Rethinking American Participation in Economic Development: An Institutionalist Assessment

By Klein, Philip A. | Journal of Economic Issues, June 1998 | Go to article overview

Rethinking American Participation in Economic Development: An Institutionalist Assessment


Klein, Philip A., Journal of Economic Issues


I begin this paper with a personal note. In 1989, I spent a month in Bujumbura, Burundi, under the aegis of the U.S. Information Agency (USIA). Previously I had toured six central African countries, also for the USIA. These two tours enabled me to experience firsthand the widely reported economic obstacles faced in this part of the world: poverty; poor housing; the classic demographic hurdle posed by high birth rates accompanied by falling death rates, which along with the advent of modern medicine make very difficult the task of freeing labor from agriculture for new efforts in other areas; dependence for critical foreign exchange - often on a single crop for export; a significant public sector; and considerable dependence on the central government both for essential welfare services and for jobs. Less visible but clearly complicating their problems was widespread inflation, a large and rising external debt, and often exchange rate deterioration.

Palpable everywhere to an American traveling in central Africa was the virtually interchangeable influence of the United States and the twin international organizations charged to help: the International Monetary Fund (IMF) and the World Bank. The agenda of these agencies was explicit and ubiquitous. They were committed to a free market ideology, which they applied more or less inflexibly as the price of their assistance to these countries, and they managed to be remarkably insensitive to native reaction to their efforts. It was all packaged under the antiseptically neutral rubric of "Structural Adjustment Loam." Stated baldly, these agencies said to sub-Saharan Africa: "Reduce the size of the public sector and we'll offer loans." The Structural Adjustment Loan program came to epitomize for me the pitfalls of mainstream development thinking and the virtues of the institutionalist approach. Arguably, Structural Adjustment represents the application of the new classical mainstream ideology to what is in effect a stereotypical institutionalist development challenge - how to modernize and adopt modern technology in a culturally sensitive way that will ignore neither the gains nor the pains of progress.

Origins of the Structural Adjustment Loan Approach

It has been estimated that by the late 1980s some 83 governments had been induced by the International Monetary Fund and the World Bank to try privatization as a solution to their fiscal and development problems in at least one previously public industry or service [George 1992, 106]. Thus, the same ideology that gained credence in the United States under the aegis of Ronald Reagan and in Britain under Margaret Thatcher has been credited by many with launching the privatization drive reflected in structural adjustment loans. In point of fact, the ideology they represent has found widespread support among mainstream "new classical" economists. Milton Friedman and his monetarism was an early variant.

One observer of the structural adjustment approach asserts ". . . the pioneers were the famous 'Chicago Boys,' the economists who used the opportunity of the 1973 CIA-backed coup d'etat in Chile, to impose the brutal restructuring of the Chilean economy according to free-market principles of their University of Chicago mentor, Milton Friedman. The privatization prize for 1980 does, however, go to Britain, followed by the United States, where official political and economic theory has been reduced to the Me-Tarzan-You-Jane level of 'Private Good, Public Bad'" [George 1992, 106].

Initially, therefore, we note that the program applied extensively in sub-Saharan Africa got its start in Latin America. Institutionalists have commented widely on the approach taken in South America but not much on Africa. Much of what they have to say, however, can be applied to Africa.

While the market ideology applied single-mindedly is clearly the basic factor that influenced the IMF and the World Bank, the proximate cause of the structural adjustment program was the "debt explosion" in Third World countries that occurred in the late 1970s and early 1980s. …

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