Episode 175 – Neocolonialism and the Unholy Trinity with Fadhel Kaboub

Macro N Cheese – Episode 175
Neocolonialism and the Unholy Trinity with Fadhel Kaboub
June 4, 2022

 

[00:00:03.810] – Fadhel Kaboub [intro/music]

In the 1980s when we had the global south debt crisis, Argentina was, essentially, arguing that we’re not going to pay you. We have people starving. And Paul Volcker, at the time, essentially, told the government of Argentina, well, you must pay, otherwise your diabetes patients in Argentina will not get their insulin this month.

[00:00:27.970] – Fadhel Kaboub [intro/music]

These structural adjustment policies that the IMF and the World Bank imposed, they’re just structural in the name. They’re not meant to change structures, because if they were designed to change structures, we wouldn’t be in these traps today.

[00:01:35.110] – Geoff Ginter [intro/music]

Now, let’s see if we can avoid the apocalypse altogether. Here’s another episode of Macro N Cheese with your host, Steve Grumbine.

[00:01:43.130] – Steve Grumbine

All right, this is Steve with Macro N Cheese. We’ve got another great episode for you folks. This is my good friend, and you guys know him well. Fadhel Kaboub will be joining me today. But I want to set the stage for this very important subject. A lot of times when we talk about MMT, we frequently look at the domestic US as the center point of all things.

And Fadhel is absolutely fantastic for bringing the rest of the world into the conversation. And that’s what we’re going to talk about today. I’ve been doing a lot of reading on my own in parallel to my MMT work, and it’s just become absolutely imperative that we don’t just look at the national running of accounts, but we understand the other NGO-type organizations like the International Monetary Fund, the World Bank, the World Trade Organization, and the impact the United States neoliberal project has had on the rest of the world.

And I will start right off the bat, having recently read Michael Parenti’s book, Black Shirts and Reds, and understanding the nature of why the IMF and the Peace Corps came together with the direct goal of countering communism spread throughout the world. Now, if we think about that moment and what that did and we consider where we are today with capitalism running amok all over the world, it is so vital that people who are activists and Progressives and leftists understand the very real enemy that we’re up against. So with that, I’m bringing on my guest, Fadhel Kaboub. Fadhel, welcome to the show, sir.

[00:03:34.150] – Fadhel Kaboub

Hi. Thanks for having me back on the show.

[00:03:36.480] – Grumbine

Absolutely. There’s no reason to even introduce you at this point. You’re just like a fixture.

[00:03:42.130] – Kaboub

Thanks.

[00:03:42.720] – Grumbine

But this subject is so important to me, and I’ve always known about it, but it really became a thing after I talked with Jason Hickel about a year ago when he put it into clear terms, understanding the structural adjustments that are imposed on developing nations as they receive the (quote, unquote) “help” from the IMF. And none of this made sense. The word IMF didn’t even make any sense to me.

I’d heard about it, I had known about it because of being a libertarian. And so there was parts of me that rejected thinking about this out of hand because of my extreme dislike for a lot of the conspiracy theory stuff that is put out there; a little bit of contempt prior to investigation on my part, which is not something that looks good on anyone.

So, Fadhel, what is your understanding as a person that comes from Tunisia and has a more globalist view of the world? What is your understanding of the role of the IMF, the World Bank and the World Trade Organization? What is their purpose stated and what is their purpose in reality?

[00:04:51.970] – Kaboub

Very good question. So, Steve, you’re interested in learning about the world economic order.

[00:04:57.120] – Grumbine

You got it.

[00:04:57.720] – Kaboub

What was designed and how it’s reinforced and maybe how to change it.

[00:05:02.830] – Grumbine

Yes.

[00:05:04.090] – Kaboub

Right. So for that, we really need to go into the history of how these major international organizations emerged out of World War II. So in between the two Wars, World War I and World War II, there was these currency wars, trade wars that are happening between the Europeans, primarily under the gold standard system, because under the gold standard, if you’re a trade deficit country, you lose gold reserves to your neighbor who has a trade surplus.

So that created a perverse incentive for countries to cheat by artificially devaluing their currency relative to gold. And when they do that, they artificially make their products cheaper than their neighbor’s products. So if France did this against Germany, then Germany will end up with the trade deficit and lose gold. And as a retaliation, Germany will counter-devalue and Italy will counter-devalue and England will counter-devalue.

