Keeping The Rabble In Line Essay Research

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Keeping the Rabble in Line Copyright ? 1994 by Noam Chomsky and David Barsamian

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The World Bank, GATT and Free Trade

April 20, 1992

DB: In 1944 at the Bretton Woods conference in New Hampshire the World Bank and the International Monetary Fund (IMF) were both created. What function do these two major financial entities play?

Their early role was in helping to carry through the reconstruction of the state capitalist industrial societies that had been wrecked by the Second World War. After that they shifted to what is called “development,” which is often a form of controlled underdevelopment in the Third World, which means designing and supporting particular kinds of programs for the Third World. At this point we move into controversy. Their effect, and you can argue about their intention, is overwhelmingly to integrate the South, the old colonial areas, into the global society dominated by concentrated sectors of wealth within the North, the rich society.

DB: You know that old song, “Where Have All The Flowers Gone”? Well, where have all the billions gone? The World Bank has lent tens of billions of dollars. Who lent what to whom exactly? What did it do there?

You can’t answer that simply. In the advanced industrial societies [that money] helped carry out a reconstruction from postwar damage. In the Third World [lending has] had mixed effects. It’s had effects in changing the nature of agriculture, developing infrastructure, steering projects towards particular areas and away from other areas. It’s been part of the long process of trying to undercut import substitution and move toward export oriented agriculture. By and large [World Bank loans have] been a subsidiary to the policies of those who control it. The United States has an overwhelming role in the financial institution because of its wealth and power. And the United States and its immediate allies have designed programs of what they called development throughout the world. The money may have gone into anything from dams to agro-export producers to occasionally some peasant project.

DB: The International Monetary Fund has been vilified in the Third World for the draconian measures that it has imposed on those developing countries.

Take a Latin American country today. There is a huge debt crisis. Remember that the Bretton Woods system basically broke down in the early 1970s. The Bretton Woods system involved regulation of currencies, convertibility of the dollar for gold, all sorts of other rules which essentially made the United States an international banker. By 1970 or so the U.S. could no longer sustain that. It was very advantageous to the United States in the 1950s and 1960s. It allowed enormous overseas investment by American corporations. But by 1970 the U.S. was unable to sustain [the role of international banker]. President Nixon dismantled the system in 1971. That led to an enormous amount of unregulated currency floating around in international channels. The world was awash with unregulated capital, particularly after the rise in the oil prices. Bankers wanted to lend that capital, and they did. They lent it primarily to Third World countries, which means to elite elements. For example, Latin American dictatorships would go on huge borrowing binges. The results were praised in the West as “economic miracles,” like the Brazilian “miracle” under the generals which left that country saddled with huge indebtedness. When the 1980s came along, U.S. interest rates went up and started pulling money toward the United States and increasing interest payments on the debt. The Latin American economies started going into free fall. Capital flowed out of them at a rapid rate. They were unable to control their own internal wealthy classes. The capital export from Latin America may not have been at the level of the debt, but it probably wasn’t very far below it. There was a flow of hundreds of billions of dollars from south to north, partly debt service, which far outweighs new aid by the late 1980s — payment of interest on the debt, and so on, and other forms of capital flight. By now, deeply impoverished African countries are even exporting capital to the international lending institutions.

The net effect of this is what some people jokingly call a program in which the poor in the rich countries pay the rich in the poor countries. That’s approximately the way it comes out. Then the IMF comes along, run by the wealthy countries, which have certain rules for the weak. They are that if you have a high level of inflation and the currency isn’t stable and various other economic indicators aren’t satisfied, then you impose extreme forms of austerity: balance the budget, cut back services, control the currency, etc. That’s neoliberal free market economics. That’s typically disastrous for the general mass of the population. That’s why the rich countries themselves will never accept those rules unless they’re forced to. For example, there was a time in the late 1970s when Britain was forced to adopt certain IMF rules because of its weakness. But no country rich or powerful enough would ever do it, like the U.S., for example, which has incredible debt but doesn’t accept IMF “suggestions”. We’re too powerful to follow those rules. Third World countries, which are much weaker, especially those which are under the control of Western-oriented elites anyway, who often benefit by it, do follow the rules and there’s disaster for the population. That’s why you get vilification. The same thing is happening in Eastern Europe now. The whole neoliberal free market story is basically designed for the benefit of the people who are going to win the game. Nobody else follows those rules. The West doesn’t follow them either when it’s not going to win. For example, the World Bank estimates that right now protectionist measures imposed by the rich countries cost the Third World more than twice as much as total aid going from the North to the South — and that “aid” is mostly a disguised form of export promotion.

DB: To whom are the World Bank and the IMF accountable?

To the people who put the money in, which means a bunch of rich countries, primarily the United States, which is the dominant element there. It’s mainly funded by the wealthy states, and the U.S. has the largest vote, so that’s who they’re beholden to.

DB: Where does the General Agreement on Tariffs and Trade, GATT, fit into this economic picture? One commentator has called it the “economic teeth of the new world order.”

GATT is the international trading system, also set up in the 1940s. It’s in the news now because for the last several years the Uruguay Round of GATT negotiations has been going on with an effort to achieve some new form of freeing up international trade. Freeing up international trade in itself, in a general sense, is not a bad thing. It’s often a good thing. The point is, nobody goes into that game, if they have the power, without ample protection for their own internal needs. So for example every one of the Western powers, including the United States, is entering the GATT negotiations with a certain agenda, a mixture of liberalization and protectionism geared to the particular strengths and weaknesses of that economy. When we speak of “that economy” we mean the people in the dominant positions in it. So the European Community wants high level protection for the aerospace industry and agricultural production. The United States has a mixture of policies. It’s calling for liberalization and free trade in many areas. On the other hand, it’s also calling for enhanced protection in areas where the U.S. is strong. Take so-called services like banking. The U.S. is calling for a liberalization of services in the Third World, which would have the instantaneous effect of swamping and overwhelming all Third World banks and financial institutions by western ones, since they’re so much richer and more powerful. That would eliminate the possibility of any national industrial development programs within the Third World. That’s the kind of liberalization that the U.S. is in favor of. It means that Third World economies would be managed by western banks and those who run them and the governments that are tied to them.

