The Divide: Global Inequality from Conquest to Free Markets
Chapter 1 : One: The Development Delusion
This story was deeply affirming for Americans; it made them feel good about themselves, proud of their achievements and their place in the world. But perhaps more importantly, it gave them a way to feel noble too – it gave them access to a higher, almost cosmological purpose. The developed countries would stand as beacons of hope, as saviours to the poor. They would reach out and give generously of their riches to help the ‘primitive’ countries of the South follow their path to success. They would become heroes, leading the way to a world of unprecedented peace and prosperity. In other words, Point Four explained the existence of global inequality and offered a solution to it in one satisfying stroke
It gradually became clear that the global economic system was organised in such a way as to make meaningful development nearly impossible
There is a very different story out there, if we are willing to listen to it. It will completely change the way we think about the world. It will change the way we think about why poverty exists. It will change the way we think about progress. It will even change the way we think about our own civilisation, about our everyday lifestyles, and about what the world should look like in the future. Anthropologists tell us that when the structure of a core myth begins to change, everything else about society changes around it, and fresh new possibilities open up that weren’t even thinkable before. When myths fall apart, revolutions happen
This approach encourages us to think with a kind of ‘methodological nationalism’ – to analyse the fate of each nation without ever looking beyond its borders.
They needed a way to defuse the anger of the people. And they found it in the work of American economist Walt Whitman Rostow. Rostow – an academic who moonlighted as a foreign policy adviser to President Dwight Eisenhower – argued that underdevelopment was not a political problem, but a technical one. It had nothing at all to do with colonialism or Western intervention, but rather to do with internal problems. If poor countries wanted to develop, all they needed to do was accept Western aid and advice, implement free-market policies and follow the West’s path to ‘modernisation’.
However, Rostow’s story failed to work as planned. Across the global South, newly independent countries were ignoring US advice and pursuing their own development agenda, building their economies with protectionist and redistributionist policies – trade tariffs, subsidies and social spending on healthcare and education. And it was working brilliantly. From the 1950s through the 1970s, incomes were growing, poverty rates were falling and the divide between rich and poor countries began to close for the first time in history.
And of course, European powers had been controlling vast regions of the South since as early as 1492. Indeed, Europe’s Industrial Revolution was only possible because of the resources they extracted from their colonies. The gold and silver they siphoned out of the mountains of Latin America not only provided capital for industrial investment; it also allowed them to buy land-intensive goods from the East, which freed them to transfer their own labour power from agriculture to industry. Later, they came to rely on sugar and cotton – produced by enslaved Africans – that was shipped in from their colonies in the New World, grain from colonial India and natural resources from colonial Africa, all of which provided the energy and raw materials they needed to secure their industrial dominance. Europe’s development couldn’t have happened without colonial loot.
But in the early 1980s that suddenly changed. The United States and Western Europe discovered they could use their power as creditors to dictate economic policy to indebted countries in the South, effectively governing them by remote control, without the need for bloody interventions. Leveraging debt, they imposed ‘structural adjustment programmes’ that reversed all the economic reforms that global South countries had painstakingly enacted. In the process, they went so far as to ban the very policies that they had used for their own development, effectively kicking away the ladder to success
Structural adjustment – a form of free-market shock therapy – was sold as a necessary precondition for successful development in the global South. But it ended up doing exactly the opposite. Economies shrank, incomes collapsed, millions of people were dispossessed and poverty rates shot through the roof. Global South countries lost an average of $480 billion per year in potential GDP during the structural adjustment period. It is now widely acknowledged by scholars that structural adjustment was one of the greatest single causes of poverty in the global South, after colonialism. But it proved to be enormously beneficial to the economies of the North.
