Watkins and others will continue to follow the issue, holding the IMF to its commitment to debt relief and non-conditionality. They're also pressing the case on Haiti's other outstanding debt. The largest multilateral holders of Haiti's debt are the Inter-American Development Bank ($447 million), the IMF ($165 million, plus $100 million in new lending), the World Bank's International Development Association ($39 million) and the International Fund for Agricultural Development ($13 million). The largest bilateral loans are held by Venezuela ($295 million--hello, Chavez!?) and Taiwan ($92 million).

The pace of debt accumulation is alarming, and a sure recipe for fiscal and balance-of-payment crises in the medium term. The massive surge in public debt is bound to increase debt-servicing which, in turn, will consume most of the government revenue and little will be available to spend on physical and human infrastructure. In 1999-2000, almost 72 percent of total government revenue was consumed by debt-servicing alone, leaving hardly anything to be spent on public welfare. With prudent fiscal management, this ratio was brought down to 35 percent by 2006-07; thus creating enough fiscal space for improving the country's physical and human infrastructure and reducing poverty. In the last two years, this ratio has jumped to almost 49 percent. Debt-servicing consumed almost one-half the government's revenue in 2008-09, and as such has become the single-largest expenditure item of our budget.

Under the original Bretton Woods system, IMF loans were aimed at preventing devaluation and propping up demand. U.s. capital accepted these Keynesian measures when the U.S. was the major world exporter, ran large trade surpluses and the rest of the world depended on its currency to pay for those imports. But in the 1980s, the IMF turned all of its previous policies on their heads: It now deliberately imposed devaluation and forced reductions in national income and demand in order to limit imports—all as a means to guarantee repayment of debt to international finance capital.
(...) In the 1980s, 187 structural adjustment loans were negotiated. They were the bitter medicine that only a seemingly objective, nonprofit multilateral organization like the IMF could get away with politically. Structural adjustment led to hunger, malnutrition, poverty, disease and death throughout the Third World. Under IMF surveillance and enforcement, virtually every nation in sub-Saharan Africa entered a structural adjustment program. In every case, they were a disaster for the people of Africa and did nothing to restore growth. In the 1980s, GNP in sub-Saharan Africa fell by 2.2 percent per year, and per capita income fell below pre-independence levels. To pay back the debt, government health expenditures were cut by 50 percent and education by 25 percent. In Tanzania, debt repayment was six times the expenditure for health costs—which is all the explanation one needs to understand why 40 percent of the population of Tanzania dies before age 35.12 Flood-ravaged Mozambique—whose debt was $8.3 billion in 1998—pays $1.4 million per week in debt repayment. It will pay out in less than one year more than it has been promised in flood relief.
(...) In IMF-“adjusted” countries, government spending per capita was reduced yearly from 1980 to 1987 and diverted to ever-increasing payments on debt interest. In Latin America, the portion of government budgets allocated to interest payments increased from 9 percent to 19.3 percent. Under IMF auspices, the 1980s were a lost decade for Latin America. In Chile, IMF loan conditions cut real wages by 40 percent. The IMF loan to Mexico in the debt crisis of 1982 cut real wages in half in the next decade, while investments in health, education and basic physical structure were also halved. Infant deaths in Mexico due to malnutrition nearly tripled in the same period.
(...) Yet, at the end of the decade, the debt of Third World countries was greater than when the structural adjustment programs began. Rather than “saving” these countries, the IMF had enmeshed them in an endless debt trap.
(...) The IMF rationale was that loans would stimulate the economic growth that would allow for debt repayment. In truth, most existing international debts were serviced only by increasing international borrowing. From 1976 to 1982 Latin American foreign borrowing doubled. Seventy percent of new loans went to interest payments on old loans.
(...) The IMF Asian loan conditions went far beyond the needs of stabilizing the situation and repaying debt. The IMF demanded that foreign banks (primarily U.s.) be allowed in immediately—in the depths of the crisis—so that they could acquire existing banks at fire-sale prices. This piece of U.s. robbery was justified in the U.s. press on the grounds that the Asian banking crisis grew out of Asian corruption, or “crony capitalism,” an unholy alliance of corporations, banks and government—something apparently different than the alliance between the U.S. government, U.S. corporations and the IMF.
(...) The human impact of IMF loan conditions on the countries that became its wards was (and continues to be) horrendous. In Korea, the IMF imposed mass layoffs, leading to the joke that IMF stood for “I’M Fired.” Children abandoned by destitute parents were called “IMF orphans.” In Thailand, large numbers of children were thrown into child prostitution. In Indonesia, school enrollment dropped by a quarter. IMF loan conditions for Argentina demanded that labor laws be altered to eliminate national bargaining and grant employers the right to fire workers at will. The IMF program that was imposed on the Suharto dictatorship raised the price of rice by 38 percent, cooking oil by 110 percent and fuel by 70 percent This provoked the rioting that led to Suharto’s fall in 1998. IMF austerity conditions were now becoming dangerous to the health of local ruling classes. The IMF was forced to backtrack; loan conditions had to be less draconian for fear that no local ruling class, no matter how corrupt and subservient to Western capitalism, could carry them out without provoking a major upheaval.

This survey showed that (contrary to popular perception) the oil price shocks of the 1970s were not the major source of the developing countries' external debt crisis, although they greatly accelerated that crisis. To the extent that petrodollars contributed to the debt crisis, the blame lies not with those dollars as such, but with the policy responses to them (i.e., policies of "recycling" those dollars). This included policy responses of the advanced capitalist countries, of the lending institutions, and of the borrowing governments. The survey further showed that the major bulk of the immense Third World debt has snowballed as a result of factors exogenous to their economies. These factors included excessive interest charges by the commercial banks, capital flight from these countries, rise in the value of the dollar and the loss of their export earnings due to the depressed prices of and demand for their exports. Debtor nations are not responsible for this portion of the debt, i.e., the portion that can reasonably be attributed to factors exogenous to their economies, and it should therefore be repudiated as "illegitimate."
(...) Whereas in the earlier part of this period the major bulk of those receipts consisted of official capital flows from industrial countries and international agencies, in the later part, especially after the late 1960s and early 1970s, commercial bank lending became the dominant source of those receipts. For example, in the 1960-78 period the official development assistance (ODA) to developing countries decreased from 58 percent of their total external financial receipts to 30 percent, while private bank lending rose from about two percent to about 33 percent. Contrary to private bank loans, the official capital flows consisted largely of grants, concessional loans, and other official loans that were based on long-term, low-interest, or project-related financing. This shift away from official to private bank lending played a major role in the development of the present crisis of the Third World debt.
(...) No doubt the oil price shocks of the 1970s greatly accelerated the process of private bank lending and the accumulation of Third World debt. But to view this accelerating (or contributory) effect as the cause for commercial bank lending, hence for the debt problem, is challenging the reality of those developments. Evidence shows that the shift away from official financing to private commercial lending--the major culprit in the debt crisis, in our opinion--took place prior to the oil price shocks. That is, the expansion of bank lending as a result of these oil shocks took place within the general context of the expansion of bank lending. For example, Kristin Hallberg, using the official data of the Federal Reserve Board of Governors, shows that "real private bank lending grew 144%" between the years 1970-1973. Citing Charles Kindleberger's private correspondence (a renowned authority on international finance), she further shows that the expansion of commercial lending "coincided with the 'cheap money' push of 1971, when bankers looked to developing countries for riskier investments to maintain their income."
(...) To the extent that the resulting petrodollars from those price hikes contributed to the debt crisis, the blame lies not with those dollars per se, but with the policy responses to them, the so-called "recycling" policies of petrodollars. In fact, with policies concerned with the health of global economy those massive petrodollars could be viewed as a blessing in disguise: the tens of billions of dollars that were generated as a result of the oil price hikes of the 1970s constituted the potential for the largest primitive accumulation of capital to date which could be used for the industrialization and development of developing countries. That potential could be realized through a combination of measures: (a) direct equity investment from "surplus" countries in "deficit" countries--industrialized countries could provide the necessary technology for this strategy and thus make it a truly trilateral cooperation; (b) development grants from "surplus" countries to "deficit" countries, and (c) recycling the surplus not through the commercial banks but through independent international agencies that would grant long-term, low-interest, development-related loans to non-oil developing countries. Instead, the massive amounts of petrodollars (along with Eurodollars and the so-called "cheap money" of the early 1970s) found their way into the coffers of the big commercial banks and the pockets of corrupt "leaders" of the borrowing countries, which triggered their external debt problem.
