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Economic nationalism in the third world
JOURNAL
OF COMPARATIVE
ECONOMICS
12,266-268
(1988)
PETER J. BURNELL, Economic Nationalism in the Third World. Boulder, CO: Westview Press, 1986. x + 294 pp. $30.00. This book covers the gamut of causes of, motivations for, and tools of economic nationalism as conducted by Third World or developing countries. The book covers its material in a logical sequence and shows a wide range of scholarship. The problem lies in defining “economic nationalism” when the phenomenon takes on such a wide variety of forms under such different sets of circumstances. Indeed, the author devotes better than 35 pages to explaining why there can be no satisfactory operational definition of his subject. In consequence, the author follows a large number of different subphenomena so that it is difficult, if not impossible, to identify the book’s main thrust and succinctly to summarize its findings. In fairness to Dr. Bumell, it should be explicit that his book is being reviewed by a person of a different discipline. No economist would dream of writing a book on a subject which did not lend itself to an operational definition. Indeed, a modem, mainstream economist dealing with economic nationalism would standardize the phenomenon so that it could be defined operationally: this would allow the economist to manipulate the topic to the point to which extremely precise results would be obtained about the way in which economic nationalism, as defined, did or did not lead to enhanced efficiency, growth, or achievement of national goals subject to the assumptions found necessary to the achievement of a solution of acceptable precision. The result would be a tidy essay in which all ofthe real-world complexities, excluding those explored by the author, would have been neglected in the interests of “rigor.” There must be some middle ground in which a treatment of economic nationalism can have a main theme that allows it to incorporate concerns for real-world problems and to provide a central theme that allows the reader to formulate a general understanding of economic nationalism that can be used as an analytic framework to which individual examples may be applied usefully. It may be that a more profitable approach to economic nationalism would have been to exclude certain phenomena from consideration or, alternatively, to have divided the book into two parts and to have identified two separate groups of phenomena. The division would separate those measures and causes that lead a nation’s political leaders to discriminate against foreign involvement because it is in the nation’s economic self-interest to do so, from any measures undertaken at some own economic cost in order to 0147-5967188
$3.00
Copyi@ 0 1988 by Academic R-es% Inc. All tit.3 of reproduction in any form reserved.
266
BOOK
REVIEWS
26-l
promote “nationhood” or what Keohane and Ooms ( 1975) refer to as “image.” Such a dichotomy would allow the two genera of economic nationalism to be analyzed separately and the two tracks could be integrated in a final chapter. This reviewer’s preference is to regard the first set of phenomena as logical policy and therefore as “nationalist” only in the sense that the measures involved are antiintemationalist. It is possible to hark back to the GATT position on the Generalized System of Preferences (GSP) when the GATT decreed that GATT rules should not preclude the GSP because “unequals should be treated unequally.” Developing countries cannot afford to take a purely internationalist position. Measures taken to safeguard the domestic economy against foreign shocks and conditions then are not, according to this approach, economic nationalism. This does not mean that all inward-looking policies are wise, but their intent is to benefit the economic development of the home country. By contrast, certain inward-looking measures are taken because noneconomic variables dominate the economic objectives of growth and development. The need to identify the country in the minds of its citizens or the unwillingness to take the risks of economic exposure inherent in a fully internationalist position would impose economic nationalism at some economic cost. These measures are, then, the heart of economic nationalism. One of the foremost problems of economic nationalism under the second definition is how to take advantage of the potential of TNCs for technology transfer. There are some obvious cases in which foreign direct investment is unlikely to be beneficial and the author explores the main area of such investment in some detail. The question of appropriate policy toward the exploitation of natural resources is covered in pp. 116- 13 1. The chapter on inward direct investment is devoted to a very thorough consideration of “indigenization,” but it does not confront the question of the sources of benefits and costs from inward investment. Equally, the chapter does not identify the major problem of hosting direct foreign investment: the problem of policy toward foreign direct investment lies in ensuring that the host nation obtains a sizable part of the economic surplus which PDI can create. The benefits of technology transfer must not be wholly dissipated by the