Political Economy

Executive Summary

The world has never before been richer than it is today. Yet large populations of the world find themselves without adequate resources to provide for basic needs to remain healthy. While health indices like life expectancy has increased, and mortality in general and infant mortality rates in particular have decreased on average, the rates of improvement in these indices have declined in the last two decades. Indeed in many countries across the globe, there have been increases in levels of infant and child mortality even as life expectancy has declined.

Inequalities between and within countries have widened sharply. While a small proportion of the world's population is becoming increasingly wealthier, unemployment, loss of assets and deprivation are increasing in a widening share of the world's communities, including the poor in rich countries.

These changes, moulding health and guiding health policy, are consequences of the manner in which structures of ownership, production and distribution of the world's wealth have been systematically changed over the last two decades. This paper traces some of the influences and factors which together have shaped policies across the world, drawing attention to the manner in which they impinge upon health and affect health services.

Economic policies around the world are being shaped by international financial institutions, in particular the International Monetary Fund (IMF) and the World Bank (WB). These neo-liberal policies are characterised by reducing the role of the state and increasing that of market forces. Globalistion, privatisation and liberalisation form the heart of this package of policies.

Third World countries indebted to international financial institutions are pressurised to implement the set of policies under the Structural Adjustment Programme (SAP). SAP policies applied in a uniform manner across the globe has increased indebtedness of these countries and accelerated the transfer of resources from poor communities and nations to rich ones. They have also had profound social consequences. They have led to the collapse of weak and under-funded systems of public health even as they increased levels of hunger and poverty, and thus diseases.

These SAP policies have also had profound political consequences as nation states implementing these policies have been weakened. At the same time multinational corporations (MNCs) have become increasingly powerful, controlling an increasing share of global resources. The free flow of speculative finance across borders in search of quick profits, have left a trail of devastation in people's lives.

In order to reclaim people's health it is necessary to address these wider issues of disempowerment, address issues of equity and participatory democracy, and for rebuilding national priorities with a focus on the needs of the majority of the population.

In 1960, the 20% of the world’s people living in the richest countries had 30 times the income of the poorest 20%. Now they command 74 times more. The richest 20% of the world’s population command 86% of the world GDP while the poorest 20% command merely 1%. More than 80 countries now have per capita incomes lower than they had a decade ago; 55 countries, mostly in sub-Saharan Africa, Eastern Europe and the Commonwealth of Independent States (CIS), have had declining per capita incomes.

Although the world today is richer than ever before, nearly 1.3 billion people live on less than a dollar a day and close to 1 billion cannot meet their basic consumption requirements. More than 800 million people lack access to health services, and 2.6 billion to basic sanitation. Although people are living much longer today, around 1.5 billion are not expected to survive to age 60. Indeed life expectancy in some countries of sub-Saharan Africa is only around 40 years.

Despite population growth, per capita food production increased by nearly 25% between 1990 and 1997. But the overall consumption of the richest fifth of the world’s people is 160 times that of the poorest fifth. 840 million people are undernourished, including 160 million children. Close to 340 million women are not expected to survive to age 40.

Introduction
The world has never before been richer than it is today. Yet large populations of the world find themselves without adequate resources to ensure good health. Despite the unprecedented advances in medical technology, around 800 million people lack access to appropriate and affordable health services. While life expectancy has increased—and mortality in general and infant mortality rates in particular—have decreased in most countries, the rates of improvement in these indices have declined in the last two decades. Indeed, in some countries, there has been an increase in levels of infant and child mortality. In other words, the increased opportunities for health have been distributed highly unequally around the world.

Inequalities between and within countries have been widening to levels seldom before witnessed. Unemployment, landlessness, loss of assets, and deprivation are increasing in a widening share of the world’s communities. At the same time poverty has spread even within rich countries. Together, these factors profoundly affect the health of large sections of the population of the world.

Such factors are not an accident, but the consequence of the way in which structures of ownership, production and distribution of the world’s wealth have been systematically changed over the last two decades. This paper briefly attempts to delineate some of these changes while drawing attention to the manner in which they impinge upon health and influence health services organisation.

A recent history of economic policies
Towards the end of the 1970s the long boom of post-war economic growth ground to a halt. Economists hesitated to use the term ‘depression’ to describe this phenomenon since it brought back memories of the 1930s, a period that had plunged the world into the horrors of fascism and the 2nd World War, but the ‘recession’ of the 1980s was similarly widespread and deep. These changes took place together with the collapse of the Soviet Union and the state-controlled economies of the socialist world. They also led to a reshaping of the capitalist world, particularly the pursuit of market policies and the opening of countries to transnational corporations (TNCs) through a complex of changes known as globalisation, privatisation and liberalisation.

