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From Stabilization
to Free-Market Restructuring From the 1970s
onward, the international economic and political context for adjustment underwent profound
modification. Within the course of a decade, a number of changes created gradual openings
for the stringent free-market form of "adjustment" which eventually came to
dominate not only economic stabilization efforts but also social policy in the 1980s and
early 1990s.
In the advanced industrial countries, increasingly vocal
lobbies for free-market liberalism gained terrain in their political struggle against
groups traditionally favouring a central role for government in the economy. In part, this
development must be seen against the background of rapid transformation in the world
economy as a whole. New technologies in the fields of transport, communications, robotics
and cybernetics speeded exchange within increasingly global markets for capital, goods and
services. They revolutionized the production process in some industries, lessening the
importance of traditional raw materials and often reducing the use of human labour. They
made it easier for businesses to divide up their operations, locating different phases of
production in regions where the most advantageous conditions prevailed. And they
facilitated the rapid growth of transnational and offshore banking operations, effectively
outside the control of governments.
The rising tide of neo-liberalism must also be seen
against the background of recession and inflation in most of the industrialized world from
1973 onward. Government spending, responsible for stimulating unprecedented post-war
growth, now seemed to be fuelling inflation, which hurt investment and saving, and
eventually contributed to worsening problems of unemployment. The stubborn problem of
stagnation-with-inflation fed criticism of past development models and particularly
in Britain and the United States promoted a new call for reduction of the role of
the state in the economy.
In most of the developing world (with the notable
exception of oil producing states), economies were deeply affected by recession and
structural change in the North. They were also affected by the sudden increase in the
price of oil in 1973 and 1979. Thus the 1970s were a time of impending economic crisis,
forestalled in many cases by recourse to borrowing on a massive scale.
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