8 hours against illegitimate debt

Debt system and capitalism: what are the links?

12 January by Mariella Caponnetto

Silvia Federici, Noëmie Cravatte and Eric Toussaint

Minutes from the keynote speech: The “debt, capitalism’s lethal weapon”

Speakers: Silvia Federici |1| (feminist activist, emeritus professor of social sciences at Hofstra University, New York, USA), Éric Toussaint (spokesperson for CADTM International, member of the Scientific Council of ATTAC France), and Noëmie Cravatte (CADTM Belgium) as moderator.

During this opening keynote speech, our two speakers were invited to demonstrate how the debt actually is an instrument of choice for the capitalist system, by both answering the same question then each a question specific to their field of expertise.

1 – Debt system and capitalism: what are the links?

1.1 - Silvia Federici: Let’s not let the debt isolate us

In history, the debt hasn’t always filled the same role. Until the middle of the 20th century, credit was only given to workers who had a guaranteed salary. After that, the ability to pay back became secondary and debt was used for other ends. In the years 1960 to 1970, the national debt was used to promote full employment and in the past 30 years, it has, on the contrary, been used to create unemployment.

The debt, is not only a tool for the economy, it’s a political weapon. As a main tool for globalisation, it has disoriented the economy and allowed exportations and extractivism and is a first-class tool for privatisation of the economy, to end socialism and to create global impoverishment.

The debt, is not only a tool for the economy, it’s a political weapon

Debt is used on an international scale as it’s very efficient at exploiting individuals. It demobilises and does not generate general resistance. This is precisely because debt conceals exploitation and isolates people. A worker involved in a fight over pay will perceive the unfair exploitation they are victim of and feel part of the community whereas a private debtor will appear to have enjoyed this money for their own benefit.

There is obviously a link between national debt and private debt when people have no choice but to borrow in order to benefit from services that should have been provided by the State. They do not see that they are exploited by the banks and they feel guilty, thinking in most cases that the debt is an outcome of bad management.

There is an obvious link between national debt and private debt when people have no choice but to borrow in order to benefit from services that should have been provided by the State.

Throughout time, especially in America, some important resistance movements were created, the main one being the social movement El Barzon in the 90s in Mexico. |2| In a context of economic and financial national crisis and increase of interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
, many debtors found themselves unable to pay back what they had borrowed from banks. Hundreds of thousands of people across the country put pressure on the government to change repayment conditions in their favour. Such mobilization was hard to organise. To oppose global debt is a tough challenge to take on but this movement must encourage us as a country’s debt concerns a large proportion of the population.


1.2 - Éric Toussaint: We must reject both public illegitimate debts and private ones

Public debts are a mechanism of income transfer from the people to the capitalists

Debt is an unfair way of taking money that seems abstract and hardly perceptible. An unfair tax on income is immediately noticeable, as is overexploitation by a boss. But repayment of debt is much harder to conceive; there is indeed no specific tax for debt repayment. However, a big part of taxes paid – whether direct or indirect – is used to pay back a country’s debt. |3|

It’s therefore a double exploitation: it starts at work and follows on, more insidiously, through tax levy linked to the repayment of a debt largely owned by financial institutions and capitalists who pay little tax and receive fiscal gifts on top of that. They can thus accumulate capital and invest some of it in the purchase of public debt bonds guaranteeing them a return based on the tax people pay.

It’s therefore a double exploitation: it starts at work and follows on, more insidiously, through tax levy linked to the repayment of a debt largely owned by financial institutions and capitalists who pay little tax and receive fiscal gifts on top of that.

Furthermore, a large part of this public debt is contracted for projects that mainly benefit Big Capital and much less the people. Most of the projects follow extractivist or productivist models.

It is the fundamental role of organisations such as CADTM to unveil the truth of the transfer mechanism.

Getting private individuals into debt is a way of chaining them to the monetary system

Monetary dictatorship was already ruling over common goods Common goods In economics, common goods are characterized by being collectively owned, as opposed to either privately or publicly owned. In philosophy, the term denotes what is shared by the members of one community, whether a town or indeed all humanity, from a juridical, political or moral standpoint. in 14th century towns. |4| At that time, service exchanges became monetary exchanges: private debt was born. |5| After this, as soon as the capitalist system generalised monetary exchanges during the 19th century, individuals became progressively chained to their private debts.

