Top Quotes: “The Divide: A Brief Guide to Global Inequality and its Solutions” — Jason Hickel

Introduction

“they did nothing to address the actual causes of the problems. Why were AIDS patients dying? Over time, I learned that it had to do with the fact that pharmaceutical companies refused to allow Swaziland to import generic versions of patented life-saving medicines, keeping prices way out of reach. Why were farmers unable to make a living off the land? I discovered that it was related to the subsidised foods that were flooding in from the US and the EU, which undercut local agriculture. And why was the government unable to provide basic social services? Because it was buried under a pile of foreign debt and had been forced by Western banks to cut social spending in order to prioritise repayment.”

“Inequality has been exploding. In 1960, at the end of colonialism, per capita income in the richest country was thirty-two times higher than in the poorest country. That’s a big gap. The development industry told us that the gap would narrow, but it didn’t. On the contrary, over the next four decades the gap more than quadrupled: by 2000, the ratio was 134 to 1. We can see the same pattern if we take a regional view. The gap between the United States (the world’s dominant power) and Latin America, sub-Saharan Africa, South Asia and the developing countries of the Middle East and North Africa has roughly tripled between 1960 and today. This is hardly a tale of ‘catching up’.”

Post-Colonialism

“In India, 30 million died of famine under British rule. Average living standards in India and China, which had been on a par with Britain before the colonial period, collapsed. So too did their share of world GDP, falling from 65 per cent to 10 per cent, while Europe’s share tripled. And mass poverty became an issue for the first time in history, as European capitalism — driven by the imperatives of growth and profit — prised people off their land and destroyed their capacity for self-sufficient subsistence. Development for some meant underdevelopment for others. But all of this was carefully erased from the story.”

“Across the global South, newly independent countries were ignoring US advice and pursuing their own development agenda, building their economies with protectionist and redistributionist policies — trade tariffs, subsidies and social spending on healthcare and education. And it was working brilliantly. From the 1950s through the 1970s, incomes were growing, poverty rates were falling and the divide between rich and poor countries began to close for the first time in history. And we shouldn’t be surprised; after all, global South countries were using the exact same policies that Western countries had used during their own periods of economic consolidation.”

“The United States, Britain, France and other Western powers were not pleased with these developments. The policies that global South governments were rolling out undermined the profits of Western corporations, their access to cheap labour and resources, and their geopolitical interests. In response, they intervened covertly to overthrow dozens of democratically elected leaders across the South, replacing them with dictators friendly to Western economic interests who were then propped up with aid.”

“Despite these attacks the South was still rising and continuing to push for economic justice. In the halls of the United Nations, governments of the South argued for a fairer international order, and they were succeeding. Given the new rules of global democracy, the North seemed powerless to stop the rise of the South. But in the early 1980s that suddenly changed. The United States and Western Europe discovered they could use their power as creditors to dictate economic policy to indebted countries in the South, effectively governing them by remote control, without the need for bloody interventions. Leveraging debt, they imposed ‘structural adjustment programmes’ that reversed all the economic reforms that global South countries had painstakingly enacted. In the process, they went so far as to ban the very policies that they had used for their own development, effectively kicking away the ladder to success.

Structural adjustment — a form of free-market shock therapy — was sold as a necessary precondition for successful development in the global South. But it ended up doing exactly the opposite. Economies shrank, incomes collapsed, millions of people were dispossessed and poverty rates shot through the roof. Global South countries lost an average of $480 billion per year in potential GDP during the structural adjustment period.It is now widely acknowledged by scholars that structural adjustment was one of the greatest single causes of poverty in the global South, after colonialism. But it proved to be enormously beneficial to the economies of the North.

As structural adjustment forced open markets around the world, a new system emerged in the mid-1990s to govern the international economy. Under this new system — run by the World Trade Organization — power would be determined by market size, so the rich countries of the North would be able to enshrine policies to suit their own interests even if it meant actively harming the interests of the South. For instance, global South countries would have to abolish their agricultural subsidies, but the United States and the European Union would be allowed to continue paying subsidies to their own farmers, enabling them to undercut the market share of global South producers in the one sector in which they are supposed to have a natural competitive advantage. Today, power imbalances like these, enshrined in the Uruguay Round of the WTO, are estimated to cost poor countries at least $700 billion each year in lost export revenues.”

“They found that in 2012, the last year of recorded data, developing countries received a little over $2 trillion, including all aid, investment and income from abroad. But more than twice that amount, some $5 trillion, flowed out of them in the same year. In other words, developing countries ‘sent’ $3 trillion more to the rest of the world than they received. If we look at all years since 1980, these net outflows add up to an eye-popping total of $26.5 trillion — that’s how much money has been drained out of the global South over the past few decades. To get a sense of the scale of this, $26.5 trillion is roughly the GDP of the United States and Western Europe combined.

What do these large outflows consist of? Well, some of it is payments on debt. Today, poor countries pay over $200 billion each year in interest alone to foreign creditors, much of it on old loans that have already been paid off many times over, and some of it on loans accumulated by greedy dictators. Since 1980, developing countries have forked over $4.2 trillion in interest payments — much more than they have received in aid during the same period. And most of these payments have gone to Western creditors — a direct cash transfer to big banks in New York and London.

Another big contributor is the income that foreigners make on their investments in developing countries and then repatriate. Think of all the profits that Shell extracts from Nigeria’s oil reserves, for example, or that Anglo American pulls out of South Africa’s gold mines. Foreign investors take nearly $500 billion in profits out of developing countries each year, most of which goes back to rich countries. Then there are the profits that ordinary Europeans and Americans earn on their investments in stocks and bonds they hold in the global South, through their pension funds, for example. And there are many smaller outflows as well, such as the extra $60 billion per year that developing countries have to pay to foreign patent owners under the WTO’s agreement on intellectual property rights (TRIPS) in order to access technologies and pharmaceuticals that are often essential to development and public health.

But by far the biggest chunk of outflows has to do with capital flight. GFI calculates that developing countries have lost a total of $23.6 trillion through capital flight since 1980. A big proportion of this takes place through leakages in the balance of payments between countries, through which developing countries lose around $973 billion each year. Another takes place through an illegal practice known as trade misinvoicing. Basically, corporations — foreign and domestic alike — report false prices on their trade invoices in order to spirit money out of developing countries directly into tax havens and secrecy jurisdictions. Developing countries lose $875 billion through trade misinvoicing each year. A similarly large amount flows out annually through ‘abusive transfer pricing’, a mechanism that multinational companies use to steal money from developing countries by shifting profits illegally between their own subsidiaries in different countries. Usually the goal of these practices is to evade taxes, but sometimes they are used to launder money or circumvent capital controls.

Three trillion dollars in total net outflows per year is twenty-four times more than the annual aid budget. In other words, for every dollar of aid that developing countries receive, they lose $24 in net outflows. Of course, this is an aggregate figure; for some countries the ratio is larger, while for others it is smaller. But in all cases net outflows strip developing countries of an important source of revenue and finance that could be used for development. The GFI report finds that increasingly large net outflows (since 2009 they have been growing at a rate of 20 per cent per year) have caused economic growth rates in developing countries to decline, and are directly responsible for falling living standards.”

“Today, while trade is technically free, rich countries are able to get their way because they have much greater bargaining power. On top of this, trade agreements often prevent poor countries from protecting their workers in ways that rich countries do. And because multinational corporations now have the ability to scour the planet in search of the cheapest labour and goods, poor countries are forced to compete to drive costs down. As a result of all this, there is a yawning gap between the real value of the labour and goods that poor countries sell and the prices they are actually paid for them.”

“Remittances sent home by immigrant workers are slashed by exorbitant transaction fees, costing families $33 billion each year. Global South economies lose about $27 billion in GDP each year because aid disbursements are so volatile, making it very difficult for them to plan investment and manage their budgets. Then there are forms of extraction that are more difficult to quantify, such as the 162 million acres of land (more than five times the size of England) that has been grabbed in global South countries since 2000.”

“Some of this damage is caused by the very groups that run the aid agenda: the World Bank, for example, which profits from global South debt; the Gates Foundation, which profits from an intellectual-property regime that locks life-saving medicines and essential technologies behind outlandish patent paywalls; and Bono, who profits from the tax haven system that siphons revenues out of global South countries.”

“The sign announced a USAID initiative to help alleviate recurring water shortages by adding a new well in the area. It was branded with the American flag and bore the proud words: ‘This project is a gift from the American People to the Palestinian People!

A casual observer might be impressed: American taxpayer money offered generously, in the spirit of humanitarianism, to assist impoverished Palestinians struggling to survive in the desert. But Palestine doesn’t have a shortage of water. When Israel invaded and occupied the West Bank in 1967, with the backing of the US military, it asserted total control over the aquifers beneath the territory. Israel draws the majority of this water — close to 90 per cent — for its own use in settlements and for irrigation on large industrial farms. And as the water table drops, Palestinian wells are running dry. Palestinians are not allowed to deepen their wells or sink new ones without Israeli permission — and permission is almost never granted. If they build without permission, as many do, Israeli bulldozers arrive the next day. So Palestinians are forced to buy their own water back from Israel at arbitrarily high prices.

This is not a secret. It is happening out in the open, and the farmers I spoke to know it all too well. For them, the USAID sign only adds insult to injury. It’s not that they lack water, as USAID implies; it’s that the water has been stolen from them. And it has been stolen with US support. In 2012, just two months before my visit, the United Nations General Assembly adopted resolution 66/225, calling for the restoration of Palestinians rights to their own water. One hundred and sixty-seven nations voted in favour of the resolution. The United States and Israel voted against it.”

Poverty Alleviation

“What happens if we take China out of the equation? Well, we find that the global poverty headcount increased during the 1980s and 1990s, while the World Bank was imposing structural adjustment across most of the global South. Today, the extreme poverty headcount is exactly the same as it was in 1981, at just over 1 billion people. In other words, while the good-news story leads us to believe that poverty has been decreasing around the world, in reality the only places this holds true are in China and East Asia. This is a crucial point, because these are some of the only places in the world where free-market capitalism was not forcibly imposed by the World Bank and the IMF. Everywhere else, poverty has been stagnant or getting worse, in aggregate. And this remains evident despite the World Bank’s attempts to doctor the figures.”

Hunger

“When heads of state first pledged in 1996 to cut hunger in half before 2015, there were 788 million hungry people in the world. In 2009, there were 1,023 million, or about 30 per cent more. This trend has long been a thorn in the side of the powers that be. After all, one of the best ways to test the success of an economic system is to assess progress against hunger. If the hunger numbers are static — or, worse, on the rise — it is difficult to argue that something isn’t fundamentally wrong.

Of course, when the Millennium Campaign pushed the base year back to 1990, the hunger trend appeared to get a little better. And diluting the goal to focus on proportions instead of absolute numbers helped a little bit too. But even with these changes, in 2009 the hunger headcount was still 21 per cent worse than it was in 1990. The UN was forced to concede defeat, publishing a report admitting that the hunger goal was going to be impossible to achieve: instead of decreasing, hunger has been on the rise for the past decade.

It seemed a disaster. But then, out of the blue, in 2012 the UN agency responsible for calculating the hunger numbers, the Food and Agriculture Organization (FAO), suddenly began telling the exact opposite story. With only three years to go before the expiry of the MDGs, the FAO announced an ‘improved’ methodology for counting hunger. And the revised numbers delivered a rosy tale at last: while 23 per cent of people in the developing world were undernourished in 1990, the UN was pleased to announce a reduction to 15 per cent. The goal still hadn’t been accomplished, of course, and in terms of absolute numbers there wasn’t much to write home about: over twenty-five years they had managed to cut hunger from 1 billion people to 800 million. And almost all of this reduction had happened in Asia; in Africa, the number of undernourished people had increased. But at least now the UN could at last claim some progress on a global level. The 2013 report of the MDGs announced: ‘Progress in reducing hunger has been more pronounced than previously believed, and the target of halving the percentage of people suffering from hunger by 2015 is within reach!’

How did they pull this off? How did they turn a story of crisis into a story of progress? It all had to do with the new methodology. The new model was designed not to reflect the impact of economic crises, so the numbers did not show the massive spike in hunger that followed the food-price crisis of 2007 and the financial collapse of 2008. In addition, the FAO revised their estimates of countries’ food supplies, and ‘relaxed’ their assumptions about people’s access to calories. They also adjusted the hunger threshold downwards, and in such a way that the trend appeared to improve more rapidly than under previous measurements. All of this made the hunger story look much better than it had before. Media outlets ran the new story without scrutinising the methodological changes.

Methodological twists aside, the other major problem with the UN’s hunger numbers has to do with the definition of hunger itself. The UN counts people as hungry only when their calorie intake becomes ‘inadequate’ to cover even minimum needs for a sedentary lifestyle’ (i.e. less than about 1,600 to 1,800 calories per day) for ‘over a year’. The problem is that most poor people don’t live sedentary lifestyles; in fact, they are usually engaged in demanding physical labour, so in reality they need much more than the UN’s calorie threshold. The average rickshaw driver in India, for example, burns through about 3,000–4,000 calories per day. The FAO itself recognises this flaw. Its 2012 report admits that many poor and hungry people are likely to have livelihoods involved in arduous manual labor. It calls its core definition of hunger ‘narrow, very conservative’, focused on only ‘extreme caloric deprivation’ and thus ‘clearly insufficient’ to inform policy. It acknowledges that most poor people actually require calories sufficient for ‘normal’ or even ‘intense’ activity.

So what happens if we measure hunger at these more accurate levels? We see that between 1.5 billion and 2.5 billion people are hungry, according to the FAO’s own data. This is two to three times higher than the Millennium Campaign would have us believe. And the numbers are rising, even according to the FAO’s questionable new methodology.”

“Even these estimates aren’t quite good enough. Another problem with the FAO’s definition is that it only counts calories. So people who have serious deficiencies of basic vitamins and nutrients (a condition that affects some 2.1 billion people worldwide) are not counted as undernourished as long as they can get enough calories to keep their hearts pumping. People who suffer from parasites, which inhibit food absorption rates, also fall through the cracks, since what counts is calorie intake, not actual nutrition. And people who are hungry for months at a time are not counted as hungry, since the definition of hunger only captures hunger that lasts for over a year. The FAO writes: The reference period should be long enough for the consequences of low food intake to be detrimental to health. Although there is no doubt that temporary food shortage may be stressful, the FAO indicator is based on a full year. In other words, the FAO’s definition presupposes, without invoking any supporting evidence, that eleven months of hunger is not detrimental to human health.

In light of all this, it is safe to say that the narrative of the Millennium Development Goals dramatically underestimates the scale of global hunger. Again, the idea here seems to be to simply keep people alive, just to satisfy the metrics, while caring little about the kinds of lives they are able to live. And this tragedy persists in the face of what has surely become one of the most repeated facts of our time: that we collectively produce enough food each year to feed everyone in the entire world, at 3,000 calories per day. Hunger is not a problem of lack. It is a problem of distribution. A disproportionate amount of the world’s food ends up flowing to rich countries, where much of it ends up as waste. In the US and Europe, consumers bin up to half the food they purchase. The UN finds that cutting global food waste by only a quarter and redirecting it to where it is needed most would solve global hunger in a single stroke.”

“This level tells us very little about what poverty is like in even slightly better-off countries. Take Sri Lanka, for example. In 1990, government authorities conducted a survey that found that 40 per cent of the population fell under the national poverty line. But the World Bank, using the IPL, reported only 4 per cent in the same year. In Mexico in 2010, the government reported a poverty rate of 46 per cent using the standard national line, while the World Bank reported only 5 per cent using the IPL. In other words, in many cases the IPL makes poverty seem much less serious than it really is. India offers another example. Using the IPL, the World Bank estimated that India had 300 million people living in poverty in 2011, and claimed that the proportion of impoverished people had been decreasing steadily over time. But empirical research in India at around the same time showed that 680 million people lack the means to meet their essential needs. Indeed, in 2011 nearly 900 million Indians, or 75 per cent of the population, were subsisting on less than 2,100 calories per day, up from 58 per cent in 1984. So not only does the World Bank dramatically understate the true extent of poverty in India, it also claims there has been a ‘reduction’ of poverty while hunger has been decisively on the rise.

The same story can be told in many other regions, where living just above the IPL still means living in destitution. In India, a child living just above the IPL has a 60 per cent risk of being underweight. In Niger, babies born to families just above the IPL face an infant mortality risk of 160/1,000, more than three times the world average. Earning $1.25 per day comes nowhere near to providing the ‘adequate’ standard of living that is supposedly guaranteed by the Universal Declaration of Human Rights, which states: ‘Everyone has the right to a standard of living adequate for the health and wellbeing of himself and of his family, including food, clothing, housing and medical care.’”

Poverty

“We need to set a line that at the very least allows people to achieve the lower end of normal human life expectancy, which is about seventy-four years. Recent studies place this ‘ethical poverty line’ at about $5 per day — four times higher than the standard $1.25 line.”

