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Which Crises? What are the responses from the South?
by Eric Toussaint
5 January 2009

The economic and financial crisis broke out in the North.

The crisis began in the North due to the subprime crisis of 2007 in the United States. The subprime crisis is a crisis involving private debts in the United States. The banks and mortgage companies have created vast debt packages which have now collapsed. This has resulted in a financial crisis whose repercussions continue to be felt.
The bail-out of the banks in Europe is clearly one such consequence. The effects of the shock wave of the crisis in 2007, as well as the aftershocks will continue to last.

The crisis originated in the countries of the North: the United States and Europe. There is not only a financial crisis but also an economic one. Therefore, the real economies, as well as production, are directly affected. There is a crisis in the construction sector in the United States, Spain, Great Britain and Ireland, which will affect other countries. There is much employment in construction and many migrant workers are employed in this sector, particularly those from Latin America. These migrant workers are employed in this sector in the United States or in Spain. Numerous job losses in this sector will lead to a marked decrease in remittances which these migrants send back home to their families every month.

It is an economic crisis which has begun in the North. Industries in the North will produce less due to the decrease in consumption. As production falls, businesses will order less oil, gas, raw materials (minerals) and, in turn, the price of these aforementioned commodities will continue to fall. This has already been happening since approximately the middle of September 2008. This decrease in prices will lead to a drastic reduction in revenue in developing countries.

The food crisis also originated in the North.

There is not just a financial and economic crisis. There is also a food crisis which is directly affecting people in the South as food prices in the South have risen by 100% and even by as much as 300% in the case of rice. 80% of the population of many countries in the South, and here I am referring to the poorest populations, particularly in Sub-Saharan Africa, spend 95% of their income in order to purchase food. People are not eating their fill. There is therefore a drastic increase in the number of people suffering from famine. Before this crisis exploded there were already 820 million people suffering from famine on the planet. As well as more starving people, there are also undernourished people (people who don’t reach the stage of famine). Now with the crisis there are 140 million more people who do not have a secure supply of food, compared to the situation in 2006 before the food crisis.

What caused this food crisis?

Once again, it all began in the North. Industries in the agrobusiness of the North convinced the governments of Washington and the European Union in Brussels as well as other European governments, to subsidise the production of biofuels made from corn, wheat, rapeseed, soya and beet. Thus much food is being diverted for the production of biofuels. The supply of cereals and other foodstuffs has markedly decreased on the market which has, in turn, led to a dramatic increase in food prices.

The rise in prices has been accentuated by the fact that, once again in the North, big institutional investors (banks, insurance companies, pension funds) began to operate in a sector of the financial markets where they previously had not been active - a sector known as “the futures cereal market” - as well as that of oil and gas. There are three stock exchanges in the world which fix food prices (especially cereals) on the futures markets. They are the stock exchanges of Chicago, Kansas City and Minneapolis. The price of future contracts in cereals in the Unites States which are fixed by the stock exchanges have an impact on the whole world and does not just affect the future price, but also the current price, the cash price (spot price).

To summarize, the production of biofuels, on the one hand, and speculation on the futures markets in foodstuffs, on the other, has created the food crisis we are currently experiencing.

The very serious effects of the climate crisis.

The fourth crisis is the climate crisis. This crisis has often been ignored in recent weeks, due to the financial crisis which has been the main worry in the North and to the food crisis in the South which has been tying knots in the stomachs of tens of millions of people and concentrating the energies of hundreds of millions more to rally and take action every day. As there have not been any major natural disasters in the past few months, we no longer talk about climate change. But climate change is here and it will inevitably continue to affect us. Perhaps we don’t perceive these effects as brutal or immediate but they are nonetheless real. The rising sea levels will affect the entire population of the low-lying coastal areas of a country such as Bangladesh where there are 150 million inhabitants. Over half the population of Bangladesh lives at sea level, or below sea level, as there are protective dikes. In the next ten years, the effects of this crisis will be horrendous. Bangladesh is just one example among many other regions of the South.

Once again, this crisis originated in the North. It is caused by the capitalist productivist model. Of course, this model also exists in the South but the North has emitted a vast amount of pollutants into the atmosphere since the beginning of the industrial revolution. People hearing of greenhouse gas emissions tend to think of the emissions happening nowadays but it is important to note that the greenhouse gases resulting from industrial activities have been released in to the atmosphere over the past two centuries. Therefore it is the amount released over this period which has polluted the most, and not the amount which is being released nowadays (which obviously should be reduced). Therefore, even if China is releasing more and more greenhouse gases (which is a grave error as it has adopted the productivist development model), it would be unjustified to claim that China or India, through their development, are as much to blame as the United States or Europe for climate change. Those responsible are the countries which were the cradle of the industrial revolution which caused mad trends in consumption, such as the amount of cars sold for individual use as well as the amount of fuel which these cars use.

