Maravi

(SOCIALISTALTERNATIVE) Part I: The IMF, the World Bank, and the Global Economy

COMMENT - From SocialistAlternative.org:

Part I: The IMF, the World Bank, and the Global Economy

Following on the heels of the "Battle in Seattle", tens of thousands of activists from all over the world will converge on Washington DC April 8 - 17 in round two of the assault on global capitalism. The target: the semi-annual meeting of the International Monetary Fund. The goal: shut down and otherwise disrupt the IMF and World Bank. There will be protests, rallies, marches, direct action, street theater, student walk-outs, meetings, concerts, teach-ins and networking organized by a diverse group of activists made up of students, trade-unionists, environmentalists, women's groups, and human rights organizations in a festival of resistance against corporate globalization.

The millennium ended with 50,000 people marching in the Battle in Seattle and the new one will open with a massive demonstration against the world's central financial institutions, proving that Seattle was not a simple speed bump on the road to corporate globalization, but instead represents a turning point in the US. A new wave of radicalization is beginning to spread. Deep anger, fueled by over twenty years of falling living standards, has been brewing under the calm surface of America throughout the 1990s.

A new movement against corporate greed and capitalism is being born. January witnessed the largest civil rights rally since the 1970s, with 46,000 demonstrating against the Confederate flag in South Carolina. Tens of thousands rallied in Florida to defend affirmative action in March. New York City has witnessed a series of large and militant protests against police brutality. The anti-sweatshop movement has spread like wildfire across the nations' colleges, creating the largest student movement since the 1991 Gulf War protests. In the upcoming Presidential elections, Ralph Nader will probably receive millions of votes, and in some cities even reach 5-15% of the vote. For the first time in over fifty years, millions of people will vote for an independent, progressive, pro-union, anti-corporate challenger to the two parties of big business.

It is clear that thousands of people are looking to fight back and beginning to organize. The movements against the World Trade Organization (WTO), International Monetary Fund (IMF) and World Bank have a clear anti-corporate and even anti-capitalist character. But these movements still have questions to answer. What is the best strategy to challenge corporate greed and global capitalism? How do we take the movement forward after April 17? Is there a viable alternative to global capitalism?

What are the IMF and World Bank?

The IMF, World Bank and WTO are central pillars in the global economy and have been called the "architects of the world economy." The IMF and World Bank were originally established at the Bretton Woods Conference in 1944. They were mainly funded by the United States to re-build the shattered world economy after it broke down during the Great Depression of the 1930s and World War II.

During the Nazi occupation of Europe, the capitalists had either fled Europe or were collaborating with the Nazis. Socialists, in contrast, had been active organizers of resistance groups. By the end of the war, revolutions swept through Europe, and workers and farmers were seizing their factories and farms. The US was forced, in order to prevent revolution, to carry out a massive program of aid and re-development in Europe. It was for this task that the IMF and World Bank were founded. Over the past decades, however, the recipients of their international loans have switched away from Western Europe to the underdeveloped world.

Ever since then, the IMF and World Bank have continued on as an instrument for defending capitalism, maximizing the profits of the big multinationals and maintaining the domination of the US over the world economy. Within this common framework there is a division of labor and functions between the IMF and World Bank (and since 1995 the World Trade Organization) although these have tended increasingly to overlap, and the two organizations work together quite closely.

The World Bank makes long-term loans to governments to finance development projects such as roads, power plants, schools, dams, bridges, ports and other "infrastructure". The IMF decides which countries are eligible for international loans. Currently, the IMF has been focusing on bailing out countries facing economic emergencies, like the "Asian Tigers" that were hammered by an economic meltdown in 1997-98.

