Lecture 5.docx

4 Pages
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Department
International Development Studies
Course Code
IDSB04H3
Professor
Anne- Emanuelle Birn

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POLB90 – Lecture 5 – October 12 , 2010 Key Terms - Neoclassical economics - Neoliberalism - The Washington Consensus - Austerity and shock therapy - Structural Adjustment - Liberalization  Debt Crisis o Dev countries borrowed increasing sums of money (encouraged by the IMF and WB) for projects to revitalize ISI o Also inflationary pressures in th IS, not much confidence in the dollar or bank industry  In 1979, there was a dramatic increase in interest rates (bc of Nixon)  More debt for dev countries  Brazil, Africa’s debt doubled  75.1-600 + bullion in debt  Drop of 10-20% in income, reduced spending as well o Africa was not on Volker’s radar screen rd o 3 W could not pay debts  Debt Crisis and ISI o Adverse intl economic circumstances had accentuated the problems of ISI countries  You needed to draw greater surplus from the suburbs to free up labour in the urban areas  Increase in usage of marketing boards o Farmers pool their products so they can get a guaranteed rate so they can cover their costs of inputs  Infrastructure was focused of the needs of whites, therefore many peasants were not a part of the market because they did not have access to roads, transportation etc o Neoliberalism  S countries were trying to get a large stimulus package so they can get their own banks going  Why didn’t all the indebted countries get together united?  Washington Consensus o Neoliberalism was strongly advocated by  US exec branch  Intl institutions  Washington based think tanks  Regional dev banks  Conditionality o IMF and WB would gladly hand out money based on countries agreeing to adopt neoliberalism  They eventually turned into policy makers  Had strict guidelines and timelines  Sovereignty o Does conditionality reduce the sovereighnty of dev countries>  IMF WB said that the policies  Were correct  Would ensure that loans would be paid back  Others believed it was another form of colonialism  Neoclassical Economics o Paradigm that emphasies on Smith’s economic thought with new proponents  Individual rationality  You don’t need a govt rep or planner determining economic policy or what is good for the individual; they have their own ability to make choices in the market  Mutually beneficial exchanges (trade)  Ability to promote peace  Market relations are the sum of rational individual decisions to trade  Neoliberalism o Development is best left to market forces  Market forces o See slide o Operates as the invisible hand, and reconciles all of society o What do you need to make rational decisions  Education  Resources  Perfect Information  Benefits to products  Cheapest price  How long they last  Neoliberalism mean for dev policy? o Differences b/w people etc will be removed, and if the market is left to itself, it will be left to overall social harmony o Yet policies themselves were the problem  Thatcher believed that there was no
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