On Capitalism, Europe, and the World Bank
ZNet, April 2, 2007
Dennis Ott: In a recent interview you quoted Thorstein Veblen, who contrasted “substantial people” and “underlying population.” At a shareholder’s meeting of Allianz AG, major shareholder Hans-Martin Buhlmannn expressed the view that there is only one limit to the increase of the dividend: “The inferiors must not be bled so much that they can no longer consume. They must survive as consumers.” Is this the guiding principle of our economic system? And if so, is there any substance to the notion of a “social market economy”?
Noam Chomsky: Those are traditional questions in economics. It’s part of Marx’s reasoning about why there’s going to be a continuing crisis of capitalism: that owners are going to try to squeeze the work force as much as possible, but they can’t go too far, it’ll be nobody to purchase what they buy. And it’s been dealt with over and over again in one or another way during the history of capitalism; there’s an inherent problem.
So for example, Henry Ford famously tried to pay his workers a higher wage than the going wage, because partly on this reasoning – he was not a theoretical economist, but partly on the grounds that if he doesn’t pay his workers enough and other people won’t pay their workers enough, there’s going to be nobody around to buy his model-T Fords. Actually that issue came to court in the United States, around 1916 or so, and led to a fundamental principle of Anglo-American corporate law, which is part of the reason why the Anglo-American system is slightly different from the European social market system. There was a famous case called “Dodge v. Ford.” Some of the stockholders of the Ford motor company, the Dodge brothers, brought Henry Ford to court, claiming that by paying the workers a higher wage, and by making cars better than they had to be made, he was depriving them of their profits – because it’s true: dividends would be lower. They went to the courts, and they won.
The courts decided that the management of the corporation has the legal responsibility to maximize the yield of the profit to its stockholders, that’s its job. The corporations had already been granted the right of persons, and this basically says they have to be a certain type of pathological person, a person that does nothing except try to maximize his own gain – that’s the legal requirement on a corporation, and that’s a core principle of Anglo-American corporate law. So when, say, Milton Friedman points out that corporations just have to have one interest in life, maximizing profit and market share, he is legally correct, that is what the law says. The reason the Dodge brothers wanted it was because they wanted to start their own car company, and that ended up being Dodge, Chrysler, Daimler-Chrysler and so on. And that remains a core principle of corporate law.
Now, there were modifying traditional decisions, which said that a corporation is permitted legally – that means, the management is permitted legally – to carry out benevolent activities, like to join the Millennium Fund or something, but only if it improves their humanitarian image and therefore increases their profit. So a drug company can give away cheap drugs to the poor, but as long as the television cameras are on; then it’s still legal. And in fact, there’s an important decision by an American court, which is quite intriguing. It urges corporations to carry out benevolent activities; it says – and I’m quoting it now – or else “an aroused public” may figure out what corporations are up to, and take away their privileges – because after all, they’re just granted by the government, there’s nothing in the constitution, there’s no legal basis for them, it’s a radical violation of classical liberal principles and free market principles. They’re just granted by powerful institutions, and “an aroused public” might see through it and take it away. So you should have things like the Gleneagles conference once in a while, which is mostly fake, but looks good, and this is basically the court decision.
How does the social market system differ? There’s no principle of economics or anything else that says – first of all that even says that corporations should exist, but granting that they exist – that they should be concerned only with the maximization of gain for their stockholders instead of what’s sometimes called “stakeholders”: the community, the work force, everything else. As far as economics is concerned, it’s just another way of running things. And the European system to an extent has stakeholder interest. So, say, Germany has a theoretical form of co-determination – mostly theoretical, but some degree of worker participation in management, acceptance of unions, that’s been a partial move towards stakeholder interest. And the governmental social democratic programs are other examples of it.
The United States happens to be pretty much at the extreme of keeping to the principle that the corporate system must be pathological, and that the government is allowed to and glad to intervene to uphold that principle. The European system is somewhat different, the British system is somewhat in between, and they all vary.
