Conflicts in international economic policy and the world recession: a theoretical analysis

Abstract

In order to understand the nature of the world economic crisis, which has been dragging on for more than ten years now, one has to analyse the interaction between 'structural disequilibrium' and 'institutional instability'. Structural disequilibrium became manifest after the upheaval in the terms of trade between finished manufactures and primary com modities and energy in 1972-73, which changed the pattern of world trade and payments dramatically (Kaldor, 1976), as important leading industrial sectors of the postwar period gradually ran out of steam (Rostow, 1978), and as a number of industries were relocated from one part of the world to another. Many of our current problems are very similar in kind to the 'structural' problems of the 1930s; in this respect Svennilson's (1954) classic analysis of the interwar depression in Europe can provide invaluable insights and inspiration. These structural shifts have interacted with institutional instability: the protracted character of the economic crisis in the West can, in part, be related to the decline of 'leadership' or 'coordination'1 in the international capitalist economy. Again there is a striking parallel with the 1930s: according to Kindleberger (1973) the depression of 1929-39 was so deep and prolonged because the world economic system was undergoing a difficult transition from British to American leadership. Between 1929 and 1939, the United States refused to take over responsibility for stabilising the international economy while the United Kingdom was no longer able to do so. The notion of 'structural disequilibrium' is primarily related to problems of the 'supply side', while the notion of 'institutional instability' refers in our framework more to problems of short-run adjustment, especially to conflicts in monetary policy and demand management at the world level. Nevertheless, the interaction between supply and demand conditions cannot be over stressed. This interaction is the central notion in the theories of cumulative causation (Kaldor, 1966, 1967; Cornwall, 1977; Ozawa, 1982, are examples of this approach).