Journal Issue


International Monetary Fund. External Relations Dept.
Published Date:
June 1984
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Clark Kerr

The Future of Industrial Societies

Convergence or Continuing Diversity?

Harvard University Press, Cambridge, MA, USA, 1983, viii + 178 pp., $16.50.

Robert Ballance and Stuart Sinclair

Collapse and Survival

Industry Strategies in a Changing World

Allen and Unwin, London, 1983, xix +219 pp., $25 (cloth), $9.95 (paper).

Despite an apparent similarity in their titles, these two books are very different in subject matter and style. Kerr examines the extent to which industrial societies have developed similarities and differences in structures, processes, and performances and what can be expected in the future. The exposition is lucid and the broad sweep of the inquiry gives proper weight to the views of earlier thinkers. Ballance and Sinclair, on the other hand, are concerned with the growth of world industries as such—problems faced and strategies needed for the future. Designed as a text for graduate studies, their book is somewhat heavy going.

Kerr conducts his analysis of convergence by disaggregating industrial societies into several segments. He concludes that in segments of society closer to the “ordinary business of life” there has been substantial convergence among industrial societies. These segments are the content of knowledge, the mobilization of resources of production, the organization of production, patterns of work and living, and patterns of distribution of economic rewards. Those segments that have seen little or no convergence are the economic structure, where differences persist with regard to reliance on the market or the plan, and independence for the organization of workers; the political structure, where strong differences remain regarding the distribution of ultimate political power; and patterns of belief, including attitudes toward religion, the role of nationalism and ethnicity, and the priority accorded social goals. In general, the author believes, the forces for convergence are likely to become stronger over time, tending toward pluralism (several centers of control and influence rather than one, as in pure socialism, or an infinite number, as in pure capitalism), although in certain areas, such as property ownership and use of markets and plans, the rate of convergence is unlikely to pick up in the near future. Looking further ahead, Kerr sees new problems predominating. Population pressure and environmental imperatives will cut across present social systems. A good deal will depend on the future rate of economic growth; if there is much change, either up or down, in this rate, then the direction of movement of the social systems will remain an important issue.

Ballance and Sinclair, on the other hand, take the reader through the changing panorama of world industry since World War II, the most striking features of which are a steady erosion of economic power among the established industrial centers, the emergence and the rapid build-up of plant capacity in the developing and socialist countries, the internationalization of most industries, and the growing use of trans-nationals as marketing agents to circumvent trade barriers. An important aspect of recent industrial experience is that public policy and industrial structure have become inextricably intertwined. There are entire sections of world industry, especially in the developing countries, whose existence is due to government decisions rather than market considerations. While public ownership has varied between countries, public intervention has been both extensive and ubiquitous, but has not been accompanied by any new institutional arrangements for coordination. A variety of interest groups have found that this dispersion of authority offers opportunities for their own intervention. This has added, especially in the highly industrialized nations, an undesirable political dimension to the traditional range of economic and corporate decisions. Only Japan stands apart from this trend—policymaking having been viewed there as the combined operation of government, industry, and the special interest groups and aimed toward common, and essentially economic, objectives.

The dramatic build-up of industrial capacity worldwide is already posing serious consequences. There is excess capacity in many industries. The basic problems are aggravated by recent economic conditions—a rise in energy prices, a slowdown in productivity growth, and a deterioration in the overall macroeconomic climate. The authors examine the recent experience of firms in five industries—automobiles, steel, consumer electronics, advanced electronics, and oil refining—which have been in the forefront of changes in the world industrial map, and consider the strategies open to them for future survival and growth. The discussion suggests that the strategies of focus (selection of the right target market) and differentiation (selection of the right product range) offer the best hope for firms facing stagnant demand and intense price competition from abroad.

Subimal Mookerjee

Alec Cairncross and Barry Eichengreen

Sterling in Decline

The Devaluations of 1931, 1949, and 1967

Basil Blackwell, Oxford, United Kingdom, 1983, vi + 261 pp., £19.50.

A growing number of economists, discouraged by the disarray in contemporary economic theory and by the seeming ineffectiveness of all economic policies, have turned to the study of economic history for insight into both analysis and policymaking. This book by Alec Cairncross, a long-established economist of Oxford University (also the first Director of the World Bank’s Economic Development Institute), and Barry Eichengreen, a young Harvard University colleague, is an excellent example of the usefulness of this trend. Cairncross and Eichengreen have intertwined their narration of past events with relevant economic analysis and made an effort to draw conclusions. This is the way monetary and currency history should be written.

