I once met a man from an Indian village who had spent his entire childhood and youth as a slave because a landlord had to be paid back for a blanket given on credit to the man’s father. The ‘debt’ still was not repaid when he was rescued in his middle years by a civil-society group.
This extreme example illustrates that debt is just as much about inequality as it is about lending and borrowing. Now here is another extreme. This year the share of the world’s wealth held by the one per cent of top ‘high net worth’ individuals rose to 50 per cent. Meanwhile 71 per cent of the world’s poorest people – all 3,386 million of them – could only lay claim to three per cent of total wealth.1 Gives a whole new spin to living within your means.
On a global scale this concentration of wealth not only makes people and countries more dependent on debt, it also channels huge sums of money into completely unproductive and risky financial speculation – high risk, high return.2 And it creates a tiny rentier class whose sole function is to extract yet more wealth from the rest of us through the instrument of debt.3
In such an extractive vision of the world the obscenity of odious debts of the past seems perfectly logical. From the 1970s on, Western banks flush with oil money encouraged some of the most corrupt regimes in the Majority World to take out huge loans. They had full knowledge that the dictators involved and their immediate circle would pocket the money and that the people of those countries would be chained to horrific debt service as a result – on a scale where the original loan was sometimes repaid many times over and which further ruined those countries’ economies.
Such debts are described as ‘odious’ and the lenders should have been punished. Instead, for many indebted countries, the only relief came in the new millennium as a result of active campaigning for debt cancellation. Today there are signs that a new debt trap is being sprung on some of the most impoverished nations of the world.2
And while odious debts have been pursued with some vigour, rightwing Western governments are now refusing to incur legitimate debts their countries need following the financial crisis created by their elite friends.
Debt is talked up as the bogey to justify cuts in public investment and privatization sell-offs. But the opposite is needed to boost public confidence and get economies moving; we need debt-management rather than the constant focus on reduction. Post-World War Two, many European nations ran large debts and invested in public provision in order to kick-start their economies, after which they could bring debt down to manageable levels again.
Foreign-owed debt can be dangerous if levels rise too high and the debtor country is economically weak, but the behaviour of the creditors must be held as much to account as that of the debtors. Greece today is the most prominent horror story of extractive debt. Greece borrowed too much in deals mired in corruption. Today the country’s economy is broken, ‘bailouts’ have been channelled straight to the creditors rather than to help the Greek people, and the need of the hour – massive debt restructuring and the write-off of illegitimate debt – is not being addressed.
US economist Jeffrey Sachs describes the situation thus: ‘Debt servicing is a shell game; give Greece tens of billions of euros every couple of years so that Greece can repay the debt that it owes. Professionals call this policy “pretend and extend”. The problem is that the debt grows; the Greek banks die; and the Greek small and medium enterprises collapse. It is death by debt.’4
David Graeber, ‘Can debt spark a revolution?’, The Nation, 5 September 2012. ↩