Knowledge that Transforms

RECENT surveys of population growth in RIndia and the slow progress of the Second Five Year Plan confirm the awful suspicion that India's extra consumer-goods output will be needed for extra population. Some Indians accordingly wonder if the central government should not now institute a program of incentive payments to families that limit births. This would be a logical evolution of schemes already developed in India, where three states and one large private company already offer free vasectomies, sometimes with a bonus, to certain of their employees. Such bonuses, if paid by the central government, could be large in terms of average family income, because the discrepancy between the average and marginal product of population is relatively very great in India. The discounted value to the economy of permanently preventing a birth is at least Rs 500-600, or about twice the value of per capita consumption. It is possible that two voluntary incentive programs one of vasectomies for husbands and another involving three examinations annually of wives for non-pregnancy might reduce births by 24 million over ten years at a resource cost of Rs I2 to i8 crores.' This reduction in births should reduce consumption during the ten years by Rs 750 crores with no loss of production. The possible resource return over ten years is hence about 50 to i. Resources so invested can perhaps raise per capita consumption several hundred times more effectively than if invested in conventional development projects. In this paper a preliminary attempt is made to estimate the value of permanently preventing a birth, to outline one incentive scheme for husbands and another for wives to reduce births, and to assess the impact of these schemes on the economy's resources and the government's finances.2 Threat of Population to Indian Progress

N recent years economists have worked out a considerable number of theories and concepts designed to help explain various types of economic development. These theories and concepts often overlap in analytical content and are not always clearly distinguished from each other. At this stage in research it may be useful to look for general models that encompass several theories. Such a procedure has been found helpful in the study of business cycles,' where the second-order difference equation has provided a general model of which several types of business fluctuations are special cases. Different patterns of cyclical behavior represent different ranges of parameters in the general model. This paper suggests a model -also in the form of a difference equation -which has, as special cases, some, though by no means all, theories of economic development. The model is concerned mainly with types of development that may be called in the sense that they represent relationships between two different economies or between two different sectors in an economy. As examples of dualistic theories, attention is called to a modification of the Hoselitz system of types of development, to a model of Myrdal, and, in a somewhat generalized form, to an argument of Prebisch.

T HIS is second series of Wicksell Lectures which were auspiciously inaugurated in I958 by Robert Triffin's brilliant lectures, Future of European Payments System. Nurkse delivered his first lecture, Contrasting Trends in igth and 20th Century World Trade, in Stockholm on April 7, I959, and second, Economy and Problem of Growth, on April io. He was able to add an appendix, Dynamic Aspects of Trade Theory (summarizing remarks presented for discussion in a seminar at Stockholm after lectures) shortly before his sudden and entirely unexpected death, which occurred on May 6 while he was walking on Mont Pelerin above Vevey in Switzerland. These papers thus constitute last contribution of a distinguished economist of our time whose career was tragically cut short in fifty-second year of his life. And a most important contribution it is to two fields of economics, international trade and economic which he so much enriched in several books and a long series of articles. He had evidently spent much care in preparation of these lectures. They are a gem of genre of economic literature, the combination of history and theory, in which he was a master, and a perfect example of the delicate manner in which he used but did not over-use available statistics as well as his sense for finding balanced proportions between theory and historical facts in interpreting trends of economic development, to quote from Professor Lundberg's moving introduction. In first lecture he contrasts of underdeveloped in nineteenth and twentieth centuries. The nineteenth century method he characterizes as development through international trade, quoting Marshall's dictum, which sounds strange to our ears, that the causes which determine economic progress of nations belong to study of international trade. 1 Nurkse finds role of international trade in stimulating of poorer greatly reduced in our time. Much emphasis is placed upon alleged lag in exports of poorer as compared with total world exports in recent years (I928-54). In my opinion, this theme is somewhat overemphasized. But Nurkse does not fail to mention that such a lag can be found only in exports of poorer and that it is sizable only if oil-exporting are excluded. On other hand, imports of poorer countries, excluding or including petroleum exporters, have risen faster than world imports. The gap between exports and imports reflects, of course, larger capital imports into poorer areas. It is undoubtedly true, however, that in mid-twentieth century the world's industrial centers . . . are not exporting their own rate of growth to primary producing at same rate as in earlier periods. The most important reason for this difference is, it seems to me, lack of massive emigration from Europe in our time. This fact is only hinted at in present lectures, but Nurkse dwelt on it in other publications.2 The underdeveloped and rapidly-developing in nineteenth century were countries of recent settlement (Hilgerdt), which received capital and skilled labor in large quantities from Old World. Today's underdeveloped cannot expect (or do not want) large immigration to speed their development. There are, however, a few exceptions. Some in Latin America had a chance immediately after World War II to get large numbers of European immigrants. But nationalistic policies prevented them from making use of this unique opportunity to accelerate their rate of growth. In second lecture three patterns of are distinguished: (i) growth through exports of primary products, (2) growth through exports of manufactured consumer goods, and (3) expansion of output for domestic markets. * Patterns of Trade and Development. Wicksell Lectures I959 (Stockholm, Distributors: Almquist & Wicksell) by Ragnar Nurkse with an introduction by Eric Lundberg. 63 pages. 'Principles (8th edition), 270. 2 E.g. in International Investment To-day in Light of Igth Century Experience. The Economic Journal, December, 1954.

