THE POLITICS OF APEC: TOWARDS A COMMON PERSPECTIVE
Structural adjustment: a curse on the world
by Dr Jane Kelsey*
My concern in this paper is to move beyond the rage which the injustices caused by structural adjustment provoke in all decent human beings and to focus on strategies and ideas about how, in our various ways, we might intervene. To understand that we need to know not just what the effects of structural adjustment have been, but how it is done and by whom.
Historical background
By the 1970s, the simple model of the sovereign nation-state with its national economy, national polity, national legal system and national identity was under attack. Major corporations were outgrowing their national boundaries and local markets. The number of companies operating multi-nationally expanded rapidly as they sought out new markets and innovative ways to circumvent domestic barriers. International trade between nation-states has increasingly given way to global economic transactions between transnational corporate entities (TCEs). Their inherent flexibility, and their superior access to finance, technology, skills and economies of scale, enabled these firms to dominate a national economy and evade its regulatory regimes. Inflows of overseas capital could crowd out smaller domestic investors who were more likely to be committed to the particular industry, workforce, domestic economy and local community. TCEs had little interest in the social and economic consequences of their decisions. Whether they were locally controlled ultimately made no difference. The concept of international trade between nation-states has given way to global economic transactions between transnational corporate entities. More than forty per cent of world trade now involves movement of goods and services from one productive unit to another within the same enterprise.
The dominance of trans-national enterprise, the ascendancy of finance capital, and the rapid expansion of the services sector were all boosted by advances in technology. Governments found it difficult to regulate the flow of money and capital across their boundaries, and to control economic activities through domestic regulation. This, in turn, restricted their ability to gather taxes and maintain their physical and social infrastructure. Threats by capital to disinvest, often backed by warnings of credit rating downgrades, provided additional leverage over national governments.
The global economy was further shaped by the election of conservative free-market governments in the United States, United Kingdom and Germany -- countries that could apply significant leverage in the rest of the world. The demise of the Soviet Union removed the West's main strategic and ideological combatant. Institutions like the OECD, IMF, World Bank and credit rating agencies pressed conformity with the free market' model. Neoliberal economics and philosophy dominated intellectual discourse, most of it coming from the United States.
Debtor countries had little choice as the IMF, World Bank and commercial lenders imposed conditions for securing finance and rescheduling debt incurred during the reckless lending and borrowing of petro-dollars in the 1970s. Western capitalist democracies faced more of a dilemma. Tensions had emerged between the need of capital to accumulate profits, the need of the state to administer its increasingly large and costly machinery, and the need of government to secure loyalty and co-operation from the mass of its citizens by providing a reasonable standard of living, paid employment and political participation. Minor adjustments were no longer enough to meet capital's needs. Major structural changes were required.
The neoliberal model implemented through structural adjustment became dominant. Attributing this solely to the hegemony of international capital is too easy. Governments of individual countries, especially those free from conditionalities' attached to loans, still had policy choices about which path to take and how far and how fast to move.
The Washington Consensus'
Structural adjustment follows a standard line. In 1990, United States academic John Williamson set out what has been termed the Washington consensus' of key elements for a structural adjustment programme. These are:
• fiscal discipline: keeping government budgets small enough so that, after debt servicing, the operating deficit is no more than two per cent of GDP;
• public expenditure priorities: redirecting expenditure from politically sensitive areas and white elephants' towards neglected fields which are economically productive, strengthen the country's infrastructure, or have the potential to improve income redistribution, such as primary health and education;
• tax reform: reducing marginal tax rates to sharpen incentives for companies and individuals to earn more, and broadening the tax base to improve horizontal equity;
• deregulation: abolition of regulations which impede entry of new firms or restrict competition, while ensuring that all other regulations can be justified by criteria such as safety, environmental protection, or prudential supervision of financial institutions;
• foreign direct investment: removal of investment barriers impeding entry of foreign firms, with all receiving national treatment' (that is, the same treatment as domestic firms);
• financial liberalisation: progressively move towards market-determined interest rates within a less constrained financial market-place;
• exchange rates: a single exchange rate that is set at a level that encourages expansion of non-traditional exports and managed in a way that assures exporters of continued competitiveness;
• trade liberalisation: rapid conversion of quantitative trade restrictions, such as import quotas, into tariffs and the progressive reduction of tariffs to between ten and twenty per cent;
• privatisation: of state enterprises and assets;
• property rights: ensuring security of property rights under law without excessive costs.