Like during the New Deal period in the United States and during the 1960s, the United States veered somewhat towards a social market system. That’s why the Bush administration, who are of extreme reactionary sort, are trying to dismantle the few elements where the social market exists. Why are they trying to destroy social security, for example? I mean, there’s no serious economic problem, it’s all fraud. It’s in as good fiscal health as it’s ever been in its history, but it is a system which benefits the general population. It is of no use at all to the wealthy. Like, I get social security when I retire, but I’ve been a professor at MIT for fifty years, so I got a big pension and so on and so forth, I wouldn’t even notice if I didn’t get social security. But a very large part of the population, maybe 60% or something like that, actually survive on it. So therefore it’s a system that obviously has to be destroyed. It’s useless for the wealthy, it’s useless for privilege, it contributes nothing to profit. It has other bad features, like it’s based on the principle that you should care about somebody else, like you should care whether a disabled widow has food to eat. And that’s hopelessly immoral by the moral principles of power and privilege, so you’ve got to knock that idea out of people’s heads, and therefore you want to get rid of the system.
And in fact a lot of what’s called – ridiculously – “conservatism” is just pathological fanaticism, based on maximization of power and wealth in accord with principles that do have a legal basis.
But to get back to your original question, these are just choices. I mean, there are choices as to whether corporations should even exist, or why they’re even legitimate. They’re just tyrannies. Why should tyrannies exist? They are not supposed to exist in the political realm, there’s no reason why they should exist in the economic realm. But if they do, they could be imagined in all sorts of different ways, and there’s constant class struggle and pressures that lead to one or another outcome.
I mean the European system developed out of its complex historical background. I’m sure you know the original welfare states were basically Germany in the Bismarckian period – not because Bismarck was a big radical. And in fact to an extent, the European systems reflect the fact that they grew out of a feudal system. A feudal system is non-capitalist. In a feudal system everyone has a place – maybe a rotten place, but some place. So the serf has some place in the feudal system, they have some rights within that place in the system.
In a capitalist system, you don’t have any rights. And in fact when modern capitalism developed in the early 19th century – this is post-Adam Smith or anything like that, but Ricardo and Malthus and so on – their principle was pretty simple: you don’t have any rights. The only rights a person has are what they can gain in the labor market. And beyond that, you’ve no right to live, you’ve no right to survive. If you can’t make out on the labor market, go somewhere else. And in fact they could go somewhere else, they could come here and exterminate the population and settle here. But in Europe, you couldn’t do that, so some remnants of the whole feudal system and conservative structures and so on did lead to – after all, Europe had huge labor movements, the German social democratic party grew out of very powerful movements, and they just forced the development of what became social market systems.
After World War II, it was a very complex situation; the Second World War had a highly radicalizing effect, and the anti-fascist resistance had plenty of prestige. It was pretty radical; it was calling for quite radical democracy – it’s sometimes called communism, but it often had nothing to do with that. It’s just very radical democracy, worker’s control and so on and so forth, and it was so wide-spread, some kind of settlement had to be made with it.
If anyone were to write an honest history of post-WWII period, the first chapter would be devoted to how the British and American forces liberating Europe, one of the first things they did was to destroy the resistance, and to undermine the labor movement, and to try to beat back the efforts to create radical democratic programs. It varied in different countries but happened everywhere. Like in Italy, it started happening in 1943, since they moved in. By the time, the British and American forces reached Northern Italy, it had been pretty well liberated by the resistance, they had driven out the Germans mostly, and they had established their own institutions: worker-managed industrial systems, cooperatives, and so on. The British and Americans were totally appalled, they had to dismantle the whole thing and restore the rights of owners, meaning restore the traditional fascist system. An in fact, in the case of Italy, it’s particularly interesting. It continued at least into the 1970s. Italy was the main center of CIA subversion, well into the 1970s, but it happened everywhere else, too. In Greece, there was a war to destroy the resistance; they killed about a 150,000 people, and ended up restoring something like the traditional fascist structure.
Not long after the United States strongly supported the first restoration of actual fascism in Europe, and continued to support it, it was overthrown by the Greeks. And elsewhere it took different forms. In England and the United States, there were similar things happening. The population was also radicalized, and there had to be some adaptation to them, so you get the welfare state periods. But this is just the constant flux of struggle and conflict internal to hierarchic societies. There’s no right answer to it.
