THE ECONOMIC WEEKLY April 9, 1955 Subsistence Economy and Income Estimation Hannan Ezekiel

HEN an estimate of the yet, such decisions are of vital im­ different character from that done W national income of any portance to the results. And the for outsiders ," Also, such activities country differs widely from previ­ solutions of these varied problems are not likely to vary significantly ous estimates, it becomes a matter are conditioned by sociology rather in the short-run. of great interest to examine the than economics/ Only an intimate reasons for such a difference. The knowledge of the character of The authors hold that " omission estimate of Nigeria's national in­ social relations and patterns of liv­ or separation of subsistence activity come made by Dr Prest and Mr ing prevailing among the people cannot possibly be justified in the Stewart*, places it at roughly thrice studied can make possible decisions case of Nigeria." There are two problems involved in this statement. the level of notional estimates made that are at all appropriate to the It seems that while omission of sub- previously. That Nigeria is an type of economy, in this case, that fcistent activity is undesirable, there underdeveloped country itself raises of a tropical dependency. is no reason why it should not be many questions of concepts and The authors propose to work with separated. The authors feel that methodology and for students of the gross domestic product concept neither is possible because there is national income the answers given rather than what is usually called die no clear distinction between subsis­ to these questions by the two gross national income. It is argued tence and trading activity. As a authors are of especial interest. To that the latter " has the disadvantage result, activity inside the family is the extent that these answers are that it does not allow the earnings hardly of a different character to not found acceptable, an opportu­ of extra-territorial companies to that external to the family. In the nity arises to discuss the problems come into the total ". Whether this case of Nigeria, further, "everyone concerned in the light of the argu­ is in fact a disadvantage is a moot who is a producer of cash crops is, ments advanced by these experts. point. For countries like Nigeria with the possible exception of some In some cases, the approach taken where such companies do play a cocoa growers, a producer of crops may itself suggest further advances. significant part in the economy, the for his own consumption." This To those not particularly interested importance of the decision taken on may not, of course, be so in other in the problems of national income this issue can hardly be exaggerated. regions. Yet, the other reasons estimation with special reference to Whatever may be the significance advanced do support the view that underdeveloped countries, the inte­ of the one or the other for the coun­ subsistence output should as a whole rest of this report lies in the results try itself, there are obviously many be included in calculating the Gross obtained—the higher level of in­ advantages in having both totals as Domestic Product. In a sense, come and the different relative posi­ information on changes in their re­ national income calculations in tions of various sectors—and the lations may itself be so useful in other countries also do include sub­ light these throw on the economic understanding the problems of the sistence output in so far as they are problems of Nigeria in particular economy. The authors, however, based on estimates of total produc­ and of underdeveloped countries in have calculated principally the Gross tion of most crops, whether these general. Domestic Product. This has made are marketed or not. The fact that The particular problems that arise it necessary to define what exactly where production of food, so depen­ dent on the weather is the major sub­ in the estimation of national income " domestic product" means in rela­ sistence activity, there will be mark­ for underdeveloped countries are by tion to the product of dual-nation­ ed fluctuations from year to year now fairly well-known. These call ality companies and of Government suggests another reason for inclusion. for special treatment though the institutions. There is therefore no adequate rea­ standard methods used in western Even more important are the son for excluding subsistence out­ countries have sometimes been ap­ problems that arise in defining put. If the fact that it is not mar­ plied to underdeveloped countries " product". Here the question of keted justifies its exclusion, then, and the result has been considered family activities is crucial If there the authors argue, Government pro­ satisfactory (eg, Creamer, The Net is to be a complete assessment of all ducts should also be excluded. This Income of the Puerto Rican Eco- activities whether performed for is not, however, valid. For in the nomy, 1940-44). The distinction oneself, for other members of the case of Government product, though between working and non-working, family or for outsiders, a number of it is not sold, its production involves between production and consump­ anomalies are avoided, but this is exchange. It is the cost of produc­ tion and between productive and not the principle adopted in the tion which is used as the basis of distributive functions are often national income estimation of west­ valuation. The fact that such a nebulous in underdeveloped econo­ ern countries. The usual rule there basis of valuation is not available mies. Institutional peculiarities and is to exclude economic activity tak­ in the case of subsistence output the relative unimportance of the ing place within the household with suggests that the two cannot be put market economy make it difficult to the exception of activities which are on the same footing. decide about border-line cases and similar to those carried out outside, as in the case of food grown for The need for separating subsis­ * The National Income of Nigeria by home consumption in the rural areas. tence output is not in any way A R Prest and I G Stewart, Colonial The main reason for leaving out obviated by any of these arguments. Research Studies No 11, Her Majesty's other self-produced and intra-family It should be clearly understood, of Stationery Office, London. Pages 124; goods and services in these countries course, that the segregation of sub­ is that such work "is largely of a sistence is desirable not because of

