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Abraham Rotstein.

Ottawa, Canadian Institute for Economic Policy, c1984.
114pp, cloth, $17.95 ; paper, $8.95.
ISBN 0-88862-711-4 ; 0-58862-710-6.


Reviewed by Thomas F. Chambers.

Volume 12 Number 6
1984 November

What is wrong with Canada's economy? How can this economy be improved? Those are the themes of Abraham Rotstein's new book, Rebuilding From Within. Rotstein, a professor at the University of Toronto, analyses Canada's record in five areas: monetarism, Canadian-Ameri­can relations, industrial policy, the wel-fare state, and the informal economy. He is highly critical of most aspects of our economic performance and suggests new approaches that he believes will help our economy achieve its potential.

The biggest evil, in Rotstein's opinion, is monetarism. He condemns the Bank of Canada and its governor, Gerald Bouey, for embarking on a policy of high interest rates, which he describes "as a form of economic self-immolation." This policy may have lowered inflation, but it also caused the double-digit unemployment we hear so much about in the media.

Here, readers may be excused if they question Rotstein's objectivity. It is the current vogue to take this approach, but even Rotstein knows it is unrealistic. There are other reasons for our high un­employment. Our high wages, combined with attempts to support industries such as textiles in which we lack a comparative advantage, also cause unemployment. We cannot export such expensive goods, and even Canadians do not want to buy them.

If we did have lower interest rates, the flow of money from Canada to countries with higher rates would reach a torrent. Rotstein's suggestion of a tax on capital leaving Canada would not help. It would harm our reputation and greatly reduce the foreign investment the economy needs. Rotstein is equally critical of our econ­omic relationship with the United States. He feels that the American presence in Canada hinders the growth and indepen­dence of our economy. Current dis­cussions of sectoral free trade with the United States are also criticized. Instead, Rotstein wants a "diverse and balanced portfolio of industrial policies," which will help overcome the uncertainties he foresees for our future.

The chapter on the informal economy is the most innovative part of the book. Also known as the underground economy, the informal economy is parallel to the formal market economy we are all familiar with. Included in it are all those who earn money that is not recorded and on which no income tax is paid. Partici­pation in this economy has mushroomed during the recession. Rotstein considers the work done in the informal economy just as meaningful as so-called regular jobs and that governments should be sup­portive of it, rather than punitive. The important thing is that people are en­gaged in some form of work and there­fore feel socially acceptable. This econ­omy should become a part of the indus­trial policy envisioned by Rotstein.

Thomas F. Chambers, Canadore College, North Bay, ON.
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