And it ends up being this beggar-thy-neighbor policies, they call them, these currency wars where everybody loses, essentially. So emerging out of World War II, one of the main conversations that the Allies, the winners of the war, were trying to establish is how do we avoid going back to currency wars? How do we make sure that even if a country has a trade deficit for economic reasons, structural reasons, it wouldn’t resort to triggering these kinds of currency wars.

So that’s where the IMF was designed. And here we’re talking about the Breton Woods conference in New Hampshire at the end of World War II, in which there were two competing plans. The Keynes plan, that’s John Maynard Keynes, who was representing the United Kingdom, and the White plan, which is the American plan; Harry Dexter White, at the time, representing the US.

And we ended up essentially with the White plan, with the American plan, not the Keynes plan. The Keynes plan was supposed to have the World Bank, the IMF, and an international trade mechanism, a third organization that would create an automatic balancing mechanism for international trade to avoid these currency wars and to promote full employment globally, not just country by country.

So the Keynes plan was not accepted. The Harry Dexter White plan was accepted, which is the World Bank and the IMF. The World Bank essentially was initially designed to be the bank for the reconstruction of Europe, essentially. And eventually after Europe was rebuilt, it was reinvented as an economic development bank for the global south, because in 1945, when the World Bank was designed, there were no developing countries, there were just colonies.

So by the mid 1960s, all of those colonies are now developing countries, and the world needed a World Bank for economic development. So that’s how the World Bank was reinvented, and it plays that role to this day. But it’s designed for long-term infrastructure, major projects, as opposed to the IMF, which was designed as the emergency room for financial crises, essentially for countries experiencing a currency crisis.

And that’s why most of their intervention comes in the form of loans designed to stabilize exchange rates and stabilize external debt and things like that. But, the early part of the existence of the World Bank and the IMF under the Bretton Woods system was still influenced by Keynesian philosophy. That is to say, governments have a major role to play in the economy.

Governments are meant to play a key role in building infrastructure, financing education, health. All of that was accepted and supported by World Bank and IMF policies. Until we get to the 1970s and 80s, which is a global turning point in terms of economic and political ideology with the rise of Reagan and Thatcher and neoliberal economics.

But before we get to that, there was another component of the global economic order that was emerging also, which was the GATT agreements, which eventually gave us the World Trade Organization. So the GATT Agreements, GATT stands for General Agreements on Trade and Tariffs, and eventually became what is now known as the World Trade Organization.

It’s a free trade organization, but in the 50s and 60s, in the earlier days, there was an acceptance that developing countries in particular had infant industries, and infant industries needed some level of protection, including tariffs and quotas. But the idea is that it’s temporary protection, and eventually those tariffs and trade barriers would be removed and we’ll move into a free trade universe.

The problem with the way those protectionist policies were implemented in the global south—I’ll focus on the global south—is that we spent those couple of decades of protectionism essentially building a local business elite that had monopoly power, protected by the government, that didn’t have any incentive to improve quality, improve efficiency, improve customer service.

It was just monopoly power to extract wealth from a particular country. The countries that successfully took advantage of that protectionist era were countries that imposed very strict performance criteria on their private sector. And that will be countries like South Korea or even Japan and Singapore, and that was done really under very harsh conditions by militaristic dictatorial force.

Essentially where some factory managers had to spend time in prison and some even executed if they didn’t meet the performance because it was considered treason to the nation to have all the advantages and privileges and support from the government and protection from the government with the idea that you would allow the nation to compete globally and then not to meet the challenge and risk having the nation’s industries be destroyed once you have free trade with the big countries, with Germany and the US and so on.

So it was not the free market that made Singapore Singapore, and made South Korea, South Korea. So that’s something important to keep in mind. The second thing that’s very important to keep in mind, in terms of the evolution from GATT to the World Trade Organization, was all of the trade negotiation rounds. The key sentence that is very relevant to understanding why the global south is trapped today is the following: they used to say, “free trade in everything but arms and farms.”

