13

LEIBENSTEINS CRITICAL MINIMUM

EFFORT THEORY OR THESIS
[LEIBENSTEIN'S MODEL]
I n order to achieve the transition from the state of backwardness to the
more developed state, where we can expect steady secular growth, it is
necessary, though not always sufficient condition, that at the same point
or during the same period, the economy should receive a _timulus to
growth that is greater than a certain critical minimum size.
Prof Havey Leibenstein

INTRODUCTION
In his book Economic Backwardness and Economic Growth;,'
Prof. Harvey Leibenstein has propounded his well-known 'Critical
Minimum Effort Theory or Thesis'. The theory provides an attempt.to
solve the problems of economic development faced by overpopulated
and underdeveloped countries like India, Bangladesh, Indonesia etc.
The main problem of these overpopulated and underdeveloped
countries is the vicious circle of poverty and low per capita income
which creates an atmosphere of inertia in the economy. Because of
such an atmosphere, the development variables like income, savings,
investment and employment etc. move in the backward direction and
thus reverse the process of economic development. Leibenstein finds
its solution in a critical minimum effort' which would accelerate the
pe "capita income to such a level that would be essential to maintain
the sustained economic growth.ln other words, critical minimum effort
is necessary to achieve a steady economic growth raising per capita
income. For example, certain minimum investment may be injected into
the system providing the necessary break-through. According to Prof
Leibenstein, "if sustained development is to be generated it is necessary
that the initial effort or initial series of efforts must be above a certain
minimum magnitude. That is to say, not all efforts to raise the per
capita income leads, to economic development there are some that are
too small to do so."*

1 Prof. Harvey Leibenstein : Economic Backwardness and EconomicGrowth.

2 Prof. Harvey Leibenstein : Economic Development and Economic Growth
188
Economics of Development and Planning
EXPLANATION Leibenstein's Critical Minimum Efforn Theory or Thesis 189
OF THE CRITICAL MINIMUM EFFORT
THEORY OR THESIS
Diagrammatie Representation
According to Prof Harvey Leibenstein the overpopulated and The theory of critical minimum effort has been illustrated
by
underdeveloped countries are characterized by the vicious circle of means of the diagram
povertythat keeps them around a low per capita income equilibrium state. given a head. The diagram shows the outcome of
the struggle between the stimulants and shocks and also enables to find
His'theory of critical minimum effort' is an attempt to provide a solution out stimulants of sufficient magnitude.
to this
economic problem. According to him, critical minimum effort is
necessary to achieve a steady economic
The sum and substance of the theory growth raising per capita income.
is that economic
growth in the
underdeveloped and overpopulated countries is not possible unless a' NPoint of Critical
certain minimum level of investment is injected into the
system as a
consolidated dose that pulls the system oul of doldrums. This Minimum Effort
level of investment is called
minimum
'critical minimum effort'.
In the words of
Leibenstein, 4 sufficiently large minimum effon is necessary at the outset if
the necessary minimum is to be achieved." It is necessary for the sustained
economnic growth of underdeveloped countries that a certain minimum
sum of money is
invested. Prof. Leibenstein has further added, "In ordertó
achieve the transition from the state of
backwardness to
developed state, where we can expect steady secular growth, the more
it is
necessary, though not always sutficient condition, that at the same point or
during the same
period, the
economy should receive a stimulus to growth PER CAPITA INCOME AND INDUCED
that is
necessary than a certain critical minimum size." INCOME GROWTH
Shocks and Stimulants
(i) OX-axis of the diagram represents
capita per inconme and
According to Leibenstein, every economy is under the influence of induced income growth.
two for ces- shocks' and stimulants'. Shocks refer to those forces () OY-axis indicates per capita income and induced income
which reduce the level of declines.
output, income, employment and investment
etc. In other words, shocks dampen and depress the dvelopment () The 45° line measures induced increases and
decreases in
forces. Stocks
depress development forces which reverse the wheel of income.
development. On the contrary, stimulants refer to those forces which iv) Pcurve represents stimulants and Z' curve
raise the level of income, output, employment and investment etc. In shows stocks.
other words, Stimulants impress and (v) OM is the subsistence living standard.
encourage
development
They are called Income Generating forces' which lubricate forces.
the wheel of (vi) At M1 curve P'Z' intersect each other indicating the
development. Stimulants have the capacity to raise per capita income equality between growth rate of population and the growth
above equilibrium level. The long run economic development does not rate of income so that the income is
circle of povertyy. caught in the vicious
take place in backward and undeveloped countries as the magnitude or
stimulants in those countries is quite small. A (vii) If the income level is raised from OB to
country ia said to be OC which is not in
underdeveloped if the impact of shocks is stronger than the impact of assonance with the critical minimum
effort, the rising
stimulants. On the contrary, a country is said to be
developed if the
impact of shocks is weaker than the impact of stimulants. population will neutralise the increased income. The system
will once again hand on the subsistence level of iving.
Leibenstein is of the opinion that the underdeveloped countries Shocks being more
are under the influence of shocks and stimulants. But in the long run, powerful than the
of income raising forces are
stimulant. At OJ level
the FE
just while the depressants up
magnitude of shocks and stimulants is too small and there 1s no to GM. This will
bring the income level down to M
process of development. Thus, the efforts to escape from which is just the subsistence again
Dackwardness, be they spontaneous or forced, are below economic level
minimum effort required for persistent growth. In order tothe crilica (viii) Solution of this problem for such a rise in the
circle of poverty, backwardness and other break the national 1ncome where stimulants are level of
imperfection in shocks so that the growth in income becomesstronger than the
underdeveloped country, they must get criticai effort sufficient in self-sustaining.
magnitude to move the
economy the (ix) If the per capita
incomc is raised
on
path of
developmenl. beyond OD
the
can be
pulled out of the vicious circle of poverty.economy
There-
by, growth in income becomes
self-sustaining beyond
 .

