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International Monetary Fund. External Relations Dept.
Published Date:
March 1981
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Inflation and Stabilization in Latin America

Rosemary Thorp and Lawrence Whitehead (editors)

Holmes and Meier Publishers, Inc., New York, NY, U.S.A., 1979, xi + 285 pp., $35.

The editors have gathered under one cover a set of six studies of the recent stabilization experiences in Latin America. The case histories of Argentina, Brazil, Chile, and Peru cover the first seven or eight years of the 1970s; those of Mexico and Uruguay cover 1950 to the late 1970s but concentrate on the most recent years.

In a provocative introduction, the editors survey developments in the world economy with emphasis on the evolving role played by the International Monetary Fund in the international financial system and in the design of stabilization policies. Considerable attention is paid to two alternative approaches to stabilization: the orthodox, or monetarist, approach and the nonorthodox, or structuralist, approach. Neither of the two sets of policy prescriptions rates high marks from the editors.

The editors agree that the monetarist approach, founded on a rigorous theoretical base, could in principle be expected to lead to the re-establishment of external and internal equilibrium in the short run—eliminating payments deficits and reducing the rate of inflation. They point out, however, that this approach has tended to show the expected results only when applied under a capitalist system of wealth accumulation and relatively uneven patterns of income distribution and under an authoritarian type of government. This orthodox approach is criticized, moreover, for failing to come to grips with the problem of establishing the basis for sustained long-term growth in a framework that proved socially and politically acceptable within the country concerned. But the judgment of what would constitute an acceptable framework is the editors’ and is to a considerable extent subjective. The editors would have added greatly to their case if they had demonstrated the issues that are susceptible to economic analysis, namely, the incompatibility of a reinforcement of a capitalist system of accumulation and distribution with the achievement of sustained long-term growth in the developing economies.

Little insight on this question is offered by the six case studies. One reason may relate to the publication deadline of the book which effectively limited the discussion of the period subsequent to completion of stabilization programs. Peru is mentioned by the editors as a typical case in which the authorities applied orthodox stabilization policies. These are judged to have been costly and ineffective, even with respect to the short-run objectives, because they failed to take account of the economic and political structure of the country. Some of the harsher criticism directed at the Peruvian stabilization efforts may have been premature, however. Following the publication of this book, Peru has made major progress in a number of economic objectives, including the reactivation of the economy, and has managed a successful transition from a military system to a democratically elected government.

The editors equate the orthodox approach with a standard set of policy prescriptions employed by the Fund. This is an oversimplification, since the Fund assists countries with widely different political, economic, and social systems, and the mix of policies it recommends to rectify payments disequilibria has increasingly included measures directed at improving supply capabilities. Furthermore, the time frame of adjustment has been extended to three years in the case of Fund-supported stabilization programs under the extended Fund facility. In addition to committing such oversimplifications, the analysts do not consider the question: what would have been the costs of the country’s adjustment burden had Fund resources not been made available to it?

The structuralist approach to stabilization is criticized for its failure to provide a rigorous theoretical framework on which to base short-term economic policy prescriptions and for lacking clarity in its long-run consequences. The experience of the structuralist-inspired import-substitution policies pursued in Latin America in the 1950s and 1960s, while not definitive, indicated the difficulties in shifting a country’s industrial system to an export orientation, once the first stage of import substitution had been completed. Brazil was described as a relatively successful case of structuralist stabilization, principally because policies did not diverge too fundamentally from orthodox views. One should add that Brazil was blessed—alone among Latin American countries—with a domestic market of approximately 100 million persons so that the process of import substitution could be carried on for much longer before size became a limiting factor to further growth.

A disappointing aspect of the book is that the reader is not provided with the outline of an alternative approach to stabilization which would be consistent with the political and social objectives of the countries concerned as perceived by the editors. In a positive vein, the editors suggest that if stabilization is forced upon a country once a balance of payments crisis has been reached, the shock should be cushioned by the international community by providing for a gradual adjustment period. The point is made, however, that in general such generosity from the international community should not be relied upon. Instead, a country is urged to establish the political and institutional bases for timely adjustment measures in order to ensure the avoidance of a balance of payments crisis. Even though the editors are not clear on what these measures might be, it strikes us as good advice.

Jan van Houten

Public and Private Enterprise in a Mixed Economy

William J. Baumol (editor)

St. Martin’s Press, New York, NY, U.S.A., 1980, xi + 308 pp., $40.

The topic of public versus private enterprise is loaded with historical and political connotations. It evokes echoes of the debate, since Marx, about the public ownership of the means of production and of socialist revolutions. In many developing countries, it also evokes more recent sentiment against private foreign capital and the issue of nationalization of enterprises as a threat or as a solution.

