Introduction
Many
countries in developing world have a great task of improving the living
standards of their citizens as underdevelopment and poverty remains one of the most
pressing challenges. So the case study report investigates the impact of
neoclassical policies on development for Zambia between 1980 and 2000. However,
development can be defined as a process of improving or promoting people`s
living standards and it is measured using the human development index. Todaro,
(2000) argues that development should encompass conditions that create economic
growth and self-esteem through the establishment of economic system and
institutions that promote human development. Basically, development concerned
with increasing people preference which could be in the form of consumer
choice, democratic rights and liberty among others. The United Nations
Development Programme (UNDP) instituted the human development index (HDI) to
measure the wellbeing of a particular country. The human development index
attempt to rank countries on a scale of between zero( low) and 1 (high) and
it is based on three goals or end
products of development which are, real growth per capita income , life
expectancy and education attainments. So the case study report seeks to
highlight some of the impact of free-market, (neoclassical orthodoxy) policies
on Zambia`s development over a period of two decades (1980-2000).It is also
important to note that, the concept of development emerged in the post-war era
maybe as part of outperform and to stop Soviet Union advance in newly
independence states of Africa and other regions. So the notion of development
became a theoretical position of the United States in the 1940s and the idea
gave birth to international institutions such as the IMF and the World Bank,
both intuitions were tasked to provide financial support for economic growth
and development.
Economic and social trends in post-colonial Zambia
The
Republic of Zambia is a landlocked state in southern Africa and it borders with
the Democratic Republic of the Congo to the north, Tanzania, Malawi on the
east, Mozambique, Zimbabwe, Botswana, Namibia and Angola. Zambia`s economy was
dependent on mineral wealth with very few trained citizens to govern the country. Like any
other developing country, Zambia`s economy was mainly based on primary
production and copper was its largest earning power. The country obtained
independence from Great Britain in 1964 and Kenneth Kaunda was the first
President of a newly independent state. The country faced numerous development
challenges as it had no manpower to run and govern the country, there were only
less than 100 natives with university graduates at the time. The country had no
or little infrastructure and schools as such about 0.5% of the country’s
population were illiterate making her (Zambia) perhaps the least developed
British colony. So the new government embarked on both economic and social
reconstruction of the country through a number of national projects under the
commission for development planning. The first policy framework was aimed at
improving the nation`s education system which was poorly developed, so in its
early inception the government devoted much of resources on public sector to
build infrastructure and the education at all levels. President Kaunda introduced free education policy which meant that almost
very school going child had opportunities to progress in future. The country`s
policy reforms were guided through an idea of Humanism (a policy mix of
socialism and Christian ethics) national recourses were mobilized through
donations and the first university was opened in 1966, there after a number of
tertiary institutions were built. The massive investment in the
public sector especially in education led to a sharp increase in enrolments at
all level by 1970.In
addition to that, the country`s economy was controlled by the companies that
had linked with the colonial administration just after independence so the
government instituted the second phase of development planning, this time with
the intent of facilitating the acquisitions of major investments in
the mining sector and other strategic sectors. The government successful
nationalized all major industries and according to Lambert, (online) almost 80%
of the Zambian economy was now made up of stated owned enterprises in 1980. The
endogenous development strategy (Humanism) enabled the country`s transition
process faster, social protection was guaranteed for low income families and
the education systems began to flourish. However, Zambia`s economy relied on
copper and was the major exporting commodity accounting for about 90% of the
country`s total revenue in the 1970s.
Theoretical reflection in development
In an attempt to address the problems of Less Developed Countries (LDCs),
major theoretical assumptions on development began to emerge in the post-war
era. The theories were aimed at finding out the causes of underdevelopment and
how it could be rectified and these theories would save as policy guide line
for development. The diagnostic approach possibly engineered the establishment
of international institutions such as the World Bank and the International
Monetary Fund (IMF) to address some of major problems of the peripherals. The
theoretical positions of the 1950s and 1960s sort to suggest that lack of lack
of saving and little investment in Less Developed Countries were the
fundamental causes of underdevelopment and hence intervention at government or
international level was needed to solve the problems. The neoclassical model or
counterrevolution sited poor development in third countries as being a direct
result of market manipulation due to government interventions and regulations.
The model
•
Lewis Model: developing countries have dual economy a (traditional and
modern economy).He argues that poor countries were burdened by low level of
return, low savings rates and excess labor force employed in the unproductive
traditional economy and that if labor in the traditional economy were to be mobilized,
poor countries would develop faster.
•
Rostow`s stages of growth argues that, countries have to go through five stages
of growth and then he identified the problem of developing countries as being
caused by the fact that take-off has not occurred to effect growth.