Williamson observed that within this consensus' there was room for differences in some areas: the desirability of maintaining capital controls; the extent and pace of inflation reduction; the usefulness of incomes policy and wage and price freezes; the need to eliminate indexation; the propriety of attempting to correct market failures through such techniques as compensatory taxation; the proportion of GDP to take in tax and expenditure by the public sector; how far income should be redistributed in the interests of equity; whether there is a role for industrial policy; the model of market economy to be sought (such as Anglo-Saxon laissez-faire, European social market or Japanese-style corporations responsible to many stakeholders); and the priority given to environmental preservation.
This model has been elevated to the status of economic truth, a necessary adjustment' to the economies of the world. Fundamental changes are conveyed as shifts of technique -- how we regulate markets, control inflation, order labour relations, deliver education, health or housing, levy taxes, provide policy advice or ensure accountability. It is what political scientist John Toye calls the realm of the Empowering Myth', where people are told there is no alternatives and no alternative voices are heard.
Toye observes that the axiom of methodological individualism . . . simply prohibits any explanation of behaviour that cannot be deduced from the rational calculations of the abstract individual. Social structure is acknowledged only to the extent to which it can be logically reduced to the rational self-interest of individuals'. So indigenous peoples can participate in policy debate provided they accept the primacy of the atomised, self-interested individual, the commodification of nature, knowledge and human endeavour, and the property rights existing under colonial law. Women, too, can engage-on condition that the paradox of the self-maximising market man' and altruistic, hence irrational, family woman' on which the market model depends remains unexplored.
Any who seek to challenge risk disqualification per se, whether as lobbyists out to capture policy for their own ends, as vested interests unwilling to be held to account, or as apologists for an outmoded and failed regime. The truth value of these theories is simply assumed, with no burden of proof or empirical support. They have even captured the language -- market-speak turns social democratic notions of accountability, equity, empowerment, liberation on their heads, and deprives critics of the linguistic tools through which to express themselves. Any visible failure in the programme requires a mere technical adjustment or the removal of further obstacles to achieving its logical outcome.
Doing' structural adjustment
The template wasn't confined to the content of structural adjustment programmes. A standard formula was also developed of how it should be done. A study convened by Williamson on behalf of the Washington-based Institute for International Economics in 1993 identified a number of possible strategies for implementing such change. These include:
The actors
A strong degree of coherence in global economic policy has now emerged, which extends far beyond the obvious agencies of the IMF and World Bank. The World Trade Organisation (WTO) agenda has provided a mechanism for extending the model under the guise of consent, and requiring compliance not only from debtor countries but also from countries of the OECD. Hence, institutions such as the IMF, World Bank, regional development banks and WTO, economic agencies such as the OECD, and formal economic integration agreements like the European Union (EU), North American Free Trade Agreement (NAFTA) and CER have all played a crucial role. With the exception of the EU, these entities run explicitly or in practice on secretive, undemocratic lines. Their dictates and sanctions are rendered consistent with state sovereignty by the generally fatuous claim that participation is voluntary, and that member states are free to say no or withdraw.
Equally significant are the invisible, intangible and informal international networks and arrangements which create the climate for, and facilitate, convergent economic policy and regulation. These inter-locking networks of like-minded technocrats, politicians and private actors cross market/state and national/international divides without problems. Their effectiveness lies in their informal, invisible and inaccessible processes, exclusive membership, and avoidance of institutionalised forums, binding agreements and enforcement procedures which might be subjected to formal political or legal challenge.
Technocrats and consultants become key players in these networks, in collaboration with the private sector, usually in the guise of offering technical assistance to implement the restructuring programme. Sympathetic theorists explain their increasing prominence in terms of epistemic communities', membership of which is exclusive to professionals with shared normative and causal beliefs and a common policy enterprise. These specialists -- lawyers, economists, accountants, scientists -- claim a principled approach to policy, working from a knowledge base which is supported by objective tests of validity. They present themselves as a qualitatively different breed of policy-maker, immune from the failings which they attribute to other government officials and vested interest groups. These technocrats become influential at the national and transnational level when decision-makers solicit their information and delegate responsibility to them. This, in turn, increases the likelihood of convergent state behaviour and international policy coordination. To the extent to which an epistemic community consolidates bureaucratic power within national administrations and international secretariats, it stands to institutionalise its influence and insinuate its views into broader international politics.'
