How to apply unpopular austerity policies

The OECD issues guidance to governments

22 April by Eric Toussaint

In a document meant for government eyes, Organisation for Economic Co-operation and Development OECD
Organisation for Economic Co-operation and Development
OECD: the Organisation for Economic Co-operation and Development, created in 1960. It includes the major industrialized countries and has 34 members as of January 2016.

http://www.oecd.org/about/membersandpartners/
(OECD) – see Box - official Christian Morrison provides a number of recommendations. |1| The document makes one’s blood boil, and requires little comment. Here are some extracts (the subheads are the author’s).

As we learn what the recommendations are we become aware that they are applied throughout the World with the support of the highest international institutions such as the the OECD, 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 World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 180 members in 1997), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

http://worldbank.org
, the European Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

ECB : http://www.bankofengland.co.uk/Pages/home.aspx
and the majority of the World’s Governments.

First, on the objective of the report, called ’The political feasibility of adjustment’ (Morrison, 1996) :

’The Development Centre strives to identify and analyse the problems that will arise in the medium term, both for OECD OECD
Organisation for Economic Co-operation and Development
OECD: the Organisation for Economic Co-operation and Development, created in 1960. It includes the major industrialized countries and has 34 members as of January 2016.

http://www.oecd.org/about/membersandpartners/
member-countries and non-member countries, and to determine trends in order to facilitate the development of appropriate policies. This series of Economic Policy Notebooks provides the results of the Centre’s research work and is primarily meant for political leaders and decision-makers concerned by its recommendations’.

’Economic stabilisation and adjustment policies may cause social disturbances; they may even endanger a country’s stability. In this Economic Policy Notebook, the political consequences of such programmes are analysed. From five in-depth studies and two key country samples in Latin America and Africa, it can be observed that the political costs in terms of strikes, demonstrations and riots are very different from one stabilisation measure to the next. Our research has allowed us to define what a politically effective stabilisation programme should look like. It is possible to obtain the desired results while minimising political risks’ (Morrison, 1996, p.3).

’It is politically important to distinguish between stabilisation and structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

IMF : http://www.worldbank.org/
. Indeed, stabilisation programmes involve a degree of urgency and therefore necessarily involve many unpopular measures - such as sharp reductions in household revenues and consumption through cuts in public-sector wages, subsidies and employment in the construction sector. On the other hand, structural adjustment measures can be spread out over a number of years; each measure creates winners and losers, in such a way that a government can easily obtain the backing of a coalition of beneficiaries to defend its line of march’. (ibid., p.5).

’In the case of an adjustment, a government can put down social unrest to compensate for a drop in popularity stemming from spending cuts. But this approach brings with it a number of costs - increased dependence on the army and negative foreign reaction’ (ibid. p.9).


What is the Organisation for Economic Co-operation and Development?

A few extracts from the OECD website.

The OECD’s origins date back to 1960, when 18 European countries plus the United States and Canada joined forces to create an organisation dedicated to economic development.

Today, our 35 Member countries span the globe, from North and South America to Europe and Asia-Pacific. They include many of the world’s most advanced countries but also emerging countries like Mexico, Chile and Turkey.

We also work closely with emerging economies like the People’s Republic of China, India and Brazil and developing economies in Africa, Asia, Latin America and the Caribbean. Together, our goal continues to be to build a stronger, cleaner and fairer world.

Our mission

The mission of the Organisation for Economic Co-operation and Development (OECD) is to promote policies that will improve the economic and social well-being of people around the world.

The OECD provides a forum in which governments can work together to share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. experiences and seek solutions to common problems. We work with governments to understand what drives economic, social and environmental change. We measure productivity and global flows of trade and investment. We analyse and compare data to predict future trends. We set international standards on a wide range of things, from agriculture and tax to the safety of chemicals.

We also look at issues that directly affect everyone’s daily life, like how much people pay in taxes and social security, and how much leisure time they can take. We compare how different countries’ school systems are readying their young people for modern life, and how different countries’ pension systems will look after their citizens in old age.

Drawing on facts and real-life experience, we recommend policies designed to improve the quality of people’s lives. We work with business, through the Business and Industry Advisory Committee to the OECD (BIAC), and with labour, through the Trade Union Advisory Committee (TUAC). We have active contacts as well with other civil society organisations. The common thread of our work is a shared commitment to market economies backed by democratic institutions and focused on the wellbeing of all citizens. Along the way, we also set out to make life harder for the terrorists, tax dodgers, crooked businessmen and others whose actions undermine a fair and open society.

Source : http://www.oecd.org/about/ and http://www.oecd.org/about/membersandpartners/

Timing

’A clear three to six month time lag can be observed between the announcement of stabilisation measures and the outbreak of strikes, demonstrations and other social unrest. This lag is interesting since it proves - contrary to the hypothesis of rational expectations - that political reactions occur when measures are implemented rather than when they are announced’ (ibid. p.10).

