THE PLANNING FUNCTION IN DEVELOPMENT

THE PLANNING FUNCTION IN DEVELOPMENT

With domestic savings and foreign exchange both in short supply, the task of increasing average productivity and bringing about the structural changes necessary for continued expansion in output and incomes poses formidable problems of economic management. The specific form and nature of the problem differ from one developing country to another depending on the existing structure of the economy, the relative magnitude of the constraints, the choice of objectives immediate and more distant and the range and force of impulses received by the economy from the outside world. 

As more countries have attempted to set explicit objectives and to plan ways and means of attaining them, however, various common difficulties have become apparent. Some relate to the adoption of a development strategy, some have arisen out of organizational problems  some from the sheer accumulation of past measures of an ad hoc and sometimes conflicting nature. Others stem from conflicts between short-term needs and longer-term goals and yet others from the bluntness of certain policy instruments, particularly when they are used in an environment that may be sluggish in transmitting economic stimuli. 

The two most frequent difficulties encountered by developing countries in the formulation of a development strategy have been the identification of the principal obstacles to economic growth in a manner that is operationally useful, and the method of dealing with, and if necessary circumventing, particularly recalcitrant obstacles.

The need to identify bottlenecks and to appreciate their amenability to corrective action is essential to the determination of priorities and hence to the content and phasing of a development plan. Recent experience has demonstrated how easily bottlenecks may be generated in an economy in which most types of resources are under strain. Lags ripple through the economy, reducing productivity and raising prices, and sometimes cumulating in an extremely disruptive manner. 

Not only is the pinpointing of potential bottle-necks an essential preliminary to the determination of priorities for planned development but a constant alert has to be maintained for the emergence of imbalances in the course of the plan. The lags whose probability has been most frequently underestimated by developing countries in the past have been in exports, in domestic food supplies and in the skills required in the course of industrialization. But in varying degree, many of the investments that have tong gestation periods and are not productive until complete hydroelectric plants, railway links, and other infrastructure projects often fall into this category have involved timing problems and awkward choices between leads and lags, both tending in their different ways to lower the efficiency of capital.

Bottle-necks arising from lagging sectors are not equally amenable to the sort of action that Governments are in a position to take, so that plan priorities tend to involve more than decisions about the order and intensity of the measures to effect the desired change. The economy as a whole cannot be made to wait on accomplishments in a recalcitrant sector which may depend on structural alterations requiring considerable time. While a major effort is mounted to bring about the necessary adjustments which in the long run cannot be avoided-arrangements must be made to bypass the problem or at least to minimize its negative effects on the course of development. 

To some extent, this can be done by appropriate modifications in the use of available domestic resources, substituting the more plentiful for the scarcer raw material, using labor instead of mechanical equipment, choosing technologies that are best related to existing factor endowment. But many countries have found it more convenient to make good the results of the lag by drawing resources from the rest of the world the hiring of special skills, the encouragement of foreign investment, the importation Of basic food-stuffs have all been reported to for bridging gaps left by lagging domestic sectors. The feasibility of this depends in large measure on the status and performance of the export sector where this is itself a bottleneck, the economy is deprived of one of the most flexible of its development instrumentalities.

The formulation and carrying out of development policies designed to maintain the degree of balance most conducive to growth impose a very heavy strain on government machinery. Plan administration cuts across the traditional departmental structure of the civil service, and to keep normal public services functioning smoothly while changing the focus of operations from the department to the economy as a whole requires a major adjustment in attitude and organization. Even in those countries that have taken development planning most seriously and have set up planning commissions often highly placed and attached to the prime minister's office or its equivalent there have been many difficulties. To some extent, these difficulties have been in priority determination and the choice of policy instruments, but more frequently they have arisen in the implementation of plan decisions, dependent as this has tended to be on ordinary departmental staff preoccupied with routine responsibilities.

The implied emphasis on change and expansion is in some ways the antithesis of bureaucratic attitudes and procedures. It cannot be taken for granted that a department of agriculture is appropriately staffed to carry out the research, experimentation and extension work that agrarian restructuring may require. Nor can an education department, struggling to provide teachers and classrooms to meet the conventional claims of a rapidly growing child population, be expected to gear itself automatically to make the locational and curriculum changes that may be urgently necessary to meet the newly emerging needs for skilled workers and technicians. 

There may be no department of transport or of energy, while the department of public works may soon be swamped by the number and variety of projects stemming from the Government's own investment decisions. Control over the relevant activities of provincial and local authorities may be too weak to permit the necessary degree of co-ordination. Even the horizontal links between central government departments traditionally through the treasury may be unsuited to the planning function on an economy-wide basis.

Consistency in their deployment, and partly in the fact that the economy is subject to continuous and changing pressures transmitted from the outside world through export markets, the cost of imports and the flow of capital.

Whatever the difficulties developing countries encounter in organizing the government apparatus to play the role required of it in executing an articulated development plan, the problem of integrating the private sector into the plan so that investment and production decisions are consistent with the stated objectives for the economy as a whole has generally been an even greater challenge. The problems lies partly in the size and range of the private sector (compared with the economic component of the public sector), partly in the fact that the indirect means through which government influence is brought to bear ort private decision making ÿend to be much more effective in preventing and deterring than in encouraging and stimulating, partly in the fact that because the instruments in question are those which the Government has to rely on to manage the economy and maintain its short-term stability.

The extent to which developing countries tend to be exposed to impulses from abroad is implicit in the share of exports in total production. In 1963-1965 the ratio of exports of goods and services to gross domestic product exceeded 23 percent in more than half of the developing countries, and the relative importance of the exports was increasing in more than two-thirds of the countries the ratio had increased in the preceding eight years. The risks of inconsistency among policy measures depend to a considerable extent on the range of instruments at the disposal of the Government. Where, for example, as is the case in many developing countries' government revenue is derived from a small number of taxes, chosen largely on the basis of their administrative feasibility, it is likely to prove too costly to use the tax system flexibly for other purposes. 

The provision of tax incentives to encourage industrial investment, for example-may involve a serious loss of revenue, at least in the short run. The raising of customs duties to provide protection for a domestic activity may mean the sacrifice of needed government income. Even more awkward is the problem of taxing exports the needs of the Government for revenue and of the economy for foreign exchange tend to be in direct conflict, and tax incentives to promote exports may involve heavy budgetary sacrifices. Price policies may be similarly torn between incompatible objectives in many instances the desire to hold down the cost of living for urban consumers has stood in the way of pricing schedules calculated to stimulate the production of the goods or services in question. 

The task of ensuring the consistent deployment of all policy instruments is often complicated by a certain duality in objectives. Even when priorities are carefully determined in the context of a five-year development plan, they may prove difficult to sustain in the face of shorter-term claims, particularly when these arise in critical areas. A harvest failure or a major decline in the world market price of a leading export product may so affect the country's economic balance that measures are required that may not be in line with plan objectives. Few developing countries have the necessary reserves to permit adjustment to strong and unfavorable shorter-term impulses without significant disruption to longer-term policies.