It is well known that in today’s world the global economy and the financial systems are largely driven by the policies of the International Monetary Fund (IMF) and the World Bank. These bodies and such similar bodies are unelected entities whose policies control the fate of billions of people all over the world. Although there are some differences in their mandates, the main working principles of these financial agencies are essentially the same as all banks. Very simply put:
(I) Wealthy countries deposit money in these banks
(II) These banks lend money to poorer countries who need loans
(III) The countries who take loan have to return it within a fixed period and pay an interest and other surcharges on the loan
Their policies are determined by the vote of its members but importantly, the voting power of a country depends on how much money that country has given to the bank. Unsurprisingly, developed countries, led by the USA, have most of the voting power. Like any bank, the most important agenda of these agencies is to ensure that the loan gets repaid and that the bank makes a profit from giving a loan. Since, unlike banks, these institutions do not give a dividend to their shareholders, the profit is realized in other ways. These may involve infrastructure and building contracts going to mutinational corporations (MNCs), or large scale vaccination programmes where the vaccines have to be bought from global pharmaceutical giants.
Ultimately the profits pool to the capitalist class of the donor countries.As we know from experiences around us, even a slight upheaval can drive poor people to debt. It can be something like a few days of illness or hospitalization, the monsoon not being good in that year, or a bird flu epidemic which results in culling of their poultry stock. Similar to this, developing countries whose economy has already been destroyed by centuries of imperialist plunder, sooner or later fall into this debt trap due to fluctuations of the global economy. The international capital finds willing allies in the capitalist class of these poor countries because they too get a share of the subsequent profits. By not repaying the loans they owe to the national banks, not paying power and other infrastructure bills to the government and by avoiding their tax liabilities, the domestic capitalists deepen the economic crisis driving their own countries into the death trap prepared by the global financial institutions. The existing political-economic systems in the country enable and empower them to do this with impunity.
To ensure the loans get repaid, these agencies make the borrowing countries change their sovereign policies according to their diktats. So, in effect, the social and economic policies of independent democratic countries are not governed by the will of their people but by the rules set by the developed countries that control the agenda of the global financial institutions. In effect, the benefits of economic boom largely benefit the capitalist class of the rich nations while the ill effects of shocks and disruptions of the global economy are passed on to the population of the developing nations. The three pillars of the economic policies imposed by them are Liberalization, Privatization, Globalization (LPG).
Liberalization: This involves relaxing of laws and regulations governing setting up of businesses. Usually these regulations involve things like determining the environmental and social impact of infrastructure projects, checking whether the manufactured food products or medicines are safe for public use, and whether health and safety of the workers in factories are protected. Liberalization basically leaves these decisions to the good faith of the industrialists with the hope that they will pay more attention to these than to immediate profits. Certain industries which were exclusively under government control because they were considered essential for national security, ranging from manufacturing essential medicines to armaments for defence forces, could now be manufactured by the private sector without government regulations. Restrictions on import and export of food grains which were in place to maintain food reserves were removed. Export of certain food grains endangers food security and leads to hoarding thereby driving up the prices. On the other hand, uncontrolled import of agricultural products reduces the profit earned by the farmers, leading to destruction of the agriculture sector and causing massive rural unemployment. Export restrictions of certain minerals which are essential to the national manufacturing sector are removed, leading to the closure of the factories in this sector. Cheaper import of finished goods drives the indigenous manufacturing units to closure. The local industries are destroyed leading to large scale unemployment. Like in colonial times, the developing countries become a source of raw materials and dumping ground of manufactured products and substandard medicines from developed nations.
Before liberalization, all businesses had to comply with the laws protecting the rights of the workers which had been won through decades of trade union struggle. All these laws are either weakened significantly or removed altogether, first in the so-called Special Economic Zones and then in the rest of the country. The destruction of the agriculture and the manufacturing sector creates a large army of the unemployed who are forced to seek employment in sweatshops. In these sweatshops, the workers make consumer goods for the developed countries while getting a fraction of the wages which are offered for the same work in those countries. Banks and insurance companies which needed to show that they have taken enough safeguards to not lose the money deposited with them now have no such restrictions. The stated goals of these policies are to make local industries competitive with international brands and to promote the growth of new businesses. New businesses do start, imported products become available to the middle class, the number of jobs increase a bit but the exploitation of the workers also increases because the safeguards have been dismantled. With time, the global multinationals and the established national capitalists using their deep pockets gobble up these small ventures.