(...) Several factors prompted the switch away from multilateral, official lending to commercial bank lending. Most significant among these factors was what might be called a weakening of Bretton Woods objectives... [WHY OFFICIAL LENDING, EARLIER?] Under these circumstances, where the Third World seemed at a cross-roads between capitalism and socialism (or something other than capitalism), the United States set out to block the latter road and coax, coerce, or force these countries to move along the former road. [Of course, this does not mean that the U.S. has now abandoned this policy, but that the policy was more urgent at that time.] Thus its financial assistance to the Third World during this period was primarily based on geo-political and long-term economic considerations rather than short-term, cost-benefit calculations. And this is why the financial flows to these countries at that time were largely in the form of grants, concessionary loans, and other forms of "soft" or development-related loans. The fate of Third World economies at this stage was too precarious to be entrusted to commercial banks...
(...) [WHY COMMERCIAL LENDING, LATER?] By the late 1960s and early 1970s, this pattern of Third World financing changed as private banks began to lend to these countries on a commercial basis. A number of factors precipitated this switch: (a) the Cold war atmosphere and the fierce "East-West" rivalry in the Third World had subsided by this time, (b) most of the socio-political upheavals in the former colonies and other less developed countries had also ebbed by the late 1960s, and (c) most of the developing countries had by now adopted a capitalist path of development. Whereas prior to this time private banks were reluctant to lend to developing countries because their economies were considered too volatile and their financial markets too unstructured, and thus unworthy of credit, these banks now began to lend as most of these countries emerged as sovereign nations whose economies and financial markets appeared capable of absorbing substantial debt on a commercial basis. These favorable economic conditions for private bank lending were further reinforced by favorable political and legislative conditions as OECD countries relaxed barriers that previously hampered commercial lending to developing countries. "Bank lending could [now] be expanded fairly rapidly, without the need to go through the legislative and budgetary processes of national governments."
(...) Commercial bank lending was further accelerated by a "natural" or "evolutionary" process of the accumulation of huge sums of finance capital in the coffers of Western big banks during the three decades of economic expansion and stability since WW II. This accumulation of bank capital was a culmination of several developments: the post-war expansionary cycle of the advanced capitalist economies; the Korean and Vietnam wars, which led to the flow of huge sums of dollars and/or Eurodollars into the hands of banks; the U.S. inflationary monetary policy that began under President Johnson, which led to the emergence of the so-called "cheap money" in the early 1970s; and, finally, the petrodollars of the 1970s. Part of the massive finance capital that resulted from these developments was bound to find its way to foreign lending, especially from the United States, where the Glass-Stegal Act prevented commercial banks from underwriting and selling corporate securities at home. (This also explains why commercial banks there have expanded into all kinds of consumer loans, be they mortgages or credit card.)
(...) As these developments led to bank loan officers roaming the Third World pressing their wares, they also created favorable conditions and big appetites for borrowing in the non-oil developing countries. For the inflationary/expansionary cycle and the accompanying "cheap money," mentioned above, positively affected the economies of these countries: On the one hand, it raised the volume and the price of their exports, on the other, it reduced the cost of their borrowing. "Dollars borrowed today could be paid back tomorrow in cheaper dollars, as inflation ate away their value."
(...) This brief overview refutes the claim that the oil price shocks of the 1970s were the major cause for the global debt problem--although it does not deny their contributory or accelerating impact--as it shows that the process of commercial bank lending and the proliferation of Third World debt started before those shocks took place.
(...) Although the oil price shocks contained the potential for an immense international financial imbalance, and hence the debt crisis, this crisis was not inevitable. The policy responses to the oil price hikes contributed more to the crisis than did the price hikes as such. As far as the policies of the OECD countries are concerned, the flip-flop character of those policies was more responsible for the crisis than the policies themselves. Policy responses of these countries to the first oil shock (1973-74) were diametrically opposed to their reactions to the second oil shock (1979-80).
(...) [RESPONSE TO 1973-1974 SHOCK] The first major concern of these countries in the face of the 1973-74 oil shock was to maintain economic expansion "through joint expansionary policies which would maintain growth....This argument reached its peak in the Bonn summit of July 1978 when the summit countries decided to adopt a locomotive theory of growth, with the major OECD countries agreeing to take action to help stimulate demand." The second major concern was that the surplus resulting from the oil price hikes should be recycled toward the "deficit countries" so that their growth, started since the late 1960's, could also be maintained...To be sure, there was some opposition to the involvement of private banks on the grounds that these banks were not trustworthy in the matters of international trade and finance, and that therefore the recycling of the surplus ought to be accomplished through official, multilateral financing. But the views that favored the involvement of commercial banks prevailed. These included the views of most OECD countries and the international organizations under their control, as expressed through the voices of their finance ministers or central bank officials.
(...) Not surprisingly, the decision to expand the role of private banks and Eurocurrency markets led to an immediate and rapid expansion of both the share of commercial bank lending and of the Eurocurrency markets. Eurocurrency markets expanded in the 1973-82 period by almost six times, from $295 billion in 1973 to 1,689 in 1982. And by 1984, "commercial banks' share of the total guaranteed medium-and long-term debt owed by non-oil developing countries to private creditors had risen to 86 percent." [ The remaining 14 percent consisted of the traditional private debt sources such as bonds and supplier's credits.]
(...) As a result of this easy monetary policy and vigorous expansion effort, the expansionary cycle that had started before the 1973-74 oil shock continued unhampered despite the recessionary or hindering effects exerted by the oil price shocks. The expansionary monetary policies (based on the locomotive theory) in the OECD countries, especially in the United States, positively affected the economies of the developing countries, even the non-oil ones. On the one hand, it kept the real interest rate very low, hence their borrowing cost very low, on the other, it raised their export earnings, both in terms of volume and prices. True, their debt was gradually building up, but there was no danger of a default as the steady growth in income, exports, and higher prices of primary goods during this period were reducing the external debt burden on these countries. Indeed, because of low real interest rates and healthy export growth their debt service ratio (the ratio of interest and amortization payments to export earnings) showed only a moderate rise, from 16% in 1973 to 23% in 1980. [CRITICAL: THE FIRST OIL SHOCK DID NOT GIVE RISE TO THE "DEBT CRISIS"] Thus, the 1973-79 period, the period between the two oil shocks, witnessed a healthy annual growth rate in the OECD countries, ranging on the average from 3.6 to 6.1 percent; in the non-oil developing countries, from 5 to 6.1 percent; and in international trade, an annual average growth of 5.5 percent.
(...) [VOLKER'S RESPONSE TO 1979 SHOCK, AND GENERAL INFLATION] As noted earlier, the policy response of the OECD countries to the 1979-80 oil price hikes was diametrically opposed to their response in 1973-74. Instead of maintaining expansionary monetary policy in order to maintain the level of growth, of income and of world trade, these countries now resorted to tight monetary policy to control inflation. The pronounced, or even dramatic, expression of this new policy was Paul Volker's departure from the 1979 Belgrade IMF/IBRD conference before it was officially over in order to prepare the new monetary policy in October. The new policy created a ripple effect in the opposite direction of the previous period: interest rates shot up, growth slowed down and the recessionary cycle (of 1980-82) set in, and the export earnings of deficit countries began to drop. Interest rates were further increased by (a) the larger U.S. budget deficits, and (b) the introduction of so-called floating rates of interest for commercial lending. The effects of the new policy on international interest rates and world economic growth are shown in Table 1. It is obvious from this Table that while this contractionary policy more than doubled the international average interest rate, it reduced the world economic growth to less than a quarter by the end of 1982.
(...) The trade deficit of the developing countries was further aggravated by the shortening of the maturity period of their debt, on the one hand, and the protectionist policies of the OECD countries (prompted by high unemployment rates), on the other. There has been no alleviation of these factors that negatively affect Third World debt: the OECD countries' protectionist policies continues, the U.S. budget and trade deficits continue, and the demand for and price of debtor nations' primary goods also continues to be very low.
(...) The cumulative effect of these factors was a jump in the debt service ratio of these countries from 20% in 1979 to 33% percent in 1982. The absolute amount of their foreign debt rose from $220 billion at the end of 1979 to 326 at the end of 1982 and 343 in 1983. Despite all the talk about solutions to the debt problem, this snowballing process of debt has continued unabated, and it now stands at about $1.3 trillion. [ARTICLE IS WRITTEN IN 1991]

(...) Only a small portion of the massive Third World debt has actually been received by (and spent in ) these countries. The rest has accumulated due to factors exogenous to the economies of these countries. These factors include the rise in the international rate of interest, the rise in the value of the dollar, the decline in foreign demand for their exports, the fall of the price of their primary goods, and, perhaps most importantly, the flight of huge sums of capital from these countries.
