“Debt spreads wealth up and constrains democracy down,” says Andrew Ross, professor of social and cultural analysis at New York University. Photo: Getty Images.
We are prisoners of the banks. We have become a society trapped in “creditocracy,” a system in which citizens must borrow money to meet their basic needs.
A world where brokerage houses, hedge funds, private equity firms, and every other entity in the banking system have become instruments of capital accumulation for their owners, customers, and shareholders.
Ultimately, “debt spreads wealth up and constrains democracy down,” says Andrew Ross, a professor of social and cultural analysis at New York University.
These are the central ideas of the book Creditocracy and the reasons for not being in debt.
The sociologist and author of more than a dozen essays argues that these companies’ business is to make the most profit possible by keeping everyone else in debt for as long as possible.
He calls it the “debt trap”.
“A creditocracy arises when the cost of commodities, however basic, must be financed with debt, and when debt becomes a requirement not only for material improvements in the quality of life but also for meeting basic needs,” explains Ross.
“For the working poor, this type of forced debt is widespread and has endured for centuries. Under feudalism, indenture or slavery.”
In the pages of his book he examines the implications of massive debt for any democracy.
When the governments of Italy and Greece had to slash public spending massively — hurting their citizens — in the wake of the 2008 global financial crisis — “to satisfy German, French, Swiss and Dutch foreign creditors,” a decision that fueled debate where the sovereignty of a state begins and where it ends.
In this interview with BBC Mundo, American researcher Andrew Ross warns of the dangers of being in debt and living on credit, and offers solutions to escape this new model of “servitude”.
What does the term creditocracy, which gives the title to one of your latest books, mean?
–We live in a society where increasingly a very large percentage, if not the majority of households, are drowning in debt.
“In most developed countries, especially in the US, loans for housing, cars, student loans or transportation have skyrocketed.
“We have become a society where the creditor class dominates and derives most of its income and profits from credit, and where citizens in many countries will never be able to pay their debts.
“77% of American households are seriously indebted. The big banks are bigger and more profitable than they were before the 2008 crisis, and lawmakers are virtually powerless to bring them down.
“To all of this we have to add that creditors are not interested in people paying their debts.”
Why?
–While you are in debt, creditors can make money off you. If you pay for everything in full, then you are of no use to them. You are no longer a source of income for them.
“So in a creditocracy the goal is to keep you in debt for as long as possible, in many ways up until the day you die and beyond if possible.
“This is a type of society where capitalist restructuring has meant that most of the profits for corporations come from financial activities like lending.
“And the kind of industrial society we used to live in, where profits were made from production, has given way to this new kind of economy.”
Is it a debt-ridden society?
–Increasingly, any public or social goods that we once had affordable access to must now be financed with debt. Hence, you need to apply for loans to access these essential goods.
So are we talking vacation travel, iPhones, or more basic stuff?
– Well, for households that live on the fringes, we’re really talking about basic living bills that many people pay with their credit cards. This is a significant portion of household debt.
“And there are many drowning households that never pay their monthly bills. They renew capital, pay late fees or penalties. And in doing so, they become what is known in the industry as a “revolver.”
“These are the favorite customers: the ones who can’t make ends meet but pay the monthly minimum plus penalties or late fees. This guarantees the banks a steady stream of income. Their profits depend on us holding debt.”
In his book he calls the “banks of poverty”. What are you?
“They are the kind of lenders who profit from the poor. Let me give you an example. When you get out of prison you will be very poor. You have no credit. But you have to buy a car to find a job. You will always find someone willing to sell you a very expensive car on a robbery loan.
“And the entities know you cannot make the payment, but they will benefit from your inability to do so. In fact, when you find yourself in that situation in the United States, it’s easier to buy an expensive car than it is to find an apartment to rent.”
What are the consequences of massive borrowing?
– On the one hand we have the daily impact for many people living on the edge. But there are also some far-reaching implications for democracy.
“There are very few countries that have managed to improve their debt ratios since the financial crisis, which means that the priority for policy makers is to ensure that debt is paid. And when government budgets get into trouble, they have to prioritize this payment to foreign creditors and they have to put it ahead of the needs of citizens.
“This means politicians are essentially acting as debt collectors for foreign banks. This used to happen in the southern hemisphere, but after the financial crisis, the so-called “debt trap” moved north.
“We’ve seen all sorts of rich countries fall into the same trap, where fundamentally the power of foreign creditors drives government decisions.”
How has the debt problem led to “failed democracies” around the world?
This has happened many times in history. And I think we’re not just talking about poorer countries anymore. This also happens between very rich countries. We saw it after the global financial crisis with Italy and Greece. Their governments have had to slash public spending—harming their citizens—to satisfy foreign creditors.
How did society get into this situation?
We have seen a restructuring of capitalism. Basically, it is a capitalism that no longer derives its benefit from production. It derives most of its profits and income from lending and financial activities. The benefits of the financial system are far greater than those of commodity production.
Are we talking about a new form of slavery?
– I wouldn’t use the term slavery because it has certain connotations in this country. These outside creditors have a power over you that may resemble slavery, but that’s just an analogy. I wouldn’t use the term slavery, but it is bondage.
And are people really aware of this bondage?
I think people are fully aware of that. However, in our culture there is a very deep feeling that you always have to pay your debts. It seems that if you don’t pay something terrible will happen to you. There is a strong undercurrent of morality associated with not paying your debts. This must be one of the priorities of the responsible person.
“But if we look at the financial sector, we find organisations, institutions and companies that are not paying their debts. Rich people and institutions are saved by their friends or politicians. You don’t suffer the same consequences as the rest of us.
“So there are double standards. Morality only works one way. The rich borrow to make more money. The rest of us borrow to survive.”
So you say in your book that if a government cannot protect its people from damage caused by rent collectors, then refusing to pay is an act of civil disobedience?
–If your government cannot protect its citizens from harm, then you live in a failed democracy. And we have seen a number of social movements in many countries, particularly in Latin America, rising up against it. And these are times when they are totally justified because governments are not protecting them.
“A government’s first priority is to protect its citizens and when that is not possible, citizens must take matters into their own hands. But the pain of missing payments to the International Monetary Fund will be endless. Countries that choose or are able to choose not to do so will lose access to international markets, their reputation and rating will be damaged…
“Of course. It’s a risky thing for countries to do on their own, just as it’s a risky thing for people because their creditworthiness will be compromised. And that’s why, in the movement that I’m part of (Debt Collective Union), we encourage collective disobedience, not individual disobedience.
“When you go to a bank or your creditor as an individual, they are always willing to renegotiate with you individually, but they will not renegotiate with you collectively.
“This is also happening at the level of government debt. If you want to renegotiate a debt with the Paris Club, they only see you one at a time. If you hang out with other nations, they won’t listen to you. If a group of nations came together under the same tragic circumstances and acted together, they would be more powerful.”
How can we escape this wheel of credit?
– In the short term, as I said, we encourage collective action. People acting collectively have far more power than individuals in a financialized economy. If you owe the bank a million dollars, you’re in trouble. But if you collectively owe the bank, if you owe the bank $100 million, then you own the bank.”
Do you think it is possible that banks and financial institutions have too much power at the moment that it is impossible to control?
–Well, they definitely have too much power, and regulation is part of it. These are not two separate issues: they have a lot of power because they are unregulated.
“I think ultimately we’re more interested in empowering ordinary people and ordinary people to act for themselves than relying on politicians to do all the work.”
(Adopted from BBC Mundo)