Power in The Global Arena
Amiel Lecture, London, May 1998
I would like to talk primarily about the United States, its place in the evolving world order and the prospects for the future. The record of prediction in human affairs is not exactly inspiring, but the task is hopeless without at least a fair grasp of what has happened, and is happening. It's not transparent but it's not impenetrable either.
To start with, I would stress that the focus on the United States is distorting, and we should compensate for it: the US is powerful but not all-powerful. It is the richest country in the world, it has unparalleled advantages and has had for several hundred years, but the global economy has been what is called tri-polar for almost thirty years, with intricate alliances and conflicts, and there are other power centres. So the United States, surely, is uneasy, at least, about the recent signs of rapprochement between Saudi Arabia and Iran, which are historic enemies, in a crucial area where there is plenty of trouble ahead to mention only one example.
In 1945 the structure of world power was unusually clear by historical standards. A half-century before that, the United States had become by far the world's greatest economic power, but it was a relatively small player on the world scene. By 1945 that had radically changed, for obvious reasons: the industrial societies had been seriously damaged or destroyed, while the US economy had flourished through the war; the US had literally half the world's wealth, incomparable military power and security, and it was in a position to organise much of the world, and did so with the assistance of its 'junior partner,' as the British Foreign Office ruefully described the new reality of the time.
The general point was put accurately enough by a leading diplomatic historian, Gerald Haines, in a recent book, (he is also the senior historian of the CIA).1 He observes that after WWII the United States 'assumed, out of self-interest, responsibility for the welfare of the world capitalist system,' which is a fair enough formula, but to understand it we have to carry out a few translations. The first is that the word 'capitalist' doesn't mean capitalist. Rather, what it refers to is state-subsidised and protected private power centres 'collectivist legal entities,' as they are called by legal historians, internally tyrannical, unaccountable to the public, granted extraordinary rights by US courts in radical violation of classical liberal ideals. That's why the corporatisation of America, as it's called, early in this century was bitterly condemned by conservatives, a breed that has since vanished, aside from the name. The corporatisation was condemned as 'a form of communism,' a return to 'feudalistic' structures, and not without reason. Progressive intellectuals, who generally supported the process, gave a rather similar assessment. One of the leading ones, Woodrow Wilson, wrote that 'most men are servants of corporations,' which now account for the 'greater part of the business of the country.' It is 'a very different America from the old, . .. . no longer a scene of individual enterprise,. . . individual opportunity and individual achievement.' In the new America, 'small groups of men in control of great corporations wield a power and control over the wealth and business opportunities of the country,' becoming 'rivals of the government itself.'2
More accurately, these corporations were casting over society the shadow that we call politics, as John Dewey put it a little later, making obvious points about the extreme limitations on democracy when 'the life of the country', the production and information systems and so on, are ruled by private tyrannies, in a system that he described as industrial 'feudalism' -- the contemporary system.3
The corporatisation process was in large part a reaction to great market failures of the late nineteenth century, and it was a shift from something you might call proprietary capitalism to administration of markets by collectivist legal entities, mergers, cartels, corporate alliances in association with powerful states, and by now international bureaucracies, which regulate and support private power. The primary task of the states and, bear in mind, that with all the talk about minimising the state, in the OECD countries the state continues to grow relative to GNP, notably in the eighties and nineties, is essentially to socialise risk and cost, and to privatise power and profit. These are tendencies that have moved forward under Reaganite, Thatcherite and New Democrat doctrines.
Well, going back to Haines' formula, it's not false, but we have to understand 'capitalism' as referring to social arrangements that would have scandalised Adam Smith or Ricardo or James Madison or, for that matter, even the American Republican Party in the late nineteenth century. It's hard to remember now, but at that time the Republican Party opposed even wage-labour, as not very different from the chattel slavery that had just been overthrown in the civil war. These ideas are deep in the American tradition, without the dubious benefit of radical intellectuals. We also have to understand the phrase 'self-interest' in Haines' formula. It does not refer to the interest of the population, except by the remotest accident -- that's a truism as old as Adam Smith.
Le Mur de Berlin: Georges Dyens (22617 octets)
With these translations in mind, we can accept the conventional view that after WWII the United States 'assumed, out of self-interest, responsibility for the welfare of the world capitalist system'. That responsibility devolved into several related programmes: the first and most important had to do with the domestic society -- I'll return to that; the second had to do with reconstructing the industrial societies, but of course in a particular fashion basically restoring the traditional conservative order.
The third array of policies had to do with what's called the South, the service areas. Here there was very sophisticated global planning closely integrated with the project of reconstruction of industrial society. In the late 1940s -- we now have a rich declassified record on this, each region of the South was assigned what was called it's 'function'. In the western hemisphere the United States expected to take over completely, largely expelling its traditional rivals Britain and France; and the same was true of the Middle East, although here the junior partner was granted a role which has declined over the years. Africa was to be assigned to Europe, to be 'exploited,' as George Kennan put it, for its reconstruction.4 A high-level planning study in 1947 recommended what it called 'co-operative development of [Africa's] cheap foodstuffs and raw materials [which] could help forge European unity, and create an economic base for continental recovery,'5 the 'continent' being Europe -- an interesting notion of co-operative development, and of course no one was vulgar enough to suggest that Africans might have some grounds for exploiting Europe for their reconstruction. Right now in the US Congress is a new piece of legislation which is entitled the Africa Growth and Opportunity Act. I should mention, for those of you who follow US affairs, the interesting phenomenon of the Orwellian titles that are being given to legislation, which probably means something, I'm not sure just what. The Africa Growth and Opportunity Act is intended to reorganise the project to grant the United States a role in the co-operative development of Africa, in exactly this old sense.
South East Asia was to be returned to its colonial masters, in effect. It was to serve what was called its 'major function,'6 namely, providing cheap raw materials and resources to western Europe and Japan (that was to aid in their recovery), and also to establish what were called 'triangular' trade patterns with Europe and the United States, to help overcome the dollar gap that was a serious concern at the time -- the inability of the industrial societies to purchase the huge manufacturing surplus in the US. That was a prime factor in US post-war economic planning. Later, the US took over in several areas, with consequences that we need not discuss.
The most instructive case is the western hemisphere. The reason is simple: here, the US had free rein, so the operative principles emerge with the greatest clarity, and they are worth quite careful attention, because they are alive and well right up to the present; right up to the attempts right now to change the charter of the IMF, to deprive debtors of the means for any form of democratic policy planning. In the western hemisphere the US certainly had no serious rivals, apart from the domestic population, who were a problem, and a recognised one. That conflict came to a head at a hemispheric conference in February 1945. The prime US concern, quoting from declassified records, was what was called the 'philosophy of new nationalism' which is taking root in Latin America, and 'embraces policies designed to bring about a broader distribution of wealth and to raise the standard of living of the masses,' on the principle that 'the first beneficiaries of the development of a country's resources should be the people of that country.'7
Well, none of that is acceptable. The first beneficiaries must be US investors, their counterparts elsewhere, and their local associates: they have a prior claim on the human and material resources of the service areas. The US position prevailed, given power relations. Latin America was forced to accept what was called the Economic Charter for the Americas, which guaranteed an end to economic nationalism 'in all its forms' and the history of the region until today revolves around efforts to enforce those rules which are to apply elsewhere as well. The current trade agreements and the so-called globalization project are the latest phase in imposing the right priorities on a recalcitrant world.