These political connotations today tend to fade away as responsible economists and professors of business administration start to analyze the relative efficiency of private and public enterprises in the real world. Some would say that in the twentieth century it does not really matter whether the shareholders of an undertaking are private individuals, banks, other companies, public entities, or some combination of all of them. What matters, instead, is what makes the enterprise efficient—the quality of management, staff relations, and an assorted range of factors such as the choice of technology, the presence of corruption, pricing policies, and so on. It is certainly true that the world has changed and become more complicated since Karl Marx. The ideological battles have been fought. In some parts of the world, state capitalism is there to stay in one form or other. Elsewhere, experiments with various forms of ownership and management have been made as well, and their results are available. In economic terms they are mixed, even puzzling, and they serve to discredit political cliches, so much so that nationalization and denationalization of basic industries in the United Kingdom, for instance, invites a yawn.

This book consists of 16 papers debated at a conference held by the International Economic Association in Mexico City in January 1978, proposed originally by Lord Kal-dor and arranged by Professor Baumol. The volume stands out as the first of its kind to bring together a representative sample of contemporary analysis and thought on the ownership and management of public and private enterprises, and to present the state of the art. The importance of such a project is self-evident. One is struck by the wealth of information and experience incorporated in these papers, by the professionalism that governs the discussion, and by the respect for facts and their systematic investigation—all resulting in a Socratic recognition that the more one knows about real life the less one can make sweeping generalizations either about the social benefits or the economic efficiency of private or public enterprises. It really depends on too many factors besides ownership. Featherbedding, a major problem for the—nationalized—British Railways, also occurs under private ownership, as in the United States. Many big, publicly owned or controlled enterprises such as Renault and Volkswagen are socially and economically as efficient as corresponding private ones. Big power utilities operate in much the same way whether private and regulated or publicly owned or controlled. Any enterprise operating under natural monopolistic conditions will be subject to some control by some public authority. Who would say that a state oil company (Pemex, Elf-Aquitaine) is inherently better or worse than a privately owned one? And so forth.

The case material covers mostly experience in Western Europe and Mexico, although one paper each came also from Hungary (by Reszö Nyers and Marton Tar-dos) and the United States (by E. S. Savas), and another dealt with the Israeli kibbutzim (Haim Barkai). No case material is included from Asia or Africa, which leaves the state of the art somewhat short of being universal. Also, as is usual with conference documents, some of the papers presented have no more than an incidental bearing on the subject matter. However, the majority go to the core of the matter; the authors are highly informed or scholarly (or both), and the papers provide an enriching experience for the reader—as do the summaries of the debate following each paper.

Other books received

Sanjaya Lall

The Multinational Corporation

Holmes & Meier Publishers, Inc., New York, NY, U.S.A., 1980, xii + 264 pp., $32.50.

Tagi Sagafi-nejad and Robert Belfield

Transnational Corporations, Technology Transfer and Development

A Bibliographic Sourcebook

Pergamon Press, Inc.. Elmstord, NY, U.S.A., 1980, xvii + 145 pp., $25.

Both books offer a convenient package of reference materials for researchers on the role of multinationals in the world economy and the manner in which they operate. Lall also takes a closer look at the workings of international pharmaceutical firms.

S. L. N. Simha and Janaki G. Krishnan

The Saga of Silver

Institute for Financial Management and Research, Madras, India, 1980, xiv + 208 pp., Rs 40, $8.

A description of the uses and historical role of silver is followed by a discussion of production, consumption, and price trends over the past 40 years, and an examination of the policies and policy options relating to silver for the Indian Government. A useful review on a little publicized topic.

Michael Beenstock

Health, Migration and Development

Gower Publishing Co., Farnborough, U.K., 1980, vi + 183 pp., $23.

The essays published in this volume were prepared in the course of a two-year stint at the World Bank. They cover a number of topics that are of continuing interest for developing countries, including the relation between the supply of basic needs and health, on the one hand, and the link between health and productivity, on the other. Beenstock devotes the latter half of the book to analyzing the determination and effect of migration. The Indonesian transmigration project provides the empirical leavening for this discussion.

Richard E. Caves and Lawrence B. Krause (editors)

Britain’s Economic Performance

The Brookings Institution, Washington, D.C., U.S.A., 1980, xiv + 388 pp., $18.95 (cloth), $7.95 (paperback).

