THE
ECONOMIC
WEEKLY
SPECIAL NUMBER JULY 1959
Perspective
Planning
A Rudra
Longterm planning and perspective planning are words by now familiar in India.
That does not
mean that any such plan has been made for India; (if something like that has indeed been made, it has
at least not been made public).
Lest there be any misunderstanding, let me make clear what I mean by a "Perspective Plan'. It
is a plan for a fairly long period, say 15 or 20 years, less detailed and less concrete than plans actually implemented schemewise ( w h i c h are usually of duration between 3 and 7 years) and less abstract than mere
statistical projections based on more or less simple econometric models.
concrete
It is neither a fully
short term plans can
worked out
be fitted.
T H E purpose o f a perspective p l a n
is to set a 'perspective' f o r the
short t e r m plans. The short t e r m
plans, so w o r k e d out,
w o u l d be
such as to lead to c e r t a i n l o n g t e r m
results. The short t e r m plans in
themselves m a y f a i l t o satisfy any
conditions of o p t i m a l i t y ; the whole
series of t h e m w o u l d , however,
satisfy some such conditions applicable to a wider horizon of t i m e .
It is clear t h a t such a short t e r m
p l a n should share some of the q u a l i ties of b o t h a concrete short t e r m
plan as w e l l as t h a t of a theoretical
long t e r m projection. The p r i n c i p a l
feature of a concrete
short t e r m
p l a n is w h a t m a y be
t e r m e d its
horizontal
harmony. T h a t is to
say, the schemes a n d targets f o r
the different sectors are such t h a t
they do not cause a n y bottlenecks
f o r each other. On the other h a n d
the p r i n c i p a l feature of an abstract
theoretical projection i s w h a t m a y
be called its v e r t i c a l h a r m o n y ; t h a t
is to say, h a r m o n y as between the
projections f o r the different points
of time. It is obvious t h a t a perspective
plan must e x h i b i t b o t h
h o r i z o n t a l as w e l l as v e r t i c a l h a r mony.
B e i n g not Just a theoretical projection,
a perspective p l a n m u s t
consider a f a i r l y large number of
sectors. A t a n y g i v e n t i m e there
must be h a r m o n y between the a c t i vities in the different
sectors, so
t h a t the p l a n m u s t e x h i b i t h o r i z o n t a l h a r m o n y at each time point,
or at least for each s m a l l t i m e i n t e r v a l i n t o w h i c h the p l a n period
can be b r o k e n up. At
the same
t i m e there should be v e r t i c a l harm o n y . Such h a r m o n y should exist
not o n l y f o r a l l the sectors t a k e n
together b u t f o r each sector i n d i v i d u a l l y . T h a t is to say, the devel o p m e n t w i t h i n each sector should
be such as to satisfy some conditions of long term optimality.
plan
nor just a theoretical exercise, but a framework within
Experts' Plans
I n p l a n n i n g l i t e r a t u r e , one comes
across t w o types of l o n g t e r m plans
neither of w h i c h satisfies the specifications of a perspective p l a n as
g i v e n above. There are l o n g t e r m
plans w h i c h satisfy the condition of
v e r t i c a l balance b u t t o t a l l y lack
a n y h o r i z o n t a l dimension. Such
plans usually deal w i t h o n l y a single
sector at a time a n d consequently
there cannot be a n y question of sect o r a l balance. These are plans prepared by technical
experts. The
first example t h a t comes to m i n d
is the electrification
plan of the
early Soviet planners w h i c h received such powerful b a c k i n g f r o m
Lenin.
I n I n d i a there have been
various such plans f o r the developm e n t of roads, education, h e a l t h
etc.
Whenever one t a l k s about a programme of eliminating malaria or
doing away w i t h illiteracy or maki n g f u l l use of w a t e r resources, one
i s t h i n k i n g i n terms o f l o n g t e r m
plans of t h i s type. The C o m m u n i t y
Development and N a t i o n a l E x t e n sion P r o g r a m m e of the Government
of I n d i a are also in a w a y l o n g
t e r m plans of t h i s type. The A t o mic E n e r g y Commission i n r e g a r d
to the development of a t o m i c power
or the Rubber B o a r d in r e g a r d to
replanting of
rubber p l a n t a t i o n s
obviously f o l l o w s i m i l a r plans. I f
a c o u n t r y w a n t s to develop its forei g n trade in a planned w a y , t h a t
has also, to some extent, to be a
l o n g t e r m plan o f this type.
