The United States, Structural Adjustment and Global Poverty
by Walden Bello, with Shea Cunningham and Bill Rau
148 pp. Illustrated. 1994.
Oakland: Food First. $12.95. (pb).
You’ve probably been taught about systems of debt-peonage that prevailed in more sinister eras or lands. The share cropper or laborer was forced to work to pay off perpetual debt to the landlord or the company – who of course set the prices and kept the accounts. This system was nothing but a thinly disguised form of slavery, with the peons in bondage and worked to the bone to enrich the overlords.
What you’ll never be told in any mainstream textbook or news report is that today’s world economy has evolved into a colossal system of debt peonage, with some 70 nations and billions of human beings in its cruel thrall. It’s a system that brings unprecedented aggrandizement of wealth to the super-rich while, quite literally, squeezing the lifeblood out of the people who can least afford it.
Over the past 20 years, a Procrustean economic restructuring has been imposed by means of the “Third World debt crisis.” After the sudden jump in oil prices in 1973, the big banks in the developed countries found themselves with a surplus of deposited “petrodollars.” To expand their moneymaking opportunities, they hawked loans to underdeveloped countries – often for ill-conceived projects that benefited only the elites of those countries and that financed costly imports from transnational corporations (TNCs) allied to the banks. By the late ’70s, interest rates started to climb while the prices on raw materials exported by Third World countries began to plummet. Thus, the payments owed on the debt soared while the means to pay crashed.
By 1982 this situation definitely entailed a crisis for the many big banks who had a large portion of their money tied up in loans headed for default. Spearheaded by the U.S. government (which certainly won’t be bound by its platitudes about the “free market” when the interests of big business are at stake), the leading world financial institutions – the World Bank (WB) and the International Monetary Fund (IMF), both run by the U.S. and other wealthy nations – stepped in to design and enforce strategies to resolve the crisis. A key component has been to impose “structural adjustment programs” (SAPs) on the debtor nations so that more foreign exchange earnings can go to debt repayment. The U.N. Economic Commission for Africa recently estimated that six million children die in the Third World each year as a result of these WB/IMF “austerity” measures.
There is probably no dynamic in motion in the world today that has more devastating impact on more lives than these SAPs, yet they are non- issues to the U.S. media, which prefers whipping up a frenzy about street crime or demonizing (only) those Third World tyrants who don’t completely toe the U.S. line.
Walden Bello and associates perform an invaluable service by offering Dark Victory, a short and readable book that examines the SAPs along with quick looks at the changes for the newly industrialized countries and at restructuring within the U.S.
Bello is the executive director of Food First, an institute with an outstanding record of analysis on world hunger and related problems. As he sees it, the collapse of centralized socialism in Eastern Europe shifted the primary axis of world conflict from West/East to North/South – between the have and the have-not nations. (My view is a little different: economic control of the Third World was always the top priority, the very lifeblood of modern imperialism; a major reason the East was seen as such a threat was the alternative model and material aid it often offered the national liberation movements.) A decisive weapon in the contemporary global war raging between rich and poor is the SAP.
While specific details vary for each country, Bello provides us with a summary of the SAPs* general features. The debtor governments are required to 1) radically reduce government spending and subsidies, 2) cut or restrain workers* wages, 3) remove barriers to imports and foreign investments, 4) devalue the local currency (thus making the country’s exports cheaper on the world market), and 5) privatize state enterprises and remove regulations on business. These are the typical steps required to get the new loans and debt rescheduling without which the debtor could fall into a default and consequent economic reprisals.
Since these conditions determine the parameters of major social policy, the WB and IMF, without ever winning an election, have become the hegemonic political force in scores of nations, in effect recolonizing the Third World. The theory behind these measures is that they will make production more efficient and prices much lower on the world market, thus stimulating the country’s exports and earning it more foreign exchange for debt payment and for stimulating the domestic economy as well.
Dark Victory makes a convincing case that after 13 years of relentless application these programs are a resounding failure in terms of their stated goals. Bello summarizes several comprehensive analyses, including one done by the IMP itself, that show that economic conditions deteriorated in the vast majority of nations subjected to SAPs.
For example, an UNICEF study of 24 such African countries showed that capital accumulation slowed in 20 of them, manufacture declined or stagnated in 18, and even the total dollar value of exports declined in the majority. Bello goes further by doing a more detailed analysis of some prime examples of proclaimed “success stories” such as Ghana and Mexico; he shows serious weakening of the internal economies and stark intensification of already terribly unequal distribution of wealth, all along with accelerated degradation of the environment.
