BOOK REVIEWS

From Plan to Market: The Economic transition in Vietnam by ADAM FFORDEand STEFAN DE VYLDERBoulder, Westview Press, 1996, pp. xv � 358, £13.50 p/bk

Of all the countries that have attempted the transition from central planning to marketregulation, two stand out as striking success stories: China and Vietnam. These two countries,and only these two, avoided a period of severe economic contraction in the early stage of policychange. While one should resist the temptation to draw the inference that the transitionalprocess in the two countries was essentially similar, an obvious and outstanding similarity canbe noted: the powerful role played by the state in setting the pace and guiding the process oftransition.Both China and Vietnam were, are, and for the foreseeable future will be countries in which

the state plays a dominant role in the economy. Given the success of transition in the twocountries, there is a strong prima facie argument for considering state intervention to have beencentral to the solution rather than part of the problem. Yet, few economists do, and Ffordeand de Vylder are no exception. While their approach is hardly the hard-edged ideology of the`Washington Consensus', they clearly judge the Vietnamese state to have been more a problemthan a facilitator of the country's success. The state (and the Communist Party) receivecompliments in as far as it restricted and reduced its role. For example, in answer to thequestion, `could hardship and transitional costs have been reduced, if the reforms had beencarried out more rapidly?', they reply, `We have an impression that the answer is yes' (p. 315).True, they go on to write that `the gradualist approach in Vietnam . . . was preferable to anyattempt at ``shock therapy'' . . .', but this is based on non-economic considerations, such as`regional imbalances and other tensions' (pp. 315±316).This characterization of the authors' view of the transition process is not to suggest that they

are orthodox ideologues. Quite the contrary, throughout their book, which is certainly the bestsurvey of the Vietnamese transition, they make clear that they have limited faith in the neo-liberal `shock therapy' of the international ®nancial institutions. For example, they explicitlytake issue with the conventional wisdom that macroeconomic stabilization must be appliedearly and zealously: `the Vietnamese case does suggest that unorthodox sequencing mayyield both better macroeconomic results and broader political support' (p. 311). Nonetheless,when they come to list the `Reasons for Success' (pp. 307±316), one looks in vain for positivecomments on the role of the state. Quite the reverse: the state enters the discussion to bedescribed as the `loser' in the transition process which, one is told, `undermined the e�ciency(and moral authority and credibility) of central government' (p. 312).Certainly this book should be required reading for those interested in the Vietnamese

transition. However, it is unfortunate that the authors chose to position their heterodoxanalysis within an essentially orthodox framework. The implicit orthodoxy manifests itself inheavy emphasis upon the `distortions' of central planning, without ever providing a discussionof what that term means. The reader is left to conclude that they share the orthodoxbenchmark of Pareto Optimality as the non-distorted ideal. An attempt is made to provide abroader analytical framework with the postulation of a four-stage transition process (pp. 39±40). However, the ®rst and last stages are `before' and `after' residuals, and the middle two mayin practice be but one, as the authors themselves note (`If reform is top-down these two stagesare likely to be undi�erentiated . . .', p. 39). Upon inspection, the putative stages become`Before Transition', `Transition', and `After Transition'.

CCC 0954±1748/98/050695±04$17.50# 1998 by John Wiley & Sons, Ltd.

Journal of International DevelopmentJ. Int. Dev. 10, 695±698 (1998)

The authors' concerns about `rent-seeking', corruption, and ine�ciency of the Vietnamesestate are well-taken. However, given the success of the Vietnamese process, it would have beenpromising to pursue the possibility that the role of the state as facilitator of markets (greaterdiscussion of the changes in land legislation in the 1980s and 1990s would have been instructiveon this point). Even more, the authors might have considered the possibility that the transitionhas involved the expansion of the state into a new role as the former role contracted. In fact,the authors hint at this possibility in their dichotomy between the `Western' and `Asian'approaches to transition.

As a ®nally point, it is quite possible that the authors were too sanguine about macro-economic policy in Vietnam: `By 1995 . . . the situation appeared to be under control. All three[macroeconomic] gaps had shown clear signs of improvement' (p. 316). In the event, the tradebalance deteriorated in that year, and in 1996 ballooned to over twenty percent of GDP. Thiscould well be the result of too much, not too little economic `reform'.

JOHN WEEKSCentre for Development Policy & Research

School of Oriental & African StudiesLondon, UK

Financial Liberalisation and Investment by KANHAYA L. GUPTA and ROBERTLENSINKLondon, Routledge, 1997

The book provides an extensive analysis of important aspects related to interest ratederegulation in developing countries particularly its e�ect on the quantity of investment,allocative e�ciency of investment and the e�ects of an improvement in banking e�ciency oninvestment. The model developed for this purpose is of an integrated nature which treats theconsumption-saving and portfolio allocation decisions as jointly determined. The frameworkof the model includes a private sector (®rms and households), a banking sector (central bankand private banks), a government sector and an external sector. Simulation of the base modelconcentrates on one of the sectors of the model at a time and performs a sensitivity analysis,which also recti®es the shortcomings of the partial analysis of the model.

The study argues that the impact of ®nancial liberalization in the presence of developmentaid, depends on the government behaviour. The impact of an interest rate deregulation oninformal credit available for the private sector is ambiguous. By using the two sector model,the authors conclude that in the absence of an informal banking sector, ®nancial liberalizationimproves allocative e�ciency. This seems to contradict their analysis of the informal sector.They argue that given the complex structure of circumstances determining the e�ects ofbanking e�ciency, it should remain an empirical issue. The chapter on simulation modelssheds light on the sequencing of liberalisation policies. On the neglected public ®nance front,the authors observe that the tendency of governments to raise revenues through repressionistpolicies have negative impacts on private wealth.

Many of the aspects dealt in this book, i.e. feedback e�ects in the case of foreign aid(assessing the implications of it for the success of the interest rate deregulation), additionalchannels of curb markets etc. have been ignored by other traditional mainstream studies. Forconsidering these aspects, their integrated model is helpful. The authors mention thepossibility of expanding their model to incorporate aspects like foreign borrowing and publicsector behaviour in developing countries.

However, the book does not deal in detail with the household consumption pattern. Thisstudy analyses the private sector by aggregating households and ®rms as one entity. The reasongiven for this aggregation is that the study is mainly interested in showing the e�ects ofgovernment borrowing from the banking sector and its crowding out e�ects. In addition tothis, they are also concerned that the derivation of results would become impossible with anextended model. The chapter on simulations deals to an extent with the `contentious' issuesrelated to the private sector, i.e. household consumption.

# 1998 John Wiley & Sons, Ltd. J. Int. Dev. 10, 695±698 (1998)

696 Book Reviews