While here at Jubilee South we chiefly focus on the insidious effect that high debt levels have on economic development of third world countries, the debt crisis has hit closer to home also. Individuals throughout the developed world are struggling under the burdens of both mortgage payments and high consumer debt.
The media has spent a lot of time discussing the causes and effects of the bursting of the housing bubble, but has spent less time exploring how these high levels of consumer debt came around. The cause of this can be summarized easily however – excessive discretionary spending.
Even the most financially savvy citizen of consumption oriented economies can succumb to glowing reviews for the latest consumer products. In fact, there are people who have racked up thousands of dollars in debt purchasing something as simple as a refrigerator for their kitchen remodeling project.
To people in the third world, this may seem inconceivable. What kind of refrigerator reviews can exist to justify someone spending thousands of American dollars to purchase said fridge freezer? For those living in poverty, spending what is to them several years of income on a simple appliance like a refrigerator may seem madness – or even obscene!
In poor parts of the world, refrigerator reviews are not really a factor in peoples purchase decisions. In fact, people who own any sort of refrigeration appliance at all are probably considered wealthy. Free solutions like root cellars are more apt to be appropriate for people living on only one or two dollars a day.
The true insanity of third world debt is that the people who pay the price of having to repay the debt are the citizens of those nations living in poverty – instead of their governments spending on infrastructure, health care and education, money is funneled into making interest payments on loans taken out in the past.
Even worse, the proceeds of those loans often served only to fill the pockets of corrupt government officials. Thus the poor are left paying the price for loans that they saw no benefit from.
In the West, however, the situation is reversed. In our consumer based economies individuals can take out personal loans to finance the purchase of consumer goods – such as well reviewed refrigerators. Then, in the future, if they find themselves unable to pay those loans off there is a well-defined process they can follow to declare bankruptcy.
So in essence, in the developed world individuals can benefit from loans, and have the option of not paying them back. However, in poor parts of the world, governments will run up loans that do not benefit the average citizen – but those citizens indirectly have to deal with the requirement to pay them. Does that sound fair to you? I know it does not to me.