National Economic Policies

393 Pages·1991·22.29 MB·English

NATIONAL
ECONOMIC
POLICIES
DOMINICK SALVATORE
EDITOR
STUDIES IN COMPARATIVE ECONOMIC POLICIES
VOLUME 1
NORTH-HOLLAND
Amsterdam · New York · Oxford
Copyright © 1991 by Dominick Salvatore
All rights reserved. No portion of this book may be
reproduced, by any process or technique, without the
express written consent of the publisher.
ISBN: 0^44-98692-8
First published in 1991
Publisher and sole distributor for the U.S.A. and Canada:
Greenwood Press, 88 Post Road West, Westport, CT 06881
An imprint of Greenwood Publishing Group, Inc.
Sole distributor outside the U.S.A. and Canada:
ELSEVIER SCIENCE PUBLISHERS, B.V.
P.O. Box 1991
1000 BZ Amsterdam
The Netherlands
Printed in the United States of America
The paper used in this book complies with the
Permanent Paper Standard issued by the National
Information Standards Organization (Z39.48-1984).
10 9 8 7 6 5 4 3 21
ILLUSTRATIONS
FIGURES
2.1 U.S. Inflation and Unemployment 23
2.2 U.S. Net Saving, Net Domestic Investment, and Net
Foreign Investment as Percentages of Net National
Product 29
2.3 U.S. Federal Budget Outlays, Receipts, and Deficits as
Percentages of Gross National Product 34
2.4 Exchange Value of the Dollar and U.S. Current Account 48
3.1 The EC Economy: The Growth of Public Debt 79
3.2 Public Finances in EUR 12 80
3.3 Productivity, Real Wages, and Capital/Labor Substitution,
EC 85
3.4 Real Unit Labor Costs, Profitability, Real Long-Term
Interest Rate, Capacity Utilization, and Investment, EC 86
6.1 Financial Institutions 179
TABLES
2.1 U.S. Unemployment Rates by Census Regions and
Divisions, 1988, All Races and Black 25
2.2 U.S. Real GNP, Productivity and Employment: 1980s
Compared to 1960s and 1970s 26
VIII Illustrations
2.3 Trends in Income Distribution in the United States,
1950-88 31
3.1 The EC Economy Through the 1980s 67
3.2 Principal Budgetary Trends in the Community 67
3.3 Cumulative Changes in Budget Balances and the
Mechanical Impact of the Changes in Economic Activity 68
3.4 General Government Receipts in the Community 69
3.5 General Government Expenditure in the Community 69
4.1 General Government Expenditures and Social Security
Transfers: Japan and Other Countries, Selected Years,
1955-80 104
4.2 Selective Items in the General Account Budget,
FY 1965-83 105
4.3 Inflation in Japan, 1970-88 115
4.4 Growth of the Money Supply in Japan, 1970-88 116
4.5 Monetary Policy, Japan, 1970-88 117
4.6 Balance of Payments, Japan, 1970-88 118
4.7 Sources of Funds to Industry 127
5.1 Selected Economic Indicators, Austria, 1970-89 134
5.2 Selected Economic Indicators, Austria, 1970-89 135
5.3 Selected Economic Indicators, Sweden, 1970-89 142
5.4 Selected Economic Indicators, Sweden, 1970-89 143
5.5 Selected Economic Indicators, Canada, 1970-89 151
5.6 Selected Economic Indicators, Canada, 1970-89 152
5.7 Selected Economic Indicators, Australia, 1970-89 157
5.8 Selected Economic Indicators, Australia, 1970-89 158
6.1 Economic Performance of Asian NICs, 1986-89 172
6.2 Tax Structure, 1989 173
6.3 Ratios of Direct and Indirect Taxes to Total Tax Receipts 174
6.4 Tax Burden Ratio to GNP 175
6.5 Composition of Government Expenditures as Proportion of
GNP 176
6.6 Market Share of Financial Institutions 180
6.7 Nominal and Real Interest Rate, 1970-89 184
6.8 Money Supply and Inflation, 1981-89 185
6.9 MSB Outstanding and BOP Surplus, 1986-89 186
Illustrations ix
6.10 Proportion of Trade to GNP, 1981-89 187
6.11 Export Growth Rates, 1960s-1980s 187
6.12 Proportion of Trade to Surplus or Déficit to GNP,
1981-89 188
6.13 Trend of Import Liberalization, 1981-90 190
6.14 Trend of Average Tariff Rates, 1983-90 190
6.15 Trend of Appreciation Rates in Asian NICs, 1981-89 191
6.16 Regulations on Business Activities and by Type 195
6.17 Regulations by Purpose 197
6.18 Korea's Industrial Structure 197
6.19 The Changing Composition of Korea's Exports 199
7.1 Real Money Supplies, Latin America and the United
States, 1928-39 210
7.2 Real Exchange Rates, Latin America, 1929-39 211
8.1 Growth Rate of Gross Domestic Product in the Indian
Economy, 1950/51-1988/89 233
8.2 Income Distribution and ICP Estimates of GDP for India
and Some Selected Developing Countries 234
8.3 Gross Domestic Saving and Investment in India,
1951/52-1988/89 244
8.4 Composition of Household Sector's Saving and Financial