One reason for the dismal results is that many of the measures – such as slashing government expenditures, tight money policies, opening up to more imports – severely contract the domestic economy. In addition, a howling fallacy lies at the core of WB/IMF logic. The driving force, the thrust of each and every specific measure, is to expand production of and lower prices on exports. For any particular country, lower prices should mean a competitive advantage, resulting in expanded sales and income. But the kicker is that the WB and IMP are imposing these same changes on a number of Third World countries producing the same commodity.
So (as WB/IMF economists surely must have known) individual competitive advantage evaporates as a number of different countries simultaneously flood the market – which further and drastically depresses prices. For example, Ghana’s enormous boost in cocoa production was accompanied by a 48 percent decline in the world price between 1986 and 1989; Ghana’s current accounts deteriorated and its external debt grew over the period. Overall, the SAPs failed on even the narrowest stated goal of debt reduction: the total Third World external debt, $785 billion in 1982, climbed to a staggering $1.3 trillion by 1992.
But in other terms the Draconian campaign has been a tremendous success: 1) The loans and rescheduling have effected a shift in the risk on outstanding debts from private banks to public (and tax-payer supported) financial institutions. The Third World debt crisis has been publicly declared as “over” because the dire threat to the private banks’ solvency has been removed. 2) Various restructuring measures have torn Third World countries wide open for greater penetration by foreign business investments and imports. 3) Debt repayment has forced a gush of capital flow from the poor to the rich nations.
Between 1982 and 1986 Third World countries paid the commercial banks $183 billion more in interest and amortization than they received in new bank loans, and the haemorrhaging continues to get worse. “Not since the conquistadores plundered Latin America has the world experienced (such) a flow in the direction we see today.”
There is a fourth major economic result implicit in the discussion of why export incomes didn’t rise but unfortunately not spelled out in this part of Dark Victory. Every single condition set, as well as the even greater impact of the sum of the different SAPs, serves to ratchet down prices on Third World commodities. (Terms of trade for the Third World fell by a whopping 16 percent between 1980 and 1988.) Many of these exports are the raw materials and assembly components used by the TNCs based in the North. The rock bottom prices mean big savings and thereby higher profits for the corporations. This collapse of raw material prices is, in my opinion, a significant piece for solving the apparent economic puzzle of how the U.S. could pump up its economy through colossal debt expansion throughout the 1980s without setting off extreme inflation.
What have been the human costs of these policies? Here, Dark Victory can only suggest what would take volumes to chronicle adequately. The already brutal poverty in these areas escalated sharply. Per capita income in Africa has plunged to ’60s levels and that of Latin America has fallen to the level of the late ’70s, while the gap between the North and the South has widened, with an average per capita income of $12,500 and $710 respectively. (And recent data shows that more than one billion people now live in the nether world meeting the dire standards for “absolute poverty,” almost double the number of a decade ago.)
Overall an estimated 13-18 million persons worldwide, mostly children, die of hunger and poverty each year. At the same time, forced cuts in government spending have decimated public health as AIDS runs rampant and easily prevented killers such as TB and cholera are resurgent in these areas. (The world hasn’t even been able to marshal 1/10th of the $2.5 billion a year needed to mount an effective AIDS prevention program throughout the Third World. Compare this paltry but unattainable sum to the more than $40 billion per year these countries are now paying out to the Northern banks.) Further, the SAPs’ frenzy to generate exports has been a major force behind destruction of local food agriculture as well as for causing widespread deforestation and environmental degradation.
Dark Victory devotes a chapter to sketching a parallel, or at least companion, “adjusting” of America over the last 14 years. The broad strokes include a record increase in maldistribution of wealth, a hollowing out of the domestic economy as some manufacture moves abroad, a war against labor unions and against social programs, declining real wages and sinking real welfare benefits, and a dire reduction of public funds to the cities. Over the course of the ’80s, the income of the top one percent of families grew by 63 percent; they now earn 14.1 percent of the income and own 38.3 percent of total worth, while 20 million Americans are experiencing hunger.
This book, trying to cover extensive territory in a thin volume, has a number of problems. One area is statistics. It’s not always clear what time span they cover nor does Bello explain which changes might reflect cyclical swings more than structural change. More importantly, not enough is done to give a human face and passion to what the statistics mean.
Dark Victory never analyzes the role of the elites within the Third World – their class interests and the benefits they accrue – so their continued support for SAPs seems to be a mystery mainly explained by the hegemony of Northern economic theories. Similarly, the book never says why default on the debt is considered unthinkable and never considers whether default could be a radical alternative.
Bello’s model for the exigencies driving the changes is superficial, emphasizing the competition among national capitalisms in the North without adequately accounting for their clear common interests against the South or for the heady trends toward globalization, nor does he indicate deeper contradictions causing stagnation in the world economy. Further, in his haste to spotlight the damage SAPs have wreaked, he slips into romanticizing the preceding period, with only token mention of its intolerable poverty. It is almost as though Bello has no analysis of the underlying structures of imperialism, but instead sees the more enlightened ideology of Keynesianism being overwhelmed by a corporate-driven free market zealotry.
