Re: ECONOMICS: Globalization and corporate power

From: Charlie Stross (
Date: Sat Aug 25 2001 - 05:37:06 MDT

On Fri, Aug 24, 2001 at 06:23:07PM -0400, Mike Lorrey wrote:
> > Firstly, you're personalizing a nation of millions. Don't do that. For
> > all you know, the average guy on the streets of Kingston is just as
> > opposed to the taking out of such loans as you are. (Do I need to read
> > you the standard libertarian "the state is not the same as the sum of
> > its citizens" speech at this point?)
> Depends on what context you want to give it.
> I think you are taking my point wrong, though. If you know that someone
> is going to lose their job (i.e. lose their case in the WTO on
> protectionism of banana exports), its a really really dumb idea to lend
> them money, especially money to be spent on expanding banana
> cultivation.
What do you think the IMF and the Word Bank are, Mike? They're not banks
in the conventional sense of a bank that you or I might walk into and ask
for a loan. They're international agencies backed by governments, whose
job is to spread the risk of providing financial assistance to other
governments, when it has been determined for political reasons that such
assistance should be rendered. They are, fundamentally, tools for
implementing the international relations policies of the governments that
back them. They're not free agents in the economic sphere!

> The 19% rate is simply a disinscentive against borrowing for such a dumb
> purpose.

Nah. 19% interest rates are _low_ by the standards of British credit card
accounts. You think the credit card bureaus are trying to discourage users
from borrowing at those rates? 19%, from another angle, is a rate designed
to give a decent profit to the lender, when there's some risk that the
borrower will go bust. Yes, it's a disincentive against borrowing -- but
if the belt-tightening alternative goes hand in glove with a revolution
and blood in the streets, what are you going to do?

What interests me is that a 19% interest rate -- in what is basically a
repayable loan from one government to another -- looks like a hook with a
barb on it. There's *no* *way* that a recipient government can boost their
economic growth, on the basis of a loan, sufficiently to repay at 19% per

(The fundamental difference between the way you're thinking about it, and
the way I'm thinking about it, is that you're thinking in terms of a pure
free market system, with transactions between individuals who are rational
and free. I'm thinking in terms of the US State Department and the UK Foreign
Office lurking up a dark alleyway and mugging some poor bastard who can't
fight back, in order to cut the price of bananas.)

> Whether it's turtles all the way down or not is irrelevant. Keep in mind
> I'm not too sympathetic toward the IMF either, but at least they are
> starting to get their act together. There are plenty of measures that a
> country like Jamaica can take to pull itself out of the hole by the
> bootstraps. For example, they can drastically revise their banking and
> taxation laws to encourage an influx of deposits from overseas
> investors, and structure their social welfare programs to encourage
> people to obtain long term birth controls like Norplant.

To encourage an influx of deposits from overseas investors, you need to
be able to offer something to invest _in_. Last time I looked down at the
supermarket, bananas were cheaper than potatoes. (When I was a wee kid
they were a luxury fruit!) That implies that if you put yourself in the
saddle of the Jamaican government, you need to re-tool the economy to do
something profitable. But you need to do so on a budget of approximately
fifty cents, because you've got nothing to work with -- no skilled workers,
no infrastructure, no high-level education system, and nothing but bananas.

The Jamaican birth rate isn't a major problem; at 18.51/1000 population
(in 1999) it's higher than the US (at 14.2/1000), but much lower than most
of the third world; just about everywhere in Africa and the Middle East
is in the 35-45 range, for example.

> I understand completely that being in a situation where you have a large
> percent of the population who are unskilled, unemployable, and unwilling
> to fix that, you have a major mess on your hands, one that requires
> either war, famine, epidemic, or other natural disaster to fix.
That's arrant nonsense. For starters, you can make just about 80% of any
population willing to learn if you can give them a positive incentive for
change. For seconds, you're embracing a negativistic fatalism about the
human condition that is, dare I say it, rather at odds with extropianism.

If we judge Europe in the 12th century by your yardstick of "unskilled,
unemployable, and unwilling to fix that" then it comes off a hell of a lot
worse than Jamaica today.

> The purpose of the 19% loan is to send a price signal to the rulers that
> they can no longer fix today's problems by borrowing from the future.

Nope, the purpose of the 19% loan is to send a diplomatic signal to the
rulers saying "we've got you where we want you, now lube up and bend
over". The 19% interest rate wasn't dictated for commercial reasons, but
for political ones.

> > Thirdly -- and this is the most important point -- conditions attached to
> > the loans are being used as instruments of state power. That is the
> > real bad problem here; the recipient of the loan isn't free to use it
> > productively.
> No, they are not free to spend it on social welfare programs. There is
> nothing wrong with a person to attach stipulations on how THEIR money is
> going to be used by those they lend it to. A bank would get mighty
> pissed if I took out an auto loan and used the money on a vacation to
> Fiji.
Social welfare programs include building schools and training workers
in new skills. (What was that you said about "unskilled, unemployable,
and unwilling to fix that"?)

The aid donor nations have no interest in encouraging third world
countries to develop their economies. That's because the current world
trade system -- which we, as first world residents, benefit from --
evolved organically from the preceding imperialist system. Under the
imperial system, an imperial state (say, the UK in the 19th century)
would produce finished high-tech goods and export them to its client
states; in return, they'd send in all their low-tech raw materials and
foodstuffs. _That_ system required the imperial state to keep the rabble
in line with gunboats and governors; the current system is what emerged
when the gunboats and governors were withdrawn. Nobody wants to lose
their export markets for high-tech goods and their cheap sources of raw
materials, so they rig the game so that the former colonies can't easily
divert resources to development. Meanwhile, those former colonies --
being underdeveloped -- are highly vulnerable to crop failure and famine;
under the imperial system the rulers would usually make at least a token
gesture to divert resources from elsewhere in the empire, but under the
new system they can get the IMF to offer a loan to offset the effects. A
loan which has terms which, not coincidentally, prop up the existing
inequities in the system.

>From the point of view of the former colonial powers, this is really great;
it's got all the advantages of running an empire, without the
inconvenient overheads of having to go out there and rule surly natives
at gunpoint. (The USA has, since 1945, bought heavily into this system,
taking on a lot of the role that was formerly occupied by the European
imperial powers. And you wonder why anti-Americanism is so widespread
in the third world?)

We _know_ that third world countries can develop. Look at South Korea or
Vietnam circa 1945, and look at South Korea today. Look at Thailand. Or
China, today, in the throes of routine 7% annual growth. Hell, even
Poland or the Czech republic fit the mold to some extent (at least in
comparison to Russia). The question we should be asking is why places
like Jamaica or Zambia don't follow suit. I don't buy the argument that
the locals are too stupid or lazy to work; hacking bananas off trees for
piece-rate on a plantation isn't a cushy life.

Clue: extropians are concerned with human development. Mostly we look at
the limitless vistas of the future. But once in a while it's a good idea
to look at the opportunities for human development that surround us, right
here and now.

-- Charlie

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