Committee for the Abolition of Illegitimate Debt

Inequality is rife in the world, and constantly increasing.
The distribution of wealth and income is a major scandal worldwide. In 2013, 0.7% of the world population (32 million individuals) possessed 41% of the world’s wealth, while 68.7% of the population (3.2 billion adults) had but 3% of total world wealth. [1]

Inequalities are increasing in the South and in the North. In Brazil for example, latifúndios (large land-holdings) of over 1,000 hectares account for 0.9% of the total number of agricultural operations, but take up 44.4% of the total land area. [2] According to the ECB ECB
European Central Bank The European Central Bank is a European institution based in Frankfurt, founded in 1998, to which the countries of the Eurozone have transferred their monetary powers. Its official role is to ensure price stability by combating inflation within that Zone. Its three decision-making organs (the Executive Board, the Governing Council and the General Council) are composed of governors of the central banks of the member states and/or recognized specialists. According to its statutes, it is politically ‘independent’ but it is directly influenced by the world of finance.

https://www.ecb.europa.eu/ecb/html/index.en.html ’s estimates, 1% of the wealthiest Belgian households possess 17% of the total wealth, and the wealthiest 5% own 34% of total wealth. At the other extreme, one Belgian in five is in a situation of poverty and social exclusion. [3] On the African continent (1 billion inhabitants), 0.01% of the population—one ten-thousandth—account for 60% of the 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. . [4]

In 2013, 0.7% of the world population possessed 41% of the world’s wealth, while 68.7% of the population had but 3% of total world wealth.

1.1. North-South inequalities

Four out of five people in the world live in the developing countries, which account for barely a third of worldwide GDP. Particularly striking is the difference between the GDP per inhabitant of the developing countries ($3,840) and of the developed countries ($37,157).

Table 1.1. Population and GDP (2012) [5]

($ billion)

1.2. Increasing inequality throughout the world

Studies on the history of inequalities show an increase in inequality worldwide between the 19^th century and the end of the Second World War. Following the war, policies of public spending for reconstruction, social mobilisations, the struggle against Fascism during the Resistance, and the Cold War climate beginning in 1945 prompted the governments of the time to implement measures aimed at reducing inequalities. This trend halted in the late 1970s with the neoliberal conservative shift, which has brought about new increases in inequalities throughout the world. [6]

This trend can be seen in the following chart on the evolution of the distribution of wealth in Europe and the US over the last two centuries. [7]

Chart 1.1. Percentage of total wealth held by the wealthiest 10% and 1% between 1810-2010 [8]

There is clearly a trend toward greater concentration of wealth. Yet that concentration is not inevitable. It is a social phenomenon that can be transformed through social struggle by the working classes against the powerful. [9]

In terms of income, today’s world is more unequal than it was in 1870. [10] However, the growth of China and India—which together account for a third of the global population—over the last decades has introduced a distortion. If we observe the figures without counting those two countries, we see that the trend towards an increase in inequalities continues. In fact there is a paradox: while the growth of those two economies smooths the overall figures related to income inequality, it is in fact increasing in both of those countries (see Table 1.2). [11]

The overall trend is toward greater concentration of wealth, which means greater inequality. In reality, seven out of ten people live in countries where inequalities have increased over the last three decades. [12]
The indicator most often used to measure inequality is the Gini coefficient. [13] The following table shows the figures for different world economies. The general trend toward a less fair distribution of income can be seen. The only region that is a major exception is Latin America—where, in most countries, inequalities have generally decreased. [14] However, inequalities in that region still remain enormous. According to 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.

data, between 1988 and 2008 the largest increases in inequalities were in countries in the Africa and Europe and Central Asia groups.

Table 1.2. - Inequalities in the world - evolution of the Gini coefficient [15]

The indicator most often used to measure inequalities is the Gini coefficient. The following table shows the figures for different world economies. The general trend toward a less fair distribution of income can be seen.

