Price Tag of Reform
IT'S not hyperbole to say that a global wave of economic reform is sweeping the world, despite the recent setback in China. The Soviets call it perestroika, the Chinese gui ge, the Vietnamese doi moi, the British ``popular capitalism,'' and the Nigerians ``structural adjustment.'' Whatever it is called, governments from right to left are eliminating price controls, slashing government spending, and liberalizing exchange rates in order to deregulate their economies. Each nation desperately seeks increased production, lower costs, greater international competitiveness, and expanding employment.
However, as the crisis in China demonstrates, economic reform has a dark underside. It often brings soaring short-term inflation, an immediate hike in unemployment, and conspicuous consumption by a few. When discontent builds quickly, urban riots and political upheavals can follow - as in the Soviet Union, Nigeria, Venezuela, and China, among others.
Many nations have discovered to their sorrow that while the major benefits of reform, when and if they come, arrive in the medium to long term, the painful costs are bunched up-front in the short term. In the least-developed countries, moreover, the benefits are felt first by rural peasants producing foodstuffs while the more politically powerful urban workers and intellectuals on fixed incomes must wait for years.
This sequence is political dynamite.
In Nigeria, structural adjustment has pushed the price of a single loaf of bread from one naira to 10 naira in less than two years, and many imported goods are now beyond the reach of the average citizen. Recent antireform riots in several cities left 30 people dead.
In the USSR, perestroika has brought immediate, short-term inflation but, to date, little increase in production. Mikhail Gorbachev's search for greater economic productivity also has led to the introduction of labor laws that threaten urban workers with job uncertainty.
China's deregulation of agricultural prices and its expansion of private farm production has enhanced peasant income but shrunk the pocketbooks of senior civil servants and once-privileged party officials.
And in each nation, a taste of economic reform has whetted the appetite for political reform and sharpened the desire for freedom of expression.
The great challenge to governments of the 1990s will be to survive the immediate short-term costs of economic reform in order to reap the long-term benefits. What can the Bush administration do to prevent ``reform fatigue'' or ``reform backlash''?
First, maintain diplomatic pressure and continue economic incentives for reform through the difficult years ahead. At the same time, the US should provide foreign assistance to those countries that wish to protect their most-vulnerable people from the terrible costs of economic adjustment. The US should urge other nations to do the same.
Also, the World Bank and International Monetary Fund should be encouraged by the United States to write off significant chunks of external debt and to soften their stance on loans, extending repayment and adjustment periods.
A balanced approach is the only practical course, for the immediate financial, political, and social costs of economic reform are considerable. Indeed, they are exceeded only by the costs of not reforming.