[NYTr] Chomsky on democracy, development, and capitalism

[All the News That Doesn't Fit]

sent by tsimonds 

Z Mag online 20:5 -May, 2007 issue
http://zmagsite.zmag.org/May2007/chomsky0507.html

Kicking Away the Ladder, Part 1

An excerpt from a talk on democracy,
development, and capitalism

===================
You may have seen a couple of front-page articles in the New York Times
on the suffering of the ultra rich because theyre so envious of the
super ultra rich, which is surely the great problem of the dayfor some,
at least.
===================

By Noam Chomsky

My days are often full of interviews on all sorts of topics, ranging
from literal threats to human survival, which are quite real, to
catastrophes all over the world, some known, like Iraq; some not known,
like Western Sahara, the last literal colony in Africa. Many of these
are tainted by the realization that the U.S. shares a lot of
responsibility for misery, suffering, and possible disaster, often by
action, sometimes by inaction. With that in front of us, it feels to
me, and may seem to you, a little bit cold and bloodless to do what Im
now going to do and that is ignore the torment, misery, and threats to
survival, and so on, and talk about problems of democracy and
development. I think the implications for day-to-day life are actually
quite direct.

Just to illustrate with one exampleIm sure you have read the many
commentaries on the death of Milton Friedman. A typical one was the
front-page story in the Wall Street Journal full of accolades, among
them that the intellectual foundations of the Reagan administration were
provided by Friedmans work reliance on market forces and fiscal
conservatism, all of which led to the grand economy that we have been
enjoying for the last 30 years. Well, there is only one problem with it:
it is the exact opposite of the truth in every crucial respect. As for
the grand economy, the last 30 years have been probably the major
economic failure in U.S. history, the so called neo-liberal period.
There have been no serious depressions, no other major disasters, but
the majority of the population has actually seen real wages and incomes
stagnate, or even decline. One stunning figure is that the bottom 40
percent of the population has seen a decline in their net worth. There
has been economic growth through this period. There has been increased
productivity, but the benefits are for the few.

You may have seen a couple of front-page articles in the New York Times
on the suffering of the ultra rich because theyre so envious of the
super ultra rich, which is surely the great problem of the dayfor some,
at least. If you go back 30 years, the beginning of the so-called
neo-liberal period in the United States, wages were the highest in the
industrial world, the working hours were the leastexactly what you would
expect in the richest county in the world. But now it is reversed. Real
wages are about the lowest in the industrial world, working hours are
the highest, or close to it. Benefits, which were never very strong,
have declined, debt has soared, and security has declined severely.
Much of that, incidentally, was planned. Fed chair Alan Greenspan, when
he testified to Congress about the wonders of the economy that he was
organizing and running, pointed out very frankly that one of the major
reasons for the health of the economy was what he called growing worker
insecurity. What happened is not some kind of accident, it was
organized.

For example, during the Reagan years it seems that about $700 million
was spent on trying to encourage corporations to shift from the United
States to the Caribbean. One phase of it was discovered in a great sting
operation by Charlie Kernaghan and the National Labor Committee that he
runsit even hit national television. They pretended to set up a fake
company and were able to catch USAID officials explaining to them how
beneficial it would be for this fake company to shift their operations
to the Caribbeanvery cheap labor, very exploited, no benefits, mostly
women so you can control them easily, kick them out if they make a fuss
or get pregnant, no environmental constraints, things you all know
about. Choms-title.JPG

Also the Reagan administration openly pioneered illegal labor practices.
This was well recorded in Business Week, which pointed out that the
Reagan administration effectively instructed the business world that
they were not going to enforce the laws, which led to a sharp increase
in illegal company actions to prevent union organizing. That was
continued by Clinton who had another way of doing it called NAFTA. One
of the predicted effects of NAFTA was that it would undermine union
organizers by giving employers a way to threaten workers who were
trying to organize: if you keep trying well move to Mexico. That worked
too. Its is illegal, but when you have a criminal state, and the
business world knows that it enjoys the benefits of a criminal state,
it can carry these activities out. But unions not only improve the
lives of working people, theyre a powerful democratizing force. So
threatening them harms working people and also harms democracy.

