This page is an excerpt from Issue 1 / Chapter 3.
When the hottest commodity is human suffering
The dominant model of development imagines that poor countries can harness the free market to lift themselves out of poverty. Initially, poor countries have little to offer, but should take advantage of whatever they are able to produce that has a high price on the world market. These are known as commodities: poor countries blessed with mineral resources should mine and sell minerals to wealthy countries, and tropical countries should grow cash crops that the wealthy world wants but cannot grow themselves, like tea, coffee, cocoa, or bananas.
Rather than producing what they need, farmers should specialize in a single cash crop. In theory, farmers are better off selling cash crops to people an ocean away because – with the cash they earn from selling on the world market – they will be able to buy and consume more. By participating in the free market, farmers’ consumption is no longer limited to what they can produce themselves.
After boosting the economy through selling commodities like tin ore and bananas, poor countries will gain the resources to invest in development in light industry, then heavy industry, and finally leave poverty behind. Based on this economic model, governments of poor countries relaxed restrictions on mining, and a combination of carrots and sticks induced farmers to switch from growing what they needed to growing what could be sold on the world market.
Though logical, this model of development simply doesn’t work. The model appeared to be working in the 1970s, but worldwide commodities prices collapsed in the 1980s, and the subsequent persistence of extreme poverty worldwide should permanently discredit this developmental model.
The 1980s collapse in commodities prices was catastrophic for three key reasons. First, by their nature commodities aren’t useful if they can’t be sold; you can’t feed your family with coffee or aluminum ore. Farmers that couldn’t sell their cash crops went hungry. Second, a collapse in commodities prices led to a collapse in wages for workers producing commodities, which accounted for a large share of the workforce in poor countries. And finally, because commodities had grown to account for so much of poor countries’ economies, a collapse in commodities prices was enough to send entire countries into a severe recession.
How severe? As outlined by Alfred Maizels in Commodities in Crisis, “the commodity price recession of the 1980s has been more severe, and considerably more prolonged, than that of the Great Depression of the 1930s.“ (p10-11) Moreover, by the 1980s, a far greater share of economic activity of developing countries was based on commodities than had been the case in the 1930s. In other words, for the world’s poorest countries, the commodities crisis of the 1980s led to an economic catastrophe more severe than the Great Depression.
It is no exaggeration to say that poor countries following the advice of experts experienced an economic crisis substantially worse than the Great Depression because they followed the advice of experts. These were countries that were following the rules and doing what they were told to do by economists and development specialists.
As a crucial counterexample, the East Asian Miracle economies followed a totally different model of development that was close to the exact opposite of the “best practices” of relying on commodity exports. Bad Samaritans by Cambridge economist Ha-joon Chang outlines the strategy of the East Asian Miracle economies – South Korea, Singapore, Hong Kong, Taiwan, and China – contrasting their development policies against the traditional development model. From the proliferation of state-owned enterprises, restrictions on foreign investment, the use of tariffs, and government ownership of land, the strategies used by the East Asian Miracle economies might as well be a list of the policies experts warned would ruin developing economies. Of course, the experts were wrong, and as a result of these heterodox policies, the East Asian Miracle countries went from underdeveloped backwaters to first world living standards in a single generation. For example, life expectancy in South Korea went from 56 in 1965 to 70 in 1990. Bad Samaritans is a must read for anyone concerned with global poverty.
While the cause of the collapse of commodities prices is beyond the scope of what we can cover here, for our purposes, it is clear that the development model that demands poor countries invest heavily in commodities exports is irredeemably flawed. A fundamental rethinking of development economics is needed. If you hold onto the orthodox view that development should occur in stages beginning with commodities exports, you are essentially saying, “I want all these poor people to make the things I want, like bananas or coffee, at subpoverty wages, forever, without any hope of improvement.”
With the severe recession created by the drop in commodities prices, tax revenues collapsed. Thus, on top of a dire – and worsening situation – poor countries were forced to look for options to borrow money, simply for the government to continue operating.
It’s crucial to emphasize once again that the countries following this developmental model were following the advice of experts. It is not the fault of a bauxite miner or cocoa plantation worker that commodities prices collapsed, yet they were the ones who suffered most.
These policies led to the Great Depression…what could go wrong?
Making a catastrophic situation even worse, economists and development experts – the very people who had caused the problem in the first place – were entrusted with designing a solution. They prescribed debt and structural adjustments. Structural adjustments forced poor countries to adopt what are known as austerity measures and “procyclical” economic policies. Austerity measures are cuts to government spending, including services people rely on for their survival. Massively unpopular, poor countries were forced to adopt austerity measures so severe that they never could have come to pass in wealthy countries. Procyclical economic policies had led to the Great Depression and had thus been totally discredited: no developed country used these policies any longer. Yet poor countries – already in the throes of an economic downturn more severe than the Great Depression – were literally forced to adopt the policies that had led to the Great Depression.
The story of debt and structural adjustments is becoming increasingly well-known and recognized for its extraordinary injustice. A major reason why poor countries are poor is because of debt and structural adjustments.
Broadly, private banks in the US and Europe started making loans to poor countries in the 1970s, and financial institutions had a clear preference for dictators. By the 1980s, much borrowing was justified as necessary to cover government shortfalls caused by the collapse in commodities prices. However, a great deal of borrowing was simply a scam, with dictators using the borrowed money to fund lavish lifestyles and build commercial empires, leaving their subjects to pay back the loans. The most notorious examples occurred in Zaire (now the Democratic Republic of the Congo) and the Philippines. In Zaire, the dictator Mobutu Sese Seko simply deposited the borrowed money in a Swiss bank account. Mobutu looted around $5 billion, living like a king while his people went hungry, with no intention of paying back the money he borrowed. In the Philippines, dictator Ferdinand Marcos looted an estimated $5 to $10 billion, earning his place in the Guinness Book of World Records under “greatest robbery of a government.”
