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Resource development planning for less developed countries Casasempere, Alfonso 1984

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RESOURCE DEVELOPMENT PLANNING FOR LESS DEVELOPED COUNTRIES  b y  ALFONSO CASASEMPERE Ingeniero F o r e s t a l , U n i v e r s i d a d de C h i l e , 1967 M.F., U n i v e r s i t y of B r i t i s h Columbia, 1970  A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY in THE FACULTY OF GRADUATE STUDIES (Department of F o r e s t r y ) We accept t h i s t h e s i s as conforming to the r e q u i r e d standard  THE UNIVERSITY OF BRITISH COLUMBIA August, 1984  © A l f o n s o Casasempere, 1984  In  presenting this  thesis  in partial  f u l f i l m e n t of  r e q u i r e m e n t s f o r an a d v a n c e d d e g r e e a t of  British  it  freely  Columbia, I available  agree that  for reference  University  the L i b r a r y  s h a l l make  and s t u d y .  I  agree t h a t p e r m i s s i o n f o r e x t e n s i v e for  the  copying of  understood that financial  copying or p u b l i c a t i o n of  Department o f  Co^gST  The U n i v e r s i t y o f B r i t i s h C o l u m b i a 1956 Main Mall V a n c o u v e r , Canada V6T 1Y3  (3/81)  this It  this  g a i n s h a l l n o t be a l l o w e d w i t h o u t  permission.  Date  further thesis  s c h o l a r l y p u r p o s e s may be g r a n t e d by t h e h e a d o f my  d e p a r t m e n t o r by h i s o r h e r r e p r e s e n t a t i v e s . for  the  Oc-ro-e.gv^ S  , H gY .  is thesis my  written  ii ABSTRACT  A practical  methodology  for planning  a n a t i o n a l (regional) context formulated. procedures  The m e t h o d o l o g y  objectives Early  is identified  principle  the goals  to a rationale  f o r undertaking and p r o v i d e s  effective  way.  successful  method  In t h e c o n t e x t o f  development  a r e d e f i n e d and  allocation.  On  and the  are established.  approach t o resource of development activity  planning, the  planning,  in less  of p r o j e c t p l a n n i n g  justifies  developed  g u i d e l i n e s f o r proceeding  project design  i n t h e most  w i t h i n the process  and a p p r a i s a l a r e l a i d  that a superior planning priorities,  on f o r e s t  a comprehensive  i n d u s t r y development,  methodology  e s t a b l i s h e s how  investments  w i t h i n the o v e r a l l  down.  approach r e q u i r e s a  c o n s e q u e n c e s , and t h e use o f a c c o u n t i n g  Focusing  this  i s d e f i n e d and t h e f u n d a m e n t a l s o f  for establishing  economic  welfare  people's  f o r decision-making  policy  this  The r o l e  national planning  concluded  f o r resource  the nature  countries  activity.  o f economic  a holistic  identifies  for achieving a  planning  of development  Emphasizing  of  the highest  and p o s t u l a t e d as t h e s u p e r i o r  appropriate c r i t e r i a  formulation  need  t h e need  o f a l l economic  foundation  the  resource  of a n a t i o n . i n the t h e s i s ,  objective  thesis  countries i s  d e s c r i b e s t h e p r i n c i p l e s and  p r o j e c t s i n accordance with  development  related  developed  development i n  f o r d e s i g n i n g , a p p r a i s i n g and s e l e c t i n g  development  this  in less  resource  to identify  standard  a p p r a i s a l of  prices.  the p l a n n i n g  the r o l e  development  It i s  of  process,  resource how t o  define how  these  investments  t o t r a n s l a t e them  appraise  i n t e r m s of  sectorial-regional  into objectives  them as p r o j e c t s  within  and  targets,  a consistent  and  and  goals,  how  to  comprehensive  f ramework. A case  study  development  in Chile  applicability empirical into  of p l a n t a t i o n  of  validity  The  of t h e g u i d e l i n e s  economic  t e s t case  and  (real) contribution  to n a t i o n a l  associated  industry  t o examine t h e p r a c t i c a l  the methodology.  the p o t e n t i a l  forestry  i s used  f o r e s t r y and  proves  provides fresh  of  development.  timber  the insights  production  i v TABLE OF CONTENTS Page ABSTRACT  i i  TABLE OF CONTENTS  .  LIST OF TABLES  iv ix  LIST OF APPENDIX TABLES  xii  LIST OF FIGURES  xiv  LIST OF MAPS  xiv  ACKNOWLEDGEMENTS  xv  ABBREVIATIONS  xvii  INTRODUCTION  1  PART I RESOURCE ALLOCATION FOR REGIONAL DEVELOPMENT 1.  INTRODUCTION  2.  DEVELOPMENT AND UNDERDEVELOPMENT  10  2.1. 2.2.  10 12  Misconceptions of Development Economics f o r Development A. B.  2.3. 2.4. 3.  12 14  Economic Development D e f i n e d The Process of Economic Growth  18 20  DEVELOPMENT GOALS AND RESOURCE ALLOCATION  23  3.1. 3.2. 4.  Economic Growth and the C o n d i t i o n f o r Development Underdevelopment and Dependency  6  Goals, Development Planning and Resource Allocation R e d i s t r i b u t i o n with Growth - The P r a c t i c a l Aims of Development  23 24  CRITERIA FOR INVESTMENT AND POLICY FORMULATION  28  4.1. 4.2.  29 33  A l l o c a t i o n of Investment Resources Optimum Investment C r i t e r i a  V  A. B. C. 4.3.  Economic Growth ( E f f i c i e n c y ) Goal: N a t i o n a l Aggregate Consumption C r i t e r i o n Income D i s t r i b u t i o n (Equity) Goal: Employment Versus R e l a t i v e Consumption C r i t e r i o n M e r i t Wants and Other Developmental G o a l s : Economic Versus non-Economic C r i t e r i a  Concluding Remarks  33 35 40 43  PART II CONCEPTUAL BASIS OF DEVELOPMENT PLANNING 1.  INTRODUCTION  46  2.  THE NATURE OF DEVELOPMENT PLANNING  47  3.  WHY PLAN DEVELOPMENT?  52  4.  FUNDAMENTALS  55  5.  6.  OF DEVELOPMENT PLANNING  4.1.  The p l a n n i n g Problem  55  4.2.  The requirements f o r success  56  THE PLANNING PROCESS AND THE ROLE OF PROJECTS  59  5.1. 5.2. 5.3. 5.4.  59 62 64 69 70 71 72  The State of the A r t i n LDCs Elements of Procedure Stages i n Planning The Role of P r o j e c t s A. Plans Require P r o j e c t s B. P r o j e c t s Require Plans C. P r o j e c t s and Comprehensive Planning  PROJECT PLANNING - THE REQUIREMENTS FOR A RATIONAL APPROACH 6.1. 6.2.  Standard Method f o r E s t a b l i s h i n g P r i o r i t i e s Comprehensive A p p r a i s a l of Economic Consequences A. B. C. D.  6.3.  74 ..... 75  D i r e c t , I n d i r e c t , and Secondary Consequences Toward a Comprehensive A p p r a i s a l Methodology. L i m i t a t i o n s i n A p p r a i s i n g I n d i r e c t and Secondary Consequences I n d i c a t e d Procedure  Use of Accounting P r i c e s - The S o c i a l Approach .. A. B.  The Case f o r Accounting P r i c e s i n P r o j e c t Evaluation Accounting P r i c e s and P r o j e c t Implementation.  77 78 81 84 85 87 87 90  vi PART III RESOURCE DEVELOPMENT PLANNING - STRATEGY, SEQUENCE AND APPRAISAL METHODOLOGY 1.  INTRODUCTION  93  2.  IDENTIFICATION OF THE PLANNING PROBLEM(S)  96  2.1. 2.2.  The Regional Resource Base: A D e s c r i p t i o n of the Study Area Development and Planning O p p o r t u n i t i e s A. B.  2.3.  Developmental Role of F o r e s t r y A c t i v i t i e s ... 100 Planning O p p o r t u n i t i e s Suggested by Data .... 102  Problem D e f i n i t i o n  103  3.  DEFINITION OF GOALS AND DECISION CRITERIA  4.  DATA COLLECTION AND DEFINITION OF ALTERNATIVE  i  INVESTMENT OPTIONS  6.  106  108  4.1.  Sources and Types of Information  4.2.  A. Resource Surveys 109 B. T e c h n i c a l , F i n a n c i a l , and Economic Surveys .. 111 D e f i n i n g and L i m i t i n g the Number of Investment Options - Adequacy of a Planning Model  5.  97 99  108  113  ANALYSIS AND EVALUATION  117  5.1.  Financial Analysis  118  5.2.  A. Inputs and Outputs - The Basic P r e d i c t i o n s .. 118 B. F i n a n c i a l A p p r a i s a l 123 C. F i n a n c i a l Impact 131 Economic A n a l y s i s 165 A.  The Regional  B.  Economic  and/or N a t i o n a l Welfare Test  Appraisal  ... 165 173  PLAN (PROJECT) SELECTION AND IMPLEMENTATION  195  6.1. 6.2. 6.3.  195 195  P r o j e c t Choice Risk and U n c e r t a i n t y F i n a n c i a l Considerations Implementation  and P r o j e c t  201  vii PART IV A CASE STUDY OF FORESTRY DEVELOPMENT PLANNING (IN CHILE) 1.  INTRODUCTION  205  2.  FORESTRY DEVELOPMENT IN THE BIO-BIO (VIII) REGION OF CHILE: THE PLANNING PROBLEM  207  2.1. 2.2.  207 211  Background The Study Area A. B. C.  2.3.  2.4. 3.  Geography - Area, Topography, and C l i m a t e Population Economy  Regional F o r e s t r y Development  219  A.  Forest Resources and F o r e s t Land  219  B.  Forest I n d u s t r i e s  227  Opportunities  f o r Regional Development  FORESTRY INVESTMENT OPTIONS 3.1. 3.2. .3.3.  4.  5.  ... 211 215 216  231 235  Development O b j e c t i v e s S i m p l i f y i n g the A n a l y t i c a l Model Inputs and Outputs of A l t e r n a t i v e Investment Options ANALYSIS AND EVALUATION  235 236  4.1. 4.2. 4.3.  246 252 252  Financial Appraisal F i n a n c i a l Impact Economic A p p r a i s a l  PROJECT CHOICE - POTENTIAL CONTRIBUTION OF FORESTRY TO ECONOMIC DEVELOPMENT 5.1. 5.2.  P r o j e c t Choice P o t e n t i a l C o n t r i b u t i o n t o Economic Development of the Best Option  CONCLUSION  240 246  259 259 263  267  REFERENCES  272  APPENDIX A - Committed and Uncommitted Radiata Pine Stocks  284  APPENDIX B - F o r e s t E s t a t e Model - Primary F o r e s t Development Option A  286  vi i i APPENDIX C - Investment Expenditure, Operating Expenditure and Revenue A s s o c i a t e d with F o r e s t r y Development i n Region VIII  301  APPENDIX D - D i r e c t , I n d i r e c t , and Induced F a c t o r Requirements i n Radiata Pine F o r e s t r y  306  APPENDIX E - N a t i o n a l Parameters (Shadow P r i c e s and Weights)  313  ix LIST OF TABLES Table 1.  Page D i r e c t Expenditure, Revenue, and Net Revenue A s s o c i a t e d with an Investment Beginning i n Year 1 and Ending i n Year n....  134  2.  Cash Flow A f t e r Tax A s s o c i a t e d with an Investment Beginning i n Year 1 and Ending i n Year n  134  3.  Summary of D i r e c t F i n a n c i a l Impact of* an Investment Beginning i n Year 1 and Ending i n Year n  135  4.  I n t e r i n d u s t r y T r a n s a c t i o n s Table Input-Output Model)  140  5.  Table of D i r e c t Requirements (Input or T e c h n i c a l C o e f f i c i e n t s f o r a c t i v i t i e s i n the Intermediate Sector)  143  Table of D i r e c t Plus I n d i r e c t Requirements ( T o t a l D i r e c t and I n d i r e c t E f f e c t s of an Increase i n F i n a l Demand)  146  6.  (Hypothetical  7.  Summary of I n d i r e c t F i n a n c i a l Impact of an Investment Beginning i n Year 1 and Ending i n Year n . 156  8.  Summary of Secondary F i n a n c i a l Impact of an Investment Beginning i n Year 1 and Ending i n Year n . 156  9.  D i r e c t , I n d i r e c t , and Secondary F i n a n c i a l Impact of an Investment Beginning i n Year 1 and Ending i n Year n  164  10.  Region VIII - Area D i s t r i b u t i o n by Province  211  11.  Region VIII - P o p u l a t i o n i n 1977 and F o r e c a s t to 2000  215  12.  Region VIII - S e c t o r i a l Breakdown of GDP 1970 - 1974. 218  13. 14.  Region VIII - Forest Land by Province Region VIII - P r o d u c t i v e Forest Land by Province and Type of F o r e s t Cover - 1978  15.  Region VIII - D i s t r i b u t i o n of Radiata Pine F o r e s t s by P r o v i n c e and Age C l a s s - 1978  225  Region VIII - Timber Stocks i n Radiata Pine F o r e s t s by P r o v i n c e and Age C l a s s - 1978  226  Region VIII - F o r e s t Land A v a i l a b l e by P r o v i n c e - 1978  227  16. 17.  220 223  for Afforestation  X  18.  Region VIII - Wood Harvest, Timber Removals and D e p l e t i o n i n Man-Made F o r e s t s - 1978  228  19.  Region VIII - I n s t a l l e d C a p a c i t y , Production and Requirements i n F o r e s t Products Manufacturing 1978  230  20.  Region VIII - F o r e s t Development Option A, Timber P r o d u c t i o n by S i t e C l a s s  241  21.  Region VIII - F o r e s t r y Manufacturing Development Options I, I I , I I I , and IV; A d d i t i o n s to I n s t a l l e d C a p a c i t y , Output, and Timber Consumption 1978 2002  243  Region VIII - Primary and Secondary Development Options A l , A l l , A l l I, and AIV; Output by Product 1978 - 2007.  245  23.  Region VIII - Cash Flow Before and A f t e r Tax of F o r e s t r y Development Option A l , 1978 - 2007  248  24.  Region VIII - Cash Flow Before and A f t e r Tax of F o r e s t r y Development Option A l l , 1978 - 2007  248  25.  Region VIII - Cash Flow Before and A f t e r Tax of F o r e s t r y Development Option A I I I , 1978 - 2007  249  26.  Region VIII - Cash Flow Before and A f t e r Tax of F o r e s t r y Development Option AIV, 1978 - 2007  249  27.  Region VIII - T o t a l ( D i r e c t , I n d i r e c t , and Secondary) F i n a n c i a l Impact of F o r e s t r y Development Option A l , 1978 - 2007  253  Region VIII - T o t a l ( D i r e c t , I n d i r e c t , and Secondary) F i n a n c i a l Impact of F o r e s t r y Development Option A l l , 1978 - 2007  253  Region VIII - T o t a l ( D i r e c t , I n d i r e c t , and Secondary) F i n a n c i a l Impact of F o r e s t r y Development Option A I I I , 1978 - 2007  254  Region VIII - T o t a l ( D i r e c t , I n d i r e c t , and Secondary) F i n a n c i a l Impact of F o r e s t r y Development Option AIV, 1978 - 2007  254  31.  Region VIII - Net S o c i a l B e n e f i t of F o r e s t r y Development Option A l , 1978 - 2007  256  32.  Region VIII - Net S o c i a l B e n e f i t of F o r e s t r y Development Option A l l , 1978 - 2007  256  33.  Region VIII - Net S o c i a l B e n e f i t of F o r e s t r y Development Option A I I I , 1978 - 2007  257  22.  28.  29.  30.  xi 34.  Region VIII - Net S o c i a l B e n e f i t of F o r e s t r y Development Option AIV, 1978 - 2007  257  xi i LIST OF APPENDIX TABLES Appendix Table A. 1.  B. 1. B.2.  Page  Region VIII - Committed and Uncommitted F o r e s t Land S u i t a b l e f o r C u l t i v a t i o n with Radiata Pine by S i t e C l a s s - 1978  285  Region VIII - Age C l a s s D i s t r i b u t i o n of the Uncommitted Radiata Pine F o r e s t s - 1978  291  Region VIII - S i t e S p e c i f i c C r i t e r i o n Recommended for the Management of Radiata Pine F o r e s t s Under C o n d i t i o n s of Unemployment  292  B.3.  Region VIII - Estimated F i r e Loss i n the Management of Radiata Pine F o r e s t s by Age C l a s s , 1978 - 2027 ... 293  B.4.  Region VIII - Timber Y i e l d by S i t e C l a s s 1978 - 2027  B.5. B.6. B.7.  B.8.  i n Radiata Pine F o r e s t s 294  Region VIII - Estimated Logging and T r a n s p o r t a t i o n Losses i n the H a r v e s t i n g of Radiata Pine  295  Region VIII - Primary F o r e s t Development Option A, Summary of Management A c t i v i t i e s 1978 - 2027  296  Region VIII - Primary F o r e s t Development Option A, F o r e s t e d and Bare Land A d d i t i o n s to F i x e d Investment 1978 - 2007  299  Region VIII - Primary F o r e s t Development Option A, Estimated Age C l a s s D i s t r i b u t i o n of the R e s i d u a l Immature Stands of Radiata Pine i n 2007  300  B. 9.  Region VIII - Primary F o r e s t Development Option A, R e s i d u a l F o r e s t e d and Bare Land Stocks End of 2007 .. 300  C. 1.  C h i l e - Average S a l a r y , Wages and F r i n g e B e n e f i t s of S k i l l e d , S e m i - s k i l l e d , and U n s k i l l e d Labour  303  Region VIII - Investment Expenditure A s s o c i a t e d with the Establishment, H a r v e s t i n g , and I n d u s t r i a l i z a t i o n of Radiata Pine F o r e s t s  304  Region VIII - Value of Radiata Pine F o r e s t s and Trees) i n 1978 and 2007 by S i t e C l a s s  305  C.2.  C.3. C.4.  D.1.  (Land  Region VIII - Working C a p i t a l Requirement, Operating Expenditure and Sale P r i c e A s s o c i a t e d with P r o d u c t i o n from Radiata Pine F o r e s t s  305  Region VIII - D i r e c t Requirements per D o l l a r of F i x e d C a p i t a l Formation i n Radiata Pine F o r e s t r y .... 307  xi i i D.2. D.3.  D.4.  D.5.  D.6.  Region VIII - D i r e c t Requirements per D o l l a r of Output i n Radiata Pine F o r e s t r y  308  Region VIII - D i r e c t Requirements per D o l l a r of Output i n Intermediate A c t i v i t i e s Supplying Inputs to Radiata Pine F o r e s t r y and i n the Economy at Large  309  Region VIII - D i r e c t Plus I n d i r e c t Requirements per D o l l a r of Output i n Intermediate A c t i v i t i e s Supplying Inputs to Radiata Pine F o r e s t r y  310  Region VIII - D i r e c t Plus I n d i r e c t Requirements per D o l l a r of F i x e d C a p i t a l Formation and Output i n Radiata Pine F o r e s t r y  311  Region VIII - Induced (Secondary) Requirements per D o l l a r of Change i n Consumer Income  312  xiv  L I S T OF  FIGURES  Figure  Page  1 .  Stages  2.  I n t e r s e c t o r F l o w s o f Goods and R e g i o n I n p u t - O u t p u t Model  3.  i n Comprehensive  T o t a l Timber  Planning  Production  L I S T OF  Services  66 in a  One 143 242  MAPS  MAP 1.  C h i l e - Region  VIII.  212  2.  Region VIII  - P h y s i c a l Map  213  3.  Region VIII  - Forest  221  4.  Region VIII  - Man-Made F o r e s t s  Land  224  XV  ACKNOWLEDGEMENTS  I wish  t o a c k n o w l e d g e t h e a s s i s t a n c e of many p e o p l e  institutions  without  which t h i s  possible.  In p a r t i c u l a r ,  continuous  guidance  years  by my  would not have  I would l i k e  and e n c o u r a g e m e n t  s u p e r v i s o r Dr. D a v i d  friendliness University  thesis  provided His  and c o n s t r u c t i v e c r i t i c i s m  both  the t e s t  the  rest  and  advice.  Faculty  case  of my  used  to validate  the  i n and o u t of  suggested  the t h e s i s  support  and  financial  of F o r e s t r y o f t h e U n i v e r s i t y  Vandusen  over  support,  s u p e r v i s o r y committee, o f f e r e d  The  t o me  appreciated.  T h a n k s a r e due t o D r . J.H.G. S m i t h who for  been  to acknowledge the  Haley.  i s greatly  and  the t o p i c  and l a t e r , valuable  as d i d  direction  a s s i s t a n c e granted of B r i t i s h  S c h o l a r s h i p , and t h e Government  by t h e  Columbia, the  of C h i l e  is gratefully  apprec i a t e d . The o r i g i n a l analysis  was  collected  circumstances. Nacional  and u n i q u e  Instituto  Forestal  wholeheartedly  in Chile  Special  Forestal,  data  thanks  Oficina  base used  under sometimes a r e due  with  the t h e s i s .  i s made o f t h e a s s i s t a n c e p r o v i d e d Buys who,  in a display  programmed  colleagues, Moyini,  to extend  especially  my  A special  Tim Cooney,  my  collection  acknowledgement  imagination,  i n the a n a l y s e s .  appreciation to friends  sister  and  by Doug W i l l i a m s and Hans  p a t i e n c e and  Barry H a l l ,  technical  N a c i o n a l , and  the data  t h e v a r i o u s computer m o d e l s u s e d  I would l i k e  Z.G.  of unique  trying  to the C o r p o r a c i o n  de P l a n i f i c a c i o n  which a s s i s t e d  supported  t o c a r r y out the  Sandy C o n s t a b l e , Cristina,  and Rod  and  Yakobo Beaumont  xvi for  their  inspiration  the c o u r s e Mills  of the t h e s i s .  who d i l i g e n t l y  Finally, parents their  I would  typed like  life.  would n e v e r  support Without  d i s c u s s i o n s we had d u r i n g  Thanks a l s o  go t o C a t h i Lowe and P a t  the v a r i o u s d r a f t s to express  a n d f a m i l y , b u t most  unfailing  student  and t h e l i v e l y  specially  throughout their  have come t o be.  my  of the t h e s i s .  s i n c e r e g r a t i t u d e t o my t o my w i f e  t h e many y e a r s  constant Thanks  Karin, for o f my  encouragement my f o r always being  graduate thesis  there.  xvi i ABBREVIATIONS  ODEPLAN  = O f i c i n a de P l a n i f i c a c i o n Nacional  SERPLAC  = Secretaria  Regional de P l a n i f i c a c i o n y  Coordinac ion BID  = Banco Interamericano de  Desarrollo  CORFO  = Corporacion de Fomento de l a Produce ion  INFOR  = Instituto  INE  = I n s t i t u t o N a c i o n a l de E s t a d i s t i c a  IREN  = I n s t i t u t o de Recursos  MAG  = Ministerio  CONAF  = Corporacion N a c i o n a l  ha  = Hectares  Forestal  Naturales  de A g r i c u l t u r a Forestal  m  r.w.b.  = Cubic Metres Roundwood Inside Bark  m  s.w.b.  = Cubic Metres  3  3  m.t. US$  S o l i d Without  Bark  = M e t r i c Tons of 1978  = United S t a t e s D o l l a r s  of 1978  %  = Per Cent  GDP  = Gross Domestic  Product  LDCs  = Less Developed  Countries  MDCs  = More Developed  Countries  UN  = U n i t e d Nations  UNDP  = U n i t e d Nations Development Program  UNIDO  = U n i t e d Nations I n d u s t r i a l Development Organization  ECAFE  = Economic'Commission f o r A s i a and the Far East  OECD  = O r g a n i z a t i o n f o r Economic Cooperation and Development = Net Present Value  NPV  xvi i i  THE  AIM  ...  to free  human  men  from  physical  distress  to exist  with  dignity Walter  THE  APPROACH  ...  to simplify  without  losing  essential  Scheel  features Jan  Tinbergen  1 INTRODUCTION  My 1971  interest  i n development  when w o r k i n g  South  Indeed, of  as a r e s o u r c e e c o n o m i s t  East Asia.  a small v i l l a g e I was  shops,  town's m a j o r on  had  how  the  s a n d a l s , and  polyethylene  t h e door rotted  the v i l l a g e  bags.  away  imported foreign  goods had industries  imaginary and mill was  wealth  intuitively owners who a net  loser.  tools,  totally  imported  foreign  dependent  products. sustenance  technology,  people  and  their  basket  and  residual that,  more  their  sign  was  even  a c r o s s the  in  kicking  around  mangoes, and  papayas  the  sale  of  would c o n t i n u e t o b r i n g , I compared  to  the  exports  t h e e x c e p t i o n of t h e  c o u l d be c a p t u r i n g a h e a l t h y p r o f i t ,  these  this  v a l u e of t h e v i l l a g e ' s with  over  street.  employment  them.  the  wearing  hung p r o m i n e n t l y  fish,  to  gainful  chores  busy  the  operated  Oblivious  canned g r o c e r i e s  of c h i l d r e n  which produced  concluded  refinery,  fuel.  went a b o u t  A Coca-Cola  brought,  b l a c k s m i t h , and  for creating  much w e a l t h and  to the  on  sugar  shop w h i l e u n s o l d  the  sugar village  Q u i t e o b v i o u s l y , some e x t r a o r d i n a r y f o r c e s  were a t work p u s h i n g of e c o n o m i c  merchants,  t h e need  i n a vendor's  I wondered how  j u n g l e s of  t o which the d a i l y  a medium s i z e  A group  of a l o c a l  awakened i n  goods.  carrying  soccer b a l l .  how  s u p p l y of  homes r e s t e d  machinery, and  the  first  i n the  I observed  the e x t e n t  local  industry,  imported  employment,  a plastic  time,  become on  consumer  surrounding misery  plastic  that  s t r u c k by  and  I noticed  mostly  At  r e s t a u r a n t s , and  materials,  p l a n n i n g was  t h e community  d e p e n d e n c y and  poverty.  i n t o an  ever  growing  circle  Over t h e y e a r s I would  2 o b s e r v e many s i m i l a r s i t u a t i o n s o f e x c e s s i v e  dependency  industries  world.  But not  and r e g i o n s  why  would  i n Canada?  be c o n t r o l l e d ?  this  What  Unknown t o me  undevelopment,  and  the t e c h n o l o g i c a l  years  even  goals  these goals  to a regional  oriented,  distribution for  projects  plantation  of d e v e l o p m e n t  had begun.  temporarily,  resource  My  I t would  end  and e q u i t a b l e  perspective;  of these  that i s  i n the methodology  s e l e c t i n g resource  in a "real  resource  strategy  (2) t o s t r u c t u r e a  and  twelve  and t o r e l a t e  efficient, gains;  and  work.  planning  (national)  methodology  criteria  trek in  economics  with t h i s  development  furthermore,  world" case  f o r e s t r y i n C h i l e and t o a s s e s s  contribution  touching  dependency,  (national)  evaluating,  in a regional  to test t h i s  (technological)  i n terms of w e l f a r e  o f economic  formulating,  were  o f t h e t h e s i s a r e : (1) t o r e d e f i n e  development  and  germane c o n c e p t s t o d e v e l o p m e n t  understanding  i f only  objectives  questions  other  the p r o c e s s  - K e y n e s i a n income m u l t i p l i e r .  i n s i g h t i n t o the f i e l d  later,  people  t h e n , my  i . e . , economic  of a b e t t e r  The  in l e s s developed countries  of t h e most  and  some new  happen  f o r c e s were a t work and c o u l d  on t h e f r i n g e of two  pursuit  of the l e s s d e v e l o p e d  in  (3)  s t u d y of  the p o s s i b l e  i n v e s t m e n t s t o r e g i o n a l and  national  development. The  central hypothesis  development  projects  i n a d e q u a t e , and t h a t decision  makers  (national)  i s that  the p l a n n i n g  of  i n l e s s developed countries an  improved methodology  in placing  perspective  such p r o j e c t s  c a n be  A secondary hypothesis,  resource  has  been  which w i l l a i d  in their  true  regional  formulated.  complementary  t o the f i r s t ,  i s that  3  resource  development  programs  in particular  contribution world. they are  projects i n general are capable  t o economic  provide  regional  t o review  t h e r e f o r e , be g i v e n  best  provides  Part  criteria  Part  development,  of r e s o u r c e s I suggests  Emphasizing  identifies  the nature  f o r planning  to f a c i l i t a t e  resource  g o a l s , and  formulation.  b a s i s of development  developed  planning,  j u s t i f i e s the  c o u n t r i e s and p r o v i d e s  i n t h e most e f f e c t i v e  way.  The r o l e  of n a t i o n a l p l a n n i n g i s  and t h e f u n d a m e n t a l s o f s u c c e s s f u l p r o j e c t d e s i g n and  appraisal Part  regional  and p o l i c y  p r o j e c t planning w i t h i n the process  defined  as t o  approach to the a c t i v i t y , i t  of development  f o r proceeding  insight  a p p r o p r i a t e development  a holistic  in less  assessment of  t h e r o o t s and  f o r d e c i s i o n making  planning.  Part I  allocation for  f o r an i n - d e p t h  II e s t a b l i s h e s the conceptual  guidelines  priority  f o r planning  o f u n d e r d e v e l o p m e n t , and p r o v i d e s  allocation  development.  of r e s o u r c e  This allows  o f economic  characteristics  of  show t h a t  b e n e f i t s than  down a framework  the process  development.  concept  need  would  projects in a regional (national) context,  undertakes  the  programs  development p r o j e c t s .  As a p r e r e q u i s i t e t o l a y i n g  the  substantial  a much w i d e r r a n g e o f s o c i o - e c o n o m i c  many o t h e r  resource  a  i n many p a r t s o f t h e t h i r d  these  c u r r e n t l y assumed and s h o u l d ,  over  o f making  development  If properly evaluated,  and a f f o r e s t a t i o n  are l a i d  down.  III structures a practical development  established  i n accordance  i n P a r t s I and I I .  fundamental procedure  methodology with  f o r planning  the p r i n c i p l e s  T h i s methodology  and r u l e s  d e s c r i b e s the  f o r d e s i g n i n g , a p p r a i s i n g , and s e l e c t i n g  4  resource  p r o j e c t s i n l e s s developed  Consistent  countries.  with the o b j e c t i v e s of the t h e s i s , Part  IV t e s t s  the p r a c t i c a l a p p l i c a b i l i t y of the planning  methodology.  study of p l a n t a t i o n f o r e s t r y and a s s o c i a t e d  i n d u s t r y development  in C h i l e i s used f o r t h i s purpose.  A case  The t e s t case proves the  v a l i d i t y of the g u i d e l i n e s and o f f e r s f r e s h i n s i g h t s i n t o the potential  ( r e a l ) c o n t r i b u t i o n of timber production  f o r e s t r y to  n a t i o n a l economic development. Due t o the i n n o v a t i v e  nature of the a p p r a i s a l methodology  employed, the t e s t case i s b u i l t information  around much  original  which i s not a v a i l a b l e from p u b l i s h e d  sources.  Furthermore, the approach and mathematics of the a n a l y s i s r e q u i r e that the data be s t r u c t u r e d and u t i l i z e d prescribed  forms o n l y .  in certain  For these reasons, the data base (1978-  79) used i n the example r e q u i r e d more than 16 months of f i e l d investigations  i n C h i l e and p r o c e s s i n g  to the d e s i r e d  form.  i n Canada to b r i n g i t up  In t h i s l i g h t , and f o l l o w i n g the delay  imposed by the  author's tour of duty as a development planning  advisor  Government of Honduras i n the e a r l y 1980's, i t became to secure the necessary resources current  view.  Nevertheless,  estimating  impossible  and time to e s t a b l i s h a more  i t i s maintained t h a t , f o r the  purposes of t e s t i n g the a p p l i c a b i l i t y of the proposed and  with the  guidelines  the developmental impact of f o r e s t r y investments  in C h i l e , the t e s t case i s both v a l i d and s u f f i c i e n t as presented.  PART  I  RESOURCE ALLOCATION FOR REGIONAL DEVELOPMENT  6  1 .  INTRODUCTION  The  allocation  alternative the  level  refer  of p r o d u c t i v e  t o t h e a c t of of  distributes Much of  the  These  and  w h i c h an  supply  by  any  competing  other  a nation.  allocation,  economy grows  factor, The  economists  i s a major and  i t s population. process  of goods and clothing,  recreation.  hinges In  on  way  a  s e r v i c e s f o r human  and  shelter,  A l l goods and  productive  the  i t s simplest  resources  form,  health,  s e r v i c e s are and  nation  enjoyment.  as w e l l a s  (productive) a c t i v i t i e s ,  depend on  to  a term u s e d by  resource  means of p r o d u c t i o n .  of economic  activities  by  amongst  i n c l u d e food,  education,  resources",  the development  i s the  product  p e r h a p s more than  optimum  process  wealth  i t s limited  wealth  resources  of m a t e r i a l w e l l - b e i n g a c h i e v e d  component  uses  scarce productive  uses determines,  "economizing to  of  the  end  a l l economic  f o r the  generation  of  distributor  of  wealth. The  market  resources  system  i s f r e q u e n t l y an  i n more d e v e l o p e d  imperfections  and  economies.  (LDSs).  make i t d i f f i c u l t development establish depth than  of  the  Pervasive  cost-benefit externalities,  reduce the market's a l l o c a t i o n a l countries  efficient  efficiency  however, g r e a t l y  in l e s s  These c o n d i t i o n s of economic to support  the need  would be  a policy  emerging n a t i o n s . for planning recommended  market  developed  imperfection  of  laissez-faire  At  the  resource  same t i m e ,  allocation  f o r more d e v e l o p e d  in  the  they  in greater countries  (MDCs). Plans  r e q u i r e g o a l s and  discriminating  goals  between a l t e r n a t i v e  require c r i t e r i a policy  options.  for The  goals  of  7 development Confusion  a r e numerous a n d o f t e n  about p r i o r i t i e s  make i t d i f f i c u l t  and the c o m p o s i t i o n  t o reduce the competing  to a s i n g l e s u p e r i o r regard  o f a complex  goal.  nature. of s o c i a l  goals  of development  A similar situation arises  t o investment c r i t e r i a  welfare  and t h e e v a l u a t i o n  with  of d e v e l o p m e n t  options. Capital  occupies  of p r o d u c t i o n .  a dominant  Therefore,  p o s i t i o n i n t h e economic  i t i s only  that  i t should  o c c u p y an e q u a l l y  important  growth.  a s s u m p t i o n by many modern d e v e l o p m e n t  is  that  A common economic  growth  additional  capital  rapid  o f economic  rate  suppose  that  predominant has  will  capital  place  natural  i n t h e economic  h i n g e s on c a p i t a l  accumulation  accumulation,  Yet there  by i t s e l f  an i n f l u e n c e on d e v e l o p m e n t .  r e c e n t l y emerged t h a t  development  f o r c e s a r e assumed t o work j o i n t l y  bring  economic  and  other  development.  and the d e r i v e d  "allocational"  equally  These  increase  ability;  and "dynamic"  l e a r n i n g by d o i n g .  technical  efficiency;  The q u e s t i o n  output,  t h e y would  capital to  income purchasing  motivational  of a s i n g l e  i s becoming  change;  superior  options  should  be  i n c r e a s i n g l y a l i e n a t e d from m a t t e r s of  W h i l e most e c o n o m i s t s would  strategy  with  innovation;  evaluated  development  i nthe  important  i n aggregate  by w h i c h a l t e r n a t i v e d e v e l o p m e n t  growth.  i s no r e a s o n t o  include  criterion  economic  a more  downgrades t h e r o l e o f c a p i t a l  Instead,  power; e n t r e p r e n e u r i a l  and t h a t  A strong counterview  process.  equalization  scholars  e x e r c i s e s so  development  about  theory of  e i t h e r provoke or f a c i l i t a t e development.  theory  that  includes  agree with  some i n c r e a s e  not n e c e s s a r i l y place  this  a  i n the r a t e of  goal  above a l l  8 other c o n s i d e r a t i o n s .  More l i k e l y  than  not, they would temper  the growth goal with concerns of d i s t r i b u t i o n a l merit wants, that may criteria.  The  or may  not r e l a t e to s t r i c t  and  economic  d i f f i c u l t i e s and c o m p l e x i t i e s of development in  LDCs are s t r e s s e d by Watt (1976).  justice  They l i s t  (1973), Morgan (1975), and  Meir  the f o l l o w i n g o b s t a c l e s to a r a p i d rate of  progress. (1)  L i m i t e d savings, both a b s o l u t e l y and national  (2)  income.  Lack of t e c h n i c a l i n n o v a t i o n and c o n s i d e r a b l e r e l u c t a n c e to  (3)  as a percentage of  change.  A s e r i o u s shortage  of c a p i t a l  f o r investment,  although  t h i s can be overcome to some extent by the use foreign (4)  of  capital.  A r a p i d r a t e of p o p u l a t i o n growth and significantly  i n f l a t i o n which  reduce the economic gains on a per c a p i t a  basis. (5)  D i r e c t and d i s g u i s e d unemployment of over  (6)  A p r e c a r i o u s f o r e i g n trade  (7)  Population migration  (8)  Large i n e q u a l i t i e s i n income d i s t r i b u t i o n ; a l a r g e  percent.  balance.  from r u r a l areas to urban c e n t r e s .  p o r t i o n of the p o p u l a t i o n with low t h e r e f o r e , with l i t t l e (9)  15  purchasing  incomes power.  A dual economy, c o n s i s t i n g of a h i g h l y c a p i t a l - i n t e n s i v e sector and  and,  industrialized,  a subsistence  agricultural  sector. (10) A shortage  of s k i l l e d labour and  (11) P o o r l y developed  infrastructure.  s k i l l e d administrators.  9 (12)  Low  life  expectancy,  among a s i g n i f i c a n t Should of  s o l v i n g these  economic  has  been  policy?  listed  i s real  development. irrational are  constraints, should  appropriate be  and t h e i r  said  at f i r s t  obstacles  be l i g h t l y  with  of s o c i a l  goals.  would  seem  obstacle  be c o n d u c i v e t o  i n c l u d e , not only  what  but a m i x t u r e of  The i s s u e o f t h e  i s not simple.  matter  welfare".  A l l that can  with  this  A deeper d e f i n i t i o n  Similar complexities  of development  the purpose of P a r t  current  Secondly,  t o e s t a b l i s h the goals  criteria  may the  criteria. to discuss  and u n d e r d e v e l o p m e n t .  of development  to a r a t i o n a l e f o r resource  and the f o r m u l a t i o n  surround  I is, firstly,  i s s u e s of development  to define appropriate  decisions,  LDCs.  i t i s r e l a t e d t o t h e e l u s i v e t a r g e t of  summarily  thirdly,  by many  a p p r o a c h would be  own r i g h t ,  of development  undertaken.  important  this  i n d i c a t o r s , ways and means o f d e v e l o p m e n t  i s that  not  goals  likely  hand, and few w o u l d d i s a g r e e  "maximization  Therefore,  taken  a l l , e a c h and e v e r y  r e m o v a l would  n o t be c o n f u s e d goal(s)  as the object  t h e above d i f f i c u l t i e s  in their  criteria,  the  these  be c o n s t r u e d  t o development  the l i s t e d  goals  interpretation,  equally  of the p o p u l a t i o n .  Deeper down, however, t h i s  because  and m a l n u t r i t i o n  O c c a s i o n a l l y , perhaps a l l too o f t e n ,  because, a f t e r  development  that  difficulties  ameloriating  be r e a s o n a b l e  disease,  percentage  t h e a d hoc a p p r o a c h  On t h e s u r f a c e , to  rampant  and t o r e l a t e  allocation.  And  f o r investment  of development  policy.  10 2.  DEVELOPMENT AND  2.1.  Misconceptions In  UNDERDEVELOPMENT  of Development  one of h i s e n l i g h t e n e d moments, Stendahl* v o i c e d the  o p i n i o n that m i s f o r t u n e s come p r i m a r i l y concerning what happens.  from our f a l s e  Never has t h i s statement  ideas  been more  r e l e v a n t than when i n t e r p r e t i n g the wants f o r economic development of the world's  poor.  The U n i t e d Nations c l a s s i f i e s c o u n t r i e s with low per c a p i t a incomes as "developing" and those with high per c a p i t a as "developed".  Both terms are m i s l e a d i n g .  I t i s c l e a r that  not a l l low income c o u n t r i e s are d e v e l o p i n g . been stagnant  will  Many have r e c e n t l y  and a few have been r e g r e s s i n g .  but constant world progress, our descendants  Assuming a modest 100 years from now  look back on a l l present c o u n t r i e s as being  underdeveloped.  incomes  truly  No c o u n t r i e s today are " f u l l y developed,  their  best regions c o u l d stand much improvement and even the h i g h e s t income c o u n t r i e s have regions s e v e r e l y backward economically and socially  (Morgan, 1975).  A different  terminology o f t e n used to r e f e r to poor and r i c h  nations i s " f i r s t countries.  