The few examples t h a t have been
j u s t given leave no doubt about the
importance of such specialised l o n g
t e r m plans as d i s t i n c t f r o m general
plans, l o n g t e r m o r short t e r m .
Take elimination of malaria. If
such an objective Is to be realised,
it is necessary to have a clear cut
a n d well-planned p r o g r a m m e of act i o n spread over a number of years;
981
which
it is not possible to a r r i v e at such
a well-planned p r o g r a m m e f r o m a n y
general overall considerations reg a r d i n g income or employment or
a n y other macro-variables. E v e n
if m a l a r i a c o n t r o l be regarded as
a sector in a general frame w o r k ,
the p r o g r a m m e t h a t w o u l d result,
if the actions to be t a k e n in the
field were
determined entirely as
functions of some general o v e r a l l
variables, w o u l d consist of a series
of heterogeneous actions r a t h e r t h a n
a single homogeneous plan.
S i m i l a r l y , n o long t e r m p r o g r a m me of development of h e a l t h services or educational facilities or
atomic energy for peaceful use can
be w o r k e d out by mere planners or
economists w i t h o u t the help of experts w i t h t h o r o u g h knowledge a n d
experience in the respective fields.
It is really the job of educationists
a n d health service officials a n d atomic
scientists. B u t precisely because such plans l a y more emphasis
a n d more importance on technical
aspects r a t h e r t h a n economic ones,
are made in isolation f o r one sect o r at a t i m e and are the w o r k s of
specialists a n d not
economists or
planners, they cannot serve the purpose of perspective
plans, even if
one has a bunch of such l o n g t e r m
plans d r a w n up for a l l the sectors.
Such a bunch of l o n g t e r m plans
will totally
lack any
horizontal
h a r m o n y : the conditions of sectoral
interdependence w i l l n o t be respected, the f u n d a m e n t a l balances ( t h a t
between the demand and supply of
commodities, t h a t between savings
and investment, etc) w i l l not be observed. Also the techniques used in
the different sectors w i l l n o t and
cannot correspond to any n o t i o n of
o p t i m a l i t y f o r the economy as a
whole.
Econometrician's Plan
L e t us n o w
type o f l o n g
consider the other
term plan, namely
SPECIAL NUMBER JULY 1959
t h a t of the econometrician.
This
is on the
whole a m a t h e m a t i c a l
exercise. The
economy is considered i n a n abstract f o r m ; i t i s
treated as
composed of a finite
number of sectors; a large number
of
equations a n d relations
are
w r i t t e n d o w n connecting the levels
of output, investment, employment
in the different sectors in a given
year or a
number of
successive
years. The problem of investment
allocation, technological choice a n d
a l l other
problems of l o n g t e r m
p l a n n i n g is attempted to be solved
once for a l l w i t h i n the f r a m e - w o r k
of this model at one
stroke: a l l
t h a t is necessary is to solve the system of equations so as to satisfy
sonic o p t i m a l i t y condition or conditions. The problem really reduces
to one of linear or non-linear programming,
Several attempts have been made
in I n d i a at this type of l o n g t e r m
plan m a k i n g by both I n d i a n a n d
foreign econometricians. As a m a t ter of fact some of the most distinguished econometricians of the
w o r l d have t r i e d to assist I n d i a in
this m a t t e r . (Let us recall t h a t I n d i a n planners have h a d the benefit
of advice f r o m such masters in the
subject as J a n Tinbergen and R a g nar F r i s c h h However this p a r t i c u l a r
approach does not seem to have led
any where, p l a n n i n g in I n d i a has
been left p r a c t i c a l l y unaffected by
a l l these essays.
P a r t l y of course
it is accounted for by the unsatisf a c t o r y conditions
obtaining
in
I n d i a for p r a c t i c a l
application o f
this type of econometric models. The
models are usually very complicated and in order to use them, it is
necessary to use g i a n t c a l c u l a t i n g
machines not m a n y of w h i c h are
available in I n d i a .
Then, in orderto o b t a i n practical results f r o m
these models, it is necessary to feed
the c a l c u l a t i n g machines w i t h data
r e g a r d i n g a l l sorts of technological
coefficients, most of w h i c h are difficult to o b t a i n for I n d i a .
