Previous lecture material has discussed the structural character of development–the structure of the economy changes, hopefully the structure of income classes (development of a middle class, for instance). Structural adjustment lending–though it isn’t called that anymore–has been one of the tools used by the World Bank to encourage structural changes within economies. You don’t have to be an expert on SAL, but you do need to understand the general concept, as it’s important to understanding global inequalities.

The World Bank has become the lending institution of choice for development (we talked about how it slipped into this role after the Marshall Plan … ). Countries seek loans to finance development projects designed to ‘modernize’ their economies, promote trade, etc. Go back to some of the key changes most consider critical to undergoing development:

• Structural transformation of agricultural sector. This requires mechanizing agriculture, reducing the labor force, increasing productivity (that is, producing more through technology improvements), etc. If the agriculture sector produces more, this can lead to other economic development (food processing, for instance, or machinery manufacturing). It can also, though, lead to greater dependence on external inputs–fertilizer, pesticide, machiner–the things supposedly required to increase agricultural output. Why increase output? Usually it is not to feed the citizens of the country. Cash crop campaigns are designed to grow crops with commercial value in global markets. Common examples might be cotton, peanuts, coffee, cacao, etc. These crops can then be sold on world markets, for foreign currency (i.e., dollars, yen, euro). Foreign currency can then be used to purchase imports, presumably to further fuel the development process (things the country doesn’t produce–various raw materials, finished products, oil/gasoline, automobiles, machinery, etc.). Structural adjustment lending encourages commercial crop campaigns, because it produces foreign currency, and–this is important–provides money for the country to service its debt. The World Bank, after all, is not a humanitarian organization–it is lending the money. With respect to gender, these programs have often targeted men, out of ignorance and economic considerations. Women work ‘double duty,’ meaning they have both household and farming responsibilities, and less time to invest in commercial farming (this may not be all bad, because of some of the health risks of working with toxic pesticides).
• Changes in property rights. Economic theory suggests that farmers that use their land collectively have less incentive to invest in high technology, mechanized agriculture. The theory says that they can’t reap the benefits of their investments–they have to be shared with the larger social group, community, etc. Many SAL programs have included titling and registration initiatives. The idea is that farmers can seek individual title to their land, and use that as collateral to apply for loans to invest in more productive agriculture. From a gender perspective, most land is passed down through the patriline–through the male offspring. Women may lose access to lands they have cultivated through titling efforts. Often times the laws don’t deny women the right to apply for title, but the deck is stacked against them in many ways. Women, as a result of SAL, have often become unpaid laborers working their husbands’ cash crop fields.
• Devaluation of local currency. Many countries’ currencies, when compared to dollars, euros, yen, etc., don’t exactly look attractive. If currencies are devalued, then investment opportunities tend to look better. Think of it this way. If you’re planning a trip to Europe, and the Euro and U.S. Dollar are about 1:1, and within a month, one dollar buys you .75 Euro, then the value of the dollar has declined. All the sudden, the money you’d budgeted for your trip is insufficient. Maybe you decide to go to Puerto Vallarta instead, where the value of the dollar is steadily increasing vis a vis the peso. If a country’s currency value looks attractive to investors, it stands a better chance of bringing in more money. There are consequences, though. What do you think happens to the prices of imported goods in a country when the currency is devalued (say, for discussion, by 50%)? This can be a real hardship on people in the country. Assuming their incomes don’t double, the cost of living just went up dramatically for them. This may manifest itself in many ways–women have less to spend on meal ingredients, clothes for their children. Maybe the morning porridge doesn’t have sugar in it. Men who buy cigarettes may start rolling their own (with eventually more severe public health problems). The few luxury items tend to go first. Of course, people who have debt and are repaying it just got a bonus as well–the value of their debt was just halved. (I’ve spoken with several farmers in Senegal who had purchased equipment and draft animals, and were quite pleased with the effects of currency devaluation). The effect of price increases is likely to be felt first in the cities, where people can’t live partly off of the land, and are more dependent on income to meet their needs. This can pose problems for governments–riots, unrest, etc.
• Trade ‘liberalization.’ An important part of SAL is free trade. This means essentially lowering the barriers for people wishing to invest, to buy or sell, etc. Those ‘people’ turn out to be large corporations, for the most part. Governments sometimes subsidize their farmers because they are unable to compete with farmers from other countries. Liberalized trade means that all farmers have to compete, regardless of the comparative advantages some may have over others. It also means that large corporations can shop the world looking for cheap labor, lax environmental regulations, tax breaks, etc., that countries may be ‘encouraged’ via SAL to offer in order to attract investment, factories, jobs, etc. Many factories along the U.S.-Mexican border, for instance, are relocating to the People’s Republic of China, because the difference in the cost of labor is over $1 / hr (the average wage in China is about .25 / hr — WalMart has gone so far as to have its own labor force in China–not just making deals with others to produce its goods). In the name of ‘free trade,’ many countries have set up ‘free trade zones,’ essentially ‘ports designated by the government of a country for duty-free entry on any non-prohibited good. Merchandise may be stored, used or manufactured in the zone and reexported without duties being paid’ (from Michigan State University, GlobalEDGE Website). This production doesn’t necessarily benefit these countries directly–most of the goods are being produced for consumers in industrialized countries, and most of the profit is returned to the corporate headquarters, also likely located in the industrialized, developed world. You may not realize it, but if you have a 401K, you probably have money invested in some overseas corporate operations somewhere . . . Often times, the jobs that are created as a result of trade liberalization are unskilled, and women work at the bottom of the socioeconomic ladder (especially in garment industries, running sewing machines).

So, SAL is designed to transform the structure of the economy, produce more foreign currency, and finance a process of development that transforms agriculture from a subsistence to a commercial sector. Remember our discussion of the role of colonialism, and how many countries became little more economically than sources of raw materials for industrial processes in their rulers’ countries. The underdeveloped countries of the world are not in a position to dictate the terms of trade. If they want their lines of credit extended by the World Bank or the IMF, they may have to agree to these conditional lending arrangements. In other words, it is not clear who benefits from Structural Adjustment Lending. As many economists have noted, if you owe the World Bank $3 million, it owns you. If you own them $20 billion, you own a piece of them. Make sense?