Setting aside the injustice within poor countries of the poor subsidising the indulgences of the rich,

• why would a major bank lend money to an Indonesian ruling family with fewer guarantees than it asks of one of us borrowing money to buy a family home?
• Why should the state, at the World Bank's prompting, be expected to contract if its principal channels for loans are those very governments?
• Why, in turn, are good altruistic people in the West begging our governments to use our taxation to bail out commercial banks which were at the very least negligent but more often greedy and inept?

Let such questions pass for now.

A much more pressing matter is what are the poorest countries to do whether they are in debt or not? If debts are written off or rescheduled, how are the poorest countries to prosper or is there anything they can do?

The classical economic answer is that if wealth is redistributed from the top to the poorest then domestic demand will increase, the domestic economy will grow and imports will fall; in turn the domestic market will reduce the unit cost of exports so that they are competitive. This, however, depends upon the necessary precondition of a sizable middle class which is precisely what the very poorest countries lack and so, the first priority is to create a middle class.

Given the track records of even well meaning governments in the poorest countries, government-to-government funding, except for major infrastructural projects, is a waste of money and even such major projects are often more a function of rich country trade than poor country aid.

We need to use public resources to fund small and medium sized business and the expansion of education through a deliberate policy of extending the knowledge economy to the poorest countries, particularly those which do not have adequate soil to grow food and therefore need to export in order to import.

Given the free market solutions which the USA and the European Union have adopted for themselves, one would think it obvious that they would want the same solutions for the poorest; that, after all, is what the export of monetarism was all about. Now that we have got something better to export why do we want to preserve for others a statist model we have abandoned ourselves? One could understand such a contradiction amongst left wing Democrats in the USA but why are the Republicans clinging to this terrible model? The only answer must be that most dealings with developing countries can be traced back to commercial short-term self-interest.

So when you see a banker offering to write off debt you know that he is simply trying to get some cheap PR for writing off the principal on which he does not even hope to get another cent of interest.


Kevin Carey is a writer, broadcaster and social entrepreneur. His interests range from the relationship between information technology and social exclusion and the symphonies of Gustav Mahler. He is the director of a UK charity, HumanITy, which combines rigorous social analysis with experimental field projects on learning IT skills through content creation. Educated at Cambridge and Harvard before a spell at the BBC, followed by 15 years in Third World Development, Carey offers a unique perspective on world affairs. He is a politcal theorist, moral philosopher, classical music critic and published poet.