A worthy role model: Hassan II

’That said, there is an example of a government successfully avoiding this risk, such as in Morocco in 1983-1985. There were two reasons for this political success: caution (price rises were moderate and gradual) and good public relations (for example, the king proclaimed that the poor should be protected from the effects of adjustment, using the slogan ’austerity yes, pauperisation no’)’ (ibid. p.15).

The easiest to impose

’A restrictive monetary policy, of severe cuts in public investment and operating costs, does not involve any risk for a government. This does not mean that such measures do not have social and economic consequences; but our reasoning here is based on the sole criterion of reducing the risk of social unrest’(ibid. p.16).

’There is usually no reaction to cuts in public investment, even when they are severe: a 40% cut over three years in Morocco; 40% over two years in the Ivory Coast; 66% between 1982 and 1985 in Venezuela; and 60% over two years in the Philippines ’(ibid. p.17).

Errors to be avoided

’It is more difficult to implement a programme that equally affects all groups - that is, a socially neutral programme - than it is to implement a discriminatory programme. It is easier to make some groups bear the brunt of the adjustment while sparing others, on whom the government can count for support’.

(ibid. p.17).

Total control is best

’In the face of adversity, the exceptional power of a head of state is of vital importance to the success of an adjustment. To be sure, governments have real capacities for resistance, thanks to the forces of law and order. But when riots threaten a regime’s stability, the authority of a head of state is a major asset Asset Something belonging to an individual or a business that has value or the power to earn money (FT). The opposite of assets are liabilities, that is the part of the balance sheet reflecting a company’s resources (the capital contributed by the partners, provisions for contingencies and charges, as well as the outstanding debts). . This was true in Morocco, Ivory Coast and Venezuela. In Venezuela, the president enjoyed this authority in 1990 since the same party controlled the presidency, the parliament and the main trade union’(ibid. p.18).

Massive privatisation and dismissal: a realistic agenda

’Whether it is a matter of restructuring or privatisation, in many countries the reform of state-owned companies has been met with strong opposition, given that such reforms call into question a wide variety of interests.

’Nevertheless, in many cases governments manage to carry out restructuring programmes which would be spurned in developed countries. In 1987, for example, Bolivian president Paz took a number of Draconian measures: two thirds of the state-owned tin-mining company’s work force was dismissed, given that the company caused one third of the total annual public deficit. This led to a series of strikes and demonstrations, but the government stood its ground against the miners and remained in power for another three years’ (ibid. p.20).

Use 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
threat

’Let us recall that any adjustment is a politically risky affair. On the one hand, the opposition will blame all the costs of an adjustment on the government. On the other, if - fearing the opposition - the government holds off on adjustment until there is a financial crisis, it will have much less margin for manœuvre to confront a political crisis. However, since no concessions are possible once a commitment has been made to the IMF, the government can reply to the opposition that it is duty bound to respect the IMF agreement, whether it wants to or not’ (ibid. p.22).

’A government can explain that, since the IMF has imposed, for example, a 20% reduction in the total wage bill, it has to choose between massive dismissals and cuts in salary. It can say that - in the interests of all concerned - it prefers the latter solution’ (ibid. p29).

North and South: how to undermine trade unionism

’If state-sector employees are well organised, they can put up effective opposition to government decisions [to dismiss thousands of workers or to privatise]. Any policy aimed at weakening these forms of corporatism [NB Morrison uses the term ’corporatism’ in reference to the trade union movement] is a desirable one. From an economic point of view, it means eliminating obstacles to growth; politically, the government attains the sort of room for manœuvre that can be precious in a period of adjustment. Some will object that such a policy would encounter resistance; but it is better for a government to wage this battle during a phase of economic buoyancy than when it is weakened in times of crisis. Such a policy can take several forms: minimum-service guarantees Guarantees Acts that provide a creditor with security in complement to the debtor’s commitment. A distinction is made between real guarantees (lien, pledge, mortgage, prior charge) and personal guarantees (surety, aval, letter of intent, independent guarantee). , training of additional qualified staff, and, when possible, privatisation and division into several competing companies’ (ibid. p.23).

Measures to be avoided

’The first precautionary measure to take is that of avoiding lenient policies in times of prosperity, since they create rights that are hard to challenge later on’ (ibid. p.26).

’Many inhabitants of slums and poor neighbourhoods feel resentful and excluded in relation to the rest of the urban population. Looting and pillage of shops in wealthy neighbourhoods are outlets for these feelings. When a stabilisation measure - subsidy cuts, for example - leads to a sudden increase in the cost of basic items, these sectors of the population react with violent displays of their desperation. Indeed, such measures brutally lower their already very low standard of living to a point where the poor have nothing left to lose’ (ibid. p.26).

’Following the example of Morocco in 1983-1984, the prices of intermediate goods should be increased first, and not those of basic items consumed by poor households. If the prices of basic goods are increased, this should be done with moderation (less than 20 % at a time) and spread out over time’ (ibid. p.27).

