Economic Planning in the Netherlands, France, and Italy

Author(s): Stanislaw Wellisz

Source: Journal of Political Economy , Jun., 1960, Vol. 68, No. 3 (Jun., 1960), pp. 252-
283
Published by: The University of Chicago Press

Stable URL: https://www.jstor.org/stable/1829113

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 ECONOMIC PLANNING IN THE NETHERLANDS,
FRANCE, AND ITALY1

STANISLAW WELLISZ

University of Chicago

I. INTRODUCTION tions. Finally, I shall attempt to evaluate

SINCE the end of World War II

the impact of planning on the economic
life of the nations.
several western European coun-
tries have experimented with eco- II. LONG-TERM PLANNING
nomic planning within mixed systems, in
The long-term economic plans of the
which private enterprise continues to
Netherlands, France, and Italy are pro-
play an important part. Economic
planning in such countries consists of two
jections of the optimum possible course

processes: forecasting the activities of the

of development rather than policy blue-
prints. The plans-explicitly or im-
private sector and translating national
plicitly-carry policy recommendations,
policy goals into concrete patterns of
but actual economic policy is molded by
governmental action.
short-term considerations and is often
The purpose of this paper is to analyze
strongly influenced by developments ex-
the logic underlying the economic plans
ogenous to the national economies. Never-
of the Netherlands, France, and Italy.
These three countries were chosen be-
theless, the plans indicate broad policy
goals, and the recommendations con-
cause of the diversity of economic prob-
tained in the plans have an undeniable
lems and of approaches toward planning
influence on short-term governmental
which they represent. In analyzing the
decisions.
plans, I shall expose and criticize the
Of all the long-term plans prepared by
assumptions made in the planning models
the planning offices of these countries,
and check the plans for possible logical
the one produced by the Netherlands
inconsistencies. I shall also discuss how
Central Planning Bureau is the most
the conceptual frameworks of the plan-
explicit as to its goals and the most
ners affect their policy recommendations
rigorous in its methods. I shall, therefore,
and what recommendations could be
discuss it first, hoping to throw some
made on the basis of alternate assump-
light not only on the Dutch plan but also
1 Research for this paper was financed by a grant
from the Graduate School of Business, University of on the plans of France and Italy, which
Chicago. I am heavily indebted to the staffs of the are couched all too often in vague and
Netherlands Central Planning Bureau, the Com- elliptical terms.
missariat au Plan, and SVIMEZ (Association for
the Development of Industry in the Mezzogiorno)
A. THE NETHERLANDS PLAN FOR 1950-702
for their generous help and hospitality. I have most
especially profited from frequent conversations and The principal purpose of the Dutch
debates with Professor P. J. Verdoorn, M. Hirsch,
twenty-year plan (1950-70) is to explore
and Professor Saraceno. The opinions expressed in
this paper are, of course, my own, and they are 2 On the subject of the Dutch long-tern plan see
often strongly at variance with the opinions of the Central Planning Bureau, Scope and Alethods of the
institutions and individuals who have made this Central Planning Bureau (The Ilague, August,
study possible. 1956), Part II, chap. ii, and P. J. Verdoorn, "Comn-

252

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 ECONOMIC
"how as favorable a development as pos-
sible with respect to national income"
can be achieved through the proper ap-
plication of economic policy. The income-
maximizing process is subject to limita-
tions imposed by the exogenous vari-
ables, that is, by variables which are
determined from outside the Dutch
economy. These-in addition to the
growth of the Dutch population-include
economic entities determined by the
world markets. Inasmuch as neither
Dutch exports nor Dutch imports weigh
heavily in the world's totals, it is legiti-
mate to assume that the ratio between
prices paid by Dutch importers and the
prices of goods competing with Dutch
exports is determined exogenously. The
world demand for Dutch exports is also
subject to changes independent of the
prices charged by the exporters.
Further limitations on income maxi-
mization are imposed by the cost of
further expansion of native production
of certain raw materials and by two
policy imperatives. These are the main-
tenance of full employment and the
equilibration of the balance of payments
without recourse to currency devalua-
tion.
To achieve its policy goals, the govern-
ment can rely on a number of tools. The
government determines fiscal and mone-
tary policy, grants emigration subsidies,
and has an importan t voice in the de-
termination of the general wage level.
The variables most immediately influ-
enced by the government's actions are
"instruments," in the planning bureau's
parlance. These are savings as percentage
of national income, the annual rate of
plementarity and Long-Range Projections," Econo-
metrica, XXIV (October, 1956), 429-50. Both of
these sources present the complete planning model,
which will be discussed only schematically in the
present article.
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PLANNING 253
change of export prices relative to im-
port prices, the annual rate of emigration
of the working population, and the
annual rate of domestic substitution for
import goods.
The long-term planning model makes
the assumption that within the Dutch
economy there are certain psychological
and technological invariants. These in-
variants can be deduced from historical
data and used to predict future develop-
ment. Given the initial values of the
variables in the system, and given esti-
mates of the development of the ex-
ogenous factors and the values chosen for
the "instruments," it is possible to de-
termine the income per capita over the
planning period.
The psychological assumptions which
enter the Dutch planning model are em-
bodied in a consumption function and a
supply-of-labor function. For the pur-
pose of the long-term model it is assumed
that the supply of savings is equal to a
constant fraction of national income
minus capital exports-. The supply-of-
labor function links the supply of labor
(net of emigration) to the per capita in-
come by means of an elasticity co-
efficient.
The technological constants assumed
by the plan link the demand for labor
and the demand for capital to the level of
gross national product by means of
elasticity coefficients. Given the level of
gross national product, there is only one
possible level of employment and one
possible amount of capital which can be
used to produce that gross national
product. Conversely, given the amount
of available labor it is possible to deter-
mine the amount of capital needed and
the gross national product.
The technological assumptions made
by the plan mean that no factor substi-
tution is possible. They also mean that
 254 STANISLAW WELLISZ
in a closed system the problem of income
maximization cannot arise aside from
the problem of full employment. Per
capita income is maximized if all workers
are employed, and full employment of a
given labor force requires a uniquely de-
fined capital stock. However, in an open
economy this is not so, since, with a given
level of gross national product, national
income can vary depending upon the
volume and terms of foreign trade. Thus
the Dutch long-term planning problem
reduces itself to the choice of the level of
imports calculated to maximize per
capita income.
According to the planning model, the
level of Dutch imports is determined by
the level of Dutch production, the level
of Dutch exports, and the extent of im-
port substitution. The following import
demand equation is used:
mn = in* - V ()vertI
? (v)
where m is the quantity of import de-
manded, m* is the quantity demanded in
the base year, v is the gross national
product, -q is the partial elasticity into
of im-
the determination of national in-
port demand in respect to the share of
exports in the gross national product, gu
is the partial elasticity of import demand
in respect to the gross national product,
and a- is the import substitution rate. It
is characteristic that import substitu-
tion is treated as a trend factor, though
formally it is placed among the instru-
ments.3
3The "import substitution rate" is a term used
by the Netherlands Central Planning Bureau to indi-
cate the rate of replacement of imports by domestic
substitutes. It is clear that the import-substitution
rate is a function of (a) relative costs of production,
(b) technological changes, and (c) policies changing
the degree of protection granted to industries
competing with imports. Frequent changes in the
degree of protection are not permissible under the
various international agreements, however, so that
the treatment of the "import-substitution rate" as
an instrument is not justifiable.
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The equation used to determine the
quantity of Dutch exports links exports
to the ratio of Dutch export prices p to
the price level of competitive exports, p":
b = b,,e#' I +E (Pp.-)
where the coefficient / represents the
annual rate of change in the autonomous
component of export demand and e the
price elasticity of exports. A linkage of
the system to the world price level is also
made through the import-supply equa-
tion and in the capital-export-supply
equation, which are, respectively,
m = qbP1
and
V= (1- q) bp,
where p' is the price level of imports
(used as a numeraire for the whole sys-
tem), b' is capital exports, and q is the
ratio of imports to exports at current
prices.
Inasmuch as imports and exports enter
come, the system is not homogeneous
with respect to the absolute price level.
Moreover, the number of degrees of
freedom corresponds to the number ot
policy tools, so that a unique income
maximum can be obtained for the year
1970. The maximum as well as the
policy action necessary to achieve it de-
pend, of course, upon the exogenous
factors. Thus three variants of the
"plan" were prepared to take into ac-
count three possible patterns of future
exogenous demand for Dutch exports.
The Dutch long-term plan stands and
falls with the assumption of long-run
factor complementarity. The authors of
the plan admit that the complementar-
ity hypothesis gives a "one-sided" pic-
 ECONOMIC PLANNING 255

ture of reality, but they insist that such to "neutral" in the Harrod-Joan Robin-
a hypothesis should not "be regarded as son sense, we should not expect any
unrealistic for projections that cover a major variations in the observed aggre-
period that is sufficiently long to cancel gate coefficients.
out the effect of cyclical fluctuations but From the observation that coefficients
not too long to be affected by changes in have remained relatively stable follows
the economic structure of a secular char- the Edgeworthian "unverified probabil-
acter." This claim is supported by the ity" that they will do so in the future.
observation that "the coefficient p of the Such probability does not justify the use
labor-demand equation a = P has shown of fixed coefficients for planning pur-
itself of sufficient stability to be used for poses. The use of fixed coefficients is
projections covering one or two dec- equivalent to the postulate that there is
ades."4 The same claim is made for the no equilibrating mechanism within the
capital coefficient X of the equation K economy.
= In a closed system this means
Kyx. Moreover, the curvilinear relations that for a given rate of growth of income
used in the Dutch plan are claimed to be there is a unique rate of growth of capital
''more satisfying from a theoretical point and of labor. In the absence of an equi-
of view" than the simple fixed-coeffi- librating mechanism one of the factors
cients hypothesis because the Dutch ap- will be redundant-except by sheer
proach allows for increases in productiv- accident.
ity as production expands over time.5 The role of the planning agency in a
The argument for using the long-term fixed-proportions, closed economy is to
factor-complementarity assumption in a maintain the factors in the proportion
planning model deserves careful con- prescribed by the plan. The use of
sideration. There are grave doubts as to curvilinear relations and the open-
the correctness and the significance of economy model do not change this
the observation that factor proportions fundamental fact. The curvilinear ap-
tend to remain fixed. It is quite probable proach allows for changes in factor pro-
that the apparent factor fixity results portion with the growth of stock. As a
from crudeness of observation. Factor description of past behavior such an ap-
proportions vary widely from industry proach might indeed give a more exact
to industry, and intersector proportions picture of reality. As a fundamental as-
do not remain absolutely fixed within sumption in the planning model it does
nothing to relieve the inherent fixity.
a period of fifteen years; hence the aggre-
gate changes also. What is more im- The use of fixed proportions for long-
portant, the observed fixity of factor term models is therefore incorrect, and
proportion results from the actions of theit may readily lead to mistaken policy

market mechanism. With the elasticity recommendations. For example, the plan

of substitution in the typical production excludes all measures leading to faster

function not too much different from
unit elasticity, with a policy which keeps
interest rates within conventional
bounds, and with progress that is close
4 Verdoorn, op. cit., p. 443.
Ibid.
capital accumulation and to replacement
of labor by capital. It is characteristic in
this connection that accelerated deprecia-
tion is held in poor repute in the Nether-
lands. Some see in it a (rather weak)
antirecession tool. Accelerated depre-
ciation is not deemed to lead to capital

