Here is a message for South Africa: the capital-rich “developed” nations, especially the United States, need a free market in capital more than we need their capital. Nonsense? Read on.
The initials HIPC stand for Highly Indebted Poor Countries, referring to nations so heavily indebted that the bailiffs have already cleaned out the house. Global debt guru Ann Pettifor refers instead to Highly Indebted Prosperous Countries, of which the US is an example. Britain is another. The rest of the world is financing that debt; and the mechanisms for doing that are buried in the free global market for capital.
Here are the facts. The accumulated external debt of the US, with 300-million people, is $2,2-trillion — nearly the same as the $2,5-trillion owed by the whole of the developing world, with five billion people. So every American citizen owes $7 333; while the developing world’s citizens owe $500 each. Every day the US must borrow $4-billion — 4% of its gross domestic product (GDP) — to cover its debt and capital outflows. Yet the US pays only $20-billion a year to service this debt, while developing countries pay more than $300-billion.
That means the US is eating up the savings of the rest of the world. It is consuming more than it is producing. The rest of the world is supporting the US. Yet no one suggests structural adjustment programmes for the US. The International Monetary Fund is not insisting on cuts to subsidies, education and welfare as it does elsewhere — or even that the US should remove tariff barriers. US policy options are not constrained. It is now introducing Keynesian expansion policies to ward off recession, for which indebted countries will be clobbered.
Why is this? There are four reasons. First, the accumulated debt is 25% of GDP — less than that of many poor countries. Second, US demand for imports is vital to other economies. Because of its size, a US recession is a nightmare in conditions of threatened global recession. Third, the dollar has become an international currency like the gold standard, which artificially keeps its value high. Fourth, the global free market in capi-tal itself creates recessionary dependence for less powerful economies.
This is how it works. Money is the most mobile of all resources under the capital liberalisation regime. It can travel at a moment’s notice. That means its owners can call the shots. They can dictate governments’ policies on expenditures, wages and tax rates. Above all they can insist on policies that keep money scarce, because that is the way to keep its value.
The result is an unstable, insecure world financial order. Financial capital now dwarfs industrial capital. More than 90% of the money circling the globe is speculative, having nothing to do with trade or investment.
But that is the kind of global regime the Americans have needed since the 1970s to finance their deficit. The liberalisation of capital markets in the 1970s, brokered by the United Kingdom via the “Eurodollar” market in London, enabled the US to tap into the savings of the world. European central banks were persuaded to hold reserves in low-interest dollars — until with the “dollarisation” of international currency it became essential for everyone to do so.
So poorer countries must buy expensive dollars for their reserves, and then, because they are not allowed capital controls, see it disappear as flight capital to “safer destinations” — often the US. Africa has been fleeced of its capital. South Africa must watch hard currencies flow out as dividends and offshore investment — and that’s only the legal part.
Yet we are constantly advised to eliminate all capital controls. This advice is not disinterested. It comes from the US government, which needs our capital. As George Soros notes in The Guardian, “The US governs the international system to protect its own economy.”
We don’t have to go along with all this. Once we know they need us more than we need them, the terms of the argument will change.
See The US as a Highly Indebted Prosperous Country by Ann Pettifor and Romilly Greenhill (New Economics Foundation)