Once upon a time there was a popular government that wanted to do away with the export-oriented extractivist model

22 August by Eric Toussaint , Damien Millet


Large popular mobilizations resulted in the creation of self-organized committees in the neighbourhoods, workplaces, universities and several higher education schools; this has led to the constitution of a people’s government. [1] It has just held its first meeting. In this government, the women and men speak alternately and on an equal footing. A year ago, it all seemed an unattainable dream, in this small State that produced mainly raw materials for export. The dictator seemed there to stay, but towards the end of the year, popular uprisings in neighbouring countries spread a wave of revolt, similar to what had happened in the North Africa and the Middle East in 2011. The dictator fled after several massacres. In his flight he was supported by several abetting governments. But this was not enough. The massive popular movement was supported by part of the army thanks to the pressure of the soldiers’ committees that had formed to get rid of corrupt military leaders in cahoots with the dictator. Though difficult at first, because the former regime still had allies in all the State bodies, the electoral process was finally successful and carried out with utmost transparency. Citizens wanted to cast their votes for change and they forced the former local authorities to abide by democratic procedure. A week ago the left-wing coalition that emerged out of the popular movement won the elections with a rather comfortable majority. Obviously the big-shots will want the experiment to fail. Donald Trump, the European Commission, the Chinese government, Putin and other conservative leaders will try to destabilize this new democratic regime.

Elsewhere progressive governments have already achieved power, but they were not able to implement their objectives. We have to draw lessons from their failures. The new government and the popular movements supporting it know that they are in for a tough challenge. There is no shortage of opponents. Within the country, the big private media are demonizing the coalition government and the popular sectors, accusing them of behaving irresponsibly, while major foreign companies and local capitalists who had profited from the privatizations carried out by the former government, as well as the very rich, are worried about their business and their wealth. Abroad, the major powers disapprove of declarations about endogenous development. 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
and 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, 189 members in 2017), 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.

serving the interests of the big creditors want the new regime to acknowledge the debts incurred by the ousted dictatorship. They also want to enforce new 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/
measures to reduce the budget deficit and repay that huge illegitimate debt. But the government can rely on the people’s support and is keen not to disappoint them. It is also aware that international solidarity will be of the essence.

A remark made by the government member in charge of the economy caught his colleagues’ attention: “Let us hope that we don’t catch the Dutch disease!


The Dutch disease
 

The Dutch disease! It all began in 1959 in Slochteren, in the province of Groningen in the northern Netherlands, with the discovery of the biggest gas deposits in Western Europe, among the biggest in the world, at 2,820 billion cubic metres. In the following years, the Dutch government incited individuals and companies to turn towards natural gas. The coal mines were closed down. In 1965, the first gas sales contract between Groningen and a foreign client was signed with the German company, Ruhrgas, for over three billion cubic metres a year, the equivalent of the present-day consumption of Switzerland. Exports developed rapidly towards neighbouring countries. Foreign currency came flooding in and the future looked rosy.

However in reality, things were not so rosy. Following the rapid growth in exports, the Dutch currency, the Florin, appreciated considerably against other currencies. Because of this, exports from other sectors became less competitive on the foreign markets, and this led to a sharp contraction of the industrial sector. The gas sector, as well as the ones that were linked to it in the beginning to build the necessary infrastructure, tended to suck up most of the investments while the other sectors slowed right down. More and more, export revenues served to fund the importation of goods and services that the productive apparatus could no longer provide at competitive prices. In other words, the economy became dependent on its main export resource. And this is how, by the mid-seventies, the Hague was faced with major economic problems, despite the fact that the production of natural gas was then peaking at 81.7 billion cubic metres in 1976, [2] before stabilizing at between 60 and 70 billion cubic metres after 1982. On 26 November 1977, coined in a headline in The Economist, “the Dutch disease” was born.