world",  "first  world", and " t h i r d  world"  These names i n d i c a t e both the degree of development  as w e l l as the p o l i t i c a l The  "second  alignment  of the country  in question.  world" category groups n a t i o n s of the western  that are more developed;  * Quoted i n Morgan T.  the "second  (1975)  world"  i s made up of  block  11 nations  a l i g n e d with the communist bloc that have achieved  reasonable standard  of l i v i n g ;  t r u l y l e s s p r i v i l e g e d nations  and  the  a  " t h i r d world" groups  the  which have been unable to reach a  stage of economic t a k e - o f f and  are a b s o l u t e l y or  relatively  poor. Less m i s l e a d i n g c o u n t r i e s or simply  terms are  "low  "poor" and  the  i m p l i c a t i o n i s that n a t i o n s of l i v i n g , only  absolute  sense (Maritano,  Another f a l s e notion reported  real  are  1970;  Morgan, 1975;  and  and  Meir,  in  any  1976).  This, unfortunately,  i s in i t s e l f  an  the work of homemakers, the value other  is  n a t i o n a l income, as measured by inadequate measure of  development, for i t omits major p o r t i o n s of r e a l  any  not  i s the assumption that a r i s e in  Firstly,  agencies,  work, and  in their  income i s a s u f f i c i e n t c o n d i t i o n to prove that  incorrect.  planning  countries"  in each case  lower or higher  economic development i s happening. quite  (MDCs), as  r e l a t i v e to each other  income"  A better,  i s " l e s s developed  "more developed c o u n t r i e s "  standard  "high  " r i c h " countries.  perhaps more p r e c i s e terminology (LDCs) and  income" and  a c t i v i t y not  Secondly, n a t i o n a l income may  income such as:  of l e i s u r e time, directly  r i s e , but,  volunteer  remunerated. due  to progress in only  narrow segments of the economy, most people c o u l d  remain  unaffected  T h i r d l y , while  i t may  and  consequently c o n t i n u e being  poor.  be t r u e that average a c t u a l income may  unemployment and  h y p e r i n f l a t i o n c o u l d a l s o be  l e a d i n g to o v e r a l l economic growth but  not  be  growing,  increasing,  to s a t i s f a c t o r y  development. As we  continue to review c u r r e n t  i s s u e s i n economic  12 development, the number of misunderstandings or f a l s e increases. are  For example, c o n t r a r y to g e n e r a l b e l i e f , the LDCs  not a homogeneous group (Tinbergen,  cliff,  between  A slope not a In f a c t ,  the two groupings i s a r b i t r a r y  and i m p l i e s no absolute d i s t i n c t i o n  A.  1967).  separates the LDCs from the more developed.  even the p r e c i s e d i v i s i o n  2.2.  notions  (Meir,  1976).  Economics f o r Development  Economic Growth and the C o n d i t i o n f o r Development An easy and simple d e f i n i t i o n of economic development  possible.  The vast d i s p a r i t i e s  s t r u c t u r e , and c u l t u r a l , the  i s not  i n resource endowment, economic  s o c i a l , and p o l i t i c a l  h e r i t a g e among  n a t i o n s of the world make i t hard to decide on an adequate  criterion. As e a r l y as 1776, Adam Smith (1784) showed h i s concern with the  growth of n a t i o n a l output over the long-term.  He  noticed  that the g r e a t e r the p r o p o r t i o n of annual produce to i t s p o p u l a t i o n , the b e t t e r o f f a n a t i o n was.  While a combination of  f a c t o r s were b e l i e v e d t o c o n t r i b u t e to augment the r a t e of output, a main r o l e was i n c r e a s e d employment.  reserved f o r labour s p e c i a l i z a t i o n  and  Above a l l , u s e f u l or p r o d u c t i v e labour  was thought of as the main determinant of output.  I t was the  i n c r e a s e i n output that was c a l l e d economic growth or economic development. Schumpeter  (1912) viewed development d i f f e r e n t l y .  economic growth, to him, was not a s u f f i c i e n t  condition  Simple  13 determinant of development.  He h e l d the p o s i t i o n that  economic  systems had a n a t u r a l tendency to move towards e q u i l i b r i u m and that changes i n income, q u a n t i t y  produced, and p r i c e s r e s u l t i n g  from an attempt by the system to reach e q u i l i b r i u m , d i d not c o n s t i t u t e development.  As d e f i n e d  i s a " d i s t i n c t phenomenon e n t i r e l y observed i n the c i r c u l a r equilibrium.  by Schumpeter,  development  f o r e i g n to what may be  flow or i n the tendency towards  I t i s spontaneous and d i s c o n t i n u o u s change i n the  channels of the flow, d i s t u r b a n c e of the e q u i l i b r i u m , which f o r e v e r a l t e r s and d i s p l a c e s the e q u i l i b r i u m s t a t e  previously  existing". Some modern authors d i s t i n g u i s h two broad c a t e g o r i e s of economic growth.  The f i r s t  type i s that  involved  i n the s h i f t  from a " l e s s developed" to a "more developed" economy, and the second kind (Ackley,  i s the growth of the "more developed" economy  1961; N a u t i y a l ,  1967).  Hirschman  (1963) a p p l i e d the  term "economics of development" to the former and "economics of growth" to the l a t t e r . The e s s e n t i a l c h a r a c t e r i s t i c s of a l e s s developed economy have been d i s c u s s e d (1963), Bhagwati Samuelson  (1963), V i n e r  (1966), and more r e c e n t l y by Morgan (1975),  and Scott  Nautiyal  i n d e t a i l by L e i b e n s t e i n  (1975), and Meir (1976).  (1967) viewed underdevelopment as a c o n d i t i o n  marked by: c h r o n i c a l l y low income l e v e l s ; c a p i t a l and n a t u r a l resources s c a r c i t y ; o v e r - p o p u l a t i o n ; i l l i t e r a c y ; technologies;  primitive  lack of s t a b l e , advanced forms of n a t i o n a l  government; very strong  regional, t r i b a l ,  r e l i g i o u s , and other  p a r o c h i a l f e e l i n g s ; and worst of a l l , a remarkable r e s i s t a n c e to  14 change.  Not s u r p r i s i n g l y , p r a c t i c a l l y none of these t h i r d world  characteristics exist  i n the more developed economies.  Capital  accumulation, t e c h n o l o g i c a l advance and modest r a t e s of population  i n c r e a s e , noted N a u t i y a l , seem to be the cornerstones  of f u r t h e r per c a p i t a growth i n r i c h e r  (B).  Underdevelopment  and  nations.  Dependency  Spearheaded by the works of Andre Gunder  Frank i n L a t i n  America, and Gunnar Myrdal i n A s i a , the dependency  theory of  underdevelopment has p r e s e n t l y gained much ground i n e x p l a i n i n g the r e l a t i v e miser.y of the t h i r d world. s c h o l a r s from a l l dependency  While development  p o l i t i c a l a f f i l i a t i o n s have supported the  theory, c o n v e r t s have been more numerous among  advocates of the s o c i a l i s t  ideology.  A c c o r d i n g to the dependency  theory, underdevelopment  case of imposed development of underdevelopment.  It i s  maintained that no country has ever been i n an o r i g i n a l underdevelopment, although i t may (Cockcroft et a l .  1972).  is a  s t a t e of  have been undeveloped  The t h i r d world i s looked upon as  being c o n t r o l l e d p o l i t i c a l l y and e c o n o m i c a l l y by the major growth c e n t r e s such as the S o v i e t Union, Japan, Western Europe, and North America.  The r e s t of the n a t i o n s a r e , i n v a r i o u s  degrees, s a t e l l i t e s of the major growth c e n t r e s (metropoles) (Frank,  1969).  The immediate  impact of t h i s imposed world h i e r a r c h y i s  socio-economic and p o l i t i c a l dependence.  Therefore,  efforts  towards growth lead at best, to a l i m i t e d or "underdevelopment development" i n the more prosperous of the s a t e l l i t e  countries  1  (Cockcroft  e t a l . , 1972).  In other  i s not autonomous, rather  words, s a t e l l i t e development  i s constantly  being  r e l a t i o n s h i p s of dependence to the metropole. from a d i r e c t c o n s p i r a c y countries,  or i n v o l u n t a r y  i t i s now f e l t  5  c o n d i t i o n e d by Whether r e s u l t i n g  e f f o r t of the developed  that the t h i r d world i s making a  s u b s t a n t i a l c o n t r i b u t i o n t o the development of the industrialized As  nations.  i n d i c a t e d by Samuelson and Scott  increasingly d i f f i c u l t  (1975), i t i s becoming  to deny the urgency of planning  f o r the  r e v e r s a l of the trend of widening income d i f f e r e n t i a l s between LDCs and MDCs.  Even i f the MDCs have not p u r p o s e f u l l y  the misery of underdevelopment, t h e i r order  has been l a r g e l y d e t r i m e n t a l  world.  Despite  e f f o r t s to^increase  planned  r o l e i n the world economic  t o the cause of the t h i r d i n t e r n a t i o n a l a i d t o the  LDCs, these appear unable t o i n i t i a t e  s t r a t e g i e s , as MDCs do-,  that p r i m a r i l y b e n e f i t them. For c l o s e t o four decades, s i n c e the end of the l a s t World War, has  the development r e c i p e f o r advancing the poorer  countries  been based almost u n i v e r s a l l y on the premise that economic  growth would n a t u r a l l y occur f o l l o w i n g widespread adoption of the development philosophy  of the i n d u s t r i a l i z e d  i n c l u d i n g that of the communist b l o c .  nations,  The consequences of t h i s  approach have been t o spark i n the LDCs, a d e s i r e t o a t t r a c t massive, i n d i s c r i m i n a t e c a p i t a l operations,  infusions, large scale  h i g h l y advanced t e c h n o l o g i e s  and t o i n c r e a s e  p r o d u c t i v i t y a t the expense of t o t a l employment. ask,  But where, I  has the adoption of t h i s modern i n d u s t r i a l philosophy  the LDCs?  labour  Are they now c l o s e r t o a stage of "economic  taken  take-off"  16 than  thirty  Latin it  y e a r s ago?  America  would  daily  news from A f r i c a ,  p r o v i d e b l e a k answers  n o t be  majority  The  too d i f f i c u l t  t o t h e moon has  to both q u e s t i o n s .  to prove  of the world's p o p u l a t i o n , b r o u g h t , more o f t e n  that,  g a i n s i n g r o s s income t r a n s l a t e  LDCs have s o u g h t  reform recipes  dependent  of t h e i r  These  restricted  the i n f l o w  of  of  the  long  results,  of d i s c o n t e n t " , a further  counter  of what M e i r  have been  delay  periods  w i t h the "economics  t o economic the e a r l y  a new  of  their  greatly  F o r t h e most p a r t  (1976) c a l l s of  the  "economics  underdevelopment economic  f o r development" that  a r e most  as the  likely  approach  but v o c a l  t o run  g r o u p of  of d e p e n d e n c y ,  t o the development  of  former  development. 1970's, a s m a l l  and  independence,  to c o n f u s e the "economics  economists, concerned w i t h the e v i l s spearheaded  than  and  i n t h e movement o f LDCs t o  I t i s paramount n o t  have  world, prayed  of economic  an e n c r o a c h m e n t  inward-looking p o l i c i e s  Since  rather  substitution capital.  many  short-sighted,  in desperation  revolution  foreign  withstanding short-lived term  on  nations  import  not  supports  rather  condition,  in a metropole c o n t r o l l e d  a t the a l t a r  discontent"  but  c o u n t r i e s and many more, f e a r f u l  condition  development.  their  insignificant  satellite  implementing  Other  based  reverently  and  into  growth,  LDCs a r e not c l o s e r ,  t o d e v e l o p by  inward-looking p o l i c i e s .  evolution.  increased  men  from a d e v e l o p e d s t a g e .  Faced w i t h the r e a l i t y  adopted  vast  relative  moderate  away  fact,  than not,  r a t e s of p o p u l a t i o n  basis.  In  took  P l a g u e d by e x c e s s i v e  further  f o r the  and  the technology that  misery.  g a i n s on a" p e r c a p i t a  Asia,  have  o f t h e LDCs.  1  Based on the philosophy of intermediate technology Schumacher (1973),  they have suggested  a development based  s m a l l e r working u n i t s , communal ownership, an technology, and workplaces Technology,  utilizing  advocated  local  labour and  of the more important  dependency i s spread throughout technology  the LDCs.  on  resources.  the systematic a p p l i c a t i o n of s c i e n t i f i c  viewed as one  by  alternative  other organized knowledge to p r a c t i c a l tasks ( G a l b r a i t h , i s now  or 1967),  v e c t o r s by which In other words,  i s the means by which, v o l u n t a r i l y or  involuntarily,  the dominant s o c i a l groups of the world promote t h e i r  interests  and maintain the LDCs i n a s t a t e of underdevelopment. r e s u l t , the many s o c i a l b e n e f i t s which imported  As a  technology  has  helped to b r i n g about i n the emerging n a t i o n s are being i n c r e a s i n g l y counterbalanced i t s use.  by s o c i a l problems a s s o c i a t e d with  The problems range from the o p p r e s s i o n  manipulation of the i n d i v i d u a l to the widespread the n a t u r a l environment and  and d e s t r u c t i o n of  the d e p l e t i o n of the world's  finite  supply of n a t u r a l resources (Schumacher, 1973). Conventional t e c h n o l o g i e s are designed to maximize the output per man  but not n e c e s s a r i l y with f u l l  labour employment.  T h i s i s done to meet the e v e r - i n c r e a s i n g p r o d u c t i v i t y demanded by an i n d u s t r y based intensive operations.  decreased  sharply.  The  standards  on h i g h l y mechanized and  Labour has been d i s p l a c e d and  of work p l a c e s c r e a t e d per u n i t of c a p i t a l  capital  the number  i n v e s t e d has  need to use an a l t e r n a t i v e , more human  technology would appear to be s e l f e v i d e n t i f the LDCs are to a v o i d the problems a s s o c i a t e d with the i n d i s c r i m i n a t e use of imported  technology.  7  18 2.3.  Economic Development  Defined  . So f a r , only major i s s u e s and concerns of development i n LDCs have been d i s c u s s e d ; no d e f i n i t i o n of economic development has yet been o f f e r e d . philosophy  However, a r e a l i s t i c  i s an e s s e n t i a l p r e r e q u i s i t e to e f f e c t i v e development  p l a n n i n g and must be e s t a b l i s h e d . provide t h i s d e f i n i t i o n . literally.  development  I s h a l l now attempt to  But f i r s t ,  l e t me d e f i n e development  The Webster E n c y c l o p e d i c D i c t i o n a r y p r o v i d e s a good  i n s i g h t as to the meaning of the word, i t mentions i n p a r t  ...  "the a c t or process of developing; u n f o l d i n g ; a gradual growth or advancement  through p r o g r e s s i v e changes".  Myrdal (1968),  d e f i n e d n a t i o n a l development as the upward movement of the entire social  system.  In h i s view, widely supported by other  economists, economic development must not be equated simply to economic independence or i n d u s t r i a l i z a t i o n .  I t i s , r a t h e r , the  attainment of a number of i d e a l s a s s o c i a t e d with modernization, such as a r i s e equalization,  i n p r o d u c t i v i t y , s o c i a l and economic improved knowledge  (and technology), improved  a t t i t u d e s and i n s t i t u t i o n s , and a c o o r d i n a t e d system of p o l i c y measures than can remove a l l s t a t e of underdevelopment.  c o n d i t i o n s that have perpetuated a Morgan (1975) and Meir (1975),  emphasized that economic development i s made up of two major i n g r e d i e n t s : economic growth p l u s s t r u c t u r a l  change  ( q u a n t i t a t i v e and q u a l i t a t i v e - and i n c l u d i n g new  institutions,  a t t i t u d e s and v a l u e s ) . A somewhat i n n o v a t i n g view of development was  expressed  r e c e n t l y by Mahbub u l Haq, former c h i e f economist f o r the government  of P a k i s t a n  ( i n Meir,  1976) when he suggested t h a t :  19 "The p r o b l e m of d e v e l o p m e n t must be d e f i n e d as a s e l e c t i v e a t t a c k on t h e w o r s t forms of p o v e r t y . D e v e l o p m e n t g o a l s must be d e f i n e d i n t e r m s o f p r o g r e s s i v e r e d u c t i o n and e v e n t u a l e l i m i n a t i o n of m a l n u t r i t i o n , d i s e a s e , i l l i t e r a c y , s q u a l o r , unemployment, and u n e q u a l i t i e s . We were t a u g h t t o t a k e c a r e of our GNP* as t h i s would t a k e c a r e o f p o v e r t y . L e t us r e v e r s e t h i s and t a k e c a r e of p o v e r t y as t h i s w i l l t a k e c a r e of t h e GNP. In o t h e r words l e t us w o r r y a b o u t t h e c o n t e n t o f GNP even more t h a n i t s r a t e o f i n c r e a s e " . It  would  development includes all,  appear i s now  the idea  the growth  believed,  that  shifting that  It  of  would  transformation  goals  be: r e a l  structural culture  development  which o f f e r s  some r e l i e f  use and advancement  should  be,  of the p l a n n e r  simple  * Gross National  Development,  the  and  appropriate  simultaneously  from t h e b u r d e n i s a gradual,  of  a  series  dependency,  systematic  t h e s e l f - g e n e r a t i n g and of t h e p e o p l e ' s  but p e n e t r a t i n g d e f i n i t i o n  faced with  of r e g i o n a l  the task  and self-  potential.  sense, the  Product  i t is  with  i n t h e most g e n e r a l  development.  above  of t h e economy, s o c i e t y , p o l i c y ,  that permits  in t h i s  forcefully  implies.  r e g i o n a l development  of a r e g i o n ,  aims d e s c r i b e d  concern  and  transformation  perpetuating  this  that  development  t h e r e f o r e , t h a t a more  of d e v e l o p m e n t ,  implicit  of p e o p l e .  regarding  must mean,  socio-political, cultural,  i s suggested,  definition  g r o w t h o r advancement  be u l t i m a t e l y p e o p l e ' s  many s o c i o - e c o n o m i c ,  wisdom  toward a d e f i n i t i o n  o r advancement  should  institutional  the c o n v e n t i o n a l  of  only  The  20 2.4.  The  Process  of Economic Growth  C l a s s i c a l , n e o - c l a s s i c a l , and modern economics s u b s c r i b e , i n i n c r e a s i n g degrees, to the "mainstream" or " b i g push theory" in which economic growth ( p e r i o d i c i n c r e a s e s i n o u t p u t ) , past a point  ( t h r e s h o l d ) of minimum c r i t i c a l  a natural s e l f - s u s t a i n i n g process. Ricardo,  change (and  From Adam Smith, Malthus  to M a r s h a l l , Menger and W i c k s e l l and  economic growth theory c a p i t a l accumulation Increased  capital  evolved  s i z e ) , becomes  to support  u l t i m a t e l y Keynes,  the p r i n c i p l e of  as the best means of a c c e l e r a t i n g growth.  formation  l e d to i n c r e a s e d p r o d u c t i v i t y which  in turn l e a d to i n c r e a s e d savings e v e n t u a l l y to i n c r e a s e d c a p i t a l increased p r o d u c t i v i t y .  The  (and/or consumption)  formation,  and  again  and  to  concept of "optimum p r o p e n s i t y  save" developed by Malthus became c e n t r a l to the theory growth as and  i t h e l d the key  investment.  and  to the r e l a t i o n s h i p between  to  of  savings  Malthus proved t h a t , up to a c e r t a i n p o i n t ,  saving was.needed to finance  (without  i n f l a t i o n ) the  investment  for which p r o f i t a b l e o p p o r t u n i t i e s e x i s t e d ; beyond t h i s p o i n t , saving would, nonetheless, extent 1967).  reduce consumer spending to such an  that investment too would be discouraged The  law of " i n c r e a s i n g r e t u r n s to s c a l e " and  of " d i m i n i s h i n g marginal determining  r e t u r n s " provided  the optimum mix  view of economic growth. underdevelopment, and  He  of land, c a p i t a l , and  simply  that  labour.  to the  prevailing  d i d not think of  of the l a c k of economic growth in the  emerging n a t i o n s , as an enduring The  later  the t o o l s for  K a r l Marx appears to be the s o l e exception  one.  (Nautiyal,  problem, but as a p r e - s o c i a l i s t  LDCs would, u n f o r t u n a t e l y , have to s u f f e r through the  21 capitalist (Higgins,  phase before they c o u l d reach the b l i s s of communism 1959).  The development of marginal a n a l y s i s and the theory of general e q u i l i b r i u m by the n e o - c l a s s i c i s t s became the c o r n e r s t o n e of present theory of the i n d i v i d u a l and of the f i r m . T h e r e f o r e , the n e o - c l a s s i c i s t s '  i n f l u e n c e on modern t h e o r i e s of  economic growth i s , at best, i n d i r e c t .  Throughout t h e i r  school,  the need f o r r a p i d c a p i t a l accumulation remained as a major prer e q u i s i t e of r a p i d economic growth. savings and c a p i t a l  The mechanisms by which  investment were brought to e q u i l i b r i u m  was  centered around the movement of the market r a t e of i n t e r e s t . The r a t e of i n t e r e s t was d i s c o v e r e d as a p o t e n t i a l t o o l f o r i n t e r f e r i n g with the process of c a p i t a l u l t i m a t e l y with economic growth. technical  formation, and  Geographical expansion and  i n n o v a t i o n were a l s o recognized as important  factors  i n f l u e n c i n g economic growth. F o l l o w i n g the great depression of the 1930's, Keynes  (1964)  became concerned with the problems of unemployment caused by a lack of demand i n an economy with a proven c a p a c i t y to produce. In a review of Keynesian theory, N a u t i y a l  (1967) concluded that  h i s work cannot be a p p l i e d d i r e c t l y to the problem of economic growth i n LDCs.  Keynesian theory, however, does seem to have  value f o r t h i r d world development i n s o f a r that  i t provides  new  a n a l y t i c a l t o o l s and i n t e l l e c t u a l s t i m u l a t i o n to the i n t e r e s t e d scholar.  The g r e a t e s t c o n t r i b u t i o n of Keynes to the general  theory of economic growth l i e s with h i s mechanism f o r determining the r a t e of i n t e r e s t which, as we know, c o n t r o l s the l e v e r s to c a p i t a l formation and economic growth.  22  Singh  (1954), i n a c r i t i c a l a n a l y s i s of Keynesian  suggested that i n d u s t r i a l i z a t i o n  economics,  i n LDCs i s e s s e n t i a l l y a matter  of economic o r g a n i z a t i o n and refused t o accept Keyne's of saving and investment" as the only e x p l a n a t i o n .  "spiral  The a l l -  important matters, a c c o r d i n g to Singh, are the means of encouraging economic growth by b e t t e r u t i l i z a t i o n of underemployed r e s o u r c e s . The post-Keynesian  t h e o r i e s of economic growth have centered'  on the c o n s t r u c t i o n of t h e o r e t i c a l growth models (Hahn and Matthews, 1964).  Problems of optimum s a v i n g and the development  of LDCs have, by and l a r g e , not been c o n s i d e r e d by them. B u i l d i n g on the Keynes' p r i n c i p l e of economic  interdependence  between s e c t o r s and on the income - output m u l t i p l i e r e f f e c t of independent  expenditures, input - output a n a l y s i s has grown to  become the c e n t r a l t o o l of modern econometric  modeling.  From the c l a s s i c i s t s to the modernists, n e v e r t h e l e s s , one p r i n c i p l e of economic growth has remained  unchanged; to break  out of a v i c i o u s c i r c l e of poverty, some c a p i t a l required.  Even though  shortage of c a p i t a l 1976).  formation i s  labour may be abundant i n LDCs, i t i s the  that l i m i t s the l e v e l of output  (Meir,  The m o b i l i z a t i o n of domestic and e x t e r n a l resources  p r o v i d e s the means t o encourage acumulation  i n LDCs.  Resource  the process of c a p i t a l mobilization,  a p p r o p r i a t e programs and p o l i c i e s t o ensure ( e f f i c i e n t ) use of the s c a r c e f a c t o r s .  in turn, effective  requires  23  3.  DEVELOPMENT  3.1.  Goals,  Goals  a r e ends  statements  planning  they  The  long  term  associated,  goals  attempting  of t h e LDCs  many  planning  first  h i s goals,  question, issues  process.  being  of  plan  Only This  chapter  discussion.  as  1965).  been  concept  of economic  hard  term t o  economist  regional  the economist-planner define  appropriate  practical  ready  will  of g o a l s ,  advancement  goals.  he must  i s he  a  a precise  (Waterston,  t o t h e unwary  development,  then  t o which  development  a relatively  planning  then  the definition  for later  targets  traditionally  e v a l u a t i o n , and u l t i m a t e l y s e l e c t  planning  (precise)  f o r n a t i o n a l development,  or resource  decision-making.  tends.  economic  the elusive  a headache  development, define  have  so, with  t o s e t adequate  Whether  for  for a nation's  But development  has given  The aims  or i t s development  and r i g h t l y  development.  precise  Allocation  c a n be u n d e r t a k e n ,  i s essential.  approach  (plan)  elaborate  are often  a r e as important  planning  and Resource  a design  any p l a n n i n g  of goals  its  define,  Planning  ALLOCATION  o b j e c t i v e s a r e more  Before  definition  RESOURCE  t o which  of goals,  aims.  AND  Development  Comparatively,  plan  GOALS  with  and leave  criteria  indicators for  for initiating  deal  must  the  the  first  the other  two  24 3.2.  R e d i s t r i b u t i o n with Growth - The  P r a c t i c a l Aims of  Development It has been s a i d that the u l t i m a t e goal of p u b l i c p o l i c y i s the maximization statement  of s o c i a l w e l f a r e .  Imbedded i n the above  i s the w e l f a r e economist's j u s t i f i c a t i o n  f o r the  p a r t i c i p a t i o n of government i n the p l a n n i n g of economic activity.  However, p r e c i s e , p r a c t i c a l methods f o r measuring  s o c i a l welfare remain to be e s t a b l i s h e d . The  unfortunate  maximization  r e a l i t y of welfare economics i s that the  of s o c i a l welfare remains a U t o p i a n o b j e c t i v e  amenable to t h e o r e t i c a l economic a n a l y s i s o n l y . Pigou  (1932),  the founder  As a  of modern welfare economics l i m i t e d  h i s work to the study of the more p r a c t i c a l concept welfare",  ...  of "economic  "that p a r t of s o c i a l welfare that can be brought  d i r e c t l y or i n d i r e c t l y money".  result,  i n t o r e l a t i o n with the measuring-rod of  Furthermore, Pigou warned that the p r e c i s e s e p a r a t i o n  between s o c i a l welfare and economic welfare cannot be a one  rigid  because the d i v i d i n g l i n e depends on the i n t e r p r e t a t i o n of  the word "can" and  this  is necessarily blurred.  He  concluded  that economic welfare w i l l not serve f o r a barometer or index of t o t a l welfare. acceptable  Nonetheless,  the need remains f o r having  an  i n d i c a t o r of s o c i a l w e l f a r e , and while economic  welfare i s an extremely  crude measure of i t , i t i s u s u a l l y  c o n s i d e r e d the best a v a i l a b l e  (Watt, 1973).  Most r e c e n t l y , development economists are q u i c k l y a r r i v i n g at the c o n c l u s i o n that economic development cannot  be  i n t e r p r e t e d to mean simply economic progress or an  i n c r e a s e in  economic welfare as measured by a change i n per c a p i t a  real  25 income.  As Meir  only a p a r t i a l  (1976) p o i n t e d out, "per c a p i t a r e a l income i s  index of economic welfare because a judgement  r e g a r d i n g economic welfare w i l l a l s o i n v o l v e a value  judgement  on the d e s i r a b i l i t y of a p a r t i c u l a r d i s t r i b u t i o n of income", and consequently  i t cannot be s a i d d e f i n i t e l y  has i n c r e a s e d , even i f per c a p i t a  "that economic  welfare  income has r i s e n , unless the  r e s u l t a n t d i s t r i b u t i o n of income i s a l s o c o n s i d e r e d d e s i r a b l e " . The development planner must, t h e r e f o r e , a v o i d l a b e l l i n g an i n c r e a s e i n per c a p i t a r e a l  income, an i n c r e a s e i n economic  w e l f a r e , l e t alone s o c i a l w e l f a r e , without s p i n o f f e f f e c t s on product and Muellbauer,  1982).  composition,  p r i o r study of l i k e l y  and d i s t r i b u t i o n  (Deaton  The q u a l i t y of economic development may  be c o n s i d e r a b l y masked i f the planner does not at l e a s t break up the aggregate composition  measure  the need f o r a c h i e v i n g , u l t i m a t e l y , a  goal than maximum economic w e l f a r e , two elements of  economic w e l f a r e , namely distribution, amenable  (GNP) and s t u d i e s i t s  and d i s t r i b u t i o n .  Notwithstanding broader  of growth  i n c r e a s e i n output  and income  stand out as the most p r a c t i c a l  indicators  to measurement and r i g o r o u s economic a n a l y s i s (Blang,  1982; Samuelson,  1983).  In t h i s l i g h t ,  i t should not come as a  s u r p r i s e that modern s c h o l a r s t r e a t the q u e s t i o n of economic development as p r i m a r i l y  (although not e x c l u s i v e l y ) a matter of  a c h i e v i n g s u s t a i n e d economic growth and improving distribution.  The t i t l e of a study by Chenery e t a l . (1974),  for the World Bank: " R e d i s t r i b u t i o n with Growth", essence  income  summarizes the  of the goals of present day economic development.  Chenery et a l . p o l i c y study  The  suggests, among other t h i n g s , an  26  improved methodology f o r : (a)  Laying down a statement of goals that combine growth and distribution  i n t o a s i n g l e measure (index) of s o c i a l  welfare. (b)  A growth - cum - d i s t r i b u t i o n theory that b r i n g s out the l i n k a g e s between  the growth of d i f f e r e n t economic groups  and d e f i n e s the scope f o r p o l i c y i n t e r v e n t i o n . (c)  A summary comparison of some a l t e r n a t i v e s t r a t e g i e s of d i s t r i b u t i o n and growth, such as maximum growth of GNP, r e d i r e c t i o n of investment  to r a i s e  incomes of the poor,  and r e d i s t r i b u t i o n of consumption. In a move s i m i l a r  to the World Bank's, the U n i t e d  Nations  has begun to explore the p o s s i b i l i t y of using a general development index  (G.D.I.) which, by i n c o r p o r a t i n g growth and  d i s t r i b u t i o n parameters s i m u l t a n e o u s l y , would serve as a b e t t e r measure of development than would gross n a t i o n a l product 1973).  The stage would appear t o be set f o r the use of welfare  i n d i c e s i n development p l a n n i n g , and most l i k e l y used c o n s i d e r a b l y i n f u t u r e p o l i c y a n a l y s e s .  they w i l l be  In t h i s  the past c o n f l i c t s between growth and d i s t r i b u t i o n longer haunt the macro-planner seeking a s i n g l e criterion  by which to measure economic w e l f a r e .  economic development  i s simply reduced  regard,  should no  "ideal" The matter of  to a maximization i n  present value terms (or overtime) of the i n d i c a t e d function  (Watt,  welfare  (Samuelson, 1983).  The g e n e r a l c o n c l u s i o n stemming  from the d i s c u s s i o n i s that  the best, most p r a c t i c a l goals of economic development i n LDCs should be r a p i d economic growth accompanied by d i s t r i b u t i o n a l  27  justice,  regardless  the w e l f a r e complete  be  between  such as  not have  Similarly,  improved s o c i a l  what a r e r i g h t l y  regard,  implications due  to t i e d  the  influence  limitations  wants, would  improved  and p r o g r a m  the  capital  and t i e d  of t h e r i s k  of  repatriation,  social  attitudes  positive  has t o a c h i e v e  credit  need  improvements  g o a l s of d e v e l o p m e n t  to consider  or  changes but  these  also goals.  practical  of p r o b l e m s s u c h a s l i m i t e d  on p r o f i t a b i l i t y foreign  and  or  seeks a  merit  overtones,  more t h a n j u s t  a nation  markets, s u p p l i e r s '  on  economic  Policy  i t i s important  t o development  process,  services  the superior  on t h e means and ways t h a t  imports.  I f the planner  a measure of i n s t i t u t i o n a l  be v i e w e d a s e x e r c i s i n g  In t h i s  them.  direct  need t o be c o n s i d e r e d .  should in  o r may  included.  change, may  trade-offs  i n w h i c h t h e s e a r e measured  assessment of the development  w h i c h may to  o f t h e way  demand  technology,  and  expropriation, and  restrictions in  28 4.  CRITERIA FOR So.far,  hence  INVESTMENT AND  Section  development  (national  and  level  of p r o g r e s s .  positively,  further  local,  t h e economic  of a n a l y s i s  him  be  main  economist  and  economist  which  i n the process  i s being  of a l l r e s o u r c e s 1.3.  must  their  The  methods and  alternative  objectively scientists  of n a t i o n a l  how  should  t o economic prior  have.  development  i s how  in The  should  resource  possible  welfare  i s obtained.  to planning  a i m of economic  remain as the m a x i m i z a t i o n of s o c i a l  by t h e  in p a r t i c u l a r .  the  and  well-being.  public  p l a n n e r must have a  ultimate  than  t h e key t o t h e  t o be p l a y e d  t h e maximum  concluded, that  of g o a l s .  national  r e s o u r c e s of a n a t i o n ,  addressed here  (and P r o g r a m s ) , t h e d e v e l o p m e n t statement  holds  of r e s o u r c e s  perform to ensure that  Section  by  i s perhaps the  to i t s material  be p l a n n e d f o r , a n d / o r  contribution  and  important r o l e  i n the a l l o c a t i o n  question  or  or p o l i t i c a l  ( b u t not e x c l u s i v e l y )  investment  absolute  be c o n s i d e r e d  to evaluate  economist, t h e r e f o r e ,  i s , c o n s e q u e n t l y , an  general,  and  has a v a i l a b l e ,  optimum use of t h e s c a r c e p r o d u c t i v e  development  political  factors,  t a k e n t o enhance  f a r more r i g o r o u s l y  anthropologists,  The d e v e l o p m e n t  There  should  regional,  planner  which a l l o w  options  sociologists,  ultimately  relative  the s o c i o - e c o n o m i c environment  To  development,  development  should  and economic  and  element d e t e r m i n g the p o s s i b i l i t i e s f o r  development.  tools  cultural,  While a l l f a c t o r s  and measures  underdevelopment  on a m y r i a d of s o c i a l ,  to determine a nation's  makers,  most c r u c i a l  shown t h a t  international),  interact  role  has  are dependent  which  policy  1.2.  POLICY FORMULATION  welfare  policy  clear  development (Samuelson,  29 1983).  However, s o c i a l welfare cannot be c a r d i n a l l y  measured,  t h e r e f o r e , the economist seeks to maximize the l e s s p e r f e c t but more p r a c t i c a l concept of economic w e l f a r e . i m p e r f e c t i o n s inherent  Additional  i n economic welfare make i t necessary t o  f u r t h e r disaggregate the goal of development u n t i l  f i n a l l y the  two most p r a c t i c a l goals of investment p o l i c y , economic growth and d i s t r i b u t i o n a l  j u s t i c e , emerge.  I s h a l l now concern myself  with the second p r e r e q u i s i t e to development p l a n n i n g , the definition  4.1.  of a p p r o p r i a t e c r i t e r i a  f o r decision-making.  A l l o c a t i o n of Investment Resources Resources need to be a l l o c a t e d to f a c i l i t a t e  development.  But development i s b a s i c a l l y economic growth and income d i s t r i b u t i o n , plus a measure of i n s t i t u t i o n a l and s o c i o - c u l t u r a l change.  T h e r e f o r e , resources must be a l l o c a t e d t o encourage  r a p i d economic growth and improve income d i s t r i b u t i o n with other elements of s t r u c t u r a l change.  The general  i n balance policy  r e g a r d i n g i n s t i t u t i o n a l and s o c i o - c u l t u r a l change i s a matter of concern at the highest planning l e v e l and w i l l not normally r e q u i r e , or be amenable t o , r i g o r o u s investment a n a l y s i s .  On  the c o n t r a r y , a l l i t may need i s an understanding of the developmental f o r c e s at work, some p r i o r i t y d e a l of common sense.  r a n k i n g , and a good  On the other hand, d e c i s i o n s concerning  resource investment f o r growth and income d i s t r i b u t i o n are more amenable  t o economic a n a l y s i s and should never (not even when  r e s t r i c t e d by data a v a i l a b i l i t y ) be taken without due t e s t of investment c r i t e r i a .  Estimate of f u t u r e events must be made  e x p l i c i t l y and l i k e l y consequences must be compared as  30  objectively planning,  as p o s s i b l e .  t h e r e l a t i o n s h i p between  redistribution From quite  transfers  Today,  i t becomes n e c e s s a r y  this  found  the it  has been  little  hand,  "economic that  to evaluate  well  development  equity"  a nation  goals  g r o w t h " and  policies  1974).  in principle, i t of  regional  (equality)  natural  as  distribution",  c r i t e r i a for on t h e one  i n d i c a t o r s , and on t h e o t h e r ,  indicators.  t h e most  planning  must be s t r u c t u r e d ,  efficient  the l e v e l  resources,  maximizing the o p p o r t u n i t i e s  a more e q u i t a b l e  and C h e n e r y ,  "income  the a p p r o p r i a t e  maximizing  growth.  large-scale  i t produces f o r  of d e v e l o p m e n t  whether  economic  that  i n the methodology  efficiency"  making  hence  growth.  