BIOGRAPHY – RAGNAR NURKSE

Ragnar Nurkse (5 October [O.S. 22

September] 1907, Käru, now Rapla
County, Estonia - 6 May 1959, near Lake
Geneva, Switzerland) was an Estonian
international economist and policy maker
mainly in the fields of international finance
and economic development. Ragnar Nurkse
was born in the Käru village, Governorate of
Estonia of the Russian Empire, son of
an Estonian father who worked himself up
from lumberjack to estate manager, and
an Estonian-Swedish mother.
Nurkse is one of the founding fathers of
Classical Development Economics. Together
with Rosenstein-Rodan and Mandelbaum, he
promoted a 'theory of the big push',
emphasized the role of savings and capital
formation in economic development, and
argued that poor nations remained poor
because of a vicious circle of poverty.
 INTRODUCTION
In most less developed countries of the world there is an
excess of population with limited means of employment. So, a
sizeable portion of the working population remains
unemployed in these countries. Agriculture is the principal
occupation in these countries. This is the occupation working
in which all members of the family are apparently engaged so
that, in the absence of alternative job opportunities they have
the feeling of being gainfully employed.

But the result of it is that many more persons are engaged in

this occupation than what are actually needed. Many of those
apparently employed are thus disguisedly unemployed. If
these are withdrawn from agriculture and engaged in some
alternative occupations, total output in agricultural sector will
not fall while on the other hand if they continue to be
dependent upon their family members (in the agricultural
sector) for their subsistence needs, they would be
contributing to output more than the additional cost of
 Following are the principal differences between the industrial
unemployment and disguised unemployment:
(i) Disguised unemployment is concealed. Apparently all persons
are employed, while in fact some are not. Industrial
unemployment on the other hand is open and can be precisely
estimated.
(ii) In disguised employment workers are generally engaged in
their family work. Thus they work on their family farms. In the
industrial unemployment, workers are found to be unemployed
because they are not hired by others. Workers are not engaged
in their family occupations. These can therefore be easily
identified.
(iii)Industrial unemployment may be removed by increasing the
supply of money in turn raising the level of effective demand.
In the case of disguised unemployment, however, rise in the
supply of money would only raise the level of prices in the
 DISGUISED UNEMPLOYMENT
The term disguised unemployment was coined by Mrs. Joan
Robinson. According to her "Disguised unemployment is a
situation in which wage workers take to less productive jobs,
because they lose their regular jobs to cyclical trends in
economic activity- However, this definition of disguised
unemployment is valid in the context of developed countries only.
In the context of under-developed countries. "disguised
unemployment" is a situation in which more persons are
employed to do a job which can be done with equal efficiency by
a less number of workers. In less developed countries, people
generally fall back upon their family occupations (viz agriculture
and allied activities) because of the lack of alternative job
opportunities. If some of these persons are withdrawn, total
output will not reduce. So that, while apparently these workers
are gainfully employed, intact they are not. They are disguisedly
unemployed.
This may be illustrated through an example. Suppose that a
family of eight members has four hectares of land. Also assume
 FEATURES OF DISGUISED
UNEMPLOYMENT
1. In situations of disguised unemployment, it is not
possible to identify the persons who are actually
unemployed.
2. In less developed countries excess of population and
the lack of capital is the principal cause of disguised
unemployment.
3. Disguised unemployment is generally associated with
agricultural families.
4. In the less developed countries disguised
unemployment is concerned largely with the
agricultural and allied activities.
5. In certain countries disguised unemployment is
confined to specific season, such as during the
 A.K.SEN’S VIEWS ON DISGUISED
UNEMPLOYMENT
Sen is of the opinion that, in situations of disguised
unemployment, marginal productivity of labour is not zero. Why
should the workers work at all when their contribution to output
is zero? Disguised unemployment is a situation wherein more
persons are engaged in an occupation than needed so that
hours of work per worker are reduced. In such a situation, the
marginal productivity of the labourer is nil over a wide range
and the productivity of labour may just be equal to zero at the
margin. This yew of Prof. Sen may be illustrated through the
following Figure.
 DISGUISED UNEMPLOYMENT AND SAVING
POTENTIAL
Lot of labour power is actually wasted owing to the presence of
disguised unemployment in less developed countries. Nurkse and
Lewis are of the opinion that disguised unemployment is a potential
source of savings and capital formation in these countries. In what
follows, we discuss Lewis and Nurkse views separately.
LEWIS THEORY
According to Prof. Lewis there are two principal sectors in the
economies of less developed countries
(1)Subsistence Sector: This is the principal sector of less developed
countries. People in this sector are primarily engaged in agricultural
occupations. Because of the pressure of population there is a high
degree of disguised unemployment in this sector. Also, because of
the low marginal productivity of labour wages are very low in this
sector.
(2)Capitalistic Sector: This sector is dominated by the industrial and
allied activities. Because of the intensive use of capital, marginal
productivity of labour rules fairly high. Accordingly, wages are
equally high. The wages prevailing in this sector are called
 NURKSE’S THEORY
Prof. Nurkse offers following hypothesis to exploit disguised
unemployment as a source of capital formation in less developed
countries: In less developed countries more worker are engaged in
farming operation than actually needed. The excess number of
workers do not add anything to the farming output. However these
disguisedly unemployed people obtain their livelihood from
agriculture itself.
The possibility of saving in the agricultural sector is exhausted when
agriculture has to support a large number of disguisedly unemployed
persons. Nurkse maintains that productive workers have to spend
their prospective savings on the maintenance of their unproductive
counterparts. These prospective saving are what Nurkse calls
'Disguised Saving Potential.'
"There is the possibility, however, of taking surplus people away from
the land. Anything they could produce elsewhere would be a clear
addition to the real national income," says Nurkse.
The persons withdrawn from agriculture are to be engaged in capital
projects. Nurkse suggests that these persons could be engaged in
irrigation works, construction of roads and dams and other social
 ARRANGEMENT OF FINANCE
In this context the basic problem is of providing food clothing and
shelter to the persons withdrawn from the agricultural sector. Nurkse
is of the opinion that for these requirements these workers should
continue to be dependent upon their rural counterparts as before.
They were being supported by their family members earlier too when
they were disguisedly unemployed in the agricultural sector. Thus
Nurkse writes: "The use of disguised unemployment for the
accumulation of capital could be financed from within the system
itself. There is no question of csking the peasants who remain on the
land to eat less than before, only of preventing them from eating
more.
What is wanted is that they go on feeding their dependents who
leave the farms to go to work on capital projects". Formation of
capital out of disguised unemployment may be illustrated with an
example. Let us suppose a farming family working on its farm is
producing 20 qtls. of wheat. Only two persons are needed to work on
this farm. But owing to the lack of job opportunities, all the 5
members are working together on the same level.
The share of each person in total output comes to 4 Os. If 3 persons
 PROBLEM OF TOOLS
Provision of tools and implements to the persons withdrawn from the
agricultural
sector and engaged in public works programmes is yet another
problem.

