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Handbook
of Global
Economic
Policy
edited by
Stuart S. Nagel
University of Illinois
Urbana, Illinois
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Preface
This handbook on global economic policy is one in a set of six global policy
handbooks. The other five deal with technology, social, political, international,
and legal policy.
Public policy studies in the past have tended to emphasize domestic policy,
rather than cross-national policy. This is especially true of American policy stud-
ies which tend to be especially nation-bound. This is also true to some extent of
policy studies in France, Russia, China, Brazil, and elsewhere.
When American policy studies show an interest in other countries, those
other countries tend to be exclusively Western European countries. This six-vol-
ume set, however, will include all the regions of the world, consisting of Africa,
Asia, Europe, Latin and North America in alphabetical order with Western Eu-
rope being only one of the several regions.
Public policy studies also tend to place a lot of emphasis on methods of
analysis and the policy process. They do not get much into substance, especially
at the professional or scholarly level, as contrasted to undergraduate textbooks.
This is so because scholars have traditionally considered substance to be not as
philosophical or theoretical as methods or process.
In this six-volume set, however, each volume is devoted to a different sub-
stantive field, including economic, technology, social, political, international, and
legal policy. The discussions will be more theoretical than most substantive dis-
cussions because they will emphasize comparisons across places, across times,
and across different substantive fields. At the same time, the discussions will be
practical in terms of applicability to real world problems.
iii
iv Preface
Scholars and others who study comparative government unfortunately tend

to overemphasize structures like federalism, separation of powers, legislatures,
chief executives, and supreme courts to the neglect of public policy, which this
series emphasizes. Comparative government people also tend to emphasize area
studies which involve specializing in a single country or sub-region, as contrasted
to this set of six volumes which cuts across many regions and many policy fields.
Thus the key objective of this set is to encourage more cross-national and
cross-policy research and applications. The set not only advocates more of that
kind of research, but practices what it advocates by providing almost 200 studies
across six volumes which average about 30 studies per volume. This should be
a landmark set in the disciplines of both policy studies and cross-national studies.
Stuart S. Nagel
Contents
Preface iii
Contributors ix
Introduction xiii
I Africa’s Economic Policy
1 Environmental Policy in the African Development Bank and
the Asian Development Bank 1
Morten Bøa
˚
s
2 Reforming Transport with Dominant State-Owned Enter-
prises: Democratic Republic of Congo (Formerly Zaire) 31
Alex Kelvin
3 From Conflict to Order? Corporatism in South Africa 45
Louwrens Pretorius
4 International Financial Institutions and the Politics of Struc-
tural Adjustment: The African Experience 65
Mark Owen Lombardi and Sandip Singh Sahota
v

vi Contents
5 Mechanisms for Labor Harmony: Dispute Resolution in the
Industrial Courts of Kenya and Zambia 93
Miriam K. Mills
II Asia’s Economic Policy
6 Industrial Policy and Regional Development: A Diachronic
Comparison of Japanese and South Korean Economic
Strategies 111
Sang-Chul Park
7 Deregulation for Whom? Reexamining the Retail Deregula-
tion in Japan 131
Yoichiro Sato
8 Democracy, Development, and the Welfare State in India: A
Win-Win Policy Analysis 159
Noorjahan Bava
9 Policies and Strategies of International Organizations in
Combating Child Labor in India: A Win-Win Analysis 179
Rupa Chanda and Rekha Datta
10 Economic Liberalization and Federalism: The Case of India 195
Lawrence Sa
´
ez
11 Government-Business Relations and Southeast Asian Subre-
gional Economic Growth Triangles 219
Gwynneth Singleton and Mark Turner
12 Economic Reform and Political Legitimacy in Post-Mao
China 241
Maria Chan Morgan
13 Implications of Reform in the Chinese State-Owned Enter-
prises 267

Yat Lun Chan, Feng Xiao, and Alex Kelvin
14 Central-Local Conflicts in Economic Management in China 283
Zhong Zhu Ding
Contents vii
15 Marketization After Mao: National Strategy in Postreform
China, 1980–1993 305
Laure Paquette
16 Hong Kong: The World’s Freest Economy and Its Liberal
Policy 323
G. Mac Nie and Enbao Wang
III Europe’s Economic Policy
17 State Revenue Administration Problems in a Transition
Economy: State Revenue Service of the Republic of Latvia 343
Maiga Dzervite
18 From Corporatism to Etatism: German Policy Networks
Before and After Unification 367
Thomas Ko
¨
nig
19 Political Economy of Income Distribution in Britain: De-
mography, Market, and Party Politics, 1979–1987 387
Rosa Mule
´
20 National Industrial Policy in the Context of Supranational
and Subnational Policy Expansion 411
Niels Christian Sidenius
21 Divergent Paths of Product Market Regulation in France and
Germany, 1970–1990 435
J. Gunnar Trumbull
IV Latin and North America’s Economic Policy

