ST/ECLA/CONF. l l / L . 2 7 15 January 1963 ORIGINAL: SE IN R O INDUSTRIAL PR G ftM G M A N O R IlIN Sponsored Jointly by the Economic Commission fo r Latin America, the Centre for Industrial Development of the United Nations and the Bureau o f Technical Assistance Operations, with the co-operation of the Executive Groups of the Brazilian Industry (GEIA, GEIM APE, OEIM ET, GEIN), of the Confederação Nacional da Industria and o f the Federaçao das Industrias do Estado de São Paulo Sao Paulo, Brazil, U to 15 March 1963 EVALU ATIO O FR0JECT3 IN N F PRE O IN N D M A TLY PRIVATE ENTERPRISE ECO O IES; NM SELECTED PR C D R S OEUE BA D O CASE STUDIES SE N Prepared by The Research and Evaluation Division Centre for Industrial Development Department of Economic and Social Affairs United Nations, New York ENGLISH * m0 INDUSTRIALIZATION AND PRODUCTIVITY IN D U S T R IA L IZ A T IO N AND P R O D U C T IV IT Y 5 I n t h i s i s s u e ♦ E valuation of Projects in Predom i­ nantly P rivate E nterprise Econom ies 7 ♦ E xpert W orking Group on Industrial D evelopm Program ing D ent m ata 3 5 ♦ M ethodological Problem in Long­ s term Econom D ic evelopm Program ent ­ m by Branco Horvat ing, 37 ♦ Sem on Industrial E inar states in th e ECAFE Region 5 2 ♦ The U nited N ations Work Pro­ gram e on Industrialization m 5 5 ♦ Prelim inary Bibliography for In­ dustrial D evelopm Program ing ent m 6 8 I N D U A N D S T R I A L I Z A T I O N P R O D U C T I V I T Y B U L L E TIN 5 D epartm of Econom and Social A ent ic ffairs UNI TED C ver illustration: In o te m g in th S a o g t e in e is k ste lwrk in Y g v . A a e os u osla ia n rticle in th is u is s e d cus s m od ica p lem in J n -te is s e eth olog l rob s o g rm econ ic d elop en p g m in * w e a om ev m t ro ra m g ith x m p s from th Y g v econ y ie e u osla om NATI ONS New York, 1 6 92 UNITED NATIONS PUBLICATION S les No.: 62.II.B. 1 a Price: $U 1.00; 7/- stg.; Sw fr. 4.00 .S. . (or equivalent in other currencies) Oin n e p s e in s nd atic s ae ths o p io s x re s d ig e r le r oe f th a thrs a d d n t nce s rily re ct th v w o e u o n o o e s a fle e ie s f th Uite Ntio s Scre ria A mte l in th e n d a n e ta t. ll a ria e Bulletin my b fre ly q o d o re rin d b t a e e u te r p te , u a n led em t is re u ste , to e e w a co y ck ow g en q e d g thr ith p o th p b tio co ta in th q o tio o re rin f e u lica n n in g e u ta n r p t. T e d sig a n e p y d a d th p se ta n h e n tio s mlo e n e re n tio of th mte ) in th p b tio d nt imly th e a ria is u lica n o o p e e p ssio of a y o in n w a e e o th p r x re n n p io h tso v r n e at of th Scre ria of th Uite Ntio s co ce in e e ta t e n d a n n rn g th le a s tu of a y co n o te ry o of its e g l ta s n u try r rrito r a thritie o co ce in th d lim tio of its u o s, r n rn g e e ita n fro tie n rs. P r e fa c e A large part of this issue of the B u l l e t i n o n I n d u s t r i a l i z a t i o n a n d s devotedu t t i v i t y i P r o d co studies and bibliographical material on planning and programming of industrial develop­ ment— a subject of basic importance t the developing countries and on which increasing em­ o phasis has been l i , in recent y a s by the General Assembly, the Economic and Social Council ad er, and the Committee for Industrial Development of the United Nations. This subject has already been dealt with, in some of is a p c s i the fourth i s e of the B u l l e t i n , further stud e are t set, n su and is being prepared for publication in subsequent i s e . sus In the f r t a t c e on t i t p c “Evaluation of Projects in Predominantly Private Enterprise is r i l hs oi, Economies: Selected Procedures, Based on Case Studies”,an an l i i made of the procedures for a ys s s s l ct o of industrial projects which have been proposed for use or actually applied in case s ud e ee in t is o ril relating t seven countries. The a t c e contains an appraisal of the methodology to be used for evaluation of projects in industrial planning. This a t c e i followed by a note on the meeting of an expert group which was convened by ril s the United Nations S r ec etariat t make recommendations on the elaboration of programming or o pre-investment dat , particularly those on inputs and investment c s s i certain i d s r e . The a ot n nutis note contains a summary of the recommendations of the group. An a t c e e t l d “Methodological Problems in Long-term Economic Development Program­ r i l n it e ming with Examples from the Yugoslav Economy”, by Mr. B. Horvat, deals with programming techniques, the scope and goals of long-term programmes and the pace of economic development under the conditions of that particular economy. This subject should be of i t r s t economists neet o and planners i countries with different economic and s c a structures and a different stages of n oil t development. The f r t part of a preliminary bibliography for industrial development programming, relating is t industries i general, i published a the end of t i i s e of the B u l l e t i The second p r , con­ o n s t hs s u n . at cerning chemical and related i d s r e , will be published i the next i s e nutis n su. The B u l l e t ia s contains a note on a seminar on industrial e t t s in the region of the Eco­ n o l sae nomic Commission for Asia and the Far Eas , which summarizes the seminar’ main conclusions t s and recommendations. Finally, another note presents the United Nations work programme on i du t alization, in­ n s ri cluding an outline of the projects undertaken or scheduled t be undertaken in the three-year o period 1961 to 1963 . 5 Limestone storage bins at the Pitcasmayo cem ent plant in north western Peru 6 E i n P v a l u P r i v a r e a t i o d t e o n m E n o i n f a t e r p P n r o j e c t s t l y r i s e E c o n o m i e s SELECTED PROCEDURES, BASED ON CASE STUDIES Prepared by the Division of Industrial Development of the United Nations Department of Economic and Social Affairs C tovERNMENTs a e continuously f ced with th probr a e r lem o evaluating p o e t . Development p a s a e f rjcs ln r frequently being e b ra e i terms o macro-economic la o t d n f magnitudes and production t r e s by s c o ; they have agt etr subsequently t be s e l d out i terms o c c et pro­ o ple n f on r e j c s Conversely, t e frt approach may be a t e microet. h is t h economic l v l where p o e t a e s l c e f r i c u i n ee, rjcs r eetd o nlso i a development programme. In both c s s p o e t a e n ae, r j c s r evaluated simultaneously, a t e time t e comprehensive t h h plan or programme f r a given period i being pre r d o s pa e . In a d t o , d c s o s on approval o r j c i n o p o e t diin eiin r eeto f rjcs have normally t be taken on a continuous and a d h o c o bss ai. The need for project evaluation and allocation of prio­ rities arises both for those projects carried out by the public sector itself and financed with government funds and those in the private sector which are subject to gov­ 1 S eral of th theoretical aspects of project evaluation a ev e re d lt w in U ited N s, Manual on Economic Develop­ ea ith n ation ales N 58.II.G prep o.: .5), ared by th E e conom ic m Projects (S ent C m om ission for L atin A erica, an in tw U ited N s m d o n ation rep prepared by grou of exp convened a B orts, ps erts t angkok in 1 5 an 1 6 by th E tive S 9 9 d 91 e xecu ecreta of th E ry e conom C ­ ic om m ission for A a d th F r E st, en , resp sia n e a a titled ectively, Pro­ gramming Techniques for Economic Developm ent (S ales N o.: 60.II.F an Formulating Industrial Development Programmes .3) d (S N 61.II.F ales o.: .7). 2 O seven case stu ies are presented in th article. There nly d is a tw rea s for th lim num first, th m ods u re o son is ited ber; e eth sed ernm perm It arises also in the case of private ent its. projects which require som kind of government assis­ e tance, such a tariff protection, tax relief, duty free im­ s ports of machinery or raw m aterials, or foreign exchange allocation. This m eans that, in practice, especially in de­ veloping countries, a substantial part if not the vast ma­ jority of all projects are within the sphere of government influence. This article is prim arily concerned with the applica­ tion of evaluation m ethods in under-developed coun­ tries.1 In part one, a num of selected case studies are ber presented exemplifying m ethods which field experts have applied in evaluating projects.2 The presentation is fol­ lowed in part two by an appraisal of these m ethods. On the basis of this appraisal, an attem is m pt ade in part three to form ulate som recommendations with regard e to procedures and m ethods of project evaluation suitable for countries in the process of development. in project evalu ation a seldomexplicitly sta in th a ila le re ted e va b docu en m tation S d, som of th a . econ e e vailab ca stu ies rela le se d te to id tical or sim evalu en ilar ation m ods a d a selection h s to eth n a b m e in order to avoid du e ad plication The in ation rela . form tes m ly to evalu ain ation criteria recom ended for u , an it is m se d n alw ys p ot a ossible to a scerta to w at exten a a p in h t ctu l ractice conform to th p osals. It m b sta d th t th ben s ese rop ay e te a e efit accru g from sh red experien w in a ce ould b greatly en an if e h ced th evalu e ation m ods recom ended for u w sta in eth m se ere ted explicit term th reason for th adoption explain a d th s, e s eir ed, n e m su of su ea re ccess in applyin th in p ctice a sse , by th g em ra sse d e exp con ed. erts cern Part One CASE STUDIES he seven case studies presented in this part of the study relate, respectively, to Burm Peru, the West a, Indies, Turkey, the Philippines, Pakistan and Israel. The first and third are concerned with allocation of priorities within the industrial sector; the second, with allocation within a sub-sector—a group of industries; the fourth, fifth and seventh with the evaluation of projects having am arketable output, within a given sector a well as be­ s tween sectors. The sixth case study is som ewhat dif­ ferent from the others: it is m ainly concerned with the difficulties encountered in the application of a set of ob­ jective criteria to the evaluation of specific projects. T Bu r m a 3 The expert was required to advise the Government of Burm on the economic feasibility of establishing new a industries, and on the setting of priorities in the longrange program me. “The m purpose of industrial development,” states ain the expert, is “to increase the national income for the benefit of the people a a whole.” The question is in s which branches will it be m favourable to expand, ost and which new industries can m profitably be estab­ ost lished. According to the expert, two factors are “alm ost decisive”: the natural resources (especially raw m ate­ rials) of the country, and the needs within the country. Thus, it is possible to distinguish between raw m aterialbased industries and m arket-based industries. The for­ m are favoured by ready access to cheap raw m er aterials supplied at low transport costs which may enable them to compete on the foreign m arket; the latter, which dis­ pose of the domestic m arket, m be protected by cus­ ay tom duties. s To determ which specific industries in these two ine groups can m profitably be developed, the expert sug­ ost gests for the raw m aterial-based industries, an analysis of the export statistics over tim and a survey of natural e resources, in order to find fields where export is in the form of industrially processed raw m aterials, and for the consum ption-based industries, a survey of present dem and not satisfied by dom estic production, as indi­ cated by import statistics, current production and future dom estic dem and. An analysis of import statistics will suggest “areas of consumption where domestic produc­ tion could advantageously replace importation. This should be the im ediate goal of development, and here m there is a much firm basis for calculation than in esti­ er mating future demand”. The latter, according to the expert, depends on: (a) the rate and volume of invest­ m and the materials required for this; (b) the avail­ ent ability of raw m aterials for new industries to be estab­ lished, and (c) the rise in the standard of living and the resulting increase in demand for consum goods. These er 3 E S ato, “Industrial D . la evelopm in B rm (U ent u a” nited N s m eographed docu en TAA/BUR/I6 ation im m t, ). 8 data are presum ably indicative of the demand for invest­ m goods, interm ent ediary goods and consum goods, er respectively. Other statem ents by the expert suggest, however, that the resources and dom estic needs criteria are not always “alm decisive” in establishing priorities. Other factors ost are to be taken into account, and these may well induce a change in priorities. The effect of a given investm ent on the balance of paym ents, for exam is a factor to ple, consider. Thus, with respect to production for export based on natural resources, a very high priority should be assigned to industries yielding large sum of foreign s capital on favourable term this category takes into ac­ s; count many of the ore deposits in Burm such as tin, a, zinc, lead and tungsten. Furthermore, according to the expert, at the present stage of industrialization in Burm a, with m resources still to be exploited, it is in principle any not advisable to give much attention to the establishm ent of industries whose requirem ents of raw m aterials and sem i-finished products have to be imported and which require experienced technicians and much skilled labour. The capital intensity or labour intensity of an invest­ m is another factor to be considered because “in a ent country such a Burm where there is a lack of capital s a for investm and a great part of the population is not ent, fully employed, it is of great importance to keep invest­ m per employed worker a low a possible”. ent s s A question which arises in planning for increased in­ dustrial output is, according to the expert, whether to expand the capacity of established factories or to establish new ones, because, “frequently much greater increases (in output) are achieved by improvements in existing plants (for instance, by easing bottlenecks in the existing production equipment), than by establishing entirely new plants”. An estim of operating costs and income ate can, according to the expert, be based on experience in other countries and industries. From both an economic and a social point of view, the effect of newly established industries on the operations of old factories and their employment is a very serious consideration, and every attem should be m to prevent the establishm of pt ade ent new factories putting out of production existing indus­ tries and causing unemployment. The criteria which should be taken into account in establishing priorities are summarized as follows: (a) The existence of natural resources, such as agri­ cultural and forestry products, m inerals, oil and water; (b) The existing domestic dem shown by im and ports, and the estim ated future demand; (c) The foreign exchange to be saved or earned; (d) The total capital investm and the foreign ex­ ent change component, per worker employed and in rela­ tion to the increase in national income; (e) The effect of new industries on employment in existing industries; (/) The possibilities of expanding existing industrial enterprises, and (g) The possibilities of operating at a profit. The expert points out that no assessm of priority is ent intended in this list. Thus, no indication is given as to the relative weight to be assigned to each of these criteria. Nor is it possible to ascertain from the contents of the report to what extent the expert has been able to apply these criteria quantitatively. The expert presents two tables showing, respectively, capital investm ent per worker and value added per unit of capital investm ent in Norwegian industries. He points out that “the figures them selves may be of less value, but the list showing the relationships should be of som help in considering priori­ e ties”. Apart from these data, the expert has estim ated for a num of projects, “savings to be effected in foreign ber currency”. Judging by these prem ises, it m be assum ay ed that intuition and subjective judgement have been major complements to the criteria stated by the expert. Peru 4 The case study concerns the m etal transforming indus­ try. The aim of the study w to determ as ine, “on the basis of certain criteria and without a thorough analysis of profitability ..., possible percentage relationships be­ tween production and domestic demand” in 1965. Do­ m estic demand in 1965 w estim as ated “on the basis of consumption data for 1955 . . . and of assum rates of ed growth for agriculture, industry in general, mining, gen­ eration of electricity, construction, population, the motor vehicle park, consumption of durable goods, etc.”. No consideration w given to export prospects, although it as w recognized that the prospects existing for certain as products which could be m arketed in neighbouring countries are very promising. Probable demand for various products or groups of products in the m transforming industry having been etal determ ined by macro-economic projections, the problem w to estim the proportion of such demand that as ate could be m by dom et estic production. A distinction w as m between existing industries and new industries. In ade considering the prospects for the expansion of existing industries three factors were taken into consideration: first, the variety of shapes or forms in which the product is m anufactured and the complexity of the processes in­ volved, both these factors tending to have an im pact on the above-mentioned proportion; second, the “organicity” of the industry concerned, that is, the extent to which the industry is “essential or necessary for the development of other industries or other economic activities, inasm uch as it will either help to broaden the m arket for the products of such activities, or will tend to promote the m anufacture of item indispensable for their develop­ s m ent, or will serve as a link between other industries 4 This case study is based on mterial selected from a report a “th u ate aimof w is confined to aprelim ary exam a­ e ltim hich in in tion of th developm t a d p ects of P vian in u e en n rosp eru d stry”. O of th qu ne e estion d ssed in th connexion is “w at ch ges s iscu is h an h to ta e p ce in th com ave k la e position of in u l production d stria , in term of th greater or lesser developm of given b ch s e ent ran es or specific sectors?”. U ited N s, Analyses and Projections n ation oj Economic Developm ent, VI. The Industrial Developm ent of Peru (S ales N 59.II.G p 2 7 o.: .2), age 4 . top: Rolling sh et breakdow s in a steel mill near Rangoon, Burm e n a bottom A te k log : a, co v y d to a b n -sa w nee a d w hich cu it in ts to plan in a B rm se saw ill ks u e m 9 Cntutn a irgto cnl i Pu osrci g n ria n aa n e i r so as to complete an internal industrial integration proc­ ess”; third, the extent to which the industry will employ dom estic raw m aterials. The objective of the two latter elem ents w according to the expert, to incorporate in­ as, to the criteria an elem relating to the development of ent other industries, which would contribute towards improv­ ing the over-all industrial structure. As regards the establishm of new industries, all ent m anufactures which would obviously involve a scale of production too large for the Peruvian m arket, such as internal combustion engines, passenger cars, aircraft and spare parts, typewriters and calculating m achines, textile m achinery and tractors, were elim inated at the outset. Furthermore, in addition to the criteria which were set up for the expansion of existing industries, four addi­ tional criteria were proposed. First, value added to the m used as raw m etal aterial as a percentage of gross value of output; second, value added to the m per unit of etal investm ent; third, investm in machinery and equip­ ent m as a percentage of investm in total fixed assets ent ent and, fourth, investm in machine tools (lathes, drills, ent milling and planing m achines) a a percentage of total s investm in m ent achinery and equipment. Value added to the m etal w calculated a the dif­ as s ference between the price per kilogramme of the im­ ported article and the estim ated price per kilogramme of the m imported for its m etal anufacture. It was thought preferable to use value added to m etal, rather than value added to manpower, “because the latter figure . . . differs little from one item to another, within the range of 10 products of the m etal transforming industry” and also “because the value added to m gives a clear indica­ etal tion of what the country would gain by manufacturing the article concerned, even if imported raw m aterials were used”. The second and third criteria were to provide an in­ dication of capital intensity. The fourth criterion was in­ tended to indicate requirem ents for skilled labour. A qualitative rating “A”, “B”, or “C” was assigned to any particular industry in respect of each criterion. Thus, for exam ple, in relation to the use of domestic raw m aterial, “A” im plies a high percentage; with re­ gard to diversity of products or complexity of manu­ facture, the sam rating indicates that little or no diver­ e sity or complexity exists. Again to quote the study, “. . . all these criteria, plus a certain unavoidable elem of ent subjectivity, cam into play in the final determ e ination of dom estic production considered possible” by the end of the plan period. Thus, in the case of gas cylinders, do­ m estic production might perhaps reach 100 per cent of domestic demand “since the diversity of products is slight in relation to the low degree of complexity of this line of m anufacture, and the activity is of som national e interest, since it helps to improve the fuel distribution and uses domestic raw m aterials. Furthermore, in this branch of m anufacture, the value added is quite high and requirem ents in respect of technique or skilled la­ bour are m odest, although it calls for a relatively high proportion of m achinery and equipment.” In the case of the hand tool industry, which commands a large m arket, this w found to combine average characteristics in re­ as gard to nearly all criteria; it w considered that domes­ as tic production should be put at 40 per cent of dom estic demand, concentrating on tools with a very wide m arket and a narrow range of m odels, such as ham ers, axes, m pliers and screwdrivers. Production of pumps and com­ pressors, which command a wide m arket, w assigned as a high index for “organicity” and m oderate indices for diversity of products, complexity of manufacture and use of domestic raw m aterials; in spite of substantial re­ quirem ents for machinery, complexity of technique and not very high figures for value added, it w considered as that at least 60 per cent of domestic demand could be m by national production in the case of pum and et ps, 35 per cent in the case of com pressors. Finally, produc­ tion of electric motors and of relatively low-power trans­ formers w considered desirable in nearly all respects; as since m of the components of this equipment are em­ any bodied in imported m achinery or equipment, it w de­ as cided that 70 per cent of demand should be m et dom estically. W est I ndies5 The expert proposed that the suitability of each candi­ date industry be assessed on the basis of the following eight indices: ratio of wages to gross output; ratio of wages to net output; net output per person employed; horsepower per person; fuel consumed per person; weight of m aterial used per person; num of persons ber per establishm and coefficient of localization. ent, The criterion of wages to gross output w justified by as the fact that “one of the chief competitive features of 5 W A. L is, “The Industrialization of th B . ew e ritish W est Indies”, The Caribbean Economic Review (Port of S ain p , Trinidad), vol. II, N I, M 1 5 . The expert w s con ed o. ay 9 0 a cern w th qu ith e estion of how it is p ossible for new in strializin ly du g cou tries to con plate producing an exporting m u res n tem d an factu in com petition w old an w ith d ell-establish riv ls. A ed a ccording to h , “th secret of su im e ccess, for a y coun is to sp n try, ecialize in th [in u ose d stries] to w its resou a m ap rop hich rces re ost p riate, an to avoid th oth d e ers”. the W Indies is its relatively low wage level”, so that est industries with a high wage component of costs w ere likely to have a competitive advantage. as The criterion of wages to net output w supposed to indicate the importance of expenses other than those re­ lating to raw m aterials and wages. The m im ost portant of these is the cost of m achinery and of other capital equipment; where this is high, the ratio of wages to net output will be low. To quote the expert: “Since the W est Indies are short of capital, it is best to use what there is to give employment to as m any persons as possible, so we are interested in isolating the industries which re­ quire relatively sm capital per person employed. Be­ all sides, since the m achinery has to be imported, it costs more in the W Indies than in the countries where it est is produced, and the Islands cannot hope to compete with such countries in industries where m achinery cost is a heavy item .” Net output per person employed w used m as ainly as a substitute for the two previous indices. In general, this ratio according to the expert “is high when the costs other than wages are high, and low when there is very little to be added to wages cost. But this is not invariably so. For exam net output is lower in industries where ple, the proportion of women is high, because women’s wages are lower than men’s”. The criterion of horsepower in use per person w sup­ as posed to give “som idea of the importance of capital in e industry, and to be fairly closely correlated with the ratio of wages to net output”. The expert considered that al­ though the correlation is not complete, “we have to use such indices as we can find”. Fuel consumed per wor\er is self-explanatory. “Since industrial power is rather expensive in the Islands, it is necessary to avoid industries which are heavy consum ers of power. Fortunately, there is a wide range of indus­ tries where fuel costs are such a sm part of the total all that the Islands are not gravely handicapped if they try to compete.” The weight of materials handled and the extent to which there w a loss of weight as a result of industrial as New industries in Ja a , British W st In ie m ica e d s: left: Making corrugated sheeting Jrom alum inium p u rod ced from local anufacturing b y w for e o to North A erica o s’ ear xp rt m b u ite right; M ax processing w considered to be a “rough” but “very im­ as portant” index. The average number of workers per establishment w as considered again by the expert as a “rough” indicator of the scale of production, since it conceals differences in the size of individual establishm ents. “There is a slight presum ption that industries in which the average estab­ lishm is very large are unsuitable for the Islands”, ent both because the Islands are not well experienced in op­ erating large establishm ents, and also because such estab­ lishm ents are likely to have a larger output than the Is­ lands can easily m arket. However, “too much weight m not . . . be placed upon this index of size, because ust ... in m industries the units of less than average size ost seem to be able to produce just a cheaply a larger s s units”. The last index, the coefficient of localization, w in­ as tended to indicate whether an industry is widely dis­ tributed throughout the region, or is highly concentrated. If an industry is very widely dispersed, it usually favours, according to the expert, working on the spot for a local m arket, and is therefore prima facie very suitable for the Islands. If, on the other hand, it is very heavily con­ centrated, there m be som special factor which ties it ay e to a particular place, although industries are often highly localized for historical reasons. Each industry w given a qualitative rating (“a”, as “b” or “c”, in order of priority) with respect to the vari­ ous criteria mentioned above and an over-all rating (“A”, “B” or “C”) indicating whether the industry fell within the upper third, the middle third, or the lower third group of possible projects. Since an industry m ay be high in regard to one index, and low in relation to another, it was necessary to use personal judgement in assessing its final class. No quantitative indication of relative weights used w given. Apparently the ratio of as wages to gross output w given the largest weight. A as high ratio w presum to be an indication of an in­ as ed dustry suitable for the Islands, but it w subject to as further check in reference to indices of fuel consumption, horsepower and average size of plant, in order of im portance. Turkey6 “The need for assessing priorities for investm ent,” ac­ cording to the experts, “arises in part from the fact that the benefit of an investm to the country a a whole ent s does not always coincide with the rate of profit to the in­ vestor, public or private”. In so far as the social benefit of an investm can be quantitatively assessed, it is ent m easured by “the increase in national income produced per unit of investm ent,” or the social rate of return. The experts point out that in addition to the m easurable rate of return, there are other factors which m be weighed ust in determining investm priorities. ent Since the major part of the increase in national income which results from an investm accrues to the investor ent 6 C enery, B h randow an C , “T d ohn urkish In vestm t a d en n E conom D ic evelopm ent”, 1 5 (m eographed). 