Issue 233 of SOCIALIST REVIEW Published September 1999 Copyright © Socialist Review
The majority of human beings in the world face a major barbarism in the simple struggle to survive. The figures speak for themselves:
The figures make a grim picture and the situation is deteriorating. It is a sick joke for economic theorists to talk about the 'developing world' as though the difference between the Third World and the west was simply a historical gap. The Third World is not catching up with the west. In Latin America in the 1980s income per head fell by 10 percent. In parts of sub-Saharan Africa it fell by more like 50 percent. In 1960 the richest fifth of the world's population had 30 times as much wealth as the poorest fifth but by 1994 that figure had risen to 78 times. By the following year the top fifth had 82 times more than the bottom fifth so you can see which way the tide is flowing.
Over the last 20 years there has been a massive transfer of wealth from the poorest in the world to the richest. The richest 358 people have more wealth than the wages of 45 percent of the world's population and the richest three individuals own and control more wealth than the poorest 48 countries in the world. The potential to eradicate poverty is there. This is clear when we see $40 billion spent on bombing Serbia and Kosovo back to the Stone Age--the same figure that the United Nations Development Programme calculates would be required to provide universal access to clean water, basic education, basic healthcare, basic nutrition, sewage and sanitation facilities, and access for women to basic gynaecological and obstetric care. Compare this to the fact that every year Nato spends $465 billion on military hardware or that $1 trillion is spent every year on the advertising industry.
This is a system of warped priorities. Underlying it--and one of the mechanisms by which wealth has been transferred from poor to rich--is debt, and particularly Third World debt, which has tripled in 15 years from $700 billion in 1982 to $2.3 trillion today. Debt has grown massively for the whole of the world economy but its effects and consequences are at their most severe in the poorest countries.
Capitalism developed unevenly. From the 1890s countries like Britain, France and Belgium had begun to dominate the world as colonising powers. At the beginning of this century the US also began to come into the picture. The effect of colonialism was to drain wealth in the form of raw materials, mineral wealth and human labour, so at a very early stage the less developed countries became locked into a situation from which they found it difficult to escape and in which the majority of their populations suffered terrible poverty and exploitation.
This situation began to improve slightly in the postcolonial era. A series of anti-colonial struggles in China, India and several African countries from the late 1950s onwards began to throw off the worst shackles of imperialism. The impact of world recession in the 1970s brought this process grinding to a halt. Third World governments and companies began to look to Western financial institutions to find a way out of their crisis. By 1980 Third World debt stood at just over $600 billion. From this point on things started to get seriously out of control. US military spending under Reagan went through the roof and this was supported by massive borrowing. This, in turn, caused interest rates on existing loans to soar and Third World governments were now forced to renegotiate their debts and to take out further loans simply to pay the interest on the previous loans. But these now came at a cost--the Structural Adjustment Programmes (SAPs).
The World Bank and International Monetary Fund agreed to further loans on the condition that public spending cuts were implemented and that price controls and wage subsidies were removed. The working class in the cities and the rural populations were made to pay for the crisis. One of the first countries to go down this road was Jamaica. The effect was a 30 percent leap in unemployment, a 30 percent fall in public investment and a fall of 48 percent in real incomes between 1983 and 1985. By 1984 the World Bank proclaimed Jamaica one of its success stories because its trade balance had shifted into surplus. But it was a 'success' in which 29 percent of children under three were malnourished, 43 percent of mothers were anaemic, and polio deaths appeared for the first time in 30 years! The situation in Africa is even more extreme. In Ethiopia, for example, debt repayments are four times greater than public spending on healthcare. This is in a country where 100,000 children die every year from preventable diseases. In Tanzania, where 40 percent of people die before the age of 35, debt repayments are six times greater than health spending.
Other features of the IMF's policies were export orientation, forcing Third World economies to compete on the open world market, removing protective trade barriers and unleashing market forces within those countries, devaluing currencies to make exports cheaper. Many Third World goods which were unprocessed were never going to compete effectively with manufactured goods from the west. Fibre optics have replaced copper in the telecommunications industry, synthetic oils have replaced natural oils, and artificial fibres have replaced natural fibres. The IMF imposed a free market ideology which has hit hardest at those who are already the poorest and most vulnerable.
Another feature of this period is that the IMF handed over vast sums of money to Third World dictators. The foreign holdings of Third World rulers today--the wealth they keep outside of their own countries--stands at $400 billion. These dictators were some of the most brutal: Duvalier in Haiti; Mobutu in Zaire; Marcos in the Philippines; Suharto in Indonesia. Around $500 billion--a quarter of all loans--went to Third World dictators in 25 different countries. Third World ruling classes have played the game in terms of their relationship with the west and in punishing their own populations.
