Ulman, Lloyd and Robert J. Flanagan, Wage Restraint: A Study of Incomes Policies in Western Europe, Berkeley, Cal., U.S.A., University of California Press, 1971, x + 275 pp., $7.50.
In this book. Professors Ulman and Flanagan provide a critical review of the aims, implementation, and results of incomes policy experience during the postwar period in seven Western European countries, namely, the United Kingdom, the Netherlands, Sweden, Denmark, France, the Federal Republic of Germany, and Italy. The book as a whole succeeds on many counts. The individual country chapters are clearly and concisely written; judgments on policy effectiveness are supported whenever possible with existing econometric evidence, including several modest but reasonable aggregate wage and price equations supplied by the authors themselves; and the discussions of incomes policy measures are well integrated with political and other institutional realities in the individual countries.
Those who advocate incomes policy as a necessary supplement, if not an alternative, to countercyclical monetary and fiscal policy for dealing with the inflation-unemployment dilemma will not find much comfort in Ulman and Flanagan’s overall assessment—“Incomes policy, to generalize from the experience of the countries studied in this account, has not been very successful … in none of the variations so far turned up has incomes policy succeeded in its fundamental objective, as stated, of making full employment consistent with a reasonable degree of price stability.” The authors concede, however, that incomes policy may have some effectiveness in the more modest role of restraining price and wage increases in the short run when the economy is operating short of full employment.
The cross-country comparison of incomes policy also reveals that many of the oft-cited generalizations about the institutional settings in which incomes policy would be most effective are open to serious question. Thus, for example, the view that incomes policy will be most effective in countries with highly centralized wage and price-setting institutions (especially as regards highly centralized trade union movements) is contradicted by the favorable Dutch experience with incomes policy, where unionization is relatively low, and by the unfavorable British experience, where wage negotiations are relatively highly centralized.
As a final note, it is interesting that the authors’ stated purpose in making the study was to help policymakers develop guidelines for the improvement of future policies and that the study itself was financed by a grant from the U.S. Council of Economic Advisers. In view of the study’s negative conclusions about the effectiveness of incomes policy and in light of President Nixon’s actions of August 15 on the wage-price front, it would seem that, more than ever before, the case for incomes policy is the case against the alternatives.
Grupo de Modelos Matematicos, Estilos de Desarrollo, Caracas, Venezuela, Center of Development Research of the Central University of Venezuela, 1971, Volume I - viii + 338 pp.. Volume II, vii + 380 pp.; Volume III, iv + 341 pp.
This Spanish language study presents the results of a series of experiments with a simulation model of the Venezuelan economy, analyzing variants of two systems or stategies for long-range economic development.
One of the systems. Consumptive (CONS), characterizes what the authors’ consider to be outstanding aspects of the economic organization and structure of the developing countries: indiscriminate imitation of the advanced countries in matters relating to consumption of goods and services (“conspicuous consumption,” forced obsolescence, frequent changes in fashions, and marked income inequalities), a technology dependent on the developed countries, control of important sectors of the national economy by foreign enterprises, “élite”-type education, and government economic operations restricted to those areas where private enterprises are not economically convenient, etc.
The other system. Creative (CREA), contains elements the authors consider essential for a creative and forward-aiming society seeking to develop its own values and culture. Incentives would not be material but would consist rather in the satisfaction of cooperating to achieve the creative society. Consumption would be of the collective rather than the individual type; and education and technology would be directed toward increasing the efficiency of cultural and productive resources and reducing the working day in order to allot more time to creative leisure. Social participation in the formation, adoption, and implementation of decisions would be great. Large state enterprises would produce most basic goods, and medium-size or small enterprises would be organized either as cooperatives or as individual firms.
The two systems were compared in simulations covering the period from 1967 to 2000. The average growth rate of the gross domestic product was approximately the same in both cases, but the CREA system was superior in meeting most other objectives. The CONS system showed a higher rate of unemployment for the year 2000 (19 per cent), a lower rate of growth in productivity, a higher deficit on current account, and a higher ratio of external debt servicing to exports.