Teachers’ strikes: innocuous were it not for the kids

’Teachers’ strikes are of no direct concern to the government, but can be indirectly dangerous in as much as they give young people the time and opportunity to demonstrate’ (ibid. p.29).

A winning strategy for cutting salaries: divide and rule

’As part of a discriminatory policy aimed at avoiding a united front between all state-sector workers, bonuses in only some departments can be eliminated. Of course, it is not advisable to eliminate bonuses to the army and police during difficult times when their services may be called upon’ (ibid. p.30).

’Politically, nothing is more dangerous than implementing all-round measures to deal with macro-economic problems. If state-sector salaries are reduced, for example, they should only be reduced in one sector, while their nominal value is frozen in another; it might even be advisable to increase them in some other politically important sector’ (ibid. p.31).

Easy measures to apply

’There are a number of measures that create no political difficulties whatever. For reducing the public deficit, major reductions in public investment and reduced operations do not create political risks. If operations are reduced, it is important that the quantity of service does not drop, even if this means reducing the quality. The operating budget for schools and universities, for example, can be reduced; but it would be dangerous to restrict the total number of students. Families react violently when their children are denied admission, but not when the quality of instruction gradually declines; furthermore, the school can progressively and selectively turn to families for help or eliminate this or that activity. This must be done bit-by-bit, in one school but not in the neighbouring one, in order to avoid generalised discontent’ (ibid. p.30).

How to ensure a strong government

’If a government is to have the necessary margin for manœuvre for adjustment, it must be supported by one or two large majority-backed parties, rather than a coalition of small parties. This means that, in parliamentary elections, first-past-the-post constituency-based systems are to be preferred over proportional systems - or there should at least be some combination of the two. There are also ways to strengthen the executive branch, such as provision for temporary special powers and solely ex post powers for the judiciary - to prevent judges from blocking the implementation of adjustment programmes ex ante. Referenda can also be effective government weapons on condition that it alone has the right to initiate the referendum process’ (ibid. p.34)

Overall effects of IMF and World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 180 members in 1997), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

http://worldbank.org
policies

Social consequences of Structural Adjustment Programmes

1.Education

Educational institutions have deteriorated; some have closed down, and teachers have either been dismissed for lack of funds or go months without being paid. The shortage of funds has been compensated for through tuition fees, and special charges collected through parent associations and local communities. This has meant the partial privatisation of essential social services and the de facto exclusion of broad sectors of the population, especially in rural areas.

Two explicit conditions for adjustment loans are a freeze in the number of diplomas awarded in teaching colleges, and an increase in the number of students per teacher. Education budgets are being slashed; children spend no more than a half-day at school. ’Two-way flow classes’ are created as a result, with each teacher taking separate morning and afternoon classes (N’Diaye, 1995). Each teacher now does the work of two; the money saved goes toward repaying government debt Government debt The total outstanding debt of the State, local authorities, publicly owned companies and organs of social security. .

These measures - carried out in the name of ’cost efficiency’ - are still seen as falling short of the mark. In Sub-Saharan Africa, some lenders have proposed a system whereby a teacher would lose their salary in exchange for a small loan for setting up their own ’private school’.

In this system, however, the ministry of Education would still be responsible for maintaining the ’quality’ of teaching.

In Africa, primary school enrolment had risen from 41% of eligible children in 1965 to 79% in 1980. By 1988, however, it had fallen back to 67% (UNDP UNDP
United Nations Development Programme
The UNDP, founded in 1965 and based in New York, is the UN’s main agency of technical assistance. It helps the DC, without any political restrictions, to set up basic administrative and technical services, trains managerial staff, tries to respond to some of the essential needs of populations, takes the initiative in regional co-operation programmes and co-ordinates, theoretically at least, the local activities of all the UN operations. The UNDP generally relies on Western expertise and techniques, but a third of its contingent of experts come from the Third World. The UNDP publishes an annual Human Development Report which, among other things, classifies countries by their Human Development Rating (HDR).

http://undp.org
, 1992).

In Zambia, between 1990 and 1993, the government spent 37 million dollars on primary education and 1.3 billion dollars on debt servicing. In other words, for every dollar invested in primary education, 35 left the country to repay the debt. By 1995, the government was spending six times less on primary education than ten years before. In fact, 80% of primary-school expenses were borne by the children’s families.

’In 2001, Congress passed and the president signed a law requiring the United States to oppose proposals for the international financial institutions to charge fees for elementary school (a practice that goes under the seeming innocuous name of ’cost recovery’). Yet the US executive director simply ignored the law, and the secrecy of the institutions made it difficult for Congress - or anyone else - to see what was going on. Only because of a leak was the matter discovered, generating outrage among congressmen and women accustomed to bureaucratic manoeuvring’.

