When the industrial countries turned to ultra-liberal policies, many less developed countries were encouraged to follow suit. In their structural adjustment programmes, the IMF and the World Bank seemed to have the picture of an ideal country: its economy would be largely self-regulating through open competition, and its public sector would do little more than provide the minimum services necessary for the conduct of private business and the protection of society's weakest members. This picture corresponded to no known place on earth, yet the international agencies attempted to impose this stylized model on dozens of countries.
In almost all cases, adjustment required deflationary policies and cutbacks in welfare services, which resulted in hardship for the poor. Advocates of adjustment assumed that these setbacks would be temporary, that short-term social costs could be offset against long-term economic gain. What they did not take into account was that social damage could itself frustrate economic objectives. The most obvious effect of this was social unrest: many adjusting countries found themselves with " IMF riots", usually as a result of rising food or transport prices. But they also found that their economies and institutions generally did not respond as the market theorists thought they should.
One reason was that the reforms were based on faulty assumptions about the nature of public and private institutions. Adjustment programmes assumed the existence of institutions sufficiently robust to administer these programmes and cushion their impact. However, the flexibility and capacity of private sector institutions were often overestimated, and the process of adjustment so debilitated many State institutions that they were incapable of making the necessary contribution to ensuring the functioning of adjustment measures.
People were also adopting "multiple coping strategies" that did not always fit the predictions of the adjustment model. Government officials, for example, faced with a cut in real salary tried to bolster their income by moonlighting as academics or entrepreneurs. Factory workers on low incomes set up their own informal workshops or started to grow more of their own food. Thus attempts to correct the terms of trade between urban and rural households, or between the formal and informal sectors could be frustrated when extended households increasingly straddled all these sectors.
Even more serious for the long-term future of Africa, in particular, has been the fact that the process of modernization has in some respects been reversed: the mass of the poor are worse off- disparities that have made it difficult to create a well-integrated society on which to base future human development.
By the end of the 1980s, confronted with the failure of many adjustment programmes and a barrage of criticism, the IMF and the World Bank started to take more account of institutional and social issues. Although they have created more "social safety nets" to protect some groups affected by adjustment, these have yet to offer much support.
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