DRDOS

I n t e r n a ~ i o n a l Bar.'< f o r R e c 3 n s t r u c t i o n and LIevelopo;e4r:

Development Research Cen te r

D i s c u s s i o n P a p e r s

No. 5

POLICY ISSTRUMENTS L U D PLA??TNlNG MODELS FOR

INCOME DlSTRIBUTlON

Montek S. Ahluwalia and J o r g e Cauas

KOTE : D i s c u s s i o n P a p e r s are p r e l i m i n a r y m a t e r i a l s c i r c u l a t e d t o s t i r . 1~1 'i L C

d i s c u s s i . ~ . ~ and c r i t i c a l c o m e n t . Refe rences i n p u b l i z a t i o n t o 1);s- c u s s i o n Pape r s s h o u l d b e c l e a r e d w i t h t h e a u t h o r ( s ) t~ p r o t e c r t t ~ t .

t e n t a t i v e c h a r a c t e r of t h e s e p a p e r s .

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

December, 1973 raft Kot t o be quoted Comments welcomed

POLICY INSTdUMENTS AND PLANNING MODELS FOR

INCOME DISTRIBUTION

Montek S. Ahluwalia and Jorge Cauas*

I . 1ntroducti.on

11. Avai lable Ins t ruments of Po l icy

111. Broad S t r a t e g i c Choices

I V . Avai lable Planning Models

V . Conclusions

*This paper was presented a t a j o i n t I n s t i t u t e of ~ e v e l o ~ m e a S tud ies (Sussex) - Development Research Center (IBRD) Workshop convened a t t h e Rockefel ler Foundation Conference Centre i n Be l lag io , I t a l y , i n Apr i i 1973.

P O L I C Y INSTRUME?STS All3 ?LPJI(?IJING MODELS FOR IXCGME D I S T R I B U T I O X

W e S e g b w i t h t h e r e c o g n i t i o n t h a t t h e p r o f e s s i o n a t l a r g e ha-

i n r e c e n t y e a r s d i s p l a y e d i n c r e a s i n g s c e p t i c i s m abou t t h e v a l u e ( o r Imre

s t r i c t l y " i l se fu lness") o f p l a n n i n g m d e l s i n g e n e r a l . The r e a s o n s f o r

t h i s s c e p t i c i s m a r e t o o w e l l known t o b e a r d e t a i l e d r ev i ew b u t i t i s

wor th n o t i n g t h a t t h e s c h i s m is n o t l i k e l y t o d i s a p p e a r i n t h e n e a r f u t u r e .

l'he s c e p t i c s b a s e t h e i r c a s e on two p r o p o s i t i o n s .

(i) m i s t i n g r e a l i t y e s p e c i a l l y a t economy-wide l e v e l s is f a r t o o

complex t o b e c a p t u r e d i n t h e s t y l i z e d a l g e b r a i c fonr,ula-

t i o n s o f economic models .

( i i ) The a v a i l a b l e s t a t i s t i c a l i n f o r m t i o n i n mst c a s e s is t o o

poor even f o r t h e d e m n d s o f e x i s t i n g " simple" models l e t

a l o n e a n y t h i n g more a n b i t i o u s .

, do - ; o p o s i t i o n s trikcr. t o p e t h e r ?;educe a n a t u r a l %zip-isse s i n c e any

a t t e m p t t o deve lop m r e g e n e r a l models must n e c e s s a r i l y p l a c e even g r e a t e r

s t r a i n on t h e s s a t i s t i c a l i n f ; a s t r u c t u r e . T h i s e s tab1. ishes an immediate

d i s t i n c t i o n between academic nctvances i n c o n c e p t u a l i z a t i o n , b!~ich w i l l - - l r ~ c v i t a b l y bc.$n t h e d i r c c t . i o n o f mre s o p h i s t i c a t e d models o f t h e genera l

L

~ q c i l i b r i u m tDe and t h e o p e r a t i o n a l u s e f u l n e s s o f t l -~ese advances i n

e 11 p r o v i d i n g t o o l s f o r p r a c t i c a l p lanners .-

These p r o b l e m would be s e r i o u s enough i f w e were i n t e r e s t c z

o n l y in the t r a d i t i o n a l q u e s t i o n s of economic p o l i c y such a s o u t p u t g r o h y h ,

L / T h i s d i s t i n c t i o n is n o t of c o u r s e c l e a r c u t . P l a n ~ i n g o f 5 i c e s may b e L ; - . I 1 be i n t e r e s t e d i n v e r y g e n e r a l modeis t h a t s t y l i s e b road "growth stratcG;e:,

b u t what is l a c k i n g i n economic p l a n n i n g i s t h e a v a i l a b i l i t y of o p e r a ~ i c n - a Lly u s e f u l models t o ac te rmir le s p e c i t i c p o l i c y c h o i c e s .

- 7 , - - --.---- CL--,aLilL.-~rt: i&;s~;z3e, C ; I - = - ~ ~ C ~~-;I<cLc.c~;, ~ L C . Tszy b e ~ ~ - = even m r e

,, c A H . r e ~ t ~ . . - ,-" w5en ue i n c l a c e ctj.=,siderLt:ozs of incoffie d i s t r i b u ~ i s n ~?teze

.LL-L -.+. - - -..- - - &..,a 125s i i g r e a a c on che zccc?ta'sil:ry of t h e ~ ~ d e r l y i n g

. ir is n s t s u r ? r i 5 L n j t:-,ersforc L T 5.e ~ t t z q r s o b;li.lL 2le:lnlng

. . :.sccls ;o teal ~ 5 t k ~2srr;-;>u;ic;? ~rcs ie-a Leads LO che obvious c r i t i c i s n

-.-L; i.:c &re r ry i -g t o KL- b e f o r e w e h ~ v e lczrned t o walk. Tne 2 o l n t of

- . r : ~ s c r l z i z i s z i is rist: t o ceny the i e s i r a 3 F l I q r or' c q e r 5 i r & n t i n & .zit5

rl..r;c;va;isre pzo to type m d e l s wTlic6 try tl; encogenize income 6-is t z i b c t i o n .

-?,;e'.-.er LC Is r o r e c s : g i z e t h a t t h e a p - , l ~ c a b i i i ~ y or' such izodels i n

* ~ - & c c i c a l p l ans in l j e>:&rcises In the ncs-: k t - u r e is bo-dnd t o be f a i r l y l7Ln;;ed.

;,lcrtrecl It ;s,y e-flex 542 a r z ~ e d t h a r i t is c c m ~ c r p r o d ; i c t i v e . T r y - x g r o m:

, e i o r e we :lave l e a r n e d co w a l k zry he c c t i r e i y cormendable i n the L.tceres;

of long tern s t f i le . t ic devclopnent , h l ~ t I n che i n t e r i m it i s probably nor.

the b 2 s t way o f gert:ng fron 11 r o 131

i i e -ryri.y; ;lui?o,.ie oE this p n p c r i s :o suggest a framework f o r

, - . r t . . , / . i : u n L i r l g 2hs ?OCL.:i ;:i;.:. IIPE LUI::C. '~S r l ;::e ;i\'3$1 : j b l ~ : and p r ~ s y f c t ? *,,:.

. i~:~-;nir ,g ~ ~ ~ o d ~ l s i n p r o v i a i n g 2 0 i . i ~ ~ ~ ; c ~ L ' T . c ~ f o r p l a n n e r s c o n c e r ~ c d wi:'.7 Li

, , ' F ,r.i-i-l;:~. dLs ; r ; . c ~ t <icn sii? <?;:,;:?o~?~~~i.t_ nS j ec t ives . One way o r Lot.;.,;; tnis t s L O

~ . : . ~ i i ; . r i'?hzE t3t:: ";;lc.;:i. :i..:.rr:. 1,;. y,,it:i." s11oul.d b c a n d wjc :-:;i.; ns a - i

. . . o i 1 , J 1 ; . . . 2. :&ggcs t ing pr;.,: :.ical r ~ ~ ~ e n ' s i o : ; ; , L -

f o r ~ i v e x varces of the azozenoxs v a r i a b l e s acd 2 o l i c y v a r i z b l e s t o y i z l d

I I - x c o w d i s t r i j : r t i o n " AS a function of ci-.ese var ia 'c les . Xore & i t i o w

m d e l b c i l l e r s d g h t zver. hope cha t sucn a model caii be r e c z s r LT a 02-

r imis ing f r z e w o r k zs a c m t r o l 2:leory ?rabl'~-n a f Zezeni?icg o ? t h m t k e

par:- f o r t h e po l i cy i;l~~DLi!l!Zni~ ( con t ro l v a r i a b i e s ) given soiiie ob j ec t i ve

fuiiccio;?. Providiiig ye have cocp-cehensiveiy i d e n t l i i e d and i i lcluded a l i

a v a i l a b i e po l i cy i n s t r m n t s , p l an i x p l e i x n t a t i o n would simply b e a

n a t t e r of mking t h e se ins t ruments follow t h i s opt imal t i m e path.

