Feldman–Mahalanobis Model

Published Mar 22, 2024

Definition of the Feldman–Mahalanobis Model

The Feldman–Mahalanobis model is an economic model developed in the early 20th century, primarily focused on the economic planning and growth strategies of the Soviet Union. Named after Russian economist Grigori Feldman and Indian statistician Prasanta Chandra Mahalanobis, the model emphasizes the importance of heavy industries and capital goods over consumer goods as a means to achieve rapid industrialization and economic growth.

Core Components and Assumptions

The model makes several key assumptions and has core components that define its approach to economic planning:

– Priority on Heavy Industries: It posits that priority should be given to heavy industries such as steel and machinery, which are essential for the production of other goods and infrastructure development.
– Central Planning: The economy is to be centrally planned, with investments directed by the state towards sectors considered most vital for national growth.
– Sequential Development: Consumer goods industries should develop after the establishment of a robust heavy industry sector, based on the belief that a strong base in capital goods industries is crucial for sustained economic development and self-sufficiency.
– High Savings and Investment Rate: A high rate of savings and investment is essential for financing the industrialization process, even if it means imposing restrictions on consumer goods in the short term.

Applications and Impact

The Feldman–Mahalanobis model was instrumental in the formulation of economic policies and Five-Year Plans in the Soviet Union during its early development stages. Later, its principles influenced economic planning in other countries, including India. Prasanta Chandra Mahalanobis played a significant role in incorporating the model’s elements into India’s Second Five-Year Plan (1956–1961), focusing on heavy industries to set the foundation for future industrial growth.

Benefits and Criticisms

The model is praised for its role in facilitating rapid industrialization and economic transformation in countries with significant untapped potential for growth. However, it also faces several criticisms:

– Underestimation of Consumer Goods: Critics argue that the model underestimates the importance of consumer industries in driving economic growth and improving living standards.
– Resource Allocation Errors: Centralized planning can lead to inefficiencies and misallocation of resources, as seen in instances where investments in heavy industries did not yield the expected returns.
– Adaptability Issues: The model’s focus on heavy industries may not be adaptable or suitable for economies with different contexts or competitive advantages in other sectors.

Frequently Asked Questions (FAQ)

Can the Feldman–Mahalanobis model still be relevant in today’s economy?

While the global economy has evolved significantly since the model was first introduced, its principles can still offer insights for emerging economies with underdeveloped industrial sectors. However, any application would need to consider contemporary economic dynamics, including global trade, technological advancements, and the importance of service industries.

What are the main differences between the Feldman–Mahalanobis model and other economic growth models?

Unlike models that prioritize market forces and consumer demand, the Feldman–Mahalanobis model emphasizes state-led investment in capital goods sectors to drive economic growth. This contrasts with models favoring a laissez-faire approach or those that highlight the role of human capital and technology in economic development.

Has any country successfully implemented the Feldman–Mahalanobis model?

The Soviet Union and India are notable examples where the model influenced economic policy and planning. While both countries achieved significant industrial growth, the results also revealed limitations and inefficiencies associated with central planning and the under-prioritization of consumer goods industries.

The Feldman–Mahalanobis model represents a historical approach to economic planning with a focus on industrial expansion. Its lessons remain relevant for understanding the complexities of industrial policy and economic development strategies, highlighting the trade-offs between rapid industrialization and consumer welfare.