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and at least partially resolve the wage goods constraint by directing investment to the agricultural sector beyond a point this would have to be combined with the required institutional change thus for any given level of the investment to income ratio and the associated rate of growth there would be an appropriate allocation of investments given initial conditions that ensures sectoral balance and renders the growth path sustainable finally the issue is not merely one of investment allocation but one of technologies in which investment in different sectors would be embodied on the one hand accelerating employment and therefore consumption growth in the immediate future requires investing in labour intensive technologies on the other hand restraining consumption and raising the share of surplus available for investment may require opting for capital intensive technologies given the possible rate of technological change this may provide a case for raising the average capital intensity of technology even in a country with substantial volumes of surplus labour dobb 1960 sen 1962 it would also call for matching the inevitably capital intensive technologies adopted in some sectors such as heavy engineering with a choice of more labour intensive technologies in the consumption goods sector for example whatever the decisions taken given initial conditions political feasibility and technological imperatives the essential point that emerges is that once governments choose to influence the pace of development as they did in the immediate post war years they need to find ways to intervene in order to push the rate of investment the allocation of that investment and the technologies in which the investment is embodied in directions that correspond to some ideal appropriate for the targeted rate of growth area of control development planning in this form obviously presumes some degree of coordinated investment decision making the expected benefits from such coordination are two fold first by overcoming the secondary uncertainty inherent in a regime where investment decisions are atomistic and based on guesstimates of the decisions that other decision makers would arrive at it reduces the waste and unemployment characteristic of capitalism dobb 1960 second by ensuring the incorporation of appropriate inter temporal judgements in the choice of the investment ratio the allocation of investment and the technical forms in which it was embodied it permits a process of maximising growth subject to the consumption requirements set by social and political conditions the difficulty is that unlike in some hypothetical though not necessarily actual economy with a substantial degree of state ownership of productive assets in which surpluses largely accrue to agencies of the state and in which the volume of such surpluses can be determined by a combination of turnover taxes and an appropriate prices and incomes policy the state in a mixed economy is not in control of consumption and investment decisions in the latter case the level and allocation of investment gets determined by the guesses or expectations of a large number of independent decision takers entrepreneurs in the long run revised by ex post movements of market prices dobb 1960 since the resulting investment in fixed capital is not by definition reversible decision errors are costly in individual and social terms and such errors are bound to occur since private investment decisions must be based on estimates of prices that would prevail over the lifetime of the project one consequence of these circumstances is that existing prices cannot be a guide to future prices as the atomistic individual investment decisions made on the basis of the prevailing prices together influence future demands and supplies and subsequent movements in prices without an anchor there is no reason to surmise that expectations would actually be realised leading to unutilised capacity closure and unemployment moreover the allocation of investment may not be in keeping with that required to ensure the pattern of production needed to raise the rate of saving and investment and to maximise the rate of growth an obvious way in which this happens is through inadequate investments in the infrastructural sector characterised most often by lumpy investments long gestation lags higher risk and lower profit given the economy wide externalities associated with such industries inadequate investments in infrastructure would obviously constrain the rate of growth structural change this however misses out on one fact the thrust of development planning and therefore the choice of regime was also influenced by the initial conditions that prevailed in underdeveloped economies which were all predominantly agrarian and home to substantial volumes of unemployed and underemployed surplus labour the vision underlying development planning had two strands to it with different degrees of emphasis on each in different versions of it the first was to introduce the institutional changes undertake the investments and ensure the availability of a surplus of wage goods so as to mobilise the surplus labour and put it to work on projects that created productivity enhancing capital assets to the extent that capital formation was possible with bare hands the resources required were the consumption goods needed to feed and clothe the labour force engaged in capital goods production the second aspect of the vision was to ensure the diversification of economic activity away from agriculture to producing manufactured goods especially machine tools besides the apparent universality of this trajectory across countries a range of arguments provided a case for such diversification first the conclusion derived from trends in consumption styles across the globe and embodied in rudimentary form in engels law that the demand for non food commodities in general and manufactures in particular grows and diversifies as incomes increase growth must therefore be accompanied by a process of diversification of economic activity in favour of manufactures second the belief that given the barriers to productivity increase characteristic of predominantly agrarian economies the diversification in favour of industrial production is an inevitable prerequisite for a rapid increase in per capita incomes third the view that beyond a point even agricultural growth is dependent on manufactured inputs and finally the truism that dependence on primary production places a nation at the losing end of the shifting terms of exchange in international trade necessitating industrialisation as a device aimed at garnering additional benefits from trade and overcoming external vulnerability diversifying in favour of manufacturing especially based on demands generated in the domestic market was of course not necessarily easy for many mixed economies small landlocked or island economies cannot sustain much of an industrial sector based on the domestic market and can emerge as successful manufacturing exporters only in exceptional circumstances hence a strategy focusing on ensuring a significant degree of diversification in favour of manufacturing may be misplaced in their case so would attempts to apply elaborate models defining trajectories that can be pursued to achieve manufacturing country status as arthur lewis noted whether the economy responds mainly to export demands or grows mainly in response to home demand is also important 