Such conceptions are somewhat analogous to the ima gination of those three blind men of a well-known story, each one of whom describes one vital organ of the same animal, but not the elephant. They are, indeed, no more acceptable than the view which equates planning with a hierarchy. There is a moment of truth which puts to test such partial conceptions of developmental planning. This moment of truth is reached when an attempt is made to put into effect each reform, each investment, or each tech nique, for then appear the conditions, implications and ramifications, which must be faced, articulated, and recon ciled. Because developmental planning is directly concerned with matter-of-fact problems, it demands great skill and the creative application of economic knowledge to situa tions strongly conditioned by extraeconomic circumstances. Developmental planning offers a great challenge for econ omists to engage in a truly pioneering task. The basic question is the extent to which planners can play a more positive role in shaping the economic life of a country. 240 The greatest single problem of coordination of deci sions and activities results primarily from the existence of conditions about which planners have little to say. Developing countries are developing in many ways. It should be possible therefore to develop gradually proced ures, methods, and techniques, and more importantly to develop them in relation to and based, upon the broader institutional framework. Intertemporal coordination could be done more effectively if it were possible for planners to exert sufficient influence in ensuring that commitments and performance should show divergence only because of contingencies which are least submissive to control. Since developmental planning is expected to bring about great changes in the economic landscape of a country, there is a strong need, to build the framework and the bases for a reconciliation of national, subnational, and international interests and. conditions. However, in all these cases, the untold, number of relationships and. circumstances makes the task a herculean one. Still, there is a thought which has persisted, all through this investigation which should, be reason for con solation. Developmental planning is a discipline being shaped largely out of experience, out of the laboratory of 241 experience, as it were. This indicates that developmental planning as a discipline can continue to exist only if it can sustain its relevance in the face of almost turbulent change. Indeed if, for the sake of argument, it is con ceived. that as development aims are increasingly attained, the urgency with which they are regarded is thereby re duced, then developmental planning has relevance only to a certain epoch of the economic history of a country during which growth is reflected in rapid physical alterations and expansion of output. * The thought has persisted throughout that this is not necessarily so, if only we grasp the essential fea tures of developmental planning. Even as the physical realities change, there is still scope for developmental planning to take more firm institutional basis. No matter what the stage of development of a coun try, social and institutional processes remain to be dyna mic and changing. The dimension of time increasingly reaches and influences the very minute aspects of living. With population growth, industrialization, and the end of isolated, existence the spatial dimension will assume in creasing significance. 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"Organization, Planning and Programming for Economic Devel opment," Report of the Conference Secretary-General, E/CONF.39/GR.55)(H). "Planning and Programming: Aggregate, Sectoral, Project, and the Relationships and Priorities Among Sectors," Report of the Conference Secretary-General, (E/CONF. 39/GR.86)(H). "Statistics," Report of the Conference Secretary-General, (E/CuNF.39/GR.41)(H). Sen, S. R. (Dr.). "Planning Procedure in India," (E/CONF. 39/H/19). Tinbergen, J. (Dr.). "Simple Devices for Development Plan ning," (E/CONF.39/H/1). Tun, U Thet. "Organization of Planning Machinery: Lessons from Burmese Experience," (E/CONF.39/H/88). II• Mimeographed Documents of the Economic Commission for Africa, Addis Ababa4 Abde1-Rahman, I. H. "Comprehensive Economic Planning in the U.A.R.," (E/CN.14/CP/ll), 1962 "Background Paper on the Establishment of an African Common Market," (E/CN.14/STC/20), 1963. 249 Caillard, J. M. "Comprehensive Economic Planning in Upper Volta," (E/CN.14/CP/4), 1962. Chaigneau, Y, "Comprehensive Economic Plan Senegal," (E/CN.14/CP/8),1962. "Comprehensive Economic Planning in Africa," Secretariat Paper, (E/CN.14/CP/12)» 1962. "Economic Planning in Africa," (E/CN.14/ESD/4), 1961. Hansen, L. M. "Comprehensive Economic Planning in Nigeria," (E/CN.14/CP/7), 1962. Mensah, J. H. "Comprehensive Economic Planning in Ghana," (E/CN.14/CP/2)f 1962. "Notes on a Method of Comprehensive Planning in Tropical Africa," Secretariat Memorandum, (E/CN.14/ESD/13). Olivier, "R. "Planning and Statistical Techniques of Pro jection," (E/CN.14/ESD/11), 1961. "Physical Planning Considerations in Africa," Secretariat Note, (E/CN.14/H0UPA/8), 1963. "Population Projections for Planning Purposes," Views ex pressed by R. Olivier, (E/CN.14/ASPP/L.5), (E/CN.9/ C0NF.3/L.5)„ 1962. "Problems Concerning Development Programming and Policy in African Countries," Research Division, UN, ECA, (E/CN.14/ESD/01)r 1962. "Project Formulation and Evaluation in Relation to Develop ment Programming1 ," Secretariat Note, (E/CN. 14/ESD/16) . "Relations Between Planning Bodies and Statistics," (E/CN.14/CAS.3/14), 1963. "Report of the Meeting of Expert Group on Comprehensive Development Planning," (E/CN.14/182), 1963. "Report of the Meeting of the Expert Group on Comprehensive Development Planning," (E/CN.14/182/Add.1), 1963. 