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A Postwar Prodigy: Development Planning

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
March 1965
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Albert Waterston

TODAY, the national plan appears to have joined the national airline, the national anthem, and the national flag as an essential trapping of sovereignty and modernity. Yet when World War II began, Soviet Russia was the only country engaged in systematic development planning, and then only since 1929, when its First Five-Year Plan was approved. For almost every other country, development planning is a postwar phenomenon—even a postwar prodigy.

The advent of planning in the U.S.S.R. seems to have made Indian leaders conscious of development planning long before political leaders in most other countries. As early as 1933, Sir M. Visvesvarayya, onetime Chief Administrator of Mysore and a leader in the industrialization of southern India, prepared a 10-year plan for doubling India’s national income. When a conference of Ministers of Industries, meeting in 1938 under the chairmanship of the President of the Indian National Congress, established a National Planning Committee, the Committee revived the idea of planning to double the national income in a decade.

In India, as in the U.S.S.R.. the problem of economic backwardness was viewed mainly as one of “catching up” with the advanced countries. As the resolution setting up the National Planning Committee stated, catching up was a matter of industrialization, and industrialization one of planning.

Mr. Waterston is a staff member of the Development Advisory Service of the World Bank. He has been associated with the Bank for 17 years. He is coauthor of The Economic Development of Mexico, and author of Planning in Morocco, Planning in Yugoslavia, and Planning in Pakistan, all published by The Johns Hopkins Press, Baltimore. Maryland.

Although World War II interrupted the work of the Committee, its activities made the Indian people and Government keenly aware of the need for planning. This awareness, and the agitation it produced, led the British Government to appoint a high level governmental planning committee in India in 1941, and to replace it in 1943 by an even higher level Reconstruction Committee of the Cabinet, with the Viceroy as Chairman. Then, in 1944, there was set up a Department of Planning and Development. At the request of this Department, the Central and Provincial Governments prepared a number of projects to be undertaken after the War. In 1944 eight leading Indian industrialists also issued a plan, known as the Bombay Plan, which proposed doubling per capita income and trebling the national income in 15 years.

The exigencies of war and the Indian political situation stayed the execution of development plans; there was a pause until partition of the country in August 1947, but attainment of independence gave new impetus to planning in both India and Pakistan.

The War also interfered with the growth of development planning elsewhere. In the Philippines, interest in planning became active as early as 1934, when the economic implications of impending independence were being discussed. In that year, the Philippine Economic Association issued a report advocating planned development of agriculture, fishing, industry, mineral resources, transportation, and trade. In 1935 a National Economic Council was created to prepare development plans, and interest in planned development in the Philippines intensified through the second half of the 1930’s. But here, also, the outbreak of war interrupted attempts to give effect to planning proposals.

Following recommendations made by a Royal Commission, appointed in 1938 to investigate civil disturbances and other grave problems created in the West Indies by a drastic decline in prices of that region’s most important cash crops, the British Government in 1940 passed a Colonial Development and Welfare (CD&W) Act, superseding a Colonial Development Act passed in 1929 which provided for funds to be allocated to colonial development. The 1940 Act covered all British colonies, but during the war years shortages of materials and personnel made it impossible to carry out proposals for colonial development except in the West Indies. In nearby Puerto Rico, Governor Tugwell, appointed by the New Deal Administration in the United States and one of its staunchest exponents, strongly advocated planned development to reduce unemployment on the island by increasing the number of jobs and expanding production. Development planning started by a Planning Board established in 1942 was vigorously advanced through the war years. But the Caribbean was an exception; in most places the War hindered incipient development planning.

POSTWAR PLANNING

Nevertheless, the War was a turning point. During World War II, the industrialized free enterprise economies had been forced to resort to planning in order to ensure that scarce materials and other commodities went to production having high priority. That experience demonstrated that when the people of a country were moved by a common aim under emergency conditions, ambitious plans could be successfully carried out. After the War, continued shortages made it necessary for most countries to retain wartime planning measures for several years.

