Merely to announce goals is not planning if measures are not put into operation, which will move resources in the required directions.
THE FIRST question that the government has to decide with respect to the attainment of the announced goals is how much it should do itself, and how much it should leave to private enterprise. The second question is, for that part of the plan which is left to private enterprise, how should the government ensure that private enterprise moves in the right direction?
We are not expected to enter into a political debate on the limits of government enterprise, and we do not propose to do this. We wish to make only two points. First, the list of functions which the government must fulfill is much larger than is generally realized in most under-developed countries. And secondly, if the governments of such countries were to try to do all the things which they and only they can do, they would find themselves so fully occupied that they would be reluctant to take on anything that could be done better or equally well by private enterprise.
We have already discussed at length various governmental functions, the inadequate fulfillment of which handicaps economic development. Here we mention only one or two which stand out in the light of the priorities discussed in the preceding chapter. For example, the governments of under-developed countries have special responsibilities for promoting industrialization, by such means as establishing marketing surveys, building industrial centers, financing technical training, setting up development corporations and development banks, and so on.
Similarly, very few governments are tackling adequately their responsibility for the improvement of agriculture, by providing capital for small farmers, financing an extension service, or trying to ensure a sound economic structure for agriculture. These are two spheres where governments could make a very large contribution to economic development if they would play their part.For that part of the development program which is left to private enterprise, the government has a choice of two methods of trying to secure that private enterprise carries out the program. First, it can, by means of taxation and subsidy, so adjust the economy that private enterprise finds it most profitable to do the things which the program calls for, and therefore moves naturally into those directions without other controls.
Alternatively, the government can try to direct private enterprise, by licence, quota and authorizations, thus making it illegal for private enterprise to do a number of otherwise very profitable things. For short, we call the first of these the method of inducement, and the second the method of direction.Each method has its disadvantages which are the corresponding advantages of the other. Thus, inducement is sometimes costly; works slowly at best of times and in some situations does not work at all. Direction, on the other hand, can be worked only by a bureaucracy, which is itself costly and liable to corruption. It gives rise to black markets; it causes great irritation and frustration which is of considerable political significance, especially when applied to labour; and it cannot be applied to new foreign resources that have to be attracted from abroad.
Inducement is best where one is trying to move only marginal quantities of resources which are highly sensitive to differential rewards. But if the quantities to be moved are large, and the movement must be rapid, it usually has to be done by direction.Each government must choose for itself the appropriate combination of inducement and direction as means of controlling private enterprise. In either case, of course, it is difficult to achieve precise objectives. The most that governments can hope to do is to start resources moving in the desired directions; the movement can seldom be controlled precisely in quantity or speed.
A further consequence of the difficulty of controlling the economy is that it is better to concentrate on operating a few strategic controls than to try to control every nook and cranny of the economy. What is strategic varies from economy to economy; it may be land, or labour, or foreign exchange, or finance, or some other scarce factor. A factor is strategic in this sense if it is essential to most economic activities, if the government is able to control the whole of its supply, and if entrepreneurs cannot easily substitute other factors for it.
By controlling a small number of strategic factors, the government can thus determine the pattern of the whole economy.One of the most difficult problems connected with the planning and directing of economic activity is the tendency towards excessive centralization which discourages individual effort. The only way of meeting this is to be on one?s guard constantly and to ensure that the political and economic planning mechanism provide the fullest scope, at each stage, for individual and local participation. Apart from any emergency decision or action, the preparation of plans and the determination of goals should be effected by a process of building up from local and regional proposals and the implementation or execution of plans should also be made through a series of graded regional and local authorities, enjoying as large a measure as possible of autonomy in adjustment and adaptation.