On the other hand, the U.S. is calling for more protection in other areas, particularly intellectual property rights, which includes anything from pop music to cinema to software to patents. Right now the U.S. is racing ahead in patenting what may turn out to be parts of genes. The idea is to patent the genes of corn, or for that matter humans, so that future biotechnology, which will involve various kinds of genetic engineering, will be in the hands of mainly U.S. private firms. They will control that field, and they want to make sure it’s protected. So they want long patent rights and so on. That means that drugs, software, new technology, new agricultural forms, any form of biotechnology that may involve health will be in the hands of Merck Corporation and others like them who will make tens of billions of dollars in profits. It means that India, which could duplicate a lot of this much cheaper, duplicate Merck drugs at a fraction of the cost, will not be permitted to do it. The U.S. also demands product rather than only process patents, to insure, say, that India’s pharmaceutical industry doesn’t invent a cheaper way to produce some drug — a barrier to efficiency and innovation, but a boon for profits. That’s understandable on the part of the rich. They want to control the future, naturally, and that means control technology. The biotechnology aspect, the patenting of genes, has been causing an international furor in the scientific world. It can have a huge impact in the future. One shouldn’t minimize it.

The U.S. (like others) also insists on a high level of protection for U.S. shipping. Shipping between U.S. ports has to be in U.S. ships. If Alaskan oil comes down to California, it has to be in U.S. ships. The U.S. insists that anything involving U.S. goods be done to a very high percentage in U.S. ships, which benefits the U.S. maritime industry.

Similarly, “defense” expenditures are not considered subsidies under GATT rules. That’s enormously important for the U.S., which spends more on its military system than the rest of the world combined, as has always used that as a cover for massive public subsidy to high-tech industry. The point is that there is a mixture of protectionism and liberalization geared to the interests of those who are designing the policies, which are the powerful economic forces within the state in question. That’s not a great surprise, after all, but that’s what GATT is all about, and that’s what the negotiations are about.

If the current GATT programs succeed, it’s clear that they’re tending towards a world government ruled by a club of rich men who meet in their organizations, like the G-7 meetings, the meetings of the seven richest industrial countries, which have their own institutions, like the IMF and the World Bank, which have a network of arrangements established in GATT and which administer a system of what’s sometimes been called “corporate mercantilism.” Remember that although this is called “liberalization” and “free trade,” there’s a tremendous amount of managed trade internal to it. So huge corporations which are often more powerful than many states carry out controlled, managed trade internally. This means trade across borders, too, because they’re internationalized. They do planning of investments, of production, of commercial interactions, manipulation of prices, and so on, and they naturally manage it for their own interests. Corporate mercantilism is fine. It’s governments that are not allowed to get into the game. The rich western powers don’t have any objection at all to managed trade. They just don’t want it to be done by governments, because governments have a dangerous feature that corporations don’t have: governments may to some extent fall under the influence of popular forces, usually to a limited extent. But to some extent there’s always that fear. There’s no such fear in corporations. They are immune from any form of public control or even surveillance. Therefore they are much more acceptable management agents for this mercantilist system being designed globally in the interests of the rich. GATT plays its role in this.

DB: You mentioned the powerful economic forces. Increasingly those forces transcend frontiers. There has been a massive internationalization of capital and finance over the last few years. What are the implications of that?

First of all, there’s nothing novel about it. Back in the 1930s there were, for example, notorious interconnections between, say, I.G. Farben in Germany and Du Pont. In fact, big U.S. corporations were essentially producing for the German war machine right up until the war and some even claim afterwards in various devious ways. But there was a big change after the Second World War. There was a big upsurge in the creation of multinational firms, even beyond the traditional multinationals, for example, the energy corporations, which always were highly internationalized. But it extended much beyond. The Marshall Plan, for example, gave a big shot in the arm to the internationalization of capital. It would designate some project in Belgium where you could build a steel complex. It would then encourage bids from American corporations, which would naturally win the bidding most of the time. Marshall Plan funds were then used, as intended, to underlie the expansion of U.S. investment through the rich areas, primarily in Europe. That led to an explosion of international corporations. U.S. foreign investment exploded in the 1950s and 1960s. Not long after came European international capital. Britain had always been substantially involved in the internationalization of capital. In recent years Japan has joined the game and done plenty of foreign investing. This has increased through the 1980s.

There are a lot of reasons for this in the recent period. One is the one I mentioned before, the breakdown of the Bretton Woods system, which led to an enormous amount of unregulated internationalized wealth. Another was a revolution in telecommunications, which makes it extremely easy to control international operations in which production is done in one place and the financing comes from somewhere else and you shift the dollars around. That means you can have executive offices in a skyscraper in New York and production facilities in Papua, New Guinea and fake banks in the Cayman Islands which may be nothing more than a fax machine set up to evade regulation. You can transfer funds around. You can control and manage importing and exporting within the corporate empire through management decisions. It can be scattered all over the world, with branch offices in Zurich. That’s had a lot of effect. Everyone knows that the U.S. share in international trade has been declining in the last ten years. But in fact if you look at the share in international trade of U.S.-based corporations, it has not been declining. It may have been either stable or slightly increasing. Everyone knows the U.S. is supposed to have a big trade deficit. On the other hand, if you take into account the operations of overseas producers that are part of U.S.-based corporations, and imports into the United States that are actually transfers from U.S. corporations operating abroad to the same U.S. corporations operating internally, if they import parts for their own production, it probably levels out the trade deficit, maybe even gives the U.S. a trade surplus.

The functioning institutions in the world system are increasingly corporate empires. I say “increasingly” because national states, the rich states, at least, retain substantial importance. They are instruments of integrated corporate systems. And also increasing because it’s an old phenomenon. It goes back to the origins of capitalism. It is true that it has grown by leaps and bounds in recent years.

DB: To continue with GATT: The Environmental News Network has said that GATT will “open borders for businesses seeking lower labor costs and less rigorous environmental regulation, thus blackmailing U.S workers to accept deteriorating working conditions and lower wages or lose their jobs.” Do you think that’s a fair assessment?

