David Greenaway and Chris Milner, Trade and Industrial Policy in
Developing Countries: A Manual of Policy Analysis. Ann
Arbor: The University of Michigan Press, 1993. Pp. xviii +
265. $49.50 cloth.
Myron J. Frankman, Economics,
McGill University, Montreal
Published in : Journal of Developing Societies, 12 (no. 2,
The subtitle of
this book tells the tale: "A Manual of Policy Analysis."
This is a primer for those who want to familiarize themselves with the
techniques of economic analysis useful for evaluating trade policy,
including analysis of effective protection, domestic resource cost,
computable general equilibrium, and revealed comparative
advantage. Indeed, the main title of the book which refers to
"Trade and Industrial Policy" (the latter is taken up only briefly)
should properly have spoken of "Trade Liberalization."
Liberalization is a topic to which Greenaway and Milner have been
intimately involved through numerous country studies which they have
done for World Bank Structural Adjustment Lending (SAL) negotiations.
Trade liberalization is portrayed as the only viable
option for developing countries. Doubt is effectively masked by the use
of "may" in discussing causal links. While "may not" is implicit, no
attempt is made to remind the reader that such is the case. The
authors, for example, say (p. 198) that in the preceding section we saw
"how comparative advantage may systematically change with progress up
the ladder of development." In fact, we were told that it is more
likely that we may not see this at all. Dirigiste policies are
contrasted with the experience of "a number of NICs which apparently
followed more outwardly-oriented policies." (p. xvi).
"Apparently" is subsequently buried by an avalanche of certainty about
the wisdom of liberalization, including the assertion that "the
discounted value of the benefits of liberalization will typically
exceed to a significant degree the discounted value of any adjustment
costs" (p. 237). Alice Amsden and Robert Wade have written at length to
challenge that "apparently," but neither rates a place in the
Sherlock Holmes spoke of the dog that didn't bark in
the night; there is an entire silent menagerie here: no foreign
aid, no concessional aid other than from the World Bank with strings
attached, no redistribution, no globalization, no recognition that the
fallacy of composition may negate the recommendations, and many more
missing ingredients essential to understanding. There is scarcely
any attention to increasing returns to scale, a perspective which has
revolutionized international trade theory, nor to strategic trade
policy, which is its logical corollary. Why is this absent?
One reason is that it doesn't yield a determinate solution: ". .
. it has to be recognised that a constant returns to scale assumption
tends to make it easier to find an equilibrium concept upon which to
base the analysis" (p. 144).
There are states, but no democracy and no
politics. Policies are "determined by bargaining" between the
World Bank's experts and their national counterparts (p. 237). There
are no entrepreneurs and labor is present almost only as a factor of
production influencing comparative advantage, which is an autonomous
force that needs no assistance from meddling, generally misguided
policymakers. "Picking winners" is consistently derided as an
exercise in self-delusion. Nonetheless, costly
externally-funded studies of implicit revealed comparative advantage
are proposed as a way of establishing a distortion-free list of
potential exports. A study of Trinidad and Tobago, in which one
of the authors participated, listed textiles as a potential
export. Common sense led the authors to caution that Trinidad is
unlikely to be able to compete against clothing exports from low-wage
economies in Asia. Three sentences later they contradict
themselves in their reaffirmation of economics' unshakable
"verity": "The principle that relative rather than absolute costs
largely determine trade patterns is a theoretically robust principle .
. ." (p. 193). And since they are committed to trade
liberalization, they conclude the same paragraph by suggesting that
there is no indicator that can be used with confidence to intervene on
behalf of a potential export industry.
The rather substantial information requirements of
the techniques discussed here makes this manual of limited
applicability to cash-strapped Third World policy analysts.
Nonetheless, for those with the requisite background in economics, this
does provide a concise statement of the main analytical approaches to
trade liberalization. Paradoxically, the book may well be of greatest
value to those who are critical of uncompensated sweeping trade
liberalization. Close attention to the contradictions in the
discourse and sensitivity to missing elements could prove to be useful
when the World's Bank's team comes to the door to negotiate.