Dark Victory extols the New Deal social contract without admitting it entailed big labor’s collusion with imperial exploitation of the Third World. The book then slides over the qualitative differences in standards of living (“this process has brought home to workers in both North and South their common condition as workers….”) and thus is much too facile about what it takes to achieve the laudable goal of unity. However, while there is no developed strategy for change, the book’s mention of movements for “sustainable” and “people-centered” development is at least suggestive and does offer some encouraging prospects for future struggle.
The bloody dismemberment of the Third World with the usurer’s blade is the life and death emergency of the day. Dark Victory, short and readable, is not an adequate treatment of the issues, but it is a great place to start.
[T]he material misery that capitalism implies for 3/4 of humanity… is the principal problem of our time.
– Samir Amin
50 Years is Enough
The Case Against the World Bank and the International Monetary Fund Edited by Kevin Danaher.
210 pp. 1994. Boston: South End Press. $14.00 (ob)
The end of World War II ushered in an unprecedented twenty-five years of economic growth, a kind of golden age, for capitalism. Of course it wasn’t so glorious for the world’s majority who continued to suffer back-breaking labor and stomach-wracking poverty. In 1970 the gap in per person gross national product between the rich and poor countries was 25:1. Still, world capitalism could boast an average growth rate of 5 percent a year over the period, which provided enough cushion to bring large sectors of the working classes of the developed countries into the consumer society and the “welfare state.”
Much of the credit for this euphoric period of expansion was given to enlightened Keynesian economics and to the international economic structures set up at the Bretton Woods (New Hampshire) conference of July, 1944, for which John Maynard Keynes himself was one of the prime movers. The two key institutions that emerged were the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (“World Bank”). The IMF created a reserve of funds to be loaned to countries experiencing temporary balance of payment problems to enable them to continue to participate in world trade without interruption. The World Bank (WB) was responsible to make loans for infrastructure projects (e.g., roads, utilities) needed for capitalist development and to back and support private investment.
Whatever the genius of these policies and institutions, they were not the main basis for the 1944-1970 boom. In reality there was a much more fundamental set of historical factors resulting from the War’s destruction of much of Europe’s and Japan’s productive capacity. This situation alleviated the typical problems of “overproduction” and competition that in the past had saturated world capitalist markets. These advanced countries in rubble offered grand opportunities for new productive investment. At the same time, U.S. hegemony provided a new, neo-colonial framework for all developed nations (the North) to share in the plunder of the Third World (the South).
By 1970 those historical circumstances had been played out, and world capitalism entered a new period of stagnation and structural re-adjustments that continues to produce economic difficulties and political instability today. From 1973 to 1988, the average world economic growth fell to 2.5 percent a year, or one-half the rate of the preceding twenty-five year period. The main response has been to squeeze even more out of the poorest and most vulnerable. By 1990 the gap between rich and poor nations in per person gross national product had shot up to 56:1, and the polarization of wealth within each set of countries had also greatly intensified.
The once highly feted Keynesianism is now widely reviled, mainly for its faint implication that the public sector should slightly bolster the purchasing power of the working classes. But despite all the tumultuous changes in economic policies, the IMF and WB are still revered pillars of world capitalism. However, without any fanfare and without missing a beat, they have made a big shift from their charter functions to a completely different role: imposing structural adjustment programs (SAPs) – in reality draconian austerity measures designed to extract debt payments to the Northern banks – on the impoverished countries of the South. Kevin Danaher, editor of 50 Years is Enough, aptly summarizes it as a form of financial warfare being waged by the rich on the poor.
This collection of 36 very short essays on the WB and IMF leaves a lot to be desired. 50 Years is Enough does not provide much of an overall analysis on how the WB and IMF fit into a broader world capitalist strategy. (Walden Bello’s Dark Victory does a much better job in this regard.) Without that context, a few of the authors lapse into the fantasy that these institutions can be “reformed” to serve the poor. Similarly there are some anomalies such as fouling a WB internal report on project failure rates without examining the criteria it uses, or as projecting the Japanese model of capitalism as a qualitative alternative to the SAP prescriptions. At the same time there is not enough detail in any particular area, especially on giving the reader a sense of the lives of specific human beings.
But this book does introduce the reader to a range of key authors and activist organizations on this most important of topics, and its section on the impact of SAPs on women, tribal peoples and the environment is particularly valuable.
