How the Rich Control the Poor-Issue XII

VOX - The STudenT JOurnal Of POliTicS, ecOnOmicS and PhilOSOPhy iSSue Xii - Summer 2010

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How tHe ricH control tHe poor

By Roy Moore

IT HAS BEEN HALF A CENTURY SINCE MOST OF THE FORMER COLONIES

of European and American powers became independent countries. During this time many have hoped these coun-tries would establish their own suc-cessful institutions, but the aftermath of colonialism allowed ‘first-world’ countries to more subtly control the lives and economies of their former slaves. The institutions of political power, generally adapted from their old colonial masters, seem out of con-text in Africa, Asia and Latin America respectively; arbitrary boundaries cut across tribal settlements, laying the foundations for many conflicts later to come. Too often critics have blamed tribal differences for regional conflicts, without alluding to the nature of the conflicts, which more often reflects competition between organised elites for the monopoly of violence, the worst of which, as we shall see, was often sponsored by Europeans and Americans (Berkeley, 2001). For newly independent coun-tries, it is difficult to establish an in-frastructure and develop the nation without the interference of former masters. Corruption is a huge problem which still raises questions of legitima-cy in even the most ‘developed’ coun-

tries in the world. Aside from the ‘cash for honours’ scandal and the more re-cent expenses row in the United King-dom, one particularly interesting case is that of Paul Singer, whose company bought discounted Peruvian debt for US$11 million. He later threatened to bankrupt the country if they did not repay the full value of US$58 million, a figure he received in full. More recently he has sued the Republic of Congo for US $400 million for a debt he bought for just US $10 million. Such ‘vulture funds’ prey on ‘developing’ countries, regularly using the British legal system to pursue their cases, exploiting sym-pathy for creditors rather than debtors. Paul Singer was also the largest con-tributor to George Bush and the Re-publican Cause in New York City, do-nating US$1.7 million since Bush’s first presidential campaign and US$15 mil-lion to Rudolph Giuliani’s campaign. Another vulture fund, Debt Advisory International, took US$40 million from Zambia for a debt it bought for less than US $4 million while contrib-uting US$240,000 annually to lobbying firms. These donations and contribu-tions have inevitably affected policies, and the legal system itself; democratic principles are being bought out for special interests - interests which are

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affecting more remote parts of the world as globalisation spreads (Palast & Goodman, 2007). Corruption is often cited as a major cause of increases in poverty de-spite massive injections of ‘aid’ from developed countries and their respec-tive institutions. In Uganda, for exam-ple, it was noted that “less than 36% of expenditure in the health and edu-cation sub-sectors reach the intended beneficiaries: the health centres, hospi-tals and schools” (Potter, 2000). What is often forgotten, however, is that Ugandan leaders, such as Idi Amin, subject of the recent film ‘The Last King of Scotland’, were groomed by the British who, in return, received lu-crative business opportunities in the area. Aiding his coup and providing military and financial assistance, the British sponsored his brutal regime which killed tens of thousands of peo-ple, displacing many more and destroy-ing the Ugandan economy (Hebditch

and Connor, 2005). Unfortunately this is a recurring theme as the coup d’état remains the most common form of regime change in developing nations; British and US-sponsored coups and regimes in Chile, Nicaragua, Liberia, DR Congo, Indonesia, Philippines, have resulted in millions of people dying from war and its effects.

Globalisation and DebtThe more globalisation has taken route, the more capital has been free to travel the world in search of the cheapest la-bour. Initially it was argued that trade liberalisation would bring benefit to all, but more recently it has become plain that “80% of the world suffers from these forces but do not participate in their benefits... only those economies with per capita incomes of more than US$10,000 can even hope to come out ahead.” (Potter, 2000). It is common practice for the World Bank, IMF and governments to attach tariff and sub-