“What if we were to take these concerns seriously, and measure global poverty at a minimum of $5 per day? We would find the global poverty headcount to be about 4.3 billion people. This is more than four times what the World Bank and the Millennium Campaign would have us believe. It is more than 60 per cent of the world’s population. And, more importantly, we would see that poverty has been getting worse over time. Even with China factored in, we would see that around 1 billion people have been added to the ranks of the extremely poor since 1981. At the $10-a-day line we see that 5.1 billion people live in poverty today — nearly 80 per cent of the world’s population. And the number has nsen considerably over time, with 2 billion people added to the ranks of the poor since 1981.

There is a strong consensus among scholars that the $1.25 line is far too low, but it remains in official use because it is the only line that shows any progress against poverty — at least when you include China — and therefore is the only line that justifies the present economic order.”

Inequality

“The best approach is to measure the gap in real terms between the GDP per capita of the United States (as the world’s dominant power and a proxy for the rich world) and that of the various developing regions of the global South. Since 1960 the gap between the US and the Middle East/North Africa has grown by 154 per cent, between the US and South Asia by 196 per cent, between the US and Latin America by 206 per cent, and between the US and sub-Saharan Africa by 207 per cent. We can get a sense of what this looks like in the graph.”

“Over the past few decades inequality has become so bad that in 2000, Americans earned nine times more than Latin Americans, twenty-one times more than those in the Middle East/North Africa, fifty-two times more than sub-Saharan Africans and a mind-popping seventy-three times more than South Asians. These numbers give us a sense of how unfairly the global economy distributes our planet’s wealth.”

“In 2015, the economist David Woodward published some rather sobering — even terrifying — analysis of future poverty-reduction scenarios in the World Economic Review. His findings are troubling. He shows that given our existing economic model, poverty eradication can’t happen. Not that it probably won’t happen, but that it physically can’t. It is a structural impossibility.

Right now, the main strategy for eliminating poverty is to increase global GDP growth. The idea is that the yields of growth will gradually trickle down to improve the lives of the world’s poorest people. But all the data we have shows quite clearly that GDP growth doesn’t really benefit the poor. While global GDP per capita has grown by 45 per cent since 1990, the number of people living on less than $5 a day has increased by more than 370 million. Why does growth not help reduce poverty? Because the yields of growth are very unevenly distributed. The poorest 60 per cent of humanity receive only 5 per cent of all new income generated by global growth. The other 95 per cent of the new income goes to the richest 40 per cent of people.”

“To eradicate poverty at $5 a day, global GDP would have to increase to 175 times its present size. In other words, we need to extract, produce and consume 175 times more commodities than we presently do. It is worth pausing for a second to think about what this means. Even if such outlandish growth were possible, the consequences would be disastrous. We would quickly chew through our planet’s. ecosystems, destroying the forests, the soils and, most importantly, the climate. As Woodward puts it: ‘There is simply no way this can be achieved without triggering truly catastrophic climate change — which, apart from anything else, would obliterate any potential gains from poverty reduction. It’s a farcical proposition — a cruel joke played at the expense of the poor. And, as if to add insult to injury, achieving this level of growth would mean driving global per capita income up to $1.3 million. In other words, the average income would have to be $1.3 million per year simply so that the poorest two-thirds of humanity could earn $5 per day. This gives us a sense of just how deeply inequality is baked into our economic system.”

“The Millennium Development Goals, for example, have trained us to forget everything that happened before 1990. That’s a convenient date, because the poverty headcount increased steadily during the decade before that, even according to the World Bank’s own $1.25 line. The 1980s were a decade of severe suffering in the global South, no matter how much you doctor the numbers. Even James Wolfensohn, the president of the World Bank, admitted that the 1960s and 1970s were better days for developing countries — before the World Bank and the IMF intervened. So what worked so well? And why have we been told to forget about it?”

“If we rewind to about 1500, a very allerent story emerges. At that time, there was little difference between Europe and the rest of the world when it came to the living standards of ordinary people. In fact, people living in South America, India and Asia were in many ways better off than Europeans. Even as late as 1800, life expectancy in England was between thirty-two and thirty-four years — and a dismal fifteen for children born into working-class families. In France, it was between twenty-eight and thirty, and in Germany between twenty-five and thirty-one.

Citizens of the Aztec, Inca and Mayan civilisations were not much better off than Europeans in terms of life expectancy. Like Europeans at the time, they lived in setfled communities that were crowded, highly unequal and rife with disease — and they relied exclusively on agriculture for food, which required back-breaking labour and yielded very little nutritional value. But archaeological records show that people in the forager-farmer communities that lived outside these early states were a good deal better off, with life expectancies around 50 per cent longer. They were healthier, stronger, taller and better nourished than their more ‘civilized’ counterparts in South America — and, indeed, in Europe. They were less likely to die of famine for they had a much more diverse food system: they grew some of their food and foraged for the rest. They worked far fewer hours and the work was lighter. There were no powerful aristocrats or landlords around to force them to work, or to skim their yields for profit. And they were less exposed to the diseases that plagued densely populated societies. In the Americas of the 15th century, such communities were the norm, at an incidence of probably around 80 per cent, while settled agricultural states were the exception.

Evidence from China, Japan and other parts of Asia suggests that people in these regions also lived longer, healthier lives than Europeans did. Indeed, Asia’s advantage over Europe in this department lasted until at least 1800. Japan enjoyed a life expectancy of forty-one to fifty-five, China between thirty-five and forty, and parts of South-East Asia around forty-two. In other words, Asians could expect to live as much as ten years longer than Europeans. Asia exceeded Europe in many other key development indicators as well, including superior transport technology, larger cities and better sanitation, public health systems and nutritional standards. And in terms of the balance of global power, Europe in 1500 — just emerging from the Dark Ages — was little more than a backwater, accounting for only 15 per cent of global GDP. By contrast, China and India together controlled 65 per cent of the world economy.”

“Europeans discovered the immense network of silver mines centred on Potosi, in what is now Bolivia. Before long the metal came to account for 99 per cent of the mineral exports from the Spanish colonies. Between 1503 and 1660, 16 million kilograms of silver was shipped to Europe, amounting to three times the total European reserves of the metal.

And that was on top of the 185,000 kilograms of gold that arrived in Spanish ports during the same period. By the early 1800s, a total of 100 million kilograms of silver had been drained from Latin America and pumped into the European economy — first into Spain, and then out to the rest of Europe as payment on Spain’s debts.

To get a sense of the scale of this wealth, consider this thought experiment: if 100 million kilograms of silver was invested in 1800 at 5 per cent interest — the historical average — it would amount to $165 trillion today, more than double the world’s total GDP in 2015. Europe had to purchase some of this silver from indigenous Americans in exchange for goods, of course, but much of it came for free — the product of coercive extraction. It was a massive infusion of windfall wealth into the European economy.

What happened to all of this silver and gold from Latin America? Some of it went to building up the military capacity of European states, which would help secure their political advantage over the rest of the world. But most of it lubricated their trade with China and India. Silver was one of the only European commodities that Eastern states actually wanted; without it, Europe would have suffered a crippling trade deficit, leaving it largely frozen out of the world economy. The silver trade allowed Europe to import land-intensive goods and natural resources that it lacked the land capacity to provide for itself. We can think of this as an ‘ecological windfall’ — a transfusion of resources that allowed Europe to grow its economy beyond its natural limits at the time, to the point of catching up with and surpassing China and India around 1800. China and India, then, provided a kind of ecological relief to overstrained Europe. Outsourcing land-intensive production also allowed Europe to reallocate its labour into capital-intensive industrial activities — like textile mills — which other states did not have the luxury of doing.

But while Europe benefited from this arrangement, Latin America suffered tremendously.”

“The sugar and cotton plantations of the New World supplied Europe with another ecological windfall, much as silver did. For example, sugar came to account for up to 22 per cent of the calories Britain consumed, which reduced the need for domestic agricultural production and freed up labour power for industrial pursuits. Cotton provided a key raw material for Europe’s Industrial Revolution, and without diverting from food production or straining Europe’s labour and land capacities. If we add timber imports to sugar and cotton, we see that the New World contributed some 25 million to 30 million ‘ghost acres’ of productive land to Britain alone — roughly double the size of Britain’s own total arable land. These slave-produced imports were one of the single largest factors in spurring Europe’s rapid economic development — more significant even than the windfall energy provided by the region’s rich seams of coal. Without the ecological windfall from the slave colonies, Europe would not have been able to shift its economic capacity towards industrialisation.”

“Because the Latin American economy was organised by the colonisers to produce only a handful of agricultural products, it was prevented from developing its own domestic industries. Instead, it became dependent on Europe for the manufactured goods it needed. This arrangement proved to be tremendously beneficial to Europe; Latin America was a captive market, providing a steady demand for Europe’s industrial exports. Indeed, without the slave colonies of the New World to consume its goods, Europe’s industrialisation would have been impossible.

The consequences of this arrangement for the periphery of the world system were immense. As we will see, Latin America would be stuck in a relationship of economic dependency on Europe even into the 21st century, one marked by declining terms of trade.”

“In order for capitalism to work, it needs something else: it needs workers. Budding capitalists cannot get very far unless there are people willing to work for them in exchange for wages. We take this for granted today, but there was a time, not so long ago, when it wasn’t quite so easy. Up through the Middle Ages, the vast majority of people in Europe — at least outside the city states — wouldn’t have wanted to work for wages. People didn’t need to earn wages in order to live. Most people lived as ‘peasants’ — in other words, as small farmers cultivating the land to provide for their own needs. And for the most part they were quite happy doing so.”

“This traditional security system came under attack in the 15th century — a process that started in England. Wealthy nobles, eager to profit from the highly lucrative wool trade, began a systematic campaign to turn their land into sheep pasture. To do this, they dissolved old feudal obligations and abolished the right of habitation that had protected peasants for so many centuries. They also began to privatise the common land that people relied on for survival, denying them rights of access and fencing the land off for their own commercial use. The ‘enclosure movement,’ as it came to be known, saw the privatisation of tens of millions of acres over the course of two or three centuries, the displacement of much of the country’s population, and the clearance of hundreds of villages. Enclosure was not a peaceful process — it was profoundly violent, as dispossession always is. It required a considerable degree of force — burning villages, destroying houses, razing crops — to prise millions of people off their ancestral lands.”

“By the middle of the 19th century it was complete: there was almost no common land left and millions of people had been forcibly displaced. The result was a massive refugee crisis, unlike anything we can imagine today — bleaker than our most dystopian science fiction films. Huge portions of England’s population had nowhere to go. They had no homes, no land, no food. It was a humanitarian catastrophe: for the first time in history, a significant proportion of the population had no access to any form of livelihood for survival. By the middle of the 1600s, the word ‘poverty’ had come into common use to describe this new condition, and during the late 18th and early 19th centuries the term became entrenched as a major concept in English-language discourse. This helps us make sense of the extremely low life expectancy found among England’s working class in the early 19th century.

The displaced peasants had no way to feed themselves, save for one last option: to sell their labour for wages. Such people were euphemistically referred to as ‘free labourers’, but this term is quite misleading. True, they were not technically slaves, but wage work was hardly a matter of free choice. Some of the displaced ended up working on the new sheep runs or on the capitalist farms. But most of them moved into towns, pouring into cities like London to scratch out a meagre living. The population of England’s urban centres grew at an unprecedented rate and outpaced the urban populations of the rest of Europe, where the enclosure movement had not yet gained traction. These growing cities were not pleasant places to live: the majority of people had no choice but to live in slums, and working conditions were horrible.”

“The emergence of the landless working class added a final piece to the great transformation of England’s economy: they became the world’s first mass consumer population, for they depended on markets for even the most basic goods necessary for survival: clothes, food, housing, and so on. It was these three forces — enclosure, mass displacement of peasants and the creation of a consumer market — that provided the internal conditions for the Industrial Revolution.”

“They forcibly expropriated the land of Irish peasants and resettled it with farmers trained in the methods of agricultural intensification, directly replicating what was already under way back at home. As in England, this process impoverished vast numbers of people, who were forced to retreat on to small plots of marginal land. Many were left with no hope of survival and migrated to England and Scotland to work as wage labourers — something that had never been necessary before. By the early 1800s, once the enclosure movement had run its violent course over two to three centuries, Irish peasants had so little land for their own use that they were planting only potatoes — the one crop that would yield sufficient calories for them to survive on very small plots.”

“Unlike in America, in most cases the British didn’t resettle the land themselves, but rather forced the Indians to adopt a new agricultural system. Indian farmers were made to cultivate crops for the export market — opium, indigo, cotton, wheat and rice — instead of for subsistence. For many people, making this shift was the only way to survive: it was necessary simply in order to pay the crushing taxes — and debts — that the British had imposed. To further encourage this transformation, the British compelled villages to sell off their grain reserves and did away with systems of mutual support and reciprocity that people had long relied on. They also enclosed common lands at a dizzying pace. Prior to 1870, India’s forests had been communally managed; farmers used them to acquire firewood for cooking and heating, and for fodder to feed the cattle they used for ploughing and fertiliser. By the end of the decade the forests had been almost completely enclosed, to be used by the British for building ships and railways. And it wasn’t only forests that the British enclosed: common water rights were also privatised and auctioned off with enclosed land, rendered a market commodity for the first time.

Under the British, these centuries-old traditional welfare buffers were destroyed on the basis that they ‘interfered’ with market forces. The idea was that by stripping them away you could compel Indian farmers to be more productive: cast at the mercy of the market, they would figure out ways to extract ever higher yields from the land. Yet farmers found that the market was rigged against them, for India’s tariffs were controlled in London and in the interests of British stockholders. Many smaller Indian farmers were quickly overcome by competition, and their lands appropriated by bigger and more powerful businesses.

These changes were traumatic in their own right. But it wasn’t until 1876, when El Niño visited the region with a crushing three-year drought, that the true horror of this new system became apparent. El Niño droughts were not uncommon across the Indian subcontinent during the 19th century and farmers had learned to weather them remarkably well. In lean years they could always rely on their grain reserves to see them through, and the commons, too, were a vital lifeline. But this time they were left without any of these security systems — and the consequences were disastrous. With the forests fenced off, farmers couldn’t acquire the fodder they needed to feed their cattle. Cows died en masse, and without their manure agricultural yields deteriorated. And with water sources enclosed, people were unable to use the irrigation systems they normally relied on when the rains failed. All of this made the drought much more deadly than it otherwise would have been.

The human toll was staggering: 10 million Indians died of starvation.”

“Twenty years later, between 1896 and 1902, El Niño struck again — and this time the death toll was even higher. Nineteen million Indians died of starvation, bringing the total body count to 29 million. Almost 30 million is a difficult number to imagine. Laid head to foot, the dead would stretch the length of England eighty-five times over.”

“Even during the height of the drought the country had a net surplus of food — there was more than enough to feed the entire population, it just needed to be moved to the right areas. But instead the rail system, obedient to market logic, was used by merchants to ship grain from the hinterlands into central depots where it could be guarded from the hungry and shipped to Europe. Financial speculation on the London Stock Exchange was driving food prices to eye-watering heights, and grain merchants were eager to take advantage of this. In 1877 and 1878, during the worst years of the first drought, they shipped a record 6.4 million tons of Indian wheat to Europe rather than relieve starvation in India. During the period from 1875 to 1900, Indian grain exports increased from 3 million to 10 million tons per year.”

“From the perspective of the British, the problem with India was that it had relatively strong industries of its own. India’s textile industries, for instance, produced some of the finest cloth in the world, making it difficult for Britain to gain dominance in the global textile market. To deal with this obstacle, the British Colonial Office did everything in its power to hinder and even dismantle India’s autonomous industrial development, and sought to ensure that Indian manufacturers would not be able to compete with their British counterparts.

They prevented Indians from becoming skilled artisans and they gave British firms preferential treatment in government procurement. In one famous episode, the British set out to destroy India’s textile industry by crushing the fingers of the weavers and destroying their looms. But their most potent tool was the use of one-way tariffs, which protected Britain’s markets from India’s exports while ensuring easy access for Britain’s goods into India. It worked: India, once self-sufficient and famous for its exports, was remade into the greatest captive market in world history’.

The economic transformation was dramatic. Before the British arrived, India commanded 27 per cent of the world economy, according to economist Angus Maddison. By the time they left, India’s share had shrunk to just 3 per cent.

This technique of forcing open the markets of foreign countries had been honed earlier in the century during Britain’s engagements with China. In 1793, Britain sent its first official mission to the Chinese empire. Britain was hungry for tea and other exotic goods like porcelain and silk, but could no longer afford to finance them. The Chinese accepted payment only in silver. They didn’t need the products that the British offered to trade, and in any case wanted to protect their own industries from the threat of outside competition. British traders were allowed only token access to Chinese markets, their activities restricted to a small trading post in Canton. But Britain’s silver was running dry, and British traders had piles of industrial products they were desperate to sell. They needed access to China’s markets.

