Consumer Goods Or Capital Goods—Supply Consistency In Development Planning (Notes and Comments)

In: The Pakistan development review: PDR, Band 8, Heft 1, S. 104-110

Abstract

Everyone who has heard of Harrod-Domar realises that growth
targets imply something about savings rates. But growth targets also
imply something about the availability of capital goods. The business of
economic planning, as Winston points out [1], is to ensure compatibility
between the Harrod-Domar and the Mahalanobis constraints. If domestic
savings exceed the availability of domestic plus foreign capital goods,
two "despised alternatives" confront the economy: inventory accumulation
or slower growth. To avoid this unhappy predicament, Winston outlines
three remedial policies. Our purpose is to suggest that the Harrod-Domar
and Mahalanobis constraints may not be independent. Remedial policies
aimed at that larger capital goods supply may affect the private and
public savings rates and the growth of income. These suggestions are
hardly novel [2]. They turn on re¬placing the proportional savings
function with a classical savings function (i.e., one which specifies
private savings rates by economic sector), on distinguishing tax rates
by type of domestic production and imports, and on stipulating a
connection between consumer-goods production and import of raw materials
for the consumer industries.