9 3 im 1 2 in the form of profit, an approximation to the rate of so­ cial return m be obtained, according to the experts, ay by making additions to or subtractions from the rate of private profit to com pensate for artificial prices and other elem ents which cause social value to differ from value to the private investor. The more im portant among these elem ents are as follows. (a) The exchange rate. All imported elem ents in the cost of the investm and its operation and any part ent of the output which is exported or any substitutes for im ports should be recomputed using an “equilibrium” rate of foreign exchange. (b) Protected industries. Domestic prices of home pro­ duced goods should not exceed the alternative c.i.f. cost of the import, valued at the equilibrium exchange rate. A sim correction should be m for export subsidies ilar ade w here they exceed the adjustm to be m for foreign ent ade exchange, and for industries which use domestic m aterials w hose price is artificially high. (c) Unused resources. Factors of production should be valued at their alternative earnings in other uses. In som cases this “opportunity cost” will be less than the e am ount actually paid for the use of these factors. When the supply of a factor is in part unused, this as a rule indicates that the m arket price of such factor exceeds its “opportunity cost”. (d) Social overhead facilities. The value of goods and services for use in other productive sectors is not neces­ sarily m easured by their prices. The m im ost portant exam ples are power, transportation and other overhead facilities. The m easure of their social benefit is the in­ creased value of commodity production which they m ake possible. When an increase in social overhead is required, it is necessary to take into account the indirect capital re­ quirem ents a well a the direct investm s s ent. All these factors enter into the calculation of the social return. There are, in addition, other factors less suscepti­ ble of quantitative evaluation which m also be con­ ust sidered in the final evaluation of investm ent pro­ gram es. m (a) Rate of completion. First, when the tim gap be­ e tween investm and the increased production of goods ent and services for one project is substantially longer than for another, the fact that the investm will not yield ent a production during this additional period will, ceteris paribus, obviously put the first project at a disadvantage. Also, the tim lag between income creation by the in­ e vestm in a project and the increased production of ent goods and services has an im portant bearing on the generation of inflationary pressures that m arise from ay the investm ents and on the balance of paym ents. If projects are started at a rate which is above that of the availability of investm resources required for their ent completion the productivity of the whole programme is lowered. (b) Regional balance. While som dispersion of in­ e vestm is necessary for non-economic reasons, it should ent be kept to a minimum. The greater increases in national output which m be secured through concentrated de­ ay velopment of a single region provide a larger volume of investm resources in the future and lead to a more ent rapid development of the rest of the country, although initially the development of som areas will be slower. e (c) Stability. Some weight should be given to the pos­ sible variation in world prices of the commodity to be produced. As is well known, the price of exports of basic m aterials are subject to wide fluctuations, while import costs of manufactured goods vary to a much less degree. While these factors argue for less international specializa­ tion and more diversified developm ent, the cost in term s of additional investm requirem ent ents should be m ade explicit and com pared to the reduction in risk which is expected of a more diversified development. (d) Technical complexity. The productivity of invest­ m resources in the initial stage m be lower in the ent ay more complex industrial processes because of the lack of skilled labour, experienced supervision, or specialized ancillary m aterials and services. This is less likely to oc­ cur in the cases where there is an elem of foreign in­ ent vestm which brings with it technical and m ent anagerial skills. (e) Labour training. Since skilled labour is a scarce factor, a special allowance should be m for projects ade which also result in labour training. Where it can be valued, this training m be added to the social benefit ay of the investm ent. (f) Nature of the product. It is generally agreed on social grounds that less essential commodities and “lux­ ury” goods should not be given priority, even though the m arket-determ ined return on their investm is high. ent Having stated these principles, the experts set them­ selves the task of m easuring the social productivity of investm ents by applying corrections to the calculations of profitability m on purely m ade arket grounds. Of the various corrections which were suggested to determ ine the social return of investm ent, those for which quanti­ tative estim ates were possible were the balance of pay­ m ents effects and the differences between domestic prices and alternative costs of im ports. Corrections were also applied for the price of labour, although to a lim ited extent. In the opinion of the experts, the m im ost portant cor­ rection w to be applied to the foreign exchange rate as whose real value w considerably higher at that tim as e than the official rate indicated. It w estim as ated that for­ eign exchange costs and earnings of an investm ent should be valued at 30 per cent above the official rate. Domestic prices for commodities were used in calculat­ ing costs and benefits, except where they were higher than the c.i.f. cost of im ports plus the 30 per cent correc­ tion applied to foreign exchange. In the latter case, the “social” valuation of a commodity w taken a the c.i.f. as t cost of im ports, plus 30 per cent, plus a norm profit to al the im porters. Regarding unskilled labour, it w considered that as whatever development m take place in the labour ay m arket in Turkey in the next few years, there would be an excess supply of that type of labour. The benefit to the economy of economizing on the use of unskilled labour w therefore, negligible. In view of this, a cor­ as, rection w applied in particular to agricultural invest­ as m in labour-saving devices. ent These corrections were applied to costs and benefits whenever the available data permitted; in cases where the detailed information required w not available, the as experts based their judgements “on the general techno­ logical nature of the industry, m arket conditions, and other factors”. The m detailed analysis w m of ost as ade projects approved by the Industrial Development Bank S rg tan\s of th new 3 ,0 0 j-lo a u e e 6 0 -k w tt p er sta n a th S y a d m ow tio t e e h n a in Turkey 1 3 of Istanbul (IDB) which had contributed about 40 per cent of private investm in industry between 1950 and ent 1953. A questionnaire for loan applicants w developed as by the IDB to secure the information required to calcu­ late the productivity of the investm ents to be financed.7 The m arket prices used in these calculations were in alm all cases those which were applied by the Bank in ost reviewing the projects, and reflected the expectations over the period of the bank loans—nam five to ten ely, 7 T qu he estion aire included th follow item n e ing s: A Investment . 1 V of fixed ase . alue s ts a. Site B ildin an con ction u gs d stru M in a d equ en ach ery n ipm t In lla costs sta tion 2 W . orking ca ita p l 3 T in . otal vestm t en a D estic cost . om b F . oreign exch ge cost an B Sales . 1 V e of sa s, by product . alu le a E . xports b S b tes for goods a p . u stitu t resen im t ported c. O er dom th estic goods b . c . d . C. Costs (All costs a in ded excep for p rch se of office re clu t u a su p an oth m p lies d er iscellan s overh eou ead item w s hich am n to le th n on p cen of tota costs. Im ou t ss a e er t l ported com ents of ea item a ta u ted sep ra pon ch re b la a tely) 1. R mterials aw a nergy 2. E 3 A . uxiliary mteria a ls 4 M ten ce . ain an 5 L . abour a A in . dm istrative b T . echn ical c. S illed k d. U skilled (less th n six m th train g requ n a on s’ in ired) D Foreign exchange effects . 1 F . oreign exch ge costs an a A . nnual cost of th foreign exch ge com e an ponent of in vestm t, com en puted a 9 p cen for in t er t terest a d n am ortization of loa n b C of im . ost ported m ls (from C ateria ) c. In direct im port com ponent of dom estic mteria a ls (com puted on th b sis of 10 p cen for steel a d e a er t n pow pu ased 8p cen for coal, 5 p cen for er rch , er t er t oth in u l mteria 2 p cen for agricu ral er d stria a ls, er t ltu products) 2 F . oreign exch ge earn gs (from B an in .l.a) 3 N foreign exch ge effect (D m u D.l) . et an .2 in s E Social productivity . 1 G p te profit (sa m u costs, exclu . ross riva les in s sive of ta es an in x d terest) 2 C . orrection for socia va e s l lu a P correction for protection su sid e . rice , b ies, tc. b F . oreign exch ge valu (com an e puted a 3 p cen t 0 er t of D .3) 3 In . crease in socia va e (E.l p s E l lu lu .2) 4 R of p te retu on in . ate riva rn vestm t (E.l divided en b A y .3) 5 R te of socia retu on in . a l rn vestm t (E divided en .3 by A .3) 1 4 vears. The corrections applied to these m arket prices have been discussed earlier. The foreign exchange costs were computed from the detailed breakdown of invest­ m ents and operating costs. The annual cost to the econ­ omy of the foreign exchange components of new invest­ m ents w computed from the term of the International as s Bank for Reconstruction and Development (IBRD) loan to Turkey, which w somewhat lower than the margi­ as nal cost of new loans. Foreign exchange earnings were credited to exports and to import substitutes. On the basis of these corrections it w found that the average as private return on all the IDB’s loans w 30 per cent, as and the average social return, 23 per cent. The Philippines In determining industrial priorities under the five-year economic and social programme for the Philippines, it w proposed that a priority formula be applied “as an as over-all instrum of allocation of resources to effect ent the structural adjustm ents desired”.8 The formula w as intended to ensure consistent treatm by various gov­ ent ernm agencies of requests for foreign exchange, trans­ ent fer and tax privileges, loans and other action involving som form of government assistance, and to relieve e them of pressure by providing a ready device for evaluat­ ing applications from private industry. The form ula w to be applied to the private sector as well as to gov­ as ernm profit-making enterprises, as well to allocation ent between sectors a within a given sector. It w not con­ s as sidered to be applicable to non-profit service undertak­ ings of government, such as agricultural extension, health services, research and social overhead projects, which pro­ duce indirect and intangible benefits. The formula reflects the following policy objectives: 1 To direct resources towards the m productive . ost uses; 2. To conserve foreign exchange; 3. To reduce unemployment; 4. To promote economic growth. The guiding principles of project evaluation based on these objectives were stated as follows. Other considera­ tions being equal, preference will be given to an indus­ trial project that (i) will, per unit of scarce resources ex­ pended, give the highest contribution to national in­ come; (ii) will, per unit of scarce resources expended, produce the greatest improvement in the country’s bal­ ance of paym ents position; (iii) will m ake the greatest use of dom estically produced raw m aterials and operat­ ing supplies; (iv) will m the m use of dom ake ost estic labour; (v) will produce goods to m the more basic eet needs of the people and will produce the greatest effect on the external econom ies. These guiding principles were embodied in the fol­ lowing formula: IP = R 1+ R ,+ R s+ Ri where: IP is industrial priority; I?1= the value added to 8 G overnm of th P ilip in N al E ent e h p es, ation conom Council, ic The Five-Year Economic and Social Developm ent Program e m jor 79 -/9 / (M ila, 1957). 57 6 an Draw an blending of card sliv rs ing d e in a textile plan in Turkey t national income by the factors of production involved in the project, including labour, land, capital and entre­ preneurship, as corrected by an essentiality factor to ac­ count for the im pact of the project on external economies and for other social benefit considerations, the whole per unit of capital resources utilized;9 7 = the im ?» pact of the project on the country’s bal­ ance of paym ents position. This is m easured by the an­ nual foreign exchange value of the product m inus the value of foreign exchange directly or indirectly used in production, per unit of investment;1 0 Rs = the extent of additional economic values derived from the use of domestic raw m aterials and supplies, per unit of investment;1 1 R/, =the social value derived from employment of labour. This w m as easured by the annual value of such labour per unit of investm 2 ent.1 9 R, — e(w+ r + i + p) k w here: e = essen lity factor; w — w tia ages; r in terest; p — profit; \ = ca ita p l. k = ren i = t; The determ ation of th essen lity factor for a given project in e tia is based on th follow con e ing sideration (a) if th product is s: e for export, how n r to th fin ed sta e is it? If for dom ea e ish g estic u is it d ed for consum se, estin ption or for u in oth in u se er d stries, an , if for consum d ption, is it a lu ry good or a essen l on xu n tia e? (b) w at is th proportion of th dom h e e estic com ponent in th e tota of (i) m ls an su p u (ii) cap l equipm l ateria d p lies sed; ita ent; (iii) financing? E itemis ra w in a ran of 0 to 2 ach ted ith ge .5 .5 p ts according to a ch -list. oin eck to Rt — FEs/e —FEc k The purpose of the formula w to compare annual as benefits to annual costs in term of scarce resources. Two s types of resources were obviously in short supply, nam ely, capital and foreign exchange.1 Although entrepreneurs, 3 m anagers, technicians and skilled labour were also scarce, the Government was not prepared, at this stage, to adopt policies which would involve direct allocation of hum an resources.1 4 Since the purpose of the formula w to m as easure the social profitability of a project, contribution to national income w taken as a m as easure of the benefits arising from the project. This contribution w in a first ap­ as, proximation, estim ated on the basis of m arket prices. Since, however, m arket prices, in the opinion of the ex­ pert, reflected “a socially unhealthy economic relation­ ship”, the national income profitability calculated at such prices w to be corrected. The correction for the balance as w ere: FEs/e = die foreign exch ge saved or earn arisin h an ed g from th project; FEc — th foreign exch ge cost in rred in e e an cu th project. e w here: rmd = th valu of dom e e estic mteria an operatin a ls d g su p u in production, excluding th valu of th im p lies sed e e e ported com ponent of dom estically p rocessed in ediate p cts term rodu w enever su im h ch ported com ponent exceed in valu 5 p s e 0 er cen of th valu of th products; rmt = th valu of th t e e ese e e e tota raw mteria an su p u in production l a ls d p lies sed . 12 £, _ Id X 2 0 ,0 0 k w here: Id = th n m of p F e u ber aid ilipino w orkers em ployed for a lea 3 0 d y a yea A uniform average of 2 0 p t st 0 a s r. ,0 0 esos p an u is to b u in determ er n m e sed ining th social valu arisin e e g from th em e ploym of each F ent ilipino w orker. 13 C pital is defined a total investm t in th project, w a s en e hich is equ to fixed a ts p s circu g ca ita al sse lu latin p l. 14 B H . iggins, Economic Development, Principles, Problems and Policies (W W N . . orton an C pany, In N Y d om c., ew ork, 1959). 15 of paym ents effect w intended to reflect the scarcity as of foreign exchange; it is positive or negative, depending on whether the project results in net savings or earnings or in net cost. The corrections for the use of dom estic raw m aterials and for increasing employment are alw ays positive. The former was included to stim ulate dom estic production of such m aterials; the latter, to provide for a preferential treatm of employment creating projects. ent It would obviously only relate to unskilled labour which was in abundant supply. This w achieved by including as only Filipino workers in the employment factor. An “essentiality multiplier” w used in an attem to as pt take into account the external economies of a given proj­ ect and its effect on the distribution of income. A higher rating w given to essential producer goods in prim as ary industries than to such goods in secondary industries, or to sem i-essential producer goods in prim industries, ary and so on. This w done under the assum as ption that pro­ duction of goods with higher priority ratings will have a greater im pact on the over-all output of the economy as a whole. Consumer goods were sim ilarly classified a essential, s sem i-essential or non-essential, and each group was as­ signed a priority in this order. A consumer good w as considered “essential” if it figured prominently in the budgets of lower-income groups. The purpose of this priority system w to improve the supply of goods con­ as sum by the low-income groups. ed It w understood that the determ as ination of industrial priorities would be based not entirely on the quantita­ tive m ethod discussed above, but also on considerations which, although they do not easily lend them selves to quantification or are difficult to reduce to a fixed m eas­ ure, yet are pertinent to the question. Among these con­ siderations were covered: 1 Overcrowding of an industry; that is, if the aggre­ . gate productive capacity in the industry w in excess of as the demand for the product, defined as the effective de­ m and a of the period of execution of the project, plus s 20 per cent to allow for additional demand. This princi­ ple w disregarded, however, if the new projects would as improve the competitive conditions in the country for the benefit of the public; 2. Established government policy for specific in­ dustries; 3. Abnormal factors of pricing of labour, m aterials and products which m have unduly affected the priority ay order of projects. Pakistan The concepts of efficiency, consistency and adm inistra­ tive feasibility were adopted a the basic criteria for se­ s lecting projects to be included in the first five-year plan of Pakistan.1 The concept of efficiency was defined in 6 term of an allocation of resources among different uses s in such a way that there w no possibility of increasing as 15 16 Ibid. G overnm of P k n N al P ent a ista , ation lanning B , The oard Fust Five-Year Plan, 1955-60 (K arach 1957), page 7 . i, 2 16 the total value of output by transferring resources from one use to another. The concept of consistency im plied that the various parts of the plan were consistent with each other and with the total availability of resources. The concept of adm inistrative feasibility implied that a development programme m be workable, in the sense ust that “the recommendations are capable of execution; that the organizational arrangem ents required either existed or could be created, and that the necessary changes in custom and practices implied in the planned rate of de­ s velopm could be made”. ent By adopting the criteria of efficiency and consistency, the planners sought to base resource allocation on an ob­ jective standard instead of on a subjective judgement. The difficulties encountered in this attem and the pt m easure of success that w achieved are discussed in the as context of the three following problems: (a) the incom­ m ensurability of returns; (b) the inadequacy of data, and (c) the m ultiplicity of objectives.1 7 T h e p r o b le m o f in c o m m e n s u r a b le The planners were faced with two questions: first, w proportion of the total resources available for de­ hat velopm should be allocated to education, health and ent social services? Second, given the allocation to each sec­ tor, how should it be distributed among the various sub­ sectors and projects? The efficiency criterion could not be applied to projects in these fields because they have no m arketable product and therefore cannot be com­ pared on the basis of their benefit-cost ratios. No satisfac­ tory answer was found to the first question, although an attem w m pt as ade, at least in the case of education, to achieve a m easure of consistency by applying som inpute output relationships, such as that the num of engi­ ber neers to be provided by the training programme should relate to the projected increase in industrial output. A rule of thumb applied w to the effect that the social as sectors comprising education, health, housing and social welfare should absorb not more than 20 per cent of the available public resources, this proportion being the order of magnitude assigned to the corresponding sectors in the existing development plans in India and elsewhere. As for allocations within these sectors, education m ay be taken as an exam Allocations were m by the ple. ade Planning Board, on the recommendation of its Educa­ tion Section, to a num of major sub-sectors, such as ber prim ary education, secondary education and teacher training; and, within these sub-sectors, to a series of in­ dividual projects, such as the establishm ent of new teacher training colleges and improvement of existing training colleges. The establishm of priorities w ent as guided by three major aims: “first, to obtain maximum results from the use of scarce resources; second, to ensure as perfect an integration as possible of the educational plan with the general development plan; and third, to 17 The following presentation is based on an article by D avid E B “A . ell, llocating D evelopm R rces: Som O ent esou e bservation s ba on P istan E sed ak xperien in th yearbook, H ce” e arvard U ni­ v ersity G ate S radu chool of P blic A inistration Public Policy u dm , (C bridge, Mssa u am a ch setts, 1959). re tu r left : Storing fibreboard range in a Turkish synthetic w factory ood right: Filipino worker operating an electric m le polishing m chine arb a left: Checking the slipway blocks in a shipyard a M t ariveles, th e Philippines right: Constructing the Binga hydroelectric plant in th Philippines e Traditional irrigation m th d o th e g of th Thai d se e o n e de e e rt, in Pakistan achieve an equilibrium within the educational plan it­ self”.1 The priorities them 8 selves were summarized a s follows: “It is necessary first to consolidate, that is, to fill up the gaps and m up the qualitative deficiencies ake that exist in the present educational structure, and sec­ ondly, having regard to the resources available, to m ake am odest expansion in the system 9 These statem ”.1 ents suggest that the planners were seeking to apply the cri­ terion of efficiency, the im ediate objective apparently m being efficiency in educational results, rather than in term of national income. s T h e p r o b le m o f in a d eq u a te d a ta While the concepts of efficiency and consistency are in principle applicable to projects with m arketable prod­ ucts, whether or not this could be done depended on the availability of data— such a m s arket and cost data on in­ dividual projects and data on the economic system as a whole. M arket and cost data were available in relatively few cases— predominantly in large-scale public projects in industry, irrigation and power. Rough estim were ates m ade in a num of other cases—notably, cotton and ber jute textiles. Even where m arket and cost data were available, their reliability w low.2 Furthermore, the as 0 18 G overnm of P k n N al P n g B ent a ista , ation lan in oard, The Firsi Five-Year Plan, 1Ç - , page 5 4 55 60 4. 19 Ibid., page 54 . 4 2 A recent survey of several large-scale industrial projects 0 included in th p n in ica th t a a costs w on a e la d tes a ctu l ere n average 6 p cen a d in som ca s u to 1 0 p cen h er 0 er t, n e se p 6 er t, igh th n an ated in th project p osa a ticip e rop ls. 18 available data did not include estim ates of com parative costs involved in the use of alternative technological processes, of indirect costs or benefits or of external economies and diseconomies that were likely to arise from the projects. Only in two or three dozen cases, chiefly for large-scale industrial projects in the public sector, w calculation of com as parative returns on alterna­ tive investm ents possible. Even so, these projects ac­ counted for 30 per cent of the total expenditure in the plan.2 1 For the vast majority of projects in sm and mediumall scale industry, agriculture, sm all-scale irrigation projects and transport, the data were inadequate to provide reli­ able quantitative estim ates of anticipated returns, and other bases for decision were explored. For exam ple, agriculture w assigned a very high priority on the as following grounds: the existence of a significant m argin for increase in agricultural output in view of the low yields per acre; the im pact on the balance of paym ents of saving in foreign exchange resulting from a reduction of food imports; the fact that agricultural exports pro­ vided the only possibility in the short run to increase earnings in foreign exchange. In the absence of the neces­ sary data to perm an evaluation of prospective returns it on investm in individual agricultural projects, such ent evaluation was based, in m cases, on subjective judge­ ost m as to whether a given project w likely to m a ent as ake substantial contribution to the development objectives per unit of resource input. A sim procedure was ap­ ilar plied to projects in the fields of sm and medium-sized all industries, sm all-scale irrigation and transport. The deficiency of project data was paralleled by the scantiness of information on the economic system as a whole. Data on the balance of paym ents, the banking system and the money supply were fairly good. On the other hand, data on prices and on income, consumption, saving and investm were inadequate. Making use of ent the available information, the Planning Board was able to prepare: (i) estim ates of total requirem ents for de­ velopment expenditure which were consistent with changes in income, saving and capital inflow; (ii) esti­ m of foreign exchange requirem ates ents which were con­ sistent with expected changes in exports, im ports and external sources of financing, and (iii) estim of avail­ ates ability of certain resources (notably, cem and profes­ ent sionally trained workers) which were consistent with anticipated requirem ents. Furthermore, the three sets of estim were consistent one with another. ates The selection procedure w pursued up to the point as where there were no apparent opportunities for making 21 Two ty es of retu s w n ally calcu p rn ere orm lated: first, th e an a retu (profit an in ticip ted rn d terest) p u it of tota ca ita er n l p l (borrow an equ fixed a d w ed d ity, n orking) ; secon a ticip d, n ated n savin or earn g of foreign exch ge per u it of tota et g in an n l ca ita S e of th ea ca lation u a shadow ra for p l. om e rly lcu s sed te foreign exch ge, bu th w s discon u su an t is a tin ed bsequ t to th en e devalu ation of th P k n cu cy, w e a ista rren hich brought th n e ew official ra close to th previou u sh te e sly sed adow ra E te. ven th gh im ou portan elem ts of cost or retu w u a lack t en rn ere su lly ­ ing, th calcu e lation w h l in differen s ere elpfu tiatin am g ong p rojects. It ap eared for exam th t it w p , ple, a ould b far m e ore p rofitable to in in cem t an fertilizer th n in steel a d vest en d a n ju te. more rapid progress by replacing an included project with an excluded one; however, with data so scarce and inadequate, the actual allocation of resources was far from ideal. The allocation procedure w sufficient only as to establish relative priorities among certain projects— and even so a considerable degree of uncertainty attended the allotm of these priorities. Relative priorities among ent individual projects did not carry the Board very far toward the objective of allocating resources among sectors, and provided only a partial solution to the objective of allocations within particular sectors. T h e p r o b le m , o f m u ltip le o b je c tiv e s Five objectives were stated in the plan: (a) To raise the national income and the standard of living of the people; (b) To improve the balance of paym ents of the coun­ try by increasing exports and by production of substitutes for imports; (c) To increase opportunities for useful employment in the country; ake (d) To m steady progress in providing social ser­ vices: housing, education, health and social welfare, and (e) To increase rapidly the rate of development, espe­ cially in E Pakistan and other relatively less-developed ast 9 areas.9 The Board w not able to reconcile the first three as objectives through the use of m athem atical programming methods involving “accounting” prices (although, a in­ s dicated earlier, som use of accounting prices w m e as ade in evaluating certain individual projects). However, som practical reconciliation of these three objectives e w achieved without great difficulty. Only in few cases as w the ranking of a project in term of one objective as s 2 2 G overnm of P k n N al P ent a ista , ation lanning B , op. cit. oard different from its ranking in term of another objective. s Where the ranking in term of the national income ob­ s jective differed from the ranking in term of the balance s of paym ents objective, priority w given to the latter; as and where it differed from the ranking in term of the s employment objective, the national income objective was given priority. The relative ease with which these three objectives were reconciled w due in part to the paucity as of data on alternative investm ents. The increase in social services w listed a a separate as s objective for two reasons: first, the Planning Board was im pressed by the difficulties of treating the output of so­ cial services within the national income framework; sec­ ond, it wished to em phasize that such services were an end in them selves as well a a m s eans. The operational significance of this objective cannot, however, be ascer­ tained, since allocation to social services was made on the basis of subjective judgement rather than objective m easurem ents. It is not possible to determ whether ine these allocations would have been different had social services not been listed as a separate objective; neither is it possible to ascertain whether there w a conflict as between this objective and the others. The fifth objective reflected the Government’s concern to achieve a greater geographical equality in income. In order to promote a more rapid economic development in the eastern region, certain projects located in the east were given priority even though they were less profitable than competing projects located in the west; which m eans that the goal of achieving maximum contribution to national income w qualified by this objective. as Israel In proposing projects for inclusion in the development budget of Israel, the various m inistries concerned were requested to follow a standard procedure outlined by A m jo irrigation w rk in 'P k n a r o , a ista : C learing th ground a th G e t e udu b rra e con ction site o a g stru n th In u River e ds 19 View of a p p r mill n a C ittagon E st Pakistan ae er h g, a the Budget Division of the M inistry of Finance. This procedure involves, inter alia, the preparation of a de­ tailed memorandum on each project proposal in response to a questionnaire which presum ably encom passes the criteria on the basis of which projects will be accepted or rejected. Although “the majority of the questions have been framed on the assum ption that they apply to a plant producing manufactured goods for sale . . . m ost of them can also be suited to other investm projects, ent such as services provided against paym other services ent, which are paid to a certain extent (such a housing) or s even services which are given free, such a education”.2 s 3 The m item in the questionnaire are sum ain s marized below. S iz e a n d lo c a tio n W is the location and size of the m hat arkets in which the goods or services to be produced will be sold and what changes in m arket conditions are likely to occur in the foreseeable future? In the case of projects with a nonm arketable output, to w hat extent is such output re­ quired, taking into account present a well as anticipated s needs? Is the proposed size optimum in relation to the planned output? Is the proposed location the m desirable one, ost if not, what is the difference in transport or other costs between the alternatives? F in a n c in g th e in v e s tm e n t From what source and on what term will the invest­ s m be financed? What assurance is there that the ent funds anticipated from non-governmental sources will be secured and what is the stage of negotiations with the parties concerned ? Is the know-how required for the construction and op­ eration of the plant available in Israel? If not, has con­ tact been m ade with a foreign firm to secure the re­ quisite know-how, and what are the term of the con­ s tract? Does the foreign firm perm the use of its tech­ it niques and patents in Israel? Does the responsible firm bear part of the risk through financial participation? “ W o r th w h ile n e s s ” s ta te o f p la n n in g In what stage of planning is the project now? Who is initiating the project and who is responsible for working out the technical, economic and other aspects of its im­ plem entation? How much detail is available about the project? 