It is o b v i o ~ s t h a t we a r e a long way from even formulat ing such

"5leal" m d e l s l e t a lone es t imaciag them succes s fu l l y f o r p r a c r i c a l appi5--

ca t ion . In p r a c t i c e we have only t h e f a x i l i a r cro;, of ecoAor- wide input-.

output models and l i r 'ear prograimixig models (both economy wide and s e c t o r a l )

10 work with . How f a r do t he se m d e l s ge t u s i n developing appropr ia te

p o l i c i e s f o r employment and incone d i s t r ibu t io r , ? It is e a s i l y seen t h a t

zhese models f a l l cors iderab ly s h o r t o f t h e "icieal" an two grounds.

(L) Kies i -rr.odels do r,ot Serxra' ie income d i s t r i b u t i o n i n the

sensc 02 A s r z e ~ i s z r i b c t i o n of income. k t b e s t they can

handle t h e problearof f c n c t i o n a l income d i s t r i b u t i o n and I r

then too on very rcs t r i c t i v e ass7m.pcions.

( i i ) I n general these rnodels l o not c x p l i c i t i y incorpora te Lhc!

' ? e-ffeczs c l the fc11 r;nl,e sf a v a i i a j i e o l i c y v ; r i~?fcs .

-- - i c ~ 1 ( i i ) relstes p r e i y LO inco-;rjo.-zci?g the e f f e c e s o f 2 0 i i c y

- , .ar iables g.Iven a theor, , r-; d i s r r i b i r r i o a t o d e t e d - , e f a c t o r p r l c e s 2nd

e q l o ~ p z n t levels. Ynis :r - , a r e n t i y t e c E ~ . i c i l problem is t o t however a

" s k p l e l ' p r s b l a g iven t h e wile v a r i e t y of p o l i c y i n s t r m e n t s ckzt 1s

7 -

LL. A v a i l a b l e I n s t r m e n t s o f P o l i c y

I n this s e c t i o n we w i l l L a t t enp t l t o c l a s s i f y t h e mar~y p o l l c y

v a r i a b l e s t h a t are s u g g e s t e d by c~nvcn:Lonal wkdom as p o t e n t i a l insti--&-

-z.ents of income d i s t r i b u t i o n . h r b a s i s c;f c l a s s i f L c a t i o n is t o group pol-icy

I n s c n z e n t s a c c o r d i i ~ g r o the pci r , t of d i r e c t i n p a c t o f rhesc p o l i c i e s wit?Ln

~2 i m p l i c i t framework of g e n e r a l e q u i l i b r i u m of the econoizy. Thus a l l

2 o l i c i e s a f f e c t i n g f s c t o r ?rites r.ac b e c l a s s e d t o g e t h e r a s the f e z s i b i e

set o f f a c t o r r a r k e t i n t e r ~ e n t i o n s . X i ~ E o u g h i n i t i a l l y d t r e c t e d a t f a c t o r

riirkets , such i n t e r v c n t i o r , ~ o b v i c u s l y a f f e c t e s n p i o p n t i e v e l s , p r o d u c t i o ; ~

;)clLrrclrr:s, o u t g u t p r i c e s , ecc., and i t is throu@. a l l t h e s e e f f e c t s : ; a t

:,aced. ~ b ~ i s ' c l s . . , s i i ; ica t iv sclienc enz5'3les IS t o f o c u s on ' *~arkets" o r

r c ~ , l t i o n s h i p s t h a t .;i-LG r z ) 6 2 L- . c S c , 2~ r a t h e r t'hafi tfie p r e c i s e ? o l l c y i;;:,tru-

, -, 1.q vkc;ea e f f ec t . . .- T i a ~ ; - ~ i . ~ ; , :-.<- ~.:i.ls .5re a e c c s s a r l l y . agg rega ted

z-;rXst i s cezsrnined zke ? r e c i s e des lgn of ? o i i c y (choosing between

- ~ l c e r n a : i v e i -s t rcr .ea=s) ten b e worked our i n s o ~ e d 2 t a i l . rour a r e z s

o f i z t e r v e n t i o n ca;l b e d i s ~ i n g u i s i ~ e d c o r z e s p r d l n g t o t h e genera i e q u i i i b -

r lur . l i i ikage from (1) i iactor p r i c e s chro-~gh ( i i ) ~ e r s o i l a l i n c o ~ s d e r e r z i x r t i o n

~ t j - x t e l f o r ( i i i ) talc Lncidesce r o j iv) tezsnd ?atcer=,s arid o u ~ p i l t 2 r i c e s ,,:zich

a r e consis tezi t w i t h t 3 e f a c t o r 2 r i c e s . To rnese we add a f i f t h a r e a -- l u b i i c - . --A

a p e n a i r u r e ? t i t t e rns -- wnich com?letes rhe p iccure .

(i) D e t e n i n L n g P a c t o r Rewar&:

A w3-ole range of government p o l i c i e s i n f l u e n c i n g " ? r i c e c e t e r -

iriination" iii t h i s f i e l d can b e l i s t e a : v a r i o u s f o r n s of t a x e s on l a b o r

use; s u b s i d i e s t o c o p i t a l i n t h e foim cf " t a x ho l idays" , d e p r e c i a t i o n

allowances and i n v e s w n t al lowances ; government i n t e r v e n t i o n i n wage

po l icy bo th in t h e p r i v a t e s e c t o r throcgh m i n i m wage l e g i s l a t i o n ant5

i n the ? & l i e s e c t o r f n r o u d ~ d i r e c t wage de temina t ion . Wage p o l i c i e s are.

f r e q u e n t l y implenented on " d i s t r i b u t l o n a l grounds" w i t h l i t t l e a t t e n t i o n

- - '.tLL r e l a t i v e p r i c e i q l i c a t i c n : ; Tcr eq,loynent l e v e l s 6.c the " C O S ~ pusi-i"

-..., i ~ ~ c ~ i o n s f o r i c L l ; ~ i o . ~ . T h e s e c,ues t i o n s csn ~ n l y be examined i n ?:&inis&

rnolels which i n c o r p o r a r e r e l a t i v e p r i c e d e t e n i n a t i o n and p e r n i t some scope I r

f o r f a c t o r substitution.

( i i ) D i s t r i S u t i o n of 'Inca ]Caning & s e t s aiid Fnctorr; over

P o p - ~ l n t i o c : - . - GLven fr.c:o; ? r i c e det~rr~i ; lzr ;o-n a;.d c;r;rsl.oy;ilci-L~ :eve-:, r o p e ~ c i - ,

I

- 7 - . . . - . :!c,e a; ;&cCjr ;EL ,:;e =-c;;;o; of eat-, a s e : i= ;:, -J,c L<sx--a i . . -> I . c--% 0 - _ - * L1.C.-.i > L

, ; l ~ c ~ ~ ~ . a r s s =o z?.e -&LEI d ~ ~ ? c - ? i ; l b oil L-,s tL=.it i csa l t h a r z c t e r i s t 5 c s and

G Z P L E ~ i ~ c t o r s . Ccnvestlozai w i z c o z scggkscs s e v e r a l ways i r L whL&

& o v e r a n t ~ a l i c y car, ar'fs:t c t e s e pzr^ie-r;ls by d i r e c t s c r i m . - % 7 ~ 0 ? r ~ . i ~ i ~ n

.- - -21 ~ i c > z r coliecci-;lzzt;on o r r e i l s t r i b u ~ i o r , U; a s s e t s Is --. L c . C ; i a ~

- - -- ;a;lcy a;te,-;la~"ivc. i t S a i a - z i l i a ~ reeczzx!ndation i n a g r i c u l t u r e ( l a s d

r e 2 o m ) but iz 2s a l s o v i a b l e ic i n l u s t r y z l ~ h o u g f i i n t he i a t t e r " r a d i s t ~ ; -

- - 2at lon" is i a r l i y i e + s ; j ~ e , ~ x d the choice is niorc l i i r e l y ro be

x a i i o n a i i z a ~ i o n OT " s o c . ~ ~ i i z a t i ~ n " ( t h e Yugosliiv p a t t e r n ) o f c a p i r a l .