(Joseph Stiglitz, Globalization and its Discontents, 2002, pp.51-52)

2.Health care

The international institutions claim that State subsidies to health care create undesirable ’market distortion’ which ’benefit the rich’. Moreover, in the name of ’greater equity Equity The capital put into an enterprise by the shareholders. Not to be confused with ’hard capital’ or ’unsecured debt’. ’ and ’efficiency’, they argue that users of primary health-care services should pay user fees, even if they are from an impoverished rural community.

The World Bank also calculates that total annual spending of eight dollars per person in more than enough to provide acceptable standards of clinical care.

This has meant an across-the-board collapse of preventive and curative medicine: medical supplies are lacking, working conditions are horrendous, and staff are poorly paid, if they are paid at all. Public health facilities in Sub-Saharan Africa, and some countries of Latin America and Asia, have actually become breeding grounds for sickness and infection. Indeed, lack of funding for medical supplies (including syringes and bandages) and equipment and price increases (recommended by the World Bank) for electricity, water and fuel (necessary for sterilising instruments, for example) have increased the likelihood of infection (including HIV).

Thanks to these draconian austerity measures, there is now tremendous social inequality in access to health-care services. The State has significantly withdrawn itself from health matters, the already high percentage of people lacking health care has grown even higher, and even once-eradicated infectious diseases are on the rise. The rise in infectious disease is also linked to drops in public spending on preventive measures - such as improved sewers and access to drinking water.

The infant mortality rate (IMR) is a reliable indicator of a country’s wellbeing. The implementation of SAPs in African countries has entirely eliminated the advances made with great difficulty during the previous 15 years. The most striking example is Mali, where the IMR had dropped by 23% between 1960 and 1980, and increased by 26.5% between 1980 and 1985. There are no IMR figures for Madagascar in 1965; in 1980, however, its IMR was 71, rising to 109 in 1985 - a 53% jump between 1980 and 1985.

Nutrition and food security are two key factors in health. A UNICEF study in ten countries on the effects of adjustment on health, concluded that children’s nutrition had declined in eight of the ten countries. In Zambia, between 1980 and 1984 - the very period when SAPs were being implemented - death from malnutrition rose from 2 to 6% for children between the ages of 0 and 11 months; and from 38 to 62% for children between the ages of 1 and 14 years.

By 1995, the Zambian government was spending 30% less on health care than ten years before. One consequence: infant mortality has risen by 20% in ten years.

The IMF and the World Bank say users should pay for health care services. As a result, in Mozambique the number of consultations at the Maputo hospital dropped by 24% between 1986 and 1987. In Malaysia - even before the crisis that broke in 1997-1998 - 40% of the population could not afford private health care services (K.Balasubramaniam, Third World Resurgence, April 1996).

As for maternal health, in Nigeria the number of women using the capital city’s main maternal ward for childbirth dropped from 6,535 in 1983 (beginning of SAP) to 4,377 in 1985 and 2,991 in 1988 (Bruno Dujardin, Antwerp Institute of Tropical Medicine).

There is a direct link between the spread of AIDS, malaria and tuberculosis and structural adjustment programmes. As a crowning irony, the World Bank has been entrusted with running the Global Health Fund, founded by the UN in May 2001 and highly mediatised at the G7 Summit in Genoa that July. The purpose of the Global Health Fund is to take the lead in fighting AIDS, malaria and tuberculosis.

Social costs described as ’side-effects’

In macro-economic terms, these health and education measures lead to the disintegration of a debtor country’s human resources.

The UNDP’s 1992 report says that:

’As a result of the economic crisis of the 1980s and the SAPs adopted in response, social spending has been sharply reduced in a large number of heavily indebted countries. This has had a direct effect on the population’s standard of living, infant mortality, school enrolment and nutrition’ (UNDP, 1992, p.74).

Through the prism of IMF and World Bank ideology, however, the ’social costs’ of SAPs are a ’separate’ matter. ’Undesirable side-effects’ cannot be blamed on the economic model. They belong to a ’separate sector’: the social sector. According to the IMF and World Bank, the social costs are compensated for by the ’economic benefits’ of macro-economic stabilisation. Social costs are ’short-term’ while ’economic benefits’ are long-term.

Economic consequences of adjustment policies

Production for the domestic market is severely depressed as a result of reductions in real salaries, import liberalisation, and tax and price reform.

IMF measures are theoretically designed to help countries restructure their economies in order to create a surplus in their trade balance Trade balance The trade balance of a country is the difference between merchandize sold (exports) and merchandize bought (imports). The resulting trade balance either shows a deficit or is in credit. - thereby enabling them to repay their debts and embark upon a process of economic reconstruction. In fact, the exact opposite occurs. Austerity undermines a country’s capacity for recovery and prevents it from reducing its debt burden. The only thing it more or less ensures is that 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. payments on debt will be met.

IMF measures actually increase a country’s debt burden :

- loans granted on the basis of adjustment policies, in order to repay old debts, increase both total debt and debt servicing;

- in a context of trade liberalisation and the destruction of domestic production, short-term loans are granted to enable the country to continue importing goods from the world market;

- total import costs increase following currency devaluation Devaluation A lowering of the exchange rate of one currency as regards others. ;

- there is little or no capital accumulation in sectors not directly tied to the export sector.

