This article has been written in response to popular demand. The mid-1970s marked the end of the global economic golden age since the end of World War II which was dominated by state intervention primarily to reduce unemployment and maintain a reasonable level of inflation. The government raised enough revenue to cover welfare expenses.
From the mid-1970s the global economy experienced slow growth, high unemployment and rising inflation (stagflation). The oil crises of 1973/4 and 1979 made matters worse leading to a recession in the early 1980s. Instead of applying fiscal and monetary policies such as raising taxes or cutting expenditure which are politically sensitive, governments resorted to borrowing made easy by abundant petro-dollars at low but flexible interest rates or simply printed more money causing high inflation and external debts.
By early 1980s many countries had accumulated so much debt that they could not service. Private lenders pulled back and demanded repayment of the debts. In order to control inflation, interest rates were raised making it even more difficult to borrow on the international markets. Third World countries resorted to borrowing from the International Monetary Fund (IMF) and the World Bank to repay the debts. IMF and the Bank would provide assistance with conditions attached designed to address domestic economic distortions considered to be the main cause of the problem.
The conditions included: (1) roll back inefficient state from intervention in the economy, eliminate state planning and introduce self-regulating and efficient market forces; (2) privatize, deregulate, liberalize the economy and devalue the exchange rate (currency); (3) implement fiscal austerity (belt tightening) through retrenchment of public servants, reduction or elimination of subsidies, raising taxes and freezing wages and/or monetary policy by raising interest rates; (4) promote and diversify exports according to comparative advantage to earn foreign exchange and repay external debts; (5) promote labor flexibility to increase employment and productivity and freeze trade unions; and (6) rely heavily on foreign experts to guide development and ensure efficient program/project selection (John Brohman 1996).
These conditions constituted stabilization and structural adjustment programs (SAPs). The whole idea was to reduce short-term consumption for three to five years in order to save, settle external debt and balance the budget and prepare a platform for rapid and sustained investment and economic growth and employment as well as distribute the benefits of economic growth through a trickle down mechanism. This process would translate into poverty reduction and its offshoots of hunger, ignorance and disease. Fighting and defeating inflation by reducing money supply through ‘correct’ interest rates was also a key element of SAPs.
To promote economic recovery along neo-liberal lines, NRM government focused on balancing the budget, designing and implementing realistic exchange rate, defeating inflation and promoting diversified exports. Despite close monitoring by the IMF and World Bank structural adjustment programs began in the early 1980s failed to produce the desired results and were abandoned including by Uganda in 2009. Below are some illustrations why SAPs were abandoned, calling for a new model.
In many countries the principal goal of repaying external debts was not achieved. In fact external debts increased for some countries. In Ghana, for example, which launched structural adjustment in 1983, external debt quadrupled. In Uganda which was the first country to get debt relief under the Highly Indebted Poor Countries (HIPC) program and diversified exports to earn sufficient foreign currency, external debt has remained problematic.
In Uganda as in other countries in developed and developing worlds, the government aim of defeating inflation and keeping it at 5 percent per annum has not been realized. The situation has worsened since the months preceding the presidential and parliamentary elections of 2011 when too much money was pumped into the economy causing demand to exceed the supply of goods and services. In the UK Margaret Thatcher had vowed to defeat inflation. She failed. When she became prime minister in 1979 inflation stood at 10.0 percent. By the time she left office in 1990 it had risen to 10.6 percent.
Margaret Thatcher’s other goal was to reduce government and its expenditure. It did not happen. It got bigger on her watch. When she left office in 1990 government, its expenditure and welfare state were all larger. Spending on social security benefits, healthcare and education increased by 33 percent, 34 percent and 9 percent respectively between 1979 and 1989.
Stabilization and structural adjustments were designed to pave the way for rapid and sustained economic growth to at least 8-9 percent per annum in the developing countries to meet Millennium Development Goals (MDGs). This has not happened. Uganda reached 10 percent growth rate in mid-1990s. It has dropped rapidly since then in large part because of utilization of excess capacity inherited in 1986. Developing countries including those in Asia whose economies have grown rapidly achieved an average growth rate of over 9 percent for decades. In UK under Margaret Thatcher’s government economic growth was lower than in the 1970s. It averaged 2.4 percent from 1969 to 1978 but only 1.75 percent between 1979 and 1991.