It’s not even controversial. Of course it will have that effect. It’s already having that effect. Take the free-trade agreement with Canada. It’s actually working both ways. Canada has just objected to U.S. environmental regulations on use of asbestos, claiming that that’s interference with free trade. Canada is an asbestos exporter, and they want the barriers lowered. Perhaps they’ve already won on that, meaning that U.S. environmental regulations on asbestos will have to decline. Sooner or later the U.S. is probably going to object to the Canadian Health Service as an interference with free trade because it means that Canadian-based corporations are freed from the burden of paying parts of health costs that U.S. corporations have to bear because of the grotesquely incompetent and highly bureaucratized health system. Threats from U.S. insurance companies were enough to cause Ontario to drop plans for a provincial auto insurance program that would have reduced costs, but cut out the highly inefficient private corporations — an interference with free trade, they claimed, and won. Canada has lost several hundred thousand jobs. There are various estimates, but none are less than a quarter of a million jobs, to the United States, manufacturing and similar type labor, because Canadian corporations would much prefer to produce in the southeastern United States, where the government enforces what are called “right-to-work laws,” which means state policy coerces labor to ensure that there will be no unionization. As a result, working conditions are far inferior. Wages are less. Naturally, corporations will move to such places. Even the threat to move serves to discipline labor. In general, the effect of the free-trade agreements will be to move to the lowest common denominator with regard to wages, and environmental protection.

DB: So do you think that under the rubric of free trade that the Canadian health care system would be seen as an unfair advantage that Canadians have?

It hasn’t yet happened, but I would expect it. I expect that American corporations sooner or later may decide that it would be a good idea to undermine the Canadian Health Service by an argument of that sort. There are a lot of calculations involved in that. One problem is that production is so internationalized that Canadian corporations are often U.S. corporations.

DB: What did you make of the spectacle of the President of the United States going to Japan with about a score of CEOs of major U.S. corporations and essentially demanding a kind of “international affirmative action,” as Jesse Jackson has called it?

First of all, remember that the propaganda phrase was, “I’m going for jobs, jobs, jobs.” How much Bush cares about jobs you can see by looking at U.S. policy towards American workers. So while he’s talking about jobs, jobs, jobs, the U.S. government is trying to set up the basis for maquiladora industries in Central America to take away American jobs. The phrase means “profits, profits, profits.” That’s what he was there for. It was kind of stupid for the CEOs to come along. It left the United States as an object of ridicule. But whether they were along or not, that’s what the trip was for. Everybody should have known that. The trip was to coerce Japan into accepting managed trade, meaning what’s called here “fair-trade practices,” which means mercantilist arrangements between powerful states to violate free-trade arrangements and ensure that their own powerful economic forces get benefits. There’s nothing novel about that. The Reagan administration combined free-trade bombast with a highly protectionist record. Take control over imports. Various kinds of control over imports amount to duties. They practically doubled, from about twelve percent to about twenty-three percent, during the Reagan years, through what are sometimes called “voluntary arrangements,” meaning “you do what we say or we’ll close off your market.” The latest effort to get Japan to buy American auto parts is just another part of the state-managed trade system that the rich always insist upon while of course beating their breasts about free trade when you can use it as a weapon against someone else.

DB: Is Japan powerful enough to resist?

That’s an interesting question. No one really has answers to these questions. The domestic and international economies are only very dimly understood by anyone. So anything we say will sound a lot more confident than it ought to be. My own suspicion has always been that the strength of the Japanese economy has been overestimated, that it’s much flimsier than is alleged. For objective reasons. Japan is a resource-poor country, highly dependent upon export for survival. In particular it depends very heavily on the U.S. market. It’s expanding into Asian markets, but that doesn’t compare with the U.S. market. The U.S. remains the richest country in the world. Also, it’s dependent, unlike the United States — which has plenty of internal resources and enough military power to control other sources of raw materials — on trade for resources and raw materials as well. Also, the Japanese, when you look at the numbers, look very rich. But if you look at the way people live, they don’t look very rich. People are crammed into tiny apartments. They live a highly coerced and submissive existence. If you develop any reasonable quality of life standards, Japan would not rank very high by many measures, although it ranks quite high in others, like health, for example. So it’s a mixed story. It think there are serious weaknesses in that economy. I’m not all that surprised by the current recession and financial crisis in Japan. They have such resources and capital. They’ll doubtless pull out of this one.

DB: Along with the Arab oil producing states and some portions of Europe, Japan seems to be the only other area where there is excess capital formation for investment.

There is a lot of excess capital, but it’s not clear what it’s going to look like after this crisis has passed. A lot of it was based on very chancy investments and a huge bubble in real estate which was highly inflated. But it’s still true. They have plenty of excess capital. In my opinion, German-based Europe is a more likely prospect for a world economic leader in the long term.

DB: You just said “crisis,” which reminds me of something I’ve been hearing as long as I can remember, and I am certain you have as well, the “current crisis in capitalism.” It seems to be an ongoing story. Is this particular crisis any different?

There has been a global stagnation for about twenty years now. The growth rates and the rise in productivity of the 1950s and 1960s are things of the past. It leveled off around the early 1970s. Things like the breakdown of the Bretton Woods system were symptomatic. Since then there has been a kind of stagnation. It’s not level across the globe. For example, for Africa it’s been a catastrophe. For Latin America it’s been a catastrophe. In fact, for most of the domains of the capitalist world it has been absolutely catastrophic, including internally. Large parts of American and British society have suffered severely, too. On the other hand, other sectors have done quite well. The so-called newly industrializing countries of East Asia, the ones in the Japanese orbit, like South Korea and Taiwan, didn’t succumb in the 1980s to the international crisis of capitalism as Latin America did. Up until then their growth rates had been pretty comparable. But they separated sharply in the 1980s, with the East Asian ones doing much better. Again, nobody really knows the reasons for this, but one factor appears to have been that, unlike Latin America, the East Asian countries don’t make any pretense of following free-market rules. Capital flight was a huge problem in Latin America. The wealthy just sent their capital elsewhere, or else it was just payment on debt. East Asian countries didn’t do that. South Korea has no capital flight problem because the state is powerful enough not only to control labor, which is the norm, but also to control capital. You can get the death penalty for capital flight. Other forms of state-corporate managed industrial and financial development did protect them from this global crisis of capitalism. Within the rich countries there were various reactions. The United States and Britain are probably the ones that suffered most from it, thanks to Reaganite and Thatcherite measures.

