by Jason Hickel
Successive colonial administrations introduced policies designed to do exactly that. As early as 1857, they began forcing Africans to pay taxes, which compelled African households to send family members to the mines and plantations for work. Those who didn’t pay taxes were punished – so there was always the threat of violence lurking in the background. On top of this, they began to systematically push Africans off their land in a process that mimicked the enclosure movement in England. The Natives Land Act of 1913 restricted African land ownership to a series of ‘native reserves’ or ‘homelands’ that totalled only 10 per cent of the country’s area. The division was brutally enforced: Africans were gradually and systematically forced off their land and into the reserves. And because the reserves were on marginal, unproductive land inadequate to support the population, Africans had no choice but to migrate to European areas for wage work.
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.
It wasn’t just the reserve system that kept African labour so cheap, however. Labour unions were banned, a so-called ‘colour bar’ prevented blacks from accessing better-paid jobs and new rounds of dispossession kicked more people into the labour market and applied downward pressure on wages. It was an ingenious scheme, from the point of view of the colonisers. European firms – including mining giants like De Beers and Anglo American – were able to squeeze record profits out of this highly exploitable workforce. South Africa is a land rich in fertile soil, mineral resources and human labour power. But the vast majority of Africans have been excluded from this abundance. Today, more than 50 per cent of the black population lives in absolute poverty, while the mines and plantations remain monopolised by a handful of white-owned (mostly British) conglomerates.
Fallout in the Sacrifice Zone
From the late 15th to the early 20th centuries, European powers considered their colonies to be a sacrifice zone for the sake of their own development. No loss of human life, no amount of suffering, no degree of degradation was too much so long as the economic interests of colonial companies and states were served. The inequity was justified by dehumanising those with black and brown skin – by repeatedly asserting that they were not quite as human as white people, and that therefore their suffering did not matter.
Colonialism took a heavy toll on the economies of Asia and Africa. Between 1870 and 1913, per capita income in Asia (excluding Japan) grew at only 0.4 per cent per year. In Africa, per capita income growth was only 0.6 per cent per year. Economists regard such low growth rates as a sign of serious crisis. By contrast, incomes in Western Europe grew at 1.3 per cent per year during this period, and in the US at 1.8 per cent per year – three to four times the rate of the colonised world. This differential in income growth rates was a major driver of global inequality. At the end of this period, Europe owned somewhere between one-third and one-half of the domestic capital of Asia and Africa, and more than three-quarters of their industrial capital.
The story in Latin America unfolded somewhat differently. Three centuries of European colonialism came to an end in the early 19th century with revolutions led by liberators such as Simón Bolívar, who, after a long period of struggle against the Spanish Crown, won independence for Venezuela in 1821, Ecuador in 1822, Peru in 1824 and Bolivia in 1825. But these and other independent nations that emerged in the wake of decolonisation tended to be controlled by autocratic local elites who were quite happy to maintain the economic arrangements that their European counterparts had imposed. And in any case, independence was in name only: at exactly the same time as European powers were pulling out of Latin America, the US established the Monroe Doctrine of 1823. The US was concerned that European powers might try to recolonise Latin America, and the Monroe Doctrine stated that any such attempt would be regarded as aggression against the United States itself. Far from being a benevolent gesture in support of the region’s newly independent countries, the real purpose of the Monroe Doctrine was to protect US interests in the region. This agenda became particularly clear when President Theodore Roosevelt added the Roosevelt Corollary in 1904, which was used to justify military intervention against any Latin American country that refused to cooperate with US economic interests. The idea was to keep Latin America open to US companies, as a source of resources and agricultural goods as well as an outlet for US manufactures – the same strategy that Britain had pursued in India and China.
