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Possible contributions of timber production forestry to economic development Nautiyal, Jagdish Chandra 1967

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The U n i v e r s i t y o f B r i t i s h  Columbia  FACULTY OF GRADUATE STUDIES PROGRAMME OF THE FINAL ORAL EXAMINATION .FOR THE DEGREE OF DOCTOR OF PHILOSOPHY of  JAGDISH CHANDRA NAUTIYAL • B. S c . , A g r a U n i v e r s i t y , I n d i a , 1951 Diploma i n F o r e s t r y ,  Indian Forest  College,  Dehra Dun, I n d i a , 1954. M.F., The U n i v e r s i t y o f B r i t i s h Columbia, 1965 FRIDAY,JUNE 2, 1967, a t 9:30 A.M. IN ROOM 379, FORESTRY AND AGRICULTURE BUILDING :  COMMITTEE IN CHARGE Chairman:  I . McT. Cowan  A. Kozak R. P. Mendels P. A. Neher E x t e r n a l Examiner:.  J . H. G.' S m i t h R. W. Wellwood G. R. W i n t e r J.A. Zivnus.ka  Dean, S c h o o l o f F o r e s t r y U n i v e r s i t y of C a l i f o r n i a ,  .. R e s e a r c h S u p e r v i s o r s :  Berkeley  J . H.-G. Smith , P. A. Neher  POSSIBLE CONTRIBUTIONS OF TIMBER PRODUCTION FORESTRY TO ECONOMIC DEVELOPMENT  ABSTRACT Economic growth or development, the process by which a n a t i o n gains w e a l t h , i s a n a l y s e d i n P a r t I . P r o b a b l y , development i s p o s s i b l e o n l y i f many economic and non-economic v a r i a b l e s have values w i t h i n c e r t a i n r e l a t i v e ranges, which should be the s u b j e c t of f u r t h e r study. A dynamic consumption f u n c t i o n has been used to c o n s t r u c t a s i m u l a t i o n model t o h e l p guide an economy's approach t o " t a k e - o f f " . - I t seems t h a t e a r l y and l a r g e imports of f o r e i g n c a p i t a l (a minimum o f about 10 per cent of GNP a n n u a l l y ) , or a camparable r e d u c t i o n i n p e r s o n a l consumption, are needed to i n i t i a t e economic development. In P a r t I I , a n a l y s e s i n d i c a t e t h a t a l i m i t e d r o l e can be p l a y e d by f o r e s t s i n the p o o r l y u n d e r s t o o d but u r g e n t l y sought process of economic growth. Usually, f o r e s t s can h e l p the economy t a k e - o f f , and a l s o meet the requirements c r e a t e d as.development proceeds. F o r e s t e r s have o f t e n looked o n l y a t the b e n e f i t s from f o r e s t r y . I t i s e s s e n t i a l to c o n s i d e r a l s o the c o s t s i n v o l v e d i n u s i n g f o r e s t s . Such c o s t s are i n the form of missed o p p o r t u n i t i e s t o use f o r e s t s f u l l y or t o r e p l a c e them w i t h a s u b s t i t u t e f o r f o r e s t products. ' F o r e s t r y i s s u i t a b l e f o r being: g i v e n p r i o r i t y i n a n a t i o n a l or r e g i o n a l development p l a n because i t can (1) e f f i c i e n t l y u t i l i z e : u n d e r - e m p l o y e d rural r e s o u r c e s , ( 2 ) produce important raw m a t e r i a l f o r making paper which i s n e c e s s a r y f o r human investments, (3)sub\ g t i t u t e f o r imports and earn f o r e i g n exchange, (4) prov i d e f u e l and r e l e a s e cow dung f o r use i n a g r i c u l t u r e i n some p a r t s o f the w o r l d , (5) serve as a b a s i s f o r r e g i o n a l development where f o r e s t s .are p l e n t i f u l and (6) produce a very v e r s a t i l e p r o d u c t - wood. F o r e s t p r o d u c t s needed t o i n i t i a t e and s u s t a i n development can be s u p p l i e d b e s t by managing f o r e s t s i n such a way t h a t the p r e s e n t p r o f i t s from f o r e s t p r o p e r t y  are maximized w i t h o u t d e t r i m e n t ' t o the p r e s e n t worth of f u t u r e p r o f i t s . Surplus funds then s h o u l d be used f o r investments i n the most .economically d e s i r a b l e fields. I t i s shown t h a t r e v i s e d user c o s t concepts can be a p p l i e d i n f o r e s t r y . These determine the optimum r a t e o f : f o r e s t h a r v e s t i n g and investment so that t h e ' p r e s e n t worth is.maximized. F u r t h e r r e f i n e m e n t s of d e c i s i o n t h e o r y are needed to s o l v e the complex problems involved. F i n a l l y , p o l i c y i m p l i c a t i o n s f o r under-developed c o u n t r i e s i n g e n e r a l , and I n d i a i n p a r t i c u l a r , are d i s cussed. I t i s c o n c l u d e d t h a t the p o l i c y of r i g i d sust a i n e d y i e l d f o r e s t management s h o u l d be r e j e c t e d and r e p l a c e d by m a x i m i z a t i o n of present- worth of net b e n e f i t s from f o r e s t l a n d i n each management unit'. Then, f o r e s t r y can p l a y i t s maximum p o s s i b l e r o l e - i n economic development . GRADUATE STUDIES Field  '• -  of. Study:  F o r e s t r y Economics  A g r i c u l t u r a l Economics  J . . J . Richter  Economic Development • ' • ' ' •  R. P.. Mendels P. A. Neher I . I . Poroy  Economic Theory  R. A. Holmes G. H. M a t t e r s d o r f f H. Thomassen J . .Vanderkamp  ;  F o r e s t Products U t i l i z a t i o n '  R. W.  Wellwood  F o r e s t r y Economics and F i n a n c e J . H. G. N a t u r a l Resource ''•-•/ ' " Regional Planning Statistics  Economics - ''' '•• • ;  _..  and Data P r o c e s s i n g  Smith  . P. H. -Pearse A. D. S c o t t P.  Friedly  G. W. Eaton A. Kozak  AWARDS 1964 - 67 - Canadian Government Commonwealth S c h o l a r s h i p f o r Graduate s t u d i e s a t t h e U n i v e r s i t y o f B r i t i s h Columbia.  r  U n i v e r s i t y Forest Research F e l l o w s h i p s a t the U n i v e r s i t y of B r i t i s h C o l u m b i a .  PUBLICATIONS N a u t i y a l , J.C., 1966. Optimum r a t e of f o r e s t harvesting. Forestry Chronicle 42(4):337-45. ' N a u t i y a l , J . C and P.H. Pearse,, 1967. O p t i m i s i n g the c o n v e r s i o n t o s u s t a i n e d y i e l d : A programming s o l u t i o n . F o r e s t S c i e n c e (In p r e s s ) .  POSSIBLE CONTRIBUTIONS OF TIMBER PRODUCTION FORESTRY TO ECONOMIC DEVELOPMENT  by  JAGDISH CHANDRA NAUTIYAL  B.Sc, Diploma i n F o r e s t r y ,  Agra U n i v e r s i t y , 1951 Indian  Forest  M,F,, U n i v e r s i t y o f B r i t i s h  College,  Dehra Dun, 1954  Columbia, 1965  A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY i n the Department of FORESTRY  We accept t h i s required  t h e s i s as conforming to the  standard  THE UNIVERSITY OF BRITISH COLUMBIA ' May, 196 7  In p r e s e n t i n g t h i s t h e s i s i n p a r t i a l f u l f i l m e n t o f the requirements f o r an advanced degree a t t h e 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 , I agree that  che L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e and  study.  I f u r t h e r 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 c o p y i n g o f t h i s  t h e s i s f o r 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 b y t h e Head o f my Department o r b y h i s r e p r e s e n t a t i v e s .  I t i s understood that  copying  or p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l 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 my w r i t t e n  permission.  J.  Department o f  F o r e s t r y  T h e " U n i v e r s i t y o f B r i t i s h . Columbia Vancouver 8, Canada  C.  NAUTIYAL  ABSTRACT Supervisors:  Dr. J . H. G. Smith and Dr. P. A. Neher  Economic growth o r development, the process by which a n a t i o n gains wealth, i s analysed i n Part I,  So f a r there i s no  theory which f u l l y e x p l a i n s the phenomenon o f s u s t a i n e d i n c r e a s e s i n the p e r c a p i t a income o f a country.  Probably,  development i s  p o s s i b l e o n l y i f many economic and non-economic v a r i a b l e s have values w i t h i n c e r t a i n r e l a t i v e ranges, which should be the subj e c t o f f u r t h e r study. In t h i s t h e s i s a dynamic consumption f u n c t i o n has been p o s t u l a t e d and used t o c o n s t r u c t a s i m u l a t i o n model t o h e l p guide an economy's approach t o s u s t a i n e d economic growth.  Com-  p u t e r analyses w i t h the model show the changes i n p e r c a p i t a i n come as an economy approach es the " t a k e - o f f " stage. suggest  t h a t , due to d i f f e r e n t e x i s t i n g values o f the r e l e v a n t  v a r i a b l e s , each country may ment to be d i f f e r e n t  f i n d i t s optimum method o f  from o t h e r s .  imports o f f o r e i g n c a p i t a l GNP  They a l s o  develop-  I t seems t h a t e a r l y and l a r g e  (a minimum o f about 10 p e r cent o f  a n n u a l l y ) , o r a comparable r e d u c t i o n i n p e r s o n a l consumption,  are needed t o i n i t i a t e economic development. In Part I I analyses i n d i c a t e t h a t a l i m i t e d r o l e can be p l a y e d by f o r e s t s i n the p o o r l y understood process o f economic growth.  but u r g e n t l y sought  Under usual circumstances,  forests  ii can help the economy move towards the t a k e - o f f requirements c r e a t e d as development Forests, development  proceeds„  l i k e any o t h e r r e s o u r c e ,  and human w e l f a r e .  from f o r e s t r y .  It  is  essential  for forest  evaluate  forestry  the r o l e that  to  products.  f u l l y or to  present  can p l a y i n economic  its  helps  development. manage-  land is  from other s e c t o r s i n that  Forestry is  long and (3)  suitable  p l a n because i t resources,  vestments,  (3)  in today's  underdeveloped c o u n t r i e s ,  cow dung f o r use  the  can (1)  efficiently  (2) produce important for human i n -  f o r imports and earn f o r e i g n exchange (4) provide f u e l  in a g r i c u l t u r a l fields  and r e l e a s e  i n some p a r t s of  world and (5) serve as the b a s i s f o r r e g i o n a l development are p l e n t i f u l .  (2)  f o r being given p r i o r i t y i n a n a t i o n -  under-employed r u r a l  substitute  (1)  the product i s very v e r s a -  raw m a t e r i a l f o r making paper which i s necessary  forests  the  suggested as a  product as w e l l as the major p a r t of c a p i t a l ,  a l or r e g i o n a l development utilize  from f o r e s t  different  p e r i o d of p r o d u c t i o n i s tile.  replace  alternative. Forestry is  wood i s  the  The p r i n c i p l e of maximization of  worth of net b e n e f i t s  desirable  consider  This thesis  The widely accepted p r i n c i p l e of s u s t a i n e d y i e l d f o r e s t ment has been c r i t i c i z e d .  looked  The costs are i n  to use f o r e s t s  them w i t h a s u b s t i t u t e  some-  F o r e s t e r s have often  a l s o the costs i n v o l v e d i n using f o r e s t s . form of missed o p p o r t u n i t i e s  are important f o r  But, s o c i e t y must forego  t h i n g when i t uses any one r e s o u r c e . only at the b e n e f i t s  stage and meet the  Commonly, i f plans change  s  the where  wood grown  f o r one p u r p o s e c a n be u s e d e a s i l y Most o f t h e s e forestry  evidence  velopment.  rivals  and in  maximized without  cost  can f a c i l i t a t e  Profits  optimum  detriment  then should  Further  most e c o n o m i c a l run.  foresters  improve  main-  demands f o r  forests  f o r e s t property are worth o f f u t u r e  i n forestry,  pro-  i n t h e most revised  user  These d e t e r m i n e t h e  and t h e amount o f i n v e s t m e n t s the present  refinements  worth o f the f o r e s t s  of decision  theory  a r e needed  involved.  a r e many s u b s t i t u t e s  forest products w i l l  Forestry's  from  I t i s shown t h a t  so t h a t  t h e complex p r o b l e m s  help  by managing  be u s e d f o r i n v e s t m e n t  fields.  Because t h e r e  ing  profits  best  to the present  c a n be a p p l i e d  i s maximized.  long  w h i c h a r e po-  p r o d u c t s needed t o i n i t i a t e  rate of forest harvesting  solve  sectors  incomes r i s e ,  c a n be s u p p l i e d  to be made i n t h e p r e s e n t  to  Forest  the present  desirable  concepts  f u t u r e de-  d e v e l o p m e n t and a l s o  As p e r c a p i t a  development  economically  than a n a l y s i s o f p o s s i b l e  increase,,  s u c h a way t h a t  fits.  been b a s e d on  of forestry.  products  sustain  have u s u a l l y  i n r e l a t i o n to other  economic growth.  forest  studies  by  i m p o r t a n c e o f f o r e s t r y depends on i t s  progress  Forests tain  rather  The f u t u r e  technological tential  c h a r a c t e r i s t i c s have been r e c o g n i z e d  economists but t h e i r  historical  f o r another,,  remain  f o r them, o n l y t h e important  i n the  r o l e c a n be e n h a n c e d most e f f e c t i v e l y i f  the technology  employed  i n growing and u t i l i z -  forests. F i n a l l y j, p o l i c y i m p l i c a t i o n s  f o r underdeveloped  iv countries cussed.  i n g e n e r a l , and India i n p a r t i c u l a r , have been d i s I t i s concluded that the p o l i c y o f r i g i d  f o r e s t management should be r e j e c t e d . maximization of present i n each management u n i t .  sustained  yield  I t should be r e p l a c e d by  worth o f net b e n e f i t s from f o r e s t land Then, f o r e s t r y can p l a y i t s maximum  p o s s i b l e r o l e i n economic development.  V  ACKNOWLEDGEMENTS  spiration  The  writer  and  constructive  entire  stay  visor,  Dr.  the  at J ,  thesis  the H,  might The  acknowledges  G.  Smith.  not  have  and  only  for  his  but  also  for  sustaining  overtook The  R.  P.  Smith  Mendels  been  writing  the the  the  thesis  was  (Economics), R.  W.  writer  is  Economics  greatly  help Dr,  is J ,  Pearse,  or  gratefully  their  Dr.  of  him  during  interest or  A.  his  his  shown  super-  by  him  completed.  Kozak  is  programme  in  the  by  i n -  writer  acknowledged, the  thesis,  when  despondency  by  Drs.  Neher  A,  (Forestry),  (Economics),  (Forestry)  their  Kozak  and  valuable  G.  J . R.  help,  H.  G.  Winter  c r i t i c i s m  obliged,  of  directly  A.  For  Department  G.  Rosenbluth  helped  indirectly  the  and  writer  connected  J , in  with  Vanderkamp clarifying  the  of many  thesis.  Their  acknowledged.  Discussion  and  morale  Wellwood  H,  contributed  of  computeir  P.  P.  is  the  to  Columbia,  undertaken  reviewed  Drs.  questions help  the  given  guidance,  him.  (Forestry),  advice  continuous  B r i t i s h  Without  (Agricultural-Economics). and  of  kindness  not  almost  c r i t i c i s m  University  help  the  with to  and  suggestions  understanding  the  from  the  problems  following involved  herein  appreciated: A.  Dawson  Economic Council Ottawa, Ont,  of  Canada,  vi Dr,  Wo A  Mr,  Do  Dr.  D, Haley-  0  Forest Economics D i v i s i o n , U „ S . Forest S e r v i c e , Washington, D , C ,  Hair  Faculty of Forestry, University of T o r o n t o , Toronto, Ont,  Mr, A, C, Kilbank  Economics Branch, Canada Department of Trade and Commerce, Ottawa, Ont,  Mr.  G. L , P a r t a i n  Humboldt State C o l l e g e , Calif o  Mr,  D, W, Ware  Resource and Development D i v i s i o n , Canada Department of F i n a n c e , Ottawa, Ont,  Mr,  Z. W. White  School of F o r e s t r y , Yale U n i v e r s i t y , New Haven, Conn,  Dr,  D, A, Wilson  Canada Department of F o r e s t r y and Rural Development, Ottawa, Ont.  Dr,  R. K. Winters  World F o r e s t r y S e r v i c e s , U„S„ Forest S e r v i c e , Washington, D . C ,  Dr.  J , A, Zivnuska  School of F o r e s t r y , U n i v e r s i t y of C a l i f o r n i a , B e r k e l e y , C a l i f ,  Financial External Aid O f f i c e , The kindness of the ship  Department of F o r e s t r y Economics, State U n i v e r s i t y C o l l e g e of F o r e s t r y at Syracuse U n i v e r s i t y , Syracuse, N , Y ,  Duerr  and of the  F a c u l t y of  Ottawa,  f o r the  study was given  as a Commonwealth  by the  Scholarship,  Government of Canada i n awarding the  Governments of  Pradesh i n a l l o w i n g acknowledged.  support  India and the  the w r i t e r to u t i l i z e  it,  Areata,  scholar-  State of U t t a r is  gratefully  F i n a n c i a l a s s i s t a n c e xvas also granted by the  Forestry, The w r i t e r  U n i v e r s i t y o f B r i t i s h Columbia, sincerely  thanks Mrs, H. Froese  for  her  p a r t i n making the computer model, Mrs. M„ Lambden f o r the draughting work i n v o l v e d and h i s c o l l e a g u e Mr„ J  0  E, Osborn f o r  h i s advice and k i n d review t h a t was asked o f him from  time to  time. Above a l l ,  he must acknowledge the continuous  and encouragement given to him by h i s wife Maya, who, not o n l y looked a f t e r two c h i l d r e n and a household  in addition  without much  help from him, but f o r three years put up with a husband ed with s c h o l a r s h i p .  strength  afflict-  TABLE OF CONTENTS  Abstract  . . . . . .  Acknowledgements Table Tables  , .  o f contents, 4  O  0  o  Illustrations,  «  o  o  o  o  o  .  9  0  0  0  9  o  o  o  o  0  9  0  0  0  0  0  0  *  0  . . .  Appendices Introduction  0  o  o  0  o  *  o  o  0  o  o  0  o  o  0  0  o  *  0  o  0  o  0  0  0  0  o  0  0  0  0  0  . , . . PART I THE PROCESS OF DEVELOPMENT  Chapter One  What i s economic development? . G>eneX*cll  o  o  o  o  o  o  o  o  o  o  Developed and underdevelope Chapter Two  Theories  o f development , , . .  Classical theories  . . , .  Neo-classical theories . , Modern  theories, . . , . .  Growth  ,  0  Development. Chapter Three  ,  0  ,  0  0  ,  . , , , ,  A s i m u l a t i o n model o f economic development . , , 0  Introduction The model,  . . . . . . .  ix , $?  page  Consumption  . . . . .  70  Investment  79  Depreciation Income  . . . . . . . . .  80  . . . . . . . . . . . .  81  Population  . . . . .  81  Maintenance . . . . .  84  Average o u t p u t - c a p i t a l r a t i o .  .  86  Choice of marginal outputcapital ratio  87  The computer programme  94  . . . . . .  D e f i n i n g the t a k e - o f f Discussion  . . . . .  97  . . . . .  A differential the model  103  a n a l y s i s of 105  Conclusions . . . . . . . . . . . .  108  PART II THE PLACE OF FORESTRY IN DEVELOPMENT A CRITICAL ANALYSIS Chapter Four  The scope of f o r e s t r y  \ .  . . . . . . .  110  D e f i n i t i o n s of f o r e s t r y . . . . . .  110  The concept o f s u s t a i n e d  . .  112  o  120  yield.  Maximization o f present worth as an a l t e r n a t i v e to s u s t a i n e d y X 61 cl o « o o o o o o o o o «  o  o  Special features of f o r e s t r y . . . .  132  F o r e s t r y and a g r i c u l t u r e , . . . . .  134  Products of the f o r e s t r y s e c t o r  137  . .  X  page Importance o f f o r e s t products The s t a t e function M u l t i p l e use  preference • < > . •« f o r e s t r y  ,  .  .  .  C h a r a c t e r i s t i c s of f o r e s t Saw-milling  .  . .  142  . .  143  . .  149  . .  150  . . ltk  154 F i b e r b o a r d and Chapter Five  Chapter Six  particleboard. . .  A review o f current viewpoints regarding role of f o r e s t r y i n development  . . . . .  155  156  View o f the Food and A g r i c u l t u r e O r g a n i z a t i o n o f the U n i t e d Nations  156  Views o f the Agency f o r I n t e r n a t i o n a l Development and F o r e s t r y economists i n the U n i t e d States . . . . .  176  Views expressed at the S i x t h World F o r e s t r y Congress at Madrid i n 1966. . . . . . . . . . . .  182  E v a l u a t i n g the r o l e of f o r e s t r y i n development^ . .. > *'.*» . . . . . . . .  191  The c r i t e r i o n  191  Optimum investment i n f o r e s t r y . . . .  197  The l i n e a r programming  212  approach . . .  Methods o f choosing among a l t e r n a t i v e courses . . . . . . . . .  214  xi page Chapter Seven  F o r e s t r y as a p r o p u l s i v e i n development  Chapter E i g h t  Chapter Nine  sector  . . . . . . . . .  . . . .  C h a r a c t e r i s t i c s of f o r e s t r y having a p r o p u l s i v e e f f e c t  221  Policy implications ,  228  F o r e s t r y development f o r keeping abreast w i t h i n c r e a s e s i n demand due to economic growth . . . . . . . .  .  Summary and c o n c l u s i o n s . . . . . . . . . . . . . . . . .  Appendix  l o o . . . . . . . . . . . . . . . . .  . . . .  . •  .  III..  273 276  X V o o a o o o o o o o o o o o o o o o o o*o  245 271  II . . . . . . . . . . •  e  237 241  Bibliography  G l O S S c L T y  219  •  ©  • .•  •  *  *  D e f i n i t i o n of terms used i n equations  *  o  o.o  o  o  o  o  „ . . . . . . . .  280 o  28X  289  XXI  TABLES  Optimal f o r e i g n investment s c h e d u l e s Selected r a t i o s : World's f o r e s t i n d u s t r i e s (I960)  primary .<,.*«  .  .«  I n d i c e s o f interdependence o f forest industries • • • • « • • • < • • Apparent consumption of f o r e s t products 195 7-5 9 average « , <> < > . » o » « o » 0  xiii  ILLUSTRATIONS page Per c a p i t a c a p i t a l , income, consumption, d e p r e c i a t i o n and investment i n a stagnant economy . . . . . . . •  18  Fig. 2  Output and employment i n any economy . . ,  21  Fig. 3  Per c a p i t a c a p i t a l , income, consumption, d e p r e c i a t i o n and investment i n a developed economy,  24  Fig. 1  « e e e o o « « o o » « e  Fig. 4 Fig. 5  Steady s t a t e growth i n n e o - c l a s s i c a l  mO Cl© X  52  o « e o o o o o e e e e « « « e ee  E f f e c t s o f shock on r a t e s o f growth i n steady s t a t e . . . .  56  N e o - c l a s s i c a l model w i t h p o p u l a t i o n growth endogenously determined . .  58  o o o c o o a o o e *  Fig. 6 Fig. 7  e •c  o  P r o p o r t i o n a l and n o n - p r o p o r t i o n a l consumption f u n c t i o n s  71  e o o e e e e e a e  Fig. 8 Fig. 9  Consumption f u n c t i o n f o r the s i m u l a t i o n  mO  Rate o f p o p u l a t i o n growth as a f u n c t i o n o f per c a p i t a income . . . .  Fig,  10  Growth o f output with time  Fig,  11  Growth o f d i s c o u n t e d value o f output w i t h time, when rate o f discount i s g r e a t e r than the r a t e o f growth, ,  O  O  C  O  O  O  Fig.  13  C y c l i c a l f l u c t u a t i o n s i n timber requirements ( l e v e l t r e n d ) 9 0  0  0  O  c  e  12  82  # • e ee  8  Fig.  75  X o o o e o e o o o o f e t t o o e e  0  C  o  0  92  o o  0  C y c l i c a l f l u c t u a t i o n s i n timber requirements (upward s l o p i n g t r e n d ) . ,  89  O  121  0  O  O  Fig.  14  F l u c t u a t i o n s i n the t r e n d o f b u s i n e s s and b u i l d i n g c y c l e s o e o o e o a o o c o o e  Fig.  15  User cost as a f u n c t i o n o f r a t e o f e x p l o i t a t i o n and l e v e l o f investment  o  t  o  123  O  e  126  o  2 04  xiv page Fig.  16  T o t a l cost and t o t a l revenue as f u n c t i o n s of r a t e o f e x p l o i t a t i o n and l e v e l o f investment  206  XV  APPENDICES page Appendix I  Appendix I I  A l i s t o f the more important v a r i a b l e s i n the programmes w i t h t h e i r meanings and the terms used to denote them i n the text i n Chapter Three , .  2 71  Description o f the Fortran programme f o r the growth o f an e conomy . . . . . . . „ < , . . .  273  !  Appendix I I I  Appendix IV  .  D e s c r i p t i o n o f the F o r t r a n programme f o r t h e search f o r take-off  2 76  D e s c r i p t i o n o f a stagnant economy  2 80  INTRODUCTION Never b e f o r e  i n t h e h i s t o r y of mankind have t h e d i f f e r e n c e s  i n the  l e v e l s of l i v i n g among o r d i n a r y persons i n d i f f e r e n t c o u n t r i e s been as g r e a t as t h e y are t o d a y .  I t may not be p o s s i b l e to prove t h i s  statement  w i t h t h e b a c k i n g of s t a t i s t i c a l i n f o r m a t i o n , b u t a l l a c c o u n t s of v a r i o u s c i v i l i z a t i o n s u n t i l about two c e n t u r i e s ago show t h a t everywhere l i v e d i n p o v e r t y and o n l y a l u c k y few enjoyed the f r u i t s of  the masses  prosperity.  The e x c e p t i o n has been t h e l a s t few g e n e r a t i o n s ( K e e n l e y s i d e 1966) i n the s m a l l c o r n e r of the w o r l d m o s t l y p o p u l a t e d by people of European e x t r a c t i o n ( G a l b r a i t h 1964a). and unprecedented  E s p e c i a l l y i n N o r t h A m e r i c a t h e r e has been g r e a t  affluence.  V a s t d i s p a r i t i e s e x i s t between t h e i n h a b i t a n t s of t h e s e c o u n t r i e s and the r e m a i n i n g t w o - t h i r d s of the w o r l d ' s p o p u l a t i o n t h a t l i v e s ( L e i b e n s t e i n 1963).  elsewhere  A g l a n c e a t the p e r c a p i t a income f i g u r e s f o r the m i d -  1950' s (Bhagwati 1966) makes t h i s d i f f e r e n c e  obvious.  The U n i t e d S t a t e s of  A m e r i c a ( U . S . A . ) had a p e r c a p i t a income of $ 2 , 3 4 3 and N e p a l of $ 4 0 .  The  average computed by Bhagwati f o r 96 c o u n t r i e s of the w o r l d was $ 2 0 0 .  In  1949 some 54 per cent of the w o r l d p o p u l a t i o n l i v e d i n c o u n t r i e s w i t h l e s s than $100 p e r c a p i t a annual income w h i l e o n l y 7 p e r c e n t l i v e d i n a c o u n t r y w i t h over $ 1 , 0 0 0 p e r c a p i t a income ( U n i t e d N a t i o n s 1 9 5 0 ) . No d o u b t , p e r c a p i t a income i s n o t a w h o l l y s a t i s f a c t o r y  yardstick  f o r comparing the r e l a t i v e s t a n d a r d s of l i v i n g of v a r i o u s communities and i t tends to exaggerate the d i f f e r e n c e s  ( P a t e l 1966).  Yet,  i t i s one of  the  b e s t a v a i l a b l e and c e r t a i n l y i n d i c a t e s t h a t the average N e p a l e s e c i t i z e n i s v e r y much p o o r e r than an average c i t i z e n of the U . S . A . , a l t h o u g h the A m e r i c a n may not be 58 t i m e s b e t t e r o f f t h a n the N e p a l e s e as suggested  by  2  the per  c a p i t a income f i g u r e s . I t was  p a r i t i e s was b o t h the  o n l y a f t e r World "War  I I t h a t the e x i s t e n c e  of such  f u l l y r e a l i z e d by a s i g n i f i c a n t number of o r d i n a r y people i n  a f f l u e n t and  poor c o u n t r i e s  I t i s o n l y s i n c e then too,  0  modern economists have s t a r t e d g i v i n g s e r i o u s thought to t h i s (FAO  1966)  and  subject.  a l a r g e volume of l i t e r a t u r e has  of the p r o s p e r o u s n a t i o n s ,  that  question  been w r i t t e n on  Because of the knowledge of the much h i g h e r  political  dis-  this  s t a n d a r d s of  and because of the a s p i r a t i o n s c r e a t e d  living by  emancipation of most of the poor c o u n t r i e s , t h e i r people want a  b e t t e r l i f e f o r themselves and  t h e i r c h i l d r e n almost a t once.  They want  t o compress the two  c e n t u r i e s of growth of Europe and N o r t h America i n t o a  few  one  decades, but no  accomplished,  seems to know e x a c t l y how  approach i s p r e s e n t l y b e i n g do  be  I n f a c t , the o n l y example of a c o u n t r y " f o r c e d marching"  i n t o r e l a t i v e p r o s p e r i t y i s the S o v i e t U n i o n .  who  such a f e a t might  f o l l o w e d by  not p r e f e r the communist way,  This  "regimentation"  the Communist C h i n e s e .  now  Even those  agree t h a t the government of  a  c o u n t r y must take an a c t i v e r o l e i n l e a d i n g or pushing the c o u n t r y i n t o the r o a d t o p r o s p e r i t y . not  simply  an economic one,  a n t h r o p o l o g y and The Republic The  T h i s i s so, because the problem at t h i s stage i s but  sociology,  social  e s p e c i a l l y psychology  political  systems i n the S o v i e t U n i o n and  the P e o p l e ' s  of C h i n a are opposed to those i n N o r t h America and Western E u r o p e  Communists seek t o c o n v e r t  t h i n k i n g by West has  also involves p o l i t i c s ,  the major p a r t of humanity to t h e i r way  showing them the c a r r o t of economic development and  so  of  the  been f o r c e d to take an i n c r e a s i n g i n t e r e s t i n the development of  the p o v e r t y s t r i c k e n people of the w o r l d .  The  hope of  maintaining  3  "Western" p r o s p e r i t y l i e s o n l y i n a v o i d i n g a major war w i t h i t s p o l i t i c a l a n t a g o n i s t s , and t h i s the West can do o n l y by not a l l o w i n g l a r g e s e c t i o n s of t h e w o r l d ' s p o o r t o f a l l i n t o t h e communist sphere of i n f l u e n c e . i n t u r n i s p o s s i b l e o n l y i f those of the underdeveloped  This  n a t i o n s who  do  not  d e s i r e the communistic p o l i t i c a l p h i l o s o p h y are h e l p e d t o move on t o t h e r o a d t o p r o s p e r i t y a t a r e a s o n a b l y f a s t pace. The  l a r g e s t and most o b v i o u s group of such people who  have r e -  j e c t e d the p o l i t i c a l p h i l o s o p h y of t h e communists and any t o t a l i t a r i a n form of government are t h e 500 m i l l i o n I n d i a n s , people who  The most i m p o r t a n t group of  have chosen - o r have been f o r c e d to choose - communism and  t o t a l i t a r i a n government s i n c e W o r l d War  I I are the 700 m i l l i o n  a  Chinese.  B o t h a r e determined  t o f i n d the r o a d t o development and p r o s p e r i t y -  through " d e m o c r a t i c  s o c i a l i s m " and t h e o t h e r t h r o u g h " d i c t a t o r s h i p of t h e  proletariat".  one  To a v e r y l a r g e e x t e n t t h e r e s t of the p o o r c o u n t r i e s of the  w o r l d w i l l d e c i d e w h i c h t o f o l l o w , a f t e r o b s e r v i n g the c o n c r e t e p r o g r e s s these two g i a n t s .  of  I n t h e i r modus o p e r a n d i the Chinese have a s u c c e s s f u l  p r e c e d e n t - the S o v i e t U n i o n .  The  I n d i a n s have no p r e c e d e n t  to look t o .  The d i c t a t o r s h i p of t h e C h i n e s e has shown t h a t i t can r e v o l u t i o n i z e s o c i e t y w i t h astounding r a p i d i t y .  The  I n d i a n s on the o t h e r hand are a t t e m p t i n g to  b r i n g about " r e v o l u t i o n w i t h consent"  and t h i s means moving s l o w l y .  I t may  be t r u e t h a t what t h e I n d i a n s l o s e i n speed t h e y g a i n i n soundness ( Z i n k i n 1964), but p o l i t i c a l progress i s too  s t a b i l i t y becomes d i f f i c u l t t o m a i n t a i n when  slow.  A t o t a l i t a r i a n form of government can reduce the l e v e l of sumption of i t s people or put c o n s i d e r a b l e checks on i t s i n c r e a s e . i t can f o r c e s a v i n g s c o m p a r a t i v e l y e a s i l y .  conThus  The d e m o c r a t i c government can  4  n o t e a s i l y persuade to  i t s people t o r e f r a i n from i n c r e a s i n g t h e i r  the e x t e n t t h e y d e s i r e  Even when i t can persuade  consumption  them, the r e s u l t i s  n o t anywhere near what a t o t a l i t a r i a n government can do i n i n c r e a s i n g savings,,  T h e r e f o r e , the d e m o c r a t i c e f f o r t s a t i n i t i a t i n g development can  hope t o succeed o n l y i f t h e r e i s a p o s s i b i l i t y of g e t t i n g some f o r e i g n a i d which can be used f o r development purposes ( K e e n l e y s i d e 1966)  ( G a l b r a i t h 1964b).  Foreign aid  i s the most c r u c i a l s i n g l e f a c t o r t h a t can d e c i d e the  s u c c e s s o r f a i l u r e of an attempt t o r e a c h t h e t a k e - o f f stage (Rostow I960) i n economic development„ The aim here i s not t o a n a l y z e whether a t o t a l i t a r i a n government t h a t can b u l l y i t s people i n t o ways t h a t f a c i l i t a t e development i s essent i a l , o r whether i t i s p o s s i b l e f o r a d e m o c r a t i c government t o  persuade  i t s p e o p l e , by c r e a t i n g s u i t a b l e i n c e n t i v e s and by e s t a b l i s h i n g n e c e s s a r y checks, t o a c h i e v e s e l f - s u s t a i n e d growth. these q u e s t i o n s o  F o r the purposes  a d e m o c r a t i c government can d i s c u s s how  No  one knows the answers to  of t h i s t h e s i s i t w i l l be assumed t h a t  i n i t i a t e development.  Given t h a t , i t w i l l  such an i n i t i a t i o n can be made and what r o l e the f o r e s t r e -  s o u r c e s of a c o u n t r y can p l a y i n r e a c h i n g the t a k e - o f f stage i n i t s economic development.  A l s o , i t w i l l a n a l y z e the ways i n w h i c h  i n v e s t m e n t and u t i l i z a t i o n can be used most e f f e c t i v e l y and  forest  efficiently,  f o r meeting t h e r e q u i r e m e n t s t h a t w i l l have been c r e a t e d i f development g e t s underway.  Such a n a l y s e s have been attempted m a i n l y by Westoby (1962)  and f o l l o w e d up by B e a z l e y (1965) and Z i v n u s k a (1966a) but t h e  problem,  g e n e r a l l y , does not seem t o have r e c e i v e d much a t t e n t i o n from f o r e s t e r s and economists.  T h i s t h e s i s i s an attempt by a f o r e s t e r t o see the e n t i r e  q u e s t i o n o b j e c t i v e l y and t o t r y t o e v a l u a t e h i s s t a n d i n g i n an economy  5  w h i c h wants t o d e v e l o p . Although  t h e d i s c u s s i o n s w i l l be g e n e r a l and a p p l i c a b l e t o any-  underdeveloped economy i n a b r o a d sense, t h e y w i l l be aimed a t I n d i a w h i c h i s making a c r i t i c a l , and t h e l a r g e s t , experiment i n w o r l d h i s t o r y i n t r a n s f o r m i n g a s t a g n a n t economy i n t o a modern developed democratic In  c o u n t r y by a  p r o c e s s ( T a y l o r et a l . 1965). the f i r s t three chapters comprising P a r t I the t h e s i s i s  concerned w i t h pure economics and t r i e s t o d e f i n e and e x p l a i n t h e phenomenon of economic development w i t h o u t any p a r t i c u l a r r e f e r e n c e t o f o r e s t r y . In P a r t I I i t d e a l s s p e c i f i c a l l y w i t h the r o l e of timber  production  f o r e s t r y i n economic development and s t u d i e s t h e problems of a l l o c a t i o n of r e s o u r c e s f o r investment forests i n t h i s context.  ( i n f o r e s t r y ) and t h e r a t e of u t i l i z a t i o n of  6  PART I  THE PROCESS OF DEVELOPMENT  7  CHAPTER ONE  WHAT IS ECONOMIC DEVELOPMENT?  GENERAL  An easy and adequate definition of economic development is not possible.  So vast are the disparities in natural endowments, economic  structure, cultural heritage, and social and p o l i t i c a l institutions among the countries of the world today that any attempt to devise a single criterion for distinguishing "developed" from "underdeveloped" regions is futile.  Even definitional approaches that combine a number of indicators  of economic underdevelopment have so far proved intellectually unsatisfactory as they include so many variables that they become descriptive rather than analytical in character* Even as early as 1776 Adam Smith (1784a) was concerned with the  8  growth of n a t i o n a l o u t p u t over t h e l o n g - r u n i n h i s "Wealth of N a t i o n s "  0  He o b s e r v e d t h a t t h e g r e a t e r the p r o p o r t i o n of annual produce t o i t s p o p u l a t i o n the b e t t e r o f f was the n a t i o n .  The " p r o p o r t i o n " w h i c h was  an  i n d e x of w e l f a r e of a p e o p l e was, f o r a g i v e n endowment of n a t u r a l r e s o u r c e s , c o n s i d e r e d t o be dependent on: lc  t h e s k i l l , d e x t e r i t y and judgement w i t h which l a b o u r was g e n e r a l l y a p p l i e d , and  2,  t h e p r o p o r t i o n between t h e number of t h o s e who were  em-  p l o y e d i n u s e f u l l a b o u r and t h a t o f t h o s e who were n o t so employed.  U s e f u l o r " p r o d u c t i v e " l a b o u r was t h o u g h t  of as t h a t w h i c h t h e modern e c o n o m i s t s would t r e a t as employed i n p r o d u c t i o n o f "goods" o n l y and n o t " s e r v i c e s " (Adam S m i t h 1784b). He c o n s i d e r e d t h e former of t h e s e c i r c u m s t a n c e s as more i m p o r t a n t and r e a s o n e d t h a t s p e c i a l i z a t i o n of l a b o u r b r o u g h t improvements i n i t . The w e l f a r e of a n a t i o n over time would thus be e x p e c t e d t o show i m p r o v e ment i f t h e s k i l l s of l a b o u r and t h e employment r a t e i n c r e a s e d .  I t was  t h i s i n c r e a s e i n t h e produce of an economy t h a t was c a l l e d economic growth o r economic  development.  Schumpeter (1962) d e f i n e d "development" d i f f e r e n t l y .  The mere  growth of an economy, as shown by t h e growth of p o p u l a t i o n and w e a l t h was n o t d e s i g n a t e d by him as a p r o c e s s of development.  He argued t h a t  economic systems had a tendency towards an e q u i l i b r i u m p o s i t i o n .  This  tendency g i v e s the means of d e t e r m i n i n g p r i c e s and q u a n t i t i e s o f goods and i s an a d a p t a t i o n o f the system t o d a t a e x i s t i n g a t any time.  The  system b r i n g s about changes i n incomes, q u a n t i t i e s and p r i c e s i n i t s  9  attempt t o r e a c h the e q u i l i b r i u m , but t h e s e changes do n o t c o n s t i t u t e development i n t h e Schumpeterian s e n s e .  The changes t h a t o c c u r w h i l e  s t r i v i n g f o r a changed e q u i l i b r i u m p o s i t i o n due t o changes i n n o n - s o c i a l d a t a ( n a t u r a l c o n d i t i o n s ) or i n non-economic s o c i a l d a t a ( e f f e c t s of w a r , changes i n c o m m e r c i a l , s o c i a l o r economic p o l i c y ) , or i n consumers* are a l s o not c l a s s i f i e d as development by Schumpeter.  tastes  Development meant  such changes i n economic l i f e as were n o t f o r c e d upon i t from w i t h o u t b u t r a t h e r t h o s e t h a t come about by i t s changing of i t s own d a t a , by f i t s and starts.  When d i s c o n t i n u o u s changes i n t h e t r a d i t i o n a l way of d o i n g t h i n g s  brought about p r o d u c t i v e r e v o l u t i o n s then development had t a k e n p l a c e . " S h o u l d i t t u r n out t h a t t h e r e are no such changes a r i s i n g i n t h e economic sphere i t s e l f , and t h a t t h e phenomenon t h a t we c a l l economic development i s i n p r a c t i c e s i m p l y founded upon the f a c t t h a t t h e d a t a change and t h a t the economy c o n t i n u o u s l y adapts i t s e l f to them, t h e n we s h o u l d say t h a t t h e r e i s no economic development. B y t h i s we s h o u l d mean t h a t economic development i s not a phenomenon t o be e x p l a i n e d e c o n o m i c a l l y , b u t t h a t the economy i n i t s e l f w i t h o u t development, i s dragged a l o n g by the changes i n t h e s u r r o u n d i n g w o r l d , t h a t t h e causes and hence the e x p l a n a t i o n of the development must be sought o u t s i d e t h e group of f a c t s w h i c h a r e d e s c r i b e d by economic theory." (Schumpeter 1962) Development d e f i n e d i n t h e narrow and f o r m a l sense u s e d by Schumpeter i s a " d i s t i n c t phenomenon e n t i r e l y f o r e i g n t o what may be o b s e r v e d i n the c i r c u l a r f l o w o r i n t h e tendency towards e q u i l i b r i u m . i s spontaneous and d i s c o n t i n u o u s change i n the c h a n n e l s of the f l o w ,  It dis-  t u r b a n c e of the e q u i l i b r i u m , w h i c h 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 state previously e x i s t i n g . " T h i s concept c o v e r s t h e f o l l o w i n g f i v e (l)  cases;  The i n t r o d u c t i o n of a new good or a new q u a l i t y of good w i t h w h i c h consumers a r e n o t y e t f a m i l i a r .  10  (2)  The i n t r o d u c t i o n of a new method of p r o d u c t i o n n o t t e s t e d by  (3)  yet  experience.  The o p e n i n g of a new market where a p a r t i c u l a r good has not y e t  entered.  (4)  The conquest of a new source of s u p p l y of raw m a t e r i a l s *  (5)  The c a r r y i n g out of t h e new o r g a n i z a t i o n of any i n d u s t r y , l i k e c r e a t i o n of monopoly o r b r e a k i n g up of a monopoly position. Modern a u t h o r s u s u a l l y d i s t i n g u i s h two broad c a t e g o r i e s  (Ackley 1961)  0  "underdeveloped"  of growth  The f i r s t t y p e i s t h a t i n v o l v e d i n t h e s h i f t from an to a "developed"  growth o f t h e a l r e a d y " d e v e l o p e d " term "economics of development" "economics of growth" f o r the  economy, and t h e second k i n d i s economy.  the  H i r s c h m a n (1963) has used t h e  f o r a p p l i c a t i o n t o the f o r m e r and latter.  Some c h a r a c t e r i s t i c s of an u n d e r d e v e l o p e d economy have been d e s c r i b e d and d i s c u s s e d by H i g g i n s ( 1 9 5 9 ) ,  L e i b e n s t e i n (1963) V i n e r ( l 9 6 3 )  Samuelson (1964) and Bhagwati (1966) amongst many o t h e r s .  B u t , as  p  already  r e c o r d e d , no a n a l y t i c a l d e f i n i t i o n of developed o r underdeveloped i s f o r t h coming.  One of t h e e a s i e s t ,  though a v e r y a r b i t r a r y d e f i n i t i o n ( o r r a t h e r  d e s c r i p t i o n ) , i s that a country w i t h per c a p i t a gross n a t i o n a l product (GNP) below about $500 i s u n d e r d e v e l o p e d ( H i g g i n s 1 9 5 9 ) .  This " d e f i n i t i o n "  i s not of much v a l u e except f o r t h e purposes of a v e r y wide d i s t i n c t i o n between t h e two  categories.  N o t o n l y a r e t h e income l e v e l s  i n t h e underdeveloped  countries  low due t o l a c k o f c a p i t a l and n a t u r a l r e s o u r c e s b u t a l s o t h e s e c o u n t r i e s are plagued by o v e r - p o p u l a t i o n , ' i l l i t e r a c y ; low l e v e l s  of t e c h n o l o g y ;  lack  11  of s t a b l e advanced forms of n a t i o n a l government; v e r y s t r o n g r e g i o n a l , t r i b a l , r e l i g i o u s and o t h e r p a r o c h i a l f e e l i n g s ; r e s i s t a n c e t o change.  and worse:  considerable  F o r a number of y e a r s o u t p u t p e r p e r s o n has been  almost s t a g n a n t i n such economies*  Except f o r N o r t h A m e r i c a , Western  E u r o p e , t h e S o v i e t U n i o n , J a p a n , A u s t r a l i a , New Z e a l a n d and S o u t h A f r i c a , almost the whole of the w o r l d can be p u t i n t h i s c a t e g o r y . The developed economies on t h e o t h e r h a n d , a r e t h o s e where economic growth can be t a k e n f o r g r a n t e d ( R e y n o l d s 1963) „  Some of t h e s e  economies have been expanding c o n t i n u o u s l y f o r two c e n t u r i e s o r more and have h i g h l e v e l s of p e r c a p i t a income.  C a p i t a l accumulation, population  growth and t e c h n o l o g i c a l advance are the earmarks of f u r t h e r growth of such economies, and i t i s p l a u s i b l e t o assume t h a t t h e y can be a n a l y z e d by p u r e l y economic t o o l s * The s t u d y of the growth of an u n d e r d e v e l o p e d economy i n v o l v e s a t r a n s f o r m a t i o n of t h e t o t a l c u l t u r e and r e q u i r e s the h e l p of d i s c i p l i n e s o t h e r t h a n economics, e . g . , psychology,  sociology, p o l i t i c a l science,  pedagogy and e n g i n e e r i n g of v a r i o u s k i n d s .  anthropology,  The underdeveloped  economy has f i r s t to be pushed i n t o t h e c a t e g o r y of " d e v e l o p e d economy" b e f o r e the problem of i t s growth becomes amenable t o r i g o r o u s economic analyses.  Till  then, analyses,  drawing from o t h e r s c i e n c e s ,  may be r e -  q u i r e d as the d i s c u s s i o n s of Tweeten (1966) p o i n t o u t . I f i t i s r e c o g n i z e d t h a t a l l c o u n t r i e s w h i c h have n o t d e v e l o p e d t o t h e degree of the most e c o n o m i c a l l y advanced a r e i n t h i s sense " l e s s d e v e l o p e d " , we may p i c t u r e a continuum of economic development from t h e l e a s t t o t h e m o s t , each c o u n t r y o c c u p y i n g a p o s i t i o n i n t h e s e r i e s . " l e s s developed"  The  o r " u n d e r d e v e l o p e d " c o u n t r i e s would be found near the end  12  of t h i s continuum ( B e a z l e y 1 9 6 5 )  e  Viewed t h u s , " d e v e l o p e d " and " u n d e r -  developed" appear t o he o n l y c o m p a r a t i v e terms ( K e e n l e y s i d e Till  1966).  t h e e a r l y t h i r t i e s t h e main cause o f t h e development of some  c o u n t r i e s and the l a c k of development i n o t h e r s was supposed t o be the abundance o r s c a r c i t y of n a t u r a l r e s o u r c e s ( H i r s c h m a n 1 9 6 3 ) .  L a t e r on,  c a p i t a l came t o be c o n s i d e r e d t h e p r i n c i p a l agent of development,  and now  t h e s u p p l y of e n t r e p r e n e u r i a l and m a n a g e r i a l a b i l i t i e s i s a l s o t r e a t e d as b e i n g a t l e a s t as i m p o r t a n t as c a p i t a l .  The c o n t r i b u t i o n of i n v e s t m e n t i n  human b e i n g s as p r o d u c t i v e agents has a l s o been i n c r e a s i n g l y ( S c h u l t z 1956). efficient  stressed  O t h e r r e q u i r e m e n t s f o r development are c o n s i d e r e d t o be  law enforcement, p u b l i c a d m i n i s t r a t i o n , p u b l i c o r d e r and v a r i o u s  c u l t u r a l and p s y c h o l o g i c a l  factors.  E x p e r i e n c e seems t o have demonstrated f a i r l y c o n c l u s i v e l y (Hirschman 1963, K e e n l e y s i d e 1966) t h a t under a p p r o p r i a t e c o n d i t i o n s any people can l e a r n i n d u s t r i a l s k i l l s and t h a t c o u n t r i e s p o o r l y endowed w i t h n a t u r a l r e s o u r c e s can a c h i e v e h i g h l e v e l s o f p e r c a p i t a output and income. As r e g a r d s s a v i n g s ,  even people l i v i n g a t the s u b s i s t e n c e l e v e l , by  W e s t e r n s t a n d a r d s , c o l l e c t enough ( L e w i s 1964) t o go t h r o u g h m a r r i a g e ceremonies o r o t h e r t r a d i t i o n a l t y p e s of e x p e n d i t u r e s w h i c h may appear extravagant people.  to Westerners.  The c a p a c i t y t o save i s thus e x i s t e n t i n most  A l s o l a c k of c a p i t a l seldom p r e v e n t s a p r o f i t a b l e p r o j e c t from  being c a r r i e d out.  I t seems as i f a l l t h e u s u a l l y d i s c u s s e d r e q u i r e m e n t s  f o r growth a r e p r e s e n t i n most u n d e r d e v e l o p e d c o u n t r i e s b u t growth i t s e l f is missing.  If,  somehow, growth t a k e s p l a c e the n a t u r a l r e s o u r c e s  t o get u s e d ; i f t h e y do not e x i s t they are c r e a t e d .  begin  Savings are then  m o b i l i z e d and put i n t h e r i g h t c h a n n e l s of i n v e s t m e n t s and c a p i t a l  13  accumulation b e g i n s .  B u t how does the growth b e g i n ?  T h i s problem a p p e a r s ,  on t h e s u r f a c e a t l e a s t , v e r y s i m i l a r t o t h e  problem of c y c l i c a l unemployment i n t h e d e v e l o p e d economies.  There,  u n u t i l i z e d c a p i t a l and unemployed l a b o u r e x i s t s i d e by s i d e .  It is like  s c a r c i t y of d r i n k i n g water i n the m i d d l e of t h e ocean. but n o t i n t h e f o r m r e q u i r e d .  available  I f o n l y i t c o u l d be made a v a i l a b l e o r i f  u n u t i l i z e d l a b o u r made " a v a i l a b l e " would be  Water i s  the  to the u n u t i l i z e d c a p i t a l t h e problem  solved. There may r e a l l y be no g r e a t d i f f e r e n c e  between the two p r o b l e m s .  The s o l u t i o n t o t h e c y c l i c a l unemployment of developed economies can be had through d e f i c i t spending o r s i m i l a r K e y n e s i a n remedies which recombine the u n u t i l i z e d l a b o u r and u n u t i l i z e d m a c h i n e s . one has t o combine the v a r i o u s i n g r e d i e n t s difficult  I n the underdeveloped c  The t a s k ,  to a c c o m p l i s h t h a n i n a d e v e l o p e d economy, i s  economies  though f a r more nevertheless  similar. F o r t h e purposes of t h i s t h e s i s growth of b o t h a d e v e l o p e d and an u n d e r d e v e l o p e d economy s h a l l be d e f i n e d as a s u s t a i n e d i n c r e a s e i n p e r c a p i t a output w h i l e the p o p u l a t i o n i s s t a t i c o r i n c r e a s i n g .  T h i s i s not  o n l y t o f i t t h e needs of poor n a t i o n s i n t o t h e d e f i n i t i o n b u t a l s o because the r i c h n a t i o n s a l s o seek e x a c t l y the same ( e . g . , Gutmann 1 9 6 4 ) . t h e percentage  see P h e l p s 1962 and  Such growth w i l l take p l a c e o n l y i n those economies where i n c r e a s e i n net n a t i o n a l p r o d u c t (NNP) every y e a r  g r e a t e r t h a n t h e c o r r e s p o n d i n g percentage  is  increase i n population.  Growth as d e f i n e d h e r e does not d i s t i n g u i s h between the  genuine  S c h u m p e t e r i a n growth and the growth due t o change i n d a t a as d e s c r i b e d by him.  I t i s t h e t o t a l of t h e two.  C o n c e i v a b l y t h e p r o p o r t i o n of income-  14  increases  i n d e v e l o p e d economies due t o S c h u m p e t e r i a n growth w i l l he  h i g h e r t h a n t h a t i n u n d e r d e v e l o p e d economies„  The l a t t e r w i l l be a d a p t i n g  themselves m a i n l y t o the change i n d a t a t h a t w i l l be caused by i n n o v a t i o n s i n the developed economies,,  I t i s only i f  s  and when, t h e u n d e r d e v e l o p e d  c o u n t r i e s c a t c h up w i t h t h e developed ones t h a t s u b s t a n t i a l p r o p o r t i o n s of t h e i r income—increases can come from growth as d e f i n e d by Schumpeter.  This  i s not t o say t h a t t h e r e can n o t and w i l l not be any such growth i n t h e underdeveloped c o u n t r i e s .  There may be such growth b u t , by and l a r g e ,  u n d e r d e v e l o p e d economies w i l l  the  take most of t h e i r i n n o v a t i o n s from the d e -  veloped countries f o r a considerable p e r i o d . G r o w t h , i n t h e sense d e s c r i b e d , does not concern i t s e l f w i t h d i s t r i b u t i o n and assumes t h a t income d i s t r i b u t i o n i s p e r f e c t l y  equitable  and growing output p e r c a p i t a means t h a t t h e masses a r e s h a r i n g the i n creased p r o s p e r i t y . realistic.  I n a c t u a l l i f e t h i s assumption i s f a r f r o m b e i n g  A more e q u i t a b l e d i s t r i b u t i o n of income may be b e t t e r t h a n a  l e s s e q u i t a b l e one f o r any p a r t i c u l a r p o i n t i n t i m e j b u t i t i s q u i t e that existence  likely  of d i s p a r i t i e s may be more c o n d u c i v e t o f u t u r e income i n -  c r e a s e s than p e r f e c t  equitability.  