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Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
June 1973
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Can economic growth provide more jobs?

Employment, Incomes and Equality: A Strategy for Increasing Productive Employment in Kenya, Geneva, Switzerland, International Labor Organization, 1972, xx + 593 pp., $10 (paper).

The interagency reports on employment, which the ILO publishes under the World Employment Program, are of considerable significance since they have tended to become a focus for the debate on whether economic growth and employment are compatible given the lack of a method for measuring the tradeoffs between the two.

This report (the others deal with Sri Lanka, Colombia, and Iran) is especially interesting since Kenya has always been considered as one of the wealthier of the developing countries; yet it is one which, despite considerable natural resources, administrative expertise, and foreign aid, has in the last few years had difficulty in maintaining the momentum of earlier development. Clearly, however, not all Kenyans have participated in what development did take place since the country now faces increasing population pressure and a chronic unemployment problem. Therefore, this study provides an excellent opportunity to show that, in a relatively affluent country, a strategy combining economic growth and increased labor participation can be achieved.

Despite a few technical inaccuracies, the ILO report is extremely stimulating. However, it could have been much more specific in outlining priorities for action to the Kenyan Government. It is true that such studies are beset by an even greater lack of data than is usual—even to the extent of only being able to guess at the distribution of income. Yet, in outlining a program that distributes from growth, it is necessary to pinpoint those industries and agricultural strategies where such a policy is most likely to succeed in putting purchasing power in the hands of the poor and to outline a plan of action that tests concepts developed in earlier sections of the report. This has not been made explicit and its presence would have tightened an otherwise thought-provoking report.

Richard W. Longhurst

The industrial realities of incomes policy

Blackaby, Frank (Editor), An Incomes Policy for Britain, distributed by Crane, Russak, New York, for Heinemann Educational Books, London, 1972, viii + 243 pp., $13.50.

The failure of orthodox demand management to ensure stable prices with full employment has naturally led to a search for additional policy instruments. It is, therefore, not surprising that the last few years have seen a dramatic growth of interest in incomes policies. However, it is one thing to talk in abstract terms about incomes policy; it is quite another to make concrete proposals that will be workable at the shop-floor level.

The principal virtue of An Incomes Policy for Britain is that it deals in the industrial realities of incomes policy. The book is the product of a conference attended by experts with wide knowledge of the application of incomes policy in different countries and at different periods. The first four papers advance a number of concrete proposals on how such a policy could be applied in the United Kingdom. Then there are four chapters drawing on foreign experience, and finally contributions on trade union reactions, on public acceptability, and on the need for a price policy to accompany action on incomes.

For those who see incomes policy as an easy key to price stability, the book will be disappointing. It emerges quite clearly from the record of the discussion that there are conflicting views on almost every point except the need for an incomes policy. Among the areas of disagreement are whether policy should seek to be redistributive or simply anti-inflationary; whether new institutions are needed or it is possible to work within the framework of the existing ones; whether adherence to rules should be voluntary or compulsory; whether emphasis should be given to centralized bargains or plant-level negotiations.

The topicality of the subject should ensure that the book is widely studied. It makes interesting reading and is certainly a useful counterweight to an overfacile acceptance of incomes policy as the simple way out of an awkward policy dilemma.

A.D. Crockett

Industrial infanticide in India

Bagchi, Amiya Kumar, Private Investment in India: 1900-1939, London, Cambridge University Press, 1972, 482 pp., $19.50.

As Kingsley Davis put it, we have the “puzzling fact” that India was “the first of the oriental countries to feel the impact of industrialization” and yet never completed the transition; whereas Japan, starting later and with fewer resources, did complete it. It is the aim of this book to document and analyze one of the basic reasons for the slowness of economic growth in India—the sluggishness of private investment. In the process, Mr. Bagchi has produced a significant work dealing with an important phase of Indian economic history.

One of the major contributions of the book is to provide a statistical framework for the determinants of private investment in India during the period 1900-39 and to provide an analysis of the data contained within that framework. An attempt is made first to assess the influence of macroeconomic factors on the fortunes of private investment. The major manufacturing industries are then examined one by one to find out which factors were specific to those industries and which affected all industries to more or less the same extent.