2 3 G overnm of Isra M istry of F an B dget D ent el, in in ce, u ivi­ sion “In ction for P , stru s reparin D g evelopm B ent udget P osals rop for th F an Y r 1962/63” (Jeru lem 1 J n 1 6 ) e in cial ea sa , 5 u e 9 1 (m eographed). im 20 p la n t K n o w -h o w M a r k e ts P r esen t o f o f a p r o je c t The “worthwhileness” of a project is assessed by com­ paring the relevant costs and benefits. Income, current expenditure and capital expenditure are first estim ated on the basis of current prices for each year throughout the useful life of the project. Since, however, annual receipts and outlays at different tim are not equivalent, es they are converted to present worth in the final year of investm The rate of interest used in this conversion ent. is 8 per cent; it is a shadow rate representing, in the estim ation of the Budget Division, the real cost of capi- tal for the economy. A project will be worth while if the present worth of annual incomes after deduction of an­ nual costs exceeds the present worth of total investm ent. This relationship m be expressed in the following ay formula: n 2 (T - Ctj (I + i)~‘ ^ 2 K t (I + 0 _‘ t= 0 m 10 = in which 5 is the value of annual sales, including sub­ sidy and local taxes; C is current annual costs, excluding depreciation and interest; K is the annual expenditure on capital goods; i is the rate of interest; m is the period of investm (in years), m ent easured from the reference year( t = 0 ) ; s the useful lifetim of the project (in in e years) m easuredfrom thereference year. The above formula m also be expressed as a benefitav cost ratio: S (T - C«) ( + I ^ m 2 K, (I + O"' t)-‘ /> 1 10 = Projects which are worth while are assigned priority ratings on the basis of their respective benefit-cost ratios. The above formula is applied in evaluating projects which are expected to have no balance of paym ents im­ pact or which are expected to have an unfavourable one. In the latter case, the rate of exchange used in conver­ sion to local currency is the official rate (£1 1.8 to the dollar). Projects with an expected favourable balance of paym ents im pact, on the other hand, are given priority ratings on the basis of the cost in local currency per dol­ lar saved or earned arising from each project. This cost is calculated as follows: 20(Cl - SO (1 + 0 “ ‘ t= ______________ 2 10 = (S { - C Q Q + /)-' in which C~=total costs in local currency; 5-^-= total receipts in local currency; S-y- = total receipts or savings in foreign exchange; Cq~=total cost in foreign exchange; is the rate of interest, and n the useful lifetim of the e project (in years) m easured from the reference year. These rates will, as a rule, be positive, since projects which improve the balance of paym ents are usually char­ acterized by the fact that total cost in local currency ex­ ceeds total income in local currency, while foreign ex­ change income or savings exceeds foreign exchange cost. i top: Taf{ing a sam le oj gushing for tests in an Israeli oilfield p centre: New housing project under construction a Ram t t a Aviv, Isra l e bottom G eral view of a copper w near Eilat, Israel : en orks 21 Part T w o A N A L Y S IS OF T H E CASE STU D IES the case T he over-all impression emerging from to assign studies is that the experts were attem pting priority rankings to projects under consideration by com­ paring their anticipated effects throughout the economy, that is, the costs—including alternative or opportunity costs—and benefits from the point of view of the econ­ omy as a whole. Since a project will, as a rule, involve an evaluation of a m ultiplicity of alternative costs and benefits, the ex­ perts are faced with the problem of passing from this multi-dimensional comparison into a single over-all rat­ ing for the assignm of priority rankings. This, in ent turn, requires that the various costs and benefits be as­ signed relative weights. In evaluating projects, the experts are faced with two questions which have a bearing on the validity of the resulting priority rankings. First, among the m any ef­ fects of a project, which are significant and should be taken into consideration? Second, given the effects to consider, what relative weights should be attached to each effect? The solutions proposed by the experts vary from case to case but two types of approach m be dis­ ay tinguished; the first is exem plified by the case studies relating to Burm Peru and the West Indies; the sec­ a, ond, by those relating to Israel, Turkey and the Philip­ pines. Burma, Peru and the W est Indies The evaluation m ethods proposed in these case studies involve multiple criteria, as m be seen from table 1 ay . Since each criterion is concerned with a lim ited aspect of a project’s effects, a system of multiple criteria will yield a num of partial ratings. In order to achieve an ber over-all rating on the basis of these partial ratings, the several criteria in the system had to be assigned relative weights. The logic of this procedure m be expressed ay schem atically as follows. F ir s t step C riteria (k¡) P je t (P¡) ro c P1 Partial ra g (r¡j) tin s tlm >il r1 2 rS 2 [_ „ k , k g y rn¡ Pn ▼ fjim Second step P je (Pj) Partial ra g (r¡,j ro ct tin s W ig ts o eh n criteria (W i) k Pi F2 ... Vm 2 g [W u , w Pn 22 (R¡) Rt ?£ i ▼ O e ll v r-a ra g tin s >f >f >f u , . . . W km] R f> T Rn In assessing this procedure a it is applied in the three s case studies under consideration, a num of questions ber need to be explored. First, what specific aspect of a project’s effects are related to a given criterion and how do the several criteria in the system complement each other in assessing the over-all effect? Second, what weights should be assigned to the several criteria in the system Third, what ratings, partial and over-all, should ? be assigned to projects? And finally, what is the validity of the resultant priorities? An attem is made in table 1 to classify the criteria pt in three groups according to the effects which they are intended to assess; the residual criteria are contained in the fourth (other considerations) group. It m ust be noted that the determining factor in assigning a given criterion to a given category is the significance attached to it by the expert concerned. The criteria in the first group are intended to m easure the intensity of a factor or factors required by a project. M of them however, are substitutes involving vari­ ost , ous assum ptions which are not in all cases easy to un­ ravel. The wages-gross output ratio, which is one of the criteria used in the W Indies case study, m be taken est ay a an exam s ple. This ratio is designed to m easure the labour intensity (in term of unskilled labour) of a given s project. It is prem ised on the assum ption, among others, that all wage earners are low-paid unskilled labourers and that differences among projects in respect of this factor are attributable solely to differences in intensity of unskilled labour. Sim ilarly, the ratio of labour per number of establishm ents in industry in the sam case e study is intended to m easure requirem ents for certain types of skilled manpower. This is based on the as­ sum ption that the ratio is indicative of the scale of op­ erations of a typical unit in an industry, which also de­ term ines the requirem ents of a project for skilled man­ power, notably m anagers. Other criteria involving more complicated assum ptions could be quoted. The criterion “complexity of products” probably im­ plies more than requirem ents for skilled manpower al­ though for the sake of sim plicity, it has been indicated in the table under this category. Of the two criteria in the second group relating to raw m aterials, the first, availability of cheap dom estic raw m aterials (Burma), is used qualitatively; it im plies that a project which uses “cheap” domestic raw m aterials is likely to be profitable. The value of the second, “weight of m aterials handled-labour” (West Indies), which is nominally a quantitative criterion, is very m uch weakened by the vagueness in the treatm of the m ent ost important aspect, nam ely, the loss of weight in proc­ essing. In the final analysis, it resolves itself into a quali­ tative evaluation. The criteria in the third group m be related to an ay assessm of the indirect benefits arising from a project ent aside from its direct effects. “Organicity” and “dom estic Table 1 Classification o criteria acco d g to the effects w ich they are in en ed to f r in h t d a s s —B r a, P r a d t e We t In ie s es u m eu n h s d s factor in u p ts* Criteria u d b e p rts se y x e Burm a D and ............................. em C heap dom estic raw m aterials ... C apita!—labour ................... Value added—capital ............ Value added—foreign exchange.. Foreign exchange—labour ...... E ffect on em ploym in th ent e existing industries ............... Possibility of expanding existing enterprises ....................... Peru V ariety of m odels................. Com plexity of products.......... “O rganicity” ....................... D estic raw m om aterials used1 '... M um scale .................... inim Value added— gross value of output ............................. Value added—total investm ... ent Investm in m ent achinery an d equipm ent—investm in ent fixed a ssets ...................... West In ie d s Wages— gross output ............. W ages— output ................ net N output—labour ............... et M echanical horsepow er—labour.. W eight of m aterials handled— labour ............................. Labour—establishm in ents industry .......................... Localization ratios ................ K L — X X — — — X — — X N on-factor inputs Indirect O ther n e tion b n fits co sid ra s ee S FE L K,„h fue! — — — — — X — — — — — — — — — — — — — — X — — — — _ _ — — _ _ — X — — — — — — - X — — — — — — — X X X X X X X _— X — — — X _ _ X X X _ — X X X — X — — — — _ _ _ — — _ X — - — X — — X — — — — — — — — — — — — -— _ _ _ _ X — _ X _ _ X — — — — — _ — _ — — — — X K ~ ca ita L = u sk d la ou S = sk d mn ow FE = fo n e ch n e p l; n ille b r; L ille a p er; reig x a g . b Rm ra mte ls w a ria . c A ou h d mstic ra mte ls ue re re n n -fa in u th is n t in ica d in th ta le lth g o e w a ria s d p se t on ctor p ts, is o d te e b, sin it w ld a p a tht th e p rts wre p a co ce e w th e ct of a d mn for d mstic ce ou p e r a e x e e rimrily n rn d ith e ffe e ad oe ra mte ls o th o tp t of su mte ls w a ria n e u u ch a ria . raw m aterials used” (Peru) m be classified under this ay category. These criteria are qualitative, since the benefits are difficult to quantify. The last group contains a combination of criteria which are difficult to identify separately. The criteria relating to “demand” and “effect on employment in existing industries” (Burma), “minimum scale” (Peru) and “localization ratio” (West Indies) are closely related. They are essentially concerned with the question of whether there will be a m arket for the commodity to be produced. This question is relevant in the early stages of project screening which precede evaluation proper. The item “possibility of expanding existing industrial enterprises” (Burma) is not properly an evaluation criterion. It relates to the alternative which arises in planning for additional outputs of either expanding existing establishm ents or creating new ones; there is no indication as to how the expert expects to provide a reply to this question. The objective of the preceding classification of criteria 23 proposed for evaluation of projects w to facilitate the as examining of their relevance and internal consistency. The discussion above suggests a num of observations ber which apply in varying degrees to the three cases. First, the proposed criteria are not equally relevant; second, som of them overlap, in som cases to the extent of al­ e e m complete duplication; third, som of the criteria ost e are quantitative, others are qualitative, and it is not easy to see how they could be combined; fourth, among the quantitative criteria, som are substitutes involving as­ e sum ptions which have not alw been explicitly stated. ays Finally, som quantitative criteria, in particular those e relating to evaluation of factor input are based on data borrowed from developed countries. In the particular case of Burm the expert provides a a, list of criteria, but no indication a to how the partial s ratings would be determ ined, what relative weights should be attached to the various criteria, or the way in which the over-all rating will be m ade. In the case of Peru and the W Indies, partial ratings are given in est the form of rankings (a, b or c); the weighing of the criteria is also indicated in the form of ranks; for ex­ am ple, criterion Cj is deem more im ed portant than criterion C¿ and so on, and the over-all ratings provide no adequate indication as to how any one project ranks in relation to another. Israel, the Philippines ad n Turkey Although, as m be seen in table 2, the evaluation ay m ethods proposed in these case studies also encom pass system of multiple criteria, an attem has been m s pt ade here to combine the more im portant criteria into three formulae. A quantitative rating of each project under consideration is achieved by aggregating on the one hand all elem ents of cost, and on the other hand all benefit elem ents, and by combining the former with the latter in a single benefit-cost ratio. The inclusion of other criteria in the system indicates, however, that this w not considered sufficient to provide an adequate as solution. N evertheless, it is significant that m if not all ost of the m easurable effects of a project are being assessed here in term óf a single quantitative criterion. s As w pointed out in the discussion of the case studies as of Burm Peru and the W Indies, the various costs a, est and benefits m be assigned relative weights. In this ust case, weights are applied not to partial criteria a in the s former exam ples, but to well-defined costs and benefits, that is, directly to inputs and outputs. In so far a it can s be assum that m ed arket prices for factors and products adequately reflect their social value, they are the proper weights to use. When this is not the case, so that evalua­ tion based on m arket prices would lead to m isallocation of resources, the experts propose that an appropriate cor­ rection be applied to com pensate for the divergence be­ tween m arket and social values. Thus, the first step in this procedure is to calculate for each project the return on investm ent, using m arket prices as relative weights. This is calculated according to the formulae given below. The next step is to apply a correction to com pensate for discrepancies between m arket and social values, as the need arises. Two m ethods are used. The first is to correct the m arket prices of certain factors and products which are under-valued or over-valued: for exam the ple, price of capital (Israel); the price of foreign exchange (Turkey and the Philippines), and the price of home produced goods destined for domestic use (Turkey). These corrections are tantam ount to using, instead of m arket prices, “equilibrium” or accounting prices, which m easure the social value of factors and products. The determ ination of these “equilibrium” prices is discussed in part three of this article. A second method of correction, which has been ap­ plied in the case of the Philippines, consists of attribut­ ing additional benefits to a project which uses an abun­ dant factor (for exam ple, unskilled labour) or has a beneficial im pact upon the rest of the economy, either forward or backward. The “essentiality” factor men­ tioned above was intended to take into account the bene­ fits arising m ainly from the “forward” effects; the cor­ rection for the use of domestic raw m aterials, on the other hand, was concerned with benefits arising from the “backward” effects. The rationale underlying these cor­ rections is that, in so far as a project produces commodi­ ties which are used as inputs elsewhere in the economy, or uses commodities which are produced by other sec­ tors, it stim ulates economic activity and consequently gives rise to additional benefits which should be attri­ buted to the project considered. A closer exam ination of the formula suggests, how­ ever, that in som cases the indirect effects are taken e into account twice, so that their im pact is exaggerated. 5^ (value of output—cost of m aterials and labour) (i + z) ( S investm (f + z) t ent t—0 value of output—cost of purchased m aterials and depreciation — t -----------------------------------------investm ent philippines:-------------— T RE : UKY 24 value of output—cost of m aterials, labour and depreciation —------------------ : -investm ent Tbe 2 al Classification o criteria acco d g to th effects w ich they are in en ed to f r in e h t d a s s —Is a l th P ilippin s a d Tu k y s es re, e h e n re D irect e c ffe ts Criteria Indirect e cts ffe O jador O o e n n th r ue s p je ro cts S co d ry e na e c ffe ts O e th r co sid ra n n e tio s Isr e al ï (S,-Ct) (l + i )-'* t= 0 ................................................ X X — m 2 K t ( l + i)“ * t= 0 N ature an size of m d arkets...................... Size an location of plants...................... d Sources of financing............................... A vailability of know-how........................ X X X X — — — — Ph ilippin s e FE/es— FE/c e(w + r + i+p) K + K + 0.5 rmd/rmtY. rmd IdY 2.000 f + --------------------+ .............. K X X K Overcrowding of a industry....................... n Abnorm pricing of labour, m al aterials an d products .......................................... P ossible effect on increased dom estic produc­ tion of raw m aterials............................... — X X — Tu key r S—(w + o+ rmd+ rmt ) + K (FE/es—FE/c) 30/100 st -Í---------------------------+ — K X X — — K R egional balance (external econom ies)....... R of com ate pletion................................. N ature of product................................ Technical com plexity ............................ Labour training ................................... Stability ............................................. X X X X * St = v lu of a n a s le; Ct — cu n a n a co e clu in ca ita co Kt = a n a ae n ul a s rre t n u l sts, x d g p l sts; n ul e p n itu on ca ita g s, in d g w in ca ita i = in re ra ; m = p rio of in e e t x e d re p l ood clu in ork g p l; te st te ■e d v stmn (in y a ma re from th re re ce y a (t=0); n = u fu life e of th p e rs), e su d e fe n e r se l tim e roject (in y a ) e rs ma re from th re re ce y a 2 in ica s a g g tio of a n a v lus e su d e fe n e r; d te g re a n n u l a e , t Se te t. e x f: S = g ss v lu of s le; w — wg s; o = o e o e tin co ex d g rm , rm rm = ro a e a s ae th r p ra g sts, clu in d t; d d e ra mte ls; rm — imo d ra mte ls; FE/es — fo ig e ch n e e rn g o s v g omstic w a ria t p rte w a ria re n x a g a in s r a in s; FE/c = foreig e ch n e co s = corre n fo h m p d ce good K = to l in e e t. n x a g sts; ctio r o e ro u d s; ta v stmn For exam in addition to assum the cost of dom ple, ing estic unskilled labour to be zero, a benefit is assigned to projects for the use of this labour. A further benefit is assigned for the use of domestic raw m aterials regard­ less of the cost elem ent. Among the other criteria that are being used to com­ plem the three basic criteria represented by the formu­ ent lae, those grouped under the category “other considera­ tions” in table 2 are, in m cases, relevant in the early ost stages of project evaluation which precede evaluation proper. The criteria of “external economies”, “labour training”, “rate of completion” and “nature of product”, proposed in the Turkey case study and the criterion of “possible effect on increased domestic production of raw 25 m a te r ia ls ” , p r o p o s e d in t h a t o f t h e P h i l i p p i n e s , a r e i n ­ p r ic e s o r , i f u n m e t d o m e s t ic d e m a n d r is e t o e c o n o m ie s ” , “ la b o u r t r a in in g ” a n d “ p o s s ib le e ffe c t o n in ­ “ n a t u r e o f p r o d u c t ” r e la t e s t o a p r o j e c t ’s i m p a c t o n c o m ­ m a t e r i a l s ” r e la t e t o su m ed The s o m e o f w h ic h p h a s in g of o f “ r a te o f c o m p l e t i o n ” p r o je c ts w ill a f fe c t , on im p lie s th e one th a t th e hand, th e d o m e s t ic s u p p ly o f c o m m o d it ie s a n d , o n th e o t h e r h a n d , d o m e s t i c i n c o m e ; c o n s e q u e n t l y , it m a y a f fe c t cr ite r io n m o d i t y s u p p l y a n d c o n s e q u e n t l y o n p r ic e s o f g o o d s c o n ­ e f f e c t s a r i s i n g f r o m t h e i n t e r d e p e n d e n c e o f t h e p r o j e c t s .24 c r it e r io n b oth . T h e im ­ p o r t s , t h e b a la n c e c re a se d d o m e s tic p r o d u c t io n o f r a w o f p a y m en ts, o r g iv e s t e n d e d t o assess i n d i r e c t e ff e c t s . T h e c r it e r ia o f “ e x t e r n a l by lo w -in c o m e grou ps. T h ese in d ir e c t e ff e c t s , m a y b e r e f e r r e d t o as s e c o n d a r y e ff e c t s , a r e d i ffi c u l t t o a s s e s s ; h e n c e t h e q u a li t a t i v e n a t u r e o f t h e c r it e r ia w h i c h In d o m e s t ic r e la t e t o t h e m . t h e fin a l o v e r - a l l r a t i n g o f e a c h p r o j e c t , t h e b a s ic c r it e r ia , th a t is, t h e f o r m u l a e , m u s t b e c o m b i n e d w ith t h e o t h e r c r it e r ia in t h e s y s t e m . T h i s h a s t o b e a c h i e v e d 24 T h e criterion o f “ possible effect o n increased dom estic p ro d u ctio n o f raw m aterials” p rop osed in the P hilippin es case study is redu ndan t, since the b a ck w a rd effect o f a p roject is taken in to accoun t through the basic form u la. a l o n g t h e lin e s o f t h e p r o c e d u r e s s c r ib e d in c o n n e x io n w ith th e w h ic h have been d is cu s s io n of th e de­ ca se s t u d ie s r e l a t in g t o B u r m a , P e r u a n d t h e W e s t I n d ie s . Part Three SYNTHESIS A N D CONCLUSION s w as n oted A d e c is io n in t h e i n t r o d u c t i o n r e g a r d in g a ccep tan ce t o t h is a r t ic le , t h e or r e je c tio n t a k e n o n a n a d h o c b a s is i n c o n n e x i o n w ith m ay be in d iv id u a l p r o j e c t s o r it m a y i n v o l v e t h e s i m u l t a n e o u s c h o i c e o f t h e p r e n e u r , o p e r a t i n g in a f u l l y m a r k e t - o r i e n t e d th e m u lt i-d im e n s io n a l com e n a to r o f m o n e y e s t im a t e d c a s e , th e e v a lu a tio n w ill b e b a se d o n a c o m p a r is o n o f th e of resou rces e s p e c ia lly in have to be g iv e n up in th e im ­ p l e m e n t a t i o n o f t h e p r o j e c t a n d its a n t i c i p a t e d b e n e fit . The d i ffi c u l t y in p r o je c t e v a lu a tio n c o n s is t s , o b s e r v e d e a r lie r , o f t h e fa c t t h a t t h e p r o b l e m as v a l u e in t e r m s o f m a r k e t p r i c e s o f h is o u tla y s e v a lu a tio n and a r is e s a n tic ip a te d p r e c is e ly th e d e v e lo p in g y ie l d s . T h e becau se w as of th e c o u n tr ie s , fo r r e a s o n s o f a n i n s t it u t i o n a l, s o c ia l a n d has to be does not s a c r ific e s as w e l l as y ie ld s a r e a p p r o p r i a t e l y a s s e s s e d at t h e c o m m o n d e n o m i ­ t h a t is, t h e e l a b o r a t i o n o f a p r o j e c t p r o g r a m m e . I n e it h e r w o u ld econ om y, o f th e p r o b le m in t o th e o p e n , s in c e f o r h im p r o je c ts to b e im p le m e n t e d w it h in a c e r t a in t im e p e r io d , th a t n a tu re p r o b le m fa c t th a t , a v a r ie t y of e c o n o m ic n a tu re , t h e p r i c e m e c h a n i s m c a n n o t i n it s e lf b e c o n s i d e r e d as a n a c c e p t a b le c r ite r io n in a ll cases w h ere d e c is io n s on d e t e r m i n e d o n a m u l t i - d i m e n s i o n a l b a s is a n d t h a t f r o m m a tte rs o f in v e s t m e n t a n d p r o d u c t io n are in v o lv e d . T h is th is de­ b r in g s in r i v e d . T h e m u l t i - d i m e n s i o n a l c h a r a c t e r is r e la t e d t o th e to a b o v e . a o n e -d im e n s io n a l d e c is io n p a tte rn has to be th e p r o b le m o f m u lt i-d im e n s io n a lit y r e fe r r e d f a c t th a t th e p r o je c t h a s to b e c o n s id e r e d in th e c o n t e x t o f its i m p a c t o n y ie ld a v a r ie t y o f fie ld s , s u c h in te rm s o f a n n a tio n a l as a n t i c i p a t e d in c r e a s e in n a t i o n a l i n c o m e o r c o n s u m p t io n — w ith , m oreover, th e E l a b o r a t io n o f a p r o je c t p r o g r a m m e in d is tin c tio n T h e p r o b le m o f p r o je c t e v a lu a tio n w ill p r im a r ily b e d is ­ b e t w e e n t h e i m m e d i a t e e ff e c t s a n d t h o s e o b t a i n e d in t h e cu sse d in th e c o n t e x t o f th e e la b o r a tio n o f a p r o je c t p r o ­ lo n g e r r u n ; p r o v is io n o f r e m u n e r a tiv e e m p lo y m e n t ; i m ­ g r a m m e f o r e x e c u t i o n d u r i n g a g i v e n p e r i o d o f t i m e . It p act on a ls o t h e is, i n fa c t , o n l y i n t h is c o n t e x t t h a t t h e p r o b l e m r e g io n a l p r i n c i p l e , b e a d e q u a t e ly s o l v e d ; w h e n a p r o j e c t is e v a l u ­ d i s t r i b u t i o n o f p r o d u c t i v e a c t iv it y . A l s o , t h e p r o d u c t i o n a t e d o n a n a d h o c b a s is as a n d w h e n it is p r e s e n t e d , its th e b a la n c e o f p a y m e n ts a n d p o s s ib ly im p a c t o n th e d is tr ib u tio n o f in c o m e and on f a c t o r s t o b e u s e d a r e b a s ic a lly i n c o m m e n s u r a b l e : c a p i ­ a d o p tio n t a l; f o r e ig n e x c h a n g e ; la b o u r , s k ille d a n d u n s k ille d ; th e e x e c u t io n o f m o r e p r o fita b le p r o je c ts th a t m a y c o m e u p v a r io u s a fte r w a r d s. c a t e g o r ie s m in e r a ls , oth er of n a tu ra l h y d r o -p o w e r. hand, e la b o r a tio n is by The its n a t u r e o f a p rogram m e resou rces, d e c is io n su ch as la n d , p a tte rn , on th e o n e -d im e n s io n a l: fo r th e o f p r o je c ts , th e ca n d id a te p r o j e c t s a r e r a n k e d in a s i n g l e l in e p r i o r i t y o r d e r a n d t h e d e c is io n r e g a r d in g an in d iv id u a l p r o je c t can e it h e r b e F or th e w i l l a lw a y s p r o b le m im p ly to be t h e r is k c a n , in d e fin e d , o f p r e c lu d in g th e th e fo llo w in g d a ta h a v e to b e k n o w n : th e “ u n iv e r s e o f c a n d id a t e p r o je c t s ” ; th e a v a ila b i lit i e s of th e v a r io u s resou rces d u r in g th e g i v e n t im e p e r i o d , a n d t h e o b j e c t i v e s o f e c o n o m i c p o l i c y a g a in s t w h ic h t h e d e s ir a b i li t y o f t h e c a n d i d a t e p r o j e c t s h as t o b e c o n s id e r e d . a c c e p t a n c e o r r e je c t i o n . d e te r­ T h e p r o g r a m m e c a n r e f e r t o t h e n a t i o n a l e c o n o m y as m i n e d p r o b l e m t o a o n e - d i m e n s i o n a l d e c i s i o n is, in g e n ­ a w h o l e o r t o a p a r t i c u la r s e c t o r , f o r e x a m p l e , t o m a n u ­ The t r a n s itio n e r a l, r e s o lv e d and m arket 26 by fr o m th e th e m u lt i-d im e n s io n a lly a u to m a tic o p e r a t io n m e c h a n is m . T hu s, fo r th e of th e p r iv a t e p r ic e f a c t u r i n g in d u s t r y o r a n i n d i v i d u a l b r a n c h o f i n d u s t r y . en tre­ I t c a n c o m p r i s e p u b l i c as w e l l as p r iv a t e p r o j e c t s , o r it c a n b e c o n fin e d ' tó th e p u b lic s e c to r o n ly . T h e d a ta re ­ p lo y m e n t , a n d fo r e ig n e x c h a n g e o b je c t iv e s w ith n o g rea t fe r r e d to a b o v e s h o u l d , o f c o u r s e , r e la t e t o t h e a r e a t o b e d iffi c u l t y . T h i s , h o w e v e r , is e x c e p t i o n a l , s in c e covered o u s o b j e c t i v e s w i l l g e n e r a l l y p r o v e to b e c o m p e t i t i v e — i f by th e p rogra m m e. T h e c a n d id a t e p r o je c ts o f th e u n iv e r s e a re th e b u i l d i n g not c o n flic tin g . T hu s, th e m o s t a cu te th e p r o b le m s v a r i­ w h ic h s t o n e s o f s u c h a p r o g r a m m e at t h e m i c r o - e c o n o m i c l e v e l. g o v e r n m e n t s o f d e v e l o p i n g c o u n t r i e s i n v a r i a b l y fa c e a r e C o n v e r s e ly , on th e d a ta on o b je c tiv e s and resou rce a v a il ­ th e o n e h a n d to im p r o v e as r a p id ly as p o s s ib le th e a b ili t i e s h a v e b e e n s p e l l e d o u t in m a c r o - e c o n o m i c f o r m g e n e r a l l y in a d e q u a t e le v e ls o f p r e s e n t c o n s u m p t i o n , a n d under at an e x is t in g p la n . The c o n s titu te a b r id g e b e t w e e n p ro je c t p rogram m e w ill th e m a c r o - e c o n o m ic ta rgets th e sam e to p ro v id e fo r fu tu r e a c c e le r a t e d i n g s u b s t a n t ia l e m p l o y m e n t ; a n d a ll t h e s e g o a l s m a y b e a n d t h e le v e l o f i m p l e m e n t a t i o n . a c h i e v a b le R e s o u r c e t im e g r o w t h . T h i s m a y c o n f l i c t w it h a p r o g r a m m e o f p r o v i d ­ a v a ila b ilitie s a n d o n ly at th e cost of th e fo r e ig n exchan ge p o s itio n . p o lic y o b je c tiv e s I n s u c h c a s e s , it w i l l b e n e c e s s a r y , in o r d e r t o a r r iv e at I f p r o je c t e v a lu a tio n o r is c o n f i n e d is c o n d u c t e d to o n e o r a fe w by in d iv id u a l se cto rs se cto rs, th e p la n s h o u ld s p e c i f y t h e r e s o u r c e s t o b e a l l o c a t e d to t h e s e c t o r s c o n ­ c e r n e d a n d p r e f e r a b l y t h e t a r g e t s to b e a t t a in e d b y e a c h s e cto r d u r in g th e p r o g r a m m e p e r io d . T h e p ro ce d u re s an d m e th o d s a d e fin ite p r io r ity r a tin g , to d e fin e q u a n tita tiv e ly , and as p r e c i s e ly as p o s s ib l e , t h e r e la t iv e i m p o r t a n c e a t t a c h e d to e a c h o b j e c t i v e . T h u s , it is n o t e n o u g h t o d e c i d e th a t p r o je c ts w h ic h e a rn o r sa v e f o r e ig n e x c h a n g e s h o u ld b e g i v e n p r i o r i t y ; it w i l l b e n e c e s s a r y to d e f i n e e x a c t l y th e u s e d in t h e e l a b o r a t i o n am ount of fo r e ig n exchan ge th a t is c o n s id e r e d to be o f a m a c r o - e c o n o m i c a g g r e g a t e p l a n a n d its s u b d i v i s i o n e q u i v a l e n t t o o n e u n it o f t h e d o m e s t i c c u r r e n c y . A s w a s ip to s een in s e c t o r a l p la n s a r e o u t s i d e t h e s c o p e o f t h e p r e s e n t t h e c a s e s t u d ie s , t h e q u a n t i f i c a t i o n o f t h e r e la ­ s t u d y ; t h e y h a v e b e e n e x t e n s i v e l y d e a lt w i t h e l s e w h e r e . '0 t iv e i m p o r t a n c e o f t h e v a r io u s o b j e c t i v e s is, in N o r m a l l y , it w i l l b e n e c e s s a r y n o t a lw a y s o b s e r v e d . t o e s t im a t e t h e r e s o u r c e a v a i l a b i l i t i e s f o r e a c h c o n s e c u t i v e y e a r o f t h e p e r i o d , in p a r tic u la r and as r e g a r d s n a tu ra l th e resou rces, a v a ila b ility m an p ow er, of raw c a p ita l, c h a n g e a n d th e lik e . T h e r e s o u r c e s w h ic h m a t e r ia ls fo r e ig n ex­ w ill b e g e n ­ p ra ctic e ^ T h e r e la t iv e i m p o r t a n c e t o b e a ll o c a t e d t o t h e d i f f e r e n t o b je c t iv e s ca n b e e x p re ss e d t h r o u g h a p p r o p r ia te w e ig h t ­ in g c o e ffic ie n t s . one o f w h ic h T h u s, w o u ld w hen be c o m p a r in g lo c a t e d tw o in a c e r t a in p ro je c ts , ba ck w a rd e r a te d u n d e r th e p la n — f o r e ig n e x c h a n g e , f o r e x a m p le — r e g i o n a n d t h e o t h e r in t h e m e t r o p o li t a n a r e a , t h e y ie ld w ill, o f c o u r s e , b e ta k e n in t o a c c o u n t. o f t h e f o r m e r c o u l d b e in c r e a s e d in a c e r t a i n p r e - d e t e r - T h e o b j e c t i v e s o f e c o n o m i c p o l i c y h a v e to b e k n o w n , m in e d r a t io w h i c h e x p r e s s e s t h e “ w e i g h t ” o f t h e o b j e c ­ s in c e it is in t e r m s o f a c h i e v e m e n t s in t h e r e a l i z a t i o n o f t iv e t h e s e o b j e c t i v e s th a t t h e y i e l d s o f t h e p r o j e c t s c o n s i d e r e d sta n ces, th e w e ig h t in g fa c t o r s w it h re sp e ct to th e o b je c ­ h a v e to b e m e a s u r e d . t iv e s m a y t a k e t h e f o r m o f “ a c c o u n tin g ” o r p r ic e s , in as in S o m e o f th e m o s t im p o r ta n t o b je c t iv e s h a v e b e e n re ­ f e r r e d t o e a r lie r . N o r m a l l y , a m a x i m u m tio n a l in c o m e i n c r e a s e in n a ­ is, e x p l i c i t l y o r i m p l i c i t l y , r e c o g n i z e d th e p r in c ip a l o b je c t iv e to be p u rsu ed . A lo n g as w i t h t h is , o t h e r o b j e c t i v e s m a y r e la t e t o t h e s t r e n g t h e n i n g o f p r o ­ d u c t i v e c a p a c i t y s o as t o m a k e p o s s i b l e a m o r e r a p id i n ­ c r e a s e in n a tio n a l i n c o m e b r o a d e n in g in th e fu tu r e , in c lu d in g o f t h e p r o d u c t i v e b a s is t h r o u g h v e r s ific a tio n ; a g re a te r e q u a lity in th e g re a te r d i­ d is tr ib u tio n th e of of d e v e lo p in g th e th e sam e ba ck w a rd w ay area. th e In ca se several of in ­ “ sh adow ” p r o d u c tio n fa c t o r s , as w i ll b e d is c u s s e d la t e r . T h u s , t h e r e l a t iv e i m ­ p orta n ce of a g iv e n in c r e a s e in n a t io n a l in c o m e a fte r f i v e y e a r s , as c o m p a r e d w it h t h e s a m e in c r e a s e n o w , cai| b e r e fle c t e d in t h e “ a c c o u n t i n g r a te o f in t e r e s t ” . W hen th e e v a lu a tio n of p r o j e c t s is c a r r ie d out on a; s e c t o r a l b a s is , it is, f u r t h e r m o r e , o f b a s ic i m p o r t a n c e th a t t h e s a m e set o f g e n e r a l o b j e c t i v e s is a p p l ie d in t h e v a r i ­ o u s s e c t o r s w i t h t h e s a m e r e l a t iv e w e i g h t . i n c o m e ; t h e p r o v i s i o n o f e m p l o y m e n t f o r t h o s e at p r e s e n t u n e m p lo y e d m a rk e t; and fo r th e n e w th e s tr e n g th e n in g o f en tra n ts in t o th e th e b a la n c e o f la b o u r p o s itio n ; th e d e v e lo p m e n t o f th e m o r e b a ck w a rd areas T h e d e fin it io n o f th e o b je c tiv e s to b e p u r s u e d d e p e n d s b a s ic a lly on th e m ay p o lic y be m a k er. In pu rsu ed m any c a s e s , v a r io u s s im u lta n e o u s ly . If p r o je c ts h a d i d e n t i c a l r a t in g s w i t h r e s p e c t t o t h e d i f f e r e n t o b j e c ­ t iv e s , n o p r o b l e m w o u l d a r is e . I t w i l l b e r e c a lle d t h a t in th e P a k is ta n case, th e D e v e l o p m e n t r e c o n c ile th e “ u n iv e r se o f c a n d id a te p r o j e c t s ’’ T h e p r o c e d u r e o f e v a lu a tio n s h o u ld be p re c e d e d b y th e e s t a b lis h m e n t o f a “ u n iv e r s e o f c a n d i d a t e p r o j e c t s ” . o f th e c o u n t r y , e tc. o b je c tiv e s T h e p a y m e n ts n a tio n a l in c o m e B oard o b je c tiv e w a s a b le t o w it h th e em ­ An im p o r ta n t p r e r e q u is ite is th a t th e “ u n iv e r s e ” s h o u l d b e as c o m p l e t e as p o s s ib le , th a t is, t h a t a ll r e le v a n t p r o je c ts s h o u ld be in c lu d e d : by le a v in g out p o s s ib le p r o j e c t s , a d i s t o r t i o n o f t h e p r o g r a m m e m a y r e s u lt . T h e fir s t t a s k w i l l b e t o c o n d u c t a b r o a d p ro p o s a ls fo r p r o je c ts . O f cou rse, in q u ir y o n ly r e g a r d in g th ose p r o je c ts p r o p o s a ls w ill b e in c lu d e d in th e “ u n iv e r s e ” th a t ,sta n d a r e a s o n a b le c h a n c e o f b e i n g s e le c t e d . T h i s is i m p o r t a n t , C om p a re, fo r instance, the E C A F E reports referred to in fo o tn o te 1: P ro g ra m m in g T e ch n iq u e s fo r E co n o m ic D e v e lo p ­ m e n t and F o rm u la tin g Ind ustrial D e v e lo p m e n t P ro g ra m m es; also the article o n “ Use o f M o d e ls in P ro g r a m m in g ” in B ulletin on Ind ustrialization an d P ro d u ctivity , N o . 