8 
able to live for next to nothing while the fuel and raw material 
reserves of the country, unless controlled, will be sold at 
bargain prices. The trade problem is of course aggravated by the 
strong need of these countries for imports of technology in the 
form of equipment or of licences. 
There is therefore no way of avoiding a protectionist policy, 
whatever its special form. Equally, there is need for the control 
of capital movements which does not at all exclude favoured 
treatment for the foreign direct investors who want to transfer 
their gains. The promise made by an official of the Soviet Union 
recently to establish convertibility of the rouble within two 
years is worth mentioning as an example of the kind of talking 
through one's hat which has become customary among enthusiastic 
politicians concerned with reform. Two or three years ago the 
Yougoslav government announced that it had estblished the dinar at 
parity with the German mark without convincing anybody that it had 
the reserves to defend this rate. It seems extremely unkind to 
remember this now but I can not help it. 
Additional structural problems. 
It should be mentioned that the two sector model of transition is 
complicated by the existence of additional structural problems. 
There is first the well known bias in the socialist countries in 
favour of basic industries (especially serious now in face of the 
decline for various reasons of these industries in the west) and 
against services, including the whole system of distribution and 
the provision of repairs which plagues the consumer and harms the 
functioning of industry also. The other structural problem is the 
existence of a top heavy armament sector which contains a great 
part of the best labour,engineering,scientific and management