The Divide

My notes

Anthropologists tell us that when the structure of a core myth begins to change, everything else about society changes around it, and fresh new possibilities open up that weren’t even thinkable before. When myths fall apart, revolutions happen.

The aid narrative was useful because it overrode any suggestion that Western powers were in any way responsible for causing the suffering of the South. The

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.

From the onset of colonialism through to globalisation, the main objective of the North has been to force down the cost of labour and goods bought from the South.

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. This is what economists call ‘unequal exchange’.

The point here is simple: the aid budget is diminutive, almost ridiculously so, when compared to the structural losses and outward flows that the global South suffers.

Rich countries aren’t developing poor countries; poor countries are effectively developing rich countries – and they have been since the late 15th century.

Colonialism and imperialism have not settled their debt to us once they have withdrawn from our territories. The wealth of the imperialist nations is also our wealth. Europe is literally the creation of the Third World. The riches which are choking it are those plundered from the underdeveloped peoples. So we will not accept aid for the underdeveloped countries as ‘charity’. Such aid must be considered the final stage of a dual consciousness – the consciousness of the colonised that it is their due, and the consciousness of the capitalist powers that effectively they must pay up.

Poor countries don’t need our aid; they need us to stop impoverishing them. Until we target the structural drivers of global poverty – the underlying architecture of wealth extraction and accumulation – development efforts will continue to fail, decade after decade.

It can be scary to grapple with the collapse of a core myth. At least it was for me. But it also opens up a world of exciting new possibilities, and clears the way to a different kind of future.

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.

‘The morally relevant comparison of existing poverty,’ he says, ‘is not with historical benchmarks but with present possibilities: How much of this poverty is really unavoidable today? By this standard, our generation is doing worse than any in human history.’

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.

the good-news narrative is so important to the world’s most powerful governments because it justifies the present economic order and maintains people’s consent for it

Without the ecological windfall from the slave colonies, Europe would not have been able to shift its economic capacity towards indus-trialisation.

But under the new system such direct coercion was no longer necessary. The elite simply relied on the fact that the competitive pressures of the labour market (and the market in leases) would increase workers’ productivity at a much higher rate than the one at which their wages increased. This was the basic mechanism of profit, and it served as an automatic conveyor belt for redistributing wealth upwards.

By the early part of the 20th century, this new order was complete, designed so that the core of the system – Europe and the United States – could siphon cheap raw materials from the periphery and then sell manufactured products back to them while protecting themselves from competition by erecting disproportionately high tariffs.

The first was that the terms of trade of developing economies deteriorated over time. In other words, the prices of their primary commodity exports gradually decreased relative to the prices of the manufactured goods they imported. This meant that they had to spend more to get less, which translated into an outward net transfer of wealth.

Orthodox economic theory presupposes international inequalities as if they have always existed, but the historical record is clear that they were purposefully created. As the Uruguayan journalist Eduardo Galeano put it, ‘The colonial economy was built in terms of – and at the service of – the European market.’

Capitalists seek to maximise their profits by increasing productivity and decreasing the costs of production. The easiest way to decrease the costs of production, of course, is to push down workers’ wages.

Massive government spending had what Keynes called a ‘multiplier effect’: by transforming government money into workers’ wages, workers gain consumer power that creates new opportunities for private businesses that spring up where the cash is plentiful, like trees around an oasis.

The edifices of laissez-faire capitalism were collapsing all around, and Keynes and his followers were emboldened to argue for a whole new approach to economics. The democratic state should regulate the market and harness its powers towards desired social ends, securing economic stability and improving living standards. The market should be made to serve society, not the other way round.

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.

(Today, politicians like to claim that higher taxes will slow down the economy, yet historical data shows that the US enjoyed some of its highest rates of growth during the period of 90 per cent tax.)

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.

developmentalist governments sought to change the rules of national economies to make them fairer for the majority, so that economic systems would serve the interests of the people rather than just the interests of the national elite and foreign corporations.

Developmentalism was, after all, a Western model. By adopting the growth-at-all-costs agenda and by looking to the West as the apex of economic achievement, global South countries missed their opportunity to chart an alternative trajectory from the outset –

There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt.

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.

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.

When wages fall as a proportion of national income, as we see here, it means there is a shift of income from wage-earners to capital-holders.

But the protests had little effect. The ultimate targets of rioters’ discontent were suited men shuffling loan papers in Washington,

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.

Privatisation meant that key public services were run at a profit, which raised prices out of reach of the poor.

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.

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.

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.

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.

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.