Assets, India, 1980/81-1988/89 245
8.5 Incremental Capital-Output Ratios in the Indian Economy,
1951/52-1985/86 246
8.6 Manufacturing Output and Value Added by Firm Size 246
8.7 Structure of Industrial Production 247
8.8A Merchandise Exports as Percentage of World Exports 251
8.8B Textile Exports as Percentage of World Textile Exports 251
8.8C Manufacture Exports as Percentage of World Manufacture
Exports 252
8.9A Merchandise Exports, Total 253
8.9B Merchandise Exports, Textiles 253
8.9C Merchandise Exports, Manufacture 254
8.10 Government Current Receipts and Expenditures 255
8.11 Elasticity and Buoyancy of India's Tax System 256
8.12A Financial Position of the Central Government's Public
Enterprises 258
x Illustrations
8.12B Profit and Loss of the Commercial Enterprises of State
Governments 258
8.13 Factors Affecting Reserve Money, India,
1981/82-1985/86 265
8.14 Selected Interest Rates, Price, and Nominal Exchange
Rate Changes in India 268
9.1 Money Supply, Kenya, 1966-87 285
9.2 Sectoral Allocation of Commercial Bank Credit in
Nigeria, 1970-79 287
9.3 Growth Rates of Selected Socioeconomic Indicators,
Egypt, Kenya, and Nigeria, 1975-88, Selected Years 291
9.4 Government Budget Deficit/Surplus, Egypt, Kenya, and
Nigeria, 1982-88 293
9.5 The Money Supply, Egypt, Kenya, and Nigeria, 1982-88 294
9.6 Distribution of Credit Between the Central Government
and the Private Sector, Egypt, Kenya, and Nigeria,
1982-88 295
9.7 Trends in Predominant Interest Rates in Egypt, Kenya,
and Nigeria, 1980-88 296
9.8 Exchange Rate, Egypt, Kenya, and Nigeria, 1982-88 297
9.9 Intercountry Comparison of Selected Economic Indicators,
1973-87 301
11.1 The Polish Economy, 1981-89 343
11.2 Price Inflation, Wage Raises, and the Central Budget
Balance in Poland 360
11.3 Main Positions of the Consolidated Balance Sheets of the
Polish Banking System, December 31, 1989-June 30, 1990 363
PREFACE
The present volume is the first in a series of comparative economics handbooks.
It presents an overview of national economic policies in the world's most im-
portant countries or groupings of countries. Future volumes will deal with more
specific aspects of economic policies such as trade, monetary, fiscal, economic
development, and environmental policies.
With increased economic competition among industrial countries, the need
for rapid economic development in less developed countries, and the collapse
of the centrally planned regimes in Eastern Europe, economic policies have
moved to the forefront relative to political, defense, and other policies followed
by most nations of the world (although, of course, all policies are interrelated).
Few, however, would dispute that a well-managed economic system with high
rates of growth and development, full employment, and little or no inflation, as
well as a concern for the environment, are not among the top priorities of national
governments throughout the world today.
Nations use fiscal, monetary, industrial, trade, and regulatory policies to
achieve their economic goals. The purpose of this volume is to examine and
compare the policies followed by different types of countries and examine their
effects. There is today a great need to conduct this type of comparative study.
Industrial, developing, and Eastern European countries can all learn a great deal
from such a comparative study.
This volume contains a chapter on each of the largest countries in the world
(the United States, Japan, India, the Soviet Union, and China) as well as a
chapter on each of several homogeneous groupings of countries (the European
Economic Community, the newly industrializing countries [NICs], and the coun-
tries of Latin America, Africa, and Eastern Europe). Of course, no two countries
are identical, but similarities among countries in a specific group are greater
xii Preface
than differences; to that extent, it is useful to deal with them together. By
comparing the policy used, the policy instruments utilized, and the outcomes of
the policies adopted by different countries or groups of fairly homogeneous
countries, the hope is that all countries can learn something useful. Although
numerous studies have been published on how individual countries conduct
economic policies, few if any comparative studies, such as the present one, have
been issued.
