3. The IMF, World Bank and Structural Adjustment

  • 1. Before the IMF

  • 2. What are SAPs?

  • 3. Did S.A.P.s achieve their aims?

  • 4. Increase in Foreign Direct Investment

  • 5. The effect on growth

  • 6. The effect of S.A.P.s.

  • 7. Reduced state subsidies

  • 8. More exports

  • 9. An S.A.P. example: Vietnam

  • 10. Currency devaluation

  • 11. S.A.P.s – for the minority interest

  • 1. Before the IMF

    The World Bank and I.M.F. are both international institutions who receive funds from a number of different states, with contributions generally being proportionate to the size of those countries’ economies. They were set up with the intention of providing finance for developing states, which were usually to be in the form of loans rather than actual grants.

    The I.M.F. was founded in 1945 and now involves 183 countries. Essentially it acts as an agency representing the interests of the world’s financial institutions. As Susan George writes:

    One might … accurately describe the Fund’s role as that of a messenger, watchdog, international alibi and gendarme for those who do hold financial power….. (The) bedrock of the world monetary system is the private banks, with states (including their central banks and treasuries) acting as guarantors. The fund works on their behalf.” (16, p.47)

    The World Bank is, as Bernard Nossiter put it, a ‘sister agency to I.M.F.’, (17) having similar quotas and voting structures.

    The World Bank and I.M.F. have played an important role in shaping macro-economic policy in the South (i.e. policy towards taxation, public spending and trade.) Indeed, their interventions have been important in bringing about the kind of ‘free trade’ world that is embodied in the G.A.T.T. agreements. The World Bank and the I.M.F. have been able to influence the economies of developing countries through the loans (and sometimes, in the case of the World Bank, grants) that they have made to states of the South.

    The pattern of lending grew sharply in the 1970s when there was a steep increase in World Bank loans that grew from U.S.$2.7 billion a year in the early 1970s to $8.7 billion by 1978. (10; p13) As Bello points out, in these early stages, Bank policy, which was largely a reflection of U.S. interests, had important political as well as economic objectives. Strong national movements led by the likes of Sukarno of Indonesia and Nasser of Egypt, as well as more typically Soviet-style state-run regimes that sided with the U.S.S.R. in the Cold War, were demanding fundamental changes in North-South relations. Bello et al refer to this as the ‘other cold war’ in which the World Bank, led by former U.S. president Robert McNamara in the 1970s can be seen to have initiated policies to ‘contain’ the South through a policy of increased loans. Provision of loans gave the North increased involvement in these states, which was taken even further by the I.M.F., as discussed below.

    Whilst there were some loans from the World Bank to the South during the 1970s, a larger proportion of loans were from private, commercial banks. By the 1980s, the scale of developing states’ debts to (in particular their debt to the private, commercial banks) meant that a further round of loans was need to meet their repayments. The World Bank and I.M.F. stepped in at this stage to bail them out by greatly stepping up their supply of credit to the already indebted states, as Bello describes:

    the flow of commercial bank credit to the Third World plummeted, while that of the official finance institutions increased sharply: in 1981, commercial banks supplied 42 per cent of net credit flows to the Third World and official finance institutions 37 per cent, but by 1988 the private banks provided only 6 per cent of net debt flows and official finance institutions 88 per cent of the total. Most of the inflow of official money was used by debtors to service their debt to the private banks. Between 1982 and 1986 Third World countries received U.S.$25 billion more from official creditors than they paid out to them, while they paid the commercial banks $183 billion more in interest and amortization than they received in new bank loans.(10; p69)

    The I.M.F. had not, on the whole, been involved in the loans of the 1970s (supplying less than 5% of the finance to developing countries between 1974 and 1979- 16; p48) but became an increasingly important agent in the management of the debts of the South from the early 1980s. The notorious ‘structural adjustment’ policies that were initiated by the I.M.F. in most of the Southern debtor countries, had the aim of making debtor states more profitable and so able to make more loan repayments in the medium to long term.

    2. What are SAPs?

    S.A.P.s have been applied to many countries across the globe, from Chile to Russia and from Somalia to the Phillipines, from the 1980s onwards. Surveys of these programmes, such as that of Chossudovsky(11) show that certain key policies were consistently included in each S.A.P.

    · Privatisation. State owned companies were sold to the private sector. Often, this would pave the way for them to be bought up by foreign capital. It also helped to generate revenue for the state and hence contributed to debt repayments.