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 256 STANISLAW WELLISZ

deepening. It is likewise characteristic sector capital allocation; therefore, the

that no attention is paid to the possible actual importance of the detailed 1970
ill effects of the Dutch wage-restraint forecast is very limited.
policy. Such a policy is pursued to pre-
B. THE VANONI PLAN
serve a balance-of-payments equilibrium.
The purpose of the Italian plan for
In a fixed-factor proportions model a
1955-64 (known as the Vanoni plan)7 is
wage-restraint policy cannot do any
to demonstrate that, if the proper policy
harm (beyond the low wages of the wage-
is pursued, it will be possible within the
restrained workers). In actual fact, re-
planned period (1) to create jobs for the
straints on wages may act as a disin-
two million unemployed and two million
centive to modernize and to increase the
expected new entrants into the labor
capitalization of plants and, indirectly,
force; (2) to maintain a 5 per cent
may slow down economic growth
annual rate of increase of national in-
While the assumptions underlying the
come; (3) to eliminate a 170-billion-lire
planning model influence governmental
annual trade deficit; and (4) to narrow
policy, the projection contained in the
the economic gap between northern and
plan may have some influence on the
southern Italy. Thus the plan contains
private sector. Although there is no way
three fixed goals and one flexible goal.
to gauge the extent to which the plan
The growth of the labor force is handled
influences private investment decisions,
as an exogenous variable. Exogenous fac-
the influence is probably quite small. The
tors are also considered in the discussion
plan foresees a rather slow rate of per
of the Italian foreign balance. All other
capita income growth-14-13 per cent
variables are determined endogenously.
per annum over the fifteen-year period.
The planning model underlying the
Should that projection be taken very
Vanoni plan is not stated explicitly, but
seriously, it might slow down investment
it can easily be reconstructed from in-
in the private sector.
ternal evidence. The basic assumption of
In addition to the macroeconomic fore-
the plan is that, given the state of
cast, the Central Planning Bureau pre-
technology, the capital/output and la-
pared a forecast by sectors for the year
bor/output ratios are fixed in all sectors
1970. That forecast was made by apply-
of the economy. If we want to know how
ing an input-output coefficient observed
much investment will be needed to em-
in the late 1940's to the total volume of
ploy a given number of workers in any
production predicted for 1970. Finally, a
industry, we can readily obtain the
regional projection was made by simple
answer by multiplying the number of
extrapolation of the location trends ob-
workers by the incremental capital/
served in the 1890-1950 period.' The
7 The basic document on the Italian ten-year
regional projections and projections by
plan is the Schema di sviluppo dell'occupazione e del
sector are occasionally consulted when reddito in Italia nel decennio 1955-64 (hereinafter
long-range public investments are referred to as the "Vanoni Plan"). Quotations are
from, and page references are to, the second (un-
planned. Except for public projects, the changed) edition of the plan (see Presidenza del
government does not interfere in inter- Consiglio dei Ministri, Documenti sul programme di
suiluppo economics [2d ed.; Rome: Istituto Poligrafico
6 The detailed forecasts will be found in Central
dello Stato, 1957]). For a brief summary of the
Planning Bureau, Een verkenning der economiscihe plan see "The Vanoni Plan for the Economic
Development of Italy," International Labour Review
toekomstnogelijkheden van Nederland, 1950-1970 (The
Hague, 1955). Vol. LXXI, No. 6 (June, 1955).

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 ECONOMIC PLANNING 257

labor ratio. Unlike the Dutch plan, the The dual assumption-that at any
Vanoni plan does not assume that the point of time the capital/output and the
aggregate capital/labor ratio is constant. labor/output coefficients are constant
On the contrary, it is supposed that the but that such coefficients change with
ratio will change, and the extent ot the technological progress-is closely par-
change is predicted on the basis of fore- alleled by the Netherlands Central Plan-
seen technological developments and ning Bureau linkage of output to other
probable changes in the composition of factors by means of elasticity coefficients.
national product by broad sectors of As we have seen, such elasticity co-
activity. The changes in composition are efficients express increasing returns to
computed on the basis of the experience scale as well as technological progress
of countries which are more advanced over time. The particular formulation
industrially than Italy. Given the prob- used in the Vanoni plan, however, is un-
able capital/labor ratio in each sector, fortunate. It stated explicitly that the 5
and given the relative weights attached per cent per annum increase in national
to each sector, it is thus possible to cal- income is a policy goal and that a higher
culate the amount of capital formation rate of productivity increase would en-
needed in future years to achieve and danger the Italian full-employment pro-
maintain full employment. gram by devoting too much capital to
In the industrial sector, for instance, modernization purposes and not enough
the employment of 3.2 million additional to the creation of new jobs. The implica-
workers at constant productivity requires, tion of this statement is that productiv-
according to the calculation, a net in- ity increases are a function of the rate of
vestment of 4,800 billion lire and yields investment. This implies, in turn, that
an additional net increase in income capital and labor are substitutable, that
equal to 2,900 billion lire, the incrementalis, that factor proportions are not fixed.
capital/output ratio being 1.65. The If this implication is accepted, the entire
other sectors (housing, agriculture, pub- calculation of investment needed to at-
lic utilities, and public works) would ab- tain a given level of employment be-
sorb only 800,000 workers at a much comes meaningless.
higher incremental capital/output ratio.8 A second disturbing feature of the
The Vanoni plan assumes also that it calculation lies in the choice of co-
is possible to determine a coefficient efficients. The "modernization" co-ef-
linking capital investment to the incre- ficient is clearly lower than the incre-
ment in output that would result if labor mental capital/output ratio. Since the
input were held constant. It is calculated "modernization" coefficient represents
that, i o increase productivity in indus- the marginal return on capital invest-
try by 3 per cent per annum, it is neces- ment applied to new technology, while
sary to invest 3,000 billion lire over the the incremental capital/output ratio
ten-year period. This investment will represents the average return to capital
yield a net addition of 2,500 billion lire in old techniques, the lower value of the
to national income. Thus the "modern- former implies that innovations would
ization capital/output coefficient" is 1.2, be pushed much further and no new
with the labor force kept constant.9 workers would be hired if decisions were
8 Vacnoni Plait, p). 75-85. left to profit-maximizing entrepreneurs.
1 Ibid., p. 22 and passim. A further structural assumption which

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258 STANISLAW
requires special comment concerns the
intersectoral relationships prevailing
within the economy. The plan assumes
that there exists a complementarity
relation among sectors such that the ex-
pansion of one sector will bring about an
expansion of other sectors. The relation
is not absolutely rigid (it changes with
the nation's income level), and it is
subject to a time lag. Nevertheless, it is
assumed that a government-sponsored
expansion of so-called propulsive sectors
over which the government has control
will bring forth the expansion of other
sectors as well.
According to calculations based on the
sector complementarity hypothesis, an
11,000-billion-lire investment in the
''propulsive" sector would provide
stimulus for the 10,600-billion-lira pri-
vate investment needed to create the 3.2
million new jobs and to increase per
capita output by 5 per cent per year. The
number of jobs created in the "propul-
sive" sector, which includes public utili-
ties, public works, and agriculture, would
be negligible. Investments in this sector
would, however, stimulate investment in
other branches of industry because (1)
the "propulsive" investment would in-
crease direct orders for products of other
sectors (for example, cement would be
needed for public construction); (2) the
income paid out in the propulsive sector
would increase total effective demand;
and (3) the increase in social overhead
capital (for instance, building of roads
and power lines) would lower production
costs in the private sector and therefore
increase the profitability of investment.
Certain "propulsive" investments--for
instance, land-melioration projects- are
dictated by social and political rather
than by purely economic reasons. The
expected increase in agricultural output
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WELLISZ
will, however, decrease Italy's depend-
ence on food imports.
Since there is a time lag between the
propulsive stimulus and the private sec-
tor's investment response, and since the
exact quantitative effect of the response
cannot be known, the planners have de-
cided to treat investment in the housing
sector as equilibrating investment. The
housing sector's investments of 19,000
billion lire would be concentrated during
the early years of the plan and could be
expanded or decreased, depending on the
developments in the industrial sector.
To achieve the investment program
demanded by the planned goals, the
gross-investment/gross-national -product
ratio would have to rise from 21 per
cent in 1954 to 25 per cent in the final
year of the plan. The marginal pro-
pensity to save would therefore have to
rise from 26 per cent in 1954 to 35 per
cent during the entire duration of the
plan.10 Since the employment of the
additional workers would increase ag-
gregate consumption by 6 per cent, the
consumption of the remaining sectors of
the economy would have to be held down
even more than the figures indicate. Thus
the consumption of all workers could be
permitted to rise only by 30 per cent,
notwithstanding a 64 per cent increase
in the gross national product.
The balance-of-payments calculation
of the Vanoni plan is made on the as-
sumption that the investment program
can be fulfilled without changing the
purchasing-power parity of the Italian
currency relative to other major cur-
rencies. To show that the deficit on the
current balance will disappear, an indus-
try-by-industry analysis is presented.
For instance, food imports are calculated
by taking into account the income elas-
ticity of demand for food and the in-
10 Ibid., pp. 97 ff.
 ECONOMIC PLANNING 259

crease in native food production ex- capital can act as a propulsive factor in
pected to be achieved in the ten-year a settled and developed country. The ab-
period. Thus, while historically Italy's sence of lines of communication might well
marginal propensity to import food has prevent the development of industry; this
been very high, her dependence on does not mean that industrywill develop if
food imports in the future should be such lines are provided. Building ahead of
lessened."' demand will in general lead to capital
The Vanoni plan served the important waste rather than more rapid growth.
propaganda purpose of demonstrating In this connection it is disturbing to note
that Italy's major economic problems the absence of cost-benefit calculations
could be solved within the existing in- from the Vanoni plan and from the many
stitutional framework in a ten-year technical drafts which preceded the plan
period. Since the plan was never imple- itself.
mented, it is all too easy to dismiss its To show how a different planning
policy importance. It is true that the model would lead to different policy
actual figures quoted in the plan are not recommendations, let me make an as-
translated into annual budgets of the sumption which is opposite to that of the
government. However, the plan serves as Vanoni plan, namely, that factor pro-
an authoritative presentation of Italy's portions are flexible. Under this assump-
economic problems. As such, it molds tion secular unemployment is caused by
the economic thinking and the economic barriers to factor substitutions; accord-
policy of the ruling Christian Demo- ingly, policy recommendations would
cratic party. seek to remove such barriers.
As was the case with the Dutch While a complete analysis of rigidities
twenty-year plan, the crucial policy in the Italian system is well beyond the
recommendations of the Vanoni plan scope of this paper, one or two examples
stem from the assumption of fixed-factor will serve to illustrate the general nature
proportions. Unemployment can be ot the policies to which the assumption
cured only through the creation of a leads. The existence of a large pool of
larger volume of capital. The second key unemployed proves that the cost of labor
assumption is that the creation of more is higher than the marginal-value prod-
social overhead capital will also bring uct of the entire stock of workers. The
forth private investment. These as- cost of labor could be decreased by
sumptions strengthen the case for public breaking the link between wages and
investment and lead to a neglect of social security taxes, which now add
profitability calculations for public pro- some 30 per cent to the annual labor cost
jects and of needed institutional reforms. over and above the basic wage. If the
It is readily conceivable that poor social security payments were connected,
communication and lack of other "social" say, with the value added by manu-
capital can hamper economic growth. facturing, the disincentive to hire more
labor would be diminished. The removal
The removal of specific bottlenecks is
of all restrictions to the discharge of
indicated for the promotion of economic
workers would serve a similar purpose.
activity. However, it is very doubtful
If necessary, the discharged laborers
whether investment in social overhead
could be compensated from general taxa-
11 Ibid., pp. 101-9. tion funds.