B u t apart f r o m these
practical
difficulties, there are serious weaknesses in the approach itself. It is
very m u c h to be doubted whether
a set of figures and a set of simple
m a t h e m a t i c a l relations can ever represent reality, whether of a p a r t i cular section or of the whole of an
economy.
They cannot possibly
take f u l l account of a l l the factors
t h a t have to be t a k e n i n t o consideration in the preparation of an
experts' plan f o r a p a r t i c u l a r sec-
THE ECONOMIC WEEKLY
tor.
T h e i r use cannot therefore
result in the same v e r t i c a l h a r m o n y
w i t h i n each sector as is assured by
the expert's plans; as a m a t t e r of
fact, it w o u l d be quite possible a n d
even l i k e l y
t h a t an
econometric
plan w h i c h w o u l d assure the o p t i m u m development of income or emp l o y m e n t or some such m a c r o - v a r i able over a period of time, w o u l d
do so at the cost of disharmonious
o r deformed g r o w t h w i t h i n i n d i v i dual sectors. This w o u l d mean t h a t
despite a l l the theoretical
charms
of the model, p r a c t i c a l
planning
w o u l d not be possible on its basis.
E v e n if it were possible to t a k e
account of a l l the relevant factors
connected w i t h each
sector in a
complex m a t h e m a t i c a l model, the
approach w o u l d r e m a i n open to
c r i t i c i s m on the g r o u n d of the met h o d used f o r a r r i v i n g at the o p t i m u m solution. The m e t h o d is t h a t
of m a x i m i s i n g a p a r t i c u l a r variable
or a 'preference function'. It is to
be seriously
doubted t h a t by the
m a x i m i s a t i o n of a simple mathematical
function of a number of
variables, one can o b t a i n a result
t h a t w o u l d correspond to the most
desirable of the possible courses of
action. The entire approach is designed to yield a result t h a t w o u l d
be objectively o p t i m u m . R u t this
search f o r an objective
optimum
itself is based on a misunderstanding.
No One Single Goal
If in p l a n n i n g one were to have
a single goal like the m a x i m i s a t i o n
of steel production in a given year
or t h a t of employment at the end
of ten years etc, it w o u l d be possible to have a so called preference
function that w o u l d faithfully translate the planners' preferences. One
w o u l d , however, be quite
m a d to
m a k e a l o n g t e r m plan w i t h the
single objective of m a x i m i s a t i o n of
a n y one variable however i m p o r t ant, at a p a r t i c u l a r point of t i m e
or over a g i v e n period of time. No
p a r t i c u l a r variable ( b e i t employm e n t or p r o d u c t i o n of steel or t o t a l
surplus in the economy), no p a r t i cular
t i m e point, no
particular
l e n g t h of period (be it five years,
ten years or fifteen years) can have
so m u c h importance as to be able
to determine in this m a n n e r the ent i r e l o n g t e r m plan f o r a n economy.
The planner cannot but h a v e a
large number of desirable ends in
v i e w ; he m a y w a n t to increase emp l o y m e n t as w e l l as income; develop steel production as w e l l as che-
982
m i c a l industries; educational f a c i l i ties as w e l l as h e a l t h facilities, a n d
so on. To choose any one of t h e m
for m a x i m i s a t i o n m i g h t result i n
g i v i n g to the
others a t r e a t m e n t
t h a t w o u l d not be acceptable to a n y
p r a c t i c a l planner. The econometrician does not of course choose j u s t
one variable out of the
possible
alternatives. H i s solution, a false
one, is to construct a f u n c t i o n of
a l l the variables i n v o l v e d (the socalled preference
function)
and
maximise i t . The idea is to so construct the f u n c t i o n t h a t i t gives t o
each v a r i a b l e j u s t the a m o u n t of
w e i g h t it carries in the planner's
m i n d in r e l a t i o n to the others. Thus
a preference f u n c t i o n m i g h t look as
follows: 5 times steel output plus
2.3 times number of schools plus
2.9 times number of N E S Blocks
plus . . . etc.
