Governance, democracy and economic adjustment in India: Conceptual and empirical problems

Abstract

Western development agencies and aid donors, with a more explicit recognition that democracy and good governmental practice represent an essential prerequisite for development.' As a consequence, the World Bank in particular has broadened the focus of its conditionality and policy advice to give greater attention to the process of governance within a borrower country, alongside its traditional concern with 'sound economics', expressed in practice as neoliberal economic policy in which states interfere as little as possible with the operations of the market. Good governance in the political and administrative sphere is seen as essential to make laissez-faire economic policies work, and vice versa. The foundations of such a policy are not entirely new. Since their formation at the end of the Second World War, the Bretton Woods Institutions have long recognised the crucial interrelationship between politics and economics in their efforts to promote stability within the global order. A central aim of the Bretton Woods system at its creation in 1944 was to prevent a repeat of the economic instability which occurred during the Great Depression of the 1930s. This was felt to be a product of economic nationalism, as governments used protectionism and trading blocs to advantage their own countries at the expense of their competitors. However, an additional aim was to prevent a repeat of two major world wars. It was therefore recognised that economic competition had wider political and strategic implications; in its most brutal terms, it could lead to military conflict. To address these concerns, the Bretton Woods system established a set of rules and procedures designed to regulate the postwar global political economy. These were designed to promote interdependence through free trade and open international policy secured by international cooperation.2 Within this system the Bretton Woods institutions were both rule-enforcers and facilitators of development. The IMF was in part a bank, charged with short-term lending to stabilise temporary balance of payments problems and to restore economic equilibrium. However, as head of the Paris Club it was also the principal regulator of international borrowing, policing lending from institutional and private creditors and assessing the creditworthiness of borrower countries. The World Bank was established to lend over longer periods and to monitor structural adjustment. It