These themes are constantly reiterated in the internal record and high-level planning documents and, more important, implemented in practice: so, ten years after the hemispheric conference, the National Security Council (the highest planning body) identified the main threat to US interests as 'nationalistic regimes maintained in large part by appeals to the masses of the population' in response to 'the increasing popular demand for immediate improvement in the low living standards of the masses.' That conflicts with 'a climate conducive to private investment of both domestic and foreign capital,' and the 'opportunity to earn and in the case of foreign capital to repatriate a reasonable return', as well as with what Kennan called 'the protection of our raw materials.'8
Notice that they are 'our' raw materials, which, by accident, happen to be somewhere else. This sort of vulgar Marxist rhetoric is typical of internal documents and the business press, but it varies. It reached new extremes when the Kennedy intellectuals took over. After the US-backed military coup in Brazil, which was welcomed by Kennedy's ambassador as 'the single most decisive victory of freedom in the mid-twentieth century,' Robert McNamara and McGeorge Bundy found US policies towards the Latin American military to have been 'effective in attaining the goals set for them,' namely 'improving internal security capabilities' and 'establishing predominant U.S. military influence'.9 That was very important, because, in what they called the 'Latin American cultural environment' -- remember, these are serious intellectuals, so they're interested in things like that --it is the task of the military 'to remove government leaders from office whenever, in the judgement of the military, the conduct of these leaders is injurious to the welfare of the nation.' With the US now in control of the military, the military will act to ensure the right outcome to the 'revolutionary struggle for power among major groups which constitute the present class structure' in Latin America, and will guarantee that 'private US investment' and trade is protected. That is what they call the 'economic root' that is the core element of 'US political interest in Latin America.'
Well, individual cases illustrate the principles with remarkable consistency. To take one that is in the news again -- Guatemala -- with yet another assassination of a leading church figure immediately after he had released a report on the horrendous state crimes of the US-backed government in the eighties, and which had been going on ever since the US overthrew the democratic government in 1954. At the time, if you look back, there was a lot of public talk about communism and the Russians: the internal record reads quite differently. Quoting from CIA and State Department reports, the concern was that the 'social and economic programmes of the elected government met the aspirations' of labour and the peasantry, and 'inspired the loyalty and conformed to the self-interest of most politically conscious Guatemalans.' And, more dangerous still, the government was 'preparing to mobilise the hitherto inert peasantry'; and still worse, Guatemala was becoming what was called a 'virus' that might infect others.10 It was threatening 'stability': Its agrarian reform is a powerful propaganda weapon; its broad social programme of aiding the workers and peasants in a victorious struggle against the upper classes and large foreign enterprises has a strong appeal to the populations of Central American neighbours where similar conditions prevail.11
All of that is radically counter to the Charter of the Americas, so the US had to move in to restore the traditional social order by violence, and to maintain it by extreme violence. All of this to contain the threat of democracy and to roll back the social programmes that were undermining stability because of their strong appeal to the population. These are quite consistently the operative meanings of the terms 'containment' and 'roll-back' and 'stability,' and so on.
Terror in Haiti
We have just witnessed another quite dramatic example of this in Haiti, the poorest country in the hemisphere, though it was one of the richest colonies in the world, and the source of a good deal of France's wealth. The democratic election in 1989 -- the first one -- turned out, to everyone's surprise, to be a really inspiring triumph of popular democracy. The election swept into office a populist priest who was backed by a vigorous grass-roots movement, largely emerging from the slums and the hills, which nobody had paid any attention to. The US was appalled: it acted at once to undermine the government, a military coup took place a few months later. Washington gave crucial assistance to the murderous military regime. The US maintained intelligence and military contact with the coup leaders throughout; it moved at once to undermine an embargo called by the Organisation of American States. The Bush and Clinton administrations even authorised the Texaco oil company to provide shipments of oil to the coup leaders and their wealthy supporters, in violation of presidential directives. All this, incidentally, is known to the national press, well known to them, but not reported. After three years of terror to tame the popular movements, the US moved in to 'restore democracy,' but on a condition: that the government abandon the reformist programmes and adopt the policies of the US candidate of December 1989 -- a World Bank official who had received 14% of the vote. So 'democracy' is 'restored'.12
The Haitians also got a lesson in the meaning of the word 'market'. The staple food in Haiti is rice. Haiti was, not long ago, self-sufficient in rice and is potentially a favourable place for rice production. But it was forced to 'liberalise' -- that is, eliminate any tariffs, and so on. That means that Haitian farmers can now compete on a level playing field with US agribusiness: US growers get 40% of their profits from federal subsidies, which were sharply increased under Reaganite conservatism. So, that's 'markets'.
All of this is what you might call 'really existing market democracy'. The story goes back centuries, but is particularly cruel when the game is played between the US and Haiti; and it's even more grotesque when it's hailed by the Clinton administration and admiring intellectuals as the prime example of, if I may borrow a phrase from the junior partner, our new 'ethical foreign policy'. Cold war issues were non-existent, and in fact they have been rather marginal throughout, which is why we see the same policies before, during and after the Cold War; and why the record is so instructive in revealing the operative principles that continue to function.
Castro, Saddam and Uncle Sam
Rather strikingly, the same is true of the one Western hemisphere case that that did have a non-trivial Cold War component: Cuba. Let's have a quick look at that. The US took over Cuba just one hundred years ago. Quoting two eminent Harvard historians in their introduction to the newly released Kennedy Tapes, it remained a 'virtual colony of the United States' until Castro took over in January 1959.13 Within a few months the Eisenhower administration decided secretly to overthrow the government. Terror attacks from Florida began in October 1959 and still continue -- all known to US media leaders, but avoided in the national press. The formal decision to overthrow the government was taken secretly in March 1960. The Kennedy administration came in a few months later. One of its actions was to establish a Latin American study group. Its report to the President was just recently declassified. It was written by historian Arthur Schlesinger. Schlesinger identified the Cuban threat as 'the spread of the Castro idea of taking matters into one's own hands' a serious problem, he added shortly after, because throughout Latin America 'the distribution of land and other forms of national wealth greatly favours the propertied classes, [and] the poor and underprivileged, stimulated by the example of the Cuban revolution, are now demanding opportunities for a decent living.'14
In other words, Cuba was a virus, like Guatemala and other targets of aggression. Well, what about the Russians? They are mentioned: Schlesinger goes on:
"Meanwhile, the Soviet Union hovers in the wings, flourishing…large development loans and presenting itself as the model for…achieving modernisation in a single generation."
One might compare this with Schlesinger's historical account of what happened. In public he now describes the problem faced by Kennedy as Castro's 'troublemaking in the hemisphere' and 'the Soviet connection,' which actually were understood in such terms quite consistently.15
It is only natural that, with the Russians gone from the scene, the policies continue, in fact they've become much harsher with the Russians gone, although the pretext instantly changed, and no well-educated person is supposed to notice that or draw any conclusions from it. Indeed, the new pretexts remain about as credible as the old ones.
That there would be no fundamental policy changes after the Cold War was announced at once by the Bush administration in March 1990, in its annual presentation to Congress, explaining why we need a huge military budget. The text of the statement was essentially identical to earlier years, except for the pretext. The Cold War had officially been declared over. So, correspondingly, the threat was no longer the Russians. The threat now was what they called 'the growing technological sophistication of Third World conflicts.' That is why we have to keep a huge military budget at Cold War levels (now increasing), and why we have to maintain the 'defence industrial base'. That is a euphemism for high-technology industry. The White House also explained that it is necessary to maintain and upgrade intervention forces, which, as before, were directed primarily at the Middle East, where 'the threats to our interests' that have required military engagement 'could not be laid at the Kremlin's door,' contrary to earlier lies, now useless with the USSR no longer a credible threat.16
Incidentally, internal documents had clearly recognised that long before, but it is now public, so we don't have to argue about it. Note that the threats to our interests could also not be laid at Iraq's door. This was a few months before the invasion of Kuwait, at which time (March 1990) Saddam Hussein was still a favoured friend and ally of the US and Britain, as he gassed Kurds and tortured dissidents, committing by far his worst atrocities with ample US and British aid and support. Saddam actually became a friend again, just a year later, in March 1991, as he slaughtered Shi'ites and suppressed a military uprising under the eyes of Stormin' Norman Schwartzkopf. The US refused even to allow rebelling Iraqi generals access to captured Iraqi military equipment, and the State Department reiterated the official ban against any discussion with Iraqi dissidents, a ban which had been instituted by Secretary of State George Schultz after the Halabja massacre in 1988, to placate Saddam, according to Iraqi dissidents.
