The Second Enclosure: Debt Traps

How do we achieve a just climate transition? Often overseen but critically important is the role of debt, specifically the huge debts many periphery countries have. This debt impedes a just climate transition. As the scholar Sylvia Federici has stated very clearly, without cancelling odious debt, the transition has acted as a neocolonial debt trap over countries that are i) not responsible for overshooting planetary boundaries and ii) most vulnerable to ecological breakdown. 

The looming debt crisis is the product of a long tale of captivity to international capital. Western states, along with their supra-national institutions, have forced periphery countries into austerity and neoliberal policies in order to repay their debt. Financialization of basic services and major cuts in public spending have deepened inequalities and worsened the cost-of-living crisis. Austerity politics seem to be making a comeback for the minority of the world, while deepening for the global majority. Today, more and more, we must remind ourselves that an economic system that impedes nations’ to meet their citizens’ basic needs is completely irrational.

How do we achieve a state of affairs where sovereign countries can democratically address the provision of  basic necessities for their populations? How is debt intertwined with a growth-based economy? What is the postgrowth perspective on this? These are some of the questions we will be addressing in the blog series on  Debt in a Postgrowth World by our postgrowth researcher Alba Garcia. 

Alba is interested in monetary transformations to mobilise a socially and ecologically sustainable and just future. In this blog series, titled Debt in a Postgrowth World, she will report on strategies for achieving economic sovereignty in periphery economies.

Co-readers: Julien-François Gerber and Charles Stevenson


Debt Dictionary

Debt – Refers to something (often money) that is owed from one entity to another, it is a promise or obligation to repay. The anthropologist David Graeber, expands this definition towards a (historical) moral debt. In this blog series, I explore the debt that periphery countries owe to creditors outside their country, specifically from their independence to the present day. However, Gaugo and Cavallero argue that we cannot understand debt by solely looking at nation-level debt. For that reason, I will also refer to private debt where indebtedness is treated as an individual problem, trapping whole classes into vicious cycles of poverty. This definition has been partly taken from the report ‘The colonial Roots of global South debt’ by DebtJustice. 

Core-periphery – The World-Systems Theory, as defined by Wallerstein, stipulates that the world economic system is divided in three types of countries: core, periphery, semi-periphery. Rich core capitalist societies are only so, because they exploit cheap labour and resources from periphery countries. Semi-peripheral countries have characteristics of the two types, being under pressure to advance to the core while not falling back on periphery status. It is important to note that the model is not perfect; it can create flawed narratives where countries are seen as uniform and largely undifferentiated. Nevertheless, this model is useful to refer to global economic dynamics, such as trade. 

The west – Refers to countries primarily in the regions of Australasia, Europe, and the Americas. At points, I use it interchangeably with the term ‘core countries’ to designate countries associated with the west that have relative power and wealth in the global economy, including the UK, US, France, Germany, Canada and Australia. This definition has been taken from the report ‘The colonial Roots of global South debt’ by DebtJustice. 

Colonisation – In her book Colonialism/Postcolonialism, Ania Loomba refers to colonisation  as: the takeover of territory, appropriation of material resources, exploitation of labour, and interference with political and cultural structures of another territory or nation. 

Imperialism – In her book Colonialism/Postcolonialism, Ania Loomba refers to imperialism as the global system of  colonisation.

Neo-colonialism – According to former Ghanaian President and revolutionary Kwame Nkrumah, neo-colonialism refers to the continued economic and political control over formerly colonised countries which, despite achieving formal independence, remain exploited by former colonial powers and emerging global powers. In a postcolonial context, powerful governments exercise and secure their power in multifaceted ways, such as economic and monetary policies. In this blog series, I specifically focus on neo-colonial forms of imperialism through the lens of debt, whilst recognising that periphery countries’ debt is inevitably affected by other, ever-changing, forms of imperial power too. This definition has been taken from the report ‘The colonial Roots of global South debt’ by DebtJustice. 