p e n s i t y t o save and t h e r e f o r e  The r i c h u s u a l l y have a h i g h e r p r o -  l a r g e p r o p o r t i o n s o f n a t i o n a l income  a c c r u i n g t o them may mean l a r g e r s a v i n g s and i n v e s t m e n t s .  The n e o -  c l a s s i c a l model of modern t h e o r i s t s , d i s c u s s e d i n C h a p t e r Two, shows  that  an i n c r e a s e i n t h e s a v i n g r a t i o does n o t a f f e c t t h e r a t e of growth of t h e aggregate economy i n t h e l o n g - r u n , b u t i t does push t h e r a t e up i n t h e short-run.  C o n t i n u i n g income d i s t r i b u t i o n s i n f a v o u r of the r i c h may,  a r e s u l t , mean i n c r e a s i n g growth r a t e s i n t h e f u t u r e .  as  The case f o r u n -  e q u a l income d i s t r i b u t i o n may t h u s have some economic j u s t i f i c a t i o n .  But,  15  on s o c i a l grounds, l a r g e i n e q u a l i t i e s can n o t be t o l e r a t e d as permanent f e a t u r e s o f the s o c i e t y . necessary people.  A t t h e i r b e s t t h e y can be a l l o w e d o n l y as  e v i l s so t h a t t h e f u t u r e may be b e t t e r than t h e p r e s e n t f o r most A p o l i c y t h a t p e r m i t s i n e q u a l i t i e s i n e a r l y s t a g e s of  development  b u t aims t o remove them, i n the n o t t o o d i s t a n t f u t u r e , may be t h e a p p r o p r i a t e one f o r d e v e l o p i n g c o u n t r i e s .  W i t h such a p o l i c y w h i c h presumably  would have r e c o n c i l e d t h e i n t e r - g e n e r a t i o n i n e q u a l i t i e s , t h e assumption made above may be  reasonable.  The p r o g r e s s o f an economy i n t h i s t h e s i s w i l l n o t be measured by t h e p e r c a p i t a consumption b u t by p e r c a p i t a o u t p u t a l o n e . sometimes grow w h i l e consumption d e c l i n e s ,  Output may  e i t h e r because s a v i n g i s i n -  c r e a s i n g or because the government i s u s i n g up more output f o r i t s own purposes.  B u t , a reduced consumption can be f o r c e d on t h e p o p u l a t i o n o n l y  by a t o t a l i t a r i a n regime a n d , i n our case of a d e m o c r a t i c consumption w i l l n o r m a l l y i n c r e a s e as o u t p u t  government,  increases,  DEVELOPED AND UNDERDEVELOPED  A n a t t e m p t w i l l now be made t o d e f i n e the developed and u n d e r developed economies i n an a n a l y t i c a l way i n t h e c o n t e x t of Keynes  (1964).  The K e y n e s i a n consumption f u n c t i o n i s u s u a l l y g i v e n as a r e l a t i o n s h i p between aggregate income and aggregate consumption i n an economy.  Y e t i t i s d o u b t f u l i f Keynes* " f u n d a m e n t a l p s y c h o l o g i c a l law"  c o u l d o p e r a t e i n t h e way v i s u a l i z e d by h i m i f the aggregate income i n c r e a s e d b u t p e r c a p i t a income dropped due t o a p r o p o r t i o n a t e l y h i g h e r increase i n population.  The " l a w " works w e l l o n l y i f i n t e r p r e t e d i n  16  r e l a t i o n t o p e r c a p i t a income,,  Many s t u d e n t s of consumption f u n c t i o n have  made t h i s c o r r e c t i o n , a c c o r d i n g t o A c k l e y ( 1 9 6 1 ) , h u t development m i s t s do n o t seem t o have p a i d much a t t e n t i o n t o i t .  econo-  This i s surprising,  as the main c o n c e r n of economics i n the f i e l d of development  i s not g u s t  the growth of aggregate income over time h u t t h e p e r c a p i t a income. this thesis,  For  t h e r e l a t i o n s h i p between income, c o n s u m p t i o n , s a v i n g and  i n v e s t m e n t w i l l be c o n s i d e r e d on the per c a p i t a b a s i s as t h i s appears t o be a more r e a s o n a b l e  f o r m u l a t i o n of K e y n e s '  ideas.  Secondly^ the income t h a t can be c r e a t e d i n any economy  depends  not o n l y on the number of l a b o u r e r s employed but a l s o on the q u a n t i t y of c a p i t a l , n a t u r a l r e s o u r c e s and e n t r e p r e n e u r i a l c a p a c i t y a v a i l a b l e i n i t . The t e r m " c a p i t a l " s h o u l d be meant t o i n c l u d e e d u c a t i o n a l c a p i t a l  that  makes w o r k e r s s u i t a b l e f o r t h e j o b s t h a t go w i t h the e x i s t i n g l e v e l of technology.  O n l y one of t h e s e p r o d u c t i v e f a c t o r s - c a p i t a l - w i l l  considered at present,  and d i s c u s s i o n r e g a r d i n g n a t u r a l r e s o u r c e s  entrepreneurial capacity i s  be and  postponed,  The a l r e a d y e x i s t i n g q u a n t i t y of c a p i t a l d e t e r m i n e s t o a l a r g e e x t e n t t h e maximum o u t p u t t h a t t h e economy can produce ( i n t h e s h o r t - r u n ) if  a l l of i t i s u t i l i z e d .  then, obviously, capital  I f a s m a l l e r q u a n t i t y t h a n a v a i l a b l e i s used  the o u t p u t w i l l be s m a l l e r .  The p r o p o r t i o n between  the  equipment u s e d and the c u r r e n t o u t p u t produced by i t ( l / | 3 ) w i l l be  assumed t o be c o n s t a n t i n the absence of t e c h n o l o g i c a l change.  That i s ,  m a r g i n a l c a p i t a l - o u t p u t r a t i o i s assumed equal t o average c a p i t a l - o u t p u t ratioc I n e v e r y economy t h e r e must be c o n t i n u o u s r e p l a c e m e n t s used up p a r t s of c a p i t a l .  of  the  F o r our h y p o t h e t i c a l economy l e t us assume a  17  f i x e d p r o p o r t i o n (d) of the p e r c a p i t a c a p i t a l ( k ) t o be worn out and d e p r e c i a t e d every income p e r i o d .  T h u s , a p e r c a p i t a i n v e s t m e n t o f k d must be  made r e g u l a r l y to keep the s t o c k of c a p i t a l , and so the p e r c a p i t a income, from f a l l i n g .  T h i s means i n v e s t i n g (d/3) o f Y every income p e r i o d p e r  head, where Y denotes the p e r c a p i t a income. no l a g s of any k i n d Fig.  A l s o , l e t i t be assumed  that  exist.  1 shows the p e r c a p i t a income, p e r c a p i t a c a p i t a l and per  c a p i t a consumption i n t h i s economy.  I t a l s o shows the t o t a l demand (sum  of consumption p l u s r e q u i r e m e n t s t o meet d e p r e c i a t i o n ) per c a p i t a income l e v e l s t a b l e  t h a t w i l l keep a  i f t h e r e i s no p o p u l a t i o n g r o w t h .  This  f i g u r e as w e l l as a l l o t h e r s i n t h i s t h e s i s do n o t have any p a r t i c u l a r on t h e i r axes b u t o n l y show the g e n e r a l  shapes of the f u n c t i o n s  scale  involved.  I f p o p u l a t i o n i s a l s o growing a t a r a t e of n ( e x p r e s s e d  as  a  f r a c t i o n o f the p o p u l a t i o n base) p e r income p e r i o d , then an i n v e s t m e n t  of  (n/3)Y i n a d d i t i o n to d e p r e c i a t i o n a l l o w a n c e must be made i n each income p e r i o d t o keep the income l e v e l from d e c l i n i n g . The v a l u e of n can not be expected to remain independent of l e v e l of income, a t l e a s t not i n the underdeveloped modern w o r l d .  One of the f i r s t i n v e s t m e n t s  improvement of h e a l t h ,  !  economies of  the  the  made i n such economies  is in  A l s o , the s m a l l e s t r i s e s i n per c a p i t a income mean  more and b e t t e r f o o d and g e n e r a l l y b e t t e r m e d i c a l f a c i l i t i e s .  Therefore  m o r t a l i t y r a t e i s reduced s h a r p l y i n the e a r l y s t a g e s o f income growth (Lewis 1955). The b i r t h r a t e i n a community i s a f f e c t e d variables  by a l a r g e number of  l i k e age c o m p o s i t i o n of the p o p u l a t i o n , minimum and maximum age  a t w h i c h c h i l d r e n can be b o r n e ( u b l i n e t a l . 1 9 4 9 ) , n  and economic c o n d i t i o n s .  c  18  Fig- I- Per capita capital,income,consumption,depreciation and investment in a stagnant economy* • Consumption plus Depreciation Allowance plus Population Growth Allowance-(Minimum  /  ly  It i s d i f f i c u l t to say how economic development and birth rate are interconnected (Spengler 1964); yet, i t i s generally believed that f e r t i l i t y rate - at least i n the beginning - i s not much affected by rising incomes. As a result, the net effect of development on rate of population increase is i n i t i a l l y , to cause a sharp rise i n i t .  Such has actually been the case  in India (Coale and Hoover 1058, Mauldin 1984), This may be expected to very gradually f a l l to a constant level as incomes continue to increase and reduceimortality rates ensure survival of the desired number of children from fever births*  Adelman (1964) has also assumed a sharp rise i n growth  rate of population with increase In wage rate at low levels and a gradual deorease i n i t as wages continue to rise*  Afterwards, the population  growth rate has a tendency to come to a constant level i n her assumption. As wage rate and per capita income are directly related, we can assume that population growth rate increases sharply as per capita inoome rises from low levels, but gradually comes to a maximum and then very slowly f a l l s to a stable rate. Zn Fig. 1 the requirements of investment for maintaining the per capita income level i n the face of such population growth are shown by drawing a total demand curve for consumption, investment for meeting depreciation needs, and investment for meeting increased population needs. Only i f an investment demand equal to that shown by this curve is maintained, can a corresponding income level be maintained. An economy that has a per capita income of 0C, per oapita capital equipment of OA, and per capita consumption of CD, will save 6D per capita. If the investment is also GD, so that ED goes to replacements and G E to creation of new capital, then the per capita capital w i l l be maintained i n  20  the subsequent brium.  income p e r i o d s and t h e system w i l l be i n a s o r t of  L e t us d e f i n e t h a t t h e " n e t "  stagnant  i n v e s t m e n t now i s z e r o .  equili-  T h i s i s a.  economy. B e f o r e d e s c r i b i n g a d e v e l o p e d economy l e t us i n v e s t i g a t e  the  r e l a t i o n s h i p between o u t p u t and employment i n an economy w i t h t e c h n o l o g i c a l change,  Keynes (1964) v e r y c l e a r l y demonstrated t h a t the employment l e v e l  i s a f u n c t i o n of the output l e v e l and t h a t f u l l s t a t e of a f f a i r s (Hansen 1 9 5 3 ) ,  employment i s not a n a t u r a l  F o r a f i x e d q u a n t i t y of c a p i t a l i n an  economy the r e l a t i o n s h i p between output and employment would be expected  to  be l i k e OA i n F i g . 2, because of t h e d i m i n i s h i n g m a r g i n a l r e t u r n s . I f an employment l e v e l of OB r e p r e s e n t s  full  then the o u t p u t l e v e l c o r r e s p o n d i n g to i t w i l l be 0 C .  employment of  labour  L e t us assume  that  t h e l a b o u r f o r c e b e a r s a f i x e d p r o p o r t i o n t o the t o t a l p o p u l a t i o n i n t h e community f o r the e n t i r e p e r i o d of a n a l y s i s .  Then OB i s a measure of  p o p u l a t i o n l e v e l and p e r c a p i t a income of DB/OB c o r r e s p o n d s t o the l a b o u r employment s i t u a t i o n . i n F i g . 1.  the  full  L e t t h i s s i t u a t i o n be r e p r e s e n t e d by p o i n t N  I f p o p u l a t i o n now i n c r e a s e s  as time goes b y , and n e i t h e r  t e c h n o l o g y improves n o r more c a p i t a l i s a c c u m u l a t e d , t h e n t h e p e r c a p i t a income l e v e l f o r f u l l  employment w i l l d e c r e a s e .  If,  however,  c a p i t a c a p i t a l i n an economy i s m a i n t a i n e d a t i t s i n i t i a l case w i t h the s t a g n a n t economy of F i g . 1,  the p e r  l e v e l , as i s  t h e n the c u r v e OA of F i g , 2 i s  n o t a p p l i c a b l e f o r d e t e r m i n i n g t h e p e r c a p i t a income l e v e l f o r f u l l ment.  the  employ-  L a b o u r has i n c r e a s e d and c a p i t a l equipment has i n c r e a s e d i n t h e same  proportion. be g r e a t e r  The p e r c a p i t a income c o r r e s p o n d i n g t o f u l l  employment may now  t h a n , e q u a l t o , or s m a l l e r t h a n , DB/OB ( F i g . 2) depending on  whether we assume i n c r e a s i n g , c o n s t a n t , t h e aggregate economy.  or decreasing r e t u r n s to s c a l e  for  A c k l e y ( l 9 6 l ) suggested t h a t aggregate employment  21  Fig- 2- Output and employment in any economy-  Employment (or Population)  22  may show d i m i n i s h i n g r e t u r n s a t v e r y h i g h l e v e l h u t , b e f o r e t h a t stage reached,  is  o u t p u t may expand p r o p o r t i o n a t e l y o r even more t h a n p r o p o r t i o n a t e l y  to l a b o u r i n p u t . and, t h e r e f o r e ,  The " v e r y h i g h " l e v e l mentioned i s from t h e U„S.  standards  f o r t h e purposes of c o u n t r i e s l e s s d e v e l o p e d t h a n the  U n i t e d S t a t e s i n the p r e s e n t day w o r l d , an assumption of c o n s t a n t r e t u r n s to s c a l e may n o t be u n r e a s o n a b l e , W i t h such an a s s u m p t i o n and s t i l l w i t h no t e c h n o l o g i c a l i m p r o v e ments, as time moves o n , the per c a p i t a income e o r r e s p o n d i n g t o f u l l  em-  ployment w i t h an i n c r e a s e d p o p u l a t i o n w i l l be FE/OE w h i c h i s t h e same as DB/OB.  T h i s means t h a t the per c a p i t a income c o r r e s p o n d i n g to f u l l  em-  ployment of l a b o u r i n an economy where p o p u l a t i o n i s changing and p e r c a p i t a c a p i t a l equipment i s m a i n t a i n e d c o n s t a n t w i l l remain c o n s t a n t . T h i s , however, changes do take p l a c e .  does n o t happen i n r e a l l i f e . A t l e a s t f o r the purposes o f  countries better technologies,  Technological underdeveloped  w h i c h t h e y can always copy, are a l r e a d y i n  use i n o t h e r p a r t s o f the w o r l d .  A l l the modern methods of  advanced  c o u n t r i e s may n o t be s u i t a b l e f o r them b u t some c e r t a i n l y are b e t t e r they  than  have. H i g h y i e l d i n g maize h y b r i d s , Japanese method of r i c e paddy  culti-  v a t i o n , improved f e r t i l i z e r use and the L i n z ^ D o n a w i t z oxygen-blowing p r o c e s s of s t e e l p r o d u c t i o n are some of t h e improvements of t e c h n o l o g y can be used by any c o u n t r y ( G a l b r a i t h 1964b).  They economize a l l  that  resources  and are as a p p r o p r i a t e f o r u n d e r d e v e l o p e d c o u n t r i e s as f o r d e v e l o p e d  ones.  B u t the l a b o u r - s a v i n g c a p i t a l - i n t e n s i v e t e c h n i q u e s may n o t be v e r y u s e f u l t o the l e s s d e v e l o p e d c o u n t r i e s .  I n any c a s e , t e c h n o l o g i c a l  improvement  does take p l a c e and can be used by b o t h underdeveloped and d e v e l o p e d  23  countries, and especially the underdeveloped ones. If such improvement has taken place between the time when the population of a country was at levels corresponding to OB and OE (Fig. 2), then we can safely assume that the output level corresponding to OE will not be EF but EH, which is greater than EF. The per capita income level corresponding to f u l l employment w i l l thus be increasing over time as population increases, capital equipment is increased at least in proportion with population, and as technological improvements are adopted.  If capital accumulation is at a rate greater  than the population increase (as is bound to happen at one stage or the other) then the per capita income corresponding to f u l l labour employment level (ON) will be moving to the right in F i g . 1 at an even faster rate. It has been demonstrated here that, in a dynamic formulation of the Keynesian concepts, the per capita income corresponding to f u l l employment of labour continuously goes on moving farther and farther from the origin in F i g . 1. A developed modern economy can now be described as in F i g . 3. The capital stock in i t is more than sufficient to produce the income level that employs a l l the labour force.  The per capita capital equipment  available in this economy is 0 A which, i f a l l used, can produce an i n 1  1  come level of O ' C , But under the existing technology a l l of the labour force is fully employed at an income level of O'N' and there is bound to be over capacity.  For maintaining the f u l l labour employment level of O'N'  a gross investment of G'D' is required. This w i l l result in a net investment of G'F inspite of the fact that there is already over capacity. 1  Witb  each of these net investments the capital equipment increases and so C  24  Fig-3- P e r capita capital,income,consumption,depreciation and investment in a developed economyConsumption plus Depreciation Allowance plus  Per Capita Income  CL O  O  a. o  o  a.  A'  25  moves f u r t h e r and f u r t h e r t o r i g h t as time goes by.  I f a t any time t h e r e  i s c y c l i c a l unemployment and income l e v e l i s to the l e f t of N',  an i n c r e a s e  i n i n v e s t m e n t can improve t h e s i t u a t i o n and the K e y n e s i a n p r e s c r i p t i o n works p e r f e c t l y . P r e s c r i p t i o n of i n c r e a s e d spending by d e f i c i t f i n a n c i n g does not have the same e f f e c t i n a s t a g n a n t economy (Rao 1963).  An i n c r e a s e d i n -  vestment by i t s e l f w i l l n o t r a i s e t h e income l e v e l u n t i l t h e c a p i t a l e q u i p ment t o s u p p o r t i t i s a v a i l a b l e .  D e f i c i t f i n a n c i n g of i n v e s t m e n t s w i l l  o n l y cause i n f l a t i o n and t h e per c a p i t a income l e v e l w i l l remain ary  station-  at best. I n modern economies the h i g h e r the l e v e l of income c o r r e s p o n d i n g  to f u l l  l a b o u r employment l e v e l , and t h e g r e a t e r the e f f o r t s of t h e i r  governments t o a c h i e v e t h i s l e v e l , t h e h i g h e r w i l l be the n e t i n v e s t m e n t , u n l e s s t h e "consumption p l u s d e p r e c i a t i o n p l u s p o p u l a t i o n a l l o w a n c e " c u r v e i n F i g . 3 remains above the 45° l i n e a t a l l times and a t a l l incomes. S i n c e t h i s p o s s i b i l i t y i s n o t c o n s i d e r e d h e r e , one can say t h a t t h e h i g h e r the p e r c a p i t a income i n an economy t h e g r e a t e r i s the amount of p e r c a p i t a n e t s a v i n g and i n v e s t m e n t .  The r a t e of a c c u m u l a t i o n of c a p i t a l w i l l  thus  go on i n c r e a s i n g . W i t h a l r e a d y e x i s t i n g s u r p l u s c a p a c i t y and t h e p o l i t i c a l  pressure  to make h i g h e r and h i g h e r i n v e s t m e n t s f o r the sake of m a i n t a i n i n g f u l l l a b o u r employment, t h e excess c a p i t a l i n the economy w i l l such c i r c u m s t a n c e s i t i s v e r y l i k e l y t h a t new  grow.  Under  innovations or technological  advances w i l l be i n t h e d i r e c t i o n of g r e a t e r c a p i t a l - i n t e n s i t y .  This w i l l  i n c r e a s e the output and so income per head, and t h e r e f o r e , the f u l l  labour  employment l e v e l w i l l  on  s h i f t to the r i g h t .  The economy w i l l thus go  26  growing larger and larger i f governments try to keep always striving for the f u l l employment stage. The stagnant economy can move forward only i f its capital equipment increases.  This can happen either by getting such equipment from a  developed economy or by forcing a reduction in consumption below the CD level in F i g . 1. If somehow the stagnant economy increases its capital equipment to the level OH (Fig, l) then i t can generate per capita income of OL and can maintain i t there only i f a l l the equipment is used 5, a l l the domestic savings of QM are invested, and in addition a foreign investment equal to RQ is made.  If the foreign investment is not forthcoming and consumption  can not be pushed below LM, by a quantity equal to RQ, then the per capita capital can not be maintained at level OH and so the per capita income will f a l l to OC again.  If foreign aid equivalent to RQ is available, income  levels can be just maintained at OL, foreign aid than RQ is essential.  For any improvements in this, more  With the type of consumption function  assumed here foreign aid will be necessary not only to push the income levels up, to OT but also to hold them where they are at levels below 0T  o  At the stage when OT is reached no foreign aid w i l l be needed to maintain that income as, at this level also (like at OC), the gross domestic savingsare just equal to the investment needed to adequately care for depreciation and population growth and thus maintain the per capita capital constant. A small push to the left from here will make the economy go to OC again i f foreign investment is not available.  But a push to the right will enable  i t to be independent of foreign aid in future.  From here onwards, i f only  a l l the domestic savings are invested in each income period, a continuous  27 growth i n the p e r c a p i t a c a p i t a l i s  assured.  R o s t o w ' s ( i 9 6 0 ) s t a g e s of economic growth have been c r i t i c i z e d on t h e grounds t h a t t h e r e i s no s t a t i s t i c a l way of i d e n t i f y i n g them (Kuznets 1964),  I n t h i s a n a l y s i s , a l t h o u g h we a r e s t i l l if  f a r from b e i n g  t  a b l e to i d e n t i f y a " s t a g e " i n a s t a t i s t i c a l s e n s e , we c e r t a i n l y can d e f i n e the p e r c a p i t a income l e v e l of OT ( F i g . l ) as t h e t a k e - o f f beyond OT, economic development w i l l  Once  occur w i t h o u t our c o n s c i o u s l y t r y i n g  t o a c h i e v e i t p r o v i d e d we t r y t o a c h i e v e f u l l , capital.  stage.  e f f i c i e n t employment of  A t income l e v e l s below OT t h e system can n o t d e v e l o p on i t s own.  T h e r e , e i t h e r methods d e s i g n e d to reduce n o r m a l consumption must be used or f o r e i g n a i d must be s o u g h t . d i f f e r e n t economies.  The l e v e l OT w i l l be d i f f e r e n t  for  T h i s w i l l be so because t h e consumption f u n c t i o n ,  r a t e of d e p r e c i a t i o n and p o p u l a t i o n growth p a t t e r n s w i l l u n d o u b t e d l y be v e r y d i f f e r e n t i n c o u n t r i e s w i t h d i v e r s e c u l t u r a l and economic J u s t because i t has an income ( p e r c a p i t a )  backgrounds.  above OT ( F i g . l ) ,  does not mean t h a t t h e c o u n t r y can be c a l l e d a d e v e l o p e d one.  W i t h the  g i v e n l e v e l of t e c h n o l o g y a l l the c a p i t a l equipment may be f u l l y used up a t an income l e v e l of OU.  B u t a l l t h e l a b o u r f o r c e can be f u l l y  o n l y a t ON and so t h e c o u n t r y i s s t i l l u n d e r d e v e l o p e d .  employed  I t w i l l be c a l l e d  a d e v e l o p e d c o u n t r y o n l y when p e r c a p i t a c a p i t a l equipment i s enough t o produce an income l e v e l h i g h e r t h a n ON.  While t r y i n g to reach t h i s  stage  i t must be r e a l i z e d t h a t the p o i n t N i t s e l f i s c o n t i n o u s l y moving t o t h e r i g h t as improvements i n t e c h n o l o g y t a k e p l a c e .  Reaching take-off  may  s i g n i f y much p r o g r e s s b u t t h e g o a l o f overcoming underdevelopment i s far  still  off. N a t u r a l r e s o u r c e s ' and e n t r e p r e n e u r i a l c a p a c i t y can now be  intro-  28 duced i n t o our m o d e l .  B o t h c a n be p u t on the a x i s where p e r c a p i t a c a p i t a l  equipment has been shown so f a r , and t h e s e can s e t a maximum l i m i t to p e r c a p i t a income t h a t can be g e n e r a t e d . u n t i l these l i m i t s by n a t u r a l r e s o u r c e s e q u a l to o r g r e a t e r ment of  A n economy w i l l be  the  underdeveloped  and e n t r e p r e n e u r i a l c a p a c i t y  t h a n the l e v e l of income c o r r e s p o n d i n g t o f u l l  are  employ-  labour. So f a r i t was assumed t h a t the l i n e , showing t o t a l of  consumption,  d e p r e c i a t i o n a l l o w a n c e and p o p u l a t i o n growth a l l o w a n c e f o r m a i n t a i n i n g p e r c a p i t a incomes s t a t i o n a r y ,  i s above the 4 5 ° l i n e i n F i g . 1, between  income l e v e l s t h a t are i d e n t i f i e d w i t h s t a g n a t i o n and t a k e - o f f . l i g h t o f our knowledge  of the underdeveloped c o u n t r i e s of the  w o r l d t h i s seems t o be a r e a s o n a b l e  assumption.  If,  however,  the  I n the contemporary i n any  c o u n t r y i t i s not s o , and the r e q u i r e d t o t a l t o keep p e r c a p i t a c a p i t a l l e v e l s from f a l l i n g i s l e s s than the income l e v e l i t s e l f , i s not l i k e l y to have any problem i n r e a c h i n g the t a k e - o f f  t h e n the  country  stage.  The consumption f u n c t i o n used i n t h i s d i s c u s s i o n has been the Keynesian short-run r e l a t i o n s h i p .  The d i f f e r e n c e  economies d e s c r i b e d i s t h e r e f o r e r e l e v a n t  between the two k i n d s of  o n l y i n the s h o r t - r u n .  I n the  l o n g - r u n the argument remains the same as a l r e a d y d i s c u s s e d , b u t the c o n sumption f u n c t i o n changes.  As l o n g as t h i s consumption f u n c t i o n remains  upward s l o p i n g the b a s i c d i f f e r e n c e developed"  economy w i l l  between a " d e v e l o p e d "  c o n t i n u e t o be what has been shown i n t h i s  The l o n g - r u n consumption f u n c t i o n i s d i s c u s s e d i n g r e a t e r Chapter  and " u n d e r section.  detail in  Three. A p a r t from d e s c r i b i n g the d i f f e r e n c e  between an underdeveloped  and a d e v e l o p e d economy, the d i s c u s s i o n s of t h i s c h a p t e r p o i n t out  that  29  t h e r e seems t o be n o t h i n g a u t o m a t i c about development as such,, n o t h i n g b u i l t i n t o the system w h i c h w i l l h i g h e r p e r c a p i t a income l e v e l s . forces full  There  is  spur i t to a c h i e v e h i g h e r and  I t i s o n l y t h e s o c i a l and p o l i t i c a l  i n d e v e l o p e d c o u n t r i e s w h i c h induce t h e i r governments t o seek t h e  employment of l a b o u r and t h i s i n a d v e r t e n t l y causes the p r o d u c t i v e  c a p a c i t y of the economy t o grow.  I n underdeveloped c o u n t r i e s , a l s o , i t  t h e s o c i a l and p o l i t i c a l f o r c e s t h a t compel t h e i r governments t o  is  desper-  a t e l y seek h i g h e r s t a n d a r d s of l i v i n g and t h u s i n i t i a t e a c t i o n l e a d i n g t o growth i n one way o r the o t h e r .  U n l e s s a l a r g e number of c o n d i t i o n s are  f u l f i l l e d simultaneously, i t i s evident t h a t only the lucky c o u n t r i e s can achieve growth.  T h i s may p r o b a b l y e x p l a i n why c o n s c i o u s attempts  development are o f t e n f r u s t r a t i n g .  at  30  CHAPTER  TWO  THEORIES OF DEVELOPMENT  CLASSICAL THEORIES  F o r t h i s t h e s i s development has been d e f i n e d as a " s u s t a i n e d increase i n per c a p i t a output".  T h i s can a l s o be e x p r e s s e d as s u s t a i n e d  i n c r e a s e i n p r o d u c t i v i t y of l a b o u r because p e r c a p i t a output and average p r o d u c t i v i t y o f ( a l l k i n d s o f ) l a b o u r a r e a l m o s t t h e same t h i n g .  The  t h e o r i e s of development d e a l w i t h t h i s i n c r e a s e i n p r o d u c t i v i t y of l a b o u r i n t h e aggregate b u t n o t w i t h any i n c r e a s e i n any p a r t i c u l a r e n t e r p r i s e . Economic p r o d u c t i v i t y o f an e n t e r p r i s e may i n c r e a s e s i m p l y due t o i n c r e a s e i n p r o f i t s b u t t h i s does n o t n e c e s s a r i l y i n c r e a s e t h e aggregate income ( u n l ess i t i s assumed t h a t e v e r y t h i n g e l s e remains t h e same) and, t h e r e f o r e , p r o d u c t i v i t y - i n c r e a s e s a t micro-economic l e v e l b y t h e m s e l v e s , do n o t  31  c o n s t i t u t e the t h e o r i e s of development.  The  increased p h y s i c a l product-  i v i t y a t the e n t e r p r i s e l e v e l has much i n f l u e n c e on the p r o c e s s  of  develop-  ment but i t i s o n l y t h e i n c r e a s e d p r o d u c t i v i t y a t the aggregate l e v e l  that  i s the s u b j e c t of t h e s e t h e o r i e s . The  c l a s s i c a l t h e o r i e s o f development t h a t are d i s c u s s e d h e r e are  t h o s e of Adam S m i t h (1723-1790), Thomas R o b e r t M a l t h u s (1776-1834), D a v i d R i c a r d o (1772-1823) and K a r l Marx (1818-1883). Adam S m i t h r e c o g n i z e d t h e e x i s t e n c e of t h r e e f a c t o r s of l a b o u r , c a p i t a l and l a n d (Adelman 1964).  production:  I n m a t h e m a t i c a l terms he  said  that: Y = f(K,L,N)  (1)  where Y i s the o u t p u t , K i s t h e amount o f the s e r v i c e s o f the economy's c a p i t a l s t o c k employed, L i s t h e amount of l a b o u r employed and N i s the r a t e of use of l a n d o r n a t u r a l r e s o u r c e s .  Labour was  c o n s i d e r e d t o be  the  s o l e s t a n d a r d of v a l u e . He  d i d n o t p o s t u l a t e any d i m i n i s h i n g m a r g i n a l  t h a t t h e p r o d u c t i o n f u n c t i o n was  r e t u r n s but s a i d  s u b j e c t t o i n c r e a s i n g r e t u r n s to s c a l e  as a r e s u l t of i n t e r n a l and e x t e r n a l economies a r i s i n g f r o m i n c r e a s e s i n market s i z e . ing  Economies of s c a l e were r e a l i z e d i n p r o d u c t i o n and i n m a r k e t -  owing to a g r e a t e r degree of d i v i s i o n of l a b o u r and t o g e n e r a l  ments i n machinery.  Once s e t i n m o t i o n t h i s development p r o c e s s  c r e a s e i n output would t h u s appear t o be s e l f r e - i n f o r c i n g . caused the market t o i n c r e a s e i n s i z e ? i v i t y due  The  answer was  of i n -  B u t what  greater  to d i v i s i o n of l a b o u r , w h i c h i n t u r n o c c u r r e d due  improve-  product-  t o an  increase  i n the s i z e of the m a r k e t . Amount of c a p i t a l i n e x i s t e n c e and the i n s t i t u t i o n a l  restrictions  32  t h a t a r e p l a c e d upon t r a d e were t h e f a c t o r s t h a t o f f e r e d a way of b r e a k i n g i n t o t h e i n t e r d e p e n d e n c e of market s i z e and g r e a t e r p r o d u c t i v i t y .  I n Adam  S m i t h ' s o p i n i o n the fundamental d e t e r m i n a n t of growth was t h e r a t e of c a p i t a l f o r m a t i o n , and t h e r a t e of p r o g r e s s of the economy was p r o p o r t i o n a l t o i t s r a t e of i n v e s t m e n t ,  However, the r a t e of c a p i t a l f o r m a t i o n depended  c r u c i a l l y upon t h e r e l a t i o n s h i p between the market r a t e of n e t p r o f i t s and t h e minimum c o n s i s t e n t w i t h compensation f o r r i s k b e a r i n g ( r ) t h e s e depended on t h e i n s t i t u t i o n a l o r g a n i s a t i o n .  0  (r)  B o t h of  Freedom of i n t e r n a t i o n a l  t r a d e , r e g u l a t i o n of c o m p e t i t i o n , s e c u r i t y of l i f e and p r o p e r t y , and p o l i t i c a l i n s t i t u t i o n s a l l p l a y e d a r o l e i n e s t a b l i s h i n g the r e l a t i o n s h i p between r and r . the d i f f e r e n c e  I f t h e l e g a l and p o l i t i c a l systems were f a v o u r a b l e  between r and r c o u l d be m a i n t a i n e d o r even i n c r e a s e d .  c o u l d c o n t r i b u t e s i g n i f i c a n t l y toward i n c r e a s i n g t h e f l o w of An unfavourable all  system would c l o s e t h e gap between t h e r ' s  c a p i t a l formation,,  favourable ference  then This  investment,.  and choke  off  Adam S m i t h c o n s i d e r e d f r e e t r a d e as one of t h e most  i n s t i t u t i o n s for progress.  i n economic a f f a i r s as v e r y  He a l s o c o n s i d e r e d government  inter-  unfavourable.  The major c o n t r i b u t i o n of M a l t h u s to economics i s t h e b r i n g i n g of the problems of p o p u l a t i o n growth i n t o economic q u e s t i o n s ,  He saw i n t h e  p r o c e s s of c a p i t a l a c c u m u l a t i o n n o t t h e key t o a t h e o r y of growth b u t t h e p r o o f t h a t the development then on r e c o r d was a f l e e t i n g Increase  phenomenon.  i n c a p i t a l s t o c k would p e r m i t t h e c a p i t a l i s t s to take advantage  of improved t e c h n i q u e s and would a l s o r a i s e the wages f u n d .  This would  mean a h i g h e r wage r a t e o n l y i f t h e number of w o r k e r s d i d not r i s e i n proportion.  A h i g h e r s t a n d a r d of l i v i n g O f l a b o u r w o u l d cause an i n c r e a s e  i n p o p u l a t i o n t h a t w o u l d i n c r e a s e the l a b o u r f o r c e and so reduce the wage  33 rate again.  P o p u l a t i o n c o u l d n o t r i s e w i t h o u t a p r o p o r t i o n a t e o r nearly-  p r o p o r t i o n a t e i n c r e a s e of w e a l t h ( H i g g i n s 1 9 5 9 ) , but a n a t u r a l toward p o p u l a t i o n growth was n o t seen by M a l t h u s as a guarantee  tendency that  either  p o p u l a t i o n o r income w o u l d ! g r o w . He showed more a p p r e c i a t i o n t h a n most of h i s c o n t e m p o r a r i e s of importance of a d i s t i n c t and s y s t e m a t i c t h a t mt^re i n c r e a s e s  t h e o r y of g r o w t h .  the  He r e c o g n i z e d  i n numbers do n o t p r o v i d e a s t i m u l u s t o economic  e x p a n s i o n , and t h a t p o p u l a t i o n growth encouraged development o n l y i f b r o u g h t an i n c r e a s e i n demand.  it  He f l a t l y r e p u d i a t e d " S a y ' s law" and d i d  n o t b e l i e v e t h a t s a v i n g s were demand f o r c a p i t a l goods.  S a v i n g s f o r him  meant non-consumption and so r e d u c t i o n i n demand. He a l s o b e l i e v e d t h a t a b s t i n e n c e on t h e p a r t of c a p i t a l i s t s , from a c c e l e r a t i n g economic g r o w t h , w o u l d , i n i t s e l f ,  retard i t .  far  He r e -  c o g n i z e d t h e need f o r s a v i n g and investment f o r economic growth b u t suggested a c o n c e p t of "optimum p r o p e n s i t y to s a v e " .  Up t o a c e r t a i n p o i n t  s a v i n g was needed t o f i n a n c e ( w i t h o u t i n f l a t i o n ) t h e i n v e s t m e n t f o r w h i c h profitable opportunities existed.  Beyond t h a t p o i n t s a v i n g w o u l d reduce  consumer spending t o such an e x t e n t t h a t i n v e s t m e n t too would be d i s couraged. One of t h e most i m p o r t a n t a n t i c i p a t i o n s of M a l t h u s was the of " d u a l i s m " as a p p l i e d t o u n d e r d e v e l o p e d c o u n t r i e s ( H i g g i n s 1 9 5 9 ) . e n v i s a g e d t h e economy as c o n s i s t i n g of two major s e c t o r s : one a g r i c u l t u r a l .  one  theory He  industrial,  T e c h n o l o g i c a l p r o g r e s s was r e g a r d e d as a phenomenon  c o n f i n e d t o t h e i n d u s t r i a l s e c t o r — a t l e a s t i n t h e advanced c o u n t r i e s . T h i s s e c t o r showed i n c r e a s i n g r e t u r n s , and t h e a g r i c u l t u r a l s e c t o r had d i m i n i s h i n g r e t u r n s , as i t s p r i m a r y c h a r a c t e r i s t i c .  This picture w a s a  34  good a p p r o x i m a t i o n t o r e a l i t y i n N i n e t e e n t h c e n t u r y E n g l a n d , The M a l t h u s i a n p i c t u r e of economic development seems t o have been one i n w h i c h c a p i t a l was i n v e s t e d i n a g r i c u l t u r e u n t i l a l l the a r a b l e l a n d was b r o u g h t i n t o c u l t i v a t i o n , s t o c k e d and i m p r o v e d .  A f t e r t h a t t h e r e were  no more o p p o r t u n i t i e s f o r p r o f i t a b l e i n v e s t m e n t i n t h a t s e c t o r , ment o p p o r t u n i t i e s e x i s t e d o n l y i n the i n d u s t r i a l s e c t o r .  and i n v e s t -  Diminishing  r e t u r n s t o i n c r e a s e d employment on t h e l a n d c o u l d be a v o i d e d o n l y i f technological progress  i n t h e i n d u s t r i a l s e c t o r was r a p i d enough, and i f  enough i n v e s t m e n t t o o k p l a c e ,  t o absorb most of the p o p u l a t i o n growth i n  the i n d u s t r i a l s e c t o r and t o reduce t h e c o s t of l i v i n g o f w o r k e r s on t h e l a n d , p e r m i t t i n g r e d u c t i o n s i n t h e i r c o r n (goods) wage r a t e s . Because of no o p p o r t u n i t i e s f o r investment i n t h e a g r i c u l t u r a l sector,  and i n c r e a s e i n p o p u l a t i o n due t o a h i g h e r wage l e v e l , the  would move towards t h e s t a t i o n a r y s t a t e ( s t a g n a t i o n ) .  He proposed  economy late  m a r r i a g e and a b s t i n e n c e as means to check p o p u l a t i o n g r o w t h . The o t h e r g r e a t c l a s s i c a l e c o n o m i s t , D a v i d R i c a r d o , p o s t u l a t e d a p r o d u c t i o n f u n c t i o n l i k e t h a t of Adam S m i t h where output depended on l a n d , l a b o u r and c a p i t a l .  B u t u n l i k e S m i t h he s u b j e c t e d i t t o d i m i n i s h i n g  marginal p r o d u c t i v i t y .  The m a r g i n a l p r o d u c t i v i t y of a l l t h r e e f a c t o r s  assumed t o d e c l i n e as a g r e a t e r p r o p o r t i o n of each was employed. same time t e c h n o l o g i c a l p r o g r e s s  was  A t the  s h i f t e d the p r o d u c t i o n f u n c t i o n upwards,  a c c o r d i n g t o h i m , and thus the r a p i d i t y of t h e d e c l i n e of m a r g i n a l p r o d u c t i v i t y was c o u n t e r b a l a n c e d by improvements i n t e c h n o l o g y .  The t e c h -  n o l o g i c a l p r o g r e s i n m a n u f a c t u r i n g was b e l i e v e d by h i m t o be so r a p i d t h a t h i s t o r i c a l l y t h i s s e c t o r w o u l d be seen to be d i s p l a y i n g i n c r e a s i n g r e t u r n s . I n the a g r i c u l t u r a l s e c t o r , however, t e c h n o l o g i c a l changes were assumed t o  35  be i n s u f f i c i e n t  to a f f e c t t h e tendency f o r d i m i n i s h i n g r e t u r n s and w o u l d  o n l y t e m p o r a r i l y check c o s t s o f p r o d u c t i o n . c o r r e c t f o r t h e developed relevant  countries  These assumptions may n o t be  of t o d a y b u t t h e y c e r t a i n l y seem t o be  f o r c o u n t r i e s l i k e I n d i a where a g r i c u l t u r a l t e c h n i q u e s  remained s t a g n a n t (Adelman As t e c h n o l o g i c a l  have l o n g  1964). progress determines  r e t u r n s b e g i n , the p r o d u c t i o n f u n c t i o n i s i n  the p o i n t where d i m i n i s h i n g effect: o.o  Y = f (K,L,N,S) where S denotes l e v e l of t e c h n o l o g y  employed by the  (2)  economy.  R i c a r d o d e f i n e d p r o f i t as the r e t u r n to c a p i t a l and l a b o u r above the s u b s i s t e n c e  wage a t the m a r g i n .  a higher subsistence  wage would mean a l o w e r p r o f i t .  of p r o f i t would be to f a l l additional quantities  of f o o d .  tendency  procure  P e r i o d i c a l l y , t h i s tendency would be  p r o g r e s s and so p r o f i t s would i n c r e a s e  c a p i t a l a c c u m u l a t i o n would become f a s t e r .  believed technological  Hence, t h e  as more and more l a b o u r i s used t o  checked due t o t e c h n o l o g i c a l therefore  A t the margin t h e r e i s no r e n t and so  progress i t s e l f  and so t h e l o n g - r u n t r e n d of p r o f i t s as  He  and  erroneously  as s u b j e c t t o d i m i n i s h i n g r e t u r n s downwards.  A t f i r s t , the r a t e a t w h i c h p r o f i t s would f a l l due t o d i m i n i s h i n g r e t u r n s would be s u f f i c i e n t l y output to i n c r e a s e .  slow to p e r m i t the share of p r o f i t s i n t o t a l  A t the b e g i n n i n g s t a g e s of g r o w t h , as a r e s u l t ,  c a p i t a l a c c u m u l a t i o n would proceed a t an a c c e l e r a t e d  pace.  The downward  p r e s s u r e upon c a p i t a l a c c u m u l a t i o n e x e r t e d by the f a l l i n g r a t e of  profits  would be outweighed by the upward p u l l of a l a r g e r n e t s u r p l u s above subsistence.  However,  as s o c i e t y  output would b e g i n to d r o p  0  expanded,  the share of p r o f i t s i n t o t a l  The r a t e of c a p i t a l a c c u m u l a t i o n would slow  36  down,  U l t i m a t e l y ^ as the p r e s s u r e of an i n c r e a s i n g l y l a r g e r p o p u l a t i o n  r e q u i r e d the c u l t i v a t i o n of p o o r e r and p o o r e r l a n d , the p o r t i o n of t h e p r o d u c t a t the m a r g i n swallowed up by the s u b s i s t e n c e wage would become g r e a t t h a t p r o f i t s would approach r  e  When t h i s happened c a p i t a l a c c u m u l a -  t i o n would s t o p , p o p u l a t i o n would r e m a i n c o n s t a n t , enter the s t a t i o n a r y s t a t e .  so  and the economy would  Normal p r o g r e s s of t h i s economy toward t h e  s t a t i o n a r y s t a t e would be p u n c t u a t e d by p e r i o d s of temporary e q u i l i b r i u m , d u r i n g w h i c h wages would be a t the s u b s i s t e n c e stationary.  l e v e l and s i z e of p o p u l a t i o n  S i n c e , d u r i n g , t h e s e p e r i o d s the r a t e of r e t u r n on i n v e s t m e n t  would be above r , t h e s e temporary e q u i l i b r i a c o u l d n o t p e r s i s t * The r o l e o f K a r l Marx^s t h o u g h t s i n modern a t t a c k s on the problem of economic development i s v e r y d i f f e r e n t from t h a t of o t h e r  classicists.  Even though he was t h e o n l y c l a s s i c a l economist who made development  as  t h e c e n t r a l theme i n h i s g e n e r a l scheme of thought (Schumpeter 1 9 5 4 ) ,  so  f a r as pure economics i s c o n c e r n e d , h i s system i s l e s s d i r e c t l y a p p l i c a b l e to problems of u n d e r d e v e l o p e d c o u n t r i e s than t h a t of M a l t h u s .  He d i d n o t  t h i n k of underdevelopment as an e n d u r i n g c o n d i t i o n , b u t as a p r e - c a p i t a l i s t one.  The underdeveloped c o u n t r i e s w o u l d , u n f o r t u n a t e l y , have to go t h r o u g h  the c a p i t a l i s t phase b e f o r e t h e y reached the b l i s s of communism ( H i g g i n s 1959).  He d i d n o t d i s c u s s p o p u l a t i o n p r e s s u r e and so h i s i d e a s can not be  a p p l i e d e a s i l y to t o d a y ' s underdeveloped  countries.  The M a r x i s t s o c i o l o g i c a l and p o l i t i c a l t h e o r y does p r o v i d e some c l u e s t o t h e economic h i s t o r y of u n d e r d e v e l o p e d c o u n t r i e s .  It  focusses  a t t e n t i o n on power r e l a t i o n s h i p between c l a s s e s and compels one to whether t h e e x i s t i n g r e l a t i o n s are a b a r r i e r t o g r o w t h , of W e s t e r n Europe about w h i c h Marx w r o t e ,  I n the  such r e l a t i o n s h i p s a r e  see  countries  37  i r r e l e v a n t t o d a y , b u t may s t i l l be i m p o r t a n t i n some u n d e r d e v e l o p e d countries.  M a r x ' s t h e o r y s u g g e s t s t h a t causes of underdevelopment may be  i n the economic c o n d i t i o n s of t h e c o l o n i a l i s t c o u n t r y r a t h e r t h a n i n t h o s e of t h e c o l o n i z e d .  C o n d i t i o n s i n many of t h e u n d e r d e v e l o p e d c o u n t r i e s  a r e not v e r y d i f f e r e n t advanced ones:  from t h o s e p r e d i c t e d by Marx f o r the  presently  e x p l o i t a t i o n of l a b o u r , wages c l o s e t o s u b s i s t e n c e ,  armies o f unemployed, sharp c l a s s  today  large  s t r u c t u r e and a v e r y s m a l l o r n o n - e x i s t e n t  m i d d l e c l a s s and sometimes even i n c r e a s i n g m i s e r y .  Under such c i r c u m -  s t a n c e s r e v o l u t i o n of one s o r t o r t h e o t h e r s h o u l d n o t be a s u r p r i s e . The g r e a t e s t c o n t r i b u t i o n of Marx t o development of  underdeveloped  c o u n t r i e s i s i n the f a c t t h a t n a t i o n s l i k e the S o v i e t Union e x i s t F o r p o l i t i c a l r e a s o n s communist n a t i o n s have e i t h e r themselves i n development of backward economies o r have, "Western c o u n t r i e s i n t o d o i n g s o .  today.  t a k e n a hand  i n a d v e r t e n t l y , pushed the  I t i s d o u b t f u l i f the w o r l d would be as  s e r i o u s l y concerned w i t h t h e problem of underdevelopment as i t i s today i f t h e r e were no communist b l o c k i n i t .  NEO-CLASSICAL THEORIES  The t h e o r i e s of economists of the l a s t q u a r t e r of the N i n e t e e n t h and the b e g i n n i n g of the T w e n t i e t h c e n t u r y a r e i n c l u d e d under t h i s h e a d i n g . The n e o - c l a s s i c a l e c o n o m i s t s , most i m p o r t a n t among whom were A l f r e d M a r s h a l l (1842-1924),  Leon W a l r a s (1834-1910), W. S t a n l e y Jevons  (1835-1882),  C a r l Menger ( 1 8 4 0 - 1 9 2 1 ) , and K n u t W i c k s e l l (1851-1926) d i d n o t pay much a t t e n t i o n t o t h e t h e o r y u n d e r l y i n g c o n s i d e r a t i o n s of economic  development.  T h e i r i n t e r e s t was more i n the t h e o r y of t h e i n d i v i d u a l o r o f the f i r m than.  38  i n development.  T h e i r major c o n t r i b u t i o n t o the u n d e r s t a n d i n g o f economic  development was i n the m a r g i n a l a n a l y s i s and the t h e o r y of g e n e r a l brium,,  equili-  Though t h e i r v i e w p o i n t s have more of an i n d i r e c t t h a n a d i r e c t  i n f l u e n c e on modern t h e o r i e s of economic development, n e v e r t h e l e s s influence i s  the  great.  The n e o - c l a s s i c a l system can be s t u d i e d by f i r s t l o o k i n g a t a ., s t a t i c system of W a l r a s i a n t y p e (Watson 1963). there are n e i t h e r savings nor investments. always u s e d r e g a r d l e s s  of t h e p r i c e l e v e l s .  I n t h i s c o m p e t i t i v e system  A l l the l a n d and c a p i t a l i s The amounts of l a b o u r o f f e r e d  by households and the amounts of o t h e r goods and s e r v i c e s bought by them depend on r e l a t i v e p r i c e s of v a r i o u s consumer goods, and l a b o u r .  c a p i t a l goods, l a n d  The demand f o r consumer goods depends on p r i c e s o f o t h e r goods  and p r o d u c t i v e f a c t o r s .  The s u p p l y of f a c t o r s depends on the p r i c e s of  consumption goods and p r o d u c t i o n f a c t o r s .  Amounts of each f a c t o r used per  u n i t of output of a commodity depend on r e l a t i v e p r i c e s .  The p r i c e of  each  consumers' good equals i t s c o s t w h i c h i s e q u a l to t h e sum of the v a l u e s of the p r o d u c t i v e s e r v i c e s r e q u i r e d to produce i t .  I n t h i s system no economic  development of any s o r t o c c u r r e d even a f t e r W i c k s e l l r e p l a c e d W a l r a s "technical co-efficients"  1  fixe  by p r o d u c t i v i t y f u n c t i o n s .  The i m p l i e d t h e o r y of economic development of the  neo-classicists  can be seen i f c a p i t a l f o r m a t i o n i s i n t r o d u c e d i n t o t h i s m o d e l .  If  each  t y p e of c a p i t a l good can be produced i n the economy i n a d d i t i o n t o consumers goods t h e n the f a c t o r s of p r o d u c t i o n w i l l be d i s t r i b u t e d amongst c a p i t a l goods and consumer goods a c c o r d i n g t o t h e i r r e l a t i v e p r i c e s , and p r i c e s of production factors. its  cost.  A l s o , the p r i c e o f each c a p i t a l good must be equal to  A n i n t e r e s t r a t e a l s o d e v e l o p s because t h e  neo-classicists  p o s t u l a t e d t h a t consumers choose between consumer goods and i s not spent on consumption goods i s spent i n one way capital  savings.  or the o t h e r  What  on  goods. I n t h i s t h e o r y , c a p i t a l goods, l i k e any o t h e r goods, must be  produced i n such q u a n t i t y t h a t t h e i r p r i c e s are equal t o t h e i r costs.  And,  production  as c a p i t a l goods are f a c t o r s of p r o d u c t i o n , t h e i r demand  curves must i n t e r s e c t the s u p p l y curves a t p r e c i s e l y these p r i c e s .  With a  g i v e n amount of l a b o u r and no t e c h n i c a l i n n o v a t i o n , the demand f o r c a p i t a l w i l l d e c l i n e as accumulation interest rates w i l l thus s t a g n a t i o n . accumulation,  fall.  goes on and  The  so savings w i l l be d i s c o u r a g e d  system w i l l  g r a d u a l l y move to no  As a matter of f a c t , the n o t i o n s of p r o f i t ,  as  savings  and  capital  and development f i t i n t o the n e o - c l a s s i c a l model o n l y as  consequences of a s h i f t away from the p o s i t i o n of e q u i l i b r i u m or s t a g n a t i o n . I n t h i s p o s i t i o n , the remuneration a p p l i c a t i o n s and corresponds the p r o f i t o r remuneration average,  of c a p i t a l has  to be the same i n a l l i t s  t o the r a t e of i n t e r e s t .  To the e x t e n t t h a t  to c a p i t a l i s i n a p a r t i c u l a r s e c t o r h i g h e r  i t i s to be deduced t h a t optimum d i s t r i b u t i o n of p r o d u c t i v e r e -  sources has not been a c h i e v e d , f o r i t i s p o s s i b l e to i n c r e a s e the i v i t y of a f a c t o r by net investment,  s h i f t i n g i t to another  sector.  As  product-  accumulation, i . e . ,  takes p l a c e o n l y when p r o f i t i s a n t i c i p a t e d , F u r t a d o  c l a i m e d t h a t i n the n e o - c l a s s i c a l t h e o r y , optimum u t i l i z a t i o n of was  than  i n c o m p a t i b l e w i t h an economy i n a s t a t e of growth.  (1964)  resources  Hence, a l t h o u g h i n  the c l a s s i c a l model s t a g n a t i o n r e p r e s e n t e d a l i m i t towards which an economy i n development tended,  i n the model of the n e o - c l a s s i c a l  a "must" f o r the optimal be j u s t i f i e d  o p e r a t i o n of the economy.  