(...) According to Jacobo Schatan's calculations, about two-thirds of the entire Latin American debt in 1985--roughly $450 billion--could be attributed to these exogenous factors, which he appropriately calls the "illegitimate" part of the debt.
(...) The remaining, "legitimate," part of the debt includes what has actually been borrowed (but not fled back overseas), plus the concomitant interest based on the pre-1976 fixed rate of 6 percent. (As pointed out earlier, after 1976 the lending institutions abandoned the previously-agreed-upon fixed rate in favor of floating rates, which ushered in the double-digit interest rates of the early1980s.)
(...) Peter Nunnenkamp's estimates of the effects of external factors on the Third World debt are equally shocking. According to his calculations, the combined effects of external factors on Third World debt in the 1974-81 period amounted to $570 billion, of which interest rate effects accounted for $133.49 billion, lost revenues due to depressed demand for their exports constituted $104.41 billion, and the terms of trade effect accounted for the remaining $297.45 billion--Nunnenkamp attributes about half of the terms of trade effect, i.e., half of the $297.45 billion, to the effects of oil price hikes.
(...) [CAPITAL FLIGHT] A big chunk of the loan money was sent back out of the debtor countries to be deposited, invested, or used to acquire real estate abroad. This has been done by both government and military officials, as well as by private middlemen and businesspersons who usually gain access to foreign currency (through government channels) in the name of project investment. According to an IMF estimate, some $200 billion may have flown out of debtor counties by the end of 1985. Time Magazine estimated that the amount of capital that flew out of three Latin American countries between 1979 and 1984 was about $63 billion (28 billion from Mexico, 23 billion from Venezuela, and 12 billion from Argentina).
(...) [USE OF LOAN MONEY, IN-COUNTRY] Data from the U.S. Federal Reserve Board show that "more than one-third of the combined debt increment of Argentina, Brazil, Chile, Mexico and Venezuela between 1974 and 1982, i.e. about $85 billion, was devoted to purchases of real estate and to banking deposits abroad."
(...) But even excluding the part of the debt that is due to external factors, the remaining part, the part that was actually borrowed and somehow spent domestically, was quite substantial, amounting to tens of billions of dollars. What happened to it? How was it spent? What are its impacts on the economic development of these countries? A major part of this money has been spent on consumption, often wasteful consumption of the military and luxury or unessential type, rather than investment and/or production. Borrowing from abroad is not good or bad per se; it all depends on how it is spent. If it is invested in development projects that will yield a rate of return higher than the rate of interest paid for the borrowed capital, then borrowing can play the positive role of initial capital formation for productive investment, without the problem of repayment. This is a pivotal point in understanding the present crisis of the Third World debt: the borrowed funds were viewed not as capital to be invested productively, but as income to be used for consumption, or for financing the government's operating deficits. To the extent that some of these funds were formally invested in development projects, investment priorities and development policies were often perverse: building huge stadiums and sports complexes, buying synfuel plants to supply depressed oil markets, buying national airlines where citizens travel on the back of animals or ox-driven carts, and so on. Some of these pompous, grandiose, show-case projects--often undertaken in the name of building economic infrastructure, or as symbols of "national pride"--went as far as building whole new cities from scratch, such as Brasilia in Brazil and Abuja in Nigeria. "Nigeria is building itself a capital, Abuja, from scratch. The cost, by some estimates exceeds the nation's total sovereign debt of about $20 billion. Yet Nigeria has trouble making interest payments."
(...) A substantial amount of these countries' resources, borrowed or otherwise, is devoted to subsidizing "national" industries and enterprises, largely in the state sector but also occasionally in the private sector. While this policy is pursued in the name of promoting "national" industries, import-substitution, and economic self-reliance, in practice it falls short of achieving these objectives. Instead, by providing easy credit and windfall finances for inefficient and unprofitable enterprises, it aggravates the pattern of inefficiency and perpetuates the lack of competitiveness. It spoils the mismanaged "national" enterprises and their corrupt and inefficient managers by financial crutches. Import tariffs, credit controls, exchange controls and similar restrictions are also often justified by this misguided (or, perhaps, hypocritical) nationalism.
(...) While the purported goal of these nationalizations is that the state sector will play a pioneering role in bringing about a speedy industrialization program, experience shows that other objectives can be detected behind the nationalization thrust: to couple or supplement the political and military power of the state with economic power, to broaden the social base of the state by vesting the interests of broad social layers in the state (through consumer subsidies as well as through employment in the state sector), to provide the state bureaucracy with the opportunity of accumulating their personal fortunes and becoming capitalists in the shadow of the public sector and state capitalism.

(...) Interest payments are devouring a big chunk of the debtors' national income, leaving very little for growth and development. In Mexico, for example, interest payments consumed 46.23% of the government's entire expenditure in 1986 and 56.20% in 1987.
(...) [IN COMES THE IMF, WITH A PLAN!] Debtor countries facing interest payments and balance of payments problems often turn to the IMF for funds--if not for its own funds, then for its mediation to obtain money from other sources, usually from commercial banks. To obtain favorable response to their request for funds, these countries pay the price of allowing their socio-economic objectives to be shaped to meet the policy objectives of the IMF: reducing the size and the role of the public sector in these economies and shifting productive resources from industries that serve the domestic needs to those that serve the needs for foreign exchange to make interest payments. To achieve these objectives, severe austerity programs are usually put into effect in debtor countries: while government subsidies, real wages, and consumer imports are reduced, income taxes and prices are raised. Other IMF-sponsored measures include dismantling of controls that inhibit the export of foreign exchange, especially the payment abroad of interest and dividends to foreign capital, and devaluation of the currency to raise the cost of imports and reduce the price of exports. Instead of alleviating the developing countries' debt burden and other economic problems, the IMF-initiated policies have more often than not aggravated these problems. Efforts to gear national resources to meet the debt obligations have eroded both the standard of living of the majority of population of debtor nations and the industrialization aspirations and development plans of these nations. While many of the burgeoning industries of the 1960s and early 1970s are stalled because of the curtailment of the import of the necessary technology and inputs, a new emphasis is placed on the traditional export industries whose output is largely raw materials and primary goods. This policy, designed to earn maximum foreign exchange in the shortest possible time, is reviving and reinforcing the old pattern of monoculture and rapidly eating away at the natural resources of the debtor nations. Public-sector cutbacks, far from freeing space for private initiative, as the IMF argues they would, has hampered business investment by forcing governments to cut down on essential infrastructure: roads, schools for training a skilled labor force, investment in public health, and so on. Those cutbacks help generate waves of social and political unrest that encourage yet more capital flight.
(...) [INTERESTING REFLECTIONS ON RESPONSIBILITY] As noted, there are individuals and groups on the left who also disagree with the idea of responsibility and "legitimacy" as measures for debt relief, though for a different reason. Their reason is that the "peripheral" countries have for a long time been exploited by the "core" countries of the world capitalist market , and that therefore the entire debt must be repudiated. Our answer to this reasoning is that although the argument of "core-periphery" exploitation is a powerful argument for total repudiation of Third World debt under radically-changed world circumstances, it is not a good one under the present world circumstances (i.e., under the rules of world capitalist market and of the court of bourgeois justice). Under these circumstances, advocates of debtor nations need to show precisely how the debt was generated and accumulated. That is, they need to analyze the debt, to dissect it and break it down into its component parts and identify exactly the source of proliferation of each of these parts. Only in this way can they show the bourgeois judges the illegitimate parts of the debt even by their own standards (i.e., by the standards of their banking regulations and antitrust laws.

While the "core-periphery" exploitation argument correctly points out the transfer of economic surplus and resources from the "periphery" to the "core" of the world capitalist market, it suffers from a number of theoretical and empirical problems. To begin with, it is a class obfuscationist argument. Second (and for this reason) it also obfuscates the question of responsibility and accountability, and thus easily plays into the hands of demagogic national bourgeoisie who frequently point to foreign/external factors to justify their own blunders and mismanagement of the economies under their control (e.g., in the case of the debt it has provided a protective shield for the corrupt "leaders" of a number of debtor countries who are accomplices in the debt crisis). Third, this argument often fails to explain the industrialization and technological impact of the "core" on the "periphery" that takes place under the whip of capitalist accumulation on a world scale--proponents of this argument, largely associated with the Dependency School, either dismiss any such an impact altogether, or trivialize it as simply the development of underdevelopment.
(...) Schatan estimates that if "prices of raw materials had stayed at their 1980 level, export earnings for the 1976-85 period would have been some $25-30 billion higher than they actually were ; had this been the case, Latin America's borrowing needs would have declined by the same amount."