The meeting between the British ambassador and Emperor Qianlong did not go well. The emperor regarded the British as barbarians from an uncivilised land, and was not impressed by the gadgets they brought along as gifts. To clarify his position, he sent a letter to King George III — perhaps one of the most famous letters ever written.

As your Ambassador can see for himself, we have not use for your country’s manufactures… Our Celestial Empire possesses all things in prolific abundance and lacks no product within its borders. There is therefore no need to import the manufactures of outside barbarians in exchange for our own produce. But as the tea, silk, and porcelain which the Celestial Empire produces are absolute necessities to European nations and to yourselves, we have permitted, as a signal mark of favour, that foreign merchants should be established at Canton, so that your wants might be supplied and your country thus participate in our beneficence… I do not forget the lonely remoteness of your island, cut off from the world by intervening wastes of sea…

Defeated on the diplomatic front, Britain turned to drugs. Desperate to finance their growing trade deficit, they started selling opium — grown in colonial India — on China’s black market. And when Chinese authorities clamped down on this illicit trade, as any sovereign country has the right to do, the British retaliated with a military invasion.

Thus began the Opium Wars, fought by the British between 1839 and 1842, and by an Anglo-French alliance from 1856 to 1860. China, unprepared for naval combat, was brutally defeated. But Britain and France refused to relent until China agreed to abolish restrictions on European access and hand large chunks of territory over to European control. The treaties that followed granted sweeping trade privileges to Europe but conceded nothing to China in return. According to these ‘unequal treaties’, as they came to be called, Europeans could sell their manufactured goods on China’s markets while protecting their own markets against Chinese competitors. The consequences were devastating. China’s share of the world economy dwindled from 35 per cent before the Opium Wars to an all-time low of just 7 per cent. What is more, China’s loss of control over its grain markets led in part to the famines that China suffered during the same droughts that hit India. And, as in India, 30 million people in China perished needlessly of starvation during the late 19th century, after having been integrated into the London-centred world economy.”

“In the middle of the 18th century, the average standard of living in Europe was a little bit lower than in Asia. Even as late as 1800, per capita income in China was ahead of Western Europe, and per capita income for Asia as a whole was better than that of Europe as a whole. Literacy rates in China were higher than in European countries, including among women, and birth rates were lower. In the south of India — and in other Indian regions — workers enjoyed higher incomes than their British counterparts in the 18th century, and lived much more secure lives. Indian artisans enjoyed a better diet than the average European, and their unemployment rates tended to be lower because they had more robust rights.”

“As European countries industrialised, they began to compete with each other for the raw materials they needed for their factories and also for new markets in which to sell their products. This generated immense pressure to expand into still uncolonised parts of the world. And when a financial crisis sunk Europe into a prolonged depression during the last decades of the 19th century, this pressure intensified: with their economies contracting, European states desperately needed profitable new outlets where they could invest their surplus capital.

At the same time, Europe was facing a crisis of growing social unrest. In Britain, the mass impoverishment created in the early days of the Industrial Revolution threatened to destabilise the country, and social tensions seemed certain to erupt into class war. Britain’s ruling class realised that the colonial project promised a way of temporarily relieving some of these tensions without requiring them to relinquish any of their power. Instead of rolling back enclosure or increasing workers’ wages, they hoped to find a pressure valve somewhere beyond their borders.”

“Ten milion Congolese perished under Leopold’s brutal regime — roughly half the country’s population. Many of them died at the hands of direct Belgian aggression, but others died because colonial rule destroyed local economies and dislocated indigenous communities, causing widespread dispossession and starvation, along with an increase in fatal tropical diseases. As for the wealth from all the ivory and rubber, it was used in Belgium to fund beautiful stately architecture, public works, arches, parks and impressive railway stations — all the markers of development that adorn Brussels today, the bejewelled headquarters of the European Union.”

“To make matters worse, a series of ‘pass laws’ prevented African workers from settling their families in white areas. European colonisers justified this as part of their strategy of racial segregation, but the real benefit was that it allowed them to pay African workers extremely low wages. Here’s how it worked. If workers were to settle in European areas with their families, then wages would have to be high enough to meet the needs not only of the workers themselves, but also of their spouses and children. What is more, employers and the state would have to contribute to the Africans’ social care needs, like health and retirement. These are the normal costs of maintaining and reproducing labour. But by keeping families confined to the reserves, employers were able to pay bachelor wages’ to African workers — just enough for the workers to live on, but certainly not enough to support their families. The shortfall would be covered by subsistence farming in the reserves. And the costs of caring for sick and ageing workers would be borne in the reserves as well, thus sparing European employers and the state considerable expense.”

“When the US invaded Colombia in 1903 it was in order to secure control over Panama, to clear the way for the US to dig the Panama Canal. Nicaragua was occupied from 1912 to 1933 largely in order to prevent the Nicaraguan government or any other nation — from building its own alternative canal.”

“In 1820, at the dawn of the second wave of imperialism, the income gap between the richest country and the poorest country was only 3 to 1. By the end of colonialism in the middle of the 19th century, the gap was 35 to 1.”

“In most undergraduate economics courses, students are taught that the differences between the economies of poor and rich countries can be explained by the laws of comparative advantage and supply and demand. The standard theory holds that prices and wages are set automatically by the market depending on each country’s factors of production. Poor countries have a natural abundance of labour, so their wages are low and therefore their comparative advantage lies in labour-intensive production (first mining and agriculture and later also light manufacturing). Rich countries have a natural abundance of capital, so their wages will be higher and they will specialise in capital-intensive production of higher-order commodities. In orthodox economic theory, this is regarded as the natural order of things.

But as soon as we bring history back into the picture, this theory starts to fall apart. Why do poor countries have a comparative abundance of labour in the first place? Because of hundreds of years of colonial rule, under which subsistence economies were destroyed and millions of people were displaced and forced into the labour market, driving unemployment up and wages down. The fact that slavery was used up through the 19th century further contributed to downward pressure on wages, as workers had to compete with free labour.

And why do poor countries have a comparative deficit of capital in the first place? Partly because they were plundered of precious metals, and partly because their colonisers forcibly destroyed local industries so that they would have no choice but to consume Western exports. Orthodox economic theory presupposes international inequalities as if they have always existed, but the historical record is clear that they were purposefully created.”

“For the first time, global South countries were free to determine their own economic policies. And seeing how well Keynesian economics was working in Europe and the United States, they were quick to adopt its basic principles: state-led development, plenty of social spending and decent wages for workers. And they added one crucial piece to the Keynesian consensus: a desire to build their economies for their own national good, rather than solely for the benefit of external powers.

This was the era of ‘developmentalism’. Latin America’s Southern Cone — Chile, Argentina, Uruguay and parts of Brazil — became an early success story.”

“Developmentalism was also taking hold elsewhere in the global South. In much of Africa it appeared in the guise of African socialism, a philosophy that regarded the sharing of economic resources as an important expression of ‘traditional’ African values. The principles of African socialism guided the social justice efforts of countries like Ghana under Kwame Nkrumah and Tanzania under Julius Nyerere. In North Africa and the Middle East, developmentalism took the form of Arab nationalism, as exemplified by leaders such as Egypt’s Gamal Abdel Nasser and the Baathist parties of Iraq and Syria. In India it took hold under Prime Minister Jawaharlal Nehru and his successors. East Asia was busy doing something similar, using infant industry subsidies to build strong businesses in a protected economy, grooming them to the point where they were capable of competing and succeeding against their Western counterparts. All of these strategies relied on relatively high trade tariffs on foreign goods, restrictions on foreign capital flows and limits on foreign ownership of national assets. Land reform was often a central part of the package. And in many cases, governments sought to nationalise natural resources and key industries in order to ensure that their citizens benefited from them as much as possible.

These developmentalist policies mimicked the very same measures that the United States and Europe used to such good effect during their own periods of economic consolidation. And they worked equally well in the global South, delivering high per capita income growth rates of 3.2 per cent during the 1960s and 1970s — double or triple what the West achieved during the Industrial Revolution, and more than six times the growth rate under colonial rule. It was a postcolonial miracle. And the new wealth was more equitably shared than before: in Latin America, for example, the gap between the richest fifth and poorest fifth of the population shrank by 22 per cent. Developmentalism also had an impressive impact on human welfare. At the end of colonialism, life expectancy in the global South was a mere forty years. By the early 1980s it had shot up to sixty — the fastest period of improvement in history. The same is true of literacy, infant mortality and other key human development indicators, which experienced their fastest rate of improvement through the mid-1970s.

What is more, the income gap between rich countries and the regions of the global South where developmentalism was most thoroughly applied began to narrow for the first time. In 1960, the average income in the United States was 13.6 times higher than in East Asia. By the end of the 1970s the ratio was down to 10.1, having shrunk by 26 per cent. During the same period, the per capita income ratio between the US and Latin America shrank by 11 per cent, and for the Middle East and North Africa by 23 per cent. The South was steadily closing the divide.

In addition to building their own national economies, global South countries were reaching out to one another for support. In 1955, newly independent African and Asian states gathered in Bandung, Indonesia, to share ideas, build ties of economic cooperation and commit themselves to resisting all forms of colonialism and neocolonialism by Western powers. They saw themselves as developing a third way, defending their interests against the power of both the United States and the USSR and refusing to take sides in the Cold War. In 1961 they met again, this time in Belgrade, to form the Non-Aligned Movement. Led initially by Nehru, Nasser, Nkrumah, President Tito of Yugoslavia and Indonesia’s first independent president, Sukarno, the NAM would come to include nearly every country of the global South and became a powerful force for peace, sovereignty, non-intervention, anti-racism and economic justice. Three years later, they formed the G77 to advance their interests and vision at the United Nations, and founded the United Nations Conference on Trade and Development (UNCTAD), which would develop the principles for a fairer global economy.

The South was rising, and leading the way to a better world for the planet’s majority.”

“One might think that Europe and the United States would be thrilled to watch this success unfold; after all, the new policies that global South countries were rolling out — tariffs, nationalisation, land reform, capital controls — were bringing about real development, and Western governments, in the spirit of Truman, claimed to be in favour of development.

But they were not amused. Western states had become accustomed to having easy access to cheap labour, raw materials and consumer markets in global South countries, and the rise of developmentalism was beginning to restrict this access. Import substitution policies meant that Western exporters of consumer goods had to pay high tariffs to sell their products to global South markets. Sometimes they found that their products were blocked at customs altogether by nationalist governments intent on protecting local industries. In many cases, Western investors who wanted to operate in global South countries were denied entry. When they were allowed in, they often had to pay higher taxes on their incomes, and capital controls meant they had to pay higher fees if they wanted to repatriate their profits. A growing trade union movement and new constitutional rights meant they had to pay higher wages to the workers they hired. In some countries, they felt stymied by price controls that governments had imposed in order to keep basic goods affordable. In others — and this was their most serious concern — they feared that their land and assets might be nationalised.”

Intervention

“The Eisenhower administration knew that it would be difficult to justify attacking a movement that was so obviously rooted in the principles of equality, justice and independence. He had to find a way to get the American public onside. He did it in the end by drawing heavily on Cold War rhetoric: he painted developmentalism as the first step on the road to communism, and by connecting developmentalist governments to the USSR he was able to tar them in the minds of American citizens.

Iran became the first target of Eisenhower’s backlash. Iran’s democratically elected leader, Mohammad Mossadegh, had become a stalwart of the developmentalist movement. Tall, dignified and Paris-educated, Mossadegh had risen to popularity in his country as a progressive politician. As prime minister, he introduced unemployment compensation and benefits for sick and injured workers. He abolished forced agricultural labour. He raised taxes on the rich in order to fund rural development projects. And, most famously, he sought to renegotiate ownership of the country’s oil reserves, which at that point were controlled by the British-owned Anglo-Iranian Oil Company, now BP. When the company refused to cooperate with an audit of its accounts, the Iranian Parliament voted unanimously to nationalise the company’s assets.

This move further boosted Mossadegh’s popularity at home. But it outraged the British government, which quickly turned to the United States for assistance. The option of military intervention was on the table, but they worried that it might provoke the USSR into coming to Iran’s aid and set off a proxy war. So they worked covertly through a secret project called Operation Ajax, which was led by CIA agent Kermit Roosevelt (the grandson of Theodore Roosevelt, the man who established the Roosevelt Corollary to the Monroe Doctrine and paved the way for US intervention abroad). It was a clever plan. First, they bribed politicians to whip up anti-government sentiment and paid demonstrators to take to the streets to create the false impression that Mossadegh was unpopular. Then they convinced the military to depose Mossadegh and hand power over to the Shah of Iran, Mohammad Reza Pahlavi. It worked: the coup in August 1953 toppled Mossadegh and the Shah assumed power as an absolute monarch alongside a military government. He governed Iran for the next twenty-six years, most of that time with US support and with policies that were friendly to Western oil companies – just as in Saudi Arabia, the West’s other main client state in the region. Mossadegh, for his part, spent the rest of his life under house arrest.

Operation Ajax was one of the first US operations to overthrow a foreign government.”

“Brazil, too, was hit with a coup supported by the United States. After assuming the presidency in 1961, João Goulart — a former football player and national hero — began to roll out his signature Basic Reforms plan. He aimed to extend voting rights to illiterate people, deliver adult education to the poor, tax any profits that multinational companies attempted to transfer abroad and redistribute non-productive landholdings larger than 600 hectares. These reforms were a gift to Brazil’s poor, but the elite were not pleased. Nor were US multinational companies. In 1962, the Brazilian government nationalised the country’s failing telephone provider, a subsidiary of the American-owned ITT Corporation. ITT’s CEO, Harold Geneen, happened to be friends with the director of the CIA at the time and lodged a complaint — not so much because he cared about the subsidiary, but because he worried that ITT’s interests elsewhere in Latin America might eventually be affected by governments mimicking Goulart’s policies. President Kennedy demurred. But shortly after Lyndon Johnson took office, the CIA took action, with the help of Britain. In 1964, in an operation called Brother Sam, the US assisted a military coup that deposed Goulart and installed a junta that would rule for twenty-one years. The new regime was overtly friendly to Western corporate interests and deregulated foreign investment. This rapid market liberalisation reversed the gains against poverty that Goulart had won and restored the profit levels of American and European companies.”

“A year after the US-backed coup in Brazil, similar — but even more devastating — events unfolded in Indonesia. After gaining independence from Dutch rule, the leader of Indonesia’s nationalist struggle, Sukarno, son of a primary-school teacher, assumed the presidency and rolled out classic developmentalist policies. He protected the economy from cheap foreign imports, redistributed wealth to the poor and evicted the IMF and the World Bank. Western powers resented Sukarno for these policies, and for the key role he played in mobilising the Non-Aligned Movement. So when he began to nationalise American and European assets, such as oil and rubber facilities, they took the opportunity to intervene.

When the CIA made it clear that they would back a coup, General Suharto — who was upset with President Sukarno for supporting policies that undermined the military’s power — offered to lead it. In 1965, with the aid of weapons and intelligence from the United States, Suharto hunted down and killed between 500,000 and 1 million of Sukarno’s supporters in one of the worst mass murders of the 20th century. By 1967, Sukarno’s base had been either eliminated or intimidated into submission, and Suharto took control of the country. His military regime — which ruled until 1998 — was open to Western corporate interests.”

“In 1957, Ghana became one of the first countries in Africa to win independence, and the liberation leader Kwame Nkrumah became its first elected president. The continent’s leading developmentalist thinker, Nkrumah built up Ghana’s manufacturing capacity and significantly reduced the country’s dependence on European imports; he nationalised the mines and regulated foreign corporations; he rolled out free healthcare and education; and he put people to work building infrastructure in rural areas. Nkrumah also became a leading voice for the liberation of the rest of Africa, and articulated a Pan-Africanist vision for uniting the continent in economic and political cooperation.”

“All of this made Nkrumah an immediate target. Britain and the United States began plotting his removal as early as 1961. And in 1966 it happened: while Nkrumah was out of the country on a state visit, a CIA-backed coup toppled his government and installed a military junta to rule in its place. The junta brought the IMF and the World Bank in to manage the economy, privatised the country’s assets, cut down barriers to foreign corporations and forced Ghana back into its previous role as exporter of raw materials. Nkrumah, for his part, lived the rest of his life in exile in Conakry, Guinea. He never returned home.

A number of other African countries experimented with the developmentalist revolution — mostly north of the Sahara — but many never got the opportunity, Western intervention was so swift. Patrice Lumumba, the young pan-Africanist who was elected the Congo’s first post-independence leader in 1960, was in office for only two months before being assassinated in a violent coup orchestrated by Belgium and the US, on the direct orders of President Eisenhower. The US feared Lumumba would loosen their grip on the Congo’s vast mineral resources, including the uranium they relied on for their nuclear programme and the cobalt they needed for their jet engines. Lumumba was shot, chopped to pieces and burned to ashes in a barrel. In his place, Western governments installed the military officer Mobutu Sese Seko, one of the world’s most notorious dictators, who went on to command the country for nearly forty years with the support of aid from the US, France and Belgium, most of which he siphoned into his own offshore accounts. During Mobutu’s long reign, per capita income in the Congo, which he renamed Zaire, declined at an average of 2.2 per cent each year — an extraordinary collapse. The Congolese experienced poverty on a scale even worse than they had known under Belgian colonial rule.”

