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Structural Adjustment in a Changing World
Structural Adjustment as Radical Experimentation in Free-Market Economics

It was the convergence of the debt crisis with the rise to power of groups espousing radical free-market ideas, especially in Great Britain and the United States, that placed "structural adjustment" at the centre of the development debate in the 1980s. Without the debt crisis, suggestions for Third World policy reform made by "free-market" economists would not have been adopted as frequently as they have been. And without the long political tenure of the Reagan and Thatcher governments, the debt crisis would most probably have been approached in a somewhat less recessionary way. The continuing problems of sluggish growth in the global economy throughout the 1980s reinforced demands for far-reaching reform.

"Structural adjustment" in the developing world of the 1980s became a euphemism for radical experimentation in free-market economics. While stabilization programmes of earlier post-war decades — which restored monetary and fiscal order, and preserved the capacity to import — were not usually followed by attempts to restructure the economy, stabilization in the 1980s and early 1990s was associated with intense pressure to abandon inward-oriented national projects of economic development and to stake the future of people in the developing world on increasingly unprotected participation in the international market.

In addition to the standard stabilization measures outlined earlier, the "adjustment" package upon which international assistance was made conditional in the 1980s and early 1990s paid much greater attention than had previously been the case to promoting:

  • drastic reduction of trade barriers protecting the local economy from foreign competition;
  • deep reduction or elimination of subsidies and price controls, which "distorted" internal prices for a number of goods and services;
  • restructuring of the financial system and weakening or removal of controls on the movement of capital;
  • privatization of state-owned firms;
  • elimination of control on private foreign investment;
  • reduction of the role of the state, not only in the economy but also in the provision of social services.

There was a tendency for advisers within international agencies to recommend moving quickly on many of these fronts at once, on the assumption that radical reforms could best be carried out jointly and that gradualism would only prolong inefficiency and promote dissent. In most cases, however, this recommendation was not accepted by the governments of adjusting countries.

The ideal public sector envisioned for reformed debtor countries thus became a relatively passive one, providing services indispensable for the efficient conduct of private business and protecting the weakest members of society. The ideal economy would be highly integrated into global networks of investment and trade, and regulated internally by competitive private firms.

Such a picture — in the radical, stylized form which gained temporary ascendancy in the 1980s — corresponded neither to the real world of developing countries nor to that of the industrialized North. In fact, most of the advanced industrial nations were governed by far more activist states and engaged in a great deal more protection of local interest groups than the neo-liberal model would have condoned — even, in some cases, after a number of years of reform efforts by champions of neo-liberal economics. And the clearest examples of successful export-oriented adjustment among the developing countries proved also to have both unusually strong states and highly oligopolistic private sectors.

Nevertheless, in the context of deep internal economic crisis, desperate shortage of foreign capital and pressing debt obligations, many countries of Africa and Latin America (as well as some indebted countries in Asia and the Arab world) embarked on stabilization and adjustment programmes in the 1980s. Pressure to do so grew stronger as a wide range of bilateral donors and development agencies insisted upon economic reform and the World Bank developed lending activities in support of structural adjustment agendas. The creation of such networks of cross-conditionality meant that receipt of official development aid, as well as loans, became dependent upon progress in adopting adjustment measures, and that consortia of donors were eventually responsible for shaping significant areas of macro-economic and social policy in indebted Third World countries.

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