Free trade in everything but weapons and food, basically – agriculture. And there’s a reason for it, because as soon as developing countries moved from being colonies to independent countries in the late 50s, early 60s, Europe in particular, looked around and realized, “Uh-oh, where are we getting our food?” It’s coming from the colonies, and now they’re independent countries, and we can’t depend on them because it’s a question of not just food security, but national security also.

So that’s how food was treated. It was treated as a weapon of war, potentially, which is interesting. We’re talking about this now in the context of Ukraine and Russia. So what did Europe do and then the rest of the global north at the time? Europe introduced CAP, the Common Agricultural Policy, which is still in place to this day.

CAP was designed to, essentially, heavily subsidize European farmers to produce core staples—wheat, corn, soybeans, sunflower seeds, cooking oil, all of the core staples for food security—to produce them domestically, as in the EU system, as opposed to import them from the former colonies, from Africa and Latin America and other places. And it wasn’t just Europe, by the way. The US did the same.

Canada, the Soviet Union, which is Russia and Ukraine today, primarily, and Japan did the same. Australia did the same. So these became the major blocks of producers of the core staples, followed by a handful of other countries that joined eventually on a second rank, including Brazil and Argentina and others eventually. But those are the major producers.

And the way they did it, they heavily subsidized their own farmers to produce wheat and corn at a price that no farmer in the global south can compete with, because they’re heavily subsidized. So they drove them out of business, essentially out of the business of producing wheat and corn and the core staples. And as a result, some of them have to switch to producing other crops, cash crops for exports.

And the others who basically lost their livelihood had to move to urban areas to look for jobs in service industries, tourism, or manufacturing. And when you move from rural areas where you used to qualify as a skilled farmer, now you move to an urban area and you’re unskilled because your skills are not high tech skills or manufacturing or service. So that drives wages also down.

And that was also very convenient for international trade because now the global north is accelerating its industrialization in a different way by outsourcing the low-value-added manufacturing to the global south for “unskilled workers” to do the assembly line work. So that was pretty convenient, except there’s a transformation that stuck with us to this day, which is, the global south becomes food dependent.

The global south lost its capability to produce the core staples, corn, wheat and barley, and other core major grains. Which means, now that the global north dominates the global economy in terms of producing these grains, now it can allow prices to actually go up because you’ve killed the competition. And now your global south countries have to import it at whatever global prices prevail.

So that’s one component of it. The other—and here’s the killer—the killer is that now the global south actually has to subsidize the global north farmers. I’ll say it again, the global south has to subsidize the global north farmers because importing expensive wheat and corn and barley is socially dangerous, because if it’s expensive, your population will not be able to consume it, including your manufacturing and your tourism and your working class people, because you’re only attracting foreign direct investment.

You’re only able to compete with low-cost manufacturing because you’re underpaying your workers. And if you underpay them, they can’t afford food unless you subsidize it. So effectively subsidizing food and fuel domestically in the global south translates into subsidizing the actual producers of that food in the global north.

[00:16:45.710] – Grumbine

Wow.

[00:16:46.220] – Kaboub

So in the beginning, it was the global north subsidizing their farmers to kill the competition, and then they raised prices because there’s no competition. And now the global south can’t afford the higher prices because they have huge manufacturing and tourism industries that rely on low cost labor. So you have to subsidize the working class, which means effectively you’re subsidizing the more expensive imported corn and wheat as opposed to subsidizing your own farmers to produce it domestically.

And you get locked into this trap because of the external debt trap that is produced. So that’s the system moving into the ’70s and early ’80s. And now the global economic ideology is shifting from Keynesian-influenced philosophy to neoliberal Reagan and Thatcher “the government needs to get out of the way.”

The private sector does everything, and the government needs to privatize state-owned enterprises, implement austerity policies. And by the way austerity policies include removing the subsidies, which is the stickiest point for most countries in crisis today. How do you remove subsidies, food subsidies and fuel subsidies and face the uproar of your population that can’t afford food and fuel because their wages are low by design? Because that’s the economic model that they’re locked into from the early days after independence.

[00:18:17.650] – Grumbine

With that in mind, just knowing what I know about the banking system and reserves within the banking system and domestic currency versus foreign currency in particular countries where they lack a certain level of sovereignty, so they will peg their currency to a foreign-denominated currency like the US dollar, which is frequently used like a lot of the South American countries have done.