At the end of 2016, the US-based Global Financial Integrity (GFI) and the Centre for Applied Research at the Norwegian School of Economics published some truly paradigm-shifting data. They tallied up all of the financial resources that get transferred between rich and poor countries each year: not just aid, foreign investment and trade flows, as previous studies have done, but also other transfers like debt cancellation and remittances and capital flight. It is the most comprehensive assessment of resource transfers that has ever been made. They found that in 2012, the last year of recorded data, developing countries received a little over $2 trillion, including all aid, investment and income from abroad. But more than twice that amount, some $5 trillion, flowed out of them in the same year. In other words, developing countries ‘sent’ $3 trillion more to the rest of the world than they received
But by far the biggest chunk of outflows has to do with capital flight. GFI calculates that developing countries have lost a total of $23.6 trillion through capital flight since 1980. A big proportion of this takes place through ’leakages’ in the balance of payments between countries
What this means is that poor countries are net creditors to rich countries – exactly the opposite of what we would usually assume
And because multinational corporations now have the ability to scour the planet in search of the cheapest labour and goods, poor countries are forced to compete to drive costs down. As a result of all this, there is a yawning gap between the ‘real value’ of the labour and goods that poor countries sell and the prices they are actually paid for them. This is what economists call ‘unequal exchange
Indeed, some of this damage is caused by the very groups that run the aid agenda: the World Bank, for example, which profits from global South debt; the Gates Foundation, which profits from an intellectual-property regime that locks life-saving medicines and essential technologies behind outlandish patent paywalls; and Bono, who profits from the tax haven system that siphons revenues out of global South countries
I tell this anecdote not just as an example of how aid often misses the point, but to illustrate a much larger truth. Poor countries don’t need our aid; they need us to stop impoverishing them
Chapter 2 : Two: The End of Poverty . . . Has Been Postponed
This is what I call the ‘good-news narrative’ about poverty. It is a comforting story, a welcome contrast to the depressing tales that often fill the daily news cycle. After all, it feels good to take a step back and realise that things are not as bad as they seem – that in the broad scheme of things, the world is gradually getting better. It is a story that vindicates our civilisation and affirms our deepest and most powerful ideas about Progress.
The first multilateral agreement to reduce global poverty was signed in 1996, when the world’s heads of state met at the World Food Summit in the beautiful city of Rome
What happens if we take China out of the equation? Well, we find that the global poverty headcount increased during the 1980s and 1990s, while the World Bank was imposing structural adjustment across most of the global South. Today, the extreme poverty headcount is exactly the same as it was in 1981, at just over 1 billion people
Methodological twists aside, the other major problem with the UN’s hunger numbers has to do with the definition of hunger itself. The UN counts people as hungry only when their calorie intake becomes ‘inadequate to cover even minimum needs for a sedentary lifestyle’ (i.e. less than about 1,600 to 1,800 calories per day) for ‘over a year’. The problem is that most poor people don’t live sedentary lifestyles; in fact, they are usually engaged in demanding physical labour, so in reality they need much more than the UN’s calorie threshold. The average rickshaw driver in India, for example, burns through about 3,000–4,000 calories per day
enough. Another problem with the FAO’s definition is that it only counts calories. So people who have serious deficiencies of basic vitamins and nutrients (a condition that affects some 2.1 billion people worldwide) are not counted as undernourished as long as they can get enough calories to keep their hearts pumping
The UN finds that cutting global food waste by only a quarter and redirecting it to where it is needed most would solve global hunger in a single stroke.
Even if we do choose to accept the accuracy of these national lines, using them to calculate the IPL means setting it at rock bottom. And this level tells us very little about what poverty is like in even slightly better-off countries
The same story can be told in many other regions, where living just above the IPL still means living in destitution
The Cato Institute, a well-known libertarian think tank, picked up on the story too. ‘Despite what you might think if you listen to voices prominent in the media . . . there has been a vast reduction in poverty and income inequality worldwide over the past quarter-century,’ they wrote. ‘This is the good news about the world today. Indeed, it’s the most important news about our world.’ This story has the benefit of feeling intuitively right. After all, we’re aware that countries like China and some East Asian economies have made dramatic leaps towards industrialisation, and have produced large and growing middle classes. And indeed that is exactly the key point. As it turns out, the trend towards greater global equality has been driven entirely by China and East Asia. Take China out of the picture, and the good news narrative melts away
But the development industry will not be able to ignore the problem for much longer. In 2015, the economist David Woodward published some rather sobering – even terrifying – analysis of future poverty-reduction scenarios in the World Economic Review. His findings are troubling. He shows that given our existing economic model, poverty eradication can’t happen. Not that it probably won’t happen, but that it physically can’t. It is a structural impossibility
Right now, the main strategy for eliminating poverty is to increase global GDP growth. The idea is that the yields of growth will gradually trickle down to improve the lives of the world’s poorest people. But all the data we have shows quite clearly that GDP growth doesn’t really benefit the poor. While global GDP per capita has grown by 45 per cent since 1990, the number of people living on less than $5 a day has increased by more than 370 million. Why does growth not help reduce poverty? Because the yields of growth are very unevenly distributed
All of this boils down to a simple truth: if we want to have any hope of eradicating poverty without destroying our ability to inhabit this planet, we will need to adopt a completely different economic model – one that provides for a much fairer and more rational distribution of our wealth. Our future depends on it.