Whether you call this a crisis or not, it’s not a well enough defined term so you can answer the question. For a very large part, probably a considerable majority, of the American work force, real wages have either stagnated or maybe even declined for about a twenty-year period.

DB: The decline of major U.S. industries, such as auto, textiles, electronics, etc., is well documented. It’s not even a matter of discussion. The fastest area of growth in jobs in the U.S. is in such areas as janitors, waiters, truck drivers.

Actually, the fastest growing white collar profession is security guard.

DB: What does that tell you?

It means that there is a large superfluous population that has to be controlled and a large number of rich people who have to be protected from them.

DB: Is there any economic strategy or planning to create real jobs with decent wages?

For U.S. workers? Why should there be?

DB: It would seem that elites would want to protect their position.

But their position does not rely primarily on U.S. labor. They do want to have a domestic work force for services, but production is a different matter.

DB: But if there’s major economic dislocation in this country, unrest would surely result and their position of power and strength would be threatened.

That depends on whether you can keep the public under control. For example, the Washington Post reported on a study about black males in Washington, D.C.

DB: Forty-six percent of all black males between 18 and 35 are incarcerated in the District of Columbia.

I think they say at any particular moment about seventy percent of them are somehow within the control of the justice system, on probation, etc. That’s a way of keeping people from bothering us: keep them in jail. If they’re not useful for wealth production they have to be controlled somehow. But it’s not clear that that’s a threat to the elites in the Washington area. Or take New York City, which is an absolute disaster. But you can walk around wealthy sectors of downtown Manhattan that look very glitzy and cheery.

DB: Prison construction in the U.S. is one of the fastest growing industries.

Yes. The U.S. has by far the highest per capita prison population in the world. Even things like the drug epidemic are functional in a way. I’m not claiming that the government starts it for this purpose. Things go on because they have certain functions for elite groups that set policy. One effect of the so-called “drug war,” which has very little to do with controlling drugs and a lot to do with controlling people, has been to create a huge explosion in the prison population. Anybody who works with prisons will tell you that a very substantial part of the prison population is people who are in there for possession, not for harming anyone. That’s a technique of control. Whether it’s an economical technique of control you could argue. Look how much it costs to control people by putting them in prison and having them on drugs and therefore not bothering you or having them shooting and robbing each other in inner cities. How that compares with other techniques of social control would be a hard question to answer.

However, to go back to your original question. If you were a wealthy professional or corporate executive living in Westchester County, there are certain things you want. You want a comfortable environment, a golf course, to be able to go to the theater in downtown Manhattan. You want your executive offices to be in good shape. You want fancy restaurants around. You want to be able to leave your limousine somewhere without having it broken into. You want good schools for your children. You want a powerful army to protect your interests. You want a skilled work force insofar as you need it. But much of what happens in this country is of no interest to you. If most of the country goes down the tube, that’s no big problem.

DB: I love your comment “‘Ultimately’ is a notion that does not occur in capitalist planning.” Why not?

First of all, there are no capitalist systems. If there were a capitalist system it couldn’t survive for more than a couple of weeks. The only capitalist systems are the ones that are imposed on Third World countries for the purpose of weakening them so that they’ll collapse and be taken over by the rich. But there are systems that are more or less capitalist. The more capitalist they are, that is, the more competitive, and less planned and integrated, the more they will tend towards short-term gains. That’s inherent in the system. To the extent that a system is competitive and unplanned, those participating in it will be devoting their resources, both intellectual and capital, to short-term gain, short-term profit, short-term increase in market share. The reasons for that are pretty straightforward. Let’s imagine that there are three car companies: Ford, General Motors, and Chrysler. Let’s say they’re really competitive. Then suppose that General Motors decided to put its resources into dealing with problems of global pollution or even trying to produce better cars ten years from now that would be better than those of Ford and Chrysler. At the same time its competitors Ford and Chrysler would be putting their resources into increasing profits and market share tomorrow, next month, next year. During that period, General Motors would be out of luck. They wouldn’t have the capital and the profits to carry out their plans. That’s exactly why in countries like Japan in the 1950s, the ministry that directed and organized the Japanese economy, together with the big corporate conglomerates, explicitly and openly decided to abandon free-market illusions and to carry out national industrial planning aimed at Japanese development in “strategic sectors” with high long-term potential. In newly developing industries, the industries of the future, the startup costs can be quite considerable. Profit doesn’t come for some time. In a competitive, more capitalist society, you’re out of luck. But in a more managed society you can deal with that. There are many well-known free-market inadequacies that typically lead capitalist entrepreneurs to call upon the state to intervene for their benefit. In Japan this led to a conscious decision to carry out substantial, organized, planned interference with the market mechanism so that the economy could prosper. Questions of pollution are perfect examples. If one company tries to devote resources to effects on the environment, they will simply be undercut by other companies which are not doing it. Therefore they will not be in a position to compete in the market. These are matters which are inherent in our capitalist systems. There were experiments with laissez faire in Britain in the nineteenth century, when people actually took their own rhetoric seriously. But they pretty quickly called it off. It’s too destructive.

DB: So you’re saying that this class of managers is impervious to the bridges literally collapsing on the homeless and tunnels bursting under the city of Chicago?

Not because they’re bad people, but because if they stopped being impervious to it they wouldn’t be managers any more. Suppose that the CEO of some big corporation decides he’s going to be a nice guy and devote his resources from that corporation to the homeless people under the bridges that are falling down or to global pollution.

DB: He’s out of a job.