Does this crisis signal the end of neo-liberalism? My answer is that it depends what you mean by neo-liberalism. My interpretation is that it’s a class project, masked by a lot of neo-liberal rhetoric about individual freedom, liberty, personal responsibility, privatisation and the free market. These were means, however, towards the restoration and consolidation of class power, and that neo-liberal project has been fairly successful.
(...) One of the basic principles that was set up in the 1970s was that state power should protect financial institutions at all costs. This is the principle that was worked out in New York City crisis in the mid-1970s, and was first defined internationally when Mexico threatened to go bankrupt in 1982. This would have destroyed the New York investment banks, so the US Treasury and the IMF combined to bail Mexico out. But in so doing they mandated austerity for the Mexican population. In other words they protected the banks and destroyed the people, and this has been the standard practice in the IMF ever since. The current bailout is the same old story, one more time, except bigger.
(...) One of the major barriers to continuous capital accumulation back in the 1960s and early 70s was the labor question. There were scarcities of labor both in Europe and the US and labor was well organised, with political clout. So one of the big barriers to capital accumulation during that period was; how can capital get access to cheaper and more docile labor supplies? There were a number of answers. One was to encourage more immigration. In the United States there was a major revision of the immigration laws in 1965 that in effect allowed the US access to the global surplus population (before that only Europeans and Caucasians were privileged). In the late 1960s the French government was subsidising the import of Maghrebian labor, the Germans were bringing in the Turks, the Swedes were bringing in the Yugoslavs, the British were drawing upon their empire. So a pro-immigration policy emerged which was one attempt to deal with the labor problem.
(...) The second thing you go for is rapid technological change which throws people out of work and if that failed then there were people like Reagan, Thatcher and Pinochet to crush organized labor. And finally capital goes to where the surplus labor is by off-shoring, and this was facilitated by two things. Firstly technical reorganisation of the transport systems: one of the biggest revolutions that happened during this period is containerisation which allowed you to make auto parts in Brazil and ship them for very low cost to Detroit or wherever. Secondly the new communications systems allowed the tight organization of commodity chain production across the global space.
(...) All of these solved the labor problem for capital, so by 1985 capital has no labor problem any more. It may have specific problems in particular areas but globally it has plenty of labor available to it; the sudden collapse of the Soviet Union and the transformation of much of China added something like 2 billion people to the global proletariat in 20 years. So labor availability is no problem now and the result of that is that labor has been disempowered for the last 30 years. But when labor is disempowered it gets low wages, and if you engage in wage repression this limits markets. So capital was beginning to face problems with its market, and there were two things which happened.
(...) The first was the gap between what labor was earning and what it was spending was covered by the rise of the credit card industry and increasing indebtedness of households. So in the US in 1980 you would find that the average household would owe around $40,000 in debts now it’s about $130,000 for every household, including mortgages. So household debt sky-rockets and that brings you to financialisation, and that was about getting the financial institutions to support the household debts of working class people whose earnings are not increasing. And you start with the respectable working class, but by the time you get to the year 2000 you start to find these sub-prime mortgages circulating. You are looking to create a market. And so finance starts to support the debt-financing of people who have almost no income. But if you hadn’t done that what would have happened to the property developers who are building the houses? So you try and stabilize the market by funding that indebtedness.
(...) Debt is about the assumed future value of goods and services, so it assumes the economy is going to continue to grow over the next 20 or 30 years. It always involves a guess, which is then set by the interest rate, discounting into the future. This growth of the financial area after the 1970s has a lot to do with what I think is another key problem: what I would call the capitalist surplus absorption problem. As surplus theory tells us, capitalists produce a surplus, which they then have to take a part of, recapitalise it, and reinvest it in expansion. Which means they always have to find somewhere else to expand into. In an article I wrote for the New Left Review called ‘Right to the City’ I pointed out that in the last 30 years an immense amount of the capital surplus has been absorbed into urbanisation: urban restructuring, expansion and speculation. Every city I go to is a huge building site for capitalist surplus absorption. Now, of course, many of these projects stand unfinished.
(...) Throughout the history of capitalism, the general rate of growth has been close to 2.5% per annum, compound basis. That would mean that in 2030 you’d need to find profitable outlets for $2.5 trillion dollars. That’s a very tall order. I think there has been a serious problem, particularly since 1970, about how to absorb greater and greater amounts of surplus in real production. Less and less of it is going into real production, and more and more into speculation on asset values, which accounts for the increasing frequency and depth of the financial crises we’ve been having since 1975 or so; they are all crises of asset value.
(...) There is another point we have to consider, which is that labor, and particularly organised labor, is only one small piece of this whole problem, and it’s only going to have a partial role in what is going on. And this is for a very simple reason, which goes back to Marx’s shortcomings in how he set up the problem. If you say to that the formation of the state-finance complex is absolutely crucial to the dynamics of capitalism (which it obviously is), and you ask yourself what social forces are at work in contesting or setting it up these institutional arrangements, labor has never been at the forefront of that struggle. Labor has been at the forefront in the labor market and over the labor process and these are vital moments in the circulation process, but most of the struggles which have gone on over the state-finance nexus are populist struggles in which labor has only been partially present... We have a completely different kind of class politics going on and some of the conventional Marxist ways of viewing these things get in the way of a real radical politics.
(...) There is also a big problem on the left that many think the capturing of state power has no role to play in political transformations and I think they’re crazy. Incredible power is located there and you can’t walk away from it as though it doesn’t matter. I am profoundly skeptical of the belief that NGOs and civil society organisations are going to change the world, not because NGOs can’t do anything at all, but it takes a different kind of political movement and conception if we are going to do anything about the main crisis which is going on. In the United States the political instinct is very anarchist, and while I am very sympathetic to a lot of anarchist views their perpetual complaints about and refusal to command the state also gets in the way.
(...) So I could imagine a reconfiguration of urbanisation. To do anything on global warming we need to totally reconfigure how American cities work; to think about a completely new pattern of urbanisation, with new patterns of living and working. There are a lot of possibilities the left should be paying attention to - this is a real opportunity. But it is where I have a problem with some Marxists who seem to think, ‘yes! It’s a crisis; the contradictions of capitalism will now be solved somehow!’ This is not a moment for triumphalism, this is a moment for problematising. First of all I think there are problems with the way Marx set up those problems. Marxists are not very good at understanding the state financial complex or urbanisation - they are terrific at understanding some other things. But now we have to rethink our theoretical posture and political possibilities.

from "the darker nations: a people's history of the third world" by vijay prashad (part IV)

(224): A hundred years after Columbus arrived on the island of Jamaica in 1494, the Arawak population of a hundred thousand dwindled to a handful. In time, the entire population was cleansed, and the island was peopled by English colonial officials and plantation owners as well as enslaved Africans and indentured Indians. Captive labor grew the sugarcane that provided the main economic resource of the island. Rebellions came over time, and these generated a strong consciousness of distaste for the brutality, and paternalism of colonial rule. It took centuries for independence to come, and when it did come in 1962, it was overdue.
(224-225): The new regime of Nelson Manley's People's National Party crafted a social development agenda to counter the chainless bondage of postcolonial life.... Economic policy generally drew from the import-substitution theory, and the government relied on targeted direct foreign investment, notably in the bauxite sector. The latter provided Jamaica with most of its foreign exchange earnings. Discovered in the 1940s, the bauxite reserves fell prey to Canadian and US firms starting in 1952. These firms have since dominated the extraction of the mineral, with Jamaica becoming the largest exporter to North America in the 1960s. But as with sugar and tourism, the Jamaican people did not benefit from their natural resources. The only return to Jamaica came in the way of modest taxes to the government, meager wages to the working class, and a small tribute to the Jamaican managers at the mines and plantations--for this reason, what Jamaica exported despite its fabulous resources was cheap labor, and what it gained for that was a pittance toward its grandiose development aims.
(225-226): Despite the decent rate of growth, Jamaica could not raise the funds to cover its import bill; over 60 percent of the goods used in the country came from abroad (including energy and consumer goods, but also about half its food). Unable to cover its import bill as a result of a failure to diversify its economy, the Jamaican government relied on foreign investment and tourism to balance its books. The erratic, but almost always low prices of its minerals (bauxite) as well as its plantation crops (bananas and sugar) meant that the balance of payments suffered from a chronic deficit.
