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Structural adjustment is the term used by the IMF to describe the loan conditions it imposes on indebted countries. These conditions include not only trade liberalization, but also deregulation of industry and privatization of state-owned industries and services. Such conditions prevent governments from managing basic services such as health, education or water. Dr Khor argues that governments should be able to manage these basic services if they so choose. They should also be able to control key aspects of their own trade policy. Governments must be entitled to protect the livelihoods of small producers and manufacturers by placing tariffs on unfairly subsidized imports – many of which come from Europe or America. Failure to do so generates poverty and joblessness, and further exacerbates the “de-industrialization” already underway in much of the developing world.
- Structural Adjustment Explained
- Running time
- 5m 35s
- London, UK, July 15, 2005
- Marcus Morrell
- About Martin Khor
- Director, Third World Network
Martin Khor is the Director of the Third World Network (TWN) and editor of its monthly publication Third World Resurgence. He has led TWN since its inception in 1984, advocating on behalf of citizen groups throughout the developing world on a wide number of development issues. These include environmental sustainability, the protection of human rights and the impact of corporate-led globalization. A former economist and university lecturer, he is also an advisor and consultant to a number of United Nations agencies and other important international bodies. Dr Khor is author of several books on WTO reform, international trade and the global economy.
The structural adjustment I think really took off with the ideology of Margaret Thatcher, and she persuaded her good friend, Ronald Reagan, to come along. And I think these were the policies that she tried to institute also in Britain and so on. And, of course, to aid these policies are now seen to be very limited in use, they may have had some usefulness and we have moved on from there. But in structural adjustment the policies have not only continued but expanded, policies such as withdrawal of the state from the economy through privatization and deregulation.
It is true that in many activities the state has not been good, and should actually reduce its role, but you should not throw out the whole baby with the bath water. At least the state should be able to have management and even ownership over public services such as schools and hospitals, water supply and so on, and to be able to ensure access of ordinary people to these services. The state should also regulate when private companies are doing business, whether foreign companies or local companies. The state should be able to give subsidies for the poor, the state should be able to control trade policy in which if the farmers require some protection, some tariff protection, in order to survive, they should get the tariff protection, especially to be protected against artificially cheap imports that are heavily subsidized, coming from Europe. There are many farmers in Ghana, for example, whose livelihoods in tomato cultivation have been destroyed by the cheap importation of tomato paste, especially from Europe. And there are many poultry farmers in Africa, in the Caribbean, in Asia whose livelihoods have been destroyed by the imports of cheap chicken parts coming from Europe and the United States. And this is just not fair because these products are very heavily subsidized and that is why they are cheap. There are also many farmers who could be exporting cotton, for example, because they are very efficient in cotton farming, but whose opportunities are blocked because of subsidized cotton from elsewhere. And why is it that these countries are not able to raise their tariff in order to protect themselves? Because the IMF and the World Bank says that you cannot do so, and that is part of the loan conditionality attached to their being able to reschedule their debts. The WTO unfortunately is also being pressurized by the developed countries to institute similar policies for the developing countries.
There is now a move in the WTO negotiations to get the developing countries to accept the reduction of their bound tariffs to very low rates through a formula that will apply to all products. If this goes through then the de-industrialization process taking place already in many countries will be extended to other countries, and de-industrialization will deepen in many African, Caribbean, Latin American and some Asian countries. This is extremely unfortunate because we do need local industries to be able to provide jobs. And also, even as protection continues in the rich countries in agriculture where the subsidies continue, especially domestic subsidies, you may see the shift of one kind of subsidy to another kind, but the overall subsidy and the overall outcome remains the same. There will be continued dumping of artificially cheap or prices or products at artificially cheap prices to the developing countries. And at the same time there is a proposal to cut the tariff of food products in developing countries, even more steeply than they did during the Uruguay Round. This is simply unfair and will ruin many of the small farmers in the developing countries.
So we are now at this crossroads, on one hand we have political leaders who proclaim the need for peace and security, the need for aid and development. We have the NGOs, especially in the north, fighting for trade justice and for increase in debt forgiveness or debt cancellation and increase in aid. But on the other hand the trade policies being advocated by the trade negotiators of the OECD countries, their strategy is astonishingly aggressive against the developing countries to force their markets open for the European and American companies to come in and take over their markets. This is very short sighted because this will damage or even destroy local economies, rendering the state unable to provide stability of jobs to its people. And what kind of world are we going to have in the Third World? We are generating immensely future poverty and joblessness, even as we talk about increasing aid to them through the charity mechanism. It is simply not coherent, it is contradictory and it is extremely short sighted which will lead to even more instability in our world.
— Martin Khor