Weaknesses of the LPG Model of Development

Critics have pointed out certain fundamental weaknesses of the LPG Model of Development.

(a) By permitting free entry of the multinational corporations in the consumer goods sector, the model has hit the interests of the small and medium sector engaged in the production of consumer goods. There is danger of labour displacement in the small sector if unbridled entry of MNCs is continued.



(b) The model bypasses agriculture and agro based industries which are a major source of generation of employment for the masses. It did not delineate a concrete policy to develop infrastructure, financial and technological support, particularly the infrastructural needs of agro-exports.

(c) This has a very narrow focus since it largely concentrates on the corporate sector which accounts for only 10 per cent of GDP.

(d) By facilitating imports, the Government has opened the import window too wide and consequently, the benefits of rising exports are more than offset by much greater rise in imports leading to a larger trade gap.

(e) Ultimately, the model focuses a capital intensive design of development and there are severe apprehensions about its employment-potential. It is being made out that it may cause unemployment in the short run but will take care of it in the long run. But how long is the long-run is not specified. Further, an economy in which the growth of labour force is taking place at the rate of about 1.8% annually, the implications of the model in terms of slowing down the rate of growth of employment are of severe nature.

It is an important area to be highlighted that some have debated that the LPG Model has followed the East Asian Miracle which was established by South Korea, Japan, Taiwan and to some extent Indonesia, Malaysia and China. This is not accurate. Japan did not follow the IMP-World Bank Model based on free market economy, open door policies and liberalisation. Japan, in fact, practised restricted operation of market mechanism with the State playing an active role in directing the economy for the welfare of the community. This independent path followed by Japan was duplicated by South Korea and Taiwan. Malaysia and Indonesia also succeeded on this path for a few years.

The Chinese growth model, for example, is rooted in its own traditions and its decision to internationalise is encouraged by the desire to use global markets as an instrument to resolve numerous internal bottlenecks. China still follows the path of self-reliance, though it is not a closed economy. You must understand that for China, self-reliance is the ‘motor of growth’, and China has investigated a simple balanced two-way flow of goods and services and capital with the rest of the world. Chinese Model, thus, cannot be characterised as a neo-classical liberalisation model. It is a model of its own kind which blends an open economy with self-reliance and avoids an excessive dependency syndrome.

You need to know that the LPG Model has complied with the IMP-World Bank prescription of maintenance and structural adjustment. When measured in the light of the experiences of Latin America, Africa and East Asian Countries, it raises severe doubts in the minds of the people whether we are following the correct path of development. Dudley Seers has correctly suggested three parameters by which the phase of development of a nation can be measured. They are:

What has been occurring to poverty?, to unemployment?, and to inequality? The experience of a decade or more of LPG Model does not offer conclusive indication of substantial improvement of these parameters. Instead some of them have become worse.

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