The implementation of structural adjustment policies and developments in the world economy over the past decade or so have had wide-ranging impacts on poverty, income and wealth distribution within and across countries. The policies have contributed indirectly to a range of other social problems as well. Discussions on adjustment often tend to focus exclusively on issues of efficiency in resource allocation. But markets are also a mechanism for determining returns to labour, land, capital and enterprise through their effect on prices of products and factors of production. A good deal of the analysis of markets continues to be influenced by the textbook model of perfect competition. In reality, a substantial proportion of transactions is carried out in situations characterized by monopolistic, oligopolistic or embryonic markets. Individuals, enterprises and associations often have recourse to a variety of means to influence product and factor prices in their favour.

Developments in the international economy and processes of adjustment and globalization have influenced patterns of income and wealth distribution through changes in the level of economic activity and in relative product and factor prices. It was noted earlier that the anti-inflationary policies pursued by the industrialized countries were primarily responsible for a marked slowdown in the growth of the world economy over the past decade and a half. This has affected the level and distribution of income world-wide both directly and indirectly through its impact on product and factor prices. At the same time, processes of adjustment and liberalization have profoundly affected relative prices. Policies such as removal of trade barriers, foreign exchange controls and state subsidies; and price fixing; promotion of interest rate and labour market flexibility; and deregulation and privatization illustrate this. In addition, changes in the level and pattern of state expenditure and revenues have had a powerful impact on income distribution.

These policies have resulted in an intensification of competition nationally and internationally. The increase in the international mobility of capital and enterprise in particular has put great pressure on businesses to cut costs to maintain or enhance their competitive position. This in turn has been reflected in attempts to cut labour costs through mechanization, reduced wages, greater flexibility in labour markets, curbs on trade union power and improved managerial efficiency.

Despite problems of data and interpretation, there appears to be sufficient evidence to warrant the generalization that these processes and policies have contributed to a significant redistribution of income and wealth from the poor to the rich both nationally and internationally. At the international level, the inequality in income distribution worsened between 1970 and 1989: the countries with the richest 20 per cent of world population increased their share of global GNP from 73.9 to 82.7 per cent. The countries with the poorest 20 per cent of world population saw their share fall from 2.3 to 1.4 per cent (see Table 2). The ratio between the average incomes of the two groups of countries rose from 32 to 1 to 59 to 1 over the period. The Gini coefficient, a measure of overall inequality, rose from 0.71 in 1970 to 0.87 in 1989 - a figure far in excess of anything seen in individual countries (UNDP, 1992).

Source: UNDP, Human Development Report 1992, Oxford University Press, New York, 1992, Table 3.1.

The redistribution of income in favour of the rich countries has not prevented a worsening of income distribution there nor even an increase in the incidence of poverty in many cases. Between the late 1970s and the mid-1980s, income distribution worsened in the eight major industrial countries, including Japan, the Netherlands and Sweden (see Table 3).

Source: Andrea Boltho, Growth, Income Distribution and Household Welfare in the Industrialized Countries since the First Oil Shock, Innocenti Occasional Papers, UNICEF, Florence, 1992, Table 12.

More recent data capturing trends in the late 1980s show the continuation or even accentuation of these trends. Between 1984 and 1987, the proportion of income going to the top quintile of taxpayers in France rose from 44 per cent to 46 per cent (Davidson, 1989). The proportion of households living below the poverty line (defined as less than average income) in the United Kingdom rose from 9.4 per cent in 1974 to 11.9 per cent in 1983 and to 20 per cent in 1988, with their numbers jumping from 5 to 12 million between 1974 and 1988. The number of children living in poor households rose from about 1.6 million in 1979 to 3 million by 1988, or a quarter of all children in Britain (Millar, 1991). In the United States, the income share of the lowest quintile fell from 5.4 per cent in the early 1970s to 4.6 per cent in the late 1980s, while that of the highest quintile rose from 41.5 per cent to 44.5 per cent. Likewise, the poverty rate, after declining substantially between 1959 and the early 1970s, rose by 4 per cent in the 1980s (Cutler and Katz, 1991).

Although comprehensive and reliable data on poverty and income distribution are scarce or non-existent for most developing countries, the available evidence points to similar trends. In most of Latin America, the incidence of poverty increased and income distribution worsened in the 1980s. A recent survey of data on Latin America concluded that " studies of Latin American countries demonstrate increasing inequality in income distribution as measured by Gini coefficients in Argentina, Brazil, El Salvador, Mexico, Panama, Peru and Puerto Rico" (Cardoso and Helwege, 1992). After surveying data from various sources, another writer stated that " average per capita incomes fell, while income distribution worsened in the 1980s, for almost every country for which data are available" (Stewart, 1992). Data also show that, while the 1970s saw a reduction in the incidence of poverty in Latin America as a whole from 40 to 35 per cent, this was reversed in the 1980s when the incidence of poverty rose to 37 per cent by 1989 (Stewart, 1991).

