Reducing the Role of the State in the Economy: A Conceptual Exploration of IMF and World Bank Prescriptions

Abstract

A policy and scholarly consensus is emerging on reducing the role of the state in the economy, but with relatively little consideration of its meaning and potential consequences. Six different forms of state economic intervention are distinguished in this article (influence, regulation, mediation, distribution, production, and planning) and combined to characterize different national economic regimes. IMF and World Bank recommendations for policy reform are then identified, and the consequences of those recommendations are assessed for different forms of economic intervention. On balance, stabilization and structural adjustment programs would appear to facilitate a major continuation of some forms of intervention (influence and mediation), redirect others (regulation, mediation, and distribution), and reduce those associated with state production and planning. These differential effects of the programs have far-reaching political implications, can be internally inconsistent, and are not necessarily conducive to development. In nearly every developing country in the world today, short-term stabilization measures, structural adjustment programs, liberalization efforts, and economic reforms are being considered, attempted, or adopted. Although there is tremendous variation in the details of the programs being initiated, nearly all entail a reduced role for the state in the economy (especially in the area of expenditures and ownership of productive enterprises) and greater reliance on market mechanisms (especially in the areas of exchange rate adjustment, trade liberalization, and the use of subsidies). These tendencies are a far cry from the extensive state interventionism, economic nationalism, and state socialist experimentation found in much of the developing world during the 1960s and 1970s. These policy reforms have been accompanied and strongly encouraged by the official reports, studies, and declarations of the major international financial organizations (most notably the World Bank and the IMF), a number of private transna