HE purpose of this paper is to explore T the effects of variations in employment on family and aggregate consumption. The results illustrate a general thesis that the effects of income variation on consumption expenditures depend on the sources of such variation. This is true in cross-sections as well as in time series, even though the major factors related to changes of income over time are not equally important as determinants of income differences at a point of time, and conversely. Growth of productivity is, of course, the essence of long-run changes in real per capita income, and fluctuations in amounts of factor inputs, particularly labor, dominate the short-run changes in income. In a cross-section, a long list of factors responsible for differences in income can be named, and, once again, differences in the degree of employment among individuals and families play an important role. For purposes of emphasis and brevity, we shall abstract from other factors in tracing the effects of the employment variable. Note that the degree of employment of members of a consumer unit observed in a given short period (say, a year) is a very unreliable indicator of the unit's longer-run income position, compared with other income-determining characteristics, such as education, occupation, property ownership, or even age (experience). This observation points to an obvious way of introducing the employment factor into consumption analysis. This is achieved by a special interpretation of the theory according to which a family's aggregate consumption is determined by its income.' As a first approximation, we may define expected or income as the income which a family receives per unit of time during which its labor input is normal.2 This definition is likely to be quite satisfactory for analytical purposes, if we restrict ourselves to the wage-earning group, particularly the unskilled. If we include the whole range of skills up to the highly trained professions in our population, we must take account of another factor which makes for a difference between current and expected income, namely changes in income with age3 (experience), quite apart from the effects of variations in employment. These age-changes are more pronounced the higher the skill level of an occupation, so that in the top occupation groups (professional and managerial) they are much more important than employment changes in distinguishing between current and expected income. Thus, in each individual case the previously defined measure of expected income should be corrected upward whenever the individual is located on the upward phase of his age-income curve, the correction being larger the steeper the curve, and conversely. In the case of income from self-employment or from property, expected income is best identified with normal returns in a given industry, and the differences between current and expected income are cyclical for groups as well as both random and age-associated for individuals. Let us now specify a model of consumption behavior along the lines of expected income theory, using this particular approximation of the concept of expected income. Because of its commitment to a different interpretation of expected income, the Modigliani-Brumberg model is not useful in the present context. While Friedman's framework is more appropriate, some of its assumptions which the deliberate non-specificity of the concept of permanent income made possible will be changed to suit the purposes at hand. It is of interest to note that the modifications do not involve complica* This paper was presented at the Boston meetings of the Econometric Society, August I958. Research embodied in it was carried out as part of the Rockefeller Foundation Consumption-Income Distribution Research Project at the University of Chicago. The author is indebted to Dorothy S. Brady and Margaret G. Reid for valuable comments. 'As expounded by Friedman in A Theory of the Consumption (Princeton, I957); and by ModiglianiBrumberg in Utility Analysis and the Consumption Function in Post-Keynesian Economics, ed. K. Kurihara (New Brunswick, I954). 2 We abstract from property income throughout the analysis. 'Reference here is made to age and occupation of the family head.