“In 1969, the parliament authorised his ‘Common Man’s Charter’, which stated: We hereby commit ourselves to create in Uganda conditions of full security, justice, equality, liberty, and welfare for all sons and daughters of the Republic. We reject exploitation of material and human resources for the benefit of a few [and resolve to] fight relentlessly against poverty, ignorance, disease, colonialism, neocolonialism, and apartheid. We must move in accordance with the principles of democracy; political power must be vested in the majority of the people and not the minority. Britain, Uganda’s former coloniser, was not pleased by this shift to the left, particularly when Obote’s government moved to partially nationalise some of the country’s major private corporations, including a number of well-known British banks. Britain intervened — with Israeli support — to topple the Obote government in 1971, and paved the way for their preferred replacement: Idi Amin, a former officer of the British Colonial Army. Amin suspended the constitution, announced military rule, forcibly expelled the Asian population and, according to evidence compiled by Amnesty International, proceeded to murder more than 500,000 of his detractors.

Portugal continued to cling to its African colonies until as late as 1975, well after the rest of the global South won its independence. They assisted in the assassination of Amílcar Cabral, the liberation leader of Guinea-Bissau and Cape Verde, depriving Africa of one of its best-known intellectuals. In Angola, they waged a long war against independence leader Agostinho Neto, an accomplished poet and devoted social reformer. When Neto sought assistance from the US for his struggle against Portuguese colonial rule, the US refused, as they were more interested in retaining their access to Angolan oil under the colonial government.

When Angola finally won its independence and Neto became president, the US feared that Neto, a developmentalist, would nationalise the oil reserves, so they threw substantial support behind his opponent, the brutal rebel leader Jonas Savimbi, fuelling a civil war that would last until 2002 and leave Angola in ruins.

And then there was South Africa. Both the United States and Britain actively supported the apartheid regime all the way through the 1980s, for they feared that if Nelson Mandela and the African National Congress ever came to power they would nationalise the country’s enormous deposits of gold, diamonds and platinum.”

“No Western power intervened in postcolonial Africa as much as France. After Francophone Africa won formal independence in 1960, France worried it would lose control over the region’s resources to the nationalist movements. François Mitterrand, minister of the interior at the time, famously confessed in a rare moment of honesty that ‘Without Africa, France will have no history in the 21st century. To prevent this outcome, President Charles de Gaulle and his successors intervened covertly to install puppet leaders ridiculed in France as ‘black governors’ — in newly independent African nations. Known as Françafrique, this agenda was spearheaded by a secret cell headed by Jacques Foccart, chief adviser on African affairs, and funded by Elf Aquitaine, the French state-owned oil company (now Total). They rigged Cameroon’s first elections and hand-picked the president, Ahmadou Ahidjo, after poisoning his main opponent. France kept Ahidjo in power for twenty-two years in return for backing French interests. They also picked Gabon’s first president, Léon M’ba, and when he died installed the dictatorship of Omar Bongo, whom they supported for forty-two years in exchange for direct access to the country’s oil, which has long been a major source of French wealth. In Côte d’Ivoire, France kept their man Félix Houphouët-Boigny in power from 1960 to 1993.

Many other African states have been wrapped up in the scandal of Françafrique, including Nigeria, Guinea, Niger, Congo Brazzaville, the Central African Republic and, most importantly, Burkina Faso, one of the few African countries that did successfully implement a developmentalist programme. The full scale of this vast network of political corruption and coups did not become clear until 1994, when French magistrate Eva Joly exposed it during her landmark investigation of Elf Aquitaine — what the Guardian called the biggest fraud inquiry in Europe since the Second World War. But this did not stop France from continuing to intervene in African affairs. As recently as 2009, France is said by some to have supported rigged elections in Gabon to ensure that Bongo’s son came to power after his father’s death, guaranteeing France’s continued access to the country’s resources.

This legacy complicates some commonly held assumptions about African politics. In the Western imagination, Africa is stereotyped as a continent plagued by corrupt dictators, with the supposition being that Africans are perhaps too primitive to appreciate the virtues of Western-style democracy. But the truth is that ever since the end of colonialism, Africans have been actively prevented from establishing democracies. The legacy of strongman rule in Africa is largely a Western invention, not an indigenous proclivity.”

“During the 1950s and 1960s, the United States had become particularly concerned about Chile. As the home of the UN’s Economic Commission for Latin America and figures like Raúl Prebisch, Chile had become the centre of developmentalist thinking in Latin America. The US feared that these ideas would spread across the rest of the continent.

To counter this tendency, the US government launched Project Chile in 1956. The goal was to resist developmentalism by training Chilean economics students — around 100 of them — in the principles of neoliberal theory at the University of Chicago. A decade later, the programme was expanded to include students from across the continent, and eventually led to the formation of the Center for Latin American Economic Studies at Chicago. It was ideological warfare. The idea was to train students to scorn social safety nets, trade barriers, infant industry protection, price controls, public services and many of the other policies being promoted by progressive Latin American economists at the time.”

“The point to take from this sordid story is that neoliberal economic policies were so obviously destructive to people’s lives that it was very difficult to get them implemented in a democratic government. In most cases, the only way to bring them in was through military dictatorship and a state terror programme that would quash resistance wherever it emerged. In order to aggressively deregulate the economy, you first have to aggressively regulate the political sphere. Total market freedom requires total political unfreedom, even to the extent of mass imprisonment and concentration camps.”

“Under the banner of the Cold War, pro-poor legislation was demonised in Western media as ‘communist’, and this designation gave Western governments licence to employ even the most draconian tactics with impunity. Yet few of the global South leaders who were assassinated or deposed during this period identified as communist; for the most part, they were explicitly non-aligned, and championed the third way of a Keynesian mixed economy. Indeed, they were merely mimicking the policies that the US and Europe had used themselves to such great effect. If we dig behind the rhetoric, it becomes clear that Western support for right-wing coups had little to do with Cold War ideology, and certainly nothing to do with promoting democracy (quite the opposite!); the goal, rather, was to defend Western economic interests. The veil of the Cold War has obscured this blunt fact from view.

It is interesting to imagine how states such as Guatemala, Brazil, Iran, Indonesia and the Congo would have developed had they been allowed to continue with their pro-poor policies in peace. It is possible that by now they would have come very close to eradicating poverty, and perhaps even shed their Third World status altogether — as many East Asian countries managed to do.”

Aid

“They needed a new plan. In 1975, the leaders of the US, Britain, France, Italy, Japan and West Germany met at Château de Rambouillet in northern France to form the alliance that — with the later addition of Canada — would become the G7. The goal was to counter the rise of developmentalism and the NIEO, and to prevent global South countries from working together to increase the prices of raw materials. Henry Kissinger, the US secretary of state at the time, laid out the new geopolitical strategies that the group would use. He proposed to shift the most important decisions at the UN away from the General Assembly to the Security Council, which the rich nations controlled. Next, he laid out plans to divide the G77 by using aid as an instrument of control. The idea was to create a new group of so-called Least Developed Countries (LDCs) — the poorest and most desperate members of the global South — and offer them aid in exchange for siding with the West against OPEC and the rest of the G77. Aid would be wielded as an intentional strategy to shatter global South unity.

Borrowing from Truman, Kissinger also sought to wield the narrative of aid in order to defuse the rising political power of the South, especially at the United Nations. He insisted that the question of global inequality and development should not be approached as a political question but rather as a matter of national responsibility. Rich nations were not responsible for causing the poverty of the global South, he insisted. Quite the opposite — they were prepared to give aid to help poor countries develop. Desperate to avoid any substantive redistribution of power and resources, Kissinger sought to change the narrative about inequality altogether, hoping to convince the LDCs to abandon their demands for global political reform and settle for aid handouts instead.

It is possible that these new strategies might have turned the tables on the South. But the Non-Aligned Movement was a formidable force, and it seems likely that they would have been able to see through Kissinger’s plans. We will never know, because only a few years after the G7 gathered at Château de Rambouillet, something happened that changed the course of international history for ever, giving Western powers the decisive upper hand and abruptly reversing the South’s rise. In what seemed like the blink of an eye, the US and Europe seized de facto control over the economic destinies of developing countries, conquering them all over again without spilling a single drop of blood. Instead of conquistadors on horses or secret agents in smoke-filled rooms, this time the job was done by bankers and bureaucrats — an army of men in grey suits with briefcases, dealing in nothing more glamorous than loan portfolios.”

“This surprising turn of events had been building in the background for a number of years, beginning with drama in the Middle East. In 1967, Israel launched unexpected attacks against Egypt that sparked a regional conflagration known as the Six Day War. During the chaos that ensued, Israel took the opportunity to seize territory from its Arab neighbours, annexing Gaza and the Sinai Peninsula from Egypt, East Jerusalem and the West Bank from Jordan and the Golan Heights from Syria. Outraged by this incursion, the Arab states plotted to recover their land. Six years later, in 1973, they launched a surprise attack of their own against Israel. But things didn’t go quite as smoothly as planned. The United States stepped in to support Israel, its main ally in the region, with an immense shipment of military aid. Arab States were upset by this move, as it gave Israel an unexpected advantage. So they retaliated by unleashing the oil weapon. Working with Saudi Arabia and OPEC, they raised the price of oil by 70 per cent, hoping this would force the US to back down. The US was undeterred. In fact, three days later President Nixon asked Congress to deliver an additional $2.2 billion in military aid to Israel. In response, the Arab coalition took an even more extreme step, imposing a total embargo on oil shipments to the US and a partial embargo on shipments to Western Europe. By the end of the embargo in March 1974, the price of oil had risen from $3 per barrel to nearly $12.

The embargo sent a massive shock through the US economy and triggered the crisis of high inflation and low growth that characterised the 1970s. Desperate for a quick solution, Nixon considered invading the Middle East to seize the oil fields, but at the last minute the two sides managed to reach a negotiated settlement. Israel withdrew from the Sinai Peninsula, thus placating Egypt; and Saudi Arabia would ensure that oil prices remained at a level acceptable to the United States in exchange for US military aid that would help the House of Saud hold off their domestic political enemies. But there was another, more important dimension to the settlement. As a result of the oil price increases, OPEC states suddenly found themselves awash with excess cash worth more than $450 billion. The only problem was that they didn’t know what to do with all the money. Because there was nowhere to invest it internally, Saudi Arabia and other OPEC nations decided to circulate or recycle the money through Wall Street banks, probably to some extent under the pressure of US compulsion, as part of the negotiated settlement.”

“The banks, too, faced the problem of what to do with it all. Western economies were stagnating, so domestic investments were not a profitable option. Scrambling for a different plan, they decided to invest the money abroad in the form of loans to global South countries. What began as a fringe idea quickly turned into a booming business.

Many global South countries, having emerged from the rubble of colonialism just two decades prior, were hungry for capital to build up their economies and to fuel import-substitution industrialisation, which was taking off across the region. On top of this, after 1973 they also needed additional finance to cover the higher costs of oil. In short, they were eager to borrow.

The banks considered these loans to be a safe investment. They assumed that governments would be very unlikely to default. ‘Countries don’t go bust,’ as Citibank CEO Walter Wriston was fond of saying. This made good sense at the time — especially given that developmentalism was working and global South economies were soaring; no one thought they would have any difficulty repaying debts. So banks like Citibank, Chase, Deutsche Bank and others sent representatives jetting all around the global South to convince governments to take out big loans. They called this ‘go-go banking,’ or loan pushing. Many of these loans were legitimate, of course. But in the midst of all the excitement, some banks got carried away. Loan pushers were trained to invent inflated projections of how beneficial the loans would be, manipulating statistics to convince governments to borrow even if they knew full well that they would never be able to repay. Pushers often focused specifically on dictatorships, since — given the absence of democratic accountability — they were much more likely to accept these risky loans, which they could very easily use to line their own pockets, either by stealing the money directly from public accounts or by channelling it through the government and into their own contracting businesses. In this sense, the dictatorships that the US government helped install during the 1950s and 1960s — as in Guatemala, Chile and the Congo — suddenly proved useful in a new way. It was basically a global sub-prime market. For loan pushers, what counted was not the quality of the loans, but their quantity. For each loan they sold, they made a handsome kickback in the form of so-called ‘participation fees’: for example, a loan of $100 million with a participation fee of just 1.5 per cent would land them a quick bonus of $1.5 million. These ‘juicers’ created a strong incentive to get as many loans out the door as possible, without giving much thought to whether the recipients would ever be able to pay them back. These kinds of incentives are known to be problematic, since they induce predatory lending behaviours that generate toxic debts at high risk of default.

Debt levels in the global South skyrocketed — particularly in Latin America, which was the focus of most of the lending. And the situation was made even worse in 1979, when the Iranian Revolution led to a second oil price hike that forced developing countries to borrow yet more to finance their energy needs. By 1982, total debt stocks had quadrupled, from $400 billion in 1970 to more than $1.6 trillion twelve years later. In many countries, debt levels reached well over 50 per cent of GDP. If the loans had been used to build productive capacity, this might have been all right. But because they were used largely to cover rising oil prices, the prospect of future repayment began to seem a pipe dream. To make matters worse, the terms of trade between global South countries and their Western counterparts were continuing to deteriorate; their raw material exports were worth less and less compared to the manufactured products they had to buy from abroad, so any income they might have used to repay debt was quickly diminishing. And the recession in the West meant there was less demand for their exports in the first place. It was a crisis waiting to happen.

The banks, meanwhile, were having a field day. Through the miracle of compound interest, they were raking in enormous profits — more than $100 billion per year by 1980. There was only one problem. The loans were denominated in US dollars, and the interest rates were variable. This meant that any significant rise in US interest rates would mean the interest rates on the loans would rise too, possibly pushing vulnerable poor countries into default. And that’s exactly what happened in 1981, when US Federal Reserve Chairman Paul Volcker jacked interest rates up as high as 21 per cent. Poor countries found that they simply could not repay their loans at such high rates.”

“From the perspective of the bankers, the Third World Debt Crisis was a complete catastrophe. According to basic free-market theory, when a borrower defaults on a loan, the loss should be shouldered by the lender; after all, it was their risk to begin with. But Wall Street had so much invested in Third World debt they knew that they would be unable to absorb the losses, and would almost certainly collapse. They refused to let this happen. They set about convincing the US government to bail them out, claiming that if they collapsed then the whole financial system would crash, credit markets would dry up and the global economy would spiral into recession. And that is exactly what they got. The US government stepped in to bail out the banks by forcing Mexico and other countries to repay their loans. They did this by repurposing the International Monetary Fund. The IMF was originally designed to use its own money to lend to countries with balance of payments problems, so that they could keep government spending up and therefore avoid another depression. It was John Maynard Keynes’s plan for making sure that the economy of the industrialised world stayed afloat during hard times. But now the G7 was going to use the IMF for a different purpose entirely: to force global South countries to stop government spending and use their money instead to repay loans to Western banks. In other words, the IMF came to act as a global debt enforcer — the equivalent of the bailiff who comes to repossess your car, only much more powerful. This radical shift in the mission of the IMF was only possible because during this period IMF leaders — such as managing director Jacques de Larosière — systematically purged the institution of people who supported the original Keynesian philosophy and replaced them with figures more amenable to neoliberal ideology.

This is how the plan was supposed to work: the IMF would help developing countries finance their debt on the condition that they would agree to a series of ‘structural adjustment programmes’. Structural adjustment programmes, or SAPs, included two basic mechanisms for debt repayment. First, developing countries had to redirect all their existing cash flows and assets towards debt service. They had to cut spending on public services like healthcare and education and on subsidies for things like farming, food and infant industries; they also had to privatise public assets by selling off state companies like telecoms and railways. In other words, they had to reverse their developmentalist reforms. The savings gleaned from spending cuts and the proceeds of privatisation would then be funnelled back to Wall Street to repay debts. In other words, public assets and social spending retroactively became collateral in the repayment of foreign loans — an arrangement that was, of course, never agreed at the time the loans were signed.”

“Countries that were subject to structural adjustment programmes were forced to radically deregulate their economies. They had to cut trade tariffs, open their markets to foreign competitors, abolish capital controls, abandon price controls and curb regulations on labour and the environment in order to ‘attract foreign direct investment’ and make their economies more ‘efficient.’ The claim was that these free-market reforms would increase the rate of economic growth and therefore enable quicker debt repayment. As the bankers put it, countries would be able to ‘grow their way out of debt’. Debtor countries were also forced to orient their economies towards exports, to get more hard currency to repay their loans. This meant abandoning the import-substitution programmes they had used to such good effect during the developmentalist era. In addition, structural adjustment programmes required debtors to keep inflation low — a kind of monetary austerity — because the bankers feared they would use inflation to depreciate the value of their debt. This was a big blow to global South countries, not only because it prevented them from inflating away their debt, but also because it barred them from using monetary expansion to spur growth and create employment.”

