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Today, the 1990s are remembered as a decade of enormous progress for market economics. From Eastern Europe to Latin America to Africa, governments lowered trade barriers, privatized industries, and took World Bank and International Monetary Fund advice more seriously on reining in public spending.
So is the developing world better for it? Not really, says a new report by the U.N. Development Programme. If you set aside countries like China and India, which both achieved great strides in reducing poverty but also have advantages due to their size, the bulk of developing nations were no better off in the 1990s than they were in previous decades, says the UNDP's 2003 Human Development Report.
In fact, the study concludes, the '90s were on balance a step backward for poor nations. In the '80s, the report notes, every nation but four saw a rise in living standards over the decade as measured by the UNDP's Human Development Index, which includes everything from infant mortality to education levels. In contrast, 21 of 129 developing nations saw living standards drop in the '90s, according the UNDP. Life expectancy, which historically has steadily grown longer, dropped in 34 nations.
PUNCTURED MYTH. Most surprising, 54 countries saw per-capita income decline -- a dramatic reversal from the '80s. The trend was most pronounced in sub-Saharan Africa. Half of national economies in Latin America and the Caribbean also declined, as well as Eastern European and Central Asian states such as Moldova, Tajikistan, the Russian Federation, and Ukraine.
What's remarkable is that this deterioration coincided with the so-called Washington Consensus, a set of free-market policies pushed by the IMF, World Bank, and the U.S. government under Presidents George H. W. Bush and Bill Clinton. "The 1990s punctured the myth that if you followed the Washington Consensus, growth would follow as surely as light follows night," says UNDP Administrator Mark Malloch Brown.
So what exactly is the UNDP advocating -- a march back toward socialism? Hardly. The report's point isn't that it was wrong for countries to open their markets to trade, promote the private sector, and adopt fiscal prudence. Indeed, considering how many developing nations still clung to growth-strangling socialist or protectionist policies in '80s, "the Washington Consensus had its time and place," says Malloch Brown.
STEEP HURDLES. The problem was that macro policies were overemphasized as a panacea for the Third World's ills, he argues. The World Bank and IMF downplayed the importance of more down-to-earth measures needed to spur sustainable development and reduce poverty, such as investments in health care, education, roads, and clean water.
The World Bank and IMF put such a high priority on budgetary prudence that in many cases they actually told impoverished nations to reduce such basic infrastructure spending. "After more than a decade of economic reform," he says, "we found that new policies and institutions alone -- while critical -- are not enough."
The hurdles that the world's poorest nations must clear are too steep to overcome with just marketplace magic, the UNDP argues. Given their high population growth and uneven income distribution, most nations in sub-Saharan Africa would need to generate annual economic growth of at least 6% before poverty levels would markedly decline. That would require heavy investment by local entrepreneurs and foreigners. But it's virtually impossible for nations like Burkina Faso or Chad to lure that level of investment without massive infusions of foreign aid.
Copyright 2003, by The McGraw-Hill Companies Inc. All rights reserved.
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