What about the miracle of the market under Reagan? Well, thats a
standard line toooverlooking the fact that Reagan was the most
protectionist president in post-war U.S. history. In fact he
practically doubled protective barriers, more than all post-war
presidents combined. There is a reason for that. If you go back to,
say, the late 1970s there was a great deal of concern in the business
world that U.S. companies could not compete with superior Japanese
manufacturers. U.S. managers hadnt understood the new techniques of
production-on-time and other measures that had developed in Japan. U.S.
industry was falling apart and there were calls in the business press
to reindustrialize America. Well, how do you do that? You do it by
keeping out superior Japanese and South Korean products and by calling
on the usual savior, namely, the Pentagon. Which has happened before.

A century earlier the biggest business operation in the United States
was railroads. It was beyond the competence of private industries and
the Pentagon took it over. Of course I say the Pentagon, but the U.S.
Army took it over. It has often happened before and it happened again
with Reagan who called on the Pentagon to design what they called the
factory of the future, a modern factory. This would teach backward U.S.
corporate managers how to use computers, on time production, and all of
the techniques that the Japanese had invented.

This has many advantages, calling on the Pentagon. For one, they could
design the factory of the future so that it empowers managers and
de-skills workers. That has been pretty well studied. David Noble, who
was on the faculty of MIT, did major work on this, particularly with
regard to automation. He showed that under military auspices,
automation was designed to insure that decisions were taken away from
skilled mechanics and put in the hands of supervisors and managers to
de-skill the workforce and empower management. There was no
reasonefficiency or even profit, as it sometimes harmed profit. It did
not matter. It was very important for class war to ensure that the
working class was de-skilled and passive and that power was in the
hands of the managers and supervisors.

There is nothing new about that either. It goes right through history.
Im sure you heard of Taylorism, a concept that was introduced about a
century ago essentially to turn working people into robots, in effect
control every motion to make sure everything is maximally efficient. It
was designed in U.S. military production, armories, and so on. That
gives you plenty of funding to do whatever you likeno controls, no
constraintsand you can implement class war very efficiently. The Reagan
administration broke new records in this.

Lets turn to a broader look at democracy and development. The two
concepts are closely related in many respects. One respect is that they
have a common enemyloss of sovereignty. In a world of nation-states it
is true by definition that decline of sovereignty leads to the decline
of democracy and the decline in the ability to conduct economic and
social policy. That in turn harms development, a conclusion that is
very well confirmed by several centuries of economic history. That same
economic history shows quite consistently that loss of sovereignty
leads to imposed liberalizationimposed, of course, in the interest of
the designers, not the subjects.

In recent years the imposed regime is commonly called neo-liberalism. It
is the reigning economic orthodoxy of the past decades. Its not a very
good term, incidentally, as it is by no means new and it is not liberal,
at least not in the sense of liberal as understood by classical
liberalsAdam Smith and others.

The very design of neo-liberal principles is a direct attack on
democracy. One component is privatization. You take something out of
the public domain, put it into the hands of totalitarian systems, which
is what corporations are, and obviously that reduces democracy. Lets
move on to the current primary theme, what is called trade in services.
It has nothing to do with trade in the usual sense. Its privatization of
services. Its called trade so they can fit it into the trade agreement.
It just means selling off services.

What are services? Well, services are anything that a human being could
be interested ineducation, health, water, air, energy, and so on. Trade
in services now means putting all of these into the hands of
unaccountable totalitarian institutions. If that is achieved, you can
have formal democracy quite openlyclean elections, etc.but it doesnt
matter much because there is nothing for people to have any decisions
about, nothing that matters, at least. Its somewhere else in the hands
of unaccountable institutions under the name of General Agreement on
Trade in Services. That is the leading theme of the current trade
negotiations.

Financial Liberalization

Another component of the neo-liberal package is financial
liberalization. It means governments, for example, cant control capital
flight, currencies arent regulated, and so on. Its very well understood
by economists what that leads to. Financial liberalization creates what
some international economists have called a virtual senate of investors
and lenders who carry out a moment-by-moment referendum on social and
economic policies. If they dont like those policies, they destroy the
economy by capital flight, by attacks on currencies, by selling bonds,
and so on. The policies that the virtual senate doesnt like are
anything that is irrational. Irrational means its helpful to people,
not to profits, and the virtual senate keeps an eye on this second by
second. If the government makes the mistake of being irrational, you
get huge capital flight, attacks on currency, and so on. It happens all
the time and it keeps the countries in line. It means that governments
have what is sometimes called a dual constituency, one of them is the
voters and the other is the virtual senate. You can guess who wins.