    · Removal of subsidies. Subsidies previously granted by the state to various sectors of the economy were disallowed, with many local producers suffering as a result. Favourable loans and credit that were previously provided for small businesses were also curtailed.

    · Removal of tariffs. This policy was designed to encourage imports and exports. Goods previously produced within a country for consumption at home were increasingly imported. Production at home became more specialised and geared to the export market, with a range of cash crops being encouraged – examples include cocoa in Ghana, tobacco in Zimbabwe, prawns in the Phillipines being encouraged. (As explained above, the G.A.T.T. agreements had reduced protectionism which also encouraged the adoption of more export-orientated policies.)

    · Reduction in state expenditure. Another means for the creditors to ensure future loan repayments was to impose a further policy of reducing state expenditure.

    · Devaluation of the national currency. This was usually necessary to compensate for a balance of payments deficit.

    Chossudovsky summarises the effect of S.A.P.s on the economy of debtor states, pointing out how many industries that produced for domestic markets within the South were pushed to bankruptcy As a result of an S.A.P., he writes, economies are “opened up through the concurrent displacement of a pre-existing productive system. Small and medium-sized enterprises are pushed into bankruptcy or obliged to produce for a global distributor, state enterprises are privatised or closed down, independent agricultural producers are impoverished.” (11; p16)

    A widely documented outcome of S.A.P.s is the large cut in state expenditure. This invariably goes far beyond the reduction in subsidies to the domestically-orientated industries referred to by Chossudovsky above. Public goods such as health and education were drastically cut back in debtor states, as part of a policy of ‘fiscal tightening.’ As a result, Michel Chossudovsky points out, “even the World Bank concedes that the communicable diseases control programmes of developing countries for diarrhoea, malaria and acute respiratory infections have deteriorated.” The consequences for education systems are equally evident, with teacher pupil/ ratios worsening. The full scale of the impact of reduced public expenditure is, of course, much too great to be documented here.

    There is certainly no shortage of evidence of the suffering faced by the working class in countries of the South in the wake of S.A.P.s An example could be made of virtually any country where an S.A.P. has been adopted and indeed they are by writers such as Walden Bello and Michel Chossudovsky. Bello writes about Chile:

    “While it socialized the losses of the rich, the authorities dumped the burden of adjustment on to the poor and the middle class via a radical cutback in public spending, a tough freeze on wages, and a steep devaluation of the peso. The 24 per cent contraction of domestic expenditure provoked a 15 per cent drop in G.D.P. and triggered unemployment, which rose to embrace over 10 per cent of the workforce in one year and remained at over 25 per cent for three years. And the 50 per cent real devaluation of the peso was translated mainly into a reduction of real wages by close to 20 per cent.” (10; p45)

    Bello adds that “more than 50 per cent of the unemployed received no subsidy and the rest obtained only minor benefits”(10; p45)

    S.A.P.s certainly caused the working class to suffer in debtor states but improvement of their welfare was not a real objective of these policies. It is, after all, the very nature of captialism that working class interests – i.e. higher wages, environmental protection and better public services will conflict with the interests of the minority, owning class. (Why Profit Gets Priority.) To understand S.A.P.s further, we need to evaluate them against the aims that they were designed to achieve.

    3. Did S.A.P.s achieve their aims?

    Different forms of measurment are needed to determine the effectiveness of S.A.P.s in serving the interests for which they were designed. The main measure of success considered by the The World Bank and I.M.F. would have been medium to long term economic growth statistics. (You need look no further than the literature produced by these organisations to see that economic growth is the yardstick by which they guage the outcome of their policies.) They would also have been paying close attention to the impact of the policies on foreign investment in the debtor states. These statistics are to do with the investment of capital within a country which is of course, a prerequisite for profits to be made.

    According to the pro-‘free market’ mantra, an improvement in growth would eventually ‘trickle down’ to the working class majority, via wages. It is, of course, deeply questionable whether such a ‘trickle down’ occurs and there is, in fact, little or no evidence for such a ‘trickle down’ having taken place. (From Third World to First World.) Still, we should examine the impact that S.A.P.s had on investment and growth in the countries concerned.