He’s out of a job. That’s inherent in the system. These are institutional facts. If you want to watch this at its more extreme limits, you should take a look at the World Bank plans on pollution. These recently surfaced. One of my favorite issues of the New York Times must have been February 7, back in the business section. There was a report called something like “Can Capitalism Save the Ozone Layer?” Ozone being a metaphor for saving the environment. The question was whether capitalism could save the environment. That was a story by their financial correspondent Sylvia Nasser. The World Bank had come out with a consensus report for the rich countries on a position to take at the Rio conference in June on the global environment. It was written by Lawrence Summers, the chief liberal economist from Harvard. The idea is that the rich countries should take the position, led by the World Bank, that the problem of pollution is that the poor countries, the Third World, don’t follow rational policies. “Rational” means market policies. Many of them are resource and raw material producers, energy producers, and they sometimes try to use their own resources for their own development. That’s irrational. That means that they’re using resources for themselves, often at below market rates, when there are more efficient producers in the West who would use those resources more efficiently. That’s interference with the market. Also, these Third World countries often introduce some measures to protect their own population from total devastation and starvation, and that’s an interference with the market. It’s an interference with rational market policies. The effect of this Third World irrationality is to increase production in places where it shouldn’t be taking place, to increase development in places where it shouldn’t be going on, and that causes pollution. So if we could only convince those Third World countries to behave rationally, that is, to give all their resources to us and stop protecting their own populations, that would reduce the pollution problem.

This document was produced with a straight face. It happened that on the same day on the same page of the New York Times there was a little article, unrelated, about a World Bank memo, an internal memo, that had leaked. It had been published by the London Economist, a right-wing British Wall Street Journal, but weekly. It was written by the same Lawrence Summers. The Times had a brief, slightly apologetic summary of it, including an interview with Summers in which he claimed it was intended to be sarcastic. The World Bank memo added to what I have just said about Third World irrationality. It said that any kind of production is going to involve pollution. So what you have to do is to do it as rationally as possible, meaning with minimal cost. So suppose we have a chemical factory producing carcinogenic gases that are going into the environment. If we put that factory in Los Angeles, we can calculate the number of people who will die of cancer in the next forty years. We can even calculate the value of their lives in terms of income or whatever. Suppose we put that factory in Sao Paulo or some even poorer area. Many fewer people will die of cancer because they’ll die anyway of something else, and besides, their lives aren’t worth as much by any rational measure. So it makes sense to move all the polluting industries to places where poor people die, not where rich people die. That’s on simple economic grounds.

Combine that with the other document. What it says is that the Third World should stop producing and protecting its own population because that’s irrational. We should send our polluting industries to them because that is rational. Summers in this memo points out that you might have counterarguments to this based on human rights and the right of people to a certain quality of life. But he points out that if we allowed those arguments to enter into our calculations, then just about everything the World Bank does would be undermined. That’s quite accurate. That’s supposed to be a reductio ad absurdum. Obviously we can’t undermine everything the World Bank does, so obviously we can’t allow such considerations to enter. We consider only economic rationality, of course geared to the interests of the World Bank. That’s what you do with pollution. Try to convince the Third World to stop producing and to stop protecting their own population and to accept our pollution. It’s all perfectly explicable on rational economic grounds. Any graduate student in economics can prove it to you.

DB: Apropos of this blindness of the planners: you have a fantasy …

It’s not blindness. I think it’s very reasonable on their part.

DB: Within their framework.

Yes.

DB: You tell of a fantasy that involves the Wall Street Journal and the greenhouse effect.

Someone asked me once and I simply said that if I had the talent, which I don’t, I would write a short story about the Wall Street Journal. I suppose their offices are on the seventeenth floor of some New York skyscraper. They’re sitting there in that office putting out an issue of the Wall Street Journal claiming once again that the greenhouse effect is just a fraud invented by left fanatics. As the issue goes to press the water level would have risen to that point and you could hear them gurgling as they start the printer running. That’s about what it’s like.

DB: Let’s talk about organized labor unions in the United States. Only fifteen or sixteen percent of the total U.S. work force is now unionized, far below, perhaps by half or even more, what it was decades ago. This is the era of givebacks, benefits reductions, skipping, deferring or eliminating raises. Does organized labor really have a positive, progressive role to play?

It should, but it’s in a very weakened state. It’s been weak for a long time, but it was smashed during the 1980s. It started with Reagan’s success in breaking the air-traffic controllers’ strike, and it’s continuing until today. The UAW just lost a serious strike at Caterpillar. Their strategy has been so overcome by class collaboration — We nice guys work together with management — that when the crisis came at Caterpillar they were probably unprepared. They were simply wiped out. At this point Caterpillar probably won’t even live up to the terms of the latest agreement. It seems to be continuing to lock them out. These are serious blows to the labor movement, and that means to American democracy, but they’re much to the benefit of the small sectors that are enriching themselves. Does labor have a part to play? It depends on whether working people can get their act together and rebuild the labor movement and turn it into a powerful force for both people’s rights and democracy as it once was. It’s going to have to be rebuilt from the bottom up. Labor’s role has declined significantly since the 1940s. They’re not unaware of it. Doug Fraser, the former head of the UAW, pointed out almost fifteen years ago that there has been a bitter, one-sided class war led by American capitalists fighting against labor, while labor, meaning labor bureaucrats, have been seduced by class-collaboration slogans. They’re not fighting a class war. The effect of a bitter, one-sided class war is very evident.

DB: The New York Times, in talking about the economic woes, says “There is little mystery about what caused the economic problems. The country is suffering a hangover from the mergers, rampant speculation, overbuilding, heavy borrowing and irresponsible government fiscal policy in the 1980s.” How well did the Times and its brethren in the media during this period of economic dislocation and decline actually cover the events and give the American people information that they could act upon?

The Times isn’t in the business of giving the American people information they can act upon. They hailed the Reagan revolution and its achievements. There were sectors of the population that profited marvelously, including the corporate sectors, of which the Times is a part. They couldn’t fail to see that there are social costs. You can’t walk around New York City and not see that there are severe social costs, so they probably saw it too. But this was considered as a glorious period of success. There were people who were upset about it. Take a look at, say, Mondale’s funding in 1984: a lot of it was from fiscal conservatives who were worried about the long-term effects to their own interests of this kind of mad-dog Keynesianism, wild crazed spending, and government stimulation of the economy through borrowing that was going on through the Reagan years. People could see that that was going to be very problematic for the economy. Take what’s just happened in Chicago. The estimates of the costs of fixing those leaks in the underground tunnels might have been at the level of $10,000. They didn’t fix them because they wanted to save the $10,000 as part of the cutback in civic services. The net effect will be a loss of maybe over a billion dollars or more. That’s a loss to private capital, too.