In this conference volume, six North American economists examine key factors in the United Kingdom’s sluggish economic performance, particularly since the early 1970s, and discuss the country’s prospects for the 1980s in the light of North Sea oil. This volume is a sequel to the book “Britain’s Economic Prospects” by Richard E. Caves, published by The Brookings Institution in 1968. These papers will provide only limited help to the reader in understanding two of the key areas of debate about current British economic policy: the monetarist thrust of the stabilization effort and the level of the exchange rate.

Avinash Dixit and Victor Norman

Theory of International Trade

A Dual General Equilibrium Approach

Cambridge University Press. New York, NY. U.S.A., 1980, x 339 pp., $34.50 (cloth), $13.95 (paperback).

There have been no major breakthroughs in international economics for some time but conceptual refinements and improvements in technique continue. Dixit and Norman have produced a useful and fairly up-to-date textbook for graduate students which reflects the current preoccupation with the general equilibrium approach and contains enough symbols to satisfy those who like their economics well buttered with convexities and other mathematical bric-à-brac.

Lattee A. Fahm

The Waste of Nations

The Economic Utilization of Human Waste in Agriculture

Allanheld Osmun & Co. Publishers, Montdair, NJ, U.S.A., 1980, xxvi + 160 pp., $24.50.

The rising cost of chemical fertilizers has quickened interest in alternative sources of plant nutrients, and the economics of treating and using human waste is receiving close scrutiny even in those industrialized countries where the use of animal and green manure was largely abandoned decades ago. Fahm argues that organic wastes, in particular night soil, should be used to supplement chemical fertilizers.

At the level of general theory, an intellectually thorough and balanced overview is given by E. Sacristan Roy in which a role is identified for public industrial enterprises in an economy which, like Mexico, is semi-industrialized but lacks the combination of private capital with the right entrepreneur-ship and technology for large-scale and sophisticated manufacturing industries. The issue of pricing practices and regulation is scrutinized by William S. Vickrey, with an interesting and innovative proposal for the pricing of airline fares.

At the applied research level, a study of the market structure and organization of the power and gas utilities in the Federal Republic of Germany is given by Hans Schneider and Walter Schulz, which throws light on such questions as cost and competition. A paper by Marcel Boiteux explains the planning techniques used by Electricité de France, shaped to a large extent by his own pathbreaking work in this field. V. Ajmone Marsan gives a fascinating account of the evolution of the state holding system in Italy (IRI and its various subholdings) and points out how an initial rescue operation resulted in a viable and efficient system on large-scale enterprises, which, while publicly owned, are open to private participation through the joint stock “module.”

Pierre Dreyfus presents the “Lessons of the French Experience” by using the impeccable examples of the Regie Renault and of Elf-Aquitaine (with some credit for Renault’s record going to the author, who was its chairman for 20 years). One interesting point of this paper is the observation that private enterprise in France is endowed with a national trait of being more prudent than innovative, leaving the role for the state (starting with the Royal Manufactures three centuries ago) to meet the challenge. This could lead to the rather amazing generalization that in France state enterprises tend to be more oriented to, and competitive in, the international market while private firms tend to be inward-looking.

Richard Pryke reviews nationalized industries in the United Kingdom over the last ten years and has very few good things to say about the performance of British public enterprises (BSC, Freight Corporation, British Rail, Post Office, but not covering British Leyland), but he leaves the reader somewhat puzzled about the peculiarly British chain of causation for poor performance. Lord Kaldor, in one debate, suggested one factor for the superior performance of public enterprises in France was its long tradition of technocrats in the civil service, from specialized schools such as the Ecole Poly-technique.

This is a book by economists and managers, but it addresses a larger audience and is of interest to the political scientist as well. There are only a few passages that are highly technical, and the general reader will find it enlightening and stimulating.

Rudolf Hablutzel

Tom de Vries

On the Meaning and Future of the European Monetary System

Essays in International Finance, No. 138, International Finance Section (Princeton University, 1980), 64 pp.

Morris Goldstein

Have Flexible Exchange Rates Handicapped Macroeconomic Policy?

Special Papers in International Economics, No. 14, International Finance Section (Princeton University, 1980), 84 pp.

Deepak Lai

A Liberal International Economic Order:

The International Monetary System and Economic Development

Essays in International Finance, No. 139, International Finance Section (Princeton University, 1980). 46 pp.

Three monographs on selected contemporary policy issues prepared by economists currently associated with the International Monetary Fund and the World Bank.

Stephen Carse, John Williamson, and Geoffrey E. Wood

The Financing Procedures of British Foreign Trade

Cambridge University Press, New York, NY, U.S.A., 1980. xii + 151 pp., $24.95.

An inquiry into the financing of British exports and imports based on the results of a questionnaire sent to a large sample of British firms.