The book examines the circumstances attending the three dramatic devaluations of the pound sterling in 1931, in 1949, and in 1967 and analyzes the consequences of these devaluations. The authors explain the significance of the devaluations both for the United Kingdom and for the international monetary system as a whole, the changes in economists’ thinking over time about exchange rates, and the sweeping changes in the United Kingdom’s exchange and trade relations from 1850 to 1967. Then, for each devaluation, they describe the prevailing economic situation, the alternative policy options available, the arguments for and against devaluation, the positions taken by the principal participants, the debates about the need for accompanying fiscal and monetary measures and incomes policies, and the factors eventually bringing about devaluation. These narrations are well researched and documented.

Then, taking advantage of the wisdom that hindsight can provide, Cairncross and Eichengreen assess the effects of each devaluation on prices, labor costs, money supply, real balances, trade and payments flows, longer-term allocations of resources, and the use of sterling in exchange markets. They also take on the challenging task of attempting to generalize concerning the causes and effects of the three devaluations. What does the book conclude? The main conclusion is that the 1967 devaluation worked slowly and less well than the earlier ones, and that doubts continue to grow about the effectiveness of exchange rate changes in eliminating balance of payments deficits.

Does the book have shortcomings? Those of us in the IMF will be surprised—and disappointed—that the authors find little role for the Fund in the decisions to devalue, even in 1967. Yet the History of the IMF for 1966–71 suggests a not-inconsequential role.

The book ends with a bibliography of the literature on sterling from 1931 to 1983, a worthwhile contribution in itself; a dramatis personae identifying the main persons involved in the decisions to devalue; and an index. More books of this type and caliber would be welcome.

Margaret Garritsen de Vries

William R. Cline (editor)

Trade Policy in the 1980s

Institute for International Economics, Washington, DC, 1983, xiv + 796 pp., $35.

Trade liberalization in the postwar years was a major factor in the period’s relative economic prosperity. Since the mid-1970s, however, it has been marking time and the rise in protectionist pressures has become a matter of concern. The recent recession (and associated unemployment) and the structural changes affecting the older industrial countries have added grist to the protectionist mill.

This large and impressive compendium is based on a conference held in the summer of 1982 that brought together many of the experts in the field of trade policy. A lucid and comprehensive introductory section by Cline is followed by sections comprising a survey of trade policy issues and problems, an analysis of the trade policies of the major trading partners, a survey of specific trade problems, an explanation of new trade issues, and a “policy synthesis.”

A major work on trade issues must address two fundamental questions: how serious are the protectionist problems we are facing? And what is to be done?

On the first point, not only has the world trading system come through a decade of economic turbulence remarkably intact, but there is little convincing evidence that the protectionist pressures and actions (as distinct from the fall in demand induced by the recession) have, in the aggregate, led to a significant slowing down of world trade. As Cline notes: “So far, however, both protectionist pressures and the actual net balance of protectionist actions have failed to show up in a serious retrenchment of international trade.” Then, why worry? The answer must be that the “creeping protectionism” of recent years could develop into a trot—even a gallop—and thus seriously threaten economic prosperity in developed and developing countries alike. A recovery of world trade will not put an end to protectionist pressures, although it will ease the adjustments that must be made to reflect shifting comparative advantage among countries.

The question of what must be done is a more vexing one: trade matters cannot be considered in a vacuum but only in the context of the general climate of international cooperation and the state of the international economy. The four-point program for the 1980s suggested by Bergsten and Cline displays the difficulties of proposing a “plan of action” that is in tune with current economic and political realities. This is not the most convincing part of the book.

The first proposal is for a “standstill’ on trade restrictions to prevent the erection of new barriers. This is an excellent proposal provided it (1) catches all types of restrictive practices and (2) can be enforced. One cannot be sanguine regarding either. The second is for a new round of trade negotiations. The previous round, the so-called “Tokyo Round,” was an arduous and protracted affair. Upon its conclusion the general view was that large, all-embracing trade negotiations were not the most effective way to proceed. The authors, however, would have new negotiations address all trade issues, including the elimination of all duties on industrial products and the creation of new codes for services, investment-related performance, and high technology trade. To call this an ambitious agenda (as the authors do) is an understatement.

The third element would be effective trade adjustment programs (to retrain workers displaced by trade); these would become international obligations and be internationally monitored. Such programs have not been very effective in the past, either qualitatively or in terms of the numbers affected. In view of the much larger number of workers now being displaced and the budgetary constraints facing governments, readers can draw their own conclusions.

The fourth proposal is for a link between monetary arrangements and trade policy. No one would deny the interrelationship between them. But what is to be linked and how is it to be done? Trade officials should be included in the key deliberations on monetary policy, and monetary officials in deliberations on trade policy, and more extensive coordination should take place between the GATT and the Fund. That is the core of what is suggested.

