To cure unemployment, global poverty--
dump the debt!

By Eric Lerner

Since 2000, three million jobs have disappeared in the United States. Since 1973, real wages in the US have fallen by 20%. Around the world, unemployment and mass poverty is rising, workers' incomes are falling and they have been for years. Why?

The cause of this growing misery, and the key to curing it, is the debt--tens of trillions of dollars owed by national, state and local governments, and by hundreds of millions of individual workers.  The debt is transferring hundreds of billions of dollars each year from workers and peasants to a tiny group of banks, corporations and the extremely wealthy capitalists who own and control them. In the process the debt is strangling the world economy. Economic recovery is impossible with dumping this debt--wiping it out entirely.

International Debt: The world by the throat

The two and half trillion dollars in international debt is the most important part of the global debt, although not the largest part.  The four hundred billion dollars in debt service (interest and principal payments) paid annually to huge US, European and Japanese banks not only strangles the economies of the debtor countries, but it undermines workers in the industrialized, creditor countries like the United States. In the past decade, and especially in the past three years, since the global recession began in 2000, the debt payments from the debtor countries have soared as loans to them have dried up. This has suddenly  shifted an additional $200 billion a year out of the poorest countries, where five-sixths of the world's population lives.

The debt service, paid by the workers and peasants of the debtor countries, amounts to 50% more than the these nations spend on health and education combined.  The soaring payments have devastated these essential public services.  Policies imposed around the world by the International Monetary Fund (IMF) have dictated that public expenditures be replaced by private fees for schools and hospitals, freeing public money up for debt service. The result has been a rapid collapse of both schools and hospitals.

World-wide, school enrollment rates have dropped by almost one fifth in a decade, forcing 300 million children out of school and into the workforce. But there are still grimmer consequences. In Uganda, for example, girls desperate for an education prostitute themselves to older men to raise money for school fees. When these school girls, as young as ten or eleven, then contract AIDS, they are unable to pay the huge fees for the medicines that could save their lives.  The spread of AIDS in Africa and elsewhere is a direct consequence of the debt, which has made the necessary medicines unaffordable. As well, the collapse of public health systems makes new epidemics inevitable, and far more difficult to control. This is the mass murder of millions.

As a result of this debt-driven collapse of medical systems, in a vast area, including all of Russia, Central Asia and sub-Saharan Africa, death rates are soaring and life expectancy is plummeting. Life expectancy has fallen by eight years in Russia, and by 14 years in South Africa. In the worst-hit countries, like Zimbabwe, life expectancy has been cut in half since 1990,  from 60 to 33 years, sending death rates to levels not seen in centuries.  In Russia and Eastern Europe, the population has begun to fall rapidly-- as will soon happen occur in Africa as well.

Debt destroys jobs

To earn dollars to pay the debt, the developing countries must slash imports of medicine, food and machinery and increase exports of food and raw and manufactured materials to the industrialized world.  In 1990, exports and imports to the developing countries were roughly equal, but by last year exports were $200 billion more than imports.  This huge shift in trade reflects an equally  huge shift in labor from producing things for domestic consumption to production for exports. It has produced no new jobs in the developing countries, where in fact unemployment is rapidly rising.

But in the industrialized countries, the flood of debt-driven imports has destroyed jobs.  In the United Sates, which is now the only major net importer in the world, imports exceed exports by $500 billion a year.  These imports, which are almost all produced in plants owned by multinational corporations, most of them based in the United States, have eliminated some eight million jobs. This is 7% of all jobs in the country, accounting for most of the current unemployment.

The debt is driving a downward spiral of wages as well. As debt-striped governments raise taxes on peasants, these are forced off the land into the cites, driving down wages.  Exports from increasingly low-wage areas are used by US employers as a club to drive wages down here.  At the same time, those who cannot find jobs in Third World cities are forced to immigrate to the United States. Here, laws that deprive undocumented immigrants of their rights allow employers to pay immigrants next to nothing, again undermining wages for all.

