Keeping The Rabble In Line 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.

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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 …