The econometrician
feels t r i u m phant for being able to get r o u n d
the problem of h a v i n g a m u l t i p l i c i t y of desired ends in this elegant
manner. A n e x a m i n a t i o n however
shows that, such a preference funct i o n cannot
possibly lead to any
objectively o p t i m u m solution; for subjective considerations enter i n t o the
v e r y construction of the preference
function itself. H o w in practice to
decide upon the weights to be given
t o the different variables? I t m a y
be desired t h a t steel production be
given more importance t h a n openi n g of new N E S B l o c k s ; but how
can one decide t h a t the importance
should be in the proportion of 5:2.9?
Such a decision
cannot b u t be a
purely subjective act. The whole
t h i n g therefore does not lead to a n y
more objective results t h a n one
w o u l d have, if one were to choose
f r o m a m o n g a few r i v a l courses of
action
in
a
purely
subjective
fashion: l o o k i n g a t t h e m f r o m different angles, m e n t a l l y
w e i g h i n g up
the pros a n d cons and m a k i n g a
decision in a more or less a r b i t r a r y
fashion.
A Unified Approach
The expert's l o n g t e r m p l a n fails
to provide a l o n g t e r m perspective
to the s h o r t t e r m planner because
it lacks the qualities of the econom e t r i c i a n ' s l o n g t e r m plan, n a m e l y
h o r i z o n t a l balance a n d o p t i m a l i t y
f r o m the economic point of view.
The econometrician's l o n g t e r m p l a n
on the other h a n d fails to deliver
the goods f o r l a c k i n g precisely the
qualities t h a t are the s t r o n g points
of the experts' plans, n a m e l y v e r t i cal h a r m o n y i n sectoral p r o g r a m -
THE ECONOMIC WEEKLY
mes f r o m the
technical p o i n t of
view. I t
w o u l d appear
that we
w o u l d have w h a t we are l o o k i n g
for if a m a r r i a g e could be effected
between the t w o
approaches. We
shall n o w proceed t o investigate i f
a n d h o w such a m a r r i a g e could be
effected.
L e t us assume the eco-
SPECIAL NUMBER JULY 1959
a p l a n w i l l consist of a large n u m ber o f separate p r o g r a m m e s w i t h
a
certain
a m o u n t of technical
interdependence between t h e m . A l s o ,
each p r o g r a m m e is capable of d i v i sion i n t o a n u m b r of stages. The
t i m e element need enter the probl e m solely i n the c a p a c i t y o f o r d i n a l
need be done is to observe the s i m ple rule t h a t a later stage of a part i c u l a r p r o g r a m m e of a p a r t i c u l a r
sector should not come before an
earlier stage of the same p r o g r a m me. T h a t is to say, a unified l o n g
t e r m plan thus b u i l t up w o u l d look
something l i k e t h i s :
Aa(3),
Da(3),
nomy to consist of ' n ' sectors in
a l l . The sectors m a y correspond to
the different -heads under w h i c h the
plan is discussed in I n d i a (e g, I r r i g a t i o n , Power, I n d u s t r y , H e a l t h ,
Education, Railways, Agriculture
e t c } . T h a t is to say the sectors
are such as to correspond to the
different executive departments of
government rather than
different
economically significant divisions of
the society. We shall imagine t h a t a
l o n g t e r m p l a n is d r a w n up for each
such sector by
experts.
Let the
plan for the sector ' A ' be designated
by 'A' = [A(t1) A ( t 2 ) A . . . A ( t n ) ]
where
t1,
t2
t n are successive t i m e i n t e r v a l s s t r e t c h i n g
over the p l a n period. A(t 1 )stands
not f o r just one or more t h a n one
figure but a complex of concrete
targets and p r o g r a m m e s of action
to be achieved d u r i n g the i n t e r v a l i
S i m i l a r l y , let ( B ) - [ B ( t 1 ) , B(t 2 )
B ( t n ) I be the plan for
.sector B. As we have mentioned
before there are t w o reasons w h y
one cannot
merely put
together
l o n g t e r m plans l i k e ( A ) , ( B ) , ( C )
etc to produce a perspective plan.
F i r s t l y , as they have been made
independently, there is not to be expected a n y co-ordination
between
the
programmes A(t), B ( t ) , C(t)
etc w h i c h are
supposed a l l to be
i m p l e m e n t e d d u r i n g the same period
't'.
Secondly,
the
technological
choices
i n v o l v e d in the
expert's
plans ( A ) , ( B ) , (C) etc m a y be the
best choices possible f r o m the experts' point of v i e w but need not
necessarily be so f r o m the overall
economic point of view.
