Squeezing the South: 50 Years Is Enough
Montserrat’s not going to get a toxic waste dump. At least not yet. You might well ask why this tiny Caribbean island, the Emerald Isle of the Leewards, would even consider letting a US toxic waste dumping company set up shop in the first place. Montserrat, one of the last British colonies, is just 21 kilometres long by a couple of kilometres wide. Except where the goats have played havoc with the vegetation it is a lustrous green most of the year. Tourism of a quiet and mostly unobtrusive sort is the main foreign-exchange earner. Not a good mix with toxic waste, one would have thought.
That’s exactly what most Montserratians felt when they heard that local politicians had been in intense negotiations for over a year with a US multinational named, with typical euphemistic panache, Energy Processing and Supply. Opposition quickly mounted. A local doctor wrote a scathing critique in the island paper where he drew a vivid picture of cruise ships emptying passengers among the toxic-waste drums on the docks of the island’s capital, Plymouth.1
This is a small story about a small place but it illustrates the inexorable pull and push that draws the countries of the Third World into the global economy – no matter what the costs to their people and eco-systems. The pull is obvious enough: the American Dream bounced off TV satellites into the most modest of homes in surprisingly remote corners of the Third World. The push is more complicated: a subtle combination of budget and trade deficits, and debt obligations. But together this lends a seemingly unstoppable momentum to the race to get as big a slice as possible of the illusive global economic pie.
This momentum is exactly what the Bretton Woods Conference held 50 years ago this month was all about. When the world leaders gathered in that fashionable old resort hotel deep in the hill country of New Hampshire their agenda was clear: they aimed to bury forever the nationalistic protectionism they saw as the main culprit in creating the Great Depression of the 1930s. To do this they put in place the pillars of a global economy where borders were to be as porous as possible to goods and capital from anywhere in the world. As part of the design they set up two key institutions, the International Monetary Fund (IMF) and the World Bank, to deal with problems that might lead governments to inward-looking economic policies. This was followed shortly by another organization, the General Agreementon on Tariffs and Trade (GATT), which set the rules and pressures for open economies and free trade. Together with the regional development banks these are collectively known as the IFIs, an acronym for international financial institutions.
These were not neutral economic mechanisms set up to co-ordinate the world economy: they contained a powerful bias in favour of global competition and corporate enterprise. There were warnings of problems ahead from a few discordant voices, the most prominent of which was the eminent British economist John Maynard Keynes. He advocated a balanced world trade system in which surpluses and deficits would not be allowed to accumulate and there would be strict controls on the movement of capital across borders. He held that the free movement of all goods and capital, advocated most powerfully by the US delegation, would inevitably lead to inequalities and instabilities.
Costs of globalism
From the standpoint of 1994 these warnings seem all too prescient. Today budget and trade deficits plague most countries in the world. The debt load on all governments, but particularly those of the Third World, has crippled their fiscal capacity to look after their citizens. Capital moves so freely that it is often impossible for governments to find, let alone tax. Corporations treat the world like a global chessboard bidding down wages and taxes, avoiding environmental regulation and pillaging natural resources. Their right to do this is no longer even considered controversial. They are courted by politicians of all political stripes. The stability of communities from rural Zambia to Bangladesh and even the decaying rust-belts of the US heartland or the British Midlands are casually undermined by processes that appear ‘natural’ but were in fact carefully constructed at Bretton Woods.
Abandoned factories and children who make a living on the street seem light years away from that magnificent temple to money, the IMF building on 19th Street in downtown Washington. At the IMF it isn’t easy to get past security. It seems like 5 per cent of black Washingtonians are employed to keep the other 95 per cent out of such white inner sanctums. If you are curious about the IMF you will be directed to the well-appointed Vistors’ Centre complete with art gallery just next door. There, if you are interested enough (few were the rainy December afternoon I showed up) you will be shown a video tellingly entitled One World, One Economy. It’s a choice piece of propaganda for a globalist worldview that doesn’t really seem to need propagandizing any more, becoming as it has the common sense of our age for most economists and politicians. In the video a parade of besuited, mostly white men lecture on the merits of IMF medicine for ailing economies. It has some real classics of understatement such as ‘While the Fund cannot force its members, the Fund’s suggestions are taken seriously.’ A parade of faces of colour speak gratefully about the wisdom of IMF policies in their countries.