190| Economics of Development and Planning

Leibenstein's Critical Mininum Efforn
Theory or Thesis I 191
has been shown by the
point D. Thc per capita income should be enough to create such a favourable environment congenial to
arrows.
critical the persistence of positive sum incentives.
If initial investment is at least equal to the
Conclusion. In
minimum effort, the growth process shall become self-sustaining.
underdeveloped countries certain influences which' work
against the positive change or depress their per capita income, are as
Attitudes, Motivation and Incentives follws: (a) the zero-sum entrepreneurial activities directed towards
of stimulaits depends
the generation the
According to Leibenstein, the themaintenance of present economic privileges; (b) the conservativc
motivation of people and incentives given to attitude of both organised and unorganised workers; (c) the attraction
on attitudes and the without the of traditional ideas and resistance to the new ideas
them. However, motivation and incentives are useless of and knowledge; (d)
development. The main factors economic increase in nonproductive consumption expenditures that coulá
main factors of econonmic the discoverers, the otherwise be used for capitaB accumulation; (e) greater
development are the entrepreneurs,
the inventors, and those
population
growth, other things being equal, that reduce the amount of capital
innovators, andthose who can accumulate and utilize wealth,
skils and disseminate knowledge. Though the available per worker, and () high capital-output ratio.
who can accumulate a r e seemingly endless, but
we
are to study
activities of such persons
which a r e in a to generate stimulants and position Leibenstein stresses that influences
these
be
can
overcome by a
which would stimulate íhe
only those activities
the economic growth cannot Sufficiently large critical minimum effort
promote economic growth. However, pOsitive-sum incentives, counteracting the zero-sum activities and
occur requires continuous efforts of various agencies
automatically. It Would, thus, restore a rapid rate of economic growth in the economies
necessary foreconomic development. It requires special type of human Tunning in a state of backwardness. Consequently,
which a r e created by the per capita
to attitudes, motivations and incentives income would rise and tend to increase the level of saving and
response
economnic and social environment. investment in the economy. A critical minimum effort, in turn, would
lead to : (1) an
Incentives expansion of the growth agents; (11) an increasc in their
there two types of incentives that contribution to per unit of capital, as the capital-output ratio declines;
According to Leibenstein, are
111) a fall in the effectiveness of factors restricting growth; (iv) the
exist in the underdeveloped countries creation of an
environment that stimulates
scioeconomic mobility,
G) Zero-sum Incentives. t h e expansion of secondary and tertiary sectors. In the wordsand
of
(ii) Positive sum Incentives. Leibenstein, "The development of an
atmosphere that
changes leads to
incentives are those which 1s
more conducive to economic and social
4) Zero-sum Incentives. Zero-sum do not increase national cnvironment that leads to eventual fertilitychanges,
and
decline and especially
an
an eventual
exercise zero eIlect on economic growth. They decline in the rate of
or sneculative activiies population
income. It conSists of trading risk, non-tradingg growth."
from n e section of people to Role of Growth Agents
and transterence of income and profit
o

distribut+ve effect only. They are

another. The zeero-sum incentives have The
position, póliticar critical minimum effort theory is
carried on in order. to secure greater monopolistic positive-sum activities and such activities arebased the by some
on on sum of
do not add to aggregate resources o carried
power and localprestge. Tkey of s c a r c e resources. growth agents. In the words of Leibenstein, "By growth
the communiy. y Speaking, it is a wastage IOr
conducive
nOse individuals who
have the agents we
mean
contributing activities." Leibenstein'scapacities
ude that z e r o - s u m incentives a r e not to carry
out the growtih
short, we may O
economi growth growth agents are
and capital, but his growth agents are the entrepreneurs, not land, labour
(i) Positivessumncentives. The positie-sum incentives lead investors, dis
nhance the national income. The positive-sU Overers, savers and innovators. Leibenstein considers entrepreneur as
mic gro ne most important agent of growth. He is a person of
activities are
These
Or economic development. activiue rare
qualities
of technical know-ho a ne is out to explore new investment opportunities so as to mobilize
include the nvestment, use
onisand Rotation of the new markets ani the us Sential resources for production and promotion
new ventures of
iic discov and innovations etc. These are conducive for promotes, encourages and sustains positive-sum activities which etC.
are
0nomic grow y change the attitudes, motivations SSential for the economic growth of' a country. The ritical
cory is based on the presence of certain favourable conditionsmin1mum
irations of thfREOR ncy try to raise the level of income,,Ou which
nent. Leibenstein is of the opinion T
created by the expansion of the growth agents in the process of
investment, S Onomic development. These conditions lead the income
mere creationoRposin

