Wednesday, August 12, 2020

Borrowers and Lenders (2005)

Book Review from the August 2005 issue of the Socialist Standard

Noreena Hertz: I.O.U.: The Debt Threat and Why We Must Defuse It. Harper Perennial £7.99.

Hertz is fairly well-known as a commentator on and critic of globalisation. But unlike some, she does not even make the pretence of being anti-capitalist. In her previous book The Silent Takeover, she made it clear that she was advocating another form of capitalism in contrast to a laissez-faire version that sidelined justice and democracy.

The book under review focusses on developing-country debt and its consequences, not just for the Third World but for ‘advanced’ capitalist countries too. For debt and possible defaults can lead to desperation and terrorism, environmental damage and general economic recession. During the ‘Cold War’, loans were often made for strategic reasons, to keep countries friendly, whether US loans to Latin America or Russian and Chinese lending to Africa. The collapse of Eastern European state capitalism brought a sudden end to this, with loans being called in and new lending being on much less favourable terms. Hertz gives a good account of many of the mechanisms by which lending occurs, such as the roles of the International Monetary Fund and World Bank. Many Western countries have export credit agencies that underwrite sales by domestic companies and step in to pay them if anything goes wrong (so much for the risks of entrepreneurship). There are even traders who buy and sell developing-country debt as if it were pork or oil, usually making vast profits in the process.

In 2004, the world’s poorest countries owed $458 billion. The consequences of this seem pretty devastating:
  “Millions of children continue to die every single year because money that could be spent on preserving their health is still being spent on debt service. Millions of children are prevented from attending school because money that could be spent on their education is still being spent on repaying debt.”
Hence the demand to ‘Drop the Debt!’, and Hertz’s proposals for deciding when debt  is illegitimate and should be cancelled, plus her suggestions of ‘new principles for borrowers and lenders’.

The problem is that all such proposals effectively accept the status quo, i.e. global capitalism. They do not even begin to address the question of why people are poor in the first place. The passage quoted above assumes that money spent on repaying debts would otherwise be used for health care and education, but there is no guarantee of this at all: governments in developing countries, like all governments, run affairs in the interests of the ruling class. In a world rooted in ownership of resources by a tiny minority of the population, poverty, famine, and lack of access to decent health care and education are inevitable. Cancelling debt (which is anyway less costly to the lenders than might at first appear) relates to just one aspect of the way in which the basic inequality of capitalism reveals itself. It does not affect underlying causes — which is why, whatever the sincerity of those who support it, it will make no contribution to ending poverty.
Paul Bennett

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