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The political economy of development
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Reproduced with permission from
the United Nations Research Institute for Social Development

Structural Adjustment in a Changing World
The Social Cost of Recession and Restructuring

Stabilization and adjustment have always implied temporary hardship for many people within the countries concerned, justified by the momentary need to correct the course of the economy and provide conditions for renewed growth. The peculiarity of adjustment during the past two decades, however, is that conditions throughout the world economy have not promoted recovery in most Third World countries attempting to deal with economic crisis through recessionary policy. Furthermore the radical free-market prescriptions of the 1980s encourage a profound reorganization of the economy and society which of necessity generates extremely onerous social costs.

In this context, even the relatively "successful" cases of stabilization and adjustment in highly indebted countries during the last decade (when judged in terms of economic management) can hardly be judged a success when viewed in social terms. Although the governments of "successful adjusters" are dealing more effectively with the threat of economic instability than many others, they remain mired in an intractable social crisis.

The level of living of the majority of the population in African and Latin American countries has declined markedly over the past decade. Per capita income in most of these countries during the early 1990s was lower than in 1980, and the average income of the poorest strata much lower. Minimum wages stood at half or less than half their former value. Unemployment in the formal sector was often much higher than at the outset of the debt crisis, although in relatively more successful cases this problem had been resolved in part by generating a great many new jobs which were badly paid and insecure.

The public sector was decimated by personnel cuts and declining wages, and public services functioned erratically. Attempts to rationalize general subsidies, so that they would represent less of a drain on the public budget, often eliminated benefits in the fields of nutrition, transport, health and education which had been important in the livelihood strategies not only of the poorest, but also of the working and middle classes. The disappearance of subsidies which supported production in certain vulnerable sectors of the economy, and/or in remote regions, also created extended pockets of depression in many countries.

As it became clear during the latter 1980s that there would not be a rapid recovery from recession in the great majority of cases and that the deteriorating social situation would engender serious political unrest, governments and international financial institutions began to experiment with new forms of targeted support for the most vulnerable groups in society. Emergency social funds, financed in some cases with the proceeds from privatizing state-owned industries and in others through foreign aid,2 were established in a growing number of countries to provide employment and support income-generating projects for those most in need.

2 To date, Chile is the only country which has financed a significant part of its emergency social fund through increased taxation.

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