DB: But compared to the S&L bailout that’s peanuts.

Yes, the S&L bailout is much bigger than that. Chicago is just one piece of a growing disaster. Spending on infrastructure has declined radically in the last ten years, and that’s going to have its costs. What happened in Chicago is going to happen all over the place.

DB: It can’t help but affect even the elites. The area that was flooded …

And it’s hurting them in Chicago. Chicago businesses are suffering. Insurance companies are going to suffer.

DB: They’re not going to like that.

No, but there’s not a lot that they can do about it except to accept more long-term, integrated state corporate planning. There are other possibilities, like democracy, but nobody’s going to talk about that.

DB: Yeah, right. And maybe there will just be more slogans like “belt-tightening” and “austerity” and “biting the bullet” as opposed to genuine economic policy.

There is genuine economic policy, but it’s geared to the short term economic interests of the rich. It’s very genuine. And there’s plenty of state intervention for that purpose. Take the Pentagon budget. That’s massive state intervention in the economy for the benefit of the rich. That’s what keeps the electronics industry going, for example.

Go to the next section.

Bibliography

Keeping the Rabble in Line Copyright ? 1994 by Noam Chomsky and David Barsamian

Introduction | Next section | Contents | Archive | ZNet

The World Bank, GATT and Free Trade

April 20, 1992

DB: In 1944 at the Bretton Woods conference in New Hampshire the World Bank and the International Monetary Fund (IMF) were both created. What function do these two major financial entities play?

Their early role was in helping to carry through the reconstruction of the state capitalist industrial societies that had been wrecked by the Second World War. After that they shifted to what is called “development,” which is often a form of controlled underdevelopment in the Third World, which means designing and supporting particular kinds of programs for the Third World. At this point we move into controversy. Their effect, and you can argue about their intention, is overwhelmingly to integrate the South, the old colonial areas, into the global society dominated by concentrated sectors of wealth within the North, the rich society.

DB: You know that old song, “Where Have All The Flowers Gone”? Well, where have all the billions gone? The World Bank has lent tens of billions of dollars. Who lent what to whom exactly? What did it do there?

You can’t answer that simply. In the advanced industrial societies [that money] helped carry out a reconstruction from postwar damage. In the Third World [lending has] had mixed effects. It’s had effects in changing the nature of agriculture, developing infrastructure, steering projects towards particular areas and away from other areas. It’s been part of the long process of trying to undercut import substitution and move toward export oriented agriculture. By and large [World Bank loans have] been a subsidiary to the policies of those who control it. The United States has an overwhelming role in the financial institution because of its wealth and power. And the United States and its immediate allies have designed programs of what they called development throughout the world. The money may have gone into anything from dams to agro-export producers to occasionally some peasant project.

DB: The International Monetary Fund has been vilified in the Third World for the draconian measures that it has imposed on those developing countries.

Take a Latin American country today. There is a huge debt crisis. Remember that the Bretton Woods system basically broke down in the early 1970s. The Bretton Woods system involved regulation of currencies, convertibility of the dollar for gold, all sorts of other rules which essentially made the United States an international banker. By 1970 or so the U.S. could no longer sustain that. It was very advantageous to the United States in the 1950s and 1960s. It allowed enormous overseas investment by American corporations. But by 1970 the U.S. was unable to sustain [the role of international banker]. President Nixon dismantled the system in 1971. That led to an enormous amount of unregulated currency floating around in international channels. The world was awash with unregulated capital, particularly after the rise in the oil prices. Bankers wanted to lend that capital, and they did. They lent it primarily to Third World countries, which means to elite elements. For example, Latin American dictatorships would go on huge borrowing binges. The results were praised in the West as “economic miracles,” like the Brazilian “miracle” under the generals which left that country saddled with huge indebtedness. When the 1980s came along, U.S. interest rates went up and started pulling money toward the United States and increasing interest payments on the debt. The Latin American economies started going into free fall. Capital flowed out of them at a rapid rate. They were unable to control their own internal wealthy classes. The capital export from Latin America may not have been at the level of the debt, but it probably wasn’t very far below it. There was a flow of hundreds of billions of dollars from south to north, partly debt service, which far outweighs new aid by the late 1980s — payment of interest on the debt, and so on, and other forms of capital flight. By now, deeply impoverished African countries are even exporting capital to the international lending institutions.

The net effect of this is what some people jokingly call a program in which the poor in the rich countries pay the rich in the poor countries. That’s approximately the way it comes out. Then the IMF comes along, run by the wealthy countries, which have certain rules for the weak. They are that if you have a high level of inflation and the currency isn’t stable and various other economic indicators aren’t satisfied, then you impose extreme forms of austerity: balance the budget, cut back services, control the currency, etc. That’s neoliberal free market economics. That’s typically disastrous for the general mass of the population. That’s why the rich countries themselves will never accept those rules unless they’re forced to. For example, there was a time in the late 1970s when Britain was forced to adopt certain IMF rules because of its weakness. But no country rich or powerful enough would ever do it, like the U.S., for example, which has incredible debt but doesn’t accept IMF “suggestions”. We’re too powerful to follow those rules. Third World countries, which are much weaker, especially those which are under the control of Western-oriented elites anyway, who often benefit by it, do follow the rules and there’s disaster for the population. That’s why you get vilification. The same thing is happening in Eastern Europe now. The whole neoliberal free market story is basically designed for the benefit of the people who are going to win the game. Nobody else follows those rules. The West doesn’t follow them either when it’s not going to win. For example, the World Bank estimates that right now protectionist measures imposed by the rich countries cost the Third World more than twice as much as total aid going from the North to the South — and that “aid” is mostly a disguised form of export promotion.