The author finds that the conventional hypothesis, which emphasizes constraints on the supply side in explaining the slow rate of Indian economic growth, is not supported by the facts. If industrial growth were limited by the lack of capital, this would be reflected in balance of payments crises and in internal inflation which cannot be attributed primarily to external causes. Neither of these developments came about during the period in question: apart from a few exceptional years, India had a surplus in the balance of trade and in the balance of payments throughout this period; again, there was generally little inflation in India which could not be attributed primarily to impulses transmitted from abroad.

The emergence of Indian entrepreneurship in most parts of India was systematically discouraged by the political, administrative, and financial arrangements maintained by the British rulers. However, where “native” entrepreneurs did emerge, they were no less enterprising than British businessmen in India. If anything, Indians showed a greater degree of courage, since they did not have many of the tangible advantages that British businessmen enjoyed because of their birth.

The author’s broad thesis is that the rate of investment in modern industry was limited before 1914 by the governmental policy of free trade, and after 1918 by general depression in the capitalist system combined with the Government of India’s halting and piecemeal policy of tariff protection.

In order to preserve India’s usefulness as a source of scarce foreign currency for the British Empire and lend credence to the professed policy of free trade, India, alone among the bigger colonies of Britain (excluding, of course, the colonies of black Africa), was prevented from adopting those policies of state patronage for industry (including tariff protection against imported goods) which helped to industrialize Canada, Australia, and South Africa. One consequence of this policy was that, while the so-called new colonies normally had an import surplus with Great Britain, India always had an export surplus—which served as a mechanism for the transfer of resources from India to Britain.

The author argues convincingly that to regard such phenomena as the continued stagnation of industrial investment and the perpetual poverty of ordinary people—which are essentially the results of India’s political and social system and of its special place in British imperialism—as causative factors is to mistake the symptoms for the cause of the disease. In so doing, Mr. Bagchi makes a useful contribution not only to Indian economic history but to development economics.

V. V. Bhatt

How to collect taxes

Wilkenfeld, Harold C, Taxes and People in Israel, Cambridge, Massachusetts, U.S.A., Harvard University Press, 1973, xviii + 307 pp., $12.50.

A growing volume of literature has, over the past decade, pointed to the need for developing finance—both public and private—as a prerequisite for financing development. While some of this literature has focused on changing tax structure, few systematic and comprehensive studies have centered on tax collection itself. Mr. Wilkenfeld’s meticulous case study of the development of an effective revenue administration in Israel is an important contribution in this neglected area.

The story opens bleakly with near revolt by taxpayers as an inadequate staff seeks to extract badly needed revenues from a backlog of unprocessed income tax returns by using unfounded “best judgment” assessments. However, crisis brings attention; and, with the help of time, external technical assistance, and economic development itself, government officials gradually succeed in putting a working system into place. Though taxes come from people, the goal adopted is to minimize personal contact between taxpayer and tax administration and to make the basis for any necessary contact determinate, appealable, and manifestly just. This is helped by a shift in business activity from small proprietors to companies capable of keeping auditable accounts. In time employees are moved to comprehensive withholding schedules making annual income tax returns unnecessary.

Within the administration, efforts are concentrated on training staff—60 per cent attending some courses in one year—standardizing procedures, and improving taxpayer relations. In consultation with industry, standard assessment guides—relating income to measurable indicators—are worked out for small businesses which do not keep books. For other businesses, simplified bookkeeping requirements are set up. Public advisory committees with industry members are created to listen to, and advise on, taxpayer appeals. As the collection network improves, a program of selective criminal prosecution of tax evaders is undertaken to demonstrate the integrity of the administration in going after big fish as well as little, and the wisdom of voluntary compliance.

It is an interesting record, with lessons to be drawn from both mistakes and achievements. For all concerned with developing revenue administrations—students, advisors, and administrators—this is a valuable guide, providing insight into the technical and human problems of collecting taxes in the course of development.

Jonathan Levin

Dorner, Peter, Land Reform and Economic Development, Baltimore, Maryland, U.S.A., Penguin Books, 1972, 147 pp., $2.75.

