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Notes and Review - A Game As Old As Empire (Hiatt)

19 Apr 2020 book-review · capitalism · economics · neoliberalism

Review

This book is everything that it claims to be on the book jacket. It “uncovers the inner workings of the institutions behind these economic manipulations”. In particular, it looks at some of the incredibly global institutions that are name dropped in a lot of contexts: World Bank, International Monetary Fund and the World Trade Organization. There are several stories here about loans that were given to countries which were supposed to build schools or upgrade the city hall building of a bustling city or one of a myriad of other reasons but never did that or help the people the money was supposed to help in any way.

I must admit that it was a pretty shocking revelation at several points. In particular, we get stories from the people in the field, the rank and file of organizations like the World Bank who are going abroad to assess if a given loan should be sanctioned or a banker who used to work in an island that was being used for offshore banking.

They tell stories about how their job affected the places that they were working in or the places they went to in Africa (this book focuses a lot on some countries in Sub-Saharan Africa) or about the ways in which the management and people above them were basically apathetic to the consequences of the things that their jobs were enabling. These stories are all backed up with actual data from reports or news articles which show the outcomes of the things that are discussed.

I particularly liked that the book doesn’t work as a list of testimonials where the reader is simply supposed to believe the people who are telling the story and the editor and not really question where they got their data. This was a refreshing non-fiction book about global economics, in that sense.

I learnt a lot of things about the global economy. The chapter on offshore banking in Jersey, Englang, the chapter on exploitation of the Iraqi people and government in the name of “Production Sharing Agreements”, the chapter about the strange policies that were implemented in Philippines despite continued realizations at different levels of the heirarchy that whatever they were doing was simply not working.

The most important insights for me came in the 11th Chapter by James S. Henry, The Mirage of Debt Relief. This chapter really shook me and my assumptions about national debt. I didn’t know much about national debt before I started reading the book, but my belief was that having high foreign debt was quite common in most economies and that it wasn’t really something to think much about because “banks and governments don’t default on loans”! This assumption of mine was completely blown out of the water by the things that Henry shows in this chapter.

On the Debt/Capital Flight cycle

Debt goes to the Finance ministry of a government with no oversight or accountability to the tax payer.

The existence of this cycle might appear to be semi-obvious if you have followed the trajectory of some countries and their economies: They get huge loans from the World Bank or from a group of foreign lenders, but the money never ends up making any difference. Eventually, the country gets a follow-up loan or everyone gives up on the country’s economy. Corruption and transparency issues are pegged as the root cause of this problem.

Here’s the sitch: The debt-based development model doesn’t work when it comes to low-middle income countries where the government is a weak institution and almost always over-run by corruption.

The World Bank model of neo-liberalism peddles the “free-market” as the silver bullet which is going to solve all the problems that plague the lower income economies of the world. But the problem with this model is that it is focused on lending to the government, reducing the government’s role in the economy, bringing in private players for local services and foreign investment for new industries, effectively reducing the government to a license-issuing institution with no real power to set policy or even the minimum wage that should be paid to citizens or even control the amount of local labor that must be used for a given project.

In search of the free-market, the government has just accepted World Bank advise and reduced it’s own role and made itself weaker. This makes it even more simpler for corrupt individuals to take over the government and fleece future and past loans even more efficiently! This kicks off the cycle which leads to a small elite who control the government, are extremely rich, keep their assets safely in First World economies in offshore investments, thus ensuring that anyone that the loan was originally meant for will never benefit from it.

Export Credit Agencies

The list of projects that were funded by ECAs from across the First World is quite long and each project has it’s own problems. As the author of this chapter (chapter 10), Bruce Rich, introduces a lot of issues with ECAs: Lack of oversight, lack of accountability to the tax payer even though they can enjoy the benefits of tax money and the government’s clout, an impenetrable curtain of secrecy that ensures that they don’t even have to publish the list of projects that they approved and funded! The author uses a phrase that can be used in several situations including while describing the development that was supposed to come from the huge loans that have been sanctioned over the past few years to the lower income countries:

perpetually around the corner

There are some important numbers and a little bit of discussion about why China, India and Korea had some structural, geographical and political advantages and thus were able to mostly ignore advise from the IMF and outright reject the neo-liberalism that is being peddled as the “road to development”.

I could not find anything problematic about the book. The sources are extensive and most of the facts that are not just personal experiences are backed up with official sources. My reading list after reading this book has a couple of papers about ECAs and how economists in the First World view them. The one thing that might threw me at first was how old all the data was. Reading the introduction gives some background on this, it appears as if this book has been around for a while but wasn’t published by anyone because no one wanted to touch a book that was flaty critical about the global economic system and what had basically become a cartel of the richest countries bending loans and lower income countries to their will.

Quotes

China and India alone account for about $500 billion of this developing country “present value debt.” Both countries have been careful about foreign borrowing, and they have also largely ignored IMF / World Bank policy advice. The result is that their foreign debt burdens are small relative to national income. Both countries – partly because they refuse the follow orthodox neoliberal policies – now have high growth economies and large stockpiles of foreign reserves.

– p.222

The fundamental problem, glossed over by some debt-relief campaigners and conventional “end poverty now” economists, is that comabting poverty is not just a question of providing malaria nets, vaccinces, and drinking water, or incremental increases in education, capital, technology and aid. Ultimately, as China’s example shows, long-term poverty reductions requires the promotion of deep-seated structural change. This implies the redistribution of social assets like land, education, technology, and political power. These are concepts that BWI [Bretton Woods Institutions] technocrats may never understand – or may recoil from in horro. But they are the root of every major development success story that we know.

– p.254

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