Yet the phenomenon already existed, long before the 1960s. As early as the 16th century, Spain had profited from massive arrivals of gold and precious metals pillaged from the New World. Nevertheless, within a few decades its manufacturing sector had declined and a period of economic recession begun. The same happened in Australia in the 19th century, with the Gold Rush. More recently, Nigeria, Algeria, Venezuela and Mexico, all heavily dependent on oil revenues, have been affected. Threats of a similar kind loom over countries likely to embark upon such processes: in the North, there is Canada with the oilfields of Alberta, and Russia; in the South, Chad and Equatorial Guinea are new exporters of oil, Paraguay of genetically-modified soya beans and Bolivia of lithium.

When a developing country is affected by the Dutch disease, GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
growth may look promising in the first years, but the ones who profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. from the revenues are transnational firms in the sector, local capitalists who specialize in importing consumer goods from abroad bought with money emanating from the export of raw materials, and a minority of people close to the government. This prevents the distribution of wealth that is needed for social justice. It also prevents the setting up of a production model that would meet the needs of the local population. For example, the exploitation of Chadian oil only enabled the creation of a few thousand local jobs (35,000 during the construction of the pipeline, and then about 2,300 permanent positions). The fact that they were better paid than in other sectors affected cotton producers. Previously cotton had been the main export crop, but it became marginalized and in the end the entire local economy was disrupted— not to mention the various types of environmental damage and repeated infringements of the rights of people living in the area. It would have been essential for Chad to promote both its subsistence crops and the farming of cotton, as Thomas Sankara, president of Burkina Faso from 1983 to 1987, had begun to do, then to manufacture it for the local and regional market so as to produce clothes and other natural textile goods. (This was also one of Gandhi’s objectives in India in the 1940s). Oil exploitation should have been subjected to a referendum and compulsorily linked to investments in the refining of raw oil for local consumption.

Some countries, such as Argentina and Brazil, whose industries had advanced technology since the 1950s and 1960s, found themselves in economic decline due to their increased dependence on the exportation of raw materials and primary foodstuffs (minerals, genetically-modified soya, meat, etc.). In the case of industrialized countries, growth falls off rapidly in other sectors which can lead to economic recession. As soon as a resource becomes scarce or its price on the international markets drops so low that it is no longer profitable to exploit it, the situation soon deteriorates as can be seen in Venezuela, Nigeria and many other countries. Thus it is urgent to find an innovative vaccine.

Copeland & Fleming, NYPL


Looking for an antidote to the Dutch disease

Algeria did its best to find one, but instead of investing in productive economy and developing an innovative model of industrialization, the government used oil and gas revenues to pay off most of its debt in advance without questioning the nature of that debt. Norway, too, made some very dubious decisions in spending petroleum-linked revenue. It financed a sovereign fund for making investments abroad while firmly restricting salary rises. Populations barely see any benefit. On the other hand, creditors and private financial institutions do very well for themselves. There has to be another way. Letet us throw down the foundations.

If the Dutch disease manages to cause so much damage, it is because the economies of the countries concerned were already fragile beforehand. The logic that has been imposed on the countries of the South by the IMF and the World Bank since the 1980s via structural adjustment policies is largely to blame. In order to get enough currency for debt repayments, considered an absolute priority, indebted countries have been forced to open up their economies and get rid of any form of protection for their vital sectors. They have been forced to place their producers in unfair competition with transnational corporations, to reduce the areas of land devoted to subsistence crops and making them specialize in cash crops for export. After the debt crisis at the beginning of the 1980s, the whole process led to a situation where the peoples of the South were completely under the domination of investors. This model of extractive development based on exporting raw materials and tropical agricultural produce and importing food (particularly cereals), manufactured goods and technologies, has led to an impasse, with fundamental human rights trampled underfoot on a large scale, wages reduced to a minimum so as to be internationally competitive and a disastrous impact on the environment.