We know that from time to time capitalism bumps up against limits to the creation of new profits. There is the market saturation limit, for instance: when consumers have more than they need, buying slows down and businesses can’t turn over as many products.

When capitalism hits these limits, investors find themselves with fewer options for investing their capital, since nothing gives an acceptably high return. They can’t just put it into savings because interest rates on savings accounts are typically lower than inflation, and that means losing money.

In order for capitalism to carry on, crises of over-accumulation have to be solved; someone needs to step in to provide a way to mop up the excess capital, to funnel it into some kind of profitable investment. It is an iron law.

On top of this, the large-scale development projects funded by World Bank loans required recipients to hire American contractors to carry out the work and to purchase equipment and materials from American businesses rather than local ones, even though this can be up to 30 per cent more expensive. Through these ‘tied aid’ arrangements, the World Bank stimulates demand for American products with every loan. Some studies suggest that American businesses get up to 82 cents in new purchases for each dollar that the US government contributes to the Bank. 

the World Bank and the IMF also prised open the markets of foreign countries so that Western multinational firms could access much cheaper labour, thereby restoring their profit levels.

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 privatisation of public assets releases a tremendous asset into the market that was previously inaccessible to capital, creating new opportunities for profit.

When utilities are publicly owned, they generally have a mandate to provide service to the whole population. But for privately owned utilities the mandate is to make a profit, so they have no reason to serve those who cannot afford to pay.

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 a problem because these outflows drain away vital resources that might otherwise be spent on eradicating poverty. Lebanon, for instance, spends 52 per cent of its budget on debt service, and only 23 per cent on health and education combined.

A key reason for the growing size of the debt burden has to do with the nature of compound interest. Consider this thought experiment. If you start with $1 trillion dollars in debt, compounded at an interest rate of 10 per cent per year it will become $117 trillion in fifty years and $13.78 quadrillion in 100 years.

Defaulting on the debt would have liberated the global South from the stranglehold of the international banks, forcing the banks to absorb the fallout from their risky lending. But in reality this was not an option, for there was always the threat of US military invasion if countries decided to default.

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.

‘There’s no better way to justify relations founded on violence, to make such relations seem moral, than by reframing them in the language of debt – above all, because it immediately makes it seem that it’s the victim who’s doing something wrong.’

In all of these cases, debt relief is tied to stringent conditions that require countries to liberalise and privatise their economies – in other words, debt relief has become a mechanism to impose further structural adjustment. As economist Jeffrey Sachs put it, it was ‘belt-tightening for people who cannot afford belts’.

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.

To suggest that the global South should focus on exporting raw material while the North should focus on capital-intensive industry is the equivalent of saying that black people are just naturally better at working in the cotton fields while white people are just naturally better at being overseers, and that investing in educating a black person to become anything other than a common labourer is a ‘distortion’ that runs against their natural abilities.

industrial strategy requires careful planning and government intervention, which is something that free-traders are vehemently against, for it interferes with the ‘natural’ order of things.

‘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.’

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.

Indeed, a study conducted by the IMF itself shows that of all the tax revenue that countries have lost due to trade liberalisation over the past twenty-five years, more than 70 per cent has never been recovered through other forms of taxation. In other words, trade liberalisation directly denies poor countries the very resources they so desperately need to spend on social services and reducing poverty.

As for the argument about reinvesting in R & D: the pharmaceutical industry spends far more of its profits on marketing than on research, which suggests that their commitment to research is questionable at best.

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.

‘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.

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 primary aim of the TTIP, for instance, is not to reduce trade tariffs, as these are already at minimal levels, but rather to reduce any ‘barriers’ to corporate profit maximisation: labour laws, digital privacy laws, environmental protections, food safety standards and financial regulations.

These treaties amount to something like a corporate coup d’état on an international scale. They create an avenue for extraterritorial legislation that bypasses national parliaments and any form of democratic discussion, pouring scorn on the idea of elected government.

In this sense, democracy itself is targeted, bizarrely, as anti-democratic, inasmuch as it grants voters control over the economic policies that affect their lives.

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.

And when investors decide to punish, it hurts – for poor countries that rely on foreign investment just to stay afloat, quick outflows of capital can be devastating. In this sense, investors operate as a kind of virtual senate. Sitting in their high-rise offices in places like London, New York, Frankfurt and Hong Kong, they are the ones who ultimately decide on economic policy in countries around the world. Voters dare not cross them.

There is no recognition that some regulations might actually be important to a fair society, or indeed for a stable economy.

