Journal Issue

Books in brief

International Monetary Fund. External Relations Dept.
Published Date:
June 1986
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H. Peter Gray

Free Trade or Protection?

A Pragmatic Analysis

St. Martin’s Press, New York, 1985, xi + 174 pp., $25.

The chickens of neoclassical economic theory have come home to roost—with a vengeance. Adjusting to changed trading circumstances is fine in theory, and all right in practice for others, but it is painful when it has to be applied at home. The central message of this compact book is that some assumptions of international trade theory do not hold under present economic conditions. In particular, trade theory does not adequately account for adjustment, its dimensions, and its costs—especially its social costs. Hence, protection does have a role to play in adjustment policy. At times Gray’s book is written as though trade regimes were based on unsullied economic theory (the author inveighs against the “unswerving advocacy of uncompromising free trade,” surely an advocacy that does not get far beyond the classroom door). In the real world the choice is not between free trade and protection, as the title may imply. Textbook free trade has never existed. But relatively liberal trade in the post-war period has made a tremendous contribution to growth in both industrial and developing countries. The danger now is the re-emergence of protectionism. Few would object, in principle, to temporary protection to facilitate adjustment and resource reallocation. But there is little evidence to suggest that such protectionism will be used for its intended objective.

Michael P. Claudon (editor)

World Debt Crisis

International Lending on Trial

Ballinger Publishing Company, Cambridge, MA, 1986, xxi + 298 pp., $29.95.

This collection of conference papers explores the root causes of debt-servicing difficulties in developing countries, the roles of the Fund and the US Federal Reserve in crisis management, and the models of creditor and debtor behavior used to evaluate contending strategies for longer-term solutions. Like many conference volumes, this book suffers from a wide variation in the quality of analysis and in writing style. Among the better papers are those discussing the origins of developing countries’ debt-servicing problems—external economic shocks, poor economic policies in those countries, and “loan pushing” or overlending by commercial banks. In his short paper, Mr. Mattione assesses the relative contributions of these factors, concluding that all three were important. Mr. Darity discusses the various “loan pushing” theories, although without providing evidence to support any one thesis. The Fund’s role in managing the debt problem is described in Margaret de Vries’ paper. Barend de Vries’ very thoughtful paper on the distinctions between financial adjustment and structural adjustment actually foreshadows certain key elements of the Baker Initiative. Unfortunately most of the other papers, which discuss longer-term solutions, now appear to have been overtaken by events since the conference met in September 1984.

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