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The political economy of development
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the United Nations Research Institute for Social Development

Structural Adjustment in a Changing World
Crisis, Adjustment and Social Change

The fundamental socio-political problem faced by indebted countries in the Third World and in the ex-communist bloc is how to create a climate of stability and solidarity after decades of economic crisis, verging in the worst cases on collapse. This is a far more complicated task than phrases like "restructuring" or "institutional reform" might suggest. Relations among people have been reordered in countless different ways by their experiences with crisis and adjustment, and the results are not always easy to explain.

Since relatively similar remedies have been applied, to a greater or lesser extent, in so many countries mired in recession and undergoing adjustment in the 1980s and early 1990s, the experiences of hundreds of millions of people have in some sense been similar. Contractionary economic policy reduces opportunities for employment and access to income wherever it is implemented. At the same time, the central objective of the radical neo-liberal form of adjustment — to remove obstacles to market integration, both within and among countries — requires both deregulation and the systematic disprotection of particular sectors of national economies and sections of local populations through policy shifts which also have relatively similar implications for individuals in many parts of the world.

This point can be illustrated by looking briefly at agriculture. In countries (particularly in Africa) whose governments have traditionally controlled agriculture closely and taxed export commodities heavily, deregulation of markets has often provided an incentive to agricultural production. Whether farmers have been able to gain from more direct participation in the market has, however, depended (among other things) upon their capacity to obtain marketing and other services on more favourable conditions than those originally offered by the government.

The commercial agricultural sector of many indebted countries has in fact been harshly affected by continuing economic recession and free-market reforms. In region after region, the elimination of government subsidies to agriculture (manifested in support prices for basic grains, marketing services and subsidized inputs) has meant that both large and small commercial farmers - producing for export or for the national market - at best confront rapidly rising costs. At worst they lose access to inputs and services essential for production. Rising costs have been offset in part by lowering wages paid to farm labourers. This contributes to depressing local markets, in which both large and small traders find it harder to make a living. Recession in rural areas is further compounded by declining remittances from family members in the cities, which constitute a significant element in the livelihood strategy of semi-subsistence and subsistence farmers.

An often radical opening of national economies to foreign competition permits governments and private traders to supply net deficit regions and families with cheap imported food. The impact of such measures on farming can, however, be devastating. It is obviously difficult for producers of basic foodstuffs in Third World countries to compete with imported products whose price in part reflects very large subsidies provided by Northern governments. Geographical remoteness or the breakdown of transport systems can still protect local producers; but in general adjustment has expanded the boundaries of international markets in a way which brings together farmers possessing highly unequal initial resources.

Something similar occurs in industry. Radical neo-liberalism has used the tool of conditionality to weaken protection of national industry and open local markets to international competition. This has encouraged a profound reorganization of the manufacturing sector in adjusting Third World countries. In many instances, stagnation has been followed by deindustrialization, as countries stop producing many goods which can be imported. Some forms of manufacturing shift into the informal sector. At the same time, certain sectors of industry in relatively more advanced Third World economies have developed strategies which allow them to compete effectively in international markets. They are the exception within the industrial sectors of these countries, which tend to be marked by very low or negative growth in formal sector industry oriented toward national markets.

To survive during recession, and within the context of pressure from much more technologically advanced international competitors, businesses in adjusting Third World countries have relied upon what is frequently their only competitive advantage: access to cheap labour. In this, they have been influenced by the tendency throughout the world economy to promote the flexible use of the workforce, renouncing when possible the obligation to provide formal employment benefits and avoiding collective bargaining. They have also been assisted by governments following specific adjustment-related guidelines to keep wages down.

Throughout most of the highly indebted Third World (and, more recently, within the former Soviet bloc as well), the formal sector working class is therefore shrinking and working conditions within it are becoming more difficult. Under threat of unemployment and/or political repression, many of the gains won in earlier periods by organized labour have been lost. Workers are now less likely than 10 or 20 years ago to have a say concerning the way production is structured within the factory or shop, and to be able to protect themselves from arbitrary changes in their status or remuneration.

Increasingly, the workforce includes women and young people pushed out of home and school by declining family income. The entry of new groups, often with little experience in the workplace, tends to push wages down and further weakens existing union organization. These less protected strata are particularly sought out by one of the few sectors of the economy which are currently growing in many heavily indebted countries — the labour-intensive assembly plants and agricultural processing establishments producing exports under contract to foreign buyers.

A large number of people attempting to make a living within the confines of sluggish and debt-ridden economies have turned to trade. Liberalization of trade creates extraordinary opportunities for exporters and importers, and especially for those who can operate on a large scale. At the same time, small-scale importing has gained central importance in the livelihood strategies of many middle class and poorer families which respond to demand from their neighbours and friends for imported goods which are highly competitive with products produced at home. The new middle class of Jamaica, for example is increasingly composed of higglers who bring in goods from Miami and Panama. Factories formerly producing sweaters and cotton clothing in central Mexico stand idle, since their owners have begun importing bales of used clothing from the United States.

In the search for additional income, many households now count members within the informal sector, which has grown at a very rapid rate within the framework of adjustment. Here a process of diversification is occurring, as established informal sector businesses feel pressure from new entrants. Members of middle or working class families who turn to informal sector activities are often better educated and may dispose of more capital than traditional businesses; and competition is forcing many already precarious enterprises to shut their doors, or to adopt still harsher methods of exploiting unremunerated labour.

Developments within the public service sector are closely related to the rapid growth of informal or unregulated business activity. Reduction of government expenditure in many countries has been accomplished both through eliminating programmes and personnel, and through keeping wages low. Sharply declining income has affected not only the livelihood strategy of civil servants but the quality of their work. And cutbacks within such fields as public health and education have forced many people who formerly depended upon access to these services to look for alternatives within the private or informal sector.

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