An efficient cure for the ‘Dutch disease’ to get out of the export-oriented extractivist model

When faced with the promoters of neoliberal globalization, the only alternative is a long-term strategy which aims to reduce dependence on financial and import/export markets, to redistribute wealth more fairly so as to reduce inequalities, to better spread the production of national wealth in a virtuous circle based on the satisfaction and promotion of domestic demand, giving priority to the economic, social and cultural rights of the entire population to the detriment of the frenzied consumption of luxury by the privileged classes. Social programmes providing free access to health care, education (from primary school to university) and culture must be set up and workers in these sectors must be paid much better wages. The alternative that has to be implemented also requires the population’s active and creative participation. Before they are adopted, projects must go through contradictory public debate, to be either modified or rejected. It is vital that people self-organize.


A regional integration that benefits the people and not private interests

The corollary to this is regional integration between countries whose governments 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. the same vision of the structural changes required (in the fields of property, social rights, women’s rights, the rights of first peoples, civil and political rights) while refusing the capitalist logic of extraction and exportation. Governments also have to retrieve the right to control the flow of capital in order to fight capital evasion and speculative and/or criminal financial input (the arms trade, plundering of resources, drug trafficking, etc.).

The value added by the natural wealth affected by the Dutch disease must be kept in the country. The idea is absolutely not to export crude oil and then import petrol or kerosene at a much higher cost. In the case of petroleum, a public company is needed to refine it, produce derivatives Derivatives A family of financial products that includes mainly options, futures, swaps and their combinations, all related to other assets (shares, bonds, raw materials and commodities, interest rates, indices, etc.) from which they are by nature inseparable—options on shares, futures contracts on an index, etc. Their value depends on and is derived from (thus the name) that of these other assets. There are derivatives involving a firm commitment (currency futures, interest-rate or exchange swaps) and derivatives involving a conditional commitment (options, warrants, etc.). and commercialize it in its different forms. The entire African continent has no more than about forty refineries, often in a poor state of repair, and far from sufficient to fulfil regional demand. For example in Nigeria, three of the four refineries were reactivated in July 2015, but do not function at maximum capacity. Nigeria, which has been encouraged to turn its economy towards exports to procure currency to repay its debt, gets 70% of its revenue and about 90% of its currency resources from exporting crude oil. Only 10% of its production is refined in the country. The Nigerian economy is very fragile and dependent on oil exports, which have nevertheless not freed the country from poverty.

As a consequence, an energy transition must be launched to eliminate fossil energies and use renewable sources of energy such as solar, wind and hydraulic power. In the fight against climate change, it is obvious that measures taken by a small country, however rich it may be in oil resources, will not be enough. We have to set up regional cooperation and be an example for others on the international scene to follow.

Further to such measures, a manufacturing sector needs to be developed using industrialization as a substitute for importation, thus reducing the quantity of imported (especially finished and semi-finished [3]) goods, by managing their fabrication locally. The government must take the radical option of food sovereignty for the country by supporting local subsistence farming that uses organic methods (as opposed to chemical inputs). Small production units of peasant farming will yield Yield The income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value. the best results. Of course we must also develop human-size cooperatives, but on a strictly voluntary basis and controlled by the peasants themselves. The management of water resources will need to be strictly rationalized with a regulated allocation to farming and other sectors. The government must also organize a network of free public transport available everywhere in the country to enable small farmers (often women), who produce most of the subsistence crops in the world, to convey their goods to city markets and not be dependent on private intermediaries, who levy heavy commissions. Rural populations will also have easier access to health care, education and culture, and will be empowered through freedom of movement.

The funding of these sectors must be financed now only by export resources but even more, through taxes levied on people and companies with large incomes or profits.

Public debt could also be used as a financing instrument for an ambitious programme of ecological transition instead of being used to enforce anti-social, extractivist, productivist policies that foster competition between nations. Public indebtedness is not in itself a bad thing. Public authorities can use loans to:

-  finance the complete closure of thermal and nuclear power plants;
-  replace fossil energies with renewable sources of energy that respect the environment;
-  finance land reform and urban reform;
-  radically reduce air and road transport and develop collective transport and the use of railways.

