Knowledge that Transforms

The current inability of economists to prescribe policies for achieving full employment without inflation can be traced to the unresolved schism between macro and micro analysis. There are calls for structural reforms that will impact at the micro level, but we still don't know enough about the microdynamics of the economy to specify effective programs. We need to identify the critical parameters at the micro level which account for frictional and structural unemployment and the bias toward inflation. This paper addresses one part of this problem by proposing an approach to explaining the dynamic and static structure of wages and unemployment in a segmented market, drawing policy implications and contrasting them with present programs.

The present international economic system, largely designed and led by the U.S. since World War II, is being challenged by questions of how international markets should operate and who should benefit from them. The call for a New International Economic Order (NIEO) that would be of economic benefit to less-developed countries (LDCs) has been hotly debated. A review of the present system questions its assumptions of efficiency and competition and suggests that a North-South dialogue for change is appropriate. Arguments for this conclusion are that (1) developed countries desire raw materials but limit the number of unskilled workers from LDCs; (2) corporate management of international transactions tends to minimize competition in the marketplace; and (3) worldwide unemployment and low productivity are an indication that increased LDC participation is needed. While some of the push for NIEO may come from capitalist countries seeking to emulate Japan, the possibility that LDCs will benefit should not be ruled out. 7 references.

In recent years there has been a systematic exploration of the implications of relaxing the strict assumptions of the textbook version of the Heckscher-Ohlin theory of international trade. Some of the bestknown propositions have turned out to be highly vulnerable to changes in assumptions. Thus if the assumption of constant returns to scale is relaxed, one must be prepared to sacrifice the Stolper-Samuelson and Rybczynski theorems (see Ronald Jones, 1968, and Kemp), and one must accept the possibility that commodity prices and outputs are negatively associated (see our 1969 paper). And if factor-market distortions are admitted, one must be prepared for the possibility that the ranking of industries by value factor intensities may be opposite to the ranking by physical factor intensities, implying in turn that outputs and prices may be negatively associated and that the Stolper-Samuelson and Rybczynski theorems must be rephrased and then cease to be dual to each other (see our paper with Stephen Magee; Jones, 1971). Against the background of traditional results, the new findings have been viewed as perverse and paradoxical.