That's a bare sample of a long story which is more or less the same: let's turn to the conventional interpretation of it. A good encapsulation is given by what was called the Clinton Doctrine. Every president needs a doctrine; this one was presented by Anthony Lake, National Security Advisor, and the administration's intellectual. He said, 'Throughout the Cold War, we contained a global threat to market democracies'; now we can 'consolidate the victory of democracy and open markets.'17 American foreign policy has entered a 'noble phase,' with a 'saintly glow'.18
But critics cited by the Times warned that, by 'granting idealism a near exclusive hold on our foreign policy,' we may be neglecting our own interests in the service of others.19 Between these extremes the debate may rage in happy isolation from the real world. There is also a conventional doctrine about the domestic scene and what it implies for the rest of the world, which has yet to benefit from what is called America's 'entrepreneurial values and rugged individualism'. So let's turn to that.
The Land of Milk and Honey
The standard picture of the domestic scene is given, for example, by a recent lead article in the New York Times. The headline is 'America is Prosperous and Smug,' perhaps too much so, and it goes on to explain that Americans have 'boundless confidence' and 'expectations of unlimited economic success' in the 'happy glow of the American boom,' 'the fairy tale US expansion since 1991,' a 'remarkable economic success' under the direction of 'the saintly [Alan] Greenspan'.20 As I left Boston on Sunday, another lead article in the New York Times, a front-page article, described what it called a 'fat and happy America,' enjoying the current economic boom, 'one of the longest and healthiest in American history.'21 Okay, that's the picture, you've seen plenty of it, probably more here even than in the US. Let's have a look. It has indeed been a fairy tale for some. Both of the articles I cited give one -- the same -- example, namely the stock market. There has been enormous asset inflation, which is certainly a fairy tale to the one percent of households that own half the stocks, and the ten percent that own most of the rest. It has also been a fairy tale for corporations; the business press has been ecstatic about the profit growth in the last few years. It has been called 'extraordinary,' 'stunning,' 'dazzling,' 'stupendous,' -- I think they have run out of adjectives.
But it's not unproblematic. Business Week did detect a problem; they had an article headlined 'The Problem Now: What To Do With All That Cash,' as 'surging profits' are overflowing the coffers of corporate America. Shortly after it became even worse; 'The liquid assets of non-financial corporations hit a staggering $679 billion' causing 'vexing problems' for Boeing, Intel, General Motors and others like them.22 Fortunately, there is a solution, and there is a bi-partisan consensus on it: namely, to reduce taxes on capital gains. That is for the benefit of everyone, not just the top one percent, for whom it's half their income. The purpose of this is to free funds for investment, because the staggering two thirds of a trillion dollars that's causing such vexing problem is not enough. I should say, it takes a good education to keep all this in hand with proper sobriety, but a lot of people do it, and it's impressive.
What about the fairy-tale expansion since 1991? Well, it's true that it breaks new records; for one thing it's the first recovery in American history that has not been accompanied by increases in wealth and income, apart from the top few percent. It is also the weakest recovery of the post-war period; it's even below the growth rate of the anaemic seventies and eighties. In fact, the per capita growth rate of the US economy in the 1990s is approximately at the OECD average; it is well below the fifties and the sixties. It's also the period of slowest productivity growth, which is a portent for the future. So that raises some questions. How can we have dazzling profit growth when the fairy-tale expansion is the weakest since the Second World War? Well, there's a simple answer to that: most of the population has been left out of the story. So, for two thirds of workers, average incomes are below the late 1970s. In the late 1980s, which was a period of recovery, hunger in the US increased fifty percent, to about 30 million people. Around 1980 the US was rather similar to other industrial societies by what are called quality of life measures -- things like poverty; child malnutrition; mortality; the proportion of the population in jail; inequality, and so on -- now it's far in the lead. Working hours have gone way up, Americans apparently work about a month per year more than they did 25 years ago; wages have gone down; support systems have gone down; working conditions have deteriorated. Until this afternoon, I thought they were the worst in the industrial world, but then I got some information about England, and I had to revise that! The decline of US labour costs to the lowest, second to England, in the industrial world was hailed by the Wall Street Journal as 'a welcome development of transcendent importance,' and that's part of America being happy and satisfied.
Illegal firing of union organisers tripled in the 1980s, along with other violations of law, which continue under Clinton. The Reagan administration essentially informed the business world it wasn't going to apply the laws, and was reported rather accurately in the business press.23 That's a big factor in the increase in inequality, the attack on wages and incomes. If you turn to the business pages of the New York Times they tell the story pretty straight. For example, a story headlined 'America's Treadmill Economy,' in which most people are 'Going Nowhere Fast,' with poor prospects.24
Let's go back to the headline, 'America is Prosperous and Smug,' and so on. That all makes sense as long as we understand what the word 'Americans' means: it doesn't refer to Americans, it refers to a small, privileged minority, which is in fact the constituency of the New York Times, those are the people you meet in elegant restaurants, boardrooms and so on, and they are indeed smug and prosperous, happy and confident.
Let us turn our attention to the saintly Alan Greenspan, who presided over the miracle in the 1990s. He recently testified to the Senate Banking Committee on the miracle, which he was very proud of. He attributed the miracle to 'greater worker insecurity.'25 Workers are intimidated; they are afraid to ask for a living wage and benefits, and that's a good thing. It makes Americans confident and smug, if you understand the word 'Americans' correctly. The latest economic report of the President also takes great pride in the fairy-tale economy, which it attributes to 'significant wage restraint' that results from 'changes in labour market institutions and practices.'26 That translates into English as things like non-enforcement of laws on illegal strike-breaking, allowing permanent replacement workers, the US has been cited by the ILO for that, but nobody pays any attention. And there are other factors in the fairy-tale. Caterpillar, the construction producer, just won a major strike in Illinois, seriously harming one of the major unions, United Auto Workers. How did they do it? Well, by hiring permanent replacement workers, considered illegal in most of the world; and also by using the dazzling profits that they shared with their associates to construct excess capacity abroad, from which they could supply their markets even with the Caterpillar plants in Illinois on strike. Notice that the use of profits to construct excess capacity abroad is not for profits, and not for efficiency, but for class war: that is, it's a way of attacking American workers, and so it was used. Capital is mobile, labour is not and, unfortunately, international links are quite weak.
The NAFTA Scam
Another factor in these benign changes is the trade agreements, which have interesting effects: what is called 'globalisation.' In the rules of the North American Free Trade Agreement (NAFTA), there is some meaningless verbiage about labour rights, but under those rules NAFTA is required to follow up on labour complaints. There was a complaint by telecommunication workers against Sprint. They actually won the complaint: Sprint got a slap on the wrist. But they did have to carry out an interesting study, which was conducted by a Cornell University labour economist, Kate Bronfenbrenner. It was suppressed by the Clinton administration, but released by Canada and Mexico, and not reported in the US to my knowledge. She discovered that half of the organising efforts since NAFTA had been disrupted by threats to transfer production. So, for example, signs outside a plant that say 'Mexican Transfer Job' and so on. And those threats are not idle. When organising nevertheless succeeds, closures are at triple the pre-NAFTA rate. All of this is technically illegal but, as I said, Reagan and Clinton informed the business world that crime will pay, with state protection.27
Saint Greenspan and the transistor
The saintly Alan recently gave a talk to newspaper editors in the US. He spoke passionately about the miracles of the market, the wonders bought by consumer choice and so on. He also gave some examples: the Internet, computers, information processing, lasers, satellites, transistors.28 It's an interesting list: these are textbook examples of creativity and production in the public sector. In the case of the Internet, for thirty years it was designed, developed, and funded primarily in the public sector, mostly the Pentagon, then the National Science Foundation, that's most of the hardware, the software, new ideas, technology and so on. In just the last couple of years it has been handed over to people like Bill Gates who, at least, you have to admire for his honesty: he attributes his success to his ability to 'embrace and extend' the ideas of others, commonly others in the public sector.29 In the case of the Internet, consumer choice was close to zero, and during the crucial development stages the same is true of computers, information processing, and all the rest, unless by 'consumer' you mean the government; that is, public subsidy.
