Richard Portes

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.

Discussion of the Paper by Professor Sorokin

Mr Klappholz began by requesting from Professor Sorokin a more detailed account than was in his paper of those shortcomings of the old system of economic management in the U.S.S.R. which had prompted the economic reforms. He would also have liked a more detailed description of the reforms themselves. Professor Sorokin seemed to feel that the present mix of central physical planning and decentralised decision-making in the Soviet Union was about right. Mr Klappholz wished nevertheless to point out certain difficulties. First, Professor Sorokin had said that the economic reforms had been required because of the steadily rising level of income in the Soviet Union and the associated diversification of the structure of output, while at the same time the steadily growing size of Soviet enterprises had made central planning and central control over the enterprises all the more necessary. But the two phenomena, a rising level of income and the growth in the size of enterprises, would continue to accompany each other. Would this not imply an ever sharper conflict between the needs for decentralisation and for stronger central control? Second, Professor Sorokin had argued against allowing prices to vary freely in the short run, on the ground that this would simply lead to uncontrolled inflation. Yet he had not mentioned any of the problems created by fixing prices centrally for long periods of time. With fixed prices, disequilibria between supply and demand would be reflected in fluctuations of inventories. If these fluctuations were not too large in relation to total available stocks, and if prices could eventually change, this was acceptable. In market economies, prices were usually not so flexible as to adjust to disequilibria immediately, yet one seldom found intolerable shortages or egregious mismatches between supply and demand. These difficulties did seem prevalent in the centrally planned economies, however. Was this due to inadequate inventories, to poor geographical co-ordination between supply and demand, or simply to the indifference of central planners to consumer preferences?

Discussion of the Paper by Mr Opie

Dr Sestakova said that there was no systematic anti-monopoly policy in any socialist country, although some scattered measures had been taken. The discussion of monopoly problems was still at a theoretical stage in Eastern Europe, and therefore her own contribution would be theoretical in nature. In considering anti-monopoly policies in capitalist countries, it was important to keep in mind throughout Mr Opie’s conclusions that the interest in such measures in these countries had varied over time according to changes in the socio-economic environment, especially the overall scope of government economic activity.

Discussion of the Paper by Dr Havas

Dr Marquez believed that a contrast between the Hungarian and Latin American experiences in foreign trade could be instructive for both. Hungary seemed to face an easier balance of payments situation than most Latin American countries, whose development was so dependent on their capacity to import. But there were close parallels in the need to diversify exports and in the growing scepticism towards national import-substitution policies. Scope for the latter was limited in small countries, and the protection which it necessitated distorted the price system. He suggested that the solution might lie in import substitution and economic integration at the regional level, which would allow efficient, large-scale production. In this regional context, countries of relatively low levels of development should not necessarily be favoured by allowing them to reduce their tariffs more slowly than other countries, as is the case in Latin America, because this could perpetuate an irrational pattern of protection. Rather, they should receive capital inflows from other countries in the region, in order to enable them to develop production for export to these countries.

Discussion of the Paper by Professor Lindbeck

Dr Habr began his comments by observing that the paper was in the tradition of comparative systems analysis, a field in which the main difficulty was the lack of appropriate conceptual tools to deal with the great variety of national experiences. He questioned the efficiency criteria on which Professor Lindbeck based his own comparisons. First, the empirical evidence to which these criteria could be directly applied was very limited. Second, the theoretical basis for these concepts had not been developed in similar ways in Eastern and Western countries. Professor Lindbeck neglected the reasons for and implications of these differences in approach. For example, marginal concepts have been given greater attention in the West, average concepts in the East. Third, the criteria were of different sorts. Some were closely tied to reality, and it was easy to give them empirical content: innovation, product development and informational efficiency fell into this category. Others were more abstract and sophisticated, and consequently it was necessary to discuss them in the context of a specific model; an example here would be the representation of efficiency as a point on a transformation frontier. In doing this, however, we risked diverting our attention towards questioning the underlying models and their assumptions, to the neglect of the empirical data which we wanted to analyse for comparative purposes. More generally, he felt that some conceptual tools might themselves be system-tied and therefore ideologically biased in comparing planning and competition. In discussing technological efficiency, for example, Western concern focused on the problems of attaining the transformation frontier, while Eastern emphasis was on going beyond the ex ante known feasible space. In socialist countries ‘mobilisation of resources’ was supposed to transform the potential feasible space into a real one, even at the cost of static inefficiency.