Neo-Colonialism and Modern Economic Institutions

14 minute read

On July 2nd, 1997, the government of Thailand floated its national currency, the Baht, untethering it from its fixed exchange rate with the US dollar. Unbeknownst to policy makers at the time, this decision was a critical tipping point in an already burgeoning economic crisis in Thailand. It would go on to set off a chain reaction of devaluation and capital flight that, in just a matter of months, would decimate the economies of most of Southeast Asia. As a result, visions of the so-called “Asian Economic Miracle” formerly touted by international financial organizations dissolved under the present reality of regional economic tailspin. In response to the crisis, the very same financial institutions that once upheld these markets as models of development in the third world, quickly stepped in with a series of loans aimed at re-stabilizing these “developing economies.” However, these loans came with steep tradeoffs.

From the Western perspective, these economic issues had arisen not because of over-speculation from Western investors, but because the collapsing Asian markets were not “Western” enough. In the words of Alan Greenspan, Chairman of the Federal Reserve at the time:

The current crisis is likely to accelerate the dismantling in many Asian countries of the remnants of a system with large elements of government-directed investment, in which finance played a key role in carrying out the state’s objectives. Such a system inevitably has led to the investment excesses and errors to which all similar endeavors seem prone…

In western developed economies, in contrast, market forces have been allowed much freer rein to dictate production schedules…

Alan Greenspan, 1997

Accordingly, the International Monetary Fund (IMF) intervened in the Asian crisis by distributing aid through a series of conditional loans and Structural Adjustment Programs (SAPs). These so-called rescue programs came with highly specific policy instructions that receiving nations were forced to adopt in order to collect money. Broadly, these SAPs required governments to maintain high interest rates, implement severe austerity measures (cut public spending), increase privatization, deregulate large sectors of the economy, reduce tariffs, and weaken restrictions on foreign ownership and investment. In other words, these economies were pressured into an increasingly Westernized economic model, characterized by liberalization of the “free market” and increasing reliance on volatile global financial relationships.

As Alan Greenspan expressed one year later in 1998, the greatest effect of the Asian crisis was a global move toward ”the Western form of free market capitalism.” In his words, ”What has happened here is a very dramatic event towards a consensus of the type of market system which we have in this country.”

Beyond the macroeconomic effects, the IMF has also been criticized for the conditions under which the Thai government was allowed to use the rescue funds. According to the loan agreement, all 17.2 billion dollars could be used “solely to help finance the balance of payments deficit and rebuild the official reserves of the Bank of Thailand.” In other words, this money could not be used to bail out local institutions…but could be used to pay off huge foreign debts in the private sector.

With all this in mind, a concerned citizen may feel obliged to ask: What exactly were the IMF’s goals in this crisis? Did they aim to help nations establish economic independence; or did they intend to reinforce colonial cycles of dependency and inequality? At the end of the day, in whose interests were they truly acting? Regardless of intent, the net result of these policies has been to systematically benefit so-called developed nations while reinforcing structural inequalities on a global scale. In this article, we’ll continue to explore these imbalanced power relationships, looking at specific cases from countries around the world to examine the lasting imperial influence that the global North exerts on the global South.

Neo-Colonialism and Its Instruments

In the early sixties, Kwame Nkrumah, the former president of Ghana, coined the term neocolonialism to describe economically dominant countries’ continued exploitation of recently liberated African nations. Calling it “the main instrument of imperialism we have today,” he defined the neocolonial relationship as one in which “the state which is subject to it is, in theory, independent… In reality its economic system and thus its political policy is directed from outside.” During the wave of African independence movements in the decades following WWII, Nkrumah observed that traditional methods of colonialism had merely been replaced with new instruments of imperialism. Instead of the true independence these African nations had hoped to achieve, many countries found themselves enmeshed in a tangle of financial and political obligations and power structures that merely continued former colonial subjugation, if only through more roundabout means. Over time, this term has come to extend beyond Africa, describing relationships of indirect control between nations in all parts of the world.

Within a neo-colonial relationship, the imperialist nation may attempt to exert control by a variety of means.

Economic Institutions

Bu… bu, but we can’t be imperialist, look how happy everyone is on our website!

In 1944, representatives from the 44 allied nations of the UN met in New Hampshire for the Bretton Woods Conference. The goal of the convention was to rebuild global economic relations in the post-war world. From this meeting, two international institutions arose as arbiters of this new financial order: the IMF, the World Bank, and what would much later become the World Trade Organization. The purpose of these organizations, beyond promoting global stability in economic relations, was to give loans to developing countries in order to foster economic growth. However, as we saw in the case of Thailand in the 1997 Asian Financial Crisis, these institutions have become deeply problematic forces of neo-colonialism.