costs of the necessary “web of constraint” (Walter, 1975), by the increased exposure to foreign events including potentially capricious decisions by TNC managements, and by the repatriated profits of the TNC. The question of indigenization is merely an extension of the question of whether to admit or under what constraints to admit a foreign TNC. The author does point out that indigenization is no guarantee of success and, it can be argued, too rapid indigenization is one of the major temptations of policies of economic nationalism. Causes of the growth of economic nationalism, in its broadest sense, are well detailed. The argument here would have benefitted from the distinction made above so that North-South issues would have been seen as rational measures that take on a nationalist or bloc-related form rather than as “eco-
268
BOOK REVIEWS
nomic nationalism for nationalism’s sake.” C. P. Kindleberger has shown recently (1984, Chap. 2) that the growth of the optimum area for economic conduct has been substantial in recent years and now far exceeds the optimum area for political control. This fact and the need for image building by nations that have histories of colonialism in its political or commercial forms probably account for a great deal of the proposed narrower definition of economic nationalism. As might be expected from a political scientist, political variables that are too frequently neglected by economists are given full consideration and add a valuable dimension to the book. In short, the weakness of this book is that, while it provides a great deal of information, it does not tell the reader whether economic nationalism is good or bad, well used or misused, or a temptation for Third World policitians that they would do well to shun. This problem may be attributed to the author’s concern not to neglect coverage of any phenomenon that might be seen as embodying economic nationalism. REFERENCES Keohane, Robert O., and Ooms, Van Doom, “The Multinational Firm and International Regulations.” In C. F. Bergsten and L. B. Krause, Eds., World Politics and International Economics, pp. 169-209. Washington, DC The Brookings Institution, 1975. Kindleberger, Charles P., Multinational Excursions, Chap. 2. Cambridge, MA: MIT Press, 1984. Walter, Ingo, “A Guide of Social Responsibility of Multinational Enterprise.” In J. Backman, Ed., Social Responsibility and Accounting. New York: New York Univ. Press, 1975.
H. PETER GRAY Rutgers University New Brunswick, New Jersey 08903
OF COMPARATIVE
ECONOMICS
12,266-268
(1988)
PETER J. BURNELL, Economic Nationalism in the Third World. Boulder, CO: Westview Press, 1986. x + 294 pp. $30.00. This book covers the gamut of causes of, motivations for, and tools of economic nationalism as conducted by Third World or developing countries. The book covers its material in a logical sequence and shows a wide range of scholarship. The problem lies in defining “economic nationalism” when the phenomenon takes on such a wide variety of forms under such different sets of circumstances. Indeed, the author devotes better than 35 pages to explaining why there can be no satisfactory operational definition of his subject. In consequence, the author follows a large number of different subphenomena so that it is difficult, if not impossible, to identify the book’s main thrust and succinctly to summarize its findings. In fairness to Dr. Bumell, it should be explicit that his book is being reviewed by a person of a different discipline. No economist would dream of writing a book on a subject which did not lend itself to an operational definition. Indeed, a modem, mainstream economist dealing with economic nationalism would standardize the phenomenon so that it could be defined operationally: this would allow the economist to manipulate the topic to the point to which extremely precise results would be obtained about the way in which economic nationalism, as defined, did or did not lead to enhanced efficiency, growth, or achievement of national goals subject to the assumptions found necessary to the achievement of a solution of acceptable precision. The result would be a tidy essay in which all ofthe real-world complexities, excluding those explored by the author, would have been neglected in the interests of “rigor.” There must be some middle ground in which a treatment of economic nationalism can have a main theme that allows it to incorporate concerns for real-world problems and to provide a central theme that allows the reader to formulate a general understanding of economic nationalism that can be used as an analytic framework to which individual examples may be applied usefully. It may be that a more profitable approach to economic nationalism would have been to exclude certain phenomena from consideration or, alternatively, to have divided the book into two parts and to have identified two separate groups of phenomena. The division would separate those measures and causes that lead a nation’s political leaders to discriminate against foreign involvement because it is in the nation’s economic self-interest to do so, from any measures undertaken at some own economic cost in order to 0147-5967188
$3.00
Copyi@ 0 1988 by Academic R-es% Inc. All tit.3 of reproduction in any form reserved.