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 260 STANISLAW
Unemployment would also be miti-
gated by measures serving to increase
the marginal revenue product of labor.
A vigorous policy aimed at monopolies
and at restrictive trade practices would
be indicated. An analysis of the Italian
financial market points to the necessity
of improved credit facilities for small and
medium enterprises. Reforms of the
equity market are also in order.
It must be said in defense of the
Vanoni plan that it foresees a narrowing
of the gap between the value of labor's
product and the cost of labor. Under the
plan, productivity per worker should rise
at a rate of 3 per cent per annum, while
consumption per employed worker will
rise by 2- per cent per annum. These
figures seem to indicate a rate of growth
of wages inferior to the rate of growth in
productivity unless (as is most unlikely)
the plan assumes that workers will have
a 25 per cent marginal propensity to
save. But the narrowing of the gap is the
result of a calculation of the volume of
investment goods needed. It is not a
policy aim, and it may be easily disre-
garded by policy makers.
The analysis of the Vanoni plan leads
to the conclusion that the plan was an
important political and social document
but that its policy influence is harmful.
The planning model promotes the idea
that any public investment is good in-
vestment, and it detracts attention from
reforms vital to restoring Italy's eco-
nomic health.
C. THE PROSPECTS 1 OF THE FRENCH
ECONOMY, 1956-65
The French plan for 1956-65 was
developed to provide a long-range frame-
work for the third French triennial plan.
The ten-year plan is not, strictly speak-
ing, a plan but a forecast of probable
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WELLISZ
future developments. It enumerates no
goals and proposes no policies. Such tasks
are left to the three-year plans. The
longer-range plan assumes that the short-
term plans will be carried out success-
fully, that is, that full employment will
be maintained, that the economy will
grow rapidly, and that there will be no
deficit on foreign account.12
The methodology of the French plan
needs little comment; it is much closer
to the forecasts familiar to the readers of
the American financial press than it is to
the rigorous Dutch approach. Unlike the
Dutch plan, the French projection does
not try to discover how fast the economy
can grow if an optimal policy is pursued.
The growth of productivity (in two
variants, "high" and "low") is taken as
a datum. Starting from this datum and
from a forecast of active population
growth,'3 the plan calculates the growth
of gross national product and its com-
position, source, and destination. Con-
sumption, investment, and expenses of
the governmental sector are also calcu-
lated, and the individual projections are
checked for internal consistency.
The two variants of the French ten-
year projection are based on the assump-
tions that the average productivity per
worker would increase at a rate of 3 per
cent and 4 per cent per annum, respec-
tively, compared with a 3.5 per cent
annual increase registered in 1949-59.
These figures were obtained by making
"high" and "low" estimates for agri-
culture, industry, transport, commerce,
12 Ministere des Affaires ]conomique~s et Finan-
cieres, Commissariat G6n6ral au Plan et Service des
Etudes fconomiques et Financieres, P'erspectives de
l'conomie franqaise en 1965 (Paris, Ju.ne, 1956).
13 The estimates of active population were ob-
tained from demographic data, estimates in changes
in school-leaving and retirement ages, estimates of
length of military service, etc. (ibid., pp. 14-20).
 ECONOMIC
and service."4 Jn example
figure, attention was paid to the probable
shifts in the future distribution by occu-
pation. Agricultural employment is fore-
seen to decrease by 19 per cent, for in-
stance, and domestic service by 8 per
cent, while other service industries grow
by 17 per cent and industry by 15 per
cent. These estimates were made by
projecting past trends and by modifying
the projections on the basis of composi- on "direct estimates by sector of activ-
tion of employment in more advanced
countries.
The two variants of the projection re-
sult in a global growth of gross national
product of 45 per cent and 63 per cent,
respectively, and in an annual rate of in-
crease of from 4 to 5 per cent. The global
increase in per capita gross national
product would equal 38-45 per cent."5
These figures contrast with the Dutch
prevision of a 14-14 per cent rate of
growth. This difference is startling, but
the postwar experience of France and the
Netherlands lends credence to the sup-
position that France will continue to
grow faster than the Netherlands."6
The French ten-year projection is
aimed at providing a framework for de-
tailed French plans. The projection
carries no policy recommendations, yet it
has certain policy implications. As an
14 The following annual increases in productivity
by branch of economy were assumed in the two
variants:
PERCENTAGE OF ANNUAL
INCREASE IN
PRODUCTIVITY
I) RANCH OF THE ECONOMY Variant I Variant 11
Agriculture ............... 3.5 4.0
Industry . ................ 3.0 4.0
Transport ................ 3.0 4.0
Commerce ....... ........ 2.4 3.2
Services ................. 2.5 3.5
Source: Ministere des Affaires Pconomiques et
Financieres, Commissariat Gen6rale au Plan et
Service des Ptudes I conomiques et Financieres,
Perspectives de l'conomie franqaise en 1965 (Paris,
June, 1956), pp. 21-22.
15 Minister des Affaires ?conon-iiques et Finan-
cieres, Op. cit., pp. 20-22.
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PLANNING 261
arriving we shall analyze
at theanimplica-
aggrega
tions concerning the desired rate of
capital accumulation.
In 1954, 18 per cent of France's gross
national product was devoted to gross
savings. According to the ten-year pro-
jection, that percentage would have to
rise to 19.4 per cent in the slow-growth
variant and to 20 per cent in the fast-
growth variant. These figures are based
ity" and checked "by the so-called
capital-coefficient method. "17 It would
thus seem that, if policy-makers desire a
5 per cent rate of growth, they must
strive for a gross investment equal to 20
per cent of gross national product and
that, if they are satisfied with a 4 per
cent rate of growth, it will suffice if 19.4
per cent of gross national product is in-
vested. These implications are quite er-
roneous, as we shall see. A crude calcula-
tion reveals that the implicit incremental
capital/output ratios of the two variants
are 4.9 and 4.0, respectively.18 Since the
two variants assume the same rate of
growth of active population and the
same distribution of population among
economic sectors, the difference in the
16 According to United Nations statistics, French
industrial production has been growing considerably
faster than Dutch production, as shown by the fol-
lowing figures:
INDEXES OF INDUSTRIAL PRODUCTION IN
WESTERN EUROPE
(1953 = 100)
1957 Third Quarter, 1959
France ....... 145 154
Netherlands ...... 126 137
Source: United Nations, Economic Bulletin
for Europe, Vol. II, No. 3 (1959).
17 Ministere des Affaires tconomiques et Finan
cieres, op. cit., pp. 29-31.
18 Under the two variants the rate of growth of
gross national product, zAY/Y, equals 4 per cent
and 5 per cent per annum, respectively. The ratios
of gross investment to gross national product, I/ Y
equal 19.4 per cent and 20 per cent. Dividing I/ Y
by AY/Y, we obtain incremental capital-output
ratios of 4.9 and 4.0 for the two variants.
262 STANISLAW WELLISZ

incremental capital/output ratios must
reflect a difference in the marginal pro-
ductivity of capital. Since the second
variant shows a higher marginal produc-
ductivity of capital at a higher rate of
investment, it must assume more rapid
technological progress.
The implication of the difference in
assumptions between the two variants
of the projection can be seen most clearly
if we apply the assumptions about tech-
nological progress made in the second
variant to lower rates of capital accumu-
lation. With a given rate of techno-
of 5 per cent per annum. In actual fact
the difference between the two rates of
growth results from differences in techno-
logical assumptions. Since the policy-
maker has no control over technological
development, he cannot choose between
policies resulting in growth indicated by
the slow variant and growth indicated by
the fast variant. He is, of course, free to
decide upon a faster or slower rate of
capital accumulation, but the projection
tails to inform him how his decision will
influence the rate ot growth of the
economy.

logical progress, the marginal productiv- One part of the French projection is of
ity of capital declines as more capital is potential interest to private French in-
accumulated. If we assume that the dustry. That part gives a breakdown of
marginal productivity of capital is con- probable 1965 composition of gross na-
stant, we shall be likely to underestimate tional product by broad sector. The
the rate of income growth for any rate breakdown is obtained from detailed
of capital accumulation lower than the projections of consumer needs by type of
one at which the marginal productivity need and by type of product required to
was actually calculated. A calculation satisfy the need. Calculations of income
performed on this basis shows that, elasticities of demand for the years 1951-
54 were made for forty-five categories of
under the second-variant rate of progress,
a growth rate of 4.5 per cent per annum goods and services and for five profes-
could be attained with investment re- sional groups (farmers and farm workers,
maining at 18 per cent of gross national independent workers, white-collar work-
product and that investment on the ers, other workers, and non-members of
first-variant level (19.4 per cent of gross the labor force). These elasticities were
national product) would yield a growth applied to the two variants of the plan
rate of 4.9 per cent per annum. Indeed, to calculate the 1965 consumption pat-
investment could fall to 16 per cent of tern. The published documents give a
gross national product and a rate of summary of the calculation results, in-
growth of 4 per cent per annum could be cluding a seven-category breakdown by
maintained if second-variant progress character of needs (food, shelter, cloth-
could be assured. ing, etc.) and a nine-category break-
The above discussion shows that the down by broad product class.
policy implications of the French projec- A separate set of tables projects in-
tion are highly misleading. The policy- come by origin for the seven broad sec-
maker seems to be faced with two tors of economic activity. In addition to
alternatives: (1) investment of 19.4 per production destined for domestic con-
cent of gross national product leading to sumption, the tables indicate the prob-
a 4 per cent annual rate of growth and able growth in investment of the several
(2) investment at 20 per cent of gross sectors as well as production destined for
national product leading to a growth rate export.

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 ECONOMIC PLANNING 263

Though the tables as published are not
sufficiently detailed to serve as industry
forecasts, they present a broad frame-
work for such detailed studies. The ques-
tion whether the projection presents a
sufficiently accurate picture to be of use
in detailed forecasting must, unfortu-
nately, be left open.
II. SHORT-TERM PLANNING
Short-term planning plays a vital role
in economic policy-making in the Neth-
erlands as well as in France. The Dutch
government's economic policy-making
centers around macroeconomic problems
such as maintenance of full employment,
preservation of balance-of-payment equi-
librium, and safeguarding of internal
price stability. The Dutch annual plans
are accordingly concerned with macro-
economic problems. Neither the manage-
ment of government-owned industries
(public utilities, railroads, coal mines)
nor the planning of social overhead
capital investments (such as land-drain-
age schemes and the construction of the
delta dams) come under the constant
surveillance of the Central Planning
Bureau, though the bureau is occasional-
ly consulted on specific issues. By con-
trast with the Netherlands, in France
the government plays a vital role in the
formulation of the country's investment
decisions. A substantial proportion of in- ernment.
vestments is either made directly by the
government or carried out with the aid of
government credits. Even the pattern of
private investments is strongly modified
by the intricate French system of differ-
ential taxes and subsidies. It is therefore general objectives which the government
understandable that French short-term
plans are much concerned with resource
allocation- one might almost say that
they are so concerned to the neglect of
macroeconomic stability. These differ-
ences in purpose do much to explain the
striking methodological differences be-
tween French and Dutch planning.
A. DUTCH SHORT-TERM PLANS19
The Central Planning Bureau of the
Netherlands uses interchangeably the
terms "annual plans" and "annual fore-
casts." The annual plans are indeed f ore-
casts in that they carry no policy recoin-
mendations but merely state what is
likely to happen in the economy. Prepa-
ration of the forecasts exercises a pro-
found influence on the government's
policy, however, and is, therefore, truly
a planning function.
The first drafts of annual plans contain
variants which correspond to alternate
government policies concerning wages,
taxes, and credit. These drafts are dis-
cussed by the so-called Central Planning
Committee, which is composed of repre-
sentatives of the government, labor, and
management and of economic experts.
The plan then goes to the Council of
Economic Affairs, an interministerial
body, and also to the Social and Eco-
nomic Council. The latter council is a
body representing employers, employees,
and impartial experts. It is purely ad-
visory, but in fact it exerts great power
over economic and social policies. The
recommendations of this council are al-
most invariably backed up by the gov-
In particular, the council exer-
cises almost absolute power in determin-
ing wage levels.
Throughout the discussion the al-
ternatives offered by the draft plans are
narrowed as policy is crystallized. The
pursues are the preservation of full em-
19 A general discussion of Dutch short-term plans
will be found in Central Planning Bureau, Scope and
Methods of the Central Planning Bureau, Part II,
chap. i. For a detailed discussion of the 1955 model
see Central Planning Bureau, Central Econmic Plan,
1955 (The Hague, October, 1955).

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264 STANISLAW
ployment, the maintenance of price
stability, and the maintenance of bal-
ance-of-payments equilibrium. These are
the fixed targets. In addition, there are
flexible targets, such as rapid economic
development and the maintenance of a
socially equitable income distribution.
The preparation of draft forecasts
helps crystallize policy moves in several
ways. First, the forecasts show what will
happen to the endogenous variables that
are of interest to the government (for
example, the price level, employment, in-
vestment) given probable exogenous de-
velopments (population growth, changes
in world prices, etc.). Second, the alter-
nate forecasts indicate how the endo-
genous goal variables will be affected by
policy moves, that is, by government
manipulation of the instrument variables
(such as taxes and transfer payments).
Finally, the forecasts help groups of
opposing interests to arrive at a con-
sensus by showing the over-all conse-
quences of policies advocated by special
interests.
The role of the Planning Bureau in the
preparation of short-term plans thus
consists of exploring alternate policies
leading to set goals and of exploring the
implications of new policies proposed by
the government. In practice the role of
the Planning Bureau extends even fur-
ther, since the bureau's representatives
sit on all the bodies which discuss the
plan.
The final plan embodies the govern-
ment's policies and takes into account
the national budget for the planning
year. Only the final version is published,
and this is truly a forecast which makes
no policy recommendations. Thus the
planning function is largely completed
by the time the plan takes its final form.
In making its forecasts, the Planning
Bureau relies on econometric models
which are frequently amended and im-
proved. The technical coefficients are
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WELLISZ
revised annually, and each subsequent
version of every annual plan utilizes the
latest available information. In addi-
tion, the planning equations are often
revised and alternate formulations tested
and considered.
The forecasting models are formulated
in terms of first differences rather than
absolute quantities, since in short-term
studies changes in level rather than ab-
solute levels are of main interest. The
models used since 1955 rely on a multi-
plier-flexible accelerator formulation. The
1955 model comprised the following "be-
havioral" equations:20 (1) two consump-
tion-function equations, of the form
C = aY, linking wage and non-wage
consumption to wage and non-wage in-
comes, respectively; (2) a net investment
equation of the form
AI = bi (AP-A S) -b210 +AR-AD,
where Al stands for a change in net in-
vestment, AP= change in production,
AR = change in replacement invest-
ment, AD = change in depreciation, and
= investment in the base year; and
(3) four price equations to express
changes in prices of consumer goods, of
investment goods, ot inventories, and of
goods and services purchased by the
government. These four equations have
the form
AP = CiAW + C2APm + c3A T,
where P stands for the domestic price of
the type of goods concerned, W is the
wage rate, Pm is the price of imported
goods, and T is the taxes applicable to
the category of goods. As before, A indi-
cates the change in the level. The c co-
efficients are, of course, different for each
of the price equations.
The Dutch economy is linked with the
20 The short-term planning model is given here in
a highly simplified form. For a complete description
of the model the reader is referred to Central Plan-
ning Bureau, Central Economic Plan, 1955, pp. 81-
89.
 ECONOMIC PLANNING 265

