How rich nations take their wealth from poorer nations

I’ve recently run into a number of people who aren’t aware of the fact that the prosperity of rich countries and the illusion of a “good” economic system experienced there is funded by poor countries. Getting people in wealthy nations to understand that dynamic is, in my opinion, important for building the global solidarity we’ll need to survive climate change and the death throes of Neoliberal capitalism. I’m going to try to post various articles on topics like that more regularly, just to help increase the circulation of ideas that need to spread. In that spirit, this Guardian article from 2017 is worth your time:

What they discovered is that the flow of money from rich countries to poor countries pales in comparison to the flow that runs in the other direction.
In 2012, the last year of recorded data, developing countries received a total of $1.3tn, including all aid, investment, and income from abroad. But that same year some $3.3tn flowed out of them. In other words, developing countries sent $2tn more to the rest of the world than they received. If we look at all years since 1980, these net outflows add up to an eye-popping total of $16.3tn – that’s how much money has been drained out of the global south over the past few decades. To get a sense for the scale of this, $16.3tn is roughly the GDP of the United States

What this means is that the usual development narrative has it backwards. Aid is effectively flowing in reverse. Rich countries aren’t developing poor countries; poor countries are developing rich ones.

What do these large outflows consist of? Well, some of it is payments on debt. Developing countries have forked out over $4.2tn in interest payments alone since 1980 – a direct cash transfer to big banks in New York and London, on a scale that dwarfs the aid that they received during the same period. Another big contributor is the income that foreigners make on their investments in developing countries and then repatriate back home. Think of all the profits that BP extracts from Nigeria’s oil reserves, for example, or that Anglo-American pulls out of South Africa’s gold mines.
But by far the biggest chunk of outflows has to do with unrecorded – and usually illicit – capital flight. GFI calculates that developing countries have lost a total of $13.4tn through unrecorded capital flight since 1980.

Most of these unrecorded outflows take place through the international trade system. Basically, corporations – foreign and domestic alike – report false prices on their trade invoices in order to spirit money out of developing countries directly into tax havens and secrecy jurisdictions, a practice known as “trade misinvoicing”. Usually the goal is to evade taxes, but sometimes this practice is used to launder money or circumvent capital controls. In 2012, developing countries lost $700bn through trade misinvoicing, which outstripped aid receipts that year by a factor of five.

Multinational companies also steal money from developing countries through “same-invoice faking”, shifting profits illegally between their own subsidiaries by mutually faking trade invoice prices on both sides. For example, a subsidiary in Nigeria might dodge local taxes by shifting money to a related subsidiary in the British Virgin Islands, where the tax rate is effectively zero and where stolen funds can’t be traced.
GFI doesn’t include same-invoice faking in its headline figures because it is very difficult to detect, but they estimate that it amounts to another $700bn per year. And these figures only cover theft through trade in goods. If we add theft through trade in services to the mix, it brings total net resource outflows to about $3tn per year.

That’s 24 times more than the aid budget. In other words, for every $1 of aid that developing countries receive, they lose $24 in net outflows. These outflows strip developing countries of an important source of revenue and finance for development. The GFI report finds that increasingly large net outflows have caused economic growth rates in developing countries to decline, and are directly responsible for falling living standards.

The article goes on to discuss solutions, but I think one of the biggest mental hurdles that people in predominantly white, wealthy nations need to get over, is the notion that poverty is due to some moral failing by poor people, both at a national scale, and at a global scale. We need to work together to deal with climate change, or the death toll will completely eclipse the worst atrocities in history. That means we need to let go of ideas about who “deserves” what – though to be clear, reparations are definitely owed – and focus more on using the resources we have as a species to deal with our needs as a species, including our need for a healthy global ecosystem and a stable climate.

We can’t afford to keep listening to the whines of the wealthy who think they deserve to keep their power, no matter the damage it does. Trying to maintain this system of global inequality will drive us to extinction.


  1. Who Cares says

    This is a source of friction in the EU as well.
    By turning the Euro into a political instrument instead of a economic one they deliberately left out features that would have enabled a better functioning economy on EU scale.
    As a result if even one of the ‘poor’ nations leaves the Euro and refuses to pay the balance it has to the ECB, nations like Germany will end up with deficits that increase by 10%+ of GDP. Before the Euro these ‘poor’ nations could devaluate their way out of this problem, now they just keep racking up a debt with the ECB.

    Note that this has nothing to do with the Greek revolt in 2011 where they were playing bluff poker with the EU, while showing their hand and telling the EU to rifle through the deck for the cards needed for a royal flush. It might have been used as reason to start the bluff but after that it was just trying to find a graceful way out of the round (the Greek politicians failed so they gave the EU everything when the Greek population said in the referendum, the last way the politicians thought they could get out gracefully, they wanted them to leave the Euro)

  2. GerrardOfTitanServer says

    >but I think one of the biggest mental hurdles that people in predominantly white, wealthy nations need to get over, is the notion that poverty is due to some moral failing by poor people, both at a national scale, and at a global scale.

    Yes. This. A thousand times this.

    I think it’s inextricably tied to the religious mindset. If most poor people were poor not because of their own fault, then they would have to think about the religious problem of evil. They believe fervently that there is a good god, thus all evil must be the result of humans, and specifically all poor people must be poor because of specific individual moral failings.

    I also think it’s inextricably tied to a mental defense mechanism to defend themselves and their privilege. Standard stuff. If they believe that their benefits did not come only from their own work, then maybe they would lose some benefits.

    The thing that makes it harder

  3. GerrardOfTitanServer says

    Whoops. Hit send early.

    The thing that makes it harder to explain is that republicans IIRC tens to be poorer on average, and yet also on average tend to be more in support of the notion that poor people are poor because of their own moral failings. Ex, “those black people are poor because they’re lazy, but I’m poor as an exception because the government is oppressing me”. As an aside, classic (false) victimhood syndrome by the oppressor.


    I want to go further. The litmus test that I use for libertarians goes like this. Suppose we could end hunger in the US for an additional 1% income tax, but 90% of the money would go to lazy moochers, and assume we don’t have any better plan. I say that we would be morally obliged to do this plan. Buy conservatives seem to think it’s more important to hurt lazy people than it is to help unfortunate people.

    PS, my phrasing also rests on a conservative lie, the lie that most people on welfare are just lazy. Most people on welfare are not lazy, and the “waste” is nowhere near 90%. Also also, to feed everyone would require way less than a +1% income tax increase.

  4. says

    It makes me think of the video Innuendo Studios did on the origins of conservatism, and how Feudal aristocrats worked to maintain their power through capitalism.

    The Divine Right of Kings ended up morphing pretty seamlessly into The Meritocracy, leaving most of the same families in positions of wealth and power, but changing the mechanism by which people were added to or removed from that class.

    That, combined with the “protestant work ethic” seems to have formed this weird sort of economic Calvinism – everyone’s worth in the eyes of God can be seen by all in their life – which was fully incorporated in most American Christianity (though not all)

    Propaganda works. That’s part of why I’m trying to get better at using it 😛

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