This is an interesting and useful contribution to the reconciliation of apparent conflict between the objectives of economic growth and better distribution. In his little book, the author. Director of the Land Tenure Research Center at the University of Wisconsin, provides much fact and wisdom, including cogent insights into questions of economic analysis underlying development programs and projects.

Most importantly, he urges the inclusion of income distribution as a variable in the analysis of costs and benefits. When this is done, he argues, the seeming conflict between distributive justice and economic efficiency can be made to disappear, at least as seen from the point of view of national development rather than that of the firm or the large landowner. While the prescription poses some large problems for the economist, their solution might help to illuminate the consequences of alternative policies.

Donald J. Pryor

Davies, Derek (Editor), Far Eastern Economic Review: 1973 Asia Yearbook, Hong Kong, 321 pp.

The Far Eastern Economic Review’s 1973 Asia Yearbook is a valuable source of information to students of Asia’s problems and prospects. With characteristic objectivity, the Review’s correspondents analyze the major political and economic developments in the region and their implications for the future of Asia and the world. In a sense, the Yearbook is a documentary on Asia as seen by Asian eyes; it observes the scene perceptively without claiming to have answers to the complex and compelling problems of Asia.

This material is supported by “statistical portraits” of countries in the region. Here too, the Review has done a great service by including a number of development indicators-hospital beds, student enrollment, circulation of daily newspapers, number of TV and radio receivers—that go beyond gross measures of growth. Together with the economic and financial data in the “portraits,” these indicators give the reader an accurate idea of the state of development.

S. Sankaran

Patat, Jean-Pierre, Fondements de I’economie moderne: Les Banques Centrales, Paris, France, Editions Sirey, 1972, 240 pp., F 26.

Although this book is oriented toward those commencing a fairly elementary course in banking, it does have the virtue of being in French, whereas much of the work previously published has been available only in Engligh. Mr. Patat attempts to cover a wide-ranging spectrum of questions commencing with a discussion of the justification for a central bank. He proceeds to discuss the powers and organization of central banks and then moves on to discuss policies. In the third part of the book he discusses the limitations upon the powers of the central bank, both in general and in the case of a sample of 11, mostly European, central banks.

Ian S. McCarthy

Finance and Development does not attempt to evaluate books or contributions thereto by Executive Directors or members or former members of the staff of the International Monetary Fund or the World Bank Group but notes them as likely to be of interest to its readers.

Unholy harmony of interests

Streeten, Paul, The Frontiers of Development Studies, New York, N.Y., U.S.A., Halsted Press, 1972, 469 pp., $17.95.

Twenty-seven essays, most of them previously published, are gathered together under four headings: Development Theory and Policy; International Movements of Capital, Money and Goods; Projects and Technologies; and The (British) Commonwealth. Many of the essays—e.g., “A Critique of the ‘Capital/Output Ratio’ and Its Application to Development Planning”—are for economists; others—such as “Overseas Development Policies under the Labour Government” (written with Dudley Seers)—are aimed at a wider audience. So varied is the collection that it is difficult to categorize, let alone to pass judgment.

Many of the essays attack other economists’ oversimplifications, particularly their neglect of psychological, social, and institutional factors. Formal models, which try to articulate the essential features of development, often in a quantitative framework, “…are at once a crutch and a prison …. Although Myrdal asserts that ‘facts kick,’ it is my experience that the power of the crust of intellectual tradition is stronger than the kicks. It takes a model to kick out a model.” An interesting suggestion is that “The irrelevance of concepts like ‘capital/output ratio’ and ‘unemployment’ appeals to the forces resisting development…..economic models support the forces of resistance to change. Much easier to say money spent on investment or on education yields high returns than to carry out a land reform, impose an effective tax system or clean up public administration.”

Such criticisms, salutory in themselves, are stronger than the suggestion of alternatives. How are economists to answer questions about capital requirements, the risks of difficulties in debt servicing and consequent implications for the terms of aid; or should they not try? There is another difficulty, intractable in the short run, which Streeten does not mention: that the framework of today’s national accounts and other statistics reflects yesterday’s framework of thought. At what point are we to try to persuade and help developing countries to adopt new concepts and definitions in collection of statistics?

