Debt Rent

David Smiley

[Reprinted from Progress, July-August 2005]

Today, there are 27 million slaves world wide, two-thirds of them are classified as debt slaves, often passing their debt onto their children. Let us follow their tragic trail from farm to city and then, often to a foreign country.

Consider a peasant in a country which, like nearly all countries, can produce more than enough food for all of its inhabitants. But, since he may be paying 50 percent of his produce as rent to an idle or absentee landlord, he may have little reserves for problems like fire, flood or simply a bad harvest. For whatever reason, let us say he runs out of food and must borrow from a money-lender or his landlord, often the same person. If he has any land or assets he may forfeit them. Now, without collateral he is a risk, attracting an interest rate between 50 and 200 percent (Todaro, Economic Development in the Third World). This high rate may reflect many factors, monopoly power, risk, or the fact that he borrows, say, 1000 rupees-worth of grain at high, pre-harvest prices and has to return back a much larger quantity at low, post-harvest prices. He uses this loan to feed his family and, if he is a tenant or sharecropper, to continue paying rent. Eventually he defaults. Then, or if he is lucky, next time, he and his family become debt bonded.

Next, he migrates, with or without his family, to a city in search of work.

Most likely he remains embedded within the informal sector of the city depending on income from ambulatory services, begging or crime. He, and perhaps eventually his family, occupy whatever sidewalks and footpaths they can find. But apparently rent-free vacant and public spaces turn out to be managed by illegal "slumlord" rent collectors. Eventually, their shacks made of scrap and rubbish are bulldozed and the occupants moved on. Alternative accommodation, if not dried up by rent control, is available at rents which always rise with population. Even if they have escaped their rural debt-collectors, new urban debts now arise. Loans for medical treatment, weddings or funerals, or simply to offset lack of employment, create new debt bondage. Investible savings that might otherwise create jobs are diverted to meet rising costs of welfare, congestion, crime, pollution and infrastructure decay, and into unproductive, untaxed speculative investment in the rising land values created by migration and population growth.

Finally, he or his family may pay what they have left to people-smugglers or "employment agents" in order to emigrate. Those in boats, if they arrive, may no longer be debt bonded. Not so the men crossing borders illegally in trucks, or their wives or daughters, domestic servants with their passports in "safe keeping".