The 1980s and 1990s: Debt Crises and Adjustment Policies

In the 1980s, many of the policies advocated by Little, Scott and Scitovsky were adopted by developing countries, under pressure from the IMF and World Bank, whose influence greatly expanded as countries sought their help to deal with the debt crisis, and the role of the State in the economy was rolled back.

Already in the 1970s, Thorp had criticised the orthodox monetarist policies in IMF programmes implemented in Latin America. Studies of various Latin American economies showed how the crude monetarism behind the stabilisa­tion policies being urged by the IMF was leading to costly recession and often a worsening of the structural bottlenecks and policy weaknesses which were at the root of the inflation they were meant to cure (Thorp and Whitehead 1979). This contributed to the growing international literature on monetar­ism versus structuralism. As the 1980s unfolded, the harsh social consequences of the programmes were revealed. Stewart was a co-author of UNICEF's cri­tique of adjustment policies which focused on the rising poverty and worsen­ing social indicators associated with them (Cornia et al. 1987).

Adopting a more orthodox approach, Little contributed to the design of a major World Bank-financed study of macroeconomic policies in seventeen developing countries, organised by Anne Krueger. With Vijay Joshi, he wrote one of the volumes in the study, looking at economic reforms in India, and a subsequent follow-up volume (Joshi and Little 1994, 1996). These publica­tions, in turn, undoubtedly contributed to India's ongoing economic reforms. Other Oxford contributors were David Bevan and Paul Collier who under­took the Kenya and Nigeria studies. Little was also co-author of the overview book, Boom, Crisis, and Adjustment (Little et al.

The analysis of booms and busts in natural resources was carried forward, also from a neoclassical perspective, by Bevan, Collier and Jan Gunning of CSAE in a series of publications on macro policies to deal with commodity price fluctuations in African economies. They made use of the natural experi­ment in which Kenya (predominantly market based) and Tanzania (centrally planned), both big coffee producers and exporters, were assailed by the same unanticipated (temporary) terms of trade shock arising from the loss of the Brazilian coffee crop to frost in 1976, and investigated differences in macro policy response and outcomes (Bevan et al. 1990). They developed a general equilibrium model, including some structural features and aspects of political economy (ibid.; Bevan et al. 1993). Subsequently, they conducted a sixteen- country study, paying attention to the micro-foundations of macro­development, notably the savings behaviour of peasants (Collier and Gunning 1999). Their main conclusions were that the “normal” policy advice to coun­tries should be reversed: with positive booms it was better to allow the peasant sector to secure the benefits of the boom since in most countries they found that the peasant sector saved much of the bonanza, whereas allowing the pub­lic sector to tax the extra revenue (as commonly recommended) led to high government spending which was difficult to reverse subsequently, leading to fiscal crises. With negative shocks, they argued that government dissaving to compensate losers might be justified but could come up against credibility issues, potentially leading to fiscal and exchange rate crises (Bevan et al.

Scholars within the Keynesian/structuralist tradition reached similar con­clusions about the importance of governance, but with a greater focus on why policy was so consistently inappropriate. The influence of the Area Studies focus on history and interdisciplinary dimensions was apparent. Rosemary Thorp and Geoff Bertram produced an economic history of Peru going back to the 1890s, showing how the country's wealth of natural resources consis­tently biased policy choices away from diversification and a more sustainable development path (Thorp and Bertram 1978). Later, Thorp and others under­took an economic history of Latin America (at the request of Enrique Iglesias then President of the Inter-American Development Bank), which emphasised the consequences of dependence driven by resource endowment and unequal power in the international economy in a historical context (Thorp 1998). In this major project, Valpy FitzGerald and Pablo Astorga made an important contribution in providing long-run statistical foundations; and from this quantitative initiative grew the Oxford Latin American History Database (OxLAD) and a series of influential econometric papers, including Astorga et al. (2005) and Astorga et al. (2011). Another study on the nature and con­sequences of natural resource dependence again found that policy decisions were undermined by a reliance on unstable commodities, with adverse conse­quence for equity (Thorp et al. 2012).

Meanwhile, Maurice Scott, working largely on his own, undertook a major analysis of the causes of economic growth, critiquing the Solow approach (Solow 1956). In the classic Solow model, technical progress was assumed to be independent of investment and to occur year by year in an unexplained way. When applied empirically—with particular neoclassical assumptions— the model showed that technical progress accounted for around three-quarters of the increase in output in developed countries. Balogh and Streeten had termed this large contribution of unexplained technical progress as a “coeffi­cient of ignorance” (Balogh and Streeten 1963).

Two decades later, John Knight and Sai Ding explored the factors underly­ing China's remarkable growth (Knight and Ding 2012). They also showed the significance of the extremely high investment ratio. But going further than Scott or Barro, they sought to explain this, not only in terms of demand and supply factors, but mostly as a result of the underlying prevailing political economy—the “developmental state” that enabled China to adapt institutions and provide incentives which were responsible for the economy's dynamism.

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