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The collaboration of nations. A study of European economic policy
JOURNAL
OF COMPARATIVE
ECONOMICS
8, 85-87 (1984)
BOOK REVIEWS DOUGLASDOSSER,DAVID GOWLAND, AND KEITH HARTLEY, Eds., The Collaboration of Nations. A Study of European Economic Policy. New York St. Martin’s Press, 1982. x + 252 pp., index. $25.00. This volume setsout to provide “a general framework outlining the theory of international collaboration” (p. ix) and to analyze the facts of European collaboration in this framework. In so doing consideration is given to macroeconomic and m icroeconomic policies, the latter including the common policies: agricultural (CAP), defenseand advanced-technology,competition, industrial, and transport policies, as well as social policy. Having noted that “collaboration has often involved the creation of an international association” (p. l.), the subsequent discussion concerns the theory of international associations. This theory is said to be a special case of the theory of clubs, although the latter assumesall individuals to be equal, considers the case of a single product, and presupposesclosed entry which, a d m ittedly, have no relevance for international associations.Nor is any consideration given to the theory of clubs beyond Chapter 2 of the volume. The authors reproach the theory of clubs for its static character. But their own framework is static as it is formulated in terms of a Paretian socialwelfare m o d e l. This departsfrom earlier writings cited by the authors, including my own, which have put emphasis on the dynamic effects of integration that bear on the processof economic growth. In fact, the expressions“economic growth, ” “growth,” and “dynamic effects” are noticeable by their absence from the index. The application of a Paretian m o d e l to international associations leads to bargaining that is correctly taken to be the principal feature of m u ltipurpose associations.At the sametime, it is incorrect to say that Germany’s acceptance of the common agricultural policy was “the price of French involvement in the steelplan” (p. 9), when the latter was already establishedbefore negotiations on the European Common Market began and went much further in the direction of supranationality than the EEC has ever tried to do. After the expectations raised by references to a theory of international associations, the classification scheme distinguishing between general (i.e., m u ltipurpose) and specific, between open and closed, and between permanent and lim ited, associationsis decidedly a letdown. At the same time, while the 85
0147-5967184 $3.00 Copyright 8 1984 by Academic Press. Inc. All rights of reproduction in any form reserved.
86
BOOK
REVIEWS
goals of an international association are said to be the national interest of its members, it should be recognized that specific (or specialized) associations, such as the European Coal and Steel Community, may not ensure benefits for all the members but may nevertheless be entered into for some other reason, political or military. In turn, one should recognize the importance of special interests that need to be satisfied in each country, leading to the imposition of side conditions. Thus, notwithstanding the economic cost of the CAP for each of the member countries of the EEC, their farmers tend to benefit at the expense of consumers and third-country producers. As regards macroeconomic policies, Chapters 5 and 6-using rather simple techniques-reach the not-too-surprising conclusion that monetary unification would be desirable in order to maximize the economic benefits of a customs union, adding that this would, however, imply considerable loss of national sovereignty. Again, it is not surprising, as Chapter 7 shows, that the alignment of national monetary policies would not be optimal in the presence of institutional differences. In these chapters one notices a lack of consideration given to other forms of macroeconomic policies. This possibly reflects an excessive trust in monetarism. While according to the preface “both monetary and fiscal policies are assessed”(p. I), only real-income transfers (Chapter 8) but not countercyclical fiscal policies are covered. No consideration is given to incomes policies. Moreover, although differences in national economic objectives (welfare functions) are evoked at least once, no attention is given to intercountry differences in possible trade-offs (opportunity functions) that were separated in my writings cited by the authors. Apart from the excellent Chapter 3 on the role of public finance in four alternative models of European integration, the microeconomic chapters provide the best part of the book, although they are not without blemish. Chapter 9 describes the main features of CAP and correctly states that “price levels are set on the basis of the existing market structure and not on the basis of an efficient desirable market structure, so that Community funds are channelled to supporting the status quo...” (p. 15 1). At the same time, the welfare costs of the CAP for the Community itself, and for third-country producers, should have been analyzed to support the conclusion that “there is little economic justification for state intervention in agriculture, or for a common agricultural policy” (p. 15 1). The question of state intervention also importantly enters into the next chapter on defense and advanced technology. It provides an admirable description of alternative views on the benefits and costs of European collaboration in this general area. The conclusion, according to which “the creation of a NATO free-trade area in both weapons and civil goods would allow nations to specialize by comparative advantage and reap the gains from mutually advantageous international trade” (p. 182) is predicated on the
BOOK REVIEWS
81
assumption of a lack of state intervention, however. In particular, the advantagesof European collaboration would need to be evaluated in the presence of government-sponsored research in the United States. The title of Chapter 11, “Competition Policy, Industrial Policy, and Transport Policy,” is misleading as in actual fact it deals with pharmaceuticals and civil aviation. A more general treatment of these subjects would have permitted a better understanding of the successesand failures of the EEC. The final chapter “Social Policy in the European Community” does not provide an adequate discussion of the issues covered. At the same time, in claiming that “evidence from the reactions of capitalists in France, the Netherlands and Germany to payroll taxes suggests that employers believe the latter’s incidence effect [i.e., the shift of the tax to the employers] is the predominant one” (p. 2 1S), the author uncritically accepts the longdiscredited views of those who demanded the equalization of social charges as a precondition for economic integration 25 years ago. More generally, inadequate consideration has been given to the views of other authors who have provided theoretical, empirical, and policy analysis of European integration in the past. Also, apart from neglect of dynamic effects, the book does not deal with the extent, and the impact, of trade liberalization within the EEC or between the EEC and other countries. Nevertheless, the book raises some important issues and a selective reading of its chapters can be highly recommended. BELABALASSA Johns Hopkins University Baltimore, Maryland
