Capitalism and Colonialism - what's the relationship?

For years I have wondered about the historical context is that has created the world in which we live. I’ve explored it from the context of maritime history and anthropology, but this the first time looking at it through the lens of economics. Having said that, it is often difficult to know what the causation of events are. We humans are very gifted storytellers and create wonderful narratives to draw correlations between events. Then those stories propel us forward, seemingly providing legitimacy for our future choices.

This leads me to something Jill said in one of our first classes. She posited that there was a relationship between colonialism and capitalism. In Capitalism: A Very Short Introduction James Fulcher talks about 3 stages of capitalism in Britain. I can't help but notice that the first stage, Anarchic Capitalism (pg. 38), began as Britain became a naval superpower sailing around the world claiming land, resources, and people.

During the second stage of capitalism, Managed Capitalism (pg 41), most of the world's land was controlled by a powerful nation-state with a military to defend borders and trade. And the third stage, Remarketed Capitalism (pg 47), took place post-WWII when many former colonies gain independence.

In the 1970’s and Remarketed Capitalism old colonizers shifted from Keynesian ideas of big government and unions, low unemployment rates, and high taxes to new ideals of free-markets, low taxes, and low inflation. They then took these ideas and infused them into International Monetary Fund (IMF) and the World Bank lending practices. As told by the documentary Life and Debt, these newly independent countries needed money to pay bills, but had little money to do so. The only institutions willing to lend them money required countries, such as Jamaica, to undergo huge social and economic changes based on neoliberal policies. To be eligible for IMF loans Jamaica was forced to open their markets to foreign trade, increase inflation rates and stop subsidizing local goods and services. As a result potatoes, milk, and meat grown in Jamaica cost more to purchase than American subsidized potatoes, milk and meat imported from the US. England gave Jamaican bananas preferential treatment so that they were cheaper to purchase in England.

As a result, the infrastructure to grow milk cows, chickens, and potatoes were taken over to growing bananas. Bananas were the only Jamaican food that the old colonizers wanted to eat, thus Jamaica’s agricultural diversity was crippled and ability to effectively feed themselves abolished.

In Globalization: A Very Short Introduction Manfred Steger discusses the ways in which globalization itself has been converted into a commodified ideology. One of the main tenets of this ideological argument is that globalization (the process) and free-markets benefit everyone and spreads democracy. According to Steger, in 1989 more than half of all imports to the US from the global South were from democratic countries. Yet in 1999, ten years later with more democratic countries in the world, the US trades with fewer democratic countries from the global South. Almost two-thirds of all imports from the global South come from dictatorships where wages are lower, unions are less prevalent, and environmental laws are less stringent (pg. 111). This brings up the question, how do free-markets and globalization really support democracy and who is really benefiting?

Another main tenets supporting globalization is that it is inevitable and irreversible. This has the effect of de-politicising the conversation and perpetuating colonialist mindset that justified stealing land, resources, and people. When globalization is described as unstoppable it ends up furthering the erroneous 19th-century notions that there are “inexorable laws of nature favouring Western civilization, the self-regulating economic model of perfect competition, the virtues of free enterprise, the vices of state interference, the principle of laissez-faire, and the irreversible evolutionary process leading up to the survival of the fittest” (pg 101).

A number of big changes happened in the global North during the 1970’s. There was high inflation, low economic growth, national deficits, energy crisis and a number of major political shifts (Globalization, pg 39) and there was increase international competition (Capitalism, pg 48). Both books seem to agree that these crises lead to changes which ultimately transitioned away from Keynesianism and towards neoliberalism. These changes in the global North, which required the heavy hand of government to implement, were also forced on to countries in the global South looking for IMF and World Bank loans.

The question I keep coming back to why did the global North think that what they thought was the best economic path forward for the North, would also be good for the global South? What are the correlations that policy makers mistook for causations? Did they think that by resorting to a kind of “free-market” cowboy mentality of 18th-century Anarchic Capitalism would jump start national and global economies, which was based on a time when unrestricted growth was fueled by theft and poverty in so much of the world? Or were policy makers hoping that by controlling economic policy in independent countries they could control international competition in a way that benefited them?

It seems to me that erroneous mental models set into motion centuries ago are still playing out today. And their effect, as seen through colonialism, neoliberalism, and free trade are just perpetuating old power relationships. It is necessary for us to understand these mental models if we are to find powerful leverage points to make profound changes.

What do interest rates, inflation, and unemployment all have in common? I'm not entirely sure

This post is my attempt to draw the connections between all the bits of information we’ve been reading and the very real effects these ideas have on people around the world. I’m not entirely sure that I’ve got a solid grasp on these concepts, but I need to start somewhere to see how these ideas are interconnected.

Let’s start with money. According to Chris Martenson money (US Dollars) is loaned into existence. This happens a few different ways. One way is at my local bank. When I deposit $100 into my local bank they can loan out a certain percentage of that money, let’s say $90, to my sister. Bam, they just created $90. Now there is $190 in existence. I have $100 in savings and my sister has a $90 loan.

Building off that idea is the next concept, interest. Interest is the cost of borrowing money. When money is cheap (interest rates are low) people “buy”, or borrow a lot of it. When money is expensive (interest rates are high) people don’t borrow very much of it.

Inflation happens when there is more money in the marketplace than there are goods and services. What is one way that money is made? Loans from banks. So it stands to reason that when money is cheap (low interest rates) inflation will be higher. When money is expensive (high interest rates) inflation will be lower. Regardless, money is usually being created either at a faster or slower rate, that means that my dollar today can buy me more things than my dollow next year can buy me. So, I should buy now while my money is worth something. As Chris Martenson says, “inflationary money regimes impose a penalty on savers. The opposite side of this is that inflationary money regimes promote spending and require that money be invested or speculated, so as to at least have the chance of keeping pace with inflation.”

Unemployment….this is where things get fuzzy for me. Manfred Steger and Ravi Roy in Neoliberalism say that a main tenet of Reaganonomics and Thatcherism was low levels of inflation was more important than achieving full employment (pg. 20). This leads me to believe that inflation (and thus interest rates) are tied to employment levels. Why? Perhaps when money is cheap (low interest rates, high inflation) it is easier to spend, so people hire more labor? So, when money is expensive (high interest rates, low inflation) money is hard to come by so people are laid off? I’ll go with “yes” for now.

Exchange rates between countries is the last piece of the puzzle. When a country’s currency has high inflation, their currency is worth less compared to a country with relatively low inflation. This means that goods and services from a country with high inflation are cheaper than in countries with a relative low inflation.

It seems like economies are on teeter-totters trying to balance growth and employment on one side and low-inflation and cheaper foreign goods on the other side. Both are enjoyable, but it’s difficult to have them both at the same time.

If all my ponderings are true, then it seems that the cycles of boom and bust, employment and unemployment, are ways in which the system is trying to find balance. I will say that it certainly sucks to be a piece of wood caught in the economic tide as it moves back and forth, but I am happy that I am learning to see the broader system and how it moves.

I look forward to seeing how these concepts tie into trade deficits and national debt. Then I look forward to taking that knowledge and diving in deeper to the question Jill raised in one of our first classes - what is the relationship between capitalism and colonialism. Which brings me to my final question for the evening - what is the relationship IMF policies and economic policies-du-jour in old colonial powers.

“They” say knowledge is power. Bring it on.