4 (Sales N o .: 60.11. B .2 ), an d J. T in b e rg e n , T h e D esig n o f D e v e lo p m e n t (Johns H o p k in s Press, B altim ore, M aryland, 1958). 20 b e c a u s e at t h is s t a g e o f f in a l s e l e c t io n , it w i l l b e n e c e s ­ sary to d e t e r m in e y ie ld s f o r e a c h w it h s u ffic ie n t o n e o f th e p r e c is io n c a n d id a te co sts and p r o je c ts ; a n d t h is w i l l r e q u i r e t h e c o n d u c t i n g o f c o s t ly f e a s ib ili t y s t u d ie s . It w i l l , t h e r e f o r e , b e a d v i s a b le t o s u b je c t t h e p r o j e c t p r o i p o s a is t o a p r e - e v a l u a t i o n s c r e e n i n g . S u c h s c r e e n i n g w il l, 27 i n g e n e r a l , b e c o n f i n e d t o a n a p p r a is a l o f t h e m e r it s o f gram m e; a p r o je c t p r o p o s a l in its e lf a n d th u s w ill n o t in v o lv e a r e s p e c t . T e c h n i c a l a s is t a n c e e x p e r t s w o r k i n g in t h e fie ld s c o m p a r a t i v e a n a ly s is o f d i f f e r e n t p r o j e c t s . T h e s c r e e n i n g o f e c o n o m i c a n d i n d u s t r ia l p r o g r a m m i n g a n d e s p e c ia lly pow er p la n t s are a ty p ic a l e x a m p le in t h is w i l l b e b a s e d o n r o u g h , t h o u g h r e a lis t ic , e s t im a t e s as r e ­ in p r o je c t e v a lu a tio n g a r d s y i e l d s a n d c o s ts o f t h e p r o j e c t s .26 T h e c a s e s t u d ie s a b le r e la t in g t o B u r m a , P e r u a n d t h e W e s t I n d i e s e x e m p l i f y m a k e s it d if f i c u lt t o p r o c e d u r e s w h i c h a r e , i n v a r y i n g d e g r e e s , a p p r o p r i a t e to g a r d t o t h e a c c e p t a n c e o r r e j e c t i o n o f a p o s s ib le p r o j e c t . t h is s t a g e . I n b ility w ere th e P a k is t a n case, c o n s id e r a tio n s o f fe a s i­ a p p lie d fo r th e sam e purpose. A sp ects of d e fic ie n c y in r e p o r t a lm o s t in v a r ia b ly a d e p lo r ­ th e p e rtin e n t reach in fo r m a t io n , a ju s t i f i e d d e c is io n w h ic h w ith re­ T h e p r o b l e m s i n v o l v e d in o b t a i n i n g t h e r e le v a n t p r o j ­ e c t d a t a h a v e b e e n d e s c r i b e d b e f o r e in s e v e r a l s t u d ie s ,30 p r e - e v a l u a t i o n s c r e e n i n g a r e a ls o d i s c u s s e d i n t h e M a n u a l f o r t h is r e a s o n , t h e y w i l l n o t b e d i s c u s s e d i n t h e p r e s e n t on a r t ic le . E c o n o m ic D e v e lo p m e n t P r o j e c t s , 27 J u d g e m e n t w ill o f n e c e s s it y p la y a n i m p o r t a n t p a r t . T h e p r e -e v a lu a tio n s c r e e n in g p ro ce s s s h o u ld , h o w e v e r , n o t b e p u r s u e d t o o f a r : t h is w o u l d a g a i n i n c u r t h e r is k o f d is c a r d in g p o s s ib le p r o j e c t s th a t , o n c lo s e r e x a m in a ­ t i o n , w o u l d h a v e p r o v e d t o b e p r o f i t a b l e . T h u s , i n c a se of u n c e r ta in ty , th e p r o je c t b e n e fit o f th e d o u b t a n d b e id e a s h o u ld be g iv e n th e r e t a in e d at t h is s t a g e . ( A s S ele c tio n The next o f p r o je c ts p r o b le m is to w ith m a rk eta b le am ong th e s e le c t, c a n d id a te p r o j e c t s w i t h m a r k e t a b l e o u t p u t , t h e set o f p r o j e c t s t h a t togeth er w ill y ie ld th e m a x im u m a g a in s t t h e a g r e e d - u p o n b e n e f it as m e a s u r e d o b je c t iv e s o f e c o n o m ic p o lic y . a p r a c t i c a l r u le , t h e u n i v e r s e o f c a n d i d a t e p r o j e c t s c o u l d T h i s m a y b e a c h i e v e d b y a s s e s s in g t h e y ie l d - c o s t r a t io o f c o m p r is e fr o m each ber of o n e a n d a h a lf tim e s t o t w ic e t h e n u m ­ p r o je c ts g r a m m e . 28 The th a t c o u ld c a n d id a t e be in c lu d e d p r o je c ts in th e s h o u ld , p ro­ m oreover, r a n k in g th e p r o je c ts in a b le i n v e s t m e n t r e s o u r c e s h a v e b e e n e x h a u s t e d . h a v e a w i d e r a n g e o f v a r i a t i o n as r e g a r d s t h e r e l a t iv e u s e o f r e s o u r c e s .) c a n d id a t e p r o je c t a n d b y d e c l i n i n g o r d e r o f t h e ir r e s p e c t i v e r a t io s , u n t i l t h e a v a il­ G iv e n th e n a tu r e o f th e o b je c t iv e s a n d , in m o s t cases, t h e r e la t iv e w e i g h t s th a t s h o u l d b e a t t a c h e d t o e a c h o b ­ j e c t i v e , t h e e v a l u a t i o n w i l l c o n s is t o f a s s e s s in g t h e c o n t r i ­ P r o je c t d a ta b u tio n o f a g iv e n p r o je c t to th e sev era l o b je c t iv e s , a n d o f d e t e r m i n i n g t h e p r o p e r r e la t iv e T h e p o s s i b l e p r o j e c t s t h a t a r e r e t a in e d f o r in c lu s io n in w e ig h t s th a t s h o u ld b e a tta ch e d to fa c t o r s a n d p r o d u c t s . T h e fir s t t a s k i n ­ t h e u n i v e r s e o f c a n d i d a t e p r o j e c t s s h o u l d b e s t u d i e d in v o lv e s id e n t ific a tio n g r e a t e r d e t a il . T h i s w i l l , i n g e n e r a l , n e c e s s it a t e f e a s ib il it y o b j e c t i v e a n d t h e a s s e s s m e n t , q u a n t i t a t i v e , i f p o s s ib le , o f s t u d ie s i n t h e f u l l s e n s e , s o as t o e s t im a t e w i t h s u ffic ie n t s u c h e ff e c t s . I n s o m e c a s e s , t h is m a y r a is e n o p a r t ic u l a r p re c is io n th e resou rce r e q u ir e m e n t s , b o t h fo r th e o f e ffe cts w h ic h r e la t e to a g iv e n con ­ d iffic u lt y : fo r s t r u c t i o n a n d t h e o p e r a t i o n s ta g e s , as w e l l as t h e y ie ld s . id e n tifie d a n d m e a s u r e d r e a d i l y . I n o t h e r c a s e s , it m a y e x a m p le , th e e m p lo y m e n t e ffe c t can be T h e s e s t u d ie s w i l l i n v o l v e a v a r i e t y o f a s p e c ts , s u c h as, n o t b e p o s s i b l e t o i d e n t i f y o r assess q u a n t i t a t i v e l y , w i t h m arket fu tu r e a n y r e a s o n a b l e d e g r e e o f a c c u r a c y , a p r o j e c t ’ s i m p a c t in p rod u ced te rm s o f a g iv e n o b je c tiv e — fo r e x a m p le , a p r o je c t ’s im ­ dem and pn research fo r to d e t e r m in e th e c o m m o d it y th e o r s e r v ic e th e d o m e s t ic a n d th e fo r e ig n te c h n o lo g y ; lo c a t io n p resen t p r o b le m s to and be m a r k e t; th e c h o ic e o f and th e s iz e o f I n s o m e in s ta n c e s , th e d e m a n d w ill h a v e to fr o m p l a n t .29 b e d e r iv e d p r o je c tio n s b e y o n d th e p e r io d c o v e r e d b y th e p r o ­ p a c t o n e c o n o m i c s t a b ilit y . T h e m e a s u r i n g o f a p r o j e c t ’ s c o n t r ib u tio n a ls o f a c e s m any c o n tr ib u tio n F o r a n u m b er o f industries, coefficients fo r estim atin g in­ vestm ent an d op era tin g costs at the p re-investm en t stage are at present b e in g collected in a study c o n d u cte d jo in d y by the Secretariats at H ea dq u arters an d o f the E c o n o m ic C o m m ission fo r L atin A m e rica . T h e study includes fo r each industry the variation o f the coefficients w ith the circum stan ces as regards the relative fa ctor prices, size o f operation s, etc. It is in ten d ed to p ublish the first results o f the study in the cou rse o f 1962. 26 2T O p . cit. It is clear that the total requirem ents o f the un iverse o f candidate p rojects must, at least fo r any o r all investm ent re­ sources, exceed the available su pp ly o f such resources fo r the p rob lem s o f evalu a tion to arise at all. 28 T h e assum ption that these aspects can b e studied in­ d ivid u a lly fo r each possible p ro je ct prior to the final sim ul­ taneous evaluation is, strictly speaking, n o t correct, since the ch oice w ith regard to som e aspects— in particular the ch oice o f tech n o lo g y an d to som e extent also the loca tion an d size o f the plant— w ill d epen d o n the prices used, an d the latter, as w ill be seen later, w ill o n ly be obtain ed sim ultaneou sly w ith the final evaluation. F o r practical purposes, h ow ever, the consecutive process w ill be useful, at least in a first ap p rox im ation . 29 28 to n a tio n a l in c o m e , w h ic h is u s u a lly con ­ s id e r e d t h e m o s t i m p o r t a n t f a c t o r i n p r o j e c t e v a l u a t i o n , p r o b le m s : c e rta in m ay be assessed a m p le , t h e p r o j e c t ’ s d ir e c t c o m e — w h ile u ta b le m ore to o th e rs, su ch a p r o je c t, d iffic u lt t o are of t h is q u a n tita tiv e ly — f o r com p o n e n ts ex­ c o n tr ib u t io n to n a tio n a l in ­ as e x t e r n a l e c o n o m i e s d i f f ic u l t to id e n t ify and a t t r ib ­ even assess q u a n t i t a t i v e l y . C om p are, fo r instance, the M an u a l on E c o n o m ic D e v e lo p ­ m en t P rojects, op . cit.; the paper “ S om e N otes on Industrial P roject E v alu a tion ” , recen tly prep ared by F orrest E. C o ok son fo r the W o r k in g Party on E c o n o m ic an d Social D ev elop m en t, 15 to 27 January 1962, or g a n iz e d by the E c o n o m ic C om m ission fo r A fr ic a ; the articles “ C apital Intensity in In d u stry in U n d er­ d evelop ed C ou n tries” , “ C h oice o f T e c h n o lo g y in Industrial P lan­ n in g ” , by J. T in b e rg e n , and “ C apital Intensity in H ea v y E n ­ g in e e rin g C on stru ction ” in B ulletin on Ind ustrialization and P rod u ctivity, N o . 1 (Sales N o .: 5 8 .II.B .2 ); “ C apital Intensity an d Costs in E a rth -m ov in g O p era tion s” , “ W o r k in g Party on E a rth -m ov in g O p era tion s” and “ C h oice o f Industrial T e c h n o lo g y : T h e Case o f W o o d -w o r k in g ” , b y G . K . B oon , in B ulletin on Ind ustrialization an d P rod u ctivity, N o . 3 (Sales N o .: 6 0 .II.B .1 ); an d “ P roblem s o f S ize o f Plant in Industry in U n d er-d evelop ed C ou n tries” in B u lletin on Ind ustrializa tion and P rod u ctivity, N o . 2 (Sales N o .: 5 9 .II.B .1). 30 p r o d r e l a t iv e w e i g h t s to s t a t e d t h a t t h e s e p r i c e s s h o u l d b e s u c h th a t , w h e n c a n d i ­ b e a t t a c h e d t o f a c t o r i n p u t s , as w e l l as f a c t o r y i e l d s , a r e F or th e p r iv a t e e n t r e p r e n e u r , th e d a t e p r o j e c t s a r e s e le c t e d i n a c c o r d a n c e w i t h t h e p r i o r i t y th e m a r k e t r a t in g b a sed o n p r ic e s o f th ese fa c to r s . A p r o b le m t h a t is t h e m , t h e a g g r e g a t e y i e ld o f t h e se t o f b a s ic t o p r o j e c t e v a l u a t i o n i n t h e c o n t e x t o f t h e n a t i o n a l p r o je c ts s e le c te d w ill b e m a x im u m econ om y th e g iv e n a r is e s fr o m th e fa c t th a t m arket p r ic e s of resou rce w i t h i n t h e l i m it s o f a v a i la b il it i e s . T h e p r o b le m o f s e le c ­ f a c t o r s d o n o t a l w a y s r e fle c t a d e q u a t e l y t h e i r v a l u e f r o m t i o n b a s e d o n t h is c r i t e r i o n a n d t h a t o f t h e s i m u l t a n e o u s th e p o in t o f v ie w d e t e r m i n a t i o n o f t h e a c c o u n t i n g p r ic e s c a n , i n p r i n c i p l e , The o f th e n a tio n a l e c o n o m y d iv e r g e n c e m ark et as a w h o l e . s o c ia l b e s o l v e d o n t h e b a s is o f a c o m p l e t e m o d e l o f t h e e c o n o ­ v a lu e s r e fle c t s i m p e r f e c t i o n s i n t h e o p e r a t i o n o f t h e m a r ­ m y , f o r e x a m p l e , b y t h e u s e o f t h e t e c h n i q u e o f lin e a r ket p r o g r a m m in g , p r o v id e d m e c h a n is m . betw een A lth o u g h , as p r ic e s sta ted and e a r lie r , su ch im ­ t h a t a ll t h e p a r a m e t e r s in th e p e r f e c t i o n s o c c u r i n a ll e c o n o m i e s , t h e y a r e , f o r a v a r ie t y set o f e q u a t i o n s o f of h o w e v e r , b e c a u s e o f t h e la c k o f d a t a a n d t h e d e g r e e o f h is to r ica l, p o litic a l, in s tit u t io n a l and s o c ia l reason s, fa r m o r e w id e s p r e a d a n d sev e re in u n d e r -d e v e lo p e d e c o n ­ accu racy o m ie s th e m o d e l are k n o w n . I n p r a c t ic e , p li c a b l e . th a n in m ost d e v e lo p e d e c o n o m ie s . A c o m p le te of t h e a v a i la b l e d a t a , t h is p r o c e d u r e is i n a p ­ e n u m e r a t i o n o f s u c h i m p e r f e c t i o n s is n o t i n t e n d e d h e r e , b u t s o m e o f th e m m a y b e m e n t io n e d : im p e r fe c t m o b ility o f f a c t o r s , i n c l u d i n g e c o n o m i c o r i n s t i t u t i o n a l r e s t r ic t io n s on a cce ss t o o c c u p a t io n s ; m o n o p o lis t ic e le m e n ts in th e v a r io u s s e c to r s o f th e e c o n o m y ; le g a l p r o v is io n s a ffe c t in g p r ic e s s u c h c o n t r o ls , as e x c is e im p o r t t a x e s , s u b s id ie s , f o r e i g n r e s t r ic t io n s , m on eta ry exchan ge p o lic ie s , c r e d it c o n t r o l s , f r o z e n r e n t s f o r d w e l l i n g s a n d a g r i c u l t u r a l la n d a n d t h e l i k e . W a g e s m a y a ls o b e a f f e c t e d b y i n s t i t u t io n a l i n f lu e n c e s , s u c h as m i n i m u m w a g e l e g i s l a t i o n a n d a c t iv i­ tie s o f t r a d e u n i o n s . T h e r e s u lt is th a t i n s o m e c a s e s , s u c h as, f o r i n s t a n c e , u n s k i l l e d l a b o u r , t h e m a r k e t p r i c e — t h a t is , th e w age p r e s cr ib e d rate or (in c lu d in g fix e d in th e fr in g e c o lle ctiv e b e n e fit s ) la b o u r l e g a lly con tra cts— m a y o ft e n b e h ig h e r th a n th e m a r g in a l real p r o d u c t o f t h e f a c t o r i n v o l v e d ; a n d i n o t h e r c a s e s , s u c h as c a p it a l, f o r e i g n e x c h a n g e o r a g r ic u ltu r a l la n d , th e in t r in s ic v a lu e is fr e q u e n tly h ig h e r th an th e c o r r e s p o n d in g o f f ic ia l ly U n d e r th e c ir c u m s t a n c e s , a s e le c tio n o f p r o je c t s b a s e d m arket p r ic e s w ill r e s u lt in a m is a llo c a tio n of re­ s o u r c e s , i n t h e s e n s e th a t t h e r e w i l l b e a h e a v y s t r a in o n th e resou rces th a t are u n d e r -p r ic e d re s o u rce s th a t a re o v e r -p r ic e d w h ile w ill b e part of le ft id le , s o th e th a t t h e a g g r e g a t e y i e l d o f t h e s e le c t e d p r o j e c t s w i l l f a l l s h o r t of th e m a x im u m fr o m y ie ld th a t c o u ld have been o b ta in e d I t is t h u s n ecessa ry a d e v ic e to in tr o d u c e in t e n d e d u n d e r -p r ic e d fa c t o r s a n d in to t o r e s t r a in th e e v a lu a tio n th e u se o f th e stim u la te th e u se o f th e o v e r ­ p r i c e d o n e s . T h i s c a n b e a c c o m p l i s h e d , as i n t h e c a s e o f th e o b je c tiv e s o f e c o n o m ic p o lic y , b y th e u se o f w e ig h t ­ in g c o e ffi c i e n t s , w h ic h p r i c e d , r e l a t iv e l y s h o u ld d e v ic e w h ic h sam e to “ a c c o u n tin g ” is be h ig h sca rce fa cto r s , a n d p r ic e d o n e s . A th in g base p r ic e s th e in s t e a d fo r lo w fo r th e th e un derover­ e v a lu a tio n of th e on “ sh adow ” or m a r k e t p r ic e s . T h e p o s s i b l e t h e i n t r i n s i c v a lu e s o f t h e f a c t o r s i n v o l v e d . 31 c h a r a c te r istic s o f a c c o u n tin T o b e g i n w i t h , t h e t h e o r e t i c a l c h a r a c t e r is t ic s o f a c c o u n t ­ i n g p r i c e s w i l l b e d e f i n e d . A s a fir s t d e f i n i t i o n , it c a n b e S ee, for instance, the articles “ C h o ice o f T e c h n o lo g y in Industrial P la n n in g ” and “ C apital Intensity in H ea vy E n g in eer­ in g C o n stru ctio n ” , op . cit. 31 o f a ll r e s o u r c e s s e c o n d c r i t e r i o n is t h a t t h e a c c o u n t i n g p r i c e s , w h e n th e “ u n iv e r s e of c a n d id a te s ” , w ill am ong s im u lt a n e o u s ly ex­ h a u s t t h e v a r i o u s r e s o u r c e a v a il a b i li t ie s .32 I n v i e w o f th is c r i t e r i o n , a c c o u n t i n g p r ic e s a r e s o m e t i m e s d e n o m i n a t e d “ e q u ilib r iu m p r ic e s ” . I n p r a c t ic e , it w i l l b e n e c e s s a r y t o w o r k w i t h a c c o u n t ­ in g p r ic e s w h i c h are r e a s o n a b le th e o r e tic a l m a g n it u d e s . In a p p r o x im a t io n s o f th e th e f o l l o w i n g p r o c e d u r e s are in d ic a t e d f o r s e c tio n , a f e w t h e d e t e r m in a t i o n o f s u c h a p p r o x i m a t e v a lu e s . A tr ia l a n d e r r o r m e t h o d b a s e d o n t h e m a x i m u m ag­ g r e g a t e y ie ld c r i t e r i o n h a s b e e n s u g g e s t e d f o r t h e e s t i m a ­ t i o n o f a c c o u n t i n g p r ic e s .33 I t c o n s is t s o f t h e f o l l o w i n g : a b ili t y o f a ll c a n d i d a t e p r o j e c t s o f t h e “ u n i v e r s e ” is c a l c u ­ la t e d o n t h e b a s is o f t h e s e p r i c e s r a n k e d in and th e p r o je c ts th e o r d e r o f d e c lin in g p r o fita b ility . A are se t o f p r o j e c t s is t h e n s e le c t e d in t h is o r d e r , u n t il o n e o f t h e r e ­ sou rces p r o je c ts is e x h a u s t e d , a n d is d e te r m in e d . th e The a g g re g a te sam e y ie ld p rocess is of th e s e re p e a te d w i t h d i f f e r e n t a s s u m p t i o n s as r e g a r d s t h e se t o f a c c o u n t ­ p r ic e s , a n d p ared. T h e th e r e s u lt in g a g g r e g a te y ie ld s are c o m ­ p r o c e d u r e is c o n t i n u e d u n t i l t h e m a x i m u m a g g r e g a t e y ie l d is r e a c h e d ; t h e r e s p e c t iv e set o f p r o j e c t s w i l l t h e n r e p r e s e n t t h e o p t i m u m set a n d t h e c o r r e s p o n d ­ i n g p r i c e s t h e a c c u r a t e a c c o u n t i n g p r ic e s . T h i s p r o c e d u r e is, h o w e v e r , v e r y t e d i o u s . Its e ff i c ie n c y c a n b e in c r e a s e d by a p p ly in g th e c r it e r io n of fu ll use of a ll resou rces: w h e n p r o j e c t s a r e s e le c t e d i n t h e o r d e r o f d e c l i n i n g p r o f ­ a m o u n t s e s s e n t ia lly t o t h e a c c o u n t i n g p r i c e s a r e i n t e n d e d t o r e fle c t as a c c u r a t e l y as T h e o r e tic a l o f fu ll u se u n i fo r m ly u sed in th e s e le c tio n o f p r o je c t s f r o m in g th e a v a ila b le re so u r c e s. p roced u re A c r ite r io n a r a n d o m set o f a c c o u n t i n g p r i c e s is a s s u m e d ; t h e p r o f i t ­ fix e d m a r k e t p r ic e . on T h e 32 It can be p ro v e d m athem atically that both definitions are con g ru en t, u n der c o n d ition that the “ un iverse” covers a suf­ ficiently w id e ran ge o f candidate projects as regards the input m ix o f the factors. In fact, un der this c o n d ition , the op tim u m set o f projects w ill exhaust all available resources ( i f this w ere n ot the case, the factor n ot used to the lim it o f available re­ sources w o u ld be a “ free g o o d ” and the c o rr esp on d in g accou n t­ gin g ppricec w o u ld be z e r o ) ; an d, vice versa, if, th rou g h selecting ri es projects in the ord er o f d eclin in g profitability calculated fo r all candidate projects o n the basis o f o n e and th e sam e set o f prices, the factors p rov e to be sim ultaneously exhausted, then the re­ su lting set o f projects w ill be op tim u m in the sense o f y ie ld in g the m a x im u m aggregate ben efit, an d the prices used w ill represent the accou n tin g prices. 33 S ee J. Tinbergen^ T h e U esig n o f D e v e lo p m e n t, op . cit. 29 it a b i l i t y , c a l c u l a t e d o n t h e b a sis o f a n a s s u m e d c o m b i n a ­ t i o n o f f a c t o r p r ic e s , it is o n l y fa c to r a v a ila b ilitie s are b y p u r e c h a n c e t h a t all ex h a u sted s im u lt a n e o u s ly (t h is s t r u c t u r a l u n e m p l o y m e n t . It h a s b e e n s u g g e s t e d t h a t t h e c o s t o f l a b o u r in a g o o d n u m b e r o f c a s e s s h o u l d b e p u t at z e r o o r at s o m e le v e l r e f l e c t i n g t h e d i s p l a c e m e n t c o s t . w o u l d m e a n t h a t o n e h a s h it r i g h t a w a y o n t h e c o r r e c t T h is set o f a c c o u n t i n g p r i c e s ) . I n a ll o t h e r c a s e s , t h e fa c t t h a t m a r g in a l p r o d u c t iv it y o f u n e m p lo y e d la b o u r b e in g z e r o , one its e m p l o y m e n t w i l l e n t a il n o s a c r ific e in o u t p u t . W h i l e its f a c t o r is e x h a u s t e d assu m ed p r ic e w as b e f o r e t h e o t h e r s i n d i c a t e s th a t too lo w and th a t of th e o th e r f a c t o r s t o o h i g h ; m o r e o v e r , in t h e la t te r c a s e , t h e p r o p o r ­ t h is sta tem en t argum ent is d e fe n d e d m ay seem on th e lo g ic a lly grou n d v a lid , h a s b e e n p u t t o w o r k , its c o n s u m p t i o n c a tiv e o f th e d is c r e p a n c y i n c r e a s e ; t h e r e s u lt a n t c l a i m and th e correct a c c o u n tin g t h e ir a s s u m e d p r ic e s p r ic e s . T h i s w ill p r o v id e m e a n s o f a d ju s t in g th e a s s u m e d p r ic e s in a th e r ig h t d i ­ th e o v e r lo o k s c e r t a i n i m p o r t a n t p o i n t s . F ir s t , o n c e u n e m p l o y e d l a b o u r t io n a l e x c e s s o f t h e l e f t o v e r fa c t o r s i n v o l v e d w i l l b e i n d i ­ b etw een it th a t o th er resou rces, su ch on le v e l is li k e l y to p r o d u c tio n as i m p o r t s , w i l l fa cto r s a n d th u s have to be t a k e n i n t o a c c o u n t . S e c o n d l y , s in c e w a g e s h a v e in p r a c ­ r e c t i o n a n d a r r i v i n g m o r e r a p i d l y at a n a c c e p t a b le c o m ­ t ic e t o b e p a id at m a r k e t r a te s, t h e w a g e b ill f o r a g i v e n b i n a t i o n o f a c c o u n t i n g p r ic e s . p r o je c t w ill re p r e s e n t a d e m a n d o n th e to ta l fu n d s a v a il­ A c c o u n t i n g p r i c e s m a y a ls o b e r o u g h l y e s t i m a t e d o n a p rio ri c o n s id e r a tio n s sta n ces b e a rin g an r e l a t in g im p a c t to on th e t h e ir gen eral c ir c u m ­ m a g n itu d e . T hese a b le fo r a v a ila b le d e v e lo p m e n t fo r o th er d e v e lo p e d b a s is f o r fin a l a p p l i c a t i o n . T h e y c a n a ls o b e u s e d as th e in s t a n c e , d e s p it e s ta r tin g m e n t d u r in g p o in t in th e s u c c e s s iv e p roced u re of fu rth e r a p p r o x im a t io n a d ju s t m e n t d e s c r ib e d above; in th u s th e am ount e x p e n d it u r e . red u ce T h ir d ly , fr e q u e n t ly th e m a r g in a l p r o d u c t iv it y o f la b o u r in u n d e r ­ e s t im a t e s w i l l i n s o m e c a s e s a lr e a d y p r o v i d e a w o r k a b l e th ro u g h and d e v e lo p m e n t c o u n tr ie s , t h o u g h q u ire m e n ts l o w , is n o t n il. T h u s , f o r th e p r e v a le n c e o f ru ra l u n d e r -e m p lo y ­ m o s t p a r ts o f fo r th e y ea r, se a s o n a l p e a k m anpow er m ay be heavy. U nder re­ th e t h is c a s e , a c a r e f u l fir s t c h o i c e m a y c o n s i d e r a b l y s h o r t e n c ir c u m s t a n c e s , a w i t h d r a w a l o f m a n p o w e r f r o m th e p ro ce ss. t u r e m a y w e l l r e s u lt in a lo s s o f o u t p u t . T h e s e c o n s i d e r a ­ For t h e e s t im a t e s t o b e as c o r r e c t as p o s s i b l e , a n i n ­ s ig h t i n t o th e w a y in w h ic h th e a c c o u n tin g p r ic e s a re a g r ic u l­ t i o n s i n d ic a t e t h a t t h e a p p l i c a t i o n o f t o o l o w a n a c c o u n t ­ i n g p r i c e f o r la b o u r is n o t a d v i s a b l e ; it is s u g g e s t e d t h a t in f l u e n c e d b y t h e c i r c u m s t a n c e s w i l l b e u s e f u l . S o m e a s­ it m a y b e e s t im a t e d at n o t l o w e r t h a n a b o u t 80 p e r c e n t p e c t s a r e i llu s t r a t e d i n a n u m e r i c a l e x a m p l e g i v e n in t h e o f t h e m a r k e t w a g e ra tes u n d e r c i r c u m s t a n c e s o f m o d e r ­ a p p e n d i x t o t h is a r t ic le . I n t h e f o l l o w i n g , a f e w c o n s i d e ­ a te u n e m p l o y m e n t a n d r a t io n s a r e p r e s e n t e d s e p a r a t e ly i n c o n n e x i o n w i t h s o m e c e n t in c a s e s o f h e a v y u n e m p l o y m e n t . at n o t l o w e r t h a n 5 0 t o 6 0 p e r o f t h e m o s t i m p o r t a n t fa c t o r s . A c c o u n t i n g p r ic e s f o r c a p it a l m a y b e a p p r o x i m a t e d b y P r o je c ts h a v in g n o m a rk eta b le p r o d u c t in t e r e s t ra te s s o m e w h e r e b e t w e e n t h e r a te s p r e v a i l i n g in t h e o r g a n i z e d c a p it a l m a r k e t a n d t h o s e o b t a i n i n g in t h e The “ p a r a lle l” m a r k e t. T h e s tru c tu re o f th e se r e s p e c tiv e m a r ­ s c r e e n i n g a n d i n t h e fin a l s e le c t io n , is b a s e d e s s e n t ia lly k e t s a n d t h e v o l u m e o f t r a n s a c t io n s w h i c h t a k e p l a c e in o n e v a l u a t i o n o f y i e l d in r e l a t io n t o c o s ts . each are im p o r t a n t fa c t o r s to c o n s id e r . S in c e a lo w -in - terest c r e d it p o lic y o r g a n iz e d w ill ten d to lo w e r t h e r a te s i n th e m a r k e t a n d , i n d i r e c t l y , in t h e “ p a r a l l e l ” m a r ­ e v a lu a tio n of p r o je c ts , T h e a p p l ic a t i o n o f y ie ld s of th e q u a n tita tiv e in th e p r e -e v a lu a tio n t h is c r i t e r i o n p r e s u p p o s e s t h a t t h e p r o je c ts term s. b oth can T h ere be expressed are, in how ever, c o m p a r a b le c e r t a in ca te­ k e t , a l l o w a n c e m u s t b e m a d e f o r its i n f l u e n c e . F u r t h e r ­ g o r i e s o f p r o j e c t s w i t h r e s p e c t t o w h i c h t h is is, as is w e l l m o r e , it h a s b e e n s u g g e s t e d th a t s o m e i n d i c a t i o n o f t h e k n o w n , n o t p o s s i b l e . T h e s e i n c l u d e , i n t h e fir s t in s t a n c e , e q u ilib r iu m t h e p r o j e c t s in t h e s o c ia l o v e r h e a d s e c t o r w h i c h h a v e n o in t e r e s t r a te s at w h i c h it w o u l d t a l; a n d a ls o f r o m co rre cte d fo r ra te s m ay be o b t a in e d fr o m th e b e p o s s i b l e t o a t tr a c t n e w c a p i ­ th e p r o fita b ility o f m a r g in a l p r o je c ts , r is k s in v o lv e d (fo r e x a m p l e , r is k s of in ­ f l a t i o n ) . M o r e s p e c if i c a l l y , it h a s b e e n s u g g e s t e d t h a t a c ­ m a r k e ta b le th e lik e ; p r o d u c t : s c h o o ls , h o s p ita ls , sp o r t fu rth e r m o re , ca s e s , t h o s e p r o je c ts d e fe n c e w h ic h are p r o je c ts o n ly p arks a n d and, in d ir e c t ly in som e p rod u c­ t iv e , s u c h as r o a d s a n d o t h e r p u b l i c w o r k s . 