Project Manager, Observatoire de la finance
The notion of Jubilee debt cancellations is usually not very popular among (orthodox) economists, but it has recently resurfaced in academic discussion following a few notable publications on the topic. This discussion recalls the ubiquity of debt in our societies and the unprecedented debt levels across the world. It offers insights on how the idea of Jubilee could be transposed into a modern version to address some of the pressing challenges of our time.
Rising debt levels in the world economy
The global economy faces growing risks from rising levels of corporate debt, with companies needing to repay or refinance as much as $ 4tn over the next three years, according to a report just released by the Organisation for Economic Cooperation and Development (OECD).
But rising debt levels are a concern not merely for corporations, but also for households and governments. Accommodative monetary policy in the major advanced economies has lowered interest rates, providing households with greater incentives to increase personal indebtedness. This means that any increase in current interest rates may have a dramatic impact on consumers’ ability to repay. Government debt in the OECD area has also increased massively on top of already high debt-GDP ratios prior to the 2008 financial crisis, rendering fiscal positions in many countries unsustainable.
If debt-fuelled spending is the engine for economic growth in our capitalist system, it seems like we have reached a turning point where unprecedented levels of debts across the world may become a long-term structural problem, potentially endangering financial stability, social cohesion and sustainable development.
The idea of Jubilee debt cancellation
Against this background, it is not surprising that the idea of annulling debts has recently resurfaced, notably with the publication of a report by St Paul’s Institute entitled “Forgive Us Our Debts”: lending and borrowing as if relationships matter, preceded by an article by Michael Hudson and Charles Goodhart in the Economics review.
The idea of debt cancellation nowadays seems so unthinkable that most economists doubt its very existence. However, the work of economic historian Michael Hudson brings evidence that debt jubilees occurred on a regular basis in the ancient Near East from 2500 BC in Sumer to 1600 BC in Babylonia and its neighbours, and then in Assyria in the first millennium BC. The objective was mainly to reduce the burden of debts borne by small farmers who, being unable to pay taxes, could be reduced to bondage. Commercial debts were not subject to debt jubilees but only land charges were cancelled.
Historically, the economic aim of debt jubilees was to restore solvency to the population and at the same time, its ability to pay taxes. The primary objective, however, was political: preserving the stability of society. Jubilees protected the rulers against social unrest, riots or revolutions. By creating a productive class of small landowners, they contributed to avoid an excessive polarization of wealth and prevented the emergence of a financial oligarchy competing for power. Thus, historical practices of debt-cancelling jubilees worked as a form of social engineering to maintain a stable, peaceful and equitable society.
Today, the financialisation of the economy and the ubiquity of debt in our interdependent economies make it difficult to imagine how the mechanism of the jubilee could be replicated exactly. A modern version of the Jubilee could, however, inspire two different agendas: a reformist agenda advocating a more “just” and equitable system of debts; a radical agenda based on a paradigmatic shift in our conception of the role of the market economy.
An ethical framework for a more equitable system of debts
The moral dimensions of debt are often overlooked in contemporary debate. The report of St Paul’s Institute seeks to remedy this by proposing a moral framework for assessing contemporary debt and debt-relations. It invites us to embrace the principle and the spirit of Jubilee, to adopt a more equitable system of debts.
Debt is not only an economic or financial issue but also a deeply moral one. It depends on judgments about what is right and what is wrong, and who should bear the risks associated with it. In this perspective, debts should be judged on the purpose for which it is incurred, the terms of the debt – whether these are clearly presented, fair and freely accepted; and the broader consequences for lenders and borrowers and the health of the wider society.
In particular, debt forgiveness should be used wherever appropriate. At the personal level, this includes Individual Voluntary Arrangements (IVAs). At the corporate level, bankruptcy should be a less stigmatized and considered as a more viable option. At national level debt, both debt forgiveness for the poorest countries and a bankruptcy system that works for nation states should be implemented.
The Jubilee: an inspiration for a paradigm shift?
The founding themes of the Jubilee can also be transposed to our present time to find inspiration in the face of the pressing challenge of sustainable development, as reflected in a special issue of the review Finance & Bien Commun/Common Good published in 1999. The demand for debt forgiveness for the poorest countries, the introduction of a rest period for the restoration of land and people, the respect of nature and the refusal of the abusive exploitation of its resources, follow on from the jubilee inspiration.
In addition, the Jubilee could find an application in the fight against trusts and monopolies. At a time when the concentration of land and wealth in few hands could lead to suboptimal economic results, the Jubilee would contribute to restore economic efficiency by ensuring a more equitable distribution of resources.
In the contemporary world, economic and financial processes impose their own rhythm on other spheres of social life. The Jubilee releases these pressures by imposing a new time horizon that remains exogenous to economic life. It provides a new paradigm to re-embed the role of the market economy in society and a more sustainable conception of development. The Jubilee should, however, not be merely a recurring practice every fifty years, but a founding myth for our time.
Michael Hudson and Charles Goodhart, “Could/should Jubilee debt cancellations be reintroduced today?, Economics, No 33, April 2018, pp. 1-27.
Nathan Mladin and Barbara Ridpath, St Paul’s Institute, “Forgive Us Our Debts”: lending and borrowing as if relationships matter, Theos, 2019.