Rather than promoting lasting stability in developing countries, these organizations serve to perpetuate the subservience of the so-called third world by implementing policies that ensure economic fragility and dependence on Western markets. This has already been discussed in depth through the example of Thailand, but for a brief summary here: the IMF and World Bank dole out money to countries in crisis through either conditional loans or Structural Adjustment Policies. These types of agreements force developing nations into adopting free market policies that, by and large, result in the Westernization of their economies. This economic liberalization opens these countries up to western investment which predominantly favors extractive economic processes. As Che Guevara summarized in a fiery 1961 speech:

We are countries whose economies have been distorted by imperialism, which has abnormally developed those branches of industry or agriculture needed to complement its complex economy. ‘Underdevelopment,’ or distorted development, brings a dangerous specialization in raw materials, inherent in which is the threat of hunger for all our peoples.

Che Guevara

Political Manipulation

This strategy of neo-colonialism entails direct interference into the politics of the targeted country. In some cases, a neo-colonialist country may fund or support oppositionary political groups to prevent popular parties from passing unfavorable policies. At its most extreme, the imperialist nation may even directly stage a coup to remove a non-compliant leader. One particularly striking example of this comes from the US-orchestrated coup of the democratically-elected Guatemalan President Jacobo Árbenz in 1954. What makes this example so egregious is that one of the primary reasons for the overthrow was to support the exploitative labor practices and political manipulation of the United Fruit Company (UFC).

In 1951, Guatemala held democratic elections for the first time in its history, electing Juan José Arévalo as the country’s first president. During his term, Arévalo introduced a national minimum wage and near-universal suffrage. His presidential successor, Árbenz, took these radical policies one step further by instituting a land reform program that granted property (formerly owned by UFC) to landless workers. These measures proved disastrous to UFC, who had dominated the country’s politics for decades, controlling the country through a series of pliable dictators. To demonstrate the highly preferential treatment UFC had received from former dictatorships, at one point, the government had even requested that UFC set their maximum daily wages at 50 US cents so that workers in other companies would be less able to demand higher wages. Democracy, on the other hand, threw a wrench into their plans.

Jacobo Árbenz, Bane of Bananas and Defender of Democracy

So, UFC began to lobby the United States government. In the end, they spent over half a million dollars on a PR campaign that eventually convinced both lawmakers and the American Public that Árbenz and the new Guatemalan government needed to be overthrown. They did this by hiring Edward Bernays, the so-called “father of public relations.” For context, Bernays had previously devised a successful propaganda campaign to promote female smoking by associating the cigarette with concepts of emancipation and gender equality. Bernays framed Árbenz as a Communist threat close to American soil. Among other things, he arranged a trip for influential US journalists to visit Guatemala, where they met select Guatemalan politicians who told them Arbenz was a Communist with close ties to Moscow. He also established a fake independent news agency that bombarded the American public with headlines that stated Russia was going to use Guatemala as a base from which to attack America.

These actions had the desired effect. In the end, UFC was able to successfully persuade the US government to overthrow Árbenz and the CIA installed a US-friendly military dictatorship. What followed was a brutal 36-year civil war between US-backed dictators and leftist insurgents as the country fought for its freedom from Western imperialism. As the years went on, the United States would continue to support these dictators even as they carried out horrific atrocities, including the genocide of thousands of native Mayan peoples.

But there’s a bright side to the story. At least the American public got to have its bananas. Stocking the supermarket shelves, yellow as daffodils, and all at low low prices we’ve come to expect. Just like normal.

Other Methods

So far, we’ve outlined two dominant methods of modern-day imperialism, but many more exist. For one, Multinational corporations can serve as powerful forces of neo-colonialism, controlling huge sectors of countries’ economies and politics through sinister means. As we’ve already seen in the instance of Guatemala, direct military intervention can be another effective strategy, along with the indirect supply of arms and weapons to militant groups. What’s more, loans and “aid” given by governments separately from financial institutions can have similar intentions and effects as Structural Adjustment Programs from the IMF. Finally, global trade relationships themselves are set up in such a way as to structurally disadvantage developing nations.

