International Friction and Cooperation in High-Technology Development and Trade Papers and Proceedings (1997) / Chapter Skim
Currently Skimming:
The Concept of National Economic Strategy
The Concept of National Economic Strategy
Pages 239-266
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From page 239... ...
As with firm strategy, the vision provides the frame of reference for establishing priorities for the mobilization of resources as well as the fractions to be allocated across various product markets. Also like firm strategy, national economic strategies are articulated and implemented through institutions.
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From page 240... ...
Within a given economic structure the efficiency of resource utilization seems best promoted indirectly, as suggested long ago by Adam Smith and others, by ensuring that markets work effectively. High levels of resource mobilization, in contrast, typically require more direct government intervention, such as "forced" saving or higher standards of admission for university entrance, a point that is central to the analysis of the producer orientation described below.
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From page 241... ...
Indeed, strong political and/ or ideological differences may rule out some strategic options. We must recognize at the outset that it is not possible to discuss economic strategies without taking account of political considerations and differing ideologies.
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From page 242... ...
The Keynesian model was incompatible with an increasingly open economy and a fixed exchange rate. Keynes' strategy of sustained growth through government-led demand management was conceived when rising trade barriers around the world had reduced world trade to record lows relative to gross national product (GNP)
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From page 243... ...
Although it is indeed true that governmental capabilities are all too often sorely tested just to minimize distortions that might cause the misallocation of resources and to maintain overall stability and an environment conducive to risk taking, this is a problem with the practice of government more that with economic strategies per se. It is important to recognize the limitations of the Keynesian model while at the same time recognizing that it was an ingenious response to a particular set of circumstances.
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From page 244... ...
In these circumstances a mix of ideology and theory can be said to drive economic strategy, and competing versions or interpretations of theory are often to be found behind competing economic strategies. For example, neoclassical theory follows the analytic insights of Adam Smith and others that efficiency and equity are the real concerns of policy; the mobilization and allocation of resources is best left to market signals.
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From page 245... ...
Their political and/or ideological views seem to have little if any room for a strategy that might entail extraordinary measures to mobilize resources for productive purposes if that required some sacrifice in current levels of consumption (to finance additional investment) , let alone some curtailment of individual liberties.5 The key theoretical issue, however, is whether governments can improve on market outcomes if they attempt a reallocation of resources from a structure that maximizes present returns toward one "targeted" on future opportunities.
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From page 246... ...
and others have identified an outward orientation as one where domestic prices are aligned with the equilibrium model. The disequilibrium view would suggest domestic prices either higher or lower than those in the world market, 6Ibid.
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From page 247... ...
An economic strategy aimed at rapid growth and/or catching up with leading countries justifies a high level of resource mobilization. All of the high-performing countries have had high levels of resource mobilization (e.g., savings and investment in excess of thirty percent of GDP)
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From page 248... ...
They are likely to see themselves as fully "competitive," and thus see the role of government as promoting higher levels of current consumption, perhaps by taxing saving and subsidizing consumer borrowing, even if this means a significantly lower level of resource mobilization and consequently a lower rate of economic growth. Keynesian economics was a central part of many such strategies.
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From page 249... ...
Although a focus on incomes inevitably overlaps somewhat the previous discussion of the mobilization and allocation of resources, it helps clarify government's strategic options in a dimension that seems sure to receive increased attention as competitive pressures intensify in world markets and especially as these pressures lead to increased inequalities of incomes. Because it may be easier to visualize strategic options with respect to incomes, a framework based on income distribution is presented first before proceeding to a second approach based on the mobilization and allocation of resources in product markets.
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From page 250... ...
Because the primary concern is with the strategic options of high-income countries, this framework plays a significant role in the analysis as we shift from examining the strategies of the challengers to considering those of the current leaders. Average incomes can be promoted through increased resource mobilization and/or the promotion of increased efficiency in the use of resources, as symbolized by arrow 1 in Figure 1.
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From page 251... ...
Development at the front edge of the curve requires continuous adaptation and learning, and thus numerous institutions progressing together such as secondary schools, universities, research institutes, and firms. Government has a role in seeing that this happens and in supporting the various institutions in appropriate ways.9 The important judgmental issue is how important such externalities may be, and thus how much of an effort should be made to see that they are developed.
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From page 252... ...