Regardless of what one may think of these proposals, the volume should be of great value to anyone interested in trade matters.

Bahram Nowzad

David Heald

Public Expenditure

Martin Robertson, Oxford, United Kingdom, 1983, xv + 376 pp., £19.50 (cloth), £6.95 (paper).

This description and evaluation of trends over the last two decades in the public sector in the United Kingdom intends to challenge those who have called for a reduction in its size. Specifically, the volume defends what the author refers to as the “Keynesian social democratic state.”

The book is ambitious. The opening chapters discuss macroeconomic issues associated with measuring the public sector and the monetarist challenge to the Keynesian orthodoxy; there follows a section on values in which the meaning of concepts such as freedom, equality, and efficiency is discussed; and a subsequent section considers the mechanisms for accountability in and management of the public sector. The final three chapters explore future developments.

My difficulties with the volume, however, stem precisely from this attempt to integrate so many disparate elements. There is, for example, little continuity between the section on values, and that which debates the “nuts and bolts” issues concerning public accountability. Treatment of some of the economic issues is also limited. On the one hand, at the macroeconomic level, there is an overemphasis on the relevance of specific Keynesian concepts, such as demand creating its own supply, at the expense of the recent major macroeconomic debate over the role of expectations. At the micro-economic level, too much attention is paid to the expenditure side of the public sector account, and too little to the large body of literature concerned with defining an optimal tax structure (as opposed to tax base).

In general, the volume represents not so much a defense of the Keynesian social democratic state as a taxonomy of a number of issues, extensively debated of late in the United Kingdom, concerning the scope of the public sector. However, to the extent that it succeeds in this latter respect, the volume does have considerable merit.

Liam Ebrill

Thomas J. Trebat

Brazil’s State-Owned Enterprises

A Case Study of the State as Entrepreneur

Cambridge University Press, New York, 1983, xviii + 294 pp., $42.50.

How can the role of state enterprises expand rapidly under governments committed to free enterprise and the use of market forces in economic decisionmaking? What goals have guided Brazil in expanding state enterprise? Can the state achieve these goals without seriously disrupting the basically decentralized market economy? Do the political goals underlying state intervention contradict the economic constraints within which the interventionist state must operate? Brazilian and other Latin American policymakers have accepted an economic model based on harmonious interaction between the state and private sectors, but does such a model promote economic growth and reasonably efficient resource allocation? These are some of the important questions addressed in this empirical study of Brazil’s state enterprises.

Trebat concludes that performance is closely linked to pricing policy, which in turn depends on the degree of enterprise autonomy permitted by the central government. Despite Brazil’s problems with public enterprises, its impressive economic successes of 1965–80 would have been unlikely without the achievements of this sector. The state’s major accomplishment was to transform dramatically economic infrastructure after 1950 by accelerating industrialization. In almost every sector—steel, electricity, telecommunications, mining, and petroleum—state enterprise managers demonstrated true entrepreneurship in successfully completing large capital formation programs. In the process they increased the economy’s technical sophistication and stimulated private enterprise, especially in capital goods. In many important industries—for example, computers, aerospace, and defense—Brazilian state companies are still being used as wedges to expand the productive capacity and technological sophistication of Brazilian industry.

Brazilian public enterprise has been even somewhat profitable (though profits were never its stated objective), largely because policymakers have used it to generate a financial surplus for reinvestment. In the late 1960s and early 1970s, many state enterprises were quite successful in this aim, and a large part of their capital expenditures was financed from internally generated resources. But in the late 1970s, the self-financing record declined sharply, partly because profitability fell, but also because overall investment was increasing sharply. The growing gap between savings and investment of the public firms complicated the management of aggregate demand, put strong pressure on interest rates, and required an increase in extensive foreign commercial bank credit. Another cost of the state’s contribution to economic development was that the growth of public companies has been overwhelmingly capital intensive, with little direct (albeit substantial indirect) employment creation.

In his concluding chapter, Trebat emphasizes that despite their size and their high degree of ordinary commercial orientation, public enterprises play a limited role in Brazil. The fairly favorable economic performance “should also” according to the author, “be seen in the light of the very large size and rapid growth of the Brazilian economy, which allowed capital-intensive public enterprises to realize scale economies unattainable in many smaller developing countries” (p. 242). Another important factor was that Brazil had a relatively large supply of well-trained technocrats and professionals from which to recruit the managers of the state companies, and that these managers were well paid and relatively free from political control.