In particular, what is it about that arrangement that drives people to need to go to the IMF to get loans? Why do they need loans from the IMF when they are currency issuers themselves? Is it to establish the foreign reserves they need? Is it to purchase things that they don’t have access to in terms of imports? Is it to settle import balance of payment type arrangements? What drives the country to require an IMF loan?

[00:19:22.150] – Kaboub

Very good question. So, going back historically to that era of the 1950s, 60s and 70s which is when the global south external debt started to accumulate, basically as soon as they became independent, as soon as the CAP policy, the heavy agricultural subsidies, started in the global north, you operate in an economic system that is still colonial in nature; “colonial” meaning extractive because Africa wasn’t colonized because it was poor, it was colonized because it was extremely rich in natural resources.

So, day one after independence, the same extractive industries continued to dig the same mines, ship on the same colonial roads to the same colonial ports, to the same final destinations in the global north. So the economic model was based on, primarily, extraction of raw materials for export. And then eventually the type of manufacturing that was established was also extractive in the sense that it required imports of intermediate goods, capital, technology and energy, eventually, to industrialize.

And then it was relying primarily on low cost labor, which is why you needed to subsidize labor with food and fuel and cost of living, and relied on a race to the bottom in terms of labor standards, environmental standards, fiscal standards in terms of tax advantages to foreign investors. So that was the model and the exports were low-value-added-content.

So either literally raw materials with virtually no value added or assembly-line-type of manufacturing. So you have that as one primary structural weakness that gets deeper and deeper over time. Second, you move from being a net exporter to a net importer of food, thanks to CAP and heavy agricultural subsidies in the global north, and for the majority of developing countries, they also have an energy deficit and that includes actually big energy exporters like Nigeria for example.

Why? Because Nigeria exports its crude oil and imports the refined petrochemicals—gasoline and kerosene and so on. An example that Americans should pay attention to, which is our neighbor south of the border, Mexico, which is a major oil producer but imports 50% of its gasoline from the United States. So that’s what we’re talking about.

So three structural traps: food, energy, and low value-added-content of manufacturing. And when you have these three traps in motion, it produces a trade imbalance for most developing countries. And as a result, the value of your currency relative to the dollar, relative to the British pound, would depreciate. And a weaker currency means that everything you need to import the next morning is going to be more expensive.

So you’re importing inflation and especially for basic necessities like food, fuel, medicine, medical equipment, equipment for schools, or for whatever the country needs. So in order to avoid the consequences of high inflation and potential social unrest related to food, fuel and medicine, the central bank or the Ministry of Finance will typically try to artificially fix the exchange rate to the dollar or to the British Pound or to the Euro, whatever it is.

And fixing the exchange rate requires having more foreign currency reserves, which you don’t have in the first place because you have a structural trade deficit. So that’s where the borrowing in foreign currencies comes in. And it’s a Band-Aid. It’s not meant to eliminate the problem. It’s meant to artificially plug those holes and hoping for the best.

Hoping for the best, meaning that somehow the next year or the next five years or ten years, the country will somehow emerge out of those traps and become a net exporter and pay its debt and never have to go back to borrowing in foreign currencies again. So that’s how these traps started emerging. And then every loan you get, eventually, from the IMF and the World Bank, comes with these strings attached, comes with these conditional policies that you’re supposed to implement and that are supposed to be, quote-unquote, “helpful.”

And I’ll list them here, and I’ll show you why these policies are actually not helpful, but they’re actually stealth policies that are supposed to deepen your structural dependency and deepen the impact of those structural weaknesses. I’ll mention maybe a couple of them just so we know what we’re talking about. I always talk about tourism as the best example here, because a lot of developing countries rely on tourism because it creates jobs and brings foreign currency reserves.

So it’s viewed as a solution for economic growth and development and foreign currency reserves. But what we don’t recognize is that to bring millions of tourists, you have to feed them. So you import more food, you have to house them and transport them and heat and cool the hotels for them. So your energy consumption increases even more. So you import even more energy.

