Growth, Debt, and Politics: Economic Adjustment and the Political Performance of Developing Countries

By Lewis W. Snider | Go to book overview

7
Conclusions

The implications of this research can be summarized in one sentence: Economic adjustment has a better chance of succeeding if it is preceded or accompanied by political "adjustment." Economic adjustment is jointly endogenous with political reform. Otherwise the outcome of most adjustment efforts is akin to the overweight person who follows a strict weight-loss diet, and loses the excess weight. . . . only to put it all back on again. Why? Because nobody told him that the key to successful weight loss is a change in the lifestyle that caused it. "Lifestyle" here is a metaphor for shifting from one model of state participation in the economy to another. The weight (no pun intended) of the evidence presented in this inquiry strongly suggests that political reform begins with establishing secure property rights and reliable contract enforcement. It does not involve getting the state out of the economy. It involves a new role for the state that eschews rent creation and concentrates on economic incentives.

External "shocks" from the international economy are not just an excuse contrived by hard-pressed Third World governments and their apologists in academe, the World Bank or the Overseas Development Council. External shocks have undermined countries' adjustment efforts and their economic growth, partly through their negative impact on domestic investment, partly by making it harder to control inflation, and partly by undermining the perception of creditworthiness of states in international capital markets. External shocks, however, are not always negative, nor do they affect all countries the same way. We saw in Chapter 5 that they contribute to a shift in industrialization strategy from an inward-oriented import substitution-based policy to one that is outward oriented and export based. Paradoxically, countries adhering to a variant of import-substitution industrialization are much more susceptible to external shocks than countries that are committed to some form of export-oriented industrialization (Chapter 5, Appendix 5.1). If the effects of external shocks vary with the type of industrialization strategy followed and the openness of the economy, that variation

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