Noel V. Lateef

Crisis in the Sahel

A Case Study in Development Cooperation

Westview Press, Boulder, CO, U.S.A., 1980, xxix + 287 pp.. $25.

A disastrous drought between 1968 and 1974 in the eight countries of the Sahel has been followed by only mild reprieves. This exhaustive attempt to devise an international strategy based on the Sahelian experience to counter droughts in subsistence economies and to provide a rationale for effective foreign support has implications for recipients and donors of food aid everywhere.

M. J. T. Norman

Annual Cropping Systems in the Tropics:

An Introduction

University Presses of Florida, Gainesville, FL, U.S.A., 1980, x 4 275 pp., $20.

The author succeeds very well in an attempt to explain the biological and physical processes operating in tropical farming systems while relating their operation to the functioning context of the farming unit. Readable, devoid of jargon, and supported by references for those who wish to go further into particular aspects, this book can be recommended to aspiring or experienced agriculture and rural development practitioners, including agronomists, economists, rural sociologists, planners, and financiers.

W. W. Rostow

Why the Poor Get Richer and the Rich Slow Down

University of Texas Press, Austin, TX, U.S.A.. 1980, xvii + 376 pp., $19.95.

Despite the catchy title this book offers a long and deep look at traditional models for short-term and long-term economic development and a host of related issues, including relations between the North and South group of countries.

Ergun Özbudun and Aydin Ulusan (editors)

The Political Economy of Income Distribution in Turkey

Holmes & Meier Publishers, Inc., New York, NY, U.S.A., 1980, viii + 533 pp., $45.

The first of a series of studies on income distribution in different countries, this analysis looks at the distributional implications of the growing industrialization of Turkey since World War II.

Emile Benoit

Progress and Survival

An Essay on the Future of Mankind

Praeger Special Studies. New York, NY, U.S.A., 1980, xii + 130 pp.

A posthumous collection of articles and papers on topics such as energy, food, inflation, and unemployment—issues that Emile Benoit considered of major importance for the future of humanity.

Energy in the Arab World

Vols. 1, 2, and 3, Arab Fund for Economic and Social Development, Organization of Arab Petroleum Exporting Countries, 1980, Kuwait City, Kuwait, $40.

These three volumes represent a major effort at compiling original material from Arab and non-Arab sources on the data and the issues connected with the production of energy in the Arab World. The papers are the published proceedings of the First Arab Energy Conference held in Abu Dhabi in March 1979.

R. A. Batchelor, R. L. Major, and A. D. Morgan

Industrialisation and the Basis for Trade

Cambridge University Press, New York, NY, U.S.A., 1980, xx + 347 pp., $39.50.

Strictly for the specialists, this book presents a major revision of Alfred Maizels’s 1963 study of Industrial Growth and World Trade. The study examines basic relationships between growth and trade and analyzes a number of forecasts of output and trade for the period to the year 2000.

These books are of particular interest to advanced students of economics

Ralph C. Bryant

Money and Monetary Policy in Interdependent Nations

The Brookings Institution, Washington, D.C., U.S.A., 1980, xxii + 584 pp., $29.95 ($12.95 paperback).

Rudiger Dornbusch

Open Economy Macroeconomics

Basic Books, New York, NY, USA., 1980, ix + 293 pp., $18.50. Keith Cuthbertson

Macroeconomic Policy

The New Cambridge Keynesian and Monetarist Controversies

John Wiley & Sons, Inc., New York, NY, U.S.A.. 1979, xii + 209 pp., $24.95.

Stanley Fischer (editor)

Rational Expectations and Economic Policy

The University of Chicago Press, Chicago, IL, U.S.A., 1980, ix + 293 pp., $22.00.

Polly Reynolds Allen and Peter B. Kenen

Asset markets, exchange rates, and economic integration

Cambridge University Press, New York, NY, U.S.A., 1980, xiv + 585 pp., $55.00.

A. P. Thirlwall

Balance-of-payments theory and the United Kingdom experience

Macmillan Press, London, U.K., 1980, xiii + 323 pp., S6.50 (paperback).

Commodity Trade and Price Trends

A 125-page, annual statistical handbook that presents historical information on the export trade of developing countries and market quotations for 51 commodities, including food, nonfood items, metals, and minerals that figure largely in international trade will be published for the World Bank by The Johns Hopkins University Press on a subscription basis.

All commodity prices in the 1980 edition of COMMODITY TRADE AND PRICE TRENDS are shown in a single currency (the US dollar), in terms of both current, or nominal, dollars and 1979 constant, or real, dollars, and in both tabular and graphic form. These data are presented in English, French, and Spanish. Selected data on ocean freight rates are also featured, as most of the price series are based on c.i.f. quotations at the major consuming markets.