So, yes, you create jobs and you bring foreign currency reserves. But you also frequently lose even more foreign currency reserves via food imports and energy imports and imports of luxury goods that you need to have to entertain people and to develop your tourism industry. So that’s just an example of something that most countries themselves see as the way out of poverty. And the debt trap turns out to be actually a policy that gets you deeper in the debt trap.

[00:25:07.210] – Grumbine

No kidding.

[00:25:08.000] – Kaboub

But of course, tourism can be a net benefit if you already have food sovereignty and energy sovereignty.

[00:25:24.950] – Intermission

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[00:26:16.110] – Grumbine

Lenin’s “Imperialism, the Highest Stage of Capitalism”, chapter nine was a critique of Imperialism, and he talks extensively about taking out these loans. Now, mind you, the IMF wasn’t around in the way that we’re talking about it. But this whole concept of global finance capital was already being talked about at the turn of the century.

And what he showed was that these countries that took on these big loans, they would be fine for a year. And then by the next year, they were already losing money, deeply in debt, and by the third year, they had to take out another loan. This is going way back. I don’t know all those circumstances; you just laid out so many important facts just from the end of World War II to present.

But this mindset, this construct has been around for a very long time, and predating on groups that need credit is not new either. But these structural adjustments that we’re seeing today are particularly nefarious. Sankara said, “I can either pay your debt or I can feed my people.”

[00:27:26.730] – Kaboub

Absolutely.

[00:27:27.810] – Grumbine

And so it’s that level of slavery by a different name. This neoliberal project has created neocolonial countries, even though they’re not, quote-unquote, “colonies,” now they’re slaves to debt. And if I’m not mistaken, the fine print of these agreements is that they can’t file bankruptcy. You must pay your debt.

[00:27:52.590] – Kaboub

Right. One of the most interesting examples, just to articulate what you’re describing here, how coercive, how violent the system is. In the 1980s, when we had the global south debt crisis, Argentina was essentially arguing this, that we’re not going to pay you. We have people starving, we have a crisis. And Paul Volcker at the time, and this is on record—this is available everywhere, people can look it up—essentially told the government of Argentina, “Well, you must pay, otherwise your diabetes patients in Argentina will not get their insulin this month.” 

He literally threatened to withhold life-saving medicine from a country to force them to pay on time. So these things are pretty violent by design. But we just see a bunch of people meeting in an office with fancy furniture and negotiating back and forth, and they sign an agreement and they declare, “We’ve solved the problem and we’re going to work together to move forward.” But it’s a pretty coercive system.

[00:29:02.550] – Grumbine

The bourgeois of our society from both the US and the global elite…It’s as if they are not impacted by these things. It’s almost like casual conversations, not a big deal. I know you know this first hand, but I assure you, the more I learn, the more horrified I am. And it’s running into the juggernaut of climate crisis as well.

And this arrangement with the World Trade Organization and knowing people need to be preparing for the worst of climate change. Since we haven’t done what we needed to do to stop the carbon emissions, these countries are giving up the very things they need to survive when climate crisis hits. This is not some disjointed concept.

This is very much a handholding exercise in topics. All these things are connected, right? I don’t think most people have any idea about this. Some people may know that things are wrong, but for the most part, I see an awful lot of very comfortable people that act like, “how dare you!”—just blown away that you could be so crass and upset.

This is terrifying. People are setting themselves on fire for climate crisis. “Doomerism” is raging—we’ve got people dying in Texas by gunshot. All these are, in my opinion, outcomes of this neoliberal project, both domestically and globally. And if we don’t solve this problem, there is no chance.

[00:30:43.590] – Kaboub

Right? And first of all, Steve, you’ve learned too much.

[00:30:49.698] – Grumbine

Apparently! It’s killing me!

[00:30:50.850] – Kaboub

Yeah, so ignorance is bliss, as they say, when it comes to these things. But here’s the other thing about how this violent and coercive hierarchical global system sanitizes and tranquilizes the masses and hides effectively what’s happening. You start an entire agency for aid to the global south. You take your young and the brightest and most ambitious, and people with the biggest heart in your country, and you give them grants to go help in the global south.

But you always make sure that the help is either a band-aid or slightly better than a band-aid, but never meant to be structurally transformative. These structural-adjustment policies that the IMF and the World Bank imposed, they are just structural in the name. They are not meant to change structures, because if they were designed to change structures, we wouldn’t be in these traps today.

