As a result, policies such as Structural Adjustments have, as described by Smith, contributed to the greatest peacetime transfer of wealth from the periphery to the imperial center in history , to which we could add, without much media attention. However, this is precisely what contributes to poverty and dependency.
Due to this multiplier effect, a hundred dollars worth of primary production can add several hundred dollars to the Gross National Product GNP of that country.
If money is spent in another country, circulation of that money is within the exporting country. This imbalance of trade expands the gap between rich and poor.
The wealthy sell products to be consumed, not tools to produce. This maintains the monopolization of the tools of production, and assures a continued market for the product. That control often requires military might.
As seen above as well, one of the effects of structural adjustment is that developing countries must increase their exports. Usually commodities and raw materials are exported. But as Smith noted above, poor countries lose out when they. This leads to less circulation of money in their own economy and a smaller multiplier effect.
Yet, this is not new. Historically this has been a partial reason for dependent economies and poor nations. This was also the role enforced upon former countries under imperial or colonial rule. Those same third world countries find themselves in a similar situation. This can also be described as unequal trade:. At first glance it may seem that the growth in development of export goods such as coffee, cotton, sugar, and lumber, would be beneficial to the exporting country, since it brings in revenue.
In fact, it represents a type of exploitation called unequal exchange. A country that exports raw or unprocessed materials may gain currency for their sale, but they lose it if they import processed goods. The reason is that processed goods—goods that require additional labor—are more costly. Thus a country that exports lumber but does not have the capacity to process it must then re-import it in the form of finished lumber products, at a cost that is greater than the price it received for the raw product.
The country that processes the materials gets the added revenue contributed by its laborers. Emphasis is original. Exporting commodities and resources is seen as favorable to help earn foreign exchange with which to pay off debts and keep currencies stable.
However, partly due to the price war scenario mentioned above, commodity prices have also dropped. Furthermore, reliance on just a few commodities makes countries even more vulnerable to global market conditions and other political and economic influences. More than 50 developing countries depend on three or fewer commodities for over half of their export earnings.
Twenty countries are dependent on commodities for over 90 percent of their total foreign exchange earnings, says the World Bank. Falling [commodity] prices have meant that large increases in export volume by commodity producers have not translated into greater export revenues, leading to severely declining terms of trade for many commodity producing countries. A vast majority of developing countries depend on commodities as a main source of revenue. Primary commodities account for about half of the export revenues of developing countries and many developing countries continue to rely heavily on one or two primary commodities for the bulk of their export earnings.
Tan also highlights in the above article that a fall in commodity prices have [sic] also led to a build-up of unsustainable debt. The lack of greater revenues from exports has knock-on effects, as described further above. The irony is that structural adjustments were prescribed by the IMF and the World Bank due to debt repayment concerns in the first place.
As debt-relief and trade became major topics of discussion during the G8 Summit , Yaya Orou-Guidou, an economist from Benin a small African country , also noted that exporting raw materials and agricultural products would not help fight poverty. Those raw materials have to be processed in the same poor country to help create a multiplier effect:. Orou-Guidou believes Benin will need to start processing the raw materials it produces if it is to escape the poverty trap.
A prime material kept in Africa for processing in our factories is one less thing for Western factories to earn money on, he notes. This concern also applies to larger economies. Political economist Adam Smith also provided some insights in his classic, The Wealth of Nations , which is regarded as the Bible of capitalism. He was highly critical of the mercantilist practices of the wealthy nations, while he recognized the value of local industry and the impact of imported manufactured products on local industries:.
Though the encouragement of exportation and the discouragement of importation are the two great engines by which the mercantile system proposes to enrich every country, yet with regard to some particular commodities it seems to follow an opposite plan: to discourage exportation and to encourage importation.
Its ultimate object, however, it pretends, is always the same, to enrich the country by the advantageous balance of trade.
It discourages the exportation of the materials of manufacture, and of the instruments of trade, in order to give our own workmen an advantage, and to enable them to undersell those of other nations in all foreign markets ; and by restraining, in this manner, the exportation of a few commodities of no great price, it proposes to occasion a much greater and more valuable exportation of others.
It encourages the importation of the materials of manufacture in order that our own people may be enabled to work them up more cheaply, and thereby prevent a greater and more valuable importation of the manufactured commodities.
Emphasis Added. Reading the above, we can say that structural adjustment policies are also mercantilist. Of course, today it is a bit more complicated too. We do have, for example, products being exported from the poorer countries albeit some facing high barriers in the rich nations. But exporting rather than first creating and developing local industry and economy, means the developing country loses out in the long run, hardly developing because there is little multiplier effect of money circulating within the country, as mentioned above.
Furthermore, with labor being paid less than their fair wages in the poorer nations, wealth is still accumulated by—and concentrated in—the richer nations. It is a cartoon animation explaining the effects of loans, structural adjustment and cashcrops, and their impacts on poorer countries. It traces how Senegal was encouraged to grow nuts for export. In summary,. Thus we are in a situation where the rich promote a system of free trade for everyone else to follow, while mercantilism is often practiced for themselves.