Although this work incorporates the efforts of approximately ten years of work by a highly qualified group of economists and mathematicians, it still requires further analytical elaboration to be useful for designing economic policies. Projects like this one, however, make a useful contribution to the development of simulation experiments, which will eventually be very useful instruments for economic authorities.
Héctor F. Avila
Cline, William R., Potential Effects of Income Redistribution on Economic Growth: Latin American Cases, New York, N.Y. U.S.A., Praeger Publishers, 1972, xvii + 242 pp., $15.
A great deal has been written about whether the redistribution of income toward lower income recipients would materially diminish personal savings and the rate of growth in developing countries. To find an answer to this question Professor Cline has used available data to measure the present distribution of income in several Latin American countries, and the propensity to save of people in each income bracket. By then redistributing income downward to about the level of equality prevailing in the United Kingdom, he recalculates consumption, personal savings, and their effect on growth. He finds that on the more pessimistic assumptions, redistribution of income to the British level of equality would reduce the growth rate by about 1 per cent annually in Brazil and Mexico and about 0.66 per cent in Argentina. For the poorer 70 per cent of the population to reach this redistributed level of income with the undiminished growth rate based on no redistribution of income, however, would take 34 years in Argentina, 49 years in Mexico, and 56 years in Brazil.
To promote income redistribution without adverse effects on growth, the author urges adoption of policies to stimulate production in labor-using sectors and with labor-using techniques, so as to direct a larger share of national income to the working class in a more economically efficient manner than could subsidies or high minimum wages.
Finance and Development does not attempt to evaluate books or contributions thereto by 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.
Gillis, Malcolm (Editor), Fiscal Reform for Colombia: Final Report and Staff Papers of the Colombian Commission on Tax Reform, Cambridge, Mass., U.S.A., International Tax Program at the Harvard Law School, 1971, xx + 853 pp., $10.
This book can serve as a reference work in the analysis of a broad range of fiscal issues in both developing and developed nations. The innovative Colombian Commission on tax reform was sponsored entirely by the Government; its 32 member research staff was composed of fiscal experts from Colombia and four foreign countries.
The first part contains final recommendations of the Commission to the Government and reflects the lively debate among its lawyers and economists on how to achieve fiscal reform. These recommendations were based on the staff investigations and proposals—previously unpublished—which form the second part.
The book is entirely in English, including the last section which is a translation of the sample legislation drafted to implement the income and wealth tax proposals. Some of these proposals have already been enacted by the Colombian Congress.
D. W. Townson
Van der Valk, H.M.H.A., Het international monetaire stelsel in een vernieuwingsfase, Deventer, the Netherlands, Kluwer, 1972, 143 pp., f. 16.50.
The author briefly analyzes the main characteristics of an international as opposed to a national monetary system. He then provides a succinct description of the gold standard as it operated in the period before 1914, its restoration and decline in the 1920s and 1930s, and the emergence of the Bretton Woods system. The period since the Second World War is reviewed in considerable detail and lessons are drawn from the causes of the present monetary uncertainty.
The author is a former Alternate Executive Director of the Fund and a former Advisor of the Netherlands Bank.
ClaytonG. J. C.Gilbert R.Sedgwick (Editors) Monetary Theory and Monetary Policy in the 1970s: Proceedings of the 1970 Sheffield Money SeminarLondon, EnglandOxford University Press1971viii + 272 pp. $11.25.
BadouinRobertEconomie ruraleParis, France, Librairie Armand Colin1971598 pp. F 67,00.
KronfolZouhair A.Protection of Foreign Investment: A Study in International LawLeiden, The NetherlandsA. W.Sijthoff1972176 pp. DFI. 29,50.
PosthumusG. A.The Inter Governmental Group on Indonesia (I.G.G.I.)Rotterdam, The NetherlandsRotterdam University Press197168 pp. DFI.21,50.
EskanLord Campbell of et al.Britain the EEC and the Third WorldNew York, N.Y., U.S.A.Praeger Publishers, in association with the Overseas Development Institute197295 pp. $7.50.