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This article is from the November/December 2012 issue of Dollars & Sense magazine.

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Structural Adjustment, Here and There

By Arthur MacEwan | November/December 2012

Dear Dr. Dollar:

What are the similarities and differences between structural adjustment in the rest of the world/Third World and structural adjustment in the United States?

—Vicki Legion, San Francisco, Calif.

The similarities are pretty clear. The differences? Not so great.

The term “structural adjustment” came into vogue in the 1980s with the debt crises in many low- and middle-income countries, especially in Latin America. The situation presented two related problems. On the one hand, many countries, devoting large amounts of their resources to paying their debts to globally operating banks, saw their economies spin downward. On the other hand, the banks, most of them based in the United States and western Europe, were on the verge of not getting paid. Horrors!

So in stepped the World Bank and the International Monetary Fund (IMF). They told the governments of the debtor counties, in effect: “We’ll loan you money to help meet your debts on the condition that you adjust the structure of your economies in ways that we say will get you on a path to economic recovery. Oh, and by the way, the banks must get paid.”

Structural adjustment, then, was the particular set of policies that the World Bank and IMF claimed would solve the debtor countries’ problems. In a nutshell, these policies required governments to:

  • Cut their spending to reduce the budget deficit.
  • Restrict the growth of the money supply, curtailing inflation but also bringing higher unemployment.
  • Reduce restrictions on foreign investment and imports, providing freer access to multinational firms.
  • Sell off government enterprises—i.e., privatize.
  • “Rationalize” labor markets—i.e., get rid of protections for workers.
  • Cut regulations on business—e.g., environmental regulation.

The slogan supporting all of this was: Reduce the role of the government! In reality, these policies do not so much reduce the role of the government as they shift the government towards supporting business and the well-being of the elites at the expense of lower-income groups.

Familiar? Of course. In the United States, the term “structural adjustment” isn’t used, but this is the same set of policies that elite groups here have pushed over the past several decades—and are pushing today as the solution to the country’s economic malaise.

Cut the deficit, that’s first on the list. And the U.S. government has long taken the lead in establishing agreements that open up the economy to unfettered global trade and investment. The privatization of U.S. education, health care, prisons, and even many aspects of the military has been well underway for years. Hold the line on the minimum wage, and, for god’s sake, get rid of the Environmental Protection Agency.

It’s not quite that simple of course. In the current U.S. situation, the Federal Reserve has not fully followed the structural adjustment script. (It has taken steps to bring down unemployment that “inflation hawks” opposed.) And for some of the other policies, the process has not been smooth. There is resistance here and there—for example, the Chicago teachers’ strike may slow the process of privatizing education in that city, some gains have been made on the minimum wage, and popular concerns about the environment have held back the destruction of environmental regulations. But the drumbeat for structural adjustment in the United States, for leaving things to the market, has not stopped.

In many other countries, structural adjustment has moved more rapidly, partly because of pressure from the Bank and IMF. But don’t believe that they imposed these policies without support from elite groups within those countries. The elites were the beneficiaries of many structural adjustment policies. For example, with the privatization of government enterprises, they were able to take control of government assets at fire-sale prices. And “rationalizing” the labor market pushed down wages and shifted the distribution of income and power in favor of business owners. All the while, they could point their fingers at the IMF and the Bank, and say, “They made us do it.”

U.S. elites have not had such a convenient scapegoat, and they have not been able to move ahead so rapidly—though the severe crisis of recent years and the slow recovery present a fine opportunity for more structural adjustment at home. In resisting structural adjustment, people in the United States can learn from what happened during earlier rounds of structural adjustment elsewhere. Destruction of the environment in the Philippines. Devastation of the livelihoods of small farmers in Mexico. Rising inequality in many countries. And, by and large, sluggish economic growth in most structurally adjusted countries.

There have been many popular responses and some popular victories. In Bolivia in 2000, for example, a popular movement reversed the privatization of the water supply, which had been put in the hands of a multinational resource firm. In Ecuador, an indigenous peoples’ movement emerged, opposing the depredation of the environment by oil companies and the government’s imposition of austerity in 1999 and 2000 (at the behest of the IMF). In Mexico, structural adjustment (along with long-standing grievances) inspired the 1994 Zapatista uprising. Indeed, in many countries ofLatin America, the debacles generated by structural adjustment in the 1980s have led to the election of progressive governments.

Good lessons for resistance right here at home.

Arthur Macewan is a professor emeritus at the University of Massachusetts-Boston and a Dollars & Sense Associate.

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