Policy Choices for the 1990s

In the early postwar period, pessimistic predictions were made as to the prospects for the transmission of economic growth from developed to developing countries. These predictions were translated into policy recommendations for import protection and the recommendations were followed by a number of developing countries during the period.

This chapter will compare the policies and economic performance of newly-industrializing countries (NICs) in the Far East and Latin America in the 1963–88 period. The two groups of countries include Hong Kong, Korea, Singapore, and Taiwan and Argentina, Brazil, Chile, and Mexico.

One may base the distinction between stabilization policies and adjustment policies on the policy measures applied or, alternatively, on the policy objectives pursued. While classification by policy measures would seem attractive, it encounters practical difficulties. Thus, the exchange rate is an important instrument for stabilization policies as well as for adjustment policies. Also, monetary and fiscal policies, which are central to stabilization, assume importance for adjustment as well.

Adjustment lending by the World Bank has a history of nearly a decade. The first structural adjustment loans were extended to Bolivia, Kenya, Philippines, Senegal and Turkey in 1980. The first sectoral adjustment loan was granted to Jamaica in 1979, followed by loans to Pakistan and Sudan in 1980.

There has been a sea change in attitudes towards public enterprises around the world in recent years. In Western Europe, the United Kingdom and, since April 1986, France have set out to privatize public enterprises on a large scale. In the case of France, this represents not only a reversal of the nationalizations undertaken by the previous socialist government in 1981, but companies nationalized in 1945 are also being privatized.

This chapter will analyze the interrelationships of public finance and economic development. The following aspects of public finance will be considered: the budget deficit (or surplus), the size of the public sector, and public investment. Apart from the financing of the budget deficit, the chapter will examine its possible effects on various economic variables. The relationship between the size of the government budget and economic growth will also be analyzed. Finally, the impact of public investment on private investment, total investment, and economic growth will be investigated.

McKinnon and Shaw consider financial liberalization as a mainstay of economic reforms in developing countries. McKinnon goes as far as to “define ‘economic development’ as the reduction of the great dispersion in social rates of return to existing and new investments under domestic entrepreneurial control” (1973, p. 9). He adds: “Economic development so defined is necessary and sufficient to generate high rates of saving and investment (accurately reflecting social and private time preference), the adoption of best-practice technologies, and learning-by-doing” (ibid.). Shaw suggests that “the argument for liberalization in finance is that scarcity prices for savings increase rates of saving, improve savings allocation, induce some substitution of labor for capital equipment, and assist in income equalization” (1973, p. 121).

This chapter reviews available evidence on the effects of interest rates on savings. While it focuses on developing countries, the chapter also reports on recent work on the interest elasticity of savings in the United States that has relevance for the interpretation of the developing-country results.

Following the example of the Soviet Union, several developing countries prepared multi-annual plans in the early postwar period. These plans were comprehensive and dirigiste. Their failure brought about changes in the planning process towards an approach that has been christened indicative planning.

This chapter provides a critical evaluation of perestroika (restructuring) in the Soviet Union and examines its implications for the European socialist countries. Perestroika was introduced to reform the Soviet economy after the “period of stagnation” under Brezhnev. It involves combining centralized planning with elements of a market economy.

This chapter will analyze the principal features of socialist economic integration in Eastern Europe and examine its future prospects. The first section will consider the activities of the Council for Mutual Economic Assistance (CMEA). The second section will examine the issue of subsidization through trade. The third section will review the future possibilities for the CMEA, and the final section will discuss proposals made for a payments arrangement among CMEA countries.

This chapter will examine issues relating to subsidies and countervailing measures and make recommendations for changes in existing rules on the basis of economic considerations. This will be done by analyzing, successively, the concepts of subsidies, countervailing measures and serious prejudice, nullification or impairment, and the special treatment of developing countries.

This chapter focuses on the effects that liberalization of trade in services may have on the United States. It examines US “revealed” comparative advantage in services as indicated by the available trade data, barriers to exports of US services abroad, and restrictions on imports of services into the United States. It concludes with a discussion of the position taken by the US government and private interests with regard to liberalization of trade in services.

A common market has been defined as combining a customs union with free factor movements, where a customs union involves free trade within the union together with common tariffs (Balassa, 1961, p. 2). After noting the extent to which the European Community (EC) has conformed to this definition of a common market, this chapter considers the changes that the implementation of the Europe 1992 program is expected to bring about.

This chapter will examine the implications for EMENA manufactured exports of EEC trade policy. The first section of the chapter will analyze EEC trade agreements with EMENA countries and the export performance of these countries in the EEC market for manufactured goods. The next two sections will consider the possible impact on EMENA countries of the enlargement of the EEC and of changes in EEC trade policies in the framework of the Europe 1992 program. The final section will review prospective developments in EMENA exports to the EEC.

The deadline of Europe 1992 is approaching. By this date, it is planned to eliminate border formalities and to liberalize to a considerable extent goods and services transactions as well as capital and labor movements in the Common Market. The question arises how well France is prepared for this eventuality. The present chapter aims at contributing some clarifications to answering this question. This will be done by reviewing French economic performance in the 1980–8 period and examining some issues relevant for the future.

This chapter will examine the economic policies of the Rocard Government in the 1988–90 period. The first section will consider economic growth rates and the factors contributing to growth. The second section will examine the factors affecting investment activity. The third section will analyze French foreign trade and the current account. The fourth section will deal with the question if the current account deficit and, more generally, foreign capital needs represent a constraint for French economic growth. The fifth section will review recent changes in employment and unemployment. The sixth section will examine monetary and fiscal policies. The final section will analyze the prospects for the French economy and make recommendations for the future.

My life philosophy can be described at three levels. At one level it means that I try to make the best of any situation, whatever the circumstances. This goes from writing my first paper on economics in English while I was deported in Hungary between 1951 and 1953 to rebuilding my professional life after a serious cancer operation in August 1987.