Global international debt is now so large that it is described in terms that are beyond comprehension. (If you pay lebenty-five dollars a minute for the next bazillion years, your great-great-grandchildren will inherit a debt with a somewhat reduced principal – that sort of thing.) The story behind third world debt is particularly worth understanding.
It’s not all that difficult. The oil producing nations formed a cartel (OPEC) in the 1970s and quadrupled petroleum prices. Our failure to use the prosperity of the postwar years to develop renewable energy sources left us utterly vulnerable. We watched, helpless, as prices for virtually everything rose. The extra dollars (pounds, deutschemarks, etc.), flowed into the hands of the oil producers, who banked these huge trade surpluses in the North, presumably for safe-keeping.
It was not only rich countries who had failed to free themselves from petroleum dependency and thus were susceptible to this "oil shock." The poor countries of the South without oil supplies of their own also abruptly found themselves with terrible deficits in their international balance of payments.
Northern bankers virtually pushed huge loans – the very money the OPEC countries had deposited with them – into the hands of Southern governments. (Incidentally, they also aggressively lent these surplus funds to thousands of North American farmers, who later lost their farms throughout the 1980s.) Why did they lend to these poor countries? Because there was little demand for loans in the industrialized countries, due to the recession caused by the severe hike in the price of oil.
The poor countries struggled to achieve oil-based "development" – not only in hopes of entering the exalted realm of "first world," but also simply to be in a position to repay their enormous debts. But any product they could manufacture had (and still has) to compete on the world market with products from industrialized countries with far more experience and with infrastructure costs, for the most part, behind them. And their own people were (and still are) having a hard time buying expensive petroleum products for cooking and heat, much less new, locally manufactured goods. Furthermore, their own elites did a certain amount (in some cases, a lot) of skimming, sending more money back to Northern bankers who lent yet more money back to their governments. What a mess.
A few things are worth underscoring about all this. First, note that the debts were incurred in the 1970s. Not the 1870s. Not the 1570s. This situation is not some ancient colonial legacy, but something arranged by folks who are still here with us today.
Second, all this borrowing has kept interest rates high, not just for third world governments, but for ordinary people – you and me. So when we borrow, we have to pay high interest rates. The net effect is a transfer of wealth to those who have capital, i.e., the rich. And most of us, noticing we don’t seem to be getting ahead, resist paying higher taxes, which has led to our government doing more borrowing, which leads to higher interest rates, which tends to transfer more wealth into the hands of, again, the rich.
And lest you still think a favor was done the South in extending these loans, it must be pointed out that since the 1970s, net capital flows have been greatest from South to North, even when you throw in every single bit of foreign aid. And all of this doesn’t even speak of the terrible environmental toll this has wrought on the countries involved. So what do we do?
First, in those instances where the petrodollar loans resulted in viable enterprises that are successfully repaying their debts, kudos and congratulations. Second, just as those who perpetrated the current Savings and Loan disaster should be made to pay – literally and personally – as much as possible of the debts they are now causing others to pay, the poor countries’ elites who had their hands in the national tills should be held personally accountable. Third, the banks that did the irresponsible lending, and the individual bank officers involved, should be made to pay as much as possible.
If, after that, debt remains, we peoples of the North, who have benefitted for two centuries and more from unequal relations between the many disparate community-based cultures of the South and our own industrialized, militarized, monetized, communications- and consumption-crazy culture, may have to find the moral courage to pay the taxes – they should be highly progressive, to be sure – to clean up the rest of this pitiful mess.
If this all seems too far from what we think of as achievable in the "real world," it may help to recall that there is cultural precedent for periodic leveling of inequities. The biblical Year of Jubilee (Leviticus 25) provided that every 50 years all slaves were freed and the land redistributed. Our lending institutions have brought about enslavement, and justice demands that they – that we – let these people go.
Beyond that, the solutions to poverty, North and South, lie neither in "structural adjustment" nor in more aid nor welfare. The collective willingness of people everywhere to embrace ways of living which the Earth can afford, equally for all, will provide what all the Baker and Brady plans in the world cannot ever do.
Carla Cole is associate editor and development officer for Context Institute.