1980s as a Lost Decade in Terms of Development - Essay Example

Why have the 1980s been described as a ‘lost decade’ in terms of development? Introduction Internationally, from the beginning of 1960s during the post-war reconstruction, social development was on top of the agenda along with economic agenda for most countries. The state, in particular, shouldered much of the criticism along with state officials, as well as welfare professionals as the cost of industrial changes and debt crisis took centre stage. The growing economic stresses of the 1970s, and 1980s necessitated a move away from the Keynesian perspective as the new perspective pursued to minimize the role and effectiveness of government policy. In light of the halt in third world economic growth immediately after the beginning of the debt crisis, especially in Latin America, almost everyone agreed that the tag “lost decade of development” describing the 1980s was accurate (Santiso 2003, p. 297). Historical Overview The end of the 2nd World War can be regarded as having a hand in starting of a distinct form of world conflict-the cold war. The two superpowers (the U.S. and USSR) became hyper-suspicious of each other’s motives, creating a hostility that lasted till late 1980s. Truman’s Point Four Program addressed the foreign policy of the country and established a modern era for engagement in international politics. One of the outstanding themes in the four point plan was to help more nations in post World War II and assist the countries restore their economies, besides protecting them from communist control (Santiso 2003, p. 297). The Keynesian approach details economic growth, requiring government guidance and activist policies that circumvent the cyclical instabilities, which plagued the pre-war economies. The present international institutions (the UN, IMF, and World Bank) remain strongly rooted in a definite historic era shaped by emerging Keynesian consensus and embody an attempt to institutionalize this policy framework at an international platform. Development schools of thought incorporated during the post-war era include modernization theories (1950s, early 1960s); dependency theories (late 1960s, early 1970s); world economy view (late 1970s, early 1980s) and basic needs approaches (late 1970s). Other schools include alternative modes of production perspective (1980s) and sustainable livelihood approach. Modernization theory was a strong element in the increasing Third World critique of western ideas and practices on development and reinforced the notion that underdevelopment could be created (through colonialism and/or exploitation) instead of being an outright natural state (Katie 2005, p. 32). Walt Rostow’s Theory From the initial stage in which the conventional society is in a form of zero degree of history, countries have to proceed to stage two (preconditions for take-off) in which they imitate European economic history and manifest growth leading to the development. Stage three (take off) manifested when growth as a multifaceted process grew on itself and became part of the habits and institutional structures of a society (Rostow 1960, p.5). Stage four (drive to maturity) detailed society coming into terms with the requirements of contemporary efficient production measured via GNP. This approach is criticized for overlooking the fact that not all societies value the accumulation of material goods. The other challenge of this theory is the question of whether industrialization creates the entrepreneur or vice versa. The other problem of the theory is that it presents modernization as a form of enhancing people’s choices obscures what has been lost, or options that are absent (Rostow 1960, p.6). The theory is criticized for relying heavily on the special case of Western economies and its inapplicability to the general case of underdeveloped countries. Dependency Theory Proponents of dependency theory argued that the development of new nations required withdrawal from the overbearing structure of exploitation. The advocates of dependency theory asserted that capitalism entangled with finance capital shaped a concentration of wealth and power among transnational corporations. The dependency theory was significant as it highlighted the conditions of differential exchange between countries. The dependence theory is criticized for failing to explain the diversity of development experienced among Third World countries. The growing function of OPEC in the oil crisis in the early 1970s and the economic success of the Asian Tigers, relative to the continuation of severe poverty in Africa, had some implications. Together with the return of military dictatorships in a number of Latin America countries (perceived as a form of political regression), these factors made it apparent that the Third World was highly heterogeneous to be covered with one development theory (Schuurman 2000, p.5). Impasse Theory Since the state played a significant role in development studies, the rise of the globalization debate presented problems and bore considerable influence of development studies. The impasse in development theories prevalent in mid 1980s took on paradigmatic dimensions in the 1990s (Christian 2000, p.23). The notion of impasse in development theories presented a paradigmatic crisis right from the beginning. Within development studies, it was complicated to cut a concise differentiation between theories and paradigms owing to its evident normative orientation (Schuurman 2000, p.9). The paradigms of post World-War 2 development thinking lost their hegemonic status and gave way to global studies (Schuurman 2004, p.3). Bourgeoisie economists refute the notion that crises are intrinsic in the social form of capitalist production since entire economic theory remains grounded on the premise that the capitalist system is self-regulating (Booth 1985, p.761). The Marxist crisis theory of the 1970s was structured in the face of expanding economic crisis of capitalism, and a linked political crisis of social democracy (Mohan 2001, p.49). The uniqueness of the Marxist approach pursued to institute that the crisis witnessed in the 1980s articulated conflicting foundations of the capitalist method of creation and that the declaration of the crisis could not be attained by reform, but only as the result of an intense class struggle (Schuurman 