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sidy reductions as conditions for their loans. Such practice is encouraged un-der the rhetoric of the free market, but has rarely provided benefits to those poorer countries that cannot compete with foreign subsidised goods (Stiglitz 2002 & 2007). In one particular act of hypocrisy, during WTO negotia-tions, the US offered to reduce tariffs on 97% of imports from ‘developing’ countries, a number specifically cho-sen to eliminate competitive foreign goods, such as Bangladeshi textiles, while Bangladesh would be free to export jet engines and other goods it has no capacity to produce. This was offered in return for imposed condi-tions of trade upon the ‘developing’ countries, which has been estimated to cost ‘developing’ countries US$350 billion annually. Conditionalities on loans have historically given greater trading platforms to the ‘developed’ countries, who received a “net transfer of funds between 1980-86 [which] to-talled almost US $650 billion”, a figure that has continued to increase (Potter, 2000). The country with the lowest tariffs, Haiti, is also one of the poor-est, as second-hand foreign goods are dumped in its economy; without the infrastructure for domestic industry to compete, unemployment increased when the domestic suppliers failed. In many ways, Haiti’s poverty is sustained by the global economic order. Aid for Haiti in the wake of the recent natu-ral disaster, though well-meaning, will

never be successful unless the broader issues of crippling debt, unemploy-ment and poverty are properly ad-dressed. The global economic order works for the richest, not the poor-est; for every US$1 in loans, US$25 is given back (Shah, 2006). The Latin American and Caribbean “region paid US$1.165 trillion in debt service over the last two decades of the century and still owed Northern creditors US$750 billion at the end of the millennium (Garcia, 1999, original emphasis). This unsustainable debt continues to grow in compound interest, inflation and in-ability to pay: Africa, Asia and the Lat-in American/Caribbean region owed US$610 billion in 1980, by 1997 they owed US$2.3 trillion (Potter, 2000).

Aid?It seems paradoxical to call loans to de-veloping countries ‘aid’, given the im-posed conditions and the subsequent profit earned by richer nations. Peru-vian economist Javier Iguiniz, for ex-ample, notes that “to eliminate Peru’s extreme poverty would cost US$332 million a year”; Peru pays five times that amount in annual debt service (Boyd, 1999). It seems very possible to help such countries, but the IMF and World Bank, among other agencies, focus more on macroeconomic fac-tors and their own interests. Despite heavy criticism, there seems to be little change in the way the IMF and World Bank operate. The IMF’s Enhanced Structural Adjustment Facility (ESAF),


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which would attach conditions of structural change to loans, mostly in-volving trade liberalisation and reduc-tions in public spending, evolved into Poverty Reduction Strategy Papers (PRSP). PRSPs are a concept which supposedly includes input from the borrowing country’s civil society, gov-ernment and NGOs, but which has subsequently been criticised for doing none of these effectively. On one oc-casion, the IMF gave two days’ notice to those it invited to its discussions, clearly sending the message that ev-eryone must fit their timetable around the IMF, excluding any who could not (Stiglitz, 2002).

our Moral DemandsSuch massive escalations in poverty and unsustainable debt hurt most of the world, creating inequalities where-by “the three richest individuals in the world have combined wealth greater than the 48 least developed countries and their 600 million inhabitants” (Potter, 2000). With 24,000 children dying every day due to malnutrition and easily preventable diseases (You, et al.), while life expectancy is half that of many ‘developed’ countries - there is an ever growing demand for justice in those ‘developing’ countries. Hav-ing paid many times more than their original loans, it would be fair for the governments of developing countries to refuse to pay any debt they currently owe, while lobbying for massive trade reforms. These would eliminate the

hypocritical protectionism of those developed countries that demand trade liberalisation from developing coun-tries. For half the world’s population, who must survive on US$2 a day, there is no irony that the average European cow is subsidised US$2 a day, it is sim-ply another cruel twist in the narrative of world politics (Potter, 2000). Many debts are from loans given by the World Bank, IMF, and European and American governments because of the profit margins, political ideology and geopolitics. Knowing the human cost and financial corruption of Mobutu, Suharto, Amin and others, demanding the poorest people pay for these mistakes is morally abhorrent. It is also in our interest, though, to establish a fairer trade system, elimi-nating British subsidies would save billions for taxpayers while simultane-ously lowering prices. The solutions are there and, in many cases, obvious. The initial step is to develop the will to demand from the rich elite who affect such control, that there is a limit to how much inequality can be tolerated. It is not a matter of ‘aid’, or charity: it is simply a matter of justice.

Bibliography available online at www.voxjournal.co.uk

_____________________________Roy Moore is a third year undergraduate student reading Politics, Philosophy and Eco-nomics at the University of York.

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How the Rich Control the Poor-Issue XII