DB: To whom are the World Bank and the IMF accountable?

To the people who put the money in, which means a bunch of rich countries, primarily the United States, which is the dominant element there. It’s mainly funded by the wealthy states, and the U.S. has the largest vote, so that’s who they’re beholden to.

DB: Where does the General Agreement on Tariffs and Trade, GATT, fit into this economic picture? One commentator has called it the “economic teeth of the new world order.”

GATT is the international trading system, also set up in the 1940s. It’s in the news now because for the last several years the Uruguay Round of GATT negotiations has been going on with an effort to achieve some new form of freeing up international trade. Freeing up international trade in itself, in a general sense, is not a bad thing. It’s often a good thing. The point is, nobody goes into that game, if they have the power, without ample protection for their own internal needs. So for example every one of the Western powers, including the United States, is entering the GATT negotiations with a certain agenda, a mixture of liberalization and protectionism geared to the particular strengths and weaknesses of that economy. When we speak of “that economy” we mean the people in the dominant positions in it. So the European Community wants high level protection for the aerospace industry and agricultural production. The United States has a mixture of policies. It’s calling for liberalization and free trade in many areas. On the other hand, it’s also calling for enhanced protection in areas where the U.S. is strong. Take so-called services like banking. The U.S. is calling for a liberalization of services in the Third World, which would have the instantaneous effect of swamping and overwhelming all Third World banks and financial institutions by western ones, since they’re so much richer and more powerful. That would eliminate the possibility of any national industrial development programs within the Third World. That’s the kind of liberalization that the U.S. is in favor of. It means that Third World economies would be managed by western banks and those who run them and the governments that are tied to them.

On the other hand, the U.S. is calling for more protection in other areas, particularly intellectual property rights, which includes anything from pop music to cinema to software to patents. Right now the U.S. is racing ahead in patenting what may turn out to be parts of genes. The idea is to patent the genes of corn, or for that matter humans, so that future biotechnology, which will involve various kinds of genetic engineering, will be in the hands of mainly U.S. private firms. They will control that field, and they want to make sure it’s protected. So they want long patent rights and so on. That means that drugs, software, new technology, new agricultural forms, any form of biotechnology that may involve health will be in the hands of Merck Corporation and others like them who will make tens of billions of dollars in profits. It means that India, which could duplicate a lot of this much cheaper, duplicate Merck drugs at a fraction of the cost, will not be permitted to do it. The U.S. also demands product rather than only process patents, to insure, say, that India’s pharmaceutical industry doesn’t invent a cheaper way to produce some drug — a barrier to efficiency and innovation, but a boon for profits. That’s understandable on the part of the rich. They want to control the future, naturally, and that means control technology. The biotechnology aspect, the patenting of genes, has been causing an international furor in the scientific world. It can have a huge impact in the future. One shouldn’t minimize it.

The U.S. (like others) also insists on a high level of protection for U.S. shipping. Shipping between U.S. ports has to be in U.S. ships. If Alaskan oil comes down to California, it has to be in U.S. ships. The U.S. insists that anything involving U.S. goods be done to a very high percentage in U.S. ships, which benefits the U.S. maritime industry.

Similarly, “defense” expenditures are not considered subsidies under GATT rules. That’s enormously important for the U.S., which spends more on its military system than the rest of the world combined, as has always used that as a cover for massive public subsidy to high-tech industry. The point is that there is a mixture of protectionism and liberalization geared to the interests of those who are designing the policies, which are the powerful economic forces within the state in question. That’s not a great surprise, after all, but that’s what GATT is all about, and that’s what the negotiations are about.

If the current GATT programs succeed, it’s clear that they’re tending towards a world government ruled by a club of rich men who meet in their organizations, like the G-7 meetings, the meetings of the seven richest industrial countries, which have their own institutions, like the IMF and the World Bank, which have a network of arrangements established in GATT and which administer a system of what’s sometimes been called “corporate mercantilism.” Remember that although this is called “liberalization” and “free trade,” there’s a tremendous amount of managed trade internal to it. So huge corporations which are often more powerful than many states carry out controlled, managed trade internally. This means trade across borders, too, because they’re internationalized. They do planning of investments, of production, of commercial interactions, manipulation of prices, and so on, and they naturally manage it for their own interests. Corporate mercantilism is fine. It’s governments that are not allowed to get into the game. The rich western powers don’t have any objection at all to managed trade. They just don’t want it to be done by governments, because governments have a dangerous feature that corporations don’t have: governments may to some extent fall under the influence of popular forces, usually to a limited extent. But to some extent there’s always that fear. There’s no such fear in corporations. They are immune from any form of public control or even surveillance. Therefore they are much more acceptable management agents for this mercantilist system being designed globally in the interests of the rich. GATT plays its role in this.

DB: You mentioned the powerful economic forces. Increasingly those forces transcend frontiers. There has been a massive internationalization of capital and finance over the last few years. What are the implications of that?

First of all, there’s nothing novel about it. Back in the 1930s there were, for example, notorious interconnections between, say, I.G. Farben in Germany and Du Pont. In fact, big U.S. corporations were essentially producing for the German war machine right up until the war and some even claim afterwards in various devious ways. But there was a big change after the Second World War. There was a big upsurge in the creation of multinational firms, even beyond the traditional multinationals, for example, the energy corporations, which always were highly internationalized. But it extended much beyond. The Marshall Plan, for example, gave a big shot in the arm to the internationalization of capital. It would designate some project in Belgium where you could build a steel complex. It would then encourage bids from American corporations, which would naturally win the bidding most of the time. Marshall Plan funds were then used, as intended, to underlie the expansion of U.S. investment through the rich areas, primarily in Europe. That led to an explosion of international corporations. U.S. foreign investment exploded in the 1950s and 1960s. Not long after came European international capital. Britain had always been substantially involved in the internationalization of capital. In recent years Japan has joined the game and done plenty of foreign investing. This has increased through the 1980s.