DO: In a commentary on ZNet, John Feffer praised the EU for being “more democratic, more economically fair-minded, more environmentally conscious, and more diplomatically sensitive” than the U.S. However, many European dissidents criticize the project as an attack on democracy, and as pushing forward militarization and the dismantling of the welfare state in the member countries; in similar spirit, you described it as “a central banker system.” What is your view – from the American perspective – on the emerging superpower Europe?
NC: There’s no particular American perspective… I mean, there is an American elite perspective, which is not mine. The general idea of European unity is a good idea. I think the world should be federalized in some sense, and the erosion of the nation-state system is a good thing. Nation-state systems basically arose in Europe in their modern sense, and they’re extremely unnatural social organizations. They had to be imposed on the populations by violence, extreme violence. Just look at the history of modern Europe, it’s a history of savage wars and destruction going back centuries. In the 17th century and the Thirty Years War, probably forty percent of the population of Germany was wiped out.
And the only reason it stopped in 1945 is because of a common realization that you just can’t do it anymore; the next war is going to destroy everything, we developed means of savagery that are too great to be employed. So therefore we have what’s called a democratic peace by political scientists. Probably the main factor in it is just that the means of destruction are so enormous that powerful states can’t go to war with each other, the war is the end.
And then you get steps towards integration. Some of it is healthy, some of it is unhealthy; it’s a mixture. So, the role of the Central Bank in Europe, which you mentioned, is very reactionary. In fact, even American conservatives criticize them, as granting far too much authority to a wholly undemocratic institution; it’s just not answerable to the public. That’s a form of autocracy that doesn’t exist in the United States; there’s the Federal Reserve, but it has nothing like the power of the European Central Bank. In principle at least, it’s under some form of democratic control – limited, for all sorts of reasons, but some form. And, in fact, it’s commonly argued by economists that part of the reason for the sluggishness – it’s exaggerated, but the partial sluggishness – of the European economy is just that the Central Bank decisions tend to discourage growth, and they’re not under public control.
Well, that’s a negative aspect. A positive aspect is that there’s some erosion of the extremely dangerous nation-state system. In fact, one of the consequences which – in my view at least – is a healthy one is a degree of regionalization throughout much of Europe. That is, a revival of a degree of local autonomy, of regional cultures, of regional languages, and so on. So like in Spain, there’s a fair amount of autonomy in the Catalan area, the Basque area, there’s similarly in others a revival of the languages… A lot of it is, I think, an extremely healthy development.
So for example, I happened to visit Barcelona, shortly after the Franco period, and then ten years later. And the differences were remarkable. For one thing, you heard Catalan in the streets, which you hadn’t heard before. And for another thing, there was just a revival of cultural practices and so on. You know, people flocking to the main cathedral on Sunday morning, with dancing and traditional singing and so on. That’s all fine, you know. It revives or gives some significance to life. And it has its negative aspects, too. It means harsh discrimination against Spanish workers who happen to be working in Catalonia. I mean, life’s a complicated affair.
But all of these things are happening, and some of them are healthy and should be encouraged, others not. I think, say, the French vote on the European constitution was basically a class vote. I mean, working people and peasants could see perfectly well that the constitution was an instrument of class warfare which is going to harm them by imposing neo-liberal conditions and undermining the social market from which they benefit.
There were also other elements; there were racist elements. The opposition in continental Europe to bring in Turkey – you can hide it in all sorts of nice terminology, but it’s fundamentally racist. I mean, Germans don’t want to have Turks lurking around in the streets. Europe has quite a tradition of racism, no need to talk about it.
So it’s a complex web of concerns. In general, I think that moves towards European integration are a good idea. Extending the Union to the East is again a complicated matter. US elites are strongly in favor of it. But that’s because they’ve always been concerned that Europe might move off into the wrong direction, out of US control. That’s been a big concern since the Second World War. Europe’s economy is at least on a par with the United States, it’s an educated population, a larger population. Except in the military dimension, it’s a counterpart or even superior to the United States, and so it could move off on its own. And bringing in the peripheral states, the former East European satellites, tends to dilute the strength of the core of the European commercial-industrial economic center, namely France and Germany, and to bring in countries that are more subject to US influence. So it might undermine moves towards European independence.