22 Mexican Crisis in the Internationalization of Finance 463
Jong Gook Back
23 Elections and Democratization in Mexico: Tax Policy in the
‘‘Opposition’’ Congress 479
Kenneth C. Shadlen
viii Contents
24 Implementing Argentine State Reform: Union Cooperation
or Conflict? 495
Dora Orlansky
25 Neighbors, Informal Job Brokers, and the Employment
Problem of the Urban Poor: Can Dispersal Strategies Im-
prove Access to Informal Job Networks? 511
David A. Reingold
26 U.S. Public Policy Toward a Dynamic Increasing-Returns
Industry 535
Henry E. Kilpatrick, Jr.
Index 557
Contributors
Jong Gook Back Professor, International Relations, Gyeongsang National Uni-
versity, Chinju, Korea
Noorjahan Bava Professor, Department of Political Science, University of
Delhi, New Delhi, India
Morten Bøa
˚
s Research Fellow, Centre for Development and the Environment,
University of Oslo, Oslo, Norway
Yat Lun Chan Professor, University of Aberdeen, Old Aberdeen, Scotland
Rupa Chanda Assistant Professor, Department of Economics, Indian Institute
of Management, Bangalore, India
Rekha Datta Assistant Professor, Department of Political Science, Monmouth

University, West Long Beach, New Jersey
Zhong Zhu Ding Professor, Department of Political Science, New School Uni-
versity, New York, New York
Maiga Dzervite Deputy Director General, Latvian State Revenue Service,
Riga, Latvia
ix
x Contributors
Alex Kelvin Scheme Tutor International, Department of Management, Univer-
sity of Hertfordshire, Hertford, England
Henry E. Kilpatrick, Jr. Research Fellow, The Institute of Public Policy,
George Mason University, Fairfax, Virginia
Thomas Ko
¨
nig Professor, University of Uonstanz, Uonstanz, Germany
Mark Owen Lombardi Associate Professor and Chair, Department of Govern-
ment and World Affairs, University of Tampa, Tampa, Florida
Miriam K. Mills* New Jersey Institute of Technology, Newark, New Jersey
Maria Chan Morgan Professor, Department of Politics, Earlham College,
Richmond, Indiana
Rosa Mule
´
Lecturer, Department of Politics and International Studies, Univer-
sity of Warwick, Coventry, United Kingdom
G. Mac Nie Associate Professor, Department of Business Administration and
Economics, Fort Valley State University, Fort Valley, Georgia
Dora Orlansky Professor, Department of Political Science, University of Bue-
nos Aires, Buenos Aires, Argentina
Laure Paquette Associate Professor, Department of Political Science, Lake-
head University, Thunder Bay, Ontario, Canada
Sang-Chul Park Professor, Centre for East and Southeast Asian Studies, Go

¨
-
teborg University, Go
¨
teborg, Sweden
Louwrens Pretorius Professor, Department of Sociology, University of South
Africa, Pretoria, South Africa
David A. Reingold Assistant Professor, School of Public and Environmental
Affairs, Indiana University, Bloomington, Indiana
Lawrence Sa
´
ez Visiting Scholar, Center for South Asia Studies, University of
California, Berkeley, California
*Deceased.
Contributors xi
Sandip Singh Sahota Professor, Department of Government and World Af-
fairs, University of Tampa, Tampa, Florida
Yoichiro Sato Lecturer, Department of Political Studies, University of Auck-
land, Auckland, New Zealand
Kenneth C. Shadlen Professor, Department of Political Science, Brown Uni-
versity, Providence, Rhode Island
Niels Christian Sidenius Associate Professor and Dean, Department of Politi-
cal Science, University of A
˚
rhus, A
˚
rhus, Denmark
Gwynneth Singleton Senior Lecturer, School of Administrative Studies, Uni-
versity of Canberra, Canberra, Australia
J. Gunnar Trumbull Jean Monnet Fellow, Robert Schuman Center, European