(226): By the early 1970s, the government reactivated its efforts to break Jamaica out of its impoverished chrysalis at the nether end of global capitalism. Manley's son Michael ran a ferocious and successful political campaign against the global economic system that stacked the deck against countries like Jamaica. Once in power, Michael Manley promoted the construction of democratic socialism for Jamaica, but his regime did not try to disassociate itself from the world capitalist system... Keeping Jamaica hooked up to the infusion of foreign aid or investment meant that the government had to respond to the demands of the foreign money managers rather than the long-term developmental needs of the people of Jamaica.
(227): [DECLINING TERMS OF TRADE] Bauxite was not the only unprocessed commodity to experience a sharp decline in its price into the early 1980s. If the 1970s saw a marginal rise in the price of certain nonpetroleum commodities, by the 1980s there was an across-the-board drop in these prices. Single commodity export-dependent countries lost earnings of as much as $290 billion between 1980-1991 as a result of the decline in their terms of trade. For sub-Saharan Africa, the impact was gruesome. For much of the region, nonfuel primary commodity goods amount for about one-third of the state's export earnings. The decline in the terms of trade meant that these countries lost on average about 5 percent of their gross domestic product...
(229): [DEBT CRISIS] World inflation, high oil prices, and a drop in commodity prices affected the reserves, as it did those of most of the darker nations. In 1960, the total debt of the 133 states that the World Bank counted as part of the "developing countries" held a total public and private debt just short of US $18 billion. In ten years, the debt had escalated to $75 billion., and when Jamaica went into fiscal crisis, it was $113 billion. By 1982, the debt had reached the astronomical figure of $612 billion. While many scholars and commentators blame the oil crisis of 1973-1974 for the ballooning debt, this is a superficial argument. The rise in oil prices due to the action of the OPEC cartel only exacerbated tendencies that had already stymied the social development of the formerly colonized states. The distorted development agenda followed by most of the third World... and the imperialist pressure faced by these states produced a structurally impoverished international political economy. When the oil crisis hit, it provided the conjuncture for the Third World's structural rot.
(229): In 1974-1975, the nonpetroleum exporting states of the Third World had to come up with $80 billion to finance their external deficits. Of this, about $36 billion came from private sources. Commercial banks in the G-7 that found that the rate of return within the advanced industrial states declined as productivity rates grew flat, turned eagerly to fund the Third World states... But the banks would not dole out their capital without cover from the IMF. If the IMF sanctified the state with a short-term standby agreement, it provided a "seal of approval" for more funds. The IMF loans often fell far short of the amount needed, so the IMF acted as insurance for the private commercial banks... The money swept into the Third World, but not without a prospect of return. In 1975, Rothschild reports, "each of the five largest US banks made more than 40 percent of its profits from foreign operations. Chase was an extreme case. It earned 64 percent of its profits abroad, as compared to only 22 percent in 1970.
(230): How could the impoverished pay back these enormous loans?... The defaults did not come because the IMF, backed by the US government and the newly confident elites of the darker nations, strong-armed governments into the cannibalization of their resources to maintain the payment schedules. After the Mexican collapse of 1982, the US government proposed the Brady Plan (1989), which had two elements. First, the banks lent money to cover the debt if the country provided assurances to pay back the loan and the debt, and second, the IMF and the US Department of the Treasury sanctified the loan if the country entered a process of significant economic reform.
(231): [DEBT CRISIS AS TRIBUTE] By 1983, capital flows reversed, as more money came from the indebted states to the G-7 than went out as loans and aid. In other words, the indebted countries subsidized and funded the wealthy nations. In the late 1980s, the indebted states sent an average of $40 billion more to the G-7 than the G-7 sent out as loans and aid; this became the annual tribute from the darker nations. By 1997, the total debt owed by the formerly colonized world amounted to about $2.17 trillion, with a daily debt-service payment of $717 million. The nations of sub-Saharan Africa spent four times more on debt service, on interest payments, than on health care. For most of the indebted states, between one-third and one-fifth of their gross national product was squandered in this debt-service tribute. The debt crisis had winners: the financial interests in the G-7.
(231): During the first six months of 1974, when the fiscal effects of the oil crisis became clear,
the G-7 enjoyed a $6 billion surplus with the nonpetroleum exporting Third World states, but it suffered a $41 billion deficit with the oil exporting states. A year later, the nonpetroleum states owed $21 billion, whereas the G-7 owed the oil group $21 billion. The scale had been balanced.
(231): Furthermore, the oil states... held their profits largely in US dollars, which meant that as the US dollar abandoned the gold standard in 1971, its own standing in the global economy remained high because petrodollars kept it in demand. The rise in petrodollars allowed the United States to abandon the very macroeconomic restrictions it demanded of the Third World, and therefore run a deficit to strengthen its domestic economy and expand its already-considerable military.
(233): The IMF plan was rigorous. First, it called on the government to devalue its currency to discourage imports and increase its ability to export its products. The policy intended to shift the import-substitution thrust to an export-oriented economy. Second, the government had to discourage an increase in wages to keep down the need to import goods. Third, the IMF called for the reduction of the role of the state in the economy... Fourth, the state needed to sell off its public-sector assets and enhance the private enterprises. Finally, the state had to hamper the money supply and raise interest rates to induce "fiscal discipline."
(233): In Jamaica, the immediate effects of IMF policy fell on the rural and urban working class. Inflation soared as the Jamaican dollar faced significant devaluation and price of basic goods began to skyrocket (chicken up 74 percent, salt-fish 285 percent, milk 83 percent, flour 214 percent, and cooking oil 72 percent). The IMF austerity regime dropped real wages by as much as 35 percent in 1978 alone. By 1980, the unemployment rate in Jamaica soared to 30 percent or perhaps more. About 60 percent of Jamaican households began to rely primarily, if not exclusively, on the income of women, many of whom worked in unrewarding sweatshops in Kingston's free trade zone. In that zone, 80 percent of the employees were single mothers whose desperation to keep their families alive meant that three-quarters of them worked overtime.
(234): In 1990, a senior IMF economist studied the IMF-enforced stabilization measures from 1973 to 1988, the period when the structural adjustment bombed the Third World. His measured study found that "the growth rate is significantly reduced in program countries relative to the change in non-program countries." The IMF produced a patient with contracted economic activity, the destruction of the capacity for long-term economic growth, the cannibalization of resources (what is known as "asset stripping"), and a consequent return to being an exporter of raw materials. Much of this resulted in rising inequality in terms of class and gender, in addition to widespread environmental devastation.
(236): By the end of 1980, the per capita income in Jamaica fell by 40 percent.
(237): Marcos, Suharto, and Seaga [Edward Seaga, who succeeded Manley in 1980] mastered the art of political illusion: by a sleight of hand, they posed as efficient nationalists as they opened their countries to unregulated corporations. The national bourgeoisie, represented in Jamaica by Seaga, camouflaged their enthusiasm for "reform" by making the claim that there is no alternative and the IMF made us do it as well as by touting the amount of US and IMF money that flowed into the country as a result of the reforms.
(238): In 1981, the island's gross domestic product was $3 billion, but three years later it fell to $2 billion... IMF-driven globalization exacerbated the collapse of the Jamaican economy... The institutional impact of IMF-driven globalization was heavy. The new reforms pushed by Seaga's government resulted in a weakened responsive state. Between the mid-1980s and 1989, Jamaica's government fired about a third of its public employees, "both through privatization of public companies and through central government layoffs"... The national liberation state was disemboweled in this process.
(238): The neoliberal state now stakes itself more on repression than on responsiveness... From 1979 to 1986, the Jamaican police killed more than two hundred people per year... In the conditions of total social and economic collapse, gang violence or community protection against gang violence became the order of the day. Social anomie intensified alongside IMF-driven reforms, and the neoliberal state responded with the bullet.
(243): The G-7 dominated the IMF procedures and policies, and regarded its rules as being for the darker nations and not for the advanced industrial states. For this reason, the G-7 did not adhere to the IMF structural adjustment demands against budget deficits and subsidies. The G-7 broke the rules when it wanted to... The IMF served the G-7, and not the G-77... The statement showed that whereas almost a hundred Third World states accounted for less than 37 percent of the IMF's voting power, the five leading industrial powers controlled more than 40 percent, while the United States alone held 20 percent of the votes in the IMF.
(245): In the thirty years after 1960, the Tigers' total share of total world exports increased from 1.5 to 6.7 percent. Their share of total exports from the Third World rose from 6 to 34 percent, as their share of Third World manufacturing exports rose from 13.2 to an unbelievable 61.5 percent. Unlike most great leaps forward of this kind, the Tigers did not grow at the cost of extreme domestic inequality. By 1990, all the Tigers showed a substantial improvement in income distribution...
