14 October 2010

Richard Dowden on Structural Adjustment

By the end of the 1980s most African countries were indeed in a bad way. The end of the Cold War gave the West - which had always believed it could tell Africans what to do - the chance to impose its own solutions. The West's new agenda was democracy, respect for human rights and the free market.
Africa's economies were handed over to World Bank and IMF economists. "Structural adjustment" introduced a dose of tough economic medicine that would restore the patient to health. Governments were forced to let the "free market" decide the value of their currencies, cut public spending and sell off their assets.
As a theoretical economic solution it might have looked right, but on the ground in Africa it pushed up prices, impoverishing all but a few, and destroying Africa's professional classes by reducing the value of their salaries. Those in power who had mismanaged things so badly, now sold run-down state assets to themselves at knock-down prices.
Really Richard? I find the left’s demonisation of the Washington Consensus a bit annoying and a bit of a distraction. The main reason the evil neoimperialist economists recommended that African governments spent less and sold off assets is because they were broke. It’s really not that controversial, you can’t spend more than you earn forever. That’s life.
I also think the influence of those economists is a bit overdone. There is a great documentary film, “Our friends at the bank” which includes scenes of the Ugandan government politely telling the World Bank to get lost.
All of this is a distraction from the issues where Western policies really are (still!) self-serving and detrimental to the poor – such as farm subsidies and labour market restrictions. How about a bit our own free-market medicine huh?

3 comments:

GD said...

I find the left’s demonisation of the Washington Consensus a bit annoying and a bit of a distraction. The main reason the evil neoimperialist economists recommended that African governments spent less and sold off assets is because they were broke. It’s really not that controversial, you can’t spend more than you earn forever. That’s life.

Well you can't do that when hard-currency countries decide to make a sharp U-turn from lumpen-Keynsian policy to monetarism. That was pretty rough for the developing world, as it was for developed-world working classes.

Beyond that, many WasCon policies have nothing to do with repayment capacity, anyway.

Ranil Dissanayake said...

I do agree that the left can get irritatingly shrill with its denunciation of things in a blanket manner, but the Washington Consensus did contribute to huge problems in a lot of countries that were doing pretty well up till the time it was signed, Zambia and Zimbabwe being prominent in this group. For this group, the problem wasn't that the WC didn't have any merit, it was that they took advantage of being able to necessitate some important reforms to push through a bunch of others that were much more debatable. The combined effect was, in some cases, disastrous, even if elements of the policy interventions were good.

Now, in other countries, the balance was different, and the reforms were more necessary and did more good than bad and in some cases contributed to economic regeneration of a pretty large scale - Ghana being the exemplar here.

The point being that the left is wrong to blanket condemn the WC, but liberals (in the English sense of the phrase) are equally wrong to argue that it was ALL necessary or positive.

Roving Bandit said...

Spot on. It wasn't all necessarily necessary or positive. But the caricature I've heard most often is the "Africa's economies were handed over to World Bank and IMF economists" and "As a theoretical economic solution it might have looked right, but on the ground in Africa it pushed up prices, impoverishing all but a few". Which is clearly, ahem...

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