All of this is coming to a head right now in what are called free trade
negotiations, which have practically nothing to do with free trade.
There is what is called the Doha Round. Poor countries, the so-called
developing countriesa euphemism for the former colonial countriesare
trying to escape the grip of imperial violence and destruction. They are
called developing countries whether they are developing or not. They
have blocked the Doha Round. But in the West, among the rich, its
considered a kind of no-brainer; of course we have to implement the Doha
Round, we have to bring it to a successful conclusion. Popular opinion
is generally opposed, often strongly opposed, in the rich countries too
and that is no surprise. If you look at the proposals, which are
usually kind of secretpeople are not supposed to look at themthey
provide great benefits for investors, lenders, and management who are
free to set working people against one another all over the world. Its
called globalization. The main theme is to set working people against
one another so it will naturally follow that wages are lowered, benefits
decline, working conditions are harmed, environment is destroyed. Its a
problem for our grandchildren, but planners dont worry about it. There
are also tremendous privileges for management. One component of these
agreements is what is called national treatment. It means that if, say,
General Motors invests in Mexico, they have to be treated like a Mexican
company. Better than a Mexican company, because the treatment of General
Motors has to meet international trade conditions.

In contrast, if a Mexican comes to the United States, a Mexican of flesh
and blood, he or she cannot demand national treatment, obviously. Try
that and you might end up in Guantanamo, if youre lucky. But
corporations are different; they have the rights of persons, granted by
state power, but rights far beyond those as persons. The so-called free
trade agreements extend those rights in numerous ways. What all of this
means for the so-called developing countries, often, is to lock them in
to their current state of underdevelopment, at least if they follow the
rules.

Climbing the Ladder

There is a name for this in economic theory. Its called kicking away the
ladder. First climb up the ladder of development yourself and then kick
it away. You make sure no one else uses the measures you used to climb
to the topprotection of domestic industries, targeted investment,
reliance on the state sector for research and development, production
and procurement, and a whole bunch of other devices. Its called free
trade.

What the developing countries are supposed to do is pursue comparative
advantage. It is supposed to be a wonderful thing. The problem is that
development means changing comparative advantage, not pursuing it.
Development is changing your comparative advantage to a different
comparative advantage. Take the history of the United States right after
it won independence. Suppose it had followed the advice and pursued its
comparative advantage in exporting fur and fish and so on. The scattered
population that would live here today would be doing that. But they did
not pursue their comparative advantage, they did not follow the rules.
What they did was create very high tariffs to prevent superior British
textiles from coming in, later superior British steel, and superior
industrial machinery. That way the United States was able to change
their comparative advantage and become the worlds leading industrial
society.

In the 19th century, right up to the mid-20th century, the United States
was far in the lead in protectionism, violating all the rules, far more
than other industrial countries. That is consistent throughout history.
So consistent that a leading economic historian has actually concluded
that protectionism enhances trade. It sounds kind of like a paradox,
but it seems to work and has a rationale. Protectionism increases
growth and growth increases trade. So protectionism seems to enhance
trade. A similar conclusion, incidentally, holds into the post-WWII
period when other forms of market interference became more prominent.
The United States, by pursuing not only protectionist policies, but
reliance on the state sector for research and development, became by
far the worlds leading economic power.

By 1950 the United States was the richest and most powerful state in
history. U.S.-based corporations, and the state that caters to their
interest, at that point were willing to sponsor limited free trade,
knowing the playing field was not level and they were going to winso
maybe free trade would be okay. But that commitment was hedged with
crucial restrictions to insure that the powerful would prevail. The most
extreme restriction, which is rarely discussed by economists, is
reliance on a dynamic state sector as the engine of growth. It covers
practically the whole high-tech economycomputers, Internet, lasers,
commercial aircraft. You can go across the board and find that the
state sector is critical in development. In the case of computers and
the Internet, they were basically in the state sector for about 30
years before being handed over to private power.

It may not be what you learn in economics courses, but this is how the
world works. And it makes a lot of sense. When research and development
and production and procurement are in the state sector, it means that
the public is paying for it and taking the risk. If something works
out, maybe 30 years later, like in the case of computers and the
Internet, you hand it over to private power to make profits. Its known
as market society, free markets, capitalism, its the way things really
work.

