The Problem of the Rate of Adjustment

This chapter addresses the possibility that a nation will incur unnecessarily large social costs in undergoing adjustment to a permanent disturbance at the speed dictated by a laissez-faire policy. Adjustment is defined as the reallocation of resources from one industry to another, and may obviously involve spatial relocation as well as inter-sectoral transfer. No country can or should want to completely avoid the social costs of adjustment. When change comes at a measured pace, the costs of adjustment are small relative to the benefits of the growth which they facilitate, and the vitality which adaptability can impart to an economic system. Change is the inevitable companion of economic progress. Even when the disturbance is adverse to the interests of the nation, acceptance of the new international trading conditions will lead to a better long-run economic performance than the suppression, by commercial policy, of the needed adjustment. The international aspect of measured change is best exemplified by the change in comparative advantage of marginal industries as they die out in rich countries and relocate themselves in developing countries (Akamatsu, 1962). Kojima (1973) stresses the role of technology transfer under the aegis of multinational corporations in facilitating this kind of adjustment by enhancing the efficiency of the new exporting nation, but this may not eliminate social costs in the rich country as workers find relocation difficult (Gray, 1972, pp. 201–4).