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<title>Development economics</title></titleStmt>

<publicationStmt><distributor>BASE and Oxford Text Archive</distributor>


<availability><p>The British Academic Spoken English (BASE) corpus was developed at the

Universities of Warwick and Reading, under the directorship of Hilary Nesi

(Centre for English Language Teacher Education, Warwick) and Paul Thompson

(Department of Applied Linguistics, Reading), with funding from BALEAP,

EURALEX, the British Academy and the Arts and Humanities Research Board. The

original recordings are held at the Universities of Warwick and Reading, and

at the Oxford Text Archive and may be consulted by bona fide researchers

upon written application to any of the holding bodies.

The BASE corpus is freely available to researchers who agree to the

following conditions:</p>

<p>1. The recordings and transcriptions should not be modified in any


<p>2. The recordings and transcriptions should be used for research purposes

only; they should not be reproduced in teaching materials</p>

<p>3. The recordings and transcriptions should not be reproduced in full for

a wider audience/readership, although researchers are free to quote short

passages of text (up to 200 running words from any given speech event)</p>

<p>4. The corpus developers should be informed of all presentations or

publications arising from analysis of the corpus</p><p>

Researchers should acknowledge their use of the corpus using the following

form of words:

The recordings and transcriptions used in this study come from the British

Academic Spoken English (BASE) corpus, which was developed at the

Universities of Warwick and Reading under the directorship of Hilary Nesi

(Warwick) and Paul Thompson (Reading). Corpus development was assisted by

funding from the Universities of Warwick and Reading, BALEAP, EURALEX, the

British Academy and the Arts and Humanities Research Board. </p></availability>




<recording dur="01:33:30" n="13107">


<respStmt><name>BASE team</name>



<langUsage><language id="en">English</language>



<person id="nm0969" role="main speaker" n="n" sex="m"><p>nm0969, main speaker, non-student, male</p></person>

<person id="sm0970" role="participant" n="s" sex="m"><p>sm0970, participant, student, male</p></person>

<person id="sm0971" role="participant" n="s" sex="m"><p>sm0971, participant, student, male</p></person>

<person id="sm0972" role="participant" n="s" sex="m"><p>sm0972, participant, student, male</p></person>

<person id="sf0973" role="participant" n="s" sex="f"><p>sf0973, participant, student, female</p></person>

<person id="sm0974" role="participant" n="s" sex="m"><p>sm0974, participant, student, male</p></person>

<person id="sm0975" role="participant" n="s" sex="m"><p>sm0975, participant, student, male</p></person>

<personGrp id="ss" role="audience" size="m"><p>ss, audience, medium group </p></personGrp>

<personGrp id="sl" role="all" size="m"><p>sl, all, medium group</p></personGrp>

<personGrp role="speakers" size="9"><p>number of speakers: 9</p></personGrp>





<item n="speechevent">Lecture</item>

<item n="acaddept">Agricultural and Food Economics</item>

<item n="acaddiv">ss</item>

<item n="partlevel">UG/PG</item>

<item n="module">Economics of agricultural and rural development</item>




<u who="nm0969"> <kinesic desc="overhead projector is on showing transparency" iterated="n"/> accent on growth <pause dur="0.7"/> our interest in the agriculture sector <pause dur="0.7"/> somewhere lagging behind where the other ideas about agriculture <pause dur="0.2"/> it's shiny shiny shiny <pause dur="0.6"/> # <pause dur="0.2"/> big capital investments in machinery irrigation <pause dur="0.3"/> and the like <pause dur="0.4"/> # the attraction the siren call of <pause dur="0.3"/> large scale farming <pause dur="0.4"/> and the siren call <pause dur="0.4"/> of easily transferable technology <pause dur="1.4"/> okay <pause dur="0.4"/> all of that trucks ahead <pause dur="0.6"/> from the fifties <pause dur="0.3"/> and sixties <pause dur="0.5"/> through to the early nineteen-seventies <pause dur="0.5"/> and in the early nineteen-seventies <pause dur="0.4"/> we get an accumulation of doubts about whether <pause dur="0.5"/> development <pause dur="0.2"/> is really again about economic growth alone <pause dur="0.9"/> and last week we'd just got to those doubts <pause dur="0.5"/> and what were the doubts <pause dur="0.5"/> rising inequality <pause dur="0.7"/> and <pause dur="0.2"/> the massive differential between the favelas <pause dur="0.4"/> of the hillsides of Rio <pause dur="0.5"/> and the luxury apartments down in Ipanema <pause dur="0.5"/> Leblon <pause dur="1.0"/> Barra da Tijuca <pause dur="1.0"/> and the enormous disparities you would see in Mexico City <pause dur="0.6"/> between the swanky houses at the western end of town <pause dur="0.4"/> and the slums up to the north of Mexico City <pause dur="1.4"/> political disappointments were there <pause dur="0.5"/> and <pause dur="0.4"/>

particularly in what had happened in <pause dur="0.4"/> the newly independent states of Africa <pause dur="0.4"/> and the <pause dur="0.2"/> recently independent states <pause dur="0.3"/> of Asia where dictatorship reign <pause dur="1.1"/> # disappointments about the lack of urban jobs about the degree of informality <pause dur="0.6"/> of petty enterprise that people were undertaking <pause dur="0.4"/> in the cities <pause dur="0.4"/> the idea of Arthur Lewis that there was this ability to transfer from the traditional to the modern <pause dur="0.3"/> sector that this would soak up unemployment <pause dur="0.3"/> and create higher marginal productivity of labour <pause dur="0.3"/> did not seem to be working <pause dur="0.5"/> and that seemed to be owing to the inappropriate transfer of capital intensive <pause dur="0.3"/> agriculture industry <pause dur="0.3"/> and anything else <pause dur="0.3"/> from the north to the south <pause dur="0.8"/> okay those are are all the doubts <pause dur="0.8"/> now you need to know a little bit of history <pause dur="0.3"/> to understand <pause dur="0.3"/> how doubt crystallizes into action <pause dur="0.6"/> if you'd opened up books on <pause dur="0.2"/> development in the early nineteen-seventies <pause dur="0.4"/> you would have seen <pause dur="0.2"/>

an awful lot of influential books <pause dur="0.5"/> really arguing that development was not just a game <pause dur="0.5"/> in <pause dur="0.5"/> economic growth <pause dur="0.8"/> look here's here's an influential <pause dur="0.3"/> book <pause dur="1.3"/><kinesic desc="writes on board" iterated="y" dur="2"/> R-W Gee nineteen-seventy-five <pause dur="0.6"/> Redistribution with Growth <pause dur="0.6"/> published on behalf of the World Bank in nineteen-seventy-five <pause dur="0.5"/> this was a series of essays by some of the foremost development economists of the time <pause dur="0.7"/> and it argued the following <pause dur="0.5"/> that there was no trade-off between distributional objectives <pause dur="0.3"/> and economic growth <pause dur="0.6"/> in other words <pause dur="0.2"/> if you wanted the fastest and best return on capital <pause dur="0.4"/> put it into small scale industry <pause dur="0.4"/> put it into artisan industry <pause dur="0.4"/> put it into the urban informal sector <pause dur="0.3"/> and put it into small scale farming <pause dur="1.2"/> R-W Gee argued that that would give you faster rates of growth than investing in large scale formal enterprise be it urban <pause dur="0.3"/> or rural <pause dur="0.8"/> now this was wonderful news <pause dur="0.3"/> to have academics argue this <pause dur="0.3"/> because it was two for the price of one <pause dur="0.7"/> bet on the smallest and you not only get equity <pause dur="0.3"/> but you also get faster economic

growth <pause dur="1.2"/> but the real spur i suppose to the changes of the nineteen-seventies <pause dur="0.2"/> come from the events of <kinesic desc="writes on board" iterated="y" dur="2"/> nineteen-seventy-three <pause dur="1.3"/> now nineteen-seventy-three is <pause dur="0.8"/> one of the more interesting years of the last century <pause dur="0.9"/> # <pause dur="1.7"/> nineteen-seventy-three is the height of a world economic boom <pause dur="0.7"/> now remember what we saw last week the world economy grew steadily <pause dur="0.7"/> # <trunc>betw</trunc> in the nineteen-fifties and nineteen-sixties at rates that we don't think we've seen sustained <pause dur="0.4"/> before or since in the recorded history <pause dur="0.3"/> of humanity <pause dur="0.6"/> and those rates steamed on ahead <pause dur="0.5"/> into the early nineteen-seventies and culminated <pause dur="0.4"/> in a huge boom period <pause dur="0.3"/> which lasted <pause dur="0.4"/> <kinesic desc="writes on board" iterated="y" dur="3"/> seventy-two <pause dur="0.2"/> seventy-four <pause dur="0.8"/> just about every country in the world had a boom period seventy-two seventy-four <pause dur="0.4"/> if you like the <pause dur="0.2"/> macroeconomic shorthand <pause dur="0.9"/> world economies economies throughout the world overheated <pause dur="0.3"/> during seventy-two seventy-four <pause dur="0.5"/> and that overheating <pause dur="0.3"/><kinesic desc="writes on board" iterated="y" dur="8"/> pushed up <pause dur="0.6"/> the price of all commodities <pause dur="1.3"/> of all primary commodities <pause dur="0.8"/> they all went

up <pause dur="0.7"/> now one that everybody knows about <pause dur="0.6"/> is the one that went up in October seventy-three <pause dur="1.0"/> the world commodity whose price quadrupled <pause dur="0.2"/> in October seventy-three <pause dur="1.1"/> what commodity was that </u><pause dur="0.3"/> <u who="sm0970" trans="pause"> oil </u><u who="sm0971" trans="latching"> oil </u><u who="nm0969" trans="latching"> oil <pause dur="0.8"/> it was the first time that the Organization of Petroleum Exporting Countries had flexed its muscles <pause dur="0.4"/> and said let's see what we can do <pause dur="0.5"/> and led by Saudi Arabia those oil exporting countries in OPEC <pause dur="0.3"/> said what happens if we <pause dur="0.2"/> unilaterally raise the price of oil <pause dur="0.3"/> by four times <pause dur="0.3"/> and they tried it <pause dur="0.2"/> and it stuck <pause dur="0.8"/> and the world oil price rocketed upwards <pause dur="0.3"/> now that's the one that attracted all the attention <pause dur="0.8"/> well <pause dur="0.3"/> most of the attention <pause dur="0.7"/> except in seventy-three the world wheat price <pause dur="0.4"/> and all other cereals was dragged up <pause dur="0.5"/> by more than double <pause dur="0.4"/> by more than double i think it's triple <pause dur="0.6"/> may even be more than three times <pause dur="0.4"/> the world wheat price <pause dur="0.2"/> spiked <pause dur="0.8"/> now <pause dur="0.8"/> that world wheat price <pause dur="0.3"/> spiked <pause dur="0.3"/> was caused in part and probably largely <pause dur="0.5"/> by a harvest failure in the Soviet Union <pause dur="1.2"/> and <pause dur="0.2"/> as the Soviet Union's harvest

failed the Soviet Union imported about twenty-five-million tons extra <pause dur="0.3"/> of cereals <pause dur="0.5"/> in seventy-three <pause dur="0.7"/> that was a very large rise indeed <pause dur="2.1"/> # and it <pause dur="1.1"/> blasted the price of of wheat <pause dur="0.6"/> now wheat was also dragged upwards by the general inflation of the time <pause dur="0.5"/> but the effect of the rise in the wheat <trunc>pr</trunc> <trunc>c</trunc> # wheat price <pause dur="0.3"/> was dramatic on people interested in food policy <pause dur="1.0"/> and the the the real story that we've got there was an American commentator writing in Time magazine <pause dur="0.7"/> he said <pause dur="0.4"/> <reading>you have seen what Americans are doing on the forecourts this year <pause dur="0.2"/> wait till they're in a bread queue</reading> <pause dur="0.6"/> now what's the <trunc>amre</trunc> reference to the American forecourts <pause dur="0.7"/> when the world oil price went up by four times something happened in the oil supply chain <pause dur="0.6"/> and for a brief period Americans had undersupply of gas <pause dur="0.5"/> and it led to queuing on American forecourts <pause dur="0.4"/> and Americans with large gas guzzling cars found themselves queuing for fuel <pause dur="0.7"/> and <pause dur="0.2"/> inevitably in a very large country there were one or two well publicized

incidents yeah <pause dur="1.0"/> some drunken redneck in some place got out of his large car having queued for forty minutes picked up a shotgun and said right you fill this one up right now mate or that's it yeah <pause dur="0.7"/> one or two incidents like that you you can imagine <pause dur="0.4"/> and this gripped the imagination of American policy makers <pause dur="0.3"/> if Americans behave like this when they have to queue a little while for gas <pause dur="0.4"/> what happens when they have to queue for bread <pause dur="0.6"/> yeah <pause dur="1.9"/> why queue for bread well the wheat price had gone up <pause dur="1.0"/> now <pause dur="0.2"/> you also have to understand that during the sixties <pause dur="0.8"/> world population growth rates had risen <pause dur="1.1"/> the <sic corr="rates">grates</sic> had risen so not only was world population going up <pause dur="0.5"/> but it was going up exponentially <pause dur="0.5"/> and the rate was increasing <pause dur="1.3"/> at that rate you reach infinite population fairly quickly <pause dur="0.7"/> fairly quickly <pause dur="0.5"/> what nobody knew then <pause dur="0.4"/> is what we all know now <pause dur="0.6"/> and that was the arrow that looked like that <pause dur="0.8"/> but none of you can see this # <pause dur="1.9"/> <event desc="puts away screen" iterated="n"/><gap reason="inaudible" extent="1 sec"/> let's let's do the job properly <pause dur="0.8"/> # <pause dur="0.2"/> where are we <pause dur="2.6"/> see if