The Gini coefficient shows the level of concentration of wealth within a given economy by assigning a value between 0 (maximum equality: all individuals have the same income) and 100 (one single individual earns all the income). The higher the Gini coefficient, the greater the inequality.

The North has been greatly affected by this increasing inequality too, both in terms of income distribution and possession of wealth (as the preceding table shows). Let us now take a closer look at the US—the world’s leading economic power, and one for which the most data are available.

Chart 1.2.  [16]

During the first decades of the 20^th century, the income of the 10% of the population with the highest income accounted for 40 to 50% of the total. From the 1950s to the 1980s, that percentage decreased to less than 35%. Beginning with the neoliberal counter-revolution ushered in by the Reagan administration, the situation has evolved in favour of the wealthiest class. During the last years prior to the crisis of 2007-2008, concentration of wealth in the hands of the wealthiest 10% in the USA had returned to levels similar to those recorded during the Great Depression of 1929. The trend since the current crisis began is again towards increased concentration of wealth in the hands of the wealthiest segment (48% in 2012). According to Oxfam, the wealthiest 1% grabbed 95% of the growth subsequent to the 2009 ‘recovery’. [17] In 2012, that 1% earned practically one fifth (19%, to be exact) of all the income in the country. [18]

1.3. Causes of inequalities

1.3.1. The relationship between capital and labour

The first factor causing inequality is the relationship between capital and labour. In a capitalist economy, in addition to natural resources, the fundamental factors of production are labour and capital. There is a constant struggle between them to capture the wealth generated in the production process. Since capital owns the means of production, that struggle is an unequal one. In fact, the evolution of inequality depends greatly (though not only) on the capital-labour relationship, as clearly shown by neoliberalism since the 1980s. It has put an end to the post-Second World War economic relationships through an offensive by capital that has been dismantling the social progress previously made by workers.

The effects of this new neoliberal model can be observed in the following chart. Note that the 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. of labour income in worldwide gross domestic product (GDP) shows a sharp downward trend. If we think of GDP as one large pie, workers are getting a smaller and smaller piece of it.

Chart 1.3. [19]

This downward pressure on wages has been accompanied by growing unemployment. Wages are the principal means for redistributing total income. But statistics say that in 2013, 202 million people were jobless worldwide, and as a result had no access to that income. That means five million more jobless people than the previous year, and 62 million fewer jobs since 2008. [20]

We also observe an increase in inequalities in wage distribution during the past decades. The following table shows the breakdown of wages among the different categories of the population by income, in Europe and in the US.

Table 1.3 Inequalities in income associated with wages in Europe and the US (2010) [21]

1.3.2. Increased tax regressivity

The neoliberal counter reforms have transformed the distribution of taxation in countries. On the one hand, taxes on the highest incomes and on large fortunes have been reduced, as well as taxes on corporate profits and revenue from capital. On the other hand, the liberalisation of movements of capital has made it easier for money to be moved, and thus escape taxes by hiding in tax havens.

In recent years, in order to reduce budget deficits, governments have taken so many austerity measures that a small gesture had to be made towards making those truly responsible for the crisis—that is, the richest segment of the population—pay a little more to help the rest of the population to swallow the medecine. But as Table 1.4. shows, these recent tax increases in the high income brackets do not begin to compensate for the huge tax reductions made since the 1980s.

Table 1.4. Tax rates on highest incomes [22]

Taxes on corporate profits have followed a similar downward trend. In France, for example, the maximum taxation rate has gone from 50% prior to 1985 to 34.4% since 2007 (see Table 1.5). Worse yet, as a result of numerous tax breaks, the effective rate is only 22%. For companies listed on the CAC 40 (the index of the 40 biggest corporations listed on the Paris Stock Exchange), it is barely 8%.