Economic sovereignty – It is a spectrum that reflects the degree to which states can exercise the sovereign rights over money and finance. This includes, for instance, their ability to determine their own financial and monetary policies that put the needs of their citizens first. This is different but closely related to monetary sovereignty, which refers to several rights of the state such as the creation of money, the regulation of how currency is used within a territory, the operation of the exchange rate, etc. Significantly, governments with a high degree of monetary sovereignty can tax their population in its own currency, avoids issuing debt and bonds denominated in foreign currencies (external debt), and follows a floating exchange rate regime.


In our previous article series Responding to Degrowth Critics, we detail Degrowth as a movement that confronts the exponential expansion of our production and consumption levels driven by capitalism’s growth-imperative. In order to undergo a just transition, the degrowth movement calls for downscaling of energy and resource use in core countries to achieve planetary and human wellbeing within the limits of our planet. Another piece of the puzzle is to cancel foreign debt to achieve economic sovereignty – the focus of this blog series. 

Unpacking the Politics of Debt

According to mainstream economics, debt is a sum of money to be paid back along with interest. The idea is that actors willingly enter into a debt contract in a free market. It is believed that this relation sets a fair debt price. These abstract monetary relations make debt seem intangible. However, debt materialises through all kinds of practices, routines, and assemblages across many different contexts. For instance, in the Netherlands where I write this from, mortgage debt has doubled since 1999, creating social inequalities within the economic core. 

Contrary to conventional ideas, debt is far from being a neutral or normal medium. In fact, it is political as it has contributed to a net appropriation of labour, energy, and resources from poor to rich countries, what dependency theorists call ecologically unequal exchange. But how did this unequal situation occur? In this blog, I will historicise debt in its growth and neocolonial configurations as well as detail how Degrowth takes another stance. 

Credit and debt are interlinked; credit creates debt and indebtedness while debt expands only through credit – and both work together to accumulate. This dynamic between debt and growth, Kuzminski argues, is what fueled the British industrial revolution. Growth meant that private creditors, who had a monopoly over the creation of credit, and even their debtors were economically benefiting. And this growth was further enabled by cheap food and raw materials from periphery countries. This is how credit enabled widespread prosperity in the imperialist core but tied to the obligation of repaying growing debts. The story of debt conveys how monetary architecture and global trade relations are moulded to benefit core countries. 

The Role of Debt and Credit in Driving Limitless Growth

Credit was a powerful instrument for maintaining colonists’ control over land, resources, and growing profits. It is not a coincidence that a credit-based system was later established during the British financial revolution of the 17th century. Here, credit was made widely available and, for the first time, citizens were able to invest without previous savings. This creative potential, offered by credit, can explain its wide-spread appeal. Once key players of the economy depended on borrowed money, it was necessary to continuously increase economic outputs. Borrowers were not only expected to grow in order to repay their debts, but were obliged to in order to avoid defaults. 

The close relationship between credit and debt enabled unbridled growth. But how could core economies safeguard this growth potential? They found their answer in the global asymmetric economic structure where the periphery provided cheap raw materials for expensive manufacturing in the core. This existing structure lay bare the foundations of the New Economic Order; just as countries were gaining independence from their former colonisers, the core set forth various strategies (including the inheritance of colonial debt, involvement in coup d’etats, and austerity programmes to pay back major debts) to consolidate their control over resources. 

The Cost of Independence: Colonial Debt and the Fight for Sovereignty

As a price to pay for their independence, former colonised countries were to inherit colonial era debt. In Haiti, for instance, French colonists legitimised 150 million francs of debt to compensate for land they claimed as their own – so called “reverse reparations”. In order to pay back their debts, Haiti had to borrow money from French banks. This staggered the nations’ sovereignty for 122 years – the amount of years it took to pay back their former slave masters. Although this debt has been partly repaid and cancelled, the country continues to suffer from lack of fiscal autonomy. This burdens ordinary Haitians who are largely impacted by the lack of infrastructure combined with an acute exposure to extreme weather events.

Periphery states soon realised that independence did not bring forth better social and economic standards. Rather, there was a growing dependence to their former slave masters or to the metropole. That is why newly elected leaders from periphery countries brought forth hopeful ideas of wealth redistribution and autonomy. To materialise their ideas, representatives from governments across Asian and African countries united in the Bandung conference in 55’ to discuss developmentalism, their role in the Cold War, and to strategize against monetary captivity. Together, they also passed resolutions for a New International Economic Order and the charter of economic rights in 1974 which explicitly included sovereign equality, international redistribution, and increasing bargaining power of the periphery.

