why is the third world poor? key concepts
debt: Most 3rd world countries are highly indebted. That means they owe a lot of money. In 1990, they were paying collectively $110billion/year in interest payments alone. They pay a high percentage of their GNP (Gross National Product: everything produced in a country in a year) just to keep up and most have no hopes of ever being out of debt. In order to pay the debt, countries must export in order to earn foreign exchange (dollars). What do they export and at what cost? Forests & fish at rates that are causing permanent environmental devastation, extinction, etc; High-value agricultural crops, like snow peas, which require use of land, water, and labor that then is not available for domestic food needs; Peoples’ health, by wooing foreign corporations to open factories which operate with no regard for worker safety.
The International Monetary Fund & the World Bank give loans and reschedule or refinance existing loans. These are semi-public, semi-private non-democratic institutions that operate independently of any government. This means they are not accountable to any citizenry or constituency and their records are secret.
when and why did the debt start?: In the late 1970s, 1st world banks were flush with money from OPEC deposits (massive profits on oil). Wanting to make money with that money, they started loaning it out very generously. at the time, it was thought impossible for a country to default on their loans and “development theorists” believed that the 3rd world would experience economic growth & catch up to the 1st world, or at least make enough to pay off the loans. But the 1st world banks were so enthusiastic to lend monies that they exercised little oversight over how the money was spent. 3rd world elites spent it on airports, skyscrapers, military, and other things that didn’t actually build the economy (these purchases are sometimes described as “symbols of development”, rather than actual development). Having refinanced over and over, third world countries are now facing a staggering debt for monies that never benefited the poor and did little to build economic infrastructure.
choice of projects: These days, new loans from the World Bank & IMF are very strict, in two ways. The first way is that they require the money be spent on things they approve. Unfortunately these things follow a narrow model of development: dams and other infrastructure that facilitate multinational corporations in using the cheap land and labor, rather than projects that help 3rd world peoples’ own small businesses. So while these projects largely benefit multinationals, the citizenry have to pay. (Some pay by being removed from their ancient homelands to make way for dams and other projects.)
structural adjustment: Since the 1980s, IMF & World Bank loans and loan rescheduling have come with increasing strings attached, called “structural adjustment conditionalities”. These conditionalities include: freezing the minimum wage at current levels (and sometimes cutting wages), repressing labor organizing, cutting social services (education, health, and food assistance to the poor…), devaluing the currency (this makes labor cheaper for foreign corporations, but makes any imported items more expensive for consumers), privatizing any state-owned industry and sometimes state services like transportation, and enacting free trade policies (see below).
free trade: Free trade policies are enforced by structural adjustment loans and by “Free Trade Agreements”, including NAFTA, the European Union, APEC, and, most importantly, GATT (The General Agreement on Tariffs and Trade). These policies include:
* Canceling taxes and tariffs on international business (for example: not taxing Nike products made in the country and then shipped out to the US, eliminating import tariffs on foreign rice ¾ these tariffs protect the nation’s self-sufficiency in rice);
* Eliminating any limitations on foreign ownership of land or businesses (3rdW countries used to require that foreigners take domestic joint venture partners when they opened a new factory, so that some of the profits would stay in the 3rdW country);
* Privatizing any state-owned enterprises or services and allowing foreign corporations to compete for those profits (now that the incarceration industry is one of the fastest growing industries, third world countries could be required to privatize jails);
* Treating foreign corporations as well or better than domestic ones (that means even though Nike is well known for workplace violations, the Thai government cannot inspect their factories more frequently than other factories);
* Elimination of any other protections for local producers (India was forced to permit Coca-Cola to enter their markets in the name of “free trade”, but Coca-Cola drives out of business all the little Indian producers of local soft drinks);
* Eliminating any laws that make doing business in that country expensive (such as labor law, environmental law, product safety laws, and cultural protection laws) ¾ this is called “harmonization” and, since the 1st world is also bound to these laws, we have seen our clean air act, dolphin safe tuna, bans on child labor, and other consumer protection laws cancelled. Canada has had to increase allowable pesticides by 30%.