By the 1980s and 1990s, the dictators like Mobutu and Marcos who had taken out the loans had largely been overthrown. Nonetheless, even though the loans were taken out by dictators without any sort of consent from the population, poor countries were expected to pay back their dictator’s loans. There is no conceivable moral code wherein the people forced to live under a dictatorship should be forced to pay back that dictator’s loans after heroically overthrowing the dictator. The setup was even more outrageous because the banks knew the dictators were crooks. The dictators obviously had no intention of paying back their loans, but the banks made the loans anyway.
For a particularly outrageous example, the Apartheid regime in South Africa borrowed tens of billions of dollars for military and police hardware to repress the majority black African country; only white South Africans, representing a small minority, were allowed to vote. Once Apartheid fell, the new government was expected to pay back the loans the Apartheid regime had taken out to buy tanks and billy clubs to repress them. Similar outrageous stories occurred worldwide in former colonies as well as in former Soviet Union countries.
The injustice of repaying someone else’s debts was compounded, however, when poor countries found themselves too poor to make loan payments. The private banks that had made the original loans were not willing to refinance when the loan terms ended, so poor countries were forced to turn to the International Monetary Fund (IMF) and World Bank to refinance. As a condition of making loans, the IMF and World Bank obligated poor countries to accept structural adjustments. Poor countries were forced to cut spending on public programs, like healthcare or subsidies for food; they were forced to adopt discredited “procyclical” economic policies known to cause and worsen recessions; public utilities had to be sold to voracious transnational corporations, resulting in higher prices and worse service. Among the more notorious examples of structural adjustments is Zimbabwe:
Zimbabwe’s health system, for example, was doing extremely well during the 1980s, when primary health care was a priority and hundreds of health facilities were built. In fact, the government aimed at building so many health centers that no Zimbabwean would have to walk more than 10 miles to the next health center. By the early 1990s, in fact, all citizens, even in the rural areas, did not have to walk more than 0.5 miles to the closest health facility.
Moreover, health care was free at the point of service – any Zimbabwean would be treated without any out-of-pocket costs in any hospital or clinic. However, in 1990, Zimbabwe – unable to afford its debt payments – was forced to accept a loan from the IMF in order to refinance its debt. As a condition of making the loan, the IMF forced Zimbabwe to accept several structural adjustments, including the introduction of cost sharing of 50 Zimbabwe dollars for outpatient care and 200 Zimbabwe dollars for a day in the hospital. This cost sharing was totally unaffordable to some of the poorest people on earth. Another structural adjustment obligated Zimbabwe to dramatically cut government spending on health care. The results were disastrous:
In Zimbabwe, IMF loan acceptance also led to a rise in the price of all imported drugs and hospital equipment, making them four times more expensive partly due to devaluation of the currency. At the time, Media Guild argued that user fees and the higher cost of essential drugs resulted in a lower rate of preventive and curative care the poor needed and an increase in the number of deaths…As a result [of the structural adjustments], government subsidies to health in Zimbabwe decreased by 14% between 1990 and 1992, and then by 29% during 1992 and 1993.
Overall, spending on healthcare in Zimbabwe was cut in half.
In Debt, London School of Economics anthropologist David Graber details how 10,000 people died in a single malaria outbreak in Madagascar that would have been prevented by a program that had been eliminated due to structural adjustments. Bad Samaritans (the book cited above) – the best introductory work on structural adjustment and development – notes that when IMF structural adjustments forced South Korea to adopt procyclical economic policies (the very policies that led to the Great Depression), unemployment immediately tripled and businesses went bankrupt at a rate of 100 per day – a crash only partly reversed when the IMF loosened its structural adjustments. Though the Rwandan Genocide defies easy explanation and has no single cause, the severe economic recession – initially caused by the collapse in commodities prices and substantially worsened by IMF structural adjustments – was clearly a contributing factor to the turmoil in Rwanda that produced the genocide.
From Zimbabwe to Madagascar to South Korea, structural adjustments have a clear track record of failure: they do not, as advocates claim, result in increased efficiency of health, education, or other sectors, nor do they improve economic conditions. Not only do structural adjustments have the opposite effect as advertised, they literally kill people. When public health researchers performed a systematic review of the research on structural adjustments, they reached this scathing conclusion:
[S]tructural adjustment programmes have a detrimental impact on child and maternal health. In particular, these programmes undermine access to quality and affordable healthcare and adversely impact upon social determinants of health, such as income and food availability. The evidence suggests that a fundamental rethinking is required by international financial institutions[.]
The scale of the problem is colossal. As documented in 2024 by UN Trade and Development, poor countries owe an astonishing $29 trillion, paying a whopping $847 billion in interest payments each year, mostly to wealthy private investors in wealthy countries. Poor countries pay extortionary interest rates on their debt; for the Latin America and Caribbean region, interest rates average 6.8%, and for Africa, 9.8%. By comparison, a major contributing factor to the American student loan crisis is the high interest rates on public student loans, which stand at 5.8%, or well below the rates forced on poor countries.
With so much money owed at extortionary interest rates, there is no realistic possibility of repaying the loans. Indeed, interest rates are so high that the original loan amounts have been paid back several times over, but due to compounding interest, the amount owed has only grown. There is simply no justification for expecting some of the poorest people on earth to sacrifice their basic needs to pay loans owned by some of the richest people on earth.