Macro-economic stabilisation and SAPs are powerful tools in the service of an economic restructuring that adversely affects the living standards of millions of people. SAPs are directly responsible for the process of mass impoverishment described thus far. The implementation of the IMF’s and the World Bank’s ’economic remedies’ has led to the slashing of real wages, and the strengthening of an export economy that feeds off a low-wage work force. The same ’recipe’ of budget austerity, trade liberalisation and privatisation has been implemented simultaneously in more than 100 debtor countries in the Third World and the former Soviet Bloc.

Political consequences

Most debtor countries lose part or all of their economic sovereignty, along with control over economic and monetary policy. The central bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

ECB : http://www.bankofengland.co.uk/Pages/home.aspx
and ministry of Finance are reorganised; some State institutions fall apart, paving the way for outside ’economic supervision’. The local teams and missions of the IMF and World Bank come to form a ’parallel government’ which overrides local organisations and the national parliament.

Countries not respecting the IMF’s ’performance goals’ are blacklisted. Sudan is on such a list today; as was Nicaragua between 1979 and 1990.

The IMF demands that the internal security apparatus be strengthened (viz the case of Algeria). Political repression - with the collaboration of the Third World’s ruling classes - plays a support role for the parallel process of economic repression. The tremendous despair of a population pauperised by the market economy is a source of riots against SAPs and brutally repressed uprisings.

Structural adjustment is one of the main techniques for economic constraint used by states in the Centre against the Periphery. Structural adjustment - implemented in more than 100 countries simultaneously - has a devastating social impact, negatively affecting the living and working conditions of some four billion individuals (Chossudovsky, 1994 and 1997).

The implementation of SAPs in many debtor countries leads to the ’internationalisation’ of their macro-economic policy, under the direct control of the IMF and the World Bank - which represent powerful financial and political interests (the Paris and London Clubs, the G7 and the closed circle of the main MNCs). This new form of political and economic domination - a kind of market colonialism - oppresses peoples and governments through the impersonal interaction (and deliberate manipulation) of market forces. The Washington-based bureaucracy is given the task of carrying out an overall economic enterprise affecting the living and working conditions of more than 80% of the world’s population.

At no point in history has the ’free’ market - given global reach through macro-economic processes - played such a huge role in the destinies of ’sovereign’ nations.

The restructuring of the global economy under the watchful eye of the Washington-based financial institutions has increasingly denied the countries of the Third World the possibility of building a national economy. The internationalisation of economic policy has turned these countries into economic open territory and their national economies into ’reservoirs’ of cheap labour and raw materials.

Price unification and labour-market compartmentalisation

While there are significant differences in the standard of living between countries of the North and those of the South, the devaluation of national currencies (see above) along with the deregulation of internal markets (through SAPs) lead to the dollarisation of domestic prices. Domestic prices for food are increasingly aligned with world-market prices.

This new global economic order - based on the internationalisation of commodity prices and a fully integrated world market - operates with two distinct ’labour markets’, increasingly cut off from one another. In other words, this global market system is characterised by a dual structure for wages and labour costs, separating countries of the Periphery and those of the Centre. While prices are unified and aligned with those of the world market, wages (and the cost of labour) in the Third World and Eastern Europe are on average ten to twenty times lower than those in OECD countries. Furthermore, with the shutting of US and Western European border, the South’s work force can no longer circulate freely and sell its labour in the countries of the North. This fortifies the barriers separating labour markets on a global scale.

Reducing the role of the State and eliminating autonomous national projects

The World Bank stresses the sheer scale for humankind of reducing the role of the state:

’Of the world’s 2.5 billion workers, 1.4 billion live in countries facing the difficult task of definitively emerging from a system of State intervention, excessive protectionism and centralised planning [...]’(World Bank, 1995, p.7).

’In Sub-Saharan Africa, Latin America and South Asia, most countries have pursued differing degrees of autonomous development that protected certain industries and discriminated against agriculture. These strategies benefited a limited number of privileged people (holders of capital and workers employed in the protected sector). Privileges were often defended with intervention of an institutional sort (bans on dismissal in Latin America, excessive public-sector hiring in Sub-Saharan Africa and South Asia) instead of being based on an increase in demand for labour or improvements in productivity’ (World Bank, 1995, p.16).

’Nothing is better for growth and improvements in the standard of living of workers than developments of the market that encourage companies and workers to invest in physical capital, new techniques and training. Some countries attempted to help workers with investment policies benefiting industry to the detriment of agriculture - through protecting from international competition the jobs of a small number of favoured workers in the industrial sector, decreeing salary rises and creating excess jobs in the public sector. These attempts have ended in failure, whether in Latin America, the former Soviet Union or elsewhere’ (World Bank, 1995, p.3).