outside world by two equations. The first
gives an export-demand equation,
E = -d (AP\ Pe-APW) + AUl
where E is the change in the export
volume, APe and APw are, respectively,
changes in the export price level and the
price level of goods competing with
Dutch exports, and u1 is a trend factor.
The second equation is an export-price
equation of the form
APe = el (e2AW+ e3APm+AT) + e4APw.
Thus export prices are linked to both
domestic production conditions and
world prices.
Changes in the level of imports and in
the level of employment are "explained"
by two "technical" equations. One equa-
tion expresses imports as a linear [unc-
tion of domestic consumption, invest-
ment, and exports. The other links
changes in employment to changes in
output minus changes in imports by
means of a single coefficient:
ALL= K (AO- AM)
where AL is the change in employment,
AO is the change in output, and AM
is the change in imports.
Levels of taxes and of social security
payments are formulated in terms of four
institutional equations linking transfers
to levels of economic activity.
To complete the system, there are
eleven definitional equations which ex-
plain the meaning of aggregate terms
(for example, total exports are defined as
base-year value of exports of goods and
services, plus change in level of exports ofveys and Monetary Analysis," Quarterly Journal of
goods by enterprises, plus change in level Economics, Vol. LXXII (February, 1958).
In addition to the annual macro-
economic forecast, the economic plan
contains a forecast by major industrial
groups. This forecast is prepared by less
rigid methods than the macroeconomic
plan. Consumption of major classes of
goods is linked to the growth of popula-
tion and the probable growth of income,
taking into account the income elastici-
ties of demand. Industrial output is then
derived indirectly, and the individual
parts of the forecast are harmonized by
an informal input-output method. This
part of the plan is published purely for
information purposes. Finally, the plan
contains a monetary survey, showing the
principal money flows in the economy.2'
To appraise the effects of Dutch
short-term planning, we must answer
two questions: How accurate are the
Dutch forecasts? What is the effect of the
policies based on the forecasts? It is clear
that a farsighted economic policy must
be based on a reasonably accurate ap-
praisal of the future, but it is equally
clear that accurate forecasting does not
necessarily result in intelligent policy.
The accuracy of Dutch forecasts has
been widely debated22 and will be dis-
cussed here with the utmost brevity. In
general, the forecasts have been found to
be considerably more accurate than those
made elsewhere in Europe and in the
United States. In addition, the Central
Planning Bureau has compared its fore-
casts with prediction by extrapolation.
In such a comparison the Central Plan-
21 For a discussion of monetary flow surveys in
western Europe see Claudio Segr6, "Monetary Sur-

of exports of goods and services). There
is also one "balancing" equation to
show the composition of the gross na-
tional product.
The 1955 model described above has
been slightly modified in recent years,
though it remains essentially the same.
22 The following sources contain discussions of
the accuracy of the Planning Bureau's forecasts:
Central Planning Bureau, Scope and Methods of the
Central Planning Bureau, chap. iv; J. Lips and
D. B. J. Schouten, "The Reliability of the Policy
Model Used by the Central Planning Bureau of the
Netherlands," in International Association for Re-
search in Income and Wealth, Fourth Conference at
Hindsgavl, September 6-13, 1955 (mimeographed);

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 266 STANISLAW WELLISZ

ning Bureau's predictions were an easy
winner, since it predicted correctly most
of the turning points, while turning
points are always missed by simple
extrapolation. Moreover, even in years
where no change in direction occurred,
the bureau's predictions gave in general
a better fit than extrapolation.
Another test of reliability of the fore-
casts, carried out by two economists
connected with the bureau, uses the 1955
model to "predict" the year-to-year
changes in the period 1949-55.23 In this
test the base-year figures were changed
for each subsequent "prediction," but
the equations and coefficients were left
unchanged. The success of the predic-
tion was judged on the correct calling of
the turning points and on staying within
the admissible range of error. The latter
was defined as E = (0.02B + U.2R),
where B is the value of the base variable
and R is the actual change. This defini-
tion of "admissible error" flows from the
fact that the actual data are in all cases
subject to a 2 per cent margin of error-
in fact, many figures are even less accu-
rate-and a 20 per cent margin in the
actual change predicted was considered
moderate. In the case ot unemployment,
however, only a 10 per cent margin in
performance are well-nigh impossible-circum-
stances for each country being different-the follow-
and Hans Theil, Economic Forecasts and Policy
ing statistics are highly suggestive. As will be seen,
(Amsterdam: North-Holland Publishing Co., 1958),
the Netherlands appears to have a lower percentage
chap. iii.
23 Lips and Schouten, op. cit.
the change predicted was believed to be
admissible.
The number of endogenous variables
predicted by the planning model
amounted to fourteen over a six-year
period, or a total of eighty-four observa-
tions. In all but fourteen cases the
signs of the changes agree. In eleven of
the fourteen cases of disagreement the
predicted change or the actual change
amounted to less than 1 per cent. Of the
twenty-four turning points which actual-
ly occurred, eighteen were predicted by
the model. Of the computed values, 73
per cent remain within the "admissible"
error.
There is, unfortunately, no simple
way of testing the influence of Dutch
annual plans on the economic fortune of
the Netherlands. However, it is tempting
to point to the great stability of the
Dutch economy as a proof of planning
efficiency. In spite of war damages and of
the postwar loss of Indonesian holdings
and expulsion of Dutch citizens from
Indonesia, the Netherlands has en-
joyed full employment and has had rela-
tively few balance-of-payments difficul-
ties. Other European countries fared less
well, though their problems were easier
to handle.24
24 While international comparisons of economic
of unemployment than other European countries
which compile comparable data:

UNEMPLOYMENT AS PERCENTAGE OF THE LABOR FORCE

COUNTRY
Nether- Germany
YEAR lands Belgium Denmark (F. R.) Italy Austria
1952 ............ 3.5 11.8 12.5 8.4 9.5 7.7
1953 ............ 2.8 11.8 9.2 7.5 10.0 9.0
1954 ............ 1.9 10.9 8.0 7.0 10.0 7.9
1955. 1.3 8.4 9.7 5.1 9.8 6.7
1956. 0.9 7.0 11.1 4.0 9.9 5.4
1957 ............ 1.3 5.5 10.2 3.4 9.0 4.9
1958 ............ 2.4 8.6 9.6 3.5 9.0 5.3
1959*. 2.0 11.5 7.2 n.a.t 9.1 6.6t
Source: United Nations, Monthly Bulletin of Statistics.
* Six months. t Not available. Five months.
[Footnote 24 continued on next page]

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 ECONOMIC PLANNING 267

It may be more fruitful to inquire as to
the direction in which the plans have in-
fluenced the Netherlands' economic
policy without passing judgment on the
magnitude of that influence. Such an in-
quiry must rely entirely on internal evi-
dence. The plans are based on highly con-
sistent models; within the assumptions
underlying their construction, the models
display the interrelations of the economy.
Thus the government is presented with
all the implications of a policy action
contained in the model. The influence of,
say, changes in tax structure on the
economy ceases to be a matter of conjec-
ture and becomes a matter of fact. The
model will show how tax changes will
affect prices, exports, imports, and em-
ployment. To use another example, the
model will show how wage changes will
influence the balance of payments.
An economic policy based on the
Dutch planning model is likely therefore
to be self-consistent within the model's

As seen from the above table, which compares
the Netherlands with "unplanned" countries, Dutch
unemployment figures are remarkably low, and
variations in unemployment level are slight. When
job vacancies are taken into account, it appears that
much of the unemployment in the Netherlands is
"frictional." Thus in 1954 there were 74,000
registered unemployed and 80,000 vacant jobs. In
1956 there were 66,000 more vacant jobs than
registered unemployed, and even in 1958-a year of
"high" unemployment-there were 97,000 unem-
ployed and 47,000 vacant jobs (see Amsterdamsche
Bank, Quarterly Review, 1955, 1957, and 1959).
Using price stability as a measuring rod of per-
formance, the Netherlands appears in a less favor-
able light:

COST-OF-LIVING INDEXES

(1953 = 100)

COUNTRY
Nether- Germany
YEAR lands Belgium Denmark (F. R.) Italy Austria
1952 ............ 100 100 100 102 98 101
1953 ............ 100 100 100 100 100
1954 ............ 104 101 101 100 103 103
1955 ............ 106 101 107 102 105 105
1956 ............ 108 104 113 105 109 108
1957 ............ 115 107 116 106 110 112
1958 ............ 117 108 117 110 113 114
1959* ............ 115 109 n.a.t 112 1121 n a.t
Source: United Nations, Monthly Bulletin of Statistics.
* Six months.
t Not available.
I Five months.

The rise in the Dutch price level, equaled only liberalization which compares favorably with that
by the rise in Danish prices, did not interfere with of most member countries of the Organization for
the Netherlands' external balance. In fact the European Economic Cooperation.
Netherlands were able to pursue a policy of trade

PERCENTAGE OF TRADE LIBERALIZATION IN RELATION TO 1948 IMPORTS

COUNTRY
Belgium
Nether- and Germany
DATE lands Luxemburg Denmark (F. R.) Italy Austria
Jan. 1,1952...... 71 75 65 .... 99 ....
Apr. 30, 1953 ..... 82 90 75 90 99 ....
Apr. 1, 1954 ...... 92.6 87.2 76. 90.1 99.7 50.6
Dec. 31, 1954..... 92.5 87.7 75.9 90.1 99.7 82.4
Dec. 31, 1955 ..... 91. 1* 91.1* 78.4 91.3 99.1 88.7
Source: Contracting Parties to the General Agreement on Tariffs and Trade, International Trade,
1952, 1953, and 1955.
* A common list was adopted for the Benelux nations in the course of 1955.

The above table must, of course, be interpreted
with extreme caution. Some countries-Italy, for
instance-"liberalized" their trade with great
rapidity but relied heavily on protective tariffs.
By contrast, the Netherlands and Belgium have
substantially lower tariffs than most European
countries, including Germany. It is to be noted that
the Netherlands also pursued a much more rapid
policy of liberalization of dollar imports than did
most of the other European countries.

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 268 STANISLAW WELLISZ

limits. The fact that the policies an- targets and analyzes the composition of
nounced by the Dutch government have, foreign trade. It estimates the levels of
in general, been carried out in a very con- needed social investments and invest-
sistent fashion supports this view. The ment in education. It also proposes re-
danger is that policy decisions might neg- forms in legislation affecting the econom-
lect factors not specified in the model it- ic life of the country.
self. There is, for instance, the possibility French short-term plans are an official
of modifying the relation now observed expression of governmental economic poli-
between wages and prices by promoting cy. The plan is followed quite closely in
increased competition among producers. the socialized sectors of the economy-
The model as it stands is obviously built public utilities, railways, telecommunica-
on the assumption that institutions will tions, coal-mining-though actual in-
remain inviolate. Improvements in the vestment programs are based on detailed
institutional setup are an important part review of the current situation.28 To im-
of economic policy, however, and in plement the plan in privately owned sec-
institutional reforms the Dutch govern- tors, the government relies on its control
ment receives no guidance from the over finance and, to a lesser degree, on
plans. price controls and subsidies. Since the
government provides about one-third of
B. FRENCH SHORT-TERM PLANNING25
all investment funds in France and con-
From relatively modest beginnings in trols another 40 per cent,29 its financial
the immediate postwar period26 French control is quite powerful. Thus in prac-
short-term plans have evolved into a tice most of the heavy industries (es-
comprehensive schema of resource al- pecially steel) follow the plan quite close-
location for Metropolitan France. The ly, while consumer-goods industries are
current plan, 17 covering the years 1957- relatively free to make their own de-
61, specifies investment, output, and cisions.
employment levels for broad sectors of The short-term plans are elaborated
industry (coal, steel, chemicals, etc.) as under the direction of the Commissariat
well as for agriculture, transport, and General du Plan in accordance with
trade. The plan fixes export and import broad governmental directives, and the
25 A comprehensive description of French plan- commissariat enjoys great discretion.
ning will be found in Pierre Bauchet, L'Expgrience The commissariat also participates in the
frantaise de planification (Paris: E~ditions du Seuil,
plan's implementation: It participates in
1958). Bauchet gives the texts of the most important
legal provisions concerning French planning. He the preparation of annual government
analyzes in detail the place of the Commissariat budgets, through which some of the
au Plan in French governmental machinery and in
plan's investments are financed and has
French economic life and summarizes the main pro-
visions of the three French postwar short-term representatives on the major public
plans. The one great weakness of this excellent and credit bodies which finance French indus-
invaluable work lies in the absence of any economic
try. Under the commissariat's influence,
analysis.
21 See "Economic Policy in France," International
such bodies increasingly make advance
Labour Review, Vol. LVI, No. 4 (October, 1947). commitments to assure industry of a
27 For a complete text of the plan (hereinafter
28Thus during the first and second plans the
referred to as the "Third Plan") see "Troisihme plan
goals set for the coal industry were changed almost
de modernization et d'equipement (1958-1961) ,"
yearly in response to the market situation.
Journal official de la Ripublique Franqaise, Vol. XCI,
No. 69 (March 22, 1959). 29 Bauchet, op. cil., pp. 74 and 170.