OF COMPARATIVE
ECONOMICS
8, 85-87 (1984)
BOOK REVIEWS DOUGLASDOSSER,DAVID GOWLAND, AND KEITH HARTLEY, Eds., The Collaboration of Nations. A Study of European Economic Policy. New York St. Martin’s Press, 1982. x + 252 pp., index. $25.00. This volume setsout to provide “a general framework outlining the theory of international collaboration” (p. ix) and to analyze the facts of European collaboration in this framework. In so doing consideration is given to macroeconomic and m icroeconomic policies, the latter including the common policies: agricultural (CAP), defenseand advanced-technology,competition, industrial, and transport policies, as well as social policy. Having noted that “collaboration has often involved the creation of an international association” (p. l.), the subsequent discussion concerns the theory of international associations. This theory is said to be a special case of the theory of clubs, although the latter assumesall individuals to be equal, considers the case of a single product, and presupposesclosed entry which, a d m ittedly, have no relevance for international associations.Nor is any consideration given to the theory of clubs beyond Chapter 2 of the volume. The authors reproach the theory of clubs for its static character. But their own framework is static as it is formulated in terms of a Paretian socialwelfare m o d e l. This departsfrom earlier writings cited by the authors, including my own, which have put emphasis on the dynamic effects of integration that bear on the processof economic growth. In fact, the expressions“economic growth, ” “growth,” and “dynamic effects” are noticeable by their absence from the index. The application of a Paretian m o d e l to international associations leads to bargaining that is correctly taken to be the principal feature of m u ltipurpose associations.At the sametime, it is incorrect to say that Germany’s acceptance of the common agricultural policy was “the price of French involvement in the steelplan” (p. 9), when the latter was already establishedbefore negotiations on the European Common Market began and went much further in the direction of supranationality than the EEC has ever tried to do. After the expectations raised by references to a theory of international associations, the classification scheme distinguishing between general (i.e., m u ltipurpose) and specific, between open and closed, and between permanent and lim ited, associationsis decidedly a letdown. At the same time, while the 85
0147-5967184 $3.00 Copyright 8 1984 by Academic Press. Inc. All rights of reproduction in any form reserved.
86
BOOK
REVIEWS
goals of an international association are said to be the national interest of its members, it should be recognized that specific (or specialized) associations, such as the European Coal and Steel Community, may not ensure benefits for all the members but may nevertheless be entered into for some other reason, political or military. In turn, one should recognize the importance of special interests that need to be satisfied in each country, leading to the imposition of side conditions. Thus, notwithstanding the economic cost of the CAP for each of the member countries of the EEC, their farmers tend to benefit at the expense of consumers and third-country producers. As regards macroeconomic policies, Chapters 5 and 6-using rather simple techniques-reach the not-too-surprising conclusion that monetary unification would be desirable in order to maximize the economic benefits of a customs union, adding that this would, however, imply considerable loss of national sovereignty. Again, it is not surprising, as Chapter 7 shows, that the alignment of national monetary policies would not be optimal in the presence of institutional differences. In these chapters one notices a lack of consideration given to other forms of macroeconomic policies. This possibly reflects an excessive trust in monetarism. While according to the preface “both monetary and fiscal policies are assessed”(p. I), only real-income transfers (Chapter 8) but not countercyclical fiscal policies are covered. No consideration is given to incomes policies. Moreover, although differences in national economic objectives (welfare functions) are evoked at least once, no attention is given to intercountry differences in possible trade-offs (opportunity functions) that were separated in my writings cited by the authors. Apart from the excellent Chapter 3 on the role of public finance in four alternative models of European integration, the microeconomic chapters provide the best part of the book, although they are not without blemish. Chapter 9 describes the main features of CAP and correctly states that “price levels are set on the basis of the existing market structure and not on the basis of an efficient desirable market structure, so that Community funds are channelled to supporting the status quo...” (p. 15 1). At the same time, the welfare costs of the CAP for the Community itself, and for third-country producers, should have been analyzed to support the conclusion that “there is little economic justification for state intervention in agriculture, or for a common agricultural policy” (p. 15 1). The question of state intervention also importantly enters into the next chapter on defense and advanced technology. It provides an admirable description of alternative views on the benefits and costs of European collaboration in this general area. The conclusion, according to which “the creation of a NATO free-trade area in both weapons and civil goods would allow nations to specialize by comparative advantage and reap the gains from mutually advantageous international trade” (p. 182) is predicated on the
BOOK REVIEWS
81
assumption of a lack of state intervention, however. In particular, the advantagesof European collaboration would need to be evaluated in the presence of government-sponsored research in the United States. The title of Chapter 11, “Competition Policy, Industrial Policy, and Transport Policy,” is misleading as in actual fact it deals with pharmaceuticals and civil aviation. A more general treatment of these subjects would have permitted a better understanding of the successesand failures of the EEC. The final chapter “Social Policy in the European Community” does not provide an adequate discussion of the issues covered. At the same time, in claiming that “evidence from the reactions of capitalists in France, the Netherlands and Germany to payroll taxes suggests that employers believe the latter’s incidence effect [i.e., the shift of the tax to the employers] is the predominant one” (p. 2 1S), the author uncritically accepts the longdiscredited views of those who demanded the equalization of social charges as a precondition for economic integration 25 years ago. More generally, inadequate consideration has been given to the views of other authors who have provided theoretical, empirical, and policy analysis of European integration in the past. Also, apart from neglect of dynamic effects, the book does not deal with the extent, and the impact, of trade liberalization within the EEC or between the EEC and other countries. Nevertheless, the book raises some important issues and a selective reading of its chapters can be highly recommended. BELABALASSA Johns Hopkins University Baltimore, Maryland