In fact, of all the examples that Greenspan gives, the only one that rises maybe to the level of a joke is transistors, and they are an interesting case. Transistors, in fact, were developed in a private laboratory - Bell Telephone Laboratories of AT&T - which also made major contributions to solar cells, radio astronomy, information theory, and lots of other important things. But what is the role of markets and consumer choice in that? Well again, it turns out, zero. AT&T was a government supported monopoly, so there was no consumer choice, and as a monopoly they could charge high prices: in effect, a tax on the public which they could use for institutions like Bell Laboratories where they could do all of this work. So again, it's publicly subsidised. As if to demonstrate the point, as soon as the industry was deregulated Bell Labs went out of existence, because the public wasn't paying for it any more: its successors work mostly on short-term applied projects. But that's only the beginning of the story. True, Bell Labs invented transistors, but they used wartime technology which, again, was publicly subsidised and state-initiated. Furthermore there was nobody to buy transistors at that time, because they were very expensive to produce.
So, for ten years the government was the major procurer, particularly for high-performance transistors. In 1958 the Bell Telephone supplier, Western Electric, was producing hundreds of thousands of these, but solely for military applications. Government procurement provided entrepreneurial initiatives and guided the development of the technology, which could then be disseminated to industry. That's 'consumer choice' and the 'miracle of the market' in the one case that you can even look at without ridicule. And in fact that story generalises, even the most ignorant economist must know this. The dynamic sectors of the economy rely crucially on massive public subsidy, innovation and creativity; the examples that Greenspan gave are mostly some of the most dramatic cases of this. It's a revealing set of choices. A lot of this is masked as defence, but that's not all, the same is true in biotechnology, pharmaceuticals and so on.
Naturally, business is delighted with all of this: the public pays the costs, assumes the risks (a kind of 'socialism for the rich'); and profit and power are privatised -- that's really existing market theory. It goes back for centuries, but it is dramatically true now. Particular cases make it even more dramatic. Take the leader of the conservative revolution in Congress, Newt Gingrich. He is a fount of very impressive rhetoric about the work ethic, and getting off the cycle of dependency, how seven-year-old children have to learn responsibility and that sort of thing. But, year after year, he holds the championship in bringing home federal subsidies to his rich constituents, in a sector of Georgia where the economy is even more dependent on federal subsidies than in most places.30 His favourite cash-cow is Lockheed-Martin. There is a two-hundred-dollar annual Lockheed-Martin tax per capita in the US. Sometimes, even with all that, Lockheed-Martin goes under; when it does the government steps in, as under the Nixon administration, with a couple of hundred million dollars of guaranteed loans. It was that performance that led Senator Proxmire to coin the phrase 'corporate welfare' So, that's conservatism in the House of Representatives.31 The Senate majority leader, Trent Lott, is the same. The Financial Times described him a couple of weeks ago as 'the most successful pork producer in 1997,' which is quite accurate.32 So, that's conservatism in the Senate.
The Idaho Connection
And it continues -- I will just give one last example. Here is a front page story in the New York Times on an 'economic miracle' in the United States. They describe 'the prosperous new economy' in 'the nation's most Republican state,' with its 'deep-seated distrust of the Federal Government' and its 'tradition of self-reliance,' it happens to be Idaho.33 They point out, as is conventional, that there is down-side to the economic miracles: Idaho also breaks national records in child-abuse and imprisonment; the unions have been wiped out; reading scores are going down, and so on. But it's a prosperous new economy, and the most Republican state, and so on. From the article we don't learn anything about the economic miracle, so you look elsewhere. For example, you can look at the publications of the Idaho National Engineering and Environmental Lab. This is a national laboratory, managed by the Department of Energy, jointly with the Lockheed-Martin corporation -- that's the private contribution symbolising self-reliance and distrust of the federal government. The publication opens by saying, 'Americans have made a huge investment in the Idaho National Laboratory' since it was founded in 1949 to bring us nuclear energy and a nuclear navy. Last year the Department of Energy put $850 million into this single site, which is the 'premier engineering lab in the DOE system of national laboratories.' Its mission is to 'move federally developed technologies into private industry and academia.'34
In academia, research and development is also federally funded, very substantially; its role is a kind of funnel for transferring public funds into private profits. Notice the phrase, 'move federally developed technologies into private industry.' That's the role of the government in a free-enterprise economy. In the Idaho DOE lab, it's not only nuclear energy; it's also radio-active waste disposal, chemical processing, 'the world's most sophisticated materials and testing complex,' a 'rapid-tooling technology' laboratory that should 'revolutionise the way automobiles and other products are built', after the tax-payer gifts are handed over to the private sector, a supercomputer centre to ensure that the United States stays at the forefront of computer development. To help out on that, the Clinton administration recently slapped a huge tariff on Japanese supercomputers which were undercutting the US ones -- a magnificent contribution to free trade. The Clinton administration's moves of that sort -- tariff interventions -- range from supercomputers to Mexican tomatoes, which were banned (technically, by threat, so a tariff was unnecessary), because they were preferred by American consumers, they pointed out.35
There are laws about this, but laws are not for rich and powerful people, they are for places like Haiti. The same DOE publication goes on to say that one of the purposes of the National Lab is to 'assist start-up companies in attracting and securing state and federal grants and lines of credit' -- that's what is known as entrepreneurial initiative and rugged individualism. In brief, the public invests massively, for fifty years, hands the gifts over to private power and profit, and we now admire this prosperous new economy, in the nation's most Republican state, with its deep-seated distrust of the federal government and its tradition of self-reliance.
Again, it takes a good education to handle all of this, but that is the way the real economy works, in accordance with really existing market theory. And of course it's not just the US; these are elementary facts about economic history since the eighteenth century, when England pioneered the way. And it's well understood in the business world, if not by the saintly Alan and other ideologues -- after all, they're the ones who designed it. The depression in the 1930s removed any lingering beliefs that some form of capitalism might be viable; the New Deal measures barely affected it, but World War Two overcame it. World War Two was a grand success economically; there was a kind of semi-command economy, directed by corporate executives who flocked to Washington to run it, and they learned the lessons. It was confidently predicted, across the board, that the US would go right back into depression after the war; therefore something had to be done, the business press was frank about it. Fortune and Business Week reported that high-tech industry cannot survive in a 'pure, competitive, unsubsidised, "free enterprise" economy' (specifically the aircraft industry, though the point was more general), and 'the government is their only possible saviour.'36 The only question is how. Well, they understood perfectly well. There was an interesting discussion in the business press in the late forties. They understood that social spending could serve to stimulate and sustain the economy, but they much preferred, and quickly hit upon, an alternative; namely, the Pentagon, Department of Energy, NASA, the Atomic Energy Commission, the whole Pentagon system. And there were good reasons, not economic reasons, but more important ones. Social spending has a downside: it has a democratising effect. So, people have opinions about where you should put a hospital or a school or a road or something. But they have no opinions about what kind of jet plane to build, or what kind of lasers to build. So, you undercut the democratising effect if you switch to the Pentagon system. Furthermore, social spending tends to be redistributive, whereas the Pentagon system is a pure gift to private power, with no negative side effects. It is also secret. It is easy to sell; you just make people cower in terror, and then they will pay for it, and meanwhile the saintly Alan, and others like him, can spin fantasies for the public. That goes back to the origins of the US economy, an interesting story which I will skip.