That section opens with an expose of an internal memo written by the WB’s chief economist, Lawrence Summers. This “expert” lauds the economic logic of “dumping… toxic waste in the lowest wage countries…” and for “encouraging more migration of dirty industries to the LDCs [lesser developed countries].” (Lawrence Summers has since moved on to a top job in President Clinton’s Treasury Department.) Vandana Shiva makes good analytical use of this document to show how WB policies promote a global system of environmental apartheid, in which,
“…the last resources of the poor are taken over by the rich, and the poor are pushed into ‘pollution reservations’ to live with waste. They themselves are treated as waste, to be dispensed with either through poisoning and pollution… or through population control and denial of health care to children….”
Another essay discusses the extremely negative environmental impact from how SAPs force Third World countries to shift from local food production to soil-exhausting cash crops and to earn further foreign exchange through deforestation and other depletions of natural resources for export. “[T]he lack of a just resolution to the debt problem is the single most important cause of environmental destruction and poverty.”
One particularly graphic example is presented by Nilufar Ahmad’s work with grassroots organizations of rural women in Bangladesh. The WB and collaborating local elites imposed a plan to cultivate shrimp for export to rich countries. This project entailed flooding coastal areas with salt water, thus destroying much of Bangladesh’s prime grain-growing land. Meanwhile the women who work harvesting the shrimp are suffering serious damage to their health due to the lime mixed in with the salt water. The foreign exchange earned from shrimp exports goes into the pockets of a few rich people… while some 25 million people in Bangladesh are dying of hunger. Ahmad also provides one of the few hopeful stories as she describes how local women took over a vacant delta island to grow grain and then physically defended their precious harvest from a raid by the landlords’ police.
The overall result of the SAPs that emerges from these essays, as also demonstrated in Bello’s Dark Victory, is the intensification of poverty and polarization of wealth. In today’s world 1.2 billion persons live in the dire conditions of “absolute poverty.” In sub-Saharan Africa, one-half of the children are starving and malnourished. The SAP-imposed slashings of health and education budgets not only makes the impact of such poverty worse, but also cannibalizes these countries’ potential human resources for future growth.
The WB and IMF also serve to undermine democracy. Key social policies are imposed by their functionaries – who are not subject to any popular elections – through plans that are negotiated in secret with local elites.
Meanwhile the SAPs have failed on even the narrowest of economic grounds. The outstanding external debt of the Third World has climbed from $785 billion in 1982 to $1.5 trillion today, and Africa’s external debt increased by a factor of 2.5 during the 1980s. The overall growth rate for countries following SAPs tend to be lower than for those who rely more on the public sector.
Economic growth in the South is strangled by the relentless transfer of capital to the North. The total flow – the amount of interest and principal paid minus all the new loans coming in – is running at $45 billion a year. The other side of this multi-billion dollar coin is the real success story of the WB and IMF: securing the solvency and profits of Northern commercial banks. The SAPs have also been brutally effective at decimating the prices for Third World exports used by Northern industry.
Historically the plunder of the South has been tacitly condoned by broad sectors in the North. Access to the comforts of the consumer culture tends to blind people to the long-term cost – to our souls and ultimately to our survival – of such wanton destruction of human beings and of the global environment. Now, capital is beginning to apply at home some of the weapons it so ruthlessly developed to loot the Third World: the slashing of social and environmental programs, the maintenance of high unemployment to drive down wages, and the undermining of labor unions and social movements.
As middle and working class whites experience the erosion of the economic security they once took for granted, the orchestrated, and so far loudest, response has been a frightening surge in the politics of racist scapegoating and hatred. Their fears and anxiety have been diverted to attacks on people of color and the disenfranchised. Anger spewed out at Third World immigrants shields the transnational corporations and banks that have wrecked those people’s home economies. Scorn heaped upon people who need public assistance protects the business planners who consciously create unemployment. The demonization of street crime justifies the awesome repressive apparatus that can be turned against any radical challenge to the elite. All the screaming about the costs of social programs means that not even a whisper is heard about the burden of the one percent of the U.S. population who own 40 percent of the wealth.
In these dangerous times, we desperately need an activist movement that dramatically shines the spotlight on the real sources of the problems:
- the lion’s share of public welfare that goes to the rich via staggering interest payments on government debt, bank bailouts, pork-barrel military contracts, etc.
- the unaccountable big bureaucracies run by the handful of corporate executives who determine the life choices of the vast majority of people
- the growth of big government in its most virulent form-prisons, police, military might and the concomitant attacks on civil liberties.
The demagogy that prevails today serves only to further the concentration of wealth for the super-rich, to stimulate the cancerous growth of white supremacy, and to build the trends toward a police state – thus strengthening the very forces that are the source of the crisis. The only real solution lies in the completely opposite direction: people’s movements representing and uniting the interests of the most oppressed and combining local activism with a consciousness of global solidarity. This requisite alternative has to be all about the humane use of social resources, controlled by grassroots organizations within the communities – like the seeds that were sown, for example, by those rural women in Bangladesh who courageously reclaimed land to grow life-sustaining grain.