Mexico from bust to boom: A political evaluation of the 1976–1979 stabilization programme

This paper evaluates Mexico's recent experience of economic stabilization policies (under the the 3-yr Extended Fund Facility arranged with the IMF in September 1976) from a comparative politics standpoint. By comparison with various South American experiences of inflation and stabilization that were discussed in the same Wilson Centre workshop, Mexico's short-term performance must be rated quite favourably. This was not a case in which Fund orthodoxy prevailed at every point, nor was the Fund analysis accepted without qualification by Mexico's policy-markers. At the end of the period, economic disequilibria, as measured by IMF criteria, remained considerably larger than the 3-yr plan had envisaged, but ‘confidence’ had been restored and rapid growth was in prospect. The interpretation offered in the paper is that Mexico's cyclical pattern of presidential politics largely determined the effective contents of the stabilization package, and that the resilience of the Mexican system of political management goes far to explain why the economic outcome was more favourable than in the South American cases. An accident of geological endowment (the nation's huge oil resources) certainly accentuated the process of recovery from ‘bust’ to ‘boom’, but this factor did not operate in isolation, and should not be considered an adequate explanation on its own. The impact of a geological endowment upon economic conditions depends upon political mediation. However, although this paper seeks to highlight the contribution of Mexican political management to the recent short-term economic improvement, it concludes with some qualifications. The final section considers some constraints on the scope and efficacy of Mexican ‘reformism’, particularly in relation to longer-term and more structural problems.     

The economic transformation of Spain: Systemic change and accelerated growth, 1959–73

Spain's economic policy-makers have been eminently successful in transforming a less developed, inward-oriented corporate state into a more developed market economy. The profound power shift from the Falange to the new ‘Europeanist’ technocrats signified Spain's emergence into a post-ideological era in which, for an interval, from 1960 to 1973, economics held primacy over politics. During this period Spain achieved the second highest GNP growth rate after Japan among the 24 OECD member nations. This phenomenal performance was associated with the international transfer of technology and advanced managerial methods, greater competition in the product and resource markets, and the renewal and modernization of the nation's capital stock.     

Stabilization: The political economy of overkill

This paper considers whether national and international aspects of the IMF's stabilization programmes during the 1970s and early 1980s have resulted in a process of ‘overkill’ — or, in other words, a process of economic retrenchment which went much further than was strictly necessary in terms of what could have been regarded as reasonable objectives. In the international context, the author describes how the attack on inflation has become an end in itself, at the expense of other stated objectives of the IMF, thus creating a distortion of its priorities. The paper discusses errors of diagnosis which have led to this disorientation and explains why deflationary policies should not be regarded as a panacea. The paper then considers the nead for equity and efficiency in the distribution of the political and economic costs of adjustment.The next section of this paper discusses the assumptions underlying the IMF's treatment of Fund members and to what extent ‘even-handedness’ in the application of stabilization measures may result in inequality of burden-sharing among borrowers. Problems related to monetarist theories and the consequent policies are examined, followed by a consideration of the dangers involved in devising ‘straightforward’ performance criteria in the form of precise monetary targets that can readily be monitored by the IMF. This means of evaluating the national adjustment policies' success is seen to be unsatisfactory, viz. the frequency of stand-by arrangement breakdowns and mistakes in forecasting.The paper concludes that the concept of unilateral adjustment is not an acceptable basis for IMF supervision of the international monetary system. In addition, care should be taken to avoid overkill in determining the degree and character of adjustment needed in stabilization programmes. One possible solution to the extra burden imposed on the LDCs might be a liberalization of the compensatory financing facility with the objective of applying the same kind of regime to imports as to exports.     

Some aspects of the impact of inflation on the debt burden of developing countries

The effect of inflation on the external indebtedness of developing countries is examined in this UNCTAD paper in a more comprehensive framework than is usually the case. The conventional view on this has been that international inflation reduces the ‘real’ burden of external debt. However, viewed in the context of the net effect of inflation on the import capacity of debtor developing countries, the paper shows that the situation is by no means so simple. It demonstrates by examining the cases of a sample of 71 developing countries that the effect of price increases of developing countries' imports (relative to price increases for their exports) caused by international inflation can and often has more than offset the so-called favourable effect on the burden of debt. For example in 1975, a year with particularly high inflation, no less than 75% in the sample experienced negative consequences. In these cases, therefore, international inflation on balance has reduced import capacity and thus made it more not less difficult for them to maintain servicing on their external debt and so increased the ‘real’ burden of their debt. Thus the UNCTAD paper brings into serious question the conventional wisdom on this important issue.     

