by Jason Hickel
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I have articulated these arguments many times – in the classroom, in public lectures, at conferences and even at events hosted by development agencies themselves. Everywhere I go, even in the very heart of the NGO world, I find that people are eager for the critique – and this is particularly true of the younger generation who have come of age in the wake of the 2008 crash. It seems to resonate with their own suspicions, their own incipient sense that there is something disingenuous about the official narrative. They know from observing their own nations’ politics that poverty isn’t just a natural phenomenon. They know that it is created by a system that has been carefully designed to benefit some – rich nations, multinational corporations, powerful individuals – at the expense of most of the rest. The official narrative tries to obscure this fact and distracts our attention away from it. It pushes us to focus on apolitical solutions like aid, without addressing underlying causes. It makes the takers in the system seem like givers, and enjoins us to celebrate their generosity. And it tries to convince us that global poverty can be solved without any substantive changes to the status quo.
With 4.3 billion people living in poverty today, and with the divide between rich and poor countries widening, it is time for a different approach. What can we do? How can we change course? On one level, the solutions appear to be relatively obvious. Development will only ever make sense if we begin to change the rules that produce poverty in the first place – if we begin to dismantle the architecture of upward redistribution that defines the world system. To that end, here are five ideas for evolving towards a fairer global economy.
Debt Resistance
Perhaps the most important first step is to abolish the debt burdens of developing countries. This move is crucial in a number of respects. It would roll back the remote-control power that rich countries exercise over poor countries, and restore sovereign control over economic policy at the national level. It would also free developing countries to spend more of their income on healthcare, education and poverty-reduction efforts instead of just handing it over in debt service to big banks. This will be a difficult battle, of course, since creditors stand to lose a great deal. Some that are overexposed to debt in heavily indebted countries might even go bankrupt. But that is a small price to pay for the liberation of potentially hundreds of millions of people. 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.
Some NGOs have called for debt ‘relief’ or even ‘forgiveness’, but these words send exactly the wrong message. By implying that debtors have committed some kind of sin, and by casting creditors as saviours, they reinforce the power imbalance that lies at the heart of the problem. 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’. In other words, until now, debt forgiveness has largely just perpetuated the problem. 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.
As of 2008, some $95 million worth of global South debt was scheduled for some degree of relief. This sounds like a lot, but economists at the New Economics Foundation have found that in order to achieve real debt sustainability – and to allow enough budget space for countries to eradicate poverty – it needs to be increased by a factor of six. Another recent report finds that at least $400 billion of debt in 100 different countries needs to be cancelled simply so that states can have enough money to meet the basic needs of their citizens. Both of these studies provide sensible starting points for any debt-cancellation programme. Another approach is to cancel what are known as ‘dictator debts’ – debts racked up by heads of state with no democratic mandate. 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. This would be the same thing as retroactively imposing interest rate caps on already existing loans, to make them more affordable.
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. Indeed, it would be wise to abolish structural adjustment conditions on development lending in the first place. Such a step is vital to ensuring that developing countries have access to finance going forward while still retaining the sovereignty to use tariffs, subsidies, capital controls, social spending and other measures they might need to manage their economies and reduce poverty.
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 of the global South. In other words, they might function as 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.
Global Democracy
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. Right now, votes are apportioned to each country according to their financial shares in the institutions, with rich countries claiming about 60 per cent. To fix this skewed distribution, votes could be apportioned to each country according to the size of their population, or in a way that accounts for their relative development needs. The presidents of the World Bank and the IMF should be decided not by fiat by the US and Europe, as is presently the case, but instead by merit-based candidacy and democratic election, and should be open to candidates of all nationalities. And the immunity of the World Bank and the IMF needs to be revoked so that loan recipients can hold them accountable. This move is essential to eliminating the moral hazard that presently plagues these institutions, which are free to dish out policy prescriptions without heed for the damage they might cause.
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.
Fair Trade
A third vital step would be to make the international trade system fairer. As we have seen, one of the major problems with the WTO is that it demands across-the-board trade liberalisation from all member states – the so-called ‘level playing field’. This is theoretically supposed to increase trade flows and improve everyone’s lives, but it almost always benefits rich countries at the expense of developing countries. Developing countries lose control over the policy space they need to ensure that they gain from trade. 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. We shouldn’t have to rely on Wiki-Leaks to provide this information in a partial and ad hoc way. Having full access to the draft proposals would allow vulnerable groups and advocacy organisations in rich and poor countries alike to push back against clauses that are harmful to people and the environment. Indeed, ideally all existing agreements should be suspended and renegotiated under more transparent and democratic conditions.
There has been a growing uproar about the investor-state dispute settlement mechanisms that are included in most FTAs, which allow foreign corporations to sue sovereign states for regulations that compromise their profits. As these mechanisms have such little legitimacy, it would make sense to place a moratorium on all future cases and require plaintiffs to pursue their concerns through national court systems, which are transparent, public and accountable. This is essential to restoring the ability of developing countries – and all sovereign states – to create regulations in the interest of workers, the environment or public health even if such regulations happen to harm the potential profits of foreign investors.
The TRIPS Agreement, while having little to do with trade in the strict sense, is also in desperate need of reform. The period of patent protection under TRIPS is presently twenty years, longer than it has ever been. This could be halved without negatively impacting incentives for research and development. Relaxing patent rules would allow poor countries to access the technologies they need for development – not only industrial technologies but also things like textbooks and software. And there is a strong case to be made that the most essential technologies – like public health medicines – should be exempt from the patent system altogether. Ensuring that developing countries have the legal right to produce or import generic versions of life-saving medicines would go a long way towards saving lives, and would prevent the kind of needless catastrophe that unfolded with the AIDS crisis.
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 materials 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. This is necessary in order for infant agricultural businesses to grow strong enough to compete on the world stage, as well as to ensure that s
mall farmers have the support they need to maintain their own livelihoods and help feed their fellow citizens. Indeed, subsidies for small farmers in the South is essential to curbing global hunger.
Just Wages
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. On the face of it, this might sound problematic. For one, it wouldn’t make any sense for workers in Tanzania to earn the same as workers in Britain, for example, since the cost of living differs markedly between these two countries. Plus, what if raising wages in cheap-labour countries ruins their competitive advantage and causes businesses to flee, increasing unemployment and poverty?
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.