Britains Narco-Trafficking

The United States did not invent it. If you look at the global dominance
of England, that is the way they handled it. In 1846 England shifted to
free trade after 150 years of protectionism, state intervention, and
imperial violence, which had placed England far in the lead in
industrialization, twice as high per capita as any other country. It
seemed that competition would be relatively safe, like for the U.S. a
century later. But like the U.S. the British hedged their bets. One way
was to keep some protected markets, like India, to insure profits. One
of the main reasons for conquering India was another form of market
interference, trying to monopolize opium production. They did not quite
make itYankee merchants got a piece of itbut the British came pretty
close to monopolizing opium production.

That was extremely important because England was unable to break into
the Chinese market. China did not want British goods because they felt
their own were superior, and British agents were complaining about
that. But England hit on a brilliant way to do it, by developing by far
the largest narco-trafficking industry in history. Colombia doesnt even
come close. They tried to monopolize opium production and then forced
it on China with gunboats. The enterprise succeeded brilliantly. The
China market was opened by what was called the poison trade and the pig
trade. The poison trade meant opium brought in at gunpoint, which
turned the country into a nation of opium addicts, creating a market
for British exports. The pig trade brought kidnapped Chinese workers to
the United States to build the railroadsmaking a big contribution to
U.S. economic development in the 19th century (as well as providing us
with the term Shanghaied).

The profits from the narco-trafficking racket were enormous. They paid
the cost of the Royal Navy, which was the mainstay of imperialism. They
paid for administering India, a colony. They paid for the purchase of
U.S. cottonwhich fueled the industrial revolution, like oil today. That
also was not exactly a free market miracle. It was created by
extermination of the indigenous population and slavery, rather radical
forms of market interference.

But by the 1920s England was facing a situation like the United States
did 50 years latersuperior Japanese products were driving British
products out of the market. Britain handled it the way Reagan did; they
closed the empire to Japanese imports. Notice its similar to the
Reaganite intervention to reindustrialize America in the face of
Japanese competition in the 1970s. The general point is that free trade
and democracy are just fine when you can make sure that the results
come out the right way, otherwise you get rid of them. History is full
of that.

After World War II the picture pretty much conforms to the historical
pattern. There have been two phases, roughly 1950 to 1975 and 1975 to
the present, not exact, but approximately. The first phase was designed
under great popular pressure for social democracy, for much more radical
measures of democracy and social welfare. The system was designed to
leave these options open. The system was designed with capital controls,
regulated currencies, and government programs in the third world to
stimulate production. It was called import substitution and continued
roughly into the 1970s. That is a period that economists call the golden
age of capitalism, state capitalism is a more accurate term. Economic
results were better than ever before in historyand ever since. Take the
United States. From roughly 1950 to 1975 this was the highest growth
period ever in U.S. history and it was egalitarian; growth was about the
same for the lowest and highest quintile. An interesting and important
fact is that the social indicators that measure the health of the
societyinfant mortality, child abuse, and a whole collection of
measuresrose along with growth. That continued until 1975. Since then
social indicators have declined, though growth has gone up, not as fast,
but it has gone up. Social indicators declined by the year 2000 to the
level of 1960that is after the very brief and shallow Clinton boom. But
since then the record has become much worse in all respects. One
startling fact that was just revealed in the business press is that
during the current Bush years, the private sector has added no jobs
outside of the health sector. One reason there are added jobs there is
because it is a total catastrophe, it is the most inefficient public
health system in the industrial world. But outside of that no new jobs.

Its the same in much of the world. In the mid- 1970s we switch to the
neo-liberal period. There has been a sharp decline in almost every
economic dimensiongrowth of the economy, growth of productivity, and
others. The so-called Asian tigers, like Taiwan and South Korea, ignored
the rules and grew very fast. The decline is correlated very closely
with following the rules, following the programs. The countries that
followed the rules most rigorously have the worst records, like Latin
America. Probably worst in their history.

India is a poster child. According to Thomas Friedman, the greatest
place in the world, etc., and since 1990 it has partially followed the
rules and there has been improvement for a substantial minority of the
population. Also in the number of billionaires; its now eighth in the
world. It is quite a rise. There is also something called the UN
ranking for Human Development. Prior to this period in 1990, India was
124th. Now it has sunk to 127th. So much for the grand economy.

Z

[Part 2 covers democratic challenges to neo-liberalism, mainly coming
from Latin America. A DVD of the complete talk is available from
www.zmag.org.]