A lot of the things that are going on in the world are similar. Like, take the Iraq war. I’m sure that a large part of the purpose of the Iraq war is with an eye on Europe and North East Asia. I mean, if the United States can control the world’s energy resources, then it has what George Kennan 50 years ago called “veto power” over what competitors can do. And the more astute political analysts have pointed that out pretty openly, like Zbigniew Brzezinski. He wasn’t particularly in favor of the war, but he said that it will give the United States “critical leverage” over European and Asian competitors. That’s part of the things that happen in the world.
In fact, it’s not too well known, but the expansion of NATO to the East by Clinton was an explicit violation of promises, formal promises made to Gorbachev in, I think, 1990 by George Bush Nr. One. Gorbachev agreed to the unification of Germany on condition that NATO not expand to the East. For Russia to agree to German unification is a very hazardous step. I don’t have to run through it, but the history of the past century explains why. But they did agree on the condition that NATO not expand to the East. Clinton quickly backed off on that commitment and did expand NATO to the East, which is a tremendous strategic threat to the Soviet Union. And it caused the Russians to change their military doctrines. Russia had previously adopted the NATO doctrine of first strike with nuclear forces, even against non-nuclear states. But in the early nineties, they dropped it. But once NATO was expanded to the East, they reinstated it. So now we have superpowers facing each other with first-strike strategic options and missiles on hair-trigger alert – practically a recipe for global disaster.
So lots of things are involved in these decisions.
DO: Last year’s appointment of Paul Wolfowitz as President of the World Bank caused angry reactions all over the world, even some irritations in the Western countries. Is there any detectable change in the World Bank's policy since Wolfowitz has taken office, and what is the signal the Bush administration has sent to the world by appointing this controversial figure to the institution's head?
NC: Unlike most of my friends, I was in favor of that appointment. The reason is pretty simple: I think he can do much less damage in the World Bank than in the Pentagon. So getting him out of the Pentagon almost anywhere is a good decision. In the World Bank, I suppose he’ll be a bureaucrat, like other bureaucrats.
I mean, the only record he has that’s relevant is his record in Indonesia, which, in fact, his supporters bring up. They say, you know, he has an experience with development, look at his role in Indonesia, and so on…
What was his role in Indonesia? He was one of the strongest and most vocal supporters of one of the worst murderers and tyrants of the late 20th century. Human-rights activists in Indonesia can’t even remember a case where he said a word about human rights, or about democracy. He was just a strong supporter of the murderous, brutal tyrant and aggressor Suharto. And in fact he remained so, even after the Indonesians had finally thrown him out.
They claim that his task in the World Bank is supposed to be to root out corruption – that’s the prime task that’s been assigned to him. Suharto was the most corrupt dictator of the late 20th century. I mean, there is a monitor of corruption, Transparency International, a British-based institution. About two years ago, they ranked regimes in terms of corruption: Suharto was far in the lead, way beyond Mobutu and others way below. And that’s Wolfowitz’s favorite. So, based on those credentials – delight with corruption, concentration of wealth, tyranny, human-rights violations, destruction of democracy – he’s the candidate for the World Bank.
Will he do any worse than anyone else? My guess is: probably not; he’ll be a bureaucrat like other bureaucrats. So far, there’s no indication of any shift in World Bank policy that I’ve seen, and I wouldn’t particularly expect any.
 “Fight the Power,” Noam Chomsky interviewed by Ian Rappel, Socialist Review (online), July 2005.
 Quoted in Arne Daniels, Stefan Schmitz, and Marcus Vogel, “Wir alle sind Heuschrecken,” stern 20/2005, p. 24 (interviewer’s translation).
 John Feffer, “Europe as Number One?”, ZNet (online), May 26, 2005.
 Noam Chomsky and David Barsamian, Propaganda and the Public Mind, Cambridge, Mass.: South End Press, 2001, p. 51.