you looked at world population growth rates during the twentieth century <pause dur="0.7"/> and that's nineteen-fifties so and <pause dur="0.3"/> we're talking now about nineteen-seventy <pause dur="0.5"/> you've got a pattern that looks something like this <pause dur="3.6"/><kinesic desc="writes on board" iterated="y" dur="2"/> yeah <pause dur="1.2"/> and people looked at that and they said wow <pause dur="0.4"/> you know <pause dur="0.3"/> any number you like <pause dur="0.2"/> by the end of the twentieth century <pause dur="0.7"/> unimaginable numbers by <pause dur="0.8"/> twenty-twenty-five <pause dur="0.5"/> yeah <pause dur="0.3"/> any projection <pause dur="0.4"/> that took the <trunc>c</trunc> the the the trends at that time reached an Olympic amount of of population very quickly <pause dur="0.8"/> people said look <pause dur="0.2"/> if that's what's happened to population growth rates <pause dur="0.8"/> and if <pause dur="0.2"/> agricultural growth is good but not spectacular <pause dur="0.2"/> what's going to happen <pause dur="0.7"/> so we got the <trunc>th</trunc> the old favourite geometrical growth of population versus something looking like arithmetic growth <pause dur="0.5"/> of <pause dur="0.2"/> farm output equals <pause dur="0.3"/> famine <pause dur="0.2"/> yeah <pause dur="0.8"/> equals Thomas Malthus <pause dur="1.4"/> bunch of guys published a book in the late sixties called Famine nineteen-seventy-five <pause dur="1.2"/> was it Famine nineteen-seventy-five i think so <pause dur="0.7"/> they were actually right about Famine nineteen-seventy-five what they didn't realize was where it'd be and what the extent of it was be <pause dur="1.0"/> but you see when people looked at that and then they looked at this wheat price <pause dur="3.6"/> <kinesic desc="writes on board" iterated="y" dur="3"/> </u><gap reason="break in recording" extent="uncertain"/> <u who="nm0969" trans="pause"> is it <pause dur="0.4"/>

this is the first stage of the food crisis apocalypse <pause dur="0.7"/> and so in seventy-three or seventy-four we have something called the World Food Congress <pause dur="0.4"/> convened by the Food and Agriculture Organization of Rome <pause dur="0.4"/> and it meets to deal with the world food crisis which <trunc>c</trunc> surely has come to rest <pause dur="0.8"/> with <pause dur="0.2"/> the world <pause dur="1.5"/> that is a huge spur <pause dur="0.2"/> to changing development ideas the idea that the food is now in aggregate short supply and we've got a supply-side crunch <pause dur="0.4"/> in food <pause dur="0.4"/> a supply-side crunch <pause dur="2.1"/> now <pause dur="2.3"/> what do you need to know <pause dur="0.5"/> you need to know that history makes fools of us all <pause dur="2.2"/> that graph there <pause dur="0.9"/> it doesn't <pause dur="0.3"/> carry on <pause dur="0.4"/><kinesic desc="writes on board" iterated="y" dur="1"/> like that <pause dur="0.4"/> what happens to it is it starts going like this <pause dur="1.1"/> yeah <pause dur="1.1"/> something like that <pause dur="0.8"/> there's been a very considerable fall in population growth rates <pause dur="0.3"/> since

nineteen-seventy <pause dur="1.2"/> world population growth rates of nineteen-seventy were what over two per cent maybe as much as two-and-a-half per cent per year <pause dur="0.5"/> world population growth rates are below two per cent per day <pause dur="0.4"/> # <trunc>t</trunc> # two per cent a year two per cent a day strewth <pause dur="0.5"/> two per cent a year <pause dur="0.4"/> they're somewhere i'll be about one-point-seven per cent one-point-eight per cent <pause dur="0.3"/> i'm guessing <pause dur="0.3"/> somewhere between one-and-a-half and two per cent <pause dur="0.3"/> they've come down <pause dur="0.7"/> and so we're looking at this <pause dur="0.4"/> and people can now reasonably say that by the time we get to the year what twenty-thirty twenty-forty <pause dur="0.4"/> world population growth will be very slow indeed we'll be <pause dur="0.3"/> getting pretty close <pause dur="0.4"/> to what we think may be the maximum population <pause dur="0.4"/> in this stage of human history <pause dur="0.8"/> we also know that the world wheat price which spiked in seventy-three <pause dur="0.4"/> within a year or two it was back down to its normal levels <pause dur="0.7"/> now for those of you who don't know this story <pause dur="0.4"/> if we plotted the world wheat price from round about here <pause dur="0.4"/> if this is

the world wheat price in nineteen-fifty or so <pause dur="0.4"/> what we're going to see <pause dur="0.4"/> is a story that looks something like this <pause dur="5.8"/><kinesic desc="writes on board" iterated="y" dur="5"/> that's the world wheat price over the last fifty years more or less <pause dur="0.3"/> there's the spike <pause dur="1.0"/> in the early nineteen-seventies <pause dur="0.3"/> that's the nineteen-ninety-six spike by the way <pause dur="0.5"/> which lasted all of what six months twelve months at most <pause dur="0.5"/> but the general picture of the real world wheat price is <pause dur="0.3"/> down down down <pause dur="1.0"/> # <pause dur="1.8"/> so the world food crisis was a short-lived event <pause dur="0.3"/> in the early seventies but it contributed <pause dur="0.3"/> to the big change in development thinking <pause dur="0.6"/> and what we find in the early nineteen-seventies <pause dur="0.3"/> is we find developmental specialists <pause dur="0.4"/><kinesic desc="writes on board" iterated="y" dur="3"/> coming up with the following signpost <pause dur="0.5"/> to development now <pause dur="0.8"/><kinesic desc="writes on board" iterated="y" dur="3"/> redistribution with growth <pause dur="0.4"/> is one of those <pause dur="0.4"/> let's have attention to <trunc>equit</trunc> equity <pause dur="0.3"/><kinesic desc="writes on board" iterated="y" dur="12"/> so development now <pause dur="1.8"/> is not just economic growth <pause dur="1.6"/> but it's economic growth <pause dur="0.2"/> with equity <pause dur="1.2"/> with decent distribution <pause dur="0.3"/> of the benefits <pause dur="2.2"/> now here's another <pause dur="0.9"/><kinesic desc="writes on board" iterated="y" dur="10"/> of the T-L-As that <pause dur="1.7"/> you perhaps

need to know or don't need to know <pause dur="0.5"/> basic human needs <pause dur="2.3"/> the I-L-O the International Labour Organization said <pause dur="0.3"/> let's plan for development on the basis of meeting everybody's basic human needs <pause dur="0.7"/> let's let's not just go for maximum economic growth or industrial growth or <pause dur="0.4"/> iron and steel production <pause dur="0.7"/> what we should aim to do is satisfy everybody's basic human needs <pause dur="0.4"/> and those basic human needs <pause dur="0.3"/> nutrition <pause dur="0.3"/> shelter and housing <pause dur="0.3"/> clean water <pause dur="0.7"/> basic education <pause dur="0.4"/> health services <pause dur="1.0"/> clothing <pause dur="1.1"/> right <pause dur="0.3"/> satisfy those basic human needs of everybody <pause dur="0.5"/> more or less <pause dur="0.4"/> equivalent to alleviating poverty <pause dur="1.9"/> and the same organization I-L-O <pause dur="0.8"/> also came up with <pause dur="0.6"/><kinesic desc="writes on board" iterated="y" dur="9"/> a similar message in a different set of clothes <pause dur="1.3"/> when it talked about <pause dur="1.3"/> employment first policies <pause dur="1.6"/> developing <pause dur="0.7"/> development plans <pause dur="0.5"/> producing development plans <pause dur="0.5"/> where the maximum goal was to create jobs <pause dur="1.3"/> and they sent missions famously to Sri Lanka Kenya and Colombia <pause dur="0.5"/> of very eminent development specialists <pause dur="0.4"/> who

produced indicative development plans <pause dur="0.3"/> aiming to maximize the creation of jobs <pause dur="4.3"/><kinesic desc="writes on board" iterated="y" dur="6"/> and here's another touchstone of this period <pause dur="0.9"/> appropriate technology <pause dur="1.2"/> lack of jobs in the south urban unemployment <pause dur="0.4"/> casualization of labour <pause dur="0.2"/> well <pause dur="0.4"/> went the argument <pause dur="0.2"/> that's because we've brought the wrong technology <pause dur="0.3"/> it uses capital and saves labour <pause dur="0.8"/> do remember of course that the technology developed in the west in the fifties and sixties <pause dur="0.4"/> was technology from America <pause dur="0.4"/> from Germany <pause dur="0.3"/> from the U-K from France <pause dur="0.3"/> all of those countries were short of labour in the fifties and sixties <pause dur="0.8"/> never forget that all of those countries <pause dur="0.6"/> invited large numbers of guest workers and immigrants to make up <pause dur="0.2"/> the labour deficiency <pause dur="0.5"/> hard to believe in these days of <trunc>s</trunc> tightening immigration controls and concerns about international migration <pause dur="0.4"/> but in the fifties and sixties all of those countries <pause dur="0.2"/> wanted people to come in they were short of labour <pause dur="0.3"/> so all of their technology was labour saving <pause dur="0.4"/> well the appropriate

technology <pause dur="0.2"/> movement said look what we want <pause dur="0.3"/> is technology that can be maintained locally uses local materials <pause dur="0.3"/> and above all <pause dur="0.6"/> saves on capital <pause dur="0.3"/> and uses labour <pause dur="0.4"/> responds to the factor proportions available <pause dur="0.5"/> in the developing world <pause dur="1.8"/> now <pause dur="0.2"/> armed with these ideas one by one <pause dur="0.2"/> all of the major development agencies the World Bank <pause dur="0.6"/> Britain's O-D-A <pause dur="0.2"/> America's U-S-AID <pause dur="0.9"/> # the I-L-O you name it <pause dur="0.4"/> they all signed up for variants <pause dur="0.5"/> on development with equity <pause dur="1.0"/> and the most famous moment in this <pause dur="0.4"/> was a speech in nineteen-seventy-three in Nairobi Kenya <pause dur="0.5"/> by the then President of the World Bank Robert McNamara <pause dur="0.3"/> in which he committed the World Bank to shifting its resources <pause dur="0.5"/> to development projects which stressed redistribution with growth <pause dur="0.8"/> now what did that mean in terms of concrete development policy <pause dur="0.7"/> well what it did mean <pause dur="1.1"/><kinesic desc="writes on board" iterated="y" dur="11"/> was it meant that you <pause dur="0.2"/> went for targeting the poorest <pause dur="2.3"/> you looked actively <pause dur="0.5"/> for the poor <pause dur="0.3"/> for the small scale <pause dur="0.7"/> for the meek and the humble and you tried to

target those as the focus of your development efforts <pause dur="0.8"/> and <kinesic desc="writes on board" iterated="y" dur="7"/> where this went sectorially <pause dur="0.4"/> was all of a sudden <pause dur="1.8"/> agriculture was king <pause dur="1.3"/> agriculture was king and it was king because <pause dur="0.3"/> that's where most of the poor were <pause dur="0.4"/> it was king because that was where so <pause dur="0.5"/> so many <pause dur="0.2"/> small scale entrepreneurs were smallholders <pause dur="0.5"/> and it was king because of the perceived <pause dur="0.3"/> world food crisis <pause dur="1.3"/> so agriculture was the win win win bet small scale agriculture you'd help the poor <pause dur="0.3"/> you'd drive forward economic growth <pause dur="0.3"/> and you'd solve the world food crisis <pause dur="0.6"/> so agriculture got prime attention in this <pause dur="2.1"/> now here's another <kinesic desc="writes on board" iterated="y" dur="4"/> idea out of the seventies <pause dur="1.0"/> I-R-D <pause dur="1.1"/> integrated rural development <pause dur="1.4"/> and this was the idea that when you worked in rural areas with the poor with the small scale and so on <pause dur="0.6"/> what you tried to do is to deliver <pause dur="0.4"/> a package of assistance across sectors <pause dur="0.3"/> on the grounds this would give you synergy <pause dur="1.5"/> now <pause dur="0.7"/> just to give you a fairly <pause dur="0.4"/> exaggerated example <pause dur="0.5"/> but if you're trying to get people to

plant new varieties of rice and use fertilizer to increase their rice yields <pause dur="0.9"/> which you hope is a scale neutral technology that can be used by smallholders <pause dur="0.6"/> then why not at the same time <pause dur="0.9"/> # <pause dur="0.5"/> combat malaria <pause dur="0.4"/> inoculate people against diseases <pause dur="0.4"/> and clean up the water supply <pause dur="0.4"/> because all of those will give you better health <pause dur="0.5"/> which is a good thing in itself <pause dur="0.5"/> but of course healthier farmers can work harder in the fields <pause dur="0.4"/> and so that complements the agricultural measures <pause dur="0.8"/> and while we're at it we're going to build some access roads because that will improve <pause dur="0.6"/> price relatives at the farm gate <pause dur="0.3"/> reduce isolation <pause dur="0.4"/> and while we're at it we'll run a an adult literacy campaign because literate farmers <pause dur="0.3"/> can read the labels on the fertilizer packet and so on and so forth <pause dur="0.5"/> so <pause dur="0.2"/> there was the idea that you should try and do things <pause dur="0.3"/> in development in an integrated fashion across all sectors <pause dur="0.4"/> because you get synergy <pause dur="0.4"/> and you get more than the sum of the parts going on <pause dur="2.2"/> now <pause dur="0.2"/> integrated rural development was <pause dur="0.7"/>

very very exciting to work in <pause dur="0.5"/> # <pause dur="0.9"/> very exciting to work in <pause dur="0.8"/> you got all kinds of things to have a go at <pause dur="0.4"/> # and you've got quite a lot of resources <pause dur="0.6"/> to play with <pause dur="0.9"/> but these resources were limited compared to needs so what happened with integrated rural development <pause dur="0.7"/> was within any country <pause dur="0.5"/> what you did is you took a country <pause dur="1.8"/><kinesic desc="writes on board" iterated="y" dur="6"/> and a country <pause dur="0.3"/> might just look like that <pause dur="0.6"/> and might have its capital there <pause dur="0.5"/> and you take <pause dur="0.5"/> a country that looks like that and you do integrated rural development <pause dur="0.4"/> and you do it <pause dur="0.7"/><kinesic desc="writes on board" iterated="y" dur="8"/> there <pause dur="1.2"/> there <pause dur="1.0"/> there <pause dur="1.1"/> there <pause dur="1.1"/> there <pause dur="0.8"/> oh <kinesic desc="writes on board" iterated="y" dur="1"/> and there <pause dur="1.0"/> right <pause dur="0.6"/> and yes that is to scale <pause dur="0.8"/> yes that is to scale <pause dur="0.5"/> in other words you get these little <trunc>e</trunc> enclaves <pause dur="0.5"/> of very small areas where donors are putting in resources <pause dur="0.3"/> and everything is done <pause dur="1.4"/> now that country there some of you will have <pause dur="0.4"/> have <pause dur="0.2"/> have sussed <pause dur="0.6"/> # despite its <pause dur="0.4"/> wobbly outline <pause dur="0.5"/> is Kenya <pause dur="0.8"/> and in the early nineteen-seventies Kenya had six <pause dur="0.2"/> small integrated rural development programmes <pause dur="0.5"/> which were <pause dur="0.2"/> very well documented <pause dur="0.5"/> and some contemporary very influential