Political parties who support the new agenda develop their own networks. For example, as the International Democratic Union of conservative parties, inaugurated by Margaret Thatcher in 1983, was designed to exchange information about policies, techniques, strategies and organisational structures'. But politicians generally play a secondary, and often symbolic, role in the wider policy networks. Their involvement, and that of national leaders, usually provides the political imprimatur for outcomes pre-scripted by the technocrats. Sol Picciotto, professot of law at Lancaster University observes how substantial decisions are frequently taken by unaccountable officials operating in arcane and secretive international forums, which exert strong pressure on, even if they do not formally bind, national decision-making processes' (full reference below). The non-institutionalised, informal structure, and the lead role taken by officials, private sector and academics, reduces the problem of securing formal diplomatic agreement, or mandates and ratification in the domestic sphere. Governments facing domestic constraints can nevertheless use the resulting non-binding' agreements, expert reports and newly established norms' as leverage for policy change.
Other networks extend the web. Neoliberal and libertarian think-tanks arrange exchanges, conferences, publications and speaking tours for leading ideologues. The influence of neoliberal theory, emanating mainly from the United States, pervades economic and public policy discourse, textbooks and university courses. Private consultants, who often are themselves ideologically driven, are contracted by the international financial agencies to replicate the same strategies and models throughout the globe. Finance analysts and journals, world competitiveness' studies and credit rating agencies become the authorised voices of world markets, passing judgement on the soundness of governments' economic programmes.
There are different levels and different ways in which we can engage this process, overwhelming as it may seem. That is what action on APEC is about. But in focusing on specifics so we must never lose sight of the overall scene.
The New Zealand experiment
My own concern has been to develop counter-strategies to the structural adjustment programme which began in Aotearoa (New Zealand) in1984 and is now being touted as a model for the world. Aotearoa is a country of 266,000 square kilometres, located in the southern Pacific Ocean. It has been inhabited by successive migrations of Maori for more than 1000 years. The British claimed sovereignty over the country in 1840, breaching the Treaty of Waitangi which had guaranteed Maori chiefs absolute tribal authority over their people and their lands. Today, the population of 3.6 million is around fourteen per cent indigenous Maori, seventy eight per cent European, five per cent Pacific Islands Polynesian, with a growing number of recent immigrants from Hong Kong, Taiwan, Korea and Vietnam.
The agricultural colony developed a reputation for one of the highest living standards in the world, the first country to give women the vote, the birthplace of the welfare state, and (totally undeserved) as an example of multi-racial harmony. Almost overnight New Zealand became a showcase for neoliberal fundamentalism within the OECD. There are four main reasons why the New Zealand experiment is being promoted as a model for other parts of the world:
This radical exercise in structural adjustment was not implemented by a third world' government as a condition of securing credit from the international financial institutions, but was unilaterally undertaken by a democratically elected government within an advanced capitalist economy.
Successive governments applied pure economic theory to a complex, real-life community, with generally cavalier disregard for the social or electoral consequences.
The programme was implemented in 1984 by a Labour government, whose party had traditionally embraced a social democratic philosophy, and was continued after 1990 by a supposedly free-enterprise, but traditionally interventionist, conservative National government.
The fundamentals' of the programme-market liberalisation and free trade, limited government, a narrow monetarist policy, a deregulated labour market, and fiscal restraint-were assumed to be given', based on common sense and consensus, and beyond challenge. These fundamentals were systematically embedded against change.
Today, New Zealand's structural adjustment programme is hailed by agencies like the World Bank, GATT/WTO and OECD as proof that even welfare democracies can be radically deregulated, liberalised and privatised, and can thrive'. The cheer brigade who now promote the New Zealand model on the international stage represent the winners in this exercise -- an elite of individuals, corporations and foreign investors. They show little understanding of, or concern for, the economic, political, social and cultural costs to ordinary New Zealanders' lives. Twelve years of radical change in New Zealand has produced a lean, mean society which officially celebrates individualism, self-interest and private responsibility, at the expense of community, reciprocity, social justice and social democracy. Those with greatest access to resources and power do well; those without are blamed for their poverty, unemployment or dependence on charity and the state.
