The blood bankers
by Andy Worthington
[ bookreviews ]
As an attorney, former chief economist at McKinsey and Co, and now an investigative journalist who has spent 10 years researching corruption and injustice in 50 countries, James S Henry brings an unusual breadth of experience to this devastating critique of global economics. Over 400 pages of densely-packed information (sometimes poorly proof-read, as if propelled by its own indignant momentum), he exposes how, between 1970 and 2003, over three trillion dollars loaned to developing countries by First World banks and governments disappeared, leaving "little to show... except giant white elephant projects, widespread corruption and private elites that had learned to stash much of their liquid wealth back in the First World".
The "white elephants" that Henry refers to were the gigantic aid projects of the 1970s and 1980s - dams, nuclear power stations and highways, for example - which typically went hideously over-budget and involved widespread corruption and environmental destruction. By the end of the 20th century, 45,000 dams had been built in the developing world, costing a total of two trillion dollars and displacing up to 50 million people. Often the projects failed to work adequately - a problem afflicting a large number of the dams and the nuclear projects - and in a few cases were not even built at all. Henry repeats a popular story heard in many countries, which underlines how corruption became particularly enticing when the projects involved billions of dollars:
"An official visits his friend, an official of another country, who has an impressive estate, fancy cars, and a collection of polo ponies. 'Confidentially, how did you get so rich?' the first official asks. 'I will show you', says the second. He takes his friend on a drive to a huge dam. 'See that project? Fifty per cent.' Later, the second was visiting the first, who had an even more impressive estate. 'Confidentially, how did you get so rich?' the second asks. 'I will show you', says the first. They take a drive to a river where a major dam was supposed to have been built. 'You see that dam?' the first official says, pointing to the completely unobstructed river. 'One hundred per cent'.
By the end of the 1980s, the countries of the developing world were saddled with a debt burden significantly greater than that of 20 years before. Henry notes that the situation was not aided by swingeing cuts in aid budgets following the end of the Cold War, as the West immediately grew more selfish. It was not until 1992, however, when development experts at the World Bank and the International Monetary Fund came up with the Washington Consensus, that a new agenda for global trade and aid was established that was to cripple the economies of the developing world even more thoroughly than the "white elephants" of previous decades. It was this agenda of 'free trade' and 'neo-liberalisation' that finally began to awaken indignation in parts of the First World, drawing hundreds of thousands of protestors and campaigners into the 'anti-globalisation' movement, whose efforts are noted approvingly by Henry, even though he feels that much of it has "dealt in generalities, lacking the gory investigative details required to drive the critique home".
Nevertheless, the key demands of the Washington Consensus - whether seen from the perspective of the youthful protestor or the seasoned investigative journalist - are easily recognised as a new and particularly grotesque manifestation of western imperialism, centred on demands for the rapid privatisation of state enterprises, accompanied by an equally rapid opening of capital markets to foreign capital, the immediate removal of price supports, agricultural subsidies and restrictions on imports, a relaxation of minimum wage laws and trade union rights, and a sharp reduction in government budgets - except, of course, for interest payments on foreign debt.
The result of these reforms - at best ill-advised and at worst simply brutal - is that First World banks, companies and governments have fostered the rise of "a new, highly efficient global haven banking network", which has facilitated 'capital flight, money laundering, privatisation rip-offs, and corruption on an unprecedented scale'. Henry points out that the developing countries' capital markets were very deliberately opened up to foreign capital "whether or not there were adequate security laws, bank regulations or tax enforcers in place" and explains how capital flight alone took care of at least half of the total money loaned - one and a half trillion dollars - which went straight back out again to tax havens. He quotes a Federal Reserve official: "The problem is not that these countries don't have any assets. The problem is, they're all in Miami". Florida's banks have certainly accrued an enormous amount of ill-gotten loot, but leading banks, financial organizations and corporations in many other countries - including Austria, Belgium, France, Germany, Holland, Italy, Japan, Switzerland and, last but by no means least, the UK - are also heavily implicated. As the author makes abundantly clear, "Most of that thievery could not have occurred without the active assistance of leading First World banks, contractors, vendors, multilateral lenders, advisors and governments".
Henry shows how countries that have embraced the neo-liberal 'cure' have suffered a complete collapse of economic and political development, accompanied by soaring unemployment and inflation, the bankruptcy of the public and private sectors, sharp increases in famine, malnutrition, disease, environmental damage, social violence and corruption, and the revival of anti-democratic movements and terrorism. He concludes that "there is virtually no example to date of any country that has pursued the 'big project paradigm' or the neo-liberal development paradigm that has emerged with a developed economy, much less a liberal democracy", but that there are plenty "that have ended up as virtual basket-cases by taking these half-baked, quasi-religious paradigms too seriously."
The "basket-cases" looked at in depth in this book are primarily in the Americas - Argentina, Brazil, Chile, Mexico, Nicaragua and Venezuela - although there are also rewarding examinations of the plundering of the Philippines and the singular disaster of Iraq. It is in this last chapter, clearly written in the first few months after the invasion of March 2003, that the author is able to show the greed and deviousness of the First World at its contemporary worst, as he gallops through the sorry tale of Iraq, Iran and Afghanistan - the US and the UK helping Saddam Hussein to power in the 1960s; the US provoking the Soviet invasion of Afghanistan in 1979 to prevent them focusing on Iran; the provision of over $2 billion in military aid to Osama bin Laden and the mujahideen between 1980 and 1988; the eight-year debacle of the Iran-Iraq war in those same years, when massive debts were accrued by both nations ($100 billion in Iraq, $80 billion in Iran) and similarly massive profits were accrued by a familiar litany of Western companies (as well as others in Brazil, Chile, China, Israel, North Korea and the Soviet Union) who provided arms and supplies for chemical and biological weapons; the volte-face in 1991, when a desperate Saddam invaded Kuwait; the horror of the US- and UK-backed sanctions and aerial bombardments of Iraq in the 1990s; and the final irony of the illegal invasion of Iraq in 2003, when, as Henry describes it, "the 'Operation Iraqi Freedom' liberators... discovered that a majority of the long-repressed people they had just liberated were devout Shi'as, just as in Iran" and that "The first thing they did was to hold mass demonstrations, demanding that the US leave their country".
Finally, although Henry states that his intention in The Blood Bankers is mainly to discover where the three trillion dollars went, he does not hesitate to propose his own prescriptions for change. He recognises both the dangers and the hypocrisy of the current system, at one point commenting that "The hatred bred by the real 'WMD' - outrageous poverty and inequality - are only a plane or a boat ride away", and recognises that for the developing world to overcome this man-made tragedy, it is not only they that will have to be reformed. He proposes a radical overhaul of current international economic policy, with workable strategies for encouraging accelerated global debt relief and reforming the global 'haven banking' system, going so far as to pose the question of "why the huge proportion of the Third World's multi-trillion dollar debt that was contracted illegally and spent on failed projects and elite bank accounts deserves to be serviced at all". He also writes admiringly of the countries that have begun their own grass-roots resistance to the neo-liberal plague, a list that includes the former 'basket-cases' outlined above, as well as Bolivia, Columbia, Ecuador, Indonesia, Kenya, Malaysia, Peru and Thailand. And the good news for those who wonder if writing leads to action is that his investigative work has already assisted in the conviction of Manuel Noriega, the recovery of assets stolen by Alfredo Stroessner in Paraguay, and the identification of loan money diverted to Ferdinand and Imelda Marcos through the Philippines Central Bank.
