Starving All the Way from the Bank
BROCKWAY, GEORGE P.
The Dismal Science STARVING ALLTHEWAY FROM THE BANK BY GEORGE PBROCKWAY To write this I had to turn off a television show featuring a rock star, eyes closed in rapture or agony or something,...
...They cannot get food because they either do not grow it or have no means of securing it from those who do grow it...
...The population problem certainly plays a role, but in the improbable event of zero population growth troubles would remain...
...Thesumis not owed to the banks alone...
...TheThirdWorld needed (or wanted) money...
...An hour or two at, say, JohnF...
...starvation looms—chronic starvation, not the sort that results from a natural disaster...
...As Lombardi tells it, the world's big bankers bought the oil sheiks' opec winnings on the Eurodollar market and then jet-setted around the Third World peddling the money...
...And the bankers had convinced themselves that all Third World loans were risk free...
...A dream world...
...The key is breaking that paradigm...
...Zaire has the longest transmission line in the world, and no particular need for it at either end...
...A billion dollar steel mill in Nigeria is too sophisticated to use the low-grade ore it was originally intended for...
...The result is his important and enlightening work...
...Faulty banking theory flows from faulty reading of history...
...He makes a strong argument for conducting international trade between nations (rather than between private citizens or firms), and he makes a persuasive case for bilateralism (showing that he's not afraid of unconventional thoughts...
...Culbertson details the mischief caused in both the Third and First Worlds by the Law of Comparative Advantage, then suggests new trade policies suited to the actual situation of the actual world we live in...
...No one knows how many billions thus disappeared...
...Lombardi devotes several chapters to this question, and though I don't always agree with him (in particular, I think he misunderstands evolution), I certainly applaud his effort...
...In its place was the actuarial notion that lots of risks are safer than a few...
...Kennedy Airport in New York will convince you that Boeing has sold (with Export-Import Bank help) an awful lot of 747s to foreign airlines you never dreamed existed...
...The Dismal Science STARVING ALLTHEWAY FROM THE BANK BY GEORGE PBROCKWAY To write this I had to turn off a television show featuring a rock star, eyes closed in rapture or agony or something, moaning an expression of his solidarity with the people starving to death in Africa...
...It comes down to Gertrude Stein's answer when she was asked why she had written Tender Buttons: "Whynot...
...In 1960, Lombardi tells us, Third World debt totaled $7.6 billion...
...Gone was the old-fashioned bankerly attempt to evaluate the business prospects of each enterprise applying for a loan...
...He emphasizes that the Third World's troubles are not merely those of an exploding population...
...The national airlines of countries of fewer than a half million souls, most of them tribesmen with neither the need nor the possibility of flying anywhere, bought fleets of Boeing 747 jumbo jets...
...If they can't be paid off, our friendly bankers will surely find ways to transfer the bad debts to us taxpayers...
...The World Bank lent money at low rates for roads and airports and dams and other infrastructure...
...Two components of the paradigm we have discussed here before: Ricardo's Law of Comparative Advantage ("How Our Sun May Rise Again," NL, July 12-26, 1982), and the notion that a growing GNP cures all ills ("Sinking By the Numbers," NL, May 2,1983...
...In the grip of this paradigm, everyone began pushing the Third World to modernize and industrialize...
...Lombardi lays out the connection of starvation with banking roughly as follows : People starve because they cannot get food...
...The bankers could offer assistance because they had money and also because they had a new vision—not of banking, but of what they came to describe as "world financial enterprise...
...The IMF (then as now) counseled austerity, meaning cut imports (or, more frankly, reduce your standard of living) and expand exports (done by lowering wages and, again, your standard of living...
...The UN "Development Decades" favored an urban focus, precipitating a population shift from farm to city...
...For when bankers lend money to Brazil to buy a steel mill or to Tunisia to manufacture blue jeans or to Taiwan to keypunch data into American computers via satellite, Americans lose their jobs...
...To think about the situation in greater depth he took a leave of absence and became a research associate and Thursday Fellow in Georgetown University's School of Foreign Service...
...So the IMF urges austerity...
...There is no question that our fellow citizens' capacity for pity and terror has been stirred by the pictures they have seen of the starvation in sub-Saharan Africa...
...The bankers called this recycling...
...I should—and shall—leave the task of commenting on TV performances to Marvin Kitman...
...The governments need foreign exchange to try (unsuccessfully) to meet the interest payments on their foreign loans...
...Risk itself disappeared because countries did not go bankrupt...
...they lent the money to countries, not to individuals, and countries don't go bankrupt, even when they are stolen blind...
...This outcome, which should be a puzzle to true believers in the GNP, threatened to swamp the UN agencies...
...The demand for agricultural exports accelerated the shift, because export crops tend to be more efficiently handled by agribusiness than by customary methods...