Microeconomic adjustments in Chile during 1977–1981: The importance of being a grupo

This paper uses the financial statements of industrial firms to provide an integrated firm level view of the changes in the Chilean economy during 1977–1981. Both real side and financial shocks had major effects on the performance of some types of firms. Exportable goods producers did relatively poorly in ‘real’ activities, for reasons probably tied to Chile's real prolonged exchange rate appreciation. Import-competing firms that began the period with high protection did even worse, apparently reflecting the larger change in their output prices as protection was dismantled. The reforms thus shifted demand away from industries least in line with the country's comparative advantage, but they also hurt exportables — the very sector authorities intended to promote.On the financial side, the highly positive real cost of peso borrowing reduced industrial profits considerably. A handful of powerful conglomerates (grupos) generated large (but presumably unrealized) capital gains by investing in the securities of related enterprises. Such activities allowed them to offset relatively poor returns on real operations; and their ownership of the country's major banks allowed them to consolidate control of a large volume of assets with debt finance. These two results explain why the grupos were suddenly in considerable financial difficulty when the Chilean boom ended in 1982.     

American agricultural assistance and the new international economic order

Combining ethical, political and economic elements, this paper studies the relationship between American food aid and agricultural assistance and the evolution of demands made by developing countries for a new international economic order. The ethical viewpoint is based on John Rawls' theory of ‘distributive justice’ and argues that the ‘Right to Food Resolution’ does not meet the developing countries' calls for redistribution. After analysing the political and economic differences in outlook of the developed and developing countries, it is concluded that the conduct of American agricultural assistance policies towards the developing countries has failed to appreciate the needs expressed in their demands for a new order.     

Socially weighted real income comparisons: An application to India

In an article in 1976, Amartya Sen develops a general theoretical framework for comparing real consumption over time and across countries that dispenses, in the words of Graaff, ‘with the time-honoured device of drawing a distinction between the size and distribution of the national income’. After developing a general theoretical framework taking distribution as an integral part of real income comparison, Sen applies it to a comparison of rural real consumption per head in Indian states in 1961–1962. In the present paper we show that the application of clustering techniques to Sen's data on Indian states provides an alternative way to partially order observations by real consumption per head within the framework of Sen's approach to distribution-inclusive measurement of real consumption. This alternative way has some desirable empirical characteristics. Second, we explore with factor analysis whether this alternative method yields sensible empirical interrelationships with other characteristics with which a priori reasoning and knowledge suggest it ought to be correlated. The results suggest that the cluster analysis applied within Sen's theoretical framework provides a valid way of comparing consumption levels.     

The objectives of development

As the author was one of the early writers stressing the well-being of the mass of the people and treating growth as a means rather than an end, the Editor asked him to describe the circumstances and add his present thoughts on the subject. The early part of the paper describes the evolution of the author's thinking on the objectives of development up to the publication of Accelerating Development (1966), and the Colombian Plan of the Four Strategies (1971).The latter part seeks to define objectives, pointing out that concern with poverty does not necessarily imply a direct attack on poverty.Further overriding objectives include the lessening of the ‘deprivation effect’ by reducing the gap in international consumption levels, and better control over the environment in its many aspects, primarily to ensure survival and ultimately to promote well-being.     

Marxism and development sociology: Interpreting the impasse

There is an increasing sense that the ‘new’ Marxist-influenced development sociology which emerged in the early 1970s has reached some kind of impasse. This paper suggests that there are good reasons for this sense of unease; that the weaknesses and lacunae in current sociological development research cannot be attributed entirely to the influence of any particular radical perspective (e.g. dependency theory); and that understanding the impasse requires standing back from the theoretical controversies of the past decade and a half to examine some underlying commonalities of approach. A key problem, it is argued, is Marxism's metatheoretical commitment to demonstrating the ‘necessity’ of economic and social patterns, as distinct from explaining them and exploring how they may be changed.     