Public borrowing is quite legitimate if it serves legitimate projects and if those who contribute to the loan do so legitimately.

The government will not hesitate to force corporations (whether national, foreign or multinational) as well as richer households to contribute to the loan without drawing any profit from it, i.e. with zero 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. and without compensation in the case of inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. .

Simultaneously, a large portion of households in the popular classes will easily be persuaded to entrust their savings to the public authorities to fund the legitimate projects mentioned above. This voluntary funding by the popular classes would be remunerated at a positive actual rate, for instance 4%. This means that if annual inflation reached 3%, the public authorities would pay a nominal interest rate of 7%, to guarantee an actual rate of 4%.

Such a mechanism would be perfectly legitimate since it would finance projects that are really useful to society and because it would help reduce the wealth of the richest sectors while increasing the income of the popular classes.

This should then be complemented by the creation of a multilateral public body at the regional level that would finance such projects, a sort of “Bank of the South” which would enable the countries that joined it to mutualize such investments. [4] In exchange, they could benefit from goods and services from the other countries involved at tariffs lower than global rates. The Venezuelan president Hugo Chavez launched the Petrocaribe initiative, whereby Venezuela granted a considerable discount (of about 20%) on oil sales to the Caribbean countries while selling it at the full price to the United States. Bartering agreements (for example oil for health workers) were also sought, especially with Cuba, to reduce financial exposure. But when oil prices fell from 2015, the Venezuelan government, faced with a significant drop in revenue, had to put an end to the Petrocaribe programme. Clearly it had not succeeded in defeating the Dutch disease, and this can teach us a lot. It shows that even greater efforts are required to radically transform the development model by breaking free of total dependence on raw materials. It is no good trying to find a progressive route within the capitalist model.

A very timid Bank of the South has emerged from an initiative by Argentina, Bolivia, Brazil, Ecuador, Paraguay, Uruguay and Venezuela. It could have funded the connection of those countries’ railway networks, which would have revived the industry that produces all the necessary equipment for good quality railway lines, while modernizing existing national networks. It could also have funded the development of a regional pharmaceutical industry to produce generic medicines and promote traditional medicinal plants. The countries could have created a common currency too. However the Brazilian and Argentine leaders, under the thumb of capitalists from the North and from their own countries, sabotaged the structure from the inside.

To reduce dependence on finance markets, which makes a country more vulnerable to a possible over-evaluation of its currency, a series of bold measures need to be implemented. The government must put an end to the debt system and cut all connections with international financial institutions. To achieve this there must first be an audit of public debt to determine how much of it is odious, illegal or illegitimate. Then, with the support of the people, creditors must be forced to accept its repudiation, using arguments grounded in international law. . In the meantime, a moratorium on debt repayments (with no late-payment penalties) must be declared, structural adjustment policies abandoned and free trade agreements denounced. The country should leave the IMF, the World Bank and the WTO WTO
World Trade Organisation
The WTO, founded on 1st January 1995, replaced the General Agreement on Trade and Tariffs (GATT). The main innovation is that the WTO enjoys the status of an international organization. Its role is to ensure that no member States adopt any kind of protectionism whatsoever, in order to accelerate the liberalization global trading and to facilitate the strategies of the multinationals. It has an international court (the Dispute Settlement Body) which judges any alleged violations of its founding text drawn up in Marrakesh.

once and for all, and incite partner countries to do the same. It should assess the level of ecological debt and demand that it be paid by capitalist corporations. The country should sue for the expropriation of the ill-gotten gains of previous dictatorial regimes and their restitution to the State. Control of capital movements must be re-established; the profits of multinational companies and the assets of the wealthiest heavily taxed; all privatized public services and bodies must be re-socialized and the banking and oil sectors in particular must be both socialized and decentralized.
Contrary to what is currently done for disadvantaged populations, by socializing the banking sector it would be possible to finance microcredit loans at zero interest for small personal or family enterprises, thus improving working conditions and enabling local projects to be brought to fruition.