Despite the international plaudits, this has been no economic miracle. For the first eight years of restructuring the economy faced stagnation or recession. Between 1985 and 1992 total growth across OECD economies averaged almost twenty per cent; New Zealand's economy shrank by one per cent. Other objective indicators showed that between 1984 and 1993 productivity growth in New Zealand averaged around 0.9 per cent, and this was mainly achieved by labour cutbacks. Inflation averaged around nine per cent a year. Real interest rates remained excessively high. Unemployment rose from four per cent in 1986 to eleven per cent in 1992 (officially anyone working one hour or more is deemed employed). Net migration flows were negative. Government debt doubled. New Zealand's credit rating was downgraded twice. Investment as a percentage of GDP halved, while spending on research and development fell to half the OECD average.
Then came three years of strong economic recovery, from late 1992 to late 1995. GDP growth peaked at 6.2 per cent in December 1994. Public debt was reduced to thirty two per cent of GDP. Underlying' inflation fell below one per cent. Repeated budget surpluses led to cuts in income tax and further foreign debt repayment. Official unemployment fell to 6.1 per cent, although rates for Maoris and Pacific Islanders remained much worse.
The boom was short-lived. Treasury calculates GDP growth for the year to March 1996 at 2.8 per cent, and predicts 2.5 per cent for 1996/7; others are less optimistic. Tight monetary policy has kept 90-day bill rates hovering around ten per cent while the trade-weighted exchange rate has appreciated 7.4 per cent in just twelve months, seriously damaging exports. Despite this, underlying' inflation has repeatedly breached the Reserve Bank's upper level of two per cent. The balance of payments deficit is at 4.1 per cent and predicted to deteriorate. Investment has slowed and business confidence plummeted. Crises in government services and prolonged strikes have forced government to increase spending. Job growth has weakened, large-scale closures (of what) have returned and labour productivity fell 1.6 per cent in the past year. There are still almost 34,000 fewer full-time jobs than in 1987. Yet unemployment is again predicted to rise; the November quarter shows an increase to 6.3 per cent. Some say this downturn is cyclical and necessary for sustainable, non-inflationary growth. Others insist that current monetary and fiscal policies are fundamentally flawed.
If this is success', only a few have benefited, and the price has been high. New Zealand governments were once committed to a society where everyone had the right to participate and belong. Now they reward self-interest and greed. Structural inequality, unemployment and poverty have become visible features of New Zealand life.
In the 1980s, recession, unemployment and redistribution of the tax burden saw inequality greatly increase. Real incomes fell. The 1991 mother of all budgets' cut $1.3 billion cut from social welfare benefits to the poor. People living below the poverty line increased an estimated thirty five per cent between 1989 and 1992. By 1993 one in six New Zealanders, and one third of children, were considered to be living in poverty. Charity foodbanks were providing $25 million worth of aid.
The heaviest burden inevitably fell on women. Women's economic role has always been marginalised: market economics refuses to recognise the productivity of unpaid household work, undervalues their participation in the paid workforce, took them for granted as community workers and volunteers, and penalised them for being dependent on men and/or the state. Before the 1980s recession, a quarter of non-Maori women and almost half of Maori women were totally dependent on social security benefits as their source of income, compared with only eleven per cent of Maori men and six per cent of non-Maori men. Women had been forced to rely on all public services -- from benefits to transport -- far more than men. And they were the most dependent on the state sector for income and employment in women's work' of teaching, nursing, clerical and social services. Women were told to be self-sufficient and take responsibility for themselves. Structural adjustment deepened the feminisation of poverty, and for many there was no escape.
The same victims have paid the price in good times and bad. Since 1994 government spending cuts and renewed economic growth have produced budget surpluses, which government redistributed through a $1.4 billion tax cut package in July 1996. Further cuts are due in 1997. But only twenty nine per cent of the package went to low and middle-income working families, with rising interest rates absorbing most of the gain. 200,000 of New Zealand's poorest, mostly dependent on benefits, received virtually nothing.
Labour market deregulation meant real wages continued to fall. From mid-1993 to end-1995, during the recovery, wages remained unchanged for almost one third of jobs, despite the CPI increase of 6.5 per cent over the same period. State sector workers have faced a virtual pay freeze for the past four years. Industrial action has revived as the remaining unions finally draw the line.
