The Globalization of Inequality by Bourguignon François; Scott-Railton Thomas; Scott-Railton Thomas

Author:Bourguignon, François; Scott-Railton, Thomas; Scott-Railton, Thomas
Language: eng
Format: epub
Publisher: Princeton University Press
Published: 2015-12-09T16:00:00+00:00

Emerging Economies and Structural Adjustment

The preceding discussion focuses on developed countries. But emerging and developing economies have also undergone important reforms to their economic institutions, which were often imposed from the outside, notably in the context of the “structural adjustment” policies required by international financial institutions (the IMF and the World Bank) in the aftermath of the debt crisis of the 1980s. These structural adjustment policies have often been criticized for their social costs, partly because they slowed growth and thus the reduction of poverty dramatically, and partly because they placed more of the brunt of the costs of these programs on the lower and middle classes, rather than on the high end of the income scale.23

The debt crisis began in Latin America, specifically in Mexico in 1982, and for a decade and a half it would have harsh consequences for the developing world, in particular in sub-Saharan Africa and Latin America. The structural adjustment programs that the international financial institutions demanded in exchange for aid were grounded on a package of free market principles that were later baptized the “Washington consensus.” They resulted in deep institutional changes: commercial and financial liberalization, deregulation of goods, capital and labor markets, privatization, the elimination of consumer and producer subsidies, cuts in social spending, and so forth. As we have seen, many of these reforms almost certainly had inegalitarian effects, and, in fact, between the 1980s and 1990s we can see a substantial rise in inequalities in the countries affected most directly by these programs: Argentina, Mexico, Peru, Ecuador, and even Brazil. But it would be an error to attribute this entirely to the structural adjustment programs.

Latin America was in a difficult economic situation, one in need of radical reform. It is likely that inequality would have worsened no matter what these reforms were. In several cases, inequality had already begun to increase at the first signs of the crisis, when the rich began transferring their assets overseas to avoid the fallout. The example of the 2001 crisis in Argentina is instructive in this regard. Having turned down IMF intervention and decided to default on its debt, Argentina handled its crisis completely autonomously. After three years that were especially hard on the population, growth returned and remained at high levels. However, inequality had shot up in the adjustment process. The Gini coefficient, which was 0.50 in 1999, had risen to 0.54 in 2003 at the moment when the crisis was on the verge of turning back. It has since gone back down.

While this is true, there is little doubt that several structural reforms typical of the Washington consensus, in contrast to policies focused more directly on reestablishing macroeconomic equilibrium, such as those used by the Argentine government in response to the 2001 crisis (devaluation, disinflation, budgetary tightening), have had an inegalitarian effect on certain countries. This is certainly the case for policies like the elimination of input and output price subsidies for small farmers, the abandoning of consumer price subsidies, the rise in

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