They’re meant to deepen the neo-colonial structures that exist. They’re meant to keep the same hierarchy that we have in the global system. And I always refer to this one number, and one particular number, so that we can test over time if we’re actually doing anything different to the structures, if we’re deepening the structures, which is the net financial flows globally.

So you take global south and global north and you net out all the global financial transactions, including trade, foreign direct investment, aid, debt cancellation, charity, remittances, all financial transfers. And you track those year after year, which UNCTAD and other organizations have been doing now for decades.

You realize that the net flow of financial resources, last time I checked, is $2 trillion moving from the poorest countries to the richest countries. So that’s how the global financial architecture and international trade architecture is designed, to suck $2 trillion a year from the poorest countries. If we were doing structural adjustment policies, that number would be declining or at least staying the same.

But the number has been increasing substantially. 20 years ago, it was $500 billion; 10 years ago, it was a trillion. Now it’s 2 trillion. And we’ll have the same conversation in five or ten years; it will be probably 3 trillion. That tells me that nothing structural has changed. If anything, structures have been deepened and reinforced.

So all the foreign aid we do, including climate mitigation and quote-unquote “help” left and right, is not doing anything to reverse the flow. Because if we’re going to tackle global poverty, if we’re going to tackle the sustainable development goals, if we’re going to tackle climate change, then we can’t do it by having developing countries spin their wheels to lose $2 trillion annually to the global north.

[00:34:06.870] – Grumbine

We know within the United States we create our own currency, and there’s a lot of countries out there to create their own currency, some that have given up that ability and are part of monetary unions. But many, if not most, countries create their own currency, and the United States government doesn’t require their currency. We create our own currency. So that’s not the issue.

Who is getting the money from the IMF? Is the IMF directly a part of the United States government, or is it just a loose union that we participate in? Who receives that money from those payments? What happens when I, as a global south person, make a payment on these debts? Where does that money go to and who’s profiting from that? Is it really about profit or is it about power? Is it about resource control, or is it about financial? What is the story there?

[00:35:03.490] – Kaboub

Yes, the IMF and the World Bank are technically agencies within the UN system, but they’re the richest kids of the UN system and the most undemocratic kids of the UN system. It’s not one country, one vote. So, the IMF charter: think of the IMF as a bank with shareholders, and member countries are shareholders, and the US holds 17.5% of the shares in the IMF, and that gives it 17.5% of the votes on any major decision.

And the charter was established so that no decision can be approved without 85% of the votes. So not 50% of the votes, 85%, which means if the US votes no, you lose 17.5%, you don’t have the 85%. So the US effectively has a veto power. So yeah, it is about power. And power allows you to control resources, financial or otherwise, and impose rules of the game on other countries.

It’s as simple as that. It’s not necessarily for the IMF itself to enrich itself. It’s for the most dominant countries within the IMF, that is the US and the EU, on a secondary role, to really control how international trade and finance is done and to control the geopolitics of the world. We’ve seen it during the Ukraine crisis.

Lots of developing countries have been negotiating loan agreements with the IMF, and it’s a very lengthy and painful process and imposes a lot of conditions that most countries find almost impossible to agree to. But as soon as the Russia Ukraine conflict started, the IMF approved a $4 billion loan to Ukraine.

[00:37:00.270] – Grumbine

Right.

[00:37:01.150] – Kaboub

Without meeting any of the criteria. So all of that negotiation back and forth about criteria is completely dismissed once there is a geopolitical interest for the US and Europe. And that’s not to say anything political about the situation in the Ukraine. It’s a horrific situation, obviously, but just on the point of these loans are based on technical economic performance criteria and policies — it’s not.

[00:37:31.470] – Grumbine

Biden is creating this Asian economic pact, and it’s a direct shot at China. I’m not sure why we want to pick on China in this respect and not find a cooperative way to work with them. But it’s quite clear that the role of the IMF going back to the end of World War II, which I think one of the things Perenti brings out is this was drawn out to ensure that we could help other countries get into capitalism before Stalin got in there to get them into communism.