Less r a a i c i l z a s u r e s with ;; ;cr,ger time p a t t e r n f o r e f f e c t i v e -

ness a r e p r o p e r t y ta:es and inher i t ?~ . - r t e t z x e s , b o t h of which a r e nlininalljr

e f f e c t i v e i n nost countzies . Even less T C Z ~ C ~ ; a r e measures designed t o

i,iri,rove t h e d i s t r i 3 u t i o n of skills (and consequeiltly earr,ing p a c e r ) i n the

7 o p l a i i o n by expanding educa t ion and t r a i n i n g progranls. ?his I s a far; i l$zr

corners tone of e q l o ~ p n t prot-otixg ;Jrograix, and one t h a t w e w i l l un-

cocbtediy h e a r about 511 any discussion cn f n c m d i s t r i b u t i o n .

(53%) D L s y r s h L C :;I! ~ 1 r . e 2 e 4 - -+-.! - r ~ ~ ~ . z t i o r . :

sig. . if iczzce a t e c r l l i r r szzges -.,-Lere b.?ien%s;dtion p r o 3 i m a r e pz-rcL-

-- c u i a r i y i z q o r i a z t . a suz5 s;rcu=star.ces c a evzs iaz a o c g h i g h iilcozz

groups ;ley hzve t o 3e a c c q c e l zs an " i r L s t l t x t ~ c n e l c o n s c r a i n ~ " . Zie

=race-o,f - s u a l l y s s o c l a z e L wzti. -&ls p o l i c y - re la tes LO "' l n c e n t l v e s "

- I y 32 aclvsrsely ~ - f sc r , e6 by s u c c ~ s s ~ % i t a x p o l i c y Z F s u r e s . Scce

,:?at I 5 :he e c o n o q is c ~ c s e d f o r f a c t o r mvesents (an iixporced a s - ~ i i o n )

t h e i n c e n t i v e s q w s t i o n r e l a c e s e s s e n t i a l l y t o t h e work- leisure choice

and this m y n o r b e v e r y s e r ; o u i f t z x lceasures and i r ip lenen ta t i cn z b i l i r y

a r e u n i f o n f o r a l l c a t e g o r i e s o f econouiic a c t i v i t y .

Zi; p r a c t i c e i q l e n e n t a t i o n c a p a b i l i t y in d i f f e r e n t s e c t o r s is

widely d i f f e r e n t and this i n p l i e s t h a t i n c r e a s e d r e l i a n c e on tax nieasures

i n e v i t a b l y in t roduces i n t e r s e c t o r a l d i s t o r t i o n s which nay be serio-iis. X?e

c i a s s i c example of t h i s probleui is t h e s i t u a t i o n where t h e only ins tit.^-

t i o n a l l y f e a s i b l e tax n2zs-ares a m u n t co t z e s on e q o r t s o r iinporrs.

(CV) C ~ i x o L i i y ? r i c e r)eterizinclt5cii:

?-. :nc whoie razz oi c;o;r;cstic tsxes and su'3sidies oa ? r o l u c t l c \ r /

c m . s ~ ? : i o n and t a r i f f s on iz.,joztea g o ~ d s nsy b e c l a s s e i as p r i c ~ ; i ,~cr -

ven t ions in the c o m d i t y -;arkets t o g e t h e r w i t h t h e p r a l l e l s e t of L , t

q u a n t i t a t i v e r e s t r i c t i o n s wnich can be t r e a t e d as discont inuous ? r i c e

i n t e r v e a t i o n . Thcse taxes and q u a n t i t a t i v e restrictions h,ive bo th In - I I - mcone" e f f e c t ( r e d u c t i a n o r t n c r e a s e o>z:cai i i ; ~ u ; i ~ s j ~ s : rcla: LV\: ?:-cr-

':x-,;rdc: xza-s" u;-.icr! are ?robably l e s s e f f l c i e r i t than di recr : i z c t o r p r i c e

?ub;rc z ~ ~ e r , c i r u z e is t h e c o l l e c t i v e 2 o t e n t i a l 5 g n s f i t r s s u l t i n g

. . : :,,3 d i r e c t a-lc L n c l r ~ c : i&:<ation aiid 9tk.er ;ovzrnzenC revsnces . T'r.3

k: s ~ r i b ~ ~ i o i - - a i i z p o r i z ~ - c e of ? ~ b l l c erc:>er-diiure s teas f r o s rwo c o n s i l e r ~ c i o ~ s :

(aj I t -is a very l a r g e znd i ~ s u s i l j r gwoking pro;,artion of G3P

coapared t o ti-.e snare o l 1me: income grox?s in t o t i i

i ncoze . T n c s , whereas p b l i c e w e n d i t u r e r a y accoua t f o r

1'1 t o 2 5 ; e rcen t of GD?, the sharz of income accrui:lg .io

t h e l o v . 2 r f 3 7ercc.n: i n GDI' i:.a;r =Inry 5ctwee:l 8 dnd i 5

-isprov,:ns::.: i:. i:h(i. -:clf.al-i: ie':ei of :his grou;, can 'je L! . I

i r cp l ica t ions . In a si-cuatfon where publ ic resource mob i l i s a t i on i s zn

importsnt cons t r z in t , t h i s poses an obrious problem oi' choice betxeen

t h e two ca t ego r i e s aid a l s o o f course wi thin t h e two ca t ego r i e s .

Given this wide v a r i e t y o f a r ea s of i n t e rven t i on , t h e problem

f ac ing t h e p r a c t l c a l pl.anner i s t o devise a framework i n which t h e r,et

e f f e c t s and r e l a t i v e mer i t s ( i nc lud ing complementari t ies ma contrzc5ictlons)

of i n t e rven ing a t p a r t i c u l a r p o i n t s can be evaluated. The p u r e l y " t ~ c h -

n i c a l response" to t h i s i s t o b u i l d b igger and b e t t e r models which a t tempt

t o endogenise a s far a s pos s ib l e a l l r e l evan t in ter-act , ions i n t h e ecozomjr. L/ 3 ~ c h a model would obvious1.y enable u s t o exper inen t xit.h t h e e f f e c t s of ELI-

t e r n a t i v e p o l i c y ins.yrwnents on income d i s t r i b u t i o n b u t a s we have

s t a t e d be fo r e t'kis " idea l " i s uqa t t a i n sb l e f o r some time t o cGme (certain1.y

f o r t he v a s t ma jo r i t y of unierdeveloped coun t r i e s ) . In p r a c t i c e we hsve

a r a g e or' l e s s powerL%l anal .y t ica1 t o o l s which he lp t o q u z n t i f y ~ s r t i c u l a r

choices b u t n o t i n any a l l i nc lu s ive frame-mrk. In such a wcr la a s t r ~ t e g y

f o r income d i s t r i b u t i o n invo lves two kin& od dec i s ions .

i Chocsing broad a reas 0;' i n t e rven t i on as a i scussed above izrgcl;.

Gn a non-formal cons ice ra t ions

b Using a v a i l a b l e p l a n i n g models t o i l l umina t e p a r t i c u l a r t r zde - 4

o f f s and p o l i c y a l t e r n a t i v e s wi thin t he very broaa s t r a t e g y

Informal ly def ined

in t h e nex t two s ec t i ons we d i scuss b r i e ? l y soce of t he r rob l ens anc ~oss i ' r 11 i t~4 , z s

i n both f i e l d s .

1/ See f o r c x q l e t h e Faper Jn "Ir ,corporatin,; I 2 c i a i a n c Politics1- - V ~ r i a b l e s i n t o Zqui t :~ Grier.ted "uveelpment Plardning" , f o r sl oi sccss lx- . of such " a l l Inc ius lve" mocell ing.