34 c o u n t i n g in t e r e s t r a te s m a y b e set at at le a s t d o u b l e t h e r a te s o n g o v e r n m e n t s e c u r it ie s o r o n i n t e r n a t i o n a l lo a n s , a n d p o s s i b l y at as h i g h as 2 0 p e r c e n t . A c c o u n t i n g p r ic e s s h o u l d b e e s t i m a t e d f o r f o r e i g n e x ­ ch a n ge b r iu m w hen or th ere a r t ific ia l is p resen t o r e q u ilib r iu m in a n tic ip a te d th e d is e q u ili­ b a la n c e of pay­ m e n t s . T h e y m a y b e se t at a r a te a b o v e t h e l e g a l r a te b u t b e lo w th e “ b la c k ” o r “ p a r a lle l” m a r k e t ra tes. W h e n c o n ­ tro l m e a s u re s are e ffe c t iv e ly e n f o r c e d , th e d iv e r g e n c e b e ­ t w e e n th e e q u ilib r iu m r a te a n d t h e o f f i c i a l r a te w i l l t e n d t o b e g r e a t e r t h a n w h e n t h e y a r e la x . T h e m a r k e t r a te s f o r s lt ill e d l a b o u r s h o u l d p r o b a b l y b e co rre cte d scarce in up w ard s, s k ille d la b o u r, o n t io n 30 w ill as t h is u n d e r -d e v e lo p e d be typ e of la b o u r c o u n tr ie s . As is g e n e r a l l y regards th e o t h e r h a n d , a d o w n w a r d in d i c a t e d in c o u n tr ie s h a v in g un­ correc­ la r g e -s c a le In certain circum stances, p rojects w ith m arketable p rod u ct sh ould , w ith respect to p roject evaluation , be reg a rd ed as fa llin g in to the sam e ca tegory : this w ill be the case w h e n gov ern m en ts decid e to p rom ote certain p rojects as a m atter o f p olicy . F o r exam ple, on e o f the objectives in the Indian secon d five-year plan was to d evelop basic h eavy industries fo r the m anu facture o f p rod u cer g o o d s to strengthen the fou n d ation s o f eco n o m ic ind ep end ence. T h e highest p riority in the industrial sector was therefore assigned to the expansion o f the iron and steel in­ dustry on the g r o u n d that, m o re than any other industrial p rod u ct, the levels o f p rod u ction o f these m aterials determ in e the tem p o for the progress o f the e co n o m y as a w h o le . G ov ern m en t o f India, M inistry o f In form a tion an d B roadcastin g, S econ d F ive-Y ea r Plan, T h e F ra m ew o r \ (G o v e r n m e n t o f India Press, N e w D elh i, 1955), p age 13. S ee also, fo r an appraisal o f this p olicy , J. Sandee, “ A L on g -term P la n n in g M o d e l fo r In d ia ” (U n ite d N ation s m im e o g ra p h e d d ocu m en t T A O / I N D / 2 2 / R e v .l ) . 34 The d e c is io n w ith regard to "’ a c c e p t i n g or r e je c t i n g s u c h p r o j e c t s w i l l o f n e c e s s it y i n v o l v e a n i m p o r t a n t e l e ­ F r e q u e n tly , p u r e ly ad p r o je c t hoc e v a lu a tio n b a sis, w i t h o u t is c a r r ie d out th e e la b o r a tio n on a of a con ­ m e n t o f s u b je c t i v e j u d g e m e n t . I t s e e m s a d v is a b le , h o w ­ s is t e n t p r o g r a m m e o r t h e e x i s t e n c e o f a n o v e r - a l l “ r o o f ” e v e r , t o r e t a in t o t h e e x t e n t p o s s i b l e a n o b j e c t i v e p la n w i t h i n w h i c h s u c h a p r o g r a m m e is in t e g r a t e d . T h i s b a sis. I n t h e fir s t p l a c e , a n e s t im a t e c a n b e m a d e o f t h e b e n e fit p roced u re, in te rm s o f a d d itio n a l in c o m e th a t c o u ld stressed , th e r e s o u r c e s to b e s a c r i fi c e d in b e o b t a i n e d if th e p r o je c t w e r e used as how ever, s h o u ld d e fin ite ly be in fe r io r regarded , to as has s im u lta n e o u s been e v a lu a ­ t io n . I n t h is c a s e , a c c o u n t i n g p r ic e s c a n a ls o b e u s e d in f o r a m a r g in a l p r o je c t in th e d ir e c tly p r o d u c t iv e s p h e re . th e e v a l u a t i o n , t h e y c a n t h e n b e e s t im a t e d o n t h e b a s is F u r t h e r m o r e , in o f a p r i o r i c o n s i d e r a t i o n s as in d ic a t e d tra n sp ort o r im p u te an s o m e cases, su ch as p r o j e c t s i n v o l v i n g t e c h n i c a l e d u c a t i o n , it m a y e c o n o m ic a d v a n ta g e s w h ic h t iv e s e c t o r s of v a lu e to ou tp u t by above. be p o s s ib le to a s s e s s in g th e F in a l r e m a r k s are e x p e c t e d t o a c c r u e t o th e p r o d u c ­ th e econ om y w ith w h ic h th e p r o je c t is d i r e c t l y o r i n d i r e c t l y r e l a t e d ; t h is p r o c e d u r e i m p l i e s t h e e x i s t e n c e o f a n i n p u t - o u t p u t r e l a t io n b e t w e e n t h e p r o j e c t a n d th e s e c to r o r s e cto rs in q u e s t io n . A l s o , w it h r e sp e ct t o t h e a l l o c a t i o n o f r e s o u r c e s t o t h e v a r i o u s c a t e g o r ie s o f t h e p r o j e c t s i n v o l v e d , t h e p r a c t i c e in o t h e r c o u n t r ie s in In th e fo r e g o in g , e v a lu a tio n th e h a s, f o r su gg ested p roced u re sak e o f c la r it y , b e e n th e of p ro je c t d e s c r ib e d a l o n g t h e lin e s o f a s e r ie s o f c o n s e c u t i v e s t a g e s . I n m a n y in s t a n c e s , h o w e v e r , e s t im a t e s th a t c a n b e m a d e w i t h s u f ­ f i c i e n t p r e c is io n o n l y at a la te r s t a g e w i l l a lr e a d y h a v e to b e u s e d at a n e a r lie r o n e : a t y p ic a l e x a m p l e w a s r e f e r r e d t o in c o n n e x i o n w i t h th e u s e o f a c c o u n t i n g p r ic e s in t h e c o m p a r a b l e c o n d i t i o n s m a y p r o v i d e g u i d a n c e . 33 c o m p a r a t iv e e v a lu a tio n o f th e o b je c t iv e s o f e c o n o m ic p o ­ l ic y . T h i s w i l l i m p l y , as w a s a lr e a d y i n d i c a t e d , a p r o c e s s Ad hoc e v a l u a t i o n o f s u c c e s s iv e a p p r o x i m a t i o n s , in w h i c h t h e t e n t a t i v e c o n ­ A s in d i c a t e d e a r lie r , it w i l l b e a d v i s a b l e t o c a r r y o u t t h e e v a lu a tio n , w h e n e v e r w ith resp ect to a ll p o s s ib le , o n p r o je c ts g r a m m e c o v e r in g a g iv e n to a s i m u l t a n e o u s b a s is be p e rio d in c lu d e d in a p ro­ o f t im e . O n ly o n th is c lu s i o n s r e a c h e d at t h e e a r lie r s t a g e s o n t h e b a s is o f fir s t e s t im a t e s o f p r i c e s o r o t h e r it e m s a r e la t e r a d ju s t e d in a c ­ cord a n ce C o n s id e r a b le b a s is w i l l it b e p o s s ib l e t o a r r iv e at a ju s t i f i e d a l l o c a t i o n a c c o u n tin g o f a v a ila b le re so u r c e s. N ew p r o je c t p o s s ib ilitie s m ay, h ow ever, com e up in th e c o u r s e o f th e p r o g r a m m e p e r io d , a n d if th e y p r o v e to b e h ig h ly p r o f i t a b l e it w o u l d o b v io u s ly n o t b e ju s t i­ f i e d t o d i s c a r d t h e m o n t h e g r o u n d th a t t h e y a r e n o t i n ­ c lu d e d of in su ch b a s is of th e p r o g r a m m e . In p r o je c t w ith p o s s ib ilitie s p r a c t i c e , t h e p r o f i t a b ili t y m ay th e a c c o u n tin g p ric e s s im u lta n e o u s e v a lu a tio n ; t h is be e v a lu a t e d o b ta in e d w ill be in on th e ju s t i f i e d th e p rio r on m ore a c c u r a t e e s t im a t e s o b t a i n e d in th e su b se q u e n t phases. st itu te e m p h a s is p r i c e s s in c e a d e v ic e has been g iv e n it is c o n s i d e r e d th a t c a n be p r o fita b ly to th e use o f th a t t h e s e c o n ­ used in p r o je c t e v a l u a t i o n in t h e c o n t e x t o f t h e n a t io n a l e c o n o m y as a w h o l e . T h e p r a c t i c a l e x p e r i e n c e w i t h th is d e v i c e is , h o w ­ e v e r, sca n t u p t o t h e p r e s e n t . It w o u l d seem a d v is a b le th a t a v a i la b le i n f o r m a t i o n o n e x p e r i e n c e in t h e p r a c t ic a l a p p l ic a t i o n o f a c c o u n t i n g p r ic e s a n d th e m e th o d s u sed in t h e ir e s t i m a t i o n b e d i s s e m in a t e d . The th e pu rpose of t h is stu d y has been to put p ro je c t c o n d i t i o n t h a t t h e n e w p r o j e c t p o s s i b i l i t i e s h a v e n o m a jo r e v a l u a t i o n o n as o b j e c t i v e a b a s is as p o s s ib le . T h e d e v i c e im p a c t o n of in t h e r e le v a n t fe a t u r e s o f t h e “ u n i v e r s e ” th e o r ig in a l used s i m u l t a n e o u s s e l e c t i o n . I t w i l l b e c le a r , m o r e o v e r , th a t th e a c c e p t a n c e o f new p r o je c ts m a y re­ a c c o u n tin g serves th e p r ic e s in d ic a t e d is illu s t r a t i v e p u rpose by t h is resp ect: it m a k in g in p o s s ib le a q u a n tita tiv e e v a lu a tio n o f th e im p a c t o f a g iv e n p ro je c t q u ir e th e e x c lu s io n o f s o m e m a r g in a l p r o je c ts c o n t a in e d o n t h e e c o n o m y as a w h o l e . It s h o u l d b e o b s e r v e d , h o w ­ in e v e r , th a t , in t h e p r e s e n t sta te o f k n o w l e d g e , n o m e t h o d th e o r ig in a l p r o g r a m m e . o r p r o c e d u r e is c o m p l e t e l y f o o l p r o o f in it s e lf. A s i d e f r o m t h e a p p l i c a t i o n o f a q u a n t i t a t i v e p r o c e d u r e , a n e le m e n t F or further discussion o f the problem s in v o lv e d in the evaluation o f these categories o f projects, reference m ay be m ade to the report on P ro g ra m m in g T e ch n iq u e s fo r E co n o m ic D e ­ v e lo p m en t, op . cit. 35 o f g o o d ju d g e m e n t , b a sed o n a h o s t o f fa cto r s n o t a m e n ­ a b le t o q u a n tita tiv e e v a lu a t io n , is a n e c e s s a r y and im ­ p o rta n t c o m p o n e n t o f th e d e c is io n m a k in g p ro ce ss. Appendix GRAPHICAL E X A M IN A T IO N In the fo llo w in g analysis, the factors fo r w h ich the m arket prices d o n ot adequ ately reflect their real or intrinsic values w ill be d en om in ated “ special” factors; fo r these factors a ccou n tin g prices have to be estim ated. It is thus assum ed that all other factors can be valued at m arket prices. F or the p rob lem to be d efin ed , the fo llo w in g data have to be know n: (a ) T h e “ universe o f candidate projects” ; ( b ) F or each candidate p roject: ( i) T h e yield to be im pu ted to the “ special” factors com b in e d , that is, the total yield m inus the paym ent at m arket prices fo r the other factors req u ired ; (ii) T h e quantities required o f each one o f the “ special” factors; 31 Ci Chart 1 o r :------- X Ri Ci Graph A Li Pc-4---------- X Ri Pi ^ / L, and Ri represent, as w ill be clear, the requirem ents o f Ri capital and labour per unit o f yield in candidate p roject i. In g raph ic presentation this m eans that, if cand id ate p rojects Ci Li are indicated by p oin ts w ith co-ordin ates -------- an d-------- , all can- Ri Ri didate p rojects co rre sp o n d in g w ith points w ith in the triangle fo r m e d by the axes and a hypotenuse intersecting the axes / at the in v erses i and Pc o f the eq u ilib riu m prices w o u ld be . Pl profitable, and all cand id ate p rojects c o rr esp on d in g w ith points outside this triangle w o u ld n ot be p rofitab le; the p rojects c o r ­ resp on d in g w ith points inside the triangle thus constitute the o p tim u m p rog ra m m e. A s an exam ple, it w ill be assum ed that the “ universe” c o m ­ prises sixteen cand id ate projects, n u m b ered 1 to 16, o f w h ich the data are g iv en in colu m n s ( 2 ) , ( 3 ) and ( 4 ) o f table 3. F urth er­ m ore, it w ill be assum ed that the total availability o f capital ( C ) equals 500 and o f labour ( L ) , 1,000. T h e requirem ents o f capital an d labour per unit o f yield are g iv en in colu m n s ( 5 ) and ( 6 ) o f table 3 and are represented in grap h A in chart 1 by points w ith these requirem ents as co-ordinates. It w ill be ob v iou s that in the chart: C an didate projects w ill be m ore labour intensive in the d egree that the line co n n e ctin g the corresp on d in g p oin t to the orig in is closer to the h orizon ta l axis, and m ore capital intensive in the d egree that the co n n e ctin g line is closer to the vertical axis. T h u s, cand id ate p roject 8 is the m ost labour intensive in the “ universe” and candidate p roject 16 the m ost capital intensive; T w o candidate p rojects h a vin g the sam e d egree o f relative intensity are represented by points on on e and the sam e line th rou g h the o r ig in — fo r instance, candidate p rojects 4 and 5; o f these, candidate p roject 5 co rre sp o n d in g w ith the p o in t closer to the o rigin is the m ore p rofitable; T h e location o f the points is indicative o f the d egree o f capital intensity an d o f the relative profitab ility but n ot o f the size o f the cand id ate p roject; fo r this reason the absolute figures o f the requirem ents o f capital and labour are in d icated in the chart by the nu m bers ab ove and at the right-hand side, respectively, o f each point. T h e line I-I is d ra w n in such a tw o axes a triangle in clu d in g the the candidate projects 1, 5, 7, 8 , 9, candidate p rojects c o m p ly w ith the w ay as to fo r m w ith the points c o rr esp on d in g w ith 10, 11, 13 an d 14. T h ese tw o fo ld co n d itio n that: (1 ) T h e ir a ggrega te requirem ents o f capital eq u a l the total availabilities o f these factors, and (c) T h e total availability o f each o n e o f the “ special” factors. T h e exam ination w ill be based on the second criterion o f a ccou n tin g prices given ab ove: that a selection o f candidate p rojects in d eclin in g ord er o f profitability based o n them w ill sim ultaneously exhaust the availabilities o f the various “ special” factors. It w ill be assum ed, fo r sim plicity, that there are o n ly tw o “ special” factors, say, capital and labour. L et Ct an d L i be the inputs o f capital an d labour required in candidate p ro je ct i, and R t its yield in the sense as defined above. If the a cco u n tin g prices Pc and PL fo r capital and labour w ere k n o w n , Ci X Pc Li X PL w o u ld represent the total “ cost” o f capital and labour o f candidate p ro je ct i. T h erefore, candidate p ro je ct i w ill be profitable if: + Ci 32 X Pa + Li X PL < Ri an d labour ( 2 ) T h e profitability o f each o f them w h en calculated at u n ifo rm factor prices equ al to the inverses o f the intercepts o f the line I-I w ith the axes is high er than the profitability o f any other candidate p roject in the “ universe” calculated o n the sam e basis. T h e p rojects m en tion ed thus constitute the op tim u m set that can be selected fr o m a m o n g the “ universe o f cand id ate projects” w ith in the lim its o f the g iv en resource availabilities, and the prices referred to are the c o rr esp on d in g accou n tin g prices. T h e y Pc = 1 1 -------- = 1.5 an d PL -------- = 0.6. = 0.67 1.67 T h e c o rr esp on d in g calculations are g iv en in table 4. In c o lu m n ( 3 ) o f this table the costs o f all sixteen cand id ate projects are calculated at the accou n tin g prices. A com p arison betw een these cost figures an d the yields g iv en in co lu m n ( 4 ) o f table 3 are: Table S D a t a o n c a n d id a t e p r o j e c t s o f t h e “ U n iv e r s e ” Project (i) Derived data Project data Ci U Rt Rt Rt (2 ) (i ) Li C, (3 ) W (5 ) (6) i ....................... 80 120 200 0.4 2 ....................... 30 125 100 0.3 1.25 3 ...................... 250 125 417 0.6 0.3 4 ...................... 150 250 250 0.6 1.0 5 ...................... 120 200 400 0.3 0.5 6 ....................... 160 40 200 0.8 0.2 7 ...................... 35 140 175 0.2 0.8 8 ...................... 5 70 50 0.1 1.4 9 ...................... 50 100 250 02 0.4 10 ...................... 10 30 33 0.3 0.9 11 ...................... 150 90 300 0.5 0.3 12 ................... 100 160 200 0.5 0.8 0.6 13 ...................... 10 50 50 0.2 1.0 14 ...................... 40 200 400 0.1 0.5 15 ...................... 175 25 250 0.7 0.1 16 ...................... 85 10 100 0.85 0.1 17 ...................... 240 240 1,200 0.2 0.2 Projects 1 to 16 ....................... 1,450 1,735 Projects 1 to 17 ....................... 1,690 1,975 T otals: T a b le 4 O p t im u m pr o g r a m m e s of pro jects Programme A a projects Programme Bh i Riá Cost oj candidate project° C i Li R t Cost oj candidate project1 C i Li (/) i (2 ) (3 ) (4 ) (3 ) (6 ) (7 ) (8 ) (9 ) .................... . 200 192 80 120 200 192 80 2 .................... . 100 120 3 .................... . 417 450 400 4 .................... . 250 375 5 .................... . 400 300 6 .................... . 200 264 175 136.5 35 140 175 154 50 49.5 5 70 50 62 50 100 250 140 Programme C° 136 7 .................... . 8 .................... 9 .................... . 250 135 Projects included Projects included R i Cost oj candidate projectg (10 ) (II) 120 200 220 250 125 417 562.5 200 400 304 120 200 400 C i (12 ) Li R t (i3 ) (i4 ) 120 200 400 140 35 140 175 45 5 70 50 50 100 250 122.5 380 120 Projects included 425 224 340 340 35 140 175 50 100 250 150 150 90 300 345 10 .................... 33 33 10 30 33 36 11 .................... . 300 279 150 90 300 252 12 .................... . 200 246 13 ............ ....... 50 45 10 50 50 52 45 10 50 50 14 .................... . 400 180 40 200 400 208 40 200 400 180 40 200 400 15 .................... . 250 277.5 230 175 25 250 362.5 16 .................... . 100 133.5 110 17 .................... . 1,200 T otal 35 248 280 175 600 500 1,000 1,858 * Based on “ universe” comprising candidate projects 1 to 16; total availabilities: C= 500; L = 1,0 0 0 . b Based on ' ‘universe” comprising candidate projects 1 to 16; total availabilities: C= 900; L = 1 ,0 0 0 . ° Based on '“ universe” comprising candidate projects 1 to 17; total 900 1,000 2,392 240 240 1,200 500 1,000 2,525 av ailabilities: C= 500; L = 1,000. d From table 3, column (4 ). “ Calculated at accounting prices P „ = 1.5; PL = 0.06. i Calculated at accounting prices Pc — 1.2; PL = 0.8. 6 Calculated at accounting prices Pc — 2.0; PL — 0.5. 33 (a n d repeated in c o lu m n (2 ) o f table 4 ) indicate that, in fact, fo r all projects in clu d ed in the o p tim u m p ro g ra m m e the cost is less than the yield and fo r all candidate p rojects ex clu d ed fr o m the p ro g ra m m e the cost is m ore than the yield. T h e requirem ents o f capital and labour in the p rojects in clu d ed in die o p tim u m p ro g ra m m e are g iv en in co lu m n s (4 ) and (5 ) o f table 4. T h e y add up to the total am ounts available. F inally, in c o lu m n ( 6 ) the yields o f the projects in clu d e d are repeated; they add up to 1,858; this figu re therefore represents the m a x im u m yield that can be obtained w ith in the g iv en limits o f available resources o f the “ special” factors th rou g h ap p ro­ priate selection fr o m a m o n g the “ universe o f cand id ate projects” . T h e a cco u n tin g prices as w ell as the o p tim u m p ro g ra m m e are, as stated above, determ in ed by the p roject data and the availabilities o f the “ special” factors and thus w ill chan ge w h en these data chan ge. A s an illustration it w ill be first assum ed that the availability o f capital is increased by 400 to 900 w h ile the availability o f labour rem ains constant at 1,000. A s can be seen in g ra p h B in chart 1, the o p tim u m set w ill n o w include the ad d itional p rojects 3 and 15 and ex clu d e the projects 8 , 10 and 13. T h e a ccou n tin g prices w ill be P c = 1.2 and P L — 0.8. T h e calculations indicated ab ove in c o n n e x io n w ith p ro g ra m m e A are repeated for p ro g ra m m e B in co lu m n s ( 7 ) to (1 0 ) o f table 4. T h e aggregate yield am ounts in diis case to 2,392, an increase o f 534 in aggregate yield as co m p a re d w ith p ro ­ g ra m m e A . It sh ou ld be n oted that as a result o f the additional availability o f capital, the yield per unit o f labour sh ow s, as co u ld be expected, an increase (fr o m 1,858 : 1,000 = 1.86 to 2,392 : 1,000 ee 2.39) and the yield per unit o f capital a decrease (fr o m 1,858 : 500 = 3.72 to 2,392 : 900 = 2 .6 6 ). A s another alternative, it w ill be assum ed that a n e w candidate p roject, N o . 17, is in clu d ed in the “ universe” and that the avail­ abilities o f capital and labour w ill again, as in the first case, equal 500 and 1,000, respectively. It w ill be seen in graph C in chart 1 that the o p tim u m p ro g ra m m e w ill n o w be c o m p osed o f p rojects 5, 7, 8 , 9, 13, 14 and 17; p roject 17 has thus taken the place o f p rojects 1, 10 and 11 in p ro g ra m m e A . T h e c o rresp on d ­ in g a cco u n tin g prices are P c — 2.0 and P L = 0.5. T h e calcula­ tions are g iv en in c o lu m n s (1 1 ) to (1 4 ) o f table 4. In this case the total yield w ill be 2,525, w h ich represents an increase o f 667 as com p ared w ith the aggregate yield o f p ro g ra m m e A , resulting fr o m the in trod u ction o f the favou rable n ew candidate p roject 17. T h is illustrates the im porta n ce o f the statem ent m ad e in the text that care sh ould be taken that the “ universe o f candidate p rojects” in d eed com prises all possible projects that m ig h t p rov e to be profitable. p rog ra m m e o f projects, as w ell as the co rre sp o n d in g a ccou n tin g prices, m ay u n d erg o certain chan ges.” G r a p h ic a l d e te r m in a tio n o f th e o p tim u m set o f p rogra m m e a n d th e c o r r e s p o n d in g a c c o u n tin g p rices In the fo r e g o in g , it was assum ed that the hypotenuses o f the triangies v e g .v en so that the o p v fn u m p .o g ra m m e s and the corre sp o n d in g a ccou n tin g prices c otd d be im m ed iately derived fr o m the chart. T h e chart also provides, h ow ever, a sim ple w ay o f fin d in g the hypoten use w h en it is n ot g iv en . T h is m ay be illustrated in the case o f grap h A in chart 1. T h e m eth od consists o f tw o steps. In step on e an arbitrary line I'-I' is dra w n and m o v e d parallel to itself until the candidate projects in clu d ed in the triangle exhaust the availability o f on e o f the “ special” factors— say, capital. T h is w ill be the case w h en the line has reached the p osition 1" - 1". It w ill be n oted that the triangle includes cand id ate p rojects 9, 11, 14, 15 and 16 w ith aggregate capital requirem ents o f 500 w h ich equals the given availability. It w o u ld be pure coin cid en ce if at the same tim e the g iv en availability o f labour w ere exhausted; this is in fact n ot so in the present case since the candidate projects in clu d ed requ ire an aggregate am ou n t o f labour o f o n ly 425 w hereas the total availability o f labour was g iv en at 1, 0 0 0 ; the p rog ra m m e thus w o u ld n o t nearly p rov id e fu ll em p loy m en t. T h is indicates that too m any capital intensive candidate p rojects have been in clu d e d ; in other w ord s that the slope o f the hypotenuse has been dra w n too steep. T h e second step consists o f tu rn in g the line I " -I " in this case cou n ter-clock w ise, and in such a w ay that w h en candidate projects at the left-hand top side are ex clu d ed , candidate projects w ith the same a m ou n t o f requ ired capital are in clu d ed at the right-hand b ottom side, so that the balance betw een the requ ire­ ments and availability o f capital is retained. T h is is con tin u ed until the aggregate labour requirem ents o f the candidate projects in clu d ed — thus the su m o f the figures at the righ t-han d side o f p roject points— also equ al the g iv en availability o f labour. T h is w ill be the case w h en the line has reached the position I-I, as indicated above, w ith w h ich both p rob lem s o f d ete rm in in g the o p tim u m com b in a tion o f p rojects and the a ccou n tin g prices o f the “ special” factors are sim ultaneou sly solved. F inally, a ch an ge In the relative im porta n ce attributed to the various objectives sh ould be considered. T h is w ill reflect in m odification s in the values o f the yields o f the candidate projects, in clu d in g , in general, changes in the relations betw een these values. It w ill be clear that, as a con seq u en ce, the o p tim u m * This can be verified by assuming that the yields of the candidate projects are not given as such, but are expressed for each candidate project in terms of the anticipated proceeds relating to two or more different policy objectives separately. Different combinations o f weights can then be allotted to the policy objectives (as regards the value of one unit of proceeds) and these can be applied in the calculation o f the total yields o f the candidate projects. The relation between these yields of the candidate projects will, in general, change with the combinations of weights assigned to the policy objectives, and, consequently, the optimum project programme and the corresponding accounting prices will also change. A fe w observations have to be m ade in c o n n e x io n w ith the m eth od described. First, it w ill be clear that the m eth od can o n ly be used w h en the n u m b er o f “ special” factors is not m o re than tw o. S econ d , it sh ou ld be n oted that the m e th o d can o n ly be used w h en the candidate p rojects are all m u tu ally in d ep en d en t and thus substitutable fo r o n e an oth er; this, h ow ever, is a basic con d itio n to the stage o f sim ultaneous p ro je ct evaluation and therefore does n o t put a special lim itation on the applicability o f the suggested m eth od to this stage. T h ir d , in the exam ple g iv en , it was assum ed that all candidate projects are “ in d iv isible” ; the d ro p p in g o f this restriction w ill, how ever, n ot in trodu ce a m ajor a d d ition a l difficulty in the ap­ plication o f the m eth od . F ou rth , it sh ou ld be n oted that in practice it w ill n ot always be possible exactly and sim ultaneously to exhaust the g iv en availabilities o f the “ special” factors; if this is n o t the case, it m ay be necessary to ch oose a m o n g a few alternatives fo r the inclusion o f som e m a rgin al candidate p rojects; the ch oice sh ould not be difficult since the n u m b er o f alternatives w ill be sm all; it m ay be observ ed , m oreov er, that this difficulty is not related to the m eth od suggested, bu t is inh eren t in the p rob lem itself. F inally, it w ill be n oted that the hypoten use o f the triangle is not exactly determ in ed but m ay shift and turn som ew h a t b e­ tween the b ord erlin e p roject points at either side. T h is m eans that the accou n tin g prices m ay also vary w ith in certain m argin s; each set o f accou n tin g prices w ith in this range w ill co m p ly w ith the criterion that all p rojects in clu d ed in the op tim u m p ro­ gram m e, w h en evaluated on the basis o f these prices, w ill sh ow a p rofit and that n on e o f the candidate projects exclu d ed fr o m the p rog ra m m e w ill d o so. A lso, it w ill be clear that the range o f variation o f the a ccou n tin g prices w ill be sm aller in the d egree that the “ un iverse” com prises m ore candidate p rojects and the chart is m ore densely filled w ith p roject points. 34 E x p e r t o n W I n d u s t r ia l P r o g r a m A o r k i n g m G r o u p D e v e l o p m in g e n t D a t a MEETING OF THE EXPERT WORKING GROUP Oil I n d u s t r i a l s e l e c t i o n o f i n d u s t r ie s , fe a s ib il it y s t u d ie s , a n d i n t e r - i n d u s ­ D e v e lo p m e n t P r o g r a m m in g at try s t u d ie s a n d r e s o u r c e b a la n c e s . A t e a c h o f t h e s e s t a g e s , 1961, it h a s b e e n t h e g e n e r a l e x p e r i e n c e t h a t t h e a v a ila b le d a t a U n ite d D a ta N a tio n s H e a d q u a r te rs fr o m w as convened 17 t o 19 M a y u n d e r th e jo in t s p o n s o r s h ip o f th e D e p a r t m e n t o f E c o n o ­ w ere n ot m ic a n d p r o g r a m m i n g at t h e a g g r e g a t e a n d p r o j e c t le v e ls . and B ureau and S o c ia l A ffa ir s of th e T e c h n ic a l s e c r e t a r ia t L a t in A m e r ic a w o r k in g g r o u p r ia l w h ic h had at H e a d q u a r t e r s , i n c l u d i n g A s s is t a n c e of th e O p e r a tio n s E c o n o m ic th e (B T A O ), C o m m is s io n fo r ( E C L A ) . 1 T h e te rm s o f r e fe r e n c e o f th e w e r e : t o r e v ie w been p rep ared a n d a p p r a is e t h e m a t e ­ by th e U n ite d It a d e q u a t e , in w as a n t ic i p a t e d p le m e n ta t io n of p ilo t s t u d ie s con cern ed th a t , th e as jo in t w o u ld u n it s p a r t ic u la r , f o r p r o je c t, be and a c a r r ie d fir s t sta g e in num ber by to p la n n in g s m a ll a out s u b m itte d lin k in g an th e th e im ­ of S e c r e t a r ia t expert w o r k in g N a t io n s g r o u p fo r r e v ie w . F u r th e r re se a r c h w o u ld b e u n d e r t a k e n S e c r e t a r ia t u n d e r a jo i n t H e a d q u a r t e r s / E C L A i n d u s t r ia l at a la te r s t a g e o n t h e b a s is o f t h e e x p e r i e n c e g a i n e d a n d d e v e l o p m e n t p r o g r a m m i n g p r o j e c t a n d b y c e r t a i n p a r t i­ o f th e r e c o m m e n d a t io n s o f th e g r o u p . c ip a n t s in t h e m e e t i n g ; t o m a k e s u g g e s t i o n s f o r t h e i m ­ p rovem en t and under t h is lo n g e r -te r m c o -o r d in a tio n p r o je c t, and to of m ake fu rth e r resea rch w ork r e c o m m e n d a t io n s fo r r e s e a r c h in t h is f i e l d . T h e p u r p o s e o f t h e p r o j e c t w a s t o o b t a i n d e t a ile d d a ta on i n p u t s a n d i n v e s t m e n t c o s t s i n i n d i v i d u a l i n d u s t r ie s . S t u d ie s on ce m e n t, fo o d c a n n in g and c h e m ic a l s , p r e p a r e d b y t h e S e c r e t a r ia t , a n d o n p e t r o l e u m a n d m e t a l w o r k in g , p repared by som e of th e p a r t ic ip a n t s , w ere p r e s e n t e d t o t h e e x p e r t w o r k i n g g r o u p . T h e s e in d u s t r ie s w e r e s e le c t e d on t h e b a s is o f a v a i la b ili t y o f d a t a , c o m ­ p le x it y o f p r o c e s s e s , a n d S u c h d a ta a r e n e e d e d at t h e d i f f e r e n t s t a g e s o f i n d u s t r i a l v ie w d e v e l o p m e n t p r o g r a m m i n g , e s p e c ia l l y f o r s t u d ie s o n p r e ­ T h e fo llo w in g experts participated in their in d iv idu al ca­ pacities: P rofessor M . A . A d elm a n , M assachusetts Institute o f T e c h n o lo g y , C a m b rid g e , M assachusetts; M r. J. L . A lm e id a B ello, C h ief, D ep artm en t o f P etro-chem ical E q u ip m e n t, C om p an h ia Brasileira de M aterial F errov iario (C O B R A S M A ) , S ão Paulo, B razil; D r. A n n e Carter, H a rv ard E c o n o m ic Research P roject, C a m b rid g e, M assachusetts; P rofessor R ich ard E ckaus, C enter for International Studies, M assachusetts Institute o f T e c h n o lo g y ; M r. D an iel G allik , C o lu m b ia U niversity, N e w Y o r k ; D r. R obert N . Grosse, R an d C orp ora tion , Santa M on ica, C a lifo rn ia ; P ro ­ fessor A lan M ann e, Y ale U niversity, N e w H a ven , C o n n ecticu t; P rofessor S eym ou r M elm a n , C olu m b ia U n iv ersity; M r. C arlos Q uintana, C h ief, P ro g ra m m in g D iv isio n , N acion a l F inanciera, M e x ic o ; M r. E rw in S alom on , C h ief, Industry D iv isio n , Central P lann ing B oard, B elgrade, Y u g osla v ia ; M r. H a n s H u g o W o lff, Institute for M ach in e T o o ls and F actory O rg a n iza tio n , T ech n ica l U niversity, A achen , F ederal R ep u blic o f G erm a n y. M em bers o f the Secretariat o f the U n ited N ation s at H ea dq u arters and E C L A and a region al E C L A /B T A O expert also participated in the m eeting. fr e q u e n tly im p o r ta n c e fr o m t h e p o in t o f c o u n tr ie s . of The 1 th e stru ctu re ap p roa ch of in d u s tr y a d o p te d r e fe r re d to in in som e as a c t iv it y u n d e r -d e v e lo p e d of th ese s t u d ie s a n a ly s is . I n c e d u r e , a n in d u s t r ia l a c t iv it y is b r o k e n d o w n is t h is p r o ­ in to t e c h ­ n o l o g i c a l u n it p r o c e s s e s , t h e le v e l o f d i s a g g r e g a t i o n d e ­ p e n d i n g u p o n t h e a v a il a b il it y o f d a t a , t h e t e c h n o l o g i c a l c h a r a c t e r is t ic s a n d t h e p u r p o s e o f t h e a n a ly s is . F o r e a c h u n it p rocess, in p u ts e v e r p o s s ib le in The and ou tp u ts are expressed w hen­ p h y s i c a l u n it s . expert g ro u p fe lt th a t t h e a p p r o a c h t h e v a r io u s s t u d ie s s u b m it t e d a d o p te d in t o it w a s a p p r o p r i a t e f o r p r o g r a m m i n g in t h e c a s e o f in d u s t r ie s c h a r a c t e r i z e d by c o n t in u o u s to flo w -o p e r a t io n s or by o p e r a tio n s le a d in g r e l a t iv e ly h o m o g e n e o u s p r o d u c t s , f o r e x a m p l e , t h e f o o d c a n n in g , ce m e n t, p e tr o le u m d u s t r ie s . T h e g r o u p r e fin in g recom m en d ed and c h e m ica l in ­ th a t r e s e a r c h b e u n ­ d e r t a k e n in a s y s t e m a t ic a n d u n i f o r m w a y in t h e p o w e r , t e x t ile , ste e l a n d p u lp and paper in d u s t r ie s , o n w h ic h 35 t h e r e is a c o n s i d e r a b l e a m o u n t o f i n f o r m a t i o n . S t u d ie s c o n d itio n s o f u n d e r -d e v e lo p e d e c