The debt crisis of the 1980s which really gave the IMF and the World Bank (the huge hulk on the other side of 19th street) leverage over desperate Third World economies is referred to mildly: ‘A workable solution was required to avoid defaults that would severely damage debtor countries, as well as financial institutions’. The solution, structural-adjustment programs or SAPs, proved a lot more ‘workable’ for the big international banks who got their interest payments than it did for the laid-off public-sector workers of Latin America or for the African families who can no longer send their kids to school because of SAP-related ‘user-fees’. These ordinary people were the ones who had to do the ‘adjusting’. This issue contains two articles – by Ayesha Imam on Africa and Mark Fried on Latin America – who provide chapter and verse on the human and environmental costs of structural adjustment.
When the dust had settled, the ‘short-term pain’ of the SAPs had not got rid of the debt: total Third World debt actually shot up from $751 billion in 1981 to $1,355 billion in 1990. What it had done was to pry open Southern economies to the world market. The formula was deceptively simple: international competition would result in growth that would be good for everyone. And this glittering promise of the global economy remains for most policy-makers, North and South, the only game in town.
But growth has proved elusive. There has been significant economic growth in some adjusting Latin American and Asian countries and new élites have profited handsomely from the privatizing of public industries. But for every South Korean success story there are dozens of unmitigated failures such as the Ivory Coast and Venezuela where absolute destitution has sky-rocketed. A recent World Bank study, Adjustment in Africa, which makes great claims about the success of SAPs on the continent, is so full of holes that the usually restrained British agency OXFAM-UK was forced to characterize it as ‘a blend of half-truths, over-simplifications and institutional propaganda’.
But if the grand architects of Bretton Woods have through their design managed to defeat 1930s-style protectionism they have been less successful with that other scourge of the Depression, unemployment. While total world output has doubled since 1975, employment has actually declined.2 The global economy with its emphasis on reducing labour costs and on currency or property speculation does not put a high priority on providing sustainable livelihoods. An underlying assumption of the growth economy is that Northern-style overconsumption can be achieved by every society on the globe. Only recently has attention started to be paid to the ecological impact of such a design.
Those who speak for the IFIs are genuinely puzzled when the Bretton Woods institutions are blamed for such problems. They are simply messengers pointing out the obvious: dispensing the advice necessary to survive the rigours of the global economy. They point to their limited budgets, a few billion dollars and a few thousand personnel, when an estimated trillion dollars crosses borders every day in response to the slightest change in currency and interest rates. They point to their minimal influence over the industrial North and even the larger Third World governments like those of China and India.
Poor pay the piper
But the role of these institutions cannot be reduced to their budgets. They help create and maintain the rules for the global economy. They sustain its momentum and make sure that any alternative vision proves impractical and unworkable. The lack of their ‘stamp of approval’ makes it virtually certain that freethinkers like Sandinista Nicaragua will be starved of capital and subjected to rigorous external pressure. If problems occur such as the 1980s debt crisis, the IFIs guarantee that any resolution will respect the interests of Northern fund managers and banks first. The price will be paid in the shantytowns of Lima and on the family farms of Uganda. In Africa the IFIs have taken over the bulk of public debt and now directly wring payments out of enfeebled African economies. As a result both the World Bank and the IMF now take more out of the Third World in repayments (even from the poorest countries) than they provide in new finance.
Nobody talks about a debt crisis any more, but while it no longer endangers world financial institutions it is still very much a crisis for those who have to pay. Along with the opening up of Third World economies, this transfer of the debt burden from the rich to the poor has been the IFIs’ greatest triumph. Their greatest failure has been in delivering the orderly world financial system that Bretton Woods promised. Narrow technocratic thinking and cynical power politics have put short-term gain ahead of stability. Public finance the world over is in a mess. Private wealth and public squalor are the order of the day. It is written right into the World Bank’s constitution that it cannot fund projects that compete with private enterprise. The IFIs have exerted consistent pressure to minimize state involvement in economic life from Bogota to Bangkok. This despite the clear evidence that the development success stories of Asia (Taiwan, South Korea, Malaysia and Thailand) have all involved strong government intervention to order society, protect the domestic economy and promote growth.
The irony is that in many ways the IFIs show the same weaknesses they criticize in government bureaucracies. Their bloated and privileged staffs resemble more the command economies of old-style Communism than the lean mean private sector they celebrate. While they lionize risk-takers there are no risks attached to an IFI loan: a government (or rather its benighted citizens) has to pay it back no matter how wasteful or ill-considered it was in the first place. The distance between an IFI head of mission who lives in a comfortable Virginia suburb and a hard-pressed Argentinian pensioner or a mother in Benin struggling to keep her family alive is just too great. Staffers are too well insulated from the effects of their own advice.
