The Volta River project
Cantor, David Jules
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The thesis, The Volta River Project, is a study of the proposed Volta River power and aluminum project in Ghana with special reference to the problem of central economic planning in underdeveloped areas. The issue of central planning arises from the attempts of public or quasi-public agencies to allocate factors of production without recourse to the price mechanism of the competitive market. Because underdeveloped countries lack adequate capital resources to undertake large investments, they must seek funds in foreign capital markets; if foreign capital is made available in the form of loans, it follows that the profitability of the investment would be calculated by the only objective standard of measurement- the price system. The Volta River Project is an example of a planned undertaking by both public and private investors. On the one hand, the Ghana Government viewed the scheme as a means of diversifying the country's economy in order to reduce Ghana's dependence on one export commodity- cocoa, which is subject to wide price fluctuations; on the other hand, the aluminum companies and the United Kingdom Government, who participated in the planning of the scheme, were motivated by anticipated profits and a new source of aluminum supply, and were influenced by the market conditions for the metal. Two carefully considered aspects of the project have been selected for analysis: (1) the consequences of the dam and reservoir (which would be constructed as part of the power station) on the economy of the areas subject to flooding, and (2) the relationship of the project to the aluminum market. These two aspects are significant, because they permit a study of the relationship of the scheme to other sectors of Ghana's economy- which, in theory, could come under the control of a central planning body, and to the aluminum market- which lies beyond the control of any agency in Ghana. The planning agency of the project, the Preparatory Commission, recognized that the dam would cause many communities upstream to be displaced by the lake, and would alter fishing and agricultural patterns downstream because of a stabilized rate of flow of the Volta River. Investigations were undertaken in both regions with the object of minimizing any adverse effects of the dam. The Commission recommended resettlement for displaced communities in the area above the dam-site; as for the downstream sector, the Commission suggested measures to take advantage of the stable rate of river flow on the basis of a careful analysis of the region. The prior assumption of the construction of the scheme prevented an analysis of the economic potential of the upstream area. The planners did not therefore consider the fact that commercial activity appeared to be significant in sectors where roads and ferries were available; one indicator of the significance of this activity was the increasing population in many communities. Neither did the planners consider the effect upon other sectors which, although not exposed to inundation, were tied economically to the threatened region. Finally, the Commission's recommendations for resettlement were not based upon the availability of land of desireable quality. The relation of the Volta River Project to the aluminum market is important, because the scheme was conceived of and studied in the context of a rising demand for aluminum. From 1947 to 1956, demand exceeded supply, in large part as a result of United States government stockpiling; prices rose and the outlook for new investment appeared favorable. To meet the demand, capacity was expanded throughout the world. In addition, the Soviet Union entered the world market, thus contributing to the alleviation of the scarcity of the metal. That the expansion of output caused prices to fall in 1958 was an indication that demand had been met. One would therefore expect that, barring an increased demand for the metal, an increase in supply as a result of production in Ghana would tend to depress prices. The Volta River Project cannot be assured of the favorable market upon which depends for success, and nothing can be done by any of the participants to guarantee such a market, particularly since the demand for aluminum is derived from the demand for other products; being subject to accelerator effects, aluminum sales can be expected to fluctuate severely. How do these findings relate to the issue of central planning? Theory suggests that factors of production are allocated by the planning agency without regard to the pricing mechanism of the market; a necessary condition for successful planning is the complete control of all factors of supply and demand. The kind of planning engaged in by the Commission did not take into consideration all factors of production; neither of the two aspects of the scheme considered were fully investigated. For these reasons, the Preparatory Commission did not and could not engage in central planning. Similarly, that the planners ignored the influence of price fluctuations in the aluminum market indicates that the Volta River Project was not framed in accordance with sound economic principles. It is the Commission's disregard for the pricing mechanism in the aluminum market which exposes the scheme to possible failure.
Thesis (M.A.)--Boston University