The debt crisis
In the 1970s—and particularly following the rush of deposits in the wake of the oil-price increase—private Western banks encouraged countries in the Third World to borrow extensively to finance large-scale development projects. Indeed, so acute were the problems of uninvested capital that the banks resorted to bribing politicians and influential officials in the Third World to make commitments towards these projects, many of which were otherwise unviable. The projected returns failed to materialise, however, interest rates rose sharply. By the early 1980s, large numbers of now heavily indebted countries were unable to pay back their loans.

It was at this point that the International Monetary Fund (IMF) stepped in to bail out the Northern banks by offering loans to the indebted countries. The loans were primarily aimed at preventing the collapse of the private banks; they also served to involve the borrowing countries in a new framework of regulations in the economy, ostensibly aimed at improving their efficiency and competitiveness in the world market. Thus the restructuring of Third World economies to ensure debt repayment began to drive economic policy.

Neoliberalism
Over the same period, right-wing economic policies took centre-stage in the USA and the UK. These policies, described variously as Reagonomics, Thatcherism or monetarism, reflected an ideological commitment to unbridled market principles, ignoring the remarkable role in these countries of state-directed economies. One of the significant lessons of post-war economic growth had been the singular role that the state could play, and indeed needed to play, in capitalist countries in order to avoid recurrent periods of crisis due to falling demand. For instance, state involvement in public health had been at the heart of the strategy to stabilise the economies, in a move to help capital growth and technological change. In the new environment of the 1980s, these policies (Keynesian) came under systematic attack from neo-liberal economists.

Reducing the role of the state and increasing that of market forces, irrespective of their social and long-term economic costs, were at the centre of the new model of economic growth. This was accompanied by the triumph of the ideology of individualism, competitive wealth-seeking and conspicuous consumption. Along with the decrease of community values has become the undermining of public initiatives and institutions, especially those that serve and protect the interests of the poor. In this ideology, public intervention and institutions are necessarily inefficient and wasteful, and markets the best way to both economic growth and overall development. Economic growth, it was maintained despite extensive evidence to the contrary, would trickle down to the less fortunate and thus result in overall development.

The contradiction between the prescription to the third world and the economic success stories
‘The great post-war economic success stories of capitalist countries, with the rarest exceptions (Hong Kong), are stories of industrialisation-backed, supervised, steered, and sometimes planned processes managed by governments: from France and Spain in Europe to Japan, Singapore and South Korea. At the same time, the political commitment of governments to full employment and—to a lesser extent—to the lessening of economic inequality through. a commitment to welfare and social security explains part of the success

‘The greatest of neo-liberal regimes, President Reagan’s in the USA, though officially devoted to fiscal conservatism and “monetarism”, in fact used Keynesian methods to spend its way out of the depression of 1979–82 by running up a gigantic deficit and engaging in equally gigantic armaments build-up. So far from leaving the value of the dollar entirely to monetary rectitude and the market, Washington after 1984 returned to deliberate management.’

Structural Adjustment Programmes (SAP)
At the height of her economic and political power in the new unipolar world, the USA— assisted by the Bretton Woods institutions (World Bank and International Monetary Fund)—found a way out of the impasse of falling rates of profit and increasing unemployment by opening-up potential markets in Third World countries.

The debt situation of these countries became the vehicle for introducing a set of policies brought together under the rubric of structural adjustment programmes (SAPs). Future loans from international financial institutions and access to other donor funds and to markets, became henceforth linked to accepting this broad package of macro-economic policies.

The structural adjustment programme (SAP) package comprises essentially the following measures:

trade liberalisation removing the protection to local industry;
reduction of import-export-tariffs;
deregulation of the economy with fewer or no controls on foreign investments;
abolition of price controls;
removing the protective barriers to outflow of funds;
cuts in government spending including funding of social sectors;
devaluation of currencies to achieve export competitiveness;
deregulation of labour laws and retrenchment of workers;
cuts or removal of social subsidies; and
public sector enterprise ‘reform’ typically through privatisation

It was believed that by adopting this package of policies, indebted countries would not only attract foreign investments but would also be in a position to pay for them by increasing their exports of primary commodities. The free flow of funds across borders, it was believed, would facilitate this process. At the same time, removing public subsidies and cutting public spending would enable indebted countries to mobilise larger funds for investment. Providing a stimulus to the private sector by loosening regulations and controls would provide the necessary stimulus to this sector to act as the engine of economic growth.