A number of observations can be made about these statements from the World Bank.

Firstly, there is systematic wangling to present workers in the formal sector as being privileged to the same degree as holders of capital. In the world according to the World Bank, there is no class antagonism between capitalists, on the one hand, and workers (whether small farmers, factory workers, education and health-care workers, or unemployed), on the other. According to the World Bank, the real antagonism is between those with ’privileges’ (workers in the protected sector, state-sector employers and private employers protected by the state), on the one hand, and the poor (the unemployed, informal-sector workers), on the other.

Secondly, the State played a negative role in most of the economies of the South and East; its role must therefore be cut back.

Thirdly, attempts at autonomous development all ended in failure.

Fourthly, one can sense the glee of the report’s authors over the enormous opportunities opened up for neo-liberal policies in regions as different as Latin America, Africa, South Asia and the former Soviet Union. This jubilation even takes on a ruthlessly vengeful tone in the following passage on the countries of the former Soviet bloc:

’Considering themselves to be the champions of labour, they guaranteed their workers periodic wage increases and cradle-to-grave social protection - and therefore saw no need for free and independent trade unions’’ (World Bank, 1995, p.16).

Need we point out that it is sheer demagogy for the World Bank to mention the absence of free trades unions, given that it has supported (and continues to support) any number of dictatorships, be it Chile under Pinochet or Rumania under Ceaucescu, just to name two examples?

Clearly, the World Bank’s main priority is eliminating State interventionism and attempts at autonomous development and planning.

Yet, as a general rule, countries in the Periphery that have scored successes, have done so largely by relying on the active role of the state. This is particularly true of countries not long ago seen as models of success: South Korea, Taiwan, Malaysia, Thailand, Brazil and Mexico. Whether run by the national bourgeoisie, sections of the petty bourgeoisie or a dictatorial bureaucracy in the countries of the so-called socialist bloc, the State played a key role in spurring real-if-deformed development. The ’over-development’ of the State in the countries of the Periphery (leaving aside the socialist bloc) is a function of the weakness of the local capitalist class. The State was a crutch for a local bourgeoisie handicapped by long years of colonial exploitation.

By shrinking the role of the State in the Periphery, the World Bank seeks to heighten these countries’ dependence on big capital at the Centre.

For those seeking a progressive answer to this challenge, there are a number of pitfalls to be avoided. It is wrong, for example, to defend the State per se, as if its social content were neutral and its role globally positive. In the capitalist countries of the South, the State is a force for domination in the hands of the local exploiting classes. This State organises the repression of people’s movements and enables the capitalist class to amass profits in peace. The neo-liberals should not have a monopoly on criticism of the state.

Indeed, Karl Marx was not the only one to decry the exploitative character of the capitalist state. The classical economist Adam Smith wrote, ’Civil government, so for it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all’ (Smith, 1776, p.674). The World Bank and the neo-liberals might even be able to claim this passage as their own, on condition that the last part be removed. In their demagogic world view, ’the rich’ are state-sector workers; these workers use the State to exploit the poor. But it is pure communist heresy to say that the State was set up to defend the private property of the rich against those who have none.

There is good reason to fight the State, and replace it. The overthrow of the capitalist State comes as part of an authentic emancipating revolution. This revolution must also end with the withering away of the new State structures, which are established for a transitional period. The objective is indeed the elimination of the State - not to give free reign to market forces, but rather to replace class dictatorship with a free association of working people.

Which brings us to the following question: what do the World Bank and the neo-liberals have in mind when they vituperate against the state? Is it not the system of social security partially financed from State funds? And overly accessible public education and health care programmes? And labour laws that more or less protect workers against unjust dismissal?

The main targets for neo-liberal ire are the fragments of democracy and collective solidarity that exist within the state, and whose existence is guaranteed by the state. These fragments of democracy and collective solidarity stem from a mix of social gains secured through tremendous struggle by the oppressed, and concessions made by the rulers to maintain social peace. We must protect these fragments of democracy and solidarity.

The World Bank seeks to dismantle other areas of State authority. It insists on the elimination of remaining legislation protecting domestic markets in the countries of the South. It seeks to eliminate the control that some states in the South still have over strategic industries and natural resources. For the World Bank, these things must be eliminated to allow for the totally free circulation of capital - which can only bolster the supremacy of MNCs and the Northern economies.

In this respect, we must learn to handle certain lines of argument with caution, lest we give credence to World Bank demagogy. The World Bank argues, for example, that the privatisation of state-run enterprises reduces corruption, increases company efficiency and curtails corrupt State bureaucracy. Let us not jump from the frying pan into the fire: there is surely no need, on the eve of the third millennium, to demonstrate that private capitalist management is inefficient and corrupt.

Rather, there is a need for strict control of public administration. This means building active social movements and carrying out thoroughgoing political and legal reforms.