The problem is that PPP revisions are well known for discriminating against poor people. PPP moves relative to the price of consumer goods across whole economies. But people living at national poverty lines do not consume such a broad range of goods; on the contrary, they spend around 70 per cent of their income on food. And it just so happens that the price of food has gone up dramatically since PPP was last revised in 2005, relative to the prices of everything else, which means that while most people are able to buy more with their dollars, poor people are actually able to buy less
Chapter 3 : Three: Where Did Poverty Come From? A Creation Story
No one colonises innocently. Aimé Césaire
The silver trade allowed Europe to import land-intensive goods and natural resources that it lacked the land capacity to provide for itself
But the point remains: it is impossible to examine the economic growth of the West without looking at the base on which it drew.
When we think of medieval peasants we usually assume that they must have lived rather miserable lives. And this is true, in many ways: disease was common, nutritional standards were not very high and life expectancy was short – as it was for most people living in settled agricultural societies before the late 19th century. But peasants did have the most important thing they needed to guarantee a stable livelihood: they had secure access to land, which they could use for farming crops, grazing livestock, hunting game, drawing water, excavating peat and cutting wood for heating, cooking and shelter
Why is this history of England useful to our understanding of global poverty? Because the process of enclosure not only marks the origin of mass poverty as a historical phenomenon, it also illustrates the basic logic of the process that would produce poverty across the rest of the world.
What unites the Irish and American cases is that both were propelled by the logic of enclosure and improvement. But there is a third example of this that is worth visiting: India. There, the process of enclosure and improvement in the late 19th century led to human suffering on a scale that outstripped that visited on both the Irish and indigenous North Americans, if such tragedies can be compared. It is a story that truly boggles the mind, although it is very little known.
The system had two built-in features that generated increasing inequalities between the West and the rest. The first was that the terms of trade of developing economies deteriorated over time. In other words, the prices of their primary commodity exports gradually decreased relative to the prices of the manufactured goods they imported. This meant that they had to spend more to get less, which translated into an outward net transfer of wealth. The second was that the wages that workers in developing countries were paid for the goods they traded remained much lower than in the West, even when corrected for productivity and purchasing power, so the South was undercompensated for the value they shipped abroad
Chapter 4 : Four: From Colonialism to the Coup
The notion that market freedom is tantamount to individual liberty was a new and distinctive feature of the ideology – and became central to its political success in the West. And neoliberalism abandoned any pretence to neutrality in favour of a more politically charged agenda: it was against subsidies and protections for the working class and regulations that supported unions, but was quite comfortable with subsidies and protections for the rich and regulations that supported large corporations.
Keynesianism had delivered high growth rates through the 1950s and 1960s, but by the early 1970s the US and Europe were beginning to face a crisis of ‘stagflation’ – a combination of high inflation and economic stagnation. Inflation rates soared from about 3 per cent in 1965 to about 12 per cent ten years later. According to standard Keynesian theory, when inflation rises, unemployment should decrease. But this time something strange was happening: unemployment was rising along with inflation. This dealt a serious blow to the credibility of Keynesian ideas, and created a golden opportunity for critics to offer up the alternatives they had been formulating – and testing – behind the scenes.
What set off the crisis of stagflation? Most scholars point to a few key events that happened during the Nixon administration. For one, Nixon was engaged in expansionary monetary policy – in other words, he was effectively printing money. On top of this, government spending on the Vietnam War at the time was spiralling out of control. As international markets worried that the US would not be able to make good on its debts, the dollar began to plummet in value and contributed further to inflation. And while all of this trouble was unfolding, another crisis hit. In 1973, OPEC decided to drive up the price of oil. The price of consumer goods suddenly shot up too, because the energy required to produce and transport them was more expensive. And because production became more expensive, economic growth slowed down and unemployment began to rise. It was a perfect storm.