The IFIs’ single-minded insistence on an export-driven growth formula also shows the weakness of centralized economic decision-making. Whether we are talking about huge transnational corporations, over-ambitious state planning or the global economic management ambitions of the IFIs, wasteful diseconomies of scale are inevitable. The IFIs’ loan portfolio is a prime example. It leans towards big loans for big projects such as dams or port facilities that will ‘aid international competitiveness’. It is a lot easier to manage one big loan than a lot of little ones. Unfortunately experiences like those of the Grameen Bank in Bangladesh and its support for micro-enterprises shows that it is many small loans that work best in spreading economic benefits.
The research and on-the-ground experience which shows this is conveniently ignored. Small loans usually don’t build up a country’s capacity to earn foreign exchange and therefore don’t help pay off debt. But more exports don’t necessarily help either. Producing more of a cash crop tends simultaneously to lower its price on the world market. This has cancelled out any significant gains for five of Africa’s main exports.3
Killing the alternatives
The message echoing down the decades from those heady days in New Hampshire is always the same: ‘there is no choice’. GATT has set the rules for the global economy and the IFIs must enforce them. The slash-and-burn economic policies adopted both South and North are the only way forward. Economies have to compete on the world market no matter what the human costs. There is simply no alternative.
This is of course the big lie. State socialism has collapsed, but that was never the only and certainly not the best alternative to global capitalism. There is a rich vein of alternative economic initiatives and ideas: co-operatives, self-managed enterprises, various mixes of private and public sector, eco-development, ideas for a diversified regional and community-based economics, innovations in planning the economies of cities, fresh approaches to taxation, and blueprints for converting military production to basic needs. In each of these alternatives the people affected would have more power over decisions and the health of the environment would weigh heavier in economic calculations.
Small may be both beautiful and possible but the decisions taken at Bretton Woods make it unlikely. After all why waste time and resources trying to do things differently when you can earn good foreign exchange from toxic waste dumps, exporting weapons, depleting your natural resources and letting transnationals exploit your workers?
There is another less discussed cost of a global economy directed by those who control international capital. Gradually democracy itself is slipping through our fingers. Today it hardly matters if a finance minister comes from the Left or the Right if their main concern when preparing a budget is how the IMF and the money markets are going to react. Voters may support anti-SAP politicians as they have in Venezuela, Argentina and Brazil, but those who buy and sell government bonds and hold the national debt will see to it that SAPs get implemented anyway. But people and politics have proved a lot less malleable than economics to the IFIs’ designs for global management. In Eastern Europe structural adjustment has produced results inconceivable a couple of years ago: the political rehabilitation of the Left. In Hungary, Lithuania and Poland the Socialists have become the most popular political party.
A much more disturbing by-product of adjustment has been the stoking of anti-immigrant feeling and lifeboat ethics across the industrial world. The economic dislocations accompanying the IMF-encouraged market reforms in Russia and eastern Germany have helped set in motion a vicious nationalism based on race and violence; the fascist Right have been revived in both Rome and Berlin. These are just the kind of political developments Bretton Woods was intended to forestall.
It is in the Third World, however, that the breaking of glass and the explosion of tear-gas canisters have formed a recurrent soundtrack of protest. Enraged citizens from Cairo to Caracas are taking their insecurities about the global economy to the streets. At its worst this has led to authoritarian politics (the dictatorship of Alberto Fujimori in Peru) or political pathologies such as Islamic fundamentalism that reject not only the superficialities of Western materialism but most recognizable forms of democracy as well.
More promising is the emergence of ‘internationalism from below’ as networks of activists from North and South come together to expose the impact on livelihoods and environment behind the globalist cant. Organizations have sprung up on every continent and in any country that allows them the political space to operate. So far the main activity of these networks has been to challenge the priorities of the export-driven growth model of development. They have been in the forefront of opposing the structural-adjustment policies of the IFIs. It is this ‘internationalism from below’ which has put the reconsideration of the decisions and institutions of Bretton Woods on the agenda. For them 50 years is enough!
To have real effect, however, this citizens’ movement needs to move beyond opposition to proposition. Grassroots organizations the world over are seeking an economics driven by community need rather than export opportunities. Strategies will vary, but the emerging common thread is the rejection of the grand designs and globalist illusions of Bretton Woods as undemocratic and anti-ecological. Bretton Woods stands as a cement block in the path of rethinking what a peaceful and sustainable world might look like. The words of singer Jackson Browne could be directly addressed to the eminent group pictured below: ‘Boys, boys, this world is not your toy. This world is long on hunger. This world is short on joy.’
1. The Montserrat Reporter, 14/1/94
2. Mahbub Ul Haq, Bretton Woods Institutions: The Vision and the Reality, North – South Roundtable, Bretton Woods, New Hampshire.
3. Salim Lone, Troubled Adjustment Efforts, African Recovery, UN , Vol. 7 no.3/4.
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