Get ready for the boomerang effect. The economic crisis that originated in this country has spread to the farthest corners of the planet. Global poverty is expected to jump by 53 million people and another 51 million workers will join the ranks of the jobless this year.
This is bad news for U.S. workers who must compete in a global labor pool. As workers in Mexico, Haiti, and Indonesia become more desperate, they will be more vulnerable to union-busting and wage cuts that will undermine good jobs here. And as more impoverished countries face massive budget shortfalls, they are more likely to slash spending to fight climate change.
This is why it’s so important for President Barack Obama to offer concrete plans to help the world’s poorest as he makes his big international debut this month at summits in England, France, and Trinidad. In this interconnected world, helping other nations cope with the crisis is not just an obligation. It’s also in our interest.
How did developing countries get sucked into this mess in the first place? They didn’t have a subprime mortgage problem. Their financial firms weren’t key players in the high-risk derivatives markets. They got sucked in because the globalization policies that have been imposed on them made them extremely vulnerable to volatility in global markets.
For decades now, the International Monetary Fund and the World Bank have required borrowing countries to adopt an “export more, spend less” model of development. And the countries that have gone furthest to shift to export-oriented production and lift restrictions on investment are now the most vulnerable. Mexico, for example, which relies on the U.S. market for 80 percent of its exports, is expected to be the hardest hit of the larger developing countries.
What can be done? Thus far, the Obama administration has focused on dramatically increasing funding for the IMF, the very institution that helped lay the foundation for the crisis. Instead, the White House should push for the cancellation of impoverished countries’ existing debts. Much of this burden was the result of predatory lending. In the 1960s and 1970s, reckless bankers lent gobs of money to corrupt governments that then left the people holding the bag.
Debt relief is a proven, effective, and fast way to reduce poverty. And if the IMF used its existing resources to pay for it, this approach would put a minimal burden on U.S. taxpayers.
In hard times like these, it’s understandable to want to focus on problems in your own backyard. But ignoring the problems of the poorest countries will come back to haunt us in the long run.