t h e r e s u l t s of any  accepted  resources,  investment,  no  formulation.  n a t u r a l l y that  o f "economic  found  u n l i k e l y i n LDCs.  fairly  a c h i e v e m e n t o f "economic  evaluating  they  recognized  (Ahluwalia  set the p r a c t i c a l  follows  e c o n o m i s t s were  of u n r e s t r i c t e d  groups  reflection  and p o l i c y  Having  theory,  p o l i c y i n terms of the b e n e f i t s  idea  and  p r i m a r i l y concerned.  of d i s t r i b u t i o n and  are p o l i t i c a l l y  socio-economic  of development  investment  As a r e s u l t ,  i t i s generally  of income  different  planning  I am  the o b j e c t i v e s  nevertheless,  development  has  groups.  part  resources  t o assume t h e p o s s i b i l i t y  between  Therefore,  that  this  t o modern d e v e l o p m e n t  among income  transfers  While  w i t h growth,  classical  content  conflict  I t i s with  For i t i s a l s o  definition  f o r a given  stock  for saving  of  and  of i n c r e a s i n g c a p i t a l  formation  and  Intuitively,  seem t h a t  an LDC  i t would  d i s t r i b u t i o n o f income  true  use o f i t s p r o d u c t i v e  o r man-made, i s by  o f o u t p u t ; and  of  would be  furthering having  increasing  31 social  utility  aggregate The  p e r head and most  social  choice  techniques, implicit  of r e s o u r c e  i s further  constraints  of  criteria  will  the rate of s o c i a l  and  words,  be r e q u i r e d  e f f e c t are the and p u b l i c  institutional  to treat  process.  which the investment  The  function A  concern  questions  t o a common d e n o m i n a t o r f o r i s t o be made i n discounting  with a choice  objective  of a time  i s t o be m a x i m i z e d .  f o r macro-economic p l a n n i n g .  s u c h a s t h e optimum  and i n d u s t r y ,  or import  most  important.  with  the problem of p r o j e c t  the extent  particular  rate  choice  choice.  regard,  between  and e x p o r t s ,  of t h i s study  lies,  primary are  however,  and t h e c l o s e l y r e l a t e d  and q u a l i t y o f r e g i o n a l  project  i s a matter  In t h i s  of investment  substitutes  The main c o n c e r n  being  investments  p r o b l e m o f r e s o u r c e a l l o c a t i o n among s e c t o r s  great  choice  final  temporal  i f the d e c i s i o n  jointly  crucial  Other  of p r i v a t e  upon t h e d e v e l o p m e n t  from t h e need  In o t h e r  will  over  The  sectors  selected.  t e r m s , a s e l e c t i o n o f an a p p r o p r i a t e  procedure period  i s , f o r instance,  a l s o depend on t h e o b j e c t i v e  arises  comparison.  of  investment  some way so t h e y c a n be r e d u c e d  present  of e x p l i c i t or  i . e . , g r o w t h o r income d i s t r i b u t i o n .  complication  of  by t h e e x i s t e n c e  p r o j e c t s , and  In t h i s p a r t i c u l a r a s p e c t , the  revenue,  which bear  maximized,  in  in sectors,  w h i c h have a s i m i l a r c o m p l i c a t i n g  and a m u l t i p l i c i t y  objectives  maximizing  imposed on t h e means f o r m o b i l i z i n g  of r e s o u r c e  o f government  saving,  confused  o f t h e b a l a n c e o f payments  to the pattern  flow  investment  f o r development.  constraint  therefore,  welfare.  constraints  resources  likely,  I shall,  development therefore,  induced  concern  issue by a  myself  32 only p e r i p h e r a l l y with i s s u e s of optimum i n t e r s e c t o r i a l allocation  (macro-economic  planning) and t e c h n i c a l  resource  efficiency,  paying i n s t e a d s p e c i a l a t t e n t i o n to c r i t e r i a at the p r o j e c t level. There are some fundamental d i s t i n c t i o n s to be made i n connection with the problem of investment c r i t e r i a and p r o j e c t choice. between  Meir (1976) warned about the need to d i s t i n g u i s h (a) the s t a t i c and dynamic aspects of the problem, (b)  between micro and macro economic e f f i c i e n c y , and (c) between economic and non-economic  criteria  of c a p i t a l a l l o c a t i o n .  Some  development economists have attempted to solve the q u e s t i o n of investment c r i t e r i a by r e l y i n g on a "shadow" s o c i a l function.  welfare  The usual approach has been to d e f i n e what i s assumed  to be a r e p r e s e n t a t i v e welfare f u n c t i o n and then t o maximize t h i s f u n c t i o n when making the investment c h o i c e 1983).  T h i s approach i s p a r t i c u l a r l y true of the " s o c i a l  product" school which seeks to maximize growth.  (Samuelson,  the rate of economic  The l i t e r a t u r e on resource a l l o c a t i o n  development abounds alternative  f o r economic  i n c r i t e r i a and techniques f o r e v a l u a t i n g  investment o p t i o n s .  However, there a r e wide  d i s c r e p a n c i e s as w e l l as strong s i m i l a r i t i e s taken by the v a r i o u s s c h o l a r s .  i n the approach  The d i f f e r e n c e s i n approach  normally r e f l e c t d i f f e r e n t e v a l u a t i o n s as regards the o b j e c t i v e s of economic  development.  33  4.2.  Optimum Investment  A.  Criteria  Economic Growth ( E f f i c i e n c y ) G o a l : The N a t i o n a l Aggregate Consumption  Criterion  Two main proposals f o r a p p l y i n g a s o c i a l product c r i t e r i o n have been analysed.  One by Tinbergen i s c a l l e d the n a t i o n a l  produce (or consumption) t e s t and another by Kahn and Chenery i s c a l l e d the s o c i a l marginal p r o d u c t i v i t y  (SMP)  test.  I shall  concern myself only with the n a t i o n a l produce (or consumption) test  f o r reason of i t s s i m p l i c i t y . It has been s a i d that the u l t i m a t e aim of a l l economic  activity  i s consumption; p r o d u c t i o n  in i t s e l f  has no meaning  and  i t would be i r r a t i o n a l to add to n a t i o n a l output f o r the sake of production.  S o c i a l product (output) i s valued f o r the  s a t i s f a c t i o n d e r i v e d from the p r o p o r t i o n used f o r consumption and a l s o f o r the f u t u r e streams of s a t i s f a c t i o n a t t r i b u t a b l e to the p r o p o r t i o n which i s i n v e s t e d . value.  T h e r e f o r e , consumption  Investment per se has no  r a t h e r than income changes over  time should be the a p p r o p r i a t e i n d i c a t o r of w e l f a r e (Gane,  changes  1969).  Tinbergen  (1958) f i r s t  suggested the a p p l i c a t i o n of a s o c i a l  product c r i t e r i o n when he developed the n a t i o n a l produce (or consumption)  test  f o r resource a l l o c a t i o n .  The c r i t e r i o n i s  based on an assessment of the p r o j e c t ' s d i r e c t ,  indirect,  and  secondary consequences, a l l v a l u e s reckoned at "accounting prices".  I n d i r e c t consequences being those expected i n the  absence of f u r t h e r changes  in total national  income, and  34  secondary consequences those r e s u l t i n g  from changes i n  p r o d u c t i o n which are the consequences of the changes income connected with the new  production.  the short or long term, are i n c l u d e d It  in national  A l l changes, both i n  (Meir,  1976).  i s emphasized that maximum consumption should be the  g o a l , s i n c e investment, the other part of n a t i o n a l product, i s not an end i n i t s e l f ,  but meant to i n c r e a s e f u t u r e  consumption.  Maximization of product or consumption, r e q u i r e s a procedure f o r comparing f u t u r e with present v a l u e s .  This  necessitates  a p p l i c a t i o n of a d i s c o u n t r a t e to render values comparable over time.  It i s essential,  national  income,  "that the maximum r e f e r s to t o t a l  i . e . , income to be d e r i v e d from the programmed  s e c t o r s as w e l l as from other s e c t o r s .  T h i s i m p l i e s that  not a matter of i n d i f f e r e n c e whether  e.g., a p r o j e c t  which leads to higher savings or one  ( y i e l d i n g the same  c o n t r i b u t i o n of n a t i o n a l  i t is  i s chosen  income) l e a d i n g to lower s a v i n g s .  The  l a t t e r p r o j e c t would probably somewhat depress development in the other s e c t o r s , as compared with the former. example may  An  interesting  be the c h o i c e between a l a r g e i n d u s t r i a l p l a n t and a  set of c o t t a g e i n d u s t r y p r o j e c t s . same commodity, say t e x t i l e s , many more workers who  Both p r o j e c t s may  produce the  i n the l a t t e r case by employing  do not save; i n the former by employing  managers and t e c h n i c i a n s who  do"  (Tinbergen,  1958).  A s i m i l a r but l e s s comprehensive approach t o Tinbergen's n a t i o n a l produce (or consumption)  test  i s taken by UNIDO's  (1972) "aggregate consumption" t e s t , which seeks to maximize present value of only the d i r e c t  the  f u t u r e streams of consumption  s a t i s f a c t i o n d e r i v e d from a given investment.  UNIDO's main  35 contribution  to s o c i a l  s t e p method  i t offers  consumption  benefits  B.  The  and  (social  g r o w t h as an  now  direct  to c r i t e r i a  equity  my  accelerating rather  than  dealt  with  essential  investment welfare sort  i n t e r m s of  poverty  d e c i s i o n s which  relative  different  raise  the  and  goal  i n c o r p o r a t e the  line.  analysis  The  accumulation  income  i n the poorer  by  c o n c e i v e d of groups  the  Chenery  the a l l o c a t i o n  State intervention  of  of  of  this  income i n  incomes o f  income l i n k a g e s i s c r u c i a l from  but  rich,  the  rich  i f they  t o the poor  reduce  t h e y may  savings  i n time  lead  s p e a k i n g , c o n s i d e r a t i o n s of a g g r e g a t e e t c . ) cannot  be  and to  welfare  separated  as may  groups.  (e.g., output, consumption,  and  so as t o m a x i m i z e a  of t h e d e t e r m i n a n t s  of  society  s t a t e as u s i n g  l i n k a g e s between t h e  fact  as  in  income.  of the  (including  income of t h e p o o r ,  Strictly  I  t h e g o a l of  s h a r e s of  role  or o t h e r t r a n s f e r s  capital  that  human c a p i t a l )  this  of t h e  groups".  tax-financed  the  and  along  b o t h an  groups  income d i s t r i b u t i o n  of t h e p o o r e r  instruments  in physical  requires  Versus  t h e need t o a c h i e v e  i s more u s e f u l l y  the development  function  project.  of d e v e l o p m e n t o p t i o n s .  justice  policy  aggregate  g o a l of e c o n o m i c d e v e l o p m e n t .  to the  f o r investment  his colleagues, "visualize available  s t e p by  Criterion  C h e n e r y e t a_l. (1974) s u g g e s t e d distributional  of a  with the  ( E q u i t y ) G o a l ;> Employment  attention  implications  lies  direct  product)  Consumption  preceding section  economic  criteria  for evaluating  Income D i s t r i b u t i o n Relative  shall  product  from  lower  36 questions welfare  of income d i s t r i b u t i o n .  S i m i l a r l y , o b j e c t i v e s of  e q u a l i t y cannot be separated  investment, and economic growth.  from those of saving,  When the growth of GNP i s used  as an index of performance i t i s i m p l i c i t l y assumed that a u n i t of a d d i t i o n a l income c r e a t e s regardless  the same a d d i t i o n a l s o c i a l  of the income l e v e l of the r e c i p i e n t .  Put simply,  r i c h man's consumption counts as much a poor man's. e m p i r i c a l , as w e l l as on s t r i c t that t h i s i s not t r u e .  welfare a  On  t h e o r e t i c a l grounds, we know  The law of d i m i n i s h i n g  marginal u t i l i t y  of money ( a l t e r n a t i v e l y consumption) d i c t a t e s that at higher consumption l e v e l s the u t i l i t y per u n i t of consumption (Samuelson and S c o t t ,  1975; Samuelson, 1983).  At t h i s stage of the d i s c u s s i o n , a q u e s t i o n comes to mind. distribution  Leaving a s i d e  of great  concern  the issue of the r o l e of income  i n the maximization of s o c i a l welfare,  why pursue d i s t r i b u t i o n a l  j u s t i c e by means of  a l l o c a t i o n at the p r o j e c t l e v e l ? "should  i s less  one may ask,  resource  As suggested by UNIDO (1972)  not governments seek to b r i n g about the d e s i r e d  d i s t r i b u t i o n of income through t a x a t i o n , t r a n s f e r s , and other instruments of n a t i o n a l f i s c a l p o l i c y and l e t p r o j e c t s be judged on the b a s i s of t h e i r c o n t r i b u t i o n to aggregate consumption alone?" be no.  In the face of the e m p i r i c a l evidence the answer must "To assume that the d e s i r e d r e d i s t r i b u t i o n of  consumption i s t o be achieved  independently of p r o j e c t s i s t o  place undue r e l i a n c e on f i s c a l p o l i c y - taxes and s u b s i d i e s and  on the p r i c i n g p o l i c i e s used i n the d i s t r i b u t i o n of the  outputs of public- e n t e r p r i s e s . in most developing  In the f i r s t p l a c e , tax systems  c o u n t r i e s a r e weak.  Political,  37 i n s t i t u t i o n a l , and a d m i n i s t r a t i v e o b s t a c l e s prevent t a x a t i o n of the r i c h to the point necessary to reduce inequalities substantially.  consumption  In the second p l a c e , there i s a  widespread o b j e c t i o n to i n c r e a s i n g the consumption through d i r e c t  subsidies.  of the poor  C r i t i c s of s u b s i d i e s , ranging from  c o n s e r v a t i v e to r a d i c a l , argue that the enhancement of the s e l f respect that accompanies  active participation  i n c r e a s i n g one's standard of l i v i n g aggregate consumption costly"  (UNIDO,  even  i f direct  i n the process of  i s worth some s a c r i f i c e of s u b s i d i e s would be  less  1972).  E x i s t i n g t h e o r i e s of income d i s t r i b u t i o n are not too h e l p f u l in e s t a b l i s h i n g an a n a l y t i c a l governmental a c t i o n .  framework f o r comprehensive  Most t h e o r i e s are too narrowly focused on  the f u n c t i o n a l d i s t r i b u t i o n of income between labour and capital. On the whole, the inadequacies of e x i s t i n g t h e o r i e s seem to arise primarily  from the vacuum i n which they are d e f i n e d  regarding the present c o n d i t i o n s of LDCs.  While they do not  agree as to the determinants of the f u n c t i o n a l d i v i s i o n of labour, t h i s i s of some importance.  The t h e o r e t i c a l  inadequacy  appears to stem from the omission they make of other a s p e c t s of the problem. classical,  For example, i t i s of no great concern to  n e o - c l a s s i c a l , and Keynesian economists that c l o s e to  50 percent of the poor are self-employed and do not enter the wage economy.  P o l i c i e s born out of d i s t r i b u t i o n a l theory  g e n e r a l l y attempt to i n f l u e n c e the s p l i t profits.  between wages and  However, many wage earners i n some LDCs are a l r e a d y i n  the middle-income  groups and consequently t r a d i t i o n a l ,  38 d i s t r i b u t i o n a l p o l i c i e s have the e f f e c t on  the upper end  unaffected  of the d i s t r i b u t i o n ,  (Ahluwalia  income d i s t r i b u t i o n increased  and  of  The  How  then  alternative  distributional  that e x p l a i n s  investment o p t i o n s ,  the process.  different  distributional  achieving  equity  employment i s v a l u a b l e The  to the  livelihood  the weak, r e g r e s s i v e  because of  for the  should  impact on  i t s impact on  family.  In other  etc., really  words, employment  employment be valued income d i s t r i b u t i o n , and  distribution  above that made  separately or should  i n the  l i g h t of  income be given  employment t r e a t e d as a means to i t ? fundamentally i t makes l i t t l e  the  a  UNIDO's  difference  l i n k between employment  i s e x p l i c i t l y recognized  In p r a c t i c e ,  to t r e a t  increases  unemployment.  which approach i s taken, so long as the  superior  income  reasons f o r encouraging employment c r e a t i o n ,  (1972) answer i s that  calculated.  Criterion  f a c t that employment c r e a t e s a source of  s p e c i f i c value  and  tax  reasons,  f a m i l y ' s consumption p o s s i b i l i t y over and  But  assessing  that have  (or Unemployment) - A Non  p o s s i b l e by a c o n d i t i o n of  its  on  b e t t e r nourishment, improved education,  relate  In  not  Otherwise the whole burden of  i s important to note t h a t , among other  distribution.  have or  in LDCs.  -- Employment  the  effects.  goals would f a l l  systems p r e v a i l i n g  impact of  the p r o j e c t planner must f i n d  ways to d i s c r i m i n a t e between investment options  e.g.,  should  economic a c t i v i t i e s w i l l occur whether we  a comprehensive theory  It  primarily  l e a v i n g the poor  Chenery, 1974).  be analyzed?  impacting  and  realistically  however, i t appears e a s i e r  and  income l e v e l s of the poor c l a s s e s as  the  39 relevant analyst  item i n p r o j e c t a p p r a i s a l .  T h i s way, the p r o j e c t  i s i n a d i r e c t p o s i t i o n to judge the p r e c i s e  impact of  employment and of other f a c t o r s on income d i s t r i b u t i o n . Employment has t r a d i t i o n a l l y been c o n s i d e r e d a separate o b j e c t i v e of economic p o l i c y , as such, employment or unemployment have come to be viewed d i s c r i m i n a t i n g between investment attitude and  as fundamental  options.  c r i t e r i a for  One reason f o r t h i s  i s found i n the above r e l a t i o n s h i p between employment  income d i s t r i b u t i o n .  An e q u a l l y important  reason r e l a t e s t o  s o c i e t y ' s concern with labour as an important economic resource. In t h i s context, i t i s only n a t u r a l to regard the e x i s t e n c e of unemployment as a sign that v a l u a b l e economic resources are being wasted.  The o b j e c t i v e of employment c r e a t i o n , t h e r e f o r e ,  may be l e g i t i m a t e l y r e l a t e d to a g o a l of f u l l e r e x p l o i t a t i o n of the p r o d u c t i v e p o t e n t i a l of a n a t i o n .  When viewed  in this  l i g h t , employment c r e a t i o n becomes completely s u b s e r v i a n t to output  (consumption)  c r e a t i o n , and as such can be f u l l y  i n c o r p o r a t e d i n t o one of the s o c i a l product c r i t e r i a d e s c r i b e d e a r l i e r , e.g., a measure of aggregate by Tinbergen  (1958).  consumption as advocated  We see then, that the employment  criterion  i s r e a l l y not r e p r e s e n t a t i v e of a development g o a l , but r a t h e r of a development means and should not be c o n s i d e r e d f o r i t s own sake  in project evaluation.  Rather,  i t should be sought  sake of what i t generates, such a s : output system,  f o r the  f o r the p r o d u c t i v e  income to c e r t a i n people, o p p o r t u n i t i e s f o r l e a r n i n g ,  and g e n e r a l l y increased modernization and upward m o b i l i t y f o r the people.  40  -- R e l a t i v e Income (Consumption) Shares - A Superior Criterion The simplest  i n d i c a t o r of economic welfare has, so f a r , been  a measure of s o c i a l product.  In Tinbergen's•(1958) and UNIDO's  (1972) view, the a p p r o p r i a t e measure of s o c i a l product i s aggregate consumption.  The growth g o a l , a c c o r d i n g l y , i s  e v a l u a t e d i n terms of the p r o j e c t ' s c o n t r i b u t i o n aggregate consumption.  to discounted  By the same token, the c r i t e r i o n f o r  e v a l u a t i n g equity e f f e c t s i s the d i s t r i b u t i o n of aggregate consumption among d i f f e r e n t c l a s s e s , The c r i t e r i o n  income groups, and  suggested by UNIDO i s a " r e d i s t r i b u t i o n a l  regions. benefit  (or c o s t ) " computed with respect to a given group (or groups) i n terms of the net aggregate consumption change a c c r u i n g to that group (or groups).  The  i n d i c a t e d procedure c o n s i s t s of  s e p a r a t i n g out c e r t a i n depressed c l a s s e s or groups and a t t a c h i n g s p e c i a l a d d i t i o n a l weights to the consumption enjoyed by them. The a d d i t i o n a l weights attached to the consumption of the poorer c l a s s e s would o r i g i n a t e from a set of n a t i o n a l parameters r e f l e c t i n g the r e l a t i v e weights on the r e d i s t r i b u t i o n goal a - v i s the goal of pursuing economic  growth  vis-  (alternatively  aggregate consumption) or some other developmental aim (such as merit wants).  C.  M e r i t Wants and Other Developmental G o a l s : Economic versus Non-economic C r i t e r i a  The c r i t e r i a non-economic  f o r resource a l l o c a t i o n  analysis  (merit wants), may  that of economic a n a l y s i s .  from the standpoint of be q u i t e d i f f e r e n t  I have i n d i c a t e d e a r l i e r  that  from  41 development  i s more t h a n  distribution, cultural  that  I f we  w i t h the o b j e c t i v e  institutions development  generally  objective.  from  institutional,  seek  of c h a n g i n g  investment  that  Investment  advocated  criteria,  e.g.,  test  undertaken  observations heavily  and  values to  and  the  for a  might  be  growth  i n t h e s e c i r c u m s t a n c e s , may  investment  the  key  pattern selected  to r i g o r o u s economic a n a l y s i s . is usually  social,  to optimize resource  correspond  empirical  income  considered antagonistic  p r o c e s s , the  different  g r o w t h and  i t involves  change as w e l l .  allocation  quite  and  economic  on  weighted  On  not  the c o n t r a r y , the  t h e s t r e n g t h of by  the  best  judgement of  goals, other  than  those  decision-maker. Merit  wants and  contained  i n the measures of s o c i a l  distribution, so-called  GDP,  are o f t e n  with s o c i a l  connected  consumption,  etc.  investments,  some r o l e  in project  necessary  economic overall  and  in public  than  with  m e r i t wants c a n  and  policy.  output,  be  and  In t h e s e c a s e s analyst  e.g.,  GNP,  natural  identified  and  may  play  i t i s once  to i d e n t i f y  to incorporate t h i s  the  goal into  v i a a s e t of n a t i o n a l  established.  These  investments  However, i n i n d u s t r i a l  evaluation.  income  g o a l s a r e more commonly  investments  of performance  institutionally resources  important  f o r the p r o j e c t  goal pursued index  product  t o a measure o f n a t i o n a l  resource  again  quite  non-economic d e v e l o p m e n t  associated directly  developmental  nonan  weights  Examples o f a l l o c a t i n g  productive  f o r these g o a l s a r e :  Investment  in projects  that  transform v i l l a g e  make i t more amenable t o s t r u c t u r a l  change.  life  and  42 Investment other  i n the c r e a t i o n  t a r g e t groups,  exposure  Investment  in certain  increasing  social  Investment  i n new p u b l i c  types  support  ideas.  of e d u c a t i o n  institutions  or programs f o r  and t h e  of o t h e r s . facilities  means of b r i n g i n g i s o l a t e d  Investment  their  a w a r e n e s s and r e a d i n e s s t o c h a n g e .  L o c a t i o n of i n d u s t r i a l  progressive  f o r women, o r  as a means o f i n c r e a s i n g  t o new v a l u e s and new  restructuring '--  o f work p l a c e s  i d e a s and  i n backward a r e a s  groups  into contact  as a  with  institutions.  in projects that  improve on t h e e n v i r o n m e n t ,  s o v e r e i g n t y , o r some o t h e r h i g h e r  values  of t h e  nation. Some o f t h e s e economic need as  criteria.  to foster  economic  project  non-economic c r i t e r i a Nevertheless,  socio-cultural  change, t h e s e  planner  may a t t i m e s  i n view o f t h e d e v e l o p m e n t  and i n s t i t u t i o n a l  criteria  cannot  usually  applied  take  t h e form  of n a t i o n a l  them  in a single  indicator  weights  uncommon o c c u r r e n c e evaluation  to a test  best  relative  such  circumstances,  discriminate  i n LDCs, t h e p l a n n e r o f economic c r i t e r i a  estimate  of p o t e n t i a l  i t would be l e f t  subjectively  involved.  which  criteria  weights,  This  when  serve to  of performance.  a b s e n c e o f an a p p r o p r i a t e s e t o f n a t i o n a l  The  finding objective  criteria  t o t h e e c o n o m i c and non-economic  aggregate  change a s w e l l  be i g n o r e d .  i s , therefore, forced into  means by w h i c h t o compare t h e d i f f e r e n t will  contradict  In t h e  a not  may have t o l i m i t h i s and p r e s e n t  only h i s  " m e r i t want e f f e c t s " .  In  up t o t h e d e c i s i o n - m a k e r  between t h e e c o n o m i c  to  and non-economic  43 performance of each p r o j e c t and  4.3.  choose the best  Concluding Remarks I have i n d i c a t e d that the question  for  option.  investment d e c i s i o n s  of a p p r o p r i a t e  i s extremely complex.  There are  of development goals, development c o n s t r a i n t s , and means that obscure the criteria.  framework f o r d e f i n i n g  Furthermore, the  h i g h l y dependent on the undertaken, which may kind.  criteria issues  development  investment  r a t i o n a l e for resource  kind of economic a n a l y s i s  allocation is being  be of the macro, p r o j e c t , or t e c h n i c a l  In LDCs the choice  of optimum resource  a l l o c a t i o n i s made  i n c r e a s i n g l y d i f f i c u l t by the u n c e r t a i n t i e s that surround determinants of development and p r e v a i l i n g market i m p e r f e c t i o n s ,  s o c i a l welfare,  In a d d i t i o n , before  r u l e than  problem, micro and economic and It may criteria one  s t a t i c and  dynamic aspects of  non-economic investment  i s not a matter of d e s i g n i n g  issue of  i s to make p r o j e c t choice  The  subject  criteria,  investment  to a c o n s i s t e n t As  UNIDO (1972) g u i d e l i n e s f o r p r o j e c t e v a l u a t i o n ,  but  main reason f o r  t e s t of p u b l i c  of accepted o b j e c t i v e s of n a t i o n a l p o l i c y .  one  between  investment  appropriate  of r e s o l v i n g c o n f l i c t s among c r i t e r i a .  criteria  the  criteria.  that the  s u b j e c t i n g a set of p r o j e c t s to the  be  and c a r e f u l l y  macro-economic e f f i c i e n c y , and  be obvious by now  the  a s u p e r i o r c r i t e r i o n can  chosen, the development planner must f i r s t l y d i s t i n g u i s h between the  the  e x t e r n a t i 1 i t i e s , and  d i s e q u i l i b r i u m p r i c e s which are more the exception.  and  the  set  s t a t e d i n the "the c h o i c e  of  p r o j e c t rather than another must be viewed i n the context  of  44  their  total national  impact,  in terms of a c o n s i s t e n t  and t h i s  impact has to be evaluated  and a p p r o p r i a t e  set of  objectives".  The avoidance of a complete dichotomy between p r o j e c t  c h o i c e and  n a t i o n a l planning should be a matter of a d d i t i o n a l concern when evaluating alternative chosen over another, employment, output, earnings,  consumption,  income d i s t r i b u t i o n ,  savings,  foreign  The purpose of p r o j e c t  consequences taken j o i n t l y are d e s i r a b l e  the development  goals.  exchange  evaluation,  i s to see whether in the l i g h t  of n a t i o n a l planning and u l t i m a t e l y  is  for  and other t h i n g s of relevance  t e s t i n g with investment c r i t e r i a ,  objectives  When one p r o j e c t  "the choice has consequences  national objectives". i s of  investment o p t i o n s .  of  to  that these the  in the context  of  PART I I  CONCEPTUAL BASIS OF DEVELOPMENT  PLANNING  46 1.  INTRODUCTION During the  l a s t century there has  from a s o c i e t y dominated by intervention  r o l e in the  We  now  see  educational  organize, finance, majority  laissez-faire,  i s accepted to v a r y i n g  everyday l i f e .  and  and  health  intervention  l i e s with the  welfare.  programs of  The  undisputed  nations; systems;  hold  in telecommunications, power,  generally  freedom.  where s t a t e  degreees in many aspects of  control transportation  unparalleled  which i s g e n e r a l l y  to one  evolution  that governments play an  ownership p o s i t i o n s  other i n d u s t r i e s ; and  been a r a p i d  steer  the  economy with  obvious j u s t i f i c a t i o n implicit  goal  and  for t h i s  behind p u b l i c  policy,  accepted as being the maximization of  It i s t h i s need to maximize the well-being  of  social nations  that motivate governments to intervene  in economic  that, u n t i l  in the p r i v a t e domain.  As  i t has  r e c e n t l y , were e x c l u s i v e l y  been demonstrated, time and  i n t e r p l a y of p r i v a t e a c t i o n s  and  activities  time again, the  market forces often  s i t u a t i o n s which reduce o v e r a l l n a t i o n a l welfare, and only  be  (Glasson  normal r e s u l t s in which  improved by means of a c o n t r o l mechanism - planning 1974).  can  47 2.  THE NATURE OF DEVELOPMENT PLANNING The  verb  "to p l a n " i s u s u a l l y understood  to mean the a c t of  making a plan of ground, b u i l d i n g s ; or d e s i g n i n g a s t r u c t u r e to be c o n s t r u c t e d ; or scheming, a r r a n g i n g beforehand a procedure or program.  Planning can be meant t o r e f e r to p h y s i c a l p l a n n i n g -  p h y s i c a l design, or to general planning - the a c t i o n of t a k i n g thought to determine an a c t i o n or s e r i e s of a c t i o n s beforehand (Hall  1970).  Major f e a t u r e s of general planning a c t i o n s which are designed Although  i n c l u d e a sequence of  to solve problems i n the f u t u r e .  the planning problems may vary, they  p r i m a r i l y of an economic or s o c i a l nature. p l a n n i n g p e r i o d i s not uniform  S i m i l a r l y , the  and tends to vary a c c o r d i n g to  the type and l e v e l of the p l a n n i n g a c t i v i t i e s . general planning  tend to be  However, a l l  f o l l o w s the same s e q u e n t i a l process  a c c o r d i n g to Glasson  which,  (1974), i n v o l v e s the f o l l o w i n g stages:  - the i d e n t i f i c a t i o n of the problem; - the f o r m u l a t i o n of general goals and, more s p e c i f i c a l l y , of measurable o b j e c t i v e s r e l a t i n g to the problem; - the i d e n t i f i c a t i o n of p o s s i b l e c o n s t r a i n t s ; - the p r o j e c t i o n of the f u t u r e s i t u a t i o n ; - the generation and e v a l u a t i o n of a l t e r n a t i v e courses of a c t i o n ; and - the p r o d u c t i o n of a p r e f e r r e d plan which, i n i t s generic form, may i n c l u d e any p o l i c y statement or s t r a t e g y as w e l l as a d e f i n i t i v e p l a n . T h i s process  i s r e l e v a n t not only to economic planning but  to problems as personal as o r g a n i z i n g one's h o l i d a y s , choosing  48 the s h o r t e s t route between two p o i n t s , or l a y i n g a s t r a t e g y f o r competitive sports.  As suggested  by Friedmann  (1965),  "planning i s p r i m a r i l y a way of t h i n k i n g about s o c i a l and economic problems, planning i s o r i e n t e d predominantly toward the f u t u r e , i s deeply concerned with the r e l a t i o n of goals t o c o l l e c t i v e d e c i s i o n s and s t r i v e s f o r comprehensiveness i n p o l i c y and program. Wherever these modes of thought are a p p l i e d , there i s a presumption that p l a n n i n g i s being done." Within  the f i e l d of general p l a n n i n g  i t i s p o s s i b l e to  i n c l u d e a wide v a r i e t y of planning a c t i v i t i e s .  One of these  activities  Four  i s development  d i s t i n c t i o n s are necessary  (economic) p l a n n i n g .  essential  f o r a good understanding  of the  meaning and scope of development p l a n n i n g . F i r s t , a d i s t i n c t i o n must be made between p h y s i c a l planning and economic p l a n n i n g .  The d i f f e r e n c e between these two types  of p l a n n i n g has been a constant development p l a n n i n g . p l a n n i n g i s concerned  source of c o n f u s i o n i n r e g i o n a l  I t should be c l e a r that while p h y s i c a l with the development of an area's p h y s i c a l  s t r u c t u r e , e.g. power f a c i l i t i e s , planning  i s interested  roads,  land use,  economic  i n the economic make-up of an area and  i t s o v e r a l l l e v e l of p r o s p e r i t y (Higgins, 1962; Glasson, Secondly,  1974).  a d i s t i n c t i o n must be made between a l l o c a t i v e and  innovative planning.  A l l o c a t i v e planning  i s primarily  concerned  with c o - o r d i n a t i o n , r e s o l v i n g c o n f l i c t s , and ensuring that the e x i s t i n g system i s t i c k i n g over e f f i c i e n t l y accordance  with e v o l v i n g p o l i c i e s .  through  time i n  Sometimes, i t i s r e f e r r e d to  as r e g u l a t o r y planning as i t i n v o l v e s the month-to-month r e g u l a t i o n of the economy using f i s c a l and monetary p o l i c y . Innovative p l a n n i n g , i n s t e a d , i s not merely concerned efficient  f u n c t i o n i n g of present  systems, but with  with  49 improving/developing  the system.  It i s , therefore,  with i n t r o d u c i n g new goals and attempting larger scale.  concerned  to mold change on a  T h i s i s what i s more a p p r o p r i a t e l y known as  development planning which i m p l i e s a change i n welfare from the e x i s t i n g s i t u a t i o n by means of i n n o v a t i o n , induced mutation, or permutation  i n the socio-economic  base.  Of course, as with  p h y s i c a l and economic p l a n n i n g , there i s a great deal of o v e r l a p between the two and a development planning a c t i o n may, and q u i t e often w i l l , (Glasson,  i n v o l v e both a l l o c a t i v e and i n n o v a t i v e aspects  1974).  T h i r d l y , a d i f f e r e n c e e x i s t s between m u l t i p l e or s i n g l e objective planning. objective  Planning may be undertaken with a s i n g l e  i n mind or with m u l t i p l e o b j e c t i v e s .  While an  economic development plan may, and f r e q u e n t l y does, i n c l u d e a p h y s i c a l p l a n , a p h y s i c a l plan never i n c o r p o r a t e s an economic plan.  P h y s i c a l p l a n n i n g i s o f t e n undertaken with a s i n g l e  objective  i n mind, whereas development p l a n n i n g u s u a l l y  incorporates multiple objectives (Hall, Finally, a distinction imperative p l a n n i n g .  i s necessary  1970; Hoover, 1975). between i n d i c a t i v e and  While i n d i c a t i v e p l a n n i n g simply  presents  g u i d e l i n e s and i s e s s e n t i a l l y a d v i s o r y i n nature,  imperative or  command p l a n n i n g i n c o r p o r a t e s s p e c i f i c d i r e c t i v e s  (Glasson,  1974).  For the most p a r t , development p l a n n i n g w i l l g e n e r a l l y  i n c l u d e both  i n d i c a t i v e and imperative  characteristics.  However, from the standpoint of p r o j e c t p l a n n i n g , which i s essentially will  imperative  i n nature, a command p l a n n i n g approach  usually prevail. Development p l a n n i n g i s not merely a p r o j e c t i o n of c u r r e n t  50  trends i n t o the f u t u r e , nor  i s i t budgeting,  programming, or an aggregation  general  of sub-programs.  c r e a t i v e a c t , i n v e n t i o n and design,  Rather,  i t is a  i n c o r p o r a t i n g a system of  i n t e r r e l a t e d d e c i s i o n s f o r change which must be  handled  s e q u e n t i a l l y or in p a r a l l e l w i t h i n an a n t i c i p a t o r y d e c i s i o n process, and demanding simultaneously both an a t t i t u d e of pessimism and  optimism from the planner  Ackoff and R i v e t t , c a l c u l a t e d and  1976).  The  (Ackoff et a_l. ,  1962;  pessimism d e r i v e s from the  inborn f e e l i n g of the planner  done (planned), s o c i a l welfare w i l l  that i f nothing i s  only d e t e r i o r a t e .  The  optimism, on the other hand, f o l l o w s the planner's b e l i e f i n t e r v e n t i o n can prevent otherwise  t h i n g s from being as bad as they would  be.  Development p l a n n i n g , t h e r e f o r e , i s a process with n a t u r a l end p o i n t .  The  T h i s concept  to p r a c t i c a l  (temporary) t e r m i n a t i o n  of p l a n n i n g c o n t i n u i t y , u n f o r t u n a t e l y , has  too o f t e n been d i s r e g a r d e d or l a c k i n g e n t i r e l y development planning p r o c e s s . prepared  no  planner can only t r y to f o l l o w a  p l a n n i n g process converging points.  that  from the  Plans have f r e q u e n t l y been  implying they have long term v a l i d i t y ,  thus  imposing  a  very i n f l e x i b l e development program, i n a s i t u a t i o n that i s , by nature,  flexible  (Waterston,  1969a; Vente,  1970).  At the most general l e v e l , development planning i s a c r e a t i v e a c t i v i t y that encourages a n a t i o n ' s development. efficient  and  To  be  r a t i o n a l , development planning must, above a l l ,  encourage people's development.  In accordance  d e f i n i t i o n of development o u t l i n e d e a r l i e r t h i s would imply  with the  accepted  i n S e c t i o n I.2.1.,  f o s t e r i n g a g r a d u a l , systematic  structural  51 t r a n s f o r m a t i o n of the economy,  society,  polity,  and c u l t u r e of a  nation to permit the s e l f - g e n e r a t i n g and s e l f - p e r p e t u a t i n g and advancement of the p e o p l e ' s p o t e n t i a l . should be the concern of the planner r e g i o n a l or n a t i o n a l  development.  