Just keeping to the present, the role of the state is not just to create and protect high-tech industry, it also has to intervene to overcome management failures -- that was quite dramatic in the 1970s. At the time there was a lot of concern about the low level of productivity and investment growth, and the failure of incompetent US management to keep up with more advanced Japanese methods, and there were public calls for what was called the re-industrialisation of America. Well, the Pentagon responded with a programme called Mantech ('Manufacturing Technology'). The goal, as described by the Pentagon, was to design the 'factory of the future,' to integrate computer technology and automation in production and design, and to develop flexible manufacturing technology and management efficiency.37 The goal was to boost the market share and industrial leadership of US industry in the traditional way, through state initiative and tax-payer funding. There was also a side benefit: the factory of the future can reduce and control the workforce. It's an old story -- take automation. Automation was so inefficient that it had to be developed in the public sector for a long period, then finally handed over to private industry. When it was designed in the state sector it was designed in a very specific way, which is not inherent in the technology, and this topic has been rather well studied. The system of computer-controlled machine tools could have been developed so as to empower mechanics and get rid of useless layers of management. But it was done the other way around: it was done to increase the layers of management and to de-skill workers. Again, that's not a technological or an economic decision, but it's a power decision -- basically, part of class war. The same can be done with the factory of the future, when it is designed in the state sector, without anyone observing it, of course, except the business world, who are quite happy about it.
The Mantech programme expanded quite rapidly under the Reagan administration, which actually went far beyond the norm in violating market principles for the rich, while being full of elevated rhetoric for the poor. Under Reagan the main research branch of the Pentagon, DARPA, actively promoted new technologies in a variety of fields, such as massively parallel computing, the source of the main technology in supercomputers and information technology, finishing up the work on the Internet, which they initiated in fact, and so on, and also in establishing start-up companies. Science magazine, the journal of the American Association for the Advancement of Science, had an article recently, in which they pointed out that 'DARPA became a pivotal market force' under Reagan and Bush, transferring new technologies to 'nascent industries' -- it's a major source of Silicon Valley.38 The Reagan administration also doubled protective barriers; it broke all post-war records in protectionism. The purpose was to keep out superior Japanese products, that was true of steel, automotive industries, semiconductors, computers, not only to save the industries but to place them in a dominant position for the triumph of the market, as it's called, in the 1990s, thanks in large measure to huge public subsidies, public sector innovation and development, protection, straight bail-outs like Continental Illinois and so on. It's amazing to watch the story transmuted into the politically correct terms that you read and hear.
Growth of the Virtual Senate
I have been talking about continuities in the global economy and socio-economic planning, but there have also been some important changes. The most important change took shape about thirty years ago. After World War Two, the US and Britain did establish a global economic order, called the Bretton Woods system. It is sometimes described as liberal internationalism, but that's not accurate. It had two goals: one was to liberalise trade; and the second was to regulate finance. That's still in the IMF articles. Why regulate finance? There are two reasons: one is what some economists call the incompatibility thesis, that is, the belief, probably accurate, that liberalisation of finance tends to undermine free trade; but the second is not just a speculation, it's obvious. It was understood that liberalisation of finance is a powerful weapon against democracy and the welfare state, both of which had enormous public support at the time. The US negotiator, Harry Dexter White (Roosevelt's representative, the British one was Keynes), pointed out that capital controls -- regulation of financial capital -- allow governments to carry out monetary and tax policies, and to sustain full employment and social programmes without fear of capital flight. Free flow of capital creates what some international economists call a 'virtual senate.'39 Highly concentrated financial capital can impose its own social policies on governments and punish those who deviate by capital flight.
The Bretton Woods system, based on regulated financial flows, was enforced throughout what is usually called the Golden Age of high levels of growth of the economy and productivity and an extension of the social contract through the fifties and sixties. It was dismantled by Richard Nixon in the early seventies with the support of Britain, and, later, other major powers. Finance was liberalised -- there was a huge, astronomical increase in financial flows, and their composition changed. So, in 1970, about ninety percent of foreign exchange transactions were related to the real economy -- things like trade and investment. By now it is, maybe, five percent; the rest is speculative, most of it very short-term -- about eighty percent has a return time of about a week, much of it less. What was predicted happened. It was predicted at once that this was going to lead to a low-growth, low-wage economy. That has been happening, along with huge profits and an attack on the social contract by the virtual senate, with the US and Britain in the lead. It also increased radically the volatility of markets: there have been wild fluctuations, lots of financial crises, totally unpredictable. That has actually led even the most conservative sectors, like the Bank for International Settlements, and recently the chief economist of the World Bank and others to call for re-regulation in some fashion of financial flows.
It also increased the constraints on trade. This period, since the early seventies, has been described as a period of 'sustained assault' on free markets by the head of economic research at the WTO in a technical study. He estimates the effects of Reaganite barriers at about three times the level of other industrial countries.40 For much of the Third World, it's a disaster: a UN development report estimates that, annually, the Third World loses about half a trillion dollars from various forms of First World protectionism and market intervention. Trade growth slowed, along with productivity growth, economic growth, and so on. There are a few exceptions, but that's the general pattern.
What's called trade, furthermore, is heavily managed. So for example the general estimate is that, for the US, 41 about forty percent of what is called 'trade' is actually internal to a firm like Ford Motor Company shifting something for assembly in Mexico, and shipping it back across the border; it's not trade in any serious sense. There are similar figures for other major industrial countries. The global economy is administered by the firms themselves, and by strategic alliances among firms which are growing all over the place. One fairly conventional estimate in technical studies is that only about fifteen percent of trade may be called free in some sense.
The Third World disaster was exacerbated by the 'debt crisis' of the 1980s that was precipitated by the sharp rise in interest rates in the US, leading to huge capital flight from Third World countries where the rich were exempt from social obligations (Latin America but not South Korea, for example). In the 1970s, according to the OECD, bank lending more than doubled from 1971 to 1973, then 'levelled off for the next two years, despite the enormous increase in oil bills' from late 1973; 'the most decisive and dramatic increase in bank lending was associated with the major commodity price boom of 1972-73 -- before the oil shock,' the OECD reports. One example was the tripling of price of US wheat exports. Lending later increased as banks recycled petrodollars.[N1]
The International Financial Institutions also shared responsibility. The World Bank had actively promoted borrowing: 'there is no general problem of developing countries being able to service debt,' the Bank announced in 1978.[N2] Several weeks before Mexico defaulted in 1982, setting off the crisis, a joint publication of the IMF and World Bank declared that 'there is still considerable scope for sustained additional borrowing to increase productive capacity'[N3] -- for example, for the useless Sicartsa steel plant in Mexico, funded by British taxpayers in one of the exercises of Thatcherite mercantilism.[N4]
The debt is a social and ideological construct, not an economic fact. Take Indonesia under Suharto, who has been greatly admired in the West since he took power in 1965, presiding over a huge slaughter and proceeding to compile a record of terror, aggression, slaughter, and corruption with few counterparts in post-war history. The current private debt of some $80 billion is held by at most a few hundred individuals, Indonesian economists estimate, perhaps as few as 50.[N5] The wealth of the Suharto family is estimated at roughly the scale of the IMF rescue package. The estimates suggest some ways to overcome the current 'financial crisis,' but these are not on the agenda. The costs are to be borne primarily by 200 million Indonesians who borrowed nothing, along with western taxpayers, in accord with the rules of 'really existing capitalism.'