SAP, liberalisation and privatisation measures were applied in a uniform manner across three continents, beginning with Latin America and Africa in the early 1980s and in Asia in the late 1980s.

In the agricultural sector this led to a reinforcement of colonial patterns of agricultural production, stimulating the growth of export-oriented crops and reducing the production of food crops. The problem at the heart of this pattern of production was that it reinforced the pre-existing international division of labour and that it was implemented when the prices of primary commodities exported by Third World countries were low as never before. The more successful the countries were in increasing the volume of exports, in competition with other Third World countries exporting similar products, the less successful they were in raising foreign exchange to finance their imports. Thus many countries shifted backwards into being exporters of unprocessed raw materials and importers of manufactured goods, in keeping with the saying ‘produce what you don’t consume and consume what you don’t produce’. Indeed as the range of products consumed by households in the South shrank, the acronym SAP increasingly came to be given new meanings: ‘See And Pass’ or ‘Suffer And Perish’.

In the industrial sector, where the countries had been striving to break out of colonial patterns of dependent development, the withdrawal of state support plunged many enterprises into crisis. Such units were then allowed to close or were privatised or handed over to TNCs, typically with significant losses in employment. Just as the state reduced its commitment to critical sectors such as education and health, so also the free flow of capital across borders in search of labour, raw materials and markets weakened the state. Further, over this period, capital across the globe was increasingly being concentrated in fewer and fewer hands with an explosion of mergers and acquisitions.

Together these policies and processes increased indebtedness, increased the rate of exploitation of low-income communities across all countries, and shifted wealth from productive to speculative financial sectors where boom and bust became the order of the day. Many countries opened export-processing zones (EPZs) to attract foreign investment, driving down their own labour costs and forgoing tax revenues. Usually exempt from national labour laws, EPZs employed women in low-paid jobs, while tax concessions made it difficult for national governments to meet the long-term social costs of production incurred in these zones. Thus these policies also led to a significant increase in casual, poorly-paid and insecure forms of employment, and led to the collapse of already weak and underfunded systems of health, education and food security. They increased poverty in already poor countries even as a few people became richer and the middle and upper classes obtained access to consumer products manufactured in the rich countries.

Changes in food prices induced by SAP: Bolivia 1975 and 1984
Food item	Hours worked to purchase 1,000 calories in
Food item	1975	1984
Barley	0.07	0.59
Sugar	0.16	0.40
Corn	0.17	0.64
Wheat flour	0.21	0.52
Dried beans	0.22	3.47
Rice	0.22	0.48
Bread	0.28	0.51
Oil	0.28	0.51
Dried peas	0.29	1.38
Potatoes	0.76	2.35
Onions	1.02	3.22
Powdered milk	1.05	3.95

One consequence of these processes has been commonly described as the feminisation of poverty, as females increasingly had to strive to hold families together in various ways. More women entered the paid labour force, typically at lower wages and with inferior working conditions than men. Simultaneously, the extent of unpaid labour in households (predominantly performed by women) increased as public provision of basic goods and services declined. Young children, especially girls, were increasingly withdrawn from school to join the vast and underpaid labour market or to assist in running the household. The involvement of children and adolescents in crime and delinquency increased under these circumstances. Rising food prices meant that an increasing proportion of families were pushed under the poverty line, and women and girl children were disproportionately affected. Morbidity levels increased even as poor people were increasingly unable to access health institutions, which, under the reform measures, typically introduced payment for services. Given increasing levels of malnutrition, it is not surprising that infant and child mortality rates, which had hitherto shown a decline, either stagnated or in fact increased in a number of poor communities.

The growth promised by the initiation of SAP measures was particularly not achieved in Africa, which has shown reduced economic growth for more than two decades now. Per capita income for sub-Saharan Africa as a whole is lower than it was in 1960. It is thus not surprising that these last two decades are often described as lost decades for these countries.