use  T h i s and no other  faced with the task of  52 3.  WHY  PLAN DEVELOPMENT?  Development years.  p l a n n i n g has been p r a c t i c e d  I t i s tempting to e x p l a i n  f o r thousands of  i t away by simply s t a t i n g  that  human beings have a n a t u r a l . u r g e to p l a n , and that p l a n n i n g  is a  part of t h e i r o r g a n i z a t i o n a l make-up.  T h i s would be the  p s y c h o l o g i s t ' s approach which, a c c o r d i n g to Glasson (1974), would set planning up as one of the b a s i c s o c i a l d r i v e s of s o c i e t y - a d r i v e which i s not b i o l o g i c a l l y learned  inborn, but which i s  in s o c i e t y , and upon the s a t i s f a c t i o n of which r e s t s the  s u r v i v a l of s o c i e t y .  However, there are reasons other than  p s y c h o l o g i c a l f o r p l a n n i n g development.  Amongst these a r e :  - The need to i n t e r n a l i z e the frequent e x t e r n a l i t i e s present day economies.  The most r e l e v a n t examples  i n our in t h i s  regard are found i n the e f f o r t s made to minimize the negative environmental impacts of resource development, and to plan p o l l u t i o n  abatement.  - The need to a l l o c a t e resources f o r p r o d u c t i o n on the b a s i s of r e a l demand.  The free market system of our western  s o c i e t i e s f u n c t i o n s according to e f f e c t i v e demand not r e a l demand.  T h i s must be c o n t r o l l e d  i f we are going to avoid  the paradox of having a market demanding  more luxury items  be produced when there i s i n s u f f i c i e n t d r i n k i n g water f o r all. - Most  important of a l l ,  the need to implement a h o l i s t i c  a t t i t u d e towards development, which stems from the f a c t that  i n d i v i d u a l human beings working towards t h e i r  good, do not n e c e s s a r i l y maximize s o c i a l w e l f a r e . particular  fact  own This  i s w e l l i l l u s t r a t e d by the case of a  53 m o t o r i s t t r a v e l l i n g along a mountainous highway and c o n f r o n t i n g some rocks b l o c k i n g h i s path. will  Human nature  g e n e r a l l y compel t h i s m o t o r i s t to s k i p the rocks and  continue,  i n s p i t e of the f a c t that i t would have r e q u i r e d  only a few minutes to stop and move the rocks out of the way.  By passing through,  he has imposed a slowdown  e q u i v a l e n t to a t o t a l of s e v e r a l hours on a l l m o t o r i s t s following. Watt  (1973) pointed out that the advocates  p l a n n i n g have a two-fold reason.  First,  of development  they wish to achieve a  very d i f f e r e n t d i s t r i b u t i o n of consumption amongst the p o p u l a t i o n than would have been p o s s i b l e through laissez-faire•  a p o l i c y of  I t i s assumed t h a t , i n a complete f r e e market  economy, resources and products would be a l l o c a t e d a c c o r d i n g to i n d i v i d u a l ' s p r e f e r e n c e s , incomes and wealth,  and p r i v a t e  company's a s s e t s , i n i t i a t i v e and technology.  But with p l a n n i n g ,  these  i n f l u e n c e s c o u l d be changed to adjust t o a higher  of s o c i a l w e l f a r e .  concept  Second, they b e l i e v e t h a t , with p l a n n i n g ,  s u p e r i o r s o c i a l goals and a b e t t e r economic performance (more e f f i c i e n t p r o d u c t i v e a c t i v i t i e s ) c o u l d be a t t a i n e d .  For t h i s to  happen, however, resource use and consumption would need to be c o - o r d i n a t e d and i n more dramatic or  situations s t r i c t l y  controlled  restricted. Current views on development planning a r e numerous and  d i v e r s e and by no means i s there a u n i v e r s a l l y accepted to c a r r y i n g out the p l a n n i n g a c t i v i t y . i n t e n s i v e r e s e a r c h and heated  approach  A f t e r many decades of  debate on the s u b j e c t , development  economists remain d i v i d e d as to the best means f o r inducing  54 development. development (1958,  Among o t h e r s , famous advocates of planned are Tinbergen, Lewis, and Waterston.  Hirschman  1967) supported a s i m i l a r approach, but s t r e s s e s simple  planning that economizes  on d e c i s i o n making and the t o t a l  d u r a t i o n of the p r o c e s s .  Stolper  (1966) viewed p l a n n i n g as  i n d i s p e n s a b l e f o r optimum resource a l l o c a t i o n and proposes  less  e l a b o r a t e procedures and a new approach when a p p r o p r i a t e q u a n t i t a t i v e data are l a c k i n g .  Among those c r i t i c a l of  p l a n n i n g , Jewkes (1968) was outspoken,  emphasizing  the time  consuming aspects of p l a n n i n g and the i n e f f i c i e n c i e s of b u r e a u c r a t i c c e n t r a l i z e d d e c i s i o n making.  He argued that a  f u l l y c e n t r a l i z e d economy c a r r i e s out p l a n n i n g on the b a s i s of incomplete i n f o r m a t i o n , and by making l i t t l e the wants of the i n d i v i d u a l r e s t r i c t i v e of the human  or no allowance f o r  i s i n h e r e n t l y w a s t e f u l and  spirit.  The r e a l i t y of the world's c u r r e n t economic make-up i s , nonetheless, one i n which every n a t i o n u t i l i z e s a mixture of c e n t r a l i z e d p l a n n i n g and free e n t e r p r i s e to c a r r y out i t s economic a c t i v i t i e s .  A l l that v a r i e s , and what i s normally open  to an east-west debate, mixture  (Cairncross  i s the optimum composition of the  1969).  As f a r as the LDCs are concerned,  the d e c i s i o n seems to have been taken t o adopt a l a r g e l y approach to economic development.  Furthermore,  planned  i t i s now widely  accepted that while the many v i r t u e s of free e n t e r p r i s e should not be l o s t to the t h i r d world, a c o - o r d i n a t e d approach to the e r a d i c a t i o n of s t r u c t u r a l poverty i s both e s s e n t i a l complementary t o , an optimum performance i n v i s i b l e hand.  f o r , and  of Adam Smith's  (1784)  55 4.  FUNDAMENTALS OF DEVELOPMENT PLANNING  4.1.  The Planning Problem The  sense,  nature of development p l a n n i n g , i n a m a t e r i a l i s t i c i s simply a matter of producing more goods and s e r v i c e s  of the r i g h t the r i g h t  kind, f o r consumption and/or f u r t h e r investment at  time.  In t h i s admittedly narrow sense of development,  governments seeking to improve a n a t i o n s ' welfare by p l a n n i n g , face a dichotomous problem. First,  the primary  identifying allocating choosing  aspect of development p l a n n i n g  the most s u i t a b l e the country's  i s one of  (productive) opportunities for  scarce p r o d u c t i v e r e s o u r c e s , and  income d i s t r i b u t i o n p o l i c i e s that maximize present and -  future s o c i a l welfare. an expansion  Investments must be chosen which l e a d to  i n p r o d u c t i v e c a p a c i t y e i t h e r d i r e c t l y or through  f o r e i g n t r a d e , or through  an i n c r e a s e i n s o c i a l c a p i t a l ,  i.e.  and b e t t e r h e a l t h (Watt 1973).  education, t r a i n i n g ,  second most important  The  q u e s t i o n of development p l a n n i n g i s that  of d e v i s i n g p r a c t i c a l methods f o r m o b i l i z i n g a l l a v a i l a b l e resources to the most d e s i r a b l e a c t i v i t i e s . investment  areas s e l e c t e d i n the f i r s t  step.  That  i s , to the  There may be  resources owned by the s t a t e and these w i l l have t o be m o b i l i z e d by a d m i n i s t r a t i v e a c t i o n .  Comparatively,  the resources of the  p r i v a t e s e c t o r w i l l need to be m o b i l i z e d by means of inducements, i n c l u d i n g f i n a n c i a l and f i s c a l c o n c e s s i o n s , and long term agreements which provide the r i g h t atmosphere (Tinbergen  1967, Waterston  1969a).  investment The s t r a t e g i c  56 factor  i s investment  or, more p r e c i s e l y , p r o d u c t i v e  Consequently, the problem of development p l a n n i n g  i s one  ensuring that there w i l l be s u f f i c i e n t p r o d u c t i v e i n t o such a c t i v i t i e s as to provide  investment. of  investment  f o r the most r a p i d growth of  the p r o d u c t i v e  ( a l t e r n a t i v e l y consumptive) p o t e n t i a l of a n a t i o n  (Lange 1961).  A f u r t h e r requirement  d i s t r i b u t i o n of output for  merit  unmeasurable are, n e v e r t h e l e s s , an  s o c i a l welfare  4.2.  The  amongst the p o p u l a t i o n , and  (UNIDO 1972,  to provide  important  part  Requirements f o r Success II.3 i t should  c l e a r that a development p l a n , to be s u c c e s s f u l , must s e v e r a l important  analysis.  be  Chenery et a l . 1974).  From the d i s c u s s i o n in S e c t i o n s II.2 and  First  fair  (developmental) wants, which even though they may  economically of  i s to encourage a  satisfy  requirements.  of a l l , there Any  be  i s a need for c a r e f u l study  and  a c t i o n on a l a r g e s c a l e r e q u i r e s d e t a i l e d  p r e p a r a t i o n , and  t h i s i s p a r t i c u l a r l y true in the f o r m u l a t i o n of  development p l a n s . Second, great care should be taken  to ensure that  the  component p a r t s of a development program form a coherent ordinated e n t i t y .  and  co-  These p r e c a u t i o n s are e s s e n t i a l f o r  m a i n t a i n i n g c o n s i s t e n c y , a v o i d i n g l a r g e s c a l e waste and disorganization.  I t i s one  of the main purposes of development  planning to provide coherence and  c o - o r d i n a t i o n at a l l l e v e l s .  Development p l a n n i n g must supply an o v e r a l l view of the p a t t e r n of  a n a t i o n ' s f u t u r e development.  In doing t h i s ,  i t must show  the p o s s i b l e and most d e s i r a b l e development of the n a t i o n a l  57  product the  and i t s components, t h a t  various  industrial  i s , production  groups, as w e l l  w h i c h may be c o n s u m p t i o n ,  investment,  and imports of  as t h e i r exports,  destination or p u b l i c  expenditure. Third,  certain superior  statistical  techniques  developed during  the l a s t  be  used  the  i n the preparation  planned development  o f t h e economy.  such as l i n e a r  simulation  c a n be u s e f u l , t h e y  expedient  the vast  scenarios While  representing  mathematical  and dynamic programming, m o d e l l i n g a n d a r e n o t an a l t e r n a t i v e t o common  They do, however, s u p p l e m e n t  of h a n d l i n g  few d e c a d e s c a n and s h o u l d  of t h e f u t u r e  techniques  sense.  and m a t h e m a t i c a l  common  sense and i n terms  amounts of economic d a t a ,  way f o r m a x i m i z i n g  or o p t i m i z i n g  o f f e r an  special  f e a t u r e s of  development. Fourth, consistency  development of thought  planning  and u n i f o r m i t y  most d e s i r a b l e c h a r a c t e r i s t i c chosen,  i t would u n d o u b t e d l y  means of d e v e l o p m e n t . consistency that  be c o n s i s t e n c y  In the s i m p l e s t  and r e a l i s t i c  resources  must n o t e x c e e d the  other  order market  that  - land,  If a single  were t o be  i n o b j e c t i v e s and  terms,  this  aim of  i n t h e u s e of f a c t s and f i g u r e s b u t , most o f a l l , u n i f o r m i n  terms of t h e n a t i o n a l s i t u a t i o n . productive  of c r i t e r i a .  o f good p l a n n i n g  would be r e f l e c t e d  are practical  must, above a l l , e n c o u r a g e  F o r example, t h e t o t a l  l a b o r , and c a p i t a l  - t o be employed  the a v a i l a b l e q u a n t i t i e s of these  resources.  On  hand, goods a n d s e r v i c e s p r o d u c e d must be s o l d ; and i n t h i s may happen, t h e i r  c o n d i t i o n s a n d , most  p r i c e s must be i n b a l a n c e  importantly,  c o s t s and f a c t o r p r o d u c t i v i t y .  must  Imports w i l l  relate normally  with  to factor be  58 essential, of  but they must be p a i d for by exports or by the  f o r e i g n c a p i t a l and so f o r t h .  c o l l e c t e d by government, financing, planned.  to meet a l l  l i n k a g e s and other  groups of economic a c t i v i t y ensure that a g l o b a l  sphere,  taxes  together with loans and d e f i c i t  need to be s u f f i c i e n t And, n a t u r a l l y ,  On another  influx  need to be s o r t e d  public  expenditures  relations  between  (balanced)  out to  input output e q u i l i b r i u m u l t i m a t e l y  occurs  in the economy. Finally,  there i s an element of d e t a i l and completeness  development program which good planning must always s t r i v e provide. relatively  Consistency  in a to  in the absence of completeness would be  u s e l e s s as the d e c i s i o n maker would be hard-pressed  to p o l i t i c a l l y  implement a s i m p l i s t i c  which poses as many q u e s t i o n s as i t  gross development  answers.  plan,  59 5.  THE PLANNING PROCESS AND The outstanding  THE ROLE OF PROJECTS  c h a r a c t e r i s t i c s of a good development  are c o n s i s t e n c y of thought, u n i f o r m i t y of c r i t e r i a naturally,  feasibility.  a r r i v e at a framework  and,  The aim of development planning  how  i s to  of f i g u r e s that d e s c r i b e s the p o s s i b l e ,  most d e s i r a b l e development of an economy (Tinbergen But,  plan  1958,  1967).  should t h i s model p i c t u r e of the economy be drawn?  And  what p r i n c i p l e s should one adhere to i n order not to v i o l a t e the concepts  of c o n s i s t e n c y , u n i f o r m i t y , and f e a s i b i l i t y ?  f o l l o w i n g s e c t i o n attempts to answer provide  these q u e s t i o n s and to  some i n s i g h t on the r o l e of p r o j e c t p l a n n i n g w i t h i n the  general programming  5.1.  The  framework.  The State of the Art i n LDCs In the hope of a c h i e v i n g the major s t r u c t u r a l  r e q u i r e d by development, most LDCs have opted national  changes  f o r some form of  planning.  The approach to development p l a n n i n g has not been throughout the LDCs.  uniform  I t has v a r i e d with the degree of  development, the s o c i o c u l t u r a l background, and the p o l i t i c a l o r i e n t a t i o n of each n a t i o n .  Those with l i m i t e d planning  have undertaken p r o j e c t by p r o j e c t planning o n l y .  skills  However, due  to a lack of c o - o r d i n a t i o n among p r o j e c t s , t h i s approach has f r e q u e n t l y been w a s t e f u l , i n c o n s i s t e n t , and g e n e r a l l y weak. Further up the s c a l e , in an attempt to c a r r y out more r i g o r o u s p l a n n i n g , some LDCs have undertaken s e c t o r a l or even r e g i o n a l planning.  T h i s approach, while  r e p r e s e n t i n g an improvement  over  60  the previous method, has  not been s u f f i c i e n t l y complex to  i n c l u d e a c o - o r d i n a t i n g mechanism of a l l p l a n s .  A few  armed with a higher  experienced  planning  standard  of l i v i n g and  more  o r g a n i z a t i o n s have attempted comprehensive  nations,  planning;  which aims at the p r e p a r a t i o n of c o n s i s t e n t plans by means of an i n t e g r a t e d m u l t i - s e c t o r a l s t r a t e g y that s t u d i e s development at a n a t i o n a l , s e c t o r a l , and  project level  reasons t h i s p a r t i c u l a r approach has satisfactory The  ( S t o l p e r 1962,  (Watt 1973).  For  obvious  proved to be the most  Waterston  1969a).  general approach in LDCs i s p r e s e n t l y to p u b l i s h long,  medium, or short term development p l a n s . represent  the c u l m i n a t i o n  of the p l a n n i n g e f f o r t and  development g u i d e l i n e s f o r ten, f i v e , and respectively.  The  These plans  one  O c c a s i o n a l l y , an LDC  i n d i c a t i v e or p e r s p e c t i v e p l a n , and  it.  These p l a n s , however, are not reason  which, by extending  has  to do with t h e i r  beyond the p o l i t i c a l  r u l i n g group (Waterston  p u b l i s h development plans  The  of  the 20  with d e c i s i o n  long-term d u r a t i o n life  of the o r i g i n a t i n g  f o r the b e n e f i t of a  1969b).  The  propensity  to  in LDCs i s u s u a l l y high, r e g a r d l e s s of  the q u a l i t y of t h e i r planning their analysis.  one  attempt to implement  too popular  a d m i n i s t r a t i o n s e t s t h e i r completion different  to the end  year  w i l l prepare a 10 to  year  The  periods,  i n c o - o r d i n a t i o n with  year a c t i o n plans which are r e v i s e d a n n u a l l y  makers.  provide  most f r e q u e n t l y p u b l i s h e d are the f i v e  medium-term p l a n s , u s u a l l y prepared  planning p e r i o d .  year  normally  o r g a n i z a t i o n s and  reasons f o r t h i s s p e c i a l  the depth of  fixation  on  p u b l i s h i n g plans can be t r a c e d to more complex f a c t o r s than simply  a d e s i r e to apply  economic theory  to development.  Vente  61 (1970) suggested that, beyond p o s s i b l e t e c h n i c a l a s p i r a t i o n s , LDCs prepare these plans f i r s t l y ,  as a r e f l e x idea of  housekeeping;" a c o n d i t i o n deeply rooted e l i t e by c e n t u r i e s  in the minds of  of c o l o n i a l a d m i n i s t r a t i o n .  Development plans are  f i n a n c i n g or grant a i d .  there  financial  on LDCs, to produce these  required  the  Secondly,  i s o f t e n a s u b s t a n t i a l amount of pressure a p p l i e d by i n s t i t u t i o n s or donor nations  "good  plans.  as a p r e r e q u i s i t e to c r e d i t  T h i r d l y , and  of major i n c i d e n c e ,  there  i s the p o l i t i c a l motivation  of governments which use  plans as a means of g a i n i n g  support f o r t h e i r a d m i n i s t r a t i o n .  development plan  i s , i n t h i s sense, l i v i n g proof of  development A  the  government's i n t e n t i o n to f u r t h e r n a t i o n a l development. The  n a t i o n a l planning  country, but,  generally,  organization  v a r i e s from country  i t i s c e n t r a l i z e d in a s i n g l e powerful  o f f i c e d i r e c t l y dependent from the p r e s i d e n t officer.  or c h i e f  While minor l e v e l s of s e c t o r a l planning  may  undertaken by d i f f e r e n t m i n i s t r i e s and/or  regional  organizations,  agency that  i t i s the c e n t r a l planning  the process and, planning  staff  evaluation  u s u a l l y , has  i s , as  the  l a s t word.  i t should be,  The  1962a, b;  1963;  the  1969a).  executive be  completes  r o l e of  the  l i m i t e d to the design  and  of a l t e r n a t i v e development o p t i o n s .  on the other hand, f a l l s w i t h i n (Waterston  to  realm of the  Decision  making,  politicians  62 5.2.  Elements of Procedure I have i n d i c a t e d e a r l i e r  planning  that the aim of development  i s t o a r r i v e at a framework of f i g u r e s that  describes  the p o s s i b l e , most d e s i r a b l e development of an economy. Economic growth and development i s the aggregate r e s u l t of the i n d i v i d u a l performances of each p r o d u c t i v e will  Some s e c t o r s  have a high p o t e n t i a l f o r growth and f o r c o n t r i b u t i n g  development, and others a low p o t e n t i a l . performance w i l l the resources  To achieve  and developmental c r i t e r i a ,  l e v e l , considerable  aggregate consumption w i l l dependent on the extent  development i t  to be a l l o c a t e d a c c o r d i n g to  e f f i c i e n c y , economic e q u i t y , and merit materialistic  c a p a c i t y to employ  of each sector p r o d u c t i v e l y and i n c o o r d i n a t i o n  be necessary f o r resources  s t r i c t welfare  T o t a l aggregate  be dependent on the nation's  with the r e s t of the economic system. will  sector.  namely  wants.  economic  At a  and s u s t a i n e d growth i n  be r e q u i r e d , and t h i s w i l l be  to which the maximum p r o d u c t i v e  of each s e c t o r i s achieved.  As f a r as the p l a n n i n g  concerned, t h i s must u l t i m a t e l y be done by a  capacity  process i s  systematic  i d e n t i f i c a t i o n of o p p o r t u n i t i e s and a c a r e f u l design and e v a l u a t i o n of these o p p o r t u n i t i e s as " p r o j e c t s . " being d e f i n e d as the s m a l l e s t u n i t of a c t i v i t y planned, analyzed,  Therefore,  a plan w i l l  depending on how favourable project.  From past  that can be  and a d m i n i s t r a t i v e l y implemented  The key f a c t o r i n development planning change.  A project  (Watt 1973).  i s socio-economic  be more or l e s s d e s i r a b l e  a p i c t u r e of the economy i t can  experience,  the economist planner  there are l e v e r s a v a i l a b l e t o government  knows that  by which developmental  63  influences  can  be  exerted.  concerned,  at a very  providing  a clear,  This  i s reduced  task  determine from t h e  development choose (used the  likely  options  from, t h e in l i e u  an  proportionately.  of  the  finding  a  relative  solution  or more f a v o u r a b l e ,  by  the  laborious, data  latter  i t s best  process Plans  error"  normally  resulting  i n view  of  be  the  world  parcelled  It permits  planning  offers t o be  E a c h of  d e f i n e d and  a an  less,  the  evaluated  techniques normally  a d v a n t a g e s of  or  simply  be  too  computer  wide.  planning up  grow  f o r program  t u r n out  however, may  and  alternative  anticipated.  mathematical  available  procedure  e a c h o p t i o n and  be  the  to  increases,  advantages  factors  o p t i o n s may  ends t o w h i c h t h e  termination  the  form, d e v e l o p m e n t  t h a t cannot  are and  now  of  initially  approach,  particularly  processing In  may,  development  The  and  implementation.  merits  a i d of c o m p u t e r i z e d  hand.  "trial  undisputed  i f some of than  to  alternative  a s t r a t e g y of  d e c i s i o n making, and  with  consequences  which  "second b e s t " a l t e r n a t i v e  evaluation,  alternative  method by  or p r o g r a m s ; W i t h more a l t e r n a t i v e s  options  alternative  expedient  i n terms of  Furthermore,  the  means of  i t i s o f t e n u s e f u l to conceive  allocation  offers  be  levers.  development  of  ways and  of a s i m u l a t i o n m o d e l ) n a t u r a l l y of  needs t o  f u t u r e development.  socio-economic  accuracy  probabilities  comparison  planning  with  p i c t u r e of  development,  resource  level,  to f i n d i n g  of a l t e r n a t i v e  In p l a n n i n g p r o b l e m of  practical  realistic  t h e most use  Consequently,  into  i s a continuing  separate  process  will,  converge  to p r a c t i c a l  p o i n t s , the  planning  process  has  time  tends.  periods.  While  (temporary) no  natural  end  plans  64  point.  Development plans must be r e v i s e d p e r i o d i c a l l y  l i g h t of new  information that may  i s generated, past  l a r g e l y through new  investment  become a v a i l a b l e . surveys and  with a given plan must be a l t e r e d a c c o r d i n g l y .  longer term goals, i f c o n s i s t e n c y sufficiently above a l l ,  of  connected  c o n s i d e r a t i o n of  i s to be maintained  for a  long p e r i o d of time to a f f e c t development.  But,  there must be a feedback of i n f o r m a t i o n from p r o j e c t s  at every  this requires  stage of p l a n n i n g to ensure a l l i n f o r m a t i o n  flows to the c o r r e c t c e n t r e s " (Watt  5.3.  data  R e v i s i o n s in  through to n a t i o n a l plans and v i c e versa "... and flexibility  As new  the monitoring  d e c i s i o n s , the f u t u r e e x p e c t a t i o n s  short term plans must be undertaken with due  in the  1973).  Stages in Planning I have mentioned e a r l i e r that the basic problem of  development planning economic growth and  i s the o r g a n i z a t i o n of resources f o r s o c i a l advancement.  In s h o r t ,  resources  must be used to achieve a maximum of long term s o c i a l (see S e c t i o n 1.3).  In t h i s p o i n t , the p l a n n i n g problem i n LDCs  does not d i f f e r much from that in MDCs except,  perhaps, that i n  the l a t t e r there e x i s t s a more s o p h i s t i c a t e d market institutional productive may  and  framework that f a c i l i t a t e s the normal i n t e r p l a y of  factors.  plan at one  b e t t e r s t a f f and p r o j e c t and  welfare  As  i n d i c a t e d in S e c t i o n II.5.1., some LDCs  l e v e l o n l y , the p r o j e c t l e v e l . i n s t i t u t i o n s may  the s e c t o r a l l e v e l .  plan at two The  Others, levels,  with  the  most advanced, however,  f o l l o w a "comprehensive" approach which operates l e v e l s : p r o j e c t , s e c t o r a l , and n a t i o n a l .  at three  65  The f i r s t  two planning methods, namely  the " p r o j e c t - b y -  p r o j e c t " and the " p r o j e c t - s e c t o r a l " , s u f f e r from s e r i o u s technical deficiencies, consistency difficulty implement  i . e . uncoordinated  i n terms of l o c a l ,  criteria;  lack of  r e g i o n a l , and n a t i o n a l wants;  i n a s s i g n i n g development p r i o r i t i e s ;  tendency to  p r o j e c t s i n accordance with the a v a i l a b i l i t y of funds,  and e a s i n e s s of design and a p p r a i s a l ; and i m p o s s i b i l i t y of checking  for total  input a v a i l a b i l i t y .  Comprehensive  planning,  on the other hand, o f f e r s a much improved a l t e r n a t i v e f o r inducing development.  The b a s i c approach of t h i s most advanced  p l a n n i n g method i s to make a r a t i o n a l determination p r i o r i t i e s with r e f e r e n c e to the e n t i r e economic  framework, and  to ensure development c o n s i s t e n c y and f e a s i b i l i t y . a l t e r n a t i v e development options  of p r o j e c t  D e c i s i o n s on  ( p r o j e c t s ) a r e not made i n  i s o l a t i o n but are based on a knowledge  of a l t e r n a t i v e uses to  which resources, c a p i t a l , and manpower c o u l d be put (Watt Figure  1 i l l u s t r a t e s the process  Stolper  (1962) and Watt  of comprehensive  1973).  planning.  (1973) d e s c r i b e the main f e a t u r e s of  comprehensive planning as f o l l o w s : - Attempts are made to r e l a t e p r o j e c t s t o one another. process  The  i s e s s e n t i a l l y c o n s i s t e n t and uniform throughout.  - D i r e c t , i n d i r e c t , and induced included.  It i s holistic  p r o j e c t s e f f e c t s are  and comprehensive.  - Attempts are made to i n t e g r a t e a l l p r o j e c t s i n t o a n a t i o n a l development plan and to r e l a t e p u b l i c and p r i v a t e investment t o a uniform uniform,  development p o l i c y .  I t employs  c o n s i s t e n t means of development, and balances out  f a c t o r use.  F i g u r e 1.  Stages In Comprehensive P l a n n i n g .  DEVELOPMENT PLAN  DECISION  Discrete Activity  MAKING  DEVELOPMENT CRITERIA  MACRO PHASE ESTIMATED MACRO ECONOMIC PERFORMANCE  APPRAISAL  MICRO PHASE  AND TEST FOR  ESTIMATED PROJECT  CONSISTENCY  PERFORMANCE  JL MIDDLE PHASE ESTIMATED SECTORALREGIONAL PERFORMANCE  (Planning from Below) (Planning from Above)  Continuous Activity  67 A requirement with,  that has  been s t r e s s e d , but  seldom  i s that long range comprehensive planning  flexible.  Many LDCs have o f t e n taken  complied  should  be  the view that a 5 or  year program i s a b l u e p r i n t f o r the f u t u r e , which should a p p l i e d to the l e t t e r with l i t t l e nothing c o u l d be more ruinous the need f o r f l e x i b i l i t y  or no m o d i f i c a t i o n s .  for a LDC  in p l a n n i n g .  than  10  be However,  to l o s e s i g h t of  I t i s a p r i n c i p l e of good  long range p l a n n i n g to provide p r i m a r i l y a sense of d i r e c t i o n and c o n s i s t e n c y .  But  i t must, as f a r as p u b l i c expenditures  concerned, be t r a n s l a t e d a n n u a l l y  i n t o the d e t a i l s of a budget.  In other words, there i s the requirement periodically  i n the l i g h t  are  to reassess the plan  of the then a v a i l a b l e i n f o r m a t i o n  and  a v a i l a b l e resources to f i n e tune the most s u i t a b l e approach to development  (Tinbergen  A particularly  1958  and  1967).  i n t e r e s t i n g approach to comprehensive  p l a n n i n g , which has been s u c c e s f u l l y adopted by some LDCs, i s Tinbergen's  (1967) idea of "planning  in stages."  In  Tinbergen's  view, development p l a n n i n g has become s u f f i c i e n t l y complex to warrant d e a l i n g with the a c t i v i t y breakdown i s a planning "middle phase", and of  i n "stages".  The  suggested  i n three stages, namely a "macrophase",  "microphase."  The  u n d e r l y i n g requirement  the n a t i o n to be d i v i d e d i n t o s e c t o r s or i n d u s t r i e s , and  geographical  regions in the widest  sense, which make up  b a s i c p l a n n i n g elements ( u n i t s ) of the "middle phase." both these  s u b d i v i s i o n s are c o n s i d e r e d  "microphase", i . e . the p r o j e c t l e v e l . p i c t u r e i s f u r t h e r p o l i s h e d in two specific  into  the In t u r n ,  in greater d e t a i l The  is  i n the  macro or n a t i o n a l  s t e p s , each p r o v i d i n g a  l i m i t e d view of d e s i r a b l e changes.  The  planning  output  68 of one two.  phase both  feeds and  r e s t r i c t s the output  It i s a n a t u r a l , e s s e n t i a l  that the r e s u l t s of a l a t e r earlier steps  f e a t u r e of "planning  stage may  stage, and v i c e v e r s a .  Tinbergen  and  i n the f i r s t  other  in stages"  l e a d to a r e v i s i o n of an  Therefore,  in the planning process may,  three stages e n v i s i o n e d  of the  the t o t a l number of  often w i l l ,  instance.  surpass  the  In the view of  1967):  "The macrophase has to show the most d e s i r a b l e development in macro-economic terms, without s u b d i v i s i o n i n t o regions or i n d u s t r i e s . In t h i s phase, then, only such o v e r a l l f i g u r e s are used as the n a t i o n a l product and c a p i t a l , the t o t a l investments, imports and exports and s t a t e expenditure. In the middle phase, the p i c t u r e r e s u l t i n g from the macrophase i s made c l e a r e r by d i s t i n g u i s h i n g a number of s e c t o r s or i n d u s t r i e s and a number of r e g i o n s . F i n a l l y in the microphase, an even c l e a r e r and more d e t a i l e d p i c t u r e i s obtained by d e a l i n g with separate p r o j e c t s and even smaller g e o g r a p h i c a l r e g i o n s , perhaps even separate r u r a l and urban districts." The  c e n t r a l d i r e c t i o n , and  the sense of where an economy i s  going must come from an o v e r a l l view of the economy.  This i s  the c e n t r a l task of the macro-phase i n comprehensive development planning.  The  comprehensive development plan i s g e n e r a l l y  thought of as the c u l m i n a t i o n of the n a t i o n a l p l a n n i n g It  i s simultaneously  "a p o l i t i c a l  commitment to economic and for r e - m o d e l l i n g d e c i s i o n s on  individual  measure r e s u l t s "  symbol of a governmental  s o c i a l p r o g r e s s ; a general  the economy and  1965).  strategy  i n s t i t u t i o n s ; a basis for  investment;  (Chenery  process.  and  a standard  by which to  I t i s a "focus not a  s u b s t i t u t e f o r d e c i s i o n making" ( C a i r n c r o s s 1961). As  indicated earlier,  planning  the b a s i c task of comprehensive  i s to ensure c o n s i s t e n c y , f e a s i b i l i t y , and  r a t i o n a l d e c i s i o n making (see S e c t i o n I I . 4 . 2 ) .  to allow for  69  5.4.  The Role of P r o j e c t s According to some s c h o l a r s , the most p r a c t i c a l method f o r  g a i n i n g a good sense of d i r e c t i o n development  i s through the use and  of n a t i o n a l account s t a t i s t i c s - the design and  study of the macro planning phase, and the d e f i n i t i o n of the macro p l a n .  Other economists, however, d i s a g r e e  with t h i s approach.  diametrically  Whereas, they recognize there i s a r o l e to  be played by the macro phase or even the middle phase, they p o i n t to an equal or greater r o l e f o r the micro or p r o j e c t phase.  The need  i s not only f o r an average o v e r a l l  consistency  in the economy, but a l s o f o r r e a l s p e c i f i c c o n s i s t e n c y at the resource  (project) l e v e l .  In f a c t , they argue, that without  i n c l u d i n g a "planning from below"  (bottom up) approach - as  opposed to having a "planning from above" only  (Waterson  (top down) approach  1969a) - the l i k e l i h o o d of a c h i e v i n g  a l l o c a t i o n a l c o n s i s t e n c y i s rather l i m i t e d  specific  i f not impossible.  The q u e s t i o n which c o n t i n u e s to haunt the p l a n n i n g p r o f e s s i o n , however, i s which p a r t i c u l a r approach should take precedence.  The development  arena remains d i v i d e d on the issue  and no consensus among economists seems imminent future.  i n the near  In t h i s l i m i t e d sense, the r o l e of the p r o j e c t phase i n  comprehensive  p l a n n i n g i s not c l e a r , as i t becomes a matter of  s u b j e c t i v e p r e f e r e n c e which approach i s to be given precedence. The j u s t i f i c a t i o n  f o r d e t a i l e d p l a n n i n g at the p r o j e c t  nonetheless, founded i n reasons that go beyond ideology.  Regardless of the degree of p l a n n i n g  level i s ,  those of sophistication,  good strong p r o j e c t planning becomes an a c t of p r a c t i c a l necessity  i n LDCs.  Development  r e q u i r e s plans and plans r e q u i r e  70  projects.  Without p r o j e c t s  improved resource i s s e l f evident, a set of not  (specific  investment  options),  a l l o c a t i o n cannot be a t t a i n e d e f f e c t i v e l y . any  macro development plan must m a t e r i a l i z e  i n d i v i d u a l p r o j e c t s , l a r g e l y in the p r i v a t e sphere  exclusively.  It i s axiomatic  r e q u i r e good p r o j e c t p l a n n i n g .  that good p r o j e c t s  The  e s s e n t i a l to a smooth, e f f i c i e n t  and Waterston  planning  1969a).  f u n c t i o n i n g of the  Naturally,  i f no  Plans Require  program  for a short-term  which, among other  r e q u i r e a great  potential projects.  o p e r a t i o n a l plan  t h i n g s , must c o n t a i n  solid  p u b l i c expenditures i n d i f f e r e n t s e c t o r s ; but f o r a medium or long term p e r s p e c t i v e  p e r i o d of  10-20  The  years  will  (Waterston  l a y down t a r g e t  consumption, and  planning.  (3-5  and  This i s years) for  i t i s j u s t as  plan c o v e r i n g  evaluation  A perspective  deal  f e a s i b l e plans  1969a, L i t t l e and  r o l e of p r o j e c t design  to good p e r s p e c t i v e  for  Projects  of knowledge about e x i s t i n g and evident  information  the  formulation.  A sound development plan w i l l g e n e r a l l y  1974).  (Tinbergen  becomes e s s e n t i a l to development, as  r a t i o n a l d e c i s i o n making and  valid  feed-back  comprehensive  nation must r e l y s o l e l y on p r o j e c t - b y - p r o j e c t  self  (project)  mechanism i s a v a i l a b l e , a rather common occurrence in  LDCs, p r o j e c t planning  A.  but  i t is  feed-forward process of comprehensive planning  1967  as  will  r o l e of the micro  phase i s f u r t h e r strengthened by the argument that  and  As  a  Mirrlees i s paramount  development  plan  r a t e s for the growth of n a t i o n a l output,  investment.  For a plan to be c o n s i s t e n t and  f e a s i b l e , a l o t of  specific  71 self-knowledge  (input-output  self-knowledge  i s t o be  projects  (investment  neglected. hardly  The  be  planning,  information)  gained,  the  c r i t i c a l appraisal  a l t e r n a t i v e s ) , past  point  i s made t h a t  good  formulated  i n the  or  adequate economic  investment  without  options.  However, the  fact  is required.  This  a b s e n c e of  and  future,  realistic  remains that  i t has  cannot  be  can  project  of  p r e r e q u i s i t e would seem  this  of  plans  substantial appraisal  If  available  obvious.  been a l m o s t u n i v e r s a l l y  neglected.  B.  Projects  The  point  Require  i s made above t h a t  However,  i t is equally  The  economic  best  context  of  To  about  f o r any how  the  estimate  analyst  concerning The perform  economy w i l l  the  need  i s paramount  commodities. projecting  However,  the  demand  these products,  development future  to  and  the  long  how  can  the  term p l a n s  intermediate  of  and  government's p l a n s play  a major  Furthermore,  the  made i n  the  knowledge  of  forecast  has  the  some i n s i g h t how  adequate  knowledge  of  can  he  government? the  economy  demand  capital for  will  f o r most  i t i s e s p e c i a l l y important for  plans.  in turn,  t o how  projection  be  good he  he  And,  as  only  fairly  unless  develop?  some i d e a  investment  requirements.  service  require  investment  progress without  medium and  for having  can  right  But  projects.  projects  must have a  or  economic  require  projects  outputs.  commodity  future  that  s e l e c t the  demand f o r v a r i o u s  demand  in  the  plans  important  a p p r a i s a l of  a plan.  opportunities, the  Plans  when goods.  