ENGINEERING FOR DEVELOPMENT

(First Draft)

E J Jefferies

March 1969

CONTENTS

PART 1 THE WORLD DEVELOPMENT PROGRAMME

Chapter 1 Introduction
Chapter 2 Closing the Gap
Chapter 3 Resistance to Change
Chapter 4 International Technical Assistance

PART II AN ENGINEERING APPROACH TO A PLAN FOR A COUNTRY

Chapter 5 Outline of the Approach
Chapter 6 Setting the Problem
Chapter 7 Basic, Concepts, Terms and Definitions
Chapter 8 Background Data Available
Chapter 9 The Starting Point for a Case Study
Chapter 10 Preliminary Calculations
Chapter 11 Patterns of Economic Growth
Chapter 12 Development Plan for Year 1
Chapter 13 Development Plan for Year 2
Chapter 14 Development Plan for Year 3
Chapter 15 Review of Changes During the Three Years
Chapter 16 The Control of Development
Chapter 17 Financing the Development

PART III THE IMPLICATIONS OF RAPID GROWTH

Chapter 18 Economic Growth and Technological Changes in Rural Communities
Chapter 19 The Influence of Agriculture on Industrial Development
Chapter 20 The Role of Manufacturing Industry
Chapter 21 The Contribution of Industrial Engineering to a Solution

PART IV DESIGNING FOR BALANCE IN DEVELOPMENT

Chapter 22 The Prediction of New Manufacturing Capacity Requirements by Product Group
Chapter 23 The Productivity of Labour
Chapter 24 The Growth of Productivity
Chapter 25 The Calculation of Appropriate Levels of Productivity in New Plants

CHAPTER 13

DEVELOPMENT PLAN FOR YEAR 2

5.1 The constraints acting during YEAR 1 (as in paragraph 4.1) will continue; and the logic of paragraphs 4.2 and 4.3 still applies. On this basis we can construct Table 19.

TABLE 19 Total Allocation of YEAR 2 Increases Between End Uses

The Balance Between Production and Consumption

5.2 The total of column 5, Table 19, shows an increase in goods and services available for private consumption of $121 in YEAR 2. This is about 60% of the increase of GDP, compared with 77% of the total GDP in YEAR 0 and 75% of total GDP in YEAR 1. The allocation to government consumption (6.4% of the increase) is still restricted and the allocation to productive investment continues high at 34% of the increase (cf paragraph 4.3.2).

5.3 If the pattern for the disposal of value added in YEAR 1 shown in column 8 of Table 10 continues into YEAR 2, we can estimate the additional purchasing power generated by the increases required in each sector to meet the target growth, and check this against increase supplies shown in columns 5 and 6 of Table 19.

TABLE 20 Trial Allocation of Increases Between

Personal Incomes and Capital: YEAR 2

(pattern of productivity unchanged from YEAR 1)

Notes: Column 1 is column 3 of Table 19.

5.4 The additional gross purchasing power shown by column 3 of Table 20 at $147 m is higher than the available additional supplies allocated in columns 5 and 6 of Table 19 at $134 m, and it will be necessary to restrict purchasing power again this year so that capital formation remains high (cf paragraph 4.8 regarding YEAR 1).

5.5 We need to remove $13 m from the $147 m increase in purchasing power. The total purchasing power for the year will then be the $567 m (column 5 of Table 10) for YEAR 1 plus $134 m extra in YEAR 2, making a total of $701 m, an increase of 24% over YEAR 1, which is probably politically adequate.

5.6 We need to transfer $13 m from the earnings shown in column 3 of Table 19, to capital, shown in column 4; and again the logic of paragraph 4.11 applies, so we will allocate:

$3.9 m to the return to capital in Agriculture.

$3.9 m in Services, Trade and Government.

$1.9 m in Manufacturing.

$1.0 m in Miscellaneous.

$1.0 m in Transport, Storage and Communications.

$1.0 m in Construction.

$0.3 m in Mining.

With these adjustments we can use Table 20 as a basis for calculating Table 21.

