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The political economy of development
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Structural Adjustment in a Changing World
From Stabilization to Free-Market Restructuring

From the 1970s onward, the international economic and political context for adjustment underwent profound modification. Within the course of a decade, a number of changes created gradual openings for the stringent free-market form of "adjustment" which eventually came to dominate not only economic stabilization efforts but also social policy in the 1980s and early 1990s.

In the advanced industrial countries, increasingly vocal lobbies for free-market liberalism gained terrain in their political struggle against groups traditionally favouring a central role for government in the economy. In part, this development must be seen against the background of rapid transformation in the world economy as a whole. New technologies in the fields of transport, communications, robotics and cybernetics speeded exchange within increasingly global markets for capital, goods and services. They revolutionized the production process in some industries, lessening the importance of traditional raw materials and often reducing the use of human labour. They made it easier for businesses to divide up their operations, locating different phases of production in regions where the most advantageous conditions prevailed. And they facilitated the rapid growth of transnational and offshore banking operations, effectively outside the control of governments.

The rising tide of neo-liberalism must also be seen against the background of recession and inflation in most of the industrialized world from 1973 onward. Government spending, responsible for stimulating unprecedented post-war growth, now seemed to be fuelling inflation, which hurt investment and saving, and eventually contributed to worsening problems of unemployment. The stubborn problem of stagnation-with-inflation fed criticism of past development models and — particularly in Britain and the United States — promoted a new call for reduction of the role of the state in the economy.

In most of the developing world (with the notable exception of oil producing states), economies were deeply affected by recession and structural change in the North. They were also affected by the sudden increase in the price of oil in 1973 and 1979. Thus the 1970s were a time of impending economic crisis, forestalled in many cases by recourse to borrowing on a massive scale.

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