Europe

In France, pressure exerted by members of the postwar provisional government to undertake a considerable substitution of planning for market forces, which before the War had failed to remedy the effects of the great depression of the 1930’s, led in 1945-46 to the preparation of the First (Monnet) Plan of Modernization and Equipment. France thus became the first country in Western Europe to attack its reconstruction and development problems through a multi-annual plan, but the coming of the European Recovery Program, or Marshall Plan, in 1948 soon increased the number of European nations with plans. Under the Marshall Plan, each participating country was required to prepare comprehensive 4-year and annual plans embracing its resources and their utilization, which became the basis for governmental policy and action. During the Marshall Plan period, the United States actively supported the formulation of plans in these countries, a role which it considered consistent with its responsibility for providing aid for the reconstruction of Western Europe.

When the Marshall Plan ended, with the restoration of Western Europe more or less accomplished, some countries in Western Europe retained and expanded their planning activities. Through its second and succeeding 4-year plans, France sought to influence the rate and composition of investment in order to bring about a continuing high rate of economic expansion, while the Netherlands turned to annual plans directed primarily toward the maintenance of monetary and balance of payments stability and, secondarily, toward encouraging a level of economic activity appropriate to its resources. Meanwhile, in Eastern Europe, the countries which had come under Russian influence began planning on the Soviet model to expedite the rehabilitation and expansion of their nationalized economies.

Asia and the Middle East

At the end of the War, Asian countries which either had, or were about to, become independent, embraced planning to a much greater extent than countries in any other region. In the Philippines, the Joint Philippine-American Finance Commission, established to recommend measures which would allow the Philippines to recover from the effects of the War and to attain a rapid rate of economic growth, included in its 1947 report a 5-year plan for capital investments for the 1948-52 period. This section of the report, known as the Hibben Plan, was the first of a long series of development plans in the Philippines. Some countries felt so strongly about the need for planning their development that they adopted a practice followed in the socialized countries of incorporating a requirement for planning in their constitutions. Thus, Burma, which like the Philippines had established a central planning agency—the National Planning Board—before independence, adopted in Section 41 of its Constitution a provision that

the economic life of the Union shall be planned with the aim of increasing the public wealth, of improving the material conditions of the people and raising their cultural level, of consolidating the independence of the Union and strengthening its defensive capacity.

When Egypt entered into its abortive union with Syria, the provisional constitution for the United Arab Republic also provided that the national economy would be organized in accordance with plans which conformed to principles of social justice and aimed at a rapid improvement in the standard of living.

In India, a vigorous resurgence of planning activity followed the cessation of World War II. Soon after the Interim Cabinet was established in September 1946, an Advisory Planning Board was appointed to propose measures for coordinating planning activities, setting planning objectives and priorities, and creating planning machinery. Among other proposals, the Board recommended that a central planning commission be established, but it was not until a Working Committee of the Indian Congress Party had made a similar recommendation in March 1950 that the Indian Planning Commission was created. Meanwhile, early in 1948, a few months after the partition of India, Pakistan had created a Development Board with authority to coordinate development plans, recommend priorities, watch the progress of development projects, and report to the Cabinet on such progress. Pakistan was partly influenced in starting to plan soon after partition by a desire to make more secure its economic independence from India, with which it engaged in what a high official described as “a kind of ‘growthmanship’ rivalry.” But the deplorably low standard of living in the new nation also contributed to the Government’s decision to engage in planning to speed up the country’s development.

Development planning in Asia received new impetus when, in May 1950, member countries of the then newly formed Colombo Plan for Cooperative Economic Development in South and Southeast Asia (at the time consisting of Ceylon, India, Pakistan, Malaya, Singapore, North Borneo, and Sarawak) drew up 6-year development plans to constitute a blueprint of the Plan. Although none of these plans was carefully prepared or carried out and some were replaced before their term ended, they captured the imagination of Asian political leaders and gave the region a lead in development planning which it has not lost. The conquest of Mainland China by a communist regime brought the Soviet variety of planning to the largest country in Asia. Today, every Asian nation except Sikkim has prepared a development plan of some kind.

Planning for Colonies

The effectiveness of wartime planning in the United Kingdom and elsewhere, as well as the pioneering results of development planning in the West Indies in carrying out projects and programs under the CD&W Act of 1940, convinced the Government that development planning for the colonies was desirable. In 1945, when a victorious end to the War was in sight, another CD&W Act was passed which more than doubled the amount that the United Kingdom had previously been prepared to make available for colonial development. To give effect to the Act, the Colonial Office required the colonies to prepare and submit 10-year development plans for 1946-55, on the basis of which CD&W funds were to be apportioned. Because of postwar uncertainties and personnel shortages, most of the plans were not prepared and accepted before the end of the 1940’s or the early 1950’s. By then, a major shift had taken place in the purposes which the British Government sought to accomplish through the 10-year plans. The primary purpose of the Colonial Development Act of 1929 had been to help to solve the unemployment problem in the United Kingdom. In contrast, the CD&W Act of 1940 had as its main purpose the improvement of the welfare of the colonial territories. This was also the original purpose of the CD&W Act of 1945, but after the financial crisis of 1947 in Great Britain, increased output became the main British objective of colonial development.