266
BOOK
REVIEWS
26-l
promote “nationhood” or what Keohane and Ooms ( 1975) refer to as “image.” Such a dichotomy would allow the two genera of economic nationalism to be analyzed separately and the two tracks could be integrated in a final chapter. This reviewer’s preference is to regard the first set of phenomena as logical policy and therefore as “nationalist” only in the sense that the measures involved are antiintemationalist. It is possible to hark back to the GATT position on the Generalized System of Preferences (GSP) when the GATT decreed that GATT rules should not preclude the GSP because “unequals should be treated unequally.” Developing countries cannot afford to take a purely internationalist position. Measures taken to safeguard the domestic economy against foreign shocks and conditions then are not, according to this approach, economic nationalism. This does not mean that all inward-looking policies are wise, but their intent is to benefit the economic development of the home country. By contrast, certain inward-looking measures are taken because noneconomic variables dominate the economic objectives of growth and development. The need to identify the country in the minds of its citizens or the unwillingness to take the risks of economic exposure inherent in a fully internationalist position would impose economic nationalism at some economic cost. These measures are, then, the heart of economic nationalism. One of the foremost problems of economic nationalism under the second definition is how to take advantage of the potential of TNCs for technology transfer. There are some obvious cases in which foreign direct investment is unlikely to be beneficial and the author explores the main area of such investment in some detail. The question of appropriate policy toward the exploitation of natural resources is covered in pp. 116- 13 1. The chapter on inward direct investment is devoted to a very thorough consideration of “indigenization,” but it does not confront the question of the sources of benefits and costs from inward investment. Equally, the chapter does not identify the major problem of hosting direct foreign investment: the problem of policy toward foreign direct investment lies in ensuring that the host nation obtains a sizable part of the economic surplus which PDI can create. The benefits of technology transfer must not be wholly dissipated by the costs of the necessary “web of constraint” (Walter, 1975), by the increased exposure to foreign events including potentially capricious decisions by TNC managements, and by the repatriated profits of the TNC. The question of indigenization is merely an extension of the question of whether to admit or under what constraints to admit a foreign TNC. The author does point out that indigenization is no guarantee of success and, it can be argued, too rapid indigenization is one of the major temptations of policies of economic nationalism. Causes of the growth of economic nationalism, in its broadest sense, are well detailed. The argument here would have benefitted from the distinction made above so that North-South issues would have been seen as rational measures that take on a nationalist or bloc-related form rather than as “eco-
268
BOOK REVIEWS
nomic nationalism for nationalism’s sake.” C. P. Kindleberger has shown recently (1984, Chap. 2) that the growth of the optimum area for economic conduct has been substantial in recent years and now far exceeds the optimum area for political control. This fact and the need for image building by nations that have histories of colonialism in its political or commercial forms probably account for a great deal of the proposed narrower definition of economic nationalism. As might be expected from a political scientist, political variables that are too frequently neglected by economists are given full consideration and add a valuable dimension to the book. In short, the weakness of this book is that, while it provides a great deal of information, it does not tell the reader whether economic nationalism is good or bad, well used or misused, or a temptation for Third World policitians that they would do well to shun. This problem may be attributed to the author’s concern not to neglect coverage of any phenomenon that might be seen as embodying economic nationalism. REFERENCES Keohane, Robert O., and Ooms, Van Doom, “The Multinational Firm and International Regulations.” In C. F. Bergsten and L. B. Krause, Eds., World Politics and International Economics, pp. 169-209. Washington, DC The Brookings Institution, 1975. Kindleberger, Charles P., Multinational Excursions, Chap. 2. Cambridge, MA: MIT Press, 1984. Walter, Ingo, “A Guide of Social Responsibility of Multinational Enterprise.” In J. Backman, Ed., Social Responsibility and Accounting. New York: New York Univ. Press, 1975.
H. PETER GRAY Rutgers University New Brunswick, New Jersey 08903