Social hardships of economic reform

Visualization of narrower problems
Name(s): 
Excessive social costs of structural adjustment in debtor countries
Negative social impacts of economic restructuring
Neglect of human resource development in transition economies
Development with an inhuman face
Reduction in public expenditure on human resources in borrower nations
Negligent implementation of austerity measures in debtor countries
Delay in social benefits from reform in transition economies
Nature 
It is generally recognized that the development of human resources both benefits from and contributes to the development process. Effective programmes to promote education and training, science and technology, and popular participation in economic activity, including the participation of women, are therefore key elements in development strategies. However, in many nations struggling with structural readjustment, austerity measures and general recessionary conditions have brought sharp declines in per capita incomes. Unemployment, especially of the young, continues to increase in debtor countries. Hunger and poverty in absolute numbers continue to rise. This forces more people back into subsistence agriculture, where they draw heavily on the natural resource base and thus degrade it. Austerity programmes inevitably include government cutbacks in both the staff and expenditure of new and unproven environmental agencies, undermining even the minimal efforts being made to bring ecological considerations into development planning.
Incidence 
[Developing countries] Debtor developing countries have to bear the burden of arduous structural adjustment with insufficient external support in order to benefit from the facilities offered by the International Monetary Fund in rescheduling their debts. The restructuring required by the IMF is designed to restimulate the economy. However the austerity measures associated with this process include reduction of government spending on: welfare, subsidized food and housing, wages and credit facilities. All these measures impose increased hardships on the poor. They redistribute wealth and opportunities to the wealthy who have capital to invest, in order to encourage them to generate more economic activity, notably exports. These measures tend to have a serious impact on social development and well-being, as education and health needs remain unfulfilled, especially amongst the most vulnerable groups. Human resource development is neglected because although economic growth is a necessary condition for attacking poverty, complementary policies focusing resources and programmes towards the more deprived tend to be given a low priority through force of circumstances. The possibility of addressing serious environmental concerns is also thwarted, thus affecting long-term development prospects. The persistence of acute poverty is another dimension of the problem. Vast poverty persists in Asia. The population living below a minimally acceptable level has increased in Latin America and Sub-Saharan Africa. Many of the countries in Africa which have embarked on programmes of structural adjustment have been unable to sustain them in the face of their immediate social and economic consequences.

[Former socialist countries] For all former communist states, the transformation to a market economy is not a costless process and leads in its initial stages to unemployment and economic dislocation. It often happens, for example, that countries undertaking stabilization and structural adjustment programmes implement reforms in phases, either because differential phasing is built into their programmes or because some reforms are off schedule. They may, for example, implement some fiscal and monetary reforms (such as price control, tariff reform and devaluation) rapidly, whereas institutional ingredients of their programmes, particularly aspects of domestic deregulation, public enterprise reform and privatization, may not be in place for several years. In such circumstances there would be a lag before reforms would generate sufficient competition to create self-correcting market forces.

[Asian "tiger" economies] According to an 1998 ILO report, Asian societies will continue to suffer heavily as a result of inadequate policy responses to the 1997 financial crisis in the region. In the worst afflicted countries, millions will lose their jobs. The absence of meaningful social safety nets will make matters worse. It is warned that this combination of sharp and unexpected social pain on one hand and lack of collectively provided relief on the other is fertile ground for breeding unrest.

Claim 
1. Economic restructuring measures, although quite successful in getting an economy going (in narrow terms at least), is primarily of advantage to transnational corporations and to consumers of exported products in industrialized countries. The cost is borne by the impoverished who can least afford to pay it. IMF prescriptions are designed by and for the developed capitalist countries and are inappropriate for developing countries of any kind.

2. The widespread collapse of integration groupings' defence mechanisms against a resurgence of all sorts of barriers against mutual trade and non-payment of commercial debts in clearing arrangements is matched by the narrowness of the groups of populations involved and committed to the integration process at present. A stronger focus on the social aspects and on the spread of the effects of economic cooperation will be required to strengthen its base. New measures touching wider ranges of people ought to be combined with increased participation in the design and decision-making process by enterprises, workers and other social groups.