“The structural adjustment reforms themselves had nothing to do with the real causes of the crisis. The real causes of the crisis were exogenous: they had to do with exorbitant interest rates and declining terms of trade, over which global South countries had no control. But the IMF had no intention of tackling these problems, for to do so would require challenging the interests of Western governments and their commercial banks. Instead, the IMF acted as though the problem was endogenous, as though it had to do with problems in the local economy. So the IMF pushed domestic economic reforms as if they were a response to the crisis when in fact they were not. The crisis was simply an excuse for rolling out an economic agenda that Washington had long been seeking to impose.”

“The brilliance of structural adjustment is that it seemed as though it was voluntary — as though global South countries chose to accept the programmes in order to get out from under their debt. In reality, however, they were not voluntary at all.

Behind this veneer of legitimacy, Western creditors proceeded to assume de facto control over economic policy in developing countries, overriding national sovereignty. Power over economic decisions was shifted from national parliaments and elected representatives to technocrats in Washington and bankers in New York and London. It operated as a new kind of coup. But this time the coup was invisible, and most citizens would never know it happened; they would continue to believe that their elected representatives held power, when in fact power — at least over certain key portfolios, such as macroeconomic strategy — had been shifted.”

“The IMF was not alone in its efforts. Beginning in the 1980s, the World Bank began to require structural adjustment as a basic condition for its loans. If countries needed loans to finance development projects — power plants, irrigation systems, etc. — they had to agree to the very same conditions that the IMF had prescribed as a remedy for over-indebtedness, even if they themselves were not over-indebted. Lacking other options for finance, developing countries had no choice but to accept these conditions.

The genius of the World Bank’s conditional lending was that it was virtually risk-free for the creditors. The World Bank sells bonds on Wall Street, allowing commercial banks and private investors to buy global South debt. These ‘innovative debt products’, as the Bank calls them, are simultaneously safe (usually AAA rated) as well as high yielding, with returns of up to 15 per cent.”

“Through structural adjustment conditions, the Bank can force debtors to channel all their available resources towards repaying the loans, requiring them to cut spending elsewhere and raise new funds by selling off their assets. It’s a foolproof strategy. And it comes with the added benefit of prising open the receiving country’s market to foreign investors.

This model of lending would never fly in normal commercial banking. Imagine you walk into Barclays to get a loan for a new business. Now imagine that they will lend to you only if you agree to give them complete control over your household, so that if your interest payments don’t come in fast enough, they can garnish your wages, liquidate your house and force your children to get jobs. Imagine, further, that you are not allowed to declare bankruptcy under any circumstances; if you can’t repay your loan you have to sell everything you own, stop feeding your children, stop buying whatever medicines you might need to stay healthy and channel all that money to the bank. Such an arrangement would never fly. We would never allow it. And yet such invasive conditions are routine when it comes to development loans.”

The Results of Structural Adjustment

“The IMF and the World Bank promised the world that structural adjustment would improve economic growth and reduce poverty. But it ended up doing exactly the opposite. Instead of helping poor countries, as they were supposedly designed to do, SAPs basically destroyed them, reversing all the gains they had made during the developmentalist period. During the 1960s and 1970s, global South countries enjoyed an average per capita income growth rate of 3.2 per cent. But during the era of structural adjustment — through the 1980s and 1990s — income growth rates plunged to 0.7 per cent. Progress in development was stopped in its tracks. Liberalisation did not help global South countries grow their way out of debt. Instead, the money for debt repayment had to be gained from more direct forms of appropriation: austerity and privatisation.

In Latin America, income rose rapidly during the developmentalism of the 1960s and 1970s, and then suddenly collapsed after 1980. The region went into a long period of stagnation during structural adjustment, recovering its pre-crisis income levels only in the mid-1990s. In sub-Saharan Africa things were even worse. During the 1960s and 1970s, per capita income in sub-Saharan Africa grew at a rate of 1.6 per cent — modest, but still higher than Europe during the Industrial Revolution. Yet during the 1980s and 1990s, when structural adjustment was forcibly applied to the continent, per capita income fell at a rate of 0.7 per cent per year. The GNP of the average African country shrank by around 10 per cent, and the number of Africans living in extreme poverty more than doubled.”

“In Côté d’Ivoire, the ‘Tiger of West Africa’, poverty doubled in a single year, between 1987 and 1988, as a result of a structural adjustment programme. In Nigeria, the poverty rate rose from 28 per cent in 1980 to an astonishing 66 per cent by 1996. In Algeria, the government was made to privatise 230 firms and fire 130,000 state workers. Poverty rates rose from 15 per cent in 1988 to 23 per cent in 1995.

In Latin America, the urban poverty rate rose by 50 per cent between 1980 and 1986 as small farmers were undercut by cheap imports and forced to leave their homes and land in the countryside and move to the cities to eke out a precarious living. According to UN statistics, the overall poverty rate increased from 40 per cent in 1980 to a staggering 62 per cent in 1993. By the end of the 1990s, the standard of living for most people in nearly every Latin American country was lower than it was in the 1970s. We can see this process of impoverishment reflected in cuts to workers’ wages: from 1985 to 1995, both average and minimum wage rates fell 40 per cent in most countries. In Brazil, wages fell by 67 per cent, and in Colombia by 84 per cent. At the same time, unemployment rates shot up. In Ecuador, for example, unemployment doubled during the 1980s. In Peru, structural adjustment cut formal employment from 60 per cent of the urban workforce to 11 per cent in just three years during the 1980s. As the formal economy contracted, many people were forced to scratch out a living in the informal sector. In Mexico, informal employment nearly doubled between 1980 and 1987.

As wages and employment collapsed, the share of wages in national incomes fell — a sign of growing national inequality. In Latin America in 1980, wages represented around 40 per cent of the national income, but by 1996 the share of wages had declined to 32 per cent.

When wages fall as a proportion of national income, it means there is a shift of income from wage-earners to capital-holders. In other words, the rich get richer while the poor get poorer.”

“By 1992, some 146 IMF riots had played out in thirty-nine countries subjected to structural adjustment. But there was more to come. In 1993, 500,000 protestors in India marched against the IMF and World Bank’s agricultural policies, marking the largest public demonstration in history at that point.

But the protests had little effect. The ultimate targets of rioters’ discontent were suited men shuffling loan papers in Washington, where the IMF and the World Bank headquarters sit side by side just off Pennsylvania Avenue, a short walk from the White House and Capitol Hill. They were remote and unreachable, insulated from the cries of the displaced farmers and workers in the streets, invulnerable to any political pressure from below. And that was precisely how it was meant to work.”

“Why did structural adjustment have such a negative effect on growth and incomes? With the benefit of hindsight, the answer is relatively easy. Forcing governments to repay their debts at exorbitant interest rates — and forcing them to take out new loans in order to cover the old ones — meant that many countries ended up spending large proportions of their national budgets on debt service. Cutting spending on social services meant that hospitals and clinics fell apart, and investment in education fell to the point where it became impossible to produce the skills necessary for development. Cutting subsidies meant that farmers no longer had access to affordable inputs like seeds and equipment, that families spent increasing proportions of their income on food, and that infant industries no longer received the support they needed to become competitive on the global stage. Privatisation meant that key public services were run at a profit, which raised prices out of reach of the poor. Reducing trade tariffs meant that customs revenues collapsed, while foreign goods and competitors flooded in and undercut local producers, driving them out of business. Liberalising the financial sector meant that investors could pull their money out at the drop of a hat, which left finance dangerously unstable and unpredictable.

In short, structural adjustment reversed the very policies that global South governments needed.”

“We shouldn’t be surprised that structural adjustment yielded these results, for there is a flagrant double standard at play. Western policymakers told developing countries that they had to liberalise their economies in order to grow, but that’s exactly what the West did not do during its own period of economic consolidation. Every one of today’s rich countries developed its economy through protectionist measures. In fact, until recently, the United States and Britain were the two most aggressively protectionist countries in the world: they built their economic power using government subsidies, trade tariffs, restricted patents — everything that the neoliberal playbook denounces today. Structural adjustment allowed the West to kick away the ladder they had used to climb the heights of development, ensuring that no one else would be able to follow. The development narrative has it wrong. It is not that poor countries have been unable to climb the development ladder; it is that they have been specifically precluded from doing so.

There were, however, some global South countries that did not implement across-the-board free-market principles and, not surprisingly, they managed to develop reasonably well — like Turkey, China and the East Asian Tigers.”

“How could the IMF and the World Bank get away with imposing structural adjustment when it clearly wasn’t working — indeed, when it was actively causing harm? Why could nobody stop them? One key reason is that the World Bank and the IMF enjoy special ‘immunity’ status. In the United States, they claim this status under the International Organizations Immunity Act of 1945, which was intended to grant diplomats and international organisations like the Red Cross and the United Nations immunity from lawsuits in their host countries so that they can get on with their work without interference. Most countries in the world have similar laws. The IMF and the World Bank are covered by these laws even though they are very unlike other international organisations; after all, they actively determine economic policy in global South countries. By virtue of this arrangement, no one can sue them — even when their policies cause tremendous damage. As a result, they have no incentive to be careful when manipulating the macroeconomic policy of other countries, because there are no consequences for them if they screw up. All of the risk belongs to the debtor country, which is denied any means of recourse or compensation in the case of disaster. Many have tried to sue the IMF and the World Bank for damages. All have failed.

But there’s a second reason that the IMF and the World Bank have been able to power through with structural adjustment programmes despite their dismal record, and it has to do with how these two institutions are governed. Voting power in both is apportioned according to each member nation’s share of financial ownership, just as in corporations. Major decisions require 85 per cent of the vote. Not incidentally, the United States holds about 16 per cent of the shares in both institutions, and therefore wields de facto veto power. The next largest shareholders are France, Germany, Japan and the UK — all members of the G7.

Middle- and low-income countries, which together constitute some 85 per cent of the world’s population, have only about 40 per cent of the vote. In other words, even if every single country in the global South united in disagreement against an IMF and World Bank policy, they wouldn’t be able to block it. And of course it doesn’t help that the leaders of these institutions are not elected, but are appointed by the US and Europe: according to an unspoken agreement, the president of the World Bank is always an American, while the president of the IMF is always European.

This minority (and white) control over global decision-making — not only through the World Bank and the IMF but also through the UN Security Council — functions as a form of ‘global apartheid’. There have long been calls by global South countries to democratise the World Bank and the IMF, but for decades they were ignored. A reform package was finally introduced in 2010, but it turned out to be little more than window dressing: only 3 per cent of voting power shifted from rich countries to poor countries (about half of that going to China), and the US retained its veto.”

“Companies found they had the power to scan the globe in search not only of cheaper labour, but of the cheapest possible labour. And developing countries, in turn, found that in order to successfully attract foreign investment they had to compete with one another to drive wages down. It became a global race to the bottom towards ever cheaper labour and ever lower standards. The solidarity that marked the rise of the South in the 1960s was suddenly replaced with cutthroat competition. In the countries of the G7, corporations gained the upper hand over their workers at last — at least in industries that were amenable to offshoring, like manufacturing. If their workers become too demanding, they could always threaten to move elsewhere. And workers, for their part, quickly learned that if they wanted to keep their jobs they shouldn’t risk speaking up — better to remain quiet and docile. All of this had a powerful disciplining effect on labour — not just in Western countries but around the world.”

“In the mid-1990s the World Bank pressured the government of Bolivia to privatise the water supply of the city of Cochabamba. The contract went to Bechtel, an American corporation, which raised the price of water by 35 per cent. Unable to afford this most basic resource, in 2000 the people of Cochabamba erupted in protests that became a worldwide symbol of resistance against privatisation. But the World Bank continued to stand by their policy. As late as 2008, a leading Bank official was asked to explain why the Bank supports water privatisation, despite mounting evidence that it hurts the poor. He replied by stating: ‘We believe that providing clean water and sanitation services is a real business opportunity.”

“It would be impossible to overestimate how important the World Bank and the IMF are to the countries of the G7. Not only did they become the most powerful tool in the fight against developmentalism, they also offered a spatial fix to the crisis of Western capitalism, which was bumping up against its own limits in the late 1970s. By turning poor countries into new frontiers for investment, extraction and accumulation, they allow Western capitalism to surmount its limits and carry on without having to confront its own internal contradictions — at least for the time being. It is not a real solution to the crisis, of course; it’s just a way of moving the crisis around geographically. But without it, capitalism in the United States and Europe would have crashed up against market saturation, ecological depletion and class conflict long ago, and may well have collapsed. This is why the World Bank and the IMF are so valued by the US government and Wall Street: they are essential to the continuity of the system.

This helps us make sense of why the World Bank and the IMF have continued to pursue the policies they have. It is not about reducing poverty, despite what their official slogans and marketing materials would have us believe. In fact, the word ‘poverty’ doesn’t appear once in the World Bank’s Articles of Agreement. Rather, the statement of purpose in Article 1 clearly delineates the Bank’s role as to promote private investment and to promote the growth of international trade. According to these standards, the World Bank has been a resounding success, not a failure. And we shouldn’t be surprised. It would be absurd to imagine that a multibillion-dollar institution controlled by Wall Street and the US government would ever be left to ‘fail’.

When we look at it through this lens, it makes sense that all of the World Bank’s past presidents have been not development experts (as one might expect of an organisation devoted to development and poverty reduction), but rather US army bosses and Wall Street executives — people who have a strategic interest in America’s role in the global economic system.”

“In 1960, the richest fifth of the world’s population earned thirty times more than the poorest fifth, according to the United Nations Human Development Report. By 1995 they earned seventy-four times more.

We can also see the process of increasing inequality in the form of countries’ GDP per capita.

The gap between the per capita income of the United States and that of all developing regions grew significantly during the 1980s and 1990s, after narrowing in most cases during the developmentalist period. In 1980, the per capita income of the US was around twenty-seven times higher than that of sub-Saharan Africa. Twenty years later it was fifty-two times higher — the inequality ratio had grown by 91 per cent.

The same is true for other developing regions. For Latin America, the inequality ratio grew by 42 per cent, and for the Middle East and North Africa it grew by 38 per cent. South Asia, where structural adjustment was not forcibly applied to the same extent, managed to shrink the inequality ratio during this period by 15 per cent, although the absolute gap between the per capita incomes of South Asia and the United States continued to grow.”

“Lebanon, for instance, spends 52 per cent of its budget on debt service, and only 23 per cent on health and education combined.”

“The amount that the global South spends collectively on debt service each year vastly outstrips the amount that the UN tells us is necessary to eradicate poverty entirely; you could cancel all debt payments and cancel global poverty in the same swoop, if you could muster the political will.”

“Despite the monumental effort that developing countries make to repay their loans, they are only chipping away at an ever-growing mountain of compound interest and not even beginning to touch the principal that lies beneath, which threatens to persist forever.

One final point to bear in mind. Despite the imposition of dozens of structural adjustment programmes across the global South — which, remember, were intended to reduce debt — debt stocks have not reduced much at all. In fact, they have increased. External debt as a percentage of gross national income in the global South was 25 per cent in 1980, when the debt crisis struck. At the end of the first decade of structural adjustment, it was up to 38 per cent. By the end of the second decade, it was 39 per cent. In other words, structural adjustment failed even on its own putative terms. The remedy prescribed for the debt crisis beginning in the 1980s made the disease worse.”

“The governments of global South countries knew that to threaten Washington’s economic interests — or, indeed, even the interests of powerful US banks — was to invite the possibility of a US-backed coup. This threat was always very real. The developing world had no choice but to play by Washington’s rules.

This brutal fact crystallised very clearly in the story of Thomas Sankara, which came to serve as a kind of cautionary tale. When he became president of Burkina Faso in the 1980s, Sankara — a thirty-three-year-old known for his warm smile and trendy beret — made the debt issue one of his main concerns. Affectionately known as Africa’s Che, he is remembered for a speech he delivered at Addis Ababa in 1987 at the headquarters of the Organization of African Unity, to a room packed full of heads of state and government ministers from across the continent. The audience was gripped by the words of the young man who stood so bravely before them. He said things they would never dare to say. Some exchanged glances of shocked disbelief, others looked worried, half expecting him to be shot mid-sentence. His passion rippled through the room, and when he finished the audience erupted in thunderous applause. One could almost feel a revolution stirring.