Western powers could not accept this uprising as it jeopardised their economic power over the global periphery. Consequently, the west backed coup d’états which removed democratically elected leaders. Military dictatorships were put in place in governments across the periphery; this only furthered the neo-colonial linkage between former colonies and their colonisers. And yet again, an alternative vision of economic sovereignty in the periphery was impeded.

Poster by Alfredo Rostgaard published by the organisation in Solidarity with the People of Africa, Asia and Latin America (OSPAAAL) at the V&A

The 1973 Energy Crisis: Catalyst for Debt and Sovereignty Struggles in the Global Periphery

The 1973 energy crisis only worsened the ability of periphery countries to achieve sovereignty. The world was shaken with major economic crises. Core countries could transition and recover while periphery countries struggled. A soar in the price of oil made materials needed for agricultural production more expensive in periphery economies, who’s economies relied on agricultural exports. 

To pay for increased costs of agricultural production, 57 countries in Latin America and Sub-saharan Africa were forced to borrow capital from foreign commercial and central banks as well as the International Monetary Fund (IMF). But the debt was unpayable. This caused Mexico to default on their $80 billion debt in 1982 and, soon after, other Latin American countries quickly followed suit. 

For periphery countries to repay their loans, the IMF was repurposed as a supra-national sovereign debt enforcer. ‘Structural Adjustment Programmes’ (SAP), dictated by the IMF, demanded a major cut in public spending, opening markets to foreign investors to increase productivity, and specialisation in production of goods for Europe as they were seen as the most efficient exports. SAPs were not value free; they effectively devalued periphery country currencies. This three-part cocktail: austerity, privatisation, and liberalisation, has led to worsening ecological and social standards in the global periphery. 

Federici has referred to the debt crisis as the second enclosure of the commons. This is specially marked by the establishment of the World Bank (WB) as an organisation that provides long term investments to indebted nations. For instance, the World Bank’s ‘Agricultural Development Projects’ pushed land privatisation throughout the 70s and 80s. In Nigeria, citizens were dispossessed from communally-owned lands to make way for plantations owned by the World Bank. And this enclosure is ongoing; the IMF and WB continue to facilitate large scale land grabs to facilitate infrastructure projects across periphery countries in Asia, Africa, the Americas, and Europe.

‘Mafalda and friends’, Ediciones de la Flor

The Imperatives of the Modern-Day Debt Trap

Today, 24 countries are in an acute debt crisis, which includes the world’s top 50 climate-vulnerable countries. The covid pandemic only exacerbated the issue as public debt from private and public Northern creditors increased in 108 out of 116 periphery countries in 2020. For indebted nations, odious debt materialises in the financialization of basic services, increasing inequality, and falling short on meeting social foundations. But these are contradictory to achieving a climate transition that is just. 

When a majority of the world’s economies depend on growth to sustain themselves, a just climate transition can not occur. But this idea is not new, social movements have envisioned an economy where governments can take steps towards economic sovereignty and invest in the wellbeing of their citizens. For this, movements such as Global Action for Justice and Debt Cancellation have been calling out for unconditional debt cancellation in periphery countries. They do so within a wider framework of reparations, which force us to recognize the historical debt core countries owe to former colonised countries due to historical injustices.

Demonstration against the IMF and World Bank in Washington, in 2023, image by Olivier Douliery

This aligns with the Postgrowth perspective, which calls for structural transformations towards a more just and habitable planet. However, unconditional debt cancellation has not been granted to any periphery countries. But the average external debt payments have hit the highest level since 1998 for 91 countries and have continued to rise in 2024. Higher debt payments are linked to a fall in public spending. Given that many countries are not reducing poverty and inequality is increasing, this issue demands urgency. 

Therefore, what other solutions can we take to free up resources for public services in periphery countries? How can we address environmental emergencies – which are disproportionately harming periphery countries – and ensure the wellbeing of people and the planet? Leading MMT economists and dependency theorists have been looking into alternatives and have explored strategies towards economic sovereignty, which will be further explored in this blog series.