This was not just an abstract assertion of power. It was a uniquely American brand of colonialism – a form of indirect economic rule that consciously distinguished itself from the more direct interventions of imperial Europe. It was colonialism of a special type. The Roosevelt Corollary was invoked to justify more than a dozen US interventions during the early 20th century, including multiple invasions and occupations of Cuba, Mexico, Honduras, Colombia, Nicaragua, Haiti, the Dominican Republic and Puerto Rico.
These are known now as the Banana Wars, as in many cases the invasions were designed to guarantee abundant land and cheap labour for American fruit companies. For instance, US marines invaded Honduras seven times between 1903 and 1925 in order to contain progressive political parties and install puppet leaders who would serve the interests of American banana producers. Cuba is another example: the US occupied Cuba on and off from 1906 to 1934, mostly to secure the interests of American sugar companies. But there were other issues at stake too. 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. Another key issue was debt. When the Dominican Republic threatened to default on its debts to American creditors, the US invaded and seized control of its ports, channelling the country’s customs revenues directly into American coffers. The occupation lasted from 1916 to 1924, at the end of which the US installed a military dictatorship to rule in its interests.
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It is tempting to see this as just a list of crimes, but it is much more than that. These snippets of history hint at the contours of a world economic system that was designed over hundreds of years to enrich a small portion of humanity at the expense of the vast majority. 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 system had two built-in features that generated increasing inequalities between the West and the rest. 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. The second was that the wages that workers in developing c
ountries were paid for the goods they traded remained much lower than in the West, even when corrected for productivity and purchasing power, so the South was undercompensated for the value they shipped abroad. Together, these two patterns lie at the heart of what economists call ‘unequal exchange’ between the core and the periphery. By the end of the colonial period, the periphery was losing $22 billion each year as a result of unequal exchange, which is equivalent to $161 billion in 2015 dollars. That is twice the amount of aid and investment that the periphery was receiving each year during the same period. This arrangement became a major driver of global inequality. 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. As the Uruguayan journalist Eduardo Galeano put it, ‘The colonial economy was built in terms of – and at the service of – the European market.’
Four
From Colonialism to the Coup
How many ways can you clone an empire?
Shailja Patel, ‘How Ambi Became Paisley’
While colonialism was an economic and humanitarian disaster for global South countries, it yielded tremendous windfall wealth for Europe and, later, the United States. But this new wealth was not evenly distributed; it was captured almost entirely by a small yet powerful elite. Between 1870 and 1910, the richest segments of society became richer by leaps and bounds, reaching historically high levels on the eve of the First World War. In 1910, the richest 1 per cent in the United States claimed 45 per cent of the nation’s wealth, while in Europe they claimed nearly 65 per cent of total wealth. Zoom out a bit and the numbers are even more staggering: in the US the richest 10 per cent claimed more than 80 per cent of the nation’s wealth; in Europe, it was as much as 90 per cent. Such levels of inequality would be almost impossible to imagine were we not once again approaching similar extremes today.
The First World War put a brief damper on things, slowing economic growth and eroding the wealth of the richest. But before long the party was back on track. After the Treaty of Versailles was signed in 1919, the victors plundered Germany for reparations, and France and Britain got to divvy up the former Ottoman Empire, significantly expanding their colonial reach. The factories of war were retooled to produce for mass consumption, and returning soldiers poured into the workforce. The following decade became known as the Roaring Twenties, a period of renewed wealth and glamour – although again, predominantly for the elite.
But it didn’t last long. The party came crashing to an end when Wall Street collapsed in 1929 and triggered the Great Depression. The crash itself, known as Black Tuesday, was the result of heated market speculation that drove prices up into an enormous bubble. The frenzy was bolstered by the confidence people had in the markets during the economic boom of the 1920s, but it was helped along by unscrupulous stockbrokers who allowed investors to buy stocks on credit with very little down payment, to the point where the whole system was shot through with toxic debt. Aided by easy money, investors bought more and more stocks, driving prices higher and higher and leading, paradoxically, to even more stock purchases. But of course eventually the bubble popped, as all bubbles must, and the financial system – unable to cover all its bad debts – collapsed. The economy ground to a halt, and confidence in the market dropped to record lows.
