The American Economic Review June 1968 Part 1 [antikvár]

The American Economic Review Volume LVIII JUNE 1968 Number 3, Part 1 PLANNING IN A SURPLUS LABOR ECONOMY By Louis Lefeber* In a planned economy where decision making is at least partially decentralized, the coordination of the diverse production and investment decisions with the aggregate national development plan is a fundamental problem of planning. In particular, if the free market prices are inconsistent with the social goals, the market-determined outputs of goods and services and the division of effort between production for current and future consumption will be less than socially optimal. This is obviously the case if the conditions for competitive pricing are not satisfied, i.e., if there are increasing returns to scale in production or certain externalities and imperfections whose effects on pricing are not corrected by government intervention. But even if all the necessary conditions are met, it is well known that pure competition will still not lead to a socially optimal resource use if the distribution of income is not socially optimal. This is likely to be the case in a labor surplus economy in which the supply of labor is infinitely elastic at institutionally determined minimum wage rates.1 * The author is professor of economics, Brandeis University. This paper was prepared for and is reproduced with the permission of the United Nations Industrial Development Organization, United Nations, New York (formerly the United Nations Centre for Industrial Development). The views expressed represent my own. I am indebted to Mr. Vishal Sabh-erwal, of the Indian Statistical Institute, for his statistical and computational contribution and to the Research Center in Economic Growth of Stanford University for generous provision of computational and other facilities. Also, since this paper is a continuation of some of my research undertaken during my Ford Faculty Research Fellowship, I take this opportunity to express my continued appreciation to the Ford Foundation. Finally, I should like to thank Stephen Marglin for our discussions on this and related topics from which I have greatly benefited, and Kenneth Arrow, V. K. Ramaswami, Maurice Scott, and T. N. Srinivasan for their useful comments on an earlier version of this paper. None of them should be held responsible, however, for my errors. 1 There is a growing body of literature on the welfare analysis of labor surplus economies. Here Sen's contribution [12] should be mentioned, as well as Marglin's recent monograph [8] which provides, in addition to an exhaustive discussion of the literature, an advanced analysis of optimal growth in labor surplus economies. Both Sen and Marglin confine their analysis, however, to one-sector economies which limits the generality of their policy conclusions. This is significant, because—as will be shown below—relative sectoral factor intensities can have an important and occasionally decisive role in the conduct of wage and employment policies. A multisectoral analysis is presented in Lefeber and Chakravarty [5] which is, however, confined—at the cost of excluding other welfare alternatives—to the derivation of time-minimizing routes to full employment.