447 April 9, 1955 THE ECONOMIC WEEKLY

any doubt about the validity of its ment is to be maintained—there are authors, one may well ask : Why inclusion in any national income obvious advantages in uniformity— were previous estimates so low? The total but rather because knowledge the authors would have done well to authors feel that it was due " partly about its relative importance in the reject this mode of valuation. After to the neglect of the great volume economy can be very valuable in much laboured rationalization, the of foodstuffs grown and consumed obtaining a clear picture of the authors are only able to claim that within the country " and " partly to working of the economy and of the for various reasons, " we are hardly the neglect of the large mass of problems it faces. None of the likely to overestimate." This is ob­ internal trading and transport acti­ arguments advanced by the authors viously no argument in favour of vities," and to the " failure of many suggest that there would be this particular mode of valuation investigators to appreciate the sig­ any special difficulty that would since underestimation is as undesir­ nificance and importance of the make it impossible to achieve such able as overestimation in any mode great inland trading centres." While a separation, though some logical of valuation. the estimators were not able to and conceptual problems would no obtain detailed data of expenditure A question may be raised at this doubt arise. by different income or social groups, stage. What about investment of they find that " not only is there the the nature comparable to subsistence If the line is not to be drawn at obvious gap between European living consumption? One's own labour the family, where should it be standards and those of the great and the labour of one's family may drawn? The compromise accepted mass of African clerks, petty trad­ be directly utilised for the produc­ by the authors is that " generally ers, farmers and so on, but there is tion of a capital work and the value we should not try to include the also a more important gap between of such unpaid work resulting in services the individual performs for African and African, on which the capital formation should correctly himself but only those performed also be included in the national in­ present structure of taxation makes for other members of the family ". come. The value of such labour little or no impression ". That this decision is the best under may not negligible and it may also the circumstances has to be admit­ vary significantly. Its importance In the light of their findings on ted, but at this stage a statement is is well realised since deliberate pro­ Nigerian national income, the authors made which queers the pitch con­ paganda is made to encourage volun­ examine the problem, how far is siderably, " The justification for in­ tary work for public works of a national income related to taxable cluding all intra-family output, in­ nature beneficial to the community, capacity for an economy in which cluding services," say the authors, but even if self-labour is directed to so much of the income represents " is that the relationship maintained the improvement of one's own land imputed income and is not the between the members of the family by the building of wells or bunds, result of cash transactions? It is is much more nearly a commercial etc, there is to that extent an addi­ often argued that when national in­ one than that to which we are accus­ tion to the domestic product. No come contains a large proportion of tomed in the West." Granted that estimate for such work is made imputed incomes, it is no measure intra-family relations are in fact by the authors and their estimate of of taxable capacity, the implication commercialized in Nigeria, it would national income must be considered being that imputed or subsistence not be true of many other under­ incomplete to that extent. income is untaxable. Or in other developed countries. Would there words, there is no means of enforc­ be no justification for inclusion of That their conclusions may be ing reduction in such consumption. such services in other underdeveloped vitiated by this omission is suggested For Nigeria, however, " a country countries where intra-family rela­ by what follows. Finding that Gov­ with a vast amount of internal trad­ tions are not commercialised as in ernment current expenditure forms ing, where practically everyone sells Nigeria? The other arguments ad­ only 3 per cent of total expenditure some part of his crops ", the authors vanced by the authors themselves at market prices, which is contrary feel, " this does not ring very true." support the view that the inclusion to the usual belief that this propor­ Taxable capacity in underdevelop­ is entirely justified. tion should be high in underdevelop­ ed countries is rated low partly be­ ed countries, the authors come to cause of the absence of cash. There This approach to the problem of the conclusion that this is not true are other means of reducing con­ intra-family activities in Nigeria, for capital expenditure, " capital sumption or may be, of increasing however, leads the authors to adopt formation by public authorities be­ production without raising consump­ a peculiar mode of valuing these ing about a third of the total." This tion, even where people do not have services. The solution adopted is conclusion may not stand if capital any cash or who do not carry out " to take something like the annual formation in the subsistence sector considerable trading activities. At sum paid over in bridal prices as a is included in total capital formation least so far as Nigeria is concerned, measure of general services. The and therefore in national income. the authors do not accept that be­ composition, nature and size of It is stated elsewhere that " the over­ cause an individual has no income, bridal payments varies a good deal whelming importance of consump­ it follows that he has no cash. Even from one area to another inside tion expenditure (£517 m out of in other underdeveloped countries Nigeria but it does not seem far £596 m) is in accordance with ex­ where trading is not perhaps deve­ wrong to generalize by saying that it pectations " and further that, " gross loped so much, it is not really valid is a lump payment made to mark investment as a whole was some­ to argue that subsistence producers the acquisition of a wife's general thing like 12 per cent of gross total cannot be taxed though how they services by a husband and in parti­ expenditure at market prices ". can be, is a challenge to the inge­ cular the services of procreation ." These statements would be subject nuity of economists and tax autho­ This treatment, apart from other to revision in that case. rities. The high degree of income objections against it, would be in­ In studying the implications of the inequality in Nigeria among Africans, applicable in other underdeveloped much higher income that has now to which attention is drawn, under- countries. If uniformity of treat­ been estimated by the present lines the importance of the problem.