Sankara had thrown down a gauntlet at the feet of the president of France, his region’s former colonial power. He challenged the postcolonial order by striking at its very core: debt. Debt must be seen from the standpoint of its origins, Sankara said. ‘And the origins of debt lie in colonialism. Our creditors are those who had colonised us before. They managed us then and they manage us now. But we did not ask for this debt;’ he continued. ‘And therefore we will not repay it. Debt is neocolonialism. It is a cleverly managed reconquest of Africa. Each one of us becomes a financial slave. We are told to repay. We are told it is a moral issue. But it is not.’ And then he delivered the clincher: ‘The debt cannot be repaid. If we don’t repay, the lenders will not die. That is for sure. But if we do repay, we will die. That is also for sure.’ Sankara was considered dangerous not only because he threatened to default on Burkina Faso’s debt, but because he was spreading that idea across the continent. He was on the verge of galvanising a continent-wide debt-resistance movement — and from the perspective of Western creditors, it had to be stopped. Three months after his speech, Sankara was assassinated in a coup widely believed to have been backed by France, which brought Blaise Compaoré to power — a dictator who ruled for twenty-seven years.

The use of violence to enforce debt payments in the global South has a very long history. When Venezuela refused to pay its foreign debts in 1902, Britain, Germany and France responded by sending navy gunboats to blockade the country’s ports. In 1916, the US invaded the Dominican Republic and seized control of the country’s customs agency to enforce debt repayment — a seizure that lasted for twenty-five years. The coup against Sankara is only the most recent example.

Of course, if a number of developing countries were to default at the same time, as part of a united front, they might have a better chance. But this would require global South leaders — and their political elites — to be unified and proactive about the issue, and many of them have good reasons to turn a blind eye: after all, they benefit personally from new loans, plummeting wages and close relationships with Western powers, and they can always avoid the impact of a debt crisis by stowing their personal wealth offshore. In any case, now that structural adjustment has run its course, default is no longer really an option. Global South countries are now totally dependent on foreign investment for survival. Default would mean being frozen out of the global financial system, and this would spell immediate economic collapse.”

Trade

“The British were imposing low tariffs on America and their other colonies while knowing full well that their own industrial development had depended on exactly the opposite. Ever since the 14th century, and particularly during the 18th century, Britain had aggressively protected its own markets with high tariffs, excluding foreign competitors in order to build up its own industries.

The system was rigged, and the Americans knew it. Indeed, they routinely referred to free trade as a ‘conspiracy’ through which the British interfered with the American economy. The Americans wanted to have greater control over their own tariffs so that they could protect themselves from British imports and successfully develop their own young industries. And that’s exactly what they got once they won the War of American Independence.”

“When the talks concluded in 1995, the World Trade Organization was born. The WTO was a completely different animal from the GATT. Instead of seeking to maintain economic stability and cooperation, it was designed to open up the world to capital flows from rich countries, especially the United States, Western Europe and Japan. And in place of the flexibility of the GATT, it would be an all-or-nothing deal, or a ‘single undertaking’: countries had to sign on to the whole package of WTO rules, or be frozen out of the world economy.

While accession to the WTO was technically optional, developing countries didn’t really have much of a choice. After fifteen years of structural adjustment, their economies had been reorganised towards exports. They now depended on access to Western markets for their survival. Joining the WTO would facilitate such access, but in return they would have to reduce their tariffs, stop subsidising their own industries, deregulate capital flows and allow foreign corporations to operate domestically without prejudice — in other words, exactly the opposite of what they knew they needed for meaningful industrial development.”

“Chang says, ‘Industries in developing countries will not survive if they are exposed to international competition too early. They need time to improve their capabilities by mastering advanced technologies and building effective organizations. This is the essence of infant industry protection.’ Infant industry protection — at least for a certain period of time is the only way that poor countries have a shot at becoming anything more than the national equivalent of a shoeshine boy.

The stated goal of the World Trade Organization is to create a level playing field’ among trading partners. Each member has to play by the same rules — the same low tariffs and the same ban on subsidies. But in reality the idea of a level playing field is something of an illusion. When rich countries step onto the playing field they do so with industries that are immensely powerful and competitive — precisely because they spent their formative years of development under heavy protection. Poor countries, for their part, step onto the playing field with industries that have never had the benefit of protection and therefore have no hope of competing with their counterparts in rich countries. It may be a level playing field, but what good is a level playing field in a match between schoolchildren and a Premier League team? The rules are the same for both sides, but that doesn’t mean the game is equitable. The young industries of poorer countries are sure to collapse in the face of more powerful competition from the North, and will be forced to fall back once again on exporting raw materials or agricultural goods with little value added. Certainly not a recipe for development.”

“Benin, Burkina Faso, Mali and Chad are all major African cotton producers. A total of 8 million workers are employed in their cotton industry — making it the largest private employer in these countries — and 13 million people rely directly on their incomes. But they find themselves up against a wall. Because of subsidies that the US government hands out to its own cotton producers, the global price of cotton is around 10 per cent lower than it otherwise might be. And that is a 10 per cent loss that these countries — which are some of the poorest in the world — can ill afford. If they are to have any chance at development, they need a fair price for their cotton exports, not one purposefully distorted by the United States. The ‘Cotton Four’, as they are known, have taken their case to the WTO, pointing out that the US subsidies are illegal under WTO rules. But the US has refused to back down.”

“Because the power of enforcement is distributed asymmetrically according to market size, there is little reason for rich countries to play by the WTO’s rules. They can do whatever they want. But poor countries have no choice. If they decide to break trade rules that harm them, rich countries can impose sanctions that could very well ruin them altogether.”

“I first became aware of the negative effects of trade liberalisation on developing countries when I returned to Swaziland in 2004. During the first few weeks of January 2005, something extraordinary happened. Textile factories began to close up one after the other, and more than 25,000 workers were sacked — most with no prior notice, and many without having received pay for the previous month. For a country as small as Swaziland, where formal sector jobs are almost impossible to come by, this was a devastating blow.

How could it have happened? Where did all the factories go? Swazis found themselves at a loss as to how to answer this question. There had been no natural disaster. There had been no economic crisis. There had been no change in government policy. The jobs just vanished, and the industrial parks — once bustling with activity — were left eerily empty.

I, too, was confused. I spent days struggling to figure out what was going on, scouring the newspapers and staying up late to read online by dial-up modem in a run-down Internet café. Eventually the story became clear.

For most of modern history, Western countries protected their domestic textile industries against imports from countries where production costs are far lower. They placed special quotas on imports from East Asian countries such as Korea and Hong Kong, so that not too much cheap clothing would flow in. At the same time, Western countries granted special preferences to very poor countries like Swaziland — like unlimited quotas and duty-free access to Western markets — to help their national textile industries grow, and to encourage other producers to relocate there. The preferences were part of a carefully planned system that used trade rules to promote industrial development where it was needed most, creating jobs in regions of extreme poverty and unemployment. And it worked: Swaziland’s textile industry grew rapidly, and a number of Asian firms moved to Swaziland to take advantage of the country’s trade preferences. The industry soon became the largest formal employer in the country, with 35,000 workers on its direct payroll by 2004. For Swaziland, it was an economic miracle.

But when the WTO was formed, it placed this system squarely in its sights. Multinational companies argued that the quotas and preferences ‘distorted’ the market, preventing them from operating in the places where labour was cheapest. And Asian countries argued that it gave unfair advantage to countries like Swaziland. The WTO upheld their argument and, on 1 January 2005, Western countries abolished their quotas on textile imports from East Asia. The landscape of the global textile trade changed literally overnight. It was great news for Asia: textile firms around the world frantically relocated there to take advantage of cheaper labour. But countries like Swaziland, where labour was slightly more expensive, were left in the lurch. Swaziland’s factories lost their comparative advantage, and either closed down for good or relocated to East Asia themselves. The textile industry collapsed in record time, and tens of thousands of workers lost their jobs.

A humanitarian catastrophe soon followed. The vast majority of the retrenched workers were women, many of whom had no choice but to turn to sex work to keep afloat. A survey of sex workers in the city of Manzini in 2005 found that most of the women were newcomers who had been fired when the textile factories closed. ‘We are not happy with the work we are doing but we have to make a living,’ one was quoted as saying; the number of people working here is increasing at a high rate, which is evidence that people are desperate for money and there are no jobs. As one might imagine, this only added to Swaziland’s already crippling HIV/AIDS crisis. Indeed, much of the disease burden that Swaziland bears today can be attributed to the spike in women’s unemployment after 2005.”

“One of the WTO’s agreements, the Trade-Related Aspects of Intellectual Property Rights (or TRIPS), focuses on copyright and patent rules. One might think that trade would be enhanced by lowering patent standards: making it easier for countries to share technology is surely a good way to spur technological development and make trade more efficient. It would increase productivity, innovation and exchange. But TRIPS is designed to do exactly the opposite. The point of TRIPS is to raise patent standards and enshrine them in international law — and this is being conducted, ironically, under the banner of liberalisation. It is a contradiction in terms.

Towards the end of the 19th century, the global average length of a patent was about thirteen years. By 1975, before the period of liberalisation, it was around seventeen years. Under TRIPS, however, rich countries have succeeded in imposing a new twenty-year standard. This is great for individuals and companies that own patents, because it means that they get to sit back and extract rent from them for a much longer period. But it has a devastating effect on poor countries. Because patent licensing fees can be so expensive, many poor countries are unable to afford the knowledge and technologies that they need for basic development, like computer programs, agricultural implements and. medicines. As a result of TRIPS, developing countries have to pay an additional $60 billion per year in licensing fees to multinational companies.”

“They were priced at around $15,000 per yearly course — way out of reach for all but the very richest.

The prices were so high because the drugs were locked under a powerful new patent system imposed by the TRIPS Agreement. In the past, pharmaceutical companies were only allowed to hold patents on the process of manufacturing drugs, not on the compounds themselves. This meant that developing countries could produce generic versions of important medicines — and sell them for a fraction of the cost — so long as they were able to find their own methods of manufacturing them. TRIPS put an end to this practice by extending corporate patents down to the level of the molecule itself. During the AIDS crisis, generic firms in India were capable of producing and exporting antiretrovirals for as low as $350 per year, which would have been affordable enough to save millions of dying patients, but the WTO — pressured by the pharmaceutical companies — act prevented them from doing so. ‘It was criminal,’ my father tells me. ‘I was shocked that the drug companies were willing to let people die so needlessly.’

Eventually, neighbouring South Africa, where the epidemic was just as bad, chose to disobey the WTO’s rules and began using generic antiretrovirals, pleading a public health emergency. They insisted no patent was so sacred that millions should have to die to respect it. The United States responded by threatening them with crushing sanctions through the WTO’s court — and the world watched in horror at this callous move. But then something happened in the United States that weakened their case. In 2001, a number of Americans died of exposure to anthrax. The US government feared that an epidemic might be on the horizon, possibly triggered by biological weapons. Just in case, they decided to stockpile Cipro, the antibiotic that treats anthrax. But Cipro was under patent by Bayer, making it very expensive to buy. So the US government stepped in and, citing a possible public health emergency, forced Bayer to suspend its patent so that generic versions could be produced.

It quickly became clear to the world that patents were not inviolable after all, even for the United States. And if exceptions could be made after a few Americans fell ill, why couldn’t the same exceptions be invoked for the sake of millions of dying Africans?

Still, the United States and the WTO refused to back down. It took two more years of grassroots community organising and strategic advocacy before they finally gave in. It was only in 2003 that developing countries gained the right to manufacture and import generic versions of life-saving drugs to defend against AIDS and other public health emergencies. Unfortunately, by the time this concession was made, the epidemic was already entrenched. Ten million Africans had died of AIDS by then — most of whom would have lived had they had access to affordable medicines.

It’s not just AIDS drugs that are at stake. Medicines for malaria, tuberculosis and other drugs essential to saving lives in the global South are also in question. Eighteen million people die each year because of preventable diseases, in large part because they lack access to affordable medicine. How does the pharmaceutical industry justify the exorbitantly high prices of these drugs, if it has nothing to do with the costs of manufacture?

Their main argument, which gets wheeled out whenever patents are in question, is that the income from patents provides an incentive to develop the products in the first place. Plus, the profits can be ploughed back into research and development (R & D) to make new and better drugs. But we know that 84 per cent of research on pharmaceuticals is funded by governments and other public sources, while only 12 per cent comes from the pharmaceutical industry.”

“As if their market size and exclusive meetings weren’t enough to secure them a strong advantage in the halls of the WTO, rich countries have the additional advantage of being able to afford more staff. They can maintain a permanent contingent of negotiators at the WTO headquarters in Geneva to participate in daily, year-round meetings, and send hundreds of people to the bargaining sessions to advocate their interests. Poorer countries that cannot afford to employ so many highly skilled staff end up with their voices ignored. Indeed, many countries cannot even afford to send staff to meetings where decisions are being made that affect them directly. As a result, international trade rules end up being skewed heavily in favour of rich countries.

Negotiators from the South are not the only ones to recognise the unfairness that is built into the international trade system. So, too, do citizens in the North. Awareness of trade injustice on both sides of the North-South divide propelled the mass protests outside the WTO meetings in Seattle in 1999, which became the symbol of the anti-globalisation movement and set off a wave of similar protests.”

“One might think that the subsidised corn from the United States would mean cheaper tortillas in Mexico — the region’s staple food. And surely this would be a good thing for the country’s poor. But, paradoxically, the opposite happened: because NAFTA deregulated retail prices on food, the cost of tortillas shot up by 279 per cent in the first decade, causing hunger and malnutrition to rise.

It was a dream scenario for US companies: they get new export markets, new access to land, higher retail revenues and cheaper labour. Many large Mexican firms benefited too — indeed, that is why the Mexican government agreed to NAFTA in the first place. But ordinary people suffered tremendously. The incomes of Mexican farmworkers have fallen to one-third of their previous levels, real wages across the board are lower and the minimum wage is worth 24 per cent less. Ten years after NAFTA, there were 19 million more Mexicans living in poverty than before NAFTA. More than half the population now lives below the poverty line. According to a recent report in the New York Times, ‘Twenty-five per cent of the population does not have access to basic food and one-fifth of Mexicans suffer from malnutrition.”

“For investors, one of the risks of operating in a foreign land is that your host government might decide to nationalise your assets. During the developmentalist period, global South governments often resorted to this tactic in their attempts to reclaim wealth from foreign control, nationalising land and even businesses owned by Western companies. When this happened to, say, American companies, their only recourse was to persuade the US government to retaliate by sending a blockade or staging a coup — which, as we know, they did on many occasions. It was a messy business, and politically risky: no government really wants to be seen invading another country for the sake of corporate interests. So in 1965 they came up with a way to work such disputes out in the orderly environs of a court: the International Centre for Settlement of Investment Disputes (ICSID), which would be overseen by the World Bank. The idea was that in cases of expropriation, states would be obligated to compensate investors at a fair value for their property. Each dispute would be worked out by three arbitrators — one picked by each side, and a third agreed upon by both.

By the end of the 1980s, most of the world’s countries were plugged into the international arbitration system. Some, including almost all of Latin America, were forced into it against their will under structural adjustment programmes. But despite early suspicions, even they found that the system worked pretty well. After all, it had the effect of slowing down the onslaught of Western-backed coups, which was a welcome change.

But when NAFTA came online, the arbitration system took on a disturbing twist. Investors started to file suits not only in cases of expropriation, but also to push back against environmental and social regulations that they claimed reduced their profits — or even, bizarrely, their ‘expected future profits’. There have been a number of cases like this brought under NAFTA’s Chapter 11. One famous early case involved Metalclad, a US corporation that was operating a hazardous waste landfill in Mexico under permits issued by the Mexican federal and state authorities. When the local municipal government concluded that the landfill was polluting the local water supply and threatening the health of nearby residents, they closed it down and declared the area a protected environment. In response, Metalclad sued, claiming the decision amounted to an expropriation’ of the company’s land and facilities. Mexico was forced to pay $15.6 million in damages. In another case, the US-based company Dow AgroSciences sued the government of Canada for banning the use of its pesticides on the basis that they might cause cancer in humans. All of these cases follow the same pattern: corporations sue the state for domestic laws that limit their ‘expected future profits’, even when the laws are meant to protect human rights, public health or the environment.

It is worth pausing to consider the implications of this. Normally, states enjoy what is known as ‘sovereign immunity status,’ which means they cannot be sued. But this principle is suspended in cases of investor-state disputes. ‘Investor protection’ effectively grants corporations the power to circumvent the normal justice system and strike down the laws of sovereign nations. In other words, corporations are empowered to regulate democratic states, rather than the other way around.

This is a frontal assault on the ideas of sovereignty and democracy, and one that is being conducted, ironically, once again under the banner of freedom. Even when lawsuits are not filed, the mere threat of them can make elected lawmakers think twice before enacting new regulations.

What is perhaps most troubling about these new investor-state dispute mechanisms, though, is that they are intrinsically imbalanced. Investors have the right to sue states, but states do not have a corresponding right to sue foreign investors. The most a state can hope to win out of a settlement is the nullification of the suit; a state cannot claim damages from foreign corporations.”

