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Economic Theory and Orthodox Reform

Economic Theory and Orthodox Reform

Critical Reflections on Structural Adjustment

(p.55) Chapter Three Economic Theory and Orthodox Reform
Beyond the World Bank Agenda
Howard Stein
University of Chicago Press

Despite the increasing types of conditionality introduced by the World Bank and the IMF during the 1990s, the core program of adjustment with its trinity of stabilization, liberalization, and privatization remained intact. Moreover, the same problematic economic microfoundations, or theoretical propositions, that underlie adjustment continued to be present in many of the new strategies added to the World Bank agenda in the 1990s—a disconcerting fact given adjustment's poor performance and noted failures. This chapter explores the neoclassical economic roots of adjustment and includes a critical analysis of this strategy, focusing on errors generated by overreliance on the methodology and content of the economic theory embedded in structural adjustment policies. It is argued that the strict adherence to neoclassical economics methodology is largely to blame for the Bank's failure to question, adapt, or abandon policies despite the overwhelming evidence of downward economic trends among adjusting countries.

Keywords:   World Bank, structural adjustment, neoclassical economics, economic theory, stabilization, liberalization, privatization

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