(246): Singapore... had the privilege of being the second most competitive economy in the world (after the US). The GDP of this small island grew from 1965 to 1990 by an average of 6.5% per year... The engine for this explosion was Singapore's exports of manufactures. In1960, only 7.2 percent of Singapore's gross domestic product came from manufactured exports, whereas by 1990 manufactured exports accounted for a little more than three-quarters of the gross domestic product.
(249): The sensation of Singapore and other other Tigers came in large part from a set of advantages exceptional to them. For one, the colonial experience of the Tigers was objectively beneficial. Seized by the British as commercial bases for their China trade, Singapore (1819) and Hong Kong (1841) inherited few of history's problems. There was little agriculture, and what there was soon vanished before the hunger for buildings... Both Singapore and Hong Kong thrived as duty-free ports for opium and other commodities. These were paradises of capital, where the problem of production (and hence workers) was shipped elsewhere. [SEEMS CONTRADICTORY, IN LIGHT OF LATER ADMISSION THAT COMMUNIST TRADE UNIONS PLAYED PROMINENT ROLE IN SINGAPORE] These were almost purely entrepots. Occupied by the Japanese, Taiwan and Korea experienced an assault on their landlord class and forced land reform. Feudalism disappeared at the butt of an Arisaka rifle. In addition, the Japanese colonial machine exported its zaibatsu-state complex for capitalist development.
(249): A brutal war between the British and the Communist Party ran from 1948 until Malaysia's independence in 1957.
(250-251): Politics interfered with the necessary work of development; the ideological framework developed by Lee for PAP secluded the work of development... The Tigers emulated each other on this score: two consecutive dictatorships (led by Park Chung-Hee and Chun Doo-Hwan) controlled South Korea from 1960-1988; in Taiwan, the Kuomintang ruled a one-party state from 1949-1996; and Hong Kong remained a British colony until 1997.
(251): Even as the Third World's bourgeoisie lavished praise on the East Asian miracle in the 1980s, during the 1950s and 1960s, the Tigers traveled a familiar route, albeit with better basic conditions (land reforms and institutions such as the chaebols for industrial organizations). Singapore's PAP, led by the charismatic Lee, followed Goh Keng Swee's advice on state intervention. The Development Plan (1960-64) adopted the import-substitution industrialization strategy. Whatever funds could be harnessed went into state-owned enterprises...
(252-253): [KEY BREAK WITH ISI--THIS WHOLE ACCOUNT IS SLIGHTLY WEAK, I THINK] When Singapore broke from Malaysia in 1965, it had to reassess the import-substitution strategy because now the small island alone did not have a sufficient domestic market to carry through the program. This specific event, the caesura from Malaysia, caused the cabinet to move the island state toward an export-oriented manufacturing plant... To transform Singapore into a major transshipment entrepot and manufacturing site required an enormous infusion of capital... The secret to the Tigers' sensation lies in this original infusion of capital, because only with it could their various institutional advantages shine. A large amount of the investement capital came from PAP's ability to capture domestic savings... Additional money came from US government aid, although this played less of a role in Singapore than in Taiwan ($13 billion) and Korea ($5.6 billion)... More than domestic savings and foreign aid, the Tigers in the 1960s relied on investment from transnational corporations. Lee Kuan Yew recognized early that his goal was "to make Singapore into an oasis in Southeast Asia, for if we had First World standards then business peple and tourists would make us a base for their business and tours of the region." To draw in tourists and finance capital required lenient rules and clean streets. Lee provided the latter through his authoritarian state; his government created the conditions for the former in haste. It worked: between 1960 and 1990, Singapore enjoyed the world's highest investment ratio... By 1973, Singapore abolished quotas and tariffs to create a free-trade port. It created EPZ's, which blossomed because the staet removed all income taxes and allowed them to function without regulation... [YET] The high rates of investment did not change the nature of the Singaporean economy; it produced low-end goods for the world market. Singapore needed to go after the high-end, high-value goods to hasten its development and break out of its dependency on foreign capital. Starting in 1979, PAP inaugurated a new targeted investment strategy. It gave immense incentives for foreign capital to invest in industrail manufacturing, tourism, trade, transport, and communication as well as "brain services" (medical and financial). This "Second Industrial Revolution" required and infusion of skill and a new kind of investment. The import of skill was not new to the Tigers. Because of Communist insurrection and insurgency, the well-educated and upwardly mobile professionals fled to Taiwan and Hong Kong (from China), South Korea (from the North), and Singapore (from China and Malaysia). These professionals brought with them mercantile and technical skills that came gratis to their host societies. In the early years, all the Tigers invested heavily in their human capital: state-funded and managed educational systems that stressed technical skills, and an enhanced social wage that drew and maintained populations... Singapore developed its high-technology firms, but structurally its economy remained dependent on foreign investment (mainly from transnational corporations and private portfolio investment). As Japanese investment dried up in the late 1980s, Chinese investment kicked in. China, boosted by the human capital growth of its socialist era and the EPZ performance on its coastal rim, generated investment for the East Asian manufactures...
(255): IN 1997, the Thai bhat failed, setting off a chain reaction across the rim until the Tigers had to go to the IMF with their hats in hand for a bailout. What had struck the rest of the Third World from the late 1970s onward, hit East Asia two decades later. While the Tigers' collapse appeared structural, as the dust settled it became clear that they had been the victims of financial speculators... China's sheer economic size allowed it to weather the storm, and its stability provided a lifeline for parts of the East Asian world. The commodity price drop explains not only the downturn but also the structural closeness of the Tigers to the rest of the darker nations.
(261): ...[M]ost of the Saudi royal family had enjoyed a pragmatic relationship with Wahhabism: they accorded it respect in public, but lived wilder lives in private (including during long sojourns to Europe). [Crown Prince] Faysal was different. He was a true believer.
(262): The reinvention of tribalism and other atavistic ideas is equally central. Joseph Desire Mobutu, raised in the Belgian Congo by European friars, led the coup against the left-wing prime minister Patrice Lumumba in 1960. Lumumba's Congolese National Movement Party took the newly freed Congo leftward and disadvantaged European capital... Mobutu, backed by the Belgians and the United States, overthrew and killed Lumumba... Within a few years, to consolidate his position, Mobutu conducted the Zaireanization of the Congo: he changed his name (Mobutu Sese Seko) and that of his country (Zaire), and insisted on a series of cultural returns to an idea of the pure cultural heritage of Zaire.... Mobutu stole an estimated $5.5 billion from his country at the same time as he tried to portray himself as a Zairean like any other.
(263-265): Oil came into the picture for Saudi society in the early years of ibn Saud's rule (1933). Hastily, ibn Saud signed concessions to US-British oil firms. The corporations flourished. The Saudis acted as sentries of a reservoir that holds a quarter or more of the world's oil, while the US and British governments offered security for the longevity of the antidemocratic regime... Saudi largess went toward the prolfligate consumption of the royal family and religious charity. By 1958, the oil-rich land was in debt by $480 million. Crown Prince Faysal, who exerted his own authority against his brother King Saud, went to the IMF in 1957, and earned some credits in lieu of a tighter fiscal policy and a devalued rial. The oil merchants thrived, but the Saudi people suffred... The stalled state expenditure exacerbated the population's already-diminished set of expectations. They were tinder for Nasserism, Third World nationalism, and Communism... In 1953, the workers at Aramco conducted an unsuccessful two-week strike to form a union. Then, in July 1956, when King Saud came to Dhahran mass demonstrations greeted him. The workers wanted basic rights, while the population wanted the removal of the growing military base... The year before, at the Taif Air Base in the western mountains of the kingdom, Saudi troops mutinied in Nasser's name. They were executed. In this context, Nasser arrived in Saudi Arabia in 1956... These Nasserite currents came to the fore in the early months of 1958... By March, Saudi frustration with Nasser had reached a high pitch. The crown tried to assasinated him as his airport approached Damascus International Airport The Nasserite threat was always greater than that of the Communists, who in Saudi Arabia numbered few. The Organization of Saudi Communists operated under the aegis of the National Renewal (later, Liberation) Front from 1954 onward. Only in the 1960s did peninsular Marxism make its mark--in Yemen and Oman. The 1962 nationalist revolution in Yemen provided a haven for the export of Third world nationalist and revolutionary ideas across the region... When the Marxists seized power in South Yemen in 1967, the Popular Front was renamed the Popular Front for the liberation of Oman and the Arabian Gulf. The Saudis, now much more militarily confident than they were in the 1950s, financed the resistance against South Yemen and that of the Omani government against the Popular Front. They were scrupulous in the extrication of the Left from the peninsula.