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 ECONOMIC
continuous supply of finance for the
duration of a plan.30 Finally, the com-
missariat uses its powers of persuasion
in government affairs as well as in busi-
ness, even where it has no formal right
to interfere.
Nevertheless, the commissariat's pow-
ers are in reality quite circumscribed. All
the plans must meet parliamentary ap-
lroval before coming into power,
actual policies are subject to the govern-
ment's will. Important reforms may
originate with and be elaborated by
bodies outside the commissariat, as was
the case with the ad hoc committee
which mapped De Gaulle's 1958--59
fiscal and monetary reforms.3"
A more fundamental limitation to the
powers of the commissariat stems from
the method of preparation of the short-
term plans. Indeed, we may ask whether
the commissariat decides how resources
should be allocated or whether it merely
echoes business plans made in the free
sectors and business desires concerning
the growth of the controlled sector. This
issue may be clarified (though not solved)
through a brief description of the plan-
ning procedure.
As a first step in the making of a short- government and trade-union representa-
term plan, the commissariat prepares a
rough quantification of policy goals. The
third plan (1957-61) aims at: (1) main-
tenance of full employment and rapid
economic growth; (2) maintenance of
balance on external account without re-
course to new trade or currency restric-
38 Ibid., pp. 80 ff.
31 The so-called Rueff Committee proposed that
inflationary pressure be reduced and the balance of
payments equilibrated by a drastic reduction of sub-35 Nineteen commissions with a total personnel of
sidies granted to the coal industry, agriculture, and
certain other industries (see "Rapport sur la situa-
tion financier presented a Monsieur le Ministre des
Finances et des Affaires Economiques en execution
de sa decision du 30 septembre 1958," Statistiques
et etudes financicres, No. 121 [January, 1959]).
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PLANNING 269
tions; (3) improvement in educational
facilities and in professional education;
(4) increase in low-cost housing con-
struction; and (5) decentralization of
economic activity away from the Paris
region.32 Assuming a 4 per cent annual
increase in productivity per worker,33 the
commissariat estimated34 that gross na-
tional product could increase by 27 per
cent
and in the 1956-61 period and that con-
sumption could rise by 24 per cent. These
estimates were further broken down by
broad economic sectors in order to pro-
vide a basis for detailed estimates.
The key role in the preparation of
plans is reserved for specialized com-
missions. Each commission is composed
of persons with special competence in
the given sector of activity (agriculture,
steel industry, chemical industry, trade,
education, mining, foreign trade, etc.)35
and is supposed to estimate in detail the
needs and resources of the sector over the
planning period. The commissariat's pre-
liminary projection is intended to be
taken merely as a broad indication; it
can be modified in the detailed study.
Since the commissions are composed of
businessmen, technicians, bankers, and
tives, their work is not merely a forecast
but also a consensus of diverse interest
groups.36
In addition to preparing sector fore-
casts, each commission is asked to give
detailed statistical information about
32 Third Plan, pars. 23-35.
1 Ibid., par. 24.
34 The method of estimation was described in con-
nection with the long-term plans.
615 collaborated in the third plan.
36 It is interesting to contrast this method of
reaching a social consensus with the role of the
Netherlands Social and Economic Council described
above.
270 STANISLAW
current operations within its sector and
estimates of future operations. Such in-
formation includes data on current in-
puts and capital inputs (both in physical
and in value terms by category and
source), on outputs by category and des-
tination, and on import content of inputs
and export proportions of outputs. An
important place in the forecast is re-
served for an analysis of future labor
needs and for future financing needs.
Although the commissions take as
their starting point the commissariat's
preliminary forecast, the sector forecasts
may deviate from the initial scheme. It is
therefore necessary to check the com-
missions' forecasts for consistency and to
readjust them if necessary. After due
modification of sector forecasts, and with
the aid of data furnished by the com-
missions, it is necessary to check whether
the over-all plan is feasible and whether
it is consistent with the major economic
goals.
The work of co-ordination and prepa-
ration of final plans is carried jointly by
the commissariat and by another tech-
nical bureau of the Ministry of Finance,
the Service of Economic and Financial
Studies. To arrive at a consistent and
feasible program, these two bodies pre-
pare so-called equilibrium tables.37 A
global table shows the value of outputs of
ten product categories by disposition
(consumption, government purchases,
investment, export, and indirect con-
sumption) as well as inputs in the same
ten categories by source (value of home
production, value added by trade, value
of imports net of duties, import duties).
Source and disposition tables are also
prepared for the labor force (using major
categories of labor) and for finance. More
37 See Ministere des Finances, des Affaires
Iconomiques et du Plan, L'Equilibre economique en
1961 (Paris, July, 1957). (Mimeographed.)
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WELLISZ
detailed studies are made of individual
sectors, for instance, future consumption
patterns and sources of consumer
goods.8 The equilibrium tables serve as
a basis for the fixing of objectives for
output and investment included in the
final plan. Legislative recommendations
included in the plan are largely influ-
enced by discussions appearing in the
commissions' reports as well as by obser-
vations made in the course of co-ordina-
tion of the plan.9
The method of preparation of the
French short-term plans is strongly
reminiscent of the approach used in the
Soviet Union. In both cases over-all
plans are drawn up by the planning au-
thority, modified on the operating level,
and coordinated once more by the
planners. In both cases reliance is placed
on physical balances. In the case of
France, however, many (though not all)
sectors base their forecasts on economic
profitability; that is, they chose an
optimal program of inputs and outputs.
In the Soviet Union, in the absence of
market prices, optimization of resource
use is only approximated in a crude way.
This difference is one of degree alone:
Russian planners do in fact use scarcity
prices, 40 while the French price system
is manacled by controls, especially in
38 In the preparation of the studies of sectors, out-
side information is often utilized. Consumer-
demand forecasts are based, for example, on the
studies made by the Centre de Recherche, d'Etudes
et de Documentation sur la Consommation, while
the foreign commerce study takes into account the
work clone by the OEEC and the European Coal and
Steel Community (see Bauchet, op. cit., pp. 121 ff.).
89 In addition to an enumeration of goals and of
reform proposals, the plan relies heavily on ha-
rangues directed to industry, consumers, and govern-
ment. It encourages modernization, points out possi-
bilities of increasing efficiency and expansion, and
deplores market imperfections.
40 See, for instance, Gregory Grossman, "The
Pricing of Capital Goods in the USSR," American
Economic Review, May, 1959.
 ECONOMIC PLANNING 271

such basic sectors as agriculture, coal,
and steel.
In spite of the complexity of the
French planning procedure, the results
are often disappointingly crude. The
commissions' work is of very uneven
quality. Some commissions apply the
preliminary forecast blindly in predicting
the development of their sectors. The
statistical data furnished are often defec-
tive.4' What is most important, virtually
no commission has been able to make in-
formed guesses about future techno-
logical coefficients. In practice, therefore,
the equilibrium tables have to be based
on historical coefficients rather than on
predictions of the future. Insofar as
there are rapid changes in relative scarci-
ties of factors and in technology, re-
liance on past data is bound to give a
wrong picture of the future equilibrium.
One may, indeed, query whether the
long and cumbersome planning process
gives better results than would be ob-
tained through a more streamlined one-
stage study.42
An evaluation of the role of French
planning must consider the institutional
alternatives open. Even in a market
economy, long-range forecasts of needs
and resources are extremely useful; es-
pecially in such areas as education,
transport, power-indeed, in all sectors
in which there is a substantial "invest-
ment period." In other sectors a forecast
of supply-and-demand conditions might
be an aid in rational investment decision-
making.43 In view of the uncertainty fac-
tors, it is doubtful, however, whether the
complexity and detail of the plans pre-
41 See Ministere des Finances, des Affaires
between the controlled price and the hypothetical
economiques et du Plan, op. cit., pp. 32 ff.competitive price being different in different indus-
tries) and amounts to a subsidy to basic commodity
42 While the advantages of the complex process
are problematical, the defects are all too obvious: users.
the
second and third plans were completed months after
the dates on which they should have come into
operation.
pared by the commissariat are necessary.
In postwar France there are stronger
reasons for planning: the market mech-
anism is crippled by private monopolies
and cartels as well as by public restric-
tions. The steel industry is an extreme
case: it is heavily monopolized, and its
prices are rigidly controlled by the
French government, apparently as an
anti-inflation measure. Indeed, until the
recent reforms steel prices were not suf-
ficient even to cover depreciation, not to
speak of capital expansion. Under such
circumstances steel output and invest-
ment in steel must be planned in relation
to demands of other sectors, for otherwise
steel would become a production bottle-
neck.44 This situation, which prevails in
varying degrees in most branches of
heavy industry, mining, and housing,
explains the heavy reliance of such indus-
tries on preferential government financ-
ing.4d
13 In a speech addressed to businessmen, Em-
manuel Hamel, head of the bureau of the planning
commission, emphasized that the chief functions of
the plan are "to favor free enterprise and to throw
light on the environment in which free enterprise
will function in each sector of the economy" as well
as "to show to each sector the rate at which it will
develop in relation to sectors above [i.e., the pur-
chasers of output] and below [i.e., the suppliers of
inputs]" (Emmanuel Hamel, Fonctions du troisibne
plan de modernisation et d'equipeinent [Paris:
C.E.P.E.S., 1957], p. 12). In view of the fact that,
in many important sectors of French economic life,
private enterprise is not permitted to make its own
decisions, Hamel's presentation gives a somewhat
distorted view of the planning goals.
44 Since steel-using industries calculate their de-
mand for steel on the basis of the controlled prices,
the resulting output program for steel is likely to be
excessively high. Insofar as demand for steel is in-
elastic, the distortion is unlikely to be of very great
importance. Control of all basic prices distorts, of
course, the entire pattern of demand (the relation
45 For a detailed discussion of the steel-financing
lrol)lem see Commissariat G6neral du Plan
"Troisi&me plan de modernisation et d'6quipemcnt,'

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 272 STANISLAW WELLISZ

Detailed planning of the export and
import "menu" contained in the second
and third French plans46 is also justi-
fiable only if the economy is in disequi-
librium. With price controls and arti-
ficially pegged currencies, normal market
calculations have to be supplemented by
calculations of profitability in world-
market terms.47 Such calculations are
better than haphazard administrative
action, but they are at best a surrogate
for a consistent pricing system.
The makeshift devices of planning
made necessary by the absence of real-
istic prices and monetary equilibrium
have, unfortunately, come to be re-
graded as a superior method of economic
management by sympathizers of the sys-
tem. HIamel, a high official of the com-
missariat, thus explains why physical
planning is essential to overcome infla-
tion:
The cause of inflation is not simply the often
worrisome situation of public finances. It is also
often the disequilibrium between supply and
demand which manifests itself in specific sec-
tors, and which . . . becomes generalized in the
whole industry through the phenomenon of
price increases, by increases of salaries, of prices
of raw materials and of other goods.48
Bauchet, a long-time employee of the
comissariat, claims that under modern
technological conditions physical plan-
ning is needed to achieve a consistent
pattern of development.49 In fact, among
the many useful suggestions for eco-
nomic reforms proposed by the com-
missariat,50 one would look in vain for a
plea for the return to a pricing system
corresponding to manufacturing costs or
for a rigorous anti-inflationary policy.5"
The weaknesses and blind spots of the
commissariat should not obscure the fact
that French planning has taken a big
step forward from the prewar system of
unrelated administrative moves in the
economic field. For the first time the
French government looks at the economy
as an interrelated whole and understands
that one cannot tamper with one piece
48 op. cit., p. 21.