The preceding paragraphs are to be found at the end of chapter 13

The book Your Money or Your Life ends with the following remark:

Can the crisis of all the various social movements give way to a new upward cycle of positive experiences and rising consciousness? The events of recent years provide cause for cautious optimism. The case for standing on the sidelines is less convincing than ever.

A tiny minority of decision-makers spare no effort to strip the human individual of his or her fundamental rights; to reduce human beings to the status of just one ’resource’ among others; to replace the idea of society by that of the market; to reduce the creativity and wealth of labour to one commodity among many; to destroy social awareness and leave individualism in its stead; to empty politics of all meaning save that of giving Capital and its thirst for immediate profits control over all key decisions; and to smother culture in the quest for a ’normal’ way of life. The time is ripe for the millions of people and tens of thousands of organisations in the struggle, to learn to live together through recognition of the complementarity and interdependence of their projects, to organise and promote the globalisation of forces for the (re-)building of our common future and to broadcast far and wide a world view rooted in solidarity.

The time is ripe.

An example of convergence: the Belgian-based Committee for the Abolition of the Third World Debt (CADTM)

Impressed by the initiative taken by French activists to counter the 1989 G7 summit, a number of people called on the French writer Gilles Perrault - one of the spokespeople of the ’Enough is Enough’ movement - to explain the Bastille Appeal |2| and the French campaign for the immediate and unconditional cancellation of the Third World debt. At the time, Belgian activists were very much in the doldrums. Solidarity committees were stagnating; and trade union mobilisation floundering, subsequent to a number of partial defeats in various sectors. In such a climate, the February 1990 conference with Perrault was an undeniable success. It provided an occasion to take stock of wide-ranging enthusiasm for work around the debt issue, however removed this may have seemed at first glance from the daily concerns of those present.

The Belgian-based Committee for the Abolition of the Third World Debt (known by its French acronym CADTM) has been pluralist from the start, not only in political outlook (socialist, Christian, ecological, revolutionary) but also in its composition (individuals, trade union sections, NGOs, political parties, various associations). This is definitely one of the reasons for the CADTM’s dynamism and success.

The CADTM’s pluralist character has been the keystone for setting up a unitary framework for every initiative, whether for contacting and co-operating with other associations, for drawing up statements and petitions, for putting together publications and dossiers, or for organising public events.

From the beginning, discussion and debate around the debt issue has gone hand-in-hand with public activities aimed at kick-starting ’mobilisation’. CADTM participants never saw the organisation as a mere think tank or study circle. Other groups of this sort already exist and the CADTM co-operates with them on an ongoing basis. Since 1990, the CADTM campaigns have attracted a wider and wider spectrum of people. The names of past CADTM campaigns speak for themselves: ’The Third World Debt Time Bomb’ (1990); ’Third World Debt in a Time of Cholera’ (1991); ’While 40,000 Children Die Each Day, Every Minute Counts’ (1992-1993); ’Third World Debt: Necessary Solidarity Among Peoples’ (1994-1997); ’From North to South, Up to Our Ears in Debt’ (1997-1998); ’Resources for Alternatives in Favour of Citizens and Development’ (1999-2000) and the current campaign, ’Abolish the Debt to Free the Development’ (2000-2004).

The CADTM also functions as an editorial collective. It has helped draw up a number of platforms and declarations. Madrid 1994, Copenhagen 1995, Brussels 1995, Chiapas 1996, Manila 1996, Mauritius and Caracas 1997, Saint Denis 1999, Bangkok, Geneva and Dakar 2000, Porto Alegre 2001-2002-2003, Geneva 2003 are some examples of key events where the CADTM was able to help enrich analytical efforts carried out in various places around the world. These democratic and organisational enterprises are vital for overcoming a sense of isolation and for working together on a given project with others.

The association has always taken pride in its international and internationalist identity. There is nothing surprising about being ’international’ when dealing with such issues. Beyond this, however, the CADTM has always seen itself as part of a broader anti-imperialist movement, as a partisan of a renewed form of internationalism. Internationalism has taken some hard blows in recent times, yet it is more urgent than ever before to set it back on its feet.

While the CADTM has been building itself up patiently in Belgium, at the same time it has directly linked up with movements in other countries, such as ATTAC (France) or Jubilee South, which were forming in 1998-1999. Whenever possible, activists from other parts of the world have been invited to CADTM events; the CADTM itself has accepted invitations elsewhere from those who had already made the trip to Belgium. Over time, it has gradually become an international network with individual members and local committees in several countries in Europe, Africa, Latin America and Asia.

It has also opened up to countries of the former Soviet Bloc, also directly confronted with the debt issue and structural adjustment, and where quite a few movements are looking for original alternatives.

This kind of exchange has actually boosted serious grassroots activity on the home front. The CADTM has always been at the ready to respond to calls for action, whether from a university professor, a local parish, a mosque, a group of unemployed workers or a long-established solidarity committee. The CADTM responds and always focuses its attention on the need to develop awareness, understanding of the issues at hand, and mobilisation.