The IMF also demanded the nationalisation of debt. This was completely against the economic orthodoxy of the day which demanded the privatisation of utilities and services--things that working class people needed. When it came to the question of the debts of companies and private banks in the Third World the IMF took a very different attitude. Now they demanded that governments took over these debts and in so doing transferred the burden of debt onto the backs of the poor. The populations of the Third World never asked for this debt. When a child is born in the Congo Republic today she already owes $2,278 to western banks!
The case for the unconditional cancellation of debt is overwhelming and it is thanks to the Jubilee 2000 campaign that it is on the agenda today. When Jubilee 2000 organises 50,000 people in Trafalgar Square or mobilises a million people around the world to put pressure on the G7/8 summit, it is obvious that people care passionately about this issue. And that is why the deceit that is going on is all the more sickening. The final figure that the Cologne summit announced was a cancellation of $100 billion of debt. That just happens to be the same as the figure that western governments always acknowledged they would never get back and was not being repaid anyway. This is no better than an accountant's trick. Actually it is worse than that.
The conditions laid down by the the most Heavily Indebted Poor Countries Initiative (HIPC), which was started in 1996 when the banks first started to worry about the instability of high levels of debt, tell their own story. Before a country can qualify for any debt relief it has to abide by its SAP conditions even more assiduously for three years. So before a country can qualify for relief it has to make its people suffer even more for three years. Mozambique, one of only two countries to have qualified for debt relief under the HIPC, had to cut education spending to qualify.
If you want to look into the heart of New Labour on this question look no further than Minister for Overseas Development Clare Short, who, at the time of the devastation of Honduras by Hurricane Mitch, declared debt relief for that country to be an irrelevance. The same Clare Short criticised Jubilee 2000 for calling for the cancellation of debts from the apartheid era in South Africa. Where is the ethical foreign policy in that?
The origins of the debt crisis have their roots deep in the workings of capitalism as it has developed over the last quarter of a century. The main feature of that period has been the unleashing of free market forces and the removal of protections for the poorest sections of the world's population. But this is the ideology which Blair and Brown have embraced.
What is a debt crisis, and why is it a crisis? It means the very poorest countries in the world simply cannot pay their debts, and will never be able to pay their debts. They are borrowing more money each year to pay the old debts. So every year they borrow money, repay debts, and get deeper in debt. Each African owes £225. Every year each African gives £2 to the rich countries, but ends up the year deeper in debt. We can turn this on its head and look at it a different way--on average each one of us receives £1.30 a year from debt service payments from Africans. But we get £51 a year in subsidy from African workers in terms of subsidised coffee, copper or chocolate. We do, however, give Africans aid, and we give £7 a year. So this is what the aid is--we are giving Africans back £7 of the £51 they are giving us. Of course the £51 they are giving us is not equally distributed--I don't get my share--but it gives you some sense of the transfer of wealth from the poor to the rich countries.
Every year Africa borrows $12 billion, but every year Africa makes debt repayments of $14 billion (all the following figures are given in US dollars). So they are still $2 billion worse off. $1 billion of this goes to the IMF, which is supposed to be helping the development of the poor countries. We give some aid to Africa, but one fifth of that aid comes back immediately as debt service payments. So it is aid to the IMF and to the northern banks.
Poor countries have always borrowed, and there have been debt crises in the past. In the 1820s the US was a poor country and it borrowed from Britain. There was a debt crisis in 1842 when 11 US states defaulted, and they have never paid their debts to Britain. After the First World War Britain borrowed money from the US. There was a debt crisis in 1932 and Britain defaulted. Britain now owes the US something like $20 billion from the First World War which has never been repaid. The economist Charles Kindelberger explains that you get a period of growth where there is a real increase in profits and very rapid expansion of bank credit. Eventually the growth of money outstrips productivity--that money then goes into speculation. Speculation leads to particular frauds but also to more and more speculative lending. That often includes lending to poor countries and you get something called 'loan pushing' where banks actually encourage borrowers to borrow money they don't need. This leads to bubbles in the economy and huge expansion--this is the mania period. Eventually the bubble bursts, prices fall, banks try to get their money back--this is the panic. Lending stops so everything collapses and that is the crash. The capitalist cycle is a cycle of about 50 or 70 years, and this keeps happening. We have had manias in 1820, the 1860s, the 1920 and the 1970s. Part of the mania period is this lending to poor countries, and at the end of the mania period poor countries are often forced to borrow money simply to repay their old loans. This is exactly what happened with the US borrowing from Britain in the 1820s and with Britain borrowing from the US in the 1920s. So the debt crisis that we see now is not a new phenomenon, it is part of the normal capitalist economic cycle.
