THIBAUT DE SAINT PHALLE is a lawyer,
investment banker, professor of international law and finance, a former director of the Export-Import Bank, and is currently Director of International Business and Economics at the Georgetown University Center for Strategic and International Studies. He is not, as he takes some pains to emphasize, an economist. He nonetheless squarely addresses a crucial economic problem for the United States and the world: the interconnections among U.S. foreign trade, our domestic monetary and fiscal policy, the strength of the dollar, and U.S. and world inflation. The book has chapters on energy, the world monetary system, North-South and East- West trade and U.S. productivity. Early comments on the book, printed on the back jacket, from politicians, administrative officials, an international civil servant, and businessmen--but not economists--call it "timely," "thoughtful," "provocative," "lucid," "invaluable," and (twice), "must reading."
The experience that informs the book most pervasively is that of the Export-Import Bank, where much of the research and writing were done. De Saint Phalle is above all for export promotion. Of 19 weaknesses in the United States economy listed in his "Conclusion"--four of 10 from the standpoint of government, three of four from business, and one of five from the public--relate to inadequate concern for pushing exports. For developing countries, the author overwhelmingly favors export promotion over import substitution, and while he opposes government intervention in general and especially in the United States, he writes admiringly of a host of export tax exemptions, special exchange rates, importing privileges, and special credit facilities for exporters in Colombia, Brazil and Korea. He is by no means a simple mercantilist. He is willing to threaten Japanese access to the U.S. market to get access for U.S. exporters in Japan and worries at one point about barter trades with Eastern Europe for fear that the goods exchanged for U.S. exports might hurt employment in this country. Yet, he basically is willing to import more to export more, and sees no reason why U.S. consumers should be deprived of imported fuel-efficient automobiles. He opposes regulation of U.S. industry insofar as it may adversely affect exports--the anti- trust movement, embargoes, overstrict legislation on foreign bribery, and the like--and favors tax remission and subsidized credit for export businesses. The Domestic International Sales Corporation (DISC) legislation, widely regarded as an ineffective giveaway of billions to business, receives a single three-line mention that calls it "patently insufficient" to match the French and Japanese subsidies to exporters. He opposes the regulations and controls of trade in nuclear reactor components in the interest of preventing nuclear proliferation, since they make the United States an "unreliable supplier."
To an economist, there is much to admire in de Saint Phalle's book, and some things to criticize, apart from the unbalanced emphasis on export promotion. It is good on support of deregulation of energy prices, on distributing aid and development loans through multilateral agencies, the importance of quality control in Eastern European exports, on not blaming speculator malevolence for changes in exchange rates, as government officials are wont to do. This economist parts company with most of his profession in applauding the author for his espousal of fixed exchange rates--although he is wrong to blame economists' predilection for floating rates on the Keynesians when the leading exponent is the head of the other church, Milton Friedman, the monetarist. The
chapter on energy is particularly good although it suffers from the time lag between writing and publication and takes inadequate notice of OPEC.
There are, however, weaknesses. The chapter on world monetary systems is amateurish, despite the author's practical banking experience, and that on U.S. productivity covers too many possible sources of slowdown, from the SEC shift to negotiated brokerage commission and its possible effect on the capital market to educational standards and the work ethic. No coherent analysis or program emerges beyond the standard suggestions of deregulation, help for Export-Import Bank financing, and the like. The author occasionally contradicts himself: he wants strict control of the money supply to limit inflation but opposes high interest rates brought on by tight money because they encourage capital inflows. Exchange depreciation is inflationary, but exchange appreciation hurts exports. He shrugs off some problems in international economics with a single sentence, such as the recommendation for commodity price stabilization, or a suggestion (in a footnote) that overall restrictions on credit might be substituted for the gold standard. Yet, further on, the author contrasts controls unfavorably with increasing the production of goods.
There is quite a lot to be said in favor of export promotion, but surely not at all costs. The alternative of international agreement to limit national subsidies to exports through tax rebates and special credits is perhaps a counsel of perfection. On the other hand, to go down the road of matching the subsidies of other governments is a recipe for world mercantilism. This book may make the best possible case for the Export- Import Bank's philosophy of export promotion, but for those skeptical of that course it is properly regarded as timely, thoughtful and especially provocative.