Other European colonial powers also adopted development planning for their colonies. More for strategic than for economic reasons, France had pursued a policy designed to make the economies of its colonies complementary to that of metropolitan France. To this end, a Colonial Development Fund had been created in 1935 to provide investment resources for the colonies over a 15-year period. After the War, a 10-year colonial development plan, known as the Plan Pleven, was prepared for the years 1946-55, which confirmed the prewar policy of integrated development. With the advent of the Marshall Plan, the Plan Pleven was replaced by the French 4-year plans covering the entire French Union.

While most of the British CD&W plans had been prepared by the colonial governments in the territories, the French plans were usually prepared in Paris, and it was in Lisbon that Portugal drew up plans for its territories. In 1948-49 a Belgian mission, in cooperation with the colonial administration, prepared a 10-year plan for the period 1950-59 for the balanced social and economic development of the Belgian Congo, while the Netherlands, without Indonesia, concentrated on the preparation of a development plan for Surinam.

The World Bank

The World Bank has been an important agency since about 1950 in starting or accelerating organized national developmental planning in many countries. As a result of recommendations by its missions, many countries and dependent territories have either established or reorganized central planning agencies, or prepared national development plans based on these recommendations. In Iran, where planning activity began in 1946 with a Planning Committee of Iran’s central bank and two government planning committees established to prepare plans for utilizing Iran’s petroleum earnings for economic expansion, World Bank advice resulted in Iran’s engaging foreign consultants who helped prepare projects for implementing the country’s First Seven-Year Plan of 1948. The World Bank has also furnished countries with resident representatives and other technical assistance to help prepare and implement national development plans and programs. Most recently, the Bank has established a West African Office and an East African Office to help African countries prepare projects and programs, initially in agriculture and transportation.

Planning and Aid

The spread of development planning has also been stimulated by Western countries providing loans and grants. Although some of these countries have usually been opposed to planning for their own economies, they have accepted planning in recipient countries and have often insisted on the formulation of plans before they extended aid to less developed countries. Thus, countries like the Republic of Korea, the Republic of China, and Afghanistan started to plan mainly to meet requirements of donor countries which supply foreign aid. The United States has taken a strong stand in advocating development planning in less developed countries. In his State of the Union Address to the Congress on January 30, 1961, the late President Kennedy proposed that all U.S. foreign aid be extended on the basis of “orderly planning for national and regional development instead of a piece-meal approach.” The Charter of the Alliance for Progress, the program set up in 1961 by 20 nations in the Western Hemisphere as a cooperative effort to improve education, housing, health, and economic growth in Latin America, requested Latin American countries to create or strengthen their long-term development planning machinery and facilitate the preparation and execution of long-term plans. In response, 9 Latin American countries that previously had no central planning agencies established such bodies, and most Latin American countries started or intensified development planning activities. All Latin American nations now have national planning bodies engaged in some form of planning for future economic development.

Africa

Development planning in Africa, which had been greatly stimulated by the colonial powers, particularly by the British CD&W Act of 1945 and by French postwar plans, took on new importance as new states emerged on that continent. By the beginning of 1964, more than 20 African countries had formulated development plans. The limited purview of colonial planning was broadened to encompass nothing less than the full realization of economic potentialities. These aspirations have been given increased urgency by beliefs commonly encountered in developing countries that the breach between rich and poor countries has been widening and that only planned development in the less advanced countries can halt or reverse the trend.

Recent Developments

In the last few years, national development planning has also been adopted by most industrialized countries. Japan approved its first 5-year plan in 1955. In 1961, the United Kingdom established a National Economic Development Council (NEDC) with the object of removing obstacles to growth. NEDC prepared 5-year projections of national accounts for 1961-65 and 1966-70 based on a growth target of 4 per cent per annum, substantially higher than the rate of 2.5 per cent which has recently prevailed in the United Kingdom, and considered the policy implications involved in attaining the higher growth rate. Prior to the 1964 election, the Labour Party had announced its intention of expanding planning activities if it were returned to power. When it took office in 1964, the Labour Government established a Ministry of Economic Affairs whose function is to plan for accelerated growth. The likelihood is, therefore, that planning will play an increasingly important role in the United Kingdom.