Intersector Balance
We s h a l l concentrate first of a l l
on the p r o b l e m of achieving h o r i z o n t a l h a r m o n y between the p a r a l lel l o n g t e r m plans. As to this there
seems t o b e a n easy w a y out. I t i s
a f t e r a l l n o t necessary t o b r i n g i n
the suffix ' t ' a t a l l ! A n expert's
l o n g t e r m p l a n can be d r a w n up
w i t h o u t fixing definitely the dates
by w h i c h the
different stages of
the p l a n are to be fulfilled.
Such
relations a m o n g the different stages
o f each o f the programmes. L e t
us g i v e an example.
Consider a
l o n g t e r m plan f o r r u r a l electrification. The p l a n can foe divided
i n t o a number of programmes rel a t i n g to the different regions to be
served. The p r o g r a m m e s need not
have any d a t a m a r k s at a l l . The
engineering details m a y be w o r k e d
out in an outline fashion f o r a l l of
t h e m w i t h o u t k n o w i n g w h e n each
region w i l l be
connected up a n d
over w h a t t i m e the w o r k s w i l l last.
E a c h r e g i o n a l p r o g r a m m e can however be divided w i t h advantage i n to a number of stages; thus the
first stage m a y be the p r o v i s i o n of
i n d u s t r i a l power alone; the second
stage t h a t of street
l i g h t i n g and
the t h i r d stage t h a t of
domestic
power. S i m i l a r l y ,
the l o n g t e r m
p l a n f o r the development of w a t e r
resources m a y be divided first i n t o
a number of p r o g r a m m e s each rel a t i n g to a p a r t i c u l a r r i v e r valley.
E a c h p r o g r a m m e can be a g a i n
divided up i n t o a number of stages
depending on engineering considerations. Thus, the plan for sector
A m a y be represented by a m a t r i x
as follows;—
when A a , A b , A C etc stand for the
different p r o g r a m m e s belonging to
the l o n g t e r m p l a n ( A ) a n d A a ( 1 ) ,
A a ( 2 ) , A b ( 1 ) , A b ( 2 ) etc for the
different stages of the programmes
A a , A b etc.
We s h a l l have s i m i l a r matrices for
each of the sectors, B, C, D etc.
The elements of the matrices are
the b r i c k s w i t h the help of w h i c h
a unified l o n g t e r m p l a n can now
be b u i l t up. The w o r k consists in
a r r a n g i n g the elements of the m a t rices in a t i m e schedule such t h a t
in the bunch so f o r m e d of dated
programmes, there w o u l d be b o t h
h o r i z o n t a l as well as v e r t i c a l balance. I n order t o assure v e r t i c a l
balance w i t h i n each sector, a l l t h a t
983
3
Ba(4)
Db(1),
Ea(1)
It is to be noted t h a t in any one
period more t h a n one stage of a
p r o g r a m m e m a y be Implemented, or
a p a r t i c u l a r p r o g r a m m e m i g h t not
figure at a l l . As to m a i n t a i n i n g
horizontal
h a r m o n y , the arrangements over t i m e of the l o n g t e r m
plans have to be such t h a t the different programmes or the different
stages of different programmes bel o n g i n g to different sectors t a k e n
up f o r i m p l e m e n t a t i o n d u r i n g the
same time i n t e r v a l satisfy a n u m ber of conditions. (Thus, at each
time point demand and supply must
be a p p r o x i m a t e l y equal, whether it
is for consumer goods or c a p i t a l
goods or r a w m a t e r i a l s ; investment
carried out in the period m u s t equal
savings
created
d u r i n g the same
etc). If we have to set d o w n here
a l l the conditions t h a t w o u l d have
to be satisfied if h o r i z o n t a l h a r m o n y
is to be
maintained, we could fill
the whole page w i t h symbols, coefficients and equations. T h a t is. however, not necessary. It need only be
stated here t h a t a l l the variables
e n t e r i n g into the balance equations
can be calculated on the basis of
the elements of the matrices ( A ) ,
( B ) , (C) etc corresponding to any
g i v e n time point a n d t h a t a solut i o n to the problem exists; t h a t is
to say it is not impossible to put
together at the same
t i m e point
elements f r o m the
matrices ( A ) ,
( B ) , (C) etc in such a w a y as to
satisfy a l l the balance conditions.
