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It is necessary to discuss the paradigmatic shift from state-led to market-led ideology and the strategy imposed by the International Financial Institutions (IFIs) on the developing countries. This exercise is necessary because the neo-classical resurgence

’ In 1973 McNamara, the then President of the World Bank, in his Nairobi speech placed the weight of the World Bank behind the growing concern at the outcome of policies that focused chiefly on GNP

increase while ignoring their distributional implications (McNamara, 1973). Similarly, the study.

Redistribution with Growth (Chenery, et al., 1974) prepared by a team drawn from the World Bank and the Institute of Development Studies was intended to provide the analytical foundations for a new approach to development analysis and planning.

reproduced neo-classical theory as a self-evident scientific truth, as an axiomatic law of nature constructed on the foundation of questionable facts. It was not at all considered that this theory is ideological and value-laden and serves particular interests, especially those of the developed countries.

The problem under consideration has two aspects. Firstly how the neo-classical

ideology of the “free-market as good” and the “state as bad” was constructed? And

secondly, why was this ideology constructed? And whose interests does it serve in spite of

pretensions of being neutral or objective? As we shall see the development and

articulation of neo-classical thought was constructed on a systematic selection of facts and sometimes their distortion.

As we noted in sub-section 1.2.2 of this chapter, by the late 1960s, the perceptions that the UN Development Decade had failed, that ‘growth’ had resulted in social dislocation, social and regional inequalities, and that the ‘poverty gap’ had widened were widespread. There was a growing concern in the 1970s, based on empirical data obtained for a number of developing countries, that the percentage of population living in absolute poverty remained high, with the share of the lowest 40 per cent of the population remaining very low. All this contributed to the growing impression that the ‘trickle down’ mechanism was not working as it was intended to (Oman and Wignaraja, 1991 :pp.97-98 and Hunt, 1989;pp.69-78).

A widely publicised lecture by Seers in 1969 signalled the shift from development as economic growth to a broader concept encompassing reductions in poverty, unemployment, and inequality which became the major themes of the 1970s. The message was clear: Development must no longer be confused with economic growth, otherwise by simple per capita comparison Kuwait is more developed than West Germany or France.

To quote Seers (1969;p.3):

The questions to ask about a country’s development are therefore; What has been happening to poverty? What has been happening to unemployment? WTiat has been happening to inequality? If all three of these have declined from high levels, then beyond doubt this has been a period of development for the country concerned. If one or two of these central problems have been growing worse, especially if all three have, it would be strange to call the result ‘development’, even if per capita income doubled.

The call for a ‘redemption of development’ was heard far and wide. As Mahbub U1 Haq of Pakistan asserted:

The goal of development has to be a determined assault on the worst forms of poverty. Development must aim at the gradual elimination of malnutrition, disease, illiteracy, unemployment and the lack of equal opportunity. We used to be taught that we had to confine our attention to GNP and that this would solve the problem of poverty. Now, however, what we need to do is just the opposite: we have to focus our attention on poverty. It is this which will guarantee the solution to the problems of GNP (U1 Haq,

1976:p.3).

As mentioned earlier in the preceding sub-section, the World Bank too was shaken out of its strait-jacketed approach to development. McNamara in his 1973 Nairobi speech stated that the Bank had decided “to place far greater emphasis on policies and projects which will begin to attack the problems of absolute poverty” (McNamara, 1973 :pp.9-10).

Countries such as India followed suit by adopting in its Fourth FYP a Minimum Needs Approach in conjunction with accelerated structural changes for industrialisation.

Meanwhile the reformist’s response to the increasing concern with poverty in the 1970s essentially comprised three planks: employment-oriented strategies, redistribution with growth and basic human needs strategies. The climax of this series of diverse yet sharply focused initiatives was the approval by the ELO at its 1976 World Employment Conference of a proposal that national development strategies should place high priority on both the generation of employment and the satisfaction of basic human needs. However, it is important to point out, that in addition to calling for the establishment of a New World Economic Order\ the conference recognised the need for an increased role for government planning and possibly for the public sector as well. “[SJtructural changes in such areas as the financial system, land tenure and the education system require direct government intervention. Such policies cannot be implemented simply by influencing market prices” (ELO, 1976:p.53).

It was also in the 1960s and early 1970s that Import-Substituting Industrialisation (ISI) began to come under heavy criticism from neo-classical economists. Among the first to criticise ISI were those writers, e.g., Viner (1953) and Bauer and Yamey (1957), who argued that it interfered with the natural process of economic development based on comparative advantage. Similarly, an OECD research study carried out in the late 1960s, on industrialisation in India, Brazil, Mexico, Taiwan, the Philippines and Pakistan embodied the core of the neo-classical critique of economic pohcy in developing countries

(Little, Scitovsky and Scott, 1970). The policy recommendation put forward by these

orthodox critics of ISI clearly reflected the general neo-classical view which stressed inter

alia the theory of international trade and the concept of ‘comparative advantage’, together

with the importance of relying on the price mechanism in competitive markets, rather than

' The United Nations General Assembly in its Sixth Special Session in 1974 adopted a Declaration of Principles and a Programme of Action on the establishment of a New International Economic Order (NIEG). The proclaimed goal of the NIEO was to put North-South economic relations on to a basis of ‘equality and co-operation’ (Toye, 1993;p. 179).

administrative controls or planning, to achieve efficiency and maximum growth, (Hunt, 1989:pp.68-69; Oman and Wignaraja, 1991;pp.67-68). Their view was essentially that developing countries should remain producers and exporters of primary products and should encourage the growth of their agricultural and plantation economies.

Despite the neo-classical criticism against ISI, it is important to note, and as we mentioned in section 1.2 of this chapter and as we shall see in Chapter V, in the case of Oman, there were a number of compelling reasons which led almost all developing countries to adopt ISI strategies. In fact, the East Asian economies whose success is attributed to strongly outward-oriented economies (World Bank, 1987), have been successful because their governments have played and continue to play an important role in protecting their domestic markets and promoting their export-led drive (Wade, 1990; Dutt and Kim, 1994).

However, the concerns for a direct attack on poverty, provision of basic needs, and redistribution with growth, which called for state action at the local level and international action at the global level, were overtaken by a number of factors. These included: (a) the debt-crisis of the 1980s which almost forced a number of developing countries to adopt the SAPs prescribed by the IFIs. As we shall see in the following section, the terms on which assistance was provided under the SAPs are underpinned by the neo-classical paradigm; (b) the coming to power of conservative administrations^ in the industrialised countries, most notably in 1979 in the United Kingdom and in 1981 in the United States, while the rise to power of Gorbachev in the Soviet Union in 1985 was the beginning of the end of the cold war competition of two large blocs headed by the United States and the Soviet Union; and (c) the publication in 1981 of the World Bank

report Accelerated Development in Sub-Saharan Africa which emphasised the importance

of correct pricing policies and reduced government intervention in economic activities as being two of the main elements to a revival in Afncan growth rates (World Bank, 1981).

’ These were, for example the administrations of Margaret Thatcher (1979-90) and John Major (1990- 1997) in the UK and the Republican administrations of Ronald Reagan (1981-89) and George Bush (1989-93) (Toye, 1993:p.207).

Thus the neo-classical philosophy was translated into ‘Global Reagonomics’, while

the NIEO and state-led development strategy were tacitly buried. The developing

countries were advised to liberalise their economies, privatise their SOEs, and concentrate on their comparative advantages.