The IMF and World Bank will only extend loans if countries agree to accept "structural adjustment programs" (SAPs). SAPs are not democratically decided upon by the people of the debtor countries. They are forced down the throats of the people of the former colonial world. To pay off the loans, the IMF and World Bank demand governments raise money by selling off public assets and companies (privatization) and cutting state expenditure on social services like healthcare, education, childcare, and pensions. SAPs require countries deregulate and open up their economy to "free trade" by cutting subsidies to local industries and slashing trade barriers and tariffs. Countries must open up their economies to foreign business (usually multinationals from Western countries), remove restrictions on foreign investments, and allow corporations access to the workers and natural resources of the country at bargain basement prices. The vast majority of the profits made by the multinationals is taken out of the country and brought home (repatriated) to the West. SAPs encourage export-oriented growth (selling cheap raw materials or commodities on the world market, like cash crops, garments, or computer chips) to generate hard currency. All in all, the IMF and World Bank SAPs turn countries into loan repayment machines, generating easy profits for the world's richest corporations and banks.

IMF policies also both directly and indirectly impact workers in the US and other advanced capitalist countries. Because they are partially funded with public money, the IMF and World Bank redistribute wealth from working people in the US (through their taxes), and funnel it to programs which benefit the multinational corporations based in the US. This redistribution of wealth upwards to the richest Americans is similar to that which accompanies any public subsidization of corporations. Big corporations, though serviced by US government money, are accountable to no "national interest" but only to their own shareholders. The effects of IMF/World Bank programs are to lower wages and working conditions worldwide, which exerts a downward pressure on workers' living standards in the industrialized countries as well. In an example of the same neoliberal logic, the NAFTA-created free-trade zones at the US-Mexico border were an immediate threat to the hard-won gains of US workers. In this case, an injury to one truly is an injury to all. It is for this reason that the unions have felt compelled to endorse the DC protests.

Structural Adjustment: The Bitter Pill that Poisons

"Our dream is a world free of poverty" - sign at the entrance to the World Bank's headquarters in Washington, DC.

The IMF and World Bank claim that neo-liberal reforms, while a bitter pill to swallow, in the end lay the basis for major economic growth and therefore higher living standards. But the evidence proves the opposite. The IMF and World Bank loans have created a huge debt trap. This overwhelming debt has led to the poorest countries in the world allocating enormous portions of their national incomes towards paying interest. The sick logic of capitalism means that money is actually flowing from the world's poorest countries to the richest. The debt is one of the most important weapons with which the big capitalist powers dominate poor countries. The IMF and World Bank use the debt as leverage to pry open new markets and gain access to cheap labor and raw materials. In order to get new credit (to be able to keep up debt repayments) and not default on their loans, former colonial countries must accept the dictates of the IMF and World Bank.

Today the underdeveloped world owes a total of $2.5 trillion in international debt to big banks and the IMF and World Bank. "Developing" nations pay the West nine times more in debt repayment than they receive in "aid" from Western countries. For example, after the recent devastating floods in Mozambique - destroying the homes of more than a million people - Western countries coughed up a bare $40 million in "aid." But Mozambique pays more than $70 million dollars a year in debt repayments to Western banks! While diseases like cholera and malaria are spreading rapidly after the floods, only 1.1% of the GDP is spent on health care-down 75% after nearly a decade of IMF imposed austerity programs.

Mozambique is far from the only country in this destructive situation:

• Between 1982 and 1990 $927 billion was loaned to underdeveloped countries; but in the same time, these debtor countries paid $1345 billion to international banks in debt service. (1)

• Debtor countries began the 1990s 61% more in debt than they were in 1982. Sub-Saharan Africa's debt increased by 113% in this period. (2)

• According to the World Bank, poverty in Africa increased by 50% between 1994 and 2000. Why? One reason is that virtually every nation in sub-Saharan Africa entered into a structural adjustment program in the 1980s. Yet for the entire decade, GNP in the region fell by 2.2% per year, and per-capita income declined to pre-independence levels. All of Sub-Saharan Africa spends $10 billion a year in debt service to banks, more than is spent on health and education combined for the entire region. For example, Zimbabwe between 1990 and 1993 cut its spending on primary health and basic education by 33% under the auspices of an IMF imposed SAP. (3) It is against this background that we can begin to understand the wave of wars and ethnic violence that has swept Africa in the past period.