Technological Choice
The really difficult as w e l l as i n teresting problem is the one of technological choice. I n our approach
experts
are at the first instance
asked to m a k e dateless l o n g t e r m
plans. B u t they have to be guided
in the m a t t e r of preference to be
shown i n technological matters.
Otherwise different experts would
proceed a c c o r d i n g to different principles, w h i c h could h a r d l y be expected to be such as to c o n f o r m to
the c r i t e r i a the planner w o u l d l i k e
to have in the interest of the econ o m y t a k e n as a whole. The dis-
SPECIAL NUMBER JULY 1959
cussions t h a t have up t i l l n o w t a k e n
place on the question of technolog i c a l choice have m o s t l y been carr i e d out In a m a n n e r as to be applicable to only single elements of the
matrices we have considered. Thus,
one considers an element l i k e A b ( 3 )
w h i c h stands for a p a r t i c u l a r stage
of a p a r t i c u l a r p r o g r a m m e , e g, t h a t
of c r e a t i n g a d d i t i o n a l capacity of
p r o d u c t i o n of a given q u a n t i t y in a
c e r t a i n productive sector. Associated
w i t h such a p r o g r a m m e is a cert a i n c a p i t a l expenditure a n d c e r t a i n
potentials o f production, employment a n d surplus. The ends t h a t
are sought, however, do n o t relate
to any one p r o g r a m m e or even any
one sector, but to a l l the sectors
t a k e n together; further, they refer
to not j u s t a single p o i n t of t i m e
but to a l o n g period.
T h u s one m a y desire to solve the
unemployment p r o b l e m at the shortest possible t i m e or m a x i m i s e the
level of per capita income by the
end of a specified n u m b e r of years.
W h e n such are the ends it is of
course no use t a l k i n g in terms of
a model
t h a t is
applicable to a
single p r o g r a m m e only, or j u s t a
stage of a p r o g r a m m e . A t t e m p t s
have
been made
n o t to face the
problem by s a y i n g t h a t the same
arguments can be
used w i t h reg a r d t o the entire economy t a k e n
as a whole.
T h a t , of course, is
correct. B u t the p r o b l e m remains
essentially
unresolved. One
has
f i n a l l y to choose techniques f o r
individual
p r o g r a m m e s ; the quest i o n is, how to deduce f r o m results
applicable to the whole economy
concrete results v a l i d f o r specific
programmes
in
specific
sectors?
No satisfactory
answer has yet
been g i v e n to this question. W h a t
can be established v e r y easily is
t h a t it is not sufficient to reproduce
the conditions applicable to the
entire economy f o r i n d i v i d u a l prog r a m m e s ; nor conditions applicable
to an extended period f o r a n y g i ven
point in
t h a t period. T h i s
negative
demonstration
however
does not go f a r
enough. There
must
be found
some rules
for
action.
Short and Long Run
Before deciding upon the rules of
action, one has to be clear about
one's ends. In the short r u n , different results are obtained by m a x i m i s i n g output or employment or
surplus for a given a m o u n t of capit a l o r b y m i n i m i s i n g capital, a n y
one of the above items being given.
THE ECONOMIC WEEKLY
The differences,
however,
vanish
w h e n a l o n g period is considered.
The same
techniques t h a t w o u l d
create a large increase in income
w o u l d also create a large volume
of employment a n d are the same
as those t h a t
w o u l d generate a
large mass of surplus. Hence, the
p r o b l e m of h a v i n g more t h a n one
desired end does n o t r e a l l y arise.
I t i s quite satisfactory t o l a y d o w n
t h a t the
problem of technological
choice should be solved in such a
w a y as to m a x i m i s e the t o t a l accumulation of capital resulting f r o m
surplus d u r i n g the course of a l o n g
t e r m period.
We m a y divide the problem i n t o
t w o parts.
F i r s t l y we m a y consider the techniques u t i l i s e d in the
i m p l e m e n t a t i o n of a p r o g r a m m e ;
a n d secondly, the
techniques embodied in the i n s t a l l a t i o n s b r o u g h t
about by the
p r o g r a m m e . Thus,
let us consider the p r o g r a m m e of
s e t t i n g up a hydro-electric project.