--"F - I.L. 3 r 3 t d S-,ratez.c Cho5 ccs

In L i s s ec t i on , ws w i l l 6 iscucuss S C Z ~ 0; the c c n s i d e r a t i c ~ s

sr,at a r e r e i e v m t I n c'r.ocsiag a "s7,rhtegy o f incoze c i s t r i bu t i on ' ! , i . e . ,

ckooslr?; m o n g the va r i oxs kreas or' i n t e rven i i on l i s t e c LDOVP,. In che

zbsence or' a f0'onr;il c o d e l t?.ese choices n u s t be made or, zn in;'omal 5 z s 5 z .

LY t k 3 s contw-r, iz i s use-'*; >G distinguish betk-een two p o l a r q p s i t e s k~-I

zem.s or' p o l i c y approach. The two approa&es follow from t h e two key cc:.;-

,,on.~r.=r -.,- o f t h e ae te rmina t icn o f "income d i s t r i b u t i o n " i n t n e ecor,o:mic s.,.ster.

Yne Yirst ol" chese i s t h e eeterminat ion 02 f a c t o r rexards ma emplo-ment

l e v e l s Tor f a c t o r s . Tq iz i s wnat economic theory c a l l s t h e ciistr i 'bution

c;" 1r.ccne ( i n t o i ; r ~ t o r s i ? x e s ) a d l n t h e neo- class ica l i r a n c w r k i t wcuia

kc: a f f ec t ed S;r the whoie r a g e of 2 o l i c i e s d i s c ~ s s e a i n ?I ( i ) a , l i i ( v )

aScve. Tne second l i n k i n t h e cnain i s ~ i ~ e d i s t r i b u t i o n o f ificcme e u n l n g

csset:; ar,d f a c t o r s over t h e ~ ~ : ; i a t i c n which de t e rn ine s t h e s i z e oi' 5 s -

t r i b u t i o n o f iricone. We szy c h a r ~ c t e r i s e income a i s t r ~ \ u t l o n strategies

a s aimel? e l t n e r a t a l t e r j n g tilt. ais t r i b u t i o n or' a s s e t s c r zf a f f e c t i n g

esAT.ln~s and emplojment l e v e l s .

(1) .;:;set &cii:,ri?il t l o 3 : Yr.e k ~ 1 c . d ~ Styate?.:

i sse t , r e d s t r i ' c x t l c r i i n t n e wiccst sense i nc ludes no t or,l:y ex- , f *

- . - . .;I-3 a t lcr , 2s.:: cc?:e,: r.'_-.-r: - r,S w- a;. r e d i s t r i b u t i o n , b u t a l s o the p:roirision . .

, . - I .: . ..,. ,, :;:ne:rcs i s XI cS-;;~,;c exr~rple . ) *

- L m rT lne g r e a t &ppe;l 0:' this ap?ror^cr! is thnt/seyz;.ztes tnk questior.

narkec" . Given a s e t of e f f i c i e n c y p r i c e s i n t h e f a c t o r market , any

g i v e n p a t t e r n o f p e r s o n a l incone d i s t r i b u t i o n can b e ach ieved by a l t e r i n g

11 t h e p a t t e r n of d i s t r i b u t i o n of income e a r n i n g f a c t o r s and asse ts- . Obviously ti-.e change i n 'ncone d i s t r i b u t i o n s o induced w i l l f eed back

on e f f i c i e n c y p r i c e s i n a manner which may o r may n o t r e i n f o r c e t h e

e f f e c t s o f t h e r e d i s t r i b u t i o n b u t i t i s r e a s o n a b l e t o suppose t h a t t h e s e

e f f e c t s w i l l b e e i t h e r r e i c f o r c i n g o r mere ly secondary2L. The prob1err.s

i nvo lved i n t h i s s t r a t e z y a r e mainly t h e " p o l i t i c a l " and" ins t i cu t iona1"

c o n s t r a i n t s on a s s e t r e d i s t r i b u t i o n . W e w i l l n o t d i s c u s s t h e p l o l i t i c a l

c o n s t r a i n t s h e r e on t h e grounds t h a t a q u a n t i t a t i v e l y e q u i v a l e n t e f f e c t i v e

r e d i s t r i b u t i o n w i l l f a c e t h e same p o l i t i c a l c o n s t r a i n t s whether implemented

th rough a s s e t r e d i s t r i b u t i o n o r o t h e r m2ans. The institutional! c o n s ~ r a i r i : ~ "

a r e more important because they a r e s u b j e c t t o p o l i c y a c t i o n w i t h i n t h e r ea lm

By " i n s t i t u : i o n a l c o n s t r a i n t s " , w e mean c o n s t r a i n t s on t h e

e a r n i n g a b i l i t y of t h e r e d i s t r i b u t e d a s s e t . I t i s obvious t h a t r e d i s t r i -

~ u t i n g assczts is n o t enougll i f t h e e a r n i n g a b i l i t y of t h e a s s e t , i s S q a L r e d .

Thus l a n d reform may b e k e i f e c t i v e a s a n i n s t r u m e n t o'f income d i s t r i b u t i o n

if o t h e r d i s t o r t i o n s i n t h e s y s t e m prcvenL s m a l l h o l d e r from bc!ing p r o d u c t i v e . - - ' r

11 Note thrEf e d u c a t ~ o n a l p o l i c i e s aimed a t dynanrLc r e d i s t r i b u t : i o n of - s k i l l s a r e q t r e a l l y r a d i c a l i n t h i s s e n s e . The r e d i s t r i b u t i o n x i m d nc is e s s e n t i a l r y r e l a t i v e s i n c e t h e t o t a l supp ly o f s k i l l e d l & o r is e x p e c t e d t o expand. The "incot .e d i s t r i b u t i o n " e f f e c t depends t I ~ c r e f o r e on whether wages a r e ma in ta ined s u p p l y o f s k i l l e d l a b o u r s expands which is c s ~ ~ i ~ t l ~ l i l : ~ a problem of h n c t i o n a l incorrc d e t e r m i n a t i o n . These p r o b l e m are i ~ . ~ o r : u n t

however i n p r o v i d i n g s o c i a l m o b i l i t y i . e . e q u a l i s i n g acces s t o enployneat o f p a r t i c u l a r wage c a t e g o r i e s .

2 / A good d e a l of s p e c u l a t i o n and some e m p i r i c a l ev idence e x i s t on t5c g r e ~ - ~ e r - l a b o u r i n t e n s i t y o f l ower i n c o m consungt ion . ' Ihere i s a l s o evidence zlriat these feedbacks a r e r e l a t i v e l y s m a l l i n q u a n t i t a t i v e t e r n .

h whole r a n g e o i i n s t i t u t i c a a l c o n s t r a i n t s are r e l e v a n t i n t h i s contac t -

e d u c a t i o n and skill. level o f t e n a n t b e ~ e f i c i a r i e s and p r o v i s i o n o f

conplemer , i~ l>r i n p u t s such as s e e d s , f e r ~ i l i z e r , c r e d i t n a r k e t i n g f a c i l i - t i e s ,

e t c . . It 1; S ~ . ? o r t a n t t o r e a l i s e t!at t h e c o s t s i~ t e rms o f " output

t r a d e- o f f s" of p u r s u i n g an a s s e t d i s t r i b a t i o n o r i e n t e d s t r a t e g y depend

c r i t i c a l l y upon t h e ass--:ion of t h e " e a r n i n g a . b i l i ~ r ' l o f t h e r e d i s t i r i b u ~ e d

asset i n an o p t i m a l i n s t i t u t i o n a l framework. Undoubtedly, t h e c o s t o f

e s t a b l i s h i n g t h e s e i n s t i t u t i o n s ( 0.- r e f u r b i s h i n g t h e o l d ones) is a p a r t

o f t h e " t rade- off" b u t t h e ? r o b l a i n most c o u n t r i e s is t h a t t h e need f o r

t h e new o p t i m a l i n s t i t u t i o n a l framework is n o t always r e a l i s e d . Th i s

r c s l i s a t i on is growing i i ~ r u r a l- d e -elopmen'c p r o g r a m b u t i t is n o t a t

a l l e v i d e n t in p o l i c y f o n i l i a t i o n f o r t h e p u b l i c s e c t o r . Sa t iona1isa t : ion

of i n d u s t r y as we h a - e s e e n i s a " feas i31e1 ' a s s e t c a l l e . c t i v i s a t i o n po:licy

w i t h income d i s t r i b u t i o n b e n e f i t s b u t h a r d l y any a t t e m p t i s made t o e n s u r e

t h a t these c o l l e c t i v i s e d a s s e t s remain p r o d u c t i v e on any economic (noit

f i n a n c i a l ) cons idc ra t i c in s . U n f o r t u n a t e l y t h e s e "non-essen t i a l " trade.* f f s

arc Ercquen t ly p e r p e t d a t e d owing t o a r e g r e t t a b l e s u s p i c i a n of "cf f icLency"

concep t s m o n g r a d i c a l r s fom:&rs a t l e a s t i n t h e e a r l y s t a g e s o f r a t i ~ c a ,