i f i t i s admitted  economists,  Furtado s 1  i t was  c l a i m can  t h a t t e c h n o l o g i c a l p r o g r e s s c o u l d be  not  taking  40 place i n a l l sectors i n such a way t h a t p r o f i t s increase equally i n them* In t h i s theory growth occurs because of geographic t e c h n i c a l innovation and continuous investment.  expansion,  In the small world of the  n e o - c l a s s i c i s t s , which comprised Great B r i t a i n , Western Europe and North America, there was l i t t l e evidence t h a t they were wrong,  Long-term-  e q u i l i b r i u m underdevelopment was considered impossible by them. W i c k s e l l probably contributed more to the modern thoughts economic development than h i s contemporaries.  on  He not only paved the way  f o r dynamic theory and mathematical economics and developed the theory of d i s t r i b u t i o n and marginal p r o d u c t i v i t y ; but a l s o made such c o n t r i b u t i o n s to c a p i t a l theory as the W i c k s e l l E f f e c t which Robinson (1956) considered as the key to the whole theory of c a p i t a l accumulation.  The W i c k s e l l  E f f e c t may not r e a l l y be the "key" to c a p i t a l accumulation (Blaug  1962)  but the c o n t r i b u t i o n s of Knut W i c k s e l l to the methodology of modern theories of development are. considerable. He does not seem to have r e ceived due r e c o g n i t i o n i n t h i s f i e l d .  MODERN THEORIES  Economists seem to have l o s t i n t e r e s t i n development theory from the time of Marx u n t i l the Nineteen T h i r t i e s when the problems of the grea^ depression l e d many of them t o the s u b j e c t s The sole exception, i n t h i s period of neglect f o r h a l f a century, was Joseph A. Schumpeter (1883-1950) who as e a r l y as 1912 published h i s "Theofie der w i r t s c h a f t l i c h e n Entwicklung" ( H a b e r l e r 1964) and suggested that economic development rested on t e c h n o l o g i c a l innovations,, The most complete statement of h i s a n a l y s i s of c a p i t a l i s t development came i n h i s "Business Cycles"  41  (Schumpeter 1964), (Duesenberry  Though h i s system was i n the n e o - c l a s s i c a l t r a d i t i o n  1950) i t has three important d i f f e r e n c e s :  1,  H i s theory of saving.  2,  H i s theory of i n t e r e s t rate.  3,  H i s idea of the process of c a p i t a l formation, Voluntary savings according to Schumpeter are made only by entre-  preneurs.  Saving i s done out of t h e i r p r o f i t s to repay bank c r e d i t .  He  defined savings not as the d i f f e r e n c e between income and consumption but as that part of the d i f f e r e n c e which i s intended as a permanent a d d i t i o n to assets.  Thus, r e s i d e n t i a l housing, educational investments and accumula-  t i o n f o r f u t u r e purchases or retirement are not savings i n h i s sense. He s a i d that a l l investment i s financed out of bank loans and so i n t e r e s t r a t e i s what the banking system makes i t .  There i s no need f o r  the r a t e to be such that i t w i l l equate savings and investment.  He also  postulated that investments are not made i n response to favourable conditions but as a r e s u l t of the v i s i o n and imagination of an innovator or entrepreneur. An economy always has the tendency to s e t t l e down to an e q u i l i brium but i s moved away from i t by innovations which appear a l l of a sudden. Innovations f i r s t cause an increase i n p r o s p e r i t y then a r e c e s s i o n , succeeded by the appearance of a new e q u i l i b r i u m .  H i s viewpoint has been  described as o p t i m i s t i c by G i t t i n g e r (1955) and p e s s i m i s t i c by Higgins (1959) but he himself denied that i t was " d e a f e a t i s t " .  I n any case he had  a large element of tautology i n h i s theory of economic growth.  Economic  growth, according to him, occurred when the s o c i a l climate was  conducive  to the appearance of a s u f f i c i e n t flow of innovators, but the only r e a l  42 way to test whether the social climate was appropriate was to see whether the innovators were i n fact appearing; that is,, whether there was economic growth.  If vigorous economic growth appeared, the social climate was  appropriate; when there was no vigorous economic growth, the social climate was by definition inimical to i t . Even though the theory may be non-testable, i t certainly has some relevance to the problems of underdeveloped areas,  The lack of adequate  entrepreneurship i s one of the most frequently cited obstacles to "takeoff"  in such countries.. Also the social climate, e.g., the attitude to-  wards businessmen i n some places, may be inimical to the growth of entrepreneurship. Modern interest i n economic development was revived i n 1936 with Keynes (1964).  He was, however, concerned mainly with the problems of  unemployment caused due to lack of enough demand i n an economy where productive capacity was not in doubt. His theory does not have direct application to the problems of underdeveloped countries, but provides new analytical tools and intellectual stimulation that are of great importance to underdeveloped areas. Keynes' proposal differs from the classical view that savings and investment are brought to equality by changes i n the rate of interest.  He  suggested that the two are brought to equality by changes i n national income. He also pointed out that new investment i n capital assets is more or less autonomous and unstable. rises, or f a l l when income f a l l s .  It need not necessarily rise when income He also viewed savings as a function of  national income rather than of the rate of interest.  If savings exceed  investment the income would f a l l and i f investment was greater than savings  43  income would r i s e t i l l  the two  are e q u a l .  The mechanism of d e t e r m i n i n g the r a t e of i n t e r e s t , which  determines  the l e v e l of investment i s the main c o n t r i b u t i o n of Keynes to the f o r m a l theory o f economic development ( G i t t i n g e r 1955).  He  suggested  that  l i q u i d i t y p r e f e r e n c e p r e v e n t s the i n t e r e s t r a t e from f a l l i n g beyond a c e r t a i n p o i n t (about 2 p e r c e n t ) and can be  the cause o f an  amount of investment to m a i n t a i n a g i v e n l e v e l have to f a l l u n t i l  o f income.  a low l e v e l of employment and output was  insufficient Income would reached which  would r e s u l t i n a l e v e l of income a t w h i c h the e q u a t i o n between investment and what people wished to save was was  achieved.  thus shown t o be p o s s i b l e ; the economists  An unemployment  equilibrium  of e a r l i e r days d i d not  admit  t h i s. Many of the concepts of K e y n e s i a n a n a l y s i s are not a p p l i c a b l e to underdeveloped tertiary  economies.  Rao  (1963) p o i n t e d out t h a t the  secondary,  and o t h e r i n c r e a s e s of income, o u t p u t , and employment as a r e s u l t  of investment do not operate d e s p i t e the h i g h m a r g i n a l p r o p e n s i t y t o consume.  A l s o , because  producers cannot  of t h e r i g i d i t i e s of economic o r g a n i z a t i o n ,  primary  i n c r e a s e t h e i r output i n p r o p o r t i o n t o t h e i r income.  This  i s suggested to mean t h a t i n e f f e c t the income m u l t i p l i e r i s h i g h e r than i n r e a l terms,,  A n o t h e r argument of Rao  i s t h a t a large, p r o p o r t i o n of any  i n c r e a s e i n income w i l l be d i r e c t e d toward marketable prices.  f o o d and w i l l reduce  the  s u r p l u s of f o o d g r a i n s w i t h s e r i o u s e f f e c t s on n o n - a g r i c u l t u r a l  Thus the f o r c e s o p e r a t i n g i n underdeveloped  n e i t h e r t o h i g h e r income n o r to h i g h e r employment. economic development as t a k i n g p l a c e on two l e v e l s :  c o u n t r i e s tend to l e a d Rao  c o n c e i v e d of  development w i t h i n a  g i v e n s t r u c t u r e and development by moving from a lower to a h i g h e r stage of  44  economic development.  The K e y n e s i a n a n a l y s i s i s h e l d t o be v a l i d o n l y f o r  the development w i t h i n a g i v e n s t r u c t u r e , w h i l e the aim of  underdeveloped  n a t i o n s i s t o move from one s t r u c t u r e t o a h i g h e r one. S i n g h (1954) a l s o p o i n t e d out t h a t t h e K e y n e s i a n a n a l y s i s i s a s p e c i a l case not a p p l i c a b l e t o the a c t u a l economic c o n d i t i o n s which e x i s t i n underdeveloped a r e a s .  He suggested t h a t i n d u s t r i a l i z a t i o n was  essen-  t i a l l y a m a t t e r o f economic o r g a n i z a t i o n and not c e n t e r e d around the K e y n e s i a n " s p i r a l of s a v i n g and i n v e s t m e n t " .  I t seems t h a t what S i n g h was  concerned w i t h i s the means of e n c o u r a g i n g economic development by u t i l i z i n g underemployed  resources.  A t t h i s p o i n t i t may be h e l p f u l t o r e f e r t o t h e d i s t i n c t i o n b e tween t h e " g r o w t h t h e o r i e s " after Keynes.  and "development t h e o r i e s " t h a t have appeared  The " g r o w t h t h e o r i e s " d e a l w i t h the way economies  actually  grow over t i m e and have n o t h i n g to do w i t h underdeveloped c o u n t r i e s i n particular.  The "development t h e o r i e s "  on t h e o t h e r hand t r y t o e x p l a i n  how the backward c o u n t r i e s of contemporary w o r l d can be moved f r o m t h e i r low income l e v e l s t o h i g h e r l e v e l s  of p r o s p e r i t y .  I n s p i t e of t h e  differ-  ence seeming t o be f a i r l y o b v i o u s , b o t h may i n f a c t be i n v e s t i g a t i n g the same p r o b l e m .  E n g l a n d ' s growth from the p r e - I n d u s t r i a l - R e v o l u t i o n e r a t o  t h e p r e s e n t day i s a s u b j e c t what "development  of " g r o w t h economics" b u t i s a l s o  exactly  economists" would l i k e to u n d e r s t a n d and want to  happen t o t h e u n d e r d e v e l o p e d c o u n t r i e s .  see  I f growth economists can e x p l a i n  how u n d e r d e v e l o p e d E n g l a n d t r a n s f o r m e d i t s e l f i n t o a developed n a t i o n , t h e n t h e development economist might be a b l e t o suggest a way of d o i n g the same t o t h e l e s s d e v e l o p e d economies o f t o d a y .  One main d i f f e r e n c e between  the  two s i t u a t i o n s i s t h a t E n g l a n d was not i n such a g r e a t h u r r y as the u n d e r -  45 developed countries are today. This i s because England did not have, at that time, any society in sight which was very much better off than herself. Today poor countries know that there exist nations, where not just a few 1  but a very large majority of the people are living a far better material l i f e than their own.  As a result they no longer accept poverty as an  inevitable way of l i f e (Black, E„R. 1963, Hoffman 1966). But for this difference which lends urgency to the problems of underdeveloped countries, the two kinds of studies may actually be investigating the same problem. It may be that to a large extent i t i s because of this urgency or lack of patience that disciplines other than economics have also to be drawn on for formulating policies of development. Recognizing that "growth" and "development" may not be so very different as i s sometimes implied the post-4£eynesian work in the f i e l d i s reviewed below under separate subheadings. Growth; The post-Keynesian theories of economic growth have been very neatly surveyed by Hahn and Matthews (1964)  0  Their central concern has  been with the theoretical models of economic growth. Problems of optimum saving and the development of backward countries have not been considered by them. The survey takes the Harrod-Domar model (Harrod 1939, 1952; Domar 1947, 1957) , which w i l l be briefly outlined here, as the starting point. The approach of this model differs from that of the classicists. The classical theories treated economic development as a race between technological progress and capital accumulation on the one hand, and  46  d i m i n i s h i n g r e t u r n s t o a growing p o p u l a t i o n a p p l i e d to a f i x e d s u p p l y of l a n d on t h e o t h e r .  P o p u l a t i o n growth was a dependent v a r i a b l e , m u t u a l l y  d e t e r m i n e d w i t h p r o f i t s , i n v e s t m e n t , income and so f o r t h .  The Harrod-Domar  m o d e l , l i k e M a r x , d i s c a r d e d d i m i n i s h i n g r e t u r n s f r o m l a n d as a " p r i m a r y d e t e r m i n a n t " , and c o n s i d e r e d b o t h the r a t e of p o p u l a t i o n growth and t h e r a t e of t e c h n o l o g i c a l p r o g r e s s as independent v a r i a b l e s i n advanced countries (Higgins 1959),  I n i t , t h e t h r e e "fundamental elements"  manpower, (2) o u t p u t p e r h e a d , (3) q u a n t i t y of c a p i t a l  are  (l)  available.  The major assumptions of the Harrod-Domar model a r e : (1)  A constant p r o p o r t i o n (s) to s a v i n g s ,  i.e.,  of income (Y) i s  devoted  average and m a r g i n a l p r o p e n s i t i e s  t o save a r e e q u a l . (2)  The amounts of c a p i t a l and l a b o u r needed to produce a u n i t of output are b o t h u n i q u e l y g i v e n . a l s o be e x p r e s s e d by s t a t i n g t h a t t h e  T h i s can  capital-labour  ratio is fixed. (3)  The l a b o u r f o r c e grows over time a t a c o n s t a n t r a t e f i x e d by non—economic, demographic  n  n,  forces.  Other assumptions t h a t are commonly made i n t h i s and many o t h e r models  are: (4)  There i s o n l y one good w h i c h can be u s e d e i t h e r  for  consumption o r e l s e as an i n p u t i n p r o d u c t i o n .  Thus  output and c a p i t a l can be measured i n t h e same u n i t s . (5)  Labour i s the o n l y o t h e r i n p u t i n p r o d u c t i o n .  (6)  There a r e c o n s t a n t r e t u r n s t o  (7)  There i s e i t h e r no t e c h n i c a l p r o g r e s s it  scale  i s n e u t r a l i n the H a r r o v i a n s e n s e .  or i f  present  47  (8)  P r i c es are  (9)  There are no l a g s of any k i n d .  (10)  constant.  S a v i n g s and i n v e s t m e n t r e f e r t o the income of the same  ,  period. The r e q u i r e m e n t s f o r s t e a d y - s t a t e  growth i n Y , i . e . ,  changes i n Y  when t h e p r o p o r t i o n a l r a t e of growth of a l l the r e l e v a n t v a r i a b l e s  remains  c o n s t a n t over t i m e (Hahn and Matthews 1 9 6 4 ) , may be l o o k e d a t from the o f two i n p u t s , l a b o u r and c a p i t a l , s e p a r a t e l y .  side  As t h e two i n p u t s are not  on a par due to one ( c a p i t a l ) b e i n g a produced means of p r o d u c t i o n and t h e o t h e r n o t ; the r e q u i r e m e n t s w i l l be  different.  S i n c e l a b o u r r e q u i r e m e n t s p e r u n i t of output a r e g i v e n , i t  will  not be p o s s i b l e f o r Y t o permanently grow a t a c o n s t a n t r a t e g r e a t e r n.  than  I f t h e r e i s t o be s t e a d y growth i n Y we must have g < n , where g i s  r a t e of growth of Y . time.  I f g < n t h e r e w i l l be i n c r e a s i n g unemployment over  I f i n c r e a s i n g unemployment i s i n c o m p a t i b l e w i t h e q u i l i b r i u m ,  necessary  the  c o n d i t i o n f o r s t e a d y growth becomes g = n .  n o l o g y n i s the n a t u r a l r a t e of g r o w t h , i . e . ,  the  In Harrod's termi-  the h i g h e s t r a t e of growth  t h a t i s permanently m a i n t a i n a b l e . As r e g a r d s c a p i t a l , the amount p e o p l e p l a n t o save must equal: the amount they p l a n t o i n v e s t i f e q u i l i b r i u m i s t o be h a d .  A l s o , producers  must a t a l l times have j u s t t h a t amount of c a p i t a l t h e y r e q u i r e f o r c u r r e n o production.  The s t o c k of t h i s c a p i t a l grows a t the r a t e l / K where I  p l a n n e d i n v e s t m e n t , and K i s the c a p i t a l s t o c k . l a b o u r r a t i o and no t e c h n o l o g i c a l p r o g r e s s , i s c o n s t a n t and t h e r e f o r e  is  Due to a f i x e d c a p i t a l -  the c a p i t a l output r a t i o  (v)  the r a t e of growth of output or income must  equal t h e r a t e of growth of c a p i t a l s t o c k i n the steady s t a t e .  The r a t e  48  of growth w h i c h w i l l  ensure t h a t p r o d u c e r s have j u s t the r i g h t amount of  c a p i t a l was c a l l e d the w a r r a n t e d r a t e of growth hy H a r r o d and can he expressed  as  ^  _ I  ~K  =  IY  °  I  K  = s/v I i s t h e ex ante i n v e s t m e n t and i s p r o p o r t i o n a l t o the e x p e c t e d i n output.  increase  When growth a t r a t e g^ i s t a k i n g p l a c e so t h a t g^ = s/v t h e n  i t i s steady s t a t e growth from the p o i n t of v i e w of c a p i t a l , one of the factors  of p r o d u c t i o n . C o n s i d e r i n g b o t h l a b o u r and c a p i t a l , t h e r e f o r e ,  t h a t f o r steady s t a t e as s / v ,  i t i s required  growth the r a t e of growth (g) be equal t o n as w e l l  i e„ 0  s n =— v S i n c e n , s and v are i n d e p e n d e n t l y d e t e r m i n e d , t h i s w i l l p o s s i b l e only i n a s p e c i a l case. (n) and the w a r r a n t e d ( g ) w  I n a more normal s i t u a t i o n the n a t u r a l  r a t e s of growth w i l l d i v e r g e  I f g^ i s  than n then most of the time the a c t u a l r a t e of growth ( w h i c h w i l l s m a l l e r t h a n n) w i l l f a l l will  s h o r t of g^.  be  appear,,  Thi;s  When g^ i s s m a l l e r t h a n n the a c t u a l  r a t e of growth w i l l m o s t l y r e m a i n above g^ and ex p o s t investment continously f a l l  greater  T h i s means t h a t i n v e s t m e n t ex p o s t  r u n ahead of i n v e s t m e n t ex ante and excess c a p a c i t y w i l l  i s t h e case of s e c u l a r s t a g n a t i o n .  be  s h o r t of ex ante i n v e s t m e n t .  T h i s i s the case of  will secular  49  exhilaration (Peterson 1962)  0  I t i s thus seen that i n the Harrod-Domar model  full-employment  steady growth i s possible only by coincidence and i s not at a l l assured. If the p o s s i b i l i t y of steady growth i s to be assured then one or more of n, s and v must be allowed to be adjustable.  Hahn and Matthews (1964) have  l i s t e d the following assumptions which give r i s e to models that assure steady state growth. 1.  These assumptions can be combined i n various ways.  Labour-market Assumptions.  I f the labour market works i n  such a way that f u l l employment i s merely a c e i l i n g , and equilibrium i n the system i s not incompatible with growing unemployment, the equation n = s/v i s replaced by the i n equality n >  s/v  So long as this condition i s s a t i s f i e d , the warranted rate s/v i s a steady state path of a sort. 2.  Labour-supply Assumptions.  The rate of growth of labour  force, n, may be a v a r i a b l e that responds to economic pressures rather than a constant.  The equality of n and  s/v may then he achieved not by the r e s u l t of a happy accident, but by the adjustment of n. 3.  Technology Assumptions.  Instead of there being fixed co-  e f f i c i e n t s i n production, there may  exist a production  function offering a continuum of alternative techniques, each involving d i f f e r i n g capital-labour r a t i o s ; or else there may be not a continuum of alternatives but a f i n i t e  49  e x h i l a r a t i o n (Peterson 1962)  0  I t i s t h u s seen t h a t i n the Harrod-Domar model f u l l - e m p l o y m e n t s t e a d y growth i s p o s s i b l e o n l y by c o i n c i d e n c e and i s n o t a t a l l a s s u r e d . I f the p o s s i b i l i t y o f s t e a d y growth i s t o be a s s u r e d t h e n one or more of n, s and v must be a l l o w e d t o be a d j u s t a b l e .  Hahn and Matthews (1964) have  l i s t e d the f o l l o w i n g assumptions w h i c h g i v e r i s e t o models t h a t a s s u r e s t e a d y s t a t e growth. 1.  These assumptions can be combined i n v a r i o u s ways.  Labour-market A s s u m p t i o n s .  I f the l a b o u r market works i n  such a way t h a t f u l l employment i s m e r e l y a c e i l i n g ,  and  e q u i l i b r i u m i n the system i s not i n c o m p a t i b l e w i t h growing unemployment, the e q u a t i o n n = s/v i s r e p l a c e d by the i n equality n >  s/v  So l o n g as t h i s c o n d i t i o n i s s a t i s f i e d , the w a r r a n t e d r a t e s/v i s a s t e a d y s t a t e p a t h of a s o r t . 2.  Labour-supply Assumptions.  The r a t e of growth of l a b o u r  f o r c e , n, may be a v a r i a b l e t h a t responds t o economic pressures r a t h e r than a constant.  The e q u a l i t y of n and  s/v may t h e n be a c h i e v e d not by t h e r e s u l t of a happy a c c i d e n t , b u t by the adjustment of n, 3.  Technology A s s u m p t i o n s .  Instead of there being f i x e d co-  e f f i c i e n t s i n p r o d u c t i o n , t h e r e may  exist a production  f u n c t i o n o f f e r i n g a continuum of a l t e r n a t i v e t e c h n i q u e s , each i n v o l v i n g d i f f e r i n g c a p i t a l - l a b o u r r a t i o s ; o r e l s e t h e r e may be n o t a continuum of a l t e r n a t i v e s but a f i n i t e  50  number of a l t e r n a t i v e t e c h n i q u e s .  The consequence  is  the c a p i t a l - o u t p u t r a t i o v i s a d j u s t a b l e .  This provides a  way i n w h i c h n and s/v may be b r o u g h t i n t o  equality.  T h i s assumption i s t h e c r u c i a l one f o r t h e models of Meade ( 1 9 6 1 ) , Solow ( 1 9 5 6 ) , (1962) and T o b i n ( 1 9 6 5 ) .  "neo-classical"  Swan ( 1 9 5 6 ) ,  Samuelson  I t may be n o t e d t h a t t h e s e models  a r e q u i t e d i f f e r e n t from the " n e o - c l a s s i c a l t h e o r i e s " cussed e a r l i e r i n t h i s 4.  that  Saving Assumptions.  dis-  chapter.  The e q u a l i t y o f n and s/v can a l s o be  made p o s s i b l e by f l e x i b i l i t y i n s .  The most common a s s u m p t i o n  t h a t g i v e s r i s e to f l e x i b i l i t y i n s i s t h a t of d i f f e r e n c e s t h e p r o p e n s i t i e s t o save of wage e a r n e r s and p r o f i t  in  earners.  Hahn and Matthews (1964) have d i s c u s s e d a number of growth models w h i c h can be l i n k e d i n one way o r a n o t h e r w i t h t h e b e t t e r known H a r r o d Domar model by making one o r more of t h e above a s s u m p t i o n s .  The " n e o -  c l a s s i c a l " model w i t h f l e x i b l e c a p i t a l - o u t p u t r a t i o i s one of t h e s e and w i l l be d i s c u s s e d now. T h i s model has been put f o r w a r d as a s i n g l e s e c t o r model by a u t h o r s b u t can e a s i l y be extended i n t o a t w o - s e c t o r  and n - s e c t o r m o d e l .  I n i t s n - s e c t o r form i t can be r e l a t e d to t h e L e o n t i e f ( L e o n t i e f 1951) Neumann ( v o n Neumann 1938) m o d e l s . Y  =  F (lt,L)  its  and  The p r o d u c t i o n f u n c t i o n i n the model i s  . • . 0 . « . 0 9 O 0 » « . 0 . 0 * . » Q . . O » » 0 . « » . 0 . .  ( 3)  where Y i s o u t p u t , K the c a p i t a l employed and L t h e l a b o u r employed. model has c o n s t a n t r e t u r n s to s c a l e b u t shows d i m i n i s h i n g m a r g i n a l p r o d u c t s w i t h r e s p e c t to p r o p o r t i o n s of c a p i t a l and l a b o u r .  Thus,  if  The  51  labour i s h e l d constant  and  c a p i t a l i s i n c r e a s e d , then o u t p u t - c a p i t a l r a t i o  ( l / v ) w i l l d e c r e a s e as c a p i t a l - l a b o u r r a t i o (K/L) i t i s assumed t h a t no t e c h n i c a l p r o g r e s s The  increases.  A t t h i s stage  occurs.  f i x e d s a v i n g r a t i o assumption of the Harrod-Domar model i s  s t i l l r e t a i n e d and p l a n n e d s a v i n g s  are e q u a l t o planned i n v e s t m e n t s .  Therefore AK  =  sY  o r , i f c o n t i n u o u s v a r i a b l e s are  considered,  K = sY The  (4)  assumption t h a t t h e r e i s no d e p r e c i a t i o n i s r e t a i n e d a t t h i s s t a g e  but  can be r e l a x e d l a t e r i f d e s i r e d . I f the l a b o u r  f o r c e grows a t a c o n s t a n t  mined exogenously, and  1 or  =  proportional rate  deter-  the same p r o p o r t i o n of the f o r c e employed, thens  nL  L = L  e  n t  o  N  (5) '  T h i s assumption t h a t r a t e of growth o f l a b o u r f o r c e i s determined the economic system can be r e l a x e d , and  outside  i s i n f a c t r e l a x e d l a t e r i n the  f o r m u l a t i o n of the n e o - c l a s s i c a l model g i v e n h e r e . F i g . 4 shows the K/L  r a t i o on the h o r i z o n t a l a x i s and r a t e s of  growth of c a p i t a l and output as w e l l as o t h e r pure numbers on t h e v e r t i c a l axis.  The  r a t e s of growth a r e denoted by an a s t e r i s k .  The  r a t e of growth of l a b o u r f o r c e L  and i s t h e r e f o r e r a t i o (Y/K)  = n i s independent of  shown by a h o r i z o n t a l s t r a i g h t l i n e .  w i l l be a d e c r e a s i n g  f u n c t i o n of K/L  The  K/L  output-capital  as a l r e a d y e x p l a i n e d  and  52  Fig- 4- Steady state growth in neo-classical model-  A  C a p i t a l - l a b o u r Ratio  K/L  53 is  represented  accordingly.  The r a t e of growth of c a p i t a l [ K * ] can he  d e t e r m i n e d from the Y / K f u n c t i o n because K*  = £ K  sY K  Now t h e c a p i t a l - l a b o u r r a t i o of OA i s an e q u i l i b r i u m v a l u e . can be seen from the f a c t  This  t h a t any K / L v a l u e l e s s t h a n OA i n the d i a g r a m  w i l l c o r r e s p o n d to a s i t u a t i o n where K* > L * and t h e r e f o r e K / L w i l l i n c r e a s e over t i m e t i l l  i t r e a c h e s the v a l u e of OA.  S i m i l a r l y , any p o i n t to  the r i g h t of A w i l l have K* < L * so t h a t K / L must d e c r e a s e over time it  reaches OA.  till  A t A the K / L v a l u e i s i n s t a b l e e q u i l i b r i u m as any s m a l l  v a r i a t i o n from i t has a tendency t o get I n t h i s model, t h e r e f o r e ,  corrected.  a steady growth a t r a t e n w i l l  take  p l a c e and the c a p i t a l - o u t p u t r a t i o w i l l s t a b i l i z e a t a v a l u e e q u a l to s / n . L a b o u r p r o d u c t i v i t y which can be c o n s i d e r e d as a d i r e c t measure of p e r . , . . c a p i t a income i s I n the steady  Y Y K — =— . — L K. L  s t a t e i t w i l l be OA.AC o r the a r e a of r e c t a n g l e  The a r e a of r e c t a n g l e K L Therefore  OABE i s  *  K K  a r e a of EBCD i s  _  K L  =  sY L  Cii^lil  I n o t h e r words EBCD i s the consumption component of p r o d u c t i v i t y i n the steady no t e c h n i c a l p r o g r e s s  labour  s t a t e and OABD i s t h e s a v i n g s component.  With  the l a b o u r p r o d u c t i v i t y ( o r p e r c a p i t a income i f  two a r e assumed t o be r e l a t e d ) of OACD.  OACD.  w i l l remain c o n s t a n t and e q u a l t o the  The per c a p i t a consumption w i l l a l s o r e m a i n  the  area  constant.  The c a p i t a l - l a b o u r r a t i o t h a t maximizes consumption p e r man i n  54  perpetuity  a l o n g a b a l a n c e d growth p a t h w i l l be  d i f f e r e n t from the  r a t i o OAo  Due  t o s c a l e the  to e x i s t e n c e  function (Equation  3)  as a f u n c t i o n of K/L upwards, i . e . no c a p i t a l has (1964) has  of c o n s t a n t r e t u r n s  can be  e x p r e s s e d as -j-  i s assumed to be  must be  F (^  ' l) .  production If  F (—  through o r i g i n and  both i n p u t s  ' l)  convex  are p o s i t i v e ,  and  m a r g i n a l p r o d u c t i v i t y (Solow 1956); then Marty  shown t h a t , u n l e s s  o t h e r than OA  passing  output i s produced u n l e s s  diminishing  =  stable  i t i s by  coincidence,  a capital-labour  chosen f o r maximising consumption per  ratio  capita.  "To push c a p i t a l deepending f u r t h e r i s l i k e p u r c h a s i n g an i n c r e ment to output per man a t the expense of a s t i l l g r e a t e r i n c r e ment to s a v i n g s per man and a permanent r e d u c t i o n i n consumption per mane. T h i s can u n e q u i v o c a b l y be r u l e d out as w a s t e f u l " . (Marty 1964). I t may  appear w a s t e f u l  i f i t i s assumed t h a t the p o p u l a t i o n  i n c r e a s i n g at an i n c r e a s i n g r a t e , as i n the n e o - c l a s s i c a l model. the  c o n t e x t of the underdeveloped c o u n t r i e s  of  i n cases where one b a l a n c e d p a t h i s d i s t u r b e d by  it  t o another e q u i l i b r i u m p a t h , the c a p i t a l deepending  at l e a s t i n i n i t i a l  stages of development, may  From F i g . 4 i t can be  growth of Y must a l s o be  will  not be  too  process,  wasteful.  growth of l a b o u r  a l s o be  in  shocks b e f o r e  seen t h a t i n the s t e a d y s t a t e the r a t e  growth of c a p i t a l i s equal to the r a t e of i s s t a b i l i z e d i n t h i s s t a t e Y/K  But,  today, where t h i s problem  e x i s t s and adjusts  i s not  force.  s t a b i l i s e d and  of  As  K/L  so the r a t e  equal to the r a t e of growth of c a p i t a l and  labour  force,, Thus i n e q u i l i b r i u m  L* The  r a t e of growth of  can be  =  K*  =  Y*  investment (&  seen from the f a c t t h a t i n  = -•  n k/K)  will  equilibrium  a l s o be  equal to n  of  as  55  and so  K  =  nK  K  = nK  »•  or  K —  =  n ,  •  K  I n F i g , 5 the r a t e s of growth of c a p i t a l , o u t p u t and i n v e s t m e n t a r e f o r e shown by t h r e e l i n e s of equal s l o p e to the l e f t of A .  there-  The h o r i z o n t a l  a x i s shows t i m e and the v e r t i c a l a x i s has l o g a r i t h m s o f Y , K , and K . When the economy i s growing on t h i s steady p a t h , i . e . , when the capital stock,  output  s  and i n v e s t m e n t are growing a t a r a t e e q u a l to the  r a t e of growth of l a b o u r f o r c e l e t i t r e c e i v e a shock i n the form of a sudden i n c r e a s e i n s a v i n g r a t i o s .  L e t i t be assumed t h a t the shock comes  a t time c o r r e s p o n d i n g to A on t h e h o r i z o n t a l a x i s .  As K - s Y , t h i s  will  b r i n g about a sudden i n c r e a s e i n t h e l e v e l of i n v e s t m e n t s from AB t o A C , This i n turn w i l l r a t e than n . it  r e s u l t i n the c a p i t a l s t o c k suddenly growing a t a f a s t e r  Such a s i t u a t i o n can n o t be s u s t a i n e d .  can be seen t h a t t h e shock w i l l  right.  The sudden i n c r e a s e i n r a t e of  investment  r a i s e t h e r a t e of growth of c a p i t a l above n and. so K / L w i l l he r i s i n g .  As K / L r i s e s , of L .  s h i f t the K* curve upward and t o the  The new e q u i l i b r i u m c a p i t a l output r a t i o w i l l be h i g h e r t h a n b e f o r e  and the new Y / K w i l l be l e s s . will  I n terms of F i g . 4  the r a t e of growth of K w i l l come c l o s e r and c l o s e r t o  When t h e y b o t h are e q u a l , K / L w i l l not change any more.  that  T h i s new  e q u i l i b r i u m K / L r a t i o w i l l be g r e a t e r t h a n the former e q u i l i b r i u m r a t i o . A t the new e q u i l i b r i u m , the Y , K and K w i l l  a g a i n be found t o be growing  at rate n.  The r e s u l t of the shock can thus be shown hy t h e b r o k e n l i n e s  in F i g . 5,  I t i s not p o s s i b l e to say how l o n g the economy t a k e s t o  adjust  t o the shock b u t a f t e r adjustment the r a t e s of growth w i l l be t h e same as  56  57  «  before.  I n t h e p o s t shock p e r i o d t h e a b s o l u t e l e v e l s of K , Y and K , how-  e v e r , w i l l be h i g h e r t h a n t h e l e v e l s t h a t may have e x i s t e d a t any g i v e n time w i t h o u t the  shock.  I t i s q u i t e p o s s i b l e t h a t the time of adjustment as shown by b r o k e n l i n e s may be c o n s i d e r a b l e and t h e economy may r e c e i v e a n o t h e r shock b e f o r e i t reaches the s t e a d y p a t h shown by the s o l i d l i n e s t o t h e r i g h t of D.  F o r the s t u d y of growth p r o b l e m s , e s p e c i a l l y o f underdeveloped  c o u n t r i e s , i n v e s t i g a t i o n s i n t o t h e t r a n s i t i o n a l p e r i o d between AD may be as i m p o r t a n t o r even more i m p o r t a n t t h a n the i n v e s t i g a t i o n s of t h e b r i u m c o n d i t i o n s . i n the new steady  equili-  state.  The a s s u m p t i o n t h a t the r a t e of growth of l a b o u r f o r c e i s c o n s t a n t and independent of economic v a r i a b l e s may now be r e l a x e d .  A s argued  i n C h a p t e r One i t can be assumed t h a t the r a t e of growth of l a b o u r f o r c e increases  s h a r p l y w i t h i n c r e a s e s i n p e r c a p i t a income a t low l e v e l s and  t h e n g r a d u a l l y drops down t o a c o n s t a n t .  A l s o i t can be i n t u i t i v e l y seen  t h a t p e r c a p i t a income would be an i n c r e a s i n g f u n c t i o n o f t h e K / L r a t i o, a t l e a s t i n c a p i t a l - p o o r economies.  T h e r e f o r e t h e diagram of F i g . 4 can  be m o d i f i e d as t h a t i n F i g . 6 . The L * curve i n t h i s f i g u r e ceases t o be a h o r i z o n t a l s t r a i g h t l i n e b u t may have a hump as shown.  The p o i n t s of i n t e r s e c t i o n of L* and  K* c o r r e s p o n d i n g t o A , B and C are e q u i l i b r i u m p o i n t s hut o n l y A and C are stable.  Any movement away from A w h i c h f a l l s s h o r t of B w i l l  economy t o come back t o A .  l e a d the  The move must push the economy beyond B b e f o r e  i t can hope to r e a c h an e r a of s u s t a i n e d growth i n per c a p i t a income. is  such c o n s i d e r a t i o n s w h i c h have p r o b a b l y l e a d L e i b e n s t e i n (1963) to  propose a c r i t i c a l minimum e f f o r t  hypothesis.  It  58  • 6- Neo-classical model with population growth endogenously determined-  59  A t t h i s stage i t w i l l be h e l p f u l t o note t h a t i n c r e a s e s i n p e r c a p i t a income i n a poor economy t h a t i s near A ( F i g .  6) may  o f t e n have a  "keep up w i t h the J o n e s ' " e f f e c t and the p e o p l e i n an e f f o r t t o i m i t a t e the  l i v i n g s t a n d a r d s of more a f f l u e n t s o c i e t i e s may  s a v i n g s r a t i o s t o a lower l e v e l .  actually bring  their  T h i s w i l l d e p r e s s t h e K* c u r v e i n F i g ,  6  and push the c r i t i c a l p o i n t B f a r t h e r t o the r i g h t . W i t h o u t t e c h n o l o g i c a l p r o g r e s s the p e r c a p i t a incomes s t a t i o n a r y i n t h e n e o - c l a s s i c a l model.  remain  When s t e a d y s t a t e growth o c c u r s ,  from the p o i n t of v i e w of t h e d e f i n i t i o n i n t h i s t h e s i s , the model l e a d s t d "stagnation".  C o n t i n u i n g improvement i n t e c h n o l o g y t h e r e f o r e i s t h e most  i m p o r t a n t f a c t o r needed f o r a s u s t a i n e d i n c r e a s e i n per c a p i t a  income.  Of the o t h e r models d i s c u s s e d by Hahn and Matthews ( 1 9 6 4 ) , the s t u d i e s of R o b i n s o n (1956, 1960a, 1960b), von Neumann ( 1 9 3 8 ) , Kemeny e t al,. ( 1 9 5 6 ) , L e o n t i e f (1951) and M o r i s h i m a (1958, 1959, 1960, 1961) p a r t i c u l a r l y i n t e r e s t i n g but are not being o u t l i n e d here.  are  Another recent  a n a l y s i s of economic growth but not concerned w i t h the development  of  u n d e r d e v e l o p e d c o u n t r i e s as sue h i s by H i c k s ( 1 9 6 5 ) . Development,; A p a r t from s t u d i e s i n "growth" c o n s i d e r a b l e work has been publ i s h e d on "development"  of u n d e r d e v e l o p e d c o u n t r i e s i n the r e c e n t y e a r s .  Amongst t h e s e t h e more n o t a b l e may be L e w i s ( 1 9 5 5 ) , and Rostow (1962) i n d e a l i n g w i t h the g e n e r a l problem; R o s e n s t e i n - R o d a n (1963) and N u r k s e  (1953)  r e g a r d i n g b a l a n c e d growth; Hirschman (1963) and S t r e e t e n (1961) r e g a r d i n g unbalanced growth; S u t c l i f f e (1964) f o r a s y n t h e s i s of the two; L e i b e n s t e i n (1963) f o r a c r i t i c a l minimum e f f o r t h y p o t h e s i s ; H o r v a t ( 1 9 5 8 ) , Sen ( 1 9 6 1 ) , Kahn ( l 9 5 l ) , Chenery ( 1 9 5 3 ) , L e i b e n s t e i n and G a l e n s o n  (1955)  60 and E c k s t e i n (1957) f o r optimum r a t e of investment and i n v e s t m e n t c r i t e r i a ; Pazos (1953) r e g a r d i n g i n f l a t i o n ; M e i e r ( 1 9 6 3 ) , E l l i s  and W a l l i c h (1961)  and P r e b i s c h (1959) r e g a r d i n g i n t e r n a t i o n a l t r a d e ; and N i c h o l l s ( 1 9 5 5 , 1 9 6 3 ) , U n i t e d N a t i o n s ( l 9 5 l ) and J o h n s t o n and M e l l o r ( l 9 6 l ) on t h e r o l e of a g r i c u l t u r e i n development.  Many i m p o r t a n t essays and a r t i c l e s on t h e  s u b j e c t have been put t o g e t h e r by A g a r w a l a and S i n g h ( 1 9 6 3 ) , Novack and Leckachman (1964) and M e i e r ( 1 9 6 4 ) . are  H i g g i n s (1959) and K i n d e l b e r g e r (1965)  comprehensive s t u d i e s of the b a s i c i s s u e s i n v o l v e d i n development. B o t h L e w i s and Rostow see the growth of o u t p u t p e r head as a  f u n c t i o n of two complex v a r i a b l e s , v i z . , r e s o u r c e s and human b e h a v i o u r . The t e r m " r e s o u r c e s " here s h o u l d be meant to i n c l u d e n a t u r a l r e s o u r c e s , capital,  l a n d , and s c i e n t i f i c , t e c h n i c a l and o r g a n i z a t i o n a l knowledge.  A v a i l a b i l i t y of each of these can be a l t e r e d by t h e second v a r i a b l e - human behaviour - which i t s e l f ,  t o a g r e a t e x t e n t , depends on t h e  resources.  T h u s , s t u d y of growth of p e r c a p i t a income becomes the s t u d y of i n t e r a c t i o n of many v e r y i n t r i c a t e l y i n t e r d e p e n d e n t v a r i a b l e s .  I t i s not s u r p r i s i n g  t h a t a comprehensive a l l - i n c l u s i v e t h e o r y of development i s n o t f o r t h c o m i n g . On t h e f a c e of i t , more r e s o u r c e s p e r man s h o u l d mean more income per h e a d . equal.  B u t t h i s i s not n e c e s s a r i l y so because o t h e r t h i n g s may n o t ' be  A n o t h e r i m p o r t a n t f a c t o r to c o n s i d e r i s the w i l l  of the p e o p l e to  get most out of a g i v e n s i t u a t i o n and the e f f o r t made t o expend a minimum amount of r e s o u r c e s f o r g e t t i n g a f i x e d o u t p u t .  That s o c i e t y w i l l  h i g h e r p e r c a p i t a income w h i c h makes g r e a t e r e f f o r t s g i v e n the same endowment of r e s o u r c e s .  have  to economize, b o t h  One of t h e most i m p o r t a n t f a c t o r s  i n human b e h a v i o u r t h a t w i l l determine t h e l e v e l of income p e r man i s h i s w i l l t o economize and the r a t i o n a l e f f o r t p u t i n t o a c h i e v i n g t h i s end.  61  Y e t one can t h i n k of two cases where the r e s o u r c e  endowment and w i l l  economize may be e q u a l b u t the knowledge a v a i l a b l e may he  to  different.  O b v i o u s l y , t h e p e r c a p i t a income w i l l be h i g h e r where g r e a t e r knowledge  is  a v a i l a b l e and i s a p p l i e d i n p r o d u c t i o n . The prime n e c e s s i t i e s as ( l )  E f f o r t t o economize,  of r e s o u r c e s .  of development may t h e r e f o r e be summarized  (2) L e v e l of knowledge and ( 3 ) A v a i l a b i l i t y  I t must be observed h e r e t h a t ( 3 ) depends on ( l )  and (2)  as  w e l l as o r i g i n a l endowment o f n a t u r e and i t s i n c r e a s e can be w e l l s t u d i e d by e c o n o m i s t s . economics.  The s t u d y of ( l ) and ( 2 ) goes f a i r l y o u t s i d e the scope of  E x c e p t f o r d i s c u s s i n g t h e " i n s t i t u t i o n s " w h i c h may o r may n o t  f a v o u r t h e growth of (3) l i t t l e work has been done on t h e "causes"  and  " c a u s e s of cause s" of ( l ) and ( 2 ) . W h i l e a t t e m p t i n g t o i n c r e a s e r e s o u r c e s p e r head, i t i s  necessary  not t o waste s k i l l s and energy i n i n c r e a s i n g t h o s e i t e m s w h i c h a r e i n p l e n t i f u l supply.  already  Those i t e m s must be i n c r e a s e d , w h i c h are i n s h o r t  s u p p l y as compared t o t h o s e which are p l e n t i f u l and w i t h which they must be combined to form p r o d u c t s t h a t the p o p u l a t i o n w a n t s  0  It is  the  c o m p a r a t i v e l y more s c a r c e r e s o u r c e s t h a t must be economized i n the  short-  run and the a v a i l a b i l i t y of which must be i n c r e a s e d i n t h e l o n g - r u n . T h i s o p e r a t i o n w i l l assume d i f f e r e n t forms and p o l i c i e s i n various countries.  The d i f f e r e n c e s  i n human and o t h e r r e s o u r c e s  between  n a t i o n s are so g r e a t t h a t i t may n o t be p o s s i b l e t o have one g e n e r a l " t h e o r y of development" world ( G a l b r a i t h 1964b).  a p p l i c a b l e t o a l l the underdeveloped areas of  the  I n s t e a d , many p r e s c r i p t i o n s , each f o r a p a r t i c u l a r  a r e a , may be a l l t h a t can be h a d .  The stagnant economies can not be  c o n s i d e r e d to be i n an " e q u i l i b r i u m " s t a t e  i n the economic s e n s e ,  They  62  have some fundamental d i s e q u i l i h r i a ( T i n b e r g a n 1962) which must he r e c o g n i z e d t o see where t o make l a r g e s t o r e a r l i e s t i n v e s t m e n t s so t h a t growth of output per head can be i n c r e a s e d .  T h i s i s the p r o b l e m of  d e t e r m i n i n g t h e most c r i t i c a l r e s o u r c e w h i c h must be s o l v e d by t h e of development.  the  "theory"  As income i n c r e a s e s t h e f r o n t i e r o f c r i t i c a l r e g i o n w i l l  expand and o t h e r r e s o u r c e s may become c r i t i c a l .  Successful  strategy  of  development p l a n n i n g l i e s i n a n t i c i p a t i n g the c r i t i c a l f r o n t i e r i n time and p r o v i d i n g f o r  it.  A c o u n t r y may s t i l l have a p r i m i t i v e t r i b a l t r i b e i s o l a t e d from the o t h e r s , and a l l u n i t s s e l f tence l e v e l .  s o c i e t y w i t h each  s u f f i c i e n t at  subsis-  There may be no communications and no b a n k i n g s y s t e m .  a c o u n t r y p r o b a b l y has an e f f i c i e n t ment as the most i m p o r t a n t need.  a d m i n i s t r a t i o n and e f f e c t i v e  Such  govern-  I t would be f o l l y to d e v e l o p a s t e e l  m i l l o r heavy machinery i n t h i s c o u n t r y .  When the a d m i n i s t r a t i o n i s  s e t t l e d p r o b a b l y a network o f r o a d s , t h e n g e n e r a l e d u c a t i o n , improved a g r i c u l t u r e , b a n k i n g , r a i l r o a d s , h i g h e r and t e c h n i c a l e d u c a t i o n and c a p i t a l may be r e q u i r e d to be d e v e l o p e d .  The most common m i s t a k e i n a  development programme i s l i k e l y t o be t h a t of p u t t i n g t h e c a r t b e f o r e h o r s e and so a " t h e o r y "  the  of development must enable the p o l i c y makers to  d e c i d e w h i c h i s the c a r t and w h i c h t h e h o r s e . F o r more output a c o u n t r y must have more c a p i t a l , more l a b o u r , more n a t u r a l r e s o u r c e s and more s k i l l s its  existing productive capacity.  0  I t can c r e a t e a l l of t h e s e w i t h  Even the stagnant economy o f F i g . 1  w h i c h has a p e r c a p i t a income of OC does s o . say w h i c h , how, how much and when t o p r o d u c e . sufficient  The t h e o r y must be a b l e t o T h i s would have been  i f each c o u n t r y i s c o n s i d e r e d i n i s o l a t i o n .  B u t i n t h e modern  63  " s h r i n k i n g " w o r l d i t w o u l d he a g r o s s m i s a l l o c a t i o n of w o r l d r e s o u r c e s  if  goods and s e r v i c e s r e q u i r e d f o r development, e s p e c i a l l y the c a p i t a l goods and s k i l l s ,  c o u l d n o t e a s i l y f l o w f r o m one p l a c e t o the o t h e r .  A theory  of development must t h e n a l s o he a b l e t o say how much and when s h o u l d a d e v e l o p i n g c o u n t r y borrow from a d e v e l o p e d c o u n t r y . A n o t h e r q u e s t i o n t h a t a t h e o r y of development has t o r e s o l v e t h a t between p r e s e n t consumption and p r e s e n t i n v e s t m e n t .  is  Investment comes  from non-consumption i n t h e p r e s e n t so t h a t more may be had i n t h e What i s the optimum amount t h a t must be saved and i n v e s t e d i n t h e  future. present?  H o r v a t ( 1 9 5 8 ) , S e n ( l 9 6 l ) and P h e l p s (1966) have a d d r e s s e d themselves  to  this question.  Too much o f i n v e s t m e n t i s not good because an economy can  not absorb i t .  A s i t g e t s more i n v e s t m e n t and grows, i t i n c r e a s e s  its  a b s o r p t i v e c a p a c i t y and so g r a d u a l l y i n c r e a s i n g i n v e s t m e n t s must be made. A n economy may f o r t h i s purpose be l o o k e d a t as a b a l l o o n w h i c h can expand as i t f i l l s  and so i n c r e a s e i t s c a p a c i t y .  i s t h a t w h i c h keeps t h e b a l l o o n a l m o s t f u l l  The optimum r a t e of  investment  a l l t h e time w i t h o u t s p i l l i n g  anything. Two a p p a r e n t l y c o n f l i c t i n g d o c t r i n e s - b a l a n c e d and u n b a l a n c e d growth - have come up i n the l i t e r a t u r e of economic development s i n c e t h e i n t e r e s t i n t h e s u b j e c t was r e v i v e d about two decades a g o  0  The b a l a n c e d  growth d o c t r i n e a s s e r t s t h a t s i g n i f i c a n t " d i s c o n t i n u i t i e s " or lumps e x i s t i n p r o d u c t i o n f u n c t i o n s and demand, and a s i m u l t a n e o u s e x p a n s i o n i n a l a r g e number of i n d u s t r i e s i s n e c e s s a r y b e f o r e t h e p r o d u c t of each can be demanded by the w o r k e r s of o t h e r s .  I f o n l y one or two i n d u s t r i e s expand,  t h e i r o u t p u t s c a n not be consumed by t h e i r own w o r k e r s and o t h e r i n d u s t r i e s w o u l d n o t have enough workers t o consume them.  T h e r e f o r e a b a l a n c e d growtli  64  of a l l s e c t o r s i s  necessary.  The u n b a l a n c e d growth d o c t r i n e r e j e c t s t h i s c o n t e n t i o n on t h e main ground t h a t such a b i g e x p a n s i o n r e q u i r e s a l a r g e amount of d e c i s i o n making c a p a c i t y w h i c h i s t h e v e r y t h i n g t h a t i s most s c a r c e i n u n d e r developed c o u n t r i e s .  I t s u g g e s t s t h a t t h e t e c h n i q u e of development i s t o  c r e a t e s t r a t e g i c unbalances w h i c h w i l l  i n d u c e e a s i l y made r e s p o n s e s .  S u t c l i f f e (1964) has attempted t o show t h a t t h e two d o c t r i n e s are r e a l l y not so d i v e r g e n t as they f i r s t seem.  B a l a n c e d growth means n o t equal  growth i n a l l i n d u s t r i e s b u t more i n some and l e s s i n o t h e r s .  It is in  f a c t l i k e b a l a n c e d d i e t w h i c h does not mean a l l items i n equal q u a n t i t y but i n proper q u a n t i t y . if for  reviewed c a r e f u l l y .  T h i s i s v e r y much the same as u n b a l a n c e d growth B o t h d o c t r i n e s are an acceptance of t h e  necessity  a " b i g push" i n economic development w h i c h i s a l s o suggested by  L e i b e n s t e i n (1963) and the n e o - c l a s s i c a l growth m o d e l .  In Sutcliffe*s  v i e w t h e d o c t r i n e s d i f f e r o n l y i n t h e t y p e of e x t e r n a l economies 1963)  t h a t predominate i n them.  (Scitovsky  A t t h e same t i m e he has a l s o a d m i t t e d  t h a t the c o n c e p t of e x t e r n a l economies i t s e l f needs much more  clarification.  The l i t e r a t u r e on i n v e s t m e n t c r i t e r i a shows t h a t f u l l y c r i t e r i a f o r development are y e t t o be d e v e l o p e d .  acceptable  I t i s o b v i o u s t h a t the  i n v e s t m e n t must be p r o f i t a b l e s o c i a l l y , and r e t u r n s i n f u t u r e must be d i s c o u n t e d t o t h e p r e s e n t a t an a p p r o p r i a t e r a t e t o determine t h e p r o f i t a b i l i t y o f an i n v e s t m e n t . Pazos (1953) f e l t t h a t development programs c a n be p u r s u e d w i t h price s t a b i l i t y .  B u t , i t i s not v e r y s i m p l e to do t h i s .  Prices  will  r e m a i n s t a b l e o n l y i f the volume of r e a l goods and s e r v i c e s i n c r e a s e s t h e same r a t e as t h e i n v e s t m e n t s .  A s i n v e s t m e n t s v e r y o f t e n t a k e more  at  65  t h a n a y e a r t o m a t u r e , t h e i n c r e a s e i n t h e volume of goods can not keep up w i t h the i n c r e a s e i n i n v e s t m e n t s  6  I n a developing country the  invest-  ments are l i k e l y t o grow a t an i n c r e a s i n g r a t e and so i n f l a t i o n seems t o be i n e v i t a b l e u n l e s s money s u p p l y i s reduced,, d i f f i c u l t to m a i n t a i n t h a t i n f l a t i o n ,  A t the same t i m e , i t  is  e s p e c i a l l y i f i t i s s e v e r e and f o r  l o n g d u r a t i o n s , can be h e l p f u l t o economic development. There seem t o be q u i t e c o n f l i c t i n g v i e w s on the r o l e t h a t n a t i o n a l t r a d e can p l a y i n development.  A l m o s t everyone  inter-  seems t o agree  t h a t i f u n d e r d e v e l o p e d c o u n t r i e s c o u l d make e x p o r t s of manufactured goods as p r o f i t a b l e e n t e r p r i s e s ,  t h e n t h e y w o u l d be b e n e f i t e d .  The  difference  of o p i n i o n i s i n the r o l e of p r i m a r y p r o d u c t s as major i t e m s of e x p o r t by underdeveloped  countries.  As r e g a r d s t h e r o l e of a g r i c u l t u r e t h e r e i s no d i f f e r e n c e opinion.  of  A g r i c u l t u r e happens to be the g r e a t e s t c o n t r i b u t o r of n a t i o n a l  income i n underdeveloped c o u n t r i e s of t h e w o r l d and p r o b a b l y has q u a n t i t i e s o f s u r p l u s and redundant l a b o u r .  