o n o m ie s a p p e a re d to be s h o u l d a ls o c o v e r c e r t a i n in d u s t r ie s o f s p e c ia l i m p o r t a n c e q u e s tio n a b le . to th e d e v e lo p in g c o u n tr ie s . T h e s e in c lu d e f o o d q u a te to a llo w f o r th e te c h n o lo g ic a l c h a n g e s in v o lv e d b y s in g , f e r t i l i z e r s to and a g r icu ltu r e , based o th er in d u s tr ie s p r o v id in g c o n s tr u c tio n in d u s tr ie s , s u ch o th e rs im p o r ta n t fr o m p roces­ m a t e r ia ls , c e rta in as t h e a l u m i n i u m su pport th e p o in t o f v ie w o f im p o r t o r e x p o r t s u b s titu tio n . As regards th a t , in in p u ts , s t u d ie s , th e group in v e s t m e n t recom m en d ed be brok en a n d e n g in e e r in g ; th a t d e p r e c ia t io n r a te s o f A secon d r a te s b e s p e c if i e d in p h y s ic a l c o n s u m p t io n of A a p p ro p r ia te o f t h e la g s b e t w e e n c a p it a l o u t ­ “ a n c illa r y ” p ro ce sse s b e d iffe r e n tia te d c e sse s, a n d t h a t s t u d ie s b e u n d e r t a k e n o f c a p i t a l - l a b o u r fr o m “ core” p ro­ agreed th a t t e c h n o lo g ic a l r e l a t io n s h i p s b e e x p r e s s e d i n p h y s i c a l u n it s t o p e r m i t a c o m ­ d a ta o r ig in a t in g in d iffe r e n t coun­ t r ie s . I n a s m u c h as t h e c h o i c e b e t w e e n p o s s i b l e t e c h n i c a l is a ffe c te d by r e la t iv e p r ic e and w age le v e ls a n d in t e r e s t r a te s, d a t a o n t h e s e f a c t o r s s h o u l d a l­ s o b e c o lle c t e d . T h e u se o f s o c ia l a c c o u n t in g p r ic e s m ig h t b e n e c e s s a r y i n t h is c o n n e x i o n . e q u ip m e n t r e q u ir e m e n ts fo r and on on t h e s k ills i n v o l v e d th e t im e r e q u ir e d in fo r a lte r n a tiv e t e c h n o lo g ie s e d u c a tin g and t r a in in g l a b o u r i n e a c h s k ill. The tr ie s c o lle c tio n as m e ta l lin k in g o f t h e ta s k s to i n d i v i d u a l i n d u s t r ie s . T h e but needed a m ore fo r d e t a il e d e q u ip m e n t p r o g r a m m in g m a c h in e c la s s if ic a t io n b u ild in g in ­ A s t o l o n g e r - t e r m r e s e a r c h in t h e f ie l d o f m e t a l w o r k ­ i n g , a s s e m b ly a n d s im i la r in d u s t r ie s , t h e g r o u p f o u n d it ­ s e l f u n a b le , at t h is s t a g e , t o r e c o m m e n d a n a p p r o p r i a t e o f f u r t h e r s t u d ie s , a ta s k f o r w h i c h d iffe r e n t n a tio n a l and th e c o -o p e r a tio n o f in t e r n a t io n a l a g e n c ie s w o u ld be u s e f u l. The group recom m en d ed t h a t f u r t h e r s t u d ie s b e u n ­ d e r t a k e n o n s p e c if i c i n d u s t r ie s i n d i f f e r e n t c o u n t r i e s . I n t h e s e s t u d ie s , a t t e n t i o n order of p r io r it y , to s h o u ld th e be g iv e n , in fo llo w in g p o in ts : d e c r e a s in g (a ) a p p li­ c a b i l i t y o f t h e m e t h o d s t o e c o n o m i e s at d i f f e r e n t s t a g e s of F i n a l l y , t h e g r o u p s u g g e s t e d th a t i n f o r m a t i o n b e p r o ­ v id e d th e m e t h o d o l o g y . T h i s w o u l d h a v e t o a w a it t h e c o m p l e t i o n s u b s t itu tio n in th e fo r m e r . c o m b in a t io n s to o ls a n d m e t h o d w a s u s e fu l f o r p r o g r a m m in g m a c h in e u s in g in ­ T h e g r o u p a ls o r e c o m m e n d e d th a t , w h e r e a p p r o p r ia t e , th e o p e r a tio n d u s t r ie s . la y s a n d t h e b e g i n n i n g o f p r o d u c t i o n . use o f m a c h in e t h i r d a p p r o a c h , a p p l i e d in a s t u d y o f h e a v y m a c h i n e w as p a r a t iv e fo r b u i l d i n g , i n v o l v e d e s t im a t e s i n m o n e y v a lu e o f t h e m a i n d u s t r ie s , be u n d erta k en s h o u ld in a d e ­ p r o m i s e f o r a n a l y s i n g a lt e r n a t iv e p r o d u c t i o n t e c h n i q u e s . s t u d ie s grou p ap p eared t h e d e f i n i n g o f m e t a l w o r k i n g ta s k s f o r s p e c if i c m a c h i n e c a t e g o r i e s o f c a p it a l a sse ts d u r i n g t h e ir l i f e t i m e , a n d th a t The m e th o d , d e v e lo p e d o n ly , in v o lv e d dow n i n t o c o n s t r u c t i o n , e q u i p m e n t a n d s e r v ic e s s u c h a s d e s i g n te rm s o f stu d y e n d p r o d u c t s . T h e p r o c e d u r e w a s i n c o m p l e t e , b u t it h e l d c a p it a l fu r th e r th e la b o u r - c a p i t a l s u b s t it u t i o n . resou rce- in d u s tr y , a n d F u rth e rm o re d e v e lo p m e n t; c o m p u ta tio n m en ts; (c ) of (b) b oth a p p l ic a b i l i t y la b o u r q u a n t ific a tio n g re e s o f m e c h a n iz a tio n of in p u ts of e ffe c ts th e and of m e th o d s c a p it a l fo r in v e s t ­ a lt e r n a t iv e de­ ( la b o u r a n d c a p ita l i n p u t - m i x ) ; ( d ) e ff e c t s o f s t a n d a r d i z a t i o n , b a t c h s i z e a n d s t a b ilit y o f o f p r o g r a m m in g w o r k in g and d a ta o n a s s e m b ly su ch in d u s ­ r a is e d s p e c ia l o p e r a t i o n u p o n p r o d u c t i v i t y . I t a ls o r e c o m m e n d e d , a s a n u r g e n t m e a s u r e , t h a t a s e l e c t iv e b i b l i o g r a p h y o n i n d u s ­ m e th o d o lo g ic a l p r o b le m s . S e v e ra l a p p ro a ch e s h a d been tr ia l d e v e l o p m e n t p r o g r a m m i n g b e is s u e d a n d p rop osed , One u p to d a te p e r io d ic a lly .2 none of w h ic h w as fu lly s a tis fa c to r y . m e t h o d i n v o l v e d a t w o - s t a g e a n a l y s i s : i n t h e fir s t s t a g e , in p u t r e q u ir e m e n t s w o r k in g w ere c a lc u la te d o p e r a t io n s ; in th e s e c o n d f o r s p e c ifie d m eta l sta g e, th e o u t p u t o f fin a l p r o d u c t s w a s b r o k e n d o w n i n t o its c o m p o n e n t o p ­ The s t u d ie s p r e s e n t e d to th e w o r k in g g r o u p brou gh t w ill be p u b l i s h e d b y t h e U n i t e d N a t i o n s i n t h e c o u r s e o f 19 62 u n d e r t h e t it le I n p u t s a n d I n v e s t m e n t s in S elected I n ­ d u s t r ie s . e r a t io n s . T h e m e t h o d h a d b e e n a p p l ie d i n a s t u d y o f i n ­ d u s t r ia l p r a c t i c e s in o n e e c o n o m i c a l l y a d v a n c e d c o u n t r y a n d t h e t r a n s f e r a b i l i t y o f t h e c o e ffi c i e n t s o b t a i n e d t o t h e 36 T h e first part o f a p relim in a ry b ib lio g ra p h y o n the su bject is p u blish ed in this issue o f the B ulletin. 2 M e t h o d o l o g i c a l E c o n o m i c P r o b le m D e v e l o p m e n t s in L o n g -t e r m P r o g r a m With examples from the Yugoslav economy m in g By BRANKO HORVAT SCOPE OF A LONG-TERM PROGRAMME Need fo r, and conditions of, long-term p ro g ra m m in g y e a r p e r i o d , a ll t h e m e a s u r e s u n d e r t a k e n a im at a c h i e v ­ i n g t h e g o a l s set f o r t h a t p e r i o d , w h i l e t h e e f f e c t s w h i c h I n a num ber of c o u n tr ie s , e c o n o m is ts have becom e a w a re o f th e in a d e q u a c y o f a n n u a l a n d m e d iu m -t e r m e c o n o m i c p la n s as a n i n s t r u m e n t f o r g e t t i n g a t h o r o u g h in s ig h t in t o th e m e c h a n is m a c h ie v in g o p tim u m of e c o n o m ic g ro w th e c o n o m ic p r o g r a m m in g . T h e and r e a li­ z a t i o n o f t h is i n a d e q u a c y a n d o f t h e n e e d f o r l o n g - t e r m p r o g r a m m i n g re sts o n t w o se ts o f c o n s i d e r a t i o n s . (a ) it m a y n o t b e ta k en i n t o c o n s i d e r a t i o n . B e s id e s , a n y s h o r t - t e r m th ese m easu res m a y have beyon d p la n is r i g i d , a n d t h e e n d e a v o u r t o “ f u l f i l a n d s u r p a s s ” its g o a l s r e g u ­ la r l y r e s u lts in a s u r g e o f a c t i v it y t o w a r d s th e e n d of t h e p e r i o d , f o r in s t a n c e , i n t h e c o u r s e o f t h e f i f t h y e a r , f o l l o w e d b y a s l a c k e n i n g i n t h e s u b s e q u e n t y e a r .1 A s a r e s u lt , i n v e s t m e n t a n d p r o d u c tio n c y c l e s a r e s y s t e m a t i­ c a l ly b u i l t i n t o t h e e c o n o m y , a n d t h e i n s t a b il it y a n d d i s - P o lit ic o -e c o n o m ic c o n s id e r a tio n s to­ e q u i l i b r ia w h i c h t h e y c a u s e r e d u c e t h e p o t e n t i a l e f f ic ie n c y w a r d s s o lv in g c u r r e n t e c o n o m ic a n d p o litic a l p r o b le m s , o f th e p la n n e d e c o n o m y a n d h a m p e r e c o n o m ic g r o w t h . E c o n o m ic a fa c to r p o lic y w h ic h e c o n o m ic is v e r y m ay be d e v e lo p m e n t p ro b le m s n ecessa ry step s are ta k en d ir e c te d d e tr im e n ta l o f th e p e r s p e c tiv e o f lo n g -t e r m cu rren t o fte n p r im a r ily to th e co u n try . In lo n g -r u n d e v e l o p m e n t is e s s e n tia l i f t h e to be c o r r e c tly tow a rd s th e ir assessed and s o lu tio n . th e F u rth e r, p l a n n i n g o n r e l a t iv e l y s h o r t t e r m s , s a y , f r o m o n e t o f i v e y e a r s , m a y b e a c a u s e o f d i s c o n t i n u i t y in e c o n o m i c d e ­ v e lo p m e n t. W hen a tte n tio n (b) fa c t , a c le a r is c o n c e n t r a t e d on a fiv e - M e t h o d o lo g ic a l c o n s id e r a tio n s B ecau se s m a ll seem of th e ch an ges c u m u la tiv e n e s s in cu rren t i n s ig n i f i c a n t i n im p o r ta n t lo n g -te r m th e of e c o n o m ic e c o n o m ic sh ort run , ch an ges. T o g ro w th , a c t iv it ie s , m a y le a d g iv e w h ic h to very an e x a m p le , in ­ a d e q u a t e c a r e a b o u t t h e t r a i n i n g o f p e r s o n n e l m a y s e r i­ o u s ly h a m p e r fu tu r e e c o n o m ic d e v e lo p m e n t . T h e is tru e of i n s u ff ic ie n t h o u s in g c o n s tr u c tio n , sam e w h ic h is o f t e n t h o u g h t t o p r e s e n t lit t le d a n g e r in t h e s h o r t r u n . M r . H o r v a t is H e a d o f th e R esea rch t h e F e d e r a l P la n n in g B u reau r es en ted Y u g o s la v ia at th e D e p a r t m e n t in o f Y u g o s la v ia . H e first s es s io n of th e rep ­ C om ­ m it t e e f o r I n d u s tr ia l D e v e l o p m e n t o f t h e U n i te d N a tio n s a n d s e r v e d as C h a ir m a n o f t h e W o r d i n g G r o u p o f th e C o m m i t t e e a p p o in te d to fo r m u la t e t h e w o r \ p r o g r a m m e f o r t h e S ecreta ria t a n d m a \ e r e c o m m e n d a t i o n s c o n c e r n ­ Som e d a y , h o w e v e r , a sh a rp d is p r o p o r tio n m a y b e d is ­ c o v e r e d , th e s o lu t io n o f w h ic h w o u ld ta k e a n u m b e r o f years. A s i m ila r p r o b le m — a lt h o u g h n a t u r e — is t h a t o f t h e i n d u s t r ia l of a very s p e c if i c r e la t iv e p a c e o f a g r i c u l t u r a l a n d d e v e lo p m e n t. T here are m any e x a m p le s of t h is t y p e , m o s t o f w h i c h a r e o n l y t o o w e l l k n o w n . B e s id e s th e n eed fo r lo n g -te r m p r o g r a m m in g , it is e s s e n t ia l t h a t t h e r e s h o u l d b e a p o s s i b i l i t y f o r s e t t i n g it in g th e C o m m itte e ’s fu tu r e w o r\ . T h e v i e w s e x p r e s s e d in th is a r tic le a re t h e a u t h o r ’ s p erson a l v iew s and a re in s titu tio n w ith w h ic h not n e c e ss a rily h e is a ss o c ia te d . th o s e of th e 1 In the case o f an annual plan, the m a x im u m is usually reached in N o v e m b e r and D ecem b er, an d eco n o m ic activity ra p id ly slackens in January and F ebruary. 37 g e s t a t io n p e r i o d . I f t h is f a c t o r h a p p e n s t o b e s k ill e d m a n ­ p o w e r — as is t h e c a s e in Y u g o s l a v i a — e v i d e n t l y no su b­ s t a n t ia l c h a n g e s in t h e s k ill s t r u c t u r e o f t h e p o p u l a t i o n can be ex p ected needed fo r b e fo re th e e x p ir a t io n of th e p e r io d r e t r a i n i n g t h e e x i s t in g l a b o u r f o r c e o r e d u ­ c a t i n g a n e w g e n e r a t i o n o f h i g h l y s k i ll e d p e r s o n n e l . (b) T h e u p p e r l i m i t o f t h e p e r i o d is g i v e n b y a p o i n t in t i m e in t h e f u t u r e at w h i c h t h e e c o n o m y a p p e a r s to b e s o f le x ib le a n d p l a n n i n g s o u n c e r t a i n t h a t a n y a d d i ­ t io n a l i n f o r m a t i o n w h ic h c o u ld b e o b ta in e d b y s h iftin g t h e p l a n n i n g h o r i z o n f o r a n o t h e r y e a r d o e s n o t e s s e n t ia l­ ly i m p r o v e t h e q u a l i t y o f t h e e c o n o m i c d e c i s i o n s t o b e ta k e n . A s a r u le , a p e r io d o f t w e n t y to t w e n t y -fiv e years w o u ld re p re se n t th e u p p e r lim it fo r a w h o le . L o n g e r t h e p r o g r a m m e as p e r io d s o f o b s e r v a t io n m a y b e n e e d e d f o r c e r t a i n e c o n o m i c a c t i v it ie s ; f o r e x a m p l e , in f o r e s t r y , fo r e c a s t s a r e d o n e f o r a p e r i o d o f f o r t y y e a r s . I n a d d i t i o n t o t h e s e g e n e r a l c r it e r ia , a n u m b e r o f c o n ­ s id e r a t io n s s p e c ia l to each in d iv id u a l co u n try and de­ p e n d i n g o n its s o c i o - e c o n o m i c t a r g e t s , h a v e a b e a r i n g o n t h e d e t e r m in a t i o n o f t h e p r o g r a m m i n g p e r i o d . I n Y u g o ­ s la v ia , t h e r e le v a n t t a r g e t s a r e : m o d e r n i z a t i o n o f a g r i c u l ­ Assembling the field coils of a large generator in a Zagreb factory t u r e a n d s u b s t a n t ia l r e d u c t i o n o f t h e d i f f e r e n c e in l i v i n g sta n d a rd s tio n ; on a r e a lis t ic b a s is . I n th e Y u g o s la v e c o n o m y , su ch a betw een r a is in g th e tow n and h e a lt h co u n try ; sta n d a rd s o p tim u m of th e n u tr i­ p o p u la t io n ; s o l v i n g t h e h o u s i n g p r o b l e m ; e l i m i n a t i n g illit e r a c y a n d , p o s s ib ilit y ha s c o m e u p o n ly r e ce n tly . E a r lie r , th e c o u n ­ as tr y h a d s c h o o lin g ; b u ild in g a m o d e r n c o m m u n ic a tio n s n e tw o r k been ch an ges. sy stem m it It g o in g th rou g h is o n l y has ta k en r e a lis t ic now on a p ro c e s s o f r e v o lu tio n a r y th a t m ore fo r e c a s tin g th e e c o n o m ic and fe a tu re s w h ic h l a s t in g and p la n n in g . T h is s o c ia l per­ co u n try , is e n v i s a g e d now , in tr o d u c in g c o m p u ls o r y t e n -y e a r a n d m i t i g a t i n g t h e in h e r i t e d d is c r e p a n c i e s in t h e e c o n o ­ m ic an d e v e lo p m e n t o f in d iv id u a l endeavour w h ic h w ill not r e g io n s o f t h e c o u n t r y , o n ly s e ttle a s o c ia l and w h ic h p r e v i o u s l y h a d a l o w ra te o f c a p it a l a c c u m u l a t i o n , p o l i t i c a l p r o b l e m , b u t w i l l a ls o m a k e it p o s s i b le t o u se n o w h a s a h i g h l y a c c u m u l a t i v e e c o n o m y . A n a p p r e c ia b le fu lly p ace p r o b a b l y , t h e a t t a in m e n t o f t h e s e t a r g e t s w i l l t a k e s o m e of g ro w th has been a c h ie v e d , togeth er w ith a a ll th e e c o n o m ic resources y e a r s . It s h o u l d a ls o of th e co u n try . M o st s t a b iliz a t io n o f th e e c o n o m ic stru ctu re a n d th e e lim in a ­ tw en ty t io n o f th e g re a te s t e c o n o m ic d is p r o p o r t io n s . In p a r tic u ­ fe c t s o f t h e le ss im p o r t a n t c h a n g e s in t h e c u r r e n t in v e s t ­ be c o n s id e r e d th a t t h e e f ­ la r, a d e q u a t e m e a s u r e s h a v e b e e n a d o p t e d f o r t h e s o c ia l m e n t p o l i c y w i l l n o t m a n i f e s t t h e m s e l v e s in a s ig n i f ic a n t o r g a n i z a t i o n o f a g r i c u l t u r e , as a r e s u lt o f w h i c h a g r i c u l ­ w a y b e fo re tw e n ty years o r m o r e t u r e n o l o n g e r la g s b e h i n d a n d t h e r e la t e d e c o n o m i c d is - m e t h o d o l o g i c a l a n d d i d a c t i c c o n s i d e r a t i o n s t h e r e f o r e a l­ e q u ilib r ia so h a v e a b e a r in g o n th e p r o b le m . are d is a p p e a rin g . im p o r t a n c e , th e c e n t r a liz a t io n F in a lly , and of p a r t ic u l a r w o r k e r s ’ s e lf-g o v e r n m e n t— a n d th e w h ic h la s t in g f o u n d a t i o n a lw a y s fo llo w s fo r b u ild in g de­ it— h a s p r o v i d e d a u p a m o r e e ff ic ie n t i n ­ T h e fu n c tio n o f lo n g -te r m A lo n g -te r m d e v e lo p m e n t. p r o g r a m m e m a y b e b r o k e n d o w n in t o se v ­ eral m e d iu m -te r m b e o b s e r v e d . A l l t h is h a s m a d e it p o s s i b l e t o g e t a n i n ­ m e n t w h ic h s h o u ld s ig h t i n t o t h e m e c h a n i s m th e in of o v e r - a ll p r o g r a m m i n g is to s e t tle t h e b a s ic d e t e r m in a n t s o f e c o n o m i c s t i t u t i o n a l s y s t e m , t h e first r e s u lts o f w h i c h m a y a lr e a d y o f th e c o n t in u o u s g r o w t h (s e e a p p e n d i x ) . T h e s e co u n try p la n s d e fin e d engage a co n cre te as le g a l a c ts o f P a r l i a ­ th e e c o n o m ic w ay. T h ese can resou rces of fu rth e r be t h e e c o n o m y as a w h o l e , i n c l u d i n g a ll t h e s o c ia l s e r v ic e s , brok en a n d t h e r e b y t o d e t e r m i n e t h e p a c e a n d lin e s o f p r o d u c ­ w h o s e f u n c t i o n is t o e n s u r e t h e r e a l i z a t i o n o f a d y n a m i c tio n , d is tr ib u tio n a n d c o n s u m p t io n . dow n e c o n o m ic in t o annual e q u ilib r iu m , th a t or is, sh orter th e o p e r a tiv e ab sen ce of p la n s v a r io u s e c o n o m i c d is c r e p a n c ie s in p e r m a n e n t l y c h a n g i n g c o n d i ­ Period o f p ro g ra m m in g tio n s o f d e v e lo p m e n t . T h e f o l l o w i n g g e n e r a l c r it e r ia m a y h e l p in d e c i d i n g o n cern ed th e p e r io d o f t im e w h ic h a lo n g -t e r m p r o g r a m m e s h o u ld cu rre n t m e d iu m -te r m I n o r d e r t o m a k e th e s y s t e m cov er. (a ) th e ?3" th ey T h e l o w e r l i m i t is se t b y t h e m a t u r a t i o n p e r i o d o f s t r a t e g ic fa cto r of d e v e lo p m e n t w ith th e lo n g e s t w it h b e g in correct th e p la n n in g to w ork lo n g -te r m d iu m -te r m o n e . s h o u ld w o r k , t h e a g e n c ie s c o n ­ s h ift th e h o r iz o n of th e p la n f o r a y e a r in a d v a n c e , w h e n on th e p la n a n n u a l p la n s ; w hen w o r k in g th e y on s h o u ld th e m e ­ Placing field coils into an electrical generator in a Zagreb factory 39 GOALS OF LONG-TERM PROGRAMMING AND PACE OF ECONOMIC DEVELOPMENT h o n g -te r m , g o a ls i n a d e q u a c y o f i n v e s t m e n t o p p o r t u n i t i e s f o r t h e s a v in g s . W hen T N a s o c ia l i s t e c o n o m y , t h e g r o w t h o f p r o d u c t i o n is n o t A a g o a l i n i t s e l f. I n s u c h a n e c o n o m y , t h e o v e r - a l l g o a l o f l o n g - t e r m p r o g r a m m i n g m a y b e d e f i n e d as a c h i e v i n g m a x im u m s a tis fa c tio n o f th e n e e d s o f th e p e o p le d u r in g a g iv e n p e r io d of t i m e , t h e e x p r e s s io n t a k e n as d i s t i n c t f r o m “ p e o p le ” b e in g ceed t h e l i f e - t i m e o f a g e n e r a t i o n , t h a t is, t h i r t y - f i v e t o fo r t y years, a lt h o u g h years w o u ld , in a p e r io d o f fifte e n a ll p r o b a b i l i t y , b e m ore a c c e p t a b le to a n a ly s is of th e e c o n o m ic m ic w e lfa r e (p e r s o n a l c o n s u m p t io n a n d s o c ia l w e lfa r e ) w ith th a t o f m a x im iz a tio n o f p r o d u c t io n . In t h e c o n d i t i o n s o f Y u g o s l a v i a , t h is m e a n s t h a t , d u e t o t h e fa s t e r r a t e o f c a p i t a l a c c u m u l a t i o n i n r e l a t io n t o p r o d u c ­ tio n , o v e r -a ll c o n s u m p tio n by m ore th a n at th e b e g in n in g s h o u ld n o t h a lf a y e a r b e h in d t h e le v e l w h ic h w o u ld b e a c h ie v e d if th e ra te o f a c c u m u la tio n r e m a in e d u n ch a n g ed . S u ch t o le r a te d a l a g c o u ld --¿ w it h o u t i f it w e r e t h e c o n d i t i o n fo r dou bt be a c h ie v in g e a s ily a ll t h e fa v o u r a b le e ffe cts o f th e m a x im u m a c c e le r a tio n o f e c o n o ­ m i c g r o w t h . T h e e ffe cts o n p r o d u c t iq n a n d c o n s u m p t io n o f v a r y i n g a s s u m e d r a te s o f i n c r e a s e o f c a p it a l a c c u m u l a ­ tio n are e x a m in e d in th e a p p e n d ix w ith th e h e lp of no s e r io u s d is c r e p a n c ie s w o u ld d e v e lo p betw een o f c o n s u m p t io n a n d p r o d u c t io n . In a s o c ia li s t e c o n o m y , t h e s e t w o ta rgets w o u ld b e id e n tica l a n d a tte n tio n w o u ld b e d e v o t e d t o a n a ly s in g th e fa c t o r s T h e t r a n s i t io n f r o m a n e c o n o m y w i t h a l o w a c c u m u l a ­ r e p r e s e n t e d , as is s h o w n i n c h a r t 1. I n t h is c h a r t , A P d e n o t e s t h e o v e r - a l l in c r e a s e o f p r o ­ d u c tio n A l t h o u g h i n v e s t m e n t is n o t t h e u n i q u e f a c t o r i n f l u e n c ­ i n g t h e in c r e a s e o f p r o d u c t i o n , it is t h e b a s i c p r e r e q u i s i t e o f p r o d u c t i o n . C o n s e q u e n t l y , t h e r a te o f g r o w t h o f p r o ­ d u c t i o n is m a x i m i z e d a t t h e p o i n t at w h i c h f u r t h e r i n ­ v e s t m e n t is o f n o c o n s e q u e n c e f o r t h e g r o w t h o f p r o d u c ­ t io n . In o t h e r w o r d s , at a g iv e n le v e l o f to ta l p r o d u c t io n , w hen in th e cou rse of ra te o f g r o w t h th e m a r g in a l z e r o . E x p e r ie n c e th e p e r io d c o n s i d e r e d , le t u s sa y in t h e c o u r s e o f t w e n t y y e a r s , a n d m p i d e n o t e s t h e p r o d u c t iv ity of to m p i. T h e dAP i n v e s t m e n t , —— d I a c c u m u la tiv e c a p a c ity of b e in g th e equal econ om y is r e p r e s e n t e d b y t h e a c c u m u l a t i o n r a te s ( t h e s h a r e o f i n ­ v e s t m e n t in p r o d u c t i o n ) . I n th e b e g in n in g , th e a c c u m u ­ la t iv e c a p a c it y is l o w , b u t d u e to th e d y n a m ic a d a p ta ­ t i o n o f t h e e c o n o m y i n t h e c o u r s e o f t i m e , it g r o w s c o n ­ tin u o u s ly . T h a t is r e p r e s e n t e d in g r a p h 1 A b y s h iftin g t h e m p i c u r v e t o t h e r i g h t , s o th a t t h e o p t i m u m a c c u m u ­ l a t i o n r a te s , at w h i c h th e m a r g in a l p r o d u c t iv it y o f in ­ v e s t m e n t b e c o m e s z e r o , 3 i n c r e a s e s . W h e n a ll t h e s e p o i n t s a r e c o n n e c t e d i n t o a c o n t i n u o u s li n e , as is d o n e in g r a p h I B , it b e c o m e s e v i d e n t h o w , in t h e c o u r s e o f t i m e , a c ­ c u m u l a t i v e c a p a c i t y in c r e a s e s , at fir s t r a p i d l y and th en m o r e s l o w l y . I f t h e m p i c u r v e s h ift s in s u c h a w a y t h a t th e a v e ra g e T h is e ffic ie n c y o f in v e s t m e n t d o e s in p r o d u c tiv ity sh ow s p r o d u c tio n is a c h i e v e d o f i n v e s t m e n t f a l ls t o t h a t t h is l i m i t o f d y n a m i c i n ­ v e s t m e n t s a t u r a t i o n c a n b e a c h i e v e d r e l a t iv e l y s o o n , at a le a d s p la n n e d n o t d ecrease, to th e im p o r ta n t e c o n o m y , it m a y c o n c lu s io n b e assu m ed th a t, th a t t h e in a r a te o f g r o w t h o f p r o d u c t io n w ill b e in c r e a s in g in th e c o u r s e o f tim e . In t h is c o n n e x i o n , it m a y b e a r g u e d fo r m e r ly th e d e t e r m in in g th e a c c e le r a tio n o f p r o d u c t io n . a m a x im u m rem oves t io n ra te to a h ig h ly a c c u m u la t iv e o n e c a n b e g r a p h ic a lly T h e s e c o n s i d e r a t i o n s l e a d t o t h e c o n c l u s i o n t h a t , as a r u le , a c t iv it ie s t h e n t h e p a c e o f e c o n o m i c d e v e l o p m e n t is a c c e l e r a t e d . n u m e r ic a l d a ta . th e r a p id g r o w t h e c o n o m ic a ll t h e e c o n o m i c r e s o u r c e s o f t h e c o u n t r y . p rocess sh o w s th a t , i n t h e l o n g r u n , t h e g o a l o f m a x i m i z a t i o n o f e c o n o ­ la g is a u t o m a t i c a l l y i n c r e a s e d , b e ­ of s h ip o f t h e m e a n s o f p r o d u c t i o n p e r m i t s a b e t t e r u s e o f m a r g in a l te c h n ic a l c o in c id e s c o -o r d in a tio n p r o g r a m m e . T h i s a s p e c t is s till a m a t t e r f o r c o n s id e r a tio n . A th e m a r k e t l i m i t a t i o n s a n d t h e e l i m i n a t i o n o f p r iv a t e o w n e r ­ to t w e n ty -fiv e c itiz e n s c a lle d u p o n to v o te o n th e in t r o d u c t io n o f su ch a lo n g -te r m ca u se “ sta te ” o r a n y o t h e r b u r e a u c r a tic c a t e g o r y . I d e a lly , th e le n g t h o f th e p e r io d s h o u ld n o t e x ­ c e n t r a l p l a n n i n g is i n t r o d u c e d , t h e a c c u m u l a t i v e c a p a c ity o f th e e c o n o m y u n d e r -d e v e lo p e d m ost fr o m advanced th em th e co u n try ones, it c a n n o t t e c h n o lo g ie s th ey ten d s to n o t g r o u n d le s s , b u t in d ic a te th a t th e any have t h a t , as a r e s u lt , t h e r a te o f g r o w t h a r g u m e n t is th a t , w h e n a reach es th e le v e l o f m ore borrow d e v e lo p e d and w ill s la c k e n . T h i s th e S o v ie t e x p e r ie n c e phenom enon has no great q u a n tita tiv e s ig n ific a n c e a n d , c o n s e q u e n t ly , d o e s n o t in ­ flu e n c e th e p r o d u c tio n . not reach assu m ed In by any 1980 gen eral ev e n t, th e th e le v e l r e g u la r it y Y u g o s la v of in th e r a te o f econ om y d e v e lo p m e n t w ill w h ic h th e m o s t d e v e lo p e d c o u n tr ie s o f th e w o r ld are e x p e c t e d to h a v e at th a t t im e . It is n e c e s s a r y f u r t h e r t o d e f i n e t h e p o s s ib i lit i e s f o r in - r a t e o f g r o w t h o f i n v e s t m e n t o f s o m e 10 t o 15 p e r c e n t p e r year. Strictly speakin g, the o p tim u m rate o f accu m u lation is slightly sm aller. T h e graph depicts the situation in w h ich co n ­ su m p tion is m a x im iz e d w ith respect to infinity. I f it is to be m a x im iz e d w ith in a p e riod o f, say, tw en ty years, then in the current year— w h ic h is always the first year o f the p lan n in g h o r iz o n — slightly less o f the total social p ro d u ct sh ou ld be ab­ sorbed by capital accu m u lation . H o w e v e r , this d ifferen ce is so sm all as to have n o em pirical sign ifica n ce w h atsoever. F o r a systematic discussion, see the au th or’s article ‘T h e O p tim u m Rate o f Investm ent” , E c o n o m ic Journal ( L o n d o n ) , D ecem b er 1958, pages 747 to 767. 3 P a c e In o f lo n g -te r m a n o n -c o n t r o lle d a c c u m u la tio n ca u se o f c a p it a lis t e c o n o m y , t h e c a p a c it y , o f o f in v e s t m e n t la c k o f d e v e lo p m e n t v o lu n ta r y is -^ e la t iv e ly s m a ll, n o t b e ­ s a v i n g ,2 b u t b e c a u s e o f t h e T h is is im p lie d by som e apologists o f the system w h o allege that the h ig h pace o f d ev e lo p m e n t in p lan n ed e con om ies is exclu sively due to c o m p u lso ry saving. 2 40 Chart 1 C a p a c it y o f C a p i t a l A c c u m u l a t i o n Ga h 1 rp A Ga h 1B rp T r u h e sh o th mi c r e h o g -tim ift f e p uv O timl r te o a c m la n p a a s f c u u tio N ote : Optimal rates are the rates at which d A P /d l equal zero, as shown in Graph 1A c re a s in g th e a c c u m u la t iv e c a p a c ity o f a n e c o n o m y and t h e r e b y s e t t i n g s o m e l i m i t s t o its d e v e l o p m e n t . F r o m g iv e n in it ia l e c o n o m i c c u m u la tiv e c a p a c ity le v e l, th e e x p a n s io n w ill b e d e t e r m in e d of th e a ac­ by tw o grou ps T h e e x o g e n o u s fa c t o r s are g iv e n a n d e s ca p e c o n s c io u s in c lu d e d e m o g r a p h ic c o n d itio n s , n a tu ra l re so u rce s a n d th e in te r n a tio n a l p o s it io n as d e t e r m i n e d g eogra p h y by and o f th e c o u n tr y th e o v e r -a ll p o litic a l s itu a tio n in th e w o r ld . are s m a ll . tim b e r s o i n a s o c ia lis t s y s t e m . T e c h n i c a l l y , o r e o f h ig h Y e t, n a tu ra l m in e r a ls , to en su re a m o u n t o f e c o n o m ic T h ese in gen eral c o n s id e r a tio n s Y u g o s la v ia , a p ace r a p id ly or­ th e to th e c o n c lu s io n d e v e lo p m e n t is p o s s ib le a c h ie v e be fa c to r s to p o s s ib le . m ore on th a n on th e W h eth er a fa s t e r it p ace o f w ill de­ th e a d v a n ta g es o f th e d is a d v a n ta g e s of th e e x og en ou s ones. g a n iz a t io n . In le a d e c o n o m ic d e v e lo p in g endogenous s o c ia l of s i m ila r t o t h a t o f t h e c o u n t r i e s w h i c h s o f a r h a v e b e e n m ost c ia l and re­ f a v o u r o f it. b u t e s s e n t ia lly t h e y c a n b e r e d u c e d t o t h e q u e s t i o n o f s o ­ e c o n o m ic in d e p e n d e n c e . A s o f t h e s o c i a l s y s t e m , t h e r e a r e i n d i c a t io n s t h a t s p e a k i n v e lo p m e n t w ill d e p e n d o v e r -a ll p o p u la t io n resou rces— fo o d , e v e n t u a ll y and o ilfie ld s are and s o o n — a r e s u ffi c i e n t l y d i v e r s i f i e d and its th ese fa cto r s c o m e u n d e r th e h e a d in g o f e c o n o m ic p o lic y , r e l a t io n s q u a lity , a n d a b u n d a n t . Its t e r r i t o r y g a r d s t h e s e c o n d g r o u p o f f a c t o r s , t h a t is , t h e e ff i c ie n c y th at T h e e n d o g e n o u s f a c t o r s a r e , as a r u l e , s u b je c t t o c o n ­ t r o l, o r s h o u ld b e n o t p a r tic u la r ly it a c e r t a i n o f fa cto r s : e x o g e n o u s a n d e n d o g e n o u s . c o n tr o l. T h e y o r s u ffic ie n t i r o n case of Y u g o s la v ia , an a n a ly s is of th e fir s t The p r e c e d in g d is c u s s io n h a s a im e d at s t r e s s i n g t h e g r o u p o f f a c t o r s w o u l d s h o w t h a t t h is c o u n t r y c a n n o t b e im p o r ta n c e c o n s id e r e d n e ith e r th e a n o v e r -a ll t h e o r e tic a l f r a m e w o r k a n d h a v in g a g e n e r a l la r g e h o m e m a r k e t n o r th e c o n s id e r a b le p o s s ib ilitie s f o r id e a o f t h e o r d e r o f m a g n i t u d e o f t h e d e v e l o p m e n t p o s s i ­ to be e x c e p tio n a lly a u ta r k ic d e v e lo p m e n t w h ic h r ic h . It h a s e x is t i n t h e S o v i e t U n i o n a n d t h e U n i t e d S ta te s . I t d o e s n o t h a v e h i g h - g r a d e c o a l fo r lo n g -te r m b i li t ie s . I n t h e f o l l o w i n g p r o g r a m m in g o f e la b o r a tin g p a r a g r a p h s , it is a t t e m p t e d t o m a k e t h is g e n e r a l a p p r o a c h m o r e c o n c r e t e . 