For  industry  role in determining extent  to which  total  72 demand w i l l  be met  by  imports  or by domestic  p r o d u c t i o n , depends  on government p o l i c i e s towards custom d u t i e s , f o r e i g n exchange r a t e s and,  g e n e r a l l y , import  c o n t r o l s and domestic  taxation.  These, i n t u r n , are i n e x t r i c a b l y t i e d to the designs government has  i n s t o r e f o r the economy i n the n a t i o n a l  development plan  (Little  By the same token, without of  the  and M i r r l e e s 1974).  the supply p i c t u r e cannot be p r o j e c t e d  some knowledge of f u t u r e economic p r o g r e s s .  Estimates  the r e a l c o s t s of a p r o j e c t r e q u i r e an understanding  of the  magnitude of the r e l a t i v e s c a r c i t i e s at work.  C.  P r o j e c t s and Comprehensive Planning  The  r o l e of p r o j e c t s and  of p r o j e c t p l a n n i n g  is crucial  to  the development and economic progress of n a t i o n s , r e g a r d l e s s of the l e v e l of s o p h i s t i c a t i o n employed i n the p l a n n i n g  process.  N e v e r t h e l e s s , when d e a l i n g w i t h i n a framework of comprehensive p l a n n i n g , the marginal study  specific  value of p r o j e c t p l a n n i n g and  investment  the need to  o p t i o n s i n as great d e t a i l as i s  practically possible, rises dramatically. "Comprehensive p l a n n i n g " in general and in p a r t i c u l a r , are e s s e n t i a l l y processes approximations. the f i e l d "first  Due  intellectual  true economic o p t i m i z a t i o n or a  remains an Utopian  Chenery  p l a n n i n g dream.  The  framework of modern development p l a n n i n g i s i n t e r -  i n d u s t r y economics and welfare economics. techniques  of s u c c e s s i v e  to severe data l i m i t a t i o n s , e s p e c i a l l y i n  of s o c i a l u t i l i t y ,  best" solution  "planning i n stages"  developed  by Tinbergen  The  planning  (1958, 1967), Sen  (1960),  (1974) and o t h e r s , must n e c e s s a r i l y be adapted to s u i t  73 l o c a l circumstances. environment of  No one acquainted with the p l a n n i n g  i n LDCs can p o s s i b l y suggest  that a h o l i s t i c  system  equations be set up, i t s matrix c a l c u l a t e d and s o l v e d , to  f i n d the r i g h t answer. It  i s a f a c t , unfortunate as i t may be, that p r o j e c t  p l a n n i n g and e v a l u a t i o n w i l l continue to be done i n many LDCs without  the b e n e f i t of a comprehensive p l a n n i n g mechanism.  Whereas, i t i s beyond d i s p u t e that s u p e r i o r plans r e q u i r e good p r o j e c t s , the reasoning that a proper a p p r a i s a l of p r o j e c t s , itself,  r e q u i r e s s u p e r i o r plans can be o v e r s t r e s s e d .  Admittedly, a n a l y s i s w i t h i n the framework of an o v e r a l l plan may l e a d to b e t t e r p r o j e c t planning than plan.  But t h i s should never  planning i s either  i n the absence of such a  be i n t e r p r e t e d to mean that p r o j e c t  impossible or u s e l e s s without  the b e n e f i t of  informed governmental estimates about f u t u r e economic development. supported (1967),  L i t t l e and M i r r l e e s (1974) observed,  by S t o l p e r (1966), Tinbergen  that without  the guidance  and t h i s i s  (1967), and Hirschman  of a n a t i o n a l p l a n , p r o j e c t  design and a p p r a i s a l "... w i l l probably be l e s s good i n s o f a r as guesses have to be made about the government's own investment intentions. But, i n g e n e r a l , one can make some guess as to the r e a l s c a r c i t i e s which face the economy i n i t s development, and put a p r i c e on them, even without the h e l p of any attempt at o v e r a l l p l a n n i n g . The d i f f e r e n c e i s that the guess w i l l be l e s s e n l i g h t e n e d without such plann ing." Furthermore,  the view i s taken that being l e s s e n l i g h t e n e d  need not n e c e s s a r i l y be d e t r i m e n t a l , as u n r e a l i s t i c macro p l a n n i n g has on occasion made worse demand ( i n p u t ) and supply (output) estimates than would otherwise have been the case.  74 6.  PROJECT  The  basic  productive of  these  be  allowed  -  problem  THE  of  resources  so  resources.  development as  -  one  development  planner  seeks  allocate  productive  The  and  most  i s "comprehensive  essential phase",  stage  the  the  is  concerned, or  of  plans  is within  question  arises  What  the  are  projects  be  allocation with  much  of  question and  maximize  (see  planning"  how  to  of  i s the  normally  a d m i n i s t r a t i v e body.  that  resources  to  which  how  resources  the  govern  appraised does  other  take  planning this  to  are  The  matters  of  economy  essence, a l l  projects,  and  allocation  best  activity  elements  the  place.  insure that  place?  important  takes  this  An  the  In  investment  actually  out  investment  developmental  is project  that  and  as  time.  "micro  f a r as  separate  materialize  best  I I . 5.3).  either  projects  single  of  are  the  r e t u r n s over  planned.  As  the  which  are  elements  -  for carrying  Section  may  time  feasibility  The  approach  consumption  social  i s where  to  accepted  projects  and  how  scarce  availability  program  must  as  economic  of  smallest administrative  designed  these  as  planning"  principles  of  so  allocation  political  answer  APPROACH  the  a  these  re-allocation  of  RATIONAL  which  complexes  development  deal  at  these  responsibility  problem  "comprehensive  development  projects  and  of  stage  of  it  factors  widely  a  of  investment. to  A  i s the  matter  and  of  FOR  i n c r e a s e the  the  for consumption becomes  task  to  mostly  issue  best  REQUIREMENTS  Once  is settled  preference major  PLANNING  The undertaken?  and  how  an  improved  following project  should  sections planning.  75 6.1.  Standard Method for E s t a b l i s h i n g P r i o r i t i e s First  of a l l , p r o j e c t s should  f i t i n t o the development  both at the n a t i o n a l and  regional l e v e l .  project  lack of u n i f o r m i t y  s e l e c t i o n i s the  A frequent  handicap in  in c r i t e r i a  between  government m i n i s t r i e s ( u s u a l l y r e p r e s e n t a t i v e  of economic  s e c t o r s ) and/or r e g i o n a l development agencies  (usually  responsible  for l o c a l planning  of u n i f o r m i t y past of  The  from p a r t i c u l a r l y  administrators  strong  (Tinbergen  1967,  there are nations  the development of the LDCs.  instances, political  not  s e c u r i t y and  sovereignty  (capital  reasons.  In  other influenced  political  gains  p r a c t i c e for newly e l e c t e d governments not  planning  scenario  regarding  i s o f t e n q u i t e dismal  above i s u n f o r t u n a t e l y Not  for  by  predecessors.  p r o j e c t design  in LDCs.  to  The  appraisal  picture  f r e e from t u r p i t u d e  and  described  much more common than i s r e a d i l y  that the MDCs are  than  At times i t i s an  complete the p r o j e c t s i n i t i a t e d by t h e i r  admitted.  example,  i n t e n s i v e ) development that i s  s u b s t a n t i a l economic reason.  evaluation  For  that  f o r v a l i d economic a s p i r a t i o n s but  important more f o r i t s r e l a t e d p r e s t i g e and  The  1969).  t e c h n o l o g i c a l dependence on the MDCs, have adopted  a heavy i n d u s t r y  acceptable  type  totally  governments of l e s s p r i v i l e g e d n a t i o n s , and  and  which s u b s i d i z e a g r i c u l t u r a l t r a n s p o r t a t i o n  power p r o d u c t i o n ,  for any  Waterston  preponderence of c e r t a i n types of p r o j e c t s  severely d i s t o r t  unrealistic  lack  p e r s o n a l i t i e s among  r e s u l t i s q u i t e o f t e n an u n j u s t i f i e d and  inappropriate  and  This  d e c i s i o n s ; from p r e c o n c e i v e d ideas about one  investment; or  end  administration).  would seem to a r i s e from c o n f l i c t i n g present  political  planners and  and  plan,  in t h i s  76 regard,  but  rich  e c o n o m i e s can p o o r , and  LDCs l e a d  wastage, and  committed  to  the  problem c l e a r l y designing,  demise of  the  or  of  Admittedly, impossible  and  involved  evaluating  or  port  facility  be  made c l e a r what project  will  of  a  a l w a y s be  over  removed  from  investment  option,  w h i c h may  i s the  desirability the  highest  all  times  general cannot  the The  a public  put  s y s t e m may  t o the  with  t h o s e of  difficult,  in material  but  output  To  at  compare  least  the  it  can  is sacrificed  the  i n d i v i d u a l economic or may  not  be  evaluation  entirely  (or  set  a nation.  of The  investment  p o l i c y and  that  the  " i t i s the  projects)  p o l i c y i s only  if  decisions. combination  avenue t o t h e  i m p l i c a t i o n i s f o r the  goal  projects  As of  context  a part  suggested decisions  f i t into  on  must  of at  of  projects by w h i c h must  set." to  an  the  planner  investment  of  feasible  i n the  development  s e l e c t i o n of  from o t h e r  most e f f i c i e n t  elements  a road, h o s p i t a l ,  a project  (1958),  by  be  unmeasurable  opportunities.  The  for  nature.  assessment" which measures  divorced  role.  forward  "holistic  p o l i c y of  those  "nonproductive"  that  be  for  private  remember  Tinbergen be  of  unwarranted  another.  step  own,  planning  or  due  school  increase  i s chosen  projects  uniform a p p r a i s a l  i n d i f f e r e n t investment implications  A  or  implement, m a i n l y  welfare  quite  the  a d e q u a t e - u n i f o r m method  a "productive"  a completely to  or a n o t h e r  market  t h a n weak,  government's p l a n n i n g  c o n c e r n e d m i n i s t r i e s ; whether of  concern,  its  way  e x c e l l e n t ammunition  f o r an  appraising,  One  free  mistakes  t o w i d e s p r e a d and  provide  calls  competitive  more p l a n n i n g  destitute countries.  economic  one  with powerful  afford several  w e a k n e s s e s of  all  nations  the  77 p r o d u c t i o n program f o r the economy as a whole.  They should  not  demand more resources than can p o s s i b l y be made a v a i l a b l e c o n s i d e r i n g the commitments i n other p r o d u c t i v e a c t i v i t i e s .  At  the same time, they should not d u p l i c a t e the p r o v i s i o n of goods and  s e r v i c e s to markets s u p p l i e d by a l t e r n a t i v e and  domestic  sources of supply.  The  cheaper  development program should  be  made-up by p r o j e c t s with the p o t e n t i a l to make the h i g h e s t c o n t r i b u t i o n to the n a t i o n ' s w e l f a r e .  The methods by which t h i s  goal can be achieved w i l l be d i s c u s s e d l a t e r . must be a p p l i e d may  The  t e s t that  be r e f e r r e d to as the " n a t i o n a l welfare  test";  i f welfare i s d e f i n e d to mean production or consumption,  i t may  be more a p p r o p r i a t e to speak of the " n a t i o n a l product  consumption t e s t " Mirrlees  6.2.  1974;  (Tinbergen  1958,  see a l s o S e c t i o n  UNIDO 1972,  Little  or  and  I.4.2.).  Comprehensive A p p r a i s a l of Economic Consequences When submitting investment  welfare t e s t , relevant  i t is first  p r o j e c t ' s to a comprehensive  necessary  to c o l l e c t and  generate  i n f o r m a t i o n concerning a l l measurable r e g i o n a l and  n a t i o n a l consequences ( c o s t s and b e n e f i t s ) of p r o j e c t development.  For i n s t a n c e , what a d d i t i o n s to n a t i o n a l product  (consumption) can be expected? parameters, e.g. indirect  What changes i n other  income, are probable?  s o c i a l gains and c o s t s are  welfare  What a d d i t i o n a l -  involved?  A technical  d e s c r i p t i o n of the p r o j e c t would be a p r e - r e q u i s i t e to the computation of a l l r e l e v a n t inputs and  outputs.  78 A.  D i r e c t , I n d i r e c t , and Secondary  For the e f f e c t s to be c o r r e c t l y  Consequences  inputed i t i s e s s e n t i a l to  undertake an economic a p p r a i s a l of a l l p r o j e c t consequences, these w i l l not always d e c i s i o n makers.  be obvious or p r o p e r l y understood by the  P r o j e c t consequences  are u s u a l l y grouped  three major c a t e g o r i e s , namely the " d i r e c t " , "secondary"  (induced) consequences.  in aggregate  as  income (consumption),  into  " i n d i r e c t " , and  A l l three i n c l u d e changes i n the d i s t r i b u t i o n of  income, and i n other v a r i a b l e s known to i n f l u e n c e the economic w e l l - b e i n g of a n a t i o n . " D i r e c t consequences"  are those d i r e c t l y  r e l a t e d to the  inputs and outputs of a p r o j e c t , be they of a market or nonmarket type.  In other words, a l l o p p o r t u n i t y c o s t s and s o c i a l  benefits arising  from a p a r t i c u l a r  investment need to be  i n c l u d e d whether they are of a p r i v a t e or p u b l i c  kind and  i n t e r n a l or e x t e r n a l i n nature (UNIDO 1972, Layard and M i r r l e e s  1974).  " I n d i r e c t consequences"  are those expected  f u r t h e r changes i n t o t a l n a t i o n a l income. adjustments and  1974, L i t t l e  i n the absence of  They are the  on the supply s i d e r e q u i r e d by the p r o j e c t s , and by  large they w i l l be found i n the stages of p r o d u c t i o n  vertically  r e l a t e d to the new p r o d u c t i o n i . e . , the stages  preceding or succeeding the process i n v o l v e d It  (Tinbergen  1958).  i s important to note that the backward and forward  l i n k a g e s of investment  spending need not n e c e s s a r i l y amount to  an e f f i c i e n c y gain i n the economy.  The net b e n e f i t gain w i l l  only occur i f the gross s o c i a l b e n e f i t s generated  in related  economic a c t i v i t i e s exceed the o p p o r t u n i t y c o s t s i n c u r r e d i n  79 these a c t i v i t i e s . interpretation,  In f a c t ,  further polishing  this  i t i s p o s s i b l e f o r a net b e n e f i t e f f e c t  even i f there i s no  i d l e c a p a c i t y present  i n the l i n k e d s e c t o r s  (forward and backward) of economic a c t i v i t y , and f a c i l i t i e s must be b u i l t  to a r i s e  new  productive  to meet the a d d i t i o n a l demand.  However, for t h i s to happen, i t i s c l e a r that there would need to be  i d l e resources  (land, l a b o r , or c a p i t a l ) a v a i l a b l e  economy, i n which case the new  output  in the  would be c o n s i d e r e d as a  s u r p l u s gain over and above the o p p o r t u n i t y c o s t s of a l l i n p u t s . A net b e n e f i t ( e f f i c i e n c y ) e f f e c t would a r i s e but only i n p r o p o r t i o n to the amount of i d l e resources employed i n the facilities  (Haveman and K r u t i l l a  1968,  Haveman and  new  Margolis  1970). "Secondary consequences" are the changes i n p r o d u c t i v e activities resulting The  (an consequently from d i r e c t and  consumption and  incremental  i n n a t i o n a l income and  i n d i r e c t changes i n output  investment  spending  income of the d i r e c t l y and  induced by indirectly  f a c t o r s l e a d s , i n t u r n , to i n c r e a s e d output income.  The  respending  m u l t i p l i e r " process c o n t r o l l i n g is basically resource  (as opposed to the  employed  income may,  Income m u l t i p l i e r  r e f e r r e d to as "technical and  consequences of  behavior  i s the  of i n d i v i d u a l s ' tendency to spend a p o r t i o n of t h e i r income.  in  the  the i n d i r e c t consequences),  r e s p o n s i b l e f o r most secondary  investment.  the  that i s higher than  T h i s phenomenon i s normally  the "income m u l t i p l i e r " e f f e c t  (income).  and yet to more  of a given amount of new  t h i s manner, induce a t o t a l output o r i g i n a l production.  consumption)  result  increased  T h i s tendency to spend i s both a r e s u l t of personal  80  preferences  and  of the economic s t r u c t u r e of the n a t i o n .  The  induced spending that matters f o r m u l t i p l i c a t i o n purposes i s that on a l l f i n a l p r o d u c t i o n , investment 1960,  Evans 1969,  The may  (Samuelson 1939,  be  i n c l u d i n g goods and  Chenery  Fromm and  Tauban  1952,  occur.  In LDCs, however, t h i s  to the c o m p l e x i t i e s  lack of data,  still  income changes  (labor and  sometimes  There i s , t h e r e f o r e , a  secondary e f f e c t s in these c o u n t r i e s .  of the m u l t i p l i e r process and  potential  i t c o u l d be that only a rough computation of  indirect  In such circumstances i t  income c r e a t e d .  rough, computation can  question  is likely  development, e.g.  i s between a labor i s evident  with the  A more r e f i n e d , i f  be made i f the p r o j e c t ( s ) i n  the  savings'  r a t e due  to a change i n the  T h i s c o u l d be the case where the  i n t e n s i v e and  a capital  that with the l a t t e r ,  former.  to  to i n f l u e n c e major v a r i a b l e s of economic  d i s t r i b u t i o n of income.  it  be  be necessary to r e s o r t to a gross estimate p r o p o r t i o n a l  the d i r e c t and  and  i s u n l i k e l y to be the case, as  secondary consequences i s p o s s i b l e . may  always important  indirect  remain i d l e .  good case f o r c o n s i d e r i n g  Isard  f a c t o r s happen to  there are g e n e r a l l y abundant resources land) that c o n t i n u o u s l y  1958,  1973).  i f a l l productive  f u l l y employed when the d i r e c t and  Due  Tinbergen  secondary changes i n output are not insignificant  services for  intensive project,  f a r more w i l l be  In these circumstances one  idea of the average savings  saving  need only have some  r a t e in the economy and  of i t s welfare  pattern.  Of course, i t i s impossible  as  saved than  e f f e c t on development to be able to d i s c e r n some of the i m p l i c a t i o n s of a new  choice  to determine the exact  welfare  81 i m p l i c a t i o n s of a l l d i r e c t , consequences. will  i n d i r e c t , and secondary p r o j e c t  I t i s unavoidable that proxy w e l f a r e parameters  have to be used to e v a l u a t e these consequences.  The  fact  that the measurement of s o c i a l u t i l i t y remains imperfect demands that t h i s p a r t i c u l a r approach be taken. can hope f o r i s to use "economic p r o j e c t consequences The e s s e n t i a l  welfare" c r i t e r i a  (see S e c t i o n 1.3.2. and  we  for assessing  1.4.2).  f e a t u r e of good p r o j e c t p l a n n i n g , however, i s  not  "precision",  the  study of a l l c o s t - b e n e f i t e f f e c t s .  comprehensive  T h e r e f o r e , the best  i t i s "comprehensive  c o n s i s t e n c y " throughout What d i s t i n g u i s h e s  p r o j e c t p l a n n i n g from other more p r i m i t i v e  i s i t s g l o b a l approach to f a c t o r use.  forms  Investment o p t i o n s are  matched a g a i n s t each other and a g a i n s t the a v a i l a b l e  resources.  Only i n t h i s manner can a l e s s b e n e f i c i a l o p t i o n be shown to be undes i r a b l e .  B.  Toward a Comprehensive  Appraisal  Methodology  P r o j e c t consequences are g e n e r a l l y not easy to a p p r a i s e . The degree of d i f f i c u l t y assessment effects.  i n c r e a s e s as one moves from the  of d i r e c t e f f e c t s to the i n d i r e c t and secondary T r a d i t i o n a l t o o l s of a p p r a i s a l , such as c o s t - b e n e f i t  a n a l y s i s , have worked mostly w i t h i n the realm of d i r e c t consequences.  The methods f o r studying these d i r e c t  project  effects  have been p o l i s h e d to the point where they can p r o v i d e f a i r l y good estimates of both e f f i c i e n c y and e q u i t y  i m p l i c a t i o n s of  investment  1974).  (Dasgupta and Pearce 1972, Layard  Furthermore, the methodology  has been  improved to deal with the  a p p r a i s a l of s o c i a l c o s t s and b e n e f i t s under the s p e c i a l  82 c o n d i t i o n s of underdevelopment (UNIDO 1972 and 1978, L i t t l e and Mirrlees  1974).  The s t a t e of the a r t regarding the study of  i n d i r e c t and secondary c o s t - b e n e f i t e f f e c t s , however, n e a r l y developed.  i s not as  Although economists have r e c e n t l y attempted  to i n t e g r a t e the a p p r a i s a l of a l l  p r o j e c t consequences - d i r e c t ,  i n d i r e c t , and secondary - i n t o a general theory of p u b l i c investment p l a n n i n g , they have l i m i t e d t h e i r concern to q u e s t i o n s of resource e f f i c i e n c y (Haveman and K r u t i l l a  i n more developed economies  1968, Haveman 1970, Fromm and Taubam  1 973) . The methodology f o r a p p r a i s i n g p r o j e c t consequences i n LDCs, encompassing more complex welfare c r i t e r i a e f f i c i e n c y and bearing down on the higher of the economy, remains l a c k i n g . prolific  than j u s t aggregate interrelated  character  Whereas economists have been  i n t h e i r study of development p l a n n i n g "from above" and  in t h i s a c t i v i t y have i n c o r p o r a t e d "dynamic e f f i c i e n c y " as well as "dynamic e q u i t y " c r i t e r i a ,  they have f a i l e d to be as  p r o d u c t i v e and comprehensive i n t h e i r study of "planning from below."  As a r e s u l t , there i s no c l e a r h o l i s t i c  methodology  a v a i l a b l e f o r a p p r a i s i n g p r o j e c t s in LDCs which f u l l y  considers  the dynamic i n t e r r e l a t i o n s h i p s of the economy. Nonetheless, there are a v a i l a b l e i n d i v i d u a l t o o l s of a n a l y s i s from which an improved methodology of t h i s nature can be s t r u c t u r e d .  For example, there i s a wealth of techniques of  r e g i o n a l and n a t i o n a l economic planning that can, and should, be used to f u r t h e r the a p p r a i s a l of p r o j e c t s beyond the study of direct effects.  They i n c l u d e economic base theory, aggregative  macro-economic models such as the Harrod-Domar  and two gap  83 model, d i s a g g r e g a t i v e s e c t o r a l models of a simultaneous - b e h a v i o r a l nature,  input-output a n a l y s i s , and Keynesian  non-Keynesian m u l t i p l i e r a n a l y s i s Miernyk 1965, 1969,  Islam  Vernon  1970,  Admittedly, the l i g h t  equation  1966,  ( L e o n t i e f 1936,  Haveman and K r u t i l l a  UNIDO 1972,  Glasson  Isard  1968,  and 1960,  Evans  1974).  the a p p r a i s a l task i s not easy, p a r t i c u l a r l y i n  of the p r a c t i c a l  i m p o s s i b i l i t y of c a r d i n a l l y measuring  every c o s t - b e n e f i t e f f e c t and the p a u c i t y of a p p r o p r i a t e data. In many LDCs the d i f f i c u l t i e s w i l l be compounded by  the  p r i m i t i v e c o n d i t i o n of the p l a n n i n g i n s t i t u t i o n s and long range economic p l a n n i n g and itself  forecasting.  the lack of  But t h i s i n  i s not a v a l i d excuse f o r c o n t i n u i n g to cut short the  a p p r a i s a l of p r o j e c t s and a v o i d i n g to prepare a more comprehensive statement i n d i r e c t and  secondary  of developmental  must never  T h i s i s , i n my  must  view, the  of comprehensive development p l a n n i n g : that  one  l o s e s i g h t of a p r o j e c t ' s i n t e r r e l a t i o n with other  p a r t s of the economy.  Relevant q u e s t i o n s concerning the long  term welfare of the nation must be asked  i n such a manner that  when answers are forthcoming, they can be f i t t e d development programs, i n t o budgets, balance of payments estimates and, p o l i c y concerning  i n t o other  manpower t r a i n i n g i f need be,  schedules,  i n t o economic  incentives for p r i v a t e sector p a r t i c i p a t i o n in  the development process.  I am  not preaching p e r f e c t i o n ,  only the beginning of an attempt toto.  The  c o s t - b e n e f i t e f f e c t s of investment  be, as f a r as p o s s i b l e , e v a l u a t e d . very essence  consequences.  but  to view resource investment  I f the use of s o p h i s t i c a t e d t o o l s of a n a l y s i s i s  i m p r a c t i c a l , the p l a n n e r - a n a l y s t w i l l have to r e s o r t to other  in  84 more p r i m i t i v e methods of maker must  be  e s t i m a t e of This  likely  is better  decision based all,  w i t h an  project  t h a n no  l a r g e l y on are  the At  the  comprehensive  strength  of  so  favorable  concerning  a given  similar  d i r e c t economic g a i n s ,  the  chosen  availability  of  would t h e n be  most  C.  the  picture to  the  t i m e s , however, major  needs t o be  choice  i f necessary,  c o n s e q u e n c e s on  project  the  estimate,  somehow, the  whole  at  a  The  may  favorable  two  the  option.  decision  would be  impact  basis  be induced overturn if a  of  which p r o j e c t  Indirect  and  or  facilitated  statement.  secondary economic  in Appraising  after  or more, showing e q u a l  a comprehensive  made on  economies  Also,  i n d i r e c t and  Limitations  external  investment  the  be  d i r e c t e f f e c t s which,  help  of  final  still  d i r e c t e f f e c t s , may  out  gross  economy.  a l l .  implement  decision  ones f o r w h i c h more r e l i a b l e e s t i m a t e s can  o t h e r w i s e not  a decision  by  But,  c o n c e r n i n g which, p r o j e c t ( s )  prepared. by  provided  appraisal.  The offered  consequences.  Secondary  Consequences For  many y e a r s now,  advancing  the  f r o n t i e r of  m a t h e m a t i c a l and this  science  planning.  the  capacity  method by thus,  free  partial  computerized  i s now  Despite  a  l e v e l s of  The  advent  economic  to  of  advanced  have  can by the  and  forecasting  yet  to p r o v i d e  become dynamic the  taken  i n knowledge and  e c o n o m e t r i c s has  solution  been  analysis  t h i s tremendous surge  analysis  has  sophistication;  t o o l of  l i m i t a t i o n s imposed  equilibrium.  The  t e c h n i q u e s of  standard  to process data,  the  profession  econometrics.  which c o s t - b e n e f i t of  economic  to unprecedented  systems a n a l y s i s and  the  assumption  problem  in a  and, of  is incredibly  85 complex.  A condition  applied, factor the  would  extend  require  m a r k e t s and  short, to  medium, and the  truly  general  almost  world  long  not  end  a mammoth economic  with  of  are,  yet,  analysing,  It  is questionable,  this  exercise,  of  even  whether  had  i t would be  t e c h n o l o g i c a l change, which  production  possibility  influences  of  invalidate  a  not  individual nations, "general  s u r p r i s i n g that  to. t r e a t t h i s equilibrium" restricts external  D.  the  scholars  assumption.  the  extent  be  an  the  comparison project,  t o do  of  out  altering  exogenous  can  we  so.  planning  instantaneously Therefore,  a  i t is  continue  "partial  c o n d i t i o n which  analyst  diseconomies  circumstances  appropriate  answer.  which  to carry  framework of  is this  This  conceiving.  i s forever the  to  severely  appraise  the  many  investment.  Procedure  evidence points  simple  capacity  solution.  the  in  would  of c o s t - b e n e f i t a n a l y s i s  t o w h i c h the  e c o n o m i e s and  Indicated  It  of  would a l m o s t  equilibrium"  technique within  In v i e w of should  and  which  a matrix  worthwhile  Continuous  schedules,  boundaries.  l e t alone  the  activities  input-output  exercise  e q u a t i o n s and  i f we  concerning  modern  political  simulation  successfully  knowledge would need  l a r g e , as  a g i g a n t i c system incapable  knowledge  This  require as  t o be  f o r a l l economic  term.  economy a t do  equilibrium,  perfect  factor costs  interrelationships is  of  to a  just  described,  a p p r a i s a l procedure? rather  o b v i o u s and,  In my  a)  the  s i t u a t i o n created  with  b)  the  scenario  that  by  the  then opinion,  i n some ways,  A global appraisal necessitates  of  what  a careful  execution  of  would have p r e v a i l e d had  the the  86 p r o j e c t not been undertaken.  It i s , t h e r e f o r e , e s s e n t i a l to  have some concrete knowledge, or good estimate, of the p o t e n t i a l development of the economy as a whole. planning,  T h i s i s why  macro  i f at a l l f e a s i b l e , must play an important  r o l e i n the  procedure. Economists,  however, are g e n e r a l l y quick to p o i n t out that  t h i s kind of p r o j e c t a p p r a i s a l s t r a t e g y should only be i n t e r p r e t e d i n a p r a c t i c a l way.  Within reason,  i t i s more the  approach which matters  than every c o n c e i v a b l e d e t a i l .  suggested  (1958) "... above a c e r t a i n  better  by Tinbergen  As  limit  the  i s the enemy of the good."  A major f a c t o r which w i l l n e c e s s a r i l y  i n f l u e n c e the  a p p r a i s a l of p r o j e c t consequences i s the q u a l i t y and nature of existing  information.  To a l a r g e degree,  the q u a l i t y of  a v a i l a b l e s t a t i s t i c s and  the p o t e n t i a l  data i n LDCs i s d i r e c t l y  r e l a t e d to the stage of development of  the host n a t i o n . make allowances Furthermore,  for c o l l e c t i n g  The development planner must be prepared in i n s t a n c e s where data i s found  economic parameters f o r which r e a l and/or impossible to compute.  f i g u r e s are not  p u b l i c who On  estimate  available  More o f t e n than not, data  c o l l e c t i o n w i l l h e a v i l y tax both the imagination and  particularly  to  lacking.  he might be c a l l e d upon to s u b j e c t i v e l y  of the p l a n n e r .  additional  In these circumstances,  knowledge  seeking i n f o r m a t i o n  from l o c a l entrepreneurs, c i v i l  s e r v a n t s , and  the  are c l o s e to the problem c o u l d be most e n l i g h t e n i n g .  the other hand, there i s a tendency  to over-emphasize the  i n f l u e n c e of the q u a l i t y of data on the type of a n a l y s i s required.  More guesswork i s o b v i o u s l y needed i f the data i s  poor, but  the  l o g i c of the planning process i s not  necessarily  di f ferent.  6.3.  Use  A. It  of Accounting P r i c e s - The  The  S o c i a l Approach  Case for Accounting P r i c e s  i s a tenet  of development p l a n n i n g that  p r i c e s " must be used to value the with p u b l i c  in P r o j e c t  investments.  The  government planning r e q u i r e s used to a p p r a i s e p r o j e c t  inputs  and  Evaluation  "accounting  outputs  s o c i a l approach inherent that  s o c i a l cost and  consequences.  "accounting" p r i n c i p l e i s that  The  i t does not  expenditures and  But  r e c e i p t s can  essence of accept that  The  p r i c e s used, a f t e r the  (Dasgupta and 1974;  Gregersen and There are  if  two  the p r i c e s of the should r e f l e c t  in society's  the c o n t r i b u t i o n  and  1974;  This  are  often  "accounting p r i c e s " L i t t l e and  Gregersen,  Mirrlees,  1980).  of a free p r i c e mechanism interest.  The  f i n a l outputs (consumer goods and  value of consumption." sovereignty,  1979;  e s s e n t i a l features  i t i s to work f u l l y  or  i n d i c a t e d adjustments have  Layard,  Contreras,  the  r e f l e c t a s o c i a l gain  "shadow p r i c e s " or simply Pearce, 1972;  actual  actual  been made, are c a l l e d " s o c i a l accounting p r i c e s , " but r e f e r r e d to as  the  s u i t a b l y a d j u s t e d so that  d i f f e r e n c e between them w i l l p r o p e r l y loss.  be  actual  i t does accept that be  to a l l  benefits  expenditures adequately measure s o c i a l c o s t s , and receipts social benefits.  associated  first  i s that  services)  of each product to the " s o c i a l  i s l a r g e l y a matter of consumers'  of consumption d i s t r i b u t i o n among i n d i v i d u a l s  88 and  through  prices  time.  should  The s e c o n d  reflect  words, t h e p r i c e s cost"  (benefits  marginal this and  their  should  i n t h e next  prices  need  demand f o r e a c h p r o d u c t i v e marginal  social  Unfortunately,  factor  instability The  that  nearly  overvaluation  i n LDCs.  of domestic projects,  the supply to the  currency,  excessive  and i n e r t i a  price include  imperfect  protection  economic  to p o l i t i c a l  and d e p e n d e n c e .  central  point  t o be made c o n c e r n i n g in project  appraisal  (land,  labor,  value"  or " s o c i a l worth."  from t h e v a l u e  that  That  t h e use o f "shadow" i s that  from t h e i r  i s t o s a y , market  would p r e v a i l  markets, p e r f e c t  competition  In s h o r t ,  replacing  market  prices  execution  of t h e p r o j e c t  "intrinsic prices  differ option  u n d e r t a k e n , and (b) e q u i l i b r i u m  in factor  knowledge a n d f o r e s i g h t ,  no e x t e r n a l i t i e s .  factors  i f (a) t h e i n v e s t m e n t  i n t h e market as a r e s u l t of a p e r f e c t e.g. p e r f e c t  market  of the p r o d u c t i o n  and c a p i t a l ) , may d i v e r g e  c o n s i d e r e d were a c t u a l l y  situation,  use. For  They  of a d d i t i o n a l  ignorance  i n LDCs, p a r t i c u l a r l y t h o s e  and  alternative  to f r e e l y balance  as w e l l  prices  existed  "opportunity  by t h e r e s o u r c e '  best  and a host  go from  "accounting" prices  being  their  t h e r e a r e many r e a s o n s why t h e f r e e  competition,  imperfections  In o t h e r  f a c t o r , and must be e q u a l  markets, e f f e c t s of large  from o u t s i d e  reflect  (input)  cost.  mechanism does n o t o p e r a t e inflation,  factor  scarcity."  foregone) as determined  t o happen, market  rampant  i s that  "economic  of r e s o u r c e s  revenue product  factors'  or  feature  economic and p r o d u c t  neutral  innovation,  t h e r e a r e two major  by a c c o u n t i n g p r i c e s . i s in itself  likely  reasons f o r  F i r s t l y , the to influence  factor  89 and p r o d u c t  prices,  contemplated. especially  Secondly,  in LDCs,  which d i s t o r t this  particularly  a number of  is  levels"  the market,  will  consistently  true  productivity.  case  of  in the  capital  foreign  markets,  balance  The e s s e n t i a l  full  use,  prices  at  v a l u e of each of  which the  factor  since  social  In  as  to  essential  the  can  as d e t e r m i n e d by  of  to  its  highly  compounded i n  fundamental  the  disequilibria  "accounting prices"  full of  use,  a  in  technical  and no more t h a n  the the  meets demand; t h e y  represent  the  product  t o be o b t a i n e d  showing no s u r p l u s above  acceptance to  using  They a r e  (measured a t  question  it  production.  marginal  a good c o u n t e r p o i n t  further  to p r o v i d e  factors  investments  their  for  is  supply exactly  net  hand,  payments.  to assure  available  employed f a c t o r s  marginal  the  the  "intrinsic  other  funds,  open  extent,  T h i s happens as a r e s u l t  therefore,  by w h i c h of  On t h e  a condition  but  of  be u n d e r v a l u e d w i t h r e s p e c t  raison d'etre  appraisal,  instrument  of  existence  to a l a r g e  investment  large,  A good example of  wage r a t e s t h a n  f u n d s by a p r e v a i l i n g  national  project  of  are  disequilibria"  e v i d e n c e d by t h e  would w a r r a n t .  the p r i c e  imperfect  "fundamental  higher  be o b s e r v e d t h a t  social  the w o r l d at  unemployment w h i c h ,  from c o n s i d e r a b l y  (equilibrium)  in  investments  p r i c i n g mechanism.  alteration  and d i s g u i s e d l a b o r results  there exist  t h e market  artificial  when l a r g e  "accounting p r i c e s " ) , or  its  rejection  (Tinbergen  own a r g u m e n t ,  from the  cost  will  be  1958).  Tinbergen  raised  of  " . . . whether i t would not be more n a t u r a l t o l e t market p r i c e s f i n d t h e i r e q u i l i b r i u m - p e r h a p s by a b e t t e r economic p o l i c y g e n e r a l l y - t h a n t o a p p l y s u c h a r t i f i c i a l c o n c e p t s as a c c o u n t i n g p r i c e s and t o make t h e a p p r a i s a l of i n v e s t m e n t p r o j e c t s " u n d u l y " c o m p l i c a t e d . "  90 H i s answer was  realistic  and  practical  i n , so  f a r , that  he  admitted, "... t h a t t h i s may be p o s s i b l e f o r a few m a r k e t s , s u c h as t h e f o r e i g n exchange m a r k e t , but t h a t f o r o t h e r s i t i s impossible. The s h i f t s i n i n t r i n s i c v a l u e s t o be e x p e c t e d from t h e r e a l i z a t i o n o f t h e i n v e s t m e n t p a t t e r n , by t h e i r v e r y n a t u r e , w i l l o n l y t a k e p l a c e a f t e r t h e i n v e s t m e n t i s c o m p l e t e d , and t h e f u n d a m e n t a l e q u i l i b r i a can be h e l p e d o n l y by a p r o l o n g e d p r o c e s s of i n v e s t m e n t . M a k i n g wages e q u a l t o t h e i r i n t r i n s i c v a l u e would mean i m p o s i n g on the w o r k e r s a l e v e l s u b s t a n t i a l l y lower t h a n p r e s e n t l y p r e v a i l s and h a v i n g t h e r e v o l u t i o n r i g h t now."  B.  Accounting  Whereas t h e appears arises  t o be  short, free  An  as  realm  prices  taxes, the  use  can  unprofitable. "accounting in this  tending of  test"  may  usually  be  by  will,  rise  will  from  budgetary  to solve. within  inducement.  