Several of the essays warn developing countries against the uncritical acceptance of certain types of “aid” and of foreign direct investment. The comparison of receiving aid to making love to an elephant (p. 307) has already been widely appreciated and savored. However, the conditions under which foreign investment is or is not of benefit to the host country could be more clearly defined, at any rate in principle. While I am duly grateful for mention as one of those who contributed “helpful comments” on the two essays on foreign direct private investment, I still feel that, in particular, the cost benefit analysis on pp. 209-13 gets into an unnecessary muddle because of the specific focus on the effects on the balance of payments rather than on the national income, after allowing for any necessary balance of payments adjustments. These two essays nevertheless contain useful policy advice to developing countries.

Streeten constantly emphasizes the social and political ramifications of development. The essay on the multinational corporation (MNC) speaks of an “unholy harmony of interests” between foreign investors and certain minority groups in the host country. “Among those who will side with [the MNC] are bribed officials, the small employed aristocracy of workers who enjoy high wages and security, the satellite bourgeoisie to whom world-wide mobility and prospects are opened and the domestic industries producing complementary goods who benefit from the concessions which the MNC has achieved for itself. On the other side of the fence are the masses of unemployed, those who suffer from higher costs, the competitors, actual and potential, and those who dislike foreigners.”

The need to consider who benefits from development is indeed one of the themes which recurs throughout the book. The essay, written with Frances Stewart, on “Conflicts Between Output and Employment Objectives in Developing Countries,” is a particularly helpful clarification of the theoretical issues involved.

J. P. Hayes

Other Books Received

Bird, Richard M. and John G. Head (Editors), Modern Fiscal Issues: Essays in Honor of Carl S. Shoup, University of Toronto Press, Buffalo, New York, U.S.A., 1972, viii + 351 pp., $20.

Organization for Economic Cooperation and Development, Revenue Statistics of OECD Member Countries, 1968-1970, OECD Publications, Paris, France, 1972, 131 pp., $2.50, F 10 (paper).

Organization for Economic Cooperation and Development, Expenditure Trends in OECD Countries, 1960-1980, OECD Publications, Paris, France, 1972, 132 pp., $7.50, F 34 (paper).

European Stock Exchange Handbook, Noyes Data Corporation, Park Ridge, New Jersey, U.S.A., 1973, xvii + 567 pp., $36.

Hession, Charles H, John Kenneth Galbraith and His Critics, New American Library, Bergenfield, New Jersey, U.S.A., 1972, 239 pp., $1.50 (paper).

Marer, Paul, Soviet and East European Foreign Trade, 1946-1969: Statistical Compendium and Guide, Indiana University Press, Bloomington, Indiana, U.S.A., 1973, xviii + 408 pp., $15.

Horowitz, David, The Enigma of Economic Growth: A Case Study of Israel, Praeger Publishers, New York, N.Y., U.S.A., 1972, xiv + 158 pp., $13.50.

A Description of the Industrial Sector in Thailand, Siam Communications, Bangkok, Thailand, 1973, 209 pp., B 240 (paper).

Shepherd, S. A., Foreign Exchange & Foreign Trade in Canada (4th ed.), Toronto, Ontario, Canada, University of Toronto Press, 1973, xii + 336 pp., $15.

Scharf, Traute, and Majur C. Shetty, Dictionary of Development Banking, New York, N.Y., U.S.A., American Elsevier Publishing Company, Inc., 1973, vi + 214 pp., $13.95.

Epstein, T. Scarlett, South India: Yesterday, Today and Tomorrow, New York, N.Y., U.S.A., Holmes and Meier Publishers, Inc., 1973, xviii + 2673 pp., $15.

Andrews, Stanley, Agriculture and the Common Market, Ames, Iowa, U.S.A., The Iowa State University Press, 1973, xiii+ 183, $7.95.

Geiger, Theodore, The Fortunes of the West, Bloomington, , Indiana, U.S.A., Indiana University Press, 1973, xiii+ 304 pp., $10.

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