TABLE 21 Allocation of Value Added Between Personal Incomes and Capital: YEAR 2

Notes: Columns 1 and 2 are columns 1 and 2 of Table 19.

Column 7 is column 8 of Table 10.

Column 3 is column 1 times column 7.

Column 4 is column 1 minus column 3.

Column 6 is column 2 minus column 5.

Column 8 is column 5 divided by column 2.

Employment, Earnings and Productivity

5.7 The remarks of paragraphs 4.14 and 4.15 continue to be applicable in general terms. However, a trial calculation indicates that unless there is during this year some small reduction in the number of people engaged in Agriculture, their average earnings will increase more slowly than those in other sectors. In view of the need to maintain a progressive reduction of the gap in standard of living between agricultural workers and the rest of the community. This can only be achieved, given the required net output target for the sector, by taking appropriate actions to improve the average earning capacity of individuals engaged in Agriculture, which automatically reduces the number required. By trial, a reduction from 390,000 to 378,000 (about 3%) will be adequate. In other sectors we again have the problem of how to allocate the increase in earnings between increased wages and increased employment. The strategy of YEAR 1 in allocating it all to increased employment (except in Agriculture) is almost certain to be untenable for a second year running, since wage earners will already be demanding higher pay in spite of the fact that unemployment is still high. For the non-agricultural work force we will therefore assume a 10% rise in earnings for YEAR 2 compared with YEAR 1, which will limit to about 10% the rise in non-agricultural employment. We can now assemble Table 22.

TABLE 22 Disposal of Sectoral Value Added; and Employment: YEAR 2

Notes: Column 1 is column 2 of Table 21.

Column 2 is column 8 of Table 21.

Column 3 is column 1 times column 2 (i.e. column 5 of Table 21).

Column 6 is column 1 divided by column 5.

Comments:

•  
• Total employment has increased from 860,000 to 931,700, i.e. by 8.3% (compared with 11.5% in YEARS 0 to 1).
•  
• Overall productivity of labour has increased from $885 to $1030, i.e. by 16.5% (compared with 11.2% in YEARS 0 to 1).
•  
• Average individual earnings have increased by 13% in Agriculture and by 10% elsewhere. Total wages and salaries have increased by 24% due both to increased numbers employed and to higher pay.

Capital

5.8 The total new investment becoming productive during YEAR 2 is shown in Table 13 at $108.4 m. This has to produce an extra $203 m of Value Added, corresponding to an average productivity of new capital of 1.87 compared with the figure of 1.77 required for YEAR 1 (paragraph 4.33). At the same time this $108.4 m, less the capital requirement for Agriculture ($24 m, as in paragraph 5.10 below), has to produce 83,700 new jobs which reduces to $1010 per job or some 45% more than in YEAR 1. This indicates that levels of technology designed into new projects can be allowed to rise compared with YEAR 1. The new non-agricultural investment ($84.4 m) has to produce $179 m of additional net output, i.e. its average productivity must be 2.39.

5.9 Conditions in YEAR 2 are different from those in YEAR 1 since we have assumed that the non-agricultural wage freeze can no longer be maintained. The productivity of labour has increased much faster than in YEAR 1 and physical output per worker must begin to rise through investment in improved technologies. The total net output (GDP) has increased by $203 m (32.5%) and the total wages bill by $134 m (24%). Inter-sectoral transfers of value added have increased to take up the difference.

5.10 As in YEAR 1, additional investment will be needed in Agriculture to increase the physical output per worker and to raise the productivity of labour. Without repeating the detailed estimates of paragraphs 4.49 and 4.50, we can allocate $24 m of total capital investment ($17 m fixed and $16 m working) to Agriculture, i.e. about 12% more than in YEAR 1. This new capital must assist in producing an additional $24 of net output (Table 20, column 1) of which $8.1 m is allocated in Table 21 as additional return to capital (column 6 minus column 4). The marginal gross return of this new capital is therefore about 33% which should be sufficiently attractive. The productivity of this capital must average 1.00.