Through predatory institutions such as the WTO, dominant countries can lock colonized countries into trade agreements that mandate the extraction of their scarce natural resources. These sorts of relationships naturally place these nations on the front end of most value chains, meaning they inherently enjoy much slimmer profit margins than those who sell the “final product.” While a Sub-Saharan African nation is technically “free” to reap benefits of capitalism by extracting a local mineral, there is much less monetary benefit to be made from this venture compared with the tech firm who eventually sells said-mineral as a component in their new product. Trade relationships such as this ensure that the most lucrative side of supply chains are controlled by the colonizer, perpetuating the economic dependency of the Global South. Altogether, these methods have proved disastrous to the economic and political independence of periphery countries around the globe. However, perhaps the most insidious part of these interventions is that, in the public eye, they are supposedly done for the good of the affected country.

Dominant Narratives – Neoliberalism and Greenwashing

In dominant media and political narratives, imperialist meddling in the internal affairs of other countries is most often framed as “humanitarian intervention,” or other such misleading euphemisms. As Noam Chomsky once brought attention to, the technical meaning of the term “peace process” in the media actually refers to “whatever the United States happens to be advocating at a particular moment.” In regards to the IMF and World Bank, the largely damaging policies of deregulation and privatization endorsed by these institutions are permitted to be seen as positive forces in a country’s development largely due to the economic philosophy of neoliberalism.

Neoliberalism, broadly defined, is the resurgence of 19th century laissez-faire economic ideas. It came into prominence as the dominant economic paradigm during the 1980s in reaction to the financial welfare state that had come to define the politics of many powerful Western nations during the Great Depression and World War II. According to the neoliberal doctrine, governments are not the best arbiter of how capital should be distributed. Rather, government intervention should be avoided at all costs so as to not interfere with the “free market,” a space in which corporations and individuals can act with little restraint or regulation. In theory, the free market is the best arbiter of financial relationships, and liberalization serves to benefit all nations.

In reality, neoliberalism has had deeply damaging effects in all parts of the world. Most tragically, neoliberal policies have been used as a disguise for pushing policies onto periphery nations that perpetuate conditions of continued imperialist control. To quote Kwame Nkrumah once again, “The result of neo-colonialism is that foreign capital is used for the exploitation rather than for the development of the less developed parts of the world.” What’s more, this ideology has likewise served to undermine mechanisms of social solidarity across the globe. As opposed to the more collectivist ideology of the 60’s when various equality movements took the world by storm, neoliberalism breeds a politics of disconnection. Under the guise of “freedom,” the neoliberalist framework views society as merely a collection of individuals, responsible only for their individuals needs, actions, and desires. As Margaret Thatcher once said, “There’s no such thing as society. There are individual men and women and there are families.” This sort of attitude undermines not only the ability, but the rationale itself for any sort of collective action or organizing. Perhaps unknowingly, Mrs. Thatcher was in fact paraphrasing Marx, who once criticized the repression in France for turning a society into a “sack of potatoes,” condemning the very same disconnection that 20th century leaders espoused.

How you like them potatoes?

Another popular euphemism for contemporary economic policies that has come into use over recent decades is the term “sustainable development,” an idea which merely serves to greenwash the processes of neocolonialism. From this perspective, foreign intervention in developing economies is not only beneficial from a neoliberal economic standpoint, but also serves to promote “sustainable growth” in a “globalized interconnected world” where “industry leaders” help countries develop their economies and “promote environmental health.” It goes almost without saying that this is complete bunk. Exploitation of the environment for profit is the name of the neoliberal game, and exploitation of the global south for first-world enrichment is the name of the neocolonist game. No number of buzzwords will change those economic and ecological realities.

To end, I’d like to share one final quote by Kwame Nkrumah. In his words, “Neo-colonialism is also the worst form of imperialism. For those who practise it, it means power without responsibility and for those who suffer from it, it means exploitation without redress.” In a world where governments strive to do less, and exploitation is not committed by people, but the unfeeling objective forces of “the market,” what can accountability look like? As we approach a global period of energetic, economic, and political transition, how can we avoid perpetuating imperialist trends? And how, right here and now, can we combat these dominant power structures that have never truly expected to be held accountable for their actions?

Right now the world is in desperate need of action to deconstruct these imperialist systems and free nations and peoples to pursue a future of their own creation. The good news is that the world is in for changes, many of them unseen by dominant structures. And change, for all the pain it may bring, breeds possibility. Peer into these shadows of opportunity. Explore the cracks of the future. And help create the new realities that arise.

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