University Institute, Florence, Italy
Mark Turner Professor, School of Administrative Studies, University of Can-
berra, Canberra, Australia
Enbao Wang Assistant Professor, Department of Political Science, University
of Hawaii at Hilo, Hilo, Hawaii
Feng Xiao Professor, University of Hertfordshire, Hertford, England
INTRODUCTION
Stuart S. Nagel
University of Illinois, Urbana, Illinois
Win-win or superoptimizing analysis of public policy problems tries to find feasi-
ble solutions that can enable conservatives, liberals, and other major viewpoints
to all come out ahead of their best initial expectations simultaneously. The ele-
ments in the analysis include (1) conservative goals and alternatives, (2) liberal
goals and alternatives, (3) relations between the major alternatives and goals, (4)
the development of win-win solutions, and (5) feasibility hurdles to overcome.
The feasibility problems to be overcome include economic, administrative,
political, psychological, legal, international, and technological hurdles, and the
disruption of displaced firms and individuals.
As applied to economics, we are especially talking about the alleged trade-
offs among (1) unemployment and inflation, (2) economic growth and displaced
workers, (3) increased government spending, reduced taxes, and a reduced deficit,
and (4) the tradeoff between capitalism and socialism. We will also briefly refer
to the economic policy problems of land, labor, and capital, but with less detail
in view of space limitations.
1
I. UNEMPLOYMENT AND INFLATION
A. Conservative Alternatives
Doing nothing is not likely to worsen unemployment or inflation, but it is also
not likely to help. Decreasing the money supply and increasing interest rates may
decrease inflation but increase unemployment. The same is true of decreasing

government spending and increasing taxes. The ‘‘Reaganomics’’ approach in-
volves decreasing taxes to stimulate employment, and decreasing domestic
xiii
xiv Introduction
spending to reduce inflation. The Democratic counterpart as of 1980 was to in-
crease employment through government jobs and decrease inflation through price
control. (See Table 1.)
Raising interest rates to decrease inflation may have the effect of decreasing
prices by reducing spending from borrowed money. Those benefits may be more
than offset by the undesirable effects on reducing the ability of business to borrow
for expansion, inventory, and other purposes. The reduction in spending may also
have an adverse effect on employment.
Raising taxes and decreasing spending to fight inflation may not be politi-
cally feasible. It would also reduce the ability of the government to give tax
breaks and well-placed subsidies to increase productivity.
B. Liberal Alternatives
Increasing the money supply and decreasing interests may stimulate employment
but increase inflation. The same is also true of increasing government spending
and reducing taxes. Lowering interest rates to decrease unemployment may have
little impact because businesses are reluctant to borrow when they are reducing
their operations and sales are down. Likewise, consumers are reluctant to borrow
when they are already heavily in debt and fearful of a reduction in employment
or hours.
Lowering taxes and increasing spending to fight unemployment may not
be politically feasible when the national debt and deficit are already too high.
Table 1 Analysis of Inflation and Unemployment
Criteria
Conservative: Liberal:
Alternatives Lower inflation Lower unemployment
Conservative: ϩϪ

Monetary policy (change in- Rates up (bad impact on Rates down (no impact
terest rates) profits and wages) on profits and wages)
Liberal: Ϫϩ
Fiscal policy (change tax- Surplus (not politically Deficit (not politically
ing & spending) feasible) feasible)
Neutral:
Little of both 0 0
SOS or win-win:
Economic growth policy ϩϩ ϩϩ
1. Increase technology
2. Increase skills
Introduction xv
C. A Win-Win Alternative
The adoption of new technologies and raising the skills of workers help to reduce
inflation by (1) increasing the productivity of labor to offset increased wages,
(2) increasing the quality of goods to offset increased prices, and (3) increasing
the GNP and domestic income to further offset increased prices.
Increasing the adoption of new technologies and raising the skills of work-
ers help to reduce unemployment by (1) making the workers more employable,
(2) increasing the GNP and domestic spending to stimulate the creation of more
jobs, and (3) increasing the productivity and wage rates, thereby offsetting a
possible reduction in hours.
The conservative alternative of having interest rates up in time of inflation
and down in time of unemployment does not make sense if inflation and unem-
ployment are problems simultaneously. That would be so if both were over 3%.
Likewise, the liberal alternative of having a budget surplus in time of inflation
and a budget deficit in time of unemployment does not make sense when both
inflation and unemployment are over approximately 3%. One can, however, stim-
ulate new technologies and upgrade skills when inflation and unemployment are
both occurring simultaneously.