The ten commandments of renewable energy analysis

This paper presents a series of 10 analytical ‘Commandments’ intended to guide the global community of planners and energy professionals in their search for new sources of renewable energy, especially for the poor. Although technically speaking, there are numerous new energy systems which could be applied to the daily tasks of the poor, the author's emphasis is on finding new systems which must fit socially and economically as well as technically if they are to do more good than harm. Thus, the search for new systems of renewable energy must be ‘reality-led’ rather than ‘technology-driven’.     

Development as liberation: Policy lessons from case studies

Four case studies are summarized in which oppressed people have successfully assumed control over their own destinies and development strategies. Lessons from experience are drawn, at the national and macro-economic level, from Guinea-Bissau where the popular liberation movement has grown into the national government without losing close contact with its constituency; from the Sarvodaya movement in Sri Lanka which has started as a modest development organization of poor people, based on indigenous social and cultural values, and which has grown into a popular movement of 1 million people (of 14 million total population) in some 2000 villages; from the SEWA (Self-Employed Women's Association) in Ahmedabad, India, where oppressed street vendors, artisans, junksmiths and garment-makers have founded their own bank (which now has 1000 shareholders and 10,000 depositors) to circumvent usurious lending practices and to gain access to capital at their own terms; and from a Quechua community in central Bolivia where handicrafts producers' cooperatives have successfully maintained self-reliance and cultural identity through conscious choice of appropriate technology at their own terms. Lessons on development as a form of liberation are drawn from the social praxis of each of these examples.     

China's economic system reform: Underlying factors and prospects

Three important determinants of economic growth in the Chinese context are: the motivation of economic units, the absorption of foreign technology and its diffusion and agricultural productivity. The Stalin model of the 1950s served China well, especially when sustained by ‘Chinese sub-models’ such as ties of trust with rural brigades, workers' innovation etc. After that investment effectiveness declined, and today the structural changes necessary point to the need to alter existing institutions which have become obsolete. In agriculture, the use of cash inputs is more common now and a sense of economic efficiency is increasingly required. Care should be taken in comparing China with East European countries given that China's per capita gross domestic product is much lower as is the percentage of agricultural output reaching the market. The comprehensiveness of the economic reform likely in China means that it will only be possible to judge it over a time horizon longer than five years. For such economic reforms to be wholly successful, they need to continue to incorporate Chinese ‘sub-models’ mentioned in the paper and must develop a network of supplying industries and inter-dependent factories.     

Basic needs: The case of Sri Lanka

This article has two related objectives: to judge Sri Lanka's success in meeting its ‘basic needs’ and growth objectives, and to use Sri Lanka's experience to cast light on general hypotheses regarding basic needs. The analysis suggests that Sri Lanka's social expenditures had a substantial cost in growth and unemployment. However, largely because of these social programmes, it has the best social indicators, compared to its income, of any country for which data are available. Its growth has, surprisingly, been above average for low-income countries. Implications for basic-needs programmes include the need to ‘target’ social programmes, the high priority of primary education and the potential high impact, but also high costs, of assuring minimum caloric intakes.     

The Southern African customs union: A reappraisal

The paper attempts to evaluate, as far as possible quantitatively, the costs and benefits to the countries of the ‘Southern African periphery’ (Botswana, Lesotho and Swaziland) of participation with South Africa in the current customs union agreement. On balancing the agreement's measurable effects (on industrial development, exports, government revenue and the cost of living) against one another, it appears that on sanguine assumptions only, there would be a substantial benefit to Botswana and a much more moderate benefit to Lesotho if the customs union were dismantled and replaced by separately protected national markets. Such a calculation, however, neglects what may be the most important benefit and cost to the ‘peripheral’ countries of leaving the customs union, namely the increase of ‘economic independence’ and the risk of South African retaliation respectively: themes which are explored in the final section.     

Costs and benefits of a modest proposal

The principles of Social Cost-Benefit Analysis (SCBA) are used to evaluate Jonathan Swift's Modest Proposal. This was a suggestion for solving the problems of poverty and unemployment in eighteenth-century Ireland by selling the ‘surplus’ babies of the poor to supply the tables of the rich. On the evidence supplied by Swift and on fairly conservative assumptions, the project would appear to have a very high rate of return. This conclusion is, however, very sensitive to the relevant rates of interest and costs of construction. Some possible criticisms—in particular of the method of valuing human life — are rebutted.     