The crisis of stagflation was the direct consequence of specific historical events
We can learn a great deal from the legacy of developmentalism. The solution to mass poverty turns out to be remarkably simple. Poor people don’t need charity, they need fair wages for their work, labour unions to defend those wages and state regulation that prevents exploitation
But there is one point of caution that we should take care to note. Developmentalism was not without its flaws. Rapid economic growth, industrialisation and ‘modernisation’ came with significant costs. In many cases it meant pushing peasant farmers off the land in order to make way for bigger, more ’efficient’ operations. It meant displacing communities in order to build dams. It meant drawing people into the labour force for the first time, making them dependent on wages for survival and roping them into consumer markets
Chapter 5 : Five: Debt and the Economics of Planned Misery
They called it the New International Economic Order (NIEO), and in 1973 they got it passed by the General Assembly of the United Nations. The NIEO proposed that developing countries should have the right to regulate multinational corporations; the right to nationalise foreign-owned assets when necessary; the right to protect their economies with tariffs
This surprising turn of events had been building in the background for a number of years, beginning with drama in the Middle East. In 1967, Israel launched unexpected attacks against Egypt that sparked a regional conflagration known as the Six Day War. During the chaos that ensued, Israel took the opportunity to seize territory from its Arab neighbours, annexing Gaza and the Sinai Peninsula from Egypt, East Jerusalem and the West Bank from Jordan and the Golan Heights from Syria. Outraged by this incursion, the Arab states plotted to recover their land. Six years later, in 1973, they launched a surprise attack of their own against Israel. But things didn’t go quite as smoothly as planned. The United States stepped in to support Israel, its main ally in the region, with an immense shipment of military aid. Arab States were upset by this move, as it gave Israel an unexpected advantage. So they retaliated by unleashing the ‘oil weapon’.
This is how the plan was supposed to work: the IMF would help developing countries finance their debt on the condition that they would agree to a series of ‘structural adjustment programmes’. Structural adjustment programmes, or SAPs, included two basic mechanisms for debt repayment. First, developing countries had to redirect all their existing cash flows and assets towards debt service. They had to cut spending on public services like healthcare and education and on subsidies for things like farming, food and infant industries; they also had to privatise public assets by selling off state companies like telecoms and railways. In other words, they had to reverse their developmentalist reforms
So SAPs introduced a three-part cocktail: austerity, privatisation and liberalisation. These principles were applied across the board, not just in Mexico, Argentina, Brazil and India – the first victims of structural adjustment
Debt became a powerful mechanism for pushing neoliberalism around the world, and for rolling back the developmentalist agenda Washington found so threatening – more powerful, even, than the coups that had been used in the past, and without the embarrassing inconvenience of dictators and torture chambers
When wages fall as a proportion of national income, as we see here, it means there is a shift of income from wage-earners to capital-holders. In other words, the rich get richer while the poor get poorer.
One key reason is that the World Bank and the IMF enjoy special ‘immunity’ status. In the United States, they claim this status under the International Organizations Immunity Act of 1945, which was intended to grant diplomats and international organisations like the Red Cross and the United Nations immunity from lawsuits in their host countries so that they can get on with their work without interference.
some 85 per cent of the world’s population, have only about 40 per cent of the vote. In other words, even if every single country in the global South united in disagreement against an IMF and World Bank policy, they wouldn’t be able to block it. And of course it doesn’t help that the leaders of these institutions are not elected, but are appointed by the US and Europe: according to an unspoken agreement, the president of the World Bank is always an American, while the president of the IMF is always European.
When capitalism hits these limits, investors find themselves with fewer options for investing their capital, since nothing gives an acceptably high return. They can’t just put it into savings because interest rates on savings accounts are typically lower than inflation, and that means losing money. This is what economists call a crisis of over-accumulation. In a crisis of over-accumulation, capital begins to lose its value – and according to the driving logic of capitalism, this cannot be allowed to happen. In order for capitalism to carry on, crises of over-accumulation have to be solved; someone needs to step in to provide a way to mop up the excess capital, to funnel it into some kind of profitable investment. It is an iron law.
