Rune Skarstein

Free Trade: A Dead End for Underdeveloped Economies

Abstract Critics of the free trade doctrine tend to argue that the theory of comparative advantage is not wrong in itself, but that its assumptions are not generally fulfilled in the real world, and hence that free trade is desirable under ‘ideal conditions.’ By contrast, this paper argues that the theory of comparative advantage does not hold even under ‘ideal conditions.’ The theory, a variation on the story of static efficiency, pays no attention to dynamic considerations, such as long-term technical change and productivity growth, which are essential in economic development. Starting from the ‘growth laws’ of Verdoorn and Kaldor, this paper argues that dynamic efficiency is intimately related to industrial growth. Moreover, because industrial goods have higher income elasticity of demand than agricultural goods, there is a positive feedback mechanism from international and domestic demand for industrial goods to the Verdoorn-Kaldor ‘laws’ of productivity growth. The empirical evidence indicates that poor countries do not have a comparative advantage in agricultural goods, and that they have an absolute disadvantage in the trade of agricultural as well as industrial goods. Further liberalisation of trade in agricultural goods will therefore harm rather than help the poorest countries. To achieve economic development, those countries need the freedom to implement a strategy designed for that purpose, just as the now-industrialised countries did.

Explaining Productivity Change in Underdeveloped Agriculture. Can the Theory of Induced Innovation Do It

The microeconomic version of the theory of induced innovation extends the logic of factor substitution and static efficiency to the process of technical change and attempts to show that the ‘bias’ of technical progress in agriculture will work in the same direction as factor substitution at given technology, with factor proportions changing in inverse relation to relative factor prices. This article argues that even within the model itself, the scope for rising labour productivity associated with land-saving technical progress appears to be rather limited. Econometric studies of technical change in Japanese agriculture support this view. Moreover, the theory of induced innovation tends to confuse static efficiency with ‘dynamic efficiency’ implying investments, technological progress and changing factor proportions over time. The theory of induced innovation does not identify any driving force of technical change. Therefore, it cannot explain adequately why technical progress takes place or does not take place. The article concludes by arguing that in an agriculture of poor smallholders, price control and price stabilisation rather than market-driven changes of relative factor prices are important in stimulating technical progress.

Review Essay: Cold War — An Aberration or the Normality of Contemporary International Politics?

This review focuses primarily on some central premises in Fred Hallidays book The Making of the Second Cold War. Hallidays viewthat the First and Second Cold Wars are basically similar is questioned. Furthermore, it is pointed out that whereas Halliday presents a long list of factors or causes of Cold War II, he fails to specify their relative importance and interrelationships. Finally, an underlying assumption in Hallidays book appears to be that Detente was some kind of self-evident and normal situation, whereas the Second Cold War is an aberration in need of explanation. In contrast to this perspective, the reviewer argues that cold war policies by U.S. governments are the normal situation. What actually needs explana tion is the the period of Dentente. However, Hallidays book is considered to be a useful summary of im portant developments in post-war international politicis.