This important and carefully researched book will be interesting to students of Brazil, public enterprise, and economic development.

Peter T. Knight

Peter Robson

Integration, Development and Equity

Economic Integration in West Africa

Allen and Unwin, London, 1983, viii + 181 pp., $28.50 (cloth).

West Africa is replete with economic or monetary unions and yet little academic work has been published on them. The book under review closes part of this gap. The author analyzes the issues, the experiences, and the prospects of four arrangements for economic integration in West Africa: the Communauté Economique de I’Afrique de I’Ouest, the Mano River Union, the Economic Community of West Africa States, and the Senegambia.

The first two chapters deal with the theoretical issues of general economic/customs unions. The main thesis is that while such unions among less developed countries may indeed promise important benefits (from expanded investments and scale economies), they are unlikely to be realized without a clear-cut development strategy, a specific and coherent system of compensatory benefits, and a clear policy toward foreign investments. The next four chapters deal separately with each of the individual unions and are followed by a description of the West African Monetary Union.

Although these chapters provide a comprehensive description of the formal arrangements between the union countries, the actual success of these unions is difficult to assess, since, as the author points out, their operations have become embroiled in various delays and snags. But the author could still have attempted to compare the various arrangements and to draw some general conclusions as to their prospects. It is also regrettable that the analysis of the WAMU is merely descriptive. It has existed for several decades and currently consists of six West African countries; it operates as a common central bank, with a commonly issued currency and centrally held reserves. Over this period, the organization and monetary policy of the Union have adapted well to changing political and economic environments. In particular, the 1976 reform of WAMU, detailed in the book, adapted the central bank’s instruments and organization to take greater control of monetary policy and to make the Union a more effective organ of economic integration. The author discusses almost tangentially the fiscal policy implications of the Union, as well as the policy constraints involved in similar organizations. As the monetary arrangements of WAMU are an integral part of the CEAO, a more detailed analysis of their relationship would have been interesting.

Nevertheless, the author is to be congratulated for navigating through the maze of integration arrangements in West Africa to provide a coherent summary of their main features and the issues they raise. The book should become an essential addition to the literature on West Africa.

Rattan Bhatia


The “Milestones” (pages 26–27) in our March 1984 issue contained a typographical error in its chart: the right-hand scale on operations should have read “In billions” not “In millions.”

Alan H. Smith

The Planned Economies of Eastern Europe

Holmes & Meier, New York, 1983, 249 pp., $34.50.

This well-documented and accessible book examines the Soviet planning system and its adaptation to Eastern Europe. Part one, on the origins and operation of central planning, describes the development of the Stalinist economic system in the 1920s, its transfer to Eastern Europe, the planning system there, and the innovation and economic reform experienced by the Soviet and Eastern European economic systems since the 1950s. Part two deals with money, banking, and consumer equilibrium; macroeconomic equilibrium and inflation control; and wage pressures and open inflation in Eastern Europe. The final part, on international economic relations, first explains the nature of Eastern European trade. It then discusses economic integration with the CMEA framework, and East-West trade with regard to both the strategy of import-substitution and the energy crisis. The book is informative and useful for the noneconomist, with some theoretical sections, and technical details in the references and the bibliography. Specialists in Eastern European economics, however, will find that it breaks little new ground.

E. P. Mach and B. Abel-Smith

Planning the Finances of the Health Sector

A Manual for Developing Countries

World Health Organization, Geneva, 1983, 124 pp., Sw F 14.

A practical guide for collecting and interpreting information on health finance, this book defines health expenditures as those of total health promotion, rather than as those of health authorities alone. It cautions the planner to account for administrative and maintenance costs, as well as direct capital expenditures and health promotion costs, when developing or analyzing programs. An excellent manual, it has, however, two important shortcomings: the private indirect costs of health promotion, such as travel by patients, are not explicitly considered; nor is any guidance offered on how to reconcile conflicting reports of budget authorizations, expenditures, production of services, and service use. Because available information in these areas is generally fairly sketchy, the analyst often needs to judge the credibility of contradictory fragments of information. However, the book offers a wide variety of very constructive suggestions; anyone seriously interested in health issues in developing countries should read it.

Ishwar C. Dhingra

The Indian Economy, Resources Planning Development and Problems

Sultan Chand and Sons, New Delhi, 1983, x + 797 pp., Rs 45 (paper).

This well-written and comprehensive textbook touches upon the major economic issues facing Indian policymakers and will also provide a useful reference source for those interested in the Indian economy. Using the latest statistical data, Dhingra traces the evolution of the Indian economy over the past three decades.