Italy and Belgium, using the French planning system as a model, have also begun to plan their development on a national scale. The Netherlands is preparing a 5-year development plan, and Norway, which has sought to rationalize and coordinate investment and economic policy in the postwar period through a system of annual and intermediate range “national budgets,” is taking steps to strengthen its planning machinery. Sweden, where ad hoc commissions of experts appointed by the Ministry of Finance issued economic forecasts in the form of national budgets on their own responsibility, is establishing a permanent planning secretariat in the Treasury.

Most of the other countries in Europe have now followed the more industrialized countries in accepting planning as an essential element for their development. Portugal began to plan its development in 1952, the Republic of Ireland in 1958, and Cyprus, Finland, Greece, Iceland, Northern Ireland, Spain, and Turkey in the 1960’s. In Austria, an Economic and Social Council, composed of representatives of employers, trade unions, and farmers, was formed to advise the Government on the coordination of long-term policies affecting economic growth, currency stabilization, and full employment. And in Finland, a special commission, appointed by the Government, published a plan for 1960-70 with targets and recommendations of policy measures deemed ncessary to fulfill the targets.

Will National Plans Become Universal?

Among the more important industrialized nations, only the Federal Republic of Germany and the United States have not taken steps to engage in national development planning. It remains to be seen whether Germany can long resist the pressures for planning that have made the other regular members of the Common Market or European Economic Community (EEC), rely on national planning. These pressures are likely to increase as a consequence of the program that the EEC has set up for the coordination of medium-term economic policies of its member countries beginning on January 1, 1966. Moreover, the Federal Government of Germany already plays a strong role in the economy. Between 1948 and 1957, public investment exceeded 40 per cent of total new investment. A series of government measures passed to promote investment in certain sectors and exports have also increased the extent of government intervention in the economy. It may be, therefore, that only doctrinal obstacles stand in the way of German planning.

In the United States, the Kennedy Administration indicated that it aimed to increase the annual growth rate in the United States in the 1960’s from 2.5 per cent, prevailing in 1953-60, to 4 per cent or more. Dr. Walter W. Heller, then Chairman of the Council of Economic Advisers, said that the United States’

commitment to growth is clearly reflected in its 1961 pledge in concert with the other 19 members of the OECD to seek an increase of 50 per cent in the combined output of the Atlantic Community in the decade of the 60’s [and] in the President’s stated determination to achieve once again the rates of growth of 4 per cent, or better, that we experienced in the early postwar period.1

There are U.S. officials who would support national planning to raise the rate of U.S. domestic economic growth, reduce unemployment, and coordinate U.S. economic policies with those of the Atlantic Community. In April 1963, President Kennedy created an Appalachia Regional Commission, composed of Federal and State officials, to propose means for improving the rate of economic progress in a region made up of part of ten eastern states. This Commission has prepared a plan for the region.

The American Federation of Labor and the Congress of Industrial Organizations have proposed that a national planning agency be established to evaluate national resources and needs and to set priorities in the application of resources for meeting those needs. Some U.S. business leaders-are also interested in the applicability of planning to U.S. economic problems. In June 1962, the Committee for Economic Development, an organization sponsored by large U.S. corporations, sent a group to Europe to learn how planning worked there and to seek an answer to the question President Kennedy had asked a month before: “What is it they are doing that perhaps we could learn from?”

The world-wide acceptance of planning as a means of achieving national development objectives has made academic the doctrinal debate about whether a country should plan. For most countries, the question now is how to plan. There are still those who equate planning with socialism or with central controls harmful to freedom and private enterprise, but these are “a dwindling band.” Sir Arthur Lewis’s assertion that “we are all planners now” may have been premature when first published in 1949, but it is not likely to be seriously disputed today.

Development Planning: Lessons of Experience, from which this article is drawn, will be published by The Johns Hopkins Press later this year.

“The Commitment to Growth,” an address by Walter W. Heller at the 46th Annual Meeting of the American Council on Education, in Washington on October 4, 1963.

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