    4. Increase in Foreign Direct Investment

    One objective of the policies certainly succeeded – that of increasing Foreign Direct Investment (F.D.I.):

    Between 1973 and 1991, the world stock of F.D.I. grew in current dollars from $211.1 billion to $1,836.5 billion, a growth rate of roughly 13 per cent per year. From the perspective of the advanced capitalist countries, the origins of the vast majority of F.D.I., this stock grew substantially faster than G.D.P. amounting to about 6.7 per cent of G.D.P. in the early 1970s and rising to nearly 9 per cent at the beginning of the 1990s.”(13; p27)

    MacEwan has calculated that this 1991 F.D.I. figure is 8.5 per cent of total world output. He remarks that this could be viewed as a return to early twentieth century levels, given that it was 9 % in 1913.(13; p27) Still, it is a significant rise relative to the 1960s and the economic climate of more liberalised trade as well as ‘structural adjusment’ in the South were important factors in bringing this about.

    The Multilateral Agreement on Investment (M.A.I.) drawn up by the O.E.C.D. during the late 1990s, was an attempt to rollback still further the remaining hindrances to foreign direct investment. The M.A.I. negotiations for the agreement collapsed – this was held as an important victory by the critics of globalisation whose pressure contributed to the proposal being questioned and eventually withdrawn. However, the European Union is still pushing for a watered-down version of this proposal to be agreed with the hope of paving the way for an eventual agreement.

    5. The effect on growth

    For an explanation of what is meant by economic growth, see Where Do Profits Come From? We shall now examine whether economic growth increased in countries where S.A.P. policies were implemented. Bello suggests that numerous I.M.F. studies provide the evidence that economic growth rates have not been improved by S.A.P.s.

    Bello et al write:

    Comparing countries which underwent stabilization and adjustment programmes with those which did not, over the period 1973-1988, (I.M.F.) economist Mohsin Khan found that ‘the growth rate is significantly reduced in program countries relative to the change in non-program countries.’ He concluded that while balance of payments and inflation rates are likely to improve in the first year of adjustment, these programmes ‘do involve some cost in terms of a decline in the growth rate.’ Mohsin Khan quoted in Peter Robinson and Somsak Tambunlertchai, ‘Africa and Asia: Can High Rates of Economic Growth Be Replicated?, Occasional Papers, International Center for Economic Growth, No.40 (1993), p.24. ” (10; p32)

    Having surveyed the various studies on the subject, Chossudovsky reaches a similar conclusion:

    Although there have been a few studies on the subject over the past decade, one cannot say with certainty whether programmes have “worked” or not…. On the basis of existing studies, one certainly cannot say whether the adoption of programmes supported by the Fund led to an improvement in inflation and growth performance. In fact it is often found that programmes are associated with a rise in inflation and a fall in the growth rate.(11)

    Mohsin Kahn’s study appears to offer strong evidence against the use of S.A.P.s, even in terms of the holy grail of free market capitalism, ‘economic growth.’ It should be noted that, one important factor behind Mohsin Kahn’s results was the marked success of certain countries that did not undergo S.A.P.s during the 1980s, notably certain ‘tiger economies’ of East Asia, such as Malaysia, South Korea, Taiwan and Hong Kong. By contrast, the majority of countries in the poorest continents – South and Central America and Africa have undergone adjustment programmes. There were certainly other important factors behind the relative success and failures of these two sets of states, aside from the presence or absence of adjustment programmes, which make any such comparison a poor test of the ‘success’ of S.A.P.s. 

    An exploration of all of these factors would be an entirely separate study in itself but they would certainly include the relative economic starting positions of the states in the 1960s, prior to the involvement of World Bank/ I.M.F. in their policies as well as the stability of their political systems. (See below for further discussion of the course taken by the Asian tigers, some of which avoided the ‘free trade’ and ‘structural adjustment’ policies encouraged by the North.)

    6. The effect of S.A.P.s.

    Rather than Mohsin Kahn’s cross-country comparison as a way of defining the success or failure of a S.A.P., it would be more accurate to define their success relative to how an adjusted country would have fared were no S.A.P. to have taken place. This does, of course, present difficulties of it’s own, given that we are asked to compare against a scenario that will never exist. No definitive conclusion can be reached about what the growth rates of adjusted countries would have been without the I.M.F. Still, we can point to certain factors which suggest that growth rates would have been unlikely to be much better in the absence of S.A.P.s. We shall now do this by considering the impact upon growth of three key elements of S.A.P.s: reduced state subsidies, the move towards export-orientated industries and currency devaluation.