thinkers about development <pause dur="0.4"/> worked on those projects in the early nineteen-seventies <pause dur="0.4"/> but look how tiny they are <pause dur="0.5"/> compared to the mass of Kenya <pause dur="0.5"/> that really is to scale these things were in very small areas indeed <pause dur="0.5"/> why because <pause dur="0.4"/> although you could target resources for a small area you couldn't have the whole country <pause dur="0.3"/> running the kinds of programmes that were run there <pause dur="1.1"/> so because you did everything in a integrated rural development <pause dur="0.4"/> you could only do it on a small scale concentrated in particular areas <pause dur="0.6"/> and because you were trying to do everything <pause dur="0.6"/> donors very often ran very special administrative structures quite different <pause dur="0.4"/> to normal government operations <pause dur="0.3"/> to <trunc>c</trunc> make these things work <pause dur="0.7"/> now those six small experiences i think were all successes <pause dur="0.5"/> they were all successes <pause dur="0.5"/> but <pause dur="0.6"/> i think with the benefit of hindsight we have to say <pause dur="0.4"/> they were unrepeatable <pause dur="0.7"/> and institutionally <pause dur="0.3"/> unsustainable <pause dur="0.5"/> when the donors got bored and the funds ran out <pause dur="0.4"/> and the foreign experts' contracts

ended <pause dur="0.8"/> and the Landrovers began to rust <pause dur="0.4"/> these projects essentially <pause dur="0.3"/> stopped <pause dur="1.4"/> indeed i arrived <kinesic desc="indicates point on board" iterated="n"/> in this part of Kenya in nineteen-seventy-nine <pause dur="1.3"/> which had <kinesic desc="writes on board" iterated="y" dur="2"/> been the administrative headquarters including that area there <pause dur="0.7"/> and there were two or three filing cabinets chock-a with files <pause dur="0.4"/> in my room and i i left them there for a while <pause dur="0.5"/> and then one day i thought what on earth <pause dur="0.8"/> # <pause dur="0.5"/> and i went through these filing cabinets and it was all the stuff on sort of four or five years ten years earlier <pause dur="0.3"/> of the implementation of this <pause dur="0.4"/> minutes plans documents contracts <pause dur="0.2"/> budgets <pause dur="1.1"/> semi-annual reports monthly reports all kinds of stuff <pause dur="0.7"/> and i looked at this and i said my goodness this is a vital bit of development <shift feature="voice" new="laugh"/> history here <shift feature="voice" new="normal"/> <vocal desc="laugh" iterated="n"/> but it's clogging up my office <vocal desc="laugh" iterated="n"/> <shift feature="voice" new="laugh"/> so it all <shift feature="voice" new="normal"/> went in a skip <pause dur="0.3"/> <vocal desc="laugh" iterated="n"/> there's never <trunc>en</trunc> never enough historians around to document these experiences and <pause dur="0.2"/> that's the sort of way and as i threw them in the skip i thought <pause dur="0.8"/> there you go <pause dur="0.2"/> good idea at the time good people working

on it <pause dur="0.2"/> quite a success but not sustainable <pause dur="1.9"/> now one thing that you need to understand about these efforts of agriculture first targeting the poor is basic human needs integrated rural development <pause dur="0.9"/> is <pause dur="0.2"/> one element of the development equation hasn't changed in all this <pause dur="0.6"/> and that is <pause dur="0.5"/> <kinesic desc="writes on board" iterated="y" dur="7"/> this is a game <pause dur="0.7"/> about the state <pause dur="0.9"/> and the state's agencies nobody is seriously questioning that if you're going to do integrated rural development <pause dur="0.2"/> it will be the Ministry of Agriculture and the Department of Health <pause dur="0.6"/> and the Directorate of Transport and so on <pause dur="0.5"/>

it will be state agencies leading the charge <pause dur="0.5"/> and if the state agencies lack resources they'll get money from governments in other countries so it's <pause dur="0.3"/> a government first approach <pause dur="0.5"/> nobody's really challenging <pause dur="0.3"/> the supreme <kinesic desc="writes on board" iterated="y" dur="2"/> role of the state <pause dur="0.3"/> as an organizer <pause dur="0.2"/> and an investor <pause dur="0.3"/> in development <pause dur="4.7"/> now look <pause dur="0.3"/> these ideas are publicized in the early nineteen-seventies <pause dur="0.4"/> one by one in the early nineteen-seventies <pause dur="0.3"/> all the major aid donors sign up <pause dur="0.2"/> to this new agenda <pause dur="0.4"/> and it's a very different agenda to the one that's prevailed for the <pause dur="0.3"/> previous twenty years <pause dur="0.5"/> one by one the agencies published documents <pause dur="0.2"/> saying this is what we're going to do <pause dur="0.7"/> now Britain had a world had a a world had a White Paper on development <pause dur="0.5"/> in nineteen-ninety-seven <pause dur="0.5"/> the previous one <pause dur="0.5"/> was all the way back in nineteen-seventy-five so the white the last White Paper <pause dur="0.7"/> # so recent was the first one in nearly a quarter of a century <pause dur="1.1"/> # <pause dur="0.3"/> the nineteen-seventy-five White Paper <pause dur="1.0"/> # was called More Aid to the Poorest <pause dur="0.8"/> and it was at the height of

enthusiasm for these ideas More Aid to the Poorest <pause dur="0.7"/> what is the nineteen-ninety-seven one called <pause dur="1.4"/> forgotten what the nineteen ninety-seven one was called but what's it about <pause dur="0.4"/> it's about reducing poverty by half <pause dur="0.3"/> in other words every time Britain has a White Paper on development it's heavily focused on poverty <pause dur="1.8"/> so Britain signed up to this in in in nineteen-seventy-five as did just about every other aid agency <pause dur="1.8"/> now what you have to understand about history is that <pause dur="0.4"/> if people write things down on documents in nineteen-seventy-three seventy-four seventy-five about <pause dur="0.3"/> we are going to do this <pause dur="0.7"/> how long does it take <pause dur="0.3"/> to make the plans for the new investments and the new direction of money <pause dur="0.8"/> one <pause dur="0.2"/> two three years at least <pause dur="0.4"/> before you redirect the flows of money <pause dur="0.3"/> create the new agencies <pause dur="0.3"/> the new plans <pause dur="0.2"/> the programmes <pause dur="0.4"/> so these I-R-Ds <pause dur="0.2"/> not many were in operation before the mid-nineteen-seventies <pause dur="0.7"/> and how long before you think it's fair to say what is the experience of things <pause dur="0.9"/> well when

you're working in rural development anything less than five years <pause dur="0.3"/> is the short term <pause dur="1.0"/> # difficult to do things in agriculture and rural areas in less than five years <pause dur="0.3"/> so in other words as we come to the end of the seventies <pause dur="0.3"/> it's very early days with this new agenda <pause dur="0.3"/> it's barely started to be implemented <pause dur="0.2"/> in any great seriousness <pause dur="0.6"/> and the results are not entirely clear <pause dur="1.3"/> before we reach that <pause dur="0.7"/> the whole thing <pause dur="0.3"/> is flipped <pause dur="2.0"/> the whole cooking pot is turned upside down <pause dur="2.0"/> the pancake is turned <pause dur="1.7"/> and we're into the nineteen-eighties <pause dur="0.4"/> and by the time we're into the nineteen-eighties <pause dur="0.4"/> the entire focus of development <pause dur="0.6"/> has jumped <pause dur="0.2"/> radically from where it was <pause dur="0.3"/> in the early seventies <pause dur="1.0"/> now it's quite a long story to explain <pause dur="0.5"/> why development ideas in the nineteen-<pause dur="0.6"/>eighties were so <pause dur="0.3"/> radically different <pause dur="0.6"/> you've got them spelled out in your notes in some considerable detail <pause dur="0.4"/> let me try and summarize that experience <pause dur="2.5"/> what you have to understand is that <pause dur="0.8"/> from the early seventies onwards <pause dur="0.4"/> there was this

primary boom <pause dur="0.2"/> and there was inflation beginning to come into the world economy <pause dur="0.7"/> in nineteen-seventy-one <pause dur="0.4"/> America left the gold standard <pause dur="0.5"/> the dollar which had been anchored against gold <pause dur="0.5"/> and had been the bulwark of the world economy <pause dur="0.5"/> for twenty-five years or so after the Second World War <pause dur="0.6"/> was suddenly cut free from gold <pause dur="0.4"/> it was effectively devalued <pause dur="1.2"/> remember in nineteen-seventy the American economy <pause dur="0.3"/> made up about one-third of the total product of the world economy today it's about twenty-five per cent or less <pause dur="0.6"/> at that time America was just <pause dur="0.5"/> mega <pause dur="0.2"/> on the scene <pause dur="0.3"/> and its currency was underwritten by the strength of America <pause dur="0.3"/> and it was pegged to gold and we had fixed exchange rates <pause dur="0.8"/> from nineteen-seventy-one America devalued the dollar <pause dur="0.3"/> and the exchange rates floated <pause dur="0.4"/> and from that moment onwards <pause dur="0.3"/> the major industrial economies which in the fifties and sixties had had inflation rates of <pause dur="0.3"/> one two three per cent per year <pause dur="0.4"/> suddenly found themselves with inflation rates running at <pause dur="0.2"/> ten per cent <pause dur="0.3"/>

fifteen per cent <pause dur="0.3"/> twenty per cent <pause dur="0.7"/> none of you in this room these days will probably believe me <pause dur="0.3"/> when i tell you that in nineteen-seventy-nine Britain's rate of inflation <pause dur="0.4"/> was twenty-<pause dur="0.2"/>five <pause dur="0.2"/> per cent <pause dur="0.2"/> yes <pause dur="1.0"/> i can hardly believe that as the words come out of my mouth and i can remember the year very <trunc>c</trunc> <pause dur="0.2"/> very distinctly <pause dur="0.3"/> think about it during a year prices go up by a quarter <pause dur="0.7"/> it's unimaginable <pause dur="0.3"/> back then now <pause dur="0.2"/> and it was unimaginable in the sixties but in the seventies <pause dur="0.3"/> world inflation <pause dur="0.4"/> inflation in every country <pause dur="0.4"/> moved up a gear <pause dur="0.5"/> and it moved to double digit or more <pause dur="1.9"/> now the effect of the <pause dur="1.1"/> rise in oil prices <pause dur="0.5"/> was tremendous on the world economy <pause dur="1.0"/> what happened basically was that every country importing oil <pause dur="0.5"/> suddenly paid <pause dur="0.4"/> an awful lot of money <pause dur="0.7"/> to countries that exported oil <pause dur="0.8"/> and that huge transfer of resources meant that some of the oil exporters <pause dur="0.4"/> many of them small countries with limited investment possibilities at home <pause dur="0.8"/> how much money can you spend in Kuwait <pause dur="1.0"/> you can build a new airport a

desalination plant <pause dur="0.6"/> you can build all kinds of luxury items as well as new hospitals and so on <pause dur="0.4"/> and you still haven't used up these hundreds of millions of dollars which are flowing in <pause dur="0.4"/> as oil rents <pause dur="0.7"/> so a lot of that oil money <pause dur="0.7"/> was put back into western banks <pause dur="0.4"/> in Zurich London Frankfurt New York Miami and so on <pause dur="0.6"/> and the money was then lent back to people who needed money <pause dur="0.4"/> now the people who needed money <pause dur="0.4"/> were <pause dur="0.2"/> countries that suddenly faced a higher oil import bill <pause dur="0.2"/> and had to cover the cost of that <pause dur="0.7"/> and those countries in the developing world <pause dur="0.5"/> who'd seen such <pause dur="0.2"/> incredibly fast growth in the late sixties early seventies <pause dur="0.5"/> that they honestly believed with very good justification <pause dur="0.4"/> that there was no way <pause dur="0.4"/> that they couldn't pay back any amount of debt that they could possibly get <pause dur="1.8"/> now <pause dur="0.2"/> the classic country for this is this country <pause dur="4.5"/><event desc="pulls down screen" iterated="n"/> Brazil <pause dur="1.9"/> nineteen <pause dur="0.3"/> Brazil in the early nineteen-seventies <pause dur="2.2"/> wish we had a Tardis a time machine to take you to Brazil in the early nineteen-seventies boy would

you enjoy it <pause dur="0.7"/> this was a country <pause dur="0.5"/> which was so self-confident <pause dur="0.5"/> i'd never seen anything like it i've never seen a country <pause dur="0.4"/> so full of its own <pause dur="0.2"/> self-confidence <pause dur="0.4"/> about what it was up to <pause dur="0.3"/> and what the future was there <pause dur="0.5"/> in <trunc>n</trunc> in the early seventies <pause dur="0.3"/> Brazil had been growing for many years at seven or eight per cent per annum <pause dur="0.3"/> it was one of the world's fastest growing economies probably the world's fastest growing economy <pause dur="0.8"/> it had a mega-city <pause dur="0.3"/> which promised to be the world's biggest and most important city <pause dur="0.3"/> by the end of the twentieth century <pause dur="0.3"/> and that was

São Paulo <pause dur="1.3"/> it also had unimaginable natural resources or appeared to have <pause dur="0.7"/> most of Brazil's population and economic developments concentrated in a small area <pause dur="0.5"/> coastal strip and above all Southern Brazil <pause dur="0.3"/> all the Amazonian forests <pause dur="1.0"/> were out there <pause dur="0.4"/> barely touched <pause dur="0.8"/> and those seemed to be a limitless <pause dur="0.2"/> supply of natural resources for agriculture <pause dur="0.4"/> and <trunc>hu</trunc> who knew <pause dur="0.5"/> in the early seventies <pause dur="0.3"/> what mineral resources there weren't somewhere in the