And the Consolidated Global 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. Tax System mechanism (a tax regime granted by certain States which permits large corporations to deduct losses posted abroad from their taxes) allows major corporations to pay no taxes at all in certain cases. For example, while it posted profits of €10 billion in 2010, the oil giant Total paid no taxes. That is only one example of widespread practices.

Table 1.5. Maximum legal tax rate on corporate profits [23]

1.3.3. Gender inequality [24]

The social inequalities that affect women cut across all economic relationships. Whereas access to employment represents the principal source of income for most of the world’s population, women are discriminated against, even in countries where equality of rights is recognized. This theoretical recognition contrasts, for example, with unemployment rates for women, which are higher than those for men. Added to that are lower wages for women—including for the same work done by male co-workers. In addition, women’s restriction to part-time or informal jobs (that is, jobs not subject to labour legislation) exposes them to ever-increasing precariousness.

1.3.3.1. In the North

In the North, public-spending cuts required by austerity policies are resulting in cutbacks of social policies intended to fight gender inequality. Similarly, cuts in social spending assume that the “Care Sector” (health, early-childhood services, education, care for dependent and/or elderly family members, etc.), abandoned by the public sphere, will now be taken over by the private sphere—meaning women.

Chart 1.4. [25]

The reduction in wage differences between the sexes in most countries shown above is the result of a loss of jobs—in other words of income earned by men—rather than of an improvement in wage conditions for women. Despite the improvement, even though it may appear significant, the average wage difference between men and women remains a very tangible reality. In 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/ countries, it was 17.3% in 2011, with rates above 25% for South Korea and Japan. [26]

Regarding unemployment, the situation is similar. The unemployment rate for women is higher than for men. The same is true of the inactivity rate for women. [27] These data reflect the exclusion of women from the labour market.

During the crisis, the gap between women’s and men’s unemployment generally decreased. However, this decrease in average unemployment rates between the sexes can be attributed much more to the overall deterioration of the employment situation and heavier losses of jobs in sectors that are traditionally male-dominated (banking, construction, finance, the automotive industry, transport, etc.) early in the crisis than to any improvement of gender equality on the labour market.

Table 1.6. Unemployment rate for men and women 2008-2013 [28]

If we take into consideration only full-time employment, the gap between the unemployment rate for men and for women is significantly greater, because unemployment statistics do not take into account part-time jobs, most of which are held by women. This over-representation of women in part-time work reflects a relationship of inequality within the private sphere, which has repercussions in the work place The highly unequal distribution of domestic and care-giving tasks between the sexes very often forces women to ‘choose’ part-time work. Meanwhile, austerity measures are reducing access to social services, such as care for dependent persons, nurseries and day-care centres, care for the elderly, and policies for reconciling working life and private life, the private sphere—so women are increasingly taking on the burden of providing these services. In order to be able to perform this unpaid work of caring for others, women tend to reduce the number of paid hours they work (or sometimes even leave the labour market altogether), which exposes them to increased financial precariousness.

Gender inequality is also present when we analyse the job market. The ’choice’ of only part-time work or of remaining unemployed will be greater for women to the extent that the range of jobs available to them is more limited than for men, [29] a situation that has worsened with the crisis. For example, women are more heavily impacted by budget restrictions intended to give priority to repaying debt by reducing public employment. In Europe, women hold a majority of jobs in the public sector (69.2% of the total number of employees in that sector are women), [30] which generally provides them with better working conditions and wages than those prevalent in the private sector.

When it comes to retirement, there is also gender inequality: in Europe, retired women receive an average of 39% [31] less than their male counterparts, since they have paid into the retirement system for less time and at lower rates. The priority being given to paying back the debt to the detriment of social spending is likely to aggravate the situation for the following reasons:

• women suffer more from the effects of the crisis on employment;
• they are forced to reduce or abandon their paid work to assume unpaid care tasks; [32]
• reforms of public retirement schemes are making it more difficult for women to have access to a pension that will enable to them to live with dignity and above the poverty line. [33]

1.3.3.2. In the South

In the developing countries, women suffer greatly from inequality and discrimination. While some of them have been able to increase their economic activity, conditions are much less favourable than for men. The following chart shows that evolution. It analyses a sampling of ten countries, which represent a third of the world’s population.