“The Bretton Woods system originally designed by Keynes was intended to grant states the power to control the flow of capital across their borders. In other words, states could decide the terms by which foreign investors were allowed to send capital in to set up businesses or buy up shares of local companies. And if those investors wanted to pull their money out, they had to go through a rigorous application process. This was considered crucial to protecting economic stability. When an economy takes a downturn for some reason, an investor’s first impulse is to pull their money out and send it somewhere safer. When this happens on a large scale, it drains the economy of much-needed capital, and only makes the problem worse. Slight downturns can become full-blown crises when investors flee en masse. Keynes’s system allowed countries to impose ‘capital controls’ that prevented this from happening.

But free-trade reforms have gradually dismantled these capital controls, and investors and lenders have gained the ability to send massive amounts of capital around the world at lightning speed, putting money in and pulling it out ever and whenever they please. For poor economies with not much capital base, this poses a serious danger, for even a little bit of unexpected capital flight can spin the economy into crisis. But it also has a more insidious effect. Abolishing capital controls has transferred an enormous amount of power to international investors. Think about it: if you are an investor — and assuming all you care about is profit — you’re going to channel your money into countries with what are euphemistically referred to as business-friendly measures like low wages, low taxes, cheap resources, and so on. If you happen to be invested in a country whose government suddenly decides to increase wages and taxes, or decides to regulate waste and pollution, thus reducing your profit margin, then you will quickly pull your money out and send it somewhere else. In the past it wasn’t so easy. You would have had to explain yourself to the government, and pay fees to get your money out. But these days there are few if any barriers.”

“The World Bank publishes a handy pamphlet known as the Doing Business report — a controversial document that ranks the world’s countries every year based on the ‘ease of doing business’ in them. For the most part, the fewer regulations a country has, the higher they score. Investors and CEOs use the rankings to decide where to move their money or headquarter their businesses for maximum profit. There’s even an iPhone app that jet-setting capitalists can use to redirect their investments on the fly. A new minimum wage law was just passed in Haiti? Better move your sweatshop to Cambodia! Higher taxes on the rich in South Africa? Time to sell your stocks and invest in Ireland instead! By providing a panopticon of knowledge about regulatory policies all over the world, the Doing Business rankings give investors an incredible amount of power.”

“The Doing Business rankings are based on ten different indicators, most of which rest on a bizarre black-and-white mentality: regulation is bad, deregulation is good. Take the ‘employing workers’ indicator, for example. According to this measure, countries are scored down for having laws that require minimum wages, paid vacation and overtime rates. They also get docked for requiring employers to pay severance packages to retrenched workers. According to Doing Business, all of this counts as red tape that needs to be abolished.

When critics pointed out that this stance runs against the basic labour rights enshrined in the UN’s International Labour Organization conventions, the World Bank backed down and removed the indicator from the ranking system. But many equally troubling indicators are still in use. The ‘paying taxes’ indicator punishes countries for having corporate income taxes, property taxes, dividend taxes and even the financial transaction taxes that are so vital to preventing another financial crisis. They are also punished for requiring employers to pay taxes for services like roads and waste collection; apparently Doing Business doesn’t stop to ask how states would provide these services without taxes, or how companies could perform in their absence.

Then there’s the ‘getting credit’ indicator. It sounds fair enough — businesses need access to credit, after all but the name is misleading. It’s not really about how easy it is to get credit, but about how easy it is for lenders to recover debts. If countries have bankruptcy laws that, say, protect students who default on their loans, they get punished in the rankings. Countries are rewarded when they make it easier to seize the assets of debtors, even though this removes risk from lenders and can lead to dangerously inflated debt markets. There is also the protecting investors’ indicator, which pushes towards stronger ‘shareholder value’ laws. These laws prevent companies from doing anything that might compromise short-term profits, such as paying higher wages or giving back to the community. And the ‘registering property’ indicator pressures countries to cut regulations on buying land, adding fuel to the wildfire of corporate land grabs currently spreading across the developing world.

The disturbing thing about these indicators is that they have no sense of balance. They don’t just want lower minimum wages, they encourage countries to abolish minimum wages entirely; they don’t require more modest taxation, they press for zero taxation; they don’t ask for more streamlined trade, they want to cut out all tariffs; they don’t demand fewer regulations on land, they want total freedom of purchase.”

“Here’s what may be the most disturbing element of all: the rankings not only inform investors’ decisions, they also determine the flow of development aid, as some aid agencies give preferential support to countries that make progress in the rankings. Forget measures of health, happiness and democracy. Forget gains in wages and employment. In the end, what counts most is the ‘ease of doing business’.”

“What would the world look like if this dimension of free trade was taken to its logical conclusion? We don’t have to use our imaginations to guess. All we have to do is take a look at the miniature free-trade utopias — called ‘free-trade zones’ — that already exist around the world. Most free-trade zones are bounded by barbed-wire fences and walls, and are often patrolled by private security forces. In many cases, elected politicians and national law-enforcement agencies are not allowed to pass through their gates. Within these enclaves, normal laws — labour laws, safety standards, customs duties, taxes and even the basic constitutional rights of citizens — do not apply. These are zones of exception where capital can operate almost unhindered by any form of regulation. The concept took off in the late 1990s, and today there are more than 4,300 such zones in nearly 150 countries. The rationale behind these schemes is that they attract much-needed foreign investment and provide much-needed employment. But the investment is notoriously fleeting, rarely improves anything beyond the borders of the zone, and the near-zero tax rates yield little benefit to the public. As for the jobs that such zones provide: unions are often illegal, wages tend to be lower than the national minimum (as low as 10 cents an hour), workers are commonly expected to put in fourteen-hour days, and they can usually be sacked without compensation.”

“Coups still remain a live tactic into the 21st century — especially in Latin America. In 2002, the United States tacitly supported a coup attempt against the democratically elected government of Hugo Chávez in Venezuela, and in 2004 helped topple Haiti’s progressive president Jean-Bertrand Aristide. In 2009, the elected leader of Honduras, Manuel Zelaya, was deposed in a military coup that was countenanced by the US State Department.”

“Assassinations are still in the playbook, too. Honduran indigenous activist Berta Cáceres was assassinated in 2016 by US-trained forces, to end her resistance to a dam across the Río Gualcarque.”

Tax Havens

“This kind of corruption is an extremely small proportion — only about 3 per cent — of the total illicit flows that leak out of the developing world each year. By contrast, the Washington-based Global Financial Integrity (GFI) calculates that up to 65 per cent of total illicit outflows have to do with corruption of a very different sort: commercial tax evasion. And when we look at commercial tax evasion, the neat corruption narrative that Transparency International tells begins to fall apart.”

“Between 2004 and 2013, developing countries lost a total of $7.8 trillion to illicit outflows. It’s an enormous problem.

How does this happen? These illicit outflows work through two main channels: hot money and trade misinvoicing.

Hot money is a term used to describe the rapid movement of capital from one country to another in order to speculate on interest-rate and exchange-rate differences. For example, if the United States looks likely to raise its interest rates, someone with investments in Nigeria might rapidly move their money to the US in the hope of making a quick profit. These rapid, speculative movements of capital are only possible because of the financial deregulation that has been promoted across the developing world over the past few decades by the World Bank, the IMF and free-trade agreements, and they can lead to serious market instability — particularly in small economies. But they also provide an avenue for moving money illegally across borders. In 2013, hot money accounted for 19.4 per cent of total illicit outflows from developing countries, or $211 billion.

Trade misinvoicing, for its part, involves sending money into secret offshore accounts by cheating the trade system. For example, imagine that a South African firm has agreed to buy $1 million of steel from a British firm. The South African firm requests that the British firm send the invoice for $1 million to a tax haven. The tax haven then reinvoices the South African firm at more than the agreed value of the goods — say $1.5 million. The South African firm pays the $1.5 million to the tax haven. The tax haven then pays $1 million to the British firm and diverts the rest to an offshore account. As far as the tax authorities in South Africa can tell, the transaction appears legitimate — but the South African firm has successfully spirited $500,000 into an offshore account where it will never be taxed. Tax havens openly advertise their reinvoicing services and offer to assist firms in setting up shell companies to launder money and evade taxes. A quick Google search for ‘re-invoicing services’ turns up dozens of companies located in the Seychelles, Mauritius and so on, ready and willing to help companies secret their money offshore. In 2013, trade misinvoicing accounted for 80.6 per cent of illicit outflows from developing countries, or $879 billion.”

“Transfer pricing happens when companies sell goods within their own corporate structure, for example if a subsidiary in China sells goods to another subsidiary in Britain. Because of the rapid expansion of corporate monopolies over the past few decades, today at least 60 per cent of world trade takes place within multinational corporations, rather than between them. So transfer pricing is not an exceptional practice — it is the norm. And under normal circumstances it is completely legal, as long as subsidiaries report the correct market prices of the goods in question as if they were conducting trade with an outside entity, ‘at arm’s length’. But quite often companies artificially distort transfer prices in order to evade taxes or dodge capital controls; this is when transfer pricing becomes transfer mispricing.

Transfer mispricing is remarkably easy. All a company has to do is write out an invoice that falsely reports the cost of an item, and then get their trade partner to write out a similarly false invoice on the other side — in other words, ‘same-invoice faking’. Analysts have recorded some flagrant examples of this: a kilogram of toilet paper from China priced at $4,121, a litre of apple juice from Israel priced at $2,052, ballpoint pens from Trinidad priced at $8,500 each. By inflating transfer prices, a company can magically move its money from subsidiaries in high-tax countries to subsidiaries in low-tax countries — often in tax havens.

Because this practice is so difficult to detect, no one knows the full scale of the problem. Global Financial Integrity estimates that it probably amounts to outflows that are at least equivalent to the scale of reinvoicing. That means another $879 billion flowing out of developing countries each year. And it may even be more than reinvoicing, given that transfer mispricing is so much easier to get away with.

The biggest loser in this game is Africa. Already the world’s poorest region, sub-Saharan Africa suffers total illicit outflows that amount to 6.1 per cent of its GDP. In fact, Africa loses so much through illicit flows that it is effectively a net creditor to the rest of the world.”

“In the past, customs officials in developing countries had the power to prevent misinvoicing. If the prices reported on an invoice diverged suspiciously from the normal market prices of the goods in question — as listed by the Brussels Definition of Value — they could hold up the transaction. This made it virtually impossible for corporations to get away with theft through trade. But the WTO argued that this made trade inefficient. Since at least 1994, customs officials have been required to accept invoiced prices at face value, barring exceptional circumstances. As a result, corporations have free rein to write out their invoices however they please, with little risk of being called out. This is why mispricing has grown at such a rapid rate since the mid-1990s.

Still, none of this theft would be possible without the tax havens. Altogether, there are around fifty to sixty tax havens in the world.”

“Tax havens amounts to more than one-sixth of all the world’s private wealth. Today, at least 30 per cent of all foreign direct investment flows through tax havens, and about 50 per cent of all trade.”

“Probably the most important central node in this global tax haven system is the City of London. While it may seem confusing, the City of London is not the same thing as London itself. It is a small council within London that houses London’s powerful financial sector. The City of London is able to function as a tax haven because it is immune from many of the nation’s laws, is free of all parliamentary oversight and — most importantly — is exempt from Freedom of Information rules. It even has its own private police force. As a result of this special status, the City has maintained a number of quaint plutocratic traditions dating back to medieval times, when it was founded. Take its electoral process, for instance. Unlike in normal councils, the franchise in the City of London is not restricted to human beings. Businesses registered within the council’s borders are allowed to vote alongside residents. More than 70 per cent of the votes cast during council elections are cast not by humans, but by businesses — mostly corporate banks and financial firms. And the bigger the corporation, the more votes they get, with the largest firms getting seventy-nine votes each. The City even has its own mayor — the Lord Mayor of London, not the better-known Mayor of London — who respects the authority of no one but the monarchy. The Lord Mayor is ‘elected’ each year by a group of corporations and his sole role (it has been a man every year since 1189) is to promote the interests of the City’s banks.

According to the website of the City of London, the Lord Mayor’s job is to ‘open doors at the highest levels’ for business and expound the values of liberalisation. To do this, he has at his disposal a multibillion-pound slush fund for use in lobbying the UK government and governments around the world to bring in laws that are friendly to banks and multinational companies. He’s like a one-man structural adjustment team. On top of this, part of the Lord Mayor’s mission is to travel abroad in order to build the City’s tax haven network. The last incumbent spent 100 days abroad in a single year, and visited more than twenty countries. At the time of writing, the new Lord Mayor was lobbying hard to turn Kenya into a tax haven.”

Conclusion

“Beginning in 1991, Goldman Sachs took advantage of new financial deregulations and decided to bundle commodity futures — including food — into a single index. Traders could then speculate on this index and investment funds could link their portfolios to it. It was a new kind of financial derivative, one of many such instruments that were being peddled on Wall Street in those years. For the most part, investors didn’t pay it much mind, and the index remained something of a financial backwater for many years. But as the first hints of the sub-prime mortgage crisis began to appear in 2005, nervous investors pulled out of mortgage derivatives and pumped their money instead into commodities, which are supposed to be stable even when the rest of the economy falters. The result was rampant speculation on commodity futures, which affected prices in the real economy. This had a particularly dramatic impact on food prices, which skyrocketed and hit record highs in 2007. In other words, people who were savvy enough to pull out of the housing bubble before it burst ended up inflating another bubble — this time in food.

The crisis didn’t stop there. World food prices continued to fluctuate wildly, crashing in 2009 back to pre-crisis levels, and then surging again in 2010 to break yet new records. In 2011, prices were 2.5 times higher than they were in 2004 — a trend aggravated by climate-change-induced weather events that were affecting yields in grain-producing regions of Russia and North America. According to UN sources, in 2011 some 40 million extra people around the world had been plunged into serious hunger.

As if the food-price crisis wasn’t bad enough for the world’s poor in and of itself, it had a dramatic knock-on effect that no one saw coming. Investors seized the opportunity to buy up millions of acres of land around the world for agricultural production — for both food and biofuels — in order to take advantage of the soaring prices. Many governments got in on the game as well, worried about future social unrest and anxious to secure stable food supplies in a world threatened by climate change. Countries not self-sufficient in food were particularly eager to snatch up farmlands, especially given that a number of big food-producing countries were cutting down on exports in order to ensure they had enough for their own needs.

Many of these purchases were land grabs. A land purchase qualifies as a grab when it entails a transfer of at least 500 acres to be converted from smallholder production, collective use or ecosystem services to commercial activity.”

“In Papua New Guinea, more than a tenth of the country’s land was grabbed in a single decade and handed over to foreign logging companies eager to get their saws into the region’s famous rainforests. In Cambodia, 5 million acres — or half of the country’s total agricultural land — has been handed out to private companies, mostly for sugar production. So many Cambodian peasants have been illegally evicted from the land that the new sugar exports have become known as ‘blood sugar’. Across South East Asia, around 1 million acres have been converted from peasant holdings to rubber plantations operated by Chinese companies ready to supply the ravenous market for car tyres in China.”

“REDD seeks to redress this pricing failure by allowing forest owners to profit from not chopping down the trees, recognising that the forest provides an important ‘environmental service’ to all of humanity and should therefore be assigned an economic value.

This seems like a good step, in theory. But in practice it has had devastating consequences. In many cases, REDD pilot projects have led to the forced eviction of indigenous communities from forests on the basis that their farming practices contribute to deforestation. In Kenya, for instance, the government has cooperated with a World Bank-led REDD scheme by evicting and destroying the homes of the 15,000 indigenous Sengwer people who live in the Embobut Forest. REDD is also incentivising a new wave of land grabs: corporations and states are rushing to buy up forests in developing countries in order to cash in on the payouts, a practice now known as ‘carbon colonialism’. Some are taking advantage of loopholes in REDD that actually permit deforestation of original forests so long as new forests are planted elsewhere — even if those new forests happen to be plantations. In other words, some of the very companies that are driving deforestation through land grabs are now grabbing yet more land under the guise of offsetting the environmental damage they have caused. Instead of protecting forests from destructive market forces, REDD is rapidly bringing forests into the market. And in the end it will lead to zero reduction of carbon emissions at source; after all, the whole idea behind carbon credits is to allow polluters to avoid reducing their emissions by buying their way around the rules.

While local elites might make handsome profits, the environmental losses that developing countries suffer at the hands of land-grabbers are immense. But there is also a substantial financial loss at stake. In many of these deals, land is sold at fire-sale prices — far below its actual value. Examples from Ethiopia and Peru show that investors end up paying around $0.50 per acre per year, or even as little as $0.30 per acre. Even at conservative estimates, the real value of land on the international market is probably closer to about $600 per acre per year; that’s how much global South countries should be earning on their land transactions.”