Amazon <pause dur="1.6"/> there's Brazil second or third largest country in territory <pause dur="0.4"/> in the world with apparently unimaginable riches and already growing as quickly as possible <pause dur="1.7"/> and of course culturally Brazil knew it was the greatest country in the world because the finest football team ever seen to date <pause dur="0.4"/> had just won the World Cup in nineteen-seventy <pause dur="1.3"/> # <pause dur="0.2"/> legendary team of nineteen-seventy with Pele Jairzinho and so on <pause dur="0.7"/> # Brazilians just believed they'd got it made <pause dur="0.5"/> now the Brazilian government that was a military dictatorship run by technocrats said look <pause dur="0.5"/> we'll borrow to build the world's largest hydroelectric dam on the Parana river here <pause dur="0.5"/> we'll borrow money to drive roads four-thousand kilometres across the <sic corr="Amazon">Aramazon</sic> <pause dur="0.4"/> from east to west from north to south <pause dur="0.5"/> we'll borrow money for hydroelectric dams on the São Francisco river <pause dur="0.6"/> we'll borrow money for this we'll borrow money for that <pause dur="1.0"/> and nobody lending the money thought they could ever lose lending to Brazil <pause dur="0.8"/> Brazil was a sovereign state it

could always pay back the money it was large it was growing quickly <pause dur="0.3"/> whatever you lent Brazil <pause dur="0.3"/> in twenty years time <pause dur="0.3"/> that would be really small change that Brazil would just pay back <pause dur="0.3"/> very very easily <trunc>in</trunc> indeed <pause dur="0.8"/> and indeed the interest rates weren't that high <pause dur="0.7"/> world interest rates in the nineteen-seventies <pause dur="0.3"/> were no more nominal than about fifteen per cent <pause dur="0.8"/> and yet world inflation dollar inflation was frequently getting up to fifteen per cent <pause dur="0.7"/> in several years in the nineteen-seventies world interest rates in real terms <pause dur="0.3"/> were negative <pause dur="0.8"/> right <pause dur="0.7"/> so all you had to do was take the money you were lent put it into real estate gold <pause dur="0.3"/> or anything that kept its value <pause dur="0.5"/> and you were getting a free gift from the banks <pause dur="0.5"/> so everywhere you looked at it <pause dur="0.4"/> borrowing borrowing borrowing made a lot of sense <pause dur="0.9"/> Brazil borrowed a bundle <pause dur="0.2"/> Argentina did so did Chile <pause dur="0.7"/> so did all the Latin American countries <pause dur="0.3"/> so did the Philippines <pause dur="0.8"/> # <pause dur="1.2"/> and so did Mexico <pause dur="0.3"/> and Mexico borrowed a bundle <pause dur="0.3"/> and Mexico was an oil

exporter as well <pause dur="0.4"/> at a time that the oil price was going up <pause dur="0.3"/> nobody could ever lose anything lending to Mexico <pause dur="1.4"/> there was no way that Mexico could overborrow <pause dur="0.6"/> it had huge oil reserves <pause dur="0.4"/> and oil price was going up <pause dur="0.4"/> and Mexico was also growing as quickly as Brazil <pause dur="1.4"/> # <pause dur="0.3"/> you couldn't lose lending to Mexico <pause dur="1.5"/> now that was what happened during the nineteen-seventies <pause dur="0.6"/> now towards the end of the nineteen-seventies <pause dur="0.3"/> the world economy <pause dur="0.6"/> began <pause dur="0.2"/> to hit a rocky patch <pause dur="0.8"/> and that rocky patch is marked by the phenomenon <pause dur="0.8"/><kinesic desc="writes on board" iterated="y" dur="8"/> of stagflation <pause dur="4.2"/> now the old Keynesian truths <pause dur="0.8"/> were rather simple <pause dur="2.2"/> you could boost aggregate demand in your economy get the economy to grow bring down unemployment but you were always going to risk pushing up the inflation rate <pause dur="0.8"/> or in the Keynesian model <pause dur="0.6"/> reduce aggregate demand <pause dur="0.2"/> take away the inflationary force and accept slower growth <pause dur="0.3"/> and fewer jobs <pause dur="0.7"/> but in the late seventies country after country <pause dur="0.4"/> in the industrialized world <pause dur="0.3"/> began to <pause dur="0.2"/> experience the worst

of both worlds <pause dur="1.2"/> rising rates of unemployment <pause dur="0.3"/> hesitant economic growth <pause dur="0.6"/> and <pause dur="0.4"/> high rates of inflation <pause dur="1.4"/> Mrs Thatcher went into the nineteen-seventy-nine election in this country <pause dur="0.7"/> with <pause dur="0.7"/> an election poster that was very famous called Britain isn't working <pause dur="1.5"/> picking up on the figure that for the first time since the war Britain had got a million people unemployed <pause dur="0.6"/> in the late seventies that was a shocking statistic <pause dur="0.5"/>

in the sixties very very few people were unemployed few hundred-thousand <pause dur="0.4"/> now we'd got a million unemployed <pause dur="0.4"/> and inflation was high as well <pause dur="0.8"/> and on the basis of this <pause dur="0.7"/> quite trenchant critique of the facts of a # of the Labour administration of the late nineteen-seventies <pause dur="0.3"/> Mrs Thatcher <pause dur="0.4"/> won her election victory <pause dur="0.5"/> now unlike other Conservative regimes <pause dur="0.3"/> after the Second World War <pause dur="0.3"/> Mrs Thatcher came to power with a very different set of economic advisers <pause dur="0.3"/> to those that had accompanied <pause dur="0.2"/> people like Edward Heath <pause dur="0.6"/> # in the early nineteen-seventies <pause dur="0.3"/> her advisers were not Keynesian macroeconomists <pause dur="0.3"/> they were monetarists <pause dur="0.4"/> and they said the main aim of economic policy is not Keynesian demand management <pause dur="0.5"/> it's a stable money supply <pause dur="0.7"/> get inflation down <pause dur="0.6"/> and you know how monetarists do this <pause dur="0.5"/> you do it <pause dur="0.6"/> by cranking the big lever <pause dur="0.2"/> of <pause dur="0.4"/> well <pause dur="0.4"/> come on <pause dur="0.7"/> sorry this is just <pause dur="0.5"/> a rampant monologue <pause dur="0.4"/> # <pause dur="1.2"/> how do you

how do you stop <trunc>infla</trunc> how do you stop inflation for a monetarist </u><pause dur="3.7"/> <u who="sm0972" trans="pause"> interest rates</u> <pause dur="1.0"/> <u who="nm0969" trans="pause"> interest rates yeah <pause dur="0.5"/> you control the money supply and you do it <pause dur="0.2"/> by <pause dur="0.2"/> raising interest rates <pause dur="1.1"/> # <pause dur="0.8"/> so Britain got a monetarist Chancellor of the Exchequer <pause dur="0.8"/> who will who pushed up the interest rates like crazy <pause dur="1.1"/> by nineteen-eighty-three <pause dur="0.6"/> Britain's inflation <pause dur="0.5"/> that was <pause dur="0.2"/> twenty-five per cent in nineteen-seventy-nine <pause dur="0.4"/> was <pause dur="0.4"/> three per cent <pause dur="0.5"/> something like that <pause dur="0.4"/> it worked <pause dur="0.2"/> it worked magnificently well <pause dur="0.4"/> as a way of getting inflation <pause dur="0.4"/> out of the British economy <pause dur="0.7"/> but Mrs Thatcher came to power in seventy-nine with a million people unemployed <pause dur="0.3"/> how many people were unemployed in Britain by nineteen-eighty-three <pause dur="2.9"/> just about peaked in nineteen-eighty-three unemployment in this country <pause dur="5.2"/> she should have lost the eighty-four election or was it eighty-three by a mile <pause dur="0.9"/> given what had happened to unemployment <pause dur="0.6"/> it was a million when she came to power <pause dur="0.5"/> by eighty-three how many was it <pause dur="1.3"/> anybody know <pause dur="2.8"/> four million <pause dur="1.2"/> i think it was

over four-million <pause dur="0.5"/> in other words there was a huge increase in unemployment <pause dur="0.4"/> the British economy which had been growing slowly <pause dur="0.4"/> to nineteen-seventy-nine <pause dur="1.0"/> grew hardly at all during those four years and in some years it was backwards <pause dur="0.6"/> lots of industries closed down lots of <pause dur="0.6"/> lots of companies shut their doors faced by these cripplingly high interest rates <pause dur="0.3"/> and by the massive reduction of aggregate demand caused by <pause dur="0.3"/> the rise in interest rates <pause dur="0.5"/> it was a great way to stop inflation but it also <pause dur="0.2"/> did <pause dur="0.4"/> terrific # <pause dur="0.4"/> well had a terrific impact on economic growth <pause dur="0.4"/> and employment <pause dur="0.7"/> now that's what happened in this country <pause dur="0.4"/> similar things happened in other countries <pause dur="0.4"/> an abandonment of Keyensian demand management with <trunc>mac</trunc> with <pause dur="0.2"/> full time # employment <pause dur="0.3"/> full employment as the main objective <pause dur="0.6"/> and <pause dur="0.2"/> the assumption <pause dur="0.4"/> of the monetarist objectives of <pause dur="0.3"/> staple money <pause dur="0.2"/> low inflation <pause dur="0.4"/> and then let the rest of the economy take <pause dur="0.2"/> care of itself <pause dur="0.4"/> by market forces <pause dur="0.6"/> now in nineteen-eighty <pause dur="0.5"/> the American presidential

election was won by President Reagan <pause dur="0.4"/> and Reagan also <pause dur="0.2"/> had <pause dur="0.3"/> monetarist <pause dur="0.5"/> # economic advisers <pause dur="1.1"/> now there was one significant difference between Reagan's administration <pause dur="0.3"/> and the British administration President Reagan and Mrs Thatcher <pause dur="0.4"/> were very much fellow soulmates politically they agreed on so many things <pause dur="0.5"/> but there was one crucial difference in their in in their policy prescriptions <pause dur="0.4"/> and that was <pause dur="0.4"/> that whilst Thatcher and Reagan <pause dur="0.3"/> were both <pause dur="0.3"/> extremely hostile to the Soviet Union which in nineteen-seventy-nine <pause dur="0.3"/> had sent its troops into Afghanistan <pause dur="1.4"/> and believed that the West had to take a very <trunc>s</trunc> hard line against the Soviet Union <pause dur="0.8"/> what happened under Reagan was America began to spend huge amounts of money <pause dur="0.3"/> on new defence equipment <pause dur="0.4"/> believing that the Soviet Union was a menace <pause dur="1.8"/> # <pause dur="0.7"/> now that money was spent <pause dur="0.2"/> by an American government <pause dur="0.4"/> which did not believe in raising taxes <pause dur="0.4"/> indeed <pause dur="0.4"/> President Reagan had told the American people i will not raise your taxes <pause dur="1.8"/> now there was a bit of a

problem there because the American government was already <pause dur="0.2"/> spending more than it got on tax revenues in nineteen-eighty <pause dur="0.4"/> and here was a guy spending more on defence and promising not to tax the American people <pause dur="0.6"/> the fiscal deficit in America grew hugely <pause dur="0.4"/> hugely under Reagan <pause dur="0.9"/> and it was financed <pause dur="0.4"/> not by taxes <pause dur="0.3"/> not by the creation of money <pause dur="0.5"/> but it was financed by deficit borrowing <pause dur="0.7"/> and that's by issuing U-S Treasury bonds <pause dur="1.2"/> now for people to put their money into U-S Treasury bonds <pause dur="0.3"/> you had to offer an attractive rate of interest <pause dur="0.7"/> and what this led to was the U-S putting onto the world market treasury bonds <pause dur="0.3"/> at increasingly high rates of interest <pause dur="0.7"/> this happened at precisely the same moment <pause dur="0.4"/> that <pause dur="0.5"/> world <trunc>intr</trunc> # world inflation rates were coming down <pause dur="0.8"/> under the impact of monetary policy <pause dur="1.0"/> and the combined effect was that real interest rates which had been <pause dur="0.2"/> negative in some years in the nineteen-seventies <pause dur="0.5"/> and were consistently under <pause dur="0.2"/> five per cent real during the seventies <pause dur="0.3"/> suddenly in

nineteen-eighty-one <pause dur="0.4"/> those interest rates leapt to ten per cent real or more <pause dur="1.1"/> there was a huge increase <pause dur="0.9"/> now you'll see in your notes the example of Mexico <pause dur="0.6"/> which in nineteen-eighty-one had a debt of roundabout ninety-billion dollars an awful lot of money <pause dur="0.3"/> owed by Mexico <pause dur="0.9"/> before nineteen-eighty-one Mexico was paying what what is it in your notes about three per cent on <pause dur="0.7"/> on that debt <pause dur="0.6"/> and had therefore to pay debt servicing somewhere between two and three-billions dollars a year <pause dur="1.0"/> on a trade balance which generated what about fifteen-billion dollars worth of exports in the Mexican economy <pause dur="0.4"/> in the early eighties <pause dur="0.5"/> now <pause dur="0.4"/> debt servicing <pause dur="0.6"/> you've you're spending less than three-billions dollars out of fifteen-billion dollars coming in <pause dur="0.4"/> sure <pause dur="0.2"/> it hurts you <pause dur="0.5"/> but <pause dur="0.2"/> you've still got a large import capacity <pause dur="0.3"/> yeah <pause dur="0.3"/> still a lot of money left <pause dur="0.2"/> to buy <pause dur="0.2"/> the other goods and services you want to import <pause dur="0.8"/> nineteen-eighty-one comes <pause dur="0.4"/> and Mexico's <pause dur="1.1"/> average interest rate goes from <pause dur="0.2"/> the low rates before to

around about ten per cent <pause dur="0.6"/> and instead of paying under three-billion dollars a year <pause dur="0.3"/> the Mexican government now has to pay nine-billion a year <pause dur="0.4"/> and its total export earnings are fifteen <pause dur="1.0"/> so you can see what's happened to the residual <pause dur="0.2"/> import capacity it's gone from about twelve-billion dollars <pause dur="0.4"/> to about six-billion dollars <pause dur="0.8"/> this is a massive shock to the Mexican economy <pause dur="1.6"/> and <pause dur="1.0"/> it is simply unsustainable <pause dur="0.6"/> Mexico limps on <pause dur="0.2"/> for the best part of a year <pause dur="0.5"/> desperately trying to pay off <pause dur="0.5"/> its debt according to the schedule <pause dur="0.7"/> but in August nineteen-eighty-two <pause dur="0.6"/> the Mexican finance minister on a Friday evening sits down with his closest advisers <pause dur="0.4"/> looks at the data and says that's it <pause dur="0.5"/> on Monday morning <pause dur="0.3"/> we have to pay another two-hundred-million dollars of debt <pause dur="0.4"/> and we simply don't have two-hundred-million dollars <pause dur="0.8"/> stop worrying stop everything <pause dur="0.7"/> stop paying <pause dur="0.4"/> we can't do anything now <pause dur="0.2"/> there's only one decision <pause dur="0.9"/> press notice <pause dur="0.3"/> the Mexican government is now suspending <pause dur="0.3"/> debt repayments <pause dur="0.2"/> until