•
Dependent theory invented by Latin American economists attempt
to explain why many developing countries were so poor and he noted that Less Developed
Countries were disadvantaged by their dependence on exporting primary goods as
such their products could not compete with those in advanced countries. It
argues that, Less Developed Countries (LDCs) should impose higher trade tariffs
to protect their industries.
•
The neoclassical or liberal models view the problems in Less Developed
countries differently, under development in third world countries is caused by poor
resource allocation due to excessive government interventions.
Methodology
It can be
argued that Rostow, Lewis and Prebisch models consider intervention at both national
and international level as key to uplifting economic fortune of those in the
peripheral as a way of increasing those
countries` savings rates and wealth accumulation. On the other hand,
neoclassical or counterrevolution put emphasis on free-market as the main
agency for development. The case study report focuses on neoclassical theory as
model for development pursued in Zambia from 1980 to 2000 against its impact on
development. Real GDP,
life expectancy and education will be the main factors to be relied on when
examining the effects of neoclassical model on Zambia. The human development index
corresponding to reforms of the 1980s and 2000 will be generated to assist with
the enquiry. Furthermore the report will make use of empirical evidence and
available literature which seek to highlight the relationship between
neoliberal economic policy and development.
The case for Zambia 1980 to 2000
In trying to solve its economic crisis as the price of copper continued
to decline in the 1980s, Zambia merely abandoned its humanistic philosophy and
policies that were inline with the neoclassical model as its long-term economic
planning .The structural reforms were to be carried and implemented under the
sponsorship of the International Monetary Fund in exchange for budgetary and
balance of payment support. In the 1980s a wide range of reforms were carried
out these include but on all, privatisation of state enterprises, deregulation, reduction in government
expenditure , ease of exchange control, subsidies were abolished, tight
monetary policy, trade liberalism among others. The reforms were implemented in all sectors and
in agriculture, price fixation were removed, producer and consumer subsidies
were reduced and state monopoly on agricultural marketing rights were
demolished as well as allowing foreign agribusiness participation in the
economy. According to Wood and Kean, (1992), 1980
subsidy on maize meal was about 70% of the retail price, so reduction in
subsidies coupled with other reforms such as the easing of price control, accelerated
inflation .Also studies by Shawa, (1993) indicate real GDP in Zambia slummed from
1980 to 19887 and that real per capital declined remarkable maybe due to depreciation of the value of
the national currency by the late 1980s. Furthermore, cuts in public services
and retrenchments of workers invoked riots and
strikes around the country and leadership of President Kenneth Kaunda came into
serious opposition from churches and labor groups. In 1987 Zambia temporarily aborted
the IMF`s sponsored neoliberal reforms and the government introduced its own
program called New Economic Recovery Programme (NERP). Under the New Economic
Recovery Programme, the government returned control over all economic
activities and spending. This resulted in slowing down of inflation as economic
performance increased which recorded a growth rate of nearly 7% in 1988
compared to less than 3% in the previous years.
However, in 1991 a new government came in office and immediately implemented
radical economic reforms (neoclassical model) which immediately eased food
subsidies completely, child mortality rate in the country increased steadily in
the 1990s due to deteriorating
social-economic indicators. Garenne and Gakusi (2006), child mortality
increase suddenly from 1990 to 2000 and was higher than the previous decades,
this was chiefly caused by decrease in real per capita income and austerity
measures in the health sector. Also, the years of neo-classical reforms in
Zambia witness unprecedented decline in life expectancy 1990
to 2000 when
compared to preceding
decades, (http://www.zamstats.gov.zm/media/chapter_8_mortality-_final.pdf).
The decline in life expectancy and the subsequent increase in child mortality rate
during the inter years of structural reforms had been attributed by diminishing
of living standards for majority of Zambians. Nevertheless, there are other
factors independent from economic reforms that were carried out during this
period, epidemic diseases such as HIV/AIDS and related sicknesses are some of
the great challenges that continue to drag the country backwards. In addition
to that, Zambia is prone to droughts and apparently, the higher cases of
malnutrition were recorded between 1990 and 2000 and at the same period the
country’s agricultural production plummeted. Although natural disasters might
have contributed to rapid decline in human development, empirical evidence which
seem to suggest that reform in the agricultural sector prompted a shortfall in
maize production in the 1990s.For example, Zambia’s agricultural production is
dominated by small-scale farmers and poorly equipped so liberalism of the
sector and elimination of subsidies forced the cost of farming to increase. It
can be argued that the neoclassical model pursued in Zambia from 1980 to 2000
negatively affected the general life expectancy and mortality rate due to poor
nutrition.
