Global Economic Counterrevolution:

(How Northern Economic Warfare Devastates the South)

by Walden Bello

Barbarians at the gates: The image is evoked frequently these days to describe the defensive condition of the West, and not just by right-wing extremists like Pat Buchanan.

Listen to Jacques Attali, the well-known French Socialist party stalwart who until recently headed the European Bank for Reconstruction and Development. In his latest book [Millennium: Winners and Losers in the Coming World Order], he writes off the billions of people of the southern hemisphere as "millennial losers." Africa is a "lost continent," according to Attali, while Latin America is sliding into "terminal poverty." With no future of their own, says Attali, the peoples of the South can only look forward to "migrating from place to place looking for a few drops of what we have in Los Angeles, Berlin, or Paris, which for them will be oases of hope, emerald cities of plenty and high-tech magic."

What worries Attali, though, is that the poor of the South "will redefine hope in fundamentalist terms altogether outside modernity. This dynamic threatens true world war of a new type, of terrorism that can suddenly rip the vulnerable fabric of complex systems." In other words, the gates must remain well-guarded against the insurgent tide.

Attali is hardly a reactionary. Indeed, the ease with which he and liberals like him have been seduced by the image of "the beleaguered North" testifies to how many in the West now perceive that the interests of the rich, white North and the poor, colored South are irreconcilable. We may dismiss the popularity of David Duke as an anomaly and attribute violence against foreigners in Germany to a handful of neo-Nazis, but intellectuals are a weathervane, and thinking like Attali's points to a dangerous closing in Westerners' thinking.

It is not popular these days for opinion leaders in Europe and the United States to suggest that the North may have had a hand in creating the massive movement of people from the South. Surely, however, the migration cannot be separated from the draconian policies of debt collection that produced a staggering net transfer of financial resources -- $155 billion -- from the South to the North between 1984 and 1990.

Moreover, this massive decapitalization, which triggered the virtual collapse of economies throughout the South, was not simply the unfortunate consequence of repaying debt, as Northern media have portrayed it. It was, in fact, the intentional outcome of a global economic counterrevolution set in motion in the 1980s by Northern states and economic institutions under the leadership of the Reagan administration.

"Development": Defeat Solidarity

To understand this counterrevolution, we must place it against the background of the 1960s and 1970s, which the United Nations labeled the "first two development decades." These years were marked by the growth of a more assertive, more confident South. Though a mixed bag politically, the newly emerging independent countries of Asia and Africa, as well as the older states of Latin America, were determined to achieve development through economic programs that included vigorous state leadership, domestic market protection and strong controls on Western investment. While the East-West conflict split the South on some issues, it did not prevent its coming together in the Non-Aligned Movement, the United Nations Commission on Trade and Development (UNCTAD) and the Group of 77 [comprising the bulk of African, Asian and Latin American countries] to press for a fundamental redistribution of wealth on a global level.

The rhetoric of solidarity seemed on the verge of becoming reality in the early 1970s, when OPEC countries managed to seize control of the price of oil. OPEC's success triggered further attempts by Third World countries to create cartels in bauxite, tin and other raw materials, as well as in agricultural commodities. Southern governments expected the OPEC producers to stand united with them to demand a comprehensive deal on a wide range of commodities. This would mark the beginning of the "New International Economic Order."

OPEC did not deliver, but even the near emergence of a unified Southern economic bloc controlling strategic commodities gave the Northern countries a bad scare. Anti-South sentiment became a mass phenomenon in the United States, where it contributed to Ronald Reagan's election in 1980. Preceding the resurgence of chauvinism and racism in Europe by a decade, this earlier reaction in the U.S. probably stemmed from the coincidence of the Third World economic challenge with such direct political threats to U.S. hegemony as the defeat in Vietnam and the Iran hostage crisis.

In any event, the Reagan administration came to power with an agenda to discipline the Third World. While U.S. military adventures against radical Third World movements and governments dominated the news, even more lethal was the economic warfare the U.S. unleashed against the South on a global level.

The Reagan project was certainly helped by the fall in raw-material prices to their lowest point since the 1930s. But the rollback of the South was not primarily a result of market forces; it was engineered. The U.S.-dominated World Bank spearheaded the effort. The main mechanism employed was the aid program, which was transformed from an instrument of limited wealth redistribution and pacification under Cold War liberals like World Bank head Robert McNamara to a device that completely reshaped Third World economies under Reaganites at the Treasury Department and the World Bank.

Structural Adjustment Loans: The Weapon of Choice

Right-wing economists had identified strong state leadership, protection of domestic markets and controls on foreign investment as strategic building blocks of a subversive "New International Economic Order." Dismantling them became a priority, and for this task the World Bank deployed the formidably named "structural adjustment loan" (SAL).

SALs were not tied to one specific project, but access to these multi-million-dollar loans was made contingent on a Third World government's agreement to carry out a drastic program of liberalization. This included reducing the state's role in the economy, lowering barriers to imports, removing restrictions on foreign investment, eliminating subsidies for local industries, reducing spending for social welfare, cutting wages, devaluing the currency and emphasizing production for export rather than for local consumption.

While World Bank economists tried to sell these measures as necessary to promote "efficiency," Third World leaders accurately perceived them as striking at the heart of the Southern project of gaining more economic independence at the national level and seeking income redistribution at the global level. Not surprisingly, initially there were few takers.