further notice <pause dur="0.5"/> faced by <pause dur="0.4"/> current positions <pause dur="0.8"/> that press <trunc>c</trunc> communiqué went out that the Mexican government was suspending debt repayments <pause dur="0.8"/> and the world financial system at that moment was on the verge of collapse <pause dur="1.2"/> all of the world's major <pause dur="0.3"/> banks <pause dur="0.3"/> were massively overexposed on sovereign debt to the developing world if you looked at the balance sheets <pause dur="0.4"/> provisions for bad debt against this lending <pause dur="0.2"/> zero <pause dur="0.6"/> bank reserves bank capital <pause dur="0.2"/> figure X <pause dur="0.2"/> exposure to third world debt <pause dur="0.2"/> figure Y <pause dur="0.3"/> Y is larger than X <pause dur="0.3"/> if all governments had stopped repaying at that moment <pause dur="0.3"/> the world's major banks would have gone bankrupt <pause dur="0.8"/> the effect on the world's financial system would have been simply catastrophic <pause dur="1.5"/> now <pause dur="0.9"/> what happened as a result of that <pause dur="0.3"/> well the cavalry was <trunc>bou</trunc> brought in and the cavalry was the I-M-F <pause dur="0.9"/> and the I-M-F galloped over the hill <pause dur="0.3"/> and said look <pause dur="0.4"/> we'll produce a fix <pause dur="0.9"/> and the I-M-F fix went like this <pause dur="0.6"/> they took the banks <pause dur="0.5"/> and said to the banks and these are all private banks largely <pause dur="0.5"/> they

said you must make it easier <pause dur="0.4"/> for the third world governments to repay the debt <pause dur="0.5"/> you must extend the periods of repayment <pause dur="0.4"/> give them grace periods <pause dur="0.4"/> do anything you can to make it softer and easier <pause dur="0.2"/> for them to repay <pause dur="1.0"/> well the banks of course didn't like that because it was going to hit their earnings and profits <pause dur="0.4"/> but the I-M-F had got a smoking gun against the temples and said fine <pause dur="0.4"/> if you don't play ball you can go bankrupt <pause dur="0.7"/> # you'll be the first ones to suffer in the world financial crisis that will ensue <pause dur="0.4"/> so you either play <trunc>ba</trunc> ball with us or you go bankrupt and the banks kicking and screaming said okay <pause dur="0.3"/> we'll play ball <pause dur="0.7"/> and the <trunc>wo</trunc> and the I-M-F said look if you do that we'll stitch up the other side of it with the governments in the developing world <pause dur="0.8"/> and what we'll do <pause dur="0.3"/> is we'll make sure that they carry on paying <pause dur="0.7"/> as much as they reasonably can <pause dur="0.9"/> # <pause dur="0.5"/> we'll head off the possibility of a mass default <pause dur="0.6"/> and what the I-M-F then did is it went all over the developing world <pause dur="0.4"/>

and said the priority now <pause dur="0.3"/> is to get your macroeconomy <pause dur="0.3"/> in a state <pause dur="1.0"/> that you have <pause dur="0.7"/> a better macroeconomy <pause dur="0.8"/> better chances of growth <pause dur="0.7"/> and <pause dur="0.2"/> that you can keep paying the debt servicing <pause dur="1.2"/> and what they did <pause dur="0.5"/> was they went round the world and they signed with government after government <pause dur="0.4"/> structural <pause dur="0.2"/> adjustment agreements <pause dur="1.0"/> so as we come into the eighties <pause dur="0.4"/> we're into a world <pause dur="0.3"/> of structural adjustment <pause dur="4.4"/> now structural adjustment <pause dur="0.7"/> is a big topic <pause dur="0.7"/> so let's take ten minutes for a coffee break <pause dur="0.5"/> and then we'll have a look at what this world of the eighties was <pause dur="0.4"/> and </u><gap reason="break in recording" extent="uncertain"/><u who="nm0969" trans="pause">

on at slightly less blistering pace than so far <pause dur="0.7"/> those of you who are actually trying to follow it in the <trunc>hand</trunc> # handout where are we up to we're about page nine now <pause dur="2.0"/> page nine <pause dur="0.4"/> or so student</u><pause dur="3.6"/> <u who="sf0973" trans="pause"> which one </u><pause dur="2.6"/> <u who="nm0969" trans="pause"> well of the many ones handed out last week this is history of history of ideas about development <pause dur="1.2"/> and we've reached round about page nine <pause dur="8.0"/> well look what we've got in the early nineteen-eighties onwards <pause dur="0.4"/> is structural adjustment being more or less forced <pause dur="0.2"/> upon the developing world <pause dur="0.7"/> some countries took a stronger objection to the I-M-F than <trunc>oth</trunc> than than others <pause dur="0.3"/> some countries consistently for many years like Tanzania <pause dur="0.4"/> held out against I-M-F <pause dur="0.3"/> orthodox advice <pause dur="0.3"/> on macroeconomic management <pause dur="0.4"/> but eventually they were basically forced to signed structural adjustment agreements <pause dur="0.4"/> and why was that <pause dur="0.6"/> well from nineteen-eighty-two onwards from the debt crisis in August eighty-two <pause dur="0.5"/> there was no money

anywhere in the world system <pause dur="0.5"/> for a poor country <pause dur="0.8"/> in the developing world <pause dur="0.5"/> to finance any trade deficit so if you were Tanzania <pause dur="0.4"/> and you'd got problems with your trade balance and we'll see in a moment why you would have had problems with your trade balance <pause dur="0.9"/> if you were Tanzania in the in the early eighties with a with a with a trade <pause dur="0.2"/> balance deficit and you needed to finance it <pause dur="0.3"/> who would give you money <pause dur="1.1"/> none of the commercial banks gave any money to the developing world <pause dur="0.4"/> for the best part of ten years after the eighty-two debt crisis <pause dur="0.7"/> they got such a bad fright by the debt crisis they more or less ceased lending <pause dur="0.2"/> into the developing world <pause dur="0.6"/> so the only people who were lending money to governments in the developing world from eighty-two onwards <pause dur="0.5"/> were other governments <pause dur="0.2"/> other aid agencies and other multilateral agencies like the I-M-F <pause dur="0.2"/> and the World Bank <pause dur="0.9"/> and remarkably in the early nineteen-eighties <pause dur="0.7"/> there was an intellectual consensus which applied to all of the major

aid donors <pause dur="1.9"/> called the Washington Consensus <pause dur="0.6"/> and the only aid donors who weren't <pause dur="0.4"/> fully signed up to the Washington Consensus <pause dur="0.6"/> were the Scandinavian aid donors and the Dutch <pause dur="0.9"/> and then your only other possible source of money anywhere in the world <pause dur="0.6"/> was the Soviet Union <pause dur="0.8"/> but the Soviet Union was in such trouble itself with its economy <pause dur="0.5"/> in the nineteen-eighties that there were really only about two or three countries in the world <pause dur="0.4"/> that the Soviet Union could could <trunc>s</trunc> give significant amounts of aid to <pause dur="0.5"/> one of course was Cuba <pause dur="0.6"/> the other was Nicaragua <pause dur="1.8"/> so if you were Tanzania in the early eighties <pause dur="0.2"/> you basically had to do a deal <pause dur="0.3"/> with the western aid donors <pause dur="0.4"/> and you wouldn't get money from the British the Germans the French or anybody else for that matter <pause dur="0.4"/> unless you could tell the aid mission <pause dur="0.3"/> yes <pause dur="0.2"/> we are in agreement with the I-M-F <pause dur="0.6"/> if you asked for money from the British for example <pause dur="0.4"/> the British would say well <pause dur="0.4"/> where do you stand on your negotiations with the I-M-F <pause dur="0.4"/> and if the I-M-F

hadn't give Tanzania a clean bill of health <pause dur="0.4"/> don't even think about it <pause dur="0.4"/> sort yourself out with the I-M-F <pause dur="0.4"/> then we'll see what we can do for you <pause dur="1.0"/> so the I-M-F had got tremendous power <pause dur="0.4"/> in the nineteen-eighties country after country <pause dur="0.2"/> had to go to the I-M-F <pause dur="0.2"/> and we may say well why have these countries got a trade <pause dur="0.2"/> trade deficit <pause dur="0.6"/> well let's give you three reasons for severe macroeconomic problems in the developing world <pause dur="0.3"/> in the early eighties <pause dur="0.2"/> but <pause dur="0.6"/> Tanzania would be a an excellent example of this <pause dur="1.6"/> problem number one <pause dur="0.4"/> oil prices which had gone up nineteen-seventy-three were also hiked up in nineteen-seventy-nine <pause dur="1.0"/> now that price spike on oil <pause dur="0.2"/> prices didn't last long <pause dur="0.6"/> by about eighty-five oil prices were moving back down and moving back down rather quickly <pause dur="0.7"/> but for a few years in the early eighties anybody who imported oil <pause dur="0.2"/> your oil bill had just gone once again through the roof <pause dur="0.3"/> and that had pushed you into deficit <pause dur="1.4"/> reason number two <pause dur="0.5"/> primary commodity prices which peaked in the early

nineteen-seventies <pause dur="0.6"/> were on their way down <pause dur="0.4"/> throughout the nineteen-eighties <pause dur="0.6"/> now we've got this on a graph somewhere if we can <pause dur="1.2"/><event desc="looks through transparencies" iterated="y" dur="35"/> find it # <pause dur="1.5"/> where is it <pause dur="4.3"/> it's in your notes <pause dur="4.3"/> at least i think it's in your notes <pause dur="0.7"/> i don't seem to have <pause dur="0.7"/> an overhead of it <pause dur="0.8"/> # <pause dur="0.5"/> is it in those notes <pause dur="10.6"/> no it isn't <pause dur="2.1"/> yes it is <pause dur="1.3"/><kinesic desc="changes transparency" iterated="y" dur="5"/> there you go <pause dur="1.2"/> real commodity prices <pause dur="1.8"/> and if you look at those real commodity prices they peak in the early seventies <pause dur="0.9"/> # by the <trunc>en</trunc> by the <pause dur="0.6"/> nineteen-eighty <pause dur="0.4"/> they've shuffled back down <pause dur="1.1"/> and you can see that from eighty to eighty-eight they're on their way down down down <pause dur="1.5"/> so you've got countries in the developing world which have seen the price of their main exported commodities <pause dur="0.6"/> moving downwards <pause dur="1.3"/> # <pause dur="0.7"/> and so you've got for any unit volume of exports <pause dur="0.3"/> you've got a reduced <pause dur="0.2"/> export earnings <pause dur="0.9"/> and then you've got the effects of <pause dur="1.1"/> stagnation <pause dur="0.2"/> depression <pause dur="0.2"/> and deflation <pause dur="0.7"/> in the industrialized countries these countries are all using monetarist policies <pause dur="0.3"/> they're growing rather slowly <pause dur="0.5"/> their import capacity has

been reduced <pause dur="0.4"/> or is not growing as it did <pause dur="0.7"/> demand for imported primaries is going down and this is pushing down the primary price <pause dur="0.8"/> and at the same time <pause dur="0.3"/> there are politicians in these countries saying well we have to protect our domestic industries <pause dur="1.3"/> so you take a country like Bangladesh which in the <trunc>earl</trunc> in the eighties is developing its cotton industry <pause dur="0.5"/> and it finds its possibilities of exploiting cheap labour in cotton to for <pause dur="0.2"/> textile exports to Europe or the U-S-A <pause dur="0.4"/> is heavily circumscribed <pause dur="0.5"/> by the multifibre agreement <pause dur="0.5"/> which is a bit of trade protectionism <pause dur="0.4"/> which makes it very difficult for Bangladesh to export more than a certain quota of cotton textiles <pause dur="0.3"/> to the industrialized world <pause dur="0.3"/> so protectionism and reduced demand or or <trunc>s</trunc> or slowly growing demand <pause dur="0.4"/> in the north <pause dur="0.3"/> is making it ever more difficult to export <pause dur="0.3"/> from the developing world <pause dur="0.8"/> so you've got the trade deficit the falling commodity prices and difficulties of protection on the world trade scene <pause dur="0.6"/> hence <pause dur="0.3"/>

most countries in the developing world <pause dur="0.4"/> well <pause dur="0.2"/> most countries many countries in the developing world <pause dur="0.5"/> have got severe trade deficits <pause dur="0.2"/> in the early eighties <pause dur="0.6"/> they're also running high rates of inflation and they're also many of them are running <pause dur="0.4"/> high rates of fiscal deficit <pause dur="0.2"/> in other words the government is spending a lot more money <pause dur="0.3"/> than it brings in <pause dur="0.3"/> in tax revenue <pause dur="1.2"/> and when we look at structural adjustment <pause dur="0.8"/> and you'll see it's set out on page ten <pause dur="0.8"/> we've got a package of measures <pause dur="0.5"/> which can conveniently be divided <pause dur="0.5"/> into demand side and supply side <pause dur="0.5"/> measures <pause dur="0.4"/> or perhaps more accurately divided into stabilization measures <pause dur="2.3"/> and supply side measures <pause dur="0.8"/> now your stabilization methods <pause dur="0.6"/> improve the balance of trade <pause dur="0.7"/> and do that by devaluing the currency <pause dur="1.6"/> reduce fiscal deficits <pause dur="0.3"/> and the main weapon to do that is just cut government spending <pause dur="1.3"/> and reduce inflation <pause dur="1.1"/> and for any monetarists that means controlling the money supply <pause dur="0.3"/> and above all that means allowing interest rates to rise to

market <pause dur="0.2"/> clearing levels <pause dur="2.0"/> so macroeconomic stabilization is one demand side of structural adjustment <pause dur="0.9"/> the second side is an attempt to improve the conditions for growth <pause dur="0.6"/> and that is to be done <pause dur="0.2"/> through the efficient use of resources <pause dur="1.4"/> and there you have two elements of it <pause dur="0.3"/> take out price distortions <pause dur="1.3"/> # <pause dur="0.2"/> and you remove price distortions by getting rid of the distortion on the exchange rate by devaluing <pause dur="0.5"/> get rid of excessive subsidies <pause dur="0.7"/> and get rid of any <pause dur="0.2"/> <trunc>partic</trunc> particularly onerous taxes <pause dur="1.0"/> now many developing countries for various social and political reasons have <pause dur="0.3"/> subsidies on things like food <pause dur="0.3"/> electricity <pause dur="0.3"/> urban transport <pause dur="0.8"/> sometimes the price of fuel <pause dur="0.3"/> in the agricultural sector fertilizers pesticides <pause dur="0.3"/> irrigation water <pause dur="0.9"/> the message from the I-M-F was all of those subsidies distort prices <pause dur="0.3"/> and lead to inefficient allocation of resources in the economy <pause dur="0.3"/> as well as costing the government a lot of money <pause dur="0.3"/> get rid of them <pause dur="0.3"/> get efficiency into the system <pause dur="0.7"/> cut

