Appraisal Of Joan Robinson.docx

AN ASSIGNMENT SUBMITTED BY ALIEZE, KELECHI SAMUEL

Critically appraise Joan Robinson’s model of capital accumulation, highlighting the assumptions of the model and how it can be applicable to LDC’s like Nigeria

The Robinson Model Mrs. Joan Robinson in her book “The Accumulation of Capital” builds a simple model of economic growth based on the ‘capitalist rules of the game’ but “it is not so much concerned with an automatic convergence to a moving equilibrium in a capitalist economy, as with studying the properties of equilibrium growth.” Assumptions Mrs Robinson’s model is based upon the following assumptions:  There is a laissez-faire closed economy.  In such an economy capital and labour are the only productive factors.  In order to produce a given output, capital and labour are employed in fixed proportions.  There is neutral technical progress.

 There is no shortage of labour and entrepreneurs can employ as much labour as they wish.  There are only two classes, the workers and the entrepreneurs between whom the national income is distributed.  Workers save nothing and spend their wage income on consumption.  Entrepreneurs consume nothing but save and invest their entire income from profits for capital formation. “If they have no profits the entrepreneurs cannot accumulate and if they do not accumulate, they have no profits.”  There are no changes in the price level.

A Critical Appraisal of Joan Robinson’s Model of Capital Accumulation Mrs Robinson’s model is an elaboration of Harrod’s growth model. The possible growth rate is Harrod’s natural growth rate. In the golden age, the actual (G) and the natural growth (Gn) rates are equal to each other and the warranted growth rate (Gw) confirms to them. Both postulate neutral technical conditions and a constant saving ratio. However, Joan Robinson’s theory of capital accumulation depends on the profit-wage relation and on labour productivity. Harrod’s theory on the contrary depends on saving-income ratio and on capital productivity. The former stresses the importance of labour in capital accumulation while the latter that of capital.

Commenting on Mrs Robinson’s model Kurihara opines that “J. Robinson’s chief contribution to post-Keynesian growth economics seems to be that she has integrated classical value and distribution theory and modern Keynesian saving-investment theory into one coherent system.” But it “is not capable of being modified so as to introduce fiscal-monetary policy parameters- unless labour productivity, the wage rate, the profit rate and the capitallabour ratio could be regarded as objects of practical policy as they might been regarded in a completely planned economy.”

Its Weaknesses Despite these merits, it has the following weaknesses:  According to Kurihara, “Joan Robinson’s discussion of capital growth has the subtle effect of discrediting the whole idea of leaving so important a problem as economic growth to the capitalist rules of the game. Her model of laissez-faire growth demonstrates how precarious and insecure it is to entrust to private profitmakers the paramount task of achieving the stable growth of an economy consistent with the needs of a growing population and the possibility of advancing technology.”  Joan Robinson’s model is based on the assumption of a closed economy. But this is an unrealistic assumption because capitalist countries are open rather than

closed economies in which foreign trade plays a crucial role in accelerating the growth rate.  This model assumes institutional factors as given. But the role of institutional factors as one of the determinants of economic growth cannot be neglected in any model. The development of an economy to a considerable extent depends on social, cultural and institutional changes.  This model is based on the unrealistic assumption of constant price level. When an economy moves on the path to progress, investment has to be increased continuously which tends to raise the demand for factors but their supply cannot be increased to match the demand. This leads to rise in prices. Thus price rise is inevitable with growth.  Mrs Robinson assumes that capital and labour are employed in fixed proportions to produce a given output. This is an unrealistic assumption because in a dynamic economy there are no fixed coefficients of production. Rather, substitutability between capital and labour takes place through time, the degree of substitutability being dependent upon the nature of technological changes.

Its Applicability to Underdeveloped Countries Robinson’s model has the following merits for underdeveloped countries.

 Joan Robinson, in her theory, studies the problem of population and its effect on the rate of capital accumulation. There is a “golden age” which any country can achieve through planned economic development.  An underdeveloped economy faces the problem of the rate of population growth being faster than that of capital growth, i.e., DN/N>DK/K, as posed by Joan Robinson. It reveals the tendency of progressive underemployment in such economies.  The “potential growth ratio” is crucial to Robinson’s theory of economic growth. The golden age depends on the growth ratio. The task of planning becomes easier if the potential growth ratio of an economy is calculated for the planning period on the basis of the growth rate of labour force and of output per head.  In an underdeveloped economy, the rate of capital accumulation is always less than its potential growth ratio that is why it is backward and possesses surplus of labour force. It, therefore, rests with the planning authority to increase the rate of accumulation to the level of the growth ratio for the economy. An underdeveloped country cannot, however, match the two by following the capitalist rules of the game. On the contrary, it devolves on the planning authority to take the initiative in controlling and regulating not only private investment but also public investment in such economies.

However, it is not possible to use the concept of the ‘golden age’ in solving the problems of underdevelopment, for the unchanging continuity required for the golden age is not present in a developing economy.

References Luigi, L. P Beyond the Accumulation of Capital in Joan Robinson’s Economics 247 Edward, J. N, Money in the Accumulation of Capital 283in Joan Robinson’s Economics e.d Gibson, B