A Philosophical Approach to Understanding the Global Debt Crisis

Debt is a foundational aspect of modern society, facilitating economic growth and development initiatives. However, the dynamics of borrowing and lending often reveal profound imbalances of power, ethical dilemmas, and systemic injustices. This paper seeks to understand the issue of the global debt crisis through a philosophical lens, examining its moral dimensions, power dynamics, and implications for global interdependence.

“Sovereign debt” is a technical word used to describe the debt that a country agrees to pay to creditors outside of its state (Singh 2013). Sovereign debt is what allows modern nation-states to function in the way citizens have come to expect. When their countries have public policies or development plans that they are unable to afford from within the country, states turn to outside lenders seeking funds to complete their projects. Using Africa as an example due to its significant level of debt, this paper will explore the ethical obligations of lenders, the power dynamics that come from indebtedness, and the interconnectedness of the world in the context of debt. This analysis situates contemporary debt within a broader historical trajectory of colonial extraction and unequal global financial structures that have shaped the continent’s economic dependence.

Understanding The Issue

Borrowing is key to much of how the world functions (Gort and Brooks 2023). The global South has often needed money, and well-off countries have been more than willing to provide it in exchange for terms that are favourable to them.

To understand this issue, the case of Africa provides a strong example due to the scale and complexity of its external borrowing and the limited transparency surrounding many of its loan agreements. While countries such as the United States make fiscal information publicly accessible through mechanisms like the Freedom of Information Act (FOIA), data on African debt is often incomplete, especially regarding unregistered loans. It is estimated that at the end of 2019, African governments will have been in debt to the tune of $1 trillion, which was more than 60% of their GDP (Lippolis and Verhoeven 2022). However, this tally only considers registered loans, and if considered, unregistered loans would further increase Africa’s debt-to-GDP ratio. Countries have been lending to African nations for years with the goal of increasing their global economic and political power while generating positive public relations campaigns, and in the process building up new infrastructure projects such as connecting cities with roads, creating systems for power generation, and mitigating flood risks. Due to several factors such as corruption and poor management around spending, recouping the loaned funds has been a continuous challenge for nations which lend to the continent. The response by lenders has generally been to offer more money to restructure the loans, create a new payment plan, and make it an issue to be dealt with later.

Today, China is a main lender to nations such as Angola, Djibouti, Kenya, and Zambia, providing government-to-government loans to help support growth in developing nations in hopes of growing the Chinese economy and countries that have the potential to become strong trading partners (Brautigam 2020). There are allegations made (mainly from the United States) that China wants to intentionally entangle nations in a debt trap with the goal of obtaining unfair benefits of some kind, and while this has been proven to not be explicitly true, it highlights the overall result that occurs when richer countries lend to poorer ones. Most of the countries that China is lending to have a history of being indebted to Western nations and a long record of bailouts by the International Monetary Fund. This historical context is important, as it shows that China’s involvement is not occurring in a vacuum but within an already unequal global financial structure shaped by Western dominance. In many ways, China is the newest country participating in an age-old issue of issuing loans to countries it knows will struggle to repay them (Brautigam 2020). However, China recognizes the issue and therefore lends with usually unclear terms and conditions (Lippolis and Verhoeven 2022). Unlike traditional Western lenders though, China’s approach blends geopolitical strategy with development finance, often positioning itself simultaneously as a partner in infrastructure growth and an extractor of value through debt. This has led some scholars to characterize China’s practices as a form of “predatory” or “strategic” lending, where access to natural resources or political leverage becomes a substitute for repayment (Odiadi 2021). The reasons African nations cite for turning to lenders with such policies is because of “insufficient amounts and unfavourable terms offered by Western bilateral donors and the [International Finance Institutions],” meaning these vague loans would not necessarily be the first choice of African nations, but rather to them it appears these avenues are the only ones they have to achieve the necessary financing to advance their nations’ economic and development goals (Lippolis and Verhoeven 2022, 166).

Throughout the continent, social crises of starvation, lack of medical care, poor education, and civil conflict all stem from debt, and the pattern of this continues to repeat itself (Gort and Brooks 2023). While there have been some programs related to loan forgiveness, the primary solution is to continuously offer more money under new terms along with a commitment from the government in question to change their handling of funds, all while further indebting the nation and leaving future governments and citizens with a larger issue to deal with (Lippolis and Verhoeven 2022). Although the International Monetary Fund continues to provide financial assistance, its lending requirements have been linked to recurring debt-dependency cycles in the global South, which can be harmful to long-term growth. As a result, “austerity and debt payments are leading to increases in poverty and unemployment … and the debt is just getting bigger” (Jones 2013, 1498). The issue of having debt is itself not wrong, rather, the concern lies in the way large external debts accumulated without meaningful public input or consent. These undemocratic debts are then inherited by successive governments and citizens, who bear the costs without having participated in the decision-making process. This paper will now turn to three philosophical perspectives on this debt and the crisis that stems from it.