Falling wages and disappearing services have driven a global contraction of consumption and production that began in 1973, accelerated in the early '90's and accelerated still more after 2000. In that period, especially in the last several years, global per-person grain production has fallen by one-eighth and per-person steel production has fallen by one-third.  In key industries, like steel, global employment has fallen by two-thirds, showing that jobs are disappearing world-wide, not only shifting to low-wage areas. The debt thus leads to an endless cycle of mass unemployment, misery and death.

Dumping the debt

Given the disastrous effects of the international debt, it is no surprise that mass movements from Argentina to Indonesia, in dozens of countries, are demanding that the debt be repudiated--wiped out.  If such mass movements, both in developing and in industrial countries, were to succeed in eliminating the debt, there would be immediate and enormous benefits.

In the developing countries, $400 billion a year now used for debt service could be used to more than double health and education spending. One twentieth of this sum would provide free anti-HIV drugs to every infected person the world, stopping this plague.  Restoration of public health services would rapidly slash death rates and increase life expectancy. Hundreds of million of children could return to school.

Instead of goods flowing from the poorest countries, without the debt these countries could import the medicine and machinery they need to build their economies.  With rising living standards and growing domestic-oriented industries, far fewer workers will be forced to emigrate from their native lands.

In the US and other industrialized countries, dumping the debt would create an instant $400 billion dollar demand for goods, and generate eight million new jobs, most of them in manufacturing. This would wipe out a decade of job losses and making it far easier for workers to demand higher wages.

Debt in the US

Just as developing nations pay billions in interest payments, so do the state local and Federal governments here in the US, where $240 billion a year flows from taxpayers to banks, insurance companies and wealthy capitalists. At a time when states are laying off, cutting back on vital health and education programs, writing off the governmental debt would free up enough money to, for example, increase education budgets by 50%, and create six million new jobs for teachers, nurses and other vitally needed professionals.

But, in the US, by far the biggest chunk of debt is owed by individual workers directly in the form of mortgages and credit cards. This debt today amounts to over seven trillion dollars, and the debt service is over one trillion a year-- nearly a fifth of all workers' wages.  The only way workers have been able to pay this huge debt service is by borrowing more, especially on their home equity, as housing rpcies continue to rise. In fact, right now borrowing is balancing debt service as total debt soars at a rate of 18% a year.

This spiral of borrowing to pay debt can not continue indefinitely--at some point housing prices will stop rising and new borrowing will cease. At that point 10-20% of workers wages will have to be diverted to paying off debts, crippling consumption, driving up unemployment and causing a wave of foreclosures evictions and personal bankruptcies.

The only way to deal with that disaster is to write off personal debt as well.  This debt, incurred to pay debt and the sky-high interest rates of credit cards--often 25-30% a year--can not possible be paid off. As in the developing countries the debt service simply subtracts from real consumption and production.

Who loses?

Who holds all these trillions in debt? Who would lose if it was dumped, if the interest it earned disappeared?  Directly, the debt is held by a handful of banks and financial institutions.  These institutions would of course be bankrupt if the debt was written off. They would have to be nationalized, taken over by the Federal government, with small depositors, who earn practically no interest anyway,  guaranteed against loss. To prevent another debt spiral, a nationalized banking system, run democratically for the good of society, would have to be limited to zero-interest loans.

The real losers will be those who hold the high-interest bonds and the stocks of these institutions.  Nearly all of that enormous wealth is held by just one half of one percent of Americans,  several hundred thousand capitalists, each holding fortunes of two millions or more.  The debt is a gigantic funnel taking a trillion dollars a year from a hundred million workers in the United States and billions of workers and peasants around the world, and giving it to this tiny class. The richest members of this class control the banks, the IMF and the governments that protect the debt--the same people who sit on the broads of directors of all the giant multinational corporations.

Wiping out the debt will return this giant flow of money to those whose labor has earned it, and pave the way for world economic recovery and reconstruction.