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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