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Agricultural & Applied Economics Association

Shaping the World Economy: Suggestions for an International Economic Policy by JanTinbergenReview by: John W. MellorJournal of Farm Economics, Vol. 46, No. 1 (Feb., 1964), pp. 271-273

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REVEWS 271Tinbergen, Jan, Shaping the WorldEconomy:Suggestionsfor an InternationalEconomic Policy, New York,The Twentieth CenturyFund, 1962, pp. xviii,330. (Cloth, $4.00; Paper,$2.25)In this book, Tinbergen and his staff at the Netherlands EconomicInstitute give a readable, essentiallypopular presentationof their views as tothe natureof the world'smajorproblemsand their prescriptions or solutionofthose problems. With the exception of an interesting empirical analysis oftrade patterns, the book does not attempt to chart new ground in regard toeither theory or empiricalevidence. It is however valuable to have the judg-ment of a person of Tinbergen's experience and stature in regard tothe many controversial ssues treated.

Tinbergen's wide-rangingconclusions emphasize the need for: (a) a largeincrease in foreign aid by the developed countries, with the United Statesproviding 60 to 70 percent of the coverage a la the suggestions ofRosenstein-Rodan;1b) rapid progresstowards free trade, with the exceptionof temporaryduties in low income countries and some agriculturalprotectionin the developed countries; (c) reduced internaltaxes in developed countrieson the productsof tropicalareas; (d) moreand better internationalcommodityagreements; (e) increased economic integration within geographic regions;(f) a greatly enlarged role for the United Nations, particularly n regard todevelopment planning and projections; (g) a greatly enlarged role for thenonalignednations in determinationof policy as well as in its execution;and(h) the developmentof supranationalinancialand monetaryauthorities.Theselatter would serve as a world centralbank a la the suggestionsof Robert Trif-fin2 (althoughTinbergen would prefer Meade's3suggestion of fluctuatingex-change rates if they were acceptable to nationalcentral bank managers); heywould coordinate and redress imbalances in national allocations of aid anddevelopment funds; they would stabilize revenues of countriesproducing pri-mary commodities, and they would provide insurance against noneconomicrisksof private foreign investment.The importanceof planningat the nationaland international evel is emphasized hroughout he book.The book is concernedlargely with economic developmentsince Tinbergensees this as the keystoneproblemin the world economy.Partone discussesthenatureof underdevelopment, he "twocompetingsystems... the Westernandthe Communist," nd existing trade and commodityproblems.Part two deline-ates an optimal internationalpolicy in regard to objectives, investmentprob-lems, trade and commodity policy and international institutions. The ap-pendices provide a "lightly once over" treatment of the four major under-developed regions of the world plus detail on the analysisof trade flows andquantificationof the consequencesof various tariff and excise tax reductions.

1P. N. Rosenstein-Rodan,International id for UnderdevelopedCountries,"Rev. Econ. and Stat., May 1961, pp. 107-138.2R. Triffin, Gold and the Dollar Crisis-Future of Convertability, New Haven,1960.'J. E. Meade, "The Future of InternationalTrade and Payments," The ThreeBanksReview,June 1961.

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272 REVImwsIn an attempt to cover a wide area efficiently and in a manner intelligibleto a broad audience, the book admits a looseness of definition likely todistress many readers, viz: "we must realize that most of the people in Asiaand Africa and many in Latin America are living at a starvation level" and"surely the tropical and subtropical climates . . . are not conducive to persist-ence or to productivity generally."Tinbergen subscribes to the "big push" school of development withits ancillary of the "vicious circle of poverty." This position leads clearlyto his conclusion that an adequate rate of growth of 2 percent per year in theper capita income of underdeveloped areas will require additional investmentof 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 equiva-lent to 1 percent of the total national income of developed countries and wouldrequire roughly a doubling of annual foreign aid expenditures.It is perhaps in regard to foreign aid that this book falls furthest short ofmeeting the crucial issues of the day. Tinbergen provides elegant support foraid on the grounds of equity, welfare and world power politics. He does notuse the argument that, in the long run, development might provide the basisfor greater world efficiency in production and hence direct economic ad-vantages to the developed nations. But, more important, his treatment does notrecognize that recent growth in American criticism of foreign aid has come notso much from growing parochialism and a decline in concern for welfare ofothers as from a feeling of frustration in achievement from foreign aid. Thereis a good deal of evidence that this frustration is based on real failings ratherthan on excessively high expectations. Thus, an increase, or even maintenanceof current aid levels, demands measures for increased effectiveness of aid.Tinbergen gives few positive suggestions for improving the effectiveness oftechnical aid programs. This is doubly unfortunate because technical aidincludes some of the best opportunities and the greatest failings in aid pro-grams. 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 therequisite 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, empha-sizing manpower training, to countries shortest of manpower and infrastructureand heavy capital credits to the countries providing higher short-run returnsdue to a more developed infrastructure. Although this may or may not widenincome gaps in the short run, it appears to provide a better framework forcurrent policy than Tinbergen's more heavily equity-oriented prescription.In an interesting preliminary analysis, Tinbergen measures the extent towhich "today's pattern of international trade deviates from the most desirablequantitative structure." On the assumption "that trade between most pairs ofcountries is not restricted and can therefore be considered as an indication ofthe most desirable volume of trade," equations are used to calculate thenormal volume of trade for each of 42 countries. The determinants of the


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REVIEWS 273normalpattern of trade amongpairs of countriesare the size of the exportingand importingcountry as measuredby GNP and the geographicdistance be-tween countries. Calculations of the coefficientswere made for various setsof countries,the largest set being 42, and comprising1,722 pairs (42 by 41).The correlation coefficientsof about 0.80 were not significantly ncreased byintroducingdummy variablesfor neighboringversusnonneighboring ountries,Commonwealthpreferenceand Beneluxpreference.The solutions to the Cobb-Douglas equations"impliesthat normaltrade flow between any two countrieswill be proportional o the gross national products of those countriesand in-versely proportional o the distancebetween them."This is counterto the com-mon belief that trade increasesmore than proportionatelywith GNP. Analysisof the deviations from normal indicates that "theonly groupof countriesshow-ing a large and consistent subnormalvolume of trade are the large industrialcountries."Since diversity of productionwas not found as highly correlatedwith GNP as might be expected, this implies that the large industrialcountriesare the main offendersin trade restrictionism.Among these countries,Franceturns out to be more restrictivethan average and the United States less.

JOHNW. MELLORCornell University


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