the  Private  t o t h e c h a l l e n g e of  react only  Among o t h e r  v a r i o u s k i n d s of  The  within  r e q u i r e them t o .  difficult  means of  t o s t i m u l a t e t h e use  scarce, resources.  would  are  i f i t shows  r e m a i n s p o s s i b l e and  t o them.  encouraged  even  an  In  t h e r e f o r e , and  regard arises  implementation  and  investment,  They c a n ,  o p p o r t u n i t i e s , but  be  of  agencies  a r e made a r e a l i t y  investment  execution  their  or e n c o u r a g e any  can,  the  i s t h a t g o v e r n m e n t s and  of d e m o c r a t i c a l l y a c c e p t e d  investment  ensure  interest  test."  which p o l i t i c a l l y  entrepreneurs  of p r a c t i c a l  prices"  price  limitation  However, p r o j e c t  "accounting  the a c c o u n t i n g  behave as t h e  important  by  Implementation  l e g i t i m a c y of  to a c t u a l l y  indicated  financially  constraints  new  how  t h e answer  limits,  Project  w e l l founded, a matter  t o c a r r y out  t o be  and  theoretical  concerning  investment  Prices  i f accounting  means, s u b s i d i e s and  of a b u n d a n t , and a l l important  discourage  requirement,  91 however,  i s f o r p r i v a t e and  Earlier  in this  social  chapter,  the  question  fundamental p r i n c i p l e s that  should  LDCs.  as  It  realistic  i s my  contention,  project planning  undertaken w i t h i n a.  the  T h e r e must  be  establishing b.  T h e r e must  to  coincide.  was  regulate  r a i s e d as  project  I have a r g u e d  "uniform  three  method"  to  the  appraisal  throughout,  in these c o u n t r i e s  framework of a  profit  should  in  that  only  be  essential conditions. (criterion  for  priorities);  be  consequences,  a  " c o m p r e h e n s i v e a p p r a i s a l " of and  project  namely d i r e c t ,  indirect,  secondary;  an  a p p r a i s a l " of a l l  and c.  T h e r e must  be  quantitative conclusion requirement planning  below.  economic  to which s i n e qua  must  particular  "accounting  rest.  approach  impacts.  the  observed  This  i s the  evidence  inescapable  leads,  non  on  which development  The  suggested methodology  is described  in d e t a i l  and  project for  in Part  this III  92  PART I I I  RESOURCE  DEVELOPMENT  PLANNING  - STRATEGY,  METHODOLOGY•  SEQUENCE  AND  APPRAISAL  93 1.  INTRODUCTION Part  I of t h e t h e s i s  and u n d e r d e v e l o p m e n t , development, in  and t h e c r i t e r i a  t o maximize  the rate  Part  II i n t u r n ,  defined  guidelines  >effective  way.  national  accounting Improved  a  planning  resource  field affecting  i n LDCs and  activity  planning  planning,  i n t h e most  within  was d e f i n e d  the process  and t h e  d e s i g n and a p p r a i s a l a better  were  approach to p r o j e c t  for establishing  priorities,  c o n s e q u e n c e s , and t h e use  utilization planning.  and d e v e l o p m e n t Like  the material  i s not  i n any  ends  of s o c i e t y , t h e  r e d u c e s t o a m a t t e r of i n v e s t m e n t ( o r d i s i n v e s t m e n t )  and, as s u c h , t o a q u e s t i o n g o a l s and c r i t e r i a forestry, that  These  goals  Similarly,  regulate  m i n i n g , o r water  the e s s e n t i a l  resources are i d e n t i c a l to economic  n a t u r e of n a t u r a l  from t h a t  N o r , i s t h e need  of g e n e r a l  for this  The  of a g r i c u l t u r e ,  activities.  were r e v i e w e d a t l e n g t h  t h o u g h t t o d e t e r m i n e an a c t i o n  beforehand.  resource a l l o c a t i o n .  investment i n other  and c r i t e r i a  no way d i f f e r e n t  of optimum  which govern the development  fisheries,  those  taking  development.  this  of economic  unique f i e l d of development  problem  allocation  prices. natural  developmental  in  project  a s t a n d a r d method  a comprehensive a p p r a i s a l  resource  development  I t was c o n c l u d e d t h a t  required  o f economic  the n a t u r e of development  of p r o j e c t  for successful  established. planning  The r o l e  goals  of r e g i o n a l  for undertaking  comprehensive  fundamentals  t h e p r o b l e m of d e v e l o p m e n t  for appraising  the reasons f o r planning  suggested  of  with  the a p p r o p r i a t e  order  outlined  of  dealt  i n Part I.  resource planning i s  planning  - t h e a c t of  or s e r i e s  of a c t i o n s  activity  less v i t a l  than  94 society's  urge  ensure that  to coordinate,  the  socio-economic  efficiently.  The  which  stage  set the  intervention role  or  thesis  general  environment  economic  the  established  the c o n c e p t u a l  ground  rules  the  whether  in a subsidiary  for a  development.  similar Part  b a s i s of d e v e l o p m e n t  for undertaking  LDCs,  government  justification  i n t e r v e n t i o n in resource  reviewed  generally,  i s working  f o r v a r y i n g d e g r e e s of  provide  and,  i m p e r f e c t i o n s of  in productive a c t i v i t i e s ,  otherwise,  (planning)  resolve c o n f l i c t s  I I of  the  planning  and  project planning  in  LDCs. Consistent  with  the  s t a t e d o b j e c t i v e s of  remains to s t r u c t u r e a p r a c t i c a l natural  resource  principles should  development  d e s c r i b e the  appraising, follows  and  I and  II.  fundamental procedure  selecting  that t h i s  methodology  in accordance  established in Parts  the  resource  thesis, i t  for planning  with  the  This  methodology  be  and  for designing,  p r o j e c t s i n LDCs.  m e t h o d o l o g y must  rules  It  then  tested for i t s p r a c t i c a l  applicability. Part  I I I below, d e a l s w i t h  procedure.  Focusing  development, resource  i t explores  investment  to d e f i n e t h i s translate  on  these  how  i n t e r m s of into  to  w i t h i n the  appraise  the  operational aspects  identify overall  human p h y s i c a l r e s o u r c e s  according  to execute  forest  and  industry  appropriate  role  development p r o c e s s ; g o a l s ; how  t a r g e t s ; and  framework.  of p l a n n i n g ,  stages  the  sectoral-regional  projects within this  planning  of m e t h o d o l o g y  management and  o b j e c t i v e s and  and  completing  forest  the q u e s t i o n  nor  the  to  identify cover  a c t of managing or  how  to  I t does not  to schedule; a plan.  how  of  or  directing  Furthermore,  i t is  95 not  concerned with  development, of w h i c h  technical  in this  i s either  t o be a v a i l a b l e  case  forest  irrelevant  i n proper  or o p e r a t i o n a l a s p e c t s  of  i n d u s t r y development,  framework  national  for planning  form.  resource  (regional) context.  knowledge  t o t h e p l a n n e r - a n a l y s t o r assumed Part  I I I , t h e r e f o r e , i s not a  p l a n n i n g manual but o n l y a s e t of g u i d e l i n e s i n t e n d e d a  resource  (forestry)  to provide  development  in a  96  2.  IDENTIFICATION The  planning  how t o enhance investments.  OF THE PLANNING PROBLEM(S)  p r o b l e m and u n d e r l y i n g  economic In o t h e r  development words,  be a l l o c a t e d  regional If  t o timber  t h e economy under question  investment  forest  aid  into  t h e economy  making  That  wants  (See S e c t i o n  chance of meeting these  answer 1.  efficiency,  land, this  available  socio-economic  improved  forestry  study  should  that  having  terms, the that  economic  investments  criteria  a firm  grasp  base p r e v a i l i n g  The  i n stages. of the p r o d u c t i v e  enhancement  resources.  have a  and s h o u l d ,  and a p p r a i s a l ?  understanding  for forestry  l a b o r , and c a p i t a l entails  output  goal are those  must n e c e s s a r i l y come  T h e r e must be a d e t a i l e d factors  I f , on t h e o t h e r  o f s o c i e t y ' s most  development  be s e l e c t e d f o r d e t a i l e d  to this question  public  1.3.2).  how c a n one a s c e r t a i n w h i c h  therefore,  t h e answer  i s , investments  t h a t g e n e r a l l y meet t h i s  and some d e g r e e o f s a t i s f a c t i o n  real  direct  In t h e s i m p l e s t economic  equity,  merit  planned,  c o n t r i b u t i o n of the s e c t o r t o r e g i o n a l  f o r i n c r e a s e d economic  But  in a  that encourages adequate  provide  pressing  resources  o r i e n t e d , the planning  in forestry.  the p o t e n t i a l  of investments  is centrally  i n d u s t r y development.  and n a t i o n a l d e v e l o p m e n t . type  the planner i s  activities  may h e l p c h a n n e l  in policy  investments  maximize  facing  scarce productive production  study  i s market  t h e government  private  case  context.  to the p l a n n i n g  hand,  i s in this  by means o f f o r e s t r y  the question  how and how much o f a n a t i o n ' s should  issue  Among  i . e . forest other  things,  o f t h e p h y s i c a l and  i n the study  area.  97 2.  One  must i d e n t i f y  r e l e v a n t resource development  and  planning o p p o r t u n i t i e s . 3.  A statement  must be formed of reasonable  planning  problems and q u e s t i o n s which l e a d the planner 4.  Goal d e f i n i t i o n  (development t h e s i s ) ,  5.  A d d i t i o n a l data c o l l e c t i o n .  6.  A list  into  and  Finally,  of p r e l i m i n a r y investment  o p t i o n s i s drawn  up  w i t h i n the context of the d e f i n e d p l a n n i n g i s s u e and i n the l i g h t  of the c o l l e c t e d  information.  T h i s s e c t i o n (III.2) d e a l s only with steps  (1), (2), and  (3)  l e a d i n g to the d e f i n i t i o n of the r e l e v a n t p l a n n i n g problem. Steps  (4), (5), and  (6) are d e a l t with i n separate s e c t i o n s  thereafter.  2.1.  The Regional Resource Base: A D e s c r i p t i o n of the Study Area. The  land, l a b o r , and c a p i t a l that c o n s t i t u t e the  forestry  make-up of a r e g i o n a l e n t i t y are not unique or s p e c i a l from an economic standpoint. biologically different  They may  be p h y s i c a l l y  from other resources but, as  resources  or regards  development, they must be t r e a t e d , used, and a l l o c a t e d as a l l resources a r e : a c c o r d i n g to s t r i c t because there seems to e x i s t towards t r e a t i n g  forest  welfare c r i t e r i a .  I say  this  in the f o r e s t r y p r o f e s s i o n a t r e n d  resource development i n i s o l a t i o n  of  s o c i e t y ' s most p r e s s i n g economic wants, with not a small measure of s u b j e c t i v e c r i t e r i a , and with r e f e r e n c e to a r c h a i c of u t i l i z a t i o n  (Haley and Smith, 1976;  Byron, 1976).  i n d u s t r i e s should not be viewed independently  concepts The  forest  from the r e s t of  98 the  r e g i o n a l economic make-up.  analyzed  jointly  development foregone What  with  should  They must be d e s c r i b e d and  a l l other  productive  p r o p e r l y account  i n the r e s t  stage  and t h e i r  for opportunities (benefits)  of the socio-economic  i s required at t h i s  activities  system.  of p l a n n i n g  i s basically  an  overview  o f t h e r e g i o n a l economic  environment  forestry  activity  I f t h e o b j e c t i v e i s t o improve  the  aggregate  induce  in particular.  situation  changes  relative  to the f o r e s t  i n land use, s i l v i c u l t u r e ,  wood h a r v e s t i n g r a t e s , t h e c o m p o s i t i o n industries, training,  the r a t e of output  technology,  comprehensive is,  what  k i n d o f l a n d use c h a n g e s ,  F u r t h e r m o r e : how, implemented? way,  The q u e s t i o n  these  I p r o p o s e t h a t one must  become f a m i l i a r  Regional  industries,  manpower  to provide a  r e m a i n s , however, and t h a t  silviculture,  questions first  management,  processing  i s too long  where, and when s h o u l d  To answer  s e c t o r , we c a n  forest  o f wood  of these  e t c . The l i s t  picture.  i n g e n e r a l and  look  and so on.  t h e change be even  in a preliminary  at the study  a r e a and  with:  Background  Information  - P o l i t i c a l and A d m i n i s t r a t i v e O v e r v i e w - Geography ( b o u n d a r i e s , s i z e , topography, c l i m a t e , hydrography, n a t u r a l resources) - Socio-Economic S t r u c t u r e ( p o p u l a t i o n , economic a c t i v i t i e s , p r i m a r y and s e c o n d a r y p r o d u c t i o n , s e c t o r a l breakdown, investment, s o c i a l i n d i c a t o r s , r e g i o n a l d i s e q u i l i b r i a ) .  The  Regional  Resource  Base  - Land Use ( a g r i c u l t u r e , f o r e s t r y , u r b a n , e t c . ) - F o r e s t r y D e v e l o p m e n t ( s i l v i c u l t u r e , management, i n d u s t r y , markets, p r o d u c t i v i t y , p o t e n t i a l f o r development)  forest  99 Available  I n f r a s t r u c t u r e f o r Resource  Development  - Energy ( e l e c t r i c i t y , f u e l ) - T r a n s p o r t a t i o n and C o m m u n i c a t i o n s ( r o a d s , r a i l , p o r t s , telecommun i c a t i o n s ) - Economic P o l i c y and D e v e l o p m e n t E n v i r o n m e n t ( d e v e l o p m e n t p l a n , investment i n c e n t i v e s , p o l i c y c o n s i d e r a t i o n s , and di sincent ives)  2.2.  Development The  important  appropriate While  question  resource  i t would  solely  and P l a n n i n g  now a r i s e s  development  be t e m p t i n g  and p l a n n i n g  forest  per  area,  unit  i t should  resource  solution  to better  development resource  regional factors,  planner  those  than  nature  inherent  First,  investments  preliminary itself  t h a t may,  development  i s h i s knowledge o f  development.  i n d u s t r i e s i n the process of f o r many  resource  i n t u r n , be amenable t o p l a n n i n g .  i s the a c t u a l information  regional reconnaissance  i s a valuable  forestry  f o r economic  g r o w t h c a n be t h e i n s p i r a t i o n  there  and o t h e r s .  w h i c h , f o r a wide v a r i e t y o f  o f t h e wood and wood b a s e d  ideas  The  necessarily include  to forestry  there  The  development  must  of r e l e v a n t  i s known t o be a d v a n t a g e o u s  economic  i s a l o t more t o  of i n f o r m a t i o n a v a i l a b l e t o the  opportunities.  of f o r e s t r y  that there  technical optimization.  reasons, role  mechanization  industry integration,  utilization  f o r the i d e n t i f i c a t i o n  and p l a n n i n g  forest  be r e a l i z e d  T h e r e a r e two s o u r c e s  in  opportunities  l a n d u s e , o r o p t i m i z a t i o n o f g r o w t h and. y i e l d  regional  Second,  opportunity.  i n terms of t e c h n i c a l c o n s i d e r a t i o n , e.g.  multiple  the  a s t o what c o n s t i t u t e s an  to d e f i n e planning  of wood h a r v e s t i n g a c t i v i t i e s ,  all  Opportunities  source  acquired  and, i n l a t e r  of p l a n n i n g  ideas.  during the stages, The  which  1 00  comparison forestry  of t h i s  may  suggest  the u t i l i z a t i o n  A.  Forests  better based  investment  R o l e of F o r e s t r y  s e r v e mankind  i n MDCs i n many ways and  P e a s a n t s and  urbanites alike  p r o d u c t s i n some form  furniture,  toilet  materials;  as p a p e r  and  that  paper, and  - i n such  books,  use  "...  he would  coal  picked  o f f the s u r f a c e  nonwood s u b s t i t u t e  (whether plants,  and  flows  a substantial  from w a t e r s h e d s  growing  portion  part  that  of t h e p o p u l a t i o n  and  wildlife  e n v i ronment.  which  and  are l a r g e l y  i n wooded a r e a s and  In  and  for fact,  human b e i n g , does  not  be  use  (1975)  furniture,  burn  have f o u n d some  of a l l w a t e r  navigation,  recreation varied  stone  c o o k i n g , or washing),  irrigation,  means.  Clawson  and  as  paper."  f o r m i s c e l l a n e o u s urban land  use  of t h e l a n d ,  for toilet  for drinking,  (including  i n a cave,  uses  in o f f i c e s  r a c e who  s u g g e s t e d by M a r i o n  have t o l i v e  Furthermore,  transportation  young or o l d , o r o f any As  wood  of t h e c o n s t r u c t i o n  i m p o s s i b l e t o c o n c e i v e of any  i n some form.  i f not  wrapping  it  wood  the  wood and  offices,  is practically  have  simple household  in diverse  component and  use  f i r e w o o d , and  packaging  as an e s s e n t i a l  or r i c h ,  improve  important  homes, f a c t o r i e s ,  he p o o r  can  of  Activities  t o s e r v e p e o p l e of LDCs i n e q u a l l y  ways.  stores;  opportunities  potential  of r e g i o n a l r e s o u r c e s .  Developmental  potential  data v i s a v i s the t e c h n i c a l  the  in  rural and  i n homes  industrial  purposes  power g e n e r a t i o n )  or w h o l l y f o r e s t e d .  i s engaging forest  s u p p o r t s and  used  A  i n outdoor  i s t h e home f o r a  m a i n t a i n s our  rich  delicate  101 Forests natural which  are  a s t a r t i n g point  resources  feed  and  Wood w h i c h  they p r o v i d e  support  manufacturing  most v e r s a t i l e n a t u r a l i s used  Most  often,  tertiary  logs  are  fiber  products are  construction  and  used  enter  f r o m the  in  supplied  examples of  or  the  manpower may  forest  fast an  of  domestic  diversification investment  or  worthy  of  forest  land  the  disinvestment  soils,  virgin  and  climate,  possibility  of  the  for  expanding  greatly  intensive  The  particularly there In  land  for  increasing  rate  of  when much of  is a desire  LDCs w i t h an  or  industry forestry  a challenging  commercial  rural  technologies,  question the  t o open  appropriate  i n t e r e s t i n g hypothesis the  amenable  Abundant  for  optimum  would  increased  (marginal)  is frequently  an  p r i n t i n g of  opportunities  o f f e r a chance  area.  wood  house  points  opportunity  labor  i s p u b l i c l y owned or a new  stands  vacant  integration.  d e t a i l e d planning,  utilization base,  and  these  stand.  excellent  demand may  and  Lumber and  growing p l a n t a t i o n s .  wood p r o d u c t s m a n u f a c t u r e w i t h  times,  state.  from  from  f o r e s t r y development  existence  represent  c r o p s and  at  the  final  to m i l l s .  activities  At  secondary,  p a c k a g i n g and  of mature t i m b e r  to a f f o r e s t a t i o n with  increased  i t s natural  i n d u s t r i e s ranging  economic  original  availability  harvesting  grow t i m b e r  to t r a n s p o r t a t i o n ,  and  Typical the  harvested  kinds.  known t o m a n k i n d . to  flows  i s perhaps  i t i s made f i t f o r  From s e e d l i n g s  a l l other  material  forest  however, wood u n d e r g o e s p r i m a r y ,  crops  be  raw  in a  forms c l o s e  before  Like  p r o c e s s of many  stored  material  i n s h a p e s and  consumption.  removed  raw  manufacturing  materials,  industry.  a s t r e a m of  i s m a n u f a c t u r e d and  wood  for  to land  to t e s t i s  forestry estate  with  102 a view t o i n c r e a s i n g l o g or other which a demand e x i s t s abroad  B.  forest  i n d u s t r y exports f o r  (Arnold e_t a_l. , 1979).  P l a n n i n g O p p o r t u n i t i e s Suggested by Data It  i s important  to r e a l i z e that major resource development  opportunities, particularly materialize  i n a r e g i o n a l context w i l l  f o l l o w i n g the i d e n t i f i c a t i o n of s p e c i f i c  requirements  only  community  and, o f t e n but not always, as a r e s u l t of growing  s o c i o - p o l i t i c a l pressure.  The i d e n t i f i c a t i o n of development and  p l a n n i n g o p p o r t u n i t i e s can be helped and ideas s t i m u l a t e d by asking systematic q u e s t i o n s about the economics of the r e g i o n a l wood based i n d u s t r i e s . continous manipulation  Intelligent,  of the a c q u i r e d data  a p r e - r e q u i s i t e to e f f i c i e n t From a continuous may a r i s e . obvious  systematic, c o n s i s t e n t and i s , in this  regard,  resource p l a n n i n g .  survey, concrete development o p p o r t u n i t i e s  I f , f o r example, much f o r e s t  land i s found  o p p o r t u n i t y a v a i l a b l e c o u l d be to encourage  i d l e , the  rapid  a f f o r e s t a t i o n or other means of i n t e n s i v e f o r e s t management. production  If  i s short i n one or two areas and raw m a t e r i a l s are  being wasted, wood products manufacture c o u l d be i n c r e a s e d to supply the market, and so on. in the f o r e s t  There are numerous p o s s i b i l i t i e s  i n d u s t r i e s sector f o r s t r u c t u r i n g  schemes t o improve on resource u t i l i z a t i o n . (1973),  alternative  According  to Watt  the broad areas where there i s scope f o r c h o i c e i n c l u d e :  A l t e r n a t i v e ways of o b t a i n i n g a good or s e r v i c e T e c h n i c a l processes Equipment used Alternative materials A l t e r n a t i v e combinations of p r o d u c t i o n f a c t o r s V a r y i n g product q u a l i t y Degree of manufacture (value added)  1 03  A l t e r n a t i v e s of s c a l e a n d i n t e g r a t i o n A l t e r n a t i v e s of l o c a t i o n A l t e r n a t i v e timing A l t e r n a t i v e ways o f f i n a n c i n g , i . e . m o b i l i z i n g for development. The  list  relevant  2.3.  areas  Problem Having  is  difficulties,  i t i s tempting  statement  of c o n c r e t e  contribution criteria, The  by s u g g e s t i n g ,  nature  a matter  s o u g h t , may t a k e character  defined  step  i n the planning  thesis. that  the planning  must  n o t be t h e c a s e .  make a s i g n i f i c a n t of approved  of the p l a n n i n g  social  f o r which answers a r e b e i n g  many forms d e p e n d i n g  on t h e p a r t i c u l a r  the p r e v a i l i n g  therefore, to provide  i s , to a  and common  situation  d e v e l o p m e n t , and t h e e s t a b l i s h e d r e g i o n a l g o a l s . attempt,  The  welfare  problem  of s u b j e c t i v e p r e f e r e n c e  area,  by some  p r o b l e m s t o t h e d e c i s i o n maker.  (problem),  of t h e study  problems,  f o r the planner  i n the l i g h t  and d e f i n i t i o n  The q u e s t i o n  t h e view  c a n and s h o u l d  relevant planning  extent,  sense.  t o take  solution  t o e s t a b l i s h i n g the  authority, this  specialist  f o r which a  i s an i m p o r t a n t  be e n t i r e l y  institutional  development  large  This  or q u e s t i o n s  problems should  base and i d e n t i f i e d  problem or q u e s t i o n  g o a l s and d e f i n i n g a d e v e l o p m e n t  While  arise.  opportunities, i t i s possible to define  and must be s t r u c t u r e d p r i o r  planning  higher  o p p o r t u n i t i e s may  the r e g i o n a l resource  planning  t o be a t t e m p t e d .  process  an i d e a o f t h e  Definition  development  specific  b u t does p r o v i d e  where s i g n i f i c a n t  surveyed  appropriate the  i s not complete  resources  a comprehensive  p r o b l e m s , b u t o n l y a few examples of t h e t y p e  concerning  I s h a l l not  list  of p l a n n i n g  of i s s u e s that  104 could  be  As the  of  r e g a r d s the  making  "what," "how," and  allocation p r o b l e m s of be  concern.  factors  this  g r o w t h and The  a  the  but  a public  plan,  p r o g r a m , or p o l i c y ,  much" q u e s t i o n s  of  most  Hence,  relevant.  in a regional  greatest  concern  framework t h a t  makes the  highest  resource  context, i s the  i t is that  need  development  uses a l l a v a i l a b l e  possible  contribution  are  important  to of  productive to  regional  distribution.  t y p e of  therefore,  kind, Of  within and  "how  (investment) are  formulated.  forestry  of  be  problems that  given  priority  most  and  should,  are:  What s h o u l d the optimum s i z e and b e s t c o m p o s i t i o n of the f o r e s t r y e s t a t e ( i n d u s t r y ) be? Or put i n more economic t e r m s , what s h o u l d the optimum r a t e of i n v e s t m e n t ( a l t e r n a t i v e l y d i s i n v e s t m e n t ) i n t o wood and wood p r o d u c t s m a n u f a c t u r e and r e l a t e d s e r v i c e s be? The most s u i t a b l e t r a n s p o r t a t i o n s y s t e m f o r moving f o r e s t r y o u t p u t on a r e g i o n a l ( n a t i o n a l ) b a s i s and i n c l u d i n g o t h e r economic a c t i v i t i e s ? The f u n d a m e n t a l s of a c o m p r e h e n s i v e f o r e s t r y d e v e l o p m e n t p l a n , program, or p o l i c y f o r the r e g i o n (nation)? The optimum t y p e s of i n c e n t i v e s f o r t h e m o b i l i z a t i o n of r e g i o n a l and e x t r a - r e g i o n a l resources ( i . e . p r i v a t e investment) f o r f o r e s t r y development? Manpower t r a i n i n g and t e c h n o l o g i c a l i n n o v a t i o n i n a r e g i o n a l - s e c t o r a l and, p e r h a p s , n a t i o n a l perspective? S o c i a l a s p e c t s of r e s o u r c e d e v e l o p m e n t s u c h as t h e a d e q u a t e p r o v i s i o n of h e a l t h , e d u c a t i o n , housing, and o t h e r p u b l i c s e r v i c e s t o m a i n t a i n a h e a l t h y b a l a n c e between e f f i c i e n c y and e q u i t y c r i t e r i a i n f o r e s t r y investments? The a d e q u a t e p r o d u c t i o n and d i s s e m i n a t i o n of t e c h n i c a l and economic i n f o r m a t i o n by p u b l i c r e s e a r c h institutions? The q u a l i t y of t h i s t e c h n i c a l and economic r e s e a r c h and t h e means and ways of p r o v i d i n g t h e r e s u l t s t o t h e economy a t l a r g e ? Optimum l a n d use i n c l u d i n g the p o s s i b i l i t y of m u l t i p l e use and a l t e r n a t i n g c r o p s i n f o r e s t a r e a s ? The s u p p l y of e n e r g y , p o r t f a c i l i t i e s , and o t h e r p u b l i c i n f r a s t r u c t u r e e s s e n t i a l t o the d e v e l o p m e n t of forest industries?  1 05 The l i s t  i s too v a r i e d and lengthy to include a l l  problem a r e a s .  The examples, however,  the type of q u e s t i o n s that are most  possible  do provide a notion of  relevant.  1  3.  DEFINITION OF GOALS AND  T h e r e a r e two at  t h i s stage.  DECISION  types of g o a l s  First,  there  w h i c h must be d e f i n e d  specific  target.  "parochial  objective"  development  plan  master, e t c . leadership should  be  forest  should  i n one  Likewise,  to define  particular Second,  there  material  aims  achievement income  of r e g i o n a l  sustained  a s p e c t s of " s o c i a l  welfare"  development  goal  socio-economic economic of  (see S e c t i o n  can be  system  primary  goal  objective"  been  ultimately The  practical,  defined  of economic  1.3.2).  Unable  as t h e  growth  and  t o measure t h e  economists are  reduced  but more m e a s u r a b l e c o n c e p t 1.4.1).  In t h e s e  economic  merit  of i n c r e a s e d equity,  and  of the  (maximum) some d e g r e e  wants.  t h i s m a t e r i a l i s t i c view of d e v e l o p m e n t ,  of d e v e l o p m e n t  planning  of  terms, the  as the t r a n s f o r m a t i o n  f o r the p r o v i s i o n  s a t i s f a c t i o n of s o c i e t y ' s with  have  rate  re-defined  e f f i c i e n c y , increased  Consistent  private  to the  which  planning.  welfare,"  to working with the l e s s p e r f e c t "economic  government  objective  t h e answer  goal"  development  d i s t r i b u t i o n (see S e c t i o n  intangible  of  problem.  of a l l d e v e l o p m e n t  of a r a p i d ,  the  forms e . g . i n d i c a t i v e ,  the " p a r o c h i a l  i s t h e "development  the t a r g e t  how  resource  i s a lack  i s simply  toward a  that  f o r encouraging  In s h o r t ,  of  i s , f o r example,  the p l a n n i n g  a sectoral policy  productivity  objective"  be t o f o r m u l a t e a  and  considered  industries, i t follows  i f the problem  into forestry.  t o be  this activity  problem  of the a c c e p t e d  be p r o b l e m o r i e n t e d  must be  to channel  i n f o r e s t r y development,  investments must  (objectives)  I f the planning  to d e v e l o p the r e g i o n a l  CRITERIA  i s the " p a r o c h i a l  planning  06  i s one  the  of i d e n t i f y i n g the  1 07 most s u i t a b l e ( e f f i c i e n t )  investment o p p o r t u n i t i e s f o r  a l l o c a t i n g the n a t i o n ' s scarce p r o d u c t i v e resources, and choosing  income d i s t r i b u t i o n p o l i c i e s that maximize present and  f u t u r e "economic w e l f a r e " . planning  The secondary goal of development  i s that of d e v i s i n g p r a c t i c a l methods f o r m o b i l i z i n g  a v a i l a b l e resources S e c t i o n 1.3.1).  I t f o l l o w s that the goal i n f o r e s t r y  development planning productive  to the most d e s i r a b l e a c t i v i t i e s (see  should be one of s e l e c t i n g the most  ( e f f i c i e n t ) and e q u i t a b l e f o r e s t r y  investments,  of d e f i n i n g the means and ways by which to c a r r y out these investments.  and  108 4.  DATA COLLECTION AND DEFINITION OF ALTERNATIVE INVESTMENT OPTIONS Detailed  information, p a r t i c u l a r l y q u a n t i t a t i v e information,  i s e s s e n t i a l raw m a t e r i a l f o r p l a n n i n g  (Arnold 1974).  Before  concrete development o p t i o n s can be d e f i n e d i t i s necessary t o d e s c r i b e and assess i n d e t a i l  the e x i s t i n g s i t u a t i o n .  This  i n v o l v e s the c o l l e c t i o n , a n a l y s i s , and p r e s e n t a t i o n of resource data.  Without t h i s p r e l i m i n a r y groundwork i t i s impossible t o  p r o j e c t the r e s u l t s of f u t u r e a c t i o n s and, hence, impossible to judge which course of a c t i o n i s most l i k e l y planning goals  4.1.  to achieve the  (Johnston, Grayson, and Bradley  1967).  Sources and Types of Information. It  i s a f a i r l y accepted  tenet of p l a n n i n g that the  u s e f u l n e s s of the p l a n n i n g process accuracy  of the data.  w i l l i n g n e s s to c o l l e c t  i s dependent upon the  A w i l l i n g n e s s to plan c a l l s information.  for a  A commitment to data  gathering i s , t h e r e f o r e , unavoidable.  At the same time,  e q u a l l y unavoidable  should be c o s t l y and time  consuming.  that t h i s a c t i v i t y  Data c o l l e c t i o n must be c a r e f u l l y planned  so that  only the measures that a r e a c t u a l l y needed are gathered 1974;  Gregersen  and Contreras,  1979; Gregersen,  i t is  (Arnold  1980).  There a r e two major sources of i n f o r m a t i o n a v a i l a b l e t o the planner: "primary"  and "secondary."  "Primary  sources" a r e  o b v i o u s l y the most v a l u a b l e but can only be tapped s p e c i a l surveys of manufacturers, consumers.  through  w h o l e s a l e r s , r e t a i l e r s , and  These surveys are p a r t i c u l a r l y c o s t l y and d i f f i c u l t  109 to undertake i n LDCs.  "Secondary sources"  are the most  a c c e s s i b l e and consequently the most widely  used.  represent  of p r i v a t e and  public  e x i s t i n g p u b l i c a t i o n s and records  institutions.  They i n c l u d e m i n i s t e r i a l and departmental  records, development agency r e p o r t s , s t a t i s t i c a l the o f f i c i a l  These  r e p o r t s from  s t a t i s t i c s o f f i c e , p u b l i c a t i o n s from p r i v a t e  o r g a n i z a t i o n s and trade groups and r e s u l t s from previous (United Nations 1958, Watt It  is difficult  general  1973).  to make a c l e a r d i s t i n c t i o n between the  r e g i o n a l information  d e t a i l e d data  o u t l i n e d in Section  r e q u i r e d at t h i s stage,  closely related.  The grouping of the data  general, nevertheless, development planning  the i n f o r m a t i o n  will,  to some extent,  objective.  The  a v a i l a b l e to the future  p o t e n t i a l , roads and i n f r a s t r u c t u r e , manufacturing  f a c i l i t i e s , machinery, and labour. technical  In  may be d i v i d e d i n t o two broad groups.  i n d u s t r i e s and i n c l u d e s land, growing stock,  productive  and the  r e l e v a n t to f o r e s t r y  group embraces the p h y s i c a l resources  forest  III.2.1  f o r the two sets are  be determined by the nature of the planning  first  surveys  The second group  f i n a n c i a l and economic data  determined o u t s i d e  covers  including factors  f o r e s t r y , such as f o r e s t products demand,  output p r i c e s and input c o s t s , e.g. the cost of land, l a b o r , and capital  A.  (Johnston,  Grayson, and Bradley  1967).  Resource Surveys  These surveys aim at the c o l l e c t i o n of information p e r t a i n i n g to the r e g i o n a l resource  base, i t s c u r r e n t  p r o d u c t i v i t y and p o t e n t i a l f o r development.  They should  include  1 10 data  on t h e s t a t e of t h r e e  capital,  and  major p r o d u c t i o n  factors,  land,  labour.  Land R e s o u r c e s - F o r e s t  Land and G r o w i n g  Stock  - Land use c l a s s i f i c a t i o n f o r r u r a l l a n d , i n c l u d i n g a g r i c u l t u r a l (areas, geographic d i s t r i b u t i o n , c a r r y i n g capacity) - Land t e n u r e and s i z e o f h o l d i n g s - E x i s t i n g v e g e t a t i o n and t h e i r p h y s i c a l c h a r a c t e r i s t i c s ( g r o w i n g s t o c k - i n v e n t o r y , mature t i m b e r , v o l u m e s ) - S i t e q u a l i t y (geology, topography, s o i l s , c l i m a t e , accessibility) - P h y s i c a l p r o d u c t i v i t y ( g r o w t h and y i e l d , p r o d u c t q u a l i t y , dimensions) - F o r e s t management methods i n c l u d i n g s i l v i c u l t u r a l pract ices - A l t e r n a t i v e uses of f o r e s t l a n d ( c u r r e n t and potent i a l ) .  Capital  Resources - Forest  Industry  and R e g i o n a l  Infrastructure  Primary F o r e s t r y A c t i v i t y - S i l v i c u l t u r e - S i z e , l o c a t i o n , and p r o d u c t i v e ( i n s t a l l e d ) c a p a c i t y o f t h e wood g r o w i n g , wood h a r v e s t i n g , and r e l a t e d f o r e s t act i v i t ies - S u r v e y t o i n c l u d e : f o r e s t n u r s e r i e s and s i l v i c u l t u r e , f o r e s t management, wood h a r v e s t i n g and t r a n s p o r t a t i o n - Time s e r i e s f o r p r o d u c t i o n ( o u t p u t ) i n t h e above a c t i v i t i e s i . e . growth, y i e l d , l o s s e s , h a r v e s t - Q u a l i t a t i v e d e s c r i p t i o n of output - markets - P h y s i c a l input requirements per a c t i v i t y i n c l u d i n g l a n d , e q u i p m e n t , m a t e r i a l s , and l a b o u r . Secondary F o r e s t r y A c t i v i t y - Manufacturing - S i z e , l o c a t i o n and p r o d u c t i v e ( i n s t a l l e d ) c a p a c i t y o f t h e wood p r o c e s s i n g a c t i v i t i e s - D e p e n d i n g on t h e d e p t h and s c o p e o f a n a l y s i s , s u r v e y t o i n c l u d e t h e m a n u f a c t u r i n g o f : sawnwood, wood c h i p s , plywood, p a r t i c l e board, f i b r e b o a r d , p u l p and paper, wood f u r n i t u r e , f l o o r i n g , p a r q u e t , window and d o o r f r a m e s , b r o o m s t i c k s and t o o l h a n d l e s , l a m i n a t e d beams, p r e f a b r i c a t e d h o u s e s , and any o t h e r a c t i v i t y d e p e n d e n t on wood o r f o r e s t r y raw m a t e r i a l s - Time s e r i e s f o r p r o d u c t i o n (output) - Q u a l i t a t i v e d e s c r i p t i o n of output - markets - P h y s i c a l input requirements per a c t i v i t y i n c l u d i n g l a n d , e q u i p m e n t , m a t e r i a l s , and l a b o u r Regional Infrastructure - Roads and r a i l w a y s ( l o c a t i o n , c a p a c i t y ,  and r e a c h )  111  P o r t s ( l o c a t i o n , d o c k i n g , l o a d i n g and u n l o a d i n g capacity) Energy ( i n s t a l l e d c a p a c i t y , q u a l i t y , e l e c t r i c g r i d )  Human R e s o u r c e s - L a b o u r and Management - Population ( g e o g r a p h i c d i s t r i b u t i o n by sex a n d age, forecasts) - L a b o u r f o r c e ( g e o g r a p h i c d i s t r i b u t i o n , employment and unemployment f o r s k i l l e d , s e m i - s k i l l e d , and u n s k i l l e d labour) - Employment and unemployment by major a c t i v i t i e s  B.  Technical, These  studies  information" prices  F i n a n c i a l , and Economic  on p r o d u c t i v e  f o r inputs  benefit  aim a t the c o l l e c t i o n  of " t e c h n i c a l "market" and  and o u t p u t s a n d , g e n e r a l l y ,  information  investment  activities,  Surveys  options.  necessary They  f o r the design  include  "accounting"  a l l the c o s t and a p p r a i s a l o f  such data a s :  Techn i c a l -  Raw m a t e r i a l p r o p e r t i e s - q u a l i t i e s P o s s i b l e p r o d u c t i o n methods T e c h n i c a l d e s i g n and e n g i n e e r i n g S c a l e s of p r o d u c t i o n Q u a l i t y of p o t e n t i a l i n d u s t r i a l s i t e s P h y s i c a l input - output r e l a t i o n s h i p s per investment a c t i v i t y i n d i c a t i n g o r i g i n and d e s t i n a t i o n , i . e . domestic or f o r e i g n  F inane i a l - F a c t o r and p r o d u c t m a r k e t s , i n c l u d i n g c u r r e n t and f u t u r e demand, p r i c e s , and e l a s t i c i t y o f demand - t h e d e g r e e o f r e s p o n s i v e n e s s o f demand t o a change i n a demand s h i f t i n g f a c t o r , e t c . E s t i m a t e s on f u t u r e c h a n g e s i n p o p u l a t i o n , income, p r i c e s , t e c h n o l o g y , and t a s t e o f c o n s u m e r s may be n e c e s s a r y i n l i e u o f t h e e l a s t i c i t y o f demand - C o s t d a t a p e r u n i t f a c t o r and p e r a c t i v i t y , e.g. f o r e s t l a n d , m a c h i n e r y and m a t e r i a l s , l a b o u r wood h a r v e s t i n g , s a w m i l l i n g , t r a n s p o r t a t i o n , e t c .  