The first technique mentioned is the
technique used in the v e r y construct i o n stage of the project; the
second technique mentioned is the
technique of g e n e r a t i n g electricity
i n t h a t period. S i m i l a r l y i m a g i n e
a telephone exchange. There w o u l d
be, on the one hand, a l t e r n a t i v e
techniques t h a t could be used in the
setting u p o f the b u i l d i n g a n d i n s t a l l a t i o n s ; there w o u l d be, on the
other, different types of i n s t a l l a tions i n v o l v i n g v e r y different labour
requirements f o r g e t t i n g the
same a m o u n t of w o r k done.
The
question o f technology i n the t w o
cases differs in t h a t the results in
terms of income or e m p l o y m e n t or
surplus In the first case are of a
s t r i c t l y l i m i t e d d u r a t i o n a n d i n the
second of a recurrent character. In
the case of c o n s t r u c t i o n w o r k s , the
costs to consider w i t h respect to the
f u l f i l m e n t of a given p r o g r a m m e are
(i) the expenditure on w o r k s proper, a n d ( i i ) the cost of p r o c u r i n g
m a c h i n e r y a n d other aids to cons t r u c t i o n w o r k s w h i c h d o not a l l
get used up in the f u l f i l m e n t of a
single
p r o g r a m m e . The costs to
consider in the other case are ( i )
the value of c a p i t a l i n s t a l l a t i o n set
up a n d ( i i ) the recurrent cost f o r
u t i l i s i n g the i n s t a l l a t i o n s t o t h e i r
f u l l capacity.
Minimum Cost Principle
I t w o u l d seem t h a t the p r o b l e m
o f t r a n s l a t i n g the t a s k o f m a x i m i s i n g the t o t a l surplus f o r the whole
economy over a l o n g period of t i m e
i n t o technological choices f o r i n d i -
984
v i d u a l p r o g r a m m e s could be t a c k l e d
by a d o p t i n g some k i n d of a principle
o f M i n i m u m Cost f o r the l o n g t e r m
p r o g r a m m e s t a k e n as a whole.
E v e r y l o n g t e r m p l a n m i g h t be so
d r a w n up as to m a k e Its t o t a l cost
a
m i n i m u m . By ' t o t a l cost' we
mean the sum of a l l types of cost
involved
in the r e a l i s a t i o n of a
g i v e n l o n g t e r m plan.
W h i l e i n the short r u n , the different items of cost cited at the end
of the preceding section have to be
t r e a t e d as separate variables, there
is the a d v a n t a g e i n , the case of
l o n g t e r m plans
t h a t such costs
m a y be treated as additive. L e t us,
for example, consider a l o n g t e r m
p l a n f o r the development of roads.
I t w o u l d d r a w u p a picture o f r o a d
n e t w o r k s as desired to be realised
i n the l o n g r u n . I n its cost calculations we s h a l l
have t w o items:
the cost of w o r k s proper a n d the
cost of
purchasing
construction
equipment. F o r a l o n g t e r m p l a n
these t w o can be added together to
o b t a i n the t o t a l cost; for, the equipm e n t locked up in the i m p l e m e n t a t i o n o f the l o n g t e r m p l a n m a y b e
considered as becoming completely
eaten u p b y i t . I n the s h o r t r u n ,
however, o n l y a p o r t i o n of the equipm e n t gets used up a n d therefore
one. is obliged to consider the cost
i n terms o f t w o variables, b o t h o f
w h i c h cannot be m i n i m i s e d at the
same t i m e .
It should be noted t h a t our suggestion does n o t b o i l d o w n to the
usual
procedure o f
including in
short t e r m cost c a l c u l a t i o n the depreciated p a r t of fixed c a p i t a l a n d
minimising
t h i s cost per u n i t of
output. W e are not
insisting on
unit-cost m i n i m i s a t i o n as such, b u t
t o t a l cost m i n i m i s a t i o n f o r a l o n g
t e r m period, a n d t h a t means t h a t
we are a l l o w i n g f o r the possibility
of c e r t a i n stages of a p r o g r a m m e
or even c e r t a i n entire p r o g r a m m e s
belonging to a l o n g t e r m p l a n bei n g r u n on n o n - m i n i m u m cost bases
i n the interest o f the entire l o n g
term
p l a n being
fulfilled at the
m i n i m u m t o t a l cost.