large  Not o n l y i s a sharp r i s e i n  a g r i c u l t u r a l p r o d u c t i v i t y r e q u i r e d t o f r e e t h i s s u r p l u s l a b o u r which must be engaged i n m a n u f a c t u r i n g ( t h a t s h o u l d be expanded s i m u l t a n e o u s l y ) ; b u t a s u b s t a n t i a l p r o p o r t i o n of the s u r p l u s needed f o r i n v e s t m e n t almost must come from a g r i c u l t u r e .  F o r most u n d e r d e v e l o p e d c o u n t r i e s t h e a g r i c u l t u r a l  s e c t o r may t h e r e f o r e be t h e key t o development.  Unless a g r i c u l t u r e  is  improved and a s u r p l u s c r e a t e d , any hopes of development must r u n i n t o serious  difficulties. The l e s s e r d e v e l o p e d c o u n t r y has many d i s a d v a n t a g e s  f o r reaching  the developed s t a g e , b u t i t a l s o has one b i g advantage over the more developed c o u n t r i e s .  I t has t h e g r e a t e s t l a t i t u d e of c h o i c e :  choice  as  66  to  g o v e r n m e n t a l o r g a n i z a t i o n and p o l i t i c s ; c h o i c e as to k i n d s of  technology  a t a l l l e v e l s ; c h o i c e as to where and how t o d e v e l o p s p a t i a l i n f r a s t r u c t u r e i n terms of communications such as r o a d s and r a i l w a y s ; and e n v i r o n m e n t , such as c i t i e s , towns and i n t e n s i v e a g r i c u l t u r e .  The g e n u i n e l y  less-  d e v e l o p e d c o u n t r i e s l a r g e l y do not have t o c o n c e r n themselves w i t h the c u r r e n t and f u t u r e o p p o r t u n i t y c o s t s o f changing p a s t d e c i s i o n s .  If  maximum use of t h i s advantage i s made, t h e y might c a t c h up the d e v e l o p e d countries quickly (Beazley  1965).  Recent l i t e r a t u r e on economic development has been n o t o n l y on p u r e l y economic a s p e c t s o f the p r o b l e m i n an academic f a s h i o n as r e v i e w e d above b u t a l s o on many o t h e r economic and non-economic a s p e c t s w r i t t e n m a i n l y f o r the l a y p u b l i c  T h i s i s an i n d i c a t i o n of t h e w i d e n i n g aware-  ness o f t h e p r o b l e m i n t h e contemporary w o r l d .  Such p u b l i c a t i o n s i n c l u d e  C a n t r i l ( 1 9 6 2 ) , S o u l e ( 1 9 6 2 ) , von d e r Mehden ( 1 9 6 4 ) , Wanamaker ( 1 9 6 4 ) , Grew ( 1 9 5 9 ) , S n i d e r ( 1 9 6 5 ) , H e i l b r o n e r ( 1 9 6 2 , 1963) Bernstein  (l963)„  and H e i l b r o n e r and  67  CHAPTER THREE  A SIMULATION MODEL OF ECONOMIC DEVELOPMENT  INTRODUCTION  I n t h i s c h a p t e r a s i n g l e s e c t o r model of a p l a n n e d economy w i l l he c o n s t r u c t e d .  It will  show how c o m b i n a t i o n s of v a r i o u s f a c t o r s  can l e a d  to a s t a t e of s t a g n a t i o n i n w h i c h the per c a p i t a income i s l i k e l y to remain c o n s t a n t o r v e r y g r a d u a l l y s l i d i n g down f o r l o n g p e r i o d s  c  Such a s i t u a t i o n  was e s t i m a t e d t o have e x i s t e d i n I n d i a i n the f i r s t h a l f of the T w e n t i e t h c e n t u r y ( N e a l e 1965,, P a t e l 1966) b e f o r e i n 1951,  The s a v i n g s  any development p l a n n i n g s t a r t e d  of a v e r y low income were j u s t s u f f i c i e n t  more income p r o d u c i n g c a p a c i t y so t h a t a f t e r c a p i t a l and i n c r e a s e  t a k i n g the d e p r e c i a t i o n i n  i n p o p u l a t i o n into account,  remained j u s t about the same,  to c r e a t e  the p e r c a p i t a income  A p a r t from d e s c r i b i n g the s t a t e of  n a t i o n , the main aim of the model i s to p r o v i d e a g u i d e , howsoever  stagrough,  68  f o r making d e c i s i o n s r e g a r d i n g l e v e l s of i n v e s t m e n t t h a t must he p l a n n e d so t h a t an underdeveloped c o u n t r y may r e a c h the " t a k e - o f f "  stage.  For  t h i s , i t uses an IBM 7040 e l e c t r o n i c computer t o f i n d t h e b e s t s e t of investment schedules t h a t w i l l achieve the t a k e - o f f w h i c h v a r i o u s parameters can he e s t i m a t e d .  i n an economy f o r  The computer s i m u l a t e s  the  growth of an economy and t h e n d e t e r m i n e s w h i c h schedule of i n v e s t m e n t s the  is  best. S i m u l a t i o n i s n o t a new t e c h n i q u e i n f o r e s t r y .  Newnham (1964)  d e s c r i b e d a d e t a i l e d s t a n d model f o r D o u g l a s f i r and p r o v i d e d a computer program w h i c h can be m a n i p u l a t e d and m o d i f i e d to t e s t many a l t e r n a t i v e s . Smiths Newnham and H e j j a s (1965) n o t e d t h a t i n an IBM 7040 a stand c a n be "grown" f r o m age 10 t o age 100 i n 13 m i n u t e s .  T h i s t e c h n i q u e can a v o i d  c o s t l y s o c i a l experiments i n r e a l l i f e by g i v i n g a p r e v i e w of the and h e l p one t o make b e t t e r d e c i s i o n s i n t h e p r e s e n t . (1965),  future  G o u l d and 0'Regan  w h i l e d i s c u s s i n g t h e use of s i m u l a t i o n i n f o r e s t r y ,  considered i t  as a s t e p toward b e t t e r f o r e s t p l a n n i n g w h i c h " h o l d s g r e a t promise f o r p r e - t e s t i n g t h e impact t h a t new p o l i c i e s are l i k e l y t o have on a woodland over many y e a r s " .  0 ' R e g a n e t a l . (1965?) r e p o r t e d some r e s u l t s on a  s i m u l a t i o n approach t o f o r e s t management.  V a l g and S m i t h ( 1 9 6 6 ) ,  while  d i s c u s s i n g s i m u l a t i o n of f o r e s t s t a n d g r o w t h , s a i d : " B y growing and h a r v e s t i n g our t r e e s i n t h e computer we are l e a r n i n g what t h e f o r e s t manager r e a l l y needs to know and what he c a n d o . We now have a f l e x i b l e , and p o w e r f u l , new t o o l t h a t p r o v i d e s an e x c e l l e n t way t o d e t e r m i n e e f f e c t s of r i s k from b i o l o g i c a l p e s t s and even g i v e s some i d e a s about t h e consequences of economic u n c e r t a i n t y by s t u d y i n g a wide range of a l t e r n a t i v e s . " S i m u l a t i o n has been used i n economics much more t h a n i n  forestry.  69  I t s a p p l i c a t i o n i n economic development i s p a r t i c u l a r l y f r u i t f u l , ,  Orcutt  ( i 9 6 0 ) and Greenberger ( l 9 6 l ) d i s c u s s e d the g e n e r a l problems i n s i m u l a t i o n of economic s y s t e m s .  H o l l a n d _et a l . ( i 9 6 0 ) c o n s t r u c t e d a model f o r  l a t i n g dynamic problems of economic development.  simu-  Mantesh (1964) and  C h a p p e l l e (1966a) showed how computers can be used i n f o r e s t r y - e c o n o m i c s . C h a p p e l l e (1966b) a l s o gave a computer program f o r c a l c u l a t i n g a l l o w a b l e c u t by area-volume method. The model i n t h i s c h a p t e r does not have a n y t h i n g t o do w i t h forestry in particular.  I t o n l y shows a way of d e t e r m i n i n g the most  d e s i r a b l e doses of f o r e i g n and t o t a l i n v e s t m e n t s t h a t an u n d e r d e v e l o p e d c o u n t r y needs t o r e a c h the t a k e - o f f  stage.  Once t h e g r o s s i n v e s t m e n t t o  be made y e a r a f t e r y e a r i s thus known t h e f o r e s t r y problem i s t o determine how much i n v e s t m e n t i n f o r e s t r y s h o u l d be made out of t h e g i v e n t o t a l * The s o l u t i o n of t h i s p r o b l e m , as w i l l be observed l a t e r , depends on the f u t u r e course of the economy as a w h o l e . v i s u a l i z e d by a s i m u l a t i o n m o d e l  Such a f u t u r e course can be  0  THE MODEL  I n i t s s i m p l i f i e d form the model i s l i k e t h a t of C h a p t e r One and i s b u i l t around t h e c e n t r a l concept t h a t t h e consumption l e v e l of t h e people can n o t be k e p t b e l o w what economic c i r c u m s t a n c e s would demand. I n o t h e r w o r d s , consumption i s a c o m p l e t e l y endogenous v a r i a b l e .  Higher  the p e r c a p i t a income the h i g h e r w i l l be t h e l e v e l of c o n s u m p t i o n . already observed, i s t o be a c h i e v e d .  i n such a m o d e l , f o r e i g n a i d i s a ' m u s t ' i f  As  development  The e x t e n t and i m p l i c a t i o n s of f o r e i g n a i d b o t h t o  the  70  donor and the r e c i p i e n t were d i s c u s s e d hy Mason ( 1 9 6 4 ) , Brannen and Hodgson ( 1 9 6 5 ) , L i t t l e and C l i f f o r d (1965) and K e e n l e y s i d e r e c e i v e d hy I n d i a from 1951  (l966)„  Amount of a i d  to 1963 was summarized hy Newman ( 1 9 6 5 ) ,  The  model has n o t h i n g t o do w i t h the p o l i t i c a l i m p l i c a t i o n s of a i d b u t o n l y t r i e s to f i n d out the optimum l e v e l t h a t s h o u l d be sought by a r e c i p i e n t country. I n the f o l l o w i n g pages i t i s shown how each r e l e v a n t w i t h time and o t h e r economic variables•> t i o n per c a p i t a .  i t e m changes  The f i r s t i t e m taken i s  consump-  I t w i l l be n o t i c e d t h a t , a c c o r d i n g t o the f o r m u l a t i o n of  the consumption f u n c t i o n g i v e n b e l o w , development becomes e a s i e r and more p r o b a b l e i f l a r g e and q u i c k i n c r e a s e s e a r l y as p o s s i b l e . large  savings  i n p e r c a p i t a income are c r e a t e d  T h i s w i l l be so because such a happening w i l l  i n e a r l y stages of  as  leave  development.  Consumption On the b a s i s of d i s c u s s i o n s i n C h a p t e r One, the r e l a t i o n s h i p between income on the one hand and consumption or i n v e s t m e n t on the w i l l be c o n s i d e r e d i n t h i s model on the p e r c a p i t a b a s i s „  other  The K e y n e s i a n  s h o r t - r u n consumption f u n c t i o n when shown w i t h p e r c a p i t a income (Y) on the h o r i z o n t a l a x i s and p e r c a p i t a consumption or i n v e s t m e n t on the v e r t i c a l axis i s u s u a l l y represented vertical axis (Fig. 7),  as a l i n e w i t h an i n t e r c e p t on the  T h i s i s a l s o c a l l e d the n o n - p r o p o r t i o n a l consump-  t i o n f u n c t i o n , as consumption does n o t b e a r t h e same p r o p o r t i o n t o income a t a l l income l e v e l s .  E m p i r i c a l s t u d i e s suggest t h a t t h i s consumption  f u n c t i o n s h i f t s w i t h time as incomes of p e o p l e change. f o r i t to move up and become s t e e p e r ( P e t e r s o n 1962) through time,  There i s a  tendency  as income l e v e l s  rise  I t i s t h u s c e r t a i n t h a t to assume the K e y n e s i a n consumption  • 7- Proportional and non-proportional consumption fu  Per C a p i t a Income  72  f u n c t i o n s t a b l e f o r any l e n g t h of time would be a m i s t a k e . s t u d i e s f o r the U n i t e d S t a t e s ( K u z n e t s 1946) y e a r s ( f r o m 1869 to 1938)  In  fact,  f o r a p e r i o d of about 70  show t h a t t h e consumption f u n c t i o n may a c t u a l l y  be p r o p o r t i o n a l to income i n the l o n g - r u n and would be expected to be r e p r e s e n t e d as a s t r a i g h t l i n e p a s s i n g t h r o u g h the o r i g i n i n F i g .  7.  F r i e d m a n ' s Permanent Income H y p o t h e s i s ( F r i e d m a n 1957) D u e s e n b e r r y ' s R e l a t i v e Income H y p o t h e s i s (Duesenberry  1949)  t r y to e x p l a i n  the n a t u r e of t h e consumption f u n c t i o n as something d i f f e r e n t simple Keynesian f o r m u l a t i o n .  and  from the  M o d i g l i a n i and Brumberg (1954) a l s o  dis-  c u s s e d consumption f u n c t i o n i n the l i g h t o f u t i l i t y a n a l y s i s and Houthakker (1958) p o i n t e d out the s h o r t c o m i n g s of F r i e d m a n ' s h y p o t h e s i s . (1959) d i v i d e d the "New T h e o r i e s " i n t o t h r e e independent 1.  Farrell  of Friedman and M o d i g l i a n i and Brumberg  hypotheses.  P r o p o r t i o n a l i t y Hypothesis:  F o r any i n d i v i d u a l ,  the  r e l a t i o n s h i p between h i s consumption and h i s normal income i s one of p r o p o r t i o n a l i t y . 2.  Rate-of-growth Hypothesis: In long-run e q u i l i b r i u m , aggregate s a v i n g i s d e t e r m i n e d by changes i n p o p u l a t i o n s t r u c t u r e and i n r e a l income p e r h e a d . change s t e a d i l y ,  the f r a c t i o n s  I f these  factors  o f aggregate income  saved  i s p r o p o r t i o n a l t o the r a t e of growth of aggregate r e a l income. 3.  N o r m a l Income H y p o t h e s i s :  I n any g i v e n p e r i o d an i n d i -  v i d u a l ' s c u r r e n t income y a f f e c t s h i s consumption C o n l y t h r o u g h i t s e f f e c t on h i s normal income Y .  We may  w r i t e C = P ( Y ) , where (3 i s independent Of c u r r e n t income and a s s e t s .  73  F a r r e l l rejected  the P r o p o r t i o n a l i t y H y p o t h e s i s and found t h e  R a t e - i o f - g r o w t h H y p o t h e s i s as s u b s t a n t i a l l y v a l i d .  He a l s o found t h e Normal  Income H y p o t h e s i s w e l l s u b s t a n t i a t e d f o r f a r m e r s and b u s i n e s s men i n t h e United States.  I t m i g h t , however,  o c c u p a t i o n s where incomes a r e  not be s u i t a b l e f o r c o u n t r i e s  and  stable.  R e g a r d i n g the R a t e - o f - g r o w t h H y p o t h e s i s he s a i d : " I t i s t h u s an o v e r - s i m p l i f i c a t i o n t o a s s e r t t h a t i n the l o n g - r u n , the p r o p o r t i o n of aggregate income saved i s p r o p o r t i o n a l t o the r a t e of growth of aggregate income; b u t i t i s much n e a r e r t h e t r u t h t h a n t h e l i n e a r consumption f u n c t i o n so o f t e n p o s t u l a t e d . I t would be i n t e r e s t i n g t o see t h e e f f e c t on the many " t h e o r i e s of economic growth" of s u b s t i t u t i n g i n them the R a t e - o f - g r o w t h H y p o t h e s i s f o r t h e i r p r e s e n t ( u s u a l l y l i n e a r ) consumption functions." D u e s e n b e r r y (1949) and M o d i g l i a n i (1949) s u g g e s t e d a i n w h i c h consumption was e x p r e s s e d  as a f u n c t i o n of c u r r e n t income and the  h i g h e s t p r e v i o u s peak income ( o r c o n s u m p t i o n ) .  Ando and M o d i g l i a n i  s u g g e s t e d a s i m i l a r model where the r o l e of the h i g h e s t was p l a y e d by n e t w o r t h of f u t u r e  hypothesis  incomes.  previous  (1963)  income  They c o n s i d e r e d t h e i r f o r m u -  l a t i o n ; c o n v e n i e n t as a b u i l d i n g b l o c k i n models of economic growth and fluctuations". Taubman (1965) showed t h a t t h e Permanent Income H y p o t h e s i s  of  F r i e d m a n i n i t s o r i g i n a l s t r o n g form can not be s u p p o r t e d by e m p i r i c a l data.  However, i t was i n d i c a t e d t h a t on the whole consumers saved a s m a l l  p r o p o r t i o n of t h e i r permanent income and a l a r g e p r o p o r t i o n of income.  transitory  L i v i a t a n (1965) showed t h a t t h e Permanent Income H y p o t h e s i s was  a l m o s t t h e C u r r e n t Income H y p o t h e s i s . From the r e v i e w o f t h i s l i t e r a t u r e i t seems r e a s o n a b l e  to  assume  t h a t the c u r r e n t p e r c a p i t a consumption i s a f u n c t i o n of the c u r r e n t p e r c a p i t a income as w e l l as t h e p e r c a p i t a consumption i n the p r e v i o u s  income  74  period.  I f the p e r c a p i t a income remains c o n s t a n t f o r a l o n g enough p e r i o d  the p e r c a p i t a consumption may be a f i x e d p r o p o r t i o n of the income.  The  r a t i o of consumption to income may be determined by c u l t u r a l f a c t o r s  in a  s o c i e t y w h i c h u s u a l l y a r e such t h a t the r a t i o does n o t change a p p r e c i a b l y f o r such p e r i o d s of time as 30 or 40 y e a r s o r more. sumption ( c ) a f t e r level will  i t has had s u f f i c i e n t  The per c a p i t a c o n -  time to a d j u s t  to a new income  thus be u,Y i f Y i s the p e r c a p i t a income and p, t h e s a i d r a t i o .  T h i s |iY i s t h e r e f o r e income l e v e l of Y . " f u l l y adjusted" U n i t e d States,,  the " f u l l y a d j u s t e d " I f Kuznets'  consumption c o r r e s p o n d i n g to an  (1946) f i g u r e s  are assumed to be such  f i g u r e s t h e n the v a l u e of u, would be about 0„85 f o r When consumers are " f u l l y a d j u s t e d "  the " f u l l y adjusted"  the  t o an income l e v e l  average and m a r g i n a l p r o p e n s i t y t o consume i s  ther..  equal  to 0 . 8 5 . F o r e v e r y economy the v a l u e of p, would be d i f f e r e n t " f u l l y adjusted"  and the  o r l o n g - r u n consumption c o u l d be r e p r e s e n t e d as a  straight  l i n e OA p a s s i n g t h r o u g h the o r i g i n i n F i g . 8^ If  income has remained s t a t i o n a r y a t Y  Q  for sufficient  l e n g t h of  t i m e then the per c a p i t a consumption w i l l be e q u a l t o the v e r t i c a l i n t e r v a l between C  o  and the h o r i z o n t a l a x i s  0  Now l e t i t be assumed t h a t  l e v e l has moved i n the next income p e r i o d to Y^<, p o n d i n g consumption?  income  What w i l l be the  corres-  I f a l l o w e d t o r e m a i n a t Y^ f o r a long enough p e r i o d  the income Y^ would f i n a l l y induce a consumption of pY^ w h i c h would be r e p r e s e n t e d by a p o i n t on OA v e r t i c a l l y above Y ^ . would be l e s s t h a n pY-^ i f s u f f i c i e n t  B u t the consumption  time f o r adjustment were n o t  allowed  The f o l l o w i n g a n a l y s i s determines how much e x a c t l y the consumption would be  0  0  I  75  Fig- 8- Consumption function for the simulation model-  76  If  t h e change i n income were i n s t a n t a n e o u s i t may he assumed t h a t  the consumer has n o t y e t been used t o the changed income l e v e l and w o u l d c o n t i n u e t o consume a t l e v e l C income l e v e l remained a t  q  to b e g i n w i t h .  A s time p a s s e d on and the  h i s consumption would move up from C  |JY^ on t h e v e r t i c a l l i n e above Y ^ .  q  towards  I f i t i s assumed t h a t the f a r t h e r the  a c t u a l consumption i s from uX^, t h e g r e a t e r w o u l d be the a s p i r a t i o n of the consumer to r e a c h i t t h e n the "speed" w i t h which the consumption l e v e l s t a r t moving from C  Q  will  t o u,Yj w i l l be h i g h a t f i r s t and g r a d u a l l y d i m i n i s h  t o z e r o when i t r e a c h e s pY^. Here, there are a t l e a s t two p o s s i b i l i t i e s f o r d e s c r i b i n g how consumption l e v e l C A.  q  can move towards M-Y^.  05  The movement s t a r t s w i t h a h i g h speed which d e c r e a s e s a t a c o n s t a n t r a t e and becomes zero when |iY, i s r e a c h e d .  B.  The movement s t a r t s w i t h a h i g h speed which i s p r o p o r t i o n a l to t h e " d i s t a n c e " y e t to be covered to r e a c h |iY^.  P o s s i b i l i t y (A) i s i d e n t i c a l w i t h t h e case of a p a r t i c l e t h a t  is  thrown a g a i n s t t h e f o r c e of e a r t h ' s g r a v i t y a t a c e r t a i n speed so t h a t  it  j u s t touches a g i v e n c e i l i n g b e f o r e i t s t a r t s f a l l i n g down a g a i n . movement of t h e consumption l e v e l from C  q  The  t o pY^ w i l l be the same as t h e  movement of t h i s p a r t i c l e from the moment of i t s l a u n c h i n g t o i t s r e a c h i n g the c e i l i n g . Let  t h e " d i s t a n c e " measured a l o n g t h e v e r t i c a l a x i s i n F i g . 8 be  denoted by s , t i m e by t , and t h e c o n s t a n t r a t e of decrease adjustment as  of speed of  f.  Then  ±-| dt^  =  f  (6)  and so  '-||  =  u + ft  (7)  77  where u, i s the i n i t i a l  speed w i t h w h i c h C s t a r t s moving towards pY^„  The aim i s t o f i n d the ' d i s t a n c e ' moved i n one t i m e p e r i o d (one y e a r ) when u was such t h a t the C would come to r e s t a t M-Y-^, i . e . , when ~ dt  =  and t  0  =  - ^ 1  T h i s means t h e t i m e taken f o r g e t t i n g f u l l y a d j u s t e d t o a new income l e v e l  is T  - a  =  (8)  The t i m e t a k e n f o r a d j u s t m e n t can a l s o be d e t e r m i n e d from i n t e g r a t i o n of  (7).  t o u,Y, i s (u.Y, — C ) . o 1 • 1 o' f o r t h i s movement i s g i v e n by T where: The d i s t a n c e moved from C  ^  (HY, - C ) 1 o '  T  v  ^ ds  =  0 or  The time t a k e n  ^ (u + f t ) d t o  (UY  1  - C  Q  )  l„ 2 uT + -gfT m  =  From ( 8 ) i t i s known t h a t T =~*-j ,  therefore  -\ 4  ^ I - °o  •  Y  or The " d i s t a n c e " moved i n one income p e r i o d i s g i v e n by 1 l  C  of u from (9) i s  ~  c 0  =r  substituted.  J  (  u  +  *t)dt  =  u + if  =  /-2f(|j,Y - C ) + i f 1  Q  when the v a l u e  78  The parameter f has a n e g a t i v e v a l u e i n t h i s f o r m u l a t i o n as i t i s a d e c e l e r a t i o n and n o t an a c c e l e r a t i o n .  I f i t i s given a p o s i t i v e value  then:  = /2f((iY, - C ) - i f 1 o  C, - C 1 o Similarly, '  C  - C  ,=  n-1  n  J  v  7  /2f(pY" - C -,) - i f n n-1' *  (lO)  '  v  T h i s f o r m u l a g i v e s t h e consumption l e v e l c o r r e s p o n d i n g t o each per c a p i t a income l e v e l i f t h e consumption l e v e l i n t h e p r e v i o u s p e r i o d and t h e parameters f and p, a r e known.  The f o r m u l a i s a p p l i c a b l e o n l y when  consumption l e v e l s a r e i n c r e a s i n g . I f income l e v e l f a l l s , and t h e new " f u l l y  a d j u s t e d " consumption  l e v e l i s below t h e o l d consumption l e v e l , t h e f o r m u l a w i l l C  , - C  n-1  n  = /2f(C v  n-1  become  , - pY ) + i f n'  P o s s i b i l i t y (B) c a n be e x p r e s s e d b y |f  =  g(A-s)  where A i s ( p Y ^ - C ) and g i s a c o n s t a n t . Q  -log  T h i s means t h a t  (A-s) = g t + k  The v a l u e o f c o n s t a n t k i s d e t e r m i n e d from t h e o b s e r v a t i o n t h a t a t t = o; s = o. P u t t i n g these v a l u e s i n t h e above f u n c t i o n y i e l d s k = -log A so t h a t t h e f u n c t i o n becomes gt = l o g A - l o g (A-s) ~ A-s  =  e  g t  (11) '  79  The change i n consumption i n one u n i t of t i m e (one y e a r ) found as t h e s o l u t i o n of s i n ( l l ) Thus  ~ A-s  or  s  =  e  -  A(e -1)  i f t i s put e q u a l t o  can he  one.  g  g  e  i.e. n-C 1 o  g  ±k!=i> e  g  6  Therefore ^(e -!) —± 8  =  C  1 In general  £ terms |iY ( e - l ) g  C n  + C ii  =  lA  + C n  ,  (12)  ^  g  /  T h i s f o r m u l a w i l l he a p p l i c a b l e even when the income l e v e l i s f a l l i n g and the new " f u l l y a d j u s t e d "  consumption l e v e l i s below the o l d consumption  level. Of the two p o s s i b i l i t i e s e i t h e r (10)  or (12)  c o u l d be used i n  the model f o r d e t e r m i n i n g the per c a p i t a consumption l e v e l  corresponding  t o a g i v e n income l e v e l i f the consumption i n p r e v i o u s y e a r i s known.  Both  are dynamic f o r m u l a t i o n s of a s i m p l e s t a t i c K e y n e s i a n consumption f u n c t i o n . Investment;; I n the model i t i s assumed t h a t some mechanism e x i s t s i n the economy w h i c h ensures  t h a t a l l ex>-ante s a v i n g s a r e p l a n n e d t o be  The t o t a l i n v e s t m e n t , however, c a p i t a l i s imported.  can be g r e a t e r  than savings i f  invested.  foreign  The aggregate p e r c a p i t a i n v e s t m e n t made a t any time  w i l l be the sum of p e r c a p i t a domestic s a v i n g s ( S ) n  and per c a p i t a  foreign  80  investment ( F v  ). n'  Thus  I  and  S  where  I  n n  =  S  =  Y  + F  n  - C  n  n n  i s the aggregate investment p e r head.  L e t cv and 8 denote the m a r g i n a l and average o u t p u t - c a p i t a l respectively, w h i c h they  Subscripts  i n d i c a t e the p e r i o d to  refer.  Also, economy.  i n t h e economy as a w h o l e .  ratio,  l e t an investment mature i n m y e a r s on an average i n t h i s  Then a sum of I  get added to t h e c a p i t a l  m  ,  i n v e s t e d i n the y e a r ( n - m ) , w i l l mature and  s t o c k i n the y e a r n .  t h i s c a p i t a l can produce w i l l a , I  that  be  . a n-m  n-m Where cv^  The a d d i t i o n a l income  i s the m a r g i n a l ( n o t average) o u t p u t - c a p i t a l r a t i o of  t h i s investment and a i s the c o n v e r s i o n f a c t o r f o r an i n v e s t m e n t  into  capital. Depreciation As i n C h a p t e r 0 n e  s  i t i s assumed here t h a t every y e a r a f i x e d  p r o p o r t i o n d of the per c a p i t a c a p i t a l s t o c k k i s worn o u t . the end of y e a r ( n - l ) P  Thus, i f  at  the p e r c a p i t a c a p i t a l was k _ ^ , and p o p u l a t i o n was n  , , t h e n a t t h e end of y e a r n o n l y ( l - d ) n-1 ' J \ / J  , k  , n-1  » P  , i n a l l , or n-1  ( l - d ) . k -1 „ P , ' n n—1 p e r c a p i t a , w i l l be l e f t . To t h i s w i l l be added the P n new c a p i t a l t h a t would come as a r e s u l t of i n v e s t m e n t s made i n y e a r ( n - m ) . v  The d e p r e c i a t i o n d i s c u s s e d i s the " r e a l " one as d i s t i n g u i s h e d from  81  the " a l l o w e d " or "hook" d e p r e c i a t i o n of i n d u s t r y . account t h e d e p r e c i a t i o n due t o t e c h n i c a l  I t does n o t take  into  obsolescence.  Income The Income t h a t can be produced i n any one y e a r w i l l depend on the c a p i t a l stock a v a i l a b l e . would be new and some o l d . of the new c a p i t a l and B  n  I t w i l l be n o t e d t h a t some of t h e When Q?  i s the m a r g i n a l o u t p u t - c a p i t a l  n  . k  ,  n—1  '  v  . P  n  ,  x  '.  .* k  ,  n-1  . P  + a . I  . B  n—1  The p e r c a p i t a income i n y e a r n w i l l (l-d)  ratio  ^ i s the average o u t p u t - c a p i t a l r a t i o of the o l d ,  the t o t a l income t h a t can be produced i n y e a r n w i l l (l-d)  capital  n—1  n—m  be . a n—m  be  , ,. B ,, +, a . I .Qf n-1 n-*I n-m n-m P n  Population On the b a s i s o f d i s c u s s i o n s i n C h a p t e r One i t i s assumed t h a t r a t e o f growth of p o p u l a t i o n depends on the p e r c a p i t a income.  It  the  rises  s h a r p l y w i t h i n c r e a s e s i n income a t low l e v e l s , b u t r e a c h e s a c u l m i n a t i o n p o i n t and t h e n g r a d u a l l y drops t o a r e l a t i v e l y c o n s t a n t v a l u e as income l e v e l continues to increase ( F i g . 9 ) , W i t h p e r c a p i t a income o f OA ( F i g . 9) t h e economy shows no i n c r e a s e or decrease i n p o p u l a t i o n .  With  an income of OE the maximum p o s s i b l e  of p o p u l a t i o n growth (EB) i s a c h i e v e d .  As incomes c o n t i n u e t o  increase  t h e r a t e of p o p u l a t i o n growth d e c r e a s e s and tends to approach t h e of asymptote CD.  rate  level  The s t e a d y r a t e of p o p u l a t i o n growth when incomes c o n -  t i n u e t o grow i s OC.  When p e r c a p i t a income i s OF t h e r a t e of p o p u l a t i o n  Fig- s ' Rote of population growth as a function of per capita income-  83  growth i s FG w h i c h i s the mean of EB and OC. The p o r t i o n of t h i s curve t o the l e f t with i t s vertex at B .  o f E resembles a p a r a b o l a  The p o r t i o n t o t h e r i g h t of E r e s e m b l e s , t h e  exten-  s i o n of t h i s p a r a b o l a from B so t h a t i t becomes p a r a l l e l t o l i n e CD a t infinity.  I f p e r c a p i t a income l e v e l s and t h e r a t e s of growth of p o p u l a t i o n  f o r p o i n t s A , B and G are known, a l o n g w i t h t h e h e i g h t o f l i n e CD above the h o r i z o n t a l a x i s , the rough e q u a t i o n t o the curve can be w r i t t e n as (Thomas  follows  1966):  _£ll^L (Y-e) n  f  o  r  0  < Y < ~  2  "  (13)  = c  +  (P- ) (r-e)  for e < Y  (*- ) e  C  2  -  (Y-e)  2  Where Y i s the independent v a r i a b l e p e r c a p i t a income; n i s the  dependent  v a r i a b l e r a t e o f p o p u l a t i o n g r o w t h ; y i s the p e r c a p i t a income a t w h i c h population stays constant;  e i s the p e r c a p i t a income a t which t h e maximum  p o s s i b l e r a t e of p o p u l a t i o n growth p i s o b t a i n e d ; c i s the l e v e l t o which r a t e of p o p u l a t i o n growth tends t o s e t t l e down a t h i g h p e r c a p i t a income levels;  and r i s t h e p e r c a p i t a income a t w h i c h r a t e of p o p u l a t i o n growth  f a l l s to f ^ ° If  w i t h i n c r e a s i n g incomes.  such an e q u a t i o n f o r t h e r a t e of p o p u l a t i o n growth can be  e s t i m a t e d f o r a c o u n t r y , and the t o t a l p o p u l a t i o n i n a base y e a r i s known, t h e n t h e p o p u l a t i o n i n subsequent y e a r s can be d e t e r m i n e d . F o r t h i s m o d e l , i t i s assumed t h a t the v a l u e s of y> > P> e  r a r e $ 4 7 , $ 1 5 0 , 3 . 3 0 $ , 1.00$ and $ 2 5 0 , r e s p e c t i v e l y . fore  becomes:  c  a n (  *  The e q u a t i o n t h e r e -  84  (Y - 150) 3214.85  3.30  2 for  0 <. Y < 150 ..(14)  n =  1.00  23000  -  (Y-150)  2  for  150 < Y  - 10000  There i s l i t t l e doubt t h a t such an e s t i m a t e c a n n o t be veryprecise.  B u t d e c i s i o n s c a n and s h o u l d be made on the b a s i s of  d a t a even i f t h e y are r o u g h .  available  Subsequent a d d i t i o n a l i n f o r m a t i o n can always  be used t o improve t h e e s t i m a t e and improve the d e c i s i o n making t e c h n i q u e i n the f u t u r e .  I t i s p r o b a b l e t h a t , an a s s u m p t i o n of a h o r i z o n t a l s t r e t c h  of the c u r v e t o the r i g h t of B i n F i g . 9 , b e f o r e  i t f a l l s down to asymp-  t o t e CD, may be more r e a l i s t i c . Maintenance I n C h a p t e r One i t was shown t h a t a c e r t a i n minimum i n v e s t m e n t n e c e s s a r y a t each stage so t h a t the p e r c a p i t a income w o u l d n o t f a l l the e x i s t i n g l e v e l .  below  I n the m o d e l , where a t i m e l a g i s a d m i t t e d between  i n v e s t m e n t and i t s m a t u r i t y , a c e r t a i n minimum i n v e s t m e n t i s n e c e s s a r y the y e a r (n-m) so t h a t p e r c a p i t a income i n t h e y e a r n does n o t f a l l the ( n - l ) l e v e l .  onwards to f a l l below the l e v e l of y e a r ( n - l ) ,  below  and  then c e r t a i n minimum  i n v e s t m e n t s must be made n o t o n l y i n y e a r (n-m) b u t a l s o i n y e a r  foreign aid.  in  T h i s minimum r e q u i r e m e n t i s c a l l e d maintenance h e r e i n .  I f the i n t e n t i o n i s n o t to l e t the p e r c a p i t a income i n y e a r (n+l)  and s u b s e q u e n t l y .  is  (n-m+l)  The i n v e s t m e n t i s made up of domestic s a v i n g s and  A s i t i s assumed t h a t a l l domestic s a v i n g i s  necessarily  i n v e s t e d , t h e f o r e i g n a i d component of the "maintenance" can be found by simple s u b s t r a c t i o n i f the t o t a l investment r e q u i r e d f o r m a i n t a i n i n g income  85 a t a c e r t a i n l e v e l i s known.  The f o l l o w i n g e x e r c i s e  shows how t h e  calcu-  l a t i o n s f o r t o t a l and f o r e i g n i n v e s t m e n t r e q u i r e m e n t s f o r m a i n t a i n i n g t h e p e r c a p i t a income a t a l e v e l of Y  w o u l d have t o be made.  n  In year ( n - l ) t o t a l income-is P _^ . Y _^ n  n  The t o t a l income i n y e a r n must be a t l e a s t P (n-l)  , i f t h e l e v e l of  year  n-1  i s t o he m a i n t a i n e d . The l e f t  (l-d)  „ Y n  J  . k  Q  ^ *  over c a p i t a l of y e a r ( n - l ) w i l l i  • ?  P  n  1 *  n  . Y  ^  n e  r  e  m  i  a  ' '.  , - (l-d)  n-1  v  n  i  k  n  income of  e  .  n-1  c r e a t e an income of  . P  .  n-1  . B  n-1  must be produced from the new c a p i t a l t h a t must come f r o m t h e  investments  i n y e a r (n-m) . The minimum i n v e s t m e n t r e q u i r e d i n y e a r (n-m) i s P  n  . Y  '  , - (l-d)  n-1  v  . k  ,  n-1  , P  .  n-1  . B  therefore  .  n-1  a . cv n-m or  P  n  ' n-1 Y  -U-*) a . P  • n - l • n-1 .OKn-m n-m k  P  ' n-1 P  per c a p i t a ,  T h i s i s t h e p e r c a p i t a maintenance r e q u i r e m e n t i n y e a r ( n - m ) . If  the p e r c a p i t a domestic s a v i n g i n y e a r (n-m) i s equal t o or  g r e a t e r t h a n t h i s m a i n t e n a n c e , i t i s ensured t h a t the p e r c a p i t a income l e v e l of y e a r n w i l l n o t be below t h a t of ( n - l ) .  If i t i s less,  f o r e i g n i n v e s t m e n t of  P  n  - n-1  per c a p i t a i s r e q u i r e d .  Y  -  '  n - l ' n-1 a . P • . or n-m n-m k  P  '  ^n-1 n-m  a minimum  86  If  i t i s assumed t h a t a c t u a l l y j u s t t h i s amount of f o r e i g n  ment i s made i n y e a r ( n - m ) , per c a p i t a income Y Y  n 1*  ^  n e  C  a  n  n 0 W  ca  -"- -'- * cu  a  i n y e a r n w i l l be e q u a l to  n  *he r e q u i r e m e n t f o r the y e a r ( n - m + l ) .  e  invest-  Assuming  t h a t t h i s requirement i s f u l f i l l e d Y w i l l be equal to Y and Y , and ^ n+1 ^ n n-1 7  the maintenance r e q u i r e m e n t s f o r y e a r (n-m+2) can be determinedo r e q u i r e m e n t a t any s t a g e i s l e s s t h a n the domestic s a v i n g s , later will  increase,,  the  income i n y e a r s  T h i s i n c r e a s e w i l l n o t be due to f o r e i g n  but o n l y due t o domestic  If  investments  investments.  I n t h i s manner a schedule of f o r e i g n i n v e s t m e n t s needed to h o l d the p e r c a p i t a income of a c o u n t r y from f a l l i n g below a c e r t a i n l e v e l be d e t e r m i n e d .  can  The e n t i r e schedule i s the "maintenance" r e q u i r e m e n t f o r  the g i v e n income l e v e l  F o r each income l e v e l t h e r e w i l l be a s e p a r a t e  Q  schedule. A f t e r making a c e r t a i n p r e - d e t e r m i n e d schedule of f o r e i g n ments i n the economy i t s growth can be s i m u l a t e d .  invest-  F o r t h e per c a p i t a  incomes i n each of t h e y e a r s a "maintenance" r e q u i r e m e n t s c h e d u l e can now be d e t e r m i n e d . Average  output—capital r a t i o As has been shown the t o t a l income i n the y e a r n w i l l (l-d) K  '  . k  , . P , . 3 , + a.i . n-1 n-1 n-1 n-m  on  n-m  The t o t a l q u a n t i t y of c a p i t a l i n the same y e a r w i l l (l-d) N  Therefore,  '  . k  n-1 n  . P  , + a » I n-1 n-m  the average o u t p u t - c a p i t a l r a t i o w i l l be (l-d) v  '  . k  , . P , .•3 - , + a . I n-1 n-1 n-1 n-m  (l-d)  . k '  n  n-1  . P  - , + a . I n-1  n-m  . a n-m  be  be  - 87  I n C h a p t e r One, where no l a g s of any k i n d were assumed and the consumption f u n c t i o n was of a f a i r l y s i m p l e k i n d , t h e t a k e - o f f  stage was  d e f i n e d t o be a t the p e r c a p i t a income l e v e l of OT i n F i g . 1.  A similar  d e f i n i t i o n of the t a k e - o f f  s t a g e , depending on the m a i n t e n a n c e ,  developed l a t e r i n t h i s c h a p t e r .  is  T h i s d e f i n i t i o n t a k e s i n t o account  l a g of m y e a r s between making an i n v e s t m e n t and i t s f r u i t i o n .  It  the  also  t a k e s i n t o account the more c o m p l i c a t e d consumption f u n c t i o n developed here. Once t h e t a k e - o f f  s t a g e i s r e c o g n i z e d the o b j e c t w i l l be t o  find  the most d e s i r a b l e schedule of e q u a l f o r e i g n i n v e s t m e n t s w h i c h w i l l move the economy from s t a g n a t i o n t o t a k e - o f f .  F o r t h i s , f i r s t of a l l , the  growth of t h e economy from y e a r t o y e a r f o r a s u f f i c i e n t l y l o n g p e r i o d must be t r a c e d .  T h i s i s done by an IBM 7040 computer w i t h the h e l p of a  programme d e s c r i b e d b e l o w .  Initial  equal f o r e i g n i n v e s t m e n t s are d i s c u s s e d  i n the model f o r t h e sake of convenience and f o r r e d u c i n g computing t i m e . There i s no r e a s o n why i n the absence of such a r e s t r i c t i o n , the most d e s i r a b l e schedule must be e q u a l .  CHOICE OF MARGINAL OUTPUT-CAPITAL RATIO  I n e a r l i e r paragraphs t h e m a r g i n a l o u t p u t - c a p i t a l r a t i o (&) n o t been assumed t o be c o n s t a n t . value.  has  E a c h y e a r i t c o u l d have a d i f f e r e n t  T h i s v a l u e w i l l be d e t e r m i n e d by the p l a n n e r s o r i n v e s t o r s i n t h e  country. discussed.  I n t h i s s e c t i o n the t h e o r y b e h i n d the p l a n n e r s c h o i c e w i l l  be  Dobb ( i 9 6 0 ) and Sen ( i 9 6 0 ) a n a l y s e d t h i s problem i n c o n s i d e r -  a b l e d e t a i l and have many s i m i l a r v i e w s .  88  I n h i s s i m p l e s t m o d e l , Sen ( i 9 6 0 ) c o n c l u d e d t h a t , ; t h e c h o i c e of c a p i t a l - i n t e n s i t y depends on the l e n g t h of time h o r i z o n o f t h e p l a n n e r s . A more c a p i t a l i n t e n s i v e t e c h n i q u e means r e l a t i v e l y s m a l l e r c u r r e n t b u t l a r g e r s u r p l u s and hence h i g h e r r a t e of growth i n t h e f u t u r e .  output A less  c a p i t a l - i n t e n s i v e t e c h n i q u e , on the o t h e r hand, g i v e s a l a r g e r c u r r e n t o u t put b u t r e l a t i v e l y lower f u t u r e r a t e of growth,, technique w i t h higher c a p i t a l - i n t e n s i t y w i l l  G i v e n enough t i m e , the  c e r t a i n l y o v e r t a k e the p r o -  d u c t i o n t h a t would c o r r e s p o n d to the t e c h n i q u e w i t h l o w e r c a p i t a l i n t e n s i t y . I n F i g . 10  r  e x p o n e n t i a l c u r v e s H and L show t h e growth of o u t p u t w i t h t h e  h i g h e r c a p i t a l - i n t e n s i t y and lower c a p i t a l - i n t e n s i t y t e c h n i q u e s tively.  respec-  C u r r e n t o u t p u t N„ c o r r e s p o n d i n g to H i s l o w e r than c u r r e n t o u t p u t xi  c o r r e s p o n d i n g to L ,  A t the end of t i m e OA the average o u t p u t per u n i t  of time w i t h e i t h e r t e c h n i q u e i s the same.  Beyond OA the h i g h e r c a p i t a l -  i n t e n s i t y t e c h n i q u e (H) has a h i g h e r average output p e r u n i t of t i m e ,  If  t h e t i m e h o r i z o n o f t h e p l a n n e r s i s l o n g e r t h a n OA, t e c h n i q u e H s h o u l d be chosen o v e r L .  I f i t i s s h o r t e r t h a n OA t e c h n i q u e L i s b e t t e r .  This i s  one o f t h e main c o n c l u s i o n s drawn by Sen ( i 9 6 0 ) . I n t r o d u c t i o n o f t h e concept of t i m e h o r i z o n i n the way p r e s e n t e d , i m p l i c i t l y assumes t h a t as seen from p o i n 0 , the worth of a l l  future  v a l u e s o c c u r i n g a t any t i m e beyond OA i s n i l , and of v a l u e s w i t h i n OA i s not a f f e c t e d  at a l l .  T h i s can not be c o n s i d e r e d a r e a l i s t i c a s s u m p t i o n .  The o n l y a s s u m p t i o n t h a t may f i t i n t o r e a l l i f e e x p e r i e n c e  seems t o be the  one w h i c h g r a d u a l l y d e c r e a s e s t h e w o r t h of v a l u e s (when seen from 0) t h e y o c c u r f a r t h e r and f a r t h e r away from 0 i n t i m e .  as  I f the r a t e a t w h i c h  90  t h e f u t u r e must be d i s c o u n t e d i s assumed t o appear constant''' through  time  from 0, t h e n t h e d i s c o u n t e d v a l u e s of H o r L a r e o b t a i n e d by d i v i d i n g t h e u n d i s c o u n t e d v a l u e s by e**, where i i s t h e r a t e o f d i s c o u n t . I f r a t e o f growth o f H and L a r e assumed t o be g^ and  then  t h e i r growth p a t h s i n time a r e r e p r e s e n t e d by  and  y  =  y  =  %  .  e  r e s p e c t i v e l y , where t  r e p r e s e n t s time and y t h e v a l u e of o u t p u t . The growth p a t h s o f t h e d i s c o u n t e d v a l u e s w i l l a c c o r d i n g l y be  y  =  .  (gjj - i ) t e  .  e  (g and  y' =  N  L  T  (15)  "i)t (16)  A d m i s s i o n of a l i n e , h o r i z o n l i k e OA i m p l i e s t h a t the v a l u e s of y'from (15) and ( 1 6 ) a r e e x t r e m e l y s m a l l f o r v a l u e s of t l a r g e r t h a n  OA.  T h i s can be c o n c e i v e d of o n l y when y' i n ( l 5 ) and (16) i s a d e c r e a s i n g f u n c t i o n of t . T h i s i n t u r n i s p o s s i b l e o n l y when b o t h g^ and g^ a r e smaller than i .  1.  One can t h e r e f o r e r e a s o n t h a t when Sen ( i 9 6 0 ) i n t r o d u c e d  I t may be r e a s o n a b l e t o t h i n k of t h e r a t e of d i s c o u n t as g r a d u a l l y i n c r e a s i n g w i t h t h e passage o f t i m e . W i t h such an assumption t h e i n t e g r a t i o n s d i s c u s s e d on n e x t few pages become d i f f i c u l t t o d e a l w i t h and t h e r e f o r e o n l y t h e s i m p l e r c a s e , where the r a t e of d i s c o u n t i s throughout the same, i s g i v e n h e r e .  91 a time h o r i z o n i n h i s a n a l y s i s he i m p l i c i t l y a d m i t t e d t h a t the r a t e of time preference economy.  i s h i g h e r t h a n any p o s s i b l e r a t e of growth of the  What he d i d n o t admit was t h a t the d i s c o u n t i n g p r o c e s s  reduce the p r e s e n t w o r t h of f u t u r e v a l u e s p r o g r e s s i v e l y time.  aggregate should  and g r a d u a l l y w i t h  I n h i s f o r m u l a t i o n t h e r e i s no r e d u c t i o n w i t h i n the t i m e h o r i z o n ; b u t ,  j u s t beyond the time h o r i z o n , an e x c e s s i v e l y complete " e v a p o r a t i o n "  of the f u t u r e v a l u e s  h i g h r e d u c t i o n , amounting to takes p l a c e .  t h i s awkwardness b u t d i d n o t attempt t o r e d r e s s If  Sen was aware of  it.  i n s t e a d of e x p l i c i t l y b r i n g i n g i n the time h o r i z o n i n t o  a n a l y s i s a c o n t i n u o u s and u n i f o r m r a t e of d i s c o u n t i n g t h e f u t u r e i n t r o d u c e d t h e n the c h o i c e of h i g h e r c a p i t a l - i n t e n s i t y w i l l  this  is  always be  b e t t e r t h a n lower c a p i t a l - i n t e n s i t y so l o n g as i i s s m a l l e r t h a n g^ and g^. When i i s g r e a t e r  t h a n g^ and g^, the growth p a t h s ( l 5 )  and (16)  of  dis-  counted v a l u e s  of o u t p u t w i l l be downward s l o p i n g as shown i n F i g .  That t e c h n i q u e  s h o u l d be chosen, t h e a r e a under the growth p a t h of w h i c h  is  greater. The a r e a under H curve  is  o or  J N o  As i  R  . e  dt  > gjj the e x p r e s s i o n can be w r i t t e n as  r  J  o  -(i-%) N  H •  e  t :  d  t  11.  • II- Growth of discounted value of output with time when rate of discount is greater than the rate of growth-  3 CL 3  o 4> Z3  O >  4> c 3  o o  93  (i"g ) H  N  H  (i-g„)  S i m i l a r l y , the area under L curve i s  N  T h e r e f o r e , technique  N  L  H i s b e t t e r than technique  Y  H H  N N  Li f  H  L  L  i-g i-g B  H  L  g i v e n t h a t i >g^ g^,  T h i s a n a l y s i s may o f f e r some help i n the process of choosing  the c a p i t a l  i n t e n s i t y o f new p r o j e c t s i n a  develop-  ing economy but i t can not be c o n s i d e r e d a complete guide i n real  life  The v a r i o u s c o m p l i c a t i o n s  i n t r o d u c e d by t r y i n g to  make the a n a l y s i s more r e a l i s t i c a r e d i s c u s s e d by Sen (1960)„  94  The c o m p l i c a t i o n s a r e n o t o n l y due t o e c o n o m i c r e a s o n s also p o l i t i c a l  and s o c i a l .  economic a n a l y s i s tensities  but  Sen r i g h t l y h e l d t h a t a f o r m a l  c a n n o t t h r o w much l i g h t on how c a p i t a l  are determined.  This  is  so b e c a u s e t e c h n o l o g i c a l  c h o i c e has c o n s e q u e n c e s o u t s i d e t h e f i e l d o f e c o n o m i c s a l s o because i n l i f e  are used f o r choosing  i n t e n s i t y a t any t i m e i t i s q u i t e c e r t a i n t h a t t h e  a's  times w i l l  be d i f f e r e n t .  i n t h e model d i s c u s s e d h e r e i n w i l l  different years.  and  economics i s not a l l t h a t m a t t e r s .  Whatever c r i t e r i a  made a t d i f f e r e n t  in-  the  capital  decisions  The v a l u e o f  the  t h u s be d i f f e r e n t  Y e t , f o r t h e sake of s i m p l i c i t y a l l  in  a's  a r e g i v e n t h e same v a l u e i n c o m p u t e r s i m u l a t i o n .  THE COMPUTER PROGRAMME  D r , A,  Kozak o f t h e F a c u l t y o f F o r e s t r y has  t h e s i m u l a t i o n m o d e l programme.  For s i m u l a t i n g the growth of  an economy v a r i o u s v a r i a b l e s h a v e been a s s i g n e d not too u n r e a l i s t i c v a l u e s .  written  a r b i t r a r y but  A l s o many a s s u m p t i o n s  have been  s i m p l i f i e d as g i v e n b e l o w . The p e r c a p i t a c o n s u m p t i o n Cn i n y e a r n has c a l c u l a t e d by t h e g r a v i t y f o r m u l a (10) sumed as  and t h e v a l u e o f f  as-  8. The v a l u e s o f a l l a ' s  to 0.33  been  when d e v e l o p m e n t i s  c h o s e n as  it  is  have been assumed  initiated.  This  t o be e q u a l  f i g u r e has  been  r e p r e s e n t a t i v e of the developed c o u n t r i e s of  95 today from whom c a p i t a l i s borrowed o r techniques the underdeveloped.  l e a r n e d by  To show the s t a g n a t i o n stage o f C i n F i g .  1, ct's have been taken as equal t o 0.64,  T h i s may be r e a l i s -  t i c as poor c o u n t r i e s have low c a p i t a l - l a b o u r r a t i o .  is, Y  The  value o f a has been assumed as u n i t y .  The  value o f  The  initial  = 50o  Q  3 initially,  3 , has been taken as 0.64. Q  value o f Y has been taken as $50;  that  T h i s i s , o r was, t r u e o f many underdeveloped  countries.  one  unit.  The  initial  value o f K i s t h e r e f o r e - 78.12. . 64  The  initial  population, i . e . , P  5 0  Q  has been taken as  T h i s i s not u n r e a l i s t i c as the u n i t can be d e f i n e d  as a thousand, o r m i l l i o n o r any o t h e r f i g u r e and the p e r c a p i t a r e s u l t s are not a f f e c t e d at a l l . The i.e.,  d e p r e c i a t i o n r a t e d has been assumed t o be 0.03  t h r e e p e r cent, and u as equal t o 0,85.  These f i g u r e s  are comparable t o a v a i l a b l e f i g u r e s from some developed countries. A f u r t h e r assumption has been made. come l e v e l s , l i k e nature in  At very low i n -  $50 p e r c a p i t a , s t a g n a t i o n has been the  of things for long periods.  The p e r c a p i t a consumption  f u l l y adjusted s t a t e would be 0,85 x 50 o r $4 2.50,  but i t  i s a c t u a l l y s u b j e c t t o a lower l i m i t o f $4 7.50 which i s 0.95 o f $50.00, tremely  T h i s assumption has been made because, at such ex-  low l e v e l s , p h y s i o l o g i c a l requirements may o v e r r i d e  economic behaviour and a c e r t a i n minimum consumption may be  96 necessary f o r existence.  S u c h c o n s u m p t i o n h a s been c h o s e n a s  95 p e r c e n t o f p e r c a p i t a  income because  i t has been  t h a t many s t a g n a n t , u n d e r d e v e l o p e d c o u n t r i e s ratio  of only  5 per cent.  noticed  show a s a v i n g  C o n s e q u e n t l y f o r m u l a (10) i s sub-  j e c t t o t h e c o n d i t i o n t h a t t h e a c t u a l c o n s u m p t i o n as d e f i n e d by t h e c o n s u m p t i o n r a t i o The variables  will  n e v e r go b e l o w  $47.50.  terms u s e d f o r d e n o t i n g v a r i o u s p a r a m e t e r s and  i n t h e programmes a r e g i v e n i n A p p e n d i x  I.  Some o f  t h e s e have a l r e a d y been d i s c u s s e d i n t h e t h e s i s and o t h e r s a r e discussed  i n t h e n e x t few pages.  me i n F o r t r a n  Appendix  I I g i v e s a program-  IV f o r t h e g r o w t h o f t h e economy and a l s o  shows t h e c o u r s e o f t h i s g r o w t h f o r 95 y e a r s i f t h e m a r g i n a l output-capital ratio 0,33  o f t h e new i n v e s t m e n t s i s assumed t o be  and t h e f o l l o w i n g a r b i t r a r y p e r c a p i t a f o r e i g n  invest-  m e n t s a r e made. F F  F  F  o l  = $5. 00 "  $5, 00  2 " $5, 00 3  =  $5,00  $3.00 4 F - $2,15 F  =  5  F  6  =  $1.35  F  7  =  $0.61  F  8 *  $0.46  The m a i n p r o b l e m now i s t o f i n d w h e t h e r t h e economy r e a c h e s the  take-off stage with these investments.  I f i t does  then  9.7" when and where? the  The s e a r c h f o r the t a k e - o f f stage i s made i n  f o l l o w i n g way.  D e f i n i n g the Take-off In F i g . 1, an income l e v e l o f OT s i g n i f i e d the takeoff.  T h e r e f o r e i n the s i m u l a t i o n model a l s o the search i s  s t a r t e d with the " l e v e l s " o f per c a p i t a income.  The economy  can be c o n s i d e r e d to have reached the t a k e - o f f i f the domestic savings i n the f u l l y a d j u s t e d s t a t e a t any income l e v e l are sufficient it  to keep the income l e v e l  from f a l l i n g .  From F i g , 1  i s n o t i c e d that there a r e o n l y two such p o i n t s , C and T,  where such a t h i n g can happen.  I f income i s anything between  OC and OT then domestic savings alone can not support that i n come l e v e l .  I f income i s OT then domestic savings can, even  i n the f u l l y a d j u s t e d s t a t e , m a i n t a i n the l e v e l a t OT,  I f ir\t >  come i s a l r e a d y above OT then even i n the f u l l y a d j u s t e d s t a t e , domestic savings i f i n v e s t e d can keep incomes r i s i n g If each income l e v e l above the stagnant s t a t e  further.  ($50.00) i s main-  t a i n e d " f o r e v e r " and the r e q u i r e d f o r e i g n investments f o r the purpose i n v a r i o u s years are determined, then i t i s p o s s i b l e to  say whether t a k e - o f f stage has been reached at that  level.  I f the "maintenance"  schedule f o r any income  income  level  shows no f o r e i g n components a f t e r a c e r t a i n time, then t a k e - o f f has o c c u r r e d at that  income l e v e l  i n the year when the l a s t o f  f o r e i g n investments i s needed. Maintenance  o f an income l e v e l " f o r e v e r " ,  a l sense, i s an i m p o s s i b l e task.  in a liter-  A c c o r d i n g l y , the model i s  98 programmed to see f o r 80 years (which i s considered enough period) m a i n t a i n any years,  o n l y , whether f o r e i g n investments are needed to  income l e v e l constant.  in this  If f o r 15  consecutive  80 year survey, the f o r e i g n investment  ments are n i l , then i t i s assumed that at no w i l l any  a long  foreign assistance  be needed.  