11 2 - Market i n t e r e s t rate duly d i s c o u n t e d f o r i n f l a t i o n but including risk factors - P r i c e of f o r e i g n exchange - Price indices - Customs d u t i e s on imported equipment and m a t e r i a l s - Tax s t r u c t u r e a f f e c t i n g the f o r e s t i n d u s t r i e s - Other government i n c e n t i v e s and d i s i n c e n t i v e s f o r f o r e s t r y investment - O v e r a l l n a t i o n a l and r e g i o n a l development programs (Plan) A more d e t a i l e d d e s c r i p t i o n of the f i n a n c i a l data necessary f o r p r o j e c t planning  can be found i n United  Nations  (1958) and  OECD (1968).  Economic Bearing i n mind that  the c o l l e c t i o n of economic  information  i s f o r the purpose of c a r r y i n g out a socio-economic  evaluation,  the  type of data that are necessary to assemble r e f e r s mainly to  s o c i a l c o s t s and b e n e f i t s of f o r e s t r y investments. The Central  data which should be o b t a i n e d , p r e f e r a b l y Planning O r g a n i z a t i o n ,  from the  include:  - The accounting p r i c e of land (opportunity c o s t ) - The accounting p r i c e of labour (shadow wage) - The accounting p r i c e of s a v i n g s / c a p i t a l (shadow p r i c e of investment) - The s o c i a l value of f o r e i g n exchange (shadow p r i c e of f o r e i g n exchange) - The s o c i a l discount rate ( s o c i a l time p r e f e r e n c e f o r consumpt ion) - Regional and n a t i o n a l income (employment) m u l t i p l i e r s - Marginal rate of r e t u r n on investment of the p r i v a t e sector - Marginal rate of reinvestment of p r o f i t s - Marginal p r o p e n s i t y to save o f : labour capitalists government taxpayers at l a r g e - M a r g i n a l p r o p e n s i t y to re-spend r e g i o n a l l y and nationally - Set of n a t i o n a l weights on the o b j e c t i v e s o f : aggregate consumption regional r e d i s t r i b u t i o n , i f applicable group r e d i s t r i b u t i o n  11 3 If, to  however, t h i s set of s o c i a l parameters i s not  available  the planner, he must c o l l e c t a wealth of r e g i o n a l and  n a t i o n a l macro economic i n f o r m a t i o n i n order to compute h i s estimates.  Most of t h i s i n f o r m a t i o n would be found  r e g i o n a l and to  n a t i o n a l accounts  o b t a i n a l l p e r t i n e n t data.  composition  i n a set of  but s p e c i a l surveys may The  list  own  be needed  i n c l u d e s t o t a l value  and  of:  -  Gross Domestic Product Gross N a t i o n a l Product Gross and Net Investment (Saving) Aggregate r e g i o n a l and n a t i o n a l consumption Income d i s t r i b u t i o n (by group and by region) Net t r a n s f e r payments (Taxes) Value added by economic a c t i v i t i e s F o r e i g n Trade (exports and imports) P r i v a t e and government expenditure (consumption) Input output t a b l e and t e c h n i c a l m u l t i p l i e r s N a t i o n a l and r e g i o n a l development plans (models), and, generally, - any economic data that can p r o v i d e a b a s i s f o r e s t i m a t i n g the "accounting" ( s o c i a l ) p r i c e of inputs and outputs in d i f f e r e n t economic a c t i v i t i e s , i . e . , s o c i a l c o s t s and b e n e f i t s measured as o p p o r t u n i t i e s foregone or r e a l i z e d i n a welfare context.  A more d e t a i l e d l i s t for  of socio-economic  general p r o j e c t planning can be found  L i t t l e and M i r r l e e s (1974).  The  information  in UNIDO (1972) and  data r e q u i r e d f o r f o r e s t r y  p r o j e c t s i n p a r t i c u l a r are o u t l i n e d i n Watt (1973), (1974) and King  4.2.  necessary  Arnold  (1974).  D e f i n i n g and L i m i t i n g the Number of Investment Options Adequacy of a Planning Model Having i d e n t i f i e d the nature of the planning problem,  d e f i n e d the planning goals and o b j e c t i v e s , and detailed  collected  i n f o r m a t i o n , i t f o l l o w s t h a t a l i m i t e d number of  investment  o p t i o n s must be s e l e c t e d f o r f u r t h e r study  and  -  1 14 appraisal. presented  Put with  henceforward  i n the  a s u c c e s s i o n of  I shall  which f o r p r a c t i c a l t o a manageable The  act  extent,  limiting  to  Bearing  capacity  by  the  explicit  of  be  the  options.  theory.  By  the  reduce  extent,  these  results  i t is  of  the  to  those  the  past  failures  i n the a l t e r n a t i v e s  that  are  criteria  w h i c h an the  are  option  the  to provide In  is likely  desirability  significant  s h o r t , the  a d e g r e e of  (sustained)  of  of  to an  the  m e a s u r e s of  c a p a c i t y of an  the  investment  aggregate  of c o n s u m p t i o n  satisfaction  planner's  of  among  groups  s o c i e t y ' s most  wants.  to test this  the p o s s i b i l i t y  some o t h e r  a vastly case,  mathematical  t h e r e would  o p t i o n s as  fact  appraise  - and  of  the  be  no  planner  technique  i n c r e a s e d number of  number of a v a i l a b l e simulate  and,  i s , t o some  performance  e l i m i n a t i o n of  goals,  for increased  model or  In  must  alternatives  of c o m p a r i n g  i s , naturally,  simulation  b u d g e t , he  t o even a l a r g e r  a better distribution  merit  There  analysis  but,  development  option  r e g i o n s , and  pressing  o p p o r t u n i t i e s which  w e i g h e d by a p r e l i m i n a r y e s t i m a t e  to provide  consumption, and  the number o f  degree with  development c r i t e r i a . option  and  i n mind t h a t d e v e l o p m e n t  should  is  succeed.  o n l y measure of the  planner  (development) o p t i o n s  time  p o s s i b l e to concentrate  likely  option  of  forestry  number.  suggested  i s then  the  investment  investment  reasons  d e c i s i o n s and  initially  meet  terms,  of p a i n s t a k i n g l y r e v i e w i n g  investment  most  of  call  a subjective process  a matter  it  simplest  need  using  of  investment to l i m i t  t h e model would g e n e r a t e  as many a l t e r n a t i v e s  of  the - in  resource  a  1 15 allocation  a s deemed n e c e s s a r y .  techniques, They  however, a r e n o t an a l t e r n a t i v e  supplement  common  amounts o f economic maximizing For  Computerized  s e n s e a n d , i n terms  d a t a , may o f f e r  or o p t i m i z i n g  special  features  (solving Finally  until that  be s t a t i s t i c a l  f o r the r e p e t i t i v e  i t reaches a working  long  of  nation  tradition  however, t h e r e  to b u i l d  high  Furthermore, f o r the output  t o meet  These  making.  facilities  (debugging)  condition.  o f t h e model  are requirements  i n a young, LDC.  p o o r , and  A different  i n some o f t h e more f o r w a r d LDCs, where a  of s t a t i s t i c s  and t h e advent  o f new t e c h n o l o g y  may p e r m i t t h e use o f m o d e l l i n g t e c h n i q u e s e f f e c t i v e l y . nevertheless,  i s not the average  not,  t h e expense  will  n o t be w a r r a n t e d  must  the mathematical  fordecision  s u c h a s t h e more backward  may p r e v a i l  development.  a n d computer  testing  may o r may n o t be p o s s i b l e  situation  vast  o f t h e d a t a must be s u f f i c i e n t l y  t h e r e must  emerging  of h a n d l i n g  of the system.  o f t h e model) t o be r e l i a b l e  available  sense.  value,  a w e a l t h o f d a t a on w h i c h  e x p r e s s i o n s w h i c h make up t h e h e a r t the q u a l i t y  t o common  an e x p e d i e n t way f o r  m o d e l s t o be o f any p r a c t i c a l  be a v a i l a b l e  mathematical  situation  a n d , more o f t e n  o f g o i n g t h r o u g h model c o n s t r u c t i o n i n the l i g h t  This,  of t h e b u d g e t  than  and t e s t i n g  and d a t a  constra ints. I would, excessively advanced LDCs. in  long  therefore, confident  mathematical  If,  t o warn t h e r e a d e r a g a i n s t  becoming  on t h e s u p p o r t he may d e r i v e  from  tools  planning i n  of a n a l y s i s  however, t h e s i t u a t i o n  term  essential,  like  r e s o u r c e master  i t is likely  that  were t o be r i p e ,  planning, either  in project  using  i . e . such as  and a model was t o become  linear  programming o r  1 16 simulation  would be s u f f i c i e n t  f o r the needs of the o c c a s i o n .  An e x p l a n a t i o n of these t o o l s of a n a l y s i s  i s beyond the scope of  t h i s t h e s i s but the t h e o r e t i c a l s t r u c t u r e  and f u n c t i o n a l make-up  of these models can be found i n much of the p u b l i s h e d literature.  Of p a r t i c u l a r i n t e r e s t are the works o f : Dorfman,  Samuelson, and Solow Gnugnoly  (1972).  (1958); Tinbergen 1967; and M a i s e l and  Examples of the a p p l i c a t i o n  of these  techniques to f o r e s t r y p l a n n i n g can be found i n Gould and O'Regan (1965), Navon and McConnen (1967), Gane (1969), Muthoo (1970), Navon (1971), W i l l i a m s (1976), and Chappelle (1977).  11 7 5.  ANALYSIS AND  EVALUATION  In a mixed economy, government attempts to r e a l i z e i t s development plans in two mobilization believed  of p r i v a t e  to be  ways.  Firstly,  i t encourages  the  resources i n t o a c t i v i t i e s that  are  socially profitable.  For  this i t influences  general framework of economic development v i a f i s c a l monetary c o n t r o l s , restrictive  i.e. price controls,  labour laws, and  the  and  import r e s t r i c t i o n s ,  f o r e i g n exchange r e g u l a t i o n s  or,  l e s s s u b t l y , by means of p r e f e r e n t i a l c r e d i t , investment regulations, tariff  c o n t r o l of s t r a t e g i c i n f o r m a t i o n ,  c o n c e s s i o n s , and  governments may  outright  subsidies.  s p e c i a l tax Secondly,  e l e c t to invest themselves in p r o d u c t i v e  a c t i v i t i e s which, for reasons of s c a l e , p o l i t i c a l sovereignty  are  Irrespective  felt  should be  of the  in the  strategy  development, investment options f i n a n c i a l l y and  financial appraisal  p u b l i c ' s domain.  chosen to  implement  ( i n c l u d i n g f o r e s t r y ) need to  (Gregersen and  Contreras,  investments are w i t h i n  f i n a n c i a l resources a v a i l a b l e .  This  1979). the the  evaluation  r e f e r s simply to a cash flow a n a l y s i s where f o r e s t r y inputs outputs are measured at market p r i c e s . fold:  The  objective  (1) to determine the p r i v a t e p r o f i t a b i l i t y  s e l e c t e d option potential  and  to estimate the p r i v a t e and  investing  public  i s three-  the  in these options;  impact on government finance resources to f o r e s t r y and  and  of each pre-  to i n f e r from t h i s p r o f i t a b i l i t y  f o r the p r i v a t e sector  be  be  i s necessary to ensure that  expenditures connected with the l i m i t s of the  expediency or  economically a p p r a i s e d before they can  submitted f o r implementation The  or  of a l l o c a t i n g to a s s e r t  that  (2)  1 18 sufficient  r e s o u r c e s are budgeted  obligations; which  t o compare  option The  (3) t o e s t a b l i s h  and  determine  the proposed  social  foundation  5.1.  Financial  Inputs  and  basic  Outputs figures  investment  of  - The  f o r each  w h i c h a t t h e end completely;  the  of the sale  of  the  project.  first  investment  These e x p e n d i t u r e s for i n i t i a l  operating  to  c o n s e q u e n c e s ) of evaluation  feasibility  and  o f economic  is  welfare  (2) t o d e v e l o p  a  disequi1ibria present in  costs.  Predictions appraisal  from  the  life  of t h e  of any life  sale  of t h e  equipment  consist  of o u t p u t s  equipment,  investment goods  has  t h e end  of the  include c a p i t a l or  life  or  not  and  i n w h i c h t h e y a r e made, from  until  of  investment.  machinery,  (b) a l l e x p e n d i t u r e s on  a c c o r d i n g to the year  of t h e  whether  include  year  building  date  i s necessary  of t h i s  for financial  (a) a l l r e c e i p t s  should  services  each  making.  accounting prices)  Basic  required  Receipts  depreciated  of  Analysis  a prediction  the  objective  investments;  between m a r k e t and  investment.  of  (development  t h e economic  o f the p r o p o s e d  each  The  The  policy  appraisal,  f o r e s t i m a t i n g the degree  (difference  A.  desirability  (1) t o e s t a b l i s h  implications  f o r adequate  cost-benefit  investments.  bench mark a g a i n s t  (accounting) performance  to develop a b a s i s  the  two-fold:  a financial  the economic  economic, or s o c i a l  t o meet, a l l f i n a n c i a l  of  the  the  expenditures,  f o r replacement,  as w e l l  as a l l  1 19 It  is essential  project  divided  to present  into  the c o s t revenue p i c t u r e  t h e c o n s t r u c t i o n , or  t h e o p e r a t i n g , or p r o d u c t i v e , p h a s e . preference receipts  then  current  It i s a matter  p r e f e r e n c e ) or  and  of to  gross  i f current  are  s u b t r a c t e d from  c u r r e n t r e c e i p t s and  receipts  (gross p r o f i t s )  a r e compared  to  a  phase  whether g r o s s e x p e n d i t u r e s a r e compared  ( d u l y d i s c o u n t e d f o r time  expenditures  investment  of  net  capital  expenditures So  f a r , I have assumed  have been p r e p a r e d before  and  t h e a n a l y s t can  substantial includes  that  well  are a v a i l a b l e  d e f i n e d investment for appraisal.  draw s u c h a n e a t  However,  cost-revenue  picture,  p r e p a r a t o r y work must have been c o m p l e t e d .  undertaking  a  options  This  detailed:  (1) T e c h n i c a l S t u d y First, operation things be  p r o d u c t i o n p r o c e s s e s must selected.  such  treated,  decisions  In a f f o r e s t a t i o n  etc.  need t o be  taken  understanding  of t h e n a t u r e  Species  products  trials  available. development  investments,  Due  and  and  and'this concerns  of t h e a v a i l a b l e to a  wood t e s t s may  be  the  includes  raw  necessary  to  best A good  m a t e r i a l s and analysis.  i f they are  given to  not  alternative  sites.  A c h o i c e must be made r e g a r d i n g t h e t e c h n o l o g y degree  of  engineering  mix.  successful  c o n s i d e r a t i o n s h o u l d be  this  and  t h e optimum p r o d u c t  is essential  a scale  minimum l a n d a r e a  In wood p r o c e s s i n g , t e c h n i c a l  technique  final  c h o s e n and  as optimum s p e c i e s s e l e c t i o n ,  manufacturing  the  be  of m e c h a n i z a t i o n  t o employ  i n the  and  investments.  the As  should  120 be  e v i d e n t by now,  necessarily labor in  t h e most c a p i t a l  the best  intensive  c o u n t r i e s w i t h h i g h unemployment  what d e g r e e i s wise  capital. in  to test  The p o t e n t i a l  production, location  services  the  also  concerned  such  Special  the l i f e  study.  with  the purchasing  the s e l l i n g  to  prices  o f goods and  out t h e i n v e s t m e n t s .  of the outputs  of the procedure  scope  of t h i s  thesis.  generated  forest  forecasting,  of p r o j e c t s ,  I shall,  by  to acquire  to marketing products.  of these  i s the g o a l of the  (price)  t h e p l a n n i n g and a p p r a i s a l  It  t o o l s and e q u i p m e n t ,  and a f o r e c a s t  of the investment  Demand and s u p p l y  and (d) t h e  Study  sawnwood, p l y w o o d , and o t h e r  for  s h o u l d be  o f t h e means of  of the e n t e r p r i s e ,  fertilizer,  market  care  a r e : (a) t h e  timber  and o u t p u t  integration  need t o be r e v i e w e d  m a t e r i a l s , e t c . , and of the approach  Input  possible  In summary,  construction logs,  priori  units.  I t i s a study  as s e e d ,  a  regard.  required to carry  with  particularly  o f l a b o u r and  (b) t h e c h a r a c t e r i s t i c s  and M a r k e t  physically  t h e most  whenever  and v e r t i c a l  strong.  a r e not  b a l a n c e of  suitable,  opportunities in this  i s concerned  investments.  inputs  i s very  of the p r o d u c t i o n  study  reason,  to t e l l  combinations  (c) the requirements  Commercial This  i s most  aspects that  process,  and acute  for horizontal  industries  technical  production  Within  i t is difficult  alternative  not to overlook  t h e main  (2).  Because  of m e c h a n i z a t i o n  the f o r e s t  taken  is  f o r LDCs.  projects  p r o j e c t s may be t h e most e f f i c i e n t ,  payments d e f i c i t s .  it  suited  intensive  commercial  although  falls  prices  central  o u t s i d e the  t h e r e f o r e , concern  myself  only  121 s u p e r f i c i a l l y with t h i s a s p e c t . The  methods that can  be used to f o r e c a s t  vary from the most simple to the h i g h l y market economy, p r i c e changes are supply and that  demand of product.  the  demand and  sophisticated.  It i s the  price include:  econometric methods based on a n a l y s i s , and  (d)  In  of the  and  is usually  focused in e s t i m a t i n g  f a c t o r s such as:  users,  substitutes.  The  availability  literature  descriptions  of  in t h i s f i e l d  applications  Simple,  given by UN  (1958) and  OECD (1968).  the  general price  Forestry  of these methodologies are presented in Johnson e_t (1972), and  Arnold  (1974).  Forecast  Technical  and  i s often  costing  s t u d i e s are very c l o s e l y r e l a t e d .  A  s a i d to be t e c h n i c a l l y impossible when i n f a c t  is perfectly possible, While t h i s i s not  should make a point necessary  likely  income, t a s t e of  i s abundant.  (1967), IUFRO (1971), Gregory  project  project  of the methods employed in supply, demand and  f o r e c a s t i n g are  Cost  (c)  correlation  When attempting to  changes i n demand s h i f t i n g and  trend,  i n t e r n a t i o n a l comparisons between n a t i o n s of  demand, a t t e n t i o n  1968).  two  than another.  (a) p r o j e c t i o n  regression  s i m i l a r degree of development.  it  the  i n t e r a c t i o n of the  (b) t e c h n i c a l c o e f f i c i e n t s in input-output a n a l y s i s ,  (3).  in  the methods used to deal with the q u e s t i o n of  demand/supply and  al.  In a  r e s u l t of s h i f t s  f o r c e s a c e r t a i n p r i c e to p r e v a i l rather  short,  prices  but  only  always the case, the cost  of o b t a i n i n g  information  at a p r o h i b i t i v e cost  from the  (OECD  analyst  technical advisors a l l  to compare a l t e r n a t i v e o p t i o n s .  He  must  1 22  then a s s e s s  t h e t e c h n i c a l ( p h y s i c a l ) s o l u t i o n s i n terms o f c o s t s  by  in prices.  bringing  Some o f t h e methods f o r e s t i m a t i n g  costs  include: (a) R e f e r e n c e similar  to similar  idea  lags  an e x h a u s t i v e  of r e l a t i v e  approach scale  input  Problems of t h i s  l o s s of data  f o r major  resource with  due t o t i m e  where  relative  constant.  to potential suppliers.  inputs  method  that costs  transportation, (c) R e f e r e n c e  t o remain  t h e s a f e s t way t o o b t a i n  conjunction to ensure  validity  prices in a l l categories  a r e not expected  in fact  (a).  t o economic  i t may be t h a t  method  prices  be u s e d i n  should  be e x e r c i s e d  include allowances f o r  handling,  documents and t h e s e  Care  This  the l a t e s t  and s h o u l d  and i n s t a l l a t i o n  surveys  Some c o s t s may be c o n t a i n e d  times  of c o s t s and t o e s t a b l i s h  and t h e r e s i d u a l need t o p r o j e c t  (b) E n q u i r i e s a d d r e s s e d is  with  include p o t e n t i a l differences i n production  and i n f l a t i o n ,  prices  list  magnitudes.  and t e c h n o l o g y ,  unitary  A comparison  p r o j e c t s p r e v i o u s l y u n d e r t a k e n c a n be u s e d t o  structure an  investments.  should  and p u b l i s h e d  in official be r e v i e w e d .  special  of equipment.  surveys  documents.  research However, a t  a r e the only  way t o  determine d e t a i l e d c o s t s . (d) C o n s u l t i n g  with  occasionally Due  be t h e s o l e s o u r c e  t o the nature  conversant and  technical experts.  with  equipment  of t h e i r  the l a t e s t  T h i s may  of a s p e c i f i c  cost  data.  work, t e c h n i c a l a d v i s o r s a r e changes  modifications.  in price structures  123 It  i s important  to study  c o s t s c o n s i s t e n t l y and  comprehensively f o r a l l investment o p t i o n s . be taken to guard a g a i n s t p e r v a s i v e to  sources  S p e c i a l care of e r r o r .  should  According  OECD (1968) a trend e x i s t s among c o s t a n a l y s t s t o : (a)  underestimate investment expenditures  due to time lags i n  c o n s t r u c t i o n , t r a n s p o r t a t i o n of m a t e r i a l s to s i t e , and assembly costs;  (b) f a i l  optimistic up;  f o r working c a p i t a l ;  (c) be over  regarding o p e r a t i n g c o s t s and revenues during  (c) f a i l  t r e nd s;  to allow  to make e x p l i c i t  (e) f a i l  start-  assumptions about f u t u r e p r i c e  to make allowance f o r r i s k and miscellaneous  expenses.  B.  Financial Appraisal The  aim of f i n a n c i a l a p p r a i s a l was d e s c r i b e d  the i n t r o d u c t i o n to S e c t i o n I I I . 5 .  in d e t a i l in  A n a l y s i s and E v a l u a t i o n .  B r i e f l y , however, t h i s aim i s to f i n d the t e c h n i c a l l y s o l u t i o n to a given financial  investment which gives an acceptable  r e t u r n , i s adapted to the i n s t i t u t i o n a l and managerial  framework of the country, available  (1).  feasible  and which can be financed with the  resources.  Profitability  Criteria  In a n a l y s i n g an investment o p t i o n , a t a b l e can be drawn up showing the r e c e i p t s and the expenditures each year  during  of the p r o j e c t ' s l i f e t i m e and, thus, the p r o f i t s i t  would y i e l d . achieve.  to be expected  T h i s i s p r e c i s e l y what t h i s S e c t i o n i s s e t out to  Hence, a l l investment becomes an exchange between  124 future  receipts  The that  and  present  or  c h o i c e among a number of  between d i f f e r e n t  cash  necessitates a solution  point  in time.  temporal  (rate  particular  virtue  of  present  interest).  by  currently -- Net both  and  i n use  market  resulting  Value  (NPV)  value  current  expenditures  Ignoring later)  the  of  can  which  flow  have put  of  or DCF)  are  by d i s c o u n t i n g  be  which  results  rate  (often  stream.  from  current  f o r each y e a r .  t o the p r e s e n t  acceptable  the  Alternatively,  s u b t r a c t e d from  I shall  the  s u b t r a c t i n g the  the c o s t s stream  discounted  (about  then  revenue  i t is financially  investment  and  revenue  t o g i v e a net  risk  one It i s  returns that  Cash Flow  i s obtained  interest),  then  in  1974).  v a l u e of  revenues are  the  general u n w i l l i n g n e s s to  (Discounted  present  receipts  are  percentage  best a l t e r n a t i v e .  revenues at a s p e c i f i e d  present  revenues  later.  (Arnold  r a t e of  is  rate represents  financial  cash  single  using h i s resources  next  the  these  to  streams f o r  f o r p r e s e n t i n g the d i s c o u n t e d  c o s t s and  of  or c u r r e n t v a l u e  This discount  i n the  simply  g r a d e them t o a  a given annual  the p r e s e n t  receipts  Present  by  i n v e s t o r of  until  Three c r i t e r i a expenditures  present  w a i t i n g and  profitability  appraisal  f o r a d j u s t i n g time  value  r a t h e r than  foregone  reduces  of d i s c o u n t i n g , c o s t s and  c o s t to the way  The  t h a t can  in their  rate that r e f l e c t s  t o be off  By  to t h e i r  opportunity  the  method  differences  discounting. reduced  The  expenditures.  investments  flows.  flows  margin  forthcoming  say  a  few  t o make  in a positive  NPV.  The  and  added.  words any The  net  125 mathematical  NPV  expression  of t h i s  (R2 - C2)  = (Ro - Co) + ( R l - C I )  +  t  (Rn - Cn)  +  + r)  (1  criterion i s :  + r )  (1  2  (1  + r )  n  = n  o r NPV =  Rt - Ct «. ^ —  + r )  (1  t = o  K  1  J  where:  0, The can  R C r t 1, 2, 3, n NPV v a l u e  easily  very  --  gross revenue gross cost d i s c o u n t r a t e e x p r e s s e d as a time i n t e r v a l y e a r s of p r o j e c t ' s l i f e  i s an a b s o l u t e  produce a high value  large.  efficiency  = = = = =  This criterion with  w h i c h makes t h e p r e s e n t  sometimes d e f i n e d , discounted solves  size  is  p r o j e c t s use r e s o u r c e s .  (IRR) i s t h e d i s c o u n t value  of the c o s t  of the revenue  to zero.  rate  stream  equal  stream, or as i s  the r a t e which reduces  net p r o f i t  the  To compute t h e IRR one  + n  Z  In a r i s k l e s s  R t ~ C"t _ Q (1  +  r)t  situation,  exceeds the r a t e of i n t e r e s t  could  the investment  the equation: t  execute  because  It  d o e s n o t measure t h e r e l a t i v e  I n t e r n a l Rate of Return  value  measure o f p r o f i t a b i l i t y . simply  which d i f f e r e n t  to the present  decimal  i t p a y s t o i n v e s t i f t h e IRR a t w h i c h money c a n be b o r r o w e d t o  the p r o j e c t , or exceeds the r a t e  be o b t a i n e d  from a l t e r n a t i v e  (financial  investment  yield)  that  opportunities,  126 whichever of the two i s h i g h e r . -- Revenue/Cost R a t i o (R/C) i s obtained by d i v i d i n g the (discounted) present value of the revenue stream by the present value of the cost stream. this criterion,  A v a r i a n t of  the net revenue - cost r a t i o  i s obtained by d i v i d i n g  the present value of net  revenues by the present value of c o s t s . mathematical  (NR/C),  The  e x p r e s s i o n s of these c r i t e r i a a r e : t = o  Revenue  _  Cost  t =o  Rt (1 + r )  t =n  Z  t =o r or, f o r  —  (1 + r )  t  Net Revenue Cost  t =n  1  y-  =  t = o  Rt - Ct ( l + r )  t =n  Ct (1 + r )  t =o According to the revenue/cost undertaking when the r a t i o  ratio, a project  1  i s worth  i s g r e a t e r than one, the bigger the  r a t i o the more e f f i c i e n t the p r o j e c t . - cost r a t i o , a project  t  Based on the net revenue  i s worthwhile  when the r a t i o i s  Both the IRR and the revenue/cost  r a t i o measure the  positive.  efficiency size  with which resources are employed i r r e s p e c t i v e  of the investments.  When p r o j e c t s are not mutually  e x c l u s i v e , ranking by e f f i c i e n c y overall  financial  incorrect  result  will  gain (Arnold 1974).  however, i s t e c h n i c a l l y  of the  result  i n the l a r g e s t  The revenue - cost  ratio,  s u p e r i o r , s i n c e the IRR can give an  in special  circumstances,  i . e . multiple rates  127 in the presence of a NPV becomes negative IRR,  and  one  f u n c t i o n whose stream of net  more than once.  that should  not be  The  revenues  p r a c t i c a l advantage of  frowned upon, i s that  the  (assuming  i t does give the c o r r e c t r e s u l t ) i t i s more f a m i l i a r to businessmen and  administrators.  It i s in f a c t the proper way  c a l c u l a t e what i s l o o s e l y known in f i n a n c i a l c i r c l e s as "yield"  (2).  (Little  Mutually  the  1967).  E x c l u s i v e P r o j e c t s and  L i f e of the  Investment  When p r o j e c t s are mutually e x c l u s i v e so that only one chosen f o r implementation, ranking c r i t e r i a , may out,  be  incorrect.  be  efficiency  For example, Arnold  i t w i l l be usual  to seek investment  which produce the maximum NPV.  area  by r e l a t i v e  can  (1974) pointed  " i f adequate funds are a v a i l a b l e at a f i x e d r a t e of  interest,  for  to  However, i f the  investment are l i m i t e d - e.g. of land that can  If the duration,  may  i s only a l i m i t e d  should This  repeatable  and  gives  have d i f f e r e n t  be compared over the  same length  of  i s necessary because each investment  f o r e s t r y p r o j e c t s of long d u r a t i o n i t may  raw  efficient."  generate a d i f f e r e n t stream of c o s t s and  silviculture)  of  - then the p r o j e c t which  n e c e s s a r i l y be the most  investments are  time to be v a l i d . l i f e may  not  t h e i r NPV  i f there  opportunities  be a f f o r e s t e d , or a l i m i t e d supply  material a v a i l a b l e for processing the maximum NPV  opportunities  revenues.  In  (not an unusual s i t u a t i o n i n  be more a d v i s a b l e  to use  infinite  time  streams. A common time p e r i o d  i s a l s o necessary with the  Although t h i s c r i t e r i o n employs a NPV  of zero, and  IRR. profits  can  128  always be should and of  r e i n v e s t e d at the market r a t e of i n t e r e s t ,  be considered  over the l i f e  e x p l i c i t c o n s i d e r a t i o n should intermediate  (3).  span of the l a r g e s t p r o j e c t be given  to the  reinvestment  r i s k l e s s cases o n l y .  There i s no  returns.  Risk and So  Uncertainty  f a r I have d e a l t with  s i n g l e c o r r e c t method of a l l o w i n g  for r i s k .  c l a s s i f i e s the r i s k s of investment - Risks which can coefficient e.g.  investments  OECD (1968)  i n t o three  categories:  be measured in terms of a p r o b a b i l i t y  r e l a t e d to each p o s s i b l e s i t u a t i o n -  economic a c t i v i t i e s subject  c o n d i t i o n s are u n c e r t a i n , but  to c l i m a t i c  known in terms of  probability. - Risks  r e l a t i n g to a f u t u r e s i t u a t i o n which cannot  be  measured in terms of p r o b a b i l i t y , but depend on a s i n g l e event or l i m i t e d number of events such as outcome of p o l i t i c a l discovery, called  etc.  negotiations,  T h i s i s what may  the  scientific be more p r o p e r l y  "uncertainty."  - Risks due  to o r d i n a r y mistakes in f o r e c a s t i n g and  planning. The  inherent q u a l i t y of r i s k  q u a n t i t a t i v e l y by expressing c e r t a i n event  but  Not  only  Uncertainty,  theory  assessed  on the  other  i s a c e r t a i n event u n r e l i a b l e ,  a l s o i t s degree of u n r e l i a b i l i t y The  be  i t i n terms of the p r o b a b i l i t y of a  (result) occurring.  hand, i s indeterminate.  i s that i t can  i s unknown (Arnold  of choice under u n c e r t a i n t y  remains one  1974). of  the  1 29 major s u b j e c t s of c o n t r o v e r s y there  i s considerable  i n economics (Mishan  1974), and  disagreement between economists and  s t a t i s t i c i a n s on q u i t e fundamental i s s u e s ( E c k s t e i n , 1961; Dorfman, 1962; H i r s h l e i f e r , 1968;  Zeckhauser 1974).  most e f f i c i e n t  1965 and 1966; L i t t l e and M i r r l e e s ,  Therefore,  way of d e a l i n g with  i t i s hard to determine the r i s k and u n c e r t a i n t y i n  project appraisal. There i s no unique approach to the treatment of r i s k and uncertainty  i n a t h e o r e t i c a l context.  s e v e r a l popular appraisal.  These i n c l u d e :  degree of r i s k  and  rate to r e f l e c t  method with  Rate.  Depending on the  i n v o l v e d , a premium may be added to the  b e n e f i t s i n present  the u n c e r t a i n t y of f u t u r e c o s t s value  terms.  T h i s i s a popular  the p r i v a t e sector which i s assumed, l a r g e l y  in the face of u n i n s u r a b l e c o n d i t i o n s of greater sector.  nonetheless,  methods that can be used s u c c e s s f u l l y i n p r o j e c t  (a) Adding a Premium to the Discount  discount  There are,  r i s k s , to f u n c t i o n under  uncertainty  than the p u b l i c  While the u n i f o r m i t y of t h i s c r i t e r i o n has  advantages i n terms of p r e v e n t i n g i r r a t i o n a l preferences  s u b j e c t i v e and  from e r a s i n g the r e s u l t , there i s  the corresponding  disadvantage that r i s k s do d i f f e r  between cash flow  items and p r o j e c t s and that they can,  to some extent, consideration overall  be broken down f o r separate  i n s t e a d of being  r i s k allowance  (Little  lumped together 1967).  (b) Upward - Downward R e v i s i o n of P r i c e s . of u n c e r t a i n t y  i n an  Under c o n d i t i o n s  f o r s p e c i f i c p r o j e c t p r i c e s , a popular  1 30 method t o deal with  risk  i s t o a d j u s t downward the  expected future output p r i c e s and/or to a d j u s t upward the expected f u t u r e input , p r i c e s . (c) I n t r o d u c i n g  S u b j e c t i v e P r o b a b i l i t y i n t o the C a l c u l a t i o n .  T h i s i s a common approach f o r e v a l u a t i n g LDCs.  The procedure allows  estimating,  investments i n  f o r r i s k and u n c e r t a i n t y by  i n a d d i t i o n to the most l i k e l y  future p r i c e  of each input and output, both an upper and lower to i t .  In t h i s manner, a t r i p l e t  estimates  can be obtained:  of cost-revenue  a most o p t i m i s t i c , a most  l i k e l y , and a most p e s s i m i s t i c estimate revenues i n each time p e r i o d . unfortunately,  of the net  T h i s method,  does not give a good idea as to the  l i k e l y chance of each estimate According  limit  occurring.  to Mishan (1974) a more thorough approach  to the informed guesses method i s p o s s i b l e by a t t a c h i n g to each of the three p r i c e outcomes, the most o p t i m i s t i c , the most l i k e l y and the most p e s s i m i s t i c , the c o n j e c t u r e d  p r o b a b i l i t y of them o c c u r r i n g .  r e s u l t i n g treatment of r i s k cannot, of course, accurate  than the s u b j e c t i v e estimates  probabilities.  The be more  of p r i c e  However, i t does b r i n g out the f u l l  i m p l i c a t i o n s of the estimates.  131 C.  Financial  Impact  Three major amount and  financial  kind  of  c o n s t r a i n t s may  resources  that  development  i n a mixed  carried  out  by  do  the  private profitability  with  pre-selected for  the  private  activity.  financially  precisely  economy.  appraising  public  funds  and,  be  private  required  has  by  first  the  support  generally, sector  the  the  to  This  economic  this  t o e s t a b l i s h , i f even a p p r o x i m a t e l y ,  how  directly,  indirectly,  project  place  on  The  the  public  third  major  implementation exchange the  has  While a p r o j e c t effect  on  spending foreign  the (and  may  financial t o do  require  may  not  be  resulting  with  i t is  strain likely  to  of  capital  and  operating  on  the  whole a p p e a r  payments,  increasing desirable.  beyond  the  inputs  debt  that  This,  and  up  heavy  the  in  turn,  that  may  induced  investment  direct project  the  tax  to a point  of  make  favourable  y e a r s may  indirect  linkages  that  expenditures.  i t s capacity.  the  foreign  t o have a  initial  Furthermore,  a l l , of  of  i t is possible  external  input-output  t o o f f s e t some, i f not  the  project  availability material  r e v e n u e s ) of  from the  the  to  the  exchange account  may  constraint  abroad  b a l a n c e of no  i s a given  much  may  budget.  for purchasing  foreign content  secondary  that  light  important  and  is  of  incentives In  i n each  achieve.  services,  development.  to  reason  availability  financial  be  has  obvious  effects.  i s designed with  to  investors  an  the  for  constraint  a v a i l a b l e to  t o do  limit  investments are  i s , therefore,  above  for providing  infrastructure  the  mobilized  direct project  (B)  A second c o n s t r a i n t  be  I f the  sector,  There  what S e c t i o n  can  a r i s e that  may  exports.  or  imports grow In  1 32 these  conditions,  prepared  f o r the l i f e t i m e  foreign  account  direct,  indirect,  Both the  i t i s e s s e n t i a l that of a p r o j e c t  and i n d u c e d flows  finance.  I shall  estimating  (1).  This present  Financial  part  investment products  option  market  proportion  foreign  component'of  the b a c k i n g forestry  be u s e d  total  possible,  against  and s h o u l d t h a t has  function  t o know t h e  for export.  t o s e t up a c u r r e n t of each  sales  i t i s possible with  expenditures  f o r each  From t h e f o r e s t  i s intended  of the investments.  of t o t a l  i n LDCs.  planner  i t i s possible  investment  data  This  (yearly)  is identified.  o f t h e t e c h n i c a l and c o s t  component  sales  that  (imports) connect  expenditures  to analyze.  f o r the l i f e t i m e  project,  component  i s straightforward  and demand s t u d y  table  major  to public  o f major p r o j e c t s  t o the p r o j e c t  he w i s h e s  revenue  from  of concern  a d e t a i l e d cost-revenue  can then  t r e a s u r y and  Impact  of the output  information  impact  difficulty  prepared  its  to provide guidelines f o r  of the a n a l y s i s  little  carefully  now a t t e m p t  of  activities.  o f payments a r i s i n g  a r e main p o i n t s  the f i n a n c i a l  Direct  economic  of the  linkages  i n and o u t o f t h e p u b l i c  e f f e c t s on t h e b a l a n c e decisions  e s t i m a t e s be  on t h e s t a t e  v i s - a - v i s the export-import  the cash  investment  yearly  i n which the S i m i l a r l y , with  generated  f o r each  to identify  the f o r e i g n  the c a p i t a l  and  operating  The f o r e i g n and  domestic  s h o u l d be compared,  t h e f o r e i g n and d o m e s t i c  component  i f at a l l of t o t a l  i n t h e same t a b l e .  