During the 1980s, as many countries sought to adapt to a changing, sometimes turbulent economic climate, their policymakers underwent a dramatic change in thinking. How beneficial has this “silent revolution” been, and what can policymakers and the international community do now to broaden and secure the gains it has brought?
WHAT WERE the 1980s all about? There is, of course, no reason that decades should have personalities, any more than we should expect the position of the stars at the time we are born to influence our lives. Nonetheless, characterizing decades—think of the Gay Nineties or the Roaring Twenties, or try to talk about the 1930s without mentioning the Great Depression—has a hold on our imaginations not unlike that of astrology. For anyone who cares about international economic policy, the 1990s were the decade of globalization, when international trade in goods, services, and financial capital became more widespread than ever before. The 1970s were the decade of instability, floating exchange rates, and rising oil prices.
Between them, the 1980s are hard to focus on. During the decade, economic policy-making in industrial countries moved sharply to the right under the political leadership of Masayoshi Ohira and his successors in Japan, Margaret Thatcher in the United Kingdom, Ronald Reagan in the United States, and Helmut Kohl in Germany. “New classical” and supply-side economics provided the theoretical rationale for bold, if sometimes misguided, policy experiments. And for much of the developing world, the 1980s were thought of at the time as the “lost decade,” when living standards stagnated or fell year after year.
The 1980s also saw the IMF come of age as a participant in the international financial system. Under the Bretton Woods system of fixed but adjustable exchange rates (1946-73), the IMF played a subsidiary role to the few industrial countries that provided the capital and managed the system. It was the system that mattered, much more than the institution. When that structure collapsed, those same countries devised a strategy for restoring stability under which the IMF would exercise “firm surveillance” over member countries’ exchange rate policies, but they left it to the next generation of leaders to figure out what that phrase might mean in practice. Not until the early 1980s did the IMF make the majority of its lending conditional on implementation of detailed macroeconomic policy reform programs. Not until the international debt crisis of 1982 did the IMF assume its modern responsibilities as a financial crisis manager. Those two developments interacted to give the institution a greatly enhanced role.
As a unifying theme for the world economy in the 1980s, consider the idea of a silent revolution in economic policymaking: a subtle but ultimately dramatic drift throughout the decade and throughout much of the world toward policies that were more cooperative, outward oriented, and market friendly than before. It seemed silent because it occurred piecemeal, with no obvious starting or completion point, but it was nonetheless revolutionary in its effects. Without it, the globalization of the 1990s could not have proceeded as it did.