Prices Rises: Increase of Physical Output

5.11 By the same reasoning as in paragraph 4.42, we can assume a maximum overall price rise in the agricultural sector of 2.7%, including nil for export products and 4% for products for internal final consumption.

5.12 In non-agricultural sectors the influence of a rise in prices of imports - which we can assume to continue at 3.5% a year - will directly affect permissible prices only in the "import substitution" manufacturing sectors with which such imports compete. Since such consumption imports account for little over 10% of private and government consumption, the effect on price indices will be small, with a ceiling possibly of around 0.5% rise.

5.13 In addition the rise in prices of imports will affect costs in those sectors using imported raw materials, intermediates, fuels, packages etc. It will also affect costs in undertakings using new imported capital goods, through increases in depreciation, interest etc. In the average undertaking relying on imports such effects will apply only to about one-third of the elements making up costs. Moreover the proportion of imports to local supplies is limited to about 10% for raw materials etc and 30% for capital goods. Thus a 3.5% rise in prices of imports can only produce an average rise in local production costs of some 0.12% in respect of raw materials and of 0.36% due to higher capital charges. These together may account for a rise in production costs not exceeding about 0.5%. But this need not lead to the same increase in prices since it could be absorbed at least in part by greater efficiencies.

5.14 Apart from these effects from prices of imports, prices of local products may tend to show some increase due to improvements in product design and quality. In the early stages of our planned rapid development these should be resisted as far as possible since for rapid expansion of consumption, volume increases are needed more than quality increases.

5.15 It is probably reasonable to assume from the above that there is no necessity for non-agricultural prices to rise generally in YEARS 2 and 3 at a rate exceeding 1% a year. Combining this with the 2.7% rise in agricultural prices assumed in paragraph 5.13, we can calculate the implications of Table 21 in terms of sectoral increases in physical outputs and in physical output per worker as shown in Table 23.

TABLE 23 Changes in Physical Outputs: YEAR 1 to YEAR 2

Notes: Column 1 is from Table 21 column 2 divided by column 1.

Column 2 is column 5 of Table 21 divided by column 5 of Table 11.

Column 4 is column 1 divided by column 2.

Column 5 is column 4 divided by column 3.

5.16 It is not possible to ascribe great accuracy to the calculations in Table 23. It should be interpreted only as indicative of the patterns and relative magnitude of the changes needed to maintain the balance of the major indicators of Tables 21 and 22. However it can be used to provide guidelines in the design of new investment in the various sectors, especially in evaluating the new levels of technology needed as reflected in the physical output to be achieved per worker. This problem did not arise during YEAR 1, when a 5.3% increase in physical output per worker was achieved without change in level of technology (see paragraph 4.41). However the evaluation of the effects occurring in YEAR 2 and subsequent years must be known to project designers during YEARS 0 and 1 since the new plants required for YEAR 2 onwards will then be at the design stage.

5.17 The method used for making such an evaluation will have to be based on two considerations:

Firstly, the figure appearing in column 5 of Table 23 is the average for a sector. It cannot be applied directly to a single new enterprise since the bulk of production will be in existing enterprises (with expansion where this is possible) which continue operating at their previous level of physical output per worker. The new and extended enterprises coming into production must operate at a higher level in order to bring up the sector’s average to the required level. This level can be estimated by adjusting the average increase figure required by multiplying by the ratio of total physical output required from the sector to the total physical output expected from enterprises continuing to operate at their previous level.

Secondly, this type of calculation cannot be based on a single year’s increase, since the resulting level of technology will then be appropriate only to that year and in the next year will already be outdated. This effect would be small if we were considering slow growth at traditional rates under 5% per annum but is very marked at the high rate we have assumed. In order to postpone this technological obsolescence we need to be able to design new projects to match conditions at say the mid-point of their write-off period. For this we need to construct a series of tables similar to Table 23 extending forwards for some seven years (less if we can design for rapid write-off in less than the traditional fifteen years).