Michel Chossudovsky: The Globalization of Poverty: Impacts of IMF and World Bank Reforms
by Michele Stoddard
[book review; WTO; globalization]

At the end of November, the World Trade Organization (WTO) will meet in Seattle to make a series of decisions with untold consequences for the people of the globe. Untold, in that the full agenda has not been made public, thanks to the efforts of the mainstream and business press, and its provisions are not part of any debate by those most affected. The world's most powerful states and economic actors are making a concerted effort to keep the consequences of this agenda from the public view until they have become a legally binding fait accompli.

Despite the blackout, however, hundreds of national and international organizations, unions, foundations, and progressive community groups are disseminating this vital information, and tens of thousands of demonstrators are planning to be in Seattle to oppose decisions of the WTO that could redefine the nature of sovereignty, the planetary environment, agriculture, telecommunications, biotechnology, energy, culture, etc.

For many Americans, events in Somalia, Haiti, Rwanda, and now Yugoslavia, East Timor, and Colombia, are the product of local circumstances and conditions—tribal and ethnic hatreds, corrupt governments, out- of- control militaries, drug trafficking, a culture of vengeance, and so on. The present liberal view is that the devolution of states into atavistic violence and genocide requires an armed humanitarian response by the Great Powers on the grounds that "We had to do something."

Michel Chossudovsky's very important book, The Globalization of Poverty1 addresses the question, "Who's ‘we'?" He takes us beyond the shell game of world power—"it's the transnational corporations"; "it's G- 7 banks and the IMF"; "it's American hegemony." Chossudovsky confronts head on the links between ever higher levels of civil violence and massacre, and acute social and environmental distress, with the modalities of market expansion.

The devolution of some states into heavily militarized bands and privatized security forces, organized gangsterism, secessionist struggles, and "black" economies are part of the rearticulation of the power of other states with the dominant sources of economic power. The best expression of these hybrid forms of power are the international financial institutions, the IFIs. Chossudovsky examines the underlying mechanisms of a global economic system undergoing a deepening crisis, exploring its political dimensions, which, once understood, make piecemeal and purely economic solutions look impossibly naive or disingenuous. The book offers a darker view than most of what is at stake in the upcoming World Trade Organization (WTO) conference.

The current system, Chossudovsky argues, is one of "capital creation through destruction." He offers a new perspective that sheds much light on the recent "constitutional" pretensions to sovereignty of the WTO, the International Monetary Fund (IMF), the World Bank, and various binding trade agreements. The IFIs' "liberalization" policies are routinely justified on the grounds they lead to development, local wealth creation, and—at some undetermined future point—the general welfare. On the contrary, says Chossudovsky, in country after country these policies function to increase both urban and rural poverty. Wages and labor costs are regulated on a world level. "Global poverty is an input on the supply side, the global economic system feeds on cheap labor."

To perceive the effects of the "new interventionist framework," of macro- economic restructuring in the developing world, the truth is in the details. Fully half the book is a meticulous study of policies implemented by the IFIs in Somalia, Rwanda, India, Bangladesh, Vietnam, Brazil, Bolivia, Peru, the Russian Federation, and the former Yugoslavia. The author's recent work on Albania and Kosovo, appearing regularly in this magazine, continues his painstaking appraisal of the civil wars, famine, genocide, economic collapse, and the wholesale destruction of entire national societies inextricably linked to the operation of this regulatory regime. Significantly, developments elsewhere in the Third World find their echo in the internal policies of the G- 7 states, dismantling their own domestic economies and casting whole segments of their national populations into increasing marginality and poverty. The chickens most definitely are returning to roost.

Chossudovsky supplies a succinct history of the principal dynamic driving the global economy forward for the last 30 years: debt. The global economy works as capitalism has always worked, through the relentless search for new commodity forms, new markets, and higher profits. Yet things have changed. It has always been in the interest of capitalists to reduce labor costs and in the interest of capitalist nation- states to increase exports while reducing the volume of imports. Finance capital, with its huge array of lending and speculative mechanisms, underwrote the power of states but did not substitute for it. The current situation is not just a case of the "money" economy outstripping the tangible "real" economy, but a new frame and mode of exercise of power. It is all the more effective because it is covert. Its actions and practices are successively removed from public realms of democratic accountability, embedded in the quantitative expression of money values, which can be artfully severed from any causal connection to the effects it produces at the proverbial stroke of a computer key.

The Driving Force of Debt

In the 1970s and 1980s, the combination of huge amounts of dollars available to banks in the so- called First World and corrupt or vulnerable regimes in the Third anxious to borrow them, left many countries massively indebted. As huge interest payments thus created brought these nations to the edge of default, the solvency of lenders in Europe and America became precarious, and their governments stepped in to enforce payment.