This handbook can be of great use to students of comparative economic systems
in general and to economists, policymakers, and the general informed public as
a source of reference and comparison. The references at the end of each chapter
and the selected bibliography at the end of the volume indicate the most important
sources of additional information and detail on the economic policies of the most
important countries in the world.
1
NATIONAL ECONOMIC POLICIES: AN
OVERVIEW
Dominick Salvatore
INTRODUCTION
Most nations of the world, developed as well as developing, market economies
as well as those that are now shifting from a centrally planned system to a market
economy, share a number of important common objectives: full employment of
domestic resources (especially labor), an ''acceptably" low rate of inflation, a
4'reasonable" rate of growth, an "equitable" distribution of income, and, more
recently, control over environmental pollution. The tools generally available to
achieve these goals are fiscal and monetary policies, industrial policies, trade
and exchange rate policies, and regulation. Different types of countries choose
a different mix of these policies and utilize somewhat different means to carry
them out.
This volume seeks to identify and compare the policies followed by different
types of countries, the instruments that the various countries use to achieve their
goals, and the results obtained. Admittedly, this is an ambitious task. There is,
however, a great need to conduct this type of comparative study of national
economic policies. The optimal policies in one country or group of countries
are not necessarily, or even usually, the best policies for other countries operating
under a different institutional setting. Thus, comparative studies become essen-
tial.
Much can be learned from such comparative studies of national economic
policies. Major industrial countries can better evaluate their own policies by
comparing them to similar policies conducted by other industrial countries. They
can also acquire a deeper understanding of why some countries adopt specific
policies and the reason why they utilize particular policy instruments rather than
others. Developing countries can learn from the experience of industrial countries
4 Introduction
and possibly avoid repeating the same mistakes that the industrial countries made
during their course of economic development. Particular developing countries
can also learn from the experience of other developing countries. Finally, the
countries of Eastern Europe, the Soviet Union, and China can learn from the
experience of developed and developing countries in identifying the institutions
that are essential for the structural adjustment they are now undertaking in their
road to a market economy, in choosing the most appropriate instruments avail-
able, and in learning how to conduct national economic policies.
Space limitations do not permit us to deal with all countries. Indeed, it may
not even be necessary to cover the world lest we get lost in a sea of details. In
this volume, we include a chapter on each of the largest countries (the United
States, Japan, India, the Soviet Union, and China) as well as a chapter on each
of several homogeneous groupings of countries—the European Economic Com-
munity (EEC), the newly industrializing countries (NICs), and the countries of
Latin America, Africa, and Eastern Europe. Of course, no two countries are
identical, but similarities among the various countries in a specific group are
greater than the differences, and, to that extent, it is useful to deal with them
together. By comparing the policy used, the policy instruments utilized, and the
outcomes of the policies adopted by different countries or groups of fairly ho-
mogeneous countries, we hope that all countries can learn something useful.
While there are numerous studies on how individual countries conduct economic
policies, few if any comparative studies, such as the present one, have been
published.
Of course, national economic policies in most countries have undergone sig-
nificant changes during the past decade. While the various chapters of this volume
take a historical approach, much of the focus is necessarily on the economic
policies of the 1980s since it is these policies that are most useful to determine
optimal policies for the future. The most important policy changes occurred in
the field of fiscal policies and were stimulated by the huge and persistent budget
deficits that arose in many countries during the past decade. These deficits
exacerbated low and declining national savings rates and reduced economic
efficiency and growth. The monetary policy objectives of most countries were
price stability, support for economic growth, and equilibrium in the balance of
payments. Industrial policies were regarded as crucial for economic development
in the Third Word. Trade and exchange rate policies led to a more open world
trading and financial system, but the large U.S. trade deficits have encouraged
new forms of protectionism as well as attempts at international economic policy
coordination. Environmental policies have also become very important as nations
became increasingly concerned with the impact of pollution and other "social
evils" on their economies. Petroleum shocks, worldwide inflation, recurrent
recessions, and lagging economic development in the Third World, however,
have all tended to dampen greater environmental efforts. In recent years, the
world has also witnessed the birth of economic policy in the European Community
as well as radical economic reforms in socialist or former socialist countries.