'ti:ese. pr?!j'ic:.ti .:L . , IPS L. t.ilat a c r i t i c a l r o l e f o r p l ann ing mo~dels - i

. . I.1: e~AfsluizCirig asse'; <!is : r i > a r &c,:? r;rr~tt:&.les '& io i d e r r i f y rile i n : ; t i t . u t ionn l - - nee!-., ,: E ; J , ~ ~ r e d i s t r i b u t i ~ n . iSodels w;-,z.;,: P::i 1 t o i a c z t i i y key i n s t i t ~ ~ i n r ~ n l

I! * I

dcveloy,mcnts which z r e ~z r ; ? !en ' cn t~ ry to a s s e f T - c i i . 5 ~ :;3utlon and t o i z e i l t i f y

a l t e r n a t i v e "learnin; : p r o c e ~ s c s " 1.:: ciciiieving c f i l c i e n c y ir, he c e w s e t u p ,

fail fn an ir;por;ant s e n s e t3 i d e n t i f y t h e r e a l p r o b i c m w i t h such a h i l - ; l Z + p .

- sua i ly p o h t t o observed r e s 3 A t s w i t h o ~ t a t t e q t i n g to &.fine sl::zr-

n a t i v e s which were r 'eas ible hut have been .Ip.ored. ?ro;lonents of asset

t t r e d i s t ~ i b c t i o n igrLore " i c a r n i ~ g c o s t s t h e need f o r c o q l e c e n t a r y

i npu t s . A ?~ograsa i r . g approach t o naticna2-&-kg iil-try f o r exarrple

a i g h t show a s t e e p l y r f s i i i ~ s 'na icw p r i c e . on skT i l ed s a l a r i e d ILacagaent

u w e noye fron t h e ?rivsra 20 t ke p u b l i c s ecco r with s m l o s s of

" p r i v a t e seczor mwagers". iri this m i ~ i r o m e n t Tigici wage p o l i c i e s which

l i m i t access t o managers mounts t o i ncu r r i ng unnecessary s o c i a l cos t s .

It should be emphasized t h a t the key problem i n the a r ea Is

n o t s o much techniques f o r h a ~ d l i n g t he se p r o b l e m b u t r a t h e r i n f o rna t ion

on what kin&- of i n s r i t u t i o n a l systems a r e needed, L.e., research on

t he production h ' c t i o n . Tnis conclusion is very s i m i l a r t o t h e genera l

agreement on t he need f o r r e s ea r ch on a v a i l a b i l i t y of " i n t e rned i a t e

technology" b e f o r e incorpora t ing c a p i t a l labour s & s t i t u t i o n i n t o planrling

C L L ~ S .

The neo- c l a s s i ca l a l t&rnar ive t o a s s e t r e d i s t r i b u t i o n i s

t o t r y and ope ra t e on the l e v e l s of r e a l rewards and employment l e v e l s .

The success of such p o l i c i e s depends c r i t i c a l l y upon the f ea s ib : i l i t y *

'i of altering x ~ r k e : cqui l ibr iurs s u f f i c i e n t i y t o ach i sve the desirl-a re-

The l e a s i b i l i t y of L-,? L;iires: approach depznds cr r ~ i z l i y

. ,,on ,- the f l e x i b i l i t y of t h e eco?.~=y 2s d e r e m i n e d by b e n a v i o u r a i and

b a h a v i o ~ r a l c h a r a c c e r i s t i c s d e : e x 5 ~ r L c e ar-d incoze e l a s t l c S z l e s of

c o n s 7 a e r dezznd whi ie t e c h n o l o g i c a i c h : r a c t e r i s t i c s d e t e r n i n e f a c c o r

s c b s i i t u t i o n p o s s i b i i i t l e s . The scg?e f o r a i t e r i n g t h e f i n a l e q u i l i -

b r i m of t n e economy chrough p r i c e i a t e r v e n t i o n depends on t h e s e parameters .

This is e s s e n t i a l l y an e ~ p i r i c a l quescion and one f o r which no s i n p l ~ e

znswer can b e provided. F requen t ly w h i l e p o l i c y makers deuiand e v i j e n c e

economists c a do l i t t l e m r e tha7 ask f o r a c t s of f a i t h . We s5ouid

recogc ize however t h a t n e a t n e o- c l a s s i c a l r e s u l t s based on f a c t o r p r i c e

i n t e r v e n t i o n o r r e l a t i v e o u t p u t ? r i c e i n t e r v e n t i o n w i l l c o t c a r r y much

weight u n l e s s we can b e s u r e of t 5 z s i z e of t h e v a r i o u s e l a s t i c i t i e s

i i ~ v o l v e d . I t i s co ld comfort t o -know t h a t " t h e d i r e c t i o n of change"

w i l l be r i g h t i f w e cannot be very conf iden t about t h e zmounts involved.

S a t e t h a t t h i s problem h a s a l s o b e d e v i l l e d a n a l y t i c h l work on eaployment I

?ror,otion . w e p t t h a t l t i s nore s e r i o u s when t h e o b j e c t i v e i s income

cis t . r ibut ion thsn when i t A L e;;a>ia:-~ent. T h i s is because h i g h e l a s t . i c i t i c s

of s u b s t i t u ~ i o n b e w e e n c s p i t ~ l 2;- LaScar a r e a f t e r a l i on ly a mixed

- bLes.,~:-,< i f i nc reaJec rizplo;r;,en~ AS a-ly ~ L , - L I C Y ~ ~ ac t h e c o s t cf lcwer

w

i n t h i s cor-:ex~, i: i s X O ~ L ? , c o t i n g cha t e x ~ e r i z e n c s wLc:;

? l a i - ~ i n ~ uio2rls incorporaz l i .g r ~ a s o n s b i e p s r e n e c e r s f o r de-iiicd ar-c Tro-

l u c t i o n f l e x l j i l i t y co c o t SuggeSK t h e r r e l a t i v e p r i c e i n t e r v e n c l o n o f f e r ;

a u c h hope f o r a l t e r l G g t h e c i s t r i b u c i o n of i n c o z e e i t h e r v i a d e ~ z n d

cnznges f e e d i n g back on p rocuc t ion o r even v i a d i r e c t substitution

52tween c a p i t a l and l a b o u r . Thus Chenery end Raducnel i n experrlzenring 1 / -, -

w i t h such a n o d e l cor.clude:

" In t h e f i r s t p l a c e t h e p o s s i b i l i t i e s f o r i n d i r e c t f a c t o r s u b s t i t u t i o n v i a dertand and t r a d e nay a o t be e x t e c s i v e enough t o accoinmodate v e r y wide v a r i a t i o n s i n f a c t o r p r o p o r t i o n s . Secondly, t h e f e a s i b l e r s n g e of v a r i a t i o n is made c o n s i d e r a b l y narrower when w e c o n s i d e r tfie i m p l i c a t i o n s o f t h e e q u i l i b r i w n f a c t o r p r i c e s f o r t h e d i s t r i b u t i o n of income between c a p i t a l and l abour ."