Former World Bank official, Morris Miller summed this up when he said "Not since the conquistadors plundered Latin America has the world experienced a [financial] flow in the direction we see today." (4)

Latin America owes more than one-third of its total economic output in a year to other countries and banks. In Haiti "the IMF and World Bank blocked the government from raising the minimum wage and then demanded the privatization of profitable public companies which generated revenue for desperately needed services. The IMF insisted that Haiti should cut government services by half, in spite of a national shortage of teachers and health care workers, a life expectancy of 49 years for men and 53 years for women, 45% literacy and infant mortality running at nearly 10%." (5)

Another case is Nicaragua. The IMF and World Bank cut off all loans following the Nicaruaguan revolution in 1979 because it threatened to spark revolutions throughout Central America. The new Sandinista regime, under the pressure of mass mobilizations, was forced to nationalize some corporations, and carry out reforms such as a massive literacy campaign, healthcare and cheap food that were in the interests of the peasants and workers. The US demanded successfully that the IMF and the World Bank raise the interest rates of Nicaragua's existing credits, insist on the immediate payment of the debt owed by the overthrown dictatorship, and refuse any new loans. The US, again through the IMF and World Bank, also arranged for Mexico to end all oil sales to Nicaragua. Besides economically isolating and strangling the new regime, the US attempted to overthrow it by funding and training the "Contra" guerilla army. After 12 years of civil war, a conservative government was elected to power in 1992. Immediately the IMF and World Bank engineered a massive SAP, which totally transformed the Nicaraguan economy. Lands occupied by peasants were given back to their former owners, nationalized industries were privatized, previously free health care and education were partially privatized and state workers were massively fired. Today the country's debt equals six times its GDP. 74% of the population lives in poverty. 60% are unemployed and 30% of children under five are malnourished.

Similarly catastrophic results from an IMF and World Bank engineered program of "shock therapy" can be seen in Russia. Since the fall of the USSR, the Russian economy has gone into free-fall. GDP has plummeted by 60% since 1991 - a collapse of a magnitude historically unprecedented in absence of war or natural disaster. By contrast, the US economy contracted by a mere 25% during the Great Depression. A recent UN report notes "Using a poverty line of $4 a day (in 1990 purchasing power parity dollars), the UNDP [United Nations Development Program] estimates that poverty in Eastern Europe and the CIS countries increased from 4 percent of the population in 1988 to 32 percent in 1994, or from 13.6 million to 119.2 million."

Neo-Liberalism

Globalizing trends have led to a grotesque increase in inequality, both internationally and within national states. The wealth of the world's 15 richest people now exceeds the total GDP of sub-Saharan Africa. The 225 biggest fortunes in the world, mostly concentrated in the US, total more than $1 trillion, the equivalent of the annual income of 47% of the poorest of the world's population, or 2.5 billion people. These are obscene inequalities and they are becoming worse every day. The world's 100 biggest companies now control 70% of the world's trade. Any one of them sells more than any of the poorest 120 countries in the world export, while 23 of the most powerful sell more than even semi-developed countries such as India, Brazil, Indonesia or Mexico.

On the basis of globalization, it is true, a tiny elite in the poorer countries has become much richer. The majority of people, however, have become poorer, and much more threatened by calamities such as floods, famines, and especially war, with over 60 separate armed conflicts during the 1990s, claiming hundreds of thousands dead and creating more than 17 million refugees.

We should not forget, moreover, that globalization has also led to a polarization within the advanced capitalist countries, especially within the US, the most powerful. A huge section of the population, especially immigrants and people of color, live and work under Third World conditions. Forty-five million people in the US live below the poverty line, while over 40% have no health insurance.