What was already true for peasants, when monetarisation was introduced in the 14th century in Western Europe, can be seen nowadays in the United Stated for example, when students take on debts for 20 to 30 years to finance their studies, giving them no choice but to pay it back as soon as they start work. Then, when they leave university in a situation of economic crisis, they cannot find employment, which corners them in a terrible state of overexploitation.

Today, we’re going back to relationships of semi-slavery. People start their existence in a relation of complete dependence.

Abusive mortgages have disastrous consequences. We’ve seen this in Spain where 300,000 families have had their accommodation expropriated by banks since 2010. In the United States, 12 million families suffered the same fate from 2007.

Micro-credit in Southern countries often forms another tool for the destruction of non-monetary relations. Women are its first victims and the practice of high interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. rates curtails individual freedoms.

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Silvia Federici, Noëmie Cravatte and Éric Toussaint.

2 - Silvia Federici: How are debt and patriarchy linked?

Debt is a general attack on the working class, on populations of the South, on Blacks in the United States, etc. But it first affects women. Indeed, women have more directly and intensely suffered the consequences of both public debt and private debt.

Their situation in the world with regard to the debt invalidates the United Nations’ claim that globalisation has been a way to emancipate women as many of them have gained status and strength through earning a salary. The truth is that national debt and the ‘social adjustments’ which it aims to legitimise affect women first and foremost. The destruction of public services in Third World countries has led to job-losses and a sharp increase in women’s unemployment.

The national debt and the ‘social adjustments’ which it aims to legitimise affect women first and foremost. The destruction of public services in Third World countries has led to job-losses and a sharp increase in women’s unemployment.

For women, one of the main consequences of debt has been to undermine their efforts to achieve financial independence. Getting heavily indebted has intensified their slave status, especially with household chores.

National debts are an excuse to destroy social services. Consequently, services once available or affordable such as pre-school care,, health care andhelp for people in general have been compromised. For women, this means they have had to find a job, working for little pay, merely to survive and support their family. Simultaneously, they have had to do more in the home as they no longer have access to social services.

Private debt is based on national debt. There is a direct link between the two. Because all sorts of services have been neglected for the sake of national debt, people are forced to pay individually for goods and services such as education, health and staple goods.

The debt is also linked to an increase in sexual exploitation. From the ’90s, when national and private debt began to increase, the sex industry expanded globally. Many women were forced to prostitute themselves. In the United States, some female students in prestigious universities turn to prostitution to pay for their studies.

In the North as in the South, the debt has been used as a way of controlling populations.

The students who prostituted themselves to pay for their studies testified that they feel sterilised by debt. They cannot imagine becoming mothers with the prospect of a life chained to debt. The commercialisation of the female human body is not limited to prostitution; it also intervenes in the process of procreation when women rent out their wombs. The surrogate mother industry has boomed with global debt.

Debt is a major tool for the enhancement of the class reports and patriarchal relationships.

Almost all aspects of the life of women have been strongly transformed by debt, a major instrument developing class differences class and patriarchal relationships.

3 - Éric Toussaint: in Europe, how can we make the balance of power evolve in favour of the populations? What measures does the CADTM advocate to deal with debt?

The best and most recent instrument to counter debt is citizens’ debt audits. These enable the maximum number of citizens to understand the origins of public debt and to question the parts identified as illegal, illegitimate, odious or unsustainable.

In 2007, Ecuador set up a Commission for the complete audit of the debt that led to the unilateral suspension of repayments of the part recognised as illegitimate. The creditors were forced to sell back the bonds they owned at their lowest price, and those who refused – bankers – now possess bonds with a value of nil. |6|

This experience inspired citizens in Europe. Iceland, faced with the collapse of its bank system, after the failure of Lehman Brothers, set an example in 2008. The population mobilised and two referenda were organised under popular pressure. During the first one, a large majority (93%) opposed the payment of the indemnity by the government to the United Kingdom and the Netherlands to save the Icelandic bank Icesave. The second referendum confirmed this refusal with 72%. |7|

For the audit to be a success, governments must be prepared to take unilateral action

For the audit to be a success, governments must be prepared to take unilateral action. In Europe, political movements are needed which are able to commit themselves in the name of their citizens to suspend payments and repudiate debts identified as illegitimate.