The complex dynamic of this spiraling debt has since become a perpetual motion machine of profits and revenues flooding away from developing countries, as recalculated interest payments dwarf the principal and new loans are used to pay off a piece of old ones. In 1970, these countries owed $62 billion; by 1996, the figure was $2 trillion.

The real windfall stems not from the payment of interest, but from what the threat of non- payment allows the lender to do politically. An enormous array of rewards flows to banks and transnational corporations from the "reforms" of the domestic economy imposed by the IMF, World Bank, and others as "conditionalities" for new loans and as a "green light" for foreign investment. "Structural adjustment policies," "shadow programs," "policy- based loans"—a whole language exists to designate the process of reorienting these countries away from their national economies and integrating them into a putatively global "free market."

In the somber- minded pronouncements of these institutions, "liberalization" and "competitiveness" are the unquestioned road to national health, despite thirty- plus years of policy failure. Striking statistics of the increases in corporate assets, global poverty, income inequality, disease and mortality, and environmental degradation have no apparent effect in braking the continued enactment of the measures which largely produced them in the first place. The primary stated goal of the IFIs is to facilitate debt repayment and restore solvency by converting domestic production to production of goods for export at low prices, entailing low wages and a favorable climate of investment. Foreign multinational corporations oblige by building plants to take advantage of cheap labor costs, extracting concessions from countries by making the latter compete with each other for placement. In the 1970s, when the movement of manufacturing from industrial to "less- developed" countries really got under way, the prices of raw export commodities dropped precipitously, meaning that then, as now, developing countries must export more and more to meet ever- larger debt obligations.

The Crush of "Reforms"

Today, debt is both a finely tuned instrument and a sledgehammer for "reforms" whose primary thrust is the formation of a low- wage labor market, a euphemism for intense and massive poverty. Loans from the IFIs are not given on the narrow basis of the soundness of the investment scheme or their contribution to local development or subsistence. What is instead required is the systematic transformation of the debtor society from top to bottom. Any hesitation to comply with the conditions for new loans is met with an immediate interruption of the flow of loans, aid, and assistance. To be certified in compliance, a country must enact a range of "economic" measures that are highly political in their origin, intent, implementation, and effects.

   Currency devaluation; a rapid reduction in state spending,  subsidies, civil employment, and state subsidies for essential goods and services; and the private purchase of state- run enterprises, public lands, and infrastructure have a calamitous local effect. The leadership of central banks and the ministries of agriculture, industry, health, education, housing, transportation, energy, etc., are replaced with the officers of IFIs and compliant local allies. Not only do they seize control of monetary policy, they exercise formal jurisdiction over most aspects of state policy- making. Devaluation causes soaring prices for food, fuel, housing, medicine, transportation, and housing; massive government layoffs and plant closings spike unemployment rates; and minimum wage laws are repealed.

The purpose, insists Chossudovsky, is blatantly evident in the effect, i.e., the overall reduction of demand. In the name of restoring budgetary solvency for debt- servicing, the IFIs become the exclusive brokers of state economic activity. Farcical bidding arrangements allocate huge construction projects to foreign firms that can undercut local prices and that kick back to local and foreign associates and government officials huge fees for insurance and consulting. These firms then subcontract the real work to the local firms they initially undercut at a fraction of the price.

Loan money funneled in this way leaves the country faster than it arrives, and its destination, as profit or fee, are the multinational corporations and not primarily the banks. Whatever interest is paid, the loan remains. The green light signals that every asset the country possesses is the object of a fire sale: land, crops, forests, petroleum, minerals, labor, the consumer market, essential services, entertainment, etc. The tax structure, reformed to promote fictional productive reinvestment by the rich, bankrupts national low- and middle- level firms, already burdened by the removal of customs barriers to competing low- cost imports.

To add insult to grave injury, international speculators wage bets on the value of the currency, bonds, and stocks, bets so over- extended that the vaguest rumor can and does precipitate an entire region into collapse. The social costs of this ingenious shell game are enormous, but the rewards accruing to those who ally themselves as intermediaries and agents of foreign banks and firms are irresistible.

Desperate popular protest and resistance to the prospect of starvation leads to the reinforcement of the security forces and the signing of military assistance and training agreements that dovetail with economic aid. Governments who surrender sovereignty and willingly acquiesce in the forced march of their national populations toward ever more extreme poverty stay in power only by abandoning democratic practices and resorting to repression.

Crime Pays

The profits earned by multinationals and their local representatives are huge, so great that they create a formidable incentive for illicit financial transactions, trade in drugs, and arms and money laundering. This point is central to Chossudovsky's argument: These lucrative activities further erode state sovereignty, decimate state assets, and hasten the demise of the productive domestic economy. They also militarize society and provide the additional foundation for a spoils system conducive to high levels of civil violence and warfare among its beneficiaries and against the disenfranchised.