The picture generalizes, and is not restricted to the Third World. After World War II, there was massive flow of capital from Europe to the United States. Co-operative controls could have kept the funds at home for post-war reconstruction, but US policy makers preferred to have wealthy Europeans send their capital to New York banks, with the costs of reconstruction transferred to U.S. taxpayers. The device was called 'the Marshall Plan,' which approximately covered the 'mass movements of nervous flight capital' that leading economists had predicted, and that took place.[N6]
In the same connection, it's worth recalling that when the US took over Cuba 100 years ago it cancelled Cuba's debt to Spain on the grounds that the burden was 'imposed upon the people of Cuba without their consent and by force of arms.' Such debts were later called 'odious debt' by legal scholarship, 'not an obligation for the nation' but the 'debt of the power that has incurred it,' while the creditors who 'have committed a hostile act with regard to the people' can expect no payment from the victims. The same doctrine was invoked 25 years later when Costa Rica cancelled the debt of its former dictator to the Royal Bank of Canada. Britain's challenge was submitted to arbitration. The arbitrator -- US Supreme Court Chief Justice William Howard Taft -- concluded that the Bank lent the money for no 'legitimate use,' so its claim for payment 'must fail.'[N7]
The logic extends readily to much of today's debt: 'odious debt' with no legal or moral standing, imposed upon people without their consent, often serving to repress them and enrich their masters. The observation is familiar in high places. The current US executive director of the IMF, economist Karin Lissakers, wrote seven years ago that Washington's argument for cancelling Cuba's debt, 'if applied today would wipe out a substantial part of the Third World's indebtedness.'[N8] But that too is not on the agenda, for reasons that have to do with power, not economic or legal principle, let alone moral considerations.
The Hidden Face of NAFTA
Also, the attack on democracy continues. I will illustrate with a couple of remarks about current trade agreements: that's a large topic in itself, let me sample it, starting with NAFTA. When it was being discussed there were all kinds of wondrous tales about the fantastic effects it was going to have for working people in all the three countries. You don't hear that any more, that's all abandoned. It is now conceded that the critics, who were kept out of the debate, were right all along: that is, the purpose had nothing to do with anybody's welfare, or even expanding trade. Rather, the purpose was to 'lock Mexico into the reforms' of the 1980s. These reforms were an utter disaster for most Mexicans, but they were of great benefit to foreign investors and the Mexican wealthy -- in fact, the number of new billionaires increased in roughly the same terms as the poverty rate, mostly through privatisation and other scams. That was what was called an economic miracle.
At the time, you could read the truth of the matter about the goals of NAFTA in the business press, or in the marginal, independent press, what's called the alternative press; now you can read it in Foreign Affairs, so that's an advance. Yet to be conceded is what probably lies in the background. There was a Latin American Strategy Development Workshop in Washington in 1990. It discussed, among other things, relations with the Mexican dictatorship and found them to be excellent, although there was one cloud on the horizon. Here it is:
"A 'democracy opening' in Mexico could test the special…relationship by bringing into office a government more…interested in challenging the U.S. on economic and nationalist…grounds."42
That is the standard threat that had to be contained in the post-World War Two era. Now the threat of a democracy opening in Mexico is overcome, with Mexico locked into the reforms by treaty, so they can play with formal democracy, if they like.
In the phrase 'North American Free Trade Agreement,' the only accurate part is 'North American,' the rest is all false. It's not free trade; it includes highly protectionist elements. And furthermore it was certainly not an agreement: it was strongly opposed in Canada; the public remained opposed in the US and probably Mexico -- it's a dictatorship, so we don't have careful polls, but that's what it looked like, with huge protests, much of the business community opposed and so on.
In the US the intention was to ram NAFTA through in secret, but that didn't work; there was a lot of public agitation. But it went through in secret anyway, in fact. The labour movement was strongly opposed, and they published a careful, well argued document, explaining their position: they supported a North American Free Trade Agreement, but not this version; rather, they proposed an alternative, which would not be just an investor rights agreement, but would be for the benefit of the people of the US, Mexico and Canada. Actually, they used an EU model for it. The Office of Technology Assessment, which was Congress's own research bureau, also published a study which was virtually the same. Meanwhile, while the labour movement position and the OTA analysis were barred from the media, the President, and political leaders and commentators, lambasted what they called the 'backward, unenlightened labour movement' with its 'crude, threatening tactics' and its 'narrow nationalism';43 all of which was totally false, but unchallengeable in the free press. Well, despite a huge propaganda effort the public remained opposed, but they were ignored, and it went through.
Last fall, we had the next incident, which is rather revealing. There was a big fuss about what was called fast-track legislation. This refers to legislation which allows the President to negotiate trade agreements in secret, with Congress then having the right to say yes or no, no further involvement. That held for a long time -- nobody questioned it. But things have changed: the country may look depoliticised, but attitudes have changed, and now there is a lot of opposition to that. So, this fall they tried to ram it through, and they couldn't. Congress was compelled to oppose it by constituency pressure and grass-roots opposition -- even those who favoured it -- which is interesting, and tells you something important about what is really happening in the country. The media were 100 percent in favour of it, the corporate world was 100 percent in favour of it; but they knew they had problems. The Wall Street Journal pointed out that although it is obvious that this is a great thing, the critics had what the Journal called an 'ultimate weapon': that the population is opposed.44 Even the free press wasn't able completely to handle that problem, so they lost.
Well, the whole discussion was interesting. It was called a discussion about free trade, which is obviously a great thing. But it plainly wasn't that: the trade agreements that they had in mind -- like the Uruguay Round, and WTO and so on -- are a kind of mixture of protectionism and liberalisation, designed for the national interest of 'Americans,' in the technical sense. Furthermore, the whole thing had nothing to do with trade: it had to do with democracy. The question was, 'Does the public have a right to know what's being done to it by the state-corporate alliance?' In fact, the most ardent free-traders would oppose fast-track if they happened to believe in democracy, because that's what was involved.
Finally, what was probably the major issue was literally never mentioned. It had nothing to do with bringing Chile into NAFTA; it had to do with the Multilateral Agreement on Investment (MAI). The business world knew that; so did the press, but they didn't report it. There is an organisation called the United States Council for International Business, which, in its own words, 'advances the global interests of American business both at home and abroad,' and is the main lobbying group for international business.45 They had called upon the Clinton administration to include the MAI under fast-track even before the legislation was introduced.46 As I say, the media certainly knew about this, but there was no mention of the MAI during the whole fast-track furore.
The Secret and Explosive Deal
Finally, let us examine the MAI, which is a revealing story. It has been under intense negotiation since May 1995 within the OECD. It has been kept under a 'veil of secrecy,' to use the phrase of Sir Anthony Mason, the former Chief Justice of the Australian Supreme Court, condemning his government's refusal to permit even parliamentary scrutiny, when the issue finally broke through to the public in Australia, as it did in January 1998.47 In Canada, and Canada alone, the veil was broken in mid-1997, and since then it has been a big issue nationally, on television and in the mainstream press and so on. There has been some discussion in Europe, mainly in the last few months. The US is unique. I just wrote an article with a detailed review of this, and I will just summarise here roughly.48 Effectively, there was nothing in the US up to the present, apart from what you might call statistical error.
The business world, of course, knew: so Business Week in February had an article headlined 'The Explosive Trade Deal You've Never Heard Of.'49 That's true, it was explosive, and unless you were right in the centre of the corporate world, you had never heard of it. Last November twenty-five members of Congress wrote a letter to the White House in which they said, 'it has come to our attention' that for almost three years the White House has been carrying out intensive negotiations on the MAI without informing Congress. And they asked how that could be, given that Congress has exclusive constitutional authority to regulate international commerce; and secondly, because the rights of corporations granted in the MAI extend far beyond what is permitted in US law.50 So how come this had been going on? A couple of months later they got a vacuous response; the kind you get when you write a letter to the White House, by some computer that sends a form letter back. There wasn't a word about this in the free press, which of course knew about it.