Appendix I I I searches f o r the t a k e - o f f  The  require-  time i n f u t u r e programme i n  stage according  to  this  criterion. Once a t a k e - o f f stage i s recognized and  c o s t s connected with i t must be  terms of f o r e i g n c a p i t a l (not j u s t per  the  identified.  i s the present  benefits The  cost i n  worth of t o t a l amount  c a p i t a ) of f o r e i g n investments i n the year  0.  It can be e a s i l y computed f o r each investment schedule that brings about  take-off.  It w i l l  be J  CO  ss  where F j i s the ed  = z 1= 0  i /Cl+i'D  (17)  schedule of f o r e i g n investments that was  need-  to reach t a k e - o f f and  years;  and  The  present  i •  p  the p o p u l a t i o n s  i ' i s the compound i n t e r e s t  f o r e i g n loans  comes higher  F  have to be  r a t e at which the  repaid.  b e n e f i t s of development are than the per  i n corresponding  i n the form of i n -  c a p i t a income at s t a g n a t i o n .  worth of the b e n e f i t s w i l l  therefore  be  The  99 T+l  T Y  1=0  -1  i • » , y a * | ^ - v *1 a+frp  (18)  0  o  1+i  -1  where T i s the number of years r e q u i r e d f o r reaching t a k e - o f f ; Y  i s the schedule of per c a p i t a incomes f o r the p e r i o d from  year 0 to t a k e - o f f and  are corresponding p o p u l a t i o n s ;  i  i s the r a t e of time p r e f e r e n c e of the country as a whole; o o p o p u l a t i o n growth a t s t a g n a t i o n stage The d i f f e r e n c e development.  (SS  2  - SS^)  (i.e., isthe  50, 1 and  0:001895),  net b e n e f i t  If a number of a l t e r n a t i v e f o r e i g n  Y ,  from  investment  schedules that take the economy to the t a k e - o f f stage are a v a i l a b l e , the best schedule i s the one net b e n e f i t during the t a k e - o f f . investment  An  that has the h i g h e s t  i n f i n i t e number o f f o r e i g n  schedules capable of making the economy reach the  t a k e - o f f stage are p o s s i b l e .  To reduce the number of p o s s i b l e  schedules that must be c o n s i d e r e d while l o o k i n g f o r the o p t i mum  schedule, some a r b i t r a r y r e s t r i c t i o n s are p l a c e d as a l r e a d y  mentioned, First,  i t i s assumed that o n l y one f o r e i g n  ment ( F ) i s i n i t i a l l y made, i n the year 0. Q  invest-  This w i l l  raise  the income i n year 5 which c o u l d be e a s i l y shown by a programme like tried  that  i n Appendix I I ,  to be maintained  The  income l e v e l of year 5 i s now  i n subsequent years and  i t i s checked  whether t a k e - o f f occurs a c c o r d i n g to the c r i t e r i o n a l r e a d y described.  I f not, a higher value of F  i s taken and  the  100  process i s repeated. are c a l c u l a t e d still  (using i = .06 and i  higher v a l u e of F  v a r i o u s v a l u e s of F and e r r o r s . F  q  When t a k e - o f f occurs the S S  q  i s tried.  are t r i e d  Q  !  and SS^  = .02 a r b i t r a r i l y ) and a  The range between which  i s determined  by e a r l i e r  trials  Once the schedule o f maintenace and the i n i t i a l (SS2 - SS-^)  t h a t b r i n g about t a k e - o f f with the maximum  determined,  2  we have the f u l l  schedule of f o r e i g n  investments  corresponding to an optimal t a k e - o f f provided o n l y one F initially  is  Q  was  to be made. Next, two equal f o r e i g n investments  a s u i t a b l e range are made. could be found  F  Q  and F-^ between  The growth of incomes due to these  from the programme o f Appendix I I .  Each income  l e v e l from year 5 onwards can now be t r i e d by turns to see i f t a k e - o f f occurs at i t . When t a k e - o f f does occur the two i n i tial  equal  the f u l l for  investments  p l u s the maintenance requirements make  schedule that b r i n g s about t a k e - o f f .  The (SS2 - SS^)  each o f such schedules w i t h i n a s u i t a b l e range o f the  v a l u e s of i n i t i a l  two equal investments  can be c a l c u l a t e d as  before. Appendix I I I shows a programme that searches t a k e - o f f and c a l c u l a t e s the (SS2 entire foreign  investment  - SS^) as w e l l as g i v e s the  schedule w i t h i n s p e c i f i e d ranges of  the i n i t i a l  values of investments  vestments.  The s u i t a b l e range o f the i n i t i a l  ment was determined errors.  f o r the  f o r one to e i g h t equal i n values o f invest-  i n the e x e r c i s e by previous t r i a l s and  Appendix I I I also  shows the r e s u l t s given f o r t h e  10.1  initial  five  equal  From t h e r e s u l t s timal  The  schedule  per c a p i t a  t a k e - o f f was and  investments  i n this  i f five  between t h e r a n g e  appendix  equal  F  o  F  l  F  2  F  3  F  4  F  5  F  6  F  7  F  8  i t c a n be s e e n  investments  that  t h e op-  are i n i t i a l l y  made i s  = $4.90 -  $4.90  = $4.90 = $4.90 = $4.90 = $2.29 = $1.52 = $0,80 = $0.14  income w h i c h was m a i n t a i n e d  f o r reaching the  $53.62 and t h e y e a r o f t a k e - o f f was  9.  The  SS^  SS^ were $7.74 and $27.93 r e s p e c t i v e l y w h i c h g i v e t h e n e t  loss  ( n e g a t i v e - b e n e f i t ) as $20.19. Results  given  i n Table  1.  of other t r i a l s The l a s t  were a l s o  column o f t h i s  the net b e n e f i t s  from  negative  e x e r c i s e and t h e b e s t  that  $4.00 t o $5.00.  i n this  with f i v e  equal  t h e attempted  initial  o b t a i n e d and a r e table  shows  that  development a r e always investment  investments.  schedule i s  TABLE 1 OPTIMAL FOREIGN INVESTMENT SCHEDULES  No. o f initial equal investments  Investment $  schedule  Year of take-off  Per c a p i t a income maintained $  Present worth of foreign capital $  Present worth of income increases during take-off $  Net Benefit $  12.00;2.99;3.00;3.01;3.02  53.14  23.50  2.43  •21.06  8.00;8.00;3.08;3.09;3.10;1.28;0.91  53.56  26.64  4.04  •22.60  6.00;6.00;6.00;3.04;3.05;1.88;0.77; 0.55  53.33  26.31  4.97  -21.34  5.00;5.00;5.00;5.00;3.00;2.15;1.35; 0.61;0.46  53.11  26.39  5.62  •20.77  4.90;4.90;4.90;4.90;4.90;2.29;1.52; 0.80;0.14  53.62  27.93  7. 74  •20.19  4.46;4.46;4.46;4.46;4.46;4.46;1.81; 1.22;0.67;0.15  10  53.70  29. 01  8.67  •20.34  4 . 0 6 ; 4 . 0 6 ; 4 . 0 6 ; 4 . 0 6 ; 4.06;4.06;4.06; 1.58;1.13;0.72;0.15;0.01  11  53.69  30.08  9.18  -20.89  3.74 ; 3.74; 3. 7 4 ; 3 . 7 4 ; 3 . 7 4 ; 3 . 7 4 ; 3 . 74; 3.74;1.50;1.16;0.71;0.14  12  53.65  31.13  9.49  •21.64  103  DISCUSSION  The programme i n A p p e n d i x c a n be u s e d no^ f o r e i g n capital age  t o show a s t a g n a n t  economy.  some m o d i f i c a t i o n  I t i s done i f i n i t i a l l y  i n v e s t m e n t s a r e made, t h e v a l u e o f m a r g i n a l  ratio  i s assumed t o be 0.64 w h i c h  output-capital  ratio  a r e shown i n t h e f o r e i g n  are v e r y s m a l l .  i s t h e same a s a v e r -  t o be m a i n t a i n e d .  s u c h a programme a r e g i v e n i n A p p e n d i x  requirements  output-  i n t h e economy a t t i m e z e r o , and t h e  income l e v e l o f y e a r 5 i s t r i e d of  I I Iafter  IV.  The  results  The m a i n t e n a n c e  investment  c o l u m n and  I t i s t h e r e f o r e p o s s i b l e t o t h i n k o f an e c o -  nomy r e m a i n i n g a t t h e s t a g n a n t  stage i n d e f i n i t e l y  q u a n t i t i e s o f f o r e i g n a i d o r some i n t e r n a l have t h e same e f f e c t  i f only small  changes t h a t c a n  a r e added t o i t .  The l i m i t a t i o n on t h e programme t h a t 80 y e a r s i s a s good as " f o r e v e r "  seems t o h a v e c a u s e d  search f o r take-off.  i n the  From F i g . 1 a n d F i g . 9 i t seems r e a s o n -  a b l e t o assume t h a t t h e p e r c a p i t a to  difficulty  income l e v e l  corresponding  t h e t a k e - o f f s t a g e w o u l d be h i g h e r t h a n t h e income a t w h i c h  r a t e of p o p u l a t i o n growth  i s highest.  The r e s u l t s on T a b l e ,1 -  on t h e o t h e r hand show t a k e - o f f o c c u r r i n g a t a l o w p e r c a p i t a income l e v e l . sidered  An income o f $53 o r $54 q u a l i f i e s f o r b e i n g  con-  the t a k e - o f f p o i n t i f t h e time h o r i z o n i s o n l y about >  ;  80 y e a r s b u t i t may n o t be so i f t h e c o u r s e o f t h e economy i s watched f o r a l o n g e r time. try  to i d e n t i f y the r e a l  It will  t h e r e f o r e be u s e f u l t o  t a k e - o f f s t a g e w h i c h may be a t p e r  104  c a p i t a incomes higher than $150.  Due to shortage  of time  avail-  a b l e on the computer i t has not been p o s s i b l e to make t h i s change i n the programme and to g e t new r e s u l t s i n t h i s  thesis.  The programmes, as they are g i v e n h e r e i n , were developed  after  more than one hundred t r i a l s and e r r o r s which took j u s t above seven months to g i v e the r e s u l t s that have been presented. It III  is felt  t h a t , as i t i s , the programme i n Appendix  o f f e r s an i n t e r e s t i n g method o f determining  vestment schedules and choosing  the optimal i n -  the best amongst them.  helps i n r e s o l v i n g the problem o f b i g and few e a r l y a g a i n s t small and many investments. ing  tial  i s not a d v i s a b l e .  f o r e i g n investments  investments  Table 1 shows t h a t spread-  the number of f o r e i g n investments  circumstances  It  beyond 9, under the g i v e n  I t a l s o shows that making  bigger than  $4.90 i n e a r l i e r  i s not the best way o f handling t h i s problem.  stages  It i s also i n -  t e r e s t i n g to note that t h i s optimum f i g u r e f o r f o r e i g n ments comes to about 10 per cent of the G.N.P.  ini-  invest-  Results of  Table 1 a l s o show that the f o r e i g n a i d requirement,  at l e a s t  i n per c a p i t a terms, i s comparatively l a r g e r i n the e a r l y stages of development.  By studying r e s u l t s l i k e those i n t h i s  t a b l e and the i n t e r n a t i o n a l p o l i t i c a l  s i t u a t i o n the planners  in a developing country can decide the best schedule o f f o r e i g n investments  that they should have.  The model p r e s e n t s a guide,  admittedly rough but workable, t h a t can be used  by underdevelop-  ed c o u n t r i e s a f t e r m o d i f i c a t i o n s and refinements. An  i n t e r e s t i n g outcome o f t h i s a n a l y s i s i s that the  105  per c a p i t a , and not the gross amount o f f o r e i g n a i d i s the crucial  f a c t o r i n r e a c h i n g the t a k e - o f f .  country l i k e I n d i a would r e q u i r e annual the o r d e r o f 2.5  billion  In gross terms a b i g  f o r e i g n investments  d o l l a r s a y e a r f o r about f i v e  of  years  and o n l y s l i g h t l y s m a l l e r amounts i n the next f o u r o r f i v e years b e f o r e i t could reasonably expect t o reach the g e n e r a t i n g stage.  self  A small country l i k e Taiwan o r I s r a e l  great advantages i n t h i s r e s p e c t . tages i n l a r g e domestic  The b i g country has  markets, v a r i e d resources and  l i t y but s u f f e r s from a b i g handicap when i t comes t o  has  advanversatiavailabi-  l i t y of foreign aid. By u s i n g v a r i o u s combinations  o f the values o f f , u,  m,  a, 8» i» i» Y , u ,  of  development and r e a c h i n g o f the t a k e - o f f stage can be s t u d -  ied  Q  0  and the Y-TT r e l a t i o n s h i p , the process  under v a r i o u s c o n d i t i o n s .  Such s t u d i e s can not o n l y o f f e r  some h e l p i n making d e c i s i o n s while l a u n c h i n g a development programme but a l s o g i v e a preview  o f what i s l i k e l y t o happen  when a c e r t a i n d e c i s i o n i s implemented,  A DIFFERENTIAL ANALYSIS OF THE MODEL  The  s i m u l a t i o n model has so f a r been presented as a  " d i f f e r e n c e " a n a l y s i s where d i s c r e t e v a r i a b l e s are used. is  shown below as a " d i f f e r e n t i a l "  v a r i a b l e s are The  a n a l y s i s when  It  continuous  used. consumption f u n c t i o n o f Equation 10 w i l l  be  106  w r i t t e n  as  dC ^  where come  C  and  at  time  =  be  (uY  are  •-  t  per  C )  -  t  c a p i t a  £t  (19)  consumption  and  per  c a p i t a  i n -  t.  The w i l l  ^ 2 f  r a t e  g i v e n  of  change  of  c a p i t a l  s t o c k  i n  the  economy  by  dK  ar where  i s  economy  at  income,  per  and  =  the  t o t a l  time  f o r  t;  c a p i t a  p o p u l a t i o n  f a c t o r  t-m  a  Y  t -m  (not _  t  m  ,  F _ t  6  c o u n t e r p a r t  rr  -  t  The i n  71  average the  1  two  time i s  f  a  c a p i t a l n  d  forms  i n can  t - m  P  per  (t-m);  a  s t o c k r  P  e  c a p i t a a  i s  e  be  i n c  the a  P i  t  a  consumption the  i n s t a n t a n e o u s the  r  " d i f f e r e n c e " e x p l a i n e d  c o n v e r s i o n  r a t e  of  de-  analysis.,  by  (Y )  x  =  the  d  growth  o u t p u t - c a p i t a l  f o l l o w i n g  ^t-m  of  (21)  t  dP  1  a n d  »  m  W  K  c a p i t a )  at  and  p o p u l a t i o n  .Pt-m-«- t  investment,  r e s p e c t i v e l y  the  The  per  f o r e i g n  investment;  p r e c i a t i o n ,  t-m  °  cTt  r a t i o  •  at  (22)  any  time  w i l l  be  e x p r e s s e d  107  3 = "TT— t  a  C23)  ' t-m. p  ^ t-m t-m- t-m] Y  +F  C  • °t- -m  (24)  6 „ K>  In the s i m u l a t i o n model the marginal o u t p u t - c a p i t a l r a t i o s (a's) at d i f f e r e n t times have been assumed constant and so 3  t  appro-  aches q, as t approaches °°. I f i n i t i a l v a l u e s o f a l l v a r i a b l e s are known, and a predetermined  growth path of F i s assumed then the growth path  of Y can be obtained by s o l v i n g Equations  19 to 24.  The take-  o f f occurs at t h a t income l e v e l which can be maintained  with-  out any F's i n the long run. The best schedule of f o r e i g n investments  f o r reach-  ing the t a k e - o f f i s that which maximizes the net b e n e f i t  from  development i n the process, i . e . , which maximizes  i Y.P.e  'dt - Y .P  + 7 T  1+  ol  T+l -i 1 dt 1  F.P.  e  1 z  -i 0  0  I t may be t h e o r e t i c a l l y p o s s i b l e to solve t h i s problem but p r a c t i c a l l y i t can best be handled  by a " d i f f e r e n c e "  approach and with a computer.  w  108 t  CONCLUSIONS  Tracing  the future growth path o f per c a p i t a  i n an economy i s v e r y d i f f i c u l t .  income  The d i f f i c u l t i e s m u l t i p l y i n  t h e c a s e o f an u n d e r d e v e l o p e d c o u n t r y .  The d e c i s i o n s  t o be  made i n l a u n c h i n g an e c o n o m i c d e v e l o p m e n t p l a n d e p e n d o n a number o f e c o n o m i c a n d e x t r a - e c o n o m i c f a c t o r s , these decisions  The e f f e c t o f  c a n be b e s t s e e n by a s i m u l a t i o n m o d e l .  It  may be f r u i t f u l t o make s i m i l a r m o d e l s f o r a two o r m u l t i sector  economy a n d t o g e t more r e a l i s t i c  and g u i d e s t o d e c i s i o n m a k i n g .  previews of future  TART  11  THE PLACE OF FORESTRY IN DEVELOPMENT  A CRITICAL ANALYSIS  110  CHAPTER FOUR  THE SCOPE OF FORESTRY  DEFINITIONS OF  FORESTRY  The t e r m f o r e s t r y h a s b e e n d e f i n e d and p r a c t i c e  o f t h e w h o l e c o n s t i t u t i o n a n d management o f  f o r e s t s and t h e u t i l i z a t i o n Forestry  Association  (1958) d e f i n e d for  o f t h e i r p r o d u c t s " by t h e E m p i r e  (1953) .  The S o c i e t y  of American  Foresters  i t a s " t h e s c i e n t i f i c management o f f o r e s t s  t h e c o n t i n u o u s p r o d u c t i o n o f goods and s e r v i c e s " .  Government tice  as " t h e t h e o r y  of India  of a l l that  scientific  (1960) d e f i n e d  constitutes  The  i t a s " t h e t h e o r y and p r a c -  the creation, conservation  management o f f o r e s t s a n d t h e u t i l i z a t i o n  and  of t h e i r  Ill resources". It seems from these d e f i n i t i o n s , used i n three  dif-  f e r e n t c o n t i n e n t s , that i n North America, more than anywhere e l s e , " f o r e s t r y " i s c o n s i d e r e d almost  synonymous with "con-  tinuous p r o d u c t i o n " or " p e r p e t u a t i o n of f o r e s t s " .  Dana and  Johnson (1963) made i t c l e a r that they c o n s i d e r e d f o r e s t r y  as  the " a c t i v i t y by which f o r e s t values are used, perpetuated, enhanced" (emphasis added).  In Canada, i n almost  a l l provinces  the d e c l a r e d aim of government i s to manage Crown f o r e s t s Though the  on  a "sustained  y i e l d " b a s i s (Sisam  Americans may  appear to be more outspoken about i t , almost a l l  over the world,  1961).  and  North  where " s c i e n t i f i c " f o r e s t r y i s claimed to be  p r a c t i c e d , "good f o r e s t r y " and  " p e r p e t u a l f o r e s t r y " are very  n e a r l y interchangeable terms."  Thus, r i g h t i n the  e i t h e r e x p l i c i t l y or i m p l i c i t l y ,  beginning,  the p r i n c i p l e of p e r p e t u a t i o n  of the f o r e s t s without much regard f o r the c o s t s i n v o l v e d i n following has  i t , i s accepted.  For such a long time and  t h i s p r i n c i p l e been h e l d by most f o r e s t e r s i n the  that i t now critical Simply  has assumed almost  a r e l i g i o u s form,  so d e a r l y world  Even m i l d l y  comments on i t are o f t e n looked on as a c t s of h e r e t i c s .  f o r the sake of the p u r s u i t of s c i e n t i f i c enquiry, i f  for nothing e l s e , i t may  t h e r e f o r e be u s e f u l to d i s c u s s t h i s  question i n s l i g h t l y greater d e t a i l .  112  THE CONCEPT OF SUSTAINED YIELD  The  idea of management f o r p e r p e t u a t i o n of timber  crops o r i g i n a t e d i n C e n t r a l Europe i n the E i g h t e e n t h and Nineteenth c e n t u r i e s when s c a r c i t y of timber began to be and ed.  elements of s c i e n t i f i c  not i m p o s s i b l e .  ships, for  evolv-  Wood had many important uses without which the p u r s u i t of  the aims of l i f e , if  f o r e s t management were being  felt  as i t was then seen, was extremely F o r e s t s p r o v i d e d wood f o r f u e l ,  difficult housing,  new i n d u s t r i e s that were g r a d u a l l y d e v e l o p i n g , and a l s o  waging wars.  Because of the constant danger of wars  breaking out and, t h e r e f o r e wood from other c o u n t r i e s not being a v a i l a b l e , there was a n a t u r a l d e s i r e i n each n a t i o n state,  and even r e g i o n , to be able to produce i t s  own wood.  This c o u l d be done o n l y by p e r p e t u a t i o n of the f o r e s t s . f o r e s t s were to be perpetuated then i t was necessary  If  to cut  o n l y such amounts from them which would not endanger f u t u r e supplies.  I t was of course assumed that timber would be  needed f o r a l l times to come f o r the same purposes and i n the same way as i t had been needed so f a r .  The f o r e s t p r o p e r t y  was t h e r e f o r e looked at as c a p i t a l which should be managed in  such a way that o n l y the i n t e r e s t  p e r i o d i c a l l y and the c a p i t a l i t s e l f  a c c r u i n g on i t be used left  intact.  T h i s appa-  r e n t l y was the o r i g i n of the concept of "sustained y i e l d " . It was the i d e a l way of e n s u r i n g the p e r p e t u a l e x i s t e n c e of forests.  The c a p i t a l or "growing stock" would have to be  113 maintained  i n s u c h a way t h a t t h e r e q u i r e d volume o f wood, s u b -  j e c t t o t h e maximum p o s s i b l e , i s p r o d u c e d as i n t e r e s t o r " y i e l d " . , In the e q u i l i b r i u m s t a t e these  i n t e r e s t s w o u l d be e q u a l .  The  p r o d u c t i o n o f t h e r e q u i r e d v o l u m e o f wood a n n u a l l y o r p e r i o d i c a l ly  i n p e r p e t u i t y was now e n s u r e d f r o m a g i v e n  forest land.  v o l u m e p r o d u c e d was c a l l e d " s u s t a i n e d y i e l d " . t h e " g r o w i n g s t o c k " be m a i n t a i n e d  The  I t required that  i n a p a r t i c u l a r way.  The com-  p o s i t i o n o f age c l a s s e s and t h e i r v o l u m e s must be i n a p a r t i cular proportion before ment t o o k p l a c e .  the r e q u i r e d annual  or periodic incre-  T h i s g r o w i n g s t o c k was c a l l e d t h e " n o r m a l  forest". The  history of sustained y i e l d  A m e r i c a has been t r a c e d by H a l e y the  unquestioning  (1966).  acceptance o f t h i s  i n Europe and North The s h o r t c o m i n g s  concept i n the context  o f c o n t e m p o r a r y s i t u a t i o n s h a v e b e e n d i s c u s s e d by H a l e y Waggener ( 1 9 6 6 ) a n d Thompson ( 1 9 6 6 ) , fits  are claimed  (1966),  A l a r g e number o f b e n e -  f o rsustained-yield.  H o w e v e r , many o f t h e s e  a r e n o t d e p e n d e n t on p r o d u c t i o n o f e q u a l harvests but are the r e s u l t o f continuous (Haley  of  annual  or periodic  forest production  1966), Of t h e a s s u m p t i o n s i m p l i e d i n a d o p t i n g  sustained,  y i e l d a s g i v e n by Waggener ( 1 9 6 6 ) t h e m a i n a r e : (1)  A s t a b l e f l o w o f wood p r o d u c t s ad  i s necessary  infinitum.  (2)  Each f o r e s t u n i t o p e r a t e s  (3)  F o r e s t l a n d and f o r e s t p r o d u c t s than l a b o u r and c a p i t a l .  a s a c l o s e d economy, a r e more  scarce  114  It tic  f o r any  i s e a s y t o see considerable  w h i l e the p o p u l a t i o n and  1962,  the  relatively  States  assumptions are u n r e a l i s -  length of time.  d o u b l e d and  GNP  In the U n i t e d  and  per  States,  q u a d r u p l e d b e t w e e n 192 0  domestic consumption o f timber  constant  of firewood)  t h a t these  products  remained  c a p i t a wood c o n s u m p t i o n ( e x c l u s i v e  d e c l i n e d a l m o s t 50 p e r  cent  (Waggener 1966,  United  D e p a r t m e n t o f A g r i c u l t u r e , F o r e s t S e r v i c e 1965b)„  Changes i n t h e utilization  m a r k e t f o r wood p r o d u c t s ,  standards,  and  the  i n technology  cost s t r u c t u r e of the  and forest  i n d u s t r i e s h a v e b e e n t o o w e l l known, i n a l m o s t a l l d e v e l o p i n g countrieso  The  assumptions u n d e r l y i n g s u s t a i n e d y i e l d  h o l d g o o d i n s u c h cases„ these  a s s u m p t i o n s may  discussed per  c a p i t a i n c o m e and  t r a d e and If  i n P a r t I„  i n c r e a s e s at a very  technology  remain constant,  f o r it„-  o r want t o g r o w , t h e r e  the  very  an e x c e l l e n t i f d i f f i c u l t l y Once t h e  to  constant.  economy, t h e r e may  f o r economies t h a t are  goal of sustained  s a t i s f a c t o r y and  be grow-  yield  neat.  It  obtainable o b j e c t i v e f o r the  f o r e s t i s converted  to  "normality",  p r a c t i c e o f s u s t a i n e d y i e l d w o u l d mean t h a t y e a r the  i s no  b e e n so p o p u l a r w i t h f o r e s t managers  is that i t i s i n t e l l e c t u a l l y  manager.  slow r a t e ,  i s none.  m a i n r e a s o n why  f o r e s t r y management h a s  is  But  economy  there  r e l e v a n t t h i n g remains  not  f o r which  the stagnant  Population  i s practiced in this  enough j u s t i f i c a t i o n  One  economy c l o s e s t t o one  true i s probably  as a r e s u l t e v e r y  sustained yield  ing,  be  The  do  same volume o r a r e a o f t i m b e r  i s cut.  The  s u p e r v i s e t h e w o r k s , e q u i p m e n t n e e d e d and  after  staff  year  required  l a b o u r t o be  em-  115  ployed would remain almost at a steady  level.  T h i s would cut  down the w o r r i e s o f a manager v e r y g r e a t l y and he would be running  smooth o p e r a t i o n i n p e r p e t u i t y .  The  appeal of s u s t a i n e d y i e l d f o r the f o r e s t manager was,  and  is,  an extremely  still  tremendous. For u l t i m a t e l y r e a c h i n g such a stage a l o t of d i f -  ficult  and complex questions  had  to be  solved d u r i n g the p e r i o d  of " c o n v e r s i o n " of the unmanaged f o r e s t to a s t a t e of n o r m a l i t y . During  t h i s p e r i o d the task of management was  " a l l o w a b l e c u t " (Forest Club 1959) make the f o r e s t normal.  The  which, i f f o l l o w e d , would  c o n v e r s i o n p e r i o d was  the b a s i s of " p r a c t i c a l " c o n s i d e r a t i o n s and was  to determine the  r e v i s e d from time to time.  The  the a l l o w a b l e  1966) . ed y i e l d  The  cut may  (e^., Chapman 1950,  Brasnett 1953,  to n o r m a l i t y . The  But  i t had  i t i s such that i t s removal  cut i s a l s o so r e g u l a t e d that  i t does not vary too g r e a t l y from year to year. One  Davis  be a p p r e c i a b l y d i f f e r e n t from the s u s t a i n -  leads towards n o r m a l i t y .  to understand.  cut  and r e g u l a t -  that could be removed from the f o r e s t s a f t e r  been converted  on  t e x t s on f o r e s t manage-  ment deal with the v a r i o u s methods of determining ing the a l l o w a b l e cut  fixed  This i s easy  c o u l d h a r d l y advocate great f l u c t u a t i o n s i n  the p e r i o d i c cut d u r i n g the c o n v e r s i o n when at the end of  this  p e r i o d the s u s t a i n e d annual y i e l d s were going to be a l l equal. Few  f o r e s t s have so f a r been converted  to n o r m a l i t y  and most of them are i n the c o n v e r s i o n p e r i o d .  The  hardly p r a c t i c e d sustained y i e l d .  the c h e r i s h e d  Nevertheless  world  has  goal  i n most c o u n t r i e s i s the achievement of the stage when  sustained y i e l d w i l l  be p r a c t i c e d .  To have such a goal i s  p e r f e c t l y l e g i t i m a t e i f the assumptions mentioned by Waggener . (1966) and  given e a r l i e r  i n t h i s d i s c u s s i o n , are expected to  be f a i r l y r e a l i s t i c a f t e r the conversion are not  realistic,  found f o r having  i s complete.  i t i s hard to see what j u s t i f i c a t i o n can  a sustained y i e l d  J u s t i f i c a t i o n s may  One  be hard to f i n d but  of them i s that u n t i l  back the e n t i r e problem was only and lowing  the reasons relatively  about two  The  difficulties  involved in f o l -  a s u s t a i n e d y i e l d p o l i c y were p o i n t e d out i t ' was  of s u s t a i n e d y i e l d  decades  being viewed by f o r e s t managers  not by economists.  (1949a) but  be  goal.  f o r f o l l o w i n g the p o l i c y of s u s t a i n e d y i e l d are easy to see.  If these  Moore (1957) who  criticised  r a t h e r v i g o r o u s l y and  p i c k e d up Moore's b a t t l e c r y .  The  by  Zivnuska  the o b j e c t i v e  Smith (1962)  manager had  who  been l o o k i n g  at the problems of f o r e s t management from w i t h i n the f o r e s t r y sector.  The  concern was The  economist looked  at them from o u t s i d e .  the economy as a whole.and not f o r e s t r y alone.  f e a r of s c a r c i t y of f o r e s t s and  d i d not  f r i g h t e n him  out  not matter so much to him Morse 1963).  His main  other n a t u r a l  of h i s w i t s .  resources  Physical scarcity did  as economic s c a r c i t y  (Barnett  In the changing technology of contemporary  world he r e a l i z e d that the products of f o r e s t r y could be vided  and  to the s o c i e t y by other  resources  too, and  p h y s i c a l s c a r c i t y would not n e c e s s a r i l y mean  pro-  therefore  hardship.  117 Another reason why people is  the f a c t t h a t f o r very long t h i s  have held to s u s t a i n e d  yield  idea has been advanced by  some of the most d i s t i n g u i s h e d and respected  intellectuals,  s c i e n t i s t s and p u b l i c men i n most of the advanced as being the best p o s s i b l e method o f managing  countries  forests;'"The  common man has been s o l d the idea by conservation-minded crusaders i n much the same way as a new product i n the market i s p o p u l a r i z e d by e f f i c i e n t be l i k i n g of  forests just  advertising.  He may now a c t u a l l y  because they are f o r e s t s .  Some, kind  "love" may have developed. As regards the underdeveloped c o u n t r i e s  s a i d that they u s u a l l y take e v e r y t h i n g i n the c o u n t r i e s as r a t i o n a l and good. not,  similar, p o l i c i e s  which they wish to  It  of them may be adopting  y i e l d p o l i c y j u s t because that  developed  They e i t h e r can not,  t h i n k of most problems independently.  that many, i f not most,  i t may be  or do  is quite  likely  sustained  such an act g i v e s them the  comfort  are followed by the advanced n a t i o n s ,  emulate.  Most of the developed as well as the underdeveloped c o u n t r i e s of the world thus b e l i e v e vantageous.  The concept  is  b l y v a l u e the s a t i s f a c t i o n  that  sustained y i e l d i s ad-  t h e i r "sacred cow".  They presuma-  obtained by p r a c t i c i n g  sustained  y i e l d as g r e a t e r than the c o s t s i n v o l v e d i n p r a c t i c i n g the policy. discussed  Without the concept of the "state preference later in this  conservationists  chapter,  function"  the s u s t a i n e d y i e l d p o l i c y of  i n such c o u n t r i e s and the e t h i c a l  reasons  (Udall 1963) f o r p e r p e t u a t i n g f o r e s t s can not be j u s t i f i e d from an economic Still  standpoint. another  reason,  perhaps, why f o r e s t e r s have  remained s a t i s f i e d with the goal o f sustained y i e l d f a c t t h a t the goal i t s e l f has not been achieved able, area of the world the l a t i t u d e allowed comparatively  so f a r  0  During  i s the  i n any s i z e -  the c o n v e r s i o n p e r i o d  i n d e v i a t i n g from the a l l o w a b l e c u t i s  large.  The p e r m i s s i b l e d e v i a t i o n s have been  r e l a x e d g r a d u a l l y due to the r e a l i t i e s of the'economic and managerial  life.  I t i s common to hear o f a + 50 per cent  m i s s i b l e d e v i a t i o n from annual a l l o w a b l e . c u t ,  per-  Moreover the  p e r i o d s a f t e r which the accumulated d e v i a t i o n s are averaged have been l e n g t h e n i n g .  Therefore no s e r i o u s o b s t a b l e s have  appeared i n the economic l i f e  o f a r e g i o n due to the p r o f e s s e d  adherence to the goal o f s u s t a i n e d y i e l d .  Not o n l y year to  year f l u c t u a t i o n s from the allowable cut, which should  average  out to a small f i g u r e a f t e r some years, have been permitted, but even q u i t e d i f f e r e n t goals,e,g„, the goal o f "expanding yield"  (Wes.toby 1 9 6 5 ) , have been suggested.  completely  Such goals a r e  d i f f e r e n t from " s u s t a i n e d y i e l d " not only because  " s u s t a i n e d " and "expanding" a r e d i f f e r e n t words but a l s o because the absolute concept  of "normal f o r e s t " becomes com-  p l e t e l y meaningless with expanding y i e l d s .  I t i s the con-  t e n t i o n of the w r i t e r that o n l y that goal or p o l i c y can be i n c l u d e d w i t h i n the term " s u s t a i n e d y i e l d " which has a corresponding  concept  of "normal f o r e s t " .  T h i s a p p a r e n t l y has  119 not  been considered  by many people and•terms l i k e  y i e l d " and "modulated y i e l d "  (Uuerr  "expanding  1966a) are e r r o n e o u s l y  thought of as v a r i a n t s o f s u s t a i n e d y i e l d .  In f a c t ,  they-are-  r e l a t e d -.to" 'sustained y i e l d o n l y because "continuous  production"  i s t h e i r common denominator. The w r i t e r f e e l s t h a t t h i s tendency.to t r y to put all  other goals of f o r e s t management under s u s t a i n e d y i e l d i s .  due  to the f a c t t h a t there i s no recognized a l t e r n a t i v e  theory o f f o r e s t resource use.  Zivnuska  (1966a) has a l s o  p o i n t e d out that f o r e s t r y needs a n . a l t e r n a t i v e goal of s u s t a i n e d y i e l d .  So great  i s the l a c k of, known a l t e r n a t i v e  t h e o r i e s o f f o r e s t management that, the moment c i z e s sustained y i e l d ,  i n place  i t i s o f t e n construed  some one c r i t i as a suggestion  t h a t f o r e s t s must be cut down haphazardly and without s i d e r a t i o n of the f u t u r e .  any con-  Development o f an i n t e l l e c t u a l l y  s a t i s f a c t o r y t h e o r y o f f o r e s t resource use, which cdn stand on i t s own as a more r a t i o n a l r i v a l o f the s u s t a i n e d theory,  i s , t h e r e f o r e , a n e c e s s i t y before  yield  s u s t a i n e d y i e l d can  be handed over to the past. The  w r i t e r t h i n k s that such a theory can be  ed on the b a s i s o f the user c o s t concept cussions  i n Gould  (1962), Haley  (1966), N a u t i y a l  Chapter Six o f t h i s t h e s i s can probably to l e a d to such a theory.  (Scott 1953).  developDis-  (1966) and  be seen as attempts  The goal o f maximization o f present  worth of net b e n e f i t s from f o r e s t land can be the a l t e r n a t i v e g o a l which the f o r e s t e r s may try. to achieve.  120  MAXIMIZATION OF PRESENT WORTH AS AN ALTERNATIVE TO SUSTAINED YIELD  In F i g , 12 the c o n c e p t o f r i g i d d e p i c t e d by a h o r i z o n t a l s t r a i g h t l i n e  sustained y i e l d i s  (AB),  year a f t e r year the same volume o f timber forest.  I t shows that  (OA) i s c u t from a  Due to the e x i s t e n c e o f business c y c l e s and b u i l d i n g  c y c l e s alone, the requirements  o f timber  i n an economy l i k e  t h a t of the U n i t e d States show c o n s i d e r a b l e f l u c t u a t i o n s (Zivnuska 1949a).  The business  c y c l e s may vary  from more than one to t e n or twelve y e a r s .  i n duration  The short b u i l d i n g  c y c l e s vary over the same range but the long ones average 17 years and have ranged from 13 to 21 y e a r s . simplicity,  For the sake of  i f i t i s assumed t h a t a l l c y c l e s are of the same  d u r a t i o n and magnitude, then the. sinuous represent the a c t u a l requirements  l i n e i n F i g . 12 may  of timber  from year to year.  In the face o f such f l u c t u a t i o n s , a f o r e s t p r o p e r t y should be organized as suggested  by Zivnuska  (1949a).  "A f o r e s t p r o p e r t y o r g a n i z e d and managed so that the net growth was equal to the requirements o f the peak years would i n v o l v e an investment i n growing stock which would be e x c e s s i v e i n a l l o t h e r y e a r s . A f o r e s t p r o p e r t y organized and managed so that net growth was equal to the requirements o f the trough years would be inadequate to meet the needs of a l l o t h e r years. The p r a c t i c a l s o l u t i o n appears to be to attempt to organize and manage the p r o p e r t y to produce a n e t growth a d j u s t e d to the t r e n d i n r e quirements , and to vary the cut i n accordance with c y c l i c a l changes, o v e r c u t t i n g  121  Fig-12- Cyclical fluctuations In timber requirements (level trend)*  Year  122 the growth i n years of h i g h demand and u n d e r c u t t i n g i n years of low demand." (emphasis added) I f the t r e n d of the c y c l e s i s l e v e l , as shown i n F i g . 12, and adjustments  suggested by Z i v n u s k a a r e made, then  adoption of a s u s t a i n e d y i e l d p o l i c y  is perfectly  legitimate.  In t h i s case the annual cut w i l l vary from year to year but the average over a number of years w i l l  be c l o s e to the " a l -  lowable c u t " . I f , however, the t r e n d appears ( F i g . 13) as i n B r i t i s h Columbia,  to be upward  i t becomes d i f f i c u l t  j u s t i f y s u s t a i n e d y i e l d r e p r e s e n t e d by AB l i k e "expanding  yield"  (Westoby 1965)  of s u s t a i n e d y i e l d .  to  (Smith 1965).  y i e l d means r e j e c t i n g the goal  If sustained y i e l d  l i k e CD,  as  Accept-  i s not r e j e c t e d then  the f o r e s t has to be geared to *a,' higher l e v e l of annual tained y i e l d ,  Terms  have been suggested  a p p r o p r i a t e goals of f o r e s t r y i n such circumstances. ance of an idea l i k e expanding  sloping  This level w i l l  sus-  r e p e a t e d l y have to be  pushed up as long as the t r e n d i s r i s i n g . In p r a c t i c e , even t h i s i n c o r r e c t adjustment o f t e n made i n a very f a u l t y way.  The  is  l e v e l of a l l o w a b l e cut  i s pushed up p e r i o d i c a l l y not on the b a s i s of f u t u r e trend but on the b a s i s of the p a s t .  At time T^ the past trend AE  i s observed and the a l l o w a b l e cut pushed to CD from AB, T , the time of next r e v i s i o n , the past trend AEH found upward s l o p i n g and the cut i s s h i f t e d to. FG, new  cut adopted  At  is still Thus the  i s out of date even before i t i s enforced  123  Fig- 13- Cyclical fluctuations in timber requirements (upward sloping trend)-  O  T|  T  2  Year  124 (Smith 1965). The  investments r e q u i r e d i n f o l l o w i n g such a s u s t a i n -  ed y i e l d p o l i c y w i l l be much higher  than those necessary f o r  f o l l o w i n g the expanding y i e l d p o l i c y on the b a s i s o f expected trend.  T h i s sustained y i e l d p o l i c y c o u l d be r e a l i z e d  by gross m i s a l l o c a t i o n o f the economy s 1  only  resources.  I f the trend happens to be downward s l o p i n g , as i t has  been f o r firewood  l a s t few  decades, then the a p p r o p r i a t e  n e i t h e r expanding nor None of the  s u s t a i n e d y i e l d but  "decreasing  expected the  Most f o r e s t e r s i n the trends  r a t i o n a l p o l i c y to adopt.  Nineteenth  y i e l d was  a long p r o d u c t i o n r e q u i r e d was  Ac-  the most  I t a l s o so happened t h a t f o r pro-  equal y i e l d s ad_ i n f i n i t urn from a process  forest".  yield".  i n the f u t u r e to be l e v e l .  c o r d i n g l y , they thought t h a t sustained  ducing  p o l i c y to f o l l o w i s  three p o l i c i e s can be a u n i v e r s a l p r e s c r i p t i o n  f o r f o r e s t managers. century  requirements i n North America i n the  that  p e r i o d , the s i z e o f . i n v e n t o r y  required  (and c a p i t a l )  very n e a t l y given by the concept of a "normal  Such a concept has value o n l y  i f the y i e l d s do  not  have to be changed f o r p e r i o d s as long as the r o t a t i o n . the change comes e a r l i e r , changes.  The  formation  a very long time. re-adjusted again  If  then the r e q u i r e d "normal f o r e s t "  of the new  normal f o r e s t a l s o takes  I t i s p o s s i b l e that y i e l d may  have to  be  so that the r e q u i r e d normal f o r e s t changes once  even before  the one  aimed a t e a r l i e r was  formed.  In  such circumstances the concept.of normal f o r e s t l o s e s a l l  125 i t s meaning.  As already mentioned, .the term s u s t a i n e d  and normal f o r e s t go together. f o r e s t ) means nothing also.  Therefore,  when one  should  (normal,  the goal of s u s t a i n e d y i e l d means nothing  In other words, the goal of s u s t a i n e d y i e l d  what one  i s not  seek when changes i n requirements due  trend of c y c l i c a l  yield  f l u c t u a t i o n s occur at i n t e r v a l s  than f o r e s t r o t a t i o n s .  Sustained  yield  to the  smaller  i s a meaningful  and  v a l i d goal only when the trend i s l e v e l as i n F i g . 12. I f the trends of c y c l i c a l estimated  f l u c t u a t i o n s were to  be  f o r the past or the f u t u r e , there i s no reason  to  b e l i e v e that they must n e c e s s a r i l y  be  e i t h e r l e v e l or upward  s l o p i n g or downward s l o p i n g a l l the time. i t s e l f c o u l d be ( F i g . 14).  conceived  For those  In f a c t the  of as f l u c t u a t i n g  f o r e s t e r s who  irregularly  are at A and who  the near f u t u r e up to B the trend i s l e v e l and yield policy  is appropriate.  The  grave f o l l y  see  same f o r e s t e r s when they  s u s t a i n e d y i e l d w i l l a g a i n be a r e l e v a n t g o a l . yields will  can  sustained  are at B w i l l c l e a r l y advocate expanding y i e l d s .  D decreasing  trend  be a p p r o p r i a t e .  When at C But when at  I t would be a  i f f o r e s t e r s standing at A were to decree that  f o r a l l times to come s u s t a i n e d y i e l d was  the most s e n s i b l e  p o l i c y to f o l l o w . ..Instead, they must o n l y say t h a t , f o r f o r e seeable  f u t u r e , a p a r t i c u l a r p o l i c y would be the best one  to  follow. The ficult  f a r t h e r away a p o i n t i s i n time the more d i f -  i t becomes to p r e d i c t the c o n d i t i o n s corresponding  to  126  Fig-14- Fluctuations in the trend of business and building cycles-  c  e  a  3 C C <  Year  127 i t w i t h any c e r t a i n t y .  But t h i s disadvantage  i s at l e a s t  p a r t l y compensated by the f a c t that the " p r e s e n t worth" of the f a r d i s t a n t f u t u r e happenings T h i s i s not because  i s comparatively s m a l l .  the f u t u r e i s undervalued by the process  of d i s c o u n t i n g , but only means that the problems o f the near f u t u r e need more urgent a t t e n t i o n than those o f the d i s t a n t future.  T h e r e f o r e , on the b a s i s o f the best p o s s i b l e  mates of the f u t u r e ,  esti-  i f d e c i s i o n s are taken "now" i n such a  manner that the present worth o f the sum o f a l l g a i n s , i n the present and f u t u r e from the f o r e s t resource w i l l  i s maximized", * then the  have been managed i n the best p o s s i b l e manner, i  The concept of "modulated appears  y i e l d " given by Duerr  to be very c l o s e to t h i s g o a l .  be the case with "balanced f o r e s t r y "  (1966a)  This also  seems to  (Gould 1962, Smith  1963). Flora  (1966) argued that the maximization o f present  worth ( i n d o l l a r terms) and the maximization o f " s a t i s f a c t i o n " f o r the f o r e s t owner may not be i d e n t i c a l . even i f v a l i d ,  Such arguments,  are a p p l i c a b l e o n l y to an economy where  f o r e s t s are mostly p r i v a t e l y owned and the goal o f the s o c i e t y i s maximization o f s a t i s f a c t i o n . living  In a poor  society  s  c l o s e to s u b s i s t e n c e l e v e l , ' the goal of maximization  o f p r e s e n t worth w i l l  a l s o , almost i n v a r i a b l y , achieve the  g o a l o f maximization o f s a t i s f a c t i o n . goals are i d e n t i c a l  In any case the two  i n an economy which i s aiming a t economic  development as d e f i n e d i n Chapter One.  The i d e n t i t y i s r e -  128 i n f o r c e d i f f o r e s t s are owned mainly by the State which i s committed to the goal ..of economic development.  For  itself the  underdeveloped c o u n t r i e s / ' t h e r e f o r e , the goal o f maximization of present worth i s the most a p p r o p r i a t e one ment.  For developed c o u n t r i e s w i t h p r i v a t e ownership of  f o r e s t s the same goal i s v a l i d , may  be  i n f o r e s t manage-  but the term present  i n t e r p r e t e d to mean present  worth  worth o f " u t i l i t y "  or  " s a t i s f a c t i o n " , where more d o l l a r s do not mean more s a t i s faction. A p o s s i b l e argument that a b e l i e v e r i n s u s t a i n e d y i e l d f o r e s t r y may  give i n favour of t h e . o l d concept i s that  i t t r i e s to counteract supplying and  the e f f e c t s of c y c l i c a l  f l u c t u a t i o n s by  l e s s than what i s demanded during the boom years  by s u p p l y i n g f r e e l y during r e c e s s i o n .  There i s no  doubt  that a m e l i o r a t i o n of the e f f e c t s of such f l u c t u a t i o n s i s extremely important  and must be attempted.  But f o r e s t e r s  must r e a l i z e t h a t they form a very small p a r t Of the economy i n which causes of the c y c l e s e x i s t . more than 5 per cent of the GNP  aggregate  In Canada, j u s t  comes from f o r e s t r y and  f o r e s t i n d u s t r i e s (Canadian I n s t i t u t e of F o r e s t r y 1966), i n United in  S t a t e s , 6 per cent  India, 1.5  Zivnuska  per cent  (Hair 1963)  ( F o r e s t Research I n s t i t u t e  (194 9a) p o i n t e d out t h a t i t was  f o r e s t r y to c o n t r o l the c y c l e s . according  or probably  to these  Amelioration  less  1961).  beyond the scope of  F o r e s t r y must adjust  f l u c t u a t i o n s and  and,  itself  l e a r n to l i v e with them.  of the harmful e f f e c t s of c y c l e s can be  partially  attempted, i n the aggregate, o n l y by governments through fiscal  and monetary p o l i c i e s .  es are great  -  The l i m i t a t i o n s o f these  polici-  because:  "Despite a l l the learned d i s c u s s i o n of c y c l e s , there i s agreement n e i t h e r as to t h e i r cause nor to t h e i r c o n t r o l . " (McLeod 1964)  F o r e s t r y can not consider  i t s r o l e i n t h i s matter to be o f  much consequence. The  discussions  so f a r have not e x p l i c i t l y  consider-  ed the p o s s i b i l i t y o f s u b s t i t u t e s f o r f o r e s t products r e p l a c ing them.  Zivnuska  (1963) d i s c u s s e d  the  existing conditions  out  that  i n the U n i t e d  the f u t u r e f o r wood i n States.  i n terms of meeting the challenge  He p o i n t e d  of modern compe-  t i t i o n between m a t e r i a l s ,  the s t r u c t u r e o f the lumber  was c e r t a i n l y o b s o l e s c e n t  i f not t o t a l l y o b s o l e t e .  there  industry  Because  are no l a r g e e n t e r p r i s e s i n lumber i n d u s t r y which  could  a f f o r d s i z e a b l e investments i n t e c h n o l o g i c a l i n n o v a t i o n s and marketing, he thought that the i n d u s t r y would c o n t i n u a l l y l o s e markets to other m a t e r i a l s . based sheet m a t e r i a l s , marketing lumber.  As regards plywood and the wood-  Zivnuska f e l t that the technology and  i n these i n d u s t r i e s were improving b e t t e r " t h a n i n They would t h e r e f o r e  some time.  continue to expand f o r at l e a s t  He a l s o noted, however, that much o f the new  markets being The  captured  by plywood were from lumber.  pulp and paper i n d u s t r y was the one amongst a l l  f o r e s t i n d u s t r i e s , i n the o p i n i o n o f Zivnuska had  the b r i g h t e s t f u t u r e .  The r e s e a r c h  (1963), which  and development  130 programmes i n t h i s i n d u s t r y were p r o g r e s s i n g were hot  yet  without d i f f i c u l t i e s , P l a s t i c s , metal f o i l s ,  other m a t e r i a l s markets„  well;  were o f f e r i n g competition  they and  i n e s t a b l i s h e d paper  His p o i n t was'that r e s i s t a n c e s to expansion'were  mounting, and  that g r e a t e r e f f o r t s would be r e q u i r e d for'• ..  f u r t h e r expansion than had  been true i n the  Very s i g n i f i c a n t l y , paper,, that the p r e s i d e n t once t o l d him;  " I f we  sand i n s t e a d of trees', we  Zivnuska r e p o r t e d  in- t h i s  paper company  ever l e a r n to make-paper from,  would swap our  forests for. deserts,"  The - f a i l u r e of the lumber i n d u s t r y i n keeping up i t s competitors and  the success of the pulp and.paper  can a l s o be n o t i c e d from the data g i v e n (1962) f o r the United between 187 0 and  increased  industry  by P o t t e r and  195 7 showed a continuous i n c r e a s e .  Christy,  The  per  per c a p i t a output showed d e c l i n e s .  d e f l a t e d p r i c e of pulpwood between 1900  almost - constant  with  S t a t e s , ; The" d e f l a t e d p r i c e of lumber  c a p i t a consumption and The  !;  past.  of a l a r g e pulp and  should  ;:;  and  1957  but - the per c a p i t a consumption and  very g r e a t l y ,  Though Zaremba  p r i c e of lumber, i n c r e a s e d  due  remained output,  (1958) thought  the  to r i s e i n per c a p i t a income,  the main reason p r o b a b l y i s l a c k of t e c h n o l o g i c a l change  and  poor marketing, The  possibilities  i n the f u t u r e of r e p l a c i n g f o r e s t  products by s u b s t i t u t e s should trends.  Acceptance of the  be  shown i n the expected  idea of s u s t a i n e d  p r o d u c i n g timber even i f people no  longer  future  y i e l d aims at  want i t and  prefer  131 the s u b s t i t u t e s .  The g o a l ' o f maximization of present  worth  takes care of t h i s f a c t o r . The embracing one general g o a l .  goal of present  and- sustained y i e l d The  s p e c i f i c aim  conditions hold true. two  worth maximization i s an a l l -  i n t h i s respect.  i s a s p e c i a l ' a i m w'rthin t h i s ;  i s s u i t a b l e o n l y when c e r t a i n  There i s thus no c o n f l i c t The  p o l i c y of present  also i n c l u d e s the goal of "continuous  between the  worth maximization  forest production"  i f 'the  b e n e f i t s from i t are sought by "the s o c i e t y . For the purposes of t h i s t h e s i s , nothing  is implicit-  l y or e x p l i c i t l y assumed "sacred"' about a f o r e s t .  'It should  be,  a capacity  and  i s , looked upon Only as something that has  to s a t i s f y , present pointed  and  f u t u r e human wants.  Scott  (1955) has  out: " I f man"had p r i z e d n a t u r a l resources above h i s own product, he would doubtl e s s have remained a savage, p r a c t i c i n g "conservation".  Worrell  (1959) wrote: " F o r e s t r y i s not a good 'thing per se. It i s good only i f i t produces good's and s e r v i c e s that people want"„  Zivnuska  (1966b), while addressing  (  the S o c i e t y of American  Foresters, said: it  we must recognize that p u r r e s p o n s i b i l i t y o o o o i s not to the t r e e s , not to the l a n d , not even to the environment. Our r e s p o n s i b i l i t y i s to the i n c r e a s i n g numbers of people who must f i n d a means of and purpose f o r l i v i n g w i t h i n the f i x e d t o t a l e n v i r o n m e n t •  132  SPECIAL FEATURES OF FORESTRY  Natural  resources,  cluded under " l a n d " of production  such as f o r e s t s , a r e u s u a l l y i n -  i n the t r a d i t i o n a l  i n t o "land' , ''labour",  be  economists considered  f i x e d o r God-given l i k e , l a n d , the supply  be m a n i p u l a t e d .  of  This has  and' t h u s f i x e d , , b u t c e r t a i n l y  f o r e s t s as f i x e d ,  o f which could not like  human q u a l i t i e s a s God-  we do n o t have ' t h e  Man c a n r e - c r e a t e  supply  them i f he w a n t s t o .  