1966 21 in the latter a combination of assessments of export prospects and policies aimed at regulating imports and promoting exports to grow on the basis of an export stimulus may be important here a degree of independence for private decision making is inevitable but what is appropriate for countries with special needs or special constraints cannot form the basis of defining what development planning is in any case models are not the prerogatives of the so called authoritarian planners often elaborate models are used to justify submitting not just private but even public decisions to purely market signals the idea of using border prices and price relatives as the basis for assessing the relative costs and benefits of proposed public projects to determine which among them should be chosen is a case in point the claim that adopting this rule of thumb would be a way of approximating outcomes that would fall out of an optimisation exercise besides resting on completely untenable assumptions about markets and price determination obfuscates completely what the social welfare function being maximised is and what the real constraints are references lewis w arthur 1966 development planning london routledge mahalanobis p c 1955 the approach of operational research to planning in india sankhya 16 1 2 3 130 sen amrtya k 1962 choice of techniques an aspect of the theory of planned economic development oxford blackwell kalecki michal 1970 problems of financing economic development in a mixed economy in eltis et al eds induction growth and trade essays in honour of sir roy harrod oxford oxford university press 91 104 reprinted in kalecki 1976 98 115 united nations 1951 measures for the economic development of underdeveloped countries report by a group of experts appointed by the secretary general of the united nations new york united nations macro economic policy and planning economic transformation prabhat patnaik june 24 2026 farwa sial leave a comment webinar 1 why revisit national planning prabhat patnaik download full paper at ideas website the case for planning in the sense of a co ordinated set of policies to realise at least in some key sectors certain magnitudes of investment and output growth remains as strong today for developing countries wishing to achieve economic and social transformation as it ever was there are at least three reasons for this first the pace of investment in a spontaneously operating capitalist economy depends upon the so called state of business confidence the state of business confidence may be such that it leaves the economy demand constrained for long stretches of time what is more even when the macroeconomy is not demand constrained the mix between consumption and investment in aggregate demand may be too much in favour of consumption relative to social requirements deliberate intervention by the state is needed not only to overcome demand constraints as the keynesians argue but more importantly to alter the composition of aggregate demand and to do so in a manner which is socially equitable the second reason relates to the need for sectoral balance while the previous argument remains valid even in a one good world an additional problem arises the moment we recognise the real life multiplicity of commodities for a spontaneously operating capitalist economy the pattern of supplies adjusts to the pattern of demand through episodes of profit inflation located in particular sectors these provide the signals for supply adjustments to occur over a period of time in short the episodes of sectoral profit inflation are more or less protracted less protracted depending upon the speed of adjustment of supplies but such episodes of profit inflation if they are severe protracted and relate to certain essential sectors are capable of causing extreme social hardships and devastation the most notable case here relates of course to the supply of wage goods a sharp profit inflation in the wage goods sector can cause and is known to have caused severe famines deliberate state investment is needed to eliminate supply adjustment lags in wage goods and in other key sectors in sectors like agriculture it is essential in any case to activate private investment i e for the process of supply adjustment itself in addition by anticipating profit inflation and activating supplies before the event it can in fact eliminate the very need for profit inflation and hence the attendant economic hardships the third reason tums on the distinction between spontaneous and non spontaneous structural change even if a system is not demand constrained and even if sectoral imbalances are instantaneously eliminated through the perfect shiftability of capital from one sector to another the accumulation process is accompanied by a process of spontaneous structural change the introduction of new processes and products which are perceived to be marketable gives rise to spontaneous structural change the market in other words responds not only to visible signals but also to a certain range of invisible signals what it does not respond to is a range of other kinds of invisible signals e g the social discontent inherent in a situation of unemployment poverty and sub human existence the latter require the deliberate introduction of non spontaneous structural changes and this can only be done through deliberate state intervention it may be thought that the elimination of poverty is a matter merely of raising the rate of accumulation further leaving the market to decide where this accumulation goes so that this case is merely a part of our first reason this however is not necessarily correct raising the rate of accumulation if it simply accelerates spontaneous structural change and thereby raises the rate of growth of labour productivity may have a negligible additional impact by way of absorbing the poor and the dispossessed into higher paid wage employment and if the population is expanding rapidly then this absorption may require rates of accumulation which are impracticably high if a reasonably meaningful time horizon is chose the need arises therefore for introducing non spontaneous structural change and curbing to an extent spontaneous structural change both this introduction as well as this curbing require state intervention taken together these three reasons for state intervention constitute an argument for more than mere fiscal interventionism for more than mere public investment policy they amount to a case for the state shaping broadly the trajectory of growth itself while this is what i mean by planning it is obviously not synonymous with central planning with detailed output targets that was current in the soviet union earlier there would be a range of public investment targets that the state would try to meet it would seek to realise complementary private investment targets and hence certain minimal levels of output growth targets in some key sectors these would determine the overall trajectory of development within which there would be sufficient room for the operation of the free market with the state imaginatively improvising responses to the strains that would inevitably arise from time to time owing to the operation of such a mix between the plan and the market as is obvious from the above the operation of such a system is not only not predicated upon universal public or collective ownership of the means of production but is even compatible with private capitalist not...
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