The disappointing outcome of the G8 Okinawa summit regarding the initiative for debt relief for impoverished and indebted countries of the Global South, led President of Nigeria Olusegun Obasanjo to proclaim in August 2000:
“All that we had borrowed up to 1985 or 1986 was around $5 billion and we have paid about $16 billion yet we are still being told that we owe about $28 billion. That $28 billion came about because of the injustice in the foreign creditors’ interest rates. If you ask me what is the worst thing in the world, I will say it is compound interest.” (Jubilee 2000 news update, 18 August 2000)
About two years ago, I asserted that debt is a product of power relations, and elaborated a definition of debt and a neologism ‘neoliberal pauperism‘. My intention then was to grasp the notion and depict the phenomenon of debt on an individual, family or community levels entwined in the broader context of a political economy:
“Debt is a product of power relations which inherently exhibits capturing and dominating mechanisms of subordination, appropriation and exploitation in various societal, political and economic fields. Debt is a degrading institutional tool which not merely controls and masters labor in advance, it also self- and socially estranging, and entangling the indebted person solely into the ropes of economistic valuation. Contemporary societies are burdened by the Neoliberal Pauperism which is a state of dragging-down indebtedness disguised as a fictitious “trickled-down” wealth.”
The point is that if we expand the analytical scope, the above articulation of debtor-creditor framework is essentially applicable to the relations of the Global North (industrialized “core” countries, international governance organizations, and western financial and corporate minotaurs) and the Global South (developing “peripheral” formerly colonized countries). If we look at the timing of this scene, the year 2000 – in the height of the “Globalization-End of History-Third Way” banquet – this implication is certainly valid, particularly when we read the conditions (known as “structural adjustment” programmes) set by the powerful G8 states, purely reflecting the neoliberal ideology:
“We encourage those HIPCs [heavily indebted poor countries] that have not done so to embark quickly on the process by beginning to develop Poverty Reduction Strategies, in close cooperation with the World Bank and the IMF, and thus benefit from debt reduction.”
Ann Pettifor, the leader of Jubilee 2000 – a worldwide public campaign devoted to this issue, commented on this shameful approach of the richest states:
“This will be known as the Squandered Summit. While the G8 leaders have enjoyed Japan’s $750 million hospitality, they have squandered an historic opportunity to cancel the unpayable debts of the poorest countries. They have squandered the hope of a fresh start for the world’s poorest people in this new millennium. Their failure to act on third world debt cancellation was the defining moment of the summit.”
Well, times apparently changed, locations probably too, but the essence of debt bondage and the mounting burden of indebtedness, in every aspect and level, remains the same — debt is a product of power relations.
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Michael Hudson, Professor of Economics at the University of Kansas City has written extensively on this. Two book I recommend: 1) Finance as Warfare, and 2) Starving the Beast. Before Hudson was an Economics professor he ran bond market hedge funds on Wall Street for 20 years – the locus of debt-interest. Hudson, in his writing on compound interest (especially in his book “Finance as Warfare”) equates it to “debt peonage” and points out the hideousness of compound interest. In his “Starving the Beast” book, he goes on the more micro-level, and equates debt-peonage (in a David Harvey fashion) to a new Feudalism.
Beyond Hudson though, interest has a philosophical history in Europe, and was really legitimized by Jeremy Bentham, who wrote an essay entitled: “In defense of usury.” From the Middle Ages, at the time of Thomas Aquinas, “interest” was illegal because Aquinas called it “immoral.” As a father of the Church, Aquinas’ views were known as “usury” – people who charged interest were “using” people. The Church outlawed the practice, and it carried over into the moral philosophy of Protestantism.
As E.P. Thompson points out in “The Making of the English Working Class” anti-usury laws were on the table in Great Britain at the time. Bentham et al (including Ricardo) had for a long time called for the repeal of anti-usury laws, and this time, the British Parliament acquiesced to the upper-class who wanted to profit on “rents” in light of the disintegration of the peasant farmers. Landowners were no longer able to collect rents form farmers who had moved to cities to work in factories. “Interest” was just another way to collect rents, but owners of capital needed the anti-usury laws repealed – which hadn’t happened since Aquinas’ time (around 1250 AD).
The philosophical dichotomy was that of ethics: natural law versus consequential law; Aquinas saying that the ends never justified the means to Bentham who said that the ends always justified the means because the ends were always “good” (utilitarianism). Rational self-interest won over ideas of moral philosophy.
And here we are in 2017.
I’ve also written extensively on debt at the micro level, specifically from the philosophical angle. All interest – not just compound interest is a form of collecting rents. In economics, it is considered (literally) the price of renting money. Embedded in that price of renting money, is interest as a “risk index.” Both are totally constructed out of nothingness.
In our philosophy of the 21st Century, we have moved away from the study of ethics – where the Aristotlian idea of what is “good” is not always “right. In Economics programs, not only are ethics not even taught, but no philosophy whatsoever is. In Sociology, some programs have a basic philosophy requirement (speaking from the United States and Canada view), but none require “ethics” specifically; where we ask ourselves questions of usury, what is social utility, and is “good” always “right.” Ethics is only taught from a research standpoint. I don’t mean to pick on Sociology (I’m an Economic Sociologist), because the idea that we no longer have to ask ourselves questions about the difference between “nature” and “law” have permitted to all disciplines. Bentham’s methodological individualistic utility has become a cultural mainstay in western society. And there was life before the “enlightenment” that told us that the ends always justifies the means.
Haven’t been able to find Starving the Beast by Michael Hudson. Finance as Warfare gets a paltry three reviews on amazon. Alas, when the real issues climb beyond a few bombastic statements to be flung by either end of the continuum, nobody pays attention.
In terms of national indebtedness, Standard & Poor reported in 2010 that by 2050, 60% of countries around the world will sink into bankruptcy, and this was simply focusing on the costs of supporting aging populations. Other variables will surely hasten the arrival of these bankruptcies. In addition, the U.S. will be in debt to the tune of 415% of GDP by that year.
S&P also pointed out that austerity measures are not the answer, as massive social violence will erupt, probably long before 2050.
The sovereign debt trends we see today are completely, thoroughly unsustainable.
Welcome to the 21st century.