4L CONSTRUCTING AN INITIAL DEVELOPMENT MODEL T he s p e c t n o t t o t i m e b u t t o t h e r e la t iv e c h a n g e s o f t h e b a s ic m eth o d o lo g ic a l a p p ro a ch d e t e r m in a n t s h e p r o b le m T o f f o r e c a s t i n g fu tu r e d e v e lo p m e n t s ca n b e a p p r o a c h e d b y t h e u s u a l m e t h o d w h i c h c o n s is t s o f e x t r a p o la t in g th e k n o w n tre n d s o f d e t e r m in e d e c o n o m i c m a g n it u d e s in is a v e r y c o r r e la t io n w ith a t w o - d i m e n s i o n a l s p a c e . H o w e v e r , th is u n r e li a b l e a p p r o a c h i n a s m u c h o f th e e x a m in e d as it a s s u m e s a m a g n it u d e s o v e r a lo n g p e r io d o f t im e in th e c o u r s e o f th ey m ay be p r o d u c tio n . F u r th e r m o r e , it m akes it a g g re g a te s, n a m e ly , s t a b le de­ t h a n t h e ir c o m p o n e n t p a r t s ; w o r k v e lo p m e n t p a th th a t th ey have a m ore can be d o n e o n a h ig h ly a g g r e g a te d m o d e l w h ic h c a n la te r b e d is a g g r e g a te d to th e e x te n t d e s ir e d . m a g n it u d e — th e o r d in a t e — t h e t i m e — t h e a b s c is s a — w h i c h , w h e n d e a l i n g w i t h w h ic h of p o s s i b l e t o t a k e a d v a n t a g e o f t h e s t a t is tic a l f e a t u r e o f t h e s u b je c t to stru ctu ra l ch an ges, In c o n s tr u c tin g th e m o d e l, th e fo llo w in g p rin cip le s m a y be a p p lie d : (a ) is The m odel s h o u ld p r e fe r a b ly be an e le m e n ta r y b o u n d t o g i v e v e r y a r b it r a r y r e s u lt s . T h i s d e f i c i e n c y c a n o n e , a n d s h o u ld b e c o h e r e n t e n o u g h to p r o v id e f o r lo g i ­ be som ew hat ca l co rre cte d i f a m u l t i - d i m e n s i o n a l s p a c e is v e r if i c a t i o n w ith o u t s u b s t it u t e d f o r t h e t w o - d i m e n s i o n a l o n e , so th a t t h e b e ­ s t a t is tic a l h a v io u r o f th e e x a m in e d b e s t u d ie d (b ) n o t o n l y in r e l a t io n t o t i m e , b u t a ls o t o a w h o l e m a t r ix of r e le v a n t m e c h a n ic a l g r a m m in g ; fa cto r s . and not b e s id e s , T h is ap p roa ch too r e lia b le it is is , fo r how ever, too lo n g -te r m c o m p lic a te d and A sy stem p ro­ ( r a te , o p tim u m —— as 0 / c o n s e q u e n tly , th ere m a g n it u d e s th a t p r o d u c e s a w ill e x is t m a x im u m an ra te o f g r o w t h r . T h u s t h e in it ia l id e n t i t y is c o n v e r t e d i n t o a th o r o u g h ly d e t e r m in e d T h is m a x im u m Capping penicillin bottles in a plant at Zem un: the workers wear rubber gloves to prevent contamination of the drug and dar\ glasses to shield their eyes from the ultra-violet light inside the cabinet sy stem w h ic h has a m a x im u m . is a c h i e v e d w h e n t h e m a r g i n a l p r o d u c - * T h is form u la was applied fo r the first time by the Soviet planners at the en d o f the nineteen twenties. 4 Assembling the casing of a water turbine in a Ljubljana plant t iv i t y of in v e s t m e n t — d e te r m in e d by th e a c c u m u la tiv e m ent ( 7 ° ) , le ss t h e v a l u e o f s c r a p p e d a ssets. c a p a c i t y o f t h e e c o n o m y — f a l ls t o z e r o .5 A cc e le r a tio n The i+m t+m o f t h e r a te o f g r o w th ta rget o f p r o d u c t io n is m a x i m i z a t i o n o f n e t p r o d ­ 0 u c t , o r , as it is u s u a lly c a l l e d , n a t io n a l i n c o m e . C o n s e ­ q u e n t l y , t h e p a c e o f e c o n o m i c g r o w t h is a d e q u a t e ly m e a s ­ The 0 m a tu r a tio n p e r io d o f in v e s t m e n t b e in g m years, u r e d b y t h e r a te o f i n c o m e g r o w t h . A g a i n , t h e in c r e a s e t h e m a t u r e d i n v e s t m e n t in t h e y e a r t + m o f p r o d u c tio n v e s t m e n t c a r r ie d o u t m y e a r s b e f o r e : I at+ m = It = e rt. T h e is a f u n c t i o n o f a c c u m u l a t i o n , t h a t is, o f 'e t i n v e s t m e n t . I n v i e w o f t h e f a c t t h a t t h e m o d e l u n d e r li f e e q u a ls t h e i n ­ s p a n o f f i x e d a ssets b e i n g n y e a r s , t h e r e p l a c e m e n t c o n s i d e r a t i o n — a n d its la t e r d i s a g g r e g a t i o n — is b a s e d o n o f f ix e d a ssets in e a c h y e a r e q u a l s t h e m a t u r e d g ross y e a r s e a r lie r , t h a t is, e q u a ls t h e g r o s s i n v e s t m e n t n + m m a g n i t u d e s , t h a t is, s o c ia l p r o d u c t a n d g r o s s i n ­ v e s t m e n t , it is n e c e s s a r y t o i n d i c a t e t h e r e l a t io n s h i p s b e ­ years b e f o r e : t w e e n th e m a g n it u d e s a n d th e t y p e o f d is to r t io n s in t r o ­ 7? Vi + m d u c e d in t h e p r o c e d u r e . I n o r d e r t o s i m p l i f y t h e m a t h e m a t i c a l a n a ly s is , it w i l l be assum ed th a t t e c h n o l o g y a n d p r i c e s d o th e c a p a c ity o f fix e d n ot ch an ge, a sse ts r e m a i n s c o n s t a n t u n t il t h e y a r e f u l l y s c r a p p e d , t h e v a l u e o f t h e s c r a p p e d a ssets e q u a ls zero and w e ig h te d gross th e m a tu r a tio n a v e r a g e is m in v e s tm e n t by p e r io d of in v e s tm e n t in F in a lly , th e T ■ ( t +m) — (n + m) * ■ r e p la c e m e n t up , 0r ( t —n) * to th e year t+ m b e in g e q u a l t o a ll g r o s s i n v e s t m e n t s u p to t h e y e a r t — n , th e sum o f gross resen ts fix e d in v e s tm e n ts s t a r t in g f r o m a ssets m a t u r e d in th e th at year rep­ y e a r t + m , th a t is : a y ears. L e t us d e n o t e th e a n n u a l I, th e annual r e p la c e m e n t of s c r a p p e d c a p a c i t i e s b y R , t h e c o n s t a n t r a te o f c o n t i n u o u s g ro w th a ssets n K t+m = o f g r o s s in v e s tm e n t b y r, th e a v e r a g e life sp an f / « r‘ dt eri = — Q - e - ^ . ( 2) l~n o f f i x e d a sse ts b y n . I f o n e u n it is i n v e s t e d in t h e y e a r 0, g r o s s i n v e s t m e n t in t h e y e a r t + m th e gross v a lu e of fix e d c a p it a l w i l l b e e r (t+ m > a n d (r e fle c t in g p r o d u c tio n c a p a c i t y ) w i l l e q u a l t h e s u m o f a ll m a t u r e d g r o s s in v e s t * In this context, the author is apparently referrin g to w hat m ig h t be called a “ m arginal sh ort-ru n ” ^ (a pp lica ble at a given p oint o f tim e or at a given level o f gross national p ro d u c t) and not to the “ average lo n g -ru n ” ^ (a dju sted to successively in­ creasing levels o f gross national p ro d u c t) w h ich he assumes to be constant. ( E d itor's n o te .) L e t u s u s e t h e f o l l o w i n g f ig u r e s as a p p r o x i m a t i o n s to t h e s t r u c t u r a l c o e ffic ie n t s o f t h e Y u g o s l a v e c o n o m y : L i f e sp a n o f fix e d a s s e t s ..............................................« = 30 years W e ig h t e d m a tu r a tio n l a g ...................................... m — C o n t in u o u s rate o f g r o w t h ........................................r 3 years 8 per ce n t A v e r a g e c a p ita l-o u tp u t c o e ffic ie n t (r e la t io n b e ­ tw e e n g r o s s v a lu e o f fix e d assets an d g ross n a tio n a l p r o d u c t ) ..................................................... I( 2.3 43 General view of the Zenica iron and steel works with one of the blast furnaces in left foreground C o n s e q u e n t l y , t h e g r o s s n a t i o n a l p r o d u c t in t h e y e a r are n o t ta k e n in t o a c c o u n t, th e d iffe r e n c e w ill m o s t p r o b ­ a b ly b e e v e n t + 3 w ill b e : s m a ll e r , b e c a u s e s o m e p o s itiv e P t+ s — K i+ 3 ' 2 (3) 3 p rov em en ts v a lu e , a n d have th e scra p p e d a ssets h a v e b eca u se th e t e c h n o lo g ic a l im ­ brou gh t about a c h e a p e n in g of th e r e p l a c e m e n t o f t h e s c r a p p e d a ssets. C o n s e q u e n t l y , in t h e c o n c r e te c o n d itio n s o f th e Y u g o s la v e c o n o m y , th e g ro ss If net p ro d u ct or n e t n a tio n a l i n c o m e is d e f i n e d as p r o d u c t a p p ro x im a te s th e n et p r o d u c t ( in c o m e ) so w e ll g r o s s n a t i o n a l p r o d u c t m i n u s t h e v a l u e o f t h e r e p la c e d q u a n tita tiv e ly s c r a p p e d a sse ts, t h e n t h e r e l a t io n b e t w e e n R a n d P s h o w s n a m i c s o f t h o s e t w o a g g r e g a t e s c a n b e id e n t i f i e d . t h e e x t e n t b y w h i c h t h e n a t i o n a l i n c o m e is s m a l l e r t h a n th e g r o s s n a tio n a l p r o d u c t : R, + s P t+S er‘ ( l - e - r’0 2 3 T n r fo r e q u a tio n (4 ) c o st p e r u n it o f p r o d u c t J• In s e rtin g th e e m p ir ic a l m a g n itu d e s in to e q u a tio n a ll p r a c t ic a l pu rposes th e dy­ A n o t h e r im p o r ta n t d y n a m ic e ffe c t s h o u ld b e p o in t e d ou t. F r o m 2 .3 r th a t it f o l l o w s t h a t t h e r e p l a c e m e n t w i l l b e t h e s m a l le r t h e fa s t e r C O t h e p a c e o f e c o n o m i c g r o w t h . T h a t m e a n s t h a t s im i la r (4 ) p r o d u c t ) b r i n g s v e r y d i f f e r e n t r e s u lt s in d i f f e r e n t e c o n o ­ in v e s t m e n t (th a t is , in sam e p r o p o r tio n to th e gross m ie s , e v e n i f th e p r o d u c t iv it y o f la b o u r , th e t e c h n iq u e s g iv e s : a p p lie d a n d t h e l i k e a r e q u i t e t h e s a m e .6 R .+ s = P, + 3 2 .3 — • 0. 0 .0 8 X 3 0 ■_ = j 0 .0 1 8 . (4 a ~ ) T h is m e a n s th a t u n d e r th e g iv e n a s s u m p t io n s , th e n et p rod u ct is less t h a n 2 p e r c e n t s m a lle r th a n th e gross p r o d u c t . I f t h e r e s t r i c t i v e a s s u m p t i o n s m e n t i o n e d e a r lie r 44 I n t h is c o n n e x i o n , it is e s s e n tia l to n o t e t h a t a n a d d i - 6 F or a system atic theoretical discussion o f this p h en om en on , see B. H orv a t, “ T h e D ep recia tion M u ltiplier and a G en era lized T h e o r y o f F ix ed C apital C osts” , M a n ch ester S ch o o l o f E co n o m ic and S ocial Studies (M a n ch e ste r), 1958, pages 136 to 159. tio n a l e ffe c t w ill r e s u lt fr o m th e c h o ic e of s t a t is tic a l d u s t r ia l a n d a g r i c u l t u r a l p r o d u c t i o n is b a s e d o n th e d e ­ a g g r e g a t e s . I n a s t a t io n a r y e c o n o m y , t h e o v e r - a l l i n v e s t ­ v e lo p m e n t a c h ie v e d so fa r in m e n t se rv e s th e e n d o f s im p le m a in t e n a n c e o f p r o d u c t io n e s p e c ia l ly i n t h e c o u n t r i e s w i t h c e n t r a ll y p l a n n e d e c o n o ­ a n d n o t h in g r e m a in s fo r “ e n la r g e d r e p r o d u c t io n ” c a p ita l u s in g th e s u c h i n v e s t m e n t in t h e o v e r - a l l i n v e s t m e n t o f c o u n t r i e s ft is, of th e c a p a c it y w ith „r n m (t ) ( m =0.07) =----------- =e-r'’l+ ',=-; autom atically changes because o f the structural features o f the process. A s a result, can n ot be used fo r international 00 gross capital- rem ains un ch an ged at d ifferen t investm ent p olicies, the instantaneous capital-output ratio + r ) m~ '. com p arison s and r Q + r j = 0 23 = 0.092 analytical purposes. If, fo r exam ple, the ch an g e in investm ent p o licy m eans an increase in the rate o f a ccu m u lation , w e w ill r = 7 .9 per cene. have an increase in the rate o f g r o w th o f p ro d u ctio n . A s equ a­ tion (3) increase indicates, this w ill be fo llo w e d in the au tom atically by instantaneous capital-outpu t coefficient (,4a) an (as A s the relations in V arian t I d o n o t chan ge, p ro d u ction , invest­ soon as the gestation p e rio d o f the first n e w investm ent is o v e r ), m en t and c on su m p tion w ill increase at the same rate r — 7.9 per if the tech n olog ical capital-output coefficient and cent, and the gestation p e rio d rem ain u n ch an ged . 3. W e n o w have all the elem ents n eed ed fo r con stru ctin g a sim ple m o d e l w ith three investm ent variants. V arian t I assumes that the share o f the gross e c o n o m ic investm ent the share o f investm ent in p ro d u ctio n w ill rem ain constant. In V arian t II, the share o f investm ent w ill increase fr o m the present r = 2 3 per cen t to r = 2 8 per cent (w ith in tw enty y ea rs), (in ven tories that is, by on e-qu a rter o f on e per cent per year. In V arian t III w e e x c lu d e d ) in the gross p rod u ct, observed in the base year— that w ill assume that the share o f investm ent w ill increase by one is, r = 2 3 per cent— rem ains u n ch a n g e d ; s an d ^ bein g g iv en , w e per cent per year. 48 D u e to the chan ges in the coefficient s, the rate o f g ro w th in V ariants II and III is not constant but p erm an ently increasing. un der consideration . A n analysis o f table 1 and chart 2 leads to the fo llo w in g conclusion s. F o r that reason, these V ariants can be calculated on ly step by ( a ) In all three variants, the increase in investm ent w ill never step. W h e n d o in g this, it w ill appear that in the course o f the brin g ab ou t a decrease in con su m p tion , o w in g to the pace o f first three years the gross p ro d u ct in these tw o V ariants w ill be e c o n o m ic d ev elop m en t achieved. In all cases, con su m p tion w ill the sam e as in V arian t I, because, due to the m aturation lag, increase rapidly th rou g h ou t the p eriod considered. the effects o f the ch an g e in investm ent p olicy are felt only in the fou rth year. 4. (b ) T he effects o f sm all sh ort-term changes in investm ent policies can in the lo n g run have a stron g cu m u lativ e influence W h e n con stru ctin g the m o d e l, the fo llo w in g elem ents are and b rin g about significant differences in the pace o f econ om ic o f interest: gross national p ro d u ct ( G P ) , gross p ro d u ctive invest­ d evelop m en t. T h u s, at the en d o f m ent rate o f eco n o m ic g r o w th in V arian t II is 9.2 per cent, and in (G I) and total co n su m p tio n (T C ). TC represents the balance o f G P after d e d u ctio n o f GI and consists o f personal V ariant c on su m p tio n , collective con su m p tion , n o n -e co n o m ic investm ents the p eriod con sid ered , the V arian t I. an d increase in stocks. C o lle ctiv e co n su m p tio n expands sign ifi­ cantly less than personal con su m p tio n , w h ile the n o n -e co n om ic investm ents in the g iv e n con d ition s increase som ew h a t faster than personal co n su m p tio n ; thus, in order to sim p lify the p roce­ dure, w e can assum e that the m ov e m e n t o f total con su m p tion reflects the m o v e m e n t o f p ersonal co n su m p tio n as w ell. in table 1 fo r three d ifferen t investm ent policies. 12.7 per cent, as com p a red to 7.9 per cent ( c ) T h e greater the v o lu m e o f investm ent, the greater in the v o lu m e o f con su m p tion at the end o f the p eriod . In 1980, the annual con su m p tion w ill be greater by 12 per cent in V arian t III, and by 4 per cent in V arian t II than the annual con su m p tion in V arian t I. T h e cu m u lative v o lu m e o f con su m p tion over the first fifteen O n the basis o f the above assum ptions w e get the data sh ow n 5. III years (1961 to 1975) am oun ts to 2,234 units in V arian t I, 2,221 units in V arian t II and 2,147 units in V arian t III. D u r in g the fo llo w in g five years (1 976 to 19 80), h ow ever, the If the em p irical coefficients d o reflect the real orders o f cu m u lative totals in V arian t II and V arian t III are as h igh as m a g n itu d e — w h ich seems very p robable, a lth ou gh at the present 1,562 and state o f k n o w le d g e w e can n ot say an yth in g m o re precise about in V arian t I. T h u s, the radical gain in c on su m p tion d u rin g the them — the three 1,518 units represent later years is m ore than e n ou g h to offset the loss d u rin g the the d ev e lo p m e n t process o f the e co n o m y earlier years, the net gain over the w h o le twenty-year p eriod investm ent inh eren t features o f 1,619 units, respectively, as against on ly variants of the m odel C h art 2 G ross N a t i o n a l P r o d u c t a n d T o t a l C o n s u m p t i o n u n d e r T h r e e D i f f e r e n t I n v e s t m e n t P o l ic ie s , 1960 t o 1980 G P and TC 49 Yugoslav trainees (upper left) and Dutch workers welding the /{eel oj a tanker in an Amsterdam shipyard (1961 to 1980) bein g 30 units in the case o f V arian t II and 14 o f the instantaneous capital-output coefficient, even units in the case o f V arian t III. lagged coefficient is assum ed to be constant. In the exam ple under (d ) T h e chart show s that the lag o f co n su m p tio n in V ariant II consid eration , though the instantaneous coefficient rem ains at 3.14 the in as co m p a re d to V ariant I is relatively sm all so that the curves V arian t I, w h ile it reaches 3.33 in V arian t II and is as high as P 'a ctica lly tally w ith each other. Even w h en the gap is largest 5.06 in V arian t III. (1 9 6 9 ), con su m p tion is o n ly 1.2 per cent sm aller in V arian t II 6. In ju d g in g the appropriateness o f the m o d e l to the c o n d i­ than in V arian t I. T h e r e is a som ew h a t greater con su m p tion lag tions in Y u g oslav ia, the fo llo w in g in V arian t III, w h ere the greatest d ifferen ce— 5.6 per cent— is m ind. reached in 1970. B ut the table show s that this d ifferen ce points sh ou ld be b orn e in is (a ) T h e capital-outpu t coefficient applied in the m od el is less equ ivalent on ly to less than the one-year in crem en t in that year: favou rable than the on e w h ich Y u goslavia has achieved in recent already in 1971 the con su m p tion in V arian t III am oun ts to 168.5 years, w h ich , in turn, is still high er than that achieved in som e units, w h ich is m ore than the 164.3 units in V arian t I in 1970. other econ om ies. H o w e v e r , this coefficient can n ot be determ in ed (-ro-alloys, cem en t and g y p ­ sum , flu orin e and brom in e, forest industries, glass, h igh tem perature insulators an d refractories, insula­ tion and electricity, ligh t metals, lim e, livestock and poultry, m is­ cellaneou s natural p roducts, n on ferrou s metals, phosphate and nitrogen ou s fertilizers, plastics, p u lp and paper, p o w e r, salines, w o o d chem icals. A ls o price elasticity o f d om estic p o w e r con su m p tion . M ostly de­ tailed flow sheets, w ith supple­ m entary qualitative in form ation . 99. -------- International C oop era tion A d ­ m inistration . T e ch n ica l A id s B ranch. G eneral industrial survey o f seven­ teen industries fo r V iet-N am . Indus­ trial d e v e lo p m e n t guides series, N o . ID -5. W a sh in g to n , D .C ., 1959. C ontain s m aterial o n : auto as­ sem bly, bicycle tires and tubes, cot­ ton sp in n in g textiles, glasswares, m o to r cycle parts, rad io assembly, bottled m ineral water, cane sugar, forest industries, paper, p ly w o o d , cem en t, chem icals, fertilizers, paints an d varnishes, p in e resins. 100 . -------------------------- Ind ustry fact sheets. Industry profiles. D o c . M -21. W a sh ­ in g ton , D .C ., 1960. L oose-leaf. 101. ------- ------- M an u al o f industrial de­ v e lo p m e n t w ith special application to Latin A m e rica . W a sh in g to n , D .C ., June 1958, third prin tin g. P repared by S tanford Research Institute, M e n lo Park, C alifornia. C ontain s very useful com p ara­ tive tables o n : size o f plants in U n ited States’ industries; average n u m b er o f w ork ers per establish­ m e n t; size o f plant in British in ­ dustries (sm all, m ed iu m , etc.) ; ra­ tios o f fixed capital to value added, U n ite d States an d A ustralia; labour costs; w ages as percentage o f value o f p rod u ct, U n ited States; skilled w orkers, forem en and p ro ­ fessionals as percentage o f total e m p lo y m e n t; m aterial costs; fuel and purch ased en erg y costs; ratio o f various costs to total costs; g eo­ graph ical scatter or con cen tration ; ran kin gs o f selected industries un der various criteria. A ls o m ore detailed studies on : bottled soft d rin k s; can m an u fac­ tu rin g ; cem en t; fo o d ca n n in g ; plastics p rod u cts; rubber products. 102. ------- ------- S election o f industrial p rojects— C ey lon , Iran. Industrial de­ v elo p m en t guid es series, N o . ID - 8 . W a sh in g ton , D .C ., 1960. C ontain s m aterial on p etro-chem icals, am m on ia an d a m m on iu m sulfate, fertilizer m ix in g , sulfuric acid, nitric acid, soda ash, caustic soda, industrial alcoh ol, glass, paper, electricity, sugar, textiles, flour m ills, rubber tires and tubes, fo o d p ack ag in g , bicycles, cem ent, clay pipe, brick and tile, saw m ills, g y psu m , lim e, m illw o rk , w o o d e n containers, steel. 103. -------- N ation al R esources C om m ittee. The structure o f the A m erican e co n o m y . 2v. W a sh in g ton , D .C ., 1939-1940. v. I: Basic characteristics. A report p repared by the Industrial Section un der the direction o f G . C . M eans. v. II: T o w a r d s fu ll use o f re­ sources— a sym posiu m by G . C. M eans and others. 104. ------- N ation al R esources P lan n in g B oard. Industrial location and na­ tional resources. W a sh in g ton , D .C ., 1953. 105. 106. V a n ce , S. S. A m erica n industries. E n g le w o o d C liffs, N e w Jersey, P rentice-H all, 1959. C ov ers the processes and e co n o ­ m ies o f tw enty-five lead ing m anu­ fa ctu rin g industries; includes a discussion o f the integration o f in­ dustrial activity. V atter , H . G . T h e p rob lem s o f sm all enterprise as seen in fo u r se­ lected industries. B erkeley, C ali­ fornia, U niversity of C alifornia, 1950. D o c to r a l dissertation. 107. ------- Sm all enterprise and o lig o p o ly : a study o f the butter, flour, auto­ m o b ile and glass container indus­ tries. C ornvallis, O regon State C olleg e, 1955. 116 p. 108. Z im m e r m a n n , E. W . W o r ld re­ sources and industries. N e w Y ork , H arp er, 1951. 832 p. Presents an e c o n o m ic approach to the subject o f w o r ld resources, the resources o f agricu ltu re and industry, and the ad equ acy and conservation of resources. 148 m aps and charts, extensive bib li­ ograph y. D. COSTS AND PRODUCTION FUNCTIONS 109. A l c h i a n , A . A . Costs and outputs. Santa M on ica, C aliforn ia , T h e Rand C orp ora tion , 3 S eptem ber 1958. D o c . N o . P -1449. A ls o in Baran, P. ed. T h e allocation o f econ om ic resources; essays in h on or o f G . F. H aley. M e n lo Park, C aliforn ia , S tanford U niversity Press, 1959. Discusses the distin ction be­ tw een the rate an d qu antity o f output. 110. ------- R eliability o f cost estimates: som e eviden ce. Santa M on ica , C ali­ fornia, T h e R a n d C orp ora tion , 30 O ctob er 1950. D o c . N o . RM -481. 11 p. 111. E c o n o m ic replacem ent p olicy. Santa M on ica, C aliforn ia, T h e R an d C orp ora tion . D o c . N o . R-224. 129 p. O u t o f print. 112. A l p e r t , S. B. E c o n o m y o f scale in the m etal rem oval industry. Journal of industrial eco n o m ics. O x fo r d , July 1959. :175-181. 113. A m a d u z z i , A . V ariabilitá del p roc­ esso p rod u ttiv o d e ll’azienda indus­ triale (T h e variability o f the p ro ­ d u ctive process o f the industrial fir m ). R om a , A . S ig n orelli Ed., 1954. 123 p. 114. A m erica n M an a g em en t A ssocia­ tion. C o n tro llin g n on -m a n u fa ctu rin g costs. N e w Y o rk , 1957. 177 p. C on fe re n ce handbook pub­ lished fo r distribu tion at the 2 0 21 M a y 1957 con feren ce. 115. A r r o w , K . J., C h e n e r y , H . B., M in h a s, B. S. an d S o lo w , R. M . S tanford U niversity, D ep a rtm en t o f E con om ics. Substitution an d e c o ­ n o m ic efficiency. M e m o r a n d u m C11 (r e v is e d ). M e n lo Park, C ali­ fornia, A u g u st 1960. P roject fo r qu antitative research in e c o n o m ic d evelop m en t. 116. B ain , J. S. A d va n tages o f the large firm : p ro d u ction , distribu tion and sales p ro m o tio n . Journal o f m a rk et­ ing. C h ica g o, Illinois, A m erican M a rk etin g A ssociation , Septem ber 1958. 20:607-617. 117. B a n e r je e , K . Cost, price, p rofit and v o lu m e reactions. A c c o u n tin g re­ search, L o n d o n , C a m b rid g e U n i­ versity Press, O ctob er 1954. 5:343362. 118. B e c k m a n n , M . J. F ix e d tech n o­ log ica l coefficients an d the short run cost curve. K y\ los. Basel, S w itzerlan d , v. 9, N o . 3, 1956. :384386. 119. Begem an, M. L. M an u fa ctu rin g processes. N e w Y o rk , John W ile y and Sons, 1957, fou rth edition. 612 p. Discusses the en g in eerin g and e c o n o m ic aspects o f p rod u ction 73 processes. D esig n , rou tin g , sched­ u lin g, con veyan ce an d analysis o f p rod u ct treated fr o m e n gin eerin g standpoint. E co n o m ics o f prop er processin g stressed. m etals and plastics, together w ith a description o f the m eth ods by w h ich these m aterials are p roc­ essed. 131. 120. B ergm a n , H . D eterm in a tion o f a p ro d u ctio n cost fu n ction . E c o n o ­ m étrica. N e w H a ve n , C onn ecticut, January 1952. 132. G ig u e t , R. and M o r l a t , G . T h e R an d C orp ora tion , Santa M on ica, C aliforn ia . T h e causes o f systematic errors in the cost estimates o f p u b ­ lic w ork s. D o c . N o . T -76. Paris, 1952. 29 p. 122. B o w m a n , E . H . and F e t t e r , R. B. A nalysis o f industrial operations. Irw in , R. D . ed. H o m e w o o d , Illi­ nois, 1959. 123. B rady , G . S. M aterials h a n d book . N ew Y o rk , M cG ra w -H ill, 1956. 950 p. P rovid es practical data on ap­ p rox im ately ten thousand m ate­ rials. Presents the m ost pertinent facts o n metals, alloys, abrasives, refractories, w oods and m any others. C oncentrates on supply­ in g the m ost essential and useful facts fo r p urch asin g agents, e n g i­ neers and executives. In part II, basic in fo rm a tio n o n the e co ­ n o m ic g e o g ra p h y o f m aterial re­ sources, w eights, m easurem ents and physical com parisons. 124. 133. G r a n t , E. L. a n d Ireson , W . G. P rinciples o f en g in eerin g econ om y . N ew Y o rk , R on a ld Press, 1960, fou rth edition . 574 p. Studies o f costs in an enter­ prise. Practices, w ith m any n u ­ m erical exam ples. A tten tion to sources o f data fo r cost studies w ith in the firm . 134. G r o g a n , F. O . P rod u ction o f sur­ veys, Q u arterly r ev ie w o f a gricu l­ tural e con om ics. C anberra, B ureau o f A g ricu ltu ra l E con om ics, Janu­ ary 1933. 6:7-10. 135. H o f f m a n n , W . G . D ie P rod u k tivitãtsstruktur der Industrie in verschiedenen E n tw ick lu n gssta dien (T h e p rod u ctivity structure o f in­ dustry in d ifferen t stages o f d evel­ o p m e n t). Z eitsch rift fiir die g esa m te Staatswissenschaft. T ü b in g e n , J. C . B. M oh r (P a u l S ie b e ck ), 1959. 142. H u n t e r , F. T . C onséquen ces fin an­ cières de la p rod u ction par petites séries. O rgan isation scien tifiq u e. Paris, 3 m ars 1955. :63-69. 143. Jew kes, J. T h e size o f the factory. E c o n o m ic journa l. L o n d o n , June 1952. 62:237-252. 144. J oh n sen , E. K alk u lation i 12 danske in d u strivirk som h eder (C a lcu la tion in 12 D an ish industrial c o n c e r n s ). E rh v ersok p n om is\ T id sskrift. K b en havn, N o . 21, 1957. .-181-247. 145. J o h n s to n , J. C ost-output variations in a m u ltip le p rod u ct firm . M a n ­ ch ester sch o o l o f e co n o m ic a n d social studies. M anchester, M ay 1953. 21:140-153. 146. ------- Statistical cost analysis. M c ­ G r a w -H ill econ om ics handbook series. N e w Y o rk , M cG ra w -H ill, 1960. B egins w ith a review o f the various e c o n o m ic hypotheses about h o w costs o f p rod u ction vary w ith the rate o f ou tp u t an d the scale o f a fir m ’s operation s, and then discusses the p rob lem s in v olv ed in the statistical estim a­ tion an d testing o f these relation ­ ships. A variety o f statistical cost analyses is presented in detail, c o v e rin g such industries as elec­ tricity generation, road passenger transport, fo o d processin g, insur­ ance com pan ies, b u ild in g socie­ ties and coal m in in g . T h e b o o k gives an accou n t o f the c h ief em pirical w o r k d on e in this field by other authors in the past tw enty-five years, and the c o n ­ clu d in g chapter offers a critical assessment o f the state o f w o r k at the present time. G r o m y k o , G . K v op rosu o vyyavleniy vliyaniya assortim entnykh sd v igov na u ro v e n ’ sebestoim osti p rod u ktsii (O n the qu estion o f m eth ods fo r s h o w in g the influence o f variations in assortm ents on the level o f p rod u ction costs). V estni\ statistic}. M oskva, M ay-June, 1955. :24-28. 136. H a r r o d , R. F. T h e law o f decreas­ in g costs. E c o n o m ic essays. L o n d o n , M a cm illan , 1952. :8 9 -l02. W ith a “ further note on de­ creasing costs” . : 103-107. 137. C h e n e r y , H . B. E n g in e e rin g p ro ­ d u ction fu nction s. Q u arterly journal of eco n o m ics. C a m b rid g e, M assa­ chusetts, H arvard U niversity Press, N o v e m b e r 1949. v. L X III, N o . 4, p. 507. 125. ------- Process and p ro d u ctio n fu n c ­ tions fr o m e n g in eerin g data in L eon tief, W . Studies in the struc­ ture o f the A m e rica n econ om y . N ew Y o rk , O x fo r d U niversity Press, 1953. 141. G ates, T . R. P rod u ction costs here and ab roa d: a com p arative study of the experien ce of A m erica n m anufactures. N e w Y o rk , N ational Industrial C on feren ce B oard, 1958. 136 p. B en n e t t , C . W . Standard costs: h o w they serve m o d e rn m anagem ent. E n g le w o o d C liffs, N ew Jersey, P ren tice-H all, 1957. 515 p. 121. fo u rn a l o f O p era tion s R esearch So­ ciety o f A m erica . B altim ore, M a ry ­ lan d, 1956. 126. C h i l t o n , C . H . Six-tenth applies to com p lete plant C h em ical en g in eerin g . N e w A p ril 1950. :1 12-114. factor costs. Y o rk , H ea d y , E. O . and P esek, J. E x pa n ­ sion paths fo r som e p rod u ction fu n ction s. E con om étrica . N ew H a ven , C on n ecticu t, O ctob er 1960. 28:900-908. 127. C h u r c h i l l , B. C . S ize o f business firm s. U n ited States. D ep artm ent o f C o m m e rce . S u rvey o f cu rren t business. W a sh in g to n , D .C ., Sep­ tem ber 1959. 39:14-20. tions ex p lo rin g fertilizer effects, based on technical data. G ives a useful w ay of analysing the properties o f p ro d u ctio n fu n c ­ tions. A g r ic u lt u r a l 128. D e G a r m o , E. P. M aterials and processes in m an u factu rin g. N e w Y o rk , M acm illan , 1957. 129. D ic k , J. R . T h e en g in e e r’s approach to the e co n o m ics o f p rod u ction . L o n d o n , Sir Isaac P itm an, 1952. v, 59 p. 130. E n g in e e rin g m aterials and p ro c­ esses. Scranton, P ennsylvania, In­ ternational T e x tb o o k C om p an y , 1959, third edition . 594 p. P rovid es a treatm ent o f the physical properties and uses o f 74 138. p r o d u c t io n fu n c ­ H en r ic i , S. B. Standard costs for m an u factu rin g. L o n d o n , M cG ra w H ill, 1953, second ed ition . 336 p. N ew Y o rk , M cG ra w -H ill, 1960, third edition . 139. H o a g , M . W . T h e relevance o f costs in operation s research. Santa M o n ­ ica, C aliforn ia , T h e R an d C orp ora ­ tion. D o c . N o . P-820. A lso in 148. Jones, G . T . Increasin g returns: a study o f the relation betw een the size and the efficiency o f industries w ith special reference to the history o f selected British and A m erica n industries, 1850-1910. C lark, C . ed . N e w Y o r k , C a m b rid g e U niversity Press, 1933. 149. K àfer , K . S ta n d ardk osten rech n u n g: B udget, P lant-u nd M asskosten in H ersch , W . Z. M an u fa ctu rin g p ro ­ gress fu n ction s. L ondon, R oy al Statistical Society, M ay 1952. 34: 143-155. 140. 147. ------Statistical cost fu nction s, a reappraisal. R e v ie w o f e co n o m ics and statistics. C a m b rid g e, M assa­ chusetts, H a rv ard U niversity Press, N o v e m b e r 1958. 40:339-350. R ech n u n gsw esen des Betriebes (S tand ard -cost calcu lation : bu dget, p lan n ed and mass costs in the ac­ co u n tin g system o f the en terprise). Z iirich , V e rla g des Schw eizerisch en K a u fm a n n isch en V ereins, 1955. 350 p. 150. K o s i o l , E . N eu ere Z iele un d M eth od e n der K o ste n p la n u n g (N e w aim s and m eth ods o f cost plan­ n i n g ). Z eitsch rift fiir B etriebw irtschajt. W iesbad en , D e ce m b e r 1954. 24:657-674. 151. K r a j c e v i c , F . D ie P lankosten rechn u n g un d ihre A n a lyse in den ju g osla w isch en W irtschaftsbetrieben (T h e calculation o f plann ed costs and their analysis in Y u g osla v e co ­ n o m ic enterprises). B etriebesw irtsch a ft, F o rsch u n g u n d Praxis. W ie s­ baden, 1955. N o . 