49 Bauchet, op. cit., pp. 169-77. In discussing the

Rapport ggniral de la Commission de Modernisation
postwar absence of violent business fluctuations,
de la Siderur-ie (Paris, July, 1957), chap. v. The
Bauchet cites two factors contributing toward stabil-
entire report is of major interest, as it ranks among
ity of European economies: long-range planning and
the best presented to the commissariat.
regularization of the pattern of innovation. The in-
"I An especially illuminating discussion of the ex- fluence of countercyclical fiscal and monetary policy
port and import industries will be found in the is not even mentioned (ibid., pp. 174-76).
second plan (see Journal Officiel de la R6publique
Francaise, Deuxiime plan de modernisation et 50 Among the many proposals advanced by the
d'equipement [Paris: Imprimerie des Journaux Of- commissariat are a tax reform abolishing the turn-
ficiels, 1956], pp. 150-56). The third plan, completed over taxes in favor of value-added taxes, stricter
several months after the publication of the Rueff supervision over cartel agreements, and gradual de-
Committee report, shows much greater awareness ofcontrol of housing rents to encourage private con-
the problem of general monetary equilibrium thanstruction.
the second plan--or, for that matter, than the drafts 51 It is possible, of course, that the commissariat,
of the third plan antedating the report (see Third
being a governmental bureau, did not feel free to
Plan, pars. 67-76).
criticize publicly the fundamental f features of govern-
47 The financing of an artificial-rubber plant, mental
for policy. My own observations, corroborated
example, could not be justified at the foreign-ex- by a perusal of the writings of former officials of the
change rates prevailing in 1957-58. The commis- commissariat (who, having no official capacity, were
sariat claimed, nevertheless, that investment in free to say what they believed), incline me to the be-
such a plan was rational because it would save sub- lief that the majority of the commissariat's per-
stantial foreign exchange and because it was a sonnel are quite unfamiliar with macreoeconomics
"sound" investment in terms of real scarcity rela- and take an agnostic attitude toward the market
tions. mechanism.

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 ECONOMIC PLANNING 273

of machinery without affecting all the tion. Moreover, French and Italian
others.52 regional planning consists of many sepa-
rate measures, which are often only
III. REGIONAL PLANNING
loosely co-ordinated. A classification and
Regional planning, that is, planned analysis of such measures is a task which
spatial reallocation of economic activity, will have to be deferred to a later paper.
is increasingly important in western
A. ITALIAN REGIONAL POLICIES
Europe and especially in France and
Italy. In Italy the southern third of the The southern part of Italy and the
country and the islands of Sicily and islands of Sicily and Sardinia are marked-
Sardinia are the objects of a development ly backward economically compared
policy. In France efforts are made to with the northern and central provinces.
lessen the industrial concentration of the The area, comprising some 40 per cent
Paris region and to develop the prov- of Italian territory, has a rapidly rising
inces. Even in the Netherlands increasing population and a low per capita in-
concern is voiced about the concentra- come.54 In spite of emigration to the
tion of economic activity in the Amster- north and abroad,55 there is a large pool of
dam-Rotterdam-Hague triangle and the unemployed and underemployed,56 and
relative backwardness of the other an increasing percentage of the popula-
provinces.53 tion remains outside the labor force.57
Regional plans of France and Italy The disparity in economic levels be-
are an integral part of the over-all plan- tween southern Italy and the rest of the
ning system and hence must be discussed country existed at the time of Italy's uni-
in this general survey of planning. We fication, but the gap appears to have
shall not, however, attempt a thorough 54 The per capita income in the south was equal
study of regional planning. Such plan- to 55 per cent of northern per capita income in 1938
ning has goals which are political and and to 43 per cent in 1950 (see SVIMEZ [Association
for the Development of Industry in the Mezzogiorno],
social rather than purely economic, and
Statisticlie sul Mezzogiorno d'Italia, 1861-1953
it involves a host of extremely complex [Rome: SVIMEZ, 1954]).
questions of evaluation and quantifica- 55 Between 1861 and 1936 the resident population
of southern Italy increased by 5.6 million, while 3.8
52 I am also faced with the fact that in the post-
million persons emigrated.
war period France did no worse-and no better-
than its western European neighbors. Though I can- 56 According to Ministry of Labor statistics, 47
not guess how well France would have fared without per cent of Italy's unemployed were located in the
any economic planning, I am at least confident that north and 53 per cent in the south. As of September,
planning did no harm to France. The contrast with 1956, southern Italy's labor force equals some 35 per
the prewar situation is quite striking: of all western cent of the total labor force of the country. More-
European countries, France developed at the slowest over, many southern workers are partially employed.
pace before the war (see Ingvar Svennilson, Growth 5 Indexes of resident population and employ-
and Stagnation in the European Economy [Geneva: ment (1861 = 100), northern and southern Italy,
United Nations Economic Commission for Europe, 1936:
1954]). Population North South
53 Dutch regional planning retains the character Total over ten years old .............. 164 158
In the labor force ......... ......... 140 104
of zoning laws, and it is not under the jurisdiction of Agriculture ............. ......... 108 103
the Central Planning Bureau. The bureau's work in Industry and transport ........... 200 94
Other occupations .........1....... 60 129
the field has been of little significance. The reader Inactive population ................ 211 328
interested in Dutch regional planning is referred to Children under ten years .............. 1 72 1 54
J. Vink, National Land Use Planning in the Nether- Total .......................... . 166 15 7
lands (The Hague: Netherlands Ministry of Recon- Source: SVIMEZ, Statistiche sul Mezzogiorno d'Isllia
struction and Housing, 1954). 1861-1953 (Rome: SVIMT1EZ, 1954).

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274 STANISLAW WELLISZ

widened in spite of sporadic measures to ly cultivated) holdings and the presence

reverse the trend. The situation was ag- of masses of land-hungry peasants. The
gravated by World War JI, in which the reform may, of course, accelerate eco-
south suffered more than the rest of the nomic development, insofar as a society
country.58 The extent of the war damage, composed of smallholders is less inimical
as well as mounting political unrest in to progress than a feudal society.
the south, has prompted the government The direct economic advantages of
to take energetic emergency measures to land reform and melioration seem rather
help the south. In fact, economic im- dubious. A rough calculation made on the
provement of the south has become one basis of the Cassa's previsions indicates
of the major policy goals of successive that returns of investment are likely to
postwar Italian governments. be substantially lower than in other
Measures to help the south are con- branches of the Italian economy.61 Re-
tained in a large number of separate sults of completed melioration projects
laws and decrees. Since 1950, over-all also show a low return on investment.2
supervision of the program is exercised Moreover, land melioration cannot be
by the Cassa per il Mezzogiorno,59 while 61 According to calculations underlying Cassa per
basic research is mainly carried out by il Mezzogiorno's twelve-year plan, total investment
in land melioration in the south should equal 1,333
a private research organization, SVIMEZ
billion lire over the twelve-year period. This total
(Association for the Development of includes public as well as private investments. It is
Industry in the Mezzogiorno). Thus co- expected that the value of output (at constant
prices) will increase by 209 billion lire per year, and
ordinated, the various measures give a
labor will increase by 62 million workdays per year.
semblance of a program. In fact, how- Assuming that wages remain at 1,000 lire per work-
ever, the measures may be divided into day and that depreciation and maintenance expenses
equal 6 per cent of total new investment (surely an
three separate categories: land reform
underestimate of actual maintenance and deprecia-
and land melioration, public investment tion), we obtain a return of 5.6 per cent on invest-
in social overhead capital or "infrastruc- ment. Should depreciation and maintenance equal 10
per cent, net return would equal 1 per cent only.
ture" (highways, electric power lines,
(For the basic data see Cassa per Opere Straordi-
etc.), and industrial subsidies.60 nairie di Pubblico Interesse nell'Italia Meridionale,
The land-reform and land-melioration Programma dodecennale degli interventi net settore-
agricolturra, Vol. I [Rome, 1956].)
schemes are justifiable primarily for
62 A survey of the effects of land melioration
social and political, and not for economic,
conducted by the Cassa per il Mezzogiorno showed
reasons. Land division, accompanied by the following results: 46.5 billion lire were spent on
drainage, irrigation, and provision of projects completed by December 31, 1955. The
value of the gross product of the meliorated area was
necessary capital for rational cultivation,
21.4 billion lire immediately before the beginning of
was aimed at reducing tension created the melioration projects and 30.3 billion lire after
by the existence of large (and often poor- completion of the projects. Taking depreciation into
account, net product rose from 17.8 billion to 23.8
58 See Pasquale Saraceno, Elementi per un piano billion, that is, by 6.0 billion. The physical amount of
economics, 1948-1952 (Rome: SVIMEZ, 1948), p. labor employed rose from 40 work-days per hectare
230 and passim. per year to 60 work-days per hectare per year. Had
wages remained constant at 1,000 lire per day, total
59 For a short summary of the Cassa's powers and
wages would have risen from 7.4 billion lire to 11.7
duties see P. Lamour, "Les Plans d'arrangement
billion lire. Thus total return to capital at constant
regionaux en France et en Italie," Politique Ntrangere,
wages would have risen by 1.7 billion lire on an in-
1956, pp. 60-84.
vestment of 46.4 billion lire, which means an average
60 This list is not exhaustive. Other special meas- rate of return of 3.6 per cent. Such a rough survey,
ures include improvements in schooling, sanitation, of course, gives merely an idea of the orders of
etc. magnitude involved.