(265): Nasserism, like a virus entered the palace walls... Their leader was Prince Talal bin Abdulaziz, the "Red Prince"... Talal broached the idea of a National Council in 1958, and now the Free Princes moved to gain public support. They had no mass base., and since they did not have the support of their clans, they failed to penetrate Saudi society... Talal used the bulk of 1961 to create secular social institutions in Saudi society and ameliorate unemployment through public works. The Free Princes appeared to be on the road to accomplish a left-wing palace coup, to do what the Free Officers did without the use of the military. Then Faysal moved against Talal... Talal and his group withdrew to Beirut. The Free Princes were squashed...
(266): Not long after Faysal's coup de grace against the Nasserites and the Communists, he hosted the WML. Faysal had a senior partner in Aramco, and behind them was the US government. The US government gave "wholehearted support" to the WML as an instrument to roll back Third World nationalism and dent the USSR by appeal to its large Muslim population (perhaps 45 million)... US president Eisenhower held a summit in 1957 with the Saudis and enunciated his doctrine. The Eisenhower Doctrine was framed to contain Communism in general, but in the specific instance of the Middle East to promote the Saudis and monarchical forces (such as the Shah of Iran and the kings of Jordan and Iraq) as an alternative to Nasserism.
(269): [EVEN THIS ONLY WENT SO FAR--INJUSTICE CAN ONLY BE MADE SO PALATABLE, IN OTHER WORDS] IN 1979, a group of devout Muslim activists organized into the Movement of the Muslim Revolutionaries of the Arabian Peninsula laid siege to the Masjid al-Haram. They defended their actions as the only way to take back the holy shrines from the "drunkards" who "led a dissolute life in luxurious palaces." ... Simultaneously, but independently, the Shia of eastern Saudi Arabia came out in mass demonstrations (many of them were oil workers in Aramco's fileds). The National Guard crushed both the siege and the rebellion. The egalitarian noises from the Iranian Revolution (but no so much the Islamic republic that followed it) petrified the Saudi royals and indeed the entrenched elites across the Third World... The ulema in Saudi Arabia were quick to line up with the monarchy.
(269): The oil price rise after 1973 provided Saudi Arabia with the singular ability among the darker nations to buy off its citizenry. A few years of liquidity in the 1970s allowed the state to increase the social wage, although the monarchy did not fundamentally change the dependent basis of the Saudi economy. Saudi industry produced less than 2 percent of the gross national product, and dates remained the second-largest export item after crude and refined oil... In the fundamentals, Saudi society reflected the same problems as much of the Third World: a one-commodity economy, with a poorly developed industrial sector, a large state apparatus, a growing military (costing about 14 percent of the gross national product), and a languished population. At the whim of fickle oil prices, the Saudi economy went into a nosedive beginning in the late 1970s. The World Bank recommended that the Saudi state shore up its fundamentals, and the royal family conducted a self-directed structural adjustment during the 1980s... For a society with a young population and growing structural unemployment, the social and cultural consequences of austerity were great. As dissent and protest grew, the Saudis met this both through outright repression and an ideological campaign. In 1976, the Saudi royals welcomed the head of the religious police into the cabinet... Chauvinisms of various kinds were encouraged. The royals called for the "Saudiization" of the workforce as a means to turn the blame for unemployment on the five million foreign contract workers (almost a third of the total population).
(271): The IMF instituions prodded the post-colonial states in the 1970s to give up on the delivery of public goods such as education, health care, and relief services, and allow private or charitable entities to do the work. In Pakistan and Egypt, for instance, as the state slowly eroded its public educational system, the exponential growth of cheap Islamic schools provided opportunities for lower-middle-class and working-class youth.
(273): As Part of the Pakistan National Alliance, the Jamaat reaped the benefit of Zia's cutback in educational funding--money now came in from the WML, the International Islamic relief Organization, the Saudi and Kuwaiti Red Crescent, the Saudi General Intelligence Department, the Saudi royals, and other such private avenues. This money created a web of religious schools (madrassas): from nine hundred madrassas in 1971, the number swelled to eight thousand by 1988.
(274): As it undermiend the idea of nationalism, conservative social forces and various powerful social classes gathered together to offer an alternative vision of what it meant to be patriotic, indeed what it meant to be nationalistic. The secular-socialist nationalism of the Third World agenda withered before the rise of a cultural nationalism now deeply invested in racial, religious, and such atavistic differences... National liberation regimes had not been able or did not try to dethrone the old social classes and the older forms of social solidarity but they did create mechanisms to create national solidarity. Public schools, military service, voluntary labor, and other such institutions attempted to make equality a real social value and part of the experience of the citizenry. If the social classes do not mingle, there can be no real national solidarity. That said, once the state ceased to make this token effort, the significance o fht eolder, generally unmolested class bonds now attained a greater deal of purpose.
(275): Globalization and cultural nationalism are not opposites or irreconcilable doubles; they exist together, they feed of each other. Indeed, cultural natioanlism is the Trojan horse of IMF-driven globalization. The mecca of IMF-driven globalization is therefore in the ability to open one's economy to stateless, soullesss corporations while blaming the failure of well-being on religious, ethnic, sexual, and other minorities. That is the mecca of the post-Third World era.
(276): Debt hangs heavy for the bulk of the planet. In 1970, when the Third World project was intact, the sixty states classified as "low-income" by the World Bank owed commercial lenders and international agencies $25 billion. Three decades later, the debt of these states ballooned to $523 billion. An impoverished conversation on debt yields no agenda to combat this fundametnal ailment for the former Third world. These are not "poor" countires. Over the course of these three decades, the sixty states paid $550 billion in principle and interest on loans worth $540 billion. Yet they still owe $523 billion. The alchemy of international usury binds the darker nations.
(276-277): For there was a gradual realization that such progress as was made in the first three decades after 1945 did not imply any fundamental change in the status or real development prospects of Third World countries. Dependency was increasing rather than decreasing, poverty was persisting and the income gap between the Rich North and the Poor south was gettting wider. According to the World Bank, "In 1960 per capita GDP in the richest 20 countries was 18 times more than in the poorest 20 countries. By 1995 this gap had widened to 37 times." The divergence between the North and the South grew as the Third World fragmented. But even this spatial metaphor of the North and South is insufficient; it ignores the mature class hierarchies that had grown within each of the countries in the South and the North.
(281): The limitations of IMF-driven globalization and revanchist traditionalism provoke mass movements across the planet. The battles for land rights and water rights, for cultural dignity and economic parity, for women's rights and indigenous rights, for the construction of democratic institutions and responsive states--these are legion in every country, on every continent. It is from these many creative initiatives that a genuine agenda for the future will arise. When it does, the Third World will have found its successor.

The interim government, built from a coalition of the Left-Green Party and the Social Democrats, is at least as different from the old one as the Obama administration is from the Bush administration. The latest prime minister, Jóhanna Sigurdardóttir, broke new ground in the midst of the crisis: she is now the world's first out lesbian head of state. In power only until elections on April 25th, this caretaker government takes on the formidable task of stabilizing and steering a country that has the dubious honor of being the first to drop in the current global meltdown. Last week, Sigurdardóttir said that the new government would try to change the constitution to "enshrine national ownership of the country's natural resources" and to "open a new chapter in public participation in shaping the structure of government," a 180-degree turn from the neoliberal policies of Iceland's fallen masters.

There has already been an enormous destruction of capital. In the last number of months, more than $7 trillion has been wiped off the U.S. stock market. Indeed, $1.1 trillion was wiped out in a single day on October 15. As of mid-October, $27 trillion had been erased from stock markets worldwide. Housing values in this country have already declined by $5 trillion; pension funds by $2.5 trillion; and bank write-offs are now at $600 to $700 billion and expected to be $1.4 trillion. Large, conservative, seemingly stable companies have disappeared. Lehman Brothers, which had been capitalized at $30 to $40 billion, has gone bankrupt, and AIG, which until a few months ago was capitalized at between $150 and $200 billion, required a $123 billion lifeline from the government to survive. This has led to a massive credit crunch. Banks and other financial institutions now no longer trust each other not to totter and collapse underneath the weight of toxic debt, and refuse to lend to each other, producing a credit meltdown affecting the entire global financial system.
(...) The banks are also being de-leveraged, that is, they are being forced to pay off some of their debt and to cut back on the risky loans they’ve made over the past several years. Rather than loaning ten times more than their capital, they were loaning thirty and forty times their capital; and in Europe the banks were leveraged at an even greater rate.
