Hufbauer 1992 - Europe 1992. American Perspective Review by Veramulley

Europe 1992: An American Perspective by Gary HufbauerReview by: Ashton I. VeramalleyEastern Economic Journal, Vol. 18, No. 4 (Fall, 1992), pp. 492-494Published by: Palgrave Macmillan JournalsStable URL: http://www.jstor.org/stable/40325483 .Accessed: 28/02/2014 21:28

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492 EASTERN ECONOMIC JOURNAL

absence of a cyclical pattern of quits vs. dismissals in Japan reflects lower transactions costs; however, an equally plausible (though less clever) case can be made that it results from flexible wages, which are simply one dimension of cooperative labor relations.

Hashimoto would doubtless protest (and in fact states at various junctures in the book) that as long as the predictions of the theory are borne out, it is not necessary to measure the underlying variables. But it is not clear that his theory offers predictions beyond those of an historically grounded institutionalist account; thus its main contribution is the appearance of rigor. Indeed, his model, founded on transactions costs and information reliability, appears isomorphic to one founded on culture.

Furthermore, Hashimoto's determination to show that labor market differences are efficiency-driven leads him to overlook the roles of power and politics in shaping institutions. Curiously absent is any discussion of the suppression of the left-led union movement after World War II, an event contemporaneous with the adoption of the institutions he focuses on. Likewise, he seems to regard the abolition of mandatory retirement in the United States as an efficient economic adjustment rather than a political decision.

The Japanese Labor Market is well-written and clear, though repetitive in parts. There are a few unclear passages and errors. For example, in his discussion of unemployment rates [38-44] Hashimoto mixes together definitional and substantive differences between the two countries. When analyzing how labor demand responds to shifts in product demand [93-103], he fails to note that one of his predictions (that hour and inventory adjustments will exceed head-count adjustments in both countries) is not borne out in the United States. Hashimoto's math is pleasantly simple; the theoretical models are heuristic ones that specify derivative signs without assigning functional form. Econometric results are presented in clear, uncluttered fashion. In short, this is a readable and useful book, although I do not find it entirely convincing.

Europe 1992: An American Perspective. Edited by Gary Hufbauer. Washington, D.C.: The Brookings Institution, 1990. pp. xxiii, 406. $14.95. ISBN 0-81573-810-2.

Ashton I. Veramalley Indiana University East

It is instructive, as we witness the end of the Cold War, to examine the ramifications of an integrated Europe on the economic interests of the United States. This book addresses Europe 1992 by focusing on six areas - banking and securities, automobiles, telecommunications, semiconductors, European competition policy, and U.S. negotiat- ing strategy. Each chapter in this volume has both theoretical and empirical underpin- nings, and is well-documented with footnotes, tables, figures, and appendices, as typifies a Brookings publication.

In Chapter 1, the editor gives a broad perspective on the evolution of European unification emanating from the Treaty of Rome in March 1957. He argues that the free movement of goods, services, people, and capital, coupled with faster economic growth, will benefit both the European Community (EC) and its trading partners. The EC


BOOK REVIEWS 493

constitutes America's largest export market, and the potential trade-creating effects of Europe 1992 will tend to bolster U.S. exports and dissipate economic rents in the EC. Viner's classic dichotomy between trade creation and trade diversion inevitably arises in the context of "Fortress Europe" and "Protectionist America." High-technology growth from within the EC is likely to curtail U.S. high-technology exports to Europe and third- country markets. Overall, there is a challenge to America's status quo in the international trade arena.

In Chapter 2, Carter Golembe and David Holland look at the legal and institutional details of the financial services component of the proposed 1992 program, and at the structural differences between U.S. and European banking securities activities. Unlike the U.S., the EC has both universal banking and considerable overlap in banking and securities industries. The U.S. financial industry, despite its aggressiveness, is cur- rently constrained by federal and state statutes from fully exploiting new market opportunities. However, with harmonization of fundamental regulatory principles among industrialized nations and internal supervisory reform, U.S. financial firms can have a comparative advantage in the wholesale and retail business when there is a level playing field.