Concentration of power
Global changes in production technologies and in the organisation of production have also taken place, with fewer and fewer corporations controlling such critical sectors as information, energy, transport and communication; this process has been described as transnationalisation. Multinational corporations were increasingly becoming transnational in their operations, spreading different components of their manufacturing processes to different countries where resources and conditions for their operations were optimal. Thus, around 100 TNCs control 33% of the world’s productive assets, account for one- third of world production and employ only 5% of the global workforce. At the same time, the state sector in Third World countries, which was the only sector large enough to enable investment for wider development, has been pushed into a much less significant role. Such measures as the sale of public assets (often to TNCs), and fiscal policies that combined decreasing taxation of the richer segments of the population with decreasing subsidies to weaker segments, essentially meant a widening of income disparities. It is not surprising that income inequalities within countries have significantly increased.

Reduced public sector spending to enable debt repayment also meant that states could no longer play a critical role in maintaining measures for equitable development that they had in many cases initiated. Thus the package of SAP measures led to the collapse of the models of self-sufficient import-substituting industrialisation that many of them had established in the immediate postcolonial years. The essential feature of this past was that socio-economic development in these countries was based on their being exporters of cheap primary commodities and importers of finished manufacturedg goods.

Many SAP-implementing countries fell from their initial debt into the debt trap wherein they had to take increasing loans merely to pay back the interest on their earlier loans. Since they now received less for the raw materials they exported, they were forced to undertake repeated devaluation and thus paid more for imported products. They became caught in a vicious cycle of low capital for initiating development, borrowing, devaluation, and less capital. Furthermore, the net flow of resources from the countries of the South to those of the North substantially increased. UNICEF, for instance, estimates that this outflow now amounts to 60 billion dollars annually. In other words, the SAP measures have been successful in increasing the rates of exploitation of the poor by the rich. Liberalised capital markets meant that trillions of dollars could flow in and out of a country within a single day. As the crises in East Asia have indicated, the free flow of capital in search of quick profits has left in its wake devastating poverty and social disruption.

As noted by the UNDP, free market expansion has outpaced systems to protect the social well-being of people and human development. Recent UNDP Human Development Reports note that more progress has been made in norms, standards, policies and institutions for open global markets than for people and their rights. They note that when economic growth through the market is left uncontrolled, it inevitably concentrates wealth and power in the hands of a select group of already powerful people, nations and corporations, while marginalising others.

International organisations and national elites
It is equally true that several global institutions of the United Nations have themselves been a part of this process. The World Health Organization (WHO), for instance, has increasingly forfeited its leadership role in health to the World Bank; indeed the total budget of the WHO is less than the health spending of the WB. It has also been suggested that the interests represented by the advanced capitalist countries have themselves increasingly influenced such institutions. Policy prescriptions such as the endorsement of the concept of Disability adjusted life years (DALYs) in health means an approach to health services development that increases the role of the private health sector and the pharmaceutical industry. The World Trade Organization (WTO) has become a forum of debate and struggle over the extent to which trade and industry, including the pharmaceutical industry, should have rights over governments to meaningfully protect resources and public health. Rapidly changing trade regulations demand capacities and negotiating abilities that many developing countries do not have.

The dominance of neoliberal policies across the globe was also linked to the collapse of the socialist economies. The ideological vacuum of alternatives to free-market promises at the global level led to the demoralisation of social movements that rejected first colonial and later neocolonial policies of development.

Although these neoliberal policies have often been described as a neocolonialization, influential sectors in Third World countries have expressed their support for them. These sectors, which benefited disproportionately from postcolonial development in the 1950s and 1960s, have given up ideas of national self-sufficiency, independence and sovereignty, which guided them before. They now intent to reap the benefits as junior partners to foreign capital in search of quick profits, or the purchase of public assets at a low price through privatisation, these classes have lent open support to the policies of the World Bank and the IMF. Aiding this process has been the role of the global media, which transmits messages glorifying consumerism. Not to be underplayed is the role of illicit sources of money from trade in drugs, and rewards to politicians in the Third World for protecting these practices.

There have been two significant political ramifications of this process. First, international financial institutions and TNCs consolidated their position through institutional measures. Under the new world trading order, which emerged with the completion of the Uruguay Round of talks in Marrakech, the role of the Bretton Woods institutions and national governments was redefined. It was envisaged that in the articles of the new World Trade Organisation (which was to have been endorsed in Seattle), many aspects of SAP would become legally enforceable articles in international law. Third World countries would thus be at an increasing disadvantage, and less and less the owners of their own indigenous biological materials and knowledge.

