Marketable surplus and dual development
Abstract This paper investigates partial planning in a dual economy with a planned “advanced” industrial sector and a “backward” peasant-owned agricultural sector. The major problems in such an economy are shown to arise owing to political and institutional difficulties of manipulating peasant behavior. Peasants dictate the supply curves of labor and food to the industrial sector. The planner must accept these constraints and devise indirect policy tools for development. Those considered here are pricing policy for food and investment in agriculture. The government is assumed to have a total monopoly position in buying food from peasants and selling it to industrial workers. The interdependence between the two sectors via the labor and food supplies has a crucial bearing on the optimal price policy, and the paper derives a formula which defines the policy in terms of supply and demand elasticities for food. These latter may make it optimal to tax or to subsidize the trade in food using the monopoly position, so that good estimates of the empirical relations are necessary before this important policy tool can be put to practical use. Investment in agriculture emerges as another vital tool, in contrast to the models which neglect the institutional aspects of the dual economy. Even a target of rapid industrial growth is shown to lead to balanced growth in the long run; and, if capital is very scarce at the beginning in agriculture, an initial phase of specialization of investment to agriculture is shown to be necessary.