Leibenstein’s Critical Minimum Effort Theory (Weaknesses)

Leibenstein’s theory is more realistic. It provides a programme of massive industrialization.

Like Rostow’s ‘take-off-stage’, this thesis seems to be more practical for underdeveloped economies. The critical minimum effort can be properly timed and divided into smaller efforts to put the economy on the path of sustained growth.

Again, critical minimum effort has got the merit of being consistent with the idea of democratic planning which the majority of backward and underdeveloped economies are wedded. But still, this thesis suffers from a number of weaknesses.

They are as under:

1. Population Growth Rate Related to Death Rate:

Leibenstein is of the view that population increases as the income rises above a specific level. The population declines beyond a certain level of investment. This implies that the rise in income is directly related to growth of population is affected by social attitudes, customs and traditions of the people and not only by the per capita income. For instance, in India, there is decline in death rate from 23 per thousand in 1951-52 to 8 in 2000-01. But this decrease is not due to increase in the per capita income. It has been greatly influenced by other factors also.

2. Decline in Birth Rate is not due to Increase in Per Capita Income:

Leibenstein explains that the decrease in birth rate cannot be attributed to an increase in the per capita income up to a critical minimum level which surpasses the growth of population. To decrease the birth rate in an underdeveloped country is to change the attitude, understanding, education, social institutions and even certain intellectual perceptions. It is, therefore, not definite that decline in birth rate, population would start decreasing as per capita income increases. In other words, the problem of declining death rate in such countries is mostly of social-cultural nature.

3. Neglects Time Element:

The critical minimum effort thesis provides a set of timeless functional relationship rather than time series of growth in population and income. Hla Myint in this context remarks, “the question had for this type of analysis originally designed to illustrate the gear shifts in short run economic activity of a fully developed engine of growth in the advanced countries. It is useful for the study of the problem of the long run economic development of underdeveloped countries, which is concerned with the construction of engine of growth itself.” Thus, it is not logical to call critical minimum efforts as a magical hand.

4. Role of State Ignored:

The growth of population has not been checked by role of state. The government cannot wait for the per capita income to rise above critical minimize level, so that population growth may decrease. In reality, if per capita come rises above the minimum level, the country may reach the stage of population explosion. But now a days, the population is growing very rapidly and the government has to adopt necessary measure to curb.

In fact, Leibenstein has not accounted the possibility of state undertaking family planning programmes for bringing down the rate of growth of population. So it is difficult to believe that population will decrease if the per capita income has risen above the certain level. Thus, it is a very dubious hypothesis.

5. External Forces Discussed:

The initial stage of development in under-developed countries is affected by external forces. But this thesis fails to consider the rate of external forces like foreign capital, foreign trade, international economic reactions etc. These forces have more deeper impact on the development and these factors are considered an integral part of development.

6. Higher Than Three Per Cent Growth Rate Cannot Ensure Endless Expansion:

Another defect of the theory is that when maximum growth rate of population is 3 per cent and the growth of national income exceeds, this situation may not ensure endless economic expansion. To quote Hla Myint who says, “It is not difficult to find examples of abortive “take-offs” in which a country may succeed in raising its saving and investment ratio above 10 per cent to 12 per cent and raising the rate of growth in its total income above 3 per cent level, but subsequently will relapse into a slower rate of growth and stagnation.

How long must a country sustain its rate of growth above 3 percent level before it can be sure of a breaking through the population barrier.” If the growth rate of national income is higher than 3 per cent, there is no guarantee of endless expansion or sustained economic growth.

7. Complex Relation between Per Capita Income and Growth Rate:

According to Prof. Myint, the functional relationship between the level of per capita income and the rate of growth in total income is very complex. The relation of per capita income with rate of saving and investment depends on the distributional pattern of income and the effectiveness of financial institutions in mobilizing savings. The relation between investment and the resultant output is not determined by constant capital output ratio. But it depends upon the extent to which the productive organization of a country can be improved.

8. Unsatisfactory Explanation of Stimulants and Shocks:

This theory is based on the assumption that if per capita income is below the critical minimum level, the economy will revert to the position of equilibrium. If the inverse in per capita income is less than critical minimum, this does not mean that economy will side back to the position of old static equilibrium.

It is possible that increase in per capita income may increase the capital stocks and skills. On the country, if we take time into consideration then there is every possibility that after regular interval of time, the economy may stay at higher and higher point of equilibrium.