These r e s u l c s l e a d t o h i g h l y p e s s i m i s t i c c o n c l u s i o n s on t h e scope f o r

promoting income d i s t r i b u t i o n v i a market i n t e r v e n t i o n . I f w e a r e t o

b e l i m i t e d t o d i r e c t f a c t a r s u b s t i t u t i o n , l a b o u r s u b s i d i e s o r s i s i l a r

,--lea i f i t e r v e n t i o n w i l l have t o be conf incd t o those s e c t o r s wi th

e i a s E i c i t i e s of s u b s t i t u t i o n g r e a t e r t han one. Undoubtedly t h e e x p e r i -

nen t a l i x d r c i s e d e s c r i b e d above inay i o s e c o n s i d e r a b l e f l e x i b i l i t y through P .*

a g g r e g a t i o n b u t n e v e r t h e l e s s t h e r e s u l t s a r e samewhat s o b e r i n g .

The above c h a r a c e e r i s a t i o n of a s s e t r e d i s t r i b u t i o n and x a r k e t

- - i 2 t e rv r i ; t i on p o l i c i e s as p c l ~ r o ? ? o s i t s s docs n o t of c o u r s e imply ;hat

* P - . . - LTL C C O . - I G ; ~ ~ w i d e c';,oicz ~ u s : 'se ;n;ie fa: one or t h e other a;>?roac;,. A X

f ~ c t we woiiic e x 2 e c t ;~I,I: c n e o r rhe o : u r r i p p ~ 3 a ~ ? , a i g ' f i ~ 5~ :;o:L: ~ ~ i . t i - 3 1 L -

1/ " S u b s t i c c t i o n i n . ? la r , r , ing ~ o d c l s " , X o l l i s 2 . Ci-,enery and '~'il;.; r:. 2. - ~ ; ~ d ~ ~ t ~ ~ l , L. L, + L ~ i a l e s . - . :Lr; :level::?zeac IJia::n.i?& e d . . r i . - 3. Ckenery, Ilar-br6-i?.

G n i v c r s i t y P r e s s , L 3 71 .

f c r ,ar:icc;ar i r o c c c ~ i ~ n secLsr= d e p x d l n g u p m v z r i o u s c k a r z c t e r i s i i c s

- cne produci iox s c r c c r u r e of t h e s s c c o r and r h e degree

c r f a c t o r s u j s z % r c z a b i l i t y which d e i e m i n e s f l d x i b i l i t y

t h e t i s c z i j u i l v e = t z r a c t e r of r k e s e c r o r i n c i c d i n g e x i s t i n g

? z r t e r n s of a s s e t cor.centracioa ( p a r t i c u l a r l y i a p o r t a n r

in i h e casz of 1&?6 i n a g r i c u l t u r e o r n a t u r a l r e s o u r c e s i n

s i n i n g a d e x t r a c z i v e resources )

r e l a t i o n s h i p of t h e s e c t o r r o t h e p rocuc t ion e q u i l i b r i u m

of t h e rest of t h e zconomy. Output l o s s e s fo l lowing from

d i s t r i b u t i o n a l p o l i c i e s may b e p a r t i c u l a r l y s e r i o u s f o r

"key s e c t o r s " where t h e ecoaony caanot a d j u s t e a s i l y i n

response t o such l o s s e s . (Exports a r e an example).

As these c h a r a c t e r i s t i c s va ry s u b s t a n t i a l i y a c r o s s c o u n t r i e s we would expect

the aptimun s e t of d i s t r i b u t i o n p o l i c i e s t o vary accord ing ly and f ind ing

t h e optimum s e t i s a z a j o r ?l&i;,iag probiem. I n t h e absence of f o r m 1

z o d e l s t h e s e choices rill obviously b e made on t h e b a s i s of informai I t

e v a i u a t i o n s t r o n g l y co i ld i t lone l bjr socio-poi . i t ica1, h i s t o r i c a l , idco-

fl A v a i l ~ b 1 e ?l&':-i:~ " O ~ Z ~ S

I n t h s ~ r e c s l i - g sec rLx . s de i-.zve o n t l i n e d che k i n d oC ~ o l i c y

~ 3 ~ o i c e s m G s c r a c e g i c a i c e r . ~ z t i v e s t n z z nsed LO b e i n c o r 2 o r a r e d i n z o

?;arming x o d e l s . 6 e hzva E S S ~ Z ~ t h r a a j h o u c c h ~ t C ~ C " i d e a l ? l & n n k g

nodel" I n c o i ? o r r t i n g a l l c k s s e c3o ices i s r,ot a t p r e s e n t a p r a c t i c a l r e a l i t y .

m. nexr a r e p i s LO c c c s i i a r how f a r zvaLlab le p l ann ing a o d e l s i i l m i n a ~ e

? a r t i c u l a r c k o i i e s r e l e v ~ c c t o Lacore J i s ~ r i b u t i o n o b j e c t i v e s . i n z h i s

s e c t i o n w e w i l l d e z l j r i e f l y wich two f d i i a r ty?es o f models--in?ut-output

n o d e l s and l i n e a r p r o g r a m i n g ~ o d c l s .

( i ) I n ~ u z - C u t p c c Hodels -, Usefu lnes s or' Cons i s t ency P lann ing

The l i n i c a c i o n s o f t h e s e u.odels a r c w e l l known. F o r on r purposes

they a r i s e from (a) exogenously gLven t e c h n i c a l c o e f f i c i e n t s which niake t h e

t r e a t m e n t of e n 2 l o p e n t g e n e r a t i o a h i g h i y d e t e r m i n i s t i c g i v e n p a t t e r n s o f

f i n a l demand and (b) t h e absence of a Lizk between f a c t o r p r i c e s and p e r s o n a l

i ncoae d i s t r i b u t i o n and t h e n c e L O incoze-wise d i s a g g r e g a t e d consumption

demand patterns. Var ious a t t e q t s have 3 e e n made t o ex tend t h e g e n e r a l i t y

of t h e s e a o d e l s on b o t h couacs b u ~ t h e s e have n o t s o f a r been r e f l e c t e d i n 1 / - - . .... - -

- .., ., --.... \ ; 5 ~ . g 2 . 111 i i i c ~ .,ock u x = z n s i o n s a r e q u i t e f e a s i b l e i n n,;ny

c o u n t r i e s and would e n a b l e t h e s e n o d e l s t o b e used f o r s e v e r a l t y p e s 0; * l ' c ~ n ~ i s t e n c y e x e r c i s e s 1' i n evaluating t i e imp!.ications o f a l t e r n a t i v e d i s -

t r i b u t i o n a l s t r a t e g i . e s . - - - 3

'2 ~ n e n o s t obvious i y ? e s o f q ~ 2 s : i o n s tharr can%e examined throug:.

I - - - in;wC-oiit?iit ~ o : ~ . s i . , ~ ~ ; . c y zcde i ; a r e ~ t e " r e s o u r c e - u s c " ~ a ? l i c a t i o n s of - m -

. . 1 / 1;or ;:2c ~~~~---,~--;,~i~~, ~f ~~~i;~~-i~~>-.~y s l < ~ ~ = i ~ ~ t L ~ i ~ = -y lrL - ,--...* -.. 0 - - . A - & L -.,yLiL-"LLr,uL. . . .

- 7 , 5 .. , , . - i.,,2a~-s se.2 .c:*?- ..cry ~ c : : i tzcxct.l ~ 3 . ~ i t . 3:. ..."

