While liberalization has become a truly global phenomenon, the contexts in which it has been carried out and the patterns it has assumed have tended to vary by regions and countries. As a broad generalization, it may be stated that, whereas liberalization represents in many respects a continuation of the trends in the post-war period in the industrialized countries, it constitutes a sharp reversal of the past policies in most developing countries. Furthermore, there are significant variations in the pace and patterns of the reform effort in different parts of the world. This section first reviews the broad features of liberalization in the industrialized countries before turning to the contrasts and similarities in the major regions of the developing world.

In the first two to three decades after the Second World War, the industrialized countries pursued policies which reduced the role of the state in some areas and expanded it in others. The liberalization thrust was exemplified by the dismantling of a plethora of controls on domestic economic activity and on international trade and payments. For instance, allocation of resources by administrative means, price controls and rationing were gradually phased out in the early post-war years. By the mid-1950s, the process of trade liberalization was well under way with quantitative restrictions largely removed. By the early 1960s, most non-tariff barriers had been removed or eased.³ Members of the two trading blocs - the European Free Trade Area and the European Economic Community - achieved practically free trade in manufactures among member states. Currency convertibility was restored for payments and restrictions eased on capital mobility and foreign direct investment. Likewise, considerable progress was made in dismantling the domestic and international cartels that had proliferated in the inter-war period (OECD, 1987).

Some of the post-war policies went in the opposite direction and strengthened the role of the state in the economy. Several countries nationalized a wide range of enterprises in utilities, transport, communications, mining, steel and banking. Furthermore, the welfare state whose foundations were laid in the late 1930s was greatly expanded in the post-war period. Improved provisions were made for health, education and housing as well as for children's allowances, old age pensions and unemployment, and sickness and accident benefits. Public expenditure and tax revenues showed a sustained rise as a share of GDP. For the 11 largest OECD countries, public expenditure rose from 28.0 per cent in 1960 to 32.9 per cent in 1973 and further to 40.2 per cent in 1988. Tax revenues as a percentage of GDP rose from 28.1 in 1965 to 34.6 in 1979 and further to 39.0 in 1988 (Boltho, 1992).

The policies pursued in the 1980s represent elements both of continuity and reversal. Removal or reduction of state regulations in a wide range of economic sectors such as banking, foreign exchange, stock markets, transport, communications and utilities constitute elements of continuity with the earlier reforms. On the other hand, restraint or curtailment of public expenditure, cuts in social security and welfare programmes, reduction in progressive taxation, abandonment of full employment policies, curbs on trade unions, creation of more flexible labour markets and privatization of state enterprises constitute reversals of earlier policies.

The liberal reforms were not undertaken with the same zeal in all domains. In three respects at least, developments over the past decade and a half represent violations of the liberal creed of the age of reform. This period, which was characterized by sweeping deregulations, also saw an intensification of agricultural protection, growing restrictions on some categories of international trade and increasing barriers on immigration of unskilled persons. Agricultural protection increased in the 1970s and 1980s in most industrial countries. Average producer subsidy equivalent in OECD countries rose from 32 per cent in 1979-1981 to 50 per cent in 1986-1987 before declining to 45 per cent in 1988. The transfer to agriculture from consumers and tax payers rose from US$ 61 billion in 1979-1981 to US$ 270 billion in 1988 (World Bank, 1992).

In recent years, there has also been a reversal of the liberalization trend in trade in manufactures. Quantitative restrictions, voluntary agreements to limit exports, managed trade, subsidies and cases of dumping have multiplied. These barriers have not only affected labour-intensive products such as textiles and clothing, toys and leather goods but also automobiles, electronics and steel. The share of OECD manufactured imports from developing countries subject to non-tariff barriers rose from 26.5 per cent in 1981 to 28.0 per cent in 1990. If protectionist barriers in the European Community, Japan and the United States were to be reduced by 50 per cent, exports from developing countries could increase by 15 per cent or US$ 50 billion in 1988 prices or US$ 54 billion in 1991 prices. This is equivalent to the aggregate net resource flows from official sources to developing countries in 1991 (World Bank, 1992).

