Branko Milanovich in Global Inequality documents the winners and losers from the globalisation of economies since 1988.  Middle and lower income groups in the rich world  have stagnating incomes while countries  such as China and India have witnessed an increasing middle class. Both groups  have increasingly a shared characteristic: high household debt. The IMF has issued a warning about high world debt (here) and has developed a global debt database.  In countries of the North, the declining middle class use debt to hold on to their way of life in a period of stagnating wages, in emerging economies credit is part of the move to a consumer society.  The growth in inequality within rich countries also  means  that low income individuals make greater use of credit to get by, while low income consumers gain access to credit in emerging economies as part of a drive to financial inclusion.  Inevitably there are casualties who are overindebted.  Farmers in rural India struggle to repay micro-credit; those facing reduced circumstances  in the UK experience a spiral of debt through using credit cards to maintain a lifestyle. This global phenomenon of debt has spawned international proposals  to regulate credit and protect the casualties of the credit system.  The global financial crisis of 2008 spurred the international financial institutions into action as they  discovered consumer finance protection as one tool for fostering financial stability and promoting continued market expansion for credit. The 2017 World Bank’s guide to consumer finance protection now runs to over 200 pages.

A  global proliferation of individual bankruptcy laws has occurred to provide a safety net for the casualties of the credit system.  China, until recently one of the few jurisdictions not to have a consumer bankruptcy law which permits discharge of debts, is now considering reform in the context of rising household debt from 10 percent of GDP in 2006 to 45 percent in 2016 (see here). An increasing global phenomenon is that of the ‘low-income no-asset debtor’ or ‘no-income no-asset debtor’ who may be unable to pay for bankruptcy in those jurisdictions which require individuals to pay for access. In the early 2000s New Zealand floated the idea of a simple “No asset procedure”. English policymakers picked up the idea and the Debt Relief Order was enacted in 2007, a low-cost,  means tested, administrative procedure  accessible only with the assistance of approved debt advice agencies. Variations on this model exist  in Ireland and Scotland.

The IMF persuaded Cyprus to introduce a No-Asset procedure  in 2015 as part of its structural adjustment programme and  Kenya and India now have  No- Asset procedures. The details of these laws differ but  the rapid globalisation of the idea of the need for debt relief for low income individuals is striking.

Women dominate the use of the DRO in England and Wales: they may often be sole parents  who have been hardest hit by austerity.  The DRO is now the most common form of debt discharge in England,  outstripping  bankruptcy. Similar findings exist in relation to New Zealand’s no asset procedure. In the US reforms to bankruptcy law in 2005  substantially increased the costs of achieving a fresh start through bankruptcy and  several writers propose a more simplified procedure for individuals with few assets and little income.

The DRO provides an individual solution for the low income and overindebted, but we know little about its long term effects in providing a fresh start or merely a breathing space in a continuing struggle with debts.  A radical question is whether this individualised form of  relief draws attention away from structural problems of insufficient income and support and the ever present compulsion of credit to meet everyday needs. The introduction of a DRO procedure in India is of particular interest since it contrasts with the across-the-board  use of debt jubilees in that country. The Indian government, and the government of Uttar Pradesh  have both on different occasions  simply wiped out the debts of rural farmers (here). Croatia wrote off the debts of its poorest citizens in 2015 to provide them with a fresh start (here).  The Debt Jubilee campaign in the UK, championed by the actor Michael Sheen,  proposes a targeted debt jubilee for individuals trapped in  persistent debt, and the Financial Conduct Authority  has  raised the possibility  of credit card companies writing off persistent long term debt.

Johnna Montgomerie  in a recent monograph “Should we Abolish Household Debts?”  provides  a lively argument for a modern form of debt jubilee. Montgomerie outlines a  blueprint for debt cancellation, arguing that it would be an effective method of ending wider economic stagnation. The proposals  include a ‘household debt cancellation fund’ equal to half the amount given to the financial sector ten years ago.  This would fund long term refinancing for consumer and mortgage loans  commenced in 2009. It would also pool together old and onerous debt, including the cancellation of non-performing loans and those already written off by lenders. The jubilee would therefore target specific types of debt rather than debtors.

The premise of the proposal is that of a more balanced credit system. At present banks can create credit from nothing, a phenomenon recognised by the Bank of England. The state guarantees this system and steps in to rescue it through methods such as quantitative easing. Debtors meanwhile must continue to repay. Debt cancellation would balance the system.

Economists will undoubtedly worry about moral hazard and the impact on credit availability but we need to start an international conversation about  when it is legitimate not to repay debts (see e.g. here).