A- d e s i n a S I C ; ~ c i e r c i.rc sc'i-rral

ac t e -apts a: cerivi:;;: i- I . ~ ~ . L . . L ----., c ~ s ; T ~ D L ~ ; ~ . - , . . . - . jjr ii:coae c i . 2 ~ 5 from VS;UL a a s ~ ~ : . . . S;:G - . w ~ g c - e ~ ~ ? i ~ y ~ e n : la.:;. S2c f o r exrizipie -3. !<elss;topf "A xci:i-Sec;or Si-::ul:-tion

. - x o d e l of Zi?loy-rr,enr, Srs-it;?, E;;G ,tlccz- ' J i s t r i b u t i o r . i n Puerco Xico" (Xiceo)

- - , =--.ic--srrs ~ z ~ . , ~ e d a I a z . 1 ~ 2 ~ i s t r i 5 ~ c i c n a:.< growt;-, Ere g r e a t l y exa2geratdd

.. . k<ca.:sz incoas ~ L s r r l 2 u i ; o n w h l l e i t ~ A V O ~ V ~ S s o z e c o s t s a l s o p rov ides o f f -

s 2 t z l n g advanrages. The i o s t f a a - l i a r t r a d e- o f f s i.n t h i s con tex t i s t n e

- ? ?; res t on aggregacc s2vi;gs. Thus i t i s argued chz t z g g r e g a t e s ~ v i z g s w i l l

fall i: t h e ~ z r g i c a ; s ~ v i ~ ~ s r a t e s a r e h igher a t h igher incoze i e v e i s .

h g a i x s t t h i s i t i s u s u a i i y argued char i a c o a e r e d i s t r i b u t i o n enabies sub-

s i a n z i a l econony i n the u s e of s c a r c e r e s o u r c e s . T h i s is because incoiae

c l s t r i b u t i o n w i l l s h i f t consumption p a z t e r n s i n favour of goods which

f i g u r e c o r e p r o s i n e n t l y i n t h e consumption p a t t e r n a t lower incocs l e v e l s

and i t is argued t h a t t h e s e a r e s e c t o r s w i t h lower c a p i t a l o u t p u t r a t i o s

sad a l s o lower import i n t e n s i t y i n t e r n s of b o t h i n t e r m e d i a t e requirement

aad c a p i t a l goods r e q u i r e n e n t s . This speculation has l e d co a s e r i e s of

a c t e x p t s t o conpare out?u+ and resource u s e s o l u t i o n s f o r exogefiously

v a r i e d denand p a t t e r n changes. We n o t e i n p a s s i n g t h a t t h e quantitative

r e s u l t s of t h e s e e x e r c i s e s do n o t seen t o be s i g n i f i c a n t , b u t t:?is is

probably due t o t h e very h i g h degree of aggrega t ion invo lved on t h e pro-

duct-ion s i d e . ' Y y p i c ~ l l y whereas d e t a i l e d budget s t u d i e s a r e a v a i l - b l e

~ h e s e ;:ave t o b e aggregated i n t o very broad c a t e g o r i e s t o conform wi th a

the d e t a i l usua l ly a v a i l a b l e i n t h e input- output t a b l e .

S i m i l a r CccsiStci~Cy o x c r c i s e s can b e designed t o zxp lo re t h c - - . - A L L ~ C ~f s p e c i f i c ~ L C ~ O ~ J I . C O L - I ~ L T ~ ~ ; ~ ~ ' ~ ~ p c n income d i s t r i ~ u t i o n . Thus '5 L - ;C i; i i Z C c ; ~ . - , - - ly s - . . -

L I L I I . L L L C ~ ~ i l i i t t i i ~ b ~ ~ ; ? i y o r ~ - t ; i l ~ O U C S ( r n ~ i r . 1 ~ food and

L p . - I ':;.A(. '~-r;ic.e;lt ;% : s i . r l y obvious LA. - L -- cic:..cd dcOT~3z~y

1/ - ~3 &n F q a r t a n ; c o ~ s t r a i n t . The c u r r z n t F i f t h P l a n e x e r c i s e i n i n Z i a

s x p l i c i z l y ccde rcakcs rhis t y p e of e x e r c i s e by s ? e c i f y i a g z a r g e t chmgea

i a eons.c;n?~ion l e v e l s f o r each 3: twenily s c ? a r a r e coasur;?zion e x 2 s n d i t u r e

c l a s s e s of r h e po?-a i . f ion . / The r e s u i i i a g s o l c t i o n f o r r h e s o d e l i s ex-

p z c t e d t o h i g h l i g h t t h e c u c ~ u t growt;? Lmpl i cz t ions f o r Lass c c n s l i z ? ~ i o n

goods s e c t o r s . S i n c e a z a j o r u s e of i x p a t - o u t p u t n o d e l s is t o i d e z t i f y

i n v e s tmenc L n p l i c a t i o n s ( o t a l t e r n a t l v z l a g a s s u n p t i o n s ) of ? a r t i c u l a r out-

p u t p a t t e r n s t h e s e e x e r c i s e s do p rov ide a v a l u a b l e g u i d e t o governnent p o i i c y

i n i nves tmen t r e s o u r c e a l l o c a t i o n and t i n i n g (whether by p u b l i c s e c t o r

i nves tmen t o r c o n t r o i s c:im i n c e n t i v e s f o r t h e p r i v a t e s e c t o r ) .

The c r i t i c a l weakness of t h e s e t y p e s of c o n s i s t e n c y e x e r c i s e s is

obvious on r e f l e c r i o n : t hey do n o t t e l l u s v e r y much abouz how t o a c h i e v e

t h e income d i s t r i b u t i o n a l changes whose p r o d u c t i o n i i n p l i c a t i o n s a r e be ing

examined. Th i s i s because inpu t- ou tpu t s o d e l s do n o t d e a l adequa te ly w i t h

t h e two key f a c t o r rewards and employment l e v e l s and t h e d i s t i r b u t i o n of

a s s e t s and l a b o u r s k i l l s o v e r t h e p o p u l a t i o n . Some a t t e n p t s have been lnade

+ - t i c k l e t h e second p r o b l c s by d i s t r i b u t i n g v a r i o u s c a t e g o r i e s of inco12e

,.,,AL zA7,d ,>refit i ncone ) by s e c t o z ove r ;he p o p u l a t i o n on t h e b a s i s of

. I survey d a t a on a s s e t an4 l a b o u r s k i l l d i s t i r b u t i o n . (This s t a t i s t i c a l y?-

l a t i o n s h i p nay b e assumed t o b e g iven i n t h e s h o r t p e r i o d . ) The b a s i c ;:roblem

I/ S e c t o r a l excess dsinands w i l l s p i l l o v e r i n t o t h e i3al:~nce of Payments -- w h i l e s e c f o r a l e x c e s s s u p p l i e s nay n o t b e e x p o r t a b l e . 7k.c absence of ?rites obviousby c e p r i v c s t h e model of any f l e x i j i l i t y :his r e s p e c t .

II 2 / The I ~ c i z n e x e ~ c i s e dces n o t c n d o 2 c n s - ~ s l y gene r t i l 6 iacoc.c dis;rib~t:o>. - hcwevcr s o t h a t cazge: cor,sm;,';ion chaages i;i.ply specific s o v l a ~ s r a z e s by ?ar : icu lar c l a s s ~ j . TP.e :L<;UL-C ;O i n c o r ? c r z c e i n c o ~ ~ e ge:.cra=is~~ cx;3i:<:lL1 L A Y c~:,viousiy r,xkes this e;cerc:sc n; . i n i t ~ d v<ii-ie f o r ? o l i c y s e n c c ~ c : ? i e v c 2er.t of s a v i n g s ta rge i l s & i ; ~ r c ; ~ c tl,is, i s critical.

- - LaJocr l s a v e s t h e y a r z s r , of ou:?u= a s zhe oniy Ierernlna- i t of e a p l o p e a z

l e v e l s . Th i s r i g i d i t y l e z d s t o t r c e x l s u s =?:?asis be ing ? laced u?on t:he i

II - -&our i n r e n s i v e ,se!czors" s c c h as s e r v i c e s and constrr?ccion w i t n f requen t

r e f e r e n c e s t o r u r a l ce-;zlc?zsat &id s-dl1 s c a l e i n d u s t r y which a r e :ypi.cally

~ o c s e p a r a t e s e c t o r s b u t r e? resex= i n t r a - s e c t o r a l choices .

( i i ) L i n e a r T r o g r m i n g X c l e l s

.'l'hese node l s ex tecd t h e input- output models by adding technol.ogy

ckoica ( 'DUE w i t h i n a f i x e d c o e f f i c i e n t s framework) and an op t imis ing process .

Thc uses and 1imit ; l t ions of rhese a o d e l s have been e x t e n s i v e l y discussed

1 / e i s e w h e r ~ and our co-dents a r e c :~are fore l i n l t e d t o i d e n t i f y i n g t h e i r

p o t e n t i a l c o n t r i b u t i o n t o icc0u.e d;: t r i b u r i o n ques t ioas . 'de n o t e t h a t u n l i k e

input- output models no l i n e a r programining model has been a c t u a l l y used a s

a ?'.anniag model a t t h e economy wide l e v e l a l though s e v e r a l such a o d e l s

hzve becn b u i l t a s resea rch e f f o r t s .