onerous taxes <pause dur="1.2"/> where would you have found onerous taxes <pause dur="1.1"/> does anyone know this <pause dur="0.6"/> it isn't is it <pause dur="0.8"/> where would you have found peculiarly <pause dur="0.2"/> high rates of taxation <pause dur="0.6"/> in a country like Tanzania <pause dur="0.4"/> or in any other developing country in the early eighties <pause dur="1.6"/> there were people paying tax rates of forty fifty per cent <pause dur="0.2"/> who <pause dur="1.2"/> any idea <pause dur="5.8"/> counts as interesting </u><pause dur="1.0"/> <u who="sm0974" trans="pause"> would it be multinationals </u><pause dur="1.1"/> <u who="nm0969" trans="pause"> some multinationals might have got a banging off the tax systems on corporate taxes there <pause dur="0.4"/> certainly in the nineteen-seventies some countries had <pause dur="2.2"/> tax regimes and investment controls that <pause dur="0.3"/> that that that tried to restrict the activities of multinationals <pause dur="0.4"/> they might have but there's another significant group <pause dur="0.2"/> who were getting banged by the taxes <pause dur="2.5"/> the answer is small farmers <pause dur="0.5"/> small farmers <pause dur="0.6"/> you might say well small farmers paid no taxes <pause dur="0.7"/> well if you check out effective tax rates <pause dur="0.7"/> # <pause dur="0.3"/> on anybody exporting cocoa coffee <pause dur="0.2"/> palm oil cotton and so on <pause dur="0.6"/> there were various things going on in many developing countries that meant that

export taxes on cash crops <pause dur="0.3"/> the main exports they got <pause dur="0.3"/> at the margin were very high indeed <pause dur="0.8"/> and the <pause dur="0.4"/> I-M-F and the World Bank looked at those and said well get those taxes down because they're a <pause dur="0.3"/> major disincentive <pause dur="0.4"/> to exporting <pause dur="3.6"/> of course there were countries in which the macroeconomic malaise was phenomenal <pause dur="0.8"/> where <pause dur="0.7"/> exchange rates were so overvalued <pause dur="0.7"/> that the domestic price of an exported good was barely worth <pause dur="0.4"/> sticking it in a handcart <pause dur="1.5"/> classic example is Ghana <pause dur="0.2"/> in the early nineteen-eighties when the cedi <pause dur="0.5"/> was overvalued by more than ten times <pause dur="0.4"/> hugely overvalued cedi <pause dur="0.6"/> what that meant was that if you were growing cocoa in southern Ghana <pause dur="0.6"/> which at that time was one of the world's biggest cocoa exporters <pause dur="1.2"/> when the cocoa was sold and it was sold at a dollar price and the dollar price was translated back into cedis because the cedi was so strong against the dollar <pause dur="0.3"/> you got very very few cedis in your hand <pause dur="0.7"/> and cocoa growers looked at it and said is that all i'm getting for a ton of cocoa <pause dur="0.8"/>

hardly worth me growing the stuff hardly worth cutting it off the trees <pause dur="0.9"/> except of course for those Ghanaian farmers <pause dur="0.3"/> who did cut the cocoa off their trees <pause dur="0.5"/> but most certainly did not export it through Ghana <pause dur="0.5"/> suddenly in the early eighties there were very large increases <pause dur="0.3"/> in cocoa exports from the Cote d'Ivoire <pause dur="0.4"/> to the <pause dur="0.7"/> to the west <pause dur="0.4"/> and from # <pause dur="0.3"/> Togo <pause dur="0.4"/> to the east of Ghana <pause dur="0.5"/> and that was nothing to do with the farmers in those two other countries <pause dur="0.3"/> there was an awful lot of Ghanaian cocoa <pause dur="0.3"/> that <pause dur="0.2"/> walked across the border <pause dur="1.2"/> # <pause dur="0.7"/> so those kinds of distortions on the exchange rate and pricing systems <pause dur="0.3"/> get rid of those go for <pause dur="0.4"/> efficient prices for best resource allocation <pause dur="0.7"/> and <pause dur="0.2"/> big message here <pause dur="0.3"/> allow the markets to function <pause dur="0.8"/> during the nineteen-sixties and <trunc>s</trunc> nineteen-seventies many developing countries had governments <pause dur="0.3"/> that were very distrustful of market forces <pause dur="0.8"/> and you can understand that distrust in market forces <pause dur="0.3"/> remember in <trunc>nineteen-se</trunc> in the early seventies people were very worried about the unequalizing effects <pause dur="0.4"/> of rapid economic growth <pause dur="0.7"/> and people feared that free markets would lead to inequities <pause dur="0.3"/> and sought to control the markets in various ways <pause dur="0.4"/>

by the early nineteen-eighties <pause dur="0.5"/> the Washington Consensus argued that the cost of controlling markets was very high <pause dur="0.9"/> # that markets might not be perfect but they were <pause dur="0.3"/> much preferable to government control <pause dur="0.7"/> and so the argument there was liberalize your markets allow people to trade to move government to move <pause dur="0.6"/> # goods and services around the economy to <pause dur="0.7"/> # access foreign exchange to access credit to set up business to reduce regulations <pause dur="0.3"/> and so on <pause dur="0.3"/> so as to allow maximum market enterprise <pause dur="0.4"/> within the economy <pause dur="2.3"/> and the final element of structural adjustment is institutional reform <pause dur="0.4"/> reform your economic institutions <pause dur="1.6"/> # two elements in here <pause dur="0.3"/> privatization <pause dur="1.0"/> many developing governments <pause dur="0.5"/> world governments had large parts of their <pause dur="0.6"/> <trunc>eco</trunc> economy <pause dur="0.3"/> in state hands <pause dur="0.5"/> operated by state corporations <pause dur="0.5"/> that often had many remits

besides <pause dur="0.3"/> making a profit <pause dur="1.5"/> Tanzania was in dreadful trouble in the early nineteen-eighties one reason that Tanzania was in dreadful trouble in the nineteen-eighties <pause dur="0.4"/> was that all <pause dur="0.3"/> formal sector cereals marketing processing distribution <pause dur="0.4"/> was in the hands of a very large parastatal called the National Milling Corporation <pause dur="0.6"/> now the National Milling Corporation was told by the Tanzanian government <pause dur="0.5"/> collect <pause dur="0.5"/> maize <pause dur="0.3"/> down in the bottom left hand corner right hand corner anywhere in Tanzania at the same price <pause dur="0.4"/> as you collect that maize <pause dur="0.7"/> in places much closer to Dar es Salaam <pause dur="1.0"/> everywhere they had to buy up <pause dur="0.2"/> the maize at the same price <pause dur="0.6"/> everywhere i think they also were <pause dur="0.4"/> were forced to distribute fertilizer to maize growers <pause dur="0.4"/> at the same price <pause dur="1.1"/> what that meant was that places close to Dar es Salaam <pause dur="0.9"/> found that the prices they got were not that great for maize <pause dur="0.5"/> so they didn't deliver to the National Milling Corporation <pause dur="0.5"/> places at the far end of the country <pause dur="0.8"/> which previously <pause dur="0.4"/> had got <pause dur="0.5"/> a very

poor price for maize because of their isolation and transport costs <pause dur="0.3"/> suddenly were offered a price for maize <pause dur="0.7"/> that more or less ignored the transport costs <pause dur="0.4"/> so they grew a lot more delivered it to the N-M-C <pause dur="0.3"/> and then the N-M-C had got eight-hundred kilometres of trucking this maize <pause dur="0.3"/> to the main consumption points <pause dur="0.6"/> not surprisingly <pause dur="0.3"/> the N-M-C began to run big deficits <pause dur="0.9"/> now as a public sector <trunc>c</trunc> <pause dur="0.2"/> # corporation <pause dur="0.3"/> entrusted with a key element in Tanzanian food security <pause dur="0.5"/> it could not go bust <pause dur="0.3"/> it had to continue operating <pause dur="1.3"/> the N-M-C had an account at the Central Bank in Tanzania <pause dur="0.5"/> and the account was in the red <pause dur="0.6"/> and they just ran <pause dur="0.2"/> bigger and bigger overdrafts <pause dur="1.0"/> now if you have a huge parastatal in your economy <pause dur="0.3"/> running up a very large overdraft <pause dur="0.3"/> on the Central Bank account <pause dur="0.4"/> what happens to your money supply <pause dur="3.0"/> public sector overdrafts at the Central Bank <pause dur="0.2"/> what's happening to your money supply <pause dur="1.4"/> what does it do to your money supply <pause dur="2.3"/> any idea <pause dur="2.9"/> well it expands it yeah <pause dur="0.2"/> this is money for free <pause dur="0.8"/> all that the

Central Bank is saying is carry on writing cheques <pause dur="1.1"/> so the N-M-C is writing cheques creating shilingis in the Tanzanian economy <pause dur="0.6"/> the money supply is way out of control <pause dur="1.5"/> money supply's out of control so inflation is being pushed up <pause dur="0.6"/> nominal rate of the Tanzanian shilingi is pegged <pause dur="1.5"/> and if your inflation is faster than world inflation and your nominal exchange rate is pegged <pause dur="0.4"/> what happens to your real exchange rate <pause dur="3.3"/> goes up <pause dur="0.8"/> your real exchange rate is going up shilingi is getting stronger against the dollar <pause dur="0.3"/> year in <pause dur="0.2"/> year out the degree of overvaluation gets greater <pause dur="0.4"/> so what does that then mean for a Tanzanian grower of cotton or a Tanzanian grower of coffee <pause dur="0.4"/> what it means is in an inflated economy <pause dur="0.4"/> you're getting the same number of shilingis for your cocoa <pause dur="0.3"/> for your for your coffee and your cotton <pause dur="0.3"/> this year <pause dur="0.3"/> as you did <pause dur="0.2"/> two three years ago <pause dur="0.6"/> inflation has eroded the value of those shilingis the real price to you <pause dur="0.3"/> in shilingis <pause dur="0.5"/> of your coffee <pause dur="0.4"/> and your cotton <pause dur="0.7"/> is going down <pause dur="0.4"/>

right <pause dur="0.6"/> same things are happening in Ghana in the early nineteen-eighties <pause dur="0.7"/> so <pause dur="0.7"/> the operation of your large <pause dur="0.2"/> parastatal <pause dur="0.5"/> is snookering the whole economy <pause dur="0.9"/> there's a whole series of vicious effects here <pause dur="0.5"/> which push you into a bigger and bigger mess <pause dur="0.7"/> not surprisingly <pause dur="0.6"/> the I-M-F and the World Bank looked at this kind of thing and said <pause dur="0.3"/> for heaven's sake privatize these state enterprises <pause dur="0.6"/> # <pause dur="0.2"/> they're doing you no good at all <pause dur="0.7"/> # <pause dur="0.2"/> they're probably inefficient <pause dur="0.5"/> # <pause dur="0.3"/> well it's not obvious that they were all inefficient but the general feeling was that government was inefficient <pause dur="0.4"/> and they're messing up your economy in all kinds of ways <pause dur="0.9"/> they also wanted key economic institutions reforming <pause dur="0.6"/> and those included the tax system <pause dur="1.0"/> where the basic message was <pause dur="0.9"/> broaden your tax base <pause dur="0.6"/> and lower the tax rates <pause dur="1.1"/> # if you have a wider <pause dur="0.2"/> tax capture you can bring down the rates <pause dur="0.4"/> which was regarded as a stimulus to <trunc>in</trunc> <trunc>in</trunc> investment <pause dur="1.0"/> and also reform your financial sectors <pause dur="0.7"/> get yourself an efficient competitive

financial sector <pause dur="0.4"/> very <trunc>ve</trunc> often meant privatizing banks <pause dur="0.2"/> and reducing state control of the banking system <pause dur="0.4"/> yeah <pause dur="2.1"/> which was the first Third World country <pause dur="0.4"/> to go for a fully liberalized banking system <pause dur="0.8"/> anybody know <pause dur="1.7"/> there was one country which ten years before this <pause dur="0.7"/> went for a big experiment in all of these policies and liberalized its bank system <pause dur="0.5"/> before almost any other country in the developing world did <pause dur="3.9"/> any idea <pause dur="2.3"/> Chile <pause dur="1.6"/> Pinochet's coup of nineteen-seventy-three <pause dur="0.8"/> brought to power in <pause dur="0.2"/> in Chile not just a dictatorship <pause dur="0.6"/> but a supply side monetarist set of <pause dur="0.2"/> economic advisers <pause dur="0.4"/> known as the Chicago Boys <pause dur="0.7"/> all <pause dur="0.2"/> ex-pupils from the University of Chicago where they'd been taught monetarism <pause dur="0.4"/> and free market economics <pause dur="0.3"/> implemented in Chile from seventy-three onwards ten years before it was done in the rest <pause dur="0.3"/> of the developing world <pause dur="0.3"/> fully liberalized financial sector <pause dur="0.9"/> in Chile from the mid-seventies onwards <pause dur="1.0"/> has anybody ever heard of what happened to the Chilean financial system in <pause dur="0.2"/> about nineteen-eighty-one <pause dur="1.6"/> collapsed <pause dur="0.9"/> massive bank failures huge bailout problems <pause dur="0.5"/> # <pause dur="0.4"/> totally liberalized bank sectors

are a disaster <pause dur="1.8"/> nobody in this room will <pause dur="0.2"/> probably have any knowledge of what happened in the Midwest of the U-S-A in <trunc>n</trunc> in in <pause dur="0.5"/> during the first Reagan administration <pause dur="1.7"/> where the savings and loans trusts <pause dur="0.2"/> things a bit like the British <trunc>bo</trunc> building societies <pause dur="0.5"/> were deregulated by the Federal Reserve Bank <pause dur="0.7"/> and <pause dur="0.3"/> just told to do finance any way they like <pause dur="0.7"/> with the result <pause dur="0.2"/> that the losses in the savings and loans institutions <pause dur="0.5"/> were colossal <pause dur="0.6"/> i think we're talking trillions of dollars on losses in the savings and loans scandals of the nineteen-eighties <pause dur="0.7"/> fully liberalized financial systems are very very dangerous <pause dur="0.6"/> # <pause dur="2.0"/> so there are one or two experiences that pushed that too far but the general idea was to <trunc>dereguli</trunc> <pause dur="0.4"/> regulate <pause dur="0.3"/> and get more efficient financial institutions <pause dur="1.8"/> now those are the elements of structural adjustment <pause dur="1.0"/> what you'll find on the next couple of pages of your handout <pause dur="1.7"/> 'cause you'll find some of the problems <pause dur="0.2"/> involved in structural adjustment <pause dur="3.8"/> we're not going to go through