But the present cycle is different from past ones. In 1970 the poor countries of the world owed $70 billion. By 1980 they owed $600 billion, nearly nines times as much as before. How did that happen? In the middle of the 1970s real interest rates were negative. Banks were chasing after poor countries to borrow money. The panic came in 1979, but whereas the 1929 panic was followed by a crash, the 1979 panic was not followed by a crash. In the 1930s Northern workers tended to pay the price of the depression. Northern capitalists also paid, and Southern capitalists and Southern workers actually benefited. Latin America in the 1930s saw a period of growth and industrialisation--one reason was that Latin America defaulted on its debts and instead kept the money at home. The ruling classes decided in 1979 not to allow that to happen again. They decided that workers, both North and South, were going to pay for the crisis this time. They introduced neo-liberal free market policies, especially policies that transferred money from the poor to the rich. In the North there was squeezing of workers and lowering wages. At the same time they also squeezed the South. This was done in two different ways.
There was a huge increase in interest rates. From 1977 to 1981 interest rates rose 10 percent. Countries that took loans at negative real interest rates found they were suddenly paying 9 percent--and they couldn't afford to. So they took new loans to pay the old loans--but even that wasn't enough. Between 1984 and 1989 $100 billion was transferred from the poor countries to the rich countries--that is the difference between the new loans and the aid they received and the loan repayments and interest repayments that they were making.
Between 1980 and 1989 the amount of debt doubled. Most of this was simply refinancing old debt. Debt has doubled again since then. But at the same time there was another way of transferring wealth from South to North, and that was through lower commodity prices. The commodity prices that African producers earn today are just half of what they were in 1979. In general Africa has subsidised the North in the last 20 years to the tune of nearly $400 billion. If the commodity prices had been the same as they were in 1979 Africa would have earned another $400 billion.
How did the North get away with this trick? There are two really important things: one was the existence of the Bretton Woods institutions, the World Bank and the IMF, which were set up in 1945 originally to help the redevelopment of Europe after the Second World War. These institutions have gained immense power over poor countries and they have prevented the default of the poor countries because they are able to impose conditions, one of which is that you repay your loans. They also lend more money to repay the loans. So there is this huge churning of money between North and South. This is the trick by which these institutions have imposed structural adjustment policies, because they say aid is conditional on paying back the loans and so the loans keep getting repaid. This mechanism gives these institutions ever tighter control.
Some countries, like Nicaragua, Mozambique and Angola, tried to break away from that and they got smashed. During the Cold War the US was able to enforce its will against those who did not go along with the World Bank and the IMF, and it would massacre as many people as necessary to enforce that policy.
So a mix of economic policies and military policies was able to ensure that the poor of the South and the poor of the North carried the cost of the 1979 panic, and prevented the crash. For the capitalist classes the new system has been immensely successful. For the first time they have genuinely delayed the crash for at least 20 years. Some of the loans were for development projects, but a lot of the loans in the 1970s and 1980s were Cold War loans--to prop up Mobutu in Zaire, apartheid South Africa and so on. Barclays Bank lent money to the dictatorship in Argentina, money that was used to buy weapons. So a lot of these loans were not to benefit people but to prop up dictatorships--perhaps a quarter to a half of all debt is based on that. This has led to a slogan of many campaigns in the South, not of, 'Can't pay, won't pay', but of, 'Don't owe, won't pay.'
With regard to Jubilee 2000--the word jubilee comes from the Old Testament of the Bible where every 50 years you were supposed to cancel all debts and free all slaves. Jubilee 2000 started out by saying let's make the year 2000 a jubilee year, and it started out as a church campaign. But this is actually a really radical demand because it challenges the whole basis of the international financial system. In the past couple of years Jubilee 2000 has become much broader than its original church base. We now have considerable trade union backing--the TUC, TGWU, Unison, FBU and many more. But much more interesting is the growth in the South. Jubilee 2000 now exists in more than 50 countries and the movements in the South are really radical. This is now where the push is coming from for the Jubilee 2000 movement--from the people in the debtor countries. They are not just targeting the creditors like the IMF but are also talking about their own elites, and saying we must use the anti-debt campaign to mobilise our own people, to force our own governments into being more transparent, to change the relationship within our own countries.
Debt has been a problem for nearly 20 years but now suddenly debt is on the agenda. Jubilee 2000 has succeeded at least in helping to do that. We have changed world opinion because we have a simple and clear message--that debt is a justice issue, and has to be cancelled in the year 2000. This is a fundamentally radical demand which does challenge the whole international financial system. And it is about empowering people to do so.
These articles were originally speeches given at the Marxism at the Millennium conference in July. Joe Hanlon is from Jubilee 2000 while Mark O'Brien lectures in East London and is a member of the SWP.