Privatization: Liberalization is always accompanied by privatization where the government sells off its stake in Public Sector Undertakings to private companies. Public sector entities are properties of the entire nation. Some were considered core assets of the country like natural resources, mines, dams, ports, airports, which are essential to ensure the sovereignty of the country. Others were considered tools to perform the government’s essential duties towards its citizens. The essential duties included providing food security, healthcare, education, banking, electricity, communication and transport. The income from the Public Sector was put back into the governance of the country. The government owned companies which follow the pre-liberalization rules cannot compete with the newly setup industries which have much less expenditure because they do not pay minimum wages or follow any safety or quality standards. The IMF policies and the crony national capitalists prevent any expenditure on modernization for public sector industries which consequently are declared sick and sold off cheaply to private entities. Once these assets are sold off, the government gets an immediate injection of money which is essentially used to pay off the interest on the borrowings. In the long term, the assets which used to belong to the country are now privatized compromising its political independence. Providing basic amenities to its citizens, instead of being a duty of the government, becomes a profit making venture. Moreover, the steady income which these assets used to provide the government are now gone and more assets have to be sold off to meet its internal and external liabilities. The subsidies provided by the government to farmers and small businesses have to be reduced under IMF-World Bank rules. The government does not have the money to build new infrastructure and hence hands it over the private sector. This reduces the future revenue stream of the government and further tightens the grip of the global and the national capitalists on the country.
Globalization: The key point of this is that restrictions on movement of capital across national boundaries are removed, while restrictions on movement of people across nation remain restricted. The IMF and the World Bank always insists on this along with liberalization and privatization because this is how the global multinational companies can profit from the destruction of the country. Earlier, the profits and super-profits made by the national capitalists had to be invested back inside the country because capital outflow was restricted. With globalization, global capital can come in, buy up or build industries in a country, make huge profits because they do not have to follow labour or environmental norms, and then take the profits out of the country without any restrictions.
This is exactly like what used to happen in colonial times but without the responsibilities of governance. Globalization changes the entire socio-economic environment of the country. The agriculture and manufacturing sectors do not work towards meeting the needs of the people but to meet the needs of global capital. That is why farmers are forced to grow potatoes to make chips, and corn to make ethanol instead of growing food grains. They are forced to use genetically modified seeds which they have to buy every few years. These will give high yield for a few years but will destroy the environmental sustainability and biodiversity of the region. Since the prices are again controlled by global capital, the profits of the farmers do not increase. The global capital does not care for either the human or the environmental costs of their practices because, once they have extracted everything of value from a region, they will move on to some other region which the World Bank and the IMF will acquire for them. That is why pristine forests are destroyed to build mines to extract minerals and mountains and rivers are destroyed to transport these minerals. Consumption patterns also start changing because the people are forced to buy what the MNCs are selling as the public sector and small scale industries have been decimated. The educational patterns change, because global capital wants specifically trained labourers for their specific needs. These young people are forced to work for them because they are trained only for certain jobs and they have no other employment opportunities available. Healthcare systems are forced to prescribe imported medicines and vaccines, and recommend tests to pay for the expensive machines bought with IMF -World Bank loans but manufactured in some other country. In the absence of real assets, virtual assets like stocks and shares are promoted as indicators of national wealth.
The three headed dragon of LPG devours entire countries and communities. The ruling political class of the country is given a small cut of the proceeds. But even if they wanted, the government has already lost its economic sovereignty and lacks the political will and the financial strength to undo the chains they have put on their citizens. Global capital needs national governments to act as security guards to protect their interests and to prevent the army of the unemployed and the exploited farmers and workers from rising up in revolt. So, the government hands out doles with the blessing of the global capital which go under fancy names like poverty or hunger eradication programmes. They also try to keep the people distracted using religious festivals, nationalist jingo, sporting events and films and TV shows which promote consumption of goods which the MNCs want people to buy.
These benign efforts are supplemented by darker methods. Laws protecting individual liberties and the right to protest are removed to instil fear. Existing problems between castes and communities are provoked, new disputes are instigated to prevent unity among the exploited oppressed people. The entire political class is complicit in this because they still retain their privileged position and get a share of the profits. As a safety valve of the pressure cooker of accumulated dissent and anger, people are offered an illusion of choice between political classes via parliamentary democracy. In fact, having some form of parliamentary democracy is one of the conditions of getting loans from the international agencies. This is because they know that the false illusion that a change in government will change their situation will prevent the people from realizing the true cause of their plight and to identify the real enemy. Understanding the real cause of the problems is the first step towards finding ways to solve them.
(Author is Associate Professor in Physics at BITS Goa)
