8/11/2019 Wage Goods
1/2
July 21,1956
THE ECONOMIC WEEKLY
Book Review
SA VY A S AC HI sometime backcomplained in this Weekly that.
the Indian economists were too muchobsessed wi t h au th or it y
and as aresult did not display a creativealt itu de of mi nd . The
autho rs of
this excellent book, however, havetried to analyse the Indian
problemsregardless of the eminent authorities in the held of
economics andhave succeeded in a large measurein developing an
analytical framework suited to the needs of theeconomic reality in
India.
As is natural, they start with thepeculiar characteristic of the
Indian
economy, namely. disguised unempl oyme nt, A large part of
thework force in India is just redundant, if some organisational
changesare made. These disguised unem ployed, however, consume,
thoughthey do not contribute to output.(This is Nurkse's 'savings
potential'
of the disguised unemplo yed.) Theobvious question that arises
is: Whynot make these unproductive consumers work in output
producing
activities?Th is is not possible. Fo r the
consumption of the unemployed isless th an wh at is necessary
for
wo rk in g efficiency. Given the wagegoods output, therefore, it
is notpossible to increase employment,even though there is an
abundanceof populat ion of wo rk in g age. A ndthis state arises
entirely on accountof the wage goods defic iency . An
unemployed could be converted intoa worker, only if his
additionalnecessary consumption could be pro
vid ed for . At this stage, theauthors develop the concept of
anemployable unit. A worker withhis necessary consump tio n 'la
bourplus wage goods' forms an employ-
able un it . If the wage goods output is given, the number of
employable uni ts is determine d. In anunderdeveloped economy, like
India,though there is an abundance ofpeople of working age, there
Is nocorresponding abundance of employ
abl e un it s because of the wagegoods deficiency.
But then there is a certain advan tag e in this situ atio n too.
Sup
posi ng wage goods necessary for
one worker are somehow made
available, W i t h this , i t wou ld be
possible to employ one person, fromamo ng the unemployed This wo
ul drelease wage goods (to the extentthat real wages are held at
the subsistence level) that he was so farconsumi ng. Assumi ng that
the
consumption of a worker is twicethat of the unemployed, it
wouldbe possible now with the help of the
released wage goods to provide forthe additional consumption
neces-sary for employing another unemploye d. Thu s if one wor ke
r's consumption could be provided for, it
would be possible to give employment not merely to one person
but
to tw o persons. Thus the to ta l i ncrease in employment is a
multipleof the in it ia l employ ment. Thisrelationship between the
initial employment, and the final employmentis described by the
consumptiongoods multiplier, which is by farthe most significant
concept deve
loped by the auth ors. Thus if consumption necessary for one
workeris provided for, this increase in wagegoods would enable the
economy to
release potentially enough wagegoods to employ finally not one
buttw o persons. The con sump tio n goods
multiplier here is 2 and is definedas the inverse of the
difference between the consumption of a workerand that of the
unemployed, dividedby the consumption of a worker.
Thus then the existence of the
unemployed or the unproductive consumers enable the economy to
expand employment and investmentat an accelerated rate provided,
ofcourse, the initial increase in wage
goods is some how obta ine d. Thesemultiplier effects of an
increase inwage goods, it may be noted, depend
upon the difference in the consumptio n of a wo rk er and tha t
of theunemployed.
To obtain these multiplier effectsin employment and investment,
itis necessary to have an initial increase in the- wage goods
output.
If population is growing, this increase in the. wage goods
outputshou ld be great er th an the popula -tion increase to avail
of these multiplier effects.
From this analytical framework,
the authors draw the following im
portant conclusions:
10 For the cu mula tiv e process ofdevelopment., it i s ne
cessary to ha vesome forced savings in terms ofwage goods in the
beginning.
2) For speeding up the process thesurplus per worker in the
consumption goods sector should be maximised. Therefo re, the
present i n efficient labour ince ntiv e me thodsshould be replaced
by more capitalincentive methods.
3) In it ia l inve stment and employment should be concentrated
on pro-ducing capital goods which are
necessary for the wage goods industries.
4) Pro duc tio n of ot her types ofcapital goods should be
deferred tothe later stages of planning.
5) Aut ono mou s forces ma y proveto he very weak in initiating
thisprocess and therefor e the mot iv epower will have to be
supplied bythe State.
In the light of this analyticalframework and these
conclusionsthe aut hors exami ne the Second
Pla n. They find that the Pla n isnot based on the right
analysis of
the economic situation in India.There is no integrated
thoughtstr uct ure behind the Pla n. As aresult, the priorities
with regard tothe various projects are not properly assigned. Fur
the r, the aut hor spoint out that there does not seem
to be any real resource planning.The Second Plan in their
opinion isnot a Plan at al l . It has been mor elike an exercise in
which manipulations of a few ratios have playedan imp or ta nt
part. The authorsquestion the appropriateness of thevalues of these
ratios and find that
the y have no real basis. The aggre gative model on which the
SecondPlan is based has also been subje ct ed to a lot of c r i t i
c i sm.
But what alte rnati ve prioritie sdo the au th or s suggest ? A
mor e'balanced' model of gr ow th pitchedon a lower key, though the
authors.as mentioned later, do not seem tobe aware of the social
choice involved in this.
In a note appended to the volume,there is an interesting
discussion on
the models of Ricardo, Marx, Mar
shall and Keynes and the relevance
(continued on page 870)
863
Analytical FrameworkPlanning for an Expanding Economy, By C N
Vakil and P R Brahmanand. Vora & Co, Bombay. Pages 399.
Price Rs 8.