Manpower and educational shortages in the Arab world: An interim strategy

This paper sets out the problems faced by the Arab countries in trying to meet their pressing demands for skilled manpower. The first part of the paper, therefore, describes the inadequacies in the existing educational infrastructure, e.g. inadequacies in quantity, quality, content and distribution of education as well as the ‘brain drain’. This discussion lays the groundwork for the author's interim strategy for reducing shortages of crucial skills by: (i) drawing on the skills, education and know-how of currently employed expatriates to teach on-site training courses, (ii) enticing skilled Arab emigrants to return to their home countries to teach university, technical or extension courses, and (iii) ‘bonding’ of recent graduates for service in underprivileged areas.     

Guaranteeing employment to the rural poor: Social functions and class interests in the employment guarantee scheme in Western India

Numerous observers rightly term the landless rural population the ‘most intractable development problem’ in poor societies. Given the extraordinary political and administrative obstacles to redistrubution of rural assets in India (the widely-recognized failture land reforms), attention and finances have recently been focused on public rural employment programmes to alleviate rural distribution. Within India, the State of Maharashtra, with a size and population of a large European nation, has instituted a striking departure from traditional rural works programmes: a guarantee of employment to rural adults on demand. The Employment Guarantee Scheme in one state has since become a significant policy model, and the experience in that state provides something like a laboratory for its analysis. Based on analysis of previous studies and original field work in rural Maharashtra, the article argues that the scheme is something of a rare bird: a programme which seems to be in the objective and subjective interests of the rural poor, as well as consistent with the interests of the rural landed elite, despite their early political objections. The fiscal structure of the scheme is a direct contradiction of Lipton's (1977) model of ‘urban bias’ in Third World development strategies; the Employment Guarantee Scheme is rather more a manifestation of ‘kulak power’. Though promulgated as an alternative to policies entailing redistribution of rural assets, and clearly superior to doing nothing about rural distribution, the scheme is inferior to genuine redistribution in terms of altering the rural political economy. The functions, if not the motivations, of the scheme are profoundly conservative in a structural sense, politically and economically; the philosophical underpinnings, and perhaps, potentially, the consequences for mobilization of the rural poor, are quite the opposite.     

The origins of structuralism

Starting out from I. M. D. Little's recent categorization of development economics as ‘neo-classical versus structuralist’, this article makes three points. First, it traces the origins of structuralism in this broad sense in the emergence of the doctrine of market failure in England during the 1930s and 1940s. Secondly, it indicates the links between this line of thought and the Latin American structuralist theory of inflation. Finally, it takes up W. A. Lewis's suggestion that the severity of the inflation problem in Chile was due not so much to structural factors which it had in common with much less inflation-prone LDCs but rather to the strength of organized interest groups making competing income claims.     

TNC takeovers in Brazil: The uneven distribution of benefits in the market for firms

Control of the future stream of earnings is perhaps the most valuable component of returns to a transnational investment. As with other components, controlis subject to bargaining between TNCs and host governments. This paper argues that by leaving acquisitions (that is, the ‘market for firms’) unregulated, Brazil has inadvertantly surrendered some of its bargaining power to TNCs. The paper's first section uses cases to show how the market for firms in the electrical industry favours TNCs, particularly because of their market power in technology and finance markets. A second section analyses the overall effects of TNCs' acquisitions on market structure and ownership changes, and finds that takeovers by TNCs raise both the level of industrial concentration and denotionalization. Foreign control of the electrical industry rose from 66% in 1960 to 77% in 1974, almost all attribute to TNCs' acquisition policies. It is argued that Brazil could substantially raise its gains from TNC investments by instituting a merger review and prohibiting non-socially beneficial takeovers.     

The political economy of income distribution in South Korea: The impact of the state's industrialization policies

A number of previous studies of economic growth and income distribution in South Korea, based largely on 1960s data, concluded that South Korea was an exception to Kuznets' ‘inverse U-pattern’ of income inequality. Also, it was regarded as an exception to the usual negative consequences predicted by dependency theory for an economy so dependent on foreign capital and world markets. This author presents more recent data — for the 1970s and early 1980s — in order to support his claim that the trend toward income equality that appeared in the 1960s was reversed in the 1970s. The author develops a thesis that stresses the role of the state in shaping the Korean political economy. He argues that it has been the strong South Korean developmentalist state in firm control of both domestic and foreign capital and its export-oriented industrialization policies that have been the principal determinant of the pattern of income distribution. He contests the usual explanation related to the level of economic development or external dependency per se.