In Chapter 3, Alasdair Smith and Anthony Venables advance the rationale for studying the automobile industry in terms of Europe 1992. Technical and fiscal harmonization and competition may be difficult to achieve in this industry despite the fact that Ford and General Motors have European subsidiaries. It is the Japanese "transplant" auto producers in the United States which are likely to restrict existing export flows to Europe and this may conflict with U.S. interests. The major producer groups, Volkswagen (West Germany), Fiat (Italy), Peugeot/Citron and Renault (France), and Ford and General Motors (United States), have differential sales patterns across countries with no dominance at the Community level. At the country level, however, there is dominance but incoherent sales patterns. With increased competition among auto producers there is going to be more cooperation and joint ventures. Thus, the U.S. will have to assess its overall interests within the framework of an inward-looking program.

In Chapter 4, Peter Cowhey argues that quasi-competition in the telecommunications market within Europe will affect U.S. interests. The new "growth triangle" involving global information services, advanced radio communications services, and supporting telecommunications equipment and terminal equipment presents a unique opportunity to U.S. firms which have comparative strengths in information markets. American deregulation of the telecommunications market has shaken the foundations of natural monopoly on a global scale with spillover effects into trade policy. The U.S. cannot afford complacency because EC's Research and Development for Advanced Communications in Europe (RACE) will provide technical research, policy coordination, and financial inducement for trans-European facilities in the complex communications network. Further, competitive pressures from the Japanese will thwart American influence in the telecommunications and information industries unless there is a balance between competition and bureaucracy within the Brussels-Washington-Tokyo axis.

In Chapter 5, Kenneth Flamm discusses the effects of structural changes in the semiconductor industry. Higher levels of integration conspire to produce a smaller number of chips, fewer interconnections, and lower manufacturing costs, whereas, high tariffs are counterproductive. The main focus of trade friction in semiconductors is on


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the need to transfer increasing flows of proprietary information between chip producers and users when there is a dominance of vertically integrated Japanese chip suppliers. Consequently, the EC's protectionist measures target Japanese and other Asian producers so as to minimize the impact on companies such as Philips, Thomson, Siemens, and Sun Microsystems. U.S. companies, given their extensive experience of investment and manufacturing with the EC, are in a relative better position than their Japanese competitors to increase sales of high-technology goods produced with the Community. The European drive toward regional economic integration with community-wide stan- dards will eventually eliminate the contradictory pricing rules in international trade in dynamic random access memories. It will also forge cooperation among non-EC mem- bers of the technological community.

In Chapter 6, Douglas Rosenthal examines Europe 1992 in terms of deregulation, market restructuring, antitrust enforcement, industrial policy, and external trade policy. In wealth creation or exchange there are trade-offs between competition and other values. European firms are undertaking more acquisitions in the United States than American firms are undertaking in Europe partly because of the regulatory environment. Complex trans-Atlantic transactions will necessitate a continuing dia- logue between Brussels and Washington to resolve the vexing questions of deregulation, reciprocity, and jurisprudence.

Finally, in Chapter 7, Joseph Greenwald cautions that the United States refrain from using General Agreement on Tariffs and Trade (GATT) as the principal negotiat- ing strategy in order to achieve maximum global liberalization. Bilateral and multilat- eral negotiations are viable options given the ambivalence of current U.S. trade policy, which favors cheap, good quality imports, but supports import restrictions to preserve domestic jobs and firms.

This book is of immeasurable value in understanding the significance of Europe 1992 for the U.S. It is a timely and welcome addition to the emerging literature on a new Europe.


Article Contentsp. 492p. 493p. 494

Issue Table of ContentsEastern Economic Journal, Vol. 18, No. 4 (Fall, 1992), pp. 375-496Volume InformationFront MatterFinancial Regulation and the Fragility of the Banking System [pp. 375-386]An Old Keynesian Counterattacks [pp. 387-400]Economic Science in the Future [pp. 401-403]Evolutionary Concepts in Economics [pp. 405-419]Sectoral Conflicts in the U.S. and the Soviet Union: A Mesoeconomic Analysis [pp. 421-428]A Study of the Publication of Scholarly Output in Economics Journals [pp. 429-436]Symposium: New Keynesian Macroeconomics: The Emergence of theMacrofoundations to MicroeconomicsNew Keynesian Economics in Perspective [pp. 437-448]Would Keynes Be A new Keynesian? [pp. 449-463]On the Contribution of New Keynesian Economics [pp. 465-477]

Book ReviewsReview: untitled [pp. 479-482]Review: untitled [pp. 482-484]Review: untitled [pp. 484-486]Review: untitled [pp. 486-490]Review: untitled [pp. 490-492]Review: untitled [pp. 492-494]

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Hufbauer 1992 - Europe 1992. American Perspective Review by Veramulley

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