    7. Reduced state subsidies

    The nationalised or subsidised industries in the South that S.A.P.s sought to privatise or withdraw subsidies from were often inefficient and less profitable than the market demanded. While, as has been pointed out, the impact on the working class of reductions in state expenditure was devastating, it helped states to further reduce their tax burden. This general reduction in the level of taxation contributed to the increased F.D.I., as pointed out above without which growth rates would have been lower in those countries which received investment.

    Another significant factor in considering how Southern countries would have fared without S.A.P.s is remembering that these countries would still have been faced with their large debt burdens. Their debt was indeed a significant factor in the expenditure cutbacks required by the I.M.F. and meant that there was only limited government capital available for any kinds of ‘development’ project that might constribute to building the right infrastructure for increasing growth. Any capital that was available had to be supplied by creditors who required future repayment.

    The need for future repayments on debt gave rise to an important shift. The huge reductions in state subsidies to industry and the breaking down of protectionist barriers did cause domestic industries to suffer. Restricting the role of the state in this way did, nevertheless, take precedence over short term economic growth. The programmes gave priority to export-orientated industries over many of the industries which primarily served domestic markets (often including a large proportion of a states’ agriculture). This was the new path, viewed as the surest route to profitability, which happily married with the T.N.C.s desire to expand their production and markets.

    8. More exports

    There are many examples of states specialising in the production of a single good for export: An extreme case was the copper industry in Zambia which came to represent 90% of total output. The figure for copper in Chile was 50%. Coffee in Colombia, El Salvador, Guatemala, and Haiti became crucial to these economies, as did cocoa in Ghana, bauxite for Guyana and tin for Bolivia. (17; p148)

    The export-orientated policy has been widely criticised for forcing developing countries to become vulnerable to shifts in the market price of these cash crops. Furthermore, the worldwide implementation of these policies in many cases caused worldwide over-production and so the push towards cash crops started to undermine itself. This happened, for example, to cocoa production, which was simultaneously expanded in numerous countries. As a consequence, there was a 48 per cent decline in the world cocoa price between 1986 and 1989″ (10; p47) and countries such as Ghana, where the I.M.F. had encouraged a greater reliance on this single crop, suffered as consequence. This criticism has been countered by the argument (put forward by Bernard Nossiter amongst others) that a fall in the price does not necessarily mean a reduction in profits, given that demand for the good could increase. Yet the newly export-orientated economies of the South did in fact suffering due to a fall in commodity prices, with sub-Saharan Africa being one notable example. 

    Much of the criticism of I.M.F./ World Bank policy points to the failure to bring long term economic stability to developing countries. The preservation of a diversity of industries in these countries would have certainly made their economies more robust in the face of the continuing, unpredictable shifts in the market. However, there was often a trade-off between having this diversity and achieving the kind of profitability which would satisfy the World Bank and other creditors. Many of the critics of the drive towards profitable exports underestimate the power of such a short term opportunity for profit within capitalism. An inherent part of the capitalist system is for rival companies to make higher profits in the short term, so as to be able to out-grow their competitors. For this reason the very instability that critics quite rightly despair of is inherent to capitalism itself. (See Booms and Slumps – What Causes Them?)

    There had been a tremendous economic incentive for the initial round of lending in the 1970s, as is borne out by the huge growth in exports from the South during this time.

    GATT examined forty-six developing countries who account for most of the third world’s output, apart from oil. Between 1966 and 1981, their manufactured exports multiplied twenty times, from $3.8 billion to $78.7 billion. Although inflation accounted for perhaps two thirds of this expansion, the result is still remarkable. Their share of world manufacturing exports rose from 6 percent to 11 percent, nearly double. Raw materials exports expanded six times, from $14.9 billion to $92.2 billion; their share of world exports was unchanged at l2 percent.(G.A.T.T. – Prospects for Increasing Trade Between Developed and Developing Countries (Geneva, Switzerland: 1984), quoted in 17; p.24)

    Bello et al, who are amongst the many critics of S.A.P.s acknowledge exports were an effective means of generating profits that were used to make substantial loan repayments to the commercial banks who had provided them with credit during the 1970s:

    This policy was enormously successful, effecting as it did an astounding net transfer of financial resources from the Third World to the commercial banks that amounted to U.S.$178 billion between 1984 and 1990; By 1992, the tenth anniversary of the debt crisis, the exposure of U.S. banks in the South had dropped from its 1987 level of 140 per cent of equity to 29 per cent. For all intents and purposes, the crisis was over for the creditors.(10; p69)

