Multidisciplinary Scientific Reviewer │Monthly │ Volume-02 │ Issue-09 │Sept 2015
Critical minimum effort thesis by Harvey Libenstein
Shazia Gulam
Masters in Sociology Kashmir University, India
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Abstract
The present study is about the thesis of critical minimum effort developed by
Havery Libenstein. Brief introduction about vicious circle of poverty, shocks and
stimulants which every economy faces, growth agents which leads to the development
followed by incentives, balanced growth as an overcome to come out from vicious circle
of poverty in underdeveloped countries. Conclusion; It is only when income increasing
factors are stimulated much beyond than the income depressing factors that the critical
minimum is reached and economy would be on the path of development.
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Introduction
Havery Libenstein is a very important name in the economics of development.
His theory can be termed as the theory of all or nothing. He says that underdeveloped
countries are characterized by vicious circle of poverty and to leave this it is difficult
unless there is some huge change or welfare taken by Govt. The underdeveloped
countries have low per capita income and this leads to low investment, then low quality
of products, low saving which finally leads to low income (vicious circle of income). The
way out of this impasses is a certain “critical minimum effort) which would raise the per
capita income to a level at which sustained development could be maintained.
Libenstein says that every economy is subject to shocks and stimulants. A shock
has the impact of reducing per capita income e.g. increase in population growth, more
illiterate population etc. While stimulants tend to increase it e.g huge money spent by
Govt. on welfare of people. He says certain countries are underdeveloped because the
magnitude of the stimulant has been small and shocks large therein.
Growth agents
The growth agents are quantum of capacities residing in the members of the
population to carry out growth contributing activities. The typical growth agents are;
I. The entrepreneur II. The investor III. The saver IV. The innovator.
The growth contributing activities results in the creation of entrepreneurship, the
increase in the stock of knowledge, the expansion of the productive skills of the people
and the increase in the rate of saving and investment.
Incentives
According to Libenstein “whether or not the growth agents expand will depend on the
anticipated outcome of such activities, the actual results and on the incentives for further
[Link] ISSN 2393-9893 Page 11
Multidisciplinary Scientific Reviewer │Monthly │ Volume-02 │ Issue-09 │Sept 2015
expansion or contraction generated by the interaction of the anticipation, the activities
and the results”. The incentives are of two types.
(I). The zero sum incentives.
(II). The positive sum incentives.
The zero sum incentives do not raise national level but have only distributive
effort. The positive sum incentives lead to expansion of national income. So only positive
sum type of activities lead to economic development. But condition in underdeveloped
countries are such that entrepreneurs are engaged in zero sum activities. They are doing
non treading activities for securing a greater monopolistic position, political power and
social prestige, the trading activities leading to a greater monopolistic position that do not
add to aggregate resources, nor to not national income. Therefore zero sum activities are
not real income creating activities but simple transformers of liquidity from some holders
to others. On the other side the positive sum activities are essential for economic
development but have limited scope. Even if some entrepreneurs undertake real
investment projects in anticipation of profits their positive sum activities will degenerate
and be directed towards zero sum activities in absence of net growth in the economy. It is
therefore necessary that the minimum efforts should be sufficiently large to create an
environment congenial to the persistence of positive sum incentives.
Balanced growth theory
Libenstein says that there is closed economy in underdeveloped countries. There
is balanced growth due to which investment in one country leaves also some profit to
other so they are interdependent between them. But investment has not been such that
zero sum incentives have counter positive sum incentives. So the need of hour is that
there should be increase in per capita income which would lead to overcome from vicious
circle of poverty.
Conclusion
TO conclude it is quite clear that the need of the hour is that countries which are
in stagnant position in underdeveloped countries should be given “Critical minimum
effort” so that per capita income will increase. His critical minimum effort thesis has
caught. The imagination of economists and planners in underdeveloped countries and is
regarded as a prescription to economic backwardness.
References
M.L. Ghinghan ‘The economics of development and planning, vrinda
publications P 169.
O.S. Shrivastava ‘Demography and population studies’ Vikas publications Pp
54-55
A.P. Thirwall ‘Growth and development’ published by Palgrave macmillan
Newyork P 280.
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