If the North is the geographical origin of these four crises, the capitalist system is the main cause. To summarize, there are four crises: a financial, economic, food and climate crisis. They are affecting the entire planet but it all began in the North. Having established this, we should not stop here because these crises are not the only thing that the North and the South have in common. They also share the same economic regime, the capitalist system which dominated the whole world. Only thirty years ago, there was still a socialist or communist camp. Since then the countries of the former Soviet bloc, comprising Russia, central Asia and Eastern Europe, have been reintegrated, along with China and Vietnam, into the capitalist system. The four crises which I have just outlined are a direct result of the global capitalist system (a system which historically originates in the North). When things go badly in the countries of the North, the countries of the South suffer the negative consequences.
Of course, the most powerful form of capitalism is still that which is implemented in the most highly industrialised countries of the North. The North American, European and Japanese economies represent 60% of the global economy whilst only 15% of the world’s population live there. These highly industrialised countries represent a relatively small part of the Earth’s surface. Nevertheless, when things go wrong in the countries of the North, the South is also affected.

Must the South bear the costs of this crisis?

It is already bearing the costs but will the costs borne increase or is there an opportunity for the South to protect itself? This is a key point of my argument. The South should and most certainly can protect itself from some of the effects of the crises, even if not from all of them. As regards the financial crisis, the countries of the South should protect themselves from the freedom of movement of capital and especially the draining of capital towards the North. The countries in the North are in great need of liquidity and the businesses of the North are recovering large amounts of capital so as to stabilize the accounts of banks and insurance companies in the North. In response to this, countries in the South must block their capital outflows and establish, as Venezuela has done since 2003, a strict control over the movement of capital and on foreign exchange transactions of their currency. This would also protect their currencies which are vulnerable to speculative attacks.
Countries in the South should not follow the example of the governments in Europe or North America. That is to say: inject vast amounts of public money to bail out private banks without taking them over, thereby giving presents to corrupt, swindling bankers. Countries of the South must act differently!

1. Establish public control over the private banking sector (i.e. nationalize them, take them into state-ownership) and refuse to give money in order to bail out private bankers. Invest money in order to protect savings; this is what the countries of the North should be doing, as well as recovering the costs of protecting these savings and ensuring the banks are working. They should do this by taking out an equivalent sum of money from the capital of major shareholders and heads of banks. With regards to the big shareholders, it is obviously not enough to merely take what is left in their banks as they normally have emptied their bank coffers before appealing to the state for help. We therefore need to draw up a register of the capital which these big shareholders own in all sectors of the economy and recover the costs spent by the state in order to save the banking system.

2. There also needs to be a Bank of the South in order to invest foreign exchange reserves and finance human development in countries of the South without having to borrow from the financial markets of the North and without having to ask for a single dollar more from the World Bank and the IMF or other financial institutions, which are entirely controlled by the countries of the North. A Bank of the South could finance reforms which have nothing to do with private capital. For example, the implementation of an agricultural reform and the establishment of a food sovereignty policy. Public money could also be used either to radically renovate the already existent habitat or reconstruct a new habitat suitable to the living conditions of the affected populations. This would create much employment as well as increasing standards of living. This would involve financial projects which really are worth investing in. For example, the creation of a pharmaceutical industry which makes generic drugs.

3. Both an internal and external audit of public debt needs to be carried out as well as making a sovereign declaration of the nullity of illegitimate debt and suspending the payment of such debt. Now is the time to create a common front of countries of the South for the non-payment of debt. It is equally necessary to leave the World Bank and the IMF.

4. Many more ideas could be added, such as the need and opportunity to create a “South-South” exchange and barter system between countries of the South. Let us take Western Africa as an example. Countries such as Mali, Niger or Burkina Faso have no access to the sea or to oil, but they do produce cotton, gold (in Mali) or uranium (in Niger). Nigeria, which has sea access and produces oil, exports all its crude to the United States or Europe which then gets re-exported as refined oil to Nigeria, Mali, Burkina Faso or Niger. Obviously it would be a lot cleverer to carry out exchanges. One the one hand, Nigeria would refine and transform its crude itself, producing different by-products and on the other hand, Mali, Burkina Faso and Niger would transform their cotton into fabric. These oil and textile products would be exchanged within this part of Western Africa without having to enter into the global markets. It is a perfectly sensible option. What is needed is the political will.

5. The leaders of the South must bow to popular pressure and break with the neoliberal model, thereby breaking with the capitalist system. However, there is a catch. In general, these leaders are happy to live within the capitalist system and accept the recommendations of Washington, Brussels, the World Bank and the IMF. Populations need to mobilise, to rid themselves of these leaders and replace them with democratically elected leaders who are committed to implementing a development model which meets the needs of local populations and which uses the weaknesses of the countries and institutions of the North, now immersed in the current crisis, to strengthen the power of the populations of the South.


Translated by Francesca Denley in collaboration with Vicki Briault

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 Greece 2015: there was an alternative. London: Resistance Books / IIRE / CADTM, 2020 , Debt System (Haymarket books, Chicago, 2019), 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, 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. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.