There are a number of ways to solve a crisis of over-accumulation. One is with a ’temporal fix’. Capital can be invested in long-term projects like infrastructure, education and research that will improve the future productivity of capital. This is what happened in the United States with the New Deal
There are also quicker, often more draconian fixes available. You can drive down the price of oil – a constant foreign policy objective of the United States – which makes the costs of production cheaper. Or you can release new labour into the market or make existing labour cheaper, such as with the entry of women into the workforce in the latter half of the 20th century and the successful attempts by President Ronald Reagan in the 1980s to weaken the power of trade unions. Another option is to create new markets in sectors that are normally protected from market forces, such as with the privatisation of the railways in Britain and ongoing attempts to dismantle the country’s National Health Service.
To avoid having to confront domestic resistance, which can be politically costly, policymakers might solve a crisis of over-accumulation by resorting to a ‘spatial fix’ – in other words, by opening up new consumer markets, labour markets and investment markets abroad.
In fact, companies found they had the power to scan the globe in search not only of cheaper labour, but of the cheapest possible labour. And developing countries, in turn, found that in order to successfully attract foreign investment they had to compete with one another to drive wages down. It became a global ‘race to the bottom’ towards ever cheaper labour and ever lower standards.
The race-to-the-bottom effect triggered by structural adjustment and globalisation is one of the main drivers behind this ever-widening gap. In the 1960s developing countries were losing $161 billion (in 2015 dollars) each year through what economists call ‘unequal exchange’,
Indeed, the amount that the global South spends collectively on debt service each year vastly outstrips the amount that the UN tells us is necessary to eradicate poverty
Technically, they could have. Defaulting on the debt would have liberated the global South from the stranglehold of the international banks, forcing the banks to absorb the fallout from their risky lending. But in reality this was not an option, for there was always the threat of US military invasion if countries decided to default. Having
He challenged the postcolonial order by striking at its very core: debt. ‘Debt must be seen from the standpoint of its origins,’ Sankara said. ‘And the origins of debt lie in colonialism. Our creditors are those who had colonised us before. They managed us then and they manage us now. But we did not ask for this debt,’ he continued. ‘And therefore we will not repay it. Debt is neocolonialism. It is a cleverly managed reconquest of Africa. Each one of us becomes a financial slave. We are told to repay. We are told it is a moral issue. But it is not.’ And then he delivered the clincher: ‘The debt cannot be repaid. If we don’t repay, the lenders will not die. That is for sure. But if we do repay, we will die. That is also for sure.’
Consider Greece in 2015: when the left-wing Syriza party came to power they planned to default on the country’s debts, but the threat of losing foreign investment – and the recession that would follow – frightened them into submission.
If you’ve ever found yourself wondering what is responsible for global poverty today, this is your answer. And yet because the institutions that have overseen this destruction enjoy legal immunity, they will never be held to account
Chapter 6 : Six: Free Trade and the Rise of the Virtual Senate
The economist was Karl Marx. And his point was that the relative endowments of capital and labour are the product of historical and political processes – they are man-made, not natural. Rich countries have expensive labour because of a long history of unions and strong labour laws, and have abundant capital because of long-standing tariff protections that allowed them to develop their industries. Poor countries, on the other hand, have cheap labour and no capital because of a long history of colonisation, dispossession, unequal treaties and structural adjustment. Comparative advantage isn’t given, it is created. To suggest that the global South should focus on exporting raw material while the North should focus on capital-intensive industry is the equivalent of saying that black people are just naturally better at working in the cotton fields while white people are just naturally better at being overseers, and that investing in educating a black person to become anything other than a common labourer
it. In order for real economic development to occur, poor countries need to build their capacity for capital-intensive industry
Because the power of enforcement is distributed asymmetrically according to market size, there is little reason for rich countries to play by the WTO’s rules.
What do free-trade theorists have to say about such catastrophes? Well, they assume that the labour and capital ‘released’ from uncompetitive industries due to liberalisation will quickly be reallocated to other industries that align more closely with the country’s comparative advantage. This is the assumption of ‘perfect factor mobility’. But, as with many economic assumptions, reality almost never plays out according to theory. Workers who lose their jobs in one industry usually lack the skills necessary to quickly take up jobs elsewhere, and end up either languishing in unemployment or taking on very low-skilled, poorly paid work
The idea was that in cases of expropriation, states would be obligated to compensate investors at a fair value for their property. Each dispute would be worked out by three arbitrators – one picked by each side, and a third agreed upon by both. By the end of the 1980s, most of the world’s countries were plugged into the international arbitration system. Some, including almost all of Latin America, were forced into it against their will under structural adjustment programmes. But despite early suspicions, even they found that the system worked pretty well. After all, it had the effect of slowing down the onslaught of Western-backed coups, which was a welcome change.