Because those with low incomes contribute little in terms of tax revenues, this spending is largely a matter of transferring income from the more successful segments of the population to those that are less successful. The experience of the last 30 years suggests that transfers based on need are not an adequate way to address the circumstances of low-skilled and/or lowincome people.
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From page 253... ...
In general they have been more successful in avoiding increased inequalities than has the United States, but most have done so at the cost of large budget deficits or rising unemployment or both. Identification of strategic options according to their potential influence on incomes by segment helps us consider the impact of economic strategies on the stakeholders in society.
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From page 254... ...
In addition, nations can be characterized as producer or consumer oriented depending on the degree to which they mobilize their resources to promote future income versus consuming today. These generic orientations can be combined to yield generic economic strategies, a point returned to later in the paper.
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From page 255... ...
make a similar distinction using three trade regimes instead of two, with the real exchange rate as the main policy instrument distinguishing their export promotion regime from the one that is balanced, or neutral. See Chenery et al., op.
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From page 256... ...
Producer versus Consumer Orientation Producer orientation is built on the notion of increased resource mobilization so as to have, in Keynes' words, "more jam tomorrow." Producer-oriented nations favor saving and investment, technology acquisition, and skills upgrading through education and training, all of which imply less jam today as well as more tomorrow. In addition to increased resource mobilization, producer-oriented societies are characterized by market structures capital, product, and labor that permit producer institutions, firms, and associations to hold a great deal of power, while restricting that allowed to labor as well as to consumers.
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From page 257... ...
Source: World Bank, World Development Report, 1991, Table 9. Note: low and high income countries are as defined by the World Bank.
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From page 258... ...
We in the United States take these "basics" for granted, but creation of market economies in the former communist countries requires the establishment of property nghts, corporate law, an independent judiciary, and, more generally, limiting the arbitrary powers of the state, which roughly parallels changes made in Britain at the end of the seventeenth century and in other west European nations and North America in the eighteenth century. Paradoxically, producer-onented countries seem to achieve more equal distnbution of incomes than consumer-onented countnes, and they seem to achieve TABLE 2 Resource Mobilization, Selected Countnes, 1990 Investment/GDP (%)
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From page 259... ...
From the 1880s onwards there was a steady expansion in public provision for education and health, and over the past seventy years there has been a huge growth of pensions, sickness, and unemployment benefits, and family allowances.~3 Education and health care can be seen as part of the producer orientation; they are likely to add to productive capabilities as much or more than they add to consumption. Pensions, unemployment benefits, and family allowances would seem to be in quite a different category, particularly where they involve signifi cant transfers from one group to another.
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From page 260... ...
Japan is clearly distinct from other OECD countries in according higher priority to resource mobilization (see Table 2~. It is also much lower than most in public spending for social protection, and would be in a class by itself if all health care spending (most of which is private in the United States)
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From page 261... ...
We plot on the x axis the extent to which a society mobilizes and allocates its resources for productive purposes, and on the y axis its trade regime for influencing the allocation of resources in favor of home versus external markets. Inward and outward orientations reflect explicit government attempts to tilt market forces; neutrality means attempting to level the playing field instead of tilting it in any particular direction.
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From page 262... ...
East Asian economic strategies, with their outward-producer orientation, are focused on achieving higher growth as a way to enhance their economic and political power, not their short-term standard of living. Global economic competition is, therefore, in part between neoclassical strategies focused on short-term consumer welfare and neomercantilist strategies focused on development ~ .
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From page 263... ...
Inward orientation prevented a number of socialist and communist countries from capitalizing on their increased levels of resource mobilization. By limiting their focus to their home markets, they, like many of the smaller nations of Africa and Latin America, were unable to continue to achieve economies of scale and thus exploit world market opportunities.
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From page 264... ...
Explicitly identifying and comparing these economic strategies will facilitate their evaluation in terms of relative competitiveness. Figure 4 places a small sample of nations in the matrix.
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From page 265... ...
Questions The economic strategy matrix is also helpful in thinking about the challenges that the two most influential strategies may be facing in the years ahead. Japan's trade surpluses have forced its exchange rate from undervaluation in the highgrowth years to a level currently approximating double its purchasing power parity.
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From page 266... ...
High-income nations seem destined for profound challenges to their economic strategies in the years ahead. These challenges are of central concern.
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