The capitalist �principle� and Third World debt

Noam Chomsky

The simplest answer to the argument that countries who borrowed from the World Bank/International Monetary Fund have no right to ask for debt forgiveness is that the presupposition is false, so the argument is vacuous.

For example, the �country� of Indonesia didn�t borrow; its US-backed rulers did. The debt, which is huge, is held by about 200 people (probably less): the dictator�s family and their cronies. So those people have no right to ask for debt forgiveness � and, in fact, don�t have to. Their wealth (much of it in Western banks) probably suffices to cover the debt, and more.

Of course, this response assumes the capitalist principle. According to this principle, if I borrow money from you, use it to buy a Mercedes and a mansion, send most of the money to a bank in Zurich, and then you come and ask me to repay the loan, I�m not supposed to be able to say: �Sorry, I don�t want to pay you back, take it from the folks in the downtown slums�.

And you�re not supposed to say: �I got the high yields from this risky investment, but now that the borrower doesn�t want to pay it back, the risk should be transferred to other folks in my country through socialisation of the debt�.

That�s the capitalist principle. It would suffice to largely eliminate the debt.

Of course, that principle is unacceptable to the rich and powerful, who prefer the operative �capitalist� principle of socialising risk and cost. So the risk is shifted to northern taxpayers (via the IMF) and the costs are transferred to poor peasants in Indonesia, who never borrowed the money.

International law

The argument that �their country� borrowed the money so they are responsible surpasses cynicism and need not be considered. In fact, it doesn�t even stand up under international law.

When the US conquered Cuba in 1898 to prevent it from liberating itself from Spain (what is called �the liberation of Cuba from Spanish rule�), it cancelled Cuba�s debt to Spain on the reasonable grounds that the debt had been forced on the people of Cuba without their consent. That doctrine, called �odious debt�, was later upheld in international arbitration, with US initiative.

The current US executive director at the IMF, international economist Karen Lissakers, pointed out in a book a few years ago that if this principle were applied to Third World debt, it would mostly disappear.

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introduction of the democratic free market system, but to save the only institutions which seemed capable of serving as protection from the negative impact of the market. The state enterprises were a tangible representation of the so-called `social safety net� which everybody talks about, but no one seems capable of organizing.

�The Bank chose to continue to finance Parliamentary measures and the losses of state enterprises rather than risk the massive unemployment and social unrest that might result. The Bank was duly attacked on the one hand as a revisionist saboteur of `democratic market reform� instituted by the government, and on the other by western `experts� who failed to recognize the significance of the state enterprise system as a defence against the rapidity of social change.�

The Polanyi book is a treasure trove for concepts against which to check our understanding of the current Great Transformation that the world is suffering. At this late stage it should be evident even to government economists that it is not enough to have Greed Enthroned at the controls.

William Krehm

�from Economic Reform, September 2001

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