But there was a bright side to the crisis. From the wreckage of the old economic order a series of powerful new ideas emerged – ideas that would change the course of history. These ideas took hold not only in the West, but also across the global South. Once Europe withdrew from Africa and Asia, and as democratic movements swept through Latin America, overthrowing autocratic governments and US imperialism, the fortunes of the South began to change. From the 1950s to the 1970s, a new movement emerged across much of the postcolonial world, driven by the ideals of economic independence and a fairer distribution of the world’s wealth. And it worked. Incomes rose, living standards improved, and the gap between rich and poor countries began to narrow for the first time since 1492. It was nothing short of a development miracle. But not everyone was pleased with this turn of fate. Indeed, those whose rhetoric most celebrated international development as an abstract idea turned out to be its most violent enemies in practice.
A New Deal in the West
When the Great Depression hit the Western world, it threw established economic ideas into turmoil. At the time, most economists believed that markets were self-stabilising. In the United States, President Hoover was convinced that the solution to the Depression was to restore investors’ confidence by cutting government spending to balance the books. Others held that wages should be slashed to encourage businesses to hire. In theory, such measures were supposed to jolt the economy back to life. But they turned out to have the opposite effect and, against all predictions, deepened the Depression. Companies worried that there was no point in producing, even if it was very cheap to do so, since there was no one to buy their products.
As the Depression continued into the 1930s and the economy failed to recover, conventional views began to crumble and new economic theories emerged from the rubble. The problem, people began to realise, had to do with the internal contradictions of capitalism itself. 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. But if this process is left unchecked, eventually wages get so low that workers cannot afford to buy the products they produce. Demand goes down, and the market becomes glutted with excess goods with no one to buy them. Goods quickly lose their value, businesses stop producing and the economy slows down. This is what happens when capitalism is left to its own devices: it generates such extreme inequality that the whole system simply seizes up.
It was the British economist John Maynard Keynes – mustachioed member of London’s famous Bohemian scene – who brought this critique to prominence. In light of his findings, he proposed a very different way of dealing with the Depression. He argued that governments should not cut spending and wages, but instead do exactly the opposite: increase government spending, open up the money supply and encourage higher wages. These measures, he said, would get people buying again, stimulate aggregate demand and therefore boost the economy back to li
fe: what we might call ‘demand side’ economics.
When Franklin Delano Roosevelt came to power in the United States in 1933, he began to do precisely that. His New Deal – a vast programme of government-funded projects, such as New York’s Lincoln Tunnel and Montana’s Fort Peck Dam – put armies of unemployed Americans to work with good 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. When the Second World War gained pace it proved the point: government spending on factory production for the war effort had the same effect, boosting employment (the US reached full employment during the war), increasing wages and stimulating demand. Economic growth soared and – with higher wages for the poor and higher taxes on the rich – inequality was dramatically reduced.
Those were heady days. 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. This new system relied on a class compromise between capital and labour: the state would guarantee strong rights and good wages in exchange for a docile, productive workforce that would have sufficient money to consume mass-produced goods, thereby keeping the economy stable and growing.
As part of the New Deal, the United States also implemented a universal Social Security programme, provided affordable housing and, with the GI Bill, handed out large university tuition subsidies for veterans. In Britain, a growing union movement – propelled largely by coal miners – brought to power Clement Atlee’s Labour Party, which rolled out the National Health Service, free education, public housing, rent controls and a comprehensive social security system, as well as nationalising the mines and the railways. Many politicians on the right were willing to go along with it, hoping that granting the working class a fairer deal would stave off the social discontent they feared might spark a Soviet-style revolution. They also hoped it might prevent the rise of fascism, which had attracted Germans beleaguered by their severe economic crisis. By ensuring stability and welfare across the industrialised world, Keynesian principles were designed to prevent another world war.