He wrote in an internal memo:. When looked at in this light, poverty is more than simple economic issues; it is also an ideological construct. Although most World Bank staff work at its Washington headquarters, those unlucky enough to be posted in the Third World receive ample compensation for their misfortune. No structural adjustment, then, for this privileged coterie of bankers and policy analysts. Meanwhile, in Africa a hidden genocide lays waste the continent.
They do not represent anybody other than the countries that control them. What this means in practice is that the United States runs our countries. He continues: Look at any African country today, and you'll find that the figures are swinging down. Education standards are going down, health standards going down and infrastructure is literally breaking up. In some countries, more is spent on debt servicing than education. For example, even in the former communist countries that are trying to undergo rapid economic reform , education is given a back seat.
In fact, the UK-based development and relief organization, Oxfam, goes as far as saying that the IMF policies deny children an education. Since the end of the Cold War, even wealthier nations have seen government rollback on some functions, in a similar style to structural adjustment. John McMurtry captures this well, being very critical on the impact of such adjustments on life requirements :. Such systematic overriding of life requirements is now clearly evident from the most undeveloped to the most advanced societies of the world.
In the case of Canada, again, infant mortality rates, the quintessential indicator of social health, rose an astonishing 43 per cent in the Statistics Canada figures, the first recorded rise in over thirty-one years, while child poverty had increased by 46 per cent since And as the crisis of AIDS gets worse in Africa, measures that reduce health budgets in already poor countries contribute to the problems. The IMF has prescribed the same medicine for troubled third world economies for over two decades:.
Joseph Stiglitz is one of the most cited economists in the world , the former winner of the Nobel prize for economics and a professor at Columbia University. His insights and criticisms are worth paying attention to. He notes that:. The IMF likes to go about its business without outsiders asking too many questions. In theory, the fund supports democratic institutions in the nations it assists.
In practice, it undermines the democratic process by imposing policies. It negotiates the conditions for receiving aid. Sometimes the IMF dispenses with the pretense of openness altogether and negotiates secret covenants. The World Bank talks of assistance strategies for every poor nation using careful country by country investigations.
It concludes with a meeting with a begging finance minister, who is handed a restructuring agreement pre-drafted for voluntary signature. As part of a wider process of globalization, these policies, he argues in another clip 2 minutes, transcript , create a straight jacket for poor countries in terms of policy space to make their own decisions:.
Africa Action, an organization working for political, economic and social justice in Africa is highly critical of SAPS , noting that, The basic assumption behind structural adjustment was that an increased role for the market would bring benefits to both poor and rich. In the Darwinian world of international markets, the strongest would win out.
This would encourage others to follow their example. The development of a market economy with a greater role for the private sector was therefore seen as the key to stimulating economic growth. The key issue with adjustments of this kind, however, is whether they build the capacity to recover and whether they promote long-term development.
Perhaps one of the most serious effects is that these external policies indirectly undermine democracy and democratic accountability, not only of the IMF and World Bank after all, if their policies fail, who are they accountable to? In some cases, the more corrupt governments can use structural adjustment as an excuse not to cater to all their people. Oxfam International estimates that, in the Philippines alone, IMF-imposed cuts in preventative medicine will result in 29, deaths from malaria and an increase of 90, in the number of untreated tuberculosis cases.
Tribunals investigating crimes against humanity take note! Because some of the poor nations are not as aggressive in privatization and other conditionalities as the IMF or World Bank would like, they face continual delays of debt relief. Perhaps the model needs to be revised and approached from different angles, as this Oxfam paper suggests. However, in most cases that has been done knowingly, with the support of various rich nations due to their own national interests , especially during the Cold War.
As Oxfam says , it would be wrong to hold civilians to ransom by placing stringent conditions on humanitarian relief because of the way their government spends its money. Furthermore, it has been argued that Structural Adjustments encourage corruption and undermine democracy. As Ann Pettifor and Jospeh Hanlon note, top-down conditionality has undermined democracy by making elected governments accountable to Washington-based institutions instead of to their own people.
The potential for unaccountability and corruption therefore increases as well. As the article from Africa Action above also mentions, African countries require essential investments in health, education and infrastructure before they can compete internationally. The World Bank and IMF instead required countries to reduce state support and protection for social and economic sectors.
They insisted on pushing weak African economies into markets where they were unable to compete with the might of the international private sector.
These policies further undermined the economic development of African countries. This inevitably means that the poor suffer , while the rich get richer. Article Navigation. July 01 Lim , Joseph Y. This Site. Google Scholar. Manuel F. Montes Manuel F. Author and Article Information. Online Issn: Asian Economic Papers 1 3 : 90— Cite Icon Cite. Abstract Since the debt crisis of the s, Philippine economic performance has been an outlier in East Asia, in spite of reform policies that generally have conformed to worldwide norms of trade liberalization and deregulation.
You do not currently have access to this content. View full article. Sign in Don't already have an account? Government revenues, generated from the SAP driven privatization policy were redirected for debt servicing rather than being invested on productive programs and projects for economic development.
Reduction in government expenditures through tightening of government budget, cuts in government subsidies and freezing the filling up of government vacant positions, failed to significantly impact on poverty alleviations and underpinned the much needed resources for basic health, education and social services delivery programs.
The Philippines should never go back to the IMF loan portfolio, it should find other resources to propel growth and development away from IMF borrowing.
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