John Adams and Sabiha Iqbal

Exports, Politics, and Economic Development

Pakistan, 1970–82

Westview Press, Boulder, CO, USA, 1983, xii +257 pp., $22.

Pakistan is one of the more rapidly growing Third World economies: over the last 25 years its GDP has increased at an annual average rate of 5.8 percent in contrast to an average 4.5 percent for low-income and 5.6 percent of middle-income countries. But this growth rate was made possible in part by large capital flows; Pakistan has always had a resource gap much larger than that of most developing countries. In the early 1980s, for instance, gross domestic investment was about 17 percent of the GDP while gross domestic savings was only 7 percent—the resource imbalance of -10 percent was financed from both commercial flows and concessional lending. Consequently, Pakistan now has an outstanding debt of over $9 billion and it is important that it begin to rely on its own resources. This is why the export sector assumes a great deal of importance and why the book by Adams and Iqbal is very timely. The book has many strengths, two of which need to be underscored. One, it provides a wealth of data not only on exports but also on the development of the industrial sector. Two, it is strong on the subject of the politics of economic decision making—looking for political clues for those decisions that are hard to explain in purely economic terms.

Hassan M. Selim

Development Assistance Policies and the Performance of Aid Agencies

St. Martin’s Press, New York, 1983, xxvi + 531 pp., $40.

A study of the major trends and structural changes in three major aspects of aid: international finance, project appraisal, and economic development. Covering aid agencies in the industrial countries, the OPEC funds, regional development banks, and the World Bank Group, the volume combines analysis of flows, policies, and techniques with case studies illustrating direct experiences.

Angelos Th. Angelopoulos

Global Plan for Employment

A New Marshall Plan

Praeger, New York, 1983, xxiv +207 pp., $23.95 (cloth), $12.95 (paper).

This volume sets an ambitious goal for itself—nothing less than a radical solution for the malaise that seems to have afflicted the world economy since the early 1970s. The remedy entails an across-the-board rescheduling of non-oil developing country debt repayments and new lending to these countries of $200 billion over five years, to be tied to purchases of capital goods in the lending countries. Thus the financing and growth constraints of the non-oil developing countries would be ameliorated at the same time as the unemployment problem of the industrial countries. Potential inflationary effects in the latter would be dealt with by reducing military expenditures. Little is said, however, about the practical difficulties of implementing these far-reaching proposals (other than to suggest that the United States take the lead). Moreover, just as differing economic and political conditions among the industrial countries are ignored, so, too, are the varying circumstances in developing countries, which probably call for individually tailored rather than global approaches to debt and investment problems. Although he is to be admired for his boldness and creativity, at times the author relies on post hoc ergo propter hoc arguments to support his case.

Michael R. Czinkota (editor)

Export Promotion

The Public and Private Sector Interaction

Praeger, New York, 1983, xx + 322 pp., $35.95.

Michael R. Czinkota (editor)

U.S.-Latin American Trade Relations

Issues and Concerns

Praeger, New York, 1983, xvii + 299 pp., $35.95.

A collection of papers presented at a recent conference in Rio de Janeiro, organized by the National Center for Export-Import Studies of Georgetown University. The first volume, which deals with export issues of the U.S. economy, concentrates on public-private interaction and the role research plays in the success of exporting to new markets. After an initial discussion of the macroeconomic issues in Latin American trade policy, the second volume proceeds to analyze the specific problems that export firms, especially medium- and small-size enterprises, face in that region; it concludes with an examination of more recent issues regarding the service part of exporting, including such fields as tourism, trading companies, and the free trade zones. Despite some overlapping and oversimplification, most contributions provide up-to-date and often original insights into the current major issues of exporting, particularly in trade in the Western Hemisphere.

Robert F. Emery

The Japanese Money Market

Lexington Books, Lexington, MA, USA, 1984, xiv + 143 pp., $18.95 (cloth).

Japan’s money markets underwent substantial changes during the 1970s with the introduction of new instruments and the relaxation of official controls on existing markets. This book provides extensive analysis and information on Japanese money markets since 1945, with special emphasis on the 1970s and on the current nature and operation of individual money markets. Although the book focuses on the four main components of the money market, namely, the bill-discount, call-money, gensaki (bond repurchase), and negotiable certificate of deposit markets, it also discusses the Tokyo dollar call market, the interbank deposit system, the short-term government securities market, and the market in bank-guaranteed export and import bills. The book also assesses the Japanese money market in terms of whether it has met the needs of most borrowers and lenders, the various gaps in the market, and the scope for market forces. Comprehensive and clearly written, though at times repetitive, the text provides information crucial to understanding the Japanese financial system.

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