Syriza’s government formed in January 2015 in Greece gave hope that Tsipras would take on the creditors. He was not brave enough and agreed to maintain debt repayments as early as February 2015. Greece emptied its pockets to repay a debt identified as illegitimate, odious, unsustainable and illegal by the Truth Committee on Greek Public Debt established on April 4th 2015 by the President of the Hellenic Parliament.

If Tsipras had been brave enough in February 2015 to announce that he would suspend debt repayments to carry out an audit, without pre-judging the results and whilst taking measures for the population, we would not have seen the capitulation of July 2015. Obviously, the creditors carry the most responsibility in this. It was primarily the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
, the European Commission and European governments who were to blame;, butthe government should have had the courage to resist them as demanded by the majority of Greeks. |8|

It is on the basis of this lesson that we must convince other forces likely to govern – as is the case of Podemos, Izquierda Unida and other radical left political forces in Spain – so that they commit to carry out a national or local audit if they come to power. |9|

In Spain, more than 100 local governments elected in 2015 are demanding transparency of public accounts. In Oviedo, with about 50 local councils represented, an embryonic front of local councils has been established that will challenge the payment of the debt to commit to producing citizen-led audits. Dates for meetings and actions have been fixed. |10|

We hope that this dynamic will percolate through other European countries, in Italy for example where there have been changes to local governments. And why not, in Belgium, after the local elections planned for October 2018, with more radical left candidates elected, obtain a commitment to win back common goods and a re-examine illegitimate debt?


Translated by Trommons and Vicki Briault (CADTM)


Footnotes

|1| For more information about Silvia Federici

|2| For more information on this movement, read: https://www.cairn.info/revue-le-mou... (in French) or, in English, https://en.wikipedia.org/wiki/El_Barzon

|3| States use 15 to 45% of income tax for debt repayment.

|4| Patrick Boucheron, in his essay Conjurer la peur. Sienna 1338, Paris: Le Seuil, 2013, (in French only) refers to “The Allegory of Good Government”, a fresco by Lorenzetti located in Sienna’s palace. Painted in 1338, it illustrates the domination of financial Lords over common goods and Italian cities. For commentaries, see: http://www.cairn-int.info/article-E... or Jean-Fabien Spitz, « A Glimpse of Free Government? », Books and Ideas, 4 May 2015. ISSN : 2105-3030. URL : http://www.booksandideas.net/A-Glim...

|5| Éric Toussaint specifies that private debt was born a long time before the Middle Ages and that there had been many cancellations of private debt during the 3rd and 2nd millennia BCE in Mesopotamia, see his article
Later, the fight against private debt was one of the principal driving forces behind social and political developments in Greek society during the 6th and 5th centuries BCE. Solon’s reforms aimed to tackle debt-slavery.
Toussaint stresses that the generalisation of monetary relations began during the 14th century. Indeed during the Middle Ages there were significant developments leading to monetarisation of a whole series of social relationships and of the burgeoning of banks in Western Europe. These are the origins of modern capitalism. See his article “Bankocracy: from the Venetian Republic to Mario Draghi and Goldman Sachs”
http://www.cadtm.org/Bankocracy-from-the-Venetian

|6| For more information on the debt audit in Ecuador, see especially Éric Toussaint’s video interview ; another video clip from the Debtocracy documentary ; and the following article

|7| For more information on Iceland, read amongst other sources: L’Islande est-elle un exemple d’alternative ? (in French); and Eva Joly’s interview

|8| For more information on the Greek debt, read:
La dette grecque (in French); and about the reasons for the capitulation and alternate possibilities (article), Grèce : pourquoi la capitulation ? Une autre voie est possible (video in French with english subtitles)

|9| Read http://www.cadtm.org/For-people-s-seizure-of-power-Ten

|10| On Spain’s dynamic, see Oviedo’s Manifesto; minutes from Oviedo’s November 2016 meeting ; and Oviedo : Succès de la rencontre municipaliste contre la dette illégitime et l’austérité (in French)

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