Here, yet a n o t h e r p o i n t deserves
a t t e n t i o n . We are considering experts' plans f o r I n d i v i d u a l sectors.
As such, the t i m e over w h i c h the
plan Is to extend and for which
cost is to be m i n i m i s e d need n o t
be a r b i t r a r y as in the case of econometrician's l o n g t e r m plans. T h e
l e n g t h need n o t be the same in the
case of each
sectoral l o n g
term
plan. E a c h
long term plan may
THE ECONOMIC WEEKLY
have a period l e n g t h related to the
technical
time lags of the sector
concerned.
Thus, it takes about 5
years to
set up a steel
factory;
about 7 or 8 years to complete a
g i a n t hydro-electric project; 7 years
to replant a rubber
plantation; 6
years to t r a i n a doctor a n d 3 years
a nurse;
ten or eleven
years to
educate a c h i l d upto the secondary
stage; a n d so on. W h e n such techn i c a l t i m e lags are ignored a n d a n
econometrician's comprehensive l o n g
term plan is drawn for an arbitrary
period, say, 15 years, the m a x i m i s a t i o n o r m i n i m i s a t i o n operations cannot give s a t i s f a c t o r y results f o r i n d i v i d u a l sectors.
B u t the expert's
l o n g t e r m plans f o r the steel indust r y o r hydro-electric power, o r r u b ber p l a n t a t i o n s or h e a l t h services
or education can t a k e in each case
an appropriate l e n g t h as the p l a n
period; as a result, m i n i m i s a t i o n of
cost f o r the f u l f i l m e n t of the p l a n
w o u l d m a k e sense n o t o n l y f r o m a
theoretical p o i n t of v i e w but also
f r o m the point of v i e w of the experts in the respective fields,
We have g i v e n above the example
o f a l o n g t e r m p l a n f o r roads. T h a t
is a case where o n l y one type of
technological
p r o b l e m arises, t h a t
relating to construction. But long
t e r m p l a n i n productive fields w o u l d
give rise to b o t h the types m e n t i o n e d earlier. T a k e l o n g t e r m p l a n n i n g f o r the development o f f i s h eries. Such a p l a n w o u l d first l a y
d o w n targets o f p r o d u c t i o n for a l l
the years of the p l a n . T h e n it w o u l d
w o r k o u t the requirements o f means
of p r o d u c t i o n , means of preservat i o n , means o f d i s t r i b u t i o n a n d
various e x t e r n a l economies.
These
could be f u r t h e r reduced to equipm e n t for c a t c h i n g fish, (e g, b o a t s ) ;
equipment for the m a n u f a c t u r e of
equipment f o r c a t c h i n g fish (e g,
boat b u i l d i n g m a c h i n e s ) ; construct i o n w o r k s (e g, harbours,
boat
building yards;
etc.)
But in calc u l a t i n g the
t o t a l cost of the
plan,
not
only
are the costs
a r i s i n g f r o m a l l these items to be
included, b u t also the labour cost
i n v o l v e d i n the p r o d u c t i o n o f f i s h
corresponding to the
targets set.
M i n i m i s a t i o n o f cost t h u s w o u l d i n
t h i s case be equivalent to m a x i m i s a t i o n o f the q u a n t i t y "accumulated surplus m i n u s t o t a l investment
i n f i x e d c a p i t a l " . I t should a g a i n
be noted t h a t t h i s approach w o u l d
n o t necessarily give the same result
as t h a t of " m i n i m u m period of recuperation o f c a p i t a l invested"; f o r
in the l a t t e r
approach, the
time
SPECIAL NUMBER JULY 1959
f a c t o r is made variable a n d thus
has no positive role to play, whereas in our approach we are a l l
through
keeping the t i m e period
fixed at a l e n g t h h a v i n g some spec i a l technical
significance f o r the
sector in question.
No claims are made
p r o a c h sketched above
s a t i s f a c t o r y answer to
o f technological choice.
985
f o r the apas g i v i n g a
the problem
I t has, h o w -
ever,
one q u a l i t y
which many a
theoretically satisfactory econometric approach lacks, n a m e l y t h a t I t
faces squarely the fact t h a t no recommendation about
technological
choice in general has a n y
value,
unless it can be t r a n s l a t e d i n t o concrete steps to be t a k e n by specialists a n d experts concretely p l a n n i n g for the different sectors of the
economy.