Chart 1.5. Rate of participation in the workforce (in % of population between 15 and 64); rate of wage earning (in % of employed labour force) and gender-based wage inequality for 2008-2012 [34]

Among the countries sampled, only Brazil, Bangladesh, and Vietnam show participation by women that is above 60% of the total number of women of working age. In all other cases, the same figures, applied to men, show around 80%.

Chart 1.6. [35]

The observations made regarding the North apply around the globe: it is more difficult today for a woman to find full-time employment than for a man, and the gap is wider in countries where income is high. We should recall that full-time work is generally synonymous with a higher-quality job that guarantees more rights.

1.4 Poverty and malnutrition: deconstructing the neoliberal fable [36]

If we believe the United Nations, the World Bank and 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 , even if the world situation is still cause for concern, things are moving in the right direction—extreme poverty and hunger are decreasing around the world. In 20 years, the number of people living in extreme poverty has decreased by 700 million, from 1.9 billion to 1.2 billion (Table 1.7), while the number of people suffering from hunger has dropped from 1 billion to 842 million (Table 1.8).

Table 1.7 – Extreme poverty in the world [37]

Table 1.8 – Hunger in the world [38]

According to these figures, extreme poverty and malnutrition have not decreased everywhere. For example, extreme poverty has barely decreased in southern Asia, and above all has greatly increased in sub-Saharan Africa. The overall reduction in extreme poverty is therefore likely due essentially to China and India, countries with the largest concentration of extreme poverty, as the chart below shows.

Chart 1.7 – Centres of extreme poverty in the world (2010)
(% of worldwide total) [39]

There is clearly another interpretation: even if these figures were correct (and they are not, as we shall see below), there would be no reason to be proud. Levels of extreme poverty remain scandalously high. One person out of five lives in extreme poverty and one out of eight suffers from hunger, with all the (often irreversible) physiological and psychological consequences that condition implies. In addition, a person who suffers from hunger also suffers from political, economic, and social exclusion.

But that is not the worst. The story about the reduction of poverty is in fact nothing but a fable. These figures are not at all reliable; they have been manipulated so as to greatly underestimate poverty levels throughout the world.

Setting a poverty threshold at $1.25 per day is totally cynical and unrealistic. There are few places on the planet where fundamental human rights can be met even on four dollars a day. [40] Yet more than 50% of the population of the global South survives on less than $2.5 per day, while 75% live on under four dollars per day. Another figure: In 2005, 95.5% of the population of the developing countries, or 5.5 billion people, were living on less than $13 dollars per day, [41] or approximately $400 per month. In fact, most people who have supposedly emerged from ‘extreme poverty’ in recent years have not. If the threshold is set at 2, 3, or 4 dollars per day, we would realize that the majority of the population of the Third World is living in great precariousness and deprivation.

Furthermore, the methods used to calculate poverty levels (extreme or not) are more than questionable. The threshold for the different countries is calculated in terms of ‘purchasing power parity’ [42] — that is, taking into account differences in the cost of living. That implies that for many countries, the poverty threshold is even less than $1.25 per day. For example, for India, the World Bank considers that the cost of living is much lower than elsewhere, and so lowers the threshold of poverty to $0.25 per day in purchasing power parity! Using that methodology, the Bank tends to strongly underestimate real poverty.

