Review of 'IOU', Noreena Hertz, Fourth Estate £16.99
The plight of the developing world is the greatest crime of 21st century capitalism. The majority of the people of the world endure desperate and deepening poverty with all hope of keeping up, let alone catching up with the west, a distant dream.
Yet 60 years ago it all looked so different. The World Bank and International Monetary Fund (IMF) were set up ostensibly to help Europe recover from the devastation of world war. Later they turned their attentions to the developing world. The long post-war boom seemed to hold out the prospect of former colonies industrialising and catching up with their former masters.
During the 1950s and 1960s credit was a weapon in the Cold War, as the US and Russia competed to draw developing countries into their respective blocs. Brutal and corrupt dictatorships such as Suharto's in Indonesia and Mobutu's in the Democratic Republic of Congo were favoured for their stability.
With the end of the boom and the flood of petrodollars looking for profitable investment opportunities, the big Western banks got in on the action. But by the early 1980s it was clear that the assumptions on which loans were based were hopelessly unrealistic. As commodity prices fell and interest rates soared, major debtors such as Mexico and Argentina defaulted.
Debtor countries were increasingly trapped in a vicious circle as they borrowed more and more just to pay the interest on their previous loans. Increasingly they fell into the clutches of the IMF and the World Bank.
The consequences for the world's poor have been appalling. Structural adjustment meant ending food subsidies, slashing healthcare and education, and sacking state employees. The result has been deepening poverty and malnutrition, creating an environment in which diseases like Aids have spread like wildfire. IMF-imposed reliance on cash crops has ended many countries' ability to feed their people, while natural resources are swallowed up at an alarming rate.
Noreena Hertz has written a clear, jargon-free account of the debt crisis. She is unsparing in her condemnation of the role of western governments, banks and international institutions, and the appalling consequences for the poor of the developing world. She also recognises the potential for 'blowback' as anger and desperation grow.
However, like so many recent books appealing to the anti-globalisation audience, IOU is stronger on describing the problem than putting forward credible solutions. Hertz proposes the establishment of an international court of debt arbitration, with procedures for allowing countries to go bankrupt without further impoverishing their peoples. She rightly calls for debt to be written off, but advocates the establishment of national regeneration trusts which would benignly oversee the amnesty and ensure that resources released by the debt write-off were used responsibly.
Hertz labours under the illusion that the debt crisis is the result of bad policy decisions rather than competitive accumulation and imperialism. This leads to the naive belief that the leaders of the developed world can be persuaded to see reason. She has great faith that the Bush administration will be forced to support debt write-off. There are several favourable references to Gordon Brown's views on the crisis.
But, despite their occasional fine words, there is no sign that the leaders of the developed world will do anything serious to address the problem. The much-hyped 1999 Cologne agreement to write off some of the debt of the most indebted nations came to nothing. The present US administration is notorious for its contempt for multinational institutions such as the UN. There is no way the US will voluntarily relinquish control of the World Bank or IMF, or its other means of controlling the developing world through loans and debt.
The real solution to the crisis is the development of the anti-capitalist movement into a mass international revolt that can challenge and ultimately overthrow the system of which debt is an integral part.