Moral and Ethical Dimension

One of the central philosophical debates surrounding debt is the moral and ethical obligations that arise from borrowing and lending.

Those holding the money and acting as the lenders are the ones that hold the power in a lending situation. While discussions around power dynamics will be saved for the next section, it must be considered whether lenders have a moral duty to provide fair and reasonable terms to those they are lending to. Singer (2016, 4) posed the question “to what extent should political leaders see their role as limited to promoting the interests of their citizens, and to what extent should they be concerned with the welfare of people everywhere?” If nations providing the lending are looking out solely for their own benefits, it would be in their best interest to charge as much interest on the loan as possible and seize assets of the indebted nation when they fail to repay. However, it is unethical, for good reason, to argue, that leaders are to prioritize the interests of their own citizens above citizens of other nations. The wellbeing of a citizen in the lending state should be of equal value to the wellbeing of a citizen in the borrowing state. In other words, the lending state has the moral and ethical responsibility to provide lending terms that do not enrich its own people at the expense of others. When borrowing citizens face increased shortages of food, health care, and education as a result of these terms, that responsibility is being violated does not bring their own people into riches at the expense of the borrowing citizens facing increased shortages of food, health care, and education (Singer 2016).

From a legal perspective, international law states that governments are often in charge of paying back the sovereign debts that previous governments obtained (Cappelen et al. 2007). There is the “odious debts” doctrine that states debts are not legally enforceable when those who hold them did not consent to them and did not benefit from them, but international lawyers continue to argue whether this doctrine holds any legal weight. From a position of philosophical ethics and morals, populations should only be held responsible for choices that they have made with informed consent, which raises the question of whether nations have the duty to repay debts regardless of the circumstances. From a liberal egalitarian perspective, a view that emphasizes fairness by seeking to minimize inequalities arising from factors beyond an individual’s or group’s control, eliminating disparities brought forth by circumstances outside an agent's control is the ideal response. Factors that should be considered outside one’s control are geographic/climate-related conditions and having a colonial history since these can influence non-consent. It should be noted that is difficult to make sure indebted nations are held accountable only for their choices without also holding them accountable for circumstances outside their control as a country, but this does not remove the moral and ethical obligations to do so (Cappelen et al. 2007).

The idea that poor countries should always receive an equal share of debt relief would go against the idea of responsibility discussed above (Cappelen et al. 2007). When looking at the example of the Highly Indebted Poor Countries (HIPC) Initiative, the most substantial multilateral initiative created to reduce debt, it can be seen that in some cases the distribution of debt relief was carried out with equality and fairness in mind. However, not all aspects of the initiative aligned with the liberal egalitarian viewpoint, which holds responsible only those who fully understand what they have entered into. While the HIPC was in some cases able to equal out previously unfair lending terms and retroactively create fair and ethical loans, the program did not fully follow a liberal egalitarianism perspective of morals and ethics surrounding these loans. Much of the loan forgiveness was done based on if countries could show a readiness to implement changes to lower the possibility of future debt issues, rather than considering if the countries should be responsible for paying back the debt in the first place (Cappelen et al. 2007).

But why should countries be willing to help their fellow humans on planet Earth? As Singer (2016, 15) explains, “for the rich countries not to take a global ethical viewpoint has long been seriously morally wrong.” In the context of the broader global debt crisis currently plaguing the world, of which the Africa–China lending relationship is one example, this means that rich countries must be willing to consider their borrowing nations as equal partners in the transaction. Loans cannot be issued in bad faith with interest rates or other caveats that will further harm the nation seeking them. Furthermore, countries should not be held responsible for debts they did not consent to take on, and loan forgiveness programs should work to relieve these debts.

Power Dynamics

Debt can create a power imbalance between creditors and debtors and can be used as a means of control. As Jones (2013, 1497) explains, “Debt is fundamentally an issue of power; the transfer of resources between debtor and creditor, and the decisions a creditor can force on a debtor.” The concept of debt and owing to those outside of ourselves goes back to antiquity, with debt holding strong religious meanings where people were indebted to celestial powers, deities, or other supernatural forces (Singh 2018). This historical context provides a conceptual frame for nations to understand why they feel this debt needs to exist – but this is not the case as these power dynamics are often overused and abused.