The WTO has been criticised for its lack of transparency and democracy in decision-making, but the problem runs even deeper. In the profoundly uneven playing field on which the process of global economic change is taking place, even a transparent WTO would not pursue the values or principles that would enable the vast share of the world’s population to access resources or enhance their productive capacities.

The second ramification is that national governments in many Third World countries, after losing support from the former socialist countries, failed to build stronger South to South links with neighbouring countries or with those producing similar primary commodities; instead they embarked on a competitive race to integrate into the global economy, thus pushing primary commodity and labour prices lower.

When populations in Third World countries resisted—and these sites of resistance are legion—their governments used severe measures to suppress them. Indeed, in many countries, scarce public resources were often typically directed to military and security expenditures. Thus, paradoxically, ‘liberal’ pro-market policies in much of the developing world have been associated with repressive politics.

There have been many sites of resistance to these policies in many parts of the Third World. The Caracas anti-IMF riots in 1989 were sparked off by a 200% increase in the price of bread. Unofficial reports indicate that in January 1984 more than 1000 people were killed by the police firing in Tunis when protesting adjustment measures. Bread riots have also occurred in Nigeria in 1989. In 1990 anti-SAP riots took place in Morocco. The 1994 uprising in Chiapas, Mexico were also sparked off by SAP measures.

Movement for change: setbacks and hopes
The last decade of the 20th century has seen the weakening of democratic movements and aspirations. This has occurred partly because of the preoccupation with survival among larger sections of the population and the weakening of trade unions in the face of privatisation and layoffs. It is also partly due to the increasing centralisation of decision-making at national and often international levels. Indeed decisions affecting large sections of the population in poor countries are often made at distant capitals in the West, with the national government mandated merely to implement such decisions.

It is in this situation that poor people fallback on their sectarian identities and turn on their equally poor neighbours in ethnic and religious conflicts. At the same time, increasing conflicts over scarce resources at the local level are breaking out in a number of places. In other cases a withdrawal into the family occurrs, with women bearing the brunt of this rise in violence.

While these are mechanisms for coping with an increasingly hostile world where people are marginalised and disempowered, they do not confront the sources of alienation and disempowerment. A political culture of dependence, withdrawal or passivity, even as governments have acted against the interests of their own poor people, strengthens the same forces of authority.

The situation is not, however, completely bleak. There are significant positive developments that indicate confrontation with this unacceptable social and economic order. These are leading to organisation for change at many levels: local, national and international. Powerlessness is being addressed through a range of movements that organise in a representative and accountable manner, giving voice to the voiceless. Those movements that make links with others, pressurising governments for participatory democracy and to rebuild national priorities with a focus on the needs and aspirations of the majority of the population, must inevitably confront the wider sources of disempowerment. It is from this dimension of social movements confronting the current global political economy that there is hope for a more humane and human-centred type of development based on sustainability and equity. Within this larger struggle must be located the struggle for health for the people of the world.

Guyana in South America is the poorest country in the Western hemisphere. Since 1988, 80% of the government’s revenues have gone on servicing foreign debt. Through the 1980s and 1990s, malnutrition, child death rates, unemployment and poverty rose dramatically as a result of the implementation of the SAP package. In 1992, following the election of a new President, the citizens of Guyana joined forces with the Bretton Woods Reform Organisation (BWRO) to create the first Alternative Structural Adjustment Programme, which envisaged a comprehensive economic policy to meet the basic needs of the entire population. The ASAP was based on the principle that a healthy economy does not rely on exports for income and imports for daily needs. The supporters of the ASAP also rejected the IMF freeze on social sector spending, and the President declared that raising the standard of living of the majority was the first objective.

Questions:

What has happened to the lives of ordinary people in your country or community in the last two decades? How similar are the experiences of different countries? Who have been the winners and losers?
Why is ‘free trade’ a slogan primarily of the rich and influential countries?
What has happened to the profile of health and disease in poor communities? What has caused these changes in health and ill-health?
What actions have ordinary people taken to protect their rights to food, housing, jobs, health and health care? How far have these actions been coping mechanisms? How far have they confronted the causes of their problems collectively? What has been the response of the state?
In what ways have countries acted together to improve their trade advantage in your region? In what way have they competed with each other? Which is more effective?
What do ordinary people know about the international banks, financial institutions, world trade rules and markets that affect their lives?
Have you ever thought of the range of products available in a typical supermarket in the West? How many of them emanate from the Third World? How is it that these are available to the middle class Westerner but not to large populations within the countries they come from?

The Political Economy of the Assault on Health - Background Papers