On 17 February the White House did make an official statement; it had still been kept under a veil of secrecy in the media, but there were enough grass-roots protests that the White House had to make an official statement, which was not reported, incidentally. The statement is boilerplate, but it is interesting. It emphasised the importance of 'working closely with domestic constituencies to build a consensus on the MAI,' and stressed that the administration has been living up to its responsibility to ensure the active participation of 'domestic constituencies' which must 'have a stake in this process.'51 At last, we have a testimonial to democracy, but there is a question: who are the domestic constituencies? Well, plainly not Congress: they hadn't been informed. Plainly not the public: it had been kept under a veil of secrecy and still is. So, who are the domestic constituencies? Well, the US Council for International Business, which has played an active role all along; in fact, in January 1996 they even published a monograph on the MAI for their constituency and the corporate sector generally. Now comes a simple exercise in logic that I leave to you: the domestic constituencies are those who cast over society the shadow that we call politics; they are the Americans, in the technical sense, the ones who are smug and happy. There are important lessons there, which we should take to heart, it is not so often that power tells you so clearly what they think of you with such crude honesty, and what your place is in a democracy.
It is important that, despite the veil of secrecy, the public remains opposed, instinctively. The ultimate weapon is still there. Fast-track couldn't be rammed through, and public agitation was a significant factor in preventing the OECD from signing the MAI on the due date of 27th April.
That is quite an astonishing achievement: an achievement by grass-roots organisations confronting the major concentration of power in the world. The G7, the international financial institutions, the concentrated corporate sector, they were on one side, with all the media in their pocket. On the other side, grass-roots organisations around the world. That was the conflict, and the grass-roots organisations won. The reaction to that is quite interesting. The Financial Times had an intriguing article a couple of days ago which portrayed the episode as 'a horde of vigilantes' who had overwhelmed the poor OECD and the corporate world. This horde of vigilantes had used their 'good organisation and strong finances…to wield much influence with the media' in the US, effectively zero, but even the slightest breach in total unanimity is a terrible danger. It goes on to say that it will be necessary 'to drum up business support,' so as to beat back the hordes. It then quotes trade diplomats, who say that it may become 'harder to do deals behind closed doors and submit them for rubber-stamping by parliaments' as in the good old days.52 In Australia, the press blamed what they called the 'xenophobic hysteria' of an 'unholy alliance of aid groups, labour, environmentalists' and other special interests -- the population.53 In the New Republic, which is supposed to be the organ of American liberalism, a columnist warned of the 'flat-earth and black helicopter crowd,' that is, the rabble, the ones who have terrified the 'men of best quality,' as they used to call themselves in the seventeenth century; the 'responsible men,' as they call themselves today.54
So, the threat of democracy remains very real, despite everything. The MAI is now shifting to the IMF, which is suitably secretive and unaccountable. There is no time to review the provisions here, but there is no reason to disagree with Business Week about the 'explosive' nature of the treaty. In fact, it would constitute a major attack on democracy: it would shift decision-making power over social and economic affairs even more into the hands of private tyrannies that operate in secret, unaccountable to the public. Corporations had been granted the right of immortal persons by radical judicial activism in the early twentieth century; but the MAI grants them the rights of states. For example, they have the right to sue governments, local and national. The suits don't go to courts, they go to private panels with no appeal, no rules of evidence; the panels are made up of 'trade experts,'-- you can imagine who they are. There is no reciprocity: states don't have the right to sue corporations. In fact, all obligations in this 150-page text -- which, incidentally, was leaked by the horde of vigilantes when they somehow got a copy of it -- fall on people and governments, none on corporations. There are some interesting cases going on right now where corporations are attempting to explore the range of the ambiguous wording which is already around giving them the right to sue states for interfering with their 'enjoyment of their rights,' as they put it. The MAI includes what is called a 'ratchet effect' that is based on 'standstill' and 'rollback.' 'Standstill' means that signers cannot introduce any legislation which interferes with unrestricted corporate rights to do anything they feel like. 'Rollback' refers to the fact that signers are obligated to roll back existing legislation that interferes with those rights. There is a twenty-year lock; so, once you get into it, you are stuck for twenty years. Of course, that doesn't apply equally: if the US wants to get out of it, it will treat it like the Uruguay Round when it decides to ban supercomputers. But for the weaker people, it's a lock. Investors are freed from even the most minimal obligations that might be imposed by some democratic interference with private tyrannies.
The draft treaty accords investors the right to move assets freely, including production facilities and financial assets, without 'government interference' (meaning a voice for the public). By modes of chicanery familiar to corporate lawyers, the rights granted to 'foreign investors' transfer easily to 'domestic investors' as well. Among democratic choices that might be barred are those calling for local ownership, sharing of technology, local managers, corporate accountability, living wage provisions, preferences (for deprived areas, minorities, women, etc), labor-consumer-environmental protection, restrictions on dangerous products, small business protection, support for strategic and emerging industries, land reform, community and worker control (that is, the foundations of authentic democracy), labor actions (which could be construed as illegal threats to order), and so on.
No restrictions are allowed on investment in countries with human rights violations: South Africa in the days of 'constructive engagement,' Burma today, etc. It is to be understood, of course, that the US will not be hampered by such constraints. The powerful stand above treaties and laws.
Constraints on capital flow are barred: for example, the conditions imposed by Chile to discourage inflows of short-term capital, widely credited with having insulated Chile somewhat from the destructive impact of highly volatile financial markets subject to unpredictable herd-like irrationality. Or more far-reaching measures that might well reverse the deleterious consequences of liberalizing capital flows. Serious proposals to achieve these ends have been on the table for years, but have never been allowed to reach the agenda of the powerful. It may well be that the economy is harmed by financial liberalization, as the evidence suggests. But that is a matter of little moment in comparison with the advantages conferred by the liberalization of financial flows for a quarter-century. These advantages are substantial. Financial liberalization contributes to concentration of wealth and provides powerful weapons to undermine social programs. It helps bring about the 'significant wage restraint' and 'atypical restraint on compensation increases [which] appears to be mainly the consequence of greater worker insecurity,' which so encourage Fed chair Alan Greenspan and the Clinton Administration, sustaining the 'economic miracle' that arouses awe among its beneficiaries and deluded observers, particularly abroad.
These are possible 'worst case' analyses. The question of what the terms of the MAI actually state, and portend, has no definite answer, any more than there is a definite answer to similar questions about the US Constitution. We could not answer the question about the MAI even if we had the full text, a detailed list of the reservations introduced by signatories, and the entire verbatim record of the proceedings. The reason is that the answers are not determined by words, but by the power relations that impose their interpretations. That should be yet another truism.
The long term goal of this is clear enough to anyone with eyes open: an international political economy which is organised by powerful states and secret bureaucracies whose primary function is to serve the concentrations of private power which administer markets through their own internal operations, through networks of corporate alliances, including the intra-firm transactions that are mislabelled 'trade'. They rely on the public for subsidy, for research and development, for innovation, for bail-outs when things go wrong. They rely on the powerful states for protection from dangerous 'democracy openings', and so on. In such ways, they seek to ensure that the 'prime beneficiaries' of the world's wealth are the right people: the 'Americans' in the technical sense; the 'domestic constituencies' and their counterparts elsewhere. The scale of all of this is nowhere near as great or, for that matter, as novel as claimed; in many ways it's a return to the early twentieth century. And there's no reason to doubt that it can be controlled, even within existing formal institutions of parliamentary democracy. These are not operations of any mysterious economic laws; they are human decisions that are subject to challenge, revision and reversal. They are also decisions made within institutions, state and private. These have to face the test of legitimacy, as always; and if they do not meet that test they can be replaced by others that are more free and more just, exactly as has happened throughout history.
1 Gerald Haines, The Americanization of Brazil, Scholarly Resources 1989.
2 Cited in Martin Sklar, The Corporate Reconstruction of
3 American Capitalism, 1890-1916, Cambridge 1988, pp. 413-4. Cited in Robert Westbrook, John Dewey and American Democracy, Cornell 1991.
4 Policy Planning Study (PPS) 23, February 24th, 1948; Foreign Relations of the United States (FRUS) vol. 1, 1948, p. 511.