I t i s importanr t o recognise t h a t l i n c a r programming m d e l s t y p i c a l i y

do nor endogenously g e n e r a t e i n c o s e d i s t r i b u t i o n p a t t e r n s . They do y i e l d

shridm p r i c e s f o r a l l r e sources t h a t a r e f u l l y employed i n t h e opcirnal . t

s o l u t i o n but thesc s i ~ a d o w p r i c c r , cnnnot be i n t e r p r e t e d as market p r i c e s i n

'-.,-.:r s q s e . c f f c c t ~ b d s e m d 2 . s do sGmc a u s e f u l purFose i n i n c o r p o r a t i n g '9 .G . .

rilc ,i;lp?;.y s c t r c l z l e ; of Ic5ocr :;..-o t h e -c~;l , : if icatio;l of f e a s i j i e - - + . E - I

11 choices- b u t they do n o t n e c e s s a r i l y s i n u l a t e market e q u i l i b r i m f o r

f a c t o r p r i c e de te rmina t ion .

Some a t t e m p t s have been made i n r ecen t s t u d i e s t o i n c o r p a r a t e

market e q u i l i b r i u m behaviour in some f a c t o r markets i n L. P. models of

i n d i v i d u a l s e c t o r s . Thus a g r i c u l t u r a l s e c t o r m d e l s have been s p e c i f i e d

which i n c o r p o r a t e upward s l o p i n g supp ly curves f o r l abour . The a v a i l a b i l i t y

of l a b o u r is no l o n g e r expressed i n t e r n o + a n i n e q u a l i t y c o n s t r a i n t bu t

a s a f u n c t i o n of wages which f i g u r e as a c o s t i n s i m u l a t i n g market

2 behaviour on f a d . Note t h a t t h e o b j e c t i v e i u n c t i o n i n t h e s e models is

s p e c i f i e d t o s i m u l a t e compet i t ive e q u i l i b r i u m and does n o t have a soc : i a l

v a l u a t i o n a s p e c t . The model can then be solved t o y i e l d employmnt l e v e l s

and e q u i l i b r i u m wage r a t e s a long wi th shadow p r i c e s on those resources

t h a t e n t e r i n t r a d i t i o n a l i n e q u a l i t y c o n s t r a i n t form. Such models a r e

e s s e n t i a l l y s imula t ion m d e l s when t h e op t i m i s i n g p rocess is d i r e c t e d s o l e i y

a t f i n d i n g t h e cclmpetitive equi l ibr ium. They can b e ext remely u s e f u l

s i n c e ~ n e y p e r n i t exper imenta t ion wi th a l t e r n a t i v e s o l u t i o n s g i ~ r e n d i f f e r e n t

types of d i s t r i b u t i o n a l cons t r a i n ts o r o t h e r po l i cy i n t e r v e n t i o n s . Thus

C land a v a i l a b i l i t y c o n s t r a i n t s f o r d i f f e r e n t farm s i z e s can b e a l t e r e d in'

- 1/ Scc the paper on "Ernp loyr r~ t Planning Methodology" hy C . B l i t z e r imd - L . T a y l o r submit ted f o r t h e Wdrking p a r t y . -

C

2 1 T h i s approach was f o l l o w e d d n the s p e c i f i c a t i o n of CHAC, a s t a t i c programLng - model f o r t h e a g r i c u l t u r a l s e m o r i n Mexico.

cjnsr r a l n t s . Si-Al;:r:)- p r i c e s f o r var lzb i e suppiy resources cai; 5 e

~ _ c c r z c ;-o yLel~ d:c=~rr;&civc s i ~ d a t 5 c r . s .

canslGe:a~lsr-s I n r a zke o t j e c c i v z 5cccr ioz . T t i s Is n o t ?.owever an cver-

u:~eirnin; l o s s . Inderc t ke sinuia:ion of a i t e r c a t i v s p o s s i b i l i t i e s described

above nay wel l be t h e Eas t u s e f u l ana ly t i c21 t o o l e s p e c i a l l y when d i f f e r -

CIZ dicznsions of the d i s t r i b u t i o a p rob lea nay be r e l e v a n t a t d i f f e r e n t

t i n e s -- p roduc t i v i t y on stall v s . l a r g e farms? e n p l o p e a t of h i r e d l a o c ~ r ?

.-ural-urban wage e q u a l i s a t i o n by Lixed ninimun wages?

( i i i ) Geileral Equilibri-im Mode l :~

Tne next s t e p i n m d e l 'bui lding is obviously i n the d i r e c t i o n

or' gene ra l e q u i l i b r i m models and sane of t h e f i r s z a t t eq r s i n t h i s

d i r e c t i o n have only r e c e n t l y been unveiled.l / kTe reseerve co-nts on these

m d e i s on he grounds t h a t t h e r a i n i n t e r e s t in t h i s f i e l d az t h i s s t age

is conceptual and a l g o r i t h d c . For some tire t o cone t h e s e models w i l l

Lave a p r i r a r i l y pedagogic (although n o t uni.mportalAt) r o l e and t h i s is C . e

v , l t s i i e c'nc :;co?e of t h i s pa7cr.

. . / S c r "A ?;<cro-~cor.cx-; ::oc:cl of Kom: : E'actcr.; . 2 f f c c t L s .- i'ne 3is trib.ccLon ~f i ; l c p i : i;; ti;^ S?.O;': ;i;ill'l, by I . A l e i : a r . h 2; lC.S. L c ~ ~ ~ I s Q ~ , J s n ~ a r y , 2373; :,<;>el- .~3rij--~d f a r L?.C 3iLlagi.s :<a~k<r,j ? z r ~ y . -

(V) Cznclcsc~ns

Oxr qe:leral cor,clus:o~s c L the r c l e of p i a n ~ i n g n o l e l s i n i 1 i u i n h z L n g

- . ?o,:cy :k-.oices r e l e v i n c f o r inccze c i s c r i b u r 5 o n 32y be s - a a r i s e d as f o i i o ~ ~ s :

( i ) The a v a i l a b l e a r e a s of in tervencior , a r e a m e r o u s and may b e

d iv ided broadly i n t o two approaches: a s s e t r e d i s t r i b u , t i o n

ecc a z r k r r i aze rvenr ion i n f u n c t i o c a l incoice de te rmina t ioa .

S x ; > e n d i r ~ r e ? o l i c y provides zn op?or tun i ty t o coiiibine Soch

approaci-es .znL a l s o u d e r t a k e "marginal consun?tion t r a a s f e r s ."

( i i ; Both a s s e t r e d i s t r i b u t i o n and ~ a r k e t i n t e r v e n t i o n have t h e i r

i i m i t a t i o n s and a s s o c i a t e d c o s t s . The s u i t a b i l i t y of one ~ p p r o a c h

o r t h e o t h e r w i l l depend upon o t h e r "stru. : tural fac tors ' '

( i i i ) So econoriy wide planning madel exists which w i l l s u f f i c i e n t l y

q u a n t i f y t h e e f f e c t s of a l l the v a r i o u s p o l i c y a l t e r n a t i v e s .

C e r t a i n l y t h e s e a l t e r n a t i v e s cannot be c a s t i n t o an op t imis ing

framework f o r planning purposes.

( i v ) Some p a r t i a l o r "consistency" t y p e e x e r c i s e s csn be conducted--- -

using a v a i l a b l e planning. models of t h e input- output type and a l s o ". .. '

L.?. models. A major problem w i t h t h e s e e x e r c i s e s is t h a t :hey

do n o t focus on t h e key i s s u e of how t o change incone d i s t r i b u t i o n ,

except f o r some f a i r l y star ,dard *esc r ip t i o n s , e . g . , emphasising

" labour i n t e n s i v e s e c t o r s o r under taking l and reform. -

These conc lus ions &oulc not b e c lassed a s " p e s s i n i s t i c ." Thcy - .* L

~ l r e s i n p l y a r e f l e c t i o n of he e n t i r e l y p l a u s i b l e p r o p o s i ~ i o n t h z t we 'krAow - * *

r c l a ~ i v c l y l i t t l e &bout t h e 9 r u e long t e r n s t r x . : t u r a i f l e x i b i l i t y of t h e b e

ecoaon:gr i n g s n e r a c i n g a i c ~ r a a t i v c incoce d i s 2 r i b u t i o a p z t t e r n s .