all of the problems involved in structural adjustment it's a very big topic <pause dur="0.5"/> but let me give you three elements of structural adjustment which are <pause dur="0.2"/> really big problems <pause dur="1.6"/> the first is that <pause dur="0.2"/> when you look at the macroeconomic stabilization measures <pause dur="0.4"/> such as raising interest rates <pause dur="0.3"/> and cutting government spending <pause dur="0.6"/> these are severely <pause dur="0.2"/> deflationary measures <pause dur="0.4"/> they will reduce aggregate demand in the economy <pause dur="0.7"/> they will lead to business failures they will lead to unemployment they will lead to less business activity <pause dur="1.9"/> and those deflationary elements <pause dur="0.4"/> the creation of unemployment <pause dur="0.6"/> loss of demand in the economy and reduced economic <pause dur="0.6"/> # activity <pause dur="0.3"/> are major elements there which led people to criticize <pause dur="0.4"/> # structural adjustment as a set of measures <pause dur="0.4"/> that would increase poverty in the developing world <pause dur="1.7"/> now the I-M-F said okay there are deflationary sides side to it <pause dur="0.4"/> but there are supply side measures in there <pause dur="0.2"/> which will get your economy growing <pause dur="0.3"/> and any pain that there is in

structural adjustment <pause dur="0.2"/> will be strictly temporary <pause dur="0.7"/> now that leads us to the second problem <pause dur="1.2"/> big problem of structural adjustment <pause dur="0.7"/> and that is <pause dur="0.4"/> that structural adjustment is usually not sequenced ideally <pause dur="2.3"/> now in a variant on how many economists does it take to change a light bulb <pause dur="0.5"/> # how many <pause dur="0.3"/> people does it <trunc>t</trunc> take to devalue the currency <pause dur="0.3"/> of a country <pause dur="1.3"/> apologies to those of you who've heard this at least twice before <pause dur="0.8"/> # <pause dur="0.5"/> how many people does it take to devalue you've got nominal exchange rates <pause dur="0.3"/> have i done this even with the undergrads <pause dur="1.0"/> now you're smiling as though <trunc>yo</trunc> i did it last week i <trunc>m</trunc> might have done it last week <pause dur="0.8"/> okay <pause dur="0.9"/> look if you have nominal exchange rates i mean these days most countries have now got free exchange rates but in the days that you announced the exchange rate <pause dur="0.4"/> how many people does it take <pause dur="0.6"/> and how long does it take <pause dur="0.4"/> to devalue <pause dur="0.2"/> a country's

currency <pause dur="7.4"/> any idea <pause dur="5.3"/> no no idea <pause dur="1.7"/> who would have to make the decision <pause dur="2.6"/> you're in Ghana in the early nineteen-eighties and you've decided the cedi is <trunc>w</trunc> <trunc>w</trunc> way overvalued it's ten cedis to the dollar and it should be <pause dur="0.3"/> a hundred cedis to the dollar fine <pause dur="0.3"/> who's going to take that decision <pause dur="1.6"/> who do you need to take a decision like that <pause dur="4.6"/> no <pause dur="5.0"/> okay <pause dur="0.4"/> the answer is <pause dur="0.8"/> you <pause dur="0.2"/> you probably need your Minister of Finance your Chancellor of the Exchequer <pause dur="0.3"/> you probably need the Governor of the Central Bank <pause dur="1.0"/> and you'll probably have to consult senior cabinet colleagues or the President of the country <pause dur="1.3"/> so that's what two or three <pause dur="0.3"/> high ranking decision makers <pause dur="0.5"/> and a typist <pause dur="1.0"/> right <pause dur="1.4"/> how long does it take to devalue about five minutes yes <pause dur="0.9"/> as long as you've reached agreement that you're going to do takes five minutes <pause dur="0.5"/> that's all the time it takes to to to write out the press announcement that says as from today <pause dur="0.2"/> the government of Ghana redefines the cedi from ten <pause dur="0.5"/> cedis to the dollar to a hundred cedis to

the dollar or whatever it is yeah <pause dur="0.9"/> takes five minutes and takes about three people to make the decision <pause dur="0.4"/> similarly if you want to cut the government budget <pause dur="0.9"/> you know how quickly can you do that how many people are involved <pause dur="0.6"/> well it's maybe a couple of dozen technicians in the Ministry of Finance go through the government budget with a red pencil <pause dur="0.3"/> reduce the budgets <pause dur="0.4"/> takes one week at most <pause dur="0.3"/> yeah <pause dur="1.1"/> how long on the other hand does it take <pause dur="0.2"/> to privatize <pause dur="0.3"/> a big state enterprise <pause dur="0.5"/> yeah <pause dur="1.9"/> # <pause dur="0.6"/> those of you who lived through the British privatizations of the nineteen-eighties <pause dur="0.7"/> privatizations of British Gas British Telecom and so on <pause dur="0.3"/> even in this country took an army of people to do <pause dur="1.1"/> advertizing tendering <pause dur="0.2"/> recruiting shareholders producing documents <pause dur="0.3"/> deciding the form of privatization <pause dur="0.3"/> deciding what price you should try and sell things off <pause dur="0.3"/> it's a huge business <pause dur="0.3"/> you need an army of civil servants for this <pause dur="0.6"/> Nicaragua in nineteen-eighty <pause dur="1.2"/> decided to privatize <pause dur="0.3"/> the major state enterprises <pause dur="0.3"/>

Nicaragua's a very small country <pause dur="0.6"/> when it <pause dur="0.3"/> drew up a list of state enterprises there were three-hundred-and-fifty to be privatized yes <pause dur="1.1"/> now think of all the legal documentation and all of the technical work in privatizing <pause dur="0.3"/> those three-hundred-and-fifty <pause dur="0.2"/> enterprises <pause dur="0.3"/> it's years and years of work <pause dur="0.5"/> it took Mrs Thatcher a decade to privatize what <pause dur="0.5"/> the dozen or so biggest <pause dur="0.9"/> public sector utilities in this country <pause dur="0.8"/> and that took <pause dur="0.8"/> huge resources <pause dur="1.3"/> so for a developing country to privatize <pause dur="0.2"/> it's <trunc>i</trunc> it's a mountain of work <pause dur="0.4"/> similarly if you're trying to liberalize parts of your market economy <pause dur="0.3"/> where you previously had lots of regulations <pause dur="0.5"/> and where you don't want to just rip away everything overnight <pause dur="0.7"/> # there's a lot of technical work there <pause dur="0.3"/> now the point i'm making is that the stabilization measures <pause dur="0.3"/> you can do them very quickly you can cut governments <trunc>ra</trunc> <pause dur="0.3"/> you can cut government

spending rather quickly <pause dur="0.3"/> you can raise interest rates rather quickly <pause dur="0.4"/> the supply side liberalization measures <pause dur="0.3"/> the reforms of banking tax systems privatizations <pause dur="0.4"/> these take years to do <pause dur="0.8"/> so you've got a lag between those things that tend to deflate your economy <pause dur="0.6"/> and those things that give a stimulus to your economy <pause dur="0.6"/> and that lag can be quite a long lag it can be five years or more <pause dur="0.8"/> so it's no surprise to see that <pause dur="0.4"/> devaluation what the I-M-F claimed would be very short term pain <pause dur="0.6"/> has proved to be at least medium term <pause dur="0.3"/> if not long term pain <pause dur="0.7"/> and indeed for many countries you'd say <pause dur="0.3"/> where is the <trunc>e</trunc> where is the light at the end of the tunnel <pause dur="1.7"/> and here's a third problem with with structural adjustment </u><gap reason="break in recording" extent="uncertain"/> <u who="nm0969" trans="pause">

now you go to Tanzania and you say that <pause dur="0.3"/> and you go to Uganda and say that <pause dur="0.7"/> and then you say the same thing in the Cote d'Ivoire <pause dur="0.7"/> and you say the same thing in Colombia <pause dur="0.6"/> and in Costa Rica <pause dur="0.4"/> and El Salvador <pause dur="0.3"/> and Guatemala <pause dur="0.4"/> and Indonesia <pause dur="1.9"/> and so on <pause dur="0.3"/> yeah <pause dur="0.9"/> now it makes an awful lot of sense <pause dur="0.5"/> for <pause dur="0.4"/> an El Salvador or a Kenya <pause dur="0.5"/> to export more coffee <pause dur="0.5"/> earn more foreign exchange <pause dur="1.1"/><kinesic desc="writes on board" iterated="y" dur="3"/> # <pause dur="0.5"/> and balance its trade <pause dur="0.6"/> but what happens if all countries producing coffee <pause dur="0.3"/> all produce <pause dur="0.2"/> more coffee <pause dur="0.3"/> at the same time <pause dur="1.1"/> well <pause dur="0.2"/> against a demand schedule which is not that elastic <pause dur="0.6"/> the price will go down <pause dur="1.0"/> now that <pause dur="0.3"/> diagram that was in the notes of falling <pause dur="0.2"/> primary commodity prices <pause dur="0.5"/> one of the elements behind that fall in commodity prices <pause dur="0.4"/> were the efforts of countries under structural adjustment <pause dur="0.3"/> to increase the volumes <pause dur="0.3"/> of primary exports <pause dur="0.6"/> so <pause dur="0.5"/> an argument that makes perfect sense for one country <pause dur="1.1"/> isn't necessarily a good argument for all countries at the same time <pause dur="0.6"/> now that <trunc>argum</trunc> that that problem with the argument is known as the

fallacy of composition <pause dur="1.1"/> composition <trunc>agg</trunc> added all together in aggregate <pause dur="0.3"/> it isn't good advice <pause dur="0.2"/> for any given country at any one moment it is good advice <pause dur="0.4"/> but then all countries were given the same <pause dur="0.4"/> advice at the same time <pause dur="6.6"/> now look on <pause dur="0.2"/> page nine <pause dur="0.2"/> you've got a little box called the Washington Consensus <pause dur="2.7"/> and this was an intellectual consensus built up in the early nineteen-eighties about what development policy should be <pause dur="1.7"/> and it's called the Washington Consensus because Washington is where you'll find the World Bank <pause dur="0.5"/> the International Monetary Fund <pause dur="0.8"/> # and you'll also find the Inter-American Development Bank and you'll also <trunc>s</trunc> find the U-S government <pause dur="0.8"/> now all of the <pause dur="1.7"/> well not all but <pause dur="0.2"/> many of the <pause dur="0.6"/> people defining policy in Washington in the early eighties very powerful people <pause dur="0.5"/> came to the same conclusions about what good policy would be <pause dur="0.3"/> in the developing world <pause dur="0.3"/> and there it is listed point by point <pause dur="0.6"/> let's have a look what we've got there <pause dur="0.7"/> a balanced fiscal budget government

spends only as much as it takes in <pause dur="0.5"/> tight government spending controls <pause dur="0.3"/> broad based tax with low marginal tax rates <pause dur="0.9"/> reform your prices to market based prices <pause dur="0.4"/> make real interest rates positive <pause dur="0.6"/> get yourself a stable exchange rate <pause dur="1.5"/> # <pause dur="0.7"/> trade liberalization and encouragement of <pause dur="0.2"/> foreign <pause dur="1.1"/> direct foreign investment foreign direct investment <pause dur="1.7"/> there's terrific change in fashions from the early seventies to the early eighties <pause dur="0.3"/> regarding multinational companies <pause dur="0.5"/> and <pause dur="0.3"/> foreign direct investment <pause dur="1.1"/> in the early nineteen-seventies people were very wary of the big <pause dur="0.3"/> multinational corporations believing that they were exploitative <pause dur="0.6"/> and through transfer pricing mechanisms <pause dur="0.4"/> were taking out bigger profits from the developing world <pause dur="0.3."/> than they should have been <pause dur="0.8"/> transfer pricing is where you have <pause dur="0.4"/> a local subsidiary of a major multinational <pause dur="0.8"/> and what you do with this <pause dur="0.3"/> is you <pause dur="0.3"/> the transfer prices as you <pause dur="0.8"/> transfer goods <pause dur="0.3"/> between elements of the same corporation <pause dur="0.5"/> you set the prices internally to your company <pause dur="0.4"/> so that you

only make profits <pause dur="0.3"/> in countries <pause dur="0.9"/> which have low tax regimes yes <pause dur="1.4"/> now if you set this up well <pause dur="0.5"/> you can have a global corporation that makes very little profit <pause dur="0.4"/> in countries like Germany and Japan <pause dur="0.9"/> or Sweden <pause dur="0.7"/> and suddenly makes a fortune in the Cayman Islands yeah <pause dur="0.7"/> tiny part of the company makes a fortune in the Cayman Islands <pause dur="0.3"/> well it was never that naked <pause dur="0.6"/> but <pause dur="1.1"/> what you got your tax lawyers to do it was alleged was to make sure that you <pause dur="0.3"/> rack up your profits <pause dur="0.4"/> where the tax rates are specially low <pause dur="0.4"/> yeah <pause dur="0.8"/> so you pay very little tax in Sweden <pause dur="0.3"/> and then on your big profits in the places where you've got a lot of profit then <pause dur="0.6"/> you pay very little tax on that <pause dur="1.0"/> and we know how there i mean that game with taxes <pause dur="0.2"/> exploiting the possibilities of <pause dur="0.3"/> realizing your profits in low tax havens <pause dur="0.4"/> is why everybody today knows that some of the richest people in the world <pause dur="0.5"/> pay no tax <pause dur="0.8"/> now is that true <pause dur="0.5"/> that it's commonly alleged that the richest people in the world <pause dur="0.3"/> pay next to no tax yes <pause dur="0.5"/> they live in

strange places <pause dur="0.5"/> they can't spend too much time in any one <pause dur="0.5"/> one of the major cities of the world <pause dur="0.6"/> # <pause dur="0.2"/> they have <pause dur="0.2"/> unusual nationalities <pause dur="0.3"/> unusual residences <pause dur="0.4"/> and pay next to no tax on phenomenally high earnings <pause dur="0.2"/> this is what we're told <pause dur="0.4"/> well in back in nineteen-seventy <trunc>th</trunc> this was a big fear <pause dur="0.4"/> and many governments put a lot of control on multinational organizations <pause dur="4.3"/> # <pause dur="2.5"/> by the time you get to the nineteen-eighties <pause dur="0.4"/> those ideas have been blown away <pause dur="1.7"/> because what people are saying by the nineteen-eighties is they're saying hey <pause dur="1.2"/> if you want <pause dur="0.2"/> to have something happen in a country <pause dur="0.4"/> maybe you can do it by a government parastatal <pause dur="0.5"/> but maybe that government parastatal will be inefficient <pause dur="0.4"/> and if it makes losses <pause dur="0.3"/> it'll borrow from the Central Bank <pause dur="1.0"/> expand the money supply <pause dur="0.3"/> and create problems for you <pause dur="1.0"/> on the other hand <pause dur="0.6"/> if you will give it this out as a franchise <pause dur="0.4"/> to some multinational company <pause dur="0.5"/> they can only <pause dur="1.3"/> # they can only operate if they make profits they have to be efficient <pause dur="0.8"/> and if they make