II. ECONOMIC GROWTH AND DISPLACED WORKERS
A. Economic Growth
1. Definition and Importance
‘‘Economic growth’’ refers to the annual rate of increase in the gross national
product or the gross domestic product. The GNP refers to all income generated
in the United States even if some of it goes to foreigners. The GDP refers to all
income generated anywhere in the world that goes to Americans.
Economic growth is highly important because it provides the increased
income that generates increased spending, taxes, jobs, money for government
programs, and appropriations for dealing with schools, crimes, health, transporta-
tion, communications, food, housing, defense, new technologies, upgrading
skills, etc. (See Table 2.)
2. Conservative and Liberal Approaches
The conservative approach tends to emphasize taxing and spending in a way
that is helpful to investment and business. The increased investment stimulates
economic growth. Conservatives advocate increased investment through low-
ering taxes on the upper income brackets and lowering the capital gains tax. They
xvi Introduction
Table 2 Economic Growth
Goals
Conservative: Liberal:
Alternatives Investment Consumption
Conservative:
Trickle down ϩϪ
Liberal:
Percolate up Ϫϩ
Neutral:
Both 0 0
SOS or win-win:
Package ϩϩ ϩϩ

also advocate spending for highways, airports, railroads, and other expenditures
that will facilitate business profits.
The liberal approach tends to emphasize taxing and spending that is helpful
to consumption and workers. The increased consumption stimulates economic
growth. Liberals advocate increased consumption through lowering taxes on the
lower income brackets and raising exemptions for dependents and the standard
deduction. They also advocate government spending for food stamps, housing
vouchers, welfare, teacher salaries, health care, and other government expendi-
tures that result in high consumption.
3. A Win-Win Package
An SOS package can promote economic growth more directly rather than indi-
rectly through private investment and consumption although the SOS package
could also possibly increase investment and consumption. Such a package might
include the government’s providing:
1. Long-term, large-scale risk capital
2. Stimulus to competition by readily granting entry permits into all in-
dustries and entry of foreign goods into the United States
3. Stimulus to business and labor to adopt new technologies and upgrade
worker skills
4. Funds for relocating workers displaced by tariff reduction, immigra-
tion, new technologies, or conversion from defense production
5. Reductions in foreign tariffs to open new markets
6. Immigration policy that brings in innovative, ambitious people with
needed skills
Introduction xvii
7. Free speech to encourage creativity, including suggestions to improve
productivity
8. Grants, patents, and purchasing to stimulate inventions but requiring
licensing to stimulate diffusion and competition
9. An educational system that is oriented toward preparation for produc-

tive jobs and careers
10. Conservation of natural resources and a productive, healthful environ-
ment
Other important economic indicators besides economic growth include un-
employment, inflation, and measures of income equality. Big economic growth
is offset if those other indicators worsen or do not improve.
2
B. Displaced Workers and Firms
Displacement of labor is the result of (1) productivity downsizing, (2) free trade,
(3) immigration, (4) civilian conversion, or (5) jobs for public aid recipients, the
disabled, the elderly, minorities, and women.
The issue here is how to find jobs for displaced workers. The conservative
emphasis is to leave it up to the recipient to find a job on his own and not make
it a responsibility of other people. The liberal emphasis is on the welfare agency
or another government agency doing most of the job finding work. The neutral
position might involve delegating the activity to a nonprofit organization. (See
Table 3.)
A key conservative goal is to save tax money. That means encouraging job
finding to reduce welfare payments, but not incurring high fees for job finding.
A key liberal goal is to find jobs for displaced workers or welfare recipients not
just to save welfare payments but also because jobs can increase the income,
quality of life, and dignity of welfare recipients. Doing so also has effects that
relate to multipliers, compounding, role models, and reducing illegal activities.
An SOS alternative is to contract out to a private profit-making firm at a
commission of $X per welfare recipient who receives long-term employment.
Half of the commission is paid after four months on the job and the other half
after eight months. The firm is responsible for providing training, day care, em-
ployment leads, advice, and dispute resolution, all of which the government
agency might otherwise provide.
This is a good example of contracting out. The profit motive stimulates