250 ’ ’ Report of the Meeting of Experts on the Integration of Social Development Plans with Overall Development Planning,” (E/CN. 14/240), 1963. ’ ’ Social Aspects of African Development Planning: Patterns and Trends,” (E/CN.14/SDP/17/7), 1963. Sow, Mohamed. ’’ Note on Planning in the Republic of Guinea and Some Ideas on Comprehensive Planning,” (E/CN. 14/ CP/3), 1963. Sylla, Seydou Djim. ’’ Comprehensive Economic Planning in Mali,” (E/CN.14/CP/5),1963. Tickner, F. J. ’’ Administration and Development Policy,” (E/CN.14/UAP/9), 1962. ’ ’ Use of the Revised List of Basic Statistics for Program ming Statistical Development,” (E/CN.14/CAS.3/9), 1963. Ill. Publications A Manual for Economic and Functional Classification of Government Transactions, Department of Economic and Social Affairs, 1958. (ST/TAA/M/12) (ST/ECA/49) Analyses and Projections of Economic Development, I. An Introduction to the Technique of Programming, Depart ment of Economic and Social Affairs, 1955. (E/CN.12/ 363) Budget Management, (Report of the Workshop on Problems of Budget Reclassification in the ECAFE Region), 1955. (ST/TAA/SER .C/25 ) Community Development and Economic Development, Part I. A Study of the Contribution of Rural Community Devel opment Programmes to National Economic Development in Asia and the Far East, Bangkok, 1960. (E/CN.11/540) Decentralization for National and Local Development, United Nations Technical Assistance Programme, 1962. 251 Establishment of Industrial Estates in Under-Developed Countries, Department of Economic and Social Affairs, 1961. (ST/ECA/66) Formulating Industrial Development Programmes, Development Programming Techniques Series No. 2, (Report by a Group of Experts), UN Economic Commission for Asia and the Far East, Bangkok, 1961. (E/CN.11/567) Handbook of Statistical Organization, Studies in Methods, Series F, No. 6, Statistical Office of the United Nations, New York, 1954. (ST/STAT/SER.F/6) Industrialization and Productivity, Bulletin 4, Department of Economic and Social Affairs, 1961. Ind.ustrialization and Productivity, Bulletin 5, Department of Economic and Social Affairs, 1962. Land Reform, Defects in Agrarian Structure as Obstacles to Economic Development, Department of Economic Affairs, 1951. (E/2003/Rev.1) (ST/ECA/11) Lectures on Agricultural Planning Delivered, at the FAQ Near East Regional Training Center on Agricultural Develop ment Planning, (Agricultural Planning Studies, No. 3), Food and Agriculture Organization of the United Na tions, Rome, 1963. Manual on Economic Development Projects, 1958. (E/CN.12/ 426/Add.1/Rev.1) (TAA/Lat/12/Rev.1) Methods of National Income Estimation, Studies in Methods, Series F, No. 8, Statistical Office of the United Nations, New York, 1955. Measures for the Economic Development of Under-Developed Countries, (Report by a Group of Experts appointed, by the Secretary-General of the United Nations), Depart ment of Economic Affairs, 1951. Problems of Long-Term Economic Projections, Development Programming Techniques Series, No. 3, (Report of the Third. Group of Experts on Programming Techniques Economic Commission for Asia and. the Far East), 1963. 252 Programming Techniques for Economic Development, Development Programming Techniques Series, No. 1, (Report by a Group (First) of Experts on Programming Techniques), UN Economic Commission for Asia and the Far East, Bangkok, 1960. (E/CN.11/535) Principles for a Vital Statistics System, Statistical Papers, Series M, No. 19, Statistical Office of the United Nations, 1964. (St/STAT/SER.M/19) Planning for Economic Development, (Report of the Secretary- General transmitting the study of a Group of Experts), Department of Economic and Social Affairs, 1963. (A5533/Rev.1) Planning for Economic Development, Vol.II. Studies of National Planning Experience, Part 1, Private Enter prises and Mixed Economies, 1965. (A/5533/Rev. 1/Add.. 1) Report of the Workshop on Problems of Budget Reclassifica tion and Management in Africa, Economic Commission for Africa, Addis Ababa, Ethiopia, 1961. Science and Technology for Development, Science and Plan ning, Vol. VII, 1963. (E/CONF.39/1, Vol. VII). Statistical Series for the Use of Less Developed Countries in Programmes of Economic and. Social Development, Statistical Papers, Series M, No. 31, Statistical Office of the United Nations, 1959. (ST/STAT/SER.M/31) Towards a Dynamic Development Policy for Latin America, New York, 1963. (E/CN.12/680/Rev.1) C. GOVERNMENT PUBLICATIONS, PERIODICALS, AND PUBLICATIONS OF LEARNED SOCIETIES Garnsey, M. E. MThe Dimensions of Regional Science,” Re gional Science Association, Papers and Proceedings, Vol. II, (1956). Government of India, Planning Commission. First Five-Year Plan. New Delhi, 1953. 253 Friedmann, John. "The Spatial Structure of Economic Devel opment in the Tennessee Valley,” The University of Chicago, Program of Education and Research in Planning Research Paper, No. 1, March, 1955. Isard., Walter. "Regional Science, the Concept of Region and Regional Structure," Regional Science Association, Papers and Proceedings, Vol. II, (1956). Solow, Robert M. "Technical Change and. the Aggregate Production Function," Review of Economics and Statis tics , Vol. XXXIX, 8-57. Wagle, S. S. "Locational Industrial Matrix in Economic Planning,” Indian Economic Journal, Vol. VI, (July 1958 ) . D. UNPUBLISHED MANUSCRIPT Elliott, John E. Capitalism, Marxism, Socialism: Compara tive Theories of Economic System, Preliminary Copy, Part I (1964).
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Creator
Kiros, Fassil Gabre
(author)
Core Title
A Multidimensional Interpretation Of Comprehensive Developmental Planning
Degree
Doctor of Philosophy
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Economics
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University of Southern California
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English
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Elliott, John E. (
committee chair
), Anderson, William H. (
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), Guild, Lawrence R. (
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