There are a lot of reasons for this in the recent period. One is the one I mentioned before, the breakdown of the Bretton Woods system, which led to an enormous amount of unregulated internationalized wealth. Another was a revolution in telecommunications, which makes it extremely easy to control international operations in which production is done in one place and the financing comes from somewhere else and you shift the dollars around. That means you can have executive offices in a skyscraper in New York and production facilities in Papua, New Guinea and fake banks in the Cayman Islands which may be nothing more than a fax machine set up to evade regulation. You can transfer funds around. You can control and manage importing and exporting within the corporate empire through management decisions. It can be scattered all over the world, with branch offices in Zurich. That’s had a lot of effect. Everyone knows that the U.S. share in international trade has been declining in the last ten years. But in fact if you look at the share in international trade of U.S.-based corporations, it has not been declining. It may have been either stable or slightly increasing. Everyone knows the U.S. is supposed to have a big trade deficit. On the other hand, if you take into account the operations of overseas producers that are part of U.S.-based corporations, and imports into the United States that are actually transfers from U.S. corporations operating abroad to the same U.S. corporations operating internally, if they import parts for their own production, it probably levels out the trade deficit, maybe even gives the U.S. a trade surplus.

The functioning institutions in the world system are increasingly corporate empires. I say “increasingly” because national states, the rich states, at least, retain substantial importance. They are instruments of integrated corporate systems. And also increasing because it’s an old phenomenon. It goes back to the origins of capitalism. It is true that it has grown by leaps and bounds in recent years.

DB: To continue with GATT: The Environmental News Network has said that GATT will “open borders for businesses seeking lower labor costs and less rigorous environmental regulation, thus blackmailing U.S workers to accept deteriorating working conditions and lower wages or lose their jobs.” Do you think that’s a fair assessment?

It’s not even controversial. Of course it will have that effect. It’s already having that effect. Take the free-trade agreement with Canada. It’s actually working both ways. Canada has just objected to U.S. environmental regulations on use of asbestos, claiming that that’s interference with free trade. Canada is an asbestos exporter, and they want the barriers lowered. Perhaps they’ve already won on that, meaning that U.S. environmental regulations on asbestos will have to decline. Sooner or later the U.S. is probably going to object to the Canadian Health Service as an interference with free trade because it means that Canadian-based corporations are freed from the burden of paying parts of health costs that U.S. corporations have to bear because of the grotesquely incompetent and highly bureaucratized health system. Threats from U.S. insurance companies were enough to cause Ontario to drop plans for a provincial auto insurance program that would have reduced costs, but cut out the highly inefficient private corporations — an interference with free trade, they claimed, and won. Canada has lost several hundred thousand jobs. There are various estimates, but none are less than a quarter of a million jobs, to the United States, manufacturing and similar type labor, because Canadian corporations would much prefer to produce in the southeastern United States, where the government enforces what are called “right-to-work laws,” which means state policy coerces labor to ensure that there will be no unionization. As a result, working conditions are far inferior. Wages are less. Naturally, corporations will move to such places. Even the threat to move serves to discipline labor. In general, the effect of the free-trade agreements will be to move to the lowest common denominator with regard to wages, and environmental protection.

DB: So do you think that under the rubric of free trade that the Canadian health care system would be seen as an unfair advantage that Canadians have?

It hasn’t yet happened, but I would expect it. I expect that American corporations sooner or later may decide that it would be a good idea to undermine the Canadian Health Service by an argument of that sort. There are a lot of calculations involved in that. One problem is that production is so internationalized that Canadian corporations are often U.S. corporations.

DB: What did you make of the spectacle of the President of the United States going to Japan with about a score of CEOs of major U.S. corporations and essentially demanding a kind of “international affirmative action,” as Jesse Jackson has called it?

First of all, remember that the propaganda phrase was, “I’m going for jobs, jobs, jobs.” How much Bush cares about jobs you can see by looking at U.S. policy towards American workers. So while he’s talking about jobs, jobs, jobs, the U.S. government is trying to set up the basis for maquiladora industries in Central America to take away American jobs. The phrase means “profits, profits, profits.” That’s what he was there for. It was kind of stupid for the CEOs to come along. It left the United States as an object of ridicule. But whether they were along or not, that’s what the trip was for. Everybody should have known that. The trip was to coerce Japan into accepting managed trade, meaning what’s called here “fair-trade practices,” which means mercantilist arrangements between powerful states to violate free-trade arrangements and ensure that their own powerful economic forces get benefits. There’s nothing novel about that. The Reagan administration combined free-trade bombast with a highly protectionist record. Take control over imports. Various kinds of control over imports amount to duties. They practically doubled, from about twelve percent to about twenty-three percent, during the Reagan years, through what are sometimes called “voluntary arrangements,” meaning “you do what we say or we’ll close off your market.” The latest effort to get Japan to buy American auto parts is just another part of the state-managed trade system that the rich always insist upon while of course beating their breasts about free trade when you can use it as a weapon against someone else.

DB: Is Japan powerful enough to resist?

That’s an interesting question. No one really has answers to these questions. The domestic and international economies are only very dimly understood by anyone. So anything we say will sound a lot more confident than it ought to be. My own suspicion has always been that the strength of the Japanese economy has been overestimated, that it’s much flimsier than is alleged. For objective reasons. Japan is a resource-poor country, highly dependent upon export for survival. In particular it depends very heavily on the U.S. market. It’s expanding into Asian markets, but that doesn’t compare with the U.S. market. The U.S. remains the richest country in the world. Also, it’s dependent, unlike the United States — which has plenty of internal resources and enough military power to control other sources of raw materials — on trade for resources and raw materials as well. Also, the Japanese, when you look at the numbers, look very rich. But if you look at the way people live, they don’t look very rich. People are crammed into tiny apartments. They live a highly coerced and submissive existence. If you develop any reasonable quality of life standards, Japan would not rank very high by many measures, although it ranks quite high in others, like health, for example. So it’s a mixed story. It think there are serious weaknesses in that economy. I’m not all that surprised by the current recession and financial crisis in Japan. They have such resources and capital. They’ll doubtless pull out of this one.

DB: Along with the Arab oil producing states and some portions of Europe, Japan seems to be the only other area where there is excess capital formation for investment.

There is a lot of excess capital, but it’s not clear

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