In October 2007, a study conducted by a governmental institution in India calculated that 77% of the population, or 836 million Indians, lived on less than 20 rupees (less than $0.50) per day. That figure is very different from the World Bank’s assertion that 300 million Indians live on less than one dollar a day. Already in 2002, in a report on poverty in the Least Developed Countries Least Developed Countries
LDC A notion defined by the UN on the following criteria: low per capita income, poor human resources and little diversification in the economy. The list includes 49 countries at present, the most recent addition being Senegal in July 2000. 30 years ago there were only 25 LDC. , the UNCTAD UNCTAD
United Nations Conference on Trade and Development This was established in 1964, after pressure from the developing countries, to offset the GATT effects.

(United Nations Conference on Trade and Development) had called attention to the problem and directly challenged the World Bank’s estimates. According to the World Bank, 41.7% of the population of Niger were living on less than one dollar per day in 1992. For that same year, the UNCTAD put that figure at over 75%.

Among the Bank’s manipulations of the figures, one could add the fact that its updating of poverty thresholds (the threshold was raised from $1 to $1.25 in 2008) did not fully take into account the effects 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. , thus magically lifting 121 million people out of extreme poverty. [43]

In reality, the absolute number of poor people in the world has increased, and therefore we need to dismantle this fable, which serves only one purpose—to deny the manifest failure of the neoliberal policies the World Bank and the IMF have been imposing on the peoples of the world. Yet beyond the figures, we must not forget that poverty is a multidimensional phenomenon, which cannot be described in purely financial terms. Access to health care, education, energy, and social protection are all factors that must be taken into account in assessing poverty.

One final aspect needs to be brought to attention: there is a close relationship between the increase in poverty and the increase in inequality. On the one hand, is a tiny minority in whose hands a huge amount of wealth is concentrated; on the other, is a multitude who suffer and struggle to survive. Massive poverty is not a ‘natural’ phenomenon. It is the direct result of capitalist logic, based on accumulation and the exploitation of people. Eliminating poverty is entirely possible. In 2008, the FAO calculated that $30 billion per year ‘would be enough’ to eliminate hunger. Forbes magazine estimates that there are 1,645 billionaires in the world. [44] A tax of only 0.47% on these huge fortunes would be enough to eradicate hunger in the world. What else is there to say?

1.5. Inequality generates debt

There is an obvious link between income inequality and debt. The process runs more or less as follows: the liberalisation of movements of capital and financial deregulation have generated economic growth based on private debt. Easier access to credit has enabled the very rich to increase their holdings and their income thanks to the 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. from their financial investments. Companies increase their investments, relocate in other countries, and/or buy out competitors. Banks facilitate the granting of credit in order to increase their profits in addition to what they earn from financial speculation. [45] They derive part of their financial income from loans to those citizens whose income is the lowest. Banks increase the volume of their loans to increase their profits (but lending to citizens who are a great credit risk). In parallel, the loans enable numerous workers to increase their consumption even though their real wages are stagnating or decreasing.

Meanwhile, the liberalisation of capital movements and governments’ complicity with economic elites result in lower taxes in their favour (see Tables 1.4 and 1.5). That being the case, governmental policies that serve the interests of the most wealthy increase inequalities. The increase in inequality swells the bubble of private debt, and the use of credit in turn strengthens that inequality. [46] It is a vicious cycle that is only broken when events cause the credit bubble, which has become unsustainable, to burst. The collapse of financial markets follows with the socialisation of losses, and with it the increase of public debt.

Public debt increases due to the tax breaks given to the richest minority and major corporations, which drain the State’s revenues, and also because of a tax structure that is more sensitive to economic activity: tax revenues increase during periods of growth and are reduced during periods of crisis, aggravating governments’ budget deficits and the public debt that is intended to compensate for them. In these conditions, most public spending is covered by issuing securities—beforehand a large proportion of revenue was from the collection of taxes, which must be compensated for by contracting loans and paying 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. on them.

In an economic recession, in order to obtain financing for public deficits, governments pay lenders higher interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation. . At the same time, they apply austerity policies to reduce public spending, thus bolstering 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). of payment to creditors. And the wheel of the ‘debt system’ never stops turning.