activities is nots ch actE TCes at a higher rate than the income depressing forces. The increasing
problems o eo eiopment because such activitiesbtb of
o contributing activities includes the creation of growth
u n f o r t u n a t e l y d e

activities . increase in theentrepreneurship,

oriented envir essential that the minimum e rate of
inve
Vestment, capital formation and technical know-how etc. savig
 Leibenstein's Critical Minimum Efon Theory or Thesis 193
192 Economics of Development and Planning
biologically determined. After ye level of per capita income, the
Income population starts declining and national income starts rising. Thusye
Population Growth and Per Capita level of per capita income is critical minimum per capita income which
Leibenstein's theory recognises population growth as a function
Y
of per capita income. It is .closely related to the various stages of
economic. development. At the subsistence equilibrium level of incoine,
fertility and mortality rates are the maximum conSistent With the,
per capita income is raised
survival rate of population. NoW ii the the mortality rate falls
above the subsistence equilibrium position
increase in the grcwth
without any drop in the fertility. The result is an
rate of population. Thus, an increaseItinis the per capita income tends to
raise the growth rate of population. only upto a point. Beyond that
lowers the fertility rate and as
the increase in the per capita income
developme.at gains momentum, the rate of population growth declines Thesis,
The Leïbenstein with argument on Dumont's Social Capillarity to
which states that the increase in per capital income, the desire
have more children declines. Increased specialization following ristng
income levels and the consequent social and economic mobiity make it.
a large family. lence, growth?
a difficult and costly affair to support
rate of population becomes constant and then starts declining gradually
I'% 2%% 3%

as the economy gradually advances towards the path of sustained RATE OF POPULATION GROWTH OR
case of Japan, U. S. A. and other RATE OF NATIONAL INCOME GROWTH
development, as has happened in the
to Leibenstein, a biologicaly can
sustain itself or which can generate the process of self-sustained
west European countries. According 4 per cent. Leibenstein, thus, growth. According to Leibenstein, the less developed countries must
maximum growth rate may be about 3 or
minimum effort so
suggests to make suf+ciently the necessary critical raise their per capita income to this level, if they want to achieve the
as to control such a very high population growth. sustained growih.
The "motivation theory" of population growth propounded by A Critical Appraisal
Leibenstein, explains that rate of population growth is an increasing Leibenstein, in the Preface of his Book has written that "his aim
income upto a certain level of incomeafter tha
function of per-capita
it is a decreasing function of income
because of high cost of rearinga has been explanation
Rostow's "take-off
and understanding-not prescription." But like
the economists and
relationship between population growth and per stage", planners have
large family. The recognised Leibenstein's theory as a
prescription to
economic
capita income is illustrated by the diagram given ahead.: backwardness in underde: eloped countries. His theory is more realistic
Diagrammatic Representation
income growth 1
nd has more relevance than Rosenstein-Rodan's "big push" theory. A
big push for the rapid ecomomic development is impracticable in
Rate of population growth or rate of national
on the horizontal scale
and per capita income on the vertical ntein's
derdeveloped countries for the
capital deficiency, whereas Leibens
shown the ory
scale. Curve P indicates the population growth and curve N indicateS into
which emphasises critical minimum effort, broken up
We start from the point a which a series of smaller efforts to lead the economy on the way to
the level of per capita income.
point where the population Sustained economic development, has rather much relevance
ina
represents the subsistence equilibrium
is zero. When the per capita income Underdeveloped countries. Again, critical minimum effort has got the
or national income growih
growth growth rát merit of being consistent with the idea of
rises to yb, the population growth rate and national income we most of the
democratic pianning to which
a r e equal to 1%. When per capita income rises
to yc, have th backward, and underdeveloped countries are weddeda.
both P These points signity tha Despite the above, Leibenstein's theory suffers from
points c and g on curves V and respectively. is 2
of
weaknesses and, thus, is open for criticism from different sectors. The
a
number
at the yc level of per capita income, the population growth rate this 15 main pillars
whereas national incomecannot growth rate is 1%. Obviously, of criticism are as follows:
represent a level of income
that ca Untainavle Population Growth Relationship. Leibenstein's
disequilibrium state and income should be rais the
sustain itself. Therefore, the level of per capita starts declining an Detweenbased on the assumption isthere functional relationship
that
population growth and the rise in her capita income. Fowever,
to such an extent at which population growth rate t is
national income growth rate starts rising. The only
such point is y: not correct on account of the following tWO IcasonS.
this level of per capita
income the rate is
population growth 3%: assertion that with the increase in the per fisi!), Nt
growth rate of population, according to Leibenstein is maxim capita income over the