...It would be pretty to think of them beginning by wondering how the tragedy came about...
...He also shows the trouble the paradigm has caused and will cause in the First World—that is, to you and me...
...Under such prodding the Third World's GNP rose even faster than the Development Decades had hoped...
...Lombardi credits (if that is the right word) this vision to Walter Wriston, who transmogrified the First National City Bank of New York into Citicorp in 1967...
...And if they are paid off, Third World austerity programs will throw Americans out of work...
...the bankers had it (or knew where they could get it...
...The apostles of the Law of Comparative Advantage (a.k.a...
...At that point in time (as Watergate taught us to say) the Citicorp Concept flashed across the horizon...
...The critical fact, however, is that the bankers lending the money didn't care...
...It can cause starvation in the Sudan and unemployment in Cincinnati...
...Yes, I am afraid that to understand starvation in Africa you must start with money and banking, because they are the roots of the problem...
...Faulty practice flows from faulty theory...
...Periodically, statesmen who had that kind of foresight were overthrown, and their successors opened up their own numbered accounts...
...actually, it was salesmanship...
...Their governments have induced them to switch to export crops to earn foreign exchange...
...The author of Debt Trap is Richard Lombardi, a former vice president of the First National Bank of Chicago...
...Lombardi paints the unhappy picture with great fervor...
...There is no question that they want to help in some way...
...Recycling could go on merrily as long as Third World countries could be induced to borrow money at a point or I wo over what the bankers had to pay lor it on the Eurodollar market...
...What he saw troubled him deeply, for he is an intelligent and compassionate man...
...A loan to Costa Rica was underwritten by a banking syndicate on the basis of a news article in Time...
...Lombardi suggests ways this can be done...
...It turned out not to be difficult to induce Third World countries to borrow, what with everyone advising them to do so and especially with fewer and fewer questions asked...
...At any rate, the "Citicorp Concept" was reverently discussed in the business press and widely emulated by David Rockefeller's Chase Manhattan and the rest...
...auto industry.' Banking, in short, is not an innocent enterprise...
...His office was in Paris, a nice place to have an office, but he was in charge of lending in both French-speaking and English-speaking Africa, and he traveled widely and steadily in those countries...
...Thestagewasnowset...
...They didn't bother to buy so much as a new presidential palace with the money, instead sending it straight to numbered bank accounts in friendly Switzerland...
...A useful supplement to the foregoing is The Dangers of "Free Trade, " a new booklet by Professor John M. Culbert-son of the University of Wisconsin-Madison...
...The Export-Import Bank and its ilk underwrote sales of steel mills and sugar refineries and atomic energy plants...
...Of course, countries whose debts have increased 12,000 per cent in25 years do usually have trouble meeting even the interest payments...
...Today, a quarter of a century later, it is nearly $1,000 billion— that is, $ 1 trillion, or an increase of roughly 12,000 per cent...
...What happened...
...I will even resist the temptation of recalling the Stan Freberg skit of a few years ago in which he asks everyone to stop at a certain hour of a certain day and tap dance for peace...
...A third principal component, perhaps not now so prominent as the others, is the theory of Walt Rostow (Lombardi erroneously calls him Walter) that developing societies invariably pass through five stages: "the traditional society, the preconditions for takeoff, the takeoff, the drive to maturity, and the age of high mass consumption...
...free trade") counter that building the Brazilian steel mill and the Tunisian garment factory and the Taiwanese data-processing equipment makes j obs for Americans, and to a degree they are right...
...The bankers happened to launch their maneuver at about the time that the Third World nations, almost without exception, were in trouble with the World Bank and the International Monetary Fund (IMF...
...For anyone ready to take that necessary initial step there is a new book available called Debt Trap: Rethinking the Logic of Development...
...Why do they have foreign loans...
...UN agencies are heavily committed, as are our Export-Import Bank and its counterparts in other First World nations...
...I therefore earnestly commend his book to your attention...
...The hairy details I'll leave you to read in Lombardi'sbook, only noting Wriston's fatuous dictum, "But a country does not go bankrupt...
...But Third World debt rose faster yet...
...When bank credit to Mexico stopped in 1982," Lombardi observes tellingly, "more jobs were lost in the following six months in the United States than in the three previous years of a depressed U.S...
...At least some of the borrowers were foolish like fox terriers...
...Lombardi has some horror stories to relate...
...In Africa they do not grow so much food as they used to, since many farmers have moved to the city and many more have switched to crops for export, like sugar and coffee and cola nuts...
...food is in short supply...
...Still, unless we are prepared to give our airplanes and steel mills and wheat and corn away, someone has to pay for them—that is, the loans the bankers have made for us have to be paid off...
...All of this occurred because those who count in both the First World and the Third World have been acting out what Lombardi (using an unlovely but fashionable word) terms a "paradigm...
Vol. 68 • May 1985 • No. 7