I n some i n s t a n c e s  j u s t c u t t i n g down o f t h e o l d g r o w t h and a  little  ensures a f a i r l y good r e g e n e r a t i o n  a f t e r care  valuable  tree species,  t h e n i n mo st c a s e s \ p l a n t i n g  crop*of  trees.  ;  be  can give  Time, c a p i t a l a n d l a b o u r  the f o r e s t resource.  resources,  Forests,  a r e needed t o r e -  and i n d e e d  other  should  I t does n o t  to c r e a t e  than t h a t r e q u i r e d t o c r e a t e  a l l natural  and  i n the trichotomy.  matter g r e a t l y that the time r e q u i r e d longer  r'ise t o a new  a r e t h u s much .1 i k e man-made c a p i t a l  i n c l u d e d under " c a p i t a l "  far  of  I f i t i s n o t so e a s y t o renew t h e  forest,  create  1  them t o  I t may be c o r r e c t t o t h i n k o f f a c t o r s  c l i m a t e , a c r e a g e o f l a n d and i n h e r e n t given  of f a c t o r s  and " c a p i t a l " .  1  b e e n so b e c a u s e t h e c l a s s i c a l  trichotomy  forests i s  kinds of c a p i t a l .  L i t e r a t u r e on f o r e s t r y e c o n o m i c s e m p h a s i s e s t h e fact  t h a t t h e wood p r o d u c i n g  factory, i , e , f o r e s t , i s also  o f wood and t h a t t h e p e r i o d o f p r o d u c t i o n long.  made  i n f o r e s t r y i s very :  133 "One c h a r a c t e r i s t i c , t h e n , - o f f o r e s t c a p i t a l i s t h a t the timber product i s a l s o t h e timber-growing: machine, but u l t i m a t e l y t h e machine i s the p r o d u c t . T h i s i s more t h a n j u s t an i n t e r e s t i n g academic p o i n t . I t i s a basic feature of f o r e s t r y , the consequences o f which p e r v a d e f o r e s t management, A second c h a r a c t e r i s t i c o f f o r e s t c a p i t a l i s - the long p e r i o d o f p r o d u c t i o n i n w h i c h i t i s i n v o l v e d , " ( D u e r r 1960) Zivnuska of production adjust  (194 9b)  makes  pointed  i t very  out that  difficult,  the a c t u a l production  o f wood  may  Observations  i n the market  i n d i c a t e a -reduction a f t e r a long  reduced.  Because  even, t h i s  becomes d i f f i c u l t  the  thing  right  actually, ment  growth o r i n -  during  the l a s t  o f wood.  t i m e when t h e g r o w i n g  t h e ' ' f a c t o r y " and p r o d u c t t o do.  When demand  as even t h e f u l l  i n the reverse  of f o r e s t r y .  has been  i s declining  difficulty  d i r e c t i o n when demand . i n c r e a s e s ,  But i t s h o u l d  be r e a l i z e d needed  The  other  kind  i s machines,  of c a p i t a l  and t h e l i k e .  needed  Moreover,  seems to be g r a d u a l l y  With s h o r t e r  f o r e s t grow-  f o r producing  the long  shortening  special featur-  that  i s not a l l the c a p i t a l  trees are developed.  stock;  Similar  stock  duction  c a n be  amount o f i n c r e -  ing  pesticides  years  are i d e n t i c a l  T h e s e c h a r a c t e r i s t i c s a r e , no d o u b t , es  This  stock  i s n o t c u t due t o l o w e x i s t i n g demand.  arises  few  t o do would be t o r e d u c e . t h e g r o w i n g  i t i s increased  to  requirements o f the  i n production  done o n l y  period  i f not impossible,  (annual  crement o f a f o r e s t ) to the s h o r t - r u n market.  the long  seed  8  period  a s new f a s t  wood. nurseries,  o f progrowing  r o t a t i o n s the proportion  o f non-timber As  c a p i t a l i n the ' - f a c t o r y " i s a r e s u l t of  t h e i n v e n t o r y o f wood, grower o r f o r e s t e r ,  these  increasing.  s p e c i a l f e a t u r e s of  r e q u i r e d t o be m a i n t a i n e d " by' t h e  i s much l a r g e r  than i n other  But t h e n a t u r e o f t h e c a p i t a l and t h e p r o d u c t s u c h t h a t the  inventory  high.and  the cost of holding  demand i s  l o w i s not g r e a t  because  relevant  investment, . Therefore,,  t r e e s do n o t  when  :  easily  de-  two f e a t u r e s  is  i n i t s e l f is: l i t e r a l l y  an  the questions  i n f o r e s t r y are a u t o m a t i c a l l y answered  p a r t - w h i l e d e c i d i n g the questions A . t h i r d feature of wood,  is  t h e i n v e n t o r y When  implication of.the  that n o n - e x p l o i t a t i o n of the f o r e s t  ments  in forestry  stump,  Another  a c t of  wood  enterprises.  c a n be r u n .'down r a t h e r e a s i l y  demand i s  t e r i o r a t e on t h e  forestry,  regarding  forestry  is  regarding  invest-  -at  in  least  exploitation.  t h a t i t s main  i s v e r y v e r s a t i l e and can be u s e d f o r many  product,  purposes.  FORESTRY-AND AGRICULTURE .  Forestry cultural due  sector  to two  is  o f t e n t r e a t e d as" 'a p a r t o f  i n many c o u n t r i e s o f t h e w o r l d ,  the  agri-  This; i s  mainly  reasons: (1)  In  the t r a d i t i o n a l p r a c t i c e of  forests  agriculture,  have p l a y e d a v e r y I m p o r t a n t  keeping the r u r a l presumably  this  economy  r o l e of  running-.  forests  part It  which  in  was neees-  135 sitated  appointments  f o r e s t s and  f o r e s t produce"  Mauryan'Empire 1959). for  of "superintendents of  (321 -185  a s e a r l y as -the  B.C.)  i n India  (Basham  Not o n l y d i d t h e f o r e s t s p r o v i d e t i m b e r  housing, a g r i c u l t u r a l  i m p l e m e n t s and  fire-  wood f o r t h e f a r m e r b u t a l s o g r a z i n g and for  his cattle  his  fields.  sidered  and p r o t e c t i o n  (2)  from e r o s i o n f o r  F o r t h e s e r e a s o n s f o r e s t r y was  i n almost  has b e e n t r e a t e d a s a p a r t o f  a l l countries  till  recently.  I n a r e a s where t h e b a s i c p r o d u c i n g u n i t farm- produced  both a g r i c u l t u r a l  crops  -the and  wood, t o a c o n s i d e r a b l e e x t e n t , t h e r e was tendency Of t h e s e two for  t o lump t h e two reasons  the f i r s t  one  i s no l o n g e r v a l i d has  been moder-  t h e f a r m e r d o e s n o t d e p e n d d i r e c t l y on t h e f o r e s t  any  a p p r e c i a b l e degree,  his  farm.  f o r the a g r i c u l t u r a l p r o d u c t i v i t y  Forests i n these countries  inputs f o r subsistence agriculture, material f o r manufacturing veneer  a  together.  t h e " d e v e l o p e d " c o u n t r i e s where a g r i c u l t u r e  n i z e d and  con-  t h e Mhand-maiden" o f a g r i c u l t u r e i n  some p l a c e s and it  fodder  and p l y w o o d and  s e r v e , n o t as  but as s o u r c e o f  i n d u s t r i e s l i k e p u l p and  lumber.  The  to  of  necessary raw paper,  primary forest product -  stumpage- i s n o t - d i r e c t l y consumed as i s t h e c a s e w i t h p r i m a r y a g r i c u l t u r a l product t r a n s f o r m a t i o n and  -food-  but u n d e r g o e s v a r i o u s s t a g e s o f  a d d i t i o n of v a l u e b e f o r e i t i s put to  final  136  use,  In i t s  final  use much of the products o f f o r e s t r y go  into investment,e.g.,  making houses,  railroads,  industrial  b u i l d i n g s and i n making of books and papers of v a r i o u s kinds which are forms of investment  i n human r e s o u r c e s .  The products  of f o r e s t r y and products of a g r i c u l t u r e . t h u s perform very d i f ferent roles  i n an economy.  One category i s  meant f o r u s e : i n new investments sumption.  substantially  and the other i n f i n a l  I t t h e r e f o r e seems t h a t ,  con-  lumping the two i n t o one  would be o v e r - s i m p l i f i c a t i o n of the m a t t e r , at l e a s t  i n the  case of developed c o u n t r i e s . As regards the underdeveloped c o u n t r i e s which wish to change t h e i r s t a t u s and move along the road to the r o l e of  development,  investment and consumption i s extremely i m p o r t a n t .  Moreover,.as countries stage they w i l l  s t a r t moving towards the  "developed"  g r a d u a l l y become more and more l i k e the ad-  vanced c o u n t r i e s i n t h e i r economic s t r u c t u r e and t h e r e f o r e a c l a s s i f i c a t i o n a c c o r d i n g to "what i s e x p e c t e d  to be"  is  probably f a r more a p p r o p r i a t e than one a c c o r d i n g to "what has been".  This i s e s p e c i a l l y  true when every attempt  made to change the o l d s t r u c t u r e .  It  is  therefore  is  to be  reasonable  to t r e a t a g r i c u l t u r e . a n d f o r e s t r y as two independent  sectors  i n economies "which are e i t h e r developed or wish to be developed. The second reason why the two s e c t o r s have so f a r been lumped together  i s a p p l i c a b l e o n l y to c e r t a i n p a r t s of  the world l i k e the U n i t e d States of America and p a r t s of  137 Europe,  I n most o f t h e u n d e r d e v e l o p e d c o u n t r i e s , a n d c e r t a i n l y  i n I n d i a ( N a u t i y a l 1 9 6 5 ) , v e r y few f o r e s t s a r e owned by f a r m e r s . Ownership  o f f o r e s t land r e s t s mostly i n the State i n these  c o u n t r i e s and c o m p l e t e l y d i f f e r e n t u n i t s o f p r o d u c t i o n produce agricultural  c r o p s and stumpage.  On t h i s  account a l s o i t i s  r e a s o n a b l e t o r e j e c t t h e l u m p i n g o f t h e two s e c t o r s i n u n d e r developed countries l i k e  India,  PRODUCTS OF THE FORESTRY SECTOR  The  products of the forestry  t h r e e major groups lo  (Buttrick  s e c t o r c a n be p u t i n  1948),  Wood a n d wood d e r i v a t i v e p r o d u c t s T h i s g r o u p i n c l u d e s wood i n t h e v a r i o u s s t a g e s o f i t s  use c h a r a c t e r i z e d by t h e d e g r e e t o w h i c h t h e t r e e s t e m i s b r o k e n down o r s u b d i v i d e d i n t h e p r o c e s s o f m a k i n g i t r e a d y for the f i n a l  use.  The d i f f e r e n t  stages a c c o r d i n g t o Duerr  (1966b) a r e ; (a)  Roundwood, f e a t u r i n g l o g c a b i n s , c o r d u r o y r o a d s and  (b)  poles,  C h u n k s , f e a t u r i n g f i r e w o o d a n d t h e hewn t i e and t i m b e r ,  (c)  Thick s l i c e s ,  (d)  T h i n s l i c e s , f e a t u r i n g v e n e e r and plywood,  (e)  Particles, composition  featuring  lumber,  f e a t u r i n g p a p e r , p a p e r b o a r d and board.  138 (f)  Molecules, featuring  the nascent  silvi-chemical  industry. E a c h s u c c e s s i v e s t a g e r e p r e s e n t s an i n c r e a s i n g ness and  o f d i v i s i o n o f raw m a t e r i a l admits  i n the process of  manufacture,  o f f u l l e r u n i f o r m i t y i n t h e end p r o d u c t and t h u s  c l o s e r a d a p t a t i o n to mechanized use.  E a c h s t a g e i s more  a b l e t h a n i t s p r e d e c e s s o r and more a m e n a b l e t o p r o d u c t and  fine-  adapt-  research  development, and f o r g r e a t e r p r o l i f e r a t i o n o f product  t y p e s , s t y l e s , and uses. vanced  and c a p i t a l  I t c a n be s e e n t h a t t h e more a d -  i n t e n s i v e a n economy, t h e l a t e r  the stages  o f wood u s e i t w o u l d e m p l o y , a n d v i c e v e r s a , "As a s o c i e t y u n d e r g o e s e c o n o m i c g r o w t h -as per c a p i t a o u t p u t and thus t h e v a l u e of human l a b o u r c l i m b s - s o c i e t y i s f o r c e d t o make more a n d more s p a r i n g u s e o f l a b o u r i n m a n u f a c t u r i n g a n d t o s u b s t i t u t e more machines f o r l a b o u r , which i n t u r n r a i s e s s t i l l f u r t h e r t h e v a l u e o f l a b o u r and t h e i n c e n t i v e s to economize i n i t s use. I t f o l l o w s , t h e n , t h a t s o c i e t y ' s economic growth f o r c e s i t i n t o s u c c e s s i v e l y h i g h e r s t a g e s o f wood u s e . The p r o d u c t s a p p r o p r i a t e t o t h e e a r l i e r s t a g e s become i n f e r i o r goods and t a k e d i m i n i s h i n g p e r c e n t a g e s o f t h e t o t a l raw m a t e r i a l , Reading the firewood l i n e a t the foot o f Table 3 (showing p r o p o r t i o n a t e consumption p f f i r e wood a s p e r c e n t a g e o f a l l roundwood c o n sumed i n t h e y e a r s 1 9 0 0 , 1 9 3 0 , 1964 a n d 2000 ( e s t i m a t e d ) ) : 40,2, 3 6 , 1 , 7,7, 2,5 The s t a g e s j u s t a h e a d o f t h e wave o f p r o g r e s s e x h i b i t r i s i n g p e r c e n t a g e s , as f o r pulpwood: 1,4, 9,3, 28,4, 43,3 As t h e wave moves o n , t h e p r o d u c t s a p p r o p r i a t e t o t h e s u c c e s s i v e s t a g e s o f wood u s e a r e swept u n d e r , t o become i n f e r i o r goods, ( D u e r r 1966b) Of a l l t h e f o r e s t p r o d u c t s , t h e b e s t o r g a n i z e d  markets e x i s t  f o r t h i s group.  As a r e s u l t , t h e d e t e r m i n a t i o n  o f the values o f these products of the forest resource  and c o n s e q u e n t l y  of that part  t h a t p r o v i d e s them, i s e a s i e r than  that  i n t h e case o f groups d i s c u s s e d below, 2,  Wildlife  and non-arboreous f o r e s t  plants  T h i s group i n c l u d e s a l l f o r e s t - i n h a b i t i n g t h a t h a v e any s i g n i f i c a n c e vegetable products  animals  f r o m a human p o i n t o f v i e w and a l l  o f non-arboreous n a t u r e , such  as f o r a g e ,  v a r i o u s e d i b l e and m e d i c i n a l p l a n t s , and e c o n o m i c a l l y  valuable  mosses a n d l i c h e n s . W i l d l i f e has value n o t o n l y because i t p r o v i d e s a quarry  f o r the hunter, o r provides  a l s o b e c a u s e some a n i m a l s  f o o d , c o a t s and h i d e s , but  control harmful  i n s e c t s and r o d e n t s .  I t has value a l s o because o f a e s t h e t i c reasons. to  establish  these  values but d i f f i c u l t  I t i s easy  t o measure them  ( A l l e n 1955), It  i s also extremely  difficult  t o measure t h e v a l u e  o f g r a z i n g o n a f o r e s t a r e a w i t h any r e a s o n a b l e curacy.  Often  the people  who s e e k f o r a g e  degree o f a c -  for their  cattle  f r o m a f o r e s t a r e t h o s e who h a v e b e e n p r a c t i c i n g g r a z i n g t h e r e for  g e n e r a t i o n s and a r e used t o e i t h e r no, o r a n o m i n a l ,  ment f o r i t . stances into  The r e c e i p t s o f g r a z i n g f e e u n d e r s u c h  pay-  circum-  do n o t r e p r e s e n t t h e v a l u e o f g r a z i n g a n d do n o t t a k e  consideration the actual costs i n f l i c t e d  on t h e f o r e s t  owner f o r p r o v i d i n g t h e s e r v i c e . In  both the cases t h e d i f f i c u l t y  a r i s e s due t o e x -  140 ternalities  i n v o l v e d i n t h e t r a n s a c t i o n s and t h e n o n - e x i s t e n c e  of a s u i t a b l e m a r k e t f o r w i l d l i f e and f o r a g e .  I t may be  p o s s i b l e to c r e a t e markets f o r these products but the task i s e x t r e m e l y d i f f i c u l t a s s o c i e t y v e r y o f t e n d o e s n o t want  such  markets to e x i s t . Markets  f o r minor f o r e s t products  like  e d i b l e and  m e d i c i n a l p l a n t s ^ , m o s s e s and l i c h e n s a r e b e t t e r o r g a n i z e d b u t t h e i r v a l u e i s u s u a l l y so l i t t l e  t h a t t h e i r o m i s s i o n does n o t  a f f e c t t h e t o t a l v a l u e o f f o r e s t p r o d u c t s t o o much, 3,  I n t a n g i b l e p r o d u c t s and s e r v i c e s T h i s group i s a l s o d e s c r i b e d as " f o r e s t  and  " e n v i r o n m e n t a l v a l u e s " and i n c l u d e s v a l u e s w h i c h  or l i m i t e r o s i o n , m i t i g a t e f l o o d s , conserve c r e a t i o n and m i l i t a r y d e f e n c e s The clusively  from  the removal  by p h y s i c a l r e m o v a l thought  (Buttrick  values of the f i r s t  i n nature.  They a r e a f f e c t e d  o f other products but themselves  f o r e s t t o p r o v i d e them a g a i n . enjoy the s c e n i c beauty  can not  The u t i l i z a t i o n o f  the c a p a b i l i t y o f the  F o r e x a m p l e , one p e r s o n  may  o f a f o r e s t p a r k and g e t some d e g r e e  but t h i s a c t i n i t s e l f does n o t r e s t r i c t t h e  enjoyment o f t h e second  person  1948),  o f as b e i n g p h y s i c a l l y removed.  of s a t i s f a c t i o n ,  provide r e -  two g r o u p s a r e d e r i v e d e x -  some o f t h e s e v a l u e s d o e s n o t a f f e c t  faction.  water,  prevent  o f p h y s i c a l products but those o f  t h i s group a r e v e r y d i f f e r e n t  be  influence"  p e r s o n who may s e e k a s i m i l a r  I n t h e c a s e o f wood i t i s n o t s o .  h a s t a k e n some wood t h e n t h e s e c o n d  satis-  I f the f i r s t  one c a n n o t t a k e  141 as much as he could have, i f the f i r s t  one had not been around.  Such goods and s e r v i c e s as s c e n i c beauty and m i l i t a r y defence are s a i d to have " p u b l i c good e x t e r n a l i t i e s " (Bator 1958). efficient  a l l o c a t i o n o f " i n d i v i d u a l goods" (as c o n t r a s t e d  The with  " p u b l i c " goods and s e r v i c e s ) i s o b t a i n e d when the marginal  rate  o f t r a n s f o r m a t i o n i s equal t o the marginal r a t e o f s u b s t i t u t i o n f o r each i n d i v i d u a l (Bator 1957). the  In the case o f p u b l i c goods  consumption by one i n d i v i d u a l does not l e a d t o s u b t r a c t i o n  o f another person's consumption and t h e r e f o r e  the e f f i c i e n t a l -  l o c a t i o n i s o b t a i n e d by the e q u a l i t y o f the marginal r a t e o f t r a n s f o r m a t i o n w i t h the sum o f the marginal r a t e s o f s u b s t i t u t i o n o f a l l i n d i v i d u a l s (Samuelson 1954 ). of p r i c e s can be a v a i l a b l e t h a t w i l l  In such cases no s e t  s u s t a i n optimum w e l f a r e .  Whether the p u b l i c goods should be produced can be decided  only  when the sum o f u t i l i t i e s o f a l l i n d i v i d u a l s i n the s o c i e t y these goods i s known. described  from  T h i s i s i m p o s s i b l e and Bator (195 8) has  such s i t u a t i o n s as f a i l u r e o f the market t o a t t a i n  Pareto-efficiency configurations.  a l l o c a t i o n s due t o non-existence o f the p r i c e Where such non-existence o f p r i c e s o c c u r s , any  d e t e r m i n a t i o n o f the values o f the gdods and s e r v i c e s i s necessar i l y <incorrect»  Some o f the i n t a n g i b l e products o f f o r e s t r y  like  r e c r e a t i o n and m i l i t a r y defence i n group 3 have " p u b l i c good" a t t r i b u t e s to a considerable  extent and so they can not be f u l l y eva-  l u a t e d even i f a h y p o t h e t i c a l suggested by Haley 2  market could be created  (1966), Other goods l i k e e r o s i o n  f o r them as  and f l o o d  control  See a l s o M a r g o l i s , J , , 1955. A comment on the pure theory o f p u b l i c expenditures. Review o f Economics and S t a t i s t i c s , 37 (4)s 347-9,  142 c o u l d c o n c e p t u a l l y be e v a l u a t e d b u t p r a c t i c a l l y extremely  t h e problem i s  difficult. In  spite of the d i f f i c u l t i e s  involved,  economic  es o f t h e s e s e r v i c e s a r e b e i n g u n d e r t a k e n , e,.g,, ORRRC for  r e c r e a t i o n and B l a c k , P „ E  0  (1963)  f o r water  IMPORTANCE OF FOREST PRODUCTS FOR When d e v e l o p m e n t  i s defined  p e r c a p i t a GNP, a s i n t h i s t h e s i s , products of f o r e s t r y w i l l  (1962)  yields,  DEVELOPMENT  i n terms o f i n c r e a s i n g  the'importance of v a r i o u s  have t o be e v a l u a t e d by t h e c o n t r i -  b u t i o n s e a c h c a n make t o w a r d  t h e i n c r e a s e i n GNP,-  t r i b u t i o n may be i n t h e p r e s e n t a n d / o r  T h i s con-  i n the future.  c o n t r i b u t i o n o f $5 t o t h e GNP t o d a y i s i n f e r i o r  i s g r e a t e r t h a n $2,  Thus a  to a c o n t r i -  b u t i o n o f $3 t o d a y p l u s some amount i n t h e f u t u r e , worth of which  studi-  the present  When t h e f u t u r e h a s t o be  t a k e n a c c o u n t o f i n t h i s manner i t i s n e c e s s a r y t o a r r i v e a t the  m o s t a p p r o p r i a t e r a t e o f i n t e r e s t w h i c h s h o u l d be u s e d t o  discount the future values to t h e present.  Each  individual i n  a s o c i e t y may have a d i f f e r e n t r a t e o f t i m e p r e f e r e n c e ( D u e r r 1960)  which  i s the annual percentage a t which the i n d i v i d u a l  subjectively discounts future values i n h i sdecisions c u r r e n t versus f u t u r e consumption. of  about  When t h e p e r c a p i t a  GNP  t h e f u t u r e i s t o be d i s c o u n t e d t o t h e p r e s e n t t h e n t h e i n -  dividual  r a t e i s n o t o f much h e l p a s t h e r e w i l l  r a t e s a n d o n l y one o f them c a n a c t u a l l y be u s e d ing „  What i s r e q u i r e d  i n such a case  be many  such  f o r discount-  i s the social  time  143 preference The  rate;  State Preference Function There  ( 1 9 2 8 ) , Dobb  i s c o n t r o v e r s y between e c o n o m i s t s  like  Ramsay  (1960) and Sen ( 1 9 6 0 ) who c o n s i d e r t h a t p u r e  per-  s o n a l t i m e p r e f e r e n c e s do n o t a d e q u a t e l y t a k e i n t o c o n s i d e r a tion  t h e f u t u r e g e n e r a t i o n s and so w o u l d  more r a t i o n a l Bain  g o v e r n m e n t time p r e f e r e n c e ;  (1960), Tinbergen  would  like  opinion,  like  ence r a t e r e f l e c t i n g social u t i l i t y  that a s o c i a l  and  level  t h e pure  expected  time  prefer-  t h e government's judgement o f t h e r e l a t i v e  He a l s o  a t d i f f e r e n t p o i n t s i n time  suggested  that  t h i s r a t e c a n be e s t i -  m a t e d and may v a r y t h r o u g h t i m e i n r e s p o n s e sumption  (1957),  t i m e p r e f e r e n c e r a t e on p u b l i c  (1964) a r g u e d  of consumption  s h o u l d be u s e d .  and E c k s t e i n  (1956) a n d M a r g l i n ( 1 9 6 2 , • 1 9 6 3 ) who  to base the s o c i a l Feldstein  to substitute a  and g r o w t h  rates,  t o changes i n con-  the r a t e o f p o p u l a t i o n growth  time p r e f e r e n c e r a t e .  He t h o u g h t  t h e r a t e may be  to r i s e as a f u n c t i o n of time. These v i e w s o f F e l d s t e i n  ed by N a t h  (1964) when he w r o t e :  (1964) a p p e a r  " I n any c a s e , i f t h e m a j o r i t y  p r e f e r s some p o s i t i o n a l o n g t h e f e a s i b i l i t y I to p o s i t i o n criterion,  II„  then that  curve o f p o s i t i o n  ( i . e .the m a j o r i t y approval) i s the  b o t h n e c e s s a r y and s u f f i c i e n t ,  d e c i s i o n - m a k i n g i n a democracy; alternative  t o be s u p p o r t -  f o r the government's  the economist  cannot  o f f e r any  criterion."  If,  however, Nath  i s i n t e r p r e t e d as w r i t i n g  about  e a c h and e v e r y d e c i s i o n o f g o v e r n m e n t s e p a r a t e l y t h e n he i s  d i a m e t r i c a l l y opposed to F e l d s t e i n :  "Our own v i e w w o u l d be t o  allow a d m i n i s t r a t i v e determination of the s o c i a l ference w i t h whatever weight t i o n s these democratic  time  to the welfare of f u t u r e  a d m i n i s t r a t o r s would a l l o w .  m i n i s t r a t i v e d e c i s i o n by an a c c o u n t a b l e our n o t i o n o f t h e requirement  pre-  government  o f democracy;  genera-  An a d satisfies  democratic  theory  does n o t r e q u i r e t h a t each d e c i s i o n r e p r e s e n t a consensus, but t h a t g o v e r n m e n t a c t i o n a s a w h o l e be a c c e p t a b l e  to the elec-  torate,," It  i s reasonable  t o assume t h a t N a t h meant h i s s t a t e -  ment i n a way t h a t d o e s n o t c o n t r a d i c t F e l d s t e i n , b e c a u s e N a t h was t a l k i n g  I t i s so,  about t h e r e a l w o r l d and t h e r e i s  h a r d l y a n y d e m o c r a c y i n t h e w o r l d where a c o n s e n s u s o f t h e people  i s c o n s i d e r e d t o be n e c e s s a r y  decision,.  I t c a n t h e r e f o r e be t a k e n  f o r every  government  to f o l l o w that the " w i l l "  o r " p r e f e r e n c e s " o f t h e s o c i e t y as determined  by a d e m o c r a t i c a l  l y f o r m e d g o v e r n m e n t c a n be s u p e r i m p o s e d o n t h e i n d i v i d u a l p r e ferenceso  When s u c h a g o v e r n m e n t , a s a r e s u l t o f t h e o v e r a l l  d e s i r e of i t s people, development, then luating for  i s committed t o t h e g o a l o f economic  i t s preferences  the r e l a t i v e  importance  become v e r y  important  o f the products  i n eva-  of forestry  development. Not  ference  only for"determining the rate of s o c i a l  but a l s o as a g u i d e  ment i n f u t u r e , a c o n c e p t "State preference  to a c t i o n f o r achieving  of social preference  f u n c t i o n " (Drewnowski  1961),  time  pre-  develop-  function or i s essential.  145 This  has  a l s o r e c e n t l y been s u g g e s t e d i n t h e  f o r e s t r y and  e c o n o m i c d e v e l o p m e n t by  Drewnowski argued t h a t of a c h i e v i n g the  i t s economic ends;  i n d i v i d u a l and  Beazley  t h e d i r e c t and  the i n d i r e c t  way  c o n s i s t s o f a c t i o n s u n d e r t a k e n by  acquire of  market c o n d i t i o n s .  i s made up  goods t h a t the  the  wants of  It j e c t i v e s of actions.  the  i n d i v i d u a l s can  be  mic  o b j e c t i v e s as  individuals wants the  can  of  way  that  to consists will  a l l of the  economic  ob-  the i n d i v i d u a l s  i n a d i r e c t way.  1  an i n d i v i d u a l But  h i s econoor  group  (peasant, s c i e n t i s t  etc),  t e r m o b j e c t i v e s o f c o n s u m p t i o n as  achieved only  by  the  i n d i r e c t way.  If  an he  economy to grow f a s t e r t h e n h i s s a v i n g m e r e w i l l  a c h i e v e the utilities,  income  collective  r e a l i z e d by  some s o r t o f a c t i v i t y  be  pattern  a member o f a n a t i o n , c l a s s , p a r t y ,  a l s o a number o f l o n g  polls  simplest  economic o b j e c t i v e s o f a p e r s o n as  connected w i t h  the  population.  i n m o s t c a s e s be a c h i e v e d  science  The  The  i s a known f a c t t h a t n o t  The  individual  institutional,  a u t h o r i t y to t a k e a c t i o n s  may  and  The  ways  of a c t i o n s d i r e c t e d at a c q u i r i n g i n -  s a t i s f y wants.  State  two  individuals within  a c t i o n s d i r e c t e d toward spending that  inducing  satisfy  c o l l e c t i v i s t way.  e x i s t i n g r e s t r a i n t s r e s u l t i n g from  those a c t i o n s come and  (1965) , has  or  t e c h n o l o g i c a l , and  of  the p o p u l a t i o n  way  framework of  the  context  objective.  He  can  not  vote for better  better working conditions  with  h i s d o l l a r s but  has  and  the  to v o t e a t  public  advancement the  time of  of the  t o b r i n g t o power a g o v e r n m e n t t h a t w o u l d h a v e t h e s e  not  146 o b j ectives„ The s c r i p t i o n s as  population to the  must u n d e r t a k e plicitly  as  activities  t h e government of  to the  aware o f t h e n e e d s and  State,  wishes pf  the p a r t i c u l a r o b j e c t i v e s of  The  State  represented  t h e d i r e c t way  by  individual  to a c h i e v e  d e c i s i o n s and  function", function but  these are  preference  represented  Drewnowski  i s not  any  i s d e t e r m i n e d by  act  s c a l e s of v a l u e s , functions.  S t a t e makes d e c i s i o n s , i t must have some i m p l i c i t and  being  determines  i t s e c o n o m i c a c t i v i t y and  Those d e c i s i o n s r e v e a l t h e i r  values,  ex-  authority,  the p o p u l a t i o n ,  e c o n o m i c e n d s , t h e y make t h e i r own  be  i t s choice  makes  decisions.  When p e o p l e u s e  ly.  pre-  Only broad l i n g s o f economic p o l i c y are  transmitted  appropriate  a whole never g i v e s d e t a i l e d  by  the " S t a t e  their accordingwhich When  scale  the  S t a t e on  of the  individual  the of  preference  (1961) made i t q u i t e c l e a r t h a t  sort of t o t a l  can  this  preferences,  b a s i s of the wishes  the i n d i v i d u a l s . " I n t h e n a t i o n a l economy t h e r e e x i s t , t h e r e f o r e , two s y s t e m s o f v a l u a t i o n s the m u l t i p l e system o f i n d i v i d u a l p r e f e r e n c e functions and t h e s i n g l e S t a t e p r e f e r e n c e f u n c t i o n . The i m p o r t a n t p o i n t t o b e a r i n m i n d i s t h a t t h e s e two s y s t e m s o f v a l u a t i o n a r e n o t mere t h e o r e t i c a l m o d e l s but do e x i s t i n actual fact. They e x i s t i n t h e s e n s e t h a t t h e d e c i s i o n s b a s e d on e a c h o f them a r e a reality. The p r e f e r e n c e f u n c t i o n s may not be c o n s c i o u s l y p l o t t e d by t h e s u b j e c t s t h a t "have them", b u t t h e y can be " r e v e a l e d " by a n a l y s i s o f t h e d e c i s i o n s b a s e d on them." (Drewnowski 1961)  of  14 7 He went on t o p o i n t o u t  t h a t the dual system e x i s t s both  c a p i t a l i s m as w e l l as s o c i a l i s m .  The  spheres  f u n c t i o n s s e r v e s as a  o f i n f l u e n c e o f t h e s e two  finition  o f c a p i t a l i s m as a g a i n s t  boundary between  in  the de-  socialism.  With the e x i s t e n c e o f - t h e State p r e f e r e n c e f u n c t i o n , and  a S t a t e committed t o b r i n g about s u s t a i n e d i n c r e a s e s i n p e r  c a p i t a GNP,  i t i s now  e a s y t o v i s u a l i z e t h a t i n an economy  those products  w h i c h can be m e a s u r e d i n m o n e t a r y t e r m s  most i m p o r t a n t  i n terms o f t h i s p a r t i c u l a r o b j e c t i v e .  Forest products  o f g r o u p s 2 and  p r e v i o u s s e c t i o n do n o t l e n d t h e m s e l v e s evaluation.  A l s o , whatever value they  i s u s u a l l y very Therefore  3 described i n the  t o an e a s y and  r e v e a l i n monetary u n i t s 1.  i t i s n a t u r a l t h a t , w h i l e a n a l y s i n g the r o l e o f i n o f f o r e s t r y , t o e c o n o m i c d e v e l o p m e n t , as  f i n e d h e r e , most o f t h e a t t e n t i o n be p a i d t o wood and derivative products. a r e , more i m p o r t a n t and w h i c h can The  W i t h i n t h i s group, a l s o , those  de-  wood products  w h i c h have h i g h e r v a l u e a t t a c h e d t o them,  c r e a t e more o f f u r t h e r m o n e t a r y v a l u e s . State preference  function i s helpful i n explain-  an a s p e c t o f f o r e s t r y w h i c h c r o p s up  i n those  t h a t h a v e c u l t i v a t e d t h e i r f o r e s t s , as a m a t t e r p o l i c y , on t r a d i t i o n a l considerable period.  slogans l i k e  countries  of p u b l i c  German f o r e s t r y management l i n e s These c o u n t r i e s have been s o l d t h e  of "conserving" t h e i r forests and  correct  s m a l l as c o m p a r e d t o t h e v a l u e s o f g r o u p  d i f f e r e n t products  ing  are  for a ideas  f o r t h e sake o f c o n s e r v a t i o n ,  " f o r e s t s are our n a t i o n a l h e r i t a g e " , w i t h  such  148 success that a large p r o p o r t i o n genuinely  loves  them i n t h e i r  of the population  probably  t h e f o r e s t s a s such and would l i k e  t o keep  p r e s e n t s t a t e by i n c u r r i n g e x t r a c o s t s , i f  necessary, f o r as long  as .possible.  in t h i s chapter,  case i s l i k e t h a t o f t h o s e consumers  their  As a l r e a d y  pointed out  who a r e a f f e c t e d by a d v e r t i s i n g and come t o d e v e l o p for  new p r o d u c t s .  sumption good. sumption.  F o r such p o p u l a t i o n s  They a r e p r e p a r e d  I f such a p o p u l a t i o n  " f o r e s t s " a r e a con-  to pay a p r i c e f o r t h i s  has a government t h a t  m e n t s t h i s d e s i r e o f t h e p e o p l e by e n f o r c i n g regulations, object that ing that  there  likings  i s hardly anything  some  con-  imple-  "conservation"  t h a t an e c o n o m i s t c a n  t o . A l l t h a t he c a n , a n d s h o u l d ,  do i s t o p o i n t o u t  s u c h d e s i r e s o f t h e p e o p l e may come i n t h e way o f a c h i e v - ; other  social objectives.  the State  attaches  Depending on the ^ r e l a t i v e  to these c o n f l i c t i n g  goals  values  i t will  r e a c h a t r a d e - o f f p o i n t a n d d e c i d e how much o f e a c h t o h a v e . Usually our  such c o u n t r i e s  contemporary world  are the "developed" ones;of  and t h e s e p r o b a b l y v a l u e  c o n s u m p t i o n g o o d s more h i g h l y t h a n t h e o t h e r have by c u t t i n g them down. countries out  things  they  t o be t o o " c o s t l y " i n t e r m s o f o p p o r t u n i t i e s  the r e l a t i v e  could  I n the case o f underdeveloped  a d e s i r e f o r " f o r e s t s " as c o n s u m p t i o n g o o d s may  ment f o r e g o n e .  can  " f o r e s t s " as  turn  of develop-  The g o v e r n m e n t o f s u c h a . c o u n t r y m u s t  resolve  p r i o r i t y o f " f o r e s t s " and " d e v e l o p m e n t " b e f o r e i t  d e c i d e how t o u s e i t s f o r e s t s f o r e c o n o m i c d e v e l o p m e n t . The  national aspirations for "self-sufficiency" i n  149 f o r e s t p r o d u c t s a r e a l s o t o be u n d e r s t o o d  i n t h e same  S u c h a s p i r a t i o n s a r e o f t e n m o t i v a t e d by s t r a t e g i c  terms.  reasons.  MULTIPLE USE FORESTRY  When f o r e s t s a r e managed a s a b u s i n e s s t h e y o f t e n end up p r o d u c i n g more t h a n one p r o d u c t . ance o f o n e p r o d u c t  Whatever t h e import-  o r t h e o t h e r f o r development, as l o n g a s  t h e r e i s some v a l u e a t t a c h e d t o o t h e r p r o d u c t s a n d t h e f o r e s t owner i s t r y i n g t o m a x i m i z e h i s n e t r e v e n u e s , fitable  t o produce o t h e r goods and s e r v i c e s The  cussed  i t may be p r o -  also.  economics o f m u l t i p l e u s e f o r e s t r y has been  by G r e g o r y  (1955).  For p r o f i t maximization the output  o f e a c h p r o d u c t m u s t be s u c h t h a t t h e m a r g i n a l towards  net revenue from The  concept  each p r o d u c t  be e q u a l .  F o r e s t r y Congress  i t i s p r o b a b l e t h a t n o t enough t h o u g h t  what i t r e a l l y  implies  at Seattle  i s an a p p r o a c h  ment t h a t i s s u p e r i o r t o a s i n g l e u s e c o n c e p t f o l l o w e d by a p r o f i t m a x i m i z i n g  forester.  i n I960.  has been g i v e n t o  ( B e r e s f o r d - P e i r s e 1962) „  may r e a l l y mean, i t c e r t a i n l y  an e a s y a p p r o a c h  contribution  o f m u l t i p l e u s e o f f o r e s t s was t h e m a i n  theme o f t h e F i f t h W o r l d But  dis-  Whatever i t  i n f o r e s t manageand s h o u l d be  However  s  i t i s not  ( Z i v n u s k a 1961)„  In the U n i t e d States o f America m u l t i p l e use i s a major concept  o f f o r e s t p o l i c y and "The M u l t i p l e Use —  S u s t a i n e d Y i e l d A c t o f 1960  s  Public  Law 8 6 - 5 1 7 " i s t h e s t a t u -  150 t o r y p o l i c y d i r e c t i v e which u n d e r l i e s Forest resources Forest Service  (United  1965a).  Leading companies i n t h e wood-using  on  landowners a l s o  follow  f o r e s t management programmes i n t h e U n i t e d  (International  P a p e r Company 1962) a n d s t u d i e s  the v a r i o u s approaches to m u l t i p l e  Worley  National  S t a t e s Department o f A g r i c u l t u r e ,  i n d u s t r i e s and many p r i v a t e use  management o f a l l  multiple  States are conducted  use a n a l y s i s (e.g.  1966). For  t h e s a k e o f s i m p l i c i t y a n d due t o e a s e o f  assign-  i n g m o n e t a r y v a l u e s t o p r o d u c t s o f wood, t h i s t h e s i s d o e s n o t c o n s i d e r any p r o d u c t s o t h e r t h a n wood o r i t s d e r i v a t i v e s f o r its  economic  analysis.  CHARACTERISTICS OF FOREST  There a r e four  main p r i m a r y f o r e s t  1.  Sawmilling  2.  P u l p and p a p e r  3.  Plywood  4.  Board  forest  products are charcoal,  t a n n i n g , r e s i n and l a c s .  industries are furniture, container,  w o r k i n g and v a r i o u s paper c o n v e r t i n g A r e l a t i v e idea had  from T a b l e  2.  industries:  (lumber)  Other minor, but primary, i n d u s t r i e s wood d i s t i l l a t i o n ,  INDUSTRIES  It will  The  wood-wool, secondary  b o x , m a t c h , wood-  industries.  of the primary be s e e n t h a t  industries  c a n be  t h e p u l p and p a p e r  TABLE 2 SELECTED RATIOS: WORLD'S PRIMARY FOREST INDUSTRIES (1960)  Forest  Industry-  Gross v a l u e o f output per u n i t o f raw m a t e r i a l $ per cubic meter (round),  Investment per person employed. Thousand $.  Investment per u n i t of raw m a t e r i a l  Employment per u n i t of raw m a t e r i a l  Number p e r $ per cubic thousand c u b i c meter (round) , meters (round)  Sawmill ing  27  2,6  15  5,7  P u l p and paper  57  23.8  151  6.4  Plywood  40  4.2  45  10.5  Board products  57  .9.3.  Source:  Westoby  (1962)  . . 74  .  8.0  152 i n d u s t r y and b o a r d p r o d u c t s y i e l d t h e h i g h e s t g r o s s p e r u n i t o f raw m a t e r i a l s  M o r e o v e r , t h e y do n o t make u s e o f  high value timbers but u t i l i z e  t o an i n c r e a s i n g e x t e n t wood  r e s i d u e s , both from o t h e r f o r e s t i n d u s t r i e s and from operations.  forest  The v a l u e a d d e d p e r u n i t o f raw m a t e r i a l i s more  i n these i n d u s t r i e s than i n sawmillingo t h e t a b l e t h a t t h e p u l p and paper  I t i s also clear  i n d u s t r y i s f a r more  i n t e n s i v e t h a n t h e o t h e r s and t h e b o a r d also f a i r l y  product  from  capital  products industry i s  c a p i t a l i n t e n s i v e as compared t o s a w m i l l i n g and  plywood. Of t h e t o t a l w o r l d i n d u s t r i a l wood o u t p u t  i n 196 0,  6 5 o 2 p e r c e n t went t o s a w m i l l i n g , 29.3 p e r c e n t t o p u l p a n d p a p e r , 4,4 p e r c e n t t o plywood.-and 1.1 p e r c e n t t o b o a r d ducts  (Westoby 1962).  pro-  The c o r r e s p o n d i n g f i g u r e s f o r t h e g r o s s  v a l u e o f o u t p u t w e r e 4 8 . 4 , 4 5 , 1 , 4,7 a n d 1.8 p e r c e n t , r e s pectively.  The p r i n c i p a l e c o n o m i c f e a t u r e s o f e a c h o f t h e s e  i n d u s t r y groups a r e b r i e f l y  d i s c u s s e d below.  Sawmilling B o t h t h e raw m a t e r i a l duct  (lumber)  dustry.  ( l o g s ) and t h e f i n i s h e d  pro-  a r e b u l k y and c o s t l y t o t r a n s p o r t i n t h i s i n -  The r a w m a t e r i a l i s more b u l k y ,  f o rt h i s reason the  industry i s o f t e n located near the f o r e s t s .  V a l u e added i n  p r o c e s s i n g i s s m a l l a n d t h e r e a r e no s i g n i f i c a n t e c o n o m i e s o f scale on and  (Duerr 1960),  capital intensity  V a l u e a d d e d p e r man-hour h a r d l y d e p e n d s i n the i n d u s t r y  i s m o s t l y e x p l a i n a b l e by l a b o u r .  ( H i l d e b r a n d and L i u 1965) T y p i c a l l y , the cost o f  153 logs d e l i v e r e d to m i l l production costs.  represents  50 t o 70 p e r c e n t o f m i l l  Because o f t h i s ,  and b e c a u s e o f t h e n e e d t o  c a r r y an a d e q u a t e s t o c k o f l o g s t o a s s u r e c o n t i n u o u s and  of processed  working fixed  sawnwood t o meet c u s t o m e r s '  requirements,  c a p i t a l n e e d s a r e h e a v y , o f t e n a m o u n t i n g t o a s much a s  investment.  A l a r g e p r o p o r t i o n o f t h e raw m a t e r i a l  e n t e r i n g t h e saw m i l l ,  a proportion ranging  c e n t , emerges f r o m t h e p r o c e s s and  operations  saw d u s t  (Westoby 1 9 6 2 ) .  turned to i n d u s t r i a l industries  account  i n the v i c i n i t y .  f r o m 2 5 t o 50 p e r  i n the form o f s l a b s ,  edgings  T h i s m a t e r i a l can be, and i s , i f there are appropriate  forest  I t u s u a l l y happens i n t h e advanced  countries. Saw m i l l i n g be  established.  skill few  i s mostly  the f i r s t  forest  industry to  I t does n o t r e q u i r e a h i g h degree o f t e c h n i c a l  on t h e p a r t o f t h e l a b o u r f o r c e b u t o n l y on t h e p a r t o f a  technicians.  I t i s much more f l e x i b l e  s i z e o f p l a n t and i n f i n i s h e d p r o d u c t primary  forest  industries.  Both  i n location, i n  t h a n any o f t h e o t h e r  c o n i f e r s and h a r d w o o d s a r e  used i n the i n d u s t r y . P u l p and P a p e r The  investment  far the largest  requirements  i n forestry.  of t h i s  I t has grown v e r y r a p i d l y  l a s t 15 y e a r s , w o r l d p r o d u c t i o n a l m o s t represent  the main item  ion costs i n t h i s essential.  doubling.  a cheap s o u r c e  c o s t s and o t h e r i t e m s  i n the  Wood c o s t s  (30 t o 50 p e r c e n t ) o f t o t a l  i n d u s t r y t o o , thus  Capital  i n d u s t r y a r e by  producto f wood i s  l i k e chemicals  and  154 power a r e a l s o i m p o r t a n t . ly  localized  sibilities  A s a c o n s e q u e n c e , i t i s more h e a v i -  than s a w m i l l i n g .  B e c a u s e o f a number o f i n d i v i -  i n the t e c h n o l o g i c a l process  economies o f s c a l e .  there are considerable  Due t o n e e d s f o r l a r g e q u a n t i t i e s o f w a t e r  and p o w e r , t h e s i t e s o f h y d r o - e l e c t r i c dams a r e e x c e l l e n t l o c a t i o n s f o r p u l p and paper m i l l s The  labour requirements  i n developing countries.  i n t h e i n d u s t r y a r e modest but a  h i g h p r o p o r t i o n (35 t o 45 p e r c e n t ) n e e d s t o be (Westoby 1962),  fairly  skilled  C o n i f e r o u s s p e c i e s a r e u s e d commonly f o r p u l p -  i n g b u t t h e p r o p o r t i o n o f hardwoods has been i n c r e a s i n g  recently.  Plywood In t h e l a s t come a l m o s t  25 y e a r s w o r l d p l y w o o d p r o d u c t i o n h a s be-  s i x t i m e s t h e 1938 f i g u r e o f 3 m i l l i o n c u b i c m e t e r s  (Westoby 1 9 6 2 ) ,  A v a i l a b i l i t y o f l a r g e diameter  important f o r l o c a t i o n o f plywood m i l l s . are very high c e n t on v e n e e r board  (50 t o 70 p e r c e n t manufacture),  Losses on c o n v e r s i o n  i n p l y w o o d a n d 40 t o 60 p e r  Blockboard  i n d u s t r y have a t e n d e n c y  trees i s  i n d u s t r y and p a r t i c l e -  t o i n t e g r a t e w i t h plywood i n -  d u s t r y n o t o n l y b e c a u s e r e s i d u e s o f p l y w o o d c a n be u s e d by  :  o t h e r s b u t a l s o b e c a u s e t h e y s e r v e t h e same c o n s u m i n g s e c t o r s , c o n s t r u c t i o n and f u r n i t u r e .  C o s t o f wood r a w m a t e r i a l i s 30  t o 50 p e r c e n t a s i n p u l p a n d p a p e r . materials are adhesives. mechanization  than  softwoods  important  process  Labour needs v a r y w i t h degree o f  and l o g s i z e s .  n e e d s t o be s k i l l e d  Other  T w e n t y t o 35 p e r c e n t o f l a b o u r  (Westoby 1 9 6 2 ) ,  P r o b a b l y more h a r d w o o d s  are used i n t h e i n d u s t r y .  F i b e r b o a r d and P a r t i c l e b o a r d Fiberboard paper  industry.  the t o t a l . and p a p e r  i n d u s t r y has a f f i n i t i e s w i t h t h e p u l p and  Wood c o s t s a c c o u n t  f o r 20 t o 40 p e r c e n t o f  Economies o f s c a l e a r e p o s s i b l e . i n d u s t r y , an a d e q u a t e  As i n t h e p u l p  supply of f r e s h w a t e r i s  n e e d e d i n wet p r o c e s s e s and power r e q u i r e m e n t s a r e s o m e t i m e s e v e n more t h a n i n p u l p a n d p a p e r .  Labour  needs a r e modest,.  O f t e n b o t h c o n i f e r s a n d hardwoods c a n be u s e d mixture.  Debarking  of trees  i s u s u a l l y n o t n e c e s s a r y a n d some-  t i m e s even s a w d u s t c a n be u t i l i z e d . manufacture vestment  do n o t need l a r g e  needs a r e a l s o  low.  s e p a r a t e l y and i n  The d r y p r o c e s s e s o f  s u p p l i e s o f water  and t h e i r i n -  They h o w e v e r n e e d r e s i n s f o r  bonding. I n t h e c a s e o f p a r t i c l e b o a r d s , many k i n d s o f wood r e s i d u e , b o t h c o n i f e r o u s and broad l e a v e d , a s w e l l tural  r e s i d u e , c a n be u s e d .  quirements  as a g r i c u l -  W a t e r i s n o t n e e d e d a n d power r e -  a r e modest as a r e t h o s e o f l a b o u r .  Cost o f r e s i n s  i s v e r y i m p o r t a n t , b e i n g 15 t o 35 p e r c e n t o f p r o d u c t i o n c o s t s (Westoby  1962),  156  CHAPTER  FIVE  A REVIEW OF CURRENT VIEWPOINTS  REGARDING  ROLE OF FORESTRY I N DEVELOPMENT  VIEW OF THE FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS  F o r e s t r y a s a s e c t o r i n an economy has l o n g cognized,  but i t s r o l e  studied u n t i l and s o c i a l  recently.  i n d e v e l o p m e n t has n o t been This  i s not unnatural  been r e -  explicitly  as e c o n o m i s t s  s c i e n t i s t s have b e e n e s p e c i a l l y p r e - o c c u p i e d  t h e phenomenon o f e c o n o m i c d e v e l o p m e n t o n l y W o r l d War I I ( G i n s b u r g s t a r t w i t h t h e study  with  s i n c e t h e end o f  1 9 6 5 ) , and c o u l d h a r d l y be e x p e c t e d t o  of forestry.  The i n c r e a s i n g i n t e r e s t i n  157 t h e s u b j e c t now  i s r e f l e c t e d by t h e  a p p e a r a n c e o f as many  t h r e e a r t i c l e s on e c o n o m i c d e v e l o p m e n t i n a s i n g l e issue  of  3  recent  Unasylva. A t t e n t i o n to the  v e l o p m e n t was  probably  r o l e o f f o r e s t r y i n economic  first  c a l l e d by  the  of the United Nations,  (FAO)  s t u d y i n g the  subject.  an i m p o r t a n t  s e c t o r f o r the purposes of development.  The  i d e a o f the  the  FAO  biggest  and  l o g i c , . , . o n e o f the  to the l i t e r a t u r e o f  (196 6 a ) ,  Westoby h a s  few  loped  called  classic  f o r e s t r y should  n i f i c a n t p l a c e i n n a t i o n a l development p l a n s  This i s  been  f o r e s t e c o n o m i c s " by  argued t h a t  Zivnuska find a  i n the  sig-  underdeve-  b e g i n w i t h , he  explained that public intervention  i n e c o n o m i c a f f a i r s o f u n d e r d e v e l o p e d c o u n t r i e s was " w h i l e the  t i o n s and  solution w i l l  d e p e n d on  the  s i n c e the  d i f i n i t i o n of the  t h e b e n e f i t s and  the  evaluated  general  decision,"  (4);  He  Number 75;  1964  He  mostly  a l s o p o i n t e d out and  that  projects  (i„e. , t h e e n t i r e  therefore often diverge  c r i t e r i a of evaluation.  Volume 18  ends o f the p l a n i s  w i t h t h e aims, o f t h e p l a n may  the  is political,  costs of investment p o l i c i e s  c o m m u n i t y ) i n v i e w and private  condi-  t h e p h y s i c a l endowments ( t h a t i s , t h e d a t a ) o f  result of a p o l i t i c a l  s h o u l d be  necessary  structural  economy c o n c e r n e d , t h e m a i n e l e m e n t o f c h o i c e  the  contri-  countries. To  and  agency  i s that forestry i s  s u g g e s t e d i n a p a p e r by W e s t o b y ( 1 9 6 2 ) t h a t has ",,,in originality  de-  Food and A g r i c u l t u r e  Organization  butions  as  from  the  f u r t h e r showed t h a t wood  158 products, d i r e c t l y or demand w h i c h was  indirectly,  had  a l a r g e share of  s p r e a d o v e r a v e r y l a r g e number o f  final  items.  Also, " I n 1953 t h e s e c t o r o f f o r e s t and f o r e s t p r o d u c t s ( i n c l u d i n g b o t h wood p r o d u c t s and f u r n i t u r e and p a p e r p r o d u c t s ) a c c o u n t ed f o r 7,2 p e r c e n t o f t h e t o t a l v a l u e a d d e d and f o r 9,25 p e r c e n t o f t o t a l w o r l d employment o f m i n i n g and m a n u f a c t u r i n g i n d u s t r i e s i n t e r m s o f v a l u e a d d e d and f o u r t h i n t e r m s o f e m p l o y m e n t . The b r e a k down f o r t h e two m a i n b r a n c h e s i s t h e following. 4.2 and 3,1 p e r c e n t o f v a l u e added and 7,9 and 2.2 p e r c e n t o f e m p l o y ment r e s p e c t i v e l y f o r wood p r o d u c t s and f u r n i t u r e , and f o r p u l p , p a p e r and p a p e r products. T h i s shows a r e m a r k a b l e diff e r e n c e b e t w e e n t h e two m a i n b r a n c h e s i n labour p r o d u c t i v i t y , which i s higher than t h e a v e r a g e i n p a p e r and p a p e r p r o d u c t s and much l o w e r t h a n t h e a v e r a g e i n t h e other branch." (Westoby (1962) To m e a s u r e t h e " s p r e a d "  of uses of f o r e s t  or the extent to which they enter degree o f i n d i r e c t n e s s o f the coefficients The  first  into other products  (the  s e c t o r ) Westoby s u g g e s t e d  t h a t c a n be d e t e r m i n e d  coefficient  products  from: i n p u t - o u t p u t  i s the r a t i o of the v a l u e of  two tables.  purchased  i n p u t s to t h a t o f t o t a l p r o d u c t i o n o f a s e c t o r , w h i c h i n d i c a t e s how  far production  i n a s e c t o r i n v o l v e s the i n d i r e c t use  compared to the d i r e c t use ratio  of c a p i t a l  and  labour.  The  i s t h e v a l u e o f i n t e r m e d i a t e demand t o t h a t o f  demand f o r t h e p r o d u c t s which the  sector sells  ( C h e n e r y and  as  other total  o f a s e c t o r , w h i c h shows t h e e x t e n t i t s output  C l a r k 1959),  The  g i v e n s e c t o r w i t h the r a t i o s  f o r f u r t h e r use  to  i n production  comparison of these r a t i o s  f o r t h e w h o l e economy w i l l  for a  reveal  159  whether  the  linkages  ward- o f t h e the  ( H i r s c h m a n 1963)  s e c t o r i n question are  has  Japan,  Italy,  ratios  along  India-  b a s e d on  (Manne and  given  such  the U n i t e d with  the  a 31 x  study  of  ratios  and  s t r o n g e r o r weaker  31  given  these  done.  A l l the  ed t o have  i n c l u d e d the  the r a t i o s  are  f o r an  backthan  same i t e m s  for different  years  "final  construction Indian other  input-output t a b l e s as  t a b l e but  suggested  From t h e  by  has  observed  that  for  wood and  wood p r o d u c t s )  the v a l u e  i n the  of purchased  considerably higher  that and also  the  purchase  forestry observed  of  than  inputs  f r o m where t h e  i s probably  of the  ratio  of  For  demand" i n  example, the  demand" i n  (1962), ratios  i n Table  countries  average.  