Critical Minimum effort theory.pdf of economics

Economic

1. C
THEORY OF CRITICAL
MINIMUM EFFORT
Ekjyot Kaur Gujral
Assistant Professor of Economics
Army Institute of Law, Mohali

2. Introduction
PropoundedbyProfHarveyLeibensteininhisbooktitled‘Economic
BackwardnessandEconomicGrowth’publishedin1957.Thistheoryisrelatedto
overpopulatedandunderdevelopedcountries.
Acctothetheory,inUDCs,duetorisingpopulation,thepercapitaincomelevels
arelow.Inordertoincreasethepercapitaincomelevel,itisessentialthata
certainminimuminvestmentisinjectedintotheeconomicsystem.
Oncethisinvestmentisputintotheeconomicsystem,itattainsalevelofgrowth
wherebyitbecomesselfpropelling.
Criticalminimumeffortistheminimumlevelofinvestmentthatmustbeinjected
intotheeconomicsystemsothatthegrowthprocessbecomeselfsustaining.
Healsoemphasizesthatthisminimuminvestmentneednotbeeffected
instantaneously,itmaybespreadoveracoupleofyears.

3. NeedforCriticalMinimumEffort
Manyresourcesintheeconomyhavetobemadeavailableinacertainspecific
quantityinordertohelpinthedevelopmentprocess.
Inordertoachievebalancedgrowthintheeconomy,criticalmineffortisapre
condition.
Ineveryeconomythereare2typesofforcesoperative:
ShocksandStimulants
a)Shocks:aretheforceswhichreducethelevelofincome,outputand
employmentinaneconomy.Theyaretheincomedepressingforces.
b)Stimulants:aretheforcesthatraisethelevelofincome,outputandemployment
inaneconomy.Theyaretheincomegeneratingforces.
InUDCstheimpactofshocksisstrongerthantheimpactofstimulants.Soa
criticalmineffortisneededtomaketheimpactofstimulantsmorestrongerthan
theshocks.

4. GrowthAgents:Favorableeconomicconditionsneedtobecreatedinorderto
makethestimulantsmorestrongerthantheshocks.Suchconditionsarecreatedby
thegrowthagents.
Theentrepreneur
Theinvestor
Thesaver
Theinnovator
Theactivitiesthattheyundertakearegrowthcontributingactivities.Theseare:
Creationofentrepreneurship
Increaseinthestockofknowledge
Expansionofproductiveskills
Increaseintherateofsavingsandinvestment

5. Incentives:therearetwotypesofinducementsinaneconomy
a)ZeroSumIncentives:thosewhichdonotraisethelevelofnationalincomebut
areonlyundertakentoenjoymonopolisticpower,politicalpowerorsocial
prestige.
b)PositivesumIncentives:thesearerelatedtoproductionandraisethelevelof
nationalincomeintheeconomy.
Inlessdevelopedcountries,mostoftheentrepreneursareengagedinzerosum
activitiesandpositivesumactivitiesareverylimited.So,criticalminimumeffort
isneededtocreatemorepositivesumincentivesinordertoacceleratethepaceof
development.
InUDCs,thefactorsthatadverselyaffectthepercapitaincomelevelsare:
1.Zerosumentrepreneurialactivities.
2.Resistancetonewknowledgeandideas.
3.Increaseinnon-productiveconspicuousconsumption.

6. 4.Highpopulationgrowthrateinthelessdevelopedcountries
5.Ahighcapitaloutputratio.
Toovercomethesefactors,alargecriticalminimumeffortisrequiredtosustaina
rapidrateofgrowth.
DiagrammaticIllustration.
Criticism of the theory
Leibensteinhasfailedtogiveoutapreciserelationshipbetweenpopulation
growthandgrowthofincome.Acctohim,inUDCs,ppnstartsgrowingininitial
stagesofgrowthwithoutanycriticalminimumeffort.Infactppngrowthrateis
attributedtoincreasedmedicalfacilitiesreducingdeathrates.
Itisnotcorrecttosaythatduetocriticalminimumeffort,increasedincomelevels
willbringdownthegrowthrateofppn.Populationdependsuponahostof
economicandnoneconomicfactors.

7. Thistheoryhascompletelyignorethefiscalandmonetarypoliciesofthenationin
determiningthelevelofinvestmentandincomeintheeconomy.
Thistheoryconcentratesonclosedeconomies.Itdoesnotaccountfortheimpact
ofexternaltrade,foreigncapitalandinternationalforcesuponthelevelofincome
inaneconomy.
Thistheoryhasalsoneglectedtheimportanceofstateprogrammesinthecontext
ofpopulationgrowth.