These destructive effects of neo-liberal globalization are not merely excesses of capitalism, or just a particular, accidental mutation. They reflect the fundamental, essential character of capitalism in this period. Since the end of the long post-war boom in the mid-1970s, the world economy has entered into a period of crisis and stagnation, as the level of economic growth has declined around the world. During the post-war period, the ever-growing economic "pie" created the basis for capitalists to have high profits while allowing workers to receive higher wages and benefits. The crisis in the world economy since the 1970s means that the only way capitalists can maintain their rates of profit has been a redistribution of wealth, through an attack on workers. The fundamental program of neo-liberalism for the entire 1980s and 90s has been busting unions, lowering wages, and dismantling the welfare state. This basic program has been carried out in every country around the world, regardless of which political party has state power. This suggests that neo-liberalism is no mere accident. It is the inevitable, inescapable logic of the world economy in this period. For big business to remain competitive in this period of capitalist crisis, there must be a relentless drive to lower workers wages and living conditions.

But what about the 1990s boom in the US economy? Media pundits glow in adulation at the marvels of the "new economy". The real position of the US economy, however is quite unsound. In fact, the growth of the US economy has not been that spectacular when compared to previous upswings. During the 1961-69 expansion the GDP grew by 52%, while it has only grown by 30% throughout the 1990s. The upturn has been fueled by massive growth in the stock market and by consumer debt. Stock market growth has been based on a speculative frenzy, leading to a massively inflated bubble that is waiting to burst. Consumer spending has been a crucial ingredient in the economy's success, but this has been only financed with massive consumer debt, which reached $1.38 trillion last November, up 79% from 10 years ago. As a result, non-business bankruptcies have increased by 60% between 1991 and 1998.

Despite the boom, real wages have barely grown since 1989. This demonstrates the hollow and parasitic nature of the US upswing, which has been based on increasing exploitation of workers rather than on an organic expansion based on increases in production. Income inequality is at its highest since the 1930s. Serious strategists of big business agree that not all is rosy. Business Week's economics editor Michael Mandel recently warned, "Sooner, rather than later, the New Economy boom is likely to be followed by a New Economy bust-a recession and stock market decline that could be much deeper than most people expect."

The 1997-98 Asian crisis marked the beginning of a major world downturn in the economy, plunging 40% of the world into the worst recession since WW II. So far, the US and Europe have remained immune from the "Asian flu." But it is only a matter of time until the US and European economies sink into a recession. Paradoxically, the Asian crisis temporarily strengthened the US economy. With billions of dollars of speculative capital fleeing Asia, most of it ended up settling in the US stock market, pushing Wall Street up. This only further fueled the US expansion. The entire world economy is now perched in a extremely precarious position - resting completely on the US bubble economy, which in turn rests upon the Wall Street bubble. It is only a matter of time before these bubbles will burst, and the US, Europe, and the rest of the world economy will shoot into a sharp slump and crisis.

The IMF and World Bank are tools of big business, particularly US business. They are not "deviant" or "evil" institutions. Their policy is not formulated independently as if they were in a vacuum. Rather, their policies are a manifestation of the underlying logic of neo-liberalism and the objective trends and tendencies rooted in the current phase of capitalism. It is global capitalism that compels all the world's governments, the IMF, and World Bank to implement the neo-liberal program. The IMF and World Bank are not the problem. They are a bureaucratic metaphor, an expression of the real enemy: capitalism.