Following suggestions may be offered in this context

(i) Use of labour-intensive techniques: Those techniques should be

used which are more labour intensive. Thus tree-felling could be
done solely by worker's manual efforts with small tool and
implements. avoiding the use of capital-intensive techniques

(ii) Use of simple tools: Disguisedly unemployed persons when

employed on capital projects should be provided only simple tools
and expenditure that does not involve heavy capital expenditure.

Leakage from Concealed Saving Potential

When the remaining persons working on the family farm raise their
consumption(after some of their counterparts are withdrawn for
working elsewhere), a serious leakage erupts in the saving
SOLUTIONS FOR PLUGGING THE LEAKAGES
Following suggestions may be offered for plugging the leakages:

(1) Agricultural Taxation: Remaining persons in the agricultural sector are

likely to increase their consumption level following the withdrawal of
some of their counterparts. The government can tax the surplus in terms
of foodgrains and give the same to those engaged on the capital projects.
However, one may encounter various difficulties in the execution of this
plan.
(2) To Collect Rent in the Form of Foodgrains: It may be suggested that
the government collects rent in terms of foodgrains. But this also entails
several difficulties.
(3) Compulsory Sale of Surplus Produce to the Government: The
government may compel the farmers to sell their surplus produce at
some fixed price. If, for example, a farming family is producing 50 qtls. of
wheat and to maintain the old standard of consumption only 25 Os. of
wheat are required, the remaining 25 qtls. may be compulsarily
purchased by the government at the fixed price. This method was fairly
popular in less developed countries.
(4) Complementary Savings: Prof. Nurkse is of the opinion that there may
remain certain lapses in the above stated various methods of plugging
the leakages. It is therefore essential that some additional savings are
 CRITICISM
Nurkse's concealed saving potential hypothesis is criticized on the
following counts.

(1)Leakages: Some economists are of the opinion that the success of

Nurkse's hypothesis depends upon the condition that there are no
leakages from the subsistence fund. But this is practically not
possible. Leakages are sometimes so vital that they are difficult to
be plugged through domestic or external sources.
(2) Difference In the Nature of Labourers: Nurkse does not distinguish
between the farming workers and those working on the capital
projects. While farming workers are generally unskilled and illiterate,
those needed for capital projects are skilled and educated workers.
Prof. Kurihara is of the opinion that if unskilled and i literate workers
are as such employed on the capital projects, there would hardly be
any meaningful contribution to the process of capital formation.
Capital projects need expensive and modem tools and implements,
difficult to be handled by the unskilled workers.
(3) Identification of the Disguised Unemployment is Difficult: Prof.
Nurkse himself accepts it that it is so very difficult to identify the
disguisedly unemployed persons. Unless this is done, it is almost
impossible to transfer the farming workers to the capital projects. It
NITIKA
B.A. III
Roll No. : 1270