Comparable data are not available for the African region but trends in per capita income, employment, real wages and government expenditure all point to increasing incidence of poverty in the late 1970s and 1980s (Cornia and Stewart, 1990; Ghai, 1989; Jamal and Weeks, 1988; JASPA, 1988; Stewart, 1992). In its report on poverty, the World Bank noted that " with few exceptions, the evidence supports the conclusion that poverty in sub-Saharan Africa is severe and has been getting worse" (World Bank, 1990).

In several Asian countries the proportion of people living in poverty has declined. For instance, the incidence of poverty declined from 50 to 43 per cent in India (1977-1983), from 28 to 17 per cent in Indonesia (1984-1987), from 15 to 14 per cent in Malaysia (1984-1987) and from 21 to 20 per cent in Pakistan (1979-1984), though it rose in Thailand from 20 to 26 between 1981 and 1986 (World Bank, 1990). However, income distribution seems to have worsened in recent years in many countries, including the South-East and East Asian countries.

The above changes in the pattern of income distribution and incidence of poverty in different parts of the world have resulted from developments in the world economy and policies of stabilization and adjustment. In the industrialized countries, the marked slowdown in growth in the post-1973 period has been an important factor. In combination with changes in the international division of labour and rapid technological change, it has contributed to a substantial increase in unemployment (Standing, 1989). At the same time policies to promote greater labour flexibility, such as easing or removing regulations protecting worker security and remuneration and curbing union power, have interacted with increased international competition and technological change to enhance the importance of casual, part-time and informal sector employment (Kolko, 1988). These trends in income distribution have been reinforced by regressive changes in public expenditure and taxation which, in turn, were brought about by cuts in the level and coverage of welfare programmes and increased reliance on indirect taxes and social security contributions. Summarizing surveys of income distribution and household welfare in the industrialized countries since the first oil shock, Boltho (1992) states:

" ... despite continual increases in public expenditure, the combined effects of shifts in spending away from major social programmes and in tax policy toward a broadly regressive position meant that in the 1980s most OECD countries spurned or severely moderated the concept of the generous welfare state that had been current during the 1960s. This was most evident in the United Kingdom and the United States, but even Germany, the Netherlands and Sweden were affected. Elsewhere, the impact may not have been as intense, but no economy went against the tide."

In developing countries, especially in Latin America and Africa, stagnation or decline in economic activity was a major factor contributing to increased impoverishment. Its effects on incomes and welfare were magnified, as discussed earlier, by resource transfers to industrialized countries through increased debt burden, deteriorating terms of trade, declining flows of private capital and accelerating capital flight. Stabilization and adjustment efforts further reinforced poverty and inequalities through such policies and mechanisms as restraint or decline of public expenditure, especially on social services and welfare; reduction in progressive taxation; removal of subsidies on goods and services of mass consumption; the increase or imposition of user charges; increase in real interest rates; decline in employment and real wages and rise in casual, part-time employment and in informal sector activities (Cornia and Stewart, 1990; Jamal and Weeks, 1988; Rodgers, 1989; Standing and Tokman, 1991).

These changes have had differential effects on social groups. The burden of adjustment in most developing and industrialized countries has fallen largely on the low and middle income strata of society. Urban workers have been hit especially hard, while certain categories of highly skilled persons have been more successful in preserving their incomes. There has been a shift of income in favour of capital, especially in services and manufacturing engaged in international transactions. In the industrialized countries, the groups most seriously affected include the unemployed, new entrants to the labour force, pensioners, state officials and professional employees. On the other hand, those engaged in foreign trade and owners of property (at least until the recent slump in prices), financial assets and of enterprises successful in exports have gained relative to other groups.

In African and Latin American countries, the fall in income is not confined to unskilled and semi-skilled persons but extends much further up the skill hierarchy. In particular, middle and senior level public officials have suffered sharp declines in living standards. In most countries, peasant incomes have held up better or have declined by less than those of urban workers. Among those deriving their income from capital, the groups affected relatively favourably include persons with access to foreign exchange and owners of foreign assets; those engaged in banking, finance, property transactions; commercial, agricultural and industrial enterprises in the export business and those dealing in scarce commodities, smuggling and drugs. The losers include those producing for the shrinking domestic markets previously protected from foreign competition, pensioners, holders of fixed interest bonds and other assets which failed to keep up with accelerating inflation.

The growth of poverty and glaring inequalities in consumption have severely strained the social fabrics of these countries. Many countries have experienced a marked increase in crime, violence, smuggling and trading in illicit goods. There is also growing reliance, as part of the survival strategy, on child labour, prostitution and intensification of female labour. An increasing number of people have taken to migration in their search for employment opportunities. Social tensions have increased and these frustrations often find expression in social explosions, ethnic conflicts and growth of fundamentalist and extremist movements.

The global distribution of income and wealth will be increasingly affected by flows of capital and technology primarily through transnational enterprises. These in turn will be determined largely by the cost effectiveness of different countries as centres of production. The social, political and physical environment will also assume increasing importance in the investment decisions of global enterprises. The preferred choice will be countries that succeed in creating a hospitable climate for capital, invest in physical infrastructure, upgrade human capabilities, encourage entrepreneurial talents and foster social harmony and political stability. The next section looks at how adjustment and globalization have affected power relationships and social cohesion and solidarity.