The Transformation of the World Economy: 1980-93.

This book contains a broad-brush overview of changes in the world's economies from 1980-93. It is not all encompassing of every economic policy or measure in each country studied nor, understandably, is Solomon able to discuss every country. In general, Solomon's keen insight and breadth of experience provides this book an expert's historical validation. Yet its economic simplicity should be viewed in the top level dialogue it is written.

In Chapters 2 and 3, Solomon does well to set the stage of the world economy in 1980. Chapter 2 covers political leadership changes, inflation effects, the OPEC oil shock, international banking, interest rates and so forth of the major countries and/or geographic regions discussed later. Chapter 3 sets the stage for changing economic philosophies predominantly in Great Britain, Germany, Japan, and the United States, the focus on Thatcher and Reagan being to move their countries toward "more market-oriented economies." What Solomon does here is show us what was of importance at the start of the 1980s to world leaders, and how their focuses or policies changed by the end of the study period. He does well to point out fallacies of supply side economics, particularly in concentrating on personal marginal tax rate reductions rather than corporate tax rates, whence comes the majority of investment. However, Solomon implies the growth in defense spending during the 1980s, as a major contributor to the growth in the value of the dollar, is inexcusable. I believe he should keep the state of the U.S. military in 1980 in mind and then ask himself if it was as effective as an instrument of U.S. policy then as it is now.

In Chapter 4, details of the inflationary pressures of the early 1980s and the action by the Federal Reserve can be found. Coupled with this, Solomon takes the reader through the macroeconomic dynamics of the decade both with simplistic economic values and his description of private and public resource transactions. His discussion on the balance of payment points out if the Federal Reserve had pursued a less restrictive monetary policy, the current account would have still been in a deficit. He does well to point out the slowdown in the rising personal incomes in America is more a function of changes in productivity than of Reagan's policies. The discussion on the United Kingdom and Thatcher's policies emphasizes the change in "culture of the nation" to reflect a more positive, independent public respectful of business and their economic necessities. This was brought about by taking the opposite position of Reagan with a tight fiscal policy and easing of monetary policy. Here Solomon's personal observance and interactions with key economic and financial leaders is reflected in his comprehensive presentation. Writing in the historical context, the author points out key controversies of the U.K., joining the ERM and later having to withdraw due to the initially high exchange rates.

Chapter 5 is dedicated to covering changes in France, Germany and Japan. The review of France is interesting as a reminder of how much French socialist influence has changed from 1980-93. Solomon takes the reader through Mitterand's election in 1981 and implementing an expansionary Keynsian policy and nationalization of a significant portion of France's industry, banks and financial institutions. The insuing effect of rising inflation, franc devaluation's and sluggish growth led to programs of privatization and high interest rates to support the franc. By the end of 1993, Solomon concludes the French had been transformed away from its earlier Socialist leanings.

The discussions on Germany are limited mainly to the effect of Germany reunification. The effects included changes in supply and demand for goods from the west, rising labor costs in the east and a restructure of supplier/vendor previously provided by other eastern bloc countries. The discussion of these impacts is limited and deserves more attention to properly appreciate the Germany the world faces in the 1990s and beyond.

Without being too optimistic, Chapter 6 is probably the best in the text covering economic interactions and integration activities among the major world economies. In particular, the sections on the exchange rate policies coveting the early devaluation's of the dollar and the Group of Five nations working together on international financial cooperation's in 1985 show the interdependencies the world's economies have developed. Solomon also provides a respectable summation of the increasing movement toward the European Monetary Union, with the major European countries recognizing the importance of economic integration in providing not only economic, but also political and social stability.

The remainder of the book, Chapters 7-12, concentrate on Eastern Europe (7-8), China (9), Asia (10), the Middle East and Africa (11), and Latin America (12). In regard to the communist countries Solomon follows the basic theme of how poor communism has been in generating economic growth and stability and how difficult it is to transfer to a market economy. He asserts there exists a strong role for government to play in bringing about this transformation. I disagree. Centrally planned economies relied on governments to tell the people everything they needed; people trusted them to have perfect or near-perfect knowledge. Reliance on the same structure to bring about a market economy slows down the transformation or guarantees it will never be reached at all.

Regarding Africa, Solomon reminds us how desperate this region of the world is in regards to basic subsistence. While his reluctance to discuss solutions is understandable, his insight would have been valuable in a section rather empty.

Major Ronald L. Graves U.S. Air Force