more success in finding jobs than the rate of success by a government agency
or a nonprofit organization. The firm also has more capability than the recipient.
Tax money is saved in the long run as a result of replacing welfare with work.
It may also be saved in the short run by costing less money per long-term job
xviii Introduction
Table 3 Equity Versus Efficiency in Displacement of Labor
a
Goals
Conservative: Liberal:
Efficiency (merit or Equity (i.e., fairness
survival of to those unemployed
Alternatives the fittest) to no fault)
Conservative:
Marketplace (leaves to the labor mar- ϩϪ
ketplace)
Liberal:
Welfare handouts with few condi- Ϫϩ
tions
Neutral:
Welfare with conditions:
1. No able-bodied eligibles, espe- 0 0
cially males
2. Bare minimum benefits
3. Residence requirements
4. Provide no due process
SOS or win-win, i.e.,
job facilitators
1. Training
2. Wage subsidy
3. Employment agency commis- ϩϩ ϩϩ

sions
4. Rising GNP
5. Relocation
6. Welfare conditional on training
and job cooperation
a
Displacement of labor means displaced because of (1) productivity downsizing, (2) free trade, (3)
immigration, (4) jobs for public aid recipients, disabled or aged, (5) minorities and women.
found than the cost with a government agency or nonprofit organization. Related
activities can also help displaced businesspeople find new jobs or new businesses.
III. SPENDING, TAXING, AND THE DEFICIT
A. SOS Spending
1. Arriving at a Win-Win Budget
Each allocation is arrived at by (1) multiplying the percentages in the goal col-
umns by the neutral, conservative, or liberal weights; (2) summing across the
Introduction xix
products; (3) dividing the sum by the total of the appropriate weights to obtain
a weighted average allocation percentage; and then (4) multiplying the total bud-
get of $200 by that allocation percentage. (See Table 4.)
The superoptimum budget is $243 since that is the minimum amount that
will allow for a bigger allocation than the best expectations of both the conserva-
tives ($112 ϩ $1 to the police) and the liberals ($129 ϩ $1 to the courts).
2. Obtaining a Bigger Budget or Using the Present Budget
More Efficiently
The next step would be to analyze various ways of increasing the budget from
$200 to $243, and then taking the best combination of those in light of various
criteria. There is an alternative approach to increasing the budget to an SOS
amount that satisfies the best initial expectations of both liberals and conserva-
tives. The alternative involves satisfying conservatives by enabling the police
and the courts to be more efficient in crime reduction so that they will not need

so much money.
The police can be more efficient by being more visible—for instance, by
covering highway policing with their red lights continuously flashing. The courts
can be more efficient in crime reduction by using better screening and reporting
with regard to those who have been released on bail prior to trial.
The alternative also involves satisfying liberals by enabling the police and
the courts to be more efficient in using fair procedures. The police can be more
efficient and effective by giving a summons to appear in many arrest cases rather
than booking and jailing the suspect. The courts can be more efficient and effec-
tive regarding fair procedure by allowing jurors to view each day’s trial on video-
tape. This helps clarify matters that might otherwise be forgotten. Jurors can also
be allowed to take notes, ask questions of judges and the lawyers, and receive
some training before becoming jurors.
B. SOS Taxing
1. Conservative and Liberal Alternatives
The conservative position on tax sources tends to emphasize consumption taxes,
which are roughly equal across the general public. The liberal position tends to
emphasize income taxes, which bear more heavily on those with greater ability
to pay. Conservatives tend to emphasize taxes on consumption such as the sales
tax or the value-added tax. Liberals tend to emphasize taxes on income, especially
progressive income taxes, where the rates are higher on higher incomes. The
neutral position is to have both sales taxes and income taxes, but with the sales
tax rates lower than conservatives advocate and the income tax rates lower than
liberals advocate. (See Table 5.)
xx Introduction
Table 4 SOS Spending
Goals Allocations
Budget Conservative: Liberal: Neutral: Conservative: Liberal:
categories Crime reduction Fair procedure Wts. ϭ 2 & 2 Wts. ϭ 3 & 1 Wts. ϭ 1 & 3 SOS
Conservative: (X) Xϩ1

Money for police 2 1 $92
a
$112 $71 $113
(67%) (25%) (46%) (55%)
b
(35%)
c
(46%)
Liberal: (Y) Yϩ1
Money for courts 1 3 $108 $88 $129 130
(33%) (75%) (54%) (44%) (65%) (54%)
Totals 3 2 $200 $200 $200 $243
(100%) (100%) (100%) (100%) (100%) (100%)
Abbreviations: Wts. ϭ Weights for multiplying the allocation percentages for each of the two goals. X ϭ Conservative allocation to exceed. Y ϭ Liberal
allocation to exceed.
a
Dollars are in millions.
b
The conservative 55% ϭ [(3 times 67%) plus (1 times 25%)]/4.
c
The liberal 35% ϭ [(1 times 67%) plus (3 times 25%)]/4.