And so there was a race that was part of the Cold War. So you’ve watched places like Libya trying to disconnect from US control, US dollar denominated control, places like Russia right now proving that they can get away from US dollar denominated control. What is going on there? We hear a lot of stuff about “it’s a gold bug’s fetish. Oh, gold is the answer to everything.”

And we saw Russia buy up a lot of gold reserves to keep their currency stabilized. But as they try to extract themselves away from this dollar denominated payment system, what exactly is happening there?

[00:38:48.160] – Kaboub

Well, most of these countries understand that the hegemony of the dollar has something to do with the power that the US exerts in the world economy. But their solutions typically focus on the superficial aspect of the dollar hegemony, not on the real aspect of the US dominance. And when they try to extract themselves from the global system that’s dominated by the US and the dollar system, they go to something like gold or Bitcoin or whatever.

But the first time when you start seeing a country that’s beginning to actually understand that it’s not about gold, or about the US dollar per se, is what we’ve seen with the sanctions imposed on Russia, and Russia now demanding payments for its exports in its own currency. But Russia is not there all the way either, because they’re still relying on gold.

They’re still hoping to rely on the European buyers opening Euro-denominated accounts in Russian banks and converting them to rubles, and those same Russian banks to make payments. First of all, one of the things that allows Russia even to dare demand payments in its own currency is the fact that it has food and energy sovereignty, and it has a reasonable amount of technological sovereignty that actually allows it to impose its monetary sovereignty on its buyers and as a result, use strategies to almost nullify the impact of the sanctions; and, as a result, allow it to increase its territorial sovereignty into the Ukraine.

We’re not saying it’s the right thing to do, but we’re saying this is what a sovereign country can do with its food sovereignty, energy sovereignty; real resource capabilities. Doesn’t mean that every other country should invade their neighbors and do what Russia’s doing. But the part that Russia doesn’t completely understand, in terms of use of its monetary sovereignty, is it’s still trying to stay within the international system in terms of accepting deposits and euros and then converting them to rubles.

Russia could have said, we just don’t accept any euros, period. If you want to buy it, you have to buy it with rubles and go find rubles somewhere in the world. So if you don’t have rubles and you really need to buy food or fuel from Russia, then your only option is to borrow rubles from Russian banks and to create a debt trap for the buyers, essentially.

And now once you have debt denominated in rubles, say, from Russian banks because you have to buy fuel, how do you pay your debt in rubles? Well, somehow you need to export something useful to the Russian economy and get paid in rubles and settle your debt. Well, that effectively cancels the impact of the sanctions. What will Russia import from the rest of the world?

They don’t need to import food or fuel. They need to import the high tech stuff that they need to fuel their war machine or whatever. They need real resources. They don’t need euros and dollars. And that’s why one of the first things that the Europeans said, “no way, we’re not going to pay in rubles. We have contracts in euros. We’re going to keep paying in euros.”

But under the table, apparently they are paying in rubles to keep getting the oil and gas shipments. So understanding that the choice of currency and the debt trap that gets set up for your trading partners can be a tactic used for evil purposes. I’m describing it here from the Russian perspective, invading Ukraine and keeping its territorial dominance in Ukraine.

But every other country that has similar level of monetary sovereignty uses its monetary sovereignty in a coercive way without necessarily invading the neighboring country, but demanding certain privileges in international trade. Demanding exclusive contracts, demanding payments on time, and getting you deeper into the debt trap.

So, it’s very important to recognize what that monetary sovereignty requires to begin with. It’s not something that you acquire from birth. It’s something that you earn with hard work, sometimes with natural resources that you happen to have or have control over. But it requires strategic policies. And those strategic policies can be used for good, to actually create full employment, price stability, justice, equity, fighting climate change.

Or it can be used to accumulate more power for coercive purposes, for violent purposes, for destructive purposes. It’s up to us. And this is really what MMT does. It shows us the possibilities that a sovereign country has and allows us to see clearly that some of those possibilities are helpful, good, just, transformative, healthy. And some of the possibilities that we tend to usually use are painful for the most vulnerable and are destructive and in some cases, plain evil.

[00:44:41.430] – Grumbine

Let me ask you a question, going back to one of our previous interviews where we were talking about the spectrum of sovereignty with you and Ndongo Samba Sylla, what you just stated about how various aspects of sovereignty within your nation are earned. They have to be intentionally done. They don’t just happen.