2000, p.10). Third World Countries Debt Crisis In the 1980s, the economic growth of the majority of developing countries plainly stagnated because of worldwide factors such as increase in world interest rates, an increasing debt burden for developing countries, economic growth slowdown within the developed world, and skill-biased technical revolutions. The debt crisis stemmed from petrodollar recycling by commercial banks to developing countries in the 1970s (Majid 1997, p.3). During this period, oil prices skyrocketed whereby oil-exporting countries within the Middle East dumped billions of dollars in earnings drawn from the oil price hike in the U.S. and the European banks (Katie 2005, p.33). Decreased exports coupled with high interest rates experienced in the early 1980s orchestrated debtor countries default on their loans. The frantic lending and borrowing witnessed in the 1970s was eventually brought to a close with the onset of global recession in the early 1980s (Santiso 2003, p.298). The marked drop in debtor countries’ exports coupled with a strong dollar and high global interest rates orchestrated the depletion of foreign exchange reserves of which majority of the debtor countries relied upon to conduct international transactions. As a result, debtor countries started to experience the strain of having to make timely payments on the foreign debt that overtime becoming extremely expensive (Mohan 2001, p.50). With the failing of the Bretton Woods system for fixed exchange rates, some critics point out that the IMF was left devoid of a purpose. Nevertheless, the debt crisis presented a reason for IMF, along with World Bank, existence in which the two institutions required debtor countries to institute market-based reforms in exchange for financial assistance (Santiso 2003, p.299). The principal players in resolving the crisis (the IMF and the World Bank) can be regarded to have averted the collapse of the international financial system in adopting a case-by-case debt restructuring negotiations in which commercial banks granted new loans to debtor countries, besides stretching out external debt payments (Katie 2005, p.34). Developing Countries Reaction to the Debt Crisis After a number of years of repeated debt restructuring deals, the developing countries started to manifest “debt fatigue” whereby fresh loans to Third World Countries plunged as creditors explored the potential that debtor countries were facing insolvency instead of a temporary drop in their capability to pay back the foreign debt (Santiso 2003, p.299). The Baker Plan attempted to ease the debt fatigue by renewing growth within the fifteen most indebted countries via $29billion in fresh lending by commercial banks, and multilateral institutions in return for significant economic restructuring (privatization and economy deregulation). The proposed strategy failed since the projected financing did not materialize as the new lending merely added to debtor countries already bearing crushing debt. In light of the perceived intractable problem, governments, academics, and private entities started to agitate for plans that would avail debtor countries with debt relief instead of the painful debt restructuring (Santiso 2003, p.300). In light of these developments, several debtor countries suspended debt payments and fell behind in compliance with the contentious IMF adjustment programs. The Bretton Woods institutions such as the World Bank started “adjustment lending” in 1980, which encompassed lending conditional on implementing the new consensus on economic policies. Similarly, the IMF increased its portfolio of conditional lending at around the same period. In fact, the two institutions instituted close to 958 adjustment loans to developing countries in the period ranging from 1980-98 (Santiso 2003, p.297). However, despite the efforts and the policy improvements, the developing countries registered poor growth with the real economic performance of countries that had recently implemented Washington Consensus policies being distinctly unsatisfactory. The developing countries’ economic growth should have increased at this period rather than decreasing as outlined by the standard growth regression determinants of growth. However, the economic growth in the developing countries plainly stagnated, which appears to embody a disappointing result to progress towards the “Washington Consensus” by the developing countries. The development consensus moved away from state planning towards markets, shifting away from state planning to market planning, away from import substitution towards an outwards direction, away from state controls for prices and interest rates. The speedily escalating environmental problems of contemporary society emanated from a common characteristic that they all had a global nature such as global warming and ozone layer depletion. Undoubtedly, many of the local problems initially perceived to be of purely local concerns bear a global dimension (Santiso 2003, p.298). THE END of the STATE The economic stagnation witnessed in the 1980s coupled with growing turbulence and unmet expectations heralded a growing dissatisfaction with the neo-liberal market model and the functioning of democracy. The period exposed inherent flaws of governance and exposed the fault lines of democracy within LDCs such as in Latin America and the Caribbean (Santiso 2003, p.299). The global political system has witnessed significant surge in numbers and consequence of non-state entities. The growth of interdependence and communication between societies has heralded fresh organizational structures operating at both local and global levels. The rise in the transnational organized non-state actors and their deepening engagement within the world politics has challenged the position and role of the state (Tanzi 2001, p.34). The third common characteristics exhibited by post-war development thinking placed the role of the state at the centre of development theories in late 1980s, with postmodernism enjoying a next to hegemonic popularity owing to the rise of globalization. The importance of the state was visible in modernization theories and dependency theories, as well as world-system theories. Globalization heralded a new historical period manifested by decreased economic, political, and cultural significance of states (Helleiner 