profits this isn't going to cost your country anything <pause dur="1.1"/> and instead of getting debt from overseas <pause dur="0.5"/> to put into state investments that might go bad <pause dur="0.4"/> how about foreign direct investment <pause dur="0.7"/> because when one of the big corporations comes to invest in your country <pause dur="0.6"/> you don't have debt <pause dur="0.9"/> there's no reason to pay back the investment capital <pause dur="0.3"/> sure you'll have repatriated profits <pause dur="0.3"/> but that's only if the investment's successful <pause dur="0.5"/> if something goes wrong <pause dur="0.4"/> well the corporation loses not the country <pause dur="0.7"/> so by the early eighties you got a <trunc>f</trunc> you got a set of arguments saying <pause dur="0.4"/> foreign investment is a very good thing <pause dur="0.5"/> encouraging <pause dur="0.5"/> get rid of <pause dur="0.2"/> get rid of debt <pause dur="0.5"/> bring in foreign investment <pause dur="5.7"/> what else have we got in there in the <pause dur="0.2"/> Washington Consensus <pause dur="1.3"/> # <pause dur="0.8"/> a consensus in favour of privatizing state enterprise <pause dur="0.8"/> # <pause dur="0.9"/> get the state out of it <pause dur="0.2"/> on the grounds that states are likely to be inefficient <pause dur="0.7"/> and on the grounds that state enterprises are likely to be managed for as many political objectives as economic objectives <pause dur="1.1"/>

deregulate your markets including the labour market <pause dur="0.4"/> # <pause dur="0.2"/> this is back to the nineteen-thirties <pause dur="0.4"/> if there's a problem of unemployment <pause dur="0.8"/> let the wages go down to a market clearing level <pause dur="1.7"/> # <pause dur="0.6"/> sound macroeconomic policy in command <pause dur="0.7"/> and some rudimentary social safety nets if there are problems of poverty <pause dur="0.4"/> during adjustment <pause dur="0.5"/> throw a bit of money at the problem <pause dur="1.8"/> the World Bank also argued at the same time for investments in human capital <pause dur="0.5"/> for reasons that we will see <pause dur="0.3"/> in a few moments <pause dur="1.9"/> # and in timing stabilize before you create <pause dur="0.4"/> the conditions for growth <pause dur="1.8"/> now that's the Washington Consensus it's about macroeconomic stability and it's about trying to get a supply side <pause dur="0.3"/> market based miracle <pause dur="0.3"/> for economic growth <pause dur="4.2"/> now what do we need to say for the nineteen-eighties <pause dur="0.3"/> about agriculture <pause dur="1.6"/> this is really a story in the nineteen-eighties the big stories <pause dur="0.4"/> are about macroeconomic phenomena <pause dur="1.5"/> it's extraordinary how quickly the ideas of the early nineteen-seventies stressing equity stressing

reaching the poorest <pause dur="0.4"/> had put agriculture <pause dur="0.3"/> top of the bill <pause dur="1.3"/> in less than ten years <pause dur="0.3"/> agriculture has been wiped out <pause dur="0.3"/> from the policy agenda <pause dur="0.3"/> in favour of macroeconomic concerns <pause dur="0.4"/> of the early nineteen-eighties <pause dur="0.5"/> and agriculture is now seen as nothing special to any other sector <pause dur="0.6"/> if anything's going to happen in agriculture <pause dur="0.3"/> base it on the market <pause dur="0.4"/> base it on efficiency <pause dur="1.9"/> but when people looked at agriculture <pause dur="0.6"/> they saw <pause dur="0.2"/> one major problem that was going on <pause dur="0.7"/><event desc="puts away screen" iterated="n"/> and that was this <pause dur="3.7"/> <event desc="turns off overhead projector" iterated="n"/> the problem of <pause dur="3.1"/><gap reason="inaudible" extent="2 secs"/> okay <pause dur="0.5"/> the problem of negative protection <pause dur="5.5"/> <kinesic desc="writes on board" iterated="y" dur="6"/>

and this is a very very simple argument <pause dur="1.3"/> what was argued <pause dur="0.5"/> was that <pause dur="0.9"/><kinesic desc="writes on board" iterated="y" dur="6"/> you there's your agricultural supply curve <pause dur="1.0"/> quantity and price <pause dur="1.2"/> then <pause dur="0.2"/> in far too many developing countries <pause dur="0.8"/> what you got <pause dur="0.6"/> was negative protection <pause dur="1.1"/><kinesic desc="writes on board" iterated="y" dur="7"/> and whereas <pause dur="0.2"/> that would be <pause dur="0.6"/> a market price <pause dur="1.2"/> delivering <pause dur="0.4"/> an output of <pause dur="0.6"/> O-A <pause dur="1.7"/> what you got in many countries <pause dur="0.4"/> was prices <pause dur="0.4"/><kinesic desc="writes on board" iterated="y" dur="9"/> artificially depressed <pause dur="0.2"/> by government policy <pause dur="1.8"/> to a point here <pause dur="3.6"/> with a corresponding reduction <pause dur="0.2"/> in output <pause dur="2.6"/> now you look at that and you say well what government in their right mind <pause dur="0.6"/> would reduce <pause dur="0.3"/> agricultural prices <pause dur="0.4"/> and thereby suppress production <pause dur="0.4"/> that can't be a good thing <pause dur="1.2"/> but think about it <pause dur="0.3"/> any country that was worried for example <pause dur="0.3"/> about the price of urban food <pause dur="0.7"/> you might try and control the <trunc>froo</trunc> the food price <pause dur="0.5"/> on behalf of urban workers <pause dur="0.5"/> in the desire to keep down wages <pause dur="0.4"/> for your industrialization process <pause dur="1.2"/> you might be taxing your export <pause dur="0.2"/> crops very heavily <pause dur="0.4"/> because that's

the only government revenue you've got in the country <pause dur="0.5"/> is is is to tax the <pause dur="0.3"/> the agricultural export <pause dur="0.4"/> taxing your exports effectively brings down the price <pause dur="2.4"/> now those things were fairly obvious to most governments <pause dur="0.2"/> what was less obvious to most governments <pause dur="0.4"/> was the impact of an overvalued exchange rate <pause dur="0.8"/> and if you overvalue your exchange rate <pause dur="0.4"/> you hurt your agriculture in two directions <pause dur="0.5"/> first any export crops you've got <pause dur="1.4"/> earn less <pause dur="0.6"/> than they would <pause dur="0.2"/> if you've got <pause dur="0.2"/> a free market exchange rate <pause dur="0.4"/> you end up with less local currency per dollar earned in your hand <pause dur="0.4"/> than you otherwise would <pause dur="0.4"/> and you put downward pressure <pause dur="0.5"/> on the prices of any export crops <pause dur="0.9"/> but you also put downward pressure <pause dur="0.3"/> on any food crops any domestic crops <pause dur="0.9"/> why <pause dur="1.2"/> because imports get cheap <pause dur="0.3"/> under an overvalued exchange rate <pause dur="1.2"/> a lot # a little of the local currency will buy plenty of dollars <pause dur="0.3"/> and it makes imported food cheap <pause dur="0.3"/> and brings down your <pause dur="0.2"/> overall price level <pause dur="1.3"/> so indirectly through things like the exchange rate <pause dur="0.4"/> you're bringing

down <pause dur="0.2"/> the price <pause dur="0.8"/> and because you're bringing down the price <pause dur="0.2"/> you're taking away the incentive from agriculture <pause dur="1.6"/> faced by this analysis <pause dur="0.4"/> the World Bank spent most of the nineteen-eighties <pause dur="0.4"/> telling people looking at agriculture policy <pause dur="0.4"/> get the negative protection <pause dur="0.2"/> out of agriculture <pause dur="0.8"/> and you will deliver a major incentive <pause dur="0.7"/> to producers <pause dur="0.6"/> which will <pause dur="0.6"/> largely correct problems you've got of insufficient food production <pause dur="0.3"/> insufficient export crop production <pause dur="0.3"/> whatever <pause dur="1.2"/> so that was the particular message above all else that was given <pause dur="0.3"/> for the agriculture sector <pause dur="0.5"/> get negative protection out there it's a market based measure <pause dur="0.4"/> about <pause dur="0.2"/> the peculiarly <vocal desc="cough" n="sm0975" iterated="n"/> <pause dur="0.3"/><gap reason="inaudible due to background noise" extent="1 word"/> effects <pause dur="0.3"/> or price discrimination <pause dur="0.8"/> upon agriculture <pause dur="11.2"/> okay <pause dur="3.1"/> nineteen-eighties <pause dur="1.1"/> # <pause dur="2.5"/> what have we got <pause dur="0.2"/> during the <pause dur="0.3"/> nineteen-nineties <pause dur="2.0"/> well ideas haven't changed a lot <pause dur="0.5"/> between the eighties and the nineties and <pause dur="0.4"/> current day <pause dur="0.8"/> # <pause dur="0.2"/> the Washington Consensus <pause dur="0.7"/> is still largely intact <pause dur="2.1"/> during the nineteen-nineties <pause dur="0.6"/>

changing ideas about development <pause dur="0.6"/><kinesic desc="turns on overhead projector showing transparency" iterated="n"/> were much influenced by <pause dur="2.2"/> an examination of the historical record <pause dur="0.5"/> for one part for the world <pause dur="1.7"/> and that is during the nineties people looked to what had happened in the developing world over the previous decade <pause dur="0.6"/> and said <pause dur="0.4"/> structural adjustment in the nineteen-eighties were a lot of misery in Africa <pause dur="1.1"/> Africa's per caput <pause dur="0.5"/> G-D-P earnings <pause dur="0.4"/> went down <pause dur="0.3"/> for most countries during the nineteen-<pause dur="0.4"/>eighties <pause dur="0.4"/> quite badly down for some some groups of people <pause dur="0.5"/> Latin America stood still <pause dur="0.3"/> or went backwards <pause dur="0.9"/> but one part of the world saw <pause dur="0.3"/> incredibly fast growth rates <pause dur="0.3"/> and as we mentioned last week <pause dur="1.3"/> that was East Asia <pause dur="1.5"/> # south China <pause dur="0.2"/> Hong Kong Singapore Korea <pause dur="0.2"/> but increasingly Indonesia Thailand Malaysia <pause dur="0.3"/> all of these countries <pause dur="0.2"/> grew very quickly indeed <pause dur="1.4"/> and they grew they were the fastest growing part of the world economy <pause dur="0.7"/> the British economy the American economy the German economy <pause dur="0.4"/> didn't do that well in the nineteen-eighties <pause dur="0.3"/> it was hesitate hesitant growth <pause dur="0.6"/> East Asia on

the other hand <pause dur="0.3"/> was growing very quickly indeed <pause dur="1.0"/> and that led people in the in the nineteen-nineties to sort of say well <pause dur="0.3"/> what did these guys get so very right <pause dur="0.8"/> what was what was the wonder element <pause dur="0.4"/> that allowed these countries to grow very quickly <pause dur="0.4"/> when other parts weren't <pause dur="1.3"/> and a lot of time was spent in the nineteen-nineties trying to interpret the so-called East Asian miracle <pause dur="1.8"/> there are big disputes about the extent to which the East Asian miracle <pause dur="0.3"/> shows that market <trunc>liberaliza</trunc> liberalism works <pause dur="0.8"/> particularly when you realize that one of these countries is China <pause dur="0.5"/> with a highly controlled economy indeed <pause dur="0.7"/> the Japanese have never run <pause dur="0.3"/> a purely free market economy <pause dur="0.5"/> neither have the Koreans <pause dur="0.7"/> on the other hand <pause dur="0.5"/> Singapore <pause dur="0.3"/> Hong Kong <pause dur="0.6"/> were swashbuckling free market capitalism <pause dur="0.9"/> so there were debates about the extent to which state intervention in the free market <pause dur="0.4"/> pushed forward the East Asian miracle <pause dur="1.2"/> but nobody disagreed about one element of the East Asian miracle <pause dur="0.5"/> and that was investment in

people <pause dur="1.2"/> country after country in East Asia it was argued <pause dur="0.4"/> had undertaken <pause dur="0.3"/> reasonably equitable investments in health care <pause dur="0.5"/> education <pause dur="0.3"/> and training <pause dur="0.5"/> of people in those countries <pause dur="0.9"/> and it was argued that this was a major stimulus to industrialization in this area <pause dur="0.4"/> that you could always hire <pause dur="0.5"/> a lot of people at low labour rates <pause dur="0.3"/> but who were in reasonably good health <pause dur="0.6"/> who were literate and had reasonable skills <pause dur="0.6"/> and that that was a difference between East Asia for example <pause dur="0.3"/> and Africa and Latin America <pause dur="0.9"/> or a difference for that matter between East Asia <pause dur="0.2"/> and South Asia <pause dur="1.9"/> India for example has concentrated its educational spending <pause dur="0.3"/> on elite facilities <pause dur="0.6"/> with the result that India has more PhDs than any country on Earth <pause dur="0.4"/> far more than the Chinese <pause dur="0.9"/> # <pause dur="0.9"/> it was argued in China on the other hand <pause dur="0.4"/> the distribution of education had been much broader with the result that this large <pause dur="0.7"/> set of people who'd been in the Chinese countryside with relatively low marginal products <pause dur="0.8"/> as i said last week

this is the Lewis argument <pause dur="0.4"/> had moved into <pause dur="0.8"/> export processing zones and <trunc>con</trunc> and and <pause dur="0.6"/> and # <pause dur="1.8"/> manufacturing industry in Shanghai Canton Fujian the coastal area of South China <pause dur="0.9"/> and were highly employable <pause dur="1.0"/> # in ways that you couldn't do quite the same <pause dur="0.4"/> out of rural India <pause dur="1.5"/> so there was a lot of interest there in in in human capital <pause dur="0.4"/> and the advantages of investing in people <pause dur="9.2"/> now there's plenty more we can say about the <pause dur="0.3"/> <trunc>ni</trunc> the nineties <pause dur="0.7"/> and there are parts of this story which we still need to revisit <pause dur="0.7"/> and then there's all of the rest of the stuff that i hoped we might have had a a go at today <pause dur="0.9"/> # <pause dur="0.5"/> what we're going to have to do is # put the whole sequence of these talks backwards once <pause dur="0.8"/> next week we'll be continuing with this because we'll need at least another session to get through it <pause dur="0.7"/> # before we get to the <pause dur="0.5"/> land talks <pause dur="2.0"/> so next week we'll carry on with this one