    9. An S.A.P. example: Vietnam

    Vietnam provides an example of this profitability being achieved. Chossudovsky notes that G.D.P. grew after a S.A.P. was implemented, “largely as a result of the rapid redirection of the economy towards foreign trade (development of oil and gas, natural resources, export of staple commodities and cheap-labour manufacturing). Despite the wave of bankruptcies and the compression of the intemal market, there has been a significant growth in the new export-oriented joint ventures.” (11; p58)

    The fact that this growth was achieved largely at the expense of Vietnam’s manufacturing industry, was not a problem in the eyes of those who provided credit to the country, who were solely concerned with receiving a profitable return on their loans. In fact, the dismantling of industries such as oil, gas, natural resources and mining, cement and steel production presented an opportunity for them, in the words of Chossudovsky, “to be reorganised and taken over by foreign capital with the Japanese conglomerates playing a decisive ane dominant role ” He continues: “The most valuable state assets were to be transferred to joint-venture companies.” (11; p52)

    Japan benefitted from the S.A.P. in Vietnam:

    “The tendency is towards the reintegration of Vietnam into the Japanese sphere of influence, a situation reminiscent of World War II when Vietnam was part of Japan’s Great East Asia Co-Prosperity Sphere. This dominant position of Japanese capital was brought about through control over more than 80 per cent of the loans for investment projects and infrastructure. These loans channelled through Japan’ s Overseas Economic Cooperation Fund (O.E.O.F.) as well as through the Asian Development Bank (A.D.B.) supported the expansion of the large Japanese trading companies and transnationals.” (11; p57 )

    Vietnam was not the only such example – many of the ‘adjusted’ countries developed export sectors that were highly profitable, at least for a certain time. Yet, even for the capitalist interests of the North, there is little or no positive result that can be drawn from several of the world’s poorest states. Zambia is a case in point, having been forced to request eleven reschedulings of debt between 1975 and 1987 (16; p117)

    10. Currency devaluation

    A pre-condition of I.M.F. loans was often a devaluation of borrower nation’s currency. This was usually done by linking the currency to a more widely used currency (this would usually have been the U.S. dollar) and setting the value lower than the previous level. On other occasions, a devaluation simply meant allowing the value of the currency float to a free market level, given that the debtor state had been artificially ‘propping it up’ on the foreign exchange markets, so as to reduce the cost of imported goods.

    Devaluations were often introduced by the I.M.F. to counter policies of ‘overvaluation’ that were adopted by numerous governments in the South prior to the arrival of the I.M.F. This overvaluation policy is described by an O.E.C.D. report, cited by Nossiter:

    governments discovered another device to make life in the capital more agreeable. They maintain overvalued currencies. They demand more francs or dollars for their nairas and cedis than these currencies would fetch in a free market. This discourages farmers from producing crops for export, from investing their own labor on irrigation works or buying seed and fertilizer. The return from export crops in cedis, nairas, and the rest is painfully small. For the period 1976 to 1980, the World Bank calculated that Ghana paid its cocoa farmers 40 percent of what they would have received in world markets; Tanzania gave its coffee producers 23 percent; Mali made cotton growers accept 43 percent, and Malawi its tea planters 28 percent. Conversely, the overvalued currencies make imports a bargain in the cities. Elites can enjoy cheap Audis or a Mercedes-Benz, inexpensive air conditioners, television sets, and even food from abroad.(Zambian Mismanagement (1965-80) – OECD, Development Cooperation, 1983, p.20 – quoted in 17; p109)

    As discussed below, S.A.P.s shifted the emphasis of Southern economies towards exports and a devaluation made them more competitive. Devaluations also aimed to counter what were often high rates of inflation in the South and ensure monetary stability that, from the point of view of thier creditors, was essential for managing their debt.

    Devaluations had a drastic effect on domestics prices in many of the countries that underwent an adjustment programme. One extreme (but not unique) example was Peru, where the impact was dubbed the ‘Fujishock’ (named after President Alberto Fujimori who agreed to implement the programme in August 1990.) Chossudovsky notes that, in Peru, “fuel prices increased 3l times overnight whereas the price of bread increased 12 times. The real minimum wage had declined by more than 90 per cent in relation to its level in the mid-1970s” (11; p38)

    Critics of globalisation often focus upon particular policies such as devaluation. Whilst the short term impact of the resulting price rises was devastating, it needs to be acknowledged that this social impact was not the primary concern to the I.M.F. and the banks they represent. It was a necessary part of the re-negotiation of loan agreements to ensure that the future repayments would be forthcoming, in so far as was possible.