In the past, neoliberalism was imposed around the world by external powers. But the virtual senate enjoys the power to get countries to impose neoliberalism on themselves, simply by controlling the flow of capital. If a country wants to secure the capital they need for development – or even for survival – they have to kowtow to the wishes of the virtual senate: cut wages, cut taxes, slash regulations. Before the gods of foreign investment, the world is hostage.

Africa loses so much through illicit flows that it is effectively a net creditor to the rest of the world.

But more importantly, it means that companies move around the world not to where they can be most efficient, but to where they can find the greatest secrecy or the lowest taxes. The fact that the tiny British Virgin Islands hosts some 850,000 companies (for a population of 25,000) makes the idea of comparative advantage seem quaint.

We must stop calling events like these natural disasters. [The disaster] is a result of inequity, and the poorest people of the world are at greatest risk because of their vulnerability and decades of maldevelopment, which I must assert is connected to the pursuit of so-called economic growth that dominates the world.’

Much of this has to do with the fact that globalisation has shifted production to developing countries, and especially to China, effectively outsourcing responsibility for pollution.

The proper aim is to try and reconstruct society on such a basis that poverty will be impossible. And the altruistic virtues have really prevented the carrying out of this aim. Just as the worst slave-owners were those who were kind to their slaves, and so prevented the horror of the system being realised by those who suffered from it, and understood by those who contemplated it, so the people who do most harm are the people who try to do most good.

Charity can detract from people’s ability to directly challenge the forces that degrade them in the first place and strips them of their political agency. By smoothing over the contradictions of a deeply flawed system, it allows the system to continue a little bit longer.

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 the extent that charity is enabled by the accumulation of surplus wealth it can never be a meaningful solution – for the very processes by which wealth is accumulated are those that produce poverty in the first place.

In almost every case we can find that the accumulation that sustains charity comes from processes that cause the very problems they purport to solve.

If the US government wants to reduce global poverty, perhaps instead of doling out aid it should work to end structural adjustment, the tax evasion system and unfair trade laws – some of the major forces that cause poverty in the first place.

If we abolish the debts, nobody dies – the world will carry on spinning. Debts don’t have to be repaid, and in fact they shouldn’t be repaid when doing so means causing widespread human suffering.

The debt-as-sin framing has been used to justify ‘forgiving’ debt while requiring harsh austerity measures that replicate the structural adjustment programmes that contributed to the debt crisis in the first place, effectively saying ‘we will forgive your sins, but you will have to pay the price’.

If we want to be serious about dealing with debt, we need to challenge not only the debt itself but also the moral framing that supports it.

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.

But regardless of how we choose to approach the matter, it is crucial that debt cancellation be free of structural adjustment conditions – otherwise even this seemingly benevolent act becomes just another tool for remote-control power by creditors.

Global South countries have been demanding the right to default without threat of military retaliation since at least the 1970s.

You cannot carry out fundamental change without a certain amount of madness. In this case, it comes from nonconformity, the courage to turn your back on the old formulas, the courage to invent the future.

GDP was intended to be a war-time measure, which is why it is so single-minded – almost even violent. It tallies up all money-based activity, but it doesn’t care whether that activity is useful or destructive.

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.

The pressure to increase GDP translates into pressure for more debt, more structural adjustment, more ‘free trade’ and so on, as the system groans and writhes in a desperate search for frontiers of accumulation, more things to be monetised.

What would we do with 100 per cent clean energy? Exactly what we’re doing with fossil fuels: raze more forests, build more meat farms, expand industrial agriculture, produce more cement and heap up more landfills with waste from the additional stuff we would produce and consume, all of which will pump deadly amounts of greenhouse gas into the air. We will do these things because our economic system demands endless exponential growth. Switching to clean energy will do nothing to slow this down.

If CEOs want to spend money to increase wages or protect the environment in a manner that results in decreased shareholder returns, they can’t, for it is effectively illegal to do so.

Regardless of whether you’re a country or a business – or even an individual – you’ll find that, without growth, debt piles up and eventually causes a financial crisis. If you don’t grow, you collapse.

keep in mind that one of the reasons growth is so appealing to politicians is that it allows them to sidestep the thorny problem of distribution. As long as the pie is growing there’s less pressure to redistribute existing resources

‘Growth is a substitute for equality of income. So long as there is growth, there is hope, and that makes large income differentials tolerable.’

So, comrades, let us not pay tribute to Europe by creating states, institutions and societies which draw their inspiration from her. Humanity is waiting for something other from us than such an imitation.

Once people begin to reject the single story of development, the future is fertile and rich with possibility. We need only have the courage to invent it.