of He  the  total noted,  Westoby U.S.A,  ratio  of  production however,  in agriculture  m a t e r i a l i s taken. paper products intermediate  3,  (except  sub-sectors  i s concentrated raw  assum-  "intermediate  in "final  to t h e v a l u e  the  be  Moreover  manner.  "intermediate  t h a t t h e p a p e r and  a v e r y much h i g h e r  not  f o r each o f the c o u n t r i e s .  'developed'  inputs  can  have d i f f e r e n t i a t e d  i n both  country-  o n l y when  i n each s e c t o r .  Westoby  comparison  These  3.  i s meaningful  demand" i n a d i f f e r e n t  i s t r e a t e d as an  Norway.  t a b l e f o r 1960-61  c o u n t r i e s concerned  I n a d d i t i o n , e a c h c o u n t r y may demand" and  i n Table  figures  countries-  'underdeveloped'  sector input-output  are  cautiously  f o r four developed  S t a t e s o f A m e r i c a and  ratios  Rudra 1965) A  has  forward  average. He  is  -both  He  has  sub-sector  demand t o  total  TABLE 3 INDICES OF INTERDEPENDENCE  Country  OF FOREST INDUSTRIES  Ratio o f value of purchased i n puts to value of t o t a l production  Ratio of value o f intermediate demand t o v a l u e o f t o t a l demand  Average Wood a n d all wood i n d u s t r i e s products  Average all industries  Wood and wood products  P a p e r and paper products  P a p e r and paper products  Japan  48.7  68.2  62.8  46.1  29.5  80.2  Italy  43.8  71.6  53.8  41.1  43.1  75.3  SoAo  42.6  42.1  56.6  41. 9  40.4  79.2  Norway  36.4  51.5  55.7  30.4  29.1  42.5  India  46.3  5.0  _ _  40.4  95.9  -»  N.B.  The r a t i o s f o r p a p e r and p a p e r p r o d u c t s f o r I n d i a c o u l d riot be c a l c u l a t e d b e c a u s e t h e i n p u t - o u t p u t t a b l e d o e s n o t have " p a p e r and p a p e r p r o d u c t s " as a s e p a r a t e s e c t o r . T h i s i s p r e s u m a b l y so due t o the small s i z e of the s e c t o r .  161 demand than the average f o r a l l i n d u s t r i e s and the r a t i o f o r wood and wood products i s lower than average lower.  but not very much  In h i s o p i n i o n t h i s r a t i o would probably not have been  lower than average  i f the  ' c o n s t r u c t i o n ' : s e c t o r were t r e a t e d  as an i n t e r m e d i a t e demand.  From these o b s e r v a t i o n s he con-  cluded that the s e c t o r of f o r e s t products as a whole has a h i g h degree of i n d i r e c t n e s s and o f interdependence with other It appears itself  sectors.  that t h i s c o n c l u s i o n of Westoby can lend  to some refinement.  Firstly,  the f a c t  c o u n t r i e s the r a t i o of v a l u e of purchased  that  i n developed  inputs to v a l u e of  t o t a l p r o d u c t i o n of wood and wood products i s mostly above the average f o r the whole economy, i s not o f much s i g n i f i c a n c e if  the inputs demanded are mostly from a g r i c u l t u r e and  itself.  forestry  T h i s i s so because under such circumstances the de-  mands p l a c e d on other s e c t o r s by an expansion of the f o r e s t r y s e c t o r are very l i t t l e .  In other words the backward l i n k a g e  e f f e c t of f o r e s t r y i s poor. T h i s c o n c l u s i o n can a l s o be drawn f o r an  underdevelop-  ed economy l i k e that of India where the v a l u e of purchased i n puts i s o n l y 5 per cent of the t o t a l value of p r o d u c t i o n . Whatever be the expansion mulate  i n the f o r e s t r y s e c t o r i t w i l l  the demand from other s e c t o r s v e r y l i t t l e .  d i f f e r e n c e between these r a t i o s f o r developed and  sti-  The great underdevelop-  ed c o u n t r i e s shows that more mechanized methods of p r o d u c t i o n are  used  i n the former,  i n an underdeveloped  I t a l s o p o i n t s out that a f o r e s t owner  country can expand h i s p r o d u c t i o n r a t h e r  162 easily  as he may not need much c a p i t a l . Secondly, the r a t i o s o f the value o f i n t e r m e d i a t e  de-  mand to value o f t o r a l demand o f wood and wood p r o d u c t s , i n the case o f the f o u r developed c o u n t r i e s under d i s c u s s i o n , probably underestimated i n the t a b l e because s t r u c t i o n as f i n a l  demand.  The f i g u r e s  are most  of c l a s s i f y i n g  i n T a b l e 3 f o r the wood  and wood products s u b - s e c t o r are so c l o s e to the average i n most c a s e s , t h a t i t  i s possible  be h i g h e r than the averages.  that the  I f that i s  con-  figures,  c o r r e c t r a t i o s would  so the wood and wood  products s u b - s e c t o r would have s t r o n g e r forward l i n k a g e s than all  i n d u s t r i e s taken t o g e t h e r  and would be s t i m u l a t e d a  little  more than the whole economy i f o t h e r s e c t o r s expanded. case o f I n d i a , however, the  forward l i n k a g e s  In the  are very strong  and even a s m a l l expansion o f o t h e r s e c t o r s u s i n g wood and wood products would p l a c e heavy demands on the s u b - s e c t o r . t e r n a t i v e l y , expansion o f f o r e s t  products at economic p r i c e s  w i l l g i v e impetus to i n d u s t r i e s u s i n g these products as T h i r d l y , the  case o f paper and paper products f o r the c o n s i d e r a b l y h i g h e r than the average  nomy.  Moreover the purchases i n t h i s  This r a t i o in  developed  figures  to  i f by "purchased  i n p u t s " was meant " d o m e s t i c a l l y purchased i n p u t s " .  is  inputs.  r a t i o o f the value o f purchased i n p u t s  value o f t o t a l p r o d u c t i o n would be more u s e f u l  the  Al-  countries  f o r the whole  eco-  case would not be as much i n  the a g r i c u l t u r e and f o r e s t r y s e c t o r as i n the case o f wood and wood products.  In other words, the backward l i n k a g e s o f t h i s  would be s u b s t a n t i a l .  Such would be the  sub-sector  case even f o r an under-  163 developed economy because the machinery and chemicals r e q u i r e d would not be d i f f e r e n t It  from those i n the developed  countries.  can be concluded t h a t the paper and paper products sub-  s e c t o r has s t r o n g e r backward l i n k a g e s  than wood and wood  p r o d u c t s s u b - s e c t o r and an expansion i n i t w i l l  l e a d to  greater  demands on o t h e r s e c t o r s than an equal expansion by the wood and wood products  sub-sector.  F o u r t h l y , the r a t i o o f the value o f i n t e r m e d i a t e  de-  mand to value o f t o t a l demand i n the case o f paper and paper products f o r three o f the  f o u r developed c o u n t r i e s i s  very  much h i g h e r than the c o r r e s p o n d i n g r a t i o f o r the whole This means very s t r o n g forward l i n k a g e s .  economy.  Such a c o n c l u s i o n can  be. made f o r an underdeveloped, country a l s o as the most important uses o f paper t h e r e are f o r c u l t u r a l purposes i.e.,  ( N a u t i y a l 1965),  p r i n t i n g and w r i t i n g which are i n t e r m e d i a t e In g e n e r a l , the c o n c l u s i o n s  demands.  are t h a t wood and wood  products have poor backward and s t r o n g forward l i n k a g e s  while  paper and paper products have moderate backward and very s t r o n g forward l i n k a g e s .  Thus,  from the p o i n t o f view o f Hirschman  (196 3), the paper and paper products s u b - s e c t o r i s more important f o r development than the wood and wood products subsector. will  Investments i n the paper and paper products  sub-sector  s t i m u l a t e the economy more than an equal investment  in  wood and wood p r o d u c t s . In h i s Table 2 Westoby (1962) has given the annual p r o d u c t i o n , t o t a l  average  consumption and consumption p e r head  164 o f t h e m a i n c a t e g o r i e s o f f o r e s t p r o d u c t s f o r t h e y e a r s 1957=59 for  t h e d e v e l o p e d and u n d e r d e v e l o p e d  countries of the world,  A p a r t o f h i s t a b l e concerning apparent consumption ced below  i s reprodu-  a s T a b l e 4, Besides pointing  out that production of f o r e s t  pro-  ducts i s very h e a v i l y concentrated i n the developed world, Westoby h a s m e n t i o n e d  t h a t consumption  i s e v e n more h i g h l y  c e n t r a t e d i n them a s c a n be s e e n f r o m T a b l e 3, v e l o p e d c o u n t r i e s r e l y on t h e a d v a n c e d able proportion of their forest products. in f u l l .  underdeveloped  The l e s s d e -  regions f o r a consider-  supplies of certain categories of  T h e y c a n n o t meet e v e n  The c o n s u m p t i o n  con-  t h e i r m e a g r e demands  p e r head i s e x t r e m e l y l o w i n t h e  c o u n t r i e s , b e i n g o n l y o n e s e v e n t e e n t h t o one  twenty-eighth o f the developed  areas.  T h e s e f a c t s o n l y s e r v e t o show t h e d i f f e r e n c e s b e t w e e n t h e two g r o u p s o f c o u n t r i e s b u t do n o t t h r o w any l i g h t on t h e p a r t t h a t f o r e s t r y c a n p l a y i n d e v e l o p m e n t . the f i g u r e s would if  have been more m e a n i n g f u l i n t h i s r e s p e c t  t h e t e r m " a p p a r e n t c o n s u m p t i o n " c o u l d be s p l i t  components ,  M o s t o f t h e sawn wood g o e s i n t o b u i l d i n g  w h i c h may be t r e a t e d countries rural sumption  as m a i n l y i n v e s t m e n t .  i  s  construction  In less  developed  c o n s t r u c t i o n may have t o be c o n s i d e r e d a s c o n -  but urban c o n s t r u c t i o n , e s p e c i a l l y  structions,  i n t o two  " i n v e s t m e n t r e q u i r e m e n t s ' a n d ' c u r r e n t consump-  0  tion'.  Probably  most c e r t a i n l y  investment.  board requirements i n underdeveloped  industrial  con-  Much o f p a p e r and  c o u n t r i e s may be t r e a t e d  TABLE 4 APPARENT CONSUMPTION OF FOREST PRODUCTS 1957-59 AVERAGE  P o p u l a t i o n . (195 8) • :  Unit  A Developed Countries  B Underdeveloped Countries  •. Million  923  1956.  Ratio AsB 0,4 7  Apparent consumptions Total Sawn wood  m i l l i o n cu,m, (sawn)  2 86 7  35, 0  8  Wood-based panel products  m i l l i o n cu,m, (round)  38,3  3,0  13  Paper and board  million metric tons  5 8,1  5,3  11  Apparent consumption per 1000 c a p i t a  0  0  Sawn wood  m i l l i o n cu,m, (sawn)  310,0  18,0  17  Wood-based p a n e l products.  m i l l i o n cu.m, (round)  41,7  1,5  28  Paper and board  million m e t r i c tons  6 3,0  2,7  23  Sources  Westoby  (1962)  ^  tn  166 as  investment  as e d u c a t i o n  i s investment  i n human b e i n g s  u s e s o f p a p e r s u c h as t h o s e  f o r t o i l e t purposes can  ed a s c u r r e n t c o n s u m p t i o n .  In the  classify and  same way  of investment  i s not  higher then  attempted  and  s h o u l d be made h i g h e r by  But  A l l one  t h e r e a r e enough f o r e s t s  can  If i t  not yet  initiating  prove  t h e r e i s , as y e t ,  no  is justifiable  say a t t h i s p o i n t i s t h a t i f  i n a c o u n t r y w h i c h w a n t s t o have  economic development, then  i t s h o u l d use  those f o r e s t s i f  p o s s i b l e f o r c r e a t i n g more p r o d u c t i v e k i n d s o f c a p i t a l t h e wood c a p i t a l  been  development.  i n a c o u n t r y can  t o b e l i e v e t h a t c r e a t i n g more f o r e s t s  f o r development.  countries.  i t means t h a t d e v e l o p m e n t has  handy i n i n c r e a s i n g i n v e s t m e n t s .  investment  t o t h e c u r r e n t consump-  higher i n underdeveloped  E x i s t e n c e of abundant f o r e s t r e s o u r c e s  reason  into  Presumably the p r o p o r t i o n  needs o f f o r e s t p r o d u c t s  t i o n n e e d s w o u l d be  consider-  i t i s p o s s i b l e to  the uses of a l l o t h e r f o r e s t p r o d u c t s  c u r r e n t consumption c a t e g o r i e s .  be  but  than  so t h a t t h e p r o d u c t i v e c a p a c i t y o f t h e  economy i n c r e a s e s ,  Westoby  many u n d e r d e v e l o p e d  c o u n t r i e s t h e raw m a t e r i a l ( f o r e s t ) i s  ready  a t hand b u t  of c a p i t a l are not  (1962) has  i s not used f o r c o n v e r s i o n  even though the t e c h n i q u e s  too  has n e x t  gone on  into other  kinds  r e q u i r e d i n many  cases  t o show t h e d y n a m i c n a t u r e  t h e demand f o r f o r e s t p r o d u c t s .  realize  that i n  complex.  He  acteristic  p o i n t e d out  whole  T h i s i s a most i m p o r t a n t  from the p o i n t of view of the f o r e s t e r .  t h a t most o f t h e f o r e s t p r o d u c t s  He  lend themselves  of char-  must to  167 substitution rather easily.  The income  e l a s t i c i t y o f paper and  p a p e r p r o d u c t s i s a s h i g h a s 2.5 t o 3 a t income $100 it  per capita;  a t l e v e l s o f a r o u n d $200 t o $400 p e r c a p i t a  r a n g e s f r o m a b o u t 1.5 t o 2.5.  A t European  income  r o u g h l y $500 t o $1,000, i t i s w e l l o v e r u n i t y . S t a t e s , w i t h a n income below u n i t y  (Westoby  i n c r e a s e i n income  at this  1962).  level  i s f o r r e a d i n g and w r i t i n g ,  p a p e r made f r o m c e l l u l o s e  income.  I t i s also  cultural  worth  substitute f o r  i s known t o man f o r w r i t i n g a n d i s great f o r  B u t t h i s does n o t mean t h a t v a l u e o f f o r e s t s i s  also necessarily great.  almost a l l  w h i c h i s an  f o r ensuring  purposes, t h e r e f o r e the v a l u e of paper  the t r o p i c a l  slight  As most o f t h e paper  m e n t i o n i n g h e r e t h a t so f a r no s i g n i f i c a n t  development.  levels a  l e v e l p e r head c a n i n c r e a s e t h e demand f o r  increases i n per capita  printing  For the United  Thus a t l o w i n c o m e  i n v e s t m e n t u s e , s u c h demand must be s a t i s f i e d further  levels,  p e r c a p i t a o f w e l l o v e r $2,000 i t i s  paper and paper p r o d u c t s v e r y g r e a t l y . needed  l e v e l s o f around  Westoby has f a i l e d  to mention that i n  and s u b - t r o p i c a l c o u n t r i e s o f the w o r l d which a r e  u n d e r d e v e l o p e d , and have l a r g e q u a n t i t i e s o f a g r i -  residues  (like  sugar cane bagasse  i n India),  such  m a t e r i a l s c a n be s u b s t i t u t e d f o r f o r e s t p r o d u c t s i n t h e p r o c e s s of manufacture o f paper. in  India  (Nautiyal  1965).  This  i s a l r e a d y b e g i n n i n g t o happen  Forests w i l l  remain importantf o r  paper and paper d e r i v a t i v e p r o d u c t i o n o n l y as l o n g as t h e y c a n p r o v i d e raw m a t e r i a l o f a c c e p t a b l e q u a l i t y a t more prices  than a g r i c u l t u r a l  residues.  economic  I f t h e y c a n n o t do so t h e i r  168 importance  i s indeed  little.  In regard to wood products other than paper the case for  f o r e s t r y i s even more d i f f i c u l t  to make.  The r e l a t i o n s h i p  between income e l a s t i c i t y and per c a p i t a income i s not as w e l l d e f i n e d f o r these products as f o r paper and paper (Westoby 1962).  T h i s i s because  f l u e n c e the demand very h e a v i l y .  board  f a c t o r s other than income i n One o f such f a c t o r s i s the  a v a i l a b i l i t y o f wood i n the country (Gregory 1966), of  s u b s t i t u t e s i s another very important v a r i a b l e .  The p r i c e s Gregory  (1966) has shown that c o u n t r i e s with low incomes and a shortage of  a v a i l a b l e timber have high consumption  e l a s t i c i t i e s with  r e s p e c t to both income and wood a v a i l a b i l i t y .  As e i t h e r wood  a v a i l a b i l i t y or income or both i n c r e a s e the e l a s t i c i t i e s drop substantially. The p r i c e s o f s u b s t i t u t e s go on changing due to the advances i n technology which a f f e c t the p r i c e s o f f o r e s t products a l s o q u i t e s u b s t a n t i a l l y .  The t e c h n o l o g i c a l p r o g r e s s  makes r e l a t i v e s c a r c i t i e s o f raw m a t e r i a l s v e r y d i f f e r e n t from year to year (Landsberg 1965) and the p r i c e s move c o r r e s pondingly.  Under such c i r c u m s t a n c e s , u n l e s s the f o r e s t e r can  ensure that the t e c h n o l o g i c a l changes i n f o r e s t r y and f o r e s t products manufacture  a r e o f such s i g n i f i c a n c e that wood o f  r e q u i r e d q u a l i t y continues to be more economical raw m a t e r i a l s , the importance (1962) w i l l g r a d u a l l y v a n i s h . sawmilling  than other  o f f o r e s t r y as i m p l i e d by Westoby Quite impressive advances i n  such as r e p o r t e d by Dobie and McBride  (1964),  169 B r i t i s h Columbia Lumberman (1966a, 1966b) and Dobie (1967) i n dicate  that the  cost of m i l l i n g s m a l l t r e e s may be reduced very  considerably i n future. (Van Laar 1961,  F a s t growing t r e e s l i k e  N a u t i y a l 1965)  f o r pulpwood at r o t a t i o n s (McAlpine et a l „ 1966)  eucalypts  and sycamore which can be grown  t h a t may be as short as 2 o r 3 years  may be i n d i c a t i o n s t h a t  foresters  can  succeed i n keeping wood as the best and most economical raw m a t e r i a l f o r many end p r o d u c t s . R e i f s n y d e r and L u l l  The r e s e a r c h o f Woods (1960),  (1965), and o t h e r s ,  p o i n t out that  forests  are the p r i n c i p a l o r g a n i c r e c i p i e n t and s t o r e r o f s o l a r When concentrated s o l a r energy i n the forms o f f o s s i l c o a l , o i l and n a t u r a l gas - i s  depleted  storage o f energy may be i n f o r e s t s .  still  (Deevey 1965),  fuels  -  sizeable  F o r e s t s not o n l y  s o l a r energy but are the most e f f i c i e n t vegetation  the o n l y  energy.  store  means o f s t o r i n g i t  in  In the v e r y - l o n g - r u n they may  have important r o l e to p l a y i n human w e l f a r e , Westoby (1962) has a l s o given estimates o f  forest  products requirements i n the underdeveloped c o u n t r i e s up t o 1970  0  The e s t i m a t e s were prepared by the FAO i n c o l l a b o r a t i o n  with the r e g i o n a l Economic Commissions o f the U n i t e d N a t i o n s , These estimates suggest t h a t the annual consumption o f  sawn-  wood, wood-based sheet m a t e r i a l and paper and board w i l l i n crease from 35 m i l l i o n cubic meters meters  (round)  11 and 1 3 , 9 ,  and 5,3  (sawn),  3 m i l l i o n cubic  m i l l i o n m e t r i c tons i n 1957-59 to  respectively,  i n 1970,  67,  Such estimates would have  to be based on the p r o j e c t e d per c a p i t a income growth i n the  170  underdeveloped regions that,  the p r o j e c t i o n s  rough at best.  and as i t of f o r e s t  is  extremely  d i f f i c u l t to do  products demand would be very  The d i f f i c u l t i e s  of p r e d i c t i n g f u t u r e per  c a p i t a incomes can be v i s u a l i z e d from the l a r g e number of variables act  i n v o l v e d and the complicated way i n which they  i n even as s i m p l i f i e d a model as that  T h i s i s not to  say that the p r o j e c t i o n s  are meaningless,  but to p o i n t out that  meaning o n l y when the assumptions given  inter-  i n Chapter Three,  given by Westoby (1962) they convey t h e i r  full  on which they are based are  clearly. Assuming that the estimates mentioned above are r e a l -  istic, all  Westoby has gone on to compute the cost of importing  the a d d i t i o n a l requirements as $3,780 m i l l i o n and the cumu-  lative  cost of c a p i t a l r e q u i r e d to set  up p r o d u c t i v e  l a r g e enough to meet a l l demands w i t h i n the c o u n t r i e s up to 1970 as it  capacity  underdeveloped  $5,007 m i l l i o n i n that  year.  Thus,  i s argued that cumulative c o s t s pf o n l y $5,007 m i l l i o n i n  1970 are i n c u r r e d i n s e t t i n g year f o r ten years import the f o r e s t  up domestic c a p a c i t y while  $3,870 m i l l i o n would have to be spent products from the developed  setting  to  regions.  On the  up c a p a c i t y i n underdeveloped  regions  very face  of i t ,  therefore  appears as more economic.  presumably do not  every  The c a p i t a l c o s t s ,  however,  i n c l u d e the c o s t s of p r o c u r i n g raw m a t e r i a l s  and would be g r e a t e r  than $5,007 m i l l i o n i f these were i n c l u d e d .  Also the comparison of the two kinds of c o s t s should be done i n a more s o p h i s t i c a t e d values  to a s i n g l e  manner by compounding or d i s c o u n t i n g  point  i n time.  It  is  quite possible  all  that  171 such comparisons would also is  a better alternative  show that s e t t i n g  to i m p o r t a t i o n .  i s a comparative advantage  (Renne 1958)  products i n underdeveloped c o u n t r i e s . not only r e g a r d i n g f o r e s t  If  fit-cost  analysis  Haley 1966)  after  These analyses  there  forest  Analyses should be done  products but other i n d u s t r i e s on matters of  also setting  c o u l d take the form o f  ( H i r s h l e i f e r e t al_, 1961,  Sewell  et  If forest  such t e s t s they c o u l d c e r t a i n l y help achieve Westoby c l a r i f i e d t h i s p o i n t when he  bene-  al,1961,  i n c o r p o r a t i n g the economies o f s c a l e ,  and a given p e r i o d of time i n t o i t .  ment,  capacities  they do, then  i n producing  i n developing c o u n t r i e s to take d e c i s i o n s up new c a p a c i t i e s .  up new  if  any,  i n d u s t r i e s pass  economic  develop-  stated:  " F i r s t the problem of comparing c o s t s and b e n e f i t s i s economic and not f i n a n c i a l ; a l l b e n e f i t s , d i r e c t and i n d i r e c t , short as w e l l as l o n g - t e r m , should be c o n s i d e r e d and weighed against c o s t s f o r the community, that i s , s o c i a l c o s t s . Secondly, the problem cannot be given a ready-made s o l u t i o n on the b a s i s of the t r a d i t i o n a l d o c t r i n e of i n t e r n a t i o n a l trade and specialization, A s t a t i c theory cannot account f o r dynamic phenomena, nor can i t j u s t i f y the r e s u l t s of past t r e n d s , such as the c o n c e n t r a t i o n of f o r e s t i n d u s t r i e s (or of any other i n d u s t r i e s f o r that matter) i n more advanced areas. T r a d i t i o n a l i n t e r n a t i o n a l trade theory takes f o r granted that i n d u s t r i e s are where they a r e , but cannot e x p l a i n why they are there. Such a theory i s founded on a g i v e n d i s t r i b u t i o n of e x t e r n a l economies and i s v a l i d w i t h i n i t s l i m i t s , but i t cannot be used to i n f e r that such d i s t r i b u t i o n i s the optimal one or that i t cannot or should not be a l t e r ed. Very few advantages are r e a l l y r a t i o n a l , i n the sense that they cannot to some extent be c r e a t e d i n the l o n g - r u n . In the case of f o r e s t products the n a t u r a l element u n d e r l y i n g the e x i s t i n g f o r e s t i n d u s t r y p a t t e r n might be the d i s t r i b u t i o n of c o n i f e r s . This in turn  172 d e p e n d s , h o w e v e r , on t h e f a v o u r e d p o s i t i o n o f c o n i f e r s , which t e c h n i c a l progress, e s p e c i a l l y i f c o n s c i o u s l y o r i e n t e d , c o u l d undermine, not to s p e a k o f t h e f a c t t h a t i t m i g h t a l s o be possible to a l t e r the e x i s t i n g d i s t r i b u t i o n of conifers. In any c a s e , a l l arguments i n f a v o u r o f m a i n t a i n i n g t h e s t a t u s quo w h i c h a r e b a s e d on t h e t h e o r y o f i n t e r n a t i o n a l s p e c i a l i z a t i o n a r e o n l y v a l i d when l o n g - t e r m a d v a n t a g e s i n terms o f a c c u m u l a t i o n , and r e i n v e s t m e n t and s o c i a l advantages i n terms o f e x t e r n a l economies, a r e n e g l e c t e d - t h a t i s , o n l y when a p p l i e d to a s t a t i c c o n t e x t - b u t c e a s e t o h a v e a n y r e l e v a n c e when t h e q u e s t i o n i s e x a c t l y t h a t o f c r e a t i n g t h o s e advantages i n o r d e r t o change the s t a t u s quo," He h a s c o n s i d e r e d t h e f o l l o w i n g  features of forest  i n d u s t r i e s as r e l e v a n t to development. 1.  Import  Saving  Effect  At present the underdeveloped  c o u n t r i e s consume  f o r e s t p r o d u c t s at v e r y low l e v e l s but s u b s t a n t i a l p a r t s o f even t h e s e a r e i m p o r t e d trialize, to  by them.  In t h e i r attempts  t h e i r demands f o r i m p o r t s o f c a p i t a l  goods a r e l i k e l y  i n c r e a s e v e r y c o n s i d e r a b l y and c o n s e q u e n t l y  will  also  increase.  If forest  to indus-  i n d u s t r i e s are  the trade  deficit  developed  then  t h e i m p o r t s o f f o r e s t p r o d u c t s c a n be e l i m i n a t e d o r r e d u c e d . This w i l l  partly  h e l p t h e b a l a n c e o f payments p o s i t i o n .  o v e r , t h e p a t t e r n o f t r a d e i n f o r e s t p r o d u c t s between ed and u n d e r d e v e l o p e d ' c o u n t r i e s  i s such t h a t m o s t l y  h a r d w o o d l o g s a r e e x p o r t e d by t h e u n d e r d e v e l o p e d p r o c e s s e d p r o d u c t s l i k e p u l p and p a p e r  situation  develop-  unprocessed  r e g i o n s and  are imported.  ment i n p l y w o o d a n d p u l p i n d u s t r i e s c o u l d i m p r o v e  More-  Invest-  the trade  i n f a v o u r o f t h e p o o r e r c o u n t r i e s by i n c r e a s i n g t h e  173 value of product exported and by reducing the  (plywood and veneer  logs)  imports of pulp and paper - at l e a s t p a r t l y .  T h i s argument i n i t s e l f ments  i n place of  i s not s u f f i c i e n t  as  invest-  i n other i n d u s t r i e s ^ w h i c h also produce goods with high  income e l a s t i c i t y ^ may be able to have a g r e a t e r effect.  From the p o i n t of view of  import saving  import saving and export  promotion not j u s t those i n d u s t r i e s which have these should be promoted but those which have the b i g g e s t effects  should be f a v o u r e d .  industries  that  biggest effect  effects such  Sawmilling and plywood are  they may be amongst those which have in countries  that export unprocessed  such  the logs,  p r o v i d e d new markets can be developed, 2,  T e c h n o l o g i c a l Advantages The t e c h n o l o g i e s  i n use  in forest  i n d u s t r i e s are such  that a wide range of p r o d u c t i o n f u n c t i o n and a great r e l a t i v e to s c a l e i s p o s s i b l e .  flexibility  In producing wood a high degree  of mechanization and extensive use of u n s k i l l e d labour o r both are u s u a l l y p o s s i b l e .  When c a p i t a l i s  scarce mechanization can  be postponed and employment f o r a l a r g e labour f o r c e p r o v i d e d . Moreover,  i n timber growing and p r i m i t i v e l o g g i n g by hand o n l y  those s k i l l s  are r e q u i r e d on the p a r t of labour that are n o r -  m a l l y p l e n t i f u l i n r u r a l areas of underdeveloped c o u n t r i e s . Very often  the r u r a l p o p u l a t i o n and other resources  ployed during p a r t s of the year when the pressure of t u r a l work i s not g r e a t . and i n the c u l t u r a l  These resources  are unemagricul-  by t h e i r v e r y nature  s e t t i n g s of an underdeveloped country are  174 immobile and incapable o f being employed i n s e c t o r s other than a g r i c u l t u r e or f o r e s t r y .  Thus the wood growing and h a r v e s t i n g  p a r t o f f o r e s t r y i s probably the s e c t o r l y use the unemployed r u r a l The s o c i a l  resources  i n d u s t r y can also  i n the r u r a l  be p r o f i t a b l e .  Himalayan c h i r pine f o r e s t s  efficient-  i n a p r o d u c t i v e way.  c o s t s of such o p e r a t i o n s would be v e r y In such circumstances  3,  that can most  little.  areas small  R e s i n e x t r a c t i o n i n the  i s an example,  E x t e r n a l Economies The wood resource i s  so heterogeneous and can be  used f o r so many purposes that establishment u s u a l l y makes i t p o s s i b l e  f o r other  of an i n d u s t r y  industries  to  areas where firewood due to easily.  T h i s leads  its  to development of a small s c a l e  pulp m i l l  based on the chip r e s i d u e s  i n d u s t r i e s tend to be e s t a b l i s h e d economies  usually results has s i z e a b l e  India,  ' c h i p and saw' m i l l s c o u l d l e a d to a small  are u s u a l l y f a r away from the c e n t r e s  resultant  sawdust  Such c h a i n r e -  have o c c u r r e d and are o c c u r r i n g i n p a r t s of A few  in  bulk c o u l d not be t r a n s p o r t e d  stove i n d u s t r y based on scrap sheet m e t a l . actions  J  develop.  Sawmilling produces sawdust which can be used as a f u e l  use.  scale  and so on„  As f o r e s t s  of p o p u l a t i o n , the  away from urban areas due to  i n t r a n s p o r t a t i o n of raw m a t e r i a l .  i n new road and r a i l  e x t e r n a l economies  forest  This  development which o f t e n  of which other s e c t o r s can make  Due to t h e i r strong forward l i n k a g e s f o r e s t  industries  175 can induce c o n s i d e r a b l e investment Finally, forest  i n other  industries.  Westoby (1962) has d i s c u s s e d how a p l a n f o r  resources development may be made and f i t t e d  n a t i o n a l development p l a n . demands and e s t i m a t i n g It also  This involves  into  estimating  the a v a i l a b i l i t y of f o r e s t  future  resources.  r e q u i r e s knowing f a i r l y c l e a r l y what the o b j e c t i v e s  the n a t i o n a l p l a n are and how i t in general.  t r y i n g to help  in t h i s respect  by f i r s t  p e r t s to make a general assessment of the Smith 1964)  of  i s proposed to achieve them  The FAO has been a c t i v e l y  underdeveloped c o u n t r i e s  the  sending  ex-  situation ( e „ g .  and then making d e t a i l e d p l a n s .  Not o n l y has the FAO been concerned about the behind the r o l e of f o r e s t r y  i n economic development of  l e s s developed c o u n t r i e s but a l s o t e c h n i c a l f o r e s t r y i n them.  the  Its  theory the  education  r o l e has been very important i n d i s s e m i n a t i n g  knowledge not o n l y i n the f i e l d s  of l o g g i n g ,  utilization,  tree  breeding and s i l v i c u l t u r e but a l s o i n "educating" the p o l i c y makers of the underdeveloped c o u n t r i e s r e g a r d i n g the way f o r e s t r y education should be imparted there S h i r l e y 1964,  Sisam 1964),  The s p e c i a l  (FAO S t a f f features  1964,  of  forestry  education i n t r o p i c a l developing c o u n t r i e s have been by Champion (1965) a l s o ,  reviewed  though not under the framework of  the  FAO, The FAO i n a d d i t i o n has been t r y i n g to help the dev e l o p i n g c o u n t r i e s by promoting p l a n t a t i o n s of f a s t species.  I t has been p o i n t e d out  (F,A„0„  growing  S t a f f 1965)  that  176 f u t u r e wood needs can be more e c o n o m i c a l l y met by p l a n t a t i o n s than by o l d growth  forests,  VIEWS OF THE AGENCY FOR INTERNATIONAL DEVELOPMENT AND FORESTRY ECONOMISTS IN THE UNITED STATES The U n i t e d S t a t e s of America c o n t r i b u t e s the amount towards the development  loans given by the  to the underdeveloped c o u n t r i e s . authorized t o t a l l e d Government 1966),  5.57  From 1958  b i l l i o n dollars  economists  it  to 1964  loans  Almost a l l o f these loans are a d m i n i s t e r e d  a l a r g e involvement countries,  developed  (United States  by the Agency f o r I n t e r n a t i o n a l Development  ing  largest  (AID),  With such  i n the development programmes of the  i s o n l y n a t u r a l to expect that  i n the U „ S , would get  interested  the  i n the  which the FAO's r o l e has j u s t been d i s c u s s e d ,  develop-  forestry  subject  Beazley  in  (1965),  i n a paper presented to the S o c i e t y o f American F o r e s t e r s , emphasized that  some of the c o n f l i c t s  that are faced by eco-  nomic d e c i s i o n makers i n a d e v e l o p i n g country can be r e s o l v e d o n l y by r e c o g n i z i n g that the s t a t e p r e f e r e n c e and  by making use of shadow p r i c e s .  economic p l a n n i n g have been d e a l t paper,  little  the f o r e s t r y  Though some aspects o f  in decisionmaking for  In a very g e n e r a l way i t  gested that a c t i v i t y a n a l y s i s  exists  with very c l e a r l y i n h i s  help has been o f f e r e d sector.  function  has been  sug-  be used f o r the purpose and a l l  s e c t o r s of the economy be d e a l t with at the same time.  There  i s no doubt that  the  such an approach which seeks to answer  177 questions best.  about a l l s e c t o r s simultaneously  But, i n the absence of any p r a c t i c a l method f o r  an a c t u a l  set  may be determined, than  solving  of a very l a r g e number o f l i n e a r programmes f o r  an economy so that the optimum l e v e l s of  off  i s p r o b a b l y the  it  investments i n each  i s not c l e a r how a planner i s any  better  before. Another American c o n t r i b u t i o n to the  subject,  pro-  bably as a r e s u l t o f the AID programmes i n L a t i n America, Gregory (1965),  He p o i n t e d out that  so f a r f o r e s t s had been  ignored i n South America as bases f o r development, form 54 per cent of t o t a l served, all  continents,  resources ral  land area t h e r e .  was the h i g h e s t f o r e s t  area/total  This,  histories  they  i t was ob-  land area r a t i o of  can be forwarded t i l l  theory of economic growth i s developed. he argued, to  n a t u r a l resources  though  Gregory (1965) argued that no theory of n a t u r a l  i n economic development  impossible,  i s by  In f a c t ,  a gene-  it  was  say anything about the r o l e of  i n development  of v a r i o u s c o u n t r i e s .  simply by l o o k i n g at  case  Nations l i k e the U n i t e d  States,  Canada and the Soviet Union have made use of  natural  resources  in r a i s i n g their  their  standards of l i v i n g .  C o u n t r i e s l i k e England and S w i t z e r l a n d have achieved  high  l e v e l s of  income even without being endowed w i t h n a t u r a l r e -  sources.  Countries l i k e B r a z i l ,  other hand, have not  succeeded  C h i l e or Indonesia,  i n improving t h e i r l o t  l a r g e endowments  of n a t u r a l r e s o u r c e s .  demonstrate  the r o l e of n a t u r a l resources  that  on the even with  These examples probably i s only permis-  178 sive  i n economic development.  not cause i t .  Moreover,  They can f a c i l i t a t e growth but  they are on a world b a s i s and not i n -  dispensable. While not g e t t i n g  i n v o l v e d i n the g e n e r a l r o l e of  natural resources - e s p e c i a l l y forests  - i n economic develop-  ment, Gregory (1965) p o i n t e d out that the f o r e s t  resources  in L a t i n American have some advantages which can be made use of  i n d i r e c t i n g investments  vantages are d i s c u s s e d lo  in forest  industries.  The ad-  below,  The expanding i n t e r n a l market Even at p r e s e n t ,  with low l e v e l s of per c a p i t a  income, L a t i n America spends more on f o r e s t products imports than the v a l u e of such m a t e r i a l e x p o r t e d . If  incomes i n c r e a s e i n the f u t u r e then the demand  f o r f o r e s t p r o d u c t s , e s p e c i a l l y pulp and paper,  will  i n c r e a s e v e r y c o n s i d e r a b l y and tend to widen the f o r e s t products trade d e f i c i t . if  investment  total  in forest  T h i s can be reduced  i n d u s t r y i s made.  Also  investment c o s t s f o r producing the f o r e s t  the pro-  ducts at home have been shown to compare f a v o u r a b l y with the c o s t s of i m p o r t a t i o n s over a p e r i o d of years.  few  It has a l s o been p o i n t e d out that i f products  l i k e pulp and paper are not made a v a i l a b l e to an economy i t s development i s  severely  impaired.  Producing  at home i s a b e t t e r a l t e r n a t i v e than importing  be-  cause,  in  i n a d d i t i o n . , i t has a m u l t i p l i e r e f f e c t  179 the domestic 2,  economy.  C a p i t a l requirements Forest  total  industries  have a high p r o p o r t i o n of  c o s t s are r e l a t i v e l y  pared with many other  industries.  establishment of f o r e s t i n underdeveloped  c a p i t a l but p l e n t i f u l 3,  the  T h i s means low when com-  Consequently  industries  i s not v e r y  areas which have  the dif-  scarce  labour,  Investment range i s wide Forest  industries  range from v e r y labour  s i v e sawmilling to c a p i t a l T h i s means that any kind of i n i t depending on the 4,  low  p r o d u c t i o n c o s t s as wood c o s t s .  that the c a p i t a l  ficult  are  Labour i s  ficulty.  industry.  investment can be made  circumstances.  flexible  Rural labour t h a t i s be u t i l i z e d  i n t e n s i v e paper  inten-  in forest  s e a s o n a l l y unemployed  industries  can  without much d i f -  Moreover, t h i s labour gets g r a d u a l l y  t r a i n e d i n mechanical  jobs i n these i n d u s t r i e s  thus becomes more mobile than b e f o r e .  and  Though the  second p o i n t r e g a r d i n g t r a i n i n g of labour w i l l gener a l l y be accepted,  Wilson (1965) adopted the  p o i n t with r e s e r v a t i o n s  first  and p o i n t e d out that demand  for woods labour i n many t r o p i c a l f o r e s t areas may  180  c o i n c i d e w i t h t h e p e a k demand f o r l a b o u r f i e l d s due 5.  to seasonal  Economic On  the  by H i r s c h m a n  been a r g u e d by  s  Gregory  6.  i n t h i s chapter.  forward  and  themi t has  This  but  land  countries It i s  probably  weak b a c k w a r d  linkages.  to t h i s could  be  the  of f o r e s t i n d u s t r i e s .  reform  I n L a t i n A m e r i c a many c o u n t r i e s have m o s t o f arable land very  i n the  extent  It w i l l all,  of the  America are  T h i s p o s i t i o n can  by o p e n i n g  these countries  not  hands o f a few  l a n d l o r d s and  l a r g e number o f r u r a l p e o p l e have  small holdings.  be  some o f t h e v a s t  be  the a  extremely eased to  f o r e s t areas  some of  to a g r i c u l t u r e .  seen from t h e s e arguments t h a t most,  p o i n t s r a i s e d by  c o v e r e d by Westoby  t  may  t o assume t h a t f o r e s t i n d u s t r i e s  paper sub-sector  Forests  (1958),  backward l i n k a g e s .  P o s s i b l y the o n l y e x c e p t i o n and  Watanabe  the  (1965) t h a t f o r e s t i n d u s t r i e s  and  earlier  more r e a s o n a b l e  pulp  which are  e s p e c i a l l y i n underdeveloped  as d i s c u s s e d  have s t r o n g  (1963),  C h e n e r y and  have s t r o n g f o r w a r d so  both.  linkage  s e l v e s b a s e d on  be  of  the  b a s i s o f f i g u r e s f o r I t a l y , J a p a n and  U.S.A. g i v e n  not  aspects  in  Gregory (1962),  (1965) f o r L a t i n  but  181 In s p i t e pating  of the f a c t that the AID has been p a r t i c i -  i n the f o r e s t r y development programmes of many under-  developed c o u n t r i e s i n the general context of t h e i r development  (e„g„  Yuan 1964,  Hsia 1958,  Sheng and Kang  and p r o v i d e s t r a i n i n g i n t h i s f i e l d to f o r e s t e r s countries  economic 1961)  from v a r i o u s  (Huckenpahler 1967), no t h e o r e t i c a l work seems to  have been p u b l i s h e d by i t on the r o l e o f f o r e s t r y i n development o Two other American works i n t h i s f i e l d - both doctoral dissertations tioning.  at Duke U n i v e r s i t y - are a l s o worth men-  One i s by Somberg (1962) who o u t l i n e d a programme f o r  economic development of the R e p u b l i c of Honduras through i n v e s t ments  in f o r e s t r y .  It has been mentioned that the c a p i t a l -  output r a t i o i n f o r e s t r y s e c t o r ment i n i t  i s good.  low and as a r e s u l t  At the same time i t  p r i s e and so b e n e f i t s Baird  is  invest-  i s a long term e n t e r -  are v e r y much d e l a y e d .  The o t h e r i s by  (1965) i n which the f e a s i b i l i t y of i n v e s t i n g  in forestry  in an underdeveloped r e g i o n o f a developed country (Appalachian Region i n the U , S , A „ ) that under e x i s t i n g the f o r e s t  is discussed.  It has been concluded  types of management about 38 per cent of  land i n Appalachian Region i s capable of r e t u r n i n g  at l e a s t 3 per cent r e t u r n on investment during the f u t u r e 50 years.  Under an improved programme suggested i n the  about 80 per cent of the f o r e s t at l e a s t 3 per cents,  45 per cent  study,  land i s capable of r e t u r n i n g i s capable of r e t u r n i n g at  l e a s t 4 per cent and 14 per cent of r e t u r n i n g at l e a s t  5 per  182 cent on  investment, A Master's t h e s i s at the U n i v e r s i t y of Washington  (Catano 1964), while  d i s c u s s i n g the r o l e o f f o r e s t r y i n the  economic development o f Mexico, has c r i t i c i z e d the part o f conservationists through f o r e s t  restrictive  i n f u r t h e r i n g the growth o f economy  industries.  In Gatano's o p i n i o n  w i l l mean t r a n s f e r r i n g income from the present poor to the f u t u r e generations  which w i l l  conservation generation  of  be r i c h e r anyway , -  VIEWS EXPRESSED AT THE SIXTH WORLD FORESTRY CONGRESS AT MADRID IN 19 66  A number o f papers on economic development f o r e s t r y were presented Santa Cruz  at the  and  S i x t h World F o r e s t r y Congress,  (1966) spoke o f the r o l e o f the  the processes o f the economic and s o c i a l  forestry sector  development  of  in  the  underdeveloped world with s p e c i a l emphasis on the  institutional  aspects.  suitable  He p o i n t e d out t h a t the d i f i c i e n c i e s  institutions  constitute  progress o f economies. these c o u n t r i e s  the p r i n c i p a l o b s t a c l e He f e l t  that  the  should be i n s t i t u t i o n a l i z e d .  direction.  He suggested t h a t  l o p i n g c o u n t r i e s must have the 1,  Planning of i t s  forest  following activities.  to the  rapid  forestry operations  c o u l d be done only by the State a c c e p t i n g i t s in this  of  T h i s , he  in  stated,  responsibility services in  characteristics,  deve-  183  2,  Strategic  3,  Undertake socio-economic  The c o n t r i b u t i o n of  use of  personnel, works.  Santa Cruz i s v a l u a b l e  i t goes to a very fundamental if  its  i n the  i s s u e but has l i t t l e  one i s concerned o n l y w i t h the way f o r e s t  investment  must be planned and i t  s t i t u t i o n s already e x i s t .  is  and  forestry  institutions  in-  the are  granted.  industries  L a t i n America, capital  relevance  T h i s t h e s i s i s concerned with  In another paper Lewis of f o r e s t  that  exploitation  assumed that  economic aspects of f o r e s t r y alone and the taken,for  sense  (1966) has d i s c u s s e d  i n i n d u s t r i a l development  It has been p o i n t e d out  that  the  role  of t r o p i c a l  f o r e s t s can help  formation by 1) r e p l a c i n g imported woods and thus r e -  ducing outflow of f o r e i g n exchange and 2) p o r t s of domestic  wood,  c l e a r l y that domestic  Surprisingly  s  increasing  the  ex-  i t has not been s t a t e d  f o r e s t s can also help c a p i t a l accumula-  t i o n by p r o v i d i n g cheaper b u i l d i n g m a t e r i a l than other This probably i s the,most s i g n i f i c a n t  sectors.  way i n which f o r e s t r y  help i n c r e a t i n g more p r o d u c t i v e c a p i t a l than the  forests  themselves.  seem to be  The arguments of Lewis  (1966) do not  very sound when he said . 0  "Any n a t i o n that c o n s i d e r s i n c r e a s i n g the exp l o i t a t i o n of i t s f o r e s t s f o r c a p i t a l accumulation must e i t h e r set d e f i n i t e l i m i t s on the l e v e l o f c u t t i n g or be prepared to accept a g r e a t l y d i m i n i s h e d f o r e s t resource i n the future." He has a p p a r e n t l y not considered  the p o s s i b i l i t y  that by a c -  can  184 c u m u l a t i n g more p r o d u c t i v e c a p i t a l , t h a t be  i n such a p o s i t i o n  He a l s o  i n the u n i -  and i n t h e p r i n c i p l e o f s u s t a i n e d y i e l d .  A n o t h e r way i n w h i c h f o r e s t s v e l o p m e n t i s g i v e n by L e w i s play  i n future  the f o r e s t s - i f necessaryv(Zivnuska  seems t o have t o o g r e a t a f a i t h  queness o f f o r e s t s  es  may  as t o f i n d e f f e c t i v e s u b s t i t u t e s f o r  forest products or recreate 1966a).  nation  (1966) a s t h e r o l e f o r e s t  i n t r a i n i n g the labour required A third helpful  c a n h e l p e c o n o m i c de-  for industrialization.  role of forestry  has been g i v e n a s  that  o f augmenting the a g r i c u l t u r a l sector  by p r o v i d i n g  land  and i n f r a - s t r u c t u r e  This  f o r the purpose.  though e s s e n t i a l l y c o r r e c t , like  has s i g n i f i c a n c e  L a t i n A m e r i c a where l a r g e  for agriculture  only  i n places  only  Chapman  i n sustaining  attention  i n t h e M e d i t e r r a n e a n a n d Near  (1966) seemed t o t h i n k increasing  to the r o l e  comes u p .  that  o f f o r e s t r y as important He d i d n o t g i v e much  f o r e s t r y can play  i n pushing i n -  he h a s a r g u e d  s  t h e n demand  i n a d v a n c e t o meet t h e s e demands.  been a t p a i n s t o p o i n t  problem.  East  i n c r e a s e s v e r y : c o n s i d e r a b l y and so  f o r e s t e r s must p l a n w e l l  politicians  incomes.  I f incomes a r e r i s i n g ,  for f o r e s t r y products  has  develop-  planning w i t h p a r t i c u l a r reference to the  developing countries region",  suitable  a c c e s s i b i l i t y at present.  I n h i s p a p e r e n t i t l e d "The r o l e o f f o r e s t r y ment i n n a t i o n a l  more  argument,  t r a c t s of forest areas  exist with l i t t l e  industri-  out that  and a d m i n i s t r a t o r s  He  i n the region o f h i s study  have n o t y e t a p p r e c i a t e d  this  185 Chapman (1966) c r i t i c i z e d the c u r r e n t p o l i c y of improving f a r o f f ,  degraded, mountain f o r e s t s on poor s o i l  the sake of c o n s e r v i n g them f o r the f u t u r e . suggested that f o r e s t  ments of f o r e s t countries. cally,  he has  p o l i c y must be o r i e n t e d towards much  higher l o c a l p r o d u c t i o n i n the near f u t u r e . even w i t h s l i g h t  Instead,  for  increases  It  is  so  because,  i n per c a p i t a income, the r e q u i r e -  products w i l l  i n c r e a s e very much i n these  I f they are not i n a p o s i t i o n to produce them l o -  such nations w i l l  end up spending huge sums i n import-  ing them and may i n f a c t  have d i f f i c u l t y i n f i n d i n g enough  money f o r these imports.  He has a c c o r d i n g l y suggested that  timber trend s t u d i e s f o r these c o u n t r i e s be undertaken l i k e s i m i l a r s t u d i e s i n other c o u n t r i e s Department of A g r i c u l t u r e ,  ( e „ g . U n i t e d States  F o r e s t S e r v i c e 1965b) „  To meet  the higher domestic f u t u r e needs he has suggested t h a t , among other a l t e r n a t i v e s , p l a n t i n g of f a s t Algvere progress  forest  grown  decisions  consideration  exotics,  (1966),  in forestry  p l a n n e r s take i n t o  i n h i s paper, has suggested that  (and presumably i n economy),  must be based on b e n e f i t - c o s t  level  but a l s o  investment  analyses.  es are a b a s i s not only f o r managerial d e c i s i o n s for o u t l i n i n g general p o l i c i e s  for  Such a n a l y s on e n t e r p r i s e  on the n a t i o n a l  level. Of a l l the papers on economic development at M a d r i d ,  the most comprehensive,  t r i b u t i o n was by Zivnuska  (1966a)„  presented  r a t i o n a l and f o r c e f u l conIt  is  entitled  "The i n t e -  186 g r a t i o n o f f o r e s t d e v e l o p m e n t p l a n s and n a t i o n a l plans.  How  development  t o make t h e f o r e s t r y c a s e a t t h e n a t i o n a l  level".  I t p o i n t s to the f a c t t h a t o n l y f o u r c o u n t r i e s i n the w o r l d Mainland  China,  I n d i a , t h e U.S.S.R, and  l a t i o n s o f more t h a n 100 m i l l i o n had  p o p u l a t i o n s of l e s s than  t h e U.S.A. - had  i n 1962  5 million  w h i l e some 80  each.  popu-  nations  T h i s means t h a t  at the p r e s e n t world average per c a p i t a consumption l e v e l , of these single  s m a l l e r n a t i o n s c o u l d n o t consume t h e o u t p u t  500 m e t r i c t o n p e r day  pulp m i l l ,  were s u f f i c i e n t l y v a r i e d t o c o v e r quirements duction.  even i f t h a t  such n a t i o n s , which  of a output  the wide range of p u l p r e -  r e p r e s e n t e d by modern p a p e r and For  one  paper board  pro-  c a n n o t p r o v i d e b i g enough  i n t e r n a l m a r k e t s f o r the g i a n t m i l l s o f modern i n d u s t r y , i t i s probably necessary their  to form  some k i n d o f a j o i n t u n i t  with  neighbours. Zivnuska  (1961) and  F e i and  has  accepted  Ranis  the model o f R a n i s  and  Fei  (1963) f o r e c o n o m i c d e v e l o p m e n t .  In  t h i s m o d e l i t i s assumed t h a t d e v e l o p m e n t t a k e s p l a c e when agricultural productivity trial  i n c r e a s e s and  simultaneously indus-  employment o p p o r t u n i t i e s a r e g e n e r a t e d .  i n s h i f t s o f p o p u l a t i o n from manufacturing l o w and balanced  sector.  the a g r i c u l t u r a l  results  s e c t o r to  t o t h e two  increases i n p r o d u c t i v i t y take place.  sectors that In t h i s  t h e a p p r o p r i a t e r a t e o f d e v e l o p m e n t and  ment i n t o t h e f o r e s t r y  the  A t t h e same t i m e c o n s u m p t i o n i s h e l d  t h e s a v i n g s a r e so a l l o c a t e d  what s h o u l d be  This  sector?  T h i s i s the q u e s t i o n to  model investwhich  187 Zivnuska  (1966a) has a d d r e s s e d The  himself.  