Money can be used to represent not only the relations of credit and debt, but also to signify the differences between need, power, and status within the world (Tcherneva 2017). In a philosophical context, this raises questions about the just distribution of resources and power in society. At first glance, richer countries providing poorer nations with loans looks like sharing wealth across nations, but this is far from the truth (Singh 2018). Instead, what results are wealthier nations growing more prosperous at the expense of less economically developed ones, which, if unable to repay, become trapped in cycles of debt dependency. The result of this is debt slavery – a situation involving major power differentials and a form of subjugation where those who owe money are forced to pay a debt according to terms they are unable to meet. Immense suffering is being inflicted under the banner that debt must always be paid, and rather than funds being issued to redistribute and balance out the global wealth, nations are instead using them in an unjust way to further their own benefit at the cost of those who can least afford it (Jones 2013).

Furthermore, this leads to a discussion about whether debt reinforces existing power structures or can be a tool for empowerment. There are few cases where empowerment comes from debt, as poorer nations who get loaned funds most often end up in deeper debt. Additionally, it has been seen that cancelling debt does not always free the debtor but can also be used as a way of control. For example, Tanzania privatized a water company to release them of their debts, only for the company to fail within a few years. Similarly, Malawi sold off grain reserves to reduce debt, which ultimately pushed the country into a deeper food crisis (Jones 2013). In a case highlighted by Kalaitzake (2017), debt not only has the potential to reinforce existing power structures but can grow them into bigger ones. When Greece was suffering financial ruin and unable to repay its debts, the Institute of International Finance (IIF), had an imbalanced influence on the results of policy and exploited its powers to get a result favourable to its’ large European creditors. This led to those with financial power being “able to exploit deliberately, and with strategic intent, their unique structural market position,” showing that debt can strengthen the current systems of authority (Kalaitzake 2017, 392).

From a philosophical perspective of powerful social structures, those who lend money can be seen too often have influence and control over the borrowers, which can perpetuate inequalities and hierarchies. This returns to the concerns about what moral and ethical responsibilities lenders have. The examples above show that creditors often fail to uphold the moral and ethical obligations they have as lenders. Debt has the potential to increase structural advantages held by powerful rich nations or the ability to provide poverty relief to the least well-off members of the world, and rich countries most often choose to use it in the least morally and ethically responsible way.

Interdependence and Globalization

The global nature of debt highlights the interconnectedness of economies and societies worldwide. Do countries have a responsibility to address economic disparities? The answer should resound in the affirmative.

In recent times and with technological advancements, well-off countries are no longer able to try to hide from the harm they have inflicted on developing nations (Singer 2016). These changes have made everyone more aware of these issues, and if one has the knowledge of issues, they cannot be ignorant of what they know and therefore have the moral and ethical responsibility to act. Additionally, as Pettifor (2007, 321) explains, “responsibility for bearing the costs of debt crises and other negative effects of the prevailing international financial system should therefore be assumed by those who have contributed to bringing them about.” This means  that the rich countries who got the world into this crisis have the responsibility to get the world out of it. Countries in the globe today are highly connected and interdependent on one another for a variety of issues, and there lies a responsibility for nations to work towards closing the gap between industrialized and emerging economic markets.

Promoting global equality and justice should be something all countries are willing to engage in. Throughout the process of debt repayment, the idea is that it is likely not the corrupt borrowers who spent their loans on themselves and failed projects that will pay the loan, but rather individual citizen taxpayers (Pettifor 2007). Debt forgiveness will work to not only address economic disparities on a national level but will benefit individuals in poor nations who often shoulder the responsibility for high debt repayments.

Lastly, not only should each country feel a responsibility to help other countries as states of the same world, but it will also support them in the long run. As a United Nations report points out, “even if there were no altruistic concern among the rich to help the world’s poor, their own self-interest should lead them to do so … in the global village, someone else’s poverty very soon becomes one’s own problem” (Singer 2016, 8). By helping other nations now, countries are more likely to save themselves bigger issues in future situations.

Conclusion

Foreign loans have caused immense harm to poor nations (Jones 2013). The examination of the global debt crisis through the philosophical perspectives of moral responsibilities, power dynamics, and global interdependence shows the immense harm debt can cause and the concerns nations must approach it with. From considerations of ethical lending practices to the coercive nature of debt-driven power imbalances, the discussion surrounding the indebtedness of poor countries reveals important questions about justice, equality, and the well-being of all people. As nations navigate the ever-growing debt from borrowing and lending, it becomes necessary to reevaluate existing structures and prioritize human values of fairness and mutual benefit.

As Singer (2016, 13-15) sums up:

We are living in an alienated world in which, instead of ruling ourselves, we are ruled by our own creation, the global economy, [and], how well we come through the era of globalization (perhaps whether we come through it at all) will depend on how we respond ethically to the idea that we live in one world.

In the face of mounting debt burdens, particularly in regions like Africa, the need for global action and an ethical response continues to grow. The global community must come together and take a shared responsibility for addressing economic inequalities. At the end of the day, the issue of the global debt crisis goes far beyond economics – it is a moral imperative and a test of the world’s collective commitment to a more equitable society.

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