Agricultural & Applied Economics Association

Shaping the World Economy: Suggestions for an International Economic Policy by Jan Tinbergen Review by: John W. Mellor Journal of Farm Economics, Vol. 46, No. 1 (Feb., 1964), pp. 271-273 Published by: Oxford University Press on behalf of the Agricultural & Applied Economics Association Stable URL: http://www.jstor.org/stable/1236502 . Accessed: 18/03/2013 09:21
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Tinbergen, Jan, Shaping the World Economy: Suggestionsfor an International Economic Policy, New York,The Twentieth Century Fund, 1962, pp. xviii, 330. (Cloth, $4.00; Paper, $2.25) In this book, Tinbergen and his staff at the Netherlands Economic Institute give a readable, essentially popular presentationof their views as to the nature of the world's majorproblemsand their prescriptionsfor solution of those problems. With the exception of an interesting empirical analysis of trade patterns, the book does not attempt to chart new ground in regard to either theory or empirical evidence. It is however valuable to have the judgment of a person of Tinbergen's experience and stature in regard to the many controversialissues treated. Tinbergen'swide-ranging conclusions emphasize the need for: (a) a large increase in foreign aid by the developed countries, with the United States providing 60 to 70 percent of the coverage a la the suggestions of (b) rapid progress towards free trade, with the exception Rosenstein-Rodan;1 of temporaryduties in low income countries and some agriculturalprotection in the developed countries; (c) reduced internal taxes in developed countries on the products of tropical areas; (d) more and better internationalcommodity agreements; (e) increased economic integration within geographic regions; (f) a greatly enlarged role for the United Nations, particularlyin regard to development planning and projections; (g) a greatly enlarged role for the nonaligned nations in determinationof policy as well as in its execution; and financialand monetaryauthorities.These (h) the developmentof supranational latter would serve as a world central bank a la the suggestionsof Robert Triffin2 (although Tinbergen would prefer Meade's3suggestion of fluctuating exchange rates if they were acceptable to national central bank managers);they would coordinate and redress imbalances in national allocations of aid and development funds; they would stabilize revenues of countries producing primary commodities, and they would provide insurance against noneconomic risks of private foreign investment.The importanceof planning at the national and international level is emphasizedthroughoutthe book. The book is concerned largely with economic development since Tinbergen sees this as the keystone problem in the world economy. Part one discusses the nature of underdevelopment,the "two competing systems ... the Western and and existing trade and commodityproblems.Part two delinethe Communist," ates an optimal internationalpolicy in regard to objectives, investment problems, trade and commodity policy and international institutions. The appendices provide a "lightly once over" treatment of the four major underdeveloped regions of the world plus detail on the analysis of trade flows and quantificationof the consequences of various tariff and excise tax reductions.
Rev. Econ. and Stat., May 1961, pp. 107-138. 2 R. Triffin, Gold and the Dollar Crisis-Future of Convertability, New Haven, 1960. 'J. E. Meade, "The Future of International Trade and Payments," The Three Banks Review, June 1961.

"International Aid for Underdeveloped 1P. N. Rosenstein-Rodan, Countries,"

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In an attempt to cover a wide area efficiently and in a manner intelligible to a broad audience, the book admits a looseness of definition likely to distress many readers, viz: "we must realize that most of the people in Asia and Africa and many in Latin America are living at a starvation level" and "surely the tropical and subtropical climates . . . are not conducive to persistence or to productivity generally." Tinbergen subscribes to the "big push" school of development with its ancillary of the "vicious circle of poverty." This position leads clearly to his conclusion that an adequate rate of growth of 2 percent per year in the per capita income of underdeveloped areas will require additional investment of 7 to 8 billion dollars per year, and that this increment will have to come in the form of aid from the developed areas. This incremental sum is equivalent to 1 percent of the total national income of developed countries and would require roughly a doubling of annual foreign aid expenditures. It is perhaps in regard to foreign aid that this book falls furthest short of meeting the crucial issues of the day. Tinbergen provides elegant support for aid on the grounds of equity, welfare and world power politics. He does not use the argument that, in the long run, development might provide the basis for greater world efficiency in production and hence direct economic advantages to the developed nations. But, more important, his treatment does not recognize that recent growth in American criticism of foreign aid has come not so much from growing parochialism and a decline in concern for welfare of others as from a feeling of frustration in achievement from foreign aid. There is a good deal of evidence that this frustration is based on real failings rather than on excessively high expectations. Thus, an increase, or even maintenance of current aid levels, demands measures for increased effectiveness of aid. Tinbergen gives few positive suggestions for improving the effectiveness of technical aid programs. This is doubly unfortunate because technical aid includes some of the best opportunities and the greatest failings in aid programs. And, unfortunately, his argument (p. 126) for equalization of rates of growth as the basic criteria for aid may reduce the efficiency of capital grants. The returns may be low in the case of governments which will not take the requisite developmental steps and countries which are short of infrastructure, particularly trained manpower. In the long run it may be more efficient to give a modest total of aid, emphasizing manpower training, to countries shortest of manpower and infrastructure and heavy capital credits to the countries providing higher short-run returns due to a more developed infrastructure. Although this may or may not widen income gaps in the short run, it appears to provide a better framework for current policy than Tinbergen's more heavily equity-oriented prescription. In an interesting preliminary analysis, Tinbergen measures the extent to which "today's pattern of international trade deviates from the most desirable quantitative structure." On the assumption "that trade between most pairs of countries is not restricted and can therefore be considered as an indication of the most desirable volume of trade," equations are used to calculate the normal volume of trade for each of 42 countries. The determinants of the

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normal pattern of trade among pairs of countries are the size of the exporting and importing country as measured by GNP and the geographic distance between countries. Calculations of the coefficients were made for various sets of countries, the largest set being 42, and comprising 1,722 pairs (42 by 41). The correlationcoefficients of about 0.80 were not significantlyincreased by introducingdummy variablesfor neighboringversus nonneighboringcountries, Commonwealthpreference and Benelux preference.The solutionsto the CobbDouglas equations "impliesthat normal trade flow between any two countries will be proportionalto the gross national products of those countries and inversely proportionalto the distance between them."This is counter to the common belief that trade increases more than proportionately with GNP. Analysis of the deviationsfrom normal indicates that "the only group of countriesshowing a large and consistent subnormalvolume of trade are the large industrial countries."Since diversity of production was not found as highly correlated with GNP as might be expected, this implies that the large industrialcountries are the main offendersin trade restrictionism. Among these countries, France turns out to be more restrictive than average and the United States less.
JOHN W. MELLOR

Cornell University

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