3. The IMF, the World Bank and other international lending institutions and aid agencies have forced African nations to adhere to "structural adjustment programmes" which have imposed enormous preventable suffering on African people. These programmes orient economies toward export production, placing downward pressure on wages, encouraging unsustainable resource exploitation and undermining food security. They slash government spending, including in the crucial areas of education, healthcare and environmental protection; and they particularly harm women, who are most severely hurt by the elimination of the social safety net and the model's discrimination against small and domestically oriented farmers. The programmes impose a deregulatory and trade liberalization agenda that removes crucial government protections for society and leaves local business vulnerable to foreign multinationals; and they encourage wage cuts, including in the minimum wage, and government and private sector downsizing. Structural adjustment programmes force recessionary policies that most seriously victimize the poor; and they tend to exacerbate income and wealth inequalities.

4. The interdependence of the national economies of States and their dependence on the current framework of the world economy make cooperation between States increasingly important and heighten the responsibility of agents and partners in development in connection with structural adjustment programmes which, it should be recalled, are merely techniques or ways of managing shortages with the declared purpose of bringing debt under control. This attempt at debt control has so far been a failure as blatant as it is significant. These structural adjustment programmes have inflicted enormous inhuman and counter-productive suffering on the deprived populations of the debtor countries. These methods of managing shortages which steadily worsen the state of dire poverty of the peoples concerned were imposed on them by the debtor countries with the complicity of the international financial institutions in a fictitious context of negotiation in which the creditors had the power to lay down the law.

5. Structural adjustment programmes impose a heavy burden on workers and their families and on other vulnerable groups such as women, children, the unemployed, the jobless and the handicapped. They imperil public spending on education, health and collective social services. Wage levels fall and job losses are frequent. In short, no economic, social or cultural human right is observed or protected. The measures adopted in the context of structural adjustment programmes have culminated in a downward revision of exchange rates which reduces the purchasing power of the workers and have caused inflation which is intolerable for the less favoured segments of the population.

6. Bringing about drastic cuts in the budget provisions of the States concerned, structural adjustment programmes eventually prevent them from meeting their social and general welfare obligations to their peoples. Structural adjustment programmes have merely worsened the state of economic ruin of the underdeveloped countries. They are actually means of distraint designed to recover the sums owed to the wealthy countries without any concern for the difficulties of the debtor countries.

7. Downward adjustments of exchange rates or currency devaluations have considerably weakened the economies of the third-world countries. Quite apart from the economic power of the State, the multiplier effects of such monetary policies damage the investment possibilities of private companies and individuals; they are sources of inflation and of uncontrollable surges in prices. Companies then downsize and lay off workers with a clear reduction in income. Devaluation leads to a change in the relative prices of imports, which become dearer in the national currency, and exports, which become cheaper in foreign currencies. In view of the fact that the developing countries are already suffering from the deterioration in the terms of trade, a fall in exchange rates cannot but be disastrous for their economies.

Counter-claim 
Social and human costs of adjustment are transitional. The assertion that structural adjustment programmes have increased indebtedness and poverty, notably in Africa, does not match the evidence where such programmes have been carried out in a sustained manner. It also ignores the fact that the pace of progress achieved has varied across countries, depending on the nature and the severity of the pre-existing economic conditions, the effects at times of unfavourable external developments (such as worsening terms of trade and drought), and domestic political realities.

Macro-economic and structural adjustment programmes aim to help countries attain higher growth, lower inflation and improve balance of payments and external debt positions. The programmes aim to direct public spending away from non-essential or unproductive uses, including excessive military expenditure, and into social, infrastructural and other priority needs. It is only through successful stabilization of their economies and determined structural adjustment (to expand supply capacities) that countries will eventually generate resources to promote development and reduce poverty, strengthen debt servicing capacities and withstand external shocks.

Adjustment policies may indeed have temporary adverse affects on some of the poor, but the programmes include the design of social safety nets and targeted social programmes to assist the poor during periods of adjustment. Great care is required in tailoring macroeconomic policies to the individual circumstances of countries in need.

Type 
(D) Detailed problems