The most recent negotiating “round” of GATT created a permanent institution, the World Trade Organization (WTO), which can pass new trade laws without those being returned to the Congress and national assemblies of all the countries for ratification. Since the signing countries have agreed to bring all their national laws in line with WTO rulings, this means that the WTO has the power to cancel national laws, making it the highest governing body in the world and it, unlike the United Nations, has enforcement powers. unfortunately, the WTO is not set up to enforce human rights, workers rights, product safety standards, environmental protection. Its mandate is to prioritize trade, and everything else has to be sacrificed to that goal.
neoliberalism: Neoliberalism is an economic theory that says if you let “the market” manage everything, people will be better off. Neoliberalism is being enacted in 3rd and 1st world countries alike through structural adjustment policies (which are happening in the US and Europe as well, but that name is not used) and free trade agreements. it’s important to notice that not all markets and not all businesses are helped by these. Small local businesses and farmers are hurt when multinational corporations are allowed into the economy. So it’s really “free trade” for corporations and “forced trade” for countries that would like, for example, to protect self-sufficiency in rice. How did neoliberalism come about? International political and economic elites have been working for years to “build consensus” about neoliberal policies and how to enact them through organizations such as the Trilateral Commission. Bush & Clinton were both part of this process.
foreign aid/USAID: These aid monies make Americans feel good about being generous to other countries in times of crisis. unfortunately, USAID gives money in ways which increase dependency rather than helping 3rd world countries to be more independent. In addition, the monies are often spent in ways that subsidize corporations, by encouraging agricultural technologies that involve continual purchases from US fertilize and feed corporations, etc. (see Haiti article)
responses to the debt: An international organization called Jubilee 2000 is demanding debt forgiveness for poor countries so that their GNPs can be used to benefit their own people. The WB & IMF are considering some forms of debt forgiveness, but usually these offers come with severe structural adjustment conditionalities. Jubilee 2000 wants debt forgiveness without strings attached. Some people argue that the 3rd world has paid these debts many times over by giving cheap labor, cheap natural resources, and cheap food to the 1st world. Some people have also suggested that 3rd world countries unilaterally refuse to pay the debt. In order to do so, such a country would have to be prepared for nearly total independence. this is actually possible, as most areas of the world had all the technologies they needed to be self-sufficient until fairly recently. Moreover, if they stopped exporting, would have abundant land, labor, and natural resources to meet their own needs. Countries following this path might face invasion by US CIA and military forces, particularly if they blockaded powerful US corporate interests.
recolonization: Many 3rd world scholars describe neoliberalism as “recolonization”. European colonization of Africa, Asia, and Latin America was a system of invasion by which military and political intimidation were used to take control of the economies of what is now the 3rd world. Europeans presented themselves as superior, befriended 3rd world elites (and had their children educated in Europe), forced people to work, took control of the best land, required the use of their political institutions (like courts), and told people that their religion and culture were inferior and they should want to be like Europeans. Most importantly, they created dependency by outlawing domestic production and forcing people to buy from European merchants suddenly people needed cash income to buy basic goods and thus formerly self-sufficient people had to work in order to buy their basic needs. This dependency was highly profitable for Europeans because not only did they have markets to sell their goods, but they now had cheap laborers and people willing to sell off natural resources cheaply. Europeans also took land, resources, and labor (slaves) by force during this time.
3rd world scholars are using the word “recolonization” to describe the current situation because, once again, 1st world countries have control over their economies and political systems. IMF, World Bank, and WTO dictating national laws means that 3rd world peoples and their governments no longer have national sovereignty. Some Americans and Europeans are worried that the same thing is happening to us…
resources: Walden Bello, Dark Victory. David Korten, When Corporations Rule the World, chapters 9-13, Jerry Mander & Edward Goldsmith, ed., The Case Against the Global Economy. Kevin Danaher, ed., 50 Years is Enough: The Case Against the World Bank and the International Monetary Fund, Catherine Caufield, Masters of Illusion: The World Bank and the Poverty of Nations, Ralph Nader et. al., The Case Against Free Trade.