“How are states to invest in building a zero-carbon infrastructure when they are subjected to austerity and privatisation? How are governments supposed to tax and regulate fossil fuel companies when the very idea of taxation and regulation has been stigmatised as socialist or totalitarian, and even rendered illegal according to some international trade agreements? How are we supposed to subsidise innovation in renewable energies when subsidies have been banned for running against the principles of ‘free trade’ (with suitable exceptions made for US agribusiness and fossil fuels, of course)? How can states ever hope to respond to the impending humanitarian crisis when their budgets have been cut and public services shut down?”

“Some scholars have pointed out that food aid from the West, for example, is carefully calculated to prevent the worst famines, to ensure that people receive at least enough calories to stay alive, because otherwise the injustices of the global economic system would become so apparent that its legitimacy would collapse and political upheaval would almost certainly ensue. To avoid this outcome, the more cynical among the rich are happy to channel some of their surplus into charity.”

“Dictator debts presently amount to about $735 billion in thirty-two different countries. Cancelling them would free citizens from having to repay loans that they never agreed to in the first place, and which probably never benefited them.

Alternatively, we could approach debt cancellation from a more general angle. Many developing countries have debt burdens that are primarily piles of interest. For example, if a country took out $5 billion in loans in 1980 at 10 per cent interest and then repaid $500 million each year, by 2000 they would have paid back a total of $10 billion and yet would still have more debt to repay, simply because of the power of compound interest. In light of this, we might suggest that poor countries below a certain development threshold that have already paid their debts plus the equivalent of a modest rate of interest — say 2–3 per cent per year at most, enough to cover the creditors’ inflation losses — deserve to have the rest of their debt burden written off.”

“Of course, it is unlikely that existing lenders — like the World Bank, for instance — will go along with such a plan, as it would mean relinquishing their authority over debtors and would weaken their ability to enforce debt repayment. Instead of battling the World Bank, we could create alternative institutions altogether. The New Development Bank, founded by Brazil, Russia, India, China and South Africa in 2015, might provide just such an alternative. So too might the new Asian Infrastructure Investment Bank, founded by China in 2016. If these banks choose to give finance to other developing countries at zero or low interest, and without structural adjustment conditions, they would help liberate the global South from the grip of Western creditors. That explains why Washington has been less than pleased with their emergence. At the same time, they might not be so benevolent: just as the World Bank has facilitated Western imperialism, so these new banks could end up projecting the economic and geopolitical interests of their founding nations over other regions the global South. In other words, they might function a tool of sub-imperialism.

We have to accept, though, that creditors will probably not be willing to cancel debts at anywhere near the necessary level, regardless of how much pressure social movements put on them. If that is true, then the only other option that over-indebted countries have is to simply stop repaying their loans. In the past, debt default has quite often been punished by creditors with invasions and coups, effectively removing this option from the table. Global South countries have been demanding the right to default without threat of military retaliation since at least the 1970s. Enshrining such a right into international law would liberate them to shake off the shackles of their own debt. Yes, this might make it difficult for them to secure new finance from the aggrieved creditors and their allies — but with the New Development Bank and the Asian Infrastructure Investment Bank in play, defaulting countries might have other options open to them.”

“The second crucial step towards creating a fairer global economy would be to democratise the major institutions of global governance: the World Bank, the IMF and the WTO. Allowing global South countries — the world’s majority — to have fair and equal representation in these institutions would give them a real say in the formulation of policies that affect them.

In the World Bank and the IMF, this would require abolishing the veto power of the United States and reallocating voting power according to a more democratic formula.”

“The World Trade Organization is already technically democratic, with one vote going to each member country. But in reality richer countries are almost always able to get their way — partly because having bigger markets gives them more bargaining power, and partly because they can afford more and better negotiators. The best way to reform this would be for poorer countries that can’t afford a permanent contingent at the WTO headquarters in Geneva, or that can’t pay for the staff they need to attend negotiating meetings, to have these costs covered for them by a common fund so that all have a fair chance at getting their voices heard. Another way to democratise the WTO would be to ensure that all proceedings are transparent and accessible to all relevant countries — instead of allowing a few powerful nations to pre-formulate agendas and predetermine decisions in the so-called Green Room meetings from which developing countries are so often excluded. The WTO’s courts could also do with a dose of transparency. The secretive tribunals that decide the fate of countries accused of breaking trade rules that harm them could be opened to scrutiny, allowing public media to assess whether the rules and penalties stand up to common-sense notions of fairness.

Ideally, these basic inequities would be rectified before any further demands for market liberalisation are made of developing countries. But even these changes don’t quite get at one of the deeper problems that these institutions have. In the World Bank and the IMF, countries are normally represented by their finance ministers or central bank governors, while in the WTO they are represented by trade ministers. These representatives may be selected by the governments of member countries, but that doesn’t mean they have the interests of their people at heart. Finance ministers tend to be closely aligned to the interests of the financial community, while trade ministers tend to favour the interests of the business community. Neither have any natural allegiance to the interests of workers, peasants or the environment, and rarely argue for policies in their name. This could be fixed by arranging representation according to some kind of democratic mandate, such as by giving citizens the opportunity to vote on who will represent them at the World Bank, the IMF and the WTO.”

“Instead of requiring across-the-board tariff reductions, trade could be conducted with an intentional bias towards poor countries, for the sake of promoting development. One way to do this would be to have all WTO members provide free-market access in all goods to all developing countries either smaller or poorer than themselves (in terms of GDP and GDP per capita). This would allow developing countries to benefit from selling to rich-country markets without having to liberalise their own trade rules in return. This is not unheard of. In fact, we already have a system of special preferences for poor countries — but it is limited, and the WTO has been trying to phase it out since 1994.

Then there are the free-trade agreements. One of the reasons that free-trade agreements end up being so problematic is that they are negotiated in secret. Making the negotiations public, and subject to real democratic scrutiny, would go a long way towards making the final deals fairer.”

“Ideally all existing agreements should be suspended and renegotiated under more transparent and democratic conditions.”

“In addition to shortening patent durations and securing exemptions for essential goods, stricter rules on originality would prevent corporations from patenting seeds, plants, medicines and genetic material that either already exist naturally in the world or have been developed over thousands of years by humans through collective effort and traditional knowledge. This is particularly important for small farmers across the global South, many of whom are already being barred from saving and using their own indigenous seed varieties and forced to purchase them instead from agribusiness companies. It is vital that natural substances and public knowledge remain in the public domain, so that people have equal access to the bounty of life and the yields of humanity’s collective intelligence.

Finally, the agricultural subsidy regime — one of the most hotly contested features of the international trade system — needs urgent attention if global South countries are going to have a fair shot at development. The first step to reforming it is to cut back the subsidies that the governments of rich countries presently dish out to their farmers, allowing them to overrun competitors in the global South who might otherwise have the upper hand, and flooding poor countries with cheap grain that undercuts the market share of small farmers. Even abolishing only half of the OECD’s agricultural subsidies — for example, the portion that is handed out to the biggest exporters — would help level the playing field and create much-needed breathing room for farmers in the global South. But in addition to curtailing subsidies in rich countries, we need to ensure that the governments of poor countries have the freedom to give subsidies to their own farmers.”

“If we are going to have a global labour market, where companies can roam the planet in search of ever-cheaper workers, it stands to reason that we need a global system of labour standards as well. This is where a fourth intervention might lie: putting a stop to the global race to the bottom for cheap labour by guaranteeing a baseline level of human fairness. The single most important component of such an intervention would be a global minimum wage.”

“The current recommendation for a global minimum wage would deal with these difficulties by setting the bar at 50 per cent of each country’s median wage, so it would be tailored to local economic conditions, costs of living and purchasing power. As wages increase across the spectrum, the minimum wage would automatically move up. For countries where wages are so low that 50 per cent of the median would still leave workers in poverty, there would be a second safeguard: wages in each country would have to be above the national poverty line.

Under this proposal, countries that presently enjoy a comparative advantage through cheap labour would retain that advantage, so there would be minimum disruption to their economies. This system would go a long way towards eliminating poverty — at least the poverty of the working population. It would also help reduce inequality, not only within countries but also between them. Raising wages also has positive economic benefits: putting more money into the hands of ordinary workers stimulates demand and thus facilitates local economic growth, and it does so in a way that doesn’t depend on debt (unlike microfinance).”

“A recent study found that doubling the wages of sweatshop workers in Mexico would raise the price of clothes sold in the US by only 1.8 per cent — too little for most consumers in rich countries to notice. In fact, you could raise sweatshop wages by a factor of ten and consumers still wouldn’t be fazed: a study by the National Bureau of Economic Research shows that people are willing to pay up to 15 per cent more on a $100 item — and 28 per cent more on a $10 item — if it is made under ‘good working conditions’. There is a lot of room for wage growth before it begins to have any troublesome economic effects.

It might sound like a bureaucratic nightmare to manage, but the UN’s International Labor Organization has already claimed that it has the will and the capacity to govern a global minimum wage system.”

“Another popular proposal is to require multinational companies to report their profits in the countries where their economic activity actually takes place, rather than the current practice of providing a single consolidated balance sheet for all operations and filing it in a separate low-tax jurisdiction. This is known as ‘country-by-country reporting.’ To bolster this system further, we could prevent tax evasion through transfer mispricing by taxing multinationals as single firms rather than as a collection of independent subsidiaries. Another interesting option might be to impose a global minimum tax on corporations, which would eliminate their incentive to evade national taxes altogether. It would also put a floor on competition between countries in their race to attract investment by offering ever-lower taxes. And to help seal it all up, it would make sense to introduce harsh penalties for bankers and accountants who facilitate tax evasion and other illicit flows.”

“Then there are land grabs. To put an end to land grabs, it would make sense to place a moratorium on all deals that involve major transfers of land from small farmers, collective use or ecosystem services to commercial use, until such deals can be conducted transparently and with the full involvement of affected communities. Because many land grabs are made with an eye towards profiting from rising food prices, to really get at the root of this problem would require preventing financial firms and investors from speculating recklessly on food. Not only would this remove the incentives that spur many of the most harmful land grabs, it would also help keep food affordable and prevent needless hunger.

There is also the matter of the New Alliance for Food Security and Nutrition, which has spurred land grabs in the name of reducing hunger, operating under the assumption that corporations can produce food more efficiently. But by dispossessing small farmers it paradoxically risks increasing hunger. The weight of evidence suggests that the best strategy for tackling hunger is in fact the opposite approach: land reform in favour of the small farmers whose produce already feeds the vast majority of the world’s population. Indeed, that’s how China eradicated so much hunger during the 1990s.”

“Bizarrely, the Paris Agreement makes no reference to fossil fuels or fossil fuel companies. This is a fatal oversight, as one of the most powerful steps towards climate change mitigation would be to end subsidies for fossil fuel companies, which presently amount to $5.3 trillion per year.”

“By targeting the deep structural causes of global poverty and inequality, and by making the international economic system fairer, more rational and more democratic, these interventions would have a monumental impact. Best of all, this approach wouldn’t require a single dollar of foreign aid. Instead of relying on charitable window dressing, it goes to the root of our global problems by redistributing both power and resources. But implementing these interventions will require the political courage to stand up to the interests of the very powerful actors who extract so much material benefit from the present system, for they will not concede voluntarily. It will be a difficult battle, but not impossible. Indeed, it is already being fought — and not without success.

The Jubilee Campaign and Strike Debt are proving to be a formidable force calling for debt cancellation in the global South. So too are the South Centre and the Third World Network, which are building solidarity among global South governments and civil society organisations respectively, to tackle not only debt but also structural adjustment, unfair trade rules, intellectual property issues and the imbalance of power in global governance institutions. The Bretton Woods Project is pushing hard for increased transparency and democracy in the World Bank and the IMF. And the Bolivarian Alliance for the Peoples of Our America (ALBA) is building a real-life alternative to the neoliberal Washington Consensus by organising regional economic integration in Latin America and creating an alternative currency for trade, with a focus on cooperation rather than competition and with an eye towards improving social welfare rather than just corporate profits. The battle for a global minimum wage is still in its infancy, but there are impressive movements building in this direction — for example, the Asian Floor Wage campaign is fighting to establish a transnational minimum wage for garment workers across Asia, one of the most vulnerable workforces in the world.

The Tax Justice Network is probably the most effective force in the battle against tax evasion and illicit financial flows, and has already succeeded in getting some initial reforms enacted by national governments. On the land front, the global network of small farmers known as La Via Campesina is organising against land grabs, agribusiness monopolies and seed patents, along with regional organisations such as Ekta Parishad in India and NGOs like GRAIN. The Indigenous Environmental Network is putting up a strong fight against REDD and other carbon-trading schemes that dispossess indigenous people.”

“Only sixty years ago our planet was carpeted with 1.6 billion hectares of mature tropical forests. Since then more than half have been destroyed by human industry.”

“Kuznets was careful to warn that we should never use GDP as a normal measure of economic success, for it would incentivise too much destruction. And yet that is exactly what we began to do and then it was swiftly pushed around the rest of the world by the World Bank and the IMF. Today, nearly every government in the world, rich and poor alike, is focused obsessively on the single objective of increasing GDP growth.

According to the standard narrative, we need GDP growth rates of at least 2 or 3 per cent per year in order to have a healthy, functioning global economy. Anything less, and economists tell us we’re in crisis; if growth drops towards zero, the whole system — we’re told — will fall apart.”

“In the United States GDP has risen steadily over the past half-century, yet median incomes have stagnated, the poverty rate has increased and inequality has grown. The same is true on a global scale: while global real GDP has nearly tripled since 1980, the number of people living in poverty, below $5 per day, has increased by more than 1.1 billion. Why is this? Because past a certain point, GDP growth begins to produce more negative outcomes than positive ones — more ‘illth’ than wealth. The reason is because there are no longer any frontiers where accumulation doesn’t directly harm someone else, by, say, enclosing the land, degrading the soils, polluting the water, exploiting human beings or changing the climate. We have reached the point where GDP growth is beginning to create more poverty than it eliminates.

When the entire global political establishment puts its force behind the goal of GDP growth, human and natural systems come under enormous pressure. In India it might come in the form of land grabs. In the UK, it’s privatisation of public services. In Brazil it looks like deforestation in the Amazon basin. In the US and Canada it brings fracking and tar sands. Around the world it means longer working hours, more expensive housing, depleted soils, polluted cities, wasted oceans and — above all — climate change. All for the sake of GDP growth.”

“There are many alternative measures of success on offer. The Genuine Progress Indicator (GPI), for example, starts with GDP but then adds positive factors such as household and volunteer work, subtracts negatives such as pollution, resource depletion and crime, and adjusts for inequality. A number of US states, like Maryland and Vermont, have already begun to use GPI as a measure of progress, albeit secondary to GDP. Costa Rica is about to become the first country to do so, and Scotland and Sweden may soon follow.

Measuring GPI gives us a completely different picture of society than GDP. If we plot global GPI and GDP together, just for comparison, we see that GPI increased together with GDP up through the mid-1970s and then levelled off — and even began to decrease — while GDP continued to rise.”

“Banks are only required to hold reserves worth about 10 per cent of the money they lend out.This is known as ‘fractional reserve banking. In other words, banks lend out about ten times more money than they actually have. So where does that extra money come from, if it doesn’t actually exist? The banks create it out of thin air. They loan it into existence. About 90 per cent of the money that is presently circulating in our economy is created in this manner. In other words, almost every single dollar that passes through your hands represents somebody’s debt. And every dollar of debt has to be paid back with interest — with more work, more production or more extraction.

The fact that our economy runs on debt-based currency is one big reason that it needs constant growth. Restricting the fractional reserve banking system would go a long way to diminishing the amount of debt sloshing around in our economies, and therefore to diminishing the pressure for growth. One easy way to do this would be to require banks to keep a bigger fraction of reserves behind the loans they make. But there’s an even more interesting approach we might try: we could abolish debt-based currency altogether. Instead of letting commercial banks create our money, we could have the state create it — free of debt — and then spend it into the economy instead of lending it into the economy. The responsibility for money creation could be placed with an independent agency that is democratic, accountable and transparent. Banks would still be able to lend money, of course, but they would have to back it with 100 per cent reserves, dollar for dollar.”

“Another, more aggressive option is to replace advertising with public messaging that encourages reduced consumption. China is pioneering this approach in its new campaign to cut the country’s meat consumption in half by 2030 — a widely celebrated strategy for reducing greenhouse gas emissions. Or you could outright ban particularly unnecessary and destructive products, like bottled water, as some cities in Australia and the United States have done. Other simple ways to curb consumption might include regulating credit cards, raising taxes on luxury products and outlawing the use of ‘planned obsolescence’ by manufacturers who seek to increase turnover by building shoddy, throwaway products.”

“There are creative ways to scale back our economic activity and make sure everyone has meaningful work at the same time. The key proposal out there is to reduce the length of the working week, from forty-seven hours (the average in the United States) down to thirty or even twenty hours. We can do this by eliminating unnecessary or harmful industries (the kinds of industries that would atrophy anyway if we measured our economic progress by something like GPI instead of GDP) and distributing the remaining work by promoting job-sharing.”