Michael Kaser

Labour market policies and Central Asian poverty

Whereas most developed countries, including transition economies such as Russia and Ukraine, are concerned with an ageing population, it is the growing workingage cohort in the five Central Asian states that challenges policy-makers. Even allowing for significant withdrawals from the labour force, there will by 2010 be 10 million more seeking jobs than on the eve of independence in 1990. With high rates of poverty associated with agricultural over-population, non-farm job creation is a key development priority. Urban unemployment also exacerbates poverty, and would be higher were it not for emigration. Despite a substantial increase in self-employment, more productive employment is needed in larger enterprises, which would effect diversification, promote international competitiveness and yield higher worker–household incomes (offsetting some income reduction as a result of the anticipated net withdrawal from the economicallyactive population). Authoritarian political institutions currently mask the threat posed to stable development by social discontent.

Economic relations among Comecon members under the 1976–80 plans

Thirteen years – almost to the day – after formulating its Basic Principles of the International Socialist Division of Labour , at a ‘Summit’ of Communist Party First Secretaries (in Moscow in June 1962), Comecon established its Agreed Plan for Multilateral Integration Measures , at a meeting of Heads of Government in Budapest in June 1975. The causes of delay to economic integration within Eastern Europes trading bloc have been political, but the foundation of the body in 1949 was as political in origin as was the renewed impetus given to economic collaboration by the invasion of Czechoslovakia in 1968. Indeed, as a brief retrospective readily shows, international politics have been instrumental in every turning-point in Comecons life of 27 years (one fewer than its nearest Western counterpart the O.E.E.C, since 1961 the O.E.C.D.).

The Conference in Perspective

From prehistoric times until a couple of centuries ago the institutions, conventions and arrangements that governed economic activity were static over long periods. The overwhelming prevalence of subsistence farming and crafts, the weak diffusion of information and slow technical progress (occasionally negative) promoted neither productive growth nor institutional adjustment to it. Social and political change was by contrast relatively rapid, whether one looks through Marx’s perspective of the supersession of one form of productive relations by another, or considers the spread of world religions — Buddhism, Christianity and Islam — or of empires — the Persian, Roman, Mongol, Iberian or British.

American credits for Soviet development

No Western legislature has devoted as much time to examining the political issues of economic relations with the U.S.S.R. than the United States Congress. The reason is in no wise to be found in the magnitude of those relations, but in their potential size and in their implications for confrontation or detente between the two super-powers of the globe. A remoter history has, however, played its part, for much United States technology and capital equipment and some entrepreneurship assisted Soviet economic development between the two world wars.

Choice of Technique

A characteristic of medical care supply is the degree of freedom in choice of technique open to the supplier, normally a physician, within the limits or physical availabilities by place and by time in relation to the patient. In view of the rapidly increasing volume of alternative technologies in general, and of information on a patient’s condition in particular cases, the clinical evaluation of therapies (efficacy) is urgently required with respect to resources applied (efficiency) and to the resultant health outcome (effectiveness), Health outcomes are not thereby rendered commensurate and remain, in practice, selected by the physician, whose clinical freedom is nevertheless guided towards a cost minimand suitable for a National Health Service-type system.

Discussion of Papers by Professor Khachaturov and Professor Turgeon

The Conference was opened by Professor Kouba, who welcomed the participants on behalf of the Czechoslovak Economic Association. He expressed his hope that the Conference would result in the fruitful exchange of experiences between participants from different countries having different institutional and economic frameworks.

Discussion of the Paper by Professor Fiszel

Professor Forte began by presenting a theoretical model which he wished to use in discussing the role of the interest rate in a planned economy. Figs 1A and 1B referred to the entire economy. The D curves in Fig. 1A gave the demand for investment in fixed capital as a function of the interest rate r. Demand at a given interest rate would equal the total cost of all investment projects offering a Open image in new window Fig 1A Commercial vehicle survey form rate of return at least equal to that interest rate. The planners would choose a rate of growth g; growth at that rate would require a certain level of investment in fixed capital; and the planners should set the interest rate so as to call forth that level of fixed capital expenditure C. The technique (capital intensity) chosen would be the most efficient one, and it would therefore give the maximum possible rate of growth for the given C. The IR curves in Fig. 1B related the rate of growth to the level of investment I. Investment here included circulating capital.

Discussion of the Paper by Professor Bénard

Professor Dorfman said that Professor Benard had raised two basic questions: First, what were the grounds for subsidising or penalising the consumption of certain goods, and to what extent should we do so? That was the problem of model A. Second, why did the government sometimes provide or subsidise goods that were also available through private sources, and to what extent should this be done? That was the topic of model B. Professor Benard accepted the three conventional justifications for taxes or subsidies on certain goods — externalities, public goods and redistribution. His models, however, were built around a fourth point, the need to correct for deficient information on the part of consumers. Professor Dorfman wished to question this argument, while adding a fifth.

Discussion of the Paper by Professor Dorfman

Professor Dorfman introduced the discussion of his paper. He regretted that it was in some respects obscure and that participants had had relatively little time to study it. He therefore proposed to sketch out a background and context in which the paper might be viewed. He was not dealing directly with planning and the market, but it had already become apparent in the Conference that many questions depended for their resolution on an appeal to some standard of values. The nature of this appeal and the way in which it operated in practice were the questions to which his paper was addressed. Any public decision was itself a public good, in the sense that it affected the welfare of many people. It was impossible, however, to consult all those upon whom a decision of this sort would impinge. Moreover, most of us did not have the time, information and background to make such decisions rationally. Since we could not be expected to know the data, we must instead know whom to trust to make these decisions for us. If we did find it necessary to entrust certain individuals, the ‘politicos’, with this power, we should at least analyse the way in which their preferences interact to generate public decisions.

Discussion of the Paper by Professor Domar and Mr Siegel

Opening the session on the Domar-Siegel paper, Professor Bajt said that his comments were really in the nature of a complementary paper on instability under planning. On the evidence, it seemed that as soon as some elements of a market were introduced into a centrally planned economy, it became unable to cope with instability. The Yugoslav economy was a ‘socialist market’ economy, in which there were three main aspects of instability: investment cycles, ‘short cycles’ and inflation. Investment cycles had been common to all Eastern European countries (except the U.S.S.R.), and they seemed to be a consequence simply of bad planning. It was therefore not surprising that as experience had improved planning, the amplitude of the cycles had diminished over time; he expected them eventually to disappear.