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 ECONOMIC PLANNING 2'75
justified through its job-creating effects,
since with improved methods of cultiva-
tion the number of gainfully employed
in agriculture will increase very in-
significantly in relation to the capital
invested.63
Advocates of land reform and meliora-
tion claim two important indirect ad-
vantages to such schemes. First, the
moneys spent on agriculture will exert a
multiplier effect, helping southern as well
as northern development.64 Second, it is
said that the program will help avoid
balance-of-payments difficulties. Italian
workers have a high propensity to con-
sume foodstuffs; as real wages increase,
Italy will have to import an ever in-
creasing volume of foodstuffs unless
agricultural output is radically increased.
The two arguments concerning the in-
63 In fact, it is foreseen that modernization and
rationalization of agriculture will result in a decrease
of 900,000 agricultural workers over the 1954-64
period for the country as a whole (see Vanoni Plan,
p. 111).
64 Alesandro Molinari, general manager of
SVIMEZ, cites calculations showing that "the
multiplying process set in motion by the 'Cassa's'
investments (555 billion lire) in the five-year period
considered (1951-55) is seen to have caused an ex-
pansion of 580 billion lire in demand (for consumer
goods and services and capital goods for renewal) of
which 425 billions [were] in the South and 155
billions in the North.... In short, as a result of the
Cassa's additional expenditure, the Northern regions
enjoyed benefits equal to 28' per cent of the global ex-
pansion of income" (Alessandro Molinari, "Effects
of the Policy for the Development of Southern Italy
on the National Economy," Review of Economic
Conditions in Italy [special issue], January, 1959, pp.
38-39). It is clear that Molinari's argument would be
valid only if Italy suffered from "Keynesian" unem-
ployment, and even in that case it would remain to
be proved that other types of investment are not
more productive. In a situation of full employment
of productive capacity the "benefits" may be nega-
tive. Resources had to be transferred to the south
to permit the Cassa's investments, and the cost of
the alternatives foregone has to be taken into ac-
count. For another expression of the argument that
the north benefits from public investment in the
south see Pasquale Saraceno, "A chi ha giovato la
politica del Mezzogiorno?" Bancaria, December,
1957.
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direct benefits of agricultural meliora-
tion schemes rest on the same fallacy:
they disregard the real cost of ac-
complishing a given goal. If a transfer
payment to the south is desired, it is
cheaper to make a direct transfer rather
than engaging in uneconomical produc-
tive activity. If it is desired to increase
exports or reduce imports, then it is
preferable to concentrate on goods where
the return on investment is the highest.
TABLE 1
PROPOSED BREAKDOWN OF EXPENDITURES OF
THE CASSA PER IL MEZZOGIORNO'S
TWELVE-YEAR PROGRAM *
Lirc
(Billions)
Land reclamation and reform; lroc-
essing plants for agricultural
products ....................... 910
Aqueducts and irrigation. 160
Railwas .75
Roadworks. 90
Tourism .30
Various ........................ 15
Total .1, 280
Source: Cassa per il Mezzogiorno.
* Trhe Cassa's funds were increased by 760 billion lire, and
the duration of the twelve-year plan was extended to fifteen
years, by Law No. 674 (July 29, 1957).
The magnitude of the burden of the
agricultural reform and improvement
program is indicated by the size of the
agricultural budget of the Cassa. As
shown in Table 1, the agricultural pro-
gramn is by far the most important
branch of the Cassa's activity.
The construction of "social overhead
capital" or "infrastructure" comes sec-
ond in the Cassa's program.' Public in-
65The following statistics give a concise sum-
mary of the discrepancies in "social overhead cap-
ital" between northern and southern Italy (ex-
pressed as percentages):
Region North South
Population ................... 62 38
Territory .................... 60 40
Highway mileage ............. 74 26
Railway mileage ....... ...... 53 47
Double-track railway mileage .. 88 12
Electric power generated ....... 85 15
Source: SVIMEZ.
 276 STANISLAW WELLISZ
vestment in "social overhead capital" is
expected to have a threefold effect. First,
there is a direct return on investment in
the form of lower costs to actual users.
Thus it was conservatively estimated
that highway improvements and new
highway construction will bring a direct
return of more than 14 per cent on in-
vestment-a rate of return of the same
order of magnitude as the returns in
industry-6 Second (and somewhat more
problematical), there are static "ex-
ternalities." Finally, there is the possi-
bility of dynamic externalities, that is,
possiblities for private investment gen-
erated by the investment in social over-
head capital. As we have seen, the
Vanoni plan leans heavily on the dy-
namic-externalities concept: it foresees
that the north-south gap will be bridged
by means of intensified investment in the
"propulsive" sectors in the south. Such
propulsive investment will (after a lag)
generate private investment, which will
increase southern incomes and employ-
ment.
According to the Vanoni plan, pro-
pulsive investment was to increase from
621 billion lire to 965 billion lire in the
north and from 268 billion lire to 875
billion lire in the south in the years 1954-
64. Private investment was expected to
lag at first in the south; it was foreseen
that the propulsive-investment/private-
investment ratio would fall as the pro-
gram accelerated. With the elimination
of bottlenecks and the creation of ade-
quate "infrastructure," the trend was
expected to be reversed. Over the entire
planning horizon (1955-64), northern
66 The direct benefits of the southern highway-
improvement program seem to amount to more than
14 per cent on investment. The calculation ignores
all externalities which would increase the figure even
further (see Mario de Meis, "It Rendimento di tin
p)rogranlla di opere stradali attuate nel public
giorno," Banccaria, Vol. XIV, No. 8 [August, 19581). sector.
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private investment was expected to
grow by only 55 per cent; a 400 per cent
increase was foreseen for the south.
Results of the first six years of the
Cassa's activity show a slight increase in
the percentage of investment made in
the south and a slight decline in the per-
centage of southern investment financed
from public sources.67 The trend68 is not
strong enough to confirm the theses of
the Vanoni plan. Moreover, whatever
improvements took place in the south's
position cannot be ascribed unambiguous-
ly to "dynamic externalities" created by
public investment, because private in-
dustry in the south is being subsidized
directly by the central government.
The program of subsidies antedates
the foundation of the Cassa by three
years. After the launching of the Cassa's
program, little attention was paid to the
subsidy program (though existing sub-
sidies were maintained) because of the
apparent promise of stimulation of pri-
vate investment through indirect means.
In recent years the trend has been re-
versed; investigations have shown that
there are many obstacles to development
67 The following tabulation gives investment in
southern Italy as a percentage of total Italian in-
vestment and public investment as percentage of
total investment in the south:
Total Public
Year Investment Investment
1950 ............. 20.4 57.1
1951 ............ 21.2 59.1
1952 ............. 23.0 59.3
1953 ..... . ........ 24.7 59.8
1954 ............. 24.7 55.8
1955 ............. 24.7 52.0
1956 ............. 24.6 53.2
1957 ............. 23.6 53.1
Source: Calculated on the basis of data pre-
sented in A. Molinari, "Gli effetti della politica
de sviluppo nel Mezzogiorno," Informazioni
SV1MEZ, Vol. XII, Nos. 4 and 5 (January 28
and February 4, 1959).
68 Official statistics give figures on private and
public investment. Such figures cannot readily be
converted into the terminology used in the Vanoni
plan, that is, the propulsive sector and other sectors.
A rough comparison of predictions and results can
be made, however, since a substantial proportion of
Mezzo- investment is concentrated in the propulsive
 ECONOMIC PLANNING 277

that are not removed by the Cassa's The tax provision relieves southern
program.69 To cite just two examples, firms from payments of import duties on
most of the firms which branched into foreign-produced capital goods and gives
the south experienced severe difficulties corresponding rebates on purchase taxes
in finding sufficient skilled labor,70 and on domestically produced goods. Capital
many firms complain of the great dis- goods and raw materials shipped to
tance which separates them from poten- southern industry benefit from a 50 per
tial suppliers, subcontractors, and cus- cent rebate on railway freight. Lesser
tomners, most of whom are in the north. freight reductions are granted to other
Rather than try to remove all de- shipments to and from southern firms.
velopmental obstacles by direct action, Newly established firms receive exemp-
the government decided in the years tions from part or all of income and local
1957-58 to intensify the subsidy pro- taxes for stated time periods.
gram.71 The hope remains that, once a Medium-term credit (one to ten years)
sufficient concentration of industry is is granted to southern firms by a number
achieved, these obstacles will cease to of southern banks and para-govern-
exist. mental institutions on highly favorable
Regional industrial subsidies were terms.74 Such loans, which may amount
first granted under a 1947 law; the scope to 85 per cent of total capital needs, are
of subsidies was extended in 1950 and limited to 300 million lire (except in the
again in 1957, in which year the subsidy case of projects of special importance to
program assumed a prime importance the south) and are normally granted to
in the development of the South.72 small and medium-sized firms only. In
The current subsidy provisions fall addition, the government issues guaran-
into four groups: tax relief to southern ties on loans made to southern industry
enterprise; rail and sea freight-rate re- by private institutions and stands ready
bates; preferential credit arrangements to subsidize interest payments to reduce
and government participation in equity the cost of financing.
and outright equity grants.73 Outright capital subsidies are granted
69 For a comprehensive discussion of such diffi- by the government for the creation of
culties see Friedrich Vochting, "Considerations on firms in localities with 75,000 inhabitants
the Industrialization of the Mezzogiorno," Banca
or fewer in which no industry exists and
Nazionale del Lavoro Quarterly Review, No. 46
(September, 1958). for the preparation of "industrial areas"
70 According to a survey conducted by the Cassa for larger industrial conglomerations.
per il Mezzogiorno, 75 per cent of firms working for The subsidies to small firms in small
the Cassa's projects said (in 1956-57) that they
towns amount to 20 per cent of the cost
experienced difficulties in recruiting skilled labor,
and 25 per cent said that their work was adversely of plant construction work and 10 per
affected by such difficulties (see Cassa per il Mezzo- cent of machinery cost. The industrial-
giorno, Bilancio 1956-57, pp. 114-17).
74 Two banks, Banco di Roma and Banco di
71 See "Fase Pastore nella politica per il Mezzo-
Sicilia, played leading roles in industrial financing
giorno," Mondo economics, July 25, 1959.
until 1954, when three para-governmental indus-
72 Decree No. 1598 (December 14, 1947); Law trial-credit institutes, backed by the Cassa's funds
No. 261 (March 9, 1950); and Law No. 634 (July and by loans from the International Bank for Re-
29, 1957). construction and Development (World Bank) be-
73 For a short summary of the main measures see came active. These institutes, I.S.V.E.I. MER.,
Banco di Roma, "Facilitations for the Development I.R.F.I.S., and C.I.S., operate under Law No. 298
of Southern Italy," Review of Economic Conditions in (April 11, 1953). Between 1954 and 1957 they
Italy (special issue), January, 1959, granted credits amounting to almost 96 billion lire.

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 278 STANISLAW WELLISZ
site subsidies (construction of access
roads, land-clearing, etc.) may run as
high as 50 per cent. In addition to out-
right grants, special institutes stand
ready to participate in providing equity
capital for new ventures.75
Two outstanding characteristics of the
subsidy program are worthy of note. All
the subsidies (with the exception of
income-tax rebates) have the effect of
lowering the cost of capital. Most of the
subsidies favor the formation of small
enterprise and geographic dispersion.
Granting the necessity of subsidies to
southern industry, it may readily be
shown that the method of subsidization
is wasteful of national resources, does not
lead to rapid elimination of unemploy-
ment, and is inconsistent with the "ex-
ternalities" argument underlying the
Vanoni plan.
Insofar as the south's handicap con-
sists of a lack of a sufficiently large
industrial nucleus, the developmental
program should be concentrated in one
or, at most, a few localities especially
suited for industrial growth. The de-
liberate spreading of industry through-
out the territory reduces whatever "ex-
ternal" effects may exist. It is indeed
hard to see how isolated firms in iso-
lated southern communities will manage
without subsidies in the future.
The linkage of subsidies to capital in-
vestment reduces the employment-creat-
ing features of investment in the south.
The fact that there is a large pool of
unemployed persons in southern Italy
is sufficient proof that southern wages
are too high in relation to the north.76
Action tending to lower capital costs en-
75Law No. 634 also forces nationalized indus-
tries to make 40 per cent of their investments in the
south. Since virtually all the nationalized firms are
located in the north, the 40 per cent clause is being
interpreted rather broadly.
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courages industry to adopt more capital-
intensive methods and to create even less
employment per million lire invested.
From the national point of view, capi-
tal subsidies are much more costly than
wage-payment subsidies. In an economy
such as the Italian one, where there is no
idle industrial capacity, the real cost of a
capital subsidy is equal to the total sub-
sidy granted. In calculating the real cost
of a wage subsidy, we must subtract the
resources devoted to supporting the un-
employed workers. Thus a wage subsidy
would be cheaper and would create more
employment than subsidies on invest-
ment.
Even such a cursory survey as this re-
veals a number of weaknesses and incon-
sistencies in the program for the develop-
ment of the south. This is not to say that
such a program is not needed: no one who
has seen the abject poverty of the Mezzo-
giorno can deny the necessity of taking
radical steps to improve the situation.
It is disturbing, however, that so little
attention is paid to the real cost of the
current program.77 It would seem that
some other alternatives-for instance,
the creation of a small number of indus-
trial centers in the south and a massive
effort to transfer population away from
areas which are not economically viable
-should at least be explored.
76 For purposes of wage negotiations, Italy is
divided into thirteen zones, and workers are divided
into four wage groups. Southern Italian wages are,
on the average, 13 per cent lower than northern
wages. According to an estimate made by SVIMEZ,
actual industrial wages in the south are some 25 per
cent below the northern wages because of lax ap-
plication of the minimum-wage laws in the south.
77 Thus in a recent survey of effects of southern
development policy, Molinari, one of the most in-
fluential policy-makers, contents himself with pre-
senting growth of investments and of income. The
question of alternatives foregone in order to put the
program into effect is not even raised (see Molinari,
op. cit.).
 ECONOMIC PLANNING 279

B. FRENCH REGIONAL PLANNING demand; or, finally, (4) certain locational

French regional planning can be traced
to a desire to "decongest" Paris and to
develop the outlying French provinces.
Until recent years the population of the
Paris metropolitan area grew substantial-
ly faster than the population of the coun-
try as a whole.8 Indeed, the population
of certain provinces has declined in abso-
lute numbers. Economically, too, Paris
has become increasingly important, and
there appears to be a widening gap in
per capita income between Paris and
other regions.79
The contrast between Paris and the
provinces (labeled "the French desert"
advantages are due to administrative
action rather than to economic forces.
There is little doubt that, within the
current institutional system, labor mo-
bility is not suffcient to equalize real
wages throughout France and to elimi-
nate the depressed areas. Moreover,
there is little doubt that the strong cen-
tralization of activity in Paris has been
promoted by a long-standing policy of
the French government to centralize con-
trol over economic life. Thus the French
railway and highway systems radiate
from Paris; most of the important
schools and institutes are located in

by J.-F. Gravier) has led sociologists and
economic geographers to advocate a
vigorous policy of economic decentral-
ization. From an economist's point of
view, however, the existence of dispari-
Paris; Paris is France's financial center,
and all middle-term loans of more than
5 million francs must be approved by a
Parisian office. Last, but not least, it is
a great advantage to business to be in

ties is not sufficient reason for tampering Paris, since the French government con-

with the market mechanism. Indeed, tinuously interferes in the economic af-
intervention appears justified only if fairs of the nation, and individual favors
(1) not all costs of production are borne can be obtained only by direct negotia-

by the productive unit (for instance, if tion.