Regarding employment, the private sector performed less than expected. In Uganda youth unemployment alone has exceeded 80 percent and is still rising. In the United Kingdom, unemployment rose from 5.4 percent at the start of Thatcher’s government reaching 13.3 percent at one point, the highest in Europe. Although it declined somewhat towards the end of her tenure, joblessness was still very high and described by her critics as a disaster (Kavannah 1990).
The trickle down mechanism did not work as well. Instead there was a bubble up effect skewing income distribution in favor of the rich. In UK, neo-liberal policies stopped the long-term trend toward equality and promoted inequality which dramatically increased since the late 1970s. Among households, the share of income received by the top ten percent increased from 20.4 percent in 1979 to 26.0 percent in 1990 while the share of the bottom 10 percent decreased from 4.2 percent in 1979 to 2.9 percent in 1990. According to findings of Households Below Average Income (HBAI) study, poverty grew from 7 percent in 1972 to 24 percent in the early 1990s, representing a classic case of social Darwinism regarding survival of the fittest. Children were particularly adversely affected. Child poverty increased from 10 percent in 1979 to 33 percent in 1992. The diseases of poverty like tuberculosis, rickets and others returned to the UK. In Uganda absolute poverty has remained above 50 percent and hunger affects some 10 million out of a total population of 33 million. Children are dropping out of school for lack of lunch, becoming parents in their teens and contributing to rapid population growth (rapid migration is also a major contributor to Uganda’s rapid population growth). This is population ‘explosion’ caused by inappropriate government policies or lack thereof. Population control will need to keep children in schools longer to delay having babies and check unregulated flow of migrants into Uganda that are causing conflicts over land and social services.
Social conditions deteriorated in many other areas as a result of the austerity measures adopted. Poor sanitation and general hygiene and contaminated drinking water have contributed to resurgence of tuberculosis and measles, scabies and trachoma. In China budget cuts in the health sector resulted in the dismantling of the once popular ‘barefoot doctor’ program. From 1990 to 1997 the health cost rose by 400-500 percent, preventing many patients to access health services. As a result the number of tuberculosis cases quadrupled in 15 years. Gains made in infant mortality are also believed to have declined considerably.
Structural adjustment has taken Zambia backward. Poverty, illiteracy, unemployment, food insecurity and disease have increased. Removal of subsidies and lowering tariffs adversely affected production, employment and consumption and access to public services like education and health. In 1970 when IMF and World Bank began providing assistance, life expectancy in Zambia was 49.7 years. In 2001, it had declined to 33.4 years – the lowest in the world.
To increase and diversify exports, Uganda government encouraged de-vegetation, deforestation and overfishing with serious impact on hydrological and thermal regimes, soil erosion, biodiversity loss, droughts, floods and landslides.
Summarizing structural adjustment experience the World Bank observed in 1999 that “Globalization appears to increase poverty and inequality. … The costs of adjustment to greater openness are borne exclusively by the poor regardless of how long the adjustment takes” (Antonia Juhasz 2006). And the “IMF admitted in the late 1990s that at its current growth rates it would be decades before the majority [of LDCs] reaches the poverty level. Thus the economic reforms imposed on LDCs are entrenching the very development model that caused their original problem…. Structural adjustment serves the interests of the powerful”(D. Green and L. Luehrmann 2003).
Although NRM government formally dropped structural adjustment model in 2009, it has continued to implement its conditionality as if nothing happened. And that is why the majority of Ugandans are still trapped in poverty, unemployment, hunger, illiteracy and disease. United Democratic Ugandans (UDU) has prepared an alternative development model in its National Recovery Plan (NRP). We urge everyone to read it. It is posted at www.udugandans.org. Comments can be forwarded to [email protected]. The Plan which was drawn up by Ugandans is based on practical experience of challenges in all parts of Uganda that call for popular participation in its implementation thereby leaving no Ugandan behind.
Furthermore, in drawing up the Plan, we took into consideration the late Paul Samuelson advice: “There is no substitute for the market mechanism – but the market mechanism has no brain, it has no heart. Without political program it will inevitably bleed inequality. …globalization in its current shape and speed makes the world a more insecure and nervous place. We should try to slow down, and, in our own [Uganda’s] long-run interest, try to be less aggressive”. What is remaining is a political space to begin implementing the Plan. UDU is ready.