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Overcoming the crisis of development policy... Overcoming the crisis of development policy with “development...

Overcoming the crisis of development policy with “development policy against crises”

(Published in the “Berliner Zeitung” today in German)


The German government goes on long trips with unusual frequency. The Chancellor was in three countries in Africa last May, the Chancellor visited three important countries in South America a few weeks ago and Finance Minister Lindner was in Africa recently. Is this just because the members of the government finally have a new and reliable plane with which they don’t get stranded somewhere on every second trip?

Apparently there is more to it than that. The chancellor and his ministers want to win new friends in order to be prepared for the disputes that are on the Western agenda because of the “rivalry” with China and Russia. But those who want to win new friends should know why friendship has not been so far. I wonder if the officials in the Chancellor’s Office have written down to their boss why development cooperation with the large and important countries he has visited has so far not even begun to produce the desired results.

If the officials had done their job correctly, the years 1999, 2003, 2008, 2016 and 2022 should have been highlighted at least for the three large countries in question, namely Brazil, South Africa and Argentina. These were the years in the past two decades in which these countries had to go through veritable crises. And not just any crises, but crises whose origins can be clearly located in the West. So every five years or so, all hell broke loose economically in these countries, even without Corona and commodity price explosions. What had happened?

Well, the West, in all its generosity, not only promised these countries open markets for goods and services, but also urged them to open their markets to capital floating around the world, because, so the Western promise, only in this way could one really enjoy the benefits of open borders. But this was a poisoned gift, because floating capital tends to lead to false prices and major crises when currency relations are unclear.

All these countries, and many in Asia, were pushed in the early 1990s by the International Monetary Fund (IMF), which is largely steered by the USA and Europe, into monetary regimes that proved to be completely unsuitable. Countries were advised to apply the so-called corner solutions, either to peg their national currencies firmly to a Western currency or to leave the setting of exchange rates completely flexible to the market. Both “corners” have proved to be wrong. In both cases, every few years the currencies of these countries have become the plaything of speculators whose home is Wall Street, the City of London or Frankfurt.

The various governments of these countries faced currency crises whose social and political dislocations were monstrous and even called into question the functioning of democracies. However, instead of at least standing by the countries during the crises, the IMF was also exclusively deployed by the West to fight the crises, regularly prescribing austerity and high interest rates, which only made the crises worse. One of the worst examples was the Corona shock, where Western governments outdid each other in their boasts of the financial potential to counter the pandemic without thinking for a second how a developing country could cope. A federal government that wants to win new friends would at least have to show that it understands the needs of potential friends. But it would also have to admit its own mistakes in order to be credible.

One might argue that this is a one-sided view of things. But one must nevertheless note that it is now the very unanimous view of those concerned. Why do you think the Brazilian president flew to Argentina against all custom on his first trip? And why are Argentina and Brazil and many other Latin American countries seriously discussing how to break away from the US dollar and the slavish dependence on the USA and the IMF? Why are so many politicians in the developing world hoping that with China and India, the big developing countries will finally get their act together to create an alternative to the Washington Consensus and the IMF’s neoliberalism? However, if you don’t have answers to the really urgent questions of these countries, you don’t even need to fly around the world.

Look at the “Africa strategy”, which was presented a few days ago by the development aid minister on cooperation with Africa, to see how far beyond the real needs of the developing countries Germany and the industrialised countries as a whole act and tactic. The term “feminist” appears 15 times in the strategy, but the terms “interest” and “currency” are not mentioned. In this paper, which claims to want to shape global change processes together with Africa, there is not a single reference to Africa’s decades of frustrating experiences with Washington institutions, not to mention proposals for improvement. Does anyone in this federal government seriously believe that one can macroeconomically continue the perverse course of these institutions and at the same time keep countries from looking for other friends with small patches?

Far too high interest rates and volatile currencies, which repeatedly lead to overvaluations and severe balance of payments crises, are the order of the day in Africa. There is not a single country that has been helped to permanently free itself from dependence on the international capital markets. There are cases in Africa where, under the guidance of the West, money and banking systems were set up that led to nothing but a blockage of any economic development through prohibitively high interest rates. Even the micro-credits that were highly praised in the West were usually only granted with extremely high interest demands.

The European Union has had many opportunities in the past to show that it is also prepared to take unconventional paths when countries want to break away from dictatorial regimes and reduce their dependence on Western donors such as the IMF. The so-called Arab Spring was the outstanding example. But they preferred to let Egypt fall back into dictatorship because otherwise they would have had to mess with their American friends. Democracy or no democracy, the USA clings to the dictatorship of the “Washington Consensus” because it consolidates its own supremacy.

As you can see, winning friends is not that easy. It is especially not easy when you are unwilling to distance yourself from your old friends, who are viewed with more than suspicion by your new friends. Europe could do many things, but it is not possible without courage. Courageless trifles, however, can be spared. A few million here, a few million there bring nice photos for the domestic press, but have nothing to do with what is really at stake.

No one has to fear more than Germany that globalisation will be slowed down and that the world will once again be divided into blocks. Those who are so strongly export-oriented and have huge current account surpluses are far more dependent than, for example, the USA, which is currently trying to reduce its chronic current account deficits (also vis-à-vis Germany) with the Inflation Reduction Act. In this country, one cannot rely on the fact that once again it is enough to blindly follow the USA. They have a completely different set of interests, regardless of who is currently sitting in the White House. A global strategy to improve the economic conditions for the great mass of humanity is much more in Germany’s and Europe’s interest than in the interest of the USA, which fears above all for its global supremacy.

Successful development strategies are also in the global interest because without the poorer countries catching up economically, a consensus in the fight against climate change cannot be reached. It is high time to integrate development policy into an overall concept of economic and climate policy, at least in Europe. Short trips and thin papers are not enough. Thinking without prejudice is needed, as well as a confrontation with one’s own serious mistakes in the past. Unfortunately, we know that one can expect many things from politicians, but not exactly this.

Heiner Flassbeck was Director of Globalisation and Development Strategies and Chief Economist of UNCTAD, the United Nations Conference on Trade and Development in Geneva, for nine years. With Friederike Spiecker and Constantin Heidegger, he has just published the Atlas of the World Economy 2022/2023 with Westend-Verlag.