The  treatment  o f government  revenue,  either  jointly  with the  1 33 f o r e i g n account flows in a s i n g l e t a b l e , or s e p a r a t e l y , matter of s u b j e c t i v e p r e f e r e n c e .  For  is a  simple, p r i m i t i v e  economies, however, i t i s recommended that a s i n g l e t a b l e be up showing the d i r e c t impact of p r o j e c t development on accounts.  The  both  computation of the d i r e c t cash flows in and  of the p u b l i c treasury  i s simply a matter of  revenues, and  p r o f i t s associated  operating  1, 2, and  3 below provide examples of how  direct  financial  impact of a p r o j e c t .  to present  the  investment, there  are  i n d i r e c t consequences r e s u l t i n g from adjustments i n the  supply s i d e of p r o j e c t s .  These i n d i r e c t consequences emerge i n  the absence of f u r t h e r changes i n t o t a l n a t i o n a l a r i s e out  of the  t e c h n i c a l linkages  in a r e g i o n a l economy.  As  a general  indirect  impact that can  change i n production  r u l e the greater the  vertically  stages p r e c e d i n g linkages)  i n one  the i n t e r -  greater  particular activity.  r e l a t e d to the new  (backward l i n k a g e s )  the process i n v o l v e d  While i t may  and  the  be expected f o l l o w i n g an autonomous  i n d i r e c t consequences w i l l appear i n the  production  income  e x i s t i n g between i n d u s t r i e s  r e l a t i o n s h i p between economic a c t i v i t i e s ,  the  Specimen  I n d i r e c t F i n a n c i a l Impact In a d d i t i o n to the d i r e c t e f f e c t s of  the  and  expenditures,  with each p r o j e c t .  Tables  (2).  out  painstakingly  t r a c k i n g down the value of government s u b s i d i e s , taxes, customs d u t i e s a r i s i n g from c a p i t a l and  set  By and  stages of  production,  or succeeding  (Tinbergen  large  1958,  i . e . the (forward  Hoover  1975).  be dangerous to suppose that the i n d i r e c t  impact of a p r o j e c t c o n s t i t u t e s e n t i r e l y an economic g a i n ,  as  Table  1.  D i r e c t E x p e n d i t u r e s , Revenue and Net Revenue A s s o c i a t e d w i t h a n I n v e s t m e n t B e g i n n i n g i n Y e a r 1 and E n d i n g i n Y e a r n.  ($) Y E A R 1  1.  3  u  TOTAL EXPENDITURE INVESTMENT Fixed  Capital  Formation  Capital Transfer  1  OPERATING EXPENDITURE TOTAL REVENUE  OUTPUT ( S a l e s ) Domestic Exports CAPITAL TRANSFER  2  NET REVENUE (CASH F L O W )  3  1  A c q u i s i t i o n o f Land, + Working C a p i t a l .  2  R e s i d u a l P l a n t V a l u e , L a n d and o t h e r C a p i t a l Goods V a l u e Working C a p i t a l Recovery.  3  T o t a l Revenue - T o t a l E x p e n d i t u r e .  T a b l e 2.  B u i l d i n g s and o t h e r E x i s t i n g C a p i t a l Goods +  C a s h F l o w A f t e r Tax A s s o c i a t e d w i t h a n I n v e s t m e n t B e g i n n i n g i n Y e a r 1 and E n d i n g i n Y e a r n .  Y E A R 1 CASH FLOW ( G R O S S )  EXPENDITURE/REVENUE  ADJUSTMENT  AVERAGE D E P R E C I A T I O N  3  n  2  3  ESTIMATE OF GROSS PROFIT/LOSS TAXABLE INCOME 6 DIRECT TAXES  2  1  L  5  CASH FLOW AFTER T A X E S  7  1  From T a b l e 1.  2  From T a b l e 1. E q u a l t o E x p e n d i t u r e o n d e p r e c i a b l e a s s e t s + e x p e n d i t u r e / revenue from non-taxable c a p i t a l t r a n s f e r s .  3  As a l l o w e d b y l a w f o r t a x p u r p o s e s .  4  Cash f l o w + e x p e n d i t u r e / r e v e n u e a d j u s t m e n t  5  Equal to e s t i m a t e o f gross p r o f i t - accumulated  6  C o r p o r a t e income o r b u s i n e s s p r o f i t t a x .  7  Gross cash flow - d i r e c t  taxes.  - average loss.  depreciation.  Table 3.  Summary of D i r e c t F i n a n c i a l Impact of an Investment Beginning i n Year 1 and Ending i n Year n .  {$) Y E A R  1 PRIVATE  2  3  n  ACCOUNT  FIXED CAPITAL FORMATION LABOR  1  - T o t a l Wages & S a l a r i e s ( T o t a l Employment)  S k i l l e d Labour (Employment) S e m i - S k i l l e d Labour (Employment) U n s k i l l e d Labour (Employment) 2 CAPITAL - Gross F a c t o r Compensation PUBLIC ACCOUNT FIXED CAPITAL FORMATION GOVERNMENT SERVICES  3  DIRECT SUBSIDIES 4 NET RECEIPTS EXTERNAL ACCOUNT EXPORTS OF GOOD AND  SERVICES  TRANSFER - From Rest o f the World IMPORTS BALANCE  5  VALUE ADDED  6  1  I n c l u d i n g f r i n g e b e n e f i t s and c o n t r i b u t i o n s t o s o c i a l s e c u r i t y by employers.  2  T o t a l compensation to land and c a p i t a l .  3  Mainly i n d i r e c t taxes ( i n c l u d i n g v a l u e added or s a l e s tax, import d u t i e s and l o c a l government taxes) + d i r e c t government s e r v i c e s .  4  Government S e r v i c e s - d i r e c t s u b s i d i e s .  5  Exports + t r a n s f e r s - imports.  6  Labour + c a p i t a l + i n d i r e c t taxes - s u b s i d i e s .  136 this put is  i s dependent to e f f e c t i v e  correct  direct  on  t h e amount of  in production.  Indirect  and,  t h e exogenous  ( d i r e c t ) change  how  estimated region  can  in a limited  the  f o r an  indirect  (nation) invests  requirements  necessary  these p r o j e c t s locally  pr'oduced  encourage  services  i n c r e a s e d domestic in turn,  i n p u t s which w i l l ,  generated  demand f o r l o c a l l y processing. that, into  i.e.  produced  enter  i m p o r t s and services  technological  ripple  "primary effects  be  as a  input  o p e r a t i o n of added demand f o r  be  expected  T h i s added  give r i s e  services  to a  to local  second  of  spending, industry.  labour, c a p i t a l ,  and  in final  aspect because,  as  demand. I shall  do  stage of  expenditures not  translate  These a r e supply"  f o r the  sectors,  government,  which  encouraging  I emphasize explain  a  the  later,  some o f  s u p p l y " e x p e n d i t u r e s may  still  generate  their  throughout  This,  however,  will  t h e economy.  will  i n the  i n each  those monetary  payments t o " p r i m a r y  change  that  "leakages" a r i s e  goods and  domestic  to  s u p p l y of i n t e r m e d i a t e  t h e economy's p r o c e s s i n g f l o w w i t h o u t  "technological"  these  of  therefore,  S u c c e s s i v e p r o d u c t i v e impacts  s u c c e s s i v e round by  can  i t s own  to the e x t e n t t h a t  increased sales  the  that  likewise,  Leakages c o n s t i t u t e  i n each  most p a r t  require  demand.  the  (income)  It i s this  manufacturing.  (material)  to  subsidiary  the m a t e r i a l  supplied.  will,  t h u s be  output  f o r the d e v e l o p m e n t and  goods and  in domestic  sense,  I t s h o u l d be c l e a r  production  increase  on  in projects,  need t o be  be  investment.  effects  investment?  linked"  consequences,  financial  in  can  economic a c t i v i t i e s , i t  i t is "financially  are dependent  But  resources that  production in indirect  t o assume t h a t  change  idle  own  1 37  happen a s a r e s u l t about by t h e portion effect dealt  of  of  a  p r o p e n s i t y of  their  falls  directly  into  indirect  by a number of  individuals  of  in another  financial  ways.  available  sophistication  for  matrices  may a l r e a d y  countries  of  for  income.  for  a project  the  can be  national  and on the  the  of  economic  LDCs.  task.  only  i.e.  For  transaction offers  For  make-up a n d / o r  analysis,  m u l t i p l i e r s may be t h e in between,  out  be  account  input-output a n a l y s i s  statistical of  be  estimated  d e g r e e of  inter-industry  carrying  rough t o o l s  This  for  small  average  ones a p p l i c a b l e .  a bag of mixed a l t e r n a t i v e s  is  For  available  analysis. i)  Input-output  economic a n a l y s i s the v a r i o u s can t r a c e upon a l l  a region within  of  is  a form of  f o c u s e s upon t h e an economy.  of  sectors.  a change  It in  detailed  quantitative  interdependence  is  region.  one s e c t o r  of  between an  effect  outside world,  and among  includes multiplier initial  upon r e g i o n a l  increase  output.  ratios  one  t h e economy  The i n p u t - o u t p u t method i n v o l v e s  and t h e It  between  a means by w h i c h  "regional accounts" describing transactions  (country)  relation  ultimate  which  effects  other  the  analysis  s e c t o r s of  the  framework  the  of  where  more p r i m i t i v e  projects,  conditions  earned  a  methods of c o m p u t a t i o n can  be a v a i l a b l e ,  opportunities  "technical"  spend l o c a l l y  e v i d e n c e d by t h e p l a n n i n g a g e n c i e s  excellent  scale  of  analysis  t h e more a d v a n c e d n a t i o n s ,  brought  i n d u c e d i m p a c t and w i l l  impact  Different  effect  section.  a p p l i e d d e p e n d i n g on t h e q u a l i t y statistics  to  and i n d i r e c t l y  the c a t e g o r y  with separately  The  "Keynesian m u l t i p l i e r "  between  activities  that  i n demand and  The a n a l y s i s  a  was  sum up the first  1 38 developed by Wassily L e o n t i e f the economy of the United  (1936) i n a d i r e c t a p p l i c a t i o n to  States  but, since then, i t has spread  r a p i d l y throughout the world as a t o o l of n a t i o n a l , and  i n t e r - r e g i o n a l economic a n a l y s i s  Isard al.  1969, Miernyk  (Chenery and Clark 1959,  1965, Bourque e_t §_1. 1967, Miernyk et  I960, Round 1972, Hoover The  regional,  1975).  input-output model i s a form of double-entry bookkeeping  which c a l l s  f o r the r e c o r d i n g  of each t r a n s a c t i o n  between  sectors  ( f i r m s ) as both a s a l e of output and a purchase of  input.  The essence of the model i s a set of accounts  representing  transactions  among the f o l l o w i n g major economic  sectors: Intermediate - p r i v a t e economic a c t i v i t i e s w i t h i n the r e g i o n . The sector i s broken down i n t o i n d i v i d u a l i n d u s t r i e s or a c t i v i t i e s (e.g. mining, a g r i c u l t u r e , c o n s t r u c t i o n , chemical products, f o r e s t r y , e t c . I t i s sometimes r e f e r r e d t o as the i n t e r - i n d u s t r y sector because much of the d e t a i l of the input-output t a b l e r e f e r s to t r a n s a c t i o n s among the separate i n d u s t r i e s w i t h i n the s e c t o r . Primary -  which i n c l u d e , Households - i n d i v i d u a l s and f a m i l i e s r e s i d i n g or employed i n the region, considered both as buyers of consumer goods and s e r v i c e s and as s e l l e r s ( p r i m a r i l y of t h e i r own labor) Government - n a t i o n a l , p r o v i n c i a l , or l o c a l p u b l i c a u t h o r i t i e s w i t h i n the r e g i o n . Outside World - a c t i v i t i e s (other than government) and i n d i v i d u a l s l o c a t e d o u t s i d e the r e g i o n . C a p i t a l - (at times, p a r t of i t i n c l u d e d w i t h i n the household s e c t o r ) the stock of c a p i t a l , i n c l u d i n g both f i x e d c a p i t a l and i n v e n t o r i e s .  Value added, which i s equal to the income of households, government, and c a p i t a l s e c t o r s ; i s a term sometimes used i n l i e u of these three s e c t o r s i n simple inputoutput t a b l e s . In the broadest sense, i t i s e q u i v a l e n t to the GDP generated i n the v a r i o u s p r o d u c t i v e a c t i v i t i e s throughout the economy. Through the use of three  separate t a b l e s or matrices,  q u a n t i t a t i v e d e s c r i p t i o n of the interdependence among the  a  139 various the  s e c t o r s of the economy i s developed.  The matrices are  i n t e r - i n d u s t r y t r a n s a c t i o n t a b l e , the t a b l e of d i r e c t  requirements, and the t a b l e of d i r e c t plus  indirect  requi rements. I s h a l l not d i s c u s s here the d e t a i l s of s t r u c t u r e or procedure i n input-output has  a n a l y s i s , as t h i s  been s u f f i c i e n t l y d e s c r i b e d  1960,  by Chenery and Clark  Miernyk 1965, Hoover 1975, and others  extensively  i n the f i e l d /  I shall  1959, I s a r d  that have worked  i n s t e a d , r e f e r d i r e c t l y to  the mechanics of m u l t i p l i e r a n a l y s i s that the  i s a matter which  form the essence of  i n d i c a t e d procedure to determine the i n d i r e c t  impact of an  investment ( p r o j e c t ) .  The  Inter-industry Transaction  Table  A s i m p l i f i e d form of an i n t e r - i n d u s t r y t r a n s a c t i o n t a b l e i s described  i n Table 4.  In order  to express a l l of the  t r a n s a c t i o n flows i n a common u n i t , they are s t a t e d  i n monetary  terms as payments/receipts f o r the goods or s e r v i c e s transferred.  For most economies, of course, there would be many  more t r a n s a c t i o n s among s e c t o r s than those i n d i c a t e d i n Table 4. It i s to be expected t h a t ,  i n a r e a l world case, the number of  rows and columns of the intermediate considerably. there sector  s e c t o r would grow  In a d d i t i o n to the t r a n s a c t i o n s among s e c t o r s  c o u l d be t r a n s a c t i o n s among the a c t i v i t i e s w i t h i n  each  (e.g. among households or among d i f f e r e n t u n i t s of  government).  However, not a l l c a t e g o r i e s  equal i n t e r e s t to the a n a l y s t problem.  of t r a n s a c t i o n s are of  i n v e s t i g a t i n g the p a r t i c u l a r  In our case, we focus on the interdependency of  Table  Interindustry  4.  Transactions  Table  (Hypothetical  To  Input-Output  Final demand  sectors  Government (sales to governments)  Outside (exports)  Capital (gross private Investment, including additions to inventories)  500 200 300 0  200 100 200 0  700 900 500 400  From Intermediate sector, by industry  Intermediate sector, by industry:  A B C D  Primary supply sectors Households (labor services) Government (public services) Outside (imports) Capitnl (capital consumption and withdrawals from inventories) INPUT TOTALS  Source:  A  B  C  D  Households (consumer goods sales in region)  300 50 1000 0  400 200 200 800  100 1000 100 200  500 300 700 500  1600 100 100 700  1900  300  1000  400  200  100  200  100  200  300  300  650 4300  550 2850  200 3100  Hoover  Model).  Output totals 4300 2850 3100 2600  100 2600  (1975) -p.  o  141 i n d u s t r i e s w i t h i n the intermediate s e c t o r and i n t h e i r r e l a t i o n s h i p with primary  supply  sectors.  The form of  accounting d e s c r i b e d i n Table 4 r e p r e s e n t s a usual abridgement to  i l l u s t r a t e t h i s type of problem, where the lower  p o r t i o n of the matrix  i s not f i l l e d  in.  right-hand  What i s shown i n Table  4 i s simply an i t e m i z a t i o n of the i n p u t s and outputs the designated a c t i v i t i e s i n the Intermediate  of each of  sector.  F i g u r e 2 f u r t h e r i l l u s t r a t e s the mechanism of an InputOutput model such as the one d e s c r i b e d i n Table 4.  Activities  w i t h i n the intermediate s e c t o r engage i n i n t e r - i n d u s t r y t r a n s a c t i o n s with one another. other s e c t o r s are c a l l e d  Sales by intermediate s e c t o r to  s a l e s t o " f i n a l demand."  p o i n t , the outputs are c o n s i d e r e d to be i n t h e i r ready  for their  concerned, capital  final  form and  f i n a l use as f a r as r e g i o n a l p r o d u c t i o n i s  i . e . export, p r i v a t e or government consumption, or  formation.  According  l e a v i n g the region's stream The  At t h i s  to Hoover  (1975),  "they are  of c u r r e n t p r o c e s s i n g a c t i v i t y . "  i n p u t - s i d e or c o u n t e r p a r t to f i n a l demand i s "primary  supply": Imports and the s e r v i c e s of l a b o r , c a p i t a l , and government are e n t e r i n g the region's p r o c e s s i n g system f o r the first  time.  The  abridged set of accounts  and outputs  i n Table 4 shows t o t a l  inputs  f o r only the a c t i v i t i e s i n the intermediate s e c t o r ,  s i n c e t r a n s a c t i o n s among a l l other s e c t o r s are ignored. type of t a b l e , t h e r e f o r e , omits  the incomes that  This  individuals  r e c e i v e from government jobs, s o c i a l s e c u r i t y , p r o p e r t y r e n t s , or c a p i t a l income.  ownership and does not show t o t a l r e g i o n a l p e r s o n a l  Nor does i t show t o t a l r e g i o n a l exports or imports  1 42 since the t r a n s a c t i o n s of the household, government and c a p i t a l s e c t o r s with the outside  The  world are ignored.  Table of D i r e c t Requirements The  input-output  model shown i n Table 4, although  incomplete, i s nonetheless very  u s e f u l i n t r a c i n g and e v a l u a t i n g  c e r t a i n cumulative e f f e c t s of v e r t i c a l backward) i n a r e g i o n .  linkages  (particularly  For example, i t i s easy to c o n s t r u c t  from i t a t a b l e of d i r e c t requirements ( t e c h n i c a l c o e f f i c i e n t s ) - see Table 5 showing that i n d u s t r y A, that  f o r each d o l l a r ' s worth of output of  i n d u s t r y buys 1.20 worth of i n d u s t r y B's  output, 23.30 worth of i n d u s t r y C output from i t s e l f . obtained  output, and 7C worth of  The t a b l e of d i r e c t requirements i s  by d i v i d i n g the e n t r i e s i n each column of the  i n t e r i n d u s t r y t r a n s a c t i o n t a b l e by t h e i r r e s p e c t i v e column totals  (i.e. total  determined that the  intermediate  other  sectors  inputs).  In t h i s manner, i t can be  f o r the average d o l l a r spent by any i n d u s t r y i.n s e c t o r , X d o l l a r s of s a l e s w i l l  i n the economy.  Based on the assumption that the  t e c h n i c a l c o e f f i c i e n t s remain constant slowly  be made by a l l  or that they change  i n time, i t i s p o s s i b l e to estimate the d i r e c t e f f e c t s  upon the economy r e s u l t i n g from a change i n f i n a l demand. increased  sales  (output) of the intermediate  industries w i l l  generate f u r t h e r t r a n s a c t i o n s among the p r o c e s s i n g they themselves r e q u i r e The  chain  increase  i n d u s t r i e s as  inputs to produce the a d d i t i o n a l output.  of r e p e r c u s s i o n s ,  p r i n c i p l e , endless;  The  or " i n d i r e c t  e f f e c t s " i s , in  but t h i s does not mean that the i n i t i a l  i n s a l e s of one s e c t o r w i l l  snowball i n t o an  infinitely  143  Figure 2.  I n t c r s c c t o r Flows of Goods and S e r v i c e s i n a One Region Input-Output Model. Outfit'.' world  Table 5.  Table o f D i r e c t Requirements (Input o r T e c h n i c a l C o e f f i c i e n t s f o r A c t i v i t i e s i n t h e I n t e r m e d i a t e S e c t o r - C a l c u l a t e d from i l l u s t r a t i v e d a t a i n Table 4).  Per dollar's worth of gross output In:  Purchases (in dollars) from: Intumwdiutc sbr.tor A B • C D Primary supply sectors  Households Government Oulsiriu Capitul Totals"  A  B  C  D  .070 .012 .233 0  .140 .070 .070 .281  .032 .323 .032 .065  .192 .115 .269 .192  .412 .017 .047 .151 1 000  .105 .035 .105 .103 1.000  .323 .065 .097 .0G4 1.000  .154 .038 0 .038 ' 1.000  * Columns iln not always add exactly to totals, hcoauso of rounding off.  Source:  Hoover  (1975).  144 large  growth  effect  will  demand  increase.  "technical The that the  i n the r e g i o n ' s output. o n l y be a few t i m e s The r a t i o  larger  in this  reason  why  intermediate  the m u l t i p l i e r from  industries  i n p u t s from  intermediate additional regional  sector.  imports  demand  multiplier  experiences  money"  the r e g i o n a l  In t h i s  Each time  one o f  an i n c r e a s e i n s a l e s  supply  way,  s e c t o r and n o t t h e  f o r i n s t a n c e , money p a i d f o r  i s terminated.  As f a r as t h e t e c h n i c a l  a similar  leakage  occurs  a r e made f o r t h e payment o f t h e r e s t  and t a x e s  is circulated  with  large i s  l e a v e s t h e r e g i o n , and i t s s t i m u l u s t o  to c a p i t a l  that  smaller  final  p a r t of the e x t r a revenue t o  s e c t o r s , i . e . wages and s a l a r i e s  interest  i s called  t h e economy.  the primary  i s concerned,  expenditures supply  case  the i n i t i a l  i s not i n f i n i t e l y  demand), i t has t o a l l o c a t e  purchase  than  multiplier".  there are "leakages"  (final  A t t h e most, t h e t o t a l  each round  of l a b o r  t o government.  among  when of t h e p r i m a r y (households),  The s t r e a m  o f "new  the p r o c e s s i n g a c t i v i t i e s  of spending  until  gets  i t disappears  completely. The first  table  round  of d i r e c t  of spending  requirements, generated  by t h e i n c r e a s e i n f i n a l  demand.  I t only p o i n t s t o the s i z e  linkages  existing  among s e c t o r s .  however, shows o n l y t h e  of the t e c h n o l o g i c a l  145 The  Table The  the  of D i r e c t  Indirect  stimulus  increasing depicted  (technical  the f i n a l  of D i r e c t  6, w h i c h  multiplier)  Plus  model.  Indirect  i n each  demand.  Table  6 i s calculated  separate  round  of secondary  simple  three  facilitated algebra the  sector generated  manually  will  be o u t o f  T h i s c a n be done  of the r i p p l e  by an i n i t i a l  by t o t a l l i n g  transactions.  for a small  and h i g h - s p e e d  final  situations  computers.  upper p o r t i o n of t h e t a b l e  through  (expansionary)  increase in f i n a l  t h e sum o f e a c h While  demand  s e c t o r economy, t h e c o m p u t a t i o n i n more complex  activity  Requirements d e s c r i b e d i n  shows t h e sum t o t a l  effects  do t h i s  e s t i m a t e q u i t e a c c u r a t e l y what  demand o f any i n t e r m e d i a t e  i n our i n p u t - o u t p u t  the T a b l e  to  Requirements  a n a l y s t can, nonetheless,  total  Table  plus  i t i s possible  increase in a i s greatly  by t h e use o f m a t r i x  According  of d i r e c t  to Miernyk  plus  (1965),  indirect  requirements  ( i . e . the part d e a l i n g with  total  intermediate  activities),-  d e r i v e d by t a k i n g t h e  difference technical of  between an i d e n t i t y coefficients  the Table  transposed  i s technically  of D i r e c t  matrix  added  s a l e s by  and t h e m a t r i x o f  f o r the' i n t e r m e d i a t e s e c t o r  (upper  R e q u i r e m e n t s ) and from  this  computing a  this  i s expressed  inverse matrix.  In m a t r i x  algebra  as:  (I  where:  , T " A)' ' 1  A i s a m a t r i x of i n p u t - o u t p u t intermediate sector  coefficients  f o r the  part  146  Table  6.  Table of D i r e c t Plus I n d i r e c t Requirements (Total I n d i r e c t E f f e c t s o f a n I n c r e a s e i n F i n a l Demand from i l l u s t r a t i v e data i n Table 5 ) .  D i r e c t and Calculated  Per dollar of Increased sales to find demand by:  Total added sales (in $) by Intermediate activities A B C D  Total  B  1.118 .126 .297 .068 1.609  .289 1.234 .284 .452 2.259  .157 .439 1.171 .247 2014  .359 .352 501 1.400 2612  661 .439 .477 .400 1.977  .614 .079 .095 .215  .419 .092 .171 .317  .532 .108 .167 .193  574 .115 .103 .207  554 092 .123 .231  C  D  A. B. C, 0 combined *  A  Added purchases (in Sj by all Intermediate activities Irom primary supply sectors:  Households Government Outside Capital  * Figures In this column show the impact of an added dollar of aucji(M|.iU! demand sales by all Intermediate activities/apportioned in the same proportions as these activities shared in the final demand sales shown in Table 9 3 Specifically, this means added final demand sales of 46tf by A . 20J by fl. 17c by C. and 17* by D, totalling SI.00. IIII.II  Source:  Hoover  (1975).  1 47 I i s an i d e n t i t y matrix T i s transposed. For Clark,  f u r t h e r d e t a i l s on the methodology see Chenery and 1959 or Miernyk, 1965.  The  lower p o r t i o n of the t a b l e of d i r e c t p l u s  requirements activities derived  ( i . e . added purchases by a l l  from primary supply  sectors)  indirect  intermediate  i s mathematically  by m u l t i p l y i n g the lower p o r t i o n of the t e c h n i c a l  c o e f f i c i e n t matrix  ( i . e . purchases from primary supply  per d o l l a r ' s worth of output i n a c t i v i t i e s  i n the  sectors  intermediate  s e c t o r ) by the upper p o r t i o n of the matrix of d i r e c t p l u s indirect  requirements ( i . e . t o t a l added s a l e s by  activities).  The a l g e b r a i c expression  where: T  The  intermediate  f o r t h i s computation i s :  i s a matrix of input output c o e f f i c i e n t s f o r the primary  sector.  i s a matrix of d i r e c t p l u s i n d i r e c t requirements of the intermediate supply s e c t o r .  upper p o r t i o n of Table 6 shows the amount by which the s a l e s  of each intermediate dollar  a c t i v i t y are u l t i m a t e l y i n c r e a s e d  increment i n the f i n a l demand s a l e s of any  activity, arlier.  by a one  intermediate  i n c l u d i n g a l l of the m u l t i p l i e r e f f e c t s d e s c r i b e d The reason why the f i g u r e s on the d i a g o n a l  are s p e c i a l l y l a r g e  of the t a b l e  ( i n f a c t l a r g e r than 1) i s because the  e f f e c t s are n a t u r a l l y l a r g e s t f o r the a c t i v i t y e x p e r i e n c i n g initial total  f i n a l demand i n c r e a s e , as that  increment.  increase  the  i s part of the  The complete Table of D i r e c t p l u s I n d i r e c t  1 48 Requirements,  i n c l u d i n g the lower p o r t i o n , summarizes the t o t a l  g e n e r a t i o n of income r e s u l t i n g  from the t e c h n o l o g i c a l  between a r e g i o n ' s i n t e r m e d i a t e a c t i v i t i e s . the t a b l e , t h e r e f o r e , multipliers.  linkages  The c o e f f i c i e n t s i n  i n d i c a t e the s i z e of the i n d i v i d u a l  sector  For example, the " t e c h n o l o g i c a l m u l t i p l i e r " f o r  s e c t o r A i s 1.609, and the r e l a t e d increment i n purchases from primary supply s e c t o r s generated by t h i s a d d i t i o n a l output i s Households  0.614, Government 0.079, Outside (Imports) 0.095 and  C a p i t a l 0.215. In the context of a f o r e s t  i n d u s t r y investment p u r c h a s i n g ,  say, $ 1 . m i l l i o n  i n inputs from the chemical s e c t o r , and  t h i s s e c t o r was  equal to a c t i v i t y A i n our input-output model,  the above c o e f f i c i e n t s  ( m u l t i p l i e r s ) would  assuming  show that the t o t a l  aggregate e f f e c t s on the economy of the $1 m i l l i o n chemical purchase would amount to an increment i n Gross Output of $ 609 thousand, Household  Income of $614  thousand, Government Revenue  of $79 thousand, Imports of $95 thousand and C a p i t a l Income of $215  thousand.  To complete the a n a l y s i s of a p r o j e c t ' s  indirect  impact, the procedure would need to be repeated f o r a l l other i n t e r m e d i a t e s e c t o r purchases made throughout the l i f e of the project.  For wood and wood based i n d u s t r i e s p r o j e c t s t h i s  imply l o o k i n g mainly i n t o the i n d i r e c t intermediate a c t i v i t i e s  would  impact of purchases from  such as t r a n s p o r t a t i o n , chemicals,  c o n s t r u c t i o n , f u e l s and energy, metal works, t r a d e , banking and government  services.  1 49 i i.  Aggregate If  Multiplier Analysis  a project  model a v a i l a b l e approach  i s b e i n g e v a l u a t e d and f o r the  national  to the computation  followed.  T h i s approach,  multiplier" statistics estimate  analysis, instead  the  uses  indirect  national  input-output but  impact  I have named t h e  gross average  of d e t a i l e d  i s no  economy, a c r u d e r  the  which  technological  T h i s approach  of  there  simpler  needs t o "aggregate accounts  input-output c o e f f i c i e n t s  "ripple"  r e q u i r e s the  effects  following  of  be  to  investment.  information:  - The a g g r e g a t e ( a v e r a g e ) p r o p e n s i t y t o p u r c h a s e i n t e r m e d i a t e goods and s e r v i c e s ( i ) i n t h e economy d o l l a r of g r o s s o u t p u t (APP^)  per  - The a g g r e g a t e ( a v e r a g e ) p r o p e n s i t y t o p u r c h a s e i n p u t s from i n d i v i d u a l p r i m a r y s u p p l y s e c t o r (n) p e r d o l l a r of g r o s s output (APP ). N = h o u s e h o l d ( h ) , government ( g ) , f o r e i g n o r i m p o r t ( f ) , and c a p i t a l ( c ) . n  If  these  computed such  as  figures  with  the  total  indirect  Total  output  of  by  taxes  (sales)  readily  standard total  (usually by  difference  the primary  technical  h e l p of  gross output,  total  obtained  a r e not  supply  coefficients  available  national  they  can  accounts  statistics  v a l u e added, t o t a l  v a l u e added o r  imports  sector. can  be  gross output  From t h i s computed  and  d a t a a s e t of  can the  be output  aggregate  f o r t h e economy as a  whole. The  "aggregate  purchases sales  from  to f i n a l  where  k  technological  primary  supply  demand by  multiplier"  s e c t o r (n) p e r  for increased dollar  of  added  intermediate a c t i v i t i e s i s :  i s the Aggregate  and  sales taxes).  intermediate sector a c t i v i t i e s between t o t a l  be  Technological Multiplier  1 50  The from  APP^  i s the Aggregate P r o p e n s i t y to Purchase i n t e r m e d i a t e goods and s e r v i c e s p e r d o l l a r of g r o s s o u t p u t .  APP^  i s the Aggregate P r o p e n s i t y to Purchase p r i m a r y s u p p l y i n p u t s (n) p e r d o l l a r of g r o s s o u t p u t d e l i v e r e d t o f i n a l demand, n = h , g , f , and c .  formula  primary  final  for total  supply  demand of  added p u r c h a s e s  sector  (n) a r i s i n g  intermediate a c t i v i t y  TP  where  TP  k  = Aggregate  t  expedient  the  f o r computing  project,  propensity  therefore,  unable  economy o f a d d e d  unit  the  industries.  sales  by  i n the  goods and  of output  one  (n), or  resort data.  the  under  impact The  i s a quick, of  an  concept  r e g i o n have t h e services,  to f i n a l  and  demand.  between t h e  same  It i s , upon  intermediate a c t i v i t y  from  the  t h e same, r e g a r d l e s s o f  individual  recommended  implies  primary  impact  between the  I t i s , hence,  of  multiplier"  indirect  s a l e s are t r e a t e d  existing  o n l y as a l a s t lack  local  to d i s t i n g u i s h  A l l added  differences  extreme  k m t  i t i s not v e r y p r e c i s e .  to purchase  i n p u t s per  another.  (m) i s :  technological  a i l intermediate a c t i v i t i e s  supply  i n c r e a s e i n the  Technological Multiplier  "aggregate  method  investment that  an  indirect)  = Change i n t h e F i n a l Demand (added s a l e s ) o f i n t e r m e d i a t e a c t i v i t y (m) s u p p l y i n g i n p u t s t o project  m  While  AFD  from  and  = T o t a l P u r c h a s e s from p r i m a r y s u p p l y s e c t o r n = h o u s e h o l d ( h ) , government ( g ) , f o r e i g n i m p o r t s ( f ) , and c a p i t a l (g)  n  AFD  =  n  (direct  that  severe budgetary  producing this  method be  restrictions  used or  151 iii.  Modified For  one as  Aggregate M u l t i p l i e r  situations  required  i n which  all  activities  is  some i d e a of  "modified carrying  of  a n a l y s i s , e.g.  the  the  the  a n a l y s i s be  done.  a p p r a i s a l i n two  impact  leakage  To  As  per  APP^  APP  the  different  a  "modified  ability  virtue  method o f f e r s  of a  to d i s c r i m i n a t e  intermediate  t e c h n o l o g i c a l make-ups  aggregate m u l t i p l i e r "  a n a l y s i s , the  is required:  aggregate m u l t i p l i e r  analysis  = The a g g r e g a t e p r o p e n s i t y t o p u r c h a s e i n t e r m e d i a t e goods and s e r v i c e s ( i ) i n t h e economy per d o l l a r o f gross output. n  = The A g g r e g a t e P r o p e n s i t y t o P u r c h a s e p r i m a r y supply i n p u t s (n) i n t h e economy p e r d o l l a r of g r o s s o u t p u t n = h o u s e h o l d ( h ) , government ( g ) , f o r e i g n o r i m p o r t s ( f ) , and c a p i t a l ( c )  However, t h e  a n a l y s t must a l s o have t h e  each major c a t e g o r y  of  intermediate  throughout  of  the p r o j e c t .  SPP-  SPP  this  By  a  factors).  information  the  regarding  of a d d i t i o n a l s a l e s by  widely  c a r r y out  following  steps,  there  for  multiplier  between  (e.g.  between  unknown but  requirements  the  good  i t i s suggested  improvement  with  as  precise linkages  s e c t o r are  input  not  activities,  substantial  activities  a n a l y s i s but  base than  intermediate  aggregate" out  the  intermediate  breakdown of  (major)  the  i s a b e t t e r data  for aggregate m u l t i p l i e r  for input-output  individual  there  Analysis  the  life  f o l l o w i n g data  sector purchases  for  required  = The S e c t o r a l P r o p e n s i t y t o P u r c h a s e i n t e r m e d i a t e goods and s e r v i c e s ( i ) p e r d o l l a r of g r o s s o u t p u t d e l i v e r e d t o f i n a l demand by i n d i v i d u a l i n t e r m e d i a t e activities (m) m = major c a t e g o r i e s of i n t e r m e d i a t e a c t i v i t i e s s u p p l y i n g i n p u t s t o the p r o j e c t a,b,c ... e t c . n m  = The  Sectoral Propensity  to Purchase primary  supply  1 52  i n p u t s (n) p e r d o l l a r o f g r o s s o u t p u t d e l i v e r e d t o f i n a l demand by i n d i v i d u a l i n t e r m e d i a t e activities (m) n = h,g,f, and c m = a , b , c ... e t c . As  indicated earlier,  available,  particularly  represents  an  planning  underway  projects. make  isolated  this  data  i s no  could  centrally  provide  which  ad hoc s o u r c e s  of a n a l y s i s p o s s i b l e  requested  from  statistical  numerous  pieces  puzzle  supplemented  individual  measure  of the analyst's  chooses  to structure a reliable  outside  the scope  individually The  of  added  mk^  The by a  SPP  formula  nm  of a  from  final  demand  + SPPim  base  c a n be p u t feasibility  together. and  Still,  i t i s a  and i m a g i n a t i o n and c o n c i l i a t e  This,  I am  be  faced  supply  by  afraid,  how  he  this falls  decided  with  sectors  intermediate  1 \1  added  activities demand  there are  the challenge.  technological multiplier" for  primary  for total  a l l intermediate result  planner-analyst  to final  =  data  t h e s i s a n d must  aggregate  still  If properly  data.  technical skills  of t h i s  purchases sales  sectoral  t o o l s of a n a l y s i s .  by e a c h  "modified  increased  the necessary  h i s best  that  may  i n and out of the government  may  with  yield  both  i t to a l l  authorities,  1  sphere,  base  i n LDCs.  of the economic  studies,  comprehensive  of information  and planning  by  readily  evaluated  and there  type  pre-investment  being  effort  Nevertheless  in turn,  n o t a l l be  i f the project  this  These,  may  -  APP AP? )  increase  activities  (m)  n  i  purchases from  (n) p e r d o l l a r  primary  (direct supply  i n a given  and  indirect)  sector  (n) as  intermediate  153 activity  (m) i s : /  TP  n  == AFD  SPP  m  1  + SPP.  nm  \  U - APP J  1m  APP  n  £  where  TP  = T o t a l P u r c h a s e s from n = h, g, f and c  n  AFD  m  SPP  primary  = Change i n t h e F i n a l Demand . • activity m m = a,b,c ... e t c .  supply  of  s e c t o r (n)  Intermediate  = S e c t o r a l P r o p e n s i t y to Purchase primary supply i n p u t s (n) p e r d o l l a r o f g r o s s o u t p u t d e l i v e r e d t o f i n a l demand by i n t e r m e d i a t e a c t i v i t y (m)  SPP. i  = S e c t o r a l P r o p e n s i t y t o Purchase i n t e r m e d i a t e i n p u t s ( i ) per d o l l a r of g r o s s output d e l i v e r e d t o f i n a l demand by i n t e r m e d i a t e a c t i v i t y m  m  APP^ = A g g r e g a t e P r o p e n s i t y t o P u r c h a s e i n t e r m e d i a t e i n p u t s per d o l l a r of g r o s s output d e l i v e r e d t o f i n a l demand by t h e economy a s a w h o l e . APP  The  n  weakest a s p e c t  multiplier the is the  = Aggregate P r o p e n s i t y t o Purchase primary supply i n p u t s (n) p e r d o l l a r o f g r o s s o u t p u t d e l i v e r e d t o f i n a l demand.  analysis  of input-output  f o r t h i s matter,  technological indirect the u n d e r l y i n g assumption economy remain c o n s t a n t  true,  although  impact  analysis,  when a t t e m p t i n g  of a p r o j e c t  that the t e c h n i c a l over  more o f t e n t h a n  o r o f any  time.  upon t h e economy, c o e f f i c i e n t s of  T h i s o b v i o u s l y i s not  not, the t e c h n i c a l  industries  do n o t change r a d i c a l l y  some c a s e s  t h e y may even  to estimate  over  l i n k a g e s among  t h e s h o r t t e r m , and i n  remain c o n s t a n t  f o r extended  p e r i o d s of  time. The country  speed  changes  difficult state  w i t h w h i c h t h e economic make-up o f a r e g i o n o r i n time  to forecast  is difficult  t o gauge.  I t i s even more  w i t h any d e g r e e o f a c c u r a c y  o f t h e economy t h a t w i l l  prevail  the p a r t i c u l a r  a t some d i s t a n t  point in  1 54 the  future.  However, a t t e m p t s  economic a n a l y s i s t o both  development  to the  technique  methods f o r dynamic and  allowances  into  effects  input-output the  On  t o have any  even more r u d i m e n t a r y app