Fair Trade Part 1: Structural Adjustment Programs

August 17, 2010

Over the next few days, I’ll be talking about some different factors that make Fair Trade an important part of dealing with poverty in the developing world. In order to spare you guys a very lengthy post, I’m splitting the discussion into three sections: Structural Adjustment Programs, Free Trade Zones and sweat shop labor and finally a bit of a discussion on why Fair Trade makes sense to me. I’ll also share some of the sources that have influenced my thinking. Here we go-

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In discussing poverty in developing countries, it’s helpful to understand some of the structural challenges that these countries have to deal with. Why can’t they seem to get their heads above water? Why do they stay in debt? Where is their innovation?

Many (if not most) of these developing countries are post-colonial. When countries come out from under colonial rule, they have to create their own infrastructure. They need capital. Who do you go to for a loan? The International Monetary Fund and the World Bank.

Structural Adjustment Programs are stipulations that developing countries have to agree to in order to take a loan out from the International Monetary Fund (IMF) and the World Bank. Countries also may agree to Structural Adjustment Programs in order to negotiate a lower interest rate on existing debt. As I understand it, the overall goal of Structural Adjustment Programs is to force countries taking loans out to be more market oriented. The hope is that these parameters will help the country to focus on production and trade, thus making the economy stronger. Sounds good so far, right?

So, what are the programs? One is the removal of trade restrictions. The IMF and World Bank defend this policy by saying that citizens of developing countries should have the right to buy whatever product they want. They should be able to buy imported goods. The problem is that when there is a lack of trade restrictions, cheap goods are imported, which can hurt the local economy. An example is milk in Jamaica. When Jamaica’s Structural Adjustment Programs were enacted and trade opened to cheap milk, it decimated the local milk industry. Jamaica could import powdered milk from the UK for much cheaper than they could sell their local milk. So, instead of Jamaicans drinking fresh Jamaican milk, they drank reconstituted powdered milk. Jamaica didn’t benefit from this- the UK did. Jamaicans got a sub-standard product, and it decimated their local milk industry, putting Jamaican dairy farmers out of business. The same thing happened with farming. Structural Adjustment Programs had the unintended consequence of decimating local agriculture. Structural Adjustment Programs may have lowered food prices, but they also contributed to unemployment.

Structural Adjustment Programs also require austerity programs when the country is having difficulty paying off their debt. Loan funds cannot be spent on healthcare or education, which is truly problematic. In Kenya, because of Structural Adjustment Programs, education is not provided by the government after elementary school. So, families have to pay for their children to go to high school. In Kenyan society, males are highly valued. Young girls are viewed as an asset to their future husband’s families. If you come from a poor Kenyan family and you have to choose which child you are going to educate, it would be viewed as foolish to choose your daughter. Thus, many young girls’ only options are to go into the menial work force or to enter early marriages. They have no hope for a better future. A society suffers when its women are uneducated. Click here if you’re interested in reading some of the statistics from the UN about the status of women globally. Education empowers. Women who are uneducated are more vulnerable; and they have very limited choices. Gender discrimination in education is an unintended consequence of Structural Adjustment Programs throughout the developing world. Per the UN website, “women account for nearly two-thirds of the 776 million illiterate adults in the world”. I’m not blaming the IMF and the World Bank’s Structural Adjustment Programs for world-wide gender discrimination in education- but they are certainly a significant contributor to the problem.

It seems to me (and to many others) that if you are trying to boost your economy, taking money out of education would be a last resort. To be fair, these austerity programs probably are a last resort. But, the IMF and the World Bank are not helping the population that they’re meant to help. Indeed, their austerity programs seem to contribute to keeping the poor in poverty.

To read the other two part in this series, please click on the links below:

 

Fair Trade Part 2:  Free Trade Zones and Sweat Shops

Fair Trade Part 3:  Why Fair Trade?

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3 Responses to “Fair Trade Part 1: Structural Adjustment Programs”

  1. suzanne Says:

    thanks for the great post, robin. I’ve often felt frustrated about this, and found that taking part in micro loans via kiva.org really helps me feel like I can contribute in a positive way. I especially try to give micro loans to women to help them develop their businesses. I know it doesn’t really fix the bigger issues that you’ve addressed here, though.

  2. Robin Johnson Simpson Says:

    Great to hear from you, Suzanne! I was a big fan of Kiva, too- until I found out about their usurious interest rates. Check out this blog post written by my friend Wanjiru:

    http://savingafrica.wordpress.com/2010/06/06/reblog-from-dbzer0-com-disappointing-kiva-is-hosting-loan-sharks/

    It’s hard not to feel helpless. Once you understand the enormity of the problem, it’s overwhelming. And finding out about Kiva’s interest rates can almost cause us to throw up our hands and quit- how can we know that an organization is actually a positive agent for change? How will things ever get better? But, I think that there is hope. Many Africans are working to better their own circumstances. We just have to figure out how we can partner with them (and other innovators in the developing world).

    There are several bloggers (from the developed and the developing world) who are thoughtfully exploring this idea of meaningful development.

    Check out this blog:

    http://businessforgood.blogspot.com/

    Also, check out Akili Dada, which is a scholarship/leadership training program that my friend Wanjiru started for bright, but impoverished young girls in Kenya:

    http://www.akilidada.org/

    There are people doing good things. We just have to search to find them. Ugh! Why can’t it be easier? I know!

  3. M. O. Ywaya (Ugunja) Says:

    It’s amazing to know somebody is seeing the poverty being perpetrated by the World Bank in developing countries. Some problems may be our own undoing ( corruption etc) but the developed world ends up making more money out of their loans as the poor countries loose.
    Thanks for such insight.


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