Students of economics, economists, commodity traders, bankers, and government officials all will find the handbook to be of particular value in their work.

INTERNATIONAL MONETARY FUND

Recent publications

Pamphlet 34. Compensatory Financing Facility by Louis M. Goreux

Pamphlet 35. The Legal Character of the Fund’s Standby Arrangements and Why It Matters by Joseph Gold

Occasional International Capital Markets: Recent Paper 1 Developments and Short-term Prospects by a Staff Team headed by R.C. Williams

There is no charge for these publications.

Staff Papers

Published quarterly in March, June, September, and December.

Summaries of each paper in French and Spanish, as well as in English.

Vol. 27 December 1980 No. 4

Domestic Determinants of Net U.S. Foreign Investment by George M. von Furstenberg

Exchange Rates, Inflation, and Vicious Circles by Marian E. Bond

Impact of Inflation on Fiscal Policy by Peter S. Heller

A General Equilibrium Approach to the Analysis of Trade Restrictions, with an Application to Argentina by Andrew Feltenstein

Monetary, Financial, and Fiscal Policies Under Rational Expectations by William H. Buiter

Public Investment, Crowding Out, and Growth:

A Dynamic Model Applied to India and Korea

by V. Sundararajan and Subhash Thakur

Special rate to university libraries, faculty, and students:

US$4.00 a volume; US$1.00 a single issue.

Subscription: US$9.00 a volume; US$3.00 a single issue.

Advice on payment in other currencies will be given upon receipt of order.

Balance of Payments Yearbook

The Balance of Payments Yearbook contains annual data for about 110 countries and quarterly data for about 45 of them, compiled in accordance with the Fund’s Balance of Payments Manual, fourth edition (1977). The data cover the eight or nine most recent periods available. The annual issue contains data for standard components and their aggregates and details with extensive notes: for most countries the annual data are carried through the year preceding the year of publication. Subscribers also receive each month a booklet that updates the aggregated statements; and, each year, they receive a supplement in which about 60 series of standard components and aggregates are organized by topic instead of by country.

Subscription price: US$26.00 a year ($10.00 to university libraries, faculty, and students).

Advice on payment in other currencies will be given upon receipt of order.

Copies of the above publications are available from:

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New World Bank publications

National Urbanization Policy in Developing Countries

Bertrand Renaud

National urbanization policies in developing countries often attempt, without a full understanding of the forces at work, to block the growth of the largest cities and to induce decentralization. This book takes a critical look at such policies and their weak conceptual foundations and describes problems inherent in implementation. The coverage is comprehensive, and both global and national trends are analyzed.

Approximately 208 pages. Cloth US$16.95; paperback US$7.95.

Urban and Spatial Development in Mexico

Ian Scott

Some of the urgent policy issues raised by the rapid urbanization in developing countries—centralization, rural-urban integration, and patterns of interregional development—concern the system of large cities and the linkages between them. This study traces the evolution of Mexico’s urban system, describes and evaluates the policy issues arising from its present structure, and suggests alternative approaches to spatial policy and the instruments that might be used to implement them.

Approximately 416 pages. Cloth US$29.50; paperback US$9.50.

The above two books are published for the World Bank by the Johns Hopkins University Press and are available from booksellers; directly from the Press (Baltimore, MD 21218, U.S.A., or Ely House, 37 Dover Street, London W1X, 4HQ, U.K.); or from Press distributors throughout the world.

The Urban Labor Market and Income Distribution: A Study of Malaysia

Dipak Mazumdar

Although Malaysia is a middle-income developing country, its urban labor market presents problems characteristic of poorer Asian and African countries. This book, unlike previous studies, presents an integrated analysis of all the interrelated issues of the market. Starting with the distribution of income among households, the author explores the determinants of employment rates of household members and the important factors affecting personal earnings.

400 pages. Cloth US$18.95; paperback US$7.95.

The above two books are published for the World Bank by Oxford University Press and are available from booksellers; directly from the Press (200 Madison Avenue, New York, NY 10016, U.S.A., or Press Road, Neasden, London NW10 ODD, U.K.); or from Press branches and distributors throughout the world.

Made in Jamaica: The Development of the Manufacturing Sector

Mahmood Ali Ayub

For a small country, Jamaica has a remarkably varied manufacturing sector. This first detailed study of the sector provides a comprehensive assessment of its important characteristics and its structure. The study relates the development of the sector during the past two decades, examines the prospects for growth of manufactured exports during the coming years, and makes policy recommendations.

Approximately 120 pages. Paperback (only) US$6.50.

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