The third area in which the liberal creed has been violated is emigration from developing countries. Restrictions on movements of unskilled labour are increasing. Between 1950 and 1973, net immigration into Western Europe reached nearly 10 million people. Several millions found new employment opportunities and higher living standards in the United States (OECD, 1987). With the sharp reversal of policies since 1973, new immigration has virtually disappeared. The numbers of foreign workers either stabilized or decreased in most European countries in the 1980s, with the exception of Switzerland and the United Kingdom (Appleyard, 1991). Net immigration has continued in Australia, Canada and the United States but is increasingly biased in favour of better-off persons with professional and technical skills and considerable financial resources. The loss of potential income to developing countries (direct and indirect) from immigration controls has been estimated at US$ 250 billion (UNDP, 1992).

Although these departures from the liberal trends of the 1980s have negatively affected the interests of a few industrialized countries, on the whole these measures have been most harmful to the developing countries. Even apart from these exceptions, there have been considerable differences among the industrial countries regarding the pace and pattern of liberalization. Members of the European Economic Community and the European Free Trade Area achieved greater liberalization in transactions with partner states than in transactions with outside countries. The Anglo-Saxon countries that provided the ideological and political leadership in the drive for liberalization have implemented reforms in a more thoroughgoing fashion than other industrialized countries.

It is worth noting the difference between the pattern of reform in Anglo-Saxon countries and some others such as Austria, Germany, Japan, the Netherlands, the Nordic group and Switzerland. This difference relates to whether the measures taken represent a continuation or reversal of earlier reforms. On the whole, while most industrialized countries have followed policies to deregulate finance, transport, communications and utilities, the Anglo-Saxon countries have pursued with equal vigour measures to reduce taxes and government expenditure on social security and welfare, create flexible labour markets and promote privatization. The others have proceeded much more cautiously in these areas (Cox, 1991). This divergence has a bearing on social cohesion and economic performance, a theme which is taken up later in section VI.  

In contrast to the industrialized countries, the adoption of structural adjustment measures represents a sharp reversal of the previous policies of state-directed modernization and industrialization in most developing countries. Although there was variation in the extent and depth of state intervention, in many countries it was pervasive and affected such areas as protection and location of industry; marketing of agricultural products; allocation of credit and foreign exchange; regulation of imports and exports, foreign investment, technology, labour markets and collective bargaining. The role of the state extended further to the ownership and management of a wide range of industrial, agricultural, marketing and financial enterprises.

Reforms started earlier and have gone farther in Latin America than in other regions of the Third World. With Chile leading, the reform process has now spread to most countries in the region, the latest converts being Argentina and Brazil. In the first phase, the reforms have focused on stabilization of the economy through control of public expenditure and increase in tax revenues, liberalization of prices, foreign trade and payments and currency devaluation. Privatization of state enterprises has come later but now forms an important part of the reform package in a number of countries. The extent and depth of reforms in Latin America reflect the severity of the crisis, the intensity of foreign pressure, the existence of influential domestic lobbies in favour of liberalization and the interplay of ideological conflicts.

In sub-Saharan Africa, on the other hand, the reform process started later and has been less consistent and thoroughgoing. The emphasis has been on price liberalization, reduction or removal of subsidies, control of state expenditure, currency devaluation and a limited amount of trade liberalization. In general, the progress in removing quantitative restrictions on foreign trade and payments has been patchier and few countries have made significant headway with privatization. In the absence of strong pro-reform domestic lobbies, the pattern and pace of reform have reflected in varying degrees the timing and balance of foreign pressure and popular domestic opposition (Helleiner, 1992). The progress in implementing adjustment measures has been slower than in other regions, in part because the ruling political, bureaucratic and military élites have a greater vested interest in maintaining state controls and ownership as sources of political patronage and personal enrichment.

In South Asia, with the exception of Sri Lanka where liberalization policies were initiated earlier, limited effort was made to reduce state controls in domestic economic activity and foreign transactions in the 1980s. More recently, however, significant steps have been taken to decontrol investment and prices and liberalize foreign trade, payments and investment. It is only in Pakistan that a serious effort is under way to privatize state enterprises. In South-East and East Asian countries, there has been less detailed state regulation of the economy. In South-East Asia, the reform efforts in the 1980s were on trade and foreign exchange liberalization, provision of incentives to foreign investment and exports of manufactured goods. Under pressure from the industrial countries, the reform process in the East Asian countries has been directed at further liberalization of trade and foreign exchange, currency appreciation, opening up to foreign investment stock exchange markets, banks and other financial and service sectors.

3 Tariffs on dutiable manufactured goods had come down from 18 to 13 per cent. The Kennedy Round reduced them to an average of 8-11 per cent and the Tokyo Round to 6 per cent or less (OECD, 1987).