5 Michael Hogan, The Marshall Plan, Cambridge 1987, p. 41, citing the Bonesteel Memorandum, May 13th, 1947
6 Minutes summarizing PPS 51, April 1949.
7 Cited in David Green, The Containment of Latin America, Quadrangle 1971.
8 National Security Council 5432, August 18th, 1954; Kennan cited in Walter LaFerber, Inevitable Revolutions, Norton 1983, p. 16.
9 Memorandum for the Special Assistant to the President for National Security Affairs, 'Study of US Policy Toward Latin American Military Forces,' Secretary of Defense, 11th June, 1965. Robert McNamara was Secretary of Defense and McGeorge Bundy was Special Assistant.
10 Citations from, FRUS 1955-7, vol. VII, pp.88f., National Intelligence Estimate (NIE) 82-55; 'Memorandum by the Director of Central Intelligence (Smith) to the Under Secretary of State (Bruce), 12th December, 1952; NIE-84, 19th May, 1953; FRUS 1952-54, vol. IV, pp. 1055, 1061ff. For more extensive quotations, see Noam Chomsky, Necessary Illusions, London 1989, Appendix VI; Deterring Democracy, Verso 1991, Chapter 8.
11 Cited in Piero Gleijeses, Shattered Hope, Princeton 1991, p. 365.
12 See Noam Chomsky, 'Democracy Restored', Z Magazine, November 1994.
13 Ernest May and Philip Zelikow, The Kennedy Tapes, Harvard 1998.
14 FRUS 1961-63, vol. XII, American Republics, pp. 13f., 33.
15 See Schlesinger's letter, New York Times, 26th February, 1997.
16 George Bush, National Security Strategy of the United States, The White House, March 1990. For more extensive quotations, see Chomsky, Deterring Democracy, Chapter 1.
17 Anthony Lake, New York Times, 26th September 1993; New York Times, 23rd September 1994.
18 Sebastian Mallaby, 'Uneasy Partners', New York Times Book Review, 21st September, 1997.
19 Senior Administration policymaker cited by Thomas Friedman, New York Times, 12th. January 1992.
20 David Sanger, 'America is Prosperous and Smug, Like Japan Was', New York Times Week in Review, 12th April 1998; Gerald Baker, 'Is This Great, Or What?', Financial Times, 31st March, 1998.
21 Sylvia Nasar, 'Unlearning the Lessons of Econ 101', New York Times Week in Review, 3rd May, 1998.
22 'The Problem Now: What To Do With All That Cash', Business Week, 12th December, 1994; '"An Enormous Temptation to Waste"', Business Week, 10th. February, 1997.
23 Business Week, 23rd. March, 1994.
24 Louis Uchitelle, 'America's Treadmill Economy: Going Nowhere Fast', New York Times Money and Business, 8th March, 1998.
25 Alan Greenspan, testimony before the Senate Banking Committee, February 1997: the 'sustainable economic expansion' was thanks to 'atypical restraint on compensation increases [which] appears to be mainly the consequence of greater worker insecurity'.
26 Economic Report of the President, February 1997. Both this and the foregoing Greenspan quotation are cited in 'Editorial', The Multinational Monitor, March 1997.
27 Kate Bronfenbrenner, 'We'll Close', The Multinational Monitor, March 1997, based on the study she directed, 'Final Report: The Effects of Plant Closing or Threat of Plant Closing on the Right of Workers to Organize'.
28 'Remarks by Alan Greenspan, Chairman, Board of Governors of the Federal Reserve System, at the Annual Convention of the American Society of Newspaper Editors, Washington DC', 2nd. April, 1998.
29 Cited in 'Microsoft Researches Its Future', Science, 27th February, 1998.
30 See Chomsky, Powers and Prospects, London 1996.
31 See William Hartung and Jennifer Washburn, 'Lockheed Martin: From Warfare to Welfare,' Nation, 2nd. March, 1998.
32 Gerard Baker, Financial Times, 11th. March, 1998.
33 Timothy Egan, 'As Idaho Prospers, Prisons Fill Up While Spending on the Poor Lags,' New York Times, 16th April, 1998.
34 Inside INEEL (Idaho National Engineering and Environmental Laboratory), September 1997.
35 Bob Davis, 'In Effect, ITC's Steep Tariffs on Japan Protect US Makers of Supercomputers', Wall Street Journal, 29th September 1997; David Sanger, New York Times, 12th October 1996.
36 Cited in Frank Kofsky, Harry Truman and the War Scare of 1948, St Martin's Press 1993. For the business press generally on military vs. social spending, see Chomsky, Turning the Tide, London 1995, and Deterring Democracy, p. 49.
37 Tom Schlesinger, 'Labor, Automation, and Regional Development,' in John Tirman, ed., The Militarization of High Technology, Cambridge Mass., 1984; James Cypher, 'Military Spending, Technical Change and Economic Growth: A Disguised Form of Industrial Policy?', Journal of Economic Issues XX1, 1, March 1987.
38 Elizabeth Corcoran, Science, 2nd April, 1993. For general background, see Chomsky, World Orders, Old and New, Columbia 1994, 1996, Chapter 2.
39 James Mahon, Mobile Capital and Latin American Development, Pennsylvania State Univ., 1996.
40 Patrick Low, Trading Free, Twentieth Century Fund 1993, pp. 70ff., 271.
41 All figures on these matters are very speculative, because we are talking about tyrannical systems that are unaccountable. They don't tell you what they're doing, so these are guesses by international economists.
42 Latin American Strategic Development Workshop, 26th-27th September, 1990, minutes, p. 3. For general background on NAFTA and citations, see World Orders, Old and New, pp. 163ff.
43 I happen to be quoting Anthony Lewis, who is at the far left of the corporate media.
44 Glenn Burkins, 'Labor Fights Against Fast-Track Trade Measure', Wall Street Journal, 16th September, 1997. On the Fast Track affair generally, see Chomsky, 'Domestic Constituencies', Z Magazine, May 1998.
45 US Council for International Business, A Guide to the Multilateral Agreement on Investment (MAI), January 1996.
46 Jane Bussey, 'New Rules Could Guide International Investment', Miami Herald, 20th July, 1997.
47 Sir Anthony Mason, 'Are Our Sovereign Rights At Risk?', The Age (Melbourne), 4th March, 1998.
48 See 'Domestic Constituencies'.
49 Business Week, 9th February, 1998.
50 Ron Klink, Cliff Stearns, and eighteen other congressional representatives, letter to President Clinton, 5th. November 1997.
51 'The Multilateral Agreement on Investment,' Statement by Under Secretary of State Stuart Eizenstat and Deputy US Trade Representative Jeffrey Lang, 17th. February, 1998.
52 Guy de Jonquihres, 'Network Guerillas', Financial Times, 30th April 1998.
53 David Forman, The Australian, 14th January, 1998.
54 Peter Beinart, New Republic, 15th December, 1997.
[N1] OECD, _Twenty-Five Years of Development Cooperation_ (Paris 1985), cited by Cheryl Payer, _Lent and Lost_ (Zed 1991), 62. Commodity prices, see my "American Foreign Policy in the Middle East," reprinted in _Towards a New Cold War_ (Pantheon 1982), from _Le Monde diplomatique_ (April 1977).
[N2] World Bank, _World Development Report 1978_, cited by John Mihevc, _The Market Tells Them So_ (Zed 1995), 55.
[N3] Cited by Payer, _op.cit._, 88.
[N4] On the Sicartsa fiasco, see Philip Wellons, _Passing the Buck: Banks, Governments and Third World Debt_ (Harvard Business School press, 1987).
[N5] Gerry van Klinken, editor, _Inside Indonesia_ (Australia), April/June 1998.
[N6] Eric Helleiner, _States and the Reemergence of Global Finance_ (Cornell U. press, 1994), 58-62, quoting Ragnar Nurske.
[N7] Patricia Adams, _Odious Debts_ (Earthscan 1991), chap. 17.
[N8] Karin Lissakers, _Banks, Borrowers, and the Establishment_ (Basic Books, 1991), 164-5.