Starting in 1997-1998, a vast international campaign grew up on the theme of Jubilee 2000. A great many demonstrations took place. In Birmingham in May 1998 during the G8 G8 Group composed of the most powerful countries of the planet: Canada, France, Germany, Italy, Japan, the UK and the USA, with Russia a full member since June 2002. Their heads of state meet annually, usually in June or July. summit, a human chain of 70,000 people was formed; in Cologne in June 1999 for another G8 summit, 35,000 people brought 17 million signatures for the cancellation of the debt of the poor countries. A co-ordination of movements in the South fighting for debt cancellation was set up in 1999, called Jubilee South, in which members of the CADTM in the South took part. The campaign for the cancellation of the debt gradually became more of a mass movement. This was seen in Spain, after the ’consulta’ carried out in March 2000 by RCADE (the Spanish acronym for the Citizens’ Network for the Abolition of the External Debt) with over a million participants, and in Brazil with the September 2000 referendum carried out by the social movements, with 6 million votes.

Continental and world-wide initiatives have been ’Africa: from Resistance to Alternatives” and “ the First North-South Consultation ”). The ball is rolling.

Through its work analysing the mechanisms of the Third World debt, based on an ongoing study of the different players and the policies they pursue, the CADTM has had to broaden the scope of its work. Talking about frontal attacks against the educational and health care system, privatisation, unemployment and so on in the Third World, might ring hollow if we are not also able to point to the results of similar policies implemented at home; and if we are not able to fight these policies with the same determination even if their results are not (yet) as destructive as in other parts of the world.

Another area where the CADTM intervenes is in the struggle now being waged on the terrain of justice and law. The possibility of criminal proceedings against the IMF and the World Bank is being investigated, for aiding and abetting dictatorial regimes and imposing policies that infringe human rights. The CADTM has also opened up another area of intervention through its commitment to referendum-style consultations like the « consulta » and to preparing citizens’ audits on the debt. Furthermore, the environmental debt has been included among the issues it covers.

In order to explain the need for a tax on speculative investment on a world level, for example, we have to raise the question of taxing wealthy estates in our own countries.

Last but not least, anyone intelligent enough to recognise the injustice of the Third World debt also has the moral duty to condemn the public debt in industrialised countries. Indeed, this public debt is responsible for a similar transfer of wealth from workers and small producers to the capitalist class.

The CADTM does not seek to take the place of other initiatives. It supports movements like ATTAC, Via Campesina, the World Women’s March, Jubilee South, the ’sans papiers’ movements (and the collectives that support them or combat exclusion policies and closed centres), the European Marches, the World Forum for Alternatives, etc. It is always at the ready to participate in coalitions set up in response to key events or developments. It was in this spirit, for example, that it got involved in the European Marches on Amsterdam in June 1997.

To be sure, the CADTM’s activities fall well short of the current challenge. But the CADTM has provided proof, however modest, that it is indeed possible to build an international movement that is able to analyse the major global changes currently underway while at the same time acting in response to new problems.

For further information or contacts, visit our CADTM web site (in three languages: French, English and Spanish): http://www.cadtm.org

THE BASTILLE APPEAL FOR CANCELLATION OF THE THIRD WORLD DEBT

On the eve of the 21st century, happiness is still a new idea.

We live in a world where all the conditions for happiness are present but where the highest growth rate is that of poverty.

A world where hunger kills tens of thousands of children every day leads to riots on three continents and kills hope.

A world that mutilates the existence of women, always the first victims when the simple struggle to survive aggravates traditional forms of oppression.

Who is responsible for these tragedies? An economic imperialism that bleeds the Third World dry and crushes it beneath the weight of the debt. It may have its internal rivalries but when it comes to ensuring domination, it is perfectly at one. Only solidarity among the peoples can break its power.

Solidarity does not mean support of regimes that perpetuate the poverty of their countries, stifling the voices and the rights of the population.

After the demonstrations of July 1989 in Paris during the G7 summit and against the Debt, we appeal for the union of all the progressive forces in the world.

Cancellation of the Debt will not solve all the problems but is an indispensable prerequisite to any far-reaching solution. To refuse would be to refuse assistance to peoples in danger.

Together, we can and we must revive hope, and do what is needed to make justice and equality our common destiny.


Footnotes

|1| Christian Morrison, The Political feasibility of Adjustment, OECD Development Centre Policy Brief N° 13, Paris 1996, available on the OECD website here: www.oecd.org/dev/1919084.pdf seen on 20/04/2017. Today, twenty-one years after being published and in spite of being much criticised, this keynote article is still available to the public.

|2|

See the Bastille Appeal for the Cancellation of the Third World Debt at the end of the box

Author

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France. He is the author of Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012 (see here), etc. See his bibliography: https://en.wikipedia.org/wiki/%C3%89ric_Toussaint He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. Since the 4th April 2015 he is the scientific coordinator of the Greek Truth Commission on Public Debt.


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