To put an end to illegitimate private debt, the government will have to take concrete measures to substantially increase the income of popular classes by promoting social policies, public services and free housing programmes, as well as by subsidizing basic commodities Commodities The goods exchanged on the commodities market, traditionally raw materials such as metals and fuels, and cereals. . Indeed, debts have been used for millennia as a way to seize peasants’ lands, to steal away the tools of handicraft workers, and to evict poor families from their lodgings. The system of illegitimate private debt usually relies on the enforcement of borrowing and repayment conditions that make repayment impossible. The result is that people are dispossessed (of their lodgings, land, tools) and/or forced to spend long years, or indeed decades, repaying their debts. The government must put a legal end to the mechanisms that crush people under the burden of debt.

Photo by Avel Chuklanov, CC


Consolidation of change through equal rights and direct democracy

Such economic changes must go hand in hand with an effective guarantee that rights are equal for all, whatever their origin, gender, sexual orientation, handicap, etc., in order to promote the empowerment of all the oppressed and their participation in social life. This requires fundamental changes in the relationships between women and men, for instance, to fully guarantee the rights of women and help eradicate the patriarchal system.

Setting up local units for health care (including counselling on contraception and family planning, care for young children and cancer tracking units) would facilitate information and support for sexual minorities.

The government will have to take all necessary measures for substantial improvements to occur, starting with equal speaking time between women and men in public debates, which goes beyond equal representation, an obvious sine qua non.

There also need to be fundamental political changes, for which a constituent process has to be launched, inviting all the country’s inhabitants to present a list of grievances and to take part in defining a new institutional architecture in which citizens’, workers’ and environment rights would be extended. Real change can only occur if citizens self-organize and are free to protest against the government’s policies. It is essential to establish a democratic mechanism through which citizens can revoke their representatives. This must be included in the new constitution.


Conclusion

The government is aware that to achieve success it will have to confront all those who profit from the present system. It knows that they are powerful. It is also aware that it cannot escape the export-oriented extractivist model on its own. But it is convinced that it will gain the support of the vast majority of its people if it spearheads their struggle. It knows, too, that there has to be international solidarity and coordinated action among the peoples of the world. It knows that the export-oriented, extractivist model is an integral part of the capitalist system and that people have to shake free ofthat system, i.e. destroy it. What is needed is complete revolutionary transformation, and with the former dictatorship just overthrown, that transformation has only just begun.



We are grateful to Omar Aziki, Eva Betavazi, Myriam Bourgy, Marie-Laure Coulmin, Nathan Legrand, Brigitte Ponet and Claude Quémar for their inspiring comments.

Damien Millet is spokesperson for CADTM France (www.cadtm.org), Éric Toussaint is spokesperson for CADTM international.

Translated by Christine Pagnoulle and Vicki Briault

Footnotes

[1An earlier version of this article was published in French in February 2018: http://www.cadtm.org/Bientot-un-vaccin-contre-la; it was reprinted in the magazine Les Indignés in April 2018.

[2BP, Statistical Review of World Energy 2002

[3Semi-finished products are products that have been partly processed (as opposed to raw materials), but that need further processing before they can be sold (as opposed to finished goods).

[4Seer Éric Toussaint, Bank of the South: An Alternative to the IMF World Bank, VAK, Mumbai (India), 2007.

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.

Damien Millet

professeur de mathématiques en classes préparatoires scientifiques à Orléans, porte-parole du CADTM France (Comité pour l’Annulation de la Dette du Tiers Monde), auteur de L’Afrique sans dette (CADTM-Syllepse, 2005), co-auteur avec Frédéric Chauvreau des bandes dessinées Dette odieuse (CADTM-Syllepse, 2006) et Le système Dette (CADTM-Syllepse, 2009), co-auteur avec Eric Toussaint du livre Les tsunamis de la dette (CADTM-Syllepse, 2005), co-auteur avec François Mauger de La Jamaïque dans l’étau du FMI (L’esprit frappeur, 2004).

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