Colonialism: Old and New

"Better, sometimes to have multilateral agencies ... prepare the path for direct Western corporate investments than for the U.S. to dictate to foreign governments." -Baltimore Sun, June 18, 1981

After World War Two, mass movements of millions for national independence and self-determination threw the colonial powers out. But imperialism has not disappeared -- it has just changed its spots. The former colonial world has won formal independence, but real political and economic policy is still dictated from the imperialists and big business. As Jesse Jackson said at a conference of African nations: "They used to use the bullet or the rope ... now they use the World Bank and the International Monetary Fund." (6) Today imperialist domination is economic, maintained by control of the world market, the power of the multinationals, international financial institutions and backed up with immense military might. If necessary, imperialism will directly militarily intervene in defense of its markets. Today, socialists would use the term "semi-colonial" countries to express the contradictory character of these nations-formally independent yet economically controlled by imperialism. With fantastic technology, large-scale industry, and enormous financial powers these companies and the main capitalist governments control the fate of the world. They reserve the right to plunge parts of the world into war for the sake of maintaining their power and profits. For example, the USA bombed Iraq "back to the Stone Age" in 1991 for the sake of oil profits. As a senior American official remarked candidly at the time "If Kuwait grew carrots, we wouldn't give a damn." (7)

The big powers use the IMF, World Bank and WTO to reinforce the underlying trends and processes already latent in the world economy, which are the most favorable to the profitable operation of their nation's capitalists. The IMF and World Bank are used as one (extremely effective) tool of imperialism to continue running and controlling the economic and political policy of the semi-colonial world. SAPs are essentially a form of political blackmail with which Washington DC dictates to semi-colonial countries.

Since the multinational companies are based in the West, and since they have already dominated their own national markets, the main thrust of "neo-liberalism" has been to open up markets in the "under-developed" world. Then, the multinational corporations can sell their products at a cheaper rate than can local businesses and take over their economies. Neo-liberal cuts are engineered to destroy all subsidies for the production of domestic goods, aid for domestic farmers, and programs to foster domestic small businesses. Neo-liberalism (free trade) has been an absolute disaster for the peoples of the poorer countries. Under the guise of free trade, corporations have robbed the wealth of these countries and stored it in the vaults of the major banks of the West. This economic super-domination of these countries is merely a less overt version of the directly racist colonialism of the past.

Nominally, the IMF and World Bank are international organizations whose policy is set by all 182 member countries. In reality, they are used as tools to further the interests of the big capitalist powers, with the US having the dominant position. Every head of the World Bank has been a US citizen, chosen by the president of the United States. It is totally impossible that the IMF or World Bank could make any major decision without the consent of Washington. Even the New York Times let slip that the "[IMF] acts as the lap dog of the U.S. Treasury." (8)

The following incident illustrates clearly the real relationship of power between the US and the IMF and World Bank. "[When] South Korea slipped within days of running out of hard currency to pay its debts...it sent a secret envoy, Kim Kihwan, to work out a rescue package. 'I didn't bother going to the IMF,' Mr. Kim recalled recently, 'I called Mr. Summers' office in Washington [of United States Treasury] and went directly there. I knew that was how this would get done.'" (9) The resulting bailout package was, not surprisingly, quite favorable for US businesses. The deal opened up the South Korean economy to be bought out at bargain prices mainly by US investors. The Economist commented that the IMF "has become an adjunct of America's foreign policy" and "the fund's secret purpose is to open the doors for American business". (10)

Footnotes:

1 Timothy Gorringe, Fair Shares: Ethics and the Global Economy, (London: Thames and Hudson, 1999), pp. 66-67.

2 Ibid

3 Martin Cook and Bill Hopwood, Global Warning: Socialism and the Environment, (London: Militant Publications, 1996), p.91- 92

4 Timothy Gorringe, Fair Shares: Ethics and the Global Economy, pp. 66-67

5 Trim Bissell and Robert Weissman, ed. False Profits: Who Wins, Who Loses When the IMF, World Bank and WTO Come to Town?, (Campaign for Labor Rights: US: Feb. 2000), p.2

6 Global Warning, p. 32

7 Global Warning, p. 33

8 New York Times, October 2, 1998

9 Quoted in McQuillan and Montgomery, The International Monetary Fund, Financial Medic to the World, p. 23.

10 The Economist, December 13, 1997.

Labels: IMF, World Bank

posted by MrK @ 10:47 PM