(...) The current crisis is a product of the contradictions of the twenty-five-year-long neoliberal boom, which started in 1982. The postwar boom ended in 1973, and from 1973 to 1982 there were three recessions in the United States. The restructuring that went on in the United States, and to a lesser extent internationally, with the introduction of neoliberal, free-market measures, led to a twenty-five-year-long boom. It is the contradictions of those neoliberal measures that have produced this crisis.
(...) The first contradiction to note was the creation of a giant debt bubble. The increase in debt during the Clinton and Bush years was staggering. Over the two decades preceding 2007, credit market debt roughly quadrupled from nearly $11 trillion to $48 trillion, far exceeding growth rates. To put it in perspective: according to the Wall Street Journal, since 1983 debt expanded by 8.9 percent per year, while GDP expanded by only 5.9 percent.
(...) The second contradiction was that the United States became a buyer of last resort, establishing a trading system with Asia in which the Asian countries exported to the United States, which kept up spending through debt. The American balance of payments went from approximately $200 billion a year to $700 to $800 billion per year. All of this was borrowed. The U.S. government had a budget surplus under Clinton. But under Bush, with the tax cuts and war spending, the budgetary surplus disappeared, and the U.S. went from having a $250 billion government surplus in 2000–2001 to a $300 billion deficit in 2002. This stimulated the economy, but it meant that the United States became dependent on foreign capital, since the savings rate in this country had collapsed and was negative in the last years of this boom. Foreign capital, in particular from China, Japan, and the Middle East oil exporting countries, financed the American debt. When the dot-com bubble collapsed and recession came in 2001, Federal Reserve Chairman Alan Greenspan lowered interest rates to between 1 and 2 percent for three years. This led to massive asset inflation, particularly in housing prices.
(...) The neoliberal boom was the result of a shift in the balance of class forces, in which the rate of exploitation was increased, real wages were depressed, and almost all wealth created went to capital. Some figures will indicate how dramatic the shift was. In 1973, GDP per person, in constant non-inflationary dollars, was $20,000 a year. By 2006, it was $38,000 a year—a more than 90 percent rise. Wages, however, in that same thirty-three-year period, declined. Real wages in 1973 were $330 per week; and in 2007, wages were $279—a decline of 15 percent.
(...) This shift of wealth from the working class to the capitalist class produced a tremendous amount of capital for potential investment. But in this last business cycle, that capital could not find all that many profitable outlets domestically. There was no expanded reproduction, no accumulation of capital in the U.S. during the 2000s. In this last business cycle, there were fewer factories at the beginning of the recession a year ago than there were in 1999. Instead of investing in new technologies, new plants and equipment, capitalists invested money overseas. Domestically, investments went to the most profitable industries—housing, construction, and finance. “In 1983, banks, brokerage houses and other financial businesses contributed 15.8 percent to domestic corporate profits,” writes James Grant in the October 18 Wall Street Journal. “It’s double that today.”
(...) These investments stimulated the housing and debt bubble. Between 2000 and 2005, housing prices increased by more than 50 percent, and there was a frenzy of housing construction. Banks and other financial institutions went on a mortgage-lending spree, creating a massive market in subprime mortgages—adjustable rate mortgages sold to borrowers with weak credit. There was also a big increase in housing speculation, with small investors buying second and third homes with the expectation that housing prices would keep rising and that these houses could be resold at a profit. Merrill Lynch estimated that in the first half of 2005, half of economic growth was related to the boom in the housing sector.
(...) Meanwhile, workers tried to maintain their standard of living despite the decline in real wages. In the 1980s and 1990s, they worked longer hours, took on more than one job, and increased the number of family members working. This could prop up household income to some extent. Yet even household income declined from 1998 through the boom of the 2000s. The only way to maintain living standards in the midst of declining wages was by borrowing against the rising value of their homes through home equity loans and mortgage refinancing. In the period of the last boom, homeowners took $5 trillion out of their home equity ($9 trillion since 1997), fueling an increasingly unsustainable debt structure that finally popped with the decline of inflated asset prices in housing.
(...) In this shadow system, banks did not have to put up adequate capital reserves. As a result, they were able, through this unregulated system, to borrow thirty, forty, or fifty times above the value of their capital in order to invest in the stock market and in various new exotic debt products, such as collateralized debt obligations (CDOs), credit-default swaps (CDSs—essentially a form of insurance against debt default), and various other financial swindles, many of which were based on the packaging and repackaging of housing mortgages. These were bundled and sliced up into investment vehicles that contained a good deal of potentially toxic debt—$900 billion worth of subprime loans, for example.
(...) Now that the world has entered recession, the U.S. is going to be running higher budgetary deficits. Those deficits will be increased also by the expansion of U.S. military spending, which has increased from $300 billion a year in 2000 to more than $800 billion a year now, if you include the supplemental costs for the wars in Iraq and Afghanistan. On top of this spending, the U.S. has introduced a hugely expensive bailout plan. That means it will in all likelihood be running deficits of three-quarters of a trillion dollars, and possibly more, in the coming years. Where will the money for that come? At the moment there is no savings in this country, though that may change dramatically. But it is highly unlikely that China, Japan, and other countries are prepared to continue to finance an American trade deficit to the tune of $700 or $800 billion a year when the balance sheet of American finances, the huge national debt, has gone from $5 trillion when Bush came into office to $11 trillion today. It is unlikely that the Chinese and others are going to continue to finance this debt—although at this point in time U.S. treasuries are still a safe haven. This is particularly true because China’s trade surplus is going to contract considerably as a result of the world recession.
(...) The Chinese population only consumes 35 percent of what it produces. The rest goes for reinvestment and export. China’s economy has the highest rate of exploitation in the industrial world. But its export markets are going to constrict—they’ve already started to decline. As a result, China’s desire to lend greater amounts to the United States is problematic, particularly if interest rates in the United States are low. The United States therefore can no longer continue to run an enormous trade deficit while it is building an enormous budgetary deficit, and sustain both of them on the basis of foreign borrowing. There will have to be a restructuring and reordering of the system. At the same time, the U.S. may become more dependent on direct foreign investment from countries like Japan and China that, as we’ve mentioned, have developed large cash reserves. That is what we mean when we say that this is not just a typical cyclical crisis of capitalism. All of the contradictions of the neoliberal boom have burst asunder and now have to be addressed.
(...) In their ad-hoc attempts to solve the crisis, officials took this to be a liquidity rather than an insolvency problem—a problem simply of getting money into the banking system so that the banks would loan. But the banks refused to loan to each other because they knew that other banks had assets on their books that were as bad as their own—and which might lead to defaults. This is called counterparty risk: banks are afraid that the other banks are on the verge of bankruptcy and so won’t give them loans. This aversion to risk reached a crescendo when Lehman Brothers was allowed to go bankrupt in mid-September. This is what led to the credit meltdown of late September into mid-October that roiled markets all over the world.
(...) Estimates are that the U.S. has so far committed $4 to $6 trillion in tax dollars to bailout efforts, and Europe has committed $2.3 trillion. But this isn’t so much cooperation as it is an attempt by each state to keep pace with its national rivals. Everyone understands to some extent what happened in the 1930s—that the recession became a world depression when the international banking system collapsed and states imposed beggar-thy-neighbor policies that further contracted world trade and deepened the world depression. Yet at the same time there are limits to what states can do because they also compete with each other. Each one only controls a small patch of an integrated world economy. State intervention can therefore mitigate the effects of the crisis, but it cannot prevent the recession.
(...) The U.S. in the late 1980s and 1990s improved its competitive position in the world economy and attempted to assert its role as the sole superpower. Though it secured better rates of growth than its competitors in Japan and Europe over the past twenty-five years, it fell behind the growth rates of emerging nations like China, and in order to sustain its own economy it fell into debt. The result is that in the last decade, the United States has lost its competitive position on the world market. Now it will have to restructure, which will involve attempting to raise the rate of exploitation—increasing productivity while lowering wages and benefits even further. We’ve already seen it in the auto industry, where wages have already been cut in half in many cases. The United States will become a cheap labor country compared to its competitors. Auto wages in this country are probably about a third of what they are in Germany. The minimum wage is half of what it is in Britain, France, Germany, and Ireland. The contradictions of neoliberalism have increased the immiseration and the poverty of the American working class. And to get out of the crisis they are going to attack workers’ living standards even further.
(...) On the other hand, there’s an enormous opening for a Left that has been marginalized for decades. The disaster of the free market makes it easier for us to argue about the failure of capitalism and the need for an alternative based on human needs. The free market, which supposedly triumphed in 1989 and brought us the “end of history,” has led to nothing but misery and the ruin of millions of people, who are mired in poverty, hunger, unemployment, and ill health, but thanks to the free-market mania of the past decades, face a shredded safety net that doesn’t begin to address these problems.