All of these cases follow the same pattern: corporations sue the state for domestic laws that limit their ’expected future profits’, even when the laws are meant to protect human rights, public health or the environment
Chapter 7 : Seven: Plunder in the 21st Century
Probably the most important central node in this global tax haven system is the City of London. While it may seem confusing, the City of London is not the same thing as London itself. It is a small council within London that houses London’s powerful financial sector. The City of London is able to function as a tax haven because it is immune from many of the nation’s laws, is free of all parliamentary oversight and – most importantly – is exempt from Freedom of Information rules
The problem with tax havens is not only that they facilitate the theft of capital, or that they prevent governments from capturing revenues, but also that they induce what analysts call ’tax competition’ or ’tax warfare’. Tax havens have set off a kind of global race to the bottom, with countries competing to offer low tax rates to foreign investors in order to attract them in. This
A land purchase qualifies as a grab when it entails a transfer of at least 500 acres to be converted from smallholder production, collective use or ecosystem services to commercial activity. Land grabs may provide abstract economic benefit – increasing GDP, for instance – but they often cause environmental damage and human harm: vulnerable people end up displaced from their land and stripped of their access to food and independent livelihoods
The story is much clearer if we look at it in class terms. The land-grabbers are always rich, regardless of where they are from (after all, the 1 per cent is now a global class), while the people who are displaced from the land are always poor. Indeed, land-grabbers tend to target regions where people do not have formal legal title to their land, and where residents are too poor to mount a serious challenge in the courts.
REDD is also incentivising a new wave of land grabs: corporations and states are rushing to buy up forests in developing countries in order to cash in on the payouts, a practice now known as ‘carbon colonialism’. Some are taking advantage of loopholes in REDD that actually permit deforestation of original forests so long as new forests are planted elsewhere – even if those new forests happen to be plantations. In other words, some of the very companies that are driving deforestation through land grabs are now grabbing yet more land under the guise of offsetting the environmental damage they have caused
Chapter 8 : Eight: From Charity to Justice
For people in public health, the point of this story is simple: prevention is always better than cure. And in order to be effective at prevention, you need to target upstream causes.
The proper aim is to try and reconstruct society on such a basis that poverty will be impossible. And the altruistic virtues have really prevented the carrying out of this aim
Fairness is better than charity. In the absence of fairness, charity carries the whiff of a scam. The same argument applies to official Western aid. If the US government wants to reduce global poverty, perhaps instead of doling out aid it should work to end structural adjustment, the tax evasion system and unfair trade laws – some of the major forces that cause poverty in the first place.
It would also free developing countries to spend more of their income on healthcare, education and poverty-reduction efforts instead of just handing it over in debt service to big banks. This will be a difficult battle, of course, since creditors stand to lose a great deal. Some that are overexposed to debt in heavily indebted countries might even go bankrupt. But that is a small price to pay for the liberation of potentially hundreds of millions of people. If we abolish the debts, nobody dies – the world will carry on spinning. Debts don’t have to be repaid, and in fact they shouldn’t be repaid when doing so means causing widespread human suffering.
Another approach is to cancel what are known as ‘dictator debts’ – debts racked up by heads of state with no democratic mandate. Dictator debts presently amount to about $735 billion in thirty-two different countries. Cancelling them would free citizens from having to repay loans that they never agreed to in the first place, and which probably never benefited them.
This would be the same thing as retroactively imposing interest rate caps on already existing loans, to make them more affordable
it would be wise to abolish structural adjustment conditions on development lending in the first place. Such
Global South countries have been demanding the right to default without threat of military retaliation since at least the 1970s. Enshrining such a right into international law would liberate them to shake off the shackles of their own debt.
The second crucial step towards creating a fairer global economy would be to democratise the major institutions of global governance: the World Bank, the IMF and the WTO. Allowing
One way to do this would be to have all WTO members provide free-market access in all goods to all developing countries either smaller or poorer than themselves (in terms of GDP and GDP per capita). This would allow developing countries to benefit from selling to rich-country markets without having to liberalise their own trade rules in return. This is not unheard of. In fact, we already have a system of special preferences for poor countries – but it is limited, and the WTO has been trying to phase it out since 1994.