nature of the f o r e s t r y sector  i s such that  i t is  i n an i n t e r m e d i a t e s t a g e b e t w e e n t h e r u r a l a g r i c u l t u r e and urban manufacturing. agricultural  I t i s f a r more e a s y f o r t h e  labourer to s h i f t  the  highly  and  economic c o s t s  to the f o r e s t r y sector  u r b a n i z e d and m e c h a n i z e d i n d u s t r i e s . o f h o u s i n g him i n s m a l l  townships a r e lower than the costs er a l s o  finds  that  the s k i l l s  like  are not too d i f f i c u l t . logging  and s a w m i l l i n g  labour intensive  than to  The s o c i a l  forest  industry  i n big cities.  The l a b o u r -  he a l r e a d y h a s a r e n o t c o m p l e t e l y  u s e l e s s i n h i s new j o b and t h e new s k i l l s learn  released  he i s r e q u i r e d  Some o f t h e f o r e s t a r e such that  or capital intensive.  to  industries  t h e y c a n be  either  So, i n t h e e a r l i e r  s t a g e s o f d e v e l o p m e n t , when l a b o u r i s p l e n t i f u l  but c a p i t a l i s  scarce,  and  t h e l a b o u r i n t e n s i v e methods o f l o g g i n g  can  be u s e d , w h e r e a s i n l a t e r s t a g e s t h e p r o p o r t i o n  can  be i n c r e a s e d The  the that  the  forestry  sector  c a n a l s o make v e r y good u s e o f  i n t h e development o f i n f r a s t r u c t u r e  i s necessary f o r improving  the p r o d u c t i v i t y  The s e t t i n g up o f f o r e s t  l o c k e d wood c a p i t a l t o be c o n v e r t e d  p r o d u c t i v e forms and t h u s i n c r e a s e the  economy.  forest and  of capital  a c c o r d i n g t o need.  e x t e r n a l i t i e s involved  agriculture.  sawmilling  industries  i n subsistence can permit  i n t o more l i q u i d and  the t o t a l p r o d u c t i v i t y o f  O p e n i n g up o f t h e f o r e s t s and s e t t i n g up o f t h e  industries  can a l s o  save d o m e s t i c c a p i t a l .  r e d u c e t h e i m p o r t s o f wood p r o d u c t s These, i n t h e o p i n i o n  of Zivnuska,  188 are  t h e a d v a n t a g e s t h a t f o r e s t r y h a s overagotfeer  sectors i n  c l a i m i n g s u b s t a n t i a l a l l o c a t i o n s o f i n v e s t m e n t funds i n a developing  country. An  i n t e r e s t i n g feature of f o r e s t r y i s that i t often  i s s e l f - s u s t a i n i n g . I f some i n i t i a l starting  l o g g i n g , then the export  f o r s a w m i l l i n g and lumber exports plywood and a pulp sawmills  mill.  capital  c a n be had f o r ;  o f logs can generate  c a n e a r n enough t o s t a r t a  At t h i s stage the residues  c a n a l s o be u s e d i n t h e p u l p m i l l  from t h e  and, i f e x i s t i n g  f o r e s t s a r e n o t enough t o meet g r o w i n g d e m a n d s ' o f wood c a p i t a l c a n be i n v e s t e d  capital  products,  i n c r e a t i n g new f o r e s t s o f f a s t grow-  ing- s p e c i e s . In v e r y unambiguous terms -Zivnuska the only  static  sustained  has s t a t e d  y i e l d concept i s obsolete  i f no d e v e l o p m e n t i s c o n c e i v e d  of.  sustained cipate  yield  and i s s u i t a b l e  Foresters  t h e r e f o r e n o t r e m a i n bogged down i n t h e u n r e a l  that  world  should of static  f o r e s t r y b u t a c t b o l d l y i f t h e y want t o p a r t i -  i n economic development. " H i s t o r i c a l e x p e r i e n c e h a s r e p e a t e d l y demonst r a t e d that the sustained y i e l d concept i s not a p p l i c a b l e t o t h e c o n d i t i o n s o f r a p i d economic growth. The w i d e l y c i t e d and g e n e r a l l y misunderstood North American a s s a u l t on t h e f o r e s t s o f t h e c o n t i n e n t i s a m a j o r example o f t h i s . Today t h e n a t i o n has r e a c h e d a l e v e l o f economic g r o w t h and degree o f a f f l u e n c e such t h a t i t i s now a b l e t o r e i n v e s t c a p i t a l i n natural resources, that a l t e r n a t e materials are a v a i l a b l e to r e p l a c e the t r a d i t i o n a l f o r e s t p r o d u c t i n many u s e s , and t h a t t o t a l f o r e s t g r o w t h i s some 60 p e r c e n t g r e a t e r than t h e annual c u t .  189 The c h a l l e n g e t o f o r e s t e r s i s t o d e v e l o p a r e g u l a t o r y theory which i s responsive to the r e q u i r e m e n t s o f economic change w i t h o u t v i o l a t i n g the sil.vicultural constraints," ( Z i v n u s k a 1966a) All far  t h e a d v a n t a g e s o f f o r e s t r y s e c t o r d i s c u s s e d so  a r e meaningful  ficient like  only f o r those  c o u n t r i e s w h i c h have s u f -  forests i n r e l a t i o n to their population.  t h o s e i n West A s i a a n d I n d i a a n d C h i n a ,  these  For countries arguments  are f r u i t f u l o n l y f o r c e r t a i n regions which a r e f o r e s t In  the f o r e s t poor areas, d e c i s i o n t o i n v e s t i n c r e a t i o n o f  f o r e s t s w i l l depend on o t h e r a l t e r n a t i v e c h a n n e l s for, u s i n g scarce investment  resources.  made i n t h e m o s t p r o f i t a b l e  enterprise.  very  s c a r c e , and s u b s t i t u t e p r o d u c t s  then  investment  and  s h o u l d be c a r r i e d o u t .  1966)  and proved  mes.  I n v e s t m e n t s h o u l d be When f o r e s t s a r e  are also not available,  were  ( B e d n a l l 1 9 6 6 ) a n d New Z e a l a n d  t o be b e n e f i c i a l  (Hart  f o r economic development. c o s t i s almost  i n very labour intensive a f f o r e s t a t i o n  The c r u c i a l  beneficial  These k i n d s o f investments  When l a b o u r i s u n e m p l o y e d a n d i t s s o c i a l c a n be u s e d  available  i n f o r e s t r y may p r o v e t o be t h e m o s t  made i n S o u t h A u s t r a l i a  it  rich.  f a c t o r deciding the matter  nil,  program-  s h o u l d be t h e  q u e s t i o n "What a r e t h e a l t e r n a t i v e s ? " . In cultural fuel, ing  places l i k e  areas  I n d i a a n d P a k i s t a n , where l a r g e a g r i -  a r e c o m p l e t e l y devoid o f f o r e s t s o r any o t h e r  cow dung i s commonly u s e d f o r b u r n i n g p u r p o s e s a f t e r  i t into cakes.  Existence of plantations of fuel  c o u l d r e l e a s e t h e dung i n s u c h  cases  wood  f o r b e i n g more p r o p e r l y  dry-  190 used as manure i n the a g r i c u l t u r a l  fields,,  The r e t u r n s o f an  investment i n f u e l p l a n t a t i o n s must take i n t o account the p o s s i b l e i n c r e a s e d a g r i c u l t u r a l p r o d u c t i v i t y i n such a r e a s .  But  the r e t u r n s must be compared with r e t u r n s from o t h e r e n t e r p r i s e s before d e c i d i n g where t o  "A s c a r c i t y o f f o r e s t s w i l l c o n s t i t u t e an o b s t a c l e to development i n any n a t i o n , j u s t as would a s c a r c i t y o f any o t h e r major resource - but t h i s does not n e c e s s a r i l y j u s t i f y the investment o f l i m i t e d c a p i t a l i n d i r e c t e f f o r t s to develop such r e s o u r c e s . In any exchange economy, comparative advantage s h o u l d c o n t r o l the flow o f investment. Some r e g i o n s w i l l s u r e l y f i n d i t more advantageous to d i r e c t a l l t h e i r e f f o r t s to other sectors r a t h e r than to attempt to develop t h e i r own f o r e s t products out o f some misguided wood fundamentalism," (Zivnuska 1966a)  ••••„..  Finally, forest  invest,  Zivnuska has mentioned t h a t there i s a case f o r  development p l a n n i n g not o n l y f o r i n d i v i d u a l n a t i o n s but  the whole w o r l d .  The e n t i r e globe must be looked at as one  u n i t with some r i c h and o t h e r poor r e g i o n s .  This i s  in re-  markable conformity w i t h the c o n c l u d i n g remarks of Hahn and Matthews (1964) i n t h e i r a r t i c l e "The theory o f economic growth: A Survey" wherein they have recommended that r e s e a r c h on growth and development be so d i r e c t e d that the whole world i s as an underdeveloped u n i t .  studied  191  CHAPTER SIX  EVALUATING THE IMPORTANCE OF FORESTRY IN DEVELOPMENT  THE CRITERION  I t has a l r e a d y been argued that nothing can be p r e sumed as unique about f o r e s t r y .  It  i s j u s t one of the many  s e c t o r s which produce the d e s i r e d output i n an economy. fore,  i.t would seem that each s e c t o r  i s as  important as any  other which i s not the case, as a c l o s e r s c r u t i n y w i l l Sectors can be of a l l k i n d s , depending on the al  definitions  and g r o u p i n g s .  There-  show. initi-  If the economy i s d i v i d e d into  two s e c t o r s - the consumer good producing and the c a p i t a l good producing  - then f o r purposes of development the c a p i t a l good  192  producing s e c t o r  i s more important.  crease i n per c a p i t a output ed at a r a t e g r e a t e r  the c a p i t a l  tion.  The f u t u r e  The f o r e s t r y  increases  sector  c a p i t a l producing s e c t o r . buildings, it  stock must be  than a c e r t a i n minimum.  q u i r e s not only c u r r e n t i n c r e a s e s increases.  To ensure a sustained  is,  in-  increas-  Development re^  i n income but a l s o  future  come from c a p i t a l accumula-  to a c o n s i d e r a b l e  extent, a  It g i v e s raw m a t e r i a l f o r making  r a i l r o a d s , books, wagons and f a c t o r i e s .  i s more important t h a n , f o r example,  Therefore  the cosmetics  sector  which produces consumer goods o n l y . C a p i t a l p r o d u c t i o n takes time. i s "too is  If the time  taken  long" then the c a p i t a l may be o b s o l e t e by the time  f i n a l l y produced.  D i v e r t i n g l a r g e amounts of  it  resources  into c r e a t i o n of such c a p i t a l which has a h i g h p r o b a b i l i t y of becoming o b s o l e t e before  its  production is  complete can h a r d l y  be considered wise from the p o i n t of view of economic ment. logical  Even i f  the time taken i s not too l o n g ,  develop-  but the  techno-  changes o c c u r r i n g i n the economy are very r a p i d ,  the c a p i t a l w i l l be o b s o l e t e before  it  i s produced.  then  So to  simply say that the c a p i t a l good producing sector  i s more  important than the consumer good producing s e c t o r  i s not a suf-  ficient  sector.  c r i t e r i o n to evaluate  the  importance of a  Within the c a p i t a l producing s e c t o r  those s e c t o r s are more im-  portant which have l e s s p r o b a b i l i t y of t h e i r products becoming o b s o l e t e before  t h e i r production is  complete.  Sectors  like  f o r e s t r y which have long g e s t a t i o n periods are t h e r e f o r e  less  i  193  l  important than o t h e r s .  T h e i r importance from; t h i s point of  view goes on d i m i n i s h i n g more and more as technology i n other sectors advances f a s t e r and f a s t e r and produces s u b s t i t u t e s wood,  A few c e n t u r i e s ago  fields  ( e „ g , ship b u i l d i n g ) , was so poor that some c o u n t r i e s  s  progress o f ' t e c h n o l o g y  for  i n other  in Europe p l a n t e d oak t r e e s i n the Seventeenth and Eighteenth century so that oak wood f o r making ships would be a v a i l a b l e ,  i n the 20th century  T h i s must have appeared a very  idea at the time and was being acted upon t i l l ( E d l i n 1956), century that  But technology moved so f a s t  sensible  as l a t e  as 1850  i n the Nineteenth  i t made these trees at t h e i r m a t u r i t y a b s o l u t e l y  unwanted f o r making s h i p s .  The progress of technology has  been a c c e l e r a t i n g since the beginning o f mankind (Duerr 1966b) and shows no signs of slowing down. The oak p l a n t e r s mentioned above, d i d not consider a few hundred years as "too long" a g e s t a t i o n p e r i o d .  They  r e l i e d on t h e i r past experience r e g a r d i n g the pace o f technological progress.  P l a n t i n g s of the Fourteenth and F i f t e e n t h  century would c e r t a i n l y have given them what they needed but t h e i r estimates f o r f u t u r e on the b a s i s of p r o j e c t i o n s of p a s t , were i n c o r r e c t .  I f t o d a y ' s d e c i s i o n . m a k e r wants to avoid  such mistakes he must recognize the a c c e l e r a t i n g pace of t e c h nology.  Even a few decades may be "too long" a g e s t a t i o n  period today. T h i s p e r i o d i s not the o n l y thing that determines importance of a c a p i t a l producing s e c t o r .  The nature of  the  the  194  product i t s e l f  i s also a f a c t o r to be c o n s i d e r e d .  that can be used i n many processes i s has a very l i m i t e d range of u s e s .  A product  b e t t e r than the one that  The s e c t o r producing the  " v e r s a t i l e " c a p i t a l which can e a s i l y r e p l a c e other kinds of c a p i t a l must be c o n s i d e r e d more important than the c a p i t a l producing s e c t o r  "specialized"  i n a world where the p r o b a b i l i t y of  t e c h n o l o g i c a l changes making c e r t a i n uses o b s o l e t e exists.  As an example w i t h i n the f o r e s t r y s e c t o r  that are s u i t a b l e  always the  conifers  both f o r p u l p i n g as w e l l as making lumber  and plywood are more important f o r economic development than the hardwoods that can not be e c o n o m i c a l l y pulped and do not lend themselves to easy p e e l i n g . India the v e r s a t i l e rosewood: bridges, plywood.  In the case of a country l i k e  teak i s more important than the  the former can be used f o r making r a i l r o a d b u i l d i n g s , beams, r a f t e r , f u r n i t u r e , The l a t t e r  is  fit  country w i t h scarce resources w i l l reasonable to i n v e s t  in v e r s a t i l e  backs (Baumol 1965)  The f o r e s t r y sector  i t more  than i n s p e c i a l i z e d c a p i t a l s t r a t e g y aimed at a v o i d -  i n case the worst happens.  has a c o n s i d e r a b l e advantage over  many other s e c t o r s i n t h i s r e s p e c t . mirably v e r s a t i l e .  and  A developing  generally find  i t may be a more c o n s e r v a t i v e  ing big set  veneers,  ties,  o n l y f o r making i n t r i c a t e and ex-  pensive c a r v i n g s or f o r other d e c o r a t i v e u s e s .  because  specialized  Its p r o d u c t , wood, i s ad-  Not o n l y can i t be used i n a number of  f e r e n t processes but i t can a l s o  be s t o r e d on the  dif-  stump w i t h -  out much c o s t i f economic c o n d i t i o n s are not s u i t a b l e f o r  its  195 harvest.  I f the product o f the f o r e s t r y s e c t o r i s looked at  as c e l l u l o s e then i t s  v e r s a t i l i t y becomes s t i l l  greater.  The short p e r i o d f o r p r o d u c t i o n and p h y s i c a l s u i t a b i lity  f o r b e i n g used i n many processes  considered.  The f i n a l  t e s t i s that  i s not a l l t h a t must be  the cost o f p r o d u c i n g i t  must be l e s s than the cost o f a l t e r n a t i v e p r o d u c t s .  Not o n l y  must the produce o f the s e c t o r be p h y s i c a l l y capable o f subs t i t u t i n g o t h e r products but i t to use i t t h e r e . forests,  must be e c o n o m i c a l l y  In economies that have vast  areas under  not too f a r from centres o f p o p u l a t i o n s and o f  t h a t have important u s e s , s e c t o r f o r development.  Wood can be used f o r a v a r i e t y o f is  c o a l , e l e c t r i c i t y and s t e e l .  cheaper than o t h e r products Such c o n d i t i o n s e x i s t e d  the U n i t e d S t a t e s ' ( Z i v n u s k a 1966a) and Canada and these es made use o f t h e i r f o r e s t s because l a r g e f o r e s t  i n development.  areas e x i s t e d  North American c o n t i n e n t .  in  countri-  Wood was cheap  and s t i l l e x i s t on the  The o n l y c o s t s i n c u r r e d were i n c u t -  t i n g them down, m i l l i n g and t r a n s p o r t i n g . finally  species  f o r e s t r y may be a very important  purposes a l r e a d y d i s c u s s e d i f i t like  feasible  The c o n c l u s i o n  i s t h a t f o r e s t r y was a very important s e c t o r i n the  economic development o f North America, With a l l t h i s knowledge i f America were to be d i s covered again and found without many f o r e s t s obyious good advices areas o f forests"?  would one- o f the  given t o the s e t t l e r s be "Plant "Marge The answer i s  "NO",  The d e c i s i o n whether  p l a n t i n g should be done o r not depends not on what we know  196 from past knowledge but from the comparisons of f u t u r e fits  that may accrue and the c u r r e n t c o s t s necessary  t i n g those b e n e f i t s . r y and the d e c i s i o n  The e x i s t i n g  to b u i l d i t up.  p o r t a n t enough to be i n v e s t e d  which t h e i r product can be s u p p l i e d i s  completely  F o r e s t s are im-  i n and c r e a t e d  other products which can s u b s t i t u t e  for get-  f o r e s t s are l i k e an invento-  regarding running i t down i s  independent of the d e c i s i o n  bene-  i f the cost  at  l e s s than the cost of  forest  products.  In the  r e - d i s c o v e r e d America f o r e s t s would be important i f they could be grown cheaper than developing a l t e r n a t i v e s . be important f o r development  They c o u l d not  i f the c o s t s of r a i s i n g  the  f o r e s t s and thus p r o v i d i n g t h e i r produce were higher than c o s t s of a c q u i r i n g a l t e r n a t i v e  factors  of p r o d u c t i o n .  The c o n c l u s i o n appears to be that a sector  a f t e r making such an allowance  is  to supply i t s  of the p r o d u c t .  the s e c t o r  But  concerned must be  produce cheaper than the  substitutes i f  to be considered more important than the s u b s t i t u t e  The s o c i a l  Because  i n v o l v e d i n the future some a l l o w -  ance must be made f o r the v e r s a t i l i t y  able  the importance of  depends on the c o s t s of producing i t s o u t p u t .  of r i s k s and u n c e r t a i n t i e s  the  c o s t s of producing wood are f a i r l y  it  sectors.  low because  f o r e s t r y does not compete away too many resources  from other  s e c t o r s but makes use of the unemployed resources  to a c o n s i d e r -  able e x t e n t .  The e x i s t e n c e of j o i n t products i n f o r e s t r y  permits many of the "by-products" to be a v a i l a b l e at prices.  These advantages  may make the f o r e s t r y  also  low  sector  an im-  197  p o r t a n t one from the view p o i n t of economic development i n c o u n t r i e s that have e x i s t i n g f o r e s t s .  But i n c o u n t r i e s where  there are few e x i s t i n g f o r e s t s the f o r e s t r y s e c t o r  involves  c r e a t i n g new f o r e s t s and u s u a l l y the long p e r i o d of p r o d u c t i o n makes the c o s t s v e r y h i g h .  In a d d i t i o n the u n c e r t a i n t i e s of  the f u t u r e s u i t a b i l i t y of wood f o r the purposes f o r which i t i s o r i g i n a l l y p l a n t e d may make the f o r e s t r y s e c t o r a v e r y u n important s e c t o r  i n such c o u n t r i e s .  No g e n e r a l i z a t i o n s can perhaps be made r e g a r d i n g the importance of f o r e s t r y i n economic development. each s e c t o r must be evaluated on i t s  own m e r i t s .  The case f o r Where wood  at more economical p r i c e s than a l t e r n a t i v e s can be s u p p l i e d by the f o r e s t s ,  there f o r e s t r y i s an important s e c t o r .  other a l t e r n a t i v e s are l e s s expensive  it  i s not.  Where the  This is  c r i t e r i o n f o r e v a l u a t i n g the importance o f the f o r e s t r y i n development.  the  sector  I t means that f o r e s t r y i s j u s t as important  as f o r e s t e r s can make i t ,  OPTIMUM INVESTMENT IN FORESTRY  It may be easy to c o n c e p t u a l i z e a c r i t e r i o n  like  that d i s c u s s e d above but such a c r i t e r i o n does not make i t s i b l e to grade d i f f e r e n t s e c t o r s i n order of importance. if  i t were p o s s i b l e  posEven  to rank s e c t o r s i n such a way the r e a l l y  important t h i n g to know about them i s not j u s t the order but the optimum amount of investment that must be made i n each  198  s e c t o r every y e a r .  Having decided the t o t a l  investment  that  must be made i n the economy i n any one y e a r , how much of should go to each? t r y sector?  Especially,  it  how much should go to the  The d e c i s i o n r e g a r d i n g t o t a l volume of  investment can be taken from a model l i k e that  fores-  aggregate  i n Chapter Three.  F o r e s t e r s i n underdeveloped c o u n t r i e s have l a t e l y been arguing i n favour of l a r g e r o u t l a y s i n the f o r e s t r y sector T i s s e v e r a s i n g h e 1964).  Without the use of a n a l y t i c a l economic  t o o l s such arguments u s u a l l y f a i l economists.  (e.g.  to impress the  In f o r e s t r y , d e c i s i o n s  aggregate  r e g a r d i n g investment are  d e a l t w i t h s i m u l t a n e o u s l y w i t h the d e c i s i o n s r e g a r d i n g e x p l o i t a t i o n as d i s c u s s e d i n Chapter Four.  I f the f o r e s t owners i n an  economy are assumed to be l i k e the entrepreneurs of Robinson (1956) who do not consume t h e i r incomes but o n l y save and i n v e s t i n the most p r o f i t a b l e v e n t u r e s ,  then the act o f  exploit-  a t i o n of f o r e s t s means a v a i l a b i l i t y of l i q u i d funds f o r ment i n f o r e s t r y and o t h e r s e c t o r s .  If f o r e s t s  invest-  are almost en-  t i r e l y owned by the government, as i n India ( N a u t i y a l 1965), and the government i s committed to the goal of economic development, then the biggest  r o l e that f o r e s t s  i n such a country can  p l a y i n pushing the economy towards the t a k e - o f f  stage,  p r o v i d i n g the maximum revenue to the government.  i s by  T h i s means  the acceptance of the goal of maximization of present worth of the f o r e s t s  by the f o r e s t managers and a w i l l on the p a r t of  government to i n v e s t limiting  i n those s e c t o r s  that are the  biggest  f a c t o r s to i n c r e a s e i n p r o d u c t i v e c a p a c i t y .  199 Before demonstrating how simultaneous d e c i s i o n s regard ing the optimum amounts of f o r e s t s  to be e x p l o i t e d  and the optimum amount o f "investment c r e a t i o n of new f o r e s t s  i n any year  funds"* to be put  or r e g e n e r a t i o n can be taken,  the recent l i t e r a t u r e on the subject of f o r e s t  into some of  investment  will,  be, reviewed. Dowdle (1962) suggested that f o r e s t natives  investment  can not be ranked o n l y on the b a s i s of the present  worth of each a l t e r n a t i v e . certainties  This is  net  so because the economic un-  and other sources of v a r i a t i o n a s s o c i a t e d  pected r e t u r n s from each investment are d i f f e r e n t .  with ex-  The highest  r e t u r n - g i v i n g a l t e r n a t i v e may be most u n c e r t a i n and the h i g h y i e l d i n g a l t e r n a t i v e may be more c e r t a i n . stances the former i s not n e c e s s a r i l y al  alter-  the b e s t .  not-so-  In such c i r c u m The t h e o r e t i c -  framework proposed by him as a means of a n a l y z i n g f o r e s t r y  investment a l t e r n a t i v e s  i s based on the "expected r e t u r n s -  v a r i a n c e of r e t u r n s r u l e " (1952,  (EV r u l e ) developed by Markowitz  1959). " G e n e r a l l y , i n v e s t o r s w i l l not view expected r e turns on an investment as having a s i n g l e , most JLikely value., which i s assumed i n the t r a d i t i o n a l discounted net-worth approach to f o r e s t r y i n vestment a n a l y s i s . Rather they v i s u a l i z e a d i s t r i b u t i o n o f values around the one b e l i e v e d most l i k e l y to o c c u r . A commonly used measure of the d i s p e r s i o n i n a d i s t r i b u t i o n i s the s t a n dard d e v i a t i o n , which Markowitz proposed using as a measure of expected v a r i a t i o n of r e t u r n s . The EV r u l e p r o v i d e s a t h e o r e t i c a l framework w i t h i n which an i n v e s t o r may f i n d a b a l a n c e , based on h i s a t t i t u d e towards r i s k , between i n vestments or combinations of investments that are considered s p e c u l a t i v e , but which have high expected r e t u r n s and investments with lower  200 expected r e t u r n s that are c o n s i d e r e d s a f e r or less risky." (Dowdle 1962) Aubertin  (1966) p o i n t e d out that f o r e s t  investments  present three major disadvantages which e x p l a i n the reasons f o r the v e r y s l i g h t  interest  taken i n such investments  by govern-  ments. These a r e : 1.  They are long term investments.  2.  They v e r y r a r e l y present a problem where a great number of people are a f f e c t e d or scope of i n t e r est  i n v o l v e d i s wide and t h e r e f o r e has p o l i t i c a l  importance, 3.  The b a s i c data r e n d e r i n g i t p o s s i b l e  to economi-  c a l l y j u s t i f y them are inadequate. Spears  (1966) mentioned that the f o l l o w i n g  features  of f o r e s t r y are of importance and governments should t h e r e f o r e take a c t i o n to encourage f o r e s t 1.  investments.  F o r e s t s p r o v i d e a v e r s a t i l e and renewable  raw  m a t e r i a l resource s u i t a b l e f o r the manufacture of an extremely wide range of p r o d u c t s . 2.  F o r e s t products have high income e l a s t i c i t y of demand, p a r t i c u l a r l y at low income  levels.  F o r e s t i n d u s t r i e s have a pronounced l i n k a g e f e c t with other 3.  ef-  sectors,  Forest i n d u s t r i e s can help to speed up the "payoff" time of investments lities  in i n f r a s t r u c t u r a l  such as r o a d s , power and water  faci-  supplies.  201 4.  Due to t h e i r l o c a t i o n i n r u r a l  areas,  d u s t r i e s disseminate  s k i l l s and help  technical  the t r a n s i t i o n from a s u b s i s t e n c e alized 5.  forest  in-  to an i n d u s t r i -  economy,  F o r e s t r y and f o r e s t  i n d u s t r i e s have a h i g h degree  of  f l e x i b i l i t y especially  of  product to be h a r v e s t e d ,  and s c a l e of  with r e s p e c t forest  to  choice  crop r o t a t i o n ,  industrial operation.  6.  They can earn f o r e i g n exchange and save imports.  7.  They can i n c r e a s e  8.  The u n d e r u t i l i z e d r u r a l  the t a x a t i o n  base.  resources can be  easily  used i n f o r e s t r y . 9.  F o r e s t s have v a l u e s other than wood and wood derivatives.  He considered l a c k of data and the l a c k of most methods of h a n d l i n g and t r a n s p o r t i n g f o r e s t  economic  raw m a t e r i a l s and  f i n i s h e d products as the major problems which l i m i t in  investment  forestry. While d i s c u s s i n g  f o r e s t r y investment  from the  t r y ' s p o i n t of view T i c o u l a t (1966) p o i n t e d out that ment i n developing c o u n t r i e s government,  indus-  invest-  i s a t t r a c t e d by s t a b i l i t y of  r e a l i s t i c c o n t r o l s by government,  incentives  that  do not c o n f l i c t w i t h the economic and s o c i a l growth of a country,  access to f o r e s t s  commercial s p e c i e s , forest  land.  i n order to manage,  cut and p l a n t  and confidence • i n those who manage  the  202  Wards (1966) d i s c u s s e d the f i n a n c i n g o f f o r e s t r y i n vestments,  especially  i n Scandinavia,  As such investments  take  a l o n g time to mature, c r e d i t has to be p r o v i d e d through s p e c i a l institutions  such as those founded t o finance the  development  of agriculture, A t h e o r e t i c a l framework f o r the d e t e r m i n a t i o n o f optimum r a t e o f f o r e s t  e x p l o i t a t i o n was given by N a u t i y a l  I t employs the user cost concept  (Scott 1953)  (1966),  to s t r i k e a b a l -  ance between present e x p l o i t a t i o n and f u t u r e e x p l o i t a t i o n . The balance between the requirements o f e x i s t i n g l a n d , l a b o u r and c a p i t a l by f o r e s t r y e x p l o i t a t i o n s e c t o r on the one hand and by o t h e r s e c t o r s (Lerner 1946),  on the o t h e r hand i s  achieved by L e r n e r ' s Rule  The combination o f user cost and L e r n e r ' s  can give optimum r a t e o f h a r v e s t i n g t h a t i s e f f i c i e n t space and t i m e ,  Nautiyal  Rule  both i n  (1966) has a l s o argued t h a t the  slope  and p o s i t i o n o f the user cost curves of the two i d e n t i c a l forests,  one having r e g e n e r a t i o n and the o t h e r n o t , w i l l not be  identical.  The user cost curve o f the f o r e s t  t h a t  can regene-  r a t e n a t u r a l l y w i l l be lower and f l a t t e r than t h a t o f forests  which can not r e g e n e r a t e .  the  T h i s w i l l be so because  the  f u t u r e p r o f i t s foregone i n the r e g e n e r a t i n g case w i l l be l e s s than those i n the n o n - r e g e n e r a t i n g case. cost curve o f a n o n - r e g e n e r a t i n g f o r e s t a l i t t l e by i n c u r r i n g some expenditure a f t e r f e l l i n g the o l d crop, the l e v e l o f investment,  As a r e s u l t the  user  c o u l d be pushed down (investment)  in planting  Up to a c e r t a i n l i m i t , the h i g h e r  the lower and f l a t t e r the user cost  203  curve would be pushed.  It w i l l  t h e r e f o r e be more a p p r o p r i a t e  to represent the user c o s t curve as a f u n c t i o n o f both (1) r a t e of c u r r e n t e x p l o i t a t i o n and (2) investment.  the  the present worth o f  Such a user c o s t s u r f a c e i s  the  shown i n F i g . 15,  as  ABCDEF. With an investment l e v e l of OA' the user c o s t curve i n terms of present r a t e of e x p l o i t a t i o n i s A J F .  With  invest-  ment i n c r e a s e d to OB' the user c o s t curve becomes BHE.  Simi-  l a r l y with the investment l e v e l at O C the curve becomes CGD. With no e x p l o i t a t i o n i n the present the user c o s t curve i n terms o f  investment l e v e l w i l l  be ABC and p r o b a b l y g e n t l y  s l o p i n g down towards the investment a x i s as the l e v e l of i n vestment  increases.  the curve w i l l will  be FED.  With c u r r e n t r a t e of e x p l o i t a t i o n at OK  be JHG.  With r a t e of e x p l o i t a t i o n at OL i t  A l l the three curves w i l l  be s l o p i n g down.  user cost s u r f a c e i s thus such that any of i t s lel  to the plane at r i g h t angles  ward s l o p i n g . angles  sections p a r a l -  to the investment  Any s e c t i o n p a r a l l e l  The  axis  i s up-  to the plane at r i g h t  to the r a t e of e x p l o i t a t i o n a x i s  i s downward s l o p i n g .  If user c o s t i s expressed as UC, present worth of  investments  as x and r a t e of e x p l o i t a t i o n as y then the surface i n F i g . 15 may be d e s c r i b e d by  U.C.  =  F(x,y)  .  When the t o t a l present revenue and t o t a l present  (25)  cost  205  in  a f o r e s t r y o p e r a t i o n w i t h a g i v e n amount o f c a p i t a l a r e  also  shown a s f u n c t i o n s o f t h e i n v e s t m e n t a n d t h e r a t e o f e x -  ploitation, Fig.  t h e i r diagramatic  the present  w h i c h i n c r e a s e c u r r e n t c o s t s b u t have no e f f e c t  current revenues.  amount o f c a p i t a l  costs w i l l  be l i k e  rates.  returns to the fixed  When a n i n v e s t m e n t o f OT  curve  OP.  f a c t o r c a p i t a l a t higher 1  i s made, t h e c o s t s  increase  t h e same amount a t a l l r a t e s o f e x p l o i t a t i o n a n d t h e t o t a l  cost curve passing  will  be TQ i n t h e p l a n e  t h r o u g h T*.  have b e e n made e q u a l o f OS' t h e t o t a l The s u r f a c e forests.  parallel  Because t h e c o s t s  amount a s t h e l e v e l o f i n v e s t m e n t ,  the  the ogive  shows e c o n o m i e s o f s c a l e a t l o w r a t e s o f e x p l o i t a t i o n and  diminishing  by  When no i n v e s t m e n t i s made a n d a f i x e d  i s used t h e r e l a t i o n s h i p between r a t e o f ex-  p l o i t a t i o n and t o t a l It  l e t a l l t h e i n v e s t m e n t be t h o u g h t o f  s u c h t e r m s a s p l a n t i n g s , b e t t e r s t r a i n s o f t r e e s a n d more  fertilizer, on  be as i n  16. For  in  representation w i l l  i n c r e a s e by t h e same  t h e d i s t a n c e OT' a n d TT*  i n t h e diagram.  With an i n v e s t m e n t  costs function w i l l  OPQRST r e p r e s e n t s  t o t h e paper and  level  be SR so t h a t OS' = SS'.  the t o t a l  costs of exploiting  A l g e b r a i c a l l y i t c a n be w r i t t e n a s  T o t a l cost = f (x,y)  I n t h e same way t h e t o t a l be shown on t h e d i a g r a m .  (26)  revenue f u n c t i o n can a l s o  The c u r r e n t  level of total  revenue i s  207  independent of the amounts i n v e s t e d and so a s e c t i o n of t o t a l revenue surface p a r a l l e l will  to the revenue-investment  be a s t r a i g h t l i n e p a r a l l e l  to the x - a x i s .  i n c o n t r a s t to a s i m i l a r s e c t i o n o f the t o t a l which w i l l  be a s t r a i g h t l i n e  cost  surface  i n c l i n e d at 4 5 ° to the  ( r e v e n u e - e x p l o i t a t i o n plane)  upwards from the x - a x i s  will  plane  It would be  x-axis.  The s e c t i o n of the t o t a l revenue curve on the plane of paper  the  the  be a curve s l o p i n g  i n i t i a l l y and dropping down l a t e r .  This would be due to a downward s l o p i n g demand curve f o r the f o r e s t product (stumpage).  In the d i a g r a m s p e r f e c t market  for the stumpage has been assumed and so the t o t a l curve at zero investment slope of p to the y a x i s . case w i l l  level  revenue  i s the s t r a i g h t l i n e OM with a  The t o t a l revenue s u r f a c e i n  be OMNL which i s a plane p a s s i n g through the  this x-axis  and i n c l i n e d to the x-y plane at an angle the tangent o f which i s p.  The surface could be d e s c r i b e d by  *  T o t a l revenue = f2(y)  C27)  For each combination of x and y the d i f f e r e n c e total  revenue and t o t a l c o s t g i v e s the present p r o f i t  can be expressed  (z)  between which  as  z = f (y) 2  - ^(x.y)  The optimum r a t e of e x p l o i t a t i o n and investment  (28)  in  208  the f o r e s t under c o n s i d e r a t i o n w i l l between the present p r o f i t i.e.,  and u s e r c o s t  difference  (25)  i s maximum,  where  z-U.C.  i s maximum. (29)  (28)  be where the  = f (y) 2  - ^(x.y)  - F(x,y)  (29)  T h i s p o i n t i s found by p a r t i a l l y d i f f e r e n t i a t i n g  w i t h respect  equal to zero  to x and y i n turn and s e t t i n g  each d e r i v a t i v e  (Baumol 1965).  Thus  3f  3F  3f,  . 3f,  and  —2. 3y  3F  L 3y  The s o l u t i o n o f two equations  = 0  (31)  3y (30)  and (31)  q u i r e d values of two unknowns x and y.  will  y i e l d the r e -  The optimum r a t e of  ex-  p l o i t a t i o n o f the f o r e s t under q u e s t i o n and the optimum l e v e l of  investment  i n p l a n t a t i o n s i s now known.  Investment  c o u l d be thought of  i n two k i n d s .  First,  of the type a l r e a d y d i s c u s s e d which a f f e c t s o n l y f u t u r e p r o f its,  i.e.,  in; p l a n t a t i o n s and second,  investment  needed f o r e x p l o i t a t i o n i n the p r e s e n t , second kind i n c r e a s e s  in c a p i t a l  An investment of  the c a p i t a l with which the f o r e s t  the  i s log-  209  ged of  and so t h e c o s t  curves l i k e  scale f o r a longer  ation.  and h i g h e r  The d i m i n i s h i n g  returns  ed  f a r t h e r to the r i g h t  of  e x p l o i t a t i o n t h e c o s t s may  the  total  cost  surface  OP o f F i g . 16 show  range o f the r a t e o f e x p l o i t to the f i x e d  on t h e d i a g r a m .  will  Total  economies  capital  a r e push-  At the lower  increase.  levels  The e x p r e s s i o n f o r  now be  cost  = f^(x,y,v)  where v i s t h e s e c o n d k i n d o f i n v e s t m e n t and x i s o f t h e f i r s t kind. in  This  surface  i s i n f o u r d i m e n s i o n s a n d c a n n o t be shown  a diagram. The  total  revenue  surface  will  still  remain the  same, i . e . j  Total  revenue  But the u s e r c o s t present of  additions  to c a p i t a l  e x p l o i t a t i o n and p r o f i t s .  = f ^ (y)  surface will  will  affect  change b e c a u s e t h e the f u t u r e  Therefore  U.C. = F ( x , y , v )  The  function  f (y) 2  t o be m a x i m i z e d  - f Cc,y,v) x  now i s  - F(x,y,v)  best  rates  209  ged  and so the c o s t curves l i k e OP o£ F i g , 16 show economies  o f s c a l e f o r a l o n g e r and higher ation.  range o f the r a t e o f e x p l o i t -  The d i m i n i s h i n g r e t u r n s to the f i x e d c a p i t a l a r e push-  ed f a r t h e r t o t h e r i g h t on the diagram.  At the lower l e v e l s  of e x p l o i t a t i o n t h e costs may i n c r e a s e .  The e x p r e s s i o n f o r  the t o t a l  cost s u r f a c e w i l l now be  T o t a l c o s t - fj(x»y,v)  where v i s the second k i n d o f investment and x i s o f t h e f i r s t kind.  This surface  i s i n f o u r dimensions and can not b e shown  i n a diagram. The t o t a l revenue s u r f a c e w i l l  still  remain t h e  same, i . e *  T o t a l revenue • .•fjf.y)  But the u s e r c o s t s u r f a c e w i l l change because the present  a d d i t i o n s to c a p i t a l w i l l  of e x p l o i t a t i o n and p r o f i t s .  U.C.  »  affect  the f u t u r e best  Therefore  F(x,y,v)  The f u n c t i o n to be maximized now i s  f (y) 2  - f ^ x ^ v ) - F(x,y,v)  rates  210  The  values  this  of  x,  function  y  are  and  v  that  obtained  w i l l  by  y i e l d  solving  the  the  highest  following  value  of  three  equations.  3f  3F  x  dX  3f  and  The  best  level  x  should  go  v  towards  each  forest  obtained any  t o t a l as  a  way  connection  with A  related  through  the  the  per  future. covers  the  The the  future  3v  3v in  the  not,  user  cost  a  future  in  for  forestry  t o t a l  the  however  cost.  The  the  from the  in thus  shows  turn  so  of  of far  supply  of  which  timber  the  and  economy  indicated  seem  that  to  the i n side  the  of  two  are  foregone  dependent economy these of  for  have  level  profits are  can  investment  investment  structure used  v)  forestry  future  i n  •  exploitation.  beginning,  aggregate  which  (x  supplies  needed  i n  is  investments  concept  profits  forest  look  prices and  3y  The  best  closer  income  user  3F  unit.  the  future  capita  Sf-L  investment  does  Three.  on  3y  capital  sum o f  Chapter  depend  the  management  this  3y  increasing  increasing  determined  3^  2  investment  towards  The be  of  dx  on i n  the  discussions  timber  only.  211  I t does not c o n s i d e r the e f f e c t on the p o s s i b l e  future p r o f i t s .  of changing per c a p i t a incomes Once the l e v e l s of gross  ments to be made i n the economy f o r r e a c h i n g the t a k e - o f f are d e c i d e d , the demand side of the f u t u r e p r o f i t s  is  investpoint  also  covered as some idea of f u t u r e per c a p i t a income and p r i c e s can now be had. to t a k e - o f f variable  I f the e n t i r e investment  schedule  i n the model of Chapter Three i s denoted by the  I then user c o s t should be expressed  U.C.  =  as  F(x,y,v,I)  For a predetermined I the user cost f u n c t i o n w i l l with x,  from year 0  vary o n l y  y and v. Though these w i l l  the a c t u a l s o l u t i o n s  not be d i s c u s s e d i n t h i s  f o r optimum x,  thesis,  y and v can be worked out  by l i n e a r programming techniques as shown by N a u t i y a l and Pearse  (1967) f o r a simple case where p r i c e s are assumed  constant and no investments  are c o n s i d e r e d .  need not be c o n s i d e r e d as investment but also  The v a r i a b l e v  i n logging c a p i t a l only  i n research and development of new t e c h n i q u e s . As p o i n t e d out by Dowdle (1962) expectations  i n the  future are not viewed as having a s i n g l e most l i k e l y v a l u e . Rather a d i s t r i b u t i o n of values around the one b e l i e v e d most l i k e l y to occur i s v i s u a l i z e d . jectively  It  is possible,  and some times even o b j e c t i v e l y ,  probability  mostly sub-  to a s s i g n a c e r t a i n  to the occurrences of a c e r t a i n v a l u e .  The user  212 cost and present p r o f i t  surfaces discussed i n t h i s  thus not to be looked at as c e r t a i n t i e s .  Instead,  chapter are they are  s o l i d s of some t h i c k n e s s made by p i l i n g the s u r f a c e s  together.  A number of optimum p o i n t s now occur where each o f the  surfaces  i n one p i l e has a slope equal to that of the surface from the other p i l e .  Each of these p o i n t s has a p r o b a b i l i t y value  tached to i t .  T h i s value may be known or be p o s s i b l e  ate f o r some of the p o i n t s but not f o r o t h e r s .  at-  to e s t i m -  The f i n a l  de-  c i s i o n taken i n matters r e g a r d i n g the amount i n v e s t e d and forest exploited w i l l  be based on the v a r i o u s c r i t e r i a of  "Decision Theory" (Luce and R a i f f a 1966),  1957,  Baumol 1965,  Haley  The a t t i t u d e o f the d e c i s i o n maker and h i s p s y c h o l o g i c -  a l make up w i l l weigh c o n s i d e r a b l y i n making the f i n a l  decision.  THE LINEAR PROGRAMMING APPROACH  Another way o f determining the amount to be in  forestry is  that suggested by Beazley  (1965).  a model f o r the whole economy showing a l l s e c t o r s f o r e s t r y should be made.  I t should i n c l u d e :  ty current input-output c o e f f i c i e n t s , coefficients, pectations,  (3)  (2)  invested  He f e l t  that  including  (1) i n t e r - a c t i v i -  inter-activity capital  labour-output c o e f f i c i e n t s ,  (4)  demand ex-  s u i t a b l y c a t e g o r i z e d and i d e n t i f i e d f o r v a r i o u s  f u t u r e time h o r i z o n s , and (5) man-power e s t i m a t e s . What Beazley (1965) was d i s c u s s i n g was probably a von Neumann (1938) type of model of economic growth where the a-  213  mounts to be i n v e s t e d  i n f o r e s t r y would be determined s i m u l t a -  neously with the amounts to be i n v e s t e d  i n other s e c t o r s i f  the  maximum rate of growth has to be m a i n t a i n e d . L i n e a r programming does not seem to have been used for t h i s  purpose i n f o r e s t r y .  It has been used f o r  logs among s e v e r a l u t i l i z a t i o n processes 1966)  (Pearse  and f o r determining the amount of f o r e s t  or without  and Sydneysmith  harvest  the framework of s u s t a i n e d y i e l d f o r e s t  (Loucks 1964,  C u r t i s 1962),  From the  forester's  within  management  p o i n t of  i t would be extremely  interesting  r e s t r y i n development  from a model such as i n d i c a t e d by  Beazley  (1965).  to f i n d out  allocating  K a r l i n 1959,  may have to be taken as s t a r t i n g p o i n t s . cepts i n t r o d u c e d and d i s c u s s e d (1958) and Chenery and C l a r k  discussed  the p l a c e of  O b v i o u s l y , the more g e n e r a l i z e d forms o f  von Neumann model (Radner 1961,  The subject  view  i s beyond the  in Allen  Morishima  the  1960)  Techniques and con(1963) , Dorfman e_t a l .  (1959) w i l l probably be  scope of t h i s  necessary.  t h e s i s and so i s  not  further. Some k i n d of a combination of t h i s model and the  i n Chapter Three c o u l d be used f o r a p p l i c a t i o n of t e s t responses of development forestry  fo-  investments.  one  simulation  to v a r i o u s kinds and amounts of  to  214  METHODS OF CHOOSING AMONG ALTERNATIVE COURSES  Some approaches to the d e t e r m i n a t i o n o f the importance of the f o r e s t r y s e c t o r of  determining how much of the f o r e s t  and what amount i n v e s t e d are matters of i n t e r e s t and  f o r development  to take d e c i s i o n s few a l t e r n a t i v e s cussions.  methods  should be cut each year  have been d i s c u s s e d to the highest  planners i n a c o u n t r y .  and the  The average  level  so f a r .  These  of p o l i c y makers  forest  manager who has  w i t h i n a given framework and has  relatively  to choose from i s not helped much by such d i s -  This is  so,  not only because  the d e c i s i o n s . a r e  so  f a r - r e a c h i n g that they can not be taken by him, but also  be-  cause the i n f o r m a t i o n r e q u i r e d f o r such d e c i s i o n making i s beyond h i s reach i n most c a s e s . ing  methods 1.  For such a manager the  are more u s e f u l .  Budget Method' (Duerr 1960) In t h i s method, a n t i c i p a t e d revenues  each of the a l t e r n a t i v e s  and costs of  are t a b u l a t e d and the best  s e l e c t e d from the comparison of the r e s u l t s . suitable  f o r complex problems.  p o i n t i n time may be done. is a special  alternative  The method  When more than one y e a r ' s  venues and costs are i n v o l v e d then b r i n g i n g a l l to a  sidered.  follow-  is re-  single  The cash-flow method (Leonard  type of budget method where o n l y the cash i s  1965) con-  Discounted cash-flow method (Canadian Pulp and.Paper  Industry 1966)  is  a better  guide than simple c a s h - f l o w method.  215 2.  Marginal Method (Duerr  1960)  When there i s a wide range, e s p e c i a l l y a continuous s e r i e s of a l t e r n a t i v e s , marginal revenues method i s  and i t  is possible  to i d e n t i f y  and costs a s s o c i a t e d w i t h the s e r i e s ,  applicable.  this  The a l t e r n a t i v e that equates marginal  revenue and cost while marginal revenue i s  f a l l i n g is  that shows g r e a t e s t  cost.  3.  the  excess of revenue over  Break-even Method (Duerr  the one  1960)  At low l e v e l s of o p e r a t i o n s a c e r t a i n a l t e r n a t i v e may be b e t t e r than the o t h e r . second may be b e t t e r .  But beyond a c e r t a i n l e v e l  In such cases i t  is  h e l p f u l to know the  break-even p o i n t where the two are e q u a l l y good. r e g a r d i n g the process the l e v e l 4.  the  The d e c i s i o n  to be chosen may now be taken e a s i l y  if  at which work has to be done i s known, Benefit"cost Analysis T h i s method was developed f o r use  i n the f i e l d o f  water resources but can be adopted f o r any s i t u a t i o n i n which a choice has to be made between a l t e r n a t i v e p r o j e c t s . p a r t i c u l a r l y u s e f u l when a number o f i n t a n g i b l e f a c t o r s involved  (Haley 1966).  It  is  are  The method has been d e s c r i b e d i n d e t a i l  by H i r s h l e i f e r et al_. (1961) , Haver et al_, (1961) , Sewell et a l . (1961) and P r e s t and Turvey (1965). herein that, making,  It w i l l o n l y be mentioned  while being used at the highest  the r a t i o of b e n e f i t s  mized so that maximum b e n e f i t  (B) to c o s t  l e v e l s of  decision  (C) should be maxi-  f o r each u n i t of cost i s o b t a i n -  216  ed.  While being used at a lower l e v e l where there  is  a budget  r e s t r a i n t the best course i s to maximize the net b e n e f i t (B-C)  so that maximum b e n e f i t  resources 5.  i s obtained by u s i n g a l l  the  a v a i l a b l e f o r spending. Cost-revenue A n a l y s i s This method i s  s i m i l a r to the b e n e f i t - c o s t  but takes i n t o account o n l y those b e n e f i t s be measured i n monetary terms. natives  or  It  where few or no i n t a n g i b l e  the goal i s  is  approach  and c o s t s that can  thus s u i t a b l e  for  alter-  f a c t o r s are i n v o l v e d .  When  to maximize the f u t u r e a v a i l a b i l i t y o f t i m b e r , i n -  vestments large enough to equate  c o s t s w i t h revenues  are under-  taken (Algvere 1966), 6.  Pay-out' P e r i o d Method In circumstances where the aim i s to recover the  penses i n c u r r e d i n the shortest  possible  period or within a  given p e r i o d (Turvey 1963), t h i s method can be used. volves  ranking o f v a r i o u s a l t e r n a t i v e s  out p e r i o d s .  For those a l t e r n a t i v e s  7.  It i n -  i n order o f t h e i r pay-  which have a pay-out  p e r i o d l e s s than the given maximum, the b e n e f i t - c o s t revenue method can be used to  ex-  s e l e c t the  or cost-  best.  Rate- of - Return Method In t h i s method the rate at which the i n v e s t e d  grows i n value  is calculated.  capital  The c r i t e r i o n does not take  account the time f o r which the r e t u r n i s fore not s u i t e d f o r a l t e r n a t i v e s  earned and i s  with d i f f e r e n t l i f e  into  there-  spans.  217  But}, i n circumstances where a l l earnings are again i n v e s t e d to i n c r e a s e  the e x i s t i n g  capital, it  necessarily  i s the  best  c r i t e r i o n o f j u d g i n g the s u i t a b i l i t y o f an a l t e r n a t i v e 1963) ,  In the  (Turvey  case o f an underdeveloped country which wants  to accumulate c a p i t a l as q u i c k l y as p o s s i b l e , a p p r o p r i a t e method,  it  is  a very  A procedure f o r e v a l u a t i o n o f  reforestat-  i o n and t i m b e r stand improvement p r o j e c t s based on t h i s ion i s  d e s c r i b e d by the U n i t e d S t a t e s Department o f  Forest S e r v i c e  (1966),  The use o f t h i s  criter-  Agriculture,  c r i t e r i o n has been sug-  gested by Spears (1966) and a method o f computation given by Turner (1965),  When f e a s i b i l i t y o f d i f f e r e n t  forest  projects-,  i s t e s t e d by comparing the present worth o f t h e i r net  profits,  as done by Smith (1964) f o r Taiwan, then a modified r a t e o f r e t u r n method i s  used.  Only p r o j e c t s t h a t have a r a t e  the going rate o f i n t e r e s t  can q u a l i f y i n such a t e s t .  r a t e s o f r e t u r n from some of the  fast  many p a r t s o f the w o r l d are o f t e n Grut (1965) estimated t h a t the and Pinus r a d i a t a were 29,0 E u c a l y p t s y i e l d e d from 5,0 turned 8,0  to 16,0  above The  growing t r e e s p e c i e s i n  very h i g h .  In South A f r i c a ,  annual r e t u r n s from Pinus p