Evidence is much less clear when we
transport to and from the factory is
come to the misallocation of costs and to
subsidized); or (2) there are external dis-
the subject of possible external disecono-
economies of location (for instance, the
per capita police costs increase with the
mies of large urban agglomerations. Ac-

degree of urban concentration); or (3) cording to Jeanneney, one of the fore-

most French economists,
there are market imperfections prevent-
ing the normal functioning of supply and
78 The following figures are highly suggestive:
POPULATION
(In Millions)
Paris
Metropolitan Rest of
YEAR Area France
1872 .2.8 33.3
1954 .6.9 34.4
Source: Rgsultats statistiques du ?ecenesement
gIntral de la population, 1945 and Recensement
1954, population de France, cited in United Na-
tions Economic Commission for Europe, Eco-
nomic Survey of Europe in 1954, p. 178.
70 Thus in twenty-five departments per capita
income is 40 per cent or less of the national average
(see J.-M. Jeanneney, Forces et faiblesses de l'dcono-
miefranfaise 1945-1956 [Paris: A. Colin, 1956], pp.
250 ff.).
no systematic study . . . of indirect costs has
ever been conducted: neither a study of the
total indicated investments which are necessary
when a factory giving work to 100, 1000, 5000
workers, etc. is established in a region, nor a
study of transport costs in various typical cases
... nor even a study of per capita costs of
private or public services as a function of size
of locality and regional density of population.80
Indeed, we may go further; even small-
scale special studies of alleged "ex-
80 J.-M. Jeanneney, "A la recherche de principes
pour une politique national de developpement des
economies regionales," Revue economique, VII
(1956), 875.

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280 STANISLAW WELLISZ

ternalities" are so incomplete as to be leads us to oppose a further extension of this

useless. Such studies content themselves
with a demonstration that public per
capita expenditures are higher in Paris
than elsewhere in France and conclude
that this higher level of expenditure is an
indication of diseconomies.8' Nothing
could be farther from the truth. In the
first place, no attempt is made to com-
pare the public services offered by Paris
with the services offered by other munici-
palities. In the second place, the dis-
economies in the public sector may be
outweighed by economies in the private
agglomeration. Every new factory should be
located in an industrial zone . . . consisting of a
constellation of middle-sized towns (20,000 to
100,000 inhabitants) ... separated from each
other by rural communities. 82
In fact, there is a virtual absence of dis-
sent to the policy of "decongestion"
which the French government has been
pursuing with increasing vigor since
1955.83
The most laudable part of the French
decentralization program consists of an
effort to reduce the dependence of eco-

sector. nomic life on the Parisian government

In spite of the unavailability of relevant conglomeration, to make studies of the
calculations, most French economists economic potential of the various regions

agree with Jeanneney that the Parisian of France, and to increase the availability
agglomeration of "social overhead capital" to the out-
lying regions. Detailed plans for social
seems monstrous from many points of view and expenditures corresponding to regional
imposes deplorable "indirect costs" on public
needs will be based on an over-all
authorities and on individuals. This certainly
regional plan to be evolved by the Com-
51 J.-F. Gravier, one of the most outspokenmissariat ad- au Plan on the basis of indi-
vocates of "decongestion," gives the following figures vidual regional studies.
in support of his contention that there are serious
Although the over-all study of needs
disecononies of scale in large cities (all figures refer
to the year 1938): and resources of the various French
Government regions is not yet completed, a number
Subsidies to
Departmental Communes of public investment decisions have al-
No. of Expenditure in Depart-
Inhabitants per In- ment ready been influenced by the new region-
(Millions) habitant (Francs per
(Francs) Inhabitant) al approach. For example, a decision had
Department
Seine 5 895 251
to be made on the layout of pipelines for
All others ....... 37 191 16
natural gas discovered in the Lacq
(A 1938 franc was worth 2.89 1938 Unites States cents.)
region. On the basis of current needs and
Gravier does not say, however, (1) whether the resources it appeared most advantageous
services given to inhabitants in the Seine region were
equivalent to the services given in Paris or (2)
to direct the entire flow of gas to the
whether the government "subsidy" to communes Paris region. Taking into account the
amounted to a transfer payment to the Paris areas development potential of the provinces,
(see J.-F. Gravier, Paris et le desert fran~ais [Paris:
it was decided to channel part of the gas
Le Portulan, 1947]).
A more recent (unpublished) study conducted by
82 J.-M. Jeanneney, "A la recherche . ..," op.
the Commissariat a la Reconstruction et a l'Ur-
cit., p. 877.
banisme de la Region Parisienne shows that total
investment (private and public) per marginal in- 83 The most important summary of French
habitant in Paris equals 4.2 million francs as against thought on the need of regional planning will be
2.8 million francs in the provinces (as of 1954). These found in Conseil &conomique, Etude sur une
figures by themselves again fail to prove that Paris politique des economies rtgionales (Paris, 1957). See
is "inefficient," for they fail to compare the values of also the series of articles on French regional planning
marginal product with the marginal costs. in Revue economiqiie, Vol. VTT, No. 6 (1956).

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 ECONOMIC PLANNING 281

to Paris and part to regions which are certain "underdeveloped regions" re-
likely to increase their energy needs in ceive a flat subsidy of 20 per cent of the
the course of the next few years.84 total investment.86
To diminish the dependence of pro- Not content with positive induce-
vincial enterprise on Paris financing, the ments, the French government decided
government promoted in 1955 the for- to take measures to prevent further "un-
mation of two types of credit institutions necessary" expansion in the Paris re-
expressly for regional loans. The first gion.87 Since 1955, an interministerial
type, called societies d'equipement, are committee has been entitled to issue or
mixed private-governmental ventures de- to refuse licenses for new plant construc-
signed to promote large-scale projects, tion or plant extension in zones to be
such as agricultural improvement specified by ministerial decree. The pur-
schemes and preparation of new indus- pose of the licensing system, which has
trial zones. The second type, called been applied to the Paris region only, is
societes de developpement regional, are to limit the increase in industrial conges-
private investment banks which have tion and to "incite enterprises which do
received a government guaranty of a not have to be in large centers to move to
minimum return on their investment. zones where there is need of new indus-
These banks-fifteen in number-have a trial activity."88
capital of at least 250 million francs each. Even though the decentralization pro-
According to their statute, they can pro- visions have been in operation only a
vide up to 35 per cent of capital to enter- short time, their effects on industrial
prises located in their regions.85 location seem to have been quite con-
In addition to the above sources of siderable, as shown in Tables 2 and 3.
equity capital, 6 per cent middle-term The interpretation of the tables, of
loans are available to provincial enter- course, requires considerable caution. We
prises out of the Fonds de Developpe- do not know how many enterprises
ment Economique et Social. Such credits that took advantage ot the subsidies
are granted only if no commercial credit would have undertaken investments in
is available. If provincial enterprises re- the provinces even if such subsidies were
ceive private credit at rates higher than 6 not available. We also do not know how
per cent, the government stands ready to many potential investors in the Paris
pay interest over and above the 6 per region decided not to undertake any in-
cent limit. In certain cases the govern- 86 For a description of the subsidies available to
ment also extends its guaranty on loans industry investing in the provinces see Ministere de
la Reconstruction et du Logement, Direction de
granted to provincial enterprise. Finally,
l'Amenagement du Territoire, Amenagement du
enterprises which establish themselves territoire, F-2-57.
or which undertake plant expansion in 87 See Ministere de la Reconstruction et du Loge-
ment, Direction de l'Amenagement du Territoire,
84 See Rmile Mauriel, "Le Gas de Lacq et les Dicentralisation et localisation industrielle (Paris,
distributions publiques," Revue franqcaise de 'energie,1957).
Vol. IX (February, 1958). It is characteristic that
88 During the course of 1957, 22.7 per cent of all
the problem of distribution was formulated in
applications for new industrial construction in the
linear-programming terms but that the decision
Paris region were rejected. These applications ac-
about the layout of the pipelines was reached counted
before for 20.8 per cent of the floor space of all
the linear-programming problem could be solved.
proposed construction. The corresponding figures
for 1956 were 25 per cent and 28.7 per cent (ibid.,
85 See J.-F. Gravier, IParis et le desert fran(ais
(2d ed.; Paris: Le Portulan, 1958), p. 120. p. 13).

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 282 STANISLAW
vestment once their applications were
refused.
It would be redundant to repeat once
again the objections to regional subsidies.
Unlike Italy, France did not self-evi-
dently need a crash program to help the
provinces, and one may wonder at the
high-handed methods employed to re-
TABLE 2
EXTENT OF' AID TO "DECENTRALIZING"
CON CERNS
(Millions of Francs)
YEAR
FORM OF AID 1955-56 1957
6 per cent loans ............ 825 1,448
Interest reduction .......... 4,915 780
Subsidies .................. 192 57
Funds from other sources ... . n.a.* 13,305
Source: Ministlre de la R6construction et du Logement,
'irection de I'Amenagement du Territoire, Decentralisation ct
calisation industrielle (Paris, 1957).
* Not available.
model the regional economic pattern.
The outright prohibition of expansion in
the Paris region seems particularly
capricious: if -as remains to be proved-
there are external diseconomies to Pari-
sian expansion, then enterprises in the
Paris region should be charged an
amount equivalent to the estimated gap
between private and social costs. A
licensing system amounts, however, to a
discriminatory tariff; firms obtaining
licenses pay nothing, and those refused
licenses are charged an infinite amount
for investing in the region. Such an ap-
proach is not only highly inefficient; it
excludes all possibility of calculating the
real cost of the decentralization meas-
ures.
IV. CONCLUDING REMARKS
An appraisal of economic planning
must take into account social and po-
litical, as well as economic, factors. The
planner must work within a sociopo-
litical framework if his plans are to have
practical significance. A free-market
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WELLISZ
solution to the southern Italian problem,
to take an example, might be economical-
ly advisable but politically and socially
unacceptable. On the other hand, the
planner should be wary of acting as an
apologist for the system. All too often,
political decisions are incorporated into
"structural" equations or are the im-
plicit reason for rejection of correct but
unpopular solutions to economic prob-
lems.
By staying outside the administrative
machinery, planners in western Europe
may achieve a delicate balance between
realism and apologetics in their recom-
mendations The balance lies in giving an
analysis of economic consequences of po-
litical decisions and in searching for the
most economic methods of achieving
policy goals. Thus the Commissariat au
Plan puts a check on arbitrary political
actions by showing the interdependence
of the economy and by tracing through
the effects of partial measures, such as
price controls, tariffs, and subsidies. The
Netherlands Central Planning Bureau
TABLE 3
WORK POSTS CREATED BY DECENTRALIZATION
OPERATIONS BEGUN IN EACH YEAR
Total No.
of Jobs
No. of Foreseen at
Jobs as Completion
Year of 1957 of Project
1955 ............... 12,000 16,000
1956 ............... 8,000 22,000
1957 ............... 5,000 16,000
Source: Ministlre de la Reconstruction et du Logement,
Direction de l'Amrnagement du Territoire, Decentralisation et
localisation industrielle (Paris, 1957).
merely prepares "forecasts," but these
forecasts incorporate the consequences of
alternate economic policies. Neither the
commissariat nor the bureau makes the
actual political decision, but each influ-
ences those who do in the direction of
economic rationality.
The generation of information not
 ECONOMIC PLANNING 283

available through the market mechanism
is another important task. Given the
structure of French price controls, the
commissariat performs a service by cal-
culating what investment pattern is
needed for a consistent pattern of de-
velopment. One might argue that a free
price system would result in more ef-
ficient allocation, but it is clear that price
controls without planning would result in
even greater distortion of the economy.
The success with which planners ac-
complish their tasks depends upon the
degree of political independence they en-
joy, the technical skills they possess, and
the nature of the problems they consider.
In all three respects the planners in the
Netherlands are especially privileged.
Short-term macroeconomic forecasting
is a relatively well-plowed field. Even if
the French and Italian planners enjoyed
their Dutch colleagues' freedom from po-
litical interference and were equally
skilled as economists and econometri-
cians, they would be less likely to achieve
equally good results, for resource-alloca-
tion planning is incomparably more
difficult than planning for macroeco-
nomic stability.
By far the most complex problems
face the planner concerned with eco-
nomic development and regional real-
location of economic activity. Here prob-
lems are ill defined and complex, em-
pirical evidence consists of unrelated
case studies, and theory is virtually non-
existent. Yet this is a field that is rapid-
ly growing in importance, and the
planner must find answers even if he is
not sure whether they are right or
wrong. A considerable portion of this
paper has been devoted to a critique of
such answers. The fact that regional
planning is not carried out with unim-
peachable logic points to a weakness of
the planners, but it also points to a de-
ficiency of political economy, which fails
to provide adequate tools for this po-
litically important task.

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