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foreign exchange transactions must be coupled with appropriate price level adjustments. That is, inflation accounting and foreign-currency translations should not be considered as independent problems. A thorough understanding of the macroeconomic linkages between relative commodity price movements, price level changes. and exchange rate behavior is critical for determining the real exchange risk that international business face. In effect, accountants are telling us as economists that the ball is back in our court - and bouncing in a particularly random fashion. In the macromodeling of exchange rates much remains to be done meshing theory and empirical reality. Even then, specifying accounting rules for gain and losses due to foreign exchange transactions and translations will be a controversial task.

In closing, it should be advertised that Richard Herring, the editor of the volume, has written a particularly thorough and comprehensive summary integrating the contributions of the live chapters as well as the insightful comments provided by specialists from academia, industry and official institutions. The book is well organized and easy to read. The papers, while not seminal works, are ideally suited for graduate reading lists and reading by practitioners interested in current thinking on managing foreign exchange risk.

John T. Cuddington Stanford University

Robert L. Ayres, Banking on the Poor (The MIT Press, Cambridge, Mass., 1983) pp. xii + 282, $17.50.

In the first two decades of its operations, the World Bank had a pronounced tendency to equate development with growth. In the 1970s under the leadership of MacNamara and as part of widespread concern that the benefits of growth were not reaching the poor, the World Bank shifted the emphasis of its lending to projects considered more directly beneficial to large numbers of poor people. This book attempts to describe and evaluate this poverty-oriented redirection of the World Bank, using as source material internal Bank documents and interviews with Bank staff and officials. The main topics discussed in the book are briefly considered below.

The Bank’s ‘theory of poverty alleviation’

The Bank’s theory ran as follows. Maximizing the growth of gross national product would not lead to poverty alleviation because of the relatively weak linkages between poverty groups and the rest of the economy. On the other hand, redistributing existing assets to poverty groups would be politically impossible and might retard growth. But it is possible to combine

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‘redistribution with growth’ (RWG) by ‘redirecting investment towards poverty groups’. This strategy is based on the assumptions that (i) it is possible to find projects with high rates of return which create incomes and assets in the hands of the poor, (ii) aggregate saving and investment would not fall significantly in the process, and (iii) the resulting incremental changes in income distribution would not be resisted by the rich. A competing approach, concentrating on the achievement of ‘basic human needs’ (BHN) was much discussed within the Bank. The differences between RWG and BHN were the subject of a turgid debate and Ayres does not succeed in clarifying the issues involved any further. He thinks that the BHN approach lost the internal debate because it had radical and dirigiste overtones. This is probably right but part of the problem with the BHN approach was surely its lack of coherence and distinctiveness.

This is not to say that the RWG approach was very sophisticated either. The conditions under which power would pass into the hands of a reformist coalition’ which would support, or at least not oppose, some redistribution of incomes, were left largely unspecified. It is clear that the Bank’s theory had a large amount of faith in it.

The performance of the Bank’s new-style projects

Ayres describes in some detail the differences between the old-style narrowly drawn projects and the new-style projects which involved the provision of an integrated package of inputs designed to increase the output and incomes of small, mainly owner-operator farmers. (It should be noted that the projects were not designed to reach the ‘poorest of the poor’ on the ground that they were not directly reachable.) The impact of urban projects on output and productivity was inevitably more indirect, but the Bank was much concerned to avoid these projects becoming welfare payments in disguise. To this end, it tried to design projects so that the poor could afford the output and project costs could be recovered.

On the record of the projects themselves, there is little hard evidence as yet. But piecemeal information suggests a favourable outcome in terms of output and a mixed outcome in terms of income gains to target groups. It is disappointing that the author has not been able to furnish detailed information regarding actual rates of return on different types of projects in spite of the fact that post-mortems have been carried out by the Bank’s operations evaluation department. One has to make do with statements like ‘ . . . audits of completed rural development projects indicate generally acceptable (and in some cases, clearly better than acceptable) rates of return’ and ‘In a number of the reports examined for this study, the rates of return were less than half those estimated at the time of appraisal’. It is, therefore, not possible to give a definitive judgement on whether the Bank’s RWG-type strategy actually worked.

