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Structural Adjustment and Austerity: The Tools of Dispossession, Extraction, and Poverty Creation

Updated on May 9, 2014

After World War II, the International Monetary Fund (IMF) and the World Bank were created, without public input, at the Bretton Woods meeting. The meeting’s stated goal was to plan development through investment in global economics in order to prevent future wars and disruptions to the world economy. The actual outcome was a transfer of wealth from poor nations to banks in the first world.

The major debate at the meeting was between the more liberal Keynes led British faction that viewed the bank as a cooperative fund to help nations in need and the U.S. delegation that saw it as more of a bank and lending institution with strict repayment schedules. “The US view prevailed, and set the stage for how economic crises have been handled since World War II (Harris 1988).” And, the “structural adjustment loans” meant that any nation that wanted loans from the IMF and World Bank would have to go through an austerity budget process of drastic government cuts and opening up of their economy to world markets and trade.

That meant no tariffs nor trade barriers of any kind could be passed in nations that took World Bank loans. The result has been impoverishment and suffering for the people from the nations that underwent the structural adjustment.


The opening up of third-world economies lead to developed nations getting raw materials from the the third world on the cheap, “Debt is an efficient tool. It ensures access to other peoples’ raw materials and infrastructure on the cheapest possible terms…In effect, the IMF and World Bank have demanded that poor nations lower the standard of living of their people.”

Now, structural adjustment demands in the form of austerity have hit the developed world. It has been pushed on some European debtor nations, and Republicans and some Democrats have pushed austerity on the people, especially the poor, of the United States.

Conservative economists and politicians in the United States are pushing austerity in the U.S. despite evidence that it has not restored economic growth and employment in Europe. Examples of U.S. austerity include cuts to unemployment insurance payments, cuts to food stamps, cuts to Head Start and other services. Even Goldman Sachs said the sequester hurt the economy as did the IMF. “As much as half of U.S. economic growth this year has been slashed due to tax increases and indiscriminate federal spending cuts known as sequestration, according to a sobering new forecast by the International Monetary Fund, which urged lawmakers to repeal the cuts.”

The goal of austerity in the U.S. is the dismantling of public sector economic programs and to replace them with programs to bolster corporate profit taking and political power. While the U.S. and other nation's governments are pushing austerity, they are also pushing corporate trade pacts and projects like the Trans Pacific Partnership, the XL TransCanada Pipeline, and other international trade agreements while retaining a system of corporate welfare. Ultimately, austerity is a form of wealth transfer from the lower classes to the upper classes in the United States just as structural adjustment programs have transferred wealth from poor nations to wealthy nations.


In Spain, after five years of austerity imposed on them by their membership in the EU, the nation saw three quarters of 0.1% gain in GDP in 2013. To some economists, that means that their recession is over. However, with unemployment still around 25%, the Spanish economy is stagnant (Japan Today). “Overall, after five years of austerity, the euro zone, driven by Germany’s fierce adherence to fiscal continence that it has inflicted on the rest of the European Union, still leaves 11 countries in negative growth, including Italy, Portugal, Netherlands, Spain and Ireland.” Clearly, austerity is not the formula for growth. Austerity in Europe means that generous pensions, health care, vacation time and other benefits for workers have been rolled back.

Debt is an effective tool for dispossessing the people of their property and public resources for capitalist exploitation. In the United States, the home mortgage crisis lead people to default on their loans and put their property in the hands of banks. Cutting back on social spending while keeping tax cuts and loopholes for the wealthy and not rolling back corporation welfare is a transfer of public wealth as is the privatization of schools and prisons.

Spending doesn't guarantee growth, but cutting almost always guarantees negative growth
Spending doesn't guarantee growth, but cutting almost always guarantees negative growth | Source

A problem with the austerity debates in the United States is that is ignores poverty and economic inequality just as SAPs ignored poverty in the third world. The mass media gives little if any attention to poverty even though, “Four out of 5 U.S. adults struggle with joblessness, near-poverty or reliance on welfare for at least parts of their lives, a sign of deteriorating economic security and an elusive American dream.” And the gap between the wealthiest Americans and the poor keeps widening.

Politicians are deluding us and themselves when they say that manufacturing will return to the U.S. in sufficient numbers to stem the tide of unemployment, under-employment and low wages. They are also deluding themselves when they cut public services thinking it will improve the economy.

The mass media seldom cover poverty, chronic unemployment or our collapsing infrastructure. Meanwhile, Congress focuses on the priorities of the 1% such as raising military spending and cutting safety and environmental regulations.

Banks and corporations are no longer content with dispossessing the third world people, excluding third world elites who freely facilitate and profit from the SAPs placed on their countries. These same bankers, financiers and world elite are now going after what little wealth the poor and middle classes have in the developed world. Soon, there will no one left but the rich themselves to dispossess of wealth. Perhaps their cannibalistic feeding frenzy on each other will be the final, inevitable, last chapter of capitalism.


Tex Shelters


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    • texshelters profile image

      texshelters 3 years ago from Mesa, Arizona

      Right you are Nate. I think the poor have bought into that as well. PTxS

    • NateB11 profile image

      Nathan Bernardo 3 years ago from California, United States of America

      Good piece here. I want to say something to add to it, but you stated it all very well. I'll say, though, that I think monied interests have a method of disseminating misinformation to a degree that they actually have people believing that the poor deserve poverty and that help for the poor is evil and that aid for the rich is necessary. Otherwise, I don't know how else people started thinking in such backward terms as hating the poor and being alright building up the powerful and kicking the poor to the curb; and their fears and hate are based in some of the most convoluted thought.

    • mio cid profile image

      mio cid 3 years ago from Uruguay

      I couldn't agree more, coincidentally I wrote about this in one of my hubs don't even remember which one but you put it in a much more articulate way.