B Y the spring of I958 the International Bank for Reconstruction and Development, as a part of its work in aiding underdeveloped countries, had sent major economic missions to fifteen countries: British Guiana, Ceylon, Colombia, Cuba, Guatemala, Iraq, Jamaica, Jordan, Malaya, Mexico, Nicaragua, Nigeria, Surinam, Syria, and Turkey.' published reports of these missions comprise the largest single collection of information extant on the problems and characteristics of underdeveloped economies. A careful reader of these reports is impressed with the wealth of detail and the obviously painstaking care with which the material has been assembled. Since more than seven years have now elapsed since the first report, it is appropriate to review this material and to ask how much has been learned about the process of development and also how successful the mission reports have been in diagnosing the key issues and in establishing development programs. What elements might we look for or expect to find in reports of this kind? First, since programs are dependent on good statistics, both to provide a basis on which to make decisions and to evaluate the effects of decisions once taken, some careful attention to the establishment of an effective social accounting system is to be expected. Second, the major outlines of a development program are required: the targets, the operational policies to achieve the objectives, the calculations of probable outcomes, etc. Flexibility is a virtue, but the outline should be internally consistent and unambiguous in showing the connection between the objectives and the means to those objectives. Third, in order for the programs to be implemented, a priority system for projects must be carefully delineated, and it must be shown that the priorities are consistent with fulfilling the development objectives. Fourth, in terms of the paths to development the real alternatives open to the country should be carefully surveyed, including estimation of the pay-offs and costs from alternative courses of action. Fifth, the price effects of development programs, probable inflationary pressures, and the effects on the balance of payments and the capacity to import require analysis. These are major elements which one might expect to find in a good economic development analysis; the list could be extended. In the remainder of this paper it is argued that the mission reports have covered these points inadequately, not at all, or ambiguously, with the result that the reports are unsatisfactory as economic analyses and unsuitable as guides to development programs. Before proceeding to the substantive argument, however, one qualification must be noted. These reports were prepared at different times, by different groups of people, for different countries. They do not all share the same faults or the same virtues. ensuing discussion should make it amply clear that the above criticisms do not apply in toto to all the reports, nor to any one report in particular. * This is a condensation of a report titled The Failures of the World Bank Missions, RAND Corporation, P-I4II, June 24, I958. I am indebted to my research assistant Mrs. Marjorie Hald for her help in surveying the reports. Dr. H. J. Barnett and Dr. Charles Wolf read the original manuscript and made many helpful comments. 'In chronological order the reports on these countries are: Basis of a Development Program for Colombia (I950); Economic Development of Guatemala (I95I); Economy of Turkey (I95I); Report on Cuba (I95I); Surinam: Recommendations for a Ten Year Development Program (I952); Economic Development of Jamaica (I952); Economic Development of Iraq (I952); Economic Development of Ceylon (I953); Economic Development of British Guiana (I953); Economic Development of Nicaragua (I953) ; Economic Development of Mexico (I953); Economic Development of Malaya (I955); Economic Development of Syria (I955); Economic Development of Nigeria (I955); Economic Development of Jordan (I957). Reports on British Honduras, Uruguay, and Somaliland have been issued in mimeograph form, but they are specialized and are not considered here. In June I957, a mission was sent to Thailand; although somewhat different in intent from previous missions, it will issue a report at some time. A summary of some of these reports appears in J. Spengler, IBRD Mission Economic Growth Theory, American Economic Review, XLIV (May I954), 583-99. Hereafter in this paper the reports will be cited by the country name.