6 .:308-362. 152. 153. L a v in e , R. A . and R a in e y , R. B. R an dom variations and sam pling m od els in p ro d u ctio n e con om ics. Santa M o n ica , C aliforn ia , T h e R and C o rp o ra tio n . D o c . N o . R M -481. 19 N o v e m b e r 1958. 11 p. 161. M oss, M . J. D e v e lo p m e n t cost in ­ cu rred in the plant. N A C A bulletin. N e w Y o rk , M ay 1954. 9:1114-1124. 162. M u r t i , V . N . C apital-output ratios fo r m an u factu rin g industries in India. Calcutta, 1960. Paper presented to the p relim ­ inary C on feren ce o f the Indian m em bers o f the E con om etric S o­ ciety, held u n der the auspices o f the Ind ian Statistical Institute in Calcutta, 28 to 30 January 1960. M im eog ra p h ed . 163. L y l e , P. R egression analysis o f p ro d u ctio n costs and fa ctory op er­ ations. E d in b u rg h , O liv er and B oyd, 1957, third revised edition by T ip p ett, L . H . C . 204 p. 156. M a d d ison , A . P rod u ctiv ity in C an ­ ada, the U n ited K in g d o m and the U nited States. O x fo r d e co n o m ic papers. L o n d o n , O x fo r d U niversity Press, O ctob er 1952. 4:235-242. 157. 160. M orris , J. L . M o d e r n m an u factu r­ in g processes. E n g le w o o d C liffs, N ew Jersey, P ren tice-H all, 1955. 533 p. E xplains present day m a n u fa c­ tu rin g processes in logica l se­ q u en ce and at a fu nd am ental level. F or m ore advanced readers, references and review questions are g iv en for each chapter. D r a w ­ ings, p h otograp h s and tables su p­ p lem en t the text. L ee, J. A . M aterials o f con stru ction fo r ch em ica l process industries. M cG ra w -H ill ch em ica l e n g in eerin g series. N e w Y o rk , M cG ra w -H ill, 1950. 154. L u k á c s , L . A z ònk õltségszám itás p ontosságán ak korlátai és as árképzés (L im its to the exactness o f the determ in ation o f p ro d u ctio n costs and price fo r m a tio n ). K o z g a zd a s a g i sze m le . Budapest, A k a d e m ia i K ia d o , June 1958. :588-600. 155. jou rn a l o f eco n o m ics. C a m b rid g e, M assachusetts, H a rv a rd U niversity Press, M a y 1959. :232-245. O n e o f the m ost im portant references fo r em pirical w ork . D istinguishes com p letely n ew in­ vestm ent in a n e w location , n ew process in existin g location , re­ placem en t o f obsolete eq u ip m en t and expansion , and con version fr o m on e process to another. M a lm g r e n , H . B. W h a t conclusion s are to be d ra w n fr o m em pirical cost data. Journal o f industrial e c o ­ n om ics. O x fo r d , Basil B lackw ell, M arch 1959. v. V III, N o . 2. System atic bias in cost esti­ mates (d o w n w a r d ) due to tw o principal reasons: ( 1 ) m o d a l cost is often the basis o f the estimates and this is below average cost; (2) a p roject w h ose cost has been underestim ated has a better chance o f b e in g accepted than one w h ich has been over­ estim ated. 158. M o o r e , F . T . E co n o m ie s o f scale: som e statistical eviden ce. Q u arterly N o v ic k , D . C oncep ts o f cost fo r use in studies o f effectiveness. Santa M o n ica , C a liforn ia , The R and C orp ora tion . D o c . N o . P-1182. 14 p. 165. O ort , C . J. D ecreasin g costs as a p rob lem o f w elfa re econ om ics. A m ­ sterdam , D o n k e rij H o lla n d , 1958. 187 p. R ev iew ed in A m erica n eco­ n o m ic r ev ie w , E vanston, Illinois, M arch 1959. Easy non m ath em atical, g o o d bib liog ra p h y . Reaches con clu sion that p rob lem is insol­ u ble in practical term s. “ A final solu tion . . . can be fo u n d on ly by a n ew approach to the entire p ro b lem o f w elfa re eco n o m ics .” 166. M e l m a n , S. Industrial prod uctivity. O x fo r d , Basil B lackw ell, 1956. 159. 164. N ation al P rod u ctiv ity C o u n cil, India. P rod u ctiv ity in industries o f U .S.A ., W est G erm a n y and U n ited K in g ­ dom . N ation al P rin tin g W ork s, D e lh i, s.d. R ep ort o f Indian p rod u ctivity team . A v a ila b le fr o m U n ited States T ech n ica l C oop era tion M ission to India, N e w D elh i. 167. P e r lm a n , R. V a lu e p rod u ctivity and the interindustry w a g e struc­ ture. Industrial and la bou r relations rev iew . Ithaca, N e w Y o rk , C orn ell U niversity Press, O ctob er 1956. :26-39. P e s to n , M . H . Returns to scale. O x fo r d e co n o m ic papers. L o n d o n , O x fo r d U niversity Press, June 1960. v. 2, N o . 2. T h eoretica l, no nu m erical data. 168. S c h o f ie ld , B. P. H o w plant costs vary w ith size. C h em ica l e n g in ee r ­ in g. N e w Y o r k , O ctob er 1955. R efers prim arily to chem icalprocess plants. Evaluates the 0.6 p o w e r rule. 169. S ch w a rtzm a n , D . The m eth od ­ o lo g y o f the theory o f returns to scale. O x fo r d e co n o m ic papers. L o n d o n , O x fo r d U niversity Press, F ebru ary 1958. :98-105. 170. S hephard , R . W . C ost and p ro d u c ­ tion fu n ction s. P rin ceton , N ew Jersey, P rin ceton U niversity Press, 1953, vii, 104 p. 171. S im on , H . A . and B o n in i, C . P. T h e size distribu tion o f business firm s. A m erica n e co n o m ic rev iew . E vanston, Illinois, S eptem ber 1958. 48:607-617. 172. S m ith , V. E c o n o m ic eq u ip m en t p olicies and the replacem ent p rob ­ lem in B ow m a n , E. H . and Fetter, R. B. A nalysis o f industrial opera­ tions. H o m e w o o d , Illinois, R. D . Irw in , 1959. 173. S o lo d n ik o v , M . F. S ebestoim ost’ p rod u ktsii m estn oy prom ysh len n osti i v op rosy tsen oobrazovan ya (C osts o f p rod u ction in local industry and p rob lem s o f price fo r m a tio n ). V estni\ L en in g ra d s\ o v o U niversiteta. L en in g ra d , 1959. 3:53-62. 174. T h i m m , G . D ie P reis-und K ostenstruktur in der In d u striep rod u k tion der S o w je tz o n e (P r ice and cost structure in the industrial p rod u c­ tion o f the S oviet Z o n e ). Berlin, B erichte des O steuropainstituts an der F reien U niversitãt B erlin, 1956. 397 p. 175. T u r g e o n , L . C ost-price relationships in basic industries d u r in g the S oviet p la n n in g era. S oviet studies. G la sg ow , U niversity o f G la sg ow Press, O ctob er 1957. : 143-162. 176. U n ited N ations. C apital intensity in industry in u n d er-d ev elop ed countries. B ulletin on industrializa­ tion and p rod u ctivity, N o . 1. Sales N o .: 58.II.B.2. 177. V ayn se n k e r , D . Statistika sebestoim osti p rom y sh len n oy prod uktsii (Statistics o f industrial p rod u ction costs). M oskva, G osstatizdat, 1957. 80 p. 178. W iles , P. J. de la Fosse. Price, cost and ou tou t. O x fo r d , Basil Blackw ell, 1956. 302 p. 179. Y o u n g , J. F. M aterials an d p roc­ esses. N e w Y o rk , John W ile y and Sons, 1954, second ed ition . 1074 p. C overs both m aterials and p ro c­ esses fr o m the en g in eer’s v ie w ­ 75 p o in t; offers a b a ck g ro u n d o f theory and illustrative data and prov id es all the interrelated in ­ fo rm a tio n need ed by the engineer to evaluate m aterials and p ro c ­ esses fo r any g iv e n design. 180. Z e n t l e r , A . P. and R yde, D . A m athem atical m o d e l for cost analy­ ses o f finished p roducts. E con om ica . L o n d o n , L o n d o n S ch ool o f E c o ­ n om ics and Political Science, F eb­ ruary 1953. 20:38-52. E. INSTITUTIONAL 181. Australia. M inistry o f N ational D e ­ v elopm en t. D iv isio n o f Industrial D e v e lo p m e n t. T h e structure and capacity o f A ustralian m an u factu r­ in g industries. M elbou rn e, 1952. viii, 528 p. 182. B a c h u r in , A . P rob lem s o f p rofit­ ability of industrial enterprises. P ro b lè m e eco n o m ice . Bucharest, In­ stitute de Certetari E co n o m ice , M arch 1960. :25-31. 183. B a in , J. S. Industrial organ ization . N e w Y o rk , John W ile y and Sons, 1960. 184. B la u g , M . T ech n ica l ch an g e and M arxian econ om ics. K y h lo s. Basel, S w itzerla n d , v. 13, N o . 4, 1960. 185. 186. B o ck , B. C on cen tration patterns in m a n u fa ctu rin g : som e fin d in gs fro m an in q u iry into the relevance o f data bein g used to m easure m arket shares in specified industries. Studies in business econ om ics, N a ­ tional Industrial C o n fe re n ce B oard. N e w Y o rk , 1959. 128 p. B redo , W . S tanford Research In ­ stitute. International Industrial D e ­ v e lo p m e n t Center. Industrial estates — tool fo r industrialization . G len coe, Illinois, T h e F ree Press, 1960. 187. C h a r d o n n e t , J. Les grands types de com p lex es industriels. Cahiers de la F o n d a tio n nationale des sci­ ences p olitiqu es, N o . 39. Paris, A . C o lin , 1953. 196 p . 188. C l e m e n t i, F. Sul g r a d o di concentrazione d e ll’industria in Italia (T h e degree o f industrial concentration in Ita ly ). R ivista d i política e c o ­ nóm ica. R om a , June 1953. 43:695700. 189. C o o k , P. L . and C o h e n , R. Effects o f m ergers— six studies. L o n d o n , A lle n and U n w in ; N e w Y o rk , M ac­ m illan, distributors, 1958. 458 p. 190. D ean , C . Industrial d evelop m en t and m o n o p o ly beh avior. N e w Y o rk , C o lu m b ia U niversity, 1959. D o c ­ toral dissertation. 191. 76 D ebren , G . N u m erica l representa­ tion o f tech n olog ical chan ge. Santa 192. E d w ard , R. S. and T o w n s e n d , H . Business enterprise: its g r o w th and org a n iza tion . N e w Y o rk , St. M a r­ tin’s Press; L o n d o n , M acm illan , 1958. 607 p. R ev iew ed in A m erica n eco­ n om ic r ev ie w . E vanston, Illinois, Septem ber 1959. A p rim e reference on social con trol o f industrial enterprise. Based on origin al case m aterial. 198. G a n s h t a k , V . I. and Z h u k o v , P. A . Spetsializatsia i k oop erirov a n ie v p rom y sh len n osti; na prim ere prom ysh len n osti S v erd lov sk oy oblasti (S p ecia liza tion and co-op era tion in in d u stry; on the m o d e l o f the in­ dustry o f the S v erd lovsk r e g io n ). M oskva, G osu da rstven n oe izd a tel’stvo p olitich esk oy literatury, 1957. 151 p. 199. G erling , W . D ie m od ern e Indus­ trie; P rob lem ihrer P h y siog n om ie, Struktur un d W irtsch afts-geographischen G lie d e ru n g (M o d e r n in d u stry; p rob lem s o f its p h y siog ­ n om y , structure and e c o n o m ic-g e o ­ graph ical articu la tion ). W ü r z b u r g , Stahel, 1954. 108 p. 200. M on ica , C aliforn ia , T h e R an d C o r ­ pora tion . D o c . N o . P-310. A lso in M etro -eco n o m ica . T rieste, A u g u st 1954. G laeser , M . G . P u blic utilities in A m e rica n capitalism . N e w Y o rk , M a cm illan , 1957. 624 p. R ev iew ed in A m erica n eco­ n o m ic rev iew . E vanston, Illinois, S eptem ber 1958. 201. G r a v ie r , J. F. D écentralisation et p rogrès tech niqu e. 112 d ocu m en ts com m en tés. Cartes et graph iqu es de F. W a g n er. Paris, Portulan, 1954. 394 p. T h is p u blication aim s at re­ p la cin g tw o b ook s w h ich are ou t o f p rin t: Paris et le désert français (1 9 4 7 ); M ise en valeur de la F rance (1 9 4 9 ). 202. H a r t , P. E. C on cen tration in se­ lected industries. Scottish jou rn a l o f p olitica l e c o n o m y . E d in b u rg h , O liver and B oy d , O ctob er 1958. : 185-201. 203. Iy e n g a r , N . S. and K r is h n a M o o r t h y , S. O n con cen tration o f em ­ p loy m en t in the m a jor Indian m a n u fa ctu rin g industries. Paper presented to the p relim ­ inary C on feren ce o f the Ind ian m em bers of the E c on om etric Society, held un der the auspices o f the Indian Statistical Institute in Calcutta, 28 to 30 January 1960. M im eog ra p h ed . 204. K a p la n , A . D . H ., D ir la m , J. B. and L a n z i l l o t t i , R. F. P ricin g in b ig business: a case approach. W a sh in g ton , D .C . T h e B rook in g s Institution, 1958. x iv, 344 p. 205. K la t t , S. Z u r T h e o r ie der Industrialisieru ng: H yp oth esen über die B ed in g u n gen , W ir k u n g e n un d G ren zen eines V o r w ie g e n d du rch technischen F ortschritt bestim m ten w irtsch aftlich en W ach stu m s (A con trib u tion to the theory o f in­ dustrialization: hypotheses about the con d ition s, effects and limits o f an industrial g ro w th determ in ed prim arily by tech n olog ica l p ro­ g ress). K õ ln and O p lad en , W estdeutscher V erla g , 1959. 546 p. 193. E v e ly , R. L a con cen tration indus­ trielle aux Etats-Unis. Cartel. L o n ­ d o n , International C o-op erative A l ­ liance, January 1958. 8:18-24. 194. E v e ly , R . and L i t t l e , I. M . D . C on cen tration in British industry: an em pirical study o f the structure o f industrial p rod u ction , 1935-51. N e w Y o rk , C a m b rid g e U niversity Press, 1960. x vi, 357 p. 195. F ederow icz , Z. C en y i ren tow n osc p rzed siebiorstw a p rz e m y slo w e g o (P rices and profits o f the industrial e n terp rise). W a rsza w a , P olskie W y d a w n ic t w o G osp od a rcz e, 1957. 65 p. 196. 197. F e n k e e s, J., S aw ers, D . and S t i l l e rm a n , R. T h e sources o f inven tion . L o n d o n , M a cm illa n ; N e w Y o rk , St. M a rtin ’s Press, 1958. 428 p. R ev iew ed in A m erica n e c o ­ n om ic rev iew . E vanston, Illinois, D ecem b er 1958. F ifty case histories presented in detail. F og, B. Industrial p ricin g policies, an analysis o f p ricin g policies o f D an ish m anufacturers. A m sterd am , N o r th -H o lla n d B ooks, 1960. 229 p. G ives an analysis o f the p ricin g policies o f 139 D an ish industrial firm s. T h e study is the m ost am bitiou s on e o f its k in d yet un dertaken in any cou n try. T h e analysis o f the em pirical studies presents a com p arison o f tradi­ tional price theory w ith the w ay prices are actually set in real life. T h is fact, and the fact that the author is fam iliar w ith p ricin g practices in A m erican as w e ll as E u rop ean firm s, enhances the significance o f the b o o k ’s con ten t fr o m a purely national e c o n o m ic fra m e w o rk to on e o f general in ­ terest. C ontents: 1. A im s and o r g a n i­ zation o f the investigation. 2 . F u n ction al objectives of the firm s. 3. K n o w le d g e o f m arket­ in g con d ition s. 4. K n o w le d g e o f cost con d ition s. 5. C ost calcula­ tion. 6 . P ricin g. 7. C om p etition . 8 . A ctu al price form a tion in a fe w industries. 9. S um m ary and conclusion s. 206. K o c a n d a , R . F o rm y koncen trace v y rob y v m o n o p o ln im kapitalism u a za socialism u (F o r m s o f co n ce n ­ tration o f p rod u ction in m o n o p o lis­ tic capitalism and un der socia lism ). 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L . P etroleu m refinery e n g in eerin g. N e w Y o rk , M cG ra w H ill, 1958, fou rth edition . N etschert , p ly o f oil the p e riod M aryla n d , 1958. O il and g a s journa l, w eekly. T ulsa, O k lah om a , P etroleu m P u blish in g C om p an y . Annual rev iew and forecast issue p ublish ed late in January o f each year; annual refin in g is­ sue, m id -M a rch ; annual m id-year review and ou tlo o k , late in July. ------- P latt’s oilg ra m price service, w eekly. T ulsa, O k lah om a , P etroleum P u blish in g C om p an y. P rovides up-to-date price q u o ­ tations o n crudes and products. 318. O rganisation for E u rop ean E co­ n o m ic C o-op eration . E u r o p e ’s g r o w ­ in g needs fo r en erg y : h o w can they be m et. Paris, 1956. 319. ------- E u r o p e ’s need fo r o il: im p lica­ tion and lessons o f the S uez crisis. Paris, 1958. 320. O il, the ou tlo o k Septem ber 1956. 321. O rm a i, L . T h e d ev elop m en t o f the H u n g a ria n p etroleu m industry. Statistikai s zem le. Budapest, O cto­ ber 1959. H u n g a ria n text, E nglish and Russian sum m aries. 322. P etroleu m en g in eer, m on th ly. D a l­ las, T exas, P etroleu m E ngineer P u blish in g C om p an y . 323. P etro leu m refin er, m on th ly . H o u s ­ ton, T exas, G u lf P u blish in g C o m ­ pany. A ls o annual survey o f p etroleu m refinery processes. 125 p. 309. P latt’s oilp rice h a n d b ook , N e w Y o rk , M cG ra w -H ill. 317. Press, 1956. 307. M a r k o w it z , H . A ctiv ity analysis o f p etroleu m refinery operations in Barna, T . ed. T h e structural inter­ d ep en d en ce o f the e c o n o m y . P ro­ ceedin gs o f an international co n fe r­ ence on inp ut-ou tp ut analysis, V aren n a, Italy, 27 June to 10 July 1954. N e w Y o rk , John W ile y and S ons, 1955. 325. N e ls o n , J. R . Prices, costs and c o n ­ servation in p etroleu m . A m erica n e co n o m ic rev iew . E vanston, Illinois, M a y 1958. Papers and proceedings. 48:502-515. In th e sam e issue, a discussion by C o o k e n b o o , Jr., L ., B oatw righ t, J. W . and N etschert, B. C . 48: 516-526. 313. ------- and others. P etróleos cru dos de V en ezu ela y otros países. Ca­ racas, M inistry o f M ines and H y d r o ­ carbons, 1952. 304. ------- C ost curves fo r gas supply. B ulletin. O x fo r d , O x fo r d U n iv e r­ sity, Institute o f Statistics, A u g u st 1951. 305. M a n n e , A . S. L in ear p ro g ra m m in g m o d e l o f the U n ited States p etro­ leu m refin in g industry. E c o n o m é ­ trica. N e w H aven , C on n ecticu t, Jan­ uary 1958. P etroleu m w o rld and oil, w eekly. L os A n g eles, C alifornia. A n n u a l review n u m b er p ub­ lished late in O ctob er o f each year. 335. 300. 311. 324. fo r E u rop e. Paris, annual. 337. W o r ld oil, fou rteen times per year. H o u sto n , T ex as, G u lf P ublish ing C om p an y . A nnual rev iew and forecast n u m b er, m id -F eb ru a ry; annual international operations issue, m id-A u g u st. 338. W o r ld p etr o le u m , m on th ly . Y o rk . A nnual refinery issue, July. 346. 347. N ew m id- 339. Z im m e rm a n n , E. W . C onservation in the p ro d u ctio n o f petroleum . A m e rica n P etroleu m Institute. P e­ troleu m m o n o g ra p h series, v. 2 . N e w H a ve n , C on n ecticu t, Y ale U n i­ versity Press, 1957. 417 p. R e v ie w e d in A m erica n eco­ n o m ic r ev ie w . E vanston, Illinois, D e ce m b e r 1958. C o o k e n b o o , Jr ., L . C osts o f op er­ ating cru d e o il pipelines. H ou ston , T exas, R ice Institute pam phlet, A p ril 1954. 348. ------- C ru d e o il pipelines and c o m p e ­ tition in the o il industry. C a m b rid g e, Massachusetts, H a rv a rd U niversity Press, 1955. 349. 350. I. C o h n , Jr ., E. J. Ind ustry in the P acific N orth w est and the location theory. N e w Y o rk , C o lu m b ia U n i­ versity Press, 1954. 224 p. TRANSPORT AND INDUSTRIAL LOCATION E scarpenter , C . L a e con om ía del tráfico m a rítim o internacional de C uba. H aban a, 1958. E x cellen t reference on the cal­ culation o f charges and rates for d ry and liq u id ca rg o sh ip p in g on com p lica ted triangular routes. F lorence , P. S. Investm ent, loca­ tion an d size o f plant. C a m b rid g e, C a m b rid g e U niversity Press, 1948. 351. 340. 341. A irov , J. T h e location o f the syn­ thetic fiber industry. N e w Y o rk , T h e T e c h n o lo g y Press an d John W ile y and Sons, 1959. 203 p. C ontain s estim atin g p rocedures fo r transport costs o f synthetic fibres and other c o m m o d itie s by ocean transport, barge and rail. T h e estim ation o f U n ited States rail c o m m o d ity rates o n p roducts n o t cu rren tly co v e re d by such rates is discussed in detail. Such rates are the result o f a ba rg ain ­ in g process betw een railroads and larg e-v olu m e shippers, w h ich has to be an ticipated fo r the purpose o f location al studies. G r e e n h u t , M . L . S ize o f m arkets versus transport costs in industrial location surveys and theory. Journal o f industrial eco n o m ics. O x fo r d , Basil B lack w ell, v. V III, N o . 2, M arch 1960. 352. G rossm an , W . L . O cean freig h t rates. C a m b rid g e, M aryla n d , C o r ­ nell M aritim e Press, 1956. 224 p. F u ll institutional discussion. 353. H a rv a rd E c o n o m ic Research P ro j­ ect. M iscellaneou s m aterials and papers on tru ckin g. S ee 1960 p rogress rep ort o f H a rv a rd E c o n o m ic Research P r o j­ ect, C a m b rid g e, Massachusetts. A b r a m o v itz , M. The e co n o m ic characteristics o f railroads and the p ro b le m o f e co n o m ic d evelop m en t. F ar eastern q u arterly. H o n g K o n g . 342. 343. A m erican P etroleu m Institute. Pe­ troleu m facts and figures. Statisti­ cal bu lletin . N e w Y o rk . W e e k ly and annual supplem ents. Includ es data on p etroleu m transport. A m e rica n tanker rate schedule. N ew Y o rk . A ssociation o f Ship B rokers and A gen ts, 1956 and 1961. N e x t issue to b e publish ed in 1966 or 1967. C ontain s basic assum ptions on vessel speed, stay in ports, etc., w h ic h d eterm in e in d iv idu al rates betw een g eog ra p h ica l points. 344. B o r ts , G . H . T h e estim ation o f rail cost fu n ction s. E co n o m étrica . N e w H a ve n , C on n ecticu t, January 1960. : 108-131. 345. C l a r k , J. W . R ail fre ig h t data: a tool fo r m arket and region al analy­ sis. Social and e c o n o m ic studies. K in g sto n , U niversity C o lle g e o f the W e st Indies, O cto b e r 1956. 8 p. The basic reference on e con om ics o f tanker rates. the 358. K oop m a n s, C . T . and B e c k m a n n , M . A ssig n m en t p rob lem s and the lo ­ cation o f e c o n o m ic activities. E c o n o ­ m étrica. N e w H a ven , C on n ecticu t, January 1957. 359. L a n d , A . A p rob lem in transporta­ tion. In C on feren ce on linear p ro­ g ra m m in g . L o n d o n , F erranti, L td., 1954. p p. 20-31. S u m m a ry in O peration s re­ search. N ew Y ork , F ebruary 1956. p. 132. T ra n sp ort fr o m collieries to cok e ovens. 360. L ondon m arket tanker n om in a l freig h t scale N o . 2. L o n d o n , 1954. A p p ly in g to tankers carryin g oil in b u lk ; distribu ted by L o n ­ d on T a n k e r B rokers Panel. 361. M a r x , D . and C h in it o , B. A n index o f ocean liner freig h t rates. O v er­ seas transport p roject, D a rtm ou th C olleg e. H a n ov er, N e w H a m p sh ire. 1954. P relim in a ry m im eog ra p h ed ver­ sion. 362. M e y e r , J. R., P e ck , M . J., S ten sson , J. and Z w ic k , C . T h e e c o ­ n om ics o f com p etition in the trans­ p ortation industries. C a m b rid g e, M assachusetts, H a rv a rd U niversity Press, 1959. x v i, 359 p. H e n d e r s o n , J. M . A short-run m od el fo r the coal industry. R e v ie w o f e co n o m ics and statistics. C a m b rid g e, M assachusetts, H a rv a rd U niversity Press, N o v e m b e r 1955. :336-346. O cean transport cost o f natural gas revised. C h em ical en g in eerin g . N e w Y o rk , M cG ra w -H ill, 23 F eb ru ­ ary 1959. C ited : paper presented by Lajo s v o n S zeszich, o f A ir P roducts, Inc., at International C on v en tion on H y d roca rb on s at Piacenza, Italy. 364. R o b in s o n , H . F. and others. M o d ­ ern tankers. In T ransactions o f the Society o f N aval A rch itects and M arin e E ngineers. N e w Y o rk , 1948. 56:422-471. Basic d esign data fo r tankers; correlations o f d im en sions w ith o p tim u m speeds, h orsep ow er re­ qu irem ents, etc. 365. S au erbier , C . L. M arin e ca rg o o p ­ erations. N e w Y o rk , John W ile y and Sons, 1956. 548 p. C ov ers m ajor aspects o f ca rg o h a n d lin g and stow age. D eals w ith the practical aspects of p la n n in g and co-ord in a tin g a sm ooth , efficient an d econ om ica l system fo r the safe and rapid m o v e m e n t o f g o o d s th rou g h the com p lete sh ipp in g cycle. 366. 354. 363. Seven h u n d red plant location fac­ tors. Ind ustrial d e v elo p m e n t, site selection h a n d b ook ed ition . N orth A tlanta, G eorg ia, C on w a y P ublica­ tions, 1959. 355. ------- E fficiency and p ricin g in the coal industry. R e v ie w o f eco n o m ics and statistics. C a m b rid g e, M assachu­ setts, H a rvard U niversity Press, F ebru ary 1956. :50-60. C om p a rison o f calculated eq u i­ libriu m w ith actual practice. 356. Isard, W . and S c h o o l e r , E. W . L oca tion factors in the p etroch em i­ cal industry. U n ited States. D ep art­ m en t o f C om m erce. O ffice o f T e c h ­ nical Services, A rea D ev e lo p m e n t D iv ision . W a sh in g ton , D .C ., July 1955. H as a w e ll d ocu m en ted section on transport costs, in clu d in g natural gas by pipelines, c h em ­ icals by o c e a n -g oin g ship and barge, etc. 357. K o o pm a n s , T . J. T a n k er freight rates and tankship b u ild in g. N e th ­ erlands E c o n o m ic Institute. L o n ­ d o n , P. S. K in g and S on , 1939. 81 367. T h o m p s o n , W . R . T h e m easure­ m ent o f industry location al patterns. A n n A r b o r , M ich ig a n , U niversity o f M ich ig a n , 1953. vi, 131 p. 368. U nited N ations. E c o n o m ic C o m m is­ sion fo r L atin A m e rica ( E C L A ). C h em ical Industry Study G ro u p . M iscellaneou s m aterials an d papers relatin g to the transport costs o f chem icals, 1957-1960. U npublished. T ares and fo rm s o f transport; com p arison o f co n fe re n ce rates; calculations based on charter, etc. In files o f C hem ical Industry S tu dy G ro u p , E C L A , Santiago, C hile. 369 . ------------------C alculation o f truck costs per ton -k ilom etre. U np ublished m anu script, 1960. 82 Based on data o f T ra n sp orta­ tion C onsultants, Inc. (V e n e zu e la P etroq u ím ica N a cion a l, 1956). In files o f the C h em ical In d u s­ try Stu dy G rou p , E C L A , San­ tiago, C hile. 370. 371 . U n ited States. D ep artm en t o f C o m ­ m erce. M o d e rn ship stow age. W a sh ­ in g ton , D .C . H as data on standard p ack ag ­ in g and tare values o f various com m od ities. C oast and G eod etic Sur­ vey. D istances betw een U nited States ports. W a sh in g ton , D .C ., 1929. 372. ------- D ep artm en t o f the N avy. H y ­ d rog ra p h ic Office. T a b le o f dis­ tances betw een ports. W a sh in g ton , D .C ., 1943. D o c . H .O . N o . 117. 373. --------- P etroleu m A d m in istra tion for D efen se. T h e transportation o f oil. W a sh in g ton , D .C ., D ecem b er 1951. H as a large table g iv in g the calculated ca rg o p erform a n ce o f a T -2 tanker on 164 specific w o r ld trade routes. 374. VlETORtsz, T . T h e feasibility o f pe­ troleu m refinery operation s in P uerto R ic o servin g E u rop ean fu el oil m arkets. U n p u b lish ed con su ltin g report. San Juan, P u erto R ico, E c o ­ n o m ic D e v e lo p m e n t A d m in istra ­ tion, 1957. M im eog ra p h ed . C ontain s analysis of tanker rate calculation fo r v a ryin g sizes o f vessels and com p le x triangular rou tes; also analysis o f loa d in g and u n load in g . T h e p h otograp h s o n page 54 are by courtesy o f the G u in d y Industrial Estate, M ad ra s; those o n p age 11 are by courtesy o f the Jamaica Industrial D ev e lo p m e n t C orp ora tion , K in g sto n ; those o n pages 6 , 10, 13, 15, 17, upper left and low er righ t, 18, 20, 38, 39 and 44 are by courtesy o f the International B ank fo r R econ stru ction and D e v e lo p m e n t; those on p age 21 are by courtesy o f the Israel Office o f In form a tion , N e w Y o r k ; and those on the cover, page 43 and the righthand side o f page 47 are by courtesy o f the Y u g oslav In form a tion C enter, N e w Y ork . WHERE TO BUY AFRICA C MR U : LB ARED PUL ARCI A E O N I RI I U E PE F I AN L Gr n , B . 1 9 , Y o n é a é a te .P 1 7 a u d . E HOI : I T R A I NLP ES A E C T I PA NE NTO A RS GNY PO Bx1 0 Ad Aa a . . o 2 , d is b b . G A A U I E ST B O S O H N : NV RI Y O KH P UivrityClle eo Ga a Lg n Ac a n es o g f h n , e o , c r . MR C O -C NR D DFUI N D C MN O O C : E T E E I F SO O U E ­ T I ED B .P ., 8 r eM hu-Blla e Rb t. AR U .E .I , u ic a x e ir , a a S UHA RC : VNS H I 'S B O ­ O T F I A A C AK O K S O E(PY LD T R T) T . Cuc S e t, Bx7 4 Peoia h r h tr e o 2 , r t r . U I E A A R P B I : LB ARE NT D RB E U LC I RI I “L RNI S N ED GP E A E AS A C 'É Y T ” 9 S . AlyPs a Cir . h d ah , a o ASIA B R A C R T R GV. B O DP T U M: U A O , OT OK EO Rn o n a go . C MO IA E T E RS K MR D LB ARE A B D : NRP I E H È E E I RI I I pimr &PpteieSr P n m e h mr eie a e r ai, h o -Pn . C Y O : LK H UE B O S O E L N AE O S O KH P As c Nwp p r o Cy n P0. Bx2 4 s o . e s a e s f e lo , . o 4 , Clo b . o mo C IN : HA T EWRDB O C MA Y LD H O L OK O P N, T . 9 C u gK gRa , 1 tSc n Tiph 9 h n in o d s e tio , a e , Tiwn a a. T EC M E CA P ES LD H O MR I L R S , T . 2 1 HnnRa , S a g a 1 o a o d h n h i. HN K N : T ES IN O B O C MA Y O G O G H W D N OK O P N 25 NthnRa , Kw o . a a o d o lo n ID: N IA O I N L N MN RE T O G A S Clc tta Bma , Mda, NwDlh a u , o by a r s e e i a dHdr b d n y ea a . OF R B O &S A I NR C MA Y X O D OK T TO E Y O P N NwDlh a dClc tta e ei n au . P V R DC A Y &C MA Y . A A A HR O PN Mda. ars I D N SA P MA G N N LD N O EI : E B N U A , T . Gn n Shr 8 , D kr . u u g a ai 4 ja ata J P N MR Z NC MA Y LD A A : A UE O P N, T . 6Tr ic o e N o b s i, Tko oi-N h m, ih n ah o y . K R A R P BI O : E L O P B I H O E , E ULC F U-Y O U LS ­ I GC ., L D N O T ., 5 2 A C o g o So l. , -K , h n n , e u PK T N A IS A : T EP KS A C -OE AI EB O S CEY H A I T N O P RTV O K OI T Dc a Es Pk ta . a c , at a is n P BI HR U I E , LD ULS E S NT D T . Lhr . a oe T O A &T O A H MS H MS Kr c i. aah P IL PN S A E A 'S B O S OE H IP I E: L MR OK T R 7 9 R a Ae u , Mn . 6 iz l v n e a ila SN A O E T ECT B O S O E LD I G P R : H I Y OK T R , T . CllyrQa . o e uy T AL N : P A UNM , LD H I A D R MA I T . T 5 Ca r wt Ra , Wt Tk Bnkk 5 hka a o d a u , a g o . V T A , RP BI O: LB ARE A EE I IE -N M E ULC F I RI I -P P T RE XA TU UN H , 1 5 r eT -d , B . 283, S ig n 8 , u u o .P a o. EUROPE A S RA UT I : GRL &C MA Y E OD O P N Ga e 3 , W n 1 r bn 1 ie , . B WL E S O F . ÜL RT RF Mr u S us as 1 , S lz ug ak s ittik s tr s e 0 a b r . UNITED NATIONS B L I M A E C E MS A E I S E GU : GNE T ES GRE D L P ES , S A E A RS E . . 1 -2 , r ed Pril, Bue s 4 2 u u es r x lle. CE H S O A I : C S OL V N K Z C OL V KA EK S OE S Y S I OA E , PS V T L Nr d í Tid 9 Pa a1 áo n r a , r h . D N A K ENRMN S A R , LD E MR : J A U KG A D T . Nr e a e6 Kb n a n K 0r g d , 0 e hv , . FNA D A A E M E KRA A P A I L N : K T E I N I J K UP N 2Ks uk tu Hls k e k s a , e ini. F A C : É I I N A PDN RNE DTO S . É OE 1 , r eS u t, Pr (V). 3 u o fflo ais e G R A Y FDRLRP BI O: E MN, E E A E ULC F R ES NC M T . I E S H lD Sh a thle Sr 5 , Fa k r a . c wn a r t . 9 r n fut/Min EWR U DMUE L E T N E RR Hu ts as 1 1 Br -Sh nb r . a p tr s e 0 , e lin c õ e e g AE A DR HR L X N E ON S ie e as 9 W s a e . p g lg s e , ie b d n W ES A BC . . ARA H Gr u e s as 3 , Kln(1 e tr d ntr s e 0 õ ). G E C : KUF A N B O S O RE E A F MN O KH P 2 S d nS e t, A e s 8 ta io tr e thn. I E A D B KV RL NSGUA C L N : OAE Z U I F S R E MN S O A HF Y U DS N R . . A s r tr e 1 , Ry ja ik utus a ti 8 e k v . I EA D S A I NR OFC RL N : T TO E Y FI E Db . ulin I A Y LB E I C M I SO A I T L : I RRA O MSI N RA S NO I, AS N V G oCp o i 2 , F e z , ia in a p n 6 ir ne a dV D . Au i 1 /A Rm. n ia .A z n 5 , o a L X MO R : LB AREJ T A S H UE B U G I RI I . R UC S HM E , C U MR P c d T é tr , L x mo r . lae u hâ e u e b ug NT E L N S N . MRIN SNJ OF E HRA D: .V A T U I HF LneVohu 9 's r v n a e a g o r o t , -Ga e h g . N R A : J HNG U D T N M O WY O A R N T A U Kr J h ng te 4 , Olo al o a s a , 1 s . P RU A : LV A I R D I US YCA O T G L I RRA O RG E I . 1 6 RaA r a L b a 8 ú ue , is o . SA : P IN LB E I B S H I RRA OC 1 Rn aUiv r id d Br e n. 1 o d n es a , ac lo a LB E I M N I R NA I RRA U D-P E S Cs llo3 , Mdid ate 7 a r . S E E : C EF I Z 'S K N L H V O WD N . . RTE U G. OB K HNE A A DL -B Fe s a n2 S c h lm r dg ta , to k o . S I Z RA D WT E L N : LB AREP Y T S A I RI I AO, . . Lua n, Gnv . a s ne e èe HN R U H R T AS ANAD K c g s e 1 , Z r h1 ir h as 7 üic . T R E : LB AREHC ET U K Y I RI I A HT E 4 9 It la Cd e î, By g , I ta b l. 6 sîk l a d s e o lu s n u U I NO S VE S CA I T RP B I S NO F OI T O I LS E U LC: MZ D N R D A A K YG EH U A O N Y NI A S o nk y P s c a , Ms v . mle s a a lohh d ok a U I E K G O : HMS A IO EY NT D IN D M . . T T NR OFC, FI E PO Bx5 9 Ln o , S .l . . o 6 , o dn .E (a dH S ba c e i Blfat, B m g a , n MO r nhs n e s ir inhm Biso Cr iff, Einug , Mnhs r r t l, ad d b r h a c e te ). 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