Relaxing patent rules would allow poor countries to access the technologies they need for development – not only industrial technologies but also things like textbooks and software. And there is a strong case to be made that the most essential technologies – like public health medicines – should be exempt from the patent system altogether
Even abolishing only half of the OECD’s agricultural subsidies – for example, the portion that is handed out to the biggest exporters – would help level the playing field and create much-needed breathing room for farmers in the global South
If we are going to have a global labour market, where companies can roam the planet in search of ever-cheaper workers, it stands to reason that we need a global system of labour standards as well. This is where a fourth intervention might lie: putting a stop to the global race to the bottom for cheap labour by guaranteeing a baseline level of human fairness. The single most important component of such an intervention would be a global minimum wage
The current recommendation for a global minimum wage would deal with these difficulties by setting the bar at 50 per cent of each country’s median wage, so it would be tailored to local economic conditions, costs of living and purchasing power. As wages increase across the spectrum, the minimum wage would automatically move up
The fifth step would be to deal with the three mechanisms of plunder that I discussed in the previous chapter: tax evasion, land grabbing and climate change – all of which have to do with reclaiming public resources and protecting the commons
start at the global level: change the WTO’s customs invoicing standards, which presently make it very easy for companies to steal money through trade misinvoicing
Another popular proposal is to require multinational companies to report their profits in the countries where their economic activity actually takes place, rather than the current practice of providing a single consolidated balance sheet for all operations and filing it in a separate low-tax jurisdiction. This is known as ‘country-by-country reporting’
mitigation would be to end subsidies for fossil fuel companies, which presently amount to $5.3 trillion per year. Ending these subsidies would help make fossil fuels less competitive compared with renewable alternatives. And we could advance this further still by reinvesting this $5.3 trillion in renewable energies like solar, wind and tidal power – avoiding biofuels, since the land required for biofuel production means this strategy ends up driving land grabs, and as land is converted from food production to energy production it creates problems for food security.
Chapter 9 : Nine: The Necessary Madness of Imagination
This overshoot is due almost entirely to overconsumption in rich countries. According to data compiled by researchers at the Global Footprint Network in Oakland, our planet only has enough ecological capacity for each of us to consume 1.8 ‘global hectares’ annually – a standardised unit that accounts for resource use, waste, pollution and emissions. Anything over this means a degree of resource consumption that the Earth cannot replenish, or waste that it cannot absorb; in other words, it locks us into a pathway of progressive degradation. The figure of 1.8 global hectares is roughly what the average person in Ghana or Guatemala consumes. By contrast, Europeans consume 4.7 global hectares per person, while in the US and Canada the average person consumes 8 – many times their fair share. To get a sense of how extreme this overconsumption is: if we were all to live like the average citizen of the average high-income country, we would require the ecological capacity equivalent to 3.4 Earths.
Getting rich countries to consume less might sound like a simple thing to do. It would certainly be a fair and sensible move. But given the present structure of the economy it is almost literally unthinkable
GDP was intended to be a war-time measure, which is why it is so single-minded – almost even violent. It tallies up all money-based activity, but it doesn’t care whether that activity is useful or destructive
As David Attenborough once so eloquently put it, ‘Anyone who thinks that you can have infinite growth on a finite planet is either a madman or an economist.
Because past a certain point, GDP growth begins to produce more negative outcomes than positive ones
But that’s not how it works. Banks are only required to hold reserves worth about 10 per cent of the money they lend out. This is known as ‘fractional reserve banking’. In other words, banks lend out about ten times more money than they actually have. So where does that extra money come from, if it doesn’t actually exist?
Restricting the fractional reserve banking system would go a long way to diminishing the amount of debt sloshing around in our economies, and therefore to diminishing the pressure for growth. One easy way to do this would be to require banks to keep a bigger fraction of reserves behind the loans they make. But there’s an even more interesting approach we might try: we could abolish debt-based currency altogether. Instead of letting commercial banks create our money, we could have the state create it – free of debt – and then spend it into the economy instead of lending it into the economy. The responsibility for money creation could be placed with an independent agency that is democratic, accountable and transparent. Banks would still be able to lend money, of course, but they would have to back it with 100 per cent reserves, dollar for dollar
If rich countries organise a planned shrinkage of their material economies, with the goal of maintaining and even improving their quality of life, this will free up the ecological space that poor countries need to achieve basic standards of human well-being