    Indeed the O.E.C.D. report cited above points out that the pre-I.M.F. policy of overvaluation conflicted with the interests of peasant farmers, who were unable to sell the produce on export markets and were forced to settle for a much lower income as a result. In the case of Zambia, “Farm prices were held so low that peasant buying power dropped 65 percent.” On the other hand, due to overvaluation reducing the cost of imports: “The system, in other words, drains incomes from poor farmers to the better-off city-dwellers” (quoted in 17;109)

    Overvaluation of a currency, as shown, also holds disadvantages. More recently, the I.M.F. intervened in the Russian economy as it appeared to be on the verge of collapse and sought to prop up the Russian ruble at what critics described as an ‘overvalued’ level. Third World Network criticise this policy:

    In Russia, the IMF insisted on maintaining an overvalued fixed exchange rate, requiring that country to raise interest rates as high as 150 percent – leading not only to excessive foreign debt burdens, but maintaining a speculative bubble in the financial sphere, and drained the real economy of investment capital. The overvalued ruble kept imports artificially cheap, hobbling domestic production, and exports overly expensive – until the currency collapsed in 1998. A similar policy was supported in Brazil – with the government raising interest rates more than 50% and borrowing billions from the Fund to stabilize its overvalued currency, only to have it collapse just a few months later.(24)

    That overvaluations, as well as devaluations, have disadvantages, suggests that capitalism offers no straightforward solution to the question of fixing currency values. Criticisms of devaluation policies point out the problems that arise from it but not the reasons why the I.M.F. enforce them.

    11. S.A.P.s – for the minority interest

    As with the question of the motives behind capitalism’s move towards free trade, the policies imposed upon the South by the I.M.F. through Structural Adjustment Programmes can only be understood in terms of the economic interests of certain sections of the global capitalist class. Among these interested parties were the financial institutions who lent money to the South during the 1970s, the multinational and other companies looking to exploit the resources (both labour power and natural resources) of the South, as well as sections of the capitalist class within the states of the South themselves, who owned some of the export orientated industries within those countries.

    The banks (most significantly U.S. banks who supplied the South with the majority of their loans during the 1970s) needed to ensure that the countries of the South were making enough profit to be able to repay their debts. This explains why S.A.P.s shifted the emphasis of Southern economies towards production for export. Such industries were widely viewed as where the ‘comparative advantage’ (and hence largest profits) of these countries lay. The I.M.F. are often targetted by the anti-globalisation lobby, yet they were simply the agency who conducted a policy that was necessary for the major Northern banks. (It should also be noted that Southern debt originates from the 1970s before the I.M.F took on this role.)

    Besides the banks, other multinational companies of the North were themselves interested in gaining from such industries by setting up operations there themselves. Examples of this include the U.S. multinationals who moved into Central and South America to exploit the primary resources there, such as fruit and timber. To maximise their profits in these countries, such companies needed to ensure that the state took on the most minimal role when it came to taxing and regulating them. Here, S.A.P.s and the G.A.T.T. can be viewed very much within the same context – that of providing a profitable climate for the businesses operating within a ‘developing’ country. The G.A.T.T. guaranteed only minimal regulation of the activity of transnational corporations. Similarly, S.A.P.s were a globally recognised assurance that there will be no ‘unnecessarily’ high levels of pulic spending and hence a lower tax burden.

    Another parallel can be drawn with the supposedly ‘free trade’ policies of the North, when we consider how far S.A.P.s sought to impose a ‘free market’ model upon the South. Again, when we look beyond the free market rhetoric with which these policies are often introduced, it can be seen that this is not exactly the classic ‘free market’ model of economic textbooks. To characterise it as such ignores, as has been observed by many critics of globalisation, the common practice of I.M.F. loans being used to subsidise export-orientated industries. These subsidies were important in the establishment of many of the export orientated industries of the South. Critics of globalisation have often suggested that the development of Southern economies could have been quite different had these subsidies been granted to the industries within these countries that produced for domestic markets. Such a policy is one of the suggested ways that the worst effects of globalisation could be avoided. These suggestions for reforming the global economy are considered below.

    Author: DG

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