The opportunity for the Treasury Department and the World Bank to have their way came in the early 1980s: as more and more Third World countries ran into greater difficulties servicing the huge loans made to them by Northern banks in the 1970s, the banks made the adoption of the World Bank structural adjustment program essential to debt rescheduling. They argued that the structural reforms ensured debtors' abilities to continue paying their debts beyond the short term. Unable to gain access to further private bank financing without the World Bank seal of approval, governments surrendered. By the end of 1985, 12 of the 15 debtors designated as top-priority debtors -- including Argentina, Mexico and the Philippines -- had submitted to structural adjustment programs.

Over the next seven years, SALs proliferated as the economies of more and more Third World countries came under the surveillance and control of the Bank. About 187 SALs had been administered by the end of the decade, many of them coordinated with equally stringent standby programs administered by the International Monetary Fund (IMF). Whereas in the previous division of labor between the two institutions, the World Bank was supposed to promote growth and the IMF was supposed to monitor financial restraint, their roles now became indistinguishable. Both became the enforcers of the North's economic rollback strategy.

The cooperation between the Bank and the Fund was brought to a higher level with the establishment in 1988 of the Structural Adjustment Facility (SAF) to closely coordinate both institutions' surveillance and enforcement activities, especially in sub-Saharan Africa. Out of a total of 47 countries in that region, 30 are currently implementing adjustment programs administered by the Bank or the Fund. Since most of these countries have very weak political structures, an IMF-World Bank condominium has been imposed over much of sub-Saharan Africa under the guise of providing aid.

Structural adjustment programs functioned extremely effectively as a mechanism to collect Third World debt and cause a massive redistribution of financial resources from the South to the North. But more importantly, they achieved the strategic objective: imposing "reforms" that have since transformed scores of Third World economies. From Argentina to Ghana, state intervention in the economy has been drastically curtailed, protectionist barriers to Northern imports have been eliminated wholesale, restrictions on foreign investment have been lifted and, through export-first policies, internal economies have been more tightly integrated into the capitalist world market dominated by the North.

The crowning achievement of this strategy came in 1991: India, a leader of the Non-Aligned Movement and long the champion of state led nationalist development, promised a thoroughgoing restructuring of its economy in exchange for a structural adjustment loan to enable it to service its debts to Western banks. Conservative publications like The Economist gave the event almost as much significance as the dismantling of socialism in the Soviet Union.

"Bitter Medicine," No Cure

Like all counterrevolutions, the costs of dominating the South have been ghastly. The average Gross National Product for nations in sub-Saharan Africa fell by 2.2 percent per year in the 1980s; by 1990, per capita income on the continent was back down to its level at the time of independence in the 1960s. A United Nations advisory group reported that throughout the continent, "health systems are collapsing for lack of medicines, schools have no books, and universities suffer from a debilitating lack of library and laboratory facilities." Structural adjustment programs have also promoted massive environmental damage, as many African countries were forced to cut down forests rapidly and exploit other natural resources more intensively to gain the foreign exchange they needed to make mounting interest payments.

Latin Americans regard the reverse financial flow from their continent as the "worst plunder since Cortez" and refer to the 1980s as the "lost decade." Per capita income in 1990 was at virtually the same level as ten years earlier. Severe malnutrition stalks the countryside, paving the way for the return of cholera, which people thought had been eradicated.

Technocrats at the World Bank and the IMF view this social devastation as the "bitter medicine" Southern countries must swallow to regain economic health. But after more than a decade of structural adjustment programs, the technocrats still haven't come up with an unqualified success story. They sometimes point to Chile as a model, but change the topic when conversation turns to the hunger and malnutrition pervasive in that land, where wages have declined by over 40 percent in real terms since the early 1970s. At other times, World Bank types wax eloquent over Mexico's resumption of growth, but become evasive when they have to explain why more than 50 percent of the population is now unemployed or underemployed, and why the real purchasing power of the minimum wage is about two thirds of what it was in 1970.

Perhaps it is the migrants who most clearly perceive the truth about structural adjustment: it was intended not as a transition to prosperity but as a permanent condition of economic suffering to ensure that the South would never rise again to challenge the North. If that is the case, flight is a rational solution. Migrants are not obsessed nomads seeking the emerald cities, as Attali would have it; they are refugees fleeing the wasteland that has been created by the economic equivalent of a scorched-earth strategy.

Attali paints one possible outcome to the North-South "tragedy": "a war unlike any seen in modern times, [one that] will resemble the barbarian raids of the seventh and eighth centuries." The image of permanent war is shared by the U.S. Presidential Commission on Integrated Long-Term Strategy. Conflict with the Third World, the Commission tells us, "is a form of warfare in which 'the enemy is more or less omnipresent and unlikely ever to surrender." The Commission goes on to say that whereas "in the past we have sometimes seen these attacks as a succession of transient and isolated crises, we now have to think of them as a permanent addition to the menu of defense planning problems."

But another outcome is possible. It can come about if people emerge who are brave enough to accept the North's responsibility for the economic devastation of the South and lead the effort to forge the only lasting solution to the global crisis: the creation of a North-South alliance that would shatter the shackles of structural adjustment and unleash the long-repressed promise of Southern sovereignty.

from the book 50 Years Is Enough
edited by Kevin Danaher of Global Exchange

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IMF, World Bank, Structural Adjustment