Industry and Manufacturing
In effort to restore economic recovery, President Frederick
Chiluba decided to abandon the policy of 'humanism' altogether and pursued
neoliberal economic reforms in full. All markets were deregulated, trade was
liberalized and exchange control we demolished and public enterprises sold, in year
2000 almost 70% of the Zambian economy were now in the private sector (Lambert,
T).However,
privatization did not encourage growth as it was intended to do because the
whole industry in particular manufacturing had already suffered due to years
failed structural reforms. It is very likely that, most privatized industries we left empty as investors flee
the economy for competitive markets elsewhere. During the 1990s there were many
incidence of capital flight as investors sought to protect their assets, a
study by Muuka,(1997), found that majority of multinational firms operating in
Zambia between 1990 to 2000 decided to either relocate or forced to downsizing
their production operation due to worsen economic climate which they were
operating in. A lot of firm closed their business sighting government policy
failure to protect their operations and hence decided to relocate to countries
like Zimbabwe, Tanzania, Uganda and other countries. The result was high
unemployment and shrinking in manufacturing had nock off effects on the
country`s national output (GDP).As such, there is no or little evidence to
suggest that neo-liberal
economic policies improved the country`s development ranking instead the
economy registered the worst economic performance in the 1990s where it was
implemented in full. The negative outcome of reforms in Zambia overshadows
free-market arguments which imply that the problems of underdevelopment in poor
countries were caused by too much government interventions. In this regard, the
neoclassical model pursued by two successive governments in Zambia have
exacerbated economic crisis than solving it as indicated by following GDP
growth rates over the period of reforms. The country is human development index
(HDI) can also tell us a lot about the impact of free-market policy reforms
assumed by Zambia from 1980 to 2000. According to the
world bank (table1), Zambia registered negative growth rates most in the 1990s
than any other decade and these founding seem to confirm with Muuka`s study
when consideration the plight of the country`s industry
Social welfare and economic
crisis
During
the first decade of independence, Zambia adopted a policy of (Humanism) and that
guaranteed social protection for majority low or middle income families. Government
expenditure on pubic services such as education and health care is paramount to
economic prosperity of a given country. Excellent education system and health
provisions are key to a nation`s labor market conditions. For example,
empirical studies by Jung and Thorbecke (2003) found that the size and
efficiency of public expenditure are vital in improving socioeconomic indicators.
Also other empirical studies establish that government expenditure on public
sector is positively and significantly correlated to economic growth. For
instance Bose, Haque
and Osborn (2007) studies concluded that government expenditure on
education has long-lasting effects on economic development. These findings
highlight the role and the importance of government involvement in economic
activities a given country. This could be the reason why many developing
countries including Zambia invested heavily in public sector after
independence. In this view, social protection was guaranteed for low and middle
income family in Zambia before structural adjustments. It was difficult to
measure the success of government expenditure on social welfare between 1960s
and 1970s due unavailable data. However, based on number empirical studies
which confirms that there is a positive correlation between expansionary fiscal
policy and economic growth; one might conclude that Humanism (Christianity
ethics-socialism) was positively related to economic development in Zambia. Therefore
the collapse of socialism and subsequent implementation of neoclassical
policies in Zambia between 1980 and 2000 had a huge effects the country`s
long-term economic development planning. Expenditure on public services
declined steadily from 1980 to the year 2000 and this had a nock on effect on
social welfare provision especially for a country like Zambia where majority of
people live in poverty. Therefore, Zambia`s inter years of economic reforms coupled
with natural disasters such as draught might have exacerbated the country`s
socioeconomic indicators and in year 2000 the country was listed under the
Highly Indebted Country (HIC). If free-market policies provide the adequately
address the problems in Less Developed Countries (LDCs) then, a constant
decline of GDP per capita and
socioeconomic indicators between1980 and 2000 might emphasize inconsistency of
the neoliberal model.
Conclusion
Zambia `s
economic and social trends went through
different phase as the country sought to address its long-term development
planning, from the 1960s and 1970s,the government was heavily involved in
economic and social activities of the country. The policy of Humanism
represented a more interventionist model advocated by the early development
theorists such as Rostow, Lewis and others. The government`s interventionist
model of development managed to build institutions such as schools, tertiary education and a
reasonable social policy in less than two decades. Given that the country
required to tackle numerous challenges such as issues related to manpower,
infrastructure and to build a strong social policy institution, it can then be
argued that the socialist (interventionist) government of President Kenneth
Kaunda managed to safeguard the country`s development needs. The 1980s up to
the year 2000 represent a different policy model for Zambia; the country went
through economic reforms modeled on free-market model and almost all
social-economic indicators gradual plunged.
Reference
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