And so at the point of this conversation was really pointing out the IMF, the WTO, and the World Bank, and how they’re used as a coercive force toward the global south to keep them as slaves to the global north. If you were a global south country and you had to stare down the barrel of structural adjustments and IMF loans and you were trying to establish sovereignty for your nation, monetary sovereignty, food sovereignty, energy sovereignty, et cetera, how might you approach that in lieu of World Bank IMF loans? Have they made the IMF so important that there is no alternative?

[00:45:48.870] – Kaboub

There are alternatives, but alternatives require strategic thinking, political courage, and coordination with other global south countries. I’ll give you an example. Let’s say you have a block of 20 African countries in the same trap, facing the same issues. If we have an acknowledgement that those 20 countries as a block have 300 million consumers, let’s say, and have all the natural resources that they need for renewable energy technology, raw materials, and have a huge energy deficit, a huge food deficit.

So now collectively, they can pursue a form of industrialization that prioritizes manufacturing and value-added creation and retention of renewable energy infrastructure, water irrigation systems, and real investments that will actually build the first pillars, the building blocks of actual economic development and fighting climate change and creating good paying jobs in that market of 300 million consumers.

Then you can say, well, where we get the technological capabilities, the infrastructure. Then you say, well, who are the major countries today that actually have the manufacturing capabilities, the research and development capabilities. Who are we going to partner with? Is it Germany? Is it the US? Is it China? Is it Russia?

Then you have a block that says, we know what needs to be done to build a solid economic development model for our trading block. And you start using your economic diplomacy to find the right partners to actually help with the technological setup to get you started. Once you do that, you have bargaining chips when you go to negotiation tables with the IMF or with the World Bank or international trade agreements with the global north.

Because when you don’t have food sovereignty, when you don’t have energy sovereignty, you can’t afford to walk away from a trade negotiation table because they’ll literally tell you your people will starve. Or like Paul Volcker said, you will not get the insulin shipments this month. But when you have those first pillars of food and energy and basic industrial capabilities, industrial capabilities not for exports, but for your domestic market, because you have a large domestic market that needs plenty of that type of manufacturing.

Once you establish that, then you move to the next big ticket item in your industrial list. And that could be transportation infrastructure, high speed rail, that could be medical equipment. So you industrialize based on your needs, not based on what the global north wants you to produce for them. And that’s what we’re talking about. And it’s like moving mountains.

But it starts with an acknowledgment that the actual development model that countries are using is a model of underdevelopment. It’s not a model of development that their economies are being steered from abroad, controlled from abroad. It’s not for the benefit of their people. And that there is power in unity.

And unity, literally in the economic sense, not just in the political and geopolitical sense, in the economic sense, because a small sized country with ten or 20 million consumers can not industrialize and have economies of scale necessary to actually industrialize successfully unless you have access to an export market.

And today you’re just not going to compete with Germany or Japan or the US when it comes to exports, on cost and quality, on brand name recognition, all of that is already working against you. So you have to look to the global south for partners who can complement your resources and capabilities and industrialize together by building collective resilience within that block of 20 countries. That’s how I would lay it out.

[00:50:02.970] – Grumbine

That’s absolutely magnificent. I just want to give a quick shout out to Aqdas Afzal, who talked to us about this a few weeks back, from a Pakistani perspective; all this is incredibly important stuff. Fadhel, I really appreciate you taking the time to do this. I don’t suspect this is the last time I’m going to want to talk about this subject. I think there’s a lot more here, and I really appreciate you taking the time to talk to me about it today, sir.

[00:50:28.880] – Kaboub

Thank you. It’s a pleasure.

[00:50:30.110] – Grumbine

You have a great day. And folks, this is Steve Grumbine with my guest, Fadhel Kaboub with Macro N Cheese. We’re out of here.

[00:51:02.230] – End credits

Macro N Cheese is produced by Andy Kennedy, descriptive writing by Virginia Cotts, and promotional artwork by Andy Kennedy. Macro N Cheese is publicly funded by our Real Progressives Patreon account. If you would like to donate to Macro N Cheese, please visit patreon.com/realprogressives.