1999, p.138). Thus, the central role of the state was perceived as hollowed out from both above and below. The nation state was hollowed out from below by the rising phenomenon of local government that embodied a depiction of what good governance is about (Schuurman 2000, p.8). In economic terms, the state was fast disappearing as an economic actor due to privatization that remained supported by deregulation. There was also rising significance of global financial markets. Culturally, the notion of national identity as the fundamental element in identity formation for persons or groups was fast losing colour. The cultural erosion of identity paved way for cosmopolitanism on one hand, and/or the fortification of ethnic, regional, and religious identities on the other (Jones 2004, p.385). In the 1980s, development pessimism had taken root owing to the realization of a growing disparity between the rich and the poor. In places where economic growth had occurred, it was evident of catastrophic impact on the environment and the curtailment of socialist-inspired development trajectories. This heralded the emergence of anti-modernist (non-development thinking) that relegated progress and development to the dustbin (Harrison 1988, p.6). The western concept of development remained perceived as being the source of environmental pollution since it translates into industrialization. The concept of western development was also seen as severing indigenous people from their cultural roots and exposing them to become vulnerable of victims to a global, exploitative capitalism (Helleiner 1998, p.387). The speedily escalating environmental problems of contemporary society emanated from a common characteristic that they all had a global nature such as global warming and ozone layer depletion. Undoubtedly, many of the local problems initially perceived to be of purely local concerns bear a global dimension. Globalization Globalization is frequently exclusively associated with global economic integration and the materialization of borderless global market. However, globalization also incorporates sweeping changes based on the social, cultural, and political terrains, besides entailing evident contradictory processes. These contradictory processes include homogenization and universalization on one hand and localization and differentiation, on the other hand (Keil 1998, p.616). However, beyond the diversity, globalization processes appear to be significantly been fuelled by “global agents” whose practices can be regarded as largely shaped by the modes of beliefs, representations, and values of “developed” western countries. The advanced agendas prominent in the globalization process are sometimes regarded as alternatives to those of mainstream agencies. Globalization has led to the creation of a local state representing a complex creature of state and civil society (Helleiner 1998, p.388). Globalization has been argued to hollow out the state and contributed to the replacement of state by non-state institutions within the market or civil society (Keil 1998, p.617). Indeed, globalization leads to the creation of new states and new forms of governance at diverse levels such as urban level. Globalization makes states in diverse ways such as hollowing out national state as the fundamental functions continue to exist nominally, besides limitation of sovereign capacities and state power (Kiely 1995, p.8). While democracy, as a political regime, had gained root in developing countries, its quality and resilience remain intimidated by the gradual erosion of governance and the deteriorating confidence in the rule of law. This remained compounded by the complex interactions between economics and politics with tensions rising between economic reform and political democratization in the era of neo-liberalism (Parfitt 2002, p.5). Conclusion The period from mid 1970s to late 1980s was a period full of uncertainty and change but in diverse proportions. Although the oil crisis witnessed in the first quarter of the 1970s was not entirely to blame, the crisis signified the onset of increasing international economic pressures. The mounting economic concerns regarding profitability led to governments and international agencies manifesting alternative strategies that started to shift the balance between sectors. This created disillusionment with state-led development projects accompanied by increasing calls for decreasing states influence to pave the way for the private sector. The influence of financial deregulation rendered regulation and protection from the state more difficult and led to an increasing hegemony of the financial commodities within the economic structure, eventually making nation/state economic policies limited and sometimes ineffective (Eroglu 2010, p.90). The proposed market reform remained significantly constrained by institutional factors emanating from wasteful, defective, and unaccountable state institutions. References List Booth, D. (1985). Marxism and Development Sociology: Interpreting the Impasse, World Development 13 (7). pp. 761-787. Christian, C. (2000). 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Theories and Practices of Development, New York, Routledge. pp.32-35. Keil, R. (1998). Globalization makes states: Perspectives of local governance in the age of the world city, Review of International Political Economy 5 (4). pp.616-646. Mohan, G. (2001). Participatory development. In: Desai, Vandana and Potter, Rob eds. The Arnold companion to development studies, London, UK, Hodder, pp. 49-54. Majid, R. (1997). The post development reader, New York, Zed Books. pp.3-5. Parfitt, T. (2002). The End of Development? Modernity, Post modernity and Development. Pluto Press: London. pp.5. Rostow, W. W. (1960). The Stages of Economic Growth: A Non-Communist Manifesto, Cambridge, Cambridge University Press. pp. 4-16. Schuurman, F. (2004) Beyond the Impasse: New Direction in Development Theory, London, Zed Books. p.5. Schuurman, F. (2000) ‘Paradigms Lost, Paradigms Regained? Development Studies in the Twenty-First Century’, Third World Quarterly 21(1). pp. 7-20 Santiso, C. (2003). Another lost decade? The future of reform in Latin America, Public Administration and Development 23 (1).pp. 297-305. Tanzi, V. (2001). Globalization and the Work of Fiscal Termites, Finance and Development 38 (1). pp. 34-39. Read More