Controlling Inflation: Learning from Experience in Canada, Europe and Japan

Paul E. Blower was Assistant Head, Adult Services Department, Sault Ste. Marie Public Library, Ontario.

The timeliness of any book on an economic subject is dependent on the circumstances in which it is written. In the spring of 1982, the inflation rate had risen to astronomical heights; a year later, it was the lowest it had been in years, though unemployment remained painfully high. But inasmuch as inflation is both a recurring and a long term problem, the views of Barber and McCallum, professors of economics at the Universities of Manitoba and Simon Fraser, respectively, should be listened to, if not fully agreed with.

Basically, the authors believe that, in the absence of social consensus in this country, wage and price controls are the most effective means of keeping the inflation rate at an acceptably low level without increasing the level of unemployment. Both the federal government’s tight money policy and the indexing of incomes enjoyed by some individuals are counterproductive to achieving this aim.

Individual chapters in this short book review incomes policies in Canada, Britain, and the United States; the success of Austria, Belgium, West Germany, and the Netherlands in reducing the inflation rate; and the manner in which Japan, Sweden, and Norway have achieved low unemployment.

In all, the economic experience of 18 OECD countries in the 1970s is examined. Countries such as Japan have developed social consensus (and with it, lower inflation) through full employment schemes in which unions voluntarily limit wage demands to what the companies’ economic performance will allow; still others, such as the Netherlands, promote national consensus through institutional structures (with centralized wage bargaining) which provide for ongoing labour input in corporate decision-making.

Contrary to the views of some observers, the authors argue that this country’s last full-scale experience with wage and price controls, the Anti-Inflation Board (1975-1978), was a success, having an equal impact on both wages and prices. With a set of consistent rules stated in advance and appropriate guidelines (including a role for collective bargaining), together with lower interest rates and some easing of fiscal policy, a similar system should be implemented today. Post controls will also be needed to counteract continuing supply shocks in the years ahead.

While no one doubts that wage controls have some effect in reducing the level of inflation, many have serious reservations about how great that effect is. Questions of fairness will continue to be present.

Nevertheless, this book, part of the Canadian Institute for Economic Policy series, makes an important contribution to the continuous debate on inflation, particularly for specialists.

Suitable for inclusion in university and most public libraries.