Attacks on the social wage have compounded this. Government removed subsidies for electricity, telephone, postage and transport, most of which are now privatised. Full market rentals for state houses have been compensated only partly by vouchers; since late 1993 dwelling rentals have risen nationally over twenty five per cent (in contrast to the 6.5 per cent CPI increased referred to above). Public hospitals, known as Crown Health Enterprises or CHEs, ran an operating loss of $164 million between July 1995 and June 1996 wards are closed to cut costs, while waiting lists grow. This crisis, alongside higher user charges for health and universities, have increased pressure to insure privately for pensions, education and health. Excessive real interest rates further punish those with debt. Government may have repaid large amounts of public debt; but the private debt burden is beyond what even many middle-income families can afford. According to finance minister Bill Birch in 1995, income disparities are widening and they will widen much more', but That doesn't worry me'.'
People who come to look at the New Zealand experience always ask how did we let this happen. In part it showed the success of the structural adjusters' strategy; but it also reflected the historically complacent and apolitical attitude of white New Zealanders.
Many Maori, on the other hand, did resist. New Zealand is a former British colony, taken by deceit in 1840 through the Treaty of Waitangi which guaranteed continued Maori sovereignty over their resources, people and lives, and granted the English Queen authority over her own citizens. The systematic erosion of Maori economic, political and cultural power over the next 156 years left them most vulnerable to the structural adjustment programme. At around fourteen per cent of the population, however, they have also provided the most potent and consistent source of resistance during the past twelve years.
Maori militancy in the 1970s and early 1980s was temporarily bought off by promises that government would address their grievances. After a hiatus in the mid 1980s, a strong sense of betrayal and a clearer set of demands for decolonisation and constitutional change emerged. Their activities clearly hit a nerve. In May 1995, when the government hosted the Asian Development Bank meeting in Auckland, at least eight land occupations were underway across the country. As the carefully nurtured image of New Zealand as a haven for foreign investors came under attack from Maori nationalists, the government threatened charges of sedition against two of those who spoke. At exactly the same time, three cabinet ministers separately proclaimed that the sovereignty of the New Zealand Parliament rested not on the Treaty of Waitangi but on a revolutionary seizure of power'. Revolution, according to Simon Upton, former New Zealand cabinet minister and neoliberal ideologue, rests upon what is done, not what is legal, or necessarily moral or just' (The Dominion, 1 May 1995). The government wisely decided to abandon the sedition charges, but the threat to, and of, Maori nationalists was clear.
White resistance was more subdued. Structural adjustment was not an agenda which they had voted for. Since 1984 the traditionally dominant National and Labour parties have abandoned their traditional policies, practices, philosophies and constituencies; both deliberately turned their backs on the political, economic and social costs of the programme; both treated the democratic process and the wishes of the electorate with arrogance and contempt. The result is deep political instability.
When changing the parties made little difference, disillusioned voters forced an indicative referendum; held in 1992, a huge majority supported electoral reform. In 1993, a binding referendum rejected the first-past-the-post electoral system in favour of German-style mixed-member proportional (MMP) representation. October 12 this year was the first real chance for New Zealanders to pass political judgement on their drastically altered world.
The election result was a defeat for the right, who captured only 53 of the 120 seats. But it was no clear victory for the centre-left either, who (assuming Labour can still be defined in those terms) secured just 50 seats. The balance of power, 17 seats, lies with New Zealand First. A populist nationalist party, its strong anti-immigration and anti-foreign investment line paradoxically drew support from both radical Maori and conservative whites. The horse-trading to form a governing coalition it still underway.
Significantly, however, voices of the market, like credit rating agency Standard and Poors, seem confident the new regime would survive even if a centre-left government emerged. Many of the changes, like finance market deregulation, privatisation, GATT commitments, foreign investment, are almost impossible to reverse. Under coalition governments repeal of key legislation will be even harder to achieve. So the neoliberal regime may become even more secure under MMP. If electoral reform fails to provide the antidote that many voters expect, it remains to be seen what their responses will be and what alternative strategies and alliances they will be prepared to consider.
* Dr Jane Kelsey is a law professor at the University of Auckland who specialises in globalisation, structural adjustment and international trade. She is an outspoken critic of New Zealand's structural adjustment programme and its promotion of similar policies within APEC and the WTO. She has written two influential books on the political economy of New Zealand, Rolling Back the State (Christchurch, 1993) and Economic Fundamentalism: Structural Adjustment in New Zealand (London, 1993).
Picciotti, Sol, The regulatory criss-cross: interaction between jurisdiction and global regulatory networks' in Bratton, W. et al (eds). Regulatory Competition and Coordination, Oxford University Press, 1996.