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Obstacles to project implementation

The chapters dealing with this topic make fascinating reading. Using a number of telling examples, Ayres shows how economic policies and political realities in the recipient countries created severe difficulties in project implementation. A particularly difficult group of problems concerned land tenure and land titling which, in several cases, led to the diversion of gains away from the intended beneficiaries. In some other cases, however, the problems did not lie with the recipient country’s policies: the Bank itself was guilty of designing projects badly, making them too complex for effective coordination at ground level and paying insufficient attention to social issues, particularly those relating to dislocation and resettlement. The two lessons which seem to emerge are: (i) that the Bank should, by dialogue and ‘leverage’, settle some of these difficult issues at the project negotiation stage; and (ii) that the Bank should pay much more attention than hitherto to non- economic variables affecting project outcomes.

Political constraints on the Bank

The Bank operates under constraints imposed by both donor and recipient governments. The influence of the donor governments, particularly the United States, is felt strongly on the financing of the Bank and IDA and in the country allocation of Bank lending. On the latter, Ayres confirms that the United States does exert a very considerable influence, as evidenced by the relationship of the Bank with Peru, Chile, Argentina and Vietnam. Loans do often go to undemocratic countries and to countries without a serious commitment to alleviating poverty. However, while politics is important in lending, Tanzania, China and other examples make clear that loans are made to socialist as well as capitalist states. Ironically, though not surprisingly, the greatest resistance to the Bank’s poverty-oriented policies often comes from the ruling elites in countries acting through their governments. The existing world order is based on the principle of national sovereignty which, in effect, gives each national government the right to be unjust within the nation’s boundaries. But the Bank may, within limits, be able to exert leverage on recipient governments by making loans conditional on the pursuance of appropriate policies. Ayres says ‘it is not easy to determine how often the Bank refuses to make a loan effective’, but of course that is precisely what one would like to know. On the mechanics of the struggles between the donors, the recipients and the Bank for getting their own way, the book is disappointingly short on new facts, given the author’s access to inside information.

Left-wing and right-wing criticisms of the Bank

The left-wing critics of the Bank think that a necessary condition for

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successful development is the replacement of the reactionary elites in developing countries and, therefore, Bank lending is irrelevant or even counterproductive. The right-wing criticisms of the Bank are that it is engaged in making international welfare payments, promoting socialism in developing countries and acting contrary to the interests of western foreign policy. Ayres gives a spirited and persuasive defence of the Bank against the extreme critics.

The Bank’s operational stance in the future

In the present world conjuncture, many developing countries are facing structural balance of payments problems in the sense that satisfactory utilization and growth of capacity could be maintained if and only if generous, long-term financing can be made available. This has emphasized the importance of the ‘money moving’ function of the Bank, in which its ‘structural adjustment loans’ have a special role. In this connection, many new proposals have been mooted to unlock funds such as dilution of the Bank’s gearing ratio and cofinancing with the private sector. In the new context, Bank loans would have to mesh in more closely with IMF programmes and will inevitably raise the issue of ‘macroconditionality’. These changes may well have implications for the poverty orientation of the Bank’s lending. Ayres provides a brief survey of the relevant issues.

This is not an analytically exciting book, nor does it contain any especially new information, in spite of the author’s access to internal Bank sources. Its main contribution is to bring together in one place many useful facts about recent Bank lending and a levelheaded discussion of the underlying policy issues.

Vijay Joshi Oxford University

Jean-Francois Hennart, A Theory of Multinational Enterprise (The University of Michigan Press, Ann Arbor, 1982) pp. 201, $16.50.

It has been argued that specialist areas such as Industrial Organization are (or ought to be) no more than a subset of applied microeconomics. If one considers the latter to consist of the kinds of transactions costs-property rights theorizing popularly associated with UCLA, then a strong feature of the book under review here is that it fits such a bill.

The opening two chapters summarize previous ‘theories of the multinational enterprise’ and outline ‘the model’. The latter is a fairly standard summary of the transactions cost approach punctuated by the occasional curiosity (such as the argument, p. 34, that forcing employees to