The Development of Underdevelopment

by Victor Martinez

The majority of the Earth’s wealth is derived from the continents of Africa, Asia, and Latin America. These continents are also inhabited by some of the most impoverished people in the world. In order to understand this glaring contradiction, we must understand the historical roots and current state of the global economy. Earth’s richest land masses have historically fallen victim to military conquest and subsequent colonization. Confiscation of valuable resources and the surplus value of the subjugated masses’ labor are no longer exclusively administered through the barrel of a gun, but through global financial institutions. These institutions were created by the conquering social forces to lock the third world in a cycle of dependency.  Low wages, primary product exportation, high cost consumption of value added industrialized imports, and perpetual debt accumulation is the prescription for development assigned to the third world. Global trade is dominated by institutions and interests whose policies overwhelmingly favor a handful of private producers. Globalization as administered by the International Monetary Fund (IMF), World Bank (WB), and World Trade Organization (WTO) has intensified the skewed distribution of wealth and devastated the populations of lesser developed countries (LDC’s). In order for exploited nations to develop, they must identify the causes of their impoverishment and take measures to counter both the social forces and the institutional structures that perpetuate their impoverishment.

The IMF, WB, and WTO were entrusted with the preservation of a global economy dream that would become the nightmare for lesser developed nations worldwide. The IMF was designated to preside over a system of fixed exchange rates and international uniformity among them. Fluctuating currency values were seen to be instrumental in the collapse of economies prior to the IMF. When a nation ran into debt problems it would devalue its currency in order to decrease the debt. During the years of depressions this practice became so common that it would incur hyperinflation and result in a devastated economy with worthless currency. To avoid this from reoccurring, the IMF was to oversee global currency values.  It also acted as a lender to countries that came into financial woes. These loans were required to be paid back within the span of five years; they came to be characterized by strict criteria to be met and concessions to be made to the lending institutions in order to be approved. These conditions were called Structural Adjustment Policies (SAP’s). These SAP’s, according to the IMF, were designed to make sure the borrowed money was used in a manner that would ensure reaching the goals of the loans. SAP’s usually consisted of general market liberalization policies that would ensure the freedom of foreign capital investment. State owned enterprises were privatized; trade barriers eroded, currencies devalued to lower the price of exports, and government intervention in finance was prohibited. These policies boosted profits for multinational corporations from the west that did business in the LDC’s yet resulted in devastating their local producers and wages. The idea of SAP’s violates the national sovereignty of a nation by allowing a foreign organization to manage the national economy. Long term loans for development were handled by the WB. Originally known as the International Bank for Reconstruction and Development, the WB was intended to facilitate European reconstruction with smaller interest rates than offered by commercial banks. European reconstruction did not produce enough capital to satisfy the need for markets to feed America’s flourishing industry. The U.S. opted to enact the Marshall Plan instead, which gave Europe grants for reconstruction instead of loans. The WB turned its attention to the newly independent nations seeking to kick off their industrial revolutions, however, the bank and its leading financiers had other goals in mind. In order for these institutions to take advantage of global markets, the WTO was established to decimate any obstruction to the free flow of international investment, extraction and flow of capital. The WTO has legal powers it can invoke to enforce compliance. It has imposed punitive trade sanctions that have reached one hundred and fifty million US dollars in annual losses. These institutions systematically exacerbate global poverty and are primarily responsible for the third world as we know it today.

The IMF, WB, and WTO embody a switch from iron chains to economic oppression in order to cultivate an exploited work force that works to maximize private profits with little to no regard for public necessity. The IMF is funded by its member nations who gain clout within the organization relative to the money they invest, making IMF policies biased by nature. The countries that can afford to invest the most money into the IMF, control currency values and markets all over the world. This has led to industrialized countries controlling 60% of the vote and the United States becoming the only country to control enough of the vote to enjoy veto power over IMF policy decisions. The US holds a disproportionate amount of influence over IMF policy and it is reflected in the policies and results of the IMF, WB, and WTO interventions. In order for a country to get a loan they must allow the IMF to adjust economic policy to ensure investment security. This has resulted in US corporations deciding how a country will develop its industry, which is against their best interests if they want to create effective competition. The IMF blames the third world’s financial crisis on excessive import consumption and inadequate export demand. The IMF’s solution is to cut social spending and devalue the currency. This is supposed to slow the economy so that import demand is stifled, and because of the devaluation, demand for their now cheaper exports will sky rocket. This elaborate plan puts lesser developed nations in a position where their national currency is worthless, exports bring in no substantial revenue, and their population is deprived of investment in their quality of life. The aggravated financial situation puts the debtor nation in a position where it needs more loans to stave off further inflation of interest rates on the previous loan. The loans lock nations in a cycle of dependence and ever growing debt. The liquidation of domestic trade protection allows multinational corporations to compete directly with local producers and subsequently puts them out of business. With the market attached, the LDC is now dependent on the industrialized company for goods that were once produced domestically. It is a monopoly on industry and freedom. The barriers to freedom are not exclusively economic; there are key political issues that must be resolved in the pursuit of development.

The IMF’s best costumers have been innumerable dictators imposed on underdeveloped nations, primarily with US aid. These dictators accrue astronomical figures in debt and siphon off a significant percentage of it into their personal accounts. They leave the national economy crippled for decades after their departure or overthrow. The military dictatorship that presided over Argentina (1976-1983) borrowed forty billion in US dollars and the country has no account for eighty percent of it. Regardless of the fact that the military regime was not voted into office, the population is still responsible for paying the debt with interest. With popularly elected governments that make it a goal to stabilize economic growth, the lesser developed nations should be able to crawl out of debt using the vast resources located in some of the biggest debtor nations. It seems logical to stimulate domestic production through protectionalist measures like import tariffs, controls on capital expropriation, taxes on foreign industry, and subsidies for domestic producers. These measures would protect domestic industry by leveling the playing field so that domestic producers could compete. Furthermore, capital expropriation laws combined with taxes on foreign industry would ensure that the economy holds on to most of the capital it is responsible for producing. The US did this under Alexander Hamilton’s plan for economic development. This put the relatively uncompetitive US on the map of economic world powers.  These policies, however, are strictly forbidden by the WTO. The WTO can levy punitive fines and detrimental sanctions against any nation that obstructs the free movement of capital. The “national treatment clause” prohibits a country from discrimination against foreign products on any grounds. In effect, the WTO tells the LDC’s that they cannot develop in a manner that has proven itself successful in the industrialized countries. Instead, they are to follow economic theory developed by the people who stand to gain from their loss, their very own competitors. The globalized economy has become a system of extortion, terrorism, and a large scale mafia operation.

Victor Martinez was raised in the Silver Lake neighborhood of Los Angeles by his single mother. His family on my mother’s side comes from Guatemala and is Maya Quiche, indigenous to the Quetzaltenango highlands. His father is from El Salvador with mestizo roots. He is a transfer student at Los Angeles City College (LACC). As a political science major, he aspires to utilize his devotion to social justice and address the issues pertinent to his community on a national and international level. The problems he faced as a child were not specific to the “Latino” demographic that inhabits Silver Lake. They are inextricably linked to the social struggle of all underprivileged people of every color and in every corner of this planet. As a college student he has dedicated his free time to join popular movements. He is a charter member of the Students for Sensible Drug Policy (SSDP) chapter at Los Angeles City College; he volunteered in Guatemala with Asociacion Mujer Tejedora del Desarrollo (AMUTED) under Rosy Queme, he was a member of Committee in Solidarity with the People of El Salvador (CISPES) under Celina Benitez, and has organized with the Pasadena